** **

**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, 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 April 30, 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**

**CASCADECORPORATION**

(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 Exchange Act).Yes o  No x

Thenumber of shares outstanding of the registrant’s common stock as of May 22,2006 was 12,552,573.

 

----

**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 post-retirement 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.

1

----

**PART I—FINANCIALINFORMATION**

**Item 1. FinancialStatements**

**CASCADECORPORATIONCONSOLIDATED STATEMENTS OF INCOME(Unaudited—in thousands, except per share amounts)**
| ** **                                   | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------|------------|----------------------------------|------------|
| ** **                                   | ** ** | **April 30**                | ** ** |
| ** **                                   | ** ** | **2006**                         | ** ** | **2005** | ** ** |
| Net sales                                    |       | $                                | 117,774    |   | $ | 114,515 |   |
| Cost of goods  sold                          |       | 81,085                           |       | 77,027 |   |
| Gross profit                                 |       | 36,689                           |       | 37,488 |   |
|                                         |       |                             |       |   |   |
| Selling and  administrative expenses         |       | 19,852                           |       | 18,118 |   |
| Gain on sale of  assets                      |       | (662                             | )          | (28 | ) |
| Amortization                                 |       | 302                              |       | 176 |   |
|                                         |       |                             |       |   |   |
| Operating income                             |       | 17,197                           |       | 19,222 |   |
| Interest expense                             |       | 532                              |       | 750 |   |
| Interest income                              |       | (355                             | )          | (107 | ) |
| Other income                                 |       | (34                              | )          | (202 | ) |
|                                         |       |                             |       |   |   |
| Income before  provision for income taxes    |       | 17,054                           |       | 18,781 |   |
| Provision for  income taxes                  |       | 6,020                            |       | 6,573 |   |
|                                         |       |                             |       |   |   |
| Net income                                   |       | $                                | 11,034     |   | $ | 12,208 |   |
|                                         |       |                             |       |   |   |
| Basic earnings  per share                    |       | $                                | 0.88       |   | $ | 1.00 |   |
| Diluted earnings  per share                  |       | $                                | 0.84       |   | $ | 0.95 |   |
|                                         |       |                             |       |   |   |
| Basic weighted  average shares outstanding   |       | 12,542                           |       | 12,229 |   |
| Diluted weighted  average shares outstanding |       | 13,174                           |       | 12,827 |   |

 

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

2

----

**CASCADECORPORATIONCONSOLIDATED BALANCE SHEETS(Unaudited—in thousands, except per share amounts)**
| ** **                                                                                                | ** ** | **April 30** | ** ** | **January 31** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|-------------------|------------|---------------------|------------|
| ** **                                                                                                | ** ** | **2006**          | ** ** | **2006**            | ** ** |
| **ASSETS**                                                                                                |       |              |       |                |       |
| Current assets:                                                                                           |       |              |       |                |       |
| Cash and cash  equivalents                                                                                |       | $                 | 40,127     |                | $          | 35,493 |   |
| Marketable  securities                                                                                    |       | 22,104            |       | 23,004              |       |
| Accounts  receivable, less allowance for doubtful accounts of $1,496 and $1,415                           |       | 78,920            |       | 67,020              |       |
| Inventories                                                                                               |       | 55,397            |       | 56,996              |       |
| Deferred income  taxes                                                                                    |       | 3,399             |       | 3,232               |       |
| Prepaid expenses  and other                                                                               |       | 4,593             |       | 5,373               |       |
| Total current  assets                                                                                     |       | 204,540           |       | 191,118             |       |
| Property, plant and  equipment, net                                                                       |       | 76,485            |       | 75,374              |       |
| Goodwill                                                                                                  |       | 80,410            |       | 78,820              |       |
| Deferred income taxes                                                                                     |       | 12,446            |       | 11,851              |       |
| Other assets                                                                                              |       | 3,998             |       | 4,120               |       |
| Total assets                                                                                              |       | $                 | 377,879    |                | $          | 361,283 |   |
|                                                                                                      |       |              |       |                |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                            |       |              |       |                |       |
| Current liabilities:                                                                                      |       |              |       |                |       |
| Notes payable to  banks                                                                                   |       | $                 | 4,532      |                | $          | 4,741 |   |
| Current portion  of long-term debt                                                                        |       | 12,681            |       | 12,681              |       |
| Accounts payable                                                                                          |       | 21,997            |       | 25,124              |       |
| Accrued payroll  and payroll taxes                                                                        |       | 8,988             |       | 8,710               |       |
| Accrued  environmental expenses                                                                           |       | 982               |       | 984                 |       |
| Income taxes  payable                                                                                     |       | 5,693             |       | 2,373               |       |
| Dividends  payable                                                                                        |       | 1,882             |       | —              |       |
| Other accrued  expenses                                                                                   |       | 11,527            |       | 11,543              |       |
| Total current  liabilities                                                                                |       | 68,282            |       | 66,156              |       |
| Long-term debt, net of  current portion                                                                   |       | 12,500            |       | 12,500              |       |
| Accrued environmental  expenses                                                                           |       | 6,764             |       | 6,951               |       |
| Deferred income taxes                                                                                     |       | 4,231             |       | 4,009               |       |
| Other liabilities                                                                                         |       | 12,690            |       | 12,261              |       |
| Total  liabilities                                                                                        |       | 104,467           |       | 101,877             |       |
|                                                                                                      |       |              |       |                |       |
| Commitments and  contingencies (Note 8)                                                                   |       |              |       |                |       |
| Shareholders’ equity:                                                                                |       |              |       |                |       |
| Common stock,  $.50 par value, 20,000 authorized shares; 12,548 and 12,536 shares issued and  outstanding |       | 6,274             |       | 6,268               |       |
| Additional  paid-in capital                                                                               |       | 22,652            |       | 21,590              |       |
| Retained  earnings                                                                                        |       | 233,019           |       | 223,867             |       |
| Accumulated  other comprehensive income                                                                   |       | 11,467            |       | 7,681               |       |
| Total  shareholders’ equity                                                                          |       | 273,412           |       | 259,406             |       |
| Total liabilities and  shareholders’ equity                                                          |       | $                 | 377,879    |                | $          | 361,283 |   |

 

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

3

----

**CASCADECORPORATIONCONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY(Unaudited—in thousands, except per share amounts)**
| ** **                                                           | ** ** | ** **            | ** ** | ** **  | ** ** | ** **     | ** ** | ** **        | ** ** | **Accumulated**        | ** ** | ** **             | ** ** |
|----------------------------------------------------------------------|------------|-----------------------|------------|-------------|------------|----------------|------------|-------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                           | ** ** | ** **            | ** ** | ** **  | ** ** | **Additional** | ** ** | ** **        | ** ** | **Other**              | ** ** | **Year-To-Date**       | ** ** |
| ** **                                                           | ** ** | **Common Stock** | ** ** | **Paid-In** | ** ** | **Retained**   | ** ** | **Comprehensive** | ** ** | **Comprehensive**      | ** ** |
| ** **                                                           | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **Capital**    | ** ** | **Earnings**      | ** ** | **Income (Loss)** | ** ** | **Income (Loss)** | ** ** |
| **Balance at January 31,  2006**                                |       | 12,536                |       | $           | 6,268      |           | $          | 21,590            |       | $                      | 223,867    |                   | $          | 7,681 |   |   |   |
|                                                                 |       |                  |       |        |       |           |       |              |       |                   |       |                   |       |
| Net income                                                           |       | —                |       | —      |       | —         |       | 11,034            |       | —                 |       | $                      | 11,034     |   |
| Dividends ($0.15 per  share)                                         |       | —                |       | —      |       | —         |       | (1,882            | )          | —                 |       | —                 |       |
| Common stock issued                                                  |       | 12                    |       | 6           |       | 108            |       | —            |       | —                 |       | —                 |       |
| Excess tax benefit from  exercise of share-based compensation awards |       | —                |       | —      |       | 23             |       | —            |       | —                 |       | —                 |       |
| Share-based  compensation                                            |       | —                |       | —      |       | 931            |       | —            |       | —                 |       | —                 |       |
| Translation adjustment                                               |       | —                |       | —      |       | —         |       | —            |       | 3,786                  |       | 3,786                  |       |
|                                                                 |       |                  |       |        |       |           |       |              |       |                   |       |                   |       |
| **Balance at April 30, 2006**                                   |       | 12,548                |       | $           | 6,274      |           | $          | 22,652            |       | $                      | 233,019    |                   | $          | 11,467 |   | $ | 14,820 |   |

 

The accompanying notes are an integral part of theconsolidated financial statements.

4

----

**CASCADECORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited—in thousands)**
| ** **                                                                         | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                         | ** ** | **April 30**                | ** ** |
| ** **                                                                         | ** ** | **2006**                         | ** ** | **2005** | ** ** |
| **Cash flows from operating  activities:**                                         |       |                             |       |   |   |
| Net income                                                                         |       | $                                | 11,034     |   | $ | 12,208 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                             |       |   |   |
| Depreciation and  amortization                                                     |       | 3,784                            |       | 3,730 |   |
| Share-based  compensation                                                          |       | 931                              |       | (228 | ) |
| Deferred income  taxes                                                             |       | (586                             | )          | (532 | ) |
| Gain on  disposition of assets                                                     |       | (662                             | )          | (28 | ) |
| Changes in operating  assets and liabilities:                                      |       |                             |       |   |   |
| Accounts  receivable                                                               |       | (10,355                          | )          | (8,915 | ) |
| Inventories                                                                        |       | 2,754                            |       | (2,116 | ) |
| Prepaid expenses  and other                                                        |       | 130                              |       | 122 |   |
| Accounts payable  and accrued expenses                                             |       | (3,742                           | )          | (3,323 | ) |
| Income taxes  payable and receivable                                               |       | 3,262                            |       | 2,564 |   |
| Other assets and  liabilities                                                      |       | 85                               |       | 491 |   |
| Net cash  provided by operating activities                                         |       | 6,635                            |       | 3,973 |   |
|                                                                               |       |                             |       |   |   |
| **Cash flows from investing  activities:**                                         |       |                             |       |   |   |
| Capital  expenditures                                                              |       | (3,251                           | )          | (2,014 | ) |
| Sales of  marketable securities                                                    |       | 7,000                            |       | 1,000 |   |
| Purchases of  marketable securities                                                |       | (6,100                           | )          | (12,550 | ) |
| Proceeds from  sale of assets                                                      |       | 1,521                            |       | 163 |   |
| Net cash used in  investing activities                                             |       | (830                             | )          | (13,401 | ) |
|                                                                               |       |                             |       |   |   |
| **Cash flows from financing  activities:**                                         |       |                             |       |   |   |
| Cash dividends  paid                                                               |       | —                           |       | (1,467 | ) |
| Payments on  long-term debt and capital leases                                     |       | —                           |       | (13 | ) |
| Notes payable to  banks, net                                                       |       | (366                             | )          | (1,065 | ) |
| Common stock  issued under share-based compensation plans                          |       | 114                              |       | 189 |   |
| Excess tax  benefit from exercise of share-based compensation awards               |       | 23                               |       | 23 |   |
| Net cash used in  financing activities                                             |       | (229                             | )          | (2,333 | ) |
|                                                                               |       |                             |       |   |   |
| **Effect of exchange rate changes**                                                |       | (942                             | )          | 586 |   |
|                                                                               |       |                             |       |   |   |
| Change in cash and cash  equivalents                                               |       | 4,634                            |       | (11,175 | ) |
| Cash and cash  equivalents at beginning of period                                  |       | 35,493                           |       | 30,482 |   |
| Cash and cash  equivalents at end of period                                        |       | $                                | 40,127     |   | $ | 19,307 |   |
|                                                                               |       |                             |       |   |   |
| 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.

5

----

**CASCADECORPORATIONNOTES 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, but primarily in North America and Europe. We areheadquartered in Fairview, Oregon, employing approximately 1,900 people andmaintaining operations in 15 countries outside the United States.

**Note 2—InterimFinancial Information**

The accompanying consolidated financial statements forthe interim periods ended April 30, 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 on Form 10-Kin our Annual Report 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 accounting policies.

Revenues and operating results are classified accordingto the region of origin. Property, plant and equipment are attributed to thegeographic location in which they are located. Net sales, operating results andother financial information by geographic region were as follows (inthousands):
| ** **                        | ** ** | **Three Months Ended April 30** | ** ** |
|-----------------------------------|------------|-----------------------------------------------------|------------|
| **2006**                          | ** ** | **North America**                              | ** ** | **Europe** | ** ** | **Asia Pacific** | ** ** | **China** | ** ** | **Eliminations** | ** ** | **Consolidation** | ** ** |
| Sales to  unaffliated customers   |       | $                                                   | 66,615     |   | $ | 33,221 |   | $ | 11,137 |   | $ | 6,801 |   | $ | — |   | $ | 117,774 |   |
| Transfers  between areas          |       | 5,994                                               |       | 405 |   | 92 |   | 1,667 |   | (8,158 | ) | — |   |
| Net sales                         |       | $                                                   | 72,609     |   | $ | 33,626 |   | $ | 11,229 |   | $ | 8,468 |   | $ | (8,158 | ) | $ | 117,774 |   |
| Gross profit                      |       | $                                                   | 25,958     |   | $ | 5,344 |   | $ | 2,749 |   | $ | 2,638 |   |   |   | $ | 36,689 |   |
| Selling and  administrative  |       | 11,468                                              |       | 5,852 |   | 1,948 |   | 584 |   |   |   | 19,852 |   |
| Loss (gain) on  sale of assets    |       | 4                                                   |       | (662 | ) | (4 | ) | — |   |   |   | (662 | ) |
| Amortization                      |       | 89                                                  |       | 207 |   | — |   | 6 |   |   |   | 302 |   |
| Operating income  (loss)          |       | $                                                   | 14,397     |   | $ | (53 | ) | $ | 805 |   | $ | 2,048 |   |   |   | $ | 17,197 |   |
| Property, plant  and equipment    |       | $                                                   | 34,351     |   | $ | 35,655 |   | $ | 1,548 |   | $ | 4,931 |   |   |   | $ | 76,485 |   |
| Capital  expenditures             |       | $                                                   | 2,003      |   | $ | 347 |   | $ | 71 |   | $ | 830 |   |   |   | $ | 3,251 |   |
| Depreciation expense              |       | $                                                   | 2,041      |   | $ | 1,272 |   | $ | 104 |   | $ | 65 |   |   |   | $ | 3,482 |   |

 
| ** **                        | ** ** | **Three Months Ended April 30** | ** ** |
|-----------------------------------|------------|-----------------------------------------------------|------------|
| **2005**                          | ** ** | **North America**                              | ** ** | **Europe** | ** ** | **Asia Pacific** | ** ** | **China** | ** ** | **Eliminations** | ** ** | **Consolidation** | ** ** |
| Sales to  unaffliated customers   |       | $                                                   | 61,617     |   | $ | 36,704 |   | $ | 10,913 |   | $ | 5,281 |   | $ | — |   | $ | 114,515 |   |
| Transfers  between areas          |       | 6,090                                               |       | 685 |   | 91 |   | 1,210 |   | (8,076 | ) | — |   |
| Net sales                         |       | $                                                   | 67,707     |   | $ | 37,389 |   | $ | 11,004 |   | $ | 6,491 |   | $ | (8,076 | ) | $ | 114,515 |   |
| Gross profit                      |       | $                                                   | 23,992     |   | $ | 8,294 |   | $ | 3,151 |   | $ | 2,051 |   |   |   | $ | 37,488 |   |
| Selling and  administrative  |       | 10,428                                              |       | 5,495 |   | 1,798 |   | 397 |   |   |   | 18,118 |   |
| Loss (gain) on  sale of assets    |       | —                                              |       | 20 |   | (48 | ) | — |   |   |   | (28 | ) |
| Amortization                      |       | 37                                                  |       | 132 |   | — |   | 7 |   |   |   | 176 |   |
| Operating income                  |       | $                                                   | 13,527     |   | $ | 2,647 |   | $ | 1,401 |   | $ | 1,647 |   |   |   | $ | 19,222 |   |
| Property, plant  and equipment    |       | $                                                   | 35,192     |   | $ | 39,613 |   | $ | 1,631 |   | $ | 3,293 |   |   |   | $ | 79,729 |   |
| Capital  expenditures             |       | $                                                   | 1,266      |   | $ | 592 |   | $ | 96 |   | $ | 60 |   |   |   | $ | 2,014 |   |
| Depreciation expense              |       | $                                                   | 1,974      |   | $ | 1,385 |   | $ | 106 |   | $ | 89 |   |   |   | $ | 3,554 |   |

 

6

----

**Note 4—Goodwill**

The change in the amount of goodwill between April 30,2006 and January 31, 2006 related entirely to fluctuations in foreigncurrency. We have no goodwill in China. The following table provides abreakdown of goodwill by geographic region (in thousands):
| ** **    | ** ** | **April 30** | ** ** | **January 31** | ** ** |
|---------------|------------|-------------------|------------|---------------------|------------|
| ** **    | ** ** | **2006**          | ** ** | **2006**            | ** ** |
| North America |       | $                 | 67,210     |                | $          | 65,978 |   |
| Europe        |       | 10,198            |       | 9,840               |       |
| Asia Pacific  |       | 3,002             |       | 3,002               |       |
|          |       | $                 | 80,410     |                | $          | 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. Thesesecurities are insured either through third party agencies, reinsured throughthe U.S. government, or secured by a letter of credit from a bank. The specificidentification method is used to determine the cost of securities sold. Thereare no realized or unrealized gains or losses related to our marketablesecurities. These securities are long-term instrument maturing through 2040,however, the interest rates and maturities are reset approximately every month,at which time we can sell the securities. Accordingly, we have classified thesesecurities as current assets in our consolidated balance sheets.

**Note 6—Inventories**

Inventories stated at the lower of average cost ormarket are presented below by major class (in thousands).
| ** **                     | ** ** | **April 30** | ** ** | **January 31** | ** ** |
|--------------------------------|------------|-------------------|------------|---------------------|------------|
| ** **                     | ** ** | **2006**          | ** ** | **2006**            | ** ** |
| Finished goods  and components |       | $                 | 36,027     |                | $          | 37,236 |   |
| Work in process                |       | 605               |       | 620                 |       |
| Raw materials                  |       | 18,765            |       | 19,140              |       |
|                           |       | $                 | 55,397     |                | $          | 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 receive 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 of grant.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 April 30, 2006 a total of 576,000shares have 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 21,000 shares havebeen issued at April 30, 2006. We issue new common shares upon theexercise of all awards.

7

----

A summary of the plans’ status at April 30, 2006together with changes during the three months then ended are presented in thefollowing table (in thousands, except per share amounts):
| ** **                        | ** ** | **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                           |       | —                    |       | —                                  |       | — |   | — |   |
| Exercised                         |       | (14                       | )          | 15.71                                   |       | — |   | — |   |
| Forfeited                         |       | —                    |       | —                                  |       | — |   | — |   |
|                              |       |                      |       |                                    |       |   |   |   |   |
| Balance at  April 30, 2006   |       | 827                       |       | $                                       | 14.08      |   | 1,019 |   | $ | 29.83 |   |

 

Prior to May 1, 2005 we accounted for our 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 executives 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 recorded 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 the periodof adoption.

The following table illustrates the pro forma effecton net income and earnings per share if we had recorded compensation expensebased on the fair value method for all share-based compensation awards (inthousands, except per share amount):
| ** **                                                                                                            | ** ** | **Three Months Ended April 30** | ** ** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|------------|
| ** **                                                                                                            | ** ** | **2006**                                            | ** ** | **2005**   | ** ** | ** ** |
| Net income - as  reported                                                                                             |       | $                                                   | 11,034     |       | $ | 12,208 |   |   |
| Add: SARS  amortization, net of taxes of $80                                                                          |       | —                                              |       | (148       | ) |   |
| Net income  excluding SARS amortization                                                                               |       | 11,034                                              |       | 12,060     |   |   |
| Deduct: total  stock-based compensation, net of income tax benefits of $140 determined under  fair value based method |       | —                                              |       | (297       | ) |   |
| Net income - pro  forma                                                                                               |       | $                                                   | 11,034     |       | $ | 11,763 |   |   |
|                                                                                                                  |       |                                                |       |       |   |   |
| Basic earnings  per share - as reported                                                                               |       | $                                                   | 0.88       |       | $ | 1.00 |   |   |
| Basic earnings  per share - pro forma                                                                                 |       | $                                                   | 0.88       |       | $ | 0.96 |   |   |
| Diluted earnings  per share - as reported                                                                             |       | $                                                   | 0.84       |       | $ | 0.95 |   |   |
| Diluted earnings per  share - pro forma                                                                               |       | $                                                   | 0.84       |       | $ | 0.92 |   |   |

 

We calculate share-based compensation cost using theBlack-Scholes option pricing model. Additional information regarding theassumptions used to calculate the fair value of our share-based compensationplans is presented in Note 10 to our consolidated financial statements includedin our Form 10-K for the year ended January 31, 2006.

8

----

The following table presents all share-basedcompensation costs recognized in our statements of income (in thousands):
| ** **                                           | ** ** | **Three Months Ended April 30** | ** ** | ** ** |
|------------------------------------------------------|------------|-----------------------------------------------------|------------|------------|
| ** **                                           | ** ** | **2006**                                            | ** ** | **2005**   | ** ** | ** ** |
| Method used to  account for share-based compensation |       | Fair  Value                                         |       | Intrinsic  |   |   |
| Share-based  compensation under SFAS 123R            |       | $                                                   | 931        |       | $ | — |   |   |
| Share-based  compensation under FIN 28               |       | —                                              |       | (228       | ) |   |
|                                                 |       | $                                                   | 931        |       | $ | (228 | ) |   |
| Tax benefit (expense)  recognized                    |       | $                                                   | 249        |       | $ | (80 | ) |   |

 

As of April 30, 2006, there was $9.4 million oftotal unrecognized compensation cost related to nonvested share-based compensationawards granted under the plans. That cost is expected to be recognized over aweighted average period of 2.9 years. The following table represents as of April 30,2006 the share-based compensation costs to be recognized in future periods (inthousands) for awards granted to date:
| **Fiscal year** | ** ** | **Amount** | ** ** |
|----------------------|------------|------------|------------|
| 2007                 |       | $          | 2,641      |   |
| 2008                 |       | 3,289      |       |
| 2009                 |       | 2,537      |       |
| 2010                 |       | 891        |       |
|                 |       | $          | 9,358      |   |

 

9

----

**Note 8—Commitmentsand Contingencies**

**EnvironmentalMatters**

We are subject to environmental laws and regulations,which include obligations to remove or mitigate environmental effects of pastdisposal and release of certain wastes and substances at various sites. Werecord liabilities for affected sites when environmental assessments indicateprobable cleanup and the costs can be reasonably estimated. Our liabilities forenvironmental costs, other than for costs of assessments themselves, aregenerally determined after the completion of investigations and studies or ourcommitment to a formal plan of action, such as an approved remediation plan,and are based on our best estimate of undiscounted future costs using currentlyavailable technology, applying current regulations, as well as our ownhistorical experience regarding environmental cleanup costs. The reliabilityand precision of the loss estimates are affected by numerous factors, such asdifferent stages of site evaluation and reevaluation of the degree ofremediation required. We adjust our liabilities as new remediation requirementsare defined, as information becomes available permitting reasonable estimatesto be made and to reflect new and changing facts.

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 a liability forthe ongoing remediation activities at our Fairview facility of$6.5 million and $6.7 million at April 30, 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 liability for ongoing remediation activities at ourSpringfield facility was $1.1 million at both April 30, 2006 and January 31,2006.

*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. Thejudgment 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. ERC cross-appealed thejudgment.

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 increasedinterest and attorneys fees and unreimbursed costs of environmental defense.  However,any determination of our ultimate recovery is subject to possiblediscretionary review of the Court of Appeals decision by the Oregon SupremeCourt as well as further proceedings at the trial court level. We have notrecorded any amounts that may be recovered from ERC in our consolidatedfinancial statements.

10

----

**Legal Proceedings**

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.

**Lease Guarantee**

We sold our hydraulic cylinder division to PrecisionHydraulic Cylinders, Inc. (Precision) on January 15, 2002. Under theterms of the sale, we assigned to Precision an operating lease related to amanufacturing facility in Beulaville, North Carolina. We are a guarantor on thelease in the event Precision fails to comply with the lease terms. The leaserequires payments by Precision of approximately $21,000 per month through November 2007.The total value of the lease guarantee using undiscounted cash flows wasapproximately $400,000 at April 30, 2006.

**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 April 30** | ** ** |
|-----------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                      | ** ** | **2006**                                            | ** ** | **2005** | ** ** |
| Basic earnings per  share:                                      |       |                                                |       |   |   |
| Net income                                                      |       | $                                                   | 11,034     |   | $ | 12,208 |   |
| Weighted average shares of common stock outstanding             |       | 12,542                                              |       | 12,229 |   |
|                                                            |       | $                                                   | 0.88       |   | $ | 1.00 |   |
|                                                            |       |                                                |       |   |   |
| Diluted earnings per  share:                                    |       |                                                |       |   |   |
| Net income                                                      |       | $                                                   | 11,034     |   | $ | 12,208 |   |
| Weighted average shares of common stock outstanding             |       | 12,542                                              |       | 12,229 |   |
| Dilutive effect of stock options and stock  appreciation rights |       | 632                                                 |       | 598 |   |
| Diluted weighted average shares of common stock  outstanding    |       | 13,174                                              |       | 12,827 |   |
|                                                            |       | $                                                   | 0.84       |   | $ | 0.95 |   |

 

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. All stockoptions and stock appreciation rights are included in our calculation ofincremental share because they are dilutive.

**Note 10—SupplementalCash Flow Information**

The following table presents information thatsupplements the consolidated statements of cash flow (in thousands):
| ** **                                       | ** ** | **For the Three Months Ended April 30** | ** ** | ** ** |
|--------------------------------------------------|------------|-----------------------------------------------------------------------|------------|------------|
| ** **                                       | ** ** | **2006**                                                              | ** ** | **2005**   | ** ** | ** ** |
| Cash paid during the  period for:                |       |                                                                  | ** ** | ** ** |   |   |
| Interest                                         |       | $                                                                     | 58         |       | $ | 85 |   |   |
| Income taxes                                     |       | $                                                                     | 3,477      |       | $ | 4,301 |   |   |
|                                             |       |                                                                  |       |       |   |   |
| Supplemental disclosure  of noncash information: |       |                                                                  |       |       |   |   |
| Dividends declared                               |       | $                                                                     | 1,882      |       | $ | — |   |   |

 

11

----

**Note 11—BenefitPlans**

The following table represents the net periodic costrelated to our defined benefit plans in Canada, England and France and ourpostretirement benefit plan in the United States (in thousands):
| ** **                     | ** ** | **Defined Benefit**                        | ** ** | **Postretirement Benefit**                 | ** ** |
|--------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                     | ** ** | **Three Months Ended  April 30** | ** ** | **Three Months Ended  April 30** | ** ** |
| ** **                     | ** ** | **2006**                                        | ** ** | **2005**                                        | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net periodic benefit  cost:    |       |                                            |       |                                            |       |   |   |   |   |
| Service cost                   |       | $                                               | 21         |                                            | $          | 51 |   | $ | 34 |   | $ | 32 |   |
| Interest cost                  |       | 125                                             |       | 119                                             |       | 114 |   | 108 |   |
| Expected return on plan assets |       | (123                                            | )          | (114                                            | )          | — |   | — |   |
| Recognized net actuarial loss  |       | 35                                              |       | 32                                              |       | 92 |   | 86 |   |
|                           |       | $                                               | 58         |                                            | $          | 88 |   | $ | 240 |   | $ | 226 |   |

 

**Note 12—RecentAccounting Pronouncements**

In November 2004, the FASB issued SFAS No. 151(SFAS 151), “Inventory Costs, an amendment of ARB No. 43,Chapter 4.”  This statement amendsthe guidance in ARB No. 43, Chapter 4, “Inventory Pricing”, to clarify theaccounting for abnormal amounts of idle facility expense, freight, handlingcosts, and wasted material (spoilage). Paragraph 5 of ARB No. 43, Chapter4, previously stated that “....under some circumstances, items such as idlefacility expense, excessive spoilage, double freight, and re-handling costs maybe so abnormal as to require treatment as current period charges...” SFAS 151requires that those items be recognized as current-period charges regardless ofwhether 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.

In May 2005, the FASB issued SFAS No. 154, “AccountingChanges and Error Corrections — a replacement of APB Opinion No. 20 andFASB Statement No. 3” (“SFAS 154”). SFAS 154 changes the requirements forthe accounting for and reporting of a change in accounting principle. Thisstatement applies to all voluntary changes in accounting principle. It alsoapplies to changes required by an accounting pronouncement in the unusualinstance that the pronouncement does not include specific transition provisions.SFAS 154 requires the application of a change in accounting principle beapplied to prior accounting periods presented as if that principle had alwaysbeen used. When a pronouncement includes specific transition provision, thoseprovisions should be followed. SFAS 154 is effective for accounting changes andcorrections of errors made in fiscal years beginning after December 15,2005. The adoption of SFAS 154 at the beginning of fiscal 2007 did not have aneffect on our consolidated financial statements.

12

----

**Note 13—WarrantyObligations**

We record a liability on our consolidated balancesheets 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 |       | 715      |       | 503      |       |
| Accruals for  pre-existing warranties             |       | (40      | )          | 52       |       |
| Settlements  during the period                    |       | (598     | )          | (548     | )          |
| Balance at  April 30                         |       | $        | 1,742      |     | $          | 1,918 |   |

 

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

The following table presents the changes in and thecomponents of accumulated other comprehensive 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           |       | 3,786                                                                 |       | — |   | 3,786 |   |
| Balance at  April 30, 2006   |       | $                                                                     | 14,453     |   | $ | (2,986 | ) | $ | 11,467 |   |

 

**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, The Netherlands.We had closed this facility in fiscal 2006.

13

----

**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 our business in four geographic segments:  North America, Europe, Asia Pacific and China.All references to fiscal periods are defined as periods ending in the yearended January 31, 2006 (fiscal 2006) and the year ending January 31,2007 (fiscal 2007).

**COMPARISON OFFIRST QUARTER OF FISCAL 2007 AND FISCAL 2006**

**ConsolidatedSummary**

Net income for the first quarter of fiscal 2007decreased to $11.0 million ($0.84 per diluted share) from record net income of$12.2 million ($0.95 per diluted share) for the first quarter of fiscal 2006.Net sales for the first quarter of fiscal 2007 were $117.8 million or 3%greater than the first quarter of fiscal 2006. Excluding the effect of foreigncurrency fluctuations, net sales in North America and Asia Pacific each grew 7%in the first quarter of fiscal 2007 as compared to the same quarter of theprior year. The increased sales levels reflect strong lift truck markets inboth of these geographic regions.  Salesin Europe decreased 3%, excluding foreign currency changes.

The gross margin percentage of 31% in the firstquarter of fiscal 2007 was down from 33% in the prior year.  The decrease is primarily due to severalfactors:

·                  Lowermargins in Europe due to manufacturing inefficiencies and higher costs at ourmanufacturing facility in Germany

·                  Lowershipment levels of products in Europe

·                  Highersteel costs for certain steel grades, parts and components throughout the world

Selling and administrative costs increased by 10% inthe first quarter of fiscal 2007 over the comparable quarter of the prior year. Excluding foreign currency changes,selling and administrative costs increased 11%. The increase is primarily dueto higher share-based compensation costs. Selling and administrative costs as apercentage of net sales were 17% and 16% for first quarter of fiscal 2007 and2006, respectively.

**North America**
| ** **                  | ** ** | **Three Months Ended April 30** | ** ** | ** ** | ** ** | ** ** | ** ** |
|-----------------------------|------------|-----------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                  | ** ** | **2006**                                            | ** ** | **%**      | ** ** | **2005**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                  | ** ** | **(In thousands)**                             | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                   |       | $                                                   | 66,615     |       | 100        | %          | $          | 61,617 |   | 100 | % | $ | 4,998 |   | 8 | % |
| Cost of goods  sold         |       | 40,657                                              |       | 61         | %          | 37,625     |       | 61 | % | 3,032 |   | 8 | % |
| Gross profit                |       | 25,958                                              |       | 39         | %          | 23,992     |       | 39 | % | 1,966 |   | 8 | % |
|                        |       |                                                |       |       |       |       |       |   |   |   |   |   |   |
| Selling and  administrative |       | 11,468                                              |       | 17         | %          | 10,428     |       | 17 | % | 1,040 |   | 10 | % |
| Loss on sale of  assets     |       | 4                                                   |       | —     |       | —     |       | — |   | 4 |   | — |   |
| Amortization                |       | 89                                                  |       | —     |       | 37         |       | — |   | 52 |   | — |   |
| Operating income            |       | $                                                   | 14,397     |       | 22         | %          | $          | 13,527 |   | 22 | % | $ | 870 |   | 6 | % |

 

North America net sales increased 8% in the firstquarter of fiscal 2007 over the same quarter of fiscal 2006. Currency changesaccounted for 1% of the sales increase. Higher volumes of shipments from NorthAmerican plants accounted for virtually all of the increase. Shipmentsbenefited from a strong North American lift truck market in the first quarterof fiscal 2007 in comparison with the prior year.

Historically, we have found that changes in the levelof our 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 industryshipments in the first quarter were up 6% in comparison with the prior year.

Gross margin percentage for the first quarter offiscal 2007 in North America was the same as the prior year at 39%. The effectof sales price increases implemented in the second quarter of fiscal 2006 hasbeen offset by material and other cost increases.

Selling and administrative costs for the first quarterof fiscal 2007 increased 10% over the same quarter of the prior year. Theincrease is due primarily to an increase in share-based compensation costs,resulting from the adoption of the new accounting standard for share-basedcompensation in the second quarter of fiscal 2006.

Preliminary industry data suggests the lift truckmarket in North America will continue to grow at approximately the same ratethrough the second quarter.

14

----

**Europe**
| ** **                     | ** ** | **Three Months Ended April 30** | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------|------------|-----------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                     | ** ** | **2006**                                            | ** ** | **%**      | ** ** | **2005**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                     | ** ** | **(In thousands)**                             | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                      |       | $                                                   | 33,221     |       | 100        | %          | $          | 36,704 |   | 100 | % | $ | (3,483 | ) | (9 | )% |
| Cost of goods  sold            |       | 27,877                                              |       | 84         | %          | 28,410     |       | 77 | % | (533 | ) | (2 | )% |
| Gross profit                   |       | 5,344                                               |       | 16         | %          | 8,294      |       | 23 | % | (2,950 | ) | (36 | )% |
|                           |       |                                                |       |       |       |       |       |   |   |   |   |   |   |
| Selling and  administrative    |       | 5,852                                               |       | 18         | %          | 5,495      |       | 16 | % | 357 |   | 6 | % |
| Loss (gain) on  sale of assets |       | (662                                                | )          | (2         | )%         | 20         |       | — |   | (682 | ) | — |   |
| Amortization                   |       | 207                                                 |       | —     |       | 132        |       | — |   | 75 |   | 57 | % |
| Operating income               |       | $                                                   | (53        | )          | —     |       | $          | 2,647 |   | 7 | % | $ | (2,700 | ) | — |   |

 

Net sales in Europe for the first quarter of fiscal2007 decreased to $33.2 million, a 9% decrease over the same quarter offiscal 2006.  Foreign currency changesmade up 6% of the sales decrease. The remaining 3% decrease can be attributedentirely to lower shipment volumes of OEM products. With the continuedrationalization of production between our European manufacturing facilities wehad planned some reduction of shipment volumes but actual shipment levels stillfell below expected shipment levels. We have experienced some loss of marketshare for certain products over the past six to nine months. We are takingsteps to gain back this lost market share through an expansion of our existingsales staff and focused marketing efforts with certain customers.

Industry lift truck shipments in Europe increased 13%for the first quarter compared to the prior year. In particular the EasternEuropean market is expanding very rapidly with a 38% increase in lift truckindustry shipments in the first quarter of fiscal 2007. Our sales to EasternEurope and the Middle East (part of our European organization) fell short ofthe industry growth in these regions. We have recently expanded our presence inthis market with the addition of sales staff in the Czech Republic and Turkey. Weexpect to see the benefits of these additional sales resources by the secondhalf of fiscal 2007.

The gross margin percentage in Europe declined to 16%compared to 23% in the first quarter of fiscal 2006. This decrease can be primarilyattributed to the following factors:

·                  Manufacturinginefficiencies and higher costs at our manufacturing facility in Germanyresulted in overall operating results for this location which fell short of ourexpectations. We have made certain management changes to address the poorperformance.

·                  Failureto fully recover material cost increases. We are pursuing various sourcingstrategies to reduce our overall material costs and mitigate the effect ofadditional price increases.

·                  Wehave yet to realize the full benefits from the closure of our Hoorn, TheNetherlands facility in fiscal 2006.

In addition to the previously mentioned initiatives,we are continuing our efforts to improve overall product quality, on-timedelivery and reduce administrative costs through streamlining of supportfunctions. Based on our current plans we hope to see continued improvement inmargins through the remainder of fiscal 2007.

Selling and administrative costs in Europe, excludingforeign currency changes, increased 13% for the first quarter of fiscal 2007 ascompared to the first quarter of fiscal 2006 due primarily to higher sales andmarketing costs.

The gain on the sale of assets in the first quarter offiscal 2007 relates primarily to the sale of our manufacturing facility inHoorn, The Netherlands. We closed this facility in fiscal 2006.

Preliminary industry data suggest the lift truckmarket will continue to grow but at a much more modest rate than the firstquarter.

15

----

**Asia Pacific**
| ** **                  | ** ** | **Three Months Ended April 30** | ** ** | ** ** | ** ** | ** ** | ** ** |
|-----------------------------|------------|-----------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                  | ** ** | **2006**                                            | ** ** | **%**      | ** ** | **2005**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                  | ** ** | **(In thousands)**                             | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                   |       | $                                                   | 11,137     |       | 100        | %          | $          | 10,913 |   | 100 | % | $ | 224 |   | 2 | % |
| Cost of goods  sold         |       | 8,388                                               |       | 75         | %          | 7,762      |       | 71 | % | 626 |   | 8 | % |
| Gross profit                |       | 2,749                                               |       | 25         | %          | 3,151      |       | 29 | % | (402 | ) | (13 | )% |
|                        |       |                                                |       |       |       |       |       |   |   |   |   |   |   |
| Selling and  administrative |       | 1,948                                               |       | 18         | %          | 1,798      |       | 16 | % | 150 |   | 8 | % |
| Gain on sale of  assets     |       | (4                                                  | )          | —     |       | (48        | )          | — |   | 44 |   | — |   |
| Operating income            |       | $                                                   | 805        |       | 7          | %          | $          | 1,401 |   | 13 | % | $ | (596 | ) | (43 | )% |

 

Asia Pacific net sales increased to$11.1 million, a 2% increase in the first quarter of fiscal 2007 overfiscal 2006. Excluding the effect of foreign currencies, net sales increased 7%for the quarter. All Asia Pacific markets, which primarily includes Japan,Australia and Korea, experienced sales increases during the first quarter. Industrylift truck shipments, excluding China, were up 10% in the first quarter overthe prior year.

Gross margin percentages in the Asia Pacific regiondecreased to 25% in the first quarter of fiscal 2007 when compared to 29% inthe same quarter of the prior year. This increase is due to higher materialcosts which we have not been able to pass through to customers with higherprices. We are working to mitigate the effect of these increases on our grossmargins, but for the present time do not anticipate any significant improvementsthrough the remainder of fiscal 2007.

Selling and administrative costs in the Asia Pacificregion increased 8% for the first quarter of fiscal 2007 as compared to fiscal2006. Excluding foreign currency changes the selling and administrative expensesincreased 14% over the prior year.   Thisincrease is due to additional employee costs, primarily for managementpositions created to support corporate initiatives.

Preliminary industry data indicates continued growthin the Asia Pacific region for the second quarter.

**China**
| ** **                  | ** ** | **Three Months Ended April 30** | ** ** | ** ** | ** ** | ** ** | ** ** |
|-----------------------------|------------|-----------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                  | ** ** | **2006**                                            | ** ** | **%**      | ** ** | **2005**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                  | ** ** | **(In thousands)**                             | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                   |       | $                                                   | 6,801      |       | 100        | %          | $          | 5,281 |   | 100 | % | $ | 1,520 |   | 29 | % |
| Cost of goods  sold         |       | 4,163                                               |       | 61         | %          | 3,230      |       | 61 | % | 933 |   | 29 | % |
| Gross profit                |       | 2,638                                               |       | 39         | %          | 2,051      |       | 39 | % | 587 |   | 29 | % |
|                        |       |                                                |       |       |       |       |       |   |   |   |   |   |   |
| Selling and  administrative |       | 584                                                 |       | 9          | %          | 397        |       | 8 | % | 187 |   | 47 | % |
| Amortization                |       | 6                                                   |       | —     |       | 7          |       | — |   | (1 | ) | — |   |
| Operating income            |       | $                                                   | 2,048      |       | 30         | %          | $          | 1,647 |   | 31 | % | $ | 401 |   | 24 | % |

 

Net sales in China increased 29% in the first quarterof fiscal 2007 in comparison with the prior year. Excluding currency changes,net sales increased 26%. This increase is due to higher sales of all productsand reflects strong growth in the Chinese lift truck market. Lift truckindustry shipments increased 23% in the first quarter of fiscal 2007.

We believe our sales increase in China also reflectsincreasing application rates for our attachment products. The application raterelates to the percentage of new lift truck sales which include attachments. Historically,application rates in China and emerging markets have been lower than in moremature markets such as Europe and North America.

Gross margin percentages in China remained consistentwith the prior year at 39%. To date any effects of rising costs have been offsetby additional gross profit from higher sales volumes in the region.

Selling and administrative costs increased 47% in thefirst quarter compared to the prior year. Currency changes made up 3% of thisincrease. The remaining 44% increase is due to additional sales and marketingcosts and professional fees.

Preliminary industry statistics indicate continuedgrowth at approximately the same rate for the second quarter.

**Non-OperatingItems**

Interest expense was lower in the first quarter offiscal 2007 as compared to the same quarter of fiscal 2006 due to the reductionin long-term debt from scheduled debt payments in the fourth quarter of fiscal2006. See “Financial Condition and Liquidity” for additional discussion of debtlevels and payments.

The effective tax rate in the first quarter of fiscal2007 of 35% was consistent with the prior year.

16

----

**CASH FLOWS**

The statements of cash flows reflect the changes incash and cash equivalents for the three months ended April 30, 2006 and April 30,2005 by classifying transactions into three major categories of activities:operating, investing and financing.

**Operating**

Our main 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 on thedisposal of assets, share-based compensation, deferred income taxes, andchanges in operating assets and liabilities.

Net cash provided by operating activities fromcontinuing operations was $6.6 million in the first three months of fiscal 2007compared to $4.0 million for the same period in fiscal 2006. The increase infiscal 2007 was due to changes in inventories and current income taxes payableand receivable. These increases were partially offset by lower levels of netincome and changes in accounts receivable.

**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** | ** ** |
|---------------|------------|----------------------------------|------------|
| ** **    | ** ** | **April 30**                | ** ** |
| ** **    | ** ** | **2006**                         | ** ** | **2005** | ** ** |
| North America |       | $                                | 2,003      |   | $ | 1,266 |   |
| Europe        |       | 347                              |       | 592 |   |
| Asia Pacific  |       | 71                               |       | 96 |   |
| China         |       | 830                              |       | 60 |   |
|          |       | $                                | 3,251      |   | $ | 2,014 |   |

 

We expect capital expenditures in the rest of fiscal2007 to approximate depreciation expense, excluding expenditures related to ourexpansion plans in China. We anticipate investing up to $18 million in China bythe middle of fiscal 2008 of which $1.0 million has been spent to date. Depreciationexpense for the first three months in fiscal 2007 and fiscal 2006 was$3.5 million and $3.6 million, respectively.

We held marketable securities of $22.1 million at April 30,2006. These securities consist of auction rate and variable rate demand notesissued by various state agencies throughout the United States. We classifythese securities as available-for-sale securities. These securities are eitherinsured through first party agencies, reinsured through the U.S. federalgovernment, or secured by a letter of credit from a bank.  There were no realized or unrealized gains orlosses related to our marketable securities during the first three months offiscal 2007 and fiscal 2006. These securities are long-term instrumentsmaturing through 2040; 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 our consolidatedbalance sheets. Interest rates on tax free securities range from 3.1% to 3.9%per annum.

**Financing**

We declared dividends totaling $0.15 and $0.12 pershare during the first three months of fiscal 2007 and 2006, respectively. Thedividend of $0.15 per share declared by our Board of Directors on April 11,2006 was paid on May 15, 2006. A dividend payable of $1.9 million isrecorded on our consolidated balance sheet of April 30, 2006 and presentedas a noncash item in Note 10 to the consolidated financial statements in this Form 10-Q.

**FINANCIALCONDITION AND LIQUIDITY**

Our working capital, defined as current assets lesscurrent liabilities at April 30, 2006 was $136.3 million as comparedto $125.0 million at January 31, 2006. Our current ratio at April 30,2006 was 3.0 to 1 as compared to 2.9 to 1 at January 31, 2006.

Total outstanding debt, including notes payable tobanks and capital leases, at April 30, 2006 was $29.7 million wassubstantially unchanged from January 31, 2006. Our debt agreements containcovenants relating to net worth and leverage ratios. We 

17

----

were in compliance with these covenants at April 30,2006. Borrowing arrangements currently in place with commercial banks providelines of credit totaling $25 million, of which $2.8 million was used toissue letters of credit at April 30, 2006. The lines of credit expire on September 1,2010. Average interest rates on notes payable to banks was 2.7% at April 30,2006 and 3.0% at January 31, 2006.

Our current plans are to fund the existingpostretirement obligation as costs are incurred and defined benefit obligationswill be funded to meet minimum statutory funding requirements, or anyadditional funding requirements which we have committed to provide in specificplan agreements. Currently these additional funding requirements are limited tocontributions of $350,000 for each of the next five years to a defined benefitplan in England.

We believe that our cash and cash equivalents,existing credit facilities and cash flows from operations will be sufficient tosatisfy our expected working capital, capital expenditure, acquisition and debtretirement requirements for the next twelve months.

**OTHER MATTERS**

The U.S. dollar weakened in comparison with the Euro,Canadian Dollar and British Pound from January 31, 2006 to April 30,2006.  The net result was these foreigncurrency translation adjustments increased shareholders’ equity by $3.8 millionin the first quarter of fiscal 2007.

**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 financialstatements requires us to make estimates and judgments that affect the reportedamounts of assets, liabilities, revenues and expenses and the disclosure ofcontingent assets and liabilities. We evaluate our estimates and judgments onan on-going basis, including those related to uncollectible receivables,inventories, goodwill and long-lived assets, warranty obligations,environmental liabilities and deferred taxes. We base our estimates onhistorical experience and various other assumptions that we believe to bereasonable under the circumstances. Actual results may differ from theseestimates under different assumptions or conditions. A description of ourcritical accounting policies and related judgments and estimates that affectthe preparation of our consolidated financial statements is set forth on Form 10-Kin our Annual Report for the year ended January 31, 2006. We havepresented below any updates to these policies and estimates from theinformation disclosed in our fiscal 2006 form 10-K.

***Impairment of Goodwill***

We review goodwill for impairment either annually orwhen events or changes in circumstances indicate the carrying value of theassets might exceed their current fair values. The review is performed for thethree reporting units in which we have recorded goodwill, North America, Europeand Australia. Certain factors we consider important which could trigger animpairment review, at an interim date outside of the annual review, include,but are not limited to, significant underperformance relative to historical orprojected future operating results, significant changes in the manner of use ofthe acquired assets or our overall business and significant industry oreconomic trends.

We disclosed in our Form 10-K for the yearended January 31, 2006 that our goodwill impairment test for Europeassumed operating results in fiscal 2007 and future years would be improvedover prior year actual results. These improvements reflected a number ofinitiatives in Europe to restructure our European business. During the firstquarter of fiscal 2007 our European reporting unit incurred an operating loss. Aswe previously discussed in our review of Europe’s first quarter results theoperating loss can be attributed entirely to the performance of our Germanmanufacturing facility. We have made management changes at this location whichwe believe will improve our performance for the remainder of fiscal 2007.  In addition we are continuing to pursue otherinitiatives and improvements in Europe to improve our overall results. Becauseof these factors, we do not believe Europe’s first quarter operating loss wouldtrigger an interim impairment review at this time. We will continue to evaluateour actual results to determine if existing factors, such as additionaloperating losses, would require an interim goodwill impairment review. If we donot realize these improvements and our actual results are not consistent withour assumptions and judgments, we could be exposed to a material impairment ofour goodwill in Europe in the future.

18

----

**OFF BALANCE SHEETARRANGEMENTS**

At April 30, 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**

In November 2004, the FASB issued SFAS No. 151(SFAS 151), “Inventory Costs, an amendment of ARB No. 43,Chapter 4.”  This statement amendsthe guidance in ARB No. 43, Chapter 4, “Inventory Pricing”, to clarify theaccounting for abnormal amounts of idle facility expense, freight, handlingcosts, and wasted material (spoilage). Paragraph 5 of ARB No. 43, Chapter4, previously stated that “....under some circumstances, items such as idlefacility expense, excessive spoilage, double freight, and re-handling costs maybe so abnormal as to require treatment as current period charges...” SFAS 151requires that those items be recognized as current-period charges regardless ofwhether 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.

In May 2005, the FASB issued SFAS No. 154, “AccountingChanges and Error Corrections — a replacement of APB Opinion No. 20 andFASB Statement No. 3” (“SFAS 154”). SFAS 154 changes the requirements forthe accounting for and reporting of a change in accounting principle. Thisstatement applies to all voluntary changes in accounting principle. It alsoapplies to changes required by an accounting pronouncement in the unusualinstance that the pronouncement does not include specific transition provisions.SFAS 154 requires the application of a change in accounting principle beapplied to prior accounting periods presented as if that principle had alwaysbeen used. When a pronouncement includes specific transition provision, thoseprovisions should be followed. SFAS 154 is effective for accounting changes andcorrections of errors made in fiscal years beginning after December 15,2005. The adoption of SFAS 154 at the beginning of fiscal 2007 did not have aneffect on our consolidated financial statements.

19

----

**Item 3. Quantitativeand Qualitative Disclosures About 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 exchangerates of the foreign currencies in relation to the U.S. dollar. The table belowillustrates the hypothetical increase in net sales for the first 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                                                                                  |   | $   | 2.5    |   |
|---------------------------------------------------------------------------------------|--------|-----|--------|--------|
| Canadian dollar                                                                       |   | 0.7 |   |
| British pound                                                                         |   | 0.7 |   |
| Chinese renminbi                                                                      |   | 0.7 |   |
| Other currencies  (representing net sales of less than 11% of consolidated net sales) |   | 1.2 |   |

 

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.Our foreign 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 for thequarter ended April 30, 2006, a 1% increase in commodity steel costswithout offsetting sales price increases would have decreased consolidatedgross profit by approximately $325,000.

To date we have been able to mitigate the effect of aportion of the steel cost increases on our gross margin. This has been donethrough price increases and cost reductions. We intend to continue our effortsin the coming months to mitigate the impact of any additional steel costincreases. There may be some time lag between the absorption of the steel costincreases and realizing the offsetting benefits of the mitigating measures. Itshould be noted that there is no assurance that we can fully mitigate allfuture steel cost increases through price increases and other measures andactual cost increases from steel suppliers could differ from cost increasesthat have been previously communicated.

Manufacturing of our products includes the purchase ofvarious raw materials and components. Certain of these items are provided worldwideby a limited number of suppliers. We are not currently experiencing shortagesin obtaining the raw materials and components. However, certain steel productsobtained in Europe are subject to allocations from suppliers. At this time, webelieve the current allocation of these products from suppliers is sufficientto meet planned production volumes. Nevertheless, there can be no assurancethat these suppliers will be able to meet our future requirements. An extendeddelay or interruption in the supply of any components could have a materialadverse effect on our business, results of operations and financial condition.We are working to identify alternative supplier sources for these products.

Substantially all of our debt at April 30, 2006had a fixed interest rate and was denominated in U.S. dollars. Any additionalpayments to prepay scheduled amounts of debt are subject to penalties. At April 30,2006, the penalties to retire all of our long-term debt were $354,000. Ahypothetical immediate increase in market interest rates by 1% would decreasethe fair value of our long-term debt outstanding at April 30, 2006 by$256,000.

20

----

**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 April 30,2006 that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

21

----

**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 ended January 31,2006.

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

None

**Item 3. DefaultsUpon Senior Securities**

None

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

None

**Item 5. OtherInformation**

None

**Item 6. Exhibits**
| 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. |

 

22

----

**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                                                                                 |
|-------------------|----------|-----------------------------------------------------------------------------------------------------|
| June 8, 2006 |     |                                                                                                |
|              |     |                                                                                                |
|              |     | /s/ RICHARD S.  ANDERSON                                                                            |
|              |     | Richard S.  Anderson                                                                                |
|              | * * | *Senior  Vice President and  Chief Financial Officer  (Principal Financial and Accounting Officer)* |

 

23

----

**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 |

 

24

----