<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended January 1, 2000
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 333-77103
----
GROVE INVESTORS LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
----
52-2089466
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
----
1565 BUCHANAN TRAIL EAST
SHADY GROVE, PENNSYLVANIA 17256
(717) 597-8121
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL
EXECUTIVE OFFICES)
----
Indicate by check mark whether the registrant (1) has filed all the reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve 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 ninety days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. None.
<PAGE>
GROVE INVESTORS LLC
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JANUARY 1, 2000
<TABLE>
<CAPTION>
PAGE
----
PART I
<S> <C> <C>
Item 1 Financial statements
Condensed Consolidated Balance Sheets as of October 2, 1999 and
January 1, 2000................................................................1
Condensed Consolidated Statements of Operations for the three months
ended January 2, 1999 and January 1 ,2000......................................2
Condensed Consolidated Statements of Comprehensive Loss for the three
months ended January 2, 1999 and January 1 ,2000...............................3
Condensed Consolidated Statements of Cash Flows for the three
months ended January 2, 1999 and January 1, 2000...............................4
Notes to Condensed Consolidated Financial
Statements.....................................................................5
Item 2 Managements discussion and analysis of financial condition and results
of operations......................................................................8
Item 3 Quantitative and qualitative disclosures about market risk........................12
PART II
Item 1 Legal proceedings.................................................................13
Item 2 Changes in securities and use of proceeds.........................................13
Item 3 Defaults upon senior notes........................................................13
Item 4 Submission of matters to a vote of security holders...............................13
Item 5 Other information.................................................................13
Item 6 Exhibits and reports on form 8-K..................................................13
Signatures........................................................................14
</TABLE>
i
<PAGE>
Unless otherwise noted, the "Company" or "Grove" refers to Grove Worldwide LLC
and its subsidiaries. Grove Investors LLC ("Investors") assets consist only of
membership interests of Grove Holdings LLC ("Holdings") and capital stock of
Grove Investors Capital. Grove Holdings' assets consist solely of membership
interests of the Company and capital stock of Grove Holdings Capital. Investors
and Holdings conducts all of their business through the Company. The Company's
fiscal year ends on the Saturday closest to the last day of September.
References to the (i) three months ended January 2, 1999 means the period from
October 3, 1998 to January 2, 1999 and (ii) three months ended January 1, 2000
means the period from October 2, 1999 to January 1, 2000. References to
historical financial information are to the historical combined and consolidated
financial statements of the Company. See "Item 2, Management's Discussion and
Analysis of Financial Condition and Results of Operations."
No separate financial statements of the Grove Investors Capital, Inc. ("Grove
Investors Capital") are included herein. The Company considers that such
financial statements would not be material to holdings of the Senior Debentures.
As of January 1, 2000, Grove Investors Capital had nominal assets, no
liabilities (other than its co-obligation under the Senior Debentures) and no
operations.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain statements in this report constitute "forward looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Any statements
that express, or involve discussions as to, expectations, beliefs, plans,
objectives, assumptions or future events or performance (often, but not always,
through the use of words or phrases such as "will likely result," "are expected
to," "will continue," "anticipates," "expects," "estimates," "intends," "plans,"
"projects," and "outlook") are not historical facts and may be forward-looking.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, levels of activity, cost
savings, performance or achievements of the Company, or industry results, to be
materially different from any future results, levels of activity, cost savings,
performance or achievements expressed or implied by such forward-looking
statements, and accordingly, such statements should be read in conjunction with
and are qualified in their entirety by reference to, such risks, uncertainties
and other factors, which are discussed throughout this report. Such factors
include, among others, the following: (i) substantial leverage, ability to
service debt, and compliance with financial covenants in the Company's Bank
Credit Agreement; (ii) changing market trends in the mobile hydraulic crane,
aerial work platform and truck-mounted crane industries; (iii) general economic
and business conditions including a prolonged or substantial recession; (iv) the
ability of the Company to implement its business strategy and maintain and
enhance its competitive strengths; (v) the ability of the Company to implement
operational improvements; (vi) the ability of the Company to obtain financing
for general corporate purposes; (vii) competition; (viii) availability of key
personnel; (ix) industry overcapacity; and (x) changes in, or the failure to
comply with, government regulations. As a result of the foregoing and other
factors, no assurance can be given as to future results, levels of activity and
achievements, and neither the Company nor any other person assumes
responsibility for the accuracy and completeness of these forward-looking
statements. Any forward-looking statements contained herein speak solely as of
the date on which such statements are made, and the Company undertakes no
obligation to update any forward-looking statements to reflect events or
circumstances after the date on which such statements were made or to reflect
the occurrence of unanticipated events.
ii
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
GROVE INVESTORS LLC AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
As of October 2, 1999 and January 1, 2000
(Unaudited and in thousands)
<TABLE>
<CAPTION>
1999 * 2000
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 18,196 $ 38,456
Trade receivables, net 142,271 118,675
Notes receivable 5,425 1,093
Inventories 193,123 191,386
Prepaid expenses and other current assets 7,405 11,988
--------- ---------
Total current assets 366,420 361,598
Property, plant and equipment, net 213,731 206,100
Goodwill, net 269,556 267,491
Other assets 17,600 18,454
--------- ---------
$ 867,307 $ 853,643
========= =========
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt $ 12,000 $ 27,000
Short-term borrowings 19,108 15,601
Accounts payable 75,370 78,334
Accrued expenses and other current liabilities 87,686 79,290
--------- ---------
Total current liabilities 194,164 200,225
Deferred revenue 74,368 71,532
Long-term debt 516,544 519,250
Other liabilities 90,141 89,200
--------- ---------
Total liabilities 875,217 880,207
--------- ---------
Members' equity (deficit):
Invested capital 75,000 75,000
Notes receivable from members (3,932) (2,348)
Accumulated deficit (69,313) (88,276)
Accumulated other comprehensive loss (9,665) (10,940)
--------- ---------
Total members' equity (deficit) (7,910) (26,564)
--------- ---------
$ 867,307 $ 853,643
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
* Amounts have been derived from the Company's audited consolidated balance
sheet
1
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the three months ended January 2, 1999 and January 1, 2000
(unaudited and in thousands)
<TABLE>
<CAPTION>
1999 2000
--------------- --------------
<S> <C> <C>
Net sales $ 164,325 $ 179,076
Cost of goods sold 137,242 149,202
--------------- --------------
Gross profit 27,083 29,874
Selling, engineering, general
and administrative expenses 29,707 28,073
Amortization of goodwill 1,823 1,771
Restructuring charges -- 4,978
--------------- --------------
Loss from operations (4,447) (4,948)
Interest expense, net (12,334) (13,739)
Other expense, net (41) (116)
--------------- --------------
Loss before
income taxes (16,822) (18,803)
Income taxes 933 462
--------------- --------------
Loss before cumulative
effect of change in
accounting principle (17,755) (19,265)
Cumulative effect of
A change in
accounting principle (note 6) -- 302
--------------- --------------
Net loss $ (17,755) $ (18,963)
=============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Loss
For the three months ended January 2, 1999 and January 1, 2000
(unaudited and in thousands)
<TABLE>
<CAPTION>
1999 2000
--------------- -------------
<S> <C> <C>
Net loss $ (17,755) $ (18,963)
Change in foreign currency translation
adjustment 2,709 (1,275)
-------------- -------------
Comprehensive loss $ (15,046) $ (20,238)
============== =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the three months ended January 2, 1999 and January 1, 2000
(unaudited and in thousands)
<TABLE>
<CAPTION>
1999 2000
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (17,755) $ (18,963)
Adjustments to reconcile to net loss to net
cash (used in) provided by operating activities:
Depreciation and amortization 5,192 5,043
Depreciation of equipment held for rent 4,324 3,319
Amortization of deferred financing costs 652 728
Accretion of interest on senior discount debentures 1,470 1,652
Interest on senior debentures 1,846 2,054
Loss on sales of property, plant
and equipment -- 13
Deferred income tax expense (benefit) 26 (132)
Changes in operating assets and liabilities:
Trade receivables, net 20,485 19,437
Notes receivable (2,914) 4,251
Inventories (5,124) (2,307)
Trade accounts payable (3,384) 7,186
Other assets and liabilities, net (10,306) (11,820)
------------- -------------
Net cash (used in) provided by operating activities (5,488) 10,461
------------- -------------
Cash flows from investing activities:
Additions to property, plant and equipment (950) (1,321)
Investment in equipment held for rent (9,958) (714)
Cash received from Hanson PLC 10,500 --
--------------- -------------
Net cash used in investing activities (408) (2,035)
--------------- -------------
Cash flows from financing activities:
Net repayments of short-term borrowings (1,485) (3,566)
Net borrowings on line of credit -- 15,000
Repayments of long-term debt (6,000) (1,000)
Other (838) 1,584
------------- -------------
Net cash (used in) provided by financing activities (8,323) 12,018
------------- -------------
Effect of exchange rate changes on cash (139) (184)
------------- -------------
Net change in cash and cash equivalents (14,358) 20,260
Cash and cash equivalents, beginning of period 34,289 18,196
------------- -------------
Cash and cash equivalents, end of period $ 19,931 $ 38,456
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AND IN THOUSANDS)
- -------------------------------------------------------------------------------
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, these
financial statements do not include all the information and notes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the unaudited
consolidated financial statements include all adjustments (consisting
of normal recurring accruals) considered necessary for a fair
presentation of the financial position and results of operations.
Grove Investors LLC ("Investors") is a limited liability company formed
pursuant to the provisions of the Delaware Limited Liability Company
Act. Investors owns Grove Holdings LLC ("Holdings") which owns Grove
Worldwide LLC. Investors and Holdings conducts all of their business
through Grove Worldwide LLC and its subsidiaries (the "Company").
Interim results for the three month period ended January 1, 2000 are
not necessarily indicative of the results that may be expected for a
full fiscal year. For further information, refer to the consolidated
financial statements and notes for the year ended October 2, 1999.
(2) INVENTORY
Inventories consist of the following as of October 2, 1999 and January
1, 2000:
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Raw materials $ 61,340 $ 56,253
Work in process 79,232 77,123
Finished goods 52,551 58,010
-------- --------
$193,123 $191,386
======== ========
</TABLE>
Inventories are valued at the lower of cost or market, as determined
primarily under the first-in, first-out method.
(3) INCOME TAXES
A significant portion of the Company's business is operated as a
limited liability company organized under the laws of Delaware.
Accordingly, earnings of the Company's U.S. mobile hydraulic crane and
aerial work platform businesses, as well as, earnings from its foreign
subsidiaries will not be directly subject to U.S. income taxes. Such
taxable income will be allocated to the equity holders of Investors and
they will be responsible for U.S. income taxes on such taxable income.
The Company intends to make distributions, in the form of dividends, to
enable the equity holders of Investors to meet their tax obligations
with respect to income allocated to them by the Company. No
distributions were made for taxes in the three months ended January 1,
2000.
The difference between the Company's reported tax provision for the
three months ended January 1, 2000 and the tax provision computed based
on U.S. statutory rates is primarily attributed to the Company's
structure as a limited liability company.
5
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AND IN THOUSANDS)
- -------------------------------------------------------------------------------
(4) RESTRUCTURING
During the three months ended January 1, 2000, the Company adopted and
executed a restructuring plan that resulted in the termination of
approximately 170 employees principally in its US operations. In
connection with the terminations, the Company accrued severance costs
of $4,978. As of January 1, 2000, the Company has expensed $1,013, and
expects to pay the remainder of the accrual through October 2001 in
accordance with separation agreements.
(5) SEGMENT INFORMATION
The Company is an international designer, manufacturer and marketer of
a comprehensive line of mobile hydraulic cranes, aerial work platforms
and truck-mounted cranes. The Company markets its products through
three operating divisions; Grove Crane, Grove Manlift and National
Crane. Grove Crane manufactures mobile hydraulic cranes in its Shady
Grove, Pennsylvania and Wilhelmshaven, Germany manufacturing
facilities. Grove Manlift manufactures aerial work platforms in its
Shady Grove, Pennsylvania and Tonneins, France manufacturing
facilities. National Crane manufactures truck-mounted cranes in its
Waverly, Nebraska manufacturing facility.
<TABLE>
<CAPTION>
Corporate,
Grove Grove National eliminations,
Crane Manlift Crane and other Total
----- ------- ----- --------- -----
<S> <C> <C> <C> <C> <C>
As of and for the three months
ended January 1, 2000
Net sales $125,822 $33,908 $19,320 $ 26 $179,076
Depreciation and amortization 2,925 82 265 1,771 5,043
Income (loss) from operations 6,916 (1,766) 1,986 (12,084) (4,948)
Total assets 455,170 59,083 38,471 300,919 853,643
Capital expenditures 837 182 302 - 1,321
As of and for the three months
ended January 2, 1999
Net sales $115,351 $33,642 $15,356 $ (24) $164,325
Depreciation and amortization 3,041 82 235 1,834 5,192
Income (loss) from operations 4,208 (1,555) 1,341 (8,441) (4,447)
Total assets 468,560 57,024 37,752 303,971 867,307
Capital expenditures 601 154 195 - 950
</TABLE>
Corporate, eliminations and other consist principally of corporate
expenses, including the restructuring charge, and assets, goodwill and
intercompany eliminations. Depreciation and amortization excludes
depreciation of equipment held for rent.
6
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AND IN THOUSANDS)
- -------------------------------------------------------------------------------
(6) ADOPTION OF NEW ACCOUNTING STANDARDS
On October 3, 1999, the Company adopted SFAS No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. This statement
establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities measured at
fair value. The impact of adoption of $302 is presented as the
cumulative effect of a change in accounting principle in the
condensed consolidated statement of operations. A summary of the
Company's hedging strategies and outstanding derivative instruments are
as follows:
INTEREST RATE RISK
The Company assesses interest rate cash flow risk by monitoring changes
in interest rate exposure that may adversely impact expected future
cash flows and by evaluating hedging opportunities. At January 1, 2000,
the Company has approximately $202 million of variable rate borrowings
under its bank credit facility. Management believes it prudent to limit
the variability of its interest payments. To meet this objective, the
Company has an interest rate collar arrangement with a multinational
bank to limit its exposure to rising interest rates on $100 million of
its variable rate bank borrowings. Under the agreement the Company will
receive, on a $100 million notional amount, three-month LIBOR and pay
6.5% anytime LIBOR exceeds 6.5%, and will receive three-month LIBOR and
pay 5.19% anytime LIBOR is below 5.19%. The contract does not require
collateral.
The estimated fair value (unrecognized gain) of the interest rate
collar at October 3, 1999 and January 1, 2000 was $302 and $611,
respectively. Management has concluded that the interest rate collar
was ineffective as of October 3, 1999 and throughout the period ended
January 1, 2000, as LIBOR was below the ceiling rate in the collar of
6.5%. Accordingly, the Company has recognized $309 as other income and
$302 as the cumulative effect of a change in accounting principle in
the condensed consolidated statement of operations for the three months
ended January 1, 2000.
FOREIGN CURRENCY RISK
The Company has foreign operations in the U.K., France, Germany and
Australia. Therefore its earnings, cash flows and financial position
are exposed to foreign currency risk. In addition, the U.S. company
regularly purchases mobile hydraulic cranes from its German factory to
meet the demand of its U.S. customers. In order to maintain profit
margins the Company will purchase forward currency contracts and
options at date of commitment to hedge Deutsche mark payment
obligations.
At January 1, 2000 the Company had $10.5 million in outstanding forward
contracts to purchase Deutsche marks with gross unrealized gains and
losses of $67 and $62, respectively. Each of the contracts are expected
to settle within 90 days and have been accounted for as hedges under
FAS 133. Such amounts together with the value of the firm purchase
commitments have been included in the determination of gross profit for
the three months ended January 1, 2000.
Currently the Company is not hedging any other foreign currency
exposures but it may do so in the future.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the more detailed
information and the historical consolidated financial statements included
elsewhere in this report.
OVERVIEW
Grove Investors LLC ("Investors") assets consist only of membership interests of
Grove Holdings LLC ("Holdings") and capital stock of Grove Investors Capital.
Grove Holdings LLC ("Holdings") assets consist only of membership interests of
Grove Worldwide LLC and capital stock of Grove Holdings Capital. Investors and
Holdings conducts all of their business through Grove Worldwide LLC and its
subsidiaries (the "Company").
The Company generates most of its net sales from the manufacture and sale of new
mobile hydraulic cranes, aerial work platforms and truck-mounted cranes. The
Company markets its products through three operating divisions; Grove Crane,
Grove Manlift and National Crane. Grove Crane manufactures mobile hydraulic
cranes in its Shady Grove, Pennsylvania and Wilhelmshaven, Germany manufacturing
facilities. Grove Manlift manufactures aerial work platforms in its Shady Grove,
Pennsylvania and Tonneins, France manufacturing facilities. National Crane
manufactures truck-mounted cranes in its Waverly, Nebraska manufacturing
facility. The Company also generates a portion of its net sales from
after-market sales (parts and service) of the products it manufactures. Sales of
used equipment, included in other, are not material and are generally limited to
trade-ins on new equipment through Company-owned distributors in France,
Germany, and the United Kingdom.
Operating results for fiscal 1999 were below historical results. While the
Company has significant capital with which to operate, the Company needed to
negotiate an amendment to its bank credit facility to modify certain financial
covenants to make them less restrictive. Management of the Company has
undertaken a number of initiatives that it believes will improve operating
results during fiscal 2000. Management believes that the combination of these
initiatives, together with improved efficiencies at the Company's Shady Grove
manufacturing facilities, will enable the Company to improve operating results
and cash flows. However, there can be no assurance that the actions taken by the
Company will improve fiscal 2000 operating results. In the event that results do
not improve, the Company may need to seek further modifications of the financial
covenants contained in its bank credit facility.
The following is a summary of net sales for the periods indicated (dollars in
millions).
<TABLE>
<CAPTION>
Three Months Ended
-------------------
January 2, January 1,
1999 2000
---- ----
<S> <C> <C>
New equipment sold $127.7 $143.1
After-market 21.6 21.2
Other 15.0 14.8
------ ------
Net sales $164.3 $179.1
====== ======
</TABLE>
8
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 1, 2000 (THE "FISCAL 2000 THREE MONTHS") COMPARED TO
THE THREE MONTHS ENDED JANUARY 2, 1999 (THE "FISCAL 1999 THREE MONTHS")
NET SALES. Net sales increased $14.8 million, or 9.0%, to $179.1 million for the
fiscal 2000 three months from $164.3 million for the fiscal 1999 three months.
The increase in net sales is principally the result of increased unit sales.
Net sales for the Grove Crane division increased $10.4 million, or 9.0%, to
$125.8 million for the fiscal 2000 three months from $115.4 million for the
fiscal 1999 three months. The increase in net sales is the result of higher new
equipment unit sales. Net sales to North American customers increased, however
this increase was offset by a decrease in Europe.
Net sales for the Grove Manlift division increased slightly to $33.9 million for
the fiscal 2000 three months from $33.6 million in the fiscal 1999 three months.
The increase was a result of higher salesvolumes in Europe offset by lower unit
sales in North America.
Net sales for the National Crane division increased $4.0 million, or 26.1%, to
$19.3 million for the fiscal 2000 three months from $15.3 million for the fiscal
1999 three months. Net sales increased as the result of higher unit sales and
increased demand for higher priced models.
After-market sales decreased slightly to $21.2 million in the fiscal 2000 three
months from $21.6 million in the fiscal 1999 three months predominantly due to a
decline parts and service sales in Europe.
GROSS PROFIT. Gross profit increased $2.8 million, or 10.3%, to $29.9 million in
the fiscal 2000 three months from $27.1 in the fiscal 1999 three months. The
increase in gross profit was attributable to an increase in unit volume and
reduced cost. The Fiscal 1999 three months operations were adversely impacted by
costs associated with the start-up of the Company's management information
system in the US and inefficiencies at the Company's Sunderland, U.K.
manufacturing facility prior to its closure in December 1999.
SELLING, ENGINEERING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, engineering,
general and administrative expenses ("SG&A") decreased $1.6 million, or 5.4%, to
$28.1 million in the fiscal 2000 three months from $29.7 in the fiscal 1999
three months. The savings were primarily attributable to cost reductions at the
U.S. facility. Included in SG&A are approximately $0.9 and $2.0 million of
consulting fees, for the fiscal 2000 and 1999 three months, respectively, paid
to the George Group in connection with the Company's operational improvement. As
a percentage of net sales, SG&A was 15.7% in the fiscal 2000 three months and
18.1% in the fiscal 1999 three months.
RESTRUCTURING CHARGES. In October 1999, the Company adopted and executed a
restructuring plan that resulted in the termination of approximately 170
employees principally in its US operations. In connection with the terminations,
the Company accrued severance costs of $5.0 million. The terminations were
primarily in the areas of general and administrative overhead. These
terminations are meant to capture the savings expected as the result of the
Company's new management information system.
9
<PAGE>
INTEREST EXPENSE. Interest expense increased $1.5 million to $13.8 million for
the fiscal 2000 three months from $12.3 million in the fiscal 1999 three months
primarily as the result of higher borrowings on the Company's line of credit.
BACKLOG. The Company's backlog consists of firm orders for new equipment and
replacement parts. Total backlog as of as of January 1, 2000 was approximately
$224.8 million compared with total backlog as of January 2, 1999 of
approximately $171.7 million. Substantially all of the Company's backlog orders
are expected to be filled within one year, although there can be no assurance
that all such backlog orders will be filled within that time period. Parts
orders are generally filled on an as-ordered basis.
LIQUIDITY AND CAPITAL RESOURCES
The Company's business is working capital-intensive, requiring significant
investments in receivables and inventory. In addition, the Company requires
capital for replacement and improvements of existing plant, equipment and
processes. During the three months ended January 1, 2000, the Company generated
approximately $10.5 million of cash in operating activities through a net
reduction of $28.6 million in working capital assets, partially offset by an
operating loss and payment of cash interest expense.
During the fiscal 2000 three months the Company borrowed $15.0 million on its
bank credit facility, made $1.0 million of payments on its bank loan and repaid
$3.6 million of short-term borrowings. Capital expenditures were $1.3 million
for the fiscal 2000 three months and are expected to be approximately $15.0
million for fiscal 2000.
The Company expects that cash flows from foreign operations will be required to
meet its domestic debt service requirements. Such cash flows are expected to be
generated from intercompany interest expense on loans the Company made to
certain of its foreign subsidiaries to consummate the Acquisition. The loans
have been established with amounts and interest rates to allow for repatriation
without restriction or additional tax burden. However, there is no assurance
that the foreign subsidiaries will generate the cash flow required to service
the loans or that the laws in the foreign jurisdictions will not change to limit
repatriation or increase the tax burden of repatriation.
GROVE INVESTORS CAPITAL, INC.
Investors and its wholly owned subsidiary, Grove Investors Capital, a Delaware
corporation, issued the Senior Debentures. Grove Investors Capital was organized
as a direct wholly owned subsidiary of Investors for the purpose of acting as a
co-issuer of the Senior Debentures and was also a co-registrant of the
Registration Statement for the Senior Debentures. This was done so that certain
institutional investors to which the Senior Debentures were marketed that might
otherwise have been restricted in their ability to purchase debt securities
issued by a limited liability company, such as Investors, by reason of the legal
investment laws of their states of organization or their charter documents,
would be able to invest in the Senior Debentures. Grove Investors Capital has no
subsidiaries, nominal assets, no liabilities (other than the co-obligation under
the Senior Debentures) and no operations. Grove Investors Capital does not have
any revenues and is prohibited from engaging in any business activities. As a
result, holders of the
10
<PAGE>
Senior Debentures should not expect Grove Investors Capital to participate in
servicing the interest and principal obligations on the Senior Debentures.
No separate financial statements of Grove Investors Capital are included in this
report. Investors believes that such financial statements would not be material
to holders of the Senior Debentures.
The ability of Investors' subsidiaries to make cash distributions and loans to
Investors is significantly restricted under the terms of the Senior Subordinated
Notes, the Senior Discount Debentures, the Indentures governing the Senior
Subordinated Notes, the Indenture governing the Senior Discount Debentures and
the bank credit facility.
MANAGEMENT INFORMATION SYSTEMS AND THE IMPACT OF YEAR 2000
Certain computer programs and microprocessors use two digits rather than four to
define the applicable year. Computer programs that have date-sensitive software
and microprocessors may recognize a date using "00" as the year 1900 rather than
the year 2000. This phenomenon (the "Year-2000 issue") could cause a disruption
of operations, including, among other things, a temporary inability to utilize
manufacturing equipment, send invoices or engage in similar normal business
activities.
During the past three fiscal years, the Company conducted a Year-2000 assessment
of all management information systems. Upon completing this review, the Company
implemented a program to replace all existing software and hardware that was not
Year-2000 compliant (the "Year-2000 Project"). In addition to replacing all
business application software and hardware, the Year-2000 Project provided
improved business processes and procedures. The Year-2000 Project was completed
in September 1999 and had a total cost of approximately $39.0 million.
To the date of this filing, the Company has not experienced a material impact on
its results of operations, liquidity or financial condition as the result of the
Year 2000 readiness of internal business systems or third-party suppliers and
customers. The Company plans to continue to assess all significant third-party
suppliers and customers and monitor all internal business systems during the
first quarter of calendar 2000 to determine any remedial actions or changes in
its production plans.
11
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The Company's principal market risk exposure is changing interest rates,
primarily changes in short term interest rates. The Company does not enter into
financial instruments for trading or speculative purposes. The Company's policy
is to manage interest rates through use of a combination of fixed and floating
rate debt. The Company may also use derivative financial instruments to manage
its exposure to interest rate risk.
As of January 1, 2000, $177,000 of the Company's long-term debt, which is
outstanding under its bank term facility, bears interest at LIBOR plus 3.5%
(9.66%). The Company has $225,000 of Senior Subordinated Notes outstanding
bearing interest at a fixed rate of 9.25%. Holdings has $88,000 face value of
Senior Discount Debentures outstanding accreting interest at a fixed rate of
11.625%. Investors has 58,700 in Senior Debentures outstanding bearing interest
at a fixed rate of 14.5%.
The Company has an interest rate collar to manage exposure to fluctuations in
interest rates on $100.0 million of its floating rate long-term debt through
September 2001. Under the agreement, the Company will receive on a $100.0
million notational amount, three month LIBOR and pay 6.5% anytime LIBOR exceeds
6.5%, and will receive three month LIBOR and pay 5.19% anytime LIBOR is below
5.19%. The agreement effectively caps the Company's exposure on $100.0 million
of its floating rate debt at 6.5% plus an applicable margin, as defined in the
Company's bank credit facility.
Movement in foreign currency exchange rates creates risk to the Company's
operations to the extent of sales made and costs incurred in foreign currencies.
The major foreign currencies, among others, in which the Company does business,
are the British pound sterling, German mark and French franc. In addition,
changes in currency exchange rates can affect the competitiveness of the
Company's products and could result in management reconsidering pricing
strategies to maintain market share. Specifically, the Company is most sensitive
to changes in the German mark. During the past three fiscal years, the impact of
currency fluctuations has not had a significant impact on the Company's results
of operations.
On October 3, 1999, the Company adopted SFAS No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. This statement establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities measured at fair value. The impact of adoption was
accounted for as the cumulative effect of a change in accounting principles.
See note 6 to the condensed consolidated financial statements.
In order to manage currency risk, the Company's practice is to contract for
purchases and sales of goods and services in the functional currency of the
Company's subsidiary executing the transaction. To the extent purchases or sales
are in currencies other than the functional currency of the subsidiary, the
Company will generally purchase forward contracts to hedge firm purchase and
sales commitments. As of January 1, 2000, the Company was party to nine such
contracts with an aggregate value of $10.5 million. These forward contracts
generally have average maturities of less than three months. The Company has not
taken any action at this time to hedge its net investment in foreign
subsidiaries but may do so in the future.
The Company does not have any commodity contracts.
12
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PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings that have arisen in the
normal course of its operations. The outcome of these legal proceedings, if
determined adversely to the Company, is unlikely to have a material adverse
effect on the Company. The Company is also subject to product liability claims
for which it believes it has adequate insurance.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit No. Description of Exhibit
27.1* Financial Data Schedule.
- ---------------
* Filed Herewith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended January 1, 2000.
13
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
GROVE INVESTORS LLC
DATE: FEBRUARY 15, 2000 BY /S/ STEPHEN L. CRIPE
-----------------------
STEPHEN L. CRIPE
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AS OF AND FOR
THE PERIOD ENDING JANUARY 1, 2000 FOR GROVE INVESTORS LLC AND SUBSIDIARIES, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-03-1999
<PERIOD-END> JAN-01-2000
<CASH> 38,456
<SECURITIES> 0
<RECEIVABLES> 123,642
<ALLOWANCES> (4,967)
<INVENTORY> 191,386
<CURRENT-ASSETS> 361,598
<PP&E> 252,158
<DEPRECIATION> (46,058)
<TOTAL-ASSETS> 853,643
<CURRENT-LIABILITIES> 200,225
<BONDS> 344,250
0
0
<COMMON> 0
<OTHER-SE> (26,564)
<TOTAL-LIABILITY-AND-EQUITY> 853,643
<SALES> 179,076
<TOTAL-REVENUES> 179,076
<CGS> 149,202
<TOTAL-COSTS> 34,822
<OTHER-EXPENSES> (116)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,229
<INCOME-PRETAX> (18,803)
<INCOME-TAX> 462
<INCOME-CONTINUING> (19,265)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 302
<NET-INCOME> (18,963)
<EPS-BASIC> 0
<EPS-DILUTED> 0
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