**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 July 31, 2006**                                                                                                  |
| ** **      | ** **                                                                                                                                         |
| ** **      | **OR**                                                                                                                                             |
| ** **      | ** **                                                                                                                                         |
| **o**           | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                            |
| ** **      | ** **                                                                                                                                         |
| ** **      | **For the  transition period  from         to         ** |
| ** **      | ** **                                                                                                                                         |

**Commission file number 1-12557**

**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 Exchange Act.(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 August 24,2006 was 12,602,201.

 

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**Forward-LookingStatements**

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

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

·                  Fluctuationsin lift truck orders or deliveries;

·                  Availabilityand cost of raw materials;

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

·                  Actionsby foreign governments;

·                  Assumptionsrelating to pension and other 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.

2

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**PART I—FINANCIALINFORMATION**

**Item 1. FinancialStatements**

**CASCADE CORPORATION**

**CONSOLIDATED STATEMENTS OF INCOME**

**(Unaudited — in thousands, except pershare amounts)**

 
| ** **                                   | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                   | ** ** | **July 31**                 | ** ** | **July 31**               | ** ** |
| ** **                                   | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net sales                                    |       | $                                | 119,376    |                           | $          | 114,966 |   | $ | 237,150 |   | $ | 229,481 |   |
| Cost of goods  sold                          |       | 81,023                           |       | 78,396                         |       | 162,108 |   | 155,423 |   |
| Gross profit                                 |       | 38,353                           |       | 36,570                         |       | 75,042 |   | 74,058 |   |
|                                         |       |                             |       |                           |       |   |   |   |   |
| Selling and  administrative expenses         |       | 19,897                           |       | 18,927                         |       | 39,749 |   | 37,045 |   |
| Loss (gain) on  disposition of assets        |       | 45                               |       | 1                              |       | (617 | ) | (27 | ) |
| Amortization                                 |       | 305                              |       | 767                            |       | 607 |   | 943 |   |
|                                         |       |                             |       |                           |       |   |   |   |   |
| Operating income                             |       | 18,106                           |       | 16,875                         |       | 35,303 |   | 36,097 |   |
| Interest expense                             |       | 493                              |       | 698                            |       | 1,025 |   | 1,448 |   |
| Interest income                              |       | (527                             | )          | (170                           | )          | (882 | ) | (277 | ) |
| Other expense  (income)                      |       | (287                             | )          | 65                             |       | (321 | ) | (137 | ) |
|                                         |       |                             |       |                           |       |   |   |   |   |
| Income before  provision for income taxes    |       | 18,427                           |       | 16,282                         |       | 35,481 |   | 35,063 |   |
| Provision for  income taxes                  |       | 6,504                            |       | 5,532                          |       | 12,524 |   | 12,105 |   |
|                                         |       |                             |       |                           |       |   |   |   |   |
| Net income                                   |       | $                                | 11,923     |                           | $          | 10,750 |   | $ | 22,957 |   | $ | 22,958 |   |
|                                         |       |                             |       |                           |       |   |   |   |   |
| Basic earnings  per share                    |       | $                                | 0.95       |                           | $          | 0.87 |   | $ | 1.83 |   | $ | 1.87 |   |
| Diluted earnings  per share                  |       | $                                | 0.91       |                           | $          | 0.84 |   | $ | 1.75 |   | $ | 1.79 |   |
|                                         |       |                             |       |                           |       |   |   |   |   |
| Basic weighted  average shares outstanding   |       | 12,569                           |       | 12,302                         |       | 12,555 |   | 12,266 |   |
| Diluted weighted  average shares outstanding |       | 13,074                           |       | 12,856                         |       | 13,133 |   | 12,808 |   |

 

The accompanyingnotes are an integral part of the consolidated financial statements.

3

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**CASCADECORPORATION**

**CONSOLIDATEDBALANCE SHEETS**

**(Unaudited - in thousands, except pershare amounts)**
| ** **                                                                                               | ** ** | **July 31** | ** ** | **January 31** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|------------------|------------|---------------------|------------|
| ** **                                                                                               | ** ** | **2006**         | ** ** | **2006**            | ** ** |
|                                                                                                     |       |             |       |                |       |
| **ASSETS**                                                                                               | ** ** | ** **       | ** ** | ** **          | ** ** |
| Current assets:                                                                                          |       |             |       |                |       |
| Cash and cash equivalents                                                                                |       | $                | 43,849     |                | $          | 35,493 |   |
| Marketable securities                                                                                    |       | 22,004           |       | 23,004              |       |
| Accounts receivable, less allowance for doubtful  accounts of $1,521 and $1,415                          |       | 78,336           |       | 67,020              |       |
| Inventories                                                                                              |       | 54,849           |       | 56,996              |       |
| Deferred income taxes                                                                                    |       | 3,550            |       | 3,232               |       |
| Prepaid expenses and other                                                                               |       | 5,564            |       | 5,373               |       |
| Total current assets                                                                                     |       | 208,152          |       | 191,118             |       |
| Property, plant  and equipment, net                                                                      |       | 76,452           |       | 75,374              |       |
| Goodwill                                                                                                 |       | 79,753           |       | 78,820              |       |
| Deferred income  taxes                                                                                   |       | 12,803           |       | 11,851              |       |
| Other assets                                                                                             |       | 4,014            |       | 4,120               |       |
| Total assets                                                                                             |       | $                | 381,174    |                | $          | 361,283 |   |
|                                                                                                     |       |             |       |                |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                            | ** ** | ** **       | ** ** | ** **          | ** ** |
| Current  liabilities:                                                                                    |       |             |       |                |       |
| Notes payable to banks                                                                                   |       | $                | 4,389      |                | $          | 4,741 |   |
| Current portion of long-term debt                                                                        |       | 12,593           |       | 12,681              |       |
| Accounts payable                                                                                         |       | 22,475           |       | 25,124              |       |
| Accrued payroll and payroll taxes                                                                        |       | 9,091            |       | 8,710               |       |
| Accrued environmental expenses                                                                           |       | 979              |       | 984                 |       |
| Income taxes payable                                                                                     |       | 337              |       | 2,373               |       |
| Other accrued expenses                                                                                   |       | 10,371           |       | 11,543              |       |
| Total current liabilities                                                                                |       | 60,235           |       | 66,156              |       |
| Long-term debt,  net of current portion                                                                  |       | 12,500           |       | 12,500              |       |
| Accrued  environmental expenses                                                                          |       | 6,261            |       | 6,951               |       |
| Deferred income  taxes                                                                                   |       | 3,959            |       | 4,009               |       |
| Other  liabilities                                                                                       |       | 12,934           |       | 12,261              |       |
| Total liabilities                                                                                        |       | 95,889           |       | 101,877             |       |
|                                                                                                     |       |             |       |                |       |
| Commitments and  contingencies (Note 8)                                                                  |       |             |       |                |       |
| Shareholders’  equity:                                                                              |       |             |       |                |       |
| Common stock, $.50 par value, 20,000 authorized  shares; 12,600 and 12,536 shares issued and outstanding |       | 6,300            |       | 6,268               |       |
| Additional paid-in capital                                                                               |       | 24,282           |       | 21,590              |       |
| Retained earnings                                                                                        |       | 243,055          |       | 223,867             |       |
| Accumulated other comprehensive income                                                                   |       | 11,648           |       | 7,681               |       |
| Total shareholders’ equity                                                                          |       | 285,285          |       | 259,406             |       |
| Total  liabilities and shareholders’ equity                                                         |       | $                | 381,174    |                | $          | 361,283 |   |

 

The accompanying notesare an integral part of the consolidated financial statements.

4

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**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                                                           |       | —                |       | —      |       | —         |       | 22,957            |       | —                 |       | $                      | 22,957     |   |
| Dividends ($0.30  per share)                                         |       | —                |       | —      |       | —         |       | (3,769            | )          | —                 |       | —                 |       |
| Common stock  issued                                                 |       | 64                    |       | 32          |       | 692            |       | —            |       | —                 |       | —                 |       |
| Excess tax  benefit from exercise of share-based compensation awards |       | —                |       | —      |       | 118            |       | —            |       | —                 |       | —                 |       |
| Share-based  compensation                                            |       | —                |       | —      |       | 1,882          |       | —            |       | —                 |       | —                 |       |
| Translation  adjustment                                              |       | —                |       | —      |       | —         |       | —            |       | 3,967                  |       | 3,967                  |       |
|                                                                 |       |                  |       |        |       |           |       |              |       |                   |       |                   |       |
| **Balance  at July 31, 2006**                                        |       | 12,600                |       | $           | 6,300      |           | $          | 24,282            |       | $                      | 243,055    |                   | $          | 11,648 |   | $ | 26,924 |   |

 

The accompanyingnotes are an integral part of the consolidated financial statements.

5

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**CASCADECORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited—in thousands)**
| ** **                                                                         | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                         | ** ** | **July 31**               | ** ** |
| ** **                                                                         | ** ** | **2006**                       | ** ** | **2005** | ** ** |
| **Cash  flows from operating activities:**                                         | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Net income                                                                         |       | $                              | 22,957     |   | $ | 22,958 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities: |       |                           |       |   |   |
| Depreciation and amortization                                                      |       | 7,494                          |       | 8,339 |   |
| Share-based compensation                                                           |       | 1,882                          |       | 369 |   |
| Deferred income taxes                                                              |       | (1,363                         | )          | (298 | ) |
| Gain on disposition of assets                                                      |       | (617                           | )          | (27 | ) |
| Changes in operating assets and liabilities:                                       |       |                           |       |   |   |
| Accounts receivable                                                                |       | (9,586                         | )          | (4,377 | ) |
| Inventories                                                                        |       | 3,557                          |       | (3,167 | ) |
| Prepaid expenses and other                                                         |       | (802                           | )          | (1,071 | ) |
| Accounts payable and accrued expenses                                              |       | (4,544                         | )          | (5,183 | ) |
| Income taxes payable and receivable                                                |       | (2,092                         | )          | 51 |   |
| Other assets and liabilities                                                       |       | (491                           | )          | 1,024 |   |
| Net cash provided by operating activities                                          |       | 16,395                         |       | 18,618 |   |
|                                                                               |       |                           |       |   |   |
| **Cash  flows from investing activities:**                                         | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Capital expenditures                                                               |       | (6,248                         | )          | (5,287 | ) |
| Sales of marketable securities                                                     |       | 7,100                          |       | 10,150 |   |
| Purchases of marketable securities                                                 |       | (6,100                         | )          | (24,050 | ) |
| Proceeds from disposition of assets                                                |       | 1,607                          |       | 190 |   |
| Net cash used in investing activities                                              |       | (3,641                         | )          | (18,997 | ) |
|                                                                               |       |                           |       |   |   |
| **Cash  flows from financing activities:**                                         | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Cash dividends paid                                                                |       | (3,769                         | )          | (2,947 | ) |
| Payments on long-term debt                                                         |       | (88                            | )          | (228 | ) |
| Notes payable to banks, net                                                        |       | (530                           | )          | (115 | ) |
| Common stock issued under share-based compensation  plans                          |       | 724                            |       | 1,812 |   |
| Excess tax benefit from exercise of share-based  compensation awards               |       | 118                            |       | 720 |   |
| Net cash used in financing activities                                              |       | (3,545                         | )          | (758 | ) |
|                                                                               |       |                           |       |   |   |
| **Effect  of exchange rate changes**                                               |       | (853                           | )          | (2,923 | ) |
|                                                                               |       |                           |       |   |   |
| Change in cash  and cash equivalents                                               |       | 8,356                          |       | (4,060 | ) |
| Cash and cash  equivalents at beginning of period                                  |       | 35,493                         |       | 30,482 |   |
| Cash and cash  equivalents at end of period                                        |       | $                              | 43,849     |   | $ | 26,422 |   |
|                                                                               |       |                           |       |   |   |
| Supplemental  disclosure of cash flow information:                                 |       |                           |       |   |   |
| See Note 10 to  the consolidated financial statements                              |       |                           |       |   |   |

 

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

6

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**CASCADE CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)**

**Note 1—Descriptionof Business**

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

**Note 2—InterimFinancial Information**

The accompanying consolidated financial statements forthe interim periods ended July 31, 2006 and 2005 are unaudited. In the opinionof management, the accompanying consolidated financial statements reflectnormal recurring adjustments necessary for a fair statement of the financialposition, results of operations and cash flows for those interim periods.Results of operations for the interim periods are not necessarily indicative ofthe results to be expected for the full year, and these financial statements donot contain the detail or footnote disclosures concerning accounting policiesand other matters that would be included in full fiscal year financialstatements. Therefore, these statements should be read in conjunction with ouraudited financial statements included on Form 10-K in our Annual Reportfor the fiscal year ended January 31, 2006.

7

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**Note 3—SegmentInformation**

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

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

8

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| ** **                            | ** ** | **Three Months Ended July 31** | ** ** |
|---------------------------------------|------------|----------------------------------------------------|------------|
| **2006**                              | ** ** | **North America**                             | ** ** | **Europe** | ** ** | **Asia Pacific** | ** ** | **China** | ** ** | **Eliminations** | ** ** | **Consolidation** | ** ** |
| Net sales                             |       | $                                                  | 65,847     |   | $ | 33,827 |   | $ | 12,319 |   | $ | 7,383 |   | $ | — |   | $ | 119,376 |   |
| Transfers between  areas              |       | 6,510                                              |       | 432 |   | 76 |   | 1,704 |   | (8,722 | ) | — |   |
| Net sales and  transfers              |       | $                                                  | 72,357     |   | $ | 34,259 |   | $ | 12,395 |   | $ | 9,087 |   | $ | (8,722 | ) | $ | 119,376 |   |
| Gross profit                          |       | $                                                  | 26,081     |   | $ | 6,273 |   | $ | 2,979 |   | $ | 3,020 |   | $ | — |   | $ | 38,353 |   |
| Selling and  administrative           |       | 11,503                                             |       | 5,548 |   | 2,130 |   | 716 |   | — |   | 19,897 |   |
| Loss (gain) on  disposition of assets |       | 5                                                  |       | 45 |   | (6 | ) | 1 |   | — |   | 45 |   |
| Amortization                          |       | 89                                                 |       | 208 |   | — |   | 8 |   | — |   | 305 |   |
| Operating income                      |       | $                                                  | 14,484     |   | $ | 472 |   | $ | 855 |   | $ | 2,295 |   | $ | — |   | $ | 18,106 |   |
| Property, plant  and equipment        |       | $                                                  | 33,951     |   | $ | 35,586 |   | $ | 1,501 |   | $ | 5,414 |   |   |   | $ | 76,452 |   |
| Capital  expenditures                 |       | $                                                  | 1,724      |   | $ | 645 |   | $ | 73 |   | $ | 555 |   |   |   | $ | 2,997 |   |
| Depreciation  expense                 |       | $                                                  | 2,065      |   | $ | 1,162 |   | $ | 108 |   | $ | 70 |   |   |   | $ | 3,405 |   |

 
| **2005**                              | ** ** | **North America** | ** ** | **Europe** | ** ** | **Asia Pacific** | ** ** | **China** | ** ** | **Eliminations** | ** ** | **Consolidation** | ** ** |
|---------------------------------------|------------|------------------------|------------|------------|------------|-----------------------|------------|-----------|------------|------------------|------------|-------------------|------------|
| Net sales                             |       | $                      | 61,793     |       | $          | 35,297                |       | $         | 12,024     |             | $          | 5,852             |       | $ | — |   | $ | 114,966 |   |
| Transfers between  areas              |       | 5,382                  |       | 881        |       | 82                    |       | 1,429     |       | (7,774           | )          | —            |       |
| Net sales and  transfers              |       | $                      | 67,175     |       | $          | 36,178                |       | $         | 12,106     |             | $          | 7,281             |       | $ | (7,774 | ) | $ | 114,966 |   |
| Gross profit                          |       | $                      | 24,063     |       | $          | 6,691                 |       | $         | 3,478      |             | $          | 2,338             |       | $ | — |   | $ | 36,570 |   |
| Selling and  administrative           |       | 10,897                 |       | 5,383      |       | 1,960                 |       | 687       |       | —           |       | 18,927            |       |
| Loss (gain) on  disposition of assets |       | (1                     | )          | 1          |       | 1                     |       | —    |       | —           |       | 1                 |       |
| Amortization                          |       | 37                     |       | 723        |       | —                |       | 7         |       | —           |       | 767               |       |
| Operating income                      |       | $                      | 13,130     |       | $          | 584                   |       | $         | 1,517      |             | $          | 1,644             |       | $ | — |   | $ | 16,875 |   |
| Property, plant  and equipment        |       | $                      | 35,334     |       | $          | 37,184                |       | $         | 1,563      |             | $          | 3,330             |       |   |   | $ | 77,411 |   |
| Capital  expenditures                 |       | $                      | 1,980      |       | $          | 1,158                 |       | $         | 78         |             | $          | 57                |       |   |   | $ | 3,273 |   |
| Depreciation  expense                 |       | $                      | 2,002      |       | $          | 1,649                 |       | $         | 101        |             | $          | 90                |       |   |   | $ | 3,842 |   |

 
| ** **                            | ** ** | **Six Months Ended July 31** | ** ** |
|---------------------------------------|------------|--------------------------------------------------|------------|
| **2006**                              | ** ** | **North America**                           | ** ** | **Europe** | ** ** | **Asia Pacific** | ** ** | **China** | ** ** | **Eliminations** | ** ** | **Consolidation** | ** ** |
| Net sales                             |       | $                                                | 132,462    |   | $ | 67,048 |   | $ | 23,456 |   | $ | 14,184 |   | $ | — |   | $ | 237,150 |   |
| Transfers between  areas              |       | 12,504                                           |       | 837 |   | 168 |   | 3,371 |   | (16,880 | ) | — |   |
| Net sales and  transfers              |       | $                                                | 144,966    |   | $ | 67,885 |   | $ | 23,624 |   | $ | 17,555 |   | $ | (16,880 | ) | $ | 237,150 |   |
| Gross profit                          |       | $                                                | 52,039     |   | $ | 11,617 |   | $ | 5,728 |   | $ | 5,658 |   | $ | — |   | $ | 75,042 |   |
| Selling and  administrative           |       | 22,971                                           |       | 11,400 |   | 4,078 |   | 1,300 |   | — |   | 39,749 |   |
| Loss (gain) on  disposition of assets |       | 9                                                |       | (617 | ) | (10 | ) | 1 |   | — |   | (617 | ) |
| Amortization                          |       | 178                                              |       | 415 |   | — |   | 14 |   | — |   | 607 |   |
| Operating income                      |       | $                                                | 28,881     |   | $ | 419 |   | $ | 1,660 |   | $ | 4,343 |   | $ | — |   | $ | 35,303 |   |
| Capital  expenditures                 |       | $                                                | 3,727      |   | $ | 992 |   | $ | 144 |   | $ | 1,385 |   |   |   | $ | 6,248 |   |
| Depreciation  expense                 |       | $                                                | 4,106      |   | $ | 2,433 |   | $ | 212 |   | $ | 136 |   |   |   | $ | 6,887 |   |

 
| **2005**                              | ** ** | **North America** | ** ** | **Europe** | ** ** | **Asia Pacific** | ** ** | **China** | ** ** | **Eliminations** | ** ** | **Consolidation** | ** ** |
|---------------------------------------|------------|------------------------|------------|------------|------------|-----------------------|------------|-----------|------------|------------------|------------|-------------------|------------|
| Net sales                             |       | $                      | 123,410    |       | $          | 72,001                |       | $         | 22,937     |             | $          | 11,133            |       | $ | — |   | $ | 229,481 |   |
| Transfers between  areas              |       | 11,472                 |       | 1,566      |       | 173                   |       | 2,639     |       | (15,850          | )          | —            |       |
| Net sales and  transfers              |       | $                      | 134,882    |       | $          | 73,567                |       | $         | 23,110     |             | $          | 13,772            |       | $ | (15,850 | ) | $ | 229,481 |   |
| Gross profit                          |       | $                      | 48,055     |       | $          | 14,985                |       | $         | 6,629      |             | $          | 4,389             |       | $ | — |   | $ | 74,058 |   |
| Selling and  administrative           |       | 21,325                 |       | 10,878     |       | 3,758                 |       | 1,084     |       | —           |       | 37,045            |       |
| Loss (gain) on  disposition of assets |       | (1                     | )          | 21         |       | (47                   | )          | —    |       | —           |       | (27               | )          |
| Amortization                          |       | 74                     |       | 855        |       | —                |       | 14        |       | —           |       | 943               |       |
| Operating income                      |       | $                      | 26,657     |       | $          | 3,231                 |       | $         | 2,918      |             | $          | 3,291             |       | $ | — |   | $ | 36,097 |   |
| Capital  expenditures                 |       | $                      | 3,246      |       | $          | 1,750                 |       | $         | 174        |             | $          | 117               |       |   |   | $ | 5,287 |   |
| Depreciation expense                  |       | $                      | 3,976      |       | $          | 3,034                 |       | $         | 207        |             | $          | 179               |       |   |   | $ | 7,396 |   |

** **

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**Note 4—Goodwill**

The change in the amount of goodwill between July 31,2006 and January 31, 2006 related entirely to fluctuations in foreigncurrency. We have no goodwill recorded in China. The following table provides abreakdown of goodwill by geographic region (in thousands):

|               | ** ** | **July 31** | ** ** | **January 31** | ** ** |
|---------------|------------|------------------|------------|---------------------|------------|
| ** **    | ** ** | **2006**         | ** ** | **2006**            | ** ** |
| North America |       | $                | 66,411     |                | $          | 65,978 |   |
| Europe        |       | 10,342           |       | 9,840               |       |
| Asia Pacific  |       | 3,000            |       | 3,002               |       |
|          |       | $                | 79,753     |                | $          | 78,820 |   |

 

**Note 5—MarketableSecurities**

Marketable securities consist of auction rate andvariable rate demand notes issued by various state agencies throughout theUnited States. We classify these securities as available-for-sale securities.These securities are insured either through third party agencies, reinsuredthrough the U.S. government, or secured by a letter of credit from a bank. Thespecific identification method is used to determine the cost of securitiessold. There are no realized or unrealized gains or losses related to ourmarketable securities. These securities are long-term instruments maturingthrough 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 ourconsolidated balance sheets.

**Note 6—Inventories**

Inventories stated at the lower of average cost ormarket are presented below by major class (in thousands).

|                                | ** ** | **July 31** | ** ** | **January 31** | ** ** |
|--------------------------------|------------|------------------|------------|---------------------|------------|
| ** **                     | ** ** | **2006**         | ** ** | **2006**            | ** ** |
| Finished goods  and components |       | $                | 36,218     |                | $          | 37,236 |   |
| Work in process                |       | 510              |       | 620                 |       |
| Raw materials                  |       | 18,121           |       | 19,140              |       |
|                           |       | $                | 54,849     |                | $          | 56,996 |   |

 

**Note 7—Share-BasedCompensation Plans**

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

We have reserved 1,400,000 shares of common stockunder our stock option plan. As of July 31, 2006 a total of 615,000 shares havebeen issued upon the exercise of stock options. No additional stock options can be granted under the terms of the plan.The SARS plan provides for the issuance of 750,000 shares of common stock uponthe exercise of SARS of which 34,000 shares have been issued at July 31,2006. We issue new common shares upon the exercise of all awards.

10

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A summary of the plans’ status at July 31, 2006together with changes during the six 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                      |       | —                 |       | —                                  |       | 255 |   | 37.05 |   |
| Exercised                    |       | (52                    | )          | 15.80                                   |       | (37 | ) | 25.93 |   |
| Forfeited                    |       | (25                    | )          | 17.76                                   |       | (115 | ) | 31.51 |   |
|                         |       |                   |       |                                    |       |   |   |   |   |
| Balance at July  31, 2006    |       | 764                    |       | $                                       | 13.87      |   | 1,122 |   | $ | 31.43 |   |

 

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

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

In our second quarter of fiscal 2006, we adoptedStatement of Financial Accounting Standards (SFAS) No. 123 (revised 2004),“Share-Based Payment” (123R). This standard is a revision of SFAS 123, “Accountingfor Stock-Based Compensation” and supersedes APB 25 and FIN 28. SFAS 123Raddresses the accounting for share-based compensation in which we receiveemployee services in exchange for our equity instruments. Under SFAS 123R, weare required to recognize compensation cost for share-based compensation issuedto or purchased by employees, net of estimated forfeitures, under share-basedcompensation plans using a fair value method. We adopted SFAS 123R using themodified prospective method as of May 1, 2005. Accordingly, no priorperiods were restated. Under this method, we 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 theperiod of 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 amounts):
|                                                                                                                       | ** ** | **Three Months Ended July 31** | ** ** | **Six Months Ended July 31** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                                            | ** ** | **2006**                                           | ** ** | **2005**                                         | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net income - as  reported                                                                                             |       | $                                                  | 11,923     |                                             | $          | 10,750 |   | $ | 22,957 |   | $ | 22,958 |   |
| Add: SARS  amortization, net of taxes of $80                                                                          |       | —                                             |       | —                                           |       | — |   | (148 | ) |
| Net income  excluding SARS amortization                                                                               |       | 11,923                                             |       | 10,750                                           |       | 22,957 |   | 22,810 |   |
| Deduct: total  stock-based compensation, net of income tax benefits of $140 determined under  fair value based method |       | —                                             |       | —                                           |       | — |   | (297 | ) |
| Net income - pro  forma                                                                                               |       | $                                                  | 11,923     |                                             | $          | 10,750 |   | $ | 22,957 |   | $ | 22,513 |   |
|                                                                                                                  |       |                                               |       |                                             |       |   |   |   |   |
| Basic earnings  per share - as reported                                                                               |       | $                                                  | 0.95       |                                             | $          | 0.87 |   | $ | 1.83 |   | $ | 1.87 |   |
| Basic earnings  per share - pro forma                                                                                 |       | $                                                  | 0.95       |                                             | $          | 0.87 |   | $ | 1.83 |   | $ | 1.84 |   |
| Diluted earnings  per share - as reported                                                                             |       | $                                                  | 0.91       |                                             | $          | 0.84 |   | $ | 1.75 |   | $ | 1.79 |   |
| Diluted earnings  per share - pro forma                                                                               |       | $                                                  | 0.91       |                                             | $          | 0.84 |   | $ | 1.75 |   | $ | 1.76 |   |

 

11

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

 

The following table presents all share-basedcompensation costs recognized in our statements of income (in thousands):
| ** **                                           | ** ** | **Three Months Ended July 31** | ** ** | **Six Months Ended July 31** | ** ** |
|------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                           | ** ** | **2006**                                           | ** ** | **2005**                                         | ** ** | **2006** | ** ** | **2005** | ** ** |
| Method used to account  for share-based compensation |       | Fair Value                                    |       | Fair Value                                  |       | Fair Value |   | Fair Value / Intrinsic |   |
| Share-based  compensation under SFAS 123R            |       | $                                                  | 951        |                                             | $          | 597 |   | $ | 1,882 |   | $ | 597 |   |
| Share-based  compensation under FIN 28               |       | —                                             |       | —                                           |       | — |   | (228 | ) |
|                                                 |       | $                                                  | 951        |                                             | $          | 597 |   | $ | 1,882 |   | $ | 369 |   |
| Tax benefit recognized                               |       | $                                                  | 265        |                                             | $          | 177 |   | $ | 514 |   | $ | 97 |   |

 

As of July 31,2006, there was $11.6 million of total unrecognized compensation cost relatedto nonvested share-based compensation awards granted under the plans. That costis expected to be recognized over a weighted average period of 3 years. Thefollowing table represents as of July 31, 2006 the share-basedcompensation costs to be recognized in future periods (in thousands) for awardsgranted to date:
| Fiscal year | ** ** | **Amount** | ** ** |
|------------------|------------|------------|------------|
| 2007             |       | $          | 2,151      |   |
| 2008             |       | 4,087      |       |
| 2009             |       | 3,336      |       |
| 2010             |       | 1,734      |       |
| 2011             |       | 305        |       |
|             |       | $          | 11,613     |   |

 

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**Note 8—Commitments and Contingencies**

**Environmental Matters**

We aresubject to environmental laws and regulations, which include obligations toremove or mitigate environmental effects of past disposal and release ofcertain wastes and substances at various sites. We record liabilities foraffected sites when environmental assessments indicate probable cleanup 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 thecost 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 isreasonably possible that changes in estimates will occur in the near term andthe related adjustments to environmental liabilities may have a material impacton our net income and operating cash flows. Unasserted claims are not currentlyreflected in our environmental liabilities. It is also reasonably possible thatthese changes or claims may also have a material impact on our net income andoperating cash flows if asserted. We cannot estimate the impact of thesepotential changes or claims at this time.

Ourspecific environmental matters consist of the following:

*Fairview,Oregon*

In1996, the Oregon Department of Environmental Quality issued two Records ofDecision affecting our Fairview, Oregon manufacturing facility. The Records ofDecision required us to initiate remedial activities related to the cleanup ofgroundwater contamination at and near the facility. Remediation activities havebeen conducted since 1996 and current estimates provide for some level ofactivity to continue through 2021. Costs of certain remediation activities atthe facility are shared with The Boeing Company, with Cascade paying 70% ofthese costs. We have accrued a liability for the ongoing remediation activitiesat our Fairview facility of $6.2 million and $6.7 million at July 31,2006 and January 31, 2006, respectively.

*Springfield,Ohio*

In1994, we entered into a consent order with the Ohio Environmental ProtectionAgency, which required the installation of remediation systems for the cleanupof groundwater contamination at our Springfield, Ohio facility. The currentestimate is that the remediation activities will continue through 2013. Ouraccrued liability for ongoing remediation activities at our Springfieldfacility was $1.1 million at both July 31, 2006 and January 31, 2006.

*InsuranceLitigation*

On April 22, 2002,the Circuit Court of the State of Oregon for Multnomah County entered judgmentin our favor in an action originally brought in 1992 against several insurersto recover various expenses incurred in connection with environmentallitigation and related proceedings. The judgment was against two non-settlinginsurers. We subsequently reached a settlement of all claims with one of theinsurers in return for a payment of $1.3 million, which we received October 22,2004. The trial court judgment against the remaining insurer, EmployersReinsurance Corp. (ERC), is in the amount of approximately $800,000. Thejudgment also requires ERC to defend us in suits alleging liability because ofgroundwater contamination emanating from our Fairview, Oregon plant andrequires ERC to pay approximately 3.1% of any costs incurred after March 1,1997 on account of such contamination. We appealed the judgment to the OregonCourt of Appeals contending ERC should pay a larger share of our expenses fromboth before and after March 1, 1997, together with additional interest andattorneys fees.

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On May 17,2006, the Oregon Court of Appeals ruled in our favor and reversed the trialcourt judgment in part. The Court of Appeals ruling would obligate ERC topay 100% of our unreimbursed environmental expenses up to its policy limits,plus increased interest and attorneys fees. We estimate the Court of Appealsruling could result in an eventual recovery of up to $14.0 million, in additionto the increased interest and attorneys fees and unreimbursed costs ofenvironmental defense. However, any determination of our ultimaterecovery is subject to possible discretionary review of the Court ofAppeals decision by the Oregon Supreme Court as well as further proceedings atthe trial court level. We have not recorded any amounts that may be recoveredfrom ERC in our consolidated financial statements.

**Legal Proceedings**

We aresubject to legal proceedings, claims and litigation, in addition to theenvironmental matters previously discussed, arising in the ordinary course ofbusiness. While the outcome of these matters is currently not determinable,management does not expect the ultimate costs to be material to ourconsolidated financial position, result of operations, or cash flows.

**Lease Guarantee**

Wesold our hydraulic cylinder division to Precision Hydraulic Cylinders, Inc.(Precision) on January 15, 2002. Under the terms of the sale, we assignedto Precision an operating lease related to a manufacturing facility inBeulaville, North Carolina. We are a guarantor on the lease in the eventPrecision fails to comply with the lease terms. The lease requires payments byPrecision of approximately $21,000 per month through November 2007. Thetotal value of the lease guarantee using undiscounted cash flows wasapproximately $336,000 at July 31, 2006.

**Note 9—Earnings Per Share**

Thefollowing table presents the calculation of basic and diluted earnings pershare (in thousands, except per share amounts):
| ** **                                                      | ** ** | **Three Months Ended July 31** | ** ** | **Six Months Ended July 31** | ** ** |
|-----------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                      | ** ** | **2006**                                           | ** ** | **2005**                                         | ** ** | **2006** | ** ** | **2005** | ** ** |
| Basic earnings per  share:                                      |       |                                               |       |                                             |       |   |   |   |   |
| Net income                                                      |       | $                                                  | 11,923     |                                             | $          | 10,750 |   | $ | 22,957 |   | $ | 22,958 |   |
| Weighted average  shares of common stock outstanding            |       | 12,569                                             |       | 12,302                                           |       | 12,555 |   | 12,266 |   |
|                                                            |       | $                                                  | 0.95       |                                             | $          | 0.87 |   | $ | 1.83 |   | $ | 1.87 |   |
|                                                            |       |                                               |       |                                             |       |   |   |   |   |
| Diluted earnings per  share:                                    |       |                                               |       |                                             |       |   |   |   |   |
| Net income                                                      |       | $                                                  | 11,923     |                                             | $          | 10,750 |   | $ | 22,957 |   | $ | 22,958 |   |
| Weighted average  shares of common stock outstanding            |       | 12,569                                             |       | 12,302                                           |       | 12,555 |   | 12,266 |   |
| Dilutive effect  of stock options and stock appreciation rights |       | 505                                                |       | 554                                              |       | 578 |   | 542 |   |
| Diluted weighted  average shares of common stock outstanding    |       | 13,074                                             |       | 12,856                                           |       | 13,133 |   | 12,808 |   |
|                                                            |       | $                                                  | 0.91       |                                             | $          | 0.84 |   | $ | 1.75 |   | $ | 1.79 |   |

 

Basic earnings per shareis based on the weighted average number of common shares outstanding for theperiod. Diluted weighted average common shares includes the incremental sharesthat would be issued upon the assumed exercise of stock options and stockappreciation rights. For both the three and six month periods ended July 31,2006 unexercised SARS totaling 772,500 awards were excluded from thecalculation of diluted earnings per share because they were antidilutive. Nounexercised SARS were excluded from the calculation of diluted earnings pershare for the three or six month periods ended July 31, 2005. All stockoptions were included in our calculation of diluted earnings per share becausethey were dilutive.

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**Note 10—Supplemental Cash Flow Information**

Thefollowing table presents information that supplements the consolidatedstatements of cash flow (in thousands):
| ** **                                            | ** ** | **For the Six Months Ended July 31** | ** ** |
|-------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                            | ** ** | **2006**                                                           | ** ** | **2005** | ** ** |
| Cash paid during the  period for:                     |       |                                                               |       |   |   |
| Interest                                              |       | $                                                                  | 1,016      |   | $ | 1,439 |   |
| Income taxes                                          |       | $                                                                  | 15,862     |   | $ | 12,088 |   |
|                                                  |       |                                                               |       |   |   |
| Supplemental disclosure  of noncash information:      |       |                                                               |       |   |   |
| Deferred compensation  from stock appreciation rights |       | $                                                                  | —     |   | $ | (4,734 | ) |

 

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**Note 11—Benefit Plans**

Thefollowing table represents the net periodic cost related to our defined benefitplans in Canada, England and France and our postretirement benefit plan in theUnited States (in thousands):
| ** **                      | ** ** | **Defined Benefit**                           | ** ** | **Postretirement Benefit**                    | ** ** |
|---------------------------------|------------|----------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                      | ** ** | **Three Months Ended July 31** | ** ** | **Three Months Ended July 31** | ** ** |
| ** **                      | ** ** | **2006**                                           | ** ** | **2005**                                           | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net periodic benefit  cost:     |       |                                               |       |                                               |       |   |   |   |   |
| Service cost                    |       | $                                                  | 22         |                                               | $          | 46 |   | $ | 34 |   | $ | 32 |   |
| Interest cost                   |       | 128                                                |       | 109                                                |       | 114 |   | 109 |   |
| Expected return  on plan assets |       | (125                                               | )          | (105                                               | )          | — |   | — |   |
| Recognized net  actuarial loss  |       | 36                                                 |       | 29                                                 |       | 92 |   | 87 |   |
|                            |       | $                                                  | 61         |                                               | $          | 79 |   | $ | 240 |   | $ | 228 |   |

** **
| ** **                      | ** ** | **Defined Benefit**                         | ** ** | **Postretirement Benefit**                  | ** ** |
|---------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                      | ** ** | **Six Months Ended July 31** | ** ** | **Six Months Ended July 31** | ** ** |
| ** **                      | ** ** | **2006**                                         | ** ** | **2005**                                         | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net periodic benefit  cost:     |       |                                             |       |                                             |       |   |   |   |   |
| Service cost                    |       | $                                                | 43         |                                             | $          | 97 |   | $ | 68 |   | $ | 64 |   |
| Interest cost                   |       | 253                                              |       | 228                                              |       | 228 |   | 217 |   |
| Expected return  on plan assets |       | (248                                             | )          | (219                                             | )          | — |   | — |   |
| Recognized net  actuarial loss  |       | 71                                               |       | 61                                               |       | 184 |   | 173 |   |
|                            |       | $                                                | 119        |                                             | $          | 167 |   | $ | 480 |   | $ | 454 |   |

 

**Note 12—Recent Accounting Pronouncements**

In November 2004,the Financial Accounting Standards Board (“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, “InventoryPricing”, to clarify the accounting for abnormal amounts of idle facilityexpense, freight, handling costs, and wasted material (spoilage). Paragraph 5of ARB No. 43, Chapter 4, previously stated that “....under some circumstances,items such as idle facility expense, excessive spoilage, double freight, andre-handling costs may be so abnormal as to require treatment as current periodcharges...” SFAS 151 requires that those items be recognized as current-periodcharges regardless of whether they meet the criterion of “so abnormal.” Inaddition, this statement requires that allocation of fixed production overheadto the costs of conversion be based on the normal capacity of the productionfacilities. The provisions of SFAS 151 were effective for us on February 1,2006. The adoption of SFAS 151 did not have a material impact on our financialposition or results of operations.

In May 2005,the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections —a replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS154”). SFAS 154 changes the requirements for the accounting for and reportingof a change in accounting principle. This statement applies to all voluntarychanges in accounting principle. It also applies to changes required by anaccounting pronouncement in the unusual instance that the pronouncement doesnot include specific transition provisions. SFAS 154 requires the applicationof a change in accounting principle be applied to prior accounting periods presentedas if that principle had always been used. When a pronouncement includesspecific transition provision, those provisions should be followed. SFAS 154 iseffective for accounting changes and corrections of errors made in fiscal yearsbeginning after December 15, 2005. The adoption of SFAS 154 at thebeginning of fiscal 2007 did not have an effect on our consolidated financialstatements.

In June 2006, theFASB issued FASB Interpretation No. 48, “Accounting for Uncertainty inIncome Taxes.” This interpretation clarifies the accounting for uncertainty inincome taxes recognized in an enterprise’s financial 

16

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statements in accordance with FASB Statement No. 109,“Accounting for Income Taxes.” FASB Interpretation No. 48 prescribesa recognition threshold and measurement attribute for the financial statementrecognition and measurement of a tax position taken or expected to be taken ina tax return. It also provides guidance on de-recognition, classification,interest and penalties, accounting in interim periods, disclosure andtransition. We are currently evaluating the impact of FASB Interpretation No. 48on our financial statements. Application of this interpretation isrequired for our financial statements for the fiscal year ended January 31,2008.

**Note 13—Warranty Obligations**

Werecord a liability on our consolidated balance sheet for costs related towarranties with the sales of our products. This liability is estimated throughhistorical customer claims, product failure rates, material usage and servicedelivery costs incurred in correcting a product failure. Our warrantyobligations, which are recorded in other accrued expenses on the consolidatedbalance sheets, were as follows (in thousands):
| ** **                                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------------|------------|----------|------------|----------|------------|
| Balance at  January 31                       |       | $        | 1,665      |     | $          | 1,911 |   |
| Accruals for warranties  issued during the period |       | 1,385    |       | 1,065    |       |
| Accruals for  pre-existing warranties             |       | (29      | )          | 52       |       |
| Settlements during the  period                    |       | (1,285   | )          | (1,063   | )          |
| Balance at July 31                           |       | $        | 1,736      |     | $          | 1,965 |   |

 

**Note 14—Accumulated Other Comprehensive Income(Loss)**

Thefollowing table presents the changes in and the components of accumulated othercomprehensive income (in thousands):
| ** **                        | ** ** | **Accumulated Other Comprehensive Income (Loss)** | ** ** |
|-----------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                        | ** ** | **Translation Adjustment**                                       | ** ** | **Minimum Pension  Liability Adjustment** | ** ** | **Total** | ** ** |
| Balance at January 31,  2006 |       | $                                                                     | 10,667     |   | $ | (2,986 | ) | $ | 7,681 |   |
| Translation adjustment            |       | 3,967                                                                 |       | — |   | 3,967 |   |
| Balance at July 31, 2006     |       | $                                                                     | 14,634     |   | $ | (2,986 | ) | $ | 11,648 |   |

 

**Note 15—Gain on Sale of Assets**

Duringthe first quarter of fiscal 2007, we recognized a $715,000 gain on the sale ofour manufacturing facility in Hoorn, The Netherlands. We had closed thisfacility in fiscal 2006.

**Note 16—Subsequent Event**

**On September 5,2006, our Board of Directors authorized a share repurchase program of up to $80million over a two year period. Repurchases will be made on an on-going basisbased on market conditions, relevant securities laws and other factors. It isanticipated that a majority of the share repurchases will be funded throughcash flow from operations and existing cash balances. The Board also authorizedincreasing our revolving credit facility from $25 million to $125 million toprovide short-term funding, if needed, for the share repurchase program and tofund our planned expansion into the construction attachment market.**

17

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*** ***

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

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

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

**Consolidated Summary**

Net income for the second quarter of fiscal 2007increased 11% to $11.9 million ($0.91 per diluted share) from $10.8 million($0.84 per diluted share) for the second quarter of fiscal 2006. Net sales forthe second quarter of fiscal 2007 were $119.4 million or 4% greater thanthe second quarter of fiscal 2006. Excluding the effect of foreign currencyfluctuations, net sales in North America, Asia Pacific and China grew 6%, 3%and 23%, respectively, in the second quarter of fiscal 2007 as compared to thesame quarter of the prior year. The increased sales levels in North America aregenerally reflective of a change in product mix and higher selling prices. Theincreased sales in Asia Pacific and China reflect higher volumes of business inthese geographic regions. Net sales in Europe decreased 7% in the current yeardue to lower sales of both OEM and attachment products.

The gross margin percentage of 32% in the secondquarter of fiscal 2007 was consistent with the prior year. On a consolidatedbasis the effect of any price increases over the last year have been offset byincreases in material and other costs.

Selling and administrative costs increased by 5% inthe second quarter of fiscal 2007 over the comparable quarter of the prioryear. Excluding foreign currency changes, costs increased 3% over the secondquarter of the prior year. This is primarily due to general increases inexpense levels and higher share-based compensation costs, which increased from$597,000 in the second quarter of fiscal 2006 to $951,000 in the second quarterof fiscal 2007. We adopted the new accounting standard for share-basedcompensation, Statement of Financial Account Standards No. 123R “Share-basedPayment”, in the second quarter of fiscal 2006. Selling and administrativecosts as a percentage of net sales were 17% and 16% for the second quarter offiscal 2007 and 2006, respectively.

**North America**

|                                       | ** ** | **Three Months Ended July 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------|------------|----------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                            | ** ** | **2006**                                           | ** ** | **%**      | ** ** | **2005**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                            | ** ** | **(In thousands)**                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                             |       | $                                                  | 65,847     |       | 100        | %          | $          | 61,793 |   | 100 | % | $ | 4,054 |   | 7 | % |
| Cost of goods sold                    |       | 39,766                                             |       | 60         | %          | 37,730     |       | 61 | % | 2,036 |   | 5 | % |
| Gross profit                          |       | 26,081                                             |       | 40         | %          | 24,063     |       | 39 | % | 2,018 |   | 8 | % |
|                                  |       |                                               |       |       |       |       |       |   |   |   |   |   |   |
| Selling and  administrative           |       | 11,503                                             |       | 18         | %          | 10,897     |       | 18 | % | 606 |   | 6 | % |
| Loss (gain) on  disposition of assets |       | 5                                                  |       |       |       | (1         | )          |   |   | 6 |   |   |   |
| Amortization                          |       | 89                                                 |       |       |       | 37         |       |   |   | 52 |   |   |   |
|                                  |       |                                               |       |       |       |       |       |   |   |   |   |   |   |
| Operating income                      |       | $                                                  | 14,484     |       | 22         | %          | $          | 13,130 |   | 21 | % | $ | 1,354 |   | 10 | % |

 

North America net salesincreased $4.1 million or 7% in the second quarter of fiscal 2007 over the samequarter of fiscal 2006. Currency changes accounted for 1% of the increase insales. These results reflect a change in product mix and the impact of priceincreases implemented in the last three quarters of fiscal 2006. Fiscal 2007second quarter results include the full effect of these increases, whereas theprior year results include only a portion of the increases made in the prioryear.

18

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Our experience has been that changes in the level ofour net sales do not correspond directly to the percentage changes in lifttruck industry shipments, but industry statistics do provide an indication ofthe direction of business activity. North American lift truck industry shipmentsin the second quarter of fiscal 2007 were 4% lower than the second quarter offiscal 2006.

Gross margin percentages increased modestly from 39%to 40% for the second quarter of fiscal 2007. Price increases in fiscal 2006were made to offset material cost increases.

Selling and administrative costs for the secondquarter of fiscal 2007 increased 6% over the same quarter of the prior year.The two primary reasons for the increase are an additional $267,000 ofshare-based compensation costs and the effect of currency changes.

**Europe**

|                                | ** ** | **Three Months Ended July 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------|------------|----------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                     | ** ** | **2006**                                           | ** ** | **%**      | ** ** | **2005**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                     | ** ** | **(In thousands)**                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                      |       | $                                                  | 33,827     |       | 100        | %          | $          | 35,297 |   | 100 | % | $ | (1,470 | ) | (4 | )% |
| Cost of goods sold             |       | 27,554                                             |       | 82         | %          | 28,606     |       | 81 | % | (1,052 | ) | (4 | )% |
| Gross profit                   |       | 6,273                                              |       | 18         | %          | 6,691      |       | 19 | % | (418 | ) | (6 | )% |
|                           |       |                                               |       |       |       |       |       |   |   |   |   |   |   |
| Selling and  administrative    |       | 5,548                                              |       | 16         | %          | 5,383      |       | 15 | % | 165 |   | 3 | % |
| Loss on disposition of  assets |       | 45                                                 |       |       |       | 1          |       |   |   | 44 |   |   |   |
| Amortization                   |       | 208                                                |       | 1          | %          | 723        |       | 2 | % | (515 | ) |   |   |
|                           |       |                                               |       |       |       |       |       |   |   |   |   |   |   |
| Operating income               |       | $                                                  | 472        |       | 1          | %          | $          | 584 |   | 2 | % | $ | (112 | ) | (19 | )% |

 

Net sales in Europe for the second quarter of fiscal2007 decreased $1.5 million or 4% over the same quarter of fiscal 2006.Excluding currency changes sales decreased 7%. This decrease is a continuationof a trend we experienced in the first quarter. While some of the decline is aresult of loss in market share for certain products, based on recent orders, itappears the decline also reflects the timing of certain major account orders.

Industry lift truck shipments in Europe increased 10%for the second quarter compared to the prior year. The expansion of the EasternEuropean market continued to be strong in the second quarter. While this marketis still only about 10% of the total European market, it does present us anopportunity to expand our operations into a new emerging market. We haveexpanded our presence in this market by adding additional sales staff andallocating additional sales resources to focus on capturing a significantportion of this market growth.

The gross margin percentage in Europe declined from19% for the second quarter of fiscal 2006 to 18% for the second quarter offiscal 2007. The decreased margin is primarily due to a larger percentage ofsales of OEM products which carry lower margins. Second quarter fiscal 2006margins were negatively effected by $275,000 of costs related to the closure ofour manufacturing facility in Hoorn, The Netherlands. Initiatives we arepursuing to increase margins include the evaluation of sourcing options for rawmaterials, further rationalization of existing European facilities andimprovements in manufacturing processes.

Selling and administrative costs in Europe increased3% for the second quarter of fiscal 2007 as compared to the second quarter offiscal 2006 due to currency changes.

Inaddition to the previously mentioned initiatives, we are continuing our effortsto improve overall product quality and on-time delivery and reduceadministrative costs through streamlining of support functions. We plan to seegradual improvement in gross margins and operating income through the remainderof fiscal 2007.

19

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

**AsiaPacific**

 

|                                       | ** ** | **Three Months Ended July 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------|------------|----------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                            | ** ** | **2006**                                           | ** ** | **%**      | ** ** | **2005**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                            | ** ** | **(In thousands)**                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                             |       | $                                                  | 12,319     |       | 100        | %          | $          | 12,024 |   | 100 | % | $ | 295 |   | 2 | % |
| Cost of goods sold                    |       | 9,340                                              |       | 76         | %          | 8,546      |       | 71 | % | 794 |   | 9 | % |
| Gross profit                          |       | 2,979                                              |       | 24         | %          | 3,478      |       | 29 | % | (499 | ) | (14 | )% |
|                                  |       |                                               |       |       |       |       |       |   |   |   |   |   |   |
| Selling and  administrative           |       | 2,130                                              |       | 17         | %          | 1,960      |       | 16 | % | 170 |   | 9 | % |
| Loss (gain) on  disposition of assets |       | (6                                                 | )          |       |       | 1          |       |   |   | (7 | ) |   |   |
| Amortization                          |       | —                                             |       |       |       | —     |       |   |   | — |   |   |   |
|                                  |       |                                               |       |       |       |       |       |   |   |   |   |   |   |
| Operating income                      |       | $                                                  | 855        |       | 7          | %          | $          | 1,517 |   | 13 | % | $ | (662 | ) | (44 | )% |

 

AsiaPacific, excluding China, posted a net sales increase of 2% in the second quarterof fiscal 2007 over fiscal 2006. Excluding the effect of foreign currencies,net sales increased 3%. This increase reflects additional sales in both Koreaand Japan.

 

Grossmargin percentages in this region decreased from 29% to 24%. The decrease isdue to higher material costs which could not be passed on to customers throughhigher sales prices. To some degree, the change in gross margin is also aresult of increased sales of lower margin OEM products. We are continuing topursue opportunities to recover this lost margin but do not anticipatesignificant improvements in the near future.

 

Sellingand administrative costs increased 9% for the second quarter of fiscal 2007 dueprimarily to additional personnel and travel costs to support corporate initiatives.

 

**China**

|                                | ** ** | **Three Months Ended July 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------|------------|----------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                     | ** ** | **2006**                                           | ** ** | **%**      | ** ** | **2005**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                     | ** ** | **(In thousands)**                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                      |       | $                                                  | 7,383      |       | 100        | %          | $          | 5,852 |   | 100 | % | $ | 1,531 |   | 26 | % |
| Cost of goods sold             |       | 4,363                                              |       | 59         | %          | 3,514      |       | 60 | % | 849 |   | 24 | % |
| Gross profit                   |       | 3,020                                              |       | 41         | %          | 2,338      |       | 40 | % | 682 |   | 29 | % |
|                           |       |                                               |       |       |       |       |       |   |   |   |   |   |   |
| Selling and  administrative    |       | 716                                                |       | 10         | %          | 687        |       | 12 | % | 29 |   | 4 | % |
| Loss on disposition of  assets |       | 1                                                  |       |       |       | —     |       |   |   | 1 |   |   |   |
| Amortization                   |       | 8                                                  |       |       |       | 7          |       |   |   | 1 |   |   |   |
|                           |       |                                               |       |       |       |       |       |   |   |   |   |   |   |
| Operating income               |       | $                                                  | 2,295      |       | 31         | %          | $          | 1,644 |   | 28 | % | $ | 651 |   | 40 | % |

 

Net sales in China increased 26% in the second quarterof fiscal 2007, including a 3% increase for currency changes. We continue tobenefit from a strong economy and lift truck market in China for all products.Lift truck industry shipments in China increased 42% in the second quarter offiscal 2007.

Grossmargin percentages increased to 41% in the second quarter of fiscal 2007 from40% in the prior year. We have seen a trend of either constant or increasingmargins for most products sold in China. The exception to that trend is for OEMproducts for which we are currently experiencing higher material costs on steelimported into the country. We have identified a local steel supplier and expectto begin realizing the benefits of this lower cost steel in the second half offiscal 2007.

20

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We plan to open a global purchasing office in China inthe last half of fiscal 2007 to continue our efforts for sourcing lower costmaterial, components and parts for use in both China and our othermanufacturing facilities throughout the world.

Selling and administrative costs have increased 4% inthe second quarter of fiscal 2007 due to additional costs needed to support theexpansion of our operations in China and currency changes.

**Non-Operating Items**

The effective tax rate increased from 34% in the prioryear to 35% in the second quarter of fiscal 2007. The change was primarilyrelated to an increase in valuation allowances for pre-tax losses in Europe.Valuation allowances increased $465,000 and $306,000 in the second quarter offiscal 2007 and 2006, respectively.

**LiftTruck Market Outlook**

Based on our review of preliminary industry data thefollowing is the general lift truck market outlook for the remainder of fiscal2007:

·                  Themarket in North America will remain flat through the remainder of the year.

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

·                  Themarket in Asia Pacific will continue to grow at approximately the same ratethrough the remainder of the year.

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

**COMPARISON OF THE FIRST SIX MONTHS OFFISCAL 2007 AND FISCAL 2006**

**Consolidated Summary**

Net income for the first six months of fiscal 2007 of$23.0 million ($1.75 per diluted share) was consistent with the $23.0 million($1.79 per diluted share) for the first six months of fiscal 2006. Net salesfor the first six months of fiscal 2007 were $237.2 million or 3% greaterthan the first six months of fiscal 2006. Excluding the effect of foreigncurrency fluctuations, net sales in North America, Asia Pacific and China grew6%, 6%, and 25%, respectively in the first six months of fiscal 2007 ascompared to the same period of the prior year. Net sales in Europe decreased 5%in the first six months of fiscal 2007.

The gross margin percentage in the first six months offiscal 2007 of 32% was consistent with the prior year. Although the trends ingeographic regions might be slightly different, on a consolidated level themargins have remained constant as increases in sales, primarily through priceincreases, have essentially offset the effect of increasing material and othercosts.

Sellingand administrative costs increased by 7% in the first six months of fiscal 2007over the comparable period of the prior year. The effect of foreign currencychanges on selling and administrative costs in the current year as compared tothe prior year was not material. The increase is due primarily to highershare-based compensation costs in the current year. Total share-basedcompensation costs were $1.9 million and $369,000 in the first six months offiscal 2007 and 2006, respectively. Selling and administrative costs as apercentage of net sales were 17% and 16% for the first six months of fiscal2007 and 2006, respectively.

21

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**North America**

|                                       | ** ** | **Six Months Ended July 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------|------------|--------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                            | ** ** | **2006**                                         | ** ** | **%**      | ** ** | **2005**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                            | ** ** | **(In thousands)**                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                             |       | $                                                | 132,462    |       | 100        | %          | $          | 123,410 |   | 100 | % | $ | 9,052 |   | 7 | % |
| Cost of goods sold                    |       | 80,423                                           |       | 61         | %          | 75,355     |       | 61 | % | 5,068 |   | 7 | % |
| Gross profit                          |       | 52,039                                           |       | 39         | %          | 48,055     |       | 39 | % | 3,984 |   | 8 | % |
|                                  |       |                                             |       |       |       |       |       |   |   |   |   |   |   |
| Selling and  administrative           |       | 22,971                                           |       | 17         | %          | 21,325     |       | 17 | % | 1,646 |   | 8 | % |
| Loss (gain) on  disposition of assets |       | 9                                                |       |       |       | (1         | )          |   |   | 10 |   |   |   |
| Amortization                          |       | 178                                              |       |       |       | 74         |       |   |   | 104 |   |   |   |
|                                  |       |                                             |       |       |       |       |       |   |   |   |   |   |   |
| Operating income                      |       | $                                                | 28,881     |       | 22         | %          | $          | 26,657 |   | 22 | % | $ | 2,224 |   | 8 | % |

 

North America net sales were up $9.1 million or7% in the first six months of fiscal 2007 over the same period of fiscal 2006primarily due to a change in product mix and higher selling prices implementedto cover higher material costs. Changes in currencies made up 1% of the overallsales increase.

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 for the first six months of fiscal 2007 as compared to the first sixmonths of fiscal 2006 increased only 1%.

Gross margins for the first six months of fiscal 2007in North America were consistent with the prior year. As previously noted ourmargins have remained constant as any increase in selling prices has beenoffset by the effect of increases in material costs.

Selling and administrative costs for the first sixmonths of fiscal 2007 increased 8% over the same period of the prior year.Currency changes accounted for 2% of this increase. The increase is dueprimarily to share-based compensation costs which increased from $298,000 inthe first six months of fiscal 2006 to $1.5 million in the first six months offiscal 2007. We have been recording share-based compensation costs under SFAS123R since the second quarter of fiscal 2006. Prior year share-basedcompensation costs were lower because in the first quarter of fiscal 2006 weused mark-to-market accounting to account for certain share-based awards. Thisresulted in income of $212,000 being recorded in the first quarter due to aquarter to quarter drop in the market price of our common stock.

**Europe**

|                                       | ** ** | **Six Months Ended July 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------|------------|--------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                            | ** ** | **2006**                                         | ** ** | **%**      | ** ** | **2005**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                            | ** ** | **(In thousands)**                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                             |       | $                                                | 67,048     |       | 100        | %          | $          | 72,001 |   | 100 | % | $ | (4,953 | ) | (7 | )% |
| Cost of goods sold                    |       | 55,431                                           |       | 83         | %          | 57,016     |       | 79 | % | (1,585 | ) | (3 | )% |
| Gross profit                          |       | 11,617                                           |       | 17         | %          | 14,985     |       | 21 | % | (3,368 | ) | (22 | )% |
|                                  |       |                                             |       |       |       |       |       |   |   |   |   |   |   |
| Selling and  administrative           |       | 11,400                                           |       | 17         | %          | 10,878     |       | 16 | % | 522 |   | 5 | % |
| Loss (gain) on  disposition of assets |       | (617                                             | )          | (1         | )%         | 21         |       |   |   | (638 | ) |   |   |
| Amortization                          |       | 415                                              |       |       |       | 855        |       | 1 | % | (440 | ) |   |   |
|                                  |       |                                             |       |       |       |       |       |   |   |   |   |   |   |
| Operating income                      |       | $                                                | 419        |       | 1          | %          | $          | 3,231 |   | 4 | % | $ | (2,812 | ) | (87 | )% |

 

22

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Net sales in Europe for the first six months of fiscal2007 decreased $5.0 million or 7% compared to the same period of fiscal2006.  The changes in foreign currencyrates, primarily the Euro and the British Pound, accounted for 2% of thedecrease.  The decrease was the result oflower shipment levels out of our European plants.   While a portion of the decrease wasanticipated with our continued rationalization of production between ourEuropean facilities, we have experienced lower than expected sales overall.  While some of the decline is a result of lossin market share for certain products, based on recent orders, it appears thedecline also reflects the timing of certain major account orders.   European lift truck industry shipments haveincreased 11% in the first six months of fiscal 2007 compared to the prioryear.

Gross margins in Europe have decreased from 21% in thefirst six months of fiscal 2006 to 17% in fiscal 2007.  The decrease in our gross margin is due thefollowing:

·                  Higher costs atour manufacturing facility in Germany during the first quarter of fiscal2007.  The performance of this facilityduring the second quarter was in line with our expectations.

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

During the second quarter of fiscal 2006 we announcedthe planned closure of our manufacturing facility in Hoorn, TheNetherlands.   Production operations inHoorn were integrated into other manufacturing facilities in Almere, TheNetherlands and Verona, Italy.  Theclosure eliminated excess capacity for attachment products and will reduceoverall production costs.  During thesecond quarter of fiscal 2006 we accrued $275,000 of costs which were recordedin cost of goods

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

Selling and administrative costs in Europe increased5% in the first six months of fiscal 2007 compared to the first six months offiscal 2006.  Excluding the effects ofchanging currencies, selling and administrative costs increased 7%.  This increase is primarily due to additionalsales and marketing costs and share-based compensation costs.

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

**Asia Pacific**
| ** **                     | ** ** | **Six Months Ended July 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------|------------|--------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                     | ** ** | **2006**                                         | ** ** | **%**      | ** ** | **2005**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                     | ** ** | **(In thousands)**                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                      |       | $                                                | 23,456     |       | 100        | %          | $          | 22,937 |   | 100 | % | $ | 519 |   | 2 | % |
| Cost of goods  sold            |       | 17,728                                           |       | 76         | %          | 16,308     |       | 71 | % | 1,420 |   | 9 | % |
| Gross profit                   |       | 5,728                                            |       | 24         | %          | 6,629      |       | 29 | % | (901 | ) | (14 | )% |
|                           |       |                                             |       |       |       |       |       |   |   |   |   |   |   |
| Selling and  administrative    |       | 4,078                                            |       | 17         | %          | 3,758      |       | 16 | % | 320 |   | 9 | % |
| Gain on  disposition of assets |       | (10                                              | )          |       |       | (47        | )          |   |   | 37 |   |   |   |
| Amortization                   |       | —                                           |       |       |       | —     |       |   |   | — |   |   |   |
|                           |       |                                             |       |       |       |       |       |   |   |   |   |   |   |
| Operating income               |       | $                                                | 1,660      |       | 7          | %          | $          | 2,918 |   | 13 | % | $ | (1,258 | ) | (43 | )% |

 

Asia Pacific net sales increased 2% in the first sixmonths of fiscal 2007 over fiscal 2006. Excluding the effect of foreign currencies, net sales increased 6%.  The increase was primarily due to additionalsales in Korea and Japan.  Both of thesemarkets continue to post strong sales results for the year.  Sales in Australia have been slightly behindthe sales levels in fiscal 2006, which was a record year for this market.

23

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Gross margin percentages in the Asia Pacific regionhave decreased from 29% in the first six months of fiscal 2006 to 24% in thefirst six months of fiscal 2007.  The 5%decrease is due to increased sales of lower margin OEM products and highermaterial costs which could not be passed on to customers through higher salesprices.  We are continuing to pursueopportunities to recover this lost margin but at this time do not expect anysignificant improvements in the near future.

Selling and administrative costs in the Asia Pacificregion increased 9% for the first six months of fiscal 2007 as compared tofiscal 2006.   Excluding currency changesthese costs have increased 13% in fiscal 2007. The increase is due to additional employee and travel costs, primarilyfor management positions created to support corporate initiatives.

C**hina**
|                                | ** ** | **Six Months Ended July 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------|------------|--------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                     | ** ** | **2006**                                         | ** ** | **%**      | ** ** | **2005**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                     | ** ** | **(In thousands)**                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                      |       | $                                                | 14,184     |       | 100        | %          | $          | 11,133 |   | 100 | % | $ | 3,051 |   | 27 | % |
| Cost of goods  sold            |       | 8,526                                            |       | 60         | %          | 6,744      |       | 61 | % | 1,782 |   | 26 | % |
| Gross profit                   |       | 5,658                                            |       | 40         | %          | 4,389      |       | 39 | % | 1,269 |   | 29 | % |
|                           |       |                                             |       |       |       |       |       |   |   |   |   |   |   |
| Selling and  administrative    |       | 1,300                                            |       | 9          | %          | 1,084      |       | 10 | % | 216 |   | 20 | % |
| Loss on  disposition of assets |       | 1                                                |       |       |       | —     |       |   |   | 1 |   |   |   |
| Amortization                   |       | 14                                               |       |       |       | 14         |       |   |   | — |   |   |   |
|                           |       |                                             |       |       |       |       |       |   |   |   |   |   |   |
| Operating income               |       | $                                                | 4,343      |       | 31         | %          | $          | 3,291 |   | 29 | % | $ | 1,052 |   | 32 | % |

 

Net sales in China increased 27% in the first sixmonths of fiscal 2007 compared to fiscal 2006. This increase reflects the strength of the Chinese economy and theChinese lift truck industry.  Based onChinese government statistics the gross domestic product increased 10% in thefirst half of fiscal 2007.  Industry lifttruck shipments increased 33% during the same period.  Foreign currency accounted for 3% of thesales increase.

Gross margin percentages increased to 40% in the firstsix months of fiscal 2007 as compared to 39% in fiscal 2006.  This reflects our higher shipping volumeswhich were partially offset by higher material costs.  We have several initiatives underway tocontinue reducing our overall manufacturing costs in China.  The initiatives include the opening of aglobal purchasing office in China, equipment upgrades and process improvementsat our attachment facility in Xiamen and sourcing of steel from China for themanufacturing of OEM products in Hebei.

Selling and administrative costs increased 20% in thefirst six months of fiscal 2007 as compared to fiscal 2006.  Currency changes made up 3% of thisincrease.  These increases are primarilydue to infrastructure costs to support the expansion of our Chineseoperations.  These costs include salesand marketing, information technology and professional fees.

**Non-OperatingItems**

The effective tax rate of 35% in the first six monthsof fiscal 2007 was comparable to the prior year rate.  Our rate in both periods has been negativelyimpacted by the recording of additional valuation allowances related to pre-taxlosses in Europe.  Valuation allowancesrelated to pre-tax losses increased $943,000 in the first six months of fiscal2007 and $570,000 in the first six months of fiscal 2006.

**CASH FLOWS**

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

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**Operating**

Our primary source of liquidity is cash generated fromoperating activities. This consists of net income adjusted for noncash operatingitems such as depreciation and amortization, losses and gains on disposition ofassets, share-based compensation, deferred income taxes and changes inoperating assets and liabilities.

Net cash provided by operating activities fromcontinuing operations was $16.4 million in the first six months of fiscal2007 compared to $18.6 million for the same period in fiscal 2006. Thedecrease in cash provided by operating activities in fiscal 2007 was due to anincrease in accounts receivable.  Thisdecrease was partially offset by lower depreciation and amortization andchanges in other operating accounts, primarily inventory, accounts payable andaccrued expenses.

**Investing**

Our capital expenditures are primarily for equipmentand tooling related to product improvements, more efficient production methods,expansion of production capacity and replacement for normal wear and tear.Capital expenditures by geographic segments were as follows (in thousands):
|               | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **    | ** ** | **July 31**                 | ** ** | **July 31**               | ** ** |
| ** **    | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
|          |       |                             |       |                           |       |   |   |   |   |
| North America |       | $                                | 1,724      |                           | $          | 1,980 |   | $ | 3,727 |   | $ | 3,246 |   |
| Europe        |       | 645                              |       | 1,158                          |       | 992 |   | 1,750 |   |
| Asia Pacific  |       | 73                               |       | 78                             |       | 144 |   | 174 |   |
| China         |       | 555                              |       | 57                             |       | 1,385 |   | 117 |   |
|          |       | $                                | 2,997      |                           | $          | 3,273 |   | $ | 6,248 |   | $ | 5,287 |   |

 

We expect capital expenditures for the rest of fiscal2007 to approximate depreciation expense, excluding expenditures related to ourexpansion plans in China.  Depreciationexpense for the first six months in fiscal 2007 and fiscal 2006 was$6.9 million and $7.4 million, respectively.

 We previouslyannounced our plans to invest up to $18 million related to the expansion of ourChinese operations by the end of fiscal 2008. We expect to spend $9.5 million on the expansion by the end of fiscal2007.  This investment in China willposition us to keep pace with the rapidly expanding Chinese lift truck marketand undertake a significant expansion of our business in the Asia Pacificregion.  In addition, we will beevaluating whether Chinese manufactured parts and products could be distributedto North America and Europe.

We held marketable securities of $22 million at July31, 2006.  These securities consist ofauction rate and variable demand rate notes issued by various state agenciesthroughout the United States.  Weclassify these securities as available-for-sale securities.  Thesesecurities are either insured through first party agencies, reinsured throughthe U.S. federal government, or secured by a letter of credit from abank.   There were no realized orunrealized gains or losses related to our marketable securities during thefirst six months of fiscal 2007 and fiscal 2006.  These securities arelong-term instruments maturing through 2040; however, the interest rates andmaturities are reset approximately every month, at which time we can sell thesecurities.  Accordingly, we have classified these securities as currentassets in our consolidated balance sheets. Interest rates on tax-free securities range from 3.4% to 4.0% per annum.

**Financing**

We declared dividends totaling $0.30 and $0.24 pershare during the first six months of fiscal 2007 and 2006, respectively.

The issuance of common stock related to the exerciseof stock options and stock appreciation rights generated $724,000 and $1.8million of cash for the first six months in fiscal 2007 and 2006, respectively.

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**FINANCIAL CONDITION AND LIQUIDITY**

Our working capital, defined as current assets lesscurrent liabilities, at July 31, 2006 was $147.9 million as comparedto $125 million at January 31, 2006. Our current ratio atJuly 31, 2006 was 3.5 to 1 as compared to 2.9 to 1 at January 31,2006.

Total outstanding debt, including notes payable tobanks at July 31, 2006 of $29.5 million was essentially unchangedfrom January 31, 2006.  Our debtagreements contain covenants relating to net worth and leverage ratios. We werein compliance with these covenants at July 31, 2006.  Borrowing arrangements currently in placewith commercial banks provide lines of credit totaling $25 million, ofwhich $2.5 million was used to issue letters of credit at July 31, 2006.  The lines of credit expire on September 1,2010.  Average interest rates on notespayable to banks was 3% at July 31, 2006 and 3% at January 31, 2006.

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

On September 5, 2006, our Board of Directorsauthorized a share repurchase program of up to $80 million over a two yearperiod.  Repurchases will be made on anon-going basis based on market conditions, relevant securities laws and otherfactors.  It is anticipated that amajority of the share repurchases will be funded through cash flow fromoperations and existing cash balances. In addition we are negotiating an increase in our revolving creditfacility from $25 million to $125 million to provide short-term funding, ifneeded, for the share repurchase program and to fund our planned expansion intothe construction attachment market.

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

**OTHER MATTERS**

The U.S. dollar weakened in the first six months offiscal 2007 in comparison to most foreign currencies used by our significantforeign operations, which are the Euro, Canadian Dollar and British Pound.  As a result, foreign currency translationadjustments increased shareholders’ equity by $181,000 and $4 million in thesecond quarter and first six months of fiscal 2007, respectively.

**CRITICALACCOUNTING POLICIES AND ESTIMATES**

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

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***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 the three reporting units in which we haverecorded goodwill, North America, Europe and Australia.  Certain factors we consider important whichcould trigger an impairment review at an interim date outside of the annualreview, include, but are not limited to, significant underperformance relativeto historical or projected future operating results, significant changes in themanner of use of the acquired assets or our overall business and significantindustry or economic trends.

We disclosed in our Form 10-K for the year endedJanuary 31, 2006 that our goodwill impairment test for Europe assumed futureoperating results would be improved over prior year actual results.  These improvements reflected a number ofinitiatives in Europe to restructure our European business.  During the first six months of fiscal 2007the operating income for our European reporting unit has fallen below the levelof operating income in the prior year. As we previously discussed in our review of Europe’s year-to-dateresults the operating loss can be attributed to the performance of our Germanmanufacturing facility in the first quarter and a decrease in our saleslevels.   The performance of our Germanmanufacturing facility in the second quarter was in line with ourexpectations.  We are uncertain whetherlower sales are due to a general slowdown in the European market or an erosionof our European market share.   Inaddition we are continuing to pursue other initiatives and improvements inEurope to improve our overall results. Because of these factors, we do not believe Europe’s year-to-dateoperating results require an interim impairment review at this time.  We will continue to evaluate our actualresults to determine if existing factors, such as underperformance relative toour projected future operating results, would require an interim goodwillimpairment review.  If we do not realizethese improvements and our actual results are not consistent with ourassumptions and judgments, we could be exposed to a material impairment of ourgoodwill in Europe in the future.  Totalgoodwill in Europe at July 31, 2006 was $10.3 million.

**OFF BALANCE SHEET ARRANGEMENTS**

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

**RECENT ACCOUNTINGPRONOUNCEMENTS**

In November 2004, the FASB issued SFASNo. 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 “....under some circumstances, items such as idle facilityexpense, excessive spoilage, double freight, and re-handling costs may be soabnormal as to require treatment as current period charges...” SFAS 151 requiresthat those items be recognized as current-period charges regardless of whetherthey meet the criterion of “so abnormal.” In addition, this statement requires that allocation of fixed productionoverhead to the costs of conversion be based on the normal capacity of the productionfacilities. The provisions of SFAS 151 were effective for us onFebruary 1, 2006. The adoption of SFAS 151 did not have a material impacton 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 transitionprovisions. SFAS 154 requires the application of a change in accounting principlebe applied to prior accounting periods presented as if that principle hadalways been used. When a pronouncement includes specific transition provision,those provisions should be followed. SFAS 154 is effective for accountingchanges and corrections of errors made in fiscal years beginning afterDecember 15,

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2005. The adoption ofSFAS 154 at the beginning of fiscal 2007 did not have an effect on ourconsolidated financial statements.

In June 2006, the Financial Accounting Standards Board(“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty inIncome Taxes.” This interpretation clarifies the accounting for uncertainty inincome taxes recognized in an enterprise’s financial statements in accordancewith FASB Statement No. 109, “Accounting for Income Taxes.”  FASBInterpretation No. 48 prescribes a recognition threshold and measurementattribute for the financial statement recognition and measurement of a taxposition taken or expected to be taken in a tax return.  It also providesguidance on de-recognition, classification, interest and penalties, accountingin interim periods, disclosure and transition.  We are currentlyevaluating the impact of FASB Interpretation No. 48 on our financialstatements.  Application of this interpretation is required for ourfinancial statements for the fiscal year ending January 31, 2008.

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**Item 3.Quantitative and 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 second quarter offiscal 2007 resulting from a 10% weaker U.S. dollar during the quarter,measured against foreign currencies that affect our operations (in millions):

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

 

We enter into foreign currency forward exchangecontracts to offset the impact of currency fluctuations on certainnonfunctional currency assets and liabilities. The principal currencies hedgedare denominated in Japanese yen, Canadian dollars, Euros and British pounds.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 forthe quarter ended July 31, 2006, a 1% increase in commodity steel costs withoutoffsetting sales price increases would have decreased consolidated gross profitby approximately $324,000.

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 effortsto mitigate the impact of any additional steel cost increases. There may besome time lag between the absorption of the steel cost increases and realizingthe offsetting benefits of the mitigating measures. It should be noted thatthere is no assurance that we can fully mitigate all future steel costincreases through price increases and other measures and actual cost increasesfrom steel suppliers could differ from cost increases that have been previouslycommunicated.

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

Substantially all of our debt at July 31, 2006 has afixed interest rate and is denominated in U.S. dollars. Any additional paymentsto prepay scheduled amounts of debt are subject to penalties. At July 31, 2006,the penalties to retire all of our long-term debt are $233,000. A hypotheticalimmediate increase in market interest rates by 1% would decrease the fair valueof our long-term debt outstanding at July 31, 2006 by $199,000.

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**Item 4. Controlsand Procedures**

*Evaluation of Disclosure Controlsand Procedures*

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

*Changes in Internal Control OverFinancial Reporting*

There has been no change in the internal control overfinancial reporting that occurred during the six months ended July 31, 2006that has materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.

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**PART II—OTHERINFORMATION**

**Item 1. Legal Proceedings**

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**

At our Annual Meeting of Shareholders held June 6,2006, the following matter was submitted to a vote of common shareholders:

Election of directors to terms expiring in 2009
| **Nominee**         | ** ** | **Votes For** | ** ** | **Votes Withheld** | ** ** |
|---------------------|------------|--------------------|------------|-------------------------|------------|
| Duane C.  McDougall |       | 11,010,257         |       | 538,388                 |       |
| James S. Osterman   |       | 11,241,935         |       | 306,710                 |       |

 

The following individuals continue to serve asdirectors:
| Director                     | ** ** | **Term Expires** | ** ** |
|------------------------------|------------|-----------------------|------------|
| Nicholas R.  Lardy, Ph.D.    |       | 2007                  |       |
| Nancy A.  Wilgenbusch, Ph.D. |       | 2007                  |       |
| Robert C.  Warren, Jr.       |       | 2008                  |       |
| Henry W. Wessinger II        |       | 2008                  |       |

 

**Item 5. OtherInformation**

None

**Item 6. Exhibits**

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

** **

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**SIGNATURES**

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

** **

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

 

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