10-Q 1 sdc29a.txt 10-Q QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2001 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 ------------------------------------------ Wisconsin 39-0300430 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 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 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 31, 2001 ---------------------------- ----------------------------- Common Stock, $.10 Par Value 5,335,668 GEHL COMPANY FORM 10-Q March 31, 2001 REPORT INDEX Page No. PART I. - FINANCIAL INFORMATION: Item 1. Financial Statements Condensed Consolidated Statements of Income for the Three-Month Periods Ended March 31, 2001 and April 1, 2000 .....................................................3 Condensed Consolidated Balance Sheets at March 31, 2001, December 31, 2000, and April 1, 2000 ..............................4 Condensed Consolidated Statements of Cash Flows for the Three-Month Periods Ended March 31, 2001 and April 1, 2000 .....................................................5 Notes to Condensed Consolidated Financial Statements ...............6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition ................................8 Item 3. Quantitative and Qualitative Disclosures about Market Risk ........11 PART II. - OTHER INFORMATION: Item 6. Exhibits and Reports on Form 8-K ..................................12 SIGNATURES ...................................................................13 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements GEHL COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data; unaudited) Three Months Ended March 31, April 1, 2001 2000 --------- -------- NET SALES $ 63,716 $ 72,054 Cost of goods sold 47,489 52,772 --------- -------- GROSS PROFIT 16,227 19,282 Selling, general and administrative expenses 12,752 11,744 --------- -------- INCOME FROM OPERATIONS 3,475 7,538 Interest expense (1,196) (873) Interest income 529 380 Other expense, net (1,231) (785) --------- -------- INCOME BEFORE INCOME TAXES 1,577 6,260 Income tax provision 552 2,191 --------- -------- NET INCOME $ 1,025 $ 4,069 ========= ======== EARNINGS PER SHARE Diluted $ .19 $ .70 ========= ======== Basic $ .19 $ .73 ========= ======== 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 31, December 31, April 1, 2001 2000 2000 (Unaudited) (Audited) (Unaudited) ----------- ------------ ----------- ASSETS Cash $ 3,839 $ 2,590 $ 3,254 Accounts receivable - net 84,109 69,546 86,190 Finance contracts receivable - net 9,969 16,549 13,364 Inventories 44,606 45,598 42,219 Deferred tax assets 8,078 8,078 8,431 Other current assets 1,329 636 557 ---------- ---------- ---------- Total Current Assets 151,930 142,997 154,015 ---------- ---------- ---------- Property, plant and equipment - net 46,025 46,172 38,809 Finance contracts receivable - net, non-current 6,484 9,967 8,041 Intangible assets 12,923 13,086 15,521 Other assets 10,297 10,496 8,205 ---------- ---------- ---------- TOTAL ASSETS $ 227,659 $ 222,718 $ 224,591 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current portion of long-term debt obligations $ 168 $ 187 $ 427 Accounts payable 31,424 26,645 29,536 Accrued liabilities 24,222 23,195 31,941 ---------- ---------- ---------- Total Current Liabilities 55,814 50,027 61,904 ---------- ---------- ---------- Line of credit facility 49,699 51,608 44,117 Long-term debt obligations 9,184 9,277 9,010 Deferred income taxes 5,096 5,096 3,949 Other long-term liabilities 3,773 3,692 5,976 ---------- ---------- ---------- Total Long-Term Liabilities 67,752 69,673 63,052 ---------- ---------- ---------- Common stock, $.10 par value, 25,000,000 shares authorized, 5,335,668, 5,330,500 and 5,567,402 shares outstanding, respectively 534 533 557 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 6,544 6,495 9,444 Retained earnings 97,149 96,124 90,537 Accumulated other comprehensive loss (134) (134) (903) ---------- ---------- ---------- Total Shareholders' Equity 104,093 103,018 99,635 ---------- ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 227,659 $ 222,718 $ 224,591 ========== ========== ========== 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 March 31, April 1, 2001 2000 --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 1,025 $ 4,069 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation 1,237 1,250 Amortization 175 199 Proceeds from sales of finance contracts 28,407 14,796 Increase in finance contracts receivable (19,577) (17,681) Cost of sales of finance contracts 1,233 865 Net changes in remaining working capital items (8,458) (19,001) -------- -------- Net cash provided by (used for) operating activities 4,042 (15,503) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Property, plant and equipment additions, net (1,090) (3,031) Other assets 187 113 -------- -------- Net cash used for investing activities (903) (2,918) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: (Repayment of) proceeds from line of credit facility, net (1,909) 22,079 Proceeds from issuance of common stock 50 273 Treasury stock purchases - (2,131) Other (31) 444 -------- -------- Net cash (used for) provided by financing activities (1,890) 20,665 -------- -------- Net increase in cash 1,249 2,244 Cash, beginning of period 2,590 1,010 -------- -------- Cash, end of period $ 3,839 $ 3,254 ======== ======== Supplemental disclosure of cash flow information: Cash paid for the following: Interest $ 1,232 $ 743 Income Taxes $ 130 $ 886 The accompanying notes are an integral part of the financial statements. 5 GEHL COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2001 (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 generally accepted accounting principles 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 31, 2001 and April 1, 2000 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 31, 2001 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, 2000, as amended, 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 31, 2001 December 31, 2000 April 1, 2000 -------------- ----------------- ------------- Raw materials and supplies $ 18,093 $ 17,689 $ 17,741 Work-in-process 5,888 4,995 5,655 Finished machines and parts 40,236 42,525 38,018 --------- ----------- --------- Total current cost value 64,217 65,209 61,414 Adjustment to LIFO basis (19,611) (19,611) (19,195) --------- ----------- --------- $ 44,606 $ 45,598 $ 42,219 ========= =========== ========= 6 NOTE 4 - ACCOUNTING PRONOUNCEMENTS In the first quarter of fiscal 2001, the Company adopted Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 133,"Accounting for Derivative Instruments and Hedging Activities," which was originally effective for fiscal quarters of fiscal years beginning after June 15, 1999. The statement as amended by SFAS Nos. 137 and 138, became effective January 1, 2001 for the Company. Due to the Company's limited use of derivative instruments, the adoption of this statement did not materially affect the Company's financial condition or results of operations. NOTE 5 - 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 which 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 31, 2001 April 1, 2000 -------------- ------------- Basic shares 5,333 5,599 Effect of options 154 191 ----- ----- Diluted shares 5,487 5,790 ===== ===== Accumulated other comprehensive loss is comprised entirely of minimum pension liability adjustments. Comprehensive income equaled net income for the three months ended March 31, 2001 and April 1, 2000, as the minimum pension liability amount did not change from the respective prior year-end amount. NOTE 6 - BUSINESS SEGMENTS The Company operates in two business segments: Construction equipment and Agricultural equipment. The long-term financial performance of the Company's reportable segments are 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 31, 2001 April 1, 2000 -------------- ------------- Net Sales: Construction $ 32,366 $ 41,071 Agricultural 31,350 30,983 -------- -------- Consolidated $ 63,716 $ 72,054 ======== ======== Income from Operations: Construction $ 878 $ 4,320 Agricultural 2,597 3,218 -------- -------- Consolidated $ 3,475 $ 7,538 ======== ======== 7 NOTE 7 - STOCK REPURCHASES In March 2000, the Company's Board of Directors authorized a repurchase plan providing for the repurchase of up to 325,000 shares of the Company's outstanding common stock. This authorization expired as of March 31, 2001 with 271,900 shares being repurchased on the open market at an aggregate cost of $3.8 million. No shares were repurchased in the quarter ended March 31, 2001. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition RESULTS OF OPERATIONS Three Months Ended March 31, 2001 Compared to Three Months Ended April 1, 2000 Net sales for the first quarter of 2001 were $63.7 million which compares with $72.1 million in the comparable period of 2000. Construction equipment net sales were $32.4 million in the first quarter of 2001, versus $41.1 million in the first quarter of 2000. Construction equipment sales and industry markets both continued to be unfavorably affected by factors that impacted the second half of 2000, including a soft housing market, low rental rates on equipment, especially of telescopic handlers, a weak Euro and generally depressed market demand for light construction equipment. Offsetting these adverse macroeconomic conditions, progress was made during the first quarter on several key construction business initiatives, including introducing mini-loaders to construction dealers and a new 12-ton excavator to Gehl and Mustang dealers. The Company also began shipment of four new skid loader models for Gehl and Mustang dealers, which are being favorably received by the market. Milk prices continued at low levels while fuel costs remained high throughout the first quarter of 2001, creating a challenging environment for agricultural equipment customers. Despite unsettled market conditions, sales of Gehl agricultural equipment in the first quarter of 2001 increased one percent over the year-ago period to $31.3 million. The increase was primarily a result of favorable market acceptance of the Company's new round baler product line and new Agri-Loader telescopic handler products designed exclusively for the agricultural market, as well as sales to traditional agricultural dealers of the Company's compact excavator and mini-loader products, which were not available to these dealers in the comparable period of 2000. Of the Company's total net sales reported for the first quarter of 2001, $7.5 million were made outside of the United States compared with $10.8 million in the comparable period of 2000. The decrease in export sales was due primarily to a reduction in shipments to Europe as a result of a decrease in the value of the Euro versus the U.S. dollar. Gross profit decreased $3 million, or 16%, during the first quarter of 2001 versus the comparable period of 2000, due primarily to decreased sales volume. Gross profit as a percent of net sales was 25.5% for the first quarter of 2001 versus 26.8% in the comparable period of 2000. Gross profit as a percent of net sales for construction equipment was 21.8% in the first quarter of 2001 compared with 25.0% for the first quarter of 2000. The decrease in construction equipment gross margin was the result of competitive market conditions, lower production levels, higher utility costs and a less favorable mix of product shipments. Gross profit as a percent of net sales for agricultural equipment increased to 29.3% in the first quarter of 2001 from 29.2% for the first quarter of 2000. 8 Selling, general and administrative expenses were $12.7 million, or 20% of net sales in the first quarter of 2001, an increase from $11.7 million, or 16.3% of net sales, in the first quarter of 2000. To position the Company for future growth and market share expansion, Gehl continues to invest in revenue enhancing projects, such as improved parts distribution, new product development, ERP systems and the new web-enabled attachment distribution business. Such investments, combined with increased selling-related costs resulting from very competitive market conditions, as well as a lower level of sales, have contributed to the increased operating expenses as a percent of net sales. Income from operations in the first quarter of 2001 was $3.5 million, 54% lower than the $7.5 million for the first quarter of 2000. Interest expense increased $.3 million to $1.2 million in the first quarter of 2001 from $.9 million in the first quarter of 2000. The increase was a result of an increase in average debt outstanding to $57.3 million in the first quarter of 2001 versus $41.3 million in the first quarter of 2000, offset by a decrease in the average rate of interest paid by the Company to 7.9% in the first quarter of 2001 from 8.4% for the first quarter of 2000. The increase in average debt in the first quarter of 2001 versus the comparable period of 2000 was due primarily to capital expenditures for property, plant and equipment in 2000 and 2001 and the repurchase of Company stock in 2000. Other expense increased $.4 million, to $1.2 million in the first quarter of 2001 from $.8 million in the first quarter of 2000. This was primarily caused by increasing costs of sales of finance contracts due to selling $14.0 million more contracts in the first quarter of 2001 versus the comparable period in 2000. First quarter 2001 net income was $1.0 million versus $4.1 million in the first quarter of 2000. Diluted earnings were $.19 per share for the first quarter of 2001 versus $.70 per share in 2000. Financial Condition The Company's working capital was $96.1 million at March 31, 2001, as compared to $93.0 million at December 31, 2000, and $92.1 million at April 1, 2000. The increase since December 31, 2000 was due primarily to seasonal increases in accounts receivable offset by decreases in finance contracts receivable and increases in accounts payable. The increase from April 1, 2000 in inventories was primarily related to the new compact excavator and mini-loader product lines. Capital expenditures for property, plant and equipment during the first quarter of 2001 were approximately $1.1 million. The Company plans to make up to $4 million in capital expenditures in 2001. The Company believes its present facilities will be sufficient to provide adequate capacity for its operations in 2001. As of March 31, 2001, the weighted-average interest rate paid by the Company on outstanding borrowings under its line of credit facility was 7.1%. The Company had available unused borrowing capacity of $22.4 million, $20.2 million and $29.0 million under the line of credit facility at March 31, 2001, December 31, 2000, and April 1, 2000, respectively. At March 31, 2001, December 31, 2000, and April 1, 2000, the borrowings outstanding under the line of credit facility were $49.7 million, $51.6 million and $44.1 million, respectively. 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 9 companies to sell, with recourse, its finance contracts receivable. The Company continues to service substantially all contracts whether or not sold. At March 31, 2001, the Company serviced $148.8 million of such contracts, of which $130.3 million were owned by other parties. The Company believes that it will be able to arrange sufficient capacity to sell its finance contracts for the foreseeable future. At March 31, 2001, shareholders' equity had increased $4.5 million to $104.1 million from $99.6 million at April 1, 2000. This increase primarily reflected the impact of the income earned from April 2, 2000 to March 31, 2001 offset by repurchases of Company stock. In March 2000, the Company's Board of Directors authorized a repurchase plan providing for the repurchase of up to 325,000 shares of the Company's outstanding common stock. This authorization expired as of March 31, 2001 with 271,900 shares being repurchased on the open market at an aggregate cost of $3.8 million. No shares were repurchased in the quarter ended March 31, 2001. Accounting Pronouncements In the first quarter of fiscal 2001, the Company adopted Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 133,"Accounting for Derivative Instruments and Hedging Activities," which was originally effective for fiscal quarters of fiscal years beginning after June 15, 1999. The statement as amended by SFAS Nos. 137 and 138, became effective January 1, 2001 for the Company. Due to the Company's limited use of derivative instruments, the adoption of this statement did not materially affect the Company's financial condition or results of operations. Outlook The Company reiterated its previous guidance for the full year 2001. Gehl expects net sales to increase approximately 5% to 8% over 2000 levels to between $272 million and $280 million, and earnings to be in the range of $1.52 to $1.62 per diluted share. The Company also reiterated that it estimates that earnings for the second quarter of 2001 will be in the range of $.61 to $.67 per diluted share. On May 9, 2001, the Company announced that its Board of Directors will explore a full range of strategic alternatives to maximize value for all shareholders, including acquisitions, strategic alliances, divestitures, a leveraged buyout, a recapitalization and the potential sale of the Company. The Company retained the investment banking firm of Robert W. Baird & Co. to assist the Board in the strategic review process. The process is expected to take approximately 2 to 3 months. Forward-Looking Statements 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 "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 10 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, the Company's ability to implement successfully its strategic initiatives, unanticipated issues associated with the Company's review of strategic alternatives, 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 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 2001 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 Form 10-K for the year ended December 31, 2000, as amended, as filed with the Securities and Exchange Commission. 11 PART II - OTHER INFORMATION Item 6. Exhibits and Report on Form 8-K (a) Exhibits None (b) Reports on Form 8-K A Current Report on Form 8-K was filed by the Company on February 15, 2001 and a Form 8-K/A was filed on February 16, 2001 in connection with the Press Release and Letter to Shareholders of Gehl Company relating to 2000 year-end results and strategic initiatives. 12 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 15, 2001 By: /s/ William D. Gehl ---------------------------------- William D. Gehl Chairman of the Board, President and Chief Executive Officer Date: May 15, 2001 By: /s/ Kenneth P. Hahn ---------------------------------- Kenneth P. Hahn Vice President of Finance, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) 13