-----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, R3L5m7/u7ycpbQnAusFyoGEWUL99Ljd77GPj+yf+8bf3sRjENr0NTafx+Ue4iB1e UOAmbYYPkUHXa847XIV1Eg== 0000897069-99-000123.txt : 19990310 0000897069-99-000123.hdr.sgml : 19990310 ACCESSION NUMBER: 0000897069-99-000123 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990309 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-K405 SEC ACT: SEC FILE NUMBER: 000-18110 FILM NUMBER: 99560974 BUSINESS ADDRESS: STREET 1: 143 WATER STREET CITY: WEST BEND STATE: WI ZIP: 53095 BUSINESS PHONE: 4143349461 MAIL ADDRESS: STREET 1: 143 WATER STREET CITY: WEST BEND STATE: WI ZIP: 53095 10-K405 1 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, 1998 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 incorporation or organization) (I.R.S. Employer Identification No.) 143 Water Street, West Bend, WI 53095 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code (414) 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 [X] Aggregate market value of voting stock held by non-affiliates of the registrant: $104,244,457 at February 15, 1999. Number of shares outstanding of each of the registrant's classes of common stock, as of February 15, 1999: Class Shares Outstanding Common Stock, $.10 Par Value 6,455,312 DOCUMENTS INCORPORATED BY REFERENCE Gehl Company 1998 Annual Report to Shareholders (Parts I and II) Gehl Company Proxy Statement for the 1999 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 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, 1998 Part I Page Item 1 Business . . . . . . . . . . . . . . . . . . 1 Item 2 Properties . . . . . . . . . . . . . . . . . 7 Item 3 Legal Proceedings . . . . . . . . . . . . . . 7 Item 4 Submission of Matters to a Vote of Security Holders 7 Executive Officers of the Registrant 8 Part II Item 5 Market for Registrant's Common Equity and Related Shareholder Matters . . . . . . . . . . . . 10 Item 6 Selected Financial Data . . . . . . . . . . . 10 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . 10 Item 7A Quantitative and Qualitative Disclosures About Market Risk 10 Item 8 Financial Statements and Supplementary Data . 10 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . 10 Part III Item 10 Directors and Executive Officers of the Registrant 11 Item 11 Executive Compensation . . . . . . . . . . . 11 Item 12 Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . 11 Item 13 Certain Relationships and Related Transactions 11 Part IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . 12 Signatures . . . . . . . . . . . . . 13 Part I Item 1. Business. Overview Gehl Company (the "Company" or "Gehl") designs, manufactures, distributes, sells and finances equipment used in the light construction equipment and the agriculture equipment industries. Construction equipment is comprised of skid steer loaders, telescopic handlers, and asphalt pavers and is manufactured and distributed for contractors, sub-contractors, owner operators and municipalities. Agriculture equipment is distributed for customers in the dairy and livestock industries, and includes a broad range of products including haymaking, forage harvesting, materials handling (skid steer 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. On October 2, 1997, the Company acquired all of the issued and outstanding shares of capital stock of Brunel America, Inc. and Subsidiaries, including Mustang Manufacturing Company, Inc. ("Mustang") from Brunel Holdings, plc. Mustang designs, manufactures and distributes skid steer loaders and related attachments. Gehl acquired the Brunel America, Inc. stock for $26.7 million; and entered into a five year non-competition agreement with the seller pursuant to which Gehl paid $1.0 million. The Company borrowed $27.7 million under its existing credit facility to fund the acquisition. The acquisition has been accounted for as a purchase transaction and the results of the Mustang operation have been included in the Company's operating results since the date of the acquisition. Construction equipment is manufactured in Minnesota, Pennsylvania and in two South Dakota facilities and Agriculture equipment is manufactured in plants in Wisconsin, Pennsylvania and South Dakota. The Company was founded in 1859 and was incorporated in the State of Wisconsin in 1890. The statements which are not historical facts contained in this Form 10-K and other information provided by the Company are forward-looking statements intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated. These factors include, without limitation, competitive conditions in the markets served by the Company, market acceptance of existing and new products manufactured by the Company, unanticipated events related to resolving the year 2000 issue, changes in the cost of raw materials and component parts purchased by the Company, changes in the Company's plans regarding capital expenditures, changes in interest and currency exchange rates, and general economic conditions. These factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. The Company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances. 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, 1996 1997 1998 Amount % Amount % Amount % Net sales: Construction Equipment $70,826 44.4% $101,635 51.6% $156,008 59.5% Agriculture Equipment 88,836 55.6 95,420 48.4 106,211 40.5 -------- ----- -------- ----- -------- ----- Total $159,662 100% $197,055 100% $262,219 100% Income from operations: Construction Equipment $ 12,967 83.4% $ 16,277 74.5% $ 19,384 71.1% Agriculture Equipment 2,580 16.6 5,571 25.5 7,894 28.9 -------- ----- -------- ----- ------- ----- Total $ 15,547 100% $ 21,848 100% $ 27,278 100% 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 13 of "Notes to Consolidated Financial Statements", included on Pages 25 and 26 of the Gehl Company 1998 Annual Report to Shareholders, which pages are incorporated by reference herein. Construction Equipment Products: Construction equipment is marketed in the following three product areas: 1. Skid Steer Loaders - Five models of Gehl skid steer loaders are offered which feature a choice of hand-operated T-bar controls, hand only or hand and foot controls; and four models of Mustang skid steer loaders are offered which feature a choice of T-bar, hand only and hand/foot controls. The skid steer loader, with its fixed-wheel four- wheel drive, is used principally for material handling duties. The skid steer 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 - Gehl markets eight models of Dynalift telescopic handlers and one model of the Dyna-Handler, rough-terrain telescopic forklifts, all with digging capabilities. These handlers are designed to handle heavy loads (up to 12,000 pounds) reaching horizontally and vertically for use by a variety of customers, including masons, roofers, building contractors and farmers. 3. Asphalt Pavers - Four models of Power Box 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. Marketing and Distribution: The Company maintains a separate distribution system for Construction equipment. The Company markets its Construction equipment in North America through 353 independent dealers (with 697 outlets) and worldwide through 86 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 13% of the Company's sales for the year ended December 31, 1998; however, no single dealer or distributor accounted for more than 3% of the Company's sales for that period. Sales of the Construction equipment skid steer loader product line accounted for more than 19% of the Company's net sales in 1996, 1997 and 1998. Sales of the Construction equipment telescopic handler product line accounted for more than 20% of the Company's net sales in 1996, 1997 and 1998. The Company believes that maintenance and expansion of its dealer network is important to its success in the light construction equipment market. 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 light construction equipment dealers in North America are also supported by district sales managers who provide a variety of services, including training, equipment demonstrations and sales, warranty and service assistance. 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. No one company competes directly across all of Gehl's Construction equipment product lines. 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 steer 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, wagons and blowers. 3. Materials Handling This line consists of six different models of Gehl skid steer loaders and the Dyna-Handler forklift. The skid steer loader is a compact, fixed-wheel four-wheel drive unit typically equipped with a bucket or fork and is used for moving a variety of material. The Dyna-Handler is a rough-terrain telescopic forklift with digging capabilities. The skid steer loader and Dyna- Handler forklift 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 "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 believes that it offers the broadest line of portable feedmaking equipment in the industry. The Company offers the Gehl Mix-All line of grinder mixers and 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 agricultural equipment is sold through approximately 448 geographically dispersed dealers (with 498 outlets). Sixty- four of these dealers are located in Canada. Agriculture equipment is also marketed through 24 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 agricultural 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 5% of the Company's sales for the year ended December 31, 1998 and no one dealer or distributor accounted for over .7% of the Company's sales during that period. Sales of the Agriculture equipment skid steer loader product line accounted for more than 13% of the Company's net sales in 1996, 1997 and 1998. 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 agricultural dealers in the promotion and sale of its product and regional service managers to assist in warranty and servicing matters. The Company currently operates three service parts distribution centers located in: Memphis, Tennessee; Syracuse, New York; and Minneapolis, Minnesota. The Company also contracts with two service parts distribution locations in Rockwood, Ontario and Saskatoon, Saskatchewan. 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 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. Gehl's agriculture equipment is primarily distributed to customers in the dairy and livestock industries. Compared to a more volatile period in the late 1980's and early 1990's, milk prices, cash income, land values, and the general economy were more favorable and stable for the dairy farmer in the mid through late 1990's. These more favorable conditions and lower debt to equity ratios as compared with those generally experienced in most of the 1980's led to increased buying by farmers of agriculture equipment in 1993 and 1994. However, declines in the total number of farms prevented total industry demand to reach its 1989-1993 volume peaks in most product areas. In 1995-1998, industry market demand varied, with demand for the Company's products generally lower than its peak years. 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 Gehl's products offered. 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. Backlog The backlog of unfilled equipment orders (which orders are subject to cancellation in certain circumstances) as of December 31, 1998 was $28.0 million versus $34.9 million at December 31, 1997. Virtually all orders in the backlog at December 31, 1998 are expected to be shipped in 1999. The decreased backlog at December 31, 1998 was due to the reduced levels of backlog for both Agriculture equipment and Construction equipment. This trend of decreasing backlog which, in general, has been occurring since 1994, is believed to be a function of dealer order patterns, pursuant to which dealers place orders at points in time closer to their expected utilization of the machinery and due to the increased manufacturing capacity of the Company's plants. As the Company has increased its sales of Construction equipment products, the Company has been successful in reducing the seasonality of its sales. However, some sales seasonality still remains, primarily in the Company's second quarter, which historically has tended to be its strongest quarter of sales, while sales levels have historically tended to be lower in the first and fourth quarters. 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 for up to one year. 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 3.25% above the prime rate or on occasion provides an interest- free extension of up to six 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 90% of Gehl's 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, the Company's finance division. Retail financing is provided in Canada by third parties at rates subsidized by the Company. 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, certain of 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 24 to 48 months. The Company continues to service the finance contracts it sells, including cash collections. See Note 3 of "Notes to Consolidated Financial Statements," Page 20, and "Management's Discussion and Analysis," Page 13 of the Gehl Company 1998 Annual Report to Shareholders, which pages are incorporated by reference herein. Employees As of December 31, 1998, the Company had 1,127 employees, of which 763 were hourly employees and 364 were salaried employees. At the production facilities in West Bend, Wisconsin, one of five Gehl production facilities, 222 hourly employees are covered by a collective bargaining agreement with the United Paperworkers International Union (formerly the Allied Industrial Workers) which expires December 31, 1999. 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-five years. Manufacturing The Company believes that its present manufacturing facilities will be sufficient to provide adequate capacity for its operations in 1999. 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, most notably engines and hydraulics, and supplies from third party suppliers. 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 10% of the Company's sales in 1998. 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 $2.8 million, $2.3 million and $2.2 million on research and development for the years ended December 31, 1998, 1997 and 1996, 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 name, the Mustang name and the group of patents relating to the Scavenger 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 Information regarding the Company's export sales is included in Note 13 of "Notes to Consolidated Financial Statements," Page 26, of the Gehl Company 1998 Annual Report to Shareholders, which page is incorporated by reference herein. Item 2. Properties. The following table sets forth certain information as of December 31, 1998, relating to the Company's principal manufacturing facilities. See "Management's Discussion and Analysis - Liquidity and Capital Resources, Capital Expenditures," Page 13, of the Gehl Company 1998 Annual Report to Shareholders, which page is incorporated by reference herein. For information regarding collateral pledges, see Note 6 of "Notes to Consolidated Financial Statements", included on Page 21, of the Gehl Company 1998 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 130,000 Owned Manufacture of Gehl skid steer loaders for dealers of Construction equipment and Agriculture equipment Lebanon, PA 170,000 Owned(1) Manufacture of Agriculture equipment and Construction equipment Yankton, SD 100,000 Owned Manufacture of Construction equipment Owatonna, MN 235,000 Owned Manufacture of Mustang skid steer loaders (1) This facility is financed with the proceeds from the sale of industrial development bonds maturing in 2010. The Company also operates three service parts centers located in: Memphis, Tennessee; Syracuse, New York; and Minneapolis, Minnesota. The Company leases these facilities, except for the Minneapolis center which is owned. The leases have terms ranging from three to five years. The Company anticipates no difficulty in retaining adequate leased facilities, either by renewing existing leases prior to expiration or by replacing them with equivalent leased facilities. 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, 1998. Executive Officers of the Registrant. Set forth below is certain information concerning the executive officers of the Company as of February 1, 1999: Name, Age and Position Business Experience William D. Gehl, 52, Mr. Gehl has served as Chairman Chairman, President, of the Board of Directors of the Chief Executive Company since April, 1996. Mr. Officer and Director 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. From January, 1990 until joining the Company, Mr. Gehl served as Executive Vice President, Chief Operating Officer, General Counsel and Secretary of The Ziegler Companies, Inc. (a financial services holding company). Mr. Gehl held various senior management positions with The Ziegler Companies from 1978 to 1990. Victor A. Mancinelli, 55, Mr. Mancinelli has served as Executive Vice Executive Vice President and President and Chief Operating Officer of the Chief Operating Officer Company since November, 1992. From 1990 to 1992, Mr. Mancinelli served as Group Vice President of W.H. Brady Co. From 1987 to 1990, Mr. Mancinelli served as President and Chief Operating Officer of Syracuse China Corp., a subsidiary of Canadian Pacific Ltd. From 1985 to 1987, Mr. Mancinelli served as Vice President International Business for Simplex Time Record Co. Prior to 1985, Mr. Mancinelli served in a variety of management positions with Cummins Engine Company, Inc. Mr. Mancinelli, has submitted his resignation, effective April 9, 1999, and will leave his position with the Company. Kenneth P. Hahn, 41 Mr. Hahn joined the Company as Vice President of Corporate Controller in April, Finance, Treasurer 1988. Mr. Hahn was elected as an and Chief Financial executive officer of the Company Officer in April, 1994. Mr. Hahn was appointed Vice President of Finance and Treasurer in February, 1997 and became Chief Financial Officer in January, 1999. Michael J. Mulcahy, 52, Mr. Mulcahy has served as General Vice President, Counsel of the Company since 1974 Secretary and became Secretary in 1977 and and General Counsel a Vice President in 1986. Mr. Mulcahy has also served, since 1988, as President of Equipco Insurance Company, Ltd., which provides liability insurance coverage for equipment manufacturers, including the Company. Richard J. Semler, 59, Mr. Semler joined the Company in Vice President of May, 1960 and has served in his Data Systems current position with the Company since January, 1977. All officers of the Company are elected annually by the Board of Directors following the Annual Meeting of Shareholders. The 1999 Annual Meeting of Shareholders is currently scheduled for April 21, 1999. 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 December 31, 2001. 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. T. J. Boldt, F. M. Butler, J. W. Gehl, W. P. Killian, A. W. Nesbitt, R. E. Secrist and J. W. Splude) received on December 31, 1998 a grant of 196 shares of Company common stock as part of their annual retainer fee. The shares were issued in a transaction 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 27 and 29 of the Gehl Company 1998 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 27 of the Gehl Company 1998 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 15 of the Gehl Company 1998 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 15 of the Gehl Company 1998 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 16 through 26 of the Gehl Company 1998 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. 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 1999 Annual Meeting of Shareholders ("Proxy Statement")1. Information with respect to executive officers of the Company appears at the end of Part I, Pages 8 through 9 of this Annual Report on Form 10-K. 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. Pursuant to Instruction G, the information required by this item is hereby incorporated by reference herein from the caption "Principal Shareholders" set forth in the Proxy Statement. Item 13. Certain Relationships and Related Transactions. There are no relationships or related transactions to be reported pursuant to this item. _____________________________________________________________________________ 1 The Proxy Statement will be filed with the Commission pursuant to Regulation 14A within 120 days after the end of the Company's fiscal year. PART IV Item 14. 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 14 hereof. 3. Exhibits. Reference is made to the separate exhibit index contained on Pages 17 through 21 hereof. (b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company during the quarter ended December 31, 1998. 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: February 26, 1999 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, February 26, 1999 William D. Gehl Chief Executive Officer and Director (Principal Executive Officer) /s/ Kenneth P. Hahn Vice President of Finance February 26, 1999 Kenneth P. Hahn and Treasurer (Principal Financial and Accounting Officer) /s/ Thomas J. Boldt Director February 26, 1999 Thomas J. Boldt /s/ Fred M. Butler Director February 26, 1999 Fred M. Butler /s/ John W. Gehl Director February 26, 1999 John W. Gehl /s/ William P. Killian Director February 26, 1999 William P. Killian /s/ Arthur W. Nesbitt Director February 26, 1999 Arthur W. Nesbitt /s/ Roger E. Secrist Director February 26, 1999 Roger E. Secrist /s/ John W. Splude Director February 26, 1999 John W. Splude 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, 1998 and 1997 16 Consolidated Statements of Income for the three years ended December 31, 1998 17 Consolidated Statements of Shareholders' Equity for the three years ended December 31, 1998 17 Consolidated Statements of Cash Flows for the three years ended December 31, 1998 18 Notes to Consolidated Financial Statements 19-26 * Incorporated by reference from the indicated pages of the Gehl Company 1998 Annual Report to Shareholders. Page in Form 10-K (2)Financial Statement Schedule: Report of Independent Accountants on Financial Statement Schedule 15 For the three years ended December 31, 1998 -- Schedule II - Valuation and Qualifying Accounts 16 All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 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 10, 1999 appearing in the 1998 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 14(a) 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 10, 1999 GEHL COMPANY AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (in thousands) Additions Period Description Balance Charged Acquired Deductions Balance at to Costs Balances at End Beginning and of Year of Year Exposures Year Ended December 31, 1996 Allowance for Doubtful Accounts-Trade Receivables . $752 $64 $ - $255 $561 Returns and Dealer Discounts 1,918 2,424 - 2,463 1,879 Product Discontinuance 1,335 (131) - 429 775 ------ ------ ------ ------ ------ Total $4,005 $2,357 $ - $3,147 $3,215 ====== ====== ====== ====== ====== Allowances of Doubtful Accounts - Retail Contracts . $ 567 $ 276 $ - $ 252 $ 591 ====== ======= ====== ====== ====== Inventory Obsolescence Reserve $2,777 $ 527 $ - $1,564 $1,740 ====== ====== ====== ====== ====== Income Tax Valuation Allowance . . $2,649 $ - $ - $1,414 $1,235 ====== ====== ====== ====== ====== Year Ended December 31, 1997 Allowance for Doubtful Accounts-Trade Receivables . $ 561 $ 144 $ 313 $ 25 $ 993 Returns and Dealer Discounts 1,879 2,674 - 2,705 1,848 Product Discontinuance 775 - - 458 317 ------ ------ ------- ------ ------ Total $3,215 $2,818 $ 313 $3,188 $3,158 ====== ====== ====== ====== ====== Allowances of Doubtful Accounts - Retail Contracts . $ 591 $ 355 $ 28 $ 91 $ 883 ====== ====== ====== ====== ====== Inventory Obsolescence Reserve $1,740 $ 576 $ 265 $ 982 $1,599 ====== ====== ====== ====== ====== Income Tax Valuation Allowance . . $1,235 $ - $ - $ 268 $ 967 ====== ====== ====== ====== ====== Year Ended December 31, 1998 Allowance for Doubtful Accounts-Trade Receivables . $ 993 $ 383 $ - $ 71 $1,305 Returns and Dealer Discounts 1,848 3,644 - 3,243 2,249 Product Discontinuance 317 (243) - 74 - ------ ------ ------ ------ ------ Total $3,158 $3,784 $ - $3,388 $3,554 ====== ====== ====== ====== ====== Allowances of Doubtful Accounts - Retail Contracts . $ 883 $ 280 $ - $ 170 $ 993 ====== ====== ====== ====== ====== Inventory Obsolescence Reserve $1,599 $ 722 $ - $ 613 $1,708 ====== ====== ====== ====== ====== Income Tax Valuation Allowance . . $ 967 $ - $ - $ 113 $ 854 ====== ====== ====== ====== ====== GEHL COMPANY INDEX TO EXHIBITS Exhibit Number Document Description (2) Stock Purchase Agreement, dated as of September 12, 1997, between Gehl Company and Brunel Holdings, plc [Incorporated by reference to Exhibit 2 of the Company's Current Report on Form 8-K, dated October 17, 1997] (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) Amendment to Gehl Company By-laws dated February 26, 1999 (3.3) By-laws of Gehl Company, as amended (4.1) Amended and Restated Loan and Security Agreement by and between ITT Commercial Finance Corp. 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] (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) 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] (4.10) 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] (4.11) 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] (4.12) 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] (4.13) Rights Agreement, dated as of May 28, 1997, between Gehl Company and Firstar Bank Milwaukee N.A.(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] (4.14) 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] (4.15) 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] (4.16) 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] (4.17) 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] (4.18) 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] (4.19) 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] (4.20) Mortgage by and between Gehl Company and the City of Madison, a 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, Mulcahy and Semler [Incorporated by reference to Exhibit 10.4 to the Company's Form S-1 Registration Statement (Reg. No. 33- 31571)]. (10.2)* Gehl Company Director Stock Grant Plan [Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 29, 1997] (10.3)* Amendment to Amended and Restated Employment Agreement between Gehl Company and William D. Gehl dated as of December 18, 1998 (10.4)* 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] (10.5)* Supplemental Retirement Benefit Agreement by and between Victor A. Mancinelli and Gehl Company [Incorporated by reference to Exhibit 10.5 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995] (10.6)* 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] (10.7)* Gehl Savings Plan, as amended and restated executed March 17, 1997 [Incorporated by reference to Exhibit 10.8 of the Company's Annual Report on Form 10-K for the year ended December 31, 1997] (10.8)* Gehl Company Retirement Income Plan "B", as amended [Incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994] (10.9)* 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] (10.10)* 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)] (10.11)* Gehl Company 1995 Stock Option Plan, as amended [Incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996] (10.12)* 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] (10.13)* 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] (10.14)* Form of Change in Control and Severance Agreement between Gehl Company and Messrs. Hahn, Mulcahy and Semler. (10.15) 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 Company's Form S-1 Registration Statement (Reg. No. 33-31571)] (10.16) Distributorship Agreement by and between Gehl Company and Gehl GmbH, dated as of April 15, 1985 [Incorporated by reference to Exhibit 10.16 to the Company's Form S-1 Registration Statement (Reg. No. 33-31571)] (10.17) 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 1998 Annual Report to Shareholders that are incorporated by reference herein (21) Subsidiaries of Gehl Company (23) Consent of PricewaterhouseCoopers LLP (27) Financial Data Schedule (99) Proxy Statement for 1999 Annual Meeting of Shareholders (To be filed with the Securities and Exchange Commission under Regulation 14A within 120 days after the end of the Company's fiscal year; except to the extent incorporated by reference, the Proxy Statement for the 1999 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) __________________ * A management contract or compensatory plan or arrangement. Except as otherwise noted, all documents incorporated by reference are to Commission File No. 0-18110. EX-3 2 Seventh Amendment of the Restated 2/22/91 By-Laws of GEHL COMPANY (A Wisconsin Corporation) Effective immediately, Section 3.01 shall be revised to read as follows: "3.01 General Powers and Number. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of its Board of Directors. The number of directors of the corporation shall be nine (9) divided into three (3) classes: Class I - three (3) directors; Class II - three (3) directors; Class III - three (3) directors." Approved at February 26, 1999, Board Meeting EX-3 3 BY-LAWS OF GEHL COMPANY ARTICLE I. OFFICES 1.01. Principal and Business Offices. The corporation may have such principal and other business offices, either within or without the State of Wisconsin, as the Board of Directors may designate or as the business of the corporation may require from time to time. 1.02. Registered Office. The registered office of the corporation required by the Wisconsin Business Corporation Law to be maintained in the State of Wisconsin may be, but need not be, identical with the principal office in the State of Wisconsin, and the address of the registered office may be changed from time to time by the Board of Directors. The business office of the registered agent of the corporation shall be identical to such registered office. ARTICLE II. SHAREHOLDERS 2.01. Annual Meeting. The annual meeting of shareholders (the "Annual Meeting") shall be held each year at 7:00 P.M. (Central Time) on the last Thursday in April, or at such other time and date as may be fixed by or under the authority of the Board of Directors, for the purpose of electing that number of directors equal to the number of directors in the class whose term expires at the time of the Annual Meeting and for the transaction of such other business as may properly come before the Annual Meeting in accordance with Section 2.14 of these by-laws. If the day fixed for the Annual Meeting is a legal holiday in the State of Wisconsin, such meeting shall be held on the next succeeding business day. In fixing a meeting date for any Annual Meeting, the Board of Directors may consider such factors as it deems relevant within the good faith exercise of its business judgment. 2.02. Special Meetings. (a) A special meeting of shareholders (a "Special Meeting") may be called only by (i) the President or (ii) the Board of Directors and shall be called by the President upon the demand, in accordance with this Section 2.02, of the holders of record of shares representing at least 10% of all the votes entitled to be cast on any issue proposed to be considered at the Special Meeting. (b) In order that the corporation may determine the shareholders entitled to demand a Special Meeting, the Board of Directors may fix a record date to determine the shareholders entitled to make such a demand (the "Demand Record Date"). The Demand Record Date shall not precede the date upon which the resolution fixing the Demand Record Date is adopted by the Board of Directors and shall not be more than 10 days after the date upon which the resolution fixing the Demand Record Date is adopted by the Board of Directors. Any shareholder of record seeking to have shareholders demand a Special Meeting shall, by sending written notice to the Secretary of the corporation by hand or by certified or registered mail, return receipt requested, request the Board of Directors to fix a Demand Record Date. The Board of Directors shall promptly, but in all events within 10 days after the date on which a valid request to fix a Demand Record Date is received, adopt a resolution fixing the Demand Record Date and shall make a public announcement of such Demand Record Date. If no Demand Record Date has been fixed by the Board of Directors within 10 days after the date on which such request is received by the Secretary, the Demand Record Date shall be the 10th day after the first date on which a valid written request to set a Demand Record Date is received by the Secretary. To be valid, such written request shall set forth the purpose or purposes for which the Special Meeting is to be held, shall be signed by one or more shareholders of record (or their duly authorized proxies or other representatives), shall bear the date of signature of each such shareholder (or proxy or other representative) and shall set forth all information about each such shareholder and about the beneficial owner or owners, if any, on whose behalf the request is made that would be required to be set forth in a shareholder's notice described in paragraph (a)(ii) of Section 2.14 of these by-laws. (c) In order for a shareholder or shareholders to demand a Special Meeting, a written demand or demands for a Special Meeting by the holders of record as of the Demand Record Date of shares representing at least 10% of all the votes entitled to be cast on any issue proposed to be considered at the Special Meeting must be delivered to the corporation. To be valid, each written demand by a shareholder for a Special Meeting shall set forth the specific purpose or purposes for which the Special Meeting is to be held (which purpose or purposes shall be limited to the purpose or purposes set forth in the written request to set a Demand Record Date received by the corporation pursuant to paragraph (b) of this Section 2.02), shall be signed by one or more persons who as of the Demand Record Date are shareholders of record (or their duly authorized proxies or other representatives), shall bear the date of signature of each such shareholder (or proxy or other representative), and shall set forth the name and address, as they appear in the corporation's books, of each shareholder signing such demand and the class and number of shares of the corporation which are owned of record and beneficially by each such shareholder, shall be sent to the Secretary by hand or by certified or registered mail, return receipt requested, and shall be received by the Secretary within 70 days after the Demand Record Date. (d) The corporation shall not be required to call a Special Meeting upon shareholder demand unless, in addition to the documents required by paragraph (c) of this Section 2.02, the Secretary receives a written agreement signed by each Soliciting Shareholder (as defined below), pursuant to which each Soliciting Shareholder, jointly and severally, agrees to pay the corporation's costs of holding the Special Meeting, including the costs of preparing and mailing proxy materials for the corporation's own solicitation, provided that if each of the resolutions introduced by any Soliciting Shareholder at such meeting is adopted, and each of the individuals nominated by or on behalf of any Soliciting Shareholder for election as director at such meeting is elected, then the Soliciting Shareholders shall not be required to pay such costs. For purposes of this paragraph (d), the following terms shall have the meanings set forth below: (i) "Affiliate" of any Person (as defined herein) shall mean any Person controlling, controlled by or under common control with such first Person. (ii) "Participant" shall have the meaning assigned to such term in Rule 14a-11 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (iii) "Person" shall mean any individual, firm, corporation, partnership, joint venture, association, trust, unincorporated organization or other entity. (iv) "Proxy" shall have the meaning assigned to such term in Rule 14a-1 promulgated under the Exchange Act. (v) "Solicitation" shall have the meaning assigned to such term in Rule 14a-11 promulgated under the Exchange Act. (vi) "Soliciting Shareholder" shall mean, with respect to any Special Meeting demanded by a shareholder or shareholders, any of the following Persons: (A) if the number of shareholders signing the demand or demands of meeting delivered to the corporation pursuant to paragraph (c) of this Section 2.02 is 10 or fewer, each shareholder signing any such demand; (B) if the number of shareholders signing the demand or demands of meeting delivered to the corporation pursuant to paragraph (c) of this Section 2.02 is more than 10, each Person who either (I) was a Participant in any Solicitation of such demand or demands or (II) at the time of the delivery to the corporation of the documents described in paragraph (c) of this Section 2.02 had engaged or intended to engage in any Solicitation of Proxies for use at such Special Meeting (other than a Solicitation of Proxies on behalf of the corporation); or (C) any Affiliate of a Soliciting Shareholder, if a majority of the directors then in office determine, reasonably and in good faith, that such Affiliate should be required to sign the written notice described in paragraph (c) of this Section 2.02 and/or the written agreement described in this paragraph (d) in order to prevent the purposes of this Section 2.02 from being evaded. (e) Except as provided in the following sentence, any Special Meeting shall be held at such hour and day as may be designated by whichever of the President or the Board of Directors shall have called such meeting. In the case of any Special Meeting called by the President upon the demand of shareholders (a "Demand Special Meeting"), such meeting shall be held at such hour and day as may be designated by the Board of Directors; provided, however, that the date of any Demand Special Meeting shall be not more than 70 days after the Meeting Record Date (as defined in Section 2.05 hereof); and provided further that in the event that the directors then in office fail to designate an hour and date for a Demand Special Meeting within 10 days after the date that valid written demands for such meeting by the holders of record as of the Demand Record Date of shares representing at least 10% of all the votes entitled to be cast on each issue proposed to be considered at the Special Meeting are delivered to the corporation (the "Delivery Date"), then such meeting shall be held at 2:00 P.M. (Central Time) on the 100th day after the Delivery Date or, if such 100th day is not a Business Day (as defined below), on the first preceding Business Day. In fixing a meeting date for any Special Meeting, the President or the Board of Directors may consider such factors as he or it deems relevant within the good faith exercise of his or its business judgment, including, without limitation, the nature of the action proposed to be taken, the facts and circumstances surrounding any demand for such meeting, and any plan of the Board of Directors to call an Annual Meeting or a Special Meeting for the conduct of related business. (f) The corporation may engage regionally or nationally recognized independent inspectors of elections to act as an agent of the corporation for the purpose of promptly performing a ministerial review of the validity of any purported written demand or demands for a Special Meeting received by the Secretary. For the purpose of permitting the inspectors to perform such review, no purported demand shall be deemed to have been delivered to the corporation until the earlier of (i) 5 Business Days following receipt by the Secretary of such purported demand and (ii) such date as the independent inspectors certify to the corporation that the valid demands received by the Secretary represent at least 10% of all the votes entitled to be cast on each issue proposed to be considered at the Special Meeting. Nothing contained in this paragraph (f) shall in any way be construed to suggest or imply that the Board of Directors or any shareholder shall not be entitled to contest the validity of any demand, whether during or after such 5 Business Day period, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto). (g) For purposes of these by-laws, "Business Day" shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of Wisconsin are authorized or obligated by law or executive order to close. 2.03. Place of Meeting. The Board of Directors or the President may designate any place, either within or without the State of Wisconsin, as the place of meeting for any Annual Meeting or for any Special Meeting, or for any postponement thereof. If no designation is made, the place of meeting shall be the principal office of the corporation in the State of Wisconsin. Any meeting may be adjourned to reconvene at any place designated by vote of the Board of Directors or by the President. 2.04. Notice of Meeting. Written or printed notice stating the place, day and hour of any Annual Meeting or Special Meeting shall be delivered not less than 10 days (unless a longer period is required by the Wisconsin Business Corporation Law) nor more than 70 days, before the date of such meeting, either personally or by mail, by or at the direction of the Secretary to each shareholder of record entitled to vote at such meeting and to other shareholders as may be required by the Wisconsin Business Corporation Law. In the event of any Demand Special Meeting, such notice of meeting shall be sent not more than 30 days after the Delivery Date. If mailed, notice pursuant to this Section 2.04 shall be deemed to be effective when deposited in the United States mail, addressed to the shareholder at his address as it appears on the stock transfer books of the corporation, with postage thereon prepaid. Unless otherwise required by the Wisconsin Business Corporation Law or the restated articles of incorporation, a notice of an Annual Meeting need not include a description of the purpose for which the meeting is called. In the case of any Special Meeting, (a) the notice of meeting shall describe any business that the Board of Directors shall have theretofore determined to bring before the meeting and (b) in the case of a Demand Special Meeting, the notice of meeting (i) shall describe any business set forth in the statement of purpose of the demands received by the corporation in accordance with Section 2.02 of these by-laws and (ii) shall contain all of the information required in the notice received by the corporation in accordance with Section 2.14(b) of these by-laws. If an Annual Meeting or Special Meeting is adjourned to a different date, time or place, the corporation shall not be required to give notice of the new date, time or place if the new date, time or place is announced at the meeting before adjournment; provided, however, that if a new Meeting Record Date for an adjourned meeting is or must be fixed, the corporation shall give notice of the adjourned meeting to persons who are shareholders as of the new Meeting Record Date. 2.05. Fixing of Record Date. The Board of Directors may fix a future date not less than 10 days and not more than 70 days prior to the date of any Annual Meeting or Special Meeting as the record date for the determination of shareholders entitled to notice of, or to vote at, such meeting (the "Meeting Record Date"). In the case of any Demand Special Meeting, (i) the Meeting Record Date shall be not later than the 30th day after the Delivery Date and (ii) if the Board of Directors fails to fix the Meeting Record Date within 30 days after the Delivery Date, then the close of business on such 30th day shall be the Meeting Record Date. The shareholders of record on the Meeting Record Date shall be the shareholders entitled to notice of and to vote at the meeting. Except as provided by the Wisconsin Business Corporation Law for a court-ordered adjournment, a determination of shareholders entitled to notice of or to vote at any Annual Meeting or Special Meeting is effective for any adjournment of such meeting unless the Board of Directors fixes a new Meeting Record Date, which it shall do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. The Board of Directors may also fix a future date as the record date for the purpose of determining shareholders entitled to take any other action or determining shareholders for any other purpose. Such record date shall be not more than 70 days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. The record date for determining shareholders entitled to a distribution (other than a distribution involving a purchase, redemption or other acquisition of the corporation's shares) or a share dividend is the date on which the Board of Directors authorizes the distribution or share dividend, as the case may be, unless the Board of Directors fixes a different record date. 2.06. Voting Lists. After a Meeting Record Date has been fixed, the corporation shall prepare a list of the names of all of the shareholders entitled to notice of the meeting. The list shall be arranged by class or series of shares, if any, and show the address of and number of shares held by each shareholder. Such list shall be available for inspection by any shareholder, beginning two business days after notice of the meeting is given for which the list was prepared and continuing to the date of the meeting, at the corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held. A shareholder or his or her agent may, on written demand, inspect and, subject to the limitations imposed by the Wisconsin Business Corporation Law, copy the list, during regular business hours and at his or her expense, during the period that it is available for inspection pursuant to this Section 2.06. The corporation shall make the shareholders' list available at the meeting and any shareholder or his or her agent or attorney may inspect the list at any time during the meeting or any adjournment thereof. Refusal or failure to prepare or make available the shareholders' list shall not affect the validity of any action taken at an Annual Meeting or Special Meeting. 2.07. Quorum and Voting Requirements; Postponements; Adjournments. (a) Shares entitled to vote as a separate voting group may take action on a matter at any Annual Meeting or Special Meeting only if a quorum of those shares exists with respect to that matter. If the corporation has only one class of stock outstanding, such class shall constitute a separate voting group for purposes of this Section 2.07. Except as otherwise provided in the restated articles of incorporation or the Wisconsin Business Corporation Law, a majority of the votes entitled to be cast on the matter shall constitute a quorum of the voting group for action on that matter. Once a share is represented for any purpose at any Annual Meeting or Special Meeting, other than for the purpose of objecting to holding the meeting or transacting business at the meeting, it is considered present for purposes of determining whether a quorum exists for the remainder of the meeting and for any adjournment of that meeting unless a new Meeting Record Date is or must be set for the adjourned meeting. If a quorum exists, except in the case of the election of directors, action on a matter shall be approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the restated articles of incorporation, these by-laws or the Wisconsin Business Corporation Law requires a greater number of affirmative votes. Unless otherwise provided in the restated articles of incorporation, each director shall be elected by a plurality of the votes cast by the shares entitled to vote in the election of directors at any Annual Meeting or Special Meeting at which a quorum is present. (b) The Board of Directors acting by resolution may postpone and reschedule any previously scheduled Annual Meeting or Special Meeting; provided, however, that a Demand Special Meeting shall not be postponed beyond the 100th day following the Delivery Date. Any Annual Meeting or Special Meeting may be adjourned from time to time, whether or not there is a quorum, (i) at any time, upon a resolution of shareholders if the votes cast in favor of such resolution by the holders of shares of each voting group entitled to vote on any matter theretofore properly brought before the meeting exceed the number of votes cast against such resolution by the holders of shares of each such voting group or (ii) at any time prior to the transaction of any business at such meeting, by the President or pursuant to a resolution of the Board of Directors. No notice of the time and place of adjourned meetings need be given except as required by the Wisconsin Business Corporation Law. At any adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. 2.08. Conduct of Meetings. The President, and in his absence a Vice-President in the order provided under Section 4.06, and in their absence, any person chosen by the shareholders present shall call any Annual Meeting or Special Meeting to order and shall act as chairman of such meeting, and the Secretary of the corporation shall act as secretary of all meetings of the shareholders, but, in the absence of the Secretary, the presiding officer may appoint any other person to act as secretary of the meeting. 2.09. Proxies. At any Annual Meeting or Special Meeting, a shareholder entitled to vote may vote in person or by proxy. A shareholder may appoint a proxy to vote or otherwise act for the shareholder by signing an appointment form, either personally or by his attorney-in-fact. An appointment of a proxy is effective when received by the Secretary or other officer or agent of the corporation authorized to tabulate votes. An appointment is valid for 11 months from the date of its signing unless a different period is expressly provided in the appointment form. Unless otherwise provided in the proxy, a proxy may be revoked at any time before it is voted, either by written notice filed with the Secretary or the acting secretary of the meeting or by oral notice given by the shareholder to the presiding officer during the meeting. The presence of a shareholder who has filed his proxy shall not of itself constitute a revocation. 2.10. Voting of Shares. Each outstanding share shall be entitled to one vote upon each matter submitted to a vote at an Annual Meeting or Special Meeting, except to the extent that the voting rights of the shares of any class or classes are enlarged, limited or denied by the Wisconsin Business Corporation Law or by the restated articles of incorporation. 2.11. Acceptance of Instruments Showing Shareholder Action. If the name signed on a vote, consent, waiver or proxy appointment corresponds to the name of the shareholder, the corporation, if acting in good faith, may accept the vote, consent, waiver or proxy appointment and give it effect as the act of a shareholder. If the name signed on a vote, consent, waiver or proxy appointment does not correspond to the name of a shareholder, the corporation may accept the vote, consent, waiver or proxy appointment and give it effect as the act of the shareholder if any of the following apply: (a) The shareholder is an entity and the name signed purports to be that of an officer or agent of the entity. (b) The name purports to be that of a personal representative, administrator, executor, guardian or conservator representing the shareholder and, if the corporation requests, evidence of fiduciary status acceptable to the corporation is presented with respect to the vote, consent, waiver or proxy appointment. (c) The name signed purports to be that of a receiver or trustee in bankruptcy of the shareholder and, if the corporation requests, evidence of this status acceptable to the corporation is presented with respect to the vote, consent, waiver or proxy appointment. (d) The name signed purports to be that of a pledgee, beneficial owner, or attorney-in-fact of the shareholder and, if the corporation requests, evidence acceptable to the corporation of the signatory's authority to sign for the shareholder is presented with respect to the vote, consent, waiver or proxy appointment. (e) Two or more persons are the shareholder as co-tenants or fiduciaries and the name signed purports to be the name of at least one of the co-owners and the person signing appears to be acting on behalf of all co-owners. The corporation may reject a vote, consent, waiver or proxy appointment if the Secretary or other officer or agent of the corporation who is authorized to tabulate votes, acting in good faith, has reasonable basis for doubt about the validity of the signature on it or about the signatory's authority to sign for the shareholder. 2.12. Waiver of Notice by Shareholders. A shareholder may waive any notice required by the Wisconsin Business Corporation Law, the restated articles of incorporation or these by-laws before or after the date and time stated in the notice. The waiver shall be in writing and signed by the shareholder entitled to the notice, contain the same information that would have been required in the notice under applicable provisions of the Wisconsin Business Corporation Law (except that the time and place of meeting need not be stated) and be delivered to the corporation for inclusion in the corporate records. A shareholder's attendance at any Annual Meeting or Special Meeting, in person or by proxy, waives objection to all of the following: (a) lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting or promptly upon arrival objects to holding the meeting or transacting business at the meeting; and (b) consideration of a particular matter at the meeting that is not within the purpose described in the meeting notice, unless the shareholder objects to considering the matter when it is presented. 2.13. Unanimous Consent without Meeting. Any action required or permitted by the restated articles of incorporation or these by-laws or any provision of the Wisconsin Business Corporation Law to be taken at an Annual Meeting or Special Meeting, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof. 2.14. Notice of Shareholder Business and Nomination of Directors. (a) Annual Meetings. (i) Nominations of persons for election to the Board of Directors of the corporation and the proposal of business to be considered by the shareholders may be made at an Annual Meeting (A) pursuant to the corporation's notice of meeting, (B) by or at the direction of the Board of Directors or (C) by any shareholder of the corporation who is a shareholder of record at the time of giving of notice provided for in this by-law and who is entitled to vote at the meeting and complies with the notice procedures set forth in this Section 2.14. (ii) For nominations or other business to be properly brought before an Annual Meeting by a shareholder pursuant to clause (C) of paragraph (a)(i) of this Section 2.14, the shareholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a shareholder's notice shall be received by the Secretary of the corporation at the principal office of the corporation not less than 60 days nor more than 90 days prior to the last Thursday in the month of April; provided, however, that in the event that the date of the Annual Meeting is advanced by more than 30 days or delayed by more than 60 days from the last Thursday in the month of April, notice by the shareholder to be timely must be so received not earlier than the 90th day prior to the date of such Annual Meeting and not later than the close of business on the later of (x) the 60th day prior to such Annual Meeting and (y) the 10th day following the day on which public announcement of the date of such meeting is first made. Such shareholder's notice shall be signed by the shareholder of record who intends to make the nomination or introduce the other business (or his duly authorized proxy or other representative), shall bear the date of signature of such shareholder (or proxy or other representative) and shall set forth: (A) the name and address, as they appear on the corporation's books, of such shareholder and the beneficial owner or owners, if any, on whose behalf the nomination or proposal is made; (B) the class and number of shares of the corporation which are beneficially owned by such shareholder or beneficial owner or owners; (C) a representation that such shareholder is a holder of record of shares of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to make the nomination or introduce the other business specified in the notice; (D) in the case of any proposed nomination for election or re-election as a director, (I) the name and residence address of the person or persons to be nominated, (II) a description of all arrangements or understandings between such shareholder or beneficial owner or owners and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination is to be made by such shareholder, (III) such other information regarding each nominee proposed by such shareholder as would be required to be disclosed in solicitations of proxies for elections of directors, or would be otherwise required to be disclosed, in each case pursuant to Regulation 14A under the Exchange Act, including any information that would be required to be included in a proxy statement filed pursuant to Regulation 14A had the nominee been nominated by the Board of Directors and (IV) the written consent of each nominee to be named in a proxy statement and to serve as a director of the corporation if so elected; and (E) in the case of any other business that such shareholder proposes to bring before the meeting, (I) a brief description of the business desired to be brought before the meeting and, if such business includes a proposal to amend these by-laws, the language of the proposed amendment, (II) such shareholder's and beneficial owner's or owners' reasons for conducting such business at the meeting and (III) any material interest in such business of such shareholder and beneficial owner or owners. (iii) Notwithstanding anything in the second sentence of paragraph (a)(ii) of this Section 2.14 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the corporation at least 70 days prior to the last Thursday in the month of April, a shareholder's notice required by this Section 2.14 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be received by the Secretary at the principal office of the corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the corporation. (b) Special Meetings. Only such business shall be conducted at a Special Meeting as shall have been described in the notice of meeting sent to shareholders pursuant to Section 2.04 of these by-laws. Nominations of persons for election to the Board of Directors may be made at a Special Meeting at which directors are to be elected pursuant to such notice of meeting (i) by or at the direction of the Board of Directors or (ii) by any shareholder of the corporation who (A) is a shareholder of record at the time of giving of such notice of meeting, (B) is entitled to vote at the meeting and (C) complies with the notice procedures set forth in this Section 2.14. Any shareholder desiring to nominate persons for election to the Board of Directors at such a Special Meeting shall cause a written notice to be received by the Secretary of the corporation at the principal office of the corporation not earlier than 90 days prior to such Special Meeting and not later than the close of business on the later of (x) the 60th day prior to such Special Meeting and (y) the 10th day following the day on which public announcement is first made of the date of such Special Meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. Such written notice shall be signed by the shareholder of record who intends to make the nomination (or his duly authorized proxy or other representative), shall bear the date of signature of such shareholder (or proxy or other representative) and shall set forth: (A) the name and address, as they appear on the corporation's books, of such shareholder and the beneficial owner or owners, if any, on whose behalf the nomination is made; (B) the class and number of shares of the corporation which are beneficially owned by such shareholder or beneficial owner or owners; (C) a representation that such shareholder is a holder of record of shares of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to make the nomination specified in the notice; (D) the name and residence address of the person or persons to be nominated; (E) a description of all arrangements or understandings between such shareholder or beneficial owner or owners and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination is to be made by such shareholder; (F) such other information regarding each nominee proposed by such shareholder as would be required to be disclosed in solicitations of proxies for elections of directors, or would be otherwise required to be disclosed, in each case pursuant to Regulation 14A under the Exchange Act, including any information that would be required to be included in a proxy statement filed pursuant to Regulation 14A had the nominee been nominated by the Board of Directors; and (G) the written consent of each nominee to be named in a proxy statement and to serve as a director of the corporation if so elected. (c) General. (i) Only persons who are nominated in accordance with the procedures set forth in this Section 2.14 shall be eligible to serve as directors. Only such business shall be conducted at an Annual Meeting or Special Meeting as shall have been brought before such meeting in accordance with the procedures set forth in this Section 2.14. The chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this Section 2.14 and, if any proposed nomination or business is not in compliance with this Section 2.14, to declare that such defective proposal shall be disregarded. (ii) For purposes of this Section 2.14, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (iii) Notwithstanding the foregoing provisions of this Section 2.14, a shareholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 2.14. Nothing in this Section 2.14 shall be deemed to limit the corporation's obligation to include shareholder proposals in its proxy statement if such inclusion is required by Rule 14a-8 under the Exchange Act. ARTICLE III. BOARD OF DIRECTORS 3.01. General Powers and Number. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of its Board of Directors. The number of directors of the corporation shall be nine (9), divided into three (3) classes: Class I - three (3) directors; Class II - three (3) directors; Class III -three (3) directors. 3.02. Term and Qualifications. At each Annual Meeting the successors to the class of directors whose terms shall expire at the time of such Annual Meeting shall be elected to hold office until the third succeeding Annual Meeting of shareholders, and until their successors are duly elected and qualified. A director may resign at any time by delivering written notice which complies with the Wisconsin Business Corporation Law to the Chairman of the Board or to the corporation. Directors need not be residents of the State of Wisconsin or shareholders of the corporation. 3.03. Nominations. Nominations for the election of directors may only be made in accordance with the requirements of Section 2.14 hereof, which requirements are hereby incorporated by reference in this Section 3.03. 3.04. Regular Meetings. A regular meeting of the Board of Directors shall be held without other notice than this by-law immediately after the Annual Meeting, and each adjourned session thereof. The place of such regular meeting shall be the same as the place of the Annual Meeting which precedes it, or such other suitable place as may be announced at such Annual Meeting. The Board of Directors may provide, by resolution, the time and place, either within or without the State of Wisconsin, for the holding of additional regular meetings without other notice than such resolution. 3.05. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the President, Secretary or any two directors. The President or Secretary may fix any place, either within or without the State of Wisconsin, as the place for holding any special meeting of the Board of Directors, and if no other place is fixed, the place of meeting shall be the principal office of the corporation in the State of Wisconsin. 3.06. Notice; Waiver. Notice of each meeting of the Board of Directors (unless otherwise provided in or pursuant to Section 3.04) shall be given by written notice delivered or communicated in person, by telegram, facsimile or other form of wire or wireless communication, or by mail or private carrier, to each director at his business address or at such other address as such director shall have designated in writing filed with the Secretary, in each case not less than 48 hours prior to the time of the meeting. If mailed, such notice shall be deemed to be effective when deposited in the United States mail so addressed, with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be effective when the telegram is delivered to the telegraph company. If notice is given by private carrier, such notice shall be deemed to be effective when the notice is delivered to the private carrier. Whenever any notice whatever is required to be given to any director of the corporation under the restated articles of incorporation or these by-laws or any provision of the Wisconsin Business Corporation Law, a waiver thereof in writing, signed at any time, whether before or after the time of meeting, by the director entitled to such notice, shall be deemed equivalent to the giving of such notice. The corporation shall retain any such waiver as part of the permanent corporate records. A director's attendance at or participation in a meeting waives any required notice to him of the meeting unless the director at the beginning of the meeting or promptly upon his arrival objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. 3.07. Quorum. Except as otherwise provided by the Wisconsin Business Corporation Law or by the restated articles of incorporation or these by-laws, a majority of the number of directors set forth in Section 3.01 shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but a majority of the directors present (though less than such quorum) may adjourn the meeting from time to time without further notice. 3.08. Manner of Acting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless the act of a greater number is required by the Wisconsin Business Corporation Law or by the restated articles of incorporation or these by-laws. 3.09. Conduct of Meetings. The Chairman of the Board, and in his absence, the President, and in his absence, a Vice-President in the order provided under Section 4.06, and in their absence, any director chosen by the directors present, shall call meetings of the Board of Directors to order and shall act as chairman of the meeting. The Secretary of the corporation shall act as secretary of all meetings of the Board of Directors, but in the absence of the Secretary, the presiding officer may appoint any Assistant Secretary or any director or any other person present to act as secretary of the meeting. Minutes of any regular or special meeting of the Board of Directors shall be prepared and distributed to each director. 3.10. Compensation. The Board of Directors, by affirmative vote of a majority of the directors then in office, and irrespective of any personal interest of any of its members, may establish reasonable compensation of all directors for services to the corporation as directors, officers or otherwise, or may delegate such authority to an appropriate committee. The Board of Directors also shall have authority to provide for or to delegate authority to an appropriate committee to provide for reasonable pensions, disability or death benefits, and other benefits or payments, to directors, officers and employees and to their estates, families, dependents or beneficiaries on account of prior services rendered by such directors, officers and employees to the corporation. 3.11. Presumption of Assent. A director of the corporation who is present at a meeting of the Board of Directors or a committee thereof of which he is a member at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless any of the following occurs: (a) the director objects at the beginning of the meeting or promptly upon his arrival to holding the meeting or transacting business at the meeting; (b) the director's dissent or abstention from the action taken is entered in the minutes of the meeting; or (c) the director delivers written notice that complies with the Wisconsin Business Corporation Law of his dissent or abstention to the presiding officer of the meeting before its adjournment or to the corporation immediately after adjournment of the meeting. Such right to dissent or abstain shall not apply to a director who voted in favor of such action. 3.12. Committees. The Board of Directors by resolution adopted by the affirmative vote of a majority of the number of directors set forth in Section 3.01 may create one or more committees, appoint members of the Board of Directors to serve on the committees and designate other members of the Board of Directors to serve as alternates. Alternate members of a committee shall take the place of any absent member or members at any meeting of such committee upon request of the President or upon request of the chairman of such meeting. Each committee shall have two or more members who shall, unless otherwise provided by the Board of Directors, serve at the pleasure of the Board of Directors. A committee may be authorized to exercise the authority of the Board of Directors, except that a committee may not do any of the following: (a) authorize distributions; (b) approve or propose to shareholders action that the Wisconsin Business Corporation Law requires to be approved by shareholders; (c) fill vacancies on the Board of Directors or, unless the Board of Directors provides by resolution that vacancies on a committee shall be filled by the affirmative vote of the remaining committee members, on any Board committee; (d) amend the corporation's restated articles of incorporation; (e) adopt, amend or repeal by-laws; (f) approve a plan of merger not requiring shareholder approval; (g) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the Board of Directors; and (h) authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares, except that the Board of Directors may authorize a committee to do so within limits prescribed by the Board of Directors. Unless otherwise provided by the Board of Directors in creating the committee, a committee may employ counsel, accountants and other consultants to assist it in the exercise of its authority. 3.13. Telephonic Meetings. Except as herein provided and notwithstanding any place set forth in the notice of the meeting or these by-laws, members of the Board of Directors (and any committee thereof) may participate in regular or special meetings by, or through the use of, any means of communication by which all participants may simultaneously hear each other, such as by conference telephone. If a meeting is conducted by such means, then at the commencement of such meeting the presiding officer shall inform the participating directors that a meeting is taking place at which official business may be transacted. Any participant in a meeting by such means shall be deemed present in person at such meeting. If action is to be taken at any meeting held by such means on any of the following: (a) a plan of merger or share exchange; (b) a sale, lease, exchange or other disposition of substantial property or assets of the corporation; (c) a voluntary dissolution or the revocation of voluntary dissolution proceedings; or (d) a filing for bankruptcy, then the identity of each director participating in such meeting must be verified by the disclosure at such meeting by each such director of each such director's social security number to the secretary of the meeting before a vote may be taken on any of the foregoing matters. For purposes of the preceding clause (b), the phrase "sale, lease, exchange or other disposition of substantial property or assets" shall mean any sale, lease, exchange or other disposition of property or assets of the corporation having a net book value equal to 10% or more of the net book value of the total assets of the corporation on and as of the close of the fiscal year last ended prior to the date of such meeting and as to which financial statements of the corporation have been prepared. Notwithstanding the foregoing, no action may be taken at any meeting held by such means on any particular matter which the presiding officer determines, in his sole discretion, to be inappropriate under the circumstances for action at a meeting held by such means. Such determination shall be made and announced in advance of such meeting. 3.14. Unanimous Consent without Meeting. Any action required or permitted by the restated articles of incorporation or these by-laws or any provision of the Wisconsin Business Corporation Law to be taken by the Board of Directors (or any committee thereof) at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all members of the Board of Directors or of the committee, as the case may be, then in office. Such action shall be effective when the last director or committee member signs the consent, unless the consent specifies a different effective date. ARTICLE IV. OFFICERS 4.01. Number. The principal officers of the corporation shall be a Chairman of the Board, a President, such number of Vice-Presidents as the Board of Directors shall elect from time to time by affirmative vote of a majority of the number of directors present at a meeting at which a quorum is in attendance, a Secretary, and a Treasurer, each of whom shall be elected by the Board of Directors. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the Board of Directors. The Board of Directors may also authorize any duly appointed officer to appoint one or more officers or assistant officers. Any two or more offices may be held by the same person. 4.02. Election and Term of Office. The officers of the corporation to be elected by the Board of Directors shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each Annual Meeting. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Each officer shall hold office until his successor shall have been duly elected or until his prior death, resignation or removal. 4.03. Removal; Vacancies. The Board of Directors may remove any officer and, unless restricted by the Board of Directors or these by-laws, an officer may remove any officer or assistant officer appointed by that officer, at any time, with or without cause and notwithstanding the contract rights, if any, of the officer removed. Election or appointment shall not of itself create contract rights. An officer may resign at any time by delivering notice to the corporation that complies with the Wisconsin Business Corporation Law. The resignation shall be effective when the notice is delivered, unless the notice specifies a later effective date and the corporation accepts the later effective date. A vacancy in any principal office because of death, resignation, removal, disqualification or otherwise, shall be filled by the Board of Directors for the unexpired portion of the term. If a resignation of an officer is effective at a later date as contemplated by this Section 4.03, the Board of Directors may fill the pending vacancy before the effective date if the Board provides that the successor may not take office until the effective date. 4.04. Chairman of the Board. The Chairman of the Board shall, when present, preside at all meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors from time to time. 4.05. President. The President shall be the principal executive officer of the corporation and, subject to the control of the Board of Directors, shall in general supervise and control all of the business and affairs of the corporation. He shall, when present, preside at all Annual Meetings and Special Meetings. He shall have authority, subject to such rules as may be prescribed by the Board of Directors, to appoint such agents and employees of the corporation as he shall deem necessary, to prescribe their powers, duties and compensation, and to delegate authority to them. Such agents and employees shall hold office at the discretion of the President. He shall have authority to sign, execute and acknowledge, on behalf of the corporation, all deeds, mortgages, bonds, stock certificates, contracts, leases, reports and all other documents or instruments necessary or proper to be executed in the course of the corporation's regular business, or which shall be authorized by resolution of the Board of Directors; and, except as otherwise provided by law or the Board of Directors, he may authorize any Vice-President or other officer or agent of the corporation to sign, execute and acknowledge such documents or instruments in his place and stead. In general he shall perform all duties incident to the office of the President and such other duties as may be prescribed by the Board of Directors from time to time. 4.06. The Vice-Presidents. In the absence of the President or in the event of his death, inability or refusal to act, or in the event for any reason it shall be impracticable for the President to act personally, the Vice-President (or in the event there be more than one Vice-President, the Vice-Presidents in the order designated by the Board of Directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Any Vice-President may sign, with the Secretary or Assistant Secretary, certificates for shares of the corporation; and shall perform such other duties and have such authority as from time to time may be delegated or assigned to him by the President or by the Board of Directors. The execution of any instrument of the corporation by any Vice-President shall be conclusive evidence, as to third parties, of his authority to act in the stead of the President. 4.07. The Secretary. The Secretary shall: (a) keep the minutes of all Annual Meetings and Special Meetings and all meetings of the Board of Directors in one or more books provided for that purpose (including records of actions taken without a meeting); (b) see that all notices are duly given in accordance with the provisions of these by-laws or as required by the Wisconsin Business Corporation Law; (c) be custodian of the corporate records and of the seal of the corporation and see that the seal of the corporation is affixed to all documents the execution of which on behalf of the corporation under its seal is duly authorized; (d) maintain a record of the shareholders of the corporation, in the form that permits preparation of a list of the names and addresses of all shareholders, by class or series of shares and showing the number and class or series of shares held by each shareholder; (e) sign with the President, or a Vice-President, certificates for shares of the corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; (f) have general charge of the stock transfer books of the corporation; and (g) in general perform all duties incident to the office of Secretary and have such other duties and exercise such authority as from time to time may be delegated or assigned to him by the President or by the Board of Directors. 4.08. The Treasurer. The Treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; (b) maintain appropriate accounting records; (c) receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies or other depositaries as shall be selected in accordance with the provisions of Section 5.04; and (d) in general perform all of the duties incident to the office of Treasurer and have such other duties and exercise such other authority as from time to time may be delegated or assigned to him by the President or by the Board of Directors. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors shall determine. 4.09. Assistant Secretaries and Assistant Treasurers. There shall be such number of Assistant Secretaries and Assistant Treasurers as the Board of Directors may from time to time authorize. The Assistant Secretaries may sign with the President or a Vice-President certificates for shares of the corporation the issuance of which shall have been authorized by a resolution of the Board of Directors. The Assistant Treasurers shall respectively, if required by the Board of Directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the Board of Directors shall determine. The Assistant Secretaries and Assistant Treasurers, in general, shall perform such duties and have such authority as shall from time to time be delegated or assigned to them by the Secretary or the Treasurer, respectively, or by the President or the Board of Directors. 4.10. Other Assistants and Acting Officers. The Board of Directors shall have the power to appoint, or to authorize any duly appointed officer of the corporation to appoint, any person to act as assistant to any officer, or as agent for the corporation in his stead, or to perform the duties of such officer whenever for any reason it is impracticable for such officer to act personally, and such assistant or acting officer or other agent so appointed by the Board of Directors or the appointing officer shall have the power to perform all duties of the office to which he is so appointed to be assistant, or as to which he is so appointed to act, except as such power may be otherwise defined or restricted by the Board of Directors or the appointing officer. 4.11. Salaries. The salaries of the principal officers shall be fixed from time to time by the Board of Directors or by a duly authorized committee thereof, and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the corporation. ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS; SPECIAL CORPORATE ACTS 5.01. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute or deliver any instrument in the name of and on behalf of the corporation, and such authorization may be general or confined to specific instances. In the absence of other designation, all deeds, mortgages and instruments of assignment or pledge made by the corporation shall be executed in the name of the corporation by the President or one of the Vice-Presidents and by the Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer; the Secretary or an Assistant Secretary, when necessary or required, shall affix the corporate seal thereto; and when so executed no other party to such instrument or any third party shall be required to make any inquiry into the authority of the signing officer or officers. 5.02. Loans. No indebtedness for borrowed money shall be contracted on behalf of the corporation and no evidences of such indebtedness shall be issued in its name unless authorized by or under the authority of a resolution of the Board of Directors. Such authorization may be general or confined to specific instances. 5.03. Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by or under the authority of a resolution of the Board of Directors. 5.04. Deposits. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositaries as may be selected by or under the authority of a resolution of the Board of Directors. 5.05. Voting of Securities Owned by this Corporation. Subject always to the specific directions of the Board of Directors, (a) any shares or other securities issued by any other corporation and owned or controlled by this corporation may be voted at any meeting of security holders of such other corporation by the President of this corporation if he be present, or in his absence by any Vice-President of this corporation who may be present, and (b) whenever, in the judgment of the President, or in his absence, of any Vice-President, it is desirable for this corporation to execute a proxy or written consent in respect to any shares or other securities issued by any other corporation and owned by this corporation, such proxy or consent shall be executed in the name of this corporation by the President or one of the Vice-Presidents of this corporation, without necessity of any authorization by the Board of Directors, affixation of corporate seal or countersignature or attestation by another officer. Any person or persons designated in the manner above stated as the proxy or proxies of this corporation shall have full right, power and authority to vote the shares or other securities issued by such other corporation and owned by this corporation the same as such shares or other securities might be voted by this corporation. 5.06. No Nominee Procedures. The corporation has not established, and nothing in these by-laws shall be deemed to establish, any procedure by which a beneficial owner of the corporation's shares that are registered in the name of a nominee is recognized by the corporation as the shareholder under Section 180.0723 of the Wisconsin Business Corporation Law. ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER 6.01. Certificates for Shares. Certificates representing shares of the corporation shall be in such form, consistent with the Wisconsin Business Corporation Law, as shall be determined by the Board of Directors. Such certificates shall be signed by the President or a Vice-President and by the Secretary or an Assistant Secretary. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the corporation. All certificates surrendered to the corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except as provided in Section 6.06. 6.02. Facsimile Signatures and Seal. The seal of the corporation on any certificates for shares may be a facsimile. The signatures of the President or Vice-President and the Secretary or Assistant Secretary upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent, or registered by a registrar, other than the corporation itself or an employee of the corporation. 6.03. Signature by Former Officers. In case any officer, who has signed or whose facsimile signature has been placed upon any certificate for shares, shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the date of its issue. 6.04. Transfer of Shares. Prior to due presentment of a certificate for shares for registration of transfer the corporation may treat the registered owner of such shares as the person exclusively entitled to vote, to receive notifications and otherwise to exercise all the rights and powers of an owner. Where a certificate for shares is presented to the corporation with a request to register for transfer, the corporation shall not be liable to the owner or any other person suffering loss as a result of such registration of transfer if (a) there were on or with the certificate the necessary endorsements, and (b) the corporation had no duty to inquire into adverse claims or has discharged any such duty. The corporation may require reasonable assurance that said endorsements are genuine and effective and compliance with such other regulations as may be prescribed under the authority of the Board of Directors. 6.05. Restrictions on Transfer. The face or reverse side of each certificate representing shares shall bear a conspicuous notation of any restriction imposed by the corporation upon the transfer of such shares. 6.06. Lost, Destroyed or Stolen Certificates. Where the owner claims that his certificate for shares has been lost, destroyed or wrongfully taken, a new certificate shall be issued in place thereof if the owner (a) so requests before the corporation has notice that such shares have been acquired by a bona fide purchaser, and (b) files with the corporation a sufficient indemnity bond, and (c) satisfies such other reasonable requirements as the Board of Directors may prescribe. 6.07. Consideration for Shares. The Board of Directors may authorize shares to be issued for consideration consisting of any tangible or intangible property or benefit to the corporation, including cash, promissory notes, services performed, contracts for services to be performed or other securities of the corporation. Before the corporation issues shares, the Board of Directors shall determine that the consideration received or to be received for the shares to be issued is adequate. In the absence of a resolution adopted by the Board of Directors expressly determining that the consideration received or to be received is adequate, Board approval of the issuance of the shares shall be deemed to constitute such a determination. The determination of the Board of Directors is conclusive insofar as the adequacy of consideration for the issuance of shares relates to whether the shares are validly issued, fully paid and nonassessable. The corporation may place in escrow shares issued in whole or in part for a contract for future services or benefits, a promissory note, or other property to be issued in the future, or make other arrangements to restrict the transfer of the shares, and may credit distributions in respect of the shares against their purchase price, until the services are performed, the benefits or property are received or the promissory note is paid. If the services are not performed, the benefits or property are not received or the promissory note is not paid, the corporation may cancel, in whole or in part, the shares escrowed or restricted and the distributions credited. 6.08. Stock Regulations. The Board of Directors shall have the power and authority to make all such further rules and regulations not inconsistent with the statutes of the State of Wisconsin as it may deem expedient concerning the issue, transfer and registration of certificates representing shares of the corporation. ARTICLE VII. SEAL 7.01. The Board of Directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the corporation and the state of incorporation and the words, "Corporate Seal." ARTICLE VIII. AMENDMENTS 8.01. By Shareholders. The affirmative vote of shareholders possessing at least seventy-five percent of the voting power of the then outstanding shares of all classes of stock of the corporation generally possessing voting rights in elections of directors, considered for this purpose as one class, shall be required to amend, alter, change or repeal, or to adopt any provision inconsistent with, Sections 2.01 to 2.05 inclusive of Article II of these by-laws, Sections 8.01 to 8.03 inclusive of Article VIII of these by-laws and Sections 9.01 to 9.11 inclusive of Article IX of these by-laws. Subject to the foregoing and except as otherwise provided in the restated articles of incorporation of the corporation, the by-laws of this corporation may be altered, amended, changed or repealed by the affirmative vote of shareholders possessing at least a majority of the voting power of the shares of all classes of stock of the corporation generally possessing voting rights in elections of directors considered for this purpose as one class, which are present or represented at any Annual Meeting or Special Meeting at which a quorum is present. 8.02. By Directors. A Requisite Vote (as defined herein) of the directors shall be required to alter, amend, change or repeal, or to adopt any provision inconsistent with, Sections 2.01 to 2.05 inclusive, Section 2.07 and Section 2.14 of Article II of these by-laws, Sections 8.01 to 8.03 inclusive of Article VIII of these by-laws and Sections 9.01 to 9.11 inclusive of Article IX of these by-laws. For purposes of this Section 8.02, "Requisite Vote" shall mean the affirmative vote of at least two-thirds of the directors then in office plus one director. Subject to the foregoing and except as otherwise provided in the restated articles of incorporation of the corporation, the by-laws of this corporation may be altered, amended, changed or repealed by the Board of Directors by the affirmative vote of a majority of the number of directors present at any meeting at which a quorum is present; provided, however, that the shareholders in altering, adopting, amending, changing or repealing a particular by-law may provide therein that the Board of Directors may not amend, repeal or readopt that by-law. 8.03. Implied Amendments. Any action taken or authorized by the shareholders or by the Board of Directors, which would be inconsistent with the by-laws then in effect but is taken or authorized by affirmative vote of not less than the number of votes or the number of directors required to amend the by-laws so that the by-laws would be consistent with such action, shall be given the same effect as though the by-laws had been temporarily amended or suspended so far, but only so far, as is necessary to permit the specific action so taken or authorized. ARTICLE IX. INDEMNIFICATION 9.01. Certain Definitions. All capitalized terms used in this Article IX and not otherwise hereinafter defined in this Section 9.01 shall have the meaning set forth in Section 180.0850 of the Statute. The following capitalized terms (including any plural forms thereof) used in this Article IX shall be defined as follows: (a) "Affiliate" shall include, without limitation, any corporation, partnership, joint venture, employee benefit plan, trust or other enterprise that directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Corporation. (b) "Authority" shall mean the entity selected by the Director or Officer to determine his or her right to indemnification pursuant to Section 9.04. (c) "Board" shall mean the entire then elected and serving Board of Directors of the Corporation, including all members thereof who are Parties to the subject Proceeding or any related Proceeding. (d) "Breach of Duty" shall mean the Director or Officer breached or failed to perform his or her duties to the Corporation and his or her breach of or failure to perform those duties is determined, in accordance with Section 9.04, to constitute misconduct under Section 180.0851(2)(a) l, 2, 3 or 4 of the Statute. (e) "Corporation," as used herein and as defined in the Statute and incorporated by reference into the definitions of certain other capitalized terms used herein, shall mean this Corporation, including, without limitation, any successor corporation or entity to this Corporation by way of merger, consolidation or acquisition of all or substantially all of the capital stock or assets of this Corporation. (f) "Director or Officer" shall have the meaning set forth in the Statute; provided, that, for purposes of this Article IX, it shall be conclusively presumed that any Director or Officer serving as a director, officer, partner, trustee, member of any governing or decision-making committee, employee or agent of an Affiliate shall be so serving at the request of the Corporation. (g) "Disinterested Quorum" shall mean a quorum of the Board who are not Parties to the subject Proceeding or any related Proceeding. (h) "Party" shall have the meaning set forth in the Statute; provided, that, for purposes of this Article IX, the term "Party" shall also include any Director or Officer or employee of the Corporation who is or was a witness in a Proceeding at a time when he or she has not otherwise been formally named a Party thereto. (i) "Proceeding" shall have the meaning set forth in the Statute; provided, that, in accordance with Section 180.0859 of the Statute and for purposes of this Article IX, the term "Proceeding" shall also include all Proceedings (i) brought under (in whole or in part) the Securities Act of 1933, as amended, the Exchange Act, their respective state counterparts, and/or any rule or regulation promulgated under any of the foregoing; (ii) brought before an Authority or otherwise to enforce rights hereunder; (iii) any appeal from a Proceeding; and (iv) any Proceeding in which the Director or Officer is a plaintiff or petitioner because he or she is a Director or Officer; provided, however, that any such Proceeding under this subsection (iv) must be authorized by a majority vote of a Disinterested Quorum. (j) "Statute" shall mean Sections 180.0850 through 180.0859, inclusive, of the Wisconsin Business Corporation Law, Chapter 180 of the Wisconsin Statutes, as the same shall then be in effect, including any amendments thereto, but, in the case of any such amendment, only to the extent such amendment permits or requires the Corporation to provide broader indemnification rights than the Statute permitted or required the Corporation to provide prior to such amendment. 9.02. Mandatory Indemnification. To the fullest extent permitted or required by the Statute, the Corporation shall indemnify a Director or Officer against all Liabilities incurred by or on behalf of such Director or Officer in connection with a Proceeding in which the Director or Officer is a Party because he or she is a Director or Officer. 9.03. Procedural Requirements. (a) A Director or Officer who seeks indemnification under Section 9.02 shall make a written request therefor to the Corporation. Subject to Section 9.03(b), within 60 days of the Corporation's receipt of such request, the Corporation shall pay or reimburse the Director or Officer for the entire amount of Liabilities incurred by the Director or Officer in connection with the subject Proceeding (net of any Expenses previously advanced pursuant to Section 9.05). (b) No indemnification shall be required to be paid by the Corporation pursuant to Section 9.02 if, within such 60-day period, (i) a Disinterested Quorum, by a majority vote thereof, determines that the Director or Officer requesting indemnification engaged in misconduct constituting a Breach of Duty or (ii) a Disinterested Quorum cannot be obtained. (c) In either case of nonpayment pursuant to Section 9.03(b), the Board shall immediately authorize by resolution that an Authority, as provided in Section 9.04, determine whether the Director's or Officer's conduct constituted a Breach of Duty and, therefore, whether indemnification should be denied hereunder. (d) (i) If the Board does not authorize an Authority to determine the Director's or Officer's right to indemnification hereunder within such 60-day period and/or (ii) if indemnification of the requested amount of Liabilities is paid by the Corporation, then it shall be conclusively presumed for all purposes that a Disinterested Quorum has affirmatively determined that the Director or Officer did not engage in misconduct constituting a Breach of Duty and, in the case of subsection (i) above (but not subsection (ii)), indemnification by the Corporation of the requested amount of Liabilities shall be paid to the Director or Officer immediately. 9.04. Determination of Indemnification. (a) If the Board authorizes an Authority to determine a Director's or Officer's right to indemnification pursuant to Section 9.03, then the Director or Officer requesting indemnification shall have the absolute discretionary authority to select one of the following as such Authority: (i) An independent legal counsel; provided, that such counsel shall be mutually selected by such Director or Officer and by a majority vote of a Disinterested Quorum or, if a Disinterested Quorum cannot be obtained, then by a majority vote of the Board; (ii) A panel of three arbitrators selected from the panels of arbitrators of the American Arbitration Association in Wisconsin; provided, that (A) one arbitrator shall be selected by such Director or Officer, the second arbitrator shall be selected by a majority vote of a Disinterested Quorum or, if a Disinterested Quorum cannot be obtained, then by a majority vote of the Board, and the third arbitrator shall be selected by the two previously selected arbitrators, and (B) in all other respects, such panel shall be governed by the American Arbitration Association's then existing Commercial Arbitration Rules; or (iii) A court pursuant to and in accordance with Section 180.0854 of the Statute. (b) In any such determination by the selected Authority there shall exist a rebuttable presumption that the Director's or Officer's conduct did not constitute a Breach of Duty and that indemnification against the requested amount of Liabilities is required. The burden of rebutting such a presumption by clear and convincing evidence shall be on the Corporation or such other party asserting that such indemnification should not be allowed. (c) The Authority shall make its determination within 60 days of being selected and shall submit a written opinion of its conclusion simultaneously to both the Corporation and the Director or Officer. (d) If the Authority determines that indemnification is required hereunder, the Corporation shall pay the entire requested amount of Liabilities (net of any Expenses previously advanced pursuant to Section 9.05), including interest thereon at a reasonable rate, as determined by the Authority, within 10 days of receipt of the Authority's opinion; provided, that, if it is determined by the Authority that a Director or Officer is entitled to indemnification against Liabilities incurred in connection with some claims, issues or matters, but not as to other claims, issues or matters, involved in the subject Proceeding, the Corporation shall be required to pay (as set forth above) only the amount of such requested Liabilities as the Authority shall deem appropriate in light of all of the circumstances of such Proceeding. (e) The determination by the Authority that indemnification is required hereunder shall be binding upon the Corporation regardless of any prior determination that the Director or Officer engaged in a Breach of Duty. (f) All Expenses incurred in the determination process under this Section 9.04 by either the Corporation or the Director or Officer, including, without limitation, all Expenses of the selected Authority, shall be paid by the Corporation. 9.05. Mandatory Allowance of Expenses. (a) The Corporation shall pay or reimburse from time to time or at any time, within 10 days after the receipt of the Director's or Officer's written request therefor, the reasonable Expenses of the Director or Officer as such Expenses are incurred; provided, the following conditions are satisfied: (i) The Director or Officer furnishes to the Corporation an executed written certificate affirming his or her good faith belief that he or she has not engaged in misconduct which constitutes a Breach of Duty; and (ii) The Director or Officer furnishes to the Corporation an unsecured executed written agreement to repay any advances made under this Section 9.05 if it is ultimately determined by an Authority that he or she is not entitled to be indemnified by the Corporation for such Expenses pursuant to Section 9.04. (b) If the Director or Officer must repay any previously advanced Expenses pursuant to this Section 9.05, such Director or Officer shall not be required to pay interest on such amounts. 9.06. Indemnification and Allowance of Expenses of Certain Others. (a) The Board may, in its sole and absolute discretion as it deems appropriate, pursuant to a majority vote thereof, indemnify a director or officer of an Affiliate (who is not otherwise serving as a Director or Officer) against all Liabilities, and shall advance the reasonable Expenses, incurred by such director or officer in a Proceeding to the same extent hereunder as if such director or officer incurred such Liabilities because he or she was a Director or Officer, if such director or officer is a Party thereto because he or she is or was a director or officer of the Affiliate. (b) The Corporation shall indemnify an employee of the Corporation who is not a Director or Officer, to the extent he or she has been successful on the merits or otherwise in defense of a Proceeding, for all Expenses incurred in the Proceeding if the employee was a Party because he or she was an employee of the Corporation. (c) The Board may, in its sole and absolute discretion as it deems appropriate, pursuant to a majority vote thereof, indemnify (to the extent not otherwise provided in Section 9.06(b) hereof) against Liabilities incurred by, and/or provide for the allowance of reasonable Expenses of, an employee or authorized agent of the Corporation acting within the scope of his or her duties as such and who is not otherwise a Director or Officer. 9.07. Insurance. The Corporation may purchase and maintain insurance on behalf of a Director or Officer or any individual who is or was an employee or authorized agent of the Corporation against any Liability asserted against or incurred by such individual in his or her capacity as such or arising from his or her status as such, regardless of whether the Corporation is required or permitted to indemnify against any such Liability under this Article IX. 9.08. Notice to the Corporation. A Director, Officer or employee of the Corporation shall promptly notify the Corporation in writing when he or she has actual knowledge of a Proceeding which may result in a claim of indemnification against Liabilities or allowance of Expenses hereunder, but the failure to do so shall not relieve the Corporation of any liability to the Director, Officer or employee hereunder unless the Corporation shall have been irreparably prejudiced by such failure (as determined, in the case of Directors or Officers only, by an Authority selected pursuant to Section 9.04(a)). 9.09. Severability. If any provision of this Article IX shall be deemed invalid or inoperative, or if a court of competent jurisdiction determines that any of the provisions of this Article IX contravene public policy, this Article IX shall be construed so that the remaining provisions shall not be affected, but shall remain in full force and effect, and any such provisions which are invalid or inoperative or which contravene public policy shall be deemed, without further action or deed by or on behalf of the Corporation, to be modified, amended and/or limited, but only to the extent necessary to render the same valid and enforceable; it being understood that it is the Corporation's intention to provide the Directors and Officers with the broadest possible protection against personal liability allowable under the Statute. 9.10. Nonexclusivity of Article IX. The rights of a Director, Officer or employee of the Corporation (or any other person) granted under this Article IX shall not be deemed exclusive of any other rights to indemnification against Liabilities or allowance of Expenses which the Director, Officer or employee (or such other person) may be entitled to under any written agreement, Board resolution, vote of shareholders of the corporation or otherwise, including, without limitation, under the Statute. Nothing contained in this Article IX shall be deemed to limit the Corporation's obligations to indemnify against Liabilities or allow Expenses to a Director, Officer or employee of the Corporation under the Statute. 9.11. Contractual Nature of Article IX; Repeal or Limitation of Rights. This Article IX shall be deemed to be a contract between the Corporation and each Director, Officer and employee of the Corporation and any repeal or other limitation of this Article IX or any repeal or limitation of the Statute or any other applicable law shall not limit any rights of indemnification against Liabilities or allowance of Expenses then existing or arising out of events, acts or omissions occurring prior to such repeal or limitation, including, without limitation, the right to indemnification against Liabilities or allowance of Expenses for Proceedings commenced after such repeal or limitation to enforce this Article IX with regard to acts, omissions or events arising prior to such repeal or limitation. EX-10 4 AMENDMENT TO THE WILLIAM D. GEHL/GEHL COMPANY AMENDED AND RESTATED EMPLOYMENT AGREEMENT DATED AS OF DECEMBER 15, 1995. THIS AMENDMENT is made by and between Gehl Company ("GEHL"), a Wisconsin corporation with its principal place of business in West Bend, Wisconsin, and William D. Gehl, ("Executive") as of December 18, 1998. RECITALS WHEREAS, GEHL wishes to continue to retain the services of Executive as its Chairman of the Board, President and Chief Executive Officer and Executive desires to continue to serve GEHL in that capacity; and WHEREAS, GEHL and Executive wish to amend the Employment Agreement between the parties dated as of December 19, 1997. NOW, THEREFORE, in consideration of the mutual promises and agreements set forth herein, the parties agree as follows: Section 2, Term of Employment, shall be revised to read as follows: Executive's "term of employment," as this phrase is used throughout this Agreement, shall be for the period commencing January 1, 1999, and ending on December 31, 2001. Section 3, Compensation, shall be revised to read as follows: GEHL shall pay or cause to be paid to Executive during the period commencing January 1, 1999, through the end of the term of employment a minimum base salary of Three Hundred Fifty Thousand Dollars ($350,000.00) per annum, payable in twenty-six (26) equal installments (subject to the appropriate withholding items). This salary shall be reviewed at least annually by the GEHL Board of Directors or a committee thereof and increased or decreased in its discretion, subject to the minimum above. Section 9, Stock Option, shall be revised to read as follows: Concurrent with the execution of this Amendment Agreement, Executive and GEHL entered into a Stock Option Agreement, specifically referenced herein and made a part hereof, wherein Executive was granted, as of December 18, 1998, an option to purchase twenty-five thousand (25,000) shares of GEHL common stock under the 1995 Stock Option Plan. IN WITNESS WHEREOF, GEHL has caused this Agreement to be executed by its duly authorized officers, and Executive has hereunto set his hand, all as of the date set forth above. GEHL COMPANY ___________________________________ Its Director ___________________________________ Executive EX-10 5 GEHL COMPANY/_________________________ CHANGE IN CONTROL AND SEVERANCE AGREEMENT THIS AGREEMENT, made and entered into as of the 1st day of January, 1999, by and between Gehl Company, a Wisconsin corporation (hereinafter referred to as the "GEHL"), and __________________________(hereinafter referred to as the "Executive"). W I T N E S S E T H : WHEREAS, the Executive is employed by GEHL in a key executive capacity, and the Executive's services are valuable to the conduct of the business of GEHL; WHEREAS, the Board of Directors of GEHL (the "Board") recognizes that circumstances may arise in which a change in control of GEHL occurs, through acquisition or otherwise, thereby causing uncertainty about the Executive's future employment with GEHL without regard to the Executive's competence or past contributions, which uncertainty may result in the loss of valuable services of the Executive to the detriment of GEHL and its shareholders, and GEHL and the Executive wish to provide reasonable security to the Executive against changes in the Executive's relationship with GEHL in the event of any such change in control; WHEREAS, GEHL and the Executive are desirous that any proposal for a change in control or acquisition of GEHL will be considered by the Executive objectively and with reference only to the best interests of GEHL and its shareholders; WHEREAS, the Executive will be in a better position to consider GEHL's best interests if the Executive is afforded reasonable security, as provided in this Agreement, against altered conditions of employment which could result from any such change in control or acquisition; and WHEREAS, GEHL deems it appropriate to provide the Executive with specified severance benefits, as provided in this Agreement, in the event of certain termination of the Executive other than in the context of a Change in Control or acquisition. NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements hereinafter set forth, the parties hereto mutually covenant and agree as follows: Section 1. Change in Control. In the event a Change in Control, as defined below, occurs while the Executive is employed by the company and this Agreement is in effect, the Executive shall automatically be entitled to employment by the company for two years after the occurrence of the Change in Control (such two-year term of employment is hereafter referred to as the "Change in Control Contract Term"). While employed by the Company during the Change in Control Contract Term, the Executive shall be entitled to a base salary, bonus opportunity and other employee benefits substantially equivalent to those the Executive was entitled to immediately prior to the Change in Control. In addition, upon the occurrence of a Change in Control, and assuming that the Executive is in the employ of the Company at such time or demonstrates that his prior termination was effected in anticipation of a Change in Control as contemplated by the succeeding paragraph, (i) the unvested stock options awarded to the Executive under the GEHL Stock Option Plans shall vest, (ii) the Executive's Bank Balance in the Bonus Bank under the GEHL Shareholder Value Added Management Incentive Compensation Plan shall vest and be paid and (iii) all restrictions limiting the exercise, transferability, entitlement or incidents of ownership of any outstanding award, including options, restricted stock, supplemental retirement and death benefits, deferred compensation, or other property or rights granted to the Executive after the date of this Agreement (other than pursuant to plans of general application to salaried employees such as tax-qualified retirement plans, life insurance and the health plan) shall lapse, and such awards shall become fully vested and be held by or for the Executive free and clear of all such restrictions. This provision shall apply to all such property or rights notwithstanding the provisions of any other plan or agreement. If the Executive's employment shall be terminated by GEHL without Cause (as defined below) or the Executive shall terminate his employment for Good Reason (as defined below) during the Change in Control Contract Term, or if GEHL shall terminate the Executive's employment without Cause within six (6) months before the execution of a definitive purchase agreement that ultimately results in a Change in Control and the Executive shall reasonably demonstrate that such termination was in connection with or in anticipation of the Change in Control, the Executive shall be entitled to the following paid in a lump sum within 30 days of the date of the Executive's termination of employment hereunder (the "Termination Date") or the date that the Executive demonstrates that such termination was in connection with or in anticipation of the Change in Control, whichever is applicable: (a) The Executive's base salary as in effect on the Termination Date ("Current Base Salary") through the Termination Date to the extent not theretofore paid; (b) The bonus which would be earned by the Executive through the Termination Date computed under GEHL's existing bonus plan, ignoring any requirement that the Executive be employed through the end of the fiscal year and not reduced for any deferrals which would otherwise be required under the bonus plan; (c) Any compensation previously deferred, including that deferred under any bonus plan as then in effect, which deferrals shall become immediately vested upon the Change in Control, to the extent not previously paid; and (d) Two (2) times the sum of the Current Base Salary. In addition, for twenty-four (24) months after the Termination Date, GEHL shall provide to the Executive and his family medical benefits at least substantially equal on a pre-tax basis to those provided to him and his family just prior to the date of the Change in Control, whether pursuant to a group plan or individual coverage. Notwithstanding the foregoing, if the Executive obtains employment during the 24-month period and family medical benefits (substantially equivalent to those offered by GEHL just prior to the date of the Change in Control) are available from the new employer, GEHL's obligation to provide such family medical benefits shall cease for so long as the Executive remains employed. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under this Agreement and such amounts shall not be reduced (except to the extent set forth in the immediately preceding paragraph) whether or not the Executive obtains other employment. In addition, GEHL will not be entitled to reduce the amounts payable under this Agreement for any claims or rights it may have against the Executive. "Change in Control," for the purposes of this Agreement shall be defined as one of the following: i) Securities of GEHL representing 25% or more of the combined voting power of GEHL's then outstanding voting securities are acquired pursuant to a tender offer or an exchange offer; or ii) The shareholders of GEHL approve a merger or consolidation of GEHL with any other corporation as a result of which less than fifty percent (50%) of the outstanding voting securities of the surviving or resulting entity are owned by the former shareholders of GEHL (other than a shareholder who is an "affiliate," as defined under rules promulgated under the Securities Act of 1933, as amended, of any party to such consolidation or merger); or iii) The shareholders of GEHL approve the sale of substantially all of GEHL's assets to a corporation which is not a wholly-owned subsidiary of GEHL; or iv) Any person becomes the "beneficial owner," as defined under rules promulgated under the Securities Exchange Act of 1934, as amended, directly or indirectly of securities of GEHL representing twenty- five (25%) or more of the combined voting power of GEHL's then outstanding securities the effect of which (as determined by the Board) is to take over control of GEHL; or v) During any period of two consecutive years, individuals who, at the beginning of such period, constituted the Board cease, for any reason, to constitute at least a majority thereof, unless the election or nomination for election of each new director was approved by the vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. "Good Reason" for the purposes of this Agreement, shall be defined as the occurrence of any one of the following events or conditions after, or in anticipation of, the Change in Control: i) The removal of the Executive from, or any failure to re-elect or reappoint the Executive to, any of the positions held with GEHL on the date of the Change in Control or any other positions with GEHL to which the Executive shall thereafter be elected, appointed or assigned, except in connection with the termination of his employment for disability, Cause, as a result of his death or by the Executive other than for Good Reason; or ii) A good faith determination by the Executive that there has been a significant adverse change, without the Executive's written consent, in the Executive's working conditions or status with GEHL from such working conditions or status in effect immediately prior to the Change in Control, including but not limited to (A) a significant change in the nature or scope of the Executive's authority, powers, functions, duties or responsibilities, or (B) a significant reduction in the level of support services, staff, secretarial and other assistance, office space and accoutrements; or iii) Any material breach by GEHL of any provision of this Agreement; or iv) Any purported termination of the Executive's employment for Cause by GEHL which is determined under Section 14 not to be for conduct encompassed in the definition of Cause contained herein; or v) The failure of GEHL to obtain an agreement, satisfactory to the Executive, from any successor or assign of GEHL, to assume and agree to perform this Agreement, as contemplated in Section 3 hereof; or vi) GEHL's requiring the Executive to be based at any office or location which is not within a fifty (50) mile radius of West Bend, Wisconsin, except for travel reasonably required in the performance of the Executive's responsibilities hereunder, without the Executive's consent. For purposes of this Section, any good faith determination of Good Reason made by the Executive shall be conclusive. Section 2. Termination of Employment Other Than in the Context of a Change in Control/Severance. If the Executive's employment is involuntarily terminated by GEHL for any reason other than (i) Cause, (ii) circumstances under which the Executive would be entitled to the payments provided by Section 1 hereof or (iii) the Executive's death or disability, the Executive shall be entitled to receive, and GEHL shall be obligated to pay, the Executive's then Current Base Salary, as in effect immediately prior to such termination, for one (1) full year from the Executive's date of termination. During such year, the Executive shall also continue to participate in all group health and welfare benefit plans and programs of GEHL to the extent that such continued participation is possible under the general terms and provisions of such plans and programs. In the event that the Executive's continued participation in any such plans and programs is barred, and in lieu thereof, the Executive shall be entitled to receive for the above period an amount equal to the sum of the average annual contributions, payments, credits, or allocations made by GEHL to him, to his account, or on his behalf over the two (2) fiscal years (or fraction thereof) of GEHL preceding the termination of his employment under such plans and programs from which his continued participation is barred. Termination by GEHL for "Cause" shall mean termination by action of the Board because of the material failure of the Executive to fulfill his obligations as an officer of the Company or because of serious willful misconduct by the Executive in respect of his obligations as an officer of the Company as, for example, the commission by the Executive of a felony or the perpetration by the Executive of a common-law fraud against GEHL or any major material action (i.e., not procedural or operational differences )taken against the expressed directive of the Board. Section 3. Assigns and Successors. The rights and obligations of GEHL under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of GEHL and GEHL shall require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to expressly assume and agree to perform this Agreement in the same manner and to the same extent that GEHL would be required to perform if no such succession or assignment had taken place. Section 4. Construction. Section headings are for convenience only and shall not be considered a part of the terms and provisions of this Agreement. Section 5. Notices. All notices under this Agreement shall be in writing and shall be deemed effective when delivered in person (in GEHL's case, to its Secretary, or to its Chief Executive Officer if the Executive is then serving as Secretary) or by facsimile to the number provided for such purpose by the applicable party or forty-eight (48) hours after deposit thereof in the U.S. mails, postage prepaid, addressed, in the case of the Executive, to his last known address as carried on the personnel records of GEHL and, in the case of GEHL, to the corporate headquarters, attention of the Secretary, or to its Chief Executive Officer if the Executive is then serving as Secretary, or to such other address as the party to be notified may specify by notice to the other party. Section 6. Severability. Should it be determined that one or more of the clauses of this Agreement is (are) found to be unenforceable, illegal, contrary to public policy, etc., this Agreement shall remain in full force and effect except for the unenforceable, illegal, or contrary to public policy provisions. Section 7. Limitation on Payments. (a) Notwithstanding anything contained herein to the contrary, prior to the payment of any amounts pursuant to Sections 1 or 2 hereof, a national accounting firm designated by GEHL (the "Accounting Firm") shall compute whether there would be any "excess parachute payments" payable to the Executive, within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), taking into account the total "parachute payments," within the meaning of Section 280G of the Code, payable to the Executive by GEHL or any successor thereto under this Agreement and any other plan, agreement or otherwise. If there would be any excess parachute payments, the Accounting Firm will compute the net after-tax proceeds to the Executive, taking into account the excise tax imposed by Section 4999 of the Code, if (i) the payments hereunder were reduced, but not below zero, such that the total parachute payments payable to the Executive would not exceed three (3) times the "base amount" as defined in Section 280G of the Code, less One Dollar ($1.00) or (ii) the payments hereunder were not reduced. If reducing the payments hereunder would result in a greater after-tax amount to the Executive, such lesser amount shall be paid to the Executive. If not reducing the payments hereunder would result in a greater after- tax amount to the Executive, such payments shall not be reduced. The determination by the Accounting Firm shall be binding upon GEHL and the Executive. (b) As a result of the uncertainty in the application of Section 280G of the Code, it is possible that excess parachute payments will be paid when such payment would result in a lesser after-tax amount to the Executive; this is not the intent hereof. In such cases, the payment of any excess parachute payments will be void ab initio as regards any such excess. Any excess will be treated as a loan by GEHL to the Executive. The Executive will return the excess to GEHL, within fifteen (15) business days of any determination by the Accounting Firm that excess parachute payments have been paid when not so intended, with interest at an annual rate equal to the rate provided in Section 1274(d) of the Code (or 120% of such rate if the Accounting Firm determines that such rate is necessary to avoid an excise tax under Section 4999 of the Code) from the date the Executive received the excess until it is repaid to GEHL. (c) All fees, costs and expenses (including, but not limited to, the cost of retaining experts) of the Accounting Firm shall be borne by GEHL and GEHL shall pay such fees, costs and expenses as they become due. In performing the computations required hereunder, the Accounting Firm shall assume that taxes will be paid for state and federal purposes at the highest possible marginal tax rates which could be applicable to the Executive in the year of receipt of the payments, unless the Executive agrees otherwise. Section 8. Confidentiality. During and following the Executive's employment by GEHL, the Executive shall hold in confidence and not directly or indirectly disclose or use or copy or make lists of any confidential information or proprietary data of GEHL except to the extent authorized in writing by the Board or required by any court or administrative agency, other than to an employee of GEHL or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of his duties as an executive of GEHL. Confidential information shall not include any information known generally to the public or any information of a type not otherwise considered confidential by persons engaged in the same business or a business similar to that of GEHL. All records, files, documents and materials, or copies thereof, relating to the business of GEHL which the Executive shall prepare, or use, or come into contact with, shall be and remain the sole property of GEHL and shall be promptly returned to GEHL upon termination of employment with GEHL. Section 9. Expenses and Interest. If (i) a dispute arises with respect to the enforcement of the Executive's rights under this Agreement, (ii) any legal or arbitration proceeding shall be brought to enforce or interpret any provision contained herein or to recover damages for breach hereof, or (iii) any tax audit or proceeding is commenced that is attributable in part to the application of Section 4999 of the Code, in any case so long as the Executive is not acting in bad faith, then GEHL shall reimburse the Executive for any reasonable attorneys' fees and necessary costs and disbursements incurred as a result of such dispute, legal or arbitration proceeding or tax audit or proceeding ("Expenses"), and prejudgment interest on any money judgment or arbitration award obtained by the Executive calculated at the rate of interest announced by M&I Bank, Milwaukee, Wisconsin, from time to time as its prime or base lending rate from the date that payments to the Executive should have been made under this Agreement. Within ten days after the Executive's written request therefor, GEHL shall pay to the Executive, or such other person or entity as the Executive may designate in writing to GEHL, the Executive's reasonable Expenses in advance of the final disposition or conclusion of any such dispute, legal or arbitration proceeding. Section 10. Payment Obligations Absolute. GEHL's obligation to pay the Executive any amounts required hereunder and to make the benefit and other arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which GEHL may have against the Executive or anyone else. Except as provided in Section 9, all amounts payable by GEHL hereunder shall be paid without notice or demand. Each and every payment made hereunder by GEHL shall be final, and GEHL will not seek to recover all or any part of such payment from the Executive, or from whomsoever may be entitled thereto, for any reason whatsoever. Section 11. No Waiver. The Executive's or GEHL's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or GEHL may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. Section 12. Headings. The headings herein contained are for reference only and shall not affect the meaning or interpretation of any provision of this Agreement. Section 13. Governing Law; Resolution of Disputes. This Agreement and the rights and obligations hereunder shall be governed by and construed in accordance with the laws of the State of Wisconsin. Any dispute arising out of this Agreement shall, at the Executive's election, be determined by arbitration under the rules of the American Arbitration Association then in effect (in which case both parties shall be bound by the arbitration award) or by litigation. Whether the dispute is to be settled by arbitration or litigation, the venue for the arbitration or litigation shall be West Bend, Wisconsin or, at the Executive's election, if the Executive is no longer residing or working in the West Bend, Wisconsin metropolitan area, in the judicial district encompassing the city in which the Executive resides; provided, that, if the Executive is not then residing in the United States, the election of the Executive with respect to such venue shall be either West Bend, Wisconsin or in the judicial district encompassing that city in the United States among the thirty cities having the largest population (as determined by the most recent United States Census data available at Termination Date) which is closest to the Executive's residence. The parties consent to personal jurisdiction in each trial court in the selected venue having subject matter jurisdiction notwithstanding their residence or situs, and each party irrevocably consents to service of process in the manner provided hereunder for the giving of notices. Section 14. Amendment. No modification or amendment to this Agreement may be made without the written consent of the parties hereto. IN WITNESS WHEREOF, GEHL COMPANY has caused this Agreement to be executed by its duly authorized officer, and the Executive has hereunto set his hand, all as of the date set forth above. GEHL COMPANY _____________________________________ William D. Gehl Chairman, President & CEO _____________________________________ Executive EX-13 6 Reports of Management and Independent Accountants 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 recommending 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 a supplemental report which includes recommendations to improve internal controls or enhance administrative procedures. William D. Gehl Chairman of the Board of Directors, President and Chief Executive Officer Kenneth P. Hahn Vice President of Finance, Treasurer and Chief Financial Officer Report of Independent Accountants To the Board of Directors and Shareholders of Gehl Company In our opinion, the statements appearing on pages 16 through 26 of this report present fairly, in all material respects, the financial position of Gehl Company and its subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. 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 generally accepted auditing standards 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 the opinion expressed above. Milwaukee, Wisconsin February 10, 1999 Management's Discussion and Analysis Overview The Company's net income in 1998 was $15.3 million, a 20% increase from $12.8 million earned in 1997. Diluted earnings per share for 1998 were $2.29 compared to $1.95 reported for 1997. Basic earnings per share for 1998 were $2.39 versus $2.06 reported in 1997. Net sales in 1998 increased 33% to $262.2 million from $197.1 million in 1997. Construction equipment 1998 net sales increased 54% to $156.0 million and Agriculture equipment 1998 net sales increased 11% to $106.2 million. Construction equipment comprised 59% of Company net sales in 1998 versus 52% in 1997 and 44% in 1996. Agriculture equipment sales were 41% of Company net sales in 1998, down from 48% in 1997 and 56% in 1996. Income from operations in 1998 increased 25% to $27.3 million. Construction equipment accounted for $19.4 million of the operating profit, while Agriculture equipment contributed the balance of $7.9 million. Interest expense in 1998 increased $1.7 million to $4.0 million due to the average debt outstanding during 1998 exceeding 1997 levels primarily as a result of the acquisition of Mustang in the fourth quarter of 1997 (see below). On October 2, 1997, the Company acquired all of the issued and outstanding shares of capital stock of Brunel America, Inc. and subsidiaries, including Mustang Manufacturing Company, Inc. (Mustang), from Brunel Holdings, plc. Mustang designs, manufactures and distributes skid steer loaders and related attachments. Gehl acquired the Brunel America, Inc. stock for $26.7 million, and entered into a five year non-competition agreement with the seller pursuant to which Gehl paid $1.0 million. The Company borrowed $27.7 million under its existing credit facility to fund the acquisition. The acquisition has been accounted for as a purchase transaction and the results of the Mustang operation have been included in the Company's operating results since the date of the acquisition. Thus, 1998 was the first full year for which the results of Mustang have been included in the Company's operating results. The Company continued to reduce its Agriculture equipment accounts receivable in 1998, from $41.6 million at December 31, 1997 to $38.0 million at December 31, 1998. Cash flow provided by operating activities in 1998 was $21.4 million following $15.1 million provided by operating activities in 1997. Cash flow generated in 1998 was used to repay debt outstanding under the Company's line of credit facility and to fund capital expenditures. The Company has reduced its debt by $68.2 million, or 70%, during the last six years, despite borrowing $27.7 million to fund the Mustang acquisition. The Company's ratio of debt to total capital was 23.9% at December 31, 1998, as compared with 39.1% at December 31, 1997. Results of Operations 1998 vs. 1997 Net Sales: 1998 1997 1996 1995 1994 ($ millions) Construction Equipment $156.0 $101.7 $ 70.8 $ 64.4 $ 51.8 Agriculture Equipment 106.2 95.4 88.9 89.1 94.8 ------ ------ ------ ------ ------ Total $262.2 $197.1 $159.7 $153.5 $146.6 (% of total) Construction Equipment 59.5% 51.6% 44.4% 42.0% 35.3% Agriculture Equipment 40.5% 48.4% 55.6% 58.0% 64.7% Net sales for 1998 of $262.2 million were 33% greater than the $197.1 million of net sales in 1997. Construction equipment net sales in 1998 were $156.0 million, 54% higher than sales of $101.7 million in 1997. The increase from 1997 levels was a result of 1998 including a full year of Mustang skid loader shipments versus only fourth quarter shipments in 1997, and increased shipments of telescopic handlers due to increased production capacity and increased demand as a result of the continuation of the favorable economic trends which prevailed in the United States construction industry. Agriculture equipment net sales in 1998 increased 11% to $106.2 million from $95.4 million in 1997. The increase was due primarily to the introduction of new product offerings, including a forage harvester with a crop processing attachment and a wider disc mower conditioner. In addition, increased skid loader shipments offset reduced levels of shipments of other forage harvesting equipment and haytools, and feedmaking equipment. Of the Company's total net sales reported for 1998, $41.4 million represented sales made outside the United States compared with $32.9 million in 1997. The increase is due primarily to the addition of Mustang product sales for the full year. As the Company has increased its sales of Construction equipment products, the Company has been successful in reducing the seasonality of its sales. However, some sales seasonality still remains, primarily in the Company's second quarter which historically has tended to be its strongest quarter for sales, while sales levels have historically tended to be lower in the first and fourth quarters. Gross Profit: Gross profit in 1998 of $71.4 million was 24% higher than 1997's $57.8 million. Gross profit as a percent of net sales decreased in 1998 to 27.2% from 29.3% in 1997. Construction equipment gross profit as a percent of net sales for 1998 decreased to 25.7% from 29.6% in 1997. This decrease was due primarily to: 1) Mustang skid loader gross margins being lower than the gross margin on other Construction equipment sales; 2) competitive pressures restricting price increases to lower levels than incurred cost increases; and 3) increased shipments made directly to national account rental operations which are generally at lower gross margin percentages than sales to dealers. Agriculture equipment 1998 gross profit as a percent of net sales increased to 29.5% from 29.0% in 1997. This increase was due primarily to: 1) the favorable impact of a change in the mix of products shipped in 1998 versus products shipped in 1997; 2) higher production levels in 1998 over 1997 generating increased absorption of factory overhead; and 3) improved efficiencies realized at the manufacturing plants. Selling, General and Administrative Expenses: Selling, general and administrative expenses increased $8.2 million, or 23%, to $44.1 million in 1998 as compared with $36.0 million in 1997. As a percent of net sales, however, selling, general and administrative expenses in 1998 decreased to 16.8% from 18.2% in 1997. The increased expenses in 1998 resulted primarily from costs associated with a full year of Mustang operations versus only the fourth quarter in 1997, and increased selling and promotional expenses. Income from Operations: 1998 1997 1996 1995 1994 ($ millions) Construction Equipment $19.4 $16.3 $12.9 $13.2 $ 8.6 Agriculture Equipment 7.9 5.5 2.6 .4 4.4 ----- ----- ----- ----- ----- Total $27.3 $21.8 $15.5 $13.6 $13.0 Due primarily to higher net sales volume combined with controlled operating expense spending, income from operations in 1998 increased 25% from 1997 to $27.3 million. Construction equipment income from operations increased 19% in 1998 to $19.4 million from $16.3 million in 1997. The impact of increased Construction equipment sales volume was offset, in part, by reduced gross margin levels and increased expenditures in selling, general and administrative costs, which include the impact of a full year of Mustang operations in 1998. Agriculture equipment income from operations increased 42% in 1998 to $7.9 million from $5.5 million in 1997. Increased Agriculture equipment sales volume coupled with an improved gross margin percentage were the primary factors in generating this increase. Interest Expense: Interest expense increased $1.7 million, to $4.0 million, due to the average debt outstanding during 1998 exceeding 1997 levels primarily as a result of the late 1997 acquisition of Mustang. During the last six years, annual interest expense has declined $6.1 million, or 60%, from the peak of $10.1 million in 1992. Reductions in interest-bearing debt from $97.7 million at the end of 1992 to $29.5 million at December 31, 1998 and lower borrowing rates have resulted in the significant reduction in the Company's interest expense. The average rate of interest paid by the Company in 1998, of 8%, was consistent with 1997. Provision for Income Taxes: The Company's effective income tax rate was 35.5% for 1998 versus 36.4% for 1997. Net Income: Net income in 1998 of $15.3 million was 20% higher than 1997's $12.8 million of net income. Diluted earnings per share were $2.29 in 1998 compared to $1.95 in 1997. Basic earnings per share were $2.39 in 1998 versus $2.06 in 1997. No dividends were declared in 1998 on the Company's common stock. 1997 vs. 1996 Net Sales: Net sales for 1997 of $197.1 million were 23% greater than the $159.7 million of net sales in 1996. Construction equipment net sales in 1997 were $101.7 million, 44% higher than sales of $70.8 million in 1996. The increase from 1996 levels was a result of the fourth quarter 1997 shipment of Mustang skid loaders subsequent to the closing of the acquisition of Mustang and increased demand for telescopic handlers and skid loaders due to the continuation of the favorable economic trends which prevailed in the United States construction industry. Agriculture equipment net sales in 1997 increased 7% to $95.4 million from $88.9 million in 1996. The increase was a result of increased demand for skid loaders and manure spreading equipment from 1996 levels. Partially offsetting this increase was a decrease in haytool equipment sales, primarily the result of approximately $1.7 million of shipments, during 1996, of products not available in 1997 due to their previous discontinuance. Of the Company's total net sales reported in 1997, $32.9 million represented sales made outside the United States compared to $26.8 million in 1996. The increase is due primarily to the addition of Mustang product sales. Gross Profit: Gross profit in 1997 of $57.8 million was 21% higher than 1996's $47.8 million. Gross profit as a percent of net sales decreased in 1997 to 29.3% from 29.9% in 1996 (29.3% excluding $1.0 million of decreased cost of sales in 1996 resulting from liquidation of LIFO quantities carried at lower costs prevailing in prior years - See Note 4 of Notes to Consolidated Financial Statements). Construction equipment gross profit as a percent of net sales for 1997 decreased to 29.6% from 32.2% in 1996. This decrease was due primarily to: 1) Mustang skid loader gross margins being lower than the gross margin on other Construction equipment sales; 2) competitive pressures restricting price increases to lower levels than incurred cost increases; and 3) inefficiencies incurred late in 1997 in producing the newly redesigned Dynalift line of telescopic handlers. Agriculture equipment 1997 gross profit as a percent of net sales increased to 29.0% from 28.1% (26.9% without the favorable LIFO liquidation impact) in 1996. This increase was due primarily to: 1) the favorable impact of a change in the mix of products shipped in 1997 versus products shipped in 1996; 2) higher production levels in 1997 over 1996 generating increased absorption of factory overhead; 3) 1996's gross margin being adversely impacted by the sale of $1.7 million of previously discontinued, low margin products; and 4) export sales, typically at lower gross margins than domestic sales, comprising a lower percentage of sales in 1997 than in 1996. Selling, General and Administrative Expenses: Selling, general and administrative expenses increased $3.8 million, or 12%, to $36.0 million in 1997 as compared with $32.2 million in 1996. As a percent of sales, however, selling, general and administrative expenses in 1997 decreased to 18.2% from 20.2% in 1996. The increased expenses in 1997 resulted primarily from costs associated with the Mustang operations for the fourth quarter of 1997 and increased selling expenses. Income from Operations: Due primarily to higher net sales volume combined with controlled operating expense spending, income from operations in 1997 increased 41% from 1996 to $21.8 million. Construction equipment income from operations increased 26% in 1997 to $16.3 million from $12.9 million in 1996. The impact of increased Construction equipment sales volume was offset, in part, by reduced gross margin levels and increased investments in research, development and selling costs. Agriculture equipment income from operations increased to $5.5 million in 1997 from $2.6 million in 1996. Increased Agriculture equipment sales volume coupled with an improved gross margin percentage and lower promotional costs combined to generate this increase. Interest Expense: Interest expense decreased $1.1 million, or 32%, to $2.3 million. Reductions in interest-bearing debt from $97.7 million at the end of 1992 to $49.7 million at December 31, 1997 and lower borrowing rates have resulted in the significant reduction in the Company's interest expense. The average rate of interest paid by the Company in 1997 was 8.0% compared to 8.2% in 1996. Provision for Income Taxes: The Company's effective income tax rate was 36.4% for 1997 versus 23.4% for 1996 when the Company utilized its remaining federal net operating loss carryforwards. Net Income: Net income in 1997 of $12.8 million was 33% higher than 1996's $9.6 million of net income. Diluted earnings per share were $1.95 in 1997 compared to $1.54 in 1996. Basic earnings per share were $2.06 in 1997 versus $1.56 in 1996. No dividends were declared in 1997 on the Company's common stock. Liquidity and Capital Resources Working Capital: The Company's working capital decreased 5% to $69.7 million at December 31, 1998 from $73.5 million twelve months earlier. The Company's current ratio at December 31, 1998 decreased to 2.3 to 1 from 2.7 to 1 at the same time a year ago. Cash on hand at December 31, 1998 was $887,000 as compared to $1.2 million a year earlier. Cash Flow Provided by Operating Activities: 1998 1997 1996 1995 1994 ($ thousands) Cash Flow $21,367 $15,119 $31,795 $9,701 $19,522 In 1998, cash flow provided by operating activities was $21.4 million as compared to $15.1 million in 1997. Net income before depreciation and amortization was primarily responsible for the positive cash flow. The 1998 cash flow was used to repay debt and fund property, plant and equipment additions. Accounts Receivable: The Company's net accounts receivable decreased $1.4 million during 1998. Agriculture equipment accounts receivable at year-end 1998 decreased $3.6 million from a year earlier, while Construction equipment accounts receivable increased $2.2 million over the same period. Finance Contracts Receivable: Finance contracts receivable increased $4.3 million to $15.6 million at December 31, 1998. The combined portfolio of owned and sold-but-serviced finance contracts receivable was $85.5 million at December 31, 1998 as compared to $67.6 million at year-end 1997. (See "Sales of Finance Contracts Receivable" following.) Capital Expenditures: 1998 1997 1996 1995 1994 ($ thousands) Capital expenditures $3,051 $8,718 $3,837 $2,437 $2,505 Depreciation $3,941 $2,955 $2,438 $2,520 $2,692 The Company expended $3.1 million for property, plant and equipment in 1998. The majority of the 1998 expenditures were incurred to upgrade and maintain machinery and equipment, to enhance capability, to improve productivity and to improve product quality. The 1997 expenditures included approximately $4.4 million spent to expand the Company's two South Dakota manufacturing facilities and add equipment to increase production levels of skid loaders, telescopic handlers and pavers. No significant commitments for capital items were outstanding at December 31, 1998. Approximately $6.1 million in capital expenditures are planned for 1999, primarily to upgrade and maintain machinery and equipment. The Company believes its present facilities are sufficient to provide adequate capacity for its operations in 1999. Debt and Equity: December 31, 1998 1997 1996 1995 1994 ($ millions) Total Debt $29.5 $49.7 $19.4 $46.9 $54.9 Shareholders' Equity $94.1 $77.6 $64.8 $55.7 $46.3 % Total Debt to Total Capitalization 23.9% 39.1% 23.0% 45.7% 54.2% At December 31, 1998, shareholders' equity had increased $16.5 million to $94.1 million from $77.6 million a year earlier. By reducing debt $20.2 million, or 41%, during 1998, to $29.5 million, the Company lowered its capitalization ratio to 23.9% at December 31, 1998. Borrowing Arrangements (See also Note 6 of Notes to Consolidated Financial Statements): The Company maintains a $75 million line of credit facility (the Facility) which expires December 31, 2000, and is subject to a borrowing base related to the Company's accounts receivable, finance contracts receivable and inventories. The interest rate paid on loans denominated in U.S. dollars is 2.00% 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 2.50% above Canadian one-month bankers' acceptance rates (BA Rate). At December 31, 1998, the Company had unused borrowing capacity of $53.1 million under the Facility, versus $28.3 million a year earlier. Management believes the Facility provides sufficient borrowing capacity for the Company to finance its operations for the foreseeable future. The Company also has outstanding $8.4 million of 9% industrial development bonds with a 2010 final maturity; repayments commence in 2005. 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, 1998, the Company serviced $85.5 million of such contracts, of which $69.0 million were owned by third parties. Losses on finance contracts due to customer nonperformance were $155,000 in 1998 as compared to $91,000 in 1997. As a percentage of outstanding serviced contracts, the loss ratios were .2% and .1% in 1998 and 1997, respectively. The Company incurred $1.1 million of costs in selling $55.4 million of its finance contracts in 1998, as compared to $1.1 million of costs in selling $37.1 million of such contracts in 1997. 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. Management believes the Company has sufficient capacity to sell its finance contracts for the foreseeable future. Accounting Pronouncements: The Financial Accounting Standards Board (FASB) has issued Statement of Financial Accounting Standards (SFAS) No. 133 "Accounting for Derivative Instruments and Hedging Activities" which is effective for fiscal quarters of fiscal years beginning after June 15, 1999. Due to the Company's current limited use of derivative instruments, the adoption of this statement is not expected to materially effect the Company's financial condition or results of operations. SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits: an amendment of FASB Statements No. 87, 88 and 106" was adopted January 1, 1998. None of the SFAS No. 132 changes effect the measurement or the recognition of benefit costs. The appropriate disclosures have been incorporated into the footnotes to the financial statements for the year ended December 31, 1998. Effective January 1, 1998, the Company adopted SFAS No. 130 "Reporting Comprehensive Income", the effect of which has been reflected in the Statement of Shareholders' Equity. SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", was adopted effective January 1, 1998. The appropriate footnote disclosures have been incorporated into the footnotes to the financial statements for the year ended December 31, 1998. Year 2000 The Year 2000 issue refers to computer systems which use two digits rather than four to define a given year and which therefore might read a date using "00" as the year 1900 rather than the Year 2000. As the Year 2000 approaches, such systems may be unable to process certain date-based information. This could result in system failure or miscalculations causing disruptions of operations and the potential inability to engage in normal business activities. In 1995, a Company-wide program was initiated to prepare its Information Technology (IT) systems and applications for the Year 2000. The initial focus of the Company's program contained the following steps: assessment of the relevant issues; planning the conversion; implementing the conversion; and testing. Those systems determined to be at risk were prioritized and plans were put in place to upgrade systems by remediation, replacement or outsourcing. Through December 1998, the assessment and planning phases have been completed for all IT systems and applications. The Company's objective is to become Year 2000 compliant with its mission critical IT activities and systems by mid-1999, allowing substantial time for further testing, verification and the final completion of less important systems in the second half of 1999. In addition to the IT systems review noted above, the Company has initiated processes to review and to modify, where appropriate, other areas impacted by Year 2000. These areas include, but are not limited to, personal computer hardware and software, remote location access to IT systems, facility management and certain non-IT issues, such as the extent to which embedded chips are used in machinery and equipment used in operations. The Company has completed assessments in all of the above areas and testing in all of these areas, except the testing of personal computer hardware and software, which is expected to be completed by the second quarter of 1999. The Company is in the process of communicating with its significant vendors to determine the extent to which the Company is vulnerable to those third parties' failure to remediate their own Year 2000 compliance issues. The Company cannot guarantee that the failure of another company to be Year 2000 compliant will not have an adverse effect on the Company. The Company believes that it has no exposure to contingencies related to the Year 2000 issue for products it has sold. The Company has evaluated its major customers and believes that the failure of these Company's to adequately prepare for Year 2000 issues will not have a material adverse effect on the Company. The Company expects to incur consulting and other expenses related to its Year 2000 program. The cost of testing and the conversion of existing and replacement system applications are not expected to exceed $400,000, the majority of which have already been incurred. These costs will be treated as period costs and expensed as incurred. Based upon the progress to date, the Company does not believe that either future costs of modifications or the consequences of any unsuccessful modifications being implemented by the Company will have a material adverse effect on its financial position or results of operations. Nevertheless, since it is not possible to anticipate all possible future situations, especially when third parties are involved, the Company believes that the most reasonably likely worst case Year 2000 scenario could result in circumstances in which the Company may be unable to take customer orders, manufacture and ship products, invoice customers or collect payments. The Company continues to evaluate whether a contingency plan to deal with any expected Year 2000 related failures is warranted. No assurances can be given that the Company's ultimate Year 2000 compliance, particularly as it relates to third parties, will not have any material adverse effect on the Company's financial position or results of operations. Market Risk The Company is exposed to market risks from changes in interest rates as well as currency and commodities. See further disclosure relating to variable rate debt under "Liquidity and Capital Resources - Borrowing Arrangements" above. Interest Rate Risk: The Company's line of credit 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 $150,000 based upon borrowings outstanding at December 31, 1998. Commodity Risk: The Company is exposed to fluctuation 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 its 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; however, to minimize this exposure, the Company borrows in Canadian dollars under its line of credit facility. Forward-Looking Statements Certain matters discussed in this Annual Report (particularly in this section and the Letter to Shareholders) are "forward-looking statements" intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement will include such words as the Company "believes," "anticipates" or "expects," or words of similar import. Similarly, statements that describe the Company's future plans, objectives or goals are also forward-looking statements. The forward-looking statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated. Such risks and uncertainties include competitive conditions in the markets served by the Company, changes in the Company's plans regarding capital expenditures, general economic conditions, unanticipated events related to resolving the Year 2000 issue, market acceptance of existing and new products manufactured by the Company, changes in the cost of raw materials and component parts purchased by the Company, and interest and foreign currency fluctuations. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward- looking statements and are cautioned not to place undue reliance on such forward-looking statements. GEHL COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS In Thousands, Except Share Data - December 31, 1998 1997 Assets Cash $ 887 $ 1,239 Accounts receivable - net 70,806 72,190 Finance contracts receivable - net 9,786 8,210 Inventories 32,093 30,340 Prepaid income taxes 7,138 4,217 Prepaid expenses and other current assets 1,184 1,645 -------- -------- Total current assets 121,894 117,841 -------- -------- Property, plant and equipment - net 34,142 35,082 Finance contracts receivable - net, non-current 5,804 3,031 Intangible assets 16,451 14,816 Other assets 6,256 5,453 -------- -------- Total assets $184,547 $176,223 ======== ======== Liabilities and Shareholders' Equity Current portion of long-term debt obligations $ 597 $ 672 Accounts payable 23,562 22,212 Accrued liabilities 27,993 21,444 -------- -------- Total current liabilities 52,152 44,328 -------- -------- Line of credit facility 19,359 39,357 Long-term debt obligations 9,588 9,689 Deferred income taxes 3,943 3,421 Other long-term liabilities 5,400 1,855 -------- -------- Total long-term liabilities 38,290 54,322 -------- -------- Common stock, $.10 par value, 25,000,000 shares authorized, 6,438,945 and 6,212,686 shares outstanding at December 31, 1998 and 1997, respectively 644 621 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 28,330 26,319 Retained earnings 66,283 51,015 Accumulated other comprehensive loss (1,152) (382) -------- -------- Total shareholders' equity 94,105 77,573 -------- -------- Total liabilities and shareholders' equity $184,547 $176,223 ======== ======== Contingencies (Notes 3 and 12) The accompanying notes are an integral part of the financial statements. GEHL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME In Thousands, Except Per Share Data - Year Ended December 31, 1998 1997 1996 Net sales $262,219 $197,055 $159,662 Cost of goods sold 190,808 139,252 111,902 -------- -------- -------- Gross profit 71,411 57,803 47,760 Selling, general and administrative expenses 44,133 35,955 32,213 -------- -------- -------- Income from operations 27,278 21,848 15,547 Interest expense (4,026) (2,325) (3,443) Interest income 1,655 1,429 1,542 Other (expense) income, net (1,235) (892) (1,152) -------- -------- -------- Income before income taxes 23,672 20,060 12,494 Provision for income taxes 8,404 7,299 2,929 -------- -------- -------- Net income $ 15,268 $ 12,761 $ 9,565 ======== ======== ======== Diluted net income per common share $ 2.29 $ 1.95 $ 1.54 ======== ======== ======== Basic net income per common share $ 2.39 $ 2.06 $ 1.56 ======== ======== ======== The accompanying notes are an integral part of the financial statements. GEHL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY In Thousands Total Compre- Retained Accum- Common Capital hensive Earnings ulated Stock in Income Other Excess Compre- of Par hensive Loss Balance at December 31, 1995 $55,679 $28,689 $(212) $ 622 $26,580 Comprehensive Income: Net income 9,565 $9,565 9,565 Minimum pension liability adjustments, net of $9 of taxes 19 19 19 ------ Comprehensive Income 9,584 ====== Exercise of stock options 104 2 102 Treasury stock purchase/ cancellation (535) (8) (527) ------ ------- ------ ------ ------- ----- Balance at December 31, 1996 64,832 38,254 (193) 616 26,155 Comprehensive Income: Net income 12,761 12,761 12,761 Minimum pension liability adjustments, net of $108 of taxes (189) (189) (189) ------ Comprehensive Income 12,572 ======= Exercise of stock options 362 5 357 Purchase of stock warrant (193) (193) ------ ------- ------- ------- ------- ----- Balance at December 31, 1997 77,573 51,015 (382) 621 26,319 Comprehensive Income: Net income 15,268 15,268 15,268 Minimum pension liability adjustments, net of $415 of taxes (770) (770) (770) ------- Comprehensive Income $14,498 ======= Exercise of stock options/warrant 1,652 23 1,629 Other 382 382 ------ ------- ------ ----- ------- Balance at December 31, 1998 $94,105 $66,283 $(1,152) $ 644 $28,330 ======= ======= ======== ===== ======= The accompanying notes are an integral part of the financial statements GEHL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS In Thousands - Year Ended December 31, 1998 1997 1996 Cash Flows from Operating Activities Net income $ 15,268 $ 12,761 $ 9,565 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 3,941 2,955 2,438 Amortization 807 256 138 Loss on sale of equipment 2 13 10 Cost of sales of finance contracts 1,088 1,123 1,208 Deferred income taxes (177) 1,592 306 Proceeds from sales of finance contracts 54,267 35,962 36,824 Increase (decrease) in cash due to changes in: Accounts receivable - net 1,384 1,451 13,946 Finance contracts receivable - net (59,704) (39,285) (39,248) Inventories (1,808) (3,816) 4,678 Prepaid expenses and other current assets 70 (291) (288) Other assets 377 689 (14) Accounts payable 1,350 1,165 301 Accrued liabilities 4,502 544 1,931 -------- -------- -------- Net cash provided by operating activities 21,367 15,119 31,795 -------- -------- -------- Cash Flows from Investing Activities Property, plant and equipment additions (3,051) (8,718) (3,837) Acquisition of business - net of cash acquired - (27,857) - (Increase) decrease in unexpended plant construction fund (42) 20 (10) Proceeds from sale of equipment 13 215 26 (Increase) decrease in other assets (621) 45 869 Other - (189) 19 -------- -------- -------- Net cash (used for) investing activities (3,701) (36,484) (2,933) -------- -------- -------- Cash Flows from Financing Activities (Repayment of) proceeds from revolving credit loans (19,998) 18,258 (27,394) Decrease in other long-term obligations (176) (292) (97) Increase in other long- term liabilities 504 261 2 Proceeds from issuance of common stock 1,652 362 104 Purchase of stock warrant - (193) - Treasury stock purchase - - (535) ________ ________ ________ Net cash (used for) provided by financing activities (18,018) 18,396 (27,920) ________ ________ ________ Net (decrease) increase in cash (352) (2,969) 942 Cash, beginning of year 1,239 4,208 3,266 ________ ________ ________ Cash, end of year $ 887 $ 1,239 $ 4,208 ======== ======== ======== The accompanying notes are an integral part of the financial statements. 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 farm 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: Hedlund Martin, Inc.; Gehl Power Products, Inc.; Mustang America, Inc. and subsidiaries (Mustang); and Gehl International, Inc., a foreign sales corporation. All significant intercompany transactions and balances are eliminated. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles 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. 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 12 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 generally using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes. Expenditures which substantially increase value or extend asset lives are capitalized. Expenditures for maintenance and repairs are charged against income as incurred. Debt Issue Costs: Costs incurred in conjunction with incurrence of indebtedness are capitalized and subsequently amortized over the related periods of the obligations. Intangible Assets: The cost in excess of the fair market value of net assets acquired (goodwill) arising from the acquisition of Mustang is being amortized on the straight line basis over 30 years. A five year noncompete agreement with the former owners of Mustang is being amortized on the straight line basis over the life of the agreement. Accumulated amortization of intangible assets at December 31, 1998 and 1997 is $937,000 and $167,000, respectively. Foreign Currency Transactions: Foreign currency transaction gains and (losses) are included in the determination of income. Foreign currency (losses) gains were ($130,000), ($98,000), and $24,000 in 1998, 1997 and 1996, respectively. 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. Product Warranty Costs: In general, the Company provides warranty on equipment for a period of up to twelve months or for a specified period of use after sale or rental by the dealer. Reserves for estimated warranty costs are established at the time of sale. 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 $2.8 million, $2.3 million and $2.2 million in 1998, 1997 and 1996, respectively. Other (Expense) Income: Other (expense) income is comprised primarily of foreign currency transaction gains (losses), cost of sales of finance contracts, amortization of debt issue costs, and royalty and license (expense) income. Accounting Pronouncements: The Financial Accounting Standards Board (FASB) has issued Statement of Financial Accounting Standards (SFAS) No. 133 "Accounting for Derivative Instruments and Hedging Activities" which is effective for fiscal quarters of fiscal years beginning after June 15, 1999. Due to the Company's current limited use of derivativeinstruments, the adoption of this statement is not expected to materially effect the Company's financial condition or results of operations. SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits: an amendment of FASB Statements No. 87, 88, and 106" was adopted January 1, 1998. None of SFAS No. 132 changes effect the measurement or the recognition of benefit costs. The appropriate disclosures have been incorporated into the footnotes to the financial statements for the year ended December 31, 1998. Effective January 1, 1998, the Company adopted SFAS No. 130 "Reporting Comprehensive Income", the effect of which has been reflected in the Statement of Shareholders' Equity. SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", was adopted effective January 1, 1998. The appropriate footnote disclosures have been incorporated into the footnotes to the financial statements for the year ended December 31, 1998. Reclassifications: Certain amounts in the 1997 financial statements have been reclassified to conform to the 1998 presentation. Note 2 - Acquisition of Business On October 2, 1997, the Company acquired all of the issued and outstanding shares of capital stock of Mustang for $27.7 million. Mustang designs, manufactures and distributes skid steer loaders and related attachments. This acquisition has been accounted for as a purchase and the results of operations of Mustang have been included in the Company's consolidated financial statements since the date of the acquisition. The following unaudited pro-forma consolidated results of operations for the years ended December 31, 1997 and 1996 are presented as if the acquisition occurred as of January 1, 1996 (in thousands, except per share data): Year ended December 31 1997 1996 Net sales $ 240,532 $ 214,124 Net income 12,658 8,906 Diluted net income per share 1.93 1.43 Basic net income per share 2.04 1.45 The unaudited pro-forma financial information is not necessarily indicative of either the results of operations that would have occurred had the acquisition been made during the period presented or the future results of the combined operations. Note 3 - Accounts Receivable and Finance Contracts Receivable Accounts receivable and finance contracts receivable were comprised of the following (in thousands): December 31, 1998 1997 Accounts receivable $74,360 $75,348 Less allowances for: doubtful accounts (1,305) (993) returns and dealer discounts (2,249) (2,165) ------- ------- $70,806 $72,190 ======= ======= Finance contracts receivable $17,784 $12,879 Less: unearned interest (1,201) (755) allowance for doubtful accounts (993) (883) _______ _______ 15,590 11,241 Less: non-current portion (5,804) (3,031) _______ _______ Current portion $ 9,786 $ 8,210 ======= ======= The finance contracts receivable at December 31, 1998 have a weighted average interest rate of approximately 6.5%. 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 24 to 48 months. Amounts to cover potential losses on these sold receivables are included in the allowance for doubtful accounts. The following summarizes the Company's sales of retail finance contracts receivable during 1998 and 1997 (in thousands): 1998 1997 Value of contracts sold $55,355 $37,085 - net of $4.8 million and $4.0 million, respectively, of unearned interest Cash received on sales of contracts 54,267 35,962 _______ _______ Cost of sales of finance contracts $ 1,088 $ 1,123 ======== ======= Net receivables outstanding at December 31 relating to finance contracts sold $ 71,329 $61,710 The Company retains as collateral a security interest in the equipment associated with accounts receivable and finance contracts receivable. The Company also maintains certain levels of dealer recourse deposits as additional security associated with finance contracts receivable. Note 4 - 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, 1998 1997 Raw materials and supplies $ 15,656 $ 14,830 Work-in-process 5,863 5,182 Finished machines and parts 29,970 29,578 -------- -------- Total current cost value 51,489 49,590 Adjustment to LIFO basis (19,396) (19,250) ________ ________ $ 32,093 $ 30,340 ======== ======== During 1996, inventory quantities were reduced. This reduction resulted in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with the cost of 1996 purchases, the effect of which decreased cost of goods sold by approximately $1 million. Note 5 - Property, Plant and Equipment - Net Property, plant and equipment consisted of the following (in thousands): December 31, 1998 1997 Land $ 1,838 $ 1,838 Buildings 25,781 25,507 Machinery and equipment 38,669 36,665 Autos and trucks 350 393 Office furniture and fixtures 8,995 8,346 _________ _________ 75,633 72,749 Less: accumulated depreciation (41,491) (37,667) _________ _________ Property, plant and equipment - net $ 34,142 $ 35,082 ========= ========= Note 6 - Debt Obligations A summary of the Company's debt obligations, and related current maturities, is as follows (in thousands): December 31, 1998 1997 Line of credit facility $19,359 $39,357 9.0% industrial development bonds 8,400 8,400 Other debt obligations 1,785 1,961 _______ _______ 29,544 49,718 Less: current portion (597) (672) _______ _______ Long-term debt obligations $28,947 $49,046 ======= ======= The Company maintains a $75 million line of credit facility (the Facility) which expires December 31, 2000. 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 Canadian one-month bankers' acceptance rates; the remainder of the borrowings are in U.S. dollars and are at 2.0% 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. At December 31, 1998, the Company had unused borrowing capacity of approximately $53.1 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 $500,000 until the first mandatory bond redemption period in 2003. 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): 1999 $ 597 2000 19,887 2001 171 2002 67 2003 422 Later years 8,400 ________ $29,544 ======== Interest paid on total debt obligations was $4.1 million, $2.4 million and $3.6 million in 1998, 1997 and 1996, respectively. Note 7 - Accrued Liabilities Accrued liabilities were comprised of the following (in thousands): December 31, 1998 1997 Accrued salaries and wages $ 5,516 $ 4,982 Dealer recourse deposits 2,441 2,335 Accrued warranty costs 4,754 3,581 Accrued product liability costs 3,833 3,272 Accrued income taxes 2,934 1,556 Other 8,515 5,718 _______ _______ $27,993 $21,444 ======= ======= Note 8 - Income Taxes The income tax provision recorded for the years ended December 31, 1998, 1997 and 1996 consisted of the following (in thousands): Year Ended December 31, Federal State Total 1998 Current $ 8,232 $ 349 $ 8,581 Deferred (177) - (177) ________ ________ ________ Total $ 8,055 $ 349 $ 8,404 ======== ======== ======== 1997 Current $ 5,552 $ 155 $ 5,707 Deferred 1,592 - 1,592 ________ ________ ________ Total $ 7,144 $ 155 $ 7,299 ======== ======== ======== 1996 Current $ 2,548 $ 75 $ 2,623 Deferred 306 - 306 ________ ________ ________ Total $ 2,854 $ 75 $ 2,929 ======== ======== ======== A reconciliation between the reported income tax provision and the federal statutory rate follows (as a percent of pre-tax income): Year Ended December 31, 1998 1997 1996 Federal statutory rate 35.0% 35.0% 34.0% Minimum tax credits utilized - - (10.5) State income taxes, net of Federal income tax effect 1.0 .5 .5 Other, net (.5) .9 (.6) _______ _______ _______ 35.5% 36.4% 23.4% ======= ======= ======= The Company's temporary differences and carryforwards which give rise to deferred tax assets and liabilities consisted of the following (in thousands): December 31, 1998 1997 Accrued expenses and reserves $ 7,422 $5,167 Asset valuation reserves 1,182 705 Operating loss carryforwards 844 1,741 Tax credit carryforwards 522 377 Installment sales (1,890) (2,056) Property, plant and equipment (2,932) (2,802) Other, net (1,099) (1,369) Valuation allowance (854) (967) ______ ______ Net deferred tax asset $ 3,195 $ 796 ====== ====== The net asset is included in the consolidated balance sheet in the following captions (in thousands): December 31, 1998 1997 Prepaid income taxes $ 7,138 $ 4,217 Deferred income taxes (3,943) (3,421) -------- -------- $ 3,195 $ 796 ======== ======== At December 31, 1998, the Company had alternative minimum tax credit carryforwards of $265,000 which do not expire, federal net operating loss carryforwards of $707,000 and state net operating loss carryforwards of $11.5 million. The carryforwards will be available for the reduction of future income tax liabilities; a valuation allowance has been recorded against certain of these carryforwards for which utilization is uncertain. Cash paid related to income taxes during 1998, 1997 and 1996 was $7.0 million, $5.5 million and $2.6 million, respectively. NOTE 9 - 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 assets and a statement of the funded status (in thousands): 1998 1997 Reconciliation of benefit obligation: Obligation at beginning of year $ 27,990 $ 24,539 Service cost 525 493 Interest cost 2,037 1,901 Actuarial loss 1,159 2,712 Benefit payments (1,758) (1,655) -------- -------- $ 29,953 $ 27,990 Reconciliation of fair value of plan assets: Fair value of plan assets at beginning of year $ 30,199 $ 25,278 Actual return on plan asset (1,714) 6,391 Employer contributions 901 401 Benefit and expense payments (1,942) (1,871) ------- ------- $ 27,444 $ 30,199 Funded Status: Funded status at end of year $ (2,509) $ 2,209 Unrecognized transition asset - (272) Unrecognized prior service cost 1,247 1,396 Unrecognized loss (gain) 4,747 (71) -------- -------- Net amount recognized 3,485 3,262 Employer contributions paid between 9/30 and 12/31 358 - -------- -------- Net amount recognized at December 31 $ 3,843 $ 3,262 The following table provides the amounts recognized in the statement of financial position (in thousands): December 31, 1998 1997 Prepaid benefit cost $ 3,485 $ 3,262 Accrued benefit liability (1,295) - Intangible asset 29 - Accumulated other comprehensive loss 1,266 - ------- -------- Net amount recognized 3,485 3,262 Employer contributions paid between 9/30 and 12/31 358 - ------- -------- Net amount recognized at December 31 $ 3,843 $ 3,262 The following table provides disclosure of the net periodic benefit cost (in thousands): Year Ended December 31, 1998 1997 1996 Service cost $ 525 $ 493 $ 482 Interest cost 2,037 1,901 1,809 Expected return on plan assets (2,244) (2,098) (2,038) Amortization of transition asset (272) (436) (436) Amortization of prior service cost 149 149 149 Amortization of net loss 126 20 20 ------- ------- ------- Net periodic benefit cost $ 321 $ 29 $ (14) The assumptions used in the measurement of the Company's benefit obligation are shown in the following table: Weighted-average assumptions as of September 30: Discount rate 7.25% 7.50% Expected return on plan assets 9.00% 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 plan having accumulated benefit obligations in excess of plan assets were $15.7 million, $13.9 million and $13.2 million, respectively, as of December 31, 1998. 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 an unfunded supplemental retirement benefit plan for certain management employees. The accumulated benefit obligation for this plan was $1.5 million and $1.3 million at December 31, 1998 and 1997, respectively, using a discount rate of 7.25% in 1998 and 8% in 1997. The Company maintains a savings and profit sharing plan. In 1998 and 1997, the Company matched 50% of non-bargaining unit employee contributions to the plan not to exceed 6% of the employees annual compensation. In 1996, the matching percentage was 25%. Vesting of Company contributions occur at the rate of 20% per year. Contributions approximated $577,000, $436,000 and $155,000 in 1998, 1997 and 1996, 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 therein); the plan does not allow employee contributions. The Company contributed approximately $329,000, $287,000 and $252,000 in connection with this plan in 1998, 1997 and 1996, respectively. The Company provides postretirement 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 postretirement benefit costs is approximately 171. The following schedules set forth a reconciliation of the changes in the plan's benefit obligation and funded status (in thousands): December 31, 1998 1997 Reconciliation of benefit obligation: Obligation at beginning of year $ 1,407 $ 1,564 Service cost 40 45 Interest cost 110 100 Actuarial loss 175 (71) Benefit payments (225) (231) -------- -------- Obligation $ 1,507 $ 1,407 Funded Status: Funded status at end of year $(1,507) $(1,407) Unrecognized transition obligation 316 338 Unrecognized loss 710 573 -------- -------- Net amount recognized $ (481) $ (496) ======== ======== The following table provides disclosure of the net periodic benefit cost (in thousands): Year Ended December 31, 1998 1997 1996 Service cost $ 40 $ 45 $ 48 Interest cost 110 100 102 Amortization of transition obligation 23 23 23 Amortization of net loss 37 23 36 ------- ------- ------- Net periodic benefit cost $ 210 $ 191 $ 209 ======= ======= ======= The assumed health care cost rate trend used in measuring the accumulated postretirement benefit obligation at December 31, 1998 was 8% decreasing to 5% over four years and at December 31, 1997 was 9% decreasing to 6% over four years. The discount rate used in determining the accumulated postretirement obligation was 7.25% in 1998 and 7.5% in 1997 and 1996. 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: 1% Increase 1% Decrease Effect on total of service and interest cost components of net periodic postretirement health care benefit cost $ 29,919 $ (25,645) Effect on the health care component of the accumulated postretirement benefit obligation $ 189,730 $ (167,479) Note 10 - Shareholders' Equity During April 1996, the 1995 Stock Option Plan was adopted by the Company as approved by the shareholders (the "1995 Plan"), which authorized the granting of options for up to 600,000 shares of the Company's common stock. In addition, through its expiration in December 1996, the Company was authorized to grant options for up to 530,000 shares of the Company's common stock under the 1987 Stock Option Plan. The 1995 Plan provides 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 stock option plans for 1996, 1997 and 1998: Shares Subject Weighted to Option Average Option Price Outstanding, January 1, 1996 355,672 $ 7.06 Granted 323,650 8.60 Exercised (32,082) 5.79 Cancelled (53,751) 8.82 --------- -------- Outstanding, December 31, 1996 593,489 $ 7.81 Granted 96,000 19.59 Exercised (41,084) 6.70 Cancelled (5,000) 14.88 --------- -------- Outstanding, December 31, 1997 643,405 $ 9.58 Granted 117,750 14.54 Exercised (92,359) 7.67 Cancelled (13,002) 8.61 --------- -------- Outstanding, December 31, 1998 655,794 $ 10.76 ========= ======== Exercisable, December 31, 1998 431,746 $ 8.57 ========= ======== The exercise price for options outstanding at December 31, 1998 range from $3.00 to $21.25 per share. The weighted-average remaining contractual life of these options approximates seven years. The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for options granted under the stock option plans. Had compensation cost been determined based on the fair value at the grant date for awards in 1996, 1997 and 1998 consistent with the provisions of SFAS No. 123, the Company's pro-forma net income and earnings per share would have been as presented below (in thousands, except per share data): For the year ended December 31, 1998 1997 1996 Net income $14,831 $12,414 $9,306 Diluted net income per share 2.23 1.90 1.49 Basic net income per share 2.33 2.00 1.51 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 1998, 1997 and 1996: For the year ended December 31, 1998 1997 1996 Expected stock price volatility 19.7% 19.1% 20.9% Risk-free interest rate 4.8% 6.1% 6.4% Expected life of options - years 7 7 7 The weighted-average grant-date fair value of options granted during 1998, 1997 and 1996 was $5.13, $7.60 and $3.40, respectively. 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. During 1997, the Company purchased a previously issued warrant to purchase 50,000 shares of the Company's stock for $193,000. During 1998, warrants to purchase 130,000 shares of the Company's common stock for $7 per share were exercised. Note 11 - 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 follows (in thousands): Year Ended December 31, 1998 1997 1996 Basic shares 6,376 6,194 6,147 Effect of warrants and options 286 348 80 ----- ----- ----- Diluted shares 6,662 6,542 6,227 Note 12 - 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, based in part on the advice of counsel, that final disposition of such litigation will not have a material impact on the Company's results of operations or financial position. Note 13 - Segment Information The Company adopted SFAS 131, "Disclosure about Segments of an Enterprise and Related Information" in 1998. The Company has two segments, Construction equipment and Agricultural equipment, as the long-term financial performance of these segments is affected by separate economic conditions and cycles. Segment net sales and income from operations tend to be aligned with the distribution networks of the Company, and correlate with the manner in which the Company evaluates performance. Construction equipment is manufactured and distributed for customers in the construction market. Products include a diversified offering of skid loaders, telescopic handlers and paving equipment. As of December 31, 1998, 46% of the Company's accounts receivable were from customers in the construction market. Agricultural equipment is manufactured and distributed for customers in the dairy, livestock and poultry agricultural sectors. The products include equipment for haymaking, forage harvesting, feed making, manure handling and materials handling. As of December 31, 1998, 54% of the Company's accounts receivable were from customers in the agricultural sector. Unallocated assets are cash, deferred income taxes and other nonallocable assets. Segments of business are presented below (in thousands): Year Ended December 31, 1998 1997 1996 Net Sales Construction $156,008 $101,635 $ 70,826 Agriculture 106,211 95,420 88,836 -------- -------- -------- Consolidated $262,219 $197,055 $159,662 ======== ======== ======== Income from Operations Construction $ 19,384 16,277 $ 12,967 Agriculture 7,894 5,571 2,580 -------- -------- -------- Consolidated $ 27,278 $ 21,848 $ 15,547 ======== ======== ======== Assets (Year-end) Construction $ 92,472 $ 86,647 $ 27,994 Agriculture 77,766 78,281 76,857 Unallocated 14,309 11,295 15,274 -------- -------- -------- Consolidated $184,547 $176,223 $120,125 ======== ======== ======== Depreciation/ Amortization Construction $ 2,687 $ 1,225 $ 760 Agriculture 2,033 1,957 1,758 Unallocated 28 29 58 -------- -------- -------- Consolidated $ 4,748 $ 3,211 $ 2,576 ======== ======== ======== Capital Expenditures Construction $ 1,827 $ 5,265 $ 922 Agriculture 1,224 3,453 2,915 ________ ________ ________ Consolidated $ 3,051 $ 8,718 $ 3,837 ======== ======== ======== Note 14 - Quarterly Financial Data (unaudited) In Thousands, Except Per Share First Second Third Fourth Data Quarter Quarter Quarter Quarter Total 1998 Net sales $61,288 $75,231 $63,452 $62,248 $262,219 Gross profit 15,851 21,175 17,834 16,551 71,411 Net income 2,664 5,210 4,058 3,336 15,268 Diluted net income per common share .40 .78 .61 .50 2.29 Basic net income per .42 .81 .63 .52 2.39 common share (1) 1997 Net sales $43,675 $51,592 $48,140 $53,648 $197,055 Gross profit 12,983 15,547 14,807 14,466 57,803 Net income 2,529 3,885 3,453 2,894 12,761 Diluted net income per common share (1) .39 .60 .52 .43 1.95 Basic net income per common share (1) .41 .63 .56 .47 2.06 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. Five Year Financial Summary Dollars in 1998 1997 1996 1995 1994 Thousands, Except Per Share Data Summary of Operations Net sales $262,219 $197,055 $159,662 $153,452 $146,620 Gross profit 71,411 57,803 47,760 44,614 43,274 Income from operations 27,278 21,848 15,547 13,613 12,961 Interest expense 4,026 2,325 3,443 5,733 6,711 Income before income taxes 23,672 20,060 12,494 9,163 5,035 Net income 15,268 12,761 9,565 9,013 5,035 Financial Position at December 31 Current assets $121,894 $117,841 $89,748 $106,563 $102,621 Current liabilities 52,152 44,328 32,136 29,561 28,710 Working capital 69,742 73,513 57,612 77,002 73,911 Accounts receivable 70,806 72,190 55,141 69,087 72,393 Finance contracts receivable 15,590 11,241 8,161 7,716 5,647 Inventories 32,093 30,340 18,642 23,320 21,452 Property, plant and equipment, net 34,142 35,082 21,678 20,315 20,433 Total assets 184,547 176,223 120,125 134,923 131,027 Long-term debt 28,947 49,046 19,194 46,666 54,700 Total debt 29,544 49,718 19,372 46,863 54,880 Shareholders' equity 94,105 77,573 64,832 55,679 46,283 Common Share Summary Diluted net income per share $2.29 $1.95 $1.54 $1.44 $.82 Basic net income per share 2.39 2.06 1.56 1.46 .82 Dividends per share -- -- -- -- -- Book value per share 14.61 12.49 10.53 8.96 7.50 Shares outstanding at year-end 6,438,945 6,212,686 6,158,720 6,216,765 6,169,523 Other Financial Statistics Net cash provided by operating activities $21,367 $15,119 $31,795 $9,701 $19,522 Capital expenditures 3,051 8,718 3,837 2,437 2,505 Depreciation 3,941 2,955 2,438 2,520 2,692 Current ratio 2.3 to 1 2.7 to 1 2.8 to 1 3.6 to 1 3.6 to 1 Percent total debt to total capitalization 23.9% 39.1% 23.0% 45.7% 54.2% Net income as a percent of net sales 5.8% 6.5% 6.0% 5.9% 3.4% After-tax return on shareholders' equity 17.8% 17.9% 15.9% 17.7% 11.6% Employees at year-end 1,127 1,192 832 842 928 Common stock price range 22-1/2-11 24-15/16-9-3/8 12-6-7/8 9-5/8-6-1/4 8-1/2-5-3/8 Investor Information Stock Prices and Dividends Price Range Dividends 1998 1997 1998 1997 Stock Prices and Dividends First Quarter $22- 1/2 - 18-5/8 $11- 5/8 - 9-3/8 $ -- $ -- Second Quarter 22 - 16 17- 7/8 - 10 -- -- Third Quarter 21- 1/2 - 11 24- 5/8 - 16-5/8 -- -- Fourth Quarter 17- 1/2 - 12-3/4 24-15/16 - 19-3/8 -- -- ----------------- ------------------ --------------- Year $22- 1/2 - 11 $24-15/16 - 9-3/8 $ -- $ -- EX-21 7 Exhibit 21 The following are subsidiaries of Gehl Company Gehl Power Products, Inc. South Dakota Hedlund Martin, Inc. Pennsylvania Mustang America, Inc. Delaware Mustang Manufacturing Company, Inc. Minnesota Mustang Finance, Inc. Minnesota Gehl International, Inc. Barbados EX-23 8 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 10, 1999 appearing in the 1998 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 on 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. 33-39150) 3. Registration Statement on Form S-8 (Registration No. 333-02195) 4. Registration Statement on Form S-8 (Registration No. 333-04017) 5. Registration Statement on Form S-3 (Registration No. 333-9173) 6. Registration Statement on Form S-3 (Registration No. 333-51723) PRICEWATERHOUSECOOPERS LLP Milwaukee, Wisconsin March 8, 1999 EX-27 9
5 This schedule contains summary financial information extracted from Gehl Company's consolidated balance sheet at December 31, 1998 and consolidated statements of income for the twelve month period ended December 31, 1998 and is qualified in its entirety by reference to such financial statements. 1000 12-MOS DEC-31-1998 JAN-1-1998 DEC-31-1998 887 0 90943 4547 32093 121894 75633 41491 184547 52152 28947 644 0 0 93461 184547 262219 262219 190808 190808 0 0 4026 23672 8404 15268 0 0 0 15268 2.39 2.29 Includes all non-current portion of debt obligations. The EPS under the "EPS-Primary" tag represents Basic Earnings Per Share.
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