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 September 27, 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
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(Exact name of registrant as specified in its charter)
Wisconsin 39-0300430
- --------------------------------------------- -------------------
(State or other jurisdiction of incorporatio (I.R.S. Employer
or organization) Identification No.)
143 Water Street, West Bend, WI 53095
- --------------------------------------- -------------------------
(Address of principal executive office) (Zip code)
(262) 334-9461
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(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 September 27, 2003
---------------------------- ---------------------------------
Common Stock, $.10 Par Value 5,311,494
-1-
GEHL COMPANY
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FORM 10-Q
September 27, 2003
REPORT INDEX
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Page No.
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PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for the Three-
and Nine-month Periods Ended September 27, 2003 and
September 28, 2002............................................... 3
Condensed Consolidated Balance Sheets at September 27, 2003,
December 31, 2002, and September 28, 2002........................ 4
Condensed Consolidated Statements of Cash Flows for
the Nine-month Periods Ended September 27, 2003 and
September 28, 2002............................................... 5
Notes to Condensed Consolidated Financial Statements............... 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition............................... 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk........ 20
Item 4. Controls and Procedures........................................... 20
ART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................. 21
SIGNATURES................................................................ 21
-2-
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
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GEHL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data; unaudited)
Three Months Ended Nine Months Ended
------------------ -----------------
September 27, September 28, September 27, September 28,
------------ ------------ ------------ ------------
2003 2002 2003 2002
---- ---- ---- ----
Net sales $ 60,465 $ 54,575 $ 187,547 $ 181,332
Cost of goods sold 47,346 42,867 147,699 142,038
---------- ---------- ---------- ----------
Gross profit 13,119 11,708 39,848 39,294
Selling, general and
administrative expenses 10,339 10,130 32,191 33,393
Asset impairment and other
restructuring costs 3,716 333 3,997 725
---------- ---------- ---------- ----------
Total operating expenses 14,055 10,463 36,188 34,118
(Loss) income from operations (936) 1,245 3,660 5,176
Interest expense (908) (1,055) (2,791) (3,184)
Interest income 418 527 1,449 1,507
Other income (expense), net 78 (373) 462 (1,426)
---------- ---------- ---------- ----------
(Loss) income before income taxes (1,348) 344 2,780 2,073
(Benefit) provision for income taxes (445) 121 934 726
---------- ---------- ---------- ----------
Net (loss) income $ (903) $ 223 $ 1,846 $ 1,347
========== ========== ========== ==========
(Loss) earnings per share
Diluted $ (0.17) $ 0.04 $ 0.34 $ 0.25
========== ========== ========== ==========
Basic $ (0.17) $ 0.04 $ 0.35 $ 0.25
========== ========== ========== ==========
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)
September 27, 2003 December 31, 2002 September 28, 2002
------------------ ----------------- ------------------
(Unaudited) (Audited) (Unaudited)
ASSETS
Cash $ 2,212 $ 2,243 $ 2,339
Accounts receivable - net 112,843 97,627 106,133
Finance contracts receivable - net 5,973 4,701 2,897
Inventories 31,810 36,771 44,173
Deferred income tax assets 8,469 8,469 10,171
Prepaid expenses and other current assets 8,905 3,203 1,981
----------- ----------- -----------
Total current assets 170,212 153,014 167,694
----------- ----------- -----------
Property, plant and equipment - net 34,866 46,697 47,088
Finance contracts receivable - net, non-current 2,804 2,334 3,515
Goodwill 11,748 11,696 12,556
Other assets 12,219 12,328 13,306
----------- ----------- -----------
Total assets $ 231,849 $ 226,069 $ 244,159
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current portion of debt obligations $ 9,253 $ 1,779 $ 148
Accounts payable 28,560 27,540 26,872
Accrued liabilities 21,840 20,315 26,366
----------- ----------- -----------
Total current liabilities 59,653 49,634 53,386
----------- ----------- -----------
Line of credit facility 50,376 47,377 60,269
Long-term debt obligations 255 8,758 9,092
Deferred income tax liabilities 1,190 1,644 2,460
Other long-term liabilities 22,611 22,518 17,671
----------- ----------- -----------
Total long-term liabilities 74,432 80,297 89,492
----------- ----------- -----------
Common stock, $.10 par value,
25,000,000 shares authorized, 5,311,494,
5,373,650 and 5,377,055 shares outstanding,
respectively 531 537 538
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 6,410 7,030 6,966
Retained earnings 101,318 99,472 99,775
Accumulated other comprehensive loss (10,495) (10,901) (5,998)
----------- ----------- -----------
Total shareholders' equity 97,764 96,138 101,281
----------- ----------- -----------
Total liabilities and shareholders' equity $ 231,849 $ 226,069 $ 244,159
=========== =========== ===========
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)
Nine Months Ended
---------------------------------------------------
September 27, 2003 September 28, 2002
------------------ ------------------
Cash flows from operating activities
Net income $ 1,846 $ 1,347
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 3,699 3,214
Amortization 40 173
Deferred income taxes (454) -
Asset impairment (non-cash) 3,599 -
Cost of sales of finance contracts (175) 1,608
Proceeds from sales of finance contracts 82,455 73,816
Increase in finance contracts receivable (84,022) (69,178)
Net changes in remaining working capital items (6,963) (8,887)
--------- ---------
Net cash provided by operating activities 25 2,093
--------- ---------
Cash flows from investing activities
Property, plant and equipment additions - net (1,226) (6,165)
Other (113) 1,231
--------- ---------
Net cash used for investing activities (1,339) (4,934)
--------- ---------
Cash flows from financing activities
Proceeds from line of credit facility - net 2,999 5,068
Repayments of other borrowings - net (1,090) (2,167)
Proceeds from issuance of common stock 102 544
Treasury stock purchases (728) (556)
Other - 43
--------- ---------
Net cash provided by financing activities 1,283 2,932
--------- ---------
Net (decrease) increase in cash (31) 91
Cash, beginning of period 2,243 2,248
--------- ---------
Cash, end of period $ 2,212 $ 2,339
========= =========
Supplemental disclosure of cash flow information:
Cash paid for the following:
Interest $ 2,698 $ 3,110
Income taxes $ 151 $ 634
The accompanying notes are an integral part of the financial statements.
-5-
GEHL COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 27, 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- and
nine-month periods ended September 27, 2003 and September 28, 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 nine-month period ended September 27, 2003 are not
necessarily indicative of the results to be expected for the entire year.
The Company suggests 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 requirement of SFAS No. 123, "Accounting for Stock-Based
Compensation," 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 Accounting Principles Board 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 is presented below (in thousands,
except per share data):
Three Months Ended
------------------
September 27, 2003 September 28, 2002
------------------ ------------------
Net (loss) income, as reported $ (903) $ 223
Less: stock-based compensation expense
determined based on the fair value
method, net of tax (175) (208)
---------- ----------
Pro forma net (loss) income $ (1,078) $ 15
========== ==========
Diluted net (loss) income per share:
As reported $ (0.17) $ 0.04
Pro forma $ (0.20) $ 0.00
Basic net (loss) income per share:
As reported $ (0.17) $ 0.04
Pro forma $ (0.20) $ 0.00
Nine Months Ended
-----------------
September 27, 2003 September 28, 2002
------------------ ------------------
Net income, as reported $ 1,846 $ 1,347
Less: stock-based compensation expense determined
based on the fair value
method, net of tax (477) (648)
---------- ----------
Pro forma net income $ 1,369 $ 699
========== ==========
Diluted net income per share:
As reported $ 0.34 $ 0.25
Pro forma $ 0.26 $ 0.13
Basic net income per share:
As reported $ 0.35 $ 0.25
Pro forma $ 0.26 $ 0.13
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):
September 27, 2003 December 31, 2002 September 28, 2002
------------------ ----------------- ------------------
Raw materials and supplies $ 12,163 $ 12,891 $ 15,208
Work-in-process 3,030 3,006 2,774
Finished machines and parts 40,120 44,377 46,382
----------- ----------- -----------
Total current cost value 55,313 60,274 64,364
Adjustment to LIFO basis (23,503) (23,503) (20,191)
----------- ----------- -----------
LIFO inventory value $ 31,810 $ 36,771 $ 44,173
=========== =========== ===========
-7-
Note 5 - Product Warranties and Other 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 and warranty liabilities. The adoption of
FIN 45 did not impact the Company's financial position, results of operations or
cash flows.
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 nine-month period ended September 27, 2003 were as follows (in
thousands):
Balance as of December 31, 2002 $ 4,437
Accruals for warranties issued during the period 2,517
Accruals related to pre-existing warranties
(including changes in estimates) -
Settlements made (in cash or in kind) during the period (2,735)
-------------
Balance as of September 27, 2003 $ 4,219
=============
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 Accounting Research Bulletin No. 51,
"Consolidated Financial Statements" to certain entities in which, among others,
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 ending
after December 15, 2003 to variable interest entities in which an enterprise
holds a variable interest that it acquired before February 1, 2003, if certain
conditions are met. As of September 27, 2003, the Company does not own an
interest in any variable interest entities.
-8-
Note 7 - Asset Impairment and Other Restructuring Costs
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 ("Lebanon")
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 ("Owatonna") to its skid steer facility in
Madison, South Dakota. 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 this charge, $1.5 million and $2.8 million related to the
agricultural and construction equipment segments, respectively. Workforce
reductions related to the plant rationalizations totaled 235 employees at the
Lebanon and Owatonna facilities, which included 211 employees who were
terminated with severance payments.
The manufacturing consolidations announced on September 26, 2001 were
completed during 2002. During September and October of 2003, the Company entered
into agreements to sell both the Lebanon and Owatonna facilities and certain
related assets. The Company anticipates completing the sales of the facilities
by December 31, 2003. The Company recorded a $3.6 million asset impairment
charge in the three-month period ended September 27, 2003 (see change in
estimate line in the table below) to adjust the carrying value of the
above-referenced facilities and assets to their net realizable value based on
the pending sales. Of the $3.6 million charge, $1.2 million and $2.4 million
related to the construction equipment and agricultural equipment segments,
respectively. The net realizable value of the facilities and related assets has
been classified as a current asset at September 27, 2003 as the Company
anticipates completing the sale by December 31, 2003. In addition, the
industrial development bonds associated with the Lebanon facility have been
classified as a current liability at September 27, 2003 as the Company will be
required to repay the bonds in conjunction with the sale of the Lebanon
facility. The proceeds from the sales of the facilities and related assets will
be used to repay a substantial portion of the industrial development bonds.
Details of the restructuring charge and related activity are as follows (in
thousands):
Employee
Severance and Write-down of
Termination Long-lived and Other 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
Change in estimate (35) 4,071 (437) 3,599
Utilization (249) (4,071) (44) (4,364)
---------- ---------- ---------- ----------
Balance at September 27, 2003 $ - $ - $ - $ -
========== ========== ========== ==========
-9-
During the three-month periods ended September 27, 2003 and September 28,
2002, the Company expensed $0.1 million and $0.3 million, respectively, of other
charges related to the plant rationalization initiatives. During the nine-month
periods ended September 27, 2003 and September 28, 2002, the Company expensed
$0.4 million and $0.7 million, respectively, 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.
The Company incurred total restructuring and other related charges of $9.0
million related to the plant rationalization initiatives.
Note 8 - (Loss) Earnings Per Share and Comprehensive (Loss) Income
Basic net (loss) earnings per share is computed by dividing net (loss)
income by the weighted- average number of common shares outstanding for the
period. Diluted (loss) earnings per share is computed by dividing net (loss)
income by the weighted-average number of common shares and, if applicable,
common stock equivalents, to the extent dilutive, that would arise from the
exercise of stock options.
A reconciliation of the shares used in the computation of earnings (loss)
per share follows (in thousands):
Three Months Ended
------------------
September 27, 2003 September 28, 2002
------------------ ------------------
Basic shares 5,310 5,414
Effect of options - 37
-------- --------
Diluted shares 5,310 5,451
======== ========
Nine Months Ended
-----------------
September 27, 2003 September 28, 2002
------------------ ------------------
Basic shares 5,343 5,396
Effect of options 22 98
-------- --------
Diluted shares 5,365 5,494
======== ========
Accumulated other comprehensive loss is primarily comprised of minimum
pension liability and foreign currency translation adjustments. Comprehensive
loss was $0.9 million for the three-month period ended September 27, 2003, which
primarily reflects the Company's net loss. Comprehensive income was $2.3 million
for the nine-month period ended September 27, 2003, which reflects the Company's
net income plus currency translation adjustments of $0.5 million. Comprehensive
income and net income equaled $0.2 million and $1.3 million for the three-and
nine-month periods ended September 28, 2002, respectively.
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.
-10-
Following is selected segment information (in thousands):
Three Months Ended Nine Months Ended
----------------------------------------- -----------------------------------------
September 27, September 28, September 27, September 28,
2003 2002 2003 2002
------------------- ------------------ ------------------- ------------------
Net Sales:
Construction $ 38,766 $ 31,455 $ 118,687 $ 102,888
Agricultural 21,699 23,120 68,860 78,444
----------- ---------- ----------- ----------
Consolidated $ 60,465 $ 54,575 $ 187,547 $ 181,332
=========== ========== =========== ==========
(Loss) Income from
Operations:
Construction $ 2,235 $ 1,206 $ 6,790 $ 3,480
Agricultural (3,171) 39 (3,130) 1,696
----------- ---------- ----------- ----------
Consolidated $ (936) $ 1,245 $ 3,660 $ 5,176
=========== ========== =========== ==========
The (loss) income from operations for the three- and nine-month periods
ended September 27, 2003 includes a $3.6 million asset impairment charge (see
Note 7). Of the $3.6 million charge, $1.2 million and $2.4 million relates to
the construction equipment and agricultural equipment segments, respectively.
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. No shares were repurchased under this
authorization during the three-month period ended September 27, 2003. During the
nine-month period ended September 27, 2003, the Company repurchased 73,700
shares in the open market under this authorization at an aggregate cost of $0.7
million. During the three- and nine-month periods ended September 28, 2002, the
Company repurchased 35,000 and 47,800 shares, respectively, in the open market
under this authorization at an aggregate cost of $0.4 and $0.6 million,
respectively. As of September 27, 2003, the Company has repurchased 151,900
shares under this authorization. All treasury stock acquired by the Company has
been cancelled and returned to the status of authorized but unissued shares.
-11-
Item 2. Management's Discussion and Analysis of Results of Operations and
- ------ -----------------------------------------------------------------
Financial Condition
- -------------------
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 the Company closed its manufacturing facility in Owatonna, Minnesota
("Owatonna") and transferred production of Mustang skid loaders was to the
Company's skid steer loader facility in Madison, South Dakota. In addition, the
Company's manufacturing facility in Lebanon, Pennsylvania ("Lebanon") was closed
and the production of certain products formerly manufactured at that facility
was outsourced.
During September and October of 2003, the Company entered into agreements
to sell both the Lebanon and Owatonna facilities and certain related assets. The
Company anticipates completing the sales of the facilities by December 31, 2003.
The Company recorded a $3.6 million asset impairment charge in the three-month
period ended September 27, 2003 to adjust the carrying value of the
above-referenced facilities and assets to their net realizable value based on
the pending sales. Of the $3.6 million charge, $1.2 million and $2.4 million
related to the construction equipment and agricultural equipment segments,
respectively. The net realizable value of the facilities and related assets have
been classified as a current asset at September 27, 2003 as the Company
anticipates completing the sale by December 31, 2003. In addition, the
industrial development bonds associated with the Lebanon facility have been
classified as a current liability at September 27, 2003 as the Company will be
required to repay the bonds in conjunction with the sale of the Lebanon
facility. The proceeds from the sales of the facilities and related assets will
be used to repay a substantial portion of the industrial development bonds.
During the three-month periods ended September 27, 2003 and September 28,
2002, the Company expensed $0.1 million and $0.3 million, respectively, of other
charges related to the plant rationalization initiatives. During the nine-month
periods ended September 27, 2003 and September 28, 2002, the Company expensed
$0.4 million and $0.7 million, respectively, of other charges related to the
plant rationalization initiatives. These charges were required to be expensed
when incurred.
The Company incurred total restructuring and other related charges of $9.0
million related to the plant rationalization initiatives.
For additional information on the plant rationalization initiatives, see
Note 7 of Notes to Condensed Consolidated Financial Statements.
Results of Operations
- ---------------------
Three Months Ended September 27, 2003 Compared to Three Months Ended September
28, 2002
Net Sales
Net sales for the three months ended September 27, 2003 ("2003 third
quarter") were $60.5 million compared to $54.6 million in the three months ended
September 28, 2002 ("2002 third quarter"), an increase of $5.9 million, or 11%.
-12-
Construction equipment segment net sales were $38.8 million in the 2003
third quarter compared to $31.5 million in the 2002 third quarter, an increase
of $7.3 million, or 23%. Demand for telescopic handlers, compact excavators and
compact track loaders, a product line introduced in the second quarter of 2002,
was strong in the 2003 third quarter. In addition, the Company's attachment
business and European subsidiary, Gehl Europe, had increased shipments that
benefited the overall construction equipment segment net sales.
Agricultural equipment segment net sales were $21.7 million in the 2003
third quarter, compared to $23.1 million in the 2002 third quarter, a decrease
of $1.4 million, or 6%. The decrease in agricultural equipment segment net sales
was primarily due to higher levels of sales discounts and incentives resulting
from continued competitive pricing pressure. Increased net sales by the
Company's attachment business, as well as higher shipments of hay tools, were
offset by reduced shipments of other agricultural implements and skid loaders in
the 2003 third quarter. While milk prices increased during the 2003 third
quarter to levels in excess of the 2002 third quarter, the price increase was
likely not a factor in the 2003 third quarter as it is just beginning to have a
favorable impact on dairy farm income.
Of the Company's total net sales reported for the 2003 third quarter, $12.0
million were made outside of the United States compared with $9.8 million in the
2002 third quarter. The increase in export sales was primarily due to increased
sales in Canada and Europe.
Gross Profit
Gross profit was $13.1 million in the 2003 third quarter compared to $11.7
million in the 2002 third quarter, an increase of $1.4 million, or 12%. Gross
profit as a percent of net sales (gross margin) was 21.7% for the 2003 third
quarter compared to 21.5% for the 2002 third quarter.
Gross margin for the construction equipment segment was 24.8% in the 2003
third quarter compared with 22.6% for the 2002 third quarter. The increase in
the gross margin for the construction equipment segment was primarily the result
of improved manufacturing efficiencies, the favorable effects of the 2002
Owatonna, Minnesota plant closure and the levels of discounts and sales
incentives associated with the mix of products shipped.
Gross margin for the agricultural equipment segment was 16.1% in the 2003
third quarter compared to 19.9% in the 2002 third quarter. The decrease in
agricultural equipment gross margin was due to continued significant competitive
pressure resulting in higher sales discounts and sales incentives, reduced
production levels of agricultural implements, as well as a less favorable mix of
product shipments.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $10.3 million, or 17.1%
of net sales, in the 2003 third quarter compared to $10.1 million, or 18.6% of
net sales, in the 2002 third quarter. Consistent levels of selling, general and
administrative expenses between periods combined with increased sales in the
2003 quarter, resulted in a decrease in selling, general and administrative
expenses as a percentage of net sales in the 2003 third quarter.
-13-
(Loss) Income from Operations
Loss from operations in the 2003 third quarter was $0.9 million compared to
income from operations of $1.2 million in the 2002 third quarter. The 2003 third
quarter loss from operations includes a $3.6 million asset impairment charge
relating to the Company's previously announced closure and pending sales of its
Lebanon and Owatonna manufacturing facilities. The facilities and certain
related assets were adjusted to their net realizable value based on the pending
sale (see Note 7 to the Condensed Consolidated Financial Statements).
Interest Expense
Interest expense was $0.9 million in the 2003 third quarter compared to
$1.1 million in the 2002 third quarter, a decrease of $0.2 million, or 14%. The
decrease in the Company's average outstanding debt balance primarily contributed
to the decrease in the 2003 third quarter interest expense.
Other Income (Expense), Net
The Company benefited from other income, net of $0.1 million in the 2003
third quarter compared to other expense, net of $0.4 million in the 2002 third
quarter. This difference resulted from reduced costs of selling retail finance
contracts, due to the overall lower interest rate environment, and favorable
foreign exchange rates in the 2003 third quarter versus the 2002 third quarter.
Net (Loss) Income
Net loss was $0.9 million in the 2003 third quarter compared with net
income of with $0.2 million in the 2002 third quarter. Net loss for the 2003
third quarter included an after-tax asset impairment charge of $2.4 million
relating to the Company's previously announced closure and pending sales of its
Lebanon and Owatonna manufacturing facilities. The facilities and certain
related assets were adjusted to their net realizable value based on the pending
sale (see Note 7 to the Condensed Consolidated Financial Statements).
Nine Months Ended September 27, 2003 Compared to Nine Months Ended September 28,
- -------------------------------------------------------------------------------
2002
- ----
Net Sales
Net sales for the nine months ended September 27, 2003 ("2003 nine months")
were $187.5 million compared to $181.3 million in the nine months ended
September 28, 2002 ("2002 nine months"), an increase of $6.2 million, or 3%.
Construction equipment segment net sales were $118.7 million in the 2003
nine months compared to $102.9 million in the 2002 nine months, an increase of
$15.8 million, or 15%. The increase in construction equipment segment sales was
primarily the result of shipments of compact track loaders and all-wheel-steer
loaders, new products that were introduced in the second and third quarters of
2002, respectively, and increased shipments of telescopic handlers and
excavators. In addition, increased sales by the Company's attachment business
and European subsidiary, Gehl Europe, benefited the construction equipment
segment sales.
-14-
Agricultural equipment segment net sales were $68.9 million in the 2003
nine months, compared to $78.4 million in the 2002 nine months, a decrease of
$9.6 million, or 12%. Agricultural equipment net sales have been adversely
impacted by lower milk prices. During the 2003 third quarter, milk prices
increased to levels in excess of those experienced in 2002. However, the impact
of the increase was likely not a factor in either the 2003 third quarter or the
2003 nine months as the increased price level is just beginning to have a
favorable impact on dairy farm income. In addition, higher levels of sales
discounts and incentives adversely impacted agricultural equipment segment net
sales in the 2003 nine months. Increased shipments of haytools and compact track
loaders, introduced in the 2002 third quarter, and net sales by the Company's
attachment business, were offset by reduced shipments of other agricultural
implements and skid loaders in the 2003 nine months.
Of the Company's total net sales reported for the 2003 nine months, $36.7
million were made outside of the United States compared with $34.1 million in
the 2002 nine months. The increase in export sales was primarily due to
increased sales in Canada and Europe.
Gross Profit
Gross profit was $39.8 million in the 2003 nine months compared to $39.3
million in the 2002 nine months, an increase of $0.6 million, or 1%. Gross
profit as a percent of net sales (gross margin) was 21.2% for the 2003 nine
months compared to 21.7% for the 2002 nine months.
Gross margin for the construction equipment segment was 23.6% for the 2003
nine months compared with 21.6% for the 2002 nine months. The increase in the
gross margin for the construction equipment segment was primarily the result of
improved manufacturing efficiencies, the favorable effects of the 2002 Owatonna,
Minnesota plant closure and the levels of discounts and sales incentives
associated with the mix of products shipped.
Gross margin for the agricultural equipment segment was 17.2% for the 2003
nine months compared to 21.8% for the 2002 nine months. The decrease in
agricultural equipment gross margin was due to significant competitive pressure
resulting in higher sales discounts and sales incentives, reduced production
levels of agricultural implements, as well as a less favorable mix of product
shipments.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $32.2 million, or 17.2%
of net sales, in the 2003 nine months compared to $33.4 million, or 18.4% of net
sales, in the 2002 nine months. Decreased levels of selling, general and
administrative expenses combined with increased sales resulted in a decrease in
selling, general and administrative expenses as a percentage of net sales in the
2003 nine months.
Income from Operations
Income from operations in the 2003 nine months was $3.7 million compared to
$5.2 million in the 2002 nine months. Income from operations in the 2003 nine
months includes an asset impairment charge of $3.6 million relating to the
Company's previously announced closure and pending sales of its Lebanon and
Owatonna manufacturing facilities. The facilities and certain related assets
were adjusted to their net realizable value based on the pending sale (see Note
7 to the Condensed Consolidated Financial Statements).
-15-
Interest Expense
Interest expense was $2.8 million in the 2003 nine months compared to $3.2
million in the 2002 nine months, a decrease of $0.4 million, or 12%. The
decrease in the Company's average outstanding debt balance primarily contributed
to the decrease in interest expense in the 2003 nine months.
Other Income (Expense), Net
The Company benefited from other income, net of $0.5 million in the 2003
nine months compared to other expense, net of $1.4 million in the 2002 nine
months. This difference resulted from reduced costs of selling retail finance
contracts, due to the overall lower interest rate environment, and favorable
foreign exchange rates in the 2003 nine months versus the 2002 nine months.
Net Income
Net income was $1.8 million in the 2003 nine months compared with $1.3
million in the 2002 nine months. Net income in the 2003 nine months includes an
after-tax asset impairment charge of $2.4 million relating to the Company's
previously announced closure and pending sales of its Lebanon and Owatonna
manufacturing facilities. The facilities and certain related assets were
adjusted to their net realizable value based on the pending sale (see Note 7 to
the Condensed Consolidated Financial Statements).
Financial Condition
- -------------------
The Company's working capital was $110.6 million at September 27, 2003, as
compared to $103.4 million at December 31, 2002, and $114.3 million at September
28, 2002. The decrease since September 28, 2002 was due primarily to a $12.4
million decrease in inventory levels as the Company: 1) continued to improve
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. In addition, assets and industrial development
bonds associated with the Lebanon manufacturing facility and assets associated
with the Owatonna manufacturing facility were classified as current at September
27, 2003 as a result of the pending sales of the facilities which reduced
working capital by $2.4 million from September 28, 2002. The impact of inventory
reductions and the current classification of assets and industrial development
bonds related to the pending sales of the Lebanon and Owatonna facilities on
working capital was partially offset by a $9.1 million increase in finance
contracts receivable and accounts receivable. The increase in accounts
receivable was primarily due to the introduction of the compact track loader and
all-wheel-steer loader in the second and third quarters of 2002, respectively,
as well as the introduction of the new windrow merger in the first quarter of
2003 and increased shipments of telescopic handlers and excavators in the 2003
third quarter. The increase in working capital from December 31, 2002 was
primarily the result of a $15.2 million increase in accounts receivable due to
seasonality of accounts receivable, the introduction of the new windrow merger
in the first quarter of 2003 and increased shipments of telescopic handlers and
excavators in the 2003 third quarter. The impact of the increase in accounts
receivable on working capital was partially offset by a $5.0 million decrease in
inventory and the impact of classifying the assets and industrial development
bonds related to the pending sales of the Lebanon and Owatonna facilities as
current at September 27, 2003, which decreased working capital by $2.4 million.
-16-
Capital expenditures for property, plant and equipment during the 2003 nine
months were approximately $1.2 million. During 2003, the Company plans to make
an aggregate of up to $2.9 million in capital expenditures. The Company believes
that its present manufacturing facilities will be sufficient to provide adequate
capacity for its operations through 2004.
As of September 27, 2003, the weighted-average interest rate paid by the
Company on outstanding borrowings under its line of credit facility ("Facility")
was 4.57%. The Company had available unused borrowing capacity of $23.1 million,
$24.5 million and $12.2 million under the Facility at September 27, 2003,
December 31, 2002, and September 28, 2002, respectively. At September 27, 2003,
December 31, 2002, and September 28, 2002, the Company's outstanding borrowings
under the Facility were $50.4 million, $47.4 million and $60.3 million,
respectively. The changes in borrowings from September 28, 2002 and December 31,
2002 to September 27, 2003 were 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 September 27, 2003, the Company serviced
$173.0 million of such contracts, of which $163.7 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 September 27, 2003, shareholders' equity had decreased $3.5 million to
$97.8 million from $101.3 million at September 28, 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
September 28, 2002 to September 27, 2003. The Company is reviewing, with the
assistance of its actuaries, any adjustment that may be required to the minimum
pension liability prior to December 31, 2003. Any such adjustment is expected to
impact only the Company's balance sheet.
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. No shares were repurchased under this
authorization during the three-month period ended September 27, 2003. During the
nine-month periods ended September 27, 2003, the Company repurchased 73,700
shares in the open market under this authorization at an aggregate cost of $0.7
million. During the three- and nine-month periods ended September 28, 2002, the
Company repurchased 35,000 and 47,800 shares, respectively, in the open market
under this authorization at an aggregate cost of $0.4 and $0.6 million,
respectively. As of September 27, 2003, the Company has repurchased 151,900
shares under this authorization. All treasury stock acquired by the Company has
been cancelled and returned to the status of authorized but unissued shares.
Due to the pending sale of the Lebanon manufacturing facility, the
industrial development bonds associated with the facility have been classified
as a current liability at September 27, 2003 as the Company will be required to
repay the bonds in conjunction with the sale of the facility, which is expected
to be completed no later than December 31, 2003. The proceeds from the sales of
the facilities and related assets will be used to repay a substantial portion of
the industrial development bonds.
-17-
Other than described in the previous paragraph, 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.
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
Accounting Research Bulletin No. 51, "Consolidated Financial Statements" to
certain entities in which, among others, 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 ending after December 15, 2003 to
variable interest entities in which an enterprise holds a variable interest that
it acquired before February 1, 2003, if certain conditions are met. As of
September 27, 2003, the Company does not own an interest in 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 obligation to the Company as
well as analyzing the age of unpaid amounts and historical write-off
percentages.
-18-
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
- -------
The Company expects a modest improvement in the U.S. economy during the
last quarter of the year. As a result, and combined with the actual results for
the year to date, the Company expects 2003 net earnings to be in the range of
$.34 to $.39 per diluted share. The projected net earnings include the asset
impairment charge of $.44 per diluted share.
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 the statements in the section entitled
"Outlook," 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 further 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 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 or interest
rates, unanticipated issues or costs associated with the sales of the Lebanon,
Pennsylvania and Owatonna, Minnesota manufacturing facilities, the Company's
ability to secure sources of liquidity necessary to fund its operations,
unanticipated issues related to the determination of the Company's minimum
pension liability, 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
-19-
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, with the participation of the Company's principal
executive officer and principal financial officer, has evaluated the Company's
disclosure controls and procedures as of September 27, 2003. Based upon that
evaluation, the Company's principal executive officer and principal financial
officer have concluded that the Company's disclosure controls and procedures
were effective as of September 27, 2003. There was no change in the Company's
internal control over financial reporting that occurred during the three months
ended September 27, 2003, that has materially affected, or is reasonably likely
to materially affect, the Company's internal control over financial reporting.
-20-
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ------ --------------------------------
(a) Exhibits
--------
Exhibit No. Document Description
---------- --------------------
10.1 Amendment to Gehl Savings Plan.
31.1 Certification of the Chief Executive Officer pursuant to
section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer pursuant to
section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Periodic Financial Report by the Chief
Executive Officer and Chief Financial Officer pursuant to
section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
-------------------
The Company furnished a Current Report on Form 8-K on July 24, 2003
reporting under Items 7 and 12 the Company's financial results for the
three months June 28, 2003.
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: November 10, 2003 By: /s/ William D. Gehl
-----------------------------
William D. Gehl
Chairman of the Board
and Chief Executive Officer
Date: November 10, 2003 By: /s/ Kenneth P. Hahn
-----------------------------
Kenneth P. Hahn
Vice President of Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
-21-
GEHL COMPANY
INDEX TO EXHIBITS
Exhibit No. Document Description
---------- --------------------
10.1 Amendment to Gehl Savings Plan.
31.1 Certification of the Chief Executive Officer pursuant to
section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer pursuant to
section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Periodic Financial Report by the Chief
Executive Officer and Chief Financial Officer pursuant to
section 906 of the Sarbanes-Oxley Act of 2002.
-22-