FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(MARK ONE)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended October 3, 1998
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 333-57609
________
GROVE HOLDINGS LLC
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
________
52-2089467
(I.R.S. Employer
Identification Number)
________
1565 Buchanan Trail East
Shady Grove, Pennsylvania 17256
(717) 597-8121
(Address, including zip code, and telephone
number, including area code, of
registrant's principal executive offices)
________
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 No X
--- ---
(Registrant has not been subject to such filing requirements for the
past 90 days.)
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of 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 HOLDINGS LLC
Index to Annual Report on Form 10-K
For the Fiscal Year Ended October 3, 1998
Page
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PART I
Item 1. Business..............................................................................1
Item 2. Properties............................................................................9
Item 3. Legal Proceedings....................................................................10
Item 4. Submission of Matters to a Vote of Security Holders..................................10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................10
Item 6. Selected Financial Data..............................................................10
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations........................................12
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk..........................................................................22
Item 8. Financial Statements and Supplementary Data..........................................23
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure...........................................................................23
PART III
Item 10. Directors and Executive Officers of the Registrant...................................24
Item 11. Executive Compensation...............................................................26
Item 12. Security Ownership of Certain Beneficial Owners and Management.......................28
Item 13. Certain Relationships and Related Transactions.......................................29
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................30
i
The following report is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and combined and
consolidated financial statements of the Grove Companies, the predecessor to
Grove Holdings LLC ("Holdings"), and the consolidated financial statements of
Holdings 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 1994, fiscal 1995, fiscal 1996,
fiscal 1997 and fiscal 1998 refer to the fiscal years ended October 1, 1994,
September 30, 1995, September 28, 1996, September 27, 1997 and October 3, 1998,
respectively. Reference to the (i) seven months ended April 29, 1998 means the
period from September 27, 1997 to April 29, 1998 and (ii) five months ended
October 3, 1998 means the period from April 29, 1998 to October 3, 1998.
References to historical financial information are to the historical combined
and consolidated financial results of the Acquired Business. See "Item 1.
Business--Significant Developments."
No separate financial statements of Grove Holdings Capital, Inc.
("Grove Holdings Capital") are included herein. Holdings believes that providing
separate financial statements and other disclosures concerning Grove Holdings
Capital would not be material to holders of the Debentures (as defined). As of
October 3, 1998, Grove Holdings Capital had no assets, liabilities or
operations.
Special Note Regarding Forward Looking Statements
Certain statements in this report constitute "forward looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Any
statements that express, or involve discussions as to, expectations, beliefs,
plans, objectives, assumptions or future events or performance (often, but not
always, through the use of words or phrases such as "will likely result," "are
expected to," "will continue," "anticipates," "expects," "estimates," "intends,"
"plans," "projects," and "outlook") are not historical facts and may be
forward-looking. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause the actual results, levels
of activity, cost savings, performance or achievements of Holdings, or industry
results, to be materially different from any future results, levels of activity,
cost savings, performance or achievements expressed or implied by such
forward-looking statements, and accordingly, such statements should be read in
conjunction with and are qualified in their entirety by reference to, such
risks, uncertainties and other factors, which are discussed throughout this
report. Such factors include, among others, the following: (i) substantial
leverage and ability to service debt; (ii) changing market trends in the mobile
hydraulic crane, aerial work platform and truck-mounted crane industries; (iii)
general economic and business conditions including a prolonged or substantial
recession; (iv) the ability of the Company to implement its business strategy
and maintain and enhance its competitive strengths; (v) the ability of the
Company to implement the Operations Improvement Program (as defined); (vi) the
ability of Holdings 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 Holdings 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
Holdings undertakes no obligation to update any forward-looking statements to
reflect events or circumstances after the date on which such statements were
made or to reflect the occurrence of unanticipated events.
ii
PART I
Item 1. BUSINESS
General
Holdings' assets consist solely of membership interests of the Company
and capital stock of Grove Holdings Capital. Holdings conducts all of its
business through the Company.
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
new equipment sales), Europe (approximately 21% of fiscal 1998 new equipment
sales), Africa and the Middle East (approximately 3% of fiscal 1998 new
equipment sales), Asia (approximately 2% of fiscal 1998 new equipment sales) and
Latin America (approximately 4% of fiscal 1998 new equipment sales). The Company
markets its products through three operating divisions:
- - Grove Crane (approximately 69% and 66% of fiscal 1997 and fiscal 1998
net sales) designs and manufactures over 40 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% and 24% of fiscal 1997 and fiscal 1998
net sales) designs and manufactures over 50 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% and 10% of fiscal 1997 and fiscal 1998
net sales) designs and manufactures over 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, Holdings 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 Holdings are located at
1
1565 Buchanan Trail East, Shady Grove, Pennsylvania 17256. The telephone number
of Holdings' executive offices is (717) 597-8121.
Significant Developments
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 "New 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 Holdings of $50.0 million in gross proceeds of its 115/8% Senior
Discount Debentures due 2009 (the "Debentures"); and (iv) the issuance of $120.0
million of limited liability company interests of Holdings (the "Holdings Equity
Issuance") (collectively, the "Financings"). On the Closing Date, 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"), in turn, owns all of the
limited liability company interests of Holdings. Keystone, Inc. and its related
parties ("Keystone"), FW Strategic Partners, L.P. ("Strategic Partners"),
certain minority investors and certain principals of, and an entity formed by
certain employees of, the George Group Inc. ("George Group") and certain other
investors, including certain members of senior management (together with
Keystone, Strategic Partners, the minority investors and George Group, the
"Investor Group") beneficially own in the aggregate all of the outstanding
membership interests of Grove Investors. Keystone is the principal investment
entity of Robert M. Bass. Strategic Partners is a Delaware limited partnership
formed to invest primarily in public and private debt and equity securities.
George Group is an acquisition and management consulting firm that applies its
strategic and operations management expertise to manufacturing businesses.
Operations Improvement Program
As a result of the Acquisition, the Company is operated on a
stand-alone basis rather than as part of a larger diversified enterprise. The
Company's management team expects to capitalize on the experience and expertise
of new senior management as it implements a program (the
2
"Operations Improvement Program") which it believes will enable the Company to
reduce its annual costs and achieve significant working capital efficiencies.
The key components of the Operations Improvement Program are: (i) implementing a
product line rationalization program which will position the Company to reduce
both operating costs and working capital requirements without diminishing the
advantages derived from its broad product line; (ii) reducing annual costs of
goods sold by rationalizing its product line and undertaking certain initiatives
to improve the Company's manufacturing process; (iii) reducing annual selling,
general and administrative expenses by reducing redundant functions across
facilities, utilizing the Company's new management information system and
streamlining existing business processes, including redesigning sales and
administrative functions and (iv) reducing working capital requirements by
reducing inventory levels primarily as a result of improved manufacturing
processes, the shifting of production of certain models and components to
facilities where they can be more efficiently produced and product
rationalization. Estimates of potential cost savings are inherently uncertain
and the description of the Operations Improvement Program should be read in
conjunction with "Special Note Regarding Forward Looking Statements" and "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations." There can be no assurance that this program will result in any cost
savings. Further, it is expected that a portion of any cost savings will be
offset by certain non-recurring costs associated with the implementation of the
Operations Improvement Program, plus consulting fees payable to George Group.
See "Special Note Regarding Forward Looking Statements" and "Item 13. Certain
Relationships and Related Transactions--Agreements with George Group Inc. for
Management Consulting Services."
Sunderland, United Kingdom Facility
In August 1998, the Company announced a plan to cease manufacturing
operations by January 1999 at its Sunderland, United Kingdom facility due to
recurring operating losses. The Company is continuing to operate its sales,
marketing, and customer support operations from Sunderland covering activities
in Europe, Africa and the Middle East.
Products
Mobile Hydraulic Cranes (Grove Crane)
Grove Crane manufactures over 40 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 11 models of all-terrain cranes capable
of working heights of up to 372 feet and maximum load capacities of up to 300
tons.
3
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 270 feet and maximum load
capacities of up to 150 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 85 feet and maximum load capacities
of up to 18 tons.
Aerial Work Platforms (Grove Manlift)
Grove Manlift manufactures over 50 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
four types of aerial work platforms: (i) Scissor Lift, (ii) Articulating Boom,
(iii) Telescoping Boom and (iv) Vertical Mast.
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 14 models of scissor lifts capable of working heights of up to 46 feet
and maximum load capacities of up to 2,000 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 16 models of
articulating boom lifts capable of working heights of up to 131 feet with
maximum load capacities of up to 600 pounds.
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
nine 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 15 models of vertical mast lifts capable of
working heights of up to 46 feet with maximum load capacities of up to 500
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.
4
Telescoping Cranes are used primarily for lifting material and
personnel on a job site. National Crane produces 10 models of truck-mounted
telescoping cranes capable of working heights of up to 166 feet and maximum load
capacities of up to 36 tons.
Articulating Cranes are used primarily to load and unload truck beds at
a job site. National Crane produces 14 models of truck-mounted articulating
cranes capable of working heights of up to 71 feet and maximum load capacities
of up to 28 tons.
Other Cranes include four models of pedestal-mounted cranes designed
for docks, factories, yards, and other areas where fixed, stationary lifting is
required. These cranes are capable of working heights of up to 90 feet and
maximum load capacities of up to 23 tons.
Marketing and Distribution
General
The Company benefits from an established base of approximately 240
independent distributors located in 50 countries around the world. Over two
thirds of Grove Crane's North American distributors have been with the Company
for over 10 years.
Mobile Hydraulic Cranes
The Company distributes its mobile hydraulic cranes primarily through a
global network of independent distributors, except in Germany, France and the
United Kingdom, where the Company has its own distributors. In addition, the
Company sells directly to certain large corporate customers and the United
States Government.
In fiscal 1998, 74% of the Company's unit sales of mobile hydraulic
cranes were derived from units shipped to North American and Latin American
distributors and customers. The Company has longstanding relationships with its
45 North American and 24 Latin American distributors. Shipments to Europe
comprised approximately 19% of the Company's shipments in fiscal 1998 through
three Company stores, located in the U.K., Germany and France, and 42
third-party distributors. In fiscal 1998, shipments to Asia, Africa and the
Middle East comprised approximately 2%, 2% and 3% of the Company's unit
shipments, respectively.
Aerial Work Platforms
In fiscal 1998, 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 1998,
sales to customers in Europe represented approximately 28% 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 1998. 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
5
the Company's units shipped in fiscal 1998, 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 28, 1996, September 27, 1997 and
October 3, 1998, approximately 20%, 19% and 25%, 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 31% and 13% of the
outstanding accounts and notes receivable balance as of September 27, 1997 and
October 3, 1998, respectively, were due from these customers.
Dealer Financing Program
The Company offers certain of its distributors up to 366-day inventory
financing. 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.
In June 1998, the Company entered into an agreement with a third-party
financial institution to sell up to $50.0 million of notes receivable generated
from sales of mobile hydraulic cranes and aerial work platforms on credit terms
of up to 366 days on a revolving basis. In December 1998, this agreement was
amended to increase the $50.0 million limit to $65.0 million and to include
notes receivable generated from the sale of National Crane's truck-mounted
cranes. The third-party financial institution 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 third-party financial institution. The Company retains 10% of the
credit risk.
6
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 $15.0 million, $15.4 million and
$14.1 million in fiscal 1996, fiscal 1997 and fiscal 1998, 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 Hydraulic Cranes Liebherr Werk Nenzing, Link-Belt Construction Equipment
Co., Mannesman DeMag, Tadano Ltd. and Terex Corporation
("Terex")
Grove Manlift Aerial Work Platforms JLG Industries, Inc., Genie Industries, Sky Jack Inc., The
Snorkel Company, Terex and UpRight, a division of W.R.
Carpenter North America, Inc.
National Crane Truck-Mounted Cranes Fassi Gru Idrauliche SpA, Hiab BV, Iowa Mold Tooling Co.
Inc. (IMT), Manitex, Inc., Palfinger GmbH, Pioneer Truck
Cranes, manufactured by Pioneer Engineering Corporation,
Terex and USTC Inc.
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 benefitted 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
7
and pricing, which may materially and adversely impact the Company's results of
operations. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Cyclicality."
Backlog
The Company's backlog consists of firm orders for new equipment and
replacement parts. Total backlog as of October 3, 1998 was approximately $163.3
million compared to total backlog as of September 27, 1997 of $229.5 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 3, 1998, the Company had a total of approximately 4,913
employees, of which approximately 3,215 were employed in the United States.
Approximately 29% 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
April 11, 1999. Certain employees at the Company's Sunderland, United Kingdom,
Wilhelmshaven, Germany and Tonneins, France facilities are also organized under
the host country's labor laws. The collective bargaining agreements applicable
to remaining employees at the Company's Sunderland, United Kingdom facility are
subject to renegotiation in early 1999. 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.
Management Information Systems
In fiscal 1995, the Company launched the Year-2000 Project (as
defined). The Year-2000 Project, which is expected to be completed at the end of
fiscal 1999, will have a total cost of approximately $38.0 million, of which
approximately $33.0 million had been expended as of October 3, 1998. The Company
believes that this new system will enable the Company to reduce costs, improve
productivity and product development times, and enhance inventory management.
The Company's new system is expected to provide improved cost data,
facilitate inventory and work-in-process tracking and provide improved order
processing. In addition, the system is expected to improve organizational
performance due to timely and meaningful performance measurements and the
availability of timely and accurate management information across all functions
and all levels. The new software will cover the Company's product lifecycle,
including the functionality needed for new product development, order management
and lifetime product service and support, as well as accounting support
activities. The system will also address the Company's global requirements such
as a multi-lingual and multi-currency system to cover all of its facilities.
The completion of the Year-2000 Project is expected to render all of
the Company's major computer systems Year-2000 compliant. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Management Information Systems and the Impact of Year 2000."
8
Environmental Matters
The Company generates hazardous and non-hazardous waste in the normal
course of its manufacturing operations. As a result, the Company is subject to a
wide range of Federal, state, local and foreign environmental laws, including
the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for hazardous and nonhazardous wastes, and (ii) impose
liability for the costs of cleaning up, and certain damages resulting from,
sites of past spills, disposals or other releases of hazardous substances.
Compliance with such laws has required, and will continue to require,
expenditures by the Company on a continuing basis. The Company does not expect
that these expenditures will have a material adverse effect on its financial
condition or results of operations.
In 1990, the Clean Air Act was amended and established a list of 189
toxic air pollutants that must be controlled using maximum achievable control
technology ("MACT") as prescribed by the EPA. The Company believes that by 2003
it will be subject to MACT regulations with respect to its surface coating air
omissions. At this time, the Company does not expect the cost of compliance with
these MACT regulations to have a significant impact on the Company.
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. These patents and trademarks have been
of value in the growth of the Company's business and may continue to be of
value in the future.
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
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. See
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources."
9
(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, 1999.
Unless the Company gives notice of intent to vacate the facility by January
31 1999, the lease will automatically extend for an additional year,
through July 31, 2000.
(4) Includes two facilities, one of which is leased. The lease expires on
November 29, 2004.
To the extent any such properties are leased, the Company expects to be
able to renew such leases or lease comparable facilities on terms commercially
acceptable to the Company. Management believes that the Company's facilities are
suitable for its operations and provide sufficient capacity to meet the
Company's requirements for the foreseeable future.
The obligations of the Company under the New 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 Holdings. 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
On July 22, 1998, Grove Investors, the sole holder of Holdings'
membership interests, adopted at a meeting certain resolutions whereby it
approved and ratified: (i) an amendment and restatement of Holdings' Operating
Agreement; (ii) the filing of Holdings' Form S-4 Registration Statement; (iii)
Holdings' fiscal year; and (iv) the appointment of a statutory auditor.
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
Holdings. Grove Investors owns all of the limited liability company interests of
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 Holdings' membership interests.
Holdings' borrowing arrangements limit the ability of Holdings to pay dividends.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
Item 6. SELECTED FINANCIAL DATA
The following table presents selected historical financial data of
Holdings (i) as of and for each of the fiscal years ended October 1, 1994,
September 30, 1995, September 28, 1996 and September 27, 1997, for the seven
months ended April 28, 1998 (the "Predecessor Periods") and as
10
of and for the five months ended October 3, 1998 (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 Holdings
------------------------------------------------------------------------ --------------------
Seven months ended Five months ended
1994 1995(1) 1996 1997 April 28, 1998 October 3, 1998
- ---------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Statement of Operations
Data:
Net sales $393,526 $503,815 $794,209 $856,812 $476,200 $393,779
Gross profit(2) 87,991 126,589 185,079 203,273 98,863 58,015
Operating expenses 80,752 88,216 134,459 135,382 79,041 61,189
Operating profit (loss) 7,239 38,373 50,620 67,891 19,822 (3,174)
Net income (loss)(3) (4,942) 16,769 25,448 42,220 (395) (26,600)
Balance Sheet Data (at
period end):
Cash and cash equivalents $ 7,135 $ 18,685 $ 8,184 $ 5,024 $ 34,289
Total assets 509,189 652,000 730,158 881,496 912,430
Total debt -- -- 7,443 7,265 482,562
Total invested capital 399,762 467,306 502,554 628,492 95,412
Other Data:
Depreciation and
amortization(4) $ 13,258 $ 13,765 $ 17,313 $ 17,985 $ 11,399 $ 8,214
Capital expenditures(5) 6,042 7,385 19,443 32,491 19,521 7,230
Sales backlog at end of
period 109,350 208,152 185,237 229,513 268,682 163,314
- ----------
(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 and
$5,999 for the seven months ended April 28, 1998 and the five months ended
October 3, 1998, respectively. On November 27, 1998, the Company announced
a plan to cease manufacturing operations by January 1999 at its Sunderland,
United Kingdom facility due to recurring operating losses. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
(4) Depreciation and amortization excludes depreciation on equipment held for
rent.
(5) Includes expenditures on the Company's new management information system of
approximately $4,300 in fiscal 1996, approximately $14,000 in fiscal 1997,
approximately $9,322 for the seven months ended April 28, 1998 and
approximately $5,377 for the five months ended October 3, 1998.
11
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
Holdings' assets consist solely of membership interests of the Company
and capital stock of Grove Holdings Capital. Holdings conducts all of its
business through the Company.
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.
The following is a summary of net sales for the periods indicated
(dollars in millions):
Fiscal Year
--------------------------------------
1996 1997 1998
------- ------- -------
New equipment sold (1)............................... $632.4 $670.1 $679.5
After-Market......................................... 120.6 125.8 123.2
Other (2)(3)......................................... 41.2 60.9 67.3
------- ------- -------
Net sales............................................ $794.2 $856.8 $870.0
------- ------- -------
------- ------- -------
- ----------
(1) Excludes specialty cranes and equipment sold to the U.S. government.
(2) Includes specialty cranes and equipment sold to the U.S. government and
revenues from unit sales accounted for as operating leases.
(3) Includes revenues resulting from a non-recurring contract for crane
refurbishment with the Ministry of Defence of the United Kingdom.
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.
Holdings is a limited liability company organized under the laws of
Delaware, as a result of which (i) Holdings 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 Holdings, and (iii) such equity holders are responsible for income
taxes on such taxable income. Holdings intends to make distributions in the form
of dividends to its
12
equity holders to enable them to meet their tax obligations with respect to
income allocated to them by Holdings.
Results of Operations
For financial reporting purposes, the Acquisition creates a new basis
of accounting and, accordingly, the Company is required to report results prior
to the Acquisition separate from results subsequent to the Acquisition. 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.
Set forth below is certain information regarding the Company's results
of operations for fiscal 1996, fiscal 1997 and fiscal 1998 (dollars in
thousands).
Fiscal Year
-------------------------------------------
1996 1997 1998
---- ---- ----
Net Sales........................................... $ 794,209 $ 856,812 $ 869,979
Cost of goods sold.................................. 609,130 653,539 685,394
Write-off of amount assigned to inventory in excess
of historical costs resulting from purchase
accounting adjustments............................ -- -- 27,707
---------- ---------- ---------
Gross profit.................................. 185,079 203,273 156,878
Selling, engineering, general and administrative
expenses.......................................... 119,619 124,152 131,762
Management fees paid to Hanson...................... 5,655 2,176 162
Amortization of goodwill............................ 9,185 9,054 8,306
---------- ---------- ---------
Operating profit.............................. $ 50,620 $ 67,891 $ 16,648
---------- ---------- ---------
---------- ---------- ---------
Fiscal 1998 Compared to Fiscal 1997
Net Sales. Net sales for the Company increased $13.2 million, or 1.5%,
from $856.8 million for fiscal 1997 to $870.0 million for fiscal 1998.
Net sales of mobile hydraulic cranes declined from fiscal 1997 to
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 of aerial work platforms increased modestly from fiscal 1997
to fiscal 1998. Unit sales of aerial work platforms were down; however, net
sales increased as a result of improved sales mix.
13
Net sales of truck-mounted cranes increased significantly from fiscal
1997 to fiscal 1998. Net sales increased as the result of increased production
capacity as well as significantly increased demand for higher priced models.
After-market sales, including parts and services, decreased slightly
from fiscal 1997 to fiscal 1998. This decrease was due primarily to a decrease
in used equipment sales partially offset by a slight increase in parts sales.
Other sales 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 Defence of the United Kingdom.
Gross Profit. Gross profit decreased $46.4 million, or 22.8%, from
$203.3 million in fiscal 1997 to $156.9 million in fiscal 1998. Gross profit was
adversely impacted by a $27.7 million write-off of amounts assigned to inventory
in excess of historical costs in accounting for the Acquisition. The decline in
gross profit was also 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 15.1% in fiscal 1998. The expense growth
occurred broadly across the Company as the result of the impact of the
Acquisition on operations. Included in selling, engineering, general and
administrative expenses for fiscal 1998 are approximately $2.7 million of George
Group expenses and $3.1 million of ownership transition costs related to the
sale of the Company and the hiring of new management. Included in selling,
engineering, general and administrative expenses for fiscal 1997 are
approximately $2.0 million in restructuring charges related to the U.K. crane
manufacturing operation.
Fiscal 1997 Compared to Fiscal 1996
Net Sales. Net sales increased $62.6 million, or 7.9%, from $794.2
million in fiscal 1996 to $856.8 million in fiscal 1997.
Net sales of mobile hydraulic cranes were virtually unchanged from
fiscal 1996 to fiscal 1997. Unit shipments increased in fiscal 1997 versus
fiscal 1996, with substantially all of the increase representing units sold to
Latin American customers. Sales of the Company's mobile hydraulic cranes
reflected strong demand in North America.
Net sales of aerial work platforms increased significantly from fiscal
1996 to fiscal 1997. Unit sales increased as a result of continued industry
growth led by efficiency considerations as well as government-mandated safety
standards for people working in elevated environments.
Net sales of truck-mounted cranes increased significantly from fiscal
1996 to fiscal 1997. Unit sales increased principally due to increased
international marketing efforts. Net sales of
14
truck-mounted cranes also benefited from an improved product sales mix resulting
primarily from increased demand for higher priced models.
After-market sales, including parts and services, increased from fiscal
1996 to fiscal 1997. This increase was due primarily to an increase in parts
sales resulting from a larger installed base and relatively high rental fleet
utilization.
Other sales increased significantly as a result of a non-recurring
crane refurbishment contract for cranes with the Ministry of Defence of the
United Kingdom.
Gross Profit. Gross profit increased $18.2 million, or 9.8%, from
$185.1 million in fiscal 1996 to $203.3 million in fiscal 1997. The increase in
gross profit was due primarily to increased sales in the aerial work platform
and truck-mounted crane businesses. As a percentage of sales, gross profit
improved modestly from 23.3% in fiscal 1996 to 23.7% in fiscal 1997.
Selling, Engineering, General and Administrative Expenses. Selling,
engineering, general and administrative expenses increased $4.6 million, or
3.8%, from $119.6 million in fiscal 1996 to $124.2 million in fiscal 1997.
However, as a percentage of net sales, selling, engineering, general and
administrative expenses declined from 15.1% in fiscal 1996 to 14.5% in fiscal
1997 as a result of higher sales that absorbed fixed costs. The dollar increase
was principally related to higher selling and advertising costs to support the
sales growth of the Company's product lines as well as general cost increases.
Included in selling, engineering, general and administrative expenses
are research and development expenses, which increased 2.7% from $15.0 million
in fiscal 1996 to $15.4 million in fiscal 1997. In addition, in fiscal 1996 and
fiscal 1997, general and administrative expenses included $2.7 million and $1.3
million, respectively, due to process reengineering and systems assessment costs
associated with the installation of the Company's management information system.
See "--Management Information Systems and the Impact of Year 2000."
Management Fees. Results of operations for fiscal 1996 and fiscal 1997
included management fees paid to Hanson of $5.7 million and $2.2 million,
respectively. Management believes the Company's results of operations in all
material respects reflect all operating costs on a stand alone basis. Management
estimates that costs to replace services provided by Hanson prior to the
Acquisition together with other stand alone costs will be less than $1.0 million
for the twelve months following the Acquisition. Such costs, which are generally
less than the management fees charged by Hanson on an annual basis, relate to
additional treasury, human resource and income tax requirements. Management
believes such additional costs will be more than offset by planned costs savings
in other general and administrative areas.
Net Interest Expense/Income. Net interest expense/income included (i)
interest income of $0.6 million in fiscal 1996 and $2.1 million in fiscal 1997,
which was generated primarily from notes receivable under the Company's special
North American dealer financing program and (ii) interest expense of $3.3
million in fiscal 1996 and $2.0 million in fiscal 1997, substantially all of
which was paid to Hanson with respect to intercompany borrowings.
Income Taxes. Income tax expense, virtually all of which was
U.S.-based, increased 18.3% from $22.2 million in fiscal 1996 to $26.2 million
in fiscal 1997. The overall effective tax rates were 46.6% and 38.3% for fiscal
1996 and fiscal 1997, respectively. The decline in tax rate was caused
principally by a reduction in permanent goodwill additions which resulted from
the transactions consummated to effect a demerger of certain of Hanson PLC's
various businesses. The
15
Company has established valuation allowances for net operating losses generated
by its foreign subsidiaries.
Net Income. Net income increased $16.8 million, or 65.9%, from $25.4
million in fiscal 1996 to $42.2 million in fiscal 1997. The increase related
principally to increased sales and operating profits.
Geographic Comparisons during the three years ended October 3, 1998.
Net sales to unaffiliated customers by the Company's domestic
subsidiaries contributed in excess of 70% of the Company's sales in fiscal 1998
and virtually all of its income from operations. Net sales to unaffiliated
customers by the Company's domestic subsidiaries increased by $23.8 million or
3.9% in fiscal 1998 as compared to fiscal 1997. The increase in net sales by the
Company's domestic subsidiaries was caused by strong sales of aerial work
platforms and truck-mounted cranes. Net sales of mobile hydraulic cranes by the
Company's domestic subsidiaries were virtually unchanged in fiscal 1998 as
compared to fiscal 1997. Net sales to unaffiliated customers by the Company's
foreign subsidiaries decreased by $10.6 million or 4.2% in fiscal 1998 as
compared to fiscal 1997. The decrease in net sales by the Company's foreign
subsidiaries was primarily the result of Sunderland's completion of the Ministry
of Defence 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 70.0% of the Company's sales in fiscal
1997 and virtually all of its net income. Net sales to unaffiliated customers by
the Company's domestic subsidiaries increased by $43.6 million or 7.8% in fiscal
1997 as compared to fiscal 1996, which represented approximately 70.0% of the
Company's overall sales increase for fiscal 1997. The increase in net sales by
the Company's domestic subsidiaries was caused by strong sales of aerial work
platforms and truck-mounted cranes. Net sales of mobile hydraulic cranes by the
Company's domestic subsidiaries were virtually unchanged in fiscal 1997 as
compared to fiscal 1996. Net sales to unaffiliated customers by the Company's
foreign subsidiaries increased by $16.7 million or 7.2% in fiscal 1997 as
compared to fiscal 1996. The increase in net sales by the Company's foreign
subsidiaries was primarily the result of continued growth of aerial work
platform sales in Europe. 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.
Net sales to unaffiliated customers by the Company's domestic
subsidiaries contributed in excess of 70.0% of the Company's sales in fiscal
1996 and all of its net income. The acquisition of Krupp contributed significant
sales growth to both domestic and European operations. Operating losses by the
Company's manufacturing facility in Sunderland, U.K. of approximately $3.8
million offset all of the operating earnings of the Company's German and French
subsidiaries. The acquisitions of Delta and Krupp improved the operating results
of the Company's German and French subsidiaries.
Liquidity and Capital Resources
Holdings conducts all of its business through the Company and its
subsidiaries. The Company's business is working capital-intensive, requiring
significant investments in receivables and
16
inventory. In addition, the Company requires capital for replacement and
improvements of existing plant, equipment and processes.
During the twelve fiscal months ended October 3, 1998, the Company's
operating activities generated approximately $150.4 million in operating cash
flow ($93.1 million for the seven months ended April 28, 1998 and $57.3 for
the five month ended October 3, 1998). This amount resulted primarily from
income from operations before non-cash charges of $76.9 million, declines in
the investment in accounts receivable and inventory of $34.4 million,
proceeds from sales of notes receivable to a third-party financial
institution of $24.8 million and increases in other non-current liabilities
of approximately $10.0 million. The Company has entered into 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 90.0% 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.
During the fiscal 1998 seven months, the Company used (i) $33.8 million
in investing activities, consisting of $19.5 million of capital expenditures (of
which $9.3 million was for the new management information system) and $16.4
million of investment in equipment held for rent (due to the operating lease
treatment relating to certain sales which are accounted for as operating
leases), and (ii) $55.3 million in financing activities, principally consisting
of amounts paid to Hanson.
During the five months ended October 3, 1998, Holdings used
approximately $589.4 million of cash flow for investing activities of which
$562.7 million was related to the Acquisition, $7.2 million was for capital
expenditures (of which $5.4 million was for the new management information
system) and $20.8 million was for investment in equipment held for rent. The
cash flows used in investing activities were funded by cash flows from operating
activities and through the issuance of long-term debt of $500.2 million and an
equity contribution from Grove Investors of $120.0 million. Net cash flows from
financing activities also included the payment of $35.2 million of long term
debt and $14.5 million of deferred financing costs.
In August 1998, the Company announced a plan to cease manufacturing
operations by January 1999 at its Sunderland, United Kingdom facility due to
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. Management has
estimated total closure costs to be approximately $18.5 million, consisting of
approximately $11.5 million of employee severance and $7.0 million of plant
shut-down costs (asset disposal and plant clean up costs), all of which are
expected to be expended in the next twelve months.
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.
17
In connection with the Acquisition, the Company entered into a
seven-year, $125 million Revolving Credit Facility, permitting it, subject to
certain borrowing conditions, to obtain revolving credit loans and issue letters
of credit for working capital, acquisitions and general corporate purposes. A
portion of the Revolving Credit Facility is available for borrowing the
Eurocurrency markets of British pounds sterling, German marks and French francs
and certain other currencies. As of October 3, 1998 the Company had available
borrowings of $124.1 million under the Revolving Credit Facility. For additional
information regarding the Revolving Credit Facility, see Note 10 of Notes to the
Combined and Consolidated Financial Statements of Holdings. 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 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. Subject to certain exceptions, including the right of
the Company to make distributions to Holdings to enable Holdings to make
distributions to its equity holders with respect to their tax obligations, the
New Credit Facility and the Indenture relating to the Senior Subordinated Notes
impose significant restrictions on the payment of cash dividends by the Company
and its subsidiaries to Holdings.
Grove Holdings Capital
In connection with the Acquisition, Holdings and its wholly owned
subsidiary, Grove Holdings Capital, a Delaware corporation, issued the
Debentures. Grove Holdings Capital was organized as a direct wholly owned
subsidiary of Holdings for the purpose of acting as a co-issuer of the
Debentures and was also a co-registrant of the Registration Statement for the
Debentures. This was done so that certain institutional investors to which the
Debentures were marketed that might otherwise have been restricted in their
ability to purchase debt securities issued by a limited liability company, such
as Holdings, by reason of the legal investment laws of their states of
organization or their charter documents, would be able to invest in the
Debentures. Grove Holdings Capital has no assets, no liabilities (other than the
Debentures) and no operations. Grove Holdings Capital does not have any revenues
and is prohibited from engaging in any business activities. As a result, holders
of the Debentures should not expect Grove Holdings Capital to participate in
servicing the interest and principal obligations on the Debentures.
No separate financial statements of Grove Holdings Capital are included
herein. Holdings believes that providing separate financial statements and other
disclosures concerning Grove Holdings Capital would not be material to holders
of the Debentures. As of October 3, 1998, Grove Holdings Capital had no assets,
liabilities or operations.
The ability of Holdings' subsidiaries to make cash distributions and
loans to Holdings is significantly restricted under the terms of the Indenture
governing the Senior Subordinated Notes and the New Credit Facility.
Backlog
The Company's backlog consists of firm orders for new equipment and
replacement parts. Total backlog as of October 3, 1998 was approximately $163.3
million compared to total backlog as of September 27, 1997 of $229.5 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.
18
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 believes there are several factors that may
mitigate the effects of future cyclical trends in the Company's business. These
factors include the continued growth of its aerial work platform business, which
has a lower correlation to the results of the construction industry, the global
diversification of its sales network and the decrease in the fixed costs
elements of the Company's overall business. After-market sales for parts and
services accounted for 11.4% of the Company's net sales fiscal 1998. Such sales
typically have higher gross margins and are less cyclical than new equipment
sales. However, there can be no assurance that a decline in the general
condition of the economy will not have a material adverse impact on the Company.
During fiscal 1996, fiscal 1997 and fiscal 1998 net sales of new units
to Asian customers represented 5.6%, 5.1% and 2.0% of the Company's net sales,
respectively. The Asian economic crisis has had a limited impact on the
Company's results of operations. Although the Company is not dependent on sales
to Asian customers, management cannot reasonably predict what impact, if any,
the crisis will have on its competitors or on markets outside of Asia where the
Company sells its products.
Management Information Systems and the Impact of Year 2000
Certain computer programs and microprocessors use two digits rather
than four to define the applicable year. Computer programs that have
date-sensitive software and microprocessors may recognize a date using "00" as
the year 1900 rather than the year 2000. This phenomenon (the "Year-2000 Issue")
could cause a disruption of operations, including, among other things, a
temporary inability to utilize manufacturing equipment, send invoices or engage
in similar normal business activities.
In fiscal 1995, the Company conducted a Year-2000 assessment of all
management information systems used at its crane and aerial work platform
facilities in the United States, United Kingdom and Germany. Upon completing
this review in October 1995, the Company launched a campaign designed to replace
all existing software and hardware that was not Year-2000 compliant (the
"Year-2000 Project"). In addition to replacing all business application software
and hardware, the Year-2000 Project was designed to provide improved business
processes and procedures.
The Company determined that the Year-2000 Project would not need to be
implemented at its National Crane facility in Waverly, Nebraska. National Crane
implemented upgrades to all of its existing hardware and software and converted
all of its data. Management believes the completion of this project has rendered
all of National Crane's major computer systems Year-2000 compliant.
The Year-2000 Project is expected to be completed in September 1999 and
will have a total cost of approximately $38.0 million, of which approximately
$33.0 million had been expended as of October 3, 1998. If the Year-2000 Project
is delayed, the Company will be required to shorten its planning horizons and
replace certain computerized functions, such as inventory and
19
work-in-process tracking, billing and order processing, with manual systems. Any
such delay could result in part shortages and slow the delivery of products to
the Company's customers. Management believes that all of the Company's major
computer systems will be rendered Year-2000 compliant. If such modifications and
conversions are not completed in a timely manner, the Year-2000 Issue could have
a material impact on the operations of the Company. See "Item 1.
Business--Management Information Systems."
The Company has also polled the manufacturers of its computerized
numerical control ("CNC") manufacturing/production equipment. The Company has
been informed by such manufacturers that there are no Year-2000 Issues with
respect to the Company's CNC equipment at its Shady Grove, Pennsylvania and
Waverly, Nebraska facilities. The Company is also conducting an internal review
of its CNC equipment to confirm its Year-2000 readiness. Although management
believes that the Year-2000 Issue will not have a material adverse impact on its
CNC equipment, there can be no assurance that it will not.
In addition, the Company has initiated communications with suppliers
and customers to determine the extent to which the Company may be vulnerable to
such parties' failure to remediate their own Year-2000 Issues. There can be no
guarantee that the systems of other companies on which the Company's systems
rely will be timely converted, or that a failure to convert by another company,
or a conversion that is incompatible with the Company's systems, would not have
material adverse effect on the Company. However, based on its current
assessment, management believes that the Year-2000 Issue will not have a
material adverse impact on the Company's future results of operations or
financial conditions, although there can be no assurance that such will be the
case.
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 are scheduled to establish 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 from January 1, 1999 to
January 1, 2002, from which date forward only the euro will be accepted. The
euro will be implemented initially as an additional currency both in domestic
and foreign markets for European businesses domiciled in the European monetary
zone. In fiscal 1998, approximately 18% of the Company's revenues were derived
from operations in member countries of the European monetary union.
The Company has initiated an assessment of euro-related issues and
their impact on information systems, currency exchange rate risk, employment and
benefits, taxation, contracts, competition, selling prices and costs,
communications, finance and administration. Initially the Company intends to
continue to do business in the national currency of the countries adopting the
euro. Customers and vendors who wish to do business in the euro will be
accommodated by the Company. During fiscal 1999 and 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
20
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 1998, accounted for
approximately 10% of the Company's consolidated net sales. The Company is
considering the potential impact which the United Kingdom's nonparticipation
might have on trading activities with countries participating in the euro
conversion as well as on internal United Kingdom operations.
The Company does not expect the euro conversion, including the costs of
implementation, to have a material adverse effect upon the Company's results of
operations, financial condition or cash flow. However, the Company cannot
guarantee that, with respect to the euro conversion, all problems, including
long-term competitive implications of the conversion, will be foreseen and
corrected, that no material disruption of the Company's business will occur, or
that there will be no delays in the dates targeted by the Company for the euro
conversion process.
Environmental Matters
The Company generates hazardous and non-hazardous waste in the normal
course of its manufacturing operations. As a result, the Company is subject to a
wide range of Federal, state, local and foreign environmental laws, including
CERCLA, that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for hazardous and nonhazardous wastes, and (ii) impose
liability for the costs of cleaning up, and certain damages resulting from,
sites of past spills, disposals or other releases of hazardous substances.
Compliance with such laws has required, and will continue to require,
expenditures by the Company on a continuing basis. The Company does not expect
that these expenditures will have a material adverse effect on its financial
condition or results of operations.
In 1990, the Clean Air Act was amended and established a list of 189
toxic air pollutants that must be controlled using MACT as prescribed by the
EPA. The Company believes that by 2003 it will be subject to MACT regulations
with respect to its surface coating air omissions. At this time, the Company
does not expect the cost of compliance with these MACT regulations to have a
significant impact on the Company.
Change in Accounting Standards
In 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting of Comprehensive Income." This Statement requires the reporting
of comprehensive income in interim and annual financial statements. Net income
together with periodic adjustments with respect to foreign currency translation
and minimum pension liabilities will result in comprehensive income. The Company
intends to adopt the pronouncement in the first quarter of fiscal 1999.
In 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information." This
Statement requires that public business enterprises disclose information about
their products and services, operating segments, the geographic areas in which
they operate, and their major customers. Management will adopt the
21
provisions of this Standard in fiscal 1999. At this time, management has not
definitively determined the content or nature of the Company's segment
reporting.
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 2000.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Holdings' principal market risk exposure is changing interest rates,
primarily changes in short term interest rates. Holdings does not enter into
financial instruments for trading or speculative purposes. Holdings' policy is
to manage interest rates through use of a combination of fixed and floating rate
debt. Holdings may also use derivative financial instruments to manage exposure
to interest rate risk. A summary of Holdings' principal financial instruments
which are subject to interest rate risk at October 3, 1998 is as follows
(dollars in thousands):
Description Amount Outstanding at October 3, 1998 Interest Rate Fair Value
- ----------- ------------------------------------- ------------- ----------
Revolving Credit Facility.... $ - Floating $ -
Term Loan Facility........... $190,000 Floating $190,000
Senior Subordinated Notes.... $225,000 9.25% $198,000
Senior Discount Debentures... $ 88,000 11.625% $ 38,720
At the Company's option, loans under the Revolving Credit Facility (as
defined in the New Credit Facility) and Term Loan Facility (as defined in the
New 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 New 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 New Credit Facility), or (b) in the case of all loans, the
relevant Eurocurrency Rate (as defined in the New Credit Facility), plus the
applicable margin. The applicable margin will vary based upon the Company's
operating results and will range between 1.25% and 2.25% for borrowings under
the Revolving Credit Facility and between 2.0% and 2.5% for borrowings under the
Term Loan Facility. As of October 3, 1998, the margins for borrowings under the
Revolving Credit Facility and Term Loan Facility were 2.25% and 2.5%,
respectively. The average interest rate on borrowings under the Term Loan
Facility was 8.33% for the five months ended October 3, 1998.
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 April and October of each year in an aggregate amount of (i) $2,000 for the
first six years, (ii) $88,000 during the fiscal 2005 and (iii) the balance in
fiscal 2006. The Senior Subordinated Notes mature in fiscal 2008. The Senior
Discount Debentures mature in fiscal 2009. The Senior Discount Debentures
require no cash payments prior to November 2003 except in certain limited
circumstances.
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%
22
anytime LIBOR is below 5.19%. The agreement effectively caps the Company's
exposure on $100.0 million of its floating rate debt at 6.5% plus the applicable
margin.
Movement in foreign currency exchange rates creates risk to the
Company's operations to the extent of sales made and costs incurred in foreign
currencies. The major foreign currencies, among others, in which the Company
does business are the British pound sterling, German mark and French franc. In
addition, changes in currency exchange rates can affect the competitiveness of
the Company's products and could result in management reconsidering pricing
strategies to maintain market share. Specifically, the Company is most sensitive
to changes in the German mark. In the seven months ended April 28, 1998 and the
five months October 3, 1998, approximately 29% and 26%, respectively, of the
Company's net sales were transacted in foreign currencies and approximately 15%
and 18%, respectively, were transacted in the German mark. During the past three
fiscal years, the impact of currency fluctuations has not had significant impact
on the Company's results of operations. Had the average exchange rate for the
Company's foreign currencies been 10% higher in fiscal 1998 the Company's
reported earnings would have been higher by $2.0 million and $1.1 million for
the seven months ended April 28, 1998 and the five months October 3, 1998,
respectively. Based on Holdings' overall currency rate exposure at October 3,
1998, a 10% change in currency rates would not have had a material effect on the
financial position, results of operations or cash flows of Holdings.
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 3, 1998, the Company was a party to 11 such
contracts with an aggregate value of $6.7 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 Holdings,
along with the Report of Independents Accountants, are included on pages F-1
through F-37 of this Form 10-K.
Supplementary data called for by this item is not presented, as it is
not applicable to Holdings.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Until July 1998, Ernst & Young LLP ("Ernst & Young") was the
independent accountant of the Company. In July 1998, Ernst & Young was replaced
by KPMG Peat Marwick LLP ("KPMG") as the independent accountant of the Company.
Ernst & Young did not resign nor was it dismissed under adverse circumstances.
Ernst & Young's report on the financial statements for the past two years did
not contain an adverse opinion or a disclaimer of opinion, nor was it qualified
or modified as to uncertainty, audit scope, or accounting principles. The
decision to change accountants was recommended by the parent of the Company. In
addition, during the two most recent fiscal years (and the subsequent interim
periods) prior to the Company's change in accountants, there were no
disagreements with Ernst & Young on any matter of accounting principles
23
or practices, financial statement disclosure or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of Ernst & Young, would
have caused Ernst & Young to make reference to the subject matter of the
disagreements in connection with its report.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of Holdings serve at the discretion of the
Management Committee of Holdings (the "Holdings Management Committee"). The
Holdings Management Committee is identical in composition to the Company's
management committee (the "Company Management Committee" and, together with
the Holdings Management Committee, the "Management Committees"). The
following table sets forth information concerning executive officers of
Holdings and the members of the Management Committees:
Name Age Position
- ---- --- --------
Salvatore J. Bonanno................ 57 Chairman and Chief Executive Officer, Grove Holdings and
Member of each Management Committee
Stephen L. Cripe.................... 42 Vice President and Chief Financial Officer
Keith R. Simmons.................... 48 Vice President and Secretary
J Taylor Crandall................... 43 Member of each Management Committee
Michael L. George................... 59 Member of each Management Committee
Gerald Grinstein.................... 66 Member of each Management Committee
Steven B. Gruber.................... 40 Member of each Management Committee
Robert B. Henske.................... 37 Member of each Management Committee
Gerard E. Holthaus.................. 49 Member of each Management Committee
Anthony P. Scotto................... 50 Member of each Management Committee
Mr. Bonanno serves as Chairman and Chief Executive Officer of Holdings
and serves as a member of each Management Committee. From July 1995 to June
1997, he was President of Foamex L.P. and from July 1997 to March 1998, he was
President, Chief Operating Officer and a Board Member of Foamex International
Inc. ("Foamex"), a $1 billion polyurethane manufacturing company, where he was
responsible for directing all manufacturing operations, strategic planning and
policy-making activities for Foamex's cushioning foams, automotive foams and
technical foams businesses. While at Foamex, Mr. Bonanno led an organizational
restructuring which included streamlining three layers of management,
restructuring manufacturing operations and reducing costs. From July 1993 to
July 1995, Mr. Bonanno served as General Manager of International Manufacturing
Operations for Chrysler Corporation where his responsibilities included solely
owned operations, joint ventures and licensing agreements outside of North
America. Mr. Bonanno joined Chrysler in 1965.
Mr. Simmons serves as Vice President and Secretary of Holdings, a
position in which he has served since April 1998. He has served as the Senior
Vice President, General Counsel and Business Development of the Company since
May 1995, and is responsible for managing the legal affairs of Grove Worldwide
and its operating companies 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. Cripe serves as Vice President and Chief Financial Officer of
Holdings, a position in which he has served since October 1998. He has served 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 Holdings and its operating companies. From April 1996 to August
24
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. 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.
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 1998, and 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.
25
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. Scotto serves as a member of each Management Committee. Mr.
Scotto has been a consultant to Oak Hill Capital Management, Inc. since
November 1998, and has served as a Managing Director of Oak Hill Partners,
Inc. since 1992. Mr. Scotto is a director of Holophane Corporation, Ivex
Packaging Corporation and Specialty Foods, Inc.
Management Committee Subcommittees and Fees
The Holdings Management Committee does not have a compensation
committee, audit committee or nominating committee. The members of the
Management Committees are not compensated for their services as such.
Item 11. EXECUTIVE COMPENSATION
Executive Compensation
The executive officers of Holdings are not compensated for their
services as such.
Description of Management Option Plan
In April 1998, Grove Investors, the parent company of 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.
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.
Employment Arrangements
Mr. Bonanno entered into an employment contract with the Company in
March 1998. Mr. Bonanno's term of employment is two years, beginning on April
29, 1998, subject to two-year automatic renewal periods. Mr. Bonanno is entitled
to an annual salary of $500,000, STIP awards and
26
two additional payments of $450,000 on March 31, 1999 and March 31, 2000. See
"--Short-Term Incentive Plan." In addition, the Company arranged with a third
party to purchase Mr. Bonanno's former residence for approximately $219,000,
the difference between the residence's estimated market value and the
outstanding mortgage balance, and reimbursed the third party for the $219,000
payment. Upon sale of the residence, any amount received by the third party
in excess of the outstanding mortgage balance will be paid to the Company.
As part of his employment contract, Mr. Bonanno was granted an option
under the Option Plan to purchase 2.0% of the outstanding membership interests
of Grove Investors, calculated as of the Closing Date. See "--Description of
Management Option Plan." The contract also provides that Mr. Bonanno has the
option to purchase additional membership interests of Grove Investors.
In March 1998, Mr. Bonanno entered into a separate employment agreement
with the Company covering the period between March 16, 1998 and April 29, 1998,
under which he received a ratable payment based on the actual number of days
elapsed during such period based on a yearly salary of $500,000.
Joseph Shull, the former President of Grove Crane, entered into an
executive agreement with the Company in June 1998, providing for his employment
through September 1998. During the term of his employment, Mr. Shull was
entitled to a ratable payment based on his current salary and STIP awards. See
"--Short-Term Incentive Plan." In addition, in consideration of his agreeing not
to compete with the Company through August 31, 2001, and to waive his change of
control agreement, Mr. Shull will receive additional annual payments through
August 31, 2001. See "--Termination and Change of Control Agreements." Mr. Shull
also entered into a consulting arrangement covering the period between October
1, 1998 and December 31, 2000.
Termination and Change of Control Agreements
In 1997, each of Messrs. Stift, Heidinger, Kolinski, 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 (three times in the case of Stift) 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. Pursuant to Mr. Shull's 1998 executive agreement, he has waived any
rights under his change of control agreement. See "--Employment
Arrangements." Messrs. Stift, Heidinger and Kolinski were paid approximately
$2.8 million, $730,000 and $730,000, respectively, under their change of
control agreements upon their departures from the Company.
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 targets for the Company and/or designated business sub-units.
27
The STIP is administered by certain persons designated by the Compensation
Committee of the Company.
Management of Grove Holdings Capital
Messrs. Henske, Scotto and Bonanno are the directors of Grove Holdings
Capital. They are not compensated in any way for acting in their capacity as
such. The board of directors of Grove Holdings Capital does not have a
compensation committee, audit committee or nominating committee.
Mr. Bonanno is the Chief Executive Officer of Grove Holdings Capital.
Mr. Simmons is the Vice President and Secretary of Grove Holdings Capital. Mr.
Cripe is the Vice President and Chief Financial Officer of Grove Holdings
Capital. None of the executive officers of Grove Holdings 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 Holdings 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 Holdings, whose principal address is 1565 Buchanan
Trail East, Shady Grove, Pennsylvania 17256. All shares of the issued and
outstanding capital stock of Grove Holdings Capital are beneficially owned by
Holdings. All of the issued and outstanding membership interests of 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
Holdings, by (i) each person or entity who owns five percent or more thereof,
(ii) each member of the Holdings Management Committee individually who holds
membership interests, (iii) each executive officer of Holdings who holds
membership interests and (iv) all executive officers and members of the Holdings
Management Committee as a group:
Percentage of
Name of Beneficial Owner Grove Investors
- ------------------------ Membership Interests
--------------------
FW Strategic Partners, L.P.(1) (2).......................................... 43.38%
201 Main Street, Suite 3200
Fort Worth, Texas 76102
FW Grove Coinvestors, L.P.(2) (3)........................................... 43.38%
201 Main Street, Suite 3200
Fort Worth, Texas 76102
GGEP-Grove, L.P. (2) (4)................................................... 2.66%
One Galleria Tower
13355 Noel Road, Suite 1100
Dallas, Texas 75240
D. Brown (3)................................................................ ---
J Crandall (1).............................................................. ---
M. George (2) (4)........................................................... 1.89%
S. Bonanno (5).............................................................. 2.67%
K. Simmons (5).............................................................. *
S. Cripe (5)................................................................ 1.16%
All executive officers and members of the Holdings Management Committee
as a group (10 persons)..................................................... 5.92%
28
- ----------
* Indicates less than one percent.
(1) The general partner of FW 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 FW Strategic Partners, L.P. Mr. Crandall disclaims beneficial
ownership of these membership interests.
(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, the Chief Executive Officer and Chairman of the Board and
majority stockholder of George Group, is a member of each Management
Committee.
(5) Represents Class A Membership Interests.
Certain members of senior management of the Company have purchased
approximately 5.8% of the membership interests of Grove Investors. The purchase
price of such interests was partially financed through approximately $3.5
million in loans from the Company. Certain members of senior management have
also been granted options to purchase membership interests of Grove Investors
under the Option Plan. See "Item 11. Executive Compensation--Description of
Management Option Plan." Grove Investors membership interests held by such
senior management members are subject to calls by Grove Investors upon a
termination of employment. See "Item 11. Executive Compensation--Description of
Management Option Plan."
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Operating Agreements
Grove Worldwide LLC Operating Agreement
The Company is wholly owned by Holdings, which is also the managing
member. As managing member, 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
Holdings is wholly owned by Grove Investors, which is also the managing
member of Holdings. As managing member, Grove Investors has delegated the
management of the Company to the Holdings Management Committee, which is
identical in composition to the Company Management Committee. Subject to
restrictions contained in the Indenture relating to the Debentures, all
distributions in respect of membership interests of Holdings will be made to
Grove Investors.
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 the 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. George
Group has advised the Company that it estimates its engagement will be completed
within 42 months and that the total cash fees and expenses would approximate
$14.0 million, including approximately $2.7 million it received in fiscal 1998.
In addition, if the Company achieves certain defined levels of
29
performance in fiscal 1999, 2000, 2001 and 2002, George Group will be entitled
to receive additional ownership interests in Grove Investors for each year the
defined levels of performance are achieved. The Company has agreed to indemnify
George Group, its owners, employees, and agents from liabilities and claims
relating to or arising from the engagement of George Group, other than those
resulting from gross negligence or willful misconduct of George Group. Michael
L. George, a member of the Holdings Management Committee, is Chief Executive
Officer and Chairman of the Board and majority stockholder of George Group. See
"Item 1. Business--Significant Developments."
Agreements with Certain Executive Officers
The Company has entered into certain agreements with Messrs. Bonanno,
Stift, Heidinger, Simmons, Urbanek, Kolinski and Shull and made payments to
Messrs. Stift, Heidinger and Kolinski under their change of control agreements.
See "Item 11. Executive Compensation--Employment Arrangements" and
"--Termination and Change of Control Agreements." In addition, the Company has
entered into an executive agreement with Mr. Shull. See "Item 11. Executive
Compensation--Employment Arrangements."
Loans to Certain Executive Officers
The Company has provided approximately $3.5 million 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, except for a $912,000 note made by Mr. Bonanno,
are secured by a pledge of the executive's membership interests in Grove
Investors. Except as described in the next sentence, all of the notes are due
ten years from their date of issuance. The $912,000 note made by Mr. Bonanno
is due in June 2005, a $250,000 note made by Mr. Cripe is due in April 1999,
and a $50,000 note made by Mr. Mallo is due in October 1999. As of October
31, 1998, Messrs. Bonanno, Bust, Kolinski, Wheeler, Mallo and Cripe were
indebted to the Company in the amount of approximately $1.9 million,
$375,000, $250,000, $150,000, $150,000 and $687,000, respectively.
Certain Transactions with Hanson Prior to the Closing Date
Prior to the consummation of the Transactions, the Company and its
subsidiaries were affiliates of Hanson. Hanson provided the Company and its
subsidiaries with various services, including, without limitation, cash
management, tax reporting and risk management services and charged a management
fee for such services. See "Item 7. Management's Discussion and Analysis of
Financial Condition Operations--Results of Operations." Prior to the
consummation of the Transactions, Hanson also purchased small quantities of the
Company's products on an arms-length basis.
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
Holdings and the Report of Independent Accountants set forth on pages F-1
through F-37 respectively, are incorporated by reference into this Item 14 of
Form 10-K by Item 8 hereof:
30
See Index to Combined and Consolidated Financial Statements and
Financial Statement Schedules 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 Schedules on page F-1.
Schedules other than those listed in the Index to Combined and
Consolidated Financial Statements and Financial Statement Schedules 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.
31
(a)(3) Exhibits.
Exhibit
No. Description of Exhibit
- ------------ -----------------------------------------------------------------------------------------------------------------
3.1 Second Amended and Restated Limited Liability Company Agreement of Grove Holdings LLC ("Grove Holdings").
4.1* Indenture dated as of April 29, 1998, by and among Grove Holdings, Grove Holdings Capital, Inc. ("Grove Holdings
Capital") and the United States Trust Company of New York.
4.2* Form of 11 5/8% Debentures due 2009.
4.3* Credit Agreement dated April 29, 1998, by and among Grove Worldwide LLC ("Grove"), Grove Capital, Inc. ("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 Holdings, Grove Holdings Capital and
Chase Securities Inc. and Donaldson, Lufkin & Jenrette Securities Corporation.
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.
10.5* Change of Control Agreement dated July 24, 1997 by and between Grove and James A. Kolinski.
10.6* Change of Control Agreement dated July 24, 1997 by and between Grove and Joseph A. Shull.
10.7 Change of Control Agreement dated July 24, 1997 by and between Grove and Robert Stift.
10.8* Change of Control Agreement dated July 24, 1997 by and between Grove and Keith R. Simmons.
10.9* Change of Control Agreement dated July 24, 1997 by and between Grove and Theodore J. Urbanek.
10.10* Change of Control Agreement dated July 24, 1997 by and between Grove and G. Fred Heidinger.
10.11* Grove Investors LLC Management Option Plan.
10.12* Grove Worldwide LLC Short-Term Incentive Plan.
10.13* 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.
10.14* Software License and Support Agreement, dated June 29, 1996, between Baan U.S.A. Inc. and Grove North America,
Division of Kidde Industries, Inc., and amended by Addendum No. One, dated June 29, 1996.
10.15* Professional Services Agreement, dated June 26, 1996, between Baan U.S.A. Inc. and Grove North America, Division of
Kidde Industries, Inc., and amended by Addendum No. One, dated June 29, 1996.
10.16* Consent Letter, dated April 27, 1998 from Grove to Baan U.S.A. Inc.
10.17* Form of Grove Investors LLC Option Agreement.
10.18* First Amendment, dated June 23, 1998, to Employment Agreement of Salvatore J. Bonanno.
10.19* Promissory Note dated June 27, 1998 by and between Grove and Salvatore J. Bonanno.
10.21* Promissory Note dated June 27, 1998 by and between Grove and Jeffrey D. Bust.
10.22* Promissory Note dated June 27, 1998 by and between Grove and James A. Kolinski.
10.23* Promissory Note dated June 27, 1998 by and between Grove and John Wheeler.
10.24 Promissory Note dated October 27, 1998 by and between Grove and Stephen L. Cripe.
10.25 Promissory Note dated October 27, 1998 by and between Grove and Stephen L. Cripe.
10.26 Promissory Note dated October 27, 1998 by and between Grove and Donald Mallo.
10.27 Promissory Note dated October 27, 1998 by and between Grove and Donald Mallo.
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 Holdings and Grove Holdings Capital (Commission File
Number 333-57609).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended October 3,
1998.
32
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 HOLDINGS LLC
By /s/ Salvatore J. Bonanno
------------------------------------
Salvatore J. Bonanno
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/ Salvatore J. Bonanno Chairman and Chief Executive Officer and Member
- -------------------------- (Principal Executive Officer)
Salvatore J. Bonanno
/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/ Anthony P. Scotto Member
- --------------------------
Anthony P. Scotto
33
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.
34
INDEX TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
GROVE HOLDINGS LLC AND SUBSIDIARIES
Page
FINANCIAL STATEMENTS
Independent Auditors' Reports....................................................................F-2
Combined Balance Sheet as of September 27, 1997 and
Consolidated Balance Sheet as of October 3, 1998...........................................F-4
Combined Statements of Operations for the years ended September 28, 1996 and
September 27, 1997 and for the seven months ended April 28, 1998 and
Consolidated Statement of Operations for the five months ended October 3,
1998.......................................................................................F-5
Combined Statements of Predecessor Capital for the years ended September 28,
1996 and September 27, 1997 and for the seven months ended April 28, 1998
and Consolidated Statement of Member's Equity for the
five months ended October 3, 1998..........................................................F-6
Combined Statements of Cash Flows for the years ended September 28, 1996 and
September 27, 1997 and for the seven months ended April 28, 1998 and
Consolidated Statement of Cash Flows for the five months ended October 3, 1998.............F-7
Notes to Combined and Consolidated Financial Statements..........................................F-8
FINANCIAL STATEMENT SCHEDULES
Schedule I-Condensed Financial Information of Registrant.........................................S-1
Schedule II-Valuation and Qualifying Accounts....................................................S-4
F-1
Independent Auditors' Report
The Management Committee of
Grove Holdings LLC:
We have audited the accompanying consolidated balance sheet of Grove Holdings
LLC and subsidiaries as of October 3, 1998 and the related consolidated
statements of operations, member's equity and cash flows for the five months
ended October 3, 1998 (Successor Period) and the combined statements of
operations, predecessor capital and cash flows for the seven months ended April
28, 1998 (Predecessor Period). In connection with our audit of the consolidated
and combined financial statements, we have also audited the consolidated and
combined financial statement schedules listed under Item 14(a)(2). These
consolidated and combined financial statements and financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated and combined financial statements and
financial statement schedules based on our audit.
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Grove Holdings LLC
and subsidiaries as of October 3, 1998, and the results of their operations and
their cash flows for the Successor Period, in conformity with generally accepted
accounting principles. Furthermore, in our opinion, the aforementioned combined
financial statements present fairly, in all material respects, the results of
operations and cash flows of The Grove Companies for the Predecessor Period, in
conformity with generally accepted accounting principles. Also in our opinion,
the related combined and consolidated financial statement schedules, when
considered in relation to the basic consolidated and combined financial
statements taken as a whole, present 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 Holdings LLC acquired The Grove Companies in a business
combination accounted for as a purchase. As a result of the acquisition, the
consolidated information as of October 3, 1998 and for the five months then
ended is presented on a different cost basis than that for the periods before
the acquisition and, therefore is not comparable.
KPMG Peat Marwick LLP
Baltimore, Maryland
December 1, 1998
F-2
Independent Auditors' Report
The Shareholder of
The Grove Companies:
We have audited the accompanying combined balance sheet as of September 27, 1997
of the Grove Companies (as listed in Note 1), and the related combined
statements of operations, predecessor capital, and cash flows for each of the
two years in the period ended September 27, 1997. Our audits also included the
financial statement schedules listed in the Index at Item 14(a)(2). These
financial statements and schedules are the responsibility of the Companies'
management. Our responsibility is to express an opinion on the financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position at September 27, 1997, of
the Grove Companies, and the combined results of their operations and their cash
flows for each of the two years in the period ended September 27, 1997, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedules, when considered in relation to the
basis financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
December 15, 1997
Baltimore, Maryland
F-3
GROVE HOLDINGS LLC AND SUBSIDIARIES
Combined Balance Sheet as of September 27, 1997 and Consolidated Balance Sheet
as of October 3, 1998 (in thousands)
Predecessor Company
----------- -------
1997 1998
Assets
Current assets:
Cash and cash equivalents $ 5,024 $ 34,289
Trade receivables, net 149,164 129,833
Due from Hanson PLC -- 10,500
Notes receivable 68,450 5,887
Inventories (note 5) 215,332 207,248
Prepaid expenses and other current assets 22,569 8,893
--------- ---------
Total current assets 460,539 396,650
Property, plant and equipment, net (note 6) 147,588 207,175
Goodwill, net (note 7) 254,728 288,499
Other assets 18,641 20,106
--------- ---------
$ 881,496 $ 912,430
--------- ---------
--------- ---------
Liabilities and Member's Equity/Predecessor Capital
Current liabilities:
Current maturities of long-term debt (note 10) $ -- $ 7,000
Short-term borrowings (note 8) 7,265 15,027
Accounts payable 70,327 79,470
Accrued expenses and other current liabilities (note 9) 90,734 104,951
--------- ---------
Total current liabilities 168,326 206,448
Deferred revenue (note 3) 46,509 67,306
Long-term debt (note 10) -- 460,535
Other liabilities (note 11) 38,169 82,729
--------- ---------
Total liabilities 253,004 817,018
--------- ---------
Member's equity/predecessor capital:
Predecessor capital 628,492 --
Invested capital -- 116,730
Accumulated deficit -- (26,600)
Minimum pension liability (note 12) -- (2,059)
Cumulative translation adjustment -- 7,341
--------- ---------
Total member's equity/predecessor capital 628,492 95,412
--------- ---------
Commitments and contingencies (notes 16, 17, 18 and 19)
$ 881,496 $ 912,430
--------- ---------
--------- ---------
See accompanying notes to combined and consolidated financial statements.
F-4
GROVE HOLDINGS LLC AND SUBSIDIARIES
Combined Statements of Operations for the years ended September 28, 1996 and
September 27, 1997 and the seven months ended April 28, 1998 and Consolidated
Statement of Operations for the five months ended October 3, 1998 (in thousands)
Predecessor Company
------------------------------------- ----------
September 28, September 27, April 28, October 3,
1996 1997 1998 1998
------------- ------------- -------- ----------
Net sales $ 794,209 $ 856,812 $ 476,200 $ 393,779
Cost of goods sold (note 5) 609,130 653,539 377,337 335,764
------- ------- ------- -------
Gross profit 185,079 203,273 98,863 58,015
Selling, engineering, general
and administrative expenses 119,619 122,192 73,664 58,098
Amortization of goodwill 9,185 9,054 5,215 3,091
Management fees paid to Hanson PLC (note 19) 5,655 2,176 162 --
Restructuring charges (note 15) -- 1,960 -- --
------- ------- ------- -------
Income (loss) from operations 50,620 67,891 19,822 (3,174)
Interest income (expense), net (note 10) (2,791) 43 1,048 (18,535)
Other income (expense), net (193) 535 (9,524) (554)
------- ------- ------- -------
Income (loss) before income taxes 47,636 68,469 11,346 (22,263)
Income taxes (note 14) 22,188 26,249 11,741 4,337
------- ------- ------- -------
Net income (loss) $ 25,448 $ 42,220 $ (395) $ (26,600)
------- ------- ------- -------
See accompanying notes to combined and consolidated financial statements.
F-5
GROVE HOLDINGS LLC AND SUBSIDIARIES
Combined Statements of Predecessor Capital for the years ended September 28,
1996 and September 27, 1997 and the seven months ended April 28, 1998 and
Consolidated Statement of Member's Equity for the five months ended October 3,
1998 (in thousands)
Company
---------------------------------------------------------------------------
Minimum Cumulative Total
Predecessor Invested Accumulated pension translation member's
capital capital deficit liability adjustment equity
---------------------------------------------------------------------------
Balance, September 30, 1995 $ 467,306 $ -- $ -- $ -- $ -- $ --
Net income 25,448 -- -- -- -- --
Dividends paid to parent (30,057) -- -- -- -- --
Net transactions with
affiliates 42,394 -- -- -- -- --
Change in minimum pension
liability (162) -- -- -- -- --
Change in foreign currency
translation (2,375) -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Balance, September 28, 1996 502,554 -- -- -- -- --
Net income 42,220 -- -- -- -- --
Net transactions with
affiliates 88,524 -- -- -- -- --
Change in minimum pension
liability 601 -- -- -- -- --
Change in foreign currency
translation (5,407) -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Balance, September 27, 1997 628,492 -- -- -- -- --
Net loss (395) -- -- -- -- --
Net transactions with affiliates (111,216) -- -- -- -- --
Change in minimum pension
liability (1,371) -- -- -- -- --
Change in foreign currency
translation (5,764) -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Balance, April 28, 1998 509,746 -- -- -- -- --
Elimination of predecessor
capital (509,746) -- -- -- -- --
Initial capitalization -- 120,000 -- -- -- 120,000
Advances to Grove
Investors LLC (note 19) -- (3,270) -- -- -- (3,270)
Net loss -- -- (26,600) -- -- (26,600)
Minimum pension liability -- -- -- (2,059) -- (2,059)
Cumulative translation --
adjustment -- -- -- -- 7,341 7,341
--------- --------- --------- --------- --------- ---------
Balance, October 3, 1998 $ -- $ 116,730 $ (26,600) $ (2,059) $ 7,341 $ 95,412
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
See accompanying notes to combined and consolidated financial statements.
F-6
GROVE HOLDINGS LLC AND SUBSIDIARIES
Combined Statements of Cash Flows for the years ended September 28, 1996 and
September 27, 1997 and the seven months ended April 28, 1998 and Consolidated
Statement of Cash Flows for the five months ended October 3, 1998 (in thousands)
Predecessor Company
--------------------------------------- -----------
September 28, September 27, April 28, October 3,
1996 1997 1998 1998
------------- ------------ --------- -----------
Cash flows from operating activities:
Net income (loss) $ 25,448 $ 42,220 $ (395) $ (26,600)
Adjustments to reconcile to net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 17,313 17,985 11,399 8,214
Depreciation of equipment held for rent 3,805 8,352 5,501 7,400
Amortization of deferred financing costs -- -- -- 790
Accretion of interest on senior
discount notes -- -- -- 2,550
Write-off of amount assigned to inventory
in purchase accounting -- -- -- 27,707
Gain (loss) on sales of property, plant and equipment 5 (600) 6,256 --
Deferred income tax expense 126 1,969 2,358 1,249
Changes in operating assets and liabilities:
Trade receivables, net (48,405) (23,266) 32,096 (6,790)
Notes receivable -- (68,450) 28,409 (3,607)
Inventories (27,528) (162) (8,828) 17,936
Accounts payable and accrued expenses 21,559 564 7,542 2,489
Other assets and liabilities, net 17,503 33,383 8,759 25,962
--------- --------- --------- ---------
Net cash provided by operating activities 9,826 11,995 93,097 57,300
--------- --------- --------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (19,443) (32,491) (19,521) (7,230)
Investment in equipment held for rent (22,527) (37,904) (16,380) (20,751)
Acquisition of businesses from Hanson, PLC including
transaction costs of $5,783 net of cash acquired of $9,242
and post-closing adjustment received of $16,818 -- -- -- (562,723)
Other investing activities (3,271) 1,603 2,071 1,302
--------- --------- --------- ---------
Net cash used in investing activities (45,241) (68,792) (33,830) (589,402)
--------- --------- --------- ---------
Cash flows from financing activities:
Net proceeds from short-term borrowings 7,443 204 6,821 941
Proceeds from issuance of long-term debt -- -- -- 500,185
Repayments of long-term debt -- -- -- (35,200)
Equity investment from Grove Investors LLC -- -- -- 120,000
Advances to Grove Investors LLC -- -- -- (3,270)
Deferred financing costs -- -- -- (16,608)
Other financing activities 18,309 54,145 (62,087) --
--------- --------- --------- ---------
Net cash provided by (used in) financing activities 25,752 54,349 (55,266) 566,048
--------- --------- --------- ---------
Effect of exchange rate changes on cash (838) (712) 217 343
--------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents (10,501) (3,160) 4,218 34,289
Cash and cash equivalents, beginning of period 18,685 8,184 5,024 --
--------- --------- --------- ---------
Cash and cash equivalents, end of period $ 8,184 $ 5,024 $ 9,242 $ 34,289
--------- --------- --------- ---------
--------- --------- --------- ---------
See accompanying notes to combined and consolidated financial statements.
F-7
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
(1) Organization, Description of Business, and Basis of Presentation
Grove Holdings LLC (the "Company"), through its wholly owned
subsidiaries, is primarily engaged in the design, production, sale, and
after-sale support of mobile hydraulic cranes, aerial work platforms
and truck-mounted cranes. The Company's domestic manufacturing plants
and related facilities are located in Shady Grove and Chambersburg,
Pennsylvania and Waverly, Nebraska. The Company's foreign manufacturing
plants and related 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
Investors LLC ("Investors") is the sole member of the Company. All
earnings of the Company are available for distribution to Investors
subject to restrictions contained in the Company's debt agreements (see
note 10). Investors is a limited liability company.
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Combined financial statements for the periods prior to April 29, 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-8
(Continued)
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
(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 million. The purchase price was
subject to a post closing adjustment for which the Company received
$16.8 million in fiscal 1998 and an additional $10.5 million 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
Issuance of the Senior Discount Debentures 49,958
Equity investment by Investors 120,000
--------
$605,064
--------
--------
Uses:
Acquisition price $583,000
Transaction costs 5,783
--------
Aggregate purchase price 588,783
Debt financing costs 16,281
--------
$605,064
--------
--------
Proceeds from the equity investment by Investors of $120,000 were
generated by Investors through the issuance of 100% of its equity for
$75,000 and net proceeds from the issuance of $47,375 of 14-1/2% Senior
Debentures due May 2010. Such debentures have no cash interest
requirement prior to maturity.
The debentures will require quarterly payments of interest, in cash or,
at Investors' option, in the form of additional debentures, based on a
per annum rate of 14-1/2%. The cash interest payments, if any, are
expected to be generated by distributions from the Company.
F-9
(Continued)
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
(2) Continued
The Acquisition was accounted for using the purchase method. The
estimated total purchase price of $583 million and related acquisition
fees and expenses of approximately $5.8 million 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 intends to amortize 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)
Accrued expenses and other current liabilities (103,664)
Other non-current liabilities (121,940)
--------
Aggregate purchase price $ 588,783
---------
---------
As a result of the Acquisition, the carrying value of assets and
liabilities of the Company are not comparable to the carrying value of
such assets and liabilities by the Predecessor. The allocation of the
purchase price to certain property, plant and equipment is based on
fair market value appraisals which have not been finalized.
(3) Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company defines cash equivalents as highly liquid investments with
initial maturities of three months or less.
Trade Receivables and Notes Receivable
Trade receivables are net of allowance for doubtful accounts of $2,717
and $3,075 as of September 27, 1997 and October 3, 1998, respectively.
F-10
(Continued)
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
(3) Continued
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.
Inventories
Inventories are valued at the lower of cost or market, as determined
primarily under the first-in, first-out method.
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
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.
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-11
(Continued)
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
(3) Continued
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.
Revenue Recognition
Revenue is generally recognized 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 September 27, 1997
and October 3, 1998, the amount of deferred revenue relating to
transactions involving residual value guarantees which is included in
other current or noncurrent liabilities was $53,150 and $80,658,
respectively.
Product Warranties
Product warranty expenses are provided for estimated normal warranty
costs at the time of sale. Additional warranty expense is provided for
specific performance issues when identified. Specific performance
issues relate to situations in which the Company issues a part
replacement notice for models that are experiencing a particular
problem.
F-12
(Continued)
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
(3) Continued
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.
Research and Development
Research and development expenditures are charged to operations as
incurred. Research and development costs were $14,976, $15,427, $8,242
and $5,878 for the years ended September 28, 1996 and September 27,
1997, the seven months ended April 28, 1998 and the five months ended
October 3, 1998, respectively.
Advertising
All costs associated with advertising and promoting products are
expensed when incurred. Advertising expense amounted to $3,887, $4,802,
$2,324 and $1,568 for the years ended September 28, 1996 and September
27, 1997, the seven months ended April 28, 1998 and the five months
ended October 3, 1998, respectively.
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.
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.
F-13
(Continued)
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
(3) Continued
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
values of the Senior Subordinated Notes and Senior Discount
Debentures are based on quoted market prices. (See note 10)
Adoption of New Accounting Standards
In 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 130, Reporting of Comprehensive Income. This Statement
requires the reporting of comprehensive income in interim and annual
financial statements. Net income together with periodic adjustments
with respect to foreign currency translation and minimum pension
liabilities will result in comprehensive income. The Company intends to
adopt the pronouncement in the first quarter of fiscal year 1999.
In 1997, the FASB issued Statement No. 131, Disclosures about Segments
of an Enterprise and Related Information. This Statement requires that
public business enterprises disclose information about their products
and services, operating segments, the geographic areas in which they
operate, and their major customers. The Company intends to adopt the
pronouncement in fiscal year 1999.
In 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes
accounting and reporting standards for derivative instruments and for
hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities measured at fair value.
Management has not yet evaluated this statement's impact on the
Company's financial condition or results of operations. The Company
intends to adopt the pronouncement in fiscal year 2000.
Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ significantly from those
estimates.
F-14
(Continued)
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
(3) Continued
Reclassification
Certain amounts in the 1996 and 1997 combined financial statements have
been reclassified to conform to the presentation in the October 3, 1998
consolidated financial statements.
(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 years ended September 28,
1996 and September 27, 1997, revenues generated from six major
customers were approximately 20% and 19% of net sales, respectively,
with no one customer accounting for more than 5% of total revenue.
Approximately 31% of the outstanding trade and notes receivable balance
as of September 27, 1997 were due from these customers. For the seven
months ended April 28, 1998 and the five months ended October 3, 1998,
revenues generated from five major customers were approximately 23% and
24%, respectively, with no one customer accounting for more than 10% of
total revenue. Approximately 11% of the outstanding trade and notes
receivable balance as of October 3, 1998 were due from these customers.
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 offered 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.
Prior to the Acquisition, Hanson entered into an agreement to sell
certain notes receivable to a third-party bank on a 90% non-recourse
basis. In addition, substantially all notes receivable outstanding at
the date of the Acquisition that had not been sold to the third party
bank were retained by Hanson. Following the Acquisition, the Company is
responsible for administrative and collection activities with respect
to such receivables but Hanson is responsible for all remaining credit
risk. The cost of providing administrative support is immaterial.
Following the Acquisition, the Company entered into an agreement with a
third-party bank to sell up to $50 million 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
third-party 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 third-party bank to insure the 90%
risk assumed by the third-party bank. The Company retains 10% of the
credit risk on a first loss basis.
F-15
(Continued)
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
(4) Continued
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 third-party bank. The third-party
bank has the power to sell or pledge the notes receivable purchased at
any time and the Company has no rights of 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, 1998, the Company had
credit risk of up to $3.8 million with respect to notes receivable that
had been sold under the arrangement.
(5) Inventories
Inventories consist of the following as of September 27, 1997 and
October 3, 1998:
Predecessor Company
----------- -------
1997 1998
Raw materials and supplies $ 76,573 $ 61,910
Work in process 78,993 72,299
Finished goods 59,766 73,039
------ ------
$215,332 $207,248
-------- --------
-------- --------
In connection with the Acquisition, the Company assigned $27.7 million
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-16
(Continued)
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
(6) Property, Plant and Equipment
Property, plant and equipment consist of the following as of September
27, 1997 and October 3, 1998:
Predecessor Company
----------- -------
1997 1998
Land and improvements $ 12,765 $ 7,446
Buildings and improvements 63,052 62,709
Machinery and equipment 71,864 55,276
Equipment held for rent 58,455 79,997
Furniture and fixtures 17,016 5,264
Construction in progress 20,329 9,078
-------- --------
243,481 219,770
Less accumulated depreciation and amortization 95,893 12,595
-------- --------
$147,588 $207,175
-------- --------
-------- --------
Depreciation expense (including depreciation expense on equipment held
for rent) for the years ended September 28, 1996, September 27, 1997,
the seven months ended April 28, 1998 and the five months ended October
3, 1998 was $11,933, $17,283, $11,685 and $12,522, respectively.
(7) Goodwill
Goodwill consists of the following as of September 27, 1997 and October
3, 1998:
Predecessor Company
----------- -------
1997 1998
Goodwill $337,443 $291,590
Less accumulated amortization 82,715 3,091
-------- --------
$254,728 $288,499
-------- --------
-------- --------
F-17
(Continued)
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
(8) Short-term Borrowings
The Company's German operation maintains a DM33 million (approximately
$20 million) credit facility available for discounting certain accounts
receivable. As of September 27, 1997 and October 3, 1998, $7,265 and
$15,027 were drawn against this facility. The interest rate charged on
the outstanding borrowings was 3.0% and 4.5% at September 27, 1997 and
October 3, 1998, 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 September 27, 1997 and October 3, 1998:
Predecessor Company
----------- -------
1997 1998
Salaries and wages $ 21,036 $ 20,413
Employee benefits 8,603 1,092
Accrued warranty 18,044 16,522
Deferred revenue associated with equipment held for rent 6,641 13,352
Product, workers' compensation and general liability 12,757 4,125
Accrued interest -- 9,907
Sunderland, U.K. shut-down costs (note 15) -- 18,500
Other 23,653 21,040
-------- --------
$ 90,734 $104,951
-------- --------
-------- --------
(10)Long-Term Debt
Long-term debt consists of the following at October 3, 1998:
Term loan facility $190,000
Senior subordinated notes 225,000
Senior discount debentures 52,535
--------
467,535
Less current maturities 7,000
--------
Long-term debt $460,535
--------
--------
F-18
(Continued)
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
(10) Continued
Bank Credit Facility - The Company entered into a bank credit facility
(the "Bank Credit Facility") on April 29, 1998, which consists of a
$200,000 term loan facility ("Term Loan Facility") and a $125,000
revolving credit facility ("Revolving Credit Facility"). To consummate
the Acquisition, the Company borrowed $200,000 under the Term Loan
Facility and approximately $9,500 under the Revolving Credit Facility.
The Revolving Credit Facility enables the Company to obtain revolving
credit loans and to issue letters of credit for working capital,
acquisitions and general corporate purposes. 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.
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 1.25% and 2.25% for borrowings under the
Revolving Credit Facility and between 2.0% and 2.5% for borrowings
under the Term Loan Facility. The interest rate on borrowings under the
Term Loan Facility at October 3, 1998 is based on LIBOR plus an
applicable margin of 2.5% (8.04% at October 3, 1998). The Company will
also pay a 0.375% fee on the unused portion of the Bank Credit
Facility. There were no borrowings outstanding at October 3, 1998 under
the revolving credit facility.
The Term Loan Facility has a term of eight years and must be repaid in
semi-annual installments in April and October of each year in an
aggregate amount of (i) $2,000 for the first six years, (ii) $88,000
during the seventh year and (iii) $100,000 during the eighth year. The
Revolving Credit Facility has a term of seven years. Commencing with
the fiscal year ended September 30, 1999, the Company will be 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. In addition, the Bank
Credit Facility requires mandatory prepayments upon the occurrence of
certain events including the change of control of the Company. At
October 3, 1998, the Company had outstanding letters of credit of $938
and available borrowings of $124,062 under the Revolving Credit
Facility.
The obligations of the Company under the Bank Credit Facility are
guaranteed by 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.
F-19
(Continued)
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
(10) Continued
In addition, the Bank Credit Facility contains various covenants that
restrict the Company's subsidiaries from taking various actions and
that require the Company to achieve and maintain certain financial
ratios.
Senior Subordinated Notes - The Senior Subordinated Notes bear interest
at a rate of 9 1/4% per annum payable semi-annually on May 1 and
November 1 of each year commencing November 1, 1998. The Senior
Subordinated Notes are general unsecured obligations of the Company and
its co-issuer, Grove Capital, Inc., and are guaranteed by all of the
Company's domestic subsidiaries. The Senior Subordinated Notes are
redeemable at the option of the Company, in whole or in part, at any
time on or after, May 1, 2003, at a declining redemption price and
mature on May 1, 2008.
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), provided at least 65% of the principal amount
of the originally issued Senior Subordinated Notes remain outstanding.
Upon the occurrence of a change of control, as defined in the Indenture
governing the Senior Subordinated Notes (the "Indenture"), each holder
of the Senior Subordinated Notes will have the right to require the
Company to repurchase such holder's notes at an offer price in cash
equal to 101% of the aggregate principal amount thereof plus accrued
and unpaid interest and liquidated damages, if any, thereon to the date
of purchase.
The Indenture contains certain covenants that limit, among other
things, the ability of the Company's subsidiaries to (i) pay dividends,
redeem capital stock or make certain other restricted payments, (ii)
incur additional indebtedness or issue certain preferred equity
interests, (iii) merge into or consolidate with certain other entities
or sell all or substantially all of its assets, (iv) create liens on
assets and (v) enter into certain transactions with affiliates or
related persons.
The Company expects that cash flows from foreign operations will be
required to meet its domestic debt service requirements. Such cash
flows are expected to be generated from intercompany interest expense
on loans the Company has made to certain of its foreign subsidiaries to
consummate the acquisition of Hanson's crane and aerial work platform
subsidiaries in the U.K., Germany and France and for working capital
requirements. The loans have been established with amounts and interest
rates to allow for repatriation without restriction or additional tax
burden. However, there is no assurance that the foreign subsidiaries
will generate the cash flow required to service the loans or that the
laws in the foreign jurisdictions will not change to limit repatriation
or increase the tax burden of repatriation.
F-20
(Continued)
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
(10)Continued
Senior Discount Debentures - The Senior Discount Debentures were issued
pursuant to an Indenture dated April 29, 1998 (the "Holdings
Indenture") at a discount from their principal amount. The Senior
Discount Debentures are general unsecured obligations of the Company
and its co-issuer, Grove Holdings Capital, Inc. The Senior Discount
Debentures accrete interest at a rate of 11-5/8% per annum, compounded
semi-annually, to an aggregate principal amount of $88 million at May
1, 2003. Thereafter, the Senior Discount Debentures will accrue cash
interest at a rate of 11-5/8% per annum, payable semi-annually on May 1
and November 1 of each year, commencing on November 1, 2003. The Senior
Discount Debentures will be redeemable at the option of Holdings, in
whole or in part, at any time after May 1, 2003, at a declining
redemption price and mature on May 1, 2009.
In addition, at any time prior to May 1, 2001, the Company may redeem
up to 35% of the originally issued aggregate principal amount of the
Senior Discount Debentures at 111.625% of the accreted value (as
defined by the Holdings Indenture) thereof plus liquidated damages (as
defined by the Holdings Indenture) thereon, if any, with the net
proceeds of one or more public offerings of the Company's or Investors'
equity, provided that at least 65% of the originally issued aggregate
principal amount of the Senior Discount Debentures remain outstanding
thereafter.
Upon the occurrence of a change of control (as defined by the Holdings
Indenture), each holder of the Senior Discount Debentures will have the
right to require Holdings to repurchase such holders' notes at an offer
price in cash equal to 101% of the aggregate principal amount thereof
plus accrued and unpaid interest and liquidated damages, if any,
thereon to the date of purchase.
The Holdings 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 estimated fair value of the Company's long-term debt at October 3,
1998 was $426,720.
Aggregate annual scheduled maturities of long-term debt at October 3,
1998 are $2,000 during each of the next five fiscal years. In November
1998, the Company made an optional prepayment of $5 million on the Term
Loan Facility.
The Company's ability to meet cash payment obligations under the
Senior Discount Notes will be based upon the receipts of distribution
from the Company's operating subsidiaries. The Bank Credit Facility
and the Indenture place significant restrictions on the amount of such
distributions. The Senior Discount Notes require no cash payments prior
to May 2003 except in certain limited circumstances.
F-21
(Continued)
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
(10) Continued
Interest Expense - Interest income (expense), net consists of the
following for the years ended September 26, 1996, September 27, 1997, the
seven months ended April 28, 1998 and the five months ended October 3,
1998.
Presdecessor Company
-------------------------------- --------
April 28, October 3,
1996 1997 1998 1998
-------- -------- -------- --------
Interest expense $ (716) $ (638) $ (263) $(17,410)
Interest expense paid to Hanson (2,610) (1,404) (2,174) --
Amortization of deferred financing costs -- -- -- (790)
Accretion of interest on senior discount notes -- -- -- (2,550)
Interest income 535 2,085 3,485 2,215
-------- -------- -------- --------
$ (2,791) $ 43 $ 1,048 $(18,535)
-------- -------- -------- --------
-------- -------- -------- --------
The Company paid interest of $7,503 for the five months ended October 3,
1998.
In July 1998, the Company entered into an interest rate agreement with a
commercial bank to collar the interest rate on approximately $100 million
of the Company's floating rate borrowings for the three years ended
September 2001. The contract does not require collateral. If the contract
was terminated at October 3, 1998, the Company would have had a loss of
approximately $1.9 million.
(11) Other Liabilities
Other liabilities consist of the following as of September 27, 1997 and
October 3, 1998:
Predecessor Company
----------- -------
1997 1998
------- -------
Accrued liability for defined benefit pension plans $11,068 $29,278
Accrued liability for postretirement benefit plan 18,859 28,293
Other 8,242 25,158
------- -------
$38,169 $82,729
------- -------
------- -------
F-22
(Continued)
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
(12) Employee Benefit Plans
The Company has several defined benefit pension plans covering
substantially all of its 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.
The components of the net periodic pension costs for all U.S. defined
benefit plans for the fiscal years ended September 28, 1996 and September
27, 1997, for the seven months ended April 28, 1998 and for the five
months ended October 3, 1998 are summarized below:
Predecessor Company
------------------------------- ----------
April 28, October 3,
1996 1997 1998 1998
------- ------- ---------- ----------
Service cost $ 1,787 $ 2,172 $ 1,542 $ 1,322
Interest cost 2,482 3,128 2,163 1,621
Actual return on assets (1,895) (2,748) (1,898) (1,528)
Net amortization and deferral 341 539 465 --
------- ------- ------- -------
Net periodic pension costs $ 2,715 $ 3,091 $ 2,272 $ 1,415
------- ------- ------- -------
------- ------- ------- -------
F-23
(Continued)
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
(12) Continued
The following tables set forth the U.S. plans' funded status at September
27, 1997 and October 3, 1998:
Plans whose
assets Plans whose
exceed accumulated
accumulated benefits exceed
benefits assets
-------- ---------------
As of September 27, 1997:
Actuarial present value of accumulated
benefit obligation, including vested
benefits of $18,574 and $16,776,
respectively $ 18,859 $ 17,259
-------- --------
Projected benefit obligation for service
rendered to date $(29,550) $(17,259)
Plan assets at fair value, primarily
marketable securities 22,519 15,523
-------- --------
Underfunded projected benefit obligation (7,031) (1,736)
Unrecognized net loss 933 2,520
Unrecognized prior service cost 3,128 4,312
Adjustment to recognize the required
minimum pension liability -- (6,832)
-------- --------
Pension liability recognized in the
balance sheets $ (2,970) $ (1,736)
-------- --------
-------- --------
As of October 3, 1998:
Actuarial present value of accumulated
benefit obligation, including vested
benefits of $46,812 $ -- $ 47,932
-------- --------
Projected benefit obligation for
service rendered to date $ -- $(62,062)
Plan assets at fair value, primarily
marketable securities -- 44,641
-------- --------
Underfunded projected benefit obligation -- (17,421)
Unrecognized net loss -- 4,159
Adjustment to recognize the required
minimum pension liability -- (2,051)
-------- --------
Pension liability recognized in the
balance sheets $ -- $(15,313)
-------- --------
-------- --------
F-24
(Continued)
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
(12) Continued
The components of the net periodic pension costs for all foreign defined
benefit plans for the years ended September 28, 1996 and September 27,
1997, for the seven months ended April 28, 1998 and for the five months
ended October 3, 1998 are summarized below:
Predecessor Company
------------------------------- ----------
April 28, October 3,
1996 1997 1998 1998
------- ------- --------- ----------
Service cost $ 1,804 $ 1,978 $ 1,169 $ 927
Interest cost 1,481 1,782 1,289 933
Actual return on assets (2,176) (3,038) (904) (667)
Net amortization and deferral 80 802 536 --
------- ------- ------- -------
Net periodic pension costs $ 1,189 $ 1,524 $ 2,090 $ 1,193
------- ------- ------- -------
------- ------- ------- -------
The following table sets forth the foreign plans' unfunded status at
September 27, 1997 and October 3, 1998:
Predecessor Company
----------- ---------
1997 1998
-------- --------
Actuarial present value of accumulated
benefit obligation,
Including vested benefits of $22,792
and $38,637 respectively $ 23,449 $ 39,247
Projected benefit obligation for service
rendered to date $(25,906) $(38,128)
Plan assets at fair value, primarily
marketable securities 19,911 23,886
-------- --------
Underfunded projected benefit obligation (5,995) (14,242)
Unrecognized net loss (gain) (367) 277
-------- --------
Pension liability recognized in the
balance sheets $ (6,362) $(13,965)
-------- --------
-------- --------
F-25
(Continued)
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
(12) Continued
Assumptions used in determining the actuarial present value of projected
pension obligations at September 27, 1997 and October 3, 1998 are as
follows:
Predecessor Company
------------- -------------
Domestic Pension Plans:
Return on plan assets 9.00% 9.00%
Weighted average discount rate 7.50% 6.50%
Rate of increase in future
compensation level 4.25% 4.25%
Foreign Pension Plans:
Return on plan assets 9.00% N/A
Weighted average discount rate 6.50% to 8.00% 6.00% to 6.50%
Rate of increase in future
compensation level 6.00% 2.25% to 4.5%
Assets of domestic and foreign defined benefit plans consist principally
of investments in equity securities, debt securities, and cash
equivalents.
The Company also has several defined contribution plans 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 years ended September 28,
1996 and September 27, 1997, for the seven months ended April 28, 1998
and for the five months ended October 3, 1998 were approximately $1,797,
$1,902, $1,169 and $835, respectively.
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-26
(Continued)
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
(12) Continued
Net periodic postretirement benefit expense included the following
components as of September 28, 1996 and September 27, 1997, and the seven
months ended April 28, 1998 and the five months ended October 3, 1998:
Predecessor Company
---------------------------- ----------
April 28, October 3,
1996 1997 1998 1998
------ ------ --------- ----------
Service expense $ 797 $ 833 $ 622 $ 511
Interest expense 1,423 1,464 1,096 725
Net amortization and deferral 550 458 74 --
------ ------ ------ ------
Net periodic postretirement
benefit cost $2,770 $2,755 $1,792 $1,236
------ ------ ------ ------
------ ------ ------ ------
The reconciliation of the accumulated postretirement benefit obligation
to the liability recognized in the consolidated balance sheet at
September 27, 1997 and October 3, 1998 is as follows:
Predecessor Company
1997 1998
----------- --------
Accumulated postretirement benefit obligation:
Retirees $ 5,542 $ 5,178
Fully eligible active participants 5,214 5,474
Other active participants 14,503 17,715
-------- --------
Total 25,259 28,367
Unrecognized prior service benefit 3,407 --
Unrecognized net loss (9,807) (74)
-------- --------
Net postretirement benefit liability
recognized in the balance sheets $ 18,859 $ 28,293
-------- --------
-------- --------
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.5% and 6.5% for 1997 and 1998, respectively. The
assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 9.0% for 1997 and 1998, with
subsequent annual decrements of 0.5% to an ultimate trend rate of 5.5%. A
one percentage point increase in the assumed health care cost trend rate
for each year would increase the accumulated postretirement benefit
obligation by approximately 13% as of October 3, 1998 and the net
postretirement benefit cost by approximately 15% for the five months
ended October 3, 1998.
F-27
(Continued)
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
(13) Management Option Plan
In connection with the Acquisition, Investors established a management
option plan whereby the Investors 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. As of October 3,
1998, Investors has granted options to employees to purchase 2,700
Class A units of Investors with an exercise price of 1,000 dollars per
unit which will expire in 2008. No amounts were vested at October 3,
1998. The estimated weighted average fair value of options granted
during the five months ended October 3, 1998 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 would have been immaterial.
(14) Income Taxes
As a result of the Acquisition, 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 and 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.
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.
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.
F-28
(Continued)
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
(14) Continued
Domestic and foreign income (loss) before income taxes were as follows
for the fiscal years ended September 28, 1996 and September 27, 1997, for
the seven months ended April 28, 1998 and for the five months ended
October 3, 1998:
Predecessor Company
----------------------------------- ----------
April 28, October 3,
1996 1997 1998 1998
-------- -------- --------- ----------
United States $ 47,535 $ 66,721 $ 30,446 $ (9,990)
Other countries 101 1,748 (19,100) (12,273)
-------- -------- -------- --------
$ 47,636 $ 68,469 $ 11,346 $(22,263)
-------- -------- -------- --------
-------- -------- -------- --------
The provision for income taxes consisted of the following for the fiscal
years ended September 28, 1996 and September 27, 1997, for the seven
months ended April 28, 1998 and for the five months ended October 3,
1998:
Predecessor Company
---------------------------------- ----------
April 28, October 3,
1996 1997 1998 1998
------- ------- --------- ----------
Current:
United States $21,623 $23,979 $ 8,780 $ 2,958
Other countries 439 301 -- 130
------- ------- ------- -------
22,062 24,280 8,780 3,088
------- ------- ------- -------
Deferred:
United States 126 1,969 2,961 (1,551)
Other countries -- -- -- 2,800
------- ------- ------- -------
126 1,969 2,961 1,249
------- ------- ------- -------
$22,188 $26,249 $11,741 $ 4,337
------- ------- ------- -------
------- ------- ------- -------
The Company paid income taxes of $272 for the five months ended October
3, 1998.
F-29
(Continued)
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
(14) Continued
Significant components of the Company's deferred tax liabilities and
assets are as follows as of September 27, 1997 and October 3, 1998:
Predecessor Company
1997 1998
----------- --------
Allowance for doubtful accounts $ -- $ 106
Inventory obsolescence reserve 1,881 100
Inventory capitalization -- 220
Tax deductible goodwill 5,074 --
Accrued general liability -- 1,847
Accrued product liability -- 1,105
Other accrued expenses 12,221 1,290
Foreign net operating losses and AMT credits 6,323 --
Other 7,755 --
Intercompany basis differences (7,557) --
Depreciation expense 6,977 (2,240)
-------- --------
Total deferred tax asset 32,674 2,428
Valuation allowance 6,323 --
-------- --------
Net deferred tax asset included in other assets $ 26,351 $ 2,428
-------- --------
-------- --------
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.
At October 3, 1998 the Company's foreign subsidiaries have net operating
loss carryforwards of $7,300 which expire in various amounts through
2013. The benefit from future utilization, if any, of such amounts will
be credited to goodwill as realized. In the five months ended October 3,
1998, the Company's German subsidiary utilized net operation losses of
approximately $4,600. The tax benefit of such utilization of $2,800 was
credited to goodwill.
F-30
(Continued)
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
(14) Continued
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 years ended
September 28, 1996 and September 27, 1997:
Predecesor
----------------------
1996 1997
-------- --------
Applicable income taxes based on federal statutory tax rate $ 16,673 $ 23,964
State taxes, net of federal tax benefit 1,130 2,520
Goodwill amortization 2,955 333
Foreign operating loss benefits not previously recognized (1,020) (1,409)
Foreign operating loss valuation allowances 2,182 1,405
Other 268 (564)
-------- --------
$ 22,188 $ 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 $10,100 of losses incurred by the
Company's foreign subsidiaries. Income taxes for the five months ended
October 3, 1998 relate principally to the Company's subsidiary in
Waverly, Nebraska, which is incorporated as a C-corporation, and the
Company's German subsidiary.
(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
October 3, 1998.
The Company plans to close 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. Management has estimated total closure costs
to be approximately $18.5 million, consisting of approximately $11.5
million of employee severance and $7 million of plant shut-down costs
(asset disposal and plant clean-up costs), all of which are expected to
be expended in the next twelve months.
F-31
(Continued)
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
(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 $ 5,466
2000 4,034
2001 764
2002 173
2003 58
Thereafter 270
---------
$ 10,765
---------
---------
Rental expense associated with operating leases was approximately $2,809,
$3,489, $2,496 and $1,795 for the years ended September 28, 1996 and
September 27, 1997 and the seven months ended April 28, 1998 and the five
months ended October 3, 1998, 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.
(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.
F-32
(Continued)
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
(17) Continued
The following table summarizes the contractual amounts of the Company's
forward exchange contracts as of September 27, 1997 and October 3, 1998,
including details by major currency as of October 3, 1998. 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 September 27, 1997 $ 20,117 $(20,393)
-------- --------
As of October 3, 1998:
United States Dollars $ 2,000 $ --
Austrailian Dollars -- (339)
Pounds Sterling 244 (4,105)
-------- --------
$ 2,244 $ (4,444)
-------- --------
-------- --------
The Company's credit exposure on its foreign currency derivatives was
$259 and $192 as of September 27, 1997 and October 3, 1998, respectively.
Gross deferred realized gains and losses on firm commitments were not
significant as of September 27, 1997 and October 3, 1998. 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.
(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 3, 1998, with respect to all investigations, claims and
litigation. Insurance recoveries for environmental and certain general
liability claims are not recognized until realized.
F-33
(Continued)
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
(18) Continued
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 3, 1998, 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, 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 conditional loss guarantees to certain
financing companies on behalf of their customers. As of October 3, 1998,
the Company had outstanding guarantees of approximately $3,900. These
guarantees mature at various dates ranging from April 1999 through August
2002. The Company has not and does not expect to incur losses as a result
of these guarantees.
F-34
(Continued)
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
(18) Continued
In addition, the Company provides guarantees of residual value to third
party financing companies in support of certain customers' financing
arrangements. These guarantees 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 3, 1998. Aggregate residual value guarantees were
approximately $81 million at October 3, 1998.
(19) Transactions with Related Parties
Prior to the Acquisition, the Company received certain services provided
by Hanson PLC and its affiliates, including cash management, tax
reporting, and risk management, and was charged a management fee for such
services. The allocation of these management fees was based on percentage
of total group sales in 1996 and on total group operating profits in
1997. In the opinion of management, these methods of allocation were
reasonable.
The amount of predecessor capital included in the combined balance sheet
represents a net balance as the result of various transactions between
the Company and its parent, Hanson PLC. There were no terms of settlement
associated with the account balance and generally, there were no interest
charges associated with these balances. The balance is primarily the
result of various equity transactions, as well as the Company's
participation in Hanson's central cash management program, wherein all
the Company's cash receipts were remitted to Hanson and all cash
disbursements are funded by Hanson. Other transactions included in
predecessor capital are management fees, taxes, insurance, employee
benefits, and miscellaneous other administrative expenses incurred by
Hanson on behalf of the Company.
Intercompany interest expense for the fiscal years ended September 28,
1996 and September 27, 1997 and for the seven months ended April 28, 1998
was $2,610, $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 invested capital in the
combined balance sheet. Such borrowings averaged $24,540, $19,000, and
$19,000 for the years ended September 28, 1996 and September 27, 1997 and
for the seven months ended April 28, 1998.
In 1996, the Company had an arrangement with a Hanson PLC affiliated
company, whereby the affiliated company acted as a sales agent on behalf
of the Company. The Company recorded commission expense in the amount of
$3,209 for the fiscal year ended September 28, 1996.
F-35
(Continued)
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
(19) Continued
During the five months ended October 3, 1998, the Company made advances
of $3,270. Such amount included loans to the Company's executive officers
to purchase certain equity interest in Investors and transaction costs
incurred to consummate the Acquisition and related financing. Such
amounts have been accounted for as a reduction of member's equity.
The Company has engaged a consulting group, controlled by one of
Investors' minority owners, to help the Company during the next four
years develop and achieve its business plan. For such services the
consulting group is expected to be paid $14 million plus out-of-pocket
expenses. As of October 3, 1998, the consulting group had been paid $2.7
million for services rendered. In addition, if the Company achieves
certain defined levels of performance in fiscal 1999, 2000, 2001 and
2002, the consulting group will be entitled to receive additional
ownership interest in Investors for each year the defined levels of
performance are achieved. The Company will recognize as expense the fair
value of each equity award when earned.
(20) Business Segment and Geographic Areas
The Company markets to heavy industrial and construction industries,
primarily in the United States and Europe through the production and
support of mobile hydraulic cranes, aerial work platforms and
truck-mounted cranes. For financial reporting purposes, the Company
considers the heavy industrial and construction industries as one
segment. Transfers between geographic areas primarily represent
intercompany export sales and are accounted for based on established
sales prices between the related companies. In computing income from
operations, no allocations of general corporate expenses have been made.
Identifiable assets are those assets identified with the operation of
legal entities domiciled within the geographic area. General corporate
assets were not material at September 27, 1997 and October 3, 1998.
Information relating to operations by geographic area is as follows as of
and for the fiscal years ended September 28, 1996, September 27, 1997,
and the seven months ended April 28, 1998 and the five months ended
October 3, 1998:
Corporate
United and
States Europe eliminations Consolidated
--------- --------- ------------ ------------
1996
- --------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 562,331 $ 231,878 $ -- $ 794,209
Transfers between geographic areas 37,685 83,330 (121,015) --
--------- --------- --------- ---------
Net sales $ 600,016 $ 315,208 $(121,015) $ 794,209
--------- --------- --------- ---------
Operating profit $ 58,653 $ 72 $ (8,105) $ 50,620
--------- --------- --------- ---------
--------- --------- --------- ---------
F-36
(Continued)
GROVE HOLDINGS LLC AND SUBSIDIARIES
Notes to Combined and Consolidated Financial Statements (in thousands)
- --------------------------------------------------------------------------------
(20) Continued
Corporate
United Other and
States Europe countries eliminations Consolidated
----------- ----------- ----------- ------------ ------------
1997
----------- ----------- ----------- ----------- -----------
Sales to unaffiliated
customers $ 606,003 $ 248,532 $ 2,277 $ -- $ 856,812
Transfers between
geographic areas 35,225 63,834 -- (99,059) --
----------- ----------- ----------- ----------- -----------
Net sales $ 641,228 $ 312,366 $ 2,277 $ (99,059) $ 856,812
----------- ----------- ----------- ----------- -----------
Operating profit $ 69,284 $ 670 $ (100) $ (1,963) $ 67,891
Identifiable assets $ 648,578 $ 261,768 $ 3,548 $ (32,398) $ 881,496
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
April 28, 1998
Sales to unaffiliated
customers $ 339,151 $ 135,793 $ 1,256 $ -- $ 476,200
Transfers between
geographic areas 15,722 29,731 -- (45,453) --
----------- ----------- ----------- ----------- -----------
Net sales $ 354,873 $ 165,524 $ 1,256 $ (45,453) $ 476,200
----------- ----------- ----------- ----------- -----------
Operating profit $ 31,671 $ (11,505) $ (344) $ -- $ 19,822
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
October 3, 1998
Sales to unaffiliated
customers $ 290,696 $ 101,801 $ 1,282 $ -- $ 393,779
Transfers between
geographic areas 17,901 21,741 -- (39,642) --
----------- ----------- ----------- ----------- -----------
Net sales $ 308,597 $ 123,542 $ 1,282 $ (39,642) $ 393,779
----------- ----------- ----------- ----------- -----------
Operating profit $ 6,622 $ (9,532) $ (264) $ -- $ (3,174)
Identifiable assets $ 1,675,899 $ 298,266 $ 4,840 $(1,066,575) $ 912,430
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Information with respect to Europe includes Africa and the Middle East.
Net sales to customers in Africa and the Middle East were less than 5% of
the consolidated net sales of the Company during each of the years in the
three year period ended October 3, 1998.
Net sales by the Company's U.S. operations to foreign customers were less
than 10% of the consolidated net sales of the Company during each of the
periods presented in the three year period ended October 3, 1998.
- --------------------------------------------------------------------------------
F-37
(Continued)
Schedule I - Condensed Financial Information of Registrant
Condensed balance sheet
October 3, 1998
Assets
Investment in subsidiaries $140,970
Other assets 2,082
---------
$143,052
---------
---------
Liabilities and member's equity
Long-Term Debt $ 52,535
Due to subsidiaries 387
---------
Total liabilities 52,922
---------
---------
Member's equity:
Invested capital 116,730
Accumulated deficit (26,600)
---------
Total member's equity 90,130
---------
$143,052
---------
---------
S-1
Condensed statement of operations
For the five months ended October 3, 1998
Interest expense $ (2,619)
Net loss of subsidiaries (23,981)
----------
Net loss $(26,600)
----------
----------
S-2
Condensed statement of cash flows for
the five months ended October 3, 1998
Cash flow from operating activities:
Net loss $ (26,600)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 1
Amortization of deferred financing costs 68
Accretion of interest on Senior Discount Debentures 2,550
Net loss of subsidiaries 23,981
Changes in operating assets and liabilities:
Other assets and liabilities, net 3,649
----------
Net cash provided by operating activities 3,649
----------
Cash flows from investing activities:
Investment in subsidiaries (168,209)
----------
Net cash used in investing activities (168,209)
----------
Cash flows from financing activities:
Net proceeds from short-term borrowings --
Proceeds from issuance of long-term debt 49,985
Equity investment from Grove Investors LLC 120,000
Advances to Grove Investors LLC (3,270)
Deferred financing costs (2,155)
----------
Net cash provided by financing activities 164,560
----------
Net change in cash and cash equivalents --
Cash and cash equivalents at beginning of period --
----------
Cash and cash equivalents at end of period $ --
----------
S-3
Schedule II-Valuation and Qualifying Accounts
Additions
-------------------------------------
Balance at Charged to costs Charged to other Balance at
beginning of year and expenses accounts (a) Deductions (b) end of year
----------------- ------------ ------------ -------------- -----------
Allowance for doubtful accounts
(in thousands):
Year ended September 28, 1996 $1,891 688 (14) 12 $2,553
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
- ----------
(a) Impact of exchange rates
(b) Write-offs
S-4
Exhibit
No. Description of Exhibit
- ------------ -----------------------------------------------------------------------------------------------------------------
3.1 Second Amended and Restated Limited Liability Company Agreement of Grove Holdings LLC ("Grove Holdings").
4.1* Indenture dated as of April 29, 1998, by and among Grove Holdings, Grove Holdings Capital, Inc. ("Grove Holdings
Capital") and the United States Trust Company of New York.
4.2* Form of 11 5/8% Debentures due 2009.
4.3* Credit Agreement dated April 29, 1998, by and among Grove Worldwide LLC ("Grove"), Grove Capital, Inc. ("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 Holdings, Grove Holdings Capital and
Chase Securities Inc. and Donaldson, Lufkin & Jenrette Securities Corporation.
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.
10.5* Change of Control Agreement dated July 24, 1997 by and between Grove and James A. Kolinski.
10.6* Change of Control Agreement dated July 24, 1997 by and between Grove and Joseph A. Shull.
10.7 Change of Control Agreement dated July 24, 1997 by and between Grove and Robert Stift.
10.8* Change of Control Agreement dated July 24, 1997 by and between Grove and Keith R. Simmons.
10.9* Change of Control Agreement dated July 24, 1997 by and between Grove and Theodore J. Urbanek.
10.10* Change of Control Agreement dated July 24, 1997 by and between Grove and G. Fred Heidinger.
10.11* Grove Investors LLC Management Option Plan.
10.12* Grove Worldwide LLC Short-Term Incentive Plan.
10.13* 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.
10.14* Software License and Support Agreement, dated June 29, 1996, between Baan U.S.A. Inc. and Grove North America,
Division of Kidde Industries, Inc., and amended by Addendum No. One, dated June 29, 1996.
10.15* Professional Services Agreement, dated June 26, 1996, between Baan U.S.A. Inc. and Grove North America, Division of
Kidde Industries, Inc., and amended by Addendum No. One, dated June 29, 1996.
10.16* Consent Letter, dated April 27, 1998 from Grove to Baan U.S.A. Inc.
10.17* Form of Grove Investors LLC Option Agreement.
10.18* First Amendment, dated June 23, 1998, to Employment Agreement of Salvatore J. Bonanno.
10.19* Promissory Note dated June 27, 1998 by and between Grove and Salvatore J. Bonanno.
10.21* Promissory Note dated June 27, 1998 by and between Grove and Jeffrey D. Bust.
10.22* Promissory Note dated June 27, 1998 by and between Grove and James A. Kolinski.
10.23* Promissory Note dated June 27, 1998 by and between Grove and John Wheeler.
10.24 Promissory Note dated October 27, 1998 by and between Grove and Stephen L. Cripe.
10.25 Promissory Note dated October 27, 1998 by and between Grove and Stephen L. Cripe.
10.26 Promissory Note dated October 27, 1998 by and between Grove and Donald Mallo.
10.27 Promissory Note dated October 27, 1998 by and between Grove and Donald Mallo.
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 Holdings and Grove Holdings Capital (Commission File
Number 333-57609).