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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-K
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the fiscal year ended October 2, 1999
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)
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DELAWARE 52-2089466
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1565 BUCHANAN TRAIL EAST SHADY GROVE, PENNSYLVANIA 17256
- --------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (717) 597-8121
--------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
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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 files pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the 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
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates of the Registrant. NONE
Documents incorporated by reference: NONE
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GROVE INVESTORS LLC
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED OCTOBER 2, 1999
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PART I
Item 1. Business. 1
Item 2. Properties. 8
Item 3. Legal Proceedings. 9
Item 4. Submission of Matters to a Vote of Security Holders. 9
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters. 9
Item 6. Selected Financial Data. 10
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 11
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk. 19
Item 8. Financial Statements and Supplementary Data. 21
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. 21
PART III
Item 10. Directors and Executive Officers of the Registrant. 22
Item 11. Executive Compensation. 24
Item 12. Security Ownership of Certain Beneficial Owners and Management. 26
Item 13. Certain Relationships and Related Transactions. 27
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. 28
</TABLE>
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The following report is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and combined and consolidated
financial statements of The Grove Companies, the predecessor to Grove Investors
LLC ("Investors"), and the consolidated financial statements of Investors
including the notes thereto (the "financial statements"), included elsewhere in
this report. Unless otherwise noted, the "Company" or "Grove" refers to Grove
Worldwide LLC and its subsidiaries and includes the acquired business (as
defined). The Company's fiscal year ends on the Saturday closest to the last day
of September. References to fiscal 1995, fiscal 1996, fiscal 1997, fiscal 1998
and fiscal 1999 refer to the fiscal years ended September 30, 1995, September
28, 1996, September 27, 1997, October 3, 1998 and October 2, 1999, respectively.
Reference to the (i) seven months ended April 28, 1998 means the period from
September 27, 1997 to April 28, 1998 and (ii) five months ended October 3, 1998
means the period from April 28, 1998 to October 3, 1998. References to
historical financial information are to the historical combined and consolidated
financial results of the acquired business. See "Item 1. Business--Significant
Developments."
No separate financial statements of Grove Investors Capital, Inc. ("Grove
Investors Capital") are included herein. Investors believes that such financial
statements would not be material to holders of the Senior Debentures (as
defined). As of October 2, 1999, 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.
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PART I
ITEM 1. BUSINESS
GENERAL
Investors' principal assets consist of its membership interest of Grove 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 conduct all of their business through
the Company.
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's products are used in a wide variety of
applications by commercial and residential building contractors, as well as by
industrial, municipal and military end-users. The Company's products are
marketed to independent equipment rental companies and directly to end-users
under three widely recognized brand names -- GROVE CRANE, GROVE MANLIFT and
NATIONAL CRANE.
The Company's products are sold in over 50 countries primarily through an
established, global network of approximately 240 independent distributors. The
Company's major markets are North America (approximately 70% of fiscal 1998 and
65% of fiscal 1999 new equipment sales), Europe (approximately 21% of fiscal
1998 and 4% of fiscal 1999 new equipment sales), Africa and the Middle East
(approximately 3% of fiscal 1998 and 26% of fiscal 1999 new equipment sales),
Asia (approximately 2% of fiscal 1998 and 2% of fiscal 1999 new equipment sales)
and Latin America (approximately 4% of fiscal 1998 and 3% of fiscal 1999 new
equipment sales). The Company markets its products through three operating
divisions:
GROVE CRANE (approximately 69%, 66% and 69% of fiscal 1997, fiscal 1998
and fiscal 1999 net sales) designs and manufactures over 30 models of
mobile hydraulic cranes. The Company's mobile hydraulic cranes, which are
used primarily in industrial, commercial and public works construction,
are capable of reaching maximum heights of 372 feet and lifting up to 300
tons.
GROVE MANLIFT (approximately 23%, 24% and 20% of fiscal 1997, fiscal 1998
and fiscal 1999 net sales) designs and manufactures 40 models of aerial
work platforms. The Company's aerial work platforms, which are used
primarily in industrial, commercial and construction applications, are
capable of lifting people to maximum working heights ranging from 19 to
131 feet. Aerial work platforms elevate workers and their materials more
safely, quickly and easily than alternative methods such as scaffolding
and ladders.
NATIONAL CRANE (approximately 8%, 10% and 11% of fiscal 1997, fiscal 1998
and fiscal 1999 net sales) designs and manufactures 10 models of
telescoping and 14 models of articulating truck-mounted cranes. The
Company's telescoping and articulating cranes, which are used primarily
in industrial, commercial, public works and construction applications,
are capable of reaching maximum heights of 166 feet and lifting up to 36
tons. Telescoping and articulating cranes are mounted on a standard truck
chassis or on a pedestal at a fixed location.
In December 1997, Grove Worldwide was formed as a Delaware limited liability
company for the purpose of acquiring, through certain of its subsidiaries, the
mobile hydraulic crane, aerial work platform and truck-mounted crane businesses
of Hanson Funding (G) PLC ("Hanson") and certain of its subsidiaries (the
"Acquired Business"). The principal executive offices of the Company are located
at 1565 Buchanan Trail East, Shady Grove, Pennsylvania 17256. The telephone
number of the Company's executive offices is (717) 597-8121.
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THE ACQUISITION
In March 1998, the Company entered into an agreement (together with the related
agreements, the "Acquisition Agreement") to acquire (the "Acquisition"), the
Acquired Business for aggregate cash consideration of approximately $583.0
million plus certain assumed liabilities, subject to a post-closing net worth
adjustment described below.
On April 29, 1998 (the "Closing Date"), pursuant to the Acquisition Agreement,
the Company acquired the Acquired Business. Cash funding requirements to
consummate the Acquisition, including the payment of related fees and expenses,
were approximately $605.1 million, which were provided by: (i) $210.1 million of
borrowings under a $325.0 million credit facility among the Company and certain
banks (the "Bank Credit Facility"); (ii) $225.0 million of estimated gross
proceeds to the Company from the offering of its 9 1/2% Senior Subordinated
Notes due 2009 (the "Senior Subordinated Notes"); (iii) the issuance by Grove
Holdings LLC, a Delaware limited liability company ("Grove Holdings"), of $50.0
million in gross proceeds of its 11 5/8% Senior Discount Debentures due 2009
(the "Debentures"); (iv) the issuance by Investors of $47.3 million in gross
proceeds of its 14 1/2% Senior Debentures due 2010 (the "Senior Debentures");
and (v) the issuance of $75.0 million of limited liability company interests of
Investors (the "Investors Equity Issuance") (collectively, the "Financings"). On
the Closing Date, Investors contributed net proceeds from the issuance of the
Senior Debentures and the Investors Equity Issuance to Grove Holdings and Grove
Holdings contributed such amount and the net proceeds from the Debenture
offering to the Company. The Acquisition, the Financings and the application of
the proceeds of the Financings are hereinafter referred to as the
"Transactions." See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Company received approximately $16.8 million and $10.5 million in July 1998
and November 1998, respectively, from Hanson in payment of post closing net
worth adjustments.
THE INVESTOR GROUP
Grove Holdings owns all of the limited liability company interests of the
Company. Investors owns all of the limited liability company interests of Grove
Holdings. All of Investors' outstanding membership interests are owned by (i) FW
Grove Coinvestors, L.P., (ii) Oak Hill Strategic Partners, L.P., formerly known
as FW Strategic Partners, L.P., (iii) GGEP-Grove, L.P., (iv) Michael L. George,
(v) institutional investors and (vi) members of senior management (collectively,
the "investor group").
FW Grove Coinvestors is a limited partnership formed in order to acquire
Investors' membership interests. Keystone, Inc. ("Keystone"), the principal
investment entity of Robert M. Bass, is a limited partner of FW Grove
Coinvestors. In addition, certain principals of Keystone and its related
entities are limited partners in a partnership which is a limited partner of
FW Grove Coinvestors.
Oak Hill Strategic Partners is a limited partnership that invests primarily in
public and private debt and equity securities. Oak Hill Strategic Partners was
formed by certain principals and employees of Keystone and its related entities.
GGEP-Grove is an entity that was formed by certain principals and employees of
the George Group Inc., an acquisition and management consulting firm that
applies its strategic and operations management expertise to manufacturing
businesses. The George Group is the general partner of GGEP-Grove. Michael L.
George is the Chief Executive Officer of the George Group and its majority
shareholder.
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PRODUCTS
MOBILE HYDRAULIC CRANES (GROVE CRANE)
GROVE CRANE manufactures over 30 models of mobile hydraulic cranes, which are
used primarily in the industrial, commercial and public works construction and
in maintenance applications to lift material at job sites. There are four main
types of mobile hydraulic cranes: (i) Rough-Terrain, (ii) All-Terrain, (iii)
Truck-Mounted and (iv) Industrial. In addition, Grove Crane produces three
models of specialty cranes for the U.S. Department of Defense.
ROUGH-TERRAIN CRANES are designed to lift materials and equipment on rough or
uneven terrain. These cranes cannot be driven on highways, and, accordingly,
must be transported by truck to a work site. Grove Crane produces 15 models of
rough-terrain cranes, believed to be the broadest such line in the world,
capable of working heights of up to 208 feet and maximum load capacities of up
to 100 tons.
ALL-TERRAIN CRANES are versatile cranes designed to lift materials and equipment
on rough or uneven terrain and yet are highly maneuverable and capable of
highway speeds. Grove Crane produces nine models of all-terrain cranes capable
of working heights of up to 374 feet and maximum load capacities of up to 300
tons.
TRUCK-MOUNTED CRANES are designed to provide simple set-up, long reach high
capacity booms and the capability of traveling from site to site at highway
speeds. These cranes are suitable for urban and suburban uses. Grove Crane
produces eight models of truck-mounted cranes, believed to be the broadest such
line in the world, capable of working heights of up to 248 feet and maximum load
capacities of up to 120 tons.
INDUSTRIAL CRANES are designed primarily for plant maintenance, storage yard and
material handling jobs. Grove Crane produces three models of industrial cranes
capable of working heights of up to 74 feet and maximum load capacities of up to
15 tons.
AERIAL WORK PLATFORMS (GROVE MANLIFT)
Grove Manlift manufactures over 40 models of aerial work platforms which elevate
workers and their materials more safely, quickly and easily than alternative
methods such as scaffolding and ladders. The work platform is mounted to either
a telescoping or articulating boom or to a vertical scissor or mast lift
mechanism. The boom lifting mechanism is mounted on a chassis powered by
electric motors or gas, diesel or propane engines. The Company manufactures five
types of aerial work platforms: (i) Scissor Lift, (ii) Articulating Boom, (iii)
Telescoping Boom, (iv) Vertical Mast and (v) Personnel Lifts.
SCISSOR LIFTS have a work platform that is mounted on top of a scissor type
lifting mechanism. The lifts are designed to set up and move quickly from job to
job in construction, industrial and commercial settings. Grove Manlift produces
11 models of scissor lifts capable of working heights of up to 46 feet and
maximum load capacities of up to 1,750 pounds.
ARTICULATING BOOM LIFTS have a work platform that is mounted on top of a jointed
boom. These lifts are used primarily in the industrial and construction settings
where articulation allows users to access elevated areas over machines or
structural obstacles. Grove Manlift produces ten models of articulating boom
lifts capable of working heights of up to 131 feet with maximum load capacities
of up to 600 pounds.
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TELESCOPING BOOM LIFTS have a work platform that is mounted on top of a
telescoping boom and designed for strength, rigidity and resistance to
deflection. These lifts are used primarily outdoors in residential, commercial
and industrial construction and maintenance projects. Grove Manlift produces ten
models of telescoping boom lifts capable of working heights of up to 116 feet
with maximum load capacities of up to 700 pounds.
VERTICAL MAST LIFTS have work platforms that are either mounted on top of
fork-lift type devices or on push-around type devices. These lifts are designed
for use by workers for general purpose indoor maintenance. Some models are for
vertical lifting applications only, while others also have out-reach
capabilities. Grove Manlift produces 14 models of vertical mast lifts capable of
working heights of up to 46 feet with maximum load capacities of up to 600
pounds.
TRUCK-MOUNTED CRANES (NATIONAL CRANE)
National Crane manufactures 24 models of truck-mounted cranes used primarily by
contractors engaged in industrial, commercial, public works and residential
construction, railroad and oil field service industries. They are also used in
maintenance applications to lift materials or personnel at the same job site or
to move material to another job site or location. The Company manufactures two
types of truck-mounted cranes: telescoping and articulating, and also produces
four models of pedestal-mounted, fixed location cranes.
TELESCOPING CRANES are used primarily for lifting material and personnel on a
job site. National Crane produces 10 models of truck-mounted telescoping cranes
capable of working heights of up to 166 feet and maximum load capacities of up
to 36 tons.
ARTICULATING CRANES are used primarily to load and unload truck beds at a job
site. National Crane produces 14 models of truck-mounted articulating cranes
capable of working heights of up to 71 feet and maximum load capacities of up to
28 tons.
OTHER CRANES include four models of pedestal-mounted cranes designed for docks,
factories, yards, and other areas where fixed, stationary lifting is required.
These cranes are capable of working heights of up to 90 feet and maximum load
capacities of up to 23 tons.
MARKETING AND DISTRIBUTION
GENERAL
The Company benefits from an established base of approximately 240 independent
distributors located in 50 countries around the world. Over two thirds of Grove
Crane's North American distributors have been with the Company for over 10
years.
MOBILE HYDRAULIC CRANES
The Company distributes its mobile hydraulic cranes primarily through a global
network of independent distributors, except in Germany, France and the United
Kingdom, where the Company has its own distributors. In addition, the Company
sells directly to certain large corporate customers and the United States
Government.
In fiscal 1999, 71% of the Company's unit sales of mobile hydraulic cranes were
derived from units shipped to North American and Latin American distributors and
end users. The Company has longstanding relationships with its 45 North American
and 24 Latin American distributors. Shipments to Europe comprised
approximately 21% of the Company's shipments in fiscal 1999 through three
Company stores, located in the
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U.K., Germany and France, and 42 third-party distributors. In fiscal 1999,
shipments to Asia, Africa and the Middle East comprised approximately 2%, 2% and
4% of the Company's unit shipments, respectively.
AERIAL WORK PLATFORMS
In fiscal 1999, aerial work platforms sold by North American distributors
represented approximately 66% of the Company's unit sales of aerial work
platforms. The Company has 65 authorized distributors in 187 locations across
North America providing coverage in most major markets. For fiscal 1999, sales
to customers in Europe represented approximately 36% of the Company's units
shipped of aerial work platforms. The Company's 13 European dealers include
independent and Company-owned distributors. Three Company locations in the U.K.,
Germany and France and a major independent distributor in the Netherlands
collectively accounted for more than 70% of aerial work platform net sales in
Europe.
Asian customers purchased approximately 2% of the Company's units shipped in
fiscal 1999. Asia is supported by authorized distributors located in Hong Kong,
India, Indonesia, Korea, the Philippines, Singapore/Malaysia, Taiwan, Thailand
and Vietnam and a Company-owned distribution facility in Penrith, Australia.
Latin American customers purchased approximately 3% of the Company's units
shipped in fiscal 1999, while African and Middle Eastern customers purchased
less than 1% of the Company's units during the same period.
TRUCK-MOUNTED CRANES (NATIONAL CRANE)
The Company's North American truck-mounted crane distribution network consists
of 66 distributors that carry multiple product lines, the majority of which
maintain rental fleets. In addition, the Company has eight distributors that
focus either on limited product lines and/or market niches. Certain of the
Company's "niche" distributors primarily sell to railroads and are a particular
strength of the Company's customer base.
END-USERS AND CUSTOMERS
Mobile hydraulic cranes are primarily used by contractors engaged in industrial,
commercial and public works construction, and for maintenance applications and
job site material handling. Aerial work platforms are primarily used by
contractors engaged in residential, commercial and industrial construction and
in maintenance projects. National Crane's truck-mounted cranes are primarily
used by contractors engaged in industrial, commercial, public works and
residential construction, railroad and oil field service industries, and in
maintenance applications to lift materials or personnel at the same job site or
to move material to another job site or location. In addition, U.S. railroad
companies and U.S. equipment rental companies use the Company's truck-mounted
cranes. Mobile hydraulic cranes and aerial work platforms are also sold to the
U.S. Department of Defense and other government agencies.
For the fiscal years ended September 27, 1997, October 3, 1998 and October 2,
1999, approximately 19%, 24% and 22%, respectively, of the Company's revenues
were generated from sales to six major customers, with no one customer
accounting for more than 10% of total revenue. Approximately 11% and 13% of the
outstanding accounts and notes receivable balance as of October 3, 1998 and
October 2, 1999, respectively, were due from these customers.
DEALER FINANCING PROGRAM
The Company offers certain of its distributors terms of up to one year. Units
sold under this program generate secured notes receivable, which the Company
sells, from time to time, to a third-party financial institution. The terms
of the notes provide that if the distributor sells the equipment prior to the
maturity of the notes, the notes must be repaid immediately along with any
interest accrued thereon.
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The Company has an agreement with a major international bank to sell up to $65.0
million of notes receivable generated from sales of mobile hydraulic cranes,
aerial work platforms and truck-mounted cranes on credit terms of up to one year
on a revolving basis. The bank purchases the notes receivable at face value on a
90% non-recourse basis. The agreement requires the Company to purchase credit
insurance on behalf of the third-party to insure the 90% risk assumed by the
bank. The Company retains 10% of the credit risk. Subsequent to year-end, the
Company entered into an agreement with another major international bank to sell
up to $50.0 million of notes receivable.
ENGINEERING AND DESIGN
The Company's team of engineers focuses on developing innovative, high
performance, low maintenance products that create significant brand loyalty
among customers. Design engineers work closely with the Company's manufacturing
and marketing staff, enabling the Company to quickly identify changing end-user
requirements, implement new technologies and effectively introduce product
innovations. The Company spent approximately $15.4 million, $14.1 million and
$12.4 million in fiscal 1997, fiscal 1998 and fiscal 1999, respectively, on
Company-sponsored research and development activities.
COMPETITION
The markets in which the Company competes are highly competitive. To compete
successfully, the Company must remain competitive in areas of quality, value,
product line, ease of use, safety, comfort and customer service. The Company
faces competition in each of its operating divisions from a number of
manufacturers. Competition in each of the Company's markets generally is based
on product design, overall product quality, maintenance costs and price. The
following table sets forth the Company's primary competitors in each of its
major product groups:
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OPERATING
DIVISIONS PRODUCTS PRIMARY COMPETITORS
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Grove Crane Mobile Hydraulic Liebherr Werk Nenzing, Link-Belt Construction Equipment Co.,
Cranes Mannesman Dematics,Tadano Ltd. and Terex Corporation ("Terex")
Grove Manlift Aerial Work Platforms JLG Industries, Inc., Genie Industries, Sky Jack Inc., The Snorkel
Company, Terex and UpRight, a division of W.R. Carpenter North America,
Inc.
National Crane Truck-Mounted Cranes Fassi Gru Idrauliche SpA, Hiab BV, Iowa Mold Tooling Co. Inc. (IMT),
Manitex, Inc., Palfinger GmbH, Pioneer Truck Cranes, manufactured by
Pioneer Engineering Corporation, Terex and USTC Inc.
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RAW MATERIALS
Principal materials used by the Company in its various manufacturing processes
include steel, castings, engines, tires, axles, transmissions, hydraulic
components and controls, hydraulic cylinders, electric controls, motors, and a
variety of other fabricated or manufactured items either purchased complete or
manufactured internally. Substantially all materials are normally available from
multiple suppliers but are designed and tested to meet specific requirements.
Current and potential suppliers are evaluated on a regular basis on their
ability to meet the Company's requirements and standards regarding quality,
delivery and value.
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CYCLICALITY
The Company markets a large portion of its products in North America and Europe,
and historically, sales of products manufactured and sold by the Company have
been subject to cyclical variations caused by, among other things, cyclical
changes in general economic conditions and, in particular, in conditions in the
construction industry. During periods of expansion in construction activity, the
Company generally has benefited from increased demand for its products.
Conversely, during recessionary periods, the Company has been adversely affected
by reduced demand for such products. Downward cycles may result in reduction of
the Company's new unit sales and pricing, which may materially and adversely
impact the Company's results of operations.
BACKLOG
The Company's backlog consists of firm orders for new equipment and replacement
parts. Total backlog as of October 2, 1999 was approximately $178.3 million
compared to total backlog as of October 3, 1998 of $163.3 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.
EMPLOYEES
As of October 2, 1999, the Company had a total of approximately 4,141 employees,
of which approximately 3,054 were employed in the United States. Approximately
33% of the Company's employees are represented by labor unions. In the United
States, workers at the Company's Waverly, Nebraska facility are organized and
are subject to a collective bargaining agreement that expires on June 9, 2002.
Certain employees at the Company's Wilhelmshaven, Germany and Tonneins, France
facilities are also organized under the host country's labor laws. The
collective bargaining agreements covering the Wilhelmshaven, Germany employees
will not terminate unless due notice is given by either party pursuant to
special provisions within the collective bargaining agreements, but are subject
to renegotiation at various times. Throughout all facilities, the Company
considers its relations with its employees and union representatives to be good.
ENVIRONMENTAL MATTERS
The Company generates hazardous and non-hazardous waste in the normal course of
its manufacturing operations. As a result, the Company is subject to a wide
range of Federal, state, local and foreign environmental laws, including the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
that (i) govern activities or operations that may have adverse environmental
effects, such as discharges to air and water, as well as handling and disposal
practices for hazardous and nonhazardous wastes, and (ii) impose liability for
the costs of cleaning up, and certain damages resulting from, sites of past
spills, disposals or other releases of hazardous substances. Compliance with
such laws has required, and will continue to require, expenditures by the
Company on a continuing basis. The Company does not expect that these
expenditures will have a material adverse effect on its financial condition or
results of operations.
In 1990, the Clean Air Act was amended and established a list of 189 toxic air
pollutants that must be controlled using maximum achievable control technology
("MACT") as prescribed by the EPA. The Company believes that by 2003 it will be
subject to MACT regulations with respect to its surface coating air omissions.
At this time, the Company does not expect the cost of compliance with these MACT
regulations to have a significant impact on the Company.
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INTELLECTUAL PROPERTY
The Company's products are sold primarily under the logo "G-Registered
Trademark-", and the trademarks GROVE-Registered Trademark-, G GROVE
WORLDWIDE-Registered Trademark-, GROVE MANLIFT-Registered Trademark-,
MANLIFT-Registered Trademark-, G MANLIFT-Registered Trademark-, G MEGATRAK-TM- ,
MAXX-Registered Trademark-, SUPER-MAXX-Registered Trademark- , TOUCAN-Registered
Trademark-, and YARDBOSS-TM- . The Company owns a number of patents and
trademarks relating to the products it manufactures that have been obtained over
a number of years.
ITEM 2. PROPERTIES
The Company maintains major manufacturing and engineering facilities in Shady
Grove, Pennsylvania and Wilhelmshaven, Germany, as well as plants in Tonneins,
France and Waverly, Nebraska. All such manufacturing facilities are ISO 9001
certified. The Company also maintains administrative and service facilities in
the United Kingdom, France, Germany, and Australia, and offices in Singapore,
the United Arab Emirates, and China.
The following table outlines the principal facilities owned or leased by the
Company:
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Approximate
Facility Location Type of Facility Square Footage Owned/Leased
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Shady Grove, Pennsylvania Manufacturing/ Headquarters 1,165,600 owned
Quincy, Pennsylvania Manufacturing 40,100 owned
Chambersburg, Pennsylvania Office/Storage 81,000 owned
Waverly, Nebraska Manufacturing/ Headquarters 303,800 owned
Antwerp, Belgium Warehouse/Machine and Parts Storage 107,600 leased
Sunderland, U.K.(1) Warehouse/Office 102,200 leased
Wilhelmshaven, Germany(2) Manufacturing/ Storage/Office 410,400 owned/leased
Langenfeld, Germany(3) Storage/Office/ Field Testing 80,300 leased
Tonneins, France(4) Manufacturing/ Storage/Office 101,900 owned/leased
Osny, France Storage/Repair/Office 43,000 owned
</TABLE>
(1) The lease for the Sunderland facilities expires on December 31, 1999. In
October 1999, the Company's UK subsidiary has signed an agreement to lease,
and plans to relocate to a nearby facility.
(2) The buildings are owned by the Company and the underlying land is leased
from the Federal Republic of Germany and Friedrich Krupp AG Hoesch Krupp
("Krupp"). The lease with the Federal Republic of Germany expires December
31, 2043 and the lease with Krupp expires December 31, 2042.
(3) The lease at Langenfeld, Germany runs year to year, through July 31, 2000.
Unless the Company gives notice of intent to vacate the facility by January
31, 2000, the lease will automatically extend for an additional year,
through July 31, 2001.
(4) Includes two facilities, one of which is leased. The lease expires on
November 29, 2004.
To the extent any such properties are leased, the Company expects to be able to
renew such leases or lease comparable facilities on terms commercially
acceptable to the Company. Management believes that the Company's facilities are
suitable for its operations and provide sufficient capacity to meet the
Company's requirements for the foreseeable future.
The obligations of the Company under the Bank Credit Facility are secured by a
mortgage on certain of the Company's owned, domestic real properties.
8
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings which 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The security holders of Grove Investors approved and ratified the following:
(i) effective April 7, 1999, the adoption of a Third Amendment to the Second
Amended and Restated Limited Liability Company Agreement of Grove Investors.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
HOLDERS
There is no established trading market for the membership interests of
Investors. Grove Holdings owns all of the limited liability company interests of
the Company and Investors owns all of the limited liability company interests of
Grove Holdings. For certain information concerning the ownership of the limited
liability company interests of Investors, see "Item 12. Security Ownership of
Certain Beneficial Owners and Management."
MARKET INFORMATION
No dividends have been paid on the Investors' membership interests. The
Company's borrowing arrangements limit the ability of the Company to pay
dividends. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
9
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected historical financial data of Investors (i)
as of and for each of the fiscal years ended September 30, 1995, September 28,
1996 and September 27, 1997, for the seven months ended April 28, 1998 (the
"Predecessor Periods"), as of and for the five months ended October 3, 1998 and
the fiscal year ended October 2, 1999 (the "Successor Period"). As a result of
the Acquisition, which was accounted for using the purchase method, results of
operations for the Successor Period are not comparable with those for the
Predecessor Periods. The selected historical financial data set forth below
should be read in conjunction with "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the historical financial
statements and the related notes thereto included elsewhere in this report.
<TABLE>
<CAPTION>
PREDECESSOR INVESTORS
-------------------------------------------------------- ---------------------------
SEVEN MONTHS FIVE MONTHS
ENDED ENDED
APRIL 28, OCTOBER 3,
1995 1996 1997 1998 1998 1999
------------ ------------- ------------ ------------- ------------ -------------
(DOLLARS IN THOUSANDS)
Statement of operations data (1):
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 503,815 $ 794,209 $ 856,812 $ 476,200 $ 393,779 $ 781,229
Gross profit (2) 126,589 185,079 203,273 98,863 58,015 147,782
Operating expenses 88,216 134,459 135,382 79,041 61,189 131,584
Income (loss) from
operations 38,373 50,620 67,891 19,822 (3,174) 16,198
Net income (loss) (3) 16,769 25,448 42,220 (395) (29,664) (39,649)
Balance sheet data (at period end):
Cash and cash equivalents 18,685 8,184 5,024 -- 34,289 18,196
Total assets 652,000 730,158 881,496 -- 915,243 867,307
Total debt -- 7,443 7,265 -- 531,692 547,652
Total invested
capital (deficit) 467,306 502,554 628,492 -- 47,835 (7,910)
Other data:
Depreciation and
amortization (4) 13,765 17,313 17,985 11,399 8,213 18,537
Capital expenditures 7,385 19,443 32,491 19,521 7,230 9,405
Sales backlog at end
of period 208,152 185,237 229,513 268,682 163,314 178,300
</TABLE>
(1) The results of the KMK division of Krupp and Delta Systems SA ("Delta")
have been included since their dates of acquisition on August 30, 1995 and
November 30, 1995, respectively.
(2) Gross profit for the five months ended October 3, 1998 was adversely
impacted by the write-off of $27.7 million of purchase accounting
adjustments with respect to the amount assigned to inventory in excess of
historical cost.
(3) Includes losses by the Company's Sunderland U.K. facility of $14,085,
$5,999 and $3,554 for the seven months ended April 28, 1998, five months
ended October 3, 1998 and year ended October 2, 1999, respectively.
Effective December 1998, the Company ceased manufacturing operations at its
Sunderland, United Kingdom facility due to recurring operating losses.
(4) Depreciation and amortization excludes depreciation on equipment held for
rent.
10
<PAGE>
ITEM 7. 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 combined and consolidated financial statements
included elsewhere in this report.
OVERVIEW
Investors' principal assets consist of its membership interest of Grove 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 conduct all of their business through
the Company.
Operating results for fiscal 1999 were below historical results. Lower sales
volume by each of the Company's product lines together with significant
inefficiencies in its Shady Grove manufacturing operations, caused by the
implementation of new information systems, were the principle reasons for the
decline. The inefficiencies in its Shady Grove manufacturing operations caused
longer production lead times and hurt the Company's ability to take advantage of
market opportunities. 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.
See "Liquidity and Capital Resources."
Management of the Company has undertaken a number of initiatives which it
believes will improve operating results during fiscal 2000 including (i) the
termination of approximately 170 employees which should create annual cost
savings of approximately $11 million, (ii) the closing of the Sunderland
manufacturing facility which should improve income from operations by
approximately $3.6 million and (iii) the completion of certain systems
implementation and operational improvement programs which should reduce outside
consulting costs by approximately $8 million. 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.
RESULTS OF OPERATIONS
For financial reporting purposes, the Acquisition created a new basis of
accounting and, accordingly, the Company was required to report results prior to
the Acquisition separate from results subsequent to the Acquisition. For
purposes of the following discussion of the Company's results of operations, the
Company has compiled certain financial information for the fiscal year ended
October 3, 1998 by combining results of operations for the seven months ended
April 28, 1998 (prior to the Acquisition) with those for the five months October
3, 1998 (subsequent to the Acquisition). In connection with the Acquisition, the
Company was formed as a limited liability company and its capital structure was
changed significantly. Accordingly, comparisons of interest, taxes, and net
income for fiscal 1998 relative to fiscal 1997 would not be meaningful and are
therefore not presented.
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 also generates a portion of its net sales from after-market sales
(parts, service and used equipment) of the products it manufactures. Sales of
used equipment are not material and are generally limited to trade-ins on new
equipment through Company-owned distributors in France, Germany and the United
Kingdom.
11
<PAGE>
The following is a summary of net sales for the periods indicated (dollars in
millions):
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------------
1997 1998 1999
----------- ----------- ----------
<S> <C> <C> <C>
New equipment sold (1) $ 670.1 $ 679.5 $ 591.5
After-market 125.8 123.2 126.2
Other (2) 60.9 67.3 63.5
----------- ----------- ----------
Net sales $ 856.8 $ 870.0 $ 781.2
=========== =========== ==========
</TABLE>
(1) Excludes specialty cranes and equipment sold to the U.S. government.
(2) Includes specialty cranes and equipment sold to the U.S. government and
revenues from unit sales accounted for as operating leases.
Consistent with industry practice, particularly in Germany, certain of the
Company's mobile hydraulic crane sales (generally less than 5% of units sold
annually) are made with residual value guarantees under which the full sales
price is collected in cash on normal commercial terms following delivery of the
cranes. However, these sales are accounted for in a manner similar to operating
leases. Upon collection, the sales price is deferred and accounted for as
deferred revenue (current and non-current) while the related inventory is
reclassified as "property, plant and equipment/equipment held for rent." Over
the term of the residual value guarantee, deferred revenue is recognized as
sales and the depreciation of the related equipment held for rent is classified
as cost of goods sold, the effect of which is to recognize sales, costs of goods
sold and gross profit over the residual value guarantee period, typically five
years, as opposed to at the time of delivery of the crane. Losses with respect
to residual value guarantees have been insignificant. See Note 3 of Notes to
Combined and Consolidated Financial Statements.
Set forth below is certain information regarding the Company's results of
operations for fiscal 1997, fiscal 1998 and fiscal 1999 (dollars in thousands).
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------------
1997 1998 1999
------------ ------------ -------------
<S> <C> <C> <C>
Net sales $ 856,812 $ 869,979 $ 781,229
Cost of goods sold 653,539 685,394 633,447
Write-off of amounts assigned to inventory in excess of
historical costs resulting from purchase accounting
adjustments -- 27,707 --
------------ ------------ -------------
Gross profit 203,273 156,878 147,782
Selling, engineering, general and administrative expenses 124,152 131,762 124,704
Amortization of goodwill 9,054 8,306 6,880
Management fees paid to Hanson 2,176 162 --
------------ ------------ -------------
Income from operations $ 67,891 $ 16,648 $ 16,198
============ ============ =============
</TABLE>
12
<PAGE>
FISCAL 1999 COMPARED TO FISCAL 1998
NET SALES. Net sales decreased $88.8 million, or 10.2%, from $870.0 million for
fiscal 1998 to $781.2 million for fiscal 1999. New equipment sales decreased $88
million, or 13.0%, principally as the result of lower unit sales by the Grove
Crane and Grove Manlift operating divisions. These declines are principally
related to (i) production delays at the Company's Shady Grove manufacturing
facilities, which impacted the Company's ability to takes advantage of market
opportunities and (ii) softer demand for certain products resulting from
distributors and rental companies delaying purchasing decisions as the result of
uncertainty caused by mergers and acquisitions within the Company's customer
base. After-market sales for the Company, including parts and services,
increased slightly from fiscal 1998 to fiscal 1999. This increase was due
primarily to an increase in parts and service sales and used equipment sales.
Other sales for the Company decreased 5.6% as a result of lower sales to the
U.S. government, offset to some extent by higher revenues from unit sales that
were accounted for as operating leases.
Net sales for the Grove Crane division declined $40.3 million, or 7.0%, from
$577.5 million in fiscal 1998 to $537.2 million in fiscal 1999 on lower unit
sales. The decline was almost entirely related to sales of North American
customers. The impact of lower unit sales was offset to some extent by a shift
in product mix to higher sales value units.
Net sales for the Grove Manlift division decreased $40.7 million, or 19.9%, from
$204.7 million in fiscal 1998 to $164.0 million in fiscal 1999. Unit sales of
aerial work platforms were down as a result of a weaker North American market,
partially offset by increases in sales to European customers.
Net sales the National Crane division decreased $7.8 million or 8.9%, from $87.8
million in fiscal 1998 to $80.0 million in fiscal 1999. Net sales to North
American customers declined but were slightly offset by an increase in sales to
Latin American customers.
GROSS PROFIT. Gross profit, excluding the write-off of amounts assigned to
inventory in excess of historical cost in fiscal 1998, decreased $36.8 million,
or 19.9%, from $184.6 million in fiscal 1998 to $147.8 million in fiscal 1999,
as a result of higher price concessions, lower volume, and inefficiencies caused
by the start-up of the Company's new information systems in the United States.
These factors contributed to a lower gross margin for fiscal 1999 versus
fiscal 1998. Gross profit was also adversely impacted by the closure of the
Sunderland U.K. manufacturing facility which incurred losses of $3.6 million for
the period ending December 1998, the date of final closure.
SELLING, ENGINEERING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling,
engineering, general and administrative expenses decreased $7.1 million, or
5.4%, from $131.8 million in fiscal 1998 to $124.7 million in fiscal 1999. As
a percentage of net sales, selling, engineering, general and administrative
expenses were 15.2% in fiscal 1998 and 16.0% in fiscal 1999. Although George
Group expenses increased $4.1 million in fiscal 1999, from $2.7 million in
fiscal 1998 to $6.8 million in fiscal 1999, the Company's operations
improvement program as well as reducing the Company's cost structure through
workforce reduction, has more than offset the increases. Fiscal 1999 includes
a charge for special one-time retirement benefits of $2.3 million and a
pension and postretirement curtailment gain of $3.3 million.
INCOME FROM OPERATIONS. Income from operations, excluding the write-off of
amounts assigned to inventory in excess of historical costs in fiscal 1998,
decreased $28.2 million. The declines were principally related to lower
operating profits by the Grove Crane division caused by the factors described
above.
INTEREST INCOME (EXPENSE), NET. Net interest expense increased $21.2 million
in fiscal 1999 as compared to fiscal 1998 as the result of a full year of
interest expense on borrowings under the Bank Credit Facility and the Senior
Subordinated Notes in fiscal 1999 as compared to only five months in fiscal
1998.
13
<PAGE>
INCOME TAXES. The Company's business is operated as a limited liability
company organized under the laws of Delaware, as a result of which (i) Grove
Worldwide LLC is not itself subject to income tax, (ii) the taxable income of
the mobile hydraulic crane, aerial work platform and truck-mounted crane
businesses in the United States is allocated to the equity holders of Grove
Worldwide, and (iii) such equity holders are responsible for income taxes on
such taxable income. The Company intends to make distributions in the form of
dividends to equity holders of Grove Worldwide to enable them to meet their
tax obligations with respect to income allocated to them by the Company.
Income taxes expense for the five months ended October 3, 1998 and fiscal
1999 related principally to the Company's subsidiary in Waverly, Nebraska,
which is incorporated as a C-corporation, and the Company's German subsidiary.
FISCAL 1998 COMPARED TO FISCAL 1997
NET SALES. Net sales increased $13.2 million, or 1.5%, from $856.8 million for
fiscal 1997 to $870.0 million for fiscal 1998. New equipment sales increased
$9.4 million or 1.4% principally as the result of higher sales by the Grove
Manlift and National Crane operating divisions. After-market sales for the
Company, including parts and services, decreased slightly from fiscal 1997 to
fiscal 1998. This decrease was due primarily to a modest decrease in used
equipment sales partially offset by a slight increase in parts sales. Other
sales for the Company increased 10.5% as a result of higher revenue from unit
sales that were accounted for as operating leases, partially offset by lower
revenues following the completion of a non-recurring contract for crane
refurbishment with the Ministry of Defense of the United Kingdom.
Net sales for the Grove Crane division declined $9.5 million, or 1.6%, from
$587.0 million in fiscal 1997 to $577.5 million in fiscal 1998 on higher unit
sales. The decline in net sales was caused by a shift in product mix and higher
price concessions, primarily on mobile hydraulic cranes produced by the
Company's Sunderland, U.K. facility. While net sales to North American and
European customers remained stable, net sales to Asia declined. The modest
decline in net sales to the Asian market was a result of Asia's recent economic
crisis.
Net sales for the Grove Manlift division increased $5.9 million, or 2.9%, from
$198.8 million in fiscal 1997 to $204.7 million in fiscal 1998. Unit sales of
aerial work platforms were down; however, net sales increased as a result of
improved sales mix.
Net sales for the National Crane division increased $16.8 million, or 23.6%,
from $71.0 million in fiscal 1997 to $87.8 million in fiscal 1998. Net sales
increased as the result of increased production capacity as well as
significantly increased demand for higher priced models.
GROSS PROFIT. Gross profit, excluding the write-off of amounts assigned to
inventory in excess of historical cost in fiscal 1998, decreased $18.7 million,
or 9.2%, from $203.3 million in fiscal 1997 to $184.6 million in fiscal 1998.
The decline in gross profit was attributable to a $14.8 million decline in gross
profit at the Company's Sunderland, U.K. facility caused by higher price
concessions and lower sales volume available to absorb fixed overhead. The
higher price concessions were primarily required to induce the sale of U.K.
manufactured products, including 17 all-terrain cranes that were built to order
for a customer that refused delivery in fiscal 1998. The sale of the 17 cranes,
which were sold for approximately $8.2 million during the second quarter of
fiscal 1998, resulted in a loss of approximately $1.5 million.
14
<PAGE>
SELLING, ENGINEERING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, engineering,
general and administrative expenses increased $7.6 million, or 6.1%, from $124.2
million in fiscal 1997 to $131.8 million in fiscal 1998. As a percentage of net
sales, selling, engineering, general and administrative expenses were 14.5% in
fiscal 1997 and 15.2% in fiscal 1998. The expense growth occurred broadly across
the Company as the result of the impact of the Acquisition on operations.
Included in selling, engineering, general and administrative expenses for fiscal
1998 are approximately $2.7 million of George Group expenses and $3.1 million of
ownership transition costs related to the sale of the Company and the hiring of
new management. Included in selling, engineering, general and administrative
expenses for fiscal 1997 are approximately $2.0 million in restructuring charges
related to the U.K. crane manufacturing operation.
INCOME FROM OPERATIONS. Income from operations, excluding the write-off of
amounts assigned to inventory in excess of historical costs in fiscal 1998,
decreased $23.5 million. The declines were principally related to lower
operating profits by the Grove Crane and Grove Manlift divisions caused by the
factors described above.
GEOGRAPHIC COMPARISONS DURING THE THREE YEARS ENDED OCTOBER 2, 1999.
Net sales to unaffiliated customers by the Company's domestic subsidiaries
contributed 68% of the Company's sales in fiscal 1999 and virtually all of its
income from operations. Net sales to unaffiliated customers by the Company's
domestic subsidiaries decreased by $98.4 million or 15.6% in fiscal 1999 as
compared to fiscal 1998. The decline in net sales by the Company's domestic
subsidiaries was caused in each of the Company's product lines. Net sales to
unaffiliated customers by the Company's foreign subsidiaries increased by $9.6
million or 4.0% in fiscal 1999 as compared to fiscal 1998. The increase in net
sales by the Company's foreign subsidiaries was primarily the result of higher
aerial work platform sales. Operating losses by the Company's U.K. operations of
approximately $5.9 million in fiscal 1999 partially offset operating earnings of
the Company's German and French subsidiaries during the same period.
Net sales to unaffiliated customers by the Company's domestic subsidiaries
contributed in excess of 70% of the Company's sales in fiscal 1998 and virtually
all of its income from operations. Net sales to unaffiliated customers by the
Company's domestic subsidiaries increased by $23.8 million or 3.9% in fiscal
1998 as compared to fiscal 1997. The increase in net sales by the Company's
domestic subsidiaries was caused by strong sales of aerial work platforms and
truck-mounted cranes. Net sales of mobile hydraulic cranes by the Company's
domestic subsidiaries were virtually unchanged in fiscal 1998 as compared to
fiscal 1997. Net sales to unaffiliated customers by the Company's foreign
subsidiaries decreased by $10.6 million or 4.2% in fiscal 1998 as compared to
fiscal 1997. The decrease in net sales by the Company's foreign subsidiaries was
primarily the result of Sunderland's completion of the Ministry of Defense
contract in February 1998. Recurring operating losses by the Company's
manufacturing facility in Sunderland, U.K. of approximately $15.9 million in
fiscal 1998 exceeded all of the operating earnings of the Company's German and
French subsidiaries during the same period.
Net sales to unaffiliated customers by the Company's domestic subsidiaries
contributed in excess of 70% of the Company's sales in fiscal 1997 and
virtually all of its net income. Recurring operating losses by the Company's
manufacturing facility in Sunderland, U.K. of approximately $2.5 million in
fiscal 1997 offset virtually all of the operating earnings of the Company's
German and French subsidiaries during the same period.
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.
15
<PAGE>
During fiscal 1999, the Company's operating activities generated approximately
$686,000 in operating cash flow. This amount resulted primarily from income from
operations before non-cash charges of $49.7 million and declines in the
investment in working capital of $5.7 million offset by payments for interest
expense of $39.3 million and costs related to the closure of the Sunderland
manufacturing facility of $17.3 million.
During fiscal 1999, the Company used $19.3 million in investing activities,
consisting of $9.4 million for capital expenditures and $23.8 million for
investment in equipment held for rent (due to the operating lease treatment
relating to certain sales which are accounted for as operating leases). Such
amounts were offset by proceeds from the sales of property and equipment of $3.4
million and the final payment from Hanson of $10.5 million related to the post
closing purchase price adjustment. The cash flows used in investing activities
were funded from cash resources.
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 has made to
certain of its foreign subsidiaries. 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.
The Company has a $125 million Revolving Credit Facility, expiring in fiscal
2005, permitting it, subject to certain borrowing conditions, to obtain
revolving credit loans and issue letters of credit for working capital,
acquisitions and general corporate purposes. A portion of the Revolving Credit
Facility is available for borrowing the Eurocurrency markets of British pounds
sterling, German marks and French francs and certain other currencies.
Subsequent to year end, in order to obtain modification of certain financial
covenants to make them less restrictive, the Company negotiated an amendment to
the Bank Credit Agreement which provides for (i) higher borrowing and facility
fee rates and (ii) a $60 million limitation on the amount of the Revolving
Credit Facility available for general corporate purposes until the Company
achieves certain operating results. As of October 2, 1999, the Company had
available borrowings of $48.9 million under the Revolving Credit Facility, as
amended, for general corporate purposes. Without the covenant modifications, the
Company would not have been in compliance with one of the financial covenants
required by the Bank Credit Agreement. For additional information regarding the
Revolving Credit Facility, see Note 10 of Notes to the Combined and Consolidated
Financial Statements of the Company.
The Company also has an agreement with a third-party financial institution to
sell up to $65.0 million of notes receivable obtained under the Company's
special North American Dealer Finance Program. The third-party financial
institution purchases the notes at face value on a 90% non-recourse basis. The
Company retains 10% of the credit risk. The sale of the notes qualifies as a
sale under generally accepted accounting principles and, accordingly, upon sale,
the notes receivable are removed from the Company's balance sheet. See Note 4 of
Notes to Combined and Consolidated Financial Statements.
Management believes that the Company's income from operations and available
borrowings under the Revolving Credit Facility will be sufficient to meet its
debt service obligations, capital expenditure requirements and distributions
in the form of dividends to equity holders of Grove Holdings to enable them
to meet their tax obligations with respect to income allocated to them by the
Company for at least the next twelve months. Through April 29, 2004, the
Company's annual debt service obligations are limited to (i) principal
payments of $2 million plus 75% of excess cash flow as defined in the bank
credit agreement; (ii) periodic interest payments on borrowings under the
Bank Credit Facility and (iii) and semi-annual interest payments on the 9
1/4% Senior Subordinated Notes. The Senior Discount Debentures require
semi-annual cash interest payments beginning November 1, 2003. The Senior
Debentures require no cash payments prior to their maturity in fiscal 2010.
Grove Holdings and Investors will rely upon cash distributions from the
Company to meet their debt service requirements with respect to the Senior
Discount Debentures and Senior Debentures.
16
<PAGE>
GROVE INVESTORS CAPITAL, INC.
In connection with the Acquisition, 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 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 Indenture governing the Senior
Subordinated Notes, the Indenture governing the Senior Discount Debentures and
the Bank Credit Facility.
BACKLOG
The Company's backlog consists of firm orders for new equipment and replacement
parts. Total backlog as of October 2, 1999 was approximately $178.3 million
compared to total backlog as of October 3, 1998 of $163.3 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.
CYCLICALITY
Historically, sales of products manufactured and sold by the Company have been
subject to cyclical variations based, among other things, on general economic
conditions and, in particular, on conditions in the construction industry.
During periods of expansion in construction activity, the Company generally has
benefited from increased demand for construction equipment. Conversely, during
recessionary times, the Company has been adversely affected by reduced demand
for such products. Downward cycles result in reductions in the Company's new
unit sales and prices, which adversely impact the Company's results of
operations.
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.
17
<PAGE>
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. The
Company has also polled the manufacturers of its computerized numerical control
("CNC") manufacturing/production equipment as well as conducted an internal
review. In addition, the Company has communicated with suppliers and customers
to determine the extent to which the Company may be vulnerable to such parties'
failure to remediate their own Year-2000 Issues.
While there is no guarantee that the Company's internal systems are Year-2000
compliant, management believes that it is unlikely that the Company will
experience any interruption in information systems or manufacturing processes
based on the results of the Year-2000 Project. Due to the general uncertainty
inherent in the Year-2000 issue, resulting in part from the uncertainty of the
Year 2000 readiness of third-party suppliers and customers, the Company is
unable to determine at this time whether the consequences of Year-2000 issues
will have a material impact on the Company's results of operations, liquidity or
financial condition. With few exceptions, the Company believes there are
alternative sources of supply for all the major components used in the
manufacture of its products. The Company's most reasonably likely worst case
scenario revolves around the uncertainty with respect to the Year-2000 readiness
of the Company's customer base. In the event that there is a material impact on
any of its significant customers as a result of Year 2000 issues, such matter
could have a material adverse impact on the Company's operating results. The
Company intends to assess all significant customers during January 2000 to
determine any necessary changes in its production plans.
IMPACT OF CONVERSION BY THE EUROPEAN UNION TO A COMMON CURRENCY
On January 1, 1999, eleven of the fifteen member countries of the European Union
established fixed conversion rates between their existing currencies and the
euro, a new European currency, and to adopt the euro as their common legal
currency. Either the euro or a participating country's present currency will be
accepted as legal tender until January 1, 2002, from which date forward only the
euro will be accepted. The euro currently is an additional currency both in
domestic and foreign markets for European businesses domiciled in the European
monetary zone. In fiscal 1999, approximately 18% of the Company's revenues were
derived from operations in member countries of the European monetary union.
The Company has initiated an assessment of euro-related issues and their impact
on information systems, currency exchange rate risk, employment and benefits,
taxation, contracts, competition, selling prices and costs, communications,
finance and administration. Initially the Company intends to continue to do
business in the national currency of the countries adopting the euro. Customers
and vendors who wish to do business in the euro are being accommodated by the
Company. During fiscal 2000 the Company intends to upgrade its information
systems in Germany and France to facilitate its ability to transact all business
using the euro by January 1, 2002. After this date all transactions involving
the Company with respect to countries participating in the euro conversion will
be based solely on the euro. The Company does not currently expect the cost of
such modifications to have a material effect on the Company's results of
operations or financial condition.
The Company has outstanding foreign exchange contracts involving the
currencies of countries participating in the euro conversion. The Company
believes that conversion to the euro may reduce the amount of the Company's
exposure to exchange rate risk, due to the netting effect of having assets
and liabilities denominated in a single currency as opposed to the various
legacy currencies. As a result, the Company's foreign exchange hedging costs
could be reduced. Conversely, because there will be less diversity in the
Company's exposure to foreign currencies, movements of the euro's value
relative to the U.S. dollar could have a more pronounced effect, whether
positive or negative.
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<PAGE>
The largest European country which is not currently participating in the euro
conversion is the United Kingdom, which, in fiscal 1999, accounted for
approximately 7% of the Company's consolidated net sales. The Company is
considering the potential impact which the United Kingdom's nonparticipation
might have on trading activities with countries participating in the euro
conversion as well as on internal United Kingdom operations.
The Company does not expect the euro conversion, including the costs of
implementation, to have a material adverse effect upon the Company's results of
operations, financial condition or cash flow. However, the Company cannot
guarantee that, with respect to the euro conversion, all problems, including
long-term competitive implications of the conversion, will be foreseen and
corrected, that no material disruption of the Company's business will occur, or
that there will be no delays in the dates targeted by the Company for the euro
conversion process.
ENVIRONMENTAL MATTERS
The Company generates hazardous and non-hazardous waste in the normal course of
its manufacturing operations. As a result, the Company is subject to a wide
range of Federal, state, local and foreign environmental laws, including CERCLA,
that (i) govern activities or operations that may have adverse environmental
effects, such as discharges to air and water, as well as handling and disposal
practices for hazardous and nonhazardous wastes, and (ii) impose liability for
the costs of cleaning up, and certain damages resulting from, sites of past
spills, disposals or other releases of hazardous substances. Compliance with
such laws has required, and will continue to require, expenditures by the
Company on a continuing basis. The Company does not expect that these
expenditures will have a material adverse effect on its financial condition or
results of operations.
In 1990, the Clean Air Act was amended and established a list of 189 toxic air
pollutants that must be controlled using MACT as prescribed by the EPA. The
Company believes that by 2003 it will be subject to MACT regulations with
respect to its surface coating air omissions. At this time, the Company does not
expect the cost of compliance with these MACT regulations to have a significant
impact on the Company.
CHANGE IN ACCOUNTING STANDARDS
In 1998, the Financial Accounting Standards Board issued Statement 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. Management has not yet
evaluated this statement's impact on the Company's financial condition or
results of operations. Adoption of this statement will be required for fiscal
2001.
During 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) No. 98-5, "Reporting on the Costs of Start-Up"
Activities. SOP No. 98-5 requires that costs incurred during a start-up activity
be expensed as incurred and that the initial application of the SOP, as of the
beginning of the fiscal year in which the SOP is adopted, be reported as a
cumulative effect of a change in accounting principle. Investors expects to
adopt SOP 98-5 in first quarter of fiscal 2000 by recognizing a charge of
$234,000 for the cumulative effect of adoption.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Investors' principal market risk exposure is changing interest rates,
primarily changes in short term interest rates. Investors does not enter into
financial instruments for trading or speculative purposes. Investors' policy
is to manage interest rates through use of a combination of fixed and
floating rate debt.
19
<PAGE>
Investors may also use derivative financial instruments to manage its exposure
to interest rate risk. A summary of the Investors' principal financial
instruments which are subject to interest rate risk at October 2, 1999 is as
follows (dollars in thousands):
<TABLE>
<CAPTION>
AMOUNT
OUTSTANDING AT
OCTOBER 2, INTEREST FAIR
DESCRIPTION 1999 RATE VALUE
-------------- ------------- -------------
<S> <C> <C> <C>
Revolving credit facility $ 10,000 Floating $ 10,000
Term loan facility 178,000 Floating 178,000
Senior subordinated notes 225,000 9.25% 108,000
Senior discount debentures 88,000 11.63% 17,600
Senior debentures 56,652 14.50% 5,700
</TABLE>
At the Company's option, loans under the Revolving Credit Facility, as amended,
(as defined in the Bank Credit Facility) and Term Loan Facility (as defined in
the Bank Credit Facility) bear interest (a) in the case of loans in U.S.
dollars, at the highest of (x) 1/2 of 1.0% in excess of the Federal Funds
Effective Rate (as defined in the Bank Credit Facility) (y) 1.0% in excess of a
certificate of deposit rate and (z) the bank's prime rate, plus the applicable
margin (as defined in the Bank Credit Facility), or (b) in the case of all
loans, the relevant Eurocurrency Rate (as defined in the Bank Credit Facility),
plus the applicable margin. The applicable margin will vary based upon the
Company's operating results and will range between 1.5% and 3.0% for borrowings
under the Revolving Credit Facility and between 2.0% and 3.5% for borrowings
under the Term Loan Facility. As of October 2, 1999, the margins for borrowings
under the Revolving Credit Facility and Term Loan Facility were 2.5%. Following
the Bank Credit Facility Amendment, borrowings under the Revolving Credit and
Term Loan facilities bear interest at LIBOR plus applicable margins of
3.0% and 3.5%, respectively. The average interest rate on borrowings under the
Revolving Credit and Term Loan Facilities were 8.33% and 7.71%, respectively,
for the five months ended October 3, 1998 and fiscal 1999.
The Revolving Credit Facility expires in fiscal 2005. The Term Loan Facility
matures in fiscal 2006 and must be repaid in semi-annual installments in October
and April of each fiscal year in an aggregate amount of (i) $2 million through
fiscal 2004, (ii) $88 million during fiscal 2005 and (iii) the balance in fiscal
2006. The Senior Subordinated Notes mature in fiscal 2008. The Senior Discount
Debentures mature in fiscal 2009. The Senior Debentures mature in fiscal 2010.
The Senior Discount Debentures require no cash payments prior to November 2003.
The Senior Debentures require no cash payments prior to maturity.
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 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 agreement effectively caps the Company's interest rate on $100.0
million of its floating rate debt at 6.5% plus the applicable margin.
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. For fiscal 1999,
approximately 32% of the Company's net sales were transacted in foreign
currencies, of which approximately 61% was transacted in German marks. During
the past three fiscal years, the impact of currency fluctuations has not had
significant impact on the
20
<PAGE>
Company's results of operations. Based on the Company's overall currency rate
exposure at October 2, 1999, a 10% change in currency rates would not have
had a material effect on the financial position, results of operations or
cash flows of the Company.
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 the 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 October 2, 1999, the Company was a party to three such
contracts with an aggregate estimated fair value of $4.4 million. These forward
contracts generally have average maturities of less than three months. The
Company has not taken any actions 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Combined and Consolidated Financial Statements of Investors, along with the
Report of Independents Accountants, are included on pages F-1 through F-38 of
this Form 10-K.
Supplementary data called for by this item is not presented, as it is not
applicable to the Company.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information concerning executive officers of
Investors and the members of the Management Committee:
<TABLE>
<CAPTION>
Name Age Position
- --------------------------- ------- --------------------------------------------------------------
<S> <C> <C>
Jeffry D. Bust 46 Chairman and Chief Executive Officer, and Member of the
Management Committee
Stephen L. Cripe 43 Vice President and Chief Financial Officer
Keith R. Simmons 49 Vice President and Secretary
J. Taylor Crandall 45 Member of the Management Committee
Michael L. George 60 Member of the Management Committee
Gerald Grinstein 67 Member of the Management Committee
Steven B. Gruber 41 Member of the Management Committee
Robert B. Henske 38 Member of the Management Committee
Gerard E. Holthaus 50 Member of the Management Committee
</TABLE>
Mr. Bust serves as Chairman and Chief Executive Officer of Investors and
serves as a member of the Management Committee, positions he assumed in
October 1999 following the departure of Salvatore J. Bonanno. From June 1998
to October 1999, he was President and Chief Operating Officer of Grove Crane,
where he was responsible for the business direction of Grove Crane, including
directly overseeing the manufacturing, quality, marketing, sales, product
support and engineering departments at Grove Crane's Shady Grove,
Pennsylvania facility, and indirectly at Wilhelmshaven, Germany and
Sunderland, United Kingdom facilities. From November 1994 to June 1998, he
served as President and General Manager for Manitowoc Cranes, Inc. and the
Lattice Crane Group. From January 1989 to November 1994, he held the
positions of Senior Vice President, Mining Equipment Division, and Vice
President of Operations for Harnischfeger Corporation. He also held various
management positions with FMC Corporation from June 1982 to January 1989.
Mr. Cripe serves as Vice President and Chief Financial Officer of Investors, a
position in which he has served since August 1998. Mr. Cripe is responsible
for accounting and control, treasury functions, budgeting and planning and
information systems oversight for the Company and its operating companies.
From April 1996 to August 1998, he was Vice President of the Tenneco
Automotive Group, Lake Forest, Illinois. From 1990 to April 1996, he was
Controller for the Industrial Fibers Group of Allied Signal.
Mr. Simmons serves as Vice President and Secretary of Investors. He has served
in this position since October 1999, and is responsible for managing the
legal affairs and Human Resources of Grove Worldwide and its operating
companies. From May 1995 to October 1999, he was Senior Vice President,
General Counsel and Business Development, responsible for managing the legal
affairs of the Company, and in conjunction with the operating companies, for
developing and implementing external growth initiatives. From April 1992 to
May 1995, he was Senior Vice President and General Counsel for Grove
Worldwide.
22
<PAGE>
Mr. Crandall serves as a member of the Management Committee. Mr. Crandall has
been a Managing Partner of Oak Hill Capital Management, Inc. since November
1998, and the Chief Operating Officer of Keystone since October 1998. Between
1986 and October 1998, he served as Chief Financial Officer and Vice President
of Keystone. Since 1991, he has served as a President and a director of Acadia
MGP, Inc. Mr. Crandall is a director of Bell & Howell Company, Quaker State
Corporation, Specialty Foods, Inc., Washington Mutual, Inc., Integrated
Orthopedics, Inc., Physician Reliance Network Inc. and Sunterra Corporation. Mr.
Crandall also serves on the Board of Advisors of Oak Hill Strategic Partners,
L.P. and on the Investment Committees of Insurance Partners, L.P. and Brazos
Fund L.P.
Mr. George serves as a member of the Management Committee. Since 1984, Mr.
George has served as Chief Executive Officer and Chairman of the Board of George
Group, an acquisition and management consulting firm based in Dallas, Texas. He
is a director of Reliant Building Products, Inc.
Mr. Grinstein serves as a member of the Management Committee. Since August 1997,
Mr. Grinstein has been the non-executive Chairman of Delta Air Lines, Inc. He
served as Chairman of Burlington Northern Santa Fe Corp., a railroad
transportation company, until his retirement in 1995. He was Chairman and Chief
Executive Officer of Burlington Northern Inc. from 1991 to 1995. Before joining
Burlington Northern in 1987, he was Chairman of Western Airlines from 1983 to
1987 and a partner in the law firm of Preston, Thorgrimson, Ellis and Holman
from 1969 to 1983. In addition to being a director of Delta Airlines, Mr.
Grinstein also serves as a director of Browning-Ferris Industries, Inc., PACCAR
Inc., Sundstrand Corp., Imperial Holly Corp and The Pittston Company and Vans,
Inc.
Mr. Gruber serves as a member of the Management Committee. Mr. Gruber has been a
Managing Partner of Oak Hill Capital Management, Inc. since November 1988, and
has been a Managing Director of Oak Hill Partners, Inc. since March 1992. From
May 1990 to March 1992, he was a Managing Director of Rosecliff, Inc. Since
February 1994, Mr. Gruber has also been an officer of Insurance Partners
Advisors, L.P., an investment adviser to Insurance Partners, L.P. Since October
1992, he has been a Vice President of Keystone. From 1981 to 1990, Mr. Gruber
was a Managing Director and co-head of High Yield Securities and held various
other positions at Lehman Brothers, Inc. Mr. Gruber serves as a director of
Superior National Insurance Group, Inc., MVE Holdings, Inc., Reliant Building
Products, Inc. and several private companies related to Keystone, Insurance
Partners, L.P. and Oak Hill Partners, Inc.
Mr. Henske serves as a member of the Management Committee. Since November 1998,
Mr. Henske has been a Managing Partner of Oak Hill Capital Management, Inc.
Since January 1997, Mr. Henske has served as a principal at Arbor Investors,
LLC. From January 1996 to December 1996, he was Executive Vice President, Chief
Financial Officer and Board Member of American Savings Bank, F.A., a
federally-chartered thrift. From 1986 to January 1996, he was a partner and held
various other positions with Bain & Company, Inc., a management consulting firm.
Mr. Henske is a director of Reliant Building Products, Inc. and Williams
Scotsman, Inc.
Mr. Holthaus serves as a member of the Management Committee. Since April 1997,
Mr. Holthaus has been President and Chief Executive Officer of Williams
Scotsman, Inc. From September 1995 to April 1997, he was President and Chief
Operating Officer of Williams Scotsman, Inc. and was Executive Vice President
and Chief Financial Officer prior thereto. He has served as a director of
Williams Scotsman, Inc. since June 1994. Before joining Williams Scotsman, Inc.,
Mr. Holthaus served as Senior Vice President of MNC Financial, Inc. from April
1988 to June 1994. From 1971 to 1988, Mr. Holthaus was associated with the
accounting firm of Ernst & Young (Baltimore), where he served as a partner from
1982 to 1988. He is a director of the Baltimore Life Insurance Company.
23
<PAGE>
MANAGEMENT COMMITTEE SUBCOMMITTEES AND FEES
The Company Management Committee has an executive committee, compensation
committee, operating committee, finance committee, and audit/ethics committee.
The members of the Company Management Committee and the subcommittees are not
compensated for their services as such.
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The executive officers of Investors are not compensated for their services as
such.
DESCRIPTION OF MANAGEMENT OPTION PLAN
In April 1998, Investors adopted the Option Plan. The purpose of the Option Plan
is to promote the interests of Investors and its members by (i) attracting and
retaining exceptional officers and other key employees of Investors and its
affiliates, specifically the Company, and (ii) enabling such individuals to
acquire an equity interest in, and participate in the long-term growth and
financial success of Investors.
Subject to a participant's continued employment with the Company or its
affiliates, options granted under the Option Plan will vest over a five year
period as follows. For each of the first five fiscal years beginning after the
date the options are granted, the options will vest and become cumulatively
exercisable with respect to 20% of Investors' membership interests subject to
such options on the last day of such fiscal year if the Company and its
subsidiaries meet the EBITDA target established for that fiscal year. If the
EBITDA actually achieved for a year is less than the EBITDA target for that
year, then the vesting schedule for that year will be proportionately reduced.
In addition, options will not vest in any year if the actual EBITDA for that
year is less than a minimum percentage of the EBITDA target. No options vested
during fiscal 1999.
To the extent not previously canceled, any unvested portion of an option will,
as of the date of a Change in Control (as defined in the Option Plan), be deemed
vested and exercisable immediately prior to such Change in Control. In addition,
as a result of a termination of employment by any participant, Investors has the
assignable right but not the obligation to purchase the participant's membership
interests in Investors for an amount to be calculated based on the participant's
reason for termination of employment.
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
During fiscal 1999, Investors adopted a Phantom Share Appreciation Rights (PSAR)
Plan for the purpose of (i) attracting and retaining exceptional employees and
(ii) enabling such individuals to participate in the long-term growth of the
Company. Under this plan, key employees are granted equity appreciation rights
(PSAR). Upon the occurrence of a "realization event", generally a change of
control, as defined, the holder of the PSAR is paid an amount equal to the fair
value of the PSAR over its initial grant price, plus the cumulative dividends
paid by the Company since the date of grant. Rights cannot be assigned, sold or
transferred and generally vest over a five-year period assuming achievement of
certain earnings targets. Rights vest immediately if a realization event occurs.
If the employee is terminated due to death, disability, or without cause, the
vested portion of the PSAR remains effective and the non-vested portion is
canceled. If the employee is terminated for any other reason, the entire PSAR is
canceled. The committee that administers the plan has the right to equitably
adjust the number of shares, grant price or make cash payments if it determines
that some event has affected the value of the PSAR's to the employees. The
committee is currently authorized to grant up to 20,000 rights which is the
equivalent of approximately a 1% equity interest in Investors. The committee
also has the ability to designate any other event or time other than a change of
control as a
24
<PAGE>
realization event. The plan expires after ten years unless specifically amended.
None of the Named Executives participates in this plan.
During the year ended October 2, 1999, the Company granted 15,640 rights with
an exercise price of 37.5 dollars per right. For the year ended October 2,
1999, the Company did not achieve the earnings targets; however, the
committee authorized vesting of 20% of the rights. The Company has not
recognized any compensation with respect to the vesting since the estimated
fair value of the underlying equity interest is less than the grant price. At
October 2, 1999, the 15,640 rights were outstanding of which 3,128 were
vested.
SHORT-TERM INCENTIVE PLAN
The Company's short-term incentive plan (the "STIP") permits the Company to pay
officers and other key employees, including prospective officers and employees,
of the Company and its affiliates an annual bonus conditioned on the attainment
of certain pre-established financial performance criteria based on EBITDA and
inventory turn targets for the Company and/or designated business sub-units. The
STIP is administered by certain persons designated by the Compensation Committee
of the Company.
EMPLOYMENT ARRANGEMENTS
Mr. Bonanno's employment with the Company terminated on October 5, 1999.
Pursuant to the terms of an employment contract with the Company dated as of
April 28, 1998, Mr. Bonanno is entitled to the following severance: (i)
continued salary for twenty-four months based on an annual salary of $500,000;
(ii) bonus payable in twenty-four monthly payments equal to 1/12 of a target
bonus amount of $500,000; and (iii) a special bonus of $450,000 to be paid on
March 31, 2000. There is no unpaid incentive compensation due with respect to
any prior completed fiscal year, nor is any amount due for incentive
compensation for the completed months of his employment during fiscal year 1999.
The Company exercised its termination call rights to purchase all of Mr.
Bonanno's interests in Grove Investors at fair market value. Effective November
15, 1999, this fair market value of $1,000,000 was applied against the unpaid
principal and interest amounts due under a promissory note for $1,000,000 dated
June 27, 1998. The remaining unpaid interest accrued on the promissory note will
be withheld and offset from the monthly bonus payments. All of Mr. Bonanno's
options under the Option Plan were unvested and therefore were automatically
canceled upon termination.
TERMINATION AND CHANGE OF CONTROL AGREEMENTS
In 1997, Mr. Simmons entered into a change of control agreement with Grove
Worldwide. The agreement provides that if, within two years after a change in
control of Grove Worldwide, (a) Mr. Simmons is terminated by Grove Worldwide
without Cause (as defined therein) or due to death, disability or retirement, or
(b) Mr. Simmons terminates his employment for Good Reason, then, in addition to
payment for certain unreimbursed expenses, deferred compensation, health
coverage premiums (including reimbursement for any income tax liability
resulting from such payment) and other employment-related benefits, the
executive will also be entitled to a lump-sum payment equal to two times the sum
of (x) his highest annual base salary in effect within 180 days prior to the
change of control and (y) his highest annual bonus paid or payable for either of
the last two completed years by the Company or its predecessors. Mr. Simmons is
also entitled to the above-described severance amount in the event his
employment is within 180 days prior to a change in control terminated (a) by the
Company without Cause or (b) by him for Good Reason (based on an event that
occurred within the 180-day period) or (c) due to his death.
MANAGEMENT OF GROVE INVESTORS CAPITAL
Messrs. Henske and Bust are the directors of Grove Investors Capital. In
addition, Mr. Anthony P. Scotto is also a director of Grove Investors
Capital. Directors are not compensated in any way for acting in their
capacity as such. The board of directors of Grove Investors Capital does not
have a compensation committee, audit committee or nominating committee.
25
<PAGE>
Mr. Bust is the Chief Executive Officer of Grove Investors Capital. Mr. Simmons
is the Vice President and Secretary of Grove Investors Capital. Mr. Cripe is the
Vice President and Chief Financial Officer of Grove Investors Capital. None of
the executive officers of Grove Investors Capital are compensated for their
services as such. See "Item 10. Directors and Executive Officers of the
Registrant" for biographical information on the members and executive officers
of Grove Investors Capital.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the issued and outstanding membership interests of the Company are
beneficially owned by Grove Holdings whose principal address is 1565 Buchanan
Trail East, Shady Grove, Pennsylvania 17256. All shares of the issued and
outstanding capital stock of Grove Investors Capital are beneficially owned by
Investors, whose principal address is 1565 Buchanan Trail East, Shady Grove,
Pennsylvania 17256. All of the issued and outstanding membership interests of
Grove Holdings are beneficially owned by Investors, whose principal address is
201 Main Street, Fort Worth, Texas 76102.
The following table sets forth certain information regarding beneficial
ownership of the membership interests of Investors, the managing member of Grove
Holdings, by (i) each person or entity who owns five percent or more thereof,
(ii) each member of the Company Management Committee individually who holds
membership interests, (iii) each Named Executive Officer who holds membership
interests and (iv) all executive officers and members of the Company Management
Committee as a group:
<TABLE>
<CAPTION>
MEMBERSHIP
NAME OF BENEFICIAL OWNER INTERESTS (7)
- -------------------------------------------- ------------------
<S> <C>
Oak Hill Strategic Partners, L.P.(1) (2)
201 Main Street, Suite 3200
Forth Worth, Texas 76102 43.38%
FW Grove Coinvestors, L.P. (2) (3)
201 Main Street, Suite 3200
Forth Worth, Texas 76102 43.38%
GGEP-Grove, L.P. (2) (4)
One Galleria Tower
13355 Noel Road, Suite 1100
Dallas, Texas 75240 2.66%
D. Brown (3) 43.38%
J. Crandall (1) 43.38%
M. George (2) (4) 4.55%
J. Bust (5) 1.10%
S. Cripe (5) 1.17%
K. Simmons (5) *
All executive officers and members of the
Company Management Committee as
a group (12 persons) (6) 53.06%
</TABLE>
* Indicates less than one percent.
(1) The general partner of Oak Hill Strategic Partners, L.P. is FW Strategic
Asset Management, L.P., whose general partner is Strategic Genpar, Inc. J
Taylor Crandall is the sole stockholder of Strategic Genpar, Inc.
Accordingly, Mr. Crandall may be deemed to be the beneficial owner of the
membership interests of Oak Hill Strategic Partners, L.P. Mr. Crandall
disclaims beneficial ownership of these membership interests. In addition,
Mr. Crandall is a member of the Company Management Committee.
26
<PAGE>
(2) Represents Class B Membership Interests. The Class B Membership Interests
and the Class A Membership Interests are substantially identical except
that, under the terms of the Grove Investors LLC Operating Agreement, the
issuance of additional Class B Membership Interests will not result in
dilution to the holders of the Class A Membership Interests.
(3) The general partner of FW Grove Coinvestors, L.P. is FW Group Genpar, Inc.
("Group Genpar"). David G. Brown is the sole stockholder of Group Genpar.
Accordingly, Mr. Brown may be deemed to be the beneficial owner of the
membership interests of FW Grove Coinvestors, L.P. Mr. Brown disclaims
beneficial ownership of these membership interests.
(4) GGEP-Grove, L.P., is an entity formed by certain employees of George Group.
Mr. George is the Chief Executive Officer and Chairman of the Board and
majority stockholder of George Group. Accordingly, he may be deemed to be
the beneficial owner of the membership interests of GGEP-Grove, L.P. In
addition, Mr. George is a member of the Company Management Committee.
(5) Represents Class A Membership Interests.
(6) Includes membership interests which may be deemed to be beneficially owned
by Messrs. Crandall and George.
(7) Percentage of membership interests represents Class A and Class B
membership interests combined into one group.
Certain members of senior management of the Company have purchased approximately
3.1% of the membership interests of Grove Investors. The purchase price of such
interests was partially financed through approximately $1,062,000 in loans from
the Company. Certain members of the senior management have also been granted
options to purchase membership interests of Investors under the Option Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
OPERATING AGREEMENTS
AGREEMENTS WITH GEORGE GROUP INC. FOR MANAGEMENT CONSULTING SERVICES
George Group provides consulting services to facilitate the Company's
development and achievement of its business plan, including services with
respect to an operations improvement program, strategic planning, operations and
financial matters. For such services, George Group is paid cash fees equivalent
to its costs and is reimbursed for its out-of-pocket expenses. The Company paid
George Group approximately $2.7 million in fiscal 1998 and $6.8 million in
fiscal 1999. Having fulfilled certain performance objectives of the operations
improvement program, the full complement of George Group personnel is no longer
required. The Company and George Group have mutually agreed to amend the scope
and terms of their consulting agreement. Under the revised consulting agreement,
George Group will continue to work on specific projects for the Company,
focusing their expertise in areas where further near-term improvements can be
achieved. Selected George Group personnel will continue to provide consulting
services to the Company in fiscal 2000. Michael L. George, a member of the
Company Management Committee, is Chief Executive Officer and Chairman of the
Board and majority stockholder of George Group.
AGREEMENTS WITH CERTAIN EXECUTIVE OFFICERS
The Company has entered into an agreement with Mr. Simmons. See "Item 11.
Executive Compensation--Employment Arrangements" and "Termination and Change of
Control Agreements."
27
<PAGE>
LOANS TO CERTAIN EXECUTIVE OFFICERS
Investors has provided approximately $1,062,000 in loans to certain executive
officers of the Company to finance their investment in the membership interest
of Investors. These loans are evidenced by promissory notes which bear interest
at a rate per annum equal to the prime rate of Wells Fargo Bank and are secured
by a pledge of the executive's membership interests in Investors. All of the
notes are due ten years from their date of issuance. As of October 2, 1999,
Messrs. Bust and Cripe were indebted to Investors in the amounts of
approximately $228,000 and $737,000, including accrued interest, respectively.
28
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) List of Financial Statements.
The following Combined and Consolidated Financial Statements of Investors and
the Report of Independent Accountants set forth on pages F-1 through F-38
respectively, are incorporated by reference into this Item 14 of Form 10-K by
Item 8 hereof:
See Index to Combined and Consolidated Financial Statements and Financial
Statement Schedule on page F-1.
(a) (2) Financial Statement Schedules.
The following is a list of all financial statement schedules filed as part of
this Report:
See Index to Combined and Consolidated Financial Statements and Financial
Statement Schedule on page F-1.
Schedules other than those listed in the Index to Combined and Consolidated
Financial Statements and Financial Statement Schedule on page F-1 have been
omitted because they are not required or are not applicable, or the required
information has been included in the Combined and Consolidated Financial
Statements or the Notes thereto.
(a) (3) Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------------------
<S> <C>
3.1* Second Amended and Restated Limited Liability Company
Agreement of Grove Investors.
3.2* Amendment No. 1, Dated as of October 27, 1998, to the Second
Amended and Restated Limited Liability Company Agreement of
Grove Investors.
3.3* Amendment No. 2, Dated as of March 1, 1999, to the Second
Amended and Restated Limited Liability Company Agreement of
Grove Investors.
3.4* Amendment No. 3, Dated as of April 7, 1999, to the Second
Amended and Restated Limited Liability Company Agreement of
Grove Investors.
3.5* Articles of Incorporation of Grove Investors Capital.
3.6* By-laws of Grove Investors Capital.
4.1* The Indenture dated as of April 29, 1998, by and among Grove
Investors and Grove Investors Capital and the United States
Trust Company of New York (the "Indenture").
4.2* Form of 14 1/2% outstanding debentures due 2010.
4.4* The Registration Rights Agreement dated as of April 29, 1998,
by and among Grove Investors and Grove Investors Capital and
Donaldson, Lufkin & Jenrette Securities Corporation.
4.5* The Credit Agreement dated April 29, 1998, by and among Grove
Worldwide LLC, Grove Capital, Inc. and Chase Bank of Texas,
National Association, as administrative agent, Donaldson,
Lufkin & Jenrette Securities Corporation, as documentation
agent, and BankBoston, N.A., as syndication agent.
10.1* Stock and Asset Purchase Agreement, dated March 10, 1998 (the
"Acquisition Agreement"), by and among Grove Worldwide LLC and
Hanson Funding (G) Limited, Deutsche Grove Corporation, Hanson
America Grove Holdings (4) Ltd., Grove France SA, Kidde
Industries, Inc. and Hanson Finance PLC (collectively, the
"Sellers").
10.2* Amendment to the Acquisition Agreement, dated April 29, 1998,
by and among the Grove Worldwide LLC and the Sellers.
10.3* George Group Consulting Agreement dated as of April 29, 1998
by and between Grove Worldwide LLC and George Group Inc.
10.4* Employment Agreement dated as of March 5, 1998 by and between
Grove Worldwide LLC and Salvatore J. Bonanno.
29
<PAGE>
10.5* Change of Control Agreement dated July 24, 1997 by and between
Grove Worldwide LLC and Keith R. Simmons.
10.6* Change of Control Agreement dated July 24, 1997 by and between
Grove Worldwide LLC and Theodore J. Urbanek.
10.7* Grove Investors LLC Management Option Plan.
10.8* Grove Worldwide LLC Short-Term Incentive Plan.
10.9* Guarantee and Collateral Agreement by Grove Holdings LLC,
Grove Worldwide LLC, Grove Capital, Inc. and certain of their
subsidiaries in favor of Chase Bank of Texas, National
Association, as administrative agent.
10.10* Form of Grove Investors LLC Option Agreement.
10.11* First Amendment, dated June 23, 1998, to Employment Agreement
of Salvatore J. Bonanno.
10.12* Promissory Note dated June 27, 1998 by and between Grove
Worldwide LLC and Salvatore J. Bonanno.
10.13* Promissory Note dated June 27, 1998 by and between Grove
Worldwide LLC and Salvatore J. Bonanno.
10.14* Promissory Note dated June 27, 1998 by and between Grove
Worldwide LLC and Jeffrey D. Bust.
10.15* Promissory Note dated October 27, 1998 by and between Grove
Worldwide LLC and Stephen L. Cripe.
10.16* Promissory Note dated October 27, 1998 by and between Grove
Worldwide LLC and Stephen L. Cripe.
10.17 First Amendment dated October 22, 1999 to the Credit Agreement
dated April 29, 1998, by and among Grove Worldwide LLC, Grove
Capital, Inc. and Chase Bank of Texas, National Association,
as administrative agent, Donaldson, Lufkin & Jenrette
Securities Corporation, as documentation agent, and
BankBoston, N.A., as syndication agent.
10.18 Severance Agreement and General Release dated as of October 9,
1999 by and between , Grove Investors LLC, Grove Worldwide LLC
and Salvatore J. Bonanno.
10.19 Grove Investors LLC Realization Event Plan (PSAR).
10.20 First Amendment to the Consulting Agreement dated April 29,
1998, by and between Grove Worldwide LLC and George Group,
Inc.
21.1* Subsidiaries of Grove Investors.
27.1 Financial Data Schedule.
</TABLE>
- -------------
* Incorporated herein by reference to the Registration Statement on Form S-4
filed by the Grove Investors LLC and Grove Investors Capital, Inc.
(Commission Filed Number - 333-77103).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended October 2, 1999.
30
<PAGE>
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 on December 31, 1999.
GROVE INVESTORS LLC
/s/ Jeffry D. Bust
------------------
Jeffry D. Bust
Chairman 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 indicated on December 31, 1999.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<S> <C>
/s/ Jeffry D. Bust Chairman and Chief Executive Officer and
- ------------------ Member (Principal Executive Officer)
Jeffry D. Bust
/s/ Stephen L. Cripe Chief Financial Officer (Principal Financial
- -------------------- and Accounting Officer)
Stephen L. Cripe
/s/ J Taylor Crandall Member
- ---------------------
J Taylor Crandall
/s/ Michael L. George Member
- ---------------------
Michael L. George
/s/ Gerald Grinstein Member
- --------------------
Gerald Grinstein
/s/ Steven B. Gruber Member
- --------------------
Steven B. Gruber
/s/ Robert B. Henske Member
- --------------------
Robert B. Henske
/s/ Gerard E. Holthaus Member
- ----------------------
Gerard E. Holthaus
</TABLE>
31
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
The registrant has not sent the following to security holders: (i) any annual
report to security holders covering the registrant's last fiscal year; or (ii)
any proxy statement, form of proxy or other proxy soliciting material with
respect to any annual or other meeting of security holders.
32
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
FINANCIAL STATEMENTS
Independent Auditors' Reports F-2
Consolidated Balance Sheets as of October 3, 1998 and October 2, 1999 F-4
Combined Statements of Operations the year ended September 27, 1997 and the
seven months ended April 28, 1998 and Consolidated Statements of Operations
for the five months ended October 3, 1998 and year ended October 2, 1999 F-5
Combined Statements of Comprehensive Income (Loss) for the year ended September
27, 1999 and the seven months April 28, 1998 and Consolidated Statements of
Comprehensive Income (Loss) for the five months October 3, 1998 and year
ended October 2, 1999 F-6
Combined Statements of Predecessor Capital for the year ended September 27, 1997
and the seven months ended April 28, 1998 and Consolidated Statements of
Member's Equity for the five months ended October 3, 1998 and year ended
October 2, 1999 F-7
Combined Statements of Cash Flows for the year ended September 27, 1997 and the
seven months ended April 28, 1998 and Consolidated Statements of Cash Flows
for the five months ended October 3, 1998 and year ended October 2, 1999 F-8
Notes to Combined and Consolidated Financial Statements F-9
FINANCIAL STATEMENT SCHEDULE
Schedule I - Condensed Financial Information of Registrant S-1
Schedule II - Valuation and Qualifying Accounts S-4
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Management Committee of
Grove Investors LLC:
We have audited the accompanying consolidated balance sheets of Grove
Investors LLC and subsidiaries as of October 3, 1998 and October 2, 1999 and
the related consolidated statements of operations, comprehensive income
(loss), member's equity and cash flows for the five months ended October 3,
1998 and the year ended October 2, 1999 (Successor Periods) and the combined
statements of operations, comprehensive income (loss), predecessor capital
and cash flows for the seven months ended April 28, 1998 (Predecessor
Period). In connection with our audit of the consolidated and combined
financial statements, we have also audited the consolidated and combined
financial statement schedules listed under Item 14(a)(2). These consolidated
and combined financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated and combined financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Grove Investors LLC
and subsidiaries as of October 3, 1998 and October 2, 1999, and the results of
their operations and their cash flows for the Successor Periods, in conformity
with generally accepted accounting principles. Furthermore, in our opinion, the
aforementioned combined financial statements present fairly, in all material
respects, the results of operations and cash flows of The Grove Companies for
the Predecessor Period, in conformity with generally accepted accounting
principles. Also in our opinion, the related combined and consolidated financial
statement schedules, when considered in relation to the basic consolidated and
combined financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As discussed in note 2 to the combined and consolidated financial statements, on
April 28, 1998 Grove Worldwide LLC acquired The Grove Companies in a business
combination accounted for as a purchase. As a result of the acquisition, the
consolidated information for periods following the acquisition is presented on a
different cost basis than that for the periods before the acquisition and,
therefore is not comparable.
KPMG LLP
December 6, 1999
Baltimore, Maryland
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholder of
The Grove Companies:
We have audited the accompanying combined statements of operations,
comprehensive income (loss), predecessor capital, and cash flows of the Grove
Companies for the year ended September 27, 1997. Our audits also included the
financial statement schedule listed in the Index at Item 14(a)(2). These
financial statements and schedule are the responsibility of Companies'
management. Our responsibility is to express an opinion on the financial
statements and schedule based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements of the Grove Companies referred to
above present fairly, in all material respects, the combined results of their
operations and their cash flows for the year ended September 27, 1997, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements take as a whole, present fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
December 15, 1997
Baltimore, Maryland
F-3
<PAGE>
GROVE INVESTORS AND SUBSIDIARIES LLC
Consolidated Balance Sheets
As of October 3, 1998 and October 2, 1999
(in thousands)
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 34,289 $ 18,196
Trade receivables, net (note 4) 129,833 142,271
Due from Hanson PLC 10,500 --
Notes receivable (note 4) 5,887 5,425
Inventories (note 5) 207,248 193,123
Prepaid expenses and other current assets 8,893 7,405
------------ ------------
Total current assets 396,650 366,420
Property, plant and equipment, net (note 6) 207,175 213,731
Goodwill, net (note 7) 288,499 269,556
Other assets 22,919 17,600
------------ ------------
$ 915,243 $ 867,307
============ ============
LIABILITIES AND MEMBER'S EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt (note 10) $ 7,000 $ 12,000
Short-term borrowings (note 8) 15,027 19,108
Accounts payable 79,470 75,370
Accrued expenses and other current liabilities (note 9) 106,211 87,686
------------ ------------
Total current liabilities 207,708 194,164
Deferred revenue (note 3) 67,306 74,368
Long-term debt (note 10) 509,665 516,544
Other liabilities (note 11) 82,729 90,141
------------ ------------
Total liabilities 867,408 875,217
------------ ------------
Member's equity (deficit):
Invested capital 75,000 75,000
Notes receivable from members (2,783) (3,932)
Accumulated deficit (29,664) (69,313)
Accumulated other comprehensive income (loss) 5,282 (9,665)
------------ ------------
Total member's equity (deficit) 47,835 (7,910)
------------ ------------
Commitments and contingencies (notes 16, 17, 18 and 19)
------------ ------------
$ 915,243 $ 867,307
============ ============
</TABLE>
See accompanying notes to combined and consolidated financial statements.
F-4
<PAGE>
GROVE INVESTORS AND SUBSIDIARIES LLC
Combined Statements of Operations for the year ended
September 27, 1997 and the seven months
ended April 28, 1998 and
Consolidated Statements of Operations for the
five months ended October 3, 1998
and year ended October 2, 1999
(in thousands)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------ -------------------------------
SEPTEMBER 27, APRIL 28, OCTOBER 3, OCTOBER 2,
1997 1998 1998 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 856,812 $ 476,200 $ 393,779 $ 781,229
Cost of goods sold (note 5) 653,539 377,337 335,764 633,447
-------------- -------------- -------------- --------------
Gross profit 203,273 98,863 58,015 147,782
Selling, engineering, general
and administrative expenses 122,192 73,664 58,098 124,704
Amortization of goodwill 9,054 5,215 3,091 6,880
Management fees paid to Hanson PLC
(note 19) 2,176 162 -- --
Restructuring charges (note 15) 1,960 -- -- --
-------------- -------------- -------------- --------------
Income (loss) from operations 67,891 19,822 (3,174) 16,198
Interest income (expense), net (note 10) 43 1,048 (21,579) (50,112)
Other income (expense), net 535 (9,524) (574) (200)
-------------- -------------- -------------- --------------
Income (loss) before
income taxes 68,469 11,346 (25,327) (34,114)
Income taxes (note 14) 26,249 11,741 4,337 5,535
-------------- -------------- -------------- --------------
Net income (loss) $ 42,220 $ (395) $ (29,664)$ (39,649)
============== ============== ============== ==============
</TABLE>
See accompanying notes to combined and consolidated financial statements.
F-5
<PAGE>
GROVE INVESTORS AND SUBSIDIARIES LLC
Combined Statements of Comprehensive Income (Loss)
for the year ended September 27, 1997 and
the seven months ended April 28, 1998 and
Consolidated Statements of Comprehensive Income
(Loss) for the five months ended
October 3, 1998 and year ended
October 2, 1999
(in thousands)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------ ------------------------------
SEPTEMBER 27, APRIL 28, OCTOBER 3, OCTOBER 2,
1997 1998 1998 1999
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Net income (loss) $ 42,220 $ (395) $ (29,664) $ (39,649)
Change in minimum pension liability (note 12) 601 (1,371) (2,059) (5,909)
Change in foreign currency translation
adjustment (5,407) (5,764) 7,341 (9,038)
-------------- -------------- -------------- -------------
Comprehensive income (loss) $ 37,414 $ (7,530) $ (24,382) $ (54,596)
============== ============== ============== =============
</TABLE>
See accompanying notes to combined and consolidated financial statements.
F-6
<PAGE>
GROVE INVESTORS AND SUBSIDIARIES LLC
Combined Statements of Predecessor Capital for
the year ended September 27, 1997 and
the seven months ended April 28, 1998
and
Consolidated Statements of Member's Equity
for the five months ended
October 3, 1998 and year ended
October 2, 1999
(in thousands)
<TABLE>
<CAPTION>
COMPANY
-------------------------------------------------------------------------
NOTES ACCUMULATED
RECEIVABLE OTHER TOTAL
PREDECESSOR INVESTED FROM ACCUMULATED COMPREHENSIVE MEMBER'S
CAPITAL CAPITAL MEMBERS DEFICIT INCOME (LOSS) EQUITY
------------ ------------ ------------ -------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 28, 1996 $ 502,554 $ -- $ -- $ -- $ -- $ --
Net income 42,220 -- -- -- -- --
Net transactions with affiliates 88,524 -- -- -- -- --
Other comprehensive loss (4,806) -- -- -- -- --
------------ ------------ ------------ -------------- -------------- -------------
Balance, September 27, 1997 628,492 -- -- -- -- --
Net loss (395) -- -- -- -- --
Net transactions with affiliates (111,216) -- -- -- -- --
Other comprehensive loss (7,135) -- -- -- -- --
------------ ------------ ------------ -------------- -------------- -------------
Balance, April 28, 1998 509,746 -- -- -- -- --
Elimination of predecessor capital (509,746) -- -- -- -- --
Initial capitalization -- 75,000 -- -- -- 75,000
Advances to members (note 19) -- -- (2,719) -- -- (2,719)
Accrued interest on member notes -- -- (64) -- -- (64)
Net loss -- -- -- (29,664) -- (29,664)
Other comprehensive income -- -- -- -- 5,282 5,282
------------ ------------ ------------ -------------- -------------- -------------
Balance, October 3, 1998 -- 75,000 (2,783) (29,664) 5,282 47,835
Advances to members (note 19) -- -- (888) -- -- (888)
Accrued interest on member notes -- -- (261) -- -- (261)
Net loss -- -- -- (39,649) -- (39,649)
Other comprehensive loss -- -- -- -- (14,947) (14,947)
------------ ------------ ------------ -------------- -------------- -------------
Balance, October 2, 1999 $ -- $ 75,000 $ (3,932)$ (69,313)$ (9,665)$ (7,910)
============ ============ ============ ============== ============== =============
</TABLE>
See accompanying notes to combined and consolidated financial statements.
F-7
<PAGE>
GROVE INVESTORS AND SUBSIDIARIES LLC
Combined Statements of Cash Flows for the year ended
September 27, 1997 and the seven months
ended April 28, 1998 and
Consolidated Statements of Cash Flows for the
five months ended October 3, 1998
and year ended October 2, 1999
(in thousands)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------ ---------------------------
SEPTEMBER 27, APRIL 28, OCTOBER 3, OCTOBER 2,
1997 1998 1998 1999
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 42,220 $ (395) $ (29,664) $ (39,649)
Adjustments to reconcile to net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 17,985 11,399 8,213 18,537
Depreciation of equipment held for rent 8,352 5,501 7,400 14,921
Amortization of deferred financing costs -- -- 884 2,294
Accretion of interest on senior discount debentures -- -- 2,550 6,357
Interest on senior debentures -- -- 2,950 7,313
Write-off of amount assigned to inventory
in purchase accounting -- -- 27,707 --
(Gain) loss on sales of property, plant
and equipment (600) 6,256 -- (255)
Deferred income tax expense 1,969 2,358 1,249 2,680
Changes in operating assets and liabilities:
Trade receivables, net (23,266) 32,096 (6,790) (16,951)
Notes receivable (68,450) 28,409 (3,607) 462
Inventories (162) (8,828) 17,936 6,907
Accounts payable and accrued expenses 564 7,542 2,554 (14,848)
Other assets and liabilities, net 33,383 8,759 25,918 12,971
------------- ------------- ------------- ------------
Net cash provided by operating activities 11,995 93,097 57,300 739
------------- ------------- ------------- ------------
Cash flows from investing activities:
Additions to property, plant and equipment (32,491) (19,521) (7,230) (9,405)
Investment in equipment held for rent (37,904) (16,380) (20,751) (23,793)
Acquisition of businesses from Hanson, PLC
including transaction costs of $5,783 net of
cash acquired of $9,241 and post-closing adjustment
received of $27,300 -- -- (562,723) 10,500
Other investing activities 1,603 2,071 1,302 3,408
------------- --------------------------------------------
Net cash used in investing activities (68,792) (33,830) (589,402) (19,290)
------------- --------------------------------------------
Cash flows from financing activities:
Net proceeds from short-term borrowings 204 6,821 941 4,139
Proceeds from issuance of long-term debt -- -- 547,560 10,000
Repayments of long-term debt -- -- (35,200) (12,000)
Equity investment from members -- -- 75,000 --
Advances to members, net -- -- (2,720) (888)
Deferred financing costs -- -- (19,533) --
Other financing activities 54,145 (62,087) -- 1,317
------------- ------------- ------------- ------------
Net cash provided by (used in)
financing activities 54,349 (55,266) 566,048 2,568
------------- ------------- ------------- ------------
Effect of exchange rate changes on cash (712) 217 343 (110)
------------- ------------- ------------- ------------
Net change in cash and cash equivalents (3,160) 4,218 34,289 (16,093)
Cash and cash equivalents, beginning of period 8,184 5,024 -- 34,289
------------- ------------- ------------- ------------
Cash and cash equivalents, end of period $ 5,024 $ 9,242 $ 34,289 $ 18,196
============= ============= ============= ============
</TABLE>
See accompanying notes to combined and consolidated financial statements.
F-8
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
(1) ORGANIZATION, DESCRIPTION OF BUSINESS, AND BASIS OF PRESENTATION
Grove Investors LLC ("Grove" or the "Company"), through its wholly owned
subsidiaries, is primarily engaged in the design, production, sale, and
after-sale support of mobile hydraulic cranes, aerial work platforms and
truck-mounted cranes. The Company's domestic manufacturing plants and
related facilities are located in Shady Grove and Chambersburg,
Pennsylvania and Waverly, Nebraska. The Company's foreign facilities are
located in Sunderland, United Kingdom; Wilhelmshaven and Langenfeld,
Germany; and Tonneins and Cergy, France. The majority of the Company's
sales are to independent distributors, rental companies, and end users
which serve the heavy industrial and construction industries in the
United States and Europe.
The Company was formed as a limited liability company in December 1997
pursuant to the provisions of the Delaware Limited Liability Company Act.
The Company had no substantive operations prior to its initial
capitalization and the acquisition of The Grove Companies on April 29,
1998 (see note 2). The Company issued 75,000 Class B membership interests
for $75,000 to equity members in connection with the initial
capitalization of the Company. During the five months ended October 3,
1998, the Company issued 3,912 Class A units to management for cash of
$1,192 and notes of $2,720. During the year ended October 2, 1999, the
Company issued 1,825 Class A units to management for cash of $688 and
notes of $1,137. During the year ended October 2, 1999, the Company
redeemed 500 Class A units for $250 cash and the retirement of the member
note receivable of $250. Such notes are recourse obligations generally
secured by the members' interest and bear interest at the prime rate
(8.25% at October 2, 1999). In connection with the issuance of the Class
A units in 1998, the Company redeemed 3,912 of the Class B membership
interests for their initial purchase price. Class A and Class B members
have substantially identical rights and obligations. As of October 2,
1999, 5,237 Class A units and 69,763 Class B membership interests are
outstanding.
The Company is operated and controlled by a management committee (the
"Management Committee") constituted by a majority of the Company's equity
members. Equity members vote in relation to their percentage ownership.
Net income of the company is allocated to equity members first to the
extent of any deficit in their capital account; second, to the maximum
extent possible, to cause their capital account to equal their respective
percentage interest in the total members' equity of the Company; and
third, in accordance with their respective percentage interest in the
Company. Net losses of the Company are allocated to equity members first
to the maximum extent possible, to cause their capital account to equal
their respective percentage interest in the total member's equity of the
Company; second, to the extent of any positive amount in their capital
account; and third, in accordance with their respective percentage
interest in the Company.
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
F-9
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
Combined financial statements for the year ended September 27, 1997 and
the seven month period ended April 28, 1998 consist of the combined
operations and substantially all of the assets and liabilities of Kidde
Industries, Inc. and the following legal entities: Grove Europe Ltd.,
Crane Holdings, Inc., Delta Manlift SAS, Grove France SA, Deutsche Grove
GmbH, and Grove Manlift Pty. Ltd. (together "The Grove Companies" or
"Predecessor"). All of the Grove Companies were either directly or
indirectly owned by Hanson PLC, a United Kingdom company.
(2) ACQUISITION
On April 29, 1998, the Company acquired (the "Acquisition") from Hanson
PLC ("Hanson") and certain of its subsidiaries, substantially all of the
assets of Hanson's U.S. mobile hydraulic crane and aerial work platform
operations, the capital stock of Hanson's U.S. truck-mounted crane
operation and the capital stock of Hanson's British, French, German, and
Australian crane and aerial work platform subsidiaries for an aggregate
purchase price of $583,000. The purchase price was subject to a post
closing adjustment for which the Company received $16,800 during fiscal
1998 and an additional $10,500 in November 1998. Funds required by the
Company to consummate the Acquisition, including the payment of related
fees and expenses, were as follows:
<TABLE>
<S> <C>
Sources:
Issuance of the Senior Subordinated Notes $225,000
Borrowings under Revolving Credit Facility 10,106
Borrowings under Term Loan Facility 200,000
Issuance of the Senior Discount Debentures 49,958
Issuance of Senior Debentures 47,375
Equity investment 75,000
--------
$607,439
========
Uses:
Acquisition price $583,000
Transaction costs 5,783
--------
Aggregate purchase price 588,783
Debt financing costs 18,656
--------
$607,439
========
</TABLE>
F-10
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
The Acquisition was accounted for using the purchase method. The
estimated total purchase price of $583,000 and related acquisition fees
and expenses of approximately $5,800 have been allocated to the assets
and liabilities of the Company based upon an estimate of their respective
fair values, with the remainder being allocated to goodwill. The Company
is amortizing goodwill over a 40-year period based on the strong brand
name of the Company and the longevity of the business and the industry in
which it operates. The estimated fair values of the assets acquired and
liabilities assumed in the Acquisition are summarized as follows:
<TABLE>
<S> <S>
Cash and cash equivalents $ 9,241
Due from Hanson for post-closing adjustment 27,300
Trade receivables 122,616
Notes receivable 2,280
Inventories 248,381
Other current assets 10,602
Property, plant and equipment 189,703
Goodwill 294,877
Other non-current assets 2,966
Short-term borrowings (14,086)
Trade accounts payable (79,493)
Sunderland, U.K. shut-down costs (note 15) (18,500)
Accrued expenses and other current liabilities (85,164)
Other non-current liabilities (121,940)
--------
Aggregate purchase price $588,783
========
</TABLE>
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) CASH AND CASH EQUIVALENTS
The Company defines cash equivalents as highly liquid investments
with initial maturities of three months or less.
(b) TRADE RECEIVABLES AND NOTES RECEIVABLE
Trade receivables are net of allowance for doubtful accounts of
$3,075 and $3,095 as of October 3, 1998 and October 2, 1999,
respectively.
Notes receivable relate to sales of new equipment to North
American distributors on terms of up to one year. Payment of
interest and principal are due at the maturity of the note unless
the dealer sells the equipment prior to maturity in which case the
notes must be repaid immediately along with any interest accrued
thereon.
F-11
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
(c) INVENTORIES
Inventories are valued at the lower of cost or market, as
determined primarily under the first-in, first-out method.
(d) PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment are stated at cost. Maintenance and
repairs are charged to operations when incurred, while
expenditures having the effect of extending the useful life of an
asset are capitalized. Depreciation is computed primarily using
the straight-line method. The useful lives by asset category are
as follows:
<TABLE>
<S> <C>
Land improvements 3-20 years
Buildings and improvements 10-30 years
Machinery and equipment 3-12 years
Equipment held for rent Lease term
Furniture and fixtures 3-10 years
</TABLE>
(e) GOODWILL
The excess of the purchase price of the Company and its
subsidiaries over the fair value of the net assets acquired was
recorded as goodwill. Amortization expense is recorded on the
straight-line method over 40 years. The Company assesses the
recovery of goodwill by determining whether amortization of the
goodwill over its remaining life can be recovered through
undiscounted cash flows of the acquired operations. Goodwill
impairment, if any, is measured by determining the amount by which
the carrying value of the goodwill exceeds its fair value based
upon discounting of future cash flows.
(f) IMPAIRMENT OF LONG-LIVED ASSETS
The Company records impairment losses on long-lived assets when
events and circumstances indicate that the assets might be
impaired. No such losses have been recorded in the accompanying
financial statements.
(g) DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are utilized by the Company to
reduce interest and foreign currency exchange risks and consist
primarily of interest rate collars and forward foreign exchange
contracts. The Company does not hold or issue derivative financial
instruments for trading purposes. Gains and losses on foreign
currency transaction hedges are recognized in income and offset
the foreign exchange gains and losses of the underlying
transactions. Gains and losses on foreign currency firm commitment
hedges are deferred and included in the basis of the transactions
underlying the commitments.
F-12
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
The Company has an interest rate collar contract to manage its
exposure to fluctuations in interest rates. The interest rate
differential on the interest rate contract is reflected as an
adjustment to interest expense over the life of the contract. Upon
early termination of an interest rate contract, the gains or
losses on termination are deferred and amortized as an adjustment
to the interest expense on the related debt instrument over the
remaining period originally covered by the contract.
(h) REVENUE RECOGNITION
Revenue is generally recognized as title transfers, usually as
products are shipped to customers. However, for certain
transactions, the Company provides guarantees of the residual
value of the equipment to third party leasing companies. Such
guarantees generally, given for periods of up to five years, take
the form of end-of-term residual value guarantees or reducing
residual value guarantees that decline with the passage of time.
The Company records these transactions in accordance with the
lease principles established by Statement of Financial Accounting
Standards (SFAS) No. 13. If the transaction qualifies as an
operating lease, the Company records deferred revenue for the
amount of the net proceeds received upon the equipment's initial
transfer to the customer. The liability is then subsequently
reduced on a pro rata basis over the period to the first exercise
date of the guarantee, to the amount of the guaranteed residual
value at that date, with corresponding credits to revenue in the
Company's statement of operations. Any further reduction in the
guaranteed residual value resulting from the purchaser's decision
to continue to use the equipment is recognized in a similar
manner. Depreciation of equipment held for rent is recognized in a
similar manner over the term of the lease agreement. As of October
3, 1998 and October 2, 1999, the amount of deferred revenue
relating to transactions involving residual value guarantees which
is included in other current or noncurrent liabilities was $80,658
and $89,250, respectively.
(i) PRODUCT WARRANTIES
Product warranty expenses are provided for estimated normal
warranty costs at the time of sale. Additional warranty expense is
provided for specific performance issues when identified. Specific
performance issues relate to situations in which the Company
issues a part replacement notice for models that are experiencing
a particular problem.
F-13
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
(j) FOREIGN CURRENCY TRANSLATION
The financial statements of subsidiaries located outside the
United States are measured using the local currency as the
functional currency. Assets, including goodwill, and liabilities
are translated at the rates of exchange at the balance sheet date.
The resulting translation gains and losses are included as a
separate component of member's equity. Income and expense items
are translated at average monthly rates of exchange. Gains and
losses from foreign currency transactions of these subsidiaries
are included in net income. Aggregate gains (losses) on foreign
currency transactions are not material.
(k) RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to operations as
incurred. Research and development costs were $15,427, $8,242,
$5,878 and $12,371 for the year ended September 27, 1997, the
seven months ended April 28, 1998, the five months ended October
3, 1998 and year ended October 2, 1999, respectively, and are
included as part of selling, engineering, general and
administrative expenses.
(l) ADVERTISING
All costs associated with advertising and promoting products are
expensed when incurred. Advertising expense amounted to $4,802,
$2,324, $1,568 and $2,289 for the year ended September 27, 1997,
the seven months ended April 28, 1998, the five months ended
October 3, 1998 and year ended October 2, 1999, respectively.
(m) STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and
related interpretations in accounting for its stock-based employee
compensation arrangements.
(n) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument represents the amount at
which the instrument could be exchanged in a current transaction
between willing parties, other than a forced sale or liquidation.
Significant differences can arise between the fair value and
carrying amount of financial instruments that are recognized at
historical cost amounts.
F-14
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
The following methods and assumptions were used by the Company in
estimating fair value disclosures for financial instruments:
Cash, trade receivables, notes receivable, trade accounts
payable and short-term borrowings: The amounts reported in
the consolidated balance sheets approximate fair value.
Foreign currency contracts: The fair value of forward
exchange contracts is estimated using prices established
by financial institutions for comparable instruments. (See
note 17)
Long-term debt: For bank borrowings, the amount
reported in the consolidated balance sheet approximates
fair value. The fair value of the Senior Subordinated
Notes, Senior Discount Debentures and Senior Debentures is
based on quoted market prices. (See note 10)
(o) ADOPTION OF NEW ACCOUNTING STANDARDS
In 1998, the FASB issued Statement 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. Management has not yet evaluated this statement's
impact on the Company's financial condition or results of
operations. The Company intends to adopt the pronouncement in
fiscal year 2001.
During 1998, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) No. 98-5,
REPORTING ON THE COSTS OF START-UP ACTIVITIES. SOP No. 98-5
requires that costs incurred during a start-up activity be
expensed as incurred and that the initial application of the
SOP, as of the beginning of the fiscal year in which the SOP is
adopted, be reported as a cumulative effect of a change in
accounting principle. The Company expects to adopt SOP 98-5 in
first quarter of fiscal 2000 by recognizing a change of $234
for the cumulative effect of adoption.
(p) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period to prepare these
consolidated financial statements in conformity with generally
accepted accounting principles. Actual results could differ
significantly from those estimates.
F-15
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
(q) RECLASSIFICATIONS
Certain amounts for fiscal 1998 have been reclassified to conform
to the presentation for fiscal 1999.
(4) ACCOUNTS AND NOTES RECEIVABLE
Trade receivables subject the Company to concentration of credit risk,
because they are concentrated in distributors and rental companies that
serve the heavy industrial and construction industries, which are subject
to business cycle variations. For the year ended September 27, 1997
revenues of approximately 19% of net sales were generated from six major
customers, with no one customer accounting for more than 5% of net sales.
For the seven months ended April 28, 1998 and the five months ended
October 3, 1998, approximately 23% and 24%, respectively, of revenues
were generated from five major customers, with no one customer accounting
for more than 10% of net sales. For the year ended October 2, 1999,
approximately 22% of revenues were generated from six major customers
with no one customer accounting for more than 10% of net sales.
Approximately 11% and 13% of the outstanding trade and notes receivable
balance as of October 3, 1998 and October 2, 1999 were due from these
customers, respectively.
The Company generally offers terms of up to 30 days to its customers
and generally obtains a security interest in the underlying machinery
sold. In addition, the Company offers a special financing program
primarily to its U.S. distributors which provides credit terms of
periods up to one year in exchange for an interest-bearing note. The
Company generally retains a security interest in the machinery sold.
The Company has an agreement with a major international bank to sell
up to $65,000 of notes receivable generated from sales of mobile
hydraulic cranes and aerial work platforms on credit terms of up to
one year on a revolving basis. The bank purchases the notes receivable
at face value on a 90% non-recourse basis. The agreement provides that
the Company purchase credit insurance on behalf of the bank to insure
the 90% risk assumed by the bank. The Company retains 10% of the
credit risk on a first loss basis. The Company is responsible for
administrative and collection activities. The cost of administrative
and collection activities is immaterial. Cash collections on the notes
are deposited directly into an account for the benefit of the major
international bank. The bank has the power to sell or pledge the notes
receivable purchased at any time and the Company has no rights or
obligation to repurchase of the notes receivable.
Notes receivable sold under this arrangement meet the criteria for
sale under FASB Statement No. 125 and, accordingly, are removed from
the Company's balance sheet upon sale. At October 3, 1999, the Company
had credit risk of up to $5,400 with respect to notes receivable that
had been sold under the arrangement.
F-16
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
(5) INVENTORIES
Inventories consist of the following as of October 3, 1998 and October 2,
1999:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Raw materials and supplies $ 61,910 $ 61,340
Work in process 72,299 79,232
Finished goods 73,039 52,551
-------- --------
$207,248 $193,123
======== ========
</TABLE>
In connection with the Acquisition, the Company assigned $27,700 of the
purchase price to work in process and finished goods inventories in
excess of their historical carrying value. Such amounts were charged to
costs of goods sold in the five month period ended October 3, 1998.
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following as of October 3,
1998 and October 2, 1999:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Land and improvements $ 7,446 $ 5,989
Buildings and improvements 62,709 68,690
Machinery and equipment 33,276 42,799
Equipment held for rent 79,997 105,099
Furniture and fixtures 27,264 30,149
Construction in progress 9,078 470
-------- --------
219,770 253,196
Less accumulated depreciation and amortization 12,595 39,465
-------- --------
$207,175 $213,731
======== ========
</TABLE>
Depreciation expense (including depreciation expense on equipment held
for rent) for the year ended September 27, 1997, the seven months ended
April 28, 1998, the five months ended October 3, 1998 and year ended
October 2, 1999 was $17,283, $11,685, $12,522 and $26,578, respectively.
F-17
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
(7) GOODWILL
Goodwill consists of the following as of October 3, 1998 and October
2, 1999:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Goodwill $291,590 $280,153
Less accumulated amortization 3,091 10,597
-------- --------
$288,499 $269,556
======== ========
</TABLE>
During the year ended October 2, 1999, the Company adjusted goodwill to
reflect the final valuations of property and equipment, the settlement of
certain pre-acquisition contingencies and the use of pre-acquisition net
operation loss carryforwards.
(8) SHORT-TERM BORROWINGS
The Company's German operation maintains a DM58,000 (approximately
$32,000) credit facility available for discounting certain accounts
receivable. As of October 3, 1998 and October 2, 1999, $15,027 and
$19,108 were drawn against this facility. The interest rate charged on
the outstanding borrowings was 4.5% and 3.75% at October 3, 1998 and
October 2, 1999, respectively. This arrangement does not have a
termination date and is reviewed periodically. No material commitment
fees are required to be paid on the undrawn portion of the credit
facility.
(9) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the
following as of October 3, 1998 and October 2, 1999:
<TABLE>
<CAPTION>
1998 1999
-------- -------
<S> <C> <C>
Salaries, wages and benefits $ 21,505 $23,023
Warranty 16,522 12,787
Deferred revenue associated with equipment
held for rent 13,352 14,882
Product, workers' compensation and general liability
insurance 4,125 2,376
Interest 11,167 10,779
Sunderland, U.K. shut-down costs (note 15) 18,500 712
Other 21,040 23,127
-------- -------
$106,211 $87,686
======== =======
</TABLE>
F-18
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
(10) LONG-TERM DEBT
Long-term debt consists of the following as of October 3, 1998 and
October 2, 1999:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Revolving credit facility $ -- $ 10,000
Term loan facility 190,000 178,000
Senior subordinated notes 225,000 225,000
Senior discount debentures 52,535 58,892
Senior debentures 49,130 56,652
-------- --------
516,665 528,544
Less current maturities 7,000 12,000
-------- --------
Long-term debt $509,665 $516,544
======== ========
</TABLE>
BANK CREDIT FACILITY -- The Company has a bank credit facility (the
"Bank Credit Facility"), which consists of a $200,000 term loan
facility ("Term Loan Facility") and a $125,000 revolving credit
facility ("Revolving Credit Facility"). Subsequent to year end, in
order to obtain modifications to certain financial covenants to make
them less restrictive, the Company negotiated an amendment to the
agreement which provided for (i) higher borrowing and facility fee
rates and (ii) a limitation in the amount of the revolving credit
facility available for general operating purposes until the Company
achieves certain operating results. As amended, the Revolving Credit
Facility enables the Company to obtain revolving credit loans for
working capital, acquisitions and general corporate purposes.
Borrowings under the Revolving Credit Facility are limited to $60,000
for working capital and general corporate purposes until the Company
achieves a defined level of operating results. During the year ended
October 2, 1999, the Company had $10,000 outstanding under the
Revolving Credit Facility for slightly more than one quarter of the
year. In addition, a portion of the Revolving Credit Facility is
available for permitted acquisitions as defined in the agreement. A
portion of the Revolving Credit Facility is available for borrowings
by the Company in the Eurocurrency markets of British pounds sterling,
German marks, French francs and certain other currencies. The Company
also pays a 0.50% fee on the unused portion of the Bank Credit
Facility. Without the covenant modifications, the Company would not
have been in compliance with one of the financial covenants required
by the Bank Credit Facility. Management has undertaken a number of
initiatives to improve the Company's operating results. In the event
that results do not improve, the Company may need to seek further
modifications to the covenants contained in the Bank Credit Facility.
Furthermore, the amendment provides that at the Company's option, loans
under the Bank Credit Facility bear interest (a) in the case of loans in
U.S. dollars, at the highest of (x) 1/2 of 1% in excess of the Federal
Funds Effective Rate (as defined in the Bank Credit Facility), (y) 1.0%
in excess of a certificate of deposit rate and (z) the bank's prime rate,
plus the applicable margin (as defined in the
F-19
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
Bank Credit Facility), or (b) in the case of all loans, the relevant
Eurocurrency Rate (as defined in the Bank Credit Facility) as determined
by the Lender, plus the applicable margin. The applicable margin will
vary based upon the Company's operating results and will range between
1.5% and 3.0% for borrowings under the Revolving Credit Facility and
between 2.0% and 3.5% for borrowings under the Term Loan Facility. At
October 2, 1999, borrowings of $10,000 were outstanding under the
Revolving Credit Facility, bearing interest based on LIBOR plus an
applicable margin of 2.5% (8.0% at October 2, 1999). The interest rate on
borrowings under the Term Loan Facility at October 2, 1999 was based on
LIBOR plus an applicable margin of 2.5% (8.0% at October 2, 1999).
Following the Bank Credit Facility amendment, borrowings under the
Revolving Credit and Term Loan Facilities bear interest at LIBOR
plus an applicable margin of 3.0% and 3.5%, respectively. The average
interest rate on borrowings under the Revolving Credit and Term Loan
Facilities were 8.33% and 7.71%, respectively, for the five months ended
October 3, 1998 and fiscal 1999.
The Term Loan Facility has a term of eight years and must be repaid in
semi-annual installments in October and April of each fiscal year in
an aggregate amount of (i) $2,000 through fiscal 2004, (ii) $88,000
during fiscal 2005 and (iii) the balance during fiscal 2006. The
Revolving Credit Facility has a term of seven years. The Company is
required to make annual payments, in excess of the schedule principal
payments, on the Term Loan Facility of up to 75% of the Company's
"excess cash flow" as defined in the Bank Credit Facility. No payments
are due with respect to this provision for the year ended October 2,
1999. In addition, the Bank Credit Facility requires mandatory
prepayments upon the occurrence of certain events including the change
of control of Holdings. At October 2, 1999, the Company had
outstanding letters of credit of $1,100 and available borrowings under
the Revolving Credit Facility, as amended, for general operating
purposes, of $48,900.
The obligations of the Company under the Bank Credit Facility are
guaranteed by Holdings and each of the Company's domestic subsidiaries
(the "Guarantors"). The obligations of the Company under the Bank Credit
Facility are secured by a first priority lien (subject to permitted
encumbrances) on substantially all of the Company's and each Guarantor's
real, personal, and intellectual property and on the capital stock of the
Company and all of the capital stock of the Company's domestic and
certain of its foreign subsidiaries.
In addition, the Bank Credit Facility contains various covenants that
restrict the Company from taking various actions and that require the
Company to achieve and maintain certain financial ratios.
SENIOR SUBORDINATED NOTES -- The Senior Subordinated Notes bear interest
at a rate of 9 1/4% per annum payable semi-annually on May 1 and November
1 of each year commencing November 1, 1998. The Senior Subordinated
Notes are general unsecured obligations of the Company and its
co-issuer, Grove Capital, Inc., and are guaranteed by all of the
Company's domestic subsidiaries. The Senior Subordinated Notes are
redeemable at the option of the Company, in whole or in part, at any
time on or after, May 1, 2003, at a declining redemption price and
mature on May 1, 2008.
F-20
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
In addition, at any time prior to May 1, 2001, the Company may redeem up
to 35% of the originally issued aggregate principal amount of the Senior
Subordinated Notes at 109.25% of the principal amount thereof, plus
accrued and unpaid interest and liquidated damages, if any, with net
proceeds of one or more public offerings of the Company's equity (or that
of Investors or Holdings), provided at least 65% of the principal amount
of the originally issued Senior Subordinated Notes remain outstanding.
Upon the occurrence of a change of control, as defined in the Indenture
governing the Senior Subordinated Notes (the "Indenture"), each holder of
the Senior Subordinated Notes will have the right to require the Company
to repurchase such holder's notes at an offer price in cash equal to 101%
of the aggregate principal amount thereof plus accrued and unpaid
interest and liquidated damages, if any, thereon to the date of purchase.
The Indenture contains certain covenants that limit, among other things,
the ability of the Company to (i) pay dividends, redeem capital stock or
make certain other restricted payments, (ii) incur additional
indebtedness or issue certain preferred equity interests, (iii) merge
into or consolidate with certain other entities or sell all or
substantially all of its assets, (iv) create liens on assets and (v)
enter into certain transactions with affiliates or related persons.
These restrictions could restrict the Company's subsidiaries from making
distributions necessary to service the Senior Discount Debentures and
Senior Debentures.
SENIOR DISCOUNT DEBENTURES -- The Senior Discount Debentures were
issued pursuant to an Indenture dated April 29, 1998 (the "Holdings
Indenture") at a discount from their principal amount. The Senior
Discount Debentures are general unsecured obligations of the Company
and its co-issuer, Grove Holdings Capital, Inc. The Senior Discount
Debentures accrete interest at a rate of 11 5/8% per annum, compounded
semi-annually, to an aggregate principal amount of $88,000 at May 1,
2003. Thereafter, the Senior Discount Debentures will accrue cash
interest at a rate of 11 5/8% per annum, payable semi-annually on May
1 and November 1 of each year, commencing on November 1, 2003. The
Senior Discount Debentures are redeemable at the option of Holdings,
in whole or in part, at any time after May 1, 2003, at a declining
redemption price and mature on May 1, 2009.
In addition, at any time prior to May 1, 2001, the Company may redeem
up to 35% of the originally issued aggregate principal amount of the
Senior Discount Debentures at 111.625% of the accreted value (as
defined by the Holdings Indenture) thereof plus liquidated damages (as
defined by the Holdings Indenture) thereon, if any, with the net
proceeds of one or more public offerings of the Company's or
Investors' equity, provided that at least 65% of the originally issued
aggregate principal amount of the Senior Discount Debentures remain
outstanding thereafter.
Upon the occurrence of a change of control (as defined by the Holdings
Indenture), each holder of the Senior Discount Debentures will have
the right to require Holdings to repurchase such holders' notes at an
offer price in cash equal to 101% of the aggregate principal amount
thereof plus accrued and unpaid interest and liquidated damages, if
any, thereon to the date of purchase.
F-21
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
The Holdings Indenture contains certain covenants that limit, among other
things, the ability of the Company and its subsidiaries to (i) pay
dividends, redeem capital stock or make certain other restricted
payments, (ii) incur additional indebtedness or issue certain preferred
equity interests, (iii) merge into or consolidate with certain other
entities or sell all or substantially all of its assets, (iv) create
liens on assets and (v) enter into certain transactions with affiliates
or related persons.
SENIOR DEBENTURES -- The Senior Debentures were issued pursuant to an
Indenture dated April 29, 1998 (the "Investors Indenture"). The Senior
Debentures are general unsecured obligations of the Company and its
co-issuer, Grove Investors Capital, Inc. The Senior Debentures accrue
interest at a rate of 14 1/2% per annum, payable quarterly on February
1, May 1, August 1 and November 1 of each year, commencing on August
1, 1998. Interest is payable, at the option of the Company, in cash or
by issuance of additional Senior Debentures. The Senior Debentures are
redeemable at the option of the Company, in whole or in part, at any
time after May 1, 2003, at a declining redemption price and mature on
May 1, 2010.
In addition, at any time prior to May 1, 2001, the Company may redeem
all, but not less than all the aggregate principal amount of the
Senior Debentures issued at a redemption price of 114.5% of the
principal amount thereof, plus accrued and unpaid interest and
liquidated damages (as defined by the Investors Indenture) thereon, if
any, in each case determined as of the date of such repurchase.
The Investors Indenture contains certain covenants that limit, among
other things, the ability of the Company and its subsidiaries to (i)
pay dividends, redeem capital stock or make certain other restricted
payments, (ii) incur additional indebtedness or issue certain
preferred equity interest, (iii) merge into or consolidate with
certain other entities or sell all or substantially all of its assets,
(iv) create liens on assets and (v) enter into certain transactions
with affiliates or related persons.
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 has made to certain of its foreign subsidiaries
to consummate the acquisition of Hanson's crane and aerial work
platform subsidiaries in the U.K., Germany and France and for working
capital requirements. 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.
F-22
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
The estimated fair value of the Company's long-term debt at October 2,
1999 was approximately $319,000.
Aggregate annual scheduled maturities of long-term debt at October 2,
1999 are $2,000 during each of the next five fiscal years.
INTEREST EXPENSE -- Interest income (expense), net consists of the
following for the year ended September 27, 1997, the seven months
ended April 28, 1998, the five months ended October 3, 1998 and year
ended October 2, 1999.
<TABLE>
<CAPTION>
Predecessor Company
-------------------------- ---------------------------
September 27, April 28, October 3, October 2,
1997 1998 1998 1999
------------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Interest expense $ (638) $ (263) $(20,454) $(46,024)
Interest expense paid to Hanson (1,404) (2,174) -- --
Amortization of deferred financing
costs -- -- (790) (2,294)
Accretion of interest on senior
discount debentures -- -- (2,550) (6,357)
Interest income 2,085 3,485 2,215 4,563
------ ------ -------- --------
$ 43 $1,048 $(21,579) $(50,112)
====== ====== ======== ========
</TABLE>
The Company paid interest of $7,503 and $39,254 for the five months ended
October 3, 1998 and year ended October 2, 1999, respectively.
The Company has entered into an interest rate agreement with a major
commercial bank to collar the interest rate on approximately $100,000
of the Company's floating rate borrowings for the three years ended
September 2001. Under the agreement the Company will receive, on a
$100,000 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. If the
contract was terminated at October 2, 1999, the Company would have had
a gain of approximately $302.
F-23
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
(11) OTHER LIABILITIES
Other liabilities consist of the following as of October 3, 1998 and
October 2, 1999:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Accrued liability for defined benefit pension plans $29,286 $31,198
Accrued liability for postretirement benefit plan 28,293 31,696
Other 25,150 27,247
------- -------
$82,729 $90,141
======= =======
</TABLE>
(12) EMPLOYEE BENEFIT PLANS
The Company sponsors defined benefit pension plans which cover
substantially all of its U.S. employees. Plans covering salaried
employees provide pension benefits that are based on the participant's
final average salary and credited service. Plans covering hourly
employees provide benefits based on the participant's career earnings and
service with the Company. The Company's funding policy for all plans is
to make the minimum annual contributions required by applicable
regulations, plus such additional amounts as the Company may determine to
be appropriate from time to time.
In addition to providing pension benefits, the Company provides
certain health care and prescription drug benefits to certain
retirees. Substantially all of the Company's domestic eligible
employees may qualify for benefits if they reach normal retirement age
while working for the Company. The Company funds benefits on a
pay-as-you-go basis, while retirees pay monthly premiums. These
benefits are subject to deductibles co-payment provisions and other
limitations.
F-24
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
The following tables provide reconciliations of the changes in benefit
obligations and plan assets for the five months ended October 3, 1998 and
the year ended October 3, 1999 and the funded status of the plans as of
October 2, 1998 and October 3, 1999.
<TABLE>
<CAPTION>
Post-
Pension Benefits retirement Benefits
------------------------ -----------------------
October 3, October 2, October 3, October 2,
1998 1999 1998 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of period $ 59,471 $ 61,811 $ 27,415 $ 28,367
Service cost 1,322 3,239 511 1,317
Interest 1,621 4,191 725 1,820
Special termination benefits -- 1,347 -- 1,002
Amendments -- 204 -- --
Actuarial (gain) loss (56) (9,811) 74 (3,757)
Curtailment gain -- (3,308) -- --
Benefits paid (547) (1,315) (358) (736)
-------- -------- -------- --------
Benefit obligation at
end of period $ 61,811 $ 56,358 $ 28,367 $ 28,013
======== ======== ======== =======
Change in plan assets:
Fair value of plan assets at beginning
of period $42,323 $ 44,438 $ -- $ --
Actual return on plan assets (2,640) 5,374 -- --
Company contributions 5,302 4,187 358 736
Benefits paid (547) (1,315) (358) (736)
-------- -------- -------- --------
Fair value of plan assets at
end of period $ 44,438 $ 52,684 $ -- $ --
======== ======== ======== ========
Funded status $(17,373) $ (3,674) $(28,367) $(28,013)
Unrecognized actuarial gain (loss) 4,111 (6,605) 74 (3,683)
Unrecognized prior service cost -- 204 -- --
-------- -------- -------- --------
Net amount recognized $(13,262) $(10,075) $(28,293) $(31,696)
======== ======== ======== ========
Amounts recognized in consolidated statements
balance sheets consists of:
Accrued benefit liability $(15,321) $(10,075) $(28,293) $(31,696)
Accumulated other comprehensive
income 2,059 -- -- --
-------- -------- -------- --------
Net amount recognized $(13,262) $(10,075) $(28,293) $(31,696)
======== ======== ======== ========
Weighted average assumptions at balance sheet date:
Discount rates 6.50% 7.50% 6.50% 7.50%
Rate of return on assets 10.00% 10.00% -- --
Rate of compensation increases 4.25% 4.25% -- --
</TABLE>
F-25
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 9.0% for 1998, with subsequent
annual decrements of 0.5% to an ultimate trend rate of 5.5%. The assumed
health care cost trend rate used in measuring the accumulated post
retirement benefit obligation was 7.5% decreasing gradually over 18 years
to an ultimate trend rate of 5.0%. A one percentage point increase in the
assumed health care cost rate for each year would increase the
accumulated postretirement benefit obligation by approximately 13% as of
October 2, 1999 and the net postretirement benefit costs by approximately
11% for the year ended October 2, 1999.
The components of the net periodic benefits costs for all U.S. defined
benefit plans for the fiscal year ended September 27, 1997, for the
seven months ended April 28, 1998, for the five months ended October
3, 1998 and the year ended October 2, 1999 are summarized below:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
------------------------------------------------ -----------------------------------------------
Predecessor Company Predecessor Company
------------------------ ---------------------- ----------------------- ----------------------
September 27, April 28, October 3, October 2, September 27, April 28, October 3, October 2,
1997 1998 1998 1999 1997 1998 1998 1999
------------- --------- ---------- ---------- ------------ -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Service costs $ 2,172 $ 1,542 $ 1,322 $ 3,239 $ 833 $ 622 $ 511 $1,317
Interest costs 3,128 2,163 1,621 4,191 1,464 1,096 725 1,820
Gain on plan curtailment -- -- -- (3,308) -- -- -- --
Special termination benefits -- -- -- 1,347 -- -- -- 1,002
Expented return on
plan assets (2,748) (1,898) (1,528) (4,469) -- -- -- --
Net amortization
and deferral 539 465 -- -- 458 74 -- --
------- ------- ------- ------- ------ ------ ------ ------
$ 3,091 $ 2,272 $ 1,415 $ 1,000 $2,755 $1,792 $1,236 $4,139
======= ======= ======= ======= ====== ====== ====== ======
</TABLE>
During the year ended October 2, 1999 in an effort to reduce
operating costs at its Shady Grove Facility, the Company
involuntarily terminated or offered special one-time early retirement
benefits to approximately 220 employees. These actions, together with
other voluntary terminations, resulted in a curtailment gain of $3,300
which was recognized in net periodic pension costs for the year ended
October 2, 1999. The special one-time early retirement benefits
resulted in net periodic benefit costs of $2,300 for the year ended
October 2, 1999.
F-26
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
The Company also sponsors defined benefit pension plans which cover
substantially all of its foreign employees. The following tables provide
reconciliations of the changes in benefit obligations and plan assets for
the five months ended October 3, 1998 and the year ended October 2, 1999
and the funded status of the plans as of October 3, 1998 and October 2,
1999.
<TABLE>
<CAPTION>
October 3, October 2,
1998 1999
--------- ----------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of period $ 36,953 $ 36,402
Service cost 1,067 1,759
Interest 1,074 2,315
Actuarial (gains) loss (1,341) 7,959
Benefits paid (316) (1,271)
Impact of translation of foreign currency (1,035) 2,002
-------- --------
Benefit obligation at end of period $ 36,402 $ 49,166
======== ========
Change in plan assets:
Fair value of plan assets at beginning of period $ 22,456 $ 22,160
Actual return on plan assets (1,044) 2,368
Company contributions 635 5,272
Benefits paid (316) (1,271)
Impact of translation of foreign currency 429 (486)
-------- --------
Fair value of plan assets at end of period $ 22,160 $ 28,043
======== ========
Funded status $(14,242) $(21,123)
Unrecognized actuarial loss 277 7,968
-------- --------
Net amount recognized $(13,965) $(13,155)
======== ========
Amounts recognized in consolidated statements
balance sheets consists of:
Accrued benefit liability $(13,965) $(21,123)
Accumulated other comprehensive income -- 7,968
-------- --------
Net amount recognized $(13,965) $(13,155)
======== ========
Weighted average assumptions at balance
sheet date:
Discount rates 6.00% to 6.50% 5.00% to 6.50%
Rate of return on assets 6.00% 6.00%
Rate of compensations increases 2.25% to 4.50% 2.25% to 3.75%
</TABLE>
F-27
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
The components of the net periodic pension costs for all foreign defined
benefit plans for the year ended September 27, 1997, for the seven months
ended April 28, 1998, for the five months ended October 3, 1998 and year
ended October 2, 1999 are summarized below:
<TABLE>
<CAPTION>
Predecessor Company
---------------------------- -------------------------
April 28, October 3, October 2,
1997 1998 1998 1999
------- -------- --------- ----------
<S> <C> <C> <C> <C>
Service cost $ 1,978 $1,169 $ 927 $ 1,759
Interest cost 1,782 1,289 933 2,280
Actual return on assets (3,038) (904) (667) (2,182)
Net amortization and deferral 802 536 -- 2,732
------- ------ ------ -------
$ 1,524 $2,090 $1,193 $ 4,589
======= ====== ====== =======
</TABLE>
Assets of domestic and foreign defined benefit plans consist principally
of investments in equity securities, debt securities, and cash
equivalents.
The Company also has a defined contribution plan covering
substantially all of its U.S. employees. Eligible employees may
contribute a portion of their base compensation to the plan and their
contributions are matched by the Company at rates specified in the
Plan documents. Contributions by the Company for the year ended
September 27, 1997, for the seven months ended April 28, 1998, the
five months ended October 3, 1998 and year ended October 2, 1999 were
approximately $1,902, $1,169, $835 and $1,708, respectively.
(13) MANAGEMENT OPTION AND SHARE APPRECIATION PLANS
In connection with the Acquisition, the Company established a management
option plan whereby the Investor Management Committee can grant options
to purchase equity units of Investors to key employees of the Company at
fair market value. The options generally vest over a five-year period
only upon the achievement of certain earning targets. During the five
months ended October 3, 1998 and year ended October 2, 1999, Investors
granted options to employees to purchase 2,700 and 1,237.5 Class A units
of Investors, respectively, with an exercise price of $1,000 per unit
which will expire in 2008. At October 2, 1999, 3,937.5 options were
outstanding and no amounts were vested. The estimated weighted average
fair value of options granted during the five months ended October 3,
1998 and the year ended October 2, 1999 was 275 dollars per unit assuming
an option life of six years, a risk free interest rate of 5.5% and no
dividends or volatility rate. Had the Company accounted for the options
in accordance with the provisions of FASB Statement No. 123 compensation
expense with respect to options granted in the five months ended October
3, 1998 and the year ended October 2, 1999 would have been immaterial.
F-28
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
During fiscal 1999, the Company adopted a Phantom Share Appreciation
Rights (PSAR) Plan for the purpose of (i) attracting and retaining
exceptional employees and (ii) enabling such individuals to
participate in the long-term growth of the Company. Under this plan,
key employees are granted equity appreciation rights (PSAR). Upon the
occurrence of a "realization event", generally a change of control, as
defined, the holder of the PSAR is paid an amount equal to the fair
value of the PSAR over its initial grant price, plus the cumulative
dividends paid by the Company since the date of grant. Rights cannot
be assigned, sold or transferred and generally vest over a five year
period assuming achievement of certain earnings targets. Rights vest
immediately if a realization event occurs. If the employee is
terminated due to death, disability, or without cause, the vested
portion of the PSAR remains effective and the non-vested portion is
canceled. If the employee is terminated for any other reason, the
entire PSAR is canceled. The committee that administers the plan has
the right to equitably adjust the number of shares, grant price or
make cash payments if it determines that some event has affected the
value of the PSAR's to the employees. The committee is currently
authorized to grant up to 20,000 rights which is the equivalent of
approximately a 1% equity interest in the Company. The committee also
has the ability to designate any other event or time other than a
change of control as a realization event. The plan expires after ten
years unless specifically amended.
During the year ended October 2, 1999, the Company granted 15,640
rights with an exercise price of 37.5 dollars per right. For the year
ended October 2, 1999, the Company did not achieve the earnings
targets, however, the committee authorized vesting of 20% of the
rights. The Company had not recognized any compensation with respect
to the vesting since the estimated fair value of the underlying equity
interest is less than the grant price. At October 2, 1999, the 15,640
rights were outstanding of which 3,128 were vested.
(14) 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 five months ended October 3, 1998 or the year ended October
2, 1999.
The provision for income taxes following the Acquisition, will be
limited to foreign taxes with respect to earnings of the Company's
foreign subsidiaries and U.S. state and local taxes with respect to
the earnings of the Company's truck-mounted crane business.
F-29
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
For periods prior to the Acquisition, each of the Grove Companies filed
their own income tax returns or were part of a consolidated group return
with other Hanson entities. Income tax expense for such periods was
determined as if the Grove Companies were a stand-alone entity. In
connection with the Acquisition, Hanson has indemnified the Company with
respect to certain tax obligations arising from activities occurring
prior to the Acquisition.
Domestic and foreign income (loss) before income taxes were as follows
for the fiscal year ended September 27, 1997, for the seven months
ended April 28, 1998, for the five months ended October 3, 1998 and
year ended October 2, 1999:
<TABLE>
<CAPTION>
Predecessor Company
--------------------------- -----------------------------
April 28, October 3, October 2,
1997 1998 1998 1999
------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
United States $66,721 $30,446 $(12,143) $(33,588)
Other countries 1,748 (19,100) (13,184) (526)
------- ------- -------- --------
$68,469 $11,346 $(25,327) $(34,114)
======= ======= ======== ========
</TABLE>
The provision for income taxes consisted of the following for the fiscal
year ended September 27, 1997, for the seven months ended April 28, 1998,
for the five months ended October 3, 1998 and year ended October 2, 1999:
<TABLE>
<CAPTION>
Predecessor Company
------------------------ -----------------------
April 28, October 3, October 2,
1997 1998 1998 1999
------- --------- --------- ----------
<S> <C> <C> <C> <C>
Current:
United States, state and local $23,979 $ 9,383 $ 2,958 $1,110
Other countries 301 -- 130 1,745
------- ------- ------- ------
24,280 9,383 3,088 2,855
------- ------- ------- ------
Deferred:
United States, state and local 1,969 2,358 (1,551) 1,702
Other countries -- -- 2,800 978
------- ------- ------- ------
1,969 2,358 1,249 2,680
------- ------- ------- ------
$26,249 $11,741 $ 4,337 $5,535
======= ======= ======= ======
</TABLE>
The Company paid income taxes of $272 and $2,925 for the five months
ended October 3, 1998 and year ended October 2, 1999, respectively.
F-30
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
Significant components of the Company's deferred tax liabilities and
assets are as follows as of October 3, 1998 and October 2, 1999:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Allowance for doubtful accounts $ 139 $ 104
Inventory reserves 321 369
Accrued expenses 3,728 2,403
Foreign net operating losses 2,132 --
Accumulated depreciation (2,592) (2,547)
Other 234 69
------- --------
Total deferred tax asset $ 3,962 $ 398
======= ========
</TABLE>
Deferred taxes at October 3, 1998 relate to the Company's National Crane
Corporation subsidiary which is incorporated as a C-Corporation and the
Company's foreign subsidiaries.
The reasons for the differences between applicable income taxes and
the amount computed by applying the statutory federal income tax rate
of 35% to income before taxes were as follows for the fiscal year
ended September 27, 1997:
<TABLE>
<S> <C>
Applicable income taxes based on federal statutory tax rate $23,964
State taxes, net of federal tax benefit 2,520
Goodwill amortization 333
Foreign operating loss benefits not previously recognized (1,409)
Foreign operating loss valuation allowances 1,405
Other (564)
-------
$26,249
=======
</TABLE>
The income tax rate reconciliation for the seven months ended April
28, 1998 was not presented since the information was deemed not
meaningful. The income tax provision for the seven months ended April
28, 1998 includes no benefit for approximately $19,000 of losses
incurred by the Company's foreign subsidiaries. Income taxes for the
five months ended October 3, 1998 and the year ended October 2, 1999
relate principally to the Company's subsidiary in Waverly, Nebraska,
which is incorporated as a C-corporation, and the Company's German
subsidiary.
F-31
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
(15) RESTRUCTURING AND PLANT SHUTDOWN
In 1997, the Company recorded a restructuring charge of approximately
$1,960 related to the gradual phase-out of crane production at its
Sunderland, United Kingdom location. All amounts have been expended as of
September 27, 1997.
The Company has closed its Sunderland UK manufacturing facility as the
result of recurring operating losses. Management believes closing the
facility will improve operating earnings as well as provide the
opportunity for additional cost reductions through product
rationalization, reduced selling, general and administrative expenses
and reduced manufacturing costs. In connection with accounting for the
Acquisition (see note 2), the Company accrued the estimated closure
costs of approximately $18,500. During the year ended October 2, 1999,
the Company expended $10,100 of the severance and incurred $7,200 of
plant shutdown and related costs. As of October 2, 1999, $264 of
severance and approximately $448 of plant shutdown costs remains to be
expended. The unused portion of original estimate of approximately
$500 has been reversed against goodwill.
(16) LEASES
The Company and its subsidiaries lease office space, machinery and other
equipment under noncancelable operating leases with varying terms, some
of which contain renewal and/or purchase options.
The following is a schedule of future minimum lease payments required
under operating leases that have initial or remaining noncancelable
lease terms in excess of one year:
<TABLE>
<S> <C>
1999 $3,743
2000 1,313
2001 632
2002 438
2003 242
Thereafter 33
------
$6,401
======
</TABLE>
Rental expense associated with operating leases was approximately $3,489,
$2,496, $1,795 and $4,977 for the year ended September 27, 1997 and the
seven months ended April 28, 1998, the five months ended October 3, 1998
and year ended October 2, 1999, respectively. It is expected that, in the
normal course of business, leases that expire will be renewed or replaced
by leases on other property and equipment.
F-32
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
(17) FOREIGN EXCHANGE RISK
Through its foreign currency hedging activities, the Company seeks to
minimize the risk that cash flows resulting from the sales of products
manufactured in a currency different from that of the selling company
will be affected by changes in exchange rates. Management responds to
foreign exchange movements through various means, such as pricing
actions, changes in cost structure, and changes in hedging strategies.
The Company may hedge its foreign currency transactions and firm sales
commitment exposures, based on management's judgment, through forward
exchange contracts. These forward exchange contracts are purchased from
local banks. Some of the contracts involve the exchange of two foreign
currencies according to the local needs of the companies.
The following table summarizes the contractual amounts of the
Company's forward exchange contracts as of October 3, 1998 and October
2, 1999, including details by major currency as of October 2, 1999.
Foreign currency amounts were translated at the current rate as of the
reporting date. The "sell" amounts represent the U.S. dollar
equivalent of commitments to sell foreign currencies, and the "buy"
amounts represent the U.S. dollar equivalent of commitments to
purchase foreign currencies.
<TABLE>
<CAPTION>
Buy Sell
------ -------
<S> <C> <C>
As of October 3, 1998 $2,244 $(4,444)
====== =======
As of October 2, 1999:
Deutsche Marks $4,418 $ --
====== =======
</TABLE>
The Company's credit exposure on its foreign currency derivatives was
$192 and $94 as of October 3, 1998 and October 2, 1999, respectively.
Gross deferred realized gains and losses on firm commitments were not
significant as of October 3, 1998 and October 2, 1999. Substantially all
of the amounts deferred at October 3, 1998 are expected to be recognized
in income during fiscal year 1999, when the gains or losses on the
underlying transactions will also be recognized.
F-33
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
(18) OTHER COMMITMENTS AND CONTINGENCIES
The Company is involved in various lawsuits and administrative
proceedings arising in the ordinary course of business. These matters
primarily involve claims for damages arising out of the use of the
Company's products as well as employment matters and commercial disputes.
Some of these lawsuits include claims for punitive as well as
compensatory damages. The Company is insured for product liability and
workers' compensation claims for amounts in excess of established
deductibles and accrues for the estimated liability up to the limits of
the deductibles. The Company accrues for all other claims and lawsuits on
a case-by-case basis. The Company's estimate of the undiscounted costs
associated with legal and environmental exposures is accrued if, in
management's judgment, the likelihood of a loss is probable. The
Company's policy is to also accrue the probable legal costs to be
incurred in defending the Company against such claims. The Company has
followed this policy during each of the periods in the three-year period
ended October 2, 1999, with respect to all investigations, claims and
litigation. Insurance recoveries for environmental and certain general
liability claims are not recognized until realized.
In the opinion of management, while the ultimate results of lawsuits
or other proceedings against the Company cannot be predicted with
certainty, the amounts accrued for awards or assessments in connection
with these matters are adequate and, accordingly, management believes
that the ultimate resolution of these matters will not have a material
effect on the Company. As of October 2, 1999, the Company had no known
probable but inestimable exposures that could have a material effect
on the Company.
PRODUCT LIABILITY AND WORKERS' COMPENSATION -- Hanson, on behalf of the
Company, purchased an insurance policy which effectively indemnifies the
Company against North American product liability and workers'
compensation claims arising prior to October 1, 1997 up to an aggregate
loss limit of $85,000. Losses in excess of that amount, if any, are the
responsibility of the Company. For product liability claims arising on or
after October 1, 1997, the Company is self-insured for losses up to
$2,000 per occurrence, with a $15,000 annual aggregate loss limit. For
workers' compensation claims arising on or after such date, the Company
is self-insured for losses up to $250 per occurrence with a $1,000 annual
aggregate loss limit. Losses over the loss limits are covered by umbrella
insurance coverage up to $100,000. The Company accrues a reserve for the
estimated amount of claims which will be self-insured. The estimates are
provided by a third party actuary based upon historical trends. The
reserve for claims includes estimates of legal and administrative costs
to be incurred.
ENVIRONMENTAL MATTERS -- The Company is also involved in lawsuits and
administrative proceedings with respect to claims involving the
discharge of hazardous substances into the environment. Certain of
these claims assert damages and liability for remedial investigations
and cleanup costs with respect to sites at which the Company has been
identified as a potentially responsible party under federal and state
environmental laws and regulations (off-site). Other matters involve
sites that the Company currently owns and operates or has previously
sold (on-site). For off-site claims, the Company makes an assessment
of the costs involved based on environmental studies, prior experience
at similar sites,
F-34
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
and the experience of other named parties. The Company also considers the
ability of other parties to share costs, the percentage of the Company's
exposure relative to all other parties, and the effects of inflation on
these estimated costs. For on-site matters associated with properties
currently owned, the Company makes an assessment as to whether an
investigation and remediation effort is necessary and estimates other
potential costs associated with the site.
OTHER -- The Company provides guarantees of residual value to third
party financing companies in support of certain customers' financing
arrangements. These guarantees generally are only exercisable should
the Company's customer default on their financing agreements. The
Company has not and does not expect to incur losses under these
guarantees. Exercises of these guarantees have not been significant
for the periods in the three years ended October 2, 1999. Aggregate
residual value guarantees were approximately $93,000 at October 2,
1999.
(19) TRANSACTIONS WITH RELATED PARTIES
Prior to the Acquisition, the Company received certain services provided
by Hanson PLC and its affiliates, including cash management, tax
reporting, and risk management, and was charged a management fee for such
services. The allocation of these management fees was based on percentage
of total group sales in 1996 and on total group operating profits in
1997. In the opinion of management, these methods of allocation were
reasonable.
The amount of predecessor capital included in the combined balance
sheet represents a net balance as the result of various transactions
between the Company and its parent, Hanson PLC. There were no terms of
settlement associated with the account balance and generally, there
were no interest charges associated with these balances. The balance
is primarily the result of various equity transactions, as well as the
Company's participation in Hanson's central cash management program,
wherein all the Company's cash receipts were remitted to Hanson and
all cash disbursements are funded by Hanson. Other transactions
included in predecessor capital are management fees, taxes, insurance,
employee benefits, and miscellaneous other administrative expenses
incurred by Hanson on behalf of the Company.
F-35
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
Intercompany interest expense for the fiscal year ended September 27,
1997 and for the seven months ended April 28, 1998 was $1,404 and $2,174,
respectively. Substantially all of the interest expense related to
borrowings by one of the Company's subsidiaries from Hanson which are
classified as predecessor capital in the combined statements of
predecessor capital. Such borrowings averaged $19,000, and $19,000 for
the years ended September 27, 1997 and for the seven months ended April
28, 1998.
The Company has engaged, under a multi-year agreement, a consulting
group controlled by one of its minority owners, to help develop and
achieve its business plan. For the five months ended October 3, 1998
and the year ended October 2, 1999, the consulting group was paid
approximately $2,700 and $6,800, respectively, for services rendered.
Subsequent to year-end, the agreement was amended.
(20) SEGMENT INFORMATION
During fiscal 1999, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 131, DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION. SFAS No. 131 requires the presentation of
descriptive information about the Company's reportable segments, which is
consistent with information that is made available to management to
assess performance.
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.
F-36
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
The accounting policies for the three operating business segments are the
same as those described in the summary of significant accounting policies
in note 3. Operating information for each of the three operating
divisions is as follows:
<TABLE>
<CAPTION>
Corporate,
Grove Grove National eliminations
Crane Manlift Crane and other Total
---------- --------- --------- ------------- --------
<S> <C> <C> <C> <C> <C>
As of and for the year ended
September 27, 1997:
Net sales $587,583 $198,816 $70,997 $ (584) $856,812
Depreciation and amortization 16,208 354 1,423 -- 17,985
Income (loss) from operations 50,058 16,705 10,506 (9,378) 67,891
Total assets 767,014 81,663 59,496 (26,677) 881,496
Capital expenditures 29,286 308 2,897 -- 32,491
For the seven months ended
April 28, 1998:
Net sales $310,684 $116,298 $49,231 $ (13) $476,200
Depreciation and amortization 9,983 517 899 -- 11,399
Income (loss) from operations 12,868 3,943 7,680 (4,669) 19,822
Capital expenditures 16,740 1,513 1,268 -- 19,521
As of and for the five months ended
October 3, 1998:
Net sales $267,100 $ 88,390 $38,534 $ (245) $393,779
Depreciation and amortization 4,623 127 372 3,091 8,213
Income (loss) from operations 5,622 1,582 6,560 (16,938) (3,174)
Total assets 490,278 62,910 45,428 316,627 915,243
Capital expenditures 6,376 351 503 -- 7,230
As of and for the year ended
October 2, 1999:
Net sales $537,586 $164,010 $80,022 $ (389) $781,229
Depreciation and amortization 10,407 348 902 6,880 18,537
Income (loss) from operations 44,381 679 11,694 (40,556) 16,198
Total assets 472,949 59,742 41,818 292,798 867,307
Capital expenditures 8,359 277 769 -- 9,405
</TABLE>
Corporate, eliminations and other consist principally of corporate
expenses and assets, goodwill and intercompany eliminations. Depreciation
and amortization excludes depreciation of equipment held for rent. For
fiscal 1999, the Company allocates certain assets and expenses between
operating divisions differently than for prior periods. Accordingly, such
information is not comparable.
F-37
<PAGE>
GROVE INVESTORS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
Information with respect to the Company's domestic and foreign
operations is as follows for the year ended September 27, 1997 and the
seven months ended April 28, 1998, and as of and for the five months
ended October 3, 1998 and the year ended October 2, 1999:
<TABLE>
<CAPTION>
Predecessor Company
---------------------------- ---------------------------
September 27, April 28, October 3, October 2,
1997 1998 1998 1999
------------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales:
Generated by domestic operations $641,228 $354,873 $308,597 $565,859
Generated by foreign operations 314,643 166,780 124,824 316,276
Elimination of intercompany sales (99,059) (45,453) (39,642) (100,906)
-------- -------- -------- --------
$856,812 $476,200 $393,779 $781,229
======== ======== ======== ========
Property, plant and equipment:
Held by domestic operations $112,522 $113,348
Held by foreign operations 94,653 100,383
-------- --------
$207,175 $213,731
======== ========
</TABLE>
(21) GROVE INVESTORS CAPITAL, INC.
The Company formed Grove Investors Capital, Inc. as a direct wholly owned
subsidiary to act as a co-issuer of the Senior Debentures (see note 10).
At October 2, 1999, Grove Investors Capital, Inc. had one hundred dollars
in cash and total assets, and no current or long-term liabilities other
than its contingent co-obligation with respect to the Senior Debentures.
For the five months ended October 3, 1998 and the year ended October 2,
1999, Grove Investors Capital, Inc. had no income or loss and no
revenues. Grove Investors Capital, Inc. has no subsidiaries, no
operations and is prohibited from engaging in any business activities.
(22) SUBSEQUENT EVENT (UNAUDITED)
Subsequent to year end the Company adopted and executed a restructuring
plan that resulted in the termination of approximately 170 employees,
principally in its U.S. operations. In connection with the terminations,
the Company incurred severance costs of approximately $4,900, which will
be recorded as a charge in first quarter of fiscal 2000.
F-38
<PAGE>
SCHEDULE I
GROVE INVESTORS LLC AND SUBSIDIARIES
Condensed Financial Information of the Registrant
Condensed Consolidated Balance Sheets -- October 3, 1998 and October 2, 1999
<TABLE>
<CAPTION>
1998 1999
------------- ------------
<S> <C> <C>
ASSETS
Cash $ -- $ 1,332
Investement in subsidiaries 95,412 47,562
Other assets 2,813 2,588
------------- ------------
$ 98,225 $ 51,482
============= ============
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current liabilities-- accrued expenses and other current liabilities $ 1,260 $ 2,740
Long-term debt 49,130 56,652
------------- ------------
Total liabilities 50,390 59,392
------------- ------------
Members' equity (deficit):
Invested capital 75,000 75,000
Notes receivable from members (2,783) (3,932)
Accumulated deficit (29,664) (69,313)
Accumulated other comprehensive income (loss) 5,282 (9,665)
------------- ------------
Total members' equity 47,835 (7,910)
------------- ------------
$ 98,225 $ 51,482
============= ============
</TABLE>
(Continued)
S-1
<PAGE>
SCHEDULE I, CONTINUED
GROVE INVESTORS LLC AND SUBSIDIARIES
Condensed Financial Information of the Registrant
Condensed Consolidated Statements of Operations
For the five months ended October 3, 1998 and
the year ended October 2, 1999
<TABLE>
<CAPTION>
1998 1999
------------- ------------
<S> <C> <C>
Interest expenses, net $ (3,044) $ (7,538)
Other (20) (52)
Net loss of subsidiaries (26,600) (32,059)
------------- ------------
Net loss (29,664) (39,649)
Other comprehensive income (loss) 5,282 (14,947)
------------- ------------
Comprehensive loss $ (24,382) $ (54,596)
============= ============
</TABLE>
(Continued)
S-2
<PAGE>
SCHEDULE I, CONTINUED
GROVE INVESTORS LLC AND SUBSIDIARIES
Condensed Financial Information of the Registrant
Condensed Consolidated Statement of Cash Flows
For the five months ended October 3, 1998 and
the year ended October 2, 1999
<TABLE>
<CAPTION>
1998 1999
------------- ------------
<S> <C> <C>
Cash flow from operating activities:
Net loss $ (29,664) $ (39,649)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Amortization of deferred financing costs 94 225
Accrued interest on Senior Debentures 2,950 7,923
Net loss of subsidiaries 26,600 32,059
Other changes 20 (505)
------------- ------------
Net cash provided by operating activities -- 53
------------- ------------
Cash used for investing activities --
investment in subsidiaries (120,000) --
------------- ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 47,375 --
Equity investment from members 75,000 --
Deferred financing costs (2,925) --
Other financing activities 550 1,279
------------- ------------
Net cash provided by financing activities 120,000 1,279
------------- ------------
Net change in cash and cash equivalents -- 1,332
Cash and cash equivalents at beginning of period -- --
------------- ------------
Cash and cash equivalents at end of period $ -- $ 1,332
============= ============
</TABLE>
S-3
<PAGE>
SCHEDULE II
GROVE INVESTORS LLC AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER DEDUCTIONS AT END
OF YEAR EXPENSES ACCOUNTS (a) (b) OF YEAR
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts (in thousands):
Year ended September 27, 1997 $ 2,553 $ 538 $ (114) $ 260 $ 2,717
Seven months ended April 28, 1998 2,717 880 12 146 3,463
Five months ended October 3, 1998 3,463 290 121 799 3,075
Year ended October 2, 1999 3,075 552 31 563 3,095
</TABLE>
(a) Impact of exchange rates
(b) Write-offs
S-4
<PAGE>
Exhibit 10.17
FIRST AMENDMENT, dated as of October 22, 1999 (this
"AMENDMENT"), to the Credit Agreement, dated as of April 29, 1998, (the "CREDIT
AGREEMENT"), among GROVE WORLDWIDE LLC, a Delaware limited liability company
(the "COMPANY"), GROVE CAPITAL, INC., a Delaware corporation and a Wholly Owned
Subsidiary of the Company ("GROVE CAPITAL"; the Company and Grove Capital,
individually, a "BORROWER" and collectively, the "BORROWERS"), the several banks
and other financial institutions or entities from time to time parties to this
Agreement (collectively, the "LENDERS"; individually, a "LENDER"), CHASE BANK OF
TEXAS, NATIONAL ASSOCIATION, as Administrative Agent (as hereinafter defined)
for the Lenders hereunder, BANKBOSTON, N.A., as syndication agent (in such
capacity, the "SYNDICATION AGENT") for the Lenders hereunder, and DONALDSON,
LUFKIN & JENRETTE SECURITIES CORPORATION, as documentation agent (in such
capacity, the "DOCUMENTATION AGENT") for the Lenders hereunder.
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders have
agreed to make, and have made, certain loans and other extensions of credit to
the Borrowers; and
WHEREAS, the Borrowers have requested, and, upon this
Amendment becoming effective, the Required Lenders have agreed, that certain
provisions of the Credit Agreement be amended in the manner provided for in this
Amendment.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINED TERMS. Terms defined in the Credit Agreement and
used herein shall have the meanings given to them in the Credit Agreement.
2. AMENDMENTS TO SECTION 1.1 OF THE CREDIT AGREEMENT. (a)
Section 1.1 of the Credit Agreement is hereby amended by deleting the definition
of "CONSOLIDATED EBITDA" and substituting in lieu thereof the following
definition:
"CONSOLIDATED EBITDA": for any period, Consolidated Net
Income for such period PLUS, without duplication and to the extent reflected as
a charge in the statement of such Consolidated Net Income for such period, the
sum of (a) income tax expense and distributions to the direct and indirect
members of Holdings in lieu of taxes, (b) Consolidated Interest Expense,
non-cash interest expense not included in Consolidated Interest Expense,
amortization or writeoff of debt discount and debt issuance costs and
commissions, discounts and other fees and charges associated with Indebtedness
(including the Loans), (c) depreciation and amortization expense and other
non-cash charges, (d) amortization of intangibles (including goodwill) and
organization costs, (e) the aggregate amount of up-front or one-time fees or
expenses payable in respect of Interest Rate Protection Agreements during such
period (to the
<PAGE>
2
extent deducted in determining Consolidated Net Income for such period), (f) for
the periods of four consecutive fiscal quarters of the Company ended September
30, 1999, December 31, 1999, March 31, 2000, June 30, 2000 and September 30,
2000, the direct and indirect costs of implementing new management information
systems (including, without limitation, productivity losses and overtime and
systems support expenses) as reasonably estimated by the Company and reported to
the Administrative Agent, not to exceed the amount set forth below:
<TABLE>
<CAPTION>
Four Quarters
Ended Amount
-------------- ------
<S> <C>
September 30, 1999 $17,700,000
December 31, 1999 15,500,000
March 31, 2000 13,000,000
June 30, 2000 9,300,000
September 30, 2000 6,000,000
</TABLE>
PLUS (g) for the periods of four consecutive fiscal quarters of the Company
ended September 30, 1999, December 31, 1999, March 31, 2000, June 30, 2000 and
September 30, 2000, severance charges (which severance charges shall not exceed,
for the four consecutive fiscal quarters ended September 30, 1999 only,
$600,000), PLUS (h) the amount of unrealized foreign exchange losses (net of any
gains) (or MINUS the amount of unrealized foreign exchange gains (net of any
losses)) MINUS, to the extent included in the statement of such Consolidated Net
Income for such period, other non-cash income.
(b) Section 1.1 of the Credit Agreement is hereby amended by
deleting the definition of "PERMITTED ACQUISITION" and substituting in lieu
thereof the following definition:
"PERMITTED ACQUISITION": any acquisition of a Person,
division or line of business in the same or related line of business by the
Company or any of its Subsidiaries for a purchase price (including any
Indebtedness assumed and continuing outstanding), together with the aggregate
purchase price paid in connection with other such acquisitions since the Closing
Date, of up to an amount of $50,000,000; PROVIDED that (i) the Company receives
approval from Required Lenders to any such acquisitions completed prior to the
date which is 12 months after the Amendment Effective Date; (ii) at any time of
such acquisition, based upon the assumption that such acquisition and any
additional Indebtedness incurred to finance such acquisition had been
consummated and incurred at the beginning of the most recently completed four
fiscal quarter period, and taking into account the earnings (or loss) of the
acquired Person, division or business line during such period and, anticipated
cost savings resulting from such acquisition, the Company shall, based upon PRO
FORMA financial statements reviewed (including as to the anticipated cost
savings) by the Company's independent public accountants, be in PRO FORMA
compliance with the provisions of Section 7.1 and have a PRO FORMA Consolidated
Fixed Charge Coverage Ratio of 1.10 to 1.0 and (iii) no Default or Event of
Default shall have occurred and be continuing.
<PAGE>
3
3. AMENDMENT TO SECTION 4.16 OF THE CREDIT AGREEMENT. Section
4.16 of the Credit Agreement is hereby amended and restated in its entirety as
follows:
The proceeds of the Term Loans shall be used to finance a
portion of the Acquisition and to pay related fees and expenses. The proceeds of
the Revolving Credit Loans and/or the Swing Line Loans shall be used (a) to
finance a portion of the Acquisition and to pay related fees and expenses, (b)
to finance Permitted Acquisitions and (c) for general corporate purposes of the
Borrowers and their Subsidiaries; PROVIDED that no more than $60,000,000 of such
proceeds shall be used for purposes referred to in clause (c) until the delivery
of the first set of consolidated financial statements on or after December 31,
1999 showing that for the four fiscal quarters ending with the last fiscal
quarter covered by such consolidated financial statements, a Consolidated Fixed
Charge Coverage Ratio (but using as the definition of "CONSOLIDATED EBITDA" for
purposes of determining such Consolidated Fixed Charge Coverage Ratio the
definition thereof as in effect prior to the First Amendment dated as of October
22, 1999 to this Agreement) of 1.30 to 1.0.
4. AMENDMENT TO SECTION 7.1(B) OF THE CREDIT AGREEMENT.
Section 7.1(b) of the Credit Agreement is hereby amended by deleting the table
and substituting in lieu thereof the following table:
<TABLE>
<CAPTION>
Consolidated Fixed
Period Charge Coverage Ratio
------ ---------------------
<S> <C>
Closing Date to 6/30/1999 1.05 to 1.0
9/30/1999 to 3/31/2000 1.00 to 1.0
6/30/2000 to 12/31/2001 1.10 to 1.0
3/31/2002 to 12/31/2002 1.15 to 1.0
3/31/2003 to 12/31/2003 1.25 to 1.0
3/31/2004 to 12/31/2004 1.50 to 1.0
3/31/2005 to 12/31/2005 1.75 to 1.0
thereafter 2.00 to 1.0
</TABLE>
5. AMENDMENT TO ANNEX A OF THE CREDIT AGREEMENT. Annex A of
the Credit Agreement is hereby amended by deleting the Pricing Grid therein and
substituting in lieu thereof the Pricing Grid attached hereto as Annex A.
6. CONDITIONS TO EFFECTIVENESS. This Amendment shall become
effective on the date (the "AMENDMENT EFFECTIVE DATE") first set forth above
upon the Administrative Agent having received counterparts of this Amendment
duly executed and delivered by the Borrowers and the Required Lenders together
with a Consent to this Amendment duly executed and delivered by the Loan
Parties.
<PAGE>
4
7. REPRESENTATION AND WARRANTIES. To induce the Agents and the
Lenders parties hereto to enter into this Amendment, each Borrower hereby
represents and warrants to the Agents and all of the Lenders as of the Amendment
Effective Date that: the unaudited consolidated balance sheet of the Company and
its consolidated Subsidiaries as at June 30, 1999 and the related unaudited
consolidated statements of income and of cash flows for the nine-month period
ended on such date, certified by a Responsible Officer, copies of which have
heretofore been furnished to each Lender, are complete and correct and present
fairly the consolidated financial condition of the Company and its consolidated
Subsidiaries as at such date, and the consolidated results of their operations
and their consolidated cash flows for the nine-month period then ended (subject
to normal year-end audit adjustments).
8. AFFIRMATION. The Borrowers and Lenders agree that the
amendments herein to the definition of Consolidated EBITDA and Section 7.1(b) of
the Credit Agreement, shall be effective for purposes of calculating the
Consolidated Fixed Charge Coverage Ratio pursuant to and complying with Section
7.1(b) of the Credit Agreement for the period ending October 2, 1999.
9. GENERAL. (a) PAYMENT OF EXPENSES. The Borrowers jointly and
severally agree to pay or reimburse the Administrative Agent for all of its
out-of-pocket costs and reasonable expenses incurred in connection with this
Amendment, any other documents prepared in connection herewith and the
transactions contemplated hereby, including, without limitation, the reasonable
fees and disbursements of counsel to the Administrative Agent.
(b) NO OTHER AMENDMENTS; CONFIRMATION. Except as expressly
amended, modified and supplemented hereby, the provisions of the Credit
Agreement and the Notes are and shall remain in full force and effect.
(c) GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(d) COUNTERPARTS. This Amendment may be executed by one or
more of the parties to this Amendment on any number of separate counterparts,
and all of said counterparts taken together shall be deemed to constitute one
and the same instrument. A set of the copies of this Amendment signed by all the
parties shall be lodged with each Borrower and the Administrative Agent.
(e) SUCCESSORS. The execution and delivery of this Amendment
by any Lender
<PAGE>
5
shall be binding upon each of its successors and assigns (including
Transferees of its commitments and Loans in whole or in part prior to
effectiveness hereof) and binding in respect of all of its Revolving Credit
Commitment and Loans.
<PAGE>
6
[THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
<PAGE>
7
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective proper and duly
authorized officers as of the day and year first above written.
GROVE WORLDWIDE LLC
By:________________________
Name:
Title:
GROVE CAPITAL, INC.
By:________________________
Name:
Title:
CHASEBANK OF TEXAS, NATIONAL
ASSOCIATION, as Administrative Agent,
Swing Line Lender, Issuing Lender and a
Lender
By:________________________
Name:
Title:
BANKBOSTON, N.A., as Syndication Agent
and as a Lender
By:________________________
Name:
Title:
<PAGE>
8
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION, as
Documentation Agent and as a Lender
By:________________________
Name:
Title:
ARCHIMEDES FUNDING, L.L.C.
By:________________________
Name:
Title:
BALANCED HIGH-YIELD FUND I LTD.
By:________________________
Name:
Title:
THE BANK OF NEW YORK
By:________________________
Name:
Title:
BHF (USA) CAPITAL CORPORATION
By:________________________
Name:
Title:
<PAGE>
9
BHF-BANK AKTIENGESELLSCHAFT
By:________________________
Name:
Title:
CERES FINANCE, LTD.
By:________________________
Name:
Title:
COMERICA BANK
By:________________________
Name:
Title:
CONTINENTAL ASSURANCE COMPANY
By:________________________
Name:
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By:________________________
Name:
Title:
<PAGE>
10
CYPRESSTREE INVESTMENT FUND, LLC
BY: CYPRESSTREE INVESTMENT
MANAGEMENT COMPANY, INC., its Managing
Member
By:________________________
Name:
Title:
CYPRESSTREE INVESTMENT PARTNERS II,
LTD.,
BY: CYPRESSTREE INVESTMENT
MANAGEMENT COMPANY, INC., as Portfolio
Manager
By:________________________
Name:
Title:
ELC (CAYMAN) LTD.
By:________________________
Name:
Title:
FLEET NATIONAL BANK
By:________________________
Name:
Title:
<PAGE>
11
FLEET BUSINESS CREDIT CORPORATION
By:________________________
Name:
Title:
FREMONT INVESTMENT AND LOAN
By:________________________
Name:
Title:
GENERAL ELECTRIC CAPITAL CORP
By:________________________
Name:
Title:
KZH CRESCENT 2 LLC
By:________________________
Name:
Title:
KZH CRESCENT 3 LLC
By:________________________
Name:
Title:
KZH CRESCENT LLC
<PAGE>
12
By:________________________
Name:
Title:
KZH III LLC
By:________________________
Name:
Title:
KZH RIVERSIDE LLC
By:________________________
Name:
Title:
KZH CYPRESS TREE-1 LLC
By:________________________
Name:
Title:
MASSACHUSETTS MUTUAL LIFE
INSURANCE
By:________________________
Name:
Title:
OAK HILL SECURITIES FUND, L.P.
<PAGE>
13
By:________________________
Name:
Title:
OASIS COLLATERALIZED HIGH INCOME
PORTFOLIO
By:________________________
Name:
Title:
BANQUE PARIBAS
By:________________________
Name:
Title:
SEQUILS I, LTD.
By:________________________
Name:
Title:
SOCIETE GENERALE
By:________________________
Name:
Title:
<PAGE>
14
SOMERS CDO, LIMITED
By:________________________
Name:
Title:
U.S. BANK NATIONAL ASSOCIATION
By:________________________
Name:
Title:
WELLS FARGO BANK, N.A.
By:________________________
Name:
Title:
<PAGE>
15
Each of the undersigned hereby consents to the foregoing
Amendment and hereby confirms, reaffirms and restates that its obligations under
or in respect of the Credit Agreement and the documents related thereto to which
it is party are and shall remain in full force and effect after giving effect to
the foregoing Amendment and agrees and confirms, in the case of National Crane
Corporation, that it is a party to the Guarantee and Collateral Agreement as a
Grantor thereunder:
GROVE HOLDINGS LLC
By: ________________________
Title:
GROVE WORLDWIDE LLC
By: ________________________
Title:
GROVE CAPITAL, INC.
By: ________________________
Title:
GROVE U.S. LLC
By: ________________________
Title:
CRANE ACQUISITION CORPORATION
By: ________________________
Title:
<PAGE>
16
CRANE HOLDING INC.
By: _______________________
Title:
GROVE FINANCE LLC
By: ________________________
Title:
NATIONAL CRANE CORPORATION
By: ________________________
Title:
<PAGE>
17
<TABLE>
<CAPTION>
ANNEX A
PRICING GRID
Revolving Revolving
Credit Credit Term Loan Term Loan
Fixed Applicable Applicable Applicable Applicable
Charge Margin for Margin for Margin for Margin for
Coverage Eurocurrency Base Rate Eurocurrency Base Rate Commitment
Ratio Loans Loans Loans Loans Fee Rate
<S> <C> <C> <C> <C> <C> <C>
Greater than or equal to 2.5 to 1.0 2.500% 1.500% 3.000% 2.000% .500%
Greater than or equal to 2.0 to 1.0 2.750% 1.750% 3.250% 2.250% .500%
Less than 2.0 to 1.0 3.000% 2.000% 3.500% 2.500% .500%
================ ============== ============== =============== ============== ============
</TABLE>
<PAGE>
Exhibit 10.18
SEVERANCE AGREEMENT AND GENERAL RELEASE
This Severance Agreement and General Release ("Agreement") is made as of the 6th
day of October, 1999, by and among GROVE INVESTORS LLC and GROVE WORLDWIDE LLC,
both Delaware limited liability companies, with their principal offices at 1565
Buchanan Trail East, Shady Grove, Pennsylvania 17256-0021 (hereinafter, and
together with their respective subsidiaries and affiliates, collectively
"Grove") and SALVATORE J. BONANNO, residing at P.O. Box 763, Blue Ridge Summit,
Pennsylvania 17214 ("Employee"). The parties agree as follows:
1. This Agreement confirms the Employee's termination of employment with Grove
effective October 19, 1999, pursuant to the written notice to Employee
dated October 5, 1999. As consideration for this Agreement, Grove hereby
agrees as follows:
(a) SEVERANCE PAY. During the period from October 19, 1999 through
October 18, 2001, Grove will pay Employee his current monthly
base salary ($41,667), subject to subparagraph (e) herein. All
of these payments will be paid monthly on normal pay dates net
of normal payroll deductions, and such payments will be mailed
to the Employee's residence;
(b) VACATION PAY. Within ten (10) days of Employee's signing this
Agreement, Grove will pay Employee $25,000 for thirteen (13)
remaining unused vacation days. Inasmuch as Employee will no
longer be employed by Grove after October 19, 1999, Employee
will no longer accrue any vacation after that date;
(c) BONUS PAYMENT. During the period from October 19, 1999 through
October 18, 2001, Grove will pay Employee a monthly bonus
severance of $41,666.67, equal to one-twelfth of Employee's
target bonus amount ($500,000) in effect for the year of
termination of employment, regardless of actual operating
results during such period. All of these payments will be paid
monthly, subject to subparagraph (i) herein, on normal pay
dates net of normal payroll deductions, and such payments will
be mailed to the Employee's residence;
(d) ADDITIONAL BONUS. Grove will pay the Employee a special bonus
in the amount of $450,000, net of normal payroll deductions,
to be paid on March 31, 2000;
(e) ACCELERATED PAYMENT FOR TAX PURPOSES. At Employee's request to
make additional cash available to Employee at the time his
income taxes for 1999 become due, Grove agrees that the
payment to Employee on March 31, 2000 (not including the
additional bonus in (d) above) will include portions of future
payments such that the gross amount shall be $250,000. Since
Employee would otherwise have been entitled to only a gross
amount of $83,333.67 ($41,667 in monthly severance and
$41,666.67 in monthly bonus, before normal payroll deductions
and any offset for payment against Note 1), Grove will advance
(from future payment entitlements) $166,666.33 to Employee on
this date. During each of the eighteen (18) months following
this payment (i.e., beginning in April 2000
<PAGE>
Severance Agreement and General Release
Salvatore J. Bonanno
Page 2
and continuing through September 2001), Grove will withhold
and offset $9,259.24 (one-eighteenth of the amount advanced)
from the monthly severance payment amount otherwise due to
Employee under subparagraph (a) above (I.E., Employee will
receive $32,407.76 in monthly severance pay, net of normal
payroll deductions, during these eighteen (18) months);
(f) MEDICAL BENEFITS. During the period from October 19, 1999
through October 18, 2001, Employee may elect to participate in
the following Grove programs (or the then current programs in
effect and available to active employees of Grove) provided
that Employee makes the same contributions as if he were an
active Grove employee:
(i) Group Life Insurance;
(ii) High Option Blue Cross and Blue Shield PPO Medical
Plan with Prescription Drug; and
(iii) Group Comprehensive Dental/Vision.
During this same period, however, Employee is not eligible to
participate in (i) the Exec-U-Care Medical Plan; (ii) the
Grove U.S. L.L.C. Retirement Savings & Investment Plan; (iii)
the Grove Long Term Disability Income Plan; or (iv) the
executive car allowance program;
(g) RETURN OF GROVE PROPERTY. Employee shall immediately return
any and all property belonging to Grove, including (i)
computer equipment (laptop, printer, modem, ETC.); (ii) mobile
or cellular phone equipment; (iii) keys and identification
badges; and (iv) company credit cards, phone calling cards,
ETC.;
(h) TAX PREPARATION. The advice and services of KPMG's tax
consultants shall be available to Employee in preparation of
Employee's federal and state tax returns for tax year 1999;
(i) LOAN. Under a Promissory Note for $1,000,000 dated June 27,
1998 ("Note 1"), any unpaid Principal Amount and all unpaid
interest accrued thereon is due and payable by Employee to
Grove at the time the Employee receives proceeds from the
redemption of his ownership Interests (SEE Paragraph 6 below).
As of the Closing date (November 15, 1999, SEE Paragraph 5
below), the unpaid interest accrued on Note 1 will amount to
$111,349.31 (assuming Employee makes no payments prior to that
date). To the extent that any Principal Amount and accrued
interest thereon remains unpaid after this date, Grove shall
withhold and offset fifty percent (50%) of the after-tax
proceeds of the monthly bonus payments (I.E., net of normal
payroll deductions) under subparagraph (c) above until such
time as Employee's payment obligations under Note 1 are fully
satisfied;
(j) LOAN. Under a Second Amended and Restated Promissory Note for
$912,663 dated June 27, 1998 ("Note 2"), any unpaid Principal
Amount and all unpaid
<PAGE>
Severance Agreement and General Release
Salvatore J. Bonanno
Page 3
interest accrued thereon is due and payable by Employee to
Grove on June 27, 2005 (seven years), unless Note 2 is
forgiven upon the occurrence of certain events, including
involuntary discharge. Under the Amended and Restated
Promissory Note, a Forgivable Portion of $453,391 was to be
applied against the note upon the occurrence of certain
events, including involuntary discharge. Separately, under a
Bonus Cancellation Agreement, Employee waived all rights and
interests to a bonus payment of $450,000, originally scheduled
to be paid on March 31, 1999. This amount was added to the
Forgivable Portion and applied against Note 2. Further,
Employee made a cash payment of $9,272 for accrued interest on
Note 2 by check payable to Grove dated October 18, 1999. As a
result, Note 2 and all accrued interest related thereto will
be forgiven(1); and
(k) TERMINATION OF EMPLOYMENT. Nothing in this Agreement,
including, but not limited to, Grove's payment of
consideration to Employee under this Agreement, shall be
construed as evidence that Employee remains an employee of
Grove after October 19, 1999.
2. In consideration of the payments and benefits being provided by Grove
as set forth in Paragraph 1 above, Employee agrees to execute and
fulfill the responsibilities and obligations set forth in this
Agreement.
3. Other than the bonus payments under Paragraph 1(c), there is no amount
due for Incentive Compensation under the Grove Short Term Incentive
Plan ("STIP") for the completed months of Employee's employment with
Grove during fiscal year 1999. Employee will not be eligible to
participate in or accrue any benefit under the STIP for fiscal year
2000 or beyond.
4. All of the Employee's options to obtain Class A units under the
Management Option Plan are unvested, and hence are automatically
canceled without consideration.
5. Under the Call Notice provision of Section 11.1(d) of The Second
Amended and Restated Limited Liability Company Agreement of Grove
Investors LLC dated as of June 27, 1998 (as amended, the "LLC
Agreement"), Grove Investors may exercise its Termination Call Right
and elect to purchase the Employee's Interests at any time after the
Employee's termination. This Agreement constitutes written notice of
Grove Investors' Termination Call Notice under that provision. Pursuant
to Section 11.1(e) of the LLC Agreement, the closing of the purchase of
the Termination Called Interest shall be held on November 15, 1999 (the
"Closing"), at which time the Employee will be paid the relevant
termination call price, subject to Paragraph 6 below. Upon consummation
of the Closing, Employee shall cease to be a Member of Grove Investors
LLC.
- ----------
(1) Forgiveness of Note 2 under this Agreement is a realizable event for tax
purposes. The forgivable portion of Note 2 ($903,391) will be reported to the
IRS on a Form 1099 for tax year 1999.
<PAGE>
Severance Agreement and General Release
Salvatore J. Bonanno
Page 4
6. Having given the Employee the Termination Call Notice, Grove Investors
LLC shall purchase the Employee's Interests for an amount equal to the
Fair Market Value of such Interests. (Section 11.1(b)(i)) The
Management Committee has made a good faith determination that the Fair
Market Value of Employees' Interests is $1,000,000 (50% of Employee's
$2,000,000 initial equity investment). This amount, less any
outstanding and unpaid Principal Amount and unpaid interest accrued
thereon with respect to Note 1, shall be paid to Employee at the
Closing. If the Fair Market Value of Employee's Interests is less than
the outstanding and unpaid Principal Amount and unpaid interest accrued
thereon under Note 1, any shortfall shall be withheld and offset from
the monthly bonus payments under Paragraph 1(c).
7. For and in consideration of the payments and benefits described
above in Paragraph 1 to be paid by Grove, the sufficiency of which
Employee hereby acknowledges, Employee agrees (for Employee, his
heirs, executors, administrators, personal representatives and
assigns) that he will, and hereby does, forever and irrevocably
release and discharge the Members (as defined in the LLC Agreement),
Grove, its parents, subsidiaries, affiliates and its and their
respective officers, directors, employees, agents, predecessors,
successors, purchasers, assigns, and representatives (hereinafter
referred to as Releasees), of and from any and all actions, causes
of action, claims, demands, grievances, damages, costs, expenses,
compensation, and all incidental, consequential, or special damages,
which he now has, has had, or may have up to and including the date
Employee signs this Agreement, whether the same be at law, in
equity, or mixed, on account of or in any way arising out of (i)
Employee's ownership interest in Grove Investors LLC; or (ii)
Employee's employment relationship with Grove, including but not
limited to his separation from employment with Grove.
THIS IS A GENERAL RELEASE. EMPLOYEE EXPRESSLY ACKNOWLEDGES THAT THIS GENERAL
RELEASE INCLUDES, BUT IS NOT LIMITED TO, ANY AND ALL CLAIMS UNDER THE AGE
DISCRIMINATION IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF
1990, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE OLDER WORKERS BENEFIT
PROTECTION ACT, THE EMPLOYEE RETIREMENT INCOME SECURITY ACT, THE PENNSYLVANIA
HUMAN RELATIONS ACT, AND ANY OTHER FEDERAL, STATE OR LOCAL LAW, REGULATION OR
ORDINANCE, AND/OR PUBLIC POLICY HAVING ANY BEARING WHATSOEVER ON THE TERMS AND
CONDITIONS AND/OR SEPARATION FROM EMPLOYEE'S EMPLOYMENT WITH GROVE OR EMPLOYEE'S
OWNERSHIP INTEREST IN GROVE INVESTORS LLC.
8. Employee hereby represents and warrants that there are no actions of
Employee pending against Grove or any benefit plans of Grove, and
Employee agrees not to institute a lawsuit against any of the Releasees
in any court of the United States or any State thereof based upon or
relating to Employee's employment with Grove, the termination of
Employee's employment with Grove, or the Employee's ownership interest
in Grove Investors LLC. Notwithstanding any other language in this
Agreement, the parties understand that this Agreement does not prohibit
Employee from filing an administrative charge of alleged employment
discrimination under Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act of 1967, the Americans With
<PAGE>
Severance Agreement and General Release
Salvatore J. Bonanno
Page 5
Disabilities Act of 1990 or the Equal Pay Act of 1963. Employee,
however, waives his right to monetary or other recovery should any
federal, state or local administrative agency pursue any claims on his
behalf arising out of or relating to his employment with and/or
separation from employment with Grove or any of the other Releasees.
THIS MEANS THAT BY SIGNING THIS AGREEMENT, EMPLOYEE WILL HAVE WAIVED ANY RIGHT
HE HAD TO BRING A LAWSUIT OR OBTAIN A RECOVERY IF AN ADMINISTRATIVE AGENCY
PURSUES A CLAIM AGAINST GROVE OR ANY OF THE RELEASEES BASED ON ANY ACTIONS TAKEN
BY ANY OF THE RELEASEES UP TO THE DATE OF THE SIGNING OF THIS AGREEMENT, AND
THAT EMPLOYEE WILL HAVE RELEASED THE RELEASEES OF ANY AND ALL CLAIMS OF ANY
NATURE ARISING UP TO THE DATE OF THE SIGNING OF THIS AGREEMENT.
9. Employee agrees not to institute or to join in any lawsuit against
Grove or any Releasees concerning any matter within the scope of this
Agreement.
10. Employee further acknowledges and agrees that Grove's agreement to
provide the consideration contained in this Agreement is not to be
construed as an admission of any liability on the part of Grove or
Releasees, by whom any liability is expressly denied.
11. Employee agrees to maintain and keep all written and oral business
information, know-how, technical information, proprietary data and
information (including Grove's patents and know-how), and all other
confidential information of and concerning Grove and its parents,
subsidiaries and affiliates (hereinafter "Information"), entirely
confidential, and further agrees not to divulge same to any third party
at any time after departure from employment at Grove. All such
Information is and shall remain the exclusive property of Grove at all
times. Employee agrees that Employee will return and deliver to Grove
all confidential and proprietary information Employee received during
his employment with Grove. In addition, Employee agrees that a
violation of the terms of this Paragraph 11 regarding the
confidentiality of such Information is a material breach of this
Agreement, for which Grove may immediately seek legal, equitable,
injunctive, monetary, or any other appropriate relief in a court of
competent jurisdiction.
12. The Employee recognizes that the services performed by him were
special, unique and extraordinary and that, by reason of his employment
with Grove, he acquired confidential information and trade secrets
concerning the operation of Grove. Accordingly, for all purposes
hereunder or in respect hereof, the Employee agrees that during the
term of his employment and for a period of twelve (12) months following
his termination from employment he will not, directly or indirectly, as
an officer, director, stockholder, partner, member, associate,
employee, consultant, owner, agent, creditor, co-venturer or otherwise,
become or be interested in or be associated with any other corporation,
firm or business engaged, in any geographical area in which Grove is
engaged during the term of his employment or at the date of his
termination from employment, in a "Competitive Business" with that of
Grove at such time. A Competitive Business shall mean any business
which derives 30% or more of its revenue directly or indirectly from
designing, manufacturing, selling and/or providing customer support
for, mobile hydraulic cranes,
<PAGE>
Severance Agreement and General Release
Salvatore J. Bonanno
Page 6
self-propelled aerial work platforms and truck-mounted cranes. The
Employee's ownership, directly or indirectly, of not more than five
percent (5%) of the issued and outstanding stock of any corporation,
the shares of which are regularly traded on a national securities
exchange or in the over-the-counter market, shall not in any event be
deemed to be a violation of the provisions hereof and the ownership of
securities by the Employee of Grove shall not be deemed to be a
violation hereof. Employee further agrees that a violation of the terms
of this Paragraph 12 regarding non-competition is a material breach of
this Agreement, for which Grove may immediately seek legal, equitable,
injunctive, monetary, or any other appropriate relief in a court of
competent jurisdiction.
13. The Employee agrees, during the twelve (12) months following his
termination of employment, that he shall not, on behalf of himself or
any business he is interested in or associated with, employ or
otherwise engage, or seek to employ or engage, any employee (Manager
level or above) of Grove.
14. Employee agrees that the terms, provisions, and conditions of this
Agreement and the negotiations in pursuance thereof, are strictly
confidential and have not been and shall not be disclosed to any other
person or entity, except as required by law or by court order. Employee
agrees he will not make any statement or otherwise engage in any
communication (whether written or oral) which in any way disparages or
denigrates Grove or any of its subsidiaries or affiliates, their
former, present or future managements, products or business prospects.
Employee further agrees that a violation of the terms of this Paragraph
14 regarding the confidentiality of this Agreement is a material breach
of this Agreement, for which Grove may immediately seek legal,
equitable, injunctive, monetary, or any other appropriate relief in a
court of competent jurisdiction.
15. Employee hereby expressly warrants and represents to Grove that (a)
before executing this Agreement, Employee has fully informed himself of
its terms, contents, conditions, and effect; (b) in accepting this
offer and release, Employee has had the benefit of the advice of legal
counsel of his own choosing; (c) no promises or representations of any
kind or character have been made to Employee by Grove or by anyone
acting for Grove, except for those representations which expressly are
referred to herein; (d) Employee fully understands that this is a full,
complete, and final release; and (e) Employee enters into this
Agreement voluntarily and of his own free will.
16. Employee hereby acknowledges and agrees that this Agreement contains
the entire agreement and understanding between Employee and Grove, that
there are no additional promises or terms between Employee and Grove
other than those contained herein, that the terms of this instrument
are contractual in nature and not mere recitals, and that this
Agreement shall not be modified except in writing signed by each of the
parties.
17 This Agreement shall be binding upon, and inure to the benefit of,
Employee and his assigns, heirs, executors, personal representatives,
and administrators, and Grove and its
<PAGE>
Severance Agreement and General Release
Salvatore J. Bonanno
Page 7
parents, subsidiaries, affiliates, and its and their officers,
directors, employees, agents, predecessors, successors, purchasers,
assigns, and representatives.
18. This Agreement shall in all respects be interpreted, enforced, and
governed under the laws of the State of Pennsylvania. The language of
all parts of this Agreement shall in all cases be construed as a whole,
according to the language's fair meaning, and not strictly for or
against any of the parties. If any terms of this Agreement are found
null, void, or inoperative for any reason, the remaining provisions
will remain in full force and effect, at Grove's sole option.
19. Grove hereby advises Employee to consult with an attorney, at
Employee's own expense, prior to executing this Agreement.
20. Employee understands that he has twenty-one (21) days from the date of
his receipt of this Agreement to consider his decision to sign it, and
that if he chooses to execute this Agreement less than twenty-one (21)
days after receiving it, that is a voluntary choice by him, not
demanded or requested by Grove. By signing this Agreement, Employee
expressly acknowledges that his decision to sign this Agreement was of
his own free will.
21. Employee acknowledges that he may revoke this Agreement for up to and
including seven (7) days after he signs this Agreement and that this
Agreement shall not become effective until the expiration of seven (7)
days from the date of execution of the Agreement. Notice of revocation
shall be given to Keith R. Simmons, Senior Vice President General
Counsel and Human Resources, located at Grove Worldwide LLC, principal
office at 1565 Buchanan Trail East, Shady Grove, Pennsylvania
17256-0021.
IN WITNESS WHEREOF, this Severance Agreement and General Release is duly signed,
as of the date first set forth above in two (2) counterparts, each of which
being deemed to be an original of this Agreement.
EMPLOYEE: WITNESS:
- ----------------------------- -----------------------------------
Salvatore J. Bonanno Signature of Witness
Date: Date:
------------------------ ------------------------------
<PAGE>
Severance Agreement and General Release
Salvatore J. Bonanno
Page 8
GROVE WORLDWIDE LLC GROVE INVESTORS LLC
By: By:
-------------------------- --------------------------------
Keith R. Simmons Keith R. Simmons
Title: Senior Vice President Title: Vice President and Secretary
General Counsel and Human Resources
Date:
------------------------
<PAGE>
GROVE INVESTORS LLC
REALIZATION EVENT PLAN
SECTION 1. PURPOSE. The purposes of this Grove Investors LLC
Realization Event Plan (the "Plan") are to promote the interests of Grove
Investors LLC (the "Company") and its members by (i) attracting and retaining
exceptional officers and other key employees of the Company and its Affiliates,
specifically including the Company's indirect subsidiary, Grove Worldwide LLC
and members of the Management Committee of the Company and (ii) enabling such
individuals to participate in the long-term growth and financial success of the
Company.
SECTION 2. DEFINITIONS. As used in the Plan, the
following terms shall have the meanings set forth below:
"Affiliate" shall mean (i) any entity that, directly or
indirectly, controls or is controlled by or under common control with the
Company and (ii) any entity in which the Company has a significant equity
interest, in either case as determined by the Committee.
"Board" shall mean the Management Committee of the Company, as
established pursuant to the LLC Agreement.
"Cause" shall mean (i) willful misconduct or willful
malfeasance by the Participant in connection with his or her employment, (ii)
the Participant's conviction of, or plea of guilty or NOLO CONTENDERE to, any
crime constituting a felony under the laws of the United States or any state
thereof or any crime involving moral turpitude or (iii) the Participant's
material breach of any of the provisions of any employment agreement in effect
between the Company or its Affiliates and the Participant, if any, which is not
cured by the Participant within 10 business days following written notice from
his employer of such breach.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Committee" shall mean Compensation Committee of the Board or
any person or persons designated by the Board or the Compensation Committee to
administer the Plan.
"Company" shall mean Grove Investors LLC, a Delaware limited
liability company, together with any successor thereto.
<PAGE>
"Disability" shall mean a Participant's becoming physically or
mentally incapacitated so that he is therefore reasonably expected to be unable
with reasonable accommodation, for a period of six consecutive months or for an
aggregate of nine months in any 18 consecutive month period to perform the
essential functions of his job for the Company and its Affiliates.
"Dividend Equivalent Amount per Phantom Share" shall mean an
amount payable per Phantom Share subject to a Phantom Share Appreciation Right
which is equal to .0000005 of the dividends paid by the Company to holders of
Interests from the date of grant of the Right until settlement of the Right, as
determined by the Board in its sole discretion.
"EBITDA" shall mean the net profit of the Company and its
subsidiaries, after all expenses but before any (A) interest, (B) income taxes
or other taxes based on profits, (C) amortization of goodwill, (D) depreciation,
(E) cash expenses directly associated with the implementation of the operations
improvement program, including consulting fees under the Consulting Agreement
referred to in the LLC Agreement, and (F) to the extent determined by the
Committee, any nonrecurring or unbudgeted extraordinary items of income or loss.
The determination of EBITDA for purposes of the Plan shall be made by the
Committee in good faith, which determination shall be conclusive and binding on
the Company and the Participants, including any beneficiaries thereof.
"EBITDA Target" shall mean the target EBITDA for the Company
and its subsidiaries determined for a fiscal year based on management's proposal
and as approved by the Committee.
"Effective Date" shall mean October 5, 1998.
"Employment" and "termination of employment" and similar
references shall include employment with and termination of employment from the
Company and its Affiliates, including Grove.
"Fair Market Value" of Phantom Shares shall mean the deemed
fair market value of such Phantom Shares as determined in good faith by the
Committee applying the following procedures and utilizing the aggregate value as
of the closing date of the consideration received in the IPO Realization Event
(as defined below) or the transaction giving rise to the Change of Control
Realization Event (as defined below). The Committee shall first determine the
fair value, as of the date of the transaction, of any non-cash consideration
received in a transaction, whether received by the Company, its holding
companies or their shareholders, using any method the Committee deems
appropriate. In determining the Company's Market Value in connection with a
Change of Control Realization Event or IPO Realization Event that occurs as the
result of a transaction at an entity other than the Company (for example, the
sale of a holding company or an offering of its equity securities), the
Committee shall take into account the value of the cash or non-cash
consideration received in the
<PAGE>
3
transaction and the structural considerations the Committee deems appropriate to
calculate the Company's Market Value as if the transaction had occurred at the
Company.
"Grant Price" shall mean the amount determined pursuant to
Section 5(c) hereunder.
"Grove" shall mean Grove Worldwide LLC, a Delaware limited
liability company, together with any successor thereto.
"Interest" shall mean an Interest as defined in the LLC
Agreement.
"Participant" shall mean any officer or other key employee of
the Company or its Affiliates or any member of the Management Committee of the
Company eligible for a Phantom Share Appreciation Right under Section 4 and
selected by the Committee to receive a Phantom Share Appreciation Right under
the Plan.
"Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, government
or political subdivision thereof or other entity.
"Phantom Share" shall mean a phantom unit of interest in the
Company with each Phantom Share representing a deemed .0000005% interest in the
Company.
"Phantom Share Appreciation Right" or "Right" shall mean a
right granted hereunder to receive the value of the deemed appreciation of a
specified number of Phantom Shares from the date of grant of such Phantom Share
Appreciation Right until the exercise of such Phantom Share Appreciation Right
pursuant to the terms of the Plan; PROVIDED, THAT, the grant of a Phantom Share
Appreciation Right shall not entitle the Participant to any interest in the
Company; the Rights are solely a device to measure the benefits to be paid to
Participants in the Plan as provided for hereunder.
"Phantom Share Appreciation Right Award Agreement" shall mean
any written agreement, contract, or other instrument or document (which may
include provisions of an employment agreement to which the Company is a party)
evidencing any Phantom Share Appreciation Right granted hereunder, which may,
but need not, be executed or acknowledged by a Participant.
"Plan" shall mean this Grove Investors LLC Realization Event
Plan.
"Realization Event" shall mean (a) the closing of any
transaction whereby any Person other than FW Grove Coinvestors, L.P., Keystone,
Inc. (including funds sponsored by Keystone, Inc.), FW Strategic Partners, L.P.,
Michael L. George
<PAGE>
4
or the George Group, Inc. or any of their respective Affiliates shall have
become the beneficial owner of more than 50% of the Equity Securities (as
defined in the LLC Agreement) of the Company or a reorganization, merger,
consolidation, acquisition or other similar transaction, after which all or
substantially all of the assets of the Company are controlled by an entity other
than FW Grove Coinvestors, L.P., Keystone, Inc. (including investment funds
sponsored by Keystone, Inc.), Michael L. George, the George Group Inc. and/or FW
Strategic Partners, L.P. or their respective Affiliates (a "Change in Control
Realization Event") or (b) if the Company has been reconstituted as a
corporation, the consummation of any public offering after which more than 50%
of the Company's stock is publicly traded (an "IPO Realization Event") or (c)
any other time or event that the Committee in its sole discretion determines to
be a Realization Event.
"Settlement Amount" shall mean the amount determined pursuant
to the formula set forth in Section 5(b) hereof.
SECTION 3. ADMINISTRATION.
(a) The Plan shall be administered by the Committee. Subject
to the terms of the Plan and applicable law, and in addition to other express
powers and authorizations conferred on the Committee by the Plan, the Committee
shall have full power and authority to: (i) designate Participants; (ii)
determine the number of Phantom Shares to be covered by, or with respect to
which payments, rights or other matters are to be calculated in connection with,
the Phantom Share Appreciation Rights; (iii) determine the terms and conditions
of any Phantom Share Appreciation Right; (iv) determine whether, to what extent,
and under what circumstances Phantom Share Appreciation Rights may be settled,
or canceled, forfeited or suspended and the method or methods by which the
Phantom Share Appreciation Rights may be settled, exercised, canceled, forfeited
or suspended; (v) interpret, administer, reconcile any inconsistency, correct
any defect and/or supply any omission in the Plan and any instrument or
agreement relating to, or Phantom Share Appreciation Right made under, the Plan;
(vi) establish, amend, suspend or waive such rules and regulations and appoint
such agents as it shall deem appropriate for the proper administration of the
Plan; and (vii) make any other determination and take any other action that the
Committee deems necessary or desirable for the administration of the Plan.
(b) Unless otherwise expressly provided in the Plan, all
designations, determinations, interpretations and other decisions under or with
respect to the Plan or any Phantom Share Appreciation Right shall be within the
sole discretion of the Committee, may be made at any time and shall be final,
conclusive and binding upon all Persons, including the Company, any Affiliate,
any Participant, any holder or beneficiary of any Phantom Share Appreciation
Right and any member of the Company.
<PAGE>
5
(c) No member of the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any Phantom
Share Appreciation Right hereunder.
SECTION 4. ELIGIBILITY. Any officer or other key employee of
the Company or any of its Affiliates (including any prospective officer or key
employee) or any member of the Management Committee of the Company shall be
eligible to be designated as a Participant in the Plan by the Committee.
SECTION 5. PHANTOM SHARE APPRECIATION RIGHTS.
(a) GRANT. Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine the Participants
to whom Rights shall be granted, the number of Phantom Shares to be covered by
each Right, the Grant Price therefor and the conditions and limitations
applicable to the exercise of the Phantom Share Appreciation.
(b) CASH SETTLEMENT. Upon the occurrence of a Realization
Event, or, if the Committee so determines in its sole discretion, at any earlier
date, the Company shall pay the Participant a cash award equal to the excess of
(i) the aggregate Fair Market Value of the number of Phantom Shares underlying
the Phantom Share Appreciation Right on the date of the Realization Event OVER
(ii) the aggregate Grant Price of such Phantom Shares PLUS (iii) the aggregate
Dividend Equivalent Amount per Share relating to such Phantom Shares (the
"Settlement Amount").
(c) GRANT PRICE. The Grant Price of a Phantom Share shall be a
dollar amount, determined by the Committee in its discretion, and which may, but
need not be, the deemed Fair Market Value of a Phantom Share on the date of
grant.
(d) PAYMENT. Payment of the Settlement Amount shall be made
(i) promptly following a Realization Event or (ii) earlier at the Committee's
discretion. Such payment shall be made in cash or its equivalent, as determined
by the Committee.
(e) VESTING.
(i) Unless otherwise provided in the applicable
Phantom Share Appreciation Right Award Agreement, and subject to the
Participant's continued employment with the Company and its Affiliates, the
Phantom Share Appreciation Rights shall vest over a five year period, as
follows:
(A) For each of the first five fiscal years
beginning after the Grant Date (or with respect to grants made prior to
December 31, 1998, for each of the first five fiscal years beginning on
October 4, 1998), the
<PAGE>
6
Rights shall vest and become cumulatively exercisable with respect to
20% of the Phantom Shares initially relating thereto on the last day
of such fiscal year if the Company and its subsidiaries meet the
EBITDA Target established for that fiscal year.
(B) If the EBITDA actually achieved for a
year is at least 80% but less than 100% of the Target for that year,
then the vesting opportunity of the Phantom Share Appreciation Right
for that year shall be reduced by 5% for each 1% of difference between
the EBITDA Target and the EBITDA actually achieved; or
(C) If the EBITDA results for a year exceed
100% of the EBITDA Target for that year, a Participant's vesting
opportunity (that is, 20%) for that year will be fully achieved. In
addition, the Participant shall be credited with a vesting excess
either to make up for some or all of a vesting opportunity not achieved
in prior years or may apply such excess against a vesting deficiency of
a future year, on the following basis: The vesting opportunity shall be
increased by 2.5% for each 1% of difference between the EBITDA actually
achieved and the EBITDA Target for that year. The maximum aggregate
excess percentage that may be carried forward to future years or
backward from any given year cannot provide vesting with respect to
more than 10% of all Phantom Share Appreciation Rights granted to a
Participant as of the Effective Date.
(ii) REALIZATION EVENT. To the extent not
previously canceled, any unvested portion of a Phantom Share Appreciation Right
shall, as of the date of a Realization Event, be deemed vested immediately prior
to such Realization Event.
(f) EFFECT OF TERMINATION OF EMPLOYMENT.
(i) TERMINATION DUE TO DEATH, DISABILITY,
TERMINATION BY THE COMPANY WITHOUT CAUSE. Upon a Participant's termination of
employment with the Company and its Affiliates due to death, disability or
termination by the Company without Cause, (a) the unvested portion of the
Phantom Share Appreciation Right, if any, shall be automatically canceled
without consideration, and (b) the portion of the Phantom Share Appreciation
Right which was vested immediately prior to the Participant's termination of
employment shall remain outstanding and shall be payable pursuant to the terms
set forth herein and in the applicable Phantom Share Appreciation Right Award
Agreement.
(ii) TERMINATION FOR ANY OTHER REASON. Upon a
Participant's termination of employment for any other reason, all Phantom Share
Appreciation Rights, whether vested or unvested shall immediately terminate and
expire as of the date of such termination and the Participant shall forfeit all
rights to any award
<PAGE>
7
hereunder.
SECTION 6. PHANTOM SHARES.
(a) PHANTOM SHARES. Subject to adjustment as set forth in
Section 6(b), the aggregate number of Phantom Shares with respect to which
Phantom Share Appreciation Rights may be granted under the Plan shall be 20,000.
If, after the Effective Date, a Phantom Share Appreciation Right or a portion
thereof granted under the Plan, is forfeited, or if a Phantom Share Appreciation
Right or a portion thereof has expired, terminated or been canceled for any
reason whatsoever (other than by reason of settlement) and in either such case a
Participant has received no benefit with respect to the Phantom Share
Appreciation Right, then Phantom Share Appreciation Rights for such number of
Phantom Shares shall again be available to be granted hereunder.
(b) ADJUSTMENTS. In the event that the Committee determines
that any dividend or other distribution (whether in the form of cash, Interests,
securities or other property), recapitalization, reorganization, merger,
consolidation, issuance or exchange of Interests, other ownership interests or
other securities of the Company, issuance of warrants or other rights to
purchase Interests, other ownership interests or other securities of the Company
or other similar corporate transaction or event affects the Interests such that
an adjustment is determined by the Committee in its discretion to be appropriate
in order to prevent inappropriate dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee may, in such manner as it may deem equitable, adjust any or all of (i)
the number of Phantom Shares, with respect to which Phantom Share Appreciation
Rights may be granted, (ii) the number of Phantom Shares, subject to outstanding
Phantom Share Appreciation Rights, other ownership interests or other securities
of the Company subject to Phantom Share Appreciation Rights and (iii) the Grant
Price with respect to any Phantom Share Appreciation Right or, if deemed
appropriate, make provision for a cash payment to the holder of an outstanding
Phantom Share Appreciation Right in consideration for the cancellation of such
Phantom Share Appreciation Right.
SECTION 7. AMENDMENT AND TERMINATION.
(a) AMENDMENTS TO THE PLAN. The Board, or if none, the
Committee, may amend, alter, suspend, discontinue, or terminate the Plan or any
portion thereof at any time; PROVIDED THAT any such amendment, alteration,
suspension, discontinuance or termination that would materially adversely affect
the earned and vested rights of any Participant or other holder of an Phantom
Share Appreciation Right theretofore granted shall not to that extent be
effective without the written consent of the affected Participant or holder.
(b) AMENDMENTS TO PHANTOM SHARE APPRECIATION RIGHT. The
Committee may waive any conditions or rights under, amend any terms of or alter,
<PAGE>
8
suspend, discontinue, cancel or terminate any Phantom Share Appreciation Right
theretofore granted, prospectively or retroactively; PROVIDED, that any such
waiver, amendment, alteration, suspension, discontinuance, cancellation or
termination not expressly contemplated by the Plan that would materially
adversely affect the earned and vested rights of any Participant or other holder
of a Phantom Share Appreciation Right theretofore granted shall not to that
extent be effective without the written consent of the affected Participant or
holder.
(c) CANCELLATION. Any provision of this Plan or any Phantom
Share Appreciation Right Award Agreement to the contrary notwithstanding, the
Company shall be entitled to elect to cancel the Phantom Share Appreciation
Right at any time in exchange for a cash payment to the Participant equal to the
excess of (i) the Fair Market Value of the Phantom Shares covered by the Phantom
Share Appreciation Rights at the time of the cancellation, over (ii) the Grant
Price of the Phantom Share Appreciation Rights.
SECTION 8. GENERAL PROVISIONS.
(a) NONTRANSFERABILITY.
(i) No Phantom Share Appreciation Right may be
assigned, alienated, pledged, attached, sold or otherwise transferred or
encumbered by a Participant otherwise than by will or by the laws of
descent and distribution, and any such purported assignment, alienation,
pledge, attachment, sale, transfer or encumbrance shall be void and
unenforceable against the Company or any Affiliate: PROVIDED, that the
designation of a beneficiary shall not constitute an assignment,
alienation, pledge, attachment, sale, transfer or encumbrance.
(b) NO RIGHTS TO PHANTOM SHARE APPRECIATION RIGHT. No Person
shall have any claim to be granted any Phantom Share Appreciation Right, and
there is no obligation for uniformity of treatment of Participants or holders or
beneficiaries of Phantom Share Appreciation Rights. The terms and conditions of
Phantom Share Appreciation Rights and the Committee's determinations and
interpretations with respect thereto need not be the same with respect to each
Participant (whether or not such Participants are similarly situated).
(c) WITHHOLDING. The Company and its Affiliates shall have the
right and is hereby authorized to withhold from any payment due under any
Phantom Share Appreciation Right, under the Plan or from any compensation or
other amount owing to a Participant the amount of any applicable withholding
taxes in respect of a Phantom Share Appreciation Right, or any payment or
transfer under a Phantom Share Appreciation Right or the Plan and to take such
other action as may be necessary in the opinion of the Company to satisfy all
obligations for the payment of such taxes.
<PAGE>
9
(d) PHANTOM SHARE APPRECIATION RIGHT AWARD AGREEMENTS. Each
Phantom Share Appreciation Award Right hereunder shall be evidenced by a Phantom
Share Appreciation Right Award Agreement which shall be delivered to the
Participant and shall specify the terms and conditions of the Phantom Share
Appreciation Right and any rules applicable thereto.
(e) NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing
contained in the Plan shall prevent the Company or any Affiliate from adopting
or continuing in effect other compensation arrangements, which may, but need
not, provide for the grant of options, securities and other types of awards, and
such arrangements may be either generally applicable or applicable only in
specific cases.
(f) NO RIGHT TO EMPLOYMENT. The grant of a Phantom Share
Appreciation Right shall not be construed as giving a Participant the right to
be retained in the employ of, or in any other continuing relationship with, the
Company or any Affiliate.
(g) NATURE OF RIGHTS; NO RIGHTS AS A MEMBER. No Participant or
holder or beneficiary of any Phantom Share Appreciation Right shall have any
rights to Interests or as a member of the Company with respect to any Interests.
The Phantom Share Appreciation Rights shall be used solely as a device for the
measurement and determination of the amount to be paid to Participants as
provided for hereunder. The Phantom Share Appreciation Rights shall not
constitute or be treated as property or a trust fund of any kind and a
Participant's rights hereunder are limited to the right to receive cash as
provided for herein.
(h) GOVERNING LAW. The validity, construction and effect of
the Plan and any rules and regulations relating to the Plan and any Phantom
Share Appreciation Right Agreement shall be determined in accordance with the
laws of the State of New York.
(i) SEVERABILITY. If any provision of the Plan or any Phantom
Share Appreciation Right is, becomes or is deemed to be invalid, illegal or
unenforceable in any jurisdiction or as to any Person or Phantom Share
Appreciation Right, or would disqualify the Plan or any Phantom Share
Appreciation Right under any law deemed applicable by the Committee, such
provision shall be construed or deemed amended to conform the applicable laws,
or if it cannot be construed or deemed amended without, in the determination of
the Committee, materially altering the intent of the Plan or the Phantom Share
Appreciation Right, such provision shall be stricken as to such jurisdiction,
Person or Phantom Share Appreciation Right and the remainder of the Plan and any
such Phantom Share Appreciation Right shall remain in full force and effect.
(j) NO TRUST OR FUND CREATED. Neither the Plan nor any Phantom
<PAGE>
10
Share Appreciation Right shall create or be construed to create a trust or
separate fund of any kind or a fiduciary relationship between the Company or any
Affiliate and a Participant or any other Person. To the extent that any Person
acquires a right to receive payments from the Company or any Affiliate pursuant
to Phantom Share Appreciation Right such right shall be no greater than the
right of any unsecured general creditor of the Company or any Affiliate.
(k) HEADINGS. Headings are used herein solely as a convenience
to facilitate reference and shall not be deemed in any way material or relevant
to the construction or interpretation of the Plan or any provision thereof.
SECTION 9. TERM OF THE PLAN.
(a) EFFECTIVE DATE. The Plan shall be effective as of
October 5, 1998 (the "Effective Date").
(b) EXPIRATION DATE. No Phantom Share Appreciation Right shall
be granted under the Plan after the tenth anniversary of the Effective Date.
Unless otherwise expressly provided in the Plan or in an applicable Phantom
Share Appreciation Right Award Agreement, any Phantom Share Appreciation Right
granted hereunder may, and the authority of the Committee to amend, alter,
adjust, suspend, discontinue or terminate any conditions or rights under any
such Phantom Share Appreciation Right shall, continue after the tenth
anniversary of the Effective Date.
<PAGE>
AMENDMENT
THIS AMENDMENT, dated as of December 21, 1999 (the "Amendment") is to
the Consulting Agreement dated as of April 29, 1998 (the "Consulting Agreement")
by and between Grove Worldwide LLC, a Delaware limited liability company (the
"Company") and George Group, Inc., a Texas corporation (the "Consultant").
WITNESSETH
WHEREAS, the Company and the Consultant are parties to the Consulting
Agreement; and
WHEREAS, the Company and the Consultant desire to amend the Consulting
Agreement, subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Consultant
hereby agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, terms defined
in the Consulting Agreement shall have such meanings when used
herein.
2. TERM. The term of the Consulting Agreement is the period
commencing on the Effective Date and ending on December 31,
1999. The "Term" and the "Performance Term" as previously
defined are amended to reflect this new ending date.
3. ADVISORY SERVICES. The remaining Services to be provided by
the Consultant are set forth in Exhibit B, attached hereto and
incorporated by reference herein. The Plan as set forth in
Exhibit A is hereby superseded and replaced in its entirety by
Exhibit B.
4. COMPENSATION. The Monthly Fees and Expenses specified in the
Plan are modified in accordance with the revised staffing and
project focus in Exhibit B. The Company agrees to pay the
Consultant's actual expenses from the date of the Amendment
through the remainder of the Term. All other payment terms
(E.G., Adjustment, Consultant Bill) remain in effect and
unchanged.
The last sentence of the first paragraph of Section 4.1 is
deleted and replaced in its entirety with the following:
The actual out-of-pocket expenses of the Consultant
("Actual Expenses" as reported in the Monthly Expense
Reconciliation Report ("Monthly
<PAGE>
Report") submitted to the Company) will be calculated
at the end of the Term of this Agreement and fifty
percent (50%) of the excess, if any, of (a) the total
"Invoiced Expenses" (as reported in the Monthly
Report) over (b) such Actual Expenses of the
Consultant to such date shall be reimbursed by
Consultant to the Company promptly following the
determination thereof.
5. PUBLICITY. In addition to the provisions of Section 6.3 of the
Consulting Agreement, neither the Consultant nor the Company
shall make any public statement concerning this Amendment
without the prior express written consent of the other party.
The Company and the Consultant shall agree upon the text of a
joint statement announcing the changed business relationship
under this Amendment.
6. SOLICITATION. Notwithstanding the provisions of Section 7.2 of
the Consulting Agreement, the Consultant grants permission to
the Company to speak to and negotiate with the employees of
the Consultant listed in Exhibit B for potential employment
with the Company.
7. TERMINATION. For purposes of adjustments to Class B Percentage
Interests of the Consultant under Section 4.5 of the LLC
Agreement, this Amendment shall constitute termination of the
Consulting Agreement.
8. POST-TERMINATION OBLIGATIONS. The second sentence of Section
8.3 (a) is deleted in its entirely and replaced by the
following:
The Actual Expenses of Consultant will be calculated
at the effective date of the termination of this
Agreement and fifty percent (50%) of the excess of
(a) the Invoiced Expenses funded through such date
(as set forth in the Plan and the Monthly Report)
over (b) such Actual Expenses of Consultant to such
date shall be reimbursed by Consultant to the Company
promptly following the determination thereof.
9. AMENDMENTS. As a written instrument duly executed by both
parties, this Amendment satisfies the requirements of Section
11 of the Consulting Agreement to effectuate the amended
provisions contained herein.
10. CONTINUING EFFECT OF CONSULTING AGREEMENT. This Amendment
shall not constitute a waiver, amendment, or modification of
any other provision of the Consulting Agreement not expressly
referred to herein. Except as expressly amended or modified
herein, the provisions of the Consulting Agreement are and
shall remain in full force and effect.
<PAGE>
11. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be an original and all of
which together constitute one and the same instrument.
12. EFFECTIVENESS. This Amendment shall be effective upon receipt
by the Company and the Consultant of counterparts hereof, duly
executed and delivered by the parties.
IN WITNESS WHEREOF, each party hereto has caused this Amendment to be
duly executed by its duly authorized representative as of the day and year first
above written.
ADDRESS: GROVE WORLDWIDE LLC
1565 Buchanan Trail East
P. O. Box 21
Shady Grove, PA 17256 By:
Attention: Jeffry D. Bust -----------------------
Jeffry D. Bust
Title: Chairman & CEO
ADDRESS: GEORGE GROUP, INC.
One Galleria Tower
13355 Noel Road, Suite 1100
Dallas, Texas 75240 By:
Attention: James Storie -----------------------
Les Park Michael George
Title: CEO
<PAGE>
EXHIBIT B
Revised Staffing and Project Focus
<TABLE>
<CAPTION>
Original New Original New Cost
Date Staffing Plan Staffing Plan Cost to Grove to Grove
- ---- ------------- ------------- ------------- ----------
<S> <C> <C> <C> <C>
Oct. 99 19 19 $ 297,000 $ 297,000
Nov. 99 19 16 $ 297,000 $ 247,000
Dec. 99 16 13 $ 297,000 $ 217,000
*
*
------------- ----------
TOTAL $ 3,751,000 $ 761,000
TOTAL GROVE SAVINGS $2,990,000
</TABLE>
Note: Grove would like to speak to the following individuals about potential
employment with Grove:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
GGI Personnel Project
--------------------------------------------------------------------
<S> <C>
1. Pleiman, David Manlift Product Development Team
--------------------------------------------------------------------
2. Nissen, Christine Manlift Product Development Team
--------------------------------------------------------------------
3. Gordon, John Manlift Product Program Leader
--------------------------------------------------------------------
4. Sendell, Scott Strategic Procurement Outsourcing
--------------------------------------------------------------------
5. McGovern, Mark Crane Operations
--------------------------------------------------------------------
6. Blackwell, Dan Crane Operations
--------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF OCTOBER 2, 1999 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED OCTOBER 2, 1999 OF 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> 12-MOS
<FISCAL-YEAR-END> OCT-02-1999
<PERIOD-START> OCT-04-1998
<PERIOD-END> OCT-02-1999
<CASH> 16,864
<SECURITIES> 0
<RECEIVABLES> 145,366
<ALLOWANCES> (3,095)
<INVENTORY> 193,123
<CURRENT-ASSETS> 366,420
<PP&E> 253,196
<DEPRECIATION> (39,465)
<TOTAL-ASSETS> 867,307
<CURRENT-LIABILITIES> 194,164
<BONDS> 516,544
0
0
<COMMON> 75,000
<OTHER-SE> (82,910)
<TOTAL-LIABILITY-AND-EQUITY> 867,307
<SALES> 781,229
<TOTAL-REVENUES> 781,229
<CGS> 633,447
<TOTAL-COSTS> 131,584
<OTHER-EXPENSES> 200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,112
<INCOME-PRETAX> (34,114)
<INCOME-TAX> 5,535
<INCOME-CONTINUING> (39,649)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (39,649)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
