-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LFxXP3T821BNoveluOWEqZXK8lUJy9pIrZOvN/LaaJxOaK8x6vdEUKbtp5DEfi1I 3BM+JHlwu3EbQqXxpiLjdg== 0000912057-00-007136.txt : 20000216 0000912057-00-007136.hdr.sgml : 20000216 ACCESSION NUMBER: 0000912057-00-007136 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000101 FILED AS OF DATE: 20000215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GROVE INVESTORS LLC/PA CENTRAL INDEX KEY: 0001062485 STANDARD INDUSTRIAL CLASSIFICATION: CONSTRUCTION MACHINERY & EQUIP [3531] IRS NUMBER: 522089466 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-77103 FILM NUMBER: 546232 BUSINESS ADDRESS: STREET 1: 1565 BUCHANAN TRAIL EAST P O BOX 21 STREET 2: 512-495-6400 CITY: SHADY GROVE STATE: PA ZIP: 17256 MAIL ADDRESS: STREET 1: 1565 BUCHANAN TRAIL E CITY: SHADY GROVE STATE: PA ZIP: 17256 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (MARK ONE) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 1, 2000 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ ---- Commission File Number 333-77103 ---- GROVE INVESTORS LLC (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) ---- 52-2089466 (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) ---- Indicate by check mark whether the registrant (1) has filed all the reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yes X No APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. None. GROVE INVESTORS LLC INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JANUARY 1, 2000
PAGE ---- PART I Item 1 Financial statements Condensed Consolidated Balance Sheets as of October 2, 1999 and January 1, 2000................................................................1 Condensed Consolidated Statements of Operations for the three months ended January 2, 1999 and January 1 ,2000......................................2 Condensed Consolidated Statements of Comprehensive Loss for the three months ended January 2, 1999 and January 1 ,2000...............................3 Condensed Consolidated Statements of Cash Flows for the three months ended January 2, 1999 and January 1, 2000...............................4 Notes to Condensed Consolidated Financial Statements.....................................................................5 Item 2 Managements discussion and analysis of financial condition and results of operations......................................................................8 Item 3 Quantitative and qualitative disclosures about market risk........................12 PART II Item 1 Legal proceedings.................................................................13 Item 2 Changes in securities and use of proceeds.........................................13 Item 3 Defaults upon senior notes........................................................13 Item 4 Submission of matters to a vote of security holders...............................13 Item 5 Other information.................................................................13 Item 6 Exhibits and reports on form 8-K..................................................13 Signatures........................................................................14
i Unless otherwise noted, the "Company" or "Grove" refers to Grove Worldwide LLC and its subsidiaries. Grove Investors LLC ("Investors") assets consist only of membership interests of Grove Holdings LLC ("Holdings") and capital stock of Grove Investors Capital. Grove Holdings' assets consist solely of membership interests of the Company and capital stock of Grove Holdings Capital. Investors and Holdings conducts all of their business through the Company. The Company's fiscal year ends on the Saturday closest to the last day of September. References to the (i) three months ended January 2, 1999 means the period from October 3, 1998 to January 2, 1999 and (ii) three months ended January 1, 2000 means the period from October 2, 1999 to January 1, 2000. References to historical financial information are to the historical combined and consolidated financial statements of the Company. See "Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations." No separate financial statements of the Grove Investors Capital, Inc. ("Grove Investors Capital") are included herein. The Company considers that such financial statements would not be material to holdings of the Senior Debentures. As of January 1, 2000, Grove Investors Capital had nominal assets, no liabilities (other than its co-obligation under the Senior Debentures) and no operations. SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS Certain statements in this report constitute "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as "will likely result," "are expected to," "will continue," "anticipates," "expects," "estimates," "intends," "plans," "projects," and "outlook") are not historical facts and may be forward-looking. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, levels of activity, cost savings, performance or achievements of the Company, or industry results, to be materially different from any future results, levels of activity, cost savings, performance or achievements expressed or implied by such forward-looking statements, and accordingly, such statements should be read in conjunction with and are qualified in their entirety by reference to, such risks, uncertainties and other factors, which are discussed throughout this report. Such factors include, among others, the following: (i) substantial leverage, ability to service debt, and compliance with financial covenants in the Company's Bank Credit Agreement; (ii) changing market trends in the mobile hydraulic crane, aerial work platform and truck-mounted crane industries; (iii) general economic and business conditions including a prolonged or substantial recession; (iv) the ability of the Company to implement its business strategy and maintain and enhance its competitive strengths; (v) the ability of the Company to implement operational improvements; (vi) the ability of the Company to obtain financing for general corporate purposes; (vii) competition; (viii) availability of key personnel; (ix) industry overcapacity; and (x) changes in, or the failure to comply with, government regulations. As a result of the foregoing and other factors, no assurance can be given as to future results, levels of activity and achievements, and neither the Company nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements. Any forward-looking statements contained herein speak solely as of the date on which such statements are made, and the Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date on which such statements were made or to reflect the occurrence of unanticipated events. ii PART I ITEM 1. FINANCIAL STATEMENTS GROVE INVESTORS LLC AND SUBSIDIARIES Condensed Consolidated Balance Sheets As of October 2, 1999 and January 1, 2000 (Unaudited and in thousands)
1999 * 2000 ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 18,196 $ 38,456 Trade receivables, net 142,271 118,675 Notes receivable 5,425 1,093 Inventories 193,123 191,386 Prepaid expenses and other current assets 7,405 11,988 --------- --------- Total current assets 366,420 361,598 Property, plant and equipment, net 213,731 206,100 Goodwill, net 269,556 267,491 Other assets 17,600 18,454 --------- --------- $ 867,307 $ 853,643 ========= ========= LIABILITIES AND MEMBERS' EQUITY (DEFICIT) Current liabilities: Current maturities of long-term debt $ 12,000 $ 27,000 Short-term borrowings 19,108 15,601 Accounts payable 75,370 78,334 Accrued expenses and other current liabilities 87,686 79,290 --------- --------- Total current liabilities 194,164 200,225 Deferred revenue 74,368 71,532 Long-term debt 516,544 519,250 Other liabilities 90,141 89,200 --------- --------- Total liabilities 875,217 880,207 --------- --------- Members' equity (deficit): Invested capital 75,000 75,000 Notes receivable from members (3,932) (2,348) Accumulated deficit (69,313) (88,276) Accumulated other comprehensive loss (9,665) (10,940) --------- --------- Total members' equity (deficit) (7,910) (26,564) --------- --------- $ 867,307 $ 853,643 ========= =========
See accompanying notes to condensed consolidated financial statements. * Amounts have been derived from the Company's audited consolidated balance sheet 1 GROVE INVESTORS LLC AND SUBSIDIARIES Condensed Consolidated Statements of Operations For the three months ended January 2, 1999 and January 1, 2000 (unaudited and in thousands)
1999 2000 --------------- -------------- Net sales $ 164,325 $ 179,076 Cost of goods sold 137,242 149,202 --------------- -------------- Gross profit 27,083 29,874 Selling, engineering, general and administrative expenses 29,707 28,073 Amortization of goodwill 1,823 1,771 Restructuring charges -- 4,978 --------------- -------------- Loss from operations (4,447) (4,948) Interest expense, net (12,334) (13,739) Other expense, net (41) (116) --------------- -------------- Loss before income taxes (16,822) (18,803) Income taxes 933 462 --------------- -------------- Loss before cumulative effect of change in accounting principle (17,755) (19,265) Cumulative effect of A change in accounting principle (note 6) -- 302 --------------- -------------- Net loss $ (17,755) $ (18,963) =============== ==============
See accompanying notes to condensed consolidated financial statements. 2 GROVE INVESTORS LLC AND SUBSIDIARIES Condensed Consolidated Statements of Comprehensive Loss For the three months ended January 2, 1999 and January 1, 2000 (unaudited and in thousands)
1999 2000 --------------- ------------- Net loss $ (17,755) $ (18,963) Change in foreign currency translation adjustment 2,709 (1,275) -------------- ------------- Comprehensive loss $ (15,046) $ (20,238) ============== =============
See accompanying notes to condensed consolidated financial statements. 3 GROVE INVESTORS LLC AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows For the three months ended January 2, 1999 and January 1, 2000 (unaudited and in thousands)
1999 2000 ------------- ------------- Cash flows from operating activities: Net loss $ (17,755) $ (18,963) Adjustments to reconcile to net loss to net cash (used in) provided by operating activities: Depreciation and amortization 5,192 5,043 Depreciation of equipment held for rent 4,324 3,319 Amortization of deferred financing costs 652 728 Accretion of interest on senior discount debentures 1,470 1,652 Interest on senior debentures 1,846 2,054 Loss on sales of property, plant and equipment -- 13 Deferred income tax expense (benefit) 26 (132) Changes in operating assets and liabilities: Trade receivables, net 20,485 19,437 Notes receivable (2,914) 4,251 Inventories (5,124) (2,307) Trade accounts payable (3,384) 7,186 Other assets and liabilities, net (10,306) (11,820) ------------- ------------- Net cash (used in) provided by operating activities (5,488) 10,461 ------------- ------------- Cash flows from investing activities: Additions to property, plant and equipment (950) (1,321) Investment in equipment held for rent (9,958) (714) Cash received from Hanson PLC 10,500 -- --------------- ------------- Net cash used in investing activities (408) (2,035) --------------- ------------- Cash flows from financing activities: Net repayments of short-term borrowings (1,485) (3,566) Net borrowings on line of credit -- 15,000 Repayments of long-term debt (6,000) (1,000) Other (838) 1,584 ------------- ------------- Net cash (used in) provided by financing activities (8,323) 12,018 ------------- ------------- Effect of exchange rate changes on cash (139) (184) ------------- ------------- Net change in cash and cash equivalents (14,358) 20,260 Cash and cash equivalents, beginning of period 34,289 18,196 ------------- ------------- Cash and cash equivalents, end of period $ 19,931 $ 38,456 ============= =============
See accompanying notes to condensed consolidated financial statements. 4 GROVE INVESTORS LLC AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED AND IN THOUSANDS) - ------------------------------------------------------------------------------- (1) BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, these financial statements do not include all the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the unaudited consolidated financial statements include all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and results of operations. Grove Investors LLC ("Investors") is a limited liability company formed pursuant to the provisions of the Delaware Limited Liability Company Act. Investors owns Grove Holdings LLC ("Holdings") which owns Grove Worldwide LLC. Investors and Holdings conducts all of their business through Grove Worldwide LLC and its subsidiaries (the "Company"). Interim results for the three month period ended January 1, 2000 are not necessarily indicative of the results that may be expected for a full fiscal year. For further information, refer to the consolidated financial statements and notes for the year ended October 2, 1999. (2) INVENTORY Inventories consist of the following as of October 2, 1999 and January 1, 2000:
1999 2000 ---- ---- Raw materials $ 61,340 $ 56,253 Work in process 79,232 77,123 Finished goods 52,551 58,010 -------- -------- $193,123 $191,386 ======== ========
Inventories are valued at the lower of cost or market, as determined primarily under the first-in, first-out method. (3) INCOME TAXES A significant portion of the Company's business is operated as a limited liability company organized under the laws of Delaware. Accordingly, earnings of the Company's U.S. mobile hydraulic crane and aerial work platform businesses, as well as, earnings from its foreign subsidiaries will not be directly subject to U.S. income taxes. Such taxable income will be allocated to the equity holders of Investors and they will be responsible for U.S. income taxes on such taxable income. The Company intends to make distributions, in the form of dividends, to enable the equity holders of Investors to meet their tax obligations with respect to income allocated to them by the Company. No distributions were made for taxes in the three months ended January 1, 2000. The difference between the Company's reported tax provision for the three months ended January 1, 2000 and the tax provision computed based on U.S. statutory rates is primarily attributed to the Company's structure as a limited liability company. 5 GROVE INVESTORS LLC AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED AND IN THOUSANDS) - ------------------------------------------------------------------------------- (4) RESTRUCTURING During the three months ended January 1, 2000, the Company adopted and executed a restructuring plan that resulted in the termination of approximately 170 employees principally in its US operations. In connection with the terminations, the Company accrued severance costs of $4,978. As of January 1, 2000, the Company has expensed $1,013, and expects to pay the remainder of the accrual through October 2001 in accordance with separation agreements. (5) SEGMENT INFORMATION The Company is an international designer, manufacturer and marketer of a comprehensive line of mobile hydraulic cranes, aerial work platforms and truck-mounted cranes. The Company markets its products through three operating divisions; Grove Crane, Grove Manlift and National Crane. Grove Crane manufactures mobile hydraulic cranes in its Shady Grove, Pennsylvania and Wilhelmshaven, Germany manufacturing facilities. Grove Manlift manufactures aerial work platforms in its Shady Grove, Pennsylvania and Tonneins, France manufacturing facilities. National Crane manufactures truck-mounted cranes in its Waverly, Nebraska manufacturing facility.
Corporate, Grove Grove National eliminations, Crane Manlift Crane and other Total ----- ------- ----- --------- ----- As of and for the three months ended January 1, 2000 Net sales $125,822 $33,908 $19,320 $ 26 $179,076 Depreciation and amortization 2,925 82 265 1,771 5,043 Income (loss) from operations 6,916 (1,766) 1,986 (12,084) (4,948) Total assets 455,170 59,083 38,471 300,919 853,643 Capital expenditures 837 182 302 - 1,321 As of and for the three months ended January 2, 1999 Net sales $115,351 $33,642 $15,356 $ (24) $164,325 Depreciation and amortization 3,041 82 235 1,834 5,192 Income (loss) from operations 4,208 (1,555) 1,341 (8,441) (4,447) Total assets 468,560 57,024 37,752 303,971 867,307 Capital expenditures 601 154 195 - 950
Corporate, eliminations and other consist principally of corporate expenses, including the restructuring charge, and assets, goodwill and intercompany eliminations. Depreciation and amortization excludes depreciation of equipment held for rent. 6 GROVE INVESTORS LLC AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED AND IN THOUSANDS) - ------------------------------------------------------------------------------- (6) ADOPTION OF NEW ACCOUNTING STANDARDS On October 3, 1999, the Company adopted SFAS 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. The impact of adoption of $302 is presented as the cumulative effect of a change in accounting principle in the condensed consolidated statement of operations. A summary of the Company's hedging strategies and outstanding derivative instruments are as follows: INTEREST RATE RISK The Company assesses interest rate cash flow risk by monitoring changes in interest rate exposure that may adversely impact expected future cash flows and by evaluating hedging opportunities. At January 1, 2000, the Company has approximately $202 million of variable rate borrowings under its bank credit facility. Management believes it prudent to limit the variability of its interest payments. To meet this objective, the Company has an interest rate collar arrangement with a multinational bank to limit its exposure to rising interest rates on $100 million of its variable rate bank borrowings. Under the agreement the Company will receive, on a $100 million notional amount, three-month LIBOR and pay 6.5% anytime LIBOR exceeds 6.5%, and will receive three-month LIBOR and pay 5.19% anytime LIBOR is below 5.19%. The contract does not require collateral. The estimated fair value (unrecognized gain) of the interest rate collar at October 3, 1999 and January 1, 2000 was $302 and $611, respectively. Management has concluded that the interest rate collar was ineffective as of October 3, 1999 and throughout the period ended January 1, 2000, as LIBOR was below the ceiling rate in the collar of 6.5%. Accordingly, the Company has recognized $309 as other income and $302 as the cumulative effect of a change in accounting principle in the condensed consolidated statement of operations for the three months ended January 1, 2000. FOREIGN CURRENCY RISK The Company has foreign operations in the U.K., France, Germany and Australia. Therefore its earnings, cash flows and financial position are exposed to foreign currency risk. In addition, the U.S. company regularly purchases mobile hydraulic cranes from its German factory to meet the demand of its U.S. customers. In order to maintain profit margins the Company will purchase forward currency contracts and options at date of commitment to hedge Deutsche mark payment obligations. At January 1, 2000 the Company had $10.5 million in outstanding forward contracts to purchase Deutsche marks with gross unrealized gains and losses of $67 and $62, respectively. Each of the contracts are expected to settle within 90 days and have been accounted for as hedges under FAS 133. Such amounts together with the value of the firm purchase commitments have been included in the determination of gross profit for the three months ended January 1, 2000. Currently the Company is not hedging any other foreign currency exposures but it may do so in the future. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the more detailed information and the historical consolidated financial statements included elsewhere in this report. OVERVIEW Grove Investors LLC ("Investors") assets consist only of membership interests of Grove Holdings LLC ("Holdings") and capital stock of Grove Investors Capital. Grove Holdings LLC ("Holdings") assets consist only of membership interests of Grove Worldwide LLC and capital stock of Grove Holdings Capital. Investors and Holdings conducts all of their business through Grove Worldwide LLC and its subsidiaries (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 markets its products through three operating divisions; Grove Crane, Grove Manlift and National Crane. Grove Crane manufactures mobile hydraulic cranes in its Shady Grove, Pennsylvania and Wilhelmshaven, Germany manufacturing facilities. Grove Manlift manufactures aerial work platforms in its Shady Grove, Pennsylvania and Tonneins, France manufacturing facilities. National Crane manufactures truck-mounted cranes in its Waverly, Nebraska manufacturing facility. The Company also generates a portion of its net sales from after-market sales (parts and service) of the products it manufactures. Sales of used equipment, included in other, are not material and are generally limited to trade-ins on new equipment through Company-owned distributors in France, Germany, and the United Kingdom. Operating results for fiscal 1999 were below historical results. While the Company has significant capital with which to operate, the Company needed to negotiate an amendment to its bank credit facility to modify certain financial covenants to make them less restrictive. Management of the Company has undertaken a number of initiatives that it believes will improve operating results during fiscal 2000. Management believes that the combination of these initiatives, together with improved efficiencies at the Company's Shady Grove manufacturing facilities, will enable the Company to improve operating results and cash flows. However, there can be no assurance that the actions taken by the Company will improve fiscal 2000 operating results. In the event that results do not improve, the Company may need to seek further modifications of the financial covenants contained in its bank credit facility. The following is a summary of net sales for the periods indicated (dollars in millions).
Three Months Ended ------------------- January 2, January 1, 1999 2000 ---- ---- New equipment sold $127.7 $143.1 After-market 21.6 21.2 Other 15.0 14.8 ------ ------ Net sales $164.3 $179.1 ====== ======
8 RESULTS OF OPERATIONS THREE MONTHS ENDED JANUARY 1, 2000 (THE "FISCAL 2000 THREE MONTHS") COMPARED TO THE THREE MONTHS ENDED JANUARY 2, 1999 (THE "FISCAL 1999 THREE MONTHS") NET SALES. Net sales increased $14.8 million, or 9.0%, to $179.1 million for the fiscal 2000 three months from $164.3 million for the fiscal 1999 three months. The increase in net sales is principally the result of increased unit sales. Net sales for the Grove Crane division increased $10.4 million, or 9.0%, to $125.8 million for the fiscal 2000 three months from $115.4 million for the fiscal 1999 three months. The increase in net sales is the result of higher new equipment unit sales. Net sales to North American customers increased, however this increase was offset by a decrease in Europe. Net sales for the Grove Manlift division increased slightly to $33.9 million for the fiscal 2000 three months from $33.6 million in the fiscal 1999 three months. The increase was a result of higher salesvolumes in Europe offset by lower unit sales in North America. Net sales for the National Crane division increased $4.0 million, or 26.1%, to $19.3 million for the fiscal 2000 three months from $15.3 million for the fiscal 1999 three months. Net sales increased as the result of higher unit sales and increased demand for higher priced models. After-market sales decreased slightly to $21.2 million in the fiscal 2000 three months from $21.6 million in the fiscal 1999 three months predominantly due to a decline parts and service sales in Europe. GROSS PROFIT. Gross profit increased $2.8 million, or 10.3%, to $29.9 million in the fiscal 2000 three months from $27.1 in the fiscal 1999 three months. The increase in gross profit was attributable to an increase in unit volume and reduced cost. The Fiscal 1999 three months operations were adversely impacted by costs associated with the start-up of the Company's management information system in the US and inefficiencies at the Company's Sunderland, U.K. manufacturing facility prior to its closure in December 1999. SELLING, ENGINEERING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, engineering, general and administrative expenses ("SG&A") decreased $1.6 million, or 5.4%, to $28.1 million in the fiscal 2000 three months from $29.7 in the fiscal 1999 three months. The savings were primarily attributable to cost reductions at the U.S. facility. Included in SG&A are approximately $0.9 and $2.0 million of consulting fees, for the fiscal 2000 and 1999 three months, respectively, paid to the George Group in connection with the Company's operational improvement. As a percentage of net sales, SG&A was 15.7% in the fiscal 2000 three months and 18.1% in the fiscal 1999 three months. RESTRUCTURING CHARGES. In October 1999, the Company adopted and executed a restructuring plan that resulted in the termination of approximately 170 employees principally in its US operations. In connection with the terminations, the Company accrued severance costs of $5.0 million. The terminations were primarily in the areas of general and administrative overhead. These terminations are meant to capture the savings expected as the result of the Company's new management information system. 9 INTEREST EXPENSE. Interest expense increased $1.5 million to $13.8 million for the fiscal 2000 three months from $12.3 million in the fiscal 1999 three months primarily as the result of higher borrowings on the Company's line of credit. BACKLOG. The Company's backlog consists of firm orders for new equipment and replacement parts. Total backlog as of as of January 1, 2000 was approximately $224.8 million compared with total backlog as of January 2, 1999 of approximately $171.7 million. Substantially all of the Company's backlog orders are expected to be filled within one year, although there can be no assurance that all such backlog orders will be filled within that time period. Parts orders are generally filled on an as-ordered basis. LIQUIDITY AND CAPITAL RESOURCES The Company's business is working capital-intensive, requiring significant investments in receivables and inventory. In addition, the Company requires capital for replacement and improvements of existing plant, equipment and processes. During the three months ended January 1, 2000, the Company generated approximately $10.5 million of cash in operating activities through a net reduction of $28.6 million in working capital assets, partially offset by an operating loss and payment of cash interest expense. During the fiscal 2000 three months the Company borrowed $15.0 million on its bank credit facility, made $1.0 million of payments on its bank loan and repaid $3.6 million of short-term borrowings. Capital expenditures were $1.3 million for the fiscal 2000 three months and are expected to be approximately $15.0 million for fiscal 2000. The Company expects that cash flows from foreign operations will be required to meet its domestic debt service requirements. Such cash flows are expected to be generated from intercompany interest expense on loans the Company made to certain of its foreign subsidiaries to consummate the Acquisition. The loans have been established with amounts and interest rates to allow for repatriation without restriction or additional tax burden. However, there is no assurance that the foreign subsidiaries will generate the cash flow required to service the loans or that the laws in the foreign jurisdictions will not change to limit repatriation or increase the tax burden of repatriation. GROVE INVESTORS CAPITAL, INC. Investors and its wholly owned subsidiary, Grove Investors Capital, a Delaware corporation, issued the Senior Debentures. Grove Investors Capital was organized as a direct wholly owned subsidiary of Investors for the purpose of acting as a co-issuer of the Senior Debentures and was also a co-registrant of the Registration Statement for the Senior Debentures. This was done so that certain institutional investors to which the Senior Debentures were marketed that might otherwise have been restricted in their ability to purchase debt securities issued by a limited liability company, such as Investors, by reason of the legal investment laws of their states of organization or their charter documents, would be able to invest in the Senior Debentures. Grove Investors Capital has no subsidiaries, nominal assets, no liabilities (other than the co-obligation under the Senior Debentures) and no operations. Grove Investors Capital does not have any revenues and is prohibited from engaging in any business activities. As a result, holders of the 10 Senior Debentures should not expect Grove Investors Capital to participate in servicing the interest and principal obligations on the Senior Debentures. No separate financial statements of Grove Investors Capital are included in this report. Investors believes that such financial statements would not be material to holders of the Senior Debentures. The ability of Investors' subsidiaries to make cash distributions and loans to Investors is significantly restricted under the terms of the Senior Subordinated Notes, the Senior Discount Debentures, the Indentures governing the Senior Subordinated Notes, the Indenture governing the Senior Discount Debentures and the bank credit facility. MANAGEMENT INFORMATION SYSTEMS AND THE IMPACT OF YEAR 2000 Certain computer programs and microprocessors use two digits rather than four to define the applicable year. Computer programs that have date-sensitive software and microprocessors may recognize a date using "00" as the year 1900 rather than the year 2000. This phenomenon (the "Year-2000 issue") could cause a disruption of operations, including, among other things, a temporary inability to utilize manufacturing equipment, send invoices or engage in similar normal business activities. During the past three fiscal years, the Company conducted a Year-2000 assessment of all management information systems. Upon completing this review, the Company implemented a program to replace all existing software and hardware that was not Year-2000 compliant (the "Year-2000 Project"). In addition to replacing all business application software and hardware, the Year-2000 Project provided improved business processes and procedures. The Year-2000 Project was completed in September 1999 and had a total cost of approximately $39.0 million. To the date of this filing, the Company has not experienced a material impact on its results of operations, liquidity or financial condition as the result of the Year 2000 readiness of internal business systems or third-party suppliers and customers. The Company plans to continue to assess all significant third-party suppliers and customers and monitor all internal business systems during the first quarter of calendar 2000 to determine any remedial actions or changes in its production plans. 11 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's principal market risk exposure is changing interest rates, primarily changes in short term interest rates. The Company does not enter into financial instruments for trading or speculative purposes. The Company's policy is to manage interest rates through use of a combination of fixed and floating rate debt. The Company may also use derivative financial instruments to manage its exposure to interest rate risk. As of January 1, 2000, $177,000 of the Company's long-term debt, which is outstanding under its bank term facility, bears interest at LIBOR plus 3.5% (9.66%). The Company has $225,000 of Senior Subordinated Notes outstanding bearing interest at a fixed rate of 9.25%. Holdings has $88,000 face value of Senior Discount Debentures outstanding accreting interest at a fixed rate of 11.625%. Investors has 58,700 in Senior Debentures outstanding bearing interest at a fixed rate of 14.5%. 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 notational amount, three month LIBOR and pay 6.5% anytime LIBOR exceeds 6.5%, and will receive three month LIBOR and pay 5.19% anytime LIBOR is below 5.19%. The agreement effectively caps the Company's exposure on $100.0 million of its floating rate debt at 6.5% plus an applicable margin, as defined in the Company's bank credit facility. Movement in foreign currency exchange rates creates risk to the Company's operations to the extent of sales made and costs incurred in foreign currencies. The major foreign currencies, among others, in which the Company does business, are the British pound sterling, German mark and French franc. In addition, changes in currency exchange rates can affect the competitiveness of the Company's products and could result in management reconsidering pricing strategies to maintain market share. Specifically, the Company is most sensitive to changes in the German mark. During the past three fiscal years, the impact of currency fluctuations has not had a significant impact on the Company's results of operations. On October 3, 1999, the Company adopted SFAS 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. The impact of adoption was accounted for as the cumulative effect of a change in accounting principles. See note 6 to the condensed consolidated financial statements. In order to manage currency risk, the Company's practice is to contract for purchases and sales of goods and services in the functional currency of the Company's subsidiary executing the transaction. To the extent purchases or sales are in currencies other than the functional currency of the subsidiary, the Company will generally purchase forward contracts to hedge firm purchase and sales commitments. As of January 1, 2000, the Company was party to nine such contracts with an aggregate value of $10.5 million. These forward contracts generally have average maturities of less than three months. The Company has not taken any action at this time to hedge its net investment in foreign subsidiaries but may do so in the future. The Company does not have any commodity contracts. 12 PART II ITEM 1. LEGAL PROCEEDINGS The Company is involved in various legal proceedings that have arisen in the normal course of its operations. The outcome of these legal proceedings, if determined adversely to the Company, is unlikely to have a material adverse effect on the Company. The Company is also subject to product liability claims for which it believes it has adequate insurance. ITEM 2. CHANGES IN SECURITIES Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION Not applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. Exhibit No. Description of Exhibit 27.1* Financial Data Schedule. - --------------- * Filed Herewith. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended January 1, 2000. 13 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED. GROVE INVESTORS LLC DATE: FEBRUARY 15, 2000 BY /S/ STEPHEN L. CRIPE ----------------------- STEPHEN L. CRIPE CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) 14 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AS OF AND FOR THE PERIOD ENDING JANUARY 1, 2000 FOR GROVE INVESTORS LLC AND SUBSIDIARIES, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS SEP-30-2000 OCT-03-1999 JAN-01-2000 38,456 0 123,642 (4,967) 191,386 361,598 252,158 (46,058) 853,643 200,225 344,250 0 0 0 (26,564) 853,643 179,076 179,076 149,202 34,822 (116) 0 15,229 (18,803) 462 (19,265) 0 0 302 (18,963) 0 0
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