SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 3, 1999
Commission file number 333-57609
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 3, 1999
OR
|_| TRANSITION REPORT PERSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
GROVE HOLDINGS LLC
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(Exact name of registrant as specified in its charter)
Delaware 52-2089467
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1565 Buchanan Trail East
Shady Grove, PA 17256
- ------------------------------- ----------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (717) 597-8121
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 |_|
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 1 of 16
Exhibit List on Page 15 of 16
<PAGE>
GROVE HOLDINGS LLC
INDEX
Page
----
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Operations and
Comprehensive Income (Loss) - For the nine week
period ended June 27, 1998, thirteen week period
ended July 3, 1999, and the thirty-nine week period
ended July 3, 1999 and the four week period ended
April 28, 1998, and the thirty week period ended
April 28, 1998......................................... 4
Condensed Consolidated Balance Sheets as of July 3,
1999 and October 3, 1998............................... 5
Condensed Consolidated Statements of Cash Flows -
Thirty-nine week period ended July 3, 1999, nine week
period ended June 27, 1998, and thirty week period
ended April 28, 1998................................... 6
Notes to Condensed Consolidated Financial
Statements............................................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk............................................ 14
Part II. Other Information.............................................. 15
Exhibit List................................................... 15
Signatures..................................................... 16
2
<PAGE>
Unless otherwise noted, "Grove Holdings LLC" refers to Grove Holdings LLC and
its subsidiaries and includes the Acquired Business (as defined). Grove Holdings
LLC's fiscal year ends on the Saturday closest to the last day of September.
Reference to the (i) third quarter 1999 means the period from April 4, 1999 to
July 3, 1999 and (ii) third quarter 1998 means the period from March 29, 1998 to
June 27, 1998. 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 the Subsidiary Guarantors (as defined) and
Grove Holdings Capital, Inc. ("Holdings Capital") are included herein. Grove
Holdings LLC considers that such financial statements would not be material to
investors.
Special Note Regarding Forward Looking Statements
With the exception of the historical information contained in this report,
the matters described herein contain forward looking information based on Grove
Holdings LLC's current expectations. Forward looking statements involve a number
of risks, uncertainties, or other factors which may cause the actual results of
Grove Holdings LLC to be materially different from any future results expressed
or implied by such forward looking statements. The factors include, but are not
limited to : (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 and substantial recession, (iv) the ability of Grove
Holdings LLC to implement its business strategy and maintain and enhance its
competitive strengths, (v) the ability of Grove Holdings LLC to implement its
efficiency and cost-savings program, (vi) the ability of Grove Holdings LLC to
obtain financing for general corporate purpose, (vii) competition, (viii)
availability of key personnel, (ix) industry over capacity, (x) changes in or
failure to comply with government regulations, and (xi) other factors detailed
in Grove Holdings LLC's other reports filed with the Securities and Exchange
Commission. Readers are cautioned not to place undue reliance on these forward
looking statements, which speak only as of the date hereof. Grove Holdings LLC
assumes no obligation to update such forward looking statements to reflect
events or circumstances after the date on which such statements were made or to
reflect the occurrences of unanticipated events.
3
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GROVE HOLDINGS LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS) (unaudited)
<TABLE>
<CAPTION>
Predecessor
-----------------------
9 Week 13 Week 39 Week 4 Week 30 Week
Period Period Period Period Period
Ended Ended Ended Ended Ended
--------- --------- --------- --------- ---------
June 27, July 3, July 3, April 28, April 28,
1998 1999 1999 1998 1998
--------- --------- --------- --------- ---------
(thousands)
<S> <C> <C> <C> <C> <C>
Net Sales $ 154,780 $ 207,364 $ 557,733 $ 70,297 $ 476,200
Cost of Goods Sold 122,063 168,259 453,154 56,000 377,337
Write-Off of amount assigned to
inventory in excess of historical
costs resulting from purchase
accounting adjustments 10,000 -- -- -- --
- ---------------------------------------------------------------------------------------------------------
Gross Profit 22,717 39,105 104,579 14,297 98,863
Selling, Engineering, General and
Administrative Expenses 24,503 31,772 95,747 12,364 79,041
- ---------------------------------------------------------------------------------------------------------
Income (Loss) from Operations (1,786) 7,333 8,832 1,933 19,822
Interest and Debt Issuance Expense 8,364 11,868 35,642 569 2,437
Other Income (Expense), net 2,865 689 3,028 (4,440) (6,039)
- ---------------------------------------------------------------------------------------------------------
Income (Loss) before provision
for Income Taxes (7,285) (3,846) (23,782) (3,076) 11,346
Provision for Income Taxes 423 1,895 4,716 567 11,741
- ---------------------------------------------------------------------------------------------------------
Net Income (Loss) (7,708) (5,741) (28,498) (3,643) (395)
Foreign Currency Translation (2,043) (4,151) (14,005) (5,582) (5,647)
- ---------------------------------------------------------------------------------------------------------
Comprehensive Income (Loss) $ (9,751) $ (9,892) $ (42,503) $ (9,225) $ (6,042)
=========================================================================================================
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE>
GROVE HOLDINGS LLC
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
<TABLE>
<CAPTION>
July 3, October 3,
1999 1998
--------- ---------
(thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,967 $ 34,289
Trade receivables, net 129,583 129,833
Due from Hanson PLC -- 10,500
Notes receivable 167 5,887
Inventories 214,998 207,248
Other current assets 9,580 8,893
- -----------------------------------------------------------------------------------------
Total current assets 364,295 396,650
Property, plant and equipment, net 216,641 207,175
Goodwill, net 276,324 288,499
Other non-current assets 18,148 20,106
- -----------------------------------------------------------------------------------------
TOTAL ASSETS $ 875,408 $ 912,430
=========================================================================================
LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 14,514 $ 15,027
Current maturities of long-term debt 12,000 7,000
Trade accounts payable 77,941 79,470
Other payables and accrued liabilities 102,422 104,951
- -----------------------------------------------------------------------------------------
Total current liabilites 206,877 206,448
Long-term debt, less current maturities 459,223 460,535
Deferred revenue 79,967 67,306
Other non-current liabilities 77,434 82,729
- -----------------------------------------------------------------------------------------
Total liabilities 823,501 817,018
- -----------------------------------------------------------------------------------------
Member's equity:
Member's equity 115,742 116,730
Accumulated deficit (55,112) (26,600)
Accumulated other comprehensive income (loss) (8,723) 5,282
- -----------------------------------------------------------------------------------------
Total member's equity 51,907 95,412
- -----------------------------------------------------------------------------------------
TOTAL LIABILITIES AND MEMBER'S EQUITY $ 875,408 $ 912,430
=========================================================================================
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE>
GROVE HOLDINGS LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
Predecessor
-----------
30 Week
39 Week 9 Week Period Period
Period Ended Ended Ended
------------------------- ----------
July 3, June 27, April 28,
1999 1998 1998
----------------------------------------
(thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (28,498) $ (7,708) $ (395)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 13,859 2,749 11,399
Depreciation of equipment held for rent 12,648 2,529 5,501
Amortization of deferred financing cost 1,296 301 --
Write-off of amount assigned to inventory
in purchase accounting -- 10,000 --
Loss on sale of fixed assets -- -- 6,256
Deferred tax expense 125 11 2,358
Notes receivable -- -- 28,409
Changes in operating assets and liabilities, net (1,256) (29,499) 39,569
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities (1,826) (21,617) 93,097
- ----------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures (6,088) (1,945) (19,521)
Investment in equipment held for rent (25,174) (8,335) (16,380)
Acquisition of businesses from Hanson PLC, including
transaction costs of $6,485, net of cash acquired of
$9,242 and post-closing adjustment of $16,700 -- (563,543) --
Cash received from Hanson PLC 10,500 -- --
Other investing activities 779 -- 2,071
- ----------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (19,983) (573,823) (33,830)
- ----------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net proceeds (repayments) from short-term borrowings (513) 4 6,821
Proceeds from issuance of long-term debt -- 450,200 --
Proceeds from revolving line of credit 10,000 -- --
Equity investment from Grove Investors LLC -- 168,209 --
Deferred financing costs -- (12,674) --
Repayment of long-term debt (12,000) -- --
Other financing activities -- 1,125 (61,870)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (2,513) 606,864 (55,049)
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (24,322) 11,424 4,218
Cash and Cash Equivalents at Beginning of Period 34,289 -- 5,024
- ----------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 9,967 $ 11,424 9,242
================================================================================================================
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
6
<PAGE>
GROVE HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Grove Holdings LLC's condensed consolidated balance sheet as of October 3,
1998 has been condensed from the audited consolidated balance sheet at that
date. The condensed consolidated balance sheet as of July 3, 1999, the condensed
consolidated statements of operations for the four week period ended April 28,
1998, thirty week period ended April 28, 1998, thirteen week period ended July
3, 1999, and the thirty-nine week period ended July 3, 1999, and the condensed
consolidated statements of cash flows for the thirty week period ended April 28,
1998, nine week period ended June 27, 1998, and thirty-nine week period ended
July 3, 1999, have been prepared by Grove Holdings LLC and have not been audited
by Grove Holdings LLC's independent accountants. Financial information for
periods prior to April 29, 1998 relates to Grove Holdings LLC prior to the
Acquisition ("the Predecessor") (See note 2). Financial information subsequent
to April 29, 1998 relates to Grove Holdings LLC and the Acquired Business. The
Acquisition created a new basis of accounting and a different capital structure;
therefore, the operating results and cash flows, for 1999 and 1998 are not
directly comparable. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments, considered necessary for a fair
presentation of the financial position, results of operations and cash flows,
have been included.
Grove Holdings LLC, through its wholly-owned subsidiary Grove Worldwide
LLC (the "Company") primarily manufactures and sells new mobile hydraulic
cranes, aerial work platforms, and truck mounted cranes. In addition, the
Company has net sales from 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 distributors in France, Germany, and the
United Kingdom. Grove Holdings LLC is a wholly owned subsidiary of Grove
Investors LLC ("Investors").
The separate financial statements of Grove Holdings Capital, Inc.
("Holdings Capital") are not included since Grove Holdings LLC considers that
such financial statements would not be material. Grove Holdings LLC formed
Holdings Capital as a direct wholly owned subsidiary to act as a co-issuer of
the Senior Discount Debentures. At July 3, 1999, Holdings Capital 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
Discount Debentures. For the thirty-nine week period ended July 3, 1999 Holdings
Capital had no income or loss and no revenues. Holdings Capital has no
subsidiaries and no operations and is prohibited from engaging in any business
activities.
Interim results for the thirteen and thirty-nine week periods ended July
3, 1999 are not necessarily indicative of the results that may be expected for a
full fiscal year.
Certain information and note disclosures normally included in the
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted in accordance with the rules and
regulations of the Securities and Exchange Commission. These condensed
consolidated financial statements should be read in conjunction with Grove
Holdings LLC's consolidated financial statements and notes thereto as set forth
in Grove Holdings LLC's Annual Report on Form 10-K for the fiscal year ended
October 3, 1998.
2. THE ACQUISITION
On April 29, 1998, the Company acquired from Hanson PLC and certain of its
subsidiaries ("Hanson") substantially all of the net assets of Hanson's United
States mobile hydraulic crane and aerial work platform operations, the capital
stock of Hanson's United States truck-mounted crane operation and the capital
stock of Hanson's British, French, German, and Australian crane and aerial work
platform subsidiaries ("Acquired Business") for an aggregate purchase price of
$583.0 million (the "Acquisition"). The purchase price was subject to a post
closing adjustment for which the Company received $27.3 million from Hanson.
The Acquisition was accounted for as a purchase and the operations of the
Acquisition are included in the consolidated statements of operations and cash
flows from the date of acquisition. The cost of the Acquisition has been
allocated on the basis of the fair value of the assets acquired and the
liabilities assumed. The excess of the
7
<PAGE>
GROVE HOLDINGS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
purchase price over the estimated fair value of the net assets acquired is being
amortized using the straight-line method over forty years. The allocation of the
purchase price for the Acquisition was based on appraisals, valuations, and
other studies of the fair value of the acquired assets and liabilities.
3. INVENTORIES
July 3, October 3,
Inventories consist of: 1999 1998
-------- ---------
(thousands)
Raw materials and supplies $ 67,777 $ 61,910
Work-in-process 80,749 72,299
Finished goods 66,472 73,039
-------- --------
Total $214,998 $207,248
======== ========
4. INCOME TAXES
Following the Acquisition, a significant portion of the Company's business
is operated as a Delaware limited liability company and is not subject to
federal and certain state income taxes. The taxable income of the limited
liability company in the United States is allocated to the equity holders of the
Company who are responsible for the applicable federal and state income taxes.
Grove Holdings LLC expects to make cash distributions to the equity holders for
their tax obligations associated with the Company taxable income. Foreign and
certain domestic income taxes will continue to be the responsibility of the
Company.
The primary difference between the Company's effective income tax rate and
the United States statutory rate is due to the Company's structure as a limited
liability company. Therefore, income taxes included on the condensed
consolidated statement of operations and comprehensive income (loss) relate to
foreign and certain domestic operations.
5. CLOSURE OF SUNDERLAND MANUFACTURING FACILITY
As the result of recurring operating losses, the Company closed its
Sunderland, U.K. 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. Such amount consists of $11.5 million in severance
and related costs for 683 plant employees, $5.6 million for dismantlement and
disposal of plant equipment and $1.4 million for cleanup and closure of the
leased facility. Through July 3, 1999, the Company has expended $9.2 million of
severance and related costs for 633 employees. As of July 3, 1999, $2.3 million
of severance and related costs for 50 plant employees, $2.4 million of equipment
disposal, and $0.5 million of plant cleanup costs remain to be expended.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the condensed
consolidated financial statements and related notes thereto of the Company
included in this report.
Introduction
The Company's and Grove Holding LLC's assets consist solely of membership
interests of Grove Worldwide LLC capital stock of Holdings Capital. Grove
Holdings LLC conducts all of its business through Grove Worldwide LLC which
primarily manufactures and sells new mobile hydraulic cranes, aerial work
platforms, and truck mounted cranes. In addition, the Company has net sales from
parts, service, and used equipment of the products it manufactures. Sales of
used equipment are not material and generally limited to trade-ins on new
equipment through the Company distributors in France, Germany, and the United
Kingdom. Grove Holdings LLC is a wholly owned subsidiary of Grove Investors LLC
("Investors").
In April 1998, the Company acquired from Hanson PLC and certain of its
subsidiaries ("Hanson") all of the assets of Hanson's United States mobile
hydraulic crane and aerial work platform operations, the capital stock of
Hanson's United States truck-mounted crane operation and the capital stock of
Hanson's British, French, German and Australian crane and aerial work platform
subsidiaries (the "Acquisition") 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 $27.3 million from Hanson.
Following the Acquisition, a significant portion of Grove Holdings LLC's
business is operated as a limited liability company organized under the laws of
Delaware, as a result of which (i) Grove Holdings LLC 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. Grove Holdings LLC intends to make distributions in the form of
dividends to equity holders of Holdings to enable them to meet their tax
obligations with respect to income allocated to them by Grove Holdings LLC.
The following discussion covers periods of operations of Grove Holdings
LLC prior to and subsequent to the Acquisition. The thirteen week period ended
June 27, 1998 includes the four week period ended June 27, 1998 (subsequent to
the Acquisition) and the nine week period ended April 28, 1998 (prior to the
Acquisition). The thirty-nine week period ended June 27, 1998 includes the nine
week period ended June 27, 1998 (subsequent to the Acquisition) and the thirty
week period ended April 28, 1998 (prior 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.
Operating results for fiscal 1999 are expected to be influenced by various
internal and external factors. These factors include, among other things, (i)
continued improvement in sales volume, (ii) continued implementation of cost
savings program designed to improve profitability, and (iii) fluctuations in
interest rates.
Results of Operations
Thirteen week period ended July 3, 1999 compared to the thirteen week period
ended June 27, 1998.
Net sales for the thirteen week period ended July 3, 1999 were $207.4
million as compared to $225.1 million to the thirteen week period ended June 27,
1998, a decrease of $17.7 million or 7.9%. This decrease was primarily
associated with reduced unit sales compared to 1998. Although net sales
decreased as compared to 1998, sales backlog at July 3,1999 was higher than at
April 3, 1999. Management believes this increase in backlog was associated with
a strong market and new products introduced at the CONEXPO Trade Show.
Gross profit as a percentage of net sales decreased to 18.9% for the
thirteen week period ended July 3,1999 from 20.9% for the thirteen week period
ended June 27,1998 after excluding a $10.0 million charge in 1998 for the
write-off of purchase accounting adjustments related to inventory recorded in
the Acquisition. This decrease
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
primarily resulted from the reduced unit sales and inefficiencies associated
with our new business systems offset by benefits received from our cost savings
program.
Selling, engineering, general and administrative expenses for the thirteen
week period ended July 3,1999 were $31.8 million compared to $36.9 million for
the thirteen week period ended June 27,1998. This decrease was primarily
associated with reductions from our cost savings program offset by approximately
$1.6 million of consulting costs in 1999, and approximately $0.9 million of
consulting costs in 1998. Also, selling, engineering, general and administrative
expenses decreased as a percentage of net sales to 15.3% in 1999 from 16.4% in
1998. This decrease was primarily attributable to the cost savings program,
offset by the reduced unit sales.
Income from operations decreased $2.8 million to $7.3 million for the
thirteen week period ended July 3, 1999 from $10.0 million in thirteen week
period ended June 27, 1998 after excluding the 1998 $10.0 million inventory
charge described above. This decrease is primarily due to the reduction in unit
sales discussed above.
Interest and debt issuance expense increased to $11.9 million for the
thirteen week period ended July 3, 1999 from $8.9 million for the thirteen week
period ended June 27, 1998. This increase was primarily due to the debt incurred
to finance the Acquisition and the change in the Company's capital structure.
See notes 1 and 2 to the condensed consolidated financial statements.
Other income (expense), net increased to income of $0.7 million for the
thirteen week period ended July 3, 1999 from an expense of $1.5 million for the
thirteen week period ended June 27, 1998.
Income taxes were $1.9 million for the thirteen week period ended July 3,
1999 as compared to $1.0 million for the thirteen week period ended June 27,
1998. This increase was primarily due to the improved operations of our foreign
subsidiaries.
Thirty-nine week period ended July 3, 1999 compared to the thirty-nine week
period ended June 27, 1998
Net sales for the thirty-nine week period ended July 3, 1999 were $557.7
million as compared to $631.0 million for the thirty-nine week period ended June
27, 1998, a decrease of $73.3 million or 11.6%. This reduction primarily
resulted from reduced unit sales during 1999 and the repositioning of certain
aerial work platform manufacturing operations from the Sunderland U.K. facility
to our United States facility during the first half of fiscal year 1999.
However, as previously discussed, sales backlog has increased at the end of July
3, 1999 as compared to April 3,1999. Management believes this increased backlog
was associated with a strong market and new products introduced at the CONEXPO
Trade Show.
Gross profit as a percentage of net sales decreased to 18.8% for the
thirty-nine week period ended July 3, 1999 from 20.8% in the thirty-nine week
period ended June 27,1998, after excluding the 1998 $10.0 million inventory
charge discussed above. This decrease was primarily due to the reduced unit
sales and inefficiencies associated with implementation of the new management
information systems.
Selling, engineering, general and administrative expenses for the
thirty-nine week period ended July 3, 1999 were $95.7 million compared to $103.5
million for the thirty-nine week period ended June 27, 1998. This decrease was
primarily associated with reductions from our cost savings program, offset by
increased consulting costs of approximately $5.4 million in 1999 as compared to
$0.9 million of consulting costs in 1998. However, selling, engineering, general
and administrative expenses increased as a percentage of net sales to 17.1% in
1999 from 16.4% in 1998. This increase was primarily attributable to the reduced
unit sales offset by our cost savings program.
Income from operations decreased to $8.8 million for the thirty-nine week
period ended July 3, 1999 from $28.0 million in the thirty-nine week period
ended June 27, 1998 after excluding the 1998 $10.0 million inventory charge
discussed above. In addition, the reduced unit sales decreased income from
operations.
Interest and debt issuance expense increased to $35.6 million for the
thirty-nine week period ended July 3, 1999 from $10.8 million for the
thirty-nine week period ended June 27,1998. This increase was primarily due to
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
the debt incurred to finance the Acquisition and the change in the Company's
capital structure. See notes 1 and 2 to the condensed consolidated financial
statements.
Other income (expense), net increased to income of $3.0 million for
thirty-nine week period ended July 3, 1999 from an expense of $3.2 million for
the thirty-nine week period ended June 27, 1998 primarily due to a loss in 1998
on the sale of land and buildings prior to the Acquisition. Immediately after
the sale, Hanson leased the property back to the Company.
Income taxes were $4.7 million for the thirty-nine week period ended July
3, 1999 as compared to $12.2 million for the thirty-nine week period ended June
27, 1998. This decrease was primarily related to the Company's structure as a
limited liability company following the Acquisition.
Backlog
Net sales backlog as of July 31, 1999 was $212.4 million as compared to
$231.4 million at August 1, 1998.
Liquidity and Capital Resources
Grove Holdings LLC is a holding company whose operations are conducted
through its domestic and foreign subsidiaries. The liquidity requirements of
Grove Holdings LLC consists primarily of debt related payments and operating
cash requirements.
The debt related payments consist principally of principal and interest on
outstanding indebtedness. The operating cash requirements of the Company consist
principally of working capital requirements and capital expenditures. The
Company believes that cash flow from operating activities, cash on hand and
periodic borrowings under the Company's revolving credit facility, if necessary,
will be adequate to meet liquidity requirements. The ability to meet such
liquidity requirements could be impaired if the Company were to fail to comply
with any covenants contained in (i) its credit agreement and such noncompliance
was not cured or waived by the lenders or (ii) in its indenture. The Company was
in compliance with covenants set forth in the credit agreement as of July 3,
1999.
Cash and cash equivalents decreased $24.3 million during 1999 to $10.0
million at July 3, 1999 from $34.3 million at October 3, 1998 primarily due to
cash used for net operating assets associated with the reduced operating
results. Working capital decreased $32.8 million during 1999 to $157.4 million
at July 3, 1999 from $190.2 million at October 3, 1998 primarily due to the
reduction in cash as discussed above. Net operating assets and liabilities
(comprised of accounts receivable, inventories and accounts payable) increased
$9.0 million during 1999 to $266.6 million at July 3, 1999 from $257.6 million
at October 3, 1998 primarily due to an increase in inventories and a decrease in
accounts payable. The increase in inventories is primarily due to inventory part
shortages that the Company has experienced and the increased sales backlog at
July 3, 1999. The decrease in accounts payable is primarily due to the timing of
cash payments.
Cash flow provided by operating activities decreased to a use of $1.8
million for the thirty-nine week period ended July 3, 1999 as compared to cash
provided of $71.5 million for the thirty-nine week period ended June 27, 1998,
primarily due to the reduced 1999 operating results and the sale of notes
receivable in 1998.
During the thirty-nine weeks ended July 3, 1999, the Company received a
payment from Hanson of $10.5 million in final settlement of the purchase price,
made $12.0 million of payments on its bank loan and borrowed $10.0 million in
short-term borrowings. Capital expenditures were approximately $6.1 million for
the thirty - nine weeks ended July 3. 1999 and are expected to be approximately
$10.0 million for fiscal 1999.
Certain Subsidiaries of Grove Holdings LLC
In connection with the Acquisition, Grove Holdings LLC and its wholly
owned subsidiary, Holdings
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Capital, a Delaware corporation, issued the Senior Discount Debentures. Holdings
Capital was organized as a direct wholly owned subsidiary of Grove Holdings LLC
for the purpose of acting as a co-issuer of the Senior Discount Debentures and
was also a co-registrant of the registration statement for the Senior Discount
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 Grove Holdings LLC, by reason of the legal investment laws of their states of
organization or their charter documents, would be able to invest in the Senior
Discount Debentures. Holdings Capital has no assets, no liabilities (other than
the Senior Discount Debentures), and no operations. Holdings Capital does not
have any revenues and is prohibited from engaging in any business activities. As
a result, holders of the Senior Discount Debentures should not expect Holdings
Capital to participate in servicing the interest and principal obligations on
the Senior Discount Debentures.
No separate financial statements of Holdings Capital are included in this
report. Grove Holdings LLC considers that such financial statements would not be
material to investors.
The ability of Grove Holdings LLC's subsidiaries to make cash
distributions and loans to Grove Holdings LLC and the Subsidiary Guarantors is
not significantly restricted under the terms of the Senior Discount Debentures,
or the Indenture governing the Senior Discount Debentures.
Management Information Systems and the Impact of Year 2000
Many 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 could cause a disruption of
operations, including, among other things, a temporary inability to use
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 Untied States, United Kingdom and Germany. Upon completing
this review in October 1995, the Company launched the Year-2000 project, a
campaign designed to replace all existing software and hardware that was not
Year-2000 compliant. 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 it did not need to implement the Year-2000
project at our National Crane facility in Waverly, Nebraska. Instead, National
Crane upgraded all of its existing hardware and software and converted all of
its data. Management believes the completion of this upgrade has rendered all of
National Crane's major computer systems Year-2000 compliant.
The Company also polled the manufacturers of its computerized numerical
control manufacturing/production equipment. These manufacturers have informed us
that there are no Year-2000 issues with respect to these computerized numerical
control equipment at the Shady Grove, Pennsylvania and Waverly, Nebraska
facilities. The Company is also conducting an internal review of its
computerized numerical control equipment to confirm the equipments' Year-2000
readiness. Although the Company believes that the Year-2000 issue will not have
a material adverse impact on its computerized numerical control equipment, there
can be no assurance that it will not.
The Company has also evaluated all of its non-information technology
systems for their state of readiness for proper operation in the year 2000. The
Company believes that the majority of its non-information technology systems are
Year-2000 compliant. The Company expects that all non-information technology
systems that are not yet Year-2000 compliant will be compliant by September
1999.
In addition, the Company initiated communications with suppliers and
customers to determine the extent to which the Company may be vulnerable to
their failure to remediate their own Year-2000 issues. There can be
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
no guarantee that the systems of other companies on which the Company systems
rely will be timely converted, or that a failure to convert by another company,
or a conversion that is incompatible with our systems, would not have a material
adverse effect on the Company. However, based on its current assessment, the
Company believes that the Year-2000 issue will not have a material adverse
impact on our future results of operations or financial conditions, although
there can be no assurance that this will be the case.
The Company is in the process of developing a business contingency plan to
address Year-2000 risks. Although the Company expects to complete the plan by
fall 1999, the Company will continue to enhance and revise the plan, as
appropriate, throughout the remainder of 1999 and into the year 2000. The
contingency plan will include identification of critical processes, risk
assessment and response techniques in the event of a system failure. The
Company's planned response to "worst case scenario" system failure includes
designating emergency response personnel to address and correct any unforeseen
problems, identification of alternate sources of supply, manual processing of
transactions, manual control of production processes and where practical, the
stockpiling of raw materials and finished goods in those instances where a high
risk of a supply failure is suspected. In addition, the Company is considering
obtaining back-up power sources to keep core computer systems functioning in the
event local utility companies are no longer operational. In certain cases,
especially global infrastructure failures, there may be not practical
alternative courses of action available to the Company that will permit
resumption of an interrupted business activity.
The Company expects to complete the Year-2000 project in September 1999.
The Company expects the project will have a total cost of approximately $38.0
million, of which approximately $36.0 million had been spent as of July 3, 1999.
If the Year-2000 project is delayed, the Company will have to shorten its
planning horizons and replace certain computerized functions, like inventory and
work-in-process tracking, billing and order processing, with manual systems. Any
delay in completing the project could result in part shortages and slow the
delivery of products to our customers. The Company believes that all of our
major computer systems will be rendered Year-2000 complaint. If the Company does
not complete the modifications and conversions in a timely manner, the Year-2000
issue could have a material impact on the Company's operations.
New Accounting Standards
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
"Disclosures about Segments of an Enterprise and Restated Information," was
issued by the Financial Accounting Standards Board in June 1997. This statement
establishes standards for reporting information about operating segments in
annual financial statements and requires reporting of selected financial
information about operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The Company will
adopt SFAS No. 131 for the year ended 1999 reporting. The Company is evaluating
the impact, if any, the standard will have on its present segment reporting.
In February 1998 the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pension and Other Postretirement Benefits"
("SFAS No. 132"), which is effective for fiscal years beginning after December
15, 1997. SFAS No. 132 revised the required disclosures about pension and other
postretirement benefit plans. The Company will adopt SFAS No.132 for the year
ended October 2, 1999 reporting.
In June 1998 the Financial Accounting Standards Board issued SFAS No. 133
("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133, as amended, established new procedures for accounting
for derivatives and hedging activities and supersedes and amends a number of
existing standards. The statement is effective for fiscal years beginning after
June 15, 2000. The Company will adopt the statement in fiscal year 2001.
13
<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 July 3, 1999, the Company had $178.0 million of term debt
outstanding under its credity facility which bears interest at LIBOR plus 2.50%
(7.69%) and $10.0 million of revolver debt under its credit facility which bears
interest at LIBOR plus 2.25% (7.44%). In addition, the Company has $225.0
million of Senior Subordinated Notes outstanding bearing interest at a fixed
rate of 9.25% and $57.1 million of Senior Discount Debentures outstanding
bearing interest at fixed rate of 11.625%.
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 be paid 6.5% anytime LIBOR
exceeds 6.5%, and will receive three month LIBOR and pay 5.19% anytime LIBOR is
below 5.19%. The agreement effectively caps the Company's exposure on $100.0
million of its floating rate debt at 6.5% plus 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 July 3, 1999, the Company was party to 7 such contracts
with an aggregate value of $5.8 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.
14
<PAGE>
Part II - Other Information
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 to the Company. The
Company is also subject to product liability claims for which it
believes it has adequate insurance.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27(a) - Financial Data Schedule for the quarter ended July 3, 1999.
(Filed herein).
(b) Grove Holdings LLC has filed the following Current Reports on Form
8-K:
None
15
<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 WORLDWIDE LLC
Date: August 17, 1999 By: /s/ Stephen L. Cripe
-----------------------------
Stephen L. Cripe
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
16
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