Form 10-Q
Table of Contents

 

 

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, 2012

OR

 

    ¨     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to         

Commission file number 1-12557

 

 

CASCADE CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Oregon   93-0136592

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

2201 N.E. 201st Ave.

Fairview, Oregon

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

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

 

 

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

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   ¨  (Do not check if a smaller reporting company)    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, 2012 was 11,195,419.

 

 

 


Table of Contents

CASCADE CORPORATION

FORM 10-Q

Quarter Ended July 31, 2012

TABLE OF CONTENTS

 

     Page  

Part I – Financial Information:

  

Item 1. Financial Statements (unaudited):

  

Consolidated Statements of Income

     4   

Consolidated Statements of Comprehensive Income

     5   

Consolidated Balance Sheets

     6   

Consolidated Statement of Changes in Shareholders’ Equity

     7   

Consolidated Statements of Cash Flows

     8   

Notes to Consolidated Financial Statements

     9   

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   

 

2


Table of Contents

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 or statements of expectations 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;

 

   

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;

 

   

Impact of acquisitions;

 

   

Environmental matters;

 

   

Cost and availability of raw materials; and

 

   

Assumptions relating to pension and other postretirement costs.

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, 2012, for additional information on risk factors with the potential to impact our financial results and business operations.

 

3


Table of Contents

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
 
     2012      2011      2012      2011  

Net sales

   $ 136,410       $ 135,642       $ 277,645       $ 271,819   

Cost of goods sold

     94,350         92,331         192,291         184,135   
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     42,060         43,311         85,354         87,684   

Selling and administrative expenses

     21,997         22,334         44,604         42,200   
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating income

     20,063         20,977         40,750         45,484   

Interest expense, net

     127         206         211         457   

Foreign currency loss

     225         463         235         659   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before provision for income taxes

     19,711         20,308         40,304         44,368   

Provision for income taxes

     7,072         6,457         12,457         14,093   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 12,639       $ 13,851       $ 27,847       $ 30,275   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per share

   $ 1.14       $ 1.26       $ 2.51       $ 2.76   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per share

   $ 1.11       $ 1.23       $ 2.45       $ 2.68   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic weighted average shares outstanding

     11,112         10,994         11,073         10,960   

Diluted weighted average shares outstanding

     11,378         11,302         11,374         11,288   

Cash dividends per share

   $ .35       $ .20       $ .70       $ .40   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

4


Table of Contents

CASCADE CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited - in thousands)

 

     Three Months Ended July 31      Six Months Ended July 31  
     2012     2011      2012     2011  

Net income

   $ 12,639      $ 13,851       $ 27,847      $ 30,275   

Other comprehensive income, net of tax:

         

Currency translation adjustment

     (4,731     230         (3,990     9,719   
  

 

 

   

 

 

    

 

 

   

 

 

 

Comprehensive income

   $ 7,908      $ 14,081       $ 23,857      $ 39,994   
  

 

 

   

 

 

    

 

 

   

 

 

 

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

 

5


Table of Contents

CASCADE CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited - in thousands, except per share amounts)

 

     July 31
2012
     January 31
2012
 
ASSETS      

Current assets:

     

Cash and cash equivalents

   $ 39,349       $ 24,928   

Accounts receivable, less allowance for doubtful accounts of $1,332 and $1,211

     83,624         77,752   

Inventories

     88,740         86,660   

Deferred income taxes

     3,825         3,822   

Assets available for sale

     7,120         7,572   

Prepaid expenses and other

     12,243         11,353   
  

 

 

    

 

 

 

Total current assets

     234,901         212,087   

Property, plant and equipment, net

     71,394         71,439   

Goodwill

     87,574         88,174   

Deferred income taxes

     22,025         18,964   

Other assets

     4,279         3,895   
  

 

 

    

 

 

 

Total assets

   $ 420,173       $ 394,559   
  

 

 

    

 

 

 
LIABILITIES AND SHAREHOLDERS’ EQUITY      

Current liabilities:

     

Notes payable to banks

   $ —         $ 99   

Current portion of long-term debt

     —           590   

Accounts payable

     26,016         28,280   

Accrued payroll and payroll taxes

     9,715         9,473   

Accrued incentive pay

     1,424         2,496   

Other accrued expenses

     13,047         15,580   
  

 

 

    

 

 

 

Total current liabilities

     50,202         56,518   

Long-term debt, net of current portion

     15,000         4,950   

Accrued environmental expenses

     1,669         2,279   

Deferred income taxes and other tax liabilities

     11,433         8,626   

Employee benefit obligations

     8,345         8,228   

Other liabilities

     3,001         3,231   
  

 

 

    

 

 

 

Total liabilities

     89,650         83,832   
  

 

 

    

 

 

 

Commitments and contingencies (Note 7)

     

Shareholders’ equity:

     

Common stock, $.50 par value, 40,000 authorized shares; 11,195 and 11,088 shares issued and outstanding

     5,598         5,544   

Additional paid-in capital

     16,936         13,252   

Retained earnings

     271,328         251,280   

Accumulated other comprehensive income

     36,661         40,651   
  

 

 

    

 

 

 

Total shareholders’ equity

     330,523         310,727   
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 420,173       $ 394,559   
  

 

 

    

 

 

 

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

 

6


Table of Contents

CASCADE CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited — in thousands, except per share amounts)

 

                                Accumulated        
                   Additional            Other     Total  
     Common Stock      Paid-In      Retained     Comprehensive     Shareholders’  
     Shares      Amount      Capital      Earnings     Income     Equity  

Balance at January 31, 2012

     11,088       $ 5,544       $ 13,252       $ 251,280      $ 40,651      $ 310,727   

Net income

     —           —           —           27,847        —          27,847   

Dividends ($.70 per share)

     —           —           —           (7,799     —          (7,799

Common stock issued

     107         54         754         —          —          808   

Share-based compensation

     —           —           1,356         —          —          1,356   

Tax effect on stock-based compensation

     —           —           1,574         —          —          1,574   

Currency translation adjustment

     —           —           —           —          (3,990     (3,990
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance at July 31, 2012

     11,195       $ 5,598       $ 16,936       $ 271,328      $ 36,661      $ 330,523   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

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

 

7


Table of Contents

CASCADE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited - in thousands)

 

     Three Months Ended
July 31
    Six Months Ended
July 31
 
     2012     2011     2012     2011  

Cash flows from operating activities:

        

Net income

   $ 12,639      $ 13,851      $ 27,847      $ 30,275   

Adjustments to reconcile net income to net cash provided by operating activities:

        

Depreciation and amortization

     2,664        2,493        5,206        4,886   

Share-based compensation

     735        746        1,356        1,345   

Deferred income taxes

     (1,419     349        (3,290     190   

Tax effect on share-based compensation

     (121     (700     (1,574     (700

Loss (gain) on disposition of assets, net

     9        (119     (30     (136

Changes in operating assets and liabilities, net of effects of acquisition:

        

Accounts receivable

     2,900        2,403        (7,512     (17,239

Inventories

     (2,851     (8,194     (3,019     (12,281

Prepaid expenses and other

     563        (2,872     (1,088     (4,571

Accounts payable and accrued expenses

     (3,230     5,305        (2,863     7,773   

Income taxes payable and receivable

     (1,117     (3,135     (99     (2,373

Other assets and liabilities

     2,156        750        2,220        2,068   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     12,928        10,877        17,154        9,237   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

        

Capital expenditures

     (2,654     (3,406     (5,757     (5,708

Proceeds from disposition of assets

     16        1,001        111        1,052   

Business acquisition

     (18     —          (1,198     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (2,656     (2,405     (6,844     (4,656
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

        

Cash dividends paid

     (7,799     (4,421     (7,799     (4,421

Payments on long-term debt

     (19,234     (27,040     (96,073     (40,277

Proceeds from long-term debt

     28,700        28,500        105,700        46,500   

Notes payable to banks, net

     (440     (2,966     (98     —     

Common stock issued under share-based compensation plans

     —          210        808        809   

Tax effect on share-based compensation

     121        700        1,574        700   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     1,348        (5,017     4,112        3,311   
  

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes

     825        1,827        (1     (786
  

 

 

   

 

 

   

 

 

   

 

 

 

Change in cash and cash equivalents

     12,445        5,282        14,421        7,106   

Cash and cash equivalents at beginning of period

     26,904        26,861        24,928        25,037   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 39,349      $ 32,143      $ 39,349      $ 32,143   
  

 

 

   

 

 

   

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

        

See Note 9 to the consolidated financial statements

        

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

 

8


Table of Contents

CASCADE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1—Description of Business

Cascade Corporation is an international company engaged in the manufacture of material 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 17 countries outside the United States.

Note 2—Interim Financial Information

The accompanying consolidated financial statements for the interim periods ended July 31, 2012 and 2011 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 Form 10-K for the fiscal year ended January 31, 2012.

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, 2012.

 

9


Table of Contents

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 the segments 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  

2012

   Americas      Europe      Asia Pacific      China      Eliminations     Consolidated  

Net sales

   $ 76,042       $ 23,119       $ 21,717       $ 15,532       $ —        $ 136,410   

Transfers between areas

     6,447         261         24         8,000         (14,732     —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Net sales and transfers

   $ 82,489       $ 23,380       $ 21,741       $ 23,532       $ (14,732   $ 136,410   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Gross profit

   $ 24,201       $ 4,732       $ 6,156       $ 6,971         $ 42,060   

Selling and administrative

     13,315         4,090         2,915         1,677           21,997   
  

 

 

    

 

 

    

 

 

    

 

 

      

 

 

 

Operating income

   $ 10,886       $ 642       $ 3,241       $ 5,294         $ 20,063   
  

 

 

    

 

 

    

 

 

    

 

 

      

 

 

 

Total assets

   $ 210,501       $ 84,570       $ 57,104       $ 67,998         $ 420,173   

Property, plant and equipment, net

   $ 30,054       $ 9,721       $ 12,442       $ 19,177         $ 71,394   

Capital expenditures

   $ 1,266       $ 432       $ 421       $ 535         $ 2,654   

Depreciation expense

   $ 1,346       $ 451       $ 231       $ 551         $ 2,579   

 

     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   

 

     Six Months Ended July 31  

2012

   Americas      Europe      Asia Pacific      China      Eliminations     Consolidated  

Net sales

   $ 152,285       $ 50,027       $ 42,393       $ 32,940       $ —        $ 277,645   

Transfers between areas

     13,696         450         40         16,559         (30,745     —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Net sales and transfers

   $ 165,981       $ 50,477       $ 42,433       $ 49,499       $ (30,745   $ 277,645   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Gross profit

   $ 49,047       $ 10,297       $ 11,895       $ 14,115         $ 85,354   

Selling and administrative

     27,030         8,430         5,806         3,338           44,604   
  

 

 

    

 

 

    

 

 

    

 

 

      

 

 

 

Operating income

   $ 22,017       $ 1,867       $ 6,089       $ 10,777         $ 40,750   
  

 

 

    

 

 

    

 

 

    

 

 

      

 

 

 

Capital expenditures

   $ 3,017       $ 641       $ 1,153       $ 946         $ 5,757   

Depreciation expense

   $ 2,562       $ 902       $ 454       $ 1,130         $ 5,048   

 

     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   

 

10


Table of Contents

Note 4—Inventories

During the six months ended July 31, 2012, inventories increased primarily due to additional product needed to meet increased customer demand and a business acquisition in Brazil. Inventories stated at the lower of average cost or market are presented below by major class (in thousands):

 

     July 31
2012
     January 31
2012
 

Finished goods

   $ 34,902       $ 31,913   

Raw materials and components

     53,838         54,747   
  

 

 

    

 

 

 
   $ 88,740       $ 86,660   
  

 

 

    

 

 

 

Note 5—Goodwill

During the six months ended July 31, 2012, goodwill decreased due to the impact of changes in foreign currencies. We have no goodwill recorded in China. The following table provides a breakdown of goodwill by geographic region (in thousands):

 

     July 31
2012
     January 31
2012
 

Americas

   $ 74,862       $ 74,914   

Europe

     9,781         10,332   

Asia Pacific

     2,931         2,928   
  

 

 

    

 

 

 
   $ 87,574       $ 88,174   
  

 

 

    

 

 

 

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 have issued new common shares upon the exercise of all share-based awards, although we have the option of satisfying SARs exercised with cash.

SARS provide the holder the right to receive an amount, payable in our common shares, or at our election in cash, 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 from date of grant.

 

11


Table of Contents

The following table provides the number of shares to be issued under our share-based plans, based on outstanding awards as of July 31, 2012 (in thousands):

 

     Stock Options      SARS and
Restricted Stock
 

Common stock previously issued

     1,258         218   

Restricted stock previously issued

     —           203   

Shares issuable upon exercise of SARS, based on $47.11 share price at July 31, 2012

     —           233   

Shares issuable upon exercise of stock options

     93         —     
  

 

 

    

 

 

 

Estimated shares to be issued

     1,351         654   
  

 

 

    

 

 

 

Maximum shares of common stock to be issued per plan document

     1,400         1,000 
  

 

 

    

 

 

 

* - The maximum number of shares of common stock to be issued under our SARS and Restricted Stock Plan was increased from 750,000 shares to 1 million shares on June 6, 2012.

 

A summary of the status of our plans at July 31, 2012, 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, 2012

     151      $ 14.72         855      $ 35.85   

Granted

     —          —           117        50.12   

Exercised

     (58     14.05         (12     27.19   
  

 

 

      

 

 

   

Balance at July 31, 2012

     93      $ 15.14         960      $ 37.69   
  

 

 

      

 

 

   

 

     Restricted Stock Awards  
     Number of
Shares
    Weighted Average
Grant Date

Fair Value
Per Share
 

Unvested restricted stock at January 31, 2012

     62      $ 41.14   

Granted

     44        45.42   

Vested

     (33     39.44   
  

 

 

   

Unvested restricted stock at July 31, 2012

     73      $ 44.52   
  

 

 

   

 

12


Table of Contents

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 is as follows:

 

     Granted in
Fiscal 2013
    Granted Prior to
Fiscal 2013

Risk-free interest rate

     1.6   2.1% - 5.1%

Expected volatility

     60.0   40.0% - 56.0%

Expected dividend yield

     2.8   0.6% - 2.8%

Expected life (in years)

     6      5 - 7

Weighted average fair value at date of grant

   $ 22.44      $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, 2012.

The following table shows the share-based compensation costs to be recognized in future periods for awards granted to date as of July 31, 2012 (in thousands):

 

Fiscal Year

   Amount  

2013*

   $ 1,517   

2014

     2,560   

2015

     1,787   

2016

     869   

2017

     97   
  

 

 

 
   $ 6,830   
  

 

 

 

 

* Represents last six months of fiscal 2013.

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.

 

13


Table of Contents

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 remediation 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 $1.9 million at July 31, 2012 and $2.4 million at January 31, 2012.

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 $1.1 million at July 31, 2012 and January 31, 2012.

As of July 31, 2012 and January 31, 2012, a total of $1.3 million of environmental costs are included on the consolidated balance sheet as a component of other accrued expenses.

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  
     2012      2011      2012      2011  

Basic earnings per share:

           

Net income

   $ 12,639       $ 13,851       $ 27,847       $ 30,275   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average shares outstanding

     11,112         10,994         11,073         10,960   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1.14       $ 1.26       $ 2.51       $ 2.76   

Diluted earnings per share:

           

Net income

   $ 12,639       $ 13,851       $ 27,847       $ 30,275   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average shares outstanding

     11,112         10,994         11,073         10,960   

Dilutive effect of stock awards

     266         308         301         328   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted weighted average shares outstanding

     11,378         11,302         11,374         11,288   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1.11       $ 1.23       $ 2.45       $ 2.68   

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 for the three and six months ended July 31, 2012

 

14


Table of Contents

because they were dilutive. The number of unexercised SARS that were not included in the calculation as the impact would be antidilutive are as follows (in thousands):

 

     Three Months Ended July 31      Six Months Ended July 31  
     2012      2011      2012      2011  

Excluded Awards:

           

Unexercised SARS Awards

     265         149         265         149   

Note 9—Supplemental Cash Flow Information

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

 

     Three Months Ended July 31      Six Months Ended July 31  
     2012      2011      2012      2011  

Cash paid during the period for:

           

Interest

   $ 241       $ 308       $ 359       $ 626   

Income taxes

   $ 7,436       $ 9,937       $ 13,046       $ 14,151   

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
 
     2012     2011     2012     2011  

Net periodic benefit cost:

        

Service cost

   $ 4      $ 4      $ 27      $ 22   

Interest cost

     94        117        85        95   

Expected return on plan assets

     (116     (120     —          —     

Recognized prior service cost

     —          —          (19     (19

Recognized net actuarial loss

     8        30        6        —     
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ (10   $ 31      $ 99      $ 98   
  

 

 

   

 

 

   

 

 

   

 

 

 
     Defined Benefit
Six Months Ended July 31
    Postretirement Benefit
Six Months Ended July 31
 
     2012     2011     2012     2011  

Net periodic benefit cost:

        

Service cost

   $ 8      $ 8      $ 54      $ 44   

Interest cost

     189        233        170        190   

Expected return on plan assets

     (234     (239     —          —     

Recognized prior service cost

     —          —          (38     (38

Recognized net actuarial loss

     16        59        12        —     
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ (21   $ 61      $ 198      $ 196   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

15


Table of Contents

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 have adopted this guidance by presenting a separate statement of comprehensive income.

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 defective products. Our warranty obligations, which are recorded in other accrued expenses on the consolidated balance sheets, were as follows (in thousands):

 

     2012     2011  

Balance at January 31

   $ 1,723      $ 1,339   

Accruals for warranties issued during the period

     1,283        1,226   

Accruals for pre-existing warranties

     169        103   

Settlements during the period

     (1,448     (1,162

Foreign currency changes

     (24     46   
  

 

 

   

 

 

 

Balance at July 31

   $ 1,703      $ 1,552   
  

 

 

   

 

 

 

Note 13—Accumulated Other Comprehensive Income

During the six months ended July 31, 2012, accumulated other comprehensive income decreased due to fluctuations in foreign currencies, primarily the Euro. 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, 2012

   $ 41,530      $ (879   $ 40,651   

Currency translation adjustment

     (3,988     (2     (3,990
  

 

 

   

 

 

   

 

 

 

Balance at July 31, 2012

   $ 37,542      $ (881   $ 36,661   
  

 

 

   

 

 

   

 

 

 

 

16


Table of Contents

Note 14—Income Taxes

The effective tax rate for the six months ended July 31, 2012 was 31% compared to 32% for the six months ended July 31, 2011 and 27% for the fiscal year ended January 31, 2012. For the first six months of fiscal 2013, our effective tax rate was less than the US tax rate of 35% primarily due to lower tax rates in foreign jurisdictions where we earned income and the first quarter release of a $1.7 million valuation allowance recorded against deferred tax assets in The Netherlands. The effective tax for the six months ended July 31, 2012 is higher than the effective tax rate for the full year ended January 31, 2012 mostly due to the release of a $3.6 million valuation allowance relating to improved financial performance in The Netherlands in fiscal 2012.

In recent years, we have recorded significant deferred tax assets related to net operating losses in Europe. In assessing the realizability of these deferred tax assets, we considered whether it is more-likely-than-not that some portion or all of our deferred tax assets will not be realized through the generation of future taxable income. Management quarterly assesses the need for valuation allowances on deferred tax assets based on all available positive and negative evidence. The primary negative evidence is continuing operating losses. Positive evidence consists of improved financial performance over time due to market conditions, restructuring activities and expected future taxable income. If the estimates of future taxable income vary from actual results, our assessment regarding the realization of these deferred tax assets could change. Future changes in the estimated amount of deferred taxes expected to be realized will be reflected in the Company’s financial statements in the period the estimate is changed, with a corresponding adjustment to operating results. Changes in estimates may occur often and can have a significant favorable or unfavorable impact on the Company’s operating results period-to-period.

At July 31, 2012, we continue to provide valuation allowances of $23.6 million against deferred tax assets relating to net operating loss carryforwards generated in Europe that we currently do not expect to realize.

As of July 31, 2012, our liability for uncertain tax positions was $5.7 million, excluding interest and penalties. We recognize interest and penalties related to uncertain tax positions in income tax expense. As of July 31, 2012, we had approximately $2.2 million of accrued interest and penalties related to uncertain tax positions.

We are subject to taxation primarily in the jurisdictions where we have operations. As of July 31, 2012, 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 rainfall in the Queensland, Australia region. During fiscal 2012, we restored our operations to pre-flood conditions.

The flood resulted in charges of $2.6 million during the first six months of fiscal 2012. We have not incurred any charges during fiscal 2013. We received $5.1 million of insurance proceeds during the first six months of fiscal 2012. During fiscal 2013, we expect to receive additional insurance proceeds of up to $3 million for capital expenditures related to equipment not yet placed in service; however, we have not yet received any insurance proceeds during the current year.

 

17


Table of Contents

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

 

     Three Months Ended
July 31, 2011
    Six Months Ended
July 31, 2011
 

Cost of Goods Sold Related

    

Flood-related costs

   $ 305      $ 639   

Insurance proceeds

     (1,603     (2,666
  

 

 

   

 

 

 

Net recovery

     (1,298     (2,027
  

 

 

   

 

 

 

Selling, General & Administrative Related

    

Flood-related costs

     354        1,999   

Insurance proceeds

     —          (2,397
  

 

 

   

 

 

 

Net expense (recovery)

     354        (398
  

 

 

   

 

 

 

Total Flood Related

    

Flood-related costs

     659        2,638   

Insurance proceeds

     (1,603     (5,063
  

 

 

   

 

 

 

Net recovery

   $ (944   $ (2,425
  

 

 

   

 

 

 

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 equivalents, trade receivables and payables and notes payable to banks approximates fair value due to the short maturity of these instruments. The long-term debt balance recorded on the Company’s balance sheet as of July 31, 2012 and January 31, 2012 approximates fair value, due to the variable interest rate on the debt and consideration of credit risk, and is a level 2 liability in the fair value hierarchy.

Note 17 – Acquisition

In March 2012, we purchased the assets, including inventory, accounts receivable and intangible assets, of our exclusive distributor located in Santos, Brazil. The total purchase price was $1.2 million.

 

18


Table of Contents

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, 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, 2012 (“fiscal 2012”) and the year ending January 31, 2013 (“fiscal 2013”).

RECENT TRENDS AND DEVELOPMENTS AFFECTING OUR RESULTS

Global Economic & Lift Truck Market Conditions

Volatility in the global lift truck market is continuing. The Americas, Europe and Asia Pacific markets experienced flat to moderate growth. China’s shipments were well below prior year shipments, which were at record levels.

The following tables show the quarter-over-quarter percent change in global lift truck shipments and orders by region:

 

     Lift Truck Shipments
Q2 Fiscal 2013 vs 2012
  Lift Truck Orders
Q2 Fiscal 2013 vs 2012

Americas

   2%   3%

Europe

   4%   (7%)

Asia Pacific

   14%   7%

China

   (19%)   (17%)

Global

   (2%)   (5%)

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.

 

19


Table of Contents

COMPARISON OF SECOND QUARTER OF FISCAL 2013 AND FISCAL 2012

Executive Summary

 

     Three Months Ended July 31              
     2012     2011     Change     Change %  
     (In thousands except per share amounts)        

Net sales

   $ 136,410      $ 135,642      $ 768        1

Gross profit %

     31     32    

Operating income

   $ 20,063      $ 20,977      $ (914     (4 %) 

Operating Income %

     15     15    

Income before taxes

   $ 19,711      $ 20,308      $ (597     (3 %) 

Provision for income taxes

     7,072      $ 6,457      $ 615        10

Effective tax rate

     36     32    

Net income

   $ 12,639      $ 13,851      $ (1,212     (9 %) 

Diluted earnings per share

   $ 1.11      $ 1.23      $ (0.12     (10 %) 

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

 

     Amount     Change %  

Net sales change

   $ 5,273        4

Foreign currency change

     (4,505     (3 %) 
  

 

 

   

 

 

 

Total

   $ 768        1
  

 

 

   

 

 

 

The following is an overview for the three months ended July 31, 2012 and 2011. All percentage change comparisons to the prior year exclude the impact of foreign currencies:

 

   

Consolidated net sales increased 4% due to higher sales volumes of products related to the construction industry and strong lift truck markets in the Asia Pacific region.

 

   

Our consolidated gross profit percentage decreased slightly during the second quarter of fiscal 2013. The prior year gross profit includes net flood insurance proceeds of $1.3 million. Without these insurance proceeds, the gross profit percentage would have been 31% for both years.

 

   

During the second quarter of fiscal 2012, we received $1.6 million of insurance proceeds related to the Australia flood, which was offset by $.7 million of flood related costs incurred during the quarter. The after-tax impact of the flood recovery was $.7 million ($.06 per diluted share).

 

   

The effective tax rate of 36% in the second quarter of fiscal 2013 was higher than the effective tax rate in the second quarter of fiscal 2012 primarily due to a $0.7 million increase in our accrual for state tax matters during the current quarter.

 

20


Table of Contents

Americas

 

     Three Months Ended July 31              
     2012     2011     Change     Change %  

Net sales

   $ 76,042      $ 67,025      $ 9,017        13

Transfers between areas

     6,447        7,952        (1,505     -19
  

 

 

   

 

 

   

 

 

   

Net sales and transfers

     82,489        74,977        7,512        10

Cost of goods sold

     58,288        53,194        5,094        10
  

 

 

   

 

 

   

 

 

   

Gross profit

     24,201        21,783        2,418        11

Gross profit %

     29     29    

Selling and administrative

     13,315        12,686        629        5
  

 

 

   

 

 

   

 

 

   

Operating income

   $ 10,886      $ 9,097      $ 1,789        20
  

 

 

   

 

 

   

 

 

   

Operating income %

     13     12    

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

 

     Amount     Change %  

Net sales change

   $ 9,568        14

Foreign currency change

     (551     (1 %) 
  

 

 

   

 

 

 

Total

   $ 9,017        13
  

 

 

   

 

 

 

The following summarizes financial results for the Americas for the second quarter of fiscal 2013. All percentage change comparisons to the prior year exclude the impact of foreign currencies:

 

   

Net sales increased 14% primarily due to higher sales volumes of products to the construction industry.

 

   

Our gross profit percentage remained consistent with the prior year as the benefit of higher sales volumes was offset by increased sales of lower margin products to the construction industry.

 

   

Selling and administrative costs increased due primarily to consulting, personnel, product liability and other general costs.

 

21


Table of Contents

Europe

 

     Three Months Ended July 31              
     2012     2011     Change     Change %  

Net sales

   $ 23,119      $ 29,344      $ (6,225     (21 %) 

Transfers between areas

     261        187        74        40
  

 

 

   

 

 

   

 

 

   

Net sales and transfers

     23,380        29,531        (6,151     (21 %) 

Cost of goods sold

     18,648        22,860        (4,212     (18 %) 
  

 

 

   

 

 

   

 

 

   

Gross profit

     4,732        6,671        (1,939     (29 %) 

Gross profit %

     20     23    

Selling and administrative

     4,090        4,864        (774     (16 %) 
  

 

 

   

 

 

   

 

 

   

Operating income

   $ 642      $ 1,807      $ (1,165     (64 %) 
  

 

 

   

 

 

   

 

 

   

Operating income %

     3     6    

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

 

     Amount     Change %  

Net sales change

   $ (3,035     (10 %) 

Foreign currency change

     (3,190     (11 %) 
  

 

 

   

 

 

 

Total

   $ (6,225     (21 %) 
  

 

 

   

 

 

 

The following summarizes financial results for Europe for the second quarter of fiscal 2013. All percentage change comparisons to the prior year exclude the impact of foreign currencies:

 

   

Net sales decreased 10% primarily as a result of a weakening lift truck market, due to economic conditions in Europe.

 

   

The decrease in our gross profit percentage is a result of lower cost absorption due to decreased sales volumes and higher product costs from changes in foreign currency rates.

 

   

Selling and administrative costs decreased during the current year primarily due to foreign currency rate changes.

Asia Pacific

 

     Three Months Ended July 31              
     2012     2011     Change     Change %  

Net sales

   $ 21,717      $ 21,167      $ 550        3

Transfers between areas

     24        8        16        200
  

 

 

   

 

 

   

 

 

   

Net sales and transfers

     21,741        21,175        566        3

Cost of goods sold

     15,585        13,903        1,682        12
  

 

 

   

 

 

   

 

 

   

Gross profit

     6,156        7,272        (1,116     (15 %) 

Gross profit %

     28     34    

Selling and administrative

     2,915        3,293        (378     (11 %) 
  

 

 

   

 

 

   

 

 

   

Operating income

   $ 3,241      $ 3,979      $ (738     (19 %) 
  

 

 

   

 

 

   

 

 

   

Operating income %

     15     19    

 

22


Table of Contents

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

 

     Amount     Change %  

Net sales change

   $ 1,592        8

Foreign currency change

     (1,042     (5 %) 
  

 

 

   

 

 

 

Total

   $ 550        3
  

 

 

   

 

 

 

The following summarizes financial results for Asia Pacific for the second quarter of fiscal 2013. All percentage change comparisons to the prior year exclude the impact of foreign currencies:

 

   

Net sales increased 8% primarily due to higher sales volumes as a result of strong lift truck markets.

 

   

Our prior year gross profit percentage included net insurance proceeds of $1.3 million related to the Australia flood. Without these insurance proceeds, the gross profit percentage would have been 28% for both years.

 

   

Operating income during the second quarter of fiscal 2012 reflects $0.9 million from net flood insurance proceeds. We did not receive any insurance proceeds and did not incur any significant flood related costs during the second quarter of fiscal 2013.

China

 

     Three Months Ended July 31              
     2012     2011     Change     Change %  

Net sales

   $ 15,532      $ 18,106      $ (2,574     (14 %) 

Transfers between areas

     8,000        8,771        (771     (9 %) 
  

 

 

   

 

 

   

 

 

   

Net sales and transfers

     23,532        26,877        (3,345     (12 %) 

Cost of goods sold

     16,561        19,292        (2,731     (14 %) 
  

 

 

   

 

 

   

 

 

   

Gross profit

     6,971        7,585        (614     (8 %) 

Gross profit %

     30     28    

Selling and administrative

     1,677        1,491        186        12
  

 

 

   

 

 

   

 

 

   

Operating income

   $ 5,294      $ 6,094      $ (800     (13 %) 
  

 

 

   

 

 

   

 

 

   

Operating income %

     22     23    

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

 

     Amount     Change %  

Net sales change

   $ (2,852     (16 %) 

Foreign currency change

     278        2
  

 

 

   

 

 

 

Total

   $ (2,574     (14 %) 
  

 

 

   

 

 

 

The following summarizes financial results for China for the second quarter of fiscal 2013. All percentage change comparisons to the prior year exclude the impact of foreign currencies:

 

   

Net sales decreased 16% primarily due to a slowdown in the Chinese economy and the lift truck industry.

 

23


Table of Contents
   

Our gross profit percentage increased due to a higher percentage of higher margin product sales and a reduction in the cost of steel.

COMPARISON OF THE FIRST SIX MONTHS OF FISCAL 2013 AND FISCAL 2012

Executive Summary

 

     Six Months Ended July 31              
     2012     2011     Change     Change %  
     (In thousands except per share amounts)        

Net sales

   $ 277,645      $ 271,819      $ 5,826        2

Gross profit %

     31     32    

Operating income

   $ 40,750      $ 45,484      $ (4,734     (10 %) 

Operating income %

     15     17    

Income before taxes

   $ 40,304      $ 44,368      $ (4,064     (9 %) 

Provision for income taxes

   $ 12,457      $ 14,093      $ (1,636     (12 %) 

Effective tax rate

     31     32    

Net income

   $ 27,847      $ 30,275      $ (2,428     (8 %) 

Diluted earnings per share

   $ 2.45      $ 2.68      $ (0.23     (9 %) 

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

 

     Amount     Change %  

Net sales change

   $ 11,074        4

Foreign currency change

     (5,248     (2 %) 
  

 

 

   

 

 

 

Total

   $ 5,826        2
  

 

 

   

 

 

 

The following is an overview for the six months ended July 31, 2012 and 2011. All percentage change comparisons to the prior year exclude the impact of foreign currencies:

 

   

Consolidated net sales increased 4% due to higher sales volumes as a result of a strong lift truck market and sales price increases in the Americas and Asia Pacific regions.

 

   

Our consolidated gross profit percentage decreased slightly during fiscal 2013. The prior year gross profit includes net flood insurance proceeds of $2 million.

 

   

During the first six months of fiscal 2012, we received net insurance proceeds related to the Australia flood of $2.4 million. These proceeds increased net income by $1.7 million ($0.15 diluted share).

 

   

Operating income was impacted during the current year by an 8% increase in selling and administrative costs primarily due to higher personnel costs, professional and legal expenses, consulting fees, product liability costs and warranty charges.

 

24


Table of Contents

Americas

 

     Six Months Ended July 31              
     2012     2011     Change     Change %  

Net sales

   $ 152,285      $ 138,729      $ 13,556        10

Transfers between areas

     13,696        16,029        (2,333     (15 %) 
  

 

 

   

 

 

   

 

 

   

Net sales and transfers

     165,981        154,758        11,223        7

Cost of goods sold

     116,934        108,069        8,865        8
  

 

 

   

 

 

   

 

 

   

Gross profit

     49,047        46,689        2,358        5

Gross profit %

     30     30    

Selling and administrative

     27,030        24,642        2,388        10
  

 

 

   

 

 

   

 

 

   

Operating income

   $ 22,017      $ 22,047      $ (30     (0 %) 
  

 

 

   

 

 

   

 

 

   

Operating income %

     13     14    

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

 

     Amount     Change %  

Net sales change

   $ 14,256        10

Foreign currency change

     (700     0
  

 

 

   

 

 

 

Total

   $ 13,556        10
  

 

 

   

 

 

 

The following summarizes financial results for the Americas for the first six months of fiscal 2013. All percentage change comparisons to the prior year exclude the impact of foreign currencies:

 

   

Net sales increased 10% due to higher sales volumes as a result of a strong lift truck market in the Americas, higher sales of products to the construction industry and sales price increases.

 

   

Our gross profit percentage remained consistent with the prior year as the benefit of higher sales volumes was offset by higher sales of lower margin product.

 

   

Selling and administrative costs increased due primarily to consulting, personnel, warranty, professional fees, product liability and other general costs.

 

25


Table of Contents

Europe

 

     Six Months Ended July 31              
     2012     2011     Change     Change %  

Net sales

   $ 50,027      $ 56,783      $ (6,756     (12 %) 

Transfers between areas

     450        641        (191     (30 %) 
  

 

 

   

 

 

   

 

 

   

Net sales and transfers

     50,477        57,424        (6,947     (12 %) 

Cost of goods sold

     40,180        44,902        (4,722     (11 %) 
  

 

 

   

 

 

   

 

 

   

Gross profit

     10,297        12,522        (2,225     (18 %) 

Gross profit %

     20     22    

Selling and administrative

     8,430        9,415        (985     (10 %) 
  

 

 

   

 

 

   

 

 

   

Operating income

   $ 1,867      $ 3,107      $ (1,240     (40 %) 
  

 

 

   

 

 

   

 

 

   

Operating income %

     4     5    

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

 

     Amount     Change %  

Net sales change

   $ (2,052     (4 %) 

Foreign currency change

     (4,704     (8 %) 
  

 

 

   

 

 

 

Total

   $ (6,756     (12 %) 
  

 

 

   

 

 

 

The following summarizes financial results for Europe for the first six months of fiscal 2013. All percentage change comparisons to the prior year exclude the impact of foreign currencies:

 

   

Net sales decreased 4% primarily as a result of a weakening lift truck market, due to uncertain economic conditions in the region.

 

   

The decrease in our gross profit percentage is a result of lower cost absorption due to decreased sales volumes and higher product costs from changes in foreign currency rates.

 

26


Table of Contents

Asia Pacific

 

     Six Months Ended July 31              
     2012     2011     Change     Change %  

Net sales

   $ 42,393      $ 39,259      $ 3,134        8

Transfers between areas

     40        88        (48     (55 %) 
  

 

 

   

 

 

   

 

 

   

Net sales and transfers

     42,433        39,347        3,086        8

Cost of goods sold

     30,538        26,274        4,264        16
  

 

 

   

 

 

   

 

 

   

Gross profit

     11,895        13,073        (1,178     (9 %) 

Gross profit %

     28     33    

Selling and administrative

     5,806        5,161        645        12
  

 

 

   

 

 

   

 

 

   

Operating income

   $ 6,089      $ 7,912      $ (1,823     (23 %) 
  

 

 

   

 

 

   

 

 

   

Operating income %

     14     20    

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

 

     Amount     Change %  

Net sales change

   $ 3,908        10

Foreign currency change

     (774     (2 %) 
  

 

 

   

 

 

 

Total

   $ 3,134        8
  

 

 

   

 

 

 

The following summarizes financial results for Asia Pacific for the first six months of fiscal 2013. All percentage change comparisons to the prior year exclude the impact of foreign currencies:

 

   

Net sales increased 10% primarily due to higher sales volumes as a result of a strong lift truck market throughout the region.

 

   

Our prior year gross profit percentage included net insurance proceeds of $2.0 million related to the Australia flood. Without these insurance proceeds, the gross profit percentage would have been 28% for both years.

 

   

During the first six months of fiscal 2012, operating income reflects $2.4 million from net flood insurance proceeds related to the Australia flood. We did not receive any insurance proceeds and did not incur any significant flood related costs during the first six months of fiscal 2013.

 

27


Table of Contents

China

 

     Six Months Ended July 31              
     2012     2011     Change     Change %  

Net sales

   $ 32,940      $ 37,048      $ (4,108     (11 %) 

Transfers between areas

     16,559        16,059        500        3
  

 

 

   

 

 

   

 

 

   

Net sales and transfers

     49,499        53,107        (3,608     (7 %) 

Cost of goods sold

     35,384        37,707        (2,323     (6 %) 
  

 

 

   

 

 

   

 

 

   

Gross profit

     14,115        15,400        (1,285     (8 %) 

Gross profit %

     29     29    

Selling and administrative

     3,338        2,982        356        12
  

 

 

   

 

 

   

 

 

   

Operating income

   $ 10,777      $ 12,418      $ (1,641     (13 %) 
  

 

 

   

 

 

   

 

 

   

Operating income %

     22     23    

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

 

     Amount     Change %  

Net sales change

   $ (5,038     (14 %) 

Foreign currency change

     930        3
  

 

 

   

 

 

 

Total

   $ (4,108     (11 %) 
  

 

 

   

 

 

 

The following summarizes financial results for China for the first six months of fiscal 2013. All percentage change comparisons to the prior year exclude the impact of foreign currencies:

 

   

Net sales decreased 14% primarily due to a slowdown in the Chinese economy and the lift truck industry.

 

   

Our gross profit percentage remained consistent with the prior year as sales volumes of lower margin product decreased during the current year.

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, 2012 and July 31, 2011 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  
     2012     2011     2012     2011  
     (In thousands)     (In thousands)  

Operating activities

   $ 12,928      $ 10,877      $ 17,154      $ 9,237   

Investing activities

     (2,656     (2,405     (6,844     (4,656

Financing activities

     1,348        (5,017     4,112        3,311   

Effect of exchange rate changes

     825        1,827        (1     (786
  

 

 

   

 

 

   

 

 

   

 

 

 

Net change in cash and cash equivalents

   $ 12,445      $ 5,282      $ 14,421      $ 7,106   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

28


Table of Contents

Operating Activities

Our primary source of liquidity is cash generated from operating activities, which is measured as net income 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:

 

   

Net income was lower during fiscal 2013 compared to fiscal 2012 primarily due to flood insurance proceeds received in the prior year.

 

   

Inventories increased $3 million during fiscal 2013 primarily due to product needed to meet customer demand and a business acquisition in Brazil, compared to an increase of $12 million during fiscal 2012 as a result of a significant increase in customer demand.

 

   

During the first six months of fiscal 2013 and fiscal 2012, accounts receivable increased primarily as a result of higher sales. However, the accounts receivable increase during fiscal 2012 was significantly higher.

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  
     2012      2011      2012      2011  

Americas

   $ 1,266       $ 1,221       $ 3,017       $ 2,095   

Europe

     432         447         641         772   

Asia Pacific

     421         636         1,153         1,150   

China

     535         1,102         946         1,691   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 2,654       $ 3,406       $ 5,757       $ 5,708   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following are investing activity highlights:

 

   

We expect capital expenditures for the remainder of fiscal 2013 to be approximately $11 million. This includes $9 million for routine expenditures and $2 million to replace equipment damaged in the Australia flood last year.

 

   

We acquired the assets, primarily inventory, accounts receivable and intangible assets, of our Brazilian distributor during the first quarter of fiscal 2013 for $1.2 million.

Financing Activities

The following are financing activity highlights:

 

   

We declared and paid dividends totaling $7.8 million ($0.70 per share) during fiscal 2013 and $4.4 million ($0.40 per share) during fiscal 2012.

 

29


Table of Contents

FINANCIAL CONDITION AND LIQUIDITY

The following are highlights regarding our financial condition and liquidity for the first six months of fiscal 2013:

 

   

Total outstanding debt at July 31, 2012, was $15 million, an increase of approximately $9 million compared to our January 31, 2012 debt balance. Our cash balance at July 31, 2012 was $39 million, an increase of $14 million compared to our January 31, 2012 cash balance. We anticipate paying down debt during the remainder of fiscal 2013, as we are able to repatriate funds from certain foreign subsidiaries without adverse tax consequences.

 

   

As of July 31, 2012, outstanding borrowings under our $100 million credit facility totaled $15 million with an additional $.6 million used to issue letters of credit. Based on these borrowings, the additional amount that may be borrowed under our credit facility is $84.4 million.

 

   

We were in compliance with our debt covenants at July 31, 2012. 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.

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, 2012.

OFF BALANCE SHEET ARRANGEMENTS

At July 31, 2012, 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

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

 

30


Table of Contents

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 have adopted this guidance by presenting a separate statement of comprehensive income.

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 following table represents the three-month percentage change from April 30, 2012 to July 31, 2012 and the six-month percentage change from January 31, 2012 to July 31, 2012 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 $4.7 million during the quarter ended July 31, 2012 and $4.0 million during the first six months of fiscal 2013.

 

Currency

   Change for
Three Months Ended
July 31, 2012
    Change for
Six Months Ended
July 31, 2012
 

Japanese Yen

     2     (2 %) 

Australian Dollar

     1     (1 %) 

Korean Won

     0     (1 %) 

Chinese Yuan

     (1 %)      (1 %) 

Canadian Dollar

     (2 %)      0

British Pound

     (3 %)      (1 %) 

Euro

     (7 %)      (6 %) 

The table below illustrates the hypothetical increase in net sales for the second quarter of fiscal 2013 resulting from a 10% weaker U.S. dollar against foreign currencies which impact our operations (in millions):

 

Euro

   $ 1.7   

Chinese Yuan

     1.6   

Japanese Yen

     0.8   

Australian Dollar

     0.8   

Canadian Dollar

     0.7   

Korean Won

     0.5   

British Pound

     0.5   

Other currencies (representing 2% of consolidated net sales)

     0.3   
  

 

 

 
   $ 6.9   
  

 

 

 

A 10% weaker U.S. dollar during the quarter, measured against foreign currencies that affect our operations, would have increased our operating income by approximately $1.5 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, Australian Dollars 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.

 

31


Table of Contents

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 as directly as 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 0.4% for each 1.0% increase in steel prices. Based on our statement of income for the three months ended July 31, 2012, a 1.0% increase in steel prices would have decreased consolidated gross profit by approximately $0.5 million.

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, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

32


Table of Contents

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, 2012.

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

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

None

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.

 

33


Table of Contents

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 5, 2012      
     

/s/ JOSEPH G. POINTER

      Joseph G. Pointer
     

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

34


Table of Contents

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.

 

35