**UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549**

**FORM 10-Q**
| **(Mark One)**                                                                                                                                     | ** **                                                                                              |
|----------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------|
| **x**                                                                                                                                              | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
| ** **                                                                                                                                         | ** **                                                                                              |
| **For the  Quarterly Period Ended October 31, 2006**                                                                                               |
| ** **                                                                                                                                         |
| **OR**                                                                                                                                             |
| ** **                                                                                                                                         | ** **                                                                                              |
| **o**                                                                                                                                              | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                         | ** **                                                                                              |
| **For the  transition period  from         to         ** |

 

**Commission file number 1-12557**

**CASCADE CORPORATION**(Exact name of registrant as specified in its charter)
| **Oregon**                                                       |   | **93-0136592**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
|                                                             |   |                                  |
| **2201  N.E. 201st Ave.**                                        |   | ** **                            |
| **Fairview,  Oregon**                                            |   | **97024-9718**                        |
| (Address of  principal executive office)                         |   | (Zip Code)                            |

 

Registrant’stelephone number, including area code: **(503)669-6300**

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes x  No o

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the ExchangeAct. (Check one):
| Large accelerated  filer o | Accelerated  filer x | Non-accelerated  filer o |
|---------------------------------|---------------------------|--------------------------|

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the ExchangeAct).Yes o  No x

The number of sharesoutstanding of the registrant’s common stock as of November 27, 2006 was 12,435,245.

 

 

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**Forward-LookingStatements**

This Form 10-Q, including “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” (Item2) contains forward-looking statements that involve risks and uncertainties, aswell as assumptions that, if they never materialize or prove incorrect, couldcause our results to differ materially from those expressed or implied by suchforward-looking statements. All statements other than statements of historicalfact are statements that could be deemed forward-looking statements, includingany projections of revenue, gross margin, expenses, earnings or losses fromoperations, synergies or other financial items; any statements of plans,strategies, and objectives of management for future operations; any statementsregarding future economic conditions or performance; any statements ofexpectation or belief; and any statements of assumptions underlying any of theforegoing. The risks, uncertainties, and assumptions referred to above include,but are not limited to:

·                  Competitivefactors in, and the cyclical nature of, the materials handling industry;

·                  Fluctuationsin lift truck orders or deliveries;

·                  Availabilityand cost of raw materials;

·                  Generalbusiness and economic conditions in North America, Europe, Asia Pacific andChina;

·                  Actionsby foreign governments;

·                  Assumptionsrelating to pension and other postretirement costs;

·                  Foreigncurrency fluctuations;

·                  Pendinglitigation;

·                  Environmentalmatters;

·                  Effectivenessof our capital expenditures and cost reduction initiatives.

We undertake noobligation to publicly revise or update forward-looking statements to reflectevents or circumstances that arise after the date of this report.

2

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**PART I—FINANCIALINFORMATION**

**Item 1. FinancialStatements**

**CASCADECORPORATIONCONSOLIDATED STATEMENTS OF INCOME(Unaudited — in thousands, except per share amounts)**
| ** **                                   | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|----------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                   | ** ** | **October 31**              | ** ** | **October 31**             | ** ** |
| ** **                                   | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net sales                                    |       | $                                | 122,809    |                            | $          | 112,599 |   | $ | 359,959 |   | $ | 342,080 |   |
| Cost of goods  sold                          |       | 83,356                           |       | 75,774                          |       | 245,464 |   | 231,197 |   |
| Gross profit                                 |       | 39,453                           |       | 36,825                          |       | 114,495 |   | 110,883 |   |
|                                         |       |                             |       |                            |       |   |   |   |   |
| Selling and  administrative expenses         |       | 19,830                           |       | 19,288                          |       | 59,579 |   | 56,333 |   |
| Loss (gain) on  disposition of assets        |       | 45                               |       | 120                             |       | (572 | ) | 93 |   |
| Amortization                                 |       | 368                              |       | 252                             |       | 975 |   | 1,195 |   |
|                                         |       |                             |       |                            |       |   |   |   |   |
| Operating income                             |       | 19,210                           |       | 17,165                          |       | 54,513 |   | 53,262 |   |
| Interest expense                             |       | 499                              |       | 729                             |       | 1,524 |   | 2,177 |   |
| Interest income                              |       | (580                             | )          | (299                            | )          | (1,462 | ) | (576 | ) |
| Other expense  (income)                      |       | (119                             | )          | 68                              |       | (440 | ) | (69 | ) |
|                                         |       |                             |       |                            |       |   |   |   |   |
| Income before  provision for income taxes    |       | 19,410                           |       | 16,667                          |       | 54,891 |   | 51,730 |   |
| Provision for  income taxes                  |       | 7,127                            |       | 5,839                           |       | 19,651 |   | 17,944 |   |
|                                         |       |                             |       |                            |       |   |   |   |   |
| Net income                                   |       | $                                | 12,283     |                            | $          | 10,828 |   | $ | 35,240 |   | $ | 33,786 |   |
|                                         |       |                             |       |                            |       |   |   |   |   |
| Basic earnings  per share                    |       | $                                | 0.97       |                            | $          | 0.87 |   | $ | 2.80 |   | $ | 2.74 |   |
| Diluted earnings  per share                  |       | $                                | 0.94       |                            | $          | 0.84 |   | $ | 2.69 |   | $ | 2.63 |   |
|                                         |       |                             |       |                            |       |   |   |   |   |
| Basic weighted  average shares outstanding   |       | 12,604                           |       | 12,403                          |       | 12,572 |   | 12,312 |   |
| Diluted weighted  average shares outstanding |       | 13,050                           |       | 12,966                          |       | 13,088 |   | 12,848 |   |

 

The accompanying notes are an integral part of the consolidatedfinancial statements.

3

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**CASCADECORPORATIONCONSOLIDATED BALANCE SHEETS(Unaudited - in thousands, except per share amounts)**
| ** **                                                                                               | ** ** | **October 31** | ** ** | **January 31** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|---------------------|------------|---------------------|------------|
| ** **                                                                                               | ** ** | **2006**            | ** ** | **2006**            | ** ** |
|                                                                                                     |       |                |       |                |       |
| **ASSETS**                                                                                               | ** ** | ** **          | ** ** | ** **          | ** ** |
| Current assets:                                                                                          |       |                |       |                |       |
| Cash and cash equivalents                                                                                |       | $                   | 48,258     |                | $          | 35,493 |   |
| Marketable securities                                                                                    |       | 15,804              |       | 23,004              |       |
| Accounts receivable, less allowance for doubtful  accounts of $1,574 and $1,415                          |       | 80,979              |       | 67,020              |       |
| Inventories                                                                                              |       | 54,791              |       | 56,996              |       |
| Deferred income taxes                                                                                    |       | 3,833               |       | 3,232               |       |
| Prepaid expenses and other                                                                               |       | 5,239               |       | 5,373               |       |
| Total current assets                                                                                     |       | 208,904             |       | 191,118             |       |
| Property, plant  and equipment, net                                                                      |       | 78,933              |       | 75,374              |       |
| Goodwill                                                                                                 |       | 80,275              |       | 78,820              |       |
| Deferred income  taxes                                                                                   |       | 13,051              |       | 11,851              |       |
| Other assets                                                                                             |       | 3,365               |       | 4,120               |       |
| Total assets                                                                                             |       | $                   | 384,528    |                | $          | 361,283 |   |
|                                                                                                     |       |                |       |                |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                            | ** ** | ** **          | ** ** | ** **          | ** ** |
| Current  liabilities:                                                                                    |       |                |       |                |       |
| Notes payable to banks                                                                                   |       | $                   | 1,092      |                | $          | 4,741 |   |
| Current portion of long-term debt                                                                        |       | 12,592              |       | 12,681              |       |
| Accounts payable                                                                                         |       | 24,100              |       | 25,124              |       |
| Accrued payroll and payroll taxes                                                                        |       | 8,746               |       | 8,710               |       |
| Accrued environmental expenses                                                                           |       | 973                 |       | 984                 |       |
| Income taxes payable                                                                                     |       | 1,469               |       | 2,373               |       |
| Other accrued expenses                                                                                   |       | 13,324              |       | 11,543              |       |
| Total current liabilities                                                                                |       | 62,296              |       | 66,156              |       |
| Long-term debt,  net of current portion                                                                  |       | 12,500              |       | 12,500              |       |
| Accrued  environmental expenses                                                                          |       | 6,093               |       | 6,951               |       |
| Deferred income  taxes                                                                                   |       | 4,012               |       | 4,009               |       |
| Other  liabilities                                                                                       |       | 13,277              |       | 12,261              |       |
| Total liabilities                                                                                        |       | 98,178              |       | 101,877             |       |
|                                                                                                     |       |                |       |                |       |
| Commitments and  contingencies (Note 8)                                                                  |       |                |       |                |       |
| Shareholders’  equity:                                                                              |       |                |       |                |       |
| Common stock, $.50 par value, 20,000 authorized  shares; 12,412 and 12,536 shares issued and outstanding |       | 6,206               |       | 6,268               |       |
| Additional paid-in capital                                                                               |       | 13,515              |       | 21,590              |       |
| Retained earnings                                                                                        |       | 253,453             |       | 223,867             |       |
| Accumulated other comprehensive income                                                                   |       | 13,176              |       | 7,681               |       |
|                                                                                                     |       |                |       |                |       |
| Total shareholders’ equity                                                                          |       | 286,350             |       | 259,406             |       |
| Total  liabilities and shareholders’ equity                                                         |       | $                   | 384,528    |                | $          | 361,283 |   |

 

The accompanying notes are an integral part of the consolidatedfinancial statements.

4

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**CASCADE CORPORATIONCONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY(Unaudited — in thousands, except per share amounts)**
| ** **                                                           | ** ** | ** **            | ** ** | ** **  | ** ** | ** **     | ** ** | ** **        | ** ** | **Accumulated**        | ** ** | ** **        | ** ** | ** **       | ** ** |
|----------------------------------------------------------------------|------------|-----------------------|------------|-------------|------------|----------------|------------|-------------------|------------|------------------------|------------|-------------------|------------|------------------|------------|
| ** **                                                           | ** ** | ** **            | ** ** | ** **  | ** ** | **Additional** | ** ** | ** **        | ** ** | **Other**              | ** ** | **Total**         | ** ** | **Year-To-Date** | ** ** |
| ** **                                                           | ** ** | **Common Stock** | ** ** | **Paid-In** | ** ** | **Retained**   | ** ** | **Comprehensive** | ** ** | **Shareholders’** | ** ** | **Comprehensive** | ** ** |
| ** **                                                           | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **Capital**    | ** ** | **Earnings**      | ** ** | **Income**             | ** ** | **Equity**        | ** ** | **Income**       | ** ** |
| **Balance  at January 31, 2006**                                     |       | 12,536                |       | $           | 6,268      |           | $          | 21,590            |       | $                      | 223,867    |              | $          | 7,681            |       | $ | 259,406 |   |   |   |
|                                                                 |       |                  |       |        |       |           |       |              |       |                   |       |              |       |             |       |
| Net income                                                           |       | —                |       | —      |       | —         |       | 35,240            |       | —                 |       | 35,240            |       | $                | 35,240     |   |
| Dividends ($0.45  per share)                                         |       | —                |       | —      |       | —         |       | (5,654            | )          | —                 |       | (5,654            | )          | —           |       |
| Common stock  issued                                                 |       | 165                   |       | 82          |       | 1,682          |       | —            |       | —                 |       | 1,764             |       | —           |       |
| Excess tax  benefit from exercise of share-based compensation awards |       | —                |       | —      |       | 1,054          |       | —            |       | —                 |       | 1,054             |       | —           |       |
| Common stock  repurchased                                            |       | (289                  | )          | (144        | )          | (13,769        | )          | —            |       | —                 |       | (13,913           | )          | —           |       |
| Share-based  compensation                                            |       | —                |       | —      |       | 2,958          |       | —            |       | —                 |       | 2,958             |       | —           |       |
| Translation  adjustment                                              |       | —                |       | —      |       | —         |       | —            |       | 5,495                  |       | 5,495             |       | 5,495            |       |
|                                                                 |       |                  |       |        |       |           |       |              |       |                   |       |              |       |             |       |
| **Balance at October 31, 2006**                                      |       | 12,412                |       | $           | 6,206      |           | $          | 13,515            |       | $                      | 253,453    |              | $          | 13,176           |       | $ | 286,350 |   | $ | 40,735 |   |

 

The accompanying notes are an integral part of the consolidatedfinancial statements.

5

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**CASCADECORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited - in thousands)**
| ** **                                                                         | ** ** | **Nine Months Ended** | ** **   |
|------------------------------------------------------------------------------------|------------|---------------------------------|--------------|
| ** **                                                                         | ** ** | **October 31**             | ** **   |
| ** **                                                                         | ** ** | **2006**                        | ** **   | **2005** | ** ** |
| **Cash  flows from operating activities:**                                         | ** ** | ** **                      | ** **   | ** ** | ** ** |
| Net income                                                                         |       | $                               |  35,240 |   | $ | 33,786 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities: |       |                            |         |   |   |
| Depreciation and amortization                                                      |       | 11,251                          |         | 12,208 |   |
| Share-based compensation                                                           |       | 2,958                           |         | 1,243 |   |
| Deferred income taxes                                                              |       | (1,853                          | )            | (755 | ) |
| Loss (gain) on disposition of assets                                               |       | (572                            | )            | 93 |   |
| Changes in operating assets and liabilities:                                       |       |                            |         |   |   |
| Accounts receivable                                                                |       | (12,130                         | )            | (274 | ) |
| Inventories                                                                        |       | 3,729                           |         | (5,945 | ) |
| Prepaid expenses and other                                                         |       | (443                            | )            | (475 | ) |
| Accounts payable and accrued expenses                                              |       | (1,522                          | )            | (2,339 | ) |
| Income taxes payable and receivable                                                |       | (1,090                          | )            | 1,147 |   |
| Other assets and liabilities                                                       |       | (55                             | )            | 81 |   |
| Net cash provided by operating activities                                          |       | 35,513                          |         | 38,770 |   |
|                                                                               |       |                            |         |   |   |
| **Cash  flows from investing activities:**                                         | ** ** | ** **                      | ** **   | ** ** | ** ** |
| Capital expenditures                                                               |       | (11,890                         | )            | (7,473 | ) |
| Sales of marketable securities                                                     |       | 20,800                          |         | 17,575 |   |
| Purchases of marketable securities                                                 |       | (13,600                         | )            | (45,050 | ) |
| Proceeds from disposition of assets                                                |       | 1,669                           |         | 295 |   |
| Net cash used in investing activities                                              |       | (3,021                          | )            | (34,653 | ) |
|                                                                               |       |                            |         |   |   |
| **Cash  flows from financing activities:**                                         | ** ** | ** **                      | ** **   | ** ** | ** ** |
| Cash dividends paid                                                                |       | (5,654                          | )            | (4,812 | ) |
| Payments on long-term debt                                                         |       | (89                             | )            | (243 | ) |
| Notes payable to banks, net                                                        |       | (3,747                          | )            | 221 |   |
| Common stock issued under share-based compensation  plans                          |       | 1,764                           |         | 2,709 |   |
| Common stock repurchased                                                           |       | (12,808                         | )            | — |   |
| Excess tax benefit from exercise of share-based  compensation awards               |       | 1,054                           |         | 967 |   |
| Net cash used in financing activities                                              |       | (19,480                         | )            | (1,158 | ) |
| ** **                                                                         | ** ** | ** **                      | ** **   | ** ** | ** ** |
| Effect of  exchange rate changes                                                   |       | (247                            | )            | (2,951 | ) |
|                                                                               |       |                            |         |   |   |
| Change in cash  and cash equivalents                                               |       | 12,765                          |         | 8 |   |
| Cash and cash  equivalents at beginning of period                                  |       | 35,493                          |         | 30,482 |   |
| Cash and cash  equivalents at end of period                                        |       | $                               | 48,258       |   | $ | 30,490 |   |
|                                                                               |       |                            |         |   |   |
| **Supplemental  disclosure of cash flow information:**                             | ** ** | ** **                      | ** **   | ** ** | ** ** |
| See Note 10 to  the consolidated financial statements                              |       |                            |         |   |   |

 

The accompanying notes are an integral part of the consolidatedfinancial statements.

6

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CASCADE CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)

**Note 1—Descriptionof Business**

Cascade Corporation is an international companyengaged in the manufacture of materials handling products that are widely usedon industrial fork lift trucks and, to a lesser extent, construction, miningand agricultural vehicles. Accordingly, our sales are largely dependent onsales of lift trucks and on the sales of replacement parts. Our sales are madethroughout the world. We are headquartered in Fairview, Oregon, employingapproximately 1,900 people and maintaining operations in 15 countries outsidethe United States.

**Note 2—InterimFinancial Information**

The accompanying consolidated financial statements forthe interim periods ended October 31, 2006 and 2005 are unaudited. In theopinion of management, the accompanying consolidated financial statementsreflect normal recurring adjustments necessary for a fair statement of thefinancial position, results of operations and cash flows for those interimperiods. Results of operations for the interim periods are not necessarilyindicative of the results to be expected for the full year, and these financialstatements do not contain the detail or footnote disclosures concerningaccounting policies and other matters that would be included in full fiscalyear financial statements. Therefore, these statements should be read inconjunction with our audited financial statements included in our Annual Reporton Form 10-K for the fiscal year ended January 31, 2006.

**Note 3—SegmentInformation**

Our operating units have similar economiccharacteristics and attributes, including similar products, distributionpatterns and classes of customers. As a result, we aggregate our operatingunits into four geographic operating segments related to the manufacturing,distribution and servicing of material handling load engagement productsprimarily for the lift truck industry. We evaluate performance of each of ouroperating segments based on operating income before interest, miscellaneousincome/expense and income taxes. The accounting policies of the operatingsegments are the same as those described in the summary of significantaccounting policies contained in Note 2 of our consolidated financialstatements included in our Form 10-K for the fiscal year ended January 31,2006.

Revenues and operating results are classifiedaccording to the region of origin. Property, plant and equipment are attributedto the geographic location in which they are located. Net sales, operatingresults and other financial information by geographic region were as follows(in thousands):

7

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| ** **                           | ** ** | **Three Months Ended October 31** | ** ** |
|--------------------------------------|------------|-------------------------------------------------------|------------|
| **2006**                             | ** ** | ** **                                            | ** ** | **North America** | ** ** | **Europe** | ** ** | **Asia Pacific** | ** ** | **China** | ** ** | **Eliminations** | ** ** | **Consolidation** | ** ** |
| Net sales                            |       | $                                                     | 68,287     |   | $ | 34,368 |   | $ | 12,551 |   | $ | 7,603 |   | $ | — |   | $ | 122,809 |   |
| Transfers between areas              |       | 6,600                                                 |       | 213 |   | 35 |   | 2,175 |   | (9,023 | ) | — |   |
| Net sales and transfers              |       | $                                                     | 74,887     |   | $ | 34,581 |   | $ | 12,586 |   | $ | 9,778 |   | $ | (9,023 | ) | $ | 122,809 |   |
| Gross profit                         |       | $                                                     | 27,334     |   | $ | 5,622 |   | $ | 3,139 |   | $ | 3,358 |   | $ | — |   | $ | 39,453 |   |
| Selling and administrative           |       | 11,170                                                |       | 5,754 |   | 2,147 |   | 759 |   | — |   | 19,830 |   |
| Loss (gain) on disposition of assets |       | 10                                                    |       | 28 |   | (2 | ) | 9 |   | — |   | 45 |   |
| Amortization                         |       | 89                                                    |       | 235 |   | 19 |   | 25 |   | — |   | 368 |   |
| Operating income (loss)              |       | $                                                     | 16,065     |   | $ | (395 | ) | $ | 975 |   | $ | 2,565 |   | $ | — |   | $ | 19,210 |   |
| Property, plant and equipment        |       | $                                                     | 33,189     |   | $ | 35,024 |   | $ | 1,530 |   | $ | 9,190 |   |   |   | $ | 78,933 |   |
| Capital expenditures                 |       | $                                                     | 1,159      |   | $ | 475 |   | $ | 131 |   | $ | 3,877 |   |   |   | $ | 5,642 |   |
| Depreciation expense                 |       | $                                                     | 1,920      |   | $ | 1,222 |   | $ | 86 |   | $ | 161 |   |   |   | $ | 3,389 |   |
|                                 |       |                                                  |       |   |   |   |   |   |   |   |   |   |   |
| **2005**                             | ** ** | ** **                                            | ** ** | **North America** | ** ** | **Europe** | ** ** | **Asia Pacific** | ** ** | **China** | ** ** | **Eliminations** | ** ** | **Consolidation** | ** ** |
| Net sales                            |       | $                                                     | 65,056     |   | $ | 29,786 |   | $ | 11,895 |   | $ | 5,862 |   | $ | — |   | $ | 112,599 |   |
| Transfers between areas              |       | 5,749                                                 |       | 534 |   | 2 |   | 1,593 |   | (7,878 | ) | — |   |
| Net sales and transfers              |       | $                                                     | 70,805     |   | $ | 30,320 |   | $ | 11,897 |   | $ | 7,455 |   | $ | (7,878 | ) | $ | 112,599 |   |
| Gross profit                         |       | $                                                     | 26,430     |   | $ | 4,585 |   | $ | 3,250 |   | $ | 2,560 |   | $ | — |   | $ | 36,825 |   |
| Selling and administrative           |       | 11,392                                                |       | 5,336 |   | 1,957 |   | 603 |   | — |   | 19,288 |   |
| Loss (gain) on disposition of assets |       | (1                                                    | )          | 121 |   | — |   | — |   |   |   | 120 |   |
| Amortization                         |       | 38                                                    |       | 207 |   | — |   | 7 |   | — |   | 252 |   |
| Operating income (loss)              |       | $                                                     | 15,001     |   | $ | (1,079 | ) | $ | 1,293 |   | $ | 1,950 |   | $ | — |   | $ | 17,165 |   |
| Property, plant and equipment        |       | $                                                     | 34,624     |   | $ | 35,809 |   | $ | 1,455 |   | $ | 3,268 |   |   |   | $ | 75,156 |   |
| Capital expenditures                 |       | $                                                     | 1,152      |   | $ | 883 |   | $ | 17 |   | $ | 134 |   |   |   | $ | 2,186 |   |
| Depreciation expense                 |       | $                                                     | 2,022      |   | $ | 1,399 |   | $ | 103 |   | $ | 93 |   |   |   | $ | 3,617 |   |
|                                 |       |                                                  |       |   |   |   |   |   |   |   |   |   |   |
| ** **                           | ** ** | **Nine Months Ended October 31**                      | ** ** |
| **2006**                             | ** ** | ** **                                            | ** ** | **North America** | ** ** | **Europe** | ** ** | **Asia Pacific** | ** ** | **China** | ** ** | **Eliminations** | ** ** | **Consolidation** | ** ** |
| Net sales                            |       | $                                                     | 200,749    |   | $ | 101,416 |   | $ | 36,007 |   | $ | 21,787 |   | $ | — |   | $ | 359,959 |   |
| Transfers between areas              |       | 19,104                                                |       | 1,050 |   | 203 |   | 5,546 |   | (25,903 | ) | — |   |
| Net sales and transfers              |       | $                                                     | 219,853    |   | $ | 102,466 |   | $ | 36,210 |   | $ | 27,333 |   | $ | (25,903 | ) | $ | 359,959 |   |
| Gross profit                         |       | $                                                     | 79,373     |   | $ | 17,239 |   | $ | 8,867 |   | $ | 9,016 |   | $ | — |   | $ | 114,495 |   |
| Selling and administrative           |       | 34,141                                                |       | 17,154 |   | 6,225 |   | 2,059 |   | — |   | 59,579 |   |
| Loss (gain) on disposition of assets |       | 19                                                    |       | (589 | ) | (12 | ) | 10 |   |   |   | (572 | ) |
| Amortization                         |       | 267                                                   |       | 650 |   | 19 |   | 39 |   | — |   | 975 |   |
| Operating income                     |       | $                                                     | 44,946     |   | $ | 24 |   | $ | 2,635 |   | $ | 6,908 |   | $ | — |   | $ | 54,513 |   |
| Capital expenditures                 |       | $                                                     | 4,886      |   | $ | 1,467 |   | $ | 275 |   | $ | 5,262 |   |   |   | $ | 11,890 |   |
| Depreciation expense                 |       | $                                                     | 6,026      |   | $ | 3,655 |   | $ | 298 |   | $ | 297 |   |   |   | $ | 10,276 |   |
|                                 |       |                                                  |       |   |   |   |   |   |   |   |   |   |   |
| **2005**                             | ** ** | ** **                                            | ** ** | **North America** | ** ** | **Europe** | ** ** | **Asia Pacific** | ** ** | **China** | ** ** | **Eliminations** | ** ** | **Consolidation** | ** ** |
| Net sales                            |       | $                                                     | 188,466    |   | $ | 101,787 |   | $ | 34,832 |   | $ | 16,995 |   | $ | — |   | $ | 342,080 |   |
| Transfers between areas              |       | 17,222                                                |       | 2,100 |   | 175 |   | 4,232 |   | (23,729 | ) | — |   |
| Net sales and transfers              |       | $                                                     | 205,688    |   | $ | 103,887 |   | $ | 35,007 |   | $ | 21,227 |   | $ | (23,729 | ) | $ | 342,080 |   |
| Gross profit                         |       | $                                                     | 74,485     |   | $ | 19,570 |   | $ | 9,879 |   | $ | 6,949 |   | $ | — |   | $ | 110,883 |   |
| Selling and administrative           |       | 32,717                                                |       | 16,214 |   | 5,715 |   | 1,687 |   | — |   | 56,333 |   |
| Loss (gain) on disposition of assets |       | (2                                                    | )          | 142 |   | (47 | ) | — |   | — |   | 93 |   |
| Amortization                         |       | 112                                                   |       | 1,062 |   | — |   | 21 |   | — |   | 1,195 |   |
| Operating income                     |       | $                                                     | 41,658     |   | $ | 2,152 |   | $ | 4,211 |   | $ | 5,241 |   | $ | — |   | $ | 53,262 |   |
| Capital expenditures                 |       | $                                                     | 4,398      |   | $ | 2,633 |   | $ | 191 |   | $ | 251 |   |   |   | $ | 7,473 |   |
| Depreciation  expense                |       | $                                                     | 5,998      |   | $ | 4,433 |   | $ | 310 |   | $ | 272 |   |   |   | $ | 11,013 |   |

** **

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**Note 4—Goodwill**

The change in the amount of goodwill between October31, 2006 and January 31, 2006 related entirely to fluctuations in foreigncurrency. We have no goodwill recorded in China. The following table provides abreakdown of goodwill by geographic region (in thousands):
| ** **    | ** ** | **October 31** | ** ** | **January 31** | ** ** |
|---------------|------------|---------------------|------------|---------------------|------------|
| ** **    | ** ** | **2006**            | ** ** | **2006**            | ** ** |
| North America |       | $                   | 66,912     |                | $          | 65,978 |   |
| Europe        |       | 10,365              |       | 9,840               |       |
| Asia Pacific  |       | 2,998               |       | 3,002               |       |
|          |       | $                   | 80,275     |                | $          | 78,820 |   |

 

**Note 5—MarketableSecurities**

Marketable securities consist of auction rate andvariable rate demand notes issued by various state agencies throughout theUnited States. We classify these securities as available-for-sale securities.These securities are insured either through third party agencies, reinsuredthrough the U.S. government, or secured by a letter of credit from a bank. Thespecific identification method is used to determine the cost of securitiessold. There are no realized or unrealized gains or losses related to ourmarketable securities. These securities are long-term instruments maturingthrough 2038, however, the interest rates and maturities are resetapproximately every month, at which time we can sell the securities.Accordingly, we have classified these securities as current assets in ourconsolidated balance sheets.

**Note 6—Inventories**

Inventories stated at the lower of average cost ormarket are presented below by major class (in thousands).
| ** **                     | ** ** | **October 31** | ** ** | **January 31** | ** ** |
|--------------------------------|------------|---------------------|------------|---------------------|------------|
| ** **                     | ** ** | **2006**            | ** ** | **2006**            | ** ** |
| Finished goods  and components |       | $                   | 34,819     |                | $          | 37,236 |   |
| Work in process                |       | 737                 |       | 620                 |       |
| Raw materials                  |       | 19,235              |       | 19,140              |       |
|                           |       | $                   | 54,791     |                | $          | 56,996 |   |

 

**Note 7—Share-BasedCompensation Plans**

We have granted two types of awards, stock options andstock appreciation rights (SARS), under our share-based compensation plans toofficers, key managers and directors. Stock options provide the holder theright to purchase our common shares at an established price. SARS provide theholder the right to receive an amount, payable in our common shares, equal tothe excess of the market value of our common shares on the date of exercise (“intrinsicvalue”) over the base price at the time the right was granted. The base pricemay not be less than the market price of our common shares on the date ofgrant. The prices for all awards are established by our Board of Directors’Compensation Committee at the time the awards are granted. All awards vestratably over a four year period and have a term of ten years.

We have reserved 1,400,000 shares of common stockunder our stock option plan. As of October 31, 2006 a total of 688,000 shareshave been issued upon the exercise of stock options.  No additional stock options can be grantedunder the terms of the plan. The SARS plan provides for the issuance of 750,000shares of common stock upon the exercise of SARS of which 63,000 shares havebeen issued at October 31, 2006. We issue new common shares upon theexercise of all awards.

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A summary of theplans’ status at October 31, 2006 together with changes during the nine monthsthen ended are presented in the following table (in thousands, except per shareamounts):
| ** **                   | ** ** | **Stock  Options** | ** ** | **Stock  Appreciation Rights** | ** ** |
|------------------------------|------------|--------------------|------------|--------------------------------|------------|
| ** **                   | ** ** | ** **         | ** ** | **Weighted Average**      | ** ** | ** ** | ** ** | **Weighted Average** | ** ** |
| ** **                   | ** ** | **Outstanding**    | ** ** | **Exercise Price**        | ** ** | **Outstanding** | ** ** | **Exercise Price** | ** ** |
| ** **                   | ** ** | **Awards**         | ** ** | **Per Share**             | ** ** | **Awards** | ** ** | **Per Share** | ** ** |
| Balance at  January 31, 2006 |       | 841                |       | $                              | 14.10      |   | 1,019 |   | $ | 29.83 |   |
| Granted                      |       | —             |       | —                         |       | 255 |   | 37.05 |   |
| Exercised                    |       | (125               | )          | 14.94                          |       | (112 | ) | 27.76 |   |
| Forfeited                    |       | (25                | )          | 17.76                          |       | (117 | ) | 31.57 |   |
|                         |       |               |       |                           |       |   |   |   |   |
| Balance at October 31,  2006 |       | 691                |       | $                              | 13.82      |   | 1,045 |   | $ | 31.62 |   |

 

Prior to May 1, 2005 we accounted for stockoptions under Accounting Principles Board Opinion No. 25 (APB 25), “Accountingfor Stock Issued to Employees,” which permitted the use of intrinsic valueaccounting. No stock-based compensation cost was reflected in net income forstock options, as all options granted had an exercise price equal to the marketprice of the underlying common stock on the date of grant.

We accounted for SARS using variable plan accountingunder Financial Interpretation No. (FIN) 28, “Accounting for StockAppreciation Rights and Other Variable Stock Option or Award Plans,”  Accordingly, we recorded deferredcompensation as a reduction of shareholders’ equity, equal to the excess of themarket value of our common stock on the balance sheet date or date of exerciseover the base price at the date of grant. The deferred compensation wasrecognized as an expense over the vesting period based on the periods in whichthe officers and directors performed services.

In our second quarter of fiscal 2006, we adoptedStatement of Financial Accounting Standards (SFAS) No. 123 (revised 2004),“Share-Based Payment” (123R). This standard is a revision of SFAS 123, “Accountingfor Stock-Based Compensation” and supersedes APB 25 and FIN 28. SFAS 123Raddresses the accounting for share-based compensation in which we receiveemployee services in exchange for our equity instruments. Under SFAS 123R, weare required to recognize compensation cost for share-based compensation issuedto or purchased by employees, net of estimated forfeitures, under share-basedcompensation plans using a fair value method. We adopted SFAS 123R using themodified prospective method as of May 1, 2005. Accordingly, no priorperiods were restated. Under this method, we record compensation expense forall awards granted after the date of adoption and for the unvested portion ofpreviously granted awards that remained outstanding as of the beginning of theperiod of adoption.

The followingtable illustrates the pro forma effect on net income and earnings per share ifwe had recorded compensation expense based on the fair value method for allshare-based compensation awards (in thousands, except per share amounts):
| ** **                                                                                                                 | ** ** | **Three Months Ended  October 31** | ** ** | **Nine Months Ended  October 31** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                                                 | ** ** | **2006**                           | ** ** | **2005**                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net income - as  reported                                                                                                  |       | $                                  | 12,283     |                              | $          | 10,828 |   | $ | 35,240 |   | $ | 33,786 |   |
| Add: SARS  amortization, net of taxes of $80                                                                               |       | —                             |       | —                            |       | — |   | (148 | ) |
| Net income  excluding SARS amortization                                                                                    |       | 12,283                             |       | 10,828                            |       | 35,240 |   | 33,638 |   |
|  Deduct: total stock-based compensation, net  of income tax benefits of $140 determined under fair value based method |       | —                             |       | —                            |       | — |   | (297 | ) |
| Net income - pro  forma                                                                                                    |       | $                                  | 12,283     |                              | $          | 10,828 |   | $ | 35,240 |   | $ | 33,341 |   |
| Basic earnings  per share - as reported                                                                                    |       | $                                  | 0.97       |                              | $          | 0.87 |   | $ | 2.80 |   | $ | 2.74 |   |
| Basic earnings  per share - pro forma                                                                                      |       | $                                  | 0.97       |                              | $          | 0.87 |   | $ | 2.80 |   | $ | 2.71 |   |
| Diluted  earnings per share - as reported                                                                             |       | $                                  | 0.94       |                              | $          | 0.84 |   | $ | 2.69 |   | $ | 2.63 |   |
| Diluted  earnings per share - pro forma                                                                               |       | $                                  | 0.94       |                              | $          | 0.84 |   | $ | 2.69 |   | $ | 2.60 |   |

 

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We calculateshare-based compensation cost using the Black-Scholes option pricingmodel.  The range of assumptions used tocompute share-based compensation are as follows:
| ** **                                    | ** ** | **Granted in**  | ** ** | **Granted Prior to** | ** ** |
|-----------------------------------------------|------------|----------------------|------------|--------------------------------|------------|
| ** **                                    | ** ** | **Fiscal 2007** | ** ** | **Fiscal 2007**           | ** ** |
|                                          |       |                 |       |                           |       |
| Risk-free  interest rate                      |       | 5.0%                 |       | 2.3  - 4.1%                    |       |
| Expected  volatility                          |       | 41%                  |       | 40  - 42%                      |       |
| Expected  dividend yield                      |       | 1.6%                 |       | 1.1  - 2.8%                    |       |
| Expected life  (in years)                     |       | 6                    |       | 5 -  6                         |       |
| Weighted average fair  value at date of grant |       | $                    | 15.24      |                           | $          | 4.16 - 17.86 |   |
|                                               |            |                      |            |                                |            |  |  |

 

The followingtable presents all share-based compensation costs recognized in our statementsof income (in thousands):
| ** **                                           | ** ** | **Three  Months Ended October 31** | ** ** | **Nine  Months Ended October 31** | ** ** |
|------------------------------------------------------|------------|------------------------------------|------------|-----------------------------------|------------|
| ** **                                           | ** ** | **2006**                           | ** ** | **2005**                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| Method used to  account for share-based compensation |       | Fair  Value                        |       | Fair  Value                       |       | Fair  Value |   | Fair  Value / Intrinsic |   |
| Share-based  compensation under SFAS 123R            |       | $                                  | 1,076      |                              | $          | 874 |   | $ | 2,958 |   | $ | 1,471 |   |
| Share-based  compensation under FIN 28               |       | —                             |       | —                            |       | — |   | (228 | ) |
|                                                 |       | $                                  | 1,076      |                              | $          | 874 |   | $ | 2,958 |   | $ | 1,243 |   |
| Tax benefit recognized                               |       | $                                  | 311        |                              | $          | 233 |   | $ | 825 |   | $ | 330 |   |

 

As of October 31, 2006, there was $10.5 million oftotal unrecognized compensation cost related to nonvested share-basedcompensation awards granted under the plans, which is expected to be recognizedover a weighted average period of 2.8 years. The following table represents asof October 31, 2006 the share-based compensation costs to be recognized infuture periods (in thousands) for awards granted to date:
| **Fiscal year** | ** ** | ** ** | ** ** | **Amount** | ** ** |
|----------------------|------------|------------|------------|------------|------------|
| 2007                 |       | $          | 1,075      |       |
| 2008                 |       | 4,087      |       |
| 2009                 |       | 3,336      |       |
| 2010                 |       | 1,734      |       |
| 2011                 |       | 305        |       |
|                 |       | $          | 10,537     |       |

 

 

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**Note 8—Commitmentsand Contingencies**

**EnvironmentalMatters**

We are subject toenvironmental laws and regulations, which include obligations to remove ormitigate environmental effects of past disposal and release of certain wastesand substances at various sites. We record liabilities for affected sites whenenvironmental assessments indicate probable cleanup and the costs can bereasonably estimated. Our liabilities for environmental costs, other than forcosts of assessments themselves, are generally determined after the completionof investigations and studies or our commitment to a formal plan of action,such as an approved remediation plan, and are based on our best estimate ofundiscounted future costs using currently available technology, applying currentregulations, as well as our own historical experience regarding environmentalcleanup costs. The reliability and precision of the cost estimates are affectedby numerous factors, such as different stages of site evaluation andreevaluation of the degree of remediation required. We adjust our liabilitiesas new remediation requirements are defined, as information becomes availablepermitting reasonable estimates to be made and to reflect new and changingfacts.

It is reasonably possible that changes in estimateswill occur in the near term and the related adjustments to environmentalliabilities may have a material impact on our net income and operating cashflows. Unasserted claims are not currently reflected in our environmentalliabilities. It is also reasonably possible that these changes or claims mayalso have a material impact on our net income and operating cash flows ifasserted. We cannot estimate the impact of these potential changes or claims atthis time.

Our specific environmental matters consist of thefollowing:

*Fairview, Oregon*

In 1996, the Oregon Department of EnvironmentalQuality issued two Records of Decision affecting our Fairview, Oregonmanufacturing facility. The Records of Decision required us to initiateremedial activities related to the cleanup of groundwater contamination at andnear the facility. Remediation activities have been conducted since 1996 andcurrent estimates provide for some level of activity to continue through 2021.Costs of certain remediation activities at the facility are shared with TheBoeing Company, with Cascade paying 70% of these costs. We have accrued aliability for the ongoing remediation activities at our Fairview facility of$6.1 million and $6.7 million at October 31, 2006 and January 31,2006, respectively.

*Springfield, Ohio*

In 1994, we entered into a consent order with the OhioEnvironmental Protection Agency, which required the installation of remediationsystems for the cleanup of groundwater contamination at our Springfield, Ohiofacility. The current estimate is that the remediation activities will continuethrough 2013. Our accrued liability for ongoing remediation activities at ourSpringfield facility was $1.0 million and $1.1 million at October 31, 2006and January 31, 2006, respectively.

*Insurance Litigation*

On April 22, 2002, the Circuit Court of the Stateof Oregon for Multnomah County entered judgment in our favor in an actionoriginally brought in 1992 against several insurers to recover various expensesincurred in connection with environmental litigation and related proceedings.The judgment was against two non-settling insurers. We subsequently reached asettlement of all claims with one of the insurers in return for a payment of$1.3 million, which we received October 22, 2004. The trial court judgmentagainst the remaining insurer, Employers Reinsurance Corp. (ERC), is in theamount of approximately $800,000. The judgment also requires ERC to defend usin suits alleging liability because of groundwater contamination emanating fromour Fairview, Oregon plant and requires ERC to pay approximately 3.1% of anycosts incurred after March 1, 1997 on account of such contamination. Weappealed the judgment to the Oregon Court of Appeals contending ERC should paya larger share of our expenses from both before and after March 1, 1997,together with additional interest and attorneys fees.

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On May 17, 2006, the Oregon Court of Appealsruled in our favor and reversed the trial court judgment in part. The Court ofAppeals ruling would obligate ERC to pay 100% of our unreimbursedenvironmental expenses up to its policy limits, plus increased interest andattorneys fees.  We estimate the Court of Appeals ruling could result inan eventual recovery of up to $14.0 million, in addition to the interest andattorneys fees and unreimbursed costs of environmental defense.  On October 31, 2006, the Oregon Supreme Courtgranted ERC’s petition for review of the Court of Appeals ruling.  Our ultimate recovery will depend upon theOregon Supreme Court’s decision on review as well as possible furtherproceedings at the trial court level.  Wehave not recorded any amounts that may be recovered from ERC in ourconsolidated financial statements.

**LegalProceedings**

We are subject to legal proceedings, claims andlitigation, in addition to the environmental matters previously discussed,arising in the ordinary course of business. While the outcome of these mattersis currently not determinable, management does not expect the ultimate costs tobe material to our consolidated financial position, result of operations, orcash flows.

**Note 9—EarningsPer Share**

The following table presents the calculation of basicand diluted earnings per share (in thousands, except per share amounts):
| ** **                                                      | ** ** | **Three Months Ended October 31** | ** ** | **Nine Months Ended October 31** | ** ** |
|-----------------------------------------------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                      | ** ** | **2006**                                              | ** ** | **2005**                                             | ** ** | **2006** | ** ** | **2005** | ** ** |
| Basic earnings  per share:                                      |       |                                                  |       |                                                 |       |   |   |   |   |
| Net income                                                      |       | $                                                     | 12,283     |                                                 | $          | 10,828 |   | $ | 35,240 |   | $ | 33,786 |   |
| Weighted average shares of common stock outstanding             |       | 12,604                                                |       | 12,403                                               |       | 12,572 |   | 12,312 |   |
|                                                            |       | $                                                     | 0.97       |                                                 | $          | 0.87 |   | $ | 2.80 |   | $ | 2.74 |   |
|                                                            |       |                                                  |       |                                                 |       |   |   |   |   |
| Diluted earnings  per share:                                    |       |                                                  |       |                                                 |       |   |   |   |   |
| Net income                                                      |       | $                                                     | 12,283     |                                                 | $          | 10,828 |   | $ | 35,240 |   | $ | 33,786 |   |
| Weighted average shares of common stock outstanding             |       | 12,604                                                |       | 12,403                                               |       | 12,572 |   | 12,312 |   |
| Dilutive effect of stock options and stock  appreciation rights |       | 446                                                   |       | 563                                                  |       | 516 |   | 536 |   |
| Diluted weighted average shares of common stock  outstanding    |       | 13,050                                                |       | 12,966                                               |       | 13,088 |   | 12,848 |   |
|                                                            |       | $                                                     | 0.94       |                                                 | $          | 0.84 |   | $ | 2.69 |   | $ | 2.63 |   |

 

Basic earnings per share is based on the weightedaverage number of common shares outstanding for the period. Diluted weightedaverage common shares includes the incremental shares that would be issued uponthe assumed exercise of stock options and stock appreciation rights.  For the three and nine month periods endedOctober 31, 2006 unexercised SARS totaling 430,000 and 732,000 awardsrespectively, were excluded from the calculation of diluted earnings per sharebecause they were antidilutive.  Nounexercised SARS were excluded from the calculation of diluted earnings per sharefor the three or nine month periods ended October 31, 2005.  All stock options were included in ourcalculation of diluted earnings per share because they were dilutive.

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**Note 10—SupplementalCash Flow Information**

The followingtable presents information that supplements the consolidated statements of cashflow (in thousands):
| ** **                                           | ** ** | **For the Nine Months Ended October 31** | ** ** |
|------------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                                           | ** ** | **2006**                                                               | ** ** | **2005** | ** ** |
| Cash paid during  the period for:                    |       |                                                                   | ** ** |   |   |
| Interest                                             |       | $                                                                      | 1,082      |   | $ | 1,506 |   |
| Income taxes                                         |       | $                                                                      | 21,549     |   | $ | 17,088 |   |
|                                                 |       |                                                                   |       |   |   |
| Supplemental  disclosure of noncash information:     |       |                                                                   |       |   |   |
| Deferred compensation from stock appreciation rights |       | $                                                                      | —     |   | $ | (4,734 | ) |
| Liability for  common stock repurchase               |       | $                                                                      | 1,105      |   | $ | — |   |

 

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**Note 11—BenefitPlans**

Thefollowing table represents the net periodic cost related to our defined benefitplans in Canada, England and France and our postretirement benefit plan in theUnited States (in thousands):
| ** **                     | ** ** | **Defined Benefit**                              | ** ** | **Postretirement Benefit**                       | ** ** |
|--------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                     | ** ** | **Three Months Ended October 31** | ** ** | **Three Months Ended October 31** | ** ** |
| ** **                     | ** ** | **2006**                                              | ** ** | **2005**                                              | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net periodic  benefit cost:    |       |                                                  |       |                                                  |       |   |   |   |   |
| Service cost                   |       | $                                                     | 17         |                                                  | $          | 49 |   | $ | 34 |   | $ | 32 |   |
| Interest cost                  |       | 120                                                   |       | 115                                                   |       | 114 |   | 108 |   |
| Expected return on plan assets |       | (114                                                  | )          | (111                                                  | )          | — |   | — |   |
| Recognized net actuarial loss  |       | 36                                                    |       | 31                                                    |       | 91 |   | 86 |   |
| Settlements                    |       | 99                                                    |       | —                                                |       | — |   | — |   |
|                           |       | $                                                     | 158        |                                                  | $          | 84 |   | $ | 239 |   | $ | 226 |   |

 
| ** **                     | ** ** | **Nine Months Ended October 31** | ** ** | **Nine Months Ended October 31** | ** ** |
|--------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                     | ** ** | **2006**                         | ** ** | **2005**                         | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net periodic  benefit cost:    |       |                             |       |                             |       |   |   |   |   |
| Service cost                   |       | $                                | 60         |                             | $          | 146 |   | $ | 102 |   | $ | 96 |   |
| Interest cost                  |       | 373                              |       | 343                              |       | 342 |   | 325 |   |
| Expected return on plan assets |       | (362                             | )          | (330                             | )          | — |   | — |   |
| Recognized net actuarial loss  |       | 107                              |       | 92                               |       | 275 |   | 259 |   |
| Settlements                    |       | 99                               |       | —                           |       | — |   | — |   |
|                           |       | $                                | 277        |                             | $          | 251 |   | $ | 719 |   | $ | 680 |   |

 

**Note 12—RecentAccounting Pronouncements**

**SFAS 151**- In November 2004, the Financial Accounting Standards Board (“FASB”)issued SFAS No. 151 (SFAS 151), “Inventory Costs, an amendment of ARBNo. 43, Chapter 4.”  Thisstatement amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing”,to clarify the accounting for abnormal amounts of idle facility expense,freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARBNo. 43, Chapter 4, previously stated that “....under some circumstances,items such as idle facility expense, excessive spoilage, double freight, andre-handling costs may be so abnormal as to require treatment as current periodcharges...” SFAS 151 requires that those items be recognized as current-periodcharges regardless of whether they meet the criterion of “so abnormal.”  In addition, this statement requires thatallocation of fixed production overhead to the costs of conversion be based onthe normal capacity of the production facilities. The provisions of SFAS 151were effective for us on February 1, 2006. The adoption of SFAS 151 didnot have a material impact on our financial position or results of operations.

**SFAS 154**- In May 2005, the FASB issued SFAS No. 154 (SFAS 154), “AccountingChanges and Error Corrections—a replacement of APB Opinion No. 20 and FASBStatement No. 3.” SFAS 154 changes the requirements for the accounting forand reporting of a change in accounting principle. This statement applies toall voluntary changes in accounting principles. It also applies to changesrequired by an accounting pronouncement in the unusual instance that thepronouncement does not include specific transition provisions. SFAS 154 requiresthe application of a change in accounting principle be applied to prioraccounting periods presented as if that principle had always been used. When apronouncement includes specific transition provisions, those provisions shouldbe followed. SFAS 154 is effective for accounting changes and corrections oferrors made in fiscal years beginning after December 15, 2005. Theadoption of SFAS 154 at the beginning of fiscal 2007 did not have an effect onour consolidated financial statements.

**FIN 48**- In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting forUncertainty in Income Taxes.” This interpretation clarifies the accounting foruncertainty in income taxes recognized in an enterprise’s 

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financial statements in accordance with FASB StatementNo. 109, “Accounting for Income Taxes.”  FASB Interpretation No. 48prescribes a recognition threshold and measurement attribute for the financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return.  It also provides guidance on de-recognition,classification, interest and penalties, accounting in interim periods,disclosure and transition.  We are currently evaluating the impact of FASBInterpretation No. 48 on our financial statements.  Application of thisinterpretation is required for our financial statements for the fiscal yearended January 31, 2008.

****SFAS 157****- In September2006, the FASB issued SFAS No. 157 (SFAS 157), “Fair Value Measurements.” SFAS157 provides a common definition of fair value, establishes a framework formeasuring fair value and expands the related disclosure requirements. We arecurrently evaluating the impact of SFAS 157 on our financial statements.  Application of SFAS 157 is required for ourfinancial statements for the fiscal year ending January 31, 2008.

****SFAS 158**** - In September2006, the FASB issued SFAS No. 158 (SFAS 158), “Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans — an amendment of FASBStatements No. 87, 88, 106, and 132(R).” This statement requires balance sheet recognition of the overfunded orunderfunded status of pension and postretirement benefit plans. Under SFAS 158,actuarial gains and losses, prior service costs or credits, and any remainingtransition assets or obligations that have not been recognized under previousaccounting standards must be recognized in other comprehensive income, net oftax effects, until they are amortized as a component of net periodic benefitcost.  In addition, the measurement date,the date at which plan assets and the benefit obligation are measured, isrequired to be the company’s fiscal year end. Presently, we use aDecember 31 measurement date for the postretirement benefit plan, whichwill need to change to coincide with our January 31 fiscal year-end date.  Based on amounts as of January 31, 2006, theadoption of SFAS 158 would have increased our postretirement liability byapproximately $2.8 million and decreased shareholders’ equity by approximately$1.7 million, net of tax.  The adoptionof SFAS 158 will not affect net income and will not change our defined benefitplan liability, which was recorded under previous accounting standards.  Application of SFAS 158 is required for ourfinancial statements for the fiscal year ending January 31, 2007, except forthe measurement date provision, which is effective for the fiscal year endingJanuary 31, 2009.  By the time ofadoption at January 31, 2007, plan activity and actuarial assumptions couldhave a significant impact on the actual amounts recorded.

**SAB 108** - In September 2006, the SEC issuedStaff Accounting Bulletin No. 108 (SAB 108) “Considering the Effects of PriorYear Misstatements when Quantifying Misstatements in Current Year FinancialStatements.”  SAB 108 providesinterpretive guidance on how the effects of the carryover or reversal of prioryear misstatements should be considered in quantifying a current yearmisstatement. The SEC staff believes that registrants should quantify errorsusing both a balance sheet and income statement approach and evaluate whethereither approach results in quantifying a misstatement that, when all relevantquantitative and qualitative factors considered, is material.  We do not believe SAB 108 will have a materialimpact on our consolidated financial statements.  Application of SAB 108 is required for ourfinancial statements for the fiscal year ending January 31, 2007.

**Note 13—WarrantyObligations**

We record a liability on our consolidated balancesheet for costs related to warranties with the sales of our products. Thisliability is estimated through historical customer claims, product failurerates, material usage and service delivery costs incurred in correcting aproduct failure. Our warranty obligations, which are recorded in other accruedexpenses on the consolidated balance sheets, were as follows (in thousands):
| ** **                                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------------|------------|----------|------------|----------|------------|
| Balance at  January 31                            |       | $        | 1,665      |     | $          | 1,911 |   |
| Accruals for  warranties issued during the period |       | 1,922    |       | 1,548    |       |
| Accruals for  pre-existing warranties             |       | (13      | )          | 52       |       |
| Settlements  during the period                    |       | (1,868   | )          | (1,727   | )          |
| Balance at October 31                             |       | $        | 1,706      |     | $          | 1,784 |   |

** **

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**Note 14—AccumulatedOther Comprehensive Income (Loss)**

The followingtable presents the changes in and the components of accumulated othercomprehensive income (in thousands):
| ** **                   | ** ** | **Accumulated Other Comprehensive Income (Loss)** | ** ** |
|------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                   | ** ** | **Translation  Adjustment**                                           | ** ** | **Minimum Pension Liability  Adjustment** | ** ** | **Total** | ** ** |
| Balance at  January 31, 2006 |       | $                                                                     | 10,667     |   | $ | (2,986 | ) | $ | 7,681 |   |
| Translation  adjustment      |       | 5,495                                                                 |       | — |   | 5,495 |   |
| Balance at October 31,  2006 |       | $                                                                     | 16,162     |   | $ | (2,986 | ) | $ | 13,176 |   |

 

**Note 15—Gainon Sale of Assets**

During the first quarter of fiscal 2007, we recognizeda $715,000 gain on the sale of our manufacturing facility in Hoorn, TheNetherlands. We had closed this facility in fiscal 2006.

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**Item 2. Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

Our businesses globally manufacture and distributematerial handling load engagement products primarily for the lift truckindustry.  We operate in four geographicsegments:  North America, Europe, AsiaPacific and China.  All references tofiscal periods are defined as periods ending in the year ended January 31,2006 (fiscal 2006) and the year ending January 31, 2007 (fiscal 2007).

**COMPARISON OF THIRD QUARTER OF FISCAL 2007 ANDFISCAL 2006**

**Consolidated Summary**

 Net income forthe third quarter of fiscal 2007 increased 13% to $12.3 million ($0.94 perdiluted share) from $10.8 million ($0.84 per diluted share) for the thirdquarter of fiscal 2006. Net sales for the third quarter of fiscal 2007 were$122.8 million or 9% greater than the third quarter of fiscal 2006.Excluding the effect of foreign currency fluctuations, net sales in NorthAmerica, Europe, Asia Pacific and China grew 4%, 10%, 4% and 28%, respectively,in the third quarter of fiscal 2007 as compared to the same quarter of theprior year.  The increased revenuesreflect higher volumes of business in these geographic regions.   

The gross margin percentage of 32% in the thirdquarter of fiscal 2007 was slightly below the 33% gross margin in the prioryear.  Higher material costs globally andsome manufacturing inefficiencies in Europe accounted for the decreased margin.

Selling and administrative costs increased by 3% inthe third quarter of fiscal 2007 over the comparable quarter of the prior year.Excluding foreign currency changes, costs increased 1% over the third quarterof the prior year. This is primarily due to higher share-based compensationcosts, which increased from $874,000 in the third quarter of fiscal 2006 to$1,076,000 in the third quarter of fiscal 2007. We adopted the new accounting standard for share-based compensation,Statement of Financial Account Standards No. 123R “Share-based Payment”, in thesecond quarter of fiscal 2006.  Selling andadministrative costs, as a percentage of net sales, decreased to 16% in thethird quarter of fiscal 2007 from 17% in the prior year.

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**North America**
| ** **                            | ** ** | **Three  Months Ended October 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------|------------|------------------------------------|------------|------------|------------|------------|------------|
| ** **                            | ** ** | **2006**                           | ** ** | **%**      | ** ** | **2005**   | ** ** | **%** | ** ** | **Change** | ** ** | **%** | ** ** |
| ** **                            | ** ** | **(In thousands)**                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                             |       | $                                  | 68,287     |       | 100%       |       | $          | 65,056 |   | 100% |   | $ | 3,231 |   | 5% |   |
| Cost of goods  sold                   |       | 40,953                             |       | 60%        |       | 38,626     |       | 59% |   | 2,327 |   | 6% |   |
| Gross profit                          |       | 27,334                             |       | 40%        |       | 26,430     |       | 41% |   | 904 |   | 3% |   |
|                                  |       |                               |       |       |       |       |       |   |   |   |   |   |   |
| Selling and  administrative           |       | 11,170                             |       | 16%        |       | 11,392     |       | 18% |   | (222 | ) | (2% | ) |
| Loss (gain) on  disposition of assets |       | 10                                 |       |       |       | (1         | )          |   |   | 11 |   |   |   |
| Amortization                          |       | 89                                 |       |       |       | 38         |       |   |   | 51 |   |   |   |
| Operating income                      |       | $                                  | 16,065     |       | 24%        |       | $          | 15,001 |   | 23% |   | $ | 1,064 |   | 7% |   |

 

North America net sales increased $3.2 million or 5%in the third quarter of fiscal 2007 over the same quarter of fiscal 2006.  Currency changes accounted for 1% of theincrease in sales.  The remainingincrease is due to higher volumes of business.

Our experience has been that changes in the level ofour net sales do not correspond directly to the percentage changes in lifttruck industry shipments, but industry statistics do provide an indication ofthe direction of business activity. North American lift truck industry shipments in the third quarter offiscal 2007 were 10% higher than the third quarter of fiscal 2006.

The gross margin percentage decreased slightly from41% to 40% for the third quarter of fiscal 2007.  Material cost increases and the impact of astrengthening Euro on purchases from European suppliers account for the decline.

Selling and administrative costs for the third quarterof fiscal 2007 decreased 2% over the same quarter of the prior year.  The primary reasons for the decrease werelower personnel and marketing costs, which were partially offset by highershare-based compensation costs.  

**Europe**
| ** **                     | ** ** | **Three  Months Ended October 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------|------------|------------------------------------|------------|------------|------------|------------|------------|
| ** **                     | ** ** | **2006**                           | ** ** | **%**      | ** ** | **2005**   | ** ** | **%** | ** ** | **Change** | ** ** | **%** | ** ** |
| ** **                     | ** ** | **(In  thousands)**                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                      |       | $                                  | 34,368     |       | 100%       |       | $          | 29,786 |   | 100% |   | $ | 4,582 |   | 15% |   |
| Cost of goods  sold            |       | 28,746                             |       | 84%        |       | 25,201     |       | 85% |   | 3,545 |   | 14% |   |
| Gross profit                   |       | 5,622                              |       | 16%        |       | 4,585      |       | 15% |   | 1,037 |   | 23% |   |
|                           |       |                               |       |       |       |       |       |   |   |   |   |   |   |
| Selling and  administrative    |       | 5,754                              |       | 17%        |       | 5,336      |       | 18% |   | 418 |   | 8% |   |
| Loss on  disposition of assets |       | 28                                 |       |       |       | 121        |       |   |   | (93 | ) |   |   |
| Amortization                   |       | 235                                |       |       |       | 207        |       | 1% |   | 28 |   |   |   |
| Operating loss                 |       | $                                  | (395       | )          | (1%        | )          | $          | (1,079 | ) | (4% | ) | $ | 684 |   | 63% |   |

 

Net sales in Europe for the third quarter of fiscal2007 increased $4.6 million or 15% over the same quarter of fiscal2006.  Excluding currency changes, salesincreased 10%.  This increase reflects highervolumes of business due to a strong European lift truck market. 

Industry lift truck shipments in Europe increased 19%for the third quarter compared to the prior year.  The expansion of the Eastern European marketcontinued to be strong in the third quarter. While this market is still only about 20% of the total current Europeanmarket, we have taken this opportunity to expand our operations by addingadditional sales staff and allocating additional sales resources to focus oncapturing a significant portion of this market growth.

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The gross margin percentage in Europe increased from15% for the third quarter of fiscal 2006 to 16% for the third quarter of fiscal2007. However, third quarter fiscal 2006 margins were negatively affected by$1.0 million of costs related to the closure of our manufacturing facility inHoorn, The Netherlands.  Excluding theseclosure costs, the gross margin percentage for fiscal 2006 would have been 19%.

The third quarter fiscal 2007 gross margin wasimpacted by the following:

·                  Higher costs atour manufacturing facility in Germany due to unanticipated inventoryadjustments, manufacturing inefficiencies and training of temporary employeeshired to meet increased product demand. We have made personnel and operational changes to address the situation.

·                  Temporaryproduction disruptions related to modifications initiated at our manufacturingfacilities in the United Kingdom and France. We expect to benefit from these production modifications during thefourth quarter of fiscal 2007 and in fiscal 2008.

Selling and administrative costs in Europe increased 8%for the third quarter of fiscal 2007 compared to the third quarter of fiscal2006.  Excluding currency changes, thesecosts increased 3% due to additional sales and marketing and share-basedcompensation costs.  

**Asia Pacific**
| ** **                           | ** ** | **Three Months Ended October 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------------|------------|-----------------------------------|------------|------------|------------|------------|------------|
| ** **                           | ** ** | **2006**                          | ** ** | **%**      | ** ** | **2005**   | ** ** | **%** | ** ** | **Change** | ** ** | **%** | ** ** |
| ** **                           | ** ** | **(In thousands)**                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                            |       | $                                 | 12,551     |       | 100%       |       | $          | 11,895 |   | 100% |   | $ | 656 |   | 6% |   |
| Cost of goods sold                   |       | 9,412                             |       | 75%        |       | 8,645      |       | 73% |   | 767 |   | 9% |   |
| Gross profit                         |       | 3,139                             |       | 25%        |       | 3,250      |       | 27% |   | (111 | ) | (3% | ) |
|                                 |       |                              |       |       |       |       |       |   |   |   |   |   |   |
| Selling and administrative           |       | 2,147                             |       | 17%        |       | 1,957      |       | 16% |   | 190 |   | 10% |   |
| Loss (gain) on disposition of assets |       | (2                                | )          |       |       | —     |       |   |   | (2 | ) |   |   |
| Amortization                         |       | 19                                |       |       |       | —     |       |   |   | 19 |   |   |   |
| Operating income                     |       | $                                 | 975        |       | 8%         |       | $          | 1,293 |   | 11% |   | $ | (318 | ) | (25% | ) |

 

Asia Pacific, excluding China, posted a net salesincrease of 6% in the third quarter of fiscal 2007 over fiscal 2006.  Excluding the effect of foreign currencies,net sales increased 4%. This increase reflected additional sales in both Koreaand Japan.  Industry lift truck shipmentlevels in Asia Pacific were consistent for the third quarter compared to theprior year.  

Gross margin percentages in this region decreased from27% to 25%.  The decrease was due toproduct mix and higher material costs which could not be passed on to customersthrough higher sales prices.  We arecontinuing to pursue opportunities to recover this lost margin but do notanticipate significant improvements in the near future.   

Selling and administrative costs increased 10% for thethird quarter of fiscal 2007 due primarily to additional marketing and employeebenefit costs.  

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**China**
| ** **                            | ** ** | **Three  Months Ended October 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------|------------|------------------------------------|------------|------------|------------|------------|------------|
| ** **                            | ** ** | **2006**                           | ** ** | **%**      | ** ** | **2005**   | ** ** | **%** | ** ** | **Change** | ** ** | **%** | ** ** |
| ** **                            | ** ** | **(In  thousands)**                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                             |       | $                                  | 7,603      |       | 100%       |       | $          | 5,862 |   | 100% |   | $ | 1,741 |   | 30% |   |
| Cost of goods  sold                   |       | 4,245                              |       | 56%        |       | 3,302      |       | 56% |   | 943 |   | 29% |   |
| Gross profit                          |       | 3,358                              |       | 44%        |       | 2,560      |       | 44% |   | 798 |   | 31% |   |
|                                  |       |                               |       |       |       |       |       |   |   |   |   |   |   |
| Selling and  administrative           |       | 759                                |       | 10%        |       | 603        |       | 11% |   | 156 |   | 26% |   |
| Loss (gain) on  disposition of assets |       | 9                                  |       |       |       | —     |       |   |   | 9 |   |   |   |
| Amortization                          |       | 25                                 |       |       |       | 7          |       |   |   | 18 |   |   |   |
| Operating income                      |       | $                                  | 2,565      |       | 34%        |       | $          | 1,950 |   | 33% |   | $ | 615 |   | 32% |   |

 

Net sales in China increased 30% in the third quarterof fiscal 2007, including a 2% increase for currency changes.  We continue to benefit from a strong economyand lift truck market in China for all products.  Lift truck industry shipments in Chinaincreased 32% in the third quarter of fiscal 2007.

The gross margin percentage remained consistent at 44%in the third quarter of fiscal 2007 compared to the prior year.

We have opened a global purchasing office in China towork with Chinese suppliers in our continuing effort for sourcing lower costmaterial, components and parts for use in both China and our othermanufacturing facilities throughout the world.

Excluding the impact of foreign currency, selling andadministrative expense increased 24% in the third quarter of fiscal 2007compared to the prior year.  The increaseis primarily due to higher selling costs and other general cost increasesneeded to support the expansion of our operations in China.

**Non-Operating Items**

The effective tax rate increased from 35% in the prioryear to 37% in the third quarter of fiscal 2007.  The change was related to state income taxesand increases in valuation allowances for pre-tax losses in The Netherlands andGermany.   Valuation allowances increased$349,000 and $315,000 in the third quarter of fiscal 2007 and 2006,respectively.

**LiftTruck Market Outlook**

Based on our review of preliminary industry data webelieve the general lift truck market outlook for the remainder of fiscal 2007is as follows:

·                  Themarket in North America will remain at the current levels through the remainderof the year.

·                  Europewill continue to grow but at a more modest rate than experienced for the firstthree quarters.

·                  Themarket in Asia Pacific will remain at the current levels through the remainderof the year.

·                  Themarket in China will continue to experience robust growth through the remainderof the year.

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**COMPARISON OF THE FIRST NINE MONTHSOF FISCAL 2007 AND FISCAL 2006**

**Consolidated Summary**

Net income for the first nine months of fiscal 2007 of$35.2 million ($2.69 per diluted share) was 4% higher than net income of $33.8million ($2.63 per diluted share) for the first nine months of fiscal 2006. Netsales for the first nine months of fiscal 2007 were $360 million or 5%greater than the first nine months of fiscal 2006. Excluding the effect offoreign currency fluctuations, net sales in North America, Asia Pacific andChina grew 6%, 5% and 25%, respectively in the first nine months of fiscal 2007as compared to the same period of the prior year.  Net sales in Europe in the first nine monthsof fiscal 2007 were consistent with the prior year.

The gross margin percentage in the first nine monthsof fiscal 2007 of 32% was consistent with the prior year.  Although the trends in geographic regionsmight be slightly different, on a consolidated level the margins have remainedconstant as increases in sales, including price increases, and cost reductionsfrom manufacturing efficiencies have essentially offset the effect ofincreasing material and other costs.

Selling and administrative costs increased 6% in thefirst nine months of fiscal 2007 over the comparable period of the prior year.The effect of foreign currency changes on selling and administrative costs inthe current year as compared to the prior year was not material.   The increase was due primarily to highershare-based compensation costs in the current year.   Total share-based compensation costs were$3.0 million and $1.2 million in the first nine months of fiscal 2007 and 2006,respectively.   Other current year costincreases include selling expenses and costs to support our business expansionin China.  Selling and administrativecosts as a percentage of net sales were 17% and 16% for the first nine monthsof fiscal 2007 and 2006, respectively.

**North America**
| ** **                            | ** ** | **Nine Months Ended October 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------|------------|------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                            | ** ** | **2006**                                             | ** ** | **%**      | ** ** | **2005**   | ** ** | **%** | ** ** | **Change** | ** ** | **%** | ** ** |
| ** **                            | ** ** | **(In thousands)**                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                             |       | $                                                    | 200,749    |       | 100        | %          | $          | 188,466 |   | 100 | % | $ | 12,283 |   | 7 | % |
| Cost of goods sold                    |       | 121,376                                              |       | 61         | %          | 113,981    |       | 61 | % | 7,395 |   | 6 | % |
| Gross profit                          |       | 79,373                                               |       | 39         | %          | 74,485     |       | 39 | % | 4,888 |   | 7 | % |
|                                  |       |                                                 |       |       |       |       |       |   |   |   |   |   |   |
| Selling and  administrative           |       | 34,141                                               |       | 17         | %          | 32,717     |       | 17 | % | 1,424 |   | 4 | % |
| Loss (gain) on  disposition of assets |       | 19                                                   |       |       |       | (2         | )          |   |   | 21 |   |   |   |
| Amortization                          |       | 267                                                  |       |       |       | 112        |       |   |   | 155 |   |   |   |
| Operating income                      |       | $                                                    | 44,946     |       | 22         | %          | $          | 41,658 |   | 22 | % | $ | 3,288 |   | 8 | % |

 

North America net sales were up $12.3 million or7% in the first nine months of fiscal 2007 over the same period of fiscal 2006due primarily to higher levels of business activity and selling pricesimplemented to cover higher material costs.  Changes in currencies made up 1% of the overall sales increase.

Historically, changes in the level of our net sales havenot corresponded directly to changes in lift truck industry shipments, butindustry statistics provide an indication of the direction of businessactivity.  North American lift truckindustry shipments for the first nine months of fiscal 2007 as compared to thefirst nine months of fiscal 2006 increased 4%.

Gross margins for the first nine months of fiscal 2007in North America were consistent with the prior year.  Our margins have remained constant asincreases in material costs have been offset by increases in selling prices andcost reductions from manufacturing efficiencies.

Selling and administrative costs for the first ninemonths of fiscal 2007 increased 4% over the same period of the prior year.  Currency changes accounted for 1% of thisincrease.  The increase is due primarilyto share-based 

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compensation costs which increased from $1.0 millionin the first nine months of fiscal 2006 to $2.4 million in the first ninemonths of fiscal 2007.  We have beenrecording share-based compensation costs under SFAS 123R since the secondquarter of fiscal 2006.  Prior yearshare-based compensation costs were lower because in the first quarter offiscal 2006 we used mark-to-market accounting to account for certain share-basedawards.  This resulted in income of$212,000 being recorded in the first quarter due to a quarter to quarter dropin the market price of our common stock.

**Europe**
| ** **                            | ** ** | **Nine Months Ended October 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------|------------|------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                            | ** ** | **2006**                                             | ** ** | **%**      | ** ** | **2005**   | ** ** | **%** | ** ** | **Change** | ** ** | **%** | ** ** |
| ** **                            | ** ** | **(In thousands)**                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                             |       | $                                                    | 101,416    |       | 100        | %          | $          | 101,787 |   | 100 | % | $ | (371 | ) | (0 | %) |
| Cost of goods  sold                   |       | 84,177                                               |       | 83         | %          | 82,217     |       | 81 | % | 1,960 |   | 2 | % |
| Gross profit                          |       | 17,239                                               |       | 17         | %          | 19,570     |       | 19 | % | (2,331 | ) | (12 | %) |
|                                  |       |                                                 |       |       |       |       |       |   |   |   |   |   |   |
| Selling and  administrative           |       | 17,154                                               |       | 17         | %          | 16,214     |       | 16 | % | 940 |   | 6 | % |
| Loss (gain) on  disposition of assets |       | (589                                                 | )          |       |       | 142        |       |   |   | (731 | ) |   |   |
| Amortization                          |       | 650                                                  |       |       |       | 1,062      |       | 1 | % | (412 | ) |   |   |
| Operating income                      |       | $                                                    | 24         |       | 0          | %          | $          | 2,152 |   | 2 | % | $ | (2,128 | ) | (99 | %) |

 

Net sales in Europe for the first nine months offiscal 2007 decreased slightly compared to the same period of fiscal 2006.  Foreign currency changes had littleimpact.  While a portion of the decreasewas anticipated with our continued rationalization of production between ourEuropean facilities, we have experienced lower than expected salesoverall.  This is especially true giventhat European lift truck industry shipments have increased 14% in the firstnine months of fiscal 2007 compared to the prior year.  We have taken steps to address this apparentdecrease in our European market share through expansion of our Eastern Europeansales staff and other personnel changes.

Gross margins in Europe have decreased from 19% in thefirst nine months of fiscal 2006 to 17% in fiscal 2007.  The decrease in our gross margin is due tothe following:

·                  Higher costs andunanticipated inventory adjustments at our manufacturing facility in Germany.

·                  Productionmodifications during the third quarter which led to manufacturinginefficiencies and higher product costs in France and the United Kingdom.  We expect to experience benefits from theseproduction modifications beginning in the fourth quarter of fiscal 2007.

·                  We have beenunable to fully recover material cost increases through increases in sellingprices.  We are continuing to pursuevarious sourcing strategies to reduce our overall material costs.

During the second quarter of fiscal 2006 we announcedthe planned closure of our manufacturing facility in Hoorn, TheNetherlands.   Production operations inHoorn were integrated into other manufacturing facilities in Almere, TheNetherlands and Verona, Italy.  Theclosure eliminated excess capacity for attachment products and reduced overallproduction costs.  During the first ninemonths of fiscal 2006, we recorded $1.3 million of costs related to theclosure.  Excluding these closure costs,the gross margin percentage for fiscal 2006 would have been 21%.

The gain on disposition of assets in fiscal 2007relates primarily to the sale of our manufacturing facility in Hoorn, TheNetherlands.

Selling and administrative costs in Europe increased 6%in the first nine months of fiscal 2007 compared to the first nine months offiscal 2006.  Excluding the effects ofchanging currencies, selling and administrative costs increased 7%.  This increase is primarily due to additionalsales and marketing costs and share-based compensation costs.

In the second quarter of fiscal 2006 we recordedadditional amortization expense for intangible assets related to our fiscal2004 acquisition in Italy.  Current yearresults do not include these additional expenses.

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**Asia Pacific**
| ** **                            | ** ** | **Nine Months Ended October 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------|------------|------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                            | ** ** | **2006**                                             | ** ** | **%**      | ** ** | **2005**   | ** ** | **%** | ** ** | **Change** | ** ** | **%** | ** ** |
| ** **                            | ** ** | **(In thousands)**                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                             |       | $                                                    | 36,007     |       | 100        | %          | $          | 34,832 |   | 100 | % | $ | 1,175 |   | 3 | % |
| Cost of goods  sold                   |       | 27,140                                               |       | 76         | %          | 24,953     |       | 72 | % | 2,187 |   | 9 | % |
| Gross profit                          |       | 8,867                                                |       | 24         | %          | 9,879      |       | 28 | % | (1,012 | ) | (10 | %) |
|                                  |       |                                                 |       |       |       |       |       |   |   |   |   |   |   |
| Selling and  administrative           |       | 6,225                                                |       | 17         | %          | 5,715      |       | 16 | % | 510 |   | 9 | % |
| Loss (gain) on  disposition of assets |       | (12                                                  | )          |       |       | (47        | )          |   |   | 35 |   |   |   |
| Amortization                          |       | 19                                                   |       |       |       | —     |       |   |   | 19 |   |   |   |
| Operating income                      |       | $                                                    | 2,635      |       | 7          | %          | $          | 4,211 |   | 12 | % | $ | (1,576 | ) | (37 | %) |
|                                       |            |                                                      |            |            |            |            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Asia Pacific net sales increased 3% in the first ninemonths of fiscal 2007 over fiscal 2006. Excluding the effect of foreign currencies, net sales increased 5%.  The increase was primarily due to additionalsales in Korea and Japan.  Both of thesemarkets continue to post strong sales results for the year.  Sales in Australia have been slightly behindthe sales levels in fiscal 2006, which was a record year for this market.  Asia Pacific lift truck industry shipmentsfor the first nine months of fiscal 2007 as compared to the first nine monthsof fiscal 2006 increased 5%.

Gross margin percentages in the Asia Pacific regionhave decreased from 28% in the first nine months of fiscal 2006 to 24% in thefirst nine months of fiscal 2007.  The 4%decrease is due to higher material costs which could not be passed on tocustomers through higher sales prices. We are continuing to pursue opportunities to recover this lost marginbut at this time do not expect any significant improvements in the near future.

Selling and administrative costs in the Asia Pacificregion increased 9% for the first nine months of fiscal 2007 as compared tofiscal 2006.   Excluding currencychanges, these costs have increased 12% in fiscal 2007.  The increase includes additional personnel,marketing and employee benefit expenses.

C**hina**
| ** **                            | ** ** | **Nine Months Ended October 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------|------------|------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                            | ** ** | **2006**                                             | ** ** | **%**      | ** ** | **2005**   | ** ** | **%** | ** ** | **Change** | ** ** | **%** | ** ** |
| ** **                            | ** ** | **(In thousands)**                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                             |       | $                                                    | 21,787     |       | 100        | %          | $          | 16,995 |   | 100 | % | $ | 4,792 |   | 28 | % |
| Cost of goods  sold                   |       | 12,771                                               |       | 59         | %          | 10,046     |       | 59 | % | 2,725 |   | 27 | % |
| Gross profit                          |       | 9,016                                                |       | 41         | %          | 6,949      |       | 41 | % | 2,067 |   | 30 | % |
|                                  |       |                                                 |       |       |       |       |       |   |   |   |   |   |   |
| Selling and  administrative           |       | 2,059                                                |       | 9          | %          | 1,687      |       | 10 | % | 372 |   | 22 | % |
| Loss (gain) on  disposition of assets |       | 10                                                   |       |       |       | —     |       |   |   | 10 |   |   |   |
| Amortization                          |       | 39                                                   |       |       |       | 21         |       |   |   | 18 |   |   |   |
| Operating income                      |       | $                                                    | 6,908      |       | 32         | %          | $          | 5,241 |   | 31 | % | $ | 1,667 |   | 32 | % |

 

Net sales in China increased 28% in the first ninemonths of fiscal 2007 compared to fiscal 2006. Foreign currency accounted for3% of the sales increase.  The remaining25% increase reflects the strength of the Chinese economy and the Chinese lifttruck industry.  Industry lift truckshipments increased 33% during the current year.

The gross margin percentage remained consistent at 41%in the first nine months of fiscal 2007 compared to fiscal 2006.  This reflects the benefit of our highershipping volumes which were partially offset by higher material costs.  We have several initiatives underway tocontinue reducing our overall manufacturing costs in China.  The initiatives include the opening of aglobal purchasing office in China, equipment upgrades and process 

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improvements at our attachment facility in Xiamen andsourcing of steel from China for the manufacturing of OEM products in Hebei.

Selling and administrative costs increased 22% in thefirst nine months of fiscal 2007 as compared to fiscal 2006.  Currency changes made up 3% of thisincrease.  These increases are primarilydue to infrastructure costs to support the expansion of our Chinese operations.  These costs include sales and marketing,information technology and professional fees.

**Non-OperatingItems**

The effective taxrate of 36% in the first nine months of fiscal 2007 was higher than the 35%effective tax rate for the prior year due to additional valuation allowancesrelated to pre-tax losses in The Netherlands and Germany.  Our rate in both periods has been negativelyimpacted by the recording of valuation allowances related to pre-tax losses inEurope.  Valuation allowances related topre-tax losses increased $1.3 million in the first nine months of fiscal 2007and $885,000 in the first nine months of fiscal 2006.

**CASH FLOWS**

The statements of cash flows reflect the changes incash and cash equivalents for the nine months ended October 31, 2006 andOctober 31, 2005 by classifying transactions into three major categories ofactivities: operating, investing and financing.

**Operating**

Our primary source of liquidity is cash generated fromoperating activities. This consists of net income adjusted for noncashoperating items such as depreciation and amortization, losses and gains ondisposition of assets, share-based compensation, deferred income taxes andchanges in operating assets and liabilities.

Net cash provided by operating activities fromcontinuing operations was $35.5 million in the first nine months of fiscal2007 compared to $38.8 million for the same period in fiscal 2006. Thedecrease in cash provided by operating activities in fiscal 2007 was due to anincrease in accounts receivable.  Thisdecrease was partially offset by higher net income and changes in other operatingaccounts, primarily inventory, accounts payable and accrued expenses.

**Investing**

Our capital expenditures are primarily for equipmentand tooling related to product improvements, more efficient production methods,expansion of production capacity and replacement for normal wear and tear.Capital expenditures by geographic segments were as follows (in thousands):
| ** **    | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|---------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **    | ** ** | **October 31**              | ** ** | **October 31**             | ** ** |
| ** **    | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
| North America |       | $                                | 1,159      |                            | $          | 1,152 |   | $ | 4,886 |   | $ | 4,398 |   |
| Europe        |       | 475                              |       | 883                             |       | 1,467 |   | 2,633 |   |
| Asia Pacific  |       | 131                              |       | 17                              |       | 275 |   | 191 |   |
| China         |       | 3,877                            |       | 134                             |       | 5,262 |   | 251 |   |
|          |       | $                                | 5,642      |                            | $          | 2,186 |   | $ | 11,890 |   | $ | 7,473 |   |

 

We expect capital expenditures for the rest of fiscal2007 to approximate depreciation expense, excluding expenditures related to ourexpansion plans in China.  Depreciationexpense for the first nine months in fiscal 2007 and fiscal 2006 was$10.3 million and $11.0 million, respectively.

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Our current plans are to spend $15 million on ourexpansion in China, which includes $5.6 million by the end of fiscal 2007.  As of October 31, 2006, property, plant andequipment included $4.0 million of construction in progress related to theChina expansion.  This investment inChina will position us to keep pace with the rapidly expanding Chinese lifttruck market and undertake a significant expansion of our business in the AsiaPacific region.  In addition, we will beevaluating whether Chinese manufactured parts and products could be distributedto North America and Europe.

We held marketable securities of $16 million atOctober 31, 2006.  These securitiesconsist of auction rate and variable demand rate notes issued by various stateagencies throughout the United States. We classify these securities as available-for-sale securities. These securities are either insured through first party agencies, reinsuredthrough the U.S. federal government, or secured by a letter of credit from abank.   There were no realized orunrealized gains or losses related to our marketable securities during thefirst nine months of fiscal 2007 and fiscal 2006.  These securities arelong-term instruments maturing through 2038; however, the interest rates andmaturities are reset approximately every month, at which time we can sell thesecurities.  Accordingly, we have classified these securities as currentassets in our consolidated balance sheets. Interest rates on tax-free securities range from 3.4% to 3.8% per annum.

**Financing**

We declared dividends totaling $0.45 and $0.39 pershare during the first nine months of fiscal 2007 and 2006, respectively.

The issuance of common stock related to the exerciseof stock options and stock appreciation rights generated $1.8 million and $2.7million of cash for the first nine months in fiscal 2007 and 2006, respectively.

We repurchased $13.9 million of common stock duringthe first nine months of fiscal 2007. This amount includes $12.8 million of cash paid and a liability of $1.1million as of October 31, 2006.  See the “FinancialCondition and Liquidity” section for further details.

The decrease in notes payable to banks ofapproximately $3.7 million in fiscal 2007 reflects the paydown of substantiallyall of the debt related to our fiscal 2004 Italian acquisition.

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**FINANCIALCONDITION AND LIQUIDITY**

Our working capital, defined as current assets lesscurrent liabilities, at October 31, 2006 was $146.6 million ascompared to $125 million at January 31, 2006. Our current ratio atOctober 31, 2006 was 3.4 to 1 as compared to 2.9 to 1 at January 31, 2006.

Total outstanding debt, including notes payable tobanks at October 31, 2006 was $26.2 million as compared to $29.9million at January 31, 2006.  Ourdebt agreements contain covenants relating to net worth and leverage ratios. Wewere in compliance with these covenants at October 31, 2006.  Borrowing arrangements currently in placewith commercial banks provide lines of credit totaling $25 million, ofwhich $1.9 million was used to issue letters of credit at October 31, 2006.  The lines of credit expire on September 1,2010.  Average interest rates on notespayable to banks was 2% at October 31, 2006 and 3% at January 31, 2006.

Our current plans are to fund our existingpostretirement obligation as costs are incurred.  Any defined benefit obligations will befunded to meet minimum statutory funding requirements or any additional fundingrequirements which we have committed to in specific plan agreements.  Currently, these additional fundingrequirements are limited to contributions of $350,000 per each of the next fiveyears to a defined benefit plan in England.

On September 5, 2006, our Board of Directorsauthorized a share repurchase program of up to $80 million over a two yearperiod.  During the three and nine monthsended October 31, 2006, we repurchased and retired 289,000 shares of commonstock for $13.9 million.  This amountincludes $12.8 million of cash paid during the quarter and a liability of $1.1million as of October 31, 2006.  Underthe current program, we have the option to purchase additional common stock ofup to $66.1 million.  Repurchases willcontinue to be made on an on-going basis based on market conditions, relevantsecurities laws and other factors.  It isanticipated that a majority of the share repurchases will be funded throughcash flow from operations and existing cash balances.  In addition we are increasing our revolvingcredit facility from $25 million to $125 million to provide short-term funding,if needed, for the share repurchase program and to fund our planned expansioninto the construction attachment market.

We believe that our cash and cash equivalents,marketable securities, expanded credit facilities and cash flows fromoperations will be sufficient to satisfy our expected working capital, capitalexpenditure, acquisition, share buyback and debt retirement requirements forthe next twelve months.

**OTHER MATTERS**

The U.S. dollar weakened in the first nine months offiscal 2007 in comparison to most foreign currencies used by our significantforeign operations, which are the Euro, Canadian Dollar and British Pound.  As a result, foreign currency translationadjustments increased shareholders’ equity by $1.5 million and $5.5 million inthe third quarter and first nine months of fiscal 2007, respectively.

**CRITICALACCOUNTING POLICIES AND ESTIMATES**

Our discussion and analysis of financial position andresults of operations is based on our consolidated financial statements whichhave been prepared in accordance with generally accepted accounting principlesin the United States of America (GAAP). The preparation of these financial statements requires us to makeestimates and judgments that affect the reported amounts of assets,liabilities, revenues and expenses and the disclosure of contingent assets andliabilities.  We evaluate our estimatesand judgments on an on-going basis, including those related to uncollectiblereceivables, inventories, goodwill and long-lived assets, warranty obligations,environmental liabilities and deferred taxes. We base our estimates on historical experience and various otherassumptions that we believe to be reasonable under the circumstances.  Actual results may differ from theseestimates under different assumptions or conditions.  A description of our critical accountingpolicies and related judgments and estimates that affect the preparation of ourconsolidated financial statements is set forth in our Annual Report on Form10-K for the year ended January 31, 2006. We have presented below any updates to these policies and estimates fromthe information disclosed in our fiscal 2006 Form 10-K.

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***Impairment of Goodwill***

 We reviewgoodwill for impairment either annually or when events or changes incircumstances indicate the carrying value of the assets might exceed theircurrent fair values.  The review isperformed for the three reporting units in which we have recorded goodwill,North America, Europe and Australia. Certain factors we consider important which could trigger an impairmentreview at an interim date outside of the annual review include, but are notlimited to, significant underperformance relative to historical or projectedfuture operating results, significant changes in the manner of use of theacquired assets or our overall business and significant industry or economictrends.

We disclosed in our Form 10-K for the year endedJanuary 31, 2006 that our goodwill impairment test for Europe assumed futureoperating results would be improved over prior year actual results.  These improvements reflected a number ofinitiatives in Europe to restructure our European business.  During the first nine months of fiscal 2007the operating income for our European reporting unit has fallen below the levelof operating income in the prior year. However, cash flow in the current year is higher due to a decrease incapital expenditures in Europe.  We arecontinuing to pursue other initiatives and improvements in Europe to improveour overall results.  Because of thesefactors, we do not believe Europe’s year-to-date operating results wouldtrigger an interim impairment review at this time.  We will continue to evaluate our actualresults to determine if existing factors, such as underperformance relative toour projected future operating results, would require an interim goodwillimpairment review.  If we do not realizethese improvements and our actual results are not consistent with ourassumptions and judgments, we could be exposed to a material impairment of ourgoodwill in Europe in the future.  Totalgoodwill in Europe at October 31, 2006 was $10.4 million.

**OFF BALANCE SHEET ARRANGEMENTS**

At October 31, 2006, we did not have anyrelationships with unconsolidated entities or financial partnerships, such asentities often referred to as structured finance or special purpose entities,which would have been established for the purpose of facilitating off-balancesheet arrangements or for other contractually narrow or limited purposes. Assuch, we are not materially exposed to any financing, liquidity market orcredit risk that could arise if we had engaged in such relationships.

**RECENT ACCOUNTINGPRONOUNCEMENTS**

**SFAS 151**- In November 2004, the Financial Accounting Standards Board (“FASB”)issued SFAS No. 151 (SFAS 151), “Inventory Costs, an amendment of ARBNo. 43, Chapter 4.”  Thisstatement amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing”,to clarify the accounting for abnormal amounts of idle facility expense,freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARBNo. 43, Chapter 4, previously stated that “....under some circumstances,items such as idle facility expense, excessive spoilage, double freight, andre-handling costs may be so abnormal as to require treatment as current periodcharges...” SFAS 151 requires that those items be recognized as current-periodcharges regardless of whether they meet the criterion of “so abnormal.”  In addition, this statement requires thatallocation of fixed production overhead to the costs of conversion be based onthe normal capacity of the production facilities. The provisions of SFAS 151were effective for us on February 1, 2006. The adoption of SFAS 151 didnot have a material impact on our financial position or results of operations.

**SFAS 154**- In May 2005, the FASB issued SFAS No. 154 (SFAS 154), “AccountingChanges and Error Corrections — a replacement of APB Opinion No. 20 andFASB Statement No. 3.” SFAS 154 changes the requirements for theaccounting for and reporting of a change in accounting principle. Thisstatement applies to all voluntary changes in accounting principles. It alsoapplies to changes required by an accounting pronouncement in the unusualinstance that the pronouncement does not include specific transitionprovisions. SFAS 154 requires the application of a change in accounting principlebe applied to prior accounting periods presented as if that principle hadalways been used. When a pronouncement includes specific transition provisionsthose provisions should be followed. SFAS 154 is effective for accountingchanges and corrections of errors made in fiscal years beginning afterDecember 15, 2005. The adoption of SFAS 154 at the beginning of fiscal2007 did not have an effect on our consolidated financial statements.

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**FIN 48**- In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting forUncertainty in Income Taxes.” This interpretation clarifies the accounting foruncertainty in income taxes recognized in an enterprise’s financial statementsin accordance with FASB Statement No. 109, “Accounting for Income Taxes.” FASB Interpretation No. 48 prescribes a recognition threshold and measurementattribute for the financial statement recognition and measurement of a taxposition taken or expected to be taken in a tax return.  It also providesguidance on de-recognition, classification, interest and penalties, accountingin interim periods, disclosure and transition.  We are currentlyevaluating the impact of FASB Interpretation No. 48 on our financialstatements.  Application of this interpretation is required for ourfinancial statements for the fiscal year ended January 31, 2008.

****SFAS 157****- In September2006, the FASB issued SFAS No. 157 (SFAS 157), “Fair Value Measurements.” SFAS157 provides a common definition of fair value, establishes a framework formeasuring fair value and expands the related disclosure requirements. We arecurrently evaluating the impact of SFAS 157 on our financial statements.  Application of SFAS 157 is required for ourfinancial statements for the fiscal year ending January 31, 2008.

****SFAS 158**** - In September2006, the FASB issued SFAS No. 158 (SFAS 158), “Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans — an amendment of FASBStatements No. 87, 88, 106, and 132(R).” This statement requires balance sheet recognition of the overfunded orunderfunded status of pension and postretirement benefit plans. Under SFAS 158,actuarial gains and losses, prior service costs or credits, and any remainingtransition assets or obligations that have not been recognized under previous accountingstandards must be recognized in other comprehensive income, net of tax effects,until they are amortized as a component of net periodic benefit cost.  In addition, the measurement date, the dateat which plan assets and the benefit obligation are measured, is required to bethe company’s fiscal year end. Presently, we use a December 31 measurementdate for our postretirement benefit plan, which will need to change to coincidewith our January 31 fiscal year-end date. Based on amounts as of January 31, 2006, the adoption of SFAS 158 wouldhave increased our postretirement liability by approximately $2.8 million anddecreased shareholders’ equity by approximately $1.7 million, net of tax.  The adoption of SFAS 158 will not affect netincome and will not change our defined benefit plan liability, which wasrecorded under previous accounting standards. Application of SFAS 158 is required for our financial statements for thefiscal year ending January 31, 2007, except for the measurement date provision,which is effective for the fiscal year ending January 31, 2009.  By the time of adoption at January 31, 2007,plan activity and actuarial assumptions could have a significant impact on theactual amounts recorded.

**SAB 108** - In September 2006, the SEC issued Staff AccountingBulletin No. 108 (SAB 108) “Considering the Effects of Prior Year Misstatementswhen Quantifying Misstatements in Current Year Financial Statements.”  SAB 108 provides interpretive guidance on howthe effects of the carryover or reversal of prior year misstatements should beconsidered in quantifying a current year misstatement. The SEC staff believesthat registrants should quantify errors using both a balance sheet and incomestatement approach and evaluate whether either approach results in quantifyinga misstatement that, when all relevant quantitative and qualitative factorsconsidered, is material.  We do notbelieve SAB 108 will have a material impact on our consolidated financialstatements.  Application of SAB 108 isrequired for our financial statements for the fiscal year ending January 31,2007.

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**Item 3. Quantitative and Qualitative DisclosuresAbout Market Risk**

Market risk is the potential loss arising from adversechanges in market rates and prices, such as foreign currency exchange rate andinterest rate fluctuations. A significant portion of our revenues and expensesare denominated in foreign currencies. As a result, our operating results couldbecome subject to significant fluctuations based upon changes in the exchange ratesof the foreign currencies in relation to the U.S. dollar. The table belowillustrates the hypothetical increase in net sales for the third quarter offiscal 2007 resulting from a 10% weaker U.S. dollar during the quarter,measured against foreign currencies that affect our operations (in millions):

| Euro                                                                        |   | $   | 2.6    |   |
|-----------------------------------------------------------------------------|--------|-----|--------|--------|
| Canadian dollar                                                             |   | 0.6 |   |
| British pound                                                               |   | 0.7 |   |
| Chinese renminbi                                                            |   | 0.8 |   |
| Other currencies  (representing net sales of 11% of consolidated net sales) |   | 1.3 |   |

 

We enter into foreign currency forward exchangecontracts to offset the impact of currency fluctuations on certainnonfunctional currency assets and liabilities. The principal currencies hedgedare denominated in Japanese yen, Canadian dollars, Euros and British pounds. Ourforeign currency forward exchange contracts have terms lasting up to sixmonths, but generally less than one month. We do not enter into derivatives orother financial instruments for trading or speculative purposes.

A majority of our products are manufactured usingsteel as a primary raw material and steel based components as purchased parts.As such, our cost of goods sold is sensitive to fluctuations in steel prices,either directly through the purchase of steel as raw material or indirectlythrough the purchase of steel based components. Presuming that the full impactof commodity steel cost increases is reflected in all steel and steel basedcomponent purchases, we estimate our gross profit percentage sensitivity to beapproximately 0.3% for each 1.0% increase in commodity steel cost withoutoffsetting sales price increases. For example, if the price of commodity steelincreases 1.0%, and the full impact of that increase is reflected in all rawmaterial and component purchases, the net decrease in the gross profitpercentage would be approximately 0.3%. Based on our statement of income forthe quarter ended October 31, 2006, a 1% increase in commodity steel costswithout offsetting sales price increases would have decreased consolidatedgross profit by approximately $333,000.

To date we have been able to mitigate the effect of aportion of steel cost increases on our gross margin. This has been done throughprice increases and production cost reductions. We intend to continue ourefforts to mitigate the impact of any additional steel cost increases. Theremay be some time lag between the absorption of the steel cost increases andrealizing the offsetting benefits of the mitigating measures. It should benoted that there is no assurance that we can fully mitigate all future steelcost increases through price increases and other measures and actual costincreases from steel suppliers could differ from cost increases that have beenpreviously communicated.

Manufacturing of our products includes the purchase ofvarious raw materials and components. Certain of these items are providedworldwide by a limited number of suppliers. We are not currently experiencingshortages in obtaining the raw materials and components. However, certain steelproducts obtained in Europe are subject to allocations from suppliers. At thistime, we believe the current allocation of these products from suppliers issufficient to meet planned production volumes. Nevertheless, there can be noassurance that these suppliers will be able to meet our future requirements. Anextended delay or interruption in the supply of any components could have amaterial adverse effect on our business, results of operations and financialcondition. We are working to identify alternative supplier sources for theseproducts.

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**Item 4. Controlsand Procedures**

*Evaluation of Disclosure Controlsand Procedures*

Our management has evaluated, under the supervisionand with the participation of our chief executive officer and chief financialofficer, the effectiveness of our disclosure controls and procedures as of theend of the period covered by this report pursuant to Rule 13a-15(b) underthe Securities Exchange Act of 1934 (the “Exchange Act”). Based on thatevaluation, our chief executive officer and chief financial officer haveconcluded that, as of the end of the period covered by this report, ourdisclosure controls and procedures are effective in ensuring that informationrequired to be disclosed in our Exchange Act reports is (1) recorded,processed, summarized and reported in a timely manner, and (2) accumulatedand communicated to our management, including our chief executive officer andchief financial officer, as appropriate to allow timely decisions regardingrequired disclosure.

*Changes in Internal Control OverFinancial Reporting*

There has been no change in the internal control overfinancial reporting that occurred during the three months ended October 31,2006 that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

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**PART II—OTHERINFORMATION**

**Item 1. LegalProceedings**

None

**Item 1A. RiskFactors**

There are no material changes from risk factorspreviously disclosed in our Form 10-K for the year endedJanuary 31, 2006.

**Item 2.Unregistered Sales of Equity Securities and Use of Proceeds**

The table below summarizes information about ourpurchases of our common shares during the three months ended October 31, 2006.
| ** **               | ** ** | ** **                    | ** ** | ** **                       | ** ** | **Total Number of**                 | ** ** | **Maximum Dollar Value**             | ** ** |
|--------------------------|------------|-------------------------------|------------|----------------------------------|------------|-----------------------------------------------|------------|------------------------------------------------|------------|
| ** **               | ** ** | ** **                    | ** ** | ** **                       | ** ** | **Shares Purchased as**             | ** ** | **of Shares that May Yet** | ** ** |
| ** **               | ** ** | **Total Number of** | ** ** | **Average Price Paid** | ** ** | **Part of Publicly Announced** | ** ** | **be Purchased Under the**      | ** ** |
| **Period**               | ** ** | **Shares Purchased**     | ** ** | **Per Share**               | ** ** | **Plans or Programs (1)**      | ** ** | **Plans or Programs**                | ** ** |
| ** **               | ** ** | ** **                    | ** ** | ** **                       | ** ** | ** **                                    | ** ** | ** **                                     | ** ** |
| September 19 -  30, 2006 |       | 88,947                        |       | $                                | 45.89      |                                          | 88,947     |                                           | $          | 75,918,000 |   |
| October 1 - 31,  2006    |       | 199,731                       |       | 49.22                            |       | 199,731                                       |       | 66,087,000                                     |       |
|                     |       |                          |       |                             |       |                                          |       |                                           |       |
| Total                    |       | 288,678                       |       | $                                | 48.20      |                                          | 288,678    |                                           |       |   |
|                          |            |                               |            |                                  |            |                                               |            |                                                |            |  |  |

 

(1)          OnSeptember 7, 2006, we announced that our Board of Directors had authorized ashare repurchase program of up to $80 million over a two-year period.

**Item 3. DefaultsUpon Senior Securities**

None

**Item 4. Submissionof Matters to a Vote of Security Holders**

None

**Item 5. OtherInformation**

None

**Item 6. Exhibits**

The following exhibits are included with this report:
| Exhibit No. | ** ** | **Description**                                                                                                 | ** ** |
|------------------|------------|-----------------------------------------------------------------------------------------------------------------|------------|
| 31.1             |       | Certification of  Chief Executive Officer of Cascade Corporation.                                               |       |
| 31.2             |       | Certification of  Chief Financial Officer of Cascade Corporation.                                               |       |
| 32               |       | Certification of Chief  Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.  Section 1350. |       |

 

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**SIGNATURES**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.
|                  | CASCADE CORPORATION                                                                                 |
|------------------|-----------------------------------------------------------------------------------------------------|
| December 8, 2006 |                                                                                                |
|             |                                                                                                |
|             | /s/ RICHARD S.  ANDERSON                                                                            |
|             | Richard S.  Anderson                                                                                |
|             | *Senior  Vice President and  Chief Financial Officer  (Principal Financial and Accounting Officer)* |

 

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**EXHIBIT INDEX**
| Exhibit No. | ** ** | **Description**                                                                                                | ** ** |
|------------------|------------|----------------------------------------------------------------------------------------------------------------|------------|
| 31.1             |       | Certification of  Chief Executive Officer                                                                      |       |
| 31.2             |       | Certification of  Chief Financial Officer                                                                      |       |
| 32               |       | Certification of Chief  Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.  Section 1350 |       |

 

 

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