**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-K**

 
| **(Mark One)**                                                                                                                                       |
|------------------------------------------------------------------------------------------------------------------------------------------------------|
| **ý**                                                                                                                                           | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                 |   |
| **For the fiscal year ended January 31,  2004**                                                                                                 |
|                                                                                                                                                 |
| **OR**                                                                                                                                               |
|                                                                                                                                                 |   |
| **o**                                                                                                                                                | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                 |   |
| **For the transition period  from          to           ** |

 

**Commission file number 1-12557**

 

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**CASCADE CORPORATION**

(Exact name of registrant as specified in itscharter)

 
| **Oregon**                                                                 |   | **93-0136592**                       |
|----------------------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of  incorporation or organization)            |   | (I.R.S. Employer Identification No.) |
|                                                                       |   |                                 |
| **2201 N.E. 201st Ave. Fairview, Oregon  97024-9718**                      |
| (Address of principal executive office)  (Zip Code)                        |
|                                                                       |   |                                 |
| Registrant’s telephone number, including  area code: **503-669-6300** |
|                                                                       |   |                                 |
| Securities registered pursuant to  Section 12(b) of the Act:          |
| **Common Stock, par value $.50 per share**                                 |
|                                                                       |   |                                 |
| Name of exchange on which registered: **New York Stock Exchange**          |
|                                                                       |   |                                 |
| Securities registered pursuant to  Section 12(g) of the Act: **None** |

 

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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 if disclosure of delinquent filers pursuant toItem 405 of Regulation S-K is not contained herein, and will not becontained, to the best of the registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of thisForm 10-K or any amendment to this Form 10-K.  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 aggregate market value of common stock held by non-affiliates ofthe registrant as of July 31, 2003 was $232,047,122, based on the closing saleprice of the common stock on the New York Stock Exchange on that date.

 

The number of shares outstanding of the registrant’s common stock as ofMarch 15, 2004 was 12,102,247.

 

**DOCUMENTS INCORPORATED BY REFERENCE**

 

Portions of the definitive Proxy Statement to be filed within 120 daysafter the registrant’s fiscal year end of January 31, 2004, to be delivered toshareholders in connection with the Annual Meeting of Shareholders to be heldMay 26, 2004 are incorporated by reference into Part III.

 

 

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**TABLE OF CONTENTS**

 
| PART I     |      |                                                                                        |                        |
|------------|-----------|---------------------------------------------------------------------------------------------|-----------------------------|
|       | Item 1.   | Business:                                                                                   |                        |
|       |      |                                                                                        | General                     |   |
|       |      |                                                                                        | Products                    |   |
|       |      |                                                                                        | Markets                     |   |
|       |      |                                                                                        | Competition                 |   |
|       |      |                                                                                        | Customers                   |   |
|       |      |                                                                                        | Backlog                     |   |
|       |      |                                                                                        | Research and Development    |   |
|       |      |                                                                                        | Environmental Matters       |   |
|       |      |                                                                                        | Employees                   |   |
|       |      |                                                                                        | Foreign Operations          |   |
|       |      |                                                                                        | Available information       |   |
|       |      |                                                                                        | Forward-looking  Statements |   |
|       | Item 2.   | Properties                                                                                  |                        |
|       | Item 3.   | Legal Proceedings                                                                           |                        |
|       | Item 4.   | Submission of Matters to a Vote of Security  Holders                                        |                        |
|       | Item 4A.  | Executive Officers of the Registrant                                                        |                        |
| PART II    |      |                                                                                        |                        |
|       | Item 5.   | Market for Registrant’s Common Equity and  Related Stockholder Matters                 |                        |
|       | Item 6.   | Selected Financial Data                                                                     |                        |
|       | Item 7.   | Management’s Discussion and Analysis of  Financial Condition and Results of Operations |                        |
|       | Item 7A.  | Quantitative and Qualitative Disclosures  About Market Risk                                 |                        |
|       | Item 8.   | Financial Statements and Supplementary Data                                                 |                        |
|       | Item  9.  | Changes in and Disagreements With  Accountants on Accounting and Financial Disclosure       |                        |
|       | Item  9A. | Controls and Procedures                                                                     |                        |
| PART  III  |      |                                                                                        |                        |
|       | Item  10. | Directors and Executive Officers of the  Registrant                                         |                        |
|       | Item  11. | Executive Compensation                                                                      |                        |
|       | Item  12. | Security Ownership of Certain Beneficial  Owners and Management                             |                        |
|       | Item  13. | Certain Relationships and Related  Transactions                                             |                        |
| PART  IV   |      |                                                                                        |                        |
|       | Item  14. | Principal Accounting Fees and Services                                                      |                        |
|       | Item  15. | Exhibits, Financial Statement Schedules,  and Reports on Form 8-K                      |                        |
| SIGNATURES |      |

 

NOTE: All references to fiscal years are defined as year endedJanuary 31, 2004 (fiscal 2004), year ended January 31, 2003 (fiscal2003) and year ended January 31, 2002 (fiscal 2002).

 

**Forward-looking Statements**

** **

This Annual Report on Form 10-K, including“Management’s Discussion and Analysis of Financial Condition and Results ofOperations” in Item 7 contains forward-looking statements that involve risksand uncertainties, as well as assumptions which, if they never materialize orprove incorrect, could cause the results of the Company to differ materiallyfrom those expressed or implied by such forward-looking statements.  All statements other than statements ofhistorical fact are statements that could be deemed forward-looking statements,including any projections of revenue, gross margin, expenses, earnings orlosses from operations, synergies or other financial items; any statements ofplans, strategies, and objectives of management for future operations; anystatements regarding future economic conditions or performance; any statementsof expectation or belief; and any statements of assumptions underlying any ofthe foregoing.  The risks,uncertainties, and assumptions referred to above include, but are not limitedto, competitive factors in, and the cyclical nature of, the materials handlingindustry; fluctuations in lift truck orders or deliveries, availability andcost of raw materials; general business and economic conditions in NorthAmerica, Europe, Australia and Asia; assumptions relating to pension and otherpost-retirement costs, foreign currency fluctuations; pending litigation;environmental matters; and the effectiveness of the Company’s capitalexpenditures and cost reduction initiatives. The Company undertakes no obligation to publicly revise or updateforward-looking statements to reflect events or circumstances that arise afterthe date of this report.

 

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**PARTI**

 

**Item1.  Business**

 

**General**

 

Cascade Corporation was organized in 1943 under the laws of the Stateof Oregon. The term “the Company” includes Cascade Corporation and itssubsidiaries. The Company’s headquarters are located in Fairview, Oregon, asuburb of Portland, Oregon. The Company is one of the world’s leadingmanufacturers of materials handling load engagement devices and relatedreplacement parts, primarily for the lift truck industry.

 

**Products**

 

The Company manufactures an extensive range of materials handling loadengagement products that are widely used on forklift trucks and, to a lesserextent, on construction and agricultural vehicles.

 

The Company’s products are primarily manufactured with the Cascade andCascade-Kenhar names and symbols, for which the Company has secured trademarkprotection. The primary function of these products is to provide the lift truckwith the capability of engaging, lifting, repositioning, carrying anddepositing various types of loads and products. The Company offers a widevariety of functionally different products, each of which has numerous sizes,models, capacities and optional combinations. Products are designed to handleloads with pallets and for specialized application loads without pallets.Examples of specialized products include devices specifically designed tohandle loads such as appliances, paper rolls, baled materials, textiles,beverage containers, drums, canned goods, bricks, masonry blocks, lumber,plywood and boxed, packaged and containerized products.

 

The Company’s products are subject to strict design, construction andsafety requirements established by industry associations and the InternationalOrganization for Standardization (ISO). Major manufacturing facilities are ISOcertified. The Company presently offers a wide variety of both standardized andspecialized products. Product specifications and characteristics are determinedby the expected capacity to be lifted, the characteristics of the load, theambient environment in which employed, the terrain over which the load will bemoved and the operational life cycle of the vehicle. Accordingly, while thereare some standard products, the market demands a wide range of products incustom configurations and capacities.

 

Manufacturing of the Company’s products includes the purchase of rawmaterials and components: principally rolled, bar, plate and extruded steelproducts; unfinished castings and forgings; hydraulic cylinders and motors; andhardware items such as fasteners, rollers, hydraulic seals and hose assemblies.A portion of the Company’s bar steel purchases are obtained under annual pricingarrangements, which do not require minimum quantity purchases. Certainpurchased parts are provided worldwide by a limited number of suppliers.  The Company is not currently experiencingany shortages in obtaining raw materials or purchased parts. Difficulties inobtaining alternative sources of rolled, bar, plate and extruded steel productsand other materials from one of its primary suppliers could affect operatingresults.

 

**Markets**

 

The Company markets its products throughout North and South America, Europe,the Middle East and the Asia-Pacific region. Primary customers are companies and industries that use lift trucks formaterials handling. Examples of these industries include pulp and paper,grocery products, textiles, recycling and general consumer goods. The Company’sproducts are sold to the ultimate customer through the retail lift truck dealerdistribution channel and to lift truck manufacturers as original equipmentmanufacturers (OEM’s) equipment.

 

In the major industrialized countries, lift trucks are a widelyutilized method of materials handling. In these markets lift trucks aregenerally considered maintenance capital investment. This makes the industrysubject to cyclicality patterns similar to the broader capital goods economicsector.

 

1

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However, many of the Company’s products measurably improve overallmaterials handling and lift truck productivity. Further, products to serve newtypes of materials handling applications are continually being developed tomeet specific customer and industry requirements. In this sense the Company’sproducts may also be generally considered as both maintenance and productivityenhancing investment. Historically this has somewhat reduced the negativeimpact of downward trends in the lift truck market on the Company’s net sales.

 

In the emerging industrialized countries, China in particular, lifttrucks are replacing manual labor and other less productive methods ofmaterials handling. As such lift trucks are generally considered productivityenhancing investments in these markets. The Company believes this makes lift truck markets in these countriesgenerally less susceptible to downward trends in capital goods spending. TheCompany’s relatively limited experience in these emerging markets supports thisobservation.

 

**Competition**

 

The Company is one of the leading domestic and foreign independentsuppliers of load engagement products for industrial forklift trucks. Severallift truck manufacturers, who are customers of the Company, are alsocompetitors in varying degrees to the extent that they manufacture a portion oftheir load engagement product requirements. Since the Company offers a broadline of products capable of supplying a significant part of the totalrequirements for the entire lift truck industry, its experience has shown thatlower costs resulting from its relatively high unit volume would be difficultfor any individual lift truck manufacturer to achieve.

 

In addition to lift truck manufacturers, the Company competes with anumber of companies in different parts of the world. The majority of thesecompetitors are privately-owned companies with a strong presence in local andregional markets.  Only a smaller portionof these competitors compete with the Company globally.

 

The Company’s market share throughout the world varies by geographicregion. The Company believes it is the leading manufacturer in North Americaand the preferred supplier of many OEMs as well as OEDs (originalequipment dealers) and distributors. The Company also has significant marketshare in Europe and is continuing its sales and manufacturing expansion intothe Asia Pacific region. In addition to sales to the lift truck market, theCompany sells products to OEMs who manufacture construction, mining,agricultural and industrial mobile equipment other than lift trucks.

 

The Company designs and positions its products to be the performanceand service leaders in their respective product categories and geographicmarkets. As such, the Company’s products are also generally priced higher thancompetitive products. In certain geographic markets the Company competesprincipally on price for products that are considered to be commodity productsin nature.

 

**Customers**

 

The Company’s products are marketed and sold to OEMs, OEDs anddistributors globally.  The Company’sprimary markets are North America, Europe and Asia Pacific, which includesAustralia.  No single customer accountsfor more than 10% of the Company’s consolidated net sales. Approximately 35% ofthe Company’s consolidated net sales for the year ended January 31, 2004were to OEM customers. This percentage is comparable to prior years.

 

2

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**Backlog**

 

The Company’s products are manufactured with short lead times ofgenerally less than one month. Accordingly, the Company does not believe thelevel of backlog orders is a significant factor in evaluating the Company’soverall level of business activity.

 

**Research and Development**

 

Most of the Company’s research and development activities are performedat the Company’s corporate headquarters in Fairview, Oregon and at itsmanufacturing facility in Guelph, Ontario, Canada. The Company’s engineeringstaff develops and designs substantially all of the products sold by theCompany and is continually involved in developing products for newapplications. The Company does not consider patents to be important to itsbusiness.

 

**Environmental Matters**

 

From time to time the Company is the subject of investigations,conferences, discussions, and negotiations with various federal, state, localand foreign agencies with respect to cleanup of hazardous waste and compliancewith environmental laws and regulations. Note 16 to the ConsolidatedFinancial Statements (Item 8), “Legal Proceedings” (Item 3) and“Management’s Discussion and Analysis of Financial Conditions and Results ofOperations” (Item 7) contain additional information concerning theCompany’s environmental matters.

 

**Employees**

 

At January 31, 2004, the Company had approximately 1,700 full-timeemployees throughout the world. The majority of these employees are not subjectto collective bargaining agreements.

 

**Foreign Operations**

 

The Company has substantial operations outside the United States. Thereare additional business risks attendant to the Company’s foreign operationssuch as the risk that the relative value of the underlying local currencies mayweaken when compared to the U.S. dollar. For further information about foreignoperations, see “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” (Item 7) and Notes to Consolidated FinancialStatements (Item 8).

 

**Available Information**

 

The Company’s annual report on Form 10-K, quarterly reports onForm 10-Q, current reports on Form 8-K, and amendments to reportsfiled or furnished pursuant to Sections 13(a) or 15(d) of the SecuritiesExchange Act of 1934, as amended, are available on the Company’s website atwww.cascorp.com when such reports are available on the Securities and ExchangeCommission website.

 

3

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**Item2.  Properties**

 

The Company owns and leases various types of properties locatedthroughout the world. The Company’s executive offices are located in Fairview,Oregon. The Company generally considers the productive capacity of itsmanufacturing facilities to be adequate and suitable to meet itsrequirements.  The Company’s primarylocations are presented below:

 
| **Location**               |   | **Primary  Activity**      |   | **Approximate  Square  Footage** |   | **Status** |
|----------------------------|--------|----------------------------|--------|----------------------------------|--------|------------|
|                       |   |                       |   |                             |   |       |
| **NORTH AMERICA**          |   |                       |   |                             |   |       |
| Springfield, Ohio          |   | Manufacturing              |   | 200,000                          |   | Owned      |
| Fairview, Oregon           |   | Manufacturing/Headquarters |   | 155,000                          |   | Owned      |
| Guelph, Ontario Canada     |   | Manufacturing              |   | 125,000                          |   | Owned      |
| Toronto, Ontario Canada    |   | Manufacturing              |   | 73,000                           |   | Leased     |
| Warner Robins, Georgia     |   | Manufacturing              |   | 65,000                           |   | Owned      |
| Findlay, Ohio              |   | Manufacturing              |   | 52,000                           |   | Owned      |
| **EUROPE**                 |   |                       |   |                             |   |       |
| Almere, The Netherlands    |   | Manufacturing              |   | 162,000                          |   | Owned      |
| Verona, Italy              |   | Manufacturing              |   | 74,000                           |   | Leased     |
| Hoorn, The Netherlands     |   | Manufacturing              |   | 74,000                           |   | Owned      |
| Manchester, England        |   | Manufacturing              |   | 44,000                           |   | Owned      |
| La Machine, France         |   | Manufacturing              |   | 37,000                           |   | Owned      |
| Brescia, Italy             |   | Manufacturing              |   | 19,000                           |   | Owned      |
| Hagen, Germany             |   | Manufacturing              |   | 31,000                           |   | Leased     |
| Monchengladbach, Germany   |   | Sales                      |   | 15,000                           |   | Leased     |
| Sheffield, England         |   | Sales                      |   | 10,000                           |   | Leased     |
| Vaggeryd, Sweden           |   | Sales                      |   | 2,000                            |   | Leased     |
| Morangis, France           |   | Sales                      |   | 2,000                            |   | Leased     |
| Barcelona, Spain           |   | Sales                      |   | 1,000                            |   | Leased     |
| Vantaa, Finland            |   | Sales                      |   | 500                              |   | Leased     |
| **ASIA PACIFIC**           |   |                       |   |                             |   |       |
| Xiamen, China              |   | Manufacturing              |   | 72,000                           |   | Owned      |
| Brisbane, Australia        |   | Manufacturing              |   | 46,000                           |   | Leased     |
| Hebei, China               |   | Manufacturing              |   | 65,000                           |   | Leased     |
| Osaka, Japan               |   | Sales/Distribution         |   | 16,000                           |   | Leased     |
| Inchon, Korea              |   | Manufacturing              |   | 12,000                           |   | Owned      |
| Auckland, New Zealand      |   | Sales/Distribution         |   | 9,000                            |   | Leased     |
| Johannesburg, South Africa |   | Sales/Distribution         |   | 9,000                            |   | Leased     |

 

**Item3.  Legal Proceedings**

 

Neither the Company nor any of its subsidiaries are involved in anymaterial pending legal proceedings other than litigation related toenvironmental matters discussed below. The Company and its subsidiaries areinsured against product liability, personal injury and property damage claims,which may occasionally arise.

 

4

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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. The judgment is against two non-settlinginsurers. 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 such contamination. TheCompany and the insurers have appealed the judgment. The Company has notrecorded any amounts that may be recovered from the two insurers in itsconsolidated financial statements.

 

**Item4.  Submission of Matters to a Vote ofSecurity Holders**

 

None

 

# **Item 4A. Executive Officers of the Registrant**

 

**Robert C. Warren, Jr.—Chief Executive Officerand President**—Mr. Warren, 55, has served asPresident and Chief Executive Officer of the Company since 1996. He wasPresident and Chief Operating Officer of the Company from 1993 until 1996 andwas formerly Vice President—Marketing. Mr. Warren joined Cascade in 1972.

 

**Gregory S. Anderson—Senior VicePresident—Human Resources**—Mr. Anderson, 55, wasappointed to his current position in 2002. He joined Cascade in 1984, and hasserved as Vice President—Human Resources since 1991.

 

**Richard S. Anderson—Senior Vice President andChief Financial Officer**—Mr. Anderson, 56, wasappointed Chief Financial Officer in 2001. Mr. Anderson has been employedby Cascade since 1972 and held several positions including his appointments asVice President—Material Handling Product Group in 1996 and Senior VicePresident—International in 1999.

 

**Terry H. Cathey—Senior Vice President andChief Operating Officer**—Mr. Cathey, 55, hasserved as Chief Operating Officer since 2000. He has been employed by Cascadesince 1973 and has held several positions within the Company, including hisappointments as Vice President—Material Handling Operations in 1996 and VicePresident—Manufacturing in 1993.

 

**Michael E. Kern, Vice President—MHP Marketingand Sales**—Mr. Kern, 57, has served as VicePresident—MHP Marketing and Sales since 2003. He has been employed by Cascade since 1966 and has held severalpositions within the Company, including his appointments as Director of DealerMarketing and Sales in 2001 and Aftermarket Sales Manager in 1999.

 

**Charlie S. Mitchelson, Vice President andManaging Director, Europe**—Mr. Mitchelson, 48,joined Cascade in 1990. Prior to his current appointment as ManagingDirector—Europe in 1998, Mr. Mitchelson served as Managing Director ofU.K. Cylinder Division from 1995 to 1998.

 

**Jeffrey K. Nickoloff, VicePresident—Corporate Manufacturing**—Mr. Nickoloff,48, was appointed to his current position in 2002. He has held severalpositions with Cascade including his appointments as Director of North AmericanManufacturing in 2000 and Plant Manager in 1993. Mr. Nickoloff joined theCompany in 1979.

 

**Joseph G. Pointer, Vice President—Finance**—Mr. Pointer,43, has served as Vice President—Finance since 2000. Prior to joining theCompany in 2000, Mr. Pointer was a Partner at PricewaterhouseCoopers LLPin Portland, Oregon.

 

**Anthony F. Spinelli, Vice President—OEMProducts**—Mr. Spinelli, 61, has served as VicePresident—OEM Products, since 2001. Prior to 2001, he was Managing Director,Canadian Operations. Mr. Spinelli joined Cascade in 1997 when the Companypurchased Kenhar Corporation where he had served as President, Kenhar Americas.

 

**John A. Cushing—Treasurer**—Mr. Cushing, 43, was appointed as Treasurerin 2001. He previously was the Company’s Assistant Treasurer from 1999 until2001.  Prior to joining the Company in1999, Mr. Cushing was Assistant Treasurer for Fred Meyer, Inc., a retailcompany in Portland, Oregon.

 

5

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**PARTII**

 

**Item5.  Market for Registrant’s CommonEquity and Related Stockholder Matters**

 

As of January 31, 2004, there were 231 holders of the Company’scommon stock including blocks of shares held by various depositories. It is theCompany’s belief that when the shares held by the depositories are attributedto the beneficial owners, the total exceeds 2,100.

 

**Market Information**

 

The high and low sales prices of the common stock of CascadeCorporation based on intra-day prices on the New York Stock Exchange were asfollows:

 
|                |   | **Year Ended  January 31** |        |
|---------------------|--------|----------------------------|-------------|
|                |   | **2004**                   |        | **2003** |   |
|                |   | **High**                   |        | **Low** |   | **High** |   | **Low** |   |
|                |   |                       |        |   |   |   |   |   |   |
| Market price range: |   |                       |        |   |   |   |   |   |   |
| First quarter       |   | $                          |  15.48 |   | $ |  13.80 |   | $ |  14.70 |   | $ |  11.75 |   |
| Second quarter      |   | 19.57                      |        | 14.03 |   | 15.74 |   | 12.85 |   |
| Third quarter       |   | 24.37                      |        | 17.83 |   | 14.99 |   | 12.30 |   |
| Fourth quarter      |   | 27.49                      |        | 20.09 |   | 16.74 |   | 12.38 |   |
|                     |        |                            |             |  |  |  |  |  |  |  |  |  |  |

 

**Common Stock Dividends**

 

The common stock dividends declared by the Company were as follows:

 
|           |   | **Year Ended  January 31** |   |
|----------------|--------|----------------------------|--------|
|           |   | **2004**                   |   | **2003** | ** ** |
| First quarter  |   | $                          | .10    |   | $ | — |   |
| Second quarter |   | .10                        |   | — |   |
| Third quarter  |   | .10                        |   | — |   |
| Fourth quarter |   | .11                        |   | .10 |   |
| Total          |   | $                          | .41    |   | $ | .10 |   |

 

**Stock Exchange Listing and Transfer Agent**

 

The Company’s stock is traded on the New York Stock Exchange under thesymbol CAE.

 

The Company’s registrar and transfer agent is Mellon Shareholder Services,L.L.C., Shareholder Relations, P.O. Box 3315, South Hackensack, N.J.,07606, (800) 522-6645.

 

6

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**Item6.  Selected Financial Data**

 
|                                                         |   | **Year Ended  January 31**                                  |    |
|--------------------------------------------------------------|--------|-------------------------------------------------------------|---------|
|                                                         |   | **2004**                                                    |    | **2003** |   | **2002** |   | **2001** |   | **2000** |   |
|                                                         |   | **(In thousands,  except per share amounts and employees)** |    |
|                                                         |   |                                                        |    |   |   |   |   |   |   |   |   |
| **Income statement data(1):**                                |   |                                                        |    |   |   |   |   |   |   |   |   |
| Net sales                                                    |   | $                                                           | 297,756 |   | $ | 258,829 |   | $ | 252,715 |   | $ | 301,358 |   | $ | 301,652 |   |
| Operating income                                             |   | $                                                           | 32,025  |   | $ | 32,744 |   | $ | 13,433 |   | $ | 24,909 |   | $ | 19,536 |   |
| Income from continuing operations                            |   | $                                                           | 18,506  |   | $ | 17,707 |   | $ | 5,302 |   | $ | 9,774 |   | $ | 5,424 |   |
| Net income                                                   |   | $                                                           | 18,506  |   | $ | 17,707 |   | $ | 4,127 |   | $ | 11,863 |   | $ | 4,934 |   |
| **Cash flow data:**                                          |   |                                                        |    |   |   |   |   |   |   |   |   |
| Cash flows from operating activities                         |   | $                                                           | 26,407  |   | $ | 23,941 |   | $ | 34,836 |   | $ | 28,049 |   | $ | 50,135 |   |
| Cash flows from investing activities(2)                      |   | $                                                           | (19,612 | ) | $ | (7,718 | ) | $ | (3,201 | ) | $ | (6,228 | ) | $ | 12,411 |   |
| Cash flows from financing activities                         |   | $                                                           | (14,881 | ) | $ | (18,056 | ) | $ | (16,405 | ) | $ | (31,317 | ) | $ | (45,675 | ) |
| **Stock information:**                                       |   |                                                        |    |   |   |   |   |   |   |   |   |
| Basic earnings per share:                                    |   |                                                        |    |   |   |   |   |   |   |   |   |
| Income from continuing operations                            |   | $                                                           | 1.55    |   | $ | 1.55 |   | $ | 0.47 |   | $ | 0.84 |   | $ | 0.44 |   |
| Net income                                                   |   | $                                                           | 1.55    |   | $ | 1.55 |   | $ | 0.36 |   | $ | 1.02 |   | $ | 0.40 |   |
| Diluted earnings per share:                                  |   |                                                        |    |   |   |   |   |   |   |   |   |
| Income from continuing operations                            |   | $                                                           | 1.49    |   | $ | 1.45 |   | $ | 0.44 |   | $ | 0.80 |   | $ | 0.44 |   |
| Net income                                                   |   | $                                                           | 1.49    |   | $ | 1.45 |   | $ | 0.34 |   | $ | 0.97 |   | $ | 0.40 |   |
| Book value per common share                                  |   | $                                                           | 15.18   |   | $ | 12.70 |   | $ | 10.03 |   | $ | 10.18 |   | $ | 9.87 |   |
| Dividends declared                                           |   | $                                                           | 0.41    |   | $ | 0.10 |   | $ | — |   | $ | 0.20 |   | $ | 0.40 |   |
| **Balance sheet information:**                               |   |                                                        |    |   |   |   |   |   |   |   |   |
| Working capital                                              |   | $                                                           | 81,720  |   | $ | 71,201 |   | $ | 66,011 |   | $ | 64,747 |   | $ | 66,167 |   |
| Property, plant and equipment, net                           |   | $                                                           | 75,244  |   | $ | 65,863 |   | $ | 61,412 |   | $ | 77,235 |   | $ | 86,716 |   |
| Total assets                                                 |   | $                                                           | 292,819 |   | $ | 262,317 |   | $ | 247,286 |   | $ | 282,620 |   | $ | 315,588 |   |
| Long-term debt                                               |   | $                                                           | 38,111  |   | $ | 50,113 |   | $ | 65,679 |   | $ | 87,513 |   | $ | 109,043 |   |
| Shareholders’ equity                                    |   | $                                                           | 183,688 |   | $ | 144,748 |   | $ | 113,267 |   | $ | 116,503 |   | $ | 112,933 |   |
| **Other:**                                                   |   |                                                        |    |   |   |   |   |   |   |   |   |
| Capital expenditures(1)                                      |   | $                                                           | 11,403  |   | $ | 10,665 |   | $ | 7,303 |   | $ | 5,549 |   | $ | 13,811 |   |
| Depreciation(1)                                              |   | $                                                           | 12,152  |   | $ | 10,532 |   | $ | 10,349 |   | $ | 10,531 |   | $ | 11,538 |   |
| Amortization(1)                                              |   | $                                                           | 512     |   | $ | 261 |   | $ | 4,399 |   | $ | 5,366 |   | $ | 4,522 |   |
| Interest expense, net of interest income                     |   | $                                                           | 3,554   |   | $ | 4,228 |   | $ | 5,322 |   | $ | 6,852 |   | $ | 7,451 |   |
| Diluted weighted average shares of common  stock outstanding |   |                                                        | 12,409  |   | 12,194 |   | 12,233 |   | 12,272 |   | 12,385 |   |
| Number of employees                                          |   | 1,700                                                       |    | 1,500 |   | 1,400 |   | 1,900 |   | 1,800 |   |

 

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(1)           Except net income, excludes for all periodsthe data for the Company’s hydraulic cylinder division, which was sold inJanuary 2002.

(2)           Includes $11.7 million in 2004 for businessacquisitions.

 

7

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**Item 7. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations**

 

As discussed in Note 3 to the consolidated financial statements,the Company sold its hydraulic cylinder division in January 2002. TheCompany’s consolidated statements of income and cash flows for the year endedJanuary 31, 2002 separately present the historical results of thehydraulic cylinder division as a discontinued operation.

 

**CRITICAL ACCOUNTING POLICIES AND ESTIMATES**

 

Management’s discussion and analysis of its financial position andresults of operations is based on the Company’s consolidated financialstatements which have been prepared in accordance with generally acceptedaccounting principles in the United States of America (GAAP). The preparationof these financial statements requires the Company to make estimates andjudgments that affect the reported amounts of assets, liabilities, revenues andexpenses and the disclosure of contingent assets and liabilities. Managementevaluates its estimates and judgments on an on-going basis, including thoserelated to uncollectible receivables, inventories, goodwill and long-livedassets, warranty obligations, environmental liabilities and deferred taxes. TheCompany bases its estimates on historical experience and various otherassumptions that are believed to be reasonable under the circumstances. Actualresults may differ from these estimates under different assumptions orconditions. The Company believes the following critical accounting policiesreflect its more significant judgments and estimates in the preparation of itsconsolidated financial statements.

 

*Allowances for Doubtful Accounts*

 

The Company maintains allowances for doubtful accounts for estimatedlosses on accounts and notes receivable resulting from the inability of itscustomers and note holders to make required payments. Such allowances are basedon an ongoing review of customer and note holder payments against terms and areview of customer and note holder financial statements and financialinformation. If the financial condition of customers or the note holders wereto deteriorate, resulting in an impairment of their ability to make payments,additional allowances may be required.

 

*Inventory Reserves*

 

Inventories are stated at the lower of cost or market. The Companymaintains reserves to write down its inventory for estimated obsolescence orunmarketable inventory equal to the difference between the cost of inventoryand the estimated market value based upon assumptions about future demand andmarket conditions. If actual future demand or market conditions are lessfavorable than those projected by management, additional inventory write-downsmay be required, which would result in cost of goods sold in the consolidatedstatement of income being greater than expected in the period in which moreinformation becomes available.

 

*Intangible Assets*

 

The Company adopted the Financial Accounting Standards Board (FASB)Statement of Financial Accounting Standards (SFAS) No. 141, “BusinessCombinations” and No. 142, “Goodwill and Other Intangible Assets” onaccounting for business combinations and goodwill as of the beginning of fiscal2003. Accordingly, the Company no longer amortizes goodwill from acquisitions.The Company continues to amortize other acquisition-related intangibles, whichare not significant to the Company’s consolidated balance sheet. As ofJanuary 31, 2004 the Company had $68.9 million of goodwill.

 

In conjunction with the implementation of SFAS 142, the Companycompleted a transitional impairment test in the quarter ended April 30,2002 and found no impairment. As required by SFAS 142, the Companyperforms an impairment test annually, or earlier if indicators of potentialimpairment exist. Certain factors the Company considers important which couldtrigger an

 

8

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impairment review include, but are not limited to, significantunderperformance relative to historical or projected future operating results,significant changes in the manner of use of the acquired assets or theCompany’s overall business and significant industry or economic trends. Theimpairment review is based on a discounted cash flow approach that usesestimates of future sales, sales growth rates, gross margins, expense andcapital expenditure levels, the discount rate and estimated terminal values todetermine the fair value of the operating entities should an impairment exist.Changes in these and other factors could result in impairments in the carryingvalue of goodwill, which would require a write down or further write downs tothe asset’s fair value. The Company has performed annual impairment tests inthe fourth quarter of fiscal 2004 and 2003 and found no impairment.

 

*Warranty Obligations*

 

The Company offers certain warranties with the sale of its products.The warranty obligation is recorded as a liability on the balance sheet and isestimated through historical customer claims, product failure rates, materialusage and service delivery costs incurred in correcting a product failure.Changes in these factors and changes in statutory requirements for productwarranties in markets in which the Company sells its products may require anadjustment to the recorded warranty obligations.

 

*Environmental Liabilities*

 

The Company accrues environmental remediation and litigation costs ifit is probable a liability has been incurred at the financial statement dateand the amount can be reasonably estimated. The Company’s liability forenvironmental costs, other than for costs of assessments themselves, aregenerally determined after the completion of investigations and studies and arebased on the estimated cost of remediation activities the Company is thenrequired to undertake.  The grossliability is based on the Company’s best estimate of undiscounted future costsusing currently available technology and applying current regulations, as wellas the Company’s own historical experience regarding environmental cleanupcosts.  The reliability and precision ofthe estimates are affected by numerous factors, such as site evaluation andreevaluation of the degree and remediation required, claims by third partiesand changes to environmental laws and regulations. The Company adjusts itsliabilities as new remediation requirements are defined, as information becomesavailable permitting reasonable estimates to be made and to reflect new facts.

 

*Deferred Taxes*

 

The Company’s provision for income taxes and the determination of theresulting deferred tax assets and liabilities involves a significant amount ofmanagement judgment. The Company is subject to taxation from federal, state andinternational jurisdictions. The taxes paid to these jurisdictions are subjectto audit, although to date the results of any tax audits have been minor.

 

Judgment is also applied in determining whether deferred tax assetswill be realized in full or in part. The Company records a valuation allowanceto reduce its deferred tax assets when it is more likely than not that all orsome portion of specific deferred tax assets, such as foreign tax creditcarryovers or net operating loss carryforwards, will not be realized.  The Company has  recorded on its consolidated balance sheets a valuation allowanceagainst various deferred tax assets. The Company considers future taxable income and ongoing prudent andfeasible tax planning strategies in assessing the need for the valuationallowance. In the event the Company were to determine that it would not be ableto realize all or part of its net deferred tax assets in the future, anadjustment to the deferred tax assets would be charged to income in the periodsuch determination was made. Likewise, should the Company determine that itwould be able to realize its deferred tax assets in the future in excess of itsnet recorded amount, an adjustment to the deferred tax assets would increaseincome in the period such determination was made. The Company continuallyevaluates strategies that could allow for the future utilization of itsdeferred tax assets.

 

*Benefit Plans*

 

The Company makes a number of assumptions with regard to both futurefinancial conditions and future actions by participants to calculate on anactuarial basis the amount of income or expense and

 

9

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assets and liabilities recognized in association with the Company’sdefined benefit and postretirement benefit plans. These assumptions include theexpected return on plan assets, discount rate, health care cost trend rates andexpected rates of retirement for plan participants. The Company reviews theassumptions on an annual basis and makes changes to reflect market conditionsand the administration of the plans. While the Company believes the currentassumptions are appropriate in the circumstances, actual results and changes inthese assumptions in the future will result in adjustments which could impactthe income or expense recognized in future years in relation to these plans.

 

**COMPARISON OF FISCAL 2004 AND FISCAL 2003**

 

**Consolidated Summary**

 

Net income for fiscal 2004 increasedto $18.5 million ($1.49 per diluted share) from $17.7 million ($1.45 perdiluted share) in fiscal 2003.  Theincrease in net income is primarily the result of strong operating results inAsia Pacific and lower interest costs from reduced debt levels.  Although consolidated net sales increased15% over fiscal 2003, the majority of this increase can be attributed tocurrency changes and acquisitions. Excluding these items, the year over year sales growth was 5%.  Overall operating income decreased 2% infiscal 2004.  Europe continued to feelthe effects of depressed economic conditions and competitive pressures andincurred an operating loss for the year. North America’s operating income was negatively impacted by currencychanges between the Canadian and U.S. dollar. In addition, selling and administrative costs increased over fiscal 2003levels.

 

**North America**

 
|                        |   | **Year Ended January 31** |    |   |   |     |   |
|-----------------------------|--------|---------------------------|---------|--------|--------|----------|--------|
| **(in thousands)**          |   | **2004**                  |    | **%**  |   | **2003** |   | **%** |   | **Change** |   | **Change %** |   |
|                        |   |                      |    |   |   |     |   |   |   |   |   |   |   |
| Net sales                   |   | $                         | 171,709 |   | 100    | %        | $      | 162,774 |   | 100 | % | $ | 8,935 |   | 5 | % |
| Cost of goods sold          |   | 108,524                   |    | 63     | %      | 98,705   |   | 61 | % | 9,819 |   | 10 | % |
| Gross profit                |   | 63,185                    |    | 37     | %      | 64,069   |   | 39 | % | (884 | ) | (1 | )% |
|                        |   |                      |    |   |   |     |   |   |   |   |   |   |   |
| Selling and administrative  |   | 38,000                    |    | 22     | %      | 36,067   |   | 22 | % | 1,933 |   | 5 | % |
| Amortization                |   | 234                       |    | — |   | 214      |   | — |   | 20 |   | 9 | % |
| Recovery of note receivable |   | —                    |    | — |   | (2,500   | )      | (2 | )% | 2,500 |   | — |   |
| Environmental expenses      |   | —                    |    | — |   | 2,100    |   | 1 | % | (2,100 | ) | — |   |
|                        |   |                      |    |   |   |     |   |   |   |   |   |   |   |
| Operating income            |   | $                         | 24,951  |   | 15     | %        | $      | 28,188 |   | 17 | % | $ | (3,237 | ) | (11 | )% |

 

Net sales inNorth America increased $8.9 million or 5% in fiscal 2004 to $171.7million.  The change in foreign currencyrates between the U.S. and Canadian dollar accounted for $3.2 million of thefiscal 2004 sales increase.  Theremaining $5.7 million or 4% increase is due to an increased volume ofshipments from North American facilities.

 

Historically, theCompany has found that changes in the level of its net sales do not corresponddirectly to the percentage changes in lift truck industry shipments, butindustry statistics do provide an indication of the direction of businessactivity.  North American lift truckindustry shipments from 2003 to 2004 increased 11%.  During 2003, industry shipments were at depressed levels incomparison with historical shipments. The Company believes the 2003 shipment levels are more representative ofnormal business levels for the industry. Although the growth in lift truck shipments exceeds net sales growth,the Company believes it has maintained or slightly increased its existingmarket share in North America during fiscal 2004.

 

NorthAmerica’s gross margin decreased to 37% in fiscal 2004 as compared to 39% infiscal 2003.  This decrease is dueprimarily to the sale in the United States of certain products manufactured inCanada.  The Company’s sales of theseproducts are in U.S. dollars but a significant portion of the costs are inCanadian dollars.  During 2004, thevalue of the U.S. dollar against the Canadian dollar decreased 13%.  The effect of this change reduced theoverall gross margins.  Management isevaluating options to mitigate the impact of these currency changes, but at thepresent time expects this trend to continue absent a shift in the U.S. andCanadian dollar exchange rate.

 

Selling andadministrative costs for fiscal 2004 in North America increased 5% or $1.9million over fiscal 2003.  Excluding theeffects of currency changes, these costs increased 3% or $1.2 million, drivenprimarily by $750,000 of costs related to complying with Section 404 of theSarbanes-Oxley Act, $650,000 of postretirement health care costs and $1 millionof research and development costs, offset by various cost reductions.

 

10

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As the Company continues to implementmeasures mandated by the Sarbanes-Oxley Act throughout fiscal 2005, it expectssome increases in these costs, primarily due to higher audit fees.  The Company has made changes in the level ofretiree contribution rates and the structure of the plan benefits with regardto the Company’s postretirement health care plan, which it believes shouldavoid increases in the overall costs of this plan for 2005.  The Company expects research and developmentcosts to be at the same level in 2005.

 

During fiscal 2003, the Company and TheBoeing Company entered into a settlement agreement with the City of Portland,Oregon (City) regarding litigation brought by the City in 1999 alleging damagesarising from the proximity of the groundwater contamination in the area oftheir respective plants to a City water well field. The Company’s share of the$6.2 million settlement was $3.6 million. The Company had recorded a$1.5 million charge related to the settlement in fiscal 2002 and recordedadditional environmental expenses of $2.1 million during fiscal 2003. Thefull settlement was paid in fiscal 2003.

 

The Companyrecorded $2.5 million of income in fiscal 2003 related to a settlement reachedbetween the Company and Maine Rubber related to outstanding principal andinterest due under a note receivable. The $2.5 million payment is payment in full for the release of anyremaining liability of Maine Rubber under the note receivable.  The Company had recorded a $7.3 millionallowance against the note balance in fiscal 2002 due to financial difficultiesexperienced by Maine Rubber.

 

**Europe**

 
|                       |   | **Year Ended January 31** |   |   |   |     |   |
|----------------------------|--------|---------------------------|--------|--------|--------|----------|--------|
| **(in thousands)**         |   | **2004**                  |   | **%**  |   | **2003** |   | **%** |   | **Change** |   | **Change %** |   |
|                       |   |                      |   |   |   |     |   |   |   |   |   |   |   |
| Net sales                  |   | $                         | 81,114 |   | 100    | %        | $      | 60,404 |   | 100 | % | $ | 20,710 |   | 34 | % |
| Cost of goods sold         |   | 63,456                    |   | 78     | %      | 46,335   |   | 77 | % | 17,121 |   | 37 | % |
| Gross profit               |   | 17,658                    |   | 22     | %      | 14,069   |   | 23 | % | 3,589 |   | 26 | % |
|                       |   |                      |   |   |   |     |   |   |   |   |   |   |   |
| Selling and administrative |   | 17,853                    |   | 22     | %      | 13,539   |   | 22 | % | 4,314 |   | 32 | % |
| Amortization               |   | 255                       |   | — |   | 26       |   | — |   | 229 |   | — |   |
|                       |   |                      |   |   |   |     |   |   |   |   |   |   |   |
| Operating income (loss)    |   | $                         | (450   | )      | (1     | )%       | $      | 504 |   | 1 | % | $ | (954 | ) | — |   |

 

Europe’sfiscal 2004 net sales increased 34% or $20.7 million in comparison with fiscal2003.  Changes in foreign currencyrates, related primarily to the Euro, accounted for just over 50% or $10.5million of the increase.  Acquisitionsin Germany and Italy during fiscal 2004 added $8.4 million to fiscal 2004 salesor 41% of the increase.  The remainingfiscal 2004 sales increase of $1.8 million or 3% of fiscal 2003 sales,  is due to increases in product shipments.  Overall industry shipment levels in Europein fiscal 2004 were consistent with 2003 levels.  The Company believes it has increased its existing market sharein Europe.

 

Gross marginsin Europe were 22% for fiscal 2004, down slightly from the fiscal 2003 grossmargin of 23%.  This 1% decrease is dueprimarily to lower sales prices on certain products in Europe.

 

Selling andadministrative costs for fiscal 2004 in Europe increased 32% or $4.3 millionover fiscal 2003.  The primary reasonfor the increase was the effect of currency changes, which accounted for $2.4million or 56% of the increase. Acquisitions added $1.8 million of selling and administrativecosts.  Excluding currency changes andcosts related to acquired companies, selling and administrative costs wereconsistent with fiscal 2003.

 

The Company’sEuropean operations have continued to experience declining financial resultsand incurred an operating loss of $450,000 in fiscal 2004 in comparison withoperating income of $504,000 in fiscal 2003. Additional costs related to the 2004 acquisitions were the most significantfactor contributing to the fiscal 2004 operating loss.

 

Overalldifficult economic conditions in Europe and in particular in France andGermany, two of the major industrial markets, have not changed in the lastthree years.  Based on the limitedindustry statistics available for Europe, lift truck shipments have also notimproved during this period and may have actually decreased slightly.  Given these conditions, the existing marketcontinues to be very competitive.  OurEuropean competitors are generally smaller privately-held companies, some ofwhich have a global presence.  Severalof the key competitors are based in Germany and Italy.  Acquisitions this past year were completedin these two major markets.  The Companypreviously only had a limited presence in these markets.  The

 

11

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Company believes the 2004 acquisitions provide a solid operating baseto build its market share and compete more effectively in Europe.

 

In addition tocompleting two acquisitions in 2004, the Company has taken several steps itbelieves should have a positive impact on future profitability in Europe.  These include the introduction of newproducts, rationalization of existing manufacturing operations to reduceoverall costs and more aggressive marketing campaigns in select markets.  While these steps and the acquisitionsshould have a positive long-term impact on its European business, the Companyis not anticipating significant changes in overall profitability in Europe for2005.

 

In March 2004,one of the Company’s primary German competitors was forced into insolvency byits creditors.  Insolvency proceedingshave commenced and a trustee has been appointed.  The Company is currently evaluating its options with regard topotentially submitting a bid to acquire some or all of the competitor’sassets.  Given the current marketconditions, the Company believes other competitors may face similar financialdifficulties.

 

**Asia Pacific**

 
|                       |   | **Year Ended January 31** |   |   |   |     |   |
|----------------------------|--------|---------------------------|--------|--------|--------|----------|--------|
| **(in thousands)**         |   | **2004**                  |   | **%**  |   | **2003** |   | **%** |   | **Change** |   | **Change %** |   |
|                       |   |                      |   |   |   |     |   |   |   |   |   |   |   |
| Net sales                  |   | $                         | 44,933 |   | 100    | %        | $      | 35,651 |   | 100 | % | $ | 9,282 |   | 26 | % |
| Cost of goods sold         |   | 30,140                    |   | 67     | %      | 24,715   |   | 69 | % | 5,425 |   | 22 | % |
| Gross profit               |   | 14,793                    |   | 33     | %      | 10,936   |   | 31 | % | 3,857 |   | 35 | % |
|                       |   |                      |   |   |   |     |   |   |   |   |   |   |   |
| Selling and administrative |   | 7,246                     |   | 16     | %      | 6,863    |   | 19 | % | 383 |   | 6 | % |
| Amortization               |   | 23                        |   | — |   | 21       |   | — |   | 2 |   | 10 | % |
|                       |   |                      |   |   |   |     |   |   |   |   |   |   |   |
| Operating income           |   | $                         | 7,524  |   | 17     | %        | $      | 4,052 |   | 11 | % | $ | 3,472 |   | 86 | % |

 

Asia Pacificnet sales grew by 26% or $9.3 million in fiscal 2004 over fiscal 2003.  Excluding currency changes, net salesincreased 16% or $5.8 million.  Asignificant portion of the increase excluding currency changes relates to salesin China.  Overall sales in China grew46% in fiscal 2004, but still only account for 4% of the Company’s consolidatednet sales.  Substantially all of theCompany’s products manufactured in China are currently sold within thatcountry.

 

Gross marginsin the Asia Pacific region increased to 33% in fiscal 2004 from 31% in fiscal2003.  This increase is due primarily tohigher shipment volumes in China.  Inaddition, gross margins in Australia have increased steadily over the past yearas the Company benefits from the restructuring activities, which occurred inprior years.

 

Selling andadministrative costs in Asia Pacific for fiscal 2004 increased 6% over fiscal2003.  Excluding the effect of foreigncurrencies, selling and administrative expenses decreased 5% from fiscal2003.  The Company has been able toreduce overall spending levels despite the increased sales activity in theregion.

 

**Non-OperatingItems**

 

The Company’sinterest expense in fiscal 2004 decreased 20% in comparison with fiscal2003.  The decrease is due to theCompany’s efforts to reduce its overall debt levels.  See “Financial Condition and Liquidity” for additional discussionof Company debt levels and payments.

 

Consolidatedinterest income decreased by $469,000 in fiscal 2004 as compared to fiscal 2003due to the receipt of payment in full of notes receivable related to the saleof the Company’s hydraulic cylinder division.

 

The Company’seffective tax rate for fiscal 2004 decreased to 35% in comparison to 37% infiscal 2003.  This decrease was due tohigher levels of pre-tax income in lower tax rate jurisdictions of foreignentities, as well as the Company’s ability to utilize research and developmentcredits.  These benefits were reduced bythe Company’s recording of a valuation allowance against certain foreignsubsidiary net operating losses.

 

12

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**COMPARISON OF FISCAL 2003 AND FISCAL 2002**

 

**ConsolidatedSummary**

 

The Company’s net income increased to $17.7million ($1.45 per diluted share) in fiscal 2003 compared to $4.1 million($0.34 per diluted share) in fiscal 2002. The majority of this increase is due to amortization expense, a goodwillimpairment charge, the write-off of a note receivable and losses fromdiscontinued operations recorded in fiscal 2002, which did not recur in fiscal2003. The Company’s consolidated net sales in fiscal 2003 increased 2% to $258.8 millionas compared to $252.7 million in fiscal 2002.  Sales were essentially flat in comparison with fiscal 2002 afteradjusting for fluctuations in foreign currencies.  Overall business levels in the lift truck industry were down infiscal 2003 as compared to fiscal 2002, primarily due to depressed economicconditions in North America and Europe.

 

**NorthAmerica**

 
|                                              |   | **Year Ended January 31** |    |   |   |     |   |
|---------------------------------------------------|--------|---------------------------|---------|--------|--------|----------|--------|
| **(in thousands)**                                |   | **2003**                  |    | **%**  |   | **2002** |   | **%** |   | **Change** |   | **Change %** |   |
|                                              |   |                      |    |   |   |     |   |   |   |   |   |   |   |
| Net sales                                         |   | $                         | 162,774 |   | 100    | %        | $      | 160,883 |   | 100 | % | $ | 1,891 |   | 1 | % |
| Cost of goods sold                                |   | 98,705                    |    | 61     | %      | 99,758   |   | 62 | % | (1,053 | ) | (1 | )% |
| Gross profit                                      |   | 64,069                    |    | 39     | %      | 61,125   |   | 38 | % | 2,944 |   | 5 | % |
|                                              |   |                      |    |   |   |     |   |   |   |   |   |   |   |
| Selling and administrative                        |   | 36,067                    |    | 22     | %      | 34,438   |   | 21 | % | 1,629 |   | 5 | % |
| Amortization                                      |   | 214                       |    | — |   | 3,900    |   | 2 | % | (3,686 | ) | — |   |
| Allowance for (recovery of)  note receivable |   | (2,500                    | )       | (2     | )%     | 7,308    |   | 5 | % | (9,808 | ) | — |   |
| Goodwill impairment                               |   | —                    |    | — |   | 5,100    |   | 3 | % | (5,100 | ) | — |   |
| Environmental expenses                            |   | 2,100                     |    | 1      | %      | 1,500    |   | 1 | % | 600 |   | 40 | % |
|                                              |   |                      |    |   |   |     |   |   |   |   |   |   |   |
| Operating income                                  |   | $                         | 28,188  |   | 17     | %        | $      | 8,879 |   | 6 | % | $ | 19,309 |   | 217 | % |

 

The Company’s net sales in North America in fiscal 2003 increased to$162.8 million as compared to $160.9 million in fiscal 2002.  In fiscal 2002, the lift truck industry inNorth America, the Company’s largest market, experienced significant declinesin orders and shipments. During fiscal 2003, the North American marketreflected a slowly increasing level of activity during much of the year.  Certain of the Company’s smaller competitorsin the North American market experienced financial problems during the industrydownturn in 2001 and 2002 and a portion of the Company’s sales increase can beattributable to market share gains.

 

The Company’s gross margin in North America of 39% in fiscal 2003 increasedfrom 38% in fiscal 2002. This increase reflected the Company’s continued focusto implement cost management initiatives.

 

Selling and administrative expenses as a percentage of net sales were22% in fiscal 2003 as compared to 21% in fiscal 2002.  In fiscal 2002, due to the downturn in the lift truck industry,the Company had implemented aggressive measures, such as pay freezes and hiringrestrictions, reductions in incentive pay and reduced overall spending levels.As sales levels increased somewhat in fiscal 2003, the Company eliminated manyof the spending restrictions and moved forward with various projects expectedto impact future operations. These projects included information systemsconversions in Canada and a realignment of the Company’s business structure inEurope to operate more effectively in the European Union countries. Inaddition, the Company’s incentive pay to senior management increasedapproximately $950,000 due to improved operating results in fiscal 2003.

 

During fiscal 2003, the Company and TheBoeing Company entered into a settlement agreement with the City of Portland,Oregon (City) regarding litigation brought by the City in 1999 alleging damagesarising from the proximity of the groundwater contamination in the area oftheir respective plants to a City water well field. The Company’s share of the$6.2 million settlement was $3.6 million. The Company had recorded a$1.5 million charge related to the settlement in fiscal 2002 and recordedadditional environmental expenses of $2.1 million during fiscal 2003. Thefull settlement was paid in fiscal 2003.

 

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During fiscal 2002, the Company recorded $3.9 million of goodwillamortization expense. The Company no longer amortizes goodwill underSFAS 142, which was adopted at the beginning of fiscal 2003.

 

The Company recorded a $5.1 million goodwill impairment charge infiscal 2002 related to its operations in Australia.  The Company undertook major restructuring activities in Australiain fiscal 2001. However, the Company’s operations in Australia continued to benegatively impacted in fiscal 2002 by inefficiencies in the realignment ofsales operations and elimination of distribution locations and continueddeterioration of sales levels due to the elimination of the tire and batterybusiness.  Sales decreased eachquarter of fiscal 2002, with the largest decrease in the fourth quarter.  The Company concluded that the decline insales experienced at the end of fiscal 2002 was not temporary.  In light of these significant factorsand trends, the Company performed an impairment assessment in the fourthquarter of fiscal 2002 of the carrying amount of long-lived assets and goodwillin Australia. Based on this assessment, the Company determined that animpairment loss should be recognized since the estimated fair value of theassets based on discounted cash flows was less than the carrying amount of theassets.

 

The Company recorded a $7.3 million allowance in fiscal 2002related to a note receivable from Maine Rubber Company (Maine Rubber), whichrelated to the Company’s sale of its tire business to Maine Rubber in fiscal2000.  Maine Rubber notified the Companyin January 2002 that its senior lender had restricted the payment of allscheduled future interest and principal payments to all creditors due toviolations of its debt covenants. This included the first $1 million principalpayment due to the Company in April 2002. Maine Rubber had been negatively impacted by the decline in lift truckindustry orders and shipments in fiscal 2002 and did not expect these industryconditions to change dramatically through at least the end of fiscal 2003. TheCompany reviewed Maine Rubber’s financial statements and restructuring plan andin light of the current industry conditions, concluded it was highly unlikelythat Maine Rubber would be able to make any principal and interest payments onthe note receivable in the foreseeable future if at all.

 

In November 2002, the Company and Maine Rubber reached a settlementregarding the outstanding principal and interest due under the note receivable.Under the terms of the settlement, the Company received $2.5 million aspayment in full for the release of any remaining liability of Maine Rubberunder the note receivable. The Company recorded the $2.5 million cashpayment as income in fiscal 2003.

 

**Europe**

 
|                       |   | **Year Ended January 31** |   |   |   |     |   |
|----------------------------|--------|---------------------------|--------|--------|--------|----------|--------|
| **(in thousands)**         |   | **2003**                  |   | **%**  |   | **2002** |   | **%** |   | **Change** |   | **Change %** |   |
|                       |   |                      |   |   |   |     |   |   |   |   |   |   |   |
| Net sales                  |   | $                         | 60,404 |   | 100    | %        | $      | 59,470 |   | 100 | % | $ | 934 |   | 2 | % |
| Cost of goods sold         |   | 46,335                    |   | 77     | %      | 44,840   |   | 75 | % | 1,495 |   | 3 | % |
| Gross profit               |   | 14,069                    |   | 23     | %      | 14,630   |   | 25 | % | (561 | ) | (4 | )% |
|                       |   |                      |   |   |   |     |   |   |   |   |   |   |   |
| Selling and administrative |   | 13,539                    |   | 22     | %      | 11,723   |   | 20 | % | 1,816 |   | 15 | % |
| Amortization               |   | 26                        |   | — |   | 472      |   | 1 | % | (446 | ) | — |   |
|                       |   |                      |   |   |   |     |   |   |   |   |   |   |   |
| Operating income           |   | $                         | 504    |   | 1      | %        | $      | 2,435 |   | 4 | % | $ | (1,931 | ) | (79 | )% |

 

The increase in overall sales in Europe in fiscal 2003 is exclusivelydue to foreign currency changes. Excluding foreign currency, net sales in fiscal 2003 decreased 4%.  The Company’s sales in Europe have continuedto be negatively impacted by weak economic conditions throughout theregion.  In particular, sales in Franceand Germany continued to be at depressed levels.

 

Gross margins in Europe decreased from 25% in fiscal 2002 to 23% infiscal 2003.  This decrease was due tocompetitive pricing pressures on certain products in light of the weakereconomic conditions.

 

Selling and administrative expenses increased 15% in fiscal 2003, with$1.1 million or 9% of the increase attributable to currency changes.  The remaining increase was due to highermarketing costs related to a trade show in Hanover, Germany, additional financeand information systems personnel, and increased depreciation related toinformation systems equipment.

 

During fiscal 2002, the Company recorded$472,000 of goodwill amortization expense in Europe. The Company no longeramortizes goodwill under SFAS 142, which was adopted at the beginning offiscal 2003.

 

14

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**AsiaPacific**

 
|                       |   | **Year Ended January 31** |   |   |   |     |   |
|----------------------------|--------|---------------------------|--------|--------|--------|----------|--------|
| **(in thousands)**         |   | **2003**                  |   | **%**  |   | **2002** |   | **%** |   | **Change** |   | **Change %** |   |
|                       |   |                      |   |   |   |     |   |   |   |   |   |   |   |
| Net sales                  |   | $                         | 35,651 |   | 100    | %        | $      | 32,362 |   | 100 | % | $ | 3,289 |   | 10 | % |
| Cost of goods sold         |   | 24,715                    |   | 69     | %      | 23,417   |   | 72 | % | 1,298 |   | 6 | % |
| Gross profit               |   | 10,936                    |   | 31     | %      | 8,945    |   | 28 | % | 1,991 |   | 22 | % |
|                       |   |                      |   |   |   |     |   |   |   |   |   |   |   |
| Selling and administrative |   | 6,863                     |   | 19     | %      | 6,799    |   | 21 | % | 64 |   | 1 | % |
| Amortization               |   | 21                        |   | — |   | 27       |   | — |   | (6 | ) | (22 | )% |
|                       |   |                      |   |   |   |     |   |   |   |   |   |   |   |
| Operating income           |   | $                         | 4,052  |   | 11     | %        | $      | 2,119 |   | 7 | % | $ | 1,933 |   | 91 | % |

 

The Company’s increasing sales and grossmargins in Asia Pacific are due primarily to strong results in both China andAustralia.  The Company’s growth inChina is consistent with the overall economy. While it is the Company’s fastest growing market, China still onlyrepresents approximately 3% of consolidated net sales in fiscal 2003. Plans areunderway to pursue opportunities to increase production capacity in thismarket.  As previously noted, theCompany’s operations in Australia were not profitable through the end of fiscal2002.  Australia returned toprofitability in fiscal 2003.

 

Selling and administrative expenses as a percentage of sales fell from21% in fiscal 2002 to 19% in fiscal 2003. This is a result of strong cost controls in all markets in the region.

 

**Non-OperatingItems**

 

The Company’s interest expense in fiscal 2003 decreased 10% incomparison to fiscal 2002. The decrease was due to lower overall debt levels.See “Financial Condition and Liquidity” for additional discussion of Companydebt levels and payments.

 

Interest income increased in fiscal 2003 as compared to fiscal 2002 dueto higher cash balances throughout the year and interest earned on notesreceivable related to the sale of the Company’s hydraulic cylinder division.

 

The Company’s effective taxrate for fiscal 2003 increased to 37% in comparison with 35% in fiscal 2002.This increase was due to higher levels of pre-tax income in fiscal 2003 overfiscal 2002, which diluted the benefit of certain tax attributes. The Companyalso had increased foreign earnings in higher tax rate jurisdictions than theprevious year.

 

Other expense relates primarily to net losses on foreign currencytranslation. The Company maintains a foreign currency risk-management strategyto mitigate the impact of unanticipated fluctuations in earnings caused bychanges in foreign currency exchange rates. See Note 14 to theConsolidated Financial Statements.

 

**CASH FLOWS**

 

The statements of cash flows reflect the changes in cash and cashequivalents for the three years ended January 31, 2004 by classifyingtransactions into three major categories: operating, investing and financingactivities.

 

15

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**OperatingActivities**

 

The Company’s main source of liquidity is cash generated from operatingactivities.  This consists of net incomeadjusted for noncash operating items such as depreciation and amortization,losses on disposition of assets and discontinued operations, goodwill impairment,adjustments for uncollectible receivables and deferred income taxes, as well aschanges in operating assets and liabilities.

 

Net cash provided by operating activities from continuing operationswas $26.4 million in fiscal 2004 as compared to $23.9 million in fiscal2003.  The increase in fiscal 2004 wasdue to higher levels of net income and depreciation and amortization and areduction in the income taxes receivable. These improvements were offset with changes in other operating accounts,primarily accounts receivable and inventory. Fiscal 2003 net cash from operating activities was increased by therecovery of a portion of a note receivable previously written off.

 

The Company’s net cash provided by operating activities from continuingoperations decreased to $23.9 million in fiscal 2003 from $34.8 million infiscal 2002.  Changes in accountsreceivable, accounts payable and other accrued expenses were related to theincreased level of business activity in the fourth quarter of fiscal 2003 ascompared to fiscal 2002. The increase in income taxes receivable was primarilydue to the recording of the write-off of the Maine Rubber note receivable fortax purposes in the fourth quarter of fiscal 2003 in relation to the settlementdiscussed previously. Accrued environmental expenses have continued to decreasedue to ongoing remediation activities and payment of the City of Portlandlitigation settlement in fiscal 2003.

 

**InvestingActivities**

 

Theprincipal recurring investing activities are capital expenditures.  These expenditures are primarily forequipment and tooling related to product improvements, more efficientproduction methods and replacement for normal wear and tear.  Capital expenditures were $11.4 million,$10.7 million and $7.3 million during fiscal 2004, 2003 and 2002, respectively. The increase in capital expenditures infiscal 2003 related to the purchase of equipment under operating leases inNorth America and the upgrade of certain equipment in Europe.  The Company believes the level of capitalexpenditures is sufficient to maintain required operational requirements. TheCompany expects capital expenditures in fiscal 2005 to approximate depreciationexpense.

 

The Company held marketable securities of $6.0 million at January 31,2004.  These securities consist ofasset-backed notes issued by various state agencies throughout the UnitedStates and guaranteed by the United States or state governments andagencies.  The notes are long-terminstruments maturing through 2031; however, the interest rates and maturitiesare reset approximately every month, at which time the Company can sell thenotes.  Accordingly, the Company hasclassified the notes as short-term in its consolidated balance sheets.  Tax-free interest rates on the notes rangefrom 0.5% to 1.8%, per annum.

 

On March 31, 2003, the Company completed the acquisition of FEMA ForksGmbH (FEMA), a supplier of forks based in Hagen, Germany.  The aggregate purchase price paid in cashfor FEMA, net of assumed liabilities, was $3.6 million.  On October 21, 2003, the Company acquired RoncariS.r.l., an Italian supplier of material handling equipment.  The aggregate purchase price paid in cashfor Roncari, net of assumed liabilities, was $8.1 million.

 

During the fourth quarter of fiscal 2002, the Company sold itshydraulic cylinder division to Precision Hydraulic Cylinders, Inc. (Precision)for approximately $13 million, for which the Company received $3.25 million incash, $9 million of notes receivable and a $700,000 receivable subject toadjustment for working capital levels at the sale date. The Company receivedpayment for the $700,000 of receivables during fiscal 2003. Under the terms ofsale, the Company made interim operating capital advances to Precision of $2.1million in fiscal 2003. These advances were repaid to the Company by January31, 2003. During fiscal 2004 the Company received $9.6 million from Precisionas payment in full of all amounts due from the sale of the hydraulic cylinderdivision.

 

The remaining proceeds from notes receivable in fiscal 2003 related tothe $2.5 million settlement of the Maine Rubber note receivable.

 

**FinancingActivities**

 

The Company continued with its planned reduction of debt balances ineach of the three years ended January 31, 2004.  As of January 31, 2004 the Company had made all scheduled debtpayments. Any additional payments to prepay scheduled amounts are subject tosignificant penalties. The Company is continually evaluating its options tomake additional debt payments and incur the penalties in light of its currentcash position.

 

The Company repurchased $1.4 million of common stock in both fiscal2003 and 2002.

 

16

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The Company declared dividends of $.41 and $.10 per share in fiscal2004 and 2003, respectively. No dividends were declared in fiscal 2002.

 

The issuance of common stock related to the exercise of stock optionsgenerated $1.3 million of cash in fiscal 2004.

 

**FINANCIAL CONDITION AND LIQUIDITY**

 

Working capital at January 31, 2004 was $81.7 million as compared to$71.2 million of working capital at January 31, 2003. The Company’s currentratio at January 31, 2004 was 2.59 to 1 in comparison to 2.66 to 1 at January31, 2003.

 

Total outstanding debt, including notes payable to banks, at January31, 2004 was $53.9 million in comparison with $63.9 million at January 31,2003. The Company’s debt to equity ratio improved to .29 to 1 at January 31,2004 from .44 to 1 at January 31, 2003. The Company’s debt agreements containcovenants relating to net worth and leverage ratios. Borrowing arrangementscurrently in place with commercial banks provide lines of credit totaling $32.3million, none of which were being used at January 31, 2004. Average interestrates on notes payable to banks were 2.78% at both January 31, 2004 and 1.38%at January 31, 2003.

 

The Company believes its cash and cash equivalents, existing creditfacilities and cash flows from operations will be sufficient to satisfy itsexpected working capital, capital expenditure and debt retirement requirementsfor fiscal 2005.

 

**OTHER MATTERS**

 

During fiscal 2004 and 2003, the holder ofthe Company’s exchangeable preferred stock exchanged 600,000 and 200,000shares, respectively, for a total of 800,000 shares of common stock.  This non-cash transaction resulted in areclassification of $8.2 million in fiscal 2004 and $2.7 million in fiscal 2003from exchangeable preferred stock into common stock and additional paid-incapital and had no effect on earnings per share as presented in theConsolidated Financial Statements and Notes to Consolidated FinancialStatements.  No exchangeable preferredstock remains outstanding at January 31, 2004.

 

The Company has completed substantially allimplementation activities related to its enterprise-wide resource planning(ERP) software system in the United States and Europe. The Company completed aportion of its ERP implementation at its Canadian operations in early fiscal2004. The remainder of the implementation in Canada is currently in process andis expected to be complete by the end of fiscal 2005.  The Company does not expect the cost of this implementation to bematerial. The Company continues to evaluate the costs and benefits of furtherERP implementation at its existing locations, primarily Asia and Australia,which are not using the Company’s ERP system.

 

The Company maintains defined benefit pensionplans in the United Kingdom, Canada and France and a postretirement health careplan in the United States covering certain employees.  The Company calculates the net periodic pension costsrelated to its defined benefit and postretirement benefit plans on an annualbasis. Due to changes in assumptions in the discount rate and health care costtrend rates to reflect market conditions and actual rates of return on planassets, the Company’s pension costs have increased in recent years. This trendof increasing pension costs may continue in future years. However, the Companyis also investigating various options in the administration of these plans tomitigate future cost increases.

 

The U.S. dollar weakened in fiscal 2004 in comparison to most foreigncurrencies used by the Company’s significant foreign operations. As a result,foreign currency translation adjustments increased shareholders’ equity by$17.7 million in fiscal 2004. In fiscal 2003 the foreign currency translationadjustments increased shareholders’ equity by $13.5 million.

 

The Company is currently engaged in ongoing environmental remediationefforts at both its Fairview, Oregon and Springfield, Ohio manufacturingfacilities. Current estimates provide for some level of remediation activitiesin Fairview through 2027 and Springfield through 2010. Costs of certainremediation activities at the Fairview facility are shared with The BoeingCompany,

 

17

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withCascade paying 70% of actual remediation costs. The Company has recorded aliability for the ongoing remediation efforts at its Fairview and Springfieldfacilities and certain environmental litigation of $9.4 million and $10.2million at January 31, 2004 and 2003, respectively. The accrued environmentalexpenses recorded as a current liability on the consolidated balance sheet atJanuary 31, 2004 represent the Company’s estimated cash expenditure for ongoingremediation activities for the fiscal year ended January 31, 2005.

 

The Company sold its hydraulic cylinderdivision to Precision Hydraulic Cylinders, Inc. (Precision) on January 15,2002. Under the terms of the sale, the Company assigned to Precision anoperating lease related to a manufacturing facility in Beulaville, NorthCarolina. The Company is a guarantor on the lease in the event Precision failsto comply with the lease terms. The lease requires payments by Precision ofapproximately $21,000 per month through November 2007. In the event Precisiondefaults under the lease, the Company can seek to recover losses related to theguarantee by pursuing its remedies under agreements securing payment of amountsreceivable from Precision.

 

The following summarizes the Company’s contractual obligations andcommitments as of January 31, 2004:

 

18

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|                                     |   | **Payment  due by period** |   |
|------------------------------------------|--------|----------------------------|--------|
|                                     |   | **(in  thousands)**        |   |
|                                     |   | **Total**                  |   | **Less than  1 year** |   | **2-3  years** |   | **4-5  years** |   | **Greater  than  5 years** |   |
|                                     |   |                       |   |   |   |   |   |   |   |   |   |
| Notes payable to banks                   |   | $                          | 2,805  |   | $ | 2,805 |   | $ | — |   | $ | — |   | $ | — |   |
| Long-term debt, including capital leases |   |                       | 51,129 |   |   | 13,018 |   |   | 25,611 |   |   | 12,500 |   | — |   |
| Operating leases                         |   |                       | 5,753  |   |   | 1,470 |   |   | 2,047 |   |   | 1,278 |   |   | 958 |   |
| Total                                    |   | $                          | 59,687 |   | $ | 17,293 |   | $ | 27,658 |   | $ | 13,778 |   | $ | 958 |   |
|                                          |        |                            |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**OFF BALANCE SHEET ARRANGEMENTS**

 

AtJanuary 31, 2004 and 2003, the Company did not have any relationships withunconsolidated entities or financial partnerships, such as entities oftenreferred to as structured finance or special purpose entities, which would havebeen established for the purpose of facilitating off-balance sheet arrangementsor for other contractually narrow or limited purposes. As such, the Company isnot materially exposed to any financing, liquidity market or credit risk thatcould arise if the Company had engaged in such relationships.

 

**RECENT ACCOUNTING PRONOUNCEMENTS**

 

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement133 on Derivative Instruments and Hedging Activities.”  SFAS No. 149 amends and clarifies accountingfor derivative instruments, including certain derivative instruments embeddedin other contracts, and for hedging activities under SFAS No. 133.  SFAS No. 149 requires contracts withcomparable characteristics to be accounted for similarly.  SFAS No. 149 clarifies the circumstancesunder which a contract with an initial net investment meets the characteristicof a derivative and clarifies when a derivative contains a financing componentthat warrants special reporting in the statement of cash flows.  This statement was effective for contractsentered into or modified after September 30, 2003, except for hedgingrelationships designated after September 30, 2003, where the guidance isrequired to be applied prospectively.  Theadoption of this statement did not have a material impact on the Company’sresults of operations and financial condition.

 

In May 2003, the FASB issued SFAS No. 150, “Accounting for CertainFinancial Instruments with Characteristics of both Liabilities andEquity.”  SFAS No. 150 changes the accountingfor certain financial instruments that, under previous guidance, could beclassified as equity or “mezzanine” equity, by requiring those instruments tobe classified as liabilities (or assets in some circumstances) in the statementof financial position.  SFAS No. 150requires disclosure regarding the terms of those instruments and settlementalternatives.  This statement waseffective for all financial instruments entered into or modified after May 31,2003, and was otherwise effective at the beginning of the first interim periodbeginning after September 15, 2003.  OnNovember 7, 2003, FASB issued FASB Staff Position No. 150-3 (FSP 150-3),“Effective Date, Disclosures, and Transition for Mandatory Redeemable FinancialInstruments of Certain Nonpublic Entities and Certain Mandatorily RedeemableNoncontrolling Interests under FASB Statements No. 150, Accounting for CertainFinancial Instruments with Characteristics of Both Liabilities andEquity.”  FSP 150-3 deferred certainaspects of SFAS 150.  The adoption ofSFAS 150 on November 1, 2003 and subsequent adoption of FSP 150-3 did not havea material impact on the Company’s results of operations and financialcondition.

 

InJanuary 2004, FASB Staff Position No. 106-1 (FSP 106-1),  “Accounting and Disclosure RequirementsRelated to the Medicare Prescription Drug, Improvement and Modernization Act of2003”**was issued. FSP 106-1permits the deferral of recognizing the effects of the Medicare PrescriptionDrug, Improvement and Modernization Act of 2003 (the Act) in the accounting forpostretirement health care plan under SFAS No. 106, “Employers’ Accounting forPostretirement Benefits Other Than Pensions,”and in providing disclosures related to the plan required by SFASNo. 132 (revised 2003), “Employers’ Disclosures about Pensions and OtherPostretirement Benefits.” The deferral of the accounting for the Act continuesto apply until authoritative guidance is issued on the

 

19

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accountingfor the federal subsidy provided by the Act or until certain other eventsrequiring plan remeasurement. The Company has elected the deferral provided bythis FSP and is evaluating the magnitude of the potential favorable impact ofthis FSP on its results of operations and financial condition.  See Note 11 to Consolidated FinancialStatements for discussion of postretirement benefits and required disclosures.

 

**Item7A.  Quantitative and QualitativeDisclosures 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 significant portion of the Company’s net sales aredenominated in currencies from international markets outside the United States.As a result, the Company’s operating results could become subject tosignificant fluctuations based upon changes in the exchange rates of theforeign currencies in relation to the United States dollar.

 

The table below illustrates the hypothetical increase in net sales of a10% weaker U.S. dollar against foreign currencies which impact the Company’soperations (in millions):

 
| Euro                                                                    |   | $ | 5.8 |   |
|-------------------------------------------------------------------------|--------|---|-----|--------|
| Canadian dollar                                                         |   | $ | 1.8 |   |
| British pound                                                           |   | $ | 2.2 |   |
| Other currencies with net sales less than  5% of consolidated net sales |   | $ | 3.4 |   |

 

The Company enters into foreign currency forward exchange contracts tooffset the impact of currency fluctuations on certain nonfunctional currencyassets and liabilities. The principal currencies hedged are denominated inJapanese yen, Canadian dollars, Euros and British pounds. The Company’s foreigncurrency forward exchange contracts have terms lasting up to six months, butgenerally less than one month. The Company does not enter into derivatives orother financial instruments for trading or speculative purposes. SeeNote 13 to the Consolidated Financial Statements (Item 8).

 

A majority ofthe Company’s products are manufactured using steel as a primary raw materialand steel based components as purchased parts. As such, the Company’s cost of goods sold is sensitive to fluctuationsin steel prices, either directly through the purchase of steel as raw materialor indirectly through the purchase of steel based components.

 

Presuming thatthe full impact of commodity steel price increases is reflected in all steeland steel based component purchases, the Company estimates its gross marginpercentage sensitivity to be approximately (0.3%) for each 1.0% increase incommodity steel prices.  For example, ifthe price of commodity steel increases 1.0%, and the full impact of thatincrease is reflected in all raw material and component purchases, the netdecrease in the gross margin percentage would be approximately 0.3%.  Based on the Company’s statement of incomefor the year ended January 31, 2004, a 1% increase in commodity steel priceswould have decreased consolidated gross profit by approximately $800,000.

 

The Company intends to aggressively offset any increases in steelprices through a number of mitigating strategies, including but not limited totemporary surcharges, general price increases and alternative sourcing.  It must be noted that there may be some timelag between realizing the offsetting benefits of the mitigating measures andthe absorption of the steel price increases.

 

Substantially all of the Company’s debt at January 31, 2004 has afixed interest rate. Any additional payments to prepay scheduled amounts ofdebt are subject to penalties. At January 31, 2004 the penalties to retireall of the Company’s long-term debt were $6.9 million. A hypotheticalimmediate increase in interest rates by 1% would decrease the fair value of theCompany’s long-term debt outstanding at January 31, 2004 by$1.2 million.

 

20

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**Item8.  Financial Statements and SupplementaryData**

 

**Report of Independent****Auditors**

 

**To the Board of Directors and Shareholders ofCascade Corporation**

 

In our opinion, the accompanying consolidated financial statementslisted in the index appearing under Item 15(a)1 on page 55, present fairly, inall material respects, the financial position of Cascade Corporation and itssubsidiaries (the Company) at January 31, 2004 and 2003, and the resultsof their operations and their cash flows for each of the three years in theperiod ended January 31, 2004 in conformity with accounting principlesgenerally accepted in the United States of America. In addition, in ouropinion, the financial statement schedule listed in the index, appearing underItem 15(a)2 on page 55, presents fairly, in all material respects, theinformation set forth therein when read in conjunction with the relatedconsolidated financial statements. These financial statements and the financialstatement schedule are the responsibility of the Company’s management; ourresponsibility is to express an opinion on these financial statements and thefinancial statement schedule based on our audits. We conducted our audits ofthese statements in accordance with auditing standards generally accepted inthe United States of America, which require that we plan and perform the auditto obtain reasonable assurance about whether the financial statements are freeof material misstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements,assessing the accounting principles used and significant estimates made bymanagement, and evaluating the overall financial statement presentation. Webelieve that our audits provide a reasonable basis for our opinion.

 

As discussed in Note 2 to the accompanying consolidated financialstatements, the Company changed its method of accounting for goodwill as ofFebruary 1, 2002.

 
| PricewaterhouseCoopers LLP |
|----------------------------|
|                       |
| Portland, Oregon           |
| March 24, 2004             |

 

21

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**MANAGEMENT RESPONSIBILITY**

 

All information contained in the consolidatedfinancial statements of Cascade Corporation, has been prepared by management,which is responsible for the accuracy and internal consistency of theinformation. Generally accepted accounting principles in the United States ofAmerica have been followed. Reasonable judgments and estimates have been madewhere necessary.

 

Management is responsible for establishing and maintaining a system ofinternal accounting controls designed to provide reasonable assurance as to theintegrity and reliability of financial reporting. The system of internalaccounting controls is tested by the independent auditors to the extent deemednecessary in accordance with generally accepted auditing standards. Managementbelieves the system of internal controls has been effective during theCompany’s most recent fiscal year and that no matters have arisen whichindicate a material weakness in the system. Management follows the policy ofresponding to the recommendations concerning the system of internal controlsmade by the independent auditors. Management implements those recommendationsthat it believes would improve the system of internal controls and be costjustified.

 

Four directors of the Company, not members of management, serve as theAudit Committee of the Board and are the principal means through which theBoard discharges its financial reporting responsibility. The Audit Committeemeets with management personnel and the Company’s independent auditors each yearto consider the results of external audits of the Company and to discussinternal accounting control, auditing and financial reporting matters. At thesemeetings, the Audit Committee also meets privately with the independentauditors of the Company to ensure free access by the independent auditors tothe committee.

 

The Company’s independent auditors, PricewaterhouseCoopers LLP, auditedthe financial statements prepared by the Company. Their opinion on thesestatements appears herein.

 
| Robert C. Warren, Jr.   | Richard S. Anderson         |
|-------------------------|-----------------------------|
| President and           | Senior Vice President       |
| Chief Executive Officer | and Chief Financial Officer |

 

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**Cascade Corporation**

**Consolidated Statements of Income**

 
|                                                                     |   | **Year Ended  January 31**                    |    |
|--------------------------------------------------------------------------|--------|-----------------------------------------------|---------|
|                                                                     |   | **2004**                                      |    | **2003** |   | **2002** |   |
|                                                                     |   | **(In  thousands, except per share amounts)** |    |
| Net sales                                                                |   | $                                             | 297,756 |   | $ | 258,829 |   | $ | 252,715 |   |
| Cost of goods sold                                                       |   | 202,120                                       |    | 169,755 |   | 168,015 |   |
| Gross profit                                                             |   | 95,636                                        |    | 89,074 |   | 84,700 |   |
|                                                                     |   |                                          |    |   |   |   |   |
| Selling and administrative expenses                                      |   | 63,099                                        |    | 56,469 |   | 52,960 |   |
| Amortization                                                             |   | 512                                           |    | 261 |   | 4,399 |   |
| Allowance for (recovery of) note receivable                              |   | —                                        |    | (2,500 | ) | 7,308 |   |
| Goodwill impairment                                                      |   | —                                        |    | — |   | 5,100 |   |
| Environmental expenses                                                   |   | —                                        |    | 2,100 |   | 1,500 |   |
|                                                                     |   |                                          |    |   |   |   |   |
| Operating income                                                         |   | 32,025                                        |    | 32,744 |   | 13,433 |   |
| Interest expense                                                         |   | (4,570                                        | )       | (5,713 | ) | (6,366 | ) |
| Interest income                                                          |   | 1,016                                         |    | 1,485 |   | 1,044 |   |
| Other income (expense), net                                              |   | (40                                           | )       | (329 | ) | 102 |   |
|                                                                     |   |                                          |    |   |   |   |   |
| Income from continuing operations before  provision for income taxes     |   | 28,431                                        |    | 28,187 |   | 8,213 |   |
| Provision for income taxes                                               |   | 9,925                                         |    | 10,480 |   | 2,911 |   |
| Income from continuing operations                                        |   | 18,506                                        |    | 17,707 |   | 5,302 |   |
|                                                                     |   |                                          |    |   |   |   |   |
| Discontinued operations (Note 3):                                        |   |                                          |    |   |   |   |   |
| Income from discontinued operations, net of  income taxes of  $(50) |   | —                                        |    | — |   | 485 |   |
| Loss on sale of discontinued operations,  net of income taxes of $(269)  |   | —                                        |    | — |   | (1,660 | ) |
| Net income                                                               |   | 18,506                                        |    | 17,707 |   | 4,127 |   |
| Dividends paid on preferred shares of  subsidiary                        |   | (30                                           | )       | (60 | ) | — |   |
| Net income applicable to common  shareholders                            |   | $                                             | 18,476  |   | $ | 17,647 |   | $ | 4,127 |   |
|                                                                     |   |                                          |    |   |   |   |   |
| Basic earnings per share:                                                |   |                                          |    |   |   |   |   |
| Continuing operations                                                    |   | $                                             | 1.55    |   | $ | 1.55 |   | $ | 0.47 |   |
| Discontinued operations                                                  |   | —                                        |    | — |   | 0.04 |   |
| Loss on sale of discontinued operations                                  |   | —                                        |    | — |   | (0.15 | ) |
|                                                                     |   | $                                             | 1.55    |   | $ | 1.55 |   | $ | 0.36 |   |
|                                                                     |   |                                          |    |   |   |   |   |
| Diluted earnings per share:                                              |   |                                          |    |   |   |   |   |
| Continuing operations                                                    |   | $                                             | 1.49    |   | $ | 1.45 |   | $ | 0.44 |   |
| Discontinued operations                                                  |   | —                                        |    | — |   | 0.04 |   |
| Loss on sale of discontinued operations                                  |   | —                                        |    | — |   | (0.14 | ) |
|                                                                     |   | $                                             | 1.49    |   | $ | 1.45 |   | $ | 0.34 |   |
|                                                                     |   |                                          |    |   |   |   |   |
| Basic weighted average shares outstanding                                |   | 11,934                                        |    | 11,372 |   | 11,392 |   |
| Diluted weighted average shares outstanding                              |   | 12,409                                        |    | 12,194 |   | 12,233 |   |

 

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

 

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**Cascade Corporation**

**Consolidated Balance Sheets**

 
|                                                                                                     |   | **As of  January 31**                           |    |
|----------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------|---------|
|                                                                                                     |   | **2004**                                        |    | **2003** |   |
|                                                                                                     |   | **(In  thousands, except   per share amounts)** |    |
| **ASSETS**                                                                                               |   |                                            |    |   |   |
| Current assets:                                                                                          |   |                                            |    |   |   |
| Cash and cash equivalents                                                                                |   | $                                               | 25,584  |   | $ | 29,501 |   |
| Marketable securities                                                                                    |   | 6,002                                           |    | — |   |
| Accounts receivable, less allowance for  doubtful accounts of $2,023 and $1,801                          |   | 57,871                                          |    | 42,784 |   |
| Inventories                                                                                              |   | 36,353                                          |    | 30,431 |   |
| Deferred income taxes                                                                                    |   | 2,542                                           |    | 2,188 |   |
| Income taxes receivable                                                                                  |   | 142                                             |    | 3,727 |   |
| Notes receivable, current portion                                                                        |   | —                                          |    | 1,088 |   |
| Prepaid expenses and other                                                                               |   | 4,626                                           |    | 4,279 |   |
| Total current assets                                                                                     |   | 133,120                                         |    | 113,998 |   |
| Property, plant and equipment, net                                                                       |   | 75,244                                          |    | 65,863 |   |
| Goodwill                                                                                                 |   | 68,915                                          |    | 59,355 |   |
| Notes receivable, net                                                                                    |   | —                                          |    | 8,559 |   |
| Deferred income taxes                                                                                    |   | 9,703                                           |    | 11,627 |   |
| Other assets                                                                                             |   | 5,837                                           |    | 2,915 |   |
| Total assets                                                                                             |   | $                                               | 292,819 |   | $ | 262,317 |   |
|                                                                                                     |   |                                            |    |   |   |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                            |   |                                            |    |   |   |
| Current liabilities:                                                                                     |   |                                            |    |   |   |
| Notes payable to banks                                                                                   |   | $                                               | 2,805   |   | $ | 1,043 |   |
| Current portion of long-term debt                                                                        |   | 13,018                                          |    | 12,695 |   |
| Accounts payable                                                                                         |   | 17,904                                          |    | 13,763 |   |
| Accrued payroll and payroll taxes                                                                        |   | 6,815                                           |    | 5,687 |   |
| Accrued environmental expenses                                                                           |   | 847                                             |    | 808 |   |
| Other accrued expenses                                                                                   |   | 10,011                                          |    | 8,801 |   |
| Total current liabilities                                                                                |   | 51,400                                          |    | 42,797 |   |
| Long-term debt                                                                                           |   | 38,111                                          |    | 50,113 |   |
| Accrued environmental expenses                                                                           |   | 8,551                                           |    | 9,389 |   |
| Deferred income taxes                                                                                    |   | 1,441                                           |    | 1,226 |   |
| Other liabilities                                                                                        |   | 9,628                                           |    | 5,514 |   |
| Total liabilities                                                                                        |   | 109,131                                         |    | 109,039 |   |
|                                                                                                     |   |                                            |    |   |   |
| Commitments and  contingencies (Note 16)                                                                 |   |                                            |    |   |   |
|                                                                                                     |   |                                            |    |   |   |
| Exchangeable convertible preferred stock  and minority interest                                          |   | —                                          |    | 8,530 |   |
| Shareholders’ equity:                                                                               |   |                                            |    |   |   |
| Common stock, $.50 par value, 20,000  authorized shares; 12,102 and 11,398 shares issued and outstanding |   | 6,051                                           |    | 5,699 |   |
| Additional paid-in capital                                                                               |   | 11,111                                          |    | 1,468 |   |
| Retained earnings                                                                                        |   | 165,495                                         |    | 151,925 |   |
| Accumulated other comprehensive income  (loss)                                                           |   | 1,031                                           |    | (14,344 | ) |
| Total shareholders’ equity                                                                          |   | 183,688                                         |    | 144,748 |   |
| Total liabilities and shareholders’ equity                                                          |   | $                                               | 292,819 |   | $ | 262,317 |   |

 

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

 

24

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**Cascade Corporation**

**Consolidated Statements of Changes inShareholders’ Equity**

(In thousands, except per share amounts)

 
|                                                                 |   |       |   | **Additional  Paid-In  Capital** |   | **Retained  Earnings** |   | **Accumulated  Other  Comprehensive  Income (Loss)** |   | **Annual  Comprehensive  Income (Loss)** |    |
|----------------------------------------------------------------------|--------|------------|--------|----------------------------------|--------|------------------------|--------|------------------------------------------------------|--------|------------------------------------------|---------|
| **Common Stock**                                                     |
|                                                                 |   | **Shares** |   | **Amount**                       |   |                   |   |                                                 |   |
| **Balance at January 31, 2001**                                      |   | 11,440     |   | $                                | 5,720  |                   | $      | 234                                                  |   | $                                        | 132,337 |   | $ | (21,788 | ) |   |   |
|                                                                 |   |       |   |                             |   |                   |   |                                                 |   |                                     |    |   |   |
| Net income                                                           |   | —     |   | —                           |   | —                 |   | 4,127                                                |   | —                                   |    | $ | 4,127 |   |
| Common stock repurchased                                             |   | (149       | )      | (74                              | )      | (234                   | )      | (1,046                                               | )      | —                                   |    | — |   |
| Translation  adjustment                                              |   | —     |   | —                           |   | —                 |   | —                                               |   | (6,009                                   | )       | (6,009 | ) |
|                                                                 |   |       |   |                             |   |                   |   |                                                 |   |                                     |    |   |   |
| **Balance at January 31, 2002**                                      |   | 11,291     |   | 5,646                            |   | —                 |   | 135,418                                              |   | (27,797                                  | )       | $ | (1,882 | ) |
|                                                                 |   |       |   |                             |   |                   |   |                                                 |   |                                     |    |   |   |
| Net income                                                           |   | —     |   | —                           |   | —                 |   | 17,707                                               |   | —                                   |    | $ | 17,707 |   |
| Dividends ($.10 per share)                                           |   | —     |   | —                           |   | —                 |   | (1,200                                               | )      | —                                   |    | — |   |
| Stock options exercised                                              |   | 7          |   | 3                                |   | 70                     |   | —                                               |   | —                                   |    | — |   |
| Exchangeable convertible preferred stock  converted to common shares |   | 200        |   | 100                              |   | 2,744                  |   | —                                               |   | —                                   |    | — |   |
| Common stock repurchased                                             |   | (100       | )      | (50                              | )      | (1,346                 | )      | —                                               |   | —                                   |    | — |   |
| Translation  adjustment                                              |   | —     |   | —                           |   | —                 |   | —                                               |   | 13,453                                   |    | 13,453 |   |
|                                                                 |   |       |   |                             |   |                   |   |                                                 |   |                                     |    |   |   |
| **Balance at January 31, 2003**                                      |   | 11,398     |   | 5,699                            |   | 1,468                  |   | 151,925                                              |   | (14,344                                  | )       | $ | 31,160 |   |
|                                                                 |   |       |   |                             |   |                   |   |                                                 |   |                                     |    |   |   |
| Net income                                                           |   | —     |   | —                           |   | —                 |   | 18,506                                               |   | —                                   |    | $ | 18,506 |   |
| Dividends ($.41 per share)                                           |   | —     |   | —                           |   | —                 |   | (4,936                                               | )      | —                                   |    | — |   |
| Stock options exercised                                              |   | 104        |   | 52                               |   | 1,247                  |   | —                                               |   | —                                   |    | — |   |
| Exchangeable convertible preferred stock  converted to common shares |   | 600        |   | 300                              |   | 8,230                  |   | —                                               |   | —                                   |    | — |   |
| Tax benefit from exercise of stock options                           |   | —     |   | —                           |   | 166                    |   | —                                               |   | —                                   |    | — |   |
| Translation adjustment                                               |   | —     |   | —                           |   | —                 |   | —                                               |   | 17,684                                   |    | 17,684 |   |
| Minimum pension  liability adjustment, net of tax benefit of $103    |   | —     |   | —                           |   | —                 |   | —                                               |   | (2,309                                   | )       | (2,309 | ) |
|                                                                 |   |       |   |                             |   |                   |   |                                                 |   |                                     |    |   |   |
| **Balance at January 31, 2004**                                      |   | 12,102     |   | $                                | 6,051  |                   | $      | 11,111                                               |   | $                                        | 165,495 |   | $ | 1,031 |   | $ | 33,881 |   |

 

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

 

25

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**Cascade Corporation**

**Consolidated Statements of Cash Flows**

 
|                                                                                           |   | **Year Ended  January 31** |   |
|------------------------------------------------------------------------------------------------|--------|----------------------------|--------|
|                                                                                           |   | **2004**                   |   | **2003** |   | **2002** |   |
|                                                                                           |   | **(In  thousands)**        |   |
|                                                                                           |   |                       |   |   |   |   |   |
| **Cash flows from operating activities:**                                                      |   |                       |   |   |   |   |   |
| Net income                                                                                     |   | $                          | 18,506 |   | $ | 17,707 |   | $ | 4,127 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities:             |   |                       |   |   |   |   |   |
| Depreciation and amortization                                                                  |   | 12,664                     |   | 10,793 |   | 14,748 |   |
| Deferred income taxes                                                                          |   | 1,802                      |   | 2,395 |   | (5,646 | ) |
| Loss on disposition of assets                                                                  |   | 102                        |   | 54 |   | 101 |   |
| Income from discontinued operations, net of  income taxes                                      |   | —                     |   | — |   | (485 | ) |
| Loss on sale of discontinued operations,  net of income taxes                                  |   | —                     |   | — |   | 1,660 |   |
| Loss on goodwill impairment                                                                    |   | —                     |   | — |   | 5,100 |   |
| Allowance for (recovery of) note receivable                                                    |   | —                     |   | (2,500 | ) | 7,308 |   |
| Changes in operating assets and  liabilities, net of effects of acquisitions and dispositions: |   |                       |   |   |   |   |   |
| Accounts receivable                                                                            |   | (9,810                     | )      | (3,472 | ) | 10,067 |   |
| Inventories                                                                                    |   | (2,235                     | )      | 386 |   | 4,706 |   |
| Prepaid expenses and other                                                                     |   | 3,619                      |   | (4,149 | ) | (39 | ) |
| Accounts payable and accrued expenses                                                          |   | 538                        |   | 3,902 |   | (6,534 | ) |
| Accrued environmental expenses                                                                 |   | (799                       | )      | (2,297 | ) | (3,901 | ) |
| Other liabilities                                                                              |   | 2,020                      |   | 1,122 |   | 503 |   |
| Cash provided by continuing operations                                                         |   | 26,407                     |   | 23,941 |   | 31,715 |   |
| Cash provided by discontinued operations                                                       |   | —                     |   | — |   | 3,121 |   |
| Net cash provided by operating activities                                                      |   | 26,407                     |   | 23,941 |   | 34,836 |   |
|                                                                                           |   |                       |   |   |   |   |   |
| **Cash flows from investing activities:**                                                      |   |                       |   |   |   |   |   |
| Capital expenditures                                                                           |   | (11,403                    | )      | (10,665 | ) | (7,303 | ) |
| Proceeds from sale of assets                                                                   |   | 844                        |   | 268 |   | 257 |   |
| Advances on notes receivable                                                                   |   | —                     |   | (2,102 | ) | — |   |
| Proceeds from notes receivable                                                                 |   | 9,556                      |   | 4,786 |   | — |   |
| Purchase of marketable securities, net                                                         |   | (6,002                     | )      | — |   | — |   |
| Business acquisitions                                                                          |   | (11,677                    | )      | — |   | — |   |
| Other assets                                                                                   |   | (930                       | )      | (5 | ) | 1,276 |   |
| Proceeds from sale of discontinued  operations                                                 |   | —                     |   | — |   | 3,250 |   |
| Cash used in continuing operations                                                             |   | (19,612                    | )      | (7,718 | ) | (2,520 | ) |
| Cash used in discontinued operations                                                           |   | —                     |   | — |   | (681 | ) |
| Net cash used in investing activities                                                          |   | (19,612                    | )      | (7,718 | ) | (3,201 | ) |
|                                                                                           |   |                       |   |   |   |   |   |
| **Cash flows from financing activities:**                                                      |   |                       |   |   |   |   |   |
| Payments on long-term debt                                                                     |   | (12,850                    | )      | (15,833 | ) | (10,694 | ) |
| Notes payable to banks, net                                                                    |   | 1,606                      |   | 300 |   | (4,357 | ) |
| Repurchase of common stock                                                                     |   | —                     |   | (1,396 | ) | (1,354 | ) |
| Common stock  issued under stock option plan                                                   |   | 1,299                      |   | 73 |   | — |   |
| Cash dividends paid                                                                            |   | (4,936                     | )      | (1,200 | ) | — |   |
| Net cash used in financing activities                                                          |   | (14,881                    | )      | (18,056 | ) | (16,405 | ) |
|                                                                                           |   |                       |   |   |   |   |   |
| **Effect of exchange rate changes**                                                            |   | 4,169                      |   | 5,723 |   | (2,037 | ) |
|                                                                                           |   |                       |   |   |   |   |   |
| Change in cash and cash equivalents                                                            |   | (3,917                     | )      | 3,890 |   | 13,193 |   |
|                                                                                           |   |                       |   |   |   |   |   |
| Cash and cash equivalents at beginning of  year                                                |   | 29,501                     |   | 25,611 |   | 12,418 |   |
|                                                                                           |   |                       |   |   |   |   |   |
| Cash and cash equivalents at end of year                                                       |   | $                          | 25,584 |   | $ | 29,501 |   | $ | 25,611 |   |
|                                                                                           |   |                       |   |   |   |   |   |
| **Supplemental disclosure of noncash  information:**                                           |   |                       |   |   |   |   |   |
| See Note 10 to Consolidated Financial  Statements                                              |   |                       |   |   |   |   |   |

 

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

 

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**CascadeCorporationNotes to Consolidated Financial Statements**

 

**Note 1—Descriptionof Business**

 

Cascade Corporation (the Company or Cascade) is an internationalcompany engaged in the manufacture of materials handling products that arewidely used on industrial fork lift trucks and, to a lesser extent, onconstruction, mining and agricultural vehicles. Accordingly, the Company’ssales are largely dependent on the sales of lift trucks and on the sales ofreplacement parts. A significant portion of the Company’s sales are made inNorth America and Europe. The Company is headquartered in Fairview, Oregon,employing approximately 1,700 people and maintaining operations in 15 countriesoutside the United States.

 

**Note 2—Summaryof Significant Accounting Policies**

 

**Principlesof Consolidation**

 

The consolidated financial statements include the accounts of theCompany and its subsidiaries. All significant intercompany accounts andtransactions have been eliminated.

 

**Cashand Cash Equivalents**

 

Cash and cash equivalents consist of cash on deposit and highly liquidinvestments with maturities of three months or less at the date of purchase.

 

**MarketableSecurities**

 

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.  Thespecific identification method is used to determine the cost of securitiessold.  There are no realized orunrealized gains or losses related to the Company’s marketable securities.  The notes are long-term instruments maturingthrough 2031; however the interest rates and maturities are reset approximatelyevery month, at which time the Company can sell the notes.  Accordingly, the Company has classified thenotes as current assets in its consolidated balance sheet.

 

**Inventories**

 

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

 

**Property,Plant and Equipment**

 

Property, plant and equipment are stated at cost less accumulateddepreciation. Depreciation is generally provided using the straight-line methodover the estimated useful lives of the assets. Useful lives range from thirtyto forty years for buildings, fifteen years for land improvements and two toten years for machinery and equipment, including certain equipment underlong-term capital leases. Maintenance and repairs are expensed as incurred andcosts of improvements and renewals are capitalized. Upon disposal, cost andaccumulated depreciation are removed from the accounts and the resulting gainsor losses are reflected in operations.

 

**Goodwill**

 

Goodwill represents the excess of the cost of acquired businesses overthe fair value of the net identifiable assets acquired.      Prior to the adoption of Statement ofFinancial Accounting Standards No. 142 (SFAS 142), “Goodwill andOther Intangible Assets,” the Company amortized goodwill on a straight-linebasis over the expected useful lives of the underlying assets, generally20 years. The Company adopted the provisions of SFAS 142, effectiveFebruary 1, 2002, and under this new standard the Company no longeramortizes goodwill. The effect of adopting SFAS 142 reduced amortizationexpense by $4.4 million annually, beginning in fiscal 2003.

 

Under the provisions of SFAS 142, the Company performs an annualreview for impairment at the reporting unit level. The tests are performed bydetermining the fair values of the reporting units using a discounted cash flowmodel and comparing those fair values to the carrying values of the reportingunits, including goodwill. The factors considered by management in performingthis assessment include current and projected future operating results and,changes in the intended uses of the assets, as well as the effects ofobsolescence, demand, competition, and other industry and economic trends. Asrequired by SFAS 142, management has completed its annual testing duringfiscal 2004 and 2003 and determined that there has been no impairment ofgoodwill.

 

 

27

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**Impairmentof Long-Lived Assets**

 

Long-lived assets, primarily property, plant and equipment, arereviewed for impairment whenever events or changes in circumstances indicatethat the carrying amount of such assets may not be recoverable. Determinationof recoverability is based on an estimate of undiscounted future cash flowsresulting from the use of the assets and eventual disposition in comparisonwith the carrying value. Measurement of an impairment loss for long-livedassets that management expects to hold and use is based on the fair value ofthe asset.

 

**CommonStock**

 

The Company follows the practice of recording amounts received upon theexercise of options by crediting common stock and additional paid-incapital.  No charges are reflected inthe consolidated statements of income as a result of the grant or exercise ofstock options.  The Company realizes anincome tax benefit from the exercise or early disposition of certain stockoptions.  This benefit results in adecrease in current income taxes payable and an increase in additional paid-incapital.

 

# **MinimumPension Liability Adjustment**

 

TheCompany records a minimum pension liability adjustment to the extent that itsaccumulated pension benefit obligation exceeds the fair value of pension planassets and accrued pension liabilities. This adjustment is reflected as a reduction in shareholders’ equity, netof income tax benefits.

 

**Stock-BasedCompensation**

 

The Company accounts for its stock-based compensation underAccounting Principles Board Opinion No. 25 (APB 25), “Accounting for StockIssued to Employees,” which permits the use of intrinsic value accounting. Nostock-based compensation cost is reflected in net income, as all optionsgranted had an exercise price equal to the market price of the underlyingcommon 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 ofFASB Statement No. 123.”

 

The following table illustrates the effect on net income and earningsper share if the Company had applied the fair value recognition provisions ofSFAS 123 to stock-based employee compensation:

 
|                                                                                                                                   |   | **Year Ended  January 31**                     |   |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|--------|
|                                                                                                                                   |   | **2004**                                       |   | **2003** |   | **2002** |   |
|                                                                                                                                   |   | **(In  thousands, except per share  amounts)** |   |
|                                                                                                                                   |   |                                           |   |   |   |   |   |
| Net income—as reported                                                                                                            |   | $                                              | 18,506 |   | $ | 17,707 |   | $ | 4,127 |   |
| Deduct: total stock-based compensation  expense, net of income taxes of $263, $309 and $218, determined under fair  value based method |   | (671                                           | )      | (522 | ) | (398 | ) |
| Net income—pro forma                                                                                                              |   | $                                              | 17,835 |   | $ | 17,185 |   | $ | 3,729 |   |
| Earnings per share:                                                                                                                    |   |                                           |   |   |   |   |   |
| Basic earnings per share—as reported                                                                                              |   | $                                              | 1.55   |   | $ | 1.55 |   | $ | 0.36 |   |
| Basic earnings per share—pro forma                                                                                                |   | $                                              | 1.49   |   | $ | 1.51 |   | $ | 0.33 |   |
| Diluted earnings per share—as reported                                                                                            |   | $                                              | 1.49   |   | $ | 1.45 |   | $ | 0.34 |   |
| Diluted earnings per share—pro forma                                                                                              |   | $                                              | 1.44   |   | $ | 1.41 |   | $ | 0.30 |   |

 

The fair value of each option grant is estimated on the date of grantusing the Black-Scholes option pricing model with the following weighted-averageassumptions:

 
|                                          |   | **Year Ended  January 31** |   |
|-----------------------------------------------|--------|----------------------------|--------|
|                                          |   | **2004**                   |   | **2003** |   | **2002** |   |
|                                          |   |                       |   |   |   |   |   |
| Risk-free interest rate                       |   | 2.3                        | %      | 4.5 | % | 4.7 | % |
| Expected volatility                           |   | 40                         | %      | 40 | % | 41 | % |
| Expected dividend yield                       |   | 2.8                        | %      | 2.9 | % | — |   |
| Expected life (in years)                      |   | 5                          |   | 5 |   | 5 |   |
| Weighted average fair value at date of  grant |   | $                          | 4.16   |   | $ | 4.55 |   | $ | 4.26 |   |
|                                               |        |                            |        |  |  |  |  |  |  |  |

 

28

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**ForeignCurrency Translation**

 

The Company translates the balance sheets of its foreign subsidiariesusing fiscal year-end exchange rates. The consolidated statements of income aretranslated using the average exchange rates for the period. The cumulativeeffect of such translations is included in shareholders’ equity.

 

**EnvironmentalRemediation**

 

The Company accrues environmental costs if it is probable a liabilityhas been incurred at the financial statement date and the amount can bereasonably estimated. Recorded liabilities have not been discounted.Environmental compliance costs are expensed as incurred. Assets related to therecovery of amounts expended for environmental expenses are recognized onlywhen realization is probable.

 

**ForeignCurrency Forward Exchange Contracts**

 

Gains and losses on foreign currency forward exchange contracts, whichgenerally mature in one month or less, are recognized in operations andmeasured over the period of the contract by reference to the forward rate for acontract to be consummated on the same future date as the original contract.

 

**RevenueRecognition**

 

The Companyrecognizes revenue when the following criteria are met:

 

**Persuasiveevidence of an arrangement exists** - Sales arrangementsare supported by written or electronic documentation or evidence from acustomer.

 

**Deliveryhas occurred or services have been rendered –** Revenue isrecognized when title transfers and risk and rewards of ownership have passedto the customer.  This generally occursupon shipment of the Company’s product with “FOB Shipping Point” terms.  Shipments with “FOB Destination” terms arerecorded as revenue when products are delivered to the customer.  Customers are responsible for payment evenif the product is not sold to their end customer.  Once shipping terms are met the Company has no continuingobligations or performance criteria requirements.

 

**Fixedor determinable sales price** – Sales are at fixed orestablished sales prices determined prior to the time the products are shippedwith no customer cancellation, price protection or termination clauses.

 

**Collectibilityis reasonably assured** – Based on the Company’s creditmanagement policies it generally believes collectibility is reasonably assuredwhen product is shipped to a customer. Provisions for uncollectible accounts and return allowances are recordedat the time revenue is recognized based on the Company’s historical experience.

 

**Shippingand Handling Costs**

 

The Company incurs shipping, handling and other related costs for theshipment of goods to customers. These costs are recognized in the period inwhich the expenses occur and are classified as cost of goods sold. Amountsbilled to customers for shipping, handling and related costs are reported as acomponent of net sales.

 

29

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**WarrantyObligations**

 

The Company records a liability on its consolidated balance sheet forcosts related to certain warranties provided by the Company with the sales ofits products. This liability is estimated through historical customer claims,product failure rates, material usage and service delivery costs incurred in correctinga product failure.

 

**IncomeTaxes**

 

Deferred income tax assets and liabilities are recognized for theexpected tax consequences of temporary differences between the tax bases ofassets and liabilities and the amounts reported in the consolidated financialstatements. The provision for income taxes is the tax payable for the periodand the change during the period in net deferred income tax assets andliabilities. Valuation allowances are established when necessary to reducedeferred income tax assets to the amount expected to be realized.

 

**Researchand Development Costs**

 

Research and development costs are expensed as incurred and are relatedto developing new products and to improving existing products or processes.These costs primarily include salaries, supplies, legal costs related topatents and design costs. The Company incurred research and development costsof $3.7 million, $2.7 million, and $2.5 million for the yearsended January 31, 2004, 2003 and 2002, respectively.

 

**Concentrationsof Credit Risk**

 

Financial instruments that potentially subject the Company toconcentrations of credit risk consist principally of cash and cash equivalents,marketable securities, accounts receivable and foreign currency forwardexchange contracts. The Company places its cash in major financialinstitutions. Deposits held with the financial institutions may exceed theFederal Deposit Insurance Corporation limit.

 

Accounts receivable are with a large number of customers, primarilyequipment manufacturers and dealers, dispersed across a wide geographic base.No single customer accounts for more than 10% of the Company’s consolidated netsales. The Company’s consolidated net sales for the year ended January 31,2004 to all original equipment manufacturers (OEM) customers were 35% of totalnet sales. This percentage is consistent with recent years. The Companyperforms on-going credit evaluations and does not require collateral.Allowances are maintained for potential credit losses when deemed necessary.

 

See Note 14 for discussion of foreign currency forward exchangecontracts.

 

**Reclassifications**

 

Certain reclassifications have been made to the prior year consolidatedfinancial statements to conform to the current year presentation.  Such reclassifications had no impact onresults of operations.

 

**Useof Estimates**

 

The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenuesand expenses during the reporting period. Actual results could differ fromthose estimates. Significant estimates and judgments made by management of theCompany include matters such as the collectibility of accounts and notesreceivable, realizability of deferred income tax assets, realizability ofgoodwill and long-lived assets, warranty liabilities, benefit plan assumptionsand future costs of environmental matters.

 

**EarningsPer Share**

 

Basic earnings per share is computed by dividing income available tocommon shareholders by the weighted average number of common shares outstandingfor the period. Diluted earnings per share reflects potential dilution thatcould occur if convertible securities or stock options were exercised orconverted into common stock.

 

**RecentAccounting Pronouncements**

 

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement133 on Derivative Instruments and Hedging Activities.”  SFAS No. 149 amends and clarifies accountingfor derivative instruments, including certain derivative instruments embeddedin other contracts, and for hedging activities under SFAS No. 133.  SFAS No. 149 requires contracts withcomparable characteristics to be

 

30

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accounted forsimilarly.  SFAS No. 149 clarifies thecircumstances under which a contract with an initial net investment meets thecharacteristic of a derivative and clarifies when a derivative contains afinancing component that warrants special reporting in the statement of cashflows.  This statement was effective forcontracts entered into or modified after September 30, 2003, except for hedgingrelationships designated after September 30, 2003, where the guidance isrequired to be applied prospectively. The adoption of this statement did not have a material impact on theCompany’s results of operations and financial condition.

 

In May 2003, the FASB issued SFAS No. 150, “Accounting for CertainFinancial Instruments with Characteristics of both Liabilities andEquity.”  SFAS No. 150 changes theaccounting for certain financial instruments that, under previous guidance,could be classified as equity or “mezzanine” equity, by requiring thoseinstruments to be classified as liabilities (or assets in some circumstances)in the statement of financial position. SFAS No. 150 requires disclosure regarding the terms of thoseinstruments and settlement alternatives. This statement was effective for all financial instruments entered intoor modified after May 31, 2003, and was otherwise effective at the beginning ofthe first interim period beginning after September 15, 2003.  On November 7, 2003, FASB issued FASB StaffPosition No. 150-3 (FSP 150-3), “Effective Date, Disclosures, and Transitionfor Mandatory Redeemable Financial Instruments of Certain Nonpublic Entitiesand Certain Mandatorily Redeemable Noncontrolling Interests under FASBStatements No. 150, Accounting for Certain Financial Instruments withCharacteristics of Both Liabilities and Equity.”  FSP 150-3 deferred certain aspects of SFAS 150.  The adoption of SFAS 150 on November 1, 2003and subsequent adoption of FSP 150-3 did not have a material impact on theCompany’s results of operations, financial position or cash flows.

 

31

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InJanuary 2004, FASB Staff Position (FSP) No. 106-1, “Accounting and DisclosureRequirements Related to the Medicare Prescription Drug, Improvement andModernization Act of 2003” wasissued. FSP No. 106-1 permits the deferral of recognizing the effects of theMedicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act)in the accounting for postretirement health care plan under SFAS No. 106,“Employers’ Accounting for Postretirement Benefits Other Than Pensions,” and in providing disclosures relatedto the plan required by SFAS No. 132 (revised 2003), “Employers’ Disclosuresabout Pensions and Other Postretirement Benefits.” The deferral of theaccounting for the Act continues to apply until authoritative guidance isissued on the accounting for the federal subsidy provided by the Act or untilcertain other events requiring plan remeasurement. We have elected the deferralprovided by this FSP and are evaluating the magnitude of the potentialfavorable impact of this FSP on our results of operations and financialposition. The authoritative guidance, when issued, could require us to changeour previously reported information. See Note 11 to Consolidated FinancialStatements for discussion of postretirement benefits and required disclosures.

 

**Note 3—DiscontinuedOperations**

 

On January 15, 2002, the Company sold substantially all of theassets of its hydraulic cylinder division, including manufacturing and salesoperations in Beulaville, North Carolina and Cramlington, Northumberland,United Kingdom to a new company, Precision Hydraulic Cylinders, Inc.(Precision), formed by BB&T Capital Partners, LLC and the former generalmanager of the hydraulic cylinder division. The sale of the hydraulic cylinderdivision was completed to allow the Company to pursue opportunities associatedwith its core materials handling products. The Company has presented thehydraulic cylinder division as discontinued operations since it represents acomponent of the Company, which can be distinguished both operationally and forfinancial reporting purposes.  Net salesof the Company’s hydraulic cylinder division were $31.7 million for fiscal2002.

 

The Company completed the sale of the hydraulic cylinder division toPrecision for approximately $13 million, net of assumed liabilities, andreceived cash of $3.25 million, notes receivable of $9 million and a$700,000 receivable subject to adjustment based upon working capital levels atthe sale date. The Company collected the $700,000 during fiscal 2003. As aresult of the sale, the Company incurred a $1.9 million pre-tax loss($1.7 million after-tax) in the fourth quarter of fiscal 2002. The sale ofthe hydraulic cylinder division included $5.1 million of current assets,$9.8 million of property, plant and equipment and goodwill,$1.5 million of cumulative foreign currency translation adjustment and$2.1 million of assumed liabilities. Consolidated net sales of thehydraulic cylinder division for the fiscal year ended January 31, 2002were $31.7 million.

 

Under the terms of thesale, the Company made operating cash advances to Precision of$2.1 million during fiscal 2003. Interest on the advances was at the primerate plus 1%. All operating advances were repaid to the Company byJanuary 31, 2003. The Company’s commitment to provide advances toPrecision expired in fiscal 2003.

 

In August 2003 theCompany received a payment of $9.6 million from Precision as payment in full ofall principal and interest amounts outstanding under the notes receivable.

 

32

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**Note 4—Inventories**

 
|                          |   | **January 31**      |   |
|-------------------------------|--------|---------------------|--------|
|                          |   | **2004**            |   | **2003** |   |
|                          |   | **(In  thousands)** |   |
|                          |   |                |   |   |   |
| Finished goods and components |   | $                   | 23,490 |   | $ | 20,211 |   |
| Work in process               |   | 1,251               |   | 968 |   |
| Raw materials                 |   | 11,612              |   | 9,252 |   |
|                          |   |                |   |   |   |
|                          |   | $                   | 36,353 |   | $ | 30,431 |   |

 

**Note 5—Property,Plant and Equipment**

 
|                     |   | **January 31**      |   |
|--------------------------|--------|---------------------|--------|
|                     |   | **2004**            |   | **2003** |   |
|                     |   | **(In  thousands)** |   |
|                     |   |                |   |   |   |
| Land                     |   | $                   | 4,849  |   | $ | 4,621 |   |
| Buildings                |   | 41,698              |   | 39,150 |   |
| Machinery and equipment  |   | 139,898             |   | 124,462 |   |
|                     |   |                |   |   |   |
|                     |   | 186,445             |   | 168,233 |   |
| Accumulated depreciation |   | (111,201            | )      | (102,370 | ) |
|                     |   |                |   |   |   |
|                     |   | $                   | 75,244 |   | $ | 65,863 |   |

 

33

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Depreciation expense from continuing operations for the years endedJanuary 31, 2004, 2003 and 2002, was $12.2 million,$10.5 million and $10.3 million, respectively.  Equipment financed under capital leasearrangements is not material.

 

# **Note 6 —Maine Rubber Notes Receivable**

 

In April 1999, the Company completed the sale of its industrialtire division to Maine Rubber Company (Maine Rubber). As partial considerationfor the sale, the Company received a $7.3 million uncollateralized notereceivable from Maine Rubber. The note receivable required quarterly interestand principal payments beginning in April 2003.

 

The Company recorded a $7.3 million allowance in fiscal 2002related to the note receivable from Maine Rubber.  Maine Rubber notified the Company in January 2002 that its seniorlender had restricted the payment of all scheduled future interest andprincipal payments to all creditors due to violations of its debt covenants.This included the first $1 million principal payment due to the Company inApril 2002.  Maine Rubber had beennegatively impacted by the decline in lift truck industry orders and shipmentsin fiscal 2002 and did not expect these industry conditions to changedramatically through at least the end of fiscal 2003. The Company reviewedMaine Rubber’s financial statements and restructuring plan and in light of thecurrent industry conditions, concluded it was highly unlikely that Maine Rubberwould be able to make any principal and interest payments on the notereceivable in the foreseeable future if at all.

 

In November 2002, the Company and Maine Rubber reached a settlementregarding the outstanding principal and interest due under the note receivable.Under the terms of the settlement, the Company received $2.5 million aspayment in full for the release of any remaining liability of Maine Rubberunder the note receivable. The Company recorded the $2.5 million cashpayment as income in fiscal 2003.

 

34

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**Note 7—Debt**

 
|                                                                                               |   | **January 31**      |   |
|----------------------------------------------------------------------------------------------------|--------|---------------------|--------|
|                                                                                               |   | **2004**            |   | **2003** |   |
|                                                                                               |   | **(In  thousands)** |   |
|                                                                                               |   |                |   |   |   |
| Senior notes, interest at 6.92% payable  semi annually, principal due annually through fiscal 2008 |   | $                   | 50,000 |   | $ | 62,500 |   |
| Other, interest varies between 4.68% and  5.04%, principal due semi-annually through fiscal 2007   |   | 913                 |   | — |   |
| Capital lease obligations for equipment and  other, weighted average interest of 6.99%             |   | 216                 |   | 308 |   |
|                                                                                               |   |                |   |   |   |
|                                                                                               |   | 51,129              |   | 62,808 |   |
| Less current portion                                                                               |   | (13,018             | )      | (12,695 | ) |
|                                                                                               |   |                |   |   |   |
| Long-term debt                                                                                     |   | $                   | 38,111 |   | $ | 50,113 |   |

 

The Company’s debt agreements contain covenants relating to net worthand leverage ratios. Borrowing arrangements currently in place with commercialbanks provide lines of credit totaling $32.3 million, none of which werebeing used at January 31, 2004. The average interest rate on notes payableto banks was 2.78% during fiscal 2004 and 1.38% during fiscal 2003.

 

Future maturities of long-term debt are as follows (in thousands):

 
| **Year ended January 31** |   |   |   |
|---------------------------|--------|--------|--------|
|                      |   |   |   |
| 2005                      |   | $      | 13,018 |   |
| 2006                      |   | 12,859 |   |
| 2007                      |   | 12,752 |   |
| 2008                      |   | 12,500 |   |
|                      |   | $      | 51,129 |   |

 

35

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**Note 8—IncomeTaxes**

 
|                                                                                                              |   | **Year Ended  January 31** |   |
|-------------------------------------------------------------------------------------------------------------------|--------|----------------------------|--------|
|                                                                                                              |   | **2004**                   |   | **2003** |   | **2002** |   |
|                                                                                                              |   | **(In  thousands)**        |   |
|                                                                                                              |   |                       |   |   |   |   |   |
| Provision (benefit) for income taxes  consisted of:                                                               |   |                       |   |   |   |   |   |
| Current                                                                                                           |   |                       |   |   |   |   |   |
| Federal                                                                                                           |   | $                          | 3,429  |   | $ | 1,454 |   | $ | 1,544 |   |
| State                                                                                                             |   | 802                        |   | 365 |   | 352 |   |
| Foreign                                                                                                           |   | 4,231                      |   | 6,266 |   | 3,249 |   |
|                                                                                                              |   |                       |   |   |   |   |   |
|                                                                                                              |   | 8,462                      |   | 8,085 |   | 5,145 |   |
|                                                                                                              |   |                       |   |   |   |   |   |
| Deferred                                                                                                          |   |                       |   |   |   |   |   |
| Federal                                                                                                           |   | 663                        |   | 4,811 |   | (3,426 | ) |
| State                                                                                                             |   | 48                         |   | 358 |   | (303 | ) |
| Foreign                                                                                                           |   | 752                        |   | (2,774 | ) | 1,176 |   |
|                                                                                                              |   |                       |   |   |   |   |   |
|                                                                                                              |   | 1,463                      |   | 2,395 |   | (2,553 | ) |
|                                                                                                              |   |                       |   |   |   |   |   |
| Total provision for income taxes                                                                                  |   | 9,925                      |   | 10,480 |   | 2,592 |   |
| Benefit from discontinued operations                                                                              |   | —                     |   | — |   | (319 | ) |
|                                                                                                              |   |                       |   |   |   |   |   |
| Total provision from continuing operations                                                                        |   | $                          | 9,925  |   | $ | 10,480 |   | $ | 2,911 |   |
|                                                                                                              |   |                       |   |   |   |   |   |
| Income from continuing operations before  provision for income taxes was as follows:                              |   |                       |   |   |   |   |   |
| United States                                                                                                     |   | $                          | 17,430 |   | $ | 17,349 |   | $ | 1,374 |   |
| Foreign                                                                                                           |   | 11,001                     |   | 10,838 |   | 6,839 |   |
|                                                                                                              |   |                       |   |   |   |   |   |
|                                                                                                              |   | $                          | 28,431 |   | $ | 28,187 |   | $ | 8,213 |   |
|                                                                                                              |   |                       |   |   |   |   |   |
| Reconciliation of the federal statutory  rate to the effective tax rate from continuing operations is as follows: |   |                       |   |   |   |   |   |
| Federal statutory rate                                                                                            |   | 35.0                       | %      | 35.0 | % | 35.0 | % |
| State income taxes, net of federal tax  benefit                                                                   |   | 2.0                        |   | 2.1 |   | 0.2 |   |
| Tax on foreign earnings                                                                                           |   | (1.2                       | )      | 5.4 |   | (14.4 | ) |
| U.S. export sales                                                                                                 |   | (0.7                       | )      | (0.4 | ) | (1.4 | ) |
| International financing                                                                                           |   | (3.5                       | )      | (4.2 | ) | (14.7 | ) |
| Net change in valuation allowance                                                                                 |   | 5.4                        |   | (0.6 | ) | 32.9 |   |
| Other                                                                                                             |   | (2.1                       | )      | (0.1 | ) | (2.2 | ) |
|                                                                                                              |   |                       |   |   |   |   |   |
| Effective tax rate                                                                                                |   | 34.9                       | %      | 37.2 | % | 35.4 | % |

 

36

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The components of deferred income tax assets and liabilities recordedon the consolidated balance sheet are as follows (in thousands):

 
|                         |   | **January 31** |   |
|------------------------------|--------|----------------|--------|
|                         |   | **2004**       |   | **2003** |   |
|                         |   |           |   |   |   |
| Deferred tax assets:         |   |           |   |   |   |
| Accruals                     |   | $              | 2,273  |   | $ | 1,929 |   |
| Environmental                |   | 3,571          |   | 3,875 |   |
| Employee benefits            |   | 2,160          |   | 1,836 |   |
| Foreign tax credits          |   | 9,961          |   | 10,143 |   |
| Foreign net operating losses |   | 7,025          |   | 6,126 |   |
| Other                        |   | 1,905          |   | 1,525 |   |
|                         |   |           |   |   |   |
|                         |   | 26,895         |   | 25,434 |   |
| Less: Valuation allowance    |   | (7,506         | )      | (5,564 | ) |
|                         |   |           |   |   |   |
|                         |   | 19,389         |   | 19,870 |   |
|                         |   |           |   |   |   |
| Deferred tax liabilities:    |   |           |   |   |   |
| Depreciation                 |   | (7,320         | )      | (6,534 | ) |
| Other                        |   | (1,265         | )      | (747 | ) |
|                         |   |           |   |   |   |
|                         |   | (8,585         | )      | (7,281 | ) |
|                         |   |           |   |   |   |
| Total net deferred tax asset |   | $              | 10,804 |   | $ | 12,589 |   |

 

The net deferred tax asset is presented in the Company’s consolidatedbalance sheets as follows (in thousands):

 
|                                           |   | **January 31** |   |
|------------------------------------------------|--------|----------------|--------|
|                                           |   | **2004**       |   | **2003** |   |
|                                           |   |           |   |   |   |
| Deferred income taxes—current asset       |   | $              | 2,542  |   | $ | 2,188 |   |
| Deferred income taxes—long-term asset     |   | 9,703          |   | 11,627 |   |
| Deferred income taxes—long-term liability |   | (1,441         | )      | (1,226 | ) |
|                                           |   |           |   |   |   |
|                                           |   | $              | 10,804 |   | $ | 12,589 |   |

 

In assessing the realizability of deferred tax assets, managementconsiders whether it is more likely than not that some or all of the deferredtax assets will not be realized. Management considers taxable income in prior carryback years to theextent permitted under the tax law, scheduled reversal of deferred taxliabilities, projected future taxable income and tax planning strategies inmaking this assessment.  The Companybelieves it will be able to generate sufficient taxable income to realize itsdeferred tax assets, net of valuation allowance, but changes in the Company’soperations due to market conditions could require the recording of additionalvaluation allowances in the future.  Itis reasonably possible that a change to the valuation allowance in the nextyear could be material.

 

The Company has recorded a valuation allowance as of January 31,2004 and 2003, primarily related to deferred tax assets for net operating losscarryforwards of foreign subsidiaries. The current provision for income taxes for the years ended January 31,2004, 2003 and 2002, includes $3.8 million, $567,000 and $2.1 million,respectively, in expense related to increases in the valuation allowance.  The expense for the years ended January 31,2004 and 2003 primarily related to foreign subsidiary net operating losscarryforwards.  The expense for the yearended January 31, 2002 related to foreign tax credits and foreign subsidiarynet operating loss carryforwards.  Inaddition, management determined it was more likely than not the Company wouldrealize its deferred tax assets related to certain net operating losscarryforwards for which a valuation allowance had previously been provided.  Accordingly, the current provision forincome taxes included a $1.9 million and $186,000 reduction in expense for thisreduction of the valuation allowance in the years ended January 31, 2004 and2003, respectively.  Total net operatingloss carryforwards at January 31, 2004, which total $21.8 million, have noexpiration dates and are related primarily to subsidiaries in Europe.  The Company will need to generate futuretaxable income of $6.7 million to realize the deferred tax assets, net ofvaluation allowance, related to foreign net operating losses.

 

37

----

 

The Company has utilized all of the benefit of previously recorded U.S.foreign tax credit carryforwards with expiration dates.  A deferred tax asset, net of valuationallowance, of $7.9 million has been recognized for U.S. foreign tax creditsattributed to unrepatriated foreign earnings. Realization of this deferred tax asset is dependent on generatingsufficient foreign-sourced U.S. taxable income.  The five-year expiration does not begin until the foreignearnings are repatriated.

 

**Note 9—CapitalStock**

 

During the year ended January 31, 1998, a Canadian subsidiary ofthe Company issued 1,100,000 exchangeable preferred shares in connection withthe acquisition of Kenhar Corporation. Holders of the exchangeable preferredshares are entitled to voting rights of an equivalent number of the Company’scommon shares and are entitled to dividends equivalent to those declared andpaid for like numbers of Cascade common stock. If preferred shares aretendered, the Company at its option may make a cash payment based upon thecurrent market value of an equal number of common shares or may exchange anequal number of common shares for the preferred shares. A subsidiary of theCompany repurchased 300,000 of these shares in connection with the sale of themast business unit in January, 1999. During the year ended January 31,2003, the holder of the preferred shares exchanged 200,000 shares for an equalnumber of common shares. At January 31, 2003, the Company had 600,000exchangeable preferred shares, issued and outstanding, which are presented asexchangeable preferred stock and minority interest on the Company’sconsolidated balance sheet.  Theremaining 600,000 shares were exchanged during the year ended January 31, 2004for an equal number of common shares. No shares of exchangeable preferred stock remained outstanding atJanuary 31, 2004.  The Company isauthorized to issue up to 200,000 shares of preferred stock with no par value.

 

**Note 10—SupplementalCash Flow Information**

 
|                                                     |   | **Year Ended  January 31** |   |
|----------------------------------------------------------|--------|----------------------------|--------|
|                                                     |   | **2004**                   |   | **2003** |   | **2002** |   |
|                                                     |   | **(In  thousands)**        |   |
| Cash paid during period for:                             |   |                       |   |   |   |   |   |
| Interest                                                 |   | $                          | 4,563  |   | $ | 5,237 |   | $ | 6,440 |   |
| Income taxes                                             |   | $                          | 3,960  |   | $ | 10,593 |   | $ | 5,549 |   |
| Business acquisitions:                                   |   |                       |   |   |   |   |   |
| Accounts receivable                                      |   | $                          | 5,286  |   |   | — |   |   | — |   |
| Inventories                                              |   | 3,687                      |   | — |   | — |   |
| Plant and equipment                                      |   | 5,788                      |   | — |   | — |   |
| Goodwill and intangible assets                           |   | 3,562                      |   | — |   | — |   |
| Accounts payable and other liabilities assumed           |   | (5,481                     | )      | — |   | — |   |
| Notes payable assumed                                    |   | (1,165                     | )      | — |   | — |   |
| Supplemental disclosure of noncash information:          |   |                       |   |   |   |   |   |
| Receivables received upon sale of assets                 |   | $                          | — |   | $ | — |   | $ | 9,561 |   |
| Termination of lease receivable and related liability    |   | $                          | — |   | $ | 1,080 |   | $ | — |   |
| Conversion of exchange preferred stock to common stock   |   | $                          | 8,530  |   | $ | 2,844 |   | $ | — |   |
| Minimum pension liability adjustment, net of tax benefit |   | $                          | 2,309  |   | $ | — |   | $ | — |   |

 

**Note 11—BenefitPlans**

 

The Company sponsors a number of defined contribution plans. TheCompany matches employee contributions in varying degrees and also makescontributions to certain plans based on a percentage of employee wages. Companyexpense under these plans was

 

38

----

 

$3.6 million,$3.0 million, and $3.0 million for the years ended January 31,2004, 2003 and 2002, respectively.

 

The Companysponsors various defined benefit pension plans covering certain employees inCanada, France and the United Kingdom.  Benefits under the defined benefitpension plans are based on years of service and average earnings over aspecified period of time.  The netperiodic cost of our defined benefit pension plans is determined using both theprojected unit credit method and accrued benefit actuarial cost method.  Several actuarial assumptions are used todetermine the defined benefit pension obligations and net periodic pensioncost, the most significant of which are the discount rate, the long-termrate of asset return and changes in compensation levels.  The Company’s funding policy for definedbenefit pension plans is to make annual contributions based on actuariallydetermined funding requirements.

 

39

----

 

**Note 11—BenefitPlans (continued)**

 

The following table presents the changes in benefitobligations, changes in plan assets and funded status of the Company’s definedbenefit pension and other postretirement benefit plans.  Benefitobligation balances presented in the table reflect the projected benefitobligation (PBO) for our defined benefit pension plans and accumulatedpostretirement benefit obligations (APBO) for the postretirement benefitplan.  Both the PBO and APBO include the estimated present value offuture benefits that will be paid to plan participants, based on expectedfuture salary growth and employee services rendered through the measurementdate.  The Company uses a measurement date of January 31for all defined benefit pension plans and December 31 for thepostretirement plan.

 
|                                                           |   | **Year Ended  January 31** |   | **Year Ended  January 31**  |   |
|----------------------------------------------------------------|--------|----------------------------|--------|-----------------------------|--------|
|                                                           |   | **Defined  Benefit**       |   | **Postretirement  Benefit** |   |
|                                                           |   | **2004**                   |   | **2003**                    |   | **2002** |   | **2004** |   | **2003** |   | **2002** |   |
|                                                           |   | **(In  thousands)**        |   |
|                                                           |   |                       |   |                        |   |   |   |   |   |   |   |   |   |
| **Change in benefit obligation:**                              |   |                       |   |                        |   |   |   |   |   |   |   |   |   |
| Benefit obligation at beginning of year                        |   | $                          | 7,264  |                        | $      | 5,563 |   | $ | 5,956 |   | $ | 9,916 |   | $ | 5,269 |   | $ | 4,961 |   |
| Service cost                                                   |   | 201                        |   | 131                         |   | 150 |   | 166 |   | 84 |   | 90 |   |
| Interest cost                                                  |   | 426                        |   | 348                         |   | 317 |   | 630 |   | 357 |   | 350 |   |
| Participant contributions                                      |   | 71                         |   | 80                          |   | 69 |   | — |   | — |   | — |   |
| Plan amendments                                                |   | —                     |   | —                      |   | — |   | — |   | (177 | ) | — |   |
| Benefits paid                                                  |   | (289                       | )      | (207                        | )      | (220 | ) | (495 | ) | (406 | ) | (337 | ) |
| Actuarial (gain) or loss                                       |   | 79                         |   | 509                         |   | (460 | ) | (828 | ) | 4,789 |   | 205 |   |
| Exchange rate changes                                          |   | 826                        |   | 840                         |   | (249 | ) | — |   | — |   | — |   |
| Benefit obligation at end of year                              |   | $                          | 8,578  |                        | $      | 7,264 |   | $ | 5,563 |   | $ | 9,389 |   | $ | 9,916 |   | $ | 5,269 |   |
|                                                           |   |                       |   |                        |   |   |   |   |   |   |   |   |   |
| **Change in plan assets:**                                     |   |                       |   |                        |   |   |   |   |   |   |   |   |   |
| Fair value of plan assets at beginning of  year                |   | $                          | 5,026  |                        | $      | 4,851 |   | $ | 5,382 |   | $ | — |   | $ | — |   | $ | — |   |
| Actual return on plan assets                                   |   | 522                        |   | (580                        | )      | (298 | ) | — |   | — |   | — |   |
| Employer contributions                                         |   | 169                        |   | 167                         |   | 139 |   | 495 |   | 406 |   | 337 |   |
| Participant contributions                                      |   | 71                         |   | 80                          |   | 69 |   | — |   | — |   | — |   |
| Benefits paid                                                  |   | (289                       | )      | (207                        | )      | (220 | ) | (495 | ) | (406 | ) | (337 | ) |
| Exchange rate changes                                          |   | 579                        |   | 715                         |   | (221 | ) | — |   | — |   | — |   |
| Fair value of plan assets at end of year                       |   | $                          | 6,078  |                        | $      | 5,026 |   | $ | 4,851 |   | $ | — |   | $ | — |   | $ | — |   |
|                                                           |   |                       |   |                        |   |   |   |   |   |   |   |   |   |
| **Reconciliation of funded status:**                           |   |                       |   |                        |   |   |   |   |   |   |   |   |   |
| Funded status                                                  |   | $                          | (2,500 | )                           | $      | (2,238 | ) | $ | (712 | ) | $ | (9,389 | ) | $ | (9,916 | ) | $ | (5,269 | ) |
| Unrecognized actuarial loss                                    |   | 2,452                      |   | 2,511                       |   | 978 |   | 4,935 |   | 6,213 |   | 1,757 |   |
| Net amount recognized at year-end                              |   | $                          | (48    | )                           | $      | 273 |   | $ | 266 |   | $ | (4,454 | ) | $ | (3,703 | ) | $ | (3,512 | ) |
|                                                           |   |                       |   |                        |   |   |   |   |   |   |   |   |   |
| **Amounts recognized in the balance sheet  consist of:**       |   |                       |   |                        |   |   |   |   |   |   |   |   |   |
| Prepaid benefit cost                                           |   | $                          | 374    |                        | $      | 496 |   | $ | 403 |   | $ | — |   | $ | — |   | $ | — |   |
| Accrued benefit liability                                      |   | (422                       | )      | (223                        | )      | (137 | ) | (4,454 | ) | (3,703 | ) | (3,512 | ) |
| Net amount recognized at year-end                              |   | $                          | (48    | )                           | $      | 273 |   | $ | 266 |   | $ | (4,454 | ) | $ | (3,703 | ) | $ | (3,512 | ) |
|                                                           |   |                       |   |                        |   |   |   |   |   |   |   |   |   |
| **Components of net periodic benefit cost:**                   |   |                       |   |                        |   |   |   |   |   |   |   |   |   |
| Service cost                                                   |   | $                          | 201    |                        | $      | 131 |   | $ | 150 |   | $ | 166 |   | $ | 84 |   | $ | 90 |   |
| Interest cost                                                  |   | 426                        |   | 348                         |   | 317 |   | 630 |   | 357 |   | 350 |   |
| Expected return on plan assets                                 |   | (392                       | )      | (392                        | )      | (350 | ) | — |   | — |   | — |   |
| Recognized net actuarial loss                                  |   | 225                        |   | 73                          |   | 20 |   | 450 |   | 163 |   | 143 |   |
| Net periodic benefit cost                                      |   | $                          | 460    |                        | $      | 160 |   | $ | 137 |   | $ | 1,246 |   | $ | 604 |   | $ | 583 |   |
|                                                           |   |                       |   |                        |   |   |   |   |   |   |   |   |   |
| **Weighted-average assumptions**                               |   |                       |   |                        |   |   |   |   |   |   |   |   |   |
| Discount rate for benefit obligation                           |   | 5.6                        | %      | 5.4                         | %      | 5.7 | % | 6.0 | % | 6.5 | % | 7.0 | % |
| Discount rate for net periodic benefit cost                    |   | 5.4                        | %      | 5.7                         | %      | 5.1 | % | 6.5 | % | 7.0 | % | 7.3 | % |
| Expected long-term rate of return on plan  assets              |   | 7.0                        | %      | 7.0                         | %      | 7.0 | % | — |   | — |   | — |   |
| Varying rates of increase in compensation  levels based on age |   | 2.5                        | %      | 2.5                         | %      | 2.5 | % | — |   | — |   | — |   |

 

40

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The expectedlong-term rate of return on defined benefit pension plan assets assumption isderived based on the historical returns achieved by the pension trust andanticipated future long-term performance of individual assets classes.  Consideration is also given to theappropriate investment strategy and anticipated future distribution of planassets between asset classes.  Whilethis analysis gives appropriate consideration to recent trust performance andhistorical returns, the assumption represents a long-term prospective return.

 

The principleobjective of the Company is to ensure that plan assets are sufficient to enableall future pension liabilities to be paid when due.  Plan assets are allocated with a goal to achieve diversificationbetween and within various asset classes to meet long-term objectives ofreturn, while mitigating against downside risks and considering expected cashflows.  The asset allocations for thepension assets at January 31, 2004 and 2003 are as follows:

 
|               |   | **Percentage  of Plan Assets  at January 31** |   |     |   |
|--------------------|--------|-----------------------------------------------|--------|----------|--------|
| **Asset Category** |   | **2004**                                      |   | **2003** |   | **Target allocation** |   |
| Equity             |   | 53                                            | %      | 43       | %      | 50 | % |
| Debt               |   | 47                                            | %      | 51       | %      | 48 | % |
| Cash               |   | —                                        |   | 6        | %      | 2 | % |

 

Equityincludes domestic and international equity securities, such as common,preferred or other capital stock, as well as mutual funds.  Debt includes domestic and internationaldebt securities, such as U.S. and other foreign government securities,corporate bonds and commercial paper.

 

The Companydetermines the discount rate for both the defined benefit pension plans and theother postretirement plan each year as of the measurement date, based on areview of interest rates associated with long-term high quality corporate bondsin the geographic region where the plan is maintained.

 

Theaccumulated benefit obligation is the actuarial present value of benefitsattributed to employee services rendered to date, excluding assumptions aboutfuture compensation levels.  The accumulated benefit obligation for alldefined benefit pension plans was $8.6 million at January 31, 2004 and $6.7million at January 31, 2003.  TheCompany recorded a minimum pension liability adjustment, net of tax benefit, of$2.3 million in other long term liabilities during fiscal 2004 related to itsdefined benefit pension plans.

 

The Companyalso provides a postretirement benefit plan, consisting of health care coverageto eligible retirees and qualifying dependents in the United States. Benefits under this postretirement benefit plan are generally based on ageat retirement and years of service.  Thenet periodic cost of the postretirement plan is determined using the projectedunit credit method.  Other significantactuarial assumptions include the discount rate and health care cost trendrates (rate of growth for medical costs). The Company is accruing the estimated future costs of providingpostretirement benefits to eligible active employee’s during the active serviceperiod.  The Company’s postretirement plan is not funded. Annual contributions to the postretirement plan represent the benefits paid forthe year.

 

41

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Assumed healthcare cost trend rates have a significant effect on the amounts reported for theCompany’s postretirement benefit plan. The assumed health care cost trend rates used in measuring the APBO wereas follows at January 31:

 
|                                           |   | **January 31** |   |
|------------------------------------------------|--------|----------------|--------|
|                                           |   | **2004**       |   | **2003** |   |
| Health care cost trend rate assumed next  year |   | 15%            |   | 13% |   |
| Ultimate trend rate                            |   | 4.5%           |   | 5% |   |
| Year ultimate trend rate is reached            |   | 2013           |   | 2011 |   |

 

A onepercentage point increase in the health care cost trend rates would increasethe APBO as of January 31, 2004 by $1,100,000 and net periodic postretirementbenefit cost by $109,000.  A onepercentage point decrease in the health care cost trend rates would decreasethe APBO as of January 31, 2004 by $950,000 and net periodic postretirementcost by $91,000.

 

The Company’sexpected contribution in fiscal 2005 to the defined benefit pension plans is$170,000 and to the postretirement benefit plan is $495,000.

 

Thetable below reflects the estimated total pension benefits and otherpostretirement benefit payments, net of estimated retiree contributions, to bepaid from the plans over the next ten years (in thousands):

 
|        |   | **Defined  Benefit** |   | **Postretirement  Benefit** |   |
|-------------|--------|----------------------|--------|-----------------------------|--------|
| 2005        |   | $                    | 211    |                        | $      | 457 |   |
| 2006        |   | 236                  |   | 513                         |   |
| 2007        |   | 242                  |   | 551                         |   |
| 2008        |   | 286                  |   | 599                         |   |
| 2009        |   | 299                  |   | 663                         |   |
| 2010 - 2014 |   | 1,859                |   | 4,033                       |   |
|             |        |                      |        |                             |        |  |  |

 

**Note 12—StockOption Plan**

 

The Company has reserved 1,400,000 shares of common stock for theCascade Corporation 1995 Senior Managers’ Incentive Stock Option Plan (thePlan). The Plan permits the award of incentive stock options (ISO) to officersand key employees. Under the terms of the Plan, the purchase price of sharessubject to each ISO granted must not be less than the fair market value on thedate of grant. Accordingly, no compensation cost has been recognized under thePlan. Outstanding options begin vesting twenty five percent per year one yearafter the date of grant and expire ten years after the date of grant.

 

A summary of the Plan’s status at January 31, 2004, 2003, and 2002together with changes during the periods then ended are presented in thefollowing table:

 
|                             |   | **Shares** |   | **Weighted  Average  Price Per Share** |   |
|----------------------------------|--------|------------|--------|----------------------------------------|--------|
|                             |   |       |   |                                   |   |
| Balance at January 31, 2001 |   | 610,292    |   | $ 14.04                                |   |
| Granted                          |   | 315,428    |   | 10.32                                  |   |
| Exercised                        |   | —     |   | —                                 |   |
| Forfeited                        |   | (85,627    | )      | 14.50                                  |   |
|                             |   |       |   |                                   |   |
| Balance at January 31, 2002 |   | 840,093    |   | 12.60                                  |   |
| Granted                          |   | 214,000    |   | 13.92                                  |   |
| Exercised                        |   | (15,455    | )      | 12.49                                  |   |
| Forfeited                        |   | (75,074    | )      | 13.79                                  |   |
|                             |   |       |   |                                   |   |
| Balance at January 31, 2003 |   | 963,564    |   | 11.52                                  |   |
| Granted                          |   | 331,900    |   | 14.12                                  |   |
| Exercised                        |   | (103,947   | )      | 12.85                                  |   |
| Forfeited                        |   | —     |   | —                                 |   |
|                             |   |       |   |                                   |   |
| Balance at January 31, 2004 |   | 1,191,517  |   | 13.16                                  |   |

 

42

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The following table summarizes information about fixed optionsoutstanding at January 31, 2004:

 
|                      |       | **Options  Outstanding**        |    | **Options  Exercisable**              |    |
|---------------------------|------------|---------------------------------|---------|---------------------------------------|---------|
| **Exercise  Price Range** |       | **Total  Options  Outstanding** |    | **Weighted  Average  Exercise Price** |    | **Weighted  Average  Contractual Life** |   | **Number of  Shares  Exercisable** |   | **Weighted  Average  Exercise Price** |   |
|                      |       |                            |    |                                  |    |   |   |   |   |   |   |
| $                         | 9.55-11.22 |                            | 409,594 |                                  | $ 10.35 |   |   | 7 |   | 219,208 |   | $ 10.37 |   |   |
| 13.00-14.30               |       | 564,098                         |    | 14.06                                 |    |   | 9 |   | 73,198 |   | 13.80 |   |   |
| 15.25-16.00               |       | 78,666                          |    | 15.61                                 |    |   | 3 |   | 78,666 |   | 15.61 |   |   |
| 16.38-18.02               |       | 139,159                         |    | 17.04                                 |    |   | 4 |   | 139,159 |   | 17.04 |   |   |
|                      |       |                            |    |                                  |    |   |   |   |   |   |   |
|                      |       | 1,191,517                       |    |                                  |    |   |   | 510,231 |   |   |   |
|                           |            |                                 |         |                                       |         |  |  |  |  |  |  |  |  |  |

 

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**Note 13—EarningsPer Share**

 

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

 
|                                                                |   | **Year Ended  January 31** |   |
|---------------------------------------------------------------------|--------|----------------------------|--------|
|                                                                |   | **2004**                   |   | **2003** |   | **2002** |   |
| Basic earnings per share:                                           |   |                       |   |   |   |   |   |
| Income from continuing operations                                   |   | $                          | 18,506 |   | $ | 17,707 |   | $ | 5,302 |   |
| Preferred stock dividends                                           |   | (30                        | )      | (60 | ) | — |   |
| Income from continuing operations available  to common shareholders |   | 18,476                     |   | 17,647 |   | 5,302 |   |
| Income from discontinued operations, net of  income taxes           |   | —                     |   | — |   | 485 |   |
| Loss on sale of discontinued operations,  net of income taxes       |   | —                     |   | — |   | (1,660 | ) |
| Net income available to common shareholders                         |   | $                          | 18,476 |   | $ | 17,647 |   | $ | 4,127 |   |
|                                                                |   |                       |   |   |   |   |   |
| Weighted average shares of common stock  outstanding                |   | 11,934                     |   | 11,372 |   | 11,392 |   |
| Continuing operations                                               |   | $                          | 1.55   |   | $ | 1.55 |   | $ | 0.47 |   |
| Discontinued operations                                             |   | —                     |   | — |   | 0.04 |   |
| Loss on sale of discontinued operations                             |   | —                     |   | — |   | (0.15 | ) |
|                                                                |   | $                          | 1.55   |   | $ | 1.55 |   | $ | 0.36 |   |
|                                                                |   |                       |   |   |   |   |   |
| Diluted earnings per share:                                         |   |                       |   |   |   |   |   |
| Income from continuing operations available  to common shareholders |   | $                          | 18,476 |   | $ | 17,647 |   | $ | 5,302 |   |
| Effect of dilutive securities:                                      |   |                       |   |   |   |   |   |
| Exchangeable preferred stock                                        |   | —                     |   | 60 |   | — |   |
| Preferred stock dividend                                            |   | 30                         |   | — |   | — |   |
| Income from continuing operations available  to common shareholders |   | 18,506                     |   | 17,707 |   | 5,302 |   |
| Income from discontinued operations, net of  income taxes           |   | —                     |   | — |   | 485 |   |
| Loss on sale of discontinued operations,  net of income taxes       |   | —                     |   | — |   | (1,660 | ) |
| Net income                                                          |   | $                          | 18,506 |   | $ | 17,707 |   | $ | 4,127 |   |
|                                                                |   |                       |   |   |   |   |   |
| Weighted average shares of common stock  outstanding                |   | 11,934                     |   | 11,372 |   | 11,392 |   |
| Assumed conversion of exchangeable  preferred stock                 |   | 101                        |   | 692 |   | 800 |   |
| Dilutive effect of stock options                                    |   | 374                        |   | 130 |   | 41 |   |
| Diluted weighted average shares of common  stock outstanding        |   | 12,409                     |   | 12,194 |   | 12,233 |   |
| Continuing operations                                               |   | $                          | 1.49   |   | $ | 1.45 |   | $ | 0.44 |   |
| Discontinued operations                                             |   | —                     |   | — |   | 0.04 |   |
| Loss on sale of discontinued operations                             |   | —                     |   | — |   | (0.14 | ) |
|                                                                |   | $                          | 1.49   |   | $ | 1.45 |   | $ | 0.34 |   |

 

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 sharesincludes the incremental shares that would be issued upon the assumed exerciseof stock options, as well as the assumed conversion of exchangeable preferredstock. For the years ended January 31, 2003 and 2002, 260,058 shares and312,787 shares, respectively, of the Company’s stock options were excluded fromthe calculation of diluted earnings per share because they were antidilutive,but these options could be dilutive in the future.

 

44

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**Note 14—DerivativeInstruments and Hedging Activities**

 

The Company has operations and sells products to dealers and originalequipment manufacturers throughout the world. The Company’s activities exposeit to a variety of market risks, including the effects of changes in foreigncurrency exchange rates. These financial exposures are monitored and managed bythe Company within the Company’s foreign exchange management policy as approvedby the Board of Directors. The Company’s risk-management program focuses on theunpredictability of financial markets and seeks to reduce the effects that thevolatility of these markets may have on its operating results.

 

The Company maintains a foreign currency risk-management strategy thatuses derivative instruments to protect its interests from unanticipatedfluctuations in earnings caused by volatility in foreign currency exchangerates. Various amounts of the Company’s payables, receivables and subsidiaryroyalties are denominated in foreign currencies, thereby creating exposures tochanges in exchange rates.

 

The Company purchases foreign currency forward exchange contracts withcontract terms lasting up to six months, but generally less than one month, toprotect against the adverse effects that exchange rate fluctuations may have onforeign currency denominated receivables and payables. These derivatives do notqualify for hedge accounting, in accordance with SFAS No. 133 “Accountingfor Derivative Instruments and Hedging Activities.” The gains and losses onboth the derivatives and the foreign currency denominated trade receivables andpayables are recorded as transaction adjustments in current earnings therebyminimizing the effect on current earnings of exchange-rate fluctuations.

 

By using derivative financial instruments to hedge exposures to changesin exchange rates, the Company exposes itself to credit risk and market risk.Credit risk is the failure of the counterparty to perform under the terms ofthe derivatives contract. When the fair value of a derivative contract ispositive, the counterparty owes the Company, which creates repayment risk forthe Company. When the fair value of a derivative contract is negative, theCompany owes the counterparty and, therefore, it does not possess repaymentrisk. The Company minimizes the credit or repayment risk in derivativeinstruments by entering into transactions with counterparties whose creditratings are AA or higher, monitoring the amount of exposure to eachcounterparty and monitoring the financial condition of its counterparties.

 

Market risk is the adverse effect on the value of a foreign exchangecontract that results from a change in the underlying exchange rates.  The market risk associated with theseforeign exchange risks is managed by only hedging actual exposures.  Any change in value of the foreign exchangecontract due to exchange rate change is offset by the change in value of theunderlying asset being hedged due to exchange rate change.

 

At January 31, 2004, the Company had approximately $35.3 millionnominal value of contracts in place to buy or sell foreign currency. The fairvalue of these contracts at January 31, 2004 is not material and isrecorded in the Company’s consolidated financial statements. The principalcurrencies hedged are denominated in Japanese yen, Canadian dollars, Euros andBritish pounds.

 

45

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**Note 15—AustraliaGoodwill Impairment**

 

The Companyhad incurred losses in Australia since 1998. Although major restructuring efforts were undertaken in fiscal 2001, theCompany’s operations in Australia continued to be negatively impacted byseveral factors in fiscal 2002, including the continuation of inefficienciesrelated to the realignment of sales operations, elimination of distribution locationsand the continued deterioration of sales levels due to the elimination of thetire and battery business.  Net salesfor Australia decreased in each quarter during fiscal 2002, with the mostsignificant decrease in the fourth quarter. These declines occurred despite the fact that the Australian lift truckmarket was not experiencing the downturn in order rates that existed in NorthAmerica and Europe.  This reduced levelof business required a 40% reduction in the overall work force in Australia inthe second half of fiscal 2002 and other cost reduction measures.  These activities were accounted for inongoing operations and did not require additional charges. The Companyconcluded that the decline in sales experienced at the end of fiscal 2002 in theAustralian operations was not temporary.

 

In light ofthese significant factors and trends impacting its Australian operations andexpected future growth rates, the Company performed an impairment assessmentunder SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and forLong-Lived Assets to be Disposed of” of the carrying amount of goodwill andlong-lived assets in Australia in the fourth quarter of fiscal 2002.  Based on this assessment the Companydetermined that the sum of the expected future cash flows from its Australianoperations was less than the carrying amount of the goodwill and an impairmentloss should be recognized.

 

The Companymeasured the impairment loss as the amount by which the carrying amount of thegoodwill and assets exceeded the fair value of the assets based on discountedfuture cash flows.  This analysisresulted in the Company recording a $5.1 million impairment loss and write downof goodwill in the fourth quarter of fiscal 2002.  The assumptions used by management reflected its best estimate offuture cash flows and included estimates of future sales, sales growth rates,gross margins, expense levels, capital expenditure levels and the discountrate.  The Company used a discount rateof 12.35%, which represents the estimated weighted average cost of capital forits Australian operations.

 

The Companyhas $3.0 million of goodwill related to its Australian operations remaining onits consolidated balance sheet at January 31, 2004 and 2003, respectively.  During fiscal 2003 and 2004 the Company’sAustralian operations were profitable.

 

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**Note 16—Commitmentsand Contingencies**

 

**EnvironmentalMatters**

 

The Company is subject to environmental laws and regulations, which includeobligations to remove or mitigate environmental effects of past disposal andrelease of certain wastes and substances at various sites. The Company recordsliabilities for affected sites when environmental assessments indicate probablecleanup and the costs can be reasonably estimated. Other than for costs ofassessments themselves, the timing and amount of these liabilities isdetermined based on the estimated costs of remediation activities and theCompany’s commitment to a formal plan of action, such as an approvedremediation plan. The reliability and precision of the loss estimates areaffected by numerous factors, such as different stages of site evaluation andreevaluation of the degree of remediation required. The Company adjusts itsliabilities as new remediation requirements are defined, as information becomesavailable permitting reasonable estimates to be made and to reflect new andchanging facts.

 

It is reasonably possible that changes in estimates will incur 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 remediation liabilities.  It is also reasonably possible that these claims may also have amaterial impact on the Company’s net income if asserted.  The Company cannot estimate at this time theamount of any additional loss or range of loss that is reasonably possible.

 

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

 

## **Fairview, Oregon**

 

In 1996, the OregonDepartment of Environmental Quality issued two Records of Decision impactingthe Company’s Fairview, Oregon manufacturing facility.  The records of decision required the Companyto initiate remedial activities related to the cleanup of groundwatercontamination at and near the facility. Remediation activities have been conducted at or near the facility since1996 and current estimates provide for some level of activity to continuethrough 2027.  Costs of certainremediation activities at the facility are shared with The Boeing Company, withCascade paying 70% of these costs.  TheCompany has recorded a liability for the ongoing remediation activities at itsFairview facility of $8.3 million and $9.2 million at January 31, 2004 and2003, 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 recorded a liability forongoing remediation activities at its Springfield facility of  $1.1 million and $970,000 at January 31,2004 and 2003, respectively.

 

**Cityof Portland Litigation**

 

On November 6, 2002, the Company and The Boeing Company enteredinto a settlement agreement with the City of Portland, Oregon (City) resolvinglitigation brought by the City in 1999 alleging damages arising from theproximity of groundwater contamination in the area of their respective plantsto a City water well field. The defendants agreed to pay the City$6.2 million, of which the Company’s share was $3.6 million. The Companyaccrued a $1.5 million charge related to the litigation during the yearended January 31, 2002, and has recorded a charge of approximately$2.1 million in the year ended January 31, 2003, related to thesettlement. The Company paid the $3.6 million settlement inNovember 2002.

 

## **Boeing Litigation**

 

In fiscal 2000, the Company recorded costs of $7 million related to anadverse judgment in environmental litigation brought by The BoeingCompany.  During the years ended January31, 2002 the Company made the final $4 million payment under the judgment.

 

Presented below isa rollforward of the Company’s environmental liabilities and expenses for thethree years ended January 31, 2004 (in thousands):

 

47

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|                        |   | **January 31**    |         |
|-----------------------------|--------|-------------------|--------------|
|                        |   | **2001  Balance** |         | **Accrued** |   | **Cash  Payments** |   | **2002  Balance** |   | **Accrued** |   | **Cash  Payments** |   | **2003  Balance** |   | **Accrued** |   | **Cash  Payments** |   | **2004  Balance** |   |
|                        |   |              |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fairview                    |   | $                 |  10,980 |   | $ |  — |   | $ |  875 |   | $ |  10,105 |   | $ |  (270 | ) | $ |  598 |   | $ |  9,237 |   | $ | (357 | ) | $ | 586 |   | $ |  8,294 |   |
| Springfield                 |   | 1,090             |         | — |   | 201 |   | 889 |   | 270 |   | 199 |   | 960 |   | 357 |   | 213 |   | 1,104 |   |
| City of Portland litigation |   | —            |         | 1,500 |   | — |   | 1,500 |   | 2,100 |   | 3,600 |   | — |   | — |   | — |   | — |   |
| Boeing litigation           |   | 4,024             |         | — |   | 4,024 |   | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Other                       |   | 300               |         | — |   | 300 |   | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
|                        |   |              |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                        |   | $                 |  16,394 |   | $ |  1,500 |   | $ |  5,400 |   | $ |  12,494 |   | $ |  2,100 |   | $ |  4,397 |   | $ |  10,197 |   | $ |  — |   | $ | 799 |   | $ |  9,398 |   |

 

On April 22,2002, the Circuit Court of the State of Oregon for Multnomah County enteredjudgment in the Company’s favor for approximately $1.6 million in anaction originally brought in 1992 against several insurers to recover variousexpenses incurred in connection with environmental litigation and relatedproceedings. The judgment is against two non-settling insurers. Additionally,the judgment requires one of the insurers to defend the Company in suitsalleging liability because of groundwater contamination emanating from itsFairview plant and requires the two insurers to pay approximately 4% of anyliability imposed against the Company by judgment or settlement on or afterMarch 1, 1997 on account of such contamination. The Company and theinsurers have appealed the judgment. The Company has not recorded any amountsthat may be recovered from the two insurers in its consolidated financialstatements.

 

**LeaseCommitments**

 

The Company leases certain of its facilities and equipment undernoncancelable operating leases. Rent expense for the years endedJanuary 31, 2004, 2003, and 2002 totaled $1.4 million,$1.4 million and $3.4 million, respectively. Future minimum rentalcommitments under these leases as of January 31, 2004 are as follows (inthousands):

 
| 2005       |   | $     | 1,470  |   |
|------------|--------|-------|--------|--------|
| 2006       |   | 1,170 |   |
| 2007       |   | 877   |   |
| 2008       |   | 755   |   |
| 2009       |   | 523   |   |
| Thereafter |   | 958   |   |

 

**LeaseGuarantee**

 

As discussed in Note 3, the Company sold its hydraulic cylinderdivision to Precision on January 15, 2002. Under the terms of the sale,the Company assigned to Precision an operating lease related to a manufacturingfacility in Beulaville, North Carolina. The Company is a guarantor on the leasein the event Precision fails to comply with the lease terms. The lease requirespayments by Precision of approximately $21,000 per month through November2007. In the event Precision defaults under the lease, the Company can seek torecover losses related to the guarantee by pursuing its remedies underagreements securing payment of amounts receivable from Precision.  The fair value of the lease guarantee usingundiscounted cash flows is $966,000.

 

**LegalProceedings**

 

The Company is subject to legal proceedings, claims and litigation, inaddition to the environmental matters previously discussed, arising in theordinary course of business. While the outcome of these matters is currentlynot determinable, management does not expect the ultimate costs to resolvethese matters will have a material adverse effect on the Company’s consolidatedfinancial position, result of operations, or cash flows.

 

48

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**Note 17—FairValue of Financial Assets and Liabilities**

 

The fair value of the Company’s financial instruments represents theamount at which the instrument could be exchanged in a current transactionbetween willing parties, other than in a forced sale or liquidation. Thecarrying amount of the Company’s cash and cash equivalents, marketablesecurities, trade receivables and payables and notes payable to banksapproximates fair value due to the short maturity of these instruments. Fairvalue of long-term debt is estimated based either on quoted market prices forsimilar issues or on current rates offered to the Company for debt of the sameremaining maturities. The fair value of the Company’s exchangeable preferredstock cannot be estimated. The estimated fair values of the Company’s financialliabilities for which the carrying amount does not approximate fair value is asfollows:

 
|                                      |   | **January 31**     |   |
|-------------------------------------------|--------|--------------------|--------|
|                                      |   | **2004**           |   | **2003** |   |
|                                      |   | **Fair  Value**    |   | **Carrying  Amount** |   | **Fair  Value** |   | **Carrying  Amount** |   |
|                                      |   | **(In thousands)** |   |
|                                      |   |               |   |   |   |   |   |   |   |
| Long-term debt, including current portion |   | $                  | 55,839 |   | $ | 51,129 |   | $ | 68,285 |   | $ | 62,808 |   |
|                                           |        |                    |        |  |  |  |  |  |  |  |  |  |  |

 

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**Note 18—SegmentInformation**

 

The Company’s operating units have several economic characteristics andattributes, including similar products, distribution patterns and classes ofcustomers. As a result, the Company aggregates its operating units into asingle operating segment related to the manufacturing, distribution andservicing of material handling load engagement products primarily for the lifttruck industry.

 

Revenues and operating results are classified according to the countryof origin. Identifiable assets are attributed to the geographic location inwhich they are located. Net sales, operating results and identifiable assets bygeographic region were as follows (in thousands):

 
|                            |   | **Year Ended  January 31** |    |
|---------------------------------|--------|----------------------------|---------|
| **2004**                        |   | **North  America**         |    | **Europe** |   | **Asia  Pacific** |   | **Eliminations** |   | **Consolidated** |   |
|                            |   |                       |    |   |   |   |   |   |   |   |   |
| Sales to unaffiliated customers |   | $                          | 171,709 |   | $ | 81,114 |   | $ | 44,933 |   | $ | — |   | $ | 297,756 |   |
| Transfers between areas         |   | 16,951                     |    | 2,004 |   | 20 |   | (18,975 | ) | — |   |
| Net sales                       |   | $                          | 188,660 |   | $ | 83,118 |   | $ | 44,953 |   | $ | (18,975 | ) | $ | 297,756 |   |
| Operating income (loss)         |   | $                          | 24,951  |   | $ | (450 | ) | $ | 7,524 |   |   |   | $ | 32,025 |   |
| Identifiable assets             |   | $                          | 151,381 |   | $ | 100,129 |   | $ | 41,309 |   |   |   | $ | 292,819 |   |

 
|                            |   | **Year Ended  January 31** |    |
|---------------------------------|--------|----------------------------|---------|
| **2003**                        |   | **North  America**         |    | **Europe** |   | **Asia  Pacific** |   | **Eliminations** |   | **Consolidated** |   |
|                            |   |                       |    |   |   |   |   |   |   |   |   |
| Sales to unaffiliated customers |   | $                          | 162,774 |   | $ | 60,404 |   | $ | 35,651 |   | $ | — |   | $ | 258,829 |   |
| Transfers between areas         |   | 12,754                     |    | 947 |   | 80 |   | (13,781 | ) | — |   |
| Net sales                       |   | $                          | 175,528 |   | $ | 61,351 |   | $ | 35,731 |   | $ | (13,781 | ) | $ | 258,829 |   |
| Operating income                |   | $                          | 28,188  |   | $ | 504 |   | $ | 4,052 |   |   |   | $ | 32,744 |   |
| Identifiable assets             |   | $                          | 157,521 |   | $ | 74,162 |   | $ | 30,634 |   |   |   | $ | 262,317 |   |

 
|                            |   | **Year Ended  January 31** |    |
|---------------------------------|--------|----------------------------|---------|
| **2002**                        |   | **North  America**         |    | **Europe** |   | **Asia  Pacific** |   | **Eliminations** |   | **Consolidated** |   |
|                            |   |                       |    |   |   |   |   |   |   |   |   |
| Sales to unaffiliated customers |   | $                          | 160,883 |   | $ | 59,470 |   | $ | 32,362 |   | $ | — |   | $ | 252,715 |   |
| Transfers between areas         |   | 14,032                     |    | 675 |   | 115 |   | (14,822 | ) | — |   |
| Net sales                       |   | $                          | 174,915 |   | $ | 60,145 |   | $ | 32,477 |   | $ | (14,822 | ) | $ | 252,715 |   |
| Operating income                |   | $                          | 8,879   |   | $ | 2,435 |   | $ | 2,119 |   |   |   | $ |  13,433 |   |
| Identifiable assets             |   | $                          | 155,546 |   | $ | 64,119 |   | $ | 27,621 |   |   |   | $ |  247,286 |   |

 

50

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**Note 19—WarrantyObligations**

 

The Company’s warranty obligations, which are recorded in other accruedexpenses on the consolidated balance sheet, are as follows:

 
|                                            |   | **January 31**      |   |
|-------------------------------------------------|--------|---------------------|--------|
|                                            |   | **2004**            |   | **2003** |   |
|                                            |   | **(In  thousands)** |   |
|                                            |   |                |   |   |   |
| Beginning obligation                            |   | $                   | 1,322  |   | $ | 1,671 |   |
| Accruals for warranties issued during the  year |   | 2,269               |   | 1,705 |   |
| Accruals for pre-existing warranties            |   | 124                 |   | (35 | ) |
| Settlements during the year                     |   | (2,105              | )      | (2,019 | ) |
|                                            |   |                |   |   |   |
| Ending obligation                               |   | $                   | 1,610  |   | $ | 1,322 |   |

 

**Note 20—RelatedParties**

 

The Company paid fees for legal services in the ordinary course ofbusiness, including environmental litigation, to a firm in which a formerdirector was a partner. These fees totaled $209,000, $317,000 and $409,000 forthe years ended January 31, 2004, 2003 and 2002, respectively.   The director resigned from the Company’sBoard of Directors on September 30, 2003.

 

**Note 21—Goodwill**

 

The following presents the adjusted earnings per share, excluding theeffect of goodwill amortization, which was eliminated in fiscal 2003 inaccordance with SFAS 142, in the year ended January 31, 2002 (inthousands, except per share amounts):

 
|                                                                         |   | **Year Ended  January 31** |   |
|------------------------------------------------------------------------------|--------|----------------------------|--------|
|                                                                         |   | **2004**                   |   | **2003** |   | **2002** |   |
|                                                                         |   |                       |   |   |   |   |   |
| Basic earnings per share:                                                    |   |                       |   |   |   |   |   |
| Income from continuing operations available  to common shareholders          |   | $                          | 18,476 |   | $ | 17,647 |   | $ | 5,302 |   |
| Goodwill amortization, net of income taxes  of $1,672                        |   | —                     |   | — |   | 2,728 |   |
| Adjusted income from continuing operations  available to common shareholders |   | $                          | 18,476 |   | $ | 17,647 |   | $ | 8,030 |   |
|                                                                         |   |                       |   |   |   |   |   |
| Reported basic earnings per share                                            |   | $                          | 1.55   |   | $ | 1.55 |   | $ | 0.47 |   |
| Goodwill amortization, net of income taxes                                   |   | —                     |   | — |   | 0.23 |   |
| Adjusted basic earnings per share from  continuing operations                |   | $                          | 1.55   |   | $ | 1.55 |   | $ | 0.70 |   |
|                                                                         |   |                       |   |   |   |   |   |
| Diluted earnings per share:                                                  |   |                       |   |   |   |   |   |
| Income from continuing operations                                            |   | $                          | 18,506 |   | $ | 17,707 |   | $ | 5,302 |   |
| Goodwill amortization, net of income taxes  of $1,672                        |   | —                     |   | — |   | 2,728 |   |
| Adjusted income from continuing operations                                   |   | $                          | 18,506 |   | $ | 17,707 |   | $ | 8,030 |   |
|                                                                         |   |                       |   |   |   |   |   |
| Reported diluted earnings per share                                          |   | $                          | 1.49   |   | $ | 1.45 |   | $ | 0.44 |   |
| Goodwill amortization, net of income taxes                                   |   | —                     |   | — |   | 0.22 |   |
| Adjusted diluted earnings per share from  continuing operations              |   | $                          | 1.49   |   | $ | 1.45 |   | $ | 0.66 |   |

 

51

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|                                                           |   | **January 31** |   |
|----------------------------------------------------------------|--------|----------------|--------|
| **Breakdown of goodwill by geographic region (in thousands):** |   | **2004**       |   | **2003** |   |
|                                                           |   |           |   |   |   |
| North America                                                  |   | $              | 56,612 |   | $ | 49,459 |   |
| Europe                                                         |   | 9,154          |   | 6,708 |   |
| Other                                                          |   | 3,149          |   | 3,188 |   |
|                                                           |   | $              | 68,915 |   | $ | 59,355 |   |

 

Business acquisitions during fiscal 2004 created $1.3 million of additionalgoodwill.  The remaining $8.3 millionincrease in goodwill for the year ended January 31, 2004 was due to foreigncurrency fluctuations.

 

**Note 23—SupplementaryQuarterly Financial Information (unaudited)**

 
|                             |   | **1st  Quarter**                              |   | **2nd  Quarter** |   | **3rd  Quarter** |   | **4th  Quarter** |   |
|----------------------------------|--------|-----------------------------------------------|--------|------------------|--------|------------------|--------|------------------|--------|
|                             |   | **(In  thousands, except per share amounts)** |   |
|                             |   |                                          |   |             |   |             |   |             |   |
| Year ended January 31, 2004 |   |                                          |   |             |   |             |   |             |   |
| Net sales                        |   | $                                             | 68,934 |             | $      | 75,633           |   | $                | 75,772 |   | $ | 77,417 |   |
| Gross profit                     |   | $                                             | 22,711 |             | $      | 24,987           |   | $                | 24,824 |   | $ | 23,114 |   |
| Net income                       |   | $                                             | 5,373  |             | $      | 5,742            |   | $                | 5,092  |   | $ | 2,299 |   |
| Net income per share:            |   |                                          |   |             |   |             |   |             |   |
| Basic                            |   | $                                             | 0.46   |             | $      | 0.48             |   | $                | 0.42   |   | $ | 0.19 |   |
| Diluted                          |   | $                                             | 0.44   |             | $      | 0.47             |   | $                | 0.41   |   | $ | 0.18 |   |
| Year ended January 31, 2003 |   |                                          |   |             |   |             |   |             |   |
| Net sales                        |   | $                                             | 59,942 |             | $      | 64,272           |   | $                | 70,241 |   | $ | 64,374 |   |
| Gross profit                     |   | $                                             | 21,063 |             | $      | 21,799           |   | $                | 24,943 |   | $ | 21,269 |   |
| Net income                       |   | $                                             | 4,220  |             | $      | 4,458            |   | $                | 4,418  |   | $ | 4,611 |   |
| Net income per share:            |   |                                          |   |             |   |             |   |             |   |
| Basic                            |   | $                                             | 0.37   |             | $      | 0.39             |   | $                | 0.39   |   | $ | 0.40 |   |
| Diluted                          |   | $                                             | 0.35   |             | $      | 0.36             |   | $                | 0.36   |   | $ | 0.38 |   |

 

**Note 24—Acquisitions**

 

During 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 FEMA acquisition wascompleted on March 31, 2003, and the Roncari acquisition was completed onOctober 21, 2003.  The aggregatepurchase price paid in cash for FEMA and Roncari, net of assumed liabilities,was $3.6 million and $8.1 million, respectively.

 

**Note 25—AccumulatedOther Comprehensive Income (Loss)**

 
|                                              |   | **Accumulated Other Comprehensive Income (Loss)** |    |
|---------------------------------------------------|--------|---------------------------------------------------|---------|
|                                              |   | **Translation  Adjustment**                       |    | **Minimum Pension  Liability Adjustment** |   | **Total** |   |
|                                              |   |                                              |    |   |   |   |   |
| Balance at January 31, 2001                       |   | $                                                 | (21,788 | ) | $ | — |   | $ | (21,788 | ) |
| Translation adjustment                            |   | (6,009                                            | )       | — |   | (6,009 | ) |
|                                              |   |                                              |    |   |   |   |   |
| Balance at January 31, 2002                       |   | (27,797                                           | )       | — |   | (27,797 | ) |
| Translation adjustment                            |   | 13,453                                            |    | — |   | 13,453 |   |
|                                              |   |                                              |    |   |   |   |   |
| Balance at January 31, 2003                       |   | (14,344                                           | )       | — |   | (14,344 | ) |
| Translation adjustment                            |   | 17,684                                            |    | — |   | 17,684 |   |
| Minimum pension liability adjustment, net  of tax |   | —                                            |    | (2,309 | ) | (2,309 | ) |
|                                              |   |                                              |    |   |   |   |   |
| Balance at January 31, 2004                       |   | $                                                 | 3,340   |   | $ | (2,309 | ) | $ | 1,031 |   |

 

52

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**Cascade CorporationValuation and Qualifying Accounts(In thousands)**

 
| **Column A**                             |   | **Column B**                    |   | **Column C**                  |   | **Column D** |   | **Column E**             |   |
|-----------------------------------------------|--------|--------------------------------------|--------|------------------------------------|--------|-------------------|--------|-------------------------------|--------|
| **Description**                               |   | **Balance at  Beginning  of Period** |   | **Charged to  Costs and Expenses** |   | **Deductions**    |   | **Balance at  End of Period** |   |
|                                          |   |                                 |   |                               |   |              |   |                          |   |
| *Years ended January 31:*                |   |                                 |   |                               |   |              |   |                          |   |
| *2004*                                        |   |                                 |   |                               |   |              |   |                          |   |
| Allowance for doubtful accounts and notes     |   | $                                    | 1,801  |                               | $      | 807               |   | $                             | (585   | ) | $ | 2,023 |   |
| Valuation allowances—deferred tax assets |   | $                                    | 5,564  |                               | $      | 3,839             |   | $                             | (1,897 | ) | $ | 7,506 |   |
| *2003*                                        |   |                                 |   |                               |   |              |   |                          |   |
| Allowance for doubtful accounts and notes     |   | $                                    | 8,658  |                               | $      | 451               |   | $                             | (7,308 | ) | $ | 1,801 |   |
| Valuation allowances—deferred tax assets |   | $                                    | 5,183  |                               | $      | 567               |   | $                             | (186   | ) | $ | 5,564 |   |
| *2002*                                        |   |                                 |   |                               |   |              |   |                          |   |
| Allowance for doubtful accounts               |   | $                                    | 1,574  |                               | $      | 7,308             |   | $                             | (224   | ) | $ | 8,658 |   |
| Valuation allowances—deferred tax assets |   | $                                    | 3,040  |                               | $      | 2,143             |   | $                             | — |   | $ | 5,183 |   |

 

**Item 9. Changes In and Disagreements With Accountants on Accounting andFinancial Disclosure**

 

None.

 

53

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**PARTIII**

 

**Item9A.  Controls and Procedures**

 

The Companymaintains a set of disclosure controls and procedures designed to ensure thatinformation required to be disclosed by the Company in reports that it files orsubmits under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded,processed, summarized and reported on a timely basis. An evaluation was carriedout under the supervision and with the participation of the Company’smanagement, including the Chief Executive Officer (“CEO”) and Chief FinancialOfficer (“CFO”), of the effectiveness of the Company’s disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act.Based on that evaluation, the CEO and CFO have concluded that, as of such date,the Company’s disclosure controls and procedures are effective in ensuring thatinformation relating to the Company, including its consolidated subsidiaries,required to be disclosed in reports that it files under the Exchange Act is (1)recorded, processed, summarized and reported within the time periods specifiedin the Securities and Exchange Commission’s rules and forms, and (2)accumulated and communicated to the Company’s management including the CEO andCFO, as appropriate to allow timely decisions regarding require disclosure.

 

No change inthe Company’s internal control over financial reporting occurred during theCompany’s last fiscal quarter that has materially affected, or is reasonablylikely to materially affect, the Company’s internal control over financialreporting.

 

**Item10.  Directors and Executive Officers ofthe Registrant**

 

Informationregarding directors of the Company is set forth under the heading “Proposal1:  Election of Directors” in theCompany’s Proxy Statement for its 2004 Annual Meeting  to be filed within 120 days after the Company’s fiscal year endof January 31, 2004, (“Proxy Statement”) and is incorporated into this reportby reference.  Information regarding theCompany's executive officers is set forth in Part I, Item 4A of thisreport.

 

**Audit Committee**

 

The Companyhas a separately-designated standing Audit Committee established in accordancewith Section 3(a)(58)(A) of the Exchange Act. The members of the Audit Committee are Duane C. McDougall (Chair),Mr. C. Calvert Knudsen, Mr. James S. Osterman, Dr. Nancy A. Wilgenbusch, andMr. Henry W. Wessinger II, each of whom is independent as that term is used inItem 7(d)(3)(iv) of Schedule 14A under the Exchange Act.

 

**Audit Committee Financial Expert**

 

The Company’s Board ofDirectors has determined that Duane C. McDougall, Chair of the Audit Committee,is an audit committee financial expert as defined in Item 401(h) of RegulationS-K of the Exchange Act and is independent as that term is used in Item7(d)(3)(iv) of Schedule 14A under the Exchange Act.

 

**Code of Ethics**

 

The Company has adopted acode of ethics and business responsibilities (“Code”) for directors, officers(including the CEO, CFO, principal accounting officer, and persons performingsimilar functions) and employees, which is Exhibit 14 of this report.  A copy of the Code will be available on theCompany’s website at www.cascorp.com/investor after the Company has filed itsProxy Statement.  Shareholders mayrequest a free copy of the Code from:

 

Cascade Corporation

Attention:  Secretary

2201 N.E. 201stAvenue

Fairview, Oregon 97024-9718

503-669-6300

 

The Company will post on itswebsite any required amendments to or waivers granted under the Codepursuant  to Securities and Exchange Commission or New York Stock Exchangedisclosure rules.

 

**Section 16(a) Beneficial Ownership Reporting Compliance**

 

Information regardingSection 16(a) beneficial ownership reporting compliance is set forth under theheading “Section 16(a) Beneficial Ownership Reporting Compliance” in the ProxyStatement and is incorporated into this report by reference.

 

**Item11.  Executive Compensation**

 

Informationregarding compensation of the Company’s named executive officers is set forthunder the heading “Executive Officer Compensation” in the Proxy Statement andis incorporated into this report by reference. Information regarding compensation of the Company’s directors is setforth under the heading “Corporate Governance and Other Board Matters—DirectorCompensation” in the Proxy Statement and is incorporated into this report byreference.

 

**Item12.  Security Ownership of CertainBeneficial Owners and Management and Related Stock Holder Matters**

 

Informationconcerning the security ownership of certain beneficial owners, directors, andexecutive officers of the Company is set forth under the heading “Voting Securities-Stock Ownership Of CertainBeneficial Owners And Management” in the Proxy Statement and is incorporatedinto this report by reference.

 

Informationregarding the Company’s equity compensation plans is set forth under theheading “Equity Compensation Plan Information” in the Proxy Statement and isincorporated into this report by reference.

 

**Item13.  Certain Relationships and RelatedTransactions**

 

None.

 

# **Item 14.  Principal Accounting Fees and Services**

 

Informationconcerning fees paid to the Company’s independent auditors is set forth underthe heading “Independent Auditors” in the Proxy Statement and is incorporatedinto this report by reference.

 

54

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**PARTIV**

 

**Item 15.  Exhibits, Financial Statement Schedules, andReports on Form 8-K**

 

**Indexto Financial Statements**

 
| (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 1.     |   | *Consolidated  Financial Statements*                                                                                      |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|---------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |                                                                                                                      |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   | Report of Independent Auditors                                                                                            |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   | Consolidated Financial Statements:                                                                                        |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   | Statements of Income for each of the three  years in the period ended January 31, 2004                               |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   | Balance Sheets at January 31, 2004 and 2003                                                                          |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   | Statements of Changes in Shareholders’  Equity for each of the three years in the period ended January 31, 2004 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   | Statements of Cash Flows for each of the  three years in the period ended January 31, 2004                           |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   | Notes to Consolidated Financial Statements                                                                                |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | 2.     |   | *Financial  Statement Schedule for each of the three years ended January 31, 2004,  2003 and 2002.*                  |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   | Valuation  and Qualifying Accounts                                                                                        |   |
|   The individual financial statements of the  registrant and its subsidiaries have been omitted since the registrant is  primarily an operating company and all subsidiaries included in the  consolidated financial statements, in the aggregate, do not have minority  equity interests and/or indebtedness to any person other than the registrant  or its consolidated subsidiaries in amounts which together exceed 5% of the  total consolidated assets at January 31, 2004, except indebtedness  incurred in the ordinary course of business which is not overdue and which  matures within one year from the year of its origination. |

 

55

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3.  *Exhibits*

 
| 3.1  |   | Articles of  Incorporation, as amended, filed as Exhibit 4.1 to the Registration Statement  on Form S-8 (Registration No. 333-111860) filed with the Commission on  January 12, 2004.(1)                                                                                                |
|------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.2  |   | Bylaws, as  amended.                                                                                                                                                                                                                                                                    |
| 10.1 |   | Severance  Agreement dated May 25, 2000, with Richard S. Anderson, filed as  Exhibit 3 to Form 10-K filed with the Commission on May 1,  2001.(1)(2)                                                                                                                |
| 10.2 |   | Severance  Agreement dated May 25, 2000, with Terry H. Cathey, filed as  Exhibit 2 to Form 10-K filed with the Commission on May 1,  2001.(1)(2)                                                                                                                    |
| 10.3 |   | Severance  Agreement dated May 25, 2000, with Robert C. Warren, Jr., filed as  Exhibit 1 to Form 10-K filed with the Commission on May 1,  2001.(1)(2)                                                                                                              |
| 10.4 |   | 1999  Amendment and Restatement of the Cascade Corporation 1995 Senior Managers’  Incentive Stock Option Plan filed as Exhibit 4.3 to the Registration  Statement on Form S-8 (Registration No. 333-103581) filed with the  Commission on March 4, 2003.(1)(2) |
| 14   |   | Code of  Ethics and Business Responsibilites for Directors, Officers, and Employees.                                                                                                                                                                                                    |
| 21   |   | Subsidiaries  of the registrant.                                                                                                                                                                                                                                                        |
| 23   |   | Consent of  PricewaterhouseCoopers LLP, Independent Accountants                                                                                                                                                                                                                         |
| 31.1 |   | Certification  of Chief Executive Officer                                                                                                                                                                                                                                               |
| 31.2 |   | Certification  of Chief Financial Officer                                                                                                                                                                                                                                               |
| 32   |   | Certification  of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.  Section 1350                                                                                                                                                                               |

 

----

(1)           Incorporated byreference.

 

(2)           Indicates managementcontract or compensatory plan or arrangement.

 

(b)  *Reports on Form 8-K*

 

During thethree months ended January 31, 2004, the Company filed a current report on Form8-K dated December 17, 2003, relating to the results of its third fiscalquarter ended October 31, 2003.  Underthe Form 8-K, the Company furnished (not filed) exhibits under Item 7 pursuantto Item 12 consisting of the press release dated December 10, 2003 and thetranscript of the conference call held December 10, 2003, relating to theresults of its third fiscal quarter ended October 31, 2003.

 

56

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**SIGNATURE****S**

 

Pursuant to the requirements of Section 13 or 15(d) of the SecuritiesExchange Act of 1934, the registrant, CASCADE CORPORATION has duly caused thisannual report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|   | Cascade Corporation |
|--------|---------------------|
|   | By:                 |   |
|   |                | /s/ Richard  S. Anderson |
|   |                | Richard S. Anderson*Senior Vice  President and  Chief Financial Officer* |

 

Pursuant to the requirements of the Securities Exchange Act of 1934this report has been signed below by the following persons on behalf of theregistrant and in the capacities on the dates indicated.

 
| /s/ Robert C. Warren, Jr. |   | President and Chief Executive Officer, and Director | April 7, 2004 |
|---------------------------|--------|-----------------------------------------------------|---------------|
| Robert C. Warren, Jr.     |   | (Principal Executive Officer)                       | Date          |
|                      |   |                                                |          |
| /s/ Richard S. Anderson   |   | Senior Vice President and Chief Financial Officer   | April 7, 2004 |
| Richard S. Anderson       |   | (Principal Financial and Accounting Officer)        | Date          |
|                      |   |                                                |          |
| /s/ James S. Osterman     |   |                                                | April 7, 2004 |
| James S. Osterman         |   | Director                                            | Date          |
|                      |   |                                                |          |
| /s/ C. Calvert Knudsen    |   |                                                | April 7, 2004 |
| C. Calvert Knudsen        |   | Director                                            | Date          |
|                      |   |                                                |          |
| /s/ Nicholas R. Lardy     |   |                                                | April 7, 2004 |
| Nicholas R. Lardy         |   | Director                                            | Date          |
|                      |   |                                                |          |
| /s/ Duane C. McDougall    |   |                                                | April 7, 2004 |
| Duane C. McDougall        |   | Director                                            | Date          |
|                      |   |                                                |          |
| /s/ Henry W. Wessinger II |   |                                                | April 7, 2004 |
| Henry W. Wessinger II     |   | Director                                            | Date          |
|                      |   |                                                |          |
| /s/ Nancy A. Wilgenbusch  |   |                                                | April 7, 2004 |
| Nancy A. Wilgenbusch      |   | Director                                            | Date          |

 

57

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**EXHIBIT INDEX**

 
| **Exhibit No.** |   | **Description**                                                                                                                                                                                                                                                                         |
|-----------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1             |   | Articles of  Incorporation, as amended, filed as Exhibit 4.1 to the Registration Statement  on Form S-8 (Registration No. 333-111860 filed with the Commission on January  12, 2004.(1)                                                                                                 |
| 3.2             |   | Bylaws, as  amended.                                                                                                                                                                                                                                                                    |
| 10.1            |   | Severance  Agreement dated May 25, 2000, with Richard S. Anderson, filed as  Exhibit 3 to Form 10-K filed with the Commission on May 1,  2001.(1)(2)                                                                                                                |
| 10.2            |   | Severance  Agreement dated May 25, 2000, with Terry H. Cathey, filed as  Exhibit 2 to Form 10-K filed with the Commission on May 1,  2001.(1)(2)                                                                                                                    |
| 10.3            |   | Severance  Agreement dated May 25, 2000, with Robert C. Warren, Jr., filed as  Exhibit 1 to Form 10-K filed with the Commission on May 1,  2001.(1)(2)                                                                                                              |
| 10.4            |   | 1999  Amendment and Restatement of the Cascade Corporation 1995 Senior Managers’  Incentive Stock Option Plan filed as Exhibit 4.3 to the Registration  Statement on Form S-8 (Registration No. 333-103581) filed with the  Commission on March 4, 2003.(1)(2) |
| 14              |   | Code of  Ethics and Business Responsibilities for Directors, Officers, and Employees.                                                                                                                                                                                                   |
| 21              |   | Subsidiaries  of the registrant.                                                                                                                                                                                                                                                        |
| 23              |   | Consent of  PricewaterhouseCoopers LLP, Independent Accountants                                                                                                                                                                                                                         |
| 31.1            |   | Certification  of Chief Executive Officer                                                                                                                                                                                                                                               |
| 31.2            |   | Certification  of Chief Financial Officer                                                                                                                                                                                                                                               |
| 32              |   | Certification  of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.  Section 1350                                                                                                                                                                               |

 

----

(1)           Incorporated byreference.

 

(2)           Indicates management contract or compensatory plan orarrangement.

 

58

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