**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

----

**FORM 10-K**

**(Mark One)**

**x**                              ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe fiscal year ended January 31, 2005**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe transition periodfrom         to         **

**Commissionfile number 1-12557**

----

CASCADE CORPORATION

(Exact name of registrantas specified in its charter)
| **Oregon**                                                      | **93-0136592**                       |
|-----------------------------------------------------------------|--------------------------------------|
| (State or other jurisdiction of  incorporation or organization) | (I.R.S. Employer Identification No.) |

 

**2201 N.E. 201st Ave. Fairview, Oregon 97024-9718**

(Address of principal executive office) (Zip Code)

Registrant’s telephone number, including area code: **503-669-6300**

Securitiesregistered pursuant to Section 12(b) of the Act:

**Common Stock, parvalue $.50 per share**

Name of exchange on which registered: **New York Stock Exchange**

Securities registered pursuant to Section 12(g) ofthe Act: **None**

----

Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes x  No o

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, andwill not be contained, to the best of the registrant’s knowledge, in definitiveproxy or information statements incorporated by reference in Part III ofthis Form 10-K or any amendment to this Form 10-K. o

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

The aggregate market value of common stock held bynon-affiliates of the registrant as of July 31, 2004 was $356,766,498,based on the closing sale price of the common stock on the New York StockExchange on that date.

The number of shares outstanding of the registrant’s commonstock as of March 11, 2005 was 12,228,083.

**DOCUMENTS INCORPORATED BY REFERENCE**

Portionsof the definitive Proxy Statement to be filed within 120 days after theregistrant’s fiscal year end of January 31, 2005, to be delivered toshareholders in connection with the Annual Meeting of Shareholders to be held June 7,2005 are incorporated by reference into Part III.

 

----

**TABLE OF CONTENTS**
| PART I   | 4         |
|---------------|-----------|
|          | Item 1.   | Business: | 4 |
|          |      | General | 4 |
|          |      | Products | 4 |
|          |      | Markets | 4 |
|          |      | Competition | 5 |
|          |      | Customers | 5 |
|          |      | Backlog | 5 |
|          |      | Research  and Development | 6 |
|          |      | Environmental  Matters | 6 |
|          |      | Employees | 6 |
|          |      | Foreign  Operations | 6 |
|          |      | Available  information | 6 |
|          |      | Forward-looking  Statements | 3 |
|          | Item 2.   | Properties | 7 |
|          | Item 3.   | Legal  Proceedings | 7 |
|          | Item  4.  | Submission  of Matters to a Vote of Security Holders | 8 |
|          | Item  4A. | Officers  of the Registrant | 8 |
| PART II  | 9         |
|          | Item  5.  | Market  for Registrant’s Common Equity, Related Stockholder Matters, and  Issuer Purchases of Equity Securities | 9 |
|          | Item  6.  | Selected  Financial Data | 10 |
|          | Item  7.  | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 11 |
|          | Item  7A. | Quantitative  and Qualitative Disclosures About Market Risk | 23 |
|          | Item  8.  | Financial  Statements and Supplementary Data | 24 |
|          | Item  9.  | Changes  in and Disagreements With Accountants on Accounting and Financial Disclosure | 51 |
|          | Item  9A. | Controls  and Procedures | 52 |
|          | Item 9B.  | Other  Information | 52 |
| PART III | 53        |
|          | Item  10. | Directors  and Executive Officers of the Registrant | 53 |
|          | Item  11. | Executive  Compensation | 53 |
|          | Item 12.  | Security Ownership of Certain  Beneficial Owners and Management | 54 |
|          | Item 13.  | Certain Relationships and Related  Transactions | 54 |
| PART IV  | 54        |
|          | Item 14.  | Principal Accounting Fees and  Service | 54 |
|          | Item 15.  | Exhibits and Financial Statement  Schedules | 54 |
| SIGNATURES    | 56        |

 

NOTE: All references tofiscal years are defined as year ended January 31, 2005 (fiscal 2005),year ended January 31, 2004 (fiscal 2004) and year ended January 31,2003 (fiscal 2003).

2

----

**Forward-lookingStatements**

This Annual Reporton Form 10-K, including “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” in Item 7 containsforward-looking statements that involve risks and uncertainties, as well asassumptions that, if they never materialize or prove incorrect, could cause ourresults to differ materially from those expressed or implied by suchforward-looking statements. All statements other than statements of historicalfact are statements that could be deemed forward-looking statements, includingany projections of revenue, gross margin, expenses, earnings or losses fromoperations, synergies or other financial items; any statements of plans,strategies, and objectives of management for future operations; any statementsregarding future economic conditions or performance; any statements ofexpectation or belief; and any statements of assumptions underlying any of theforegoing. The risks, uncertainties, and assumptions referred to above include,but are not limited to, competitive factors in, and the cyclical nature of, thematerials handling industry; fluctuations in lift truck orders or deliveries,availability and cost of raw materials; general business and economicconditions in North America, Europe, Australia and Asia; assumptions relatingto pension and other post-retirement costs, foreign currency fluctuations;pending litigation; environmental matters; and the effectiveness of our capitalexpenditures and cost reduction initiatives. We undertake no obligation topublicly revise or update forward-looking statements to reflect events orcircumstances that arise after the date of this report.

3

----

**PART I**

**Item 1.**                        Business

**General**

Cascade Corporation(Cascade) was organized in 1943 under the laws of the State of Oregon. Theterms “Cascade”, “we”, and “our” includes Cascade Corporation and itssubsidiaries. Our headquarters are located in Fairview, Oregon, a suburb ofPortland, Oregon. We are one of the world’s leading manufacturers of materialshandling load engagement devices and related replacement parts, primarily forthe lift truck industry.

**Products**

We manufacture an extensive range of materials handlingload engagement products that are widely used on forklift trucks and, to alesser extent, on construction and agricultural vehicles.

Our products are primarily manufactured with theCascade and Cascade-Kenhar names and symbols, for which we have securedtrademark protection. The primary function of these products is to provide thelift truck with the capability of engaging, lifting, repositioning, carryingand depositing various types of loads and products. We offer a wide variety offunctionally different products, each of which has numerous sizes, models,capacities and optional combinations. Products are designed to handle loadswith pallets and for specialized application loads without pallets. Examples ofspecialized products include devices specifically designed to handle loads suchas appliances, paper rolls, baled materials, textiles, beverage containers,drums, canned goods, bricks, masonry blocks, lumber, plywood, and boxed,packaged and containerized products.

Our products are subject to strict design,construction and safety requirements established by industry associations andthe International Organization for Standardization (ISO). Major manufacturingfacilities are ISO certified. We presently offer a wide variety of bothstandardized and specialized products. Product specifications andcharacteristics are determined by the expected capacity to be lifted, thecharacteristics of the load, the ambient environment in which employed, theterrain over which the load will be moved and the operational life cycle of thevehicle. Accordingly, while there are some standard products, the marketdemands a wide range of products in custom configurations and capacities.

Manufacturing of ourproducts includes the purchase of raw materials and components: principallyrolled bar, plate and extruded steel products; unfinished castings andforgings; hydraulic cylinders and motors; and hardware items such as fasteners,rollers, hydraulic seals and hose assemblies. A portion of our bar steelpurchases are obtained under annual pricing arrangements, which do not requireminimum quantity purchases. Certain purchased parts are provided worldwide by alimited number of suppliers. We are not currently experiencing any shortages inobtaining raw materials or purchased parts. Difficulties in obtainingalternative sources of rolled bar, plate and extruded steel products and othermaterials from one of our primary suppliers could affect operating results.

**Markets**

We market our products throughout the world. Ourprimary 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. Our productsare sold to the ultimate customer through the retail lift truck dealerdistribution channel and to lift truck manufacturers as original equipmentmanufacturer (OEM) equipment.

4

----

In the major industrialized countries, lift trucks area widely utilized method of materials handling. In these markets lift trucksare generally considered maintenance capital investment. This makes theindustry subject to cyclical patterns similar to the broader capital goodseconomic sector.

However, many of our products measurably improveoverall materials handling and lift truck productivity. Further, we arecontinually developing products to serve new types of materials handlingapplications to meet specific customer and industry requirements. In thissense, our products may also be generally considered as both maintenance andproductivity enhancing investment. Historically, this has somewhat reduced thenegative impact of downward trends in the lift truck market on our net sales.

In the emergingindustrialized countries, China in particular, lift trucks are replacing manuallabor and other less productive methods of materials handling. As such lifttrucks are generally considered productivity enhancing investments in thesemarkets. We believe this makes lift truck markets in these countries generallyless susceptible to downward trends in capital goods spending. Our relativelylimited experience in these emerging markets supports this observation.

**Competition**

We are one of the leading domestic and foreignindependent suppliers of load engagement products for industrial forklifttrucks. Several lift truck manufacturers, who are customers of ours, are alsocompetitors in varying degrees to the extent that they manufacture a portion oftheir load engagement product requirements. Since we offer a broad line ofproducts capable of supplying a significant part of the total requirements forthe entire lift truck industry, our experience has shown that lower costsresulting from our relatively high unit volume would be difficult for anyindividual lift truck manufacturer to achieve.

In addition to lift truck manufacturers, we competewith a number of companies in different parts of the world. The majority ofthese competitors are privately-owned companies with a strong presence in localand regional markets. A smaller number of these competitors compete with usglobally.

Our market share throughout the world varies bygeographic region. We believe we are the leading manufacturer in North Americaand the preferred supplier of many OEMs as well as OEDs (originalequipment dealers) and distributors. We also have significant market share inEurope and the Asia Pacific region. In addition to sales to the lift truckmarket, we sell products to OEMs who manufacture construction, mining,agricultural and industrial mobile equipment other than lift trucks.

We design and position ourproducts to be the performance and service leaders in their respective productcategories and geographic markets. As such, our products are also generallypriced higher than competitive products. In certain geographic markets, wecompete principally on price for products that are considered to be commodityproducts in nature.

**Customers**

Our products are marketedand sold to OEMs, OEDs and distributors globally. Our primary markets are NorthAmerica, Europe and Asia Pacific, which includes Australia. No single customeraccounts for more than 10% of our consolidated net sales. Approximately 40% ofour consolidated net sales for the year ended January 31, 2005 were to OEMcustomers. This percentage is comparable to prior years.

**Backlog**

Our products aremanufactured with short lead times of generally less than one month.Accordingly, we do not believe the level of backlog orders is a significantfactor in evaluating our overall level of business activity.

5

----

**Research and Development**

Most of our research anddevelopment activities are performed at our corporate headquarters in Fairview,Oregon and at our manufacturing facility in Guelph, Ontario, Canada. Ourengineering staff develops and designs substantially all of the products wesell and is continually involved in developing products for new applications.We do not consider patents to be important to our business.

**Environmental Matters**

From time to time, we arethe subject of investigations, conferences, discussions and negotiations withvarious federal, state, local and foreign agencies with respect to cleanup ofhazardous waste and compliance with environmental laws and regulations.Note 13 to the Consolidated Financial Statements (Item 8), “LegalProceedings” (Item 3) and “Management’s Discussion and Analysis ofFinancial Conditions and Results of Operations” (Item 7) containadditional information concerning our environmental matters.

**Employees**

At January 31, 2005,we had approximately 1,800 full-time employees throughout the world. Themajority of these employees are not subject to collective bargaining agreements.We believe our relations with our employees are excellent.

**Foreign Operations**

We have substantialoperations outside the United States. There are additional business risksattendant to our foreign operations such as the risk that the relative value ofthe underlying local currencies may weaken when compared to the U.S. dollar.For further information about foreign operations, see “Management’s Discussionand Analysis of Financial Condition and Results of Operations” (Item7) and Notes to Consolidated Financial Statements (Item 8), including Note15—Segment Information.

**Available Information**

Our annual report on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K, andamendments to reports filed or furnished pursuant to Sections 13(a) or15(d) of the Securities Exchange Act of 1934, as amended, are available onor through our website at *www.cascorp.com*when such reports are available on the Securities and Exchange Commissionwebsite.

6

----

**Item 2.**                        Properties

We ownand lease various types of properties located throughout the world. Ourexecutive offices are located in Fairview, Oregon. We generally consider theproductive capacity of our manufacturing facilities to be adequate and suitableto meet our requirements. Our primary locations 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      |       |
| Schalksmuhle, Germany      |       | Manufacturing              |       |                  | 81,000     |                             |       | 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      |       |
| Hagen, Germany             |       | Manufacturing              |       |                  | 31,000     |                             |       | Leased     |       |
| Brescia, Italy             |       | Manufacturing              |       |                  | 19,000     |                             |       | Owned      |       |
| Monchengladbach, Germany   |       | Sales                      |       |                  | 15,000     |                             |       | Leased     |       |
| Sheffield, England         |       | Sales                      |       |                  | 10,000     |                             |       | Leased     |       |
| Vaggeryd, Sweden           |       | Sales                      |       |                  | 2,000      |                             |       | Leased     |       |
| Epignay, France            |       | Sales                      |       |                  | 2,000      |                             |       | Leased     |       |
| Barcelona, Spain           |       | Sales                      |       |                  | 1,000      |                             |       | Leased     |       |
| Vantaa, Finland            |       | Sales                      |       |                  | 500        |                             |       | Leased     |       |
| **ASIA PACIFIC**           |       |                       |       |                  |       |                             |       |       |       |
| Xiamen, China              |       | Manufacturing              |       |                  | 72,000     |                             |       | Leased     |       |
| Hebei, China               |       | Manufacturing              |       |                  | 65,000     |                             |       | Leased     |       |
| Brisbane, Australia        |       | Manufacturing              |       |                  | 46,000     |                             |       | 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     |       |

 

**Item 3.**                        LegalProceedings

Neither Cascade nor any ofour subsidiaries are involved in any material pending legal proceedings otherthan litigation related to environmental matters discussed below. We areinsured against product liability, personal injury and property damage claims,which may occasionally arise.

On April 22, 2002,the Circuit Court of the State of Oregon for Multnomah County entered judgmentin our favor in an action originally brought in 1992 against several insurersto recover various expenses incurred in connection with environmentallitigation and related proceedings. The judgment was against two non-settlinginsurers. We subsequently reached a settlement of all claims with one of theinsurers in return for a payment of $1.3 million, which we received October 22,2004. The judgment against the remaining insurer is in the amount ofapproximately $800,000. The judgment also requires the insurer to defend us insuits alleging liability because of groundwater contamination emanating fromour Fairview, Oregon plant and requires the insurer to pay approximately 3.1%of any liability imposed against us by judgment or settlement on or after March 1,1997 on account of such contamination. We appealed the judgment, contendingthat the remaining insurer should be required to pay a larger share of our pastand 

7

----

futureexpenses and liabilities, additional interest, and increased attorneys fees. Theinsurer has cross-appealed. We have not recorded any amounts that may berecovered from the insurer in our consolidated financial statements.

**Item4.**                        Submissionof Matters to a Vote of Security Holders

None

**Item4A.**                Officersof the Registrant

**Robert C.Warren, Jr.—Chief Executive Officer and President(1)**—Mr. Warren,56, has served as President and Chief Executive Officer of Cascade since 1996.He was President and Chief Operating Officer from 1993 until 1996 and wasformerly Vice President—Marketing. Mr. Warren joined Cascade in 1972.

**GregoryS. Anderson—Senior Vice President—Human Resources(1)**—Mr. Anderson,56, has served in his current position since 2002. He joined Cascade in 1984,and has served as Vice President—Human Resources since 1991.

**RichardS. Anderson—Senior Vice President and Chief Financial Officer(1)**—Mr. Anderson,57, has served as Chief Financial Officer since 2001. Mr. Anderson hasbeen employed by Cascade since 1972 and held several positions including hisappointments as Vice President—Material Handling Product Group in 1996 andSenior Vice President—International in 1999.

**Terry H. Cathey—SeniorVice President and Chief Operating Officer(1)**—Mr. Cathey,57, has served as Chief Operating Officer since 2000. He has been employed byCascade since 1973 and has held several positions, including his appointmentsas Vice President—Material Handling Operations in 1996 and VicePresident—Manufacturing in 1993.

**MichaelE. Kern, Vice President—Marketing(1)**—Mr. Kern, 58, hasserved as Vice President—Marketing since 2003. He has been employed by Cascadesince 1966 and has held several positions, including his appointments asDirector of Dealer Marketing and Sales in 2001 and Aftermarket Sales Manager in1999.

**CharlieS. Mitchelson, Vice President and Managing Director, Europe(1)**—Mr. Mitchelson,49, 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.

**JeffreyK. Nickoloff, Vice President—Corporate Manufacturing(1)**—Mr. Nickoloff,49, has served in his current position since 2002. He has held severalpositions with Cascade, including his appointments as Director of NorthAmerican Manufacturing in 2000 and Plant Manager in 1993. Mr. Nickoloffjoined Cascade in 1979.

**Joseph G.Pointer, Vice President—Finance(1)**—Mr. Pointer, 44, hasserved as Vice President—Finance since 2000. Prior to joining Cascade in 2000, Mr. Pointerwas a partner at PricewaterhouseCoopers LLP in Portland, Oregon.

**AnthonyF. Spinelli, Vice President—OEM Products(1)**—Mr. Spinelli,62, has served as Vice President—OEM Products, since 2001. Prior to 2001, hewas Managing Director, Canadian Operations. Mr. Spinelli joined Cascade in1997 when we purchased Kenhar Corporation where he had served as President,Kenhar Americas.

**JohnA. Cushing—Treasurer**—Mr. Cushing, 44, has served asTreasurer since 2001. He previously was Assistant Treasurer from 1999 until2001. Prior to joining Cascade in 1999, Mr. Cushing was AssistantTreasurer for Fred Meyer, Inc., a retail company in Portland, Oregon.

----

(1)—These individuals areconsidered executive officers of Cascade Corporation.

8

----

**PARTII**

**Item 5.**                        Market forRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities

As of January 31,2005, there were 223 record holders of Cascade’s common stock including blocksof shares held by various depositories. It is our belief that when the sharesheld by the depositories are attributed to the beneficial owners, the totalexceeds 1,500.

**Market Information**

The high and low sales prices of Cascade’s commonstock based on intra-day prices on the New York Stock Exchange were as follows:
| ** **           | ** ** | **Year ended January 31** | ** ** |
|----------------------|------------|------------------------------------------|------------|
| ** **           | ** ** | **2005**                                 | ** ** | **2004** | ** ** |
| ** **           | ** ** | **High**                                 | ** ** | **Low** | ** ** | **High** | ** ** | **Low** | ** ** |
| Market price  range: |       |                                     |       |   |   |   |   |   |   |
| First quarter        |       | $24.15                                   |       | $19.41 |   | $15.48 |   | $13.80 |   |
| Second quarter       |       | 31.66                                    |       | 20.50 |   | 19.57 |   | 14.03 |   |
| Third quarter        |       | 31.50                                    |       | 23.60 |   | 24.37 |   | 17.83 |   |
| Fourth quarter       |       | 42.00                                    |       | 29.00 |   | 27.49 |   | 20.09 |   |

 

**Common Stock Dividends**

Thecommon stock dividends declared were as follows:
| ** **     | ** ** | **Year ended January 31**                             | ** ** |
|----------------|------------|----------------------------------------------------------------------|------------|
| ** **     | ** ** | **     2005     ** | ** ** | **     2004     ** | ** ** |
| First quarter  |       |                                                                 | $0.11      |   |   |   | $0.10 |   |   |
| Second quarter |       |                                                                 | 0.11       |   |   |   | 0.10 |   |   |
| Third quarter  |       |                                                                 | 0.11       |   |   |   | 0.10 |   |   |
| Fourth quarter |       |                                                                 | 0.12       |   |   |   | 0.11 |   |   |
| Total          |       |                                                                 | $0.45      |   |   |   | $0.41 |   |   |

 

**Stock Exchange Listing and Transfer Agent**

Cascade’s stock is traded on the New York StockExchange under the symbol CAE.

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

9

----

**Item 6.**                        SelectedFinancial Data
| ** **                                   | ** ** | **Year Ended January 31**                                                      | ** ** |
|----------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|
| ** **                                   | ** ** | **2005**                                                                                      | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                   | ** ** | **(In thousands, except per share amounts and employees)** | ** ** |
| **Income statement data(1):**                |       |                                                                                          |       |   |   |   |   |   |   |   |   |
| Net sales                                    |       | $                                                                                             | 385,719    |   | $ | 297,756 |   | $ | 258,829 |   | $ | 252,715 |   | $ | 301,358 |   |
| Operating income                             |       | $                                                                                             | 47,777     |   | $ | 32,025 |   | $ | 32,744 |   | $ | 13,433 |   | $ | 24,909 |   |
| Income from  continuing operations           |       | $                                                                                             | 47,777     |   | $ | 18,506 |   | $ | 17,707 |   | $ | 5,302 |   | $ | 9,774 |   |
| Net income                                   |       | $                                                                                             | 28,490     |   | $ | 18,506 |   | $ | 17,707 |   | $ | 4,127 |   | $ | 11,863 |   |
| **Cash flow data:**                          |       |                                                                                          |       |   |   |   |   |   |   |   |   |
| Cash flows from  operating activities        |       | $                                                                                             | 38,148     |   | $ | 26,407 |   | $ | 23,941 |   | $ | 34,836 |   | $ | 28,049 |   |
| Cash flows from  investing activities(2)     |       | $                                                                                             | (14,857    | ) | $ | (19,612 | ) | $ | (7,718 | ) | $ | (3,201 | ) | $ | (6,228 | ) |
| Cash flows from  financing activities        |       | $                                                                                             | (17,232    | ) | $ | (14,881 | ) | $ | (18,056 | ) | $ | (16,405 | ) | $ | (31,317 | ) |
| **Stock information:**                       |       |                                                                                          |       |   |   |   |   |   |   |   |   |
| Basic earnings per  share:                   |       |                                                                                          |       |   |   |   |   |   |   |   |   |
| Income from continuing operations            |       | $                                                                                             | 2.34       |   | $ | 1.55 |   | $ | 1.55 |   | $ | 0.47 |   | $ | 0.84 |   |
| Net income                                   |       | $                                                                                             | 2.34       |   | $ | 1.55 |   | $ | 1.55 |   | $ | 0.36 |   | $ | 1.02 |   |
| Diluted earnings per  share:                 |       |                                                                                          |       |   |   |   |   |   |   |   |   |
| Income from continuing operations            |       | $                                                                                             | 2.24       |   | $ | 1.49 |   | $ | 1.45 |   | $ | 0.44 |   | $ | 0.80 |   |
| Net income                                   |       | $                                                                                             | 2.24       |   | $ | 1.49 |   | $ | 1.45 |   | $ | 0.34 |   | $ | 0.97 |   |
| Book value per  common share                 |       | $                                                                                             | 17.82      |   | $ | 15.18 |   | $ | 12.70 |   | $ | 10.03 |   | $ | 10.18 |   |
| Dividends  declared                          |       | $                                                                                             | 0.45       |   | $ | 0.41 |   | $ | 0.10 |   | $ | — |   | $ | 0.20 |   |
| **Balance sheet information:**               |       |                                                                                          |       |   |   |   |   |   |   |   |   |
| Working  capital(3)                          |       | $                                                                                             | 94,154     |   | $ | 81,720 |   | $ | 71,201 |   | $ | 66,011 |   | $ | 64,747 |   |
| Property, plant  and equipment, net          |       | $                                                                                             | 82,027     |   | $ | 75,244 |   | $ | 65,863 |   | $ | 61,412 |   | $ | 77,235 |   |
| Total assets                                 |       | $                                                                                             | 328,092    |   | $ | 292,819 |   | $ | 262,317 |   | $ | 247,286 |   | $ | 282,620 |   |
| Long-term debt                               |       | $                                                                                             | 25,187     |   | $ | 38,111 |   | $ | 50,113 |   | $ | 65,679 |   | $ | 87,513 |   |
| Shareholders’  equity                   |       | $                                                                                             | 217,883    |   | $ | 183,688 |   | $ | 144,748 |   | $ | 113,267 |   | $ | 116,503 |   |
| **Other:**                                   |       |                                                                                          |       |   |   |   |   |   |   |   |   |
| Capital  expenditures(1)(4)                  |       | $                                                                                             | 13,581     |   | $ | 11,403 |   | $ | 10,665 |   | $ | 7,303 |   | $ | 5,549 |   |
| Depreciation(1)                              |       | $                                                                                             | 13,912     |   | $ | 12,152 |   | $ | 10,532 |   | $ | 10,349 |   | $ | 10,531 |   |
| Amortization(1)                              |       | $                                                                                             | 3,150      |   | $ | 512 |   | $ | 261 |   | $ | 4,399 |   | $ | 5,366 |   |
| Interest expense,  net of interest income(1) |       | $                                                                                             | 3,008      |   | $ | 3,554 |   | $ | 4,228 |   | $ | 5,322 |   | $ | 6,852 |   |
| Diluted weighted  average shares outstanding |       | 12,726                                                                                        |       | 12,409 |   | 12,194 |   | 12,233 |   | 12,272 |   |
| Number of employees                          |       | 1,800                                                                                         |       | 1,700 |   | 1,500 |   | 1,400 |   | 1,900 |   |

----

(1)          Except net income,excludes for all periods the data for our hydraulic cylinder division, whichwas sold in January 2002.

(2)          Includes $6.2 millionand $11.7 million in fiscal 2005 and 2004, respectively, for businessacquisitions.

(3)          Defined as currentassets less current liabilities.

(4)          Excludes $5.4 millionand $5.8 million in fiscal 2005 and 2004, respectively, of additions toproperty, plant and equipment from business acquisitions.

10

----

**Item 7.**                        Management’sDiscussion and Analysis of Financial Condition and Results of Operations

**CRITICAL ACCOUNTING POLICIES AND ESTIMATES**

Management’s discussionand analysis of our financial condition and results of operations is based onour consolidated financial statements, which have been prepared in accordancewith generally accepted accounting principles in the United States of America(GAAP). The preparation of these financial statements requires us to makeestimates and judgments that affect the reported amounts of assets,liabilities, revenues and expenses and the disclosure of contingent assets andliabilities. We evaluate our estimates and judgments on an on-going basis,including those related to uncollectible receivables, inventories, goodwill andlong-lived assets, warranty obligations, environmental liabilities and deferredtaxes. We base our estimates on our historical experience and various otherassumptions that are believed to be reasonable under the circumstances. Actualresults may differ from these estimates under different assumptions orconditions. We believe the following critical accounting policies reflect ourmore significant judgments and estimates in the preparation of our consolidatedfinancial statements.

*Allowances forDoubtful Accounts*

We maintain allowances fordoubtful accounts for estimated losses on accounts receivable resulting fromthe inability of customers to make required payments. Such allowances are basedon an ongoing review of customer payments against terms and a review ofcustomer financial statements and financial information. If the financialcondition of customers were to deteriorate, resulting in an impairment of theirability to make payments, additional allowances may be required.

*Inventory Reserves*

Inventories are stated atthe lower of cost or market. We maintain reserves to write down our inventoryfor estimated obsolescence or unmarketable inventory equal to the differencebetween the cost of inventory and the estimated market value, less costs tosell, based upon assumptions about future demand and market conditions. Ifactual future demand or market conditions are less favorable than thoseprojected by management, additional inventory write-downs may be required,which would result in cost of goods sold in the consolidated statements ofincome being greater than expected in the period in which more informationbecomes available.

*Intangible Assets*

We adopted the FinancialAccounting Standards Board (FASB) Statement of Financial Accounting Standards(SFAS) No. 141, “Business Combinations” and No. 142, “Goodwill andOther Intangible Assets” on accounting for business combinations and goodwillas of the beginning of fiscal 2003. Accordingly, we no longer amortize goodwillfrom acquisitions. We continue to amortize other acquisition-relatedintangibles, which are not significant to our consolidated balance sheets.

As required bySFAS 142, we perform an impairment test annually, or earlier if indicatorsof potential impairment exist. Certain factors we consider important whichcould trigger an 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 our overallbusiness and significant industry or economic trends. The impairment review isbased on a discounted cash flow approach that uses estimates of future sales,sales growth rates, gross margins, expense and capital expenditure levels, thediscount rate and estimated terminal values to determine the fair value of theoperating entities should an impairment exist. Changes in these and otherfactors could result in impairments in the carrying value of goodwill, whichwould require a write down to the asset’s fair value.

11

----

*WarrantyObligations*

We offer certainwarranties with the sale of our products. The warranty obligation is recordedas a liability on the balance sheet and is estimated through historicalcustomer claims, product failure rates, material usage and service deliverycosts incurred in correcting a product failure. Changes in these factors andchanges in statutory requirements for product warranties in markets in which wesell our products may require an adjustment to the recorded warrantyobligations.

*EnvironmentalLiabilities*

We accrue environmentalremediation and litigation costs if it is probable a liability has beenincurred at the financial statement date and the amount can be reasonablyestimated. Our liability for environmental costs, other than for costs ofassessments themselves, are generally determined after the completion ofinvestigations and studies and are based on the estimated cost of remediationactivities we are then required to undertake. The gross liability is based onour best estimate of undiscounted future costs using currently availabletechnology and applying current regulations, as well as our own historicalexperience regarding environmental cleanup costs. The reliability and precisionof the estimates are affected by numerous factors, such as site evaluation andreevaluation of the degree of remediation required, claims by third parties andchanges to environmental laws and regulations. We adjust our liabilities as newremediation requirements are defined, as information becomes availablepermitting reasonable estimates to be made and to reflect new facts.

*Deferred Taxes*

Our provision for income taxes and the determinationof the resulting deferred tax assets and liabilities involves a significantamount of management judgment. We are subject to taxation from federal, stateand international jurisdictions. The taxes paid to these jurisdictions aresubject to audit, although to date the results of any tax audits have beenminor.

Judgment is also appliedin determining whether deferred tax assets will be realized in full or in part.We record a valuation allowance to reduce our deferred tax assets when it ismore likely than not that all or some portion of specific deferred tax assets,such as foreign tax credit carryovers or net operating loss carryforwards, willnot be realized. We have recorded on our consolidated balance sheets avaluation allowance against various deferred tax assets. We consider futuretaxable income and ongoing prudent and feasible tax planning strategies in assessingthe need for the valuation allowance. In the event we were to determine that wewould not be able to realize all or part of our net deferred tax assets in thefuture, an adjustment to the deferred tax assets would be charged againstincome in the period such determination was made. Likewise, should we determinethat we would be able to realize our deferred tax assets in the future inexcess of our net recorded amount, an adjustment to the deferred tax assetswould increase income in the period such determination was made. We continuallyevaluate strategies that could allow for the future utilization of our deferredtax assets.

*Benefit Plans*

We make a number ofassumptions with regard to both future financial conditions and future actionsby plan participants to calculate on an actuarial basis the amount of income orexpense and assets and liabilities recognized in association with our definedbenefit 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. We review the assumptionson an annual basis and makes changes to reflect market conditions and theadministration of the plans. While we believe the current assumptions areappropriate in the circumstances, actual results and changes in theseassumptions 

12

----

in thefuture will result in adjustments which could impact the income or expenserecognized in future years in relation to these plans.

**COMPARISON OF FISCAL 2005 AND FISCAL 2004**

**Consolidated Summary**

Net income for fiscal 2005increased to $28.5 million ($2.24 per diluted share) from $18.5 million ($1.49per diluted share) in fiscal 2004. This increase is primarily due to net salesgrowth of 21%, excluding currency gains. Additional net sales from acquiredcompanies contributed almost 4%, while foreign currency fluctuations addednearly 5% to net sales. North America, Europe and Asia Pacific all experiencednet sales growth of slightly over 20% during fiscal 2005 as compared to fiscal2004, due to higher volumes of shipments and sales price increases. Grossmargin slipped slightly in fiscal 2005 due primarily to increases in rawmaterial costs offsetting sales increases. Operating income as a percentage ofnet sales increased from 10.8% to 12.4%, aided in part by income of $1.3million from an insurance litigation settlement. Lower debt levels in fiscal2005 resulted in lower interest charges than in fiscal 2004.

**North America**
| ** **                     | ** ** | **Year Ended January 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------|------------|------------------------------------------|------------|------------|------------|------------|------------|
| ** **                     | ** ** | **2005**                                 | ** ** | **%**      | ** ** | **2004**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                     | ** ** | **(In thousands)**                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                      |       | $                                        | 208,553    |       | 100        | %          | $          | 171,709 |   | 100 | % | $36,844 |   |   | 21 | % |   |
| Cost of goods  sold            |       | 128,175                                  |       | 61         | %          | 108,524    |       | 63 | % | 19,651 |   |   | 18 | % |   |
| Gross profit                   |       | 80,378                                   |       | 39         | %          | 63,185     |       | 37 | % | 17,193 |   |   | 27 | % |   |
| Selling and administrative     |       | 41,413                                   |       | 20         | %          | 38,000     |       | 22 | % | 3,413 |   |   | 9 | % |   |
| Amortization                   |       | 2,638                                    |       | 1          | %          | 234        |       | — |   | 2,404 |   |   | — |   |   |
| Insurance  litigation recovery |       | (1,300                                   | )          | —     |       | —     |       | — |   | (1,300 | ) |   | — |   |   |
| Environmental  expense         |       | 155                                      |       | —     |       | —     |       | — |   | 155 |   |   | — |   |   |
| Operating income               |       | $                                        | 37,472     |       | 18         | %          | $          | 24,951 |   | 15 | % | $12,521 |   |   | 50 | % |   |

 

Net sales in North America increased $37 million or21% in fiscal 2005 to $209 million. Increased volume of shipments from NorthAmerican facilities as well as price increases accounted for $35.4 million ofthe increase. The remaining increase is due to the change in foreign currencyrates between the U.S. and Canadian dollar.

Historically, we have found that changes in the levelof our net sales do not correspond directly to the percentage changes in lifttruck industry shipments, but industry statistics do provide an indication ofthe direction of business activity. North American lift truck industryshipments from 2004 to 2005 increased 16%. We have maintained or increased ouroverall existing market share in North America during fiscal 2005.

North America’s gross margin increased to 39% infiscal 2005 as compared to 37% in fiscal 2004. This increase is due primarilyto increased shipments and better absorption of fixed costs and price increasesin fiscal 2005. This benefit is  somewhatoffset by higher raw material costs and the sale in the United States ofcertain products manufactured in Canada. Sales of these products are in U.S.dollars but a significant portion of the costs are in Canadian dollars. During2005, the value of the U.S. dollar against the Canadian dollar decreased 7%.

Selling and administrative costs for fiscal 2005increased 9% or $3.4 million over fiscal 2004. Excluding the effects ofcurrency changes, these costs increased 8% or $3.0 million, driven primarily byhigher levels of incentive pay, professional fees and sales commissions.

13

----

The increase in amortization expense is exclusivelydue to stock appreciation rights (SARS). We issued 453,000 SARS, which vestover four years, to key executives and directors under the Cascade StockAppreciation Rights Plan (Plan) approved by shareholders in May 2004. SeeNote 10 to our Consolidated Financial Statements for further discussions aboutthe Plan. The SARS amortization is influenced by two factors, the market priceof our common stock at the end of the reporting period relative to the marketprice at the date of grant and the method for recognizing the relatedcompensation cost.

During the period from thedate of grant, May 26, 2004 to January 31, 2005 the market price ofour common stock increased $15.45 per share, from $21.15 per share to $36.60per share. This resulted in deferred compensation of $7.0 million recorded asadditional paid-in-capital. We are amortizing the deferred compensation over thefour year vesting period. We have amortized $2.5 million of deferredcompensation during the year ended January 31, 2005. Assuming no change inthe $36.60 market price of our common stock at January 31, 2005, theunamortized deferred compensation of $4.5 million would result in amortizationexpense of $2.4 million, $1.3 million and $620,000 in fiscal 2006, 2007 and2008, respectively. Annual or quarterly increases in our common stock duringfiscal 2006, 2007 and 2008 would result in additional amortization expenses. Correspondinglyfor quarterly or annual periods ending after January 31, 2005, anydecreases in the market price of our common stock after January 31, 2005will result in the reversal of previously recognized amortization expense. Inaddition, future grants will also impact earnings depending on changes in theprice of our common stock. See “Recent Accounting Pronouncements” for furtherdiscussion regarding the impact of new accounting principles on SARSaccounting.

**Europe**
| ** **                 | ** ** | **Year Ended January 31** | ** ** | ** ** | ** ** | ** ** | ** **              |
|----------------------------|------------|------------------------------------------|------------|------------|------------|------------|-------------------------|
| ** **                 | ** ** | **2005**                                 | ** ** | **%**      | ** ** | **2004**   | ** **              | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                 | ** ** | **(In thousands)**                  | ** ** | ** ** | ** ** | ** ** | ** **              |
| Net sales                  |       | $                                        | 118,723    |       | 100        | %          | $81,114                 |   | 100 | % | $37,609 |   |   | 46 | % |   |
| Cost of goods  sold        |       | 95,094                                   |       | 80         | %          | 63,456     |                    | 78 | % | 31,638 |   |   | 50 | % |   |
| Gross profit               |       | 23,629                                   |       | 20         | %          | 17,658     |                    | 22 | % | 5,971 |   |   | 34 | % |   |
| Selling and administrative |       | 23,328                                   |       | 20         | %          | 17,853     |                    | 22 | % | 5,475 |   |   | 31 | % |   |
| Amortization               |       | 485                                      |       | —     |       | 255        |                    | — |   | 230 |   |   | 90 | % |   |
| Operating loss             |       | $                                        | (184       | )          | —     |       | $   (450 | ) | — |   | $     266 |   |   | — |   |   |

 

Europe’s fiscal 2005 net sales increased 46% or $37.6million in comparison with fiscal 2004. Increased product shipments and priceincreases contributed $16.6 million to this increase. Changes in foreigncurrency rates, related primarily to the Euro, accounted for 12% or $10.1million of the increase. Acquisitions in Germany and Italy over the last twoyears added $10.9 million to fiscal 2005 sales or 13% of the increase.

The overall European lift truck market has improved infiscal 2005 with year-to-date orders and shipments increasing approximately 12%.Our increase in sales for certain OEM products has exceeded the market increasein lift truck orders and shipments, while the increase in other products hasfallen below the industry trends. The current market in Europe continues to bevery competitive. Our European competitors are generally smaller privately-heldcompanies, some of which have a global presence. We believe the acquisitions inItaly and Germany over the last two years provide a solid operating base tobuild market share and compete more effectively in key European markets. Wepreviously only had a limited presence in these markets.

14

----

Gross margins in Europe were 20% for fiscal 2005, downslightly from the fiscal 2004 gross margin of 22%. This 2% decrease is dueprimarily to increases in the cost of steel. We were not able to sufficientlyoffset the cost increases with customer price increases across all productlines.

Selling and administrative costs for fiscal 2005increased 31% or $5.5 million over fiscal 2004. Acquisitions added $2.1 millionof selling and administrative costs. Higher warranty costs and informationtechnology costs to integrate acquired locations and implement Sarbanes-Oxley accountedfor $1.8 million or 10% of the increase. The remaining increase relates tocurrency changes.

In addition to completingacquisitions in 2004 and 2005, we have taken several steps we believe will havea positive impact on future profitability in Europe. These include theintroduction of new products, rationalization of existing manufacturingoperations to reduce overall costs and more aggressive marketing campaigns inselect markets.

**Asia Pacific**
| ** **                 | ** ** | **Year Ended January 31** | ** ** | ** ** | ** ** | ** **         | ** ** |
|----------------------------|------------|------------------------------------------|------------|------------|------------|--------------------|------------|
| ** **                 | ** ** | **2005**                                 | ** ** | **%**      | ** ** | **2004**           | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                 | ** ** | **(In thousands)**                  | ** ** | ** ** | ** ** | ** **         | ** ** |
| Net sales                  |       | $58,443                                  |       | 100        | %          | $44,933            |       | 100 | % | $13,510 |   |   | 30 | % |   |
| Cost of goods  sold        |       | 39,268                                   |       | 67         | %          | 30,140             |       | 67 | % | 9,128 |   |   | 30 | % |   |
| Gross profit               |       | 19,175                                   |       | 33         | %          | 14,793             |       | 33 | % | 4,382 |   |   | 30 | % |   |
| Selling and administrative |       | 8,658                                    |       | 15         | %          | 7,246              |       | 16 | % | 1,412 |   |   | 19 | % |   |
| Amortization               |       | 28                                       |       | —     |       | 23                 |       | — |   | 5 |   |   | 22 | % |   |
| Operating income           |       | $10,489                                  |       | 18         | %          | $  7,524 |       | 17 | % | $  2,965 |   |   | 39 | % |   |

 

Asia Pacific net sales grew by 30% or $13.5 million infiscal 2005 over fiscal 2004. Excluding currency changes, net sales increased23% or $10.5 million. A significant portion of this increase relates to salesin China. Overall sales in China grew 47% in fiscal 2005, but still onlyaccount for approximately 5% of our consolidated net sales. Substantially allof our products manufactured in China are currently sold within that country. Wehave experienced increased competition over the past years in certain keymarkets, particularly China. We are working to maintain our market share inChina with increased marketing and sales activities.

Gross margins were 33% in fiscal 2005, consistent withfiscal 2004.

Selling and administrativecosts in Asia Pacific for fiscal 2005 increased 19% over fiscal 2004. Excludingthe effect of foreign currency changes, the increase was 12% from fiscal 2004,primarily due to marketing activities and additional business in China.

**Non-Operating Items**

Our interest expense in fiscal 2005 decreased 22% incomparison with fiscal 2004. The decrease is due to lower overall debt levels. See“Financial Condition and Liquidity” for additional discussion of Company debtlevels and payments.

Consolidated interest income decreased by $454,000 infiscal 2005 as compared to fiscal 2004 due to the receipt of payment in full ofnotes receivable related to the sale of our hydraulic cylinder division duringlate fiscal 2004.

Our effective tax rate for fiscal 2005 increased to37% in comparison to 35% in fiscal 2004. The increase is due to a reduction inthe benefit received from international financing.

15

----

On October 11, 2004,the U.S. Congress passed the American Jobs Creation Act of 2004 (Act). The Actincludes two primary provisions, relating to a tax deduction for qualifieddomestic manufacturing activities and a temporary incentive for U.S.multinational companies to repatriate accumulated foreign earnings, which couldimpact us in fiscal 2006 and future years. We are currently evaluating theimpact of the domestic manufacturing benefit on our consolidated tax accrual oreffective tax rate for fiscal 2006. Currently, we have no plans to repatriateaccumulated foreign earnings pursuant to the guidelines outlined in the Act. However,since the temporary incentive is provided for a period of one year we willcontinue to reassess the potential for modifying our plan through the end offiscal 2006.

**COMPARISON OFFISCAL 2004 AND FISCAL 2003**

**Consolidated Summary**

Net income for fiscal 2004increased to $18.5 million ($1.49 per diluted share) from $17.7 million ($1.45per diluted share) in fiscal 2003. The increase in net income was primarily theresult of strong operating results in Asia Pacific and lower interest costsfrom reduced debt levels. Although consolidated net sales increased 15% overfiscal 2003, the majority of this increase could be attributed to currencychanges and acquisitions. Excluding these items, the year over year salesgrowth was 5%. Overall operating income decreased 2% in fiscal 2004. Europecontinued to feel the effects of depressed economic conditions and competitivepressures and incurred an operating loss for the year. North America’soperating income was negatively impacted by currency changes between theCanadian and U.S. dollar. In addition, selling and administrative costsincreased over fiscal 2003 levels.

**North America**
| ** **                   | ** ** | **Year Ended January 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------------------------|------------|------------------------------------------|------------|------------|------------|------------|------------|
| ** **                   | ** ** | **2004**                                 | ** ** | **%**      | ** ** | **2003**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                   | ** ** | **(In thousands)**                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| 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     | )          | (1 | )% | 2,500 |   |   | — |   |   |
| Environmental  expenses      |       | —                                   |       | —     |       | 2,100      |       | 1 | % | (2,100 | ) |   | — |   |   |
| Operating income             |       | $                                        | 24,951     |       | 15         | %          | $          | 28,188 |   | 17 | % | $ | (3,237 | ) |   | (11 | )% |   |

 

Net sales in North America increased $8.9 million or5% in fiscal 2004 to $171.7 million. The change in foreign currency ratesbetween the U.S. and Canadian dollar accounted for $3.2 million of the fiscal2004 sales increase. The remaining $5.7 million or 4% increase was due to anincreased volume of shipments from North American facilities.

North American lift truck industry shipments from 2003to 2004 increased 11%. During 2003, industry shipments were at depressed levelsin comparison with historical shipments. We believed the 2004 shipment levelswere more representative of normal business levels for the industry. Althoughthe growth in lift truck shipments exceeded our net sales growth, we believed,we had maintained or slightly increased our existing market share in NorthAmerica during fiscal 2004.

North America’s gross margin decreased to 37% infiscal 2004 as compared to 39% in fiscal 2003. This decrease was due primarilyto the sale in the United States of certain products manufactured in Canada. Oursales of these products were in U.S. dollars but a significant portion of thecosts were in Canadian 

16

----

dollars. During 2004, thevalue of the U.S. dollar against the Canadian dollar decreased 13%. The effectof this change reduced the overall gross margins.

Selling and administrative costs for fiscal 2004 inNorth America increased 5% or $1.9 million 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 ofthe Sarbanes-Oxley Act, $650,000 of postretirement health care costs and $1million of research and development costs, offset by various cost reductions.

During fiscal 2003, Cascade and The Boeing Companyentered into a settlement agreement with the City of Portland, Oregon (City)regarding litigation brought by the City in 1999 alleging damages arising fromthe proximity of the groundwater contamination in the area of the respectiveplants to a City water well field. Our share of the $6.2 millionsettlement was $3.6 million. We had recorded a $1.5 million chargerelated to the settlement in fiscal 2002 and recorded additional environmentalexpenses of $2.1 million during fiscal 2003. The full settlement was paidin fiscal 2003.

We recorded $2.5 millionof income in fiscal 2003 related to a settlement reached between Cascade andMaine Rubber related to outstanding principal and interest due under the notereceivable described in Note 21 to the Consolidated Financial Statements. The$2.5 million payment was payment in full for the release of any remainingliability of Maine Rubber under the note receivable. We had recorded a $7.3million allowance against the note balance in fiscal 2002 due to financialdifficulties experienced by Maine Rubber.

**Europe**
| ** **                 | ** ** | **Year Ended January 31** | ** ** | ** ** | ** ** | ** **                         | ** ** |
|----------------------------|------------|------------------------------------------|------------|------------|------------|------------------------------------|------------|
| ** **                 | ** ** | **2004**                                 | ** ** | **%**      | ** ** | **2003**                           | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                 | ** ** | **(In thousands)**                  | ** ** | ** ** | ** ** | ** **                         | ** ** |
| 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                  | )          | —     |       | $     504 |       | 1 | % | $   (954 | ) |   | — |   |   |

 

Europe’s fiscal 2004 net sales increased 34% or $20.7million in comparison with fiscal 2003. Changes in foreign currency rates,related primarily to the Euro, accounted for just over 50% or $10.5 million ofthe increase. Acquisitions in Germany and Italy during fiscal 2004 added $8.4million to fiscal 2004 sales or 41% of the increase. The remaining fiscal 2004sales increase of $1.8 million, or 3% of fiscal 2003 sales, was due toincreases in product shipments. Overall industry shipment levels in Europe infiscal 2004 were consistent with 2003 levels. We believed we had increased ourexisting market share in Europe.

Gross margins in Europe were 22% for fiscal 2004, downslightly from the fiscal 2003 gross margin of 23%. This 1% decrease was due primarilyto lower sales prices on certain products in Europe.

Selling and administrative costs for fiscal 2004 inEurope increased 32% or $4.3 million over fiscal 2003. The primary reason forthe increase was the effect of currency changes, which accounted for $2.4million or 56% of the increase. Acquisitions added $1.8 million of selling andadministrative costs. Excluding currency changes and costs related to acquiredcompanies, selling and administrative costs were consistent with fiscal 2003.

Our European operationshad continued to experience declining financial results and incurred anoperating loss of $450,000 in fiscal 2004 in comparison with operating incomeof $504,000 in fiscal 2003. 

17

----

Additionalcosts related to the 2004 acquisitions were the most significant factorcontributing to the fiscal 2004 operating loss.

**Asia Pacific**
| ** **                 | ** ** | **Year Ended January 31** | ** ** | ** ** | ** ** | ** **         | ** ** |
|----------------------------|------------|------------------------------------------|------------|------------|------------|--------------------|------------|
| ** **                 | ** ** | **2004**                                 | ** ** | **%**      | ** ** | **2003**           | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                 | ** ** | **(In thousands)**                  | ** ** | ** ** | ** ** | ** **         | ** ** |
| 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              |       | 20 | % | 383 |   |   | 6 | % |   |
| Amortization               |       | 23                                       |       | —     |       | 21                 |       | — |   | 2 |   |   | 10 | % |   |
| Operating income           |       | $  7,524                       |       | 17         | %          | $  4,052 |       | 11 | % | $3,472 |   |   | 86 | % |   |

 

Asia Pacific net sales grew by 26% or $9.3 million infiscal 2004 over fiscal 2003. Excluding currency changes, net sales increased16% or $5.8 million. A significant portion of the increase excluding currencychanges relates to sales in China. Overall sales in China grew 46% in fiscal2004, but still only account for 4% of our consolidated net sales. Substantiallyall of our products manufactured in China are currently sold within thatcountry.

Gross margins in the Asia Pacific region increased to33% in fiscal 2004 from 31% in fiscal 2003. This increase was due primarily tohigher shipment volumes in China. In addition, gross margins in Australia hadincreased steadily over the past year as we benefit from the restructuringactivities, which occurred in prior years.

Selling and administrativecosts in Asia Pacific for fiscal 2004 increased 6% over fiscal 2003. Excludingthe effect of foreign currencies, selling and administrative expenses decreased5% from fiscal 2003. We had been able to reduce overall spending levels despitethe increased sales activity in the region.

**Non-Operating Items**

Interest expense in fiscal 2004 decreased 20% incomparison with fiscal 2003. The decrease was due to our efforts to reduce ouroverall debt levels. See “Financial Condition and Liquidity” for additionaldiscussion of our debt levels and payments.

Consolidated interest income decreased by $469,000 infiscal 2004 as compared to fiscal 2003 due to the receipt of payment in full ofnotes receivable related to the sale of our hydraulic cylinder division.

Our effective tax rate forfiscal 2004 decreased to 35% in comparison to 37% in fiscal 2003. This decreasewas due to higher levels of pre-tax income in lower tax rate jurisdictions offoreign entities, as well as our ability to utilize research and developmentcredits. These benefits were reduced by our recording of a valuation allowanceagainst certain foreign subsidiary net operating losses.

**CASHFLOWS**

The statements of cashflows reflect the changes in cash and cash equivalents for the three yearsended January 31, 2005 by classifying transactions into three majorcategories of activities: operating, investing and financing.

18

----

**Operating**

Our main source of liquidity is cash generated fromoperating activities. This consists of net income adjusted for noncashoperating items such as depreciation and amortization, losses on disposition ofassets, deferred income taxes, as well as changes in operating assets andliabilities.

Net cash provided by operating activities was $38.1million in fiscal 2005 as compared to $26.4 million in fiscal 2004. Theincrease in fiscal 2005 was due to higher levels of net income, depreciationand amortization and accounts payable. These improvements were offset byincreases in other operating assets, primarily accounts receivable andinventory.

Our net cash provided byoperating activities increased to $26.4 million in fiscal 2004 from $23.9million in fiscal 2003. The increase in fiscal 2004 was due to higher levels ofnet income and depreciation and amortization and a reduction in the incometaxes receivable. These improvements were offset with changes in otheroperating accounts, primarily accounts receivable and inventory. Fiscal 2003net cash from operating activities was increased by the recovery of a portionof a note receivable previously written off.

**Investing**

The principal recurring investing activities arecapital expenditures. These expenditures are primarily for equipment andtooling related to product improvements, more efficient production methods andreplacement for normal wear and tear. Capital expenditures were $13.6 million,$11.4 million and $10.7 million during fiscal 2005, 2004 and 2003, respectively.We believe the level of capital expenditures is sufficient to maintain requiredoperational requirements. We expect capital expenditures in fiscal 2006 toapproximate depreciation expense and fiscal 2005 capital expense.

We held marketable securities of $1.5 million and $6million at January 31, 2005 and 2004, respectively. These securitiesconsisted of auction rate securities issued by various state agenciesthroughout the United States. These securities are insured either through thirdparty agencies or reinsured through the federal government. The securities arelong-term instruments maturing through 2019; however, the interest rates andmaturities are reset approximately every month, at which time we can sell thesecurities. Accordingly, we have classified the securities as short-term in theconsolidated balance sheets. Interest rates on the securities ranged from 1.4%to 3.8%, per annum.

On October 14, 2004, we completed the acquisitionof the assets of Falkenroth Foerdertechnik, GmbH in Schalksmuhle, Germany. Theaggregate purchase price paid in cash for Falkenroth, net of assumedliabilities, was $6.2 million.

On March 31, 2003, we completed the acquisition ofFEMA Forks GmbH (FEMA), a supplier of forks based in Hagen, Germany. Theaggregate purchase price paid in cash for FEMA, net of assumed liabilities, was$3.6 million. On October 21, 2003, we acquired Roncari S.r.l., an Italiansupplier of material handling equipment. The aggregate purchase price paid incash for Roncari, net of assumed liabilities, was $8.1 million.

Proceeds from the sale of securities received as a reversionfrom a pension plan terminated in 1997 were $1.0 million during fiscal 2005.

During the fourth quarter of fiscal 2002, we sold ourhydraulic cylinder division to Precision Hydraulic Cylinders, Inc. (Precision)for approximately $13 million. As partial consideration we received a $9million note receivable. In addition, under the terms of sale, we made interimoperating capital advances to Precision of $2.1 million in fiscal 2003. Theseadvances were repaid to us by January 31, 2003. During fiscal 2004, we received$9.6 million from Precision as payment in full of all amounts due from the saleof the hydraulic cylinder division.

19

----

The remaining proceedsfrom notes receivable in fiscal 2003 related to the $2.5 million settlement ofthe Maine Rubber note receivable.

**Financing**

We continued with our planned reduction of debtbalances in each of the three years ended January 31, 2005. As of January31, 2005, we had made all scheduled debt payments. Any additional payments toprepay scheduled amounts are subject to penalties. We are continuallyevaluating our option to make additional debt payments and incur the penaltiesin light of our current cash position.

We repurchased $1.4 million of common stock in fiscal2003. There were no repurchases during fiscal 2005 and fiscal 2004.

We declared dividends of $.45, $.41 and $0.10 pershare in fiscal 2005, 2004, and 2003, respectively. 

The issuance of commonstock related to the exercise of stock options generated $1.6 million and $1.3million of cash in fiscal 2005 and 2004, respectively.

**FINANCIAL CONDITION AND LIQUIDITY**

Working capital at January 31, 2005 was $94.2 millionas compared to $81.7 million of working capital at January 31, 2004. Ourcurrent ratio at January 31, 2005 was 2.51 to 1 in comparison to 2.59 to 1 atJanuary 31, 2004.

Total outstanding debt, including notes payable tobanks, at January 31, 2005 was $40.6 million in comparison with $53.9 millionat January 31, 2004. Our debt to equity ratio improved to .19 to 1 at January31, 2005 from .29 to 1 at January 31, 2004. Our debt agreements containcovenants relating to net worth and leverage ratios. We are in compliance withdebt covenants at January 31, 2005. Borrowing arrangements currently in placewith commercial banks provide committed lines of credit totaling $25.0 million,of which $1.8 million were being used through the issuance of letters of creditat January 31, 2005. Average interest rates on notes payable to banks were3.74% at January 31, 2005 and 2.78% at January 31, 2004.

We believe our cash andcash equivalents, existing credit facilities and cash flows from operationswill be sufficient to satisfy our expected working capital, capital expenditureand debt retirement requirements for fiscal 2006.

**OTHERMATTERS**

During fiscal 2004 and 2003, the holder of ourexchangeable preferred stock exchanged 800,000 of those shares for the sameamount in common stock. These non-cash transactions resulted in areclassification of $8.5 million in fiscal 2004 and $2.8 million in 2003 fromexchangeable preferred stock into common stock and additional paid-in capitaland had no effect on earnings per share as presented in the ConsolidatedFinancial Statements and Notes to Consolidated Financial Statements. Noexchangeable preferred stock remained outstanding at January 31, 2005.

We maintain defined benefit pension plans in theUnited Kingdom, Canada and France and a postretirement health care plan in theUnited States covering certain employees. We calculate the net periodic pensioncosts related to our defined benefit and postretirement benefit plans on anannual basis. Due to changes in assumptions in the discount rate and health carecost trend rates to reflect market conditions and actual rates of return onplan assets, our pension costs have increased in recent years. This trend ofincreasing pension costs may continue in future years. However, we are alsoinvestigating various options with these plans to mitigate future costincreases.

20

----

The U.S. dollar weakened in fiscal 2005 in comparisonto most foreign currencies used by our significant foreign operations. As aresult, foreign currency translation adjustments increased shareholders’ equityby $6.7 million in fiscal 2005. In fiscal 2004 and 2003, the foreign currencytranslation adjustments increased shareholders’ equity by $17.7 million and$13.5 million, respectively.

We are currently engaged in ongoing environmentalremediation efforts at both of our Fairview, Oregon and Springfield, Ohiomanufacturing facilities. Current estimates provide for some level ofremediation activities in Fairview through 2027 and Springfield through 2010.Costs of certain remediation activities at the Fairview facility are sharedwith The Boeing Company, with Cascade paying 70% of actual remediation costs.Liabilities for the ongoing remediation efforts at our Fairview and Springfieldfacilities and certain environmental litigation are $8.5 million and $9.4million at January 31, 2005 and 2004, respectively. The accrued environmentalexpenses recorded as a current liability on the consolidated balance sheet atJanuary 31, 2005 represent our estimated cash expenditure for ongoingremediation activities for the fiscal year ending January 31, 2006.

We sold our hydraulic cylinder division to PrecisionHydraulic Cylinders, Inc. (Precision) on January 15, 2002. Under the termsof the sale, we assigned to Precision an operating lease related to amanufacturing facility in Beulaville, North Carolina. We are the guarantor onthe lease in the event Precision fails to comply with the lease terms. Thelease requires payments by Precision of approximately $21,000 per month throughNovember 2007. 

Thefollowing summarizes our contractual obligations and commitments as of January31, 2005:
| ** **                                      | ** ** | **Payment due by period** | ** ** |
|-------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                      | ** ** | **Total**                                | ** ** | ** Less than   1 year** | ** ** | **2-3  years** | ** ** | **4-5  years** | ** ** | **Greater  than  5 years** | ** ** |
| ** **                                      | ** ** | **(In thousands)**                  | ** ** |
| Notes payable to  banks                         |       | $  2,461                       |       |   | $  2,461 |   |   | $       — |   | $ | — |   |   | $ | — |   |   |
| Long-term debt,  including capital leases  |       | 38,103                                   |       |   | 12,916 |   |   | 25,187 |   | — |   |   | — |   |   |
| Operating leases                                |       | 7,538                                    |       |   | 2,249 |   |   | 3,333 |   | 1,524 |   |   | 432 |   |   |
| Total                                           |       | $48,102                                  |       |   | $17,626 |   |   | $28,520 |   | $ | 1,524 |   |   | $ | 432 |   |   |

 

**OFF BALANCE SHEET ARRANGEMENTS**

At January 31, 2005 and2004, we did not have any relationships with unconsolidated entities orfinancial partnerships, such as entities often referred to as structuredfinance or special purpose entities, which would have been established for thepurpose of facilitating off-balance sheet arrangements or for othercontractually narrow or limited purposes. As such, we are not exposed to anyfinancing, liquidity market or credit risk that could arise if we had engagedin such relationships.

**RECENT ACCOUNTING PRONOUNCEMENTS**

In January 2004,FASB Staff Position No. 106-1 (FSP 106-1), “Accounting and DisclosureRequirements Related to the Medicare Prescription Drug, Improvement andModernization Act of 2003” was issued. FSP 106-1 permitted the deferral ofrecognizing the effects of the Act in the accounting for post retirement healthcare plans under SFAS No. 106, “Employers' Accounting for PostretirementBenefactors Other Than Pensions,” and in providing disclosure related to theplans required by SFAS No. 132 (revised 2003), “Employers’ Disclosures aboutPensions and Other Postretirement Benefits.” We elected the deferral providedby this FSP.

In May 2004, the FASB issued Staff Position No. 106-2(FSP 106-2), “Accounting and Disclosure Requirements Related to the MedicarePrescription Drug, Improvement and Modernization Act of 2003.” 

21

----

FSP No. 106-2 discussesfurther the effect of the Act and supersedes FSP 106-1. This Act introduces afederal subsidy to employers whose prescription drug benefits are actuariallyequivalent to the new Medicare Part D. We believe our postretirement benefitplan is actuarially equivalent to Part D. FSP 106-2 considers the effect of thetwo new features introduced in the Act in determining our accumulated postretirementbenefit obligation (“APBO”) and net periodic post retirement benefit cost. Theeffect on the APBO will be accounted for as an actuarial experience gain to beamortized into income over the average remaining service period of planparticipants. As permitted by FSP 106-2, we have elected to account for theimpact of this benefit prospectively beginning in the third quarter of the yearended January 31, 2005. The adoption of FSP 106-2 reduced our accumulatedpostretirement benefit obligation at June 30, 2004, the date of adoption, from$9.5 million to $8 million. This reduction relates to benefits attributed topast service. Our estimated annual net periodic benefit cost after the adoptionof FSP 106-2 was reduced by $286,000 to $1 million. The $286,000 reduction inannual cost includes $20,000, $85,000 and $181,000 in service cost, interestcost and amortization of recognized actuarial losses, respectively. The impacton the net periodic benefit cost for the year ended January 31, 2005 was a$72,000 reduction in the cost.

In November 2004, the FASB issued SFASNo. 151, “Inventory Costs, an amendment of ARB No. 43,Chapter 4.”**This statementamends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” toclarify the accounting for abnormal amounts of idle facility expense, freight,handling costs, and wasted material (spoilage). Paragraph 5 of ARBNo. 43, Chapter 4, previously stated that “...under somecircumstances, items such as idle facility expense, excessive spoilage, doublefreight, and re-handling costs may be so abnormal as to require treatment ascurrent period charges...” SFAS No. 151 requires that those items berecognized as current-period charges regardless of whether they meet thecriterion of “so abnormal.” In addition, this statement requires thatallocation of fixed production overhead to the costs of conversion be based onthe normal capacity of the production facilities. The provisions of SFAS 151shall be applied prospectively and are effective for inventory costs incurredduring fiscal years beginning after June 15, 2005, with earlierapplication permitted for inventory costs incurred during fiscal yearsbeginning after the date this Statement was issued. The adoption of SFASNo. 151 is not expected to have a material impact on our financialposition and results of operations.

In December 2004, the FASB issued SFASNo. 123(R), ‘‘Share-Based Payment’’, which is a revision of SFASNo. 123 and supersedes Accounting Principles Board (“APB”) OpinionNo. 25. On April 14, 2005, the Securities and Exchange Commissionamended the compliance date for SFAS 123R until the first quarter of fiscal2007. SFAS 123R requires all share-based payments to employees, includinggrants of employee stock options, to be valued at fair value on the date ofgrant, and to be expensed over the applicable vesting period. Pro formadisclosure of the income statement effects of share-based payments will nolonger be an alternative. SFAS 123R is effective for all stock-based awardsgranted on or after July 1, 2005. In addition, companies must alsorecognize compensation expense related to any awards that are not fully vestedas of the effective date. Compensation expense for the unvested awards will bemeasured based on the fair value of the awards previously calculated indeveloping the pro forma disclosures in accordance with the provisions of SFAS 123.We are currently evaluating SFAS 123R, including the method of adoption,and expect it will result in modifications to our current accounting for bothstock options and SARS.

In December 2004, theFASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendmentof APB Opinion No. 29.” The guidance in APB Opinion No. 29, “Accountingfor Nonmonetary Transactions,” is based on the principle that exchanges ofnonmonetary assets should be measured based on the fair value of assetsexchanged. The guidance in that opinion, however, included certain exceptionsto that principle. This Statement amends APB No. 29 to eliminate the exceptionfor nonmonetary exchanges of similar productive assets that do not havecommercial substance. A nonmonetary exchange has commercial substance if thefuture cash flows of the entity are expected to 

22

----

changesignificantly as a result of the exchange. SFAS No. 153 is effective fornonmonetary exchanges occurring in fiscal periods beginning after June 15,2005. The adoption of SFAS No. 153 is not expected to have a materialimpact on our financial position and results of operations.

**Item 7A.**                Quantitative and QualitativeDisclosures About Market Risk

Market risk is the potential loss arising from adversechanges in market rates and prices, such as foreign currency exchange rate andinterest rate fluctuations. A significant portion of our net sales aredenominated in currencies from international markets outside the United States.As a result, our operating results could become subject to significantfluctuations based upon changes in the exchange rates of the foreign currenciesin relation to the United States dollar.

Thetable below illustrates the hypothetical increase in fiscal 2005 net sales of a10% weaker U.S. dollar against foreign currencies which impact our operations(in millions):
| Euro                                                                               |   | $ | 8.6 |   |
|------------------------------------------------------------------------------------|--------|---|-----|--------|
| Canadian dollar                                                                    |   | $ | 2.7 |   |
| British pound                                                                      |   | $ | 2.8 |   |
| Other currencies  (representing net sales less than 12% of consolidated net sales) |   | $ | 4.4 |   |

 

We enter into foreign currency forward exchangecontracts to offset the impact of currency fluctuations on certainnonfunctional currency assets and liabilities. The principal currencies hedgedare denominated in Japanese yen, Canadian dollars, Euros and British pounds.Our foreign currency forward exchange contracts have terms lasting up to sixmonths, but generally less than one month. We do not enter into derivatives or otherfinancial instruments for trading or speculative purposes. See Note 12 tothe Consolidated Financial Statements (Item 8).

A majority of our products are manufactured usingsteel as a primary raw material and steel based components as purchased parts.As such, our cost of goods sold is sensitive to fluctuations in steel prices,either directly through the purchase of steel as raw material or indirectlythrough the purchase of steel based components.

Presuming that the full impact of commodity steel priceincreases is reflected in all steel and steel based component purchases, weestimate our gross margin percentage would decrease by approximately 0.3% foreach 1.0% increase in commodity steel prices. Based on our statement of incomefor the year ended January 31, 2005, a 1% increase in commodity steel priceswould have decreased consolidated gross profit by approximately $1.1 million.

During fiscal 2005, we experienced significantincreases in prices for steel and steel components. We moved aggressively tooffset these increases through a variety of means, including sales priceincreases, surcharges and alternative sourcing arrangements. We were moresuccessful in North America and Asia Pacific in realizing the full benefits ofthese mitigating measures. In Europe the measures were not as successful,resulting in some erosion of gross margins for certain products. During fiscal2006 we are expecting some additional steel price increases and will continueto implement mitigating measures where needed.

Substantially all of ourdebt at January 31, 2005 has a fixed interest rate. Any additionalpayments to prepay scheduled amounts of debt are subject to penalties. AtJanuary 31, 2005, the penalties to retire all of our long-term debt were$1.7 million. A hypothetical immediate increase in interest rates by 1%would decrease the fair value of our long-term debt outstanding atJanuary 31, 2005 by $660,000.

23

----

**Item 8.**                        FinancialStatements and Supplementary Data

**Report of Independent Registered Public AccountingFirm**

**Tothe Board of Directors and Shareholders of Cascade Corporation**

We have completed anintegrated audit of Cascade Corporation’s fiscal 2005 consolidated financialstatements and of its internal control over financial reporting as of January 31,2005 and audits of its fiscal 2004 and 2003 consolidated financial statementsin accordance with the standards of the Public Company Accounting OversightBoard (United States). Our opinions, based on our audits, are presented below.

**Consolidatedfinancial statements and financial statement schedule**

In our opinion, theconsolidated financial statements listed in the index appearing under Item 15(a)(1) presentfairly, in all material respects, the financial position of Cascade Corporationand its subsidiaries at January 31, 2005 and 2004, and the results oftheir operations and their cash flows for each of the three years in the periodended January 31, 2005 in conformity with accounting principles generallyaccepted in the United States of America. In addition, in our opinion, thefinancial statement schedule listed in the index appearing under Item 15(a)(2) presentsfairly, in all material respects, the information set forth therein when readin conjunction with the related consolidated financial statements. Thesefinancial statements and financial statement schedule are the responsibility ofthe Company’s management. Our responsibility is to express an opinion on thesefinancial statements and financial statement schedule based on our audits. Weconducted our audits of these statements in accordance with the standards ofthe Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. An audit offinancial statements includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, andevaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.

**Internalcontrol over financial reporting**

Also, in our opinion, management’s assessment,included in “Management’s Report on Internal Control Over Financial Reporting,”appearing under Item 9A, that the Company maintained effective internal controlover financial reporting as of January 31, 2005 based on criteriaestablished in “Internal Control—Integrated Framework” issued by the Committeeof Sponsoring Organizations of the Treadway Commission (COSO), is fairlystated, in all material respects, based on those criteria. Furthermore, in ouropinion, the Company maintained, in all material respects, effective internalcontrol over financial reporting as of January 31, 2005, based on criteriaestablished in “Internal Control—Integrated Framework” issued by the COSO. TheCompany’s management is responsible for maintaining effective internal controlover financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting. Our responsibility is to expressopinions on management’s assessment and on the effectiveness of the Company’sinternal control over financial reporting based on our audit. We conducted ouraudit of internal control over financial reporting in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting wasmaintained in all material respects. An audit of internal control over financialreporting includes obtaining an understanding of internal control overfinancial reporting, evaluating management’s assessment, testing and evaluatingthe design and operating effectiveness of internal control, and performing suchother procedures as we consider necessary in the circumstances. We believe thatour audit provides a reasonable basis for our opinions.

24

----

A company’s internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies andprocedures that (i) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (ii) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of thecompany; and (iii) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements. Also, projections of any evaluation of effectiveness tofuture periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

/s/ PRICEWATERHOUSECOOPERSLLP

PricewaterhouseCoopers LLP

Portland, Oregon

April 15, 2005

25

----

**Cascade CorporationConsolidated Statements of Income**
| ** **                                        | ** ** | **Year Ended January 31**                                                                 | ** **                                |
|---------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|-------------------------------------------|
| ** **                                        | ** ** | **        2005        ** | ** **                                | **        2004        ** | ** ** | **        2003        ** | ** ** |
| ** **                                        | ** ** | **(In thousands, except per share amounts)**                                    | ** **                                |
| Net sales                                         |       |                                                                                                     | $385,719                                  |   |   |   | $ | 297,756 |   |   |   | $ | 258,829 |   |   |
| Cost of goods  sold                               |       |                                                                                                     | 262,537                                   |   |   |   | 202,120 |   |   |   | 169,755 |   |   |
| Gross profit                                      |       |                                                                                                     | 123,182                                   |   |   |   | 95,636 |   |   |   | 89,074 |   |   |
| Selling and administrative expenses               |       |                                                                                                     | 73,399                                    |   |   |   | 63,099 |   |   |   | 56,469 |   |   |
| Amortization                                      |       |                                                                                                     | 3,151                                     |   |   |   | 512 |   |   |   | 261 |   |   |
| Insurance  litigation recovery                    |       |                                                                                                     | (1,300                                    | ) |   |   | — |   |   |   | — |   |   |
| Environmental  expenses                           |       |                                                                                                     | 155                                       |   |   |   | — |   |   |   | 2,100 |   |   |
| Recovery of note  receivable                      |       |                                                                                                     | —                                    |   |   |   | — |   |   |   | (2,500 | ) |   |
| Operating income                                  |       |                                                                                                     | 47,777                                    |   |   |   | 32,025 |   |   |   | 32,744 |   |   |
| Interest expense                                  |       |                                                                                                     | 3,570                                     |   |   |   | 4,570 |   |   |   | 5,713 |   |   |
| Interest income                                   |       |                                                                                                     | (562                                      | ) |   |   | (1,016 | ) |   |   | (1,485 | ) |   |
| Other (income)  expense, net                      |       |                                                                                                     | (218                                      | ) |   |   | 40 |   |   |   | 329 |   |   |
| Income before provision for income taxes          |       |                                                                                                     | 44,987                                    |   |   |   | 28,431 |   |   |   | 28,187 |   |   |
| Provision for  income taxes                       |       |                                                                                                     | 16,497                                    |   |   |   | 9,925 |   |   |   | 10,480 |   |   |
| Net income                                        |       |                                                                                                     | 28,490                                    |   |   |   | 18,506 |   |   |   | 17,707 |   |   |
| Dividends paid on  preferred shares of subsidiary |       |                                                                                                     | —                                    |   |   |   | (30 | ) |   |   | (60 | ) |   |
| Net income  applicable to common shareholders     |       |                                                                                                     | $  28,490                       |   |   |   | $ | 18,476 |   |   |   | $ | 17,647 |   |   |
| Basic earnings per share                          |       |                                                                                                     | $      2.34 |   |   |   | $ | 1.55 |   |   |   | $ | 1.55 |   |   |
| Diluted earnings  per share                       |       |                                                                                                     | $      2.24 |   |   |   | $ | 1.49 |   |   |   | $ | 1.45 |   |   |
| Basic weighted average shares outstanding         |       |                                                                                                     | 12,164                                    |   |   |   | 11,934 |   |   |   | 11,372 |   |   |
| Diluted weighted average  shares outstanding      |       |                                                                                                     | 12,726                                    |   |   |   | 12,409 |   |   |   | 12,194 |   |   |

 

The accompanying notes are an integral part of the consolidated financial statements.

26

----

**Cascade CorporationConsolidated Balance Sheets**
| ** **                                                                                               | ** ** | **As of January 31**                                                          | ** **                     |
|----------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------|--------------------------------|
| ** **                                                                                               | ** ** | **       2005       ** | ** **                     | **       2004       ** | ** ** |
| ** **                                                                                               | ** ** | **(In thousands,   except per share amounts)**                      | ** **                     |
| **ASSETS**                                                                                               |       |                                                                                         |                           |   |   |   |   |   |   |
| Current assets:                                                                                          |       |                                                                                         |                           |   |   |   |   |   |   |
| Cash and cash equivalents                                                                                |       |                                                                                         | $  30,482            |   |   |   | $  25,584 |   |   |
| Marketable securities                                                                                    |       |                                                                                         | 1,503                          |   |   |   | 6,002 |   |   |
| Trade accounts receivable, less allowance for  doubtful accounts of $2,182 and $2,023                    |       |                                                                                         | 70,728                         |   |   |   | 57,871 |   |   |
| Inventories                                                                                              |       |                                                                                         | 46,212                         |   |   |   | 36,353 |   |   |
| Deferred income taxes                                                                                    |       |                                                                                         | 3,042                          |   |   |   | 2,542 |   |   |
| Income taxes receivable                                                                                  |       |                                                                                         | —                         |   |   |   | 142 |   |   |
| Prepaid expenses and other                                                                               |       |                                                                                         | 4,592                          |   |   |   | 4,626 |   |   |
| Total current assets                                                                                     |       |                                                                                         | 156,559                        |   |   |   | 133,120 |   |   |
| Property, plant and equipment, net                                                                       |       |                                                                                         | 82,027                         |   |   |   | 75,244 |   |   |
| Goodwill                                                                                                 |       |                                                                                         | 74,786                         |   |   |   | 68,915 |   |   |
| Deferred income taxes                                                                                    |       |                                                                                         | 9,688                          |   |   |   | 9,703 |   |   |
| Other assets                                                                                             |       |                                                                                         | 5,032                          |   |   |   | 5,837 |   |   |
| Total assets                                                                                             |       |                                                                                         | $328,092                       |   |   |   | $292,819 |   |   |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                            |       |                                                                                         |                           |   |   |   |   |   |   |
| Current liabilities:                                                                                     |       |                                                                                         |                           |   |   |   |   |   |   |
| Notes payable to banks                                                                                   |       |                                                                                         | $    2,461 |   |   |   | $    2,805 |   |   |
| Current portion of long-term debt                                                                        |       |                                                                                         | 12,916                         |   |   |   | 13,018 |   |   |
| Accounts payable                                                                                         |       |                                                                                         | 25,778                         |   |   |   | 17,904 |   |   |
| Accrued payroll and payroll taxes                                                                        |       |                                                                                         | 7,283                          |   |   |   | 6,815 |   |   |
| Accrued environmental expenses                                                                           |       |                                                                                         | 894                            |   |   |   | 847 |   |   |
| Other accrued expenses                                                                                   |       |                                                                                         | 13,073                         |   |   |   | 10,011 |   |   |
| Total current liabilities                                                                                |       |                                                                                         | 62,405                         |   |   |   | 51,400 |   |   |
| Long-term debt, net of current portion                                                                   |       |                                                                                         | 25,187                         |   |   |   | 38,111 |   |   |
| Accrued environmental expenses                                                                           |       |                                                                                         | 7,799                          |   |   |   | 8,551 |   |   |
| Deferred income taxes                                                                                    |       |                                                                                         | 3,988                          |   |   |   | 1,441 |   |   |
| Other liabilities                                                                                        |       |                                                                                         | 10,830                         |   |   |   | 9,628 |   |   |
| Total liabilities                                                                                        |       |                                                                                         | 110,209                        |   |   |   | 109,131 |   |   |
| Commitments and contingencies (Note 13)                                                                  |       |                                                                                         |                           |   |   |   |   |   |   |
| Shareholders’ equity:                                                                               |       |                                                                                         |                           |   |   |   |   |   |   |
| Common stock, $.50 par value, 20,000 authorized  shares; 12,224 and 12,102 shares issued and outstanding |       |                                                                                         | 6,112                          |   |   |   | 6,051 |   |   |
| Additional paid-in capital                                                                               |       |                                                                                         | 20,004                         |   |   |   | 11,111 |   |   |
| Unamortized deferred compensation                                                                        |       |                                                                                         | (4,506                         | ) |   |   | — |   |   |
| Retained earnings                                                                                        |       |                                                                                         | 188,507                        |   |   |   | 165,495 |   |   |
| Accumulated other comprehensive income                                                                   |       |                                                                                         | 7,766                          |   |   |   | 1,031 |   |   |
| Total shareholders’ equity                                                                          |       |                                                                                         | 217,883                        |   |   |   | 183,688 |   |   |
| Total liabilities  and shareholders’ equity                                                         |       |                                                                                         | $328,092                       |   |   |   | $292,819 |   |   |

 

The accompanying notes are an integral part of the consolidated financial statements.

27

----

**Cascade CorporationConsolidated Statements of Changes in Shareholders’ Equity(In thousands, except per share amounts)**
| ** **                                                           | ** ** | ** **            | ** ** | ** **             | ** ** | ** **     | ** ** | ** **       | ** ** | ** **        | ** ** | **Accumulated**        | ** ** | ** **             | ** ** |
|----------------------------------------------------------------------|------------|-----------------------|------------|------------------------|------------|----------------|------------|------------------|------------|-------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                           | ** ** | ** **            | ** ** | ** **             | ** ** | **Additional** | ** ** | **Unamortized**  | ** ** | ** **        | ** ** | **Other**              | ** ** | **Annual**             | ** ** |
| ** **                                                           | ** ** | **Common Stock** | ** ** | **Paid-In**            | ** ** | **Deferred**   | ** ** | **Retained**     | ** ** | **Comprehensive** | ** ** | **Comprehensive**      | ** ** |
| ** **                                                           | ** ** | **Shares**            | ** ** | ** Amount ** | ** ** | **Capital**    | ** ** | **Compensation** | ** ** | **Earnings**      | ** ** | **Income (Loss)** | ** ** | **Income (Loss)** | ** ** |
| **Balance  at January 31, 2002**                           |       | 11,291                |       |                   | $          | 5,646          |       |             |       | $                 | —     |                   |       |                   | $          | — |   |   | $ | 135,418 |   |   | $ | (27,797 | ) |   |   |   |   |   |
| Net income                                                           |       | —                |       |                   | —     |           |       |             | —     |              |       |                   |       |                   |       | 17,707 |   |   | — |   |   |   | $ | 17,707 |   |   |
| Dividends ($.10  per share)                                          |       | —                |       |                   | —     |           |       |             | —     |              |       |                   | —     |                   |       | (1,200 | ) |   | — |   |   |   | — |   |   |
| Common stock  issued                                                 |       | 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 | ) |   | — |   |   |   | — |   |   |
| Common stock  issued                                                 |       | 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 |   |   |
| Net income                                                           |       | —                |       |                   | —     |           |       |             | —     |              |       |                   | —     |                   |       | 28,490 |   |   | — |   |   |   | $ | 28,490 |   |   |
| Dividends ($.45  per share)                                          |       | —                |       |                   | —     |           |       |             | —     |              |       |                   | —     |                   |       | (5,478 | ) |   | — |   |   |   | — |   |   |
| Common stock  issued                                                 |       | 122                   |       |                   | 61         |           |       |             | 1,555      |              |       |                   | —     |                   |       | — |   |   | — |   |   |   | — |   |   |
| Tax benefit from  exercise of stock options                          |       | —                |       |                   | —     |           |       |             | 340        |              |       |                   | —     |                   |       | — |   |   | — |   |   |   | — |   |   |
| Deferred  compensation from stock appreciation rights                |       | —                |       |                   | —     |           |       |             | 6,998      |              |       |                   | (6,998     | )                      |       | — |   |   | — |   |   |   | — |   |   |
| Amortization of  deferred compensation                               |       | —                |       |                   | —     |           |       |             | —     |              |       |                   | 2,492      |                   |       | — |   |   | — |   |   |   |   |   |   |
| Translation  adjustment                                              |       | —                |       |                   | —     |           |       |             | —     |              |       |                   | —     |                   |       | — |   |   | 6,735 |   |   |   | 6,735 |   |   |
| **Balance  at January 31, 2005**                           |       | 12,224                |       |                   | $          | 6,112          |       |             |       | $                 | 20,004     |                   |       |                   | $          | (4,506 | ) |   | $ | 188,507 |   |   | $ | 7,766 |   |   |   | $ | 35,225 |   |   |

 

The accompanying notes are an integral part of the consolidated financial statements.

28

----

**Cascade CorporationConsolidated Statements of Cash Flows**
| ** **                                                                                     | ** ** | **Year Ended January 31** | ** ** |
|------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                                     | ** ** | **2005**                                 | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                                                     | ** ** | **(In thousands)**                  | ** ** |
| **Cash flows from operating activities:**                                                      |       |                                     |       |   |   |   |   |
| Net income                                                                                     |       | $                                        | 28,490     |   | $ | 18,506 |   | $ | 17,707 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities:             |       |                                     |       |   |   |   |   |
| Depreciation and  amortization                                                                 |       | 14,570                                   |       | 12,664 |   | 10,793 |   |
| Amortization of deferred  compensation                                                         |       | 2,492                                    |       | — |   | — |   |
| Deferred income taxes                                                                          |       | 2,062                                    |       | 1,802 |   | 2,395 |   |
| Loss on disposition of  assets                                                                 |       | 3                                        |       | 102 |   | 54 |   |
| Recovery of note  receivable                                                                   |       | —                                   |       | — |   | (2,500 | ) |
| Changes in operating assets and liabilities, net of  effects of acquisitions and dispositions: |       |                                     |       |   |   |   |   |
| Accounts receivable                                                                            |       | (12,803                                  | )          | (9,810 | ) | (3,472 | ) |
| Inventories                                                                                    |       | (8,320                                   | )          | (2,235 | ) | 386 |   |
| Prepaid expenses and  other                                                                    |       | 34                                       |       | 38 |   | (1,535 | ) |
| Accounts payable and  accrued expenses                                                         |       | 8,342                                    |       | 538 |   | 3,902 |   |
| Current income taxes  payable and receivable                                                   |       | 2,210                                    |       | 3,581 |   | (2,614 | ) |
| Other liabilities                                                                              |       | 1,068                                    |       | 1,221 |   | (1,175 | ) |
| Net cash provided by  operating activities                                                     |       | 38,148                                   |       | 26,407 |   | 23,941 |   |
| **Cash flows from investing activities:**                                                      |       |                                     |       |   |   |   |   |
| Capital expenditures                                                                           |       | (13,581                                  | )          | (11,403 | ) | (10,665 | ) |
| Sale of marketable  securities                                                                 |       | 21,246                                   |       | 25,225 |   | — |   |
| Purchase of marketable  securities                                                             |       | (17,791                                  | )          | (31,227 | ) | — |   |
| Business acquisitions                                                                          |       | (6,236                                   | )          | (11,677 | ) | — |   |
| Proceeds from sale of  assets                                                                  |       | 314                                      |       | 844 |   | 268 |   |
| Other assets                                                                                   |       | 147                                      |       | (930 | ) | (5 | ) |
| Proceeds from sale of  investment                                                              |       | 1,044                                    |       | — |   | — |   |
| Advances on notes  receivable                                                                  |       | —                                   |       | — |   | (2,102 | ) |
| Proceeds from notes  receivable                                                                |       | —                                   |       | 9,556 |   | 4,786 |   |
| Net cash used in  investing activities                                                         |       | (14,857                                  | )          | (19,612 | ) | (7,718 | ) |
| **Cash flows from financing activities:**                                                      |       |                                     |       |   |   |   |   |
| Cash dividends paid                                                                            |       | (5,478                                   | )          | (4,936 | ) | (1,200 | ) |
| Payments on long-term  debt and capital leases                                                 |       | (13,026                                  | )          | (12,850 | ) | (15,833 | ) |
| Notes payable to banks,  net                                                                   |       | (344                                     | )          | 1,606 |   | 300 |   |
| Common stock issued  under stock option plan                                                   |       | 1,616                                    |       | 1,299 |   | 73 |   |
| Repurchase of common  stock                                                                    |       | —                                   |       | — |   | (1,396 | ) |
| Net cash used in  financing activities                                                         |       | (17,232                                  | )          | (14,881 | ) | (18,056 | ) |
| **Effect of  exchange rate changes**                                                           |       | (1,161                                   | )          | 4,169 |   | 5,723 |   |
| Change in cash and cash  equivalents                                                           |       | 4,898                                    |       | (3,917 | ) | 3,890 |   |
| Cash and cash  equivalents at beginning of year                                                |       | 25,584                                   |       | 29,501 |   | 25,611 |   |
| Cash and cash  equivalents at end of year                                                      |       | $                                        | 30,482     |   | $ | 25,584 |   | $ | 29,501 |   |
| **Supplemental disclosure of noncash information:**                                            |       |                                     |       |   |   |   |   |
| See  Note 8 to Consolidated Financial Statements                                               |       |                                     |       |   |   |   |   |

 

The accompanying notes are an integral part of the consolidated financial statements.

29

----

**Cascade CorporationNotes to Consolidated Financial Statements**

**Note 1—Descriptionof Business**

Cascade Corporation is aninternational company engaged in the manufacture of materials handling productsthat are widely used on industrial fork lift trucks and, to a lesser extent, onconstruction, mining and agricultural vehicles. Accordingly, our sales arelargely dependent on the sales of lift trucks and on the sales of replacementparts. A significant portion of our sales are made in North America and Europe.We are headquartered in Fairview, Oregon, employing approximately 1,800 peopleand maintaining operations in 15 countries outside the United States.

**Note 2—Summaryof Significant Accounting Policies**

**Principles ofConsolidation**

The consolidated financialstatements include the accounts of the company and our subsidiaries. Allsignificant intercompany accounts and transactions have been eliminated.

**Cash and CashEquivalents**

Cash and cash equivalentsconsist of cash on deposit and highly liquid investments with maturities ofthree months or less at the date of purchase.

**MarketableSecurities**

Marketable securitiesconsist of auction rate securities issued by various state agencies throughoutthe United States. We classify these securities as available-for-sale securities.These securities are insured either through third party agencies or reinsuredthrough the federal government. The specific identification method is used todetermine the cost of securities sold. There are no realized or unrealizedgains or losses related to our marketable securities. The securities arelong-term instruments maturing through 2019; however, the interest rates andmaturities are reset approximately every month, at which time we can sell thesecurities. Accordingly, we have classified the securities as current assets inour consolidated balance sheets.

**Allowances forTrade Accounts Receivable**

Trade accounts receivableare stated net of an allowance for doubtful accounts. We maintain allowancesfor doubtful accounts for estimated losses on accounts receivable resultingfrom the inability of our customers to make required payments. Such allowancesare based on an ongoing review of customer payments against terms and a reviewof customer financial statements and financial information.

**Inventories**

Inventories are stated atthe lower of average cost or market. Cost is computed on a standard basis,which approximates average cost.

**Property, Plant andEquipment**

Property, plant and equipmentare stated at cost less accumulated depreciation. Depreciation is generallyprovided using the straight-line method over the estimated useful lives of theassets. Tooling costs are capitalized as machinery and equipment. Useful livesrange from thirty to forty years for buildings, fifteen years for landimprovements and two to ten years for machinery and equipment, includingcertain equipment under long-term capital leases. Maintenance and repairs areexpensed as 

30

----

incurredand costs 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 acquiredbusinesses over the fair value of the net identifiable assets acquired. EffectiveFebruary 1, 2002, we no longer amortize goodwill in accordance withStatement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and OtherIntangible Assets.” 

We perform 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 our annual testing anddetermined that there has been no impairment of goodwill.

**Impairment ofLong-Lived Assets**

Long-lived assets,primarily property, plant and equipment, are reviewed for impairment wheneverevents or changes in circumstances indicate that the carrying amount of suchassets may not be recoverable. Determination of recoverability is based on anestimate of undiscounted future cash flows resulting from the use of the assetsand eventual disposition in comparison with the carrying value. Measurement ofan impairment loss for long-lived assets that management expects to hold anduse is based on the fair value of the asset.

**Common Stock**

We follow the practice ofrecording amounts received upon the exercise of options by crediting commonstock and additional paid-in capital. No charges are reflected in theconsolidated statements of income as a result of the grant or exercise of stockoptions. We realize an income tax benefit from the exercise or earlydisposition of certain stock options. This benefit results in a decrease incurrent income taxes payable and an increase in additional paid-in capital.

**Minimum PensionLiability Adjustment**

We record a minimumpension liability adjustment to the extent that the accumulated pension benefitobligation exceeds the fair value of pension plan assets and accrued pensionliabilities. This adjustment is reflected as a reduction in shareholders’equity, net of income tax benefits.

**Stock-BasedCompensation**

We account for our stock-based compensationunder Accounting Principles Board Opinion No. 25 (APB 25), “Accounting forStock Issued to Employees,” which permits the use of intrinsic valueaccounting. No stock-based compensation cost is reflected in net incomefor stock options, as all options granted had an exercise price equal to themarket price of the underlying common stock on the date of grant. We haveadopted disclosure-only provisions of Statement of Financial Accounting Standards(SFAS) No. 123, “Accounting for Stock-Based Compensation” and SFASNo. 148, “Accounting for Stock-Based Compensation—Transition andDisclosure-an Amendment of FASB Statement No. 123.”

We also grant awards under a stock appreciation rights(SARS) plan. Under Financial Interpretation No. (FIN) 28, “Accounting for StockAppreciation Rights and Other Variable Stock Option or Award Plans,” SARS areaccounted for under variable plan accounting. Accordingly, we record deferred 

31

----

compensation as areduction of shareholders’ equity, equal to the excess of the market value ofour common stock on the balance sheet date or date of exercise over the baseprice at the date of grant. The deferred compensation is amortized to expenseover the vesting period based on the periods in which the executives anddirectors perform services.

Thefollowing table illustrates the effect on net income and earnings per share ifwe had applied the fair value recognition provisions of SFAS 123 to stock-basedemployee compensation:
| ** **                                                                                                                    | ** ** | **Year Ended January 31**                          | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                                                                                    | ** ** | **2005**                                                          | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                                                                                    | ** ** | **(In thousands,  except per share amounts)** | ** ** |
| Net income—as  reported                                                                                                  |       | $                                                                 | 28,490     |   | $ | 18,506 |   | $ | 17,707 |   |
| Add: stock  appreciation rights amortization, net of income taxes of $896 in 2005                                             |       | 1,596                                                             |       | — |   | — |   |
| Net income  excluding stock appreciation rights amortization                                                                  |       | 30,086                                                            |       | 18,506 |   | 17,707 |   |
| Deduct: total  stock-based compensation, net of income taxes of $499, $263 and $309 determined  under fair value based method |       | (1,115                                                            | )          | (671 | ) | (522 | ) |
| Net income—pro  forma                                                                                                    |       | $                                                                 | 28,971     |   | $ | 17,835 |   | $ | 17,185 |   |
| Basic earnings per share—as reported                                                                                     |       | $                                                                 | 2.34       |   | $ | 1.55 |   | $ | 1.55 |   |
| Basic earnings  per share—pro forma                                                                                      |       | $                                                                 | 2.38       |   | $ | 1.49 |   | $ | 1.51 |   |
| Diluted earnings  per share—as reported                                                                                  |       | $                                                                 | 2.24       |   | $ | 1.49 |   | $ | 1.45 |   |
| Diluted earnings per  share—pro forma                                                                                    |       | $                                                                 | 2.29       |   | $ | 1.45 |   | $ | 1.42 |   |

 

Thefair value of each stock option or SARS grant is estimated on the date of grantusing the Black-Scholes option pricing model with the following weighted-averageassumptions:
| ** **                                    | ** ** | **Year Ended January 31** | ** ** |
|-----------------------------------------------|------------|------------------------------------------|------------|
| ** **                                    | ** ** | **2005**                                 | ** ** | **2004** | ** ** | **2003** | ** ** |
| Risk-free  interest rate                      |       | 3.8                                      | %          | 2.3 | % | 4.5 | % |
| Expected  volatility                          |       | 42                                       | %          | 40 | % | 40 | % |
| Expected dividend  yield                      |       | 2.1                                      | %          | 2.8 | % | 2.9 | % |
| Expected life (in  years)                     |       | 5                                        |       | 5 |   | 5 |   |
| Weighted average fair  value at date of grant |       | $                                        | 7.46       |   | $ | 4.16 |   | $ | 4.55 |   |
|                                               |            |                                          |            |  |  |  |  |  |  |  |

 

**Foreign CurrencyTranslation**

We translate the balancesheets of our foreign subsidiaries using fiscal year-end exchange rates. Theconsolidated statements of income are translated using the average exchangerates for the period. The cumulative effect of such translations is included inshareholders’ equity.

**EnvironmentalRemediation**

We accrue environmentalcosts if it is probable a liability has been incurred at the financialstatement date and the amount can be reasonably estimated. Recorded liabilitieshave not been discounted. Environmental compliance and legal costs are expensedas incurred. Assets related to the recovery of amounts expended forenvironmental expenses are recognized only when realization is probable.

**Foreign CurrencyForward Exchange Contracts**

Gains and losses onforeign currency forward exchange contracts, which generally mature in onemonth or less, are recognized in operations and measured over the period of thecontract by reference to the forward rate for a contract to be consummated onthe same future date as the original contract.

32

----

**Revenue Recognition**

We recognize revenue when the following criteria aremet:

**Persuasiveevidence of an arrangement exists****—**Salesarrangements are supported by written or electronic documentation or evidencefrom a customer.

**Deliveryhas occurred or services have been rendered****—**Revenue is recognized when title transfers and risk andrewards of ownership have passed to the customer. This generally occurs uponshipment of our product with “FOB Shipping Point” terms. Shipments with “FOBDestination” terms are recorded as revenue when products are delivered to thecustomer. Customers are responsible for payment even if the product is not soldto their end customer. Once shipping terms are met we have no continuingobligations or performance criteria requirements.

**Fixedor determinable sales price****—**Salesare at fixed or established sales prices determined prior to the time theproducts are shipped with no customer cancellation, price protection ortermination clauses.

**Collectibility isreasonably assured****—**Based on ourcredit management policies we generally believe collectibility is reasonablyassured when product is shipped to a customer. Provisions for uncollectibleaccounts and return allowances are recorded at the time revenue is recognizedbased on our historical experience.

**Shipping andHandling Costs**

We incur shipping,handling and other related costs for the shipment of goods to customers. Thesecosts are recognized in the period in which the expenses occur and areclassified as cost of goods sold. Amounts billed to customers for shipping,handling and related costs are reported as a component of net sales.

**WarrantyObligations**

We record a liability onour consolidated balance sheet for costs related to certain warranties weprovide with the sales of our products. This liability is estimated throughhistorical customer claims, product failure rates, material usage and servicedelivery costs incurred in correcting a product failure.

**Income Taxes**

Deferred income tax assetsand liabilities are recognized for the expected tax consequences of temporarydifferences between the tax bases of assets and liabilities and the amountsreported in the consolidated financial statements. The provision for incometaxes is the tax payable for the period and the change during the period in netdeferred income tax assets and liabilities. Valuation allowances areestablished when necessary to reduce deferred income tax assets to the amountexpected to be realized.

**Research andDevelopment Costs**

Research and developmentcosts are expensed as incurred and are related to developing new products andto improving existing products or processes. These costs primarily includesalaries, supplies, legal costs related to patents and design costs. Weincurred research and development costs of $3.2 million,$3.7 million, and $2.7 million for the years ended January 31,2005, 2004 and 2003, respectively.

**Concentrations ofCredit Risk**

Financial instruments that potentially subject us toconcentrations of credit risk consist principally of cash and cash equivalents,marketable securities, accounts receivable and foreign currency forward 

33

----

exchange contracts. Weplace our cash and cash equivalents in major financial institutions. Depositsheld with the financial institutions may exceed the Federal Deposit InsuranceCorporation limit.

Accounts receivable are with a large number ofcustomers, primarily equipment manufacturers and dealers, dispersed across awide geographic base. No single customer accounts for more than 10% of ourconsolidated net sales. Our consolidated net sales or accounts receivable forthe years ended January 31, 2005, 2004 and 2003 to all original equipmentmanufacturers (OEM) customers were 40%, 35% and 32% of total net sales,respectively. This percentage is consistent with recent years. We performon-going credit evaluations and do not require collateral. Allowances aremaintained for potential credit losses when deemed necessary.

See Note 12 for discussionof foreign currency forward exchange contracts.

**Reclassifications**

Certain reclassificationshave been made to the prior year consolidated financial statements to conformto the current year presentation. Such reclassifications had no impact on resultsof operations.

**Use of Estimates**

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. We base our estimates on our historical experience and variousother assumptions that are believed to be reasonable under the circumstances.Actual results could differ from those estimates. Significant estimates andjudgments made by our management include matters such as the collectibility ofaccounts receivable, realizability of deferred income tax assets, realizabilityof goodwill and long-lived assets, warranty liabilities, benefit planassumptions and future costs of environmental matters.

**Earnings Per Share**

Basic earnings per shareis computed by dividing income available to common shareholders by the weightedaverage number of common shares outstanding for the period. Diluted earningsper share reflects potential dilution that could occur if convertiblesecurities, stock options or SARS were exercised or converted into common stockusing the treasury stock method.

**Recent**Accounting Pronouncements

In January 2004, FASB Staff Position No. 106-1(FSP 106-1), “Accounting and Disclosure Requirements Related to the MedicarePrescription Drug, Improvement and Modernization Act of 2003” was issued. FSP106-1 permitted the deferral of recognizing the effects of the Act in theaccounting for post retirement health care plans under SFAS No. 106, “Employers’Accounting for Postretirement Benefactors Other Than Pensions,” and inproviding disclosure related to the plans required by SFAS No. 132(revised 2003), “Employers’ Disclosures about Pensions and Other PostretirementBenefits.” We elected the deferral provided by this FSP.

34

----

In May 2004, the FASB issued Staff Position No. 106-2(FSP 106-2), “Accounting and Disclosure Requirements Related to the MedicarePrescription Drug, Improvement and Modernization Act of 2003.” This Actintroduces a federal subsidy to employers whose prescription drug benefits areactuarially equivalent to the new Medicare Part D. We believe our postretirement benefit plan is actuarially equivalent to Part D. FSP No. 106-2discusses further the effect of the Act and supersedes FSP 106-1. FSP 106-2considers the effect of the two new features introduced in the Act indetermining our accumulated postretirement benefit obligation (“APBO”) and netperiodic post retirement benefit cost. The effect on the APBO will be accountedfor as an actuarial experience gain to be amortized into income over theaverage remaining service period of plan participants. As permitted by FSP106-2, we have elected to account for the impact of this benefit prospectivelybeginning in the third quarter of the year ended January 31, 2005. Theadoption of FSP 106-2 reduced our accumulated postretirement benefit obligationat June 30, 2004, the date of adoption, from $9.5 million to $8 million. Thisreduction relates to benefits attributed to past service. Our estimated annualnet periodic benefit cost after the adoption of FSP 106-2 was reduced by$286,000 to $1 million. The $286,000 reduction in annual cost includes $20,000,$85,000 and $181,000 in service cost, interest cost and amortization ofrecognized actuarial losses, respectively. The impact on the net periodicbenefit cost for the year ended January 31, 2005 was a $72,000 reductionin the cost.

In November 2004, the FASB issued SFAS No. 151,“Inventory Costs, an amendment of ARB No. 43, Chapter 4.”**This statement amends the guidance in ARBNo. 43, Chapter 4, “Inventory Pricing”, to clarify the accounting forabnormal amounts of idle facility expense, freight, handling costs, and wastedmaterial (spoilage). Paragraph 5 of ARB No. 43, Chapter 4,previously stated that “...under some circumstances, items such as idlefacility expense, excessive spoilage, double freight, and re-handling costs maybe so abnormal as to require treatment as current period charges...” SFAS No. 151requires that those items be recognized as current-period charges regardless ofwhether they meet the criterion of “so abnormal.” In addition, this statementrequires that allocation of fixed production overhead to the costs ofconversion be based on the normal capacity of the production facilities. Theprovisions of SFAS 151 shall be applied prospectively and are effective forinventory costs incurred during fiscal years beginning after June 15,2005, with earlier application permitted for inventory costs incurred duringfiscal years beginning after the date this Statement was issued. The adoptionof SFAS No. 151 is not expected to have a material impact on our financialposition and results of operations.

In December 2004, the FASB issued SFAS No. 123(R),“Share-Based Payment”, which is a revision of SFAS No. 123 and supersedesAccounting Principles Board (“APB”) Opinion No. 25. On April 14,2005, the Securities and Exchange Commission amended the compliance date forSFAS 123R until the first quarter of fiscal 2007. SFAS 123Rrequires all share-based payments to employees, including grants ofemployee stock options, to be valued at fair value on the date of grant, and tobe expensed over the applicable vesting period. Pro forma disclosure of theincome statement effects of share-based payments will no longer be analternative. SFAS 123R is effective for all stock-based awards granted on orafter July 1, 2005. In addition, companies must also recognizecompensation expense related to any awards that are not fully vested as of theeffective date. Compensation expense for the unvested awards will be measuredbased on the fair value of the awards previously calculated in developing thepro forma disclosures in accordance with the provisions of SFAS 123. Weare currently evaluating SFAS 123R, including the method of adoption, andexpect it will result in modifications to our current accounting for both stockoptions and SARS.

In December 2004, theFASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendmentof APB Opinion No. 29.” The guidance in APB Opinion No. 29, “Accountingfor Nonmonetary Transactions”, is based on the principle that exchanges ofnonmonetary assets should be measured based on the fair value of assetsexchanged. The guidance in that opinion, however, included certain exceptionsto that principle. This Statement amends APB No. 29 to eliminate theexception for 

35

----

nonmonetaryexchanges of similar productive assets that do not have commercial substance. Anonmonetary exchange has commercial substance if the future cash flows of theentity are expected to change significantly as a result of the exchange. SFAS No. 153is effective for nonmonetary exchanges occurring in fiscal periods beginningafter June 15, 2005. The adoption of SFAS No. 153 is not expected tohave a material impact on our financial position and results of operations.

**Note 3—Inventories**
| ** **                     | ** ** | **January 31**     | ** ** |
|--------------------------------|------------|-------------------------|------------|
| ** **                     | ** ** | **2005**                | ** ** | **2004** | ** ** |
| ** **                     | ** ** | **(In thousands)** | ** ** |
| Finished goods  and components |       | $30,516                 |       | $23,490 |   |
| Work in process                |       | 865                     |       | 1,251 |   |
| Raw materials                  |       | 14,831                  |       | 11,612 |   |
|                           |       | $46,212                 |       | $36,353 |   |

 

**Note 4—Property, Plant and Equipment**
| ** **                | ** ** | **January 31**     | ** ** |
|---------------------------|------------|-------------------------|------------|
| ** **                | ** ** | **2005**                | ** ** | **2004** | ** ** |
| ** **                | ** ** | **(In thousands)** | ** ** |
| Land                      |       | $                       | 6,047      |   | $ | 4,849 |   |
| Buildings                 |       | 44,229                  |       | 41,698 |   |
| Machinery and  equipment  |       | 149,662                 |       | 139,898 |   |
|                      |       | 199,938                 |       | 186,445 |   |
| Accumulated  depreciation |       | (117,911                | )          | (111,201 | ) |
|                      |       | $                       | 82,027     |   | $ | 75,244 |   |

 

Depreciation expense forthe years ended January 31, 2005, 2004 and 2003, was $13.9 million,$12.2 million and $10.5 million, respectively. Equipment financedunder capital lease arrangements is not material.

**Note 5—Debt**
| ** **                                                                                          | ** ** | **January 31**     | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                                          | ** ** | **2005**                | ** ** | **2003** | ** ** |
| ** **                                                                                          | ** ** | **(In thousands)** | ** ** |
| Senior notes,  interest at 6.92% payable semi annually, principal due annually through  fiscal 2008 |       | $ 37,500           |       | $ 50,000 |   |
| Other, interest  varies between 3.01% and 5.64%, principal due semi-annually through fiscal  2007   |       | 603                     |       | 1,129 |   |
|                                                                                                |       | 38,103                  |       | 51,129 |   |
| Less current  portion                                                                               |       | (12,916                 | )          | (13,018 | ) |
| Long-term debt                                                                                      |       | $ 25,187           |       | $ 38,111 |   |

 

Our debt agreements contain covenants relating to networth and leverage ratios. We were in compliance with these covenants at January 31,2005. The average interest rate on notes payable to banks was 3.74% duringfiscal 2005 and 2.78% during fiscal 2004.

Borrowing arrangements currently in place withcommercial banks provide committed lines of credit totaling $25.0 million, ofwhich $1.8 million were being used at January 31, 2005 through theissuance of letters of credit. Amounts under the lines of credit bear interest atLIBOR (2.96% at January 31, 2005 and 

36

----

1.21% at January 31,2004) plus a margin ranging from 0.80% to 1.00%. Commitment fees on unusedamounts are .25%.

Futurematurities of long-term debt are as follows (in thousands):
| **Year ended January 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------------------------------------|------------|------------|------------|------------|------------|
| 2006                                     |       | $12,916    |       |
| 2007                                     |       | 12,687     |       |
| 2008                                     |       | 12,500     |       |
|                                     |       | $38,103    |       |

 

**Note 6—Income Taxes**
| ** **                                                                                       | ** ** | **Year Ended January 31** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                                       | ** ** | **2005**                                 | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                                                       | ** ** | **(In thousands)**                  |
| Provision (benefit) for  income taxes consisted of:                                              |       |                                     |       |   |   |   |   |
| Current                                                                                          |       |                                     |       |   |   |   |   |
| Federal                                                                                          |       | $  8,398                       |       | $  3,429 |   | $  1,454 |   |
| State                                                                                            |       | 1,554                                    |       | 802 |   | 365 |   |
| Foreign                                                                                          |       | 7,096                                    |       | 4,231 |   | 6,266 |   |
|                                                                                             |       | 17,048                                   |       | 8,462 |   | 8,085 |   |
| Deferred                                                                                         |       |                                     |       |   |   |   |   |
| Federal                                                                                          |       | (792                                     | )          | 663 |   | 4,811 |   |
| State                                                                                            |       | 242                                      |       | 48 |   | 358 |   |
| Foreign                                                                                          |       | (1                                       | )          | 752 |   | (2,774 | ) |
|                                                                                             |       | (551                                     | )          | 1,463 |   | 2,395 |   |
| Total provision for income taxes                                                                 |       | $16,497                                  |       | $ | 9,925 |   | $10,480 |   |
| Income before  provision for income taxes was as follows:                                        |       |                                     |       |   |   |   |   |
| United States                                                                                    |       | $26,536                                  |       | $17,430 |   | $17,349 |   |
| Foreign                                                                                          |       | 18,451                                   |       | 11,001 |   | 10,838 |   |
|                                                                                             |       | $44,987                                  |       | $ | 28,431 |   | $ | 28,187 |   |
| Reconciliation of  the federal statutory rate to the effective tax rate is as follows: |       |                                     |       |   |   |   |   |
| Federal statutory rate                                                                           |       | 35.0                                     | %          | 35.0 | % | 35.0 | % |
| State income taxes, net of federal tax benefit                                                   |       | 2.1                                      |       | 2.0 |   | 2.1 |   |
| Tax on foreign earnings                                                                          |       | (1.4                                     | )          | (1.2 | ) | 5.4 |   |
| U.S. export sales                                                                                |       | (0.7                                     | )          | (0.7 | ) | (0.4 | ) |
| International financing                                                                          |       | (1.7                                     | )          | (3.5 | ) | (4.2 | ) |
| Net change in valuation allowance                                                                |       | 3.9                                      |       | 5.4 |   | (0.6 | ) |
| Other                                                                                            |       | (0.5                                     | )          | (2.1 | ) | (0.1 | ) |
| Effective income  tax rate                                                                       |       | 36.7                                     | %          | 34.9 | % | 37.2 | % |
|                                                                                                  |            |                                          |            |  |  |  |  |  |  |

 

37

----

Thecomponents of deferred income tax assets and liabilities recorded on theconsolidated balance sheet are as follows (in thousands):
| ** **                        | ** ** | **January 31**      | ** ** |
|-----------------------------------|------------|--------------------------|------------|
| ** **                        | ** ** | **2005**                 | ** ** | **2004** | ** ** |
| Deferred tax  assets:             |       |                     |       |   |   |
| Accruals                          |       | $   2,139 |       | $  2,273 |   |
| Environmental                     |       | 3,248                    |       | 3,571 |   |
| Employee benefits                 |       | 3,454                    |       | 2,160 |   |
| Foreign tax credits               |       | 9,961                    |       | 9,961 |   |
| Foreign net operating losses      |       | 8,391                    |       | 7,025 |   |
| Foreign capital losses            |       | 2,156                    |       | 2,019 |   |
| Other                             |       | 1,502                    |       | 1,905 |   |
|                              |       | 30,851                   |       | 28,914 |   |
| Less: Valuation allowance         |       | (11,437                  | )          | (9,525 | ) |
|                              |       | 19,414                   |       | 19,389 |   |
| Deferred tax  liabilities:        |       |                     |       |   |   |
| Depreciation                      |       | (7,215                   | )          | (7,320 | ) |
| Cumulative translation adjustment |       | (1,440                   | )          | — |   |
| Other                             |       | (2,017                   | )          | (1,265 | ) |
|                              |       | (10,672                  | )          | (8,585 | ) |
| Total net  deferred tax asset     |       | $   8,742 |       | $10,804 |   |

 

Thenet deferred tax asset is presented in our consolidated balance sheets asfollows (in thousands):
| ** **                                      | ** ** | **January 31** | ** ** |
|-------------------------------------------------|------------|---------------------|------------|
| ** **                                      | ** ** | **2005**            | ** ** | **2004** | ** ** |
| Deferred income  taxes—current asset       |       | $                   | 3,042      |   | $ | 2,542 |   |
| Deferred income  taxes—long-term asset     |       | 9,688               |       | 9,703 |   |
| Deferred income  taxes—long-term liability |       | (3,988              | )          | (1,441 | ) |
|                                            |       | $                   | 8,742      |   | $ | 10,804 |   |

 

In assessing therealizability of deferred tax assets, we consider whether it is more likelythan not that some or all of the deferred tax assets will not be realized. Weconsider taxable income in prior carryback years to the extent permitted underthe tax law, scheduled reversal of deferred tax liabilities, projected futuretaxable income and tax planning strategies in making this assessment. Webelieve we will be able to generate sufficient taxable income to realize ourdeferred tax assets, net of valuation allowance, but changes in our operationsdue to market conditions could require the recording of additional valuationallowances in the future. It is reasonably possible that a change to thevaluation allowance in the next year could be material.

We recorded a valuationallowance as of January 31, 2005 and January 31, 2004, primarilyrelated to deferred tax assets for net operating loss carryforwards of foreignsubsidiaries and foreign capital losses. The increase in the valuationallowance for the years ended January 31, 2005, 2004, and 2003, of $2.1million, $4.1 million and $639,000, respectively, primarily relates toadditional valuation allowances for net operating losses in foreignsubsidiaries. Management determined it was more likely than not we wouldrealize our deferred tax assets related to certain net operating losscarryforwards in our Australian subsidiary, for which a valuation allowance hadpreviously been provided. Accordingly, the provision for income taxes includeda $1.8 million and $186,000 reduction in expense for this reduction of thevaluation allowance for years ended January 31, 2004 and 2003,respectively. We have foreign capital loss and net 

38

----

operatingloss carryforwards at January 31, 2005 of $6.3 million and $27.0 million,respectively, which have no expiration dates. The net operating losscarryforwards relate to subsidiaries in Europe and Australia.

A deferred tax asset, netof valuation allowance, of $7.9 million has been recognized for U.S. foreigntax credits attributed to unrepatriated foreign earnings. Realization of thisdeferred tax asset is dependent on generating sufficient foreign-sourced U.S.taxable income. The ten-year expiration does not begin until the foreignearnings are repatriated. Currently, we have no plans to repatriate accumulatedforeign earnings pursuant to the guidelines outlined in the American JobsCreation Act of 2004.

**Note 7—CapitalStock**

During fiscal 2004 and2003, the holder of our exchangeable preferred stock exchanged 800,000 of thoseshares for the same amount in common stock. These non-cash transactionsresulted in a reclassification of $8.5 million in fiscal 2004 and $2.8 millionin 2003 from exchangeable preferred stock into common stock and additionalpaid-in capital and had no effect on earnings per share. No exchangeablepreferred stock remains outstanding at January 31, 2005.

**Note 8—SupplementalCash Flow Information**
| ** **                                                  | ** ** | **Year Ended January 31** | ** ** |
|-------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                  | ** ** | **2005**                                 | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                  | ** ** | **(In thousands)**                  | ** ** |
| Cash paid during period  for:                               |       |                                     |       |   |   |   |   |
| Interest                                                    |       | $                                        | 3,741      |   | $ | 4,563 |   | $ | 5,237 |   |
| Income taxes                                                |       | $                                        | 14,346     |   | $ | 3,960 |   | $ | 10,593 |   |
| Business  acquisitions:                                     |       |                                     |       |   |   |   |   |
| Accounts receivable                                         |       | $                                        | 54         |   | $ | 5,286 |   | $ | — |   |
| Inventories                                                 |       | 1,539                                    |       | 3,687 |   | — |   |
| Property, plant and equipment                               |       | 5,405                                    |       | 5,788 |   | — |   |
| Goodwill and intangible assets                              |       | —                                   |       | 3,562 |   | — |   |
| Accounts payable and other liabilities assumed              |       | (762                                     | )          | (5,481 | ) | — |   |
| Notes payable assumed                                       |       | —                                   |       | (1,165 | ) | — |   |
| Supplemental  disclosure of noncash information:            |       |                                     |       |   |   |   |   |
| Minimum pension liability adjustment, net of tax  benefit   |       | $                                        | —     |   | $ | 2,309 |   | $ | — |   |
| Deferred compensation from stock appreciation rights        |       | $                                        | 6,998      |   | $ | — |   | $ | — |   |
| Conversion of exchangeable preferred stock to common  stock |       | $                                        | —     |   | $ | 8,530 |   | $ | 2,844 |   |
| Termination of  lease receivable and related liability      |       | $                                        | —     |   | $ | — |   | $ | 1,080 |   |

 

**Note 9—BenefitPlans**

We sponsor a number ofdefined contribution plans. We match employee contributions in varying degreesand also make contributions to certain plans based on a percentage of employeewages. Our expense under these plans was $3.8 million, $3.6 million,and $3.0 million for the years ended January 31, 2005, 2004 and 2003,respectively.

We sponsor various definedbenefit pension plans covering certain employees in Canada, France and theUnited Kingdom. Benefits under the defined benefit pension plans are based onyears of service and average earnings over a specified period of time. The netperiodic cost of our defined benefit pension plans is determined using theprojected unit credit 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. Our funding policy fordefined benefit pension plans is to make annual contributions based onactuarially determined funding requirements.

39

----

Thefollowing table presents the changes in benefit obligations, changes in planassets and funded status of our defined benefit pension and otherpostretirement benefit plans. Benefit obligation balances presented in thetable reflect the projected benefit obligation (PBO) for our defined benefitpension plans and accumulated postretirement benefit obligations (APBO) for thepostretirement benefit plan. Both the PBO and APBO include theestimated present value of future benefits that will be paid to planparticipants, based on expected future salary growth and employee servicesrendered through the measurement date. We use 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**          | ** ** |
| ** **                                                     | ** ** | **2005**                                 | ** ** | **2004**                                 | ** ** | **2003** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                     | ** ** | **(In thousands)**                  | ** ** |
| **Change in benefit obligation**                               |       |                                     |       |                                     |       |   |   |   |   |   |   |   |   |
| Benefit obligation at  beginning of year                       |       | $                                        | 8,578      |                                     | $          | 7,264 |   | $ | 5,563 |   | $ | 9,389 |   | $ | 9,916 |   | $ | 5,269 |   |
| Service cost                                                   |       | 192                                      |       | 201                                      |       | 131 |   | 143 |   | 166 |   | 84 |   |
| Interest cost                                                  |       | 462                                      |       | 426                                      |       | 348 |   | 527 |   | 630 |   | 357 |   |
| Participant contributions                                      |       | 66                                       |       | 71                                       |       | 80 |   | — |   | — |   | — |   |
| Plan amendments                                                |       | —                                   |       | —                                   |       | — |   | — |   | — |   | (177 | ) |
| Benefits paid                                                  |       | (174                                     | )          | (289                                     | )          | (207 | ) | (415 | ) | (495 | ) | (406 | ) |
| Actuarial (gain) or loss                                       |       | 261                                      |       | 79                                       |       | 509 |   | (1,562 | ) | (828 | ) | 4,789 |   |
| Settlements                                                    |       | (561                                     | )          | —                                   |       | — |   | — |   | — |   | — |   |
| Exchange rate changes                                          |       | 314                                      |       | 826                                      |       | 840 |   | — |   | — |   | — |   |
| Benefit obligation at end  of year                             |       | $                                        | 9,138      |                                     | $          | 8,578 |   | $ | 7,264 |   | $ | 8,082 |   | $ | 9,389 |   | $ | 9,916 |   |
| **Change in plan assets**                                      |       |                                     |       |                                     |       |   |   |   |   |   |   |   |   |
| Fair value of plan assets  at beginning of year                |       | $                                        | 6,078      |                                     | $          | 5,026 |   | $ | 4,851 |   | $ | — |   | $ | — |   | $ | — |   |
| Actual return on plan  assets                                  |       | 567                                      |       | 522                                      |       | (580 | ) | — |   | — |   | — |   |
| Employer contributions                                         |       | 420                                      |       | 169                                      |       | 167 |   | 415 |   | 495 |   | 406 |   |
| Participant contributions                                      |       | 66                                       |       | 71                                       |       | 80 |   | — |   | — |   | — |   |
| Benefits paid                                                  |       | (174                                     | )          | (289                                     | )          | (207 | ) | (415 | ) | (495 | ) | (406 | ) |
| Settlements                                                    |       | (561                                     | )          | —                                   |       | — |   | — |   | — |   | — |   |
| Exchange rate changes                                          |       | 231                                      |       | 579                                      |       | 715 |   | — |   | — |   | — |   |
| Fair value of plan assets  at end of year                      |       | $                                        | 6,627      |                                     | $          | 6,078 |   | $ | 5,026 |   | $ | — |   | $ | — |   | $ | — |   |
| **Reconciliation of funded status**                            |       |                                     |       |                                     |       |   |   |   |   |   |   |   |   |
| Funded status                                                  |       | $                                        | (2,511     | )                                        | $          | (2,500 | ) | $ | (2,238 | ) | $ | (8,082 | ) | $ | (9,389 | ) | $ | (9,916 | ) |
| Unrecognized actuarial  loss                                   |       | 2,511                                    |       | 2,452                                    |       | 2,511 |   | 2,830 |   | 4,935 |   | 6,213 |   |
| Net amount recognized at  year-end                             |       | $                                        | —     |                                     | $          | (48 | ) | $ | 273 |   | $ | (5,252 | ) | $ | (4,454 | ) | $ | (3,703 | ) |
| **Amounts recognized in the  balance sheet consist of:**       |       |                                     |       |                                     |       |   |   |   |   |   |   |   |   |
| Prepaid benefit cost                                           |       | $                                        | 254        |                                     | $          | 374 |   | $ | 496 |   | $ | — |   | $ | — |   | $ | — |   |
| Accrued benefit liability                                      |       | (254                                     | )          | (422                                     | )          | (223 | ) | (5,252 | ) | (4,454 | ) | (3,703 | ) |
| Net amount recognized at  year-end                             |       | $                                        | —     |                                     | $          | (48 | ) | $ | 273 |   | $ | (5,252 | ) | $ | (4,454 | ) | $ | (3,703 | ) |
| **Components of net periodic  benefit cost**                   |       |                                     |       |                                     |       |   |   |   |   |   |   |   |   |
| Service cost                                                   |       | $                                        | 192        |                                     | $          | 201 |   | $ | 131 |   | $ | 143 |   | $ | 166 |   | $ | 84 |   |
| Interest cost                                                  |       | 462                                      |       | 426                                      |       | 348 |   | 527 |   | 630 |   | 357 |   |
| Expected return on plan  assets                                |       | (422                                     | )          | (392                                     | )          | (392 | ) | — |   | — |   | — |   |
| Recognized net actuarial  loss                                 |       | 141                                      |       | 225                                      |       | 73 |   | 533 |   | 450 |   | 163 |   |
| Net periodic benefit cost                                      |       | $                                        | 373        |                                     | $          | 460 |   | $ | 160 |   | $ | 1,203 |   | $ | 1,246 |   | $ | 604 |   |
| **Weighted-average assumptions**                               |       |                                     |       |                                     |       |   |   |   |   |   |   |   |   |
| Discount rate for benefit  obligation                          |       | 5.3                                      | %          | 5.6                                      | %          | 5.4 | % | 5.5 | % | 6.0 | % | 6.5 | % |
| Discount rate for net  periodic benefit cost                   |       | 5.6                                      | %          | 5.4                                      | %          | 5.7 | % | 6.0 | % | 6.5 | % | 7.0 | % |
| 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 |       | 2.8                                      | %          | 2.5                                      | %          | 2.5 | % | — |   | — |   | — |   |

 

40

----

The expected long-term rate of return on definedbenefit pension plan assets assumption is derived based on the historicalreturns achieved by the pension trust and anticipated future long-termperformance of individual assets classes. Consideration is also given to theappropriate investment strategy and anticipated future distribution of planassets between asset classes. While this analysis gives appropriateconsideration to recent trust performance and historical returns, theassumption represents a long-term prospective return.

Ourprincipal objective is to ensure that plan assets are sufficient to enable allfuture pension liabilities to be paid when due. Plan assets are allocated witha goal to achieve diversification between and within various asset classes tomeet long-term objectives of return, while mitigating against downside risksand considering expected cash flows. The asset allocations for the pensionassets at January 31, 2005 and 2004 are as follows:
| ** **              | ** ** | **Percentage of Plan Assets  at January 31** | ** ** | ** **                                                                       | ** ** |
|-------------------------|------------|-----------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| **Asset Category** | ** ** | ** **                                                            | ** ** | **      2005      ** | ** ** | **      2004      ** | ** ** | **Target allocation** | ** ** |
| Equity                  |       |                                                                  | 54         | %                                                                                |       |   | 53 | % |   |   | 53 | % |   |
| Debt                    |       |                                                                  | 46         | %                                                                                |       |   | 47 | % |   |   | 47 | % |   |
|                         |            |                                                                       |            |                                                                                  |            |  |  |  |  |  |  |  |  |  |  |

 

Equity includes domestic and international equity securities,such as common, preferred or other capital stock, as well as mutual funds. Debtincludes domestic and international debt securities, such as U.S. and otherforeign government securities, corporate bonds and commercial paper.

We determine the discount rate for both the definedbenefit pension plans and the other postretirement plan each year as of themeasurement date, based on a review of interest rates associated with long-termhigh quality corporate bonds in the geographic region where the plan ismaintained.

The accumulated benefit obligation is the actuarialpresent value of benefits attributed to employee services rendered to date,excluding assumptions about future compensation levels. The accumulated benefitobligation for all defined benefit pension plans was $9.0 million atJanuary 31, 2005 and $8.6 million at January 31, 2004. We recorded aminimum pension liability adjustment, net of tax benefit, of $2.3 million inother long term liabilities during fiscal 2004 related to our defined benefitpension plans. There has been no change in the amount of the net minimumpension liability as of January 31, 2005.

We also provide a postretirement benefit plan,consisting of health care coverage to eligible retirees and qualifyingdependents in the United States. Benefits under this postretirement benefitplan are generally based on age at retirement and years of service. Thenet periodic cost of the postretirement plan is determined using the projectedunit credit method. Other significant actuarial assumptions include thediscount rate and health care cost trend rates (rate of growth for medicalcosts). We are accruing the estimated future costs of providing postretirementbenefits to eligible active employee’s during the active service period. Our postretirementplan is not funded. Annual contributions to the postretirement plan representthe benefits paid for the year.

Assumedhealth care cost trend rates have a significant effect on the amounts reportedfor our postretirement benefit plan. The assumed health care cost trend ratesused in measuring the APBO were as follows at January 31:
| ** **                                     | ** ** | **January 31** | ** ** |
|------------------------------------------------|------------|---------------------|------------|
| ** **                                     | ** ** | **2005**            | ** ** | **2004** | ** ** |
| Health care cost  trend rate assumed next year |       | 13                  | %          | 15 | % |
| Ultimate trend  rate                           |       | 4.5                 | %          | 4.5 | % |
| Year ultimate trend rate  is reached           |       | 2013                |       | 2013 |   |

 

41

----

A one percentage point increase in the health carecost trend rates would increase the APBO as of January 31, 2005 by$986,000 and net periodic postretirement benefit cost by $89,000. A onepercentage point decrease in the health care cost trend rates would decreasethe APBO as of January 31, 2005 by $836,000 and net periodicpostretirement cost by $75,000.

Our expected contribution in fiscal 2006 to thedefined benefit pension plans is $181,000 and to the postretirement benefitplan is $403,000.

Thetable below reflects the estimated total pension benefits and otherpostretirement gross benefit payments to be paid from the plans over the nextten years (in thousands):
| ** **       | ** ** | ** **               | ** ** | **Postretirement Benefit**  | ** ** |
|------------------|------------|--------------------------|------------|----------------------------------|------------|
| ** **       | ** ** | **Defined Benefit** | ** ** | **Gross Benefit  Payments** | ** ** | **Medicare  Subsidy** | ** ** |
| 2006             |       |                     | $          | 196                              |       |   |   | $ | 778 |   |   |   | $ | — |   |   |
| 2007             |       |                     | 247        |                             |       |   | 848 |   |   |   | 107 |   |   |
| 2008             |       |                     | 296        |                             |       |   | 910 |   |   |   | 121 |   |   |
| 2009             |       |                     | 303        |                             |       |   | 1,012 |   |   |   | 137 |   |   |
| 2010             |       |                     | 307        |                             |       |   | 1,144 |   |   |   | 148 |   |   |
| 2011 – 2015 |       |                     | 1,883      |                             |       |   | 7,172 |   |   |   | 920 |   |   |

 

**Note 10—StockCompensation Plans**

We have reserved 1,400,000 shares of common stock forthe Cascade Corporation 1995 Senior Managers’ Incentive Stock Option Plan (thePlan). The Plan permits the award of stock options to officers and keyemployees until May 8, 2005. Under the terms of the Plan, the purchaseprice of shares subject to each option granted must not be less than the fairmarket value on the date of grant. Accordingly, no compensation cost has beenrecognized under the Plan. Outstanding options begin vesting twenty-fivepercent per year one year after the date of grant and expire ten years afterthe date of grant.

Asummary of the Plan’s status at January 31, 2005, 2004, and 2003 togetherwith changes during the periods then ended are presented in the followingtable:
| ** **                        | ** ** | **Outstanding  Options** | ** ** | **Weighted  Average Price  Per Option** | ** ** |
|-----------------------------------|------------|--------------------------|------------|---------------------------------------------------|------------|
| 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      |   |   |
| Granted                           |       | 121,600                  |       |                                              | 21.15      |   |   |
| Exercised                         |       | (122,382                 | )          |                                              | 13.44      |   |   |
| Forfeited                         |       | (5,677                   | )          |                                              | 13.12      |   |   |
| Balance at  January 31, 2005 |       | 1,185,058                |       |                                              | 13.96      |   |   |

 

42

----

Thefollowing table summarizes information about options outstanding at January 31,2005:
| ** **                          | ** ** | **Options Outstanding** | ** ** | **Options Exerciseable**       | ** ** |
|-------------------------------------|------------|------------------------------|------------|-------------------------------------|------------|
| **Exercise Price Range:** | ** ** | ** **                   | ** ** | **Total Options  Outstanding** | ** ** | **Weighted Average  Exercise Price** | ** ** | **Weighted Average  Contractual Life** | ** ** | **Number of Shares  Exerciseable** | ** ** | **Weighted Average  Exercise Price** | ** ** |
| $9.55 - 11.22                       |       |                         | 365,470    |                                |       |   | $ | 10.38 |   |   |   | 6 |   |   |   | 292,485 |   |   |   | $ | 10.39 |   |   |
| 13.00 - 14.30                       |       |                         | 518,853    |                                |       |   | 14.07 |   |   |   | 8 |   |   |   | 168,153 |   |   |   | 14.02 |   |   |
| 15.25 - 16.00                       |       |                         | 59,466     |                                |       |   | 15.63 |   |   |   | 2 |   |   |   | 59,466 |   |   |   | 15.63 |   |   |
| 16.38 - 18.02                       |       |                         | 119,669    |                                |       |   | 17.15 |   |   |   | 3 |   |   |   | 119,669 |   |   |   | 17.15 |   |   |
| 21.15                               |       |                         | 121,600    |                                |       |   | 21.15 |   |   |   | 9 |   |   |   | — |   |   |   | 21.15 |   |   |
|                                |       |                         | 1,185,058  |                                |       |   |   |   |   |   |   |   |   |   | 639,773 |   |   |   |   |   |   |
|                                     |            |                              |            |                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Our shareholders approved the Cascade CorporationStock Appreciation Rights Plan (SARS Plan) in May 2004. The SARS Planprovides for the award of up to 750,000 stock appreciation rights (SARS) to officers,key managers and directors. The SARS provide the holder the right to receive anamount, payable in our common shares, equal to the excess of the market valueof our common stock on the date of exercise over the base price established byour Board of Directors’ Compensation Committee at the time the right wasgranted. The base price may not be less than the market price of our commonstock on the date of grant.

Under FIN 28, SARS areaccounted for under variable plan accounting. Accordingly, we record deferredcompensation as a reduction of shareholders’ equity, equal to the excess of themarket value of our common stock on the balance sheet date or date of exerciseover the base price at the date of grant. The deferred compensation isamortized to expense over the vesting period based on the periods in which theexecutives and directors perform services. On May 26, 2004, the Board ofDirectors awarded 453,000 SARS, which expire after ten years and vest over fouryears, at a grant price of $21.15. Stock-based employee compensation of $2.5million was recognized as amortization expense related to the SARS for the yearended January 31, 2005. Unamortized deferred compensation recorded as areduction of shareholders’ equity at January 31, 2005 was $4.5 million. Assumingno change in the $36.60 market price of our common stock at January 31,2005, the unamortized deferred compensation would result in amortizationexpense of $2.4 million, $1.3 million, $620,000 and $130,000 in fiscal 2006,2007, 2008 and 2009, respectively.

43

----

**Note 11—EarningsPer Share**

Thefollowing table presents the calculation of basic and diluted earnings pershare (in thousands, except per share amounts):
| ** **                                                   | ** ** | **Year Ended January 31** | ** ** |
|--------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                   | ** ** | **2005**                                 | ** ** | **2004** | ** ** | **2003** | ** ** |
| Basic earnings per  share:                                   |       |                                     |       |   |   |   |   |
| Net income                                                   |       | $28,490                                  |       | $18,506 |   | $17,707 |   |
| Preferred stock dividends                                    |       | —                                   |       | (30 | ) | (60 | ) |
| Net income applicable to common shareholders                 |       | $28,490                                  |       | $18,476 |   | $17,647 |   |
| Weighted average shares of common stock outstanding          |       | 12,164                                   |       | 11,934 |   | 11,372 |   |
|                                                         |       | $    2.34            |       | $    1.55 |   | $    1.55 |   |
| Diluted earnings  per share:                                 |       |                                     |       |   |   |   |   |
| Net income applicable to common shareholders                 |       | $28,490                                  |       | $18,476 |   | $17,647 |   |
| Effect of  dilutive securities:                              |       |                                     |       |   |   |   |   |
| Preferred stock dividend                                     |       | —                                   |       | 30 |   | 60 |   |
| Net income                                                   |       | $28,490                                  |       | $18,506 |   | $17,707 |   |
| Weighted average shares of common stock outstanding          |       | 12,164                                   |       | 11,934 |   | 11,372 |   |
| Assumed conversion of exchangeable preferred stock           |       | —                                   |       | 101 |   | 692 |   |
| Dilutive effect of stock options                             |       | 562                                      |       | 374 |   | 130 |   |
| Diluted weighted average shares of common stock  outstanding |       | 12,726                                   |       | 12,409 |   | 12,194 |   |
|                                                         |       | $    2.24            |       | $    1.49 |   | $    1.45 |   |

 

Earnings per share isbased on the weighted average number of common shares and potentially dilutiveshares outstanding during the period, computed using the treasury stock method.Diluted weighted average common shares includes the incremental shares thatwould be issued upon the assumed exercise of stock options and stockappreciation rights, as well as the assumed conversion of exchangeablepreferred stock. For the year ended January 31, 2003, options for thepurchase of 260,058 shares of our stock were excluded from the calculation ofdiluted earnings per share because they were antidilutive.

**Note 12—DerivativeInstruments and Hedging Activities**

We have operations and sell products to dealers andoriginal equipment manufacturers throughout the world. Our activities expose usto a variety of market risks, including the effects of changes in foreigncurrency exchange rates. These financial exposures are monitored and managedwithin our foreign exchange management policy as approved by the Board ofDirectors. Our risk-management program focuses on the unpredictability offinancial markets and seeks to reduce the effects that the volatility of thesemarkets may have on our operating results.

We maintain a foreign currency risk-managementstrategy that uses derivative instruments to protect our interests fromunanticipated fluctuations in earnings caused by volatility in foreign currencyexchange rates. Various amounts of our payables, receivables and subsidiaryroyalties are denominated in foreign currencies, thereby creating exposures tochanges in exchange rates.

We purchase foreign currency forward exchangecontracts with contract terms lasting up to six months, but generally less thanone month, to protect against the adverse effects that exchange ratefluctuations may have on foreign currency denominated receivables and payables.These derivatives do not qualify for hedge accounting, in accordance with SFAS No. 133“Accounting for Derivative Instruments and Hedging Activities.” The gains andlosses on both the derivatives and the foreign currency denominated tradereceivables and payables are recorded as transaction adjustments in currentearnings 

44

----

thereby minimizing theeffect on current earnings of exchange-rate fluctuations. During the yearsended January 31, 2005, 2004 and 2003, foreign currency losses, includedin other income and expense on the statements of income, were $640,000,$380,000, and $520,000, respectively.

By using derivative financial instruments to hedgeexposures to changes in exchange rates, we expose ourselves to credit risk andmarket risk. Credit risk is the failure of the counterparty to perform underthe terms of the derivatives contract. When the fair value of a derivativecontract is positive, the counterparty owes us, which creates repayment riskfor us. When the fair value of a derivative contract is negative, we owe thecounterparty and, therefore, it does not possess repayment risk. We minimizethe credit or repayment risk in derivative instruments by entering intotransactions with counterparties whose credit ratings are AA or higher,monitoring the amount of exposure to each counterparty and monitoring thefinancial condition of our counterparties.

Market risk is the adverse effect on the value of aforeign exchange contract that results from a change in the underlying exchangerates. The market risk associated with these foreign exchange risks is managedby 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, 2005and 2004, we had approximately $46.9 million and $35.3 million, respectively,nominal value of contracts in place to buy or sell foreign currency. The fairvalue of these contracts at January 31, 2005 and 2004 is not material andis recorded in the consolidated financial statements. The principal currencieshedged are denominated in Japanese yen, Canadian dollars, Euros and Britishpounds.

**Note 13—Commitmentsand Contingencies**

**EnvironmentalMatters**

We are subject to environmental laws and regulations,which include obligations to remove or mitigate environmental effects of pastdisposal and release of certain wastes and substances at various sites. Werecord liabilities for affected sites when environmental assessments indicateprobable cleanup and the costs can be reasonably estimated. Other than forcosts of assessments themselves, the timing and amount of these liabilities isdetermined based on the estimated costs of remediation activities and ourcommitment to a formal plan of action, such as an approved remediation plan.The reliability and precision of the loss estimates are affected by numerousfactors, such as different stages of site evaluation and reevaluation of thedegree of remediation required. We adjust our liabilities as new remediationrequirements are defined, as information becomes available permittingreasonable estimates to be made and to reflect new and changing facts.

It is reasonably possible that changes in estimateswill incur in the near term and the related adjustments to environmentalliabilities may have a material impact on our net income. Unasserted claims arenot currently reflected in our environmental remediation liabilities. It isalso reasonably possible that these claims may also have a material impact on ournet income if asserted. We cannot estimate at this time the amount of anyadditional loss or range of loss that is reasonably possible.

45

----

Our specific environmentalmatters consist of the following:

**Fairview, Oregon**

In 1996, the OregonDepartment of Environmental Quality issued two Records of Decision impactingour Fairview, Oregon manufacturing facility. The records of decision requiredus to initiate remedial activities related to the cleanup of groundwatercontamination at and near the facility. Remediation activities have beenconducted at or near the facility since 1996 and current estimates provide forsome level of activity to continue through 2027. Costs of certain remediationactivities at the facility are shared with The Boeing Company, with Cascadepaying 70% of these costs. The recorded liability for the ongoing remediationactivities at our Fairview facility was $7.5 million and $8.3 million at January 31,2005 and 2004, respectively.

**Springfield, Ohio**

In 1994, we entered into aconsent order with the Ohio Environmental Protection Agency, which required theinstallation of remediation systems for the cleanup of groundwater contaminationat our Springfield, Ohio facility. The current estimate is that the remediationactivities will continue through 2010. The recorded liability for ongoingremediation activities in Springfield was $1.1 million at both January 31,2005 and 2004,

**City of PortlandLitigation**

On November 6, 2002, Cascade and The BoeingCompany entered into a settlement agreement with the City of Portland, Oregon(City) resolving litigation brought by the City in 1999 alleging damagesarising from the proximity of groundwater contamination in the area of therespective plants to a City water well field. The agreement required a paymentof $6.2 million to the City, of which our share was $3.6 million. Weaccrued a $1.5 million charge related to the litigation during the year endedJanuary 31, 2002, and recorded a charge of approximately $2.1 millionin the year ended January 31, 2003, related to the settlement. We paid the$3.6 million settlement in November 2002.

Presented below is a rollforward of our environmentalliabilities and expenses for the three years ended January 31, 2005 (inthousands):
| ** ** | ** ** | **January 31** | ** ** |
|------------|------------|---------------------|------------|
| ** ** | ** ** | **2002  Balance**   | ** ** | **Accrued** | ** ** | **Cash  Payments** | ** ** | **2003  Balance** | ** ** | ** Accrued ** | ** ** | **Cash  Payments** | ** ** | **2004   Balance ** | ** ** | **Accrued** | ** ** | **Cash   Payments ** | ** ** | **2005   Balance ** | ** ** |
|            |            |                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Fairview                     |   | $      | 10,105 |   | $      |    (270 | )      |   | $      |    (598 | )      |   | $      |   9,237 |   |   | $      | (357   | )      |   |   | $      | (586   | )      |   |   | $      | 8,294  |   |   |   | $      |   — |   |   |   | $ |    (833 | ) |   |   | $ | 7,461 |   |   |
|------------------------------|--------|--------|--------|--------|--------|------------------------|--------|--------|--------|------------------------|--------|--------|--------|-------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------------------|--------|--------|--------|---|------------------------|---|--------|--------|---|-------|--------|--------|
| Springfield                  |   | 889    |   | 270    |   |                   | (199   | )      |   | 960                    |   |   | 357    |              |   |   | (213   | )      |   |   | 1,104  |   |   |   | 155    |   |   |   | (173   | )      |   |   | 1,086              |   |   |
| City of Portland  litigation |   | 1,500  |   | 2,100  |   |                   | (3,600 | )      |   | —                 |   |   | — |              |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | —             |   |   |
| Schalksmuhle, Germany        |   | — |   | — |   |                   | — |   |   | —                 |   |   | — |              |   |   | — |   |   |   | — |   |   |   | 146    |   |   |   | — |   |   |   | 146                |   |   |
|                         |   | $      | 12,494 |   | $      |  2,100            |   |   | $      | (4,397                 | )      |   | $      | 10,197            |   |   | $      | — |   |   |   | $      | (799   | )      |   |   | $      | 9,398  |   |   |   | $      | 301                |   |   |   | $ | (1,006                 | ) |   |   | $ | 8,693 |   |   |

 

On April 22, 2002,the Circuit Court of the State of Oregon for Multnomah County entered judgmentin our favor in an action originally brought in 1992 against several insurersto recover various expenses incurred in connection with environmentallitigation and related proceedings. The judgment was against two non-settlinginsurers. We subsequently reached a settlement of all claims with one of theinsurers in return for a payment of $1.3 million, which we received October 22,2004. The judgment against the remaining insurer is in the amount of approximately$800,000. The judgment also requires the insurer to defend us in suits allegingliability because of groundwater contamination emanating from our Fairview,Oregon plant and requires the insurer to pay approximately 3.1% of anyliability imposed against us by judgment or settlement on or after March 1,1997 on account of such contamination. We have appealed 

46

----

thejudgment, contending that the remaining insurer should be required to pay alarger share of our past and future expenses and liabilities, additionalinterest, and increased attorneys fees. The insurer has cross-appealed. Wehave not recorded any amounts that may be recovered from the insurer in ourconsolidated financial statements.

**Lease Commitments**

Welease certain facilities and equipment under noncancelable operating leases.Rent expense for the years ended January 31, 2005, 2004, and 2003 totaled$1.8 million, $1.4 million and $1.4 million, respectively.Future minimum rental commitments under these leases as of January 31,2005 are as follows (in thousands):
| 2006       |   | $     | 2,249  |   |
|------------|--------|-------|--------|--------|
| 2007       |   | 1,859 |   |
| 2008       |   | 1,474 |   |
| 2009       |   | 1,088 |   |
| 2010       |   | 436   |   |
| Thereafter |   | 432   |   |
|       |   | $     | 7,538  |   |

 

**Lease Guarantee**

We sold our hydrauliccylinder division to Precision Hydraulic Cylinders, Inc. (Precision) on January 15,2002. Under the terms of the sale, we assigned to Precision an operating leaserelated to a manufacturing facility in Beulaville, North Carolina. We are aguarantor on the lease in the event Precision fails to comply with the leaseterms. The lease requires payments by Precision of approximately$21,000 per month through November 2007. The total value of the leaseguarantee using undiscounted cash flows is $714,000 at January 31, 2005.

**Legal Proceedings**

We are subject to legalproceedings, claims and litigation, in addition to the environmental matterspreviously discussed, arising in the ordinary course of business. While theoutcome of these matters is currently not determinable, management does notexpect the ultimate costs to resolve these matters will have a material adverseeffect on our consolidated financial position, result of operations, or cashflows.

**Note 14—FairValue of Financial Assets and Liabilities**

Thefair value of our financial instruments represents the amount at which theinstrument could be exchanged in a current transaction between willing parties,other than in a forced sale or liquidation. The carrying amount of our cash andcash equivalents, marketable securities, trade receivables and payables andnotes payable to banks approximates fair value due to the short maturity ofthese instruments. Fair value of long-term debt is estimated based either onquoted market prices for similar issues or on current rates offered to us fordebt of the same remaining maturities. The estimated fair values of ourfinancial liabilities for which the carrying amount does not approximate fairvalue is as follows:
| ** **                                 | ** ** | **January 31**     | ** ** |
|--------------------------------------------|------------|-------------------------|------------|
| ** **                                 | ** ** | **2005**                | ** ** | **2004** | ** ** |
| ** **                                 | ** ** | **Fair  Value**         | ** ** | **Carrying  Amount** | ** ** | **Fair  Value** | ** ** | **Carrying  Amount** | ** ** |
| ** **                                 | ** ** | **(In thousands)** | ** ** |
| Long-term debt,  including current portion |       | $                       | 39,791     |   | $ | 38,103 |   | $ | 55,839 |   | $ | 51,129 |   |
|                                            |            |                         |            |  |  |  |  |  |  |  |  |  |  |

 

47

----

**Note 15—SegmentInformation**

Our operating units have several economiccharacteristics and attributes, including similar products, distributionpatterns and classes of customers. As a result, we aggregate our operatingunits into a single operating segment related to the manufacturing,distribution and servicing of material handling load engagement productsprimarily for the lift truck industry.

Revenuesand operating results are classified according to the country of origin.Identifiable assets are attributed to the geographic location in which they arelocated. Net sales, operating results and identifiable assets by geographicregion were as follows (in thousands):
| ** **                      | ** ** | **Year Ended January 31** | ** ** |
|---------------------------------|------------|------------------------------------------|------------|
| **2005**                        | ** ** | ** **                               | ** ** | **North America** | ** ** | **Europe** | ** ** | **Asia Pacific** | ** ** | **Eliminations** | ** ** | **Consolidation** | ** ** |
| Sales to  unaffliated customers |       |                                     | $          | 208,553 |   |   | $ | 118,723 |   |   | $ | 58,443 |   |   |   | $ | — |   |   |   | $ | 385,719 |   |   |
| Transfers between  areas        |       |                                     | 21,225     |   |   | 1,918 |   |   | (95 | ) |   |   | (23,048 | ) |   |   | — |   |   |
| Net sales                       |       |                                     | $          | 229,778 |   |   | $ | 120,641 |   |   | $ | 58,348 |   |   |   | $ | (23,048 | ) |   |   | $ | 385,719 |   |   |
| Operating income  (loss)        |       |                                     | $          | 37,472 |   |   | $ | (184 | ) |   | $ | 10,489 |   |   |   |   |   |   |   | $ | 47,777 |   |   |
| Property, plant and  equipment  |       |                                     | $          | 36,084 |   |   | $ | 41,004 |   |   | $ | 4,939 |   |   |   |   |   |   |   | $ | 82,027 |   |   |
|                                 |            |                                          |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                      | ** ** | **Year Ended January 31** | ** ** |
|---------------------------------|------------|------------------------------------------|------------|
| **2004**                        | ** ** | ** **                               | ** ** | **North America** | ** ** | **Europe** | ** ** | **Asia Pacific** | ** ** | **Eliminations** | ** ** | **Consolidation** | ** ** |
| Sales to  unaffliated 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 |   |   |
| Property, plant and  equipment  |       |                                     | $          | 35,401 |   |   | $ | 35,124 |   |   | $ | 4,719 |   |   |   |   |   |   |   | $ | 75,244 |   |   |
|                                 |            |                                          |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                      | ** ** | **Year Ended January 31** | ** ** |
|---------------------------------|------------|------------------------------------------|------------|
| **2003**                        | ** ** | ** **                               | ** ** | **North America** | ** ** | **Europe** | ** ** | **Asia Pacific** | ** ** | **Eliminations** | ** ** | **Consolidation** | ** ** |
| Sales to  unaffliated 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 |   |   |
| Property, plant and  equipment  |       |                                     | $          | 36,523 |   |   | $ | 25,464 |   |   | $ | 3,876 |   |   |   |   |   |   |   | $ | 65,863 |   |   |
|                                 |            |                                          |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**Note 16—WarrantyObligations**

Ourwarranty obligations, which are recorded in other accrued expenses on the consolidatedbalance sheet, are as follows:
| ** **                                        | ** ** | **January 31**     | ** ** |
|---------------------------------------------------|------------|-------------------------|------------|
| ** **                                        | ** ** | **2005**                | ** ** | **2004** | ** ** |
| ** **                                        | ** ** | **(In thousands)** | ** ** |
| Beginning  obligation                             |       | $                       | 1,610      |   | $ | 1,322 |   |
| Accruals for  warranties issued during the period |       | 3,083                   |       | 2,269 |   |
| Accruals for  pre-existing warranties             |       | 15                      |       | 124 |   |
| Settlements  during the year                      |       | (2,797                  | )          | (2,105 | ) |
| Ending obligation                                 |       | $                       | 1,911      |   | $ | 1,610 |   |

 

48

----

**Note 17—Goodwill**

Thechange in the amount of goodwill between January 31, 2005 and 2004 relatesprimarily to fluctuations in foreign currency. The following table provides abreakdown of goodwill by geographic region:
| ** **    | ** ** | **January 31**     | ** ** |
|---------------|------------|-------------------------|------------|
| ** **    | ** ** | **2005**                | ** ** | **2004** | ** ** |
| ** **    | ** ** | **(In thousands)** | ** ** |
| North America |       | $60,429                 |       | $56,612 |   |
| Europe        |       | 11,211                  |       | 9,154 |   |
| Asia Pacific  |       | 3,146                   |       | 3,149 |   |
|          |       | $74,786                 |       | $ | 68,915 |   |
|               |            |                         |            |  |  |  |

 

**Note 18—Supplementary Quarterly Financial Information(unaudited)**
| ** **                        | ** ** | **1st Quarter**                                                  | ** ** | **2nd Quarter** | ** ** | **3rd Quarter** | ** ** | ** 4th Quarter ** | ** ** |
|-----------------------------------|------------|-----------------------------------------------------------------------|------------|----------------------|------------|----------------------|------------|----------------------------------|------------|
| ** **                        | ** ** | **(In thousands, except per share amounts)** | ** ** |
| Year ended  January 31, 2005 |       |                                                                  |       |                 |       |                 |       |                             |       |   |   |   |   |   |   |   |   |
| Net sales                         |       |                                                                  | $          | 93,529               |       |                 |       | $                                | 92,376     |   |   |   | $ | 96,342 |   |   |   | $ | 103,472 |   |   |
| Gross profit                      |       |                                                                  | $          | 31,376               |       |                 |       | $                                | 29,351     |   |   |   | $ | 30,884 |   |   |   | $ | 31,571 |   |   |
| Net income                        |       |                                                                  | $          | 8,210                |       |                 |       | $                                | 6,502      |   |   |   | $ | 8,691 |   |   |   | $ | 5,087 |   |   |
| Net income per share:             |       |                                                                  |       |                 |       |                 |       |                             |       |   |   |   |   |   |   |   |   |
| Basic                             |       |                                                                  | $          | 0.68                 |       |                 |       | $                                | 0.54       |   |   |   | $ | 0.71 |   |   |   | $ | 0.42 |   |   |
| Diluted                           |       |                                                                  | $          | 0.65                 |       |                 |       | $                                | 0.51       |   |   |   | $ | 0.68 |   |   |   | $ | 0.39 |   |   |
| 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 |   |   |

 

**Note 19—Acquisitions**

During fiscal 2004, we completed the acquisition oftwo materials handling equipment manufacturers, FEMA Forks GmbH (FEMA), locatedin Germany, and Roncari S.r.l. (Roncari), located in Italy. The FEMAacquisition was completed on March 31, 2003, and the Roncari acquisitionwas completed on October 21, 2003. The aggregate purchase prices paid incash for FEMA and Roncari, net of assumed liabilities, were $3.6 million and$8.1 million, respectively.

During fiscal 2005, wepurchased the assets of Falkenroth Foerdertechnik (Falkenroth), a major Germanfork manufacturer. Falkenroth was placed into insolvency by its creditors in March 2004.The total purchase price for the assets was approximately $6.2 million, net ofassumed liabilities.

49

----

**Note 20—Accumulated Other Comprehensive Income(Loss)**
| ** **                                        | ** ** | **Accumulated Other Comprehensive Income (Loss)** | ** **    |
|---------------------------------------------------|------------|-----------------------------------------------------------------------|---------------|
| ** **                                        | ** ** | ** Translation   Adjustment**                               | ** **    | **Minimum Pension  Liability Adjustment** | ** ** | **Total** | ** ** |
| ** **                                        | ** ** | **(In thousands)**                                               | ** **    |
| 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 |   |
| Translation  adjustment                           |       |                                                                  | 6,735         |   |   |   | — |   |   | 6,735 |   |
| Balance at  January 31, 2005                 |       |                                                                  | $ 10,075 |   |   |   | $ | (2,309 | ) |   | $   7,766 |   |

 

**Note 21—Proceedsfrom Notes Receivable**

In April 1999, we completed the sale of ourindustrial tire division to Maine Rubber Company (Maine Rubber). As partialconsideration for the sale, we received a $7.3 million uncollateralizednote receivable from Maine Rubber. The note receivable required quarterlyinterest and principal payments beginning in April 2003. We recorded a$7.3 million allowance in fiscal 2002 related to the note receivable fromMaine Rubber due to uncertainty about Maine Rubber’s financial condition. In November 2002,we reached a settlement with Maine Rubber regarding the outstanding principaland interest due under the note receivable. Under the terms of the settlement,we received $2.5 million as payment in full for the release of anyremaining liability of Maine Rubber under the note receivable. We recorded the$2.5 million cash payment in our consolidated statement of income infiscal 2003.

On January 15, 2002,we sold substantially all of the assets of our hydraulic cylinder division,including manufacturing and sales operations in Beulaville, North Carolina andCramlington, Northumberland, United Kingdom to a new company, Precision (Note13). As partial consideration we received a note receivable of $9 million fromPrecision. Under the terms of the sale, we made operating cash advances toPrecision of $2.1 million during fiscal 2003. The advances were at theprime rate plus 1%. All operating advances were repaid to us by January 31,2003. In August 2003, we received a payment of $9.6 million from Precisionas payment in full of all principal and interest amounts outstanding under thenotes receivable from the sale of our hydraulic cylinder division.

**Note 22—Gainon Sale of Investment**

During fiscal 2005, a trust under a U.S. definedbenefit plan we terminated in 1997 sold publicly traded common stock receivedin the demutualization of an insurance company. The trust had purchasedannuities from the insurance company prior to the termination of the plan. Thesale resulted in a gain of approximately $1.0 million and proceeds in the sameamount, which were available for reversion to us. We contributed $324,000 ofthe proceeds directly to a defined contribution plan maintained for the benefitof all of our U.S. employees. The $324,000 contribution is included in sellingand administrative expenses. We retained the balance of the proceeds.

50

----

**ScheduleII**

**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:*                 |       |       |       |                                           |       |                                          |       |              |       |                                         |       |   |   |   |   |   |   |
| *2005*                                         |       |       |       |                                           |       |                                          |       |              |       |                                         |       |   |   |   |   |   |   |
| Allowance for  doubtful accounts and notes     |       |       | $          | 2,023                                          |       |                                          |       | $                 | 571        |                                         |       |   | $ | (412 | ) |   |   | $ | 2,182 |   |   |
| Valuation  allowances—deferred tax assets |       |       | $          | 9,525                                          |       |                                          |       | $                 | 2,057      |                                         |       |   | $ | (145 | ) |   |   | $ | 11,437 |   |   |
| *2004*                                         |       |       |       |                                           |       |                                          |       |              |       |                                         |       |   |   |   |   |   |   |
| Allowance for  doubtful accounts and notes     |       |       | $          | 1,801                                          |       |                                          |       | $                 | 807        |                                         |       |   | $ | (585 | ) |   |   | $ | 2,023 |   |   |
| Valuation  allowances—deferred tax assets |       |       | $          | 7,313                                          |       |                                          |       | $                 | 4,109      |                                         |       |   | $ | (1,897 | ) |   |   | $ | 9,525 |   |   |
| *2003*                                         |       |       |       |                                           |       |                                          |       |              |       |                                         |       |   |   |   |   |   |   |
| Allowance for  doubtful accounts and notes     |       |       | $          | 8,658                                          |       |                                          |       | $                 | 451        |                                         |       |   | $ | (7,308 | ) |   |   | $ | 1,801 |   |   |
| Valuation  allowances—deferred tax assets |       |       | $          | 6,860                                          |       |                                          |       | $                 | 639        |                                         |       |   | $ | (186 | ) |   |   | $ | 7,313 |   |   |
|                                                |            |            |            |                                                |            |                                               |            |                   |            |                                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**Item 9.**                        Changes Inand Disagreements With Accountants on Accounting and Financial Disclosure

None.

51

----

**Item 9A.     Controlsand Procedures**

**Evaluationof Disclosure Controls and Procedures**

Our management hasevaluated, under the supervision and with the participation of our chiefexecutive officer and chief financial officer, the effectiveness of ourdisclosure controls and procedures as of the end of the period covered by thisreport pursuant to Rule 13a-15(b) under the Securities Exchange Actof 1934 (the “Exchange Act”). Based on that evaluation, our chief executiveofficer and chief financial officer have concluded that, as of the end of theperiod covered by this report, our disclosure controls and procedures areeffective in ensuring that information required to be disclosed in our ExchangeAct reports is (1) recorded, processed, summarized and reported in atimely manner, and (2) accumulated and communicated to our management,including our chief executive officer and chief financial officer, asappropriate to allow timely decisions regarding required disclosure.

**Management’sReport on Internal Control Over Financial Reporting**

Our management is responsible for establishing andmaintaining adequate internal control over financial reporting. Because of itsinherent limitations, internal control over financial reporting may not preventor detect misstatements. Also, projections of any evaluation of effectivenessto future periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

Under the supervision and with the participation ofour management, we assessed the effectiveness of our internal control overfinancial reporting as of January 31, 2005. In making this assessment, weused the criteria set forth by the Committee of Sponsoring Organizations of theTreadway Commission in “Internal Control—Integrated Framework”. Based on ourassessment we concluded that, as of January 31, 2005, the Company’sinternal control over financial reporting was effective based on thosecriteria.

Management’s assessment ofthe effectiveness of our internal control over financial reporting as of January 31,2005, has been audited by PricewaterhouseCoopers LLP, an independent registeredpublic accounting firm, as stated in their report, which is included herein.

**Changesin Internal Control Over Financial Reporting**

There has been no changein the internal control over financial reporting that occurred during the threemonths ended January 31, 2005 that has materially affected, or isreasonably likely to materially affect, our internal control over financialreporting.

**CEOand CFO Certifications**

The certifications of ourChief Executive Officer and Chief Financial Officer required under Section 302of the Sarbanes-Oxley Act have been filed as Exhibits 31.1 and 31.2 to thisreport. Additionally, on June 22, 2004 our Chief Financial Officer certified tothe New York Stock Exchange that he was not aware of any violation by Cascadeof the New York Stock Exchange’s corporate governance listing standards.

**Item 9B.     OtherInformation**

None.

52

----

**PART III**

**Item 10.**                 Directors andExecutive Officers of the Registrant

Information regarding ourdirectors is set forth under the heading “Proposal 1: Election of Directors” inthe Company’s Proxy Statement for its 2005 Annual Meeting to be filed within120 days after our fiscal year end of January 31, 2005, (“Proxy Statement”)and is incorporated into this report by reference. Information regarding ourexecutive officers is set forth in Part I, Item 4A of this report.

**Audit Committee**

We have aseparately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) ofthe Exchange Act. The members of the Audit Committee are Mr. Duane C.McDougall (Chair), Dr. Nicholas R. Lardy, Mr. James S. Osterman, Dr. NancyA. Wilgenbusch, and Mr. Henry W. Wessinger II, each of whom is independentas that term is used in Item 7(d)(3)(iv) of Schedule 14A under theExchange Act.

**Audit Committee Financial Expert**

Our Board of Directors hasdetermined that Duane C. McDougall, Chair of the Audit Committee, is an auditcommittee financial expert as defined in Item 401(h) of Regulation S-K ofthe Exchange Act and is independent as that term is used in Item 7(d)(3)(iv) ofSchedule 14A under the Exchange Act.

**Code of Ethics**

Wehave adopted a code of ethics and business responsibilities (“Code”) fordirectors, officers (including the CEO, CFO, principal accounting officer, andpersons performing similar functions) and employees, which is Exhibit 14of this report. A copy of the Code is available on our website at *www.cascorp.com/investor*. Shareholders may also request afree copy of the Code from:
| Cascade Corporation          |
|------------------------------|
| Attention:  Secretary        |
| Post Office Box  20187       |
| Portland, Oregon  97294-0187 |
| 503-669-6300                 |

 

We will post on ourwebsite any required amendments to or waivers granted under the Code pursuant toSecurities and Exchange Commission or New York Stock Exchange disclosure rules.

**Section 16(a) BeneficialOwnership Reporting Compliance**

Information regarding Section 16(a) beneficialownership reporting compliance is set forth under the heading “Section 16(a) BeneficialOwnership Reporting Compliance” in the Proxy Statement and is incorporated intothis report by reference.

**Item 11.      ExecutiveCompensation**

Information regardingcompensation of our named executive officers is set forth under the heading “ExecutiveOfficer Compensation” in the Proxy Statement and is incorporated into thisreport by reference. Information regarding compensation of our directors is setforth under the heading “Corporate Governance and Other Board Matters—DirectorCompensation” in the Proxy Statement and is incorporated into this report byreference.

53

----

**Item12**.                 SecurityOwnership of Certain Beneficial Owners and Management and Related Stock HolderMatters

Information concerning the security ownership ofcertain beneficial owners, directors, and executive officers of Cascade is setforth under the heading “VotingSecurities-Stock Ownership Of Certain Beneficial Owners And Management” in theProxy Statement and is incorporated into this report by reference.

Information regarding ourequity compensation plans is set forth under the heading “Equity CompensationPlan Information” in the Proxy Statement and is incorporated into this reportby reference.

**Item13**.                 CertainRelationships and Related Transactions

None.

**Item14**.                 PrincipalAccounting Fees and Services

Information concerningfees paid to our independent auditors is set forth under the heading “IndependentRegistered Public Accounting Firm” in the Proxy Statement and is incorporatedinto this report by reference.

**PART IV**

**Item15**.                 Exhibits andFinancial Statement Schedules

**Index to FinancialStatements**
| 1.     |        | *Consolidated Financial  Statements*                                                                                                  |     |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------|----------|
|   |   | Report of Independent  Registered Public Accounting Firm                                                                              | 24       |
|   |   | Consolidated Financial  Statements:                                                                                                   |     |
|   |   | Statements  of Income for each of the three years in the period ended January 31, 2005                                      | 26       |
|   |   | Balance  Sheets at January 31, 2005 and 2004                                                                                     | 27       |
|   |   | Statements of Changes in  Shareholders’ Equity for each of the three years in the period ended  January 31, 2005  | 28       |
|   |   | Statements  of Cash Flows for each of the three years in the period ended  January 31, 2005                                      | 29       |
|   |   | Notes  to Consolidated Financial Statements                                                                                           | 30       |
| 2.     |   | *Financial Statement Schedule  for each of the three years ended January 31, 2005, 2004 and 2003.*                               | * * |
|   |   | Valuation and  Qualifying Accounts                                                                                                    | 51       |

 

The individual financial statements of the registrantand its subsidiaries have been omitted since the registrant is primarily anoperating company and all subsidiaries included in the consolidated financialstatements, in the aggregate, do not have minority equity interests and/orindebtedness to any person other than the registrant or its consolidatedsubsidiaries in amounts which together exceed 5% of the total consolidatedassets at January 31, 2005, except indebtedness incurred in the ordinarycourse of business which is not overdue and which matures within one year fromthe year of its origination.

54

----

**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, filed as exhibit 3.2 to  Form 10-K filed with the Commission on April 7, 2004.(1)                                                                                                                                                                        |
| 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) |
| 10.5 |   | Form of Stock Option Agreement for 1999  Amendment and Restatement of the Cascade Corporation 1995 Senior Managers’  Incentive Stock Option Plan.(2)                                                                                                                         |
| 10.6 |   | Cascade Corporation Stock Appreciation Rights Plan,  filed as Appendix B to Proxy Statement for 2004 Annual Meeting filed with the  Commission on April 14, 2004.(1)(2)                                                                                                           |
| 10.7 |   | Form of Stock Appreciation Rights Agreement for  Cascade Corporation Stock Appreciation Rights Plan.(2)                                                                                                                                                                           |
| 10.8 |   | Summary of Non-Employee Director and Named Executive  Officer Compensation Arrangements.(2)                                                                                                                                                                                            |
| 14   |   | Code of Ethics and Business Responsibilities for  Directors, Officers, and Employees filed as Exhibit 14 to  Form 10-K, filed with the Commission on April 7, 2004.(1)                                                                                                  |
| 21   |   | Subsidiaries of the registrant.                                                                                                                                                                                                                                                        |
| 23   |   | Consent of PricewaterhouseCoopers LLP, Independent  Registered Public Accounting Firm.                                                                                                                                                                                                 |
| 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.

55

----

**SIGNATURES**

Pursuant to the requirements of Section 13 or 15(d) ofthe Securities Exchange Act of 1934, the registrant, CASCADE CORPORATION hasduly caused this annual report to be signed on its behalf by the undersignedthereunto duly authorized.
|        | CASCADE CORPORATION |
|--------|---------------------|
|   | By:                 | /s/  RICHARD S. ANDERSON |
|   | * *            | Richard S.  Anderson |
|   | * *            | *Senior  Vice President and  Chief Financial Officer* |

 

Pursuantto the requirements of the Securities Exchange Act of 1934 this report has beensigned below by the following persons on behalf of the registrant and in thecapacities on the dates indicated.
| /s/ ROBERT C. WARREN,  JR.  |   | President and Chief Executive Officer, and Director |   | April 18, 2005 |
|-----------------------------|--------|-----------------------------------------------------|--------|---------------------|
| Robert C.  Warren, Jr. |   | (Principal Executive Officer)                       |   | Date                |
| /s/  RICHARD S. ANDERSON    |   | Senior Vice President  and Chief Financial Officer  |   | April 18, 2005 |
| Richard S.  Anderson        |   | (Principal Financial and Accounting Officer)        |   | Date                |
| /s/  JAMES S. OSTERMAN      |   |                                                |   | April 18, 2005 |
| James S. Osterman           |   | Director                                            |   | Date                |
| /s/  NICHOLAS R. LARDY      |   |                                                |   | April 18, 2005 |
| Nicholas R. Lardy           |   | Director                                            |   | Date                |
| /s/  DUANE C. MCDOUGALL     |   |                                                |   | April 18, 2005 |
| Duane C.  McDougall         |   | Director                                            |   | Date                |
| /s/  HENRY W. WESSINGER II  |   |                                                |   | April 18, 2005 |
| Henry W.  Wessinger II      |   | Director                                            |   | Date                |
| /s/  NANCY A. WILGENBUSCH   |   |                                                |   | April 18, 2005 |
| Nancy A.  Wilgenbusch       |   | Director                                            |   | Date                |

 

56

----

**EXHIBITINDEX**
| 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,  filed as exhibit 3.2 to Form 10-K filed with the Commission on April 7,  2004.(1)                                                                                                                                                                             |
| 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) |
| 10.5        |       | Form of Stock Option  Agreement for 1999 Amendment and Restatement of the Cascade Corporation 1995  Senior Managers’ Incentive Stock Option Plan.(2)                                                                                                                               |
| 10.6        |       | Cascade Corporation  Stock Appreciation Rights Plan, filed as Appendix B to Proxy Statement for  2004 Annual Meeting filed with the Commission on April 14, 2004.(1)(2)                                                                                                                 |
| 10.7        |       | Form of Stock  Appreciation Rights Agreement for Cascade Corporation Stock Appreciation  Rights Plan.(2)                                                                                                                                                                                |
| 10.8        |       | Summary of Non-Employee  Director and Named Executive Officer Compensation Arrangements.(2)                                                                                                                                                                                             |
| 14          |       | Code of Ethics and  Business Responsibilities for Directors, Officers, and Employees filed as  Exhibit 14 to Form 10-K, filed with the Commission on April 7, 2004.(1)                                                                                                                  |
| 21          |       | Subsidiaries of the  registrant.                                                                                                                                                                                                                                                        |
| 23          |       | Consent of  PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.                                                                                                                                                                                                  |
| 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.

57

----