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FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

_________________

OR

Commission file number 0-18110

Registrant’s telephone number, including area code (262) 334-9461

Securities registered pursuant to Section 12(b) of the Act:

NONE

Securities registered pursuant to Section 12(g) of the Act:

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes     X     No         

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K    [X]

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.)   Yes     X     No         

        Aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant: $92,578,300 at June 26, 2004.

        Number of shares outstanding of each of the registrant’s classes of common stock, as of February 11, 2005:

DOCUMENTS INCORPORATED BY REFERENCE

Gehl Company Proxy Statement for the 2005 Annual Meeting of Shareholders
(to be filed with the Commission under Regulation 14A within 120 days after the end of the
registrant’s fiscal year end and, upon such
filing, to be incorporated by reference into Part III)

GEHL COMPANY

_________________

INDEX TO
ANNUAL REPORT ON FORM 10-K

For The Year Ended December 31, 2004

PART I

Item 1. Business

Overview

        Gehl Company (the “Company” or “Gehl”) designs, manufactures, distributes and finances equipment used in the light construction and the agricultural industries. Construction equipment is comprised of skid loaders, telescopic handlers, asphalt pavers, compact excavators, compact track loaders, all-wheel-steer loaders, compact loaders and attachments and is primarily sold to contractors, sub-contractors, owner operators, rental stores and municipalities. The Company generally markets its construction equipment under the Gehl® and Mustang® brand names. Agriculture equipment is sold to customers in the dairy and livestock industries, and includes a broad range of products including haymaking, forage harvesting, materials handling (skid loaders, telescopic handlers, compact excavators, compact track loaders, all-wheel-steer loaders, compact loaders and attachments), manure handling and feedmaking equipment. In addition, the Company launched a new attachment business, Compact Equipment Attachments, Inc., in July 2001. The Company was founded in 1859 and was incorporated in the State of Wisconsin in 1890.

        On July 22, 2004, the Company entered into a strategic alliance with Manitou BF S.A. (“Manitou”), the world’s largest manufacturer of telescopic handlers. Beginning in 2005, the Company and Manitou will distribute select models of each others’ telescopic handler product lines in the United States 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 at the Company’s Yankton, South Dakota facility. In conjunction with the establishment of the strategic alliance with Manitou, 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.

        The Company intends that certain matters discussed in the Annual Report on Form 10-K 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 are forward-looking statements. When used in this Annual Report on Form 10-K, 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 Annual Report on Form 10-K. Factors that could cause such a variance include, but are not limited to, any interruption in the continued 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, unanticipated difficulties in securing product from third party manufacturing sources, 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, the Company’s ability to secure sources of liquidity necessary to fund its operations, changes in environmental laws, the impact of any strategic transactions 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 Annual Report on Form 10-K, 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 2005 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.

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Business Segments

        The Company operates in two business segments, construction equipment and agricultural equipment. The following table shows certain information relating to the Company’s segments:

        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.

        The manufacturing consolidations announced on September 26, 2001 were completed during 2002. During 2002, the Company expensed $1.0 million of other charges related to the plant rationalization initiatives. Of the $1.0 million expense recorded in 2002, $0.5 million and $0.5 million related to the construction and agricultural segments, respectively.

        During the quarter ended September 27, 2003, the Company recorded a $3.6 million asset impairment charge to adjust the carrying value of the Lebanon and Owatonna facilities and assets to their fair value less cost to sell. Of the $3.6 million charge, $1.2 million and $2.4 million related to the construction equipment and agricultural equipment segments, respectively. The Lebanon and Owatonna facilities were sold in the 2003 fourth quarter and 2004 third quarter, respectively. In addition to the impairment charge, the Company expensed $0.5 million of other charges related to the plant rationalization initiatives during 2003. Of the $0.5 million expense recorded in 2003, $0.3 million and $0.2 million related to the construction and agricultural segments, respectively.

        The Company had no intersegment sales or transfers during the years set forth above. For segment information with respect to identifiable assets, depreciation/amortization and capital expenditures for the construction equipment and agricultural equipment segments, see Note 16 of “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Form 10-K.

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Construction Equipment

Products

        Construction equipment is marketed in the following seven product areas:

Marketing and Distribution

        The Company maintains a separate distribution system for construction equipment. The Company markets its construction equipment in North America through approximately 310 independent dealers (with 1,145 outlets) and worldwide through approximately 100 distributors. The Company has no Company-owned dealers, and its dealers may sell equipment produced by other construction equipment manufacturers. The top ten dealers and distributors of construction equipment accounted for approximately 23% of the Company’s sales for the year ended December 31, 2004; however, no single dealer or distributor accounted for more than 7% of the Company’s sales for that period. Sales of the construction equipment skid loader product line accounted for approximately 26%, 25% and 30% of the Company’s net sales in 2004, 2003 and 2002, respectively. Sales of the construction equipment telescopic handler product line accounted for approximately 17%, 14% and 13% of the Company’s net sales in 2004, 2003 and 2002, respectively.

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        The Company believes that maintenance and expansion of its dealer network is important to its success in the light construction equipment market. The Company also believes that it needs to continue to further develop sales relationships with select rental companies to meet the demands of the changing marketplace. Various forms of support are provided for its construction equipment dealers, including sales and service training, and, in the United States and Canada, floor plan financing for its dealers and retail financing for both its dealers and their customers. The construction equipment dealers in North America are also supported by district sales managers who provide a variety of services, including training, market evaluation, business planning, equipment demonstrations and sales, and regional field service representatives who assist in training and providing routine dealer service support functions, including warranty and service assistance. The Company has a service agreement with a vendor for a centralized parts distribution center located in Belvidere, Illinois.

Industry and Competition

        Gehl’s construction equipment product lines face competition in each of their markets. In general, each line competes with a small group of from seven to twelve different companies, some of which are larger than the Company. The Company competes within the light construction equipment markets based primarily on price, quality, service and distribution.

        The primary markets for Gehl’s construction equipment outside of North America are in Europe, Australia, Latin America, the Middle East and the Pacific Rim. The Company believes it is a significant competitor in the skid loader market in most of these markets.

Agricultural Equipment

Products

        Agricultural equipment is marketed in five product areas.

Marketing and Distribution

        In North America, Gehl’s agricultural equipment is sold through approximately 355 geographically dispersed dealers (with 415 outlets). Fifty of these dealers are located in Canada. Agricultural equipment is also marketed through approximately 15 distributors in Europe, the Middle East, the Pacific Rim and Latin America. The Company has no Company-owned dealers and its dealers may sell equipment produced by other agricultural equipment manufacturers.

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        It has been and remains the Company’s objective to increase the share of Gehl products sold by a Gehl dealer. Gehl is not dependent for its sales on any specific agriculture dealer or group of dealers. The top ten dealers and distributors in agricultural equipment accounted for approximately 16% of the Company’s sales for the year ended December 31, 2004 and no one dealer or distributor accounted for over 2% of the Company’s sales during that period. Sales of the agriculture equipment skid loader product line accounted for approximately 13%, 13% and 16% of the Company’s net sales in 2004, 2003 and 2002, respectively.

        The Company provides various forms of support for its dealer network, including sales and service training. The Company also provides floor plan and retail finance support for products sold by its dealers in the United States and Canada.

        The agricultural equipment dealers in North America are also supported by district sales managers who provide a variety of services, including training, market evaluation, business planning, equipment demonstrations and sales, and regional field service representatives who assist in training and providing routine dealer service support functions, including warranty and service assistance. The Company has a service agreement with a vendor for a centralized parts distribution center located in Belvidere, Illinois.

Industry and Competition

        The agricultural equipment industry has seen significant consolidation and retrenchment since 1980. This has served to reduce the total number of competitors, to strengthen certain major competitors, and to reduce the strength of certain other companies in the industry. The Company competes within the agricultural equipment industry based primarily on products sold, price, quality, service and distribution.

        The agricultural equipment markets in North America are highly competitive and require substantial capital outlays. The Company has several major competitors as well as numerous other limited line manufacturers and importers. The largest manufacturers in the agricultural equipment industry, the Company’s major competitors, generally produce tractors and combines as well as a full line of tillage and planting equipment. Such manufacturers also market, to varying degrees, haymaking, forage harvesting, materials handling, manure handling and/or feedmaking equipment, the areas in which the Company’s agricultural products are concentrated. The Company believes that no single competitor competes with the Company in each of its product lines and the Company is the only non-tractor manufacturer in the industry that offers equipment in each of these product lines. Smaller manufacturers which compete with the Company produce only a limited line of specialty items and often compete only in regional markets.

        The majority of the Company’s agricultural dealers also carry the tractor and combine product lines of a major manufacturer. In addition to selling the tractors and combines of a major manufacturer, many of these dealers carry the major manufacturer’s entire line of products, some of which directly compete with the products offered by Gehl. Dealers of Gehl’s agricultural equipment also market equipment manufactured by limited line manufacturers which compete with specific product lines offered by the Company.

        The primary markets for Gehl’s agricultural equipment outside of North America are in Europe and the Pacific Rim. In these markets, the Company competes with both agricultural equipment manufacturers from the United States, some of which have manufacturing facilities in foreign countries, and foreign manufacturers. The Company does not believe, however, that it is presently a significant competitor in any of these foreign markets.

Backlog

        The backlog of unfilled equipment orders (which orders are subject to cancellation in certain circumstances) as of December 31, 2004 was $65.3 million versus $38.9 million at December 31, 2003. Virtually all orders in the backlog at December 31, 2004 are expected to be shipped in 2005.

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Floor Plan and Retail Financing

Floor Plan Financing

        The Company, as is typical in its industries, generally provides floor plan financing for its dealers. Products shipped to dealers under the Company’s floor plan financing program are recorded by the Company as sales and the dealers’ obligations to the Company are reflected as accounts receivable.

        The Company provides interest-free floor plan financing to its dealers, for construction equipment for varying periods of time generally up to six months and for agriculture equipment generally up to nine months. Dealers who sell products utilizing floor plan financing are required to make immediate payment for those products to the Company upon sale or delivery to the retail customer. At the end of the interest-free period, if the equipment remains unsold to retail customers, the Company generally charges interest to the dealer at approximately 3% above the prime rate or, on occasion, provides an interest-free extension of up to three months upon payment by the dealer of a curtailment of 25% of the original invoice price to the dealer. This type of floor plan equipment financing accounts for approximately 81% of Gehl’s dealer accounts receivable, with all such floor planned receivables required to be secured by a first priority security interest in the equipment sold.

Retail Financing

        The Company also provides retail financing primarily to facilitate the sale of equipment to end users. Additionally, a number of dealers purchase equipment which is held for rental to the public. The Company also provides retail financing to such dealers in connection with these purchases. Retail financing in the United States is provided by the Company primarily through Gehl Finance®, the Company’s finance division. Retail financing is provided in Canada by a third party at rates subsidized by the Company.

        The Company maintains arrangements with third parties pursuant to which the Company sells, with recourse, the Company’s retail finance contracts. The finance contracts require periodic installments of principal and interest over periods of up to 60 months; interest rates are based on market conditions. The majority of these contracts have maturities of 12 to 48 months. The Company continues to service the finance contracts it sells, including cash collections. For additional discussion, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Sales of Finance Contracts Receivable,” included in Part II, Item 7 of this Form 10-K and Note 2 of “Notes to Consolidated Financial Statements,” included in Part II, Item 8 of this Form 10-K.

Employees

        As of December 31, 2004, the Company had 908 employees, of which 559 were hourly employees and 349 were salaried employees. At the production facilities in West Bend, Wisconsin, one of three Gehl production facilities, 136 hourly employees are covered by a collective bargaining agreement with P.A.C.E. (formerly the United Paperworkers International Union) which expires December 15, 2006. None of the remaining employees of the Company are represented by unions. There have been no labor-related work stoppages at the Company’s facilities during the past thirty years.

Manufacturing

        During 2002, the Company expanded its Madison, South Dakota skid loader manufacturing facility in order to accommodate the transfer of Mustang skid loader production previously manufactured in Owatonna, Minnesota. The Company is in the process of expanding its telescopic handler manufacturing facility in Yankton, South Dakota and anticipates completing the expansion during the third quarter of 2005. The Company believes its present manufacturing facilities, with the planned capacity expansion, will be sufficient to provide adequate capacity for its operations for the foreseeable future.

        Component parts needed in the manufacture of the Company’s equipment are primarily produced by the Company. The Company obtains raw materials (principally steel), component parts that it does not manufacture (mostly engines, hydraulics and axles) and supplies from third party suppliers. Substantially all such materials and components used are available from a number of sources. The Company is not dependent on any single supplier as all suppliers could be replaced. Certain product specifications may require modification, depending on the component, if the supplier needed to be replaced. The Company has been able to obtain the necessary purchased materials.

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        In addition to the equipment it manufactures, the Company distributes equipment acquired from third party suppliers. Equipment acquired from these suppliers, which is primarily comprised of compact track loaders, compact mini-loaders, compact excavators, all-wheel-steer loaders, manure spreaders, hay rakes, forage wagons and disc mowers, accounted for approximately 19% of the Company’s net sales in 2004. Beginning in 2005, the Company will distribute select models of Manitou’s telescopic handler product line in the United States through the Company’s dealer network (see “Overview” for additional discussion).

Research and Development

        The Company attempts to maintain and strengthen its market position through internal new product development and incremental improvements to existing products. The Company’s research and development is devoted to developing new products that meet specific customer needs and to devising incremental improvements to existing products. Research and development performed by the Company includes the designing and testing of new and improved products as well as the fabrication of prototypes. The Company expended approximately $2.5 million, $2.6 million and $3.2 million on research and development for the years ended December 31, 2004, 2003 and 2002, respectively.

Patents and Trademarks

        The Company possesses rights under a number of domestic and foreign patents and trademarks relating to its products and business. While the Company considers the patents, trademarks and service marks important in the operation of its business, including the Gehl® name, the Gehl Finance® name, the Mustang® name, the Dynalift® name, the EDGE® name and the group of patents relating to the Scavenger® manure spreader, the business of the Company is not dependent, in any material respect, on any single patent or trademark or group of patents or trademarks.

Available Information

        The Company’s filings with the Securities and Exchange Commission (SEC), including annual reports on Form 10-K, quarterly reports on Form 10-Q, definitive proxy statements on Form 14a, current reports on Form 8-K, and any amendments to those reports filed pursuant to Section 13 or 15(d) of the Exchange Act, are made available free of charge through the Corporate Governance section of the Company’s Internet website at www.gehl.com as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC. Copies of any materials the Company files with the SEC can also be obtained free of charge through the SEC’s website at www.sec.gov , at the SEC s Public Reference Room at 450 Fifth St., N.W., Washington, D.C. 20549, or by calling the SEC s Public Reference Room at 1-800-732-0330. The Company also makes available, free of charge, its Ethics Policy, Corporate Governance Guidelines, committee charters and other information related to the Company on the Company’s Internet website or in printed form upon request.

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Item 2. Properties

        The following table sets forth certain information as of December 31, 2004, relating to the Company’s principal manufacturing facilities. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital Expenditures,” included in Part II, Item 7 of this Form 10-K.

        The Company also has a one and one-half year renewable service agreement with a vendor for a centralized parts distribution center located in Belvidere, Illinois.

Item 3. Legal Proceedings

        The Company is a defendant from time to time in actions for product liability and other matters arising out of its ordinary business operations. The Company believes that the actions presently pending will not have a material adverse effect on its consolidated financial position or results of operations. To the Company’s knowledge, there are no material legal proceedings to which any director, officer, affiliate or more than 5% shareholder of the Company (or any associate of the foregoing persons) is a party adverse to the Company or any of its subsidiaries or has a material interest adverse to the Company or its subsidiaries.

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

        No matters were submitted to a vote of security holders during the quarter ended December 31, 2004.

Executive Officers of the Registrant.

        Set forth below is certain information concerning the executive officers of the Company as of February 1, 2005:

        All officers of the Company are elected annually by the Board of Directors following the Annual Meeting of Shareholders. The Company has an employment agreement with William D. Gehl, pursuant to which he is to serve as Chief Executive Officer of the Company through the expiration of the agreement on June 14, 2008.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

        On July 22, 2004, in conjunction with the establishment of a strategic alliance with Manitou BF S.A. (“Manitou”), the world’s largest manufacturer of telescopic handlers, the Company issued, pursuant to Section 4(2) under the Securities Act of 1933, as amended, 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.

        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 2004. As of December 31, 2004, the Company had authority to repurchase 348,100 shares under the plan.

        Pursuant to the terms of the Gehl Company Director Stock Grant Plan, each of the non-employee directors of the Company (i.e., Messrs. N.C. Babson, T. J. Boldt, J. T. Byrnes, F. J. Fotsch, J. Neunteufel, J. W. Splude and H. Viets) received on December 31, 2004 a grant of shares of Company common stock as part of their annual retainer fee. An aggregate of 1,398 shares of Company common stock were granted under the Director Stock Grant Plan. These shares were issued in transactions exempt from registration under Section 4(2) of the Securities Act of 1933, as amended.

        The Company did not declare or pay any dividends in 2004 or 2003. A summary of the high and low prices of Gehl’s common stock by quarter follows.

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Item 6. Selected Financial Data

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

        The Company’s net income in 2004 was $13.4 million, or $2.20 per diluted share, compared with $2.6 million, or $.49 per diluted share, in 2003. The 2003 net income included an after-tax asset impairment charge of $2.4 million, or $.44 per diluted share, and an after-tax charge of $0.3 million, or $.06 per diluted share, relating to plant rationalization initiatives. In addition, 2003 net income included a favorable tax adjustment of $0.4 million, or $.07 per diluted share, relating to the finalization of prior year tax returns during the 2003 fourth quarter.

        Net sales in 2004 of $361.6 million were 48% above the $244.4 million in 2003. Construction equipment segment net sales in 2004 of $242.4 million were 56% above 2003 levels, while agricultural equipment segment net sales in 2004 of $119.2 million were 34% above 2003 levels. The construction equipment segment comprised 67% of Company net sales in 2004 versus 64% in 2003. The agricultural equipment segment was 33% of Company net sales in 2004 versus 36% in 2003.

        Income from operations in 2004 was $20.7 million, with the construction equipment segment accounting for $19.2 million and the agricultural equipment segment accounting for $1.5 million. Interest expense in 2004 decreased $0.8 million, to $2.8 million. Net other expense consisting primarily of foreign currency transaction gains and the costs of selling finance contracts receivable, was $0.2 million in 2004, a $0.5 million decrease from 2003 net other income of $0.3 million.

        The Company’s total debt increased to $89.8 million at December 31, 2004 from $26.7 million at December 31, 2003. The increase was primarily due to an increase in finance contracts receivable as the Company was retaining contracts for a sale under an asset securitization program in the first quarter of 2005. In February, 2005, the Company received proceeds of $23.3 million from the initial sale of finance contracts under the securitization program. The proceeds from the sale were used to pay down debt. See “Liquidity and Capital Resources” below for discussion of finance contracts receivable.

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. These initiatives were completed during 2002 as the Company closed its manufacturing facility in Owatonna, Minnesota (“Owatonna”) and transferred production of Mustang skid loaders 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. The Company anticipated annual profitability improvements, starting in 2003, of approximately $3.5 million dollars primarily resulting from a reduction in headcount and reduced fixed manufacturing expenses ($3.2 million reduction in cost of goods sold and $0.3 million reduction in selling, general and administrative expenses). The Company did not recognize approximately $0.5 million of these savings during 2003 as certain fixed expenses related to the manufacturing facilities were incurred as a result of the delay in selling the Lebanon and Owatonna facilities (see further discussion below).

        During the third quarter ended September 27, 2003, the Company recorded a $3.6 million asset impairment charge to adjust the carrying value of the Lebanon and Owatonna facilities and assets to their fair value less cost to sell. Of the $3.6 million charge, $1.2 million and $2.4 million related to the construction equipment and agricultural equipment segments, respectively. The Company sold the Lebanon facility in the 2003 fourth quarter and the Owatonna facility in the 2004 third quarter.

        During the year ended December 31, 2003, the Company expensed $0.5 million of other charges related to the plant rationalization initiatives. No such charges were expensed in the year ended December 31, 2004.

        Through December 31, 2004, the Company incurred total asset impairment, restructuring and other related charges of $9.4 million related to the plant rationalization initiatives. The Company does not anticipate incurring any additional costs related to the completed plant rationalization initiatives.

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Sale of Common Stock

        On July 22, 2004, in conjunction with the establishment of a strategic alliance with Manitou BF S.A. (“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 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 at the Company’s Yankton, South Dakota facility.

Results of Operations

2004 vs. 2003

Net Sales

        Net sales for 2004 were $361.6 million compared to $244.4 million in 2003, an increase of 48%. Gehl construction equipment segment net sales were $242.4 million in 2004, a 56% increase from 2003 net sales of $155.5 million. The construction equipment segment, in general, was favorably impacted by the improved economic conditions during 2004, including an increase in housing starts of nearly 6%. Skid loader sales in 2004 were up 45% from 2003 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 sales more than doubled during 2004 compared to 2003 as demand from rental customers was strong. Demand for compact track loaders, a product introduced in mid-2002, continued to grow and resulted in sales increasing over 85% during 2004 compared to 2003. The Company’s European subsidiary, Gehl Europe, increased sales 53% from 2003 and the Company’s, attachment subsidiary, CE Attachments, Inc., increased sales 31% from 2003.

        Gehl agricultural equipment segment net sales were $119.2 million in 2004, an increase of 34% from $88.9 million in 2003. The agricultural segment, in general, was favorably impacted by the improved economic conditions during 2004 as well as improved milk prices paid to dairy farmers in 2004 over 2003. Skid loader sales during 2004 increased nearly 39% from 2003. Demand for compact track loaders was also strong as 2004 sales more than doubled from 2003. In addition, sales of agricultural implements in 2004 increased over 10% from 2003.

        Of the Company’s total net sales reported for 2004, $57.0 million were made to customers residing outside of the United States compared with $50.5 million in 2003. The increase was due primarily to increased sales in Europe.

Gross Profit

Gross profit in 2004 was $71.7 million compared to $51.4 million in 2003. Gross profit as a percentage of net sales (“gross margin”) was 19.8% in 2004 compared to 21.0% in 2003. Gross margin for the construction equipment segment was 21.7% for 2004 compared with 23.3% for 2003. Gross margin for the agricultural equipment segment was 15.9% for 2004 compared to 17.1% for 2003. The 2004 gross margin for both segments was negatively impacted by higher steel and component part costs, 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 in early 2004. These cost increases, which adversely impacted margins by approximately 3.9%, have been partially offset by selective selling price increases in the first, third and fourth quarters of 2004, as well lower levels of discounts and sales incentives, which improved margins by approximately 2.7%.

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        Lower levels of discounts and sales incentives as well as the impact of 2004 price increases favorably impacted the agricultural equipment segment gross margin by approximately 6.1%. This favorable impact was more than offset by an approximate 4.7% reduction in gross margin due to the product cost issues noted above as well as an unfavorable mix of products shipped, which further reduced gross margins by approximately 2.6%.

        The 2004 price increases and a favorable mix of product shipments favorably impacted construction equipment segment gross margins by approximately 3.2%. This favorable impact was more than offset by an approximate 4.8% reduction in gross margin due to the product cost issues noted above.

Selling, General and Administrative Expenses

        Selling, general and administrative expenses were $51.0 million, or 14.1% of net sales, in 2004 compared to $42.5 million, or 17.4% of net sales, in 2003. The increase in spending is primarily the result of items that vary with sales levels as well as increased costs associated with efforts to comply with the 2002 Sarbanes-Oxley Act, which totaled approximately $0.6 million. However, selling, general and administrative expenses as a percentage of net sales improved as the growth in net sales exceeded expense increases.

Income (Loss) from Operations

        Income from operations for 2004 was $20.7 million, or 5.7% of net sales, compared to a $4.9 million, or 2.0% of net sales, for the 2003, an increase of $15.8 million. The 2003 income from operations reflects the impact of the $3.6 million impairment charge discussed in “Asset Impairment and Other Restructuring Costs” above. Of the $3.6 million charge, $1.2 million and $2.4 million related to the construction equipment and agricultural equipment segments, respectively.

Interest Expense

        Interest expense decreased $0.8 million, or 22%, to $2.8 million in 2004 compared to $3.6 million in 2003. The decrease in the Company’s average outstanding debt balance and lower average borrowing costs contributed to a decrease in the 2004 interest expense. See “Liquidity and Capital Resources” below for discussion of changes in outstanding debt.

Interest Income

        Interest income increased $0.5 million, or 30%, to $2.3 million in 2004 compared to $1.8 million in 2003. The increase in interest income is primarily due to the interest earned on the increased balance of finance contracts receivable as the Company was retaining contracts for a sale under an asset securitization program. See “Liquidity and Capital Resources” below for discussion of the change in finance contracts receivable.

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Other income (expense), net

        The Company incurred net other expense of $0.2 million in 2004 compared to net other income of $0.3 million in 2003. The change was primarily due to the Company’s costs of selling retail finance contracts during 2004 increasing $0.4 million from 2003 due to an increasing interest rate environment.

Provision for Income Taxes

        The Company’s effective income tax rate was 33.0% in 2004 and 21.6% in 2003. The increase in the effective tax rate was primarily due to the favorable impact of a $0.4 million tax adjustment relating to the finalization of prior year tax returns during the fourth quarter of 2003.

Net Income

        Net income was $13.4 million for 2004 compared with $2.6 million for 2003, an increase of $10.8 million. Diluted earnings per share were $2.20 in 2004 compared to $.49 in 2003. Net income in 2003 includes the after-tax impairment charge of $2.4 million, or $.44 per diluted share, and an after-tax charge of $0.3 million, or $.06 per diluted share, relating to the Company’s plant rationalization initiatives. In addition, 2003 net income was favorably impacted by a $0.4 million, or $.07 per diluted share, tax adjustment related to finalization of prior year tax returns during the 2003 fourth quarter. No dividends were declared in either 2004 or 2003 on the Company’s common stock.

2003 vs. 2002

        Net sales for 2003 were $244.4 million compared to $232.6 million in 2002, an increase of 5%. Gehl construction equipment segment net sales were $155.5 million in 2003, a 15% increase from 2002 net sales of $135.1 million.

        The increase in construction equipment segment net sales was primarily due to strong demand throughout the year for compact track loaders, a new product line introduced in the second quarter of 2002, as shipments of this product increased nearly 150% from 2002, as well as increased demand for telescopic handlers and compact excavators in the second half of the year as 2003 shipments increased approximately 14% and 17%, respectively, from 2002 levels. In addition, the Company’s attachment business and European subsidiary, Gehl Europe, had increased 2003 shipments of 35% and 47%, respectively, from 2002. These favorable impacts on net sales were partially offset by an approximate 8% reduction in skid loader shipments, primarily due to weaker demand in the first half of 2003 as well as a managed reduction in shipments in the 2003 fourth quarter prior to the launch of the new 40 series skid loaders in the 2004 first quarter.

        Gehl agricultural equipment segment net sales were $88.9 million in 2003, down 9% from $97.5 million in 2002. Shipments of agricultural implements and skid loaders during the first nine months of 2003 were adversely impacted by low milk prices as 2003 shipments decreased approximately 4% and 10%, respectively, from 2002. Skid Loader shipments were also adversely impacted by the Company’s managed reduction in shipments in the 2003 fourth quarter prior to the launch of the new 40 series skid loaders in the 2004 first quarter. Increases in milk prices during the 2003 third quarter resulted in increased agricultural implement shipments in the fourth quarter, partially offsetting the reduced sales in the first nine months of 2003. In addition, increased sales by the Company’s attachment business of nearly 37% from 2002, as well as an approximate 47% increase in shipments of compact track loaders, introduced in the second quarter of 2002, partially offset the reduced agricultural implement and skid loader shipments.

        Of the Company’s total net sales reported for 2003, $50.5 million were made to customers residing outside of the United States compared with $43.9 million in 2002. The increase was due primarily to the increased sales in Canada and Europe.

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Gross Profit

        Gross profit in 2003 was $51.4 million compared to $48.8 million in 2002. Gross margin was 21.0% in both 2003 and 2002.

        Gross margin for the construction equipment segment was 23.3% in 2003 compared with 21.3% in 2002. Approximately 1% of the increase in the gross margin for the construction equipment segment was the result of improved manufacturing efficiencies, increased levels of production and favorable effects of the 2002 Owatonna, Minnesota plant closure. In addition, approximately 1% of the gross margin improvement was the result of a favorable mix of products shipped and product price increases during 2003.

        Gross margin for the agricultural equipment segment was 17.1% in 2003 compared with 20.5% in 2002. The decrease in agricultural equipment gross margin was due to significant competitive pressure resulting in higher sales discounts and sales incentives, which adversely impacted gross margin by approximately 4%. In addition, a less favorable mix of product shipments further reduced gross margin by approximately 1%. These gross margin reductions of approximately 5.0% were partially offset by the favorable impact of product price increases during 2003.

Selling, General and Administrative Expenses

        Selling, general and administrative expenses were $42.5 million, or 17.4% of net sales, in 2003 compared to $42.7 million, or 18.4% of net sales, in 2002. The decrease in selling, general and administrative expenses as a percentage of net sales was due to a 5% increase in net sales from 2002 combined with consistent levels of expenses between 2003 and 2002.

Income (Loss) from Operations

        The decrease in income from operations in 2003 was primarily due to $4.1 million of charges relating to the Company’s previously announced plant rationalization initiatives, which increased $3.0 million from the $1.1 million of charges in 2002. Partially offsetting the effect of these charges was income generated from increased net sales during 2003.

        Construction equipment segment income from operations increased in 2003 to $7.9 million from $4.3 million in 2002 primarily due to the 15% increase in net sales from 2002 and the increase in gross margin to 23.3% from 21.3% in 2002. The favorable impact of the increase in net sales and gross margin improvement were partially offset by $1.5 million in charges related to the Company’s plant rationalization initiatives, which increased $1.0 million from $0.5 million in 2002. The agricultural equipment segment incurred a loss from operations of $3.0 million in 2003 compared to income from operations of $0.9 million in 2002. Reduced agricultural segment net sales, a reduction in gross margin and $2.6 million in charges related to the Company’s plant rationalization initiatives, which increased $2.1 million from $0.5 million in 2002, contributed to the 2003 loss from operations.

Interest Expense

        Interest expense decreased $0.4 million to $3.6 million in 2003 compared to $4.1 million in 2002. The decrease in interest expense was due to decreased debt levels during 2003, as debt was $26.7 million at December 31, 2003 compared to $57.9 million at December 31, 2002. The majority of the debt reduction occurred during the fourth quarter of 2003 as the Company provided $31.1 million of cash flow from operations in the quarter.

Other income (expense), net

        The Company benefited from other income, net of $0.3 million in 2003 compared to other expense, net of $1.5 million in 2002. This difference resulted from reduced costs of selling retail finance contracts due to the overall lower interest rate environment and more favorable foreign exchange transaction gains in 2003 versus 2002.

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Provision for Income Taxes

        The Company’s effective income tax rate was 21.6% in 2003 and 35.0% in 2002. The decrease in the effective tax rate is primarily due to the favorable impact of a $0.4 million tax adjustment relating to the finalization of prior year tax returns during the fourth quarter of 2003.

Net Income

        Net income increased to $2.6 million in 2003 from $1.0 million of net income in 2002. Diluted earnings per share were $.49 in 2003 compared to $.19 in 2002. Net income in 2003 includes an after-tax impairment charge of $2.4 million, or $.44 per diluted share, and an after-tax charge of $0.3 million, or $.06 per diluted share, relating to the Company’s plant rationalization initiatives. In addition, 2003 net income was favorably impacted by a $0.4 million, or $.07 per diluted share, tax adjustment related to finalization of prior year tax returns during the fourth quarter. Net income in 2002 includes an after-tax charge of $0.6 million, or $.11 per diluted share, relating to the Company’s plant rationalization initiatives. No dividends were declared in either 2003 or 2002 on the Company’s common stock.

Liquidity and Capital Resources

Working Capital

        The Company’s working capital increased to $162.8 million at December 31, 2004 from $83.3 million twelve months earlier. The increase was primarily the result of increases in accounts receivable (see below), finance contracts receivable (see below) and inventories offset by increases in short-term borrowings (see below) and accounts payable. The $7.3 million increase in inventories was primarily due to increased production as a result of the 48% increase in sales during 2004. The $10.3 million increase in accounts payable was primarily due to the increased production as well as the timing of scheduled payments resulting from a change in the mix of vendors from the year-ago period.

Accounts Receivable

        The Company’s net accounts receivable increased $31.0 million to $123.5 million at December 31, 2004. The increase in accounts receivable was due to the strong shipments in 2004, which were primarily driven by the shipments of the new Gehl brand skid loaders, strong demand for telescopic handlers and compact track loaders as well increased sales from the Company’s subsidiaries Gehl Europe and CE Attachments, Inc.

Finance Contracts Receivable

        Current net finance contracts receivable increased $70.8 million to $73.3 million at December 31, 2004. Finance contracts receivable increased as the Company retained contracts for a sale under an asset securitization program in the first quarter of 2005. In February, 2005, the Company received proceeds of $23.3 million from the initial sale of finance contracts under the securitization program. See “Off Balance Sheet Arrangements — Sales of Finance Contracts Receivable” following for additional discussion.

Short-term Borrowings

        At December 31, 2004 the Company had borrowed $20.2 million on a term basis from a commercial bank lender. These borrowings bear interest at 2.5% above the London Interbank Offered Rate for three month deposits reset on a monthly basis. Borrowings are secured by a first priority lien on an assigned pool of finance contracts receivable.

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Capital Expenditures

        The Company expended $3.7 million for property, plant and equipment in 2004, the majority of which was incurred to maintain and upgrade machinery and equipment. The Company plans to make up to $16.7 million in capital expenditures in 2005. Of the $16.7 million, $7.9 million relates to a project, approved by the Board of Directors in October 2004, to expand manufacturing capacity by the third quarter of 2005. The additional $8.8 million primarily relates to expenditures to enhance manufacturing and information technology as well as upgrade and maintain machinery and equipment. The Company had outstanding commitments for capital items at December 31, 2004 of approximately $10.0 million. The Company believes its present manufacturing facilities, with the planned capacity expansion, will be sufficient to provide adequate capacity for its operations through the foreseeable future.

Debt and Equity

        At December 31, 2004, shareholders’ equity had increased $38.5 million to $136.5 million from $98.0 million a year earlier. This increase primarily reflects the impact of the $19.8 million in proceeds received from the sale of 961,768 shares of the Company’s common stock in conjunction with the establishment of the strategic alliance with Manitou (see “Sale of Common Stock” above), 2004 net income of $13.4 million, $4.1 million related to the exercise of stock options, favorable currency translation adjustment of $0.7 million and a $0.4 million reduction in the Company’s minimum pension liability adjustment, net of tax.

        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 2004. The Company repurchased 73,700 and 63,200 shares in the open market under this authorization at a cost of $729,000 and $692,000 during 2003 and 2002, respectively. As of December 31, 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.

Borrowing Arrangements

        The Company maintains a $75 million line of credit facility (the “Facility”) which expires December 31, 2007, and is subject to a borrowing base related to the Company’s accounts receivable, unassigned finance contracts receivable and inventories. Under the terms of the Facility, the line of credit is increased to $90 million each year for the time period March 1 to July 15. Amendments to the Facility in September and December of 2004 extended the $90 million line of credit through December 31, 2004 and February 28, 2005, respectively. The interest rate paid on borrowings denominated in U.S. dollars is 2.5% to 2.65% above the London Interbank Offered Rate for one-month deposits. Under the Facility, the Company may borrow Canadian denominated dollars, up to U.S. $5.5 million, at an interest rate equal to 2.5% above the Canadian one-month bankers’ acceptance rates. At December 31, 2004, the Company had unused borrowing capacity of $19.3 million under the Facility, versus $46.8 million a year earlier.

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        In December 2004 the Company borrowed $20.2 million on a term basis from a commercial bank lender. This borrowing bears interest at 2.5% above the London Interbank Offered Rate for three-month deposits reset on a monthly basis. Borrowings are secured by a first priority lien on an assigned pool of finance contracts receivable.

        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 2005 will continue to be funded by operations and borrowings under the Facility.

Contractual Obligations

        A summary of the Company’s significant contractual obligations as of December 31, 2004 are as follows (in thousands):

Off-Balance Sheet Arrangements — Sales of Finance Contracts Receivable

        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 December 31, 2004, the Company serviced $232.9 million of such contracts, of which $149.3 million were owned by third parties. Losses on finance contracts due to customer nonperformance were $540,000 in 2004 as compared to $551,000 in 2003. As a percentage of outstanding serviced contracts, the loss ratios were .3% in 2004 and 2003.

        The Company recorded a loss of $0.3 million in selling $65.5 million of its finance contracts in 2004, as compared to a gain of $0.1 million in selling $121.8 million of such contracts in 2003. The gain or loss arises primarily from the difference between the weighted average interest rate on the contracts being sold and the interest rate negotiated with the purchaser of the contracts.

        In February 2005, the Company entered into an asset securitization program with a financial institution whereby the Company can sell, through a revolving facility, up to $150 million of finance contracts. The proceeds from the first sale in February 2005 totaled $23.3 million and were used to pay down debt. It is the intention of the Company to continue to sell substantially all of its existing as well as future finance contracts through this asset securitization program or similar asset securitization programs.

        The Company believes that it will be able to arrange sufficient capacity to sell its finance contracts for the foreseeable future.

Accounting Pronouncements

        During December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123R, “Share-Based Payment” (SFAS 123R), which requires companies to measure and recognize compensation expense for all stock-based payments at fair value. Stock-based payments include stock option grants and other certain transactions under Company stock plans. The Company grants options to purchase common stock to some of its employees and directors under various plans at prices equal to the market value of the stock on the dates the options were granted. SFAS 123R is effective for all interim or annual periods beginning after June 15, 2005. The Company is currently evaluating the impact that the adoption of SFAS 123R will have on its consolidated financial position, results of operations and cash flows.

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Critical Accounting Policies and Estimates

        The preparation of the Company’s 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.

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.

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.

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Pension and Postretirement Benefits

        Pension and postretirement 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.

2005 Outlook

        The Company expects demand, in general, for compact construction equipment in the North American market during 2005 to increase 6% to 9% over 2004 levels, while demand for agricultural implements in the North American market to be flat to up 5% compared to 2004.

        Based on the current market outlook, the Company expects its 2005 net sales to increase 10% to 12% over 2004 levels. The Company expects its operating margins to improve as the result of continued initiatives to manage costs and improve efficiencies throughout the organization, and higher production levels at its manufacturing facilities.

        Provided general economic conditions continue to be favorable, steel prices stabilize, and the availability of product from the Company’s suppliers is sufficient to meet demand, the Company expects to earn in the range of $2.45 to $2.55 per diluted share in 2005.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk

        The Company is exposed to market risk from changes in interest rates as well as fluctuations in currency. See further disclosure relating to variable rate debt under “Management’s Discussion and Analysis and Results of Operations — Liquidity and Capital Resources – Borrowing Arrangements” included in Item 7 of this Form 10-K.

Interest Rate Risk

        The Company’s Facility is primarily LIBOR-based and is subject to interest rate movements. A 10% increase or decrease in the average cost of the Company’s variable rate debt would result in a change in pre-tax interest expense of approximately $350,000 based upon borrowings outstanding at December 31, 2004.

Commodity Risk

        The Company is exposed to fluctuations in market prices for commodities, especially steel. The Company has established arrangements to manage the negotiations of commodity prices and, where possible, to limit near-term exposure to fluctuations in raw material prices.

Currency Risk

        The Company has limited exposure to foreign currency exchange fluctuations. Certain sales are made in Canadian dollars; however, to minimize this exposure, the Company borrows in Canadian dollars under the Facility. The Company purchases certain inventory components and finished goods from suppliers in Europe and Japan. To the extent the U.S. dollar strengthens or weakens against the Euro and the Yen, the Company’s purchase price could be affected.

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Item 8. Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

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Management’s Annual Report on Internal Control Over Financial Reporting

        The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004 using the criteria set forth in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, the Company’s management believes that, as of December 31, 2004, the Company’s internal control over financial reporting was effective based on those criteria.

        Our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2004 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.

/s/ William D. Gehl
William D. Gehl
Chairman of the Board of Directors
and Chief Executive Officer

/s/ Thomas M. Rettler
Thomas M. Rettler
Vice President and Chief Financial Officer

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Gehl Company,

        We have completed an integrated audit of Gehl Company’s December 31, 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2004 and audits of its December 31, 2003 and December 31, 2002 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedule

        In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Gehl Company and its subsidiaries at December 31, 2004 and December 31, 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Internal control over financial reporting

        Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 8, that the Company maintained effective internal control over financial reporting as of December 31, 2004 based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control – Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

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        A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
March 4, 2005

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Gehl Company and Subsidiaries
Consolidated Balance Sheets

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

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Gehl Company and Subsidiaries
Consolidated Statements of Income

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

27

Gehl Company and Subsidiaries
Consolidated Statements of Shareholders’ Equity

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

28

Gehl Company and Subsidiaries
Consolidated Statements of Cash Flows

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

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Gehl Company and Subsidiaries
Notes To Consolidated Financial Statements

Note 1 — Significant Accounting Policies

        Consolidation:Gehl Company is engaged in the manufacture and distribution of equipment and machinery for the construction market, and in the manufacture and distribution of equipment and machinery primarily for the dairy, livestock and poultry agricultural sector. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances are eliminated.

        Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions, in certain circumstances, which affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Ultimate realization of assets and settlement of liabilities in the future could differ from those estimates.

        Revenue Recognition: The Company recognizes revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred and ownership has transferred to the dealer or distributor; the price to the dealer or distributor is fixed and determinable; and collectibility is reasonably assured. The Company meets these criteria for revenue recognition upon shipment of products to dealers and distributors.

        Shipping and Handling Costs:    The Company records revenues and costs associated with shipping its products within net sales and cost of goods sold, respectively.

        Discounts and Sales Incentives: The Company classifies the costs associated with discounts and sales incentives provided to dealers and distributors as a reduction of net sales. Discounts are recorded upon shipment and sales incentives are recorded when offered.

        Accounts Receivable: The Company provides financing for its dealers in both the construction and agricultural markets. The financing agreements provide for, in certain instances, interest-free periods which generally range from four to nine months.

        Finance Contracts Receivable: The Company offers financing for its products to retail customers and to its dealers. Finance contracts require periodic installments of principal and interest over periods of up to 60 months. Unearned interest is recognized over the life of the contracts using the sum of the digits method.

        Inventories: Inventories are valued at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method for the majority of the Company’s inventories.

        Properties and Depreciation: Properties are stated at cost. When properties are sold or otherwise disposed of, cost and accumulated depreciation are removed from the respective accounts and any gain or loss is included in income. The Company provides for depreciation of assets using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes. Depreciation is recorded using the following estimated useful lives for financial statement purposes:

        Expenditures which substantially increase value or extend asset lives are capitalized. Expenditures for maintenance and repairs are charged against income as incurred.

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        The Company reviews the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment would be determined based on a comparison of the undiscounted future operating cash flows anticipated to be generated during the remaining life of the long-lived assets to the carrying value. Measurement of any impairment loss would be based on discounted operating cash flows.

        Goodwill and Other Intangible Assets: The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” effective January 1, 2002. Under SFAS No. 142, goodwill and intangible assets deemed to have indefinite lives are no longer amortized; however, such assets must be tested for impairment at least annually. Amortization continues to be recorded for other intangible assets with definite lives. The Company is subject to financial statement risk in the event that goodwill becomes impaired.

        Foreign Currency Transactions: Foreign currency transaction gains and (losses) are included in the determination of income. Foreign currency gains were $228,000, $441,000 and $85,000 in 2004, 2003 and 2002, respectively.

        Foreign Currency Translation: Assets and liabilities of the Company’s foreign subsidiary are translated at current exchange rates, and related revenues and expenses are translated at the weighted-average exchange rates in effect for the year. Net exchange gains or losses resulting from the translation of foreign financial statements and the effect of exchange rate changes on intercompany transactions of a long-term investment nature are accumulated and credited or charged directly to a separate component of shareholders’ equity, titled “Accumulated Other Comprehensive Loss.”

        Income Taxes: The Company follows the liability method in accounting for income taxes. The liability method provides that deferred tax assets and liabilities be recorded based on the difference between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes.

        Product Liability Costs: The Company directly assumes all liability for costs associated with claims up to specified limits in any policy year. Known incidents involving the Company’s products are investigated and reserves are established for any estimated liability.

        Environmental Costs: Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and that do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable, and the costs can be reasonably estimated.

        Research and Development Costs: Costs for research activities relating to product development and improvement are charged against income as incurred. Such costs amounted to approximately $2.5 million, $2.6 million and $3.2 million in 2004, 2003 and 2002, respectively.

        Other Income (Expense): Other income (expense) is comprised primarily of foreign currency transaction gains (losses), cost of sales of finance contracts, and other nonoperating items.

        Comprehensive Income: Comprehensive income is defined as the sum of net income and all other non-owner changes in equity (or accumulated other comprehensive loss). The components of accumulated other comprehensive loss were as follows (net of tax) (in thousands):

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        Stock-Based Compensation: The Company maintains stock option plans for certain of its directors, officers and key employees, which are described more fully under Note 12–Shareholders’ Equity. The Company accounts for these plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees.” No compensation expense has been recognized for options granted under these plans as the option price was equal to the market value of the Company’s common stock on the date of grant. 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):

        The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2004, 2003 and 2002: