FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from .......... to ...........
Commission file number 0-18110
GEHL COMPANY
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(Exact name of registrant as specified in its charter)
Wisconsin 39-0300430
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
143 Water Street, West Bend, WI 53095
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(Address of principal executive office) (Zip Code)
(262) 334-9461
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes__X__ No_____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 30, 2002
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Common Stock, $.10 Par Value 5,378,288
GEHL COMPANY
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FORM 10-Q
March 30, 2002
REPORT INDEX
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Page No.
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PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income for the
Three-Month Periods Ended March 30, 2002 and
March 31, 2001. 3
Condensed Consolidated Balance Sheets at March 30, 2002,
December 31, 2001, and March 31, 2001............................. 4
Condensed Consolidated Statements of Cash Flows for
the Three-Month Periods Ended March 30, 2002 and
March 31, 2001.................................................... 5
Notes to Condensed Consolidated Financial Statements................ 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition................................10
Item 3. Quantitative and Qualitative Disclosures about Market Risk.........17
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings..................................................18
Item 4. Submission of Matters to a Vote of Security Holders................18
Item 6. Exhibits and Reports on Form 8-K...................................19
SIGNATURES...................................................................20
-2-
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
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GEHL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data; unaudited)
Three Months Ended
------------------
March 30, 2002 March 31, 2001
-------------- --------------
Net sales $ 60,068 $ 61,239
Cost of goods sold 46,709 47,489
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Gross profit 13,359 13,750
Selling, general and administrative expenses 11,921 10,275
Restructuring and other charges 92 -
---------- ----------
Total operating expenses 12,013 10,275
Income from operations 1,346 3,475
Interest expense (963) (1,196)
Interest income 482 529
Other expense, net (513) (1,231)
----------- -----------
Income before income taxes 352 1,577
Income tax provision 123 552
---------- ----------
Net income $ 229 $ 1,025
========== ==========
Earnings per share
Diluted $ .04 $ .19
========== ==========
Basic $ .04 $ .19
========== ==========
The accompanying notes are an integral part of the financial statements.
-3-
GEHL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
March 30, 2002 December 31, 2001 March 31, 2001
-------------- ----------------- --------------
(Unaudited) (Audited) (Unaudited)
ASSETS
Cash $ 1,200 $ 2,248 $ 3,839
Accounts receivable - net 106,515 90,714 84,109
Finance contracts receivable - net 5,820 7,511 9,969
Inventories 54,088 52,161 44,606
Deferred tax assets 10,171 10,171 8,078
Prepaid expenses and other current assets 1,646 1,119 1,329
---------- ---------- ----------
Total current assets 179,440 163,924 151,930
---------- ---------- ----------
Property, plant and equipment - net 44,686 43,431 46,025
Finance contracts receivable - net, non-current 5,528 5,147 6,484
Goodwill - net 12,556 12,248 12,588
Other assets 12,296 12,659 10,632
---------- ---------- ----------
Total assets $ 254,506 $ 237,409 $ 227,659
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current portion of long-term debt obligations $ 131 $ 161 $ 168
Accounts payable 30,320 30,644 31,424
Accrued liabilities 29,350 25,661 24,222
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Total current liabilities 59,801 56,466 55,814
---------- ---------- ----------
Line of credit facility 64,082 55,188 49,699
Long-term debt obligations 13,340 9,049 9,184
Deferred income taxes 2,460 2,460 5,096
Other long-term liabilities 14,478 14,225 3,773
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Total long-term liabilities 94,360 80,922 67,752
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Common stock, $.10 par value, 25,000,000 shares
authorized, 5,378,288, 5,359,721 and 5,335,668
shares outstanding, respectively 537 536 534
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 7,143 6,980 6,544
Retained earnings 98,658 98,429 97,149
Accumulated other comprehensive loss (5,993) (5,924) (134)
----------- ----------- -----------
Total shareholders' equity 100,345 100,021 104,093
---------- ---------- ----------
Total liabilities and shareholders' equity $ 254,506 $ 237,409 $ 227,659
========== ========== ==========
The accompanying notes are an integral part of the financial statements.
-4-
GEHL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)
Three Months Ended
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March 30, 2002 March 31, 2001
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Cash flows from operating activities
Net Income $ 229 $ 1,025
Adjustments to reconcile net income to net cash
(used for) provided by operating activities:
Depreciation 1,063 1,237
Amortization 61 175
Cost of sales of finance contracts 523 1,233
Proceeds from sales of finance contracts 18,357 28,407
Increase in finance contracts receivable (17,570) (19,577)
Net changes in remaining working capital items (10,633) (8,458)
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Net cash (used for) provided by operating activities (7,970) 4,042
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Cash flows from investing activities
Property, plant and equipment additions, net (2,259) (1,090)
Other assets 69 187
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Net cash used for investing activities (2,190) (903)
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Cash flows from financing activities
Proceeds from (repayments of) line of credit facility, net 8,864 (1,909)
Proceeds from issuance of common stock 164 50
Other 50 (31)
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Net cash provided by (used for) financing activities 9,078 (1,890)
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Effect of exchange rate on cash 34 -
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Net (decrease) increase in cash (1,048) 1,249
Cash, beginning of period 2,248 2,590
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Cash, end of period $ 1,200 $ 3,839
========= =========
The accompanying notes are an integral part of the financial statements.
-5-
GEHL COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 30, 2002
(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 March 30, 2002 and March 31, 2001 includes all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the results of operations and financial position of the Company. Due in part
to the seasonal nature of the Company's business, the results of operations for
the three months ended March 30, 2002 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, 2001 as
filed with the Securities and Exchange Commission.
Note 2 - 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 3 - 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):
March 30, 2002 December 31, 2001 March 31, 2001
-------------- ----------------- --------------
Raw materials and supplies $ 17,205 $ 20,309 $ 18,093
Work-in-process 6,059 6,414 5,888
Finished machines and parts 51,015 45,629 40,236
--------- ----------- ---------
Total current cost value 74,279 72,352 64,217
Adjustment to LIFO basis (20,191) (20,191) (19,611)
---------- ------------ ----------
$ 54,088 $ 52,161 $ 44,606
========= =========== =========
-6-
Note 4 - Goodwill and Intangible Assets
Effective January 1, 2002, the Company adopted the provisions of Statement
of Financial Accounting Standard ("SFAS") No. 142, "Goodwill and Other
Intangible Assets." Under SFAS No. 142, goodwill and intangible assets deemed to
have indefinite lives will no longer be amortized, but will be tested for
impairment at least annually. Other intangible assets will continue to be
amortized over their useful lives. As a result of adopting SFAS No. 142, the
Company ceased amortization of all goodwill.
The Company reported net income of $1.0 million for the three months ended
March 31, 2001, which reflected the impact of $0.1 million of goodwill
amortization, and basic and diluted earnings per share of $.19. Had the Company
adopted SFAS No. 142 on January 1, 2001, net income for the three months ended
March 31, 2001 would have been $1.1 million and basic and diluted earnings per
share would have been $.21.
SFAS No. 142 requires the first step of the goodwill impairment test to be
completed within six months of adoption and the second step to be completed
within 12 months of adoption. The first step is performed to determine if a
potential impairment may exist. The second step is used to quantify the
impairment, if any. The Company has allocated all goodwill to its construction
equipment segment and is in the process of performing the first step and
therefore is still assessing the potential impact of SFAS No. 142 on goodwill.
The Company will complete the first step by June 30, 2002 and the second step,
if necessary, by December 31, 2002 as required by SFAS No. 142. Any required
adjustment from adoption of SFAS No. 142 will be recorded as a cumulative effect
adjustment as of January 1, 2002.
Note 5 - Accounting Pronouncements
Effective January 1, 2002, the Company adopted the provisions of Emerging
Issues Task Force ("EITF") 00-25 "Vendor Income Statement Characterization of
Consideration Paid to a Retailer of the Vendor's Products." As a result of
adopting EITF 00-25, the Company now classifies the costs associated with sales
incentives provided to dealers as a reduction of net sales. Prior to January 1,
2002, these costs were included in selling, general and administrative expenses.
Net sales and selling, general and administrative expenses for the three months
ended March 31, 2001 have been restated to conform to the current year
presentation. This reclassification had no impact on reported income before
income taxes or net income. On a restated basis, agriculture net sales for the
second, third and fourth quarters of 2001 would be $33.7 million, $30.4 million,
and $24.3 million, respectively, and restated construction net sales for the
second, third and fourth quarters of 2001 would be $39.9 million, $27.8 million,
and $23.1 million, respectively.
Effective January 1, 2002, the Company adopted the provisions of SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets." The
adoption of SFAS No. 144 had no impact on the Company's financial position at
March 30, 2002 or the results of operations and cash flows for the three months
then ended.
In August 2001, the Financial Accounting Standards Board issued SFAS No.
143, "Accounting for Asset Retirement Obligations." This statement addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs.
-7-
It applies to legal obligations associated with the retirement of long-lived
assets that result from the acquisition, construction, development and/or the
normal operation of a long-lived asset. The statement will be effective for
years beginning after June 30, 2002. Management has not yet completed its
evaluation of the impact, if any, of the adoption of this statement.
Note 6 - Restructuring and Other Charges
On September 26, 2001, the Company adopted several major plant
rationalization initiatives to improve the Company's profitability by
consolidating certain operations. Under these initiatives, the Company announced
it would close its manufacturing facility in Lebanon, Pennsylvania and transfer
production to other locations. The Company also indicated it would transfer the
manufacturing of its Mustang line of skid steer loaders from its existing
facility in Owatonna, Minnesota to its skid steer facility in Madison, South
Dakota. In implementing these actions, the Company anticipates that it will
ultimately incur total restructuring and other non-recurring charges of
approximately $5.5 to $6.5 million; a $4.3 million charge related to the plant
rationalization initiatives was recorded in the third quarter of 2001 in
accordance with accounting principles generally accepted in the United States of
America. Of the $4.3 million charge recorded in the third quarter of 2001, $1.5
million and $2.8 million related to the Agriculture and Construction equipment
segments, respectively.
Details of the restructuring charge and related activity are as follows:
Balance at
December 31, 2001
Original and
Reserve Utilized March 30, 2002
--------------- --------------- ------------------------
Employee severance and termination benefits $ 1,635,000 $ - $ 1,635,000
Write-down of long-lived and other assets 1,754,000 1,754,000 -
Other exit costs 911,000 - 911,000
--------------- --------------- ------------------------
$ 4,300,000 $ 1,754,000 $ 2,546,000
=============== =============== ========================
As a result of the plant rationalizations, the Company expects to reduce
its current workforce by 249, consisting of hourly and salaried employees at the
Lebanon and Owatonna locations. Once the plant rationalizations are completed
and employees are added at other locations where work is being shifted, the
Company expects an overall net workforce reduction of approximately 10%, or 100
employees. As of March 30, 2002, 53 employees had been terminated with severance
payments and termination benefits commencing in April 2002.
Both the Lebanon and Owatonna manufacturing facilities are expected to be
sold and, accordingly, the tangible assets to be disposed of have been written
down to their estimated fair value, less cost of disposal. The manufacturing
consolidations have commenced and are expected to be substantially completed in
2002.
Other exit costs primarily consist of non-recurring charges that will not
benefit activities that will be continued, will not be incurred to generate
future revenue, and are incremental to other costs incurred by the Company prior
to the adoption of the above initiatives.
During the 2002 first quarter, the Company expensed $0.1 million of other
charges related to the plant rationalization initiatives. These charges were
required to be expensed when incurred.
-8-
Note 7 - Earnings Per Share and Comprehensive Income
Basic net income per common share is computed by dividing net income by the
weighted- average number of common shares outstanding for the period. Diluted
net income per common share is computed by dividing net income by the
weighted-average number of common shares and, if applicable, common stock
equivalents that would arise from the exercise of stock options.
A reconciliation of the shares used in the computation of earnings per
share follows (in thousands):
March 30, 2002 March 31, 2001
---------------------- ----------------------
Basic shares 5,374 5,333
Effect of options 145 154
---------- ----------
Diluted shares 5,519 5,487
========== ==========
Accumulated other comprehensive loss is comprised of minimum pension
liability and foreign currency translation adjustments. Comprehensive income was
$160,000 for the three months ended March 30, 2002, which reflects the Company's
net income reduced by $69,000 in foreign currency translation adjustments.
Comprehensive income equaled net income for the three months ended March 31,
2001.
Note 8 - Business Segments
The Company operates in two business segments: Construction equipment and
Agriculture equipment. The long-term financial performance of the Company's
reportable segments is affected by separate economic conditions and cycles. The
segments are managed separately based on the fundamental differences in their
operations. Following is selected segment information (in thousands):
March 30, 2002 March 31, 2001
-------------- --------------
Net Sales:
Construction $ 30,350 $ 31,599
Agriculture 29,718 29,640
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Consolidated $ 60,068 $ 61,239
=========== ===========
Income from Operations:
Construction $ 511 $ 878
Agriculture 835 2,597
----------- -----------
Consolidated $ 1,346 $ 3,475
=========== ===========
Note 9 - Stock Repurchases
In September 2001, the Company's Board of Directors authorized a stock
repurchase plan providing for the repurchase of up to 500,000 shares of the
Company's outstanding common stock. No shares were repurchased in the quarter
ended March 30, 2002.
-9-
Item 2. Management's Discussion and Analysis of Results of Operations and
- --------------------------------------------------------------------------
Financial Condition
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Recent Development
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Effective January 1, 2002, the Company has accounted for its investment in
a German distribution operation (Gehl GmbH) as a consolidated subsidiary, as a
result of its controlling influence on the operations of Gehl GmbH as of such
date. Prior to January 1, 2002, the Company recorded its investment in Gehl GmbH
under the equity method. The impact of the Gehl GmbH consolidation is discussed
below.
Results of Operations
- ---------------------
Three Months Ended March 30, 2002 Compared to Three Months Ended March 31, 2001
Net Sales
Net sales for the three months ended March 30, 2002 ("2002 first quarter")
were $60.1 million compared to $61.2 million in the three months ended March 31,
2001 ("2001 first quarter"), a decrease of $1.1 million or 2%. Excluding $2.1
million of net sales resulting from the newly consolidated Gehl GmbH, net sales
decreased 5% from the 2001 first quarter.
Construction equipment net sales were $30.4 million in the 2002 first
quarter, versus $31.6 million in the 2001 first quarter, a decrease of 4%.
Excluding $2.1 million of net sales resulting from the newly consolidated Gehl
GmbH, construction equipment net sales decreased 10% from the 2001 first
quarter. The decline in net sales is primarily due to a continued downward trend
in telescopic handler shipments due to the continued low rental rates for these
products, the loss of dealer representation due to further consolidation in the
rental market, and a general deferral of purchasing by national rental companies
and dealers with rental fleets. The decline in telescopic handler shipments was
partially offset by increased skid loader shipments over the 2001 first quarter,
in part due to new Gehl and Mustang products introduced in 2001.
Agriculture equipment net sales were $29.7 million in the 2002 first
quarter versus $29.6 million in the 2001 first quarter. Increased shipments of
skid loaders, telescopic handlers and compact excavators to select rural
equipment dealers along with favorable milk prices in the 2002 first quarter as
compared to the 2001 first quarter drove the net sales increase. The impact of
these factors was offset, in part, by reduced shipments of agricultural
implements in the 2002 first quarter.
Of the Company's total net sales reported for the 2002 first quarter, $11.2
million were made outside of the United States compared with $7.4 million in the
comparable period of 2001. The increase in export sales is primarily due to the
consolidation of Gehl GmbH and the addition of new dealers outside of the United
States.
Gross Profit
Gross profit was $13.4 million in the 2002 first quarter compared to $13.8
million in the 2001 first quarter, a decrease of $0.4 million, or 3%. Gross
profit as a percent of net sales was 22.2% for the 2002 first quarter and 22.5%
for the 2001 first quarter.
-10-
Gross profit as a percent of net sales for construction equipment was 22.3%
in the 2002 first quarter compared to 19.9% for the 2001 first quarter. The
increase in construction equipment gross margin was the result of the mix of
products shipped along with related levels of discounts and sales incentives
associated with such shipments. In addition, improved manufacturing efficiencies
contributed to the increase in gross profit as a percent of net sales.
Gross profit as a percent of net sales for agriculture equipment was 22.1%
in the 2002 first quarter compared to 25.2% for the 2001 first quarter. The
decrease in agriculture equipment gross margin was due to significantly
increased competitive pressure resulting in higher sales discounts and sales
incentives as well as an unfavorable mix of product shipments.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $11.9 million, or 20% of
net sales in the 2002 first quarter, compared to $10.3 million, or 17% of net
sales, in the 2001 first quarter. The increase is primarily due to the
consolidation of Gehl GmbH in the 2002 first quarter, the full operating impact
of the enterprise resource planning system which was put in place during 2001,
and expenses associated with the Company's attachment business which was
launched in July 2001. Assuming the Company adopted SFAS No. 142 on January 1,
2001, selling, general and administrative expenses for the 2001 first quarter
would have been $10.2 million.
Restructuring and Other Charges
On September 26, 2001, the Company adopted several major plant
rationalization initiatives to improve the Company's profitability by
consolidating certain operations. Under these initiatives, the Company announced
it would close its manufacturing facility in Lebanon, Pennsylvania and transfer
production to other locations. The Company also indicated it would transfer the
manufacturing of its Mustang line of skid steer loaders from its existing
facility in Owatonna, Minnesota to its skid steer facility in Madison, South
Dakota. In implementing these actions, the Company anticipates that it will
ultimately incur total restructuring and other non-recurring charges of
approximately $5.5 to $6.5 million; a $4.3 million charge was recorded in the
third quarter of 2001 in accordance with accounting principles generally
accepted in the United States of America. Of the $4.3 million charge related to
the plant rationalization initiatives recorded in the third quarter of 2001,
$1.5 million and $2.8 million related to the Agriculture and Construction
equipment segments, respectively.
Details of the restructuring charge and related activity are as follows:
Balance at
December 31, 2001
Original and
Reserve Utilized March 30, 2002
--------------- --------------- ------------------------
Employee severance and termination benefits $ 1,635,000 $ - $ 1,635,000
Write-down of long-lived and other assets 1,754,000 1,754,000 -
Other exit costs 911,000 - 911,000
--------------- --------------- ------------------------
$ 4,300,000 $ 1,754,000 $ 2,546,000
=============== =============== ========================
As a result of the plant rationalizations, the Company expects to reduce
its current workforce by 249, consisting of hourly and salaried employees at the
Lebanon and Owatonna locations. Once the plant rationalizations are completed
and employees are added at other locations where work is being shifted, the
Company expects an overall net workforce reduction of approximately
-11-
10%, or 100 employees. As of March 30, 2002, 53 employees had been terminated
with severance payments and termination benefits commencing in April 2002.
Both the Lebanon and Owatonna manufacturing facilities are expected to be
sold and, accordingly, the tangible assets to be disposed of have been written
down to their estimated fair value, less cost of disposal. The manufacturing
consolidations have commenced and are expected to be substantially completed in
2002.
Other exit costs primarily consist of non-recurring charges that will not
benefit activities that will be continued, will not be incurred to generate
future revenue, and are incremental to other costs incurred by the Company prior
to the adoption of the above initiatives.
During the 2002 first quarter, the Company expensed $0.1 million of other
charges related to the plant rationalization initiatives. These charges were
required to be expensed when incurred.
Income from Operations
Income from operations in the 2002 first quarter was $1.3 million compared
to $3.5 million in the 2001 first quarter, a decrease of $2.2 million. Excluding
the restructuring and other charges incurred in the 2002 first quarter, income
from operations was $1.4 million. Assuming the Company adopted SFAS No. 142 on
January 1, 2001 income from operations for the 2001 first quarter would have
been $3.6 million.
Interest Expense
Interest expense in the 2002 first quarter was $1.0 million compared to
$1.2 million in the 2001 first quarter, a decrease of $0.2 million. The decrease
was due to the decline in the Company's borrowing rate in the 2002 first quarter
when compared to the 2001 first quarter. The favorable impact of a reduced
borrowing rate was offset, in part, by an increase in the Company's average
outstanding debt balance due to increases in working capital and the
consolidation of Gehl GmbH in the 2002 first quarter.
Other Expense, Net
Other expense, net was $0.5 million in the 2002 first quarter compared to
$1.2 million in the 2001 first quarter, a decrease of $0.7 million. The decrease
was primarily due to lower costs of sales of finance contracts as the Company
sold $11 million less finance contracts in the 2002 first quarter than in the
2001 first quarter.
Net Income
Net income was $0.2 million in the 2002 first quarter compared to $1.0
million in the 2001 first quarter, a decrease of $0.8 million. Excluding the
other charges, net of tax, incurred in the 2002 first quarter, net income was
$0.3 million. Assuming the Company adopted SFAS No. 142 on January 1, 2001, net
income for the 2001 first quarter would have been $1.1 million.
-12-
Financial Condition
- -------------------
The Company's working capital was $119.6 million at March 30, 2002, as
compared to $107.5 million at December 31, 2001, and $96.1 million at March 31,
2001. The increase since December 31, 2001 and March 31, 2001 was due primarily
to: 1) increases in accounts receivable related to seasonality, new products
introduced during 2001 such as round balers and skid loader models and the
shipment of telescopic handlers, compact excavators and mini-loaders into the
agriculture distribution channel; 2)the consolidation of Gehl GmbH in the 2002
first quarter; and 3)inventory build-up resulting from slowing sales trends as
well as inventory build-up necessary to ensure product availability during the
period that manufacturing is realigned pursuant to the Company's plant
rationalization initiatives. The increase since March 31, 2001 was offset, in
part, by a reduction in finance contracts receivable.
Capital expenditures for property, plant and equipment during the 2002
first quarter were approximately $2.3 million. During 2002, the Company plans to
make an aggregate of up to $6.2 million in capital expenditures, including $3.7
million to complete an expansion of the Madison, South Dakota plant necessary to
accommodate the transfer of Mustang skid loader production from Owatonna,
Minnesota to the Madison facility. The Company believes that its present
facilities, with the completion of the Madison, South Dakota expansion project,
will be sufficient to provide adequate capacity for its operations in 2002.
Effective March 19, 2002, the Company amended its line of credit facility
("Facility"). The amendment extended the expiration date of the Facility to
December 31, 2004, increased the line of credit (subject to a borrowing base
related to the Company's accounts receivable, finance contracts receivable and
inventories) to $90 million through June 30, 2002 and increased the interest
rate on borrowings denominated in U.S. dollars from 2.0% above the London
Interbank Offered Rate for one-month deposits ("LIBOR") to 2.5% to 2.65% above
LIBOR. After June 30, 2002 and through December 31, 2004, the line of credit
will be $75 million as it was prior to the amendment. All other terms and
provisions are similar to the Facility prior to the amendment. The Company
believes the Facility, as amended, will provide sufficient borrowing capacity
for the Company to finance its operations for the foreseeable future.
As of March 30, 2002, the weighted-average interest rate paid by the
Company on outstanding borrowings under the Facility was 4.6%. The Company had
available unused borrowing capacity of $24.9 million, $18.2 million and $22.4
million under the Facility at March 30, 2002, December 31, 2001, and March 31,
2001, respectively. At March 30, 2002, December 31, 2001, and March 31, 2001,
the borrowings outstanding under the Facility were $64.1 million, $55.2 million
and $49.7 million, respectively. The increase in borrowings from December 31,
2001 and March 31, 2001 was primarily due to the support of working capital
needs.
The sale of finance contracts is an important component of the Company's
overall liquidity. The Company has arrangements with several financial
institutions and financial service companies to sell, with recourse, its finance
contracts receivable. The Company continues to service substantially all
contracts whether or not sold. At March 30, 2002, the Company serviced $154.0
million of such contracts, of which $141.2 million were owned by other parties.
The Company believes that it will be able to arrange sufficient capacity to sell
its finance contracts for the foreseeable future.
-13-
At March 30, 2002, shareholders' equity had decreased $3.8 million to
$100.3 million from $104.1 million at March 31, 2001. This decrease primarily
reflected the impact of the minimum pension liability adjustment recorded in
2001 offset by the income earned from March 31, 2001 to March 30, 2002.
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 in the quarter
ended March 30, 2002.
There have been no material changes to the annual maturities of debt
obligations other than with respect to the Facility as described above, nor to
the future minimum non-cancelable operating lease payments as disclosed in Notes
5 and 12, respectively, of Notes to Consolidated Financial Statements in the
Company's Annual Report on Form 10-K for the year ended December 31, 2001 as
filed with the Securities and Exchange Commission.
Accounting Pronouncements
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Effective January 1, 2002, the Company adopted the provisions of Emerging
Issues Task Force ("EITF") 00-25 "Vendor Income Statement Characterization of
Consideration Paid to a Retailer of the Vendor's Products." As a result of
adopting EITF 00-25, the Company now classifies the costs associated with sales
incentives provided to dealers as a reduction of net sales. Prior to January 1,
2002, these costs were included in selling, general and administrative expenses.
Net sales and selling, general and administrative expenses for the three months
ended March 31, 2001 have been restated to conform to the current year
presentation. This reclassification had no impact on reported income before
income taxes or net income. On a restated basis, agriculture net sales for the
second, third and fourth quarters of 2001 would be $33.7 million, $30.4 million,
and $24.3 million, respectively and restated construction net sales for the
second, third and fourth quarters of 2001 would be $39.9 million, $27.8 million,
and $23.1 million, respectively.
Effective January 1, 2002, the Company adopted the provisions of SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets." The
adoption of SFAS No. 144 had no impact on the Company's financial position at
March 30, 2002 or the results of operations and cash flows for the three months
then ended.
In August 2001, the Financial Accounting Standards Board issued SFAS No.
143, "Accounting for Asset Retirement Obligations." This statement addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. It applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
and/or the normal operation of a long-lived asset. The statement will be
effective for years beginning after June 30, 2002. Management has not yet
completed its evaluation of the impact of the adoption of this statement.
Critical Accounting Policies and Estimates
- ------------------------------------------
Management's discussion and analysis of results of operations and financial
condition is based on the Company's condensed consolidated financial statements.
The preparation of these financial statements requires the Company to make
estimates and judgements that affect the reported amounts of assets,
liabilities, net sales and expenses. The Company bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable
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under the circumstances, the results of which form the basis for making
judgements about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions and materially impact the
carrying value of the assets and liabilities. The Company believes the following
accounting policies are critical to the Company's business operations and the
understanding of the Company's results of operations and financial condition.
Allowance for Doubtful Accounts - The Company's accounts receivable are
reduced by an allowance for amounts that may be uncollectible in the future. The
Company estimates the uncollectibility of accounts receivable by specifically
analyzing accounts receivable where the Company has information indicating that
the customer may be unable to meet its financial obligation to the Company as
well as analyzing the age of unpaid amounts and historical write-off
percentages.
Inventories - Inventories are valued at the lower of cost or market. Cost
is determined using the last-in, first-out (LIFO) method for substantially all
of the Company's inventories. Adjustments to slow moving and obsolete inventory
to the lower of cost or market are determined based on historical experience and
the Company's best estimates of current product demand.
Product Warranty - In general, the Company provides warranty coverage on
equipment for a period of up to twelve months or for a specified period of use
after sale or rental by a dealer. The Company's reserve for warranty claims is
established based on the best estimate of the amounts necessary to settle future
and existing claims on products sold as of the balance sheet date.
Product Liability - The Company directly assumes all liability for costs
associated with claims up to specified limits in any policy year and as such,
records an estimated reserve for product liability. The Company's reserve for
product liability is based on the best estimate of the amounts necessary to
resolve future and existing claims.
Goodwill and Intangible Assets - Effective January 1, 2002, the Company
adopted the provisions of SFAS No. 142 "Goodwill and Other Intangible Assets."
Under SFAS No. 142, goodwill and intangible assets deemed to have indefinite
lives will no longer be amortized, but will be tested for impairment at least
annually. Other intangible assets will continue to be amortized over their
useful lives. The Company is subject to financial statement risk to the extent
that goodwill becomes impaired.
Outlook
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The expected recovery in the Company's markets is progressing at a slower
rate than originally anticipated. Milk prices have fallen since the beginning of
the year and are currently below the prior year's comparable month's price for
the first time in over twelve months. Telescopic handler shipments continue to
be down due to the low rental rates in many regions of North America and the
deferral of purchases by both national rental companies and dealers with rental
fleets.
Current overall product order rates do not signal a significant recovery of
demand in the near-term. To maintain projected sales levels in light of the
extremely competitive conditions in both of the Company's market segments, the
Company is offering higher than expected discounts and sales incentives, which
will negatively impact margins. Visibility in the Company's market segments also
remains low, making it difficult to predict the specific timing of any recovery.
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Further, and as a result of the reaction by U.S. steel suppliers to the
recently instituted tariffs on imported steel, the Company may realize
significant increases in its cost of products sold. Due to the competitive
pressures on pricing in its market segments, the Company currently does not
expect to be able to pass along all of the increased costs, which may result in
further pressure on margins.
As a result of the potential impact of these factors on the Company's
business plan, the Company believes it is prudent at this time to revise
downward its full year earnings per diluted share forecast to the range of $.50
to $.60. This forecast excludes restructuring expenses that will be incurred in
2002. The Company will substantially complete in 2002 the restructuring program,
which was announced in September 2001, to reduce costs through several major
plant rationalization initiatives. Restructuring expenses for full-year 2002 are
projected to lower earnings per diluted share by $.15 to $.20 for period costs,
which are recorded as incurred.
The Company continues to take appropriate steps to reduce costs and improve
efficiencies, especially in light of these current conditions.
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Forward-Looking Statements
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Certain matters discussed 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 statements regarding the Company's
future financial position, business strategy, targets, projected sales and
earnings, and the plans and objectives of management for future operations, are
forward-looking statements. When used in this filing, words such as the Company
"believes," "anticipates," "expects" or "estimates" or words of similar meaning
are generally intended to identify forward-looking statements. These
forwarding-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, unanticipated
changes in general economic and capital market conditions (including factors
that could affect a general economic recovery), the Company's ability to
implement successfully its strategic initiatives and plant rationalization
initiatives, market acceptance of newly introduced products, the cyclical nature
of the Company's business, the Company's and its customers' access to credit,
competitive pricing, product initiatives and other actions taken by competitors,
disruptions in production capacity, excess inventory levels, the effect of
changes in laws and regulations (including government subsidies and
international trade regulations), technological difficulties, changes in
currency exchange rates, the Company' ability to secure sources of liquidity
necessary to fund its operations, changes in environmental laws, the impact of
any acquisition effected by the Company, and employee and labor relations.
Shareholders, potential investors, and other readers are urged to consider these
factors in evaluating the forward-looking statements and are cautioned not to
place undue reliance on such forward-looking statements. The forward-looking
statements included in this filing are only made as of the date of this filing,
and the Company undertakes no obligation to publicly update such forward-looking
statements to reflect subsequent events or circumstances. In addition, the
Company's expectations for fiscal year 2002 are based in part on certain
assumptions made by the Company, including those relating to commodities prices,
which are strongly affected by weather and other factors and can fluctuate
significantly, housing starts and other construction activities, which are
sensitive to, among other things, interest rates and government spending, and
the performance of the U.S. economy generally. The accuracy of these or other
assumptions could have a material effect on the Company's ability to achieve its
expectations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
- -------------------------------------------------------------------
There are no material changes to the information provided in response to
this item as set forth in the Company's Annual Report on Form 10-K for the year
ended December 31, 2001 as filed with the Securities and Exchange Commission.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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A shareholder lawsuit against the Company and its Board of Directors
demanding, among other things, the convening of an annual meeting of
shareholders was voluntarily dismissed without prejudice by the plaintiff on
February 7, 2002. The lawsuit had been filed in a Washington County, Wisconsin
court on October 15, 2001, by Dan Goloveyko on behalf of himself and,
purportedly, on behalf of all others similarly situated.
Item 4. Submission of Matters to a Vote of Security Holders
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At the Company's 2001 annual meeting of shareholders held on January 17,
2002, Fred M. Butler, William D. Gehl and John W. Splude were re-elected as
directors of the Company for terms expiring at the 2004 annual meeting of
shareholders. The following table sets forth certain information with respect to
the election of directors at the 2001 annual meeting:
Name of Nominee Shares Voted For Shares Withholding Authority
- --------------- ---------------- ----------------------------
Fred M. Butler 4,729,148 457,398
William D. Gehl 4,721,401 465,145
John W. Splude 4,729,003 457,543
The following table sets forth the other directors of the Company whose terms of
office continued after the 2001 annual meeting:
Name of Director Year in Which Term Expires
- ---------------- --------------------------
Nicholas C. Babson 2002
Thomas J. Boldt 2002
William P. Killian 2002
John T. Byrnes 2003
Richard J. Fotsch 2003
Dr. Hermann Viets 2003
Kurt Helletzgruber was subsequently appointed to the Board of Directors for a
term expiring at the 2002 annual meeting of shareholders.
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Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits
--------
Exhibit No. Document Description
----------- --------------------
3.1 Amendment to Gehl Company By-laws.
3.2 By-laws of Gehl Company, as amended.
4.1 Eleventh Amendment to the Amended and
Restated Loan and Security Agreement by and
between Deutsche Financial Services Corporation,
Deutsche Financial Services Canada Corporation,
a division of Deutsche Bank Canada, and Gehl
Company and its subsidiaries, dated as of March
19, 2002.
4.2 Amended and Restated Negotiable Promissory
Note signed by Gehl Company and its subsidiaries
payable to Deutsche Financial Services
Corporation, dated March 19, 2002.
10.1 Amendment to Gehl Savings Plan.
(b) Reports on Form 8-K
-------------------
A Current Report on Form 8-K was filed by the Company on January 18,
2002 reporting under Item 5 matters related to the Company's 2001 and
2002 annual meetings.
A Current Report on Form 8-K was filed by the Company on February 28,
2002 reporting under Items 7 and 9 the Company's financial results for
the year ended December 31, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GEHL COMPANY
Date: May 14, 2002 By: /s/ William D. Gehl
---------------------------
William D. Gehl
Chairman of the Board, President
and Chief Executive Officer
Date: May 14, 2002 By: /s/ Kenneth P. Hahn
---------------------------
Kenneth P. Hahn
Vice President of Finance,
Treasurer and Chief Financial
Officer (Principal Financial
and Accounting Officer)
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GEHL COMPANY
INDEX TO EXHIBITS
Exhibit No. Document Description
- ----------- --------------------
3.1 Amendment to Gehl Company By-laws.
3.2 By-laws of Gehl Company, as amended.
4.1 Eleventh Amendment to the Amended and Restated Loan and
Security Agreement by and between Deutsche Financial
Services Corporation, Deutsche Financial Services Canada
Corporation, a division of Deutsche Bank Canada, and Gehl
Company and its subsidiaries, dated as of March 19, 2002.
4.2 Amended and Restated Negotiable Promissory Note signed by
Gehl Company and its subsidiaries payable to Deutsche
Financial Services Corporation, dated March 19, 2002.
10.1 Amendment to Gehl Savings Plan.
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