**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

 

**FORM10-Q**

 
| **(Mark One)**                                                                                                                                   | ** **                                                                                    |
|--------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------|
| ** **                                                                                                                                       | ** **                                                                                    |
| **ý**                                                                                                                                       | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**  |
| ** **                                                                                                                                       | ** **                                                                                    |
| **For the Quarterly Period Ended April 30,  2005**                                                                                               |
| ** **                                                                                                                                       |
| **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 itscharter)

 
| **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’s telephone number, including areacode: **(503) 669-6300**

 

Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ý  No o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Exchange Act Rule 12b-2). Yes ý  No o

 

The number of sharesoutstanding of the registrant’s common stock as of May 26, 2005 was 12,251,599.

 

 

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**Forward-Looking Statements**

 

This report contains forward-lookingstatements that involve risks and uncertainties, as well as assumptions which,if they never materialize or prove incorrect, could cause our results to differmaterially from those expressed or implied by such forward-looking statements.All statements other than statements of historical fact are statements thatcould be deemed forward-looking statements, including any projections ofrevenue, gross margin, expenses, earnings or losses from operations, synergiesor other financial items; any statements of plans, strategies, and objectivesof management for future operations; any statements regarding future economicconditions or performance; any statements of expectation or belief; and anystatements of assumptions underlying any of the foregoing. The risks,uncertainties, and assumptions referred to above include, but are not limitedto, competitive factors in, and the cyclical nature of, the materials handlingindustry; fluctuations in lift truck orders or deliveries, availability andcost of raw materials; general business and economic conditions in NorthAmerica, Europe, Australia and Asia; assumptions relating to pension and otherpost-retirement costs; foreign currency fluctuations; pending litigation;environmental matters; and the effectiveness of our capital expenditures andcost reduction initiatives. We undertake no obligation to publicly revise orupdate forward-looking statements to reflect events or circumstances that ariseafter the date of this report.

 

1

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**PART I—FINANCIAL INFORMATION**

 

**Item 1. Financial Statements**

 

**CASCADECORPORATION**

**CONSOLIDATEDSTATEMENTS OF INCOME**

**(Unaudited—inthousands, except per share amounts)**

 
| ** **                                  | ** ** | **Three Months Ended  April 30** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|
| ** **                                  | ** ** | **2005**                         | ** ** | **2004** | ** ** |
| Net sales                                   |       | $                                | 114,515    |   | $ | 93,529 |   |
| Cost of goods sold                          |       | 77,027                           |       | 62,153 |   |
| Gross profit                                |       | 37,488                           |       | 31,376 |   |
|                                        |       |                             |       |   |   |
| Selling and administrative expenses         |       | 18,346                           |       | 17,918 |   |
| Amortization                                |       | (52                              | )          | 140 |   |
|                                        |       |                             |       |   |   |
| Operating income                            |       | 19,194                           |       | 13,318 |   |
| Interest expense                            |       | 750                              |       | 899 |   |
| Interest income                             |       | (107                             | )          | (97 | ) |
| Other income                                |       | (230                             | )          | (95 | ) |
|                                        |       |                             |       |   |   |
| Income before provision for income taxes    |       | 18,781                           |       | 12,611 |   |
| Provision for income taxes                  |       | 6,573                            |       | 4,401 |   |
| Net income                                  |       | $                                | 12,208     |   | $ | 8,210 |   |
|                                        |       |                             |       |   |   |
| Basic earnings per share                    |       | $                                | 1.00       |   | $ | 0.68 |   |
| Diluted earnings per share                  |       | $                                | 0.95       |   | $ | 0.65 |   |
|                                        |       |                             |       |   |   |
| Basic weighted average shares outstanding   |       | 12,229                           |       | 12,104 |   |
| Diluted weighted average shares outstanding |       | 12,827                           |       | 12,558 |   |

 

The accompanying notes are an integral partof the consolidated financial statements.

 

2

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**CASCADECORPORATION**

**CONSOLIDATEDBALANCE SHEETS**

**(Unaudited—inthousands, except per share amounts)**

 
| ** **                                                                                               | ** ** | **April 30  2005** | ** ** | **January 31  2005** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|--------------------|------------|----------------------|------------|
| **ASSETS**                                                                                               |       |               |       |                 |       |
| Current assets:                                                                                          |       |               |       |                 |       |
| Cash and cash equivalents                                                                                |       | $                  | 19,307     |                 | $          | 30,482 |   |
| Marketable securities                                                                                    |       | 13,053             |       | 1,503                |       |
| Trade accounts receivable, less allowance  for doubtful accounts of $2,040 and $2,182                    |       | 79,643             |       | 70,728               |       |
| Inventories                                                                                              |       | 48,328             |       | 46,212               |       |
| Deferred income taxes                                                                                    |       | 3,235              |       | 3,042                |       |
| Prepaid expenses and other                                                                               |       | 4,470              |       | 4,592                |       |
| Total current assets                                                                                     |       | 168,036            |       | 156,559              |       |
| Property, plant and equipment, net                                                                       |       | 79,729             |       | 82,027               |       |
| Goodwill                                                                                                 |       | 74,029             |       | 74,786               |       |
| Deferred income taxes                                                                                    |       | 9,703              |       | 9,688                |       |
| Other assets                                                                                             |       | 4,786              |       | 5,032                |       |
| Total assets                                                                                             |       | $                  | 336,283    |                 | $          | 328,092 |   |
|                                                                                                     |       |               |       |                 |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                           |       |               |       |                 |       |
| Current liabilities:                                                                                     |       |               |       |                 |       |
| Notes payable to banks                                                                                   |       | $                  | 1,396      |                 | $          | 2,461 |   |
| Current portion of long-term debt                                                                        |       | 12,909             |       | 12,916               |       |
| Accounts payable                                                                                         |       | 22,275             |       | 25,778               |       |
| Accrued payroll and payroll taxes                                                                        |       | 7,463              |       | 7,283                |       |
| Income taxes payable                                                                                     |       | 4,632              |       | 2,068                |       |
| Other accrued expenses                                                                                   |       | 11,360             |       | 11,005               |       |
| Accrued environmental expenses                                                                           |       | 891                |       | 894                  |       |
| Total current liabilities                                                                                |       | 60,926             |       | 62,405               |       |
| Long-term debt, net of current portion                                                                   |       | 25,181             |       | 25,187               |       |
| Accrued environmental expenses                                                                           |       | 7,589              |       | 7,799                |       |
| Deferred income taxes                                                                                    |       | 3,664              |       | 3,988                |       |
| Other liabilities                                                                                        |       | 11,109             |       | 10,830               |       |
| Total liabilities                                                                                        |       | 108,469            |       | 110,209              |       |
|                                                                                                     |       |               |       |                 |       |
| Commitments and contingencies (Note 8)                                                                   |       |               |       |                 |       |
| Shareholders’ equity:                                                                               |       |               |       |                 |       |
| Common stock, $.50 par value, 20,000  authorized shares; 12,241 and 12,224 shares issued and outstanding |       | 6,121              |       | 6,112                |       |
| Additional paid-in capital                                                                               |       | 17,897             |       | 20,004               |       |
| Unamortized deferred compensation                                                                        |       | (2,424             | )          | (4,506               | )          |
| Retained earnings                                                                                        |       | 199,248            |       | 188,507              |       |
| Accumulated other comprehensive income                                                                   |       | 6,972              |       | 7,766                |       |
| Total shareholders’ equity                                                                          |       | 227,814            |       | 217,883              |       |
| Total liabilities and shareholders’ equity                                                          |       | $                  | 336,283    |                 | $          | 328,092 |   |

 

The accompanying notes are an integral partof the consolidated financial statements.

 

3

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**CASCADE CORPORATION**

**CONSOLIDATEDSTATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY**

**(Unaudited—inthousands, except per share amounts)**

 
| ** **                                            | ** ** | ** ** | ** ** | ** ** | ** ** | **Additional  Paid-In  Capital** | ** ** | **Unamortized  Deferred  Compensation** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Income (Loss)** | ** ** | **Year-To-Date  Comprehensive  Income (Loss)** | ** ** |
|-------------------------------------------------------|------------|------------|------------|------------|------------|----------------------------------|------------|-----------------------------------------|------------|------------------------|------------|------------------------------------------------------|------------|------------------------------------------------|------------|
| **Common  Stock**                                     |
| **Shares**                                            | ** ** | **Amount** |
| **Balance  at January 31, 2005**                      |       | 12,224     |       | $          | 6,112      |                             | $          | 20,004                                  |       | $                      | (4,506     | )                                                    | $          | 188,507                                        |       | $ | 7,766 |   |   |   |
|                                                  |       |       |       |       |       |                             |       |                                    |       |                   |       |                                                 |       |                                           |       |
| Net income                                            |       | —     |       | —     |       | —                           |       | —                                  |       | 12,208                 |       | —                                               |       | 12,208                                         |       |
| Dividends ($0.12  per share)                          |       | —     |       | —     |       | —                           |       | —                                  |       | (1,467                 | )          | —                                               |       | —                                         |       |
| Common stock  issued                                  |       | 17         |       | 9          |       | 180                              |       | —                                  |       | —                 |       | —                                               |       | —                                         |       |
| Tax benefit from  exercise of stock options           |       | —     |       | —     |       | 23                               |       | —                                  |       | —                 |       | —                                               |       | —                                         |       |
| Deferred  compensation from stock appreciation rights |       | —     |       | —     |       | (2,310                           | )          | 2,310                                   |       | —                 |       | —                                               |       | —                                         |       |
| Amortization of  deferred compensataion               |       | —     |       | —     |       | —                           |       | (228                                    | )          | —                 |       | —                                               |       | —                                         |       |
| Translation  adjustment                               |       | —     |       | —     |       | —                           |       | —                                  |       | —                 |       | (794                                                 | )          | (794                                           | )          |
|                                                  |       |       |       |       |       |                             |       |                                    |       |                   |       |                                                 |       |                                           |       |
| **Balance  at April 30, 2005**                        |       | 12,241     |       | $          | 6,121      |                             | $          | 17,897                                  |       | $                      | (2,424     | )                                                    | $          | 199,248                                        |       | $ | 6,972 |   | $ | 11,414 |   |
|                                                       |            |            |            |            |            |                                  |            |                                         |            |                        |            |                                                      |            |                                                |            |  |  |  |  |  |  |

 

The accompanying notes are an integral partof the consolidated financial statements.

 

4

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**CASCADE CORPORATION**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(Unaudited—inthousands)**

 
| ** **                                                                         | ** ** | **Three Months Ended  April 30** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                         | ** ** | **2005**                         | ** ** | **2004** | ** ** |
| **Cash flows from operating activities:**                                          |       |                             |       |   |   |
| Net income                                                                         |       | $                                | 12,208     |   | $ | 8,210 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |       |                             |       |   |   |
| Depreciation and amortization                                                      |       | 3,730                            |       | 3,540 |   |
| Amortization of deferred compensation                                              |       | (228                             | )          | — |   |
| Deferred income taxes                                                              |       | (532                             | )          | (330 | ) |
| Loss (gain) on disposition of assets                                               |       | (28                              | )          | 4 |   |
| Changes in operating assets and  liabilities:                                      |       |                             |       |   |   |
| Trade accounts receivable                                                          |       | (8,915                           | )          | (4,965 | ) |
| Inventories                                                                        |       | (2,116                           | )          | 292 |   |
| Prepaid expenses and other                                                         |       | 122                              |       | 412 |   |
| Accounts payable and accrued expenses                                              |       | (3,323                           | )          | 3,028 |   |
| Current income taxes payable                                                       |       | 2,564                            |       | 2,434 |   |
| Other liabilities                                                                  |       | 444                              |       | 168 |   |
| Net cash provided by operating activities                                          |       | 3,926                            |       | 12,793 |   |
|                                                                               |       |                             |       |   |   |
| **Cash flows from investing activities:**                                          |       |                             |       |   |   |
| Capital expenditures                                                               |       | (2,014                           | )          | (3,787 | ) |
| Sales of marketable securities                                                     |       | 1,000                            |       | 3,500 |   |
| Purchases of marketable securities                                                 |       | (12,550                          | )          | (6,040 | ) |
| Proceeds from sale of assets                                                       |       | 163                              |       | 39 |   |
| Other assets                                                                       |       | 70                               |       | 572 |   |
| Net cash used in investing activities                                              |       | (13,331                          | )          | (5,716 | ) |
|                                                                               |       |                             |       |   |   |
| **Cash flows from financing activities:**                                          |       |                             |       |   |   |
| Cash dividends paid                                                                |       | (1,467                           | )          | (1,332 | ) |
| Payments on long-term debt and capital  leases                                     |       | (13                              | )          | (114 | ) |
| Notes payable to banks, net                                                        |       | (1,065                           | )          | (1,208 | ) |
| Common stock issued under stock option plan                                        |       | 189                              |       | 61 |   |
| Net cash used in financing activities                                              |       | (2,356                           | )          | (2,593 | ) |
|                                                                               |       |                             |       |   |   |
| **Effect of exchange rate changes**                                                |       | 586                              |       | (1,962 | ) |
|                                                                               |       |                             |       |   |   |
| Change in cash and cash equivalents                                                |       | (11,175                          | )          | 2,522 |   |
|                                                                               |       |                             |       |   |   |
| Cash and cash equivalents at beginning of  period                                  |       | 30,482                           |       | 25,584 |   |
|                                                                               |       |                             |       |   |   |
| Cash and cash equivalents at end of period                                         |       | $                                | 19,307     |   | $ | 28,106 |   |
|                                                                               |       |                             |       |   |   |
| **Supplemental disclosure of cash flow  information:**                             |       |                             |       |   |   |
| See Note 10 to the consolidated financial  statements.                             |       |                             |       |   |   |

 

The accompanying notes are an integral partof the consolidated financial statements.

 

5

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** **

**CASCADE CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**Note 1—Description of Business**

 

Cascade Corporation is aninternational company engaged in the manufacture of materials handling productsthat are widely used on industrial fork lift trucks and, to a lesser extent,construction, mining and agricultural vehicles. Accordingly, our sales arelargely dependent on sales of lift trucks and on the sales of replacement parts. The majority of our products are sold tolift truck manufacturers and retail lift truck dealers.  A significant portion of our sales are made inNorth America and Europe.  We areheadquartered in Fairview, Oregon, employing approximately 1,900 people andmaintaining operations in 15 countries outside the United States.

 

**Note 2—Interim Financial Information**

 

The accompanying consolidatedfinancial statements for the interim periods ended April 30, 2005 and 2004 areunaudited. In the opinion of management, the accompanying consolidatedfinancial statements reflect normal recurring adjustments necessary for a fairstatement of the financial position, results of operations and cash flows forthose interim periods. Results of operations for the interim periods are notnecessarily indicative of the results to be expected for the full year, andthese financial statements do not contain the detail or footnote disclosuresconcerning accounting policies and other matters that would be included in fullfiscal year financial statements. Therefore, these statements should be read inconjunction with our audited financial statements included on Form 10-K inour Annual Report for the fiscal year ended January 31, 2005.

 

Certain reclassifications havebeen made to the prior year consolidated financial statements to conform to thecurrent year presentation.  Suchreclassifications had no effect on results of operations.

 

**Note 3—Segment Information**

 

Our operating units havesimilar economic characteristics and attributes, including similar products,distribution patterns and classes of customers. As a result, we aggregate ouroperating units into a single operating segment related to the manufacturing,distribution and servicing of material handling products primarily for the lifttruck industry.

 

Revenues and operating resultsare classified according to the region of origin. Property, plant and equipmentare attributed to the geographic location in which they are located. Net sales,operating income and property, plant and equipment by geographic region were asfollows (in thousands):

 
| ** **                    | ** ** | **Three Months Ended April 30** | ** ** |
|-------------------------------|------------|---------------------------------|------------|
| **2005**                      | ** ** | **North America**               | ** ** | **Europe** | ** ** | **Asia Pacific** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Net sales                     |       | $                               | 61,617     |   | $ | 36,704 |   | $ | 16,194 |   | $ | — |   | $ | 114,515 |   |
| Transfers between regions     |       | 6,090                           |       | 685 |   | 16 |   | (6,791 | ) | — |   |
| Total sales                   |       | $                               | 67,707     |   | $ | 37,389 |   | $ | 16,210 |   | $ | (6,791 | ) | $ | 114,515 |   |
| Operating income              |       | $                               | 13,543     |   | $ | 2,651 |   | $ | 3,000 |   |   |   | $ | 19,194 |   |
| Property, plant and equipment |       | $                               | 35,192     |   | $ | 39,613 |   | $ | 4,924 |   |   |   | $ | 79,729 |   |

 
| **2004**                      | ** ** | **North America** | ** ** | **Europe** | ** ** | **Asia Pacific** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|-------------------------------|------------|-------------------|------------|------------|------------|------------------|------------|------------------|------------|------------------|------------|
| Net sales                     |       | $                 | 50,594     |       | $          | 27,419           |       | $                | 15,516     |             | $          | — |   | $ | 93,529 |   |
| Transfers between regions     |       | 5,655             |       | 791        |       | 22               |       | (6,468           | )          | —           |       |
| Total sales                   |       | $                 | 56,249     |       | $          | 28,210           |       | $                | 15,538     |             | $          | (6,468 | ) | $ | 93,529 |   |
| Operating income              |       | $                 | 9,669      |       | $          | 751              |       | $                | 2,898      |             |       |   | $ | 13,318 |   |
| Property, plant and equipment |       | $                 | 35,456     |       | $          | 33,822           |       | $                | 4,770      |             |       |   | $ | 74,048 |   |

 

6

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**Note 4—Goodwill**

 

Thechange in the amount of goodwill between April 30, 2005 and January 31, 2005related entirely to fluctuations in foreign currency.  The following table provides a breakdown ofgoodwill by geographic region (in thousands):

 

| ** **    | ** ** | **April 30  2005** | ** ** | **January 31  2005** | ** ** |
|---------------|------------|--------------------|------------|----------------------|------------|
| North America |       | $                  | 59,615     |                 | $          | 60,429 |   |
| Europe        |       | 11,270             |       | 11,211               |       |
| Asia Pacific  |       | 3,144              |       | 3,146                |       |
|          |       | $                  | 74,029     |                 | $          | 74,786 |   |

 

**Note 5—Marketable Securities**

 

Marketable securities consistof auction rate securities issued by various state agencies throughout theUnited States.  We classify thesesecurities as available-for-sale securities. These securities are insured either through third party agencies orreinsured through the federal government.  The specific identification method is used todetermine the cost of securities sold. There were no realized or unrealizedgains or losses related to our marketable securities during the first quartersof fiscal 2006 and fiscal 2005.  These securitiesare long-term instruments maturing through 2044; however, the interest ratesand maturities are reset approximately every month, at which time we can sellthe securities. Accordingly, we have classified these securities as currentassets in our consolidated balance sheets.

 

7

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**Note 6—Inventories**

 

Inventories stated at the lowerof average cost or market are presented below by major class (in thousands).

 

| ** **                    | ** ** | **April 30  2005** | ** ** | **January 31  2005** | ** ** |
|-------------------------------|------------|--------------------|------------|----------------------|------------|
| Finished goods and components |       | $                  | 31,222     |                 | $          | 30,516 |   |
| Work in process               |       | 566                |       | 865                  |       |
| Raw materials                 |       | 16,540             |       | 14,831               |       |
|                          |       | $                  | 48,328     |                 | $          | 46,212 |   |

 

**Note 7—Stock-Based Compensation**

 

We account for our stock-basedemployee compensation under Accounting Principles Board Opinion No. 25 (APB25), “Accounting for Stock Issued to Employees,” which permits the use ofintrinsic value accounting. No stock-based employee compensation expenserelated to stock options was recognized in net income during the first quarterof fiscal 2006 or fiscal 2005, as all options granted had an exercise priceequal to the market price of the underlying common stock on the date of grant.

 

We grant awards under a stockappreciation rights (SARS) plan.  TheSARS provide the holder the right to receive an amount, payable in our commonshares, equal to the excess of the market value of our common shares on thedate of exercise over the base price established by our Board of Directors’Compensation Committee at the time the right was granted. The base price maynot be less than the market price of our common shares on the date of grant.

 

Under FIN 28, “Accountingfor Stock Appreciation Rights and Other Variable Stock Option or Award Plans,”SARS are accounted for under variable plan accounting, which requires amark-to-market adjustment each quarter. Accordingly, we record deferredcompensation as a reduction of shareholders’ equity, equal to the excess of themarket value of our common shares on the balance sheet date or date of exerciseover the base price at the date of grant. The deferred compensation isamortized to expense over the vesting period based on the periods in which theexecutives and directors perform services. On May 26, 2004, the Board ofDirectors awarded 453,000 SARS which vest over four years.   During the period from May 26, 2004 toJanuary 31, 2005 we recorded SARS amortization expense of $2.5 million.  Due to the decrease in the market price ofour common stock from $36.60 at January 31, 2005 to $31.50 at April 30, 2005,the net adjustment in the first quarter of fiscal 2006 was income of $228,000.  This represents the adjustment of previouslyrecognized compensation expense related to SARS.  No amortization expense was recorded for SARSin the first quarter of fiscal 2005 since they were not granted until May 2004.

 

We have adopted disclosure-onlyprovisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accountingfor Stock-Based Compensation” and SFAS No. 148, “Accounting for Stock-BasedCompensation—Transition and Disclosure—an Amendment of FASB StatementNo. 123.” The following table illustrates the effect on net income andearnings per share if we had applied the fair value recognition provisions ofSFAS 123 to stock-based employee compensation (in thousands, expect pershare amounts):

 
| ** **                                                                                                                     | ** ** | **Three Months Ended April 30** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                     | ** ** | **2005**                        | ** ** | **2004** | ** ** |
| Net income - as reported                                                                                                       |       | $                               | 12,208     |   | $ | 8,210 |   |
| Add: stock appreciation rights  amortization, net of income tax expense of $80                                                 |       |                            | (148       | ) | — |   |
| Deduct: total stock-based compensation, net  of income tax benefits of $140 and $68, determined under fair value based  method |       | (297                            | )          | (172 | ) |
| Net income - pro forma                                                                                                         |       | $                               | 11,763     |   | $ | 8,038 |   |
|                                                                                                                           |       |                            |       |   |   |
| Basic earnings per share - as reported                                                                                         |       | $                               | 1.00       |   | $ | 0.68 |   |
| Basic earnings per share - pro forma                                                                                           |       | $                               | 0.96       |   | $ | 0.66 |   |
| Diluted earnings per share - as reported                                                                                       |       | $                               | 0.95       |   | $ | 0.65 |   |
| Diluted earnings per share - pro forma                                                                                         |       | $                               | 0.92       |   | $ | 0.64 |   |

 

8

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**Note 8—Commitments and Contingencies**

 

**Environmental Matters**

 

We are subject to environmentallaws and regulations, which include obligations to remove or mitigateenvironmental effects of past disposal and release of certain wastes andsubstances at various sites. We record liabilities for affected sites whenenvironmental assessments indicate probable cleanup will be required and thecosts can be reasonably estimated. Our liabilities for environmental costs,other than for costs of assessments themselves, are generally determined afterthe completion of investigations and studies or our commitment to a formal planof action, such as an approved remediation plan, and are based on our bestestimate of undiscounted future costs using currently available technology,applying current regulations, as well as our own historical experienceregarding environmental cleanup costs. The reliability and precision of theloss estimates are affected by numerous factors, such as different stages ofsite evaluation and reevaluation of the degree of remediation required. Weadjust our liabilities as new remediation requirements are defined, asinformation becomes available permitting reasonable estimates to be made and toreflect new and changing facts.

 

It is reasonably possible thatchanges in estimates will occur in the near term and the related adjustments toenvironmental liabilities may have a material impact on our net income andoperating cash flows. Unasserted claims are not currently reflected in ourenvironmental liabilities. It is also reasonably possible that these changes orclaims may also have a material impact on our net income and operating cashflows if asserted. We cannot estimate at this time the amount of any additionalloss or range of loss that is reasonably possible.

 

Our specific environmentalmatters consist of the following:

 

Fairview, Oregon

 

In 1996, the Oregon Departmentof Environmental Quality issued two Records of Decision affecting our Fairview,Oregon manufacturing 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 2027.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 $7.3 millionand $7.5 million at April 30, 2005 and January 31, 2005,respectively.

 

Springfield, Ohio

 

In 1994, we entered into aconsent order with the Ohio Environmental Protection Agency, which required theinstallation of remediation systems for the cleanup of groundwatercontamination at our Springfield, Ohio facility. The current estimate is thatthe remediation activities will continue through 2010.  Our liability for ongoing remediationactivities at our Springfield facility was $1.1 million at both April 30, 2005and January 31, 2005.

 

Insurance Litigation

 

In 2002, the Circuit Court of the State ofOregon 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 relatedproceedings.  The judgment was againsttwo non-settling insurers.  Wesubsequently reached a settlement of all claims with one of the insurers inreturn for a payment of $1.3 million, which we received October 22, 2004.   The judgment against the remaining insureris in the amount of approximately $800,000. The judgment also requires the insurer to defend us in suits allegingliability because of groundwater contamination emanating from our Fairview,Oregon plant and to pay approximately 3.1% of any liability imposed against usby judgment or settlement on or after March 1, 1997 on account of suchcontamination.  We appealed the judgment,contending that the remaining insurer should be required to pay a larger shareof our past and future expenses and liabilities, additional interest andincreased attorneys fees.  The insurerhas cross-appealed.   We have not recorded any amounts we mayrecover from the remaining insurer in our consolidated financial statements.

 

**LegalProceedings**

 

We are subject to legalproceedings, claims and litigation, in addition to the environmental matterspreviously discussed, arising in the ordinary course of business.  While the outcome of these matters iscurrently not determinable, management does not expect the ultimate costs to bematerial to our consolidated financial position, result of operations, or cashflows.

 

9

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**Lease Guarantee**

 

We sold our hydraulic cylinderdivision to Precision Hydraulic Cylinders, Inc. (Precision) onJanuary 15, 2002. Under the terms of the sale, we assigned to Precision anoperating lease related to a manufacturing facility in Beulaville, NorthCarolina. We are a guarantor on the lease in the event Precision fails tocomply with the lease terms. The lease requires payments by Precision ofapproximately $21,000 per month through November 2007.  The total value of the lease guarantee usingundiscounted cash flows was approximately $651,000 at April 30, 2005.

 

**Note 9—Earnings Per Share**

 

The following table presentsthe calculation of basic and diluted earnings per share (in thousands, exceptper share amounts):

 

| ** **                                                      | ** ** | **Three Months Ended April 30** | ** ** |
|-----------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                      | ** ** | **2005**                        | ** ** | **2004** | ** ** |
| Basic earnings per share:                                       |       |                            |       |   |   |
| Net income                                                      |       | $                               | 12,208     |   | $ | 8,210 |   |
| Weighted average shares of common stock  outstanding            |       | 12,229                          |       | 12,104 |   |
|                                                            |       | $                               | 1.00       |   | $ | 0.68 |   |
|                                                            |       |                            |       |   |   |
| Diluted earnings per share:                                     |       |                            |       |   |   |
| Net income                                                      |       | $                               | 12,208     |   | $ | 8,210 |   |
| Weighted average shares of common stock  outstanding            |       | 12,229                          |       | 12,104 |   |
| Dilutive effect of stock options and stock  appreciation rights |       | 598                             |       | 454 |   |
| Diluted weighted average shares of common  stock outstanding    |       | 12,827                          |       | 12,558 |   |
|                                                            |       | $                               | 0.95       |   | $ | 0.65 |   |

 

Earnings per share is based onthe weighted average number of common shares and potentially dilutive sharesoutstanding during the period, computed using the treasury stock method.Diluted weighted average common shares includes the incremental shares thatwould be issued upon the assumed exercise of stock options and stockappreciation rights.

 

**Note 10—Supplemental Cash FlowInformation**

 

Thefollowing table presents information that supplements the consolidatedstatements of cash flow (in thousands):

 

| ** **                                            | ** ** | **Three Months Ended April 30** | ** ** |
|-------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                            | ** ** | **2005**                        | ** ** | **2004** | ** ** |
| Cash paid during the period for:                      | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Interest                                              |       | $                               | 85         |   | $ | 56 |   |
| Income taxes                                          |       | $                               | 4,301      |   | $ | 2,130 |   |
|                                                  |       |                            |       |   |   |
| Supplemental disclosure of noncash  information       |       |                            |       |   |   |
| Deferred compensation from stock  appreciation rights |       | $                               | (2,310     | ) | $ | — |   |

 

10

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**Note 11—Benefit Plans**

 

The following table representsthe net periodic cost related to our benefit plans (in thousands):

 
| ** **                     | ** ** | **Defined Benefit**              | ** ** | **Postretirement Benefit**       | ** ** |
|--------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                     | ** ** | **Three Months Ended  April 30** | ** ** | **Three Months Ended  April 30** | ** ** |
| ** **                     | ** ** | **2005**                         | ** ** | **2004**                         | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net periodic benefit cost:     |       |                             |       |                             |       |   |   |   |   |
| Service cost                   |       | $                                | 51         |                             | $          | 153 |   | $ | 32 |   | $ | 37 |   |
| Interest cost                  |       | 119                              |       | 109                              |       | 108 |   | 137 |   |
| Expected return on plan assets |       | (114                             | )          | (100                             | )          | — |   | — |   |
| Recognized net actuarial loss  |       | 32                               |       | 28                               |       | 86 |   | 145 |   |
|                           |       | $                                | 88         |                             | $          | 190 |   | $ | 226 |   | $ | 319 |   |

 

**Note 12—Recent Accounting Pronouncements**

 

In December 2004, the Financial AccountingStandards Board (FASB) issued FASB Staff Position No. 109-2 (FSP 109-2), “Accountingand Disclosure Guidance for the Foreign Earnings Repatriation Provision withinthe American Jobs Creation Act of 2004” (the Act).  The Act introduced a special one-timedividends received deduction on the repatriation of certain foreign earnings toa U.S. taxpayer (Repatriation Provision), provided certain criteria aremet.  FSP 109-2 provides accounting anddisclosure guidance for the Repatriation Provision.  The impact of any repatriation of theseearnings pursuant to the Act cannot reasonably be estimated at this time.  We expect to make a determination about theapplicability of the Repatriation Provision by the end of 2005.

 

In December 2004, the FASB issued SFAS No.123(R) (SFAS 123R), “Share-Based Payment”, which is a revision of SFAS No. 123and supersedes Accounting Principles Board (“APB”) Opinion No. 25.   On April 24, 2005, the Securities andExchange Commission amended the compliance date for SFAS 123R until the firstquarter of fiscal 2007.  SFAS 123Rrequires all share-based payments to employees, including grants of employeestock options and SARS, to be valued at fair value on the date of grant, and tobe expensed over the applicable vesting period. Pro forma disclosure of the income statement effects of share-basedpayments will no longer be an alternative. SFAS 123R is effective for all stock-based awards granted on or after February1, 2006.  In addition, companies mustalso recognize compensation expense related to any awards that are not fullyvested as of the effective date. Compensation expense for the unvested awards will be measured based onthe fair value of the awards previously calculated in developing the pro forma disclosuresin accordance with the provisions of SFAS No. 123.  We are currently evaluating SFAS 123R,including the method of adoption, and expect it will result in modifications toour current accounting for both stock options and SARS.

 

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, Chapter 4, previously stated that “....undersome circumstances, items such as idle facility expense, excessive spoilage,double freight, and re-handling costs may be so abnormal as to requiretreatment as current period charges...” SFAS 151 requires that those items berecognized as current-period charges regardless of whether they meet thecriterion of “so abnormal.”  In addition,this statement requires that allocation of fixed production overhead to thecosts of conversion be based on the normal capacity of the productionfacilities.  The provisions of SFAS 151shall be applied prospectively and are effective for inventory costs incurredduring the fiscal years beginning after June 15, 2005, with earlier applicationpermitted for inventory costs incurred during the fiscal years beginning afterthe date this Statement was issued.  Theadoption of SFAS 151 is not expected to have a material impact on our financialposition and results of operations.

 

In December 2004, the FASB issued SFAS No.153 (SFAS 153), “Exchanges of Nonmonetary Assets, an amendment of APB OpinionNo. 29.”  The guidance in APB Opinion No.29 (APB 29), “ Accounting for Nonmonetary Transactions”, is based on theprinciple that exchanges of nonmonetary assets should be measured based on thefair value of assets exchanged.  Theguidance in that opinion, however, included certain exceptions to thatprinciple.   This Statement amends APB 29to eliminate the exception for nonmonetary exchanges of similar productiveassets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flowsof the entity are expected to change significantly as a result of the exchange.  SFAS 153 is effective for nonmonetary exchangesoccurring in fiscal periods beginning after June 15, 2005.  The adoption of SFAS 153 is not expected tohave a material impact on our financial position and results of operations.

 

11

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**Note 13—Warranty Obligations**

 

We record a liability on ourconsolidated balance sheets for costs related to warranties with the sales ofour products. This liability is estimated through historical customer claims,product failure rates, material usage and service delivery costs incurred incorrecting a product failure. Our warranty obligations, which are recorded in otheraccrued expenses on the consolidated balance sheets, were as follows (inthousands):

 
| ** **                                        | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------------|------------|----------|------------|----------|------------|
| Balance at January 31                             |       | $        | 1,911      |     | $          | 1,610 |   |
| Accruals for warranties issued during the  period |       | 503      |       | 363      |       |
| Accruals for pre-existing warranties              |       | 52       |       | —   |       |
| Settlements during the period                     |       | (548     | )          | (390     | )          |
| Balance at April 30                               |       | $        | 1,918      |     | $          | 1,583 |   |

 

**Note 14—Accumulated Other ComprehensiveIncome (Loss)**

 

The following table presentsthe changes in and the components of accumulated other comprehensive income (inthousands):

 
| ** **                  | ** ** | **Accumulated Other Comprehensive Income (Loss)** | ** ** |
|-----------------------------|------------|---------------------------------------------------|------------|
| ** **                  | ** ** | **Translation Adjustment**                        | ** ** | **Minimum Pension Liability  Adjustment** | ** ** | **Total** | ** ** |
| Balance at January 31, 2005 |       | $                                                 | 10,075     |   | $ | (2,309 | ) | $ | 7,766 |   |
| Translation adjustment      |       | (794                                              | )          | — |   | (794 | ) |
|                        |       |                                              |       |   |   |   |   |
| Balance at April 30, 2005   |       | $                                                 | 9,281      |   | $ | (2,309 | ) | $ | 6,972 |   |

 

12

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**Item 2. Management’s Discussion and Analysis of Financial Condition andResults of Operations**

 

All references to fiscalperiods are defined as periods ending in the year ended January 31, 2005(fiscal 2005) and the year ending January 31, 2006 (fiscal 2006).

 

### **CRITICALACCOUNTING POLICIES AND ESTIMATES**

 

Our discussion and analysisof financial position and results of operations is based on our consolidatedfinancial statements which have been prepared in accordance with generallyaccepted accounting principles in the United States of America (GAAP).  The preparation of these financial statementsrequires us to make estimates and judgments that affect the reported amounts ofassets, liabilities, revenues and expenses and the disclosure of contingentassets and liabilities.  We evaluate ourestimates and judgments on an on-going basis, including those related touncollectible receivables, inventories, goodwill and long-lived assets,warranty obligations, environmental liabilities and deferred taxes.  We base our estimates on historicalexperience and various other assumptions that we believe to be reasonable underthe circumstances.  Actual results maydiffer from these estimates under different assumptions or conditions.  A description of our critical accountingpolicies and related judgments and estimates that affect the preparation of ourconsolidated financial statements is set forth on Form 10-K in our AnnualReport for the year ended January 31, 2005.

 

**COMPARISON OF FIRST QUARTER OF FISCAL 2006 AND FISCAL 2005**

 

**ConsolidatedSummary**

 

Net income for the first quarter of fiscal2006 increased to $12.2 million ($0.95 per diluted share) from $8.2 million($0.65 per diluted share) for the first quarter of fiscal 2005.  The increase was due to higher sales in allregions compared to the prior year.  Inparticular, North America and Europe posted strong sales growth.  Excluding the effect of foreign currencyfluctuations, net sales in North America and Europe grew 21% and 28%,respectively, in the first quarter of fiscal 2006 as compared to the samequarter of the prior year.  Consolidatedgross profit percentage in the first quarter of fiscal 2006 was down 1% fromthe first quarter of fiscal 2005.  Theprimary factors contributing to the margin decrease were increased sales oflower margin products and higher material costs.  Selling and administrative costs increased 2%in the first quarter of fiscal 2006 over the comparable quarter of the prioryear due entirely to foreign currency changes in the US dollar against theEuro, Canadian dollar and the British pound.

 

**NorthAmerica**

 
| ** **                 | ** ** | **Three Months Ended April 30** | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------------|------------|---------------------------------|------------|------------|------------|------------|------------|
| ** **                 | ** ** | **2005**                        | ** ** | **%**      | ** ** | **2004**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                 | ** ** | **(In thousands)**              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                  |       | $                               | 61,617     |       | 100        | %          | $          | 50,594 |   | 100 | % | $ | 11,023 |   | 22 | % |
| Cost of goods sold         |       | 37,625                          |       | 61         | %          | 30,638     |       | 61 | % | 6,987 |   | 23 | % |
| Gross profit               |       | 23,992                          |       | 39         | %          | 19,956     |       | 39 | % | 4,036 |   | 20 | % |
|                       |       |                            |       |       |       |       |       |   |   |   |   |   |   |
| Selling and administrative |       | 10,640                          |       | 17         | %          | 10,251     |       | 20 | % | 389 |   | 4 | % |
| Amortization               |       | (191                            | )          | —     |       | 36         |       | — |   | (227 | ) | — |   |
|                       |       |                            |       |       |       |       |       |   |   |   |   |   |   |
| Operating income           |       | $                               | 13,543     |       | 22         | %          | $          | 9,669 |   | 19 | % | $ | 3,874 |   | 40 | % |

 

NorthAmerica net sales were up $11.0 million or 22% in the first quarter of fiscal2006 over fiscal 2005.  Our higher NorthAmerican shipments were the result of a strong lift truck market in the firstquarter of fiscal 2006.  The salesincrease also reflected increases in sales prices over the last year to coverincreasing material costs.  As inprevious quarters, the relation between the U.S. dollar and the Euro in thefirst quarter of fiscal 2006 remained unfavorable for European imports into theU.S. market when compared to the same quarter of fiscal 2005.

 

Historically,we have found that changes in the level of our net sales do not corresponddirectly to the percentage changes in lift truck industry shipments, butindustry statistics do provide an indication of the direction of businessactivity.  North American lift truckindustry shipments from the first quarter of fiscal 2005 to the first quarterof fiscal 2006 increased 25%.

 

13

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Grossprofit percentage for the first quarter of fiscal 2006 in North Americabenefited from the contribution of additional unit volume through our plants,absorbing more fixed costs than in the first quarter of fiscal 2005.  However, this was partially offset by increasedmaterial costs related to the price of steel. We estimate our gross profit percentage will decrease by approximately0.3% (measured against worldwide sales) for each 1% increase in steel prices,exclusive of any price increase passed along to our customers.  The value of the U.S. dollar in relation tothe Canadian dollar decreased approximately 8% from the first quarter of fiscal2005 to fiscal 2006, which had the effect of reducing gross margins in one ofour Canadian plants.

 

Sellingand administrative costs for the first quarter of fiscal 2006 increased 4% or$389,000 over the same quarter of the prior year.  Excluding $121,000 related to changes incurrency rates, selling and administrative costs increased just over $268,000or 3% due primarily to professional fees.

 

Thenet adjustment to stock appreciation rights (SARS) amortization in the firstquarter of fiscal 2006 was income of $228,000 due to the decrease in the marketprice of our common stock from $36.60 at January 31, 2005 to $31.50 at April30, 2005.  This represents the adjustmentof previously recognized compensation expense related to SARS.  No amortization expense was recorded for SARSin the first quarter of fiscal 2005 since they were not granted until May 2004.

 

**Europe**

 
| ** **                 | ** ** | **Three Months Ended April 30** | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------------|------------|---------------------------------|------------|------------|------------|------------|------------|
| ** **                 | ** ** | **2005**                        | ** ** | **%**      | ** ** | **2004**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                 | ** ** | **(In thousands)**              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                  |       | $                               | 36,704     |       | 100        | %          | $          | 27,419 |   | 100 | % | $ | 9,285 |   | 34 | % |
| Cost of goods sold         |       | 28,410                          |       | 77         | %          | 21,232     |       | 77 | % | 7,178 |   | 34 | % |
| Gross profit               |       | 8,294                           |       | 23         | %          | 6,187      |       | 23 | % | 2,107 |   | 34 | % |
|                       |       |                            |       |       |       |       |       |   |   |   |   |   |   |
| Selling and administrative |       | 5,511                           |       | 15         | %          | 5,340      |       | 19 | % | 171 |   | 3 | % |
| Amortization               |       | 132                             |       | —     |       | 96         |       | — |   | 36 |   | 38 | % |
|                       |       |                            |       |       |       |       |       |   |   |   |   |   |   |
| Operating income           |       | $                               | 2,651      |       | 8          | %          | $          | 751 |   | 4 | % | $ | 1,900 |   | — |   |

 

Netsales in Europe increased $9.3 million or 34% during the first quarter offiscal 2006 over the same quarter of fiscal 2005.  The primary contributor was additional salesof $5.5 million from our German manufacturing facility and reflects the utilizationof the Falkenroth assets purchased in late fiscal 2004.    Foreign currency rate fluctuations betweenthe US dollar and the Euro and the British pound accounted for $1.5 million ofthe increase in net sales.

 

Grossprofit percentage in Europe remained constant at 23% for the first quarter offiscal 2006 as compared to the first quarter of fiscal 2005.  The benefits in absorption of fixed costs asa result of the increased sales volumes were offset by increased materialcosts.

 

Sellingand administrative costs in Europe increased by $171,000 or 3% for the firstquarter of fiscal 2006 as compared to the first quarter of fiscal 2005.  Changes in foreign currency rates accountedfor $300,000 of additional selling and administrative costs or nearly a 6% increaseover the prior year.  Exclusive offoreign currency fluctuations, selling and administrative costs actuallydecreased $129,000 or slightly over 2% in the first quarter of fiscal 2006 ascompared to the same quarter of fiscal 2005. This was due primarily to lower sales and marketing costs.

 

In order to eliminate excessproduction capacity and lower overall production costs in Europe we announcedplans on April 29, 2005 to close our manufacturing facility in Hoorn, TheNetherlands.  Manufacturing operations inHoorn will be moved to one of our facilities in Almere, The Netherlands orVerona, Italy.  The closure and movementof production will take place over the next six months and result in areduction in our European workforce by approximately 20 employees.  We are currently finalizing the social planswith the local unions.  No accruals havebeen recorded in the April 30, 2005 financial statements related to the closurebecause the final terms of the social plans have not yet been approved.  Total direct costs related to the closurewill be approximately $2.2 million, including employee related costs of $1.4million and moving related costs of $800.000. We expect to begin realizing the full benefits of this consolidation ofoperations in the first quarter of fiscal 2007.

 

14

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**AsiaPacific**

 
| ** **                 | ** ** | **Three Months Ended April 30** | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------------|------------|---------------------------------|------------|------------|------------|------------|------------|
| ** **                 | ** ** | **2005**                        | ** ** | **%**      | ** ** | **2004**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                 | ** ** | **(In thousands)**              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                  |       | $                               | 16,194     |       | 100        | %          | $          | 15,516 |   | 100 | % | $ | 678 |   | 4 | % |
| Cost of goods sold         |       | 10,992                          |       | 68         | %          | 10,283     |       | 66 | % | 709 |   | 7 | % |
| Gross profit               |       | 5,202                           |       | 32         | %          | 5,233      |       | 34 | % | (31 | ) | (1 | )% |
|                       |       |                            |       |       |       |       |       |   |   |   |   |   |   |
| Selling and administrative |       | 2,195                           |       | 14         | %          | 2,327      |       | 15 | % | (132 | ) | (6 | )% |
| Amortization               |       | 7                               |       | —     |       | 8          |       | — |   | (1 | ) | (13 | )% |
|                       |       |                            |       |       |       |       |       |   |   |   |   |   |   |
| Operating income           |       | $                               | 3,000      |       | 18         | %          | $          | 2,898 |   | 19 | % | $ | 102 |   | 4 | % |

 

AsiaPacific net sales increased $678,000 or 4% in the first quarter of fiscal 2006over fiscal 2005.  Excluding the effectof foreign currencies, net sales increased $136,000 or 1%.  The largest contributing markets to theincrease were Japan and China.  All othermarkets were consistent with or slightly below the prior year first quarter.

 

Grossprofit percentage in the Asia Pacific region decreased to 32% in the firstquarter of fiscal 2006 from 34% in the same quarter of the prior year.  The primary reason for the drop was anincrease in sales of lower margin products in China.

 

Sellingand administrative costs in the Asia Pacific region decreased $132,000 for thefirst quarter of fiscal 2006 as compared to fiscal 2005.  Excluding foreign currency fluctuations,selling and administrative costs decreased $197,000 or 8% when compared to thesame quarter of the prior year.  The decreasewas due to lower engineering and marketing costs in the first quarter of fiscal2006.

 

**Non-OperatingItems**

 

Interest income remainedrelatively constant during the first quarter of fiscal 2006 as compared to thesame quarter of the prior year.  This wasprimarily due to comparable average balances of cash and marketable securitiesbetween the two periods.

 

Interest expense wasapproximately $149,000 or 17% lower in the first quarter of fiscal 2006 ascompared to the same quarter of fiscal 2005 as a result of lower overall debtlevels.  See “Financial Condition andLiquidity” for additional discussion of debt levels and payments.

 

The effective tax rateremained a constant 35% in the first quarter of fiscal 2006 compared to thesame quarter of the prior year.

 

15

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**CASH FLOWS**

 

The statements of cash flowsreflect the changes in cash and cash equivalents for the three months ended April30, 2005 and April 30, 2004 by classifying transactions into three majorcategories of activities: operating, investing and financing.

 

**Operating**

 

Our main source of liquidity wascash generated from operating activities. This consisted of net income adjustedfor noncash operating items such as depreciation and amortization, losses andgains on disposition of assets, deferred income taxes, and changes in operatingassets and liabilities.

 

Net cash provided by operatingactivities was $3.9 million in the first three months of fiscal 2006compared to $12.8 million for the same period in fiscal 2005. The decreasein fiscal 2006 was due to changes in operating accounts, primarily accountsreceivable, inventories and accounts payable. This decrease was partially offset by higher levels of net income andchanges in income taxes payable.

 

**Investing**

 

The principal recurringinvesting activities were capital expenditures. These expenditures wereprimarily for equipment and tooling related to product improvements, moreefficient production methods and replacement for normal wear and tear. Capitalexpenditures were $2.0 million and $3.8 million in the first threemonths of fiscal 2006 and 2005, respectively. We expect capital expenditures inthe rest of fiscal 2006 to approximate depreciation expense. Depreciationexpense was $3.6 million and $3.4 million for the first three months in fiscal2006 and fiscal 2005, respectively.

 

Marketable securities consist ofauction rate securities issued by various state agencies throughout the UnitedStates.  We classify these securities asavailable-for-sale securities.  These securitiesare long-term instruments maturing through 2044; however, the interest ratesand maturities are reset approximately every month, at which time we can sellthe securities. Tax-free interest rates on the notes ranged from 1.6% to 2.9%per annum. Net purchases of marketable securities were $11.6 million and $2.5 millionin the first three months of fiscal 2006 and fiscal 2005, respectively.

 

**Financing**

 

The issuance of common stockrelated to the exercise of stock options generated $189,000 of cash for thefirst three months in fiscal 2006, as compared to $61,000 in the same quarterof the prior year.

 

We declared dividends totaling $0.12 and $0.11per share during the first three months of fiscal 2006 and 2005, respectively.

 

**FINANCIAL CONDITION AND LIQUIDITY**

 

Our working capital at April30, 2005 was $107.1 million as compared to $94.2 million atJanuary 31, 2005. Our current ratio at April 30, 2005 was 2.76 to 1, ascompared to 2.51 to 1 at January 31, 2005.

 

Total outstanding debt,including notes payable to banks and capital leases, at April 30, 2005 was $39.5 millionin comparison with $40.6 million at January 31, 2005. Our debt toequity ratio improved to .17 to 1 at April 30, 2005 from .19 to 1 atJanuary 31, 2005. Our debt agreements contain covenants relating to networth and leverage ratios.  We were incompliance with these covenants at April 30, 2005.  Borrowing arrangements currently in placewith commercial banks provide committed lines of credit totaling $25 million,of which $1.8 million was used through the issuance of letters of credit atApril 30, 2005. The average interest rate on notes payable to banks was 2.9% atApril 30, 2005 and 3.7% at January 31, 2005.

 

We believe that our cash andcash equivalents, existing credit facilities and cash flows from operationswill be sufficient to satisfy our expected working capital, capital expenditureand debt retirement requirements for fiscal 2006.

 

16

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**OTHER MATTERS**

 

The U.S. dollar strengthened inthe first quarter of fiscal 2006 in comparison to most foreign currencies usedby our significant foreign operations. As a result, foreign currencytranslation adjustments decreased shareholders’ equity by $794,000 in the firstquarter of fiscal 2006. The primary currencies driving this decrease were theEuro and the Canadian dollar.

 

**OFF BALANCE SHEET ARRANGEMENTS**

 

At April 30, 2005, 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 ACCOUNTING PRONOUNCEMENTS**

 

In December 2004, the Financial AccountingStandards Board (FASB) issued FASB Staff Position No. 109-2 (FSP 109-2), “Accountingand Disclosure Guidance for the Foreign Earnings Repatriation Provision withinthe American Jobs Creation Act of 2004” (the Act).  The Act introduced a special one-timedividends received deduction on the repatriation of certain foreign earnings toa U.S. taxpayer (Repatriation Provision), provided certain criteria are met.  FSP 109-2 provides accounting and disclosureguidance for the Repatriation Provision. The impact of any repatriation of these earnings pursuant to the Actcannot reasonably be estimated at this time. We expect to make a determination about the applicability of the RepatriationProvision by the end of 2005.

 

In December 2004, the FASB issued SFAS No.123(R) (SFAS 123R), “Share-Based Payment”, which is a revision of SFAS No. 123and supersedes Accounting Principles Board (“APB”) Opinion No. 25.   On April 24, 2005, the Securities andExchange Commission amended the compliance date for SFAS 123R until the firstquarter of fiscal 2007.  SFAS 123Rrequires all share-based payments to employees, including grants of employeestock options and SARS, to be valued at fair value on the date of grant, and tobe expensed over the applicable vesting period. Pro forma disclosure of the income statement effects of share-basedpayments will no longer be an alternative. SFAS 123R is effective for all stock-based awards granted on or after February1, 2006.  In addition, companies mustalso recognize compensation expense related to any awards that are not fullyvested as of the effective date. Compensation expense for the unvested awards will be measured based onthe fair value of the awards previously calculated in developing the pro formadisclosures in accordance with the provisions of SFAS No. 123.  We are currently evaluating SFAS 123R,including the method of adoption, and expect it will result in modifications toour current accounting for both stock options and SARS.

 

In November 2004, the FASB issued SFAS No.151 (SFAS 151), “Inventory Costs, an amendment of ARB No. 43, Chapter 4.”  This statement amends the guidance in ARB No.43, Chapter 4, “Inventory Pricing”, to clarify the accounting for abnormalamounts of idle facility expense, freight, handling costs, and wasted material(spoilage).  Paragraph 5 of ARB No. 43,Chapter 4, previously stated that “....under some circumstances, items such asidle facility expense, excessive spoilage, double freight, and re-handlingcosts may be so abnormal as to require treatment as current period charges...”SFAS 151 requires that those items be recognized as current-period chargesregardless of whether they meet the criterion of “so abnormal.”  In addition, this statement requires thatallocation of fixed production overhead to the costs of conversion be based onthe normal capacity of the production facilities.  The provisions of SFAS 151 shall be appliedprospectively and are effective for inventory costs incurred during the fiscalyears beginning after June 15, 2005, with earlier application permitted forinventory costs incurred during the fiscal years beginning after the date thisStatement was issued.  The adoption ofSFAS 151 is not expected to have a material impact on our financial positionand results of operations.

 

In December 2004, the FASB issued SFAS No.153 (SFAS 153), “Exchanges of Nonmonetary Assets, an amendment of APB OpinionNo. 29.”  The guidance in APB Opinion No.29 (APB 29), “ Accounting for Nonmonetary Transactions”, is based on theprinciple that exchanges of nonmonetary assets should be measured based on thefair value of assets exchanged.  Theguidance in that opinion, however, included certain exceptions to thatprinciple.   This Statement amends APB 29to eliminate the exception for nonmonetary exchanges of similar productiveassets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flowsof the entity are expected to change significantly as a result of theexchange.  SFAS 153 is effective fornonmonetary exchanges occurring in fiscal periods beginning after June 15,2005.  The adoption of SFAS 153 is notexpected to have a material impact on our financial position and results ofoperations.

 

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**Item 3. Quantitative and QualitativeDisclosures About Market Risk**

 

Market risk is the potentialloss arising from adverse changes in market rates and prices, such as foreigncurrency exchange rate and interest rate fluctuations. A significant portion ofour revenues and expenses are denominated in foreign currencies. As a result,our operating results could become subject to significant fluctuations basedupon changes in the exchange rates of the foreign currencies in relation to theU.S. dollar. The table below illustrates the hypothetical increase in net salesfor the first quarter of fiscal 2006 resulting from a 10% weaker U.S. dollarduring the quarter, measured against foreign currencies that affect ouroperations (in millions):

 

| Euro                                                                                  |   | $   | 2.7    |   |
|---------------------------------------------------------------------------------------|--------|-----|--------|--------|
| Canadian dollar                                                                       |   | 0.7 |   |
| British pound                                                                         |   | 0.8 |   |
| Other currencies (representing net sales of  less than 11% of consolidated net sales) |   | 1.2 |   |

 

We enter into foreign currencyforward exchange contracts to offset the impact of currency fluctuations oncertain nonfunctional currency assets and liabilities. The principal currencieshedged are denominated in Japanese yen, Canadian dollars, Euros and Britishpounds. Our foreign currency forward exchange contracts have terms lasting upto six months, but generally less than one month. We do not enter intoderivatives or other financial instruments for trading or speculative purposes.

 

A majority of our products aremanufactured using steel as a primary raw material and steel based componentsas purchased parts. As such, our cost of goods sold is sensitive tofluctuations in steel prices, either directly through the purchase of steel asraw material or indirectly through the purchase of steel based components.Presuming that the full impact of commodity steel cost increases is reflectedin all steel and steel based component purchases, we estimate our gross profit percentagesensitivity to be approximately 0.3% for each 1.0% increase in commodity steelcost without offsetting sales price increases. For example, if the price ofcommodity steel increases 1.0%, and the full impact of that increase isreflected in all raw material and component purchases, the net decrease in thegross profit percentage would be approximately 0.3%. Based on our statement ofincome for the quarter ended April 30, 2005, a 1% increase in commodity steelcosts without offsetting sales price increases would have decreasedconsolidated gross profit by approximately $300,000.

 

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

 

Manufacturing of our productsincludes the purchase of various raw materials and components. Certain of theseitems are provided worldwide by a limited number of suppliers. We are notcurrently experiencing shortages in obtaining the raw materials and components.However, certain steel products obtained in Europe are subject to allocationsfrom suppliers. At this time, we believe the current allocation of theseproducts from suppliers is sufficient to meet planned production volumes.Nevertheless, there can be no assurance that these suppliers will be able tomeet our future requirements. An extended delay or interruption in the supplyof any components could have a material adverse effect on our business, resultsof operations and financial condition. We are working to identify alternativesupplier sources for these products.

 

Substantially all of our debtat April 30, 2005 had a fixed interest rate and was denominated in U.S. dollars.Any additional payments to prepay scheduled amounts of debt are subject topenalties. At April 30, 2005, the penalties to retire all of our long-term debtwere $1.3 million. A hypothetical immediate increase in market interest ratesby 1% would decrease the fair value of our long-term debt outstanding at April30, 2005 by $574,000.

 

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**Item 4. Controls and Procedures**

 

Evaluation of Disclosure Controls and Procedures

 

Our management has evaluated, under thesupervision and with the participation of our chief executive officer and chieffinancial officer, the effectiveness of our disclosure controls and proceduresas of the end of the period covered by this report pursuant to Rule 13a-15(b)under the Securities Exchange Act of 1934 (the “Exchange Act”).  Based on that evaluation, our chief executiveofficer and chief financial officer have concluded that, as of the end of theperiod covered by this report, our disclosure controls and procedures areeffective in ensuring that information required to be disclosed in our ExchangeAct reports is (1) recorded, processed, summarized and reported in a timely manner,and (2) accumulated and communicated to our management, including our chief executiveofficer and chief financial officer, as appropriate to allow timely decisionsregarding required disclosure.

 

Changes in Internal Control Over Financial Reporting

 

There has been no change in the internalcontrol over financial reporting that occurred during the three months endedApril 30, 2005 that has materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.

 

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**PART II—OTHER INFORMATION**

 

**Item 1. Legal Proceedings**

 

None

 

**Item 2. Unregistered Sales of EquitySecurities and Use of Proceeds**

 

None

 

**Item 3. Defaults Upon Senior Securities**

 

None

 

**Item 4. Submission of Matters to a Vote ofSecurity Holders**

 

None

 

**Item 5. Other Information**

 

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. |

 

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**SIGNATURES**

 

Pursuant to the requirements ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the undersigned thereunto duly authorized.

 
|         | CASCADE CORPORATION                                                                                |
|--------------|----------------------------------------------------------------------------------------------------|
| June 9, 2005 |                                                                                               |
|         |                                                                                               |
|         | /s/ RICHARD S. ANDERSON                                                                            |
|         | Richard S. Anderson                                                                                |
|         | *Senior Vice President and  Chief Financial Officer  (Principal Financial and Accounting Officer)* |

 

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