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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to ____________________
Commission File No. 333-27665
CONTINENTAL GLOBAL GROUP, INC.
------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 31-1506889
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
CO-REGISTRANTS AND SUBSIDIARY GUARANTORS
Continental Conveyor & Equipment Company Delaware 34-1603197
Goodman Conveyor Company Delaware 34-1603196
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Continental Conveyor & Equipment
Continental Global Group, Inc. Company Goodman Conveyor Company
438 Industrial Drive 438 Industrial Drive Route 178 South
Winfield, Alabama 35594 Winfield, Alabama 35594 Belton, South Carolina 29627
(205) 487-6492 (205) 487-6492 (864) 338-7793
</TABLE>
(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
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (sec. 229.405 of this chapter) 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]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 15, 1999 was $-0-.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
As of March 15, 1999, there were 100 shares of the registrant's common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: None
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CONTINENTAL GLOBAL GROUP, INC.
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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Item Number Page Number
PART I
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1 Business 3
2 Properties 6
3 Legal Proceedings 7
4 Submission of Matters to a Vote of Security Holders 7
PART II
5 Market for Registrant's Common Stock and Related Stockholder Matters 7
6 Selected Financial Data 8
7 Management's Discussion and Analysis of Financial Condition and Results of Operations 9
7A Quantitative and Qualitative Disclosures about Market Risk 15
8 Financial Statements and Supplementary Data 16
9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 40
PART III
10 Directors and Executive Officers of the Registrant 40
11 Executive Compensation 42
12 Security Ownership of Certain Beneficial Owners and Management 43
13 Certain Relationships and Related Transactions 43
PART IV
14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 45
Signatures 46
Index of Exhibits 47
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Continental Global Group, Inc. (hereinafter referred to as the "Company") is a
holding company organized under the Delaware General Corporation law and
conducts all of its business through its direct and indirect operating
subsidiaries. The Company's direct operating subsidiaries are Continental
Conveyor and Equipment Company ("Continental") and Goodman Conveyor Company
("Goodman"). The Company also owns indirectly all of the capital stock of
Continental Conveyor & Equipment Pty. Ltd. ("CCE Pty. Ltd."), an Australian
holding company that owns all of the capital stock of four Australian operating
companies. The Company also owns indirectly all of the capital stock of
Continental Conveyor Ltd., a U.K. operating company, and Continental MECO (Pty.)
Ltd., a South African operating company. During 1998, the Company purchased the
majority of the assets and assumed certain liabilities constituting a majority
of the operations of Huwood International ("Huwood"), a U.K. belt conveyor
business. The operations of the Company's existing U.K. facilities were merged
with the Huwood operations.
While the Company primarily manages its operations on a geographical basis, the
Company operates in two principal business segments: conveyor equipment and
mobile home products. The conveyor equipment business, which comprised
approximately 84.9%, 83.4%, and 74.0% of net sales for 1998, 1997, and 1996,
respectively, markets its products in four main business areas. The mining
equipment business area includes the design, manufacture and testing (and,
outside the United States, installation, monitoring and maintenance) of complete
belt conveyor systems and components for mining application primarily in the
coal industry. The conveyor components business area manufactures and sells
components for conveyor systems primarily for resale through distributor
networks. The engineered systems business area uses specialized project
management and engineering skills to combine mining equipment products,
purchased equipment, steel fabrication and other outside services for sale as
complete conveyor equipment systems that meet specific customer requirements.
The bulk conveyor equipment business area designs and manufactures a complete
range of conveyor equipment sold to transport bulk materials, such as cement,
lime, food products and industrial waste.
The Company's mobile home products business, which comprised approximately
14.0%, 15.5%, and 24.2% of net sales for 1998, 1997, and 1996, respectively,
manufactures and/or refurbishes axle components for the mobile home industry. As
part of this segment, the Company also sells mounted tires and rims to the
mobile home industry. Included in the other category is primarily the
manufacture and sale of air filtration equipment for use in enclosed
environments, principally in the textile industry. The manufacturing
requirements for these products are generally compatible with conveyor equipment
production and thus maximize utilization of the Company's manufacturing
facilities for its primary products.
Approximately 66.7% or $168.2 million of the Company's 1998 net sales were
produced in the United States, 24.2% or $61.1 million in Australia, and 9.1 % or
$22.8 million in other countries.
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ACQUISITIONS
On August 6, 1998, the Company completed the purchase of assets and assumption
of liabilities constituting a majority of the operations of Huwood International
("Huwood"), a U.K. belt conveyor business and a division of FKI, Plc. Huwood
generated revenues of approximately $13,800,000 for the fiscal year ended March
31, 1998. The purchase price for the net assets was approximately $4,966,000.
The transaction was accounted for as a purchase and accordingly, the results of
operations since the date of acquisition have been included in the consolidated
financial statements. The operations of the Company's existing U.K. facilities
were merged with the Huwood operations.
The Company will continue to search for strategic acquisitions that add
complementary product lines, expand its technological capabilities, broaden its
geographic reach or otherwise support its business strategy and presently is in
discussions with other potential acquisition candidates. There can be no
assurance that the Company will be able to identify other desirable acquisition
candidates or that the Company will be successful in consummating any
acquisition on terms favorable to the Company, if at all.
CUSTOMERS
The Company's conveyor equipment business segment markets its products worldwide
through a variety of marketing channels with different customer focuses. The
Company sells its mining equipment and bulk conveyor equipment products and
services primarily to mining companies and other end users, original equipment
manufactures and engineering contractors. The Company sells its conveyor
components products to original equipment manufactures, engineering contractors
and replacement part distributors, primarily in the following industries:
aggregates, such as rock, gravel, glass and cement materials; coal processing
and mining; pulp, paper and forest products; above ground hard rock and mineral
mining; food and grains; and environmental, sewage and waste water treatment.
The Company sells its engineered systems' products and services primarily to
contractors and end users for applications in coal processing and mining, pulp
and paper, composting systems, grain handling, cement products, open-pit mining
and tunneling. The Company markets its mobile home products business segment
directly to mobile home manufacturers in the United States.
For the year ended December 31, 1998, sales to the Company's two largest
customers constituted approximately 25% of the Company's total net sales. Sales
to A.T. Massey Group constituted approximately 13.0% of the Company's total net
sales and sales to MIN Holdings were approximately 12.2%. Sales to A.T. Massey
Group were to 27 different mining properties in the United States and sales to
MIN Holding were to 4 different mining properties in Australia. Net sales to the
Company's top five conveyor equipment customers represented approximately 36% of
the Company's total net sales for 1998. Although the Company has preferred
supplier arrangements with a number of it's major customers pursuant to which
the Company and such customers effectively operate on a long-term basis, such
arrangements generally are not governed by long-term contracts and may be
terminated by either party at any time. A substantial portion of the Company's
sales is on a project by project basis.
For the year ended December 31, 1997, sales to A.T. Massey Group constituted
approximately 13.1% of the Company's total net sales. For the year ended
December 31, 1996, sales to A.T. Massey Group constituted approximately 16.6% of
the Company's total net sales and sales to Cyprus Minerals Company constituted
approximately 10.7% of the Company's total net sales.
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COMPETITION
The Company faces strong competition throughout the world in all of its product
lines. The various markets in which the Company competes are fragmented into a
large number of competitors, many of which are smaller businesses that operate
in relatively specialized or niche areas. In addition, a number of the Company's
competitors have financial and other resources greater than those of the
Company. Competitive considerations vary for each business area, but generally
include quality, price, reliability, availability and service.
SUPPLIERS
The primary raw materials used by the Company to produce its products are steel
and miscellaneous purchased parts such as bearings, electric motors and gear
reducers. All materials are readily available in the marketplace. The Company is
not dependent upon any single supplier for any materials essential to its
business or that are not otherwise commercially available. The Company has been
able to obtain an adequate supply of raw materials and no shortage of raw
materials is currently anticipated.
BACKLOG
Backlog at December 31, 1998, was $46.8 million, a decrease of $9.9 million, or
17.5% from $56.7 million at December 31, 1997. The decrease is attributable
principally to a reduction in backlog of the domestic operation of $5.3 million
and a reduction in the foreign operations of $4.6 million. The Company expects
to ship in excess of 95% of the backlogs in 1999.
EMPLOYEES
As of December 31, 1998, the Company had approximately 1,440 employees,
approximately 920 of whom were located in the United States. Approximately 220
of the employees at the Company's Winfield, Alabama facility are represented by
The United Steelworkers of America Union and are covered by a four year
collective bargaining agreement that expires May 17, 2002. Approximately 90 of
the production employees at one of the Company's Australian facilities are
covered by a collective bargaining agreement which expires in 1999.
Approximately 80 and 50 of the Company's production employees in the United
Kingdom and South Africa, respectively, are covered by collective bargaining
arrangements. The Company has not experienced any work stoppages since 1971 and
believes its relations with its employees are good.
ENVIRONMENTAL AND HEALTH AND SAFETY MATTERS
The Company is subject to a variety of environmental standards imposed by
federal, state, local and foreign environmental laws and regulations. The
Company is also subject to the federal Occupational Health and Safety Act and
similar foreign and state laws. The Company periodically reviews its procedures
and policies for compliance with environmental and health and safety laws and
regulations and believes that it is in substantial compliance with all such
material laws and regulations applicable to its operations. Historically the
costs of compliance with environmental, health and safety requirements have not
been material to the Company's subsidiaries.
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ITEM 2. PROPERTIES
The Company conducts its operations through the following primary facilities:
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APPROXIMATE
LOCATION SQUARE FOOTAGE PRINCIPAL FUNCTION OWNED /LEASED
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UNITED STATES:
Winfield, Alabama 220,000 Headquarters; manufacturing Owned
Belton, South Carolina 191,000 Administration; manufacturing Owned
Salyersville, Kentucky 111,000 Manufacturing Owned
Pueblo, Colorado 75,600 Manufacturing Leased(1)
Eatonton, Georgia 22,000 Administration; Manufacturing Leased(2)
AUSTRALIA:
Gosford, New South Wales 8,765 Administration; engineering; Leased(3)
and sales
Somersby, New South Wales 42,000 Manufacturing Owned
MacKay, Queensland 32,000 Manufacturing; Installation Leased(4)
support
Geelong, Victoria 21,000 Manufacturing Owned
Wollongong, New South Wales 4,000 Manufacturing; engineering Leased(5)
Mento, New South Wales 22,173 Manufacturing Owned
ENGLAND
Wakefield, UK 5,500 Administration, engineering, Leased(6)
and sales
Gateshead, UK 234,810 Administration, engineering, Leased(7)
sales, and manufacturing
SOUTH AFRICA
Alrode, South Africa 24,456 Administration, manufacturing Leased(8)
</TABLE>
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(1) Expires in April 1999 and the Company is negotiating for lease extension
and purchase of the property.
(2) Expires in October 2003. The Company holds an option to buy such property
at the end of the lease term.
(3) Expires in April 2000.
(4) Current lease has expired and the Company is looking for smaller premises.
(5) Expires in November 2001.
(6) Current lease term is on an annual basis with a nine months notice of
termination.
(7) Lease covering 183,483 sq. ft. expires in August 2003 with option to renew
for additional five years with option to purchase at market value. Lease
covering 51,327 sq. ft. expires May 1999.
(8) Expired in February 1999 and Company is on month to month basis.
In addition to the foregoing facilities, the Company has a number of leased
warehouses and field sales offices in various locations throughout the United
States and Australia. The Company believes that substantially all of its
property and equipment is in a condition appropriate for its operations and that
it has sufficient capacity to meet its current operational needs. Each of the
Company-owned United States facilities is subject to a mortgage securing payment
of indebtedness under the Revolving Credit Facility. In addition, the Company's
Somersby and Geelong Facilities in Australia are subject to mortgages securing
payment of indebtedness under the Australian Revolving Credit Facility. See Note
E, "Financing Arrangements," to the Consolidated Financial Statements.
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ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceeding which it believes
could have a material adverse effect upon its results of operations or financial
condition, or to any other pending legal proceedings other than ordinary,
routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended December 31, 1998, NES Group, Inc., the Company's sole
stockholder, by written consent, re-elected all members of the Company's Board
of Directors.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company is a direct wholly-owned subsidiary of NES Group, Inc. There is no
established public trading market for the Company's common stock. As of March
15, 1999, the Company had one stockholder. The Company paid no dividends in
1998. In 1997, the Company paid cash dividends once in the amount of $40
million. See Note E, "Financing Arrangement", to the Consolidated Financial
Statements, Part II, Item 8, for limitations on dividends.
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ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial and operating data of the
Company for each of the five years in the period ended December 31, 1998. The
data should be read in conjunction with the Consolidated Financial Statements
and related Notes included in this report on Form 10-K.
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1998 (1) 1997 (2) 1996 1995 1994
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(Data in 000's)
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INCOME STATEMENT DATA:
Net sales $ 252,072 $ 213,517 $ 143,524 $ 153,231 $ 114,025
Gross profit 42,709 43,112 28,808 28,283 19,740
Operating income 14,331 20,013 12,037 14,422 4,942
Interest expense 14,658 12,308 2,889 2,506 1,493
Net income 1,175 7,838 9,872(3) 11,785 3,615
OTHER DATA:
Depreciation and amortization 3,393 2,708 1,012 894 766
Operating cash flows 8,671 10,152 9,873 10,550 (1,797)
EBITDA (4) 18,912 22,868 12,841 15,185 5,874
Ratio of earnings to fixed charges (5) 1.08 1.64 3.69 4.96 3.00
BALANCE SHEET DATA:
Cash and cash equivalents 26,351 30,883 1,022 295 1,856
Total assets 145,757 129,725 46,499 46,195 40,870
Long-term debt, including current
portion 123,322 129,870 14,143 16,837 10,605
Stockholder's equity (deficit) (37,506) (35,973) 1,994 (3,862) 8,877
</TABLE>
(1) Reflects the acquisition during 1998 of Huwood as described in Note B of
Notes to Consolidated Financial Statements.
(2) Reflects the acquisitions during 1997 of BCE, Hewitt-Robins, and MECO as
described in Note B of Notes to Consolidated Financial Statements.
(3) Includes extraordinary gain on early extinguishment of debt of $932.
(4) EBITDA represents earnings before extraordinary items, interest, taxes,
depreciation, amortization, and restructuring charges. EBITDA has been
included because the Company uses it as one means of analyzing its ability
to service its debt, the Company's lenders use it for the purpose of
analyzing the Company's performance with respect to the credit agreement
and the Indenture, and the Company understands that it is used by certain
investors as a measure of a Company's historical ability to service debt.
(5) Earnings consist of income before income taxes plus fixed charges. Fixed
charges consist of interest expense, amortization of deferred financing
costs and one-third of rent expense from operating leases, which management
believes is a reasonable approximation of an interest factor.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, on a comparative basis, certain income statement
data as a percentage of net sales for the fiscal years ended December 31, 1998,
1997, and 1996.
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Year ended December 31
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1998 1997 1996
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Net sales 100.0% 100.0% 100.0%
Cost of products sold 83.1 79.8 79.9
Gross profit 16.9 20.2 20.1
SG&A expenses 10.1 9.7 9.4
Management fee 0.4 0.8 2.2
Amortization expense 0.3 0.3 0.1
Restructuring charge 0.4 - -
Operating income 5.7 9.4 8.4
</TABLE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
NET SALES
Net sales increased $38.6 million, or 18%, from $213.5 million in 1997 to $252.1
million in 1998. Net sales in 1998 include a full year's results from
Hewitt-Robins and MECO, which were acquired on April 1, 1997 and October 17,
1997, respectively, and the current year's results from Huwood, which was
acquired on August 6, 1998. These acquisitions accounted for $28.0 million of
this increase. The Company's Australian subsidiary contributed $14.5 million of
the increase due to the substantial completion of several large contracts during
1998. Net sales at the Company's other foreign subsidiaries increased $5.6
million. This increase was partially offset by a sales decrease of $12.1 million
in the Company's domestic conveyor equipment business due to capital spending
reductions by certain key customers in the mining equipment business area. Sales
in the Company's mobile home products segment increased by $2.2 million and
sales in the Company's other business segment increased by $0.4 million.
GROSS PROFIT
Gross profit decreased $0.4 million, or 1%, from $43.1 million in 1997 to $42.7
million in 1998. The acquisitions of Hewitt-Robins, MECO, and Huwood resulted in
an increase of $4.8 million. Gross profit at the Company's domestic conveyor
equipment operations decreased $3.4 million due to reduced sales volumes. Gross
profit at the Company's foreign operations decreased $1.9 million. This decrease
in profit margin was primarily due to lower margins on major contracts in the
Company's Australian operations. Gross profit in the Company's mobile home
products and other business segments increased by $0.1 million.
SG&A EXPENSES
Selling, general, and administrative expenses, which do not include management
fees, increased $4.8 million, or 23%, from $20.8 million in 1997 to $25.6
million in 1998. The acquisitions of Hewitt-Robins, MECO and Huwood accounted
for $4.0 million of the increase. SG&A expenses at the Company's foreign
subsidiaries increased by $0.5 million due to the increase in sales. Of the
remaining increase, $0.1 million is attributable to the Company's mobile home
products business segment and $0.2 million is attributable to corporate expenses
at Continental Global, parent company.
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OPERATING INCOME
Operating income decreased $5.7 million, or 29%, from $20.0 million in 1997 to
$14.3 million in 1998. The decrease is the result of the $0.4 million decrease
in gross profit, combined with an increase in SG&A expenses of $4.8 million, an
increase in amortization expense of $0.1 million, and restructuring charges of
$1.1 million. This was offset by a decrease in management fees of $0.7 million
attributable to lower operating income. The restructuring charges relate to the
Company's Australian subsidiary and the consolidation of facilities in the
United Kingdom.
RESTRUCTURING CHARGES
The Company incurred restructuring charges of approximately $1,127,000 in 1998
related to its Australian subsidiary and the consolidation of facilities in the
United Kingdom following the acquisition of Huwood. The charges consist
primarily of severance of 95 employees and relocation costs. The Company has
executed a plan to close a manufacturing facility in Australia and merge its
operations with other existing facilities. As of December 31, 1998, the Company
has paid approximately $462,000 of these expenses. In addition to the severance
and relocation costs expensed to date, the Company anticipates that an
additional cost for relocation of $81,000 will be incurred in 1999. These costs
will be expensed as paid. The Company's existing U.K. operations have been
consolidated with the Huwood operations. As of December 31, 1998, the Company
has paid approximately $630,000 of these expenses. The Company anticipates that
an additional cost for relocation of $221,000 will be incurred in 1999. These
costs will be expensed as incurred.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET SALES
Net sales increased $70.0 million, or 49%, from $143.5 million in 1996 to $213.5
million in 1997. The 1997 acquisitions of BCE, Hewitt-Robins, and MECO account
for $58.9 million of this increase. Net sales in the Company's Conveyor
Equipment business segment increased by $12.9 million due to increased volumes
which resulted from new projects from existing mining equipment customers which
were completed in 1997. Net sales in the Company's other segments, primarily
mobile home products, decreased by $1.8 million. Net sales pursuant to preferred
supplier arrangements were $46.2 million, or approximately 21.2% of net sales,
in 1997, compared to $45.0 million, or approximately 31.4% of net sales, in
1996.
GROSS PROFIT
Gross profit increased $14.3 million, or 50%, from $28.8 million in 1996 to
$43.1 million in 1997. Acquisitions increased gross profit by $10.3 million.
Gross profit in the Company's conveyor equipment business segment increased by
$3.0 million due to increased sales volumes and $1.7 million as a result of
increased margins. The increase is partially offset by a decrease in the mobile
home products business segment of $0.7 million.
SG&A EXPENSES
Selling, general, and administrative expenses, which do not include management
fees, increased $7.4 million, or 55%, from $13.4 million in 1996 to $20.8
million in 1997. Acquisitions resulted in increased SG&A expenses of $6.6
million. SG&A expenses in the Company's conveyor equipment business segment
increased by $0.4 million due to additional employee costs. The remaining
increase of $0.4 million is attributable to corporate expenses at Continental
Global, parent company.
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OPERATING INCOME
Operating income increased $8.0 million, or 66%, from $12.0 million in 1996 to
$20.0 million in 1997. The increase is the result of the $14.3 million increase
in gross profit, offset by the $7.4 million increase in SG&A expenses, a $1.5
million decrease in management fees, and a $0.4 million increase in amortization
expense. The decrease in management fees is the result of a change in the
management agreement that defines the limitation of management fees. The
increase in amortization expense is the result of increased goodwill related to
the acquisitions of BCE, Hewitt-Robins, and MECO.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $8.7 million, $10.2 million, and
$9.9 million for the years ending December 31, 1998, 1997, and 1996,
respectively. The decrease from 1997 to 1998 is due to lower net income which
resulted from increased operating expenses and decreased margins. The
significant changes in operating assets in 1998, specifically accounts
receivable, inventories and accounts payable, are timing in nature and relate to
significant fourth quarter sales at the Company's Australian subsidiary. The
increase in net cash provided by operating activities from 1996 to 1997 is the
result of higher operating income due to acquisitions and increased sales.
Net cash used in investing activities was $7.9 million, $22.7 million, and $0.6
million for the years ending December 31, 1998, 1997 and 1996, respectively.
Investing activities in 1998 include the acquisition of Huwood for $5.0 million
and net purchases of property, plant, and equipment for $2.9 million. The
significant increase in 1997 is the result of the acquisitions of BCE for $7.2
million, Hewitt-Robins for $12.9 million, and Tufkon for $0.7 million. The
acquisition of MECO resulted in an increase in cash of $1.5 million, net of
notes issued. The balance of expenditures for investing activities, $3.4 million
in 1997 and $0.6 million in 1996, represents net purchases of property, plant,
and equipment.
Net cash (used in) provided by financing activities was $(4.9) million, $41.7
million, and $(8.6) million for the years ending December 31, 1998, 1997, and
1996, respectively. Net cash used in 1998 is primarily a result of the Company's
reduction in long-term obligations of $6.4 million. This includes payment in
full of the promissory note payable to Joy Technologies, Inc. in the amount of
$5.2 million. The Company also paid distributions for income taxes under the Tax
Payment Agreement of $0.7 million. This was offset by a net increase in
borrowings on notes payable of $2.2 million.
The net cash provided by financing activities of $41.7 million in 1997 is the
result of the issuance of $120.0 million of senior notes. At the time of the
debt offering, the Company paid dividends to its sole stockholder in the amount
of $40.0 million and paid financing fees in the amount of $5.2 million. In
connection with the BCE acquisition in 1997, $2.9 million was paid to former
shareholders of BCE. The Company reduced its borrowings on notes payable and
long-term obligations by $12.9 million and $18.8 million, respectively. The
Company received proceeds from long-term obligations of $4.8 million. The
Company paid distributions to fund the payment of income taxes under the Tax
Payment Agreement in the amount of $3.3 million.
Net cash used in financing activities of $8.6 million in 1996 represents a
reduction of borrowings on notes payable and long-term obligations of $1.9
million and $2.6 million, respectively, and distributions paid for income taxes
in the amount of $4.1 million.
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The Company's primary capital requirements consist of capital expenditures and
debt service. The Company expects current financial resources (working capital)
and funds from operations to be adequate to meet anticipated cash requirements.
In 1999, the Company anticipates capital expenditures of approximately $4.6
million for new and replacement equipment. At December 31, 1998, the Company had
cash and cash equivalents of $26.4 million and an unused credit facility line of
$30.0 million, of which $27.4 million was available for use.
INTERNATIONAL OPERATIONS
The Company transacts business in a number of countries throughout the world and
has facilities in the United States, Australia, the United Kingdom, and South
Africa. As a result, the Company is subject to business risks inherent in
non-U.S. operations, including political and economic uncertainty, import and
export limitations, exchange controls and currency fluctuations. The Company
believes that the risks related to its foreign operations are mitigated by the
relative political and economic stability of the countries in which its largest
foreign operations are located. As the U.S. dollar strengthens and weakens
against foreign currencies in which the Company transacts business, its
financial results will be affected. The principal foreign currencies in which
the Company transacts business are the Australian dollar, the British pound
sterling, and the South African rand. The Company estimates that the
strengthening of the U.S. dollar versus other currencies, primarily the
Australian dollar, resulted in charges to stockholder's equity of approximately
$786,000 and $2,510,000 for the years ended December 31, 1998 and 1997,
respectively.
IMPACT OF YEAR 2000
As the Year 2000 approaches, the Company is aware of the issues associated with
the programming code in existing computer systems. The issue is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the Company's computer programs or hardware that have
date sensitive software or embedded chips may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company has been addressing the Year 2000 issue since mid-1997. A
company-wide taskforce was assembled to review all systems to determine whether
each system is Year 2000 compliant. The Company has utilized both internal and
external resources to identify, correct or reprogram, and test systems for the
Year 2000 compliance. The plan to resolve the problems involved four phases:
assessment, remediation, testing and implementation. In addressing the four
phases, the Company has reviewed its computer hardware and software; reviewed
its manufacturing operations for any embedded chips or software that could
effect production; reviewed the various manufactured products to determine
potential Year 2000 problems; and surveyed third party vendors to determine Year
2000 compliance.
To date, the Company has completed the assessment phase and believes that the
products the Company has sold that remain under warranty and will continue to
sell do not have Year 2000 exposure. The Company is heavily dependent on its PC
networks and informational technology systems for day to day operations. During
the assessment phase, the Company attempted to identify all such mission
critical systems that were not Year 2000 compliant and remediated or replaced
all mission critical systems necessary to achieve Year 2000 compliance.
12
<PAGE> 13
Based upon it's assessments, the Company determined that it would be required
to modify or replace several portions of its software and information
technology systems including the general ledger, accounts payable, accounts
receivable and the manufacturing and inventory systems. In the U.S., the
hardware associated with these systems are operating on a mini computer. The
Company believes all of its mission critical hardware and related operating
systems have been determined to be Year 2000 compliant or have been upgraded to
be Year 2000 compliant. A substantial portion of the Company's U.S. software
systems are under maintenance agreements and suppliers have provided upgrades
to existing applications that are intended to render such products Year 2000
compliant. These upgrades include both the general ledger and the manufacturing
and inventory systems. To assist in the remediation and implementation of other
systems the Company has employed both internal and external resources to
correct and test the systems for compliance. The Company believes it will have
completed the testing and implementation of all mission critical U.S.
applications by June 30, 1999. In the Company's locations outside the U.S., its
software and information technology systems operate on PC networks and
hardware. The Company believes its operations in the United Kingdom are
currently operating with Year 2000 compliant manufacturing and financial
software. The Company has purchased a new integrated manufacturing and
financial software package for its Australian operation. This system is
currently being tested and the Company believes it will be implemented by June
30, 1999.
The costs for the Company's Year 2000 assessment, remediation, testing and
implementation is estimated to be approximately $852,000, of which $517,000 has
been expended through December 31, 1998.
The Company performed an evaluation of all domestic and international suppliers
to identify mission critical vendors. These vendors have been contacted and have
submitted written assurances that their operations will be prepared for the
millennium change and will provide an uninterrupted supply of components and
services. As a contingency plan to ensure an uninterrupted supply of components,
the Company has multiple suppliers for all critical components. The Company
currently has no other contingency plans in place in the event it does not
complete all phases of the Year 2000 program. The Company plans to evaluate the
status of completion in June 1999 and determine whether such a plan is
necessary.
The Company's plans to complete the Year 2000 modifications are based on
management's best estimate, which were derived utilizing various assumptions of
future events including the continued availability of certain resources and
other factors. Estimates on the status of completion and the expected completion
dates are based on the original plan and the estimated time required to complete
the remaining work. However, there can be no guarantee that these estimates will
be achieved and actual results could differ materially from those plans.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes, and similar
uncertainties.
The Company expects to complete its Year 2000 activities within a timeframe that
will enable its material information systems to function without significant
disruption in Year 2000. As noted above, the Company has not yet completed all
necessary phases of the Year 2000 program. In the event that the Company does
not complete any additional phases, the most reasonable likely worst case
scenario which could result from the failure of the Company or its customers,
vendors or other key third parties to adequately address the Year 2000 issue
would include a temporary interruption in the Company's manufacturing operation
at one or more of its facilities. Such failure could also cause a delay in the
processing of orders and invoices and collection of revenues, as well as the
inability to maintain accurate accounting records and lead to increased costs
and loss of sales. If these failures were to occur, depending upon their
duration and severity, they could have a material adverse effect on the
Company's business results of operation and financial condition.
13
<PAGE> 14
The information above contains certain forward-looking statements, including,
without limitation, statements relating to the Company's plans, strategies,
objectives, expectations, intentions and adequate resources that are made
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Readers are advised that forward-looking statements about
the Year 2000 should be read in conjunction with the Company's disclosure under
the heading Cautionary Statement for Safe Harbor Purposes.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement 133, "Accounting for Derivative
Instruments and Hedging Activities" which is required to be adopted in years
beginning after June 15, 1999. Statement 133 requires all derivatives to be
recognized as either assets or liabilities in the balance sheet and be measured
at fair value. The Company is currently evaluating Statement 133 and because the
Company expects to have a minimal use of derivatives, management does not
anticipate that the adoption of the new Statement will have a material effect on
earnings or the financial position of the Company.
CAUTIONARY STATEMENT FOR SAFE HARBOR PURPOSES
This Management's Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) contains forward-looking statements within the meaning of the
federal securities laws. As a general matter, forward-looking statements are
those focused upon future plans, objectives or performance as opposed to
historical items and include statements of anticipated events or trends and
expectations and beliefs relating to matters that are not historical in nature.
Such forward looking statements include, without limitation, statements
regarding the Company's Year 2000 compliance program. Such forward looking
statements are subject to uncertainties and factors relating to the Company's
operations and business environment, all of which are difficult to predict and
many of which are beyond the control of the Company, that could cause actual
results of the Company to differ materially from those matters expressed in or
implied by such forward-looking statements.
14
<PAGE> 15
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates. The table presents
principal cash flows and related weighted-average interest rates by expected
maturity dates for debt obligations.
<TABLE>
<CAPTION>
Interest Rate Sensitivity
Principal Amount by Expected Maturity
Average Interest Rate
Fair
Value,
(dollars in thousands) 1999 2000 2001 2002 2003 Thereafter Total 12/31/98
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Obligations,
including current
portion
Fixed Rate $ - $ - $ - $ - $ - $ 120,000 $ 120,000 $ 103,200
Average interest rate 11% 11% 11% 11% 11% 11%
Variable Rate $ 735 $ 735 $ 632 $ - $ - $ - $ 2,102 $ 2,102
Average interest rate 6% 6% 6%
</TABLE>
The Company's interest income and expense are most sensitive to changes in the
general level of U.S. interest rates. In this regard, changes in U.S. interest
rates affect the interest earned on the Company's cash equivalents as well as
interest paid on its debt. To mitigate the impact of fluctuations in U.S.
interest rates, the Company generally borrows on a long-term basis to maintain a
debt structure that is fixed rate in nature.
A portion of the Company's operations consists of manufacturing and sales
activities in foreign jurisdictions. The Company manufactures and sells its
products in the United States, Australia, the United Kingdom, and South Africa.
As a result, the Company's financial results could be significantly affected by
factors such as changes in foreign currency exchange rates or weak economic
conditions in the foreign markets in which the Company distributes its products.
The Company's operating results are exposed to changes in exchange rates between
the U.S. dollar and the Australian dollar, the British pound sterling, and the
South African rand.
15
<PAGE> 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The Report of Independent Auditors and the Consolidated Financial Statements of
Continental Global Group, Inc. for each of the three years in the period ended
December 31, 1998 are included herein.
16
<PAGE> 17
Report of Independent Auditors
To the Stockholder
Continental Global Group, Inc.
We have audited the accompanying consolidated balance sheets of Continental
Global Group, Inc. as of December 31, 1998 and 1997, and the related
consolidated statements of income, stockholder's equity (deficit), and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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 consolidated financial position of Continental Global
Group, Inc. at December 31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Cleveland, Ohio
March 19, 1999
17
<PAGE> 18
Continental Global Group, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
As of December 31
-------------------------------------
1998 1997
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 26,350,700 $ 30,882,733
Accounts receivable, less allowance for doubtful accounts of
$797,043 in 1998 and $267,666 in 1997 44,423,640 30,458,953
Inventories 32,249,917 27,572,559
Other current assets 2,273,333 1,198,425
------------------------------------
Total current assets 105,297,590 90,112,670
Property, plant and equipment 23,815,213 19,530,408
Less accumulated depreciation 8,048,953 6,289,081
------------------------------------
15,766,260 13,241,327
Goodwill 19,669,858 20,713,078
Deferred financing costs 4,289,194 4,809,097
Other assets 734,389 848,611
------------------------------------
$ 145,757,291 $ 129,724,783
====================================
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT):
Current liabilities:
Notes payable $ 2,661,508 $ 455,743
Trade accounts payable 40,522,707 18,874,057
Accrued compensation and employee benefits 5,342,206 5,672,388
Accrued interest on senior notes 3,300,000 3,300,000
Other accrued liabilities 8,115,497 7,525,207
Current maturities of long-term obligations 1,095,106 1,181,715
------------------------------------
Total current liabilities 61,037,024 37,009,110
Senior notes 120,000,000 120,000,000
Other long-term obligations, less current maturities 2,226,461 8,688,529
Stockholder's equity (deficit):
Common stock, no par value, authorized 1,500 shares, issued
and outstanding 100 shares at stated value of $5 per share 500 500
Paid-in capital 1,993,188 1,993,188
Accumulated deficit (36,203,815) (35,456,724)
Accumulated other comprehensive loss (3,296,067) (2,509,820)
------------------------------------
(37,506,194) (35,972,856)
------------------------------------
$ 145,757,291 $ 129,724,783
====================================
</TABLE>
See notes to consolidated financial statements.
18
<PAGE> 19
Continental Global Group, Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years ended December 31
---------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Net sales $ 252,072,484 $ 213,517,026 $ 143,524,007
Cost of products sold 209,363,006 170,404,976 114,716,416
-----------------------------------------------------
Gross profit 42,709,478 43,112,050 28,807,591
Operating expenses:
Selling and engineering 16,940,161 13,658,329 9,666,060
General and administrative 8,714,500 7,187,870 3,807,465
Management fee 932,820 1,668,489 3,186,751
Amortization expense 663,478 584,051 110,763
Restructuring charge 1,127,482 - -
-----------------------------------------------------
Total operating expenses 28,378,441 23,098,739 16,771,039
-----------------------------------------------------
Operating income 14,331,037 20,013,311 12,036,552
Other expenses:
Interest expense 14,658,149 12,307,589 2,889,398
Interest income (1,568,086) (924,842) -
Miscellaneous, net (60,786) 449,279 207,410
-----------------------------------------------------
Total other expenses 13,029,277 11,832,026 3,096,808
-----------------------------------------------------
Income before extraordinary item and foreign
income taxes 1,301,760 8,181,285 8,939,744
Foreign income taxes 127,166 343,342 -
-----------------------------------------------------
Income before extraordinary item 1,174,594 7,837,943 8,939,744
Extraordinary item - gain on extinguishment of
debt - - 932,145
-----------------------------------------------------
Net income $ 1,174,594 $ 7,837,943 $ 9,871,889
======================================================
</TABLE>
See notes to consolidated financial statements.
19
<PAGE> 20
Continental Global Group, Inc.
Consolidated Statements of Stockholder's Equity (Deficit)
<TABLE>
<CAPTION>
Accumulated
Partners' Other
Capital Common Paid-in Accumulated Comprehensive
(Deficiency) Stock Capital Deficit Income (Loss) Total
------------- ---------- ------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $(3,862,085) $ - $ - $ - $ - $ (3,862,085)
Comprehensive income:
Net income 9,871,889 - - - - 9,871,889
Foreign currency
translation adjustment - - - - 105,443 105,443
------------
Total comprehensive income 9,977,332
Distributions for income taxes (4,121,559) - - - - (4,121,559)
-----------------------------------------------------------------------------------
Balance at December 31, 1996 1,888,245 - - - 105,443 1,993,688
Transfer of Partners' Capital
and formation of
Continental Global Group,
Inc. (1,888,245) 500 1,993,188 - (105,443) 0
Comprehensive income:
Net income - - - 7,837,943 - 7,837,943
Foreign currency
translation adjustment - - - - (2,509,820) (2,509,820)
------------
Total comprehensive income 5,328,123
Dividend - - - (40,000,000) - (40,000,000)
Distributions for income taxes - - - (3,294,667) - (3,294,667)
-----------------------------------------------------------------------------------
Balance at December 31, 1997 0 500 1,993,188 (35,456,724) (2,509,820) (35,972,856)
Comprehensive income:
Net income - - - 1,174,594 - 1,174,594
Foreign currency
translation adjustment - - - - (786,247) (786,247)
------------
Total comprehensive income 388,347
Distributions for income taxes - - - (1,921,685) - (1,921,685)
-----------------------------------------------------------------------------------
Balance at December 31, 1998 $ 0 $ 500 $ 1,993,188 $(36,203,815) $(3,296,067) $(37,506,194)
===================================================================================
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 21
Continental Global Group, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31
--------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Operating activities:
Net income $ 1,174,594 $ 7,837,943 $ 9,871,889
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary gain on extinguishment of debt - - (932,145)
Provision for depreciation and amortization 3,392,540 2,707,750 1,012,154
Amortization of deferred financing costs 519,903 389,927 -
Provision for doubtful accounts 586,265 168,334 136,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (11,166,742) (992,556) 521,816
(Increase) decrease in inventories (3,406,938) 1,543,591 (59,156)
(Increase) decrease in other assets (1,035,431) 438,157 (224,311)
Increase (decrease) in accounts payable and
other current liabilities 18,606,481 (1,940,789) (453,670)
------------------------------------------------
Net cash provided by operating activities 8,670,672 10,152,357 9,872,577
------------------------------------------------
Investing activities:
Purchases of property, plant, and equipment (net) (2,969,471) (3,405,666) (617,981)
Purchase of CC&E Pty, less cash acquired - - 20,153
Purchase of BCE, net of notes to seller - (7,189,125) -
Purchase of Hewitt-Robins - (12,894,890) -
Purchase of Tufkon - (697,673) -
Purchase of MECO, less cash acquired and net of
notes issued - 1,507,506 -
Purchase of Huwood (4,966,050) - -
------------------------------------------------
Net cash used in investing activities (7,935,521) (22,679,848) (597,828)
------------------------------------------------
Financing activities:
Proceeds from issuance of senior notes - 120,000,000 -
Deferred financing costs - (5,199,024) -
Net increase (decrease) in borrowings on notes
payable 2,254,074 (12,859,918) (1,907,738)
Proceeds from long-term obligations - 4,833,069 -
Principal payments on long-term obligations (6,389,046) (18,803,055) (2,556,702)
Distributions for income taxes (745,581) (3,294,667) (4,121,559)
Payment to former shareholders of BCE - (2,927,300) -
Dividends - (40,000,000) -
------------------------------------------------
Net cash (used in) provided by financing activities (4,880,553) 41,749,105 (8,585,999)
Exchange rate changes on cash (386,631) 639,086 38,586
------------------------------------------------
(Decrease) increase in cash and cash equivalents (4,532,033) 29,860,700 727,336
Cash and cash equivalents at beginning of year 30,882,733 1,022,033 294,697
------------------------------------------------
Cash and cash equivalents at end of year $ 26,350,700 $ 30,882,733 $ 1,022,033
================================================
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 22
Continental Global Group, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
A. ORGANIZATION
Continental Global Group, Inc. (the "Company") was formed on February 4, 1997,
for the purpose of owning all of the common stock of Continental Conveyor &
Equipment Company ("CCE") and Goodman Conveyor Company ("GCC"). The Company,
which is a holding company with limited assets and operations other than its
investments in its subsidiaries, is a Subchapter S Corporation owned 100% by NES
Group, Inc.
Prior to January 1, 1997, CCE and GCC were limited partnerships under common
control by NES Group, Inc., the 99% limited partner. Effective January 1, 1997,
NES Group, Inc., transferred its interest in the limited partnerships to CCE and
GCC. Effective February 1997, NES Group, Inc. transferred to the Company all of
the outstanding capital stock of CCE and GCC.
B. ACQUISITIONS
On August 6, 1998, the Company completed the purchase of assets and assumption
of liabilities constituting a majority of the operations of Huwood International
(Huwood), a U.K. belt conveyor business and a division of FKI, Plc. Huwood
generated revenues of approximately $13,800,000 for the fiscal year ended March
31, 1998. The purchase price for the net assets was approximately $4,966,000.
The transaction was accounted for as a purchase and accordingly, the results of
operations since the date of acquisition have been included in the consolidated
financial statements. The operations of the Company's existing U.K. facilities
have been merged with the Huwood operations.
On October 17, 1997, the Company completed the acquisition of the MECO Belts
Group (MECO Belts) from Joy Mining Machinery, a subsidiary of Harnischfeger
Industries. MECO Belts is an international conveyor equipment company with
operations in the United States, United Kingdom, South Africa, and Australia.
The purchase price was approximately $7,200,000, including the issuance of a
note payable for $5,244,000, plus the assumption of approximately $5,000,000 of
liabilities. The Company has recorded approximately $100,000 of goodwill related
to the acquisition. The results of operations since the date of acquisition have
been included in the consolidated financial statements. The transaction was
accounted for as a purchase.
On August 8, 1997, the Company acquired substantially all of the assets of the
Tufkon Conveyor Components Division of Wyko, Inc. The purchase price for Tufkon
was approximately $698,000 in cash. The Company has recorded approximately
$350,000 of goodwill related to the acquisition. The results of operations since
the date of acquisition have been included in the consolidated financial
statements and are not material. The transaction was accounted for as a
purchase.
On April 1, 1997, the Company acquired substantially all of the assets of the
Hewitt-Robins Conveyor Components Division of W.S. Tyler, Incorporated, a
manufacturer of idlers (Hewitt-Robins). The purchase price for Hewitt-Robins,
after working capital adjustments, was approximately $12,900,000 in cash plus
assumption of approximately $1,100,000 of liabilities. The Company has recorded
approximately $12,100,000 of goodwill related to the acquisition. The results of
operations since the date of acquisition have been included in the consolidated
financial statements. The transaction was accounted for as a purchase.
22
<PAGE> 23
Continental Global Group, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
B. ACQUISITIONS - CONTINUED
On January 7, 1997, the Company purchased the assets of BCE Holding Company Pty.
Ltd. in Australia (BCE), a major manufacturer and supplier of conveyor equipment
with net sales in 1996 of $32.6 million. The purchase price was $11,946,000. In
addition, the Company contributed $3,512,000 in capital to BCE after the
acquisition. Financing consisted of an advance on the revolving credit line of
approximately $6,800,000, an addition to the existing term loan of approximately
$4,500,000, and approximately $4,800,000 in seller financing. The Company has
recorded approximately $9,600,000 of goodwill related to the acquisition. The
results of operations since the date of acquisition have been included in the
consolidated financial statements. The transaction was accounted for as a
purchase.
In February 1996, CCE purchased the remaining 50% interest in CCE Pty. Ltd., a
joint venture in Australia at a cost of approximately $670,000, and currently
owns 100%. The acquisition was accounted for as a purchase. As of December 31,
1996, CCE Pty. Ltd. had total assets of $1,854,000, total liabilities of
$1,632,000, and net assets of $222,000.
The following unaudited pro forma income statement information for the Company
for 1998, 1997 and 1996 is presented as though BCE, Hewitt-Robins and MECO Belts
were acquired on January 1, 1996 and as though Huwood was acquired on January 1,
1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
<S> <C> <C> <C>
Net sales $ 258,674 $ 257,487 $ 229,493
Operating income 14,063 19,804 18,446
Net income 896 7,353 12,444
</TABLE>
The unaudited pro forma financial information is presented for informational
purposes only and is not necessarily indicative of the results that would have
occurred had the acquisitions actually occurred on January 1, 1997 and 1996.
C. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
REVENUE RECOGNITION
The Company recognizes revenue from sales at the time of shipment.
23
<PAGE> 24
Continental Global Group, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
C. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.
INVENTORIES
Inventories, which consist of raw materials, manufactured and purchased parts,
and work in process are stated at the lower of cost or market. Since inventory
records are maintained on a job order basis, it is not practical to segregate
inventories into their major classes. The cost for approximately 58% and 66% of
inventories at December 31, 1998 and 1997, respectively, is determined using the
last-in, first-out ("LIFO") method with the remainder determined using the
first-in, first-out ("FIFO") method. Had the FIFO method of inventory (which
approximates replacement cost) been used to cost all inventories, inventories
would have increased by approximately $2,103,000 and $2,140,000 at December 31,
1998 and 1997, respectively.
GOODWILL
Goodwill is being amortized on a straight-line basis, primarily over 40 years.
The balance of accumulated amortization of goodwill was approximately $1,378,000
and $789,000 at December 31, 1998 and 1997, respectively. The ongoing value and
remaining useful life of goodwill are subject to periodic evaluation and the
Company currently expects the carrying amounts to be fully recoverable. If
events and circumstances indicate that goodwill might be impaired, an
undiscounted cash flow methodology would be used to determine whether an
impairment loss should be recognized.
RESTRUCTURING CHARGES
The Company incurred restructuring charges of approximately $1,127,000 in 1998
related to its Australian subsidiary and the consolidation of facilities in the
United Kingdom following the acquisition of Huwood. The charges consist
primarily of severance of 95 employees and relocation costs. The Company has
executed a plan to close a manufacturing facility in Australia and merge its
operations with other existing facilities. As of December 31, 1998, the Company
has paid approximately $462,000 of these expenses. In addition to the severance
and relocation costs expensed to date, the Company anticipates that an
additional cost for relocation of $81,000 will be incurred in 1999. These costs
will be expensed as paid. The Company's existing U.K. operations have been
consolidated with the Huwood operations. As of December 31, 1998, the Company
has paid approximately $630,000 of these expenses. The Company anticipates that
an additional cost for relocation of $221,000 will be incurred in 1999. These
costs will be expensed as incurred.
INCOME TAXES
The Company and its domestic subsidiaries have elected Subchapter S Corporation
Status for United States income tax purposes. Accordingly, the Company's United
States operations are not subject to income taxes as separate entities. The
Company's United States income is included in the income tax returns of the
stockholder. Under the terms of the Tax Payment Agreement with the stockholder,
the Company makes monthly distributions to the stockholder for payment of income
taxes.
24
<PAGE> 25
Continental Global Group, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
C. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
The Company has subsidiaries located in Australia, the United Kingdom, and South
Africa which are subject to income taxes in their respective countries. For the
years ended December 31, 1998 and 1997, the Company recorded foreign income tax
expense of $127,166 and $343,342, respectively, related to its United Kingdom
and Australian subsidiaries. Pre-tax income (loss) attributable to foreign
operations was approximately $(3,093,000) and $633,000 for the years ended
December 31, 1998 and 1997, respectively. The Company's Australian subsidiary
paid income taxes of approximately $450,000 and $2,063,000 for the years ended
December 31, 1998 and 1997, respectively.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's foreign subsidiaries are translated
at the current exchange rates, while revenues and expenses are translated at
average rates prevailing during the year. The effects of exchange rate
fluctuations have been reported in other comprehensive income (loss). The effect
on the statements of income of transaction gains and losses is insignificant for
all years presented.
COMPREHENSIVE INCOME
Accumulated other comprehensive income (loss) consists entirely of foreign
currency translation adjustments for all years presented.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement 133, "Accounting for Derivative
Instruments and Hedging Activities" which is required to be adopted in years
beginning after June 15, 1999. Statement 133 requires all derivatives to be
recognized as either assets or liabilities in the balance sheet and be measured
at fair value. The Company is currently evaluating Statement 133 and because the
Company expects to have a minimal use of derivatives, management does not
anticipate that the adoption of the new Statement will have a material effect on
earnings or the financial position of the Company.
RECLASSIFICATIONS
Certain amounts from the prior year financial statements have been reclassified
to conform to current year presentation.
25
<PAGE> 26
Continental Global Group, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
D. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. The balances of the major
classes of property, plant and equipment at December 31, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
1998 1997
------------- --------------
<S> <C> <C>
Land and improvements $ 871,234 $ 600,245
Buildings and improvements 5,178,317 4,844,362
Machinery and equipment 17,765,662 14,085,801
------------- --------------
$ 23,815,213 $ 19,530,408
============= ==============
</TABLE>
Depreciation expense for the years ended December 31, 1998, 1997, and 1996, was
$2,729,062, $2,123,699, and $901,391, respectively. Depreciation is computed
using the straight-line method based on the expected useful lives of the assets.
The estimated useful lives for buildings and improvements range from 10 to 31.5
years; the estimated useful lives for machinery and equipment range from 2.5 to
12.5 years.
E. FINANCING ARRANGEMENTS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
As of December 31
-----------------------------
1998 1997
<S> <C> <C>
Series B Senior Notes, interest at 11% payable semi-annually in
arrears, due 2007 $120,000,000 $120,000,000
Promissory note payable to Joy Technologies, Inc. - 5,244,000
BCE Seller Notes, payable in monthly installments through 2001 with interest at
1% above beginning of year Australian Bank bill rate
(5.9% in 1998 and 7.0% in 1997) 2,101,474 3,200,610
Note payable by CCE Pty Ltd 91,233 188,667
Obligations under capital leases 1,128,860 1,236,967
------------ ------------
123,321,567 129,870,244
Less current maturities 1,095,106 1,181,715
============ ============
$122,226,461 $128,688,529
============ ============
</TABLE>
26
<PAGE> 27
Continental Global Group, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
E. FINANCING ARRANGEMENTS - CONTINUED
Maturities of long-term obligations are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 1,095,106
2000 1,074,721
2001 906,096
2002 185,350
2003 60,294
Thereafter 120,000,000
------------
$123,321,567
============
</TABLE>
On April 1, 1997, the Company issued $120 million of 11% Series A Notes due
2007. On September 3, 1997, the Company completed an exchange of all the Series
A Notes for 11% Series B Senior Notes due 2007 ("Series B Notes" or "Senior
Notes"). The terms of the Series B Notes are the same as the Series A Notes
except that the Series B Notes have been registered under the Securities Act of
1933. Interest on the notes is payable semi-annually in arrears. The Senior
Notes are redeemable at the option of the Company, in whole or in part, any time
on or after 2002 subject to certain call premiums. The Senior Notes are
guaranteed by the domestic subsidiaries of the Company and contain various
restrictive covenants that, among other things, place limitations on the sale of
assets, payment of dividends, and incurring additional indebtedness and restrict
transactions with affiliates. The proceeds of the Senior Notes were utilized as
follows:
<TABLE>
<CAPTION>
<S> <C>
Gross proceeds of Series A Notes $ 120,000,000
Dividend to stockholder (40,000,000)
Repayment of notes payable (18,876,684)
Repayment of term loan (16,459,711)
Repayment of subordinated notes (650,000)
Acquisition of Hewitt-Robins (12,894,890)
Fees (5,199,024)
-------------
Excess cash from proceeds $ 25,919,691
=============
</TABLE>
CCE, GCC and Bank One, Cleveland, NA are parties to a credit facility and
security agreement dated September 14, 1992, as amended, restated and
consolidated through December 31, 1998, ("Revolving Credit Facility") pursuant
to which Bank One has provided CCE and GCC jointly with a line of credit of $30
million. The availability under the Revolving Credit Facility is equal to the
sum of (i) 85% of eligible accounts receivable and (ii) 55% of eligible
inventory. The Revolving Credit Facility is guaranteed by the Company and
secured by a lien on substantially all of the assets of CCE and GCC. In
addition, the Revolving Credit Facility contains certain financial and other
covenants which, among other things, establish minimum debt coverage and net
working capital requirements. The Revolving Credit Facility will be fully
revolving until final maturity on March 28, 2000, and will bear interest at a
fluctuating rate based on the prime rate. At December 31, 1998, the Revolving
Credit Facility was unused.
27
<PAGE> 28
Continental Global Group, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
E. FINANCING ARRANGEMENTS - CONTINUED
The Company's Australian subsidiary has a revolving credit facility with the
National Australia Bank Limited which provides a line of credit of $7.2 million
(Australian dollars). The facility is secured by a lien on substantially all of
the assets of the BCE subsidiaries. The facility expires on November 30, 1999,
and bears interest at a fluctuating rate based on the base rate of the National
Australia Bank. At December 31, 1998, approximately $3.6 million (Australian
dollars) was available for use. The weighted average interest rate for this
facility was 8.5% and 9.25% in 1998 and 1997, respectively.
The Company's United Kingdom subsidiary has an overdraft facility with the
Midland Bank of 1.1 million British pounds sterling. The facility is secured by
certain assets of the Subsidiary and bears interest at a fluctuating rate of
2.5% above the Midland Bank base rate. At December 31, 1998, the facility was
fully utilized. The weighted average interest rate for this facility was 9% in
1998.
The Company's South African subsidiary has a credit facility with the Standard
Bank of South Africa of 1.5 million South African rand. The facility is secured
by certain assets of the subsidiary and bears interest at a fluctuating rate of
1% above the Standard Bank of South Africa's prime lending rate. At December 31,
1998, approximately 1.2 million rand was available for use. The weighted average
interest rate for this facility was 22% and 20% in 1998 and 1997, respectively.
During 1996, GCC negotiated an early extinguishment of the subordinated secured
promissory note that resulted in an extraordinary gain of $932,145. A new,
$500,000 subordinated secured promissory note was issued in full settlement of
previous obligations. This note was paid in full in 1997.
During 1998, 1997, and 1996, the Company paid interest of $12,456,957,
$8,153,452, and $2,844,422, respectively.
28
<PAGE> 29
Continental Global Group, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
F. LEASING ARRANGEMENTS
CCE has a capital lease for land and building with a lease term of ten years
which contains a purchase option exercisable at any time. In addition, CCE, GCC,
and the Company's foreign subsidiaries have numerous capital leases for certain
machinery and equipment. Amortization of these assets is included in
depreciation expense in the income statement. Capital lease obligations of
approximately $55,000 were incurred in 1998. The gross amount of assets recorded
under capital leases and the related accumulated amortization at December 31,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
Asset Balances:
Land $ 20,000 $ 20,000
Buildings 380,000 380,000
Machinery and Equipment 1,856,123 1,520,714
------------- ------------
$ 2,256,123 $ 1,920,714
============= ============
Accumulated Amortization:
Buildings $ 63,333 $ 51,270
Machinery and Equipment 766,080 456,168
------------- ------------
$ 829,413 $ 507,438
============= ============
</TABLE>
The subsidiaries of the Company also have various leases for office space,
warehouse facilities, office equipment, and automobiles and trucks which are
accounted for as operating leases. Rent expense related to these operating
leases for the years ended December 31, 1998, 1997, and 1996 was approximately
$2,401,000, $1,723,000, and $1,262,000, respectively. Future minimum lease
payments for obligations under capital leases and for operating leases having
initial or remaining noncancelable lease terms in excess of one year are as
follows:
<TABLE>
<CAPTION>
Capital Leases Operating
Leases
--------------- -----------
<S> <C> <C>
1999 $ 385,438 $ 713,210
2000 387,485 475,801
2001 314,870 404,887
2002 196,602 352,881
2003 64,325 218,840
--------------------------
Total minimum lease payments 1,348,720 $ 2,165,619
===========
Amounts representing interest (219,860)
--------------
Present value of net minimum lease payments
(including current portion of $294,078) $1,128,860
==============
</TABLE>
29
<PAGE> 30
Continental Global Group, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
G. EMPLOYEE BENEFIT PLANS
Effective December 31, 1998, the Company adopted FASB Statement No. 132,
"Employer's Disclosures about Pensions and Other Postretirement Benefits." The
disclosures required by SFAS No. 132 supersede previous disclosure requirements
without affecting measurement or recognition criteria. Accordingly, all
disclosures for prior periods shown below have been restated to conform to the
disclosure requirements of SFAS No. 132.
CCE maintains a defined benefit plan covering all union hourly-paid employees at
its Winfield plant. The contributions of CCE are made in amounts sufficient to
fund the plan's service cost on a current basis and meet the minimum funding
requirements of the Employee Retirement Income Security Act of 1974, as amended.
Actuarial gains and losses are amortized over a 15 year period, and funding of
the initial prior service costs plus interest thereon is over a 30 year period.
The actuarial computations use the "projected unit credit cost method," which
assumed a weighted-average discount rate on benefit obligations of 6% and 8.0%
in 1998 and 1997, respectively, and a weighted-average expected long-term rate
of return on plan assets of 7% and 8.0% in 1998 and 1997, respectively.
The following table sets forth the change in benefit obligation, change in plan
assets, funded status and amounts recognized in the Consolidated Balance Sheets
as of December 31, 1998 and 1997, of the Company's defined benefit plan.
<TABLE>
<CAPTION>
1998 1997
---------------------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 3,221,103 $ 3,037,552
Service cost 169,558 83,739
Interest cost 193,266 243,004
Actuarial loss 1,690,487 0
Benefits paid (162,170) (143,192)
---------------------------------
Benefit obligation at end of year 5,112,244 3,221,103
---------------------------------
Change in plan assets:
Fair value of plan assets at beginning of year 3,960,135 3,470,702
Actual return on plan assets 1,191,761 632,625
Company contributions 270,926 0
Benefits paid (162,170) (143,192)
---------------------------------
Fair value of plan assets at end of year 5,260,652 3,960,135
---------------------------------
Funded status:
Plan assets in excess of projected benefit obligation 148,408 739,032
Unrecognized prior service cost 571,159 58,632
Unrecognized net actuarial gain (763,642) (911,110)
Unrecognized transition asset (8,118) (10,824)
---------------------------------
Accrued benefit cost $ (52,193) $ (124,270)
=================================
</TABLE>
30
<PAGE> 31
Continental Global Group, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
G. EMPLOYEE BENEFIT PLANS - CONTINUED
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------------
<S> <C> <C> <C>
Components of net periodic benefit cost:
Service cost $ 169,558 $ 83,739 $ 87,021
Interest cost 193,266 243,004 221,332
Expected return on plan assets (1,191,761) (632,625) (401,594)
Amortization of prior service cost 90,363 117,264 117,264
Amortization of transition asset (2,706) (2,706) (2,706)
Recognized gain 940,129 346,100 153,144
----------------------------------------------------
Net periodic benefit cost $ 198,849 $ 154,776 $ 174,461
====================================================
</TABLE>
CCE also maintains a defined contribution plan covering substantially all
salaried and non-union hourly employees. CCE makes annual contributions
($564,296, $451,911, and $400,000 in 1998, 1997 and 1996, respectively) which
fully fund retirement benefits. No participant contributions to the plan are
permitted. CCE also maintains a defined contribution savings and profit sharing
plan which covers substantially all salaried and non-union hourly employees.
Employees may elect to contribute up to 16% of their compensation. CCE will
match ($324,075, $301,734, and $266,437 in 1998, 1997 and 1996, respectively) a
percentage of employee contributions up to 6% of each employee's compensation.
GCC has a retirement savings plan covering all employees meeting certain
eligibility requirements. Under the terms of the plan, GCC voluntarily makes
annual cash contributions based on eligible employees' compensation. Expense for
the years ended December 31, 1998, 1997 and 1996 was $196,761, $164,130, and
$158,407, respectively, which was equal to 3% of eligible employees
compensation.
H. RELATED PARTY TRANSACTIONS
Management fees are charged by Nesco, Inc., an affiliate of NES Group, Inc., to
provide general management oversight services, including legal, financial,
strategic planning and business development evaluation for the benefit of the
Company. Effective April 1, 1997, the Company and Nesco, Inc. entered into a new
management agreement under which the Company has agreed to pay Nesco, Inc. fees
for such services equal to 5% of the Company's earnings before interest and
estimated taxes, depreciation, amortization and other expense (income). Prior to
April 1, 1997, the amount of management fees paid was based on a percentage of
sales. The Company incurred management fee expenses of approximately $933,000,
$1,668,000, and $3,187,000 for the years ended December 31, 1998, 1997, and
1996, respectively.
The subsidiaries of the Company have entered into a tax payment agreement with
NES Group, Inc. providing for monthly payments by each subsidiary to NES Group,
Inc. to fund the income tax liability attributable to the Company's operations.
The Company incurred charges to stockholder's equity for income taxes of
approximately $1,922,000, $3,295,000, and $4,122,000 for the years ended
December 31, 1998, 1997, and 1996, respectively. At December 31, 1998, the
Company had an accrual for income tax payments owed to NES Group, Inc. of
approximately $1,176,000.
31
<PAGE> 32
Continental Global Group, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
I. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF RISK
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance sheet for
cash and cash equivalents approximates its fair value.
Accounts receivable and accounts payable: The carrying amounts reported in the
balance sheet for accounts receivable and accounts payable approximate their
fair value.
Notes payable and long-term debt: The carrying amounts of the Company's
borrowings under its short-term revolving credit arrangements and variable rate
long-term debt approximate their fair value. The fair value of the Company's
fixed rate long-term debt is based on the quoted market value.
The carrying amounts and fair values of the Company's financial instruments at
December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
---------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 26,351 $ 26,351 $ 30,883 $ 30,883
Accounts receivable 44,424 44,424 30,459 30,459
Accounts payable (40,523) (40,523) (18,874) (18,874)
Notes payable (2,662) (2,662) (456) (456)
Long-term debt 122,193 105,393 128,633 128,633
</TABLE>
Accounts receivable from customers in the coal mining industry were
approximately 72% and 56% at December 31, 1998 and 1997, respectively. The
Company's subsidiaries perform periodic credit evaluations of their customers'
financial condition and generally do not require collateral. Credit losses
relating to customers in the coal mining industry have consistently been within
management's expectations and are comparable to losses for the portfolio as a
whole.
Provisions for credit losses were approximately $586,000 in 1998, $168,000 in
1997, and $136,000 in 1996. Accounts written off, net of recoveries, were
approximately $53,000 in 1998, $437,000 in 1997, and $21,000 in 1996.
32
<PAGE> 33
Continental Global Group, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
J. SEGMENT INFORMATION
Effective January 1, 1998, the Company adopted FASB Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 establishes standards for the way public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. Statement 131 also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The adoption of Statement 131 did not affect results of operations or financial
position, but did affect the disclosure of segment information.
While the Company primarily manages its operations on a geographical basis, the
Company operates in two principal business segments: conveyor equipment and
mobile home products. The conveyor equipment business, which comprised
approximately 84.9%, 83.4%, and 74.0% of net sales for 1998, 1997, and 1996,
respectively, markets its products in four main business areas. The mining
equipment business area includes the design, manufacture and testing (and,
outside the United States, installation, monitoring and maintenance) of complete
belt conveyor systems and components for mining application primarily in the
coal industry. The conveyor components business area manufactures and sells
components for conveyor systems primarily for resale through distributor
networks. The engineered systems business area uses specialized project
management and engineering skills to combine mining equipment products,
purchased equipment, steel fabrication and other outside services for sale as
complete conveyor equipment systems that meet specific customer requirements.
The bulk conveyor equipment business area designs and manufactures a complete
range of conveyor equipment sold to transport bulk materials, such as cement,
lime, food products and industrial waste.
The Company's mobile home products business manufactures and/or refurbishes axle
components sold directly to mobile home manufacturers. As part of this segment
the Company also sells mounted tires and rims to the mobile home industry.
Included in the other category is primarily the manufacture and sale of air
filtration equipment for use in enclosed environments, principally in the
textile industry. The manufacturing requirements for these products are
generally compatible with conveyor equipment production and thus maximize
utilization of the Company's manufacturing facilities for its primary products.
The Company evaluates performance and allocates resources based on operating
income before restructuring charges and allocation of management fee,
amortization and corporate expenses. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies under Note C. The Company's reportable segments are business
units that offer different products and services. The reportable segments are
each managed separately because they manufacture and distribute distinct
products.
33
<PAGE> 34
Continental Global Group, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
J. SEGMENT INFORMATION - CONTINUED
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
----------------------------------------------
(in thousands)
<S> <C> <C> <C>
Net sales:
Conveyor equipment $ 213,969 $ 178,037 $ 106,236
Mobile home products 35,204 33,021 34,687
Other 2,899 2,459 2,601
----------------------------------------------
Total net sales $ 252,072 $ 213,517 $ 143,524
==============================================
Depreciation and amortization:
Conveyor equipment $ 3,151 $ 2,498 $ 825
Mobile home products 181 191 177
Other 12 11 10
Corporate amortization 49 8 -
----------------------------------------------
Total depreciation and amortization $ 3,393 $ 2,708 $ 1,012
==============================================
Segment operating income:
Conveyor equipment $ 16,425 $ 21,423 $ 13,298
Mobile home products 943 1,017 1,780
Other 253 179 256
----------------------------------------------
Segment operating income 17,621 22,619 15,334
Restructuring charge 1,127 - -
Management fee 933 1,669 3,186
Amortization expense 663 584 111
Corporate expense 567 353 -
----------------------------------------------
Total operating income 14,331 20,013 12,037
Interest expense 14,658 12,308 2,889
Interest income (1,568) (925) -
Miscellaneous, net (61) 449 208
----------------------------------------------
Income before income taxes $ 1,302 $ 8,181 $ 8,940
==============================================
Segment assets:
Conveyor equipment $ 113,542 $ 90,045 $ 40,035
Mobile home products 6,840 5,656 5,579
Other 887 863 881
----------------------------------------------
Total segment assets 121,269 96,564 46,495
Corporate assets 24,488 33,161 -
----------------------------------------------
Total assets $ 145,757 $ 129,725 $ 46,495
==============================================
Capital expenditures:
Conveyor equipment $ 2,520 $ 3,425 $ 598
Mobile home products 140 206 51
Other 9 7 4
----------------------------------------------
Total capital expenditures $ 2,669 $ 3,638 $ 653
==============================================
</TABLE>
34
<PAGE> 35
Continental Global Group, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
J. SEGMENT INFORMATION - CONTINUED
GEOGRAPHIC AREA DATA
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
----------------------------------------------
(in thousands)
<S> <C> <C> <C>
Net sales:
United States $ 168,933 $ 168,241 $ 140,224
Australia 61,097 41,567 4,022
United Kingdom 18,802 4,689 -
Other countries 4,045 616 -
Eliminations - transfers (805) (1,596) (722)
----------------------------------------------
Total net sales $ 252,072 $ 213,517 $ 143,524
==============================================
Operating income:
United States $ 16,384 $ 18,118 $ 12,569
Australia (941) 1,538 (532)
United Kingdom (537) 386 -
Other countries (575) (29) -
----------------------------------------------
Total operating income $ 14,331 $ 20,013 $ 12,037
==============================================
Long lived assets:
United States $ 6,109 $ 6,028 $ 4,732
Australia 5,909 6,257 168
United Kingdom 3,422 833 -
Other countries 326 123 -
----------------------------------------------
Total long lived assets $ 15,766 $ 13,241 $ 4,900
==============================================
</TABLE>
Net sales are attributed to countries based on the location of the subsidiary
where the sale occurs.
In 1998, sales to the Company's two largest customers were approximately $32.7
million, or 13.0%, and $30.8 million, or 12.2%, of the Company's total net
sales. In 1997, sales to the Company's largest customer were approximately $27.9
million, or 13.1%, of the Company's total net sales. In 1996, sales to the
Company's two largest customers were approximately $23.8 million, or 16.6%, and
$15.3 million, or 10.7%, of the Company's total net sales. Sales to these
customers are reported in the net sales for the Conveyor Equipment business
segment.
35
<PAGE> 36
Continental Global Group, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
K. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
The Company's domestic subsidiaries, CCE and GCC, both of which are wholly
owned, are the only guarantors of the Series B Senior Notes. The guarantees are
full, unconditional and joint and several. Separate financial statements of
these guarantor subsidiaries are not presented as management has determined that
they would not be material to investors.
The Company's foreign subsidiaries are not guarantors of the Series B Senior
Notes. Summarized consolidating financial information for 1998 and 1997 for the
Company, the guarantor subsidiaries, and the non-guarantor, foreign subsidiaries
is as follows (in thousands):
<TABLE>
<CAPTION>
Combined Combined
Guarantor Non-Guarantor
The Company Subsidiaries Subsidiaries Eliminations Total
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1998:
Current assets:
Cash and cash equivalents $ 19,969 $ 684 $ 5,698 $ - $ 26,351
Accounts receivable, net 292 20,556 25,593 (2,017) 44,424
Inventories - 24,869 7,381 - 32,250
Other current assets 38 1,782 4,682 (4,229) 2,273
--------------------------------------------------------------------------
Total current assets 20,299 47,891 43,354 (6,246) 105,298
Property, plant, and
equipment, net - 6,109 9,657 - 15,766
Goodwill - 11,921 7,749 - 19,670
Investment in subsidiaries 58,709 11,892 2,697 (73,298) -
Deferred financing costs 4,289 - - - 4,289
Other assets 192 12,895 476 (12,829) 734
--------------------------------------------------------------------------
Total assets $ 83,489 $ 90,708 $ 63,933 $ (92,373) $ 145,757
==========================================================================
Current liabilities:
Notes payable $ - $ 307 $ 2,662 $ (307) $ 2,662
Trade accounts payable 409 13,079 30,971 (3,936) 40,523
Accrued compensation and
employee benefits - 4,128 1,214 - 5,342
Accrued interest 3,300 - - - 3,300
Other accrued liabilities 171 4,675 3,297 (28) 8,115
Current maturities of
long-term obligations - 147 948 - 1,095
--------------------------------------------------------------------------
Total current liabilities 3,880 22,336 39,092 (4,271) 61,037
Series B Senior Notes 120,000 - - - 120,000
Other long-term obligations - 194 14,062 (12,030) 2,226
Stockholder's equity
(deficit) (40,391) 68,178 10,779 (76,072) (37,506)
--------------------------------------------------------------------------
Total liabilities and
stockholder's equity
(deficit) $ 83,489 $ 90,708 $ 63,933 $ (92,373) $ 145,757
==========================================================================
</TABLE>
36
<PAGE> 37
Continental Global Group, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
K. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES - CONTINUED
<TABLE>
<CAPTION>
Combined Combined
Guarantor Non-Guarantor
The Company Subsidiaries Subsidiaries Eliminations Total
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1997:
Current assets:
Cash and cash equivalents $ 28,073 $ 2,322 $ 488 $ - $ 30,883
Accounts receivable, net - 19,299 11,731 (571) 30,459
Inventories - 23,625 3,948 - 27,573
Other current assets 47 633 1,671 (1,153) 1,198
----------------------------------------------------------------------------
Total current assets 28,120 45,879 17,838 (1,724) 90,113
Property, plant, and
equipment, net - 6,028 7,213 - 13,241
Goodwill - 12,289 8,424 - 20,713
Investment in subsidiaries 49,958 7,903 - (57,861) -
Deferred financing costs 4,809 - - - 4,809
Other assets 232 11,591 504 (11,478) 849
---------------------------------------------------------------------------
Total assets $ 83,119 $ 83,690 $ 33,979 $ (71,063) $ 129,725
===========================================================================
Current liabilities:
Notes payable $ - $ - $ 456 $ - $ 456
Trade accounts payable - 12,731 8,221 (2,078) 18,874
Accrued compensation and
employee benefits - 4,397 1,275 - 5,672
Accrued interest 3,300 - - - 3,300
Other accrued liabilities 415 3,631 3,479 - 7,525
Current maturities of
long-term obligations - 185 997 - 1,182
----------------------------------------------------------------------------
Total current liabilities 3,715 20,944 14,428 (2,078) 37,009
Series B Senior Notes 120,000 - - - 120,000
Other long-term obligations - 5,586 11,922 (8,819) 8,689
Stockholder's equity
(deficit) (40,596) 57,160 7,629 (60,166) (35,973)
---------------------------------------------------------------------------
Total liabilities and
stockholder's equity
(deficit) $ 83,119 $ 83,690 $ 33,979 $ (71,063) $ 129,725
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
Combined Combined
Guarantor Non-Guarantor
The Company Subsidiaries Subsidiaries Eliminations Total
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Net sales $ - $ 168,933 $ 83,944 $ (805) $ 252,072
Cost of products sold - 135,291 74,877 (805) 209,363
----------------------------------------------------------------------
Gross profit - 33,642 9,067 - 42,709
Total operating expenses 616 16,642 11,120 - 28,378
----------------------------------------------------------------------
Operating income (loss) (616) 17,000 (2,053) - 14,331
Interest expense 13,776 (226) 1,108 - 14,658
Interest income (1,568) - - - (1,568)
Miscellaneous, net - 7 (68) - (61)
----------------------------------------------------------------------
Income (loss) before foreign income
taxes (12,824) 17,219 (3,093) - 1,302
Foreign income taxes - - 127 - 127
----------------------------------------------------------------------
Net income (loss) $ (12,824) $ 17,219 $ (3,220) $ - $ 1,175
======================================================================
</TABLE>
37
<PAGE> 38
Continental Global Group, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
K. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES - CONTINUED
<TABLE>
<CAPTION>
Combined Combined
Guarantor Non-Guarantor
The Company Subsidiaries Subsidiaries Eliminations Total
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Net sales $ - $ 168,241 $ 46,872 $ (1,596) $ 213,517
Cost of products sold - 133,266 38,735 (1,596) 170,405
----------------------------------------------------------------------
Gross profit - 34,975 8,137 - 43,112
Total operating expenses 353 16,504 6,242 - 23,099
----------------------------------------------------------------------
Operating income (loss) (353) 18,471 1,895 - 20,013
Interest expense 10,328 810 1,170 - 12,308
Interest income (925) - - - (925)
Miscellaneous, net - 357 92 - 449
----------------------------------------------------------------------
Income (loss) before foreign income
taxes (9,756) 17,304 633 - 8,181
Foreign income taxes - - 343 - 343
======================================================================
Net income (loss) $ (9,756) $ 17,304 $ 290 $ - $ 7,838
======================================================================
</TABLE>
<TABLE>
<CAPTION>
Combined Combined
Guarantor Non-Guarantor
The Company Subsidiaries Subsidiaries Eliminations Total
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Net cash (used in) provided by
operating activities $ (12,553) $ 15,215 $ 5,653 $ 356 $ 8,671
Investing activities:
Purchase of property, plant and
equipment (net) - (1,199) (1,770) - (2,969)
Purchase of Huwood - - (4,966) - (4,966)
Investment in subsidiaries (8,751) 5,061 3,690 - -
-------------------------------------------------------------------
Net cash (used in) provided by
investing activities (8,751) 3,862 (3,046) - (7,935)
Financing activities:
Net increase in borrowings on
notes payable - 307 2,254 (307) 2,254
Principal payments on long-term
obligations - (5,429) (960) - (6,389)
Distributions for income taxes - (746) - - (746)
Distributions for interest on
senior notes 13,200 (13,200) - - -
Intercompany loan activity - (1,647) 1,647 - -
-------------------------------------------------------------------
Net cash provided by (used in)
financing activities 13,200 (20,715) 2,941 (307) (4,881)
Exchange rate changes on cash - - (338) (49) (387)
-------------------------------------------------------------------
(Decrease) increase in cash and cash
equivalents (8,104) (1,638) 5,210 - (4,532)
Cash and cash equivalents at
beginning of year 28,073 2,322 488 - 30,883
===================================================================
Cash and cash equivalents at end of
year $ 19,969 $ 684 $ 5,698 $ - $ 26,351
===================================================================
</TABLE>
38
<PAGE> 39
Continental Global Group, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
K. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES - CONTINUED
<TABLE>
<CAPTION>
Combined Combined
Guarantor Non-Guarantor
The Company Subsidiaries Subsidiaries Eliminations Total
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Net cash (used in) provided by
operating activities $ (5,930) $ 17,528 $ (1,445) $ - $ 10,153
Investing activities:
Purchases of property, plant, and
equipment (net) - (1,388) (2,018) - (3,406)
Purchase of BCE, net of notes to
seller - (7,189) - - (7,189)
Purchase of Hewitt-Robins - (12,895) - - (12,895)
Purchase of Tufkon - (698) - - (698)
Purchase of MECO - (175) 1,683 - 1,508
Investment in subsidiaries (49,958) 44,423 5,535 - -
-------------------------------------------------------------------
Net cash (used in) provided by
investing activities (49,958) 22,078 5,200 - (22,680)
Financing activities:
Proceeds from issuance of senior
notes 120,000 - - - 120,000
Deferred financing costs (5,199) - - - (5,199)
Net decrease in borrowings on
notes payable - (12,395) (465) - (12,860)
Proceeds from long-term obligations - 4,547 286 - 4,833
Principal payments on long-term
obligations - (18,001) (802) - (18,803)
Distributions for income taxes - (3,295) - - (3,295)
Distributions for interest on
senior notes 9,160 (9,160) - - -
Payment to former shareholders of - - (2,927) - (2,927)
BCE
Dividends paid (40,000) - - - (40,000)
-------------------------------------------------------------------
Net cash provided by (used in)
financing activities 83,961 (38,304) (3,908) - 41,749
Exchange rate changes on cash - - 639 - 639
-------------------------------------------------------------------
Increase in cash and cash equivalents 28,073 1,302 486 - 29,861
Cash and cash equivalents at
beginning of year - 1,020 2 - 1,022
-------------------------------------------------------------------
Cash and cash equivalents at end of
year $ 28,073 $ 2,322 $ 488 $ - $ 30,883
===================================================================
</TABLE>
L. CONTINGENCIES
The Company is not a party to any pending legal proceeding which it believes
could have a material adverse effect upon its results of operations or financial
condition, or to any other pending legal proceedings other than ordinary,
routine litigation incidental to its business.
39
<PAGE> 40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the directors and
executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Position with the Company
<S> <C> <C>
C. Edward Bryant, Jr. 64 President and Chief Executive Officer
Jimmy L. Dickinson 56 Vice President and Chief Financial Officer
Jerry R. McGaha 60 Senior Vice President of Sales and Engineering
Edward F. Crawford 59 Director
Donald F. Hastings 70 Director
Joseph L. Mandia 57 Director
Robert J. Tomsich 68 Director
John R. Tomsich 32 Director
James W. Wert 52 Director
</TABLE>
Set forth below is a brief description of the business experience of each
director and executive officer of the Company.
Mr. Bryant has served as President and Chief Executive Officer of the Company
since its inception. Mr. Bryant has also served as President and Chief Executive
Officer of Continental Conveyor & Equipment Company since 1982 and as Chairman
of the Board of Directors of CCE Pty. Ltd. since 1996.
Mr. Dickinson has served as Vice President and Chief Financial Officer of the
Company since its inception. Mr. Dickinson has also served as Vice President of
Finance of Continental Conveyor & Equipment Company since 1973 and as a
Director of CCE Pty. Ltd. since 1996.
Mr. McGaha has served as Senior Vice President of Sales and Engineering of the
Company since its inception. Mr. McGaha has also served as Senior Vice President
of Sales and Engineering of Continental Conveyor & Equipment Company since 1996
and as Director of CCE Pty. Ltd. since 1996. In addition to the foregoing, Mr.
McGaha was Vice President of Sales and Engineering of Continental Conveyor &
Equipment Company from 1990 to 1996.
Mr. Crawford has served as a Director of the Company since its inception. In
addition to his service with the Company, Mr. Crawford has served as Chairman
and Chief Executive Officer and a Director of Park-Ohio Industries, Inc. since
1992.
Mr. Hastings has served as a Director of the Company since its inception. In
addition to his service with the Company, Mr. Hastings served as Chairman and
Chief Executive Officer and as Director of Lincoln Electric Company from 1992 to
1997.
Mr. Mandia has served as a Director of the Company since its inception. Mr.
Mandia has also served as Group Vice President of Nesco, Inc. since 1988.
40
<PAGE> 41
Mr. Robert Tomsich has served as a Director of the Company since its inception.
In addition, Mr. Robert Tomsich has served as President and Director of Nesco,
Inc. (including predecessors of Nesco, Inc.) since 1956. Mr. Robert Tomsich is
the father of Mr. John Tomsich.
Mr. John Tomsich has served as a Director of the Company since its inception. In
addition, Mr. John Tomsich has served as Vice President of Nesco, Inc. since
1995 and in various other management positions with Nesco, Inc. since 1990. Mr.
John Tomsich is the son of Mr. Robert Tomsich.
Mr. Wert has served as a Director of the Company since its inception. Prior to
his service with the Company, Mr. Wert held a variety of executive management
positions with KeyCorp, a financial services company based in Cleveland, Ohio,
and KeyCorp's predecessor, Society Corporation. Mr. Wert served as Senior
Executive Vice President and Chief Investment Officer of KeyCorp from 1995 to
1996. Prior to that time, he served as Senior Executive Vice President and Chief
Financial Officer of KeyCorp for two years and Vice Chairman, Director and Chief
Financial Officer of Society Corporation for four years. Since 1993, Mr. Wert
has served as an outside Director, and currently serves as Chairman of the
Executive and Compensation Committees of the Board of Directors, of Park-Ohio
Industries, Inc.
41
<PAGE> 42
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation of
the Company's Chief Executive Officer and other most highly compensated officers
of the Company having total annual salary and bonus in excess of $100,000.
<TABLE>
<CAPTION>
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (1)
<S> <C> <C> <C> <C>
C. Edward Bryant, Jr., 1998 $ 200,004 $ 84,513 $ 15,488
President and Chief 1997 187,344 66,119 15,446
Executive Officer 1996 145,008 59,900 6,512
Jerry R. McGaha, 1998 122,400 31,335 14,514
Senior Vice President of 1997 116,600 26,983 12,877
Sales and Engineering 1996 107,700 25,027 5,583
Jimmy L. Dickinson 1998 133,893 52,205 10,509
Vice President and Chief 1997 125,277 27,436 10,369
Financial Officer 1996 109,680 25,514 5,269
</TABLE>
(1) Amounts shown reflect contributions made by the Company on behalf of the
named executives under the Continental Conveyor & Equipment Company Savings
and Profit Sharing Plan and the Continental Conveyor & Equipment Retirement
Plan for Salaried and Hourly (Non-Union) Employees at Salyersville,
Kentucky. No amounts shown were received by any of the named executives.
DIRECTOR COMPENSATION
Each director of the Company not employed by the Company or any entity
affiliated with the Company is entitled to receive $25,000 per year for serving
as a director of the Company. In addition, the Company will reimburse such
director for their travel and other expenses incurred in connection with
attending meetings of the Board of Directors.
42
<PAGE> 43
PART III
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the outstanding
equity securities of the Company as of March 15, 1999:
<TABLE>
<CAPTION>
<S> <C> <C>
Number of Shares Title of Class Name and Address of Beneficial Owner
100 Common Stock, no par value NES Group, Inc.
6140 Parkland Boulevard
Mayfield Heights, OH 44124
</TABLE>
All of the Company's issued and outstanding capital stock is owned by NES Group,
Inc. which is 100 percent beneficially owned by Mr. Robert J. Tomsich. Mr.
Tomsich may be deemed to be the beneficial owner of the Company's capital stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
COMPANY FORMATION AND PROCEEDS FROM THE OFFERING
The Company is a Delaware corporation formed on February 4, 1997, for the
purpose of serving as a holding company for the operations conducted by
Continental (including the BCE Subsidiaries) and Goodman. All of the capital
stock of the Company has been issued to NES Group, Inc., which in turn,
transferred to the Company all of the outstanding capital stock of Continental
and Goodman. As a result, the Company is a wholly owned subsidiary of NES Group,
Inc., and each of Continental and Goodman is a wholly owned subsidiary of the
Company.
TAX PAYMENT AGREEMENT
The Company, Continental, and Goodman (each, a "Subsidiary") have entered into a
tax payment agreement with NES Group, Inc. ("Tax Payment Agreement") providing
for monthly payments by each Subsidiary to NES Group, Inc. in an amount equal to
the greater of (i) the total federal, state, local, and, under certain
circumstances, foreign income tax liability attributable to such Subsidiary's
operations for the monthly period, determined on an annualized basis, and
(ii)one-twelfth the total federal, state, local, and, under certain
circumstances, foreign income tax liability attributable to such Subsidiary's
operations for the year. The tax rates applied to such income are to be based on
the maximum individual federal, state, local, and foreign income tax rates
imposed by Section 1 of the Internal Revenue Code of 1986, as amended, and by
the equivalent provisions of state, local, and foreign income tax laws. These
tax payments will not recognize any future carry-forward or carry-back tax
benefits to the Company, Continental, or Goodman. Future direct and indirect
Subsidiaries of the Company shall also become parties to the Tax Payment
Agreement.
43
<PAGE> 44
MANAGEMENT AGREEMENT
Effective April 1, 1997, the Company and Nesco, Inc. entered into a management
agreement ("Management Agreement"), the material terms of which are summarized
below. All of the outstanding capital stock of Nesco, Inc. is beneficially owned
by Robert J. Tomsich. Under the Management Agreement, Nesco, Inc., has agreed to
provide general management oversight services on a regular basis for the benefit
of the Company, in regard to business activities involving financial results,
legal issues, and long term planning relative to current operations and
acquisitions. Business development services include assistance in identifying
and acquiring potential acquisition candidates, including negotiations and
contractual preparations in connection therewith. Financial planning includes
assistance in developing banking relationships and monitoring cash investments
through professional money management accounts. Under the terms of the
Management Agreement, the Company has agreed to pay Nesco, Inc. a management fee
for such services equal to 5% of the Company's earnings before interest and
estimated taxes, depreciation, amortization, and other expense (income). The
aggregate amount expensed for management fees in 1998 under the Management
Agreement was $932,820. The management fee is payable in monthly installments.
The Management Agreement will remain in effect until terminated by either party
upon not less than 60 days written notice prior to an anniversary date of the
Management Agreement.
The Company will also separately employ, as required, independent auditors,
outside legal counsel, and other consulting services. Such services will be paid
directly by the Company.
44
<PAGE> 45
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents Filed as Part of this Report:
1. Consolidated Financial Statements.
The consolidated financial statements listed below together
with the report thereon of the independent auditors dated
March 19, 1999, are included in Item 8.
Report of Independent Auditors.
Consolidated Balance Sheets at December 31, 1998 and 1997.
Consolidated Statements of Income for each of the three
years in the period ended December 31, 1998.
Consolidated Statements of Stockholder's Equity (Deficit)
for each of the three years in the period ended December 31,
1998.
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1998.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules
Schedules have been omitted because they are not applicable
or the required information is shown in the Consolidated
Financial Statements or the Notes to the Consolidated
Financial Statements.
3. Exhibits Required to be Filed by Item 601 of Regulation S-K.
The information required by this paragraph is contained in
the Index of Exhibits to this report.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of
the period covered by this report.
45
<PAGE> 46
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized on the 29th day of March, 1999.
CONTINENTAL GLOBAL GROUP, INC.
By: /s/ C. Edward Bryant, Jr.
-----------------------------------------
Name: C. Edward Bryant, Jr.
Title: President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ C. Edward Bryant, Jr. President and Chief Executive Officer March 29, 1999
- ---------------------------------------- (Principal Executive Officer)
C. Edward Bryant, Jr.
/s/ Jimmy L. Dickinson Vice President and Chief Financial Officer March 29, 1999
- ---------------------------------------- (Principal Financial Officer and Principal
Jimmy L. Dickinson Accounting Officer)
/s/ Edward F. Crawford Director March 29, 1999
- ----------------------------------------
Edward F. Crawford
/s/ Donald F. Hastings Director March 29, 1999
- ----------------------------------------
Donald F. Hastings
/s/ Joseph L. Mandia Director March 29, 1999
- ----------------------------------------
Joseph L. Mandia
/s/ John R. Tomsich Director March 29, 1999
- ----------------------------------------
John R. Tomsich
/s/ Robert J. Tomsich Director March 29, 1999
- ----------------------------------------
Robert J. Tomsich
/s/ James W. Wert Director March 29, 1999
- ----------------------------------------
James W. Wert
</TABLE>
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.
No annual report to security holders covering the registrant's last fiscal year
and no proxy statement, form of proxy, or other proxy soliciting material with
respect to any annual or other meeting of security holders has been or will be
sent to security holders.
46
<PAGE> 47
Continental Global Group, Inc.
Form 10-K
Index of Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
<S> <C> <C>
3.1 Certificate of Incorporation of Continental Global Group, Inc., as *
currently in effect
3.2 By-Laws of Continental Global Group, Inc., as currently in effect *
3.3 Certificate of Incorporation of Continental Conveyor & Equipment *
Company, as currently in effect
3.4 By-Laws of Continental Conveyor & Equipment Company, as currently in *
effect
3.5 Certificate of Incorporation of Goodman Conveyor Company, as currently *
in effect
3.6 By-Laws of Goodman Conveyor Company, as currently in effect *
4.1 Indenture, dated as of April 1, 1997, among Continental Global Group, *
Inc., Continental Conveyor & Equipment Company, Goodman Conveyor
Company, and the Trustee (containing, as exhibits, specimens of the
Series A Notes and the Series B Notes)
10.1 Revolving Credit Facility, dated as of September 14, 1992, as amended *
by Amendments I, II, III and IV, among Continental Conveyor & Equipment
Company, Goodman Conveyor Company, and Bank One, Cleveland, NA
10.2 Share Sale Agreement dated as of November 8, 1996, as amended by First *
and Second Supplementary Deeds, among Continental Pty. Ltd. and various
Australian sellers, relating to the BCE acquisition
10.3 Asset Purchase Agreement, dated as of March 3, 1997, among Continental *
Conveyor & Equipment Company, Process Technology Holdings, Inc., and
W.S. Tyler Incorporated, relating to the Hewitt-Robins acquisition
10.4 Management Agreement, dated as of April 1, 1997, between Continental *
Global Group, Inc. and Nesco, Inc.
10.5 Tax Payment Agreement, dated as of April 1, 1997, among Continental *
Global Group, Inc., Continental Conveyor & Equipment Company, Goodman
Conveyor Company, and NES Group, Inc.
10.6 World Wide Purchase and Sale Agreement dated as of October 17, 1997, by **
and among Continental Conveyor International Inc., Joy Technologies,
Inc., and certain affiliates of Joy Technologies Inc. (The "Purchase
Agreement"). (All exhibits to the Purchase Agreement have been omitted,
and Registrant will furnish supplementally to the Commission, upon
request, a copy of any omitted exhibit.)
12 Statement regarding computation of ratio of earnings to fixed charges
21 Subsidiaries of registrant
27 Financial Data Schedule (filed electronically only)
</TABLE>
* Incorporated by reference from Form S-4 Registration Number 333-27665
filed under the Securities Act of 1933.
** Incorporated by reference from Form 8-K filed November 3, 1997, under
the Securities Exchange Act of 1934.
47
<PAGE> 1
Exhibit 12
Continental Global Group, Inc.
Computation of Ratio of Earnings to Fixed Charges
(In thousands, except for ratios)
<TABLE>
<CAPTION>
Years ended December 31
-----------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Computation of Earnings:
Income before extraordinary item and foreign
income taxes $ 1,302 $ 8,181 $ 8,940 $ 11,785 $ 3,616
Add:
Interest expense 14,658 (1) 12,308 (2) 2,889 2,506 1,493
Amortization of deferred financing costs - - 27 16 8
Portion of rent expense representative of
an interest factor 800 523 407 455 310
-----------------------------------------------------------------
Earnings $ 16,760 $ 21,012 $ 12,263 $ 14,762 $ 5,427
=================================================================
Computation of Fixed Charges:
Interest expense $ 14,658 $ 12,308 $ 2,889 $ 2,506 $ 1,493
Amortization of deferred financing costs - - 27 16 8
Portion of rent expense representative of
an interest factor 800 523 407 455 310
-----------------------------------------------------------------
Fixed Charges $ 15,458 $ 12,831 $ 3,323 $ 2,977 $ 1,811
=================================================================
Ratio of Earnings to Fixed Charges 1.08 1.64 3.69 4.96 3.00
=================================================================
</TABLE>
(1) Amortization of deferred financing costs of $520 is included in 1998
interest expense.
(2) Amortization of deferred financing costs of $390 is included in 1997
interest expense.
<PAGE> 1
Exhibit 21
Continental Global Group, Inc.
Subsidiaries of the Registrant at March 15, 1999
<TABLE>
<CAPTION>
Jurisdiction of Incorporation
Subsidiaries (1) or Organization Parent Company
<S> <C> <C>
Continental Conveyor & Equipment Delaware Continental Global Group, Inc.
Company
Continental Conveyor & Equipment Pty. Australia Continental Conveyor & Equipment
Ltd. Company
BCE Holdings Pty. Ltd. Australia Continental Conveyor & Equipment Pty.
Ltd.
Continental ACE Pty. Ltd. Australia BCE Holdings Pty. Ltd.
Continental ACE Services Pty. Ltd. Australia BCE Holdings Pty. Ltd.
Continental ACE Conveyor Components Australia BCE Holdings Pty. Ltd.
Pty. Ltd.
A. Crane Pty. Ltd. Australia BCE Holdings Pty. Ltd.
Continental Control Systems Pty. Ltd. Australia BCE Holdings Pty. Ltd. - 60%
Continental Conveyor & Equipment Pty.
Ltd. - 40%
Continental Conveyor International Inc. Delaware Continental Conveyor & Equipment
Company
Continental FSW Ltd. United Kingdom Continental Conveyor International
Inc.
Continental Conveyor Ltd. United Kingdom Continental FSW Ltd.
Continental MECO (Proprietary) Ltd. South Africa Continental Conveyor International
Inc.
MECO McCallum Pty. Ltd. Australia Continental Conveyor & Equipment Pty.
Ltd.
Goodman Conveyor Company Delaware Continental Global Group, Inc.
</TABLE>
(1) Each of the subsidiaries listed is 100% owned by its parent company,
except for Continental Control Systems Pty. Ltd.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS LISTED ON PAGES 18-19 OF THIS FORM 10-K AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001039785
<NAME> CONTINENTAL GLOBAL GROUP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 26,351
<SECURITIES> 0
<RECEIVABLES> 44,424
<ALLOWANCES> 797
<INVENTORY> 32,250
<CURRENT-ASSETS> 105,298
<PP&E> 23,815
<DEPRECIATION> 8,049
<TOTAL-ASSETS> 145,757
<CURRENT-LIABILITIES> 61,037
<BONDS> 120,000
0
0
<COMMON> 1
<OTHER-SE> (37,507)
<TOTAL-LIABILITY-AND-EQUITY> 145,757
<SALES> 252,072
<TOTAL-REVENUES> 252,072
<CGS> 209,363
<TOTAL-COSTS> 209,363
<OTHER-EXPENSES> 1,791
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,658
<INCOME-PRETAX> 1,302
<INCOME-TAX> 127
<INCOME-CONTINUING> 1,175
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,175
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
