<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
---------
Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1999
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
<TABLE>
<CAPTION>
<S> <C> <C>
Continental Conveyor &
Continental Global Group, Inc. Equipment 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)
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 twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ( x ) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practical date.
As of April 30, 1999, there were 100 shares of the registrant's common stock
outstanding.
<PAGE> 2
INDEX
CONTINENTAL GLOBAL GROUP, INC.
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C>
Part I Financial Information
Item 1 Financial Statements (Unaudited) 1
Condensed Consolidated Balance Sheets
March 31, 1999 and December 31, 1998 2
Condensed Consolidated Statements of Income
Three Months ended March 31, 1999 and 1998 3
Condensed Consolidated Statements of Cash Flows
Three Months ended March 31, 1999 and 1998 4
Notes to Condensed Consolidated Financial Statements 5-12
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 13-17
Item 3 Quantitative and Qualitative Disclosures about Market Risk
18
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K 19
Signatures 20
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
1
<PAGE> 4
Continental Global Group, Inc.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
------------- -------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 27,572,671 $ 26,350,700
Accounts receivable, net 38,111,016 44,423,640
Inventories 31,862,625 32,249,917
Other current assets 1,491,649 2,273,333
------------- -------------
Total current assets 99,037,961 105,297,590
Property, plant and equipment 24,537,006 23,815,213
Less accumulated depreciation 8,859,762 8,048,953
------------- -------------
15,677,244 15,766,260
Goodwill, net 19,799,370 19,669,858
Deferred financing costs 4,159,218 4,289,194
Other assets 845,619 734,389
------------- -------------
$ 139,519,412 $ 145,757,291
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT):
Current liabilities:
Notes payable $ 1,560,444 $ 2,661,508
Trade accounts payable 35,323,597 40,522,707
Accrued compensation and employee benefits 5,160,415 5,342,206
Accrued interest on senior notes 6,600,000 3,300,000
Other accrued liabilities 6,732,047 8,115,497
Current maturities of long-term obligations 1,074,209 1,095,106
------------- -------------
Total current liabilities 56,450,712 61,037,024
Senior notes 120,000,000 120,000,000
Other long-term obligations, less current maturities 2,086,521 2,226,461
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 (37,957,794) (36,203,815)
Accumulated other comprehensive loss (3,053,715) (3,296,067)
------------- -------------
(39,017,821) (37,506,194)
------------- -------------
$ 139,519,412 $ 145,757,291
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 5
Continental Global Group, Inc.
Condensed Consolidated Statements of Income
<TABLE>
<CAPTION>
Three months ended March 31
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Net sales $ 64,719,804 $ 57,091,275
Cost of products sold 55,373,014 46,588,667
------------ ------------
Gross profit 9,346,790 10,502,608
Operating expenses:
Selling and engineering 4,021,395 4,044,157
General and administrative 2,316,516 1,974,309
Management fee 333,192 290,333
Amortization expense 153,546 171,375
Restructuring charges 191,470 --
------------ ------------
Total operating expenses 7,016,119 6,480,174
------------ ------------
Operating income 2,330,671 4,022,434
Other expenses:
Interest expense 3,658,694 3,682,875
Interest income (258,330) (440,748)
Miscellaneous, net 62,444 (23,889)
------------ ------------
Total other expenses 3,462,808 3,218,238
------------ ------------
Income (loss) before foreign income taxes (1,132,137) 804,196
Foreign income tax benefit -- 132,976
------------ ------------
Net income (loss) $ (1,132,137) $ 937,172
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 6
Continental Global Group, Inc.
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three months ended March 31
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Operating activities:
Net income (loss) $ (1,132,137) $ 937,172
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for depreciation and amortization 891,762 804,949
Amortization of deferred financing costs 129,976 129,976
Loss (gain) on disposal of assets 5,049 (4,851)
Changes in operating assets and liabilities 4,196,419 (2,518,735)
------------ ------------
Net cash provided by (used in) operating activities 4,091,069 (651,489)
------------ ------------
Investing activities:
Purchases of property, plant, and equipment (581,405) (513,732)
Proceeds from sale of property, plant, and equipment 27,094 4,886
------------ ------------
Net cash used in investing activities (554,311) (508,846)
------------ ------------
Financing activities:
Net increase (decrease) in borrowings on notes
payable (1,029,155) 3,658,973
Proceeds from long-term obligations -- 69,182
Principal payments on long-term obligations (268,191) (295,956)
Distributions for income taxes (1,210,562) (668,357)
------------ ------------
Net cash provided by (used in) financing activities (2,507,908) 2,763,842
Exchange rate changes on cash 193,121 52,887
------------ ------------
Increase in cash and cash equivalents 1,221,971 1,656,394
Cash and cash equivalents at beginning of period 26,350,700 30,882,733
------------ ------------
Cash and cash equivalents at end of period $ 27,572,671 $ 32,539,127
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 7
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 1999
A. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 1999
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1999. For further information, refer to the consolidated
financial statements and footnotes of Continental Global Group, Inc. and
subsidiaries for the year ended December 31, 1998, included in the Form 10-K
filed by the Company on March 31, 1999.
B. 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.
C. 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 60% and 58% of
inventories at March 31, 1999 and December 31, 1998, 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 $2,101,000 and $2,103,000 at March 31,
1999 and December 31, 1998, respectively.
D. RESTRUCTURING CHARGES
The Company incurred restructuring charges of approximately $191,000 in the
first quarter of 1999 related to plans executed in 1998 to close a manufacturing
facility in Australia and merge its operations with other existing facilities
and to consolidate its facilities in the United Kingdom following the
acquisition of Huwood International (Huwood). The charges consist primarily of
severance and relocation costs. To date, the Company has incurred total
restructuring charges of approximately $1,319,000 related to these plans. As of
March 31, 1999, the Company has paid approximately $1,313,000 of these expenses.
In addition to the severance and relocation costs expensed to date, the Company
anticipates that an additional cost for relocation of approximately $108,000
will be incurred in the remainder of 1999. These costs will be expensed as
incurred.
5
<PAGE> 8
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 1999
E. COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss) for the three month periods ended
March 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three months ended March 31
1999 1998
------------ -----------
<S> <C> <C>
Net income (loss) $(1,132,137) $ 937,172
Other comprehensive income:
Foreign currency translation adjustment 242,352 270,881
----------- -----------
Comprehensive income (loss) $ (889,785) $ 1,208,053
=========== ===========
</TABLE>
F. 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 distributions to the stockholder for payment of income taxes.
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
three months ended March 31, 1998, the Company recorded a foreign income tax
benefit of approximately $133,000, primarily related to its Australian
subsidiary. Pre-tax income (loss) attributable to foreign operations was
approximately $(2,576,000) and $(721,000) for the three month periods ended
March 31, 1999 and 1998, respectively.
6
<PAGE> 9
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 1999
G. 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 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.
<TABLE>
<CAPTION>
Three months ended March 31
1999 1998
------------ -------------
(in thousands)
<S> <C> <C>
Net sales:
Conveyor equipment $ 55,349 $ 47,839
Mobile home products 8,870 8,618
Other 501 634
======== ========
Total net sales $ 64,720 $ 57,091
======== ========
Segment operating income:
Conveyor equipment $ 2,963 $ 4,325
Mobile home products 134 165
Other 7 75
-------- --------
Total segment operating income 3,104 4,565
Management fee 333 290
Amortization expense 154 171
Restructuring charges 191 --
Corporate expense 95 82
-------- --------
Total operating income 2,331 4,022
Interest expense 3,659 3,683
Interest income (258) (441)
Miscellaneous, net 62 (24)
======== ========
Income (loss) before foreign income taxes $ (1,132) $ 804
======== ========
</TABLE>
7
<PAGE> 10
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 1999
H. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
The Company's domestic subsidiaries, Continental Conveyor & Equipment Company
(CCE) and Goodman Conveyor Company (GCC), both of which are wholly owned, are
the only guarantors of the $120 million 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 balance sheets as of March 31, 1999 and December
31, 1998 for the Company, the guarantor subsidiaries, and the non-guarantor,
foreign subsidiaries are as follows (in thousands):
<TABLE>
<CAPTION>
Combined Combined
Guarantor Non-Guarantor
The Company Subsidiaries Subsidiaries Eliminations Total
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
March 31, 1999:
Current assets:
Cash and cash equivalents $ 23,036 $ 1,897 $ 2,640 $ -- $ 27,573
Accounts receivable, net 695 20,280 19,895 (2,759) 38,111
Inventories -- 24,685 7,177 -- 31,862
Other current assets 3 2,365 4,235 (5,111) 1,492
--------------------------------------------------------------
Total current assets 23,734 49,227 33,947 (7,870) 99,038
Property, plant, and equipment,
net -- 6,357 9,320 -- 15,677
Goodwill, net -- 11,843 7,956 -- 19,799
Investment in subsidiaries 58,709 12,060 2,697 (73,466) --
Deferred financing costs 4,159 -- -- -- 4,159
Other assets 180 12,422 607 (12,363) 846
--------------------------------------------------------------
Total assets $ 86,782 $ 91,909 $ 54,527 $ (93,699) $ 139,519
==============================================================
Current liabilities:
Notes payable $ -- $ 710 $ 1,560 $ (710) $ 1,560
Trade accounts payable 390 14,733 25,415 (5,214) 35,324
Accrued compensation and
employee benefits -- 3,994 1,166 -- 5,160
Accrued interest 6,600 -- -- -- 6,600
Other accrued liabilities 165 3,170 3,397 -- 6,732
Current maturities of long-
term obligations -- 143 931 -- 1,074
--------------------------------------------------------------
Total current liabilities 7,155 22,750 32,469 (5,924) 56,450
Series B Senior Notes 120,000 -- -- -- 120,000
Other long-term obligations -- 176 13,791 (11,880) 2,087
Stockholder's equity (deficit) (40,373) 68,983 8,267 (75,895) (39,018)
--------------------------------------------------------------
Total liabilities and
stockholder's equity (deficit) $ 86,782 $ 91,909 $ 54,527 $ (93,699) $ 139,519
==============================================================
</TABLE>
8
<PAGE> 11
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 1999
H. 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, 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, net -- 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>
9
<PAGE> 12
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 1999
H. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
Summarized consolidating income statements for the three months ended March 31,
1999 and 1998, respectively, for the Company, the guarantor subsidiaries, and
the non-guarantor, foreign subsidiaries are as follows (in thousands):
<TABLE>
<CAPTION>
Combined Combined
Guarantor Non-Guarantor
The Company Subsidiaries Subsidiaries Eliminations Total
----------- ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C>
Three months ended March 31, 1999:
Net sales $ -- $ 41,930 $ 22,904 $ (114) $ 64,720
Cost of products sold -- 32,894 22,593 (114) 55,373
-------- -------- -------- -------- --------
Gross profit -- 9,036 311 -- 9,347
Total operating expenses 104 4,312 2,600 -- 7,016
-------- -------- -------- -------- --------
Operating income (loss) (104) 4,724 (2,289) -- 2,331
Interest expense 3,442 (61) 278 -- 3,659
Interest income (258) -- -- -- (258)
Miscellaneous, net -- 53 9 -- 62
-------- -------- -------- -------- --------
Income (loss) before foreign income
taxes (3,288) 4,732 (2,576) -- (1,132)
Foreign income taxes -- -- -- -- --
-------- -------- -------- -------- --------
Net income (loss) $ (3,288) $ 4,732 $ (2,576) $ -- $ (1,132)
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Combined Combined
Guarantor Non-Guarantor
The Company Subsidiaries Subsidiaries Eliminations Total
----------- ------------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Three months ended March 31, 1998:
Net sales $ -- $ 43,102 $ 14,362 $ (373) $ 57,091
Cost of products sold -- 34,638 12,324 (373) 46,589
-------- -------- -------- -------- --------
Gross profit -- 8,464 2,038 -- 10,502
Total operating expenses 93 4,040 2,347 -- 6,480
-------- -------- -------- -------- --------
Operating income (loss) (93) 4,424 (309) -- 4,022
Interest expense 3,445 (139) 377 -- 3,683
Interest income (441) -- -- -- (441)
Miscellaneous, net (141) 82 35 -- (24)
-------- -------- -------- -------- --------
Income (loss) before foreign income
taxes (2,956) 4,481 (721) -- 804
Foreign income taxes -- -- (133) -- (133)
======== ======== ======== ======== ========
Net income (loss) $ (2,956) $ 4,481 $ (588) $ -- $ 937
======== ======== ======== ======== ========
</TABLE>
10
<PAGE> 13
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 1999
H. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
Summarized consolidating cash flow statements for the three months ended March
31, 1999 and 1998, respectively, for the Company, the guarantor subsidiaries,
and the non-guarantor, foreign subsidiaries are as follows (in thousands):
<TABLE>
<CAPTION>
Combined Combined
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Total
------- ------------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C>
Three months ended March 31, 1999:
Net cash provided by (used in)
operating activities $ (233) $ 5,881 $ (1,631) $ 74 $ 4,091
Investing activities:
Purchases of property, plant, and
equipment -- (559) (22) -- (581)
Proceeds from sale of property,
plant, and equipment -- 22 5 -- 27
---------------------------------------------------------
Net cash used in investing activities -- (537) (17) -- (554)
---------------------------------------------------------
Financing activities:
Net increase (decrease) in
borrowings on notes payable -- 403 (1,029) (403) (1,029)
Principal payments on long-term
obligations -- (23) (587) 342 (268)
Distributions for income taxes -- (1,211) -- -- (1,211)
Distributions for interest on senior
notes 3,300 (3,300) -- -- --
---------------------------------------------------------
Net cash provided by (used in)
financing activities 3,300 (4,131) (1,616) (61) (2,508)
Exchange rate changes on cash -- -- 206 (13) 193
---------------------------------------------------------
Increase (decrease) in cash and cash
equivalents 3,067 1,213 (3,058) -- 1,222
Cash and cash equivalents at
beginning of period 19,969 684 5,698 -- 26,351
=========================================================
Cash and cash equivalents at end of
period $ 23,036 $ 1,897 $ 2,640 $ -- $ 27,573
=========================================================
</TABLE>
11
<PAGE> 14
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 1999
H. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
<TABLE>
<CAPTION>
Combined Combined
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Total
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Three months ended March 31, 1998:
Net cash provided by (used in)
operating activities $ 214 $ 2,308 $ (3,574) $ 400 $ (652)
Investing activities:
Purchases of property, plant, and
equipment -- (311) (203) -- (514)
Proceeds from sale of property,
plant, and equipment -- 5 -- -- 5
-------- -------- -------- -------- --------
Net cash used in investing activities -- (306) (203) -- (509)
-------- -------- -------- -------- --------
Financing activities:
Net increase in borrowings on notes
payable -- 411 3,659 (411) 3,659
Proceeds from long-term
obligations -- -- 69 -- 69
Principal payments on long-term
obligations -- (29) (267) -- (296)
Distributions for income taxes (151) (517) -- -- (668)
Distributions for interest on senior
notes 3,300 (3,300) -- -- --
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities 3,149 (3,435) 3,461 (411) 2,764
Exchange rate changes on cash -- -- 42 11 53
-------- -------- -------- -------- --------
Increase (decrease) in cash and cash
equivalents 3,363 (1,433) (274) -- 1,656
Cash and cash equivalents at
beginning of period 28,073 2,322 488 -- 30,883
======== ======== ======== ======== ========
Cash and cash equivalents at end of
period $ 31,436 $ 889 $ 214 $ -- $ 32,539
======== ======== ======== ======== ========
</TABLE>
12
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and related notes included in the Company's Form 10-K dated
March 29, 1999.
GENERAL
The Company believes it is a leading international manufacturer and supplier of
conveyor equipment for use in the coal mining industry. The Company estimates it
has the largest share of the United States market for idlers used in above
ground conveyor equipment and a significant share of the United States
underground coal mining conveyor equipment market. In January 1997, the Company
consummated the acquisition of BCE Holdings Pty. Ltd. (BCE), a group of conveyor
and related equipment and service companies in Australia. On April 1, 1997, the
Company acquired Hewitt-Robins, a United States manufacturer of conveyor
components. On October 17, 1997, the Company completed the acquisition of the
MECO Belts Group (MECO) from Joy Technologies Inc., a subsidiary of
Harnischfeger Industries. MECO is an international conveyor equipment company
with operations in the United States, United Kingdom, South Africa, and
Australia. On August 6, 1998, the Company acquired Huwood International (Huwood)
in the United Kingdom, which now establishes the Company as the leading
manufacturer and supplier of conveyor equipment for use in coal mining in the
United Kingdom.
RESULTS OF OPERATIONS
The following table sets forth, on a comparative basis, selected income
statement data as a percentage of net sales for the three month periods ended
March 31, 1999 and 1998.
<TABLE>
<CAPTION>
Three months ended March 31
---------------------------
1999 1998
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of products sold 85.6 81.6
Gross profit 14.4 18.4
SG&A expenses 9.8 10.5
Management fee 0.5 0.5
Amortization expense 0.2 0.3
Restructuring charges 0.3 -
Operating income 3.6 7.1
</TABLE>
Three months ended March 31, 1999, compared to three months ended March 31,
1998:
Net Sales
- ---------
Net sales for the quarter increased $7.6 million, or 13%, from $57.1 million in
1998 to $64.7 million in 1999. The conveyor equipment segment accounted for $7.5
million of the increase. This increase is attributable to increases at the
Company's Australian subsidiary of $6.3 million and increases at the Company's
United Kingdom subsidiary of $2.2 million, offset by a decline in sales at the
Company's domestic conveyor equipment businesses of $1.0 million. The increase
in sales in Australia is attributable to completion of major projects not
included in the comparable period for 1998. The increase in sales in the United
Kingdom is primarily the result of the August 1998 acquisition of Huwood. The
decline in sales at the Company's domestic conveyor equipment business is the
result of capital spending reductions by certain key customers in the mining
equipment business area.
13
<PAGE> 16
Gross Profit
- ------------
Gross profit for the quarter decreased $1.2 million, or 11%, from $10.5 million
in 1998 to $9.3 million in 1999. The conveyor equipment segment accounted for
$1.1 million of the decrease. Gross profit at the Company's domestic conveyor
equipment operations increased $0.6 million due to increased profit margins in
the mining equipment business area. Gross profit at the Company's foreign
conveyor equipment operations decreased $1.7 million, primarily due to lower
margins on major contracts in Australia, a significant portion of which was due
to customer directed schedule acceleration and increased construction costs on a
large conveyor system. The Company's Australian subsidiary is currently in
negotiations with its customer to recover the excess acceleration and
construction costs.
SG&A Expenses
- -------------
SG&A expenses for the quarter increased $0.3 million, or 5%, from $6.0 million
in 1998 to $6.3 million in 1999. SG&A expenses at the Company's domestic
conveyor equipment operations increased by $0.2 million and SG&A expenses at the
Company's foreign conveyor equipment operations increased by $0.1 million.
Operating Income
- ----------------
Operating income for the quarter decreased $1.7 million, or 42%, from $4.0
million in 1998 to $2.3 million in 1999. The decrease is the result of the $1.2
million decrease in gross profit, the $0.3 million increase in SG&A expenses,
and $0.2 million in restructuring charges incurred.
Restructuring Charges
- ---------------------
The Company incurred restructuring charges of approximately $191,000 in the
first quarter of 1999 related to plans executed in 1998 to close a manufacturing
facility in Australia and merge its operations with other existing facilities
and to consolidate its facilities in the United Kingdom following the
acquisition of Huwood. The charges consist primarily of severance and relocation
costs. To date, the Company has incurred total restructuring charges of
approximately $1,319,000 related to these plans. As of March 31, 1999, the
Company has paid approximately $1,313,000 of these expenses. In addition to the
severance and relocation costs expensed to date, the Company anticipates that an
additional cost for relocation of approximately $108,000 will be incurred in the
remainder of 1999. These costs will be expensed as incurred.
Backlog
- -------
Backlog at March 31, 1999 was $36.4 million, a decrease of $10.4 million, or
22%, from $46.8 million at December 31, 1998. The decrease is primarily due to
the completion of large contracts by the Australian subsidiary. Management
believes that approximately 95% of the backlog will be shipped in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by (used in) operating activities was $4.1 million and $(0.7)
million for the three months ending March 31, 1999 and 1998, respectively. Net
cash provided by operating activities in 1999 resulted primarily from a net loss
of $(1.1) million, offset by depreciation and amortization of $1.0 million and a
decrease in operating assets and liabilities of $4.2 million. Net cash used in
operating activities in 1998 resulted primarily from net income of $0.9 million,
depreciation and amortization of $0.9 million, offset by an increase in
operating assets and liabilities of $2.5 million.
Net cash used in investing activities was $0.6 million and $0.5 million for the
three months ending March 31, 1999 and 1998, respectively. The net cash used in
investing activities represents net purchases of property, plant, and equipment
for both years.
14
<PAGE> 17
Net cash provided by (used in) financing activities was $(2.5) million and $2.8
million for the three months ending March 31, 1999 and 1998, respectively. Net
cash used in financing activities in 1999 represents a net decrease in
borrowings on notes payable of $1.0 million, principal payments on long-term
obligations of $0.3 million, and distributions of $1.2 million for the payment
of income taxes. Net cash provided by financing activities in 1998 is the result
of a net increase in borrowings on notes payable of $3.7 million and proceeds
from long-term obligations of $0.1 million, offset by principal payments on
long-term obligations of $0.3 million and distributions of $0.7 million for the
payment of income taxes.
The Company's primary capital requirements consist of working capital, capital
expenditures and debt service. The Company expects current financial resources
and funds from operations to be adequate to meet anticipated cash requirements.
At March 31, 1999, the Company had cash and cash equivalents of $27.6 million
and an unused credit facility line of $28.4 million.
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 weakening
of the U.S. dollar versus other currencies, primarily the Australian dollar,
resulted in increases to stockholder's equity of approximately $242,000 and
$271,000 for the three months ended March 31, 1999 and 1998, 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
15
<PAGE> 18
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.
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 $893,000, of which $614,000 has
been expended through March 31, 1999.
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
16
<PAGE> 19
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.
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.
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.
17
<PAGE> 20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information regarding the Company's financial instruments that are sensitive to
changes in interest rates was disclosed in the Form 10-K filed by the Company on
March 31, 1999. The information disclosed has not changed materially in the
interim period since December 31, 1998.
18
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: Exhibit 10.1(b), Amendment IV, dated as of December
31, 1998, to the Revolving Credit Facility, dated as of
September 14, 1992, among Continental Conveyor & Equipment
Company, Goodman Conveyor Company, and Bank One Cleveland, NA,
filed as Exhibit 10.1(a), is being filed herewith. For exhibits
incorporated by reference, refer to the index of exhibits.
(b) No reports on Form 8-K were filed during the quarter ended March
31, 1999.
19
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONTINENTAL GLOBAL GROUP, INC.
By: /s/ Jimmy L. Dickinson
-----------------------
Jimmy L. Dickinson
Vice President and Chief Financial
Officer (As duly authorized
representative and as Principal
Financial and Accounting Officer)
CONTINENTAL CONVEYOR & EQUIPMENT COMPANY
By: /s/ Jimmy L. Dickinson
-----------------------
Jimmy L. Dickinson
Vice President - Finance (As duly
authorized representative and as
Principal Financial and Accounting
Officer)
GOODMAN CONVEYOR COMPANY
By: /s/ Lawrence Kukulski
----------------------
Lawrence Kukulski
Vice President - Finance and
Administration (As duly authorized
representative and as Principal
Financial and Accounting Officer)
Date: May 14, 1999
20
<PAGE> 23
Continental Global Group, Inc.
Form 10-Q
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
(a) Revolving Credit Facility, dated as of September 14, 1992, as amended by Amendment I, *
II, and III, among Continental Conveyor & Equipment Company, Goodman Conveyor
Company, and Bank One, Cleveland, NA
(b) Amendment IV, dated as of December 31, 1998, to the Revolving Credit Facility, dated as
of September 14, 1992, 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.)
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.
21
<PAGE> 24
Exhibit 10.1(b)
FOURTH AMENDATORY AGREEMENT
---------------------------
TO
--
CREDIT FACILITY AND SECURITY AGREEMENT
--------------------------------------
THIS FOURTH AMENDATORY AGREEMENT TO CREDIT FACILITY AND SECURITY
AGREEMENT (this "Fourth Amendatory Agreement"), effective as of December 31,
1998, is entered into by and among BANK ONE, NA, a national banking association
organized and existing under the laws of the United States of America
("Lender"), with its principal place of business located at 600 Superior Avenue,
Cleveland, Ohio 44114; CONTINENTAL CONVEYOR & EQUIPMENT COMPANY, a Delaware
corporation ("Continental"), with its principal place of business and executive
offices located at 438 Industrial Drive, P. O. Box 400, Winfield, Alabama 35594
(the "Continental Principal Place of Business"); and GOODMAN CONVEYOR COMPANY, a
Delaware corporation ("Goodman"), with its principal place of business and
executive offices located at U.S. Route 178 South, P. O. Box 866, Belton, South
Carolina 29627 (the "Goodman Principal Business Location") (each of Continental
and Goodman being sometimes referred to herein individually as a "Borrower" and
collectively as the "Borrowers").
W I T N E S S E T H:
--------------------
WHEREAS, pursuant to the terms of that certain Assumption and
Modification Agreement by and between Borrowers and Lender dated as of March 7,
1997, the Borrowers assumed all of the Obligations of CONTINENTAL CONVEYOR &
EQUIPMENT CO. L.P., a limited partnership organized and formerly existing under
the laws of the State of Delaware, and GOODMAN CONVEYOR CO. L.P., a limited
partnership organized and formerly existing under the laws of the State of
Delaware (the "Original Borrowers"), under that certain Credit Facility and
Security Agreement by and among the Original Borrowers and Lender dated as of
September 14, 1992, as amended by a certain First Amendment to Credit Facility
and Security Agreement executed on August 27, 1993, as further amended by a
certain Second Amendatory Agreement dated as of October 5, 1994, as further
amended by a certain Consolidated Amendment No. 1 to Credit Facility and
Security Agreement dated as of July 28, 1995, as further amended by a certain
Consolidated Amendment No. 2 to Credit Facility and Security Agreement dated as
of December 13, 1996 and as further amended by a certain Third Amendatory
Agreement to Credit Facility and Security Agreement by and among Borrowers and
Lender dated as of March 28, 1997 (collectively, herein the "Loan Agreement,"
all terms defined in said Loan Agreement being used herein with the same
meaning), pursuant to which the Lender has agreed to loan to the Borrowers up to
a maximum aggregate sum of $30,000,000 on a revolving loan basis; which
Revolving Loan is evidenced by a Note dated March 28, 1997, such Note being
executed and delivered by the Borrowers to the Lender; and
WHEREAS, the Borrowers and the Lender have agreed to amend the Loan
Agreement to (i) modify certain provisions thereof with respect to the existence
and effect of certain events of default and (ii) modify and replace certain
financial covenants and definitions contained in the Loan Agreement.
<PAGE> 25
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Borrowers and the Lender agree as follows:
SECTION I. AMENDMENT OF LOAN AGREEMENT
---------------------------
A. The introductory paragraph to Section 2 of the Loan Agreement is,
effective the date hereof, hereby amended and restated to read in its entirety
as follows:
2. LOANS AND ADVANCES
------------------
Subject to the terms and conditions of this Agreement, and each of the
other Credit Documents, and otherwise provided that no loan advances need be
made by Lender if, at the date of any request for a loan advance hereunder by
either Borrower, or as a result of such loan advance, an Event of Default, or
event or condition which, with notice, lapse of time or both, would constitute
and Event of Default, then exists, Lender will provide the credit facility
described in this Section 2 for the account of Borrowers.
B. Section 2.3 of the Loan Agreement is, effective the date hereof,
hereby amended by the addition of a new Subsection 2.3(D) which shall read in
its entirety as follows:
(D) AVAILABILITY. Lender shall not be obligated to make and
Borrowers shall not be entitled to receive any loans under this Section
2.3 at any time when Borrowers are not in full compliance with Section
8.1(Q) of this Loan Agreement and there shall not be full compliance by
Borrower with respect to the operating income of Global, as defined in
and in accordance with Section 8.1(T) of this Loan Agreement.
C. Section 8.1(Q) of the Loan Agreement is, effective the date hereof,
hereby amended and restated in its entirety to read as follows:
(Q) Maintain Debt Coverage (as defined herein) of not less
than 1.50 to 1.00. "Debt Coverage" as used in this Section 8.1(Q)
means, on a combined consolidated basis, the ratio of Borrowers'
operating income (which shall be after deduction for any Management
Fees) plus depreciation and amortization less Distributions (which for
purposes of this Section 8.1(Q) shall include all interest on the
Senior Notes and all income taxes paid or payable by the Borrowers or
Global (as defined below)) to the amount of all principal and interest
paid or payable by the Borrowers to Lender plus all Capital
Expenditures not funded on a term basis at the date of calculation
thereof. Debt Coverage shall be initially calculated quarterly
commencing with the Borrowers' fiscal quarter ending March 31, 1999,
subsequently for the two fiscal quarters ending June 30, 1999 and for
the three fiscal quarters ending September 30, 1999, and commencing
with the fiscal quarter ending December 31, 1999 and for all fiscal
quarters thereafter, Debt Coverage shall be calculated quarterly based
upon each Borrower's fiscal quarter-end financial statements for the
preceding four fiscal quarters prepared in accordance with GAAP.
Notwithstanding the foregoing, the Borrowers shall not be deemed to be
in violation of their covenant under this Subsection at any time when
there shall be no loans or advances to either Borrower outstanding
under Section 2.3 of this Loan Agreement and failure to comply with
this
<PAGE> 26
covenant during such time that no such loans or advances are
outstanding shall not be deemed to be an Event of Default under Section
11.1 of this Loan Agreement, provided, however, that the provisions of
Section 2.3(D) shall apply so long as either Borrower is not in
compliance with this covenant.
D. Section 8.1(T) of the Loan Agreement is, effective the date hereof,
hereby amended and restated in its entirety to read as follows:
(T) Beginning with Global's (as defined below) fiscal quarter
ending March 31, 1999, each Borrower shall cause Global's consolidated
operating income (which shall be after deduction for any Management
Fees) to be an amount equal to or greater than the sum of $14,600,000
plus any interest paid or payable by Borrowers under the Line of
Credit, based upon Global's fiscal quarter-end financial statements for
the four preceding fiscal quarters prepared in accordance with GAAP.
Notwithstanding the foregoing, the Borrowers shall not be deemed to be
in violation under this Subsection (T) at any time when there shall be
no loans or advances to either Borrower outstanding under Section 2.3
of this Loan Agreement and failure to comply with this covenant during
such time that no such loans or advances are outstanding shall not be
deemed to be an Event of Default under Section 11.1 of this Loan
Agreement, provided, however, that the provisions of Section 2.3(D)
shall apply so long as there is not full compliance with this
Subsection (T).
E. Section 11.1 of the Loan Agreement is, effective the date hereof,
hereby amended by the deletion in its entirety of Section 11.1(O) and as so
amended is hereby amended and restricted in its entirety to read as follows:
11.1 EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an "Event of Default":
(A) Failure by either Borrower to make payment of principal,
interest or any other sum on any Note on the due date thereof, or
failure to pay any other Obligation on the due date thereof or failure
by either Borrower to remit or deposit funds as required by the terms
of this Agreement.
(B) Any warranty, representation, or other statement made or
furnished to Lender by or on behalf of either Borrower, either General
Partner of either Borrower, or any guarantor of the Obligations, if
any, in this Agreement or in any of the other Credit Documents or in
any instrument furnished in compliance with or in reference to this
Agreement proves to have been false or inaccurate in any material
respect when made or furnished and Lender has provided to each Borrower
written notice specifying such falsity or inaccuracy and stating that
such notice is a notice of default, such notice to be given in the
manner set forth in Section 13.10 hereof.
(C) Either Borrower, either General Partner of either Borrower, or
any guarantor of the Obligations, if any, fails or neglects to perform,
keep or observe in any material respect any other term, provision,
condition, covenant, warranty or representation contained in this
Agreement or in any of the other Credit Documents, which is required to
be performed, kept or observed by either Borrower, either General
Partner of either Borrower, or any such guarantor, if any, and such
failure continues for a period of ten (10) days after
<PAGE> 27
there has been given to each Borrower, in the manner set forth in
Section 13.10 hereof, a written notice by Lender specifying such
failure or neglect and stating that such notice is a notice of default.
(D) The occurrence of any default or event of default on the
part of either Borrower (including specifically, but not limited to,
due to nonpayment) under any Debt Instrument and the expiration of any
applicable grace period and written notice specifying the same has been
given by Lender to each Borrower in the manner set forth in Section
13.10 hereof stating that such notice is a notice of default.
(E) To the actual knowledge of either Borrower, any statement,
report, financial statement, or certificate made or delivered by either
Borrower, either General Partner of either Borrower, or any of their
officers, employees or agents, to Lender is not true and correct in any
material respect and written notice specifying the same has been given
by Lender to each Borrower in the manner set forth in Section 13.10
hereof stating that such notice is a notice of default.
(F) The loss, theft, substantial damage or destruction of any
material portion of the Collateral to the extent not fully covered by
insurance (as required by this Agreement and subject to such
deductibles as Lender shall have agreed to in writing), or the sale,
lease, encumbrance or other disposition of any of the collateral,
except in all cases as may be specifically permitted by other
provisions of this Agreement and written notice specifying the same has
been given by Lender to each Borrower in the manner set forth in
Section 13.10 hereof stating that such notice is a notice of default.
(G) The dissolution, termination of existence, insolvency
(failure to pay its debts as they mature in the ordinary course of
business or where the fair saleable value of its assets is not in
excess of its liabilities) or business failure of either Borrower,
either General partner of either Borrower, or any guarantor of the
Obligations, if any, or the appointment of a receiver, trustee,
custodian or similar fiduciary for either Borrower, either General
Partner or either Borrower, or any guarantor of the Obligations, if
any, or any of their respective assets, or the assignment for the
benefit of the creditors of either Borrower, either General partner of
either Borrower, or any such guarantor, if any, or the making by either
Borrower, either General Partner of either Borrower, or any such
guarantor, if any, of any offer of settlement, extension or composition
to its unsecured creditors generally.
(H) The commencement of any proceedings under any Bankruptcy Laws
by either Borrower, either General partner of either Borrower, or any
guarantor of the Obligations, if any.
(I) The commencement of any proceedings under any Bankruptcy Laws
against either Borrower, either General Partner of either Borrower, or
any guarantor of the Obligations, if any, to the extent such
proceedings are not dismissed within sixty (60) days after the filing
thereof.
(J) Either Borrower ceases to conduct all or any material part
of its business or is enjoined, restrained or in any way prevented by
court, governmental or administrative order from conducting all or any
material part of its business affairs.
<PAGE> 28
(K) The entry by a court of any judgment in excess of $50,000
requiring the payment of money against either Borrower, which judgment
is not paid, discharged, stayed, vacated or set aside within thirty
(30) days of its entry and written notice specifying the same has been
given by Lender to each Borrower in the manner set forth in Section
13.10 hereof stating that such notice is a notice of default.
(L) Other than Permitted Liens, a notice of any Lien, levy,
attachment or assessment is filed of record with respect to all or any
of the Collateral by any Person, including, without limitation, the
United States, any department, agency or instrumentality thereof, or by
any state, county, municipal or other governmental agency, or if any
taxes or assessments owing at any time or times hereafter becomes a
Lien upon the Collateral or any other of either Borrower's assets and,
except as otherwise permitted by Lender, the same is not effectively
stayed, bonded or released within thirty (30) days after the same
becomes a Lien, or in the case of ad valorem taxes, prior to the last
date when payment may be made without penalty and written notice
specifying the same has been given by Lender to each Borrower in the
manner set forth in Section 13.10 hereof stating that such notice is a
notice of default.
(M) The revocation of any Guaranty, if any, of the obligations.
(N) The default by CC&E Pty Limited on any loan agreement to
which it is a party, including without limitation, its agreement to
repay certain subordinated indebtedness in connection with the
Acquisition and any attempt by sellers to invoke or attempt to invoke
any of their rights under a certain guaranty agreement executed by
Continental in conjunction with the Acquisition; provided, however,
that no default shall be deemed to exist under this Section 11.1(N) so
long as Continental is contesting in good faith any default or alleged
default under the guaranty agreement and no judgment or lien attaches
which is not vacated in sixty days.
(O) The default by Continental Global Group, Inc. ("Global")
in the payment of principal or interest on its Series A Senior Notes,
due 2007 (the "Senior Notes") or on any other obligation under the
Senior Notes or under the Senior Note Indenture pursuant to which the
Notes were issued (the "Senior Note Obligations").
SECTION II. REPRESENTATIONS AND WARRANTIES
------------------------------
Each Borrower hereby represents and warrants as follows:
(1) As of this date, no Event of Default has occurred and
is continuing and no event has occurred and is
continuing that, with the giving of notice or passage
of time or both, would be an Event of Default;
(2) The representations and warranties set forth in
Section 7 of the Loan Agreement are true and correct
as of this date; and
<PAGE> 29
(3) Borrower is in compliance with all of the terms and
provisions set forth in the Loan Agreement on and as
of this date.
SECTION III. CONDITIONS PRECEDENT
--------------------
Each Borrower understands and hereby agrees that the effectiveness of
this Fourth Amendatory Agreement is subject to receipt by the Lender, on or
prior to the date hereof, in form and substance satisfactory to the Lender and
its counsel, of the following:
(A) A Certificate, dated as of the date hereof, of the secretary of
each Borrower certifying (1) that Borrower's Certificate of Incorporation and
By-Laws have not been amended since the execution of the Loan Agreement (or
certifying that true, correct and complete copies of any amendments are
attached), (2) that copies of resolutions of the Board of Directors of such
Borrower are attached with respect to the approval of this Fourth Amendatory
Agreement and of the matters contemplated hereby and authorizing the execution,
delivery and performance by such Borrower of this Fourth Amendatory Agreement
and each other document to be delivered pursuant hereto, (3) as to the
incumbency and signatures of the officers of such Borrower signing this Fourth
Amendatory Agreement and each other document to be delivered pursuant hereto.
(B) This Fourth Amendatory Agreement, duly executed by each Borrower.
(C) Quit Claim Deeds from Original Borrowers to Borrowers and
Amendments to Open-End Mortgages, each duly executed by the applicable Borrower.
(D) Replacement Guaranty of Continental Global Group, Inc., to be
executed and delivered in Cleveland, Ohio.
(E) Such other documents as the Lender may request to implement this
Fourth Amendatory Agreement and the transactions contemplated hereby.
If Lender shall consummate the transactions contemplated hereby prior
to the fulfillment of any of the conditions precedent set forth above, the
consummation of such transactions shall constitute only an extension of time for
the fulfillment of such conditions and not a waiver thereof.
SECTION IV. ACKNOWLEDGMENTS CONCERNING OUTSTANDING LOANS
--------------------------------------------
Borrowers hereby acknowledge and agree that as of December 31, 1998 the
current outstanding balance of the Revolving Loan ($0.00) and amounts owed
pursuant to letters of credit and/or existing equipment leases, are owed to
Lender without any offset, deduction, defense or counterclaim of any nature
whatsoever.
<PAGE> 30
SECTION V. FEES AND EXPENSES
-----------------
Borrowers shall pay all out-of-pocket fees and expenses incurred by the
Lender in connection with the preparation, negotiation, execution and delivery
of this Fourth Amendatory Agreement, and all the other agreements, documents or
certificates required or contemplated hereby, including, without limitation,
legal fees and expenses of the Lender.
SECTION VI. REFERENCES
----------
On and after the effective date of this Fourth Amendatory Agreement ,
each reference in the Loan Agreement to "this Agreement", "hereunder", "hereof",
or words of like import referring to the Loan Agreement, and in the Notes to the
"Loan Agreement", "thereof", or words of like import referring to the Loan
Agreement shall mean and refer to the Loan Agreement as amended hereby. The Loan
Agreement, as amended by this Fourth Amendatory Agreement, is and shall continue
to be in full force and effect and is hereby and in all respects ratified and
confirmed. The execution, delivery and effectiveness of this Fourth Amendatory
Agreement shall not operate as a waiver of any right, power or remedy of Lender
under the Loan Agreement or constitute a waiver of any provision of the Loan
Agreement except as specifically set forth herein. All references in the Loan
Agreement to any definitions modified or replaced herein shall be deemed
references to such definitions as so modified or replaced.
SECTION VII. APPLICABLE LAW
--------------
This Fourth Amendatory Agreement shall be deemed to be a contract under
the laws of the State of Ohio, and for all purposes shall be construed in
accordance with the laws of the State of Ohio.
SECTION VIII. COUNTERPARTS
------------
This Fourth Amendatory Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any one of the parties hereto may execute this Fourth Amendatory
Agreement by signing any such counterpart.
<PAGE> 31
IN WITNESS WHEREOF, the Borrowers and the Lender have caused this
Fourth Amendatory Agreement to be executed by their duly authorized officers as
of the date and year first above written.
CONTINENTAL CONVEYOR & EQUIPMENT
COMPANY
("Borrower")
By________________________________
Name:___________________________
Title:__________________________
GOODMAN CONVEYOR COMPANY
("Borrower")
By________________________________
Name:___________________________
Title:__________________________
BANK ONE, NA ("Lender")
By________________________________
Name:___________________________
Title:__________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS LISTED ON PAGES 2 AND 3 OF THIS FORM 10-Q 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 27,573
<SECURITIES> 0
<RECEIVABLES> 38,111
<ALLOWANCES> 0
<INVENTORY> 31,863
<CURRENT-ASSETS> 99,038
<PP&E> 24,537
<DEPRECIATION> 8,860
<TOTAL-ASSETS> 139,519
<CURRENT-LIABILITIES> 56,451
<BONDS> 120,000
0
0
<COMMON> 1
<OTHER-SE> (39,018)
<TOTAL-LIABILITY-AND-EQUITY> 139,519
<SALES> 64,720
<TOTAL-REVENUES> 64,720
<CGS> 55,373
<TOTAL-COSTS> 55,373
<OTHER-EXPENSES> 333
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,659
<INCOME-PRETAX> (1,132)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,132)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,132)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
