<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 June 30, 2000
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
<TABLE>
<S> <C> <C>
Continental Conveyor & Equipment Company Delaware 34-1603197
Goodman Conveyor Company Delaware 34-1603196
</TABLE>
<TABLE>
<S> <C> <C>
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)
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 July 31, 2000, 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
June 30, 2000 and December 31, 1999 2
Condensed Consolidated Statements of Operations
Three Months and Six Months ended June 30, 2000 and 1999 3
Condensed Consolidated Statements of Cash Flows
Six Months ended June 30, 2000 and 1999 4
Notes to Condensed Consolidated Financial Statements 5-13
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations 14-17
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>
June 30 December 31
2000 1999
-----------------------------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 16,901,289 $ 18,299,610
Accounts receivable, net 24,216,439 30,469,614
Inventories 33,339,860 31,327,817
Other current assets 1,219,245 1,940,793
-----------------------------------
Total current assets 75,676,833 82,037,834
Property, plant and equipment 26,781,484 27,007,610
Less accumulated depreciation 10,945,475 10,305,220
-----------------------------------
15,836,009 16,702,390
Goodwill, net 18,684,094 19,642,467
Deferred financing costs 3,509,340 3,769,291
Other assets 801,304 750,845
-----------------------------------
$114,507,580 $122,902,827
===================================
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT):
Current liabilities:
Notes payable $ 13,272,804 $ 8,600,499
Trade accounts payable 17,297,084 21,506,028
Accrued compensation and employee benefits 5,056,998 5,090,694
Accrued interest on senior notes 3,300,000 3,300,000
Other accrued liabilities 3,555,719 4,255,416
Current maturities of long-term obligations 2,443,318 3,140,588
-----------------------------------
Total current liabilities 44,925,923 45,893,225
Senior notes 120,000,000 120,000,000
Other long-term obligations, less current maturities 3,136,379 2,887,477
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 (51,445,719) (45,081,586)
Accumulated other comprehensive loss (4,102,691) (2,789,977)
-----------------------------------
(53,554,722) (45,877,875)
-----------------------------------
$114,507,580 $122,902,827
===================================
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 5
Continental Global Group, Inc.
Condensed Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three months ended June 30 Six months ended June 30
2000 1999 2000 1999
--------------------------------- ----------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $40,453,570 $50,814,569 $82,279,369 $115,534,373
Cost of products sold 34,182,598 43,653,548 69,341,104 99,026,562
--------------------------------- ----------------------------------
Gross profit 6,270,972 7,161,021 12,938,265 16,507,811
Operating expenses:
Selling and engineering 3,213,153 3,988,029 6,555,288 8,009,424
General and administrative 2,379,001 2,474,602 4,775,309 4,791,118
Management fee 54,456 (98,176) 132,932 235,016
Amortization expense 153,647 155,162 309,881 308,708
Restructuring charges 166,325 253,518 210,393 444,988
--------------------------------- ----------------------------------
Total operating expenses 5,966,582 6,773,135 11,983,803 13,789,254
--------------------------------- ----------------------------------
Operating income 304,390 387,886 954,462 2,718,557
Other expenses:
Interest expense 3,918,297 3,687,012 7,865,499 7,345,706
Interest income (253,138) (186,486) (498,000) (444,816)
Miscellaneous, net (22,311) 46,590 (48,904) 109,034
--------------------------------- ----------------------------------
Total other expenses 3,642,848 3,547,116 7,318,595 7,009,924
--------------------------------- ----------------------------------
Net loss $(3,338,458) $(3,159,230) $(6,364,133) $ (4,291,367)
================================== ==================================
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 6
Continental Global Group, Inc.
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six months ended June 30
2000 1999
---------------------------------
(Unaudited)
<S> <C> <C>
Operating activities:
Net loss $(6,364,133) $(4,291,367)
Adjustments to reconcile net loss to net cash used in
operating activities:
Provision for depreciation and amortization 1,573,799 1,746,742
Amortization of deferred financing costs 259,951 259,951
Loss (gain) on disposal of assets 2,471 (81,417)
Changes in operating assets and liabilities (489,523) (3,217,973)
---------------------------------
Net cash used in operating activities (5,017,435) (5,584,064)
---------------------------------
Investing activities:
Purchases of property, plant, and equipment (1,134,491) (2,834,896)
Proceeds from sale of property, plant, and equipment 87,570 237,744
---------------------------------
Net cash used in investing activities (1,046,921) (2,597,152)
---------------------------------
Financing activities:
Net increase in borrowings on notes payable 4,902,044 1,995,266
Proceeds from long-term obligations 775,888 1,600,000
Principal payments on long-term obligations (950,886) (502,360)
Distributions for income taxes -- (1,426,199)
---------------------------------
Net cash provided by financing activities 4,727,046 1,666,707
Effect of exchange rate changes on cash (61,011) 273,966
---------------------------------
Decrease in cash and cash equivalents (1,398,321) (6,240,543)
Cash and cash equivalents at beginning of period 18,299,610 26,350,700
---------------------------------
Cash and cash equivalents at end of period $16,901,289 $20,110,157
=================================
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 7
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2000
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 and six month periods ended
June 30, 2000 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2000. For further information, refer to the
consolidated financial statements and footnotes of Continental Global Group,
Inc. and subsidiaries for the year ended December 31, 1999, included in the Form
10-K filed by the Company on March 30, 2000.
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 64% and 62% of
inventories at June 30, 2000 and December 31, 1999, 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 $1,527,000 at June 30, 2000 and December
31, 1999.
D. RESTRUCTURING CHARGES
The Company incurred restructuring charges of approximately $210,000 and
$445,000 in the first six months of 2000 and 1999, respectively, related to its
Australian and United Kingdom subsidiaries. Total restructuring charges incurred
to date total approximately $2,444,000. In 1998, the Company executed a plan to
close certain Australian manufacturing facilities and merge the operations with
other existing facilities; in 1999 and 2000, the Company made further reductions
in office staff and facilities. In the United Kingdom, following the acquisition
of Huwood International (Huwood) in August 1998, the Company consolidated its
existing operations and facilities into the Huwood operations. These
restructuring charges consist primarily of severance costs for approximately 220
employees and relocation costs. As of June 30, 2000, the Company's Australian
and United Kingdom subsidiaries have paid approximately $2,385,000 of the
charges incurred to date.
5
<PAGE> 8
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2000
E. COMPREHENSIVE LOSS
The components of comprehensive loss for the three month and six month periods
ended June 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Three months ended June 30 Six months ended June 30
2000 1999 2000 1999
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Net loss $(3,338,458) $(3,159,230) $(6,364,133) $(4,291,367)
Other comprehensive income (loss):
Foreign currency translation
adjustment (371,641) 476,683 (1,312,714) 719,035
--------------------------------- ---------------------------------
Comprehensive loss $(3,710,099) $(2,682,547) $(7,676,847) $(3,572,332)
================================= =================================
</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.
6
<PAGE> 9
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2000
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
manufactured housing 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 manufactured housing products business manufactures and/or
refurbishes axle components sold directly to the manufactured housing industry.
As part of this segment the Company also sells mounted tires and rims to the
manufactured housing 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 June 30 Six months ended June 30
2000 1999 2000 1999
-------------------------- --------------------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Net sales:
Conveyor equipment $34,630 $42,072 $69,500 $ 97,420
Manufactured housing products 5,377 8,053 11,605 16,923
Other 447 690 1,174 1,191
------------------------- --------------------------
Total net sales $40,454 $50,815 $82,279 $115,534
========================= ==========================
Segment operating income:
Conveyor equipment $ 980 $ 882 $ 2,119 $ 3,846
Manufactured housing products (44) (21) 28 113
Other 44 (1) 87 6
------------------------- --------------------------
Total segment operating income 980 860 2,234 3,965
Management fee 54 (98) 133 235
Amortization expense 154 155 310 309
Restructuring charges 166 254 210 445
Corporate expense 302 161 627 257
------------------------- --------------------------
Total operating income 304 388 954 2,719
Interest expense 3,918 3,687 7,865 7,346
Interest income (253) (187) (498) (445)
Miscellaneous, net (23) 47 (49) 109
------------------------- --------------------------
Net loss $(3,338) $(3,159) $(6,364) $ (4,291)
========================= ==========================
</TABLE>
7
<PAGE> 10
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2000
H. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
The Company's domestic subsidiaries, Continental Conveyor & Equipment Company
(CCE) and Goodman Conveyor Company (GCC), and certain of its Australian
subsidiaries, all of which are wholly owned, are the guarantors of the $120
million 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 United Kingdom and South African subsidiaries are not
guarantors of the Senior Notes. The Australian subsidiaries became guarantors of
the Senior Notes effective September 23, 1999. Prior to this date, CCE and GCC
were the only guarantors of the Senior Notes. The summarized consolidating
statements of operations for the three months and six months ended June 30, 1999
have been restated to reflect the operations of the Company's guarantor
Australian subsidiaries in the "Combined Guarantor Subsidiaries" column.
Summarized consolidating balance sheets as of June 30, 2000 and December 31,
1999 for the Company, the guarantor subsidiaries, and the non-guarantor
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>
June 30, 2000:
Current assets:
Cash and cash equivalents $ 16,212 $ 593 $ 96 $ -- $ 16,901
Accounts receivable, net -- 18,897 5,366 (47) 24,216
Inventories -- 29,679 3,661 -- 33,340
Other current assets 2,953 902 206 (2,841) 1,220
--------------------------------------------------------------------------------
Total current assets 19,165 50,071 9,329 (2,888) 75,677
Property, plant, and
equipment, net -- 11,055 4,781 -- 15,836
Goodwill, net -- 17,871 813 -- 18,684
Investment in subsidiaries 60,009 18,158 -- (78,167) --
Deferred financing costs 3,509 -- -- -- 3,509
Other assets 116 2,496 426 (2,237) 801
--------------------------------------------------------------------------------
Total assets $ 82,799 $99,651 $15,349 $(83,292) $114,507
================================================================================
Current liabilities:
Notes payable $ -- $11,217 $ 3,131 $ (1,075) $ 13,273
Trade accounts payable 385 15,476 4,683 (3,247) 17,297
Accrued compensation and
employee benefits -- 4,395 662 -- 5,057
Accrued interest 3,300 -- -- -- 3,300
Other accrued liabilities 171 3,161 939 (715) 3,556
Current maturities of
long-term obligations -- 2,433 10 -- 2,443
--------------------------------------------------------------------------------
Total current liabilities 3,856 36,682 9,425 (5,037) 44,926
Senior notes 120,000 -- -- -- 120,000
Other long-term obligations -- 2,966 170 -- 3,136
Stockholder's equity
(deficit) (41,057) 60,003 5,754 (78,255) (53,555)
--------------------------------------------------------------------------------
Total liabilities and
stockholder's equity
(deficit) $ 82,799 $99,651 $15,349 $(83,292) $114,507
================================================================================
</TABLE>
8
<PAGE> 11
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2000
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, 1999:
Current assets:
Cash and cash equivalents $ 17,244 $ 955 $ 101 $ -- $ 18,300
Accounts receivable, net 2,039 24,797 5,759 (2,126) 30,469
Inventories -- 27,578 3,750 -- 31,328
Other current assets 36 1,544 361 -- 1,941
--------------------------------------------------------------------------------
Total current assets 19,319 54,874 9,971 (2,126) 82,038
Property, plant, and
equipment, net -- 11,259 5,443 -- 16,702
Goodwill, net -- 18,736 907 -- 19,643
Investment in subsidiaries 60,009 19,800 -- (79,809) --
Deferred financing costs 3,769 -- -- -- 3,769
Other assets 141 31 1,099 (520) 751
--------------------------------------------------------------------------------
Total assets $ 83,238 $104,700 $17,420 $(82,455) $122,903
================================================================================
Current liabilities:
Notes payable $ -- $ 6,779 $ 2,311 $ (489) $ 8,601
Trade accounts payable 387 17,022 6,242 (2,145) 21,506
Accrued compensation and
employee benefits -- 4,553 538 -- 5,091
Accrued interest 3,300 -- -- -- 3,300
Other accrued liabilities 171 3,949 136 (1) 4,255
Current maturities of
long-term obligations -- 3,120 21 -- 3,141
--------------------------------------------------------------------------------
Total current liabilities 3,858 35,423 9,248 (2,635) 45,894
Senior notes 120,000 -- -- -- 120,000
Other long-term obligations -- 2,675 212 -- 2,887
Stockholder's equity
(deficit) (40,620) 66,602 7,960 (79,820) (45,878)
--------------------------------------------------------------------------------
Total liabilities and
stockholder's equity
(deficit) $ 83,238 $104,700 $17,420 $(82,455) $122,903
================================================================================
</TABLE>
9
<PAGE> 12
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2000
H. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
Summarized consolidating statements of operations for the three months and six
months ended June 30, 2000 and 1999, respectively, for the Company, the
guarantor subsidiaries, and the non-guarantor 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 June 30, 2000:
Net sales $ -- $ 35,192 $ 5,262 $ -- $ 40,454
Cost of products sold -- 29,066 5,117 -- 34,183
---------------------------------------------------------------------------------
Gross profit -- 6,126 145 -- 6,271
Total operating expenses 314 4,736 917 -- 5,967
---------------------------------------------------------------------------------
Operating income (loss) (314) 1,390 (772) -- 304
Interest expense 3,442 418 58 -- 3,918
Interest income (253) -- -- -- (253)
Miscellaneous, net -- (20) (3) -- (23)
---------------------------------------------------------------------------------
Net income (loss) $(3,503) $ 992 $ (827) $ -- $ (3,338)
=================================================================================
</TABLE>
<TABLE>
<CAPTION>
Combined Combined
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Total
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Three months ended June 30, 1999:
Net sales $ -- $ 45,157 $ 5,658 $ -- $ 50,815
Cost of products sold -- 38,346 5,308 -- 43,654
---------------------------------------------------------------------------------
Gross profit -- 6,811 350 -- 7,161
Total operating expenses 174 5,396 1,203 -- 6,773
---------------------------------------------------------------------------------
Operating income (loss) (174) 1,415 (853) -- 388
Interest expense 3,445 203 39 -- 3,687
Interest income (187) -- -- -- (187)
Miscellaneous, net -- 42 5 -- 47
---------------------------------------------------------------------------------
Net income (loss) $(3,432) $ 1,170 $ (897) $ -- $ (3,159)
=================================================================================
</TABLE>
10
<PAGE> 13
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2000
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>
Six months ended June 30, 2000:
Net sales $ -- $ 70,990 $11,290 $ (1) $ 82,279
Cost of products sold -- 58,777 10,565 (1) 69,341
---------------------------------------------------------------------------------
Gross profit -- 12,213 725 -- 12,938
Total operating expenses 651 9,453 1,880 -- 11,984
---------------------------------------------------------------------------------
Operating income (loss) (651) 2,760 (1,155) -- 954
Interest expense 6,884 849 132 -- 7,865
Interest income (498) -- -- -- (498)
Miscellaneous, net -- (41) (8) -- (49)
---------------------------------------------------------------------------------
Net income (loss) $(7,037) $ 1,952 $(1,279) $ -- $ (6,364)
=================================================================================
</TABLE>
<TABLE>
<CAPTION>
Combined Combined
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Total
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Six months ended June 30, 1999:
Net sales $ -- $102,924 $12,610 $ -- $115,534
Cost of products sold -- 87,584 11,442 -- 99,026
---------------------------------------------------------------------------------
Gross profit -- 15,340 1,168 -- 16,508
Total operating expenses 278 11,113 2,398 -- 13,789
---------------------------------------------------------------------------------
Operating income (loss) (278) 4,227 (1,230) -- 2,719
Interest expense 6,887 370 89 -- 7,346
Interest income (445) -- -- -- (445)
Miscellaneous, net -- 95 14 -- 109
---------------------------------------------------------------------------------
Net income (loss) $(6,720) $ 3,762 $(1,333) $ -- $ (4,291)
=================================================================================
</TABLE>
11
<PAGE> 14
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2000
H. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
Summarized consolidating cash flow statements for the six months ended June 30,
2000 and 1999, respectively, for the Company, the guarantor subsidiaries, and
the non-guarantor 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>
Six months ended June 30, 2000:
Net cash provided by (used in)
operating activities $(7,632) $ 4,553 $(1,942) $ 3 $ (5,018)
Investing activities:
Purchases of property, plant,
and equipment -- (1,046) (88) -- (1,134)
Proceeds from sale of property,
plant, and equipment -- 87 -- -- 87
---------------------------------------------------------------------------------
Net cash used in investing -- (959) (88) -- (1,047)
activities
---------------------------------------------------------------------------------
Financing activities:
Net increase in borrowings on
notes payable -- 4,537 365 -- 4,902
Proceeds from long-term
obligations -- 776 -- -- 776
Principal payments on long-term
obligations -- (918) (33) -- (951)
Distributions for interest on
senior notes 6,600 (6,600) -- -- --
Intercompany loan activity -- (1,721) 1,721 -- --
---------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 6,600 (3,926) 2,053 -- 4,727
Exchange rate changes on cash -- (30) (28) (3) (61)
---------------------------------------------------------------------------------
Decrease in cash and cash (1,032) (362) (5) -- (1,399)
equivalents
Cash and cash equivalents at
beginning of period 17,244 955 101 -- 18,300
---------------------------------------------------------------------------------
Cash and cash equivalents at end of
period $16,212 $ 593 $ 96 $ -- $ 16,901
=================================================================================
</TABLE>
12
<PAGE> 15
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2000
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>
Six months ended June 30, 1999:
Net cash provided by (used in)
operating activities $(6,215) $ 9,931 $(7,013) $(2,287) $ (5,584)
Investing activities:
Purchases of property, plant,
and equipment -- (2,767) (68) -- (2,835)
Proceeds from sale of property,
plant, and equipment -- 23 215 -- 238
Investment in subsidiaries (1,300) -- 1,300 -- --
---------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities (1,300) (2,744) 1,447 -- (2,597)
---------------------------------------------------------------------------------
Financing activities:
Net increase in borrowings on
notes payable -- 1,216 472 307 1,995
Proceeds from long-term
obligations -- 1,600 -- -- 1,600
Principal payments on long-term
obligations -- (47) (455) -- (502)
Distributions for income taxes -- (1,426) -- -- (1,426)
Distributions for interest on
senior notes 6,600 (6,600) -- -- --
Intercompany loan activity -- (1,639) (322) 1,961 --
---------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 6,600 (6,896) (305) 2,268 1,667
Exchange rate changes on cash -- -- 254 19 273
---------------------------------------------------------------------------------
Increase (decrease) in cash and
cash equivalents (915) 291 (5,617) -- (6241)
Cash and cash equivalents at
beginning of period 19,969 684 5,698 -- 26,351
---------------------------------------------------------------------------------
Cash and cash equivalents at end of
period $19,054 $ 975 $ 81 $ -- $ 20,110
=================================================================================
</TABLE>
I. NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements,"
which summarizes the staff's views regarding the application of generally
accepted accounting principles to selected revenue recognition issues and is
effective for the fourth quarter of 2000. The Company is currently evaluating
the impact SAB 101 may have on the Company's results of operations.
13
<PAGE> 16
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 30, 2000.
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. The Company is an
international conveyor equipment manufacturer and in addition to operations in
the United States has manufacturing operations in Australia, the United Kingdom,
and South Africa.
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 months and six months
ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
-------------------- -------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 84.5 85.9 84.3 85.7
Gross profit 15.5 14.1 15.7 14.3
SG&A expenses 13.8 12.7 13.8 11.1
Management fee 0.1 (0.2) 0.1 0.2
Amortization expense 0.4 0.3 0.4 0.3
Restructuring charges 0.4 0.5 0.2 0.4
Operating income 0.8 0.8 1.2 2.3
</TABLE>
THREE MONTHS ENDED JUNE 30, 2000, COMPARED TO THREE MONTHS ENDED JUNE 30, 1999:
Net Sales
---------
Net sales decreased $10.3 million, or 20%, from $50.8 million in 1999 to $40.5
million in 2000. Net sales in the Company's domestic operations of the conveyor
equipment segment decreased $1.6 million due to lower capital spending by the
Company's major customers in the coal industry compared to the second quarter of
1999. Sales from the introduction of the Company's new "HC" product line
partially offset the lower domestic sales. The Company's foreign operations of
the conveyor equipment segment accounted for $5.8 million of the decrease due to
decreases at the Australian and United Kingdom subsidiaries of $5.5 million and
$0.3 million, respectively. The decrease in Australia resulted from the
completion of major projects in 1999 that were not repeated in 2000 and also
from soft market conditions in the coal industry. Net sales in the Company's
manufactured housing products segment decreased $2.7 million due to decreases in
production and shipments of manufactured homes. Net sales in the Company's other
segment decreased $0.2 million.
Gross Profit
------------
Gross profit decreased $0.9 million, or 12%, from $7.2 million in 1999 to $6.3
million in 2000. Gross profit at the Company's domestic operations of the
conveyor equipment segment and United
14
<PAGE> 17
Kingdom subsidiary decreased $0.6 million and $0.2 million, respectively,
primarily due to reduced sales volume. Gross profit at the Company's Australian
subsidiary was unchanged despite lower sales due to slightly improved margins.
Gross profit at the Company's manufactured housing products segment decreased
$0.1 million.
Gross profit as a percentage of sales increased from 14.1% in 1999 to 15.5% in
2000. This increase is primarily due a favorable change in the mixture of
domestic and foreign sales. Domestic sales, which had a higher gross profit
percentage than foreign sales, were 76% of total sales in 2000 as compared to
69% in 1999.
SG&A Expenses
-------------
SG&A expenses decreased $0.9 million, or 14%, from $6.5 million in 1999 to $5.6
million in 2000. The decrease primarily occurred in the Company's conveyor
equipment segment due to the favorable impact of the restructuring initiatives
in the foreign subsidiaries and a reduction in domestic manpower that occurred
in the third quarter of 1999.
Operating Income
----------------
Operating income decreased $0.1 million, or 25%, from $0.4 million in 1999 to
$0.3 million in 2000. The decrease was the result of the $0.9 million decrease
in gross profit, the $0.9 million decrease in SG&A expenses, a $0.2 million
increase in management fees, and a $0.1 million decrease in restructuring
charges.
SIX MONTHS ENDED JUNE 30, 2000, COMPARED TO SIX MONTHS ENDED JUNE 30, 1999:
Net Sales
---------
Net sales decreased $33.2 million, or 29%, from $115.5 million in 1999 to $82.3
million in 2000. The Company's domestic operations of the conveyor equipment
segment accounted for $8.3 million of the decrease due to the continuation of
lower capital spending by the Company's major customers in the coal industry.
Sales from the introduction of the Company's new "HC" product line partially
offset the lower domestic sales. Net sales in the Company's foreign operations
of the conveyor equipment segment decreased $19.6 million, primarily due to a
decrease in sales at the Company's Australian subsidiary of $18.3 million. This
decrease was primarily due to the completion of major projects in the first half
of 1999 that were not repeated in the first half of 2000, combined with the soft
market in the coal industry. Net sales in the Company's manufactured housing
products segment decreased $5.3 million due to decreases in production and
shipments of manufactured homes.
Gross Profit
------------
Gross profit decreased $3.6 million, or 22%, from $16.5 million in 1999 to $12.9
million in 2000. The Company's domestic operations of the conveyor equipment
segment accounted for $3.3 million of this decrease. This decrease was the
result of reduced sales volume. Gross profit in the Company's foreign operations
of the conveyor equipment segment and manufactured housing products segment
decreased $0.1 million and $0.2 million, respectively.
Gross profit as a percentage of sales increased from 14.3% in 1999 to 15.7% in
2000. This increase is primarily due a favorable change in the mixture of
domestic and foreign sales. Domestic sales, which had a higher gross profit
percentage than foreign sales, were 77% of total sales in 2000 as compared to
67% in 1999.
SG&A Expenses
-------------
SG&A expenses decreased $1.5 million, or 12%, from $12.8 million in 1999 to
$11.3 million in 2000. SG&A expenses at the Company's conveyor equipment segment
decreased $1.7 million due
15
<PAGE> 18
to the favorable impact of the restructuring initiatives in the foreign
subsidiaries combined with a reduction in domestic manpower that occurred in the
third quarter of 1999. SG&A expenses at the Company's manufactured housing
products and other business segments decreased by $0.2 million. SG&A expenses at
the Company's corporate headquarters increased by $0.4 million primarily due to
investment banking services.
Operating Income
----------------
Operating income decreased $1.8 million, or 67%, from $2.7 million in 1999 to
$0.9 million in 2000. The decrease resulted from the $3.6 million decrease in
gross profit, offset by decreases in SG&A expenses, management fees, and
restructuring charges of $1.5 million, $0.1 million, and $0.2 million,
respectively.
Restructuring Charges
---------------------
The Company incurred restructuring charges of approximately $0.2 million and
$0.4 million in the first six months of 2000 and 1999, respectively, related to
its Australian and United Kingdom subsidiaries. Total restructuring charges
incurred to date total approximately $2.44 million. In 1998, the Company
executed a plan to close certain Australian manufacturing facilities and merge
the operations with other existing facilities; in 1999 and 2000, the Company
made further reductions in office staff and facilities. In the United Kingdom,
following the acquisition of Huwood International (Huwood) in August 1998, the
Company consolidated its existing operations and facilities into the Huwood
operations. These restructuring charges consist primarily of severance costs for
approximately 220 employees and relocation costs. As of June 30, 2000, the
Company's Australian and United Kingdom subsidiaries have paid approximately
$2.39 million of the charges incurred to date.
Backlog
-------
Backlog at June 30, 2000 was $45.4 million, an increase of $15.7 million, or
53%, from $29.7 million at December 31, 1999. The increase is primarily
attributable to an increase of $9.1 million at the Company's domestic conveyor
operations and an increase of $4.6 million at the Company's Australian
subsidiary. Backlog at the Company's United Kingdom and South African
subsidiaries increased by $2.0 million. Management believes that approximately
75% of the backlog will be shipped in 2000.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $5.0 million and $5.6 million for the
six months ending June 30, 2000 and 1999, respectively. Net cash used in
operating activities in 2000 resulted primarily from a net loss of $6.4 million,
offset by depreciation and amortization of $1.8 million. Net cash used in
operating activities in 1999 is primarily attributable to a net loss of $4.3
million and a net increase in operating assets of $3.2 million, offset by
depreciation and amortization of $2.0 million.
Net cash used in investing activities was $1.0 million and $2.6 million for the
six months ending June 30, 2000 and 1999, respectively. The net cash used in
investing activities represents net purchases of property, plant, and equipment
for both years.
Net cash provided by financing activities was $4.7 million and $1.7 million for
the six months ending June 30, 2000 and 1999, respectively. Net cash provided by
financing activities in 2000 resulted from a net increase in borrowings on notes
payable of $4.9 million and proceeds from long-term obligations of $0.8 million,
offset by principal payments on long-term obligations of $1.0 million. The
increase in borrowings on notes payable is due to an increase of $3.8 million at
the Company's domestic operations and an increase of $1.1 million at the
Company's foreign
16
<PAGE> 19
operations. The proceeds from long-term obligations completed the financing for
the new idler line at the Company's domestic operations which began in 1999. Net
cash provided by financing activities in 1999 represents a net increase in
borrowings on notes payable of $2.0 million and proceeds from long-term
obligations of $1.6 million, offset by principal payments on long-term
obligations of $0.5 million and distributions of $1.4 million for the payment of
income taxes, $1.2 million of which was for the payment of 1998 income taxes.
The proceeds from long-term obligations were used for the purchase of a
previously leased manufacturing facility in Colorado.
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.
At June 30, 2000, the Company had cash and cash equivalents of $16.9 million and
a credit facility line with $14.2 million 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 fluctuation of the U.S. dollar versus
other currencies resulted in increases (decreases) to stockholder's equity of
approximately $(1.3) million and $0.7 million for the six months ended June 30,
2000 and 1999, respectively.
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 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
The following table provides information about the Company's Senior Notes. The
table presents principal cash flows and interest rate by expected maturity date.
<TABLE>
<CAPTION>
Interest Rate Sensitivity
Principal Amount by Expected Maturity
Average Interest Rate
Fair
Value,
(dollars in thousands) 2000 2001 2002 2003 2004 Thereafter Total 6/30/00
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Obligations,
including current portion
Fixed Rate $-- $-- $-- $-- $-- $120,000 $120,000 $31,200
Average interest rate 11% 11% 11% 11% 11% 11%
</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.
18
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: Refer to the index of exhibits.
(b) No reports on Form 8-K were filed during the quarter ended June
30, 2000.
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: August 11, 2000
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 Amendments 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. (Filed as Exhibit 10.1 (b) to the Company's Form
10-Q for the quarter ended March 31, 1999, and is incorporated herein by reference.)
(c) Letter of Amendment, dated as of July 26, 1999, 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 (c) to the
Company's Form 10-Q for the quarter ended June 30, 1999, and is incorporated herein by
reference.)
(d) Letter of Amendment, dated as of November 4, 1999, 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 (d) to the
Company's Form 10-Q for the quarter ended September 30, 1999, and is incorporated
herein by reference.)
(e) Amendment VI, dated as of March 28, 2000, 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 (e) to the Company's Form
10-K for the year ended December 31, 1999, and is incorporated herein by reference.)
10.2 Management Agreement, dated as of April 1, 1997, between Continental Global Group, Inc. *
and Nesco, Inc.
</TABLE>
<PAGE> 24
Continental Global Group, Inc.
Form 10-Q
Index of Exhibits (Continued)
<TABLE>
<S> <C> <C>
10.3 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.
10.4 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.) (Filed as Exhibit 2.0 to Form
8-K filed November 3, 1997, and is incorporated herein by reference.)
10.5 Credit Facility, dated as of July 18, 1999, among Continental Conveyor & Equipment Pty.
Ltd. and its subsidiaries and the National Australia Bank Limited. (Filed as Exhibit
10.6 to the Company's Form 10-K for the year ended December 31, 1999, and is
incorporated herein by reference.)
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.
