-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QaZPOGGQ8dLeMDq2qKOsSESqHYlV2ZE7HVITsdYS95ooLTa0cdMTCUkxKLlS6Zol 2ZKr2SAOEJHAcwnV8h9HRA== 0000897069-03-000297.txt : 20030307 0000897069-03-000297.hdr.sgml : 20030307 20030307153212 ACCESSION NUMBER: 0000897069-03-000297 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030307 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GEHL CO CENTRAL INDEX KEY: 0000856386 STANDARD INDUSTRIAL CLASSIFICATION: FARM MACHINERY & EQUIPMENT [3523] IRS NUMBER: 390300430 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-18110 FILM NUMBER: 03596275 BUSINESS ADDRESS: STREET 1: 143 WATER STREET CITY: WEST BEND STATE: WI ZIP: 53095 BUSINESS PHONE: 2623349461 MAIL ADDRESS: STREET 1: 143 WATER STREET CITY: WEST BEND STATE: WI ZIP: 53095 10-K 1 irm204.txt FORM 10-K FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________________ [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 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 ---------------------------------------------------- (Exact name of registrant as specified in its charter) Wisconsin 39-0300430 ------------------------------ ---------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 143 Water Street, West Bend, WI 53095 ------------------------------------- -------- (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code (262) 334-9461 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.10 par value ----------------------------------- (Title of class) Rights to Purchase Preferred Shares ----------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.) Yes No X --- --- Aggregate market value of voting stock held by non-affiliates of the registrant: $49,644,063 at February 14, 2003. Number of shares outstanding of each of the registrant's classes of common stock, as of February 14, 2003: Class Shares Outstanding ---------------------------- ------------------ Common Stock, $.10 Par Value 5,376,984 DOCUMENTS INCORPORATED BY REFERENCE Gehl Company 2002 Annual Report to Shareholders (Parts I and II) Gehl Company Proxy Statement for the 2003 Annual Meeting of Shareholders (to be filed with the Commission under Regulation 14A within 120 days after the end of the registrant's fiscal year end and, upon such filing, to be incorporated by reference into Part III) GEHL COMPANY _________________ INDEX TO ANNUAL REPORT ON FORM 10-K For The Year Ended December 31, 2002 Page ---- Part I Item 1 Business ........................................................ 1 Item 2 Properties....................................................... 8 Item 3 Legal Proceedings................................................ 8 Item 4 Submission of Matters to a Vote of Security Holders.............. 8 Executive Officers of the Registrant............................. 9 Part II Item 5 Market for Registrant's Common Equity and Related Shareholder Matters..........................................11 Item 6 Selected Financial Data..........................................11 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations..........................11 Item 7A Quantitative and Qualitative Disclosures About Market Risk.......11 Item 8 Financial Statements and Supplementary Data......................11 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......................11 Part III Item 10 Directors and Executive Officers of the Registrant...............12 Item 11 Executive Compensation...........................................12 Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters...............12 Item 13 Certain Relationships and Related Transactions...................12 Item 14 Controls and Procedures..........................................13 Part IV Item 15 Exhibits, Financial Statement Schedules and Reports on Form 8-K..........................................14 Signatures.......................................................15 Certifications...................................................16 PART I ------ ITEM 1. BUSINESS. Overview - -------- Gehl Company (the "Company" or "Gehl") designs, manufactures, sells and finances equipment used in the light construction equipment and the agriculture equipment industries. Construction equipment is comprised of skid loaders, telescopic handlers, asphalt pavers, compact excavators, compact track loaders, all-wheel-steer loaders and compact loaders and is sold to contractors, sub-contractors, owner operators, rental stores and municipalities. The Company generally markets its construction equipment under the Gehl(R) and Mustang(R) brand names. Agriculture equipment is sold to customers in the dairy and livestock industries, and includes a broad range of products including haymaking, forage harvesting, materials handling (skid loaders, telescopic handlers, compact excavators, compact tracked loaders, all-wheel-steer loaders, compact loaders and attachments), manure handling and feedmaking equipment. The Company believes that it is one of the largest non-tractor agriculture equipment manufacturers in North America. In addition, the Company launched a new attachment business, Compact Equipment Attachments, Inc., in July 2001. The Company was founded in 1859 and was incorporated in the State of Wisconsin in 1890. Effective January 1, 2002, the Company began accounting for its investment in a German distribution operation ("Gehl Europe") as a consolidated subsidiary as a result of the Company's controlling influence on the operations of Gehl Europe as of such date. Prior to January 1, 2002, the Company accounted for its investment in Gehl Europe under the equity method. During 2002, the Company substantially completed a restructuring plan that was commenced in the third quarter of 2001 in order to reduce costs through several major plant rationalization initiatives which included consolidating certain operations. Under these initiatives, the Company closed its manufacturing facility in Lebanon, Pennsylvania and outsourced the manufacturing of products. The Company also transferred the manufacturing of its Mustang line of skid steer loaders from its facility in Owatonna, Minnesota to its skid steer facility in Madison, South Dakota. Construction equipment is now manufactured in two South Dakota facilities and Agriculture equipment is manufactured in plants in Wisconsin and South Dakota. The Company intends that certain matters discussed in this Annual Report on Form 10-K are "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding the Company's future financial position, business strategy, targets, projected sales, costs, earnings and capital spending, and the plans and objectives of management for future operations, are forward-looking statements. When used in this Annual Report on Form 10-K, words such as the Company "believes," "anticipates," "expects" or "estimates" 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 the filing hereof. Factors that could cause such a variance include, but are not limited to, a delay in the expected general economic recovery, unanticipated changes in capital market conditions, the Company's ability to implement successfully its strategic initiatives, market acceptance of newly introduced products, 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's 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 Annual Report on Form 10-K are only made as of the date of the filing hereof, and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. In addition, the Company's future expectations 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 -1- other assumptions could have a material effect on the Company's ability to achieve its expectations. Business Segments - ----------------- The Company operates in two business segments, construction equipment and agriculture equipment. The following table shows certain information relating to the Company's segments:
(dollars in thousands) Years ended December 31, ------------------------------------------------------------------------------------------------ 2000 2001 2002 --------------------------- -------------------------- ----------------------------- Amount % Amount % Amount % ----------- --------- ----------- --------- ----------- ---------- Net sales: Construction Equipment $148,611 59.4% $122,344 50.9% $ 135,080 58.1% Agriculture Equipment 101,426 40.6 118,050 49.1 97,485 41.9 ----------- --------- ----------- --------- ----------- ---------- Total $250,037 100.0% $240,394 100.0% $ 232,565 100.0% =========== ========= =========== ========= =========== ========== Income from operations: Construction Equipment $14,028 63.8% $2,270 25.4% $ 4,306 83.5% Agriculture Equipment 7,957 36.2 6,673 74.6 851 16.5 ----------- --------- ----------- --------- ----------- ---------- Total $21,985 100.0% $8,943 100.0% $ 5,157 100.0% =========== ========= =========== ========= =========== ==========
On September 26, 2001, the Company adopted several major plant rationalization initiatives to improve profitability by consolidating certain operations. During 2002, under these initiatives, the Company closed its manufacturing facility in Lebanon, Pennsylvania and outsourced the manufacturing of products. The Company also transferred the manufacturing of its Mustang line of skid steer loaders from its facility in Owatonna, Minnesota to its recently expanded skid steer facility in Madison, South Dakota. In implementing these actions, 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 recorded in the third quarter of 2001, $1.5 million and $2.8 million related to the Agriculture and Construction segments, respectively. Additionally, during 2002, the Company expensed $1.0 million of other charges related to the plant rationalization initiatives. These charges were required to be expensed when incurred and were not included in the original reserve. Of the $1.0 million expense recorded in 2002, $.5 million and $.5 million related to the Agriculture and Construction segments, respectively. The Company had no intersegment sales or transfers during the years set forth above. For segment information with respect to identifiable assets, depreciation/amortization and capital expenditures for the construction equipment and agriculture equipment markets, see Note 16 of "Notes to Consolidated Financial Statements", included on Pages 30 and 31 of the Gehl Company 2002 Annual Report to Shareholders, which pages are incorporated by reference herein. -2- Construction Equipment - ---------------------- Products: Construction equipment is marketed in the following seven product areas: 1. Skid Loaders - The Company's skid loader line consists of a broad range of products offered through the Gehl and Mustang brands. The skid loader line features a choice of hand-operated T-bar controls, hand only or hand and foot controls. The skid loader, with its fixed-wheel four-wheel drive, is used principally for material handling duties. The skid loader may also be used with a variety of attachments, including dirt, snow and cement buckets, pallet forks and hydraulically-operated devices such as cold planers, backhoes, brooms, trenchers, snowblowers, industrial grapples, tree diggers, concrete breakers, augers and many more. 2. Telescopic Handlers - The Company's telescopic handler line consists of a broad range of products offered through the Gehl and Mustang brands. These telescopic handlers are designed to handle heavy loads (up to 12,000 pounds) reaching horizontally and vertically (up to 55 ft.) for use by a variety of customers, including masons, roofers, building contractors and farmers. 3. Asphalt Pavers - Two models of Power Box(R) pavers are marketed by Gehl. These pavers allow variable paving widths from 4 1/2 to 13 feet and are used for both commercial and municipal jobs such as county and municipal road, sidewalk, golf cart path, jogging trail, parking lot, driveway, trailer court and tennis court preparation. 4. Compact Excavators - The Company's compact excavator line consists of a broad range of products offered through the Gehl and Mustang brands. The units range in size from 1.5 metric tons to 11.5 metric tons. All units come standard with auxiliary hydraulics. An industry exclusive frame leveling system is offered on a number of models. These units can be equipped with a wide variety of attachments. 5. Compact-loader - Gehl offers an articulated unit, powered by a 20 horsepower engine. It is one of the only compact-loaders offered in the industry where the operator is seated on the unit. Offered with a wide variety of attachments, the principal applications for this product are landscaping, nursery and material handling. 6. All-wheel-steer Loaders - The Company offers multiple all-wheel-steer loaders through the Gehl and Mustang brands with either conventional or telescopic booms and an industry exclusive all-wheel-steer design. The units range from 60 horsepower to 83 horsepower and are used in general construction, building contractors and material producers. 7. Compact track loaders - The Company offers multiple compact track loaders through the Gehl and Mustang brands. With a dedicated rubber track, these machines are especially useful in soft or muddy conditions. They offer low ground pressure and high floatation and are used in landscaping, nursery and general construction applications. Marketing and Distribution: The Company maintains a separate distribution system for Construction equipment. The Company markets its Construction equipment in North America through approximately 265 independent dealers (with 825 outlets) and worldwide through approximately 110 distributors. The Company has no Company-owned dealers, and its dealers may sell equipment produced by other construction equipment manufacturers. The top ten dealers and distributors of Construction equipment accounted for approximately 10% of the Company's sales for the year ended December 31, 2002; however, no single dealer or distributor accounted for more than 2% of the Company's sales for that period. Sales of the Construction equipment skid loader product line accounted for more than 25% of the Company's net sales in 2000, 2001 and 2002. Sales of the Construction equipment telescopic handler product line accounted for more than 12% of the Company's net sales in 2000, 2001 and 2002. -3- The Company believes that maintenance and expansion of its dealer network is important to its success in the light construction equipment market. The Company also believes that it needs to continue to further develop sales relationships with rental companies to meet the demands of the changing marketplace. Various forms of support are provided for its Construction equipment dealers, including sales and service training, and, in the United States and Canada, floor plan financing for its dealers and retail financing for both its dealers and their customers. The construction equipment dealers in North America are also supported by district sales managers who provide a variety of services, including training, market evaluation, business planning, equipment demonstrations and sales, warranty and service assistance, and regional field service representatives who assist in training and providing routine dealer service support functions. The Company has a service agreement with a vendor for a centralized parts distribution center located in Belvidere, Illinois. Industry and Competition: Gehl's Construction equipment product lines face competition in each of their markets. In general, each line competes with a small group of from seven to twelve different companies, some of which are larger than the Company. The Company competes within the light construction equipment markets based primarily on price, quality, service and distribution. The primary markets for Gehl's Construction equipment outside of North America are in Europe, Australia, Latin America, the Middle East and the Pacific Rim. The Company believes it is a significant competitor in the skid loader market in most of these markets. Agriculture Equipment - --------------------- Products: Agriculture equipment is marketed in five product areas. 1. Haymaking - Gehl's haymaking line includes a broad range of products used to harvest and process hay crops for livestock feed. The Company offers disc mowers, a wide range of pull-type disc mower conditioners, hay rakes and variable-chamber round balers. 2. Forage Harvesting - The Company believes that it currently manufactures and sells one of the industry's most complete lines of forage harvesting equipment, including forage harvesters, forage wagons and blowers. 3. Material Handling - This line consists of a broad range of Gehl skid loaders, telescopic handlers, compact excavators, compact track loaders, all-wheel-steer loaders and the compact-loader. The skid loader, telescopic handler, compact excavator, compact track loader, all-wheel-steer loader and compact-loader product lines are marketed by dealers who handle Agriculture equipment and by dealers who handle Construction equipment. 4. Manure Handling - Gehl offers a broad range of manure spreaders, including the Scavenger(R) "V-Tank" side-discharge manure spreader which incorporates a hydraulically controlled auger allowing the spreader to handle a wide range of semi-liquid waste products, including municipal sludge. For handling mostly solid manure, the Company also markets four models of rear-discharge box spreaders. 5. Feedmaking - The Company offers the Gehl Mix-All(R) line of grinder mixers, a line of mixer feeders and a feeder wagon for both mixing feed rations and delivery to livestock feeders. Marketing and Distribution: In North America, Gehl's agriculture equipment is sold through approximately 350 geographically dispersed dealers (with 390 outlets). Fifty of these dealers are located in Canada. Agriculture equipment is also marketed -4- through approximately 15 distributors in Europe, the Middle East, the Pacific Rim and Latin America. The Company has no Company-owned dealers and its dealers may sell equipment produced by other agriculture equipment manufacturers. It has been and remains the Company's objective to increase the share of Gehl products sold by a Gehl dealer. Gehl is not dependent for its sales on any specific Agriculture dealer or group of dealers. The top ten dealers and distributors in Agriculture equipment accounted for approximately 7% of the Company's sales for the year ended December 31, 2002 and no one dealer or distributor accounted for over 1% of the Company's sales during that period. Sales of the Agriculture equipment skid loader product line accounted for more than 14% of the Company's net sales in 2000, 2001 and 2002. The Company provides various forms of support for its dealer network, including sales and service training. The Company also provides floor plan and retail finance support for products sold by its dealers in the United States and Canada. The Company employs district sales managers to assist its agriculture equipment dealers in the promotion and sale of its products and regional service managers to assist in warranty and servicing matters. The Company has a service agreement with a vendor for a centralized parts distribution center located in Belvidere, Illinois. Industry and Competition: The agriculture equipment industry has seen significant consolidation and retrenchment since 1980. This has served to reduce the total number of competitors, to strengthen certain major competitors, and to reduce the strength of certain other companies in the industry. The Company competes within the agriculture equipment industry based primarily on products sold, price, quality, service and distribution. The agriculture equipment markets in North America are highly competitive and require substantial capital outlays. The Company has four major competitors as well as numerous other limited line manufacturers and importers. The largest manufacturers in the agriculture equipment industry, the Company's major competitors, generally produce tractors and combines as well as a full line of tillage and planting equipment. Such manufacturers also market, to varying degrees, haymaking, forage harvesting, materials handling, manure handling and/or feedmaking equipment, the areas in which the Company's agriculture products are concentrated. No single competitor competes with the Company in each of its product lines. The Company believes that it is the only non-tractor manufacturer in the industry that produces equipment in each of these product lines. Smaller manufacturers which compete with the Company produce only a limited line of specialty items and often compete only in regional markets. Approximately 90% of the Company's agriculture dealers also carry the tractor and combine product lines of a major manufacturer. In addition to selling the tractors and combines of a major manufacturer, many of these dealers carry the major manufacturer's entire line of products, some of which directly compete with the products offered by Gehl. Dealers of Gehl's Agriculture equipment also market equipment manufactured by limited line manufacturers which compete with specific product lines offered by the Company. The primary markets for Gehl's Agriculture equipment outside of North America are in Europe and the Pacific Rim. In these markets, the Company competes with both agriculture equipment manufacturers from the United States, some of which have manufacturing facilities in foreign countries, and foreign manufacturers. The Company does not believe, however, that it is presently a significant competitor in any of these foreign markets. -5- Backlog - ------- The backlog of unfilled equipment orders (which orders are subject to cancellation in certain circumstances) as of December 31, 2002 was $20.9 million versus $18.0 million at December 31, 2001. Virtually all orders in the backlog at December 31, 2002 are expected to be shipped in 2003. Floor Plan and Retail Financing - ------------------------------- Floor Plan Financing: The Company, as is typical in the industry, generally provides floor plan financing for its dealers. Products shipped to dealers under the Company's floor plan financing program are recorded by the Company as sales and the dealers' obligations to the Company are reflected as accounts receivable. The Company provides interest-free floor plan financing to its dealers, for Construction equipment for varying periods of time generally up to six months and for Agriculture equipment generally up to nine months. Dealers who sell products utilizing floor plan financing are required to make immediate payment for those products to the Company upon sale or delivery to the retail customer. At the end of the interest-free period, if the equipment remains unsold to retail customers, the Company generally charges interest to the dealer at approximately 3% above the prime rate or on occasion provides an interest-free extension of up to three months upon payment by the dealer of a curtailment of 25% of the original invoice price to the dealer. This type of floor plan equipment financing accounts for approximately 80% of Gehl's dealer accounts receivable, with all such floor planned receivables required to be secured by a first priority security interest in the equipment sold. Retail Financing: The Company also provides retail financing primarily to facilitate the sale of equipment to end users. Additionally, a number of dealers purchase equipment which is held for rental to the public. The Company also provides retail financing to such dealers in connection with these purchases. Retail financing in the United States is provided by the Company primarily through Gehl Finance(R), the Company's finance division. Retail financing is provided in Canada by third parties at rates subsidized by the Company. In general, the Company does not offer or sponsor retail financing outside of North America. The Company maintains arrangements with third parties pursuant to which the Company sells, with recourse, the Company's retail finance contracts. The finance contracts require periodic installments of principal and interest over periods of up to 60 months; interest rates are based on market conditions. The majority of these contracts have maturities of 12 to 48 months. The Company continues to service the finance contracts it sells, including cash collections. See Note 2 of "Notes to Consolidated Financial Statements," Pages 24 and 25, and "Management's Discussion and Analysis," Page 14 of the Gehl Company 2002 Annual Report to Shareholders, which pages are incorporated by reference herein. Employees - --------- As of December 31, 2002, the Company had 716 employees, of which 390 were hourly employees and 326 were salaried employees. At the production facilities in West Bend, Wisconsin, one of three Gehl production facilities, 142 hourly employees are covered by a collective bargaining agreement with the United Paperworkers International Union (formerly the Allied Industrial Workers) which expires December 15, 2006. None of the remaining employees of the Company are represented by unions. There have been no labor-related work stoppages at the Company's facilities during the past twenty-nine years. Manufacturing - ------------- The Company has recently expanded its South Dakota skid loader manufacturing facility in order to accommodate the transfer of Mustang skid loader production previously manufactured in Owatonna, Minnesota. The Company believes that its present manufacturing facilities will be sufficient to provide adequate capacity for its operations in 2003. -6- Component parts needed in the manufacture of the Company's equipment are primarily produced by the Company. The Company obtains raw materials (principally steel), component parts that it does not manufacture (mostly engines and hydraulics) and supplies from third party suppliers. Substantially all such materials and components used are available from a number of sources. The Company is not dependent on any supplier that cannot be readily replaced and has not experienced difficulty in obtaining necessary purchased materials. In addition to the equipment it manufactures, the Company markets equipment acquired from third party suppliers. Products acquired from these suppliers accounted for less than 13% of the Company's net sales in 2002. Research and Development - ------------------------ The Company attempts to maintain and strengthen its market position through internal new product development and incremental improvements to existing products. The Company's research and development is devoted to developing new products that meet specific customer needs and to devising incremental improvements to existing products. Research and development performed by the Company includes the designing and testing of new and improved products as well as the fabrication of prototypes. The Company expended approximately $3.2 million, $3.0 million and $3.1 million on research and development for the years ended December 31, 2002, 2001 and 2000, respectively. Patents and Trademarks - ---------------------- The Company possesses rights under a number of domestic and foreign patents and trademarks relating to its products and business. While the Company considers the patents and trademarks important in the operation of its business, including the Gehl(R) name, the Mustang(R) name, the Dynalift(R) name, the EDGETM name and the group of patents relating to the Scavenger(R) manure spreader, the business of the Company is not dependent, in any material respect, on any single patent or trademark or group of patents or trademarks. Export Sales - ------------ For information regarding the Company's export sales, see "Management's Discussion and Analysis," page 11, of the Gehl Company 2002 Annual Report to Shareholders, which page is incorporated by reference herein. -7- ITEM 2. PROPERTIES. The following table sets forth certain information as of December 31, 2002, relating to the Company's principal manufacturing facilities. See "Management's Discussion and Analysis - Liquidity and Capital Resources, Capital Expenditures," Page 14, of the Gehl Company 2002 Annual Report to Shareholders, which page is incorporated by reference herein. For information regarding collateral pledges, see Note 7 of "Notes to Consolidated Financial Statements", included on Page 26, of the Gehl Company 2002 Annual Report to Shareholders, which page is incorporated by reference herein.
Approximate Owned or Principal Uses Floor Area in Leased -------------- Square Feet ------ ----------- West Bend, WI 450,000 Owned General offices and engineering, research and development and manufacture of Agriculture equipment Madison, SD 260,000 Owned Manufacture of Gehl and Mustang skid loaders for dealers of Construction equipment and Agriculture equipment Yankton, SD 130,000 Owned Manufacture of Construction equipment Lebanon, PA(2) 170,000 Owned(1) Owatonna, MN(2) 235,000 Owned
(1) This facility is financed with the proceeds from the sale of industrial development bonds maturing in 2010. (2) The Company ceased manufacturing at this plant in conjunction with its plant rationalization initiatives announced in September 2001. This plant is currently for sale. The Company also has a five year service agreement with a vendor for a centralized parts distribution center located in Belvidere, Illinois. ITEM 3. LEGAL PROCEEDINGS. The Company is a defendant from time to time in actions for product liability and other matters arising out of its ordinary business operations. The Company believes that the actions presently pending will not have a material adverse effect on its consolidated financial position or results of operations. To the Company's knowledge, there are no material legal proceedings to which any director, officer, affiliate or more than 5% shareholder of the Company (or any associate of the foregoing persons) is a party adverse to the Company or any of its subsidiaries or has a material interest adverse to the Company or its subsidiaries. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during the quarter ended December 31, 2002. -8- Executive Officers of the Registrant. - ------------------------------------ Set forth below is certain information concerning the executive officers of the Company as of February 1, 2003:
Name, Age and Position Business Experience - ---------------------- ------------------- William D. Gehl, 56, Mr. Gehl has served as Chairman of the Chairman, President, Chief Executive Board of Directors of the Company since Officer and Director April, 1996. Mr. Gehl has served as President and Chief Executive Officer of the Company since November, 1992 and has served as a director of the Company since 1987. Malcolm F. Moore, 52, Mr. Moore has served as Executive Vice Executive Vice President and President and Chief Operating Officer Chief Operating Officer since joining the Company in August, 1999. From 1997 to 1999, Mr. Moore was associated with The Moore Group (a private investment consulting firm focused on the thermal processing equipment industry). From 1996 to 1997, Mr. Moore served as President and Chief Executive Officer of Pangborn Corporation (a manufacturer of blast cleaning and surface preparation systems and equipment). From 1993 to 1996, Mr. Moore served as President of LINAC Holdings, (the U.S. financial Holding Co. for all the U.S. based thermal processing equipment companies owned by Ruhrgas AG). Kenneth P. Hahn, 45, Mr. Hahn joined the Company as Corporate Vice President of Finance and Controller in April, 1988. Mr. Hahn was Chief Financial Officer appointed Vice President of Finance in February, 1997 and became Chief Financial Officer in January, 1999. Daniel M. Keyes, 34, Mr. Keyes joined the Company as Vice Vice President Sales and Marketing President Sales and Marketing in December 2000. From 1996 until joining the Company, Mr. Keyes held a variety of senior marketing management positions, most recently, Director, Strategic Accounts, with CNH Global NV (a manufacturer of agricultural and construction equipment).
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Michael J. Mulcahy, 56, Mr. Mulcahy has served as General Counsel Vice President, Secretary of the Company since 1974 and became and General Counsel Secretary in 1977 and a Vice President in 1986. Kenneth H. Feucht, 54 Mr. Feucht has served as Vice President Vice President of Human Resources of Human Resources since May, 2002. Mr. Feucht was Director of Human Resources from 1999 to 2002 and Manager of Human Resources from 1993 to 1999.
All officers of the Company are elected annually by the Board of Directors following the Annual Meeting of Shareholders. The Company has an employment agreement with William D. Gehl, pursuant to which he is to serve as President and Chief Executive Officer of the Company through the expiration of the agreement on June 13, 2004. -10- PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS. Pursuant to the terms of the Gehl Company Director Stock Grant Plan, each of the non-employee directors of the Company (i.e., Messrs. N.C. Babson, T. J. Boldt, J. T. Byrnes, F. J. Fotsch, K. Helletzgruber, J. W. Splude and H. Viets) received on December 31, 2002 a grant of shares of Company common stock as part of their annual retainer fee. An aggregate of 4,018 shares of Company common stock were granted under the Director Stock Grant Plan. These shares were issued in transactions exempt from registration under Section 4(2) of the Securities Act of 1933, as amended. Information required by this item is also included on Pages 32 and 33 of the Gehl Company 2002 Annual Report to Shareholders, which pages are hereby incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA. Information required by this item is included on Page 32 of the Gehl Company 2002 Annual Report to Shareholders, which page is hereby incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Information required by this item is included on Pages 10 through 17 of the Gehl Company 2002 Annual Report to Shareholders, which pages are hereby incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Information required by this item is included on Page 16 of the Gehl Company 2002 Annual Report to Shareholders, which page is hereby incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Information required by this item is included on Page 9 and Pages 18 through 31 of the Gehl Company 2002 Annual Report to Shareholders, which pages are hereby incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There have been no changes in or disagreements with the Company's accountants regarding accounting and financial disclosure required to be reported pursuant to this item. -11- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Pursuant to Instruction G, the information required by this item with respect to directors is hereby incorporated herein by reference from the caption entitled "Election of Directors" set forth in the Company's definitive Proxy Statement for its 2003 Annual Meeting of Shareholders ("Proxy Statement")1. Information with respect to executive officers of the Company appears at the end of Part I, Pages 9 through 10, of this Annual Report on Form 10-K. Pursuant to Instruction G, the information required by this item with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934 is hereby incorporated by reference from the caption entitled "Section 16(a) Beneficial Ownership Reporting Compliance" set forth in the Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION. Pursuant to Instruction G, the information required by this item is hereby incorporated herein by reference from the captions entitled "Board of Directors" and "Executive Compensation" set forth in the Proxy Statement; provided, however, that the subsection entitled "Executive Compensation - Report on Executive Compensation" shall not be deemed to be incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS. Pursuant to Instruction G, the information required by this item with respect to security ownership of certain beneficial owners and management is hereby incorporated by reference herein from the caption "Principal Shareholders" set forth in the Proxy Statement. The following table sets forth information with respect to compensation plans under which equity securities of the Company are authorized for issuance.
- ------------------------------ ------------------------------ ----------------------------- ----------------------------------- Plan category Number of securities to be Weighted-average exercise Number of securities remaining issued upon the exercise of price of outstanding available for future issuance outstanding options, options, warrants and rights under equity compensation plans warrants and rights (excluding securities reflected in the first column) - ------------------------------ ------------------------------ ----------------------------- ----------------------------------- Equity compensation plans 977,937 $13.58 35,838 approved by security holders - ------------------------------ ------------------------------ ----------------------------- ----------------------------------- Equity compensation plans not approved by security holders - - 9,894 - ------------------------------ ------------------------------ ----------------------------- ----------------------------------- Total 977,937 $13.58 45,732 - ------------------------------ ------------------------------ ----------------------------- -----------------------------------
The Company's only equity compensation plan not approved by security holders is the Gehl Company Director Stock Grant Plan. Under that plan, on December 31 of each year, each of the non-employee directors of the Company is granted shares of the Company's common stock with a market value of $5,000 as part of each director's annual retainer fee. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Pursuant to Instruction G, the information required by this item is hereby incorporated herein by reference from the caption entitled "Miscellaneous - Certain Transactions" set forth in the Proxy Statement. -12- ITEM 14. CONTROLS AND PROCEDURES. The Company's management, under the supervision and with the participation of the Company's principal executive officer and principal financial officer, has evaluated the Company's disclosure controls and procedures within 90 days prior to the filing date of this Annual Report on Form 10-K. Based upon that evaluation, the Company's principal executive officer and principal financial officer have concluded that the Company's disclosure controls and procedures are effective. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. ________________________________________________________________________________ (1) The Proxy Statement will be filed with the Commission pursuant to Regulation 14A. -13- PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) 1 and 2. Financial statements and financial statement schedule. Reference is made to the separate index to the Company's consolidated financial statements and schedule contained on Page 18 hereof. 3. Exhibits. Reference is made to the separate exhibit index contained on Pages 21 through 26 hereof. (b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company during the quarter ended December 31, 2002. -14- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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: March 6, 2003 By /s/ William D. Gehl -------------------------------- William D. Gehl, Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ William D. Gehl Chairman of the Board, President, March 6, 2003 - ----------------------- Chief Executive Officer and Director William D. Gehl (Principal Executive Officer) /s/ Kenneth P. Hahn Vice President of Finance and Chief Financial March 6, 2003 - ----------------------- Officer (Principal Financial and Accounting Officer) Kenneth P. Hahn /s/ Nicholas C. Babson Director March 6, 2003 - ----------------------- Nicholas C. Babson /s/ Thomas J. Boldt Director March 6, 2003 - ----------------------- Thomas J. Boldt /s/ John T. Byrnes Director March 6, 2003 - ----------------------- John T. Byrnes /s/ Richard J. Fotsch Director March 6, 2003 - ----------------------- Richard J. Fotsch /s/ Kurt Helletzgruber Director March 6, 2003 - ----------------------- Kurt Helletzgruber /s/ John W. Splude Director March 6, 2003 - ----------------------- John W. Splude /s/ Dr. Hermann Viets Director March 6, 2003 - ----------------------- Dr. Hermann Viets
-15- CERTIFICATIONS I, William D. Gehl, Chairman of the Board, President and Chief Executive Officer of Gehl Company, certify that: 1. I have reviewed this annual report on Form 10-K of Gehl Company; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 6, 2003 /s/ William D. Gehl ---------------------------------------------- William D. Gehl Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) -16- I, Kenneth P. Hahn, Vice President of Finance and Chief Financial Officer of Gehl Company, certify that: 1. I have reviewed this annual report on Form 10-K of Gehl Company; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 6, 2003 /s/ Kenneth P. Hahn ---------------------------------------------- Kenneth P. Hahn Vice President of Finance and Chief Financial Officer (Principal Financial Officer) -17- GEHL COMPANY ------------ INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES Page(s) in Annual Report* ------------- The following documents are filed as part of this report: (1) Financial Statements: Report of Independent Accountants 9 Consolidated Balance Sheets at December 31, 2002 and 2001 18 Consolidated Statements of Income for the three years ended December 31, 2002 19 Consolidated Statements of Shareholders' Equity for the three years ended December 31, 2002 20 Consolidated Statements of Cash Flows for the three years ended December 31, 2002 21 Notes to Consolidated Financial Statements 22 * Incorporated by reference from the indicated pages of the Gehl Company 2002 Annual Report to Shareholders. Page in Form 10-K --------- (2) Financial Statement Schedule: Report of Independent Accountants on Financial Statement Schedule 19 Schedule II - Valuation and Qualifying Accounts for the three years ended December 31, 2002 20 All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. -18- REPORT OF INDEPENDENT ACCOUNTANTS ON ------------------------------------ FINANCIAL STATEMENT SCHEDULE ---------------------------- To the Board of Directors of Gehl Company: Our audits of the consolidated financial statements referred to in our report dated February 14, 2003 appearing in the 2002 Annual Report to Shareholders of Gehl Company (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Milwaukee, Wisconsin February 14, 2003 -19-
GEHL COMPANY AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (in thousands) Period Description Balance at Charged to Deductions Balance at - ------ ----------- Beginning Costs and ---------- End of Year of Year Expenses ----------- ------- -------- Year Ended December 31, 2000 Allowance for Doubtful Accounts-Trade Receivables . . . . $ 1,687 $ 540 $ 363 $ 1,864 Returns and Dealer Discounts . . 2,761 3,385 3,487 2,659 ------- ------- ------- ------- Total . . . . . . . . $ 4,448 $ 3,925 $ 3,850 $ 4,523 ======= ======= ======= ======= Allowance for Doubtful Accounts - Retail Contracts . . . $ 1,504 $ 705 $ 248 $ 1,961 ======= ======= ======= ======= Inventory Obsolescence Reserve . . . . . . $ 1,742 $ 900 $ 638 $ 2,004 ======= ======= ======= ======= Income Tax Valuation Allowance . . . . . $ 546 $ 48 $ 22 $ 572 ======= ======= ======= ======= Year Ended December 31, 2001 Allowance for Doubtful Accounts-Trade Receivables . . . . $ 1,864 $ 563 $ 192 $ 2,235 Returns and Dealer Discounts . . . . . 2,659 4,349 4,169 2,839 ------- ------- ------- ------- Total . . . . . . . . $ 4,523 $ 4,912 $ 4,361 $ 5,074 ======= ======= ======= ======= Allowance for Doubtful Accounts - Retail Contracts . . . . . $ 1,961 $ 220 $ 133 $ 2,048 ======= ======= ======= ======= Inventory Obsolescence Reserve . . . . . . $ 2,004 $ 265 $ 157 $ 2,112 ======= ======= ======= ======= Income Tax Valuation Allowance . . . . . $ 572 $ 72 $ 20 $ 624 ======= ======= ======= ======= Year Ended December 31, 2002 Allowance for Doubtful Accounts-Trade Receivables . . . . $ 2,235 $ 710 $ 316 $ 2,629 Returns and Dealer Discounts . . . . . 2,839 2,306 2,918 2,227 ------- ------- ------- ------- Total . . . . . . . . $ 5,074 $ 3,016 $ 3,234 $ 4,856 ======= ======= ======= ======= Allowance for Doubtful Accounts - Retail Contracts . . . . . $ 2,048 $ 802 $ 548 $ 2,302 ======= ======= ======= ======= Inventory Obsolescence Reserve . . . . . . $ 2,112 $ 351 $ 689 $ 1,774 ======= ======= ======= ======= Income Tax Valuation Allowance . . . . . $ 624 $ 379 $ 9 $ 994 ======= ======= ======= =======
-20- GEHL COMPANY ------------ INDEX TO EXHIBITS Exhibit Number Document Description - -------------- -------------------- (3.1) Restated Articles of Incorporation, as amended, of Gehl Company [Incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 28, 1997] (3.2) By-laws of Gehl Company, as amended [Incorporated by reference to Exhibit 3.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended June 29, 2002] (4.1) Amended and Restated Loan and Security Agreement by and between ITT Commercial Finance Corp. (now known as Deutsche Financial Services Corporation) and Gehl Company and its subsidiaries, dated October 1, 1994 [Incorporated by reference to Exhibit 4.1 of the Company's Annual Report on Form 10-K for the year ended December 31, 1994] (4.2) First Amendment to Amended and Restated Loan and Security Agreement by and between Deutsche Financial Services Corporation, f/k/a ITT Commercial Finance Corp., and Gehl Company and its subsidiaries, dated May 10, 1995 [Incorporated by reference to Exhibit 4.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended July 1, 1995] (4.3) Amendment to Amended and Restated Loan and Security Agreement by and between Deutsche Financial Services Corporation, f/k/a ITT Commercial Finance Corp., Deutsche Financial Services Canada Corporation and Gehl Company and its subsidiaries, dated December 1, 1995 [Incorporated by reference to Exhibit 4.1 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995] (4.4) Third Amendment to Amended and Restated Loan and Security Agreement by and between Deutsche Financial Services Corporation, Deutsche Financial Services Canada Corporation and Gehl Company and its subsidiaries, dated as of July 15, 1996 [Incorporated by reference to Exhibit 4.4 of the Company's Annual Report on Form 10-K for the year ended December 31, 1997] (4.5) Amendment to Amended and Restated Loan and Security Agreement by and between Deutsche Financial Services Corporation, Deutsche Financial Services Canada Corporation and Gehl Company and its subsidiaries, dated October 2, 1997 [Incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K dated October 17, 1997] (4.6) Fifth Amendment to Amended and Restated Loan and Security Agreement by and between Deutsche Financial Services Corporation, Deutsche Financial Services, a division of Deutsche Bank Canada, and Gehl Company and its subsidiaries, dated as of February 5, 1998 [Incorporated by reference to Exhibit 4.6 of the Company's Annual Report on Form 10-K for the year ended December 31, 1997] -21- (4.7) Sixth Amendment to Amended and Restated Loan and Security Agreement by and between Deutsche Financial Services Corporation, Deutsche Financial Services, a division of Deutsche Bank Canada, and Gehl Company and its subsidiaries, dated as of June 1, 1998 [Incorporated by reference to Exhibit 4.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended June 27, 1998] (4.8) Seventh Amendment to Amended and Restated Loan and Security Agreement by and between Deutsche Financial Services Corporation, Deutsche Financial Services, a division of Deutsche Bank Canada, and Gehl Company and its subsidiaries, dated as of September 1, 1998 [Incorporated by reference to Exhibit 4.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 26, 1998] (4.9) Eighth Amendment to Amended and Restated Loan and Security Agreement by and between Deutsche Financial Services Corporation, Deutsche Financial Services, a division of Deutsche Bank Canada, and Gehl Company and its subsidiaries, dated as of December 30, 1999 [Incorporated by reference to Exhibit 4.9 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999] (4.10) Ninth Amendment to Amended and Restated Loan and Security Agreement by and between Deutsche Finance Services Corporation, Deutsche Financial Services, a division of Deutsche Bank Canada, and Gehl Company and its subsidiaries, dated as of June 20, 2000 [Incorporated by reference to Exhibit 4.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended July 1, 2000] (4.11) Tenth Amendment to the Amended and Restated Loan and Security Agreement by and between Deutsche Financial Services Corporation, Deutsche Financial Services, a division of Deutsche Bank Canada, and Gehl Company and its subsidiaries, dated as of December 7, 2000 [Incorporated by reference to Exhibit 4.11 of the Company's Annual Report on Form 10-K for the year ended December 31, 2001] (4.12) 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 [incorporated by reference to Exhibit 4.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended March 30, 2002] (4.13) Amended and Restated Negotiable Promissory Note signed by Gehl Company and its subsidiaries payable to Deutsche Financial Services Corporation, dated March 19, 2002 [Incorporated by reference to Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 30, 2002] (4.14) Loan Agreement between Pennsylvania Economic Development Financing Authority and Gehl Company, dated as of September 1, 1990 [Incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 29, 1990] (4.15) First Supplemental Loan Agreement between Pennsylvania Economic Development Financing Authority and Gehl Company, dated as of April 23, 1993 [Incorporated by reference to Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended April 3, 1993] -22- (4.16) Second Supplemental Loan Agreement between Pennsylvania Economic Development Financing Authority and Gehl Company, dated as of February 1, 1994 [Incorporated by reference to Exhibit 4.10 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993] (4.17) Mortgage and Security Agreement by and between Gehl Company and First Pennsylvania Bank N.A., dated as of September 1, 1990 [Incorporated by reference to Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 29, 1990] (4.18) Rights Agreement, dated as of May 28, 1997, between Gehl Company and U.S. Bank National Association (as successor to Firstar Trust Company) [Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form 8-A, dated as of May 28, 1997] (4.19) Amendment to Rights Agreement, dated as of September 20, 2002 by and among U.S. Bank National Association, Gehl Company and American Stock Transfer and Trust Company [Incorporated by reference to Exhibit 4.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 28, 2002] (4.20) Loan Agreement by and between South Dakota Board of Economic Development and Gehl Company, dated May 26, 1998 [Incorporated by reference to Exhibit 4.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended June 27, 1998] (4.21) Promissory Note signed by Gehl Company payable to South Dakota Board of Economic Development, dated May 26, 1998 [Incorporated by reference to Exhibit 4.3 of the Company's Quarterly Report on Form 10-Q for the quarter ended June 27, 1998] (4.22) Mortgage by and between Gehl Company and South Dakota Board of Economic Development, dated May 26, 1998 [Incorporated by reference to Exhibit 4.4 of the Company's Quarterly Report on Form 10-Q for the quarter ended June 27, 1998] (4.23) Employment Agreement by and between Gehl Company and South Dakota Board of Economic Development, dated May 26, 1998 [Incorporated by reference to Exhibit 4.5 of the Company's Quarterly Report on Form 10-Q for the quarter ended June 27, 1998] (4.24) Loan Agreement by and between the City of Madison, a political subdivision of the State of South Dakota, and Gehl Company, dated September 8, 1998 [Incorporated by reference to Exhibit 4.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 26, 1998] (4.25) Promissory Note signed by Gehl Company payable to the City of Madison, a political subdivision of the State of South Dakota, dated September 8, 1998 [Incorporated by reference to Exhibit 4.3 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 26, 1998] (4.26) Mortgage by and between Gehl Company and the City of Madison, a -23- political subdivision of the State of South Dakota, dated September 8, 1998 [Incorporated by reference to Exhibit 4.4 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 26, 1998] (10.1)* Form of Supplemental Retirement Benefit Agreement between Gehl Company and Messrs. Hahn, Keyes, Moore and Mulcahy [Incorporated by reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the quarter ended July 1, 2000] (10.2)* Gehl Company Director Stock Grant Plan, as amended [Incorporated by reference to Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q for the quarter ended July 1, 2000] (10.3)* Amended and Restated Employment Agreement between Gehl Company and William D. Gehl dated as of December 19, 1997 [Incorporated by reference to Exhibit 10.3 of the Company's Annual Report on Form 10-K for the year ended December 31, 1997] (10.4)* Amendment to Amended and Restated Employment Agreement between Gehl Company and William D. Gehl dated as of June 13, 2001 [Incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001] (10.5)* Supplemental Retirement Benefit Agreement by and between William D. Gehl and Gehl Company [Incorporated by reference to Exhibit 10.4 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995] (10.6)* Amendment to Supplemental Retirement Benefit Agreement by and between William D. Gehl and Gehl Company dated as of April 20, 2000 [Incorporated by reference to Exhibit 10.6 of the Company's Quarterly Report on Form 10-Q for the quarter ended July 1, 2000] (10.7)* Gehl Company Shareholder Value Added Management Incentive Compensation Plan [Incorporated by reference to Exhibit 10.6 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995] (10.8)* Gehl Savings Plan, as amended and restated effective July 1, 2001 [Incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 29, 2001] (10.9)* Amendment to Gehl Savings Plan [Incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended March 30, 2002] (10.10)* Amendment to Gehl Savings Plan [Incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended June 29, 2002] (10.11)* Gehl Company Retirement Income Plan "B", as amended and restated [Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 29, 2001] (10.12)* Amendments to Gehl Company Retirement Income Plan "B" [Incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended June 29, 2002] -24- (10.13)* Gehl Company 1987 Stock Option Plan, as amended [Incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996] (10.14)* Form of Stock Option Agreement used in conjunction with the Gehl Company 1987 Stock Option Plan [Incorporated by reference to Exhibit 4.2 to the Company's Form S-8 Registration Statement (Reg. No. 33-38392)] (10.15)* Gehl Company 1995 Stock Option Plan, as amended [Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended July 1, 2000] (10.16)* Form of Stock Option Agreement for executive officers used in conjunction with the Gehl Company 1995 Stock Option Plan [Incorporated by reference to Exhibit 10.12 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995] (10.17)* Form of Stock Option Agreement for non-employee directors used in conjunction with the Gehl Company 1995 Stock Option Plan [Incorporated by reference to Exhibit 10.13 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995] (10.18)* Gehl Company 2000 Equity Incentive Plan [Incorporated by reference to Appendix A to the Company's Proxy Statement for the 2000 Annual Meeting of Shareholders] (10.19)* Form of Non-Qualified Stock Option Agreement used in conjunction with the Gehl Company 2000 Equity Incentive Plan [Incorporated by reference to Exhibit 4.5 to the Company's Registration Statement on Form S-8 (Registration No. 333-36102)] (10.20)* Form of Stock Option Agreement for Non-Employee Directors used in conjunction with the Gehl Company 2000 Equity Incentive Plan [Incorporated by reference to Exhibit 4.6 to the Company's Registration Statement on Form S-8 (Registration No. 333-36102)] (10.21)* Form of Change in Control and Severance Agreement between Gehl Company and Messrs. Hahn, Keyes, Moore and Mulcahy [Incorporated by reference to Exhibit 10.8 of the Company's Quarterly Report on Form 10-Q for the quarter ended July 1, 2000] (10.22)* Forms of Amendment to the Change in Control and Severance Agreement between Gehl Company and Messrs. Hahn, Keyes, Moore and Mulcahy dated as of June 13, 2001 [Incorporated by reference to Exhibits 10.3 and 10.4 of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001] (10.23)* Form of Retention Agreement, dated as of June 13, 2001, between Gehl Company and each of Messrs. Gehl, Moore, Hahn, Mulcahy and Keyes [Incorporated by reference to Exhibit 10.5 of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001] (10.24)* Gehl Company Deferred Compensation Plan effective August 1, 2000 [Incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000] (10.25) Technical Assistance and License Agreement by and between Gehl Company and Rheiner Maschinenfabrik Windhoff AG, dated as of May 4, 1985, as amended [Incorporated by reference to Exhibit 10.13 to the -25- Company's Form S-1 Registration Statement (Reg. No. 33-31571)] (10.26) Trademark Licensing Agreement by and between Gehl Company and Gehl GmbH, dated as of April 15, 1985 [Incorporated by reference to Exhibit 10.17 to the Company's Form S-1 Registration Statement (Reg. No. 33-31571)] (13) Portions of the Gehl Company 2002 Annual Report to Shareholders that are incorporated by reference herein (21) Subsidiaries of Gehl Company (23) Consent of PricewaterhouseCoopers LLP (99.1) Proxy Statement for 2003 Annual Meeting of Shareholders (To be filed with the Securities and Exchange Commission under Regulation 14A; except to the extent incorporated by reference, the Proxy Statement for the 2003 Annual Meeting of Shareholders shall not be deemed to be filed with the Securities and Exchange Commission as part of this Annual Report on Form 10-K) (99.2) Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350. (99.3) Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350. __________________ * A management contract or compensatory plan or arrangement. Except as otherwise noted, all documents incorporated by reference are to Commission File No. 0-18110. -27- EX-13 3 irm204d.txt PORTIONS OF THE GEHL COMPANY 2002 ANNUAL REPORT REPORT OF MANAGEMENT The management of Gehl Company is responsible for the preparation and integrity of all financial statements and other information contained in this annual report. The financial statements have been prepared by the Company in conformity with generally accepted accounting principles appropriate in the circumstances. Such statements necessarily include amounts based on the best estimates and judgments of management after giving due consideration to materiality. The Company maintains an internal control system designed to provide reasonable assurance that transactions are properly recorded and executed in accordance with management's authorization and that assets are safeguarded from loss or unauthorized use. The internal control system is augmented by careful selection and training of qualified employees, proper division of responsibilities, and the development and dissemination of written policies and procedures. The Board of Directors elects, from among its members, an Audit Committee, consisting entirely of outside directors, which is responsible for reviewing and evaluating the overall performance of the Company's financial reporting and accounting practices and for involvement in the appointment of the independent accountants. The Audit Committee meets periodically with management and the independent accountants to discuss any and all matters within the Committee's responsibilities. The independent accountants have free access to the Committee, without the presence of management if so requested. The Company's financial statements have been audited by PricewaterhouseCoopers LLP, independent accountants, whose report also appears on this page. Included in the audit process was a review of the Company's system of internal controls. PricewaterhouseCoopers LLP annually provides to management and the Audit Committee recommendations to improve internal controls or enhance administrative procedures. /s/ William D. Gehl William D. Gehl Chairman of the Board of Directors, President and Chief Executive Officer /s/ Kenneth P. Hahn Kenneth P. Hahn Vice President of Finance and Chief Financial Officer REPORT OF INDEPENDENT ACCOUNTANTS PRICEWATERHOUSECOOPERS [GRAPHIC OMITTED][PRICEWATERHOUSECOOPERS LOGO] To the Board of Directors and Shareholders of Gehl Company In our opinion, the statements appearing on pages 18 through 31 of this report present fairly, in all material respects, the financial position of Gehl Company and its subsidiaries at December 31, 2002 and December 31, 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 5 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," effective January 1, 2002. /s/ PricewaterhouseCoopers LLP Milwaukee, Wisconsin February 14, 2003 9 MANAGEMENT'S DISCUSSION & ANALYSIS OVERVIEW The Company's net income in 2002 was $1.0 million, or $.19 per diluted share, compared with $2.3 million, or $.42 per diluted share, in 2001. The 2002 net income included non-recurring after-tax restructuring charges of $.6 million, or $.11 per diluted share, related to restructuring and plant rationalization initiatives approved and commenced in 2001. The 2001 net income included non-recurring after-tax charges for plant rationalization initiatives of $2.8 million, or $.51 per diluted share, and strategic review process expenses of $.3 million, or $.06 per diluted share. Exclusive of such non-recurring charges, the Company's net income in 2002 was $1.7 million, or $.30 per diluted share, and in 2001 was $5.4 million, or $.99 per diluted share. Results for the full year 2001 included approximately $476,000 of goodwill amortization expense, or $.09 per diluted share. Net sales in 2002 of $232.6 million were 3% below the $240.4 million in 2001. Construction equipment sales in 2002 of $135.1 million were 10% above 2001 levels, while agriculture equipment sales in 2002 of $97.5 million were 17% below 2001 levels. Construction equipment comprised 58% of the Company net sales in 2002 versus 51% in 2001. Agriculture equipment sales were 42% of Company net sales in 2002, versus 49% in 2001. Income from operations in 2002 was $5.2 million, with construction equipment accounting for $4.3 million, while agriculture equipment contributed the balance of $.9 million. Exclusive of the non-recurring restructuring charges, the Company realized income from operations of $6.1 million, with construction equipment accounting for $4.8 million, while agriculture equipment contributed the balance of $1.3 million. Interest expense in 2002 decreased $.2 million, to $4.1 million. Other expense, net, consisting primarily of the costs of selling finance contracts receivable, which was $3.1 million in 2001, decreased in 2002 to $1.5 million. The Company's total debt was reduced to $57.9 million at December 31, 2002 from $64.4 million at December 31, 2001. The reduction was primarily due to a reduction in working capital. The working capital reduction was primarily due to the significant decline in factory inventories attained during 2002. The Company's ratio of debt to total capital was 37.6% at December 31, 2002, as compared with 39.2% at December 31, 2001. CONSOLIDATION OF GEHL EUROPE Effective January 1, 2002, the Company began accounting for its investment in a German distribution operation ("Gehl Europe") as a consolidated subsidiary, as a result of the Company's controlling influence on the operations of Gehl Europe as of such date. Prior to January 1, 2002, the Company accounted for its investment in Gehl Europe under the equity method. The impact of the Gehl Europe consolidation is discussed below. 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 facility in Owatonna, Minnesota to its skid steer facility in Madison, South Dakota. In implementing these actions, the Company expected that it would 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 Agricultural and Construction equipment segments, respectively. Details of the restructuring charge and related activity are as follows (in thousands): - ----------------------------------------------------------------------- Employee Write-down Severence of and Long-Lived Other Termination and Other Exit Benefits Assets Costs Totals - ----------------------------------------------------------------------- Original Reserve $ 1,635 $ 1,754 $ 911 $ 4,300 2001 Utilization - (1,754) - (1,754) - ----------------------------------------------------------------------- Balance at December 31, 2001 1,635 - 911 2,546 2002 Utilization (1,351) - (430) (1,781) - ----------------------------------------------------------------------- Balance at December 31, 2002 $ 284 $ - $481 $ 765 ======================================================================= As a result of the plant rationalizations, the Company expected to reduce its workforce by 249, consisting of hourly and salaried employees at the Lebanon and Owatonna locations. During the year ended December 31, 2002, workforce reduction of 235 employees occurred, which included 211 employees who were terminated with severance payments. Termination benefits commenced in April 2002 and will continue into the first quarter of 2003. The manufacturing consolidations announced on September 26, 2001 have been completed. Production of Mustang skid loaders has been transferred to the Madison plant. The Lebanon plant was closed in the first quarter of 2002 and the production of certain products formerly manufactured at that facility has been outsourced. Both the Lebanon and Owatonna manufacturing facilities are expected to be sold and, accordingly, the tangible assets to be disposed of are recorded at their estimated fair value, less cost of disposal. 10 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 2002, the Company expensed $1.0 million of other charges related to the plant rationalization initiatives. These charges were required to be expensed when incurred and were not included in the original reserve. ACCOUNTING FOR GOODWILL Effective January 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142 ("SFAS No.142"), "Goodwill and Other Intangible Assets," which states that goodwill and intangible assets deemed to have indefinite lives are no longer subject to amortization; however, must be tested for impairment at least annually. Upon adoption, the Company discontinued the amortization of goodwill. The 2001 and 2000 results included approximately $476,000 of goodwill amortization expense. RESULTS OF OPERATIONS 2002 VS. 2001 Net Sales: - ----------------------------------------------------------------------- ($ millions) 2002 2001 2000 1999 1998 - ----------------------------------------------------------------------- Construction Equipment $135.1 $122.3 $148.6 $172.2 $157.4 Agriculture Equipment 97.5 118.1 101.4 112.6 101.5 - ----------------------------------------------------------------------- Total $232.6 $240.4 $250.0 $284.8 $258.9 (% of total) Construction Equipment 58.1% 50.9% 59.4% 60.5% 60.8% Agriculture Equipment 41.9% 49.1% 40.6% 39.5% 39.2% ======================================================================= Net sales for 2002 were $232.6 million compared to $240.4 million in 2001, a decrease of 3%. Excluding $10 million of net sales resulting from the consolidation of Gehl Europe, net sales decreased 7% from 2001 levels. Construction equipment segment net sales were $135.1 million in 2002 compared to $122.3 million in 2001, an increase of 10%. Excluding $10 million of net sales resulting from the consolidation of Gehl Europe, net sales increased 2% from 2001 levels. Sales of the new compact track loaders have been strong since their introduction in the second quarter of 2002. In addition, construction equipment segment net sales in 2002 benefited from the introduction of new all-wheel-steer loaders in the 2002 third quarter, contributions from telescopic handlers and compact excavator models sold through the Mustang distribution channel and net sales from the Company's new attachment business. These increases in construction equipment segment net sales more than offset the reduction in telescopic handler shipments resulting from the continuing downward trend in that market. Agricultural equipment segment net sales were $97.5 million in 2002, compared to $118.1 million in 2001, a decrease of 17%. Agricultural implement net sales were adversely impacted by the significant decline in milk prices as well as drought conditions in certain regions of the United States. Sales of the new compact track loaders introduced in the 2002 second quarter, the introduction of new all-wheel-steer loaders in the 2002 third quarter, increased shipments of compact excavators to select rural equipment dealers, and increased sales from the Company's new attachment business partially offset reduced implement and skid loader net sales in the agricultural segment. Of the Company's total net sales reported for 2002, $43.9 million were made outside of the United States compared with $33.9 million in 2001. The increase in exports was due primarily to the consolidation of Gehl Europe. Gross Profit: Gross profit in 2002 was $48.8 million compared to $53.3 million in 2001. Gross profit as a percent of net sales decreased in 2002 to 21.0% from 22.2% in 2001. Construction equipment gross profit as a percent of net sales for 2002 increased to 21.3% from 20.6% in 2001. The increase in the construction equipment gross margin was primarily due to lower levels of discounts and sales incentives associated with the mix of products shipped as well as improved manufacturing efficiencies. Gross profit as a percent of net sales for agriculture equipment decreased to 20.5% for 2002 from 23.8% for 2001. The decrease in the agricultural equipment segment gross margin was due to significant competitive pressure resulting in higher sales discounts and sales incentives, reduced production volume and a less favorable mix of product shipments. Operating Expenses: Selling, general and administrative expenses were $42.7 million, or 18.4% of net sales, in 2002, an increase from $39.6 million, or 16.5% of net sales, in 2001. The increase was primarily due to the consolidation of Gehl Europe effective January 1, 2002 and expenses associated with the Company's attachment business that was launched in July 2001. These costs, combined with a lower level of net sales during 2002, contributed to the Company's increased selling, general and administrative expenses as a percentage of net sales. Assuming the Company had adopted SFAS No. 142 on January 1, 2001, selling, general and administrative expenses for 2001 would have been $39.1 million. 11 RESULTS OF OPERATIONS (CONTINUED) Income from Operations: - ----------------------------------------------------------------- ($ millions) 2002 2001 2000 1999 1998 - ----------------------------------------------------------------- Construction Equipment $4.3 $2.2 $14.0 $23.7 $19.4 Agriculture Equipment .9 6.7 8.0 11.4 7.9 - ----------------------------------------------------------------- Total $5.2 $8.9 $22.0 $35.1 $27.3 ================================================================= Due to lower net sales volume, decreased gross margin, and increased selling, general and administrative expenses, income from operations in 2002 declined from 2001 levels. Construction equipment income from operations increased in 2002 to $4.3 million from $2.2 million in 2001. The increase was primarily due to a reduction in non-recurring charges from $3.0 million in 2001 to $.5 million in 2002. Agriculture equipment income from operations decreased in 2002 to $.9 million from $6.7 million in 2001 due primarily to the impact of reduced agriculture sales volume and a reduction in gross margin resulting from competitive market conditions and decreased production levels. Interest Expense: Interest expense decreased $.2 million, to $4.1 million in 2002 compared to $4.3 million in 2001. Average debt outstanding was $71.5 million during 2002 versus $61.0 million in 2001. The increase in average debt was due to increased working capital requirements and the consolidation of Gehl Europe during 2002. The average interest rate paid by the Company declined to approximately 5.6% during 2002 versus 6.5% in 2001. Other (expense) income, net: Other expense, net decreased $1.6 million to $1.5 million in 2002 from $3.1 million in 2001. This decrease was primarily the result of a $1.5 million decline in the costs of selling finance contracts due to lower discount rates required by third party purchasers of such contracts, in light of the general downward trend of overall interest rates, as well as a reduction in the amount of contracts sold compared to 2001. Provision for Income Taxes: The Company's effective income tax rate of 35.0% for 2002 was unchanged from 2001. Net Income: Net income in 2002 of $1.0 million compared to $2.3 million of net income in 2001. Diluted earnings per share were $.19 in 2002 compared to $.42 in 2001. Assuming the Company had adopted SFAS No. 142 on January 1, 2001, net income for 2001 would have been $2.8 million. Excluding the restructuring and other charges, net of tax, incurred in 2002, net income was $1.7 million, or $.30 per diluted share. Exclusive of the non-recurring charges for plant rationalization initiatives and the strategic review process completed during 2001, the Company realized net income of $5.4 million in 2001, or $.99 per diluted share. No dividends were declared in either 2002 or 2001 on the Company's common stock. 2001 VS. 2000 Net Sales: Net sales for 2001 of $240.4 million were 4% below the $250.0 million of net sales in 2000. Construction equipment net sales in 2001 were $122.3 million, 18% below the $148.6 million in 2000. Construction equipment sales were down in 2001 as dealers remained cautious about adding to or replacing fleet units and adding stock units in light of unfavorable economic conditions. Lower industry-wide rental rates for compact construction equipment, particularly telescopic handlers, also dampened demand for the Company's construction equipment products. Industry-wide telescopic handler retail demand in North America in 2001 was down approximately 27% below 2000's levels. Partially offsetting these unfavorable industry-wide conditions were some early successes for the Company in selling telescopic handlers through its Mustang distribution channel and the continued favorable market acceptance of the four new skid loader models introduced earlier in 2001 for Gehl and Mustang dealers. The Company also introduced new mid-sized models of compact excavators in the second half of 2001. Agricultural equipment net sales in 2001 were $118.1 million, 16% above the $101.4 million in 2000. The Company continued to successfully leverage its rural equipment distribution network by shipping compact construction equipment, including telescopic handlers, compact excavators and compact loaders, to select rural dealers in the agricultural equipment market. Additionally, several new products, including a line of round balers and new skid loader models, significantly contributed to the increase in agricultural equipment revenues. Favorable domestic milk prices also contributed to the positive performance of the Company's agricultural equipment business. Of the Company's total net sales reported for 2001, $33.9 million represented sales made outside the United States, unchanged from 2000. Gross Profit: Gross profit in 2001 was $53.3 million compared to $59.9 million in 2000. Gross profit as a percent of net sales decreased in 2001 to 22.2% from 24.0% in 2000. Construction equipment gross profit as a percent of net sales for 2001 decreased to 20.6% from 23.0% in 2000. The decrease in construction equipment gross margin was a result of competitive market conditions that resulted in downward pressure on pricing, lower production levels, and a less favorable mix of product shipments. Gross profit as a percent of net sales for agriculture equipment decreased to 23.8% for 2001 from 25.3% for 2000. Operating Expenses: Selling, general and administrative expenses were $39.6 million, or 16.5% of net sales, in 2001, an increase from $38.0 million, or 15.2% of net sales, in 2000. The Company continued to invest in revenue-enhancing projects to position the Company for future 12 growth and market share expansion, which included its attachment business, Compact Equipment Attachments, Inc., launched in 2001, new product development, implementation of its enterprise resource planning (ERP) system, and the centralization of service parts distribution. Such investments, combined with increased professional fees associated with various matters incurred during 2001, and a lower level of sales, contributed to the Company's increased operating expenses in the aggregate as well as a percentage of net sales. During the third quarter of 2001, the Company began several major plant rationalization initiatives as part of a previously announced program to increase profitability. In conjunction with this announcement, the Company recorded a $4.3 million restructuring charge in the third quarter of 2001 (see "Restructuring and Other Charges" for further discussion). In addition, the Company incurred non-recurring charges of $513,000 during the third quarter for legal and financial advisory fees related to the strategic review process undertaken and subsequently completed by the Company's Board of Directors. Income from Operations: Due to lower net sales volume and decreased gross margin, an increase in operating expenses, and non-recurring charges for plant rationalization initiatives and the strategic review process, income from operations in 2001 declined from 2000 levels. Construction equipment income from operations decreased in 2001 to $2.2 million from $14.0 million in 2000. The reduction was primarily due to the impact of reduced construction equipment sales volume, a reduction in gross margin, increased selling related costs resulting from competitive market conditions, and $3.0 million of costs related to the plant rationalization initiatives and the strategic review process. Agriculture equipment income from operations decreased in 2001 to $6.7 million from $8.0 million in 2000 due primarily to $1.8 million of costs related to the plant rationalization initiatives and the strategic review process. Interest Expense: Interest expense decreased $.4 million, to $4.3 million in 2001 compared to $4.7 million in 2000. Average debt outstanding was $61.0 million during 2001 versus $55.1 million in 2000. The increase in average debt was due to increased working capital requirements. The average interest rate paid by the Company declined to approximately 6.5% during 2001 versus 8.7% in 2000. Other (expense) income, net: Other expense, net decreased $1.0 million to $3.1 million in 2001 from $4.1 million in 2000. This decrease was primarily the result of a $1.8 million decline in the costs of selling finance contracts due to lower discount rates required by third party purchasers of such contracts, in light of the general downward trend of overall interest rates. Other expense, net was positively impacted by a pre-tax $.8 million gain on the disposal of a former branch service center in 2000. No comparable transaction occurred in 2001. Provision for Income Taxes: The Company's effective income tax rate of 35.0% for 2001 was consistent with 2000. Net Income: Net income in 2001 of $2.3 million compared to $9.7 million of net income in 2000. Diluted earnings per share were $.42 in 2001 compared to $1.72 in 2000. Exclusive of the non-recurring charges for plant rationalization initiatives and the strategic review process completed during the third quarter of 2001, the Company realized net income of $5.4 million in 2001, or $.99 per diluted share. The 2000 net income included a gain of $.5 million, or $.10 per diluted share, recognized on the disposal of a former branch service center. No dividends were declared in either 2001 or 2000 on the Company's common stock. LIQUIDITY AND CAPITAL RESOURCES Working Capital: The Company's working capital decreased to $103.4 million at December 31, 2002 from $107.5 million twelve months earlier. The decrease was primarily the result of a decrease in inventories, partially offset by an increase in accounts receivable and a decrease in current liabilities. The Company's current ratio at December 31, 2002 increased to 3.1 to 1 from 2.9 to 1 at the same time a year ago. Cash on hand at December 31, 2002 of $2.2 million was consistent with the level a year earlier. Accounts Receivable: The Company's net accounts receivable increased $6.9 million during 2002. Agriculture equipment accounts receivable at year-end 2002 decreased $2.7 million from a year earlier, while construction equipment accounts receivables increased $9.6 million over the same period. The increased construction equipment accounts receivable balances are due in part to new products introduced or offered during 2002, which were not previously available to the same extent in 2001, such as compact track loaders and all-wheel-steer loaders, and the introduction of the Company's attachment business, which was launched in July 2001. The construction equipment accounts receivable balance was also impacted by the consolidation of Gehl Europe as of January 1, 2002. Finance Contracts Receivable: Finance contracts receivable, net of reserves, decreased $5.6 million to $7.0 million at December 31, 2002. The combined portfolio of owned and sold-but-serviced finance contracts receivable was $161.7 million at December 31, 2002 as compared to $159.5 million at year-end 2001. (See "Sales of Finance Contracts Receivable" following). 13 LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) Inventories: Inventories at December 31, 2002 were $15.4 million lower than at December 31, 2001, notwithstanding the consolidation of the Gehl Europe inventories. The Company continually adjusts production and purchase levels in an attempt to maintain inventory levels to meet current market demand. In light of the reduced demand levels during 2002, numerous plant shut down periods were implemented to achieve a more appropriate level of inventories at the plants. Further, continued improvements in inventory flow management at the plants, combined with positive effects from the Company's plant rationalization initiatives, have resulted in reduced inventory levels. Capital Expenditures: - ---------------------------------------------------------------- ($ thousands) 2002 2001 2000 1999 1998 - ---------------------------------------------------------------- Capital Expenditures $6,790 $4,135 $12,577 $7,281 $3,051 Depreciation $4,630 $4,687 $ 4,885 $4,329 $3,941 ================================================================ The Company expended $6.8 million for property, plant and equipment in 2002, the majority of which was incurred to complete an expansion of the Madison, South Dakota plant necessary to accommodate the transfer of Mustang skid loader production from the Owatonna, Minnesota facility. The Company plans to make up to $3.6 million in capital expenditures in 2003, primarily to upgrade and maintain machinery and equipment. The Company had no significant outstanding commitments for capital items at December 31, 2002. The Company believes its present facilities will be sufficient to provide adequate capacity for its operations in 2003. Debt and Equity: - ----------------------------------------------------------------- December 31, 2002 2001 2000 1999 1998 - ----------------------------------------------------------------- ($ millions) Total Debt $57.9 $ 64.4 $ 61.1 $31.6 $29.5 Shareholders' Equity $96.1 $100.0 $103.0 $97.4 $94.1 % Total Debt to Total Capitalization 37.6% 39.2% 37.2% 24.5% 23.9% ================================================================= At December 31, 2002, shareholders' equity had decreased $3.9 million to $96.1 million from $100.0 million a year earlier. This decrease primarily reflected the impact of the year's net income of $1.0 million, which was more than offset by a $5.3 million reduction in other comprehensive income which related to a minimum pension liability adjustment, net of tax. In September 2001, the Company's Board of Directors authorized a repurchase plan providing for the repurchase of up to 500,000 shares of the Company's outstanding common stock. As of December 31, 2002, 78,200 shares had been repurchased in the open market under this authorization at an aggregate cost of $937,000. All treasury stock acquired by the Company has been cancelled and returned to the status of authorized but unissued shares. Borrowing Arrangements (See also Note 7 of Notes to Consolidated Financial Statements): The Company maintains a $75 million line of credit facility (the "Facility") which expires December 31, 2004, and is subject to a borrowing base related to the Company's accounts receivable, finance contracts receivable and inventories. The interest rate paid on borrowings denominated in U.S. dollars is 2.5% to 2.65% above the London Interbank Offered Rate for one-month deposits ("LIBOR"). In Canada, where the Company may borrow up to $5.5 million, the interest rate is 2.5% above the Canadian one-month bankers' acceptance rates. At December 31, 2002, the Company had unused borrowing capacity of $24.5 million under the Facility, versus $18.2 million a year earlier. In addition, the Company had short-term letters of credit totaling $1.3 million outstanding at December 31, 2002 due to the factoring of receivables by a supplier. The Company believes its capital resources and liquidity position at December 31, 2002 were adequate to meet projected needs. Requirements for working capital, capital expenditures, pension fund contributions and debt maturities in fiscal 2003 will continue to be funded by operations and the Company's Facility. The Company also has outstanding $8.4 million of 9% industrial development bonds related to the Lebanon, Pennsylvania facility with a 2010 final maturity; repayments commence in 2005. Contractual Obligations: A summary of the Company's significant contractual obligations and other commercial commitments as of December 31, 2002 are as follows (in thousands): 2004- 2006- After Total 2003 2005 2007 2007 - ---------------------------------------------------------------- Contractual Obligations: Debt Obligations $57,914 $1,779 $49,037 $2,898 $4,200 Opeating Leases 1,887 821 950 116 - - ---------------------------------------------------------------- Total Contractual Cash Obligations $59,801 $2,600 $49,987 $3,014 $4,200 ================================================================ Other Commercial Commitments: Letters of Credit $1,274 $1,274 - - - =============================================================== Sales of Finance Contracts Receivable: The sale of finance contracts is an important component of the Company's overall liquidity. The Company has arrangements with several financial institutions and financial service companies to sell with recourse its finance contracts receivable. The Company continues to service substantially all contracts whether or not sold. At December 31, 2002, the Company serviced $161.7 million of such contracts, of which $152.4 million were owned by third parties. Losses on finance contracts due to customer nonperformance were $547,000 in 2002 as compared to $133,000 in 2001. As a percentage of outstanding serviced contracts, the loss ratios were .3% and .1% in 2002 and 2001, respectively. 14 The Company incurred $1.8 million of costs in selling $103.9 million of its finance contracts in 2002, as compared to $3.2 million of costs in selling $113.0 million of such contracts in 2001. The costs arise primarily from the difference between the weighted average interest rate on the contracts being sold and the interest rate negotiated with the purchaser of the contracts. The Company believes that it will be able to arrange sufficient capacity to sell its finance contracts for the foreseeable future. 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 years ended December 31, 2001 and 2000 have been restated to conform to the current year presentation. This reclassification had no impact on reported income before income taxes or net income. In August 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("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. The impact of this statement upon adoption is not expected to have a material effect on the Company's financial position, results of operations or cash flows. In April 2002, the FASB issued SFAS No. 145, "Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections as of April 2002." SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements" and SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers." This Statement also amends SFAS No. 13, "Accounting for Leases," to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The provisions of this statement related to the rescission of SFAS No. 4 shall be applied in fiscal years beginning after May 15, 2002. The provisions of this statement related to SFAS No. 13 shall be effective for transactions occurring after May 15, 2002. All other provisions of this statement are effective for financial statements issued on or after May 15, 2002. The adoption of SFAS No. 145 had no impact on the Company's financial position at December 31, 2002 or the results of operations and cash flows for the year then ended. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement nullifies EITF 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)," which allowed companies engaged in exit and disposal activities to record liabilities for certain costs when the company committed to the exit or disposal plan. SFAS No. 146 requires costs associated with an exit or disposal plan to be recognized and measured initially at fair value only when the liability has been incurred as defined by FASB Concepts Statement 6. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of this statement did not impact the accounting for the plant rationalization initiatives adopted by the Company on September 26, 2001 (see Note 9 of Notes to Consolidated Financial Statements). In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," ("SFAS No. 148"), which amends SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirement of SFAS No. 123 to require more prominent and more frequent disclosures in financial statements of the effects of stock-based compensation. The Company adopted the disclosure provisions of SFAS No. 148 on December 31, 2002 and continues to account for stock-based compensation under APB Opinion No. 25. In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires a guarantor to recognize a liability, at the inception of the guarantee, for the fair value of obligations it has undertaken in issuing the guarantee and also include more detailed disclosures with respect to guarantees. FIN 45 is effective for guarantees issued or modified starting January 1, 2003 and requires the additional disclosures for the period ended December 31, 2002. The Company does not expect 15 ACCOUNTING PRONOUNCEMENTS (CONTINUED) that the provisions of FIN 45 will have a material impact on the Company's financial position, results of operations or cash flows. The Company has provided additional disclosure with respect to product warranties in Note 8 of Notes to Consolidated Financial Statements. In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities, an interpretation of ARB No. 51." FIN 46 clarifies the application of ARB No. 51 to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. This interpretation applies immediately to variable interest entities created after January 31, 2003, and applies in the first year or interim period beginning after June 15, 2003 to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. As of December 31, 2002, the Company is not a party to any variable interest entities. MARKET RISK The Company is exposed to market risk from changes in interest rates as well as fluctuations in currency. See further disclosure relating to variable rate debt under "Liquidity and Capital Resources - Borrowing Arrangements" above. Interest Rate Risk: The Company's Facility is primarily LIBOR-based and is subject to interest rate movements. A 10% increase or decrease in the average cost of the Company's variable rate debt would result in a change in pre-tax interest expense of approximately $218,000 based upon borrowings outstanding at December 31, 2002. Commodity Risk: The Company is exposed to fluctuations in market prices for commodities, especially steel. Each one of the Company's business segments is subject to commodity price risk as the prices for raw materials change with movements in underlying commodity prices. Therefore, the Company has established various programs to manage the negotiations of commodity prices. In general, the Company enters into contracts with selected vendors to lock in commodity prices at various times and for various periods in order to limit near-term exposure to fluctuations in raw material prices. Currency Risk: The Company has limited exposure to foreign currency exchange fluctuations. Certain sales are made in Canadian dollars and Euros; however, to minimize this exposure, the Company borrows in Canadian dollars under the Facility and, in limited circumstances, enters into currency hedge transactions relative to Euro billings. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of the Company's consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, net sales and expenses. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and materially impact the carrying value of the assets and liabilities. The Company believes the following accounting policies are critical to the Company's business operations and the understanding of the Company's results of operations and financial condition. Allowance for Doubtful Accounts - The Company's accounts receivable are reduced by an allowance for amounts that may be uncollectible in the future. 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; however, must 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. 16 2003 OUTLOOK Demand for construction equipment in the North American market during 2003 is expected to be flat compared to 2002 levels, while demand for agricultural equipment in the North American market is expected to be flat to slightly down. Based on the current market outlook, the Company's net sales are expected to range between being flat to up approximately 4% in 2003. Any growth in net sales is expected to result primarily from the sales of recently introduced products and new products to be introduced in 2003. Growth in net sales is more likely to occur in the construction equipment segment as compared with the agricultural equipment segment. Overall, any anticipated sales growth would likely occur in the latter portion of 2003 based on the Company's expectation of a gradually improving economy. Operating margins are expected to improve as the result of further initiatives to reduce costs, the effect of factory rationalizations completed in 2002 and a more favorable product mix. While it is difficult to predict results in these unsettled economic times, if the economy experiences some gradual improvement and the Company's sales levels meet projected forecasts, the Company expects to earn in the range of $.60 to $.75 per diluted share in 2003. FORWARD-LOOKING STATEMENTS The Company intends that certain matters discussed in this Annual Report (including in this section and the Letter to Shareholders) 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 future market conditions, projected capital expenditures, and the Company's future sales and earnings, are forward-looking statements. When used in this Annual Report, words such as the Company "believes," "anticipates," "expects" or "estimates" 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 this Annual Report was printed. Factors that could cause such a variance include, but are not limited to, a delay in the expected general economic recovery, unanticipated changes in capital market conditions, the Company's ability to implement successfully its strategic initiatives, market acceptance of newly introduced products, 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's ability to secure sources of liquidity necessary to fund its operation, 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 Annual Report are only made as of the date of its printing, 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 2003 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. 17 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS
Assets - ------------------------------------------------------------------------------------------------------- In Thousands, Except Share Data - December 31, 2002 2001 - ------------------------------------------------------------------------------------------------------- Cash $ 2,243 $ 2,248 Accounts receivable-net 97,627 90,714 Finance contracts receivable-net 4,701 7,511 Inventories 36,771 52,161 Deferred income tax assets 8,469 10,171 Prepaid expenses and other current assets 3,203 1,119 - ------------------------------------------------------------------------------------------------------- Total current assets 153,014 163,924 - ------------------------------------------------------------------------------------------------------- Property, plant and equipment-net 46,697 43,431 Finance contracts receivable-net, non-current 2,334 5,147 Goodwill 11,696 12,248 Other assets 12,328 12,659 - ------------------------------------------------------------------------------------------------------- Total assets $226,069 $237,409 ======================================================================================================= Liabilities and Shareholders' Equity - ------------------------------------------------------------------------------------------------------- Current portion of debt obligations $ 1,779 $ 161 Accounts payable 27,540 30,644 Accrued liabilities 20,315 25,661 - ------------------------------------------------------------------------------------------------------- Total current liabilities 49,634 56,466 - ------------------------------------------------------------------------------------------------------- Line of credit facility 47,377 55,188 Long-term debt obligations 8,758 9,049 Deferred income tax liabilities 1,644 2,460 Other long-term liabilities 22,518 14,225 - ------------------------------------------------------------------------------------------------------- Total long-term liabilities 80,297 80,922 - ------------------------------------------------------------------------------------------------------- Common stock, $.10 par value, 25,000,000 shares authorized, 5,373,650 and 5,359,721 shares outstanding at December 31, 2002 and 2001, respectively 537 536 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 7,030 6,980 Retained earnings 99,472 98,429 Accumulated other comprehensive loss (10,901) (5,924) - ------------------------------------------------------------------------------------------------------- Total shareholders' equity 96,138 100,021 - ------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $226,069 $237,409 ======================================================================================================= Contingencies (Notes 2 and 15) - ------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of the financial statements.
18
CONSOLIDATED STATEMENTS OF INCOME - ------------------------------------------------------------------------------------------------------------ In Thousands, Except Per Share Data - Year Ended December 31, 2002 2001 2000 - ------------------------------------------------------------------------------------------------------------ Net sales $ 232,565 $ 240,394 $ 250,037 Cost of goods sold 183,720 187,069 190,093 - ------------------------------------------------------------------------------------------------------------ Gross profit 48,845 53,325 59,944 Selling, general and administrative expenses 42,733 39,569 37,959 Strategic review process costs -- 513 -- Restructuring and other charges 955 4,300 -- - ------------------------------------------------------------------------------------------------------------ Total operating expenses 43,688 44,382 37,959 ============================================================================================================ Income from operations 5,157 8,943 21,985 Interest expense (4,052) (4,299) (4,741) Interest income 1,986 2,024 1,760 Other (expense) income, net (1,486) (3,122) (4,148) - ------------------------------------------------------------------------------------------------------------ Income before income taxes 1,605 3,546 14,856 Provision for income taxes 562 1,241 5,200 - ------------------------------------------------------------------------------------------------------------ Net income $ 1,043 $ 2,305 $ 9,656 ============================================================================================================ Diluted net income per common share $ .19 $ .42 $ 1.72 ============================================================================================================ Basic net income per common share $ .19 $ .43 $ 1.76 ============================================================================================================ The accompanying notes are an integral part of the financial statements.
19 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------ Accumulated Other Capital Comprehensive Retained Comprehensive Common In Excess In Thousands Total Income (Loss) Earnings Loss Stock of Par - ------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1999 $ 97,424 $86,468 $ (903) $ 565 $11,294 Comprehensive income: Net income 9,656 $ 9,656 9,656 Minimum pension liability adjustments, net of $415 of taxes 769 769 769 -------- Comprehensive income 10,425 ======== Exercise of stock options 526 7 519 Treasury stock purchases/cancellations (5,924) (39) (5,885) Other 567 567 - ----------------------------------------------------------- --------------------------------------------- Balance at December 31, 2000 103,018 96,124 (134) 533 6,495 Comprehensive income: Net income 2,305 2,305 2,305 Minimum pension liability adjustments, net of $3,087 of taxes (5,732) (5,732) (5,732) Unrealized gains (losses), net of $31 of taxes (58) (58) (58) -------- Comprehensive loss (3,485) ======== Exercise of stock options 357 4 353 Treasury stock purchases/cancellations (245) (1) (244) Other 376 376 - ----------------------------------------------------------- --------------------------------------------- Balance at December 31, 2001 100,021 98,429 (5,924) 536 6,980 Comprehensive income: Net income 1,043 1,043 1,043 Minimum pension liability adjustments, net of $2,839 of taxes (5,272) (5,272) (5,272) Currency translation adjustment 551 551 551 Unrealized gains (losses), net of $138 of taxes (256) (256) (256) -------- Comprehensive loss $ (3,934) ======== Exercise of stock options 623 7 616 Treasury stock purchases/cancellations (692) (6) (686) Other 120 120 - ------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 2002 $ 96,138 $99,472 $(10,901) $537 $ 7,030 ============================================================================================================================== The accompanying notes are an integral part of the financial statements.
20 CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------- In Thousands - Year Ended December 31, 2002 2001 2000 - -------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities Net income $ 1,043 $ 2,305 $ 9,656 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation 4,630 4,687 4,885 Amortization 183 729 849 Gain on sale of property, plant and equipment -- -- (863) Restructuring costs (non-cash) -- 1,754 -- Cost of sales of finance contracts 1,763 3,222 4,990 Deferred income taxes 2,750 (1,611) 121 Proceeds from sales of finance contracts 102,120 109,740 93,485 Increase (decrease) in cash, excluding the effects of business acquisition, due to changes in: Accounts receivable-net (5,662) (21,437) (995) Finance contracts receivable-net (98,260) (99,104) (105,606) Inventories 21,802 (7,103) (10,392) Prepaid expenses and other current assets (434) (483) (125) Other assets (1,741) 354 520 Accounts payable (6,164) 3,999 1,568 Other liabilities (5,262) 2,842 (5,225) - -------------------------------------------------------------------------------------------------- Net cash provided by (used for) operating activities 16,768 (106) (7,132) - -------------------------------------------------------------------------------------------------- Cash Flows from Investing Activities Property, plant and equipment additions (6,790) (4,135) (12,577) Proceeds from sale of property, plant and equipment 195 -- 942 Acquisition of business, net of cash required (505) -- -- Increase (decrease) in other assets 1,107 553 (4,189) - -------------------------------------------------------------------------------------------------- Net cash used for investing activities (5,993) (3,582) (15,824) - -------------------------------------------------------------------------------------------------- Cash Flows from Financing Activities (Repayments of) proceeds from revolving credit loans (7,811) 3,580 29,570 (Repayments of) proceeds from other borrowings-net (2,900) (346) 364 Proceeds from issuance of common stock 623 357 526 Treasury stock purchases (692) (245) (5,924) - -------------------------------------------------------------------------------------------------- Net cash (used for) provided by financing activities (10,780) 3,346 24,536 - -------------------------------------------------------------------------------------------------- Net (decrease) increase in cash (5) (342) 1,580 Cash, beginning of year 2,248 2,590 1,010 - -------------------------------------------------------------------------------------------------- Cash, end of year $ 2,243 $ 2,248 $ 2,590 ================================================================================================== The accompanying notes are an integral part of the financial statements.
21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES Consolidation: Gehl Company is engaged in the manufacture and distribution of equipment and machinery for the construction market, and in the manufacture and distribution of equipment and machinery primarily for the dairy, livestock and poultry agricultural sector. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances are eliminated. Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions, in certain circumstances, that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Ultimate realization of assets and settlement of liabilities in the future could differ from those estimates. Revenue Recognition: Revenue is recorded upon the shipment of products to dealers and distributors; these dealers and distributors have no right of return, except as provided by law. Sales Incentives: 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 years ended December 31, 2001 and 2000 have been restated to conform to the current year presentation. This reclassification had no impact on reported income before income taxes or net income. Accounts Receivable: The Company provides financing for its dealers in both the construction and agricultural markets. The financing agreements provide for, in certain instances, interest-free periods which generally range from 4 to 9 months. Finance Contracts Receivable: The Company offers financing for its products to retail customers and to its dealers. Finance contracts require periodic installments of principal and interest over periods of up to 60 months. Unearned interest is recognized over the life of the contracts using the sum of the digits method. Principal expected to be collected within twelve months of the balance sheet date is classified as a current asset; the remainder is classified as a non-current asset. Inventories: Inventories are valued at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method for substantially all of the Company's inventories. Properties and Depreciation: Properties are stated at cost. When properties are sold or otherwise disposed of, cost and accumulated depreciation are removed from the respective accounts and any gain or loss is included in income. The Company provides for depreciation of assets using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes. Depreciation is recorded using the following estimated useful lives for financial statement purposes: - ----------------------------------------------------------------- Years - ----------------------------------------------------------------- Buildings 25-31.5 Machinery and equipment 7-12 Autos and trucks 3-5 Office furniture and fixtures 3-5 ================================================================= Expenditures which substantially increase value or extend asset lives are capitalized. Expenditures for maintenance and repairs are charged against income as incurred. The Company reviews the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment would be determined based on a comparison of the undiscounted future operating cash flows anticipated to be generated during the remaining life of the long-lived assets to the carrying value. Measurement of any impairment loss would be based on discounted operating cash flows. Debt Issue Costs: Costs incurred in conjunction with incurrence of indebtedness are capitalized and subsequently amortized over the related periods of the obligations. Goodwill and Other Intangible Assets: The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," effective January 1, 2002. Under SFAS No.142, goodwill is no longer amortized; however, it must be tested for impairment at least annually. Amortization continues to be recorded for other intangible assets with definite lives. The Company is subject to financial statement risk in the event that goodwill becomes impaired. Foreign Currency Transactions: Foreign currency transaction gains and (losses) are included in the determination of income. Foreign currency gains (losses) were $85,000, ($113,000) and ($252,000) in 2002, 2001 and 2000, respectively. Foreign Currency Translation: Assets and liabilities of the Company's foreign subsidiary are translated at current exchange rates, and related revenues and expenses are translated at the weighted-average exchange rates in effect for the year. Net exchange gains or losses resulting from the translation of foreign financial statements and the effect of 22 exchange rate changes on intercompany transactions of a long-term investment nature are accumulated and credited or charged directly to a separate component of shareholders' equity, titled "Accumulated Other Comprehensive Income (Loss)." Income Taxes: The Company follows the liability method in accounting for income taxes. The liability method provides that deferred tax assets and liabilities be recorded based on the difference between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Product Liability Costs: The Company directly assumes all liability for costs associated with claims up to specified limits in any policy year. Known incidents involving the Company's products are investigated and reserves are established for any estimated liability. Environmental Costs: Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and that do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable, and the costs can be reasonably estimated. Research and Development Costs: Costs for research activities relating to product development and improvement are charged against income as incurred. Such costs amounted to approximately $3.2 million, $3.0 million and $3.1 million in 2002, 2001 and 2000, respectively. Other (Expense) Income: Other (expense) income is comprised primarily of foreign currency transaction gains (losses), cost of sales of finance contracts, and other nonoperating items. Comprehensive Income: Comprehensive income is defined as the sum of net income and all other non-owner changes in equity (or accumulated other comprehensive loss). The components of accumulated other comprehensive loss were as follows (net of tax) (in thousands): - ------------------------------------------------------------------- December 31, 2002 2001 - ------------------------------------------------------------------- Minimum pension liability adjustments $(11,138) $(5,866) Currency translation adjustment 551 -- Unrealized losses (314) (58) - ------------------------------------------------------------------- Accumulated other comprehensive loss $(10,901) $(5,924) =================================================================== Stock-Based Compensation: The Company maintains stock option plans for certain of its directors, officers and key employees, which are described more fully under Note 12-Shareholders' Equity. The Company accounts for these plans under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees." No compensation expense has been recognized for options granted under these plans as the option price was equal to the market value of the Company's common stock on the date of grant. The effect on net income and earnings per share had the Company applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," is presented below (in thousands, except per share data): - ------------------------------------------------------------------------ Year Ended December 31, 2002 2001 2000 - ------------------------------------------------------------------------ Net income, as reported $1,043 $2,305 $9,656 Less: stock-based compensation expense determined based on fair value method, net of tax (850) (634) (415) - ------------------------------------------------------------------------ Pro forma net income $ 193 $1,671 $9,241 - ------------------------------------------------------------------------ Diluted net income per share: As reported $ .19 $ .42 $ 1.72 Pro forma $ .04 $ .30 $ 1.65 Basic net income per share: As reported $ .19 $ .43 $ 1.76 Pro forma $ .04 $ .31 $ 1.69 ======================================================================== The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2002, 2001 and 2000: - ------------------------------------------------------------------------- Year Ended December 31, 2002 2001 2000 - ------------------------------------------------------------------------- Expected stock price volatility 38.8% 35.1% 34.1% Risk-free interest rate 4.0% 5.2% 5.3% Expected life of options - years 7 7 7 - ------------------------------------------------------------------------- The weighted-average grant-date fair value of options granted during 2002, 2001 and 2000 was $5.06, $7.09 and $5.95, respectively. Accounting Pronouncements: In August 2001, the Financial Accounting Standards Board ("FASB") 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. The impact of this statement upon adoption is not expected to have a material effect on the Company's financial position, results of operations or cash flows. In April 2002, the FASB issued SFAS No. 145, "Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections as of April 2002." SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements" and SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers." This Statement also amends SFAS No. 13, "Accounting for Leases," to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other 23 NOTE 1 (CONTINUED) existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The provisions of this statement related to the rescission of SFAS No. 4 shall be applied in fiscal years beginning after May 15, 2002. The provisions of this statement related to SFAS No. 13 shall be effective for transactions occurring after May 15, 2002. All other provisions of this statement are effective for financial statements issued on or after May 15, 2002. The adoption of SFAS No. 145 had no impact on the Company's financial position at December 31, 2002 or the results of operations and cash flows for the year then ended. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement nullifies EITF 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)," which allowed companies engaged in exit and disposal activities to record liabilities for certain costs when the company committed to the exit or disposal plan. SFAS No. 146 requires costs associated with an exit or disposal plan to be recognized and measured initially at fair value only when the liability has been incurred as defined by FASB Concepts Statement 6. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of this statement did not impact the accounting for the plant rationalization initiatives adopted by the Company on September 26, 2001 (see Note 9 - Restructuring Charge). In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure," ("SFAS No. 148"), which amends SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirement of SFAS No. 123 to require more prominent and more frequent disclosures in financial statements of the effects of stock-based compensation. The Company adopted the disclosure provisions of SFAS No. 148 on December 31, 2002 and continues to account for stock-based compensation under APB Opinion No. 25. In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires a guarantor to recognize a liability, at the inception of the guarantee, for the fair value of obligations it has undertaken in issuing the guarantee and also include more detailed disclosures with respect to guarantees. FIN 45 is effective for guarantees issued or modified starting January 1, 2003 and requires the additional disclosures for the period ended December 31, 2002. The Company does not expect that the provisions of FIN 45 will have a material impact on the Company's financial position, results of operations or cash flows. The Company has provided additional disclosure with respect to product warranties in Note 8 - - Accrued Liabilities. In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities, an interpretation of ARB No. 51." FIN 46 clarifies the application of ARB No. 51 to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. This interpretation applies immediately to variable interest entities created after January 31, 2003, and applies in the first year or interim period beginning after June 15, 2003 to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. As of December 31, 2002, the Company is not a party to any variable interest entities. Reclassifications: Certain prior year amounts have been reclassified to conform with the current year presentation. Such reclassifications had no impact on previously reported net income. NOTE 2 - ACCOUNTS RECEIVABLE AND FINANCE CONTRACTS RECEIVABLE Accounts receivable and finance contracts receivable were comprised of the following (in thousands): - ------------------------------------------------------------------------ December 31, 2002 2001 - ------------------------------------------------------------------------ Accounts receivable $102,483 $95,788 Less allowances for: doubtful accounts (2,629) (2,235) returns and dealer discounts (2,227) (2,839) - ------------------------------------------------------------------------ $ 97,627 $90,714 ======================================================================== Finance contracts receivable $ 9,842 $16,177 Less: unearned interest (505) (1,471) allowance for doubtful accounts (2,302) (2,048) - ------------------------------------------------------------------------ 7,035 12,658 Less: non-current portion (2,334) (5,147) - ------------------------------------------------------------------------ Current portion $ 4,701 $ 7,511 ======================================================================== The finance contracts receivable at December 31, 2002 have a weighted-average interest rate of approximately 5.8%. The Company has entered into various agreements with third parties to sell with recourse certain finance contracts receivable. The finance contracts require periodic installments of principal and interest over periods of up to 60 months; interest rates are based on market conditions. The Company has retained the servicing of substantially all of these contracts which generally have maturities of 12 to 60 months. Amounts to cover potential losses on these sold receivables are included in the allowance for doubtful accounts. 24 The following summarizes the Company's sales of retail finance contracts receivable during 2002, 2001 and 2000 (in thousands): - ------------------------------------------------------------------------- 2002 2001 2000 - ------------------------------------------------------------------------- Value of contracts sold - net of $7.5 million, $8.4 million and $8.3 million, respectively, of unearned interest $103,883 $112,962 $ 98,475 Cash received on sales of contracts 102,120 109,740 93,485 - ------------------------------------------------------------------------- Cost of sales of finance contracts $ 1,763 $ 3,222 $ 4,990 ========================================================================= Net receivables outstanding at December 31 relating to finance contracts sold $152,435 $144,800 $121,649 ========================================================================= The Company retains as collateral a security interest in the equipment associated with accounts receivable and unsold finance contracts receivable. The Company also maintains certain levels of dealer recourse deposits as additional security associated with finance contracts receivable. NOTE 3 - INVENTORIES If all of the Company's inventories had been valued on a current cost basis, which approximates FIFO value, estimated inventories by major classification would have been as follows (in thousands): - --------------------------------------------------------------- December 31, 2002 2001 - --------------------------------------------------------------- Raw materials and supplies $12,891 $20,309 Work-in-process 3,006 6,414 Finished machines and parts 44,377 45,629 - --------------------------------------------------------------- Total current cost value 60,274 72,352 Adjustment to LIFO basis (23,503) (20,191) - --------------------------------------------------------------- $36,771 $52,161 =============================================================== NOTE 4 - PROPERTY, PLANT AND EQUIPMENT - NET Property, plant and equipment consisted of the following (in thousands): - --------------------------------------------------------------- December 31, 2002 2001 - --------------------------------------------------------------- Land $ 1,878 $ 1,831 Buildings 36,908 32,171 Machinery and equipment 49,957 48,642 Autos and trucks 352 362 Office furniture and fixtures 13,768 12,930 - --------------------------------------------------------------- 102,863 95,936 Less: accumulated depreciation (56,166) (52,505) - --------------------------------------------------------------- Property, plant and equipment-net $46,697 $43,431 =============================================================== NOTE 5 - GOODWILL Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets." Under SFAS No. 142, goodwill will no longer be amortized; however, it must be tested for impairment at least annually. Amortization will continue to be recorded for other intangible assets with determinable lives. The following table presents the Company's net income and diluted and basic earnings per share assuming the Company adopted SFAS No. 142 on January 1, 2000 and excluded goodwill amortization of $.5 million from net income for the years ended December 31, 2001 and 2000 (in thousands, except per share data): - --------------------------------------------------------------- Year ended December 31, 2001 2000 - --------------------------------------------------------------- Net income $ 2,781 $10,132 Diluted net income per share $ .51 $ 1.81 Basic net income per share $ .52 $ 1.85 =============================================================== The changes in the carrying amount of goodwill, which is entirely allocated to the construction equipment segment, for the years ended December 31, 2002 and 2001 were as follows (in thousands): - --------------------------------------------------------------- Balance at December 31, 2000 $12,724 Amortization (476) - --------------------------------------------------------------- Balance at December 31, 2001 12,248 - --------------------------------------------------------------- Business acquisition (552) - --------------------------------------------------------------- Balance at December 31, 2002 $11,696 =============================================================== NOTE 6 - ACQUISITION Effective January 1, 2002, the Company began accounting for its investment in a German distributor of compact equipment throughout Europe ("Gehl Europe") as a consolidated subsidiary, as a result of the Company's controlling influence on the operations of Gehl Europe as of such date. Prior to January 1, 2002, the Company accounted for its investment in Gehl Europe under the equity method. In December 2002, the Company acquired the remaining two-thirds of the outstanding shares of Gehl Europe for $.5 million, net of cash acquired, in order to support the Company's strategy to expand distribution in the European compact equipment markets. Because the net assets acquired exceeded the purchase price, goodwill associated with the Company's previous investment in Gehl Europe was reduced by $.6 million. The fair value of the assets acquired and liabilities assumed and pro forma information to reflect this acquisition as if it occurred on January 1, 2001 have not been disclosed as the impact on consolidated assets, liabilities and net income is not material. 25 NOTE 7 - DEBT OBLIGATIONS A summary of the Company's debt obligations, and related current maturities, is as follows (in thousands): - --------------------------------------------------------------- December 31, 2002 2001 - --------------------------------------------------------------- Line of credit facility $47,377 $55,188 9.0% industrial development bonds 8,400 8,400 Other debt obligations 2,137 810 - --------------------------------------------------------------- 57,914 64,398 Less: current portion (1,779) (161) - --------------------------------------------------------------- Long-term debt obligations $56,135 $64,237 =============================================================== The Company maintains a $75 million line of credit facility (the "Facility") which expires December 31, 2004. Interest is paid monthly on outstanding borrowings under the Facility as follows: borrowings in Canadian denominated dollars up to a $5.5 million credit line are at 2.5% above the Canadian one-month bankers' acceptance rates; the remainder of the borrowings are in U.S. dollars and are at 2.5% to 2.65% above the London Interbank Offered Rate for one-month deposits (LIBOR). Under the Facility, $25 million is tied to a borrowing base related to the Company's finance contracts receivable and inventories. The remaining availability is tied to a borrowing base related to the Company's accounts receivable. Borrowings under the Facility are secured by finance contracts receivable, inventories and accounts receivable. The Company had short-term letters of credit totaling $1.3 million outstanding at December 31, 2002 due to the factoring of receivables by a supplier. At December 31, 2002, the Company had unused borrowing capacity of approximately $24.5 million under the Facility. The Facility also includes financial covenants requiring the maintenance of a minimum tangible net worth level and a maximum debt to equity ratio. The 9% industrial development bonds are secured by the Company's Lebanon, Pennsylvania manufacturing facility and require principal repayment in six equal annual installments of $1.4 million commencing in 2005. The Company has established a debt reserve fund of approximately $650,000 until the first mandatory bond redemption period in 2005. The debt reserve fund was established with remaining funds in the trustee-controlled unexpended plant construction fund and interest subsequently earned. Financial covenants related to the industrial development bonds require the maintenance of a minimum tangible net worth level and a maximum debt to equity ratio. Annual maturities of debt obligations are as follows (in thousands): - ----------------------------------------------------- 2003 $ 1,779 2004 47,529 2005 1,508 2006 1,439 2007 1,459 Later years 4,200 - ----------------------------------------------------- $57,914 ===================================================== Interest paid on total debt obligations was $4.0 million, $4.5 million and $4.5 million in 2002, 2001 and 2000, respectively. NOTE 8 - ACCRUED LIABILITIES Accrued liabilities were comprised of the following (in thousands): - --------------------------------------------------------------- December 31, 2002 2001 - --------------------------------------------------------------- Accrued salaries and wages $ 3,844 $ 4,571 Dealer recourse deposits 2,796 2,873 Accrued warranty costs 4,437 4,296 Accrued product liability costs 3,723 3,543 Restructuring reserve 765 2,546 Other 4,750 7,832 - --------------------------------------------------------------- $20,315 $25,661 =============================================================== 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. While the Company's warranty costs have historically been within its calculated estimates, it is possible that future warranty costs could exceed those estimates. The changes in the carrying amount of the Company's total product warranty liability for the year ended December 31, 2002 were as follows (in thousands): - --------------------------------------------------------------- Balance as of December 31, 2001 $ 4,296 Accruals for warranties issued during the period 4,010 Accruals related to pre-existing warranties (including changes in estimates) (4) Settlements made (in cash or in kind) during the period (3,865) - --------------------------------------------------------------- Balance as of December 31, 2002 $4,437 =============================================================== NOTE 9 - RESTRUCTURING CHARGE 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 26 line of skid steer loaders from its facility in Owatonna, Minnesota to its skid steer facility in Madison, South Dakota. In implementing these actions, the Company expected that it would 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 Agricultural and Construction equipment segments, respectively. Details of the restructuring charge and related activity are as follows (in thousands):
- ------------------------------------------------------------------------------------- Employee Write-down severance and of long-lived termination and other Other exit benefits assets costs Totals - ------------------------------------------------------------------------------------- Original Reserve $ 1,635 $ 1,754 $911 $4,300 2001 Utilization -- (1,754) -- (1,754) - ------------------------------------------------------------------------------------- Balance at December 31, 2001 1,635 -- 911 2,546 2002 Utilization (1,351) -- (430) (1,781) - ------------------------------------------------------------------------------------- Balance at December 31, 2002 $ 284 $ -- $481 $ 765 =====================================================================================
As a result of the plant rationalizations, the Company expected to reduce its workforce by 249, consisting of hourly and salaried employees at the Lebanon and Owatonna locations. During the year ended December 31, 2002, workforce reductions of 235 employees occurred, which included 211 employees who were terminated with severance payments. Termination benefits commenced in April 2002 and will continue into the first quarter of 2003. The manufacturing consolidations announced on September 26, 2001 have been completed. Production of Mustang skid loaders has been transferred to the Madison plant. The Lebanon plant was closed in the first quarter of 2002 and the production of certain products formerly manufactured at that facility has been outsourced. Both the Lebanon and Owatonna manufacturing facilities are expected to be sold and, accordingly, the tangible assets to be disposed of are recorded at their estimated fair value, less cost of disposal. 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 2002, the Company expensed $1.0 million of other charges related to the plant rationalization initiatives. These charges were required to be expensed when incurred and were not included in the original reserve. NOTE 10 - INCOME TAXES The income tax provision recorded for the years ended December 31, 2002, 2001 and 2000 consisted of the following (in thousands): - ---------------------------------------------------------------- Year Ended December 31, Federal State Foreign Total - ---------------------------------------------------------------- 2002 Current $(2,246) $ 58 $ -- $(2,188) Deferred 2,509 76 165 2,750 - ---------------------------------------------------------------- Total $ 263 $134 $165 $ 562 ================================================================ 2001 Current $ 2,513 $339 $ -- $ 2,852 Deferred (1,611) -- -- (1,611) - ---------------------------------------------------------------- Total $ 902 $339 $ -- $ 1,241 ================================================================ 2000 Current $ 4,577 $502 $ -- $ 5,079 Deferred 121 -- -- 121 - ---------------------------------------------------------------- Total $ 4,698 $502 $ -- $ 5,200 ================================================================ Consolidated domestic and foreign income before income taxes in 2002 was $1.2 million and $.4 million, respectively. There was no foreign income before income taxes in 2001 and 2000. A reconciliation between the reported income tax provision and the federal statutory rate follows (as a percent of pre-tax income): - ------------------------------------------------------------------------- 2002 2001 2000 - ------------------------------------------------------------------------- Federal statutory rate 34.0% 34.0% 35.0% State income taxes, net of Federal income tax effect 7.1 6.3 2.2 Goodwill -- 4.7 4.2 Foreign sales corporation and other tax credits (8.7) (6.3) (2.2) Other, net 2.6 (3.7) (4.2) - ------------------------------------------------------------------------- 35.0% 35.0% 35.0% ========================================================================= The Company's temporary differences and carryforwards which give rise to deferred tax assets and liabilities consisted of the following (in thousands): - --------------------------------------------------------------- December 31, 2002 2001 - --------------------------------------------------------------- Accrued expenses and reserves $ 6,379 $ 8,237 Asset valuation reserves 1,931 2,433 Pension benefits 3,101 907 Operating loss carryforwards 890 301 Tax credit carryforwards 389 323 Installment sales -- (472) Property, plant and equipment (4,793) (3,285) Other, net (78) (109) Valuation allowance (994) (624) - --------------------------------------------------------------- Net deferred tax asset $ 6,825 $ 7,711 =============================================================== 27 NOTE 10 (CONTINUED) The net deferred tax asset is included in the consolidated balance sheet in the following captions (in thousands): - --------------------------------------------------------------- December 31, 2002 2001 - --------------------------------------------------------------- Deferred income tax assets $ 8,469 $10,171 Deferred income tax liabilities (1,644) (2,460) - --------------------------------------------------------------- $ 6,825 $ 7,711 =============================================================== At December 31, 2002, the Company had state net operating loss carryforwards of $12.7 million which will be available for the reduction of future income tax liabilities. A valuation allowance has been recorded against these carryforwards for which utilization is uncertain. The Company also has a foreign net operating loss carryforward of approximately $.5 million which does not have an expiration date. Cash paid related to income taxes during 2002, 2001 and 2000 was $.1 million, $1.1 million and $6.6 million, respectively. NOTE 11 - EMPLOYEE RETIREMENT PLANS The Company sponsors two qualified defined benefit pension plans for certain of its employees. The following schedules set forth a reconciliation of the changes in the plans' benefit obligation and fair value of plan assets and a statement of the funded status (in thousands): - --------------------------------------------------------------- December 31, 2002 2001 - --------------------------------------------------------------- Reconciliation of benefit obligation: Obligation at beginning of year $ 34,127 $ 31,294 Service cost 632 538 Interest cost 2,536 2,506 Plan amendments -- 909 Actuarial loss 4,118 1,035 Benefit payments (2,400) (2,155) - --------------------------------------------------------------- Obligation $ 39,013 $ 34,127 =============================================================== Reconciliation of fair value of plan assets: Fair value of plan assets at beginning of year $ 28,274 $ 33,336 Actual return on plan assets (1,728) (3,846) Employer contributions 2,646 939 Benefit payments (2,400) (2,155) - --------------------------------------------------------------- Fair value of plan assets $ 26,792 $ 28,274 =============================================================== Funded Status: Funded status at end of year $(12,221) $ (5,853) Unrecognized prior service cost 1,409 1,633 Unrecognized loss 18,891 10,174 - --------------------------------------------------------------- Net amount recognized at December 31 $ 8,079 $ 5,954 =============================================================== The following table provides the amounts recognized in the balance sheet (in thousands): - --------------------------------------------------------------- December 31, 2002 2001 - --------------------------------------------------------------- Prepaid benefit cost $ 8,079 $ 5,954 Intangible asset 1,409 1,633 Minimum pension liability (18,339) (10,452) Accumulated other comprehensive loss 16,930 8,819 - --------------------------------------------------------------- Net amount recognized at December 31 $ 8,079 $ 5,954 =============================================================== The prepaid benefit cost and the intangible asset amounts are included in non-current other assets. The minimum pension liability amount is included in other long-term liabilities. The following table provides disclosure of the net periodic benefit cost (in thousands): - ----------------------------------------------------------------- Year Ended December 31, 2002 2001 2000 - ----------------------------------------------------------------- Service cost $ 632 $ 538 $ 573 Interest cost 2,536 2,506 2,430 Expected return on plan assets (3,004) (2,915) (2,631) Amortization of prior service cost 224 225 149 Amortization of net loss 133 -- -- - ----------------------------------------------------------------- Net periodic benefit cost $ 521 $ 354 $ 521 ================================================================= The assumptions used in the measurement of the Company's benefit obligation are shown in the following table: - ------------------------------------------------------- 2002 2001 - ------------------------------------------------------- Weighted-average assumptions as of September 30: Discount rate 6.75% 7.50% Expected return on plan assets 8.75% 9.00% Rate of compensation increase 4.00% 4.00% - ------------------------------------------------------- The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the plans having accumulated benefit obligations in excess of plan assets were $39.0 million, $37.1 million and $26.8 million and $34.1 million, $32.8 million and $28.3 million as of December 31, 2002 and 2001, respectively. The measurement date used for each of the actuarial calculations was September 30. Plan assets consist principally of common stocks and fixed income investments. Funding for the plans equals or exceeds the minimum requirements of the Employee Retirement Income Security Act of 1974. In addition, the Company maintains a non-qualified supplemental retirement benefit plan for certain management employees. The accumulated benefit obligation for this plan was $3.1 million and $2.7 million at December 31, 2002 and 2001, respectively, using a discount rate of 6.75% in 2002 and 7.25% in 2001. The Company maintains a Rabbi Trust containing $1.0 million of assets designated for the above plan. The net periodic benefit cost was $510,000, $431,000 and $593,000 in 2002, 2001 and 2000, respectively. The Company maintains a savings and profit sharing plan. The Company matches 50% of non-bargaining unit employee contributions to the plan not to exceed 6% of an employee's 28 annual compensation. Vesting of Company contributions occur at the rate of 20% per year. Contributions approximated $580,000, $606,000 and $639,000 in 2002, 2001 and 2000, respectively. The Company maintains a defined contribution plan that covers certain employees not covered by a defined benefit plan. The Company contributes various percentages of eligible employee compensation (as defined) and the plan does not allow employee contributions. The Company contributed approximately $347,000, $337,000 and $346,000 in connection with this plan in 2002, 2001 and 2000, respectively. The Company provides postemployment benefits to certain retirees in two areas: a $2,500 life insurance policy for retired office employees and subsidized health insurance benefits for early retirees prior to their attaining age 65. The number of retirees associated with postemployment benefit costs is approximately 255. The following schedules set forth a reconciliation of the changes in the postemployment plan's benefit obligation and funded status (in thousands): - ------------------------------------------------------- December 31, 2002 2001 - ------------------------------------------------------- Reconciliation of benefit obligation: Obligation at beginning of year $ 2,236 $ 1,742 Service cost 71 83 Interest cost 105 145 Actuarial (gain) loss (465) 329 Benefit payments (308) (63) - ------------------------------------------------------- Obligation $ 1,639 $ 2,236 ======================================================= Funded Status: Funded status at end of year $(1,639) $(2,236) Unrecognized transition obligation 226 248 Unrecognized loss 608 1,087 - ------------------------------------------------------- Net amount recognized $ (805) $ (901) ======================================================= The following table provides disclosure of the net periodic benefit cost (in thousands): - ----------------------------------------------------------------- Year Ended December 31, 2002 2001 2000 - ----------------------------------------------------------------- Service cost $ 71 $ 83 $ 59 Interest cost 105 145 129 Amortization of transition obligation 22 23 23 Amortization of net loss 14 51 37 - ----------------------------------------------------------------- Net periodic benefit cost $212 $302 $248 ================================================================= The assumed health care cost rate trend used in measuring the accumulated postemployment benefit obligation at December 31, 2002 was 7.5% decreasing to 5% over five years and at December 31, 2001 was 8% decreasing to 5% in subsequent years. The discount rate used in determining the accumulated postemployment obligation was 6.75% in 2002, 7.25% in 2001 and 7.75% in 2000. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A 1% change in assumed health care cost trend rates would have the following effects (in thousands): - -------------------------------------------------------------------------------- 1% Increase 1% Decrease - -------------------------------------------------------------------------------- Effect on total of service and interest cost components of net periodic postemployment health care benefit cost $ 17 $ (15) Effect on the health care component of the accumulated postemployment benefit obligation $105 $ (92) - -------------------------------------------------------------------------------- NOTE 12 - SHAREHOLDERS' EQUITY During April 2000, the 2000 Equity Incentive Plan was adopted, which authorizes the granting of awards for up to 600,000 shares of the Company's common stock. An award is defined within the 2000 Equity Incentive Plan as a stock option, stock appreciation right, restricted stock or performance share. In April 1996, the 1995 Stock Option Plan was adopted, which authorizes the granting of options for up to 600,000 shares of the Company's common stock. The 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 shall not be more than ten years after the grant date. Following is a summary of activity in the Plans for 2000, 2001 and 2002: - ------------------------------------------------------------------------ Shares Weighted Subject Average to Option Option Price - ------------------------------------------------------------------------ Outstanding, January 1, 2000 607,634 $12.69 Granted 268,500 12.60 Exercised (76,222) 7.38 Cancelled (18,835) 18.83 - ------------------------------------------------------------------------ Outstanding, December 31, 2000 781,077 $13.03 - ------------------------------------------------------------------------ Granted 215,250 14.90 Exercised (41,533) 7.65 Cancelled (24,102) 15.52 - ------------------------------------------------------------------------ Outstanding, December 31, 2001 930,692 $13.64 - ------------------------------------------------------------------------ Granted 155,000 10.53 Exercised (85,570) 8.31 Cancelled (22,185) 15.23 - ------------------------------------------------------------------------ Outstanding, December 31, 2002 977,937 $13.58 ======================================================================== Exercisable, December 31, 2002 598,167 $14.18 ======================================================================== 29 NOTE 12 (CONTINUED) The exercise price for options outstanding at December 31, 2002 range from $7.31 to $22.50 per share. The weighted- average remaining contractual life of these options approximates seven years. In September 2001, the Company's Board of Directors authorized a repurchase plan providing for the repurchase of up to 500,000 shares of the Company's outstanding common stock. The Company repurchased 63,200 and 15,000 shares in the open market under this authorization at a cost of $692,000 and $245,000 during 2002 and 2001, respectively. Under a similar authorized repurchase plan 392,300 shares of the Company's common stock were repurchased during 2000. All treasury stock acquired by the Company has been cancelled and returned to the status of authorized but unissued shares. On May 28, 1997, the Board of Directors of the Company adopted a Shareholder Rights Plan and declared a rights dividend of one preferred share purchase right ("Right") for each share of common stock outstanding on June 16, 1997, and provided that one Right would be issued with each share of common stock thereafter issued. The Shareholder Rights Plan provides that in the event a person or group acquires or seeks to acquire 15% or more of the outstanding common stock of the Company, the Rights, subject to certain limitations, will become exercisable. Each Right once exercisable initially entitles the holder thereof (other than the acquiring person whose rights are cancelled) to purchase from the Company one one-hundredth of a share of Series A preferred stock at an initial exercise price of $55 per one one-hundredth of a share (subject to adjustment), or, upon the occurrence of certain events, common stock of the Company or common stock of an "acquiring company" having a market value equivalent to two times the exercise price. Subject to certain conditions, the Rights are redeemable by the Board of Directors for $.01 per Right and are exchangeable for shares of common stock. The Rights have no voting power and expire on May 28, 2007. NOTE 13 - EARNINGS PER SHARE 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 and warrants. A reconciliation of the shares used in the computation is as follows (in thousands): - ---------------------------------------------------------- Year Ended December 31, 2002 2001 2000 - ---------------------------------------------------------- Basic shares 5,390 5,345 5,475 Effect of options 76 162 132 - ---------------------------------------------------------- Diluted shares 5,466 5,507 5,607 ========================================================== NOTE 14 - LEASES The Company uses certain equipment under operating lease arrangements. Rent expense under such arrangements amounted to $1,285,000, $1,193,000 and $878,000 in 2002, 2001 and 2000, respectively. The Company maintains non-cancelable operating leases for certain equipment. Future minimum lease payments under such leases at December 31, 2002 are as follows (in thousands): - -------------------------------------- 2003 $ 821 2004 584 2005 366 2006 112 2007 4 - -------------------------------------- Total $ 1,887 - -------------------------------------- NOTE 15 - CONTINGENCIES The Company is involved in litigation of which the ultimate outcome and liability to the Company, if any, is not presently determinable. Management believes that final disposition of such litigation will not have a material impact on the Company's results of operations or financial position. NOTE 16 - SEGMENT INFORMATION The Company has two segments, construction equipment and agriculture equipment, as the long-term financial performance of these segments is affected by separate economic conditions and cycles. Segment net sales and income from operations tend to be aligned with the distribution networks of the Company, and correlate with the manner in which the Company evaluates performance. Construction equipment is manufactured and distributed for customers in the construction market. Products include a diversified offering of skid loaders, telescopic handlers, compact excavators, compact track loaders, all-wheel-steer loaders, compact loaders and paving equipment. As of December 31, 2002, 51% of the Company's accounts receivable were from customers in the construction market. Agriculture equipment is manufactured and distributed for customers in the dairy, livestock and poultry agricultural sectors. The products are comprised primarily of skid loaders and equipment for haymaking, forage harvesting, feed making and manure handling. As of December 31, 2002, 49% of the Company's accounts receivable were from customers in the agricultural sector. Unallocated assets are cash, deferred income taxes and other assets not identified with the Company's segments. 30 Segments of business are presented below (in thousands): - --------------------------------------------------------------------------- Year Ended December 31, 2002 2001 2000 - --------------------------------------------------------------------------- Net Sales Construction $135,080 $122,344 $148,611 Agriculture 97,485 118,050 101,426 -------------------------------------------------- Consolidated $232,565 $240,394 $250,037 =========================================================================== Income from Construction $ 4,306 $ 2,270 $ 14,028 Operations Agriculture 851 6,673 7,957 -------------------------------------------------- Consolidated $ 5,157 $ 8,943 $ 21,985 =========================================================================== Assets (year-end) Construction $105,293 $117,589 $119,822 Agriculture 95,615 95,719 83,283 Unallocated 25,161 24,101 19,613 -------------------------------------------------- Consolidated $226,069 $237,409 $222,718 =========================================================================== Depreciation/ Construction $ 2,451 $ 2,931 $ 3,155 Amortization Agriculture 2,335 2,458 2,552 Unallocated 27 27 27 -------------------------------------------------- Consolidated $ 4,813 $ 5,416 $ 5,734 =========================================================================== Capital Expenditures Construction $ 3,984 $ 2,444 $ 6,523 Agriculture 2,806 1,691 6,054 -------------------------------------------------- Consolidated $ 6,790 $ 4,135 $ 12,577 =========================================================================== NOTE 17 - QUARTERLY FINANCIAL DATA (UNAUDITED)
- -------------------------------------------------------------------------------------------------------- First Second Third Fourth In Thousands, Except Per Share Data - Quarter Quarter Quarter Quarter Total - -------------------------------------------------------------------------------------------------------- 2002 Net sales $60,068 $66,689 $54,575 $51,233 $232,565 Gross profit 13,359 14,227 11,708 9,551 48,845 Net income (loss) 229 895 223 (304) 1,043 Diluted net income (loss) per common share1 .04 .16 .04 (.06) .19 Basic net income (loss) per common share .04 .17 .04 (.06) .19 - -------------------------------------------------------------------------------------------------------- 2001 Net sales $61,239 $73,622 $58,161 $47,372 $240,394 Gross profit 13,750 15,943 13,780 9,852 53,325 Net income (loss) 1,025 3,190 (1,480) (430) 2,305 Diluted net income (loss) per common share1 .19 .58 (.28) (.08) .42 Basic net income (loss) per common share .19 .60 (.28) (.08) .43 - -------------------------------------------------------------------------------------------------------- (1) Due to the use of the weighted-average shares outstanding each quarter for computing net income per share, the sum of the quarterly per share amounts does not equal the per share amount for the year.
31 FIVE YEAR FINANCIAL SUMMARY SUMMARY OF OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------------- Dollars in Thousands, Except Per Share Data 2002 2001 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------------- Net sales $232,565 $240,394 $250,037 $284,838 $258,948 Gross profit 48,845 53,325 59,944 73,987 62,688 Strategic review process costs -- 513 -- -- -- Restructuring and other charges 955 4,300 -- -- -- Income from operations 5,157 8,943 21,985 35,057 27,278 Interest expense 4,052 4,299 4,741 3,083 4,026 Income before income taxes 1,605 3,546 14,856 31,294 23,672 Net income 1,043 2,305 9,656 20,185 15,268 - ---------------------------------------------------------------------------------------------------------------------------------- Financial Position at December 31 Current assets $153,014 $163,924 $142,997 $125,783 $121,894 Current liabilities 49,634 56,466 50,027 56,299 52,152 Working capital 103,380 107,458 92,970 69,484 69,742 Accounts receivable - net 97,627 90,714 69,546 68,551 70,806 Finance contracts receivable - net 7,035 12,658 26,516 19,385 15,590 Inventories 36,771 52,161 45,598 35,206 32,093 Property, plant and equipment - net 46,697 43,431 46,172 37,028 34,142 Total assets 226,069 237,409 222,718 194,160 184,547 Long-term debt 56,135 64,237 60,885 31,097 28,947 Total debt 57,914 64,398 61,072 31,616 29,544 Shareholders' equity 96,138 100,021 103,018 97,424 94,105 - ---------------------------------------------------------------------------------------------------------------------------------- Common Share Summary Diluted net income per share $ .19 $ .42 $ 1.72 $ 3.17 $ 2.29 Basic net income per share .19 .43 1.76 3.29 2.39 Dividends per share -- -- -- -- -- Book value per share 17.89 18.66 19.33 17.26 14.61 Shares outstanding at year-end 5,373,650 5,359,721 5,330,500 5,645,620 6,438,945 - ---------------------------------------------------------------------------------------------------------------------------------- Other Financial Statistics Capital expenditures $ 6,790 $ 4,135 $ 12,577 $ 7,281 $ 3,051 Depreciation 4,630 4,687 4,885 4,329 3,941 Current ratio 3.1 to 1 2.9 to 1 2.9 to 1 2.2 to 1 2.3 to 1 Percent total debt to total capitalization 37.6% 39.2% 37.2% 24.5% 23.9% Net income as a percent of net sales .4% 1.0% 3.9% 7.1% 5.9% After-tax return on average shareholders' equity 1.1% 2.3% 9.6% 21.1% 17.8% Employees at year-end 716 987 976 1,118 1,127 Common stock price range 8.21 - 16.45 10.010 - 18.810 8.875 - 20.0 14.0 - 23.5 11.0 - 22.5 - ----------------------------------------------------------------------------------------------------------------------------------
INVESTOR INFORMATION Stock Prices and Dividends - ---------------------------------------------------------------------------- Price Range Dividends ---------------------------------- ------------------- 2002 2001 2002 2001 - ---------------------------------------------------------------------------- First Quarter $14.46 - 16.45 $12.500 - 16.625 $ - $ - Second Quarter 13.64 - 15.50 13.625 - 18.810 - - Third Quarter 9.50 - 14.77 10.010 - 18.350 - - Fourth Quarter 8.21 - 10.38 11.590 - 17.050 - - - ---------------------------------------------------------------------------- Year $ 8.21 - 16.45 $10.010 - 18.810 $ - $ - ============================================================================ 32 EX-21 4 irm204a.txt SUBSIDIARIES OF GEHL COMPANY Exhibit 21 - Subsidiaries The following are wholly-owned subsidiaries of Gehl Company (with location of incorporation): o Compact Equipment Attachments, Inc. (Wisconsin), trade styles: CEA and CE Attachments o Gehl GmbH (Germany) o Gehl International, Inc. (Barbados) o Gehl Power Products, Inc. (South Dakota) o Hedlund Martin, Inc. (Pennsylvania) o Mustang Manufacturing Company, Inc. (Minnesota), trade style: Mustang EX-23 5 irm204e.txt CONSENT OF INDEPENDENT ACCOUNTS Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the incorporation by reference in the Registration Statements listed below of Gehl Company of our report dated February 14, 2003 relating to the financial statements, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated February 14, 2003 relating to the Financial Statement Schedule, which appears in this Form 10-K. 1. Registration Statement on Form S-8 (Registration No. 33-38392) 2. Registration Statement on Form S-8 (Registration No. 333-02195) 3. Registration Statement on Form S-8 (Registration No. 333-04017) 4. Registration Statement on Form S-8 (Registration No. 333-36102) PricewaterhouseCoopers LLP Milwaukee, Wisconsin March 6, 2003 EX-99.2 6 irm204b.txt CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 Solely for the purposes of complying with 18 U.S.C. section 1350, I, the undersigned Chairman of the Board, President and Chief Executive Officer of Gehl Company (the "Company"), hereby certify, based on my knowledge, that the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2002 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 6, 2003 /s/ William D. Gehl ------------------------------------ William D. Gehl Chairman of the Board, President and Chief Executive Officer EX-99.3 7 irm204c.txt CERTIFICATION OF THE CHIEF FINANCIAL OFFICER. Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 Solely for the purposes of complying with 18 U.S.C. section 1350, I, the undersigned Vice President of Finance and Chief Financial Officer of Gehl Company (the "Company"), hereby certify, based on my knowledge, that the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2002 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 6, 2003 /s/ Kenneth P. Hahn ---------------------------------- Kenneth P. Hahn Vice President of Finance and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----