**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 the Quarterly Period Ended  October 31, 2003**                                                                                                         |
|                                                                                                                                                              |   |
| **o**                                                                                                                                                             | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934** |
|                                                                                                                                                              |   |
| **For the transition period from             to            ** |
|                                                                                                                                                              |   |
| **Commission file number 1-12557**                                                                                                                                |

 

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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 allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.  Yes  ý  No  o

 

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

 

The number of shares outstanding of the registrant’s common stock as ofNovember 25, 2003 was 12,084,723.

 

 

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**PART I—FINANCIAL INFORMATION**

 

**Item 1. Financial Statements**

 

**CASCADE CORPORATIONCONSOLIDATED BALANCE SHEETS(Unaudited in thousands, except per share data)**

 
|                                                                                                     |   | **October 31  2003** |    | **January 31  2003** |   |
|----------------------------------------------------------------------------------------------------------|--------|---------------------------|---------|---------------------------|--------|
| **ASSETS**                                                                                               |   |                      |    |                      |   |
| Current assets:                                                                                          |   |                      |    |                      |   |
| Cash                                                                                                     |   | $                         | 25,573  |                      | $      | 29,501 |   |
| Marketable securities                                                                                    |   | 17,228                    |    | —                    |   |
| Accounts receivable, less allowance for doubtful  accounts of $1,698 and $1,563                          |   | 57,907                    |    | 42,784                    |   |
| Inventories                                                                                              |   | 34,486                    |    | 30,431                    |   |
| Deferred income taxes                                                                                    |   | 2,432                     |    | 2,188                     |   |
| Prepaid expenses and other                                                                               |   | 4,555                     |    | 4,279                     |   |
| Income taxes receivable                                                                                  |   | —                    |    | 3,727                     |   |
| Current portion of notes receivable                                                                      |   | —                    |    | 1,088                     |   |
| Total current assets                                                                                     |   | 142,181                   |    | 113,998                   |   |
| Property, plant and equipment, net                                                                       |   | 71,571                    |    | 65,863                    |   |
| Goodwill                                                                                                 |   | 71,201                    |    | 59,355                    |   |
| Deferred income taxes                                                                                    |   | 10,948                    |    | 11,627                    |   |
| Other assets                                                                                             |   | 4,024                     |    | 2,915                     |   |
| Notes receivable, net                                                                                    |   | —                    |    | 8,559                     |   |
| Total assets                                                                                             |   | $                         | 299,925 |                      | $      | 262,317 |   |
|                                                                                                     |   |                      |    |                      |   |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                            |   |                      |    |                      |   |
| Current liabilities:                                                                                     |   |                      |    |                      |   |
| Notes payable to banks                                                                                   |   | $                         | 1,630   |                      | $      | 1,043 |   |
| Current portion of long-term debt                                                                        |   | 12,695                    |    | 12,695                    |   |
| Accounts payable                                                                                         |   | 19,432                    |    | 13,763                    |   |
| Accrued payroll and payroll taxes                                                                        |   | 6,213                     |    | 5,687                     |   |
| Accrued environmental expenses                                                                           |   | 808                       |    | 808                       |   |
| Other accrued expenses                                                                                   |   | 12,187                    |    | 8,801                     |   |
| Total current liabilities                                                                                |   | 52,965                    |    | 42,797                    |   |
| Long-term debt                                                                                           |   | 50,618                    |    | 50,113                    |   |
| Accrued environmental expenses                                                                           |   | 8,748                     |    | 9,389                     |   |
| Deferred income taxes                                                                                    |   | 1,510                     |    | 1,226                     |   |
| Other liabilities                                                                                        |   | 6,963                     |    | 5,514                     |   |
| Total liabilities                                                                                        |   | 120,804                   |    | 109,039                   |   |
|                                                                                                     |   |                      |    |                      |   |
| Exchangeable convertible preferred stock and  minority interest                                          |   | —                    |    | 8,530                     |   |
| Shareholders’ equity:                                                                               |   |                      |    |                      |   |
| Common stock, $.50 par value, 20,000 authorized  shares; 12,083 and 11,398 shares issued and outstanding |   | 6,042                     |    | 5,699                     |   |
| Additional paid-in capital                                                                               |   | 10,749                    |    | 1,468                     |   |
| Retained earnings                                                                                        |   | 164,526                   |    | 151,925                   |   |
| Accumulated other comprehensive loss:                                                                    |   |                      |    |                      |   |
| Cumulative foreign currency translation  adjustments                                                     |   | (2,196                    | )       | (14,344                   | )      |
| Total shareholders’ equity                                                                          |   | 179,121                   |    | 144,748                   |   |
| Total liabilities and shareholders’ equity                                                          |   | $                         | 299,925 |                      | $      | 262,317 |   |

 

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

 

2

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**CASCADE CORPORATIONCONSOLIDATED STATEMENTS OF INCOME**

 

**(Unaudited—in thousands, except per sharedata)**

 
|                                             |   | **Three Months  Ended October 31** |       | **Nine Months  Ended October 31** |       |
|--------------------------------------------------|--------|-----------------------------------------|------------|----------------------------------------|------------|
|                                             |   | **2003**                                |       | **2002**                               |       | **2003** |   | **2002** |   |
|                                             |   |                                    | ** ** |                                   | ** ** |   | ** ** |   | ** ** |
| Net sales                                        |   | $                                       | 75,772     |                                   | $          | 70,241 |   | $ | 220,338 |   | $ | 194,455 |   |
| Cost of goods sold                               |   | 50,948                                  |       | 45,298                                 |       | 147,817 |   | 126,650 |   |
| Gross profit                                     |   | 24,824                                  |       | 24,943                                 |       | 72,521 |   | 67,805 |   |
|                                             |   |                                    |       |                                   |       |   |   |   |   |
| Selling and administrative expenses              |   | 15,923                                  |       | 14,411                                 |       | 45,888 |   | 41,679 |   |
| Environmental expenses                           |   | —                                  |       | 2,100                                  |       | — |   | 2,100 |   |
|                                             |   |                                    |       |                                   |       |   |   |   |   |
| Operating income                                 |   | 8,901                                   |       | 8,432                                  |       | 26,633 |   | 24,026 |   |
| Interest expense                                 |   | (1,165                                  | )          | (1,602                                 | )          | (3,496 | ) | (4,540 | ) |
| Interest income                                  |   | 234                                     |       | 364                                    |       | 779 |   | 1,114 |   |
| Other income (expense), net                      |   | (126                                    | )          | (291                                   | )          | 273 |   | (136 | ) |
|                                             |   |                                    |       |                                   |       |   |   |   |   |
| Income before provision for income taxes         |   | 7,844                                   |       | 6,903                                  |       | 24,189 |   | 20,464 |   |
| Provision for income taxes                       |   | 2,752                                   |       | 2,485                                  |       | 7,982 |   | 7,367 |   |
| Net income                                       |   | 5,092                                   |       | 4,418                                  |       | 16,207 |   | 13,097 |   |
| Dividends paid on preferred shares of subsidiary |   | —                                  |       | —                                 |       | (30 | ) | — |   |
| Net income applicable to common shareholders     |   | $                                       | 5,092      |                                   | $          | 4,418 |   | $ | 16,177 |   | $ | 13,097 |   |
|                                             |   |                                    |       |                                   |       |   |   |   |   |
| Basic earnings per share                         |   | $                                       | 0.42       |                                   | $          | 0.39 |   | $ | 1.36 |   | $ | 1.15 |   |
| Diluted earnings per share                       |   | $                                       | 0.41       |                                   | $          | 0.36 |   | $ | 1.31 |   | $ | 1.07 |   |
|                                             |   |                                    |       |                                   |       |   |   |   |   |
| Basic weighted average shares outstanding        |   | 12,054                                  |       | 11,470                                 |       | 11,882 |   | 11,363 |   |
| Diluted weighted average shares outstanding      |   | 12,534                                  |       | 12,202                                 |       | 12,335 |   | 12,216 |   |

 

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

 

3

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**CASCADE CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited—in thousands)**

 

 
|                                                                               |   | **Nine Months Ended  October 31** |   |
|------------------------------------------------------------------------------------|--------|----------------------------------------|--------|
|                                                                               |   | **2003**                               |   | **2002** |   |
|                                                                               |   |                                   |   |   |   |
| **Cash flows from operating  activities:**                                         |   |                                   |   |   |   |
| Net income                                                                         |   | $                                      | 16,207 |   | $ | 13,097 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities: |   |                                   |   |   |   |
| Depreciation and amortization                                                      |   | 9,202                                  |   | 7,693 |   |
| Deferred income taxes                                                              |   | 736                                    |   | (567 | ) |
| Gain on disposition of assets                                                      |   | (71                                    | )      | (77 | ) |
| Changes in operating assets and liabilities, net  of effects of acquisitions:      |   |                                   |   |   |   |
| Accounts receivable                                                                |   | (10,044                                | )      | (7,071 | ) |
| Inventories                                                                        |   | 622                                    |   | 2,015 |   |
| Prepaid expenses and other                                                         |   | 314                                    |   | 294 |   |
|                                                                               |   |                                   |   |   |   |
| Accounts payable and accrued expenses                                              |   | 4,736                                  |   | 3,498 |   |
| Accrued environmental expenses                                                     |   | (641                                   | )      | 1,509 |   |
| Other liabilities                                                                  |   | 3,455                                  |   | 3,952 |   |
| Net cash provided by operating activities                                          |   | 24,516                                 |   | 24,343 |   |
|                                                                               |   |                                   |   |   |   |
| **Cash flows from investing  activities:**                                         |   |                                   |   |   |   |
| Capital expenditures                                                               |   | (8,835                                 | )      | (5,680 | ) |
| Proceeds from sale of assets                                                       |   | 819                                    |   | 192 |   |
| Proceeds from notes receivable                                                     |   | 9,556                                  |   | 184 |   |
| Marketable securities, net                                                         |   | (17,228                                | )      | (10,200 | ) |
| Business acquisitions                                                              |   | (11,173                                | )      | — |   |
| Other assets                                                                       |   | (377                                   | )      | 77 |   |
| Net cash used in investing activities                                              |   | (27,238                                | )      | (15,427 | ) |
|                                                                               |   |                                   |   |   |   |
| **Cash flows from financing  activities:**                                         |   |                                   |   |   |   |
| Payments on long-term debt                                                         |   | (63                                    | )      | (2,810 | ) |
| Notes payable to banks, net                                                        |   | (130                                   | )      | 73 |   |
| Cash dividends paid                                                                |   | (3,606                                 | )      | — |   |
| Common stock repurchased and retired                                               |   | —                                 |   | (1,396 | ) |
| Common stock issued                                                                |   | 1,094                                  |   | 73 |   |
| Net cash used in financing activities                                              |   | (2,705                                 | )      | (4,060 | ) |
|                                                                               |   |                                   |   |   |   |
| **Effect of exchange rate changes**                                                |   | 1,499                                  |   | 2,540 |   |
|                                                                               |   |                                   |   |   |   |
| Change in cash and cash equivalents                                                |   | (3,928                                 | )      | 7,396 |   |
| Cash and cash equivalents at beginning of period                                   |   | 29,501                                 |   | 25,611 |   |
| Cash and cash equivalents at end of period                                         |   | $                                      | 25,573 |   | $ | 33,007 |   |
|                                                                               |   |                                   |   |   |   |
| **Supplemental disclosure of cash  flow information:**                             |   |                                   |   |   |   |
| Cash paid during period for:                                                       |   |                                   |   |   |   |
| Interest                                                                           |   | $                                      | 3,541  |   | $ | 4,528 |   |
| Income taxes                                                                       |   | $                                      | 2,766  |   | $ | 7,008 |   |
| Business acquisitions:                                                             |   |                                   |   |   |   |
| Accounts receivable                                                                |   | $                                      | 5,079  |   | $ | — |   |
| Inventories                                                                        |   | 4,677                                  |   | — |   |
| Plant and equipment                                                                |   | 4,171                                  |   | — |   |
| Goodwill and intangible assets                                                     |   | 4,193                                  |   | — |   |
| Accounts payable assumed                                                           |   | (5,662                                 | )      | — |   |
| Notes payable assumed                                                              |   | (1,285                                 | )      |   |   |
|                                                                               |   | $                                      | 11,173 |   | $ | — |   |
|                                                                               |   |                                   |   |   |   |
| **Supplemental disclosure of  noncash information:**                               |   |                                   |   |   |   |
| Conversion of exchangeable preferred stock to  common stock                        |   | $                                      | 8,530  |   | 2,844 |   |

 

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

 

4

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**CASCADE CORPORATIONCONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY(Unaudited—in thousands)**

 

 
|                                                                 |   |              |   |       |   | **Additional********Paid-In********Capital** |   | **Retained********Earnings** |   | **Accumulated********Other********Comprehensive********Loss** |    | **Annual********Comprehensive********Income** |   |
|----------------------------------------------------------------------|--------|-------------------|--------|------------|--------|----------------------------------------------|--------|------------------------------|--------|---------------------------------------------------------------|---------|-----------------------------------------------|--------|
|                                                                 |   |              |   |       |   |                                         |   |                         |   |
|                                                                 |   | **Common  Stock** |   |       |   |                                         |   |
|                                                                 |   | **Shares**        |   | **Amount** |   |                                         |   |                         |   |
| **Balance at January 31, 2003**                                 |   | 11,398            |   | $          | 5,699  |                                         | $      | 1,468                        |   | $                                                             | 151,925 |                                          | $      | (14,344 | ) |   |   |
|                                                                 |   |              |   |       |   |                                         |   |                         |   |                                                          |    |                                          |   |
| Net income                                                           |   | —            |   | —     |   | —                                       |   | 16,207                       |   | —                                                        |    | $                                             | 16,207 |   |
| Dividends ($.30 per share)                                           |   | —            |   | —     |   | —                                       |   | (3,606                       | )      | —                                                        |    | —                                        |   |
| Exchangeable convertible preferred stock converted  to common shares |   | 600               |   | 300        |   | 8,230                                        |   | —                       |   | —                                                        |    | —                                        |   |
| Common stock issued                                                  |   | 85                |   | 43         |   | 1,051                                        |   | —                       |   | —                                                        |    | —                                        |   |
| Translation adjustment                                               |   | —            |   | —     |   | —                                       |   | —                       |   | 12,148                                                        |    | 12,148                                        |   |
|                                                                 |   |              |   |       |   |                                         |   |                         |   |                                                          |    |                                          |   |
| **Balance at October 31, 2003**                                 |   | 12,083            |   | $          | 6,042  |                                         | $      | 10,749                       |   | $                                                             | 164,526 |                                          | $      | (2,196 | ) | $ | 28,355 |   |

 

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

 

5

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**CASCADE CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited, in thousands)**

 

**Note 1—Description of Business**

 

Cascade Corporation (the Company) is an international company engagedin the design, manufacture and distribution of materials handling products thatare widely used on industrial fork lift trucks and, to a lesser extentconstruction and agricultural vehicles. Accordingly, the Company’s sales are largely dependent on the sales oflift trucks and on the sales of replacement parts.  The Company’s products are produced at plants located in threeglobal regions: North America, Europe and Asia Pacific.  Plants included in the Asia Pacific regionare located primarily in Asia and Australia.

 

**Note 2—Interim Financial Information**

 

The accompanying consolidated financial statements of the Company forthe interim periods ended October 31, 2003 and 2002 are unaudited.  In the opinion of management, theaccompanying consolidated financial statements reflect normal recurringadjustments necessary for a fair statement of the results of operations forthose interim periods.  Results ofoperations for the interim periods are not necessarily indicative of theresults to be expected for the full year, and these financial statements do notcontain the detail or footnote disclosures concerning accounting policies andother matters that would be included in full fiscal year financialstatements.  Therefore, these statementsshould be read in conjunction with the Company’s audited financial statementsincluded in its Annual Report on Form 10-K for the fiscal year endedJanuary 31, 2003.

 

**Note 3—Segment Information**

 

The Company has adopted SFAS No. 131, “Disclosures about Segments of anEnterprise and Related Information” (SFAS 131), which establishes standards forreporting information related to operating segments, as well as standards forrelated disclosures about products and services and geographic areas.  Operating segments are defined as componentsof an enterprise about which separate, discrete financial information is availablefor evaluation by the chief operating decision maker, or decision-making groupin deciding how to allocate resources and assess performance.  The Company’s chief decision-making group,as defined under SFAS 131, is composed of its chief executive officer, chieffinancial officer and chief operating officer. The Company’s operating units have similar economic characteristics andattributes, including similar products, distribution patterns and classes ofcustomers.  As a result, the Companyaggregates its operating units into a single operating segment related to themanufacturing, distribution and servicing of material handling load engagementproducts primarily for the lift truck industry.

 

Revenues and operating results are classified according to the regionof origin.  Identifiable assets areattributed to the geographic location in which they are located.  Net sales, net income and identifiableassets by geographic region were as follows (in thousands):

 
|                                                  |   | **North  America** |    | **Europe** |       | **Asia Pacific**  |       | **Eliminations** |       | **Consolidation** |       |
|-------------------------------------------------------|--------|--------------------|---------|------------|------------|-------------------|------------|------------------|------------|-------------------|------------|
| **For the three months ended  October 31, 2003** |   |               |    |       |       |              |       |             |       |              |       |
| Sales to unaffliated customers                        |   | $                  | 44,167  |       | $          | 19,443            |       | $                | 12,162     |              | $          | — |   | $ | 75,772 |   |
| Transfers between areas                               |   | 4,327              |    | 475        |       | 5                 |       | (4,807           | )          | —            |       |
| Net sales                                             |   | $                  | 48,494  |       | $          | 19,918            |       | $                | 12,167     |              | $          | (4,807 | ) | $ | 75,772 |   |
| Net income (loss)                                     |   | $                  | 4,238   |       | $          | (1,216            | )          | $                | 2,070      |              |       |   | $ | 5,092 |   |
| Identifiable assets                                   |   | $                  | 166,902 |       | $          | 96,741            |       | $                | 36,282     |              |       |   | $ | 299,925 |   |
| **For the three months ended  October 31, 2002** |   |               |    |       |       |              |       |             |       |              |       |
| Sales to unaffliated customers                        |   | $                  | 44,445  |       | $          | 16,117            |       | $                | 9,679      |              | $          | — |   | $ | 70,241 |   |
| Transfers between areas                               |   | 3,298              |    | 304        |       | 35                |       | (3,637           | )          | —            |       |
| Net sales                                             |   | $                  | 47,743  |       | $          | 16,421            |       | $                | 9,714      |              | $          | (3,637 | ) | $ | 70,241 |   |
| Net income (loss)                                     |   | $                  | 3,418   |       | $          | (217              | )          | $                | 1,217      |              |       |   | $ | 4,418 |   |
| Identifiable assets                                   |   | $                  | 172,243 |       | $          | 70,310            |       | $                | 29,434     |              |       |   | $ | 271,987 |   |
|                                                  |   |               |    |       |       |              |       |             |       |              |       |
|                                                  |   | **North  America** |    | **Europe** | ** ** | **Asia  Pacific** | ** ** | **Eliminations** | ** ** | **Consolidation** | ** ** |
| **For the nine months ended  October 31, 2003**  |   |               |    |       |       |              |       |             |       |              |       |
| Sales to unaffliated customers                        |   | $                  | 129,977 |       | $          | 57,123            |       | $                | 33,238     |              | $          | — |   | $ | 220,338 |   |
| Transfers between areas                               |   | 12,382             |    | 1,182      |       | 20                |       | (13,584          | )          | —            |       |
| Net sales                                             |   | $                  | 142,359 |       | $          | 58,305            |       | $                | 33,258     |              | $          | (13,584 | ) | $ | 220,338 |   |
| Net income (loss)                                     |   | $                  | 13,184  |       | $          | (1,497            | )          | $                | 4,520      |              |       |   | $ | 16,207 |   |
| **For the nine months ended  October 31, 2002**  |   |               |    |       |       |              |       |             |       |              |       |
|                                                  |   |               |    |       |       |              |       |             |       |              |       |
| Sales to unaffliated customers                        |   | $                  | 123,170 |       | $          | 44,880            |       | $                | 26,405     |              | $          | — |   | $ | 194,455 |   |
| Transfers between areas                               |   | 9,575              |    | 678        |       | 66                |       | (10,319          | )          | —            |       |
| Net sales                                             |   | $                  | 132,745 |       | $          | 45,558            |       | $                | 26,471     |              | $          | (10,319 | ) | $ | 194,455 |   |
| Net income (loss)                                     |   | $                  | 10,244  |       | $          | (68               | )          | $                | 2,921      |              |       |   | $ | 13,097 |   |

 

6

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The breakdown of goodwill by geographic region at October 31 andJanuary 31, 2003 is provided in the table below.  The change in balances is due to foreign currency fluctuationstotaling $7.9 million and additional goodwill related to business acquisitionstotaling approximately $4 million.

 
|                                             |   | **October 31,  2003** |       | **January 31,  2003** |       |
|--------------------------------------------------|--------|----------------------------|------------|----------------------------|------------|
|                                             |   | **(In  thousands)**        |       |
| **Breakdown of goodwill by  geographic region:** |   |                       | ** ** |                       | ** ** |
| North America                                    |   | $                          | 56,891     |                       | $          | 49,459 |   |
| Europe                                           |   | 11,147                     |       | 6,708                      |       |
| Asia Pacific                                     |   | 3,163                      |       | 3,188                      |       |
|                                             |   | $                          | 71,201     |                       | $          | 59,355 |   |

 

**Note 4—Marketable Securities**

 

Marketable securities consist of asset-backed notes issued by variousstate agencies throughout the United States and guaranteed by the United Statesor state governments or agencies.  Thereare no realized or unrealized gains or losses related to the Company’smarketable securities.  The Company hasclassified the notes as current assets in its consolidated balance sheet andconsiders these assets to be trading securities.

 

**Note 5—Acquisitions**

 

During the first nine months of fiscal 2004, the Company completed theacquisition of two materials handling equipment manufacturers, FEMA Forks GmbH(FEMA), located in Germany, and Roncari S.R.L. (Roncari), located inItaly.  The Roncari acquisition wascompleted on October 21, 2003.  Theaggregate purchase price paid in cash for FEMA and Roncari, net of assumedliabilities, was $3.6 million and $7.6 million, respectively.

 

**Note 6—Exchangeable ConvertiblePreferred Stock and Minority Interest**

 

In the first nine months of fiscal 2004, the holder of the Company’sexchangeable preferred stock tendered all 600,000 outstanding shares ofexchangeable preferred stock into 600,000 shares of common stock.  This non-cash transaction resulted in areclassification of $8.5 million from exchangeable preferred stock intocommon stock and additional paid-in capital and had no effect on earnings pershare.

 

7

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**Note 7—Inventories**

 
|                          |   | **October 31,  2003** |   | **January 31,  2003** |   |
|-------------------------------|--------|----------------------------|--------|----------------------------|--------|
| Finished goods and components |   | $                          | 22,426 |                       | $      | 20,211 |   |
| Work in process               |   | 2,097                      |   | 968                        |   |
| Raw materials                 |   | 9,963                      |   | 9,252                      |   |
|                          |   | $                          | 34,486 |                       | $      | 30,431 |   |

 

Inventories are stated at the lower of average cost or market.

 

**Note 8—Stock Based Compensation**

 

The Company accounts for its stock-based compensation under AccountingPrinciples Board Opinion No. 25 (APB 25), “Accounting for Stock Issued toEmployees,” which permits the use of intrinsic value accounting.  No stock-based compensation cost isreflected in net income, as all options granted had an exercise price equal tothe market price of the underlying common stock on the date of grant.  The Company has adopted disclosure-onlyprovisions of Statement of Financial Accounting Standards (SFAS) No. 123,“Accounting for Stock-Based Compensation” and SFAS No. 148, “Accountingfor Stock-Based Compensation - Transition and Disclosure-an Amendment of FASBStatement No. 123.”

 

The following table illustrates the effect on net income applicable tocommon shareholders and earnings per share if the Company had applied the fairvalue recognition provisions of SFAS 123 to stock-based employeecompensation (in thousands, except per share amounts):

 
|                                                                                                                                     |   | **Three Months Ended  October **31 |       | **Nine Months Ended  October 31** |       |
|------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|------------|----------------------------------------|------------|
|                                                                                                                                     |   | **2003**                                |       | **2002**                               |       | **2003** |   | **2002** |   |
|                                                                                                                                     |   |                                    | ** ** |                                   | ** ** |   | ** ** |   | ** ** |
| Net income applicable to common  shareholders—as reported                                                                           |   | $                                       | 5,092      |                                   | $          | 4,418 |   | $ | 16,177 |   | $ | 13,097 |   |
| Deduct: total stock-based compensation  expense, net of income taxes of $97, $75, $122 and $97 determined under fair  value based method |   | (180                                    | )          | (129                                   | )          | (247 | ) | (172 | ) |
| Net income applicable to common  shareholders—pro forma                                                                             |   | $                                       | 4,912      |                                   | $          | 4,289 |   | $ | 15,930 |   | $ | 12,925 |   |
|                                                                                                                                     |   |                                    |       |                                   |       |   |   |   |   |
| Basic earnings per share—as reported                                                                                                |   | $                                       | 0.42       |                                   | $          | 0.39 |   | $ | 1.36 |   | $ | 1.15 |   |
| Basic earnings per share—pro forma                                                                                                  |   | $                                       | 0.41       |                                   | $          | 0.37 |   | $ | 1.34 |   | $ | 1.14 |   |
| Diluted earnings per share—as reported                                                                                              |   | $                                       | 0.41       |                                   | $          | 0.36 |   | $ | 1.31 |   | $ | 1.07 |   |
| Diluted earnings per share—pro forma                                                                                                |   | $                                       | 0.39       |                                   | $          | 0.35 |   | $ | 1.29 |   | $ | 1.06 |   |

 

**Note 9—Contingencies**

 

The Company is subject to environmental laws and regulations, whichinclude obligations to remove or mitigate environmental effects of pastdisposal and release of certain wastes and substances at various sites.  The Company records liabilities for affectedsites when environmental assessments indicate probable cleanup will be requiredand the costs can be reasonably estimated. The Company’s liabilities for environmental costs, other than for costsof assessments themselves, are generally determined after the completion ofinvestigations and studies or the Company’s commitment to a formal plan ofaction, such as an approved remediation plan, and are based on the Company’sbest estimate of undiscounted future costs using currently availabletechnology, applying current regulations, as well as the Company’s ownhistorical experience regarding environmental cleanup costs.  The reliability and precision of the lossestimates are affected by numerous factors, such as different stages of siteevaluation and reevaluation of the degree of remediation required.  The Company adjusts its 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 estimates will occur in thenear term and the related adjustments to environmental liabilities may have amaterial impact on the Company’s net income. Unasserted claims are not currently reflected in the Company’senvironmental liabilities.  It is alsoreasonably possible that these changes or claims may also have a materialimpact on the Company’s net income if asserted.  The Company cannot estimate at this time the amount of anyadditional loss or range of loss that is reasonably possible.

 

The Company’s specific environmental matters consist of the following:

 

8

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### **Fairview, Oregon**

### ** **

In 1996, the Oregon Department of Environmental Quality issued twoRecords of Decision impacting the Company’s Fairview, Oregon manufacturingfacility.  The records of decisionrequired the Company to initiate remedial activities related to the cleanup ofgroundwater contamination at and near the facility.  Remediation activities have been conducted at or near thefacility since 1996 and current estimates provide for some level of activity tocontinue through 2027.  Costs of certainremediation activities at the facility are shared with The Boeing Company, withCascade paying 70% of these costs.  TheCompany has a liability for the ongoing remediation activities at its Fairviewfacility of $8.8 million and $9.2 million at October 31, 2003 andJanuary 31, 2003, respectively.

 

**Springfield, Ohio**

 

In 1994, the Company entered into a consent order with the OhioEnvironmental Protection Agency, which required the installation of remediationsystems for the cleanup of groundwater contamination at the Springfield, Ohiofacility.  The current estimate is thatthe remediation activities will continue through 2010.  The Company has a liability for ongoingremediation activities at its Springfield facility of $820,000 and $970,000 atOctober 31, 2003 and January 31, 2003, respectively.

 

**Insurance Litigation**

 

On April 22, 2002, the Circuit Court of the State of Oregon forMultnomah County entered judgment in the Company’s favor for approximately$1.6 million in an action originally brought in 1992 against severalinsurers to recover various expenses incurred in connection with environmentallitigation and related proceedings.  Thejudgment is against two non-settling insurers. Additionally, the judgment requires one of the insurers to defend theCompany in suits alleging liability because of groundwater contaminationemanating from its Fairview, Oregon plant and requires the two insurers to payapproximately 4% of any liability imposed against the Company by judgment orsettlement on or after March 1, 1997 on account of suchcontamination.  The Company and theinsurers have appealed the judgment.  TheCompany has not recorded any amounts that may be recovered from the twoinsurers in its consolidated financial statements.

 

9

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**Note 10—Earnings Per Share**

 

The following table presents the calculation of basic and dilutedearnings per share (in thousands, except per share amounts):

 
|                                                         |   | **Three Months Ended  October 31** |   | **Nine Months Ended  October 31** |   |
|--------------------------------------------------------------|--------|-----------------------------------------|--------|----------------------------------------|--------|
|                                                         |   | **2003**                                |   | **2002**                               |   | **2003** |   | **2002** |   |
| Basic earnings per share:                                    |   |                                    |   |                                   |   |   |   |   |   |
| Net income                                                   |   | $                                       | 5,092  |                                   | $      | 4,418 |   | $ | 16,207 |   | $ | 13,097 |   |
| Preferred stock dividends                                    |   | —                                  |   | —                                 |   | (30 | ) | — |   |
| Net income applicable to common shareholders                 |   | $                                       | 5,092  |                                   | $      | 4,418 |   | $ | 16,177 |   | $ | 13,097 |   |
|                                                         |   |                                    |   |                                   |   |   |   |   |   |
| Weighted average shares of common stock  outstanding         |   | 12,054                                  |   | 11,470                                 |   | 11,882 |   | 11,363 |   |
|                                                         |   | $                                       | 0.42   |                                   | $      | 0.39 |   | $ | 1.36 |   | $ | 1.15 |   |
|                                                         |   |                                    |   |                                   |   |   |   |   |   |
| Diluted earnings per  share:                                 |   |                                    |   |                                   |   |   |   |   |   |
| Net income applicable to common shareholders                 |   | $                                       | 5,092  |                                   | $      | 4,418 |   | $ | 16,177 |   | $ | 13,097 |   |
| Preferred stock dividends                                    |   | —                                  |   | —                                 |   | 30 |   | — |   |
| Net income                                                   |   | $                                       | 5,092  |                                   | $      | 4,418 |   | $ | 16,207 |   | $ | 13,097 |   |
|                                                         |   |                                    |   |                                   |   |   |   |   |   |
| Weighted average shares of common stock  outstanding         |   | 12,054                                  |   | 11,470                                 |   | 11,882 |   | 11,363 |   |
| Assumed conversion of exchangeable preferred stock           |   | —                                  |   | 600                                    |   | 135 |   | 722 |   |
| Dilutive effect of stock options                             |   | 480                                     |   | 132                                    |   | 318 |   | 131 |   |
| Diluted weighted average shares of common stock  outstanding |   | 12,534                                  |   | 12,202                                 |   | 12,335 |   | 12,216 |   |
|                                                         |   | $                                       | 0.41   |                                   | $      | 0.36 |   | $ | 1.31 |   | $ | 1.07 |   |

 

Earnings per share is based on the weighted average number of commonshares and potentially dilutive shares outstanding during the period, computedusing the treasury stock method. Diluted weighted average common shares includes the incremental sharesthat would be issued upon the assumed exercise of stock options, as well as theassumed conversion of exchangeable preferred stock.  For the three month periods ended October 31, 2003 and 2002,no shares and 492,269 shares, respectively, of the Company’s stock options wereexcluded from the calculation of diluted earnings per share because they wereantidilutive, but these options could be dilutive in the future.  For the nine months ended October 31,2003 and 2002, 50,830 shares and 492,269 shares, respectively of the company’sstock options were excluded from the calculation of diluted earnings per sharebecause they were antidilutive, but these options could be dilutive in thefuture.

 

**Note 11—Recent Accounting Pronouncements**

 

In April 2003, the FASB issued SFAS No. 149 (SFAS 149) “Amendmentof Statement 133 on Derivative Instruments and Hedging Activities.” SFAS 149, whichamends and clarifies existing accounting pronouncements, addresses financialaccounting and reporting for derivative or other hybrid instruments.  This Statement requires that contracts withcomparable characteristics be accounted for similarly.  This Statement was effective for contractsentered into or modified after June 30, 2003.  The adoption of SFAS 149 did not have a material impact on theconsolidated 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 issuer classifya financial instrument that is within its scope as a liability or asset, asappropriate.  This Statement waseffective for financial instruments entered into or modified after May 31,2003.  The adoption of SFAS 150 did nothave a material impact on the consolidated financial statements.

 

10

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

 

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

 

### **Critical Accounting Policies andEstimates**

 

Management’sdiscussion and analysis of its financial position and results of operations arebased on the Company’s consolidated financial statements which have beenprepared in accordance with generally accepted accounting principles in theUnited States of America (GAAP).  Thepreparation of these financial statements requires the Company to makeestimates and judgments that affect the reported amounts of assets,liabilities, revenues and expenses and the disclosure of contingent assets andliabilities.  Management evaluates itsestimates and judgments on an on-going basis, including those related touncollectible receivables, inventories, goodwill and long-lived assets,warranty obligations, environmental liabilities and deferred taxes.  The Company bases its estimates onhistorical experience and various other assumptions that are believed to bereasonable under the circumstances. Actual results may differ from these estimates under differentassumptions or conditions.  Adescription of our critical accounting policies and related judgments andestimates that affect the preparation of our consolidated financial statementsis set forth in our Annual Report on Form 10-K for the year ended January 31,2003.

 

**Comparison of Third Quarter of Fiscal 2004and 2003**

 

Consolidatednet income increased to $5.1 million ($0.41 per share) in the three monthsending October 31, 2003 from $4.4 million ($0.36 per share) in the threemonths ended October 31, 2002. Consolidated net sales for the third quarter of fiscal 2004 were $75.8million in comparison with $70.2 million for the third quarter of fiscal2003.  Net income as a percentage ofconsolidated net sales was 6.7% and 6.3% in the third quarter of fiscal 2004and 2003, respectively.

 

Net sales in the third quarter of fiscal 2004 increased 7.9% ascompared to net sales for the third quarter of fiscal 2003.  The primary reason for the increase is aweaker US dollar against the Euro, the British pound and the Canadiandollar.  Excluding the effects ofchanges in foreign currencies, consolidated net sales for the third quarter offiscal 2004 were consistent with fiscal 2003.

 

North America’s sales to unaffiliated customers in the third quarter offiscal 2004 were consistent with the third quarter of fiscal 2003.  Overall lift truck industry shipments inNorth America for the third quarter of fiscal 2004 increased approximately 7%above shipment levels in the comparable period of fiscal 2003.  Historically, the Company has found thatchanges in the level of its net sales do not correspond directly to thepercentage changes in lift truck industry shipments, but industry statistics doprovide a strong indicator of the direction of business activity. The Companybelieves it has continued to maintain its existing market share in NorthAmerica during the third quarter of fiscal 2004.

 

The Company’s sales to unaffiliated customers in Europe increased 20.6%from $16.1 million in the third quarter of fiscal 2003 to $19.4 million in thethird quarter of fiscal 2004.  Excludingthe impact of foreign currency changes ($2.4 million) and business acquisitions($1.7 million), European sales to unaffiliated customers decreasedapproximately 4.7% or $757,000 in the third quarter of fiscal 2004 as comparedto the prior year.  The decrease is dueto competitive pricing in Europe.  Salesin major markets, primarily Germany and France, continue to reflect weak economicconditions.

 

The Company’s remaining sales to unaffiliated customers are primarilyin the Asia Pacific region.  In thethird quarter of fiscal 2004, sales to unaffiliated customers increased 25.7%as compared to the same fiscal 2003 quarter. This increase is primarily attributable to higher sales in China.  Excluding foreign currency fluctuations, netsales in this region increased 13.1%.

 

The Company’s gross profit percentage was 32.8% in the third quarter offiscal 2004, which was lower than the 35.5% gross profit percentage experiencedin the third quarter of fiscal 2003. The decrease is the result of lower margins due to changes in productmix in North America and Europe.

 

The Company’sselling and administrative costs increased 10.5% or $1.5 million in the thirdquarter of fiscal 2004 as compared to the third quarter of fiscal 2003.  Excluding the effect of foreign currencychanges the Company’s selling and administrative costs increased 2.6% or$375,000 over the prior year.  Theincrease includes approximately $500,000 of selling and administrative costsfor businesses acquired during fiscal 2004. The Company has also experienced increases in costs related topostretirement health care costs ($100,000), systems implementation costs($177,000) and compliance with Section 404 of the Sarbanes-Oxley Act($250,000).  These increases have beenpartially offset by cost reductions in several areas to arrive at the overall2.6% increase for the quarter.  As apercentage of net sales, selling and administrative expenses were 21.0% in thethird quarter of 2004 and 20.5% in the third quarter of fiscal 2003.

 

During thethird quarter of fiscal 2003, the Company entered into a settlement agreementwith the City of Portland regarding an environmental lawsuit.  As a result of the settlement, a $2.1 millioncharge was recorded in the quarter.

 

11

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Net interest expense in the third quarter of fiscal 2004 was $931,000as compared to $1.2 million in the third quarter of fiscal 2003.  The decrease is the result of lower overalldebt levels at October 31, 2003 in comparison with October 31, 2002.  Included in net interest expense is $234,000and $364,000 of interest income for the third quarter of fiscal 2004 and 2003,respectively.

 

Other expense in the third quarter of 2004 and 2003 of $126,000 and$291,000, respectively, relates primarily to foreign currency losses.

 

The effective tax rates for the third quarter of fiscal 2004 and 2003were 35% and 36%, respectively.  Thedecrease in the effective tax rate in fiscal 2004 is primarily due to therealization of foreign tax benefits, which is partially offset by valuationallowances on certain deferred tax assets in the United Kingdom and Swedenrecorded in the third quarter of fiscal 2004.

 

The Companyincurred a net loss in Europe of $1.2 million in the third quarter of fiscal2004 as compared to a net loss of $217,000 in the same period of the prioryear.  The increase in the fiscal 2004net loss is due to competitive pricing for certain products, which decreasedgross margins, and the recording of valuation allowances of $379,000 againstcertain deferred tax assets.  TheCompany has accelerated certain current initiatives and is undertaking newinitiatives to address both gross margin and pricing issues.  These initiatives include, but are notlimited to, production realignment between certain European factories,aggressive pursuit of additional European business and the exploration ofproduction possibilities in lower cost areas. All of these initiatives are part of the Company’s ongoing operatingactivities and no restructuring changes are anticipated in conjunction withthese activities.

 

**Comparison of the First Nine Months of Fiscal2004 and 2003.**

 

Consolidatednet income increased to $16.2 million ($1.31 per share) in the nine monthsended October 31, 2003 from $13.1 million ($1.07 per share) in the ninemonths ended October 31, 2002. Consolidated net sales for the first nine months of fiscal 2004 were$220.3 million in comparison with $194.5 million for the first nine months offiscal 2003.  Net income as a percentageof consolidated net sales was 7.4% and 6.7% in the first nine months of fiscal2004 and 2003, respectively.

 

Net sales inthe first nine months of fiscal 2004 increased 13.3% as compared to net salesfor the first nine months of fiscal 2003. This increase reflects the weakening of the U.S. dollar against foreigncurrencies, as well as stronger sales for fiscal 2004 in all majormarkets.  Excluding foreign currencyfluctuations, net sales increased 6.7% for the first nine months of fiscal2004.

 

North America’s sales to unaffiliated customers in the first ninemonths of fiscal 2004 increased 5.5% in comparison with the first nine monthsof fiscal 2003.  Overall lift truckindustry shipments in North America for the first nine months of fiscal 2004increased approximately 10% above shipment levels in the comparable period offiscal 2003.  Historically, the Companyhas found that changes in the level of its net sales do not correspond directlyto the percentage changes in lift truck industry shipments, but industrystatistics do provide a strong indicator of the direction of business activity.The Company believes it has continued to maintain its existing market share inNorth America during the fiscal 2004.

 

Sales to unaffiliated customers in Europe increased 27.3% from $44.9million for the first nine months of fiscal 2003 to $57.1 million for thefirst nine months in fiscal 2004. Excluding the impact of foreign currency changes ($7.8 million) andbusiness acquisitions ($3.7 million), European sales to unaffiliated customersincreased approximately 1.7% or $762,000 for the first nine months offiscal 2004 as compared to the comparable period in fiscal 2003.    Overall the market still continues to beunpredictable from quarter to quarter with depressed economic conditions inseveral of the major markets, primarily France and Germany.

 

The remaining sales to unaffiliated customers, primarily Asia andAustralia, increased 25.9% for the first nine months of fiscal 2004 ascompared to the same period in fiscal 2003. Excluding the impact of strengthening foreign currencies, the increasein sales to unaffiliated customers in the Asia Pacific region was approximately17.1%.   This increase is primarilyattributable to sales increases in China, but sales levels in all other marketshave also increased over the prior year.

 

The Company’sgross profit percentage was 32.9% for the first nine months of fiscal2004, which is below the 34.9% gross profit percentage experienced in the firstnine months of fiscal 2003.  Theresulting decrease is due to lower margins resulting from changes in productmix in both North America and Europe.

 

TheCompany’s selling and administrative costs increased 10.1% or $4.2 million inthe nine months ended October 31, 2003 as compared to the prior year.  Excluding the effect of foreign currencychanges the Company’s selling and administrative costs increased 3.1% over theprior year.  The increase includesapproximately $780,000 of selling and administrative costs for businessesacquired during fiscal 2004.  TheCompany has also experienced increases in costs related to postretirementhealth care costs ($450,000), systems implementation costs ($239,000) andcompliance with Section 404 of the Sarbanes-Oxley Act ($500,000).  These increases have been partially offsetby cost reductions in several areas to arrive at the overall 3.1% increase forthe quarter.  As a percentage of netsales, selling and administrative expenses were 20.8% in the nine month periodended October 31, 2003 and 21.4% in the nine month period ended October 31,2002.

 

Duringthe third quarter of fiscal 2003, the Company entered into a settlementagreement with the City of Portland regarding an environmental lawsuit.  As a result of the settlement, a $2.1million charge was recorded in the quarter.

 

Interest expense, net of interest income, for the firstnine months of fiscal 2004 was $2.7 million as compared to$3.4 million for the first nine months of fiscal 2003. The decrease is theresult of lower overall debt levels at October 31, 2003 in comparison withJanuary 31, 2003.  Interest income was$780,000 and $1.1 million in the first nine months of fiscal 2004 and 2003,respectively.

 

12

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Other income of $273,000 in the first nine months of fiscal 2004relates primarily to the gain on the sale of a building in Germany of $205,000and $367,000 for the elimination of remaining liabilities from the sale of theCompany’s cylinders division of $367,000. These items were offset by other miscellaneous expenses.  Other expense of $136,000 in 2003 relates toforeign currency losses.

 

The effective tax rates for the first nine months of fiscal 2004and 2003 were 33% and 36%, respectively. The decrease in the effective tax ratein fiscal 2004 is primarily due to the realization of foreign tax benefits.

 

The Company’snet loss in Europe in the first nine months of fiscal 2004 was $1.5 million ascompared to a loss of $68,000 in the prior year.  This increase is due to price competition on certain products andthe recording of valuation allowances on deferred tax assets.

 

**Liquidity and Capital Resources**

 

The Company generated $24.5 million in cash from operations duringthe nine months ended October 31, 2003, consistent with $24.3 millionfor the nine months ended October 31, 2002. Increases in net income, depreciation expense and accounts payable forthe first nine months of fiscal 2004 were offset by an increase in accountsreceivable.  The increase in accountsreceivable and accounts payable are due to increased business levels in2004.  Cash and cash equivalents atOctober 31, 2003 and January 31, 2003, totaled $25.6 million and$29.5 million, respectively.

 

At October 31, 2003, the Company also held marketable securitiestotaling $17.2 million.  Thesesecurities consist of asset-backed notes issued by various state agenciesthroughout the United States and guaranteed by the United States or stategovernments and agencies.  The notes arelong-term instruments maturing through 2031; however, the interest rates andmaturities are reset approximately every month, at which time the Company cansell the notes.  Accordingly, theCompany has classified the notes as short-term in its consolidated balancesheet.  Tax-free interest rates on thenotes range from .8% to .9% per annum.

 

Total outstanding debt at October 31, 2003 was $64.9 millionas compared to $63.9 million at January 31, 2003.  The increase in outstanding debt is due todebt assumed with business acquisitions in fiscal 2004.  The Company’s debt to equity ratio atOctober 31, 2003 decreased to .36 to 1 from .44 to 1 at January 31,2003.  Any additional payments to prepayoutstanding debt balances in advance of scheduled maturity dates are subject tosignificant penalties.  See Item 3,Quantitative and Qualitative Disclosures About Market Risk.  As of October 31, 2003, the Company hadavailable short-term lines of credit with commercial banks totaling $32.3million.  The Company believes itsavailable cash, cash flows from operations and credit facilities are more thansufficient to meet its short-term requirements.

 

Capital expenditures for the nine months ended October 31, 2003,excluding the business acquisitions, were $8.8 million compared with $5.7million during the corresponding period in the prior year.  Excluding acquisitions, the Company expectsfiscal 2004 capital expenditures to be consistent with fiscal 2003.  The Company plans to use cash flows fromoperations and existing credit facilities to fund current year capitalexpenditures.

 

During the first nine months of fiscal 2004 the Company paid dividendsof $3.6 million to shareholders.  Nodividends were paid in the first nine months of fiscal 2003.  The Company’s Board of Directors reinstatedthe payment of quarterly dividends in the fourth quarter of fiscal 2003.

 

During the nine months ended October 31, 2003, the U.S. dollar weakenedagainst the major currencies included in the Company’s consolidated financialstatements.  As a result, the cumulativetranslation adjustment increased shareholders’ equity by $12.1 million forthe nine months ended October 31, 2003.

 

The Company received note payments of $9.6 million in the first nine monthsof fiscal 2004 from Precision Cylinders, Inc. (Precision).  The amounts represent full payment of allamounts due from Precision related to the Company’s sale of its cylinderdivision to Precision in fiscal 2002.

 

**Recent Accounting Pronouncements**

 

In April 2003, the FASB issued SFAS No. 149 (SFAS 149) “Amendmentof Statement 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 was effective for contractsentered into or modified after June 30, 2003.  The adoption of SFAS 149 did not have a material impact on theconsolidated 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 or asset,as appropriate.  This Statement waseffective for financial instruments entered into or modified after May 31,2003.  The adoption of SFAS 150 did nothave a material impact on the consolidated financial statements.

 

13

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**Forward-Looking Statements**

 

Forward-lookingstatements throughout this report are based upon assumptions involving a numberof risks and uncertainties.  Factorswhich could cause actual results to differ materially from theseforward-looking statements include, but are not limited to competitive factorsin, and the cyclical nature of, the lift truck industry; fluctuations in lifttruck orders or deliveries; availability and cost of raw materials; generalbusiness and economic conditions in North America, Europe, Australia and Asia;foreign currency fluctuations; and the effectiveness of the Company’s costreduction initiatives.

 

14

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Market risk is the potential loss arising from adverse changes inmarket rates and prices, such as foreign currency exchange rate and interestrate fluctuations.  A significantportion of the Company’s revenues and expenses 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.

 

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Based on the scheduled debt payments during fiscal 2003 and certainpayment restrictions on its remaining debt, substantially all of the Company’sdebt at October 31, 2003 has a fixed interest rate.  Any additional payments to prepay scheduledamounts of debt are subject to penalties. At October 31, 2003, the penalties to retire all of the Company’slong-term debt were $5.9 million.  A hypothetical1% increase in market interest rates would result in a $1.3 million reductionin the fair market value of the Company’s long term outstanding debt at October31, 2003.

 

Item 4. Controls and Procedures

 

As of October 31, 2003, the end of the period covered by this report,the Company reviewed and evaluated, under the supervision and with theparticipation of management, including its Chief Executive Officer and ChiefFinancial Officer, the effectiveness of the design and operation of theCompany’s “disclosure controls and procedures” (as defined in Exchange Act Rule13a-15(e) and 15d-15(e)) of the Securities and Exchange Act of 1934 (ExchangeAct).  Based on that evaluation, theChief Executive Officer and Chief Financial Officer have concluded that thedisclosure controls and procedures are effective in ensuring that informationrequired to be disclosed by the Company in reports that it files or submitsunder the Exchange Act is recorded, processed, summarized and reported withinthe time periods specified in the Securities and Exchange Commission’s rulesand forms.

 

There were no changes in the Company’s internal controls over financialreporting (as defined in Rules 13a – 15(f) and 15d – 15(f) of the Exchange Act)that occurred during the period covered by this report that have materiallyaffected, or are reasonably likely to materially affect, the Company’s internalcontrols over financial reporting.

 

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**CASCADE CORPORATION**

 

**PART II—OTHER INFORMATION**

 

Item 1. Legal Proceedings

 

None

 

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

 

Jack B. Schwartz tendered his resignation as a director of the Companyeffective September 30, 2003.  Mr.Schwartz had been a director since 1995.

 

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Item 6. Exhibit and Reports on Form 8-K

 
| (A)    | **Exhibits**                                                                                                                                                                      |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |
|   | 31.1                                                                                                                                                                              | Certification of Chief Executive Officer of Cascade Corporation. |
|   |
|   | 31.2                                                                                                                                                                              | Certification of Chief Financial Officer of Cascade Corporation. |
|   |                                                                                                                                                                              |
|   | 32.1                                                                                                                                                                              | Certification of Chief Executive Officer pursuant to 18 U.S.C.  Section 1350. |
|   |
|   | 32.2                                                                                                                                                                              | Certification of Chief Financial Officer pursuant to 18 U.S.C.  Section 1350. |
|   |
| (B)    | **Reports on Form 8-K**                                                                                                                                                      |
|   |
|   | The Company filed a Current Report on Form 8-K dated August 26, 2003,  with respect to the Company’s press release reporting results for the second  fiscal quarter of 2004. |

 

**SIGNATURES**

 

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

 
|              | CASCADE CORPORATION                                                                                |
|-------------------|----------------------------------------------------------------------------------------------------|
| December 15, 2003 |                                                                                               |
|              |                                                                                               |
|              | /s/ Richard S. Anderson                                                                            |
|              | Richard S. Anderson                                                                                |
|              | *Senior Vice President and  Chief Financial Officer  (Principal Financial and Accounting Officer)* |

 

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