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** **

 

** **

**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, 2008** |
| ** **                                             | ** ** | ** **                                                                                              |
| **OR**                                                 |
| ** **                                             | ** ** | ** **                                                                                              |
| **o**                                                  | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

** **

**For thetransition period from         to         **

 

**Commission file number 1-12557**

 

**CASCADECORPORATION**

(Exact name ofregistrant 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**

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes x  No o

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,a non-accelerated filer, or a smaller reporting company. See the definitions of“large accelerated filer,” “accelerated filer” and “smaller reporting company”in Rule 12b-2 of the Exchange Act. (Check one):

 

| Large accelerated  filer o |   | Accelerated  filer x |   | Non-accelerated  filer o                         |   | Smaller  reporting company o |
|---------------------------------|--------|----------------------|--------|--------------------------------------------------|--------|------------------------------|
|                            |   |                 |   | (Do not check if  a smaller   reporting company) |   |                         |

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).Yes o  No x

 

The number ofshares outstanding of the registrant’s common stock as of August 20, 2008was 10,852,530.

 

 

 

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**CASCADE CORPORATION**

**FORM 10-Q**

**QuarterEnded July 31, 2008**

** **

**TABLE OF CONTENTS**

 
|                                                                                                      | ** ** | **Page**   |
|------------------------------------------------------------------------------------------------------|------------|------------|
| **Part I –  Financial Information:**                                                       | ** ** | ** ** |
|                                                                                                 |       |       |
| Item 1. Financial Statements  (unaudited):                                                           |       |       |
| Consolidated  Statements of Income                                                                   |       | 4          |
| Consolidated  Balance Sheets                                                                         |       | 5          |
| Consolidated  Statement of Changes in Shareholders’ Equity                                      |       | 6          |
| Consolidated  Statements of Cash Flows                                                               |       | 7          |
| Notes to  Consolidated Financial Statements                                                          |       | 8          |
|                                                                                                 |       |       |
| Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of  Operations |       | 18         |
|                                                                                                 |       |       |
| Item 3.  Quantitative and Qualitative Disclosures About Market Risk                                  |       | 31         |
|                                                                                                 |       |       |
| Item 4. Controls and  Procedures                                                                     |       | 32         |
|                                                                                                 |       |       |
| **Part II – Other  Information**                                                           |       | 33         |
|                                                                                                 |       |       |
| **Signatures**                                                                                       |       | 35         |
|                                                                                                 |       |       |
| **Exhibit Index**                                                                               |       | 36         |

 

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**Forward-Looking Statements**

 

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 profit, 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:

 

·      Costand availability of raw materials;

 

·      Fluctuationsin lift truck orders or deliveries;

 

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

 

·      Effectivenessof our reorganization plans, capital expenditures and cost reductioninitiatives;

 

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

 

·      Risksassociated with international operations;

 

·      Foreigncurrency fluctuations;

 

·      Assumptionsrelating to pension and other postretirement costs;

 

·      Fluctuationsin interest rates;

 

·      Impactof acquisitions;

 

·      Environmentalmatters.

 

We undertake noobligation to publicly revise or update forward-looking statements to reflectevents or circumstances that arise after the date of this report.  See “Risk Factors” (Item 1A) for additionalinformation on risk factors with the potential to impact our business.

 

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**PART I—FINANCIALINFORMATION**

** **

**Item 1. FinancialStatements**

 

**CASCADE CORPORATION**

**CONSOLIDATEDSTATEMENTS OF INCOME**

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

 
| ** **                                   | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                   | ** ** | **July 31**                 | ** ** | **July 31**               | ** ** |
| ** **                                   | ** ** | **2008**                         | ** ** | **2007**                       | ** ** | **2008** | ** ** | **2007** | ** ** |
| Net sales                                    |       | $                                | 150,103    |                           | $          | 143,183 |   | $ | 299,970 |   | $ | 278,683 |   |
| Cost of goods  sold                          |       | 107,402                          |       | 97,897                         |       | 214,921 |   | 190,168 |   |
| Gross profit                                 |       | 42,701                           |       | 45,286                         |       | 85,049 |   | 88,515 |   |
|                                         |       |                             |       |                           |       |   |   |   |   |
| Selling and  administrative expenses         |       | 23,490                           |       | 22,054                         |       | 47,296 |   | 43,186 |   |
| Loss (gain) on  disposition of assets, net   |       | 30                               |       | (1,137                         | )          | 145 |   | (1,172 | ) |
| Amortization                                 |       | 667                              |       | 844                            |       | 1,342 |   | 1,642 |   |
| Insurance  litigation recovery, net          |       | —                           |       | —                         |       | — |   | (15,977 | ) |
|                                         |       |                             |       |                           |       |   |   |   |   |
| Operating income                             |       | 18,514                           |       | 23,525                         |       | 36,266 |   | 60,836 |   |
| Interest expense                             |       | 1,110                            |       | 922                            |       | 2,241 |   | 1,917 |   |
| Interest income                              |       | (160                             | )          | (225                           | )          | (267 | ) | (382 | ) |
| Other expense,  net                          |       | 506                              |       | 224                            |       | 627 |   | 302 |   |
|                                         |       |                             |       |                           |       |   |   |   |   |
| Income before  provision for income taxes    |       | 17,058                           |       | 22,604                         |       | 33,665 |   | 58,999 |   |
| Provision for  income taxes                  |       | 6,563                            |       | 7,460                          |       | 12,312 |   | 20,059 |   |
|                                         |       |                             |       |                           |       |   |   |   |   |
| Net income                                   |       | $                                | 10,495     |                           | $          | 15,144 |   | $ | 21,353 |   | $ | 38,940 |   |
|                                         |       |                             |       |                           |       |   |   |   |   |
| Basic earnings  per share                    |       | $                                | 0.97       |                           | $          | 1.27 |   | $ | 1.98 |   | $ | 3.26 |   |
| Diluted earnings  per share                  |       | $                                | 0.94       |                           | $          | 1.21 |   | $ | 1.92 |   | $ | 3.11 |   |
|                                         |       |                             |       |                           |       |   |   |   |   |
| Basic weighted  average shares outstanding   |       | 10,793                           |       | 11,930                         |       | 10,788 |   | 11,948 |   |
| Diluted weighted  average shares outstanding |       | 11,109                           |       | 12,479                         |       | 11,109 |   | 12,513 |   |

 

Theaccompanying notes are an integral part of the consolidated financialstatements.

 

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**CASCADE CORPORATION**

**CONSOLIDATEDBALANCE SHEETS**

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

 
| ** **                                                                                                | ** ** | **July 31** | ** ** | **January 31** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|------------------|------------|---------------------|------------|
| ** **                                                                                                | ** ** | **2008**         | ** ** | **2008**            | ** ** |
|                                                                                                      |       |             |       |                |       |
| **ASSETS**                                                                                                |       |             |       |                |       |
| Current assets:                                                                                           |       |             |       |                |       |
| Cash and cash  equivalents                                                                                |       | $                | 27,911     |                | $          | 21,223 |   |
| Accounts  receivable, less allowance for doubtful accounts of $1,474 and $1,623                           |       | 97,651           |       | 93,117              |       |
| Inventories                                                                                               |       | 100,587          |       | 85,049              |       |
| Deferred income  taxes                                                                                    |       | 5,882            |       | 6,213               |       |
| Prepaid expenses  and other                                                                               |       | 12,936           |       | 10,887              |       |
| Total current  assets                                                                                     |       | 244,967          |       | 216,489             |       |
| Property, plant  and equipment, net                                                                       |       | 103,078          |       | 98,350              |       |
| Goodwill                                                                                                  |       | 117,864          |       | 118,826             |       |
| Deferred income  taxes                                                                                    |       | 4,904            |       | 5,948               |       |
| Intangible  assets, net                                                                                   |       | 19,611           |       | 20,916              |       |
| Other assets                                                                                              |       | 1,981            |       | 1,971               |       |
| Total assets                                                                                              |       | $                | 492,405    |                | $          | 462,500 |   |
|                                                                                                      |       |             |       |                |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                             |       |             |       |                |       |
| Current  liabilities:                                                                                     |       |             |       |                |       |
| Notes payable to  banks                                                                                   |       | $                | 2,025      |                | $          | 2,484 |   |
| Current portion  of long-term debt                                                                        |       | 417              |       | 423                 |       |
| Accounts payable                                                                                          |       | 36,458           |       | 32,727              |       |
| Accrued payroll  and payroll taxes                                                                        |       | 10,397           |       | 10,148              |       |
| Other accrued  expenses                                                                                   |       | 15,482           |       | 18,736              |       |
| Total current  liabilities                                                                                |       | 64,779           |       | 64,518              |       |
| Long-term debt,  net of current portion                                                                   |       | 117,045          |       | 107,809             |       |
| Accrued  environmental expenses                                                                           |       | 3,831            |       | 4,314               |       |
| Deferred income  taxes                                                                                    |       | 5,195            |       | 5,710               |       |
| Employee benefit  obligations                                                                             |       | 8,695            |       | 8,824               |       |
| Other  liabilities                                                                                        |       | 4,234            |       | 3,300               |       |
| Total  liabilities                                                                                        |       | 203,779          |       | 194,475             |       |
|                                                                                                      |       |             |       |                |       |
| Commitments and  contingencies (Note 7)                                                                   |       |             |       |                |       |
|                                                                                                      |       |             |       |                |       |
| Shareholders’  equity:                                                                               |       |             |       |                |       |
| Common stock,  $.50 par value, 40,000 authorized shares; 10,852 and 10,840 shares issued and  outstanding |       | 5,426            |       | 5,420               |       |
| Additional  paid-in capital                                                                               |       | 1,263            |       | —              |       |
| Retained  earnings                                                                                        |       | 244,166          |       | 226,932             |       |
| Accumulated  other comprehensive income                                                                   |       | 37,771           |       | 35,673              |       |
|                                                                                                      |       |             |       |                |       |
| Total  shareholders’ equity                                                                          |       | 288,626          |       | 268,025             |       |
| Total  liabilities and shareholders’ equity                                                          |       | $                | 492,405    |                | $          | 462,500 |   |

 

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

 

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**CASCADECORPORATION**

**CONSOLIDATEDSTATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY**

**(Unaudited— in thousands, except per share amounts)**

 
| ** **                                   | ** ** | ** **            | ** ** | ** **  | ** ** | ** **     | ** ** | ** **        | ** ** | **Accumulated**        | ** ** | ** **        | ** ** | ** **             | ** ** |
|----------------------------------------------|------------|-----------------------|------------|-------------|------------|----------------|------------|-------------------|------------|------------------------|------------|-------------------|------------|------------------------|------------|
| ** **                                   | ** ** | ** **            | ** ** | ** **  | ** ** | **Additional** | ** ** | ** **        | ** ** | **Other**              | ** ** | **Total**         | ** ** | **Year-To-Date**       | ** ** |
| ** **                                   | ** ** | **Common Stock** | ** ** | **Paid-In** | ** ** | **Retained**   | ** ** | **Comprehensive** | ** ** | **Shareholders’** | ** ** | **Comprehensive** | ** ** |
| ** **                                   | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **Capital**    | ** ** | **Earnings**      | ** ** | **Income (Loss)** | ** ** | **Equity**        | ** ** | **Income (Loss)** | ** ** |
| **Balance  at January 31, 2008**        |       | 10,840                |       | $           | 5,420      |           | $          | —            |       | $                      | 226,932    |              | $          | 35,673                 |       | $ | 268,025 |   |   |   |
|                                         |       |                  |       |        |       |           |       |              |       |                   |       |              |       |                   |       |
| Net income                                   |       | —                |       | —      |       | —         |       | 21,353            |       | —                 |       | 21,353            |       | $                      | 21,353     |   |
| Dividends ($0.38  per share)                 |       | —                |       | —      |       | —         |       | (4,119            | )          | —                 |       | (4,119            | )          | —                 |       |
| Common stock  issued                         |       | 30                    |       | 15          |       | 115            |       | —            |       | —                 |       | 130               |       | —                 |       |
| Tax effect from  vesting of restricted stock |       | —                |       | —      |       | (73            | )          | —            |       | —                 |       | (73               | )          | —                 |       |
| Common stock  repurchased                    |       | (18                   | )          | (9          | )          | (901           | )          | —            |       | —                 |       | (910              | )          | —                 |       |
| Share-based  compensation                    |       | —                |       | —      |       | 2,122          |       | —            |       | —                 |       | 2,122             |       | —                 |       |
| Translation  adjustment                      |       | —                |       | —      |       | —         |       | —            |       | 2,098                  |       | 2,098             |       | 2,098                  |       |
|                                         |       |                  |       |        |       |           |       |              |       |                   |       |              |       |                   |       |
| **Balance  at July 31, 2008**           |       | 10,852                |       | $           | 5,426      |           | $          | 1,263             |       | $                      | 244,166    |              | $          | 37,771                 |       | $ | 288,626 |   | $ | 23,451 |   |

 

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

 

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**CASCADE CORPORATION**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited - in thousands)**

 
| ** **                                                                         | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                         | ** ** | **July 31**               | ** ** |
| ** **                                                                         | ** ** | **2008**                       | ** ** | **2007** | ** ** |
| **Cash  flows from operating activities:**                                         |       |                           |       |   |   |
| Net income                                                                         |       | $                              | 21,353     |   | $ | 38,940 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                           |       |   |   |
| Depreciation                                                                       |       | 7,209                          |       | 6,889 |   |
| Amortization                                                                       |       | 1,342                          |       | 1,642 |   |
| Share-based  compensation                                                          |       | 2,122                          |       | 1,928 |   |
| Deferred income  taxes                                                             |       | 1,096                          |       | 1,543 |   |
| Loss (gain) on  disposition of assets, net                                         |       | 145                            |       | (1,172 | ) |
| Changes in  operating assets and liabilities:                                      |       |                           |       |   |   |
| Accounts  receivable                                                               |       | (2,924                         | )          | (13,035 | ) |
| Inventories                                                                        |       | (13,386                        | )          | (9,850 | ) |
| Prepaid expenses  and other                                                        |       | (1,168                         | )          | 637 |   |
| Accounts payable  and accrued expenses                                             |       | 1,648                          |       | 2,724 |   |
| Income taxes  payable and receivable                                               |       | (673                           | )          | (751 | ) |
| Other assets and  liabilities                                                      |       | 242                            |       | (1,349 | ) |
| Net cash  provided by operating activities                                         |       | 17,006                         |       | 28,146 |   |
|                                                                               |       |                           |       |   |   |
| **Cash  flows from investing activities:**                                         |       |                           |       |   |   |
| Capital  expenditures                                                              |       | (10,039                        | )          | (9,106 | ) |
| Proceeds from  disposition of assets                                               |       | 388                            |       | 2,497 |   |
| Business  acquisitions                                                             |       | —                         |       | (11,529 | ) |
|                                                                               |       |                           |       |   |   |
| Net cash used in  investing activities                                             |       | (9,651                         | )          | (18,138 | ) |
|                                                                               |       |                           |       |   |   |
| **Cash  flows from financing activities:**                                         |       |                           |       |   |   |
| Cash dividends  paid                                                               |       | (4,119                         | )          | (4,062 | ) |
| Payments on  long-term debt                                                        |       | (27,708                        | )          | (57,442 | ) |
| Proceeds from  long-term debt                                                      |       | 37,000                         |       | 59,500 |   |
| Notes payable to  banks, net                                                       |       | (451                           | )          | (3,400 | ) |
| Common stock  issued under share-based compensation plans                          |       | 130                            |       | 3,844 |   |
| Common stock  repurchased                                                          |       | (3,220                         | )          | (24,496 | ) |
| Tax effect from  share-based compensation awards                                   |       | (73                            | )          | 2,509 |   |
| Net cash  provided by (used in) financing activities                               |       | 1,559                          |       | (23,547 | ) |
|                                                                               |       |                           |       |   |   |
| Effect of  exchange rate changes                                                   |       | (2,226                         | )          | (553 | ) |
|                                                                               |       |                           |       |   |   |
| Change in cash  and cash equivalents                                               |       | 6,688                          |       | (14,092 | ) |
| Cash and cash  equivalents at beginning of period                                  |       | 21,223                         |       | 36,593 |   |
| Cash and cash  equivalents at end of period                                        |       | $                              | 27,911     |   | $ | 22,501 |   |
|                                                                               |       |                           |       |   |   |
| **Supplemental  disclosure of cash flow information:**                             |       |                           |       |   |   |
| See Note 9 to  the consolidated financial statements                               |       |                           |       |   |   |

 

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

 

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**CASCADE CORPORATION**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**Note 1—Description of Business**

** **

Cascade Corporation is an international company engagedin the manufacture of materials handling products that are widely used onindustrial fork lift trucks and, to a lesser extent, construction, mining andagricultural vehicles. Accordingly, our sales are largely dependent on sales oflift trucks and replacement parts. Our sales are made throughout the world. Weare headquartered in Fairview, Oregon, employing approximately 2,400 people andmaintaining operations in 15 countries outside the United States.

 

**Note 2—Interim Financial Information**

** **

The accompanying consolidated financial statements forthe interim periods ended July 31, 2008 and 2007 are unaudited. In theopinion of management, the accompanying consolidated financial statementsreflect normal recurring adjustments necessary for a fair statement of thefinancial position, results of operations and cash flows for those interimperiods. Results of operations for the interim periods are not necessarilyindicative of the results to be expected for the full year, and these financialstatements do not contain the detail or footnote disclosures concerningaccounting policies and other matters that would be included in full fiscalyear financial statements. Therefore, these statements should be read inconjunction with our audited financial statements included in our Annual Reporton Form 10-K for the fiscal year ended January 31, 2008.

 

**Note 3—Segment Information**

 

Our operating units have several economiccharacteristics and attributes, including similar products, distributionpatterns and classes of customers.  As aresult, we aggregate our operating units into four geographic operatingsegments related to the manufacturing, distribution and servicing of materialhandling load engagement products.  Weevaluate the performance of each of our operating segments based on operatingincome, which consists of income before interest, miscellaneous income/expenseand income taxes.  The accountingpolicies of the operating segments are the same as those described in thesummary of significant accounting policies contained in Note 2 of ourconsolidated financial statements included in our Form 10-K for the fiscalyear ended January 31, 2008.

 

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Revenues and operating results are classifiedaccording to the country of origin. Transfers represent sales between our geographic operatingsegments.  The costs of our corporateoffice are included in North America. Identifiable assets are attributed to the geographic location in whichthey are located.  Net sales andtransfers, operating results and identifiable assets by geographic operatingsegment were as follows (in thousands):

 
| ** **                                 | ** ** | **Three Months Ended July 31** | ** ** |
|--------------------------------------------|------------|----------------------------------------------------|------------|
| **2008**                                   | ** ** | **North America**                             | ** ** | **Europe** | ** ** | **Asia Pacific** | ** ** | **China** | ** ** | **Eliminations** | ** ** | **Consolidation** | ** ** |
| Net sales                                  |       | $                                                  | 69,841     |   | $ | 48,424 |   | $ | 18,860 |   | $ | 12,978 |   | $ | — |   | $ | 150,103 |   |
| Transfers  between areas                   |       | 9,467                                              |       | 443 |   | 63 |   | 6,681 |   | (16,654 | ) | — |   |
| Net sales and  transfers                   |       | $                                                  | 79,308     |   | $ | 48,867 |   | $ | 18,923 |   | $ | 19,659 |   | $ | (16,654 | ) | $ | 150,103 |   |
| Gross profit                               |       | $                                                  | 24,542     |   | $ | 7,614 |   | $ | 4,491 |   | $ | 6,054 |   |   |   | $ | 42,701 |   |
| Selling and  administrative                |       | 11,646                                             |       | 7,994 |   | 2,459 |   | 1,391 |   |   |   | 23,490 |   |
| Loss (gain) on  disposition of assets, net |       | 19                                                 |       | (14 | ) | (11 | ) | 36 |   |   |   | 30 |   |
| Amortization                               |       | 587                                                |       | 80 |   | — |   | — |   |   |   | 667 |   |
| Operating income  (loss)                   |       | $                                                  | 12,290     |   | $ | (446 | ) | $ | 2,043 |   | $ | 4,627 |   |   |   | $ | 18,514 |   |
| Total assets                               |       | $                                                  | 237,700    |   | $ | 148,816 |   | $ | 49,583 |   | $ | 56,306 |   |   |   | $ | 492,405 |   |
| Property, plant  and equipment, net        |       | $                                                  | 34,748     |   | $ | 41,048 |   | $ | 7,343 |   | $ | 19,939 |   |   |   | $ | 103,078 |   |
| Capital  expenditures                      |       | $                                                  | 1,859      |   | $ | 2,330 |   | $ | 707 |   | $ | 1,240 |   |   |   | $ | 6,136 |   |
| Depreciation  expense                      |       | $                                                  | 1,630      |   | $ | 1,400 |   | $ | 127 |   | $ | 452 |   |   |   | $ | 3,609 |   |

 
| ** **                                 |       | **Three  Months Ended July 31** |       |
|--------------------------------------------|------------|---------------------------------|------------|
| **2007**                                   | ** ** | **North  America**              | ** ** | **Europe** | ** ** | **Asia  Pacific** | ** ** | **China** | ** ** | **Eliminations** | ** ** | **Consolidation** | ** ** |
| Net sales                                  |       | $                               | 74,569     |   | $ | 43,418 |   | $ | 15,091 |   | $ | 10,105 |   | $ | — |   | $ | 143,183 |   |
| Transfers  between areas                   |       | 8,594                           |       | 373 |   | 28 |   | 3,890 |   | (12,885 | ) | — |   |
| Net sales and  transfers                   |       | $                               | 83,163     |   | $ | 43,791 |   | $ | 15,119 |   | $ | 13,995 |   | $ | (12,885 | ) | $ | 143,183 |   |
| Gross profit                               |       | $                               | 29,041     |   | $ | 7,924 |   | $ | 3,582 |   | $ | 4,739 |   |   |   | $ | 45,286 |   |
| Selling and  administrative                |       | 12,556                          |       | 6,428 |   | 2,100 |   | 970 |   |   |   | 22,054 |   |
| Loss (gain) on  disposition of assets, net |       | (1,120                          | )          | — |   | (17 | ) | — |   |   |   | (1,137 | ) |
| Amortization                               |       | 639                             |       | 209 |   | — |   | (4 | ) |   |   | 844 |   |
| Operating income                           |       | $                               | 16,966     |   | $ | 1,287 |   | $ | 1,499 |   | $ | 3,773 |   |   |   | $ | 23,525 |   |
| Total assets                               |       | $                               | 231,601    |   | $ | 122,083 |   | $ | 36,753 |   | $ | 42,056 |   |   |   | $ | 432,493 |   |
| Property, plant  and equipment, net        |       | $                               | 33,752     |   | $ | 35,848 |   | $ | 1,953 |   | $ | 16,417 |   |   |   | $ | 87,970 |   |
| Capital  expenditures                      |       | $                               | 1,947      |   | $ | 543 |   | $ | 262 |   | $ | 1,105 |   |   |   | $ | 3,857 |   |
| Depreciation  expense                      |       | $                               | 1,740      |   | $ | 1,235 |   | $ | 98 |   | $ | 337 |   |   |   | $ | 3,410 |   |

 
| ** **                                 |       | **Six  Months Ended July 31** |       |
|--------------------------------------------|------------|-------------------------------|------------|
| **2008**                                   | ** ** | **North  America**            | ** ** | **Europe** | ** ** | **Asia  Pacific** | ** ** | **China** | ** ** | **Eliminations** | ** ** | **Consolidation** | ** ** |
| Net sales                                  |       | $                             | 139,161    |   | $ | 97,760 |   | $ | 38,040 |   | $ | 25,009 |   | $ | — |   | $ | 299,970 |   |
| Transfers  between areas                   |       | 17,186                        |       | 1,024 |   | 146 |   | 12,831 |   | (31,187 | ) | — |   |
| Net sales and  transfers                   |       | $                             | 156,347    |   | $ | 98,784 |   | $ | 38,186 |   | $ | 37,840 |   | $ | (31,187 | ) | $ | 299,970 |   |
| Gross profit                               |       | $                             | 48,793     |   | $ | 15,006 |   | $ | 9,605 |   | $ | 11,645 |   |   |   | $ | 85,049 |   |
| Selling and  administrative                |       | 24,395                        |       | 15,625 |   | 4,798 |   | 2,478 |   |   |   | 47,296 |   |
| Loss (gain) on  disposition of assets, net |       | 139                           |       | (15 | ) | (14 | ) | 35 |   |   |   | 145 |   |
| Amortization                               |       | 1,184                         |       | 158 |   | — |   | — |   |   |   | 1,342 |   |
| Operating income  (loss)                   |       | $                             | 23,075     |   | $ | (762 | ) | $ | 4,821 |   | $ | 9,132 |   |   |   | $ | 36,266 |   |
| Capital  expenditures                      |       | $                             | 3,405      |   | $ | 3,582 |   | $ | 905 |   | $ | 2,147 |   |   |   | $ | 10,039 |   |
| Depreciation  expense                      |       | $                             | 3,323      |   | $ | 2,748 |   | $ | 258 |   | $ | 880 |   |   |   | $ | 7,209 |   |

 
| ** **                                 |       | **Six  Months Ended July 31** |       |
|--------------------------------------------|------------|-------------------------------|------------|
| **2007**                                   | ** ** | **North  America**            | ** ** | **Europe** | ** ** | **Asia  Pacific** | ** ** | **China** | ** ** | **Eliminations** | ** ** | **Consolidation** | ** ** |
| Net sales                                  |       | $                             | 145,951    |   | $ | 85,022 |   | $ | 28,886 |   | $ | 18,824 |   | $ | — |   | $ | 278,683 |   |
| Transfers  between areas                   |       | 16,903                        |       | 697 |   | 98 |   | 6,559 |   | (24,257 | ) | — |   |
| Net sales and  transfers                   |       | $                             | 162,854    |   | $ | 85,719 |   | $ | 28,984 |   | $ | 25,383 |   | $ | (24,257 | ) | $ | 278,683 |   |
| Gross profit                               |       | $                             | 57,197     |   | $ | 15,529 |   | $ | 7,179 |   | $ | 8,610 |   |   |   | $ | 88,515 |   |
| Selling and  administrative                |       | 24,875                        |       | 12,541 |   | 4,003 |   | 1,767 |   |   |   | 43,186 |   |
| Loss (gain) on  disposition of assets, net |       | (1,194                        | )          | 8 |   | (17 | ) | 31 |   |   |   | (1,172 | ) |
| Amortization                               |       | 1,227                         |       | 414 |   | — |   | 1 |   |   |   | 1,642 |   |
| Insurance  litigation recovery, net        |       | (15,977                       | )          | — |   | — |   | — |   |   |   | (15,977 | ) |
| Operating income                           |       | $                             | 48,266     |   | $ | 2,566 |   | $ | 3,193 |   | $ | 6,811 |   |   |   | $ | 60,836 |   |
| Capital  expenditures                      |       | $                             | 3,501      |   | $ | 1,361 |   | $ | 449 |   | $ | 3,795 |   |   |   | $ | 9,106 |   |
| Depreciation  expense                      |       | $                             | 3,650      |   | $ | 2,460 |   | $ | 197 |   | $ | 582 |   |   |   | $ | 6,889 |   |

 

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**Note 4—Inventories**

 

During the six months ended July 31, 2008,inventories increased due to fluctuations in foreign currencies, material priceincreases and large volume purchases of raw materials made in advance of priceincreases. Inventories stated at the lower of average cost or market arepresented below by major class (in thousands):

 
| ** **                    | ** ** | **July 31** | ** ** | **January 31** | ** ** |
|-------------------------------|------------|------------------|------------|---------------------|------------|
| ** **                    | ** ** | **2008**         | ** ** | **2008**            | ** ** |
| Finished goods                |       | $                | 33,906     |                | $          | 31,618 |   |
| Raw materials  and components |       | 66,681           |       | 53,431              |       |
|                          |       | $                | 100,587    |                | $          | 85,049 |   |

 

**Note 5—Goodwill**

 

During the six months ended July 31, 2008,goodwill decreased due to fluctuations in foreign currencies.  We have no goodwill recorded in China. Thefollowing table provides a breakdown of goodwill by geographic region (inthousands):

 
| ** **    | ** ** | **July 31** | ** ** | **January 31** | ** ** |
|---------------|------------|------------------|------------|---------------------|------------|
| ** **    | ** ** | **2008**         | ** ** | **2008**            | ** ** |
| North America |       | $                | 102,508    |                | $          | 103,965 |   |
| Europe        |       | 12,399           |       | 11,893              |       |
| Asia Pacific  |       | 2,957            |       | 2,968               |       |
|          |       | $                | 117,864    |                | $          | 118,826 |   |

 

**Note 6—Share-Based Compensation Plans**

** **

We have granted three types of share-based awards,stock appreciation rights (SARS), restricted stock and stock options, under ourshare-based compensation plans to officers, key managers and directors.  The grant prices are established by our Boardof Directors’ Compensation Committee based on the end of day market price ofour common stock on the grant date.  Weissue new common shares upon the exercise of all awards.

 

SARS provide the holder the right to receive anamount, payable in our common shares, equal to the excess of the market valueof our common shares on the date of exercise (“intrinsic value”) over the baseprice at the time the right was granted. The base price may not be less thanthe market price of our common shares on the date of grant.  All SARS vest ratably over a four year periodand have a term of ten years.

 

During the second quarter of fiscal 2008, ourshareholders approved a proposal to amend the SARS plan to permit the issuanceof restricted shares of common stock. Upon the granting of restricted stock, common shares are issued to therecipient, but the shares may not be sold, assigned, transferred, pledged, ordisposed of by the recipient until vested. Regardless of vesting, restricted shares have full voting rights and anydividends declared will be paid to the restricted stock recipient.  Restricted shares vest ratably over a periodof three years for officers and four years for directors.  The number of restricted shares issued todirectors is based on the market value of our shares on the date of grant.

 

The amended SARS plan provides for the issuance of amaximum of 750,000 shares of common stock upon the exercise of SARS or issuanceof restricted stock.  As of July 31,2008, a total of 246,000 shares of common stock have been issued under the SARSplan, which includes a total of 65,000 shares of restricted stock.

 

Stock options provide the holder the right to receiveour common shares at an established price. We have reserved 1,400,000 shares of common stock under our stock optionplan. As of July 31, 2008, a total of 1,090,000 shares have been issuedupon the exercise of stock options.  Noadditional stock options can be granted under the terms of the plan.  All outstanding stock options vest ratably overa four year period and have a term of ten years.

 

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A summary of the plans’ status at July 31, 2008together with changes during the six months then ended are presented in thefollowing tables (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, 2008 |       | 286                    |       | $                                       | 13.39      |   | 815 |   | $ | 34.84 |   |
| Granted                           |       | —                 |       | —                                  |       | 47 |   | 44.24 |   |
| Exercised                         |       | (7                     | )          | 18.60                                   |       | — |   | — |   |
| Forfeited                         |       | —                 |       | —                                  |       | (56 | ) | 41.16 |   |
|                              |       |                   |       |                                    |       |   |   |   |   |
| Balance at  July 31, 2008    |       | 279                    |       | $                                       | 13.26      |   | 806 |   | $ | 34.95 |   |

 
| ** **                                          | ** ** | **Restricted Stock Awards** | ** ** |
|-----------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                          | ** ** | ** **                            | ** ** | **Weighted Average** | ** ** |
| ** **                                          | ** ** | ** **                            | ** ** | **Grant Date** | ** ** |
| ** **                                          | ** ** | **Number of**                    | ** ** | **Fair Value** | ** ** |
| ** **                                          | ** ** | **Shares**                            | ** ** | **Per Share** | ** ** |
|                                                |       |                                  |       |   |   |
| Unvested  restricted stock at January 31, 2008 |       | 42                                    |       | $ | 73.73 |   |
| Granted                                             |       | 23                                    |       | 44.24 |   |
| Vested                                              |       | (14                                   | )          | 73.73 |   |
| Forfeited                                           |       | —                                |       | — |   |
|                                                |       |                                  |       |   |   |
| Unvested  restricted stock at July 31, 2008    |       | 51                                    |       | $ | 60.51 |   |

 

We calculate share-based compensation cost for stockoptions and SARS using the Black-Scholes option pricing model.  The range of assumptions used to computeshare-based compensation are as follows:

 
| ** **                                    | ** ** | **Granted in**  | ** ** | **Granted Prior to** | ** ** |
|-----------------------------------------------|------------|----------------------|------------|--------------------------------|------------|
| ** **                                    | ** ** | **Fiscal 2009** | ** ** | **Fiscal 2009**           | ** ** |
| ** **                                    | ** ** | ** **           | ** ** | ** **                     | ** ** |
| Risk-free  interest rate                      |       | 3.5                  | %          | 2.3 - 5.1                      | %          |
| Expected  volatility                          |       | 41                   | %          | 40 - 42                        | %          |
| Expected  dividend yield                      |       | 1.8                  | %          | 1.0 - 2.8                      | %          |
| Expected life  (in years)                     |       | 7                    |       | 5 - 7                          |       |
| Weighted average  fair value at date of grant |       | $                    | 17.57      |                           | $          | 4.16 - 33.31 |   |
|                                               |            |                      |            |                                |            |  |  |

 

We calculate share-based compensation cost forrestricted stock by multiplying the fair market value of our common shares onthe grant date by the number of restricted shares expected to vest.  Share-based compensation is expensed ratablyover the applicable vesting period. Additional information regarding the assumptions used to calculate fairvalue of our share-based compensation plans is presented in Note 2 to ourconsolidated financial statements included in our Form 10-K for the yearended January 31, 2008.

 

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As of July 31, 2008, there was $7.8 million oftotal unrecognized compensation cost related to nonvested share-basedcompensation awards granted under the plans, which is expected to be recognizedover a weighted average period of 2.2 years. The following table represents asof July 31, 2008 the share-based compensation costs to be recognized infuture periods (in thousands) for awards granted to date:

 
| **Fiscal Year** | ** ** | **Amount** | ** ** |
|----------------------|------------|------------|------------|
| 2009*                |       | $          | 2,302      |   |
| 2010                 |       | 3,336      |       |
| 2011                 |       | 1,527      |       |
| 2012                 |       | 528        |       |
| 2013                 |       | 93         |       |
|                 |       | $          | 7,786      |   |

 

----

* Represents last sixmonths of fiscal 2009.

 

***Note 7—Commitments andContingencies***

 

**Environmental Matters**

 

We are subject toenvironmental laws and regulations, which include obligations to remove ormitigate environmental effects of past disposal and release of certain wastesand substances at various sites. We record liabilities for affected sites whenenvironmental assessments indicate probable cleanup and the costs can bereasonably estimated. Other than for costs of assessments themselves, thetiming and amount of these liabilities is determined based on the estimatedcosts of remediation activities and our commitment to a formal plan of action,such as an approved remediation plan. The reliability and precision of the loss estimates are affected bynumerous factors, such as different stages of site evaluation and reevaluationof the degree of remediation required. We adjust our liabilities as newremediation requirements are defined, as information becomes availablepermitting reasonable estimates to be made and to reflect new and changingfacts.

 

It is reasonably possible that changes in estimateswill occur in the near term and the related adjustments to environmentalliabilities may have a material impact on our operating results. Unassertedclaims are not currently reflected in our environmental remediationliabilities. It is also reasonably possible that these claims may also have amaterial impact on our operating results if asserted. We cannot estimate atthis time the amount of any additional loss or range of loss that is reasonablypossible.

 

Our specific environmental matters consist of thefollowing:

 

*Fairview,Oregon*

* *

In 1996, the Oregon Department of EnvironmentalQuality issued two Records of Decision affecting our Fairview, Oregonmanufacturing facility. The Records of Decision required us to initiateremedial activities related to the cleanup of groundwater contamination at andnear the facility. Remediation activities have been conducted since 1996 andcurrent estimates provide for some level of activity to continue through 2019.Costs of certain remediation activities at the facility are shared with TheBoeing Company, with Cascade paying 70% of these costs. The recorded liabilityfor ongoing remediation activities at our Fairview facility was$4.4 million and $4.8 million at July 31, 2008 and January 31,2008, respectively.

 

*Springfield,Ohio*

* *

In 1994, we entered into a consent order with the OhioEnvironmental Protection Agency, which required the installation of remediationsystems for the cleanup of groundwater contamination at our Springfield, Ohiofacility. The current estimate is that the remediation activities will continuethrough 2013. The recorded liability for ongoing remediation activities inSpringfield was $831,000 at July 31, 2008 and $900,000 at January 31,2008.

 

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*InsuranceLitigation*

* *

On April 9, 2007, we entered into a settlementagreement with Employers Reinsurance Corporation with respect to litigation torecover various expenses incurred in connection with environmental and relatedproceedings.  The recovery from thesettlement, recorded during the three months ended April 30, 2007, was$16.0 million, net of expenses.  Inconnection with the settlement, we released all rights we might have underinsurance policies issued by Employers Reinsurance Corporation and certainrelated entities.  This concluded alllitigation against our insurance companies with regard to environmentalmatters.

 

**LegalProceedings**

 

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

 

**Note 8—Earnings Per Share**

** **

The following table presents the calculation of basicand diluted earnings per share (in thousands, except per share amounts):

 
| ** **                                                   | ** ** | **Three Months Ended July 31** | ** ** | **Six Months Ended July 31** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                   | ** ** | **2008**                                           | ** ** | **2007**                                         | ** ** | **2008** | ** ** | **2007** | ** ** |
| Basic earnings  per share:                                   |       |                                               |       |                                             |       |   |   |   |   |
| Net income                                                   |       | $                                                  | 10,495     |                                             | $          | 15,144 |   | $ | 21,353 |   | $ | 38,940 |   |
| Weighted average  shares of common stock outstanding         |       | 10,793                                             |       | 11,930                                           |       | 10,788 |   | 11,948 |   |
|                                                         |       | $                                                  | 0.97       |                                             | $          | 1.27 |   | $ | 1.98 |   | $ | 3.26 |   |
|                                                         |       |                                               |       |                                             |       |   |   |   |   |
| Diluted earnings  per share:                                 |       |                                               |       |                                             |       |   |   |   |   |
| Net income                                                   |       | $                                                  | 10,495     |                                             | $          | 15,144 |   | $ | 21,353 |   | $ | 38,940 |   |
| Weighted average  shares of common stock outstanding         |       | 10,793                                             |       | 11,930                                           |       | 10,788 |   | 11,948 |   |
| Dilutive effect  of stock awards                             |       | 316                                                |       | 549                                              |       | 321 |   | 565 |   |
| Diluted weighted  average shares of common stock outstanding |       | 11,109                                             |       | 12,479                                           |       | 11,109 |   | 12,513 |   |
|                                                         |       | $                                                  | 0.94       |                                             | $          | 1.21 |   | $ | 1.92 |   | $ | 3.11 |   |

 

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 and the amount of unvested restricted stock.  Unexercised SARS totaling 104,000 awards andunvested restricted stock totaling 26,000 shares were excluded from the fiscal2009 three months and six months calculations of diluted earnings per sharebecause they were antidilutive.  Theremaining SARS and restricted stock and all stock options were included in ourcalculation of incremental shares because they are dilutive.

 

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**Note 9—Supplemental CashFlow Information**

 

The following table presents information thatsupplements the consolidated statements of cash flow (in thousands):

 
| ** **                                          | ** ** | **For the Six Months Ended July 31** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                          | ** ** | **2008**                                                           | ** ** | **2007** | ** ** |
| Cash paid during  the period for:                   |       |                                                               |       |   |   |
| Interest                                            |       | $                                                                  | 2,418      |   | $ | 1,915 |   |
| Income taxes                                        |       | $                                                                  | 10,809     |   | $ | 16,664 |   |
|                                                |       |                                                               |       |   |   |
| Supplemental  disclosure of investing activities:   |       |                                                               |       |   |   |
| Business  acquistions:                              |       |                                                               |       |   |   |
| Accounts  receivable and other assets               |       | $                                                                  | —     |   | $ | 935 |   |
| Inventories                                         |       | —                                                             |       | 818 |   |
| Property, plant  and equipment                      |       | —                                                             |       | 296 |   |
| Goodwill                                            |       | —                                                             |       | 6,423 |   |
| Intangible asset  - customer relationships          |       | —                                                             |       | 5,400 |   |
| Intangible asset  - intellectual property and other |       | —                                                             |       | 1,900 |   |
| Accounts payable  and other liabilities assumed     |       | —                                                             |       | (708 | ) |
| Notes payable  assumed                              |       | —                                                             |       | (931 | ) |
| Deferred income  tax                                |       | —                                                             |       | (2,604 | ) |
| Net cash paid  for acquisitions                     |       | $                                                                  | —     |   | $ | 11,529 |   |

 

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**Note 10—Benefit Plans**

** **

The following tablerepresents the net periodic cost related to our defined benefit plans inEngland and France and our postretirement health benefit plan in the UnitedStates (in thousands):

 
| ** **                      | ** ** | **Defined Benefit**                           | ** ** | **Postretirement Benefit**                    | ** ** |
|---------------------------------|------------|----------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                      | ** ** | **Three Months Ended July 31** | ** ** | **Three Months Ended July 31** | ** ** |
| ** **                      | ** ** | **2008**                                           | ** ** | **2007**                                           | ** ** | **2008** | ** ** | **2007** | ** ** |
|                            |       |                                               |       |                                               |       |   |   |   |   |
| Net periodic  benefit cost:     |       |                                               |       |                                               |       |   |   |   |   |
| Service cost                    |       | $                                                  | 6          |                                               | $          | 15 |   | $ | 26 |   | $ | 30 |   |
| Interest cost                   |       | 146                                                |       | 131                                                |       | 108 |   | 106 |   |
| Expected return  on plan assets |       | (131                                               | )          | (127                                               | )          | — |   | — |   |
| Recognized prior  service cost  |       | —                                             |       | —                                             |       | (19 | ) | (19 | ) |
| Recognized net  actuarial loss  |       | 23                                                 |       | 22                                                 |       | 1 |   | 48 |   |
|                            |       | $                                                  | 44         |                                               | $          | 41 |   | $ | 116 |   | $ | 165 |   |

 
| ** **                      | ** ** | **Defined Benefit**                         | ** ** | **Postretirement Benefit**                  | ** ** |
|---------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                      | ** ** | **Six Months Ended July 31** | ** ** | **Six Months Ended July 31** | ** ** |
| ** **                      | ** ** | **2008**                                         | ** ** | **2007**                                         | ** ** | **2008** | ** ** | **2007** | ** ** |
|                            |       |                                             |       |                                             |       |   |   |   |   |
| Net periodic  benefit cost:     |       |                                             |       |                                             |       |   |   |   |   |
| Service cost                    |       | $                                                | 12         |                                             | $          | 29 |   | $ | 52 |   | $ | 60 |   |
| Interest cost                   |       | 293                                              |       | 260                                              |       | 216 |   | 211 |   |
| Expected return  on plan assets |       | (262                                             | )          | (252                                             | )          | — |   | — |   |
| Recognized prior  service cost  |       | —                                           |       | —                                           |       | (38 | ) | (38 | ) |
| Recognized net  actuarial loss  |       | 46                                               |       | 44                                               |       | 2 |   | 96 |   |
|                            |       | $                                                | 89         |                                             | $          | 81 |   | $ | 232 |   | $ | 329 |   |

 

**Note 11—RecentAccounting Pronouncements**

 

****SFAS 157****- In September 2006,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 157 (SFAS 157), “Fair ValueMeasurements.” SFAS 157 provides a common definition of fair value, establishesa framework for measuring fair value and expands the related disclosurerequirements.  In February 2008, theFASB issued final Staff Positions that will (1) defer the effective dateof this statement for one year for certain nonfinancial assets and nonfinancialliabilities and (2) remove certain leasing transactions from the scope ofthe statement.  We applied SFAS 157 toall other fair value measurements effective February 1, 2008.  The adoption of SFAS 157 did not have amaterial impact on our financial statements.

 

**FSP157-2** –** **In February 2008,the FASB issued FASB Staff Position on Statement 157, “Effective Date of FASBStatement No. 157” (FSP 157-2).  FSP 157-2 delays the effectivedate of SFAS 157 for nonfinancial assets and nonfinancial liabilities, exceptthose that are recognized or disclosed on a recurring basis, to fiscal yearsbeginning after November 15, 2008.  Our significant nonfinancialassets and liabilities that could be impacted by this deferral include assetsand liabilities initially measured at fair value in a business combination andgoodwill tested annually for impairment.  FSP 157-2 will becomeeffective for the fiscal year beginning February 1, 2009.  We are currently evaluating the impact of theadoption of FSP 157-2 on our financial statements.

 

****SFAS 159****- In February 2007,the FASB issued SFAS No. 159 (SFAS 159), “The Fair Value Option forFinancial Assets and Financial Liabilities - Including an Amendment of FASBStatement No. 115.” SFAS 159 allows companies the choice to measure manyfinancial instruments and certain other items at fair value. Application of SFAS159 was required for our financial statements beginning February 1,2008.  The adoption of SFAS 159 did nothave a material impact on our financial statements.

 

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****SFAS 141(R) & SFAS 160 –****In December 2007, the FASB issued SFAS No. 141(R) (SFAS 141(R)),“Business Combinations,” and SFAS No. 160 (SFAS 160), “NoncontrollingInterests in Consolidated Financial Statements, an amendment of ARB No. 51”.SFAS 141(R) requires the acquiring entity in a business combination torecognize the assets acquired and liabilities assumed. Further, SFAS 141(R) alsochanges the accounting for acquired in-process research and development assets,contingent consideration, partial acquisitions and transactioncosts.  Under SFAS 160, all entities are required to reportnoncontrolling (minority) interests in subsidiaries as equity in theconsolidated financial statements. In addition, transactions between an entityand noncontrolling interests will be treated as equity transactions.  SFAS 141(R) and SFAS 160 will becomeeffective for business combinations for which the acquisition date is on orafter February 1, 2009.  We arecurrently evaluating the impact of the adoption of these standards on ourfinancial statements.

 

**SFAS161** – In March 2008, the FASB issued SFAS No. 161(SFAS 161), “Disclosures about Derivative Instruments and Hedging Activities –an amendment of FASB Statement No. 133.” SFAS 161 expands disclosures forderivative instruments by requiring entities to disclose the fair value ofderivative instruments and their gains or losses in tabularformat.  SFAS 161 also requires disclosure of information aboutcredit risk-related contingent features in derivative agreements, counterpartycredit risk, and strategies and objectives for using derivativeinstruments.   SFAS 161 will become effective for fiscal yearsbeginning after November 15, 2008.  We will adopt this newaccounting standard on February 1, 2009.  We are currently evaluatingthe impact of the adoption of this standard on our financial statements.

 

**SFAS162 – **In May 2008, the FASB issued** **SFAS No. 162 (SFAS 162), “TheHierarchy of Generally Accepted Accounting Principles.” SFAS 162 identifies thesources of accounting principles and the framework for selecting the principlesto be used in the preparation of financial statements of nongovernmentalentities that are presented in conformity with generally accepted accounting principlesin the United States. SFAS 162 will become effective 60 days following the SEC’sapproval of the Public Company Accounting Oversight Board amendments to AU Section 411,“The Meaning of Present Fairly in Conformity With Generally Accepted AccountingPrinciples.”  We do not expect any changes to our financialaccounting and reporting as a result of the adoption of this standard.

 

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**Note 12—Warranty Obligations**

 

We record a liability onour consolidated balance sheet for costs related to warranties with the salesof our products. This liability is estimated through historical customerclaims, product failure rates, material usage and service delivery costsincurred in correcting a product failure. Our warranty obligations, which arerecorded in other accrued expenses on the consolidated balance sheets, were asfollows (in thousands):

*** ***
| ** **                                        | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------------------------------------|------------|----------|------------|----------|------------|
| Balance at January 31                        |       | $        | 1,900      |     | $          | 1,754 |   |
| Accruals for  warranties issued during the period |       | 1,041    |       | 1,179    |       |
| Settlements  during the period                    |       | (1,302   | )          | (1,214   | )          |
| Balance at  July 31                          |       | $        | 1,639      |     | $          | 1,719 |   |

 

**Note 13—Accumulated Other Comprehensive Income**

 

The following table presents the changes in and thecomponents of accumulated other comprehensive income (in thousands):

 
| ** **                        | ** ** | **Accumulated Other Comprehensive Income (Loss)** | ** ** |
|-----------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                        | ** ** | **Translation Adjustment**                                       | ** ** | **Minimum Pension Liability  Adjustment** | ** ** | **Total** | ** ** |
| Balance at  January 31, 2008 |       | $                                                                     | 37,492     |   | $ | (1,819 | ) | $ | 35,673 |   |
| Translation  adjustment           |       | 2,098                                                                 |       | — |   | 2,098 |   |
| Balance at  July 31, 2008    |       | $                                                                     | 39,590     |   | $ | (1,819 | ) | $ | 37,771 |   |

 

**Note 14—IncomeTaxes**

 

As of July 31, 2008 our liability for uncertaintax positions under FASB Interpretation No. 48 (FIN 48) was $1.2million.  There were no material changesin unrecognized tax benefits during the current period.  The reserve for unrecognized tax benefits asof July 31, 2008 included an accrual for interest and penalties of$166,000.

 

We are subject to taxation primarily in the U.S.,Canada and China, as well as various state and other foreignjurisdictions.  The Internal RevenueService (IRS) is currently reviewing our U.S. income tax return for fiscalyears 2004 - 2007. The IRS has proposed an adjustment of $5 million related tointerest deductions reported on tax returns for the 2004 and 2005 taxyears.  These adjustments would result inan additional federal and state tax liability of approximately $1.8 million.  We are in the process of appealing the issuewith the IRS and have determined that we will more-likely-than-not prevail onthe issue.  No amount has been recordedin our financial statements as of July 31, 2008 related to thismatter.  As of July 31, 2008, weremain subject to examination in various state and foreign jurisdictions forthe 1998-2007 tax years.

 

**Note 15 - Gain on Sale of Assets**

 

During the second quarter of fiscal 2008, werecognized a $1.1 million gain on the sale of land in Fairview, Oregon.

 

**Note 16 – Acquisitions**

 

During the second quarterof fiscal 2008, we purchased 100% of the stock of American Compaction Equipment, Inc.,a manufacturer of construction attachments located in San Juan Capistrano,California.  The total purchase price wasapproximately $11.5 million, net of assumed liabilities.  Results of operations for American CompactionEquipment, Inc. have been included in our consolidated statement of incomesince the acquisition date of May 1, 2007.

 

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**Item 2.Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

 

Our businesses globallymanufacture and distribute material handling load engagement products primarilyfor the lift truck industry and to a lesser extent the constructionindustry.  We operate in four geographicsegments:  North America, Europe, AsiaPacific and China.  All references tofiscal periods are defined as the period ended July 31, 2007 (fiscal 2008)and the period ended July 31, 2008 (fiscal 2009).

 

**RECENT TRENDS AND DEVELOPMENTS AFFECTING OURRESULTS**

 

**EuropeanBusiness**

 

Our European business continues to provide both thebiggest opportunity for improvement and the biggest challenge facing ourcompany.  Below is an update onpreviously reported trends and activities impacting our European business:

 

·      The operational review ofour entire European business, which includes among other things arationalization of production capacity, is continuing.  The steps to reduce our workforce in Almere,The Netherlands and to transfer the production of certain products to Verona,Italy have been completed. We incurred severance and other costs of approximately$135,000 and $510,000 in the second quarter and first six months of fiscal2009, respectively,  related to theseactivities.   We are still evaluatingother operational and reorganization changes which may result in additionalcosts.

 

·      We are continuing to importChinese-made products into Europe and distribution of these products isexpanding.  We are still working toobtain certain OEM approvals.

 

·      We are aggressively workingto lower our material costs through global sourcing from both internal andexternal suppliers and particularly from our own factories in North America.

 

·      Our efforts to transitionour European factories to our North American operating model and fullyimplement “Lean Principles” throughout the organization are continuing.

 

We believe we will see gradual improvements over timeas a result of the reorganization that is in process.  Improving operational performance in Europe,the world’s largest lift truck market, remains our top priority.

 

**MaterialCost Increases**

 

We continue to feel the pressures of increasingmaterial costs globally.  The followingare some of the activities and initiatives underway to mitigate the costincreases:

 

·      We have implemented salesprice increases.  Further sales priceincreases or surcharges may be necessary during the remainder of the year.

 

·      We continue our efforts tolower our material costs by sourcing from alternative suppliers or purchasinglarger volumes ahead of scheduled price increases.  This is reflected in the increase in ouroverall inventory balances in the last six months.  Over the long term we expect inventory levelsto decrease as material costs stabilize.

 

·      We are working to create efficienciesby improving our internal processes in manufacturing and administration that webelieve will ultimately result in lower operation costs.

 

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**COMPARISON OF SECOND QUARTER OF FISCAL 2009 ANDFISCAL 2008**

 

**Executive Summary**

 
| ** **                  | ** ** | **Three Months Ended July 31**                   | ** ** | ** ** | ** ** | ** ** | ** ** |
|-----------------------------|------------|----------------------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                  | ** ** | **2008**                                                             | ** ** | **2007**   | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                  | ** ** | **(In thousands except per share amounts)** | ** ** | ** ** | ** ** |
|                        |       |                                                                 |       |       |       |       |       |   |   |
| Net sales                   |       | $                                                                    | 150,103    |       | $          | 143,183    |       | $ | 6,920 |   | 5 | % |
| Operating income            |       | $                                                                    | 18,514     |       | $          | 23,525     |       | $ | (5,011 | ) | (21 | )% |
| Net income                  |       | $                                                                    | 10,495     |       | $          | 15,144     |       | $ | (4,649 | ) | (31 | )% |
| Diluted earnings  per share |       | $                                                                    | 0.94       |       | $          | 1.21       |       | $ | (0.27 | ) | (22 | )% |

 

The following arefinancial highlights for the second quarter of fiscal 2009:

 

·      During thecurrent year we posted higher levels of consolidated net sales primarily as aresult of the impact of foreign currency changes.  Net sales, excluding the impact of foreigncurrencies, decreased 1% during fiscal 2009. Lower sales volumes in North America and Europe offset the strength ofmarkets in Asia Pacific and China. Global lift truck shipments increased 9% compared to the prior year.

·      Our consolidatedgross profit percentage decreased to 28% in fiscal 2009 from 32% in fiscal 2008primarily as a result of significant material price increases experienced inall geographic segments, production inefficiencies in Europe and lower salesvolumes.  The current quarter grossprofit percentage is consistent with the first quarter of fiscal 2009.

 

**NorthAmerica**

 
| ** **                                 | ** ** | **Three Months Ended July 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|----------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                 | ** ** | **2008**                                           | ** ** | **%**      | ** ** | **2007**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                                 | ** ** | **(In thousands)**                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                  |       | $                                                  | 69,841     |       | 88         | %          | $          | 74,569 |   | 90 | % | $ | (4,728 | ) | (6 | )% |
| Transfers  between areas                   |       | 9,467                                              |       | 12         | %          | 8,594      |       | 10 | % | 873 |   | 10 | % |
| Net sales and  transfers                   |       | 79,308                                             |       | 100        | %          | 83,163     |       | 100 | % | (3,855 | ) | (5 | )% |
|                                       |       |                                               |       |       |       |       |       |   |   |   |   |   |   |
| Cost of goods  sold                        |       | 54,766                                             |       | 69         | %          | 54,122     |       | 65 | % | 644 |   | 1 | % |
| Gross profit                               |       | 24,542                                             |       | 31         | %          | 29,041     |       | 35 | % | (4,499 | ) | (15 | )% |
|                                       |       |                                               |       |       |       |       |       |   |   |   |   |   |   |
| Selling and  administrative                |       | 11,646                                             |       | 15         | %          | 12,556     |       | 15 | % | (910 | ) | (7 | )% |
| Loss (gain) on  disposition of assets, net |       | 19                                                 |       | —     |       | (1,120     | )          | (1 | )% | 1,139 |   | — |   |
| Amortization                               |       | 587                                                |       | 1          | %          | 639        |       | 1 | % | (52 | ) | (8 | )% |
| Operating income                           |       | $                                                  | 12,290     |       | 15         | %          | $          | 16,966 |   | 20 | % | $ | (4,676 | ) | (28 | )% |

 

Details of the change innet sales compared to the prior year quarter are as follows (in thousands):

 
| ** **                | ** ** | **Amount** | ** ** | **Change %** | ** ** |
|---------------------------|------------|------------|------------|-------------------|------------|
| Net sales  decline        |       | $          | (5,179     | )                 | (7         | )% |
| Foreign currency  changes |       | 451        |       | 1                 | %          |
| Total                     |       | $          | (4,728     | )                 | (6         | )% |

 

The following arefinancial highlights for North America for the second quarter of fiscal2009.  All percentage comparisons to theprior year exclude the impact of foreign currencies:

 

·      Net salesdecreased 7% primarily as a result of lower sales volumes due to the downturnin the construction market.  Secondquarter North America lift truck industry shipments from 2008 to 2009 decreased13%.  We have found that lift truckindustry statistics provide an indication of the direction of our businessactivity.  However, changes in our netsales do not correspond directly to the percentage changes in lift truckindustry shipments, because certain industry sectors of the economy use ourproducts more than others.

 

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·      Our grossprofit percentage decreased 4% during fiscal 2009, due to higher materialcosts, changes in product mix, lower sales volumes and other costincreases.  The current quarter grossprofit percentage is consistent with the first quarter of fiscal 2009.

·      Selling andadministrative costs decreased 8% during the current year due to a reduction inpersonnel, consulting and other general costs.

·      During thesecond quarter of fiscal 2008, we realized a $1.1 million pre-tax gain on thesale of land in Fairview, Oregon.

 

**Europe**

 
| ** **                          | ** ** | **Three Months Ended July 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|-------------------------------------|------------|----------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                          | ** ** | **2008**                                           | ** ** | **%**      | ** ** | **2007**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                          | ** ** | **(In thousands)**                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                           |       | $                                                  | 48,424     |       | 99         | %          | $          | 43,418 |   | 99 | % | $ | 5,006 |   | 12 | % |
| Transfers  between areas            |       | 443                                                |       | 1          | %          | 373        |       | 1 | % | 70 |   | 19 | % |
| Net sales and  transfers            |       | 48,867                                             |       | 100        | %          | 43,791     |       | 100 | % | 5,076 |   | 12 | % |
|                                |       |                                               |       |       |       |       |       |   |   |   |   |   |   |
| Cost of goods  sold                 |       | 41,253                                             |       | 84         | %          | 35,867     |       | 82 | % | 5,386 |   | 15 | % |
| Gross profit                        |       | 7,614                                              |       | 16         | %          | 7,924      |       | 18 | % | (310 | ) | (4 | )% |
|                                |       |                                               |       |       |       |       |       |   |   |   |   |   |   |
| Selling and  administrative         |       | 7,994                                              |       | 17         | %          | 6,428      |       | 15 | % | 1,566 |   | 24 | % |
| Gain on  disposition of assets, net |       | (14                                                | )          | —     |       | —     |       | — |   | (14 | ) | — |   |
| Amortization                        |       | 80                                                 |       | —     |       | 209        |       | — |   | (129 | ) | (62 | )% |
| Operating income  (loss)            |       | $                                                  | (446       | )          | (1         | )%         | $          | 1,287 |   | 3 | % | $ | (1,733 | ) | (135 | )% |

 

Details of the change innet sales compared to the prior year quarter are as follows (in thousands):

 
| ** **                | ** ** | **Amount** | ** ** | **Change %** | ** ** |
|---------------------------|------------|------------|------------|-------------------|------------|
| Net sales  decline        |       | $          | (651       | )                 | (1         | )% |
| Foreign currency  changes |       | 5,657      |       | 13                | %          |
| Total                     |       | $          | 5,006      |              | 12         | % |

 

The following summarizesEurope’s financial results for the second quarter of fiscal 2009.  All percentage comparisons to the prior yearexclude the impact of foreign currencies:

 

·      Net salesdecreased 1%.  Lift truck industryshipments increased 14% in the current year. Given current industry statistics, we may have lost some market share inEurope.  Delivery delays also factoredinto our lower sales.

·      The 2%decrease in current year gross profit percentage is primarily due to materialprice increases and operational inefficiencies.

·      Selling andadministrative expenses increased 10%, because of higher marketing andreorganization costs.

 

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**Asia Pacific**

 
| ** **                          | ** ** | **Three Months Ended July 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|-------------------------------------|------------|----------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                          | ** ** | **2008**                                           | ** ** | **%**      | ** ** | **2007**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                          | ** ** | **(In thousands)**                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                           |       | $                                                  | 18,860     |       | 100        | %          | $          | 15,091 |   | 100 | % | $ | 3,769 |   | 25 | % |
| Transfers  between areas            |       | 63                                                 |       | —     |       | 28         |       | — |   | 35 |   | 125 | % |
| Net sales and  transfers            |       | 18,923                                             |       | 100        | %          | 15,119     |       | 100 | % | 3,804 |   | 25 | % |
|                                |       |                                               |       |       |       |       |       |   |   |   |   |   |   |
| Cost of goods  sold                 |       | 14,432                                             |       | 76         | %          | 11,537     |       | 76 | % | 2,895 |   | 25 | % |
| Gross profit                        |       | 4,491                                              |       | 24         | %          | 3,582      |       | 24 | % | 909 |   | 25 | % |
|                                |       |                                               |       |       |       |       |       |   |   |   |   |   |   |
| Selling and  administrative         |       | 2,459                                              |       | 13         | %          | 2,100      |       | 14 | % | 359 |   | 17 | % |
| Gain on  disposition of assets, net |       | (11                                                | )          | —     |       | (17        | )          | — |   | 6 |   | — |   |
| Operating income                    |       | $                                                  | 2,043      |       | 11         | %          | $          | 1,499 |   | 10 | % | $ | 544 |   | 36 | % |

 

Details of the change innet sales compared to the prior year quarter are as follows (in thousands):

 
| ** **                | ** ** | **Amount** | ** ** | **Change %** | ** ** |
|---------------------------|------------|------------|------------|-------------------|------------|
| Net sales growth          |       | $          | 2,717      |              | 18         | % |
| Foreign currency  changes |       | 1,052      |       | 7                 | %          |
| Total                     |       | $          | 3,769      |              | 25         | % |

 

The following arefinancial highlights for Asia Pacific for the second quarter of fiscal2009.  All percentage comparisons to theprior year exclude the impact of foreign currencies:

 

·      Net salesincreased 18% due to higher shipping volumes as a result of strong lift truckmarkets and our initiative to produce a wider selection of products in Chinafor sale in this region. Lift truck industry shipments in Asia Pacificincreased 10% in fiscal 2009 compared to fiscal 2008.

·      Our grossprofit percentage in Asia Pacific remained consistent at 24%.  The benefits of sourcing lower cost productfrom China helped mitigate other material cost increases.

·      Selling andadministrative costs increased 8% due to higher personnel and sellingexpenses.  However, as a percentage ofnet sales and transfers, selling and administrative costs decreased from 14% infiscal 2008 to 13% in fiscal 2009.

 

**China**

 
| ** **                          | ** ** | **Three Months Ended July 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|-------------------------------------|------------|----------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                          | ** ** | **2008**                                           | ** ** | **%**      | ** ** | **2007**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                          | ** ** | **(In thousands)**                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                           |       | $                                                  | 12,978     |       | 66         | %          | $          | 10,105 |   | 72 | % | $ | 2,873 |   | 28 | % |
| Transfers  between areas            |       | 6,681                                              |       | 34         | %          | 3,890      |       | 28 | % | 2,791 |   | 72 | % |
| Net sales and  transfers            |       | 19,659                                             |       | 100        | %          | 13,995     |       | 100 | % | 5,664 |   | 40 | % |
|                                |       |                                               |       |       |       |       |       |   |   |   |   |   |   |
| Cost of goods  sold                 |       | 13,605                                             |       | 69         | %          | 9,256      |       | 66 | % | 4,349 |   | 47 | % |
| Gross profit                        |       | 6,054                                              |       | 31         | %          | 4,739      |       | 34 | % | 1,315 |   | 28 | % |
|                                |       |                                               |       |       |       |       |       |   |   |   |   |   |   |
| Selling and  administrative         |       | 1,391                                              |       | 7          | %          | 970        |       | 7 | % | 421 |   | 43 | % |
| Loss on  disposition of assets, net |       | 36                                                 |       | —     |       | —     |       | — |   | 36 |   | — |   |
| Amortization                        |       | —                                             |       | —     |       | (4         | )          | — |   | 4 |   | — |   |
| Operating income                    |       | $                                                  | 4,627      |       | 24         | %          | $          | 3,773 |   | 27 | % | $ | 854 |   | 23 | % |

 

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Details of the change innet sales compared to the prior year quarter are as follows (in thousands):

 
| ** **                | ** ** | **Amount** | ** ** | **Change %** | ** ** |
|---------------------------|------------|------------|------------|-------------------|------------|
| Net sales growth          |       | $          | 1,806      |              | 18         | % |
| Foreign currency  changes |       | 1,067      |       | 10                | %          |
| Total                     |       | $          | 2,873      |              | 28         | % |

 

The following arefinancial highlights for China for the second quarter of fiscal 2009.  All percentage comparisons to the prior yearexclude the impact of foreign currencies:

 

·      Net salesincreased 18% as a result of our capacity expansion in China and the growth inthe lift truck industry.  Lift truckindustry shipments in China have increased 19% in the current year.  While we believe we have maintained ourmarket share, we are continuing to see increased competition from Chinesecompetitors in the lift truck attachment business.

·      Transfers toother Cascade geographic areas increased during fiscal 2009 due to the exportof Chinese-made products to Europe and Asia Pacific.

·      The grossprofit percentage decreased 3% due to material price increases, changes inproduct mix and higher intercompany transfers, which carry lower gross margins.

·      Selling andadministrative costs increased 33%, due to consulting and other additional coststo support our expanded operations in China. As a percentage of net sales and transfers, selling and administrativecosts remained consistent at 7% during fiscal 2008 and 2009.

 

**Non-Operating Items**

 

The following arefinancial highlights for non-operating items during the second quarter offiscal 2009:

 

·      Interestexpense increased $188,000 during fiscal 2009 primarily due to additionalborrowings as a result of our share repurchase program, our inventory increaseand European operating loss.  This wasoffset by a lower effective interest rate during the current year.

·      The effectivetax rate increased from 33% in the prior year to 38% in the second quarter offiscal 2009.  The change was primarilyrelated to an increase in valuation allowances for pre-tax losses in Europe.  Valuation allowances increased $755,000 and$268,000 in the second quarter of 2009 and 2008, respectively.

 

**LiftTruck Market Outlook**

 

Basedon our review of preliminary industry data we believe the general lift truckmarket outlook for the remainder of fiscal 2009 is as follows:

 

·      The market in North America is expected to bedown 10-15% compared to the prior year, which is consistent with the secondquarter’s shipments.

·      Europe’s shipment levels for the remainder of theyear are expected to be similar or down slightly in comparison with the secondquarter.

·      We expect the growth rate in the Asia Pacificmarket will be consistent with the second quarter.

·      The market in China is expected to grow at a ratesimilar to that experienced in the second quarter of fiscal 2009.

 

Additional information on lift truck industry trendscan be found at www.cascorp.com/investor/industrytrends.  This website address is intended to providean inactive, textual reference only.  Theinformation at this website is not a part of this Form 10-Q and is not incorporatedby reference.

 

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**COMPARISON OF THE FIRST SIX MONTHS OF FISCAL 2009AND FISCAL 2008**

 

**Executive Summary**

 
| ** **                  | ** ** | **Six Months Ended July 31**                     | ** ** | ** ** | ** ** | ** ** | ** ** |
|-----------------------------|------------|----------------------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                  | ** ** | **2008**                                                             | ** ** | **2007**   | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                  | ** ** | **(In thousands except per share amounts)** | ** ** |
|                        |       |                                                                 |       |       |       |       |       |   |   |
| Net sales                   |       | $                                                                    | 299,970    |       | $          | 278,683    |       | $ | 21,287 |   | 8 | % |
| Operating income            |       | $                                                                    | 36,266     |       | $          | 60,836     |       | $ | (24,570 | ) | (40 | )% |
| Net income                  |       | $                                                                    | 21,353     |       | $          | 38,940     |       | $ | (17,587 | ) | (45 | )% |
| Diluted earnings  per share |       | $                                                                    | 1.92       |       | $          | 3.11       |       | $ | (1.19 | ) | (38 | )% |

 

During the first quarterof fiscal 2008 we settled an insurance litigation matter which accounted for a$16 million increase to operating income and a $10 million after tax increaseto net income.  We believe the exclusionof the insurance litigation recovery provides a more appropriate comparisonwith the current year results:

 
| ** **                             | ** ** | **Six Months Ended July 31**                     | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------------------------|------------|----------------------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                             | ** ** | **2008**                                                             | ** ** | **2007**   | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                             | ** ** | **(In thousands except per share amounts)** | ** ** | ** ** | ** ** |
| Net of insurance  litigation recovery: |       |                                                                 |       |       |       |       |       |   |   |
| Operating income                       |       | $                                                                    | 36,266     |       | $          | 44,859     |       | $ | (8,593 | ) | (19 | )% |
| Net income                             |       | $                                                                    | 21,353     |       | $          | 28,914     |       | $ | (7,561 | ) | (26 | )% |
| Diluted earnings  per share            |       | $                                                                    | 1.92       |       | $          | 2.31       |       | $ | (0.39 | ) | (17 | )% |

 

The calculation ofoperating income, net income and diluted earnings per share, excluding theinsurance litigation recovery settlement is as follows (in thousands, exceptper share amounts):

 
| ** **                                                           | ** ** | **Six months ended** | ** ** |
|----------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                           | ** ** | **July 31, 2007**    | ** ** |
|                                                                 |       |                           |       |
| Operating income  as reported                                        |       | $                              | 60,836     |   |
| Less: insurance  litigation recovery                                 |       | (15,977                        | )          |
| Adjusted  operating income, excluding insurance litigation recovery  |       | $                              | 44,859     |   |
|                                                                 |       |                           |       |
| Net income as  reported                                              |       | $                              | 38,940     |   |
| Less: insurance  litigatin recovery, net of income taxes of $5,951   |       | (10,026                        | )          |
| Adjusted net  income, excluding insurance litigation recovery        |       | $                              | 28,914     |   |
|                                                                 |       |                           |       |
| Diluted weighted  average shares outstanding                         |       | 12,513                         |       |
|                                                                 |       |                           |       |
| Diluted earnings  per share, excluding insurance litigation recovery |       | $                              | 2.31       |   |

 

The following arefinancial highlights for the first six months of fiscal 2009:

 

·      During thecurrent year we posted higher levels of consolidated net sales as a result ofthe impact of foreign currency changes and the strength of markets in AsiaPacific, China and Europe.  Net sales,excluding the impact of foreign currencies, increased 1% during fiscal2009.   Global lift truck shipmentsincreased 12% compared to fiscal 2008.

·      Ourconsolidated gross profit percentage decreased to 28% in fiscal 2009 from 32%in fiscal 2008 primarily as a result of significant material price increases experiencedin all geographic segments, production inefficiencies in Europe and lower salesvolumes due to the general downturn in the United States economy.

 

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**NorthAmerica**

 
| ** **                                 | ** ** | **Six Months Ended July 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|--------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                 | ** ** | **2008**                                         | ** ** | **%**      | ** ** | **2007**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                                 | ** ** | **(In thousands)**                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                  |       | $                                                | 139,161    |       | 89         | %          | $          | 145,951 |   | 90 | % | $ | (6,790 | ) | (5 | )% |
| Transfers  between areas                   |       | 17,186                                           |       | 11         | %          | 16,903     |       | 10 | % | 283 |   | 2 | % |
| Net sales and  transfers                   |       | 156,347                                          |       | 100        | %          | 162,854    |       | 100 | % | (6,507 | ) | (4 | )% |
|                                       |       |                                             |       |       |       |       |       |   |   |   |   |   |   |
| Cost of goods  sold                        |       | 107,554                                          |       | 69         | %          | 105,657    |       | 65 | % | 1,897 |   | 2 | % |
| Gross profit                               |       | 48,793                                           |       | 31         | %          | 57,197     |       | 35 | % | (8,404 | ) | (15 | )% |
|                                       |       |                                             |       |       |       |       |       |   |   |   |   |   |   |
| Selling and  administrative                |       | 24,395                                           |       | 16         | %          | 24,875     |       | 15 | % | (480 | ) | (2 | )% |
| Loss (gain) on  disposition of assets, net |       | 139                                              |       | —     |       | (1,194     | )          | (1 | )% | 1,333 |   | — |   |
| Amortization                               |       | 1,184                                            |       | 1          | %          | 1,227      |       | 1 | % | (43 | ) | (4 | )% |
| Insurance  litigation recovery, net        |       | —                                           |       | —     |       | (15,977    | )          | (10 | )% | 15,977 |   | — |   |
| Operating income                           |       | $                                                | 23,075     |       | 15         | %          | $          | 48,266 |   | 30 | % | $ | (25,191 | ) | (52 | )% |

 

Detailsof the change in net sales compared to the prior year are as follows (inthousands):

 
| ** **                | ** ** | **Amount** | ** ** | **Change %** | ** ** |
|---------------------------|------------|------------|------------|-------------------|------------|
| Net sales  decline        |       | $          | (9,745     | )                 | (7         | )% |
| Foreign currency  changes |       | 2,955      |       | 2                 | %          |
| Total                     |       | $          | (6,790     | )                 | (5         | )% |

 

The following arefinancial highlights for North America for the first six months of fiscal2009.  All percentage comparisons to theprior year exclude the impact of foreign currencies:

 

·      Net salesdecreased 7% primarily as a result of lower sales volumes due to the downturnin the lift truck and construction markets. North America lift truck industry shipments from 2008 to 2009 decreased10%.  We have found that lift truckindustry statistics provide an indication of the direction of our businessactivity.  However, changes in our netsales do not correspond directly to the percentage changes in lift truckindustry shipments, because certain industry sectors of the economy use ourproducts more than others.

·      Our grossprofit percentage decreased 4% during fiscal 2009, due to higher materialcosts, changes in product mix, lower sales volumes and other cost increases.

·      Selling andadministrative costs decreased 4% during the current year due to a reduction inpersonnel, consulting and other general costs.

·      During thesecond quarter of fiscal 2008, we realized a $1.1 million pre-tax gain on thesale of land in Fairview, Oregon.

·      During thefirst quarter of fiscal 2008, we entered into a settlement agreement withEmployers Reinsurance Corporation with respect to litigation to recover variousexpenses incurred in connection with environmental and relatedproceedings.  The recovery from thissettlement was $16.0 million, net of expenses.

 

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**Europe**

 
| ** **                                 | ** ** | **Six Months Ended July 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|--------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                 | ** ** | **2008**                                         | ** ** | **%**      | ** ** | **2007**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                                 | ** ** | **(In thousands)**                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                  |       | $                                                | 97,760     |       | 99         | %          | $          | 85,022 |   | 99 | % | $ | 12,738 |   | 15 | % |
| Transfers  between areas                   |       | 1,024                                            |       | 1          | %          | 697        |       | 1 | % | 327 |   | 47 | % |
| Net sales and  transfers                   |       | 98,784                                           |       | 100        | %          | 85,719     |       | 100 | % | 13,065 |   | 15 | % |
|                                       |       |                                             |       |       |       |       |       |   |   |   |   |   |   |
| Cost of goods  sold                        |       | 83,778                                           |       | 85         | %          | 70,190     |       | 82 | % | 13,588 |   | 19 | % |
| Gross profit                               |       | 15,006                                           |       | 15         | %          | 15,529     |       | 18 | % | (523 | ) | (3 | )% |
|                                       |       |                                             |       |       |       |       |       |   |   |   |   |   |   |
| Selling and  administrative                |       | 15,625                                           |       | 16         | %          | 12,541     |       | 15 | % | 3,084 |   | 25 | % |
| Loss (gain) on  disposition of assets, net |       | (15                                              | )          | —     |       | 8          |       | — |   | (23 | ) | — |   |
| Amortization                               |       | 158                                              |       | —     |       | 414        |       | — |   | (256 | ) | (62 | )% |
| Operating income  (loss)                   |       | $                                                | (762       | )          | (1         | )%         | $          | 2,566 |   | 3 | % | $ | (3,328 | ) | (130 | )% |

 

Detailsof the change in net sales compared to the prior year are as follows (inthousands):

 
| ** **                | ** ** | **Amount** | ** ** | **Change %** | ** ** |
|---------------------------|------------|------------|------------|-------------------|------------|
| Net sales growth          |       | $          | 1,381      |              | 2          | % |
| Foreign currency  changes |       | 11,357     |       | 13                | %          |
| Total                     |       | $          | 12,738     |              | 15         | % |

 

The following summarizesthe financial results for Europe for the first six months of fiscal 2009.  All percentage comparisons to the prior yearexclude the impact of foreign currencies:

 

·      Net salesincreased 2%, primarily due to increased shipment volumes in the first quarterof fiscal 2009, which reflected growth in the European lift truck market.  During the second quarter net sales were downslightly.   Lift truck industry shipmentsfor the same period increased 15%.  Givencurrent industry statistics, we may have lost some market share in Europe.  Delivery delays also factored into our lowersales.

·      The 3%decrease in current year gross profit percentage is primarily due to material priceincreases and operational inefficiencies. The gross margin was also negatively affected by delays in approval ofChinese-made products by European OEMs.  These delays required us tocontinue supplying OEMs with European-made products at lower margins.

·      Selling andadministrative expenses increased 11%, because of higher marketing, personneland other general costs.   Included inthis increase is approximately $490,000 of costs related to our Europeanreorganization.

 

**AsiaPacific**

 
| ** **                          | ** ** | **Six Months Ended July 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|-------------------------------------|------------|--------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                          | ** ** | **2008**                                         | ** ** | **%**      | ** ** | **2007**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                          | ** ** | **(In thousands)**                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                           |       | $                                                | 38,040     |       | 100        | %          | $          | 28,886 |   | 100 | % | $ | 9,154 |   | 32 | % |
| Transfers  between areas            |       | 146                                              |       | —     |       | 98         |       | — |   | 48 |   | 49 | % |
| Net sales and  transfers            |       | 38,186                                           |       | 100        | %          | 28,984     |       | 100 | % | 9,202 |   | 32 | % |
|                                |       |                                             |       |       |       |       |       |   |   |   |   |   |   |
| Cost of goods  sold                 |       | 28,581                                           |       | 75         | %          | 21,805     |       | 75 | % | 6,776 |   | 31 | % |
| Gross profit                        |       | 9,605                                            |       | 25         | %          | 7,179      |       | 25 | % | 2,426 |   | 34 | % |
|                                |       |                                             |       |       |       |       |       |   |   |   |   |   |   |
| Selling and  administrative         |       | 4,798                                            |       | 12         | %          | 4,003      |       | 14 | % | 795 |   | 20 | % |
| Gain on  disposition of assets, net |       | (14                                              | )          | —     |       | (17        | )          | — |   | 3 |   | — |   |
| Operating income                    |       | $                                                | 4,821      |       | 13         | %          | $          | 3,193 |   | 11 | % | $ | 1,628 |   | 51 | % |

 

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Detailsof the change in net sales compared to the prior year are as follows (inthousands):

 
| ** **                | ** ** | **Amount** | ** ** | **Change %** | ** ** |
|---------------------------|------------|------------|------------|-------------------|------------|
| Net sales growth          |       | $          | 6,731      |              | 23         | % |
| Foreign currency  changes |       | 2,423      |       | 9                 | %          |
| Total                     |       | $          | 9,154      |              | 32         | % |

 

The following arefinancial highlights for Asia Pacific for the first six months of fiscal2009.  All percentage comparisons to theprior year exclude the impact of foreign currencies:

 

·      Net salesincreased 23% due to higher shipping volumes as a result of strong lift truckmarkets and the production of additional products in China for sale in thisregion. Lift truck industry shipments in Asia Pacific increased 14% in fiscal2009 compared to fiscal 2008.

·      Our grossprofit percentage in Asia Pacific remained consistent at 25%.  The benefits of sourcing lower cost productfrom China were offset by increased sales of lower margin products.

·      Selling andadministrative costs increased 9% due to higher personnel, marketing, and othergeneral costs.  However, as a percentageof net sales and transfers, selling and administrative costs decreased from 14%in fiscal 2008 to 12% in fiscal 2009.

 

**China**

 
| ** **                          | ** ** | **Six Months Ended July 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|-------------------------------------|------------|--------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                          | ** ** | **2008**                                         | ** ** | **%**      | ** ** | **2007**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                          | ** ** | **(In thousands)**                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                           |       | $                                                | 25,009     |       | 66         | %          | $          | 18,824 |   | 74 | % | $ | 6,185 |   | 33 | % |
| Transfers between  areas            |       | 12,831                                           |       | 34         | %          | 6,559      |       | 26 | % | 6,272 |   | 96 | % |
| Net sales and  transfers            |       | 37,840                                           |       | 100        | %          | 25,383     |       | 100 | % | 12,457 |   | 49 | % |
|                                |       |                                             |       |       |       |       |       |   |   |   |   |   |   |
| Cost of goods  sold                 |       | 26,195                                           |       | 69         | %          | 16,773     |       | 66 | % | 9,422 |   | 56 | % |
| Gross profit                        |       | 11,645                                           |       | 31         | %          | 8,610      |       | 34 | % | 3,035 |   | 35 | % |
|                                |       |                                             |       |       |       |       |       |   |   |   |   |   |   |
| Selling and  administrative         |       | 2,478                                            |       | 7          | %          | 1,767      |       | 7 | % | 711 |   | 40 | % |
| Loss on  disposition of assets, net |       | 35                                               |       | —     |       | 31         |       | — |   | 4 |   | — |   |
| Amortization                        |       | —                                           |       | —     |       | 1          |       | — |   | (1 | ) | — |   |
| Operating income                    |       | $                                                | 9,132      |       | 24         | %          | $          | 6,811 |   | 27 | % | $ | 2,321 |   | 34 | % |

 

Detailsof the change in net sales compared to the prior year are as follows (inthousands):

 
| ** **                | ** ** | **Amount** | ** ** | **Change %** | ** ** |
|---------------------------|------------|------------|------------|-------------------|------------|
| Net sales growth          |       | $          | 4,313      |              | 23         | % |
| Foreign currency  changes |       | 1,872      |       | 10                | %          |
| Total                     |       | $          | 6,185      |              | 33         | % |

 

The following arefinancial highlights for China for the first six months of fiscal 2009.  All percentage comparisons to the prior yearexclude the impact of foreign currencies:

 

·      Net salesincreased 23% as a result of our capacity expansion in China and the growth inthe lift truck industry.  Lift truckindustry shipments in China have increased 23% in the current year.

·      Transfers toother Cascade geographic areas increased during fiscal 2009, due to the exportof Chinese-made products to Europe and Asia Pacific.

·      The grossprofit percentage decreased 3% due to material price increases, changes inproduct mix and higher intercompany transfers, which carry lower gross margins.

·      Selling andadministrative costs increased 30%, due to consulting and other additionalcosts to support our expanded operations in China.  As a percentage of net sales and transfers,selling and administrative costs remained consistent at 7% during fiscal 2008and 2009.

 

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**Non-Operating Items**

 

The following arefinancial highlights for non-operating items during the first six months offiscal 2009:

 

·      Interestexpense increased $324,000 during fiscal 2009 primarily due to additionalborrowings as a result of our share repurchase program, our inventory increaseand European operating loss.  This wasoffset by a lower effective interest rate during the current year.

·      The effectivetax rate in the first six months of fiscal 2009 increased from 34% in the prioryear to 37% in the second quarter of fiscal 2009.  The change was primarily related to anincrease in valuation allowances for losses in Europe.  Valuation allowances increased $1.2 millionand $855,000 in the first six months of 2009 and 2008, respectively.

 

**CASHFLOWS**

 

Thestatements of cash flows reflect the changes in cash and cash equivalents forthe six months ended July 31, 2008 and July 31, 2007 by classifyingtransactions into three major categories of activities: operating, investingand financing.

 

**Operating**

 

Our primary source ofliquidity is cash generated from operating activities. The major operatingactivity is net income adjusted for changes in working capital and non-cashoperating items such as depreciation, amortization and share-basedcompensation.

 

Net cash provided byoperating activities decreased $11.1 million during the first six months offiscal 2009 compared to the prior year. The following are the major differences between the current and prioryear operating activities:

 

·      During fiscal2008, net income was significantly higher due to the insurance litigationsettlement and land sale gain.

·      Inventoriesincreased at a faster rate during fiscal 2009 due to material price increasesand large volumes of raw materials purchased ahead of scheduled priceincreases.

·      Accountsreceivable increased at a slower rate during the current year due in part toour emphasis on collections.

 

**Investing**

 

Our primary investingactivity is capital expenditures, which are primarily for equipment and toolingrelated to product improvements, more efficient production methods andreplacement for normal wear and tear. Capital expenditures by geographicsegments were as follows (in thousands):

 
| ** **    | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **    | ** ** | **July 31**                 | ** ** | **July 31**               | ** ** |
| ** **    | ** ** | **2008**                         | ** ** | **2007**                       | ** ** | **2008** | ** ** | **2007** | ** ** |
|          |       |                             |       |                           |       |   |   |   |   |
| North America |       | $                                | 1,859      |                           | $          | 1,947 |   | $ | 3,405 |   | $ | 3,501 |   |
| Europe        |       | 2,330                            |       | 543                            |       | 3,582 |   | 1,361 |   |
| Asia Pacific  |       | 707                              |       | 262                            |       | 905 |   | 449 |   |
| China         |       | 1,240                            |       | 1,105                          |       | 2,147 |   | 3,795 |   |
|          |       | $                                | 6,136      |                           | $          | 3,857 |   | $ | 10,039 |   | $ | 9,106 |   |

 

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The following areinvesting activity highlights during the first six months of fiscal 2009 and2008:

 

·      China’scapital expenditures in fiscal 2008 relate primarily to the completion of twonew manufacturing facilities.  China’scapital expenditures in fiscal 2009 relate to equipment upgrades and theinitial work on a building to manufacture construction attachments.

·      The increasein capital expenditures in Europe during the current year relates primarily tocosts associated with the future introduction of new products and moreefficient production methods.

·      Capitalexpenditures in North America during fiscal 2009 is consistent with the prioryear.  The majority of these costs relateto equipment and tooling replacements.

·      We expectcapital expenditures for the remainder of fiscal 2009 to be approximately $8million.  We believe this level ofcapital expenditures is sufficient to meet operational requirements.

·      During thesecond quarter of fiscal 2008 we purchased 100% of the stock of AmericanCompaction Equipment, Inc., a manufacturer of construction attachmentslocated in San Juan Capistrano, California for $11.5 million, net of assumedliabilities.

 

**Financing**

 

The following are majorfinancing activities during the first six months of fiscal 2009 and fiscal2008:

 

·      Duringfiscal 2009, net borrowings made against our long-term debt and notes payablewere $8.8 million, compared to net payments of $1.3 million during fiscal2008.  The additional borrowings in thecurrent year are a result of the inventory increase, European operating lossand overall increase in our cash balance of $6.7 million.

·      Weconcluded our share repurchase program at the beginning of the first quarter offiscal 2009.  In total, we repurchased2,435,000 shares of common stock for $130 million over 18 months.

·      Wedeclared dividends of $0.38 and $0.34 per share during the first six months offiscal 2009 and 2008, respectively.

·      Theissuance of common stock related to the exercise of share-based awardsgenerated $130,000 and $3.8 million of cash for the first six months of fiscal2009 and 2008, respectively.

 

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**FINANCIAL CONDITION AND LIQUIDITY**

 

The following arehighlights regarding our financial condition and liquidity for the first sixmonths of fiscal 2009:

 

·      Our workingcapital, defined as current assets less current liabilities, increased from$152.0 million at January 31, 2008 to $180.2 million at July 31,2008, primarily due to increases in inventory, cash and accounts receivable.

·      Our currentratio increased from 3.4 to 1 at January 31, 2008 to 3.8 to 1 at July 31,2008 due to increased inventory, cash and accounts receivable.

·      Total outstandingdebt, including notes payable to banks, increased from $110.7 million at January 31,2008 to $119.5 million at July 31, 2008.

·      Borrowingarrangements currently in place with commercial banks provide lines of credittotaling $147.5 million, of which $113.5 million was outstanding and anadditional $3.7 million was used to issue letters of credit at July 31,2008.  The borrowings available under theline of credit decreases $1.25 million quarterly through the debt expirationdate of December 7, 2011.  Theinterest rate on the lines of credit, which is currently based on LIBOR plus amargin of 1%, was 3.50% and 4.66% at July 31, 2008 and January 31,2008, respectively. The lines of credit contain certain covenants relating tonet worth and leverage ratios.  We werein compliance with these covenants at July 31, 2008.

·      Borrowingsunder notes payable to banks, which includes bank overdrafts and short-termlines of credit, decreased $459,000 from January 31, 2008 to July 31,2008.  The average interest rate on thesenotes was 3.5% and 4.3% at July 31, 2008 and January 31, 2008,respectively.

·      Our currentplans are to fund our existing postretirement obligation as costs areincurred.  Any defined benefitobligations will be funded to meet minimum statutory funding requirements orany additional funding requirements which we have committed to in specific planagreements.  Currently, these additionalfunding requirements are limited to annual contributions of $400,000 throughfiscal year 2011 to a defined benefit plan in England.

·      We believe ourcash and cash equivalents, existing credit facilities and cash flows fromoperations will be sufficient to satisfy our expected working capital, capitalexpenditure and debt retirement requirements for the next twelve months.

 

**OTHER MATTERS**

 

TheU.S. dollar weakened in the first six months of fiscal 2009 in comparison tosome foreign currencies used by our significant foreign operations, includingthe Euro and Chinese Yuan.  The U.S.dollar strengthened slightly in the first six months of fiscal 2009 compared tothe Canadian Dollar and British Pound. As a result, foreign currency translation adjustments increasedshareholders’ equity by $2.1 million in the first six months of fiscal 2009.

 

**CRITICALACCOUNTING POLICIES AND ESTIMATES**

 

Management’s discussion and analysis of financialcondition and results of operations is based on our consolidated financialstatements which have been prepared in accordance with generally acceptedaccounting principles in the United States of America (GAAP).  The preparation of these financial statementsrequires us to make estimates and judgments that affect the reported amounts ofassets, liabilities, revenues and expenses and the disclosure of contingentassets and liabilities.  We evaluate ourestimates and judgments on an on-going basis, including those related touncollectible receivables, inventories, impairment of goodwill, warrantyobligations, environmental liabilities, benefit plans, share-based compensationand deferred taxes.  We base ourestimates on historical experience and various other assumptions that webelieve to be reasonable under the circumstances.  Actual results may differ from these estimatesunder different assumptions or conditions. A description of our critical accounting policies and related judgmentsand estimates that affect the preparation of our consolidated financialstatements is set forth in our Annual Report on Form 10-K for the yearended January 31, 2008.

 

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**OFF BALANCE SHEET ARRANGEMENTS**

 

At July 31,2008, we did not have any relationships with unconsolidated entities orfinancial partnerships, such as entities often referred to as structuredfinance or special purpose entities, which would have been established for thepurpose of facilitating off-balance sheet arrangements or for othercontractually narrow or limited purposes. As such, we are not materiallyexposed to any financing, liquidity market or credit risk that could arise ifwe had engaged in such relationships.

 

**RECENT ACCOUNTING PRONOUNCEMENTS**

** **

****SFAS 157****- In September 2006,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 157 (SFAS 157), “Fair ValueMeasurements.” SFAS 157 provides a common definition of fair value, establishesa framework for measuring fair value and expands the related disclosurerequirements.  In February 2008, theFASB issued final Staff Positions that will (1) defer the effective dateof this statement for one year for certain nonfinancial assets and nonfinancialliabilities and (2) remove certain leasing transactions from the scope ofthe statement.  We applied SFAS 157 toall other fair value measurements effective February 1, 2008.  The adoption of SFAS 157 did not have amaterial impact on our financial statements.

 

**FSP157-2** –** **In February 2008,the FASB issued FASB Staff Position on Statement 157, “Effective Date of FASBStatement No. 157” (FSP 157-2).  FSP 157-2 delays the effectivedate of SFAS 157 for nonfinancial assets and nonfinancial liabilities, exceptthose that are recognized or disclosed on a recurring basis, to fiscal yearsbeginning after November 15, 2008.  Our significant nonfinancialassets and liabilities that could be impacted by this deferral include assetsand liabilities initially measured at fair value in a business combination andgoodwill tested annually for impairment.  FSP 157-2 will become effectivefor the fiscal year beginning February 1, 2009.  We are currently evaluating the impact of theadoption of FSP 157-2 on our financial statements.

** **

****SFAS 159****- In February 2007,the FASB issued SFAS No. 159 (SFAS 159), “The Fair Value Option forFinancial Assets and Financial Liabilities - Including an Amendment of FASBStatement No. 115.” SFAS 159 allows companies the choice to measure manyfinancial instruments and certain other items at fair value. Application ofSFAS 159 was required for our financial statements beginning February 1,2008.  The adoption of SFAS 159 did nothave a material impact on our financial statements.

 

****SFAS 141(R) & SFAS 160****–In December 2007, the FASB issued SFAS No. 141(R) (SFAS 141(R)),“Business Combinations,” and SFAS No. 160 (SFAS 160), “NoncontrollingInterests in Consolidated Financial Statements, an amendment of ARB No. 51”.SFAS 141(R) requires the acquiring entity in a business combination torecognize the assets acquired and liabilities assumed. Further, SFAS 141(R) alsochanges the accounting for acquired in-process research and development assets,contingent consideration, partial acquisitions and transactioncosts.  Under SFAS 160, all entities are required to reportnoncontrolling (minority) interests in subsidiaries as equity in theconsolidated financial statements. In addition, transactions between an entityand noncontrolling interests will be treated as equity transactions.  SFAS 141(R) and SFAS 160 will becomeeffective for business combinations for which the acquisition date is on orafter February 1, 2009.  We arecurrently evaluating the impact of the adoption of these standards on ourfinancial statements.

 

**SFAS161** – In March 2008, the FASB issued SFAS No. 161(SFAS 161), “Disclosures about Derivative Instruments and Hedging Activities –an amendment of FASB Statement No. 133.” SFAS 161 expands disclosures forderivative instruments by requiring entities to disclose the fair value ofderivative instruments and their gains or losses in tabularformat.  SFAS 161 also requires disclosure of information aboutcredit risk-related contingent features in derivative agreements, counterpartycredit risk, and strategies and objectives for using derivativeinstruments.   SFAS 161 will become effective for fiscal yearsbeginning after November 15, 2008.  We will adopt this newaccounting standard on February 1, 2009.  We are currently evaluatingthe impact of the adoption of this standard on our financial statements.

 

**SFAS162**–** **In May 2008,the FASB issued** **SFAS No. 162(SFAS 162), “The Hierarchy of Generally Accepted Accounting Principles.” SFAS162 identifies the sources of accounting principles and the framework forselecting the principles to be used in the preparation of financial statementsof nongovernmental entities that are presented in conformity with generallyaccepted accounting principles in the United States. SFAS 162 will becomeeffective 60 days following the SEC’s approval of the Public Company AccountingOversight Board amendments to AU Section 411, “The Meaning of PresentFairly in Conformity With Generally Accepted Accounting Principles.”  Wedo not expect any changes to our financial accounting and reporting as a resultof the adoption of this standard.

 

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**Item 3.Quantitative and Qualitative Disclosures About Market Risk**

** **

Market risk is thepotential loss arising from adverse changes in market rates and prices, such asforeign currency exchange rate and interest rate fluctuations. A significantportion of our net sales and expenses are denominated in foreign currencies. Asa result, our operating results could become subject to significantfluctuations based upon changes in the exchange rates of the foreign currenciesin relation to the U.S. dollar.

 

The table belowillustrates the hypothetical increase in net sales for the second quarter offiscal 2009 resulting from a 10% weaker U.S. dollar during the quarter,measured against foreign currencies that affect our operations (in millions):

 
| Euro                                                          |   | $   | 3.8    |   |
|---------------------------------------------------------------|--------|-----|--------|--------|
| Chinese  yuan                                                 |   | 1.3 |   |
| British  pound                                                |   | 0.9 |   |
| Japanese  yen                                                 |   | 0.8 |   |
| Canadian  dollar                                              |   | 0.7 |   |
| Other  currencies (representing 9% of consolidated net sales) |   | 1.3 |   |

 

A 10% weaker U.S. dollar during the quarter, measuredagainst foreign currencies that affect our operations, would have increased ouroperating income by $1.4 million.  Themajority of this increase would be the result of the Chinese yuan ($587,000)and Canadian dollar ($577,000).

 

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, Chinese yuan, Swedishkrona and British pounds. Our foreign currency forward exchange contracts haveterms lasting up to six months, but generally less than one month. We do notenter into derivatives or other financial instruments for trading orspeculative purposes.

 

A majority of our products are manufactured usingsteel as the primary raw material and steel based components as purchasedparts. As such, our cost of goods sold is sensitive to fluctuations in steelprices, either directly through the purchase of steel as raw material orindirectly through the purchase of steel based components.  Presuming that the full impact of commoditysteel cost increases is reflected in all steel and steel based componentpurchases, we estimate our gross profit percentage sensitivity to beapproximately 0.3% for each 1.0% increase in commodity steel cost withoutoffsetting sales price increases.  Basedon our statement of income for the quarter ended July 31, 2008, a 1%increase in commodity steel costs would have decreased consolidated grossprofit by approximately $430,000.

 

During the second quarter of fiscal 2009, we continuedto experience increases in prices for steel and steel components, whichcomprise approximately 40% of our total product cost.  We have continued to move aggressively tooffset these increases through a variety of means, including sales priceincreases, cost reduction activities and alternative sourcing arrangements.  Unfortunately, we have been unable tomitigate the full impact of the material cost increases, thus resulting in someerosion of gross profit.

 

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 have experienced some delays inobtaining certain raw materials and components, but the impact on ouroperations to date has not been significant. We are currently obtaining alternative sourcing arrangements for theseitems.

 

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Item 4. Controls andProcedures

 

*Evaluationof Disclosure Controls and 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.

 

*Changesin Internal Control Over Financial Reporting*

* *

There has been no change in the internal control overfinancial reporting that occurred during the three months ended July 31,2008 that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

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**PART II—OTHER INFORMATION**

** **

**Item 1. Legal Proceedings**

** **

None

 

**Item 1A. Risk Factors**

** **

There are no material changes from risk factorspreviously disclosed in our Form 10-K for the year ended January 31,2008.

 

**Item 2. Unregistered Sales of Equity Securities andUse of Proceeds**

** **

None

 

**Item 3. Defaults Upon Senior Securities**

** **

**None**

** **

**Item 4. Submission of Matters to a Vote of SecurityHolders**

** **

At our Annual Meeting of Shareholders held June 3,2008, the following matters were submitted to a vote of common shareholders:

 

Election of directors toterms expiring in 2011

 
| **Nominee**                 | ** ** | **Votes for** | ** ** | **Votes Withheld** | ** ** |
|-----------------------------|------------|--------------------|------------|-------------------------|------------|
| Peter  D. Nickerson         |       | 9,016,847          |       | 71,041                  |       |
| Robert  C. Warren, Jr. |       | 8,988,392          |       | 99,496                  |       |
| Henry  W. Wessinger II      |       | 8,662,316          |       | 425,572                 |       |

** **

The following individuals continue to serve asdirectors:

 
| **Director**                | ** ** | **Term Expires** | ** ** |
|-----------------------------|------------|-----------------------|------------|
| Duane  C. McDougall         |       | 2009                  |       |
| James  S. Osterman          |       | 2009                  |       |
| Nicholas  R. Lardy, Ph.D    |       | 2010                  |       |
| Nancy  A. Wilgenbusch, Ph.D |       | 2010                  |       |

 

Shareholder Proposals

 
| **Proposal**                                                                                                                                                                          | ** ** | **Votes for** | ** ** | **Votes Against** | ** ** | **Abstain** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|------------------------|------------|-------------|------------|
| Proposal  to approve an amendment to Cascade Corporation’s Articles of Incorporation  increasing the number of authorized shares of common stock from 20,000,000 to  40,000,000. |       | 7,795,711          |       | 1,289,716              |       | 2,460       |       |
|                                                                                                                                                                                  |       |               |       |                   |       |        |       |
| Proposal  to ratify the appointment of PricewaterhouseCoopers LLP as the independent  registered public accounting firm for the fiscal year ending January 31,  2009.            |       | 9,019,206          |       | 66,718                 |       | 1,963       |       |

 

**Item 5.Other Information**

** **

None

 

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**Item 6. Exhibits**

** **

The following exhibits are included with this report:

 
| **Exhibit No.** | ** ** | **Description**                                                                                                 |
|----------------------|------------|-----------------------------------------------------------------------------------------------------------------|
| 3.1                  |       | Restated  Articles of Incorporation.                                                                            |
| 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 5,  2008 |     |                                                                    |
|                    |     |                                                                    |
|                    |     | /s/ JOSEPH G. POINTER                                                   |
|                    |     | Joseph G. Pointer                                                       |
|                    | * * | *Chief Financial Officer  (Principal Financial and Accounting Officer)* |

 

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**EXHIBIT INDEX**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                 |
|----------------------|------------|-----------------------------------------------------------------------------------------------------------------|
| 3.1                  |       | Restated Articles  of Incorporation.                                                                            |
| 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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