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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____ TO ____
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COMMISSION FILE NUMBER 1-12557
CASCADE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OREGON 93-0136592
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) 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
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, PAR VALUE $.50 PER SHARE
Name of exchange on which registered: NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K. / /
The aggregate market value of common stock held by non-affiliates of the
registrant as of March 31, 1999 was $127,591,210.
The number of shares outstanding of the registrant's common stock as of March
31, 1999 was 11,534,190.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1998 Annual Report to Shareholders are incorporated by
reference into Parts I, II and IV. Portions of the definitive Proxy Statement
dated April 14, 1999 to be delivered to shareholders in connection with the
Annual Meeting of Shareholders to be held May 13, 1999 are incorporated by
reference into Parts I and III.
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TABLE OF CONTENTS
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PAGE
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PART I
ITEM 1. BUSINESS 1
GENERAL 1
ATTACHMENT PRODUCTS 1
FORK PRODUCTS 2
INDUSTRIAL TIRES 4
OTHER 5
ITEM 2. PROPERTIES 6
ITEM 3. LEGAL PROCEEDINGS 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS 6
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 7
ITEM 6. SELECTED FINANCIAL DATA 7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 11
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 11
ITEM 11. EXECUTIVE COMPENSATION 12
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 12
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K 12
SIGNATURES 14
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NOTE: All references to the fiscal year (i.e. Fiscal 1996, 1997 and 1998) refer
to the period ended January 31 of the year subsequent to the fiscal year (i.e.
January 31, 1997, January 31, 1998, and January 31, 1999).
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ITEM 1. BUSINESS
GENERAL
Cascade Corporation is a corporation organized in 1943 under the laws of
the State of Oregon. The term "the Company" as used hereinafter means Cascade
Corporation and subsidiaries. The Company's headquarters are located at 2201
N.E. 201st Ave. Fairview, Oregon 97024 (telephone number 503-669-6300).
The Company has for many years been one of the world's leading
manufacturers of attachments, masts, hose reels, sideshifters, hydraulic
cylinders and related replacement parts, primarily for the lift truck industry.
Acquisitions in 1996 and 1997 expanded the Company's attachment and hydraulic
cylinder capabilities, and broadened its focus to include forks and solid tires,
also primarily for the lift truck industry.
Following these acquisitions, the Company organized itself into three
basic divisions: Attachment Products, Fork Products, and Industrial Tires,
however all divisions operate under and serve the lift truck industry segment. A
description of each group follows:
ATTACHMENT PRODUCTS
The Attachment Products division manufactures an extensive line of
hydraulically actuated attachments designed for mounting on industrial lift
trucks. The primary function of these products is to increase the scope and
efficiency of materials handling applications normally performed by lift trucks.
The Attachment Products division offers a wide variety of functionally different
attachments, each of which has several models, capacities and optional
combinations. These attachments have been designed to clamp, lift, rotate, push,
pull, tilt and sideshift a variety of loads such as appliances, paper rolls,
baled materials, textiles, beverage containers, drums, canned goods, bricks,
masonry blocks, lumber, plywood and boxed, packaged, palletized and
containerized products of virtually all types.
In addition, the Attachment Products division manufactures hydraulic
cylinders, which are used to transmit power in lift trucks and other types of
machinery and industrial equipment. A substantial number of cylinders are
utilized in the Company's proprietary lift truck attachment products. Hydraulic
cylinders are also sold to manufacturers of various types of materials handling
and other mobile equipment, usually through the customer's purchasing and
engineering departments.
The Company believes its Attachment Products division is one of the
leading domestic and foreign independent suppliers of hydraulically actuated
materials handling equipment designed for mounting on industrial lift trucks.
Several lift truck manufacturers, who are customers of the Company, are also
competitors in varying degrees to the extent that they manufacture a portion of
their attachment requirements. Since the Attachment Products division offers a
broad line of attachments capable of supplying a significant part of the total
requirements for the entire lift truck industry, the Company believes lower
costs resulting from its relatively high unit volume would be difficult for any
individual lift truck manufacturer to achieve.
This division's products are sold to both original equipment manufacturers
(OEMs) and equipment dealers. Products are marketed throughout the United
States, Canada, Latin America, Europe,
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the Middle East, Australia, Africa and Asia.
Since the Attachment Products division deals with lift truck manufacturers
and their dealers, a substantial portion of its sales are concentrated in a few
major customers, none of which account for more than 10% of the division's total
sales.
The Attachment Products division purchases raw materials and components,
principally rolled products from steel mills, unfinished castings and forgings,
hydraulic motors and hardware items such as fasteners, rollers, hydraulic seals
and hose assemblies. The division is not currently experiencing any shortages in
obtaining raw materials or purchased parts. A significant portion of rolled
steel is purchased from a German steel mill. With respect to other materials,
the division has several domestic and foreign suppliers. Difficulties in
obtaining any of those items could affect the division's results.
The division's headquarters are located in Portland, Oregon. North
American manufacturing activities are conducted in its plants in Portland,
Oregon; Springfield, Ohio; Beulaville, North Carolina, Warner Robins, Georgia;
and Toronto, Ontario, Canada. Overseas manufacturing sites include the United
Kingdom, The Netherlands, Australia, Sweden and China. In addition, this
division has sales, engineering and warehousing facilities in Japan, Korea,
Germany, France, Spain, Finland, New Zealand and South Africa.
During the last five years, sales of attachments accounted for 76% to 54%
of the Company's consolidated sales, and hydraulic cylinders accounted for
approximately 17% to 8%. The lower percentages are for recent years and reflect
the addition of Fork Products and Industrial Tires to the Company's product
line. Replacement parts for these products and other sales accounted for an
additional 11% to 5% of total sales. North American sales ranged from 55% to 60%
of division sales, while European sales ranged from 31% to 32%.
The backlog for this division was approximately $19,196,000 at January 31,
1999. Of this order backlog, approximately 85% was due within 60 days and
substantially all within six months.
The Attachment Products division maintains an extensive research and
development effort aimed at increasing the efficiency, durability and capacity
range of its product line. The Company does not believe patents are important to
the division's business. The division's products are manufactured with the
Cascade name and symbol, for which the Company has secured trademark protection.
FORK PRODUCTS In March 1997, the Company established the Fork Products
division with the purchase of Kenhar Corporation (see note 10 to the 1998
Annual Report to Shareholders). Forks are certified lifting devices and
subject to strict design, construction and safety requirements established by
industry associations and the International Standards Association. The Fork
Products division continues to market under the Kenhar brand name. Kenhar
forks are carefully designed and engineered products requiring specially
formulated steel, a manufacturing process which strengthens the "heel",
certified welding of the brackets which hold them to the carriage and heat
treatment of the finished product.
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The Fork Products division presently offers a wide variety of both
standardized and specialized forks. Fork characteristics are dictated by the
expected capacity to be lifted, the characteristics of the load, the ambient
environment in which they are employed, the terrain over which the load will be
moved and the operational life cycle of the vehicle using the fork. Accordingly,
while there are some standard fork products, a wide range of forks in custom
sizes and shapes is demanded in the market.
The Company believes the Fork Products division is one of the leading
independent manufacturers of forks for lift trucks in the world. Market share
varies by geographic region. In addition to sales to the lift truck market, the
Fork Products division has an increasing market share of forks sold to OEMs of
construction, mining, agricultural and industrial (other than lift trucks)
mobile equipment. The Company believes the Fork Products segment is the leading
manufacturer in North America. It is the preferred supplier of many OEMs as
well as after-market dealers and distributors. This division also has
significant market share in Europe and is continuing its sales and manufacturing
expansion into the Asia/Pacific region. Since the Fork Products division offers
a broad range of both standard and specialized forks it is capable of supplying
a significant part of the total requirements for the lift truck industry.
Management believes that its high-unit volume results in lower costs that would
be difficult for any single competitor to achieve.
As with other divisions of the Company, the division's sales are primarily
related to the lift truck industry. A substantial portion of its sales are
concentrated in a few major customers. During 1998, the division's largest
customer accounted for 12.4% of its sales, while sales to its next largest
customer were 2.6% of its sales.
The Fork Products division purchases material and components necessary to
produce its products. The principal item purchased is bar steel. The division is
not currently experiencing any shortage in obtaining bar steel. As with other
manufactures using bar steel, the Fork Products division obtains its bar steel
from steel mills under long-term purchase contracts. While the division has
alternative suppliers of bar steel identified, difficulties in obtaining
alternative sources of bar steel could affect the division's operating results
should bar steel from one of its primary suppliers become unavailable.
Headquarters of this division are located in Guelph, Ontario, Canada.
North American manufacturing activities are conducted in plants in Guelph,
Canada and Findlay, Ohio. Overseas manufacturing sites include Manchester,
United Kingdom; La Machine, France; Brescia, Italy; Hebei, China; and Inchon,
South Korea.
This division's products are primarily sold to OEMs and also to lift truck
dealers. Products are marketed extensively throughout North America and Europe.
In addition, the division is continuing to increase marketing activities and
market share in Asia, Australia and New Zealand.
As previously mentioned, this division was purchased in March 1997.
Accordingly, the Company's consolidated net sales includes sales from the Fork
Products division for the year ended January 31, 1999 and the eleven months
ended January 31, 1998. During these periods this division accounted for 21% of
total Company sales. During these same periods, North American sales ranged from
69% to 67% of division sales, while European sales ranged from 29% to 28%.
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The backlog for this division was approximately $8,966,000 at January 31,
1999. Of this order backlog, approximately 87% was due within 60 days and
substantially all within six months.
Patents have been a relatively unimportant factor in the development of
the division's business.
INDUSTRIAL TIRES
In January 1997 the Company purchased Industrial Tires Limited and created
the Industrial Tire division (see note 10 to the consolidated financial
statements of the 1998 Annual Report to Shareholders). The Industrial Tire
division continues to market products under the ITL brand name. This division
designs, manufactures, sells and services non-pneumatic or solid tires. Solid
tires are used extensively on lift trucks and other industrial mobile equipment
such as airport ground support equipment, aerial platform equipment and large
loader and skid steer machinery.
Subsequent to year end the Company announced its intention to sell the
Industrial Tire division to Maine Rubber Company. The agreement calls for Maine
Rubber Company to purchase all operating assets and assume certain liabilities
of the Industrial Tire division as well as the Fork Products division's baseband
manufacturing operations. Closing of the transaction, valued between $38,000,000
and $40,000,000, was completed on April 29, 1999.
The Industrial Tire division is one of the leading North American
suppliers of solid tires to the lift truck industry. In addition, the Industrial
Tire division has made significant progress in expanding into the much broader
market of high-load, high-hazard, and low-speed applications such as aerial
platform equipment, airport ground support equipment and off-the-road
applications such as waste management and underground mining. Products are sold
primarily to the aftermarket through independent distributors, equipment dealers
and tire dealers. The Industrial Tire division also sells a significant amount
of its volume to OEMs for installation on new equipment. The Industrial Tire
division recently expanded its sales and marketing outside of North America.
The Industrial Tire division experiences intense competition from large
companies offering a full range of products to smaller companies specializing in
certain segments of the market. Important competitive factors include price,
availability, service, product quality and company image. Management believes
that through its commitment to research and development of new products combined
with existing manufacturing resources, low cost contract manufacturing and
commitment to state-of-the-art distribution technologies, the Industrial Tire
division should remain competitive.
The Industrial Tire division purchases materials necessary to produce its
products. The principal products purchased are rubber compounds and precision
manufactured steel wheels ("basebands"). During 1997, the division experienced
an interruption in the supply of compounded rubber from its largest supplier.
However, with only a slight effect on operations, the division was able to
quickly identify an alternative supplier at comparable costs. Basebands are
currently purchased from the Fork Products segment. As with compounded rubber
products, management believes alternative suppliers of basebands are available.
The Industrial Tire division is not experiencing any shortages in obtaining
basebands. Nevertheless, difficulties in obtaining any of these products could
affect the division's operating results.
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The division's headquarters, manufacturing plant and retail center are
located in Mississauga, Ontario, Canada. Contract manufacturing is conducted
in factories in Mexico and China. In addition to independent distributors,
the division has nine distribution and warehousing centers located throughout
North America.
As with other divisions of the Company, the division's sales are primarily
related to the lift truck industry. A substantial portion of its sales are
concentrated in a few major customers. During 1998, the division's largest
customer accounted for 20.2% of its sales, while sales to its next largest
customer were 12.2% of its sales.
For the years ended January 31, 1999 and 1998, this division accounted for
9.5% to 9.6% of total Company sales. Substantially all sales were in North
America.
The backlog for this division was approximately $297,000 at January 31,
1999. Substantially all of this order backlog was due within 60 days.
Patents have been a relatively unimportant factor in the development of
the division's business.
OTHER
RESEARCH AND DEVELOPMENT
Most of the Company's research and development activities are performed in
a 28,000-square-foot product development center in Portland, Oregon. The
engineering staff develops and designs almost all of the products sold by the
Company. This staff numbers approximately 79 engineers and is continually
involved in developing new products and applications in the materials handling
field and improving existing lines. Consolidated research and development
expenses in the fiscal years ended January 31, 1999, 1998 and 1997 were
approximately $4,500,000, $5,500,000 and $4,900,000, respectively.
ENVIRONMENTAL QUALITY
From time to time the Company is the subject of investigations,
conferences, discussions, and negotiations with various federal, state, local
and foreign agencies with respect to cleanup of hazardous waste and compliance
with environmental laws and regulations. The balance of the response to this
section of Item 1 is incorporated by reference to Note 12 of the Notes to the
Consolidated Financial Statements in the 1998 Annual Report to Shareholders and
the information contained in "Management's Discussion and Analysis of Financial
Conditions and Results of Operations".
EMPLOYEES
At January 31, 1999 the Company had 2,174 full-time employees throughout
the world. The majority of these employees are not subject to collective
bargaining agreements. The Company believes relations with its employees are
excellent.
FOREIGN OPERATIONS
The Company has substantial operations outside the United States. There
are additional business risks attendant to the Company's foreign operation such
as the risk that the relative value of the underlying local currencies may
weaken when compared to the U.S. dollar. For further information about foreign
operations, please see Note 14 of the 1998 Annual Report to Shareholders.
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FORWARD-LOOKING STATEMENTS
Forward-looking statements throughout this report are based upon
assumptions involving a number of risks and uncertainties. Factors which could
cause actual results to differ materially from these forward-looking statements
include, but are not limited to competitive factors in, and the cyclical nature
of, the materials handling industry; fluctuations in lift truck orders or
deliveries, availability and cost of raw materials; general business and
economic conditions in North America, Europe and Asia; foreign currency
fluctuations; effectiveness of the Company's cost reduction initiatives; and the
Company's success in organizationally and operationally integrating recently
acquired businesses.
ITEM 2. PROPERTIES
The Company owns and leases various types of properties located throughout
North America, Europe, Australia, South Africa, China, Korea and Japan. Of the
above mentioned properties, the following are considered principal facilities:
The Company's principal executive offices are located at 2201 N.E.
201st Ave., Fairview, Oregon 97024. The Company operates sales offices,
manufacturing or warehouse facilities in 16 countries. Its major
manufacturing facilities in the United States are located in Springfield and
Findlay, Ohio; Warner Robins, Georgia; Beulaville, North Carolina and
Portland, Oregon. Major manufacturing facilities located outside the United
States include Almere and Hoorn, The Netherlands; La Machine, France;
Manchester and Newcastle, United Kingdom; Vaggeryd, Sweden; Toronto,
Mississauga and Guelph, Ontario, Canada; Brisbane and Melbourne, Australia;
Inchon, Korea; Xiamen and Hebei, China; and Brescia, Italy. Sales offices and
warehouse facilities are located in Japan, South Africa, New Zealand,
Australia, Sweden, Italy, United Kingdom, France, Germany, Spain, The
Netherlands, China, Canada and the United States. (See Item 1 Business for
more information regarding the location of the principal facilities for each
industry segment.) The Company owns 14 facilities that include major
manufacturing facilities and certain sales and warehouse buildings, four of
which are located in the United States and 10 of which are located in other
countries. The Company leases 33 facilities, 13 of which are located in the
United States and 20 of which are located in other countries.
The Company generally considers the productive capacity of the plants
operated by each of its industry segments adequate and suitable for the
requirements of each such segments.
Several subsidiary companies are parties to various leases of office and
computer equipment, storage space and automobiles which are of minor
consequence.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries are involved in any
material pending legal proceedings other than litigation related to
environmental matters discussed at page 15 of the 1998 Annual Report to
Shareholders or matters in the regular course of business. The Company and its
subsidiaries are adequately insured against product liability, personal injury
and property damage claims which may occasionally arise.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of January 31, 1999, there were 369 holders of the Company's common
stock including blocks of shares held by various depositories. It is the
Company's belief that when the shares held by the depositories are attributed to
the beneficial owners, the total exceeds 2,500. The remainder of the response to
this Item is incorporated by reference to page 21 of the 1998 Annual Report to
Shareholders.
During the year ended January 31, 1998, a Canadian subsidiary of the
Company issued 1,100,000 preference shares in connection with the acquisition of
Kenhar Corporation, each exchangeable for one common share of the Company. The
preference shares were issued in an exempt private offering transaction and have
not been registered. The Company has agreed to register common shares issued to
the holder of exchangeable shares under certain conditions. Absent registration,
Rule 144 would apply to sales of such common shares.
The Company also issued 225,000 common shares in connection with the
acquisition of Hyco-Cascade Ltd., and 29,006 common shares in connection with
the acquisition of minority interests in two subsidiaries of Kenhar, all in
exempt private offering transactions. These common shares have not been
registered. Absent registration, Rule 144 would apply to sales of such common
shares.
ITEM 6. SELECTED FINANCIAL DATA
Pages 1 and 6 through 18 of the 1998 Annual Report to Shareholders is
incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NET REVENUES
Consolidated net sales for 1998 totaled $407,930,000, a 10.3% increase from 1997
sales of $369,865,000. In 1997, consolidated net sales were 69.3% higher then
1996 due to acquisitions made in the fourth quarter of 1996 and the first
quarter of 1997 as well as strong industry conditions.
Attachment Products sales in North America were 9.1% higher than in 1997 after
eliminating the effects of the sale of the mast business unit as discussed
below. Industry booking figures leveled off from their steady climb of the past
three years, but were still at near record levels. After a brief decline in the
third quarter of the year, shipments and new orders for lift trucks from
manufacturers inched back up at year end. Industry forecasts generally call for
activity in calendar 1999 to be about the same as 1998. Compared to fiscal 1996,
fiscal 1997 Attachment Products sales in North America increased by 10.6%.
Attachment Product sales in Europe grew 24.0% from the previous year after
eliminating the effect of certain OEM mast business which has been discontinued.
European industry statistics dropped sharply in September and October, but
showed signs of strengthening at the end of the year. Forecasts call for a flat
to slightly lower year in lift truck shipments in Europe for the coming year.
Our Asian subsidiaries have dealt well with the difficult economic conditions in
that region of the world. They have held market share and our South Korean
operation posted a slight profit.
Fork Products sales in North America increased 9.3% in 1998 compared to 1997 and
European busi-
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ness increased by 6.7% as well. The addition of Kenhar forks to our product
line in 1997 has been successful, and further gains are planned this year as
marketing, pricing and operational strategies take full effect. The addition
of the Fork Products group in 1997 resulted in adding $79,745,000 to
consolidated net sales in 1997 and $88,302,000 in 1998.
Industrial Tire sales increased by 9.3% in 1998 from 1997. The product group was
acquired at the end of fiscal 1996. Industrial Tire sales added $35,380,000 to
consolidated net sales in 1997 and $38,660,000 in 1998.
At the end of 1998, the Company divested its mast operation by selling it to
former members of management, who have formed a new company, Lift Technologies,
Inc. The Company determined that the risk from customer concentration along with
potential future returns would not justify the necessary new investment that
would be required to modernize the design of this product line. In fiscal 1998,
the mast product line contributed approximately $50,400,000 in net sales. While
this divestiture will cause revenues to be reduced in the coming year, due to
the low profit margins of this product line and high costs of future product
redesign, management does not expect a significant negative impact on future
operating results.
Any significant decline in the lift truck market could negatively affect future
operating results.
COST OF SALES
As a percentage of sales, cost of sales was 68.9% in 1998, 70.2% in 1997 and
65.5% in 1996. The percentage decreased in 1998 as the result of a combination
of selected price increases, cost reduction efforts and additional manufacturing
efficiencies generated from higher factory throughput. As noted earlier the
Industrial Tire and Fork Products divisions were added in late fiscal 1996 and
early 1997, respectively. As these product lines have traditionally been sold to
original equipment manufacturers (OEM's), these divisions have higher costs
relative to sales then the Attachment Products division. As a result, the 1997
cost of sales percent of sales is significantly higher than the 1996 percent.
DEPRECIATION AND AMORTIZATION
Depreciation and Amortization expense was $21,550,000, $20,280,000 and
$10,280,000 in 1998, 1997 and 1996, respectively. As a percentage of sales,
depreciation and amortization was 5.3% in 1998, 5.5% in 1997 and 4.7% in 1996.
As a result of business acquisitions made in 1997 and 1996 the Company added
significant amounts of depreciable assets to its balance sheet and $99,688,000
of goodwill. The goodwill is being amortized over its 20 year estimated useful
life.
SELLING AND ADMINISTRATIVE EXPENSES
The absolute dollar amounts of selling and administrate expenses have increased
in order to support the growth in net revenues. As a percentage of net sales,
selling and administrative expenses continue to decline and were 16.8% in 1998,
17.3% in 1997 and 18.4% in 1996.
ENVIRONMENTAL EXPENSES, NET
Environmental expenses in 1997 include the effect of settlements totaling
$23,750,000 with several insurance companies. The net impact of these
settlements after adjusting for certain litigation and environmental expenses
was a credit to environmental expense of $14,890,000.
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NONOPERATING ITEMS
Interest expense was $10,940,000, $9,440,000 and $876,000 in 1998. 1997 and
1996, respectively. In 1997, the Company issued additional debt to fund business
acquisitions.
Other Income of $4,755,000 in 1998 included the gain on the sale of two parcels
of land.
NET INCOME
Net income for the year ended January 31, 1999 was a record $21,370,000 or $1.63
per share. This compares to $21,040,000 ($1.60 per share) for the year ended
January 31, 1998, which included $9,770,000 ($.74 per share) resulting from
insurance settlements related to environmental litigation initiated several
years ago.
Fiscal 1998's results of 5.2% were a strong improvement over the prior year when
net income (before insurance settlements) was 3.0% of sales. In fiscal year 1998
net income included $90,000 from the Company's Australian subsidiary compared to
a loss of $2,406,000 in 1997. The changes made are beginning to show results,
and with continued focus, management expects additional progress in 1999 towards
the goal of a satisfactory return on the Company's investment in Australia.
Attachment operations in China were profitable in 1998 and additional
progress is anticipated in 1999. The operation in Hebei, PRC has improved its
quality and is beginning to export forks to Korea. These improvements, along
with increased volume, should help Hebei achieve its goals in 1999.
Forecasts for 1999 are for a continuation of the level of activity experienced
in 1998. Nevertheless, the Company is monitoring industry signs for the
potential for lower activity in the year 2000 and later. The Company has worked
hard in 1998 to improve margins and reduce the cost of doing business, and will
continue to take steps to be as efficient as possible in 1999 and coming years.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended January 31, 1999, capital expenditures totaled $22,357,000,
which includes $8,268,000 spent on the company's ERP project, compared to
$15,453,000 for 1997 and $16,624,000 for 1996. Planned capital expenditures for
1999 of $19,226,000 include $4,459,000 for implementation of an enterprise-wide
software system to link all of the Company's core business systems. The
implementation is being phased-in throughout the operating units with final
completion scheduled for fiscal 2000.
Dividends for 1998 and 1997 totaled $.40 per share as compared to $.45 per share
in 1996. The 1996 dividends included a special $.09 per share year end dividend.
In 1997 the Company increased the quarterly dividend from $.09 to $.10 per
share. No special year-end dividends were declared in 1998 or 1997.
The Company's financial condition remains strong. The balance sheet shows
$11,460,000 in cash and cash equivalents at January 31, 1999. Together with
established short-term lines of credit totaling $22,322,000, management
believes these resources are more than sufficient to meet planned short-term
needs and provide for working capital requirements associated with projected
growth. The sale of the mast operation and the future sale of the industrial
tire division would further strengthen the company's liquidity position.
Net cash provided by operating activities was $20,702,000 in 1998 compared to
$15,701,000 in 1997 and $22,374,000 in 1996. The increase in 1998 was primarily
due to a decrease in deferred income
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taxes and an increase in accounts payable. The decrease in cash provided by
operating activities in 1997 compared to 1996 was due to increases in
inventories and deferred taxes and decrease in accounts payable and accrued
expenses, partially offset by increases in net income, depreciation and
amortization.
The Company's debt to equity ratio improved from 1.45 to 1.00 at January 31,
1998 to 1.33 to 1.00 at January 31, 1999.
The US dollar strengthened when compared to most foreign currencies where the
Company has substantial operations. As a result, foreign currency translation
adjustments decreased shareholders' equity by $3,184,000 ($.24 per share) in
1998. Translation adjustments resulted in decreases in shareholder's equity of
$6,874,000 ($.52 per share) and $2,095,000 ($.18 per share) in 1997 and 1996.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Some of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, ship
product or engage in any number of similar business activities.
Based on its assessment of the Year 2000 Issue, the Company determined that it
would need to modify or replace portions of its software so that its computer
systems will properly utilize dates beyond December 31, 1999. The Company
presently believes that with modifications to existing software and conversions
to new software, the Year 2000 Issue can be mitigated. However, if such
modifications and conversions are not made or completed timely, the Year 2000
issue could have a material impact on the operations of the Company.
The Company has identified significant suppliers and service providers to
determine the extent to which the Company is vulnerable to those third parties'
failure to remediate their own Year 2000 Issue. This program is ongoing and the
Company will continue to evaluate responses received to determine if Year 2000
issues exist with these third parties. It is expected that full identification
will be completed by June 1, 1999. To the extent that responses to Year 2000
readiness are unsatisfactory, contingency plans include finding alternative
suppliers where practical. For those suppliers that are not easily replaced, the
Company will maintain adequate supplies to help counteract short-term supply
interruptions. The Company has received indications that most of its customers
are working on Year 2000 compliance. In the event that any of the Company's
significant customers or suppliers do not successfully and timely achieve Year
2000 compliance, and the Company is unable to replace them with new customers or
alternative suppliers, the Company's business or operations could be adversely
affected.
The Company has initiated the implementation of an enterprise-wide resource
planning (ERP) software system to link all of its core business systems
throughout the Company. This implementation was the result of normal business
migration to improved and expanded software systems to increase the Company's
ability to improve its operational efficiency, reduce costs and enhance overall
quality. As part of this implementation, the Company will also replace those
business systems that will encounter the Year 2000 Issue. The Company plans to
complete the ERP project in the year 2000 and plans to complete those portions
of the project that will address the Year 2000 Issue in the second quarter of
1999. The total cost of the ERP project is estimated to exceed $14,000,000,
including
10
<PAGE>
$8,268,000 spent during fiscal 1998, and is being funded through leases and
operating cash flows. The Company is currently evaluating data gathered with
regard to non-financial software and imbedded chip technology to asses the
impact of the Year 2000 on its non-financial systems such as manufacturing
equipment, security equipment, etc. Scheduled completion of the data
gathering and evaluation of the Year 2000 impact is June 1, 1999. The Company
does not, at this time, have sufficient data to estimate the cost of
achieving Year 2000 compliance for its non-financial systems, however, based
on information received to date, the costs are not expected to be material.
Since the Company is in the information gathering stage, the Company expects
to have a contingency plan in place for its internal non-financial software
and imbedded chip technology by July 31, 1999.
The costs of the project and the date on which the Company plans to complete the
Year 2000 modifications are based on management's best estimates which were
derived utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modifications, plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes and similar uncertainties.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages 6 through 18 of the 1998 Annual Report to Shareholders are
incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The definitive Proxy Statement dated April 14, 1999 is incorporated by
reference.
The term of office of all officers is one year. Names, ages and positions
of all executive officers of Cascade Corporation follow.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Year First
Elected
Name Age Officer Present Position
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Robert C. Warren, Jr. 50 1984 President, Chief Executive Officer and Director
James P. Miller 51 1992 Executive Vice President, Secretary and Chief Operating Officer
Gregory S. Anderson 50 1991 Vice President-Human Resources
Richard S. Anderson 51 1996 Senior Vice President-International
Terry H. Cathey 51 1993 Vice President-Material Handling Operations
Robert L. Mott 57 1996 Vice President-OEM Product Group
Kurt G. Wollenberg 49 1997 Vice President-Finance, Chief Financial Officer and Treasurer
James R. Keene 52 1998 Vice President-Sales
Charlie S. Mitchelson 43 1999 Vice President and Managing Director-Europe
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The definitive Proxy Statement dated April 14, 1999 is incorporated by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The definitive Proxy Statement dated April 14, 1999 is incorporated by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The definitive Proxy Statement dated April 14, 1999 is incorporated by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
INDEX TO FINANCIAL STATEMENTS
(a) 1. CONSOLIDATED FINANCIAL STATEMENTS
The Consolidated Financial Statements, together with the report thereon
of PricewaterhouseCoopers LLP dated March 23, 1999, appearing on pages 6 to 18
of the accompanying 1998 Annual Report are incorporated by reference in this
Form 10-K Annual Report. With the exception of the aforementioned information
and information incorporated in Items 1, 5, 6 and 8, the 1998 Annual Report is
not to be deemed filed as part of this report.
2. FINANCIAL STATEMENT SCHEDULES-1998, 1997 AND 1996
Financial statement schedules not included in this Form 10-K Annual
Report have been omitted because they are not applicable or not required.
The individual financial statements of the registrant and its subsidiaries
have been omitted since the registrant is primarily an operating company and all
subsidiaries included in the consolidated financial statements, in the
aggregate, do not have minority equity interests and/or indebtedness to any
person other than the registrant or its consolidated subsidiaries in amounts
which together exceed 5% of the total consolidated assets at January 31, 1999,
except indebtedness incurred in the ordinary course of business which is not
overdue and which matures within one year from the year of its creation.
3. EXHIBITS
1. Copy of Notice of Annual Meeting dated April 14, 1999.
2. Copy of Form of Proxy for Annual Meeting.
3. Basic documents incorporated by reference:
- Articles of Incorporation filed with the Commission May 28, 1965.
- Amendment to Articles of Incorporation filed in Proxy Statement
for annual meeting of shareholders May 12, 1987, filed with the
Commission April 14,1988.
- Amendment to Articles of Incorporation filed in Proxy Statement
for annual meeting of shareholders May 9, 1989, filed with the
Commission April 27, 1990.
- By-Laws, as amended to February 8, 1989, filed with the Commission
April 27,1990.
- Specimen copy of stock certificate, filed as Exhibit 4-1 to
Form S-1, filed with the Commission May 28, 1965.
- Amendment to Articles of Incorporation included in the Proxy
Statement for Annual Meeting of Shareholders May 14, 1998, filed
with the Commission April 13, 1997.
12
<PAGE>
4. Documents required by Item 14(c), all of which are exhibits to Form 8-K
filed with the Commission March 27, 1997, and are incorporated by
reference:
- Share Purchase Agreement dated March 11, 1997, among the Company,
Cascade (Canada) Holdings, Inc., and the shareholders of Kenhar
Corporation, Exhibit 2.1.
- Employment agreement dated March 11, 1997, among Cascade
Corporation, Couphar Ltd., and William J. Harrison, Exhibit 10.1.
- Refusal Agreement dated March 11, 1997, among Cascade Corporation,
Couphar Ltd., and William J. Harrison, Exhibit 10.2.
- Registration Rights Agreement dated March 11, 1997, between
Cascade Corporation and Couphar Ltd., Exhibit 10.3.
- Shareholders' Agreement dated March 11, 1997, between the Trustees
of the Robert C. and Nani S. Warren Revocable Trust and Couphar
Ltd., Exhibit 10.4.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of fiscal 1998.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the registrant, CASCADE CORPORATION has duly caused this
annual report to be signed on its behalf by the undersigned thereunto duly
authorized.
CASCADE CORPORATION
/s/Kurt G. Wollenberg
--------------------------------------------
By: Kurt G. Wollenberg
VICE PRESIDENT - FINANCE AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
Pursuant to the requirements of the Securities Exchange Act of 1934 this
report has been signed below by the following persons on behalf of the
registrant and in the capacities on the dates indicated.
/s/ C. Calvert Knudsen 4/29/99 /s/ Robert C. Warren, Jr. 4/29/99
- --------------------------------------- ------------------------------------
C. Calvert Knudsen, DIRECTOR Date Robert C. Warren, Jr. Date
PRESIDENT AND CHIEF EXECUTIVE
OFFICER, DIRECTOR
/s/ Joseph J. Barclay, 4/29/99 /s/ Richard C. Hire 4/29/99
- --------------------------------------- ------------------------------------
Joseph J. Barclay, DIRECTOR Date Richard C. Hire, DIRECTOR Date
/s/ Eric Hoffman 4/29/99 /s/ Greg H. Kubicek 4/29/99
- --------------------------------------- ------------------------------------
Eric Hoffman, DIRECTOR Date Greg H. Kubicek, DIRECTOR Date
/s/ Nicholas R. Lardy 4/29/99 /s/ Ernest C. Mercier 4/29/99
- --------------------------------------- ------------------------------------
Nicholas R. Lardy, DIRECTOR Date Ernest C. Mercier, DIRECTOR Date
/s/ James S. Osterman 4/29/99 /s/ Jack B. Schwartz 4/29/99
- --------------------------------------- ------------------------------------
James S. Osterman, DIRECTOR Date Jack B. Schwartz, Date
ASSISTANT SECRETARY, DIRECTOR
/s/ Henry W. Wessinger II 4/29/99 /s/ Nancy Wilgenbusch 4/29/99
- --------------------------------------- ------------------------------------
Henry W. Wessinger II, DIRECTOR Date Nancy Wilgenbusch, DIRECTOR Date
14
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands
except where noted*)
<S> <C> <C> <C> <C> <C>
Net sales $ 407,930 $ 369,865 $ 218,485 $ 234,030 $ 183,365
Operating income $ 36,685 $ 40,770 $ 24,850 $ 16,415 $ 19,350
Net income $ 21,370 $ 21,040(2) $ 17,420 $ 10,550(3) $ 12,250
EBITDA(1) $ 62,990 $ 61,200 $ 35,065 $ 25,640 $ 26,535
Per common share*
Net income:
Basic $ 1.77 $ 1.73(2) $ 1.48 $ .88(3) $ 1.02
Diluted $ 1.63 $ 1.60(2) $ 1.48 $ .88(3) $ 1.02
Book value $ 10.31 $ 9.32 $ 8.46 $ 7.74 $ 7.37
Working capital $ 94,548 $ 81,063 $ 32,750 $ 49,829 $ 40,821
Expenditures for property,
plant and equipment $ 22,357 $ 15,453 $ 16,624 $ 11,825 $ 21,921
Total assets $ 347,857 $ 349,592 $ 199,493 $ 153,190 $ 137,109
Long-term debt $ 142,783 $ 144,785 $ 12,810 $ 9,531 $ 7,809
Shareholders' equity $ 119,494 $ 110,551 $ 98,757 $ 92,057 $ 88,538
Number of employees 2,174 2,322 1,293 1,103 993
</TABLE>
(1) Management believes that Earnings Before Interest, Taxes, Depreciation and
Amortization (EBITDA) is a key measure of cash flow.
(2) After $14,890 ($9,770 or $.74 per share, net of taxes) credit for
environmental insurance settlements, net of certain expenses. See note 12
to consolidated financial statements.
(3) After $12,000 ($7,800 or $.65 per share, net of taxes) charge for
environmental expenses. See note 12 to consolidated financial statements.
- --------------------------------------------------------------------------------
FINANCIAL SUMMARY
- --------------------------------------------------------------------------------
DOLLARS IN MILLIONS
NET SALES
- --------------------------------------------------------------------------------
[GRAPH]
OPERATING INCOME
- --------------------------------------------------------------------------------
[GRAPH]
NET INCOME
- --------------------------------------------------------------------------------
[GRAPH]
EARNINGS BEFORE INTEREST, TAXES,
DEPRECIATION AND AMORTIZATION (EBITDA)(1)
- --------------------------------------------------------------------------------
[GRAPH]
1
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands, except per share amounts)
YEAR ENDED JANUARY 31 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 407,930 $ 369,865 $ 218,485
- --------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Cost of goods sold 281,195 259,605 143,080
Depreciation and amortization 21,550 20,280 10,280
Selling and administrative expenses 68,500 64,100 40,275
Environmental expenses, net (Note 12) - (14,890) -
- --------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 371,245 329,095 193,635
- --------------------------------------------------------------------------------------------------------------------------
Operating income 36,685 40,770 24,850
Interest expense 10,940 9,440 876
Interest income (755) (610) (1,076)
Other (income) expense, net (4,755) (150) 65
- --------------------------------------------------------------------------------------------------------------------------
Income before income taxes 31,255 32,090 24,985
Income taxes (Note 4) 9,885 11,050 7,565
- --------------------------------------------------------------------------------------------------------------------------
Net income 21,370 21,040 17,420
- --------------------------------------------------------------------------------------------------------------------------
Dividends paid on preferred shares
of subsidiaries 530 570 60
- --------------------------------------------------------------------------------------------------------------------------
Net income applicable to common
shareholders $ 20,840 $ 20,470 $ 17,360
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 1.77 $ 1.73 $ 1.48
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ 1.63 $ 1.60 $ 1.48
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
6
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
- ---------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands except share and per share amounts)
YEAR ENDED JANUARY 31 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 11,460 $ 12,966
Accounts receivable, less allowance
for doubtful accounts of $1,009 and $743 72,354 62,271
Inventories, at average cost which is lower than market:
Finished goods and components 44,496 42,280
Goods in process 2,309 3,965
Raw materials 15,210 12,035
- ------------------------------------------------------------------------------------------------------------------------------------
62,015 58,280
Deferred income taxes (Note 4) 254 1,165
Prepaid expenses 7,640 6,011
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 153,723 140,693
Property, plant and equipment, net (Notes 5 and 9) 100,075 101,147
Deferred income taxes (Note 4) 3,370 4,044
Goodwill (Note 10) 86,462 94,982
Other assets 4,227 8,726
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 347,857 $ 349,592
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks (Note 5) $ 9,817 $ 13,193
Current portion of long-term debt (Note 5) 6,510 2,501
Accounts payable 26,789 23,604
Accrued payroll and payroll taxes 6,954 7,331
Other accrued expenses 9,105 13,001
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 59,175 59,630
Long-term debt (Note 5) 142,783 144,785
Accrued environmental expenditures (Note 12) 7,228 10,316
Other liabilities 3,228 3,720
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 212,414 218,451
- ------------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 10, 11,12 and 13)
Mandatorily redeemable convertible preferred stock and
minority interest (Note 10) 15,949 20,590
Shareholders' equity (Notes 6 and 7):
Common stock, $.50 par value, authorized
20,000,000 shares; 11,715,488 and 11,988,208 shares issued 5,858 5,994
Additional paid-in capital -- 3,711
Retained earnings 125,065 109,091
Accumulated other comprehensive income:
Cumulative foreign currency translation adjustments (11,200) (8,016)
Treasury stock, at cost, 127,498 shares (229) (229)
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 119,494 110,551
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 347,857 $ 349,592
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
7
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands except per share amounts)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Common Stock Additional Other Annual
----------------------- Paid-In Treasury Retained Comprehensive Comprehensive
Shares Amount Capital Stock Earnings Income Income
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 31, 1996 11,897 $ 6,139 $ 568 $ (686) $ 85,083 $ 953 $ -
Net income - - - - 17,420 - 17,420
Dividends ($0.45 per share) - - - - (5,340) - -
Common stock repurchased (230) (115) (568) - (2,602)
Translation adjustment - - - - - (2,095) (2,095)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 31, 1997 11,667 6,024 - (686) 94,561 (1,142) 15,325
Net income - - - - 21,040 - 21,040
Dividends ($0.40 per share) - - - - (5,505) - -
Common stock repurchased (60) (30) (1,005) - -
Treasury shares issued for
acquisitions 254 - 3,711 457 - - -
Translation adjustment - - - - - (6,874) (6,874)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 31, 1998 11,861 5,994 3,711 (229) 109,091 (8,016) 14,166
Net income - - - - 21,370 - 21,370
Dividends ($0.40 per share) - - - - (5,361) - -
Common stock repurchased (289) (145) (3,919) - - - -
Stock options exercised 15 8 239 - - - -
Redemption of mandatorily
redeemable convertible
preferred stock - - (54) - (35) - -
Translation adjustment - - - - - (3,184) (3,184)
Other 1 1 23 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 31, 1999 11,588 $ 5,858 $ - $ (229) $ 125,065 $ (11,200) $ 18,186
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
8
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASHFLOWS
- --------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Year Ended January 31 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21,370 $ 21,040 $ 17,420
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 21,550 20,280 10,280
Deferred income taxes 1,770 (9,863) 613
Gain on sale of property (3,873) - -
Changes in operating assets and liabilities, net of effects of
acquisitions:
Accounts receivable (10,083) (963) 535
Inventories (3,735) (6,626) (258)
Income taxes (3,658) 2,904 (2,099)
Prepaid expenses (1,629) (3,577) (1,073)
Accounts payable and accrued expenses 2,570 (7,018) (1,523)
Accrued environmental expenditures (3,088) 1,403 (1,587)
Other liabilities (492) (1,879) 66
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 20,702 15,701 22,374
- --------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (15,459) (15,453) (16,624)
Dispositions of property, plant and equipment 1,545 - -
Business acquisitions - (72,534) (22,849)
Proceeds from sale of property, plant and equipment 9,830 5,036 -
Other assets 7,772 (4,377) 64
- --------------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by investing activities 3,688 (87,328) (39,409)
- --------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (5,241) (36,034) (2,742)
Proceeds from issuance of long-term debt - 135,759 2,055
Notes payable to banks, net (3,376) (20,264) 19,297
Redemption of convertible preferred stock and minority interest (4,730) - -
Repurchase of common stock (4,064) (1,035) (3,285)
Issuance of common stock 271 - -
Cash dividends paid (5,361) (5,505) (5,340)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (22,501) 72,921 9,985
- --------------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES (3,395) (3,970) (634)
- --------------------------------------------------------------------------------------------------------------------------------
DECREASE IN CASH AND CASH EQUIVALENTS (1,506) (2,676) (7,684)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 12,966 15,642 23,326
- --------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 11,460 $ 12,966 $ 15,642
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 12,220 $ 8,608 $ 804
Income taxes $ 13,925 $ 12,936 $ 8,864
Mandatorily redeemable convertible preferred stock issued
for acquisition $ - $ - $ 4,950
Exchangeable preferred stock issued for acquisition $ - $ 15,640 $ -
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF PRINCIPAL
ACCOUNTING POLICIES
THE COMPANY
Cascade Corporation (the Company) is an international company engaged in the
business of designing, manufacturing and selling equipment used primarily in
materials handling applications. The Company manufactures an extensive line of
hydraulically actuated attachments designed for mounting on lift trucks. Other
major products include forks for lift trucks and non-pneumatic (solid) tires
used primarily in material handling operations. Accordingly, the Company's sales
and the collection of accounts receivable are largely dependent on the sales of
lift trucks and on the sales of replacement parts. In addition, the majority of
the Company's sales are made in North America.
Headquartered in Portland, Oregon, the Company employs more than 2,100
people and maintains operations in 15 countries outside the United States. The
Company was founded in 1943.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned except for certain of its
Canadian subsidiaries which have issued convertible preferred stock (Note 10).
Inter-company balances and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on deposit and highly liquid
investments with maturities of three months or less.
DEPRECIATION AND AMORTIZATION
Property, plant and equipment are stated at cost. Depreciation is generally
provided on the straight-line basis over the estimated useful lives of the
assets ranging from 15 to 35 years for buildings and 3 to 12 years for machinery
and equipment. Goodwill consists of the cost of acquired businesses (Note 10) in
excess of the fair value of net identifiable assets acquired. Generally,
goodwill is amortized on the straight-line basis over 20 years. On a periodic
basis, the Company reviews the realizability of recorded long-lived assets based
upon expectations of nondiscounted cash flows of the acquired businesses. As of
January 31, 1999, the Company believes that there are no significantly impaired
long-lived assets. Accumulated amortization of goodwill and other assets was
$9,518,000 and $4,706,000 at January 31, 1999 and 1998, respectively.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
Research and development expense is related to developing new products and to
improving existing products or processes.
INCOME TAXES
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS 109) "Accounting for Income Taxes." Deferred
income taxes are recognized for the tax consequences of temporary differences by
applying enacted statutory tax rates applicable to future years to differences
between the financial statement carrying amounts and the tax bases of existing
assets and liabilities.
DIVESTITURE OF WORLDMAST PRODUCT LINE
On January 22, 1999, the Company completed the sale of its Worldmast product
line to Lift Technologies, Inc. for approximately $11,242,000. A former Cascade
officer and director is the principal owner of Lift Technologies, Inc. The
Company recorded a gain on the sale of $582,000. The transaction included the
sale of the Worldmast factory in Westminster, South Carolina as well as other
related manufacturing assets in North America and Europe. In fiscal 1998, the
Worldmast product line contributed approximately $54,000,000 in net sales.
FORWARD EXCHANGE CONTRACTS
The Company enters into foreign exchange contracts to manage its exposure of
foreign currency exchange risk. At January 31, 1999, the Company had
approximately $7,382,000 in contracts to buy or sell foreign currency in the
future. Substantially all of these contracts mature in one month or less. Gains
or losses on such contracts are recognized in income and are measured over the
period of the contract by reference to the forward rate for a contract to be
consummated on the same future date as the original contract.
STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation under APB 25.
FOREIGN CURRENCY TRANSLATION
The Company translated the balance sheets of its foreign subsidiaries using
fiscal year end exchange rates. The statements of income are translated using
the average exchange rates for the fiscal year. The effects of such translations
are included in the shareholders' equity account "cumulative foreign currency
translation adjustments" as decreases of $3,184,000, $6,874,000 and $2,095,000
for the years ended January 31, 1999, 1998 and 1997, respectively.
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
ENVIRONMENTAL REMEDIATION
The Company accrues environmental remediation costs if it is probable that
an asset has been impaired or a liability incurred at the financial statement
date and the amount can be reasonably estimated. Environmental compliance costs
are expensed as incurred. Certain environmental costs are capitalized and
depreciated over their estimated useful lives.
FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
The fair value of the Company's monetary assets and liabilities are
evaluated based upon the existing interest rates related to such assets and
liabilities compared to current market rates of interest. The carrying value of
all of the Company's monetary assets and liabilities approximates fair value as
of January 31, 1999 and 1998.
REVENUE RECOGNITION
The Company recognizes revenue when products are shipped to customers.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements. Changes in such estimates may affect amounts reported in future
periods. Significant estimates and judgements made by management of the Company
include matters such as the collectibility of accounts receivable, realizability
of deferred income tax assets, realizability of intangible assets and future
costs of environmental matters.
NOTE 2 - ADOPTION OF FINANCIAL ACCOUNTING
STANDARDS NUMBER 133
The Company adopted Statement of Financial Accounting Standards No. 133
(FAS 133), "Accounting for Derivative Instruments and Hedging Activities" in
1998. The adoption resulted in no material adjustment to the Company's financial
statements.
NOTE 3 - DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES
The Company has operations and sells products to dealers and original
equipment manufacturers throughout the world. Approximately 35 percent of the
Company's revenues are generated from international customers. The Company's
activities expose it to a variety of market risks, including the effects of
changes in foreign-currency exchange rates. These financial exposures are
monitored and managed by the Company within the Company's foreign exchange
management policy as approved by the Board of Directors. The Company's
risk-management program focuses on the unpredictability of financial markets and
seeks to reduce the effects that the volatility of these markets may have on its
operating results.
The Company maintains a foreign-currency risk-management strategy that uses
derivative instruments to protect its interests from unanticipated fluctuations
in earnings caused by volatility in currency exchange rates. Various amounts of
the Company's payables, receivables and subsidiary royalties are denominated in
foreign currencies, thereby creating exposures to changes in exchange rates.
The Company purchases foreign-currency forward-exchange contracts, with
contract terms normally lasting less than one month, to protect against the
adverse effects that exchange rate fluctuations may have on foreign currency
denominated trade receivables and trade payables. These derivatives do not
qualify for hedge accounting, in accordance with FAS 133, because they relate to
existing assets or liabilities denominated in a foreign currency. The gains and
losses on both the derivatives and the foreign-currency-denominated trade
receivables and payables are recorded as transaction adjustments in current
earnings thereby minimizing the effect on current earnings of exchange-rate
fluctuations.
By using derivative financial instruments to hedge exposures to changes in
exchange rates, the Company exposes itself to credit risk and market risk.
Credit risk is the failure of the counterparty to perform under the terms of the
derivatives contract. When the fair value of a derivative contract is positive,
the counterparty owes the Company, which creates repayment risk for the Company.
When the fair value of a derivative contract is negative, the Company owes the
counterparty and, therefore, it does not possess repayment risk. The Company
minimizes the credit or repayment risk in derivative instruments by: entering
into transactions with counterparties whose credit ratings are A/A or higher;
monitoring the amount of exposure to each counterparty; and monitoring the
financial condition of its counterparties.
Market risk is the adverse effect on the value of a foreign-exchange
contract that results from a change in the underlying exchange rates. The market
risk associated with foreign-exchange contracts is managed by the establishment
and monitoring of parameters that limit the types and degree of market risk that
may be undertaken.
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4 - INCOME TAXES
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998 1997
- -------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Income before taxes was as follows:
United States $ 23,260 $ 28,260 $ 15,990
Foreign 7,995 3,830 8,995
- -------------------------------------------------------------------------------------
Total $ 31,255 $ 32,090 $ 24,985
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Taxes charged (credited) against operations were as follows:
Current
Federal $ 6,625 $ 9,105 $ 2,572
State 1,300 925 819
Foreign 1,425 4,260 2,816
- -------------------------------------------------------------------------------------
Total 9,350 14,290 6,207
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Deferred
Federal 150 (430) 932
State 65 (80) 296
Foreign 320 (2,730) 130
- -------------------------------------------------------------------------------------
Total 535 (3,240) 1,358
- -------------------------------------------------------------------------------------
Total income taxes $ 9,885 $ 11,050 $ 7,565
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
The federal rate reconciles to the effective
rate as follows:
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes,
net of federal tax benefits 2.9 1.7 2.9
Effect of foreign tax rates (3.8) .6 ( .8)
IRS settlement - - (5.7)
Tax credits and other (2.5) (2.9) (1.1)
- -------------------------------------------------------------------------------------
Effective income tax rate 31.6% 34.4% 30.3%
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
The deferred tax liabilities (assets) recorded on the consolidated balance sheet
are comprised of the following:
<TABLE>
<CAPTION>
JANUARY 31 1999 1998
- -------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C>
Accruals not deductible until paid $ (169) $ (1,113)
Other (85) (52)
- -------------------------------------------------------------------------------------
Current deferred income taxes $ (254) $ (1,165)
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Depreciation $ 4,030 $ 4,651
Employee benefits (1,178) (1,151)
Accrued environmental expenditures (3,920) (4,983)
Other (2,302) (2,561)
- -------------------------------------------------------------------------------------
Noncurrent deferred income taxes $ (3,370) $ (4,044)
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
NOTE 5 - BORROWINGS
<TABLE>
<CAPTION>
JANUARY 31 1999 1998
- -------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C>
$100 million revolving line of credit, interest payable
currently at a variable rate (based on certain
financial ratios of the Company) over prime or
LIBOR (6.625% at 1/31/99); principal payable
in 2002 $ 59,000 $ 60,000
6.7% mortgage note, due quarterly through 2008
secured by plant 6,856 7,127
6.92% series A and series B senior notes, interest
payable currently, principal due annually 2002
through 2007 75,000 75,000
Fixed assets under capital lease, variable interest
(5.5% at 1/31/99), monthly payments through 200l 5,908 -
4.1% mortgage note, due semi-annually through
2001, secured by building 1,031 2,424
Other 1,498 2,735
- -------------------------------------------------------------------------------------
149,293 147,286
Less current maturities 6,510 2,501
- -------------------------------------------------------------------------------------
Total long-term debt $142,783 $144,785
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
The revolving line of credit agreement and the series A and B senior notes
contain dividend restrictions and certain covenants, including covenants related
to subsidiary indebtedness, additional indebtedness, net worth, fixed charges,
funded debt and leverage ratios. At January 31, 1999, the Company was in
compliance with its loan covenants.
Maturities of long-term debt for the years January 31, 2000 through January
31, 2004, and thereafter, respectively, are $6,510,000, $3,370,000, $13,222,000,
$72,222,000, $13,222,000, and $40,747,000. Borrowing arrangements with
commercial banks provided short-term lines of credit at January 31, 1999
totalling $22,322,000, of which $12,505,000 was unused. Average interest rates
on short-term borrowings were 3.7% and 4.1% at January
31, 1999 and 1998, respectively.
NOTE 6 - STOCK OPTION PLAN
The Company has reserved 800,000 shares of common stock for the Cascade
Corporation 1995 Senior Managers' Incentive Stock Option Plan (the Plan). The
Plan permits the award of incentive stock options (ISO) to officers and key
employees. Under the terms of the Plan, the purchase price of shares subject to
each ISO granted must not be less than the fair market value on the date of
grant. Accordingly, no compensation cost has been recognized for the stock
option plan. Outstanding options vest after three years and are exercisable for
ten years from the date of grant.
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company has determined that the pro forma effects of applying SFAS 123
would reduce earnings by $556,000, $247,000 and $100,000 for 1998, 1997, and
1996, respectively, using the following assumptions:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998 1997
- -------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Risk-free interest rate 5.5% 6.5% 6.7%
Expected life 5 Years 5 Years 5 Years
Expected volatility 35% 30% 26%
Expected dividend yield 2.5% 2.5% 3.0%
</TABLE>
A summary of the Plan's status at January 31, 1999, 1998 and 1997 together with
changes during the periods then ended are presented in the following table:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES PRICE PER SHARE
------ ---------------
<S> <C> <C>
BALANCE JANUARY 31, 1996 75,253 $ 16.37
Granted 93,341 16.00
Forfeited (23,162) 16.17
- --------------------------------------------------------------------------------------
BALANCE JANUARY 31, 1997 145,432 $ 16.17
Granted 136,262 15.25
Forfeited (1,971) 15.25
- --------------------------------------------------------------------------------------
BALANCE JANUARY 31, 1998 279,723 $ 15.73
Granted 237,337 16.37
Exercised (15,077) 16.37
Forfeited (122,794) 15.87
- --------------------------------------------------------------------------------------
BALANCE JANUARY 31, 1999 379,189 $ 16.00
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about fixed options outstanding at
January 31, 1999.
<TABLE>
<CAPTION>
EXERCISE NUMBER WEIGHTED WEIGHTED AVERAGE
PRICE OF SHARES AVERAGE PRICE CONTRACTUAL LIFE
<S> <C> <C> <C>
$ 15.25 89,825 $ 15.25 8
$ 16.00 43,680 $ 16.00 7
$ 16.37 245,684 $ 16.37 8
</TABLE>
NOTE 7 - CAPITAL STOCK
There are 200,000 shares authorized of no par value preferred stock; none
are outstanding.
NOTE 8 - EARNINGS PER SHARE
The Company calculates earnings per share in accordance with Statement of
Financial Accounting Standards No. 128 (SFAS 128) "Earnings Per Share."
Accordingly, basic earnings per share is computed by dividing income available
to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects potential
dilution that could occur if convertible securities or stock options were
exercised or converted into common stock.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998 1997
- ------------------------------------------------------------------------------------
(Dollars and Shares in Thousands
Except Per Share Amounts)
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Net income $ 21,370 $ 21,040 $ 17,420
Preferred stock dividends (530) (570) (60)
- ------------------------------------------------------------------------------------
Income available
to common shareholders 20,840 20,470 17,360
- ------------------------------------------------------------------------------------
Basic weighted-average shares
of common stock outstanding 11,748 11,858 11,781
- ------------------------------------------------------------------------------------
Basic EPS $ 1.77 $ 1.73 $ 1.48
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Diluted Earnings Per Share:
Income available
to common shareholders 20,840 $ 20,470 $ 17,360
Effect of dilutive securities:
Mandatorily redeemable
convertible preferred stock 410 440 -
Exchangeable preferred stock 120 130 60
- ------------------------------------------------------------------------------------
Net income $ 21,370 $ 21,040 $ 17,420
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
WEIGHTED-AVERAGE SHARES OF
COMMON STOCK OUTSTANDING 11,748 11,858 11,781
Assumed conversion of mandatorily
convertible preferred stock 1,091 985 -
Exchangeable preferred stock 309 330 16
Dilutive effect of stock options - 17 -
- ------------------------------------------------------------------------------------
Diluted weighted-average shares
of common stock outstanding 13,148 13,190 11,797
- ------------------------------------------------------------------------------------
Diluted EPS $ 1.63 $ 1.60 $ 1.48
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
</TABLE>
NOTE 9 - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
January 31 1999 1998
- --------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C>
Land $ 5,261 $ 5,555
Construction in progress 99 592
Buildings 43,146 43,675
Machinery and equipment 162,194 150,603
- --------------------------------------------------------------------------------
210,700 200,425
Accumulated depreciation (110,625) (99,278)
- --------------------------------------------------------------------------------
$ 100,075 $ 101,147
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10 - ACQUISITIONS
1997 ACQUISITIONS
In February 1997, the Company purchased all of the outstanding capital stock
of Hyco-Cascade Pty., Ltd., an Australian manufacturer and distributor of lift
truck attachments and accessories. The amount paid in connection with this
purchase was $12,603,000, which consisted of $7,447,000 in debt, $3,656,000 in
common stock and $1,500,000 in cash.
On March 11, 1997 the Company acquired all of the outstanding capital stock
of Kenhar Corporation. Kenhar Corporation is the world's leading manufacturer of
forks for lift trucks with sales and manufacturing locations in North America,
Europe and Asia. The aggregate purchase price for this acquisition was
approximately $71,944,000 and included $56,304,000 in debt and 1,100,000
exchangeable preferred shares of Cascade (Canada) Holdings, Inc. (Exchangeable
Shares valued at approximately $15,640,000.) The Exchangeable Shares are
convertible share for share into Cascade Corporation common stock. In fiscal
1998 300,000 exchangeable shares were redeemed for $4,350,000. Holders of
Exchangeable Shares are entitled to voting rights of an equivalent number of
Company common shares and are entitled to dividends equivalent to those declared
and paid on like numbers of Cascade common shares. Cascade (Canada) Holdings
Inc. is a wholly owned subsidiary of Cascade Corporation. Therefore, although
the Exchangeable Shares have rights comparable with the Company's common stock,
the Exchangeable Shares have been accounted for, based on their form, as
minority interest on the Company's balance sheet.
The Company also made other acquisitions during 1997 totaling $10,377,000.
When the Company purchased Kenhar Corporation, a number of Kenhar's subsidiaries
had minority interest holders. The Company has now acquired all of these
minority interests. In addition, during 1997, the Company purchased a U.S.
manufacturer of hydraulic cylinders and a European fork manufacturer.
1996 ACQUISITIONS
In January 1997, the Company purchased all of the outstanding capital stock
of Industrial Tires Limited, a Canadian corporation that manufactures solid
rubber tires for the material handling industry. The total purchase price,
including direct costs of acquisition and 330,000 shares of Cascade (Canada),
Inc. Preferred Stock (the Preferred Stock) was $23,660,000.
Each share of the Preferred Stock is convertible into one share of the
Company's common stock at the holder's option. In addition, the Preferred Stock
gives the holder the ability to require the Company to repurchase the shares on
or after January 13, 2002 at the original issuance price of approximately $15
per share, for a maximum repurchase obligation of approximately $4,950,000.
Consequently, the Preferred Stock is classified as "Mandatorily Redeemable
Convertible Preferred Stock." The provisions of the Preferred Stock also entitle
the holder to cumulative dividends paid on the common shares of Cascade
Corporation and to a liquidation preference equal to approximately $15 per share
in priority to any payment on any shares ranking junior to the Preferred Stock.
In addition to the acquisitions discussed above, during 1996 the Company
acquired two other manufacturers in related businesses. The purchase price for
these acquisitions was $4,063,000.
All of the above acquisitions were accounted for under the purchase
method of accounting. The acquired businesses have been included in the
Company's results of operations since each respective acquisition date.
PRO FORMA INFORMATION
The following unaudited consolidated pro forma information shows the
Company's results of operations as though the 1996 and 1997 acquisitions had
occurred on February 1, 1996 and 1997 respectively.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1998 1997
- ----------------------------------------------------------------------------------
(Dollars in Thousands except per share amounts)
<S> <C> <C>
UNAUDITED
Total revenue $ 377,565 $ 358,268
Net income $ 21,516 $ 13,616
Net income per share - basic $ 1.77 $ 1.16
Net income per share - diluted $ 1.62 $ 1.01
</TABLE>
The pro forma results of operations have been adjusted to include the
additional costs of depreciation, goodwill amortization and interest expense
based on the actual purchase price and related borrowings. Expenses have not
been reduced to reflect any operational efficiencies that may result from the
combination of these entities.
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10 - ACQUISITIONS (CONTINUED)
The pro forma results are not necessarily indicative of the actual results
of operations that would have occurred had the purchases been made at the
beginning of the respective periods or of results that may occur in the future.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company leases certain of its facilities and equipment under
noncancelable operating leases. The minimum rental commitments under these
leases for the years ending January 31, 2000 through January 31, 2004,
respectively, are $4,401,000, $3,123,000, $2,067,000, $1,531,000 and $804,000.
For the years ended January 31, 1999, 1998 and 1997 total rentals charged to
expense amounted to $4,800,000, $2,042,000 and $789,000.
NOTE 12 - ENVIRONMENTAL MATTERS
The Company is engaged in environmental investigations and remediation
efforts in its ordinary course of business. The Company has sued a number of its
insurers to enforce policies it contends provide coverage for expenses
associated with these efforts. Earnings for the year ended January 31, 1998
include the effect of settlements with several of these insurers totaling
$23,750,000. The impact of these settlements on net income, after adjusting for
certain litigation and environmental expenses and income taxes, was
approximately $9,770,000. Litigation against two remaining insurers resulted in
a jury verdict in the Company's favor. As issues involving damages, prejudgment
interest, attorneys fees, and declaratory relief are pending before the trial
court, the financial statements have not been adjusted to account for the jury
verdict.
The Company's accrued environmental liability at January 31, 1999 totalled
$8,228,000, of which $1,000,000 is expected to be spent in 1999 and is included
in current liabilities in "other accrued expenses." The Company believes this
accrual is adequate and fairly approximates known future remediation costs.
However, since future remediation costs are subject to many uncertainties,
actual expenses may exceed the amount recorded at January 31, 1999.
NOTE 13 - PENSION AND OTHER
POSTRETIREMENT BENEFITS
The Company has defined benefit plans covering certain employees. In
December 1988, the Company amended the plan covering its U.S. employees to limit
benefits to those accrued through December 31, 1988. During 1997, the Company
settled the pension obligation under this plan by funding lump sum distributions
or non-participating annuity contracts.
The Company's funding policy for the pension plan is to make annual
contributions based on actuarially determined funding requirements. The pension
benefits are based on years of service and average earnings over a specified
five-year period of time.
The Company sponsors a number of defined contribution plans covering
substantially all North American employees. Employees may contribute to these
plans and the Company matches these contributions in varying degrees. The
Company also makes contributions to certain plans based on a percentage of
wages. Defined contribution pension expense for the Company was $2,267,000,
$1,901,000 and $1,488,000 for 1998, 1997 and 1996, respectively.
The Company provides health care benefits for eligible retirees. The Company
accounts for such costs under Statement of Financial Accounting Standards No.106
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
Therefore, the Company is accruing the future costs of providing such benefits
to eligible active employees during the years they render service.
To estimate the costs of health care benefits for eligible retirees, health
care costs were assumed to increase at an annual rate of 10% with the rate of
increase declining ratably to 4% by 2005 and thereafter. If the cost trend rates
were increased by one percentage point, the accumulated post-retirement benefit
obligation as of January 31, 1999 would increase by $579,639 and net periodic
post-retirement benefit cost would increase by $53,205.
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13 - PENSION AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
The status of employee pension and other postretirement benefit plans is
summarized below:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
YEAR ENDED JANUARY 31 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 6,001 $ 5,629 $ 4,261 $ 4,890 $ 4,007 $ 4,403
Service cost 289 237 - 83 69 83
Interest cost 392 529 248 320 281 288
Participant contributions 134 187 - - - -
Plan amendments - - - - - -
Acquisition and divestitures (142) 3,653 1,669 - - -
Exchange rate changes (10) - - - - -
Settlements - (4,603) (689) - - -
Benefits paid (230) (625) (68) (470) (403) (389)
Actuarial (gain) or loss 1,470 994 208 297 936 (378)
- ------------------------------------------------------------------------------------------------------------------------------------
BENEFIT OBLIGATION AT END OF YEAR $ 7,904 $ 6,001 $ 5,629 $ 5,120 $ 4,890 $ 4,007
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at
beginning of year 6,070 5,656 3,866 $ - $ - $ -
Actual return on plan assets 1,129 468 257 - - -
Acquisition and divestitures (261) 3,691 1,630 - - -
Settlements - (4,603) (689) - - -
Employer contributions 374 1,296 660 470 403 389
Participant contributions 134 187 - - - -
Benefits paid (230) (625) (68) (470) (403) (389)
Exchange rate changes (31) - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
FAIR VALUE OF PLAN ASSETS AT END OF YEAR $ 7,185 $ 6,070 $ 5,656 $ - $ - $ -
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF FUNDED STATUS
Funded status $ (719) $ 69 $ 27 $ (5,120) $ (4,890) $ (4,007)
Unrecognized actuarial (gain) or loss 19 - 1,185 2,021 1,860 974
Unrecognized prior service cost - - 120 - - -
- ------------------------------------------------------------------------------------------------------------------------------------
NET AMOUNT RECOGNIZED AT YEAR-END $ (700) $ 69 $ 1,332 $ (3,099) $ (3,030) $ (3,033)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
AMOUNTS RECOGNIZED IN THE STATEMENT OF
FINANCIAL POSITION CONSIST OF:
Prepaid benefit cost $ - $ 69 $ 1,332 $ - $ - $ -
Accrued benefit liability (700) - (3,099) (3,030) (3,033)
- ------------------------------------------------------------------------------------------------------------------------------------
NET AMOUNT RECOGNIZED AT YEAR-END $ (700) $ 69 $ 1,332 $ (3,099) $ (3,030) $ (3,033)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost $ 289 $ 237 $ - $ 83 $ 69 $ 83
Interest cost 392 529 248 320 281 288
Expected return on plan assets (312) (425) (292) - - -
Amortization of prior service cost - 5 13 - - -
Amortization of transitional (asset)
or obligation - 25 70 - - -
Recognized net actuarial (gain) or loss - - - 136 49 84
- ------------------------------------------------------------------------------------------------------------------------------------
NET PERIODIC BENEFIT COST $ 369 $ 371 $ 39 $ 539 $ 399 $ 455
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DEC. 31
Discount rate 6.50% 7.50% 7.25% 6.50% 6.75% 7.25%
Expected long-term rate of return on
plan assets 6.50% 8.00% 7.25% N/A N/A N/A
</TABLE>
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14 - INFORMATION ABOUT OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 NORTH AMERICA EUROPE OTHER ELIMINATIONS CONSOLIDATED
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
1999
Sales to unaffiliated customers $ 264,625 $ 111,245 $ 32,060 $ - $ 407,930
Transfers between areas 15,626 7,679 352 (23,657) -
- ---------------------------------------------------------------------------------------------------------------------------
Total revenue 280,251 118,924 32,412 (23,657) 407,930
- ---------------------------------------------------------------------------------------------------------------------------
Net income 18,135 3,605 (370) - 21,370
- ---------------------------------------------------------------------------------------------------------------------------
Identifiable assets $ 183,943 $ 130,390 $ 33,524 $ - $ 347,857
- ---------------------------------------------------------------------------------------------------------------------------
1998
Sales to unaffiliated customers $ 230,140 $ 102,570 $ 37,155 $ - $ 369,865
Transfers between areas 17,500 1,020 310 (18,830) -
- ---------------------------------------------------------------------------------------------------------------------------
Total revenue 247,640 103,590 37,465 (18,830) 369,865
- ---------------------------------------------------------------------------------------------------------------------------
Net income 19,125 2,895 (980) - 21,040
- ---------------------------------------------------------------------------------------------------------------------------
Identifiable assets $ 220,194 $ 95,894 $ 33,504 $ - $ 349,592
- ---------------------------------------------------------------------------------------------------------------------------
1997
Sales to unaffiliated customers $ 130,145 $ 67,925 $ 20,415 $ - $ 218,485
Transfers between areas 16,971 305 334 (17,610) -
- ---------------------------------------------------------------------------------------------------------------------------
Total revenue 147,116 68,230 20,749 (17,610) 218,485
- ---------------------------------------------------------------------------------------------------------------------------
Net income 12,845 2,815 1,760 - 17,420
- ---------------------------------------------------------------------------------------------------------------------------
Identifiable assets $ 114,873 $ 65,932 $ 18,688 $ - $ 199,493
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 31 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
- ---------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands except per share amounts)
<S> <C> <C> <C> <C>
YEAR ENDED JANUARY 31, 1999
Net sales $ 107,125 $ 105,160 $ 105,660 $ 89,985
Gross profit before depreciation 33,490 32,075 33,320 27,850
Net income 6,815 5,490 6,025 3,040
Net income per share:
Basic $ .56 $ .45 $ .50 $ .26
Diluted $ .51 $ .41 $ .46 $ .24
YEAR ENDED JANUARY 31, 1998
Net sales $ 84,725 $ 90,340 $ 97,525 $ 97,275
Gross profit before depreciation 26,485 27,895 29,230 26,650
Net income 2,900 9,705 6,480 1,955
Net income per share:
Basic $ .23 $ .80 $ .54 $ .15
Diluted $ .23 $ .73 $ .49 $ .15
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS & SHAREHOLDERS OF CASCADE CORPORATION
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Cascade Corporation and its subsidiaries at January 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended January 31, 1999, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Portland, Oregon March 23, 1999
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 11,460
<SECURITIES> 0
<RECEIVABLES> 73,363
<ALLOWANCES> 1,009
<INVENTORY> 62,015
<CURRENT-ASSETS> 153,723
<PP&E> 210,700
<DEPRECIATION> 110,625
<TOTAL-ASSETS> 347,857
<CURRENT-LIABILITIES> 59,175
<BONDS> 0
15,949
0
<COMMON> 5,858
<OTHER-SE> 113,636
<TOTAL-LIABILITY-AND-EQUITY> 347,857
<SALES> 407,930
<TOTAL-REVENUES> 407,930
<CGS> 281,195
<TOTAL-COSTS> 371,245
<OTHER-EXPENSES> (4,755)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,940
<INCOME-PRETAX> 31,255
<INCOME-TAX> 9,885
<INCOME-CONTINUING> 21,370
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,370
<EPS-PRIMARY> 1.77
<EPS-DILUTED> 1.63
</TABLE>
