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: 333-57611
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GROVE WORLDWIDE LLC
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(Exact name of Registrant as specified in its charter)
DELAWARE 23-2955766
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1565 BUCHANAN TRAIL EAST SHADY GROVE, PENNSYLVANIA 17256
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (717) 597-8121
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
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
GROVE WORLDWIDE LLC
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED OCTOBER 2, 1999
PAGE
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. 20
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. 25
Item 12. Security Ownership of Certain Beneficial Owners and Management. 30
Item 13. Certain Relationships and Related Transactions. 31
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. 33
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 the Company,
and the consolidated financial statements of Grove Worldwide LLC 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 the subsidiary guarantors (as defined) and
Grove Capital, Inc. ("Grove Capital") are included herein. The Company considers
that such financial statements would not be material to investors because: (i)
this report does include, in the notes to the combined and consolidated
financial statements of the Company, supplemental financial information, setting
forth on a consolidated basis, balance sheets, statements of operations and cash
flows information for the subsidiary guarantors, the subsidiaries of the Company
that are not guarantors (the "non-guarantor subsidiaries") and the Company; and
(ii) the above-mentioned note provides sufficient detail to allow investors to
determine the nature of the assets held by, and the operations and cash flows of
the subsidiary guarantors and Grove Capital.
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.
i
PART I
ITEM 1. BUSINESS
GENERAL
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 26% of fiscal 1999 new equipment sales), Africa and the Middle East
(approximately 3% of fiscal 1998 and 4% 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.
1
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"); and (iv) the issuance of $120.0 million of limited liability
company interests of Grove Holdings (the "Holdings Equity Issuance")
(collectively, the "Financings"). On the Closing Date, Grove Holdings
contributed (the "Equity Contribution") the net proceeds from the Holdings
Equity Issuance and 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
Holdings owns all of the limited liability company interests of the Company.
Grove Investors LLC ("Grove Investors") owns all of the limited liability
company interests of Holdings. All of Grove 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
Grove 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.
2
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.
3
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.
4
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 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.
5
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.
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:
Operating
Divisions Products Primary Competitors
- -------------- ---------------------- --------------------------------------------
Grove Crane Mobile Hydralic Cranes Liebherr Werk Nenzing Link-Belt Construction
Mannesman Dematies, Tadano Ltc. and Terex
Corporation ("Terex")
Grove Manlift Acrial 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 Jdrauliche 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.
6
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.
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.
7
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.
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:
Approximate
Facility Location Type of Facility Square Footage Owned/Leased
- --------------------------------------- ----------------------------------------- ----------------- ------------------
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
(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.
8
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.
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
Grove Holdings, the sole holder of the Company's membership interests,
approved and ratified the following: (i) on January 29, 1999, the addition of
a Member to the Management Committee of the Company.
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 the
Company. Grove Holdings owns all of the limited liability company interests of
the Company and Grove 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 Grove Investors, see "Item 12.
Security Ownership of Certain Beneficial Owners and Management."
MARKET INFORMATION
No dividends have been paid on the Company's 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
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected historical financial data of the Company
(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.
PREDECESSOR COMPANY
-------------------------------------------------------- ---------------------------
SEVEN MONTHS FIVE MONTHS
ENDED ENDED
APRIL 28, OCTOBER 3,
1995 1996 1997 1998 1998 1999
------------- ------------ ------------ ------------- ------------- ------------
(DOLLARS IN THOUSANDS)
Statement of operations data (1):
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) (23,981) (25,496)
Balance sheet data (at period end):
Cash and cash equivalents 18,685 8,184 5,024 -- 34,289 16,864
Total assets 652,000 730,158 881,496 -- 910,348 861,501
Total debt -- 7,443 7,265 -- 430,027 432,108
Total invested capital 467,306 502,554 628,492 -- 145,861 104,568
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
(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
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
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
The following is a summary of net sales for the periods indicated (dollars in
millions):
FISCAL YEAR
------------------------------------
1997 1998 1999
----------- ----------- ----------
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
=========== =========== ==========
(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).
FISCAL YEAR
---------------------------------------------
1997 1998 1999
------------ ------------ -------------
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
============ ============ =============
12
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 take 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 costs 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 change for special one-time early 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
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.
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
14
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 occurred 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 occurred 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.
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.
15
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 in 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
Facility. For additional information regarding the Revolving Credit
Agreement, 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. Effective November 2003, Grove Holdings is
required to make semi-annual cash interest payments on its $88 million of
11 5/8% senior discount debentures. The cash interest payments are expected to
be generated by distributions from the Company, to the extent permitted under
the Company's borrowing arrangements.
16
GROVE CAPITAL, INC.
In connection with the Acquisition, the Company and its wholly owned
subsidiary, Grove Capital, a Delaware corporation, issued the Senior
Subordinated Notes. Grove Capital was organized as a direct wholly owned
subsidiary of the Company for the purpose of acting as a co-issuer of the
Senior Subordinated Notes and was also a co-registrant of the Registration
Statement for the Senior Subordinated Notes. This was done so that certain
institutional investors to which the Senior Subordinated Notes were marketed
that might otherwise have been restricted in their ability to purchase debt
securities issued by a limited liability company, such as the Company, by
reason of the legal investment laws of their states of organization or their
charter documents, would be able to invest in the Senior Subordinated Notes.
Grove Capital has no subsidiaries, nominal assets, no liabilities (other than
the co-obligation under the Senior Subordinated Notes) and no operations.
Grove Capital does not have any revenues and is prohibited from engaging in
any business activities. As a result, holders of the Senior Subordinated
Notes should not expect Grove Capital to participate in servicing the
interest and principal obligations on the Senior Subordinated Notes.
The payment obligations of the Company and Grove Capital under the Senior
Subordinated Notes are fully and unconditionally guaranteed on a joint and
several basis by the Subsidiary Guarantors (the "Subsidiary Guarantees'), all
of which are wholly owned. The Subsidiary Guarantors are Grove U.S. LLC, a
Delaware limited liability company, Grove Finance LLC, a Delaware limited
liability company, Crane Acquisition Corp., a Delaware corporation, Crane
Holding Inc., a Delaware corporation, and National Crane Corporation, a
Delaware corporation. Grove U.S. LLC and National Crane Corporation are the
Company's domestic operating subsidiaries and together hold substantially all
of the Company's domestic assets. The remaining subsidiaries of the Company,
which are foreign subsidiaries, have not issued, and are not expected to
issue, Subsidiary Guarantees.
No separate financial statements of the Subsidiary Guarantors and Grove
Capital are included in this report. The Company considers that such
financial statements would not be material to investors because: (i) this
report does include, in the notes to the combined and consolidated financial
statements of the Company, supplemental financial information, setting forth
on a consolidated basis, balance sheets, statements of operations and cash
flows information for the Subsidiary Guarantors, the Non-Guarantor
Subsidiaries and the Company; and (ii) the above-mentioned note provides
sufficient detail to allow investors to determine the nature of the assets
held by, and the operations and cash flows of the Subsidiary Guarantors and
Grove Capital.
The ability of the Company's subsidiaries to make cash distributions and
loans to the Company and the Subsidiary Guarantors is not significantly
restricted under the terms of the Senior Subordinated Notes, the Indenture
governing the Senior Subordinated Notes or the Bank Credit Facility. The
obligations of each Subsidiary Guarantor under its Subsidiary Guarantee are
limited so as not to constitute a fraudulent conveyance under applicable law.
For more information regarding the assets, liabilities, revenues and cash
flows of the Subsidiary Guarantors and the Company's non-guarantor
subsidiaries, see Note 22 of Notes to the Combined and Consolidated Financial
Statements of the Company.
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.
17
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.
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.
18
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.
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.
19
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. The
Company expects to adopt SOP 98-5 in first quarter of fiscal 2000 by
recognizing a charge of $63,000 for the cumulative effect of adoption.
ITEM 7A. 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. A summary of the Company's principal
financial instruments which are subject to interest rate risk at October 2,
1999 is as follows (dollars in thousands):
AMOUNT
OUTSTANDING AT
OCTOBER 2, INTEREST FAIR
DESCRIPTION 1999 RATE VALUE
---------------- ------------- --------
Revolving credit facility $ 10,000 Floating 10,000
Term loan facility 190,000 Floating 190,000
Senior subordinated notes 225,000 9.25% 108,000
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.
20
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 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 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 the Company, along with
the Report of Independents Accountants, are included on pages F-1 through
F-49 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.
21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Grove Holdings, as Managing Member, sets the terms of office of the members
of the Management Committee of the Company (the "Company Management
Committee"). The executive officers of the Company serve at the discretion of
the Company Management Committee. See "Item 11. Executive
Compensation--Employment Arrangements." The following table sets forth
information concerning executive officers of the Company and the members of
the Company Management Committee, each of whom (except James Patell, who is a
member of the Management Committee of the Company only) is also a member of
the Management Committee of Grove Holdings (the "Holdings Management
Committee" and, together with the Company Management Committee, the
"Management Committees"):
Name Age Position
- -------------------- ------- -------------------------------------------------------------------
Jeffry D. Bust 46 Chairman and Chief Executive Officer, Grove Worldwide and
Member of each Management Committee
Stephen L. Cripe 43 Senior Vice President and Chief Financial Officer, Grove Worldwide
Joseph P. Danules 49 President, Grove Manlift
Keith R. Simmons 49 Senior Vice President, General Counsel and Human Resources,
Grove Worldwide
Theodore J. Urbanek 65 President, National Crane Corporation
John Wheeler 54 President, Europe, Africa, and the Middle East
J. Taylor Crandall 45 Member of each Management Committee
Michael L. George 60 Member of each Management Committee
Gerald Grinstein 67 Member of each Management Committee
Steven B. Gruber 41 Member of each Management Committee
Robert B. Henske 38 Member of each Management Committee
Gerard E. Holthaus 50 Member of each Management Committee
James M. Patell 51 Member of the Company Management Committee
Mr. Bust serves as Chairman and Chief Executive Officer of the Company and
serves as a member of each 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.
22
Mr. Cripe serves as Senior Vice President and Chief Financial Officer of the
Company, 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. Danules serves as President of Grove Manlift. From April 1999 to October
1999, he was Senior Vice President of Manlift Sales and Marketing,
responsible for growing the Company's aerial work platform sales,
particularly with large rental customers. From 1997 to April 1999, Mr.
Danules served as Vice President of Sales for Volvo Construction Equipment
North America, Inc. From 1984 to 1997, he held management assignments in
Sales, Marketing, Service Support, and Strategic Alliance Development at
American Isuzu Motors, Inc., and similar assignments with General Motors
Corporation, GM Truck and Bus group from 1968 to 1984.
Mr. Simmons serves as Senior Vice President, General Counsel and Human
Resources of the Company. 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.
Mr. Urbanek serves as President of National Crane, a position in which he has
served since 1975. Mr. Urbanek is responsible for the business direction of
National Crane, including overseeing the manufacturing, engineering,
marketing, sales, product support, quality, human resources, accounting and
information services departments at the Waverly, Nebraska facility. His past
positions (all while also serving as President of National Crane) include
acting Vice President and General Manager of Grove Manlift from 1981 to 1983
and Group Vice President for Circle Steel Corp. and Cook Pump (a Grove
Worldwide operation) from 1984 to 1987.
Mr. Wheeler serves as President, Europe, Africa, and the Middle East, a
position to which he was appointed in December 1998. Mr. Wheeler is
responsible for the day-to-day operations of the Company's manufacturing,
marketing, sales, finance, and product support activities in Europe, Africa,
and the Middle East. From 1995 to December 1998, he served as Senior Vice
President-Worldwide Operations for the Grove Crane operation of the Company.
From January 1985 to June 1995, Mr. Wheeler held various executive and
manufacturing management positions with Ingersoll Rand.
Mr. Crandall serves as a member of each 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 each 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.
23
Mr. Grinstein serves as a member of each 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 each 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 each 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 each 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.
Mr. Patell serves as a member of the Management Committee of the Company.
Since September 1991, Mr. Patell has served as the Herbert Hoover
Professor of Public and Private Management at the Stanford Graduate
School of Business. He was named co-director of the Stanford Integrated
Manufacturing Association in June 1995. From 1975 to the present, he has
held various other positions with the Stanford Graduate School of
Business, including Associate Dean for Academic Affairs. Mr. Patell is a
member of the editorial board of the Journal of Accounting Research and the
Journal of Management Accounting Research. Mr. Patell is a Director
of Reliant Building Products, Inc. He also serves as a Director of the
Center for Quality of Management - West, and as an advisor to the Corporate
Design Foundation, both non-profit institutions.
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.
24
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all cash compensation paid during the last fiscal
year to Grove Worldwide's current and former Chief Executive Officers, those
officers who were, at October 2, 1999, the next four highest paid officers of
Grove Worldwide, and those additional individuals for whom disclosure would have
been provided but for the fact that such individuals were not serving as
executive officers of Grove Worldwide at the end of the last completed fiscal
year (collectively, together with the Chief Executive Officers, the "Named
Executive Officers"):
LONG TERM
COMPENSATION AWARDS
-------------------------
ANNUAL COMPENSATION (a) SECURITIES ALL OTHER
-------------------------------------- UNDERLYING LTIP COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(b) PAYOUTS (c)
- ------------------------------------- ------------ ---------- ----------- ----------- ----------- ----------
S. Bonanno, CEO,
Grove Worldwide (d) 1999 $500,004 $ 37,292 -- -- $ 199,604(e)
1998 273,718 -- 1,500 -- 67,626(f)
J. Bust, President, Grove Crane (g) 1999 270,000 43,380 -- -- 117,166(h)
1998 85,154 -- 750 -- 291,262(i)
S. Cripe, CFO, Grove Worldwide (j) 1999 249,996 -- 525 -- 163,169(k)
1998 31,410 -- -- -- 30,428(l)
g
J. Wheeler, President, Europe,
Africa, and the Middle East 1999 206,378 25,069 -- -- 59,922(m)
1998 185,205 69,882 300 98,580 13,190(n)
1997 176,008 131,250 -- -- 12,355(o)
K. Simmons, General Counsel,
Grove Worldwide 1999 208,751 10,852 187 -- 36,547(p)
1998 192,759 45,540 -- 161,238 14,120(q)
1997 186,004 138,750 -- 3,214 15,728(r)
J. Kolinski, President,
Grove Manlift (s) 1999 29,927 -- -- -- 807,443(t)
1998 207,012 7,757 -- 192,238 17,624(u)
1997 201,004 142,000 -- 10,364 19,555(v)
(a) The value of perquisites and benefits for each Named Executive Officer does
not exceed the lesser of $50,000, 10% of the total annual salary and bonus
of such executive officer and, accordingly, is not reported herein.
(b) Certain of the Named Executive Officers have been granted options to
purchase limited liability interests in Grove Investors denominated in
Class A Units (as defined in the Option Plan).
(c) Represents the value of personal use of a company vehicle, employer
matching contributions under Grove Worldwide's 401(k) plan, excess group
term life insurance value, supplemental health care insurance and long-term
disability insurance premiums. Does not include benefits that are made
available to all employees.
(d) Salvatore J. Bonanno served as CEO of Grove Worldwide until October 5,
1999.
(e) Includes a payment of $100,000 made to Mr. Bonanno under the terms of his
employment agreement with Grove Worldwide, $64,042 for relocation costs
incurred in connection with becoming Chairman and CEO of Grove Worldwide on
April 29, 1998, a vehicle allowance in the amount of $12,000, employer
matching contributions under the Grove Worldwide 401(k) plan of $10,000,
excess group term life insurance valued at $8,500 and supplemental health
insurance benefits in the amount of $3,877.
(f) Includes a payment of $63,462 to compensate Mr. Bonanno for compensation
foregone under an employment arrangement with his former employer.
25
(g) Mr. Bust was employed by Grove Worldwide on June 8, 1998 in the position of
President, Grove Crane. Mr. Bust is CEO effective October 1999.
(h) Includes $98,870 for relocation costs incurred in connection with becoming
President of Grove Crane, a vehicle allowance of $12,000, excess group term
life insurance valued at $2,645 and supplemental health insurance benefits
of $2,517.
(i) Includes $290,000 paid in accordance with the terms of his employment
arrangement with Grove Worldwide as President, Grove Crane.
(j) Mr. Cripe was employed by Grove Worldwide on August 17, 1998 in the
position of Chief Financial Officer of Grove Worldwide.
(k) Includes a vehicle allowance of $12,000, payment of $101,000 in accordance
with the terms of his employment arrangement with Grove Worldwide and
$46,987 for relocation costs incurred in connection with becoming the Chief
Financial Officer.
(l) Includes $30,000 paid in accordance with the terms of his employment
arrangement with Grove Worldwide as Chief Financial Officer.
(m) Includes a vehicle allowance in the amount of $12,000, use of company
vehicle valued at $3,144, excess group term life insurance valued at
$3,341, supplemental health insurance benefits of $2,398 and $33,016 paid
in connection with Mr. Wheeler's transfer to Germany as an expatriate
employee following his promotion to the position of President Grove Europe,
Africa and Middle East on December 1, 1998 and $4,376 employer matching
contributions under Grove Worldwide 401(k) plan.
(n) Includes employer matching contributions under Grove Worldwide's 401(k)
plan of $5,000.
(o) Includes the use of a company vehicle valued at $3,119 and employer
matching contributions under Grove Worldwide's 401(k) plan of $5,000.
(p) Includes a vehicle allowance in the amount of $12,000, use of company
vehicle valued at $4,689, excess group term life insurance valued at
$3,063, employer matching contributions under the Grove Worldwide 401(k)
plan of $4,188 and $10,000 in accordance with his employment arrangement
with Grove Worldwide.
(q) Includes the use of a company vehicle valued at $4,660 and employer
matching contributions under Grove Worldwide's 401(k) plan of $5,000.
(r) Includes the use of a company vehicle valued at $4,579 and employer
matching contributions under Grove Worldwide's 401(k) plan of $5,430.
(s) James A. Kolinski served as President of Grove Manlift until November 19,
1998.
(t) Includes a payment of $797,567 made to Mr. Kolinski under his Change of
Control Agreement and the use of a company vehicle valued at $6,656.
(u) Includes the use of a company vehicle valued at $6,723 and employer
matching contributions under Grove Worldwide's 401(k) plan of $5,000.
(v) Includes the use of a company vehicle valued at $6,279 and excess
group term life insurance valued at $8,550.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth individual grants of options pursuant to the
Grove Investors LLC Management Option Plan (the "Option Plan") for officers,
members and employees during the last fiscal year to the Named Executive
Officers:
NUMBER OF
SECURITIES PERCENT
UNDERLYING OF TOTAL OPTIONS/
OPTIONS/SARS SARS GRANTED EXERCISE OR
GRANTED TO EMPLOYEES IN BASE PRICE EXPIRATION
NAME (#) (1) FISCAL YEAR ($/SECURITY) DATE (2)
- ----------------- ----------- ---------------------- ----------------- -------------------
S. Cripe 525 14.7% $1,000 April 28, 2008
K. Simmons 187.5 5.26 1,000 April 28, 2008
(1) Options to purchase limited liability interests in Grove Investors
denominated in Class A Units (as defined in the Option Plan).
(2) The options may be exercised: (i) April 28, 2008; (ii) 30 days following
termination of the Named Executive Officer concerned without cause (as
described in the Option Plan); (iii) one year following the death or
disability of the Named Executive Officer concerned; (iv) the effective
date of termination for cause (as described in the Option Plan); or (v)
the effective date of voluntary termination for any reason (as described
in the Option Plan).
26
PENSION BENEFITS
The following table sets forth the standard annual benefits payable to
participants in the Company's pension plan and nonqualified supplemental benefit
plan:
PENSION PLAN TABLE
YEARS OF SERVICE
----------------------------------------------------------------------------
RENUMERATION 15 20 25 30 35
- --------------------- ------------ ------------ ------------ ------------ ------------
$ 125,000 $ 27,714 $ 36,952 $ 46,190 $ 55,428 $ 64,666
150,000 33,902 45,202 56,503 67,803 79,104
175,000 40,089 53,452 66,815 80,178 93,541
200,000 46,277 61,702 77,128 92,553 107,979
225,000 52,464 69,952 87,440 104,928 122,416
300,000 61,127 81,502 101,878 122,253 142,629
400,000 61,127 81,502 101,878 122,253 142,629
450,000 61,127 81,502 101,878 122,253 142,629
500,000 61,127 81,502 101,878 122,253 142,629
Salaried employees of the Company are eligible to participate in the Company's
defined benefit pension plan, and each named Executive Officer participates in a
supplemental excess retirement plan. Under the aggregated plans, benefits are
determined based on years of service and average annual base salary (up to
$260,000 for years after 1996) for the highest three of the last 10 years of
service. Benefits under the plan equal 1% of final average pay plus 0.65% of
final average pay in excess of social security covered compensation, minus any
benefits payable under the Company's prior plan. This total benefit is reduced
by benefits from the Grove and Hanson pension plans, 50% of the Primary Social
Security benefit and for employment after July 1, 1984 of less than 20 years.
All of the Named Executive Officers are participants in the pension plan.
The following table sets forth the estimated credited years of service for each
of the Named Executive Officers as of the end of fiscal 1999:
ESTIMATED CREDITED YEARS OF SERVICE AS OF THE END OF FISCAL YEAR 1999
CREDITED YEARS
NAME OF SERVICE
- --------------------- -------------------
S. Bonanno 1.5
J. Bust 1.3
S. Cripe 1.2
J. Wheeler 4.3
K. Simmons 14.1
J. Kolinski 6.4
27
DESCRIPTION OF MANAGEMENT OPTION PLAN
In April 1998, Grove Investors, the parent company of Grove Holdings, adopted
the Option Plan. The purpose of the Option Plan is to promote the interests of
Grove Investors and its members by (i) attracting and retaining exceptional
officers and other key employees of Grove 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 Grove 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 Grove 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, Grove Investors
has the assignable right but not the obligation to purchase the participant's
membership interests in Grove 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, Grove 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 realization event. The plan expires after ten
years unless specifically amended. None of the Named Executives participate
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.
28
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, Messrs. Shull, Simmons and Urbanek entered into separate change of
control agreements with Grove Worldwide. Each executive's agreement provides
that if, within two years after a change in control of Grove Worldwide, (a) the
executive is terminated by Grove Worldwide without Cause (as defined therein) or
due to death, disability or retirement, or (b) the executive 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. Each executive 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In July 1998, a compensation committee, made up of members of the Company's
Management Committee (the "Compensation Committee"), was formed to approve
executive compensation policies. The chairman of the Compensation Committee is
Mr. Henske. Messrs. Crandall and Gruber are also members of the Compensation
Committee, which determines the compensation of the executive officers of the
Company. Traditionally, the Company's compensation practices have been based on
a modified "Hay" system. The Company is currently transitioning into a "market"
value system and is developing procedures to review, and if appropriate, adjust
its salary grades.
29
MANAGEMENT OF GROVE CAPITAL
Messrs. Henske, Scotto and Bust are the directors of Grove Capital. They are not
compensated in any way for acting in their capacity as such. The board of
directors of Grove Capital does not have a compensation committee, audit
committee or nominating committee.
Mr. Bust is the Chief Executive Officer of Grove Capital. Mr. Simmons is
the Vice President and Secretary of Grove Capital. Mr. Cripe is the Vice
President and Chief Financial Officer of Grove Capital. None of the executive
officers of Grove 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 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 Capital are beneficially owned by the
Company, 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 Grove 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 Grove 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:
MEMBERSHIP
NAME OF BENEFICIAL OWNER INTERESTS (7)
- -------------------------------------------- ------------------
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) *
J. Wheeler (5) *
All executive officers and members of the
Company Management Committee as
a group (12 persons) (6) 53.06%
* Indicates less than one percent.
30
(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.
(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
GROVE WORLDWIDE LLC OPERATING AGREEMENT
The Company is wholly owned by Grove Holdings, which is also the managing
member. As managing member, Grove Holdings has delegated the management of the
Company to the Company Management Committee. Subject to restrictions contained
in the New Credit Facility and the Indenture relating to the Senior Subordinated
Notes, all distributions in respect of membership interests of the Company will
be made to Grove Holdings.
GROVE HOLDINGS LLC OPERATING AGREEMENT
Grove Holdings is wholly owned by Grove Investors, which is also the managing
member of Grove Holdings. As managing member, Grove Investors has delegated the
management of the Company to the Holdings Management Committee, which has the
same composition as the Company Management Committee (except J. Patell, who is a
member only of the Company Management Committee). Subject to restrictions
contained in the Indenture relating to the Debentures, all distributions in
respect of membership interests of Grove Holdings will be made to Grove
Investors.
31
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 certain agreements with Messrs. Simmons
and Urbanek. See "Item 11. Executive Compensation--Employment
Arrangements" and "Termination and Change of Control Agreements."
LOANS TO CERTAIN EXECUTIVE OFFICERS
Grove Investors has provided approximately $1,212,000 in loans to certain
executive officers of the Company to finance their investment in the membership
interest of Grove 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 Grove
Investors. All of the notes are due ten years from their date of issuance. As of
October 2, 1999, Messrs. Bust, Wheeler, and Cripe were indebted to the Company
in the amounts of approximately $228,000, $165,000, and $737,000, including
accrued interest, respectively.
32
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 the Company and
the Report of Independent Accountants set forth on pages F-1 through F-49
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.
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -----------------------
3.1* Second Amended and Restated Limited Liability Company Agreement of Grove Worldwide LLC
("Grove")
4.1* Indenture dated as of April 29, 1998, by and among Grove, Grove
Capital, Inc. ("Grove Capital"), the Subsidiary Guarantors and
the United States Trust Company of New York.
4.2* Form of 9 1/4% Senior Subordinated Notes due 2008.
4.3* Credit Agreement dated April 29, 1998, by and among Grove, Grove Capital 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.
4.4* Registration Rights Agreement dated as of April 29, 1998, by and among Grove, Grove
Capital, the Subsidiary Guarantors and Chase Securities Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and BankBoston Securities Inc.
10.1* Stock and Asset Purchase Agreement, dated March 10, 1998 (the "Acquisition Agreement"), by
and among Grove and Hanson Funding (G) Limited, Deutsche Grove Corporation, Hanson America
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 and
the Sellers.
10.3* George Group Consulting Agreement dated as of April 29, 1998 by and between Grove and
George Group Inc.
10.4* Employment Agreement dated as of March 5, 1998 by and between Grove and Salvatore J.
Bonanno.
33
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -----------------------
10.5* Change of Control Agreement dated July 24, 1997 by and between Grove and Keith R. Simmons.
10.6* Change of Control Agreement dated July 24, 1997 by and between Grove 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, Grove Capital 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 and Salvatore J. Bonanno.
10.13* Promissory Noted dated June 27, 1998 by and between Grove and Jeffrey D. Bust.
10.14* Promissory Note dated June 27, 1998 by and between Grove and John Wheeler.
10.15* Promissory Note dated October 27, 1998 by and between Grove and Stephen L. Cripe.
10.16* Promissory Note dated October 27, 1998 by and between Grove 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 October 6, 1999 by and among 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 the Company.
27.1 Financial Data Schedule.
* Incorporated herein by reference from the Registration Statement
on Form S-4 filed by Grove Worldwide LLC, Grove Capital, Inc. and
the Subsidiary Guarantors (Commission File Number 333-57611).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended October 2, 1999.
34
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 WORLDWIDE 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.
SIGNATURES TITLE
---------- -----
/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
/S/ JAMES PATELL Member
- ----------------
James Patell
35
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.
36
GROVE WORLDWIDE LLC AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
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 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 F-5
Combined Statements of Comprehensive Income (Loss) for the year ended September
27, 1997 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 II - Valuation and Qualifying Accounts S-1
F-1
INDEPENDENT AUDITORS' REPORT
The Management Committee of
Grove Worldwide LLC:
We have audited the accompanying consolidated balance sheets of Grove
Worldwide 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 schedule listed under Item 14(a)(2). These consolidated
and combined financial statements and financial statement schedule 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 schedule 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
Worldwide 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 schedule, 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
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
except for Note 22, as to which date is
April 29, 1998
Baltimore, Maryland
F-3
GROVE WORLDWIDE LLC AND SUBSIDIARIES
Consolidated Balance Sheets
As of October 3, 1998 and October 2, 1999
(in thousands)
1998 1999
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 34,289 $ 16,864
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 396,650 365,088
Property, plant and equipment, net (note 6) 207,175 213,731
Goodwill, net (note 7) 288,499 269,556
Other assets 18,024 13,126
------------ ------------
$ 910,348 $ 861,501
============ ============
LIABILITIES AND MEMBER'S EQUITY
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) 104,951 84,946
------------ ------------
Total current liabilities 206,448 191,424
Deferred revenue (note 3) 67,306 74,368
Long-term debt (note 10) 408,000 401,000
Other liabilities (note 11) 82,733 90,141
------------ ------------
Total liabilities 764,487 756,933
------------ ------------
Member's equity:
Invested capital 164,560 163,710
Accumulated deficit (23,981) (49,477)
Accumulated other comprehensive income (loss) 5,282 (9,665)
------------ ------------
Total member's equity 145,861 104,568
------------ ------------
Commitments and contingencies (notes 16, 17, 18 and 19)
------------ ------------
$ 910,348 $ 861,501
============ ============
See accompanying notes to combined and consolidated financial statements.
F-4
GROVE WORLDWIDE LLC AND SUBSIDIARIES
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)
PREDECESSOR COMPANY
------------------------------ -------------------------------
SEPTEMBER 27, APRIL 28, OCTOBER 3, OCTOBER 2,
1997 1998 1998 1999
-------------- -------------- -------------- --------------
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 (15,916) (36,020)
Other income (expense), net 535 (9,524) (554) (139)
-------------- -------------- -------------- --------------
Income (loss) before
income taxes 68,469 11,346 (19,644) (19,961)
Income taxes (note 14) 26,249 11,741 4,337 5,535
-------------- -------------- -------------- --------------
Net income (loss) $ 42,220 $ (395) $ (23,981) $ (25,496)
============== ============== ============== ==============
See accompanying notes to combined and consolidated financial statements.
F-5
GROVE WORLDWIDE LLC AND SUBSIDIARIES
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)
PREDECESSOR COMPANY
------------------------------ ------------------------------
SEPTEMBER 27, APRIL 28, OCTOBER 3, OCTOBER 2,
1997 1998 1998 1999
-------------- -------------- -------------- -------------
Net income (loss) $ 42,220 $ (395) $ (23,981) $ (25,496)
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) $ (18,699) $ (40,443)
============== ============== ============== =============
See accompanying notes to combined and consolidated financial statements.
F-6
GROVE WORLDWIDE LLC AND SUBSIDIARIES
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)
COMPANY
-------------------------------------------------------------
ACCUMULATED
OTHER TOTAL
PREDECESSOR INVESTED ACCUMULATED COMPREHENSIVE MEMBER'S
CAPITAL CAPITAL DEFICIT INCOME (LOSS) EQUITY
------------ ------------- ------------- --------------- ------------
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 -- 168,209 -- -- 168,209
Advances to Grove
Holdings LLC (note 19) -- (3,649) -- -- (3,649)
Net loss -- -- (23,981) -- (23,981)
Other comprehensive income -- -- -- 5,282 5,282
------------ ------------- ------------- ------------- --------------
Balance, October 3, 1998 -- 164,560 (23,981) 5,282 145,861
Advances to Grove
Holdings LLC (note 19) -- (850) -- -- (850)
Net loss -- -- (25,496) -- (25,496)
Other comprehensive loss -- -- -- (14,947) (14,947)
------------ ------------- ------------- ------------- --------------
Balance, October 2, 1999 $ -- $ 163,710 $ (49,477) $ (9,665) $ 104,568
============ ============= ============= ============= ==============
See accompanying notes to combined and consolidated financial statements.
F-7
GROVE WORLDWIDE LLC AND SUBSIDIARIES
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)
PREDECESSOR COMPANY
------------------------------ ---------------------------
SEPTEMBER 27, APRIL 28, OCTOBER 3, OCTOBER 2,
1997 1998 1998 1999
------------- ------------- ------------- ------------
Cash flows from operating activities:
Net income (loss) $ 42,220 $ (395) $ (23,981) $ (25,496)
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 -- -- 722 1,872
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 2,489 (14,854)
Other assets and liabilities, net 33,383 8,759 25,962 12,863
------------- ------------- ------------- ------------
Net cash provided by operating activities 11,995 93,097 57,300 686
------------- ------------- ------------- ------------
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 -- -- (562,742) 10,500
Other investing activities 1,603 2,071 1,321 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 -- -- 450,200 10,000
Repayments of long-term debt -- -- (35,200) (12,000)
Equity investment from Grove Holdings LLC -- -- 168,209 --
Advances to Grove Holdings LLC -- -- (3,649) (850)
Deferred financing costs -- -- (14,453) --
Other financing activities 54,145 (62,087) -- --
------------- ------------- ------------- ------------
Net cash provided by (used in)
financing activities 54,349 (55,266) 566,048 1,289
------------- ------------- ------------- ------------
Effect of exchange rate changes on cash (712) 217 343 (110)
------------- ------------- ------------- ------------
Net change in cash and cash equivalents (3,160) 4,218 34,289 (17,425)
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 $ 16,864
============= ============= ============= ============
See accompanying notes to combined and consolidated financial statements.
F-8
GROVE WORLDWIDE 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 Worldwide LLC (the "Company") 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 is a sole member limited liability company formed 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 (as defined below)
on April 28, 1998 (see note 2). Grove Holdings LLC ("Holdings") is the sole
member of the Company. All earnings of the Company are available for
distribution to Holdings subject to restrictions contained in the Company's
debt agreements (see note 10). Holdings is a sole member limited liability
company that is owned by Grove Investors LLC ("Investors").
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.
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.
F-9
GROVE WORLDWIDE LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
(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:
Sources:
Issuance of the Senior Subordinated Notes $ 225,000
Borrowings under Revolving Credit Facility 10,106
Borrowings under Term Loan Facility 200,000
Equity investment by Holdings 168,209
------------
$ 603,315
============
Uses:
Acquisition price $ 583,000
Transaction costs 5,783
------------
Aggregate purchase price 588,783
Debt financing costs 14,532
------------
$ 603,315
============
Proceeds from the equity investment by Holdings of $168,209 were generated by
Holdings through the issuance of 100% of its equity to Investors in exchange
for $120,000, and net proceeds of $48,209 from its issuance of $88,000 of
11-5/8% Senior Discount Debentures due May 2009. Such debentures have no cash
interest requirement prior to November, 2003. On May 1, 2003, the debentures
will have accreted to $88,000 and will require semi-annual payments of
interest based on a per annum rate of 11 5/8%. The cash interest payments are
expected to be generated by distributions from the Company. The equity
investment by Investors in Holdings of $120,000 was generated by Investors
through issuance of its equity to its members for $75,000, and net proceeds
of $45,000 from its issuance of $47,375 of 14 1/2% Senior Debentures. Such
debentures have no cash interest requirement prior to their maturity on May
1, 2010.
F-10
GROVE WORLDWIDE 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:
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
=============
(3) SUMMARY OF SIGNIFICANT ACCOUNTINGH 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
GROVE WORLDWIDE 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:
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
(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.
F-12
GROVE WORLDWIDE LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial
Statements (in thousands of dollars)
October 3, 1998 and October 2, 1999
(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.
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.
F-13
GROVE WORLDWIDE LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial
Statements (in thousands of dollars)
October 3, 1998 and October 2, 1999
(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.
(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.
F-14
GROVE WORLDWIDE LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial
Statements (in thousands of dollars)
October 3, 1998 and October 2, 1999
(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.
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 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 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 charge of $63 for the cumulative effect of adoption.
F-15
GROVE WORLDWIDE LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial
Statements (in thousands of dollars)
October 3, 1998 and October 2, 1999
(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.
(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.
F-16
GROVE WORLDWIDE 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 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.
(5) INVENTORIES
Inventories consist of the following as of October 3, 1998 and October 2,
1999:
1998 1999
------------- -------------
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
============= =============
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.
F-17
GROVE WORLDWIDE LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following as of October 3, 1998
and October 2, 1999:
1998 1999
------------- -------------
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
============= =============
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.
(7) GOODWILL
Goodwill consists of the following as of October 3, 1998 and October 2, 1999:
1998 1999
------------- -------------
Goodwill $ 291,590 $ 280,153
Less accumulated amortization 3,091 10,597
------------- -------------
$ 288,499 $ 269,556
============= =============
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.
F-18
GROVE WORLDWIDE LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
(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:
1998 1999
------------- -------------
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
Interest 9,907 9,364
Product, workers' compensation and general liability insurance 4,125 2,376
Sunderland, U.K. shut-down costs (note 15) 18,500 712
Other 21,040 21,802
------------- -------------
$ 104,951 $ 84,946
============= =============
(10) LONG-TERM DEBT
Long-term debt consists of the following as of October 3, 1998 and October 2,
1999:
1998 1999
------------- -------------
Revolving credit facility $ -- $ 10,000
Term loan facility 190,000 178,000
Senior subordinated notes 225,000 225,000
------------- -------------
415,000 413,000
Less current maturities 7,000 12,000
------------- -------------
Long-term debt $ 408,000 $ 401,000
============= =============
F-19
GROVE WORLDWIDE LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial
Statements (in thousands of dollars)
October 3, 1998 and October 2, 1999
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 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.
F-20
GROVE WORLDWIDE LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial
Statements (in thousands of dollars)
October 3, 1998 and October 2, 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. 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 (see note 22). 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.
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.
F-21
GROVE WORLDWIDE LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial
Statements (in thousands of dollars)
October 3, 1998 and October 2, 1999
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.
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 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.
The estimated fair value of the Company's long-term debt at October 2, 1999
was approximately $296,000.
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.
Predecessor Company
-------------------------- --------------------------
September 27, April 28, October 3, October 2,
1997 1998 1998 1999
------------ ------------ ------------ ------------
Interest expense $ (638) $ (263) $ (17,410) $ (38,711)
Interest expense paid to Hanson (1,404) (2,174) -- --
Amortization of deferred financing
costs -- -- (722) (1,872)
Interest income 2,085 3,485 2,216 4,563
------------ ------------ ------------ ------------
$ 43 $ 1,048 $ (15,916) $ (36,020)
============ ============ ============ ============
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.
F-22
GROVE WORLDWIDE LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
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.
(11) OTHER LIABILITIES
Other liabilities consist of the following as of October 3, 1998 and October
2, 1999:
1998 1999
--------- ---------
Accrued liability for defined benefit pension plans $ 29,286 $ 31,198
Accrued liability for postretirement benefit plan 28,293 31,696
Other 25,154 27,247
--------- ---------
$ 82,733 $ 90,141
========= =========
(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-23
GROVE WORLDWIDE 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.
POST-
PENSION BENEFITS RETIREMENT BENEFITS
---------------------------- -----------------------------
OCTOBER 3, OCTOBER 2, OCTOBER 3, OCTOBER 2,
1998 1999 1998 1999
------------- ------------- ------------- -------------
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 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 compensations increases 4.25% 4.25% -- --
F-24
GROVE WORLDWIDE 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 for 1998 was 9.0%, 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 for 1999 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:
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
------------ -------- ---------- --------- ------------ --------- ---------- ----------
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
============ ======== ========== ========= ============ ========= ========== ==========
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.
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.
F-25
GROVE WORLDWIDE LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
OCTOBER 3, OCTOBER 2,
1998 1999
------------- ------------
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 compensation increases 2.25% to 4.50% 2.25% to 3.75%
F-26
GROVE WORLDWIDE 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:
PREDECESSOR COMPANY
-------------------------- ---------------------------
APRIL 28, OCTOBER 3, OCTOBER 2,
1997 1998 1998 1999
------------ ------------ ------------ ------------
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
============ ============ ============ ============
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, Investors 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 dollars 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-27
GROVE WORLDWIDE LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
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 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 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.
(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-28
GROVE WORLDWIDE 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:
PREDECESSOR COMPANY
------------------------- ------------------------------
APRIL 28, OCTOBER 3, OCTOBER 2,
1997 1998 1998 1999
----------- ------------ ------------ ---------------
United States $ 66,721 $ 30,446 $ (6,460) $ (19,435)
Other countries 1,748 (19,100) (13,184) (526)
----------- ------------ ------------ ---------------
$ 68,469 $ 11,346 $ (19,644) $ (19,961)
=========== ============ ============ ===============
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:
PREDECESSOR COMPANY
------------------------- ------------------------------
APRIL 28, OCTOBER 3, OCTOBER 2,
1997 1998 1998 1999
----------- ------------ ------------ ---------------
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
=========== =========== =============== ==============
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-29
GROVE WORLDWIDE 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:
1998 1999
---------- ----------
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
========== ==========
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:
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
========
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-30
GROVE WORLDWIDE 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 for severance and related costs
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 the 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:
1999 $ 3,743
2000 1,313
2001 632
2002 438
2003 242
Thereafter 33
-----------
$ 6,401
===========
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-31
GROVE WORLDWIDE 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.
BUY SELL
----------- ------------
As of October 3, 1998 $ 2,244 $ (4,444)
----------- ------------
As of October 2, 1999:
Deutsche Marks $ 4,418 $ --
=========== ============
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-32
GROVE WORLDWIDE 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-33
GROVE WORLDWIDE 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
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-34
GROVE WORLDWIDE 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 for the years ended September 27, 1997 and for
the seven months ended April 28, 1998.
The Company made advances to Holdings of $3,649 and $850, respectively,
during the five months ended October 3, 1998 and year ended October 2, 1999.
Such amount included loans to the Company's executive officers to purchase
certain equity interest in Investors and transactions costs incurred by
Holdings and Investors to consummate the Acquisition and related financing.
Such amounts have been accounted for as a reduction of member's equity.
The Company has engaged, under a multi-year agreement, a consulting group
controlled by one of Investor's minority owners, to help the Company 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-35
GROVE WORLDWIDE 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:
CORPORATE,
GROVE GROVE NATIONAL ELIMINATIONS
CRANE MANLIFT CRANE AND OTHER TOTAL
------------ ------------ ------------ ------------ ------------
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 45,428 311,732 910,348
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 41,818 286,992 861,501
Capital expenditures 8,359 277 769 -- 9,405
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-36
GROVE WORLDWIDE 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:
PREDECESSOR COMPANY
------------------------------- --------------------------------
SEPTEMBER 27, APRIL 28, OCTOBER 3, OCTOBER 2,
1997 1998 1998 1999
--------------- ------------- --------------- ---------------
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
=============== ===============
(21) 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.
(22) SUPPLEMENTAL CONDENSED COMBINED AND CONSOLIDATED FINANCIAL INFORMATION
The Company formed Grove Capital, Inc. as a direct wholly owned subsidiary
to act as a co-issuer of the Senior Subordinated Notes (see note 10). At
October 2, 1999, Grove Capital, Inc. had one hundred dollars in cash and
total assets, and no current or long-term liabilities other than is
contingent co-obligation with respect to the Senior Subordinated Notes.
For the five months ended October 3, 1998 and the year ended October 2,
1999, Grove Capital, Inc. had no income or loss and no revenues. Grove
Capital, Inc. has no subsidiaries, no operations and is prohibited from
engaging in any business activities.
F-37
GROVE WORLDWIDE LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
The Company's payment obligations under the senior subordinated notes
(see note 10) are guaranteed by all of the Company's domestic
subsidiaries other than Grove Capital, Inc. (the "Subsidiary
Guarantors"). Such guarantees are full, unconditional and joint and
several. The Subsidiary Guarantors are wholly owned by the Company. Grove
Capital, Inc. is a wholly owned subsidiary of the Company. Grove Capital,
Inc. and the Company are co-obligors of the senior subordinated notes and
are jointly and severally liable for such indebtedness. Separate
financial statements of Grove Capital, Inc. and the Subsidiary Guarantors
are not presented because the Company's management has determined that
they would not be material to investors. The ability of the Company's
subsidiaries to make cash distributions and loans to the Company and the
Subsidiary Guarantors is not significantly restricted under the terms of
the Company's debt obligations. The following supplemental financial
information sets forth, on a combined and consolidated basis, balance
sheets, statements of operations and comprehensive income (loss) and
statements of cash flows information for the Subsidiary Guarantors, the
Company's non-guarantor subsidiaries and the Company and its subsidiaries
on a combined and consolidated basis. A separate column for Grove
Capital, Inc. has not been provided because Grove Capital, Inc. has no
assets or operations and accordingly, such information would not be
meaningful.
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF OCTOBER 3, 1998
SUBSIDIARY OTHER CONSOLIDATED
COMPANY GUARANTORS SUBSIDIARIES ELIMINATIONS TOTALS
---------- ------------- ------------- ------------ --------------
ASSETS
Current assets:
Cash and cash equivalents $ 16,376 $ 6,052 $ 11,861 $ -- $ 34,289
Trade receivables, net -- 54,342 75,491 -- 129,833
Due from Hanson PLC 10,500 -- -- -- 10,500
Notes receivable -- 5,887 -- -- 5,887
Inventories -- 118,715 88,533 -- 207,248
Prepaid expenses other
current assets -- 3,532 5,361 -- 8,893
---------- ------------- ------------- ------------ ----------------
Total current assets 26,876 188,528 181,246 -- 396,650
Property, plant, and
equipment, net -- 112,522 94,653 -- 207,175
Goodwill -- 266,812 21,687 -- 288,499
Investment and due from
subsidiaries 642,643 250,810 4,940 (898,393) --
Other assets 10,082 7,362 580 -- 18,024
---------- ------------- ------------- ------------ ----------------
Total assets $ 679,601 $ 826,034 $ 303,106 $ (898,393) $ 910,348
========== ============= ============= ============ ================
F-38
GROVE WORLDWIDE LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
CONDENSED CONSOLIDATING BALANCE SHEETS AS OF OCTOBER 3, 1998, CONTINUED
SUBSIDIARY OTHER CONSOLIDATED
COMPANY GUARANTORS SUBSIDIARIES ELIMINATIONS TOTALS
------------ -------------- ------------- ------------ -------------
LIABILITIES AND INVESTED CAPITAL
Current liabilities:
Current maturities of
long-term debt $ 7,000 $ -- $ -- $ -- $ 7,000
Short-term borrowings -- -- 15,027 -- 15,027
Accounts payable -- 49,017 30,453 -- 79,470
Accrued expenses and other
current liabilities 10,278 29,927 64,746 -- 104,951
------------ -------------- ------------ ------------ -------------
Total current
liabilities 17,278 78,944 110,226 -- 206,448
Deferred revenue -- -- 67,306 -- 67,306
Long-term debt 408,000 -- -- -- 408,000
Due to subsidiaries 91,360 583,015 110,384 (784,759) --
Other liabilities -- 72,171 10,562 -- 82,733
------------ -------------- ------------ ------------ -------------
Total liabilities 516,638 734,130 298,478 (784,759) 764,487
------------ -------------- ------------ ------------ -------------
Member's equity:
Invested capital 164,560 92,892 20,742 (113,634) 164,560
Accumulated deficit (8,938) 1,071 (16,114) -- (23,981)
Accumulated other
comprehensive income 7,341 (2,059) -- -- 5,282
------------ -------------- ------------ ------------ -------------
Total member's
equity 162,963 91,904 4,628 (113,634) 145,861
------------ -------------- ------------ ------------ -------------
Total
liabilities
and member's
equity $ 679,601 $ 826,034 $ 303,106 $ (898,393) $ 910,348
============ ============== ============ ============ =============
F-39
GROVE WORLDWIDE LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
CONDENSED CONSOLIDATING BALANCE SHEETS AS OF OCTOBER 2, 1999
SUBSIDIARY OTHER CONSOLIDATED
COMPANY GUARANTORS SUBSIDIARIES ELIMINATIONS TOTALS
----------- ------------ ------------- ------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 8,667 $ 4,209 $ 3,988 $ -- $ 16,864
Trade receivables, net -- 55,650 86,621 -- 142,271
Notes receivable -- 5,425 -- -- 5,425
Inventories -- 134,424 58,699 -- 193,123
Prepaid expenses other
current assets -- 2,306 5,099 7,405
----------- ------------ ------------- ------------- -------------
Total current assets 8,667 202,014 154,407 -- 365,088
Property, plant, and
equipment, net -- 113,348 100,383 -- 213,731
Goodwill -- 249,328 20,228 -- 269,556
Investment and due from
subsidiaries 679,312 188,338 32,747 (900,397) --
Other assets 11,900 2,197 (971) -- 13,126
----------- ------------ ------------- ------------- -------------
Total assets $ 699,879 $ 755,225 $ 306,794 $ (900,397) $ 861,501
=========== ============ ============= ============= =============
F-40
GROVE WORLDWIDE LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
CONDENSED CONSOLIDATING BALANCE SHEETS AS OF OCTOBER 2, 1999, CONTINUED
SUBSIDIARY OTHER CONSOLIDATED
COMPANY GUARANTORS SUBSIDIARIES ELIMINATIONS TOTALS
------------ -------------- ------------- ------------ ------------
LIABILITIES AND INVESTED CAPITAL
Current liabilities:
Current maturities of
long-term debt $ 12,000 $ -- $ -- $ -- $ 12,000
Short-term borrowings -- -- 19,108 -- 19,108
Accounts payable -- 41,706 33,664 -- 75,370
Accrued expenses and other
current liabilities 9,191 31,076 44,679 -- 84,946
------------ -------------- ------------ ------------ -------------
Total current
liabilities 21,191 72,782 97,451 -- 191,424
Deferred revenue -- -- 74,368 -- 74,368
Long-term debt 401,000 -- -- -- 401,000
Due to subsidiaries 161,424 510,474 114,865 (786,763) --
Other liabilities 101 64,171 25,869 -- 90,141
------------ -------------- ------------ ------------ -------------
Total liabilities 583,716 647,427 312,553 (786,763) 756,933
------------ -------------- ------------ ------------ -------------
Member's equity:
Invested capital 163,710 92,892 20,742 (113,634) 163,710
Accumulated deficit (45,850) 14,906 (18,533) -- (49,477)
Accumulated other
comprehensive loss (1,697) -- (7,968) -- (9,665)
------------ -------------- ------------ ------------ -------------
Total member's
equity 116,163 107,798 (5,759) (113,634) 104,568
------------ -------------- ------------ ------------ -------------
Total
liabilities
and member's
equity $ 699,879 $ 755,225 $ 306,794 $(900,397) $ 861,501
============ ============== ============ ============ =============
F-41
GROVE WORLDWIDE LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
CONDENSED COMBINING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS) FOR THE YEAR ENDED SEPTEMBER 27, 1997
SUBSIDIARY OTHER COMBINED
GUARANTORS SUBSIDIARIES ELIMINATIONS TOTALS
------------- ------------- ------------ --------
Net sales $ 641,228 $ 314,643 $ (99,059) $ 856,812
Cost of goods sold 486,381 266,430 (99,272) 653,539
------------- ------------- ------------- -------------
Gross profit 154,847 48,213 213 203,273
Selling, engineering, general, and
administrative expenses 85,563 45,683 -- 131,246
Management fees paid to Hanson PLC 2,176 -- -- 2,176
Restructuring charges -- 1,960 -- 1,960
------------- ------------- ------------- -------------
Income from operations 67,108 570 213 67,891
Interest (expense) income, net 275 (232) -- 43
Other income, net 535 -- -- 535
------------- ------------- ------------- -------------
Income before income taxes 67,918 338 213 68,469
Income taxes 25,948 301 -- 26,249
------------- ------------- ------------- -------------
Net income 41,970 37 213 42,220
Other comprehensive income (loss) (4,806) -- -- (4,806)
------------- ------------- ------------- -------------
Comprehensive income (loss) $ 37,164 $ 37 $ 213 $ 37,414
============= ============= ============= =============
F-42
GROVE WORLDWIDE LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
CONDENSED COMBINING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE SEVEN MONTHS ENDED APRIL 28, 1998
SUBSIDIARY OTHER COMBINED
GUARANTORS SUBSIDIARIES ELIMINATIONS TOTALS
------------- ------------- ------------ ------------
Net sales $ 354,873 $ 166,780 $ (45,453) $ 476,200
Cost of goods sold 273,454 149,336 (45,453) 377,337
------------- ------------- ------------ --------------
Gross profit 81,419 17,444 -- 98,863
Selling, engineering, general, and
administrative expenses 49,586 29,293 -- 78,879
Management fees paid to Hanson PLC 162 -- -- 162
------------- ------------- ------------ --------------
Income (loss) from operations 31,671 (11,849) -- 19,822
Interest income, net 970 78 -- 1,048
Other expense, net 2,195 7,329 9,524
------------- ------------- ------------ --------------
Income (loss) before income taxes 30,446 (19,100) -- 11,346
Income taxes 11,741 -- -- 11,741
------------- ------------- ------------ --------------
Net income (loss) 18,705 (19,100) -- (395)
Other comprehensive income (loss) (7,135) -- -- (7,135)
------------- ------------- ------------ --------------
Comprehensive income (loss) $ 11,570 $ (19,100) $ -- $ (7,530)
============= ============= ============ ==============
F-43
GROVE WORLDWIDE LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS FOR
THE FIVE MONTHS ENDED OCTOBER 3, 1998
SUBSIDIARY OTHER CONSOLIDATED
COMPANY GUARANTORS SUBSIDIARIES ELIMINATIONS TOTALS
---------- ------------ ------------- ------------ --------------
Net sales $ -- $ 308,597 $ 124,824 $ (39,642) $ 393,779
Cost of goods sold -- 261,411 113,995 (39,642) 335,764
---------- ------------ ------------- ------------ --------------
Gross profit -- 47,186 10,829 -- 58,015
Selling, engineering, general,
and administrative expenses 10,318 30,246 20,625 -- 61,189
---------- ------------ ------------- ------------ --------------
Income (loss) from operations (10,318) 16,940 (9,796) -- (3,174)
Interest (expense) income, net 1,370 (14,832) (2,454) -- (15,916)
Other income (expense), net 10 370 (934) -- (554)
---------- ------------ ------------- ------------ --------------
Income (loss) before income
taxes (8,938) 2,478 (13,184) -- (19,644)
Income taxes -- 1,407 2,930 -- 4,337
---------- ------------ ------------- ------------ --------------
Net income (loss) (8,938) 1,071 (16,114) -- (23,981)
Other comprehensive income (loss) 7,341 (2,059) -- -- 5,282
---------- ------------ ------------- ------------ --------------
Comprehensive loss $ (1,597) $ (988) $ (16,114) $ -- $ (18,699)
========== ============ ============= ============ ==============
F-44
GROVE WORLDWIDE LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS) FOR THE YEAR ENDED OCTOBER 2, 1999
SUBSIDIARY OTHER CONSOLIDATED
COMPANY GUARANTORS SUBSIDIARIES ELIMINATIONS TOTALS
---------- ------------ ------------- ------------ --------------
Net sales $ -- 565,859 316,276 $ (100,906) $ 781,229
Cost of goods sold -- 466,027 268,326 (100,906) 633,447
---------- ------------ ------------- ------------ --------------
Gross profit -- 99,832 47,950 -- 147,782
Selling, engineering, general,
and administrative expenses 42,189 47,692 41,703 -- 131,584
---------- ------------ ------------- ------------ --------------
Income (loss) from operations (42,189) 52,140 6,247 -- 16,198
Interest (expense) income, net 5,278 (34,789) (6,509) -- (36,020)
Other income (expense), net -- 125 (264) -- (139)
---------- ------------ ------------- ------------ --------------
Income (loss) before income
taxes (36,911) 17,476 (526) -- (19,961)
Income taxes -- 2,812 2,723 -- 5,535
---------- ------------ ------------- ------------ --------------
Net income (loss) (36,911) 14,664 (3,249) -- (25,496)
Other comprehensive income (loss) (9,038) 2,059 (7,968) -- (14,947)
---------- ------------ ------------- ------------ --------------
Comprehensive income (loss) $ (45,949) $ 16,723 $ (11,217) $ -- $ (40,443)
========== ============ ============= ============ ==============
F-45
GROVE WORLDWIDE LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
CONDENSED COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED SEPTEMBER 27,
1997
SUBSIDIARY OTHER COMBINED
GUARANTORS SUBSIDIARIES TOTALS
-------------- ------------ -------------
OPERATING ACTIVITIES:
Net cash (used in) provided by operating activities $ (5,448) $ 17,443 $ 11,995
-------------- ------------ --------------
INVESTING ACTIVITIES:
Capital expenditures (25,521) (6,970) (32,491)
Investment in equipment held for rent -- (37,904) (37,904)
Other investing activities 1,587 16 1,603
-------------- ------------ --------------
Net cash used in investing activities (23,934) (44,858) (68,792)
-------------- ------------ --------------
FINANCING ACTIVITIES:
Net proceeds from short-term borrowings (7,443) 7,647 204
Net amounts received from parent 35,863 18,282 54,145
-------------- ------------ --------------
Net cash provided by financing activities 28,420 25,929 54,349
-------------- ------------ --------------
Effect of exchange rate changes on cash -- (712) (712)
-------------- ------------ --------------
Net decrease in cash and cash equivalents (962) (2,198) (3,160)
Cash and cash equivalents at beginning of year 470 7,714 8,184
-------------- ------------ --------------
Cash and cash equivalents at end of year $ (492) $ 5,516 $ 5,024
============== ============ ==============
F-46
GROVE WORLDWIDE LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
CONDENSED COMBINING STATEMENTS OF CASH FLOWS FOR THE SEVEN MONTHS ENDED
APRIL 28, 1998
SUBSIDIARY OTHER COMBINED
GUARANTORS SUBSIDIARIES TOTALS
------------ ------------ -----------
OPERATING ACTIVITIES:
Net cash provided by operating activities $ 44,125 $ 48,972 $ 93,097
------------ ------------- -------------
INVESTING ACTIVITIES:
Capital expenditures (9,918) (9,603) (19,521)
Investment in equipment held for rent -- (16,380) (16,380)
Other investing activities 242 1,829 2,071
------------ ------------- -------------
Net cash used in investing activities (9,676) (24,154) (33,830)
------------ ------------- -------------
FINANCING ACTIVITIES:
Net proceeds from short-term borrowings -- 6,821 6,821
Other financing activities (29,944) (32,143) (62,087)
------------ ------------- -------------
Net cash used in financing activities (29,944) (25,322) (55,266)
------------ ------------- -------------
Effect of exchange rate changes on cash -- 217 217
------------ ------------- -------------
Net change in cash and cash equivalents 4,505 (287) 4,218
Cash and cash equivalents at beginning of year (492) 5,516 5,024
------------ ------------- -------------
Cash and cash equivalents at end of period $ 4,013 $ 5,229 $ 9,242
============ ============= =============
F-47
GROVE WORLDWIDE LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE FIVE MONTHS ENDED
OCTOBER 3, 1998
SUBSIDIARY OTHER CONSOLIDATED
COMPANY GUARANTORS SUBSIDIARIES ELIMINATIONS TOTALS
----------- ------------ ------------ ------------ -------------
OPERATING ACTIVITIES:
Net cash provided by operating
activities $ 2,062 $ 43,830 $ 11,408 $ -- 57,300
----------- ------------ ----------- ------------ --------------
INVESTING ACTIVITIES:
Capital expenditures -- (5,665) (1,565) -- (7,230)
Investment in equipment held for rent -- -- (20,751) -- (20,751)
Acquisition of businesses from Hanson PLC,
including transaction costs of
$5,783, net of cash acquired of
$9,241 and post-closing adjustment
of $27,300 -- (484,279) (78,463) -- (562,742)
Other investing activities (113,635) 103 1,218 113,635 1,321
----------- ------------ ----------- ------------ --------------
Net cash used in investing
activities (113,635) (489,841) (99,561) 113,635 (589,402)
----------- ------------ ----------- ------------ --------------
FINANCING ACTIVITIES:
Net proceeds from short-term borrowings -- -- 941 -- 941
Proceeds from issuance of long-term debt 450,200 -- -- -- 450,200
Repayments of long-term debt (35,200) -- -- -- (35,200)
Equity investment from Grove
Holdings LLC 168,209 92,892 20,743 (113,635) 168,209
Advances to Grove Holdings LLC (3,649) -- -- -- (3,649)
Deferred financing costs (14,453) -- -- -- (14,453)
Other financing activities (437,158) 359,171 77,987 -- --
----------- ------------ ----------- ------------ --------------
Net cash provided by financing
activities 452,063 (113,635)
127,949 99,671 566,048
----------- ------------ ----------- ------------ --------------
Effect of exchange rate changes on cash -- -- 343 -- 343
----------- ------------ ----------- ------------ --------------
Net increase in cash and cash equivalents
and cash equivalents at end
of year $ 16,376 6,052 $ 11,861 $ -- 34,289
=========== ============ =========== ============ ==============
F-48
GROVE WORLDWIDE LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements
(in thousands of dollars)
October 3, 1998 and October 2, 1999
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED
OCTOBER 2, 1999
SUBSIDIARY OTHER CONSOLIDATED
COMPANY GUARANTORS SUBSIDIARIES TOTALS
------------ ----------- ------------ ------------
OPERATING ACTIVITIES:
Net cash provided by operating activities $ (18,332) $ 3,500 $ 15,518 $ 686
------------ ----------- ----------- --------------
INVESTING ACTIVITIES:
Capital expenditures -- (5,778) (3,627) (9,405)
Investment in equipment held for rent -- -- (23,793) (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 of $27,300 10,500 -- -- 10,500
Other investing activities 2,973 435 -- 3,408
------------ ----------- ----------- --------------
Net cash used in investing activities 13,473 (5,343) (27,420) (19,290)
------------ ----------- ----------- --------------
FINANCING ACTIVITIES:
Net proceeds from short-term borrowings -- -- 4,139 4,139
Proceeds from issuance of long-term debt 10,000 -- -- 10,000
Repayments of long-term debt (12,000) -- -- (12,000)
Advances to Grove Holdings LLC (850) -- -- (850)
------------ ----------- ----------- --------------
Net cash provided by financing activities (2,850) -- 4,139 1,289
------------ ----------- ----------- --------------
Effect of exchange rate changes on cash -- -- (110) (110)
------------ ----------- ----------- --------------
Net decrease in cash and cash equivalents (7,709) (1,843) (7,873) (17,425)
Cash and cash equivalents at beginning of year 16,376 6,052 11,861 34,289
------------ ----------- ----------- --------------
Cash and cash equivalents at end of year $ 8,667 $ 4,209 $ 3,988 $ 16,864
============ =========== =========== ==============
F-49
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER DEDUCTIONS AT END
OF YEAR EXPENSES ACCOUNTS (a) (b) OF YEAR
------------ ------------- ------------- ------------ ------------
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
(a) Impact of exchange rates
(b) Write-offs
S-1