UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Commission file number 1-12557

CASCADE CORPORATION

(Exact name of registrant as specified in its charter)

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, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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 May 20, 2008 was 10,826,064.

CASCADE CORPORATION

FORM 10-Q

Quarter Ended April 30, 2008

TABLE OF CONTENTS

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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 profit, 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:

·                  Fluctuations in lift truck orders or deliveries;

·                  Competitive factors in, and the cyclical nature of, the materials handling and construction equipment industries;

·                  Cost and availability of raw materials;

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

·                  Risks associated with international operations;

·                  Effectiveness of our capital expenditures and cost reduction initiatives;

·                  Foreign currency fluctuations;

·                  Levels of construction;

·                  Environmental matters;

·                  Assumptions relating to pension and other postretirement costs;

·                  Fluctuations in interest rates;

·                  Impact of acquisitions.

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.  See “Risk Factors” (Item 1A) for additional information on risk factors with the potential to impact our business.

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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)

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)

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)

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)

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 replacement parts. Our sales are made throughout the world. We are headquartered in Fairview, Oregon, employing approximately 2,500 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 April 30, 2008 and 2007 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, 2008.

Note 3—Segment Information

Our operating units have several 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.  We evaluate the performance of each of our operating segments based on operating income, which consists of 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, 2008.

Revenues and operating results are classified according to the country of origin.  Transfers represent sales between our geographic operating segments.  The costs of our corporate office are included in North America.  Identifiable assets are attributed to the geographic location in which they are located.  Net sales and transfers, operating results and identifiable assets by geographic operating segment were as follows (in thousands):

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Note 4—Inventories

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

Note 5—Goodwill

During the three months ended April 30, 2008, goodwill increased due to fluctuations in foreign currencies.  We have no goodwill recorded in China. The following table provides a breakdown of goodwill by geographic region (in thousands):

Note 6—Share-Based Compensation Plans

We have granted three types of share-based awards, stock appreciation rights (SARS), restricted stock and stock options under our share-based compensation plans to officers, key managers and directors.  The grant prices are established by our Board of Directors’ Compensation Committee based on the end of day market price of our common stock on the grant date.  We issue new common shares upon the exercise of all awards.

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.  All SARS vest ratably over a four year period and have a term of ten years.

 During the second quarter of fiscal 2008, our shareholders approved a proposal to amend the SARS plan to permit the issuance of restricted shares of common stock.  Upon the granting of restricted stock, common shares are issued to the recipient, but the shares may not be sold, assigned, transferred, pledged, or disposed of by the recipient until vested.  Regardless of vesting, restricted shares have full voting rights and any dividends declared will be paid to the restricted stock recipient.  Restricted shares vest ratably over a period of three years for officers and four years for directors.  The number of restricted shares issued to directors is based on the market value of our shares on the date of grant.

The amended SARS plan provides for the issuance of a maximum of 750,000 shares of common stock upon the exercise of SARS or issuance of restricted stock.  As of April 30, 2008, a total of 223,000 shares of common stock have been issued under the SARS plan, which includes 42,000 shares of restricted stock with a grant date fair market value of $73.73 per share.

Stock options provide the holder the right to receive our common shares at an established price.  We have reserved 1,400,000 shares of common stock under our stock option plan. As of April 30, 2008, a total of 1,087,000 shares have been issued upon the exercise of stock options.  No additional stock options can be granted under the terms of the plan.  All outstanding stock options vest ratably over a four year period and have a term of ten years.

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A summary of the plans’ status at April 30, 2008 together with changes during the three months then ended are presented in the following tables (in thousands, except per share amounts):

We calculate share-based compensation cost for stock options and SARS using the Black-Scholes option pricing model.  We calculate share-based compensation cost for restricted stock by multiplying the fair market value of our common shares on the grant date by the number of restricted shares expected to vest.  Share-based compensation is expensed ratably over the applicable vesting period.  Additional information regarding the assumptions used to calculate fair value of our share-based compensation plans is presented in Note 2 to our consolidated financial statements included in our Form 10-K for the year ended January 31, 2008.

As of April 30, 2008, there was $7.6 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 2.1 years. The following table represents as of April 30, 2008 the share-based compensation costs to be recognized in future periods (in thousands) for awards granted to date:

*Represents last nine months of fiscal 2009.

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Note 7—Commitments and Contingencies

Environmental Matters

We are subject to environmental laws and regulations, which include obligations to remove or mitigate environmental effects of past disposal and release of certain wastes and substances at various sites. We record liabilities for affected sites when environmental assessments indicate probable cleanup and the costs can be reasonably estimated. Other than for costs of assessments themselves, the timing and amount of these liabilities is determined based on the estimated costs of remediation activities and our commitment to a formal plan of action, such as an approved remediation plan.  The reliability and precision of the loss estimates are affected by numerous factors, such as different stages of site evaluation and reevaluation of the degree of remediation required. We adjust our liabilities as new remediation requirements are defined, as information becomes available permitting reasonable estimates to be made and to reflect new and changing facts.

It is reasonably possible that changes in estimates will occur in the near term and the related adjustments to environmental liabilities may have a material impact on our net income. Unasserted claims are not currently reflected in our environmental remediation liabilities. It is also reasonably possible that these claims may also have a material impact on our net income if asserted. We cannot estimate at this time the amount of any additional loss or range of loss that is reasonably possible.

Our specific environmental matters consist of the following:

Fairview, Oregon

In 1996, the Oregon Department of Environmental Quality issued two Records of Decision affecting our Fairview, Oregon manufacturing facility. The Records of Decision required us to initiate remedial activities related to the cleanup of groundwater contamination at and near the facility. Remediation activities have been conducted since 1996 and current estimates provide for some level of activity to continue through 2019. Costs of certain remediation activities at the facility are shared with The Boeing Company, with Cascade paying 70% of these costs. The recorded liability for ongoing remediation activities at our Fairview facility was $4.6 million and $4.8 million at April 30, 2008 and January 31, 2008, respectively.

Springfield, Ohio

In 1994, we entered into a consent order with the Ohio Environmental Protection Agency, which required the installation of remediation systems for the cleanup of groundwater contamination at our Springfield, Ohio facility. The current estimate is that the remediation activities will continue through 2013. The recorded liability for ongoing remediation activities in Springfield was $855,000 at April 30, 2008 and $900,000 at January 31, 2008.

Insurance Litigation

On April 9, 2007, we entered into a settlement agreement with Employers Reinsurance Corporation with respect to litigation to recover various expenses incurred in connection with environmental and related proceedings.  The recovery from the settlement, recorded during the three months ended April 30, 2007, was $16.0 million, net of expenses.  In connection with the settlement, we released all rights we might have under insurance policies issued by Employers Reinsurance Corporation and certain related entities.  This concluded all litigation against our insurance companies with regard to environmental matters.

Legal Proceedings

We are subject to legal proceedings, claims and litigation, in addition to the environmental matters previously discussed, arising in the ordinary course of business. While the outcome of these matters is currently not determinable, management does not expect the ultimate costs to be material to our consolidated financial position, result of operations, or cash flows.

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Note 8—Earnings Per Share

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

Basic earnings per share is based on the weighted average number of common shares outstanding for the period. Diluted weighted average common shares includes the incremental shares that would be issued upon the assumed exercise of stock options and stock appreciation rights and the amount of unvested restricted stock.  Unexercised SARS totaling 64,000 awards and unvested restricted stock totaling 4,070 shares were excluded from the fiscal 2009 calculation of diluted earnings per share because they were antidilutive.  The remaining SARS and restricted stock and all stock options were included in our calculation of incremental shares because they are dilutive.

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Note 9—Supplemental Cash Flow Information

The following table presents information that supplements the consolidated statements of cash flow (in thousands):

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Note 10—Benefit Plans

The following table represents the net periodic cost related to our defined benefit plans in England and France and our postretirement health benefit plan in the United States (in thousands):

Note 11—Recent Accounting Pronouncements

SFAS 157 - In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157 (SFAS 157), “Fair Value Measurements.” SFAS 157 provides a common definition of fair value, establishes a framework for measuring fair value and expands the related disclosure requirements.  In February 2008, the FASB issued final Staff Positions that will (1) defer the effective date of this statement for one year for certain nonfinancial assets and nonfinancial liabilities and (2) remove certain leasing transactions from the scope of the statement.  We applied SFAS 157 to all other fair value measurements effective February 1, 2008.  The adoption of SFAS 157 did not have a material impact on our financial statements.

FSP 157-2 - In February 2008, the FASB issued FASB Staff Position on Statement 157, “Effective Date of FASB Statement No. 157” (FSP 157-2).  FSP 157-2 delays the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed on a recurring basis, to fiscal years beginning after November 15, 2008.  Our significant nonfinancial assets and liabilities that could be impacted by this deferral include assets and liabilities initially measured at fair value in a business combination and goodwill tested annually for impairment.  FSP 157-2 will become effective for the fiscal year beginning February 1, 2009.  We are currently evaluating the impact of the adoption of FSP 157-2 on our financial statements.

SFAS 158 - In September 2006, the FASB issued SFAS No. 158 (SFAS 158), “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R).”  This statement requires balance sheet recognition of the overfunded or underfunded status of pension and postretirement benefit plans. Under SFAS 158, actuarial gains and losses, prior service costs or credits, and any remaining transition assets or obligations that have not been recognized under previous accounting standards must be recognized in other comprehensive income, net of tax effects, until they are amortized as a component of net periodic benefit cost.  In addition, the measurement date, the date at which plan assets and the benefit obligation are measured, is required to be the company’s fiscal year end. Presently, we use a December 31 measurement date for the postretirement benefit plan, which will change to coincide with our January 31 fiscal year-end date.  As required by SFAS 158, we adopted the balance sheet recognition provision as of January 31, 2007 and the measurement date provision effective February 1, 2008.  The adoption of the measurement date provision did not have a material impact on our financial statements.

SFAS 159 - In February 2007, the FASB issued SFAS No. 159 (SFAS 159), “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115.” SFAS 159 allows companies the choice to measure many financial instruments and certain other items at fair value. Application of SFAS 159 was required for our financial statements beginning February 1, 2008.  We did not elect to measure any financial instruments or any other items at fair value as permitted by SFAS 159.  Therefore, the adoption of SFAS 159 did not have a material impact on our financial statements.

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SFAS 141(R) & SFAS 160 – In December 2007, the FASB issued SFAS No. 141(R) (SFAS 141(R)), “Business Combinations,” and SFAS No. 160 (SFAS 160), “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51”. SFAS 141(R) requires the acquiring entity in a business combination to recognize the assets acquired and liabilities assumed. Further, SFAS 141(R) also changes the accounting for acquired in-process research and development assets, contingent consideration, partial acquisitions and transaction costs.  Under SFAS 160, all entities are required to report noncontrolling (minority) interests in subsidiaries as equity in the consolidated financial statements. In addition, transactions between an entity and noncontrolling interests will be treated as equity transactions.  SFAS 141(R) and SFAS 160 will become effective for business combinations for which the acquisition date is on or after February 1, 2009.  We are currently evaluating the impact of the adoption of these standards on our financial statements.

SFAS 161 – In March 2008, the FASB issued SFAS No. 161 (SFAS 161), “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133.” SFAS 161 expands disclosures for derivative instruments by requiring entities to disclose the fair value of derivative instruments and their gains or losses in tabular format.  SFAS 161 also requires disclosure of information about credit risk-related contingent features in derivative agreements, counterparty credit risk, and strategies and objectives for using derivative instruments.   SFAS 161 will become effective for fiscal years beginning after November 15, 2008.  We will adopt this new accounting standard on February 1, 2009.  We are currently evaluating the impact of the adoption of this standard on our financial statements.

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Note 12—Warranty Obligations

We record a liability on our consolidated balance sheet for costs related to warranties with the sales of our products. This liability is estimated through historical customer claims, product failure rates, material usage and service delivery costs incurred in correcting a product failure. Our warranty obligations, which are recorded in other accrued expenses on the consolidated balance sheets, were as follows (in thousands):

Note 13—Accumulated Other Comprehensive Income

The following table presents the changes in and the components of accumulated other comprehensive income (in thousands):

Note 14—Income Taxes

As of April 30, 2008 our liability for uncertain tax positions under FASB Interpretation No. 48 (FIN 48) was $1.1 million.  There were no material changes in unrecognized tax benefits during the current period.  The reserve for unrecognized tax benefits as of April 30, 2008 included an accrual for interest and penalties of $122,000.

We are subject to taxation primarily in the U.S., Canada and China, as well as various state and other foreign jurisdictions.  The Internal Revenue Service (IRS) is currently reviewing our U.S. income tax returns for fiscal years 2004 - 2007. The IRS has proposed an adjustment of $5 million related to interest deductions reported on tax returns for the 2004 and 2005 tax years.  These adjustments would result in an additional federal and state tax liability of approximately $1.8 million.  We are in the process of appealing the issue with the IRS and have determined that we will more-likely-than-not prevail on the issue.  No amount has been recorded in our financial statements as of April 30, 2008 related to this matter.  As of April 30, 2008, we remain subject to examination in various state and foreign jurisdictions for the 1997-2006 tax years.

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

Our businesses globally manufacture and distribute material handling load engagement products primarily for the lift truck industry and to a lesser extent the construction industry.  We operate in four geographic segments:  North America, Europe, Asia Pacific and China.  All references to fiscal periods are defined as the period ended April 30, 2007 (fiscal 2008) and the period ended April 30, 2008 (fiscal 2009).

RECENT TRENDS AND DEVELOPMENTS AFFECTING OUR RESULTS

European Business

Our European business continues to provide both the biggest opportunity for improvement and the biggest challenge facing our company.  Europe’s lift truck industry continued to be strong during the first quarter of fiscal 2009 with shipments increasing 16%.  We captured some of this growth with a 5% increase in sales, excluding currency changes.  However, our sales growth and profitability continue to fall short of our expectations.  Below is an update on previously reported trends and activities impacting our European business:

·                  We are continuing with an operational review of our entire European business, which includes among other things a rationalization of production capacity.  We had previously announced steps we were taking to reduce our workforce in Almere, The Netherlands and to transfer the production of certain products to Verona, Italy.  This plan was formally announced in May 2008 and we expect to incur severance and other costs of approximately $600,000 in the second quarter of fiscal 2009.  These costs are in addition to costs of $375,000 incurred in the first quarter.  We anticipate incurring additional costs through the remainder of fiscal 2009 related to operational and reorganization changes now under development.

·                  In fiscal 2008 we commenced operation of a facility in Xiamen, China to begin manufacturing fork products to supply OEM customers and secondary markets.  While we have been importing Chinese-made products into Europe over the last six months, the distribution of these products has been limited, pending product approval from key European OEMs.  We are currently working to obtain additional OEM approvals.

·                  We are aggressively working to lower our material costs through global sourcing from both internal and external suppliers and particularly from our own factories in North America.

·                  While the strategies related to available production capacity, product sourcing and pricing are important steps in improving our European business results, the key component in our reorganization is the transition of our European factories to our North American operating model and the full implementation of “Lean Principles” throughout the organization.  We have begun this transformation.

We believe we will see gradual improvements over time as a result of the reorganization that is in process.  Improving operational performance in Europe, the world’s largest lift truck market, remains our top priority.

Material Cost Increases

We continue to feel the pressures of increasing material costs globally.  The following are some of the activities and initiatives underway to mitigate the cost increases:

·                  We continue our efforts to lower our material costs by sourcing from alternative suppliers or purchasing larger volumes ahead of scheduled price increases.  In the short-term, these strategies will result in maintaining or adding to inventory levels at certain locations.  Over the long-term we expect inventory levels to decrease as material costs stabilize.

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·                  We are working to create efficiencies by improving our internal processes in manufacturing and administration which we believe will ultimately result in lower operation costs.

·                  We implemented sales price increases in all markets globally in the first quarter of fiscal 2009 and we anticipate additional sales price increases or surcharges will be necessary during the remainder of the year.

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COMPARISON OF FIRST QUARTER OF FISCAL 2009 AND FISCAL 2008

Executive Summary

During fiscal 2008 we settled an insurance litigation matter which accounted for a $16 million increase to operating income and a $10 million after tax increase to net income.  We believe the exclusion of the insurance litigation recovery provides a more appropriate comparison with the current year results: