FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended March 29, 2003
OR
[ ] 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 0-18110
GEHL COMPANY
(Exact name of registrant as specified in its charter)
Wisconsin 39-0300430
- --------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
143 Water Street, West Bend, WI 53095
- --------------------------------------- ------------------------------------
(Address of principal executive office) (Zip Code)
(262) 334-9461
----------------------------------------------------
(Registrant's telephone number, including area code)
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 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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 29, 2003
---------------------------- -----------------------------
Common Stock, $.10 Par Value 5,355,494
GEHL COMPANY
FORM 10-Q
March 29, 2003
REPORT INDEX
Page
No.
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PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income for the
Three-Month Periods Ended March 29, 2003 and
March 30, 2002.................................................. 3
Condensed Consolidated Balance Sheets at March 29, 2003,
December 31, 2002, and March 30, 2002........................... 4
Condensed Consolidated Statements of Cash Flows for
the Three-Month Periods Ended March 29, 2003 and
March 30, 2002.................................................. 5
Notes to Condensed Consolidated Financial Statements............ 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.............................. 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk...... 16
Item 4. Controls and Procedures......................................... 16
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................ 17
SIGNATURES................................................................. 17
CERTIFICATIONS............................................................. 18
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
GEHL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data; unaudited)
Three Months Ended
-------------------------------
March 29, 2003 March 30, 2002
-------------- --------------
Net sales $ 58,531 $ 60,068
Cost of goods sold 46,268 46,709
-------- --------
Gross profit 12,263 13,359
Selling, general and administrative expenses 11,034 11,921
Restructuring and other charges 160 92
-------- --------
Total operating expenses 11,194 12,013
Income from operations 1,069 1,346
Interest expense (899) (963)
Interest income 503 482
Other income (expense), net 109 (513)
-------- --------
Income before income taxes 782 352
Income tax provision 274 123
-------- --------
Net income $ 508 $ 229
======== ========
Earnings per share
Diluted $ .09 $ .04
======== ========
Basic $ .09 $ .04
======== ========
The accompanying notes are an integral part of the financial statements.
3
GEHL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
March 29, 2003 December 31, 2002 March 30, 2002
-------------- ----------------- --------------
(Unaudited) (Audited) (Unaudited)
ASSETS
Cash $ 2,642 $ 2,243 $ 1,200
Accounts receivable - net 113,730 97,627 106,515
Finance contracts receivable - net 5,164 4,701 5,820
Inventories 35,731 36,771 54,088
Deferred income tax assets 8,469 8,469 10,171
Prepaid expenses and other current assets 2,182 3,203 1,646
--------- --------- ---------
Total current assets 167,918 153,014 179,440
--------- --------- ---------
Property, plant and equipment - net 45,761 46,697 44,686
Finance contracts receivable - net, non-current 2,507 2,334 5,528
Goodwill 11,696 11,696 12,556
Other assets 11,891 12,328 12,296
--------- --------- ---------
Total assets $ 239,773 $ 226,069 $ 254,506
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current portion of debt obligations $ 1,446 $ 1,779 $ 131
Accounts payable 33,544 27,540 30,320
Accrued liabilities 21,300 20,315 29,350
--------- --------- ---------
Total current liabilities 56,290 49,634 59,801
--------- --------- ---------
Line of credit facility 53,974 47,377 64,082
Long-term debt obligations 8,724 8,758 13,340
Deferred income tax liabilities 1,644 1,644 2,460
Other long-term liabilities 22,533 22,518 14,478
--------- --------- ---------
Total long-term liabilities 86,875 80,297 94,360
--------- --------- ---------
Common stock, $.10 par value, 25,000,000 shares
authorized, 5,355,494, 5,373,650 and 5,378,288
shares outstanding, respectively 536 537 537
Preferred stock, $.10 par value, 2,000,000
shares authorized, 250,000 shares designated
as Series A preferred stock, no shares issued -- -- --
Capital in excess of par 6,886 7,030 7,143
Retained earnings 99,980 99,472 98,658
Accumulated other comprehensive loss (10,794) (10,901) (5,993)
--------- --------- ---------
Total shareholders' equity 96,608 96,138 100,345
--------- --------- ---------
Total liabilities and shareholders' equity $ 239,773 $ 226,069 $ 254,506
========= ========= =========
The accompanying notes are an integral part of the financial statements.
4
GEHL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)
Three Months Ended
-------------------------------
March 29, 2003 March 30, 2002
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 508 $ 229
Adjustments to reconcile net income to net cash
used for operating activities:
Depreciation 1,287 1,063
Amortization 6 61
Cost of sales of finance contracts 43 523
Proceeds from sales of finance contracts 18,121 18,357
Increase in finance contracts receivable (18,800) (17,570)
Net changes in remaining working capital items (6,401) (10,599)
-------- --------
Net cash used for operating activities (5,236) (7,936)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Property, plant and equipment additions - net (319) (2,259)
Other assets (108) 69
-------- --------
Net cash used for investing activities (427) (2,190)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit facility - net 6,597 8,864
Repayments of other borrowings - net (390) (203)
Proceeds from issuance of common stock 31 164
Treasury stock purchases (176) --
Other -- 253
-------- --------
Net cash provided by financing activities 6,062 9,078
-------- --------
Net increase (decrease) in cash 399 (1,048)
Cash, beginning of period 2,243 2,248
-------- --------
Cash, end of period $ 2,642 $ 1,200
======== ========
Supplemental disclosure of cash flow information:
Cash paid (received) for the following:
Interest $ 902 $ 936
Income taxes $ (510) $ 195
The accompanying notes are an integral part of the financial statements.
5
GEHL COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 29, 2003
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted pursuant to such rules and regulations, although
management believes that the disclosures are adequate to make the information
presented not misleading.
In the opinion of management, the information furnished for the three-month
periods ended March 29, 2003 and March 30, 2002 includes all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the results of operations and financial position of the Company. Due in part
to the seasonal nature of the Company's business, the results of operations for
the three months ended March 29, 2003 are not necessarily indicative of the
results to be expected for the entire year.
It is suggested that these interim financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2002 as
filed with the Securities and Exchange Commission.
NOTE 2 - STOCK BASED COMPENSATION
In December 2002, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require more prominent and
more frequent disclosures in financial statements of the effects of stock-based
compensation.
The Company maintains stock option plans for certain of its directors,
officers and key employees and accounts for these plans under the recognition
and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued
to Employees." No compensation expense has been recognized for options granted
under these plans as the option price was equal to the market value of the
Company's common stock on the date of grant.
6
The effect on net income and earnings per share had the Company applied the fair
value recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," is presented below (in thousands, except per share data):
March 29, 2003 March 30, 2002
-------------- --------------
Net income, as reported $ 508 $ 229
Less: stock-based compensation expense
determined based on fair value method,
net of tax (127) (134)
------- -------
Pro forma net income $ 381 $ 95
======= =======
Diluted net income per share:
As reported $ .09 $ .04
Pro forma $ .07 $ .02
Basic net income per share:
As reported $ .09 $ .04
Pro forma $ .07 $ .02
NOTE 3 - INCOME TAXES
The income tax provision is determined by applying an estimated annual
effective income tax rate to income before income taxes. The estimated annual
effective income tax rate is based on the most recent annualized forecast of
pretax income, permanent book/tax differences, and tax credits.
NOTE 4 - INVENTORIES
If all of the Company's inventories had been valued on a current cost
basis, which approximated FIFO value, estimated inventories by major
classification would have been as follows (in thousands):
March 29, 2003 December 31, 2002 March 30, 2002
-------------- ----------------- --------------
Raw materials and supplies $ 13,273 $ 12,891 $ 17,205
Work-in-process 3,698 3,006 6,059
Finished machines and parts 42,263 44,377 51,015
--------- ---------- ---------
Total current cost value 59,234 60,274 74,279
Adjustment to LIFO basis (23,503) (23,503) (20,191)
--------- ---------- ---------
$ 35,731 $ 36,771 $ 54,088
========= ========== =========
NOTE 5 - GUARANTEES
Effective December 31, 2002 and January 1, 2003, the Company adopted the
disclosure and accounting requirements, respectively, of Financial Accounting
Standards Board ("FASB") Interpretation No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN 45"). FIN 45 requires a guarantor to recognize a
liability, at the inception of the guarantee, for the fair value of obligations
it has undertaken in issuing the guarantee and also include more detailed
disclosures with respect to guarantees. The adoption of FIN 45 did not impact
the Company's financial position, results of operations or cash flows.
7
In general, the Company provides warranty coverage on equipment for a
period of up to twelve months or for a specified period of use after sale or
rental by a dealer. The Company's reserve for warranty claims is established
based on the best estimate of the amounts necessary to settle future and
existing claims on products sold as of the balance sheet date. While the
Company's warranty costs have historically been within its calculated estimates,
it is possible that future warranty costs could exceed those estimates. The
changes in the carrying amount of the Company's total product warranty liability
for the three-month period ended March 29, 2003 were as follows (in thousands):
Balance as of December 31, 2002 $ 4,437
Accruals for warranties issued during the period 667
Accruals related to pre-existing warranties
(including changes in estimates) -
Settlements made (in cash or in kind) during the period (705)
--------
Balance as of March 29, 2003 $ 4,399
========
NOTE 6 - ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2003, the Company adopted the provisions of SFAS No.
143, "Accounting for Asset Retirement Obligations." This statement addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. It applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
and/or the normal operation of a long-lived asset. The adoption of SFAS No. 143
had no impact on the Company's financial position, results of operations or cash
flows.
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation
of Variable Interest Entities, an interpretation of ARB No. 51"("FIN 46"). FIN
46 clarifies the application of ARB No. 51 to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. This
interpretation applies immediately to variable interest entities created after
January 31, 2003, and applies in the first year or interim period beginning
after June 15, 2003 to variable interest entities in which an enterprise holds a
variable interest that it acquired before February 1, 2003. As of March 29,
2003, the Company is not a party to any variable interest entities.
NOTE 7 - RESTRUCTURING AND OTHER CHARGES
On September 26, 2001, the Company adopted several major plant
rationalization initiatives to improve the Company's profitability by
consolidating certain operations. Under these initiatives, the Company announced
it would close its manufacturing facility in Lebanon, Pennsylvania and transfer
production to other locations. The Company also indicated it would transfer the
manufacturing of its Mustang line of skid steer loaders from its facility in
Owatonna, Minnesota to its skid steer facility in Madison, South Dakota. In
implementing these actions, the Company expected that it would ultimately incur
total restructuring and other non-recurring charges of approximately $5.5 to
$6.5 million; a $4.3 million charge related to the plant rationalization
initiatives was recorded in the third quarter of 2001 in accordance with
accounting principles generally accepted in the United States of America. Of the
$4.3 million charge recorded in the third quarter of 2001, $1.5 million and $2.8
million related to the agricultural and construction equipment segments,
respectively.
8
Details of the restructuring charge and related activity are as follows (in
thousands):
Employee Write-down
Severance and of Long- Other
Termination lived and Exit
Benefits Other Assets Costs Totals
------------- ------------ ------- --------
Original Reserve $ 1,635 $ 1,754 $ 911 $ 4,300
Utilization -- (1,754) -- (1,754)
------- ------- ------- -------
Balance at December 31, 2001 1,635 -- 911 2,546
Utilization (1,351) -- (430) (1,781)
------- ------- ------- -------
Balance at December 31, 2002 284 -- 481 765
Utilization (168) -- (30) (198)
------- ------- ------- -------
Balance at March 29, 2003 $ 116 $ -- $ 451 $ 567
======= ======= ======= =======
As a result of the plant rationalizations, the Company expected to reduce
its workforce by 249, consisting of hourly and salaried employees at the Lebanon
and Owatonna locations. As of March 29, 2003, workforce reductions related to
the plant rationalizations totaled 235 employees, which included 211 employees
who were terminated with severance payments. Termination benefits commenced in
April 2002 and will continue into the second quarter of 2003.
The manufacturing consolidations announced on September 26, 2001 have been
completed. Both the Lebanon and Owatonna manufacturing facilities are expected
to be sold and, accordingly, the tangible assets to be disposed of have been
written down to their estimated fair value, less cost of disposal.
Other exit costs primarily consist of non-recurring charges that will not
benefit activities that will be continued, will not be incurred to generate
future revenue, and are incremental to other costs incurred by the Company prior
to the adoption of the above initiatives.
During the three-month period ended March 29, 2003, the Company expensed
$0.2 million of other charges related to the plant rationalization initiatives.
These charges were required to be expensed when incurred and were not included
in the original reserve.
NOTE 8 - EARNINGS PER SHARE AND COMPREHENSIVE INCOME
Basic net income per common share is computed by dividing net income by the
weighted- average number of common shares outstanding for the period. Diluted
net income per common share is computed by dividing net income by the
weighted-average number of common shares and, if applicable, common stock
equivalents that would arise from the exercise of stock options.
9
A reconciliation of the shares used in the computation of earnings per
share follows (in thousands):
March 29, 2003 March 30, 2002
-------------- --------------
Basic shares 5,374 5,374
Effect of options 19 145
----- -----
Diluted shares 5,393 5,519
===== =====
Accumulated other comprehensive loss is primarily comprised of minimum
pension liability and foreign currency translation adjustments. Comprehensive
income was $615,000 for the three months ended March 29, 2003, which reflects
the Company's net income plus $107,000 in foreign currency translation
adjustments. Comprehensive income was $160,000 for the three months ended March
30, 2002, which reflects the Company's net income reduced by $69,000 in foreign
currency translation adjustments.
NOTE 9 - BUSINESS SEGMENTS
The Company operates in two business segments: construction equipment and
agricultural equipment. The long-term financial performance of the Company's
reportable segments is affected by separate economic conditions and cycles. The
segments are managed separately based on the fundamental differences in their
operations. Following is selected segment information (in thousands):
March 29, 2003 March 30, 2002
-------------- --------------
Net Sales:
Construction $ 35,798 $ 30,350
Agriculture 22,733 29,718
------- --------
Consolidated $ 58,531 $ 60,068
======== ========
Income from Operations:
Construction $ 1,257 $ 511
Agriculture (188) 835
-------- --------
Consolidated $ 1,069 $ 1,346
======== ========
NOTE 10 - STOCK REPURCHASES
In September 2001, the Company's Board of Directors authorized a stock
repurchase plan providing for the repurchase of up to 500,000 shares of the
Company's outstanding common stock. During the three-month period ended March
29, 2003, the Company repurchased 22,200 shares in the open market under this
authorization at an aggregate cost of $0.2 million. As of March 29, 2003, the
Company has repurchased 100,400 shares under this authorization.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
- -------------------------------------------------------------------------
FINANCIAL CONDITION
- -------------------
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED MARCH 29, 2003 COMPARED TO THREE MONTHS ENDED MARCH 30, 2002
NET SALES
Net sales for the three months ended March 29, 2003 ("2003 first quarter")
were $58.5 million compared to $60.1 million in the three months ended March 30,
2002 ("2002 first quarter"), a decrease of $1.5 million or 3%.
Construction equipment segment net sales were $35.8 million in the 2003
first quarter, versus $30.4 million in the 2002 first quarter, an increase of
18%. The increase in construction equipment segment net sales was primarily due
to strong demand for compact track loaders and all-wheel-steer loaders, new
products that were introduced in the second and third quarters of 2002,
respectively.
Agricultural equipment segment net sales were $22.7 million in the 2003
first quarter, versus $29.7 million in the 2002 first quarter, a decrease of
24%. Lower milk prices and drought conditions in certain regions of the United
States adversely impacted sales in the agricultural equipment segment. The
impact of these factors was offset, in part, by increased shipments of compact
track loaders, which were introduced in the second quarter of 2002.
Of the Company's total net sales reported for the 2003 first quarter, $10.5
million were made outside of the United States compared with $11.2 million in
the comparable period of 2002. The decrease was primarily due to movements in
foreign exchange rates.
GROSS PROFIT
Gross profit was $12.3 million in the 2003 first quarter compared to $13.4
million in the 2002 first quarter, a decrease of $1.1 million, or 8%. Gross
profit as a percent of net sales was 21.0% for the 2003 first quarter and 22.2%
for the 2002 first quarter.
Gross profit as a percent of net sales for the construction equipment
segment was 22.8% in the 2003 first quarter compared to 22.3% for the 2002 first
quarter. The increase in the construction equipment segment gross margin was
primarily the result of improved manufacturing efficiencies and the favorable
effects of the Company's recently completed plant rationalization project.
Gross profit as a percent of net sales for the agricultural equipment
segment was 18.0% in the 2003 first quarter compared to 22.1% for the 2002 first
quarter. The decrease in the agricultural equipment segment gross margin was due
to significant competitive pressure resulting in higher sales discounts and
sales incentives, reduced production levels, as well as a less favorable mix of
product shipments.
11
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $11.0 million, or 18.9%
of net sales in the 2003 first quarter, compared to $11.9 million, or 19.8% of
net sales, in the 2002 first quarter. The decrease was primarily due to
aggressive steps taken to reduce costs.
INCOME FROM OPERATIONS
Income from operations in the 2003 first quarter was $1.1 million compared
to $1.3 million in the 2002 first quarter, a decrease of $0.3 million, or 21%.
INTEREST EXPENSE
Interest expense in the 2003 first quarter was $0.9 million compared to
$1.0 million in the 2002 first quarter, a decrease of $0.1 million, or 7%. The
decrease in the Company's average outstanding debt balance, due to decreases in
working capital, primarily contributed to the decrease in the 2003 first quarter
interest expense.
OTHER INCOME (EXPENSE), NET
The Company benefited from other income, net of $0.1 million in the 2003
first quarter compared to other expense, net of ($0.5) million in the 2002 first
quarter. Reduced costs of selling retail finance contracts, due to the overall
lower interest rate environment, and favorable foreign exchange rates in the
2003 first quarter versus the 2002 first quarter resulted in other income, net
in the 2003 first quarter.
NET INCOME
Net income was $0.5 million in the 2003 first quarter compared to $0.2
million in the 2002 first quarter, an increase of $0.3 million.
FINANCIAL CONDITION
- -------------------
The Company's working capital was $111.6 million at March 29, 2003, as
compared to $103.4 million at December 31, 2002, and $119.6 million at March 30,
2002. The decrease since March 30, 2002 was due primarily to decreases in
inventory levels as the Company: 1) continued improvements in inventory flow
management; 2) benefited from the completion of the plant rationalization
initiatives; and 3) continued to adjust production and purchase levels to meet
current demand. The impact of inventory reductions on working capital was
partially offset by an increase in accounts receivable, which was primarily due
to the introduction of the compact track loader and all-wheel-steer loader in
the second and third quarters, respectively, of 2002. The increase in working
capital from December 31, 2002 was primarily due to seasonality of accounts
receivable which was partially offset by an increase in accounts payable.
Capital expenditures for property, plant and equipment during the 2003
first quarter were approximately $0.3 million. During 2003, the Company plans to
make an aggregate of up to $3.6 million in capital expenditures. The Company
believes that its present manufacturing facilities will be sufficient to provide
adequate capacity for its operations in 2003.
12
As of March 29, 2003, the weighted-average interest rate paid by the
Company on outstanding borrowings under its line of credit facility ("Facility")
was 4.6%. The Company had available unused borrowing capacity of $19.7 million,
$24.5 million and $24.9 million under the Facility at March 29, 2003, December
31, 2002, and March 30, 2002, respectively. At March 29, 2003, December 31,
2002, and March 30, 2002, the borrowings outstanding under the Facility were
$54.0 million, $47.4 million and $64.1 million, respectively. The change in
borrowings from March 30, 2002 and December 31, 2002 was primarily due to
changes in working capital requirements. The Company believes it has adequate
capital resources and borrowing capacity to meet its projected capital
requirements for the foreseeable future. Requirements for working capital,
capital expenditures, pension fund contributions and debt maturities in fiscal
2003 will continue to be funded by operations and borrowings under the Facility.
The sale of finance contracts is an important component of the Company's
overall liquidity. The Company has arrangements with several financial
institutions and financial service companies to sell, with recourse, its finance
contracts receivable. The Company continues to service substantially all
contracts whether or not sold. At March 29, 2003 the Company serviced $155.7
million of such contracts, of which $147.3 million were owned by other parties.
The Company believes that it will be able to arrange sufficient capacity to sell
its finance contracts for the foreseeable future.
At March 29, 2003, shareholders' equity had decreased $3.7 million to $96.6
million from $100.3 million at March 30, 2002. This decrease primarily reflected
the impact of the minimum pension liability adjustment recorded in 2002 offset
by currency translation adjustments and the income earned from March 30, 2002 to
March 29, 2003.
In September 2001, the Company's Board of Directors authorized a stock
repurchase plan providing for the repurchase of up to 500,000 shares of the
Company's outstanding common stock. During the quarter ended March 29, 2003, the
Company repurchased 22,200 shares in the open market under this authorization at
an aggregate cost of $0.2 million. All treasury stock acquired by the Company
has been cancelled and returned to the status of authorized but unissued shares.
As of March 29, 2003, the Company has repurchased 100,400 shares under this
authorization.
There have been no material changes to the annual maturities of debt
obligations nor to the future minimum non-cancelable operating lease payments as
disclosed in Management's Discussion and Analysis of Results of Operations and
Financial Condition and Notes 7 and 14, respectively, of Notes to Consolidated
Financial Statements in the Company's Annual Report on Form 10-K for the year
ended December 31, 2002 as filed with the Securities and Exchange Commission.
RESTRUCTURING AND OTHER CHARGES
- -------------------------------
On September 26, 2001, the Company adopted several major plant
rationalization initiatives to improve the Company's profitability by
consolidating certain operations. These initiatives were completed during 2002
as production of Mustang skid loaders was transferred to the Company's skid
steer loader facility in Madison, South Dakota and the Company's manufacturing
facility in Lebanon, Pennsylvania was closed and the production of certain
products formerly manufactured at that facility were outsourced.
In implementing these actions, the Company expected that it would
ultimately incur total restructuring and other non-recurring charges of
approximately $5.5 to $6.5 million. The
13
Company has incurred charges of $5.4 million since the adoption of the plant
rationalization initiatives, including $0.2 million of charges recorded in the
2003 first quarter. The 2003 first quarter charges were required to be expensed
when incurred.
Workforce reductions related to the plant rationalizations totaled 235
employees, which included 211 employees who were terminated with severance
payments. Termination benefits commenced in April 2002 and will continue into
the second quarter of 2003.
For additional information on the plant rationalization initiatives, see
Note 7 of Notes to Condensed Consolidated Financial Statements.
ACCOUNTING PRONOUNCEMENTS
- -------------------------
Effective January 1, 2003, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset
Retirement Obligations." This statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. It applies to legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and/or the normal operation of a
long-lived asset. The adoption of SFAS No. 143 had no impact on the Company's
financial position, results of operations or cash flows.
In January 2003, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 46, "Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51"("FIN 46"). FIN 46 clarifies the application of ARB
No. 51 to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. This interpretation applies
immediately to variable interest entities created after January 31, 2003, and
applies in the first year or interim period beginning after June 15, 2003 to
variable interest entities in which an enterprise holds a variable interest that
it acquired before February 1, 2003. As of March 29, 2003, the Company is not a
party to any variable interest entities.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
- ------------------------------------------
The preparation of the Company's condensed consolidated financial
statements requires the Company to make estimates and judgements that affect the
reported amounts of assets, liabilities, net sales and expenses. The Company
bases its estimates on historical experience and on various other assumptions
that it believes to be reasonable under the circumstances, the results of which
form the basis for making judgements about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions and
materially impact the carrying value of the assets and liabilities. The Company
believes the following accounting policies are critical to the Company's
business operations and the understanding of the Company's results of operations
and financial condition.
Allowance for Doubtful Accounts - The Company's accounts receivable are
reduced by an allowance for amounts that may be uncollectible in the future. The
Company estimates the uncollectibility of accounts receivable by specifically
analyzing accounts receivable where the Company has information indicating that
the customer may be unable to meet its financial
14
obligation to the Company as well as analyzing the age of unpaid amounts and
historical write-off percentages.
Inventories - Inventories are valued at the lower of cost or market. Cost
is determined using the last-in, first-out (LIFO) method for substantially all
of the Company's inventories. Adjustments to slow moving and obsolete inventory
to the lower of cost or market are determined based on historical experience and
the Company's best estimates of current product demand.
Product Warranty - In general, the Company provides warranty coverage on
equipment for a period of up to twelve months or for a specified period of use
after sale or rental by a dealer. The Company's reserve for warranty claims is
established based on the best estimate of the amounts necessary to settle future
and existing claims on products sold as of the balance sheet date.
Product Liability - The Company directly assumes all liability for costs
associated with claims up to specified limits in any policy year and as such,
records an estimated reserve for product liability. The Company's reserve for
product liability is based on the best estimate of the amounts necessary to
resolve future and existing claims.
Goodwill and Intangible Assets - Goodwill and intangible assets deemed to
have indefinite lives are tested for impairment at least annually. The Company
is subject to financial statement risk to the extent that goodwill becomes
impaired.
OUTLOOK
- -------
Based on the current market outlook, the Company's net sales are expected
to range between being flat to up approximately 4% in 2003. Any growth in net
sales is expected to result primarily from the sales of recently introduced
products and new products to be introduced in 2003. Growth in net sales is more
likely to occur in the construction equipment segment as compared with the
agricultural equipment segment. Overall, any anticipated sales growth would
likely occur in the latter portion of 2003 based on the Company's expectation of
a gradually improving economy. Though it remains difficult to predict results in
these unsettled economic times, if the economy experiences some gradual
improvement and the Company's sales levels meet projected forecasts, the Company
continues to expect to earn in the range of $.60 to $.75 per diluted share in
2003.
FORWARD-LOOKING STATEMENTS
- --------------------------
Certain statements included in this filing are "forward-looking statements"
intended to qualify for the safe harbor from liability established by the
Private Securities Litigation Reform Act of 1995. All statements other than
statements of historical fact, including statements regarding the Company's
future financial position, business strategy, targets and projected sales and
earnings, and the plans and objectives of management for future operations, are
forward-looking statements. When used in this filing, words such as the Company
"believes," "anticipates," "expects", "estimates" or "projects" or words of
similar meaning are generally intended to identify forward-looking statements.
These forward-looking statements are not guarantees of future performance and
are subject to certain risks, uncertainties, assumptions and other factors, some
of which are beyond the Company's control, that could cause actual results to
differ materially from those anticipated as of the date of this filing. Factors
that could cause such a variance include, but are not limited to, a delay in the
expected general economic recovery, unanticipated changes in capital market
conditions, the Company's ability to implement successfully its strategic
initiatives, market acceptance of newly introduced products, the cyclical
15
nature of the Company's business, the Company's and its customers' access to
credit, competitive pricing, product initiatives and other actions taken by
competitors, disruptions in production capacity, excess inventory levels, the
effect of changes in laws and regulations (including government subsidies and
international trade regulations), technological difficulties, changes in
currency exchange rates, the Company's ability to secure sources of liquidity
necessary to fund its operations, changes in environmental laws, the impact of
any acquisition effected by the Company, and employee and labor relations.
Shareholders, potential investors, and other readers are urged to consider these
factors in evaluating the forward-looking statements and are cautioned not to
place undue reliance on such forward-looking statements. The forward-looking
statements included in this filing are only made as of the date of this filing,
and the Company undertakes no obligation to publicly update such forward-looking
statements to reflect subsequent events or circumstances. In addition, the
Company's expectations for fiscal year 2003 are based in part on certain
assumptions made by the Company, including those relating to commodities prices,
which are strongly affected by weather and other factors and can fluctuate
significantly, housing starts and other construction activities, which are
sensitive to, among other things, interest rates and government spending, and
the performance of the U.S. economy generally. The accuracy of these or other
assumptions could have a material effect on the Company's ability to achieve its
expectations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------
There are no material changes to the information provided in response to
this item as set forth in the Company's Annual Report on Form 10-K for the year
ended December 31, 2002 as filed with the Securities and Exchange Commission.
ITEM 4. CONTROLS AND PROCEDURES
- -------------------------------
The Company's management, under the supervision and with the participation
of the Company's principal executive officer and principal financial officer,
has evaluated the Company's disclosure controls and procedures within 90 days
prior to the filing date of this quarterly report. Based upon that evaluation,
the Company's principal executive officer and principal financial officer have
concluded that the Company's disclosure controls and procedures are effective.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
16
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) EXHIBITS
--------
Exhibit No. Document Description
----------- --------------------
10.1 Gehl Company 2003 Incentive Bonus Plan.
99.1 Certification of the Chief Executive Officer pursuant
to 18 U.S.C. Section 1350.
99.2 Certification of the Chief Financial Officer pursuant
to 18 U.S.C. Section 1350.
(b) REPORTS ON FORM 8-K
-------------------
A Current Report on Form 8-K was filed by the Company on February 21,
2003 reporting under Items 7 and 12 the Company's financial results
for the year ended December 31, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GEHL COMPANY
Date: May 9, 2003 By: /s/ William D. Gehl
------------------------------------
William D. Gehl
Chairman of the Board
and Chief Executive Officer
Date: May 9, 2003 By: /s/ Kenneth P. Hahn
------------------------------------
Kenneth P. Hahn
Vice President of Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
17
CERTIFICATIONS
I, William D. Gehl, Chairman of the Board and Chief Executive Officer of Gehl
Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Gehl Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
18
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 9, 2003 /s/ William D. Gehl
------------------------------------
William D. Gehl
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
19
I, Kenneth P. Hahn, Vice President of Finance and Chief Financial Officer of
Gehl Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Gehl Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
20
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 9, 2003 /s/Kenneth P. Hahn
------------------------------------
Kenneth P. Hahn
Vice President of Finance and
Chief Financial Officer
(Principal Financial Officer)
21
GEHL COMPANY
INDEX TO EXHIBITS
Exhibit No. Document Description
- ----------- --------------------
10.1 Gehl Company 2003 Incentive Bonus Plan.
99.1 Certification of the Chief Executive Officer pursuant to
18 U.S.C. Section 1350.
99.2 Certification of the Chief Financial Officer pursuant to
18 U.S.C. Section 1350.
22