<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, 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
Continental Conveyor & Equipment Company Delaware 34-1603197
Goodman Conveyor Company Delaware 34-1603196
<TABLE>
<CAPTION>
<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 April 30, 2000, there were 100 shares of the registrant's common stock
outstanding.
<PAGE> 2
INDEX
CONTINENTAL GLOBAL GROUP, INC.
<TABLE>
<CAPTION>
Page
Part I Financial Information Number
<S> <C>
Item 1 Financial Statements (Unaudited) 1
Condensed Consolidated Balance Sheets
March 31, 2000 and December 31, 1999 2
Condensed Consolidated Statements of Operations
Three Months ended March 31, 2000 and 1999 3
Condensed Consolidated Statements of Cash Flows
Three Months ended March 31, 2000 and 1999 4
Notes to Condensed Consolidated Financial Statements 5-12
Item 2 Management's Discussion and Analysis of Financial Condition and Results of
Operations 13-15
Item 3 Quantitative and Qualitative Disclosures about Market Risk 16
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K 17
Signatures 18
</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
2000 1999
-------------------- --------------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 23,561,080 $ 18,299,610
Accounts receivable, net 24,251,165 30,469,614
Inventories 33,045,371 31,327,817
Other current assets 590,794 1,940,793
-------------------- --------------------
Total current assets 81,448,410 82,037,834
Property, plant and equipment 26,370,298 27,007,610
Less accumulated depreciation 10,539,961 10,305,220
-------------------- --------------------
15,830,337 16,702,390
Goodwill, net 18,908,667 19,642,467
Deferred financing costs 3,639,316 3,769,291
Other assets 778,796 750,845
-------------------- --------------------
$ 120,605,526 $ 122,902,827
==================== ====================
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT):
Current liabilities:
Notes payable $ 11,982,710 $ 8,600,499
Trade accounts payable 17,691,784 21,506,028
Accrued compensation and employee benefits 4,881,826 5,090,694
Accrued interest on senior notes 6,600,000 3,300,000
Other accrued liabilities 4,024,669 4,255,416
Current maturities of long-term obligations 2,602,903 3,140,588
-------------------- --------------------
Total current liabilities 47,783,892 45,893,225
Senior notes 120,000,000 120,000,000
Other long-term obligations, less current maturities 2,666,257 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 (48,107,261) (45,081,586)
Accumulated other comprehensive loss (3,731,050) (2,789,977)
-------------------- --------------------
(49,844,623) (45,877,875)
-------------------- --------------------
$ 120,605,526 $ 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 March 31
2000 1999
------------------- -------------------
(Unaudited)
<S> <C> <C>
Net sales $ 41,825,799 $ 64,719,804
Cost of products sold 35,158,506 55,373,014
------------------- -------------------
Gross profit 6,667,293 9,346,790
Operating expenses:
Selling and engineering 3,342,135 4,021,395
General and administrative 2,396,308 2,316,516
Management fee 78,476 333,192
Amortization expense 156,234 153,546
Restructuring charges 44,068 191,470
------------------- -------------------
Total operating expenses 6,017,221 7,016,119
------------------- -------------------
Operating income 650,072 2,330,671
Other expenses:
Interest expense 3,947,202 3,658,694
Interest income (244,862) (258,330)
Miscellaneous, net (26,593) 62,444
------------------- -------------------
Total other expenses 3,675,747 3,462,808
------------------- -------------------
Net loss $ (3,025,675) $ (1,132,137)
=================== ===================
</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
2000 1999
---------------------- ---------------------
(Unaudited)
<S> <C> <C>
Operating activities:
Net loss $ (3,025,675) $ (1,132,137)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Provision for depreciation and amortization 834,971 891,762
Amortization of deferred financing costs 129,975 129,976
Loss (gain) on disposal of assets (30,720) 5,049
Changes in operating assets and liabilities 4,562,279 4,196,419
---------------------- ---------------------
Net cash provided by operating activities 2,470,830 4,091,069
---------------------- ---------------------
Investing activities:
Purchases of property, plant, and equipment (304,269) (581,405)
Proceeds from sale of property, plant, and equipment 103,484 27,094
---------------------- ---------------------
Net cash used in investing activities (200,785) (554,311)
---------------------- ---------------------
Financing activities:
Net increase (decrease) in borrowings on notes payable 3,526,672 (1,029,155)
Principal payments on long-term obligations (527,032) (268,191)
Distributions for income taxes - (1,210,562)
---------------------- ---------------------
Net cash provided by (used in) financing activities 2,999,640 (2,507,908)
Effect of exchange rate changes on cash (8,215) 193,121
---------------------- ---------------------
Increase in cash and cash equivalents 5,261,470 1,221,971
Cash and cash equivalents at beginning of period 18,299,610 26,350,700
---------------------- ---------------------
Cash and cash equivalents at end of period $ 23,561,080 $ 27,572,671
====================== =====================
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 7
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 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 period ended March 31, 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 63% and 62% of
inventories at March 31, 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 March 31, 2000 and December
31, 1999.
D. RESTRUCTURING CHARGES
The Company incurred restructuring charges of approximately $44,000 and $191,000
in the first three months of 2000 and 1999, respectively, related to its
Australian and United Kingdom subsidiaries. Total restructuring charges incurred
to date total approximately $2,278,000. In 1998, the Company executed a plan to
close certain Australian manufacturing facilities and merge the operations with
other existing facilities; in 1999, the Company made further reductions in
office staff and facilities. In the United Kingdom, following the acquisition of
Huwood in August 1998, the Company consolidated its existing operations and
facilities into the Huwood operations. These restructuring charges consist
primarily of severance of approximately 210 employees and relocation costs. As
of March 31, 2000, the Company's Australian and United Kingdom subsidiaries have
paid approximately $2,216,000 of the charges incurred to date.
5
<PAGE> 8
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2000
E. COMPREHENSIVE LOSS
The components of comprehensive loss for the three months ended March 31, 2000
and 1999 are as follows:
<TABLE>
<CAPTION>
Three months ended March 31
2000 1999
------------------- --------------------
<S> <C> <C>
Net loss $ (3,025,675) $ (1,132,137)
Other comprehensive income (loss):
Foreign currency translation adjustment (941,073) 242,352
------------------- --------------------
Comprehensive loss $ (3,966,748) $ (889,785)
=================== ====================
</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)
March 31, 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
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
2000 1999
---------------- -----------------
(in thousands)
<S> <C> <C>
Net sales:
Conveyor equipment $ 34,869 $ 55,349
Mobile home products 6,229 8,870
Other 728 501
---------------- -----------------
Total net sales $ 41,826 $ 64,720
================ =================
Segment operating income:
Conveyor equipment $ 1,138 $ 2,963
Mobile home products 72 134
Other 43 7
---------------- -----------------
Total segment operating income 1,253 3,104
Management fee 78 333
Amortization expense 156 154
Restructuring charges 44 191
Corporate expense 325 95
---------------- -----------------
Total operating income 650 2,331
Interest expense 3,947 3,659
Interest income (245) (258)
Miscellaneous, net (26) 62
---------------- -----------------
Net loss $ (3,026) $ (1,132)
================ =================
</TABLE>
7
<PAGE> 10
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 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.
Summarized consolidating balance sheets as of March 31, 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>
March 31, 2000:
Current assets:
Cash and cash equivalents $ 22,605 $ 833 $ 123 $ - $ 23,561
Accounts receivable, net 153 19,656 4,642 (200) 24,251
Inventories - 28,621 4,424 - 33,045
Other current assets (2) 427 166 - 591
-------------------------------------------------------------------------------
Total current assets 22,756 49,537 9,355 (200) 81,448
Property, plant, and
equipment, net - 10,731 5,099 - 15,830
Goodwill, net - 18,069 840 - 18,909
Investment in subsidiaries 60,009 18,287 - (78,296) -
Deferred financing costs 3,639 - - - 3,639
Other assets 129 1,821 441 (1,612) 779
-------------------------------------------------------------------------------
Total assets $ 86,533 $ 98,445 $ 15,735 $ (80,108) $ 120,605
===============================================================================
Current liabilities:
Notes payable $ - $ 9,584 $ 2,881 $ (482) $ 11,983
Trade accounts payable 387 14,063 3,756 (515) 17,691
Accrued compensation and
employee benefits - 4,303 579 - 4,882
Accrued interest 6,600 - - - 6,600
Other accrued liabilities 171 2,996 1,644 (786) 4,025
Current maturities of
long-term obligations - 2,593 10 - 2,603
-------------------------------------------------------------------------------
Total current liabilities 7,158 33,539 8,870 (1,783) 47,784
Senior notes 120,000 - - - 120,000
Other long-term obligations - 2,482 184 - 2,666
Stockholder's equity (40,625) 62,424 6,681 (78,325) (49,845)
(deficit)
-------------------------------------------------------------------------------
Total liabilities and
stockholder's equity
(deficit) $ 86,533 $ 98,445 $ 15,735 $ (80,108) $ 120,605
===============================================================================
</TABLE>
8
<PAGE> 11
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 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 (40,620) 66,602 7,960 (79,820) (45,878)
(deficit)
-------------------------------------------------------------------------------
Total liabilities and
stockholder's equity $ 83,238 $ 104,700 $ 17,420 $ (82,455) $ 122,903
(deficit)
===============================================================================
</TABLE>
9
<PAGE> 12
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2000
H. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
Summarized consolidating income statements for the three months ended March 31,
2000 and 1999, respectively, 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>
Three months ended March 31, 2000:
Net sales $ - $ 35,798 $ 6,028 $ - $ 41,826
Cost of products sold - 29,711 5,448 - 35,159
-------------- ------------- -------------- ------------- -------------
Gross profit - 6,087 580 - 6,667
Total operating expenses 337 4,717 963 - 6,017
-------------- ------------- -------------- ------------- -------------
Operating income (loss) (337) 1,370 (383) - 650
Interest expense 3,442 431 74 - 3,947
Interest income (245) - - - (245)
Miscellaneous, net - (21) (5) - (26)
-------------- ------------- -------------- ------------- -------------
Net income (loss) $ (3,534) $ 960 $ (452) $ - $ (3,026)
============== ============= ============== ============= =============
</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, 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
-------------- ------------- -------------- ------------- -------------
Net income (loss) $ (3,288) $ 4,732 $ (2,576) $ - $ (1,132)
============== ============= ============== ============= =============
</TABLE>
10
<PAGE> 13
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2000
H. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
Summarized consolidating cash flow statements for the three months ended
March 31, 2000 and 1999, respectively, 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>
Three months ended March 31, 2000:
Net cash provided by (used in)
operating activities $ 3 $ 4,158 $ (1,692) $ 2 $ 2,471
Investing activities:
Purchases of property, plant,
and equipment - (250) (54) - (304)
Proceeds from sale of property,
plant, and equipment - 103 - - 103
-------------- ------------- -------------- ------------- -------------
Net cash used in investing - (147) (54) - (201)
activities
-------------- ------------- -------------- ------------- -------------
Financing activities:
Net increase in borrowings on
notes payable - 2,904 622 - 3,526
Principal payments on long-term
obligations - (503) (24) - (527)
Distributions for interest on
senior notes 5,358 (5,358) - - -
Intercompany loan activity - (1,174) 1,174 - -
-------------- ------------- -------------- ------------- -------------
Net cash provided by (used in)
financing activities 5,358 (4,131) 1,772 - 2,999
Exchange rate changes on cash - (2) (4) (2) (8)
-------------- ------------- -------------- ------------- -------------
Increase (decrease) in cash and
cash equivalents 5,361 (122) 22 - 5,261
Cash and cash equivalents at
beginning of period 17,244 955 101 - 18,300
-------------- ------------- -------------- ------------- -------------
Cash and cash equivalents at end of
period $ 22,605 $ 833 $ 123 $ - $ 23,561
============== ============= ============== ============= =============
</TABLE>
11
<PAGE> 14
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 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>
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 - (537) (17) - (554)
activities
-------------- ------------- -------------- ------------- -------------
Financing activities:
Net increase (decrease) in
borrowings on notes payable - 403 (1,029) (403) (1,029)
Principal payments on long-term
obligations - (23) (245) - (268)
Distributions for income taxes - (1,211) - - (1,211)
Distributions for interest on
senior notes 3,300 (3,300) - - -
Intercompany loan activity - - (342) 342 -
-------------- ------------- -------------- ------------- -------------
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>
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 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. 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 months ended March 31,
2000 and 1999.
Three months ended March
31
--------------------------
2000 1999
Net sales 100.0% 100.0%
Cost of products sold 84.1 85.6
Gross profit 15.9 14.4
SG&A expenses 13.7 9.8
Management fee 0.1 0.5
Amortization expense 0.4 0.2
Restructuring charges 0.1 0.3
Operating income 1.6 3.6
THREE MONTHS ENDED MARCH 31, 2000, COMPARED TO THREE MONTHS ENDED MARCH 31,
1999:
Net Sales
- ---------
Net sales for the quarter decreased by $22.9 million, or 35%, from $64.7 million
in 1999 to $41.8 million in 2000. Net sales in the Company's domestic conveyor
equipment segment decreased by $6.8 million. This decrease is due to the
continuation of lower capital spending in the domestic coal industry. Net sales
in the Company's foreign conveyor equipment segment declined by $13.7 million,
primarily due to a decrease in the Company's Australian subsidiary of $12.8
million. The sales decrease in Australia is the result of the completion in the
first quarter of 1999 of major projects begun in 1998 that were not repeated in
the first quarter of 2000. Net sales in the Company's mobile home products
business decreased by $2.6 million due to increasing softness in the mobile home
market. Net sales in the Company's other business increased by $0.2 million.
13
<PAGE> 16
Gross Profit
- ------------
Gross profit for the quarter decreased by $2.6 million, or 28%, from $9.3
million in 1999 to $6.7 million in 2000. Gross profit in the Company's conveyor
equipment segment decreased $2.6 million. The domestic conveyor equipment
segment decreased $2.7 million due to lower sales volume and lower sales margin
from the corresponding quarter of 1999. The lower sales margin is due to reduced
overhead absorption resulting from the reduced sales volume. Gross profit in the
Company's foreign conveyor equipment business increased $0.1 million.
SG&A Expenses
- -------------
SG&A expenses for the quarter decreased by $0.6 million, or 9%, from $6.3
million in 1999 to $5.7 million in 2000. This decrease is the result of 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.
Operating Income
- ----------------
Operating income for the quarter decreased by $1.6 million, or 70%, from $2.3
million in 1999 to $0.7 million in 2000. The decrease is the result of the
decrease in gross profit of $2.6 million, offset by reduced SG&A expenses of
$0.6 million, a decrease in management fees of $0.3 million, and a decrease in
restructuring charges of $0.1 million.
Restructuring Charges
- ---------------------
The Company incurred restructuring charges of approximately $44,000 and $191,000
in the first three months of 2000 and 1999, respectively, related to its
Australian and United Kingdom subsidiaries. Total restructuring charges incurred
to date total approximately $2,278,000. In 1998, the Company executed a plan to
close certain Australian manufacturing facilities and merge the operations with
other existing facilities; in 1999, the Company made further reductions in
office staff and facilities. In the United Kingdom, following the acquisition of
Huwood in August 1998, the Company consolidated its existing operations and
facilities into the Huwood operations. These restructuring charges consist
primarily of severance of approximately 210 employees and relocation costs. As
of March 31, 2000, the Company's Australian and United Kingdom subsidiaries have
paid approximately $2,216,000 of the charges incurred to date. As a result of
business conditions in Australia, the Company plans further restructuring in the
second quarter of 2000.
Backlog
- -------
Backlog at March 31, 2000 was $36.7 million, an increase of $7.0 million, or
24%, from $29.7 million at December 31, 1999. The increase is primarily
attributable to an increase of $4.4 million at the Company's domestic conveyor
operations and an increase of $3.0 million at the Company's Australian
subsidiary. Backlog at the Company's United Kingdom and South African
subsidiaries decreased by $0.4 million. Management believes that in excess of
95% of the backlog will be shipped in 2000.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $2.5 million and $4.1 million for
the three months ending March 31, 2000 and 1999, respectively. Net cash provided
by operating activities in 2000 resulted primarily from a net loss of $(3.0)
million, offset by depreciation and amortization of $1.0 million and a net
decrease in operating assets and liabilities of $4.5 million. 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 net
decrease in operating assets and liabilities of $4.2 million.
14
<PAGE> 17
Net cash used in investing activities was $0.2 million and $0.6 million for the
three months ending March 31, 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 (used in) financing activities was $3.0 million and $(2.5)
million for the three months ending March 31, 2000 and 1999, respectively. Net
cash provided by financing activities in 2000 resulted from a net increase in
borrowings on notes payable of $3.5 million offset by principal payments on
long-term obligations of $(0.5) million. 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 for the 1998
income tax year.
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 March 31, 2000, the Company had cash and cash equivalents of $23.6 million
and a credit facility line with $17.8 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 $(0.9) million and $0.2 million for the three months ended March
31, 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 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.
15
<PAGE> 18
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 3/31/00
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Obligations,
including current
portion
Fixed Rate $ - $ - $ - $ - $ - $ 120,000 $ 120,000 $ 30,000
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.
16
<PAGE> 19
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
March 31, 2000.
17
<PAGE> 20
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 12, 2000
18
<PAGE> 21
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 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.
</TABLE>
<PAGE> 22
Continental Global Group, Inc.
Form 10-Q
Index of Exhibits (Continued)
<TABLE>
<S> <C> <C>
10.3 Management Agreement, dated as of April 1, 1997, between *
Continental Global Group, Inc. and Nesco, Inc.
10.4 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.
10.5 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.)
10.6 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.
<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-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 23,561
<SECURITIES> 0
<RECEIVABLES> 24,251
<ALLOWANCES> 0
<INVENTORY> 33,045
<CURRENT-ASSETS> 81,448
<PP&E> 26,370
<DEPRECIATION> 10,540
<TOTAL-ASSETS> 120,605
<CURRENT-LIABILITIES> 47,784
<BONDS> 120,000
1
0
<COMMON> 0
<OTHER-SE> (49,845)
<TOTAL-LIABILITY-AND-EQUITY> 120,605
<SALES> 41,826
<TOTAL-REVENUES> 41,826
<CGS> 35,159
<TOTAL-COSTS> 35,159
<OTHER-EXPENSES> 78
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,947
<INCOME-PRETAX> (3,026)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,026)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,026)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
