UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended October 31, 2006
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from         to

 

Commission file number 1-12557

CASCADE CORPORATION
(Exact name of registrant as specified in its charter)

Oregon		93-0136592
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
2201 N.E. 201st Ave.
Fairview, Oregon		97024-9718
(Address of principal executive office)		(Zip Code)

 

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

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

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

Large accelerated filer o

Accelerated filer x

Non-accelerated filer o

 

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

The number of shares outstanding of the registrant’s common stock as of November 27, 2006 was 12,435,245.

 

Forward-Looking Statements

This Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (Item 2) contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any projections of revenue, gross margin, expenses, earnings or losses from operations, synergies or other financial items; any statements of plans, strategies, and objectives of management for future operations; any statements regarding future economic conditions or performance; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. The risks, uncertainties, and assumptions referred to above include, but are not limited to:

·                  Competitive factors in, and the cyclical nature of, the materials handling industry;

·                  Fluctuations in lift truck orders or deliveries;

·                  Availability and cost of raw materials;

·                  General business and economic conditions in North America, Europe, Asia Pacific and China;

·                  Actions by foreign governments;

·                  Assumptions relating to pension and other postretirement costs;

·                  Foreign currency fluctuations;

·                  Pending litigation;

·                  Environmental matters;

·                  Effectiveness of our capital expenditures and cost reduction initiatives.

We undertake no obligation to publicly revise or update forward-looking statements to reflect events or circumstances that arise after the date of this report.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

CASCADE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited — in thousands, except per share amounts)

		Three Months Ended						Nine Months Ended
		October 31						October 31
		2006			2005			2006			2005
Net sales		$	122,809		$	112,599		$	359,959		$	342,080
Cost of goods sold		83,356			75,774			245,464			231,197
Gross profit		39,453			36,825			114,495			110,883
Selling and administrative expenses		19,830			19,288			59,579			56,333
Loss (gain) on disposition of assets		45			120			(572		)	93
Amortization		368			252			975			1,195
Operating income		19,210			17,165			54,513			53,262
Interest expense		499			729			1,524			2,177
Interest income		(580		)	(299		)	(1,462		)	(576		)
Other expense (income)		(119		)	68			(440		)	(69		)
Income before provision for income taxes		19,410			16,667			54,891			51,730
Provision for income taxes		7,127			5,839			19,651			17,944
Net income		$	12,283		$	10,828		$	35,240		$	33,786
Basic earnings per share		$	0.97		$	0.87		$	2.80		$	2.74
Diluted earnings per share		$	0.94		$	0.84		$	2.69		$	2.63
Basic weighted average shares outstanding		12,604			12,403			12,572			12,312
Diluted weighted average shares outstanding		13,050			12,966			13,088			12,848

 

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

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CASCADE CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited - in thousands, except per share amounts)

		October 31			January 31
		2006			2006
ASSETS
Current assets:
Cash and cash equivalents		$	48,258		$	35,493
Marketable securities		15,804			23,004
Accounts receivable, less allowance for doubtful accounts of $1,574 and $1,415		80,979			67,020
Inventories		54,791			56,996
Deferred income taxes		3,833			3,232
Prepaid expenses and other		5,239			5,373
Total current assets		208,904			191,118
Property, plant and equipment, net		78,933			75,374
Goodwill		80,275			78,820
Deferred income taxes		13,051			11,851
Other assets		3,365			4,120
Total assets		$	384,528		$	361,283
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Notes payable to banks		$	1,092		$	4,741
Current portion of long-term debt		12,592			12,681
Accounts payable		24,100			25,124
Accrued payroll and payroll taxes		8,746			8,710
Accrued environmental expenses		973			984
Income taxes payable		1,469			2,373
Other accrued expenses		13,324			11,543
Total current liabilities		62,296			66,156
Long-term debt, net of current portion		12,500			12,500
Accrued environmental expenses		6,093			6,951
Deferred income taxes		4,012			4,009
Other liabilities		13,277			12,261
Total liabilities		98,178			101,877
Commitments and contingencies (Note 8)
Shareholders’ equity:
Common stock, $.50 par value, 20,000 authorized shares; 12,412 and 12,536 shares issued and outstanding		6,206			6,268
Additional paid-in capital		13,515			21,590
Retained earnings		253,453			223,867
Accumulated other comprehensive income		13,176			7,681
Total shareholders’ equity		286,350			259,406
Total liabilities and shareholders’ equity		$	384,528		$	361,283

 

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

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CASCADE CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited — in thousands, except per share amounts)

													Accumulated
							Additional						Other			Total			Year-To-Date
		Common Stock					Paid-In			Retained			Comprehensive			Shareholders’			Comprehensive
		Shares		Amount			Capital			Earnings			Income			Equity			Income
Balance at January 31, 2006		12,536		$	6,268		$	21,590		$	223,867		$	7,681		$	259,406
Net income		—		—			—			35,240			—			35,240			$	35,240
Dividends ($0.45 per share)		—		—			—			(5,654		)	—			(5,654		)	—
Common stock issued		165		82			1,682			—			—			1,764			—
Excess tax benefit from exercise of share-based compensation awards		—		—			1,054			—			—			1,054			—
Common stock repurchased		(289	)	(144		)	(13,769		)	—			—			(13,913		)	—
Share-based compensation		—		—			2,958			—			—			2,958			—
Translation adjustment		—		—			—			—			5,495			5,495			5,495
Balance at October 31, 2006		12,412		$	6,206		$	13,515		$	253,453		$	13,176		$	286,350		$	40,735

 

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

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CASCADE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)

		Nine Months Ended
		October 31
		2006			2005
Cash flows from operating activities:
Net income		$	35,240		$	33,786
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		11,251			12,208
Share-based compensation		2,958			1,243
Deferred income taxes		(1,853		)	(755		)
Loss (gain) on disposition of assets		(572		)	93
Changes in operating assets and liabilities:
Accounts receivable		(12,130		)	(274		)
Inventories		3,729			(5,945		)
Prepaid expenses and other		(443		)	(475		)
Accounts payable and accrued expenses		(1,522		)	(2,339		)
Income taxes payable and receivable		(1,090		)	1,147
Other assets and liabilities		(55		)	81
Net cash provided by operating activities		35,513			38,770
Cash flows from investing activities:
Capital expenditures		(11,890		)	(7,473		)
Sales of marketable securities		20,800			17,575
Purchases of marketable securities		(13,600		)	(45,050		)
Proceeds from disposition of assets		1,669			295
Net cash used in investing activities		(3,021		)	(34,653		)
Cash flows from financing activities:
Cash dividends paid		(5,654		)	(4,812		)
Payments on long-term debt		(89		)	(243		)
Notes payable to banks, net		(3,747		)	221
Common stock issued under share-based compensation plans		1,764			2,709
Common stock repurchased		(12,808		)	—
Excess tax benefit from exercise of share-based compensation awards		1,054			967
Net cash used in financing activities		(19,480		)	(1,158		)
Effect of exchange rate changes		(247		)	(2,951		)
Change in cash and cash equivalents		12,765			8
Cash and cash equivalents at beginning of period		35,493			30,482
Cash and cash equivalents at end of period		$	48,258		$	30,490
Supplemental disclosure of cash flow information:
See Note 10 to the consolidated financial statements

 

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

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CASCADE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1—Description of Business

Cascade Corporation is an international company engaged in the manufacture of materials handling products that are widely used on industrial fork lift trucks and, to a lesser extent, construction, mining and agricultural vehicles. Accordingly, our sales are largely dependent on sales of lift trucks and on the sales of replacement parts. Our sales are made throughout the world. We are headquartered in Fairview, Oregon, employing approximately 1,900 people and maintaining operations in 15 countries outside the United States.

Note 2—Interim Financial Information

The accompanying consolidated financial statements for the interim periods ended October 31, 2006 and 2005 are unaudited. In the opinion of management, the accompanying consolidated financial statements reflect normal recurring adjustments necessary for a fair statement of the financial position, results of operations and cash flows for those interim periods. Results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year, and these financial statements do not contain the detail or footnote disclosures concerning accounting policies and other matters that would be included in full fiscal year financial statements. Therefore, these statements should be read in conjunction with our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2006.

Note 3—Segment Information

Our operating units have similar economic characteristics and attributes, including similar products, distribution patterns and classes of customers. As a result, we aggregate our operating units into four geographic operating segments related to the manufacturing, distribution and servicing of material handling load engagement products primarily for the lift truck industry. We evaluate performance of each of our operating segments based on operating income before interest, miscellaneous income/expense and income taxes. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies contained in Note 2 of our consolidated financial statements included in our Form 10-K for the fiscal year ended January 31, 2006.

Revenues and operating results are classified according to the region of origin. Property, plant and equipment are attributed to the geographic location in which they are located. Net sales, operating results and other financial information by geographic region were as follows (in thousands):

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				Three Months Ended October 31
2006				North America			Europe			Asia Pacific			China			Eliminations			Consolidation
Net sales				$	68,287		$	34,368		$	12,551		$	7,603		$	—		$	122,809
Transfers between areas				6,600			213			35			2,175			(9,023		)	—
Net sales and transfers				$	74,887		$	34,581		$	12,586		$	9,778		$	(9,023	)	$	122,809
Gross profit				$	27,334		$	5,622		$	3,139		$	3,358		$	—		$	39,453
Selling and administrative				11,170			5,754			2,147			759			—			19,830
Loss (gain) on disposition of assets				10			28			(2		)	9			—			45
Amortization				89			235			19			25			—			368
Operating income (loss)				$	16,065		$	(395	)	$	975		$	2,565		$	—		$	19,210
Property, plant and equipment				$	33,189		$	35,024		$	1,530		$	9,190					$	78,933
Capital expenditures				$	1,159		$	475		$	131		$	3,877					$	5,642
Depreciation expense				$	1,920		$	1,222		$	86		$	161					$	3,389
2005				North America			Europe			Asia Pacific			China			Eliminations			Consolidation
Net sales				$	65,056		$	29,786		$	11,895		$	5,862		$	—		$	112,599
Transfers between areas				5,749			534			2			1,593			(7,878		)	—
Net sales and transfers				$	70,805		$	30,320		$	11,897		$	7,455		$	(7,878	)	$	112,599
Gross profit				$	26,430		$	4,585		$	3,250		$	2,560		$	—		$	36,825
Selling and administrative				11,392			5,336			1,957			603			—			19,288
Loss (gain) on disposition of assets				(1		)	121			—			—						120
Amortization				38			207			—			7			—			252
Operating income (loss)				$	15,001		$	(1,079	)	$	1,293		$	1,950		$	—		$	17,165
Property, plant and equipment				$	34,624		$	35,809		$	1,455		$	3,268					$	75,156
Capital expenditures				$	1,152		$	883		$	17		$	134					$	2,186
Depreciation expense				$	2,022		$	1,399		$	103		$	93					$	3,617
				Nine Months Ended October 31
2006				North America			Europe			Asia Pacific			China			Eliminations			Consolidation
Net sales				$	200,749		$	101,416		$	36,007		$	21,787		$	—		$	359,959
Transfers between areas				19,104			1,050			203			5,546			(25,903		)	—
Net sales and transfers				$	219,853		$	102,466		$	36,210		$	27,333		$	(25,903	)	$	359,959
Gross profit				$	79,373		$	17,239		$	8,867		$	9,016		$	—		$	114,495
Selling and administrative				34,141			17,154			6,225			2,059			—			59,579
Loss (gain) on disposition of assets				19			(589		)	(12		)	10						(572		)
Amortization				267			650			19			39			—			975
Operating income				$	44,946		$	24		$	2,635		$	6,908		$	—		$	54,513
Capital expenditures				$	4,886		$	1,467		$	275		$	5,262					$	11,890
Depreciation expense				$	6,026		$	3,655		$	298		$	297					$	10,276
2005				North America			Europe			Asia Pacific			China			Eliminations			Consolidation
Net sales				$	188,466		$	101,787		$	34,832		$	16,995		$	—		$	342,080
Transfers between areas				17,222			2,100			175			4,232			(23,729		)	—
Net sales and transfers				$	205,688		$	103,887		$	35,007		$	21,227		$	(23,729	)	$	342,080
Gross profit				$	74,485		$	19,570		$	9,879		$	6,949		$	—		$	110,883
Selling and administrative				32,717			16,214			5,715			1,687			—			56,333
Loss (gain) on disposition of assets				(2		)	142			(47		)	—			—			93
Amortization				112			1,062			—			21			—			1,195
Operating income				$	41,658		$	2,152		$	4,211		$	5,241		$	—		$	53,262
Capital expenditures				$	4,398		$	2,633		$	191		$	251					$	7,473
Depreciation expense				$	5,998		$	4,433		$	310		$	272					$	11,013

 

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Note 4—Goodwill

The change in the amount of goodwill between October 31, 2006 and January 31, 2006 related entirely to fluctuations in foreign currency. We have no goodwill recorded in China. The following table provides a breakdown of goodwill by geographic region (in thousands):

		October 31			January 31
		2006			2006
North America		$	66,912		$	65,978
Europe		10,365			9,840
Asia Pacific		2,998			3,002
		$	80,275		$	78,820

 

Note 5—Marketable Securities

Marketable securities consist of auction rate and variable rate demand notes issued by various state agencies throughout the United States. We classify these securities as available-for-sale securities. These securities are insured either through third party agencies, reinsured through the U.S. government, or secured by a letter of credit from a bank. The specific identification method is used to determine the cost of securities sold. There are no realized or unrealized gains or losses related to our marketable securities. These securities are long-term instruments maturing through 2038, however, the interest rates and maturities are reset approximately every month, at which time we can sell the securities. Accordingly, we have classified these securities as current assets in our consolidated balance sheets.

Note 6—Inventories

Inventories stated at the lower of average cost or market are presented below by major class (in thousands).

		October 31			January 31
		2006			2006
Finished goods and components		$	34,819		$	37,236
Work in process		737			620
Raw materials		19,235			19,140
		$	54,791		$	56,996

 

Note 7—Share-Based Compensation Plans

We have granted two types of awards, stock options and stock appreciation rights (SARS), under our share-based compensation plans to officers, key managers and directors. Stock options provide the holder the right to purchase our common shares at an established price. SARS provide the holder the right to receive an amount, payable in our common shares, equal to the excess of the market value of our common shares on the date of exercise (“intrinsic value”) over the base price at the time the right was granted. The base price may not be less than the market price of our common shares on the date of grant. The prices for all awards are established by our Board of Directors’ Compensation Committee at the time the awards are granted. All awards vest ratably over a four year period and have a term of ten years.

We have reserved 1,400,000 shares of common stock under our stock option plan. As of October 31, 2006 a total of 688,000 shares have been issued upon the exercise of stock options.  No additional stock options can be granted under the terms of the plan. The SARS plan provides for the issuance of 750,000 shares of common stock upon the exercise of SARS of which 63,000 shares have been issued at October 31, 2006. We issue new common shares upon the exercise of all awards.

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A summary of the plans’ status at October 31, 2006 together with changes during the nine months then ended are presented in the following table (in thousands, except per share amounts):

		Stock Options					Stock Appreciation Rights
				Weighted Average					Weighted Average
		Outstanding		Exercise Price			Outstanding		Exercise Price
		Awards		Per Share			Awards		Per Share
Balance at January 31, 2006		841		$	14.10		1,019		$	29.83
Granted		—		—			255		37.05
Exercised		(125	)	14.94			(112	)	27.76
Forfeited		(25	)	17.76			(117	)	31.57
Balance at October 31, 2006		691		$	13.82		1,045		$	31.62

 

Prior to May 1, 2005 we accounted for stock options under Accounting Principles Board Opinion No. 25 (APB 25), “Accounting for Stock Issued to Employees,” which permitted the use of intrinsic value accounting. No stock-based compensation cost was reflected in net income for stock options, as all options granted had an exercise price equal to the market price of the underlying common stock on the date of grant.

We accounted for SARS using variable plan accounting under Financial Interpretation No. (FIN) 28, “Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans,”  Accordingly, we recorded deferred compensation as a reduction of shareholders’ equity, equal to the excess of the market value of our common stock on the balance sheet date or date of exercise over the base price at the date of grant. The deferred compensation was recognized as an expense over the vesting period based on the periods in which the officers and directors performed services.

In our second quarter of fiscal 2006, we adopted Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), “Share-Based Payment” (123R). This standard is a revision of SFAS 123, “Accounting for Stock-Based Compensation” and supersedes APB 25 and FIN 28. SFAS 123R addresses the accounting for share-based compensation in which we receive employee services in exchange for our equity instruments. Under SFAS 123R, we are required to recognize compensation cost for share-based compensation issued to or purchased by employees, net of estimated forfeitures, under share-based compensation plans using a fair value method. We adopted SFAS 123R using the modified prospective method as of May 1, 2005. Accordingly, no prior periods were restated. Under this method, we record compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards that remained outstanding as of the beginning of the period of adoption.

The following table illustrates the pro forma effect on net income and earnings per share if we had recorded compensation expense based on the fair value method for all share-based compensation awards (in thousands, except per share amounts):

		Three Months Ended October 31						Nine Months Ended October 31
		2006			2005			2006			2005
Net income - as reported		$	12,283		$	10,828		$	35,240		$	33,786
Add: SARS amortization, net of taxes of $80		—			—			—			(148		)
Net income excluding SARS amortization		12,283			10,828			35,240			33,638
Deduct: total stock-based compensation, net of income tax benefits of $140 determined under fair value based method		—			—			—			(297		)
Net income - pro forma		$	12,283		$	10,828		$	35,240		$	33,341
Basic earnings per share - as reported		$	0.97		$	0.87		$	2.80		$	2.74
Basic earnings per share - pro forma		$	0.97		$	0.87		$	2.80		$	2.71
Diluted  earnings per share - as reported		$	0.94		$	0.84		$	2.69		$	2.63
Diluted  earnings per share - pro forma		$	0.94		$	0.84		$	2.69		$	2.60

 

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

		Granted in			Granted Prior to
		Fiscal 2007			Fiscal 2007
Risk-free interest rate		5.0%			2.3 - 4.1%
Expected volatility		41%			40 - 42%
Expected dividend yield		1.6%			1.1 - 2.8%
Expected life (in years)		6			5 - 6
Weighted average fair value at date of grant		$	15.24		$	4.16 - 17.86

 

The following table presents all share-based compensation costs recognized in our statements of income (in thousands):

		Three Months Ended October 31						Nine Months Ended October 31
		2006			2005			2006			2005
Method used to account for share-based compensation		Fair Value			Fair Value			Fair Value			Fair Value / Intrinsic
Share-based compensation under SFAS 123R		$	1,076		$	874		$	2,958		$	1,471
Share-based compensation under FIN 28		—			—			—			(228		)
		$	1,076		$	874		$	2,958		$	1,243
Tax benefit recognized		$	311		$	233		$	825		$	330

 

As of October 31, 2006, there was $10.5 million of total unrecognized compensation cost related to nonvested share-based compensation awards granted under the plans, which is expected to be recognized over a weighted average period of 2.8 years. The following table represents as of October 31, 2006 the share-based compensation costs to be recognized in future periods (in thousands) for awards granted to date:

Fiscal year				Amount
2007				$	1,075
2008				4,087
2009				3,336
2010				1,734
2011				305
				$	10,537

 

 

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