UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended January 31, 2004

OR

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

For the transition period from to

Commission file number 1-12557

CASCADE CORPORATION

(Exact name of registrant as specified in its charter)

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

2201 N.E. 201st Ave. Fairview, Oregon 97024-9718
(Address of principal executive office) (Zip Code)

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

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 ý No o

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. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ý No o

The aggregate market value of common stock held by non-affiliates of the registrant as of July 31, 2003 was $232,047,122, based on the closing sale price of the common stock on the New York Stock Exchange on that date.

The number of shares outstanding of the registrant’s common stock as of March 15, 2004 was 12,102,247.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement to be filed within 120 days after the registrant’s fiscal year end of January 31, 2004, to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held May 26, 2004 are incorporated by reference into Part III.

TABLE OF CONTENTS

PART I
	Item 1.	Business:
			General
			Products
			Markets
			Competition
			Customers
			Backlog
			Research and Development
			Environmental Matters
			Employees
			Foreign Operations
			Available information
			Forward-looking Statements
	Item 2.	Properties
	Item 3.	Legal Proceedings
	Item 4.	Submission of Matters to a Vote of Security Holders
	Item 4A.	Executive Officers of the Registrant
PART II
	Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters
	Item 6.	Selected Financial Data
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk
	Item 8.	Financial Statements and Supplementary Data
	Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
	Item 9A.	Controls and Procedures
PART III
	Item 10.	Directors and Executive Officers of the Registrant
	Item 11.	Executive Compensation
	Item 12.	Security Ownership of Certain Beneficial Owners and Management
	Item 13.	Certain Relationships and Related Transactions
PART IV
	Item 14.	Principal Accounting Fees and Services
	Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K
SIGNATURES

NOTE: All references to fiscal years are defined as year ended January 31, 2004 (fiscal 2004), year ended January 31, 2003 (fiscal 2003) and year ended January 31, 2002 (fiscal 2002).

Forward-looking Statements

This Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 contains forward-looking statements that involve risks and uncertainties, as well as assumptions which, if they never materialize or prove incorrect, could cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any projections of revenue, gross margin, expenses, earnings or losses from operations, synergies or other financial items; any statements of plans, strategies, and objectives of management for future operations; any statements regarding future economic conditions or performance; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. The risks, uncertainties, and assumptions referred to above include, but are not limited to, 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, Australia and Asia; assumptions relating to pension and other post-retirement costs, foreign currency fluctuations; pending litigation; environmental matters; and the effectiveness of the Company’s capital expenditures and cost reduction initiatives. The Company undertakes no obligation to publicly revise or update forward-looking statements to reflect events or circumstances that arise after the date of this report.

PART I

Item 1. Business

General

Cascade Corporation was organized in 1943 under the laws of the State of Oregon. The term “the Company” includes Cascade Corporation and its subsidiaries. The Company’s headquarters are located in Fairview, Oregon, a suburb of Portland, Oregon. The Company is one of the world’s leading manufacturers of materials handling load engagement devices and related replacement parts, primarily for the lift truck industry.

Products

The Company manufactures an extensive range of materials handling load engagement products that are widely used on forklift trucks and, to a lesser extent, on construction and agricultural vehicles.

The Company’s products are primarily manufactured with the Cascade and Cascade-Kenhar names and symbols, for which the Company has secured trademark protection. The primary function of these products is to provide the lift truck with the capability of engaging, lifting, repositioning, carrying and depositing various types of loads and products. The Company offers a wide variety of functionally different products, each of which has numerous sizes, models, capacities and optional combinations. Products are designed to handle loads with pallets and for specialized application loads without pallets. Examples of specialized products include devices specifically designed to handle loads such as appliances, paper rolls, baled materials, textiles, beverage containers, drums, canned goods, bricks, masonry blocks, lumber, plywood and boxed, packaged and containerized products.

The Company’s products are subject to strict design, construction and safety requirements established by industry associations and the International Organization for Standardization (ISO). Major manufacturing facilities are ISO certified. The Company presently offers a wide variety of both standardized and specialized products. Product specifications and characteristics are determined by the expected capacity to be lifted, the characteristics of the load, the ambient environment in which employed, the terrain over which the load will be moved and the operational life cycle of the vehicle. Accordingly, while there are some standard products, the market demands a wide range of products in custom configurations and capacities.

Manufacturing of the Company’s products includes the purchase of raw materials and components: principally rolled, bar, plate and extruded steel products; unfinished castings and forgings; hydraulic cylinders and motors; and hardware items such as fasteners, rollers, hydraulic seals and hose assemblies. A portion of the Company’s bar steel purchases are obtained under annual pricing arrangements, which do not require minimum quantity purchases. Certain purchased parts are provided worldwide by a limited number of suppliers. The Company is not currently experiencing any shortages in obtaining raw materials or purchased parts. Difficulties in obtaining alternative sources of rolled, bar, plate and extruded steel products and other materials from one of its primary suppliers could affect operating results.

Markets

The Company markets its products throughout North and South America, Europe, the Middle East and the Asia-Pacific region. Primary customers are companies and industries that use lift trucks for materials handling. Examples of these industries include pulp and paper, grocery products, textiles, recycling and general consumer goods. The Company’s products are sold to the ultimate customer through the retail lift truck dealer distribution channel and to lift truck manufacturers as original equipment manufacturers (OEM’s) equipment.

In the major industrialized countries, lift trucks are a widely utilized method of materials handling. In these markets lift trucks are generally considered maintenance capital investment. This makes the industry subject to cyclicality patterns similar to the broader capital goods economic sector.

However, many of the Company’s products measurably improve overall materials handling and lift truck productivity. Further, products to serve new types of materials handling applications are continually being developed to meet specific customer and industry requirements. In this sense the Company’s products may also be generally considered as both maintenance and productivity enhancing investment. Historically this has somewhat reduced the negative impact of downward trends in the lift truck market on the Company’s net sales.

In the emerging industrialized countries, China in particular, lift trucks are replacing manual labor and other less productive methods of materials handling. As such lift trucks are generally considered productivity enhancing investments in these markets. The Company believes this makes lift truck markets in these countries generally less susceptible to downward trends in capital goods spending. The Company’s relatively limited experience in these emerging markets supports this observation.

Competition

The Company is one of the leading domestic and foreign independent suppliers of load engagement products for industrial forklift 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 load engagement product requirements. Since the Company offers a broad line of products capable of supplying a significant part of the total requirements for the entire lift truck industry, its experience has shown that lower costs resulting from its relatively high unit volume would be difficult for any individual lift truck manufacturer to achieve.

In addition to lift truck manufacturers, the Company competes with a number of companies in different parts of the world. The majority of these competitors are privately-owned companies with a strong presence in local and regional markets. Only a smaller portion of these competitors compete with the Company globally.

The Company’s market share throughout the world varies by geographic region. The Company believes it is the leading manufacturer in North America and the preferred supplier of many OEMs as well as OEDs (original equipment dealers) and distributors. The Company also has significant market share in Europe and is continuing its sales and manufacturing expansion into the Asia Pacific region. In addition to sales to the lift truck market, the Company sells products to OEMs who manufacture construction, mining, agricultural and industrial mobile equipment other than lift trucks.

The Company designs and positions its products to be the performance and service leaders in their respective product categories and geographic markets. As such, the Company’s products are also generally priced higher than competitive products. In certain geographic markets the Company competes principally on price for products that are considered to be commodity products in nature.

Customers

The Company’s products are marketed and sold to OEMs, OEDs and distributors globally. The Company’s primary markets are North America, Europe and Asia Pacific, which includes Australia. No single customer accounts for more than 10% of the Company’s consolidated net sales. Approximately 35% of the Company’s consolidated net sales for the year ended January 31, 2004 were to OEM customers. This percentage is comparable to prior years.

Backlog

The Company’s products are manufactured with short lead times of generally less than one month. Accordingly, the Company does not believe the level of backlog orders is a significant factor in evaluating the Company’s overall level of business activity.

Research and Development

Most of the Company’s research and development activities are performed at the Company’s corporate headquarters in Fairview, Oregon and at its manufacturing facility in Guelph, Ontario, Canada. The Company’s engineering staff develops and designs substantially all of the products sold by the Company and is continually involved in developing products for new applications. The Company does not consider patents to be important to its business.

Environmental Matters

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. Note 16 to the Consolidated Financial Statements (Item 8), “Legal Proceedings” (Item 3) and “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” (Item 7) contain additional information concerning the Company’s environmental matters.

Employees

At January 31, 2004, the Company had approximately 1,700 full-time employees throughout the world. The majority of these employees are not subject to collective bargaining agreements.

Foreign Operations

The Company has substantial operations outside the United States. There are additional business risks attendant to the Company’s foreign operations 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, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (Item 7) and Notes to Consolidated Financial Statements (Item 8).

Available Information

The Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available on the Company’s website at www.cascorp.com when such reports are available on the Securities and Exchange Commission website.

Item 2. Properties

The Company owns and leases various types of properties located throughout the world. The Company’s executive offices are located in Fairview, Oregon. The Company generally considers the productive capacity of its manufacturing facilities to be adequate and suitable to meet its requirements. The Company’s primary locations are presented below:

Location	Primary Activity	Approximate Square Footage	Status

NORTH AMERICA
Springfield, Ohio	Manufacturing	200,000	Owned
Fairview, Oregon	Manufacturing/Headquarters	155,000	Owned
Guelph, Ontario Canada	Manufacturing	125,000	Owned
Toronto, Ontario Canada	Manufacturing	73,000	Leased
Warner Robins, Georgia	Manufacturing	65,000	Owned
Findlay, Ohio	Manufacturing	52,000	Owned
EUROPE
Almere, The Netherlands	Manufacturing	162,000	Owned
Verona, Italy	Manufacturing	74,000	Leased
Hoorn, The Netherlands	Manufacturing	74,000	Owned
Manchester, England	Manufacturing	44,000	Owned
La Machine, France	Manufacturing	37,000	Owned
Brescia, Italy	Manufacturing	19,000	Owned
Hagen, Germany	Manufacturing	31,000	Leased
Monchengladbach, Germany	Sales	15,000	Leased
Sheffield, England	Sales	10,000	Leased
Vaggeryd, Sweden	Sales	2,000	Leased
Morangis, France	Sales	2,000	Leased
Barcelona, Spain	Sales	1,000	Leased
Vantaa, Finland	Sales	500	Leased
ASIA PACIFIC
Xiamen, China	Manufacturing	72,000	Owned
Brisbane, Australia	Manufacturing	46,000	Leased
Hebei, China	Manufacturing	65,000	Leased
Osaka, Japan	Sales/Distribution	16,000	Leased
Inchon, Korea	Manufacturing	12,000	Owned
Auckland, New Zealand	Sales/Distribution	9,000	Leased
Johannesburg, South Africa	Sales/Distribution	9,000	Leased

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 below. The Company and its subsidiaries are insured against product liability, personal injury and property damage claims, which may occasionally arise.

On April 22, 2002, the Circuit Court of the State of Oregon for Multnomah County entered judgment in the Company’s favor for approximately $1.6 million in an action originally brought in 1992 against several insurers to recover various expenses incurred in connection with environmental litigation and related proceedings. The judgment is against two non-settling insurers. Additionally, the judgment requires one of the insurers to defend the Company in suits alleging liability because of groundwater contamination emanating from its Fairview, Oregon plant and requires the two insurers to pay approximately 4% of any liability imposed against the Company by judgment or settlement on or after March 1, 1997 on account of such contamination. The Company and the insurers have appealed the judgment. The Company has not recorded any amounts that may be recovered from the two insurers in its consolidated financial statements.

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 4A. Executive Officers of the Registrant

Robert C. Warren, Jr.—Chief Executive Officer and President—Mr. Warren, 55, has served as President and Chief Executive Officer of the Company since 1996. He was President and Chief Operating Officer of the Company from 1993 until 1996 and was formerly Vice President—Marketing. Mr. Warren joined Cascade in 1972.

Gregory S. Anderson—Senior Vice President—Human Resources—Mr. Anderson, 55, was appointed to his current position in 2002. He joined Cascade in 1984, and has served as Vice President—Human Resources since 1991.

Richard S. Anderson—Senior Vice President and Chief Financial Officer—Mr. Anderson, 56, was appointed Chief Financial Officer in 2001. Mr. Anderson has been employed by Cascade since 1972 and held several positions including his appointments as Vice President—Material Handling Product Group in 1996 and Senior Vice President—International in 1999.

Terry H. Cathey—Senior Vice President and Chief Operating Officer—Mr. Cathey, 55, has served as Chief Operating Officer since 2000. He has been employed by Cascade since 1973 and has held several positions within the Company, including his appointments as Vice President—Material Handling Operations in 1996 and Vice President—Manufacturing in 1993.

Michael E. Kern, Vice President—MHP Marketing and Sales—Mr. Kern, 57, has served as Vice President—MHP Marketing and Sales since 2003. He has been employed by Cascade since 1966 and has held several positions within the Company, including his appointments as Director of Dealer Marketing and Sales in 2001 and Aftermarket Sales Manager in 1999.

Charlie S. Mitchelson, Vice President and Managing Director, Europe—Mr. Mitchelson, 48, joined Cascade in 1990. Prior to his current appointment as Managing Director—Europe in 1998, Mr. Mitchelson served as Managing Director of U.K. Cylinder Division from 1995 to 1998.

Jeffrey K. Nickoloff, Vice President—Corporate Manufacturing—Mr. Nickoloff, 48, was appointed to his current position in 2002. He has held several positions with Cascade including his appointments as Director of North American Manufacturing in 2000 and Plant Manager in 1993. Mr. Nickoloff joined the Company in 1979.

Joseph G. Pointer, Vice President—Finance—Mr. Pointer, 43, has served as Vice President—Finance since 2000. Prior to joining the Company in 2000, Mr. Pointer was a Partner at PricewaterhouseCoopers LLP in Portland, Oregon.

Anthony F. Spinelli, Vice President—OEM Products—Mr. Spinelli, 61, has served as Vice President—OEM Products, since 2001. Prior to 2001, he was Managing Director, Canadian Operations. Mr. Spinelli joined Cascade in 1997 when the Company purchased Kenhar Corporation where he had served as President, Kenhar Americas.

John A. Cushing—Treasurer—Mr. Cushing, 43, was appointed as Treasurer in 2001. He previously was the Company’s Assistant Treasurer from 1999 until 2001. Prior to joining the Company in 1999, Mr. Cushing was Assistant Treasurer for Fred Meyer, Inc., a retail company in Portland, Oregon.

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

As of January 31, 2004, there were 231 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 2,100.

Market Information

The high and low sales prices of the common stock of Cascade Corporation based on intra-day prices on the New York Stock Exchange were as follows:

	Year Ended January 31
	2004				2003
	High		Low		High		Low

Market price range:
First quarter	$	15.48	$	13.80	$	14.70	$	11.75
Second quarter	19.57		14.03		15.74		12.85
Third quarter	24.37		17.83		14.99		12.30
Fourth quarter	27.49		20.09		16.74		12.38

Common Stock Dividends

The common stock dividends declared by the Company were as follows:

	Year Ended January 31
	2004		2003
First quarter	$	.10	$	—
Second quarter	.10		—
Third quarter	.10		—
Fourth quarter	.11		.10
Total	$	.41	$	.10

Stock Exchange Listing and Transfer Agent

The Company’s stock is traded on the New York Stock Exchange under the symbol CAE.

The Company’s registrar and transfer agent is Mellon Shareholder Services, L.L.C., Shareholder Relations, P.O. Box 3315, South Hackensack, N.J., 07606, (800) 522-6645.

Item 6. Selected Financial Data

	Year Ended January 31
	2004			2003			2002			2001			2000
	(In thousands, except per share amounts and employees)

Income statement data(1):
Net sales	$	297,756		$	258,829		$	252,715		$	301,358		$	301,652
Operating income	$	32,025		$	32,744		$	13,433		$	24,909		$	19,536
Income from continuing operations	$	18,506		$	17,707		$	5,302		$	9,774		$	5,424
Net income	$	18,506		$	17,707		$	4,127		$	11,863		$	4,934
Cash flow data:
Cash flows from operating activities	$	26,407		$	23,941		$	34,836		$	28,049		$	50,135
Cash flows from investing activities(2)	$	(19,612	)	$	(7,718	)	$	(3,201	)	$	(6,228	)	$	12,411
Cash flows from financing activities	$	(14,881	)	$	(18,056	)	$	(16,405	)	$	(31,317	)	$	(45,675	)
Stock information:
Basic earnings per share:
Income from continuing operations	$	1.55		$	1.55		$	0.47		$	0.84		$	0.44
Net income	$	1.55		$	1.55		$	0.36		$	1.02		$	0.40
Diluted earnings per share:
Income from continuing operations	$	1.49		$	1.45		$	0.44		$	0.80		$	0.44
Net income	$	1.49		$	1.45		$	0.34		$	0.97		$	0.40
Book value per common share	$	15.18		$	12.70		$	10.03		$	10.18		$	9.87
Dividends declared	$	0.41		$	0.10		$	—		$	0.20		$	0.40
Balance sheet information:
Working capital	$	81,720		$	71,201		$	66,011		$	64,747		$	66,167
Property, plant and equipment, net	$	75,244		$	65,863		$	61,412		$	77,235		$	86,716
Total assets	$	292,819		$	262,317		$	247,286		$	282,620		$	315,588
Long-term debt	$	38,111		$	50,113		$	65,679		$	87,513		$	109,043
Shareholders’ equity	$	183,688		$	144,748		$	113,267		$	116,503		$	112,933
Other:
Capital expenditures(1)	$	11,403		$	10,665		$	7,303		$	5,549		$	13,811
Depreciation(1)	$	12,152		$	10,532		$	10,349		$	10,531		$	11,538
Amortization(1)	$	512		$	261		$	4,399		$	5,366		$	4,522
Interest expense, net of interest income	$	3,554		$	4,228		$	5,322		$	6,852		$	7,451
Diluted weighted average shares of common stock outstanding		12,409		12,194			12,233			12,272			12,385
Number of employees	1,700			1,500			1,400			1,900			1,800

(1) Except net income, excludes for all periods the data for the Company’s hydraulic cylinder division, which was sold in January 2002.

(2) Includes $11.7 million in 2004 for business acquisitions.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

As discussed in Note 3 to the consolidated financial statements, the Company sold its hydraulic cylinder division in January 2002. The Company’s consolidated statements of income and cash flows for the year ended January 31, 2002 separately present the historical results of the hydraulic cylinder division as a discontinued operation.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s discussion and analysis of its financial position and results of operations is based on the Company’s consolidated financial statements which have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP). The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Management evaluates its estimates and judgments on an on-going basis, including those related to uncollectible receivables, inventories, goodwill and long-lived assets, warranty obligations, environmental liabilities and deferred taxes. The Company bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies reflect its more significant judgments and estimates in the preparation of its consolidated financial statements.

Allowances for Doubtful Accounts

The Company maintains allowances for doubtful accounts for estimated losses on accounts and notes receivable resulting from the inability of its customers and note holders to make required payments. Such allowances are based on an ongoing review of customer and note holder payments against terms and a review of customer and note holder financial statements and financial information. If the financial condition of customers or the note holders were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Inventory Reserves

Inventories are stated at the lower of cost or market. The Company maintains reserves to write down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual future demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required, which would result in cost of goods sold in the consolidated statement of income being greater than expected in the period in which more information becomes available.

Intangible Assets

The Company adopted the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 141, “Business Combinations” and No. 142, “Goodwill and Other Intangible Assets” on accounting for business combinations and goodwill as of the beginning of fiscal 2003. Accordingly, the Company no longer amortizes goodwill from acquisitions. The Company continues to amortize other acquisition-related intangibles, which are not significant to the Company’s consolidated balance sheet. As of January 31, 2004 the Company had $68.9 million of goodwill.

In conjunction with the implementation of SFAS 142, the Company completed a transitional impairment test in the quarter ended April 30, 2002 and found no impairment. As required by SFAS 142, the Company performs an impairment test annually, or earlier if indicators of potential impairment exist. Certain factors the Company considers important which could trigger an

impairment review include, but are not limited to, significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of the acquired assets or the Company’s overall business and significant industry or economic trends. The impairment review is based on a discounted cash flow approach that uses estimates of future sales, sales growth rates, gross margins, expense and capital expenditure levels, the discount rate and estimated terminal values to determine the fair value of the operating entities should an impairment exist. Changes in these and other factors could result in impairments in the carrying value of goodwill, which would require a write down or further write downs to the asset’s fair value. The Company has performed annual impairment tests in the fourth quarter of fiscal 2004 and 2003 and found no impairment.

Warranty Obligations

The Company offers certain warranties with the sale of its products. The warranty obligation is recorded as a liability on the balance sheet and is estimated through historical customer claims, product failure rates, material usage and service delivery costs incurred in correcting a product failure. Changes in these factors and changes in statutory requirements for product warranties in markets in which the Company sells its products may require an adjustment to the recorded warranty obligations.

Environmental Liabilities

The Company accrues environmental remediation and litigation costs if it is probable a liability has been incurred at the financial statement date and the amount can be reasonably estimated. The Company’s liability for environmental costs, other than for costs of assessments themselves, are generally determined after the completion of investigations and studies and are based on the estimated cost of remediation activities the Company is then required to undertake. The gross liability is based on the Company’s best estimate of undiscounted future costs using currently available technology and applying current regulations, as well as the Company’s own historical experience regarding environmental cleanup costs. The reliability and precision of the estimates are affected by numerous factors, such as site evaluation and reevaluation of the degree and remediation required, claims by third parties and changes to environmental laws and regulations. The Company adjusts its liabilities as new remediation requirements are defined, as information becomes available permitting reasonable estimates to be made and to reflect new facts.

Deferred Taxes

The Company’s provision for income taxes and the determination of the resulting deferred tax assets and liabilities involves a significant amount of management judgment. The Company is subject to taxation from federal, state and international jurisdictions. The taxes paid to these jurisdictions are subject to audit, although to date the results of any tax audits have been minor.

Judgment is also applied in determining whether deferred tax assets will be realized in full or in part. The Company records a valuation allowance to reduce its deferred tax assets when it is more likely than not that all or some portion of specific deferred tax assets, such as foreign tax credit carryovers or net operating loss carryforwards, will not be realized. The Company has recorded on its consolidated balance sheets a valuation allowance against various deferred tax assets. The Company considers future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. In the event the Company were to determine that it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made. Likewise, should the Company determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax assets would increase income in the period such determination was made. The Company continually evaluates strategies that could allow for the future utilization of its deferred tax assets.

Benefit Plans

The Company makes a number of assumptions with regard to both future financial conditions and future actions by participants to calculate on an actuarial basis the amount of income or expense and

assets and liabilities recognized in association with the Company’s defined benefit and postretirement benefit plans. These assumptions include the expected return on plan assets, discount rate, health care cost trend rates and expected rates of retirement for plan participants. The Company reviews the assumptions on an annual basis and makes changes to reflect market conditions and the administration of the plans. While the Company believes the current assumptions are appropriate in the circumstances, actual results and changes in these assumptions in the future will result in adjustments which could impact the income or expense recognized in future years in relation to these plans.

COMPARISON OF FISCAL 2004 AND FISCAL 2003

Consolidated Summary

Net income for fiscal 2004 increased to $18.5 million ($1.49 per diluted share) from $17.7 million ($1.45 per diluted share) in fiscal 2003. The increase in net income is primarily the result of strong operating results in Asia Pacific and lower interest costs from reduced debt levels. Although consolidated net sales increased 15% over fiscal 2003, the majority of this increase can be attributed to currency changes and acquisitions. Excluding these items, the year over year sales growth was 5%. Overall operating income decreased 2% in fiscal 2004. Europe continued to feel the effects of depressed economic conditions and competitive pressures and incurred an operating loss for the year. North America’s operating income was negatively impacted by currency changes between the Canadian and U.S. dollar. In addition, selling and administrative costs increased over fiscal 2003 levels.

North America

	Year Ended January 31
(in thousands)	2004		%		2003			%		Change			Change %

Net sales	$	171,709	100	%	$	162,774		100	%	$	8,935		5	%
Cost of goods sold	108,524		63	%	98,705			61	%	9,819			10	%
Gross profit	63,185		37	%	64,069			39	%	(884		)	(1	)%

Selling and administrative	38,000		22	%	36,067			22	%	1,933			5	%
Amortization	234		—		214			—		20			9	%
Recovery of note receivable	—		—		(2,500		)	(2	)%	2,500			—
Environmental expenses	—		—		2,100			1	%	(2,100		)	—

Operating income	$	24,951	15	%	$	28,188		17	%	$	(3,237	)	(11	)%

Net sales in North America increased $8.9 million or 5% in fiscal 2004 to $171.7 million. The change in foreign currency rates between the U.S. and Canadian dollar accounted for $3.2 million of the fiscal 2004 sales increase. The remaining $5.7 million or 4% increase is due to an increased volume of shipments from North American facilities.

Historically, the Company has found that changes in the level of its net sales do not correspond directly to the percentage changes in lift truck industry shipments, but industry statistics do provide an indication of the direction of business activity. North American lift truck industry shipments from 2003 to 2004 increased 11%. During 2003, industry shipments were at depressed levels in comparison with historical shipments. The Company believes the 2003 shipment levels are more representative of normal business levels for the industry. Although the growth in lift truck shipments exceeds net sales growth, the Company believes it has maintained or slightly increased its existing market share in North America during fiscal 2004.

North America’s gross margin decreased to 37% in fiscal 2004 as compared to 39% in fiscal 2003. This decrease is due primarily to the sale in the United States of certain products manufactured in Canada. The Company’s sales of these products are in U.S. dollars but a significant portion of the costs are in Canadian dollars. During 2004, the value of the U.S. dollar against the Canadian dollar decreased 13%. The effect of this change reduced the overall gross margins. Management is evaluating options to mitigate the impact of these currency changes, but at the present time expects this trend to continue absent a shift in the U.S. and Canadian dollar exchange rate.

Selling and administrative costs for fiscal 2004 in North America increased 5% or $1.9 million over fiscal 2003. Excluding the effects of currency changes, these costs increased 3% or $1.2 million, driven primarily by $750,000 of costs related to complying with Section 404 of the Sarbanes-Oxley Act, $650,000 of postretirement health care costs and $1 million of research and development costs, offset by various cost reductions.

As the Company continues to implement measures mandated by the Sarbanes-Oxley Act throughout fiscal 2005, it expects some increases in these costs, primarily due to higher audit fees. The Company has made changes in the level of retiree contribution rates and the structure of the plan benefits with regard to the Company’s postretirement health care plan, which it believes should avoid increases in the overall costs of this plan for 2005. The Company expects research and development costs to be at the same level in 2005.

During fiscal 2003, the Company and The Boeing Company entered into a settlement agreement with the City of Portland, Oregon (City) regarding litigation brought by the City in 1999 alleging damages arising from the proximity of the groundwater contamination in the area of their respective plants to a City water well field. The Company’s share of the $6.2 million settlement was $3.6 million. The Company had recorded a $1.5 million charge related to the settlement in fiscal 2002 and recorded additional environmental expenses of $2.1 million during fiscal 2003. The full settlement was paid in fiscal 2003.

The Company recorded $2.5 million of income in fiscal 2003 related to a settlement reached between the Company and Maine Rubber related to outstanding principal and interest due under a note receivable. The $2.5 million payment is payment in full for the release of any remaining liability of Maine Rubber under the note receivable. The Company had recorded a $7.3 million allowance against the note balance in fiscal 2002 due to financial difficulties experienced by Maine Rubber.

Europe

	Year Ended January 31
(in thousands)	2004			%		2003		%		Change			Change %

Net sales	$	81,114		100	%	$	60,404	100	%	$	20,710		34	%
Cost of goods sold	63,456			78	%	46,335		77	%	17,121			37	%
Gross profit	17,658			22	%	14,069		23	%	3,589			26	%

Selling and administrative	17,853			22	%	13,539		22	%	4,314			32	%
Amortization	255			—		26		—		229			—

Operating income (loss)	$	(450	)	(1	)%	$	504	1	%	$	(954	)	—

Europe’s fiscal 2004 net sales increased 34% or $20.7 million in comparison with fiscal 2003. Changes in foreign currency rates, related primarily to the Euro, accounted for just over 50% or $10.5 million of the increase. Acquisitions in Germany and Italy during fiscal 2004 added $8.4 million to fiscal 2004 sales or 41% of the increase. The remaining fiscal 2004 sales increase of $1.8 million or 3% of fiscal 2003 sales, is due to increases in product shipments. Overall industry shipment levels in Europe in fiscal 2004 were consistent with 2003 levels. The Company believes it has increased its existing market share in Europe.

Gross margins in Europe were 22% for fiscal 2004, down slightly from the fiscal 2003 gross margin of 23%. This 1% decrease is due primarily to lower sales prices on certain products in Europe.

Selling and administrative costs for fiscal 2004 in Europe increased 32% or $4.3 million over fiscal 2003. The primary reason for the increase was the effect of currency changes, which accounted for $2.4 million or 56% of the increase. Acquisitions added $1.8 million of selling and administrative costs. Excluding currency changes and costs related to acquired companies, selling and administrative costs were consistent with fiscal 2003.

The Company’s European operations have continued to experience declining financial results and incurred an operating loss of $450,000 in fiscal 2004 in comparison with operating income of $504,000 in fiscal 2003. Additional costs related to the 2004 acquisitions were the most significant factor contributing to the fiscal 2004 operating loss.

Overall difficult economic conditions in Europe and in particular in France and Germany, two of the major industrial markets, have not changed in the last three years. Based on the limited industry statistics available for Europe, lift truck shipments have also not improved during this period and may have actually decreased slightly. Given these conditions, the existing market continues to be very competitive. Our European competitors are generally smaller privately-held companies, some of which have a global presence. Several of the key competitors are based in Germany and Italy. Acquisitions this past year were completed in these two major markets. The Company previously only had a limited presence in these markets. The

Company believes the 2004 acquisitions provide a solid operating base to build its market share and compete more effectively in Europe.

In addition to completing two acquisitions in 2004, the Company has taken several steps it believes should have a positive impact on future profitability in Europe. These include the introduction of new products, rationalization of existing manufacturing operations to reduce overall costs and more aggressive marketing campaigns in select markets. While these steps and the acquisitions should have a positive long-term impact on its European business, the Company is not anticipating significant changes in overall profitability in Europe for 2005.

In March 2004, one of the Company’s primary German competitors was forced into insolvency by its creditors. Insolvency proceedings have commenced and a trustee has been appointed. The Company is currently evaluating its options with regard to potentially submitting a bid to acquire some or all of the competitor’s assets. Given the current market conditions, the Company believes other competitors may face similar financial difficulties.

Asia Pacific

	Year Ended January 31
(in thousands)	2004		%		2003		%		Change		Change %

Net sales	$	44,933	100	%	$	35,651	100	%	$	9,282	26	%
Cost of goods sold	30,140		67	%	24,715		69	%	5,425		22	%
Gross profit	14,793		33	%	10,936		31	%	3,857		35	%

Selling and administrative	7,246		16	%	6,863		19	%	383		6	%
Amortization	23		—		21		—		2		10	%

Operating income	$	7,524	17	%	$	4,052	11	%	$	3,472	86	%

Asia Pacific net sales grew by 26% or $9.3 million in fiscal 2004 over fiscal 2003. Excluding currency changes, net sales increased 16% or $5.8 million. A significant portion of the increase excluding currency changes relates to sales in China. Overall sales in China grew 46% in fiscal 2004, but still only account for 4% of the Company’s consolidated net sales. Substantially all of the Company’s products manufactured in China are currently sold within that country.

Gross margins in the Asia Pacific region increased to 33% in fiscal 2004 from 31% in fiscal 2003. This increase is due primarily to higher shipment volumes in China. In addition, gross margins in Australia have increased steadily over the past year as the Company benefits from the restructuring activities, which occurred in prior years.

Selling and administrative costs in Asia Pacific for fiscal 2004 increased 6% over fiscal 2003. Excluding the effect of foreign currencies, selling and administrative expenses decreased 5% from fiscal 2003. The Company has been able to reduce overall spending levels despite the increased sales activity in the region.

Non-Operating Items

The Company’s interest expense in fiscal 2004 decreased 20% in comparison with fiscal 2003. The decrease is due to the Company’s efforts to reduce its overall debt levels. See “Financial Condition and Liquidity” for additional discussion of Company debt levels and payments.

Consolidated interest income decreased by $469,000 in fiscal 2004 as compared to fiscal 2003 due to the receipt of payment in full of notes receivable related to the sale of the Company’s hydraulic cylinder division.

The Company’s effective tax rate for fiscal 2004 decreased to 35% in comparison to 37% in fiscal 2003. This decrease was due to higher levels of pre-tax income in lower tax rate jurisdictions of foreign entities, as well as the Company’s ability to utilize research and development credits. These benefits were reduced by the Company’s recording of a valuation allowance against certain foreign subsidiary net operating losses.

COMPARISON OF FISCAL 2003 AND FISCAL 2002

Consolidated Summary

The Company’s net income increased to $17.7 million ($1.45 per diluted share) in fiscal 2003 compared to $4.1 million ($0.34 per diluted share) in fiscal 2002. The majority of this increase is due to amortization expense, a goodwill impairment charge, the write-off of a note receivable and losses from discontinued operations recorded in fiscal 2002, which did not recur in fiscal 2003. The Company’s consolidated net sales in fiscal 2003 increased 2% to $258.8 million as compared to $252.7 million in fiscal 2002. Sales were essentially flat in comparison with fiscal 2002 after adjusting for fluctuations in foreign currencies. Overall business levels in the lift truck industry were down in fiscal 2003 as compared to fiscal 2002, primarily due to depressed economic conditions in North America and Europe.

North America

	Year Ended January 31
(in thousands)	2003			%		2002		%		Change			Change %

Net sales	$	162,774		100	%	$	160,883	100	%	$	1,891		1	%
Cost of goods sold	98,705			61	%	99,758		62	%	(1,053		)	(1	)%
Gross profit	64,069			39	%	61,125		38	%	2,944			5	%

Selling and administrative	36,067			22	%	34,438		21	%	1,629			5	%
Amortization	214			—		3,900		2	%	(3,686		)	—
Allowance for (recovery of) note receivable	(2,500		)	(2	)%	7,308		5	%	(9,808		)	—
Goodwill impairment	—			—		5,100		3	%	(5,100		)	—
Environmental expenses	2,100			1	%	1,500		1	%	600			40	%

Operating income	$	28,188		17	%	$	8,879	6	%	$	19,309		217	%

The Company’s net sales in North America in fiscal 2003 increased to $162.8 million as compared to $160.9 million in fiscal 2002. In fiscal 2002, the lift truck industry in North America, the Company’s largest market, experienced significant declines in orders and shipments. During fiscal 2003, the North American market reflected a slowly increasing level of activity during much of the year. Certain of the Company’s smaller competitors in the North American market experienced financial problems during the industry downturn in 2001 and 2002 and a portion of the Company’s sales increase can be attributable to market share gains.

The Company’s gross margin in North America of 39% in fiscal 2003 increased from 38% in fiscal 2002. This increase reflected the Company’s continued focus to implement cost management initiatives.

Selling and administrative expenses as a percentage of net sales were 22% in fiscal 2003 as compared to 21% in fiscal 2002. In fiscal 2002, due to the downturn in the lift truck industry, the Company had implemented aggressive measures, such as pay freezes and hiring restrictions, reductions in incentive pay and reduced overall spending levels. As sales levels increased somewhat in fiscal 2003, the Company eliminated many of the spending restrictions and moved forward with various projects expected to impact future operations. These projects included information systems conversions in Canada and a realignment of the Company’s business structure in Europe to operate more effectively in the European Union countries. In addition, the Company’s incentive pay to senior management increased approximately $950,000 due to improved operating results in fiscal 2003.

During fiscal 2002, the Company recorded $3.9 million of goodwill amortization expense. The Company no longer amortizes goodwill under SFAS 142, which was adopted at the beginning of fiscal 2003.

The Company recorded a $5.1 million goodwill impairment charge in fiscal 2002 related to its operations in Australia. The Company undertook major restructuring activities in Australia in fiscal 2001. However, the Company’s operations in Australia continued to be negatively impacted in fiscal 2002 by inefficiencies in the realignment of sales operations and elimination of distribution locations and continued deterioration of sales levels due to the elimination of the tire and battery business. Sales decreased each quarter of fiscal 2002, with the largest decrease in the fourth quarter. The Company concluded that the decline in sales experienced at the end of fiscal 2002 was not temporary. In light of these significant factors and trends, the Company performed an impairment assessment in the fourth quarter of fiscal 2002 of the carrying amount of long-lived assets and goodwill in Australia. Based on this assessment, the Company determined that an impairment loss should be recognized since the estimated fair value of the assets based on discounted cash flows was less than the carrying amount of the assets.

The Company recorded a $7.3 million allowance in fiscal 2002 related to a note receivable from Maine Rubber Company (Maine Rubber), which related to the Company’s sale of its tire business to Maine Rubber in fiscal 2000. Maine Rubber notified the Company in January 2002 that its senior lender had restricted the payment of all scheduled future interest and principal payments to all creditors due to violations of its debt covenants. This included the first $1 million principal payment due to the Company in April 2002. Maine Rubber had been negatively impacted by the decline in lift truck industry orders and shipments in fiscal 2002 and did not expect these industry conditions to change dramatically through at least the end of fiscal 2003. The Company reviewed Maine Rubber’s financial statements and restructuring plan and in light of the current industry conditions, concluded it was highly unlikely that Maine Rubber would be able to make any principal and interest payments on the note receivable in the foreseeable future if at all.

In November 2002, the Company and Maine Rubber reached a settlement regarding the outstanding principal and interest due under the note receivable. Under the terms of the settlement, the Company received $2.5 million as payment in full for the release of any remaining liability of Maine Rubber under the note receivable. The Company recorded the $2.5 million cash payment as income in fiscal 2003.

Europe

	Year Ended January 31
(in thousands)	2003		%		2002		%		Change		Change %

Net sales	$	60,404	100	%	$	59,470	100	%	$	934	2	%
Cost of goods sold	46,335		77	%	44,840