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

FORM 10-Q

(Mark One)  

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

For the Quarterly Period Ended October 31, 2002

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

For the transition period from                              to                             

Commission file number 1-12557

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

Oregon
(State or other jurisdiction of
incorporation or organization)		   93-0136592
(I.R.S. Employer Identification No.)

2201 N.E. 201st Ave.
Fairview, Oregon
(Address of principal executive office)
 
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 ý    No o

        The number of shares outstanding of the registrant's common stock as of October 31, 2002 was 11,398,300.


CASCADE CORPORATION

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEET

(in thousands, except share and per share data)

 
   October 31
2002
   January 31
2002
  
 
   (unaudited)

    
  
ASSETS              
Current assets:              
  Cash and cash equivalents   $ 33,007   $ 25,611  
  Marketable securities     10,200     —  
  Accounts receivable, less allowance for doubtful accounts
of $1,563 and $1,350		     46,383     39,312  
  Inventories     28,802     30,817  
  Deferred income taxes     6,687     5,930  
  Prepaid expenses and other     3,582     4,387  
   
 
 
    Total current assets     128,661     106,057  
Property, plant and equipment, net     62,349     61,412  
Goodwill     57,873     56,177  
Notes receivable, net     9,376     8,873  
Deferred income taxes     10,779     10,797  
Other assets     2,949     3,970  
   
 
 
    Total assets   $ 271,987   $ 247,286  
   
 
 

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
Current liabilities:              
  Notes payable to banks   $ 816   $ 743  
  Current portion of long-term debt     12,658     13,246  
  Accounts payable     13,102     10,575  
  Accrued payroll and payroll taxes     5,944     4,973  
  Accrued environmental expenses     4,148     2,291  
  Other accrued expenses     11,823     8,218  
   
 
 
    Total current liabilities     48,491     40,046  
Long-term debt     62,627     65,679  
Accrued environmental expenses     9,855     10,203  
Deferred income taxes     1,915     1,743  
Other liabilities     5,321     4,974  
   
 
 
    Total liabilities     128,209     122,645  
   
 
 

Exchangeable preferred stock and minority interest
 
 
8,530
 
 
11,374
 
   
 
 
Shareholders' equity:              
  Common stock, $.50 par value, 20,000,000 authorized shares;
11,398,300 and 11,291,190 shares issued and outstanding		     5,699     5,646  
  Additional paid-in capital     1,468     —  
  Retained earnings     148,515     135,418  
  Accumulated other comprehensive loss:              
    Cumulative foreign currency translation adjustments     (20,434 )   (27,797 )
   
 
 
    Total shareholders' equity     135,248     113,267  
   
 
 
    Total liabilities and shareholders' equity   $ 271,987   $ 247,286  
   
 
 

The accompanying notes are an integral part of this statement.

2

CASCADE CORPORATION

CONSOLIDATED STATEMENT OF INCOME

(unaudited—in thousands, except per share data)

 
   Three Months Ended
October 31
   Nine Months Ended
October 31
 
   2002
   2001
   2002
   2001
Net sales   $ 70,241   $ 62,140   $ 194,455   $ 199,804
Cost of goods sold     45,298     41,232     126,650     131,722
   
 
 
 
Gross profit     24,943     20,908     67,805     68,082

Selling and administrative
 
 
14,411
 
 
12,786
 
 
41,679
 
 
40,872
Environmental expenses     2,100     —     2,100     —
Amortization of goodwill     —     1,067     —     3,228
   
 
 
 
Operating income     8,432     7,055     24,026     23,982

Interest expense, net
 
 
1,238
 
 
1,273
 
 
3,426
 
 
4,226
Other (income) expense     291     (225 )   136     64
   
 
 
 
Income before taxes from continuing operations     6,903     6,007     20,464     19,692
Provision for income taxes     2,485     2,279     7,367     7,479
   
 
 
 
Income from continuing operations     4,418     3,728     13,097     12,213

Income (loss) from discontinued operations, net of Income taxes
 
 
—
 
 
(107
)
 
—
 
 
476
   
 
 
 
Net income   $ 4,418   $ 3,621   $ 13,097   $ 12,689
   
 
 
 

Basic earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
  Continuing operations   $ 0.39   $ 0.33   $ 1.15   $ 1.08
  Discontinued operations     —     (0.01 )   —     0.04
   
 
 
 
    $ 0.39   $ 0.32   $ 1.15   $ 1.12
   
 
 
 

Diluted earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
  Continuing operations   $ 0.36   $ 0.31   $ 1.07   $ 1.00
  Discontinued operations     —     (0.01 )   —     0.04
   
 
 
 
    $ 0.36   $ 0.30   $ 1.07   $ 1.04
   
 
 
 
Basic weighted average shares outstanding     11,470     11,313     11,363     11,313
Diluted weighted average shares outstanding     12,202     12,129     12,216     12,161

The accompanying notes are an integral part of this statement.

3

CASCADE CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited—in thousands)

 
   Nine Months Ended
October 31
  
 
   2002
   2001
  
Cash flows from operating activities:              
  Net income   $ 13,097   $ 12,689  
  Adjustments to reconcile net income to net cash provided by operating activities:              
    Income from discontinued operations, net of income taxes     —     (476 )
    Depreciation and amortization     7,693     10,904  
    Deferred income taxes     (567 )   1,832  
    Gain on disposition of assets     (77 )   —  
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:              
  Accounts receivable     (7,071 )   4,069  
  Inventories     2,015     3,137  
  Prepaid expenses and other     294     297  
  Accounts payable and accrued expenses     3,498     (8,925 )
  Accrued environmental expenses     1,509     —  
  Other liabilities     3,952     2,494  
   
 
 
    Cash provided by continuing operations     24,343     26,021  
    Cash provided by discontinued operations     —     1,435  
   
 
 
    Net cash provided by operating activities     24,343     27,456  
   
 
 

Cash flows from investing activities:
 
 
 
 
 
 
 
  Capital expenditures     (5,680 )   (5,519 )
  Proceeds from sale of assets     192     396  
  Additions to notes receivable     (2,102 )   —  
  Proceeds from notes receivable     2,286     —  
  Purchase of marketable securities     (10,200 )   —  
  Other assets     77     704  
   
 
 
    Cash used in continuing operations     (15,427 )   (4,419 )
    Cash provided by discontinued operations     —     551  
   
 
 
    Net cash used in investing activities     (15,427 )   (3,868 )
   
 
 

Cash flows from financing activities:
 
 
 
 
 
 
 
  Payments on long-term debt     (2,810 )   (10,822 )
  Notes payable to banks, net     73     (2,975 )
  Common stock repurchased and retired     (1,396 )   (1,158 )
  Stock options exercised     73     —  
   
 
 
  Net cash used in financing activities     (4,060 )   (14,955 )
   
 
 
Effect of exchange rate changes     2,540     (1,578 )
   
 
 
Change in cash and cash equivalents     7,396     7,055  
Cash and cash equivalents at beginning of year     25,611     12,418  
   
 
 
Cash and cash equivalents at end of period   $ 33,007   $ 19,473  
   
 
 
Supplemental disclosure of cash flow information:              
  Cash paid during period for:              
    Interest   $ 4,528   $ 4,291  
    Income taxes   $ 7,008   $ 5,161  

Supplemental disclosure of noncash financing activities:
 
 
 
 
 
 
 
  Conversion of exchangeable preferred stock to common stock   $ 2,844   $ —  
  Termination of lease receivable and related liability   $ 1,080   $ —  

The accompanying notes are an integral part of this statement.

4

CASCADE CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

(unaudited—in thousands)

 
   Common Stock
    
    
   Accumulated
Other
Comprehensive
Income
    
 
   Additional
Paid-In
Capital
   Retained
Earnings
   Nine Months
Comprehensive
Income
 
   Shares
   Amount
Balance at January 31, 2002   11,291   $ 5,646   $ —   $ 135,418   $ (27,797 )    
Net income   —     —     —     13,097     —   $ 13,097
Stock options exercised   7     3     70     —     —     —
Exchangeable convertible preferred
stock converted to common shares		   200     100     2,744     —     —     —
Common stock repurchased   (100 )   (50 )   (1,346 )   —     —     —
Translation adjustment   —     —     —     —     7,363     7,363
   
 
 
 
 
 
Balance at October 31, 2002   11,398   $ 5,699   $ 1,468   $ 148,515   $ (20,434 ) $ 20,460
   
 
 
 
 
 

The accompanying notes are an integral part of this statement.

5

CASCADE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited—in thousands)

Note 1—Interim Financial Information

        The accompanying consolidated financial statements of Cascade Corporation (the Company) for the interim periods ended October 31, 2002 and 2001 are unaudited. In the opinion of management, the accompanying consolidated financial statements reflect normal recurring adjustments necessary for a fair statement of the results of operations 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 the Company's audited financial statements included in its Annual Report on Form 10-K for the fiscal year ended January 31, 2002.

Note 2—Segment Information

        The following presents segment information from continuing operations, except identifiable assets.

For the nine months ended
October 31, 2002
   North America
   Europe
   Other
   Eliminations
   Consolidation
Sales to unaffliated customers   $ 123,170   $ 44,880   $ 26,405   $ —   $ 194,455
Transfers between areas     9,575     678     66     (10,319 )   —
   
 
 
 
 
Net sales   $ 132,745   $ 45,558   $ 26,471   $ (10,319 ) $ 194,455
Net income (loss) from continuing operations   $ 10,244   $ (68 ) $ 2,921   $ —   $ 13,097
Identifiable assets   $ 172,243   $ 70,310   $ 29,434   $ —   $ 271,987

For the nine months ended
October 31, 2001
 
 
 
 
 
 
 
 
 
 
Sales to unaffliated customers   $ 128,271   $ 46,137   $ 25,396   $ —   $ 199,804
Transfers between areas     11,200     531     88     (11,819 )   —
   
 
 
 
 
Net sales   $ 139,471   $ 46,668   $ 25,484   $ (11,819 ) $ 199,804
Net income from continuing operations   $ 10,381   $ 890   $ 942   $ —   $ 12,213
Identifiable assets   $ 165,696   $ 70,874   $ 29,244   $ —   $ 265,814

For the three months ended
October 31, 2002
 
North America
 
Europe
 
Other
 
Eliminations
 
Consolidation
Sales to unaffliated customers   $ 44,445   $ 16,117   $ 9,679   $ —   $ 70,241
Transfers between areas     3,298     304     35     (3,637 )   —
   
 
 
 
 
Net sales   $ 47,743   $ 16,421   $ 9,714   $ (3,637 ) $ 70,241
Net income (loss) from continuing operations   $ 3,418   $ (217 ) $ 1,217   $ —   $ 4,418

6


For the three months ended
October 31, 2001
 
 
 
 
 
 
 
 
 
 
Sales to unaffliated customers   $ 40,128   $ 13,661   $ 8,351   $ —   $ 62,140
Transfers between areas     3,443     283     6     (3,732 )   —
   
 
 
 
 
Net sales   $ 43,571   $ 13,944   $ 8,357   $ (3,732 ) $ 62,140
Net income from continuing operations   $ 3,104   $ 188   $ 436   $ —   $ 3,728

Note 3—Marketable Securities

        Marketable securities consist of asset-backed notes issued by various state agencies throughout the United States and guaranteed by the United States or state governments or agencies. The notes are long-term instruments maturing through 2036, however the interest rates and maturities are reset approximately every month. Accordingly, the Company has classified the notes as current assets in its consolidated balance sheet and considers these assets available for sale.

Note 4—Inventories

 
   October 31,
2002
   January 31,
2002
Finished goods and components   $ 18,572   $ 21,493
Work in process     985     865
Raw materials     9,245     8,459
   
 
    $ 28,802   $ 30,817
   
 

Note 5—Goodwill

        The Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," effective February 1, 2002. The provisions of SFAS 142 prohibit the amortization of goodwill and indefinite-lived intangible assets, require that goodwill and indefinite-lived intangible assets be tested at least annually for impairment, require reporting units be identified for the purpose of assessing potential future impairments of goodwill, and remove the forty-year limitation on the amortization period of intangible assets that have finite lives.

        The Company completed the transitional impairment test for goodwill in the quarter ended April 30, 2002 and determined the impairment test did not impact the Company's earnings and financial position. As a result of the non-amortization provisions of SFAS 142, the Company will no longer record approximately $4.4 million of annual amortization expense relating to goodwill. The

7


following table presents prior year earnings and earnings per share as if the non-amortization provisions of SFAS 142 had been applied in the prior year:

(Amounts in thousands, except per share data)
   Three Months
Ended
October 31, 2001
   Nine Months
Ended
October 31, 2001
Net income:            
  Reported from continuing operations   $ 3,728   $ 12,213
  Goodwill amortization, net of income taxes of $406 and $1,227     661     2,001
   
 
  Adjusted net income from continuing operations   $ 4,389   $ 14,214
   
 
Basic earnings per share from continuing operations:            
  Reported basic earnings per share   $ 0.33   $ 1.08
  Goodwill amortization, net of income taxes     0.06     0.18
   
 
  Adjusted basic earnings per share from continuing operations   $ 0.39   $ 1.26
   
 
Diluted earnings per share from continuing operations:            
  Reported diluted earnings per share   $ 0.31   $ 1.00
  Goodwill amortization, net of income taxes     0.05     0.17
   
 
  Adjusted diluted earnings per share from continuing operations   $ 0.36   $ 1.17
   
 

        The breakdown of goodwill by geographic region at October 31 and January 31, 2002 is provided in the table below (amounts in thousands). The change in balances between periods is entirely due to fluctuations in foreign currencies.

Breakdown of goodwill by geographic region:
   October 31,
2002
   January 31,
2002
North America   $ 48,341   $ 47,437
Europe     6,331     5,532
Other