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Cascade Corp. (NYSE:CAE)

Q3 2008 Earnings Call

December 4, 2008 5:00 pm ET

Executives

Robert Warren – President, CEO

Joseph Pointer – Chief Financial Officer

Analysts

Arnold Ursaner – CJS Securities

Frank Magdlen – Robins Group

James Bank – Sidoti & Company

J. Groh – D.A. Davidson

Alan Robinson – Royal Bank of Canada

[Tim Coffey – Private Investor]

Operator

Good afternoon ladies and gentlemen and welcome to the Cascade Corporation third quarter fiscal year 2009 earnings call. (Operator Instructions) Now I'd like to turn the conference over to Robert Warren, President and CEO of Cascade Corporation.

Robert Warren

Good afternoon everyone and welcome to today's call. Andy Anderson, our Chief Operating Officer and Joe Pointer our Chief Financial Officer are here with me. For those of you who are unfamiliar with Cascade, I'd like to give you a brief overview.

We operate globally with about 2,300 employees employed in 29 facilities in 16 countries. We manufacture devices primarily for industrial trucks, most commonly called lift trucks or fork lifts. These products which are used in nearly every industry world wide that uses lift trucks allow the lift truck to carry position and deposit various types of loads.

A smaller portion of our products are for construction vehicles such as excavators and wheel loaders. Approximately 55% of our products are sold through retail dealers. The remaining products are sold directly to global manufacturers; names such as Heister, Toyota, Keon, Mitsubishi, Yale, Kamatsu, Buffet, Ingersoll Rand, Caterpillar and Nissan.

Joe will now give you an overview of the third quarter.

Joseph Pointer

I'd like to remind everyone that during the course of this call, we may make forward-looking statements. Participants are cautioned that these forward-looking statements including statements about our anticipated revenue, costs, earnings and cash flows are subject to a number of risks and uncertainties that could cause our actual results to differ materially.

Additional information regarding these risks and uncertainties are described in our reports on Forms 10-K and 10-Q and other filings with the Securities and Exchange Commission. We cannot provide any assurance that future results will meet expectations. In addition, historical information should not be considered an indicator of future performance.

We disclaim any obligation to release updates to any comments made in this call or reflect any changes in business conditions.

I would now like to give a brief overview of our consolidated third quarter results. Please note all percentage comparisons to the prior year exclude the impact of foreign currency changes.

Net income for the third quarter was $10.4 million or $0.94 per share compared to $12.4 million or $1.00 per share the prior year. Consolidated net sales were $139 million in the third quarter which reflects a 3% decrease in net sales. The decrease is due to lower sales volumes in North America, Europe and China.

Gross profit percentage for the third quarter was 28% versus 31% a year ago. Our third quarter gross profit percentage was consistent with the first two quarters of this year. The primary factors impacting the lower gross profit percentage are material cost increases and lower sales volumes.

SG&A expenses decreased 7% due to a reduction in personnel, consulting, selling and other costs. Our effective tax rate of 30% in the current quarter decreased from 35% for fiscal 2008. The third quarter reflects the benefit of an income tax refund received in China related to a non recurring tax exemption.

I'd now like to spend a few minutes discussing our operating results on a geographic basis. Sales in North American decreased 5% compared to the prior year. The decrease was primarily due to the general economic slowdown in North America which included both lift truck and construction markets.

Gross profit percentage in North America decreased 3% in the current year due to the higher material costs, lower sales volumes, changes in product mix and new product introduction costs. SG&A costs in North America decreased 11% compared with the prior year due to lower personnel, consulting and other general costs.

In Europe, net sales decreased 3% primarily as a result of weakening economic conditions especially towards the end of the quarter. Europe's gross profit percentage was consistent with the prior year third quarter. We were able to mitigate the impact of material cost increases with sales price increases and the benefits of lower production costs.

The current quarter gross profit includes approximately $1 million of cost related to our restructuring. SG&A costs in Europe decreased 5% due to a lower personnel, selling and other general costs. Included in the current quarter is approximately $270,000 of SG&A costs related to our restructuring. Bob will discuss later the current status of our restructuring efforts in Europe.

In the Asia Pacific region, net sales increased 14% due to higher shipment volumes as a result of strong business activity in Korea and Australia. Asia Pacific's gross profit decreased 5% in the current year due to material cost increases, fluctuations in foreign currency rates and increased sales of lower margin products.

SG&A in the Asia Pacific region increased 6% due to higher personnel, marketing and other costs. In China, our net sales decreased 15% due to the general slow down in the Chinese economy. Our gross profit percentage in China was down 1% from the prior year. Effective sales price increases was fully offset by material cost increases and changes in product mix.

SG&A in China increased 3% due to marketing, consulting and other general costs.

One last comment I would like to make about the income statement as it relates to foreign currency losses during the quarter. There were several components coming together that contributed to these losses. They included significant foreign currency movements in the Euro, British Pound, Canadian Dollar and Korean Yen and adverse hedging results.

We have altered our approach going forward to hedging foreign currencies in order to minimize the impact of currency changes in the future.

Looking at our balance sheet, both our cash and debt balances increased at October 31, 2008 compared to year end. The increase in our debt balance is primarily due to funded additional inventory purchases. It is our intent going forward to use available cash to pay down long term debt.

Our inventory balance was approximately $93 million at quarter end which is an $8 million or 19% increase since January 31, 2008. This change is primarily due to two factors; the cost of our inventory is greater due to higher material costs. In addition, we have had a build up of raw materials to take advantage of large volume purchases in advance of announced price increases.

Towards the end of the quarter and into November, we stopped making these large volume purchases and cut back on other purchases in order to reduce our overall inventory levels.

Capital expenditures and depreciation expense were each $3.5 million for the quarter. The anticipated capital expenditures and depreciation expense for the remainder of fiscal 2009 will each be approximately $4 million.

I'd now like to turn the call over to Bob for a discussion of the lift truck market and some other general comments.

Robert Warren

For those who have followed Cascade know, the lift truck market is the only direct economic indicator we have available for our markets. While this does not correlate exactly with our business levels and various end markets that use our products to differing degrees, it does give some indication of short term future trends.

Our web site contains a summary of industry statistics by region. Our press release contains an overview of the lift truck markets for the third quarter. In today's call I am not going to go through those statistics.

What I would like to address is the very difficult market we are currently experiencing and the environment we face going forward with the global economic downturn. While we didn't see the full effect of the downturn during the quarter, it was clear that in every region around the world we have seen a drop in demand for lift trucks and our products. This was especially true as the quarter came to a close.

October's industry order rates globally were down between 15% to 40% compared to October of the prior year. While order rates for November are not yet available, with our current order levels we don't expect significant changes in this downward trend.

Based on a review of current lift truck data and general economic conditions, we believe the global lift truck market and our sales will be down as much as 30% compared to fiscal 2008 for the fourth quarter and could continue into fiscal 2010. At this point we are unsure as to how deep the downturn will be and how long it will last.

We are taking a number of actions in an aggressive way to deal with the downturn throughout the world. These actions include pay and hiring freezes, reduced work schedules at many facilities and a reduction of spending levels. We will be looking for additional opportunities to reduce both production and administrative costs.

In addition, we have reduced personnel levels at locations where business is not expected to return to previous levels in the near terms. These reductions have occurred throughout North America and include work force reductions as part of our European reorganization which is discussed in more detail later. Since the beginning of the year our global work force has been reduced by 7%.

Looking forward into the fourth quarter, we expect SG&A costs to be inline or down slightly from the third quarter and the tax rate to be consistent with the year to date rate of 35%.

Regarding the fourth quarter, I would like to remind you that due to holiday shut downs at our facilities our results include up to 15% fewer working days. In addition, several OEM's have also announced extended holiday shut downs in light of the economic slowdown.

For several quarters we have been discussing the effect that rising material prices have had on our gross margins. We have been attempting to mitigate these increases through cost reduction activities and higher sales prices. To date our gross margins in most regions for the third quarter are still down from comparable periods. We anticipate decreasing sales volumes will continue to pressure margins in the coming quarters.

One other point regarding material prices, recent news reports have indicated commodities steel prices are falling. The majority of the raw material we use is specialty steel. Prices for this steel do not correlate directly with commodity prices. That being said, we are beginning to see a flattening in some of our raw material prices and could see decreases in the coming quarters.

However, based on our existing inventory levels and expected drops in demand, we don't expect to see a positive impact on our gross margins from the lower material costs until sometime in the first half of next year.

I would now like to give an update on our continuing European reorganization. During the quarter we reduced our work force in Hagen, Germany. This reduction along with the previously announced reductions in the Netherlands totaled 10% of our European work force. We have incurred severance and other costs of approximately $1.3 million in the third quarter and $1.8 million in the first nine months of fiscal 2009 related to these reorganization activities.

While we have seen gradual improvement and progress in parts of our business to date, through higher levels of operating income, we will be making other operational and reorganization changes which will result in additional costs of approximately $7 million in the coming quarters.

I want to emphasize that improved operational performance in Europe, the world's largest lift truck market remains our highest priority.

This concludes our prepared remarks. We are now ready to open the call to your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Arnold Ursaner – CJS Securities.

Arnold Ursaner – CJS Securities

You're clearly looking at an unprecedented decline in order trends and bookings and industry data, but I'm surprised at the magnitude of the possibly down 30% in sales for 2010. Can you walk us through the geographic sense of where that could come from? How much of that is from North America? How much of that is from Europe? And do you envision China staying soft the way it is right now despite their massive program?

Robert Warren

It appears it's almost global in nature. Starting in August we saw a global lift truck order rate as opposed to the shipping rate drop precipitously on the basis of sometimes 30%, 40% and that was pretty much across the board about the same. Europe, North America, Asia, some of the Australian seem to be lagging a little bit, but China appears to have hit their first real recession and precipitously I don't know that one of our Board Members, Nick Lardy, said they have never seen something as quick as this shrinking of their current economy.

There seems to be a fairly close relationship. We're looking in the fourth quarter and that's the reason you're hearing a lot stronger heads up of our fourth quarter. We're seeing a very close relationship to our own revenue which normally would lag or be a lot softer than the truck bookings numbers.

Arnold Ursaner – CJS Securities

I'm trying to figure out a way to think about your gross margin. Obviously you've put in price increases, you speak about some improvement in your raw material costs more in the middle part of next year, but it also sounds like you're going to have an extraordinarily hard time in covering fixed cost absorption on your plants. Is the way you're thinking about gross margin several hundred basis points of decline next year given all of these various factors or is that a little steeper?

Robert Warren

I think it's very possible we could see 200 to 300 basis points. It's going to take us awhile. There are levels we can go to. A lot of our plants have gone to four and three day work weeks to try to match the order rates that are coming in. Those aren't sustainable over a longer period of time and I'll try to figure out what that future depth of these markets order rates are going to be and what level do you go to in your own staffing and capital. At what point does it threaten whole plants?

Arnold Ursaner – CJS Securities

What are you seeing on dealer inventory financing capability? Are you seeing changes in floor plans that's impacting their willingness with inventory?

Robert Warren

I haven't heard about a difficulty in financing the floor plan of their own inventory or lease money being unavailable for a larger, customers who buy everything on three and five year lease. I haven't heard if there's been any particular issue on capital there.

Operator

Your next question comes from Frank Magdlen – Robins Group.

Frank Magdlen – Robins Group

Does this feel like it's the January quarter of '01?

Robert Warren

It certainly has a reminiscent feel to it.

Frank Magdlen – Robins Group

I guess the difference is you started out with a little bit better gross margins back then than you are now.

Robert Warren

In fact it was a pretty strong market in what we're doing globally at that point and we've already seen some compression of the North American market last year here.

Frank Magdlen – Robins Group

On the price increases, what have you actually taken year to date?

Robert Warren

It's all over the board, different marks in different product sectors.

Joseph Pointer

It probably ranges from 20% to 25%, but it's all over within that range.

Frank Magdlen – Robins Group

In restructuring in Europe, is that in the next two or three quarters, that $7 million expense?

Joseph Pointer

That's correct.

Frank Magdlen – Robins Group

And that is primarily severance or is that write down of some assets?

Robert Warren

It's across the board for all of them, moving projections, redundancy costs; it's just a whole range of things that we're having to look at at this level of business. We're determined to right size the business for profitability.

Joseph Pointer

There are no asset write downs factored into that.

Frank Magdlen – Robins Group

No asset write downs and we might expect that as well.

Robert Warren

That's possible as we try to make it more profitable, the good will is actually strengthened.

Frank Magdlen – Robins Group

The foreign exchange, you put that as a separate item now. In the past you used to run that as just other expense, is that right?

Joseph Pointer

We found that most of the other even historically was all related to foreign currency, so we said it's probably a little more clear to people labeling it that way.

Frank Magdlen – Robins Group

For your fiscal 2010, the tax rate would that be similar to what we're talking about for this year?

Joseph Pointer

That's probably as good as any estimate at this point. There's a lot of restructuring costs and other things going on and it's all very contingent on the levels of income in the various jurisdictions, but probably the best estimate at this point would be 35%.

Frank Magdlen – Robins Group

Any guidance on where you think your debt levels can get to or your interest expense?

Joseph Pointer

Probably not at this point.

Operator

Your next question comes from James Bank – Sidoti & Company.

James Bank – Sidoti & Company

Piggy backing of what Arnie was asking, essentially the 30% sales decline, I know you haven't normally given guidance in the past but I guess this is your first best effort. When I quickly look back to the recent past to your fiscal 2000 year, never have sales come down that much in a full year. I think in 2001 there were certain quarters where it was down 30% and I think even 42% one quarter. I'll quickly take a look but ultimately for the whole year it was only down 16%.

So I guess what I'm asking is, is there anything going on behind the scenes that gives you a bit more pause as we head into your next fiscal year?

Robert Warren

We usually trail the lift truck market and I've never in my career seen all of the major industrial markets globally be in sync. In 2001 we still had the European market hanging for another year on us. We also had some softening effect as we had a still business we were picking up from one of our U.S. competitors that was going into Chapter 7, so we were picking up some business that softened some of that downturn. But I've never seen all these markets simultaneously go south.

James Bank – Sidoti & Company

When you mentioned the gross margin, there is a possibility of it contracting 200 to 300 basis points; was that from your year end here, fiscal '09 potentially or maybe from repeat earnings in the prior fiscal year?

Robert Warren

That would be from the sequential last three quarters.

James Bank – Sidoti & Company

In regard to your European restructuring could you just give us some steps in terms of the further restructuring, some different steps that you take next year as opposed to lay offs that happened this year?

Robert Warren

I'd love to but it is such a delicate matter and this is a public forum and anything we say it's just very, very difficult. There's negotiations with works councils and just a lot of things, so I'll beg your indulgence.

James Bank – Sidoti & Company

The expenses, I just want to make sure I have the right numbers. What have you spent on the restructuring this far?

Robert Warren

We did $1.3 million in the quarter and we had an additional $500,000 for the first six months, so it's $1.8 million for the first nine months. It's spread between the cost of sales and SG&A.

James Bank – Sidoti & Company

I heard a number seven kicked around for future expenses?

Robert Warren

We're talking about in the next two or three quarters we're going to be dealing with about $7 million.

Joseph Pointer

That will almost undoubtedly be in the first or second quarter of next year. It will not be in this fourth quarter.

Operator

Your next question comes from J. Groh – D.A. Davidson.

J. Groh – D.A. Davidson

To beat a dead horse, $7 million remaining in restructuring in Europe?

Robert Warren

That's the current plan.

Joseph Pointer

$7 million is the next step.

J. Groh – D.A. Davidson

And like you said, you're taking a quarter into the first part of the next fiscal year? Maybe you could address how fast things change. It seems like this was very, very rapid. Would that be a fair characterization?

Joseph Pointer

Unbelievably fast. As Bob said, the thing that is different I think in Bob's and my 36 year career is this is almost the perfect bad storm. You can't look anywhere around the globe and its virtually the same numbers. I'm just looking over October just to randomly give you some numbers.

France is down 36% on order rates. Spain is down 47%. Eastern Europe is down 35%. Working through Central America is down 58%. South America is down 33%. Caribbean bought very few lift trucks. The near East is down 37%. Turkey is down 78%. China is down 13%. And I could go forward. Japan is down 24%. Korea is down 24%. It's universal. We have never seen that and it just came. It's like a tidal wave.

J. Groh – D.A. Davidson

So delivery is probably decent in October but as of October 1, the orders just sort of fell off the cliff, right?

Robert Warren

They fell off a cliff.

Operator

Your next question comes from Alan Robinson – Royal Bank of Canada.

Alan Robinson – Royal Bank of Canada

One of your comments caught my attention in the prepared remarks referring to adverse hedging results in respect to your CapEx exposure. Could you provide some clarification there please?

Joseph Pointer

We went through and kind of looked at the losses as we were recognizing them, and realized there were certain things we could do to tighten up on how we approach this via rolling a couple of other currencies that we hadn't hedged historically back into the equation. We lowered our thresholds, reduced the time frame that we entered into the contracts, just a number of small little things which we had some very significant, Andy went through the changes in the order rates.

Some of the fluctuations in the currencies were pretty dramatic and a couple of currencies even over a matter of a couple of days, so I think we went back and looked at all of those. There were some things that we can improve upon to do better. We're still obviously going to be subject to all these currencies and we're never going to be able to account for all of it, but we certainly can put some parameters around it to mitigate incurring these kinds of losses going forward.

Alan Robinson – Royal Bank of Canada

I get the impression your hedging is based on a specific view in terms of foreign currencies or are you able to move more quickly now? Your hedging policy is it based on a specific view of the direction of currencies over the next couple of quarters or do I get the impression that you're much more active and you change your hedging appropriately more often now?

Joseph Pointer

We evaluate our exposures on a monthly basis and we really don't speculate going forward on where currency changes are going to be. We hedge balance sheet receivables and liabilities in denominated foreign currencies so it's based on that actual historical transactions.

Robert Warren

All of these are transaction hedges. There is no straight out speculative hedging at all and the things that we have done, we've moved the review date much closer to the order date so there's much less span to allow the currency to slip between the order date and the date we hedge it which is essentially what happened to us this time.

There were a couple of situations where there was a couple of weeks span in there and so these are all transaction based hedges.

Alan Robinson – Royal Bank of Canada

It seems in the past that if you look at your China business orders there have followed lift truck shipments fairly closely in terms of growth levels, and yet this third quarter you seem to have fallen off considerably compared to the underlying market. Is that noise or is there something real going on there in terms of product mixes?

Robert Warren

A little product mix. We're shipping more lower priced OEM product into Japan, Korea and southeast Asia, but I don't think it's anything that we've been able to identify yet. We are seeing some increased domestic competition but not enough in volume that would cause that kind of swing from where the lift truck market is.

Alan Robinson – Royal Bank of Canada

Referring to your 30% figure that you mentioned as a possible down side if you like, does that include foreign currency changes or would that be potentially on top of that 30% figure. I guess what I'm asking is the 30% a volume figure or a dollar figure.

Robert Warren

It's a volume figure without any currency projection in it.

Operator

Your next question comes from [Tim Coffey – Private Investor]

[Tim Coffey – Private Investor]

When is the first step down on your revolver?

Robert Warren

I think that's 2011.

Joseph Pointer

When you say step down, it's being reduced by $1.25 million every quarter and that's already started.

[Tim Coffey – Private Investor]

How many field vendors do you have, just a rough approximation.

Robert Warren

In the big lineals maybe a dozen around the world and then plate suppliers, rarely do we do big mill order buys on the T1 plate but we have occasionally, but mostly you're buying from a local.

[Tim Coffey – Private Investor]

Can you rough ball park as of year end where you plan to have that inventory balance at, because it's still an elevated number.

Robert Warren

The objective right now is a minimum of $20 million. You mean by year end, fourth quarter, I don't think we'll get to $20 million by year end or fourth quarter, but within the next two quarters. Our first aggressive goal is the $20 million.

[Tim Coffey – Private Investor]

If I take that from a simple cash perspective, you have $85 million and change in inventory as of 10/31/08?

Joseph Pointer

I think it's $92 million.

[Tim Coffey – Private Investor]

And the number that you're ball parking, say it one more time please?

Richard Anderson

It's 20 down. You're looking at just from inventory roughly is $70 million source of cash from inventory draw. We are vey focused on that.

Robert Warren

And the unknowns, what will get as an opportunity when we're buying material for a lowering of some of this raw material and component pricing as opposed to what the dollar is going to do, because the dollar swing right now gave us some advantage but it appreciated against our major trading currencies but I would be surprised if it doesn't weaken again.

Joseph Pointer

What you're going to see in the coming quarters is a very clear focus as we weather this downturn, a very clear focus on free cash flow.

[Tim Coffey – Private Investor]

Then with respect when you take a look at where you are with [inaudible] and stuff like that, you're still pretty tight. How much room do you have to stretch there to free up additional cash?

Robert Warren

We certainly could do a little bit but a lot of the relationships we have; I just don't know how much we have on the table. Certainly on the receivables we're going to be putting a lot of focus on DSO and looking for ways to incentivize controlling our DSO.

[Tim Coffey – Private Investor]

So it's just over the next two quarters what it sounds like to me in terms of pure cash generation, if you're talking about $70 million coming from inventory levels, let's call it $10 million from receivables and let's just say you cut EBITDA from roughly $90 million to $60 million, I'm just trying to come up with a rough cash number over the next couple of quarters. It sounds like it could be a very healthy number. Is that a fair estimate?

Joseph Pointer

Is that cash flow generation?

[Tim Coffey – Private Investor]

That's correct. We're talking about a number close to $100 million.

Joseph Pointer

I would just say that I believe we will be cash flow, I believe you'll see the trending up of cash flow.

[Tim Coffey – Private Investor]

Is that number in your mind, give me a number closer to $100 million than it is closer to a number of $60 million?

Joseph Pointer

Let me go back to the $100 million real quick because I want to make sure I have the components.

[Tim Coffey – Private Investor]

If you're telling me that the inventory number is going to be closer by June 30, 2009 closer to $20 million?

Joseph Pointer

It's closer to $70 million, a $20 million dollar reduction.

[Tim Coffey – Private Investor]

That's what I was having a hard time getting it to the $100 million.

Joseph Pointer

Yes, a $20 million reduction between now and then. And you add in the AR and the other components you're getting to I think.

[Tim Coffey – Private Investor]

And you're assuming when you come up with that inventory number of roughly 30% decline in your business? That doesn't seem to make much sense.

Joseph Pointer

It's not the inventory but a 30% top line decline, particularly for an application for a specific job shop.

Joseph Pointer

You have to realize 50% of our business is no longer application specific job shop. It's a long supply line OEM business. Our business has fundamentally shifted that way and it's how fast we can reduce that down. It may well go down more. This is uncharted territory but we're sitting on inventory right now that the turn rate is going down just because our business is slowing down.

We stopped ordering in a whole lot of places. We haven't placed an order in China since July on steel and on the other side of the equation, many of our vendors, particularly the long supply line vendors who used to supply to us on a just in time basis, no longer do that. In fact a few of them have gone out of business, but we now have to take stock of the large inventories on bulk purchases and three months.

So there's just a lot of moving parts. We're just moving to optimize all the cash we can. We're going through that analysis right now to see how far down we can't get.

Operator

Your next question is from Arnold Ursaner – CJS Securities.

Arnold Ursaner – CJS Securities

When you mentioned you put in 25% price increases, what did you actually realize? How much of that did you realize?

Joseph Pointer

We couldn't do an estimate on that. That's obviously pretty wide ranging.

Arnold Ursaner – CJS Securities

Were you able to get most of it?

Robert Warren

I would say no because some of it was only put in in the third quarter and we're already running into some headwinds as people read about commodities steel prices, they want to see reductions and we haven't even begun to stop raising prices. There's a lot of resistance as you can imagine going in this kind of trough for people to be paying as what they perceive as a price increase rather than a deferred price in my mind.

Arnold Ursaner – CJS Securities

What are you seeing in the construction equipment segment of your business?

Robert Warren

That's slowing across the board. There's nothing there.

Arnold Ursaner – CJS Securities

The acquisition you made I'm assuming it's losing a little bit of money in here or a fair amount of money?

Robert Warren

That's correct.

Arnold Ursaner – CJS Securities

You spent a fair amount of money building up China facilities with the goal of once they were up and running shipping the products to Europe. Generally where are we in this process?

Robert Warren

That is still a very active program and I think we're going to see a lot more of the supply chain from the European OEM product that's breaking out directly to those facilities. They're still very cost competitive for that product into those OEM's and I would see an expansion of that.

Arnold Ursaner – CJS Securities

It sounds like you obviously will be generating a fair amount of cash flow but just remind us again, you don't have any debt coming due but do you think approaching or anywhere near covenant issues that might get tripped?

Joseph Pointer

No.

Robert Warren

I think we've got $40 million right now under our debt limits and we see us as taking that down obviously with our cash flow.

Arnold Ursaner – CJS Securities

You are obviously the global industry leader. You've got relatively few competitors in many of your markets, but given the kind of market you're describing, you obviously have a pretty strong balance sheet and it's clear you will survive, but how will your competitors survive the kind of environment you're describing?

Joseph Pointer

That's a great question. It's one we're trying to understand better and see if there's opportunity or not going forward.

Arnold Ursaner – CJS Securities

What do they do? Are they desperately giving away their product? If there's no volume, they've got to be doing something to attempt to survive.

Robert Warren

Our main competitors are in Europe and their market has just turned down so it will be interesting to see how they do in the fourth quarter and next year. But they haven't seen a downturn for three or four years. Our other competitors are emerging competitors in China and we have very few U.S. competitors, extremely small, and I would assume they are going to be experiencing a lot of pain.

Joseph Pointer

This has more to do with the lift truck market, but it will also impact the lift truck suppliers which we're in. There's an article in the most recent edition of International Industrial Vehicle Technology, the Deputy General Secretary of the Chinese Truck Association is predicting a significant consolidation in China in the industry. So they're predicting and I think that will filter down to certainly the small suppliers that are currently in the market as well.

Operator

Your next question comes from Frank Magdlen – Robins Group.

Frank Magdlen – Robins Group

Just to clarify a little bit on China, in the past you've given a little bit of operating rates for the floor plan. Are you prepared to do that now and show us how much they've deteriorated past the utilization?

Robert Warren

I don't remember doing that. Maybe we did. I wouldn't really know where we are right now. Currently with some of the downturn we have cut back on production in most of the plants. Our big facility has gotten more approvals out of Japan more recently so that's probably filled them a little bit there, but clearly as we see a deteriorating domestic market, that's going to create excess capacity in the facilities.

Frank Magdlen – Robins Group

Do you have all our European approvals or are you still waiting on one?

Robert Warren

Of the existing products that we're working on, we've gotten all the approvals. But we're looking for other opportunities.

Frank Magdlen – Robins Group

Would there be then the opportunity to put more product through China?

Robert Warren

We could see that opportunity with this kind of cost pressure that the OEM's are under.

Joseph Pointer

When you say more product through, that's sort of a relative term in this particular market. I think if we're successful over a point it will take less of a dip.

Frank Magdlen – Robins Group

Do you need any other approval to ship more types of product from China?

Joseph Pointer

Yes we do. It's not that we don't have them but we are pursuing an alternative, a couple of fairly innovative alternatives to improve our shipments out of China and there will be some approval going on with that. But we do not, that's day to day business and we don't see that to be a significant barrier.

Frank Magdlen – Robins Group

So there's no big incremental change at least as you view it now in a shift of sourcing. Can you shift significantly more product from China than you are now to the European market or is most of that on that long supply chain and done.

Joseph Pointer

I think what's in place right now is pretty much in place. I don't think you'll see any significant fluctuations. A lot of the things Andy was talking about we're thinking about in the future could impact that.

Operator

There are no further questions.

Robert Warren

Thank you for your time and participating today. We appreciate your interest in Cascade. Please don't hesitate to call if we can be of any assistance.

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Source: Cascade Corp. Q3 2008 Earnings Call Transcript
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