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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

OR

Commission file number 0-18110

Gehl Company

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.

Gehl Company

FORM 10-Q

June 26, 2004

Report Index

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PART I – Financial Information

Item 1.  Financial Statements

Gehl Company and Subsidiaries
Condensed Consolidated Statements of Income
(unaudited and in thousands, except per share data)

The accompanying notes are an integral part of the financial statements.

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Gehl Company and Subsidiaries
Condensed Consolidated Balance Sheets
(unaudited and in thousands, except share data)

The accompanying notes are an integral part of the financial statements.

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Gehl Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(unaudited and in thousands)

The accompanying notes are an integral part of the financial statements.

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Gehl Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 26, 2004

(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 six-month periods ended June 26, 2004 and June 28, 2003 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. Certain prior year amounts have been reclassified to conform to the current year presentation. Such reclassifications had no impact on previously reported net income. Due in part to the seasonal nature of the Company’s business, the results of operations for the six-month period ended June 26, 2004 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, 2003 as filed with the Securities and Exchange Commission.

Note 2 – 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.

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The effect on net income and net income 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):

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):

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Note 5 – Product Warranties and Other Guarantees

        In general, the Company provides warranty coverage on equipment for a period of up to twelve months. 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 differ from those estimates. The changes in the carrying amount of the Company’s total product warranty liability for the six-month period ended June 26, 2004 were as follows (in thousands):

Note 6 – Employee Retirement Plans

        The Company sponsors two qualified defined benefit pension plans for certain of its employees. The following table provides disclosure of the net periodic benefit cost (in thousands):

        In April 2004, the Pension Funding Equity Act of 2004 (“the Pension Funding Act”) was signed into law providing a temporary solution to several issues that arose from the discontinuance of new-issue, 30-year Treasury Bonds several years ago. Under the Pension Funding Act, companies will use high-quality corporate bond rates for key liability measures in place of the extrapolated long-term treasury rates used prior to the Pension Funding Act. This will reduce required pension contributions during 2004 and 2005. As a result of the Pension Funding Act, the Company’s estimated 2004 pension contributions will be reduced from $7.7 million to $6.4 million. As of June 26, 2004, $1.7 million of contributions have been made during 2004.

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        The Company maintains an unfunded non-qualified supplemental retirement benefit plan for certain management employees. The following table provides disclosure of the net periodic benefit cost (in thousands):

        The Company provides postemployment benefits to certain retirees, which includes subsidized health insurance benefits for early retirees prior to their attaining age 65. The following table provides disclosure of the net periodic benefit cost (in thousands):

Note 7 – Accounting Pronouncements

        In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Modernization Act”) introduced a prescription drug benefit under Medicare, as well as a federal subsidy to sponsors of retiree health care benefit plans. In January 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) No. FAS 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“106-1”). FSP No. FAS 106-1 permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Modernization Act if there is insufficient data, time or guidance available to ensure appropriate accounting. As permitted by FSP No. FAS 106-1, the Company elected to defer the accounting for the effects of the Modernization Act. In May 2004, the FASB issued FSP No. FAS 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” which surpersedes FSP No. FAS 106-1. The Company reviewed FSP No. FAS 106-2 and has concluded that the Company’s accounting for postemployment health insurance will not be impacted by FSP No. FAS 106-2 as the Company will not be eligible to receive a government subsidy as defined in the Modernization Act.

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        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. The consolidation provisions of FIN 46, as revised, were effective immediately for interests created after January 31, 2003 and were effective on March 31, 2004 for interests created before February 1, 2003. As of June 26, 2004, the Company did not own an interest in any variable interest entities.

Note 8 – Net Income 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.

        A reconciliation of the shares used in the computation of earnings per share follows (in thousands):

        Accumulated other comprehensive loss is primarily comprised of minimum pension liability and foreign currency translation adjustments. Comprehensive income was $3.9 million and $6.6 million for the three- and six-month periods ended June 26, 2004, respectively, which reflects the Company’s net income reduced by currency translation adjustments of $0.0 million and $0.2 million, respectively. Comprehensive income was $2.6 million and $3.2 million for the three- and six-month periods ended June 28, 2003, respectively, which reflects the Company’s net income plus currency translation adjustments of $0.4 million and $0.5 million, respectively.

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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):

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 during the three- and six-month periods ended June 26, 2004. During the three- and six-month periods ended June 28, 2003, the Company repurchased 51,500 shares and 73,700 shares, respectively, in the open market under this authorization at an aggregate cost of $0.5 million and $0.7 million, respectively. As of June 26, 2004, the Company has repurchased an aggregate of 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.

Note 11 – Subsequent Event

        On July 22, 2004, in conjunction with the establishment of a strategic alliance with Manitou, the world’s largest manufacturer of telescopic handlers, the Company issued 961,768 shares of common stock to Manitou at an aggregate purchase price of $19.8 million. The proceeds from the sale of the common stock were used to pay down the Company’s line of credit facility.

        Beginning in 2005, The Company and Manitou will distribute select models of each others’ telescopic handler product lines in the United States agricultural and construction markets through their respective dealer networks. Pursuant to a license agreement with Manitou, the Company will also begin to manufacture two series of Manitou compact telescopic handlers for the agricultural and construction markets at the Company’s Yankton, South Dakota facility.

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Item 2.  Management’s Discussion and Analysis of Results of Operations and Financial Condition

Recent Developments

        On July 22, 2004, in conjunction with the establishment of a strategic alliance with Manitou, the world’s largest manufacturer of telescopic handlers, the Company issued 961,768 shares of common stock to Manitou at an aggregate purchase price of $19.8 million. The proceeds from the sale of the common stock were used to pay down the Company’s line of credit facility.

        Beginning in 2005, The Company and Manitou will distribute select models of each others’ telescopic handler product lines in the United States agricultural and construction markets through their respective dealer networks. Pursuant to a license agreement with Manitou, the Company will also begin to manufacture two series of Manitou compact telescopic handlers for the agricultural and construction markets at the Company’s Yankton, South Dakota facility.

Results of Operations

Three Months Ended June 26, 2004 Compared to Three Months Ended June 28, 2003

Net Sales

        Net sales in the three months ended June 26, 2004 (“2004 second quarter”) were $95.5 million compared to $68.6 million in the three months ended June 28, 2003 (“2003 second quarter”), an increase of $26.9 million, or 39%.

        Construction equipment segment net sales were $61.6 million in the 2004 second quarter compared to $44.1 million in the 2003 second quarter, an increase of $17.4 million, or 40%. Shipments of skid loaders in the 2004 second quarter were up significantly from the 2003 second quarter due to demand for new Gehl skid loaders models introduced in January 2004, as well as increased demand for Mustang brand skid loaders. Telescopic handler shipments increased over 80% during the 2004 second quarter as demand from larger rental customers continued to grow in the 2004 second quarter. Demand for compact track loaders, a product introduced in mid-2002, continued to grow and resulted in 2004 second quarter shipments which were up significantly from the 2003 second quarter. The Company’s European subsidiary, Gehl Europe, also posted strong sales during the 2004 second quarter.

        Agricultural equipment segment net sales were $33.9 million in the 2004 second quarter, compared to $24.4 million in the 2003 second quarter, an increase of $9.5 million, or 39%. Milk prices paid to dairy farmers in the 2004 second quarter averaged nearly $17.75 per hundred weight, compared to approximately $9.43 per hundred weight in the 2003 second quarter. The significant increase in milk prices contributed to the generally improved economic environment compared to the 2003 second quarter. Skid loader shipments during the 2004 second quarter were up approximately 50% as demand for the new models of Gehl brand skid loaders introduced in January 2004 remained strong. Shipments of agricultural implements increased 20% from the 2003 second quarter.

        Of the Company’s total net sales reported for the 2004 second quarter, $16.7 million were made outside of the United States compared with $14.2 million in the 2003 second quarter. The increase in export sales was primarily due to increased sales in Europe.

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Gross Profit

        Gross profit was $19.0 million in the 2004 second quarter compared to $14.5 million in the 2003 second quarter, an increase of $4.6 million, or 32%. Gross profit as a percent of net sales (gross margin) was 19.9% for the 2004 second quarter compared to 21.1% for the 2003 second quarter.

        Gross margin for the construction equipment segment was 21.3% in the 2004 second quarter compared with 23.2% for the 2003 second quarter. Gross margin for the agricultural equipment segment was 17.5% in the 2004 second quarter compared to 17.4% in the 2003 second quarter. The 2004 second quarter gross margin for both segments was adversely impacted by rising costs of steel and other component parts and increased costs of finished goods sourced from overseas due to the weak U.S. dollar versus the Euro and the yen. The unfavorable impact of these issues on the agricultural equipment segment gross margin was offset by a more favorable mix of products shipped, as well as lower levels of discounts and sales incentives incurred in the 2004 second quarter compared to the 2003 second quarter. The construction equipment segment gross margin further reflects the unfavorable mix of both product shipments and customers shipped to during the 2004 second quarter.

Selling, General and Administrative Expenses

        Selling, general and administrative expenses were $12.3 million, or 12.9% of net sales, in the 2004 second quarter compared to $10.8 million, or 15.8% of net sales, in the 2003 second quarter. The increase in selling, general and administrative expenses is primarily the result of items that vary with sales levels. However, selling, general and administrative expenses as a percentage of net sales improved as the growth in net sales exceeded expense increases.

Income from Operations

        Income from operations in the 2004 second quarter was $6.7 million, or 7.1% of net sales, compared to $3.5 million, or 5.1 % of net sales, in the 2003 second quarter, an increase of $3.2 million, or 91%.

Interest Expense

        Interest expense was $0.7 million in the 2004 second quarter compared to $1.0 million in the 2003 second quarter, a decrease of $0.3 million, or 33%. The decrease in the Company’s average outstanding debt balance, due to decreases in average working capital requirements, primarily contributed to the decrease in the 2004 second quarter interest expense.

Other Income (Expense), Net

        The Company incurred net other expense of $0.7 million in the 2004 second quarter compared to net other income of $0.3 million in the 2003 second quarter. The Company’s costs of selling retail finance contracts during the 2004 second quarter increased $0.6 million from the 2003 second quarter, due to an increasing interest rate environment and a higher level of retail finance contracts being sold during the 2004 second quarter. In addition the Company incurred foreign exchange transaction expense in the 2004 second quarter of $0.1 million compared to foreign exchange transaction income in the 2003 second quarter of $0.2 million.

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Net Income

        Net income was $3.9 million in the 2004 second quarter compared with $2.2 million in the 2003 second quarter, an increase of $1.7 million, or 75%.

Six Months Ended June 26, 2004 Compared to Six Months Ended June 28, 2003

Net Sales

        Net sales in the six months ended June 26, 2004 (“2004 six months”) were $180.2 million compared to $127.1 million in the six months ended June 28, 2003 (“2003 six months”), an increase of $53.1 million, or 42%.

        Construction equipment segment net sales were $116.0 million in the 2004 six months compared to $79.9 million in the 2003 six months, an increase of $36.1 million, or 45%. Shipments of skid loaders in the 2004 six months were up significantly from the 2003 six months due to demand for new Gehl skid loaders models introduced in January 2004, as well as increased demand for Mustang brand skid loaders. Telescopic handler shipments increased over 70% during the 2004 six months as demand from larger rental customers was strong. Demand for compact track loaders, a product introduced in mid-2002, continued to grow and resulted in shipments in the 2004 six months which were up significantly from the 2003 six months. The Company’s European subsidiary, Gehl Europe, also posted strong sales during the 2004 six months.

        Agricultural equipment segment net sales were $64.2 million in the 2004 six months, compared to $47.2 million in the 2003 six months, an increase of $17.0 million, or 36%. Milk prices paid to dairy farmers in the 2004 six months averaged nearly $14.90 per hundred weight, compared to approximately $9.60 per hundred weight in the 2003 six months. Skid loader shipments during the 2004 six months increased over 40% as demand for the new models of Gehl brand skid loaders introduced in January 2004 was strong. Demand for compact track loaders was also strong and resulted in shipments in the 2004 six months, which were up significantly from the 2003 six months. In addition, shipments of agricultural implements in the 2004 six months increased 16% from the 2003 six months.

        Of the Company’s total net sales reported for the 2004 six months, $29.6 million were made outside of the United States compared with $24.8 million in the 2003 six months. The increase in export sales was primarily due to increased sales in Europe.

Gross Profit

        Gross profit was $36.4 million in the 2004 six months compared to $26.7 million in the 2003 six months, an increase of $9.7 million, or 36%. Gross profit as a percent of net sales (gross margin) was 20.2% for the 2004 six months compared to 21.0% for the 2003 six months.

        Gross margin for the construction equipment segment was 21.9% for the 2004 six months compared with 23.0% for the 2003 six months. Gross margin for the agricultural equipment segment was 17.2% for the 2004 six months compared to 17.7% for the 2003 six months. The 2004 six months gross margin for both segments was adversely impacted by rising costs of steel and other component parts, increased costs of finished goods sourced from overseas due to the weak U.S. dollar versus the Euro and the yen and manufacturing inefficiencies associated with the start-up of production of the new Gehl skid loader models. The unfavorable impact of these issues on the agricultural equipment segment gross margin were partially offset by a more favorable mix of products shipped, as well as lower levels of discounts and sales incentives incurred in the 2004 six months. The construction equipment segment gross margin further reflects the unfavorable mix of both product shipments and customers shipped to during the 2004 six months.

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Selling, General and Administrative Expenses

        Selling, general and administrative expenses were $25.1 million, or 13.9% of net sales, in the 2004 six months compared to $21.9 million, or 17.2% of net sales, in the 2003 six months. The increase in selling, general and administrative expenses is primarily the result of items that vary with sales levels. However, selling, general and administrative expenses as a percentage of net sales improved as the growth in net sales exceeded expense increases.

Income from Operations

        Income from operations in the 2004 six months was $11.4 million, or 6.3% of net sales, compared to $4.6 million, or 3.6% of net sales, in the 2003 six months, an increase of $6.8 million.

Interest Expense

        Interest expense was $1.2 million in the 2004 six months compared to $1.9 million in the 2003 six months, a decrease of $0.6 million, or 34%. The decrease in the Company’s average outstanding debt balance, due to decreases in average working capital requirements, primarily contributed to the decrease in interest expense in the 2004 six months.

Other Income (Expense), Net

        The Company incurred net other expense of $0.8 million in the 2004 six months compared to net other income of $0.4 million in the 2003 second quarter. The Company’s costs of selling retail finance contracts during the 2004 six months increased $0.3 million from the 2003 six months, due to an increasing interest rate environment and a higher level of retail finance contracts being sold during the 2004 six months. In addition, the Company incurred foreign exchange transaction expense in the 2004 second six months of $0.4 million compared to foreign exchange transaction income in the 2003 six months of $0.3 million.

Net Income

        Net income was $6.8 million in the 2004 six months compared with $2.7 million in the 2003 six months, an increase of $4.1 million.

Financial Condition

        The Company’s working capital was $112.5 million at June 26, 2004, as compared to $83.3 million at December 31, 2003, and $111.9 million at June 28, 2003. The slight increase since June 28, 2003 was primarily due to increases in accounts receivable ($14.2 million) offset by a decrease in inventory ($7.2 million) and increases in accounts payable ($5.3 million). The increase in accounts receivable was due to strong shipments in the 2004 six months, which were primarily driven by the shipments of the new Gehl brand skid loaders and strong demand for telescopic handlers and compact track loaders. The decrease in inventory was due to decreases in finished goods resulting from the strong demand for the Company’s products. The increase in accounts payable was due to increased production resulting from strong shipments as well as the timing of payment.

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        The increase in working capital from December 31, 2003 was primarily due to increased accounts receivable ($39.8 million) offset ,in part, by increases in accounts payable ($10.1 million). The increase in accounts receivable was due to strong shipments in the 2004 six months, which were primarily driven by the shipments of the new Gehl brand skid loaders and strong demand for telescopic handlers and compact track loaders as well as normal seasonal sales patterns. The increase in accounts payable was due to increased production resulting from strong shipments as well as normal seasonal production increases.

        Capital expenditures for property, plant and equipment during the 2004 six months were approximately $1.3 million. During 2004, the Company plans to make an aggregate of up to $5.0 million in capital expenditures. The Company believes that its present manufacturing facilities will be sufficient to provide adequate capacity for its operations in 2004.

        As of June 26, 2004, the weighted-average interest rate paid by the Company on outstanding borrowings under its line of credit facility (“Facility”) was 4.03%. The Company had available unused borrowing capacity of $42.4 million, $46.8 million and $18.9 million under the Facility at June 26, 2004, December 31, 2003, and June 28, 2003, respectively. A March 23, 2004 amendment to the Facility increased the amount available under the Facility from $75 million to $90 million from the period March 1 to July 15 each year through December 31, 2007. As a result, borrowing capacity on July 16, 2004 decreased by $15 million. At June 26, 2004, December 31, 2003, and June 28, 2003, the Company’s outstanding borrowings under the Facility were $46.6 million, $26.3 million and $55.7 million, respectively. The changes in borrowings from June 28, 2003 and December 31, 2003 to June 26, 2004 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 2004 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 June 26, 2004, the Company serviced $201.1 million of such contracts, of which $186.2 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 June 26, 2004, shareholders’ equity had increased $7.5 million to $106.2 million from $98.7 million at June 28, 2003. This increase primarily reflected the impact of the net income earned from June 28, 2003 to June 26, 2004 and currency translation adjustments, offset by the minimum pension liability adjustment recorded in 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. No shares were repurchased under this authorization during the three- and six-month periods ended June 26, 2004. During the three- and six-month periods ended June 28, 2003, the Company repurchased 51,500 and 73,700 shares, respectively, in the open market under this authorization at an aggregate cost of $0.5 million and $0.7 million, respectively. As of June 26, 2004, the Company has repurchased an aggregate of 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.

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        Other than the extension of the expiration date of the Company’s Facility to December 31, 2007 resulting from a March 23, 2004 amendment to the Facility, 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, 2003 as filed with the Securities and Exchange Commission.

Accounting Pronouncements

        In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Modernization Act”) introduced a prescription drug benefit under Medicare, as well as a federal subsidy to sponsors of retiree health care benefit plans. In January 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) No. FAS 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“106-1”). FSP No. FAS 106-1 permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Modernization Act if there is insufficient data, time or guidance available to ensure appropriate accounting. As permitted by FSP No. FAS 106-1, the Company elected to defer the accounting for the effects of the Modernization Act. In May 2004, the FASB issued FSP No. FAS 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” which surpersedes FSP No. FAS 106-1. The Company reviewed FSP No. FAS 106-2 and has concluded that the Company’s accounting for postemployment health insurance will not be impacted by FSP No. FAS 106-2 as the Company will not be eligible to receive a government subsidy as defined in the Modernization Act.

        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. The consolidation provisions of FIN 46, as revised, were effective immediately for interests created after January 31, 2003 and were effective on March 31, 2004 for interests created before February 1, 2003. As of June 26, 2004, the Company did 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 judgments 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 are believed to be reasonable under the circumstances, the results of which form the basis for making judgments 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.

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Allowance for Doubtful Accounts

        The Company’s accounts receivable are reduced by an allowance for amounts that may be uncollectible in the future. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations, a specific reserve for bad debts is recorded against the accounts receivable balance to reduce the amount due to the net amount reasonably expected to be collected. Additionally, a general percentage of past due receivables is reserved, based on the Company’s past experience of collectibility. If circumstances change (i.e., higher than expected defaults or an unexpected material adverse change in a major customer’s ability to meet its financial obligations), estimates of the recoverability of amounts due could be reduced by a material amount.

Inventories

        Inventories are valued at the lower of cost or market value. Cost is determined using the last-in, first-out (LIFO) method for the majority of the Company’s inventories. In valuing inventory, management is required to make assumptions regarding the level of reserves required to value potentially obsolete or slow moving items to the lower of cost or market value. Inventory reserves are established taking into account inventory age and frequency of use or sale. While calculations are made involving these factors, significant management judgment regarding expectations for future events is involved. Future events that could significantly influence management’s judgment and related estimates include general economic conditions in markets where the Company’s products are sold, as well as new products and design changes introduced by the Company.

Accrued Warranty

        The Company establishes reserves related to the warranties provided on its products. Specific reserves are maintained for programs related to known machine safety and reliability issues. When establishing specific reserves, estimates are made regarding the size of the population, the type of program, costs to be incurred and estimated participation. Additionally, general reserves are maintained based on the historical percentage relationships of warranty costs to machine sales and applied to current equipment sales. If these estimates and related assumptions change, reserve levels may require adjustment.

Accrued Product Liability

        The Company records a general reserve for potential product liability claims based on the Company’s prior claim experience and specific reserves for known product liability claims. Specific reserves for known claims are valued based upon the Company’s prior claims experience, including consideration of the jurisdiction, circumstances of the accident, type of loss or injury, identity of plaintiff, other potential responsible parties, analysis of outside counsel, and analysis of internal product liability counsel. Actual product liability costs could be different due to a number of variables, including decisions of juries or judges.

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Goodwill Impairment

        In connection with SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company is required to perform goodwill impairment reviews, at least annually, using a fair-value-based approach. The Company performs its annual impairment review as of December 31. As part of the annual impairment review, an estimate of the fair value of the Company’s construction equipment segment (the entire carrying amount of goodwill is allocated to the construction segment), primarily by using a discounted cash flow analysis, is performed. Significant assumptions used in this analysis include: expected future revenue growth rates, operating profit margins, working capital levels and a weighted average cost of capital. Changes in assumptions could significantly impact the estimate of the fair value of the construction equipment segment, which could result in a goodwill impairment charge and could have a significant impact on the results of the construction equipment segment and the consolidated financial statements.

Pension and Postemployment Benefits

        Pension and postemployment benefit costs and obligations are dependent on assumptions used in calculation of these amounts. These assumptions, used by actuaries, include discount rates, expected return on plan assets for funded plans, rate of salary increases, health care cost trend rates, mortality rates and other factors. In accordance with accounting principles generally accepted in the United States, actual results that differ from the actuarial assumptions are accumulated and amortized to future periods and therefore affect recognized expense and recorded obligations in future periods. While the Company believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may materially effect its financial position or results of operations.

Outlook

        First half sales were stronger than the Company had originally forecasted and order backlog remains robust, indicating that the Company’s markets continue to show signs of strength. Offsetting this positive trend, however, is the continued uncertainty over the magnitude and duration of higher steel prices. If the situation continues as it is today, these increased costs may offset some of the benefits of higher sales. Based on actual results for the year to date, along with the current market outlook, the Company now expects its net sales for the full year 2004 to be in the range of 42% to 45% over 2003 levels. If the Company’s sales levels meet projected forecasts, the Company expects to earn in the range of $1.90 to $2.05 per diluted share in 2004, after giving effect to the 961,768 newly issued shares purchased by Manitou in conjunction with the recently announced strategic alliance (see Recent Developments above).

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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, any interruption 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, unexpected issues related to the pricing and availability of raw materials (including steel) and component parts, the ability of the Company to increase its prices to reflect higher prices for raw materials and component parts, 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 difficulties or charges arising out of the proposed sale of the Company’s Owatonna, Minnesota manufacturing facility, 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 2004 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, 2003 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 June 26, 2004. 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 June 26, 2004. There was no change in the Company’s internal control over financial reporting that occurred during the three months ended June 26, 2004, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – Other Information

Item 2.  Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

        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 in open market or privately negotiated transactions. The plan does not have an expiration date. No shares were repurchased under the plan during the three- and six-month periods ended June 26, 2004. As of June 26, 2004, the Company had authority to repurchase 348,100 shares under the plan.

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

        At the Company’s 2004 annual meeting of shareholders held on April 23, 2004, William D. Gehl and John W. Splude were re-elected as directors of the Company for terms expiring at the 2006 annual meeting of shareholders. The following table sets forth certain information with respect to the election of directors at the 2004 annual meeting:

The following table sets forth the other directors of the Company whose terms of office continued after the 2004 annual meeting:

In addition, at the 2004 annual meeting, shareholders approved the Gehl Company 2004 Equity Incentive Plan. With respect to such approval, the number of shares voted For and Against were 3,097,371 and 997,053, respectively. The number of shares abstaining and the number of shares subject to broker non-votes were 26,326 and 833,796, respectively.

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Item 6.  Exhibits and Reports on Form 8-K

Except as otherwise noted, all documents incorporated by reference are to Commission File No. 0-18110.

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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.

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GEHL COMPANY

INDEX TO EXHIBITS

Except as otherwise noted, all documents incorporated by reference are to Commission File No. 0-18110.

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