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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

For the Quarterly Period Ended April 2, 2005

OR

For the transition period from ______________ to ______________

Commission file number 0-18110

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    X     No        

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

April 2, 2005

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
April 2, 2005
(Unaudited)

Note 1 – Basis of Presentation

        The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading.

        In the opinion of management, the information furnished for the three-month periods ended April 2, 2005 and March 27, 2004 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 three-month period ended April 2, 2005 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, 2004 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.

        The effect on net income and net income per share had the Company applied the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” is presented below (in thousands, except per share data):

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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 – Finance Contracts Receivable Financing

        In February 2005, the Company entered into an asset securitization program with a financial institution (the “Purchaser”) whereby the Company can sell, through a revolving securitization facility, up to $150 million of retail installment sale contracts (“retail installment sale contracts” or “finance contracts receivable”). The Company sells portfolios of its finance contracts receivable to a wholly owned, bankruptcy-remote special purpose subsidiary (“SPE”) which, in turn, sells each such portfolio to a wholly owned bankruptcy-remote special purpose subsidiary (“QSPE”) of the SPE. The QSPE, in turn, sells a participating interest in each such portfolio of finance contracts receivable to the Purchaser. The Purchaser receives a security interest in each such portfolio of finance contracts receivable. The Company has retained collection and administrative responsibilities for each such portfolio of finance contracts receivable. The Purchaser has no recourse against the Company for uncollectible finance contracts receivable, if any; however, the Company’s retained interest in the portfolio of finance contracts receivable, which represents 9.5% of the principal balance of the finance contracts receivable sold, is subordinate to the Purchaser’s interest. The Company’s retained interest is recorded at fair value, which is calculated based on the present value of estimated future cash flows and reflects prepayment and loss assumptions, which are based on historical results. At April 2, 2005, the fair value of the retained interest was calculated using an interpolated risk-free rate of return of 3.6% based on U.S. Treasury rates, an 18.5 month weighted-average prepayable portfolio life and a 0.5% annual loss rate. The retained interest recorded at April 2, 2005 is $14.8 million and is included in other assets in the accompanying Condensed Consolidated Balance Sheet.

        The securitization program has a final maturity in February 2008, subject to annual renewal by the Purchaser. The total credit capacity under the program is $150 million, with finance contracts receivable sold and being serviced by the Company totaling $49.4 million at April 2, 2005.

        During the three-month period ended April 2, 2005, the Company received proceeds from the sale of finance contracts receivable of $46.6 million and recorded a loss on sale of $0.3 million. The loss on sale was more than offset by a $1.1 million unrealized gain on interest rate swaps that were put in place to hedge gains / losses on the sale of finance contracts receivable (see note 11). The Company did not receive any service fee income or cash flows related to the retained interest during the three-month period ended April 2, 2005.

        The securitization program is accounted for as a sale in accordance with SFAS No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities—a Replacement of FASB Statement No. 125.” Sales of finance contracts receivable are reflected as a reduction of finance contracts receivable in the accompanying Condensed Consolidated Balance Sheet and the proceeds received are included in cash flows from operating activities in the accompanying Condensed Consolidated Statements of Cash Flows.

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        The Company incurred one-time transaction costs of $1.1 million, which are included in other expense in the accompanying Condensed Consolidated Statement of Income, related to the implementation of the asset securitization program during the three-month period ended April 2, 2005.

Note 5 – 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):

Note 6 – 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 three-month period ended April 2, 2005 were as follows (in thousands):

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Note 7 – Employee Retirement Plans

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

        The Company anticipates making $1.8 million of contributions to the pension plans during 2005. No contributions were made during the three-month period ended April 2, 2005.

        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 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.

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

        The components of comprehensive income (loss) are as follows (in thousands):

Note 9 – Business Segments

The Company has two segments, construction equipment and agricultural equipment, as the long-term financial performance of these segments is affected by separate economic conditions and cycles. Segment net sales and income from operations tend to be aligned with the distribution networks of the Company, and correlate with the manner in which the Company evaluates performance.

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 under this authorization were repurchased during the three-month period ended April 2, 2005 nor the three-month period ended March 27, 2004. As of April 2, 2005, 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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Note 11 – Financial Instruments

        The Company selectively uses interest rate swaps to reduce market risk associated with changes in interest rates. The use of derivatives is restricted to those intended for hedging purposes.

        The Company is a party to three interest rate swap agreements (“swaps”). The swaps, which expire in five years, are hedges protecting against underlying changes in interest rates and their impact on the gains / losses incurred upon the sale of finance contracts receivable. Accordingly, the implied gains / losses associated with the fair values of interest rate swaps would be offset by gains / losses on the sale of the underlying retail finance contracts. Under the swaps, the Company receives interest on a variable London Interbank Offered Rate for one-month deposits and pays on a fixed rate ranging from of 3.18% to 3.41%.

        The Company’s derivative instruments are recorded at fair value in the Condensed Consolidated Balance Sheet. At April 2, 2005, the notional amount of the swaps totaled $61.3 million and fair value adjustments of $1.2 million were recorded as a current asset. Under the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” the swaps were deemed ineffective as of April 2, 2005 as the finance contracts that were owned by the Company at the inception of the swaps had been sold during the three-month period ended April 2, 2005. As a result, the Company recorded $1.1 million of other income in the three-month period ended April 2, 2005, which more than offset the $0.3 million loss incurred on the sale of finance contracts during the period (see footnote 4). Changes, if any, in the fair value of the swaps from April 2, 2005 to the time the Company terminates the swaps will be recorded as other income or expense. The Company did not terminate the swaps during the three-month period ended April 2, 2005 because the swaps continue to provide an economic hedge for the finance contracts still owned by the Company for future sales. The Company intends to terminate the swaps during the second quarter of 2005.

Note 12 – Accounting Pronouncements

        During December 2004, the Financial Accounting Standards Board 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 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. The Company is required to adopt SFAS 123R by the first quarter of fiscal 2006. 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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Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition

Results of Operations

Three Months Ended April 2, 2005 Compared to Three Months Ended March 27, 2004

Net Sales

        Net sales in the three months ended April 2, 2005 (“2005 first quarter”) were $119.0 million compared to $84.7 million in the three months ended March 27, 2004 (“2004 first quarter”), an increase of $34.4 million, or 41%.

        Construction equipment segment net sales were $84.0 million in the 2005 first quarter compared to $54.4 million in the 2004 first quarter, an increase of $29.6 million, or 54%. 2005 first quarter construction segment net sales were favorably impacted by the overall economic expansion and continued strength of the construction markets during the period. Demand for the Company’s skid loaders remained strong as shipments increased nearly 30% from the 2004 first quarter. Telescopic handler shipments in the 2005 first quarter doubled from the 2004 first quarter as demand from larger rental customers continued to strengthen in the 2005 first quarter. Demand for compact track loaders, a product introduced in mid-2002, continued to grow and resulted in 2005 first quarter shipments which were up over 20% from the 2004 first quarter. The Company’s European subsidiary, Gehl Europe, also posted strong sales during the 2005 first quarter as sales increased over 50% from the 2004 first quarter.

        Agricultural equipment segment net sales were $35.0 million in the 2005 first quarter, compared to $30.3 million in the 2004 first quarter, an increase of $4.8 million, or 16%. 2005 first quarter agricultural equipment segment net sales were favorably impacted by the overall economic expansion and the continued strength of milk prices paid to dairy farmers. Skid loader shipments to agricultural dealers during the 2005 first quarter were up nearly 20% from the 2004 first quarter and shipments of agricultural implements in the 2005 first quarter increased nearly 10% from the 2004 first quarter.

        Of the Company’s total net sales reported for the 2005 first quarter, $16.9 million were made to customers residing outside of the United States compared with $14.9 million in the 2004 first quarter. The increase in export sales was primarily due to increased sales in Europe.

Gross Profit

        Gross profit was $23.5 million in the 2005 first quarter compared to $17.4 million for the 2004 first quarter, an increase of $6.1 million, or 35%. Gross profit as a percent of net sales (gross margin) was 19.8% for the 2005 first quarter compared to 20.5% for the 2004 first quarter. The reduction in the 2005 first quarter margin was primarily due to higher steel and component parts costs. These cost increases, which adversely impacted the 2005 first quarter margin by approximately 6.0%, were partially offset by selective selling price increases in the first, third and fourth quarters of 2004, as well as lower levels of discounts and sales incentives, which increased the gross margin by approximately 5.3%.

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        Gross margin for the construction equipment segment was 20.5% for the 2005 first quarter compared to 22.6% for the 2004 first quarter. The unfavorable impact of the cost issues noted above reduced the gross margin by approximately 6.4%. This was partially offset by the favorable impact of the selective price increases, which increased the gross margin by approximately 4.3%.

        Gross margin for the agricultural equipment segment was 18.1% for the 2005 first quarter compared to 16.9 % for the 2004 first quarter. The favorable impact of the selective price increases and lower levels of discounts and incentives increased the gross margin by approximately 6.9%. This was partially offset by the adverse impact of the cost issues noted above, which reduced margins by approximately 5.7%.

Selling, General and Administrative Expenses

        Selling, general and administrative expenses were $15.1 million, or 12.7% of net sales, for the 2005 first quarter compared to $12.8 million, or 15.1% of net sales, for the 2004 first quarter. The increase in spending 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 for the 2005 first quarter was $8.4 million, or 7.1% of net sales, compared to income from operations of 4.6 million, or 5.4% of net sales, for the 2004 first quarter, an increase of $3.8 million.

Interest Expense

        Interest expense was $1.4 million for the 2005 first quarter compared to $0.6 million for the 2004 first quarter, an increase of $0.9 million. The increase in interest expense was due to an increase in the average outstanding debt and an increase in borrowing costs as the London Interbank Offered Rate for one-month deposits increased from the 2004 first quarter to the 2005 first quarter. See “Financial Condition” section below for discussion of changes in outstanding debt.

Interest Income

        Interest income was $1.1 million for the 2005 first quarter compared to $0.4 million for the 2004 first quarter, an increase of $0.7 million. The increase in interest income is primarily due to the interest earned on the increased balance of finance contracts as the Company was retaining finance contracts for sale under an asset securitization program. See “Financial Condition” section below for discussion of the asset securitization program.

Net Other Expense

        The Company recorded net other expense of $0.7 million and $0.1 million in the 2005 first quarter and 2004 first quarter, respectively. The increase in net other expense was primarily due to $1.2 million of one time and other costs incurred with the asset securitization program and a $0.3 million loss on the sale of finance contracts, which was partially offset by a $1.1 million unrealized gain on swap contracts the Company put in place to hedge the gain / loss on sale of finance contracts.

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Net Income

        Net income was $4.9 million in the 2005 first quarter, or 4.1% of net sales, compared to net income of $2.9 million in the 2004 first quarter, or 3.4% of net sales, an increase of $2.0 million.

Financial Condition

        The Company’s working capital was $174.0 million at April 2, 2005, as compared to $162.8 million at December 31, 2004, and $101.4 million at March 27, 2004. The increase since March 27, 2004 was primarily due to increases in cash ($23.4 million), accounts receivable ($35.6 million) and finance contracts receivable ($35.7 million) offset, in part, by short-term borrowings ($29.0 million). The increase in cash was due to the timing of funds received from a sale of finance contracts on April 1, 2005. The cash was used to pay down long-term debt on April 4, 2005. The increase in accounts receivable was due to strong shipments, which were primarily driven by strong demand for skid loaders, telescopic handlers and compact track loaders. Finance contracts receivable increased as the Company had been holding finance contracts for a sale under an asset securitization program. During the 2005 first quarter, the Company sold a portion of these contracts through the asset securitization program (see additional discussion below). At April 2, 2005, the Company had borrowed $28.9 million on a term basis, secured by a first priority lien on an assigned pool of finance contracts receivable, from a commercial bank lender.

        The increase in working capital from December 31, 2004 was primarily due to increases in cash ($20.9 million) and accounts receivable ($34.9 million) offset, in part, by a decrease in finance contracts receivable ($32.7 million) and an increase in short-term borrowings ($8.7 million). See the previous paragraph for discussion of the increase in cash and accounts receivable. At December 31, 2004, the Company was holding finance contracts for a sale under an asset securitization program. During the 2005 first quarter, the Company sold a portion of the finance contracts under this program resulting in the decrease in finance contracts receivable. The increase in short-term borrowings was due to additional borrowing to support working capital requirements.

        Capital expenditures for property, plant and equipment during the 2005 first quarter were approximately $2.1 million. During 2005, the Company anticipates making an aggregate of up to $16.7 million in capital expenditures. The Company has outstanding commitments for capital expenditures at April 2, 2005 of approximately $5.0 million. The Company believes that its present manufacturing facilities, with the in-progress capacity expansion at its Yankton, SD facility, will be sufficient to provide adequate capacity for its operations through the foreseeable future.

        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 Company had available unused borrowing capacity of $1.0 million, $19.3 million and $46.5 million under the Facility at April 2, 2005, December 31, 2004, and March 27, 2004, respectively. At April 2, 2005, December 31, 2004, and March 27, 2004, the Company’s outstanding borrowings under the Facility were $87.5 million, $69.0 million and $42.1 million, respectively. On April 4, 2005, the Company used $23.4 million in proceeds from an April 1, 2005 sale of finance contracts to reduce its borrowings under the Facility to $64.1 million and increase availability under the facility to $24.4 million. As of April 2, 2005, the weighted-average interest rate paid by the Company on outstanding borrowings under its Facility was 5.5%.

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        In December 2004 the Company entered into a term basis borrowing arrangement with a commercial bank lender. Borrowings under this arrangement were $28.9 million and $20.2 million at April 2, 2005 and December 31, 2004, respectively and are classified as short-term borrowings in accompanying Condensed Consolidated Balance Sheets. Borrowings are secured by a first priority lien on an assigned pool of finance contracts receivable. As of April 2, 2005, the weighted-average interest rate paid by the Company on outstanding borrowings under this arrangement was 5.3%.

        The changes in total borrowings from March 27, 2004 and December 31, 2004 to April 2, 2005 were primarily due to increases in working capital requirements as discussed above.

        The Company believes it has access to adequate capital resources and borrowing arrangements 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 the Company’s borrowing arrangements.

        The sale of finance contracts is an important component of the Company’s overall liquidity. In February 2005, the Company entered into an asset securitization program with a financial institution (the “Purchaser”) whereby the Company can sell, through a revolving securitization facility, up to $150 million of retail installment sale contracts (“retail installment sale contracts” or “finance contracts receivable”). The Company sells portfolios of its finance contracts receivable to a wholly owned, bankruptcy-remote special purpose subsidiary (“SPE”) which, in turn, sells each such portfolio to a wholly owned bankruptcy-remote special purpose subsidiary (“QSPE”) of the SPE. The QSPE, in turn, sells a participating interest in each such portfolio of finance contracts receivable to the Purchaser. The Purchaser receives a security interest in each such portfolio of finance contracts receivable. The Purchaser has no recourse against the Company for uncollectible finance contracts receivable, if any; however, the Company’s retained interest in the portfolio of finance contracts receivable, which represents 9.5% of the principal balance of the finance contracts receivable sold, is subordinate to the Purchaser’s interest. At April 2, 2005, the Company had available unused borrowing capacity of $100.6 million under this facility. 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. In addition to the asset securitization program, 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 April 2, 2005, the Company serviced $234.9 million of such contracts, of which $191.8 million were owned by other parties. Of the $191.8 million sold finance contracts owned by other parties, $49.4 million were sold through the asset securitization program.

        At April 2, 2005, shareholders’ equity had increased $41.5 million to $143.1 million from $101.5 million at March 27, 2004. This increase was due to the net income earned from March 27, 2004 to April 2, 2005, $19.8 million in proceeds from the sale of 961,768 shares of common stock in July 2004, exercise of stock options, currency translation adjustments and the minimum pension liability adjustment recorded in 2004.

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        In September 2001, the Company’s Board of Directors authorized a stock repurchase plan providing for the repurchase of up to 500,000 shares of the Company’s outstanding common stock. No shares were repurchased under this authorization during the three-month period ended April 2, 2005 nor the three-month period ended March 27, 2004. As of April 2, 2005, 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.

        Other than the changes in the outstanding borrowings and capital commitments, as described above, there have been no material changes to the annual maturities of debt obligations, future minimum non-cancelable operating lease payments and capital commitments 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, 2004 as filed with the Securities and Exchange Commission.

Accounting Pronouncements

        During December 2004, the Financial Accounting Standards Board 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 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. The Company is required to adopt SFAS 123R by the first quarter of fiscal 2006. 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.

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.

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.

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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.

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.

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Outlook

        On April 2, 2005, the Company raised both its net sales and earnings per share outlook for the year. The Company now expects 2005 net sales in the range of $440 million to $460 million and earnings of between $2.70 and $2.80 per diluted share.

        The Company’s first quarter results and current order backlog have exceeded the initial 2005 forecast and confirm the strength of the markets the Company serves. The Company anticipates the additional sales growth and cost control efforts to drive increased earnings for the remainder of the year. Although steel prices have begun to moderate, the Company does expect other supplier cost increases to continue and put downward pressure on the Company’s gross margin rate.

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 “Full Year 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 adverse change in general economic conditions, 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 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 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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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, 2004 as filed with the Securities and Exchange Commission.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

        The Company’s management, with the participation of the Company’s principal executive officer and its principal financial officer, has evaluated the Company’s disclosure controls and procedures as of April 2, 2005. Based upon that evaluation, the Company’s principal executive officer and its principal financial officer have concluded that the Company’s disclosure controls and procedures were effective as of April 2, 2005.

Changes in Internal Control Over Financial Reporting

There was no change in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended April 2, 2005, 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. Unregistered Sales of Equity Securities and Use of Proceeds

        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-month period ended April 2, 2005. As of April 2, 2005, the Company had authority to repurchase 348,100 shares under the plan.

Item 6. Exhibits

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

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