FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 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 ________
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Commission File Number 333-57609
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GROVE HOLDINGS LLC
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
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52-2089467
(I.R.S. Employer
Identification Number)
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1565 Buchanan Trail East
Shady Grove, Pennsylvania 17256
(717) 597-8121
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
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Indicate by check mark whether the registrant (1) has filed all the reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. None.
<PAGE>
Grove Holdings LLC
Index to Quarterly Report on Form 10-Q
For the Quarterly Period Ended January 2, 1999
Page
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Part I
Item 1 Financial statements
Condensed Consolidated Balance Sheets
October 3, 1998 and January 2, 1999................................1
Condensed Consolidated Statements of Operations and
Comprehensive Income (Loss) for Fiscal Quarters ended
December 27, 1997 and January 2, 1999..............................2
Condensed Consolidated Statements of Cash Flows for Fiscal
Quarters ended December 27, 1997 and January 2, 1999...............3
Notes to Condensed Consolidated Financial
Statements.........................................................4
Item 2 Managements discussion and analysis of financial condition and
results of operations..................................................6
Item 3 Quantitative and qualitative disclosures about market risk............12
Part II
Item 1 Legal proceedings.....................................................13
Item 2 Changes in securities and use of proceeds.............................13
Item 3 Defaults upon senior notes............................................13
Item 4 Submission of matters to a vote of security holders...................13
Item 5 Other information.....................................................13
Item 6 Exhibits and reports on form 8-K......................................13
Signatures............................................................14
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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.
REFERENCE TO THE (I) THREE MONTHS ENDED DECEMBER 27, 1997 MEANS THE PERIOD FROM
SEPTEMBER 27, 1997 TO DECEMBER 27, 1997 AND (II) THREE MONTHS ENDED JANUARY 2,
1999 MEANS THE PERIOD FROM OCTOBER 3, 1998 TO JANUARY 2, 1999. REFERENCES TO
HISTORICAL FINANCIAL INFORMATION ARE TO THE HISTORICAL COMBINED AND CONSOLIDATED
FINANCIAL RESULTS OF THE ACQUIRED BUSINESS. SEE "ITEM 2, MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
NO SEPARATE FINANCIAL STATEMENTS OF GROVE HOLDINGS CAPITAL, INC. ("HOLDINGS
CAPITAL") ARE INCLUDED HEREIN. THE COMPANY CONSIDERS THAT SUCH FINANCIAL
STATEMENTS WOULD NOT BE MATERIAL TO INVESTORS.
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 and ability to
service debt; (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
the Operations Improvement Program (as defined); (vi) the ability of the Company
to obtain financing for general corporate purposes; (vii) competition; (viii)
availability of key personnel; (ix) industry overcapacity; and (x) changes in,
or the failure to comply with, government regulations. As a result of the
foregoing and other factors, no assurance can be given as to future results,
levels of activity and achievements, and neither the Company nor any other
person assumes responsibility for the accuracy and completeness of these
forward-looking statements. Any forward-looking statements contained herein
speak solely as of the date on which such statements are made, and the Company
undertakes no obligation to update any forward-looking statements to reflect
events or circumstances after the date on which such statements were made or to
reflect the occurrence of unanticipated events.
ii
<PAGE>
PART I
Item 1. FINANCIAL STATEMENTS
GROVE HOLDINGS LLC AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
October 3, 1998 and January 2, 1999
(Unaudited and in thousands)
- -------------------------------------------------------------------------------
October 3, January 2,
1998 * 1999
(unaudited)
- --------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 34,289 $ 19,931
Trade receivables, net 129,833 108,140
Due from Hanson PLC 10,500 -
Notes receivable 5,887 8,801
Inventories 207,248 211,348
Prepaid expenses and other current assets 8,893 6,807
- --------------------------------------------------------------------------------
Total current assets 396,650 355,027
Property, plant and equipment, net 207,175 211,987
Goodwill, net 288,499 284,139
Other assets 20,106 19,601
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$912,430 $870,754
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Liabilities and Member's Equity
Current liabilities:
Current maturities of long-term debt $ 7,000 $ 2,000
Short term borrowings 15,027 13,542
Accounts payable 79,470 68,822
Accrued expenses and other current liabilities 104,951 88,198
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Total current liabilities 206,448 172,562
Deferred revenue 67,306 73,948
Long-term debt 460,535 461,004
Other liabilities 82,729 87,309
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Total liabilities 817,018 794,823
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Member's equity:
Holders' equity 116,730 115,900
Accumulated deficit (26,600) (42,542)
Accumulated other comprehensive income 5,282 2,573
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Total member's equity 95,412 75,931
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$912,430 $870,754
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See accompanying notes to condensed consolidated financial statements
* Amounts have been derived from Company's audited consolidated balance sheet.
1
<PAGE>
GROVE HOLDINGS LLC AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
For the three months ended December 27, 1997
and the three months ended January 2, 1999
(Unaudited and in thousands)
- --------------------------------------------------------------------------------
Predecessor Holdings
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Three Three
months ended months ended
December 27, 1997 January 2, 1999
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Net sales $ 204,958 $ 164,325
Cost of goods sold 161,386 137,242
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Gross profit 43,572 27,083
Selling, engineering, general and
administrative expenses 31,827 29,696
Amortization of goodwill 2,260 1,823
Management fees paid to Hanson 162 -
- --------------------------------------------------------------------------------
Income (loss) from operations 9,323 (4,436)
Interest income (expense), net 1,095 (10,532)
Other income (expense), net 35 (41)
- --------------------------------------------------------------------------------
Income (loss) before income taxes 10,453 (15,009)
Income taxes 5,046 933
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Net income (loss) 5,407 (15,942)
Change in foreign currency
translation adjustment 1,718 2,709
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Comprehensive income (loss) $ 7,125 $ (13,233)
- --------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
2
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GROVE HOLDINGS LLC AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the three months ended December 27, 1997
and the three months ended January 2, 1999
(Unaudited and in thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Predecessor Holdings
- ----------------------------------------------------------------------------------------------------------------
Three Three
months ended months ended
December 27, 1997 January 2, 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities
Net income (loss) $ 5,407 $ (15,942)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 4,694 5,181
Depreciation of equipment held for rent 2,658 4,324
Amortization of deferred financing costs - 581
Accretion of interest on senior discount notes - 1,470
Gain (loss) on sales of property, plant and equipment 113 -
Deferred income tax expense 1,062 26
Changes in operating assets and liabilities:
Trade receivables, net (1,519) 20,485
Notes receivable 44,040 (2,914)
Inventories 599 (5,124)
Accounts payable and accrued expenses 5,733 (22,909)
Other assets and liabilities, net 4,204 9,334
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Net cash provided by (used in) operating activities 66,991 (5,488)
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Investing activities
Capital expenditures (9,629) (950)
Investment in equipment held for rent (8,879) (9,958)
Cash received from Hanson PLC - 10,500
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Net cash used in investing activities (18,508) (408)
- ----------------------------------------------------------------------------------------------------------------
Financing activities
Net proceeds from short-term borrowings 2,854 (1,485)
Principal payments on long-term debt - (6,000)
Advances to Grove Investors LLC - (838)
Other financing activities (49,797) -
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Net cash used in financing activities (46,943) (8,323)
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Effect of exchange rate changes on cash 800 (139)
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Net increase (decrease) in cash and cash equivalents 2,340 (14,358)
Cash and cash equivalents, beginning of period 5,024 34,289
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 7,364 $ 19,931
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands)
- --------------------------------------------------------------------------------
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, these financial
statements do not include all the information and notes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, the unaudited consolidated
financial statements include all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation of the
financial position and results of operations.
On April 29, 1998, Grove Holdings LLC ("Holdings"), through its wholly
owned subsidiary Grove Worldwide LLC ("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 $583.0
million. The purchase price was subject to a post closing adjustment
for which the Company received $27.3 million from Hanson. Holdings is a
wholly owned subsidiary of Grove Investors LLC ("Investors"). The
Company is still in the process of finalizing its allocation of the
purchase price. Such allocation will be completed by April 28, 1999.
Information prior to April 29, 1998 relates to the Company prior to the
Acquisition ("Predecessor"). Information subsequent to April 29, 1998
relates to the Company following the Acquisition. Following the
Acquisition, the Company has a new basis of accounting and a different
capital structure, and, accordingly, the results for the Predecessor
and for the Company are not directly comparable.
Interim results for the three month period ended January 2, 1999 are
not necessarily indicative of the results that may be expected for a
full fiscal year. For further information, refer to the consolidated
financial statements and notes for the year ended October 3, 1998.
(2) Inventory
Inventories consist of the following as of October 3, 1998 and January
2, 1999:
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1998 1999
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Raw materials $ 61,910 $ 58,635
Work in process 72,299 76,249
Finished goods 73,039 76,464
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$207,248 $211,348
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Inventories are valued at the lower of cost or market, as determined
primarily under the first-in, first-out method.
4
<PAGE>
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands)
- --------------------------------------------------------------------------------
(3) Income Taxes
Following the Acquisition, a significant portion of the Company's
business is operated as a Delaware limited liability company, whereby
the limited liability company is not itself subject to income tax. The
taxable income of the limited liability company in the United States
will be allocated to the equity holders of Investors and such equity
holders will be responsible for income taxes on such taxable income.
The Company expects to make distributions in the form of dividends to
equity holders of Investors to enable them to meet their tax
obligations with respect to income allocated to them by the Company.
Foreign and domestic taxes payable on taxable income generated by the
Company's foreign subsidiaries and its truck-mounted crane business
will continue to be the responsibility of the Company.
The difference between the Company's reported tax provision for the
three months ended January 2, 1999 and the tax provision computed based
on U.S. statutory rates is primarily attributed to the Company's
structure as a limited liability company and losses generated in
foreign operations for which a tax benefit will not be recognized until
realization is deemed to be more likely than not.
(4) Closure of Sunderland Manufacturing Facility
As the result of recurring operating losses, the Company closed its
Sunderland UK manufacturing facility on November 27, 1998. Management
believes closing the facility will eventually 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. Management
has estimated total closure costs to be approximately $18.5 million,
consisting of approximately $11.5 million of employee severance and
$7.0 million of plant shut-down costs (asset disposal and plant
clean-up costs), all of which are expected to be expended in the next
twelve months. During the fiscal 1999 three months (as defined), the
Company paid approximately $7.4 million in employee severance costs
related to the closure of its Sunderland, U.K. manufacturing facility.
(5) Adoption of New Accounting Standards
On October 4, 1998, the Company adopted SFAS No. 130, REPORTING
COMPREHENSIVE INCOME. SFAS No. 130 establishes standards for reporting
and presentation of comprehensive income and its components in a full
set of financial statements. Comprehensive income consists of net
income, foreign currency translation adjustments, and changes in the
minimum pension liability and is presented in the condensed
consolidated statement of operations and comprehensive income. This
Statement requires only additional disclosures in the condensed
consolidated financial statements; it does not affect the Company's
financial position or results of operations. Prior year financial
statements have been reclassified to conform to the presentation of
SFAS No. 130.
5
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the more detailed
information and the historical combined and consolidated financial statements
included elsewhere in this report.
Introduction
Holding's assets consist solely of membership interests of the Company and
capital stock of Grove Holdings Capital. Holdings conducts all of its business
through the Company.
On April 29, 1998, Holdings, through its wholly owned subsidiary, 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 approximately $583.0 million. The purchase price was
subject to a post closing adjustment for which the Company received
approximately $16.8 million from Hanson in July 1998 and an additional $10.5
million in November 1998, respectively. The Company is a wholly owned subsidiary
of Grove Investors LLC ("Investors").
The following discussion covers periods of operations of the Company prior to
and subsequent to the Acquisition. Results of operations following the
Acquisition are significantly different principally as the result of (i) changes
in the amounts of depreciation and amortization caused by purchase accounting
adjustments, (ii) increased interest expense in respect of amounts borrowed to
consummate the Acquisition and (iii) reductions in income tax caused by changes
in corporate structure.
Holdings is a limited liability company organized under the laws of Delaware, as
a result of which (i) Holdings is not subject to income tax, (ii) the taxable
income of the mobile hydraulic crane and the aerial work platform businesses in
the United States is allocated to the equity holders and (iii) such equity
holders are responsible for income taxes on such taxable income. Holdings
intends to make distributions in the form of dividends to its equity holders to
enable them to meet their tax obligations with respect to income allocated to
them by Holdings.
Overview
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.
6
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The following is a summary of net sales for the periods indicated (dollars in
millions).
Three months ended
------------------
December 27, January 2,
1997 1999
---- ----
New equipment sold (1) $158.5 $123.2
After-market 32.5 27.7
Other (2) (3) 14.0 13.4
---- ----
Net sales $205.0 $164.3
====== ======
(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.
(3) Includes revenues resulting from a non-recurring refurbishment contract in
the first quarter of 1998 with the Ministry of Defence of the United
Kingdom.
Results of Operations
For financial reporting purposes, the Acquisition creates a new basis of
accounting and, accordingly, the Company is required to report results prior to
the Acquisition separate from results 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 three month period ended
January 2, 1999 relative to three month period ended December 27, 1997 would not
be meaningful and are therefore not presented.
Set forth below is certain information regarding the Company's results of
operations for the three month period ended December 27, 1997 and January 2,
1999 (dollars in thousands).
Three months ended
------------------
December 27, January 2,
1997 1999
---- ----
Net sales $ 204,958 $ 164,325
Cost of goods sold 161,386 137,242
------- -------
Gross profit 43,572 27,083
Selling, engineering, general and
administrative expenses 31,827 29,695
Amortization of goodwill 2,260 1,823
Management fees paid to Hanson 162 ---
------- -------
Operating profit (loss) $ 9,323 ($4,435)
========= =========
7
<PAGE>
THREE MONTHS ENDED JANUARY 2, 1999 (THE "FISCAL 1999 THREE MONTHS") COMPARED TO
THE THREE MONTHS ENDED DECEMBER 27, 1997 (THE "FISCAL 1998 THREE MONTHS")
NET SALES. Net sales decreased $40.7 million, or 19.9%, from $205.0 million for
the fiscal 1998 three months to $164.3 million for the fiscal 1999 three months.
Although there was a decline in revenues from the fiscal 1998 three months to
the fiscal 1999 three months, management currently believes that fiscal 1999
revenues will be flat to slightly below fiscal 1998. This outlook is based on
industry expectations and customer feedback as well as anticipation of favorable
industry acceptance of new products.
Net sales of mobile hydraulic cranes declined significantly from the fiscal 1998
three months to the fiscal 1999 three months. The decline in net sales was
caused by lower volume, primarily on mobile hydraulic cranes produced by the
Company's U.S. facility. Net sales to North American and Asian customers
declined, however this decline was offset by a slight increase in European
sales.
Net sales of aerial work platforms declined significantly from the fiscal 1998
three months to the fiscal 1999 three months. The decrease was a result of lower
unit sales in North America, Europe and Asia.
Net sales of truck-mounted cranes decreased from the fiscal 1998 three months to
the fiscal 1999 three months. Net sales decreased as the result of lower unit
sales as well as significantly decreased demand for higher priced models.
After-market sales, including parts and services, decreased 14.8% from the
fiscal 1998 three months to the fiscal 1999 three months predominantly due to a
decline in used equipment sales in Europe and parts sales in North America.
Other sales decreased 4.3% as a result of lower U.S. government sales, which
were partially offset by an increase in revenues from unit sales that were
accounted for as operating leases.
GROSS PROFIT. Gross profit decreased $16.5 million, or 37.8%, from $43.6 million
in the fiscal 1998 three months to $27.1 million in the fiscal 1999 three
months. The decrease in gross profit was attributable to a decline in volume as
well as a decline in gross profit at the Company's Sunderland, U.K. facility
caused by higher price concessions and lower sales volume to absorb fixed
overhead. Also affecting the fiscal 1999 three months operations were costs
associated with the start-up of the Company's new management information system
in the US which impacted production flow and operations visibility.
SELLING, ENGINEERING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, engineering,
general and administrative expenses ("SG&A") decreased $2.1 million, or 6.6%,
from $31.8 million in the fiscal 1998 three months to $29.7 million in the
fiscal 1999 three months. The savings were primarily attributable to cost
reductions at the U.S. facility, which were implemented in August 1998. Included
in SG&A for the 1999 three months are approximately $2.0 million of consulting
fees paid to the George Group in connection with the Company's operational
improvement initiatives and $0.1 million in transition costs related to the sale
of the Company. As a percentage of net sales, SG&A was 15.5% in the fiscal 1998
three months and 18.1% in the fiscal 1999 three months.
8
<PAGE>
MANAGEMENT FEES. Management fees paid to Hanson were $0.2 million in the fiscal
1998 three months. Following the Acquisition, no management fees have been paid.
BACKLOG. The Company's backlog consists of firm orders for new equipment and
replacement parts. Total backlog as of January 2, 1999 was approximately $170.7
million compared to total backlog as of December 27, 1997 of approximately
$236.6 million. Substantially all of the Company's backlog orders are expected
to be filled within one year, although there can be no assurance that all such
backlog orders will be filled within that time period. Parts orders are
generally filled on an as-ordered basis.
Liquidity and Capital Resources
The Company's business is working capital-intensive, requiring significant
investments in receivables and inventory. In addition, the Company requires
capital for replacement and improvements of existing plant, equipment and
processes. During the three months ended January 2, 1999, the Company used
approximately $5.5 million of cash in operating activities principally related
to the operating loss. The operating cash flow requirements were financed with
available cash.
As the result of recurring operating losses, the Company closed its Sunderland
UK manufacturing facility on November 27, 1998. 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. Management
has estimated total closure costs to be approximately $18.5 million, consisting
of approximately $11.5 million of employee severance and $7.0 million of plant
shut-down costs (asset disposal and plant clean-up costs), all of which are
expected to be expended in the next twelve months. During the three months ended
January 2, 1999, the Company paid approximately $7.4 million of employee
severance costs.
The Company expects that cash flows from foreign operations will be required to
meet its domestic debt service requirements. Such cash flows are expected to be
generated from intercompany interest expense on loans the Company made to
certain of its foreign subsidiaries to consummate the Acquisition. The loans
have been established with amounts and interest rates to allow for repatriation
without restriction or additional tax burden. However, there is no assurance
that the foreign subsidiaries will generate the cash flow required to service
the loans or that the laws in the foreign jurisdictions will not change to limit
repatriation or increase the tax burden of repatriation.
During the fiscal 1999 three months the Company received a payment from Hanson
PLC of $10.5 million in final settlement of the purchase price and made $6.0
million of payments on its bank loan and repaid $1.5 million of short-term
borrowings. Capital expenditures were approximately $1.0 million for the fiscal
1999 three months and are expected to be approximately $15.7 million for fiscal
1999.
9
<PAGE>
Grove Holdings Capital
In connection with the Acquisition, Holdings and its wholly owned subsidiary,
Grove Holdings Capital, a Delaware corporation, issued Senior Discount Notes
(the "Debentures"). Grove Holdings Capital was organized as a direct wholly
owned subsidiary of Holdings for the purpose of acting as a co-issuer of the
Debentures and was also a co-registrant of the Registration Statement for the
Debentures. This was done so that certain institutional investors to which the
Debentures were marketed that might otherwise have been restricted in their
ability to purchase debt securities issued by a limited liability company, such
as Holdings, by reason of the legal investment laws of their states of
organization or their charter documents, would be able to invest in the
Debentures. Grove Holdings Capital has no assets, no liabilities (other than the
Debentures) and no operations. Grove Holdings Capital does not have any revenues
and is prohibited from engaging in any business activities. As a result, holders
of the Debentures should not expect Grove Holdings Capital to participate in
servicing the interest and principal obligations on the Debentures.
No separate financial statements of Grove Holdings Capital are included herein.
Holdings believes that providing separate financial statements and other
disclosures concerning Grove Holdings Capital would not be material to holders
of the Debentures. As of January 2, 1999, Grove Holdings Capital had no assets,
liabilities or operations.
The ability of Holdings' subsidiaries to make cash distributions and loans to
Holdings is significantly restricted under the terms of the Indenture governing
the Senior Subordinated Notes and the New Credit Facility.
Management Information Systems and the Impact of Year 2000
Certain computer programs and microprocessors use two digits rather than four to
define the applicable year. Computer programs that have date-sensitive software
and microprocessors may recognize a date using "00" as the year 1900 rather than
the year 2000. This phenomenon (the "Year-2000 issue") could cause a disruption
of operations, including, among other things, a temporary inability to utilize
manufacturing equipment, send invoices or engage in similar normal business
activities.
In fiscal 1995, the Company conducted a Year-2000 assessment of all management
information systems used at its crane and aerial work platform facilities in the
United States, United Kingdom and Germany. Upon completing this review in
October 1995, the Company launched a campaign designed 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 was designed to provide improved business
processes and procedures.
The Company determined that the Year-2000 Project would not need to be
implemented at its National Crane facility in Waverly, Nebraska. National Crane
implemented upgrades to all of its existing hardware and software and converted
all of its data. Management believes the completion of this project has rendered
all of National Crane's major computer systems Year-2000 compliant.
10
<PAGE>
The Year-2000 Project is expected to be completed in September 1999 and will
have a total cost of approximately $38.0 million, of which approximately $33.0
million had been expended as of January 2, 1999. If the Year-2000 Project is
delayed, the Company will be required to shorten its planning horizons and
replace certain computerized functions, such as inventory and work-in-process
tracking, billing and order processing, with manual systems. Any such delay
could result in parts shortages and slow the delivery of products to the
Company's customers. Management believes that all of the Company's major
computer systems will be rendered Year-2000 compliant. If such modifications and
conversions are not completed in a timely manner, the Year-2000 Issue could have
a material impact on the operations of the Company.
The Company has also polled the manufacturers of its computerized numerical
control ("CNC") manufacturing/production equipment. The Company has been
informed by such manufacturers that there are no Year-2000 Issues with respect
to the company's CNC equipment at its Shady Grove, Pennsylvania and Waverly,
Nebraska facilities. The Company is also conducting an internal review of its
CNC equipment to confirm its Year-2000 readiness. Although management believes
that the Year-2000 Issue will not have a material adverse impact on its CNC
equipment, there can be no assurance that it will not.
In addition, the Company has initiated communications 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. There can be no
guarantee that the systems of other companies on which the Company's systems
rely will be timely converted, or that a failure to convert by another company,
or a conversion that is incompatible with the Company's systems, would not have
material adverse impact on the Company. However, based on its current
assessment, management believes that the Year-2000 Issue will not have a
material adverse impact on the Company's future results of operations or
financial conditions, although there can be no assurance that such will be the
case.
11
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's principal market risk exposure is changing interest rates,
primarily changes in short term interest rates. The Company does not enter into
financial instruments for trading or speculative purposes. The Company's policy
is to manage interest rates through use of a combination of fixed and floating
rate debt. The Company may also use derivative financial instruments to manage
its exposure to interest rate risk.
As of January 2, 1999, $184,000 of the Company's long-term debt, which is
outstanding under its bank term facility, bears interest at LIBOR plus 2.5%
(7.56%). In addition the Company has $225,000 of Senior Subordinated Notes
outstanding bearing interest at a fixed rate of 9.25%.
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 received on a $100.0
million notational amount, three month LIBOR and pay 6.5% anytime LIBOR exceeds
6.5%, and will received three month LIBOR and pay 5.19% anytime LIBOR is below
5.19%. The agreement effectively caps the Company's exposure on $100.0 million
of its floating rate debt at 6.5% plus 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. During the past three fiscal years, the impact of
currency fluctuations has not had a significant impact on the Company's results
of operations.
In order to manage currency risk, the Company's practice is to contract for
purchases and sales of goods and services in the functional currency of the
Company's subsidiary executing the transaction. To the extent purchases or sales
are in currencies other than the functional currency of the subsidiary, the
Company will generally purchase forward contracts to hedge firm purchase and
sales commitments. As of January 2, 1999, the Company was party to seven such
contracts with an aggregate value of $4 million. These forward contracts
generally have average maturities of less than three months. The Company has not
taken any action at this time to hedge its net investment in foreign
subsidiaries but may do so in the future.
The Company does not have any commodity contracts.
12
<PAGE>
PART II
Item 1. 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 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 29, 1998, Investors, the sole holder of Holdings' membership
interests, adopted at an annual meeting a resolution whereby it unanimously
approved and ratified a power of attorney fpr local German counsel to act on
behalf of the Company in shareholder matters for Grove Worldwide Holdings
Germany GmbH.
Item 5. OTHER INFORMATION
Not applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit No. Description of Exhibit
27.1* Financial Data Schedule.
---------------
* Filed Herewith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended January 2, 1999.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GROVE HOLDINGS LLC
Date: February 16, 1999 By: /s/ Stephen L. Cripe
------------------------
Stephen L. Cripe
Chief Financial Officer
(Principal Financial and Accounting Officer)
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