**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

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**FORM 10-Q**

 

| **(Mark One)** |
|----------------|
| **ý**     | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |

 

**For theQuarterly Period Ended April 30, 2003**

 

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

 

**For thetransition period from             to             **

 

**Commissionfile number 1-12557**

 

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| **CASCADE CORPORATION**                                                           |
|-----------------------------------------------------------------------------------|
| (Exact name of  registrant as specified in its charter)                           |
|                                                                              |
| **Oregon**                                                                        |   | **93-0136592** |
| (State or other  jurisdiction of  incorporation or organization)                  |   | (I.R.S. Employer  Identification No.) |
|                                                                              |
| **2201  N.E. 201st Ave.  Fairview, Oregon**                                       |   | **97024-9718** |
| (Address of principal  executive office)                                          |   | (Zip Code) |
|                                                                              |
| Registrant’s telephone  number, including area code: **(503) 669-6300** |

 

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Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past90 days.  Yes  ý  No  o

 

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

 

The number of shares outstanding of the registrant’scommon stock as of June 3, 2003 was 11,998,300.

 

 

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**PARTI—FINANCIAL INFORMATION**

 

**Item 1. Financial Statements**

 

**CASCADECORPORATIONCONSOLIDATED BALANCE SHEET(in thousands, except per share data)**

 
|                                                                                                     |   | **April 30  2003** |    | **January 31  2003** |       |
|----------------------------------------------------------------------------------------------------------|--------|--------------------|---------|----------------------|------------|
|                                                                                                     |   | **(unaudited)**    |    |                 | ** ** |
| **ASSETS**                                                                                               |   |               |    |                 |       |
| Current assets:                                                                                          |   |               |    |                 |       |
| Cash                                                                                                     |   | $                  | 24,982  |                 | $          | 29,501 |   |
| Marketable securities                                                                                    |   | 5,503              |    | —               |       |
| Accounts receivable, less allowance for doubtful accounts  of $1,687 and $1,801                          |   | 51,941             |    | 42,784               |       |
| Inventories                                                                                              |   | 30,155             |    | 30,431               |       |
| Deferred income taxes                                                                                    |   | 2,267              |    | 2,188                |       |
| Income taxes receivable                                                                                  |   | 2,082              |    | 3,727                |       |
| Notes receivable, current portion                                                                        |   | 1,120              |    | 1,088                |       |
| Prepaid expenses and other                                                                               |   | 3,221              |    | 4,279                |       |
| Total current assets                                                                                     |   | 121,271            |    | 113,998              |       |
| Property, plant and equipment, net                                                                       |   | 68,528             |    | 65,863               |       |
| Goodwill                                                                                                 |   | 63,444             |    | 59,355               |       |
| Notes receivable, net                                                                                    |   | 8,286              |    | 8,559                |       |
| Deferred income taxes                                                                                    |   | 11,710             |    | 11,627               |       |
| Other assets                                                                                             |   | 3,082              |    | 2,915                |       |
| Total assets                                                                                             |   | $                  | 276,321 |                 | $          | 262,317 |   |
|                                                                                                     |   |               |    |                 |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                           |   |               |    |                 |       |
| Current liabilities:                                                                                     |   |               |    |                 |       |
| Notes payable to banks                                                                                   |   | $                  | 925     |                 | $          | 1,043 |   |
| Current portion of long-term debt                                                                        |   | 12,695             |    | 12,695               |       |
| Accounts payable                                                                                         |   | 15,951             |    | 13,763               |       |
| Accrued payroll and payroll taxes                                                                        |   | 5,843              |    | 5,687                |       |
| Accrued environmental expenses                                                                           |   | 808                |    | 808                  |       |
| Other accrued expenses                                                                                   |   | 11,470             |    | 8,801                |       |
| Total current liabilities                                                                                |   | 47,692             |    | 42,797               |       |
| Long-term debt                                                                                           |   | 49,987             |    | 50,113               |       |
| Accrued environmental expenses                                                                           |   | 9,214              |    | 9,389                |       |
| Deferred income taxes                                                                                    |   | 1,311              |    | 1,226                |       |
| Other liabilities                                                                                        |   | 6,141              |    | 5,514                |       |
| Total liabilities                                                                                        |   | 114,345            |    | 109,039              |       |
|                                                                                                     |   |               |    |                 |       |
| Exchangeable convertible preferred stock and minority  interest                                          |   | 4,265              |    | 8,530                |       |
| Shareholders’ equity:                                                                               |   |               |    |                 |       |
| Common stock, $.50 par value, 20,000 authorized shares;  11,698 and 11,398 shares issued and outstanding |   | 5,849              |    | 5,699                |       |
| Additional paid-in capital                                                                               |   | 5,583              |    | 1,468                |       |
| Retained earnings                                                                                        |   | 156,099            |    | 151,925              |       |
| Accumulated other comprehensive loss:                                                                    |   |               |    |                 |       |
| Cumulative foreign currency translation adjustments                                                      |   | (9,820             | )       | (14,344              | )          |
| Total shareholders’ equity                                                                          |   | 157,711            |    | 144,748              |       |
| Total liabilities and shareholders’ equity                                                          |   | $                  | 276,321 |                 | $          | 262,317 |   |

 

The accompanying notesare an integral part of this statement.

 

2

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**CASCADECORPORATION**

**CONSOLIDATEDSTATEMENT OF INCOME**

 

**(unaudited—inthousands, except per share data)**

 
|                                             |   | **Three  Months  Ended April 30** |   |
|--------------------------------------------------|--------|----------------------------------------|--------|
|                                             |   | **2003**                               |   | **2002** | ** ** |
| Net sales                                        |   | $                                      | 68,934 |   | $ | 59,942 |   |
| Cost of goods sold                               |   | 46,223                                 |   | 38,879 |   |
| Gross profit                                     |   | 22,711                                 |   | 21,063 |   |
|                                             |   |                                   |   |   |   |
| Selling and administrative expenses              |   | 14,649                                 |   | 13,303 |   |
|                                             |   |                                   |   |   |   |
| Operating income                                 |   | 8,062                                  |   | 7,760 |   |
|                                             |   |                                   |   |   |   |
| Interest expense                                 |   | (1,160                                 | )      | (1,465 | ) |
| Interest income                                  |   | 268                                    |   | 374 |   |
| Other income (expense), net                      |   | 732                                    |   | (177 | ) |
|                                             |   |                                   |   |   |   |
| Income before provision for income taxes         |   | 7,902                                  |   | 6,492 |   |
| Provision for income taxes                       |   | 2,529                                  |   | 2,272 |   |
| Net income                                       |   | 5,373                                  |   | 4,220 |   |
|                                             |   |                                   |   |   |   |
| Dividends paid on preferred shares of subsidiary |   | (30                                    | )      | — |   |
| Net income applicable to common shareholders     |   | $                                      | 5,343  |   | $ | 4,220 |   |
|                                             |   |                                   |   |   |   |
| Basic earnings per share                         |   | $                                      | 0.46   |   | $ | 0.37 |   |
| Diluted earnings per share                       |   | $                                      | 0.44   |   | $ | 0.35 |   |
|                                             |   |                                   |   |   |   |
| Basic weighted average shares outstanding        |   | 11,588                                 |   | 11,292 |   |
| Diluted weighted average shares outstanding      |   | 12,147                                 |   | 12,209 |   |

 

The accompanying notesare an integral part of this statement.

 

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**CASCADECORPORATIONCONSOLIDATED STATEMENT OF CASH FLOWS(unaudited—in thousands)**

 
|                                                                                            |   | **Three  Months Ended  April 30** | ** ** |
|-------------------------------------------------------------------------------------------------|--------|----------------------------------------|------------|
|                                                                                            |   | **2003**                               |       | **2002** | ** ** |
|                                                                                            |   |                                   |       |   |   |
| Cash flows from  operating activities:                                                          |   |                                   |       |   |   |
| Net income                                                                                      |   | $                                      | 5,373      |   | $ | 4,220 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities:              |   |                                   |       |   |   |
| Depreciation and  amortization                                                                  |   | 2,895                                  |       | 2,494 |   |
| Deferred income  taxes                                                                          |   | (77                                    | )          | — |   |
| Loss (gain) on  disposition of assets                                                           |   | (104                                   | )          | 93 |   |
| Changes in  operating assets and liabilities, net of effects of acquisitions and  dispositions: |   |                                   |       |   |   |
| Accounts  receivable                                                                            |   | (7,583                                 | )          | (5,421 | ) |
| Inventories                                                                                     |   | 878                                    |       | 275 |   |
| Prepaid expenses  and other                                                                     |   | 1,584                                  |       | (1,314 | ) |
| Accounts payable  and accrued expenses                                                          |   | 1,295                                  |       | 4,852 |   |
| Accrued  environmental expenses                                                                 |   | (175                                   | )     | (211 | ) |
| Other  liabilities                                                                              |   | 3,008                                  |       | 125 |   |
| Net cash  provided by operating activities                                                      |   | 7,094                                  |       | 5,113 |   |
| Cash flows from  investing activities:                                                          |   |                                   |       |   |   |
| Capital  expenditures                                                                           |   | (3,088                                 | )          | (720 | ) |
| Proceeds from  sale of assets                                                                   |   | 577                                    |       | — |   |
| Business  acquisitions                                                                          |   | (3,585                                 | )          | — |   |
| Purchase of  marketable securities                                                              |   | (5,503                                 | )          | (4,500 | ) |
| Other assets                                                                                    |   | 405                                    |       | 2 |   |
| Net cash used in  investing activities                                                          |   | (11,194                                | )          | (5,218 | ) |
| Cash flows from  financing activities:                                                          |   |                                   |       |   |   |
| Payments on  long-term debt                                                                     |   | (126                                   | )          | (201 | ) |
| Notes payable to  banks, net                                                                    |   | (118                                   | )          | 35 |   |
| Repurchase of  common stock                                                                     |   | —                                 |       | 37 |   |
| Cash dividends  paid                                                                            |   | (1,199                                 | )          | — |   |
| Net cash used in  financing activities                                                          |   | (1,443                                 | )          | (129 | ) |
| Effect of  exchange rate changes                                                                |   | 1,024                                  |       | 964 |   |
| Increase  (decrease) in cash and cash equivalents                                               |   | (4,519                                 | )          | 730 |   |
| Cash and cash  equivalents at beginning of year                                                 |   | 29,501                                 |       | 25,611 |   |
| Cash and cash  equivalents at end of period                                                     |   | $                                      | 24,982     |   | $ | 26,341 |   |
|                                                                                            |   |                                   |       |   |   |
| Supplemental  disclosure of cash flow information:                                              |   |                                   |       |   |   |
| Cash paid during  period for:                                                                   |   |                                   |       |   |   |
| Interest                                                                                        |   | $                                      | 72         |   | $ | 109 |   |
| Income taxes                                                                                    |   | $                                      | 713        |   | $ | 1,143 |   |
|                                                                                            |   |                                   |       |   |   |
| Supplemental disclosure of noncash information:                                                 |   |                                   |       |   |   |
| Conversion of exchangeable preferred stock to common stock                                      |   | $                                      | 4,265      |   | $ | — |   |

 

The accompanying notesare an integral part of this statement.

 

4

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**CASCADECORPORATIONCONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY(unaudited—in thousands)**

 
|                                                                 |   | **Common Stock** |   | **Additional  Paid-In  Capital** |   | **Retained  Earnings** |   | **Accumulated  Other  Comprehensive  Income** |   | **Annual  Comprehensive  Income** |    |
|----------------------------------------------------------------------|--------|------------------|--------|----------------------------------|--------|------------------------|--------|-----------------------------------------------|--------|-----------------------------------|---------|
| **Shares**                                                           |   | **Amount**       |
| **Balance at January 31, 2003**                                 |   | 11,398           |   | $                                | 5,699  |                   | $      | 1,468                                         |   | $                                 | 151,925 |   | $ | (14,344 | ) |   |   |
|                                                                 |   |             |   |                             |   |                   |   |                                          |   |                              |    |   |   |
| Net income                                                           |   | —           |   | —                           |   | —                 |   | 5,373                                         |   | —                            |    | $ | 5,373 |   |
| Dividends ($.10 per share)                                           |   | —           |   | —                           |   | —                 |   | (1,199                                        | )      | —                            |    | — |   |
| Exchangeable convertible preferred stock converted to  common shares |   | 300              |   | 150                              |   | 4,115                  |   | —                                        |   | —                            |    | — |   |
| Translation adjustment                                               |   | —           |   | —                           |   | —                 |   | —                                        |   | 4,524                             |    | 4,524 |   |
|                                                                 |   |             |   |                             |   |                   |   |                                          |   |                              |    |   |   |
| **Balance at April 30, 2003**                                   |   | 11,698           |   | $                                | 5,849  |                   | $      | 5,583                                         |   | $                                 | 156,099 |   | $ | (9,820 | ) | $ | 9,897 |   |

 

The accompanying notesare an integral part of this statement.

 

5

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**CASCADECORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)**

 

**Note 1—Interim FinancialInformation**

 

The accompanying consolidated financial statements ofCascade Corporation (the Company) for the interim periods ended April 30,2003 and 2002 are unaudited.  In theopinion of management, the accompanying consolidated financial statementsreflect normal recurring adjustments necessary for a fair statement of theresults of operations for those interim periods.  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 in conjunction with the Company’s auditedfinancial statements included in its Annual Report on Form 10-K for thefiscal year ended January 31, 2003.

 

**Note 2—Segment Information**

 

The following presents segment information (inthousands):

 
|                                          |   | **North  America** |       | **Europe** |       | **Other** |       | **Eliminations** |       | **Consolidation** |       |
|-----------------------------------------------|--------|--------------------|------------|------------|------------|-----------|------------|------------------|------------|-------------------|------------|
| **For the three months ended April 30, 2003** |   |               |       |       |       |      |       |             |       |              |       |
| Net sales to unaffiliated customers           |   | $                  | 40,512     |       | $          | 18,760    |       | $                | 9,662      |              | $          | — |   | $ | 68,934 |   |
| Transfers  between areas                      |   | 3,692              |       | 416        |       | 4         |       | (4,112           | )          | —            |       |
| Gross sales                                   |   | $                  | 44,204     |       | $          | 19,176    |       | $                | 9,666      |              | $          | (4,112 | ) | $ | 68,934 |   |
| Net income                                    |   | $                  | 4,048      |       | $          | 459       |       | $                | 866        |              | $          | — |   | $ | 5,373 |   |
| Identifiable  assets                          |   | $                  | 157,887    |       | $          | 87,941    |       | $                | 30,493     |              | $          | — |   | $ | 276,321 |   |
| **For the three months ended April 30, 2002** |   |               | ** ** |       | ** ** |      | ** ** |             | ** ** |              | ** ** |
| Net sales to  unaffiliated customers          |   | $                  | 38,972     |       | $          | 13,336    |       | $                | 7,634      |              | $          | — |   | $ | 59,942 |   |
| Transfers  between areas                      |   | 5,580              |       | 4,665      |       | 174       |       | (10,419          | )          | —            |       |
| Gross sales                                   |   | $                  | 44,552     |       | $          | 18,001    |       | $                | 7,808      |              | $          | (10,419 | ) | $ | 59,942 |   |
| Net income  (loss)                            |   | $                  | 3,850      |       | $          | (132      | )          | $                | 502        |              | $          | — |   | $ | 4,220 |   |
| Identifiable  assets                          |   | $                  | 161,795    |       | $          | 68,391    |       | $                | 28,923     |              | $          | — |   | $ | 259,109 |   |

 

The breakdown of goodwill by geographic region atApril 30 and January 31, 2003 is provided in the table below.  The change in balances between periods isprimarily due to fluctuations in foreign currencies.

 
|                                             |   | **April 30,  2003** |   | **January 31,  2003** |   |
|--------------------------------------------------|--------|--------------------------|--------|----------------------------|--------|
|                                             |   | **(In thousands)**       |   |
| **Breakdown of  goodwill by geographic region:** |   |                     |   |                       |   |
| North America                                    |   | $                        | 52,429 |                       | $      | 49,459 |   |
| Europe                                           |   | 7,835                    |   | 6,708                      |   |
| Other                                            |   | 3,180                    |   | 3,188                      |   |
|                                             |   | $                        | 63,444 |                       | $      | 59,355 |   |

 

**Note 3—Marketable Securities**

 

Marketable securities consist of asset-backed notesissued by various state agencies throughout the United States and guaranteed bythe United States or state governments or agencies.  The Company has classified the notes as current assets in itsconsolidated balance sheet and considers these assets trading securities.

 

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**Note 4—Inventories**

 
|                           |   | **April 30,  2003** |   | **January 31,  2003** |   |
|--------------------------------|--------|--------------------------|--------|----------------------------|--------|
|                           |   | **(In thousands)**       |   |
| Finished goods  and components |   | $                        | 21,021 |                       | $      | 20,211 |   |
| Work in process                |   | 805                      |   | 968                        |   |
| Raw materials                  |   | 8,329                    |   | 9,252                      |   |
|                           |   | $                        | 30,155 |                       | $      | 30,431 |   |

 

**Note 5—Stock Based Compensation**

 

The Company accounts for its stock-based compensationunder Accounting Principles Board Opinion No. 25 (APB 25), “Accounting forStock Issued to Employees,” which permits the use of intrinsic valueaccounting.  No stock-based compensationcost is reflected in net income, as all options granted had an exercise priceequal to the market price of the underlying common stock on the date ofgrant.  The Company has adopteddisclosure-only provisions of Statement of Financial Accounting Standards(SFAS) No. 123, “Accounting for Stock-Based Compensation” and SFASNo. 148, “Accounting for Stock-Based Compensation—Transition andDisclosure-an Amendment of FASB Statement No. 123.”

 

The following table illustrates the effect on netincome and earnings per share if the Company had applied the fair valuerecognition provisions of SFAS 123 to stock-based employee compensation(in thousands, except per share amounts):

 
|                                                                                                                           |   | **Three  Months Ended April 30** |       |
|--------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|------------|
|                                                                                                                           |   | **2003**                              |       | **2002** |   |
|                                                                                                                           |   |                                  | ** ** |   | ** ** |
| Net income—as  reported                                                                                                   |   | $                                     | 5,373      |   | $ | 4,220 |   |
| Deduct: total  stock-based compensation expense, net of income taxes of $66 and $73, determined  under fair value based method |   | (140                                  | )          | (135 | ) |
| Net income—pro  forma                                                                                                     |   | $                                     | 5,233      |   | $ | 4,085 |   |
|                                                                                                                           |   |                                  |       |   |   |
| Basic earnings  per share—as reported                                                                                     |   | $                                     | 0.46       |   | $ | 0.37 |   |
| Basic earnings  per share—pro forma                                                                                       |   | $                                     | 0.45       |   | $ | 0.36 |   |
| Diluted earnings  per share—as reported                                                                                   |   | $                                     | 0.44       |   | $ | 0.35 |   |
| Diluted earnings  per share—pro forma                                                                                     |   | $                                     | 0.43       |   | $ | 0.33 |   |

 

**Note 6—Contingencies**

 

The Company is subject to environmental laws andregulations, which include obligations to remove or mitigate environmentaleffects of past disposal and release of certain wastes and substances atvarious sites.  The Company recordsliabilities for affected sites when environmental assessments indicate probablecleanup will be required and the costs can be reasonably estimated.  Other than for costs of assessmentsthemselves, the timing and amount of these liabilities is generally based onthe Company’s commitment to a formal plan of action, such as an approvedremediation plan.  The reliability andprecision of the loss estimates are affected by numerous factors, such asdifferent stages of site evaluation and reevaluation of the degree ofremediation required.  The Companyadjusts its liabilities as new remediation requirements are defined, asinformation becomes available permitting reasonable estimates to be made and toreflect new and changing facts.  AtApril 30, 2003 and January 31, 2003, the Company has recorded accruedenvironmental expenses totaling $10.0 million and $10.2, respectively.  Unasserted claims are not reflected in theCompany’s environmental remediation liabilities.

 

On April 22, 2002, the Circuit Court of the Stateof Oregon for Multnomah County entered judgment in the Company’s favor forapproximately $1.6 million in an action originally brought in 1992 againstseveral insurers to recover various expenses incurred in connection withenvironmental litigation and related proceedings.  The judgment is against two non-settling insurers.  Additionally, the judgment requires one ofthe insurers to defend the Company in suits alleging liability because ofgroundwater contamination emanating from its Fairview plant and requires thetwo insurers to pay approximately 4% of any liability imposed against theCompany by judgment or settlement on or after March 1, 1997 on account ofsuch contamination.  The Company and theinsurers have appealed the judgment. The Company has not recorded any amounts that may be recovered fromthe two insurers in its consolidated financial statements.

 

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**Note 7—Earnings Per Share**

 

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

 
|                                                         |   | **Three Months Ended  April 30** |   |
|--------------------------------------------------------------|--------|---------------------------------------|--------|
|                                                         |   | **2003**                              |   | **2002** |   |
|                                                         |   |                                  |   |   |   |
| Basic earnings  per share:                                   |   |                                  |   |   |   |
| Net income                                                   |   | $                                     | 5,373  |   | $ | 4,220 |   |
| Preferred stock  dividends                                   |   | (30                                   | )      | — |   |
| Net income  applicable to common shareholders                |   | $                                     | 5,343  |   | $ | 4,220 |   |
|                                                         |   |                                  |   |   |   |
| Weighted average  shares of common stock outstanding         |   | 11,588                                |   | 11,292 |   |
|                                                         |   | $                                     | 0.46   |   | $ | 0.37 |   |
|                                                         |   |                                  |   |   |   |
| Diluted earnings  per share:                                 |   |                                  |   |   |   |
| Net income  applicable to common shareholders                |   | $                                     | 5,343  |   | $ | 4,220 |   |
| Preferred stock  dividends                                   |   | 30                                    |   | — |   |
| Net income                                                   |   | $                                     | 5,373  |   | $ | 4220 |   |
|                                                         |   |                                  |   |   |   |
| Weighted average  shares of common stock outstanding         |   | 11,588                                |   | 11,292 |   |
| Assumed  conversion of exchangeable preferred stock          |   | 410                                   |   | 800 |   |
| Dilutive effect  of stock options                            |   | 149                                   |   | 117 |   |
| Diluted weighted  average shares of common stock outstanding |   | 12,147                                |   | 12,209 |   |
|                                                         |   | $                                     | 0.44   |   | $ | 0.35 |   |

 

Earnings per share is based on the weighted averagenumber of common shares and potentially dilutive shares outstanding during theperiod, computed using the treasury stock method.  Diluted weighted average common shares includes the incrementalshares that would be issued upon the assumed exercise of stock options, as wellas the assumed conversion of exchangeable preferred stock.  For the three month periods endedApril 30, 2003 and 2002, 256 shares and 276 shares, respectively, of theCompany’s stock options were excluded from the calculation of diluted earningsper share because they were antidilutive, but these options could be dilutivein the future.

 

**Note 8—Subsequent Event**

 

The Company sold its hydraulic cylinder division,which included a manufacturing facility in Cramlington, Northumberland, UnitedKingdom and equipment in a leased facility in Beulaville, North Carolina, toPrecision Cylinders, Inc. (Precision) on January 15, 2002.  Under the terms of the sale the Companyreceived notes receivable collateralized by the assets of Precision.  On May 12, 2003, the Company was notifiedthat a fire had destroyed Precision’s factory in Cramlington, UnitedKingdom.  Based on preliminaryinformation the entire factory will be considered a loss.  As required under the terms of the notes theCompany is named as the payee on Precision’s insurance policy.  At April 30, 2003, the notes receivablebalance from Precision was $9.4 million. The Company believes that the notes receivable will be fully realized.

 

**Note 9—Recent AccountingPronouncements**

 

In April 2003, the FASB issued SFAS No. 149 (SFAS149) “Amendment of Statement 133 on Derivative Instruments and HedgingActivities.” SFAS 149, which amends and clarifies existing accountingpronouncements, addresses financial accounting and reporting for derivative orother hybrid instruments.  ThisStatement requires that contracts with comparable characteristics be accountedfor similarly.  This Statement iseffective for contracts entered into or modified after June 30, 2003.  The Company does not expect the adoption ofSFAS 149 to have any material impact on the consolidated financial statements.

 

InMay 2003, the FASB issued SFAS No. 150 (SFAS 150) “Accounting for CertainFinancial Instruments with Characteristics of both Liabilities and Equity.”SFAS 150 addresses financial accounting and reporting financial instrumentswith characteristics of both liabilities and equity.  This Statement requires that an issuer classify a financialinstrument that is within its scope as a liability or asset, as appropriate.  This Statement is effective for financialinstruments entered into or modified after May 31,

 

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2003.  The Company does not expect the adoption of SFAS 150 to have anymaterial impact on the consolidated financial statements.

 

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

 

All references to fiscal periods are defined asperiods ending in the year ending January 31, 2003 (fiscal 2003) and yearending January 31, 2004 (fiscal 2004).

 

**Comparison of First Quarter of Fiscal2004 and 2003**

 

Consolidated net income increased to $5.4 million ($0.44 pershare) in the first quarter ending April 30, 2003 from $4.2 million ($0.35per share) in the first quarter ending April 30, 2002.  Consolidated net sales for the first quarterof fiscal 2004 were $68.9 million in comparison with $59.9 million for thefirst quarter of fiscal 2003.  Netincome as a percentage of consolidated net sales was 7.8% in the first quarterof fiscal 2004 as compared to 7.0% in the first quarter of fiscal 2003.

 

The 15%increase in the Company’s net sales for the first quarter of fiscal 2004 ascompared to fiscal 2003 reflects stronger sales activity in all major marketsand the strengthening of foreign currencies against the US dollar.  Foreign currency fluctuations accounted forapproximately 8% of the first quarter increase in consolidated net sales.

 

Net sales tounaffiliated customers in the first quarter of fiscal 2004 in North Americaincreased 4.0% in comparison with the first quarter of fiscal 2003.  Overall lift truck industry shipments inNorth America for the first quarter of fiscal 2004 increased approximately 16%above shipment levels in the comparable period of fiscal 2003, but were approximately7% below industry shipments in the fourth quarter of fiscal 2003.  Although first quarter 2004 industryshipments have decreased from the prior quarter, the North American market hascontinued at a level of activity above that experienced in fiscal 2002.  Historically, the Company has found thatchanges in the level of its net sales in North America do not corresponddirectly to the percentage changes in lift truck industry shipments, butindustry statistics do provide a strong indicator of the direction of businessactivity in the Company’s North American markets.

 

The Company’snet sales to unaffiliated customers in Europe increased 40.7% in the firstquarter of fiscal 2004 as compared to the comparable quarter in fiscal2003.  Excluding the impact of foreigncurrency changes, European sales to unaffiliated customers increased 15.9% inthe first quarter of fiscal 2004 as compared to the prior year.  The increase is due to stronger overallorder activity.  Overall the Europeanlift truck market activity from quarter to quarter continues to beunpredictable.

 

The Company’sremaining net sales to unaffiliated customers are primarily in Asia andAustralia.  In the first quarter offiscal 2004, net sales increased 26.6% as compared to the comparable fiscal2003 quarter.  This increase is primarilyattributable to higher sales levels in China.

 

The Company’sgross profit percentage was 32.9% in the first quarter of fiscal 2004, whichwas lower than the 35.1% gross profit percentage experienced in the firstquarter of fiscal 2003.  The decrease inthe gross margin percentage is largely the result of product mix in NorthAmerica.

 

The Company’sselling and administrative expenses increased 10.1% in the first quarter offiscal 2004 as compared to the first quarter of fiscal 2003.  Approximately 8% of the increase is due tochanges in foreign currencies.  Theremaining increase is due to slightly higher spending with the increased saleslevels in the first quarter of fiscal 2004. As a percentage of net sales, selling and administrative expenses were21.2% in the first quarter of 2004 and 22.2% in the first quarter of fiscal2003.

 

Interestexpense in the first quarter of fiscal 2004 was $1.2 million as compared to$1.5 million in the first quarter of fiscal 2003.  The decrease is the result of lower overall debt levels in fiscal2004 as compared to the prior year period.

 

Other income of$732,000 in the first quarter of 2004 includes foreign currency gains, the gainon the sale of a building in Germany and the elimination of remainingliabilities from the sale of the Company’s cylinder division.

 

The effectivetax rates for the first quarters of fiscal 2004 and 2003 were 32% and 35%,respectively.  The decrease in theeffective tax rate in fiscal 2004 is primarily due to the utilization offoreign tax benefits realized in prior years but not recognized.  To a lesser extent the effective ratedecreased due to higher earnings in low tax rate jurisdictions, primarilyChina, and to lower statutory tax rates in Canada.

 

**Liquidity and Capital Resources**

 

During thethree months ended April 30, 2003, the Company generated $7.1 millionin cash from operations as compared to $5.1 million for the three monthsended April 30, 2002.  The increasein cash provided by operations is due primarily to a higher level of netincome.  The net change in operatingassets and liabilities was not significant. Cash and cash equivalents at April 30, 2003 and

 

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January 31, 2003, totaled$25.0 million and $29.5 million, respectively.

 

AtApril 30, 2003, the Company held marketable securities totaling$5.5 million.  These securitiesconsist of asset-backed notes issued by various state agencies throughout theUnited States and guaranteed by the United States or state governments and agencies.  The notes are long-term instruments maturingthrough 2022; however, the interest rates and maturities are resetapproximately every month, at which time the Company can sell the notes.  Accordingly, the Company has classified thenotes as short-term in its consolidated balance sheet.  Tax-free interest rates on the notes rangefrom  .75% to 1.0%, per annum.

 

Totaloutstanding debt at April 30, 2003 was $62.7 million as compared to$62.8 million at January 31, 2003. The Company’s debt to equity ratio at April 30, 2003 decreased to..40 to 1 from .43 to 1 at January 31, 2003.  Any additional payments to prepay outstanding debt balances inadvance of scheduled maturity dates are subject to significant penalties.  As of April 30, 2003, the Company hadavailable short-term lines of credit with commercial banks totaling $32million.  The Company believes itsavailable cash, cash flows from operations and credit facilities are more thansufficient to meet its short-term requirements.

 

In the firstquarter of 2004, the holder of the Company’s exchangeable preferred stocktendered 300,000 shares of exchangeable preferred stock into 300,000 shares ofcommon stock.  This non-cash transactionresulted in a reclassification of $4.3 million from exchangeable preferredstock into common stock and additional paid-in capital and had no effect onearnings per share.

 

OnMarch 31, 2003 the Company completed the acquisition of FEMA Forks GmbH(FEMA), a supplier of forks based in Hagen, Germany.  The aggregate purchase price was $5.3 million.  Net of assumed liabilities the cash paid forFEMA was $3.6 million.

 

Capitalexpenditures for the three months ended April 30, 2003, excluding the FEMAacquisition, were $3.1 million compared with $720,000 during the correspondingperiod in the prior year.  Excludingacquisitions, the Company expects fiscal 2004 capital expenditures to beconsistent with fiscal 2003.  TheCompany plans to use cash flows from operations and existing credit facilitiesto fund current year capital expenditures.

 

During thethree months ended April 30, 2003, the U.S. dollar weakened against themajor currencies included in the Company’s consolidated financialstatements.  As a result, the cumulativetranslation adjustment increased shareholders’ equity by $4.5 million forthe three months ended April 30, 2003.

 

The Company sold its hydraulic cylinder division,which included a manufacturing facility in Cramlington, Northumberland, UnitedKingdom and equipment in a leased facility in Beulaville, North Carolina, toPrecision Cylinders, Inc. (Precision) on January 15, 2002.  Under the terms of the sale the Companyreceived notes receivable collateralized by the assets of Precision.  On May 12, 2003, the Company wasnotified that a fire had destroyed Precision’s factory in Cramlington, UnitedKingdom.  Based on preliminaryinformation the entire factory will be considered a loss.  As required under the terms of the notes,the Company is named as the payee on Precision’s insurance policy.  At April 30, 2003, the notes receivablebalance from Precision was $9.4 million. The Company believes that the notes receivable will be fullyrealized.  

 

**Recent Accounting****Pronouncements**

 

InApril 2003, the FASB issued SFAS No. 149 (SFAS 149) “Amendment ofStatement 133 on Derivative Instruments and Hedging Activities.” SFAS 149,which amends and clarifies existing accounting pronouncements, addressesfinancial accounting and reporting for derivative or other hybridinstruments.  This Statement requiresthat contracts with comparable characteristics be accounted for similarly.  This Statement is effective for contractsentered into or modified after June 30, 2003.  The Company does not expect the adoption of SFAS 149 to have anymaterial impact on the consolidated financial statements.

 

In May 2003, the FASB issued SFAS No. 150 (SFAS 150) “Accountingfor Certain Financial Instruments with Characteristics of both Liabilities andEquity.” SFAS 150 addresses financial accounting and reporting financialinstruments with characteristics of both liabilities and equity.  This Statement requires that an issuerclassify a financial instrument that is within its scope as a liability orasset, as appropriate.  This Statementis effective for financial instruments entered into or modified afterMay 31, 2003.  The Company does notexpect the adoption of SFAS 150 to have any material impact on the consolidatedfinancial statements.

 

**Forward-Looking Statements**

 

Forward-looking statements throughout this report arebased upon assumptions involving a number of risks and uncertainties.  Factors which could cause actual results todiffer materially from these forward-looking statements include, but are notlimited to competitive factors in, and the cyclical nature of, the lift truckindustry; fluctuations in lift truck orders or deliveries; availability andcost of raw materials; general business and economic conditions in NorthAmerica, Europe, Australia and Asia; foreign currency fluctuations; and theeffectiveness of the Company’s cost reduction initiatives.

 

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Item 3. Quantitative and Qualitative Disclosures About Market

 

Risk Market risk is the potential loss arising fromadverse changes in market rates and prices, such as foreign currency exchangerate and interest rate fluctuations.  Asignificant portion of the Company’s revenues are denominated in currenciesfrom international markets outside the United States.  As a result, the Company’s operating results could become subjectto significant fluctuations based upon changes in the exchange rates of theforeign currencies in relation to the United States dollar.  The Company does enter into foreign currencyforward exchange contracts to offset the impact of currency fluctuations oncertain nonfunctional currency assets and liabilities.  The principal currencies hedged aredenominated in Japanese yen, Canadian dollars, Euros and British pounds.  The Company’s foreign currency forwardexchange contracts have terms lasting up to six months, but generally less thanone month.  The Company does not enterinto derivatives or other financial instruments for trading or speculativepurposes.

 

Based on the scheduled debt payments during fiscal2003 and certain payment restrictions on its remaining debt, substantially allof the Company’s debt at April 30, 2003 has a fixed interest rate.  Any additional payments to prepay scheduledamounts of debt are subject to penalties. At April 30, 2003, the penalties to retire all of the Company’slong-term debt were $7.9 million.  Ahypothetical 1% increase in market interest rates would result in a$1.7 million reduction in the fair market value of the Company’s long termoutstanding debt at April 30, 2003.

 

Item 4. Controls and Procedures

 

Within the 90-day period prior to the date of thisreport, the Company carried out an evaluation, under the supervision and withthe participation of its management, including the Chief Executive Officer andChief Financial Officer, of the effectiveness of the design and operation of ourdisclosure controls and procedures pursuant to Rule 13a-14 and 15d-14 ofthe Securities Exchange Act of 1934 (Exchange Act). Based upon that evaluation,the Chief Executive Officer and Chief Financial Officer concluded that theCompany’s disclosure controls and procedures are effective in timely alertingmanagement to material information relating to the Company, including itsconsolidated subsidiaries, required to be included in the Company’s ExchangeAct filings.

 

There have been no significant changes in theCompany’s internal controls or in other factors that could significantly affectinternal controls subsequent to the date the evaluation was carried out.

 

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**CASCADECORPORATION**

 

**PARTII—OTHER INFORMATION**

 

Item 1. Legal Proceedings

 

Neither the Company nor any of its subsidiaries areinvolved in any material pending legal proceedings other than litigationrelated to environmental matters discussed below.  The Company and its subsidiaries are insured against productliability, personal injury and property damage claims, whichmay occasionally arise.

 

On April 22, 2002, the Circuit Court of the Stateof Oregon for Multnomah County entered judgment in the Company’s favor forapproximately $1.6 million in an action originally brought in 1992 againstseveral insurers to recover various expenses incurred in connection withenvironmental litigation and related proceedings.  The judgment is against two non-settling insurers.  Additionally, the judgment requires one ofthe insurers to defend the Company in suits alleging liability because ofgroundwater contamination emanating from its Portland plant and requires thetwo insurers to pay approximately 4% of any liability imposed against theCompany by judgment or settlement on or after March 1, 1997 on account ofsuch contamination.  The Company and theinsurers have appealed the judgment. The Company has not recorded any amounts that may be recovered fromthe two insurers in its consolidated financial statements.

 

Item 2. Changes in Securities and Use of Proceeds

 

None

 

Item 3. Defaults Upon Senior Securities

 

None

 

Item 4. Submission of Matters to a Vote of Security Holders

 

None

 

Item 5. Other Information

 

None

 

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Item 6. Exhibit and Reports on Form 8-K

 
| (A)    | **Exhibits**                 |
|--------|------------------------------|
|   |
|   | 99.1                         | Certification pursuant to 18 U.S.C. Section 1350, As  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|   |
|   | 99.2                         | Certification pursuant to 18 U.S.C. Section 1350, As  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|   |
| (B)    | **Reports on Form 8-K** |
|   |
|   | None                         |

 

**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
|          | CASCADE CORPORATION                                                                                 |
|---------------|-----------------------------------------------------------------------------------------------------|
| June 11, 2003 |                                                                                                |
|          |                                                                                                |
|          | /s/ Richard S. Anderson                                                                             |
|          | Richard S. Anderson                                                                                 |
|          | *Senior  Vice President and  Chief Financial Officer  (Principal Financial and Accounting Officer)* |

 

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**Certificationby Chief Executive Officer**

 

I, Robert C. Warren, Jr., certify that:

 

1.                                       Ihave reviewed this quarterly report on Form 10-Q of Cascade Corporation;

 

2.                                       Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

4.                                       Theregistrant’s other certifying officer and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a)                                      designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

b)                                     evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)                                      presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

 

5.                                       Theregistrant’s other certifying officer and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

a)                                      allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)                                     anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6.                                       Theregistrant’s other certifying officer and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
| Date: June 11, 2003       |
|---------------------------|
|                      |
| /s/ Robert C. Warren, Jr. |
| Robert C. Warren, Jr.     |
| *Chief Executive Officer* |

 

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**Certificationby Chief Financial Officer**

 

I, Richard S. Anderson, certify that:

 

1.                                       Ihave reviewed this quarterly report on Form 10-Q of Cascade Corporation;

 

2.                                       Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

4.                                       Theregistrant’s other certifying officer and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a)                                      designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

b)                                     evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)                                      presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

 

5.                                       Theregistrant’s other certifying officer and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

a)                                      allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)                                     anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6.                                       Theregistrant’s other certifying officer and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
| Date: June 11, 2003       |
|---------------------------|
|                      |
| /s/ Richard S. Anderson   |
| Richard S. Anderson       |
| *Chief Financial Officer* |

 

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