| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| [_] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 0-18110
| Gehl Company |
| (Exact name of registrant as specified in its charter) |
| Wisconsin | 39-0300430 |
| (State or other jurisdiction of incorporation | (I.R.S. Employer Identification No.) |
| or organization) | |
143 Water Street, West Bend, WI | 53095 |
| (Address of principal executive office) | (Zip code) |
| (262) 334-9461 |
| (Registrant’s telephone number, including area code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer X Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No X
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding at September 30, 2007 |
Common Stock, $.10 Par Value | 12,264,766 |
| Page No. | |
| PART I. - Financial Information | |
Item 1. Financial Statements | |
| Condensed Consolidated Statements of Operations for the Three and Nine | |
| month Periods Ended September 30, 2007 and 2006 | 3 |
Condensed Consolidated Balance Sheets at September 30, 2007, | |
| December 31, 2006, and September 30, 2006 | 4 |
Condensed Consolidated Statements of Cash Flows for the Nine month | |
| Periods Ended September 30, 2007 and 2006 | 5 |
Notes to Condensed Consolidated Financial Statements | 6 |
Item 2. Management’s Discussion and Analysis of Financial Condition and | |
| Results of Operations | 17 |
Item 3. Quantitative and Qualitative Disclosures about Market Risk | 25 |
Item 4. Controls and Procedures | 25 |
PART II. - Other Information | |
Item 1A. Risk Factors | 26 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 26 |
Item 6. Exhibits | 27 |
Signatures | 27 |
-2-
| Three Months Ended | Nine Months Ended | |||||||||||||
| September 30, 2007 | September 30, 2006 | September 30, 2007 | September 30, 2006 | |||||||||||
Net sales | $ | 104,866 | $ | 121,021 | $ | 355,427 | $ | 382,599 | ||||||
| Cost of goods sold | 80,570 | 94,661 | 275,827 | 299,864 | ||||||||||
Gross profit | 24,296 | 26,360 | 79,600 | 82,735 | ||||||||||
Selling, general and | ||||||||||||||
| administrative expenses | 15,178 | 14,298 | 45,833 | 44,540 | ||||||||||
Income from operations | 9,118 | 12,062 | 33,767 | 38,195 | ||||||||||
Interest expense | (1,271 | ) | (831 | ) | (3,348 | ) | (2,774 | ) | ||||||
| Interest income | 997 | 975 | 3,103 | 3,019 | ||||||||||
| Other expense, net | (1,213 | ) | (951 | ) | (2,559 | ) | (3,105 | ) | ||||||
Income from continuing operations | ||||||||||||||
| before income taxes | 7,631 | 11,255 | 30,963 | 35,335 | ||||||||||
Provision for income taxes | 2,632 | 3,883 | 10,682 | 12,192 | ||||||||||
Income from continuing operations | 4,999 | 7,372 | 20,281 | 23,143 | ||||||||||
Income (loss) from discontinued operations, | ||||||||||||||
| net of tax | 52 | (309 | ) | (216 | ) | (388 | ) | |||||||
Gain (loss) on disposal of discontinued | ||||||||||||||
| operations, net of tax | -- | 1,284 | -- | (7,755 | ) | |||||||||
Net income | $ | 5,051 | $ | 8,347 | $ | 20,065 | $ | 15,000 | ||||||
Diluted net income (loss) per share: | ||||||||||||||
| Continuing operations | $ | 0.40 | $ | 0.59 | $ | 1.63 | $ | 1.86 | ||||||
| Discontinued operations | 0.00 | 0.08 | (0.02 | ) | (0.66 | ) | ||||||||
| Total diluted net income | ||||||||||||||
| per share | $ | 0.40 | $ | 0.67 | $ | 1.61 | $ | 1.21 | ||||||
Basic net income (loss) per share: | ||||||||||||||
| Continuing operations | $ | 0.41 | $ | 0.61 | $ | 1.67 | $ | 1.92 | ||||||
| Discontinued operations | 0.00 | 0.08 | (0.02 | ) | (0.68 | ) | ||||||||
| Total basic net income | ||||||||||||||
| per share | $ | 0.42 | $ | 0.69 | $ | 1.65 | $ | 1.25 | ||||||
The accompanying notes are an integral part of the financial statements.
-3-
| September 30, 2007 | December 31, 2006 | September 30, 2006 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Assets | |||||||||||
| Cash | $ | 6,805 | $ | 6,892 | $ | 3,733 | |||||
| Accounts receivable - net | 225,361 | 187,582 | 207,361 | ||||||||
| Finance contracts receivable - net | 13,277 | 8,371 | 11,318 | ||||||||
| Inventories | 54,311 | 48,649 | 49,579 | ||||||||
| Assets of discontinued operations - net (Note 3) | 474 | 3,783 | 5,382 | ||||||||
| Retained interest in sold finance contracts receivable | 38,694 | 20,318 | 18,181 | ||||||||
| Deferred income tax assets | 9,768 | 9,128 | 11,253 | ||||||||
| Prepaid expenses and other current assets | 3,433 | 6,310 | 3,232 | ||||||||
| Total current assets | 352,123 | 291,033 | 310,039 | ||||||||
Property, plant and equipment - net | 34,409 | 32,415 | 30,779 | ||||||||
| Goodwill | 11,748 | 11,748 | 11,748 | ||||||||
| Other assets | 35,538 | 29,842 | 25,357 | ||||||||
| Total assets | $ | 433,818 | $ | 365,038 | $ | 377,923 | |||||
Liabilities and Shareholders’ Equity | |||||||||||
| Current portion of long-term debt obligations | $ | 212 | $ | 271 | $ | 278 | |||||
| Short-term debt obligations | 49,997 | 25,000 | 1,268 | ||||||||
| Accounts payable | 45,802 | 39,708 | 55,141 | ||||||||
| Liabilities of discontinued operations (Note 3) | 141 | 387 | 577 | ||||||||
| Accrued and other current liabilities | 27,292 | 24,138 | 27,776 | ||||||||
| Total current liabilities | 123,444 | 89,504 | 85,040 | ||||||||
Long-term debt obligations | 35,643 | 25,183 | 50,292 | ||||||||
| Other long-term liabilities | 20,788 | 19,642 | 15,792 | ||||||||
| Total long-term liabilities | 56,431 | 44,825 | 66,084 | ||||||||
Common stock, $.10 par value, 25,000,000 shares | |||||||||||
| authorized, 12,264,766, 12,197,037 and 12,173,035 | |||||||||||
| shares outstanding, respectively | 1,227 | 1,220 | 1,218 | ||||||||
| Preferred stock, $.10 par value, 2,000,000 shares | |||||||||||
| authorized, 250,000 shares designated as Series A | |||||||||||
| preferred stock, no shares issued | -- | -- | -- | ||||||||
| Capital in excess of par | 86,864 | 85,006 | 83,006 | ||||||||
| Retained earnings | 176,392 | 156,796 | 152,289 | ||||||||
| Accumulated other comprehensive loss | (10,540 | ) | (12,313 | ) | (9,714 | ) | |||||
| Total shareholders’ equity | 253,943 | 230,709 | 226,799 | ||||||||
Total liabilities and shareholders’ equity | $ | 433,818 | $ | 365,038 | $ | 377,923 | |||||
The accompanying notes are an integral part of the financial statements.
-4-
| Nine Months Ended | ||||||||
| September 30, 2007 | September 30, 2006 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net income | $ | 20,065 | $ | 15,000 | ||||
| Adjustments to reconcile net income to net cash | ||||||||
| provided by (used for) operating activities: | ||||||||
| Loss on discontinued operations (non-cash), net of taxes | -- | 5,874 | ||||||
| Depreciation and amortization | 3,670 | 3,768 | ||||||
| Compensation expense for share-based payments | 1,430 | 1,191 | ||||||
| Cost of sales of finance contracts | 2,180 | 3,113 | ||||||
| Proceeds from sales of finance contracts | 105,108 | 153,497 | ||||||
| Increase in finance contracts receivable | (112,194 | ) | (132,035 | ) | ||||
| Increase in retained interest in sold finance contracts | (22,757 | ) | (15,513 | ) | ||||
| (Decrease) increase in cash due to changes in: | ||||||||
| Accounts receivable - net | (34,451 | ) | (41,234 | ) | ||||
| Inventories | (4,432 | ) | (5,169 | ) | ||||
| Accounts payable | 5,031 | 9,637 | ||||||
| Remaining working capital items | 4,478 | 3,009 | ||||||
| Net cash (used for) provided by operating activities | (31,872 | ) | 1,138 | |||||
Cash Flows from Investing Activities | ||||||||
| Property, plant and equipment additions | (4,345 | ) | (3,979 | ) | ||||
| Proceeds from the sale of property, plant and equipment | 58 | 2,276 | ||||||
| Decrease in other assets | 19 | 71 | ||||||
| Net cash used for investing activities | (4,268 | ) | (1,632 | ) | ||||
Cash Flows from Financing Activities | ||||||||
| Proceeds from (repayments on) revolving credit loans | 10,532 | (1,646 | ) | |||||
| Proceeds from (repayments on) other borrowings | 24,866 | (1,546 | ) | |||||
| Proceeds from and tax benefits on exercise of stock options | 655 | 2,577 | ||||||
| Net cash provided by (used for) financing activities | 36,053 | (615 | ) | |||||
Net decrease in cash | (87 | ) | (1,109 | ) | ||||
| Cash, beginning of period | 6,892 | 4,842 | ||||||
Cash, end of period | $ | 6,805 | $ | 3,733 | ||||
Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for the following: | ||||||||
| Interest | $ | 3,292 | $ | 2,906 | ||||
| Income taxes | $ | 8,135 | $ | 9,668 | ||||
The accompanying notes are an integral part of the financial statements.
-5-
Gehl Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2007
(Unaudited)
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. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.
In the opinion of management, the information furnished for the three and nine month periods ended September 30, 2007 and September 30, 2006 include 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 and nine month periods ended September 30, 2007 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, 2006 as filed with the Securities and Exchange Commission.
Accounting Pronouncements: In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements, but does not change existing guidance as to whether or not an instrument is carried at fair value. SFAS 157 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact , if any, of implementing SFAS 157 on our consolidated financial statements.
In February 2007, the FASB issued Statement of Financial Accounting Standard No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact, if any, of implementing SFAS 159 on our consolidated financial statements.
In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”), which prescribes a recognition threshold and measurement process for recording, in the financial statements, uncertain tax positions taken or expected to be taken in a tax return. In addition, FIN 48 provides guidance on the recognition, classification, accounting in interim periods and disclosure requirements for uncertain tax positions. The Company adopted FIN 48 effective January 1, 2007. The impact of the adoption on the Condensed Consolidated Financial Statements as of January 1, 2007, was an increase in total assets of $0.4 million, an increase in total liabilities of $0.9 million and a decrease in shareholders’ equity of $0.5 million.
-6-
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Plans and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS No. 158”), which requires employers to fully recognize the obligations associated with single-employer defined benefit pension, retiree healthcare and other postretirement plans in their financial statements. In addition, SFAS No. 158 requires companies to measure plan assets and liabilities as of the end of a fiscal year rather than a date within 90 days of the end of the fiscal year. The Company adopted SFAS No. 158 effective December 31, 2006, except for the change in measurement date provisions which are not effective until 2008. The impact of the adoption at December 31, 2006, was a decrease in total assets of $0.4 million, an increase in total liabilities of $5.3 million and a decrease in shareholders’ equity, net of tax, of $3.7 million.
During March 2006, the Company decided to discontinue the manufacturing and distribution of agricultural implement products. The agricultural implement business included one manufacturing facility and related manufacturing machinery and equipment. The reduction in headcount totaled 140 employees which included both manufacturing and administrative positions related to the agricultural implements business. As a result of this action, the Condensed Consolidated Financial Statements and related notes have been restated to present the results of the agricultural implement business as a discontinued operation.
The discontinuation of the agricultural implement business resulted in an after-tax charge to the Company’s earnings for the nine month period ended September 30, 2006 of $7.8 million, or $0.62 per diluted share. The after-tax charge reflected a reduction from the previous estimate of $9.0 million, or $.73 per diluted share, due to higher than expected proceeds from the sale of machinery and equipment associated with the discontinued operations. The after-tax charge is comprised of non-cash asset impairment charges of $5.9 million related to agricultural implement field and factory inventory and certain property, plant and equipment, and cash charges related to severance and other employee termination costs of $1.9 million. There was no charge to the Company’s earnings for the nine months ended September 30, 2007.
-7-
The following table summarizes the pre-tax charge associated with the discontinued operations (in thousands):
| Employee Severance and Related Benefits | Asset Impairment | Total | |||||||||
| Pre-tax charge | $ | 2,894 | $ | 9,037 | $ | 11,931 | |||||
| Non-cash adjustments | (680 | ) | (9,037 | ) | (9,717 | ) | |||||
| Cash payments | (1,637 | ) | -- | (1,637 | ) | ||||||
| Balance at September 30, 2006 | 577 | -- | 577 | ||||||||
| Pre-tax charge | -- | 65 | 65 | ||||||||
| Non-cash adjustments | -- | (65 | ) | (65 | ) | ||||||
| Cash payments | (190 | ) | -- | (190 | ) | ||||||
| Balance at December 31, 2006 | 387 | -- | 387 | ||||||||
| Pre-tax charge | -- | -- | -- | ||||||||
| Non-cash adjustments | -- | -- | -- | ||||||||
| Cash payments | (246 | ) | -- | (246 | ) | ||||||
| Balance at September 30, 2007 | $ | 141 | $ | -- | $ | 141 | |||||
The Company has reflected the results of its agricultural implements business as discontinued operations in the Condensed Consolidated Statements of Operations. Summary results of operations for the agricultural implements business were as follows (in thousands):
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||
| September 30, 2007 | September 30, 2006 | September 30, 2007 | September 30, 2006 | |||||||||||
| Net sales | $ | (1 | ) | $ | 44 | $ | 150 | $ | 10,463 | |||||
| Pretax income (loss) from discontinued operations | 81 | (475 | ) | (332 | ) | (596 | ) | |||||||
| Pretax income (loss) on disposal of discontinued operations | -- | 1,976 | -- | (11,931 | ) | |||||||||
| Income tax expense (benefit) | 29 | 526 | (116 | ) | (4,384 | ) | ||||||||
| Net income (loss) from discontinued operations | $ | 52 | $ | 975 | $ | (216 | ) | $ | (8,143 | ) | ||||
-8-
The assets of the agricultural implements business are reflected as net assets of discontinued operations in the Condensed Consolidated Balance Sheets and were as follows (in thousands):
| September 30, 2007 | December 31, 2006 | September 30, 2006 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Accounts receivable, net | $ | 48 | $ | 1,331 | $ | 3,091 | |||||
| Inventories | 316 | 587 | 426 | ||||||||
| Property, plant, and equipment, net | 110 | 1,865 | 1,865 | ||||||||
| Assets of discontinued operations, net | $ | 474 | $ | 3,783 | $ | 5,382 | |||||
In the three month period ended September 30, 2007, the Company reclassified property, plant and equipment totaling $1.3 million from assets of discontinued operations to property, plant and equipment – net on the Condensed Consolidated Balance Sheets as the result of a decision to renovate a discontinued manufacturing facility for use as a future research and development facility.
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.
The Company and its subsidiaries file income tax returns in the U.S. Federal jurisdiction, and various state and foreign jurisdictions. Effective January 1, 2007, the Company adopted FIN 48. In accordance with FIN 48, the Company recognized a cumulative-effect adjustment of $0.5 million, increasing its liability for unrecognized tax benefits along with related interest and penalties, and reducing the January 1, 2007 balance of retained earnings.
At January 1, 2007, the Company had $2.5 million in unrecognized tax benefits, the recognition of which would have an effect of $2.5 million on the effective tax rate. At September 30, 2007, the Company had unrecognized tax benefits of $2.8 million, which would have an effect of $2.8 million on the effective tax rate. The Company does not believe it is reasonably probable that its unrecognized tax benefits will significantly change within the next twelve months.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. At January 1, 2007 and September 30, 2007, the Company had accrued $0.2 million and $0.3 million, respectively, for the potential payment of interest and $0.5 million for the potential payment of penalties.
As of January 1, 2007 and September 30, 2007, the Company was subject to U.S. Federal income tax examinations for the tax years 2005 through 2006, and to non-U.S. income tax examinations for the tax years 2004 through 2006. In addition, the Company is subject to state and local income tax examinations for the tax years 2001 through 2006.
-9-
In March 2006, the Company entered into an asset securitization facility (“the Securitization Facility”) with a financial institution (the “Purchaser”) whereby the Company can sell, through a revolving securitization facility, up to $300 million of retail and fleet installment sale contracts (“installment sale contracts” or “finance contracts receivable”). The Securitization Facility has a final maturity date in March 2009, subject to annual renewal by the Purchaser. Under the Securitization Facility, 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 of the SPE. The wholly-owned bankruptcy-remote special purpose subsidiary of the SPE sells a participating interest in each such portfolio of finance contracts receivable to the Purchaser (maximum of 90% of the discounted value of the finance contract receivable portfolio). 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 is subordinate to the Purchaser’s interest. The Company has retained collection and administrative responsibilities for each sold portfolio of finance contracts receivable. The Company incurred one-time transaction costs of $0.7 million in 2006 which were included in other expense in the accompanying Condensed Consolidated Statement of Operations, related to the implementation of the Securitization Facility.
The Securitization Facility replaced the previous $150 million revolving securitization facility the Company terminated in February 2006. The participating interest in finance contracts receivable that had been sold under the previous securitization facility was purchased by the Purchaser in March 2006.
The following summarizes the Company’s sales of retail finance contracts receivable through asset securitization facilities (in thousands):
| For the Nine Months Ended | ||||||||
| September 30, 2007 | September 30, 2006 | |||||||
| Value of contracts sold | $ | 111,102 | $ | 142,688 | ||||
| Cash received on sales of contracts | 86,091 | 122,385 | ||||||
| Retained interest in contracts sold | 59,885 | 33,384 | ||||||
| Cost of sales of finance contracts | $ | 1,753 | $ | 2,332 | ||||
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 September 30, 2007, the fair value of the retained interest was calculated using an interpolated risk-free rate of return of 3.97% based on U.S. Treasury rates, an approximate 17 month weighted-average prepayable portfolio life and an approximate 1.0% loss rate. Changes in any of these assumptions could affect the calculated value of the retained interest. A 10% increase in the discount rate would decrease the fair value of the retained interest by $0.2 million. A 10% increase in the annual loss rate would decrease the fair value of the retained interest by $0.9 million. Retained interest of $38.7 million, $20.3 million and $18.2 million was included in current assets at September 30, 2007, December 31, 2006 and September 30, 2006, respectively, and $21.2 million, $16.8 million and $15.2 million was included in other assets in the accompanying Condensed Consolidated Balance Sheets at September 30, 2007, December 31, 2006 and September 30, 2006, respectively.
-10-
The total credit capacity under the 2006 Securitization Facility is $300 million, with an outstanding note balance of $203.3 million at September 30, 2007. Finance contracts receivable sold and being serviced by the Company totaled $262.4 million at September 30, 2007. Of the $262.4 million in sold contracts receivable, $20.5 million were greater than 60 days past due at September 30, 2007. Credit losses on contracts sold through the Securitization Facility during the three and nine month periods ended September 30, 2007 totaled $23,000. The Company received $1.9 million and $1.1 million in service fee income during the nine months ended September 30, 2007 and 2006, respectively.
In addition to the sale of finance contracts receivable through the Securitization Facility, the Company sold finance contracts through limited recourse arrangements during 2007 and 2006. Based on the terms of these sales, recourse to the Company is limited to 5% of the sold portfolio of finance contracts receivable. Amounts to cover potential losses on these sold finance contracts receivable are included in the allowance for doubtful accounts. The following table summarizes the Company’s sales of finance contracts receivable through these arrangements for the nine months ended September 30, 2007 and 2006 (in thousands):
| 2007 | 2006 | |||||||
|---|---|---|---|---|---|---|---|---|
| Value of contracts sold | $ | 19,444 | $ | 31,893 | ||||
| Cash received on sales of contracts | 19,017 | 31,112 | ||||||
| Cost of sales of finance contracts | $ | 427 | $ | 781 | ||||
At September 30, 2007, the Company serviced $370.8 million finance contracts receivable of which $262.4 million, $72.6 million and $13.9 million were sold through the Securitization Facility, limited recourse arrangements and full recourse arrangements, respectively.
The finance contracts require periodic installments of principal and interest over periods of up to 66 months, with interest rates based on market conditions. The Company has retained the servicing of substantially all of these contracts which generally have maturities of 12 to 60 months.
The sales of finance contracts receivable were 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 Sheets and the proceeds received are included in cash flows from operating activities in the accompanying Condensed Consolidated Statement of Cash Flows.
-11-
If all of the Company’s inventories had been valued on a current cost basis, which approximated FIFO value, estimated inventories by major classification would have been as follows (in thousands):
| September 30, 2007 | December 31, 2006 | September 30, 2006 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Raw materials and supplies | $ | 20,872 | $ | 22,120 | $ | 18,353 | |||||
| Work-in-process | 2,525 | 3,044 | 2,747 | ||||||||
| Finished machines and parts | 60,566 | 53,137 | 56,609 | ||||||||
| Total current cost value | 83,963 | 78,301 | 77,709 | ||||||||
| Adjustment to LIFO basis | (29,652 | ) | (29,652 | ) | (28,130 | ) | |||||
| $ | 54,311 | $ | 48,649 | $ | 49,579 | ||||||
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. The Company records warranty expense as a component of selling, general and administrative expense. 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 nine month periods ended September 30, 2007 and 2006 were as follows (in thousands):
| Nine months ended | September 30, 2007 | September 30, 2006 | ||||||
|---|---|---|---|---|---|---|---|---|
| Beginning balance | $ | 5,778 | $ | 5,892 | ||||
| Accruals for warranties issued during the period | 4,028 | 5,039 | ||||||
| Accruals related to pre-existing warranties | ||||||||
| (including changes in estimates) | (148 | ) | (49 | ) | ||||
| Settlements made (in cash or in kind) during the period | (3,449 | ) | (4,895 | ) | ||||
| Ending balance | $ | 6,209 | $ | 5,987 | ||||
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):
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||
| September 30, 2007 | September 30, 2006 | September 30, 2007 | September 30, 2006 | |||||||||||
| Service cost | $ | 161 | $ | 171 | $ | 483 | $ | 513 | ||||||
| Interest cost | 730 | 724 | 2,190 | 2,172 | ||||||||||
| Expected return on plan assets | (868 | ) | (837 | ) | (2,604 | ) | (2,512 | ) | ||||||
| Amortization of prior service cost | 3 | 16 | 9 | 48 | ||||||||||
| Amortization of net loss | 241 | 297 | 723 | 891 | ||||||||||
| Net periodic benefit cost | $ | 267 | $ | 371 | $ | 801 | $ | 1,112 | ||||||
-12-
The Company recorded a $0.7 million pension curtailment loss related to discontinued operations in 2006 (see Note 3, “Discontinued Operations”). The Company made contributions of $0.2 million during the three and nine month periods ended September 30, 2007. The Company does not anticipate making any additional contributions to the pension plans during 2007.
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):
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||
| September 30, 2007 | September 30, 2006 | September 30, 2007 | September 30, 2006 | |||||||||||
| Service cost | $ | 137 | $ | 102 | $ | 411 | $ | 305 | ||||||
| Interest cost | 113 | 87 | 339 | 260 | ||||||||||
| Amortization of prior service cost | 25 | 23 | 75 | 69 | ||||||||||
| Amortization of net loss | 25 | 19 | 75 | 57 | ||||||||||
| Net periodic benefit cost | $ | 300 | $ | 231 | $ | 900 | $ | 691 | ||||||
The Company provides post employment 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):
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||
| September 30, 2007 | September 30, 2006 | September 30, 2007 | September 30, 2006 | |||||||||||
| Service cost | $ | 32 | $ | 25 | $ | 96 | $ | 76 | ||||||
| Interest cost | 30 | 26 | 90 | 79 | ||||||||||
| Amortization of transition obligation | 6 | 6 | 18 | 17 | ||||||||||
| Amortization of net loss | 13 | 13 | 39 | 39 | ||||||||||
| Net periodic benefit cost | $ | 81 | $ | 70 | $ | 243 | $ | 211 | ||||||
The Company maintains equity incentive plans for certain of its directors, officers and key employees. The Company currently has three primary equity incentive plans: the 2004 Equity Incentive Plan, the 2000 Equity Incentive Plan and the 1995 Stock Option Plan. The 2004 Equity Incentive Plan, which was adopted in April 2004 and amended in April 2006, authorizes the granting of awards with respect to up to 737,500 shares of the Company’s common stock. During April 2000, the 2000 Equity Incentive Plan was adopted, which authorizes the granting of awards with respect to up to 812,771 shares of the Company’s common stock. An award is defined within the 2004 and 2000 Equity Incentive Plan as a stock option, a stock appreciation right, restricted stock or a performance share. In April 1996, the 1995 Stock Option Plan was adopted, which authorizes the granting of options to purchase up to 726,627 shares of the Company’s common stock. These plans provide that options be granted at an exercise price not less than fair market value on the date the options are granted and that the options generally vest ratably over a period not exceeding three years after the grant date. The option period may not be more than ten years after the grant date.
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In the nine month period ended September 30, 2007, the Company awarded 21,000 stock options to purchase common stock to members of its board of directors. The Company did not award any stock options in the three months ended September 30, 2007. In the nine month period ended September 30, 2006, the Company awarded 129,284 stock options to purchase common stock to certain officers, key employees and directors. The Company did not award any stock options in the three month period ended September 30, 2006. Awards of stock options under the plans are subject to certain vesting requirements and are accounted for using the fair value based method. In the nine months ended September 30, 2007, the Company awarded 136,087 stock appreciation rights to certain key employees at the fair market value on the grant date. The Company did not award any stock appreciation rights in the nine months ended September 30, 2006. The stock appreciation rights can only be settled in cash and are subject to certain vesting requirements.
In 2007 and 2006, the Company awarded restricted shares under the 2004 Equity Incentive Plan to certain key employees. Awards of restricted stock under the plan are subject to certain vesting requirements. There were 26,118 and 26,257 restricted shares awarded in the nine months ended September 30, 2007 and 2006, respectively, with an average fair market value of $23.39 and $34.04 per share, respectively. Compensation expense related to restricted stock awards is based upon the market price at the date of award and is charged to earnings over the vesting period.
Basic net income per common share is computed by dividing net income by the weighted- average number of common shares outstanding for the period. Diluted net income per common share is computed by dividing net income by the weighted-average number of common shares and, if applicable, common stock equivalents that would arise from the exercise of stock options. A reconciliation of the shares used in the computation of earnings per share follows (in thousands):
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||
| September 30, 2007 | September 30, 2006 | September 30, 2007 | September 30, 2006 | |||||||||||
| Basic shares | 12,160 | 12,090 | 12,135 | 12,026 | ||||||||||
| Effect of options and unvested | ||||||||||||||
| restricted stock | 323 | 311 | 333 | 384 | ||||||||||
| Diluted shares | 12,483 | 12,401 | 12,468 | 12,410 | ||||||||||
For the three and nine months ended September 30, 2007, 144,596 options to purchase common shares were antidilutive and, accordingly, excluded from the effect of options and unvested restricted stock in the calculation of diluted earnings per share. For the three and nine months ended September 30, 2006, 129,284 options to purchase common shares were anti-dilutive.
The components of comprehensive income are as follows (in thousands):
| Nine Months Ended | ||||||||
| September 30, 2007 | September 30, 2006 | |||||||
| Net income | $ | 20,065 | $ | 15,000 | ||||
| Foreign currency translation | ||||||||
| adjustments | 1,327 | 531 | ||||||
| Amortization of pension losses, net of tax | 609 | -- | ||||||
| Unrealized (losses) gains, net of tax | (163 | ) | 178 | |||||
| Other comprehensive gain | 1,773 | 709 | ||||||
| Comprehensive income | $ | 21,838 | $ | 15,709 | ||||
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SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” establishes the standards for reporting information about operating segments in financial statements. Historically the Company had two operating and reportable segments, construction equipment and agricultural equipment. The products in the historical agricultural equipment segment included material handling equipment (skid loaders, telescopic handlers, compact excavators, compact track loaders and all-wheel-loaders) and agricultural implement products for haymaking, forage harvesting, feedmaking and manure handling. In the first quarter of 2006, the Company re-evaluated its operating and reportable segments in connection with the discontinuation of the manufacturing and distribution of its agricultural implement business and determined that it now has only one operating and reportable segment. Sales of material handling equipment that were previously included in the agricultural equipment segment and sales that were previously included in the construction equipment segment are now combined for both internal and external reporting purposes.
The Company selectively uses interest rate swaps and foreign currency forward contracts to reduce market risk associated with changes in interest rates and the value of the U.S Dollar versus the Euro. The use of derivatives is restricted to those intended for hedging purposes.
In September 2007, the Company entered into a series of forward currency contracts (“forward contracts”) to hedge a portion of the Company’s exposure to changes in the value of the U.S Dollar versus the Euro as a result of the Euro purchase commitments. The forward contracts expire between June 16, 2008 and December 15, 2008 and have a notional amount of €6.0 million ($8.4 million) and contract rates ranging from €1.0:$1.4003 to €1.0:$1.4014. As the contracts are deemed ineffective under the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” the Company recorded a current liability and an increase to cost of goods sold of $0.2 million during the three and nine month periods ended September 30, 2007.
In 2005, the Company entered into an interest rate swap agreement with a third party financial institution to exchange variable rate interest obligations for fixed rate obligations without the exchange of the underlying principal amounts. Effective January 2006, under this agreement, the Company’s variable to fixed rate obligations are an aggregate swapped notional amount of $40 million through January 2008. The aggregate notional amount of the swap decreases to $30 million effective January 2008, $20 million effective January 2009, $10 million effective January 2010 and expires in January 2011. The Company pays a 4.89% fixed interest rate under the swap agreement and receives a 30 day LIBOR variable rate. The referenced 30 day LIBOR rate was 5.12% at September 30, 2007. The variable to fixed interest rate swap is an effective cash-flow hedge. The fair value of the swap totaled ($164,000) at September 30, 2007 and was recorded on the Condensed Consolidated Balance Sheets, with changes in fair value included in other comprehensive income.
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On October 26, 2007, the Company’s Board of Directors authorized a stock repurchase plan providing for the repurchase of up to 1,000,000 shares of the Company’s outstanding common stock in open market or privately negotiated transactions. All treasury stock acquired by the Company will be cancelled and returned to the status of authorized but unissued. The plan does not have an expiration date. The Company’s Board of Directors terminated the previous plan which was authorized in September 2001. The Company had repurchased an aggregate of 227,850 shares of the 500,000 authorized shares.
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Net sales in the three months ended September 30, 2007 (“2007 third quarter”) were $104.9 million compared to $121.0 million in the three months ended September 30, 2006 (“2006 third quarter”), a decrease of $16.1 million, or 13%. Net sales were favorably impacted by continued market share gains and the strength of the international construction markets during the 2007 third quarter. Sales of the Company’s skid loaders during the 2007 third quarter increased 3% from the 2006 third quarter. In addition, price increases during 2006 and 2007 accounted for approximately 2.6 percentage points of net sales increase. These sales increases were offset by a reduction in telehandler, compact track loader and compact excavator shipments in the 2007 third quarter of 27%, 43% and 13%, respectively, primarily resulting from weakness in the domestic construction market.
Of the Company’s total net sales reported for the 2007 third quarter, $33.3 million were made to customers residing outside of the United States compared with $23.4 million in the 2006 third quarter. The increase in export sales was driven by strong international markets resulting in a 41% increase in European sales as well as a 50% increase in rest of world sales.
Gross profit was $24.3 million in the 2007 third quarter compared to $26.4 million in the 2006 third quarter, a decrease of $2.1 million, or 8%. Gross profit as a percentage of net sales (“gross margin”) was 23.2% in the 2007 third quarter compared to 21.8% in the 2006 third quarter. Gross margin in the 2007 third quarter increased by one percentage point due to the favorable impact the Company continues to realize as a result of its added supply chain resources and initiatives. The remaining increase over the 2006 third quarter was the result of favorable product and customer mix, as well as improved product price realization.
Selling, general and administrative expenses were $15.2 million, or 14.5% of net sales, in the 2007 third quarter compared to $14.3 million, or 11.8% of net sales, in the 2006 third quarter. The increase in selling, general and administrative expenses in the 2007 third quarter over the 2006 third quarter primarily reflects planned incremental investments in research and development projects totaling $0.6 million in the 2007 third quarter.
Income from operations in the 2007 third quarter was $9.1 million, or 8.7% of net sales, compared to income from operations of $12.1 million, or 10.0% of net sales, in the 2006 third quarter, a decrease of $2.9 million, or 24%.
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Interest expense was $1.3 million in the 2007 third quarter compared to $0.8 million in the 2006 third quarter, an increase of $0.4 million. The increase in interest expense was due to an increase in the average outstanding debt during the 2007 third quarter compared to the 2006 third quarter (see “Financial Condition” below for a discussion of changes in outstanding debt).
The Company recorded net other expense of $1.2 million and $1.0 million in the 2007 third quarter and 2006 third quarter, respectively. The increase in other expense was primarily due to an increase in the loss on the sale of finance contracts receivable in the 2007 third quarter compared to the 2006 third quarter.
Income from continuing operations in the 2007 third quarter was $5.0 million, or 4.8% of net sales, compared to income from continuing operations of $7.4 million, or 6.1% of net sales, in the 2006 third quarter, a decrease of $2.4 million, or 32%.
The Company recorded income from discontinued operations, net of tax of $52,000 in the 2007 third quarter compared to a loss from discontinued operations, net of tax of $309,000 in the 2006 third quarter.
The Company recorded $1.3 million of income on the disposal of discontinued operations, net of tax in the 2006 third quarter. There was no loss on disposal of discontinued operations for the 2007 third quarter.
The Company recorded net income in the 2007 third quarter of $5.1 million compared to net income of $8.3 million in the 2006 third quarter, a decrease of $3.3 million, or 39%.
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Net sales in the nine months ended September 30, 2007 (“2007 nine months”) were $355.4 million compared to $382.6 million in the nine months ended September 30, 2006 (“2006 nine months”), a decrease of $27.2 million, or 7%. Net sales were favorably impacted by continued market share gains and the strength of the international construction markets during the 2007 third quarter. Sales of the Company’s skid loaders during the 2007 nine months increased 2% from the 2006 nine months. In addition, price increases during 2006 and 2007 accounted for approximately 3.6 percentage points of net sales increase. These sales increases were offset by a reduction in telehandler, compact track loader and compact excavator shipments in the 2007 nine months of 8%, 32% and 14%, respectively, primarily resulting from weakness in the domestic construction market.
Of the Company’s total net sales reported for the 2007 nine months, $101.0 million were made to customers residing outside of the United States compared with $76.3 million in the 2006 nine months. The increase in export sales was driven by strong international markets resulting in a 33% increase in European sales as well as a 37% increase in rest of world sales.
Gross profit was $79.6 million in the 2007 nine months compared to $82.7 million in the 2006 nine months, a decrease of $3.1 million, or 4%. Gross margin was 22.4% in the 2007 nine months compared to 21.6% in the 2006 nine months. Gross margin in the 2007 nine months increased by approximately one percentage point due to the favorable impact the Company continues to realize as a result of its added supply chain resources and initiatives. The remaining increase over the 2006 nine months was the result of favorable product and customer mix, as well as improved product price realization.
Selling, general and administrative expenses were $45.8 million, or 12.9% of net sales, in the 2007 nine months compared to $44.5 million, or 11.6% of net sales, in the 2006 nine months. The increase in selling, general and administrative expenses primarily reflects planned incremental investments in research and development and information technology projects totaling $1.9 million in the 2007 nine months.
Income from operations in the 2007 nine months was $33.8 million, or 9.5% of net sales, compared to income from operations of $38.2 million, or 10.0% of net sales, in the 2006 nine months, a decrease of $4.4 million, or 12%.
Interest expense was $3.3 million in the 2007 nine months compared to $2.8 million in the 2006 nine months, an increase of $0.6 million. The increase in interest expense was due to an increase in the average outstanding debt during the 2007 nine months compared to the 2006 nine months (see “Financial Condition” below for discussion of changes in outstanding debt).
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Interest income was $3.1 million in the 2007 nine months compared to $3.0 million in the 2006 nine months, an increase of $0.1 million. This increase was primarily due to the increase in average accounts receivable in the 2007 nine months compared to the 2006 nine months.
The Company recorded net other expense of $2.6 million and $3.1 million in the 2007 nine months and 2006 nine months, respectively. The change in net other expense was primarily due to a $0.7 million reduction in securitization implementation costs in the 2007 nine months and a decrease in the loss on sale of finance contracts receivable of $0.9 million. These reductions were offset, in part, by approximately $0.2 million in foreign currency losses in the 2007 nine months compared to $0.9 million in foreign currency gains in the 2006 nine months.
Income from continuing operations in the 2007 nine months was $20.3 million, or 5.7% of net sales, compared to income from continuing operations of $23.1 million, or 6.0% of net sales, in the 2006 nine months, a decrease of $2.9 million, or 12%.
The Company recorded a loss from discontinued operations, net of tax of $216,000 in the 2007 nine months compared to a loss from discontinued operations, net of tax of $388,000 in the 2006 nine months.
The Company recorded a $7.8 million loss on the disposal of discontinued operations, net of tax in the 2006 nine months. There was no loss on disposal of discontinued operations for the 2007 nine months.
The Company recorded net income in the 2007 nine months of $20.1 million compared to net income of $15.0 million in the 2006 nine months. The 2006 nine months net income included a $7.8 million loss on disposal of discontinued operations noted above.
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The Company’s working capital was $228.7 million at September 30, 2007 compared to $201.5 million at December 31, 2006 and $225.0 million at September 30, 2006. The change in working capital at September 30, 2007 from December 31, 2006 was primarily due to increases in accounts receivable and retained interest in sold finance contracts, offset in part, by a reduction in income tax receivable and discontinued operations net assets as well as an increase in accounts payable. Accounts receivable increased from December 31, 2006 primarily due to increased shipments during the 2007 nine months to national account customers with longer payment terms, which were primarily driven by continued market share gains in telehandlers. The current portion of retained interest in sold finance contracts increased from December 31, 2006 due to an increase in the total portfolio balance of contracts in the asset securitization facility (“the Securitization Facility”). The reduction in other current assets was the result of federal income tax refunds received in the 2007 nine months. The increase in accounts payable was due to increased production at September 30, 2007 versus December 31, 2006.
The change in working capital at September 30, 2007 from September 30, 2006 was primarily due to an increase in accounts receivable and the current portion of retained interest from the sale of finance contracts. These increases were partially offset by a decrease in assets of discontinued operations and an increase in short term debt obligations. Accounts receivable increased from September 30, 2006 primarily due to increased shipments to national account customers with longer payment terms, the addition of several new dealers in the period and decreased retail demand in the North American construction market. The current portion of retained interest from the sale of finance contracts increased from September 30, 2006 due to an increase in the total portfolio balance of contracts in the Securitization Facility. Assets of discontinued operations decreased from September 30, 2006 due to the continued collection on accounts receivable and disposition of inventory related to the discontinued operations. Short term debt obligations increased from September 30, 2006 as the Company began issuing commercial paper during the fourth quarter of 2006. See “Debt and Equity” below for additional discussion.
Capital expenditures for property, plant and equipment during the 2007 nine months were approximately $4.3 million. The Company plans to make up to $7.0 million of capital expenditures in 2007, primarily to complete the Yankton, South Dakota manufacturing facility expansion, enhance manufacturing and information technology capabilities and maintain and upgrade machinery and equipment.
The Company maintains a $125 million revolving credit facility (the “Facility”) with a syndicate of commercial bank lenders. The credit commitment under the Facility is for a five-year period expiring October 17, 2011. At any time during the term of the Facility, the Company has the option to request an increase in the credit commitment under the Facility to $175 million from the current syndicate of commercial bank lenders or any other commercial bank lender(s) selected by the Company. Under the terms of the Facility, the Company has pledged the capital stock of certain wholly-owned subsidiaries which are all co-borrowers. The Company may borrow up to $25 million under the Facility in a currency other than the U.S. Dollar. The Company may elect to pay interest on U.S. Dollar borrowings under the Facility at a rate of either (1) the London Interbank Offered Rate (“LIBOR”) plus 0.625% to 1.3750% or (2) a base rate defined as the prime commercial rate less 0.125% to 1.125%. The Company’s actual borrowing costs for LIBOR or base rate borrowings is determined by reference to a pricing grid based on the Company’s ratio of funded debt to total capitalization. Interest on amounts borrowed under the Facility in currencies other than the U.S. Dollar will be priced at a rate equal to LIBOR plus 0.625% to 1.375%. As of September 30, 2007, the weighted average interest rate on Company borrowings outstanding under the Facility was 5.79%.
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The Facility requires the Company to maintain compliance with certain financial covenants related to total capitalization, interest expense coverage, tangible net worth, capital expenditures and operating lease spending. The Company was in compliance with all covenants as of September 30, 2007.
Borrowings under the Facility were $35.3 million, $24.7 million and $49.8 million at September 30, 2007, December 31, 2006 and September 30, 2006, respectively. Available unused borrowings under the Facility were $39.7 million, $75.1 million and $75.2 million at September 30, 2007, December 31, 2006 and September 30, 2006, respectively. Available borrowings at September 30, 2007 and December 31, 2006 were reduced by $50.0 million and $25.0 million, respectively, of outstanding commercial paper.
During the fourth quarter of 2006, the Company began to issue commercial paper through a placement agent to fund a portion of its short term working capital needs. The Company had the ability to sell up to $25.0 million in commercial paper under this arrangement. In April 2007, this arrangement was expanded to give the Company the ability to sell up to $50.0 million in commercial paper. The Company’s commercial paper program is backed by the credit commitment under the Company’s revolving credit facility. At September 30, 2007, the Company had $50.0 million of short term commercial paper outstanding at a rate of 5.67% compared to $25.0 million outstanding at December 31, 2006 at a rate of 5.45%.
In addition, the Company has access to a €2.5 million committed foreign short-term credit facility. There were no borrowings outstanding under this facility at September 30, 2007.
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 2007 will continue to be funded by operations and the Company’s borrowing arrangements.
At September 30, 2007, shareholders’ equity had increased $27.1 million to $253.9 million from $226.8 million at September 30, 2006. This increase primarily reflects net income of $24.6 million.
On October 26, 2007, the Company’s Board of Directors authorized a stock repurchase plan providing for the repurchase of up to 1,000,000 shares of the Company’s outstanding common stock in open market or privately negotiated transactions. All treasury stock acquired by the Company will be cancelled and returned to the status of authorized but unissued. The plan does not have an expiration date. The Company’s Board of Directors terminated the previous plan which was authorized in September 2001. The Company had repurchased an aggregate of 227,850 shares of the 500,000 authorized shares.
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Other than the changes in the outstanding borrowings, capital commitments and Financial Accounting Standards Board Interpretation No. 48 liabilities, 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 Financial Condition and Results of Operations and Notes 8 and 15, respectively, of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 as filed with the Securities and Exchange Commission.
The sale of finance contracts is an important component of the Company’s overall liquidity. In March 2006, the Company entered into an asset securitization facility (the “Securitization Facility”) with a financial institution (the “Purchaser”) whereby the Company can sell, through a revolving securitization facility, up to $300 million of retail and fleet installment sale contracts (“installment sale contracts” or “finance contracts receivable”). The Securitization Facility has a final maturity date in March 2009, subject to annual renewal by the Purchaser. Under the Securitization Facility, 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 of the SPE. The wholly-owned bankruptcy-remote special purpose subsidiary of the SPE sells a participating interest in each such portfolio of finance contracts receivable to the Purchaser (maximum of 90% of the discounted value of the finance contract receivable portfolio). 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 is subordinate to the Purchaser’s interest. The Securitization Facility replaced the previous $150 million revolving securitization facility the Company terminated in February 2006. The participating interest in finance contracts receivable that had been sold under the previous securitization facility was purchased by Purchaser in March 2006. At September 30, 2007, the Company had available unused capacity of $96.7 million under the Securitization Facility.
In addition to the Securitization Facility, the Company has arrangements with multiple financial institutions to sell its finance contracts receivable with 5% limited recourse on the sold portfolio of retail finance contracts. The Company continues to service substantially all contracts, whether or not sold. At September 30, 2007, the Company serviced $370.8 million finance contracts receivable of which $262.4 million, $72.6 million and $13.9 million were sold through the Securitization Facility, limited recourse arrangements and full recourse arrangements, respectively. It is the intention of the Company to continue to sell substantially all of its existing as well as future finance contracts through an asset securitization program or limited recourse arrangements. The Company believes that it will be able to arrange sufficient capacity to sell its finance contracts for the foreseeable future.
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, 2006 as filed with the Securities and Exchange Commission.
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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 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, those risk factors cited in the Company’s filings with the Securities and Exchange Commission, any adverse change in general economic conditions, unanticipated changes in capital market conditions, the Company’s ability to implement successfully its strategic initiatives (including cost reduction initiatives), unanticipated expenses associated with the discontinuance of the Company’s agricultural implement lines, 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.
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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, 2006 as filed with the Securities and Exchange Commission.
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 September 30, 2007. 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 September 30, 2007.
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 September 30, 2007, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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There has not been any material change in the risk factors previously disclosed in the Company’s 2006 Form 10-K for the fiscal year ended December 31, 2006.
On October 26, 2007, the Company’s Board of Directors authorized a stock repurchase plan providing for the repurchase of up to 1,000,000 shares of the Company’s outstanding common stock in open market or privately negotiated transactions. All treasury stock acquired by the Company will be cancelled and returned to the status of authorized but unissued. The plan does not have an expiration date. The Company’s Board of Directors terminated the previous plan which was authorized in September 2001. The Company had repurchased an aggregate of 227,850 shares of the 500,000 authorized shares.
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| Exhibit No. | Document Description |
10.1 | Amendment No. 4 to Receivables Purchase Agreement dated as of July 13, 2007, among |
| Gehl Company, Gehl Funding II, LLC, Park Avenue Receivables Company, LLC and | |
| JPMorgan Chase Bank, N.A. | |
31.1 | Certification of the Chief Executive Officer pursuant to section 302 of the |
| Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of the Chief Financial Officer pursuant to section 302 of the |
| Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of Periodic Financial Report by the Chief Executive Officer and |
| Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| GEHL COMPANY | |
Date: November 6, 2007 | By: /s/ William D. Gehl |
| William D. Gehl | |
| Chairman of the Board | |
| and Chief Executive Officer | |
| (Principal Executive Officer) | |
Date: November 6, 2007 | By: /s/ Thomas M. Rettler |
| Thomas M. Rettler | |
| Vice President and | |
| Chief Financial Officer | |
| (Principal Financial and | |
| Accounting Officer) |
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| Exhibit No. | Document Description |
10.1 | Amendment No. 4 to Receivables Purchase Agreement dated as of July 13, |
| 2007, among Gehl Company, Gehl Funding II, LLC, Park Avenue Receivables | |
| Company, LLC and JPMorgan Chase Bank, N.A. | |
31.1 | Certification of the Chief Executive Officer pursuant to section 302 of |
| the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of the Chief Financial Officer pursuant to section 302 of |
| the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of Periodic Financial Report by the Chief Executive Officer |
| and Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley | |
| Act of 2002. |
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