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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
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
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).
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,
1
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.
2
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%.
3
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.
4
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.
5
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
6
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-
7
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.
8
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
9
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
$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.
- ----------------------------------------------------------------------------------------------------------------
Year First
Elected
Name Age Officer Present Position
- ----------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------
11
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
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
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