Edgar Filing: CASCADE CORP

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

LOGO

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 July 31, 2011

¨	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 (Address of principal executive office)		97024-9718 (Zip Code)
		97024-9718 (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 ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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


Large accelerated filer ¨	Accelerated filer x	Non-accelerated filer ¨	Smaller reporting company ¨
		(Do not check if a smaller reporting company)

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

The number of shares outstanding of the registrant’s common stock as of August 16, 2011 was 11,077,533.

CASCADE CORPORATION

FORM 10-Q

Quarter Ended July 31, 2011

TABLE OF CONTENTS


	Page
Part I—Financial Information:

Item 1. Financial Statements (unaudited):
Consolidated Statements of Income		4
Consolidated Balance Sheets		5
Consolidated Statement of Changes in Shareholders’ Equity		6
Consolidated Statements of Cash Flows		7
Notes to Consolidated Financial Statements		8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		19

Item 3. Quantitative and Qualitative Disclosures About Market Risk		31

Item 4. Controls and Procedures		32

Part II—Other Information		33

Signatures		34

Exhibit Index		35

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 that do not constitute statements of historical fact are deemed forward-looking statements, including any projections of market conditions, revenue, gross profit, expenses, earnings or losses from operations or other financial items; any discussion of expectations regarding future profitability of operations in particular regions or product lines; 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. Risks, uncertainties, and assumptions that could cause material differences from expectations include, but are not limited to:

•

General business and economic conditions globally and in particular in the Americas, Europe, the Asia Pacific region and China;

•

Competitive factors and the cyclical nature of the materials handling industry and lift truck orders;

•

Risks and complexities associated with international operations, including foreign currency fluctuations and international tax considerations;

•

Cost and availability of raw materials;

•

Environmental matters;

•

Assumptions relating to pension and other postretirement costs; and

•

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” under Item 1A in our Annual Report on Form 10-K for the year ended January 31, 2011, for additional information on risk factors with the potential to impact our financial results and business operations.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

CASCADE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited—in thousands, except per share amounts)


	Three Months Ended July 31				Six Months Ended July 31
	2011		2010		2011		2010
Net sales	$	135,642	$	97,741	$	271,819	$	192,133
Cost of goods sold		92,331		68,221		184,135		134,899

Gross profit		43,311		29,520		87,684		57,234
Selling and administrative expenses		22,334		19,107		42,200		37,331

Operating income		20,977		10,413		45,484		19,903
Interest expense, net		206		536		457		1,069
Foreign currency loss, net		463		215		659		520

Income before provision for income taxes		20,308		9,662		44,368		18,314
Provision for income taxes		6,457		6,430		14,093		9,416

Net income	$	13,851	$	3,232	$	30,275	$	8,898

Basic earnings per share	$	1.26	$	0.30	$	2.76	$	0.82

Diluted earnings per share	$	1.23	$	0.29	$	2.68	$	0.80

Basic weighted average shares outstanding		10,994		10,889		10,960		10,860
Diluted weighted average shares outstanding		11,302		11,089		11,288		11,059
Cash dividends per share	$	0.20	$	0.05	$	0.40	$	0.07

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

CASCADE CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited—in thousands, except per share amounts)


	July 31 2011		January 31 2011
ASSETS
Current assets:
Cash and cash equivalents	$	32,143	$	25,037
Accounts receivable, less allowance for doubtful accounts of $1,486 and $1,196		86,482		66,497
Inventories		82,100		67,041
Deferred income taxes		4,185		5,001
Assets available for sale		8,334		8,610
Prepaid expenses and other		18,368		11,170

Total current assets		231,612		183,356
Property, plant and equipment, net		69,567		66,978
Goodwill		92,778		88,708
Deferred income taxes		17,461		16,606
Other assets		3,655		3,531

Total assets	$	415,073	$	359,179

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	586	$	548
Accounts payable		31,855		23,905
Accrued payroll and payroll taxes		9,314		9,299
Accrued incentive pay		1,897		2,868
Other accrued expenses		13,639		11,612

Total current liabilities		57,291		48,232
Long-term debt, net of current portion		48,224		41,789
Accrued environmental expenses		2,838		3,198
Deferred income taxes		4,665		4,452
Employee benefit obligations		8,101		7,864
Other liabilities		6,971		5,088

Total liabilities		128,090		110,623

Commitments and contingencies (Note 7)
Shareholders’ equity:
Common stock, $.50 par value, 40,000 authorized shares; 11,078 and 10,972 shares issued and outstanding		5,539		5,486
Additional paid-in capital		12,055		9,254
Retained earnings		224,048		198,194
Accumulated other comprehensive income		45,341		35,622

Total shareholders’ equity		286,983		248,556

Total liabilities and shareholders’ equity	$	415,073	$	359,179

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

CASCADE CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited—in thousands, except per share amounts)


	Common Stock				Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income		Total Shareholders’ Equity			Year-To-Date Comprehensive Income
	Shares		Amount		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income		Total Shareholders’ Equity			Year-To-Date Comprehensive Income
Balance at January 31, 2011		10,972	$	5,486	$	9,254	$	198,194		$	35,622	$	248,556
Net income		—		—		—		30,275			—		30,275		$	30,275
Dividends ($ 0.40 per share)		—		—		—		(4,421	)		—		(4,421	)		—
Common stock issued		106		53		756		—			—		809			—
Share-based compensation		—		—		1,345		—			—		1,345			—
Tax effect on stock-based compensation		—		—		700		—			—		700			—
Currency translation adjustment		—		—		—		—			9,719		9,719			9,719

Balance at July 31, 2011		11,078	$	5,539	$	12,055	$	224,048		$	45,341	$	286,983		$	39,994

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

CASCADE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited—in thousands)


	Three Months Ended July 31						Six Months Ended July 31
	2011			2010			2011			2010
Cash flows from operating activities:
Net income	$	13,851		$	3,232		$	30,275		$	8,898
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,493			2,476			4,886			5,057
Share-based compensation		746			945			1,345			1,639
Deferred income taxes		349			626			190			918
Loss (gain) on disposition of assets, net		(119	)		15			(136	)		6
Changes in operating assets and liabilities:
Accounts receivable		2,403			(4,125	)		(17,239	)		(13,600	)
Inventories		(8,194	)		(2,196	)		(12,281	)		(277	)
Prepaid expenses and other		(2,872	)		(1,663	)		(4,571	)		(3,731	)
Accounts payable and accrued expenses		5,305			2,645			7,773			2,337
Income taxes payable and receivable		(3,135	)		1,595			(2,373	)		2,494
Other assets and liabilities		50			(411	)		1,368			(370	)

Net cash provided by operating activities		10,877			3,139			9,237			3,371

Cash flows from investing activities:
Capital expenditures		(3,406	)		(1,150	)		(5,708	)		(1,905	)
Proceeds from disposition of assets		1,001			97			1,052			117

Net cash used in investing activities		(2,405	)		(1,053	)		(4,656	)		(1,788	)

Cash flows from financing activities:
Cash dividends paid		(4,421	)		(766	)		(4,421	)		(766	)
Tax effect on share-based compensation		700			—			700			—
Payments on long-term debt		(27,040	)		(22,876	)		(40,277	)		(32,999	)
Proceeds from long-term debt		28,500			21,000			46,500			31,500
Notes payable to banks, net		(2,966	)		(590	)		—			(906	)
Common stock issued under share-based compensation plans		210			—			809			14

Net cash provided by (used in) financing activities		(5,017	)		(3,232	)		3,311			(3,157	)

Effect of exchange rate changes		1,827			2,188			(786	)		3,736

Change in cash and cash equivalents		5,282			1,042			7,106			2,162
Cash and cash equivalents at beginning of period		26,861			21,321			25,037			20,201

Cash and cash equivalents at end of period	$	32,143		$	22,363		$	32,143		$	22,363

Supplemental disclosure of cash flow information:
See Note 9 to the consolidated financial statements

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

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 1,900 people and maintaining operations in 16 countries outside the United States.

Note 2—Interim Financial Information

The accompanying consolidated financial statements for the interim periods ended July 31, 2011 and 2010 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, 2011.

Note 3—Segment Information

Our operating units have several similar economic characteristics and attributes, including products, distribution patterns and classes of customers. As a result, we aggregate our operating units related to the manufacturing, distribution and servicing of material handling load engagement products into four geographic operating segments, which we identify as the Americas, Europe, Asia Pacific and China. We evaluate the performance of each of our operating segments based on income or loss before interest, foreign currency gains or losses 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, 2011.

Revenues and operating results are classified according to the country of origin. Transfers between areas represent sales between our geographic operating segments. The costs of our corporate office are included in the Americas. 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):

Segment Information

(In thousands)


	Three Months Ended July 31
2011	Americas		Europe			Asia Pacific		China		Eliminations			Consolidated
Net sales	$	67,025	$	29,344		$	21,167	$	18,106	$	—		$	135,642
Transfers between areas		7,952		187			8		8,771		(16,918	)		—

Net sales and transfers	$	74,977	$	29,531		$	21,175	$	26,877	$	(16,918	)	$	135,642

Gross profit	$	21,783	$	6,671		$	7,272	$	7,585				$	43,311
Selling and administrative		12,686		4,864			3,293		1,491					22,334

Operating income	$	9,097	$	1,807		$	3,979	$	6,094				$	20,977

Total assets	$	195,389	$	91,565		$	55,670	$	72,449				$	415,073
Property, plant and equipment, net	$	28,812	$	10,699		$	10,778	$	19,278				$	69,567
Capital expenditures	$	1,221	$	447		$	636	$	1,102				$	3,406
Depreciation expense	$	1,227	$	475		$	168	$	589				$	2,459

	Three Months Ended July 31
2010	Americas		Europe			Asia Pacific		China		Eliminations			Consolidated
Net sales	$	48,177	$	21,887		$	14,243	$	13,434	$	—		$	97,741
Transfers between areas		6,227		96			61		6,598		(12,982	)		—

Net sales and transfers	$	54,404	$	21,983		$	14,304	$	20,032	$	(12,982	)	$	97,741

Gross profit	$	16,119	$	2,953		$	3,746	$	6,702				$	29,520
Selling and administrative		11,324		4,267			2,337		1,179					19,107

Operating income (loss)	$	4,795	$	(1,314	)	$	1,409	$	5,523				$	10,413

Total assets	$	177,379	$	79,170		$	42,962	$	55,347				$	354,858
Property, plant and equipment, net	$	29,463	$	12,648		$	10,134	$	17,962				$	70,207
Capital expenditures	$	623	$	19		$	209	$	299				$	1,150
Depreciation expense	$	1,269	$	494		$	152	$	525				$	2,440

	Six Months Ended July 31
2011	Americas		Europe			Asia Pacific		China		Eliminations			Consolidated
Net sales	$	138,729	$	56,783		$	39,259	$	37,048	$	—		$	271,819
Transfers between areas		16,029		641			88		16,059		(32,817	)		—

Net sales and transfers	$	154,758	$	57,424		$	39,347	$	53,107	$	(32,817	)	$	271,819

Gross profit	$	46,689	$	12,522		$	13,073	$	15,400				$	87,684
Selling and administrative		24,642		9,415			5,161		2,982					42,200

Operating income	$	22,047	$	3,107		$	7,912	$	12,418				$	45,484

Capital expenditures	$	2,095	$	772		$	1,150	$	1,691				$	5,708
Depreciation expense	$	2,416	$	929		$	300	$	1,170				$	4,815

	Six Months Ended July 31
2010	Americas		Europe			Asia Pacific		China		Eliminations			Consolidated
Net sales	$	93,470	$	44,257		$	28,053	$	26,353	$	—		$	192,133
Transfers between areas		12,629		198			110		11,433		(24,370	)		—

Net sales and transfers	$	106,099	$	44,455		$	28,163	$	37,786	$	(24,370	)	$	192,133

Gross profit	$	31,686	$	4,956		$	7,513	$	13,079				$	57,234
Selling and administrative		21,634		8,806			4,665		2,226					37,331

Operating income (loss)	$	10,052	$	(3,850	)	$	2,848	$	10,853				$	19,903

Capital expenditures	$	1,017	$	222		$	265	$	401				$	1,905
Depreciation expense	$	2,586	$	1,038		$	309	$	1,040				$	4,973

Note 4—Inventories

During the six months ended July 31, 2011, inventories increased primarily due to additional product needed to meet increased customer demand. Inventories stated at the lower of average cost or market are presented below by major class (in thousands):


	July 31 2011		January 31 2011
Finished goods	$	30,828	$	24,933
Raw materials and components		51,272		42,108

	$	82,100	$	67,041

Note 5—Goodwill

During the six months ended July 31, 2011, goodwill increased due to the strengthening of the Canadian Dollar against the U.S. Dollar. We have no goodwill recorded in China. The following table provides a breakdown of goodwill by geographic region (in thousands):


	July 31 2011		January 31 2011
Americas	$	78,560	$	74,988
Europe		11,299		10,776
Asia Pacific		2,919		2,944

	$	92,778	$	88,708

Note 6—Share-Based Compensation Plans

We have granted three types of share-based awards to officers, key managers and directors; stock appreciation rights (“SARS”), restricted stock and stock options under our share-based compensation plans. The grant prices applicable to SARs and stock options are established by our Board of Directors’ Compensation Committee at the time the awards are granted. We issue new common shares upon the exercise of all share-based 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.

Restricted stock is a grant of common shares to a recipient, subject to restrictions on transfer until vesting conditions are satisfied. Regardless of vesting, restricted shares have full voting rights and any dividends declared will be paid to the restricted stock recipient free of restrictions. Restricted shares granted to officers vest ratably over a period of three years. Restricted shares granted to directors prior to June 1, 2010 vest ratably over a period of four years and grants after May 31, 2010 vest after one year.

Stock options provide the holder the right to receive our common shares at an established price. No additional stock options can be granted under the terms of our plan. All outstanding stock options are fully vested and have a term of ten years.

The following table provides the number of shares to be issued under our share-based plans, based on outstanding awards as of July 31, 2011 (in thousands):


	Stock Options		SARS
Common stock previously issued		1,198		206
Restricted stock previously issued		—		158
Shares issuable upon exercise of SARs, based on $49.99 share price at July 31, 2011		—		274
Shares issuable upon exercise of stock options		154		—

Estimated shares to be issued		1,352		638

Maximum shares of common stock to be issued per plan document		1,400		750

A summary of the status of our plans at July 31, 2011, together with changes during the six months then ended, is presented in the following tables (in thousands, except per share amounts):


	Stock Options					SARS
	Outstanding Awards			Weighted Average Exercise Price Per Share		Outstanding Awards			Weighted Average Exercise Price Per Share
Balance at January 31, 2011		218		$	13.96		791		$	34.24
Granted		—			—		96			48.65
Exercised		(64	)		11.81		(8	)		35.88
Forfeited		—			—		(3	)		33.30

Balance at July 31, 2011		154		$	14.86		876		$	35.80


	Restricted Stock Awards
	Number of Shares			Weighted Average Grant Date Fair Value Per Share
Unvested restricted stock at January 31, 2011		56		$	31.85
Granted		39			48.42
Vested		(33	)		33.90

Unvested restricted stock at July 31, 2011		62		$	41.14

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


	Granted in Fiscal 2012	Granted Prior to Fiscal 2012
Risk-free interest rate	2.1 - 2.6%	2.3 - 5.1%
Expected volatility	56.0%	40.0 - 53.0%
Expected dividend yield	1.6%	0.6 - 2.8%
Expected life (in years)	6 - 7	5 - 7
Weighted average fair value at date of grant	$22.80 - $23.70	$4.16 - $33.31

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 under 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, 2011.

As of July 31, 2011, there was $5 million of total unrecognized compensation cost related to nonvested share-based compensation awards granted under the plans. The following table shows the share-based compensation costs to be recognized in future periods for awards granted to date as of July 31, 2011 (in thousands):


Fiscal Year	Amount
2012*	$	1,140
2013		1,791
2014		1,292
2015		646
2016		86

	$	4,955

*	Represents last six months of fiscal 2012.

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 operating results. 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 operating results if asserted. We cannot predict when the additional expense will be necessary or the amount of any additional loss or range of loss that may reasonably be 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 $2.5 million at July 31, 2011 and $2.7 million at January 31, 2011.

Springfield, Ohio

In March 2010 we signed a Facility Lead Corrective Action Agreement (“Action Agreement”) with the Ohio Environmental Protection Agency, which outlines a more comprehensive remediation plan at our Springfield, Ohio facility. We had previously been performing our remediation activities under a consent order signed in 1994, which had required the installation of remediation systems for the cleanup of groundwater contamination. The Action Agreement specifies an action plan that would allow us to be more proactive in our environmental cleanup efforts. The current estimate is that the remediation activities will continue through 2019. The recorded liability for ongoing remediation activities in Springfield was $1.5 million at July 31, 2011 and $1.7 million at January 31, 2011.

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, results of operations, or cash flows.

Note 8—Earnings Per Share

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


	Three Months Ended July 31				Six Months Ended July 31
	2011		2010		2011		2010
Basic earnings per share:
Net income	$	13,851	$	3,232	$	30,275	$	8,898

Weighted average shares of common stock outstanding		10,994		10,889		10,960		10,860

	$	1.26	$	0.30	$	2.76	$	0.82
Diluted earnings per share:
Net income	$	13,851	$	3,232	$	30,275	$	8,898

Weighted average shares of common stock outstanding		10,994		10,889		10,960		10,860
Dilutive effect of stock awards		308		200		328		199

Diluted weighted average shares of common stock outstanding		11,302		11,089		11,288		11,059

	$	1.23	$	0.29	$	2.68	$	0.80

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 SARs and the amount of unvested restricted stock. All unvested restricted stock was included in our calculation of incremental shares because they are dilutive. The number of unexercised SARs that were not included in the calculation as the impact would be antidilutive are as follows:

Three Months Ended July 31

Six Months Ended July 31

2011

2010

2011

2010

Excluded Awards:

Unexercised SARS Awards

149,000

572,000

149,000

572,000

Note 9—Supplemental Cash Flow Information

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


	Six Months Ended July 31
	2011		2010
Cash paid during the period for:
Interest	$	626	$	1,139
Income taxes	$	14,151	$	5,838

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):


	Defined Benefit Three Months Ended July 31						Postretirement Benefit Three Months Ended July 31
	2011			2010			2011			2010
Net periodic benefit cost:
Service cost	$	4		$	5		$	22		$	31
Interest cost		117			111			95			110
Expected return on plan assets		(120	)		(104	)		—			—
Recognized prior service cost		—			—			(19	)		(19	)
Recognized net actuarial loss		30			29			—			—

	$	31		$	41		$	98		$	122


	Defined Benefit Six Months Ended July 31						Postretirement Benefit Six Months Ended July 31
	2011			2010			2011			2010
Net periodic benefit cost:
Service cost	$	8		$	10		$	44		$	62
Interest cost		233			225			190			220
Expected return on plan assets		(239	)		(210	)		—			—
Recognized prior service cost		—			—			(38	)		(38	)
Recognized net actuarial loss		59			58			—			—

	$	61		$	83		$	196		$	244

Note 11—Recent Accounting Pronouncements

Other Comprehensive Income

In June 2011, a pronouncement was issued that eliminates the option of presenting other comprehensive income as part of the statement of changes in stockholders’ equity and provides an entity with the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance also requires presentation of items on the face of the financial statements that are reclassified from other comprehensive income to net income. This guidance does not change the items that must be reported in other comprehensive income, when an item of other comprehensive income must be reclassified to net income or how tax effects of each item of other comprehensive income are presented. This guidance is effective for interim and annual reporting periods beginning after December 15, 2011 and should be applied retrospectively. We currently report other comprehensive income in the consolidated statement of changes in shareholders’ equity and will be required to update the presentation of comprehensive income to be in compliance with the new standard. We are currently evaluating the impact of adopting this guidance on the presentation of our consolidated financial statements.

Fair Value Measurements

In May 2011, a pronouncement was issued that amends existing guidance and expands disclosure requirements for fair value measurements, particularly for “Level 3” (as defined in the accounting guidance) inputs. The amendments in this guidance are not intended to result in a change in current accounting. This guidance is effective for interim and annual reporting periods beginning after December 15, 2011. We are currently evaluating the impact of adopting this guidance on our disclosures included within notes to consolidated financial statements.

Goodwill Impairment

In December 2010, a pronouncement was issued that modified the process used to test goodwill for impairment. The pronouncement impacted reporting units with zero or negative carrying amounts and required an additional test to be performed to determine whether goodwill has been impaired and to calculate the amount of that impairment. This amendment is effective for fiscal years beginning after December 15, 2010. The Company adopted this pronouncement as of February 1, 2011. As the Company has not performed its annual goodwill impairment analysis and there have been no indicators of impairment during the second quarter of fiscal 2012, the Company is currently evaluating the potential impact, if any, the adoption of this pronouncement will have on its consolidated financial condition, results of operations or cash flows.

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):


	2011			2010
Balance at January 31	$	1,339		$	1,348
Accruals for warranties issued during the period		1,226			981
Accruals for pre-existing warranties		103			100
Settlements during the period		(1,162	)		(1,049	)
Foreign currency changes		46			(3	)

Balance at July 31	$	1,552		$	1,377

Note 13—Accumulated Other Comprehensive Income

During the six months ended July 31, 2011, accumulated other comprehensive income increased due to fluctuations in foreign currencies, primarily the Canadian Dollar, Australian Dollar, Chinese Yuan, Euro and British Pound. The following table presents the changes in and the components of accumulated other comprehensive income (in thousands):


	Accumulated Other Comprehensive Income (Loss)
	Translation Adjustment		Minimum Pension Liability Adjustment			Total
Balance at January 31, 2011	$	36,455	$	(833	)	$	35,622
Currency translation adjustment		9,748		(29	)		9,719

Balance at July 31, 2011	$	46,203	$	(862	)	$	45,341

Note 14—Income Taxes

The effective tax rate was 32% in the second quarter of fiscal 2012. The effective tax rate is lower than the US tax rate of 35% due to lower tax rates in foreign jurisdictions where we earn income.

As of July 31, 2011 our liability for uncertain tax positions was $2.5 million, excluding interest and penalties. We recognize interest and penalties related to uncertain tax positions in income tax expense. As of July 31, 2011 we had approximately $900,000 of accrued interest and penalties related to uncertain tax positions.

As of July 31, 2011 Cascade has provided a full valuation allowance on $34.5 million of deferred tax assets relating to net operating loss carryforwards generated in Europe. The valuation allowance has been provided because management has determined that it is more-likely-than-not that we would not realize these deferred tax assets in the foreseeable future based on historical financial performance in this region. Management quarterly assesses the need for valuation allowance on deferred tax assets based on all available positive and negative evidence.

We are subject to taxation primarily in the jurisdictions where we have operations. As of July 31, 2011, we remain subject to examination in various state and foreign jurisdictions for the 2003 – 2011 fiscal tax years.

Note 15—Australia Flood

Our operations in Brisbane, Australia, were significantly disrupted in January 2011 due to damage from flooding caused by heavy rainfalls in the Queensland, Australia region. During fiscal 2012, we have made significant progress in restoring our operations to pre-flood conditions and have been able to meet customer needs with on-hand inventory and product sourced from other locations.

The following table shows flood-related costs and insurance proceeds recorded during fiscal 2012 (in thousands):


	Three Months Ended April 30, 2011			Three Months Ended July 31, 2011			Six Months Ended July 31, 2011
	Three Months Ended April 30, 2011			Three Months Ended July 31, 2011			Six Months Ended July 31, 2011
Cost of Goods Sold Related
Flood-related costs	$	334		$	305		$	639
Insurance proceeds		(1,063	)		(1,603	)		(2,666	)

Net expense (recovery)		(729	)		(1,298	)		(2,027	)

Selling, General & Administrative Related
Fixed asset recovery		—			(100	)		(100	)
Flood-related costs		1,645			454			2,099
Insurance proceeds		(2,397	)		—			(2,397	)

Net expense (recovery)		(752	)		354			(398	)

Total Flood Related
Fixed asset recovery		—			(100	)		(100	)
Flood-related costs		1,979			759			2,738
Insurance proceeds		(3,460	)		(1,603	)		(5,063	)

Net expense (recovery)	$	(1,481	)	$	(944	)	$	(2,425	)

The following table shows flood-related costs and insurance proceeds recorded in total for the Australia flood (in thousands):


	Six Months Ended July 31, 2011			Year Ended January 31, 2011		Australia Flood Total
	Six Months Ended July 31, 2011			Year Ended January 31, 2011		Australia Flood Total
Cost of Goods Sold Related
Inventory write down	$	—		$	2,167	$	2,167
Flood-related costs		639			—		639
Insurance proceeds		(2,666	)		—		(2,666	)

Net expense (recovery)		(2,027	)		2,167		140

Selling, General & Administrative Related
Fixed asset write down (recovery)		(100	)		2,451		2,351
Flood-related costs		2,099			527		2,626
Insurance proceeds		(2,397	)		—		(2,397	)

Net expense (recovery)		(398	)		2,978		2,580

Total Flood Related
Inventory write down		—			2,167		2,167
Fixed asset write down (recovery)		(100	)		2,451		2,351
Flood-related costs		2,738			527		3,265
Insurance proceeds		(5,063	)		—		(5,063	)

Net expense (recovery)	$	(2,425	)	$	5,145	$	2,720

Note 16—Fair Value of Financial Assets and Liabilities

The fair value of our financial instruments represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. The carrying amount of our cash and cash equivalents, trade receivables and payables and notes payable to banks approximates fair value due to the short maturity of these instruments. The carrying value of long-term debt approximates fair market value due to the variable interest rate on the debt and consideration of credit risk.

Note 17—Subsequent Event

In August 2011, we entered into an amended and restated loan agreement with Bank of America and Union Bank. The amendment:

•

decreases the amount of our credit facility to $100 million;

•

extends the commitment period to August 2016;

•

decreases the interest rate on the loan 0.25% to a range of 1.0% to 2.0% over LIBOR, based on our consolidated leverage ratio;

•

includes a provision that increases the amount of the credit facility by up to $50 million, subject to lenders’ approval; and

•

includes no changes to debt covenants.

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: Americas (previously listed as North America), Europe, Asia Pacific and China. The Americas region includes activity in North, Central and South America.

All references to fiscal years are defined as the year ended January 31, 2011 (“fiscal 2011”) and the year ended January 31, 2012 (“fiscal 2012”).

RECENT TRENDS AND DEVELOPMENTS AFFECTING OUR RESULTS

Global Economic & Lift Truck Market Conditions

Our industry continues to recover from the global economic crisis and ensuing recession. We began to see an increase in our sales levels toward the end of fiscal 2010 that continued through fiscal 2011 and accelerated in the first quarter of fiscal 2012. During the second quarter of fiscal 2012, we began to experience a slower rate of growth in markets globally compared to the rapid growth experienced in the first quarter of fiscal 2012. Global lift truck shipments for the second quarter of fiscal 2012 were 32% higher than the second quarter of fiscal 2011 and 15% higher than the first quarter of fiscal 2012.

The following table shows the quarter-over-quarter percent increase in global lift truck shipments:


	Lift Truck Shipments Q2 Fiscal 2012 vs 2011	Lift Truck Orders Q2 Fiscal 2012 vs 2011
Americas	53%	26%
Europe	35%	31%
Asia Pacific	21%	24%
China	26%	27%
Global	32%	27%

We expect lift truck demand to remain at the existing level through the end of the fiscal year. However, we do expect fourth quarter business levels to be impacted by regular holiday shutdowns.

Currently, the lift truck market is the only direct economic or industrial indicator we have available for our markets. While results across this market do not correlate exactly with our business levels over the short term, since customers in the various end markets use our products to differing degrees, it does give us a good indication of trends over the year.

Additional information on lift truck industry trends can be found at www.cascorp.com/investor/industrytrends. This website address is intended to provide an inactive, textual reference only. The information at this website is not part of this Form 10-Q and is not incorporated by reference.

European Operating Results

Management placed significant focus in recent years on restructuring our European business with a goal of achieving sustainable profitability. The steps taken included closure of three manufacturing facilities and a reduction of our European workforce by 50%, resulting in restructuring costs of approximately $34 million incurred since fiscal 2009. In addition, we consolidated certain production operations, shifted sourcing of certain products from Europe to China and raised prices on certain products. Europe’s fiscal 2012 results include operating income of $1.3 million and $1.8 million during the first and second quarter, respectively. We anticipate that the current structure will put us in the position of being profitable in Europe through the remainder of the year.

Use of Cash

In recent years we have used excess cash to reduce our outstanding debt balance. At July 31, 2011, our cash balance was $32.1 million and our outstanding debt balance was $48.8 million. Given our current and projected liquidity position we are evaluating various growth opportunities, both within and outside the lift truck and construction equipment industries. We will also continue to review our dividend policy in light of our cash flows and operating results.

Australia Flood

Our operations in Brisbane, Australia, were significantly disrupted in January 2011 due to damage from flooding caused by heavy rainfalls in the Queensland, Australia region. During fiscal 2012, we have made significant progress in restoring our operations to pre-flood conditions and have been able to meet customers’ needs with on-hand inventory and product sourced from other locations.

The flood resulted in charges of $5.1 million in fiscal 2011 and an additional $2.7 million during fiscal 2012. To date we have received $5.1 million of insurance proceeds during fiscal 2012 as a partial recovery of our losses. During the remainder of fiscal 2012, we may receive additional insurance proceeds of up to $6 million, of which $4 million could be used to purchase replacement fixed assets.

COMPARISON OF SECOND QUARTER OF FISCAL 2012 AND FISCAL 2011

Executive Summary


	Three Months Ended July 31
	2011			2010			Change		Change %
	(In thousands except per share amounts)
Net sales	$	135,642		$	97,741		$	37,901		39	%
Gross profit %		32	%		30	%
Operating income	$	20,977		$	10,413		$	10,564		101	%
Income before taxes	$	20,308		$	9,662		$	10,646		110	%
Provision for income taxes	$	6,457		$	6,430		$	27		0	%
Effective tax rate		32	%		67	%
Net income	$	13,851		$	3,232		$	10,619		329	%
Diluted earnings per share	$	1.23		$	0.29		$	0.94		324	%

Details of the change in net sales compared to the prior year quarter are as follows (in thousands):


	Amount		Change %
Net sales change	$	30,073		31	%
Foreign currency change		7,828		8	%

Total	$	37,901		39	%

The following is an overview for the three months ended July 31, 2011 and 2010. All percentage comparisons to the prior year exclude the impact of foreign currencies:

•

Consolidated net sales increased 31% due to higher sales volumes as a result of favorable economic conditions and a strong global lift truck market.

•

Our consolidated gross profit percentage increased to 32% during the second quarter of fiscal 2012 from 30% in the prior period, primarily as a result of improved cost absorption due to increased sales volumes and net insurance proceeds related to the flood in Australia. Our consolidated gross profit percentage was 33% during the first quarter of fiscal 2012.

•

During the second quarter of fiscal 2012, we received insurance proceeds and incurred additional flood related costs, which had a net after-tax impact of increasing net income by $0.7 million ($0.06 per diluted share).

•

The income tax expense during fiscal 2011 included $3.4 million of expense as a result of recording valuation allowances against deferred tax assets in Italy and the United Kingdom.

Americas


	Three Months Ended July 31
	2011			2010			Change		Change %
Net sales	$	67,025		$	48,177		$	18,848		39	%
Transfers between areas		7,952			6,227			1,725		28	%

Net sales and transfers		74,977			54,404			20,573		38	%
Cost of goods sold		53,194			38,285			14,909		39	%

Gross profit		21,783			16,119			5,664		35	%
Gross profit %		29	%		30	%
Selling and administrative		12,686			11,324			1,362		12	%

Operating income	$	9,097		$	4,795		$	4,302		90	%

Operating income %		12	%		9	%

Details of the change in net sales compared to the prior year quarter are as follows (in thousands):


	Amount		Change %
Net sales change	$	18,302		38	%
Foreign currency change		546		1	%

Total	$	18,848		39	%

The following summarizes financial results for the Americas for the second quarter of fiscal 2012. All percentage comparisons to the prior year exclude the impact of foreign currencies:

•

Net sales increased 38% primarily due to higher sales volumes as a result of a strong lift truck market in the Americas.

•

Transfers to other Cascade locations increased due to higher customer demand in China and fulfillment of orders in Europe.

•

Our gross profit percentage decreased as the benefit of additional fixed costs absorption due to higher sales volumes was offset by increases in material and other costs. We anticipate recovering these costs through increases in selling prices and cost reductions by the end of fiscal 2012. Our gross profit percentage was 31% during the first quarter of fiscal 2012.

•

Selling and administrative costs increased due primarily to marketing, warranty and other general costs.

Europe


	Three Months Ended July 31
	2011			2010			Change		Change %
Net sales	$	29,344		$	21,887		$	7,457		34	%
Transfers between areas		187			96			91		95	%

Net sales and transfers		29,531			21,983			7,548		34	%
Cost of goods sold		22,860			19,030			3,830		20	%

Gross profit		6,671			2,953			3,718		126	%
Gross profit %		23	%		13	%
Selling and administrative		4,864			4,267			597		14	%

Operating income (loss)	$	1,807		$	(1,314	)	$	3,121		—

Operating income (loss) %		6	%		(6	%)

Details of the change in net sales compared to the prior year quarter are as follows (in thousands):


	Amount		Change %
Net sales change	$	3,974		18	%
Foreign currency change		3,483		16	%

Total	$	7,457		34	%

The following summarizes financial results for Europe for the second quarter of fiscal 2012. All percentage comparisons to the prior year exclude the impact of foreign currencies:

•

Net sales increased 18% primarily due to higher sales volumes as a result of a stronger lift truck market and price increases.

•

The improvement in our gross profit percentage is due to our restructuring efforts in recent years to reduce our overall cost structure, increased cost absorption as a result of higher sales volumes, a shift in sourcing more products from China and sales price increases for certain products. Our gross profit percentage was 21% during the first quarter of fiscal 2012.

•

Selling and administrative costs increased primarily due to changes in foreign currency rates.

Asia Pacific


	Three Months Ended July 31
	2011			2010			Change			Change %
Net sales	$	21,167		$	14,243		$	6,924			49	%
Transfers between areas		8			61			(53	)		(87	%)

Net sales and transfers		21,175			14,304			6,871			48	%
Cost of goods sold		13,903			10,558			3,345			32	%

Gross profit		7,272			3,746			3,526			94	%
Gross profit %		34	%		26	%
Selling and administrative		3,293			2,337			956			41	%

Operating income	$	3,979		$	1,409		$	2,570			182	%

Operating income %		19	%		10	%

Details of the change in net sales compared to the prior year quarter are as follows (in thousands):


	Amount		Change %
Net sales change	$	4,012		28	%
Foreign currency change		2,912		21	%

Total	$	6,924		49	%

The following summarizes financial results for Asia Pacific for the second quarter of fiscal 2011. All percentage comparisons to the prior year exclude the impact of foreign currencies:

•

Net sales increased 28% primarily due to higher sales volumes as a result of a strong lift truck market throughout the region.

•

Our gross profit percentage increased compared to the prior year primarily due to insurance proceeds related to the Australia flood and fluctuations in foreign currency rates.

•

Selling and administrative costs increased primarily due to flood related costs incurred and changes in foreign currency rates.

•

During the second quarter of fiscal 2012, operating income increased $0.9 million from flood insurance proceeds we received less additional costs we incurred related to the Australia flood. We may receive up to an additional $6 million of flood insurance proceeds during the remainder of fiscal 2012, of which $4 million could be used to purchase replacement fixed assets.

China


	Three Months Ended July 31
	2011			2010			Change		Change %
Net sales	$	18,106		$	13,434		$	4,672		35	%
Transfers between areas		8,771			6,598			2,173		33	%

Net sales and transfers		26,877			20,032			6,845		34	%
Cost of goods sold		19,292			13,330			5,962		45	%

Gross profit		7,585			6,702			883		13	%
Gross profit %		28	%		33	%
Selling and administrative		1,491			1,179			312		26	%

Operating income	$	6,094		$	5,523		$	571		10	%

Operating income %		23	%		28	%

Details of the change in net sales compared to the prior year quarter are as follows (in thousands):


	Amount		Change %
Net sales change	$	3,785		28	%
Foreign currency change		887		7	%

Total	$	4,672		35	%

The following summarizes financial results for China for the second quarter of fiscal 2012. All percentage comparisons to the prior year exclude the impact of foreign currencies:

•

Net sales increased 28% primarily due to higher sales volumes as a result of the growth in the Chinese economy and a strong lift truck market.

•

Transfers to other Cascade locations increased due to higher customer demand in North America, Europe and Asia Pacific.

•

Our gross profit percentage decreased due to changes in product mix and strategic pricing adjustments. Our gross profit percentage was 30% during the first quarter of fiscal 2012.

•

Selling and administrative costs increased 20% primarily due to higher personnel and marketing costs.

Non-Operating Items

The following are financial highlights for non-operating items during the second quarter of fiscal 2012:

•

The effective tax rate for the second quarter of fiscal 2012 was 32% compared to 67% for the second quarter of fiscal 2011. The decrease in the effective tax rate is primarily a result of second quarter 2012 income in Europe, which was offset by historical losses, compared to second quarter 2011 losses in Europe for which a tax benefit could not be recorded. Additionally, the fiscal 2011 income tax rate included a $3.4 million charge as a result of recording valuation allowances against deferred tax assets in Italy and England.

COMPARISON OF THE FIRST SIX MONTHS OF FISCAL 2012 AND FISCAL 2011

Executive Summary


	Six Months Ended July 31
	2011			2010			Change		Change %
	(In thousands except per share amounts)
Net sales	$	271,819		$	192,133		$	79,686		41	%
Gross profit %		32	%		30	%
Operating income	$	45,484		$	19,903		$	25,581		129	%
Income before taxes	$	44,368		$	18,314		$	26,054		142	%
Provision for income taxes	$	14,093		$	9,416		$	4,677		50	%
Effective tax rate		32	%		51	%
Net income	$	30,275		$	8,898		$	21,377		240	%
Diluted earnings per share	$	2.68		$	0.80		$	1.88		235	%

Details of the change in net sales compared to the prior year are as follows (in thousands):


	Amount		Change %
Net sales change	$	68,119		35	%
Foreign currency change		11,567		6	%

Total	$	79,686		41	%

The following is an overview for the first six months of fiscal 2012. All percentage comparisons to the prior year exclude the impact of foreign currencies:

•

Consolidated net sales increased 35% due to higher sales volumes as a result of favorable economic conditions and a strong global lift truck market.

•

Our consolidated gross profit percentage increased from 30% to 32% during fiscal 2012 primarily as a result of improved cost absorption due to increased sales volumes, the benefit of cost cutting measures implemented in the past and net insurance proceeds related to the flood in Australia.

•

During fiscal 2012, we have received insurance proceeds related to the Australia flood and incurred additional flood-related costs, which had a net after-tax impact of increasing net income by $1.7 million ($0.15 per diluted share).

Americas


	Six Months Ended July 31
	2011			2010			Change		Change %
Net sales	$	138,729		$	93,470		$	45,259		48	%
Transfers between areas		16,029			12,629			3,400		27	%

Net sales and transfers		154,758			106,099			48,659		46	%
Cost of goods sold		108,069			74,413			33,656		45	%

Gross profit		46,689			31,686			15,003		47	%
Gross profit %		30	%		30	%
Selling and administrative		24,642			21,634			3,008		14	%

Operating income	$	22,047		$	10,052		$	11,995		119	%

Operating income %		14	%		9	%

Details of the change in net sales compared to the prior year are as follows (in thousands):


	Amount		Change %
Net sales change	$	44,248		47	%
Foreign currency change		1,011		1	%

Total	$	45,259		48	%

The following summarizes financial results for North America for the first six months of fiscal 2012. All percentage comparisons to the prior year exclude the impact of foreign currencies:

•

Net sales increased 47% primarily due to higher sales volumes as a result of a strong lift truck market.

•

Transfers to other Cascade locations increased due primarily to higher customer demand in China and Korea and fulfillment of orders in Australia and Europe.

•

Our gross profit percentage remained consistent as improved cost absorption as a result of higher sales volumes were offset by increases in material and other costs.

•

Selling and administrative costs increased 13% due primarily to additional personnel, marketing and warranty costs.

Europe


	Six Months Ended July 31
	2011			2010			Change		Change %
Net sales	$	56,783		$	44,257		$	12,526		28	%
Transfers between areas		641			198			443		224	%

Net sales and transfers		57,424			44,455			12,969		29	%
Cost of goods sold		44,902			39,499			5,403		14	%

Gross profit		12,522			4,956			7,566		153	%
Gross profit %		22	%		11	%
Selling and administrative		9,415			8,806			609		7	%

Operating income (loss)	$	3,107		$	(3,850	)	$	6,957		—

Operating income %		5	%		(9	%)

Details of the change in net sales compared to the prior year are as follows (in thousands):


	Amount		Change %
Net sales change	$	8,147		18	%
Foreign currency change		4,379		10	%

Total	$	12,526		28	%

The following summarizes financial results for Europe for the first six months of fiscal 2012. All percentage comparisons to the prior year exclude the impact of foreign currencies:

•

Net sales increased 18% primarily due to higher sales volumes as a result of a stronger lift truck market and price increases.

•

The improvement in our gross profit percentage is due to our restructuring efforts to reduce our overall cost structure, increased cost absorption as a result of higher sales volumes, a shift in sourcing more products from China and sales price increases for certain products.

Asia Pacific


	Six Months Ended July 31
	2011			2010			Change			Change %
Net sales	$	39,259		$	28,053		$	11,206			40	%
Transfers between areas		88			110			(22	)		(20	%)

Net sales and transfers		39,347			28,163			11,184			40	%
Cost of goods sold		26,274			20,650			5,624			27	%

Gross profit		13,073			7,513			5,560			74	%
Gross profit %		33	%		27	%
Selling and administrative		5,161			4,665			496			11	%

Operating income	$	7,912		$	2,848		$	5,064			178	%

Operating income %		20	%		10	%

Details of the change in net sales compared to the prior year are as follows (in thousands):


	Amount		Change %
Net sales change	$	6,652		24	%
Foreign currency change		4,554		16	%

Total	$	11,206		40	%

The following summarizes financial results for Asia Pacific for the first six months of fiscal 2012. All percentage comparisons to the prior year exclude the impact of foreign currencies:

•

Net sales increased 24% primarily due to higher sales volumes as a result of an improvement in economic conditions and an improving lift truck market.

•

Our gross profit percentage increased compared to the prior year primarily due to insurance proceeds related to the Australia flood.

•

During fiscal 2012, operating income increased $2.4 million from flood insurance proceeds we received less additional costs we incurred related to the Australia flood.

China


	Six Months Ended July 31						Change		Change %
	2011			2010			Change		Change %
Net sales	$	37,048		$	26,353		$	10,695		41	%
Transfers between areas		16,059			11,433			4,626		40	%

Net sales and transfers		53,107			37,786			15,321		41	%
Cost of goods sold		37,707			24,707			13,000		53	%

Gross profit		15,400			13,079			2,321		18	%
Gross profit %		29	%		35	%
Selling and administrative		2,982			2,226			756		34	%

Operating income	$	12,418		$	10,853		$	1,565		14	%

Operating income %		23	%		29	%

Details of the change in net sales compared to the prior year are as follows (in thousands):


	Amount		Change %
Net sales change	$	9,072		35	%
Foreign currency change		1,623		6	%

Total	$	10,695		41	%

The following summarizes financial results for China for the first six months of fiscal 2012. All percentage comparisons to the prior year exclude the impact of foreign currencies:

•

Net sales increased 35% primarily due to higher sales volumes as a result of the growth of the Chinese economy and a strong lift truck market.

•

Transfers to other Cascade locations increased due to higher customer demand in North America, Europe and Asia Pacific.

•

Our gross profit percentage decreased due to changes in product mix, material cost increases and strategic pricing adjustments.

•

Selling and administrative costs increased 28% primarily due to higher personnel and marketing costs.

Non-Operating Items

The following are financial highlights for non-operating items during the first six months of fiscal 2012:

•

The effective tax rate for fiscal 2012 was 32% compared to 51% for fiscal 2011. The decrease in the effective tax rate is primarily a result of fiscal 2012 income in Europe, which was offset by historical losses, compared to fiscal 2011 losses in Europe for which a tax benefit could not be recorded.

CASH FLOWS

Statements of Cash Flows

The statements of cash flows reflect the changes in cash and cash equivalents for the three and six months ended July 31, 2011 and July 31, 2010 by classifying transactions into three major categories of activities: operating, investing and financing.

The following table presents a summary of our cash flows:


	Three Months Ended July 31						Six Months Ended July 31
	2011			2010			2011			2010
	(In thousands)						(In thousands)
Operating activities	$	10,877		$	3,139		$	9,237		$	3,371
Investing activities		(2,405	)		(1,053	)		(4,656	)		(1,788	)
Financing activities		(5,017	)		(3,232	)		3,311			(3,157	)
Effect of exchange rate changes		1,827			2,188			(786	)		3,736

Net change in cash and cash equivalents	$	5,282		$	1,042		$	7,106		$	2,162

Operating Activities

Our primary source of liquidity is cash generated from operating activities, which is measured as net income or loss adjusted for changes in working capital and non-cash operating items such as depreciation, amortization and share-based compensation.

The following are operating activity highlights:

•

The increase in net income in fiscal 2012 was primarily the result of higher sales in the current year as a result of strong lift truck markets.

•

Inventories increased during fiscal 2012 compared to fiscal 2011 due to increased customer demand.

•

During the first six months of fiscal 2012, accounts receivable increased primarily as a result of higher sales. During the second quarter of fiscal 2012, accounts receivable decreased primarily as a result of lower sales than the first quarter of fiscal 2012.

Investing Activities

Our primary investing activity is capital expenditures, which are primarily for equipment and tooling related to product improvements, more efficient production methods and replacement for normal wear and tear. Capital expenditures by geographic segment were as follows (in thousands):


	Three Months Ended July 31				Six Months Ended July 31
	2011		2010		2011		2010
Americas	$	1,221	$	623	$	2,095	$	1,017
Europe		447		19		772		222
Asia Pacific		636		209		1,150		265
China		1,102		299		1,691		401

	$	3,406	$	1,150	$	5,708	$	1,905

The following are investing activity highlights:

•

Capital expenditures during fiscal 2011 were below historical levels as we limited spending to only critical projects.

•

We expect capital expenditures for the remainder of fiscal 2012 to be approximately $11 million, which includes $3 million to replace equipment damaged in the flood in Australia.

Financing Activities

The following are financing activity highlights:

•

During the first three months of fiscal 2012, increased working capital requirements, arising out of higher sales levels, led to additional borrowings. However, during the second quarter of fiscal 2012, we have been able to pay down our debt because working capital requirements have stabilized as sales have leveled off. We anticipate paying down the debt further during the remainder of fiscal 2012 as we repatriate cash from overseas and continue to generate net income.

•

We declared dividends totaling $4.4 million ($0.40 per share) during fiscal 2012 and $0.8 million ($0.07 per share) during fiscal 2011. We increased our dividend during the current year as a result of significantly improved financial results. We paid all of these dividends during the three months ended July 31.

FINANCIAL CONDITION AND LIQUIDITY

The following are highlights regarding our financial condition and liquidity for the first six months of fiscal 2012:

•

Our working capital, defined as current assets less current liabilities, increased from $135.1 million at January 31, 2011 to $174.3 million at July 31, 2011. Our current ratio, defined as current assets divided by current liabilities, increased from 3.8 to 1 at January 31, 2011 to 4.0 to 1 at July 31, 2011.

•

Total outstanding debt, including notes payable to banks, increased from $42.3 million at January 31, 2011 to $48.8 million at July 31, 2011 due to increased working capital requirements needed with higher sales levels.

We were in compliance with our debt covenants at July 31, 2011. We believe our cash and cash equivalents, existing credit facilities and cash flows from operations will be sufficient to satisfy our expected working capital, capital expenditures and debt payment requirements for at least the next twelve months.

In August 2011, we entered into an amended and restated loan agreement with Bank of America and Union Bank. The amendment:

•

decreases the amount of our credit facility to $100 million;

•

extends the commitment period to August 2016;

•

decreases the interest rate on the loan 0.25% to a range of 1.0% to 2.0% over LIBOR, based on our consolidated leverage ratio;

•

includes a provision that increases the amount of the credit facility by up to $50 million, subject to lenders’ approval; and

•

includes no changes to debt covenants.

As of July 31, 2011, outstanding borrowings under our loan agreement totaled $45 million and an additional $0.7 million was used to issue letters of credit. Based on these borrowings, the additional amount that may be borrowed under our newly amended loan agreement is $54.3 million. The interest rate under our newly amended loan agreement would be 1.15%.

OTHER MATTERS

The following table represents the three-month percentage change from April 30, 2011 to July 31, 2011 and the six-month percentage change from January 31, 2011 to July 31, 2011 in the end of month foreign currency rates compared to the U.S. dollar used by our significant operations. As a result of these changes, foreign currency translation adjustments increased shareholders’ equity by $0.2 million during the quarter ended July 31, 2011 and $9.7 million during the first six months of fiscal 2012.


Currency	Change for Three Months Ended July 31, 2011	Change for Six Months Ended July 31, 2011
Euro	(3%)	5%
Canadian Dollar	(1%)	5%
Chinese Yuan	1%	3%
British Pound	(2%)	3%
Japanese Yen	6%	7%
Australian Dollar	0%	10%
Korean Won	1%	6%

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. We evaluate our estimates and judgments on an on-going basis, including those related to inventory reserves, impairment of long-lived assets, impairment of goodwill, environmental liabilities, benefit plans, share-based compensation and income taxes. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. A description of our critical accounting policies and related judgments and estimates that affect the preparation of our consolidated financial statements is set forth in our Annual Report on Form 10-K for the year ended January 31, 2011.

OFF BALANCE SHEET ARRANGEMENTS

At July 31, 2011, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

RECENT ACCOUNTING PRONOUNCEMENTS

Other Comprehensive Income

Fair Value Measurements

Goodwill Impairment

In December 2010, a pronouncement was issued that modified the process used to test goodwill for impairment. The pronouncement impacted reporting units with zero or negative carrying amounts and required an additional test to be performed to determine whether goodwill has been impaired and to calculate the amount of that impairment. This amendment is effective for fiscal years beginning after December 15, 2010. The Company adopted this pronouncement as of January 30, 2011. As the Company has not performed its annual goodwill impairment analysis and there have been no indicators of impairment during the second quarter of fiscal 2012, the Company is currently evaluating the potential impact, if any, the adoption of this pronouncement will have on its consolidated financial condition, results of operations or cash flows.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange rate and interest rate fluctuations. A significant portion of our net sales and expenses are denominated in foreign currencies. As a result, our operating results could become subject to significant fluctuations based upon changes in the exchange rates of the foreign currencies in relation to the U.S. Dollar.

The table below illustrates the hypothetical increase in net sales for the second quarter of fiscal 2012 resulting from a 10% weaker U.S. dollar against foreign currencies which impact our operations (in millions):


Euro	$	2.5
Chinese Yuan		1.8
Australian Dollar		0.8
Japanese Yen		0.7
Canadian Dollar		0.7
Korean Won		0.5
British Pound		0.4
Other currencies (representing 1% of consolidated net sales)		0.2

A 10% weaker U.S. dollar during the quarter, measured against foreign currencies that affect our operations, would have increased our operating income by $1.7 million.

We enter into foreign currency forward exchange contracts to offset the impact of currency fluctuations on certain nonfunctional currency assets and liabilities. The principal currencies hedged are denominated in Japanese Yen, Canadian Dollars, Euros, Chinese Yuan, Korean Won, Swedish Krona and British Pounds. Our foreign currency forward exchange contracts have terms lasting up to three months, but generally less than one month. We do not enter into derivatives or other financial instruments for trading or speculative purposes and we do not record our derivatives under hedge accounting.

A majority of our products are manufactured using specialty steel. As such, our cost of goods sold is sensitive to fluctuations in specialty steel prices, either directly through the purchase of raw materials or indirectly through the purchase of components. However, due to the nature of specialty steel, we are not impacted by changes in commodity steel prices to the extent others might be.

Presuming that the full impact of steel price increases is reflected in all steel and steel based component purchases, we estimate our gross profit percentage would decrease by approximately 0.3% for each 1.0% increase in steel prices. Based on our statement of operations for the three months ended July 31, 2011, a 1.0% increase in steel prices would have decreased consolidated gross profit by approximately $0.5 million.

The majority of our debt as of July 31, 2011 had a variable interest rate, which was 1.53% at July 31, 2011 and was based on LIBOR plus a margin of 1.25%. Based on the July 31, 2011 outstanding balance of our variable rate debt of $45 million, a 1% increase in our interest rate to 2.53% would result in a $0.5 million increase in annual interest expense.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control Over Financial Reporting

There has been no change in the internal control over financial reporting that occurred during the three months ended July 31, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 1A. Risk Factors

There are no material changes from risk factors previously disclosed in our Form 10-K for the year ended January 31, 2011.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Removed and Reserved

Item 5. Other Information

None

Item 6. Exhibits

A list of exhibits filed or furnished with this report on Form 10-Q (or incorporated by reference to exhibits previously filed or furnished by Cascade) is provided in the accompanying Exhibit Index.

SIGNATURES

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


		CASCADE CORPORATION
September 7, 2011

		/s/ JOSEPH G. POINTER
		Joseph G. Pointer
		Chief Financial Officer (Principal Financial and Accounting Officer)

EXHIBIT INDEX


Exhibit No.		Description

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.

101.INS		XBRL Instance Document*

101.SCH		XBRL Taxonomy Extension Schema Document*

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document*

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document*

101.LAB		XBRL Taxonomy Extension Label Linkbase Document*

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document*

XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

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