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, 2001
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
Continental Conveyor
Continental Global Group, Inc. & Equipment Company Goodman Conveyor Company
438 Industrial Drive 438 Industrial Drive Route 178 South
Winfield, Alabama 35594 Winfield, Alabama 35594 Belton, South Carolina 29627
(205) 487-6492 (205) 487-6492 (864) 338-7793
(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, 2001, there were 100 shares of the registrant's common stock
outstanding.
2
INDEX
CONTINENTAL GLOBAL GROUP, INC.
Page
Part I Financial Information Number
Item 1 Financial Statements (Unaudited) 1
Condensed Consolidated Balance Sheets
1 June 30, 2001 and December 31, 2000 2
Condensed Consolidated Statements of Operations
Three Months and Six Months ended June 30, 2001 and 2000 3
Condensed Consolidated Statements of Cash Flows
Six Months ended June 30, 2001 and 2000 4
Notes to Condensed Consolidated Financial Statements 5-14
Item 2 Management's Discussion and Analysis of Financial Condition and Results of
Operations 15-18
Item 3 Quantitative and Qualitative Disclosures about Market Risk 19
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K 20
Signatures 21
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
1
4
Continental Global Group, Inc.
Condensed Consolidated Balance Sheets
June 30 December 31
2001 2000
------------- -------------
(Unaudited) (Audited)
ASSETS:
Current assets:
Cash and cash equivalents $ 16,231,826 $ 16,941,949
Accounts receivable, net 30,156,357 28,468,042
Inventories 29,855,878 28,076,134
Other current assets 822,878 632,012
------------- -------------
Total current assets 77,066,939 74,118,137
Property, plant and equipment 25,414,955 26,162,365
Less accumulated depreciation 12,060,699 11,575,056
------------- -------------
13,354,256 14,587,309
Goodwill, net 17,095,365 17,922,783
Deferred financing costs 2,989,438 3,249,389
Deferred income taxes 432,746 -
Other assets 205,205 258,437
------------- -------------
$ 111,143,949 $ 110,136,055
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT):
Current liabilities:
Notes payable $ 17,360,065 $ 15,630,900
Trade accounts payable 21,508,369 17,463,905
Accrued compensation and employee benefits 4,773,943 4,648,933
Accrued interest on senior notes 3,300,000 3,300,000
Deferred income taxes 1,520,260 1,594,089
Other accrued liabilities 2,996,728 3,398,710
Current maturities of long-term obligations 1,500,952 1,931,676
------------- -------------
Total current liabilities 52,960,317 47,968,213
Deferred income taxes - 440,894
Senior notes 120,000,000 120,000,000
Other long-term obligations, less current maturities 2,554,644 2,790,135
Stockholder's equity (deficit):
Common stock, $0.01 par value, authorized 5,000,000 shares,
issued and outstanding 100 shares 1 1
Paid-in capital 1,993,687 1,993,687
Accumulated deficit (60,501,334) (58,195,967)
Accumulated other comprehensive loss (5,863,366) (4,860,908)
------------- -------------
(64,371,012) (61,063,187)
------------- -------------
$ 111,143,949 $ 110,136,055
============= =============
See notes to condensed consolidated financial statements.
2
5
Continental Global Group, Inc.
Condensed Consolidated Statements of Operations
Three months ended June 30 Six months ended June 30
2001 2000 2001 2000
----------------------------------- -----------------------------------
(Unaudited) (Unaudited)
Net sales $ 51,628,432 $ 40,870,237 $ 90,566,761 $ 83,129,539
Cost of products sold 42,789,734 34,599,265 74,611,889 70,191,274
--------------------------------- ---------------------------------
Gross profit 8,838,698 6,270,972 15,954,872 12,938,265
Operating expenses:
Selling and engineering 3,017,475 3,213,153 5,950,270 6,555,288
General and administrative 2,093,911 2,379,001 4,236,935 4,775,309
Management fee 214,301 54,456 344,591 132,932
Amortization expense 145,996 153,647 293,775 309,881
Restructuring charges - 166,325 - 210,393
--------------------------------- ---------------------------------
Total operating expenses 5,471,683 5,966,582 10,825,571 11,983,803
--------------------------------- ---------------------------------
Operating income 3,367,015 304,390 5,129,301 954,462
Other expenses:
Interest expense 4,073,562 3,918,297 7,939,558 7,865,499
Interest income (174,849) (253,138) (403,995) (498,000)
Miscellaneous, net 622,631 (22,311) 830,345 (48,904)
--------------------------------- ---------------------------------
Total other expenses 4,521,344 3,642,848 8,365,908 7,318,595
--------------------------------- ---------------------------------
Loss before income taxes (1,154,329) (3,338,458) (3,236,607) (6,364,133)
Income tax benefit (488,739) - (931,240) -
--------------------------------- ---------------------------------
Net loss $ (665,590) $ (3,338,458) $ (2,305,367) $ (6,364,133)
================================== =================================
See notes to condensed consolidated financial statements.
3
6
Continental Global Group, Inc.
Condensed Consolidated Statements of Cash Flows
Six months ended June 30
2001 2000
------------------------------------
(Unaudited)
Operating activities:
Net loss $ (2,305,367) $ (6,364,133)
Adjustments to reconcile net loss to net cash used in
operating activities:
Provision for depreciation and amortization 1,417,924 1,573,799
Amortization of deferred financing costs 259,951 259,951
Deferred income taxes (931,240) -
Loss (gain) on disposal of assets (236) 2,471
Changes in operating assets and liabilities (248,716) (489,523)
------------------------------------
Net cash used in operating activities (1,807,684) (5,017,435)
------------------------------------
Investing activities:
Purchases of property, plant, and equipment (412,446) (1,134,491)
Proceeds from sale of property, plant, and equipment 62,132 87,570
------------------------------------
Net cash used in investing activities (350,314) (1,046,921)
------------------------------------
Financing activities:
Net increase in borrowings on notes payable 1,990,108 4,902,044
Proceeds from long-term obligations - 775,888
Principal payments on long-term obligations (536,258) (950,886)
------------------------------------
Net cash provided by financing activities 1,453,850 4,727,046
Effect of exchange rate changes on cash (5,975) (61,011)
------------------------------------
Decrease in cash and cash equivalents (710,123) (1,398,321)
Cash and cash equivalents at beginning of period 16,941,949 18,299,610
------------------------------------
Cash and cash equivalents at end of period $ 16,231,826 $ 16,901,289
====================================
See notes to condensed consolidated financial statements.
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Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2001
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 six month period ended June 30, 2001
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2001. For further information, refer to the consolidated
financial statements and footnotes of Continental Global Group, Inc. and
subsidiaries for the year ended December 31, 2000, included in the Form 10-K
filed by the Company on April 2, 2001.
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 65% and 62% of
inventories at June 30, 2001 and December 31, 2000, 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 $1,682,000 and $1,690,000 at June 30, 2001
and December 31, 2000, respectively.
D. RESTRUCTURING CHARGES
The Company incurred restructuring charges of approximately $210,000 in the
first six months of 2000 related to its Australian and United Kingdom
subsidiaries. Total restructuring charges incurred to date total approximately
$2,715,000. 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 of approximately 220 employees and
relocation costs. As of June 30, 2001, the Company's Australian and United
Kingdom subsidiaries have paid approximately $2,658,000 of the charges incurred
to date.
5
8
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2001
E. COMPREHENSIVE LOSS
The components of comprehensive loss for the three months and six months ended
June 30, 2001 and 2000 are as follows:
Three months ended June 30 Six months ended June 30
2001 2000 2001 2000
---------------------------------- ---------------------------------
Net loss $ (665,590) $ (3,338,458) $ (2,305,367) $ (6,364,133)
Other comprehensive income (loss):
Foreign currency translation
adjustment 478,038 (371,641) (1,002,458) (1,312,714)
---------------------------------- ---------------------------------
Comprehensive loss $ (187,552) $ (3,710,099) $ (3,307,825) $ (7,676,847)
================================== =================================
F. INCOME TAXES
Effective October 6, 2000, the Company and its domestic subsidiaries elected C
Corporation status for United States income tax purposes. Since that date,
income taxes have been provided using the liability method in accordance with
FASB Statement No. 109, "Accounting for Income Taxes". Prior to October 6, 2000,
the Company and its domestic subsidiaries had elected Subchapter S Corporation
Status for United States income tax purposes. Accordingly, the Company's United
States operations were not subject to income taxes as separate entities. The
Company's United States income, through October 6, 2000, was included in the
income tax returns of the sole stockholder.
For tax reporting purposes, the Company will be included in the consolidated
federal tax return of N.E.S. Investment Co. However, for financial reporting
purposes, the Company's tax provision has been calculated on a stand-alone
basis.
The Company has subsidiaries located in Australia, the United Kingdom, and South
Africa, which are subject to income taxes in their respective countries.
6
9
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2001
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 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.
Three months ended June 30 Six months ended June 30
2001 2000 2001 2000
------------------------------------------------------------
(in thousands) (in thousands)
Net sales:
Conveyor equipment $ 48,295 $ 35,036 $ 84,243 $ 70,321
Manufactured housing products 3,037 5,379 5,579 11,610
Other 296 455 745 1,198
------------------------------------------------------------
Total net sales $ 51,628 $ 40,870 $ 90,567 $ 83,129
============================================================
Segment operating income (loss):
Conveyor equipment $ 3,970 $ 980 $ 6,289 $ 2,119
Manufactured housing products (6) (44) - 28
Other (5) 44 12 87
------------------------------------------------------------
Total segment operating income 3,959 980 6,301 2,234
Management fee 214 54 345 133
Amortization expense 146 154 294 310
Restructuring charges - 166 - 210
Corporate expense 232 302 533 627
------------------------------------------------------------
Total operating income 3,367 304 5,129 954
Interest expense 4,073 3,918 7,939 7,865
Interest income (175) (253) (404) (498)
Miscellaneous, net 623 (23) 830 (49)
------------------------------------------------------------
Loss before income taxes $ (1,154) $ (3,338) $ (3,236) $ (6,364)
============================================================
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Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2001
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 June 30, 2001 and December 31,
2000 for the Company, the guarantor subsidiaries, and the non-guarantor
subsidiaries are as follows (in thousands):
Combined Combined
Guarantor Non-Guarantor
June 30, 2001: The Company Subsidiaries Subsidiaries Eliminations Total
-------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 15,465 $ 641 $ 126 $ - $ 16,232
Accounts receivable, net - 23,266 6,937 (47) 30,156
Inventories - 26,650 3,206 - 29,856
Other current assets 114 866 204 (361) 823
-------------------------------------------------------------------------------
Total current assets 15,579 51,423 10,473 (408) 77,067
Property, plant, and
equipment, net - 9,484 3,870 - 13,354
Goodwill, net - 16,451 644 - 17,095
Investment in subsidiaries 60,009 16,506 - (76,515) -
Deferred financing costs 2,990 - - - 2,990
Deferred income taxes 4,426 - 253 (4,246) 433
Other assets 66 2,766 64 (2,691) 205
-------------------------------------------------------------------------------
Total assets $ 83,070 $ 96,630 $ 15,304 $ (83,860) $ 111,144
===============================================================================
Current liabilities:
Notes payable $ - $ 14,834 $ 3,960 $ (1,434) $ 17,360
Trade accounts payable 771 15,072 5,702 (37) 21,508
Accrued compensation and
employee benefits - 4,141 633 - 4,774
Accrued interest 3,300 - - - 3,300
Deferred income taxes - 1,520 - - 1,520
Other accrued liabilities 171 2,845 360 (379) 2,997
Current maturities of
long-term obligations - 1,472 29 - 1,501
-------------------------------------------------------------------------------
Total current liabilities 4,242 39,884 10,684 (1,850) 52,960
Deferred income taxes - 4,246 - (4,246) -
Senior Notes 120,000 - - - 120,000
Other long-term obligations - 2,519 1,097 (1,061) 2,555
Stockholder's equity (deficit) (41,172) 49,981 3,523 (76,703) (64,371)
-------------------------------------------------------------------------------
Total liabilities and
stockholder's equity (deficit) $ 83,070 $ 96,630 $ 15,304 $ (83,860) $ 111,144
===============================================================================
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11
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2001
H. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
Combined Combined
Guarantor Non-Guarantor
December 31, 2000: The Company Subsidiaries Subsidiaries Eliminations Total
-------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 16,257 $ 565 $ 120 $ - $ 16,942
Accounts receivable, net - 23,981 4,534 (47) 28,468
Inventories - 23,971 4,105 - 28,076
Other current assets 15 1,509 77 (969) 632
-------------------------------------------------------------------------------
Total current assets 16,272 50,026 8,836 (1,016) 74,118
Property, plant, and
equipment, net - 10,218 4,369 - 14,587
Goodwill, net - 17,193 730 - 17,923
Investment in subsidiaries 60,009 17,399 - (77,408) -
Deferred financing costs 3,249 - - - 3,249
Other assets 1,424 1,951 358 (3,474) 259
-------------------------------------------------------------------------------
Total assets $ 80,954 $ 96,787 $ 14,293 $ (81,898) $ 110,136
===============================================================================
Current liabilities:
Notes payable $ - $ 13,831 $ 3,270 $ (1,470) $ 15,631
Trade accounts payable 385 11,777 5,646 (345) 17,463
Accrued compensation and
employee benefits - 4,086 563 - 4,649
Accrued interest 3,300 - - - 3,300
Deferred income taxes - 1,594 - - 1,594
Other accrued liabilities 171 2,534 1,687 (993) 3,399
Current maturities of
long-term obligations - 1,883 49 - 1,932
-------------------------------------------------------------------------------
Total current liabilities 3,856 35,705 11,215 (2,808) 47,968
Deferred income taxes - 2,052 - (1,611) 441
Senior Notes 120,000 - - - 120,000
Other long-term obligations - 2,747 43 - 2,790
Stockholder's equity (deficit) (42,902) 56,283 3,035 (77,479) (61,063)
-------------------------------------------------------------------------------
Total liabilities and
stockholder's equity (deficit) $ 80,954 $ 96,787 $ 14,293 $ (81,898) $ 110,136
===============================================================================
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Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2001
H. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
Summarized consolidating statements of operations for the three months and six
months ended June 30, 2001 and 2000, respectively, for the Company, the
guarantor subsidiaries, and the non-guarantor subsidiaries are as follows (in
thousands):
Combined Combined
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Total
---------------------------------------------------------------------------
Three months ended June 30, 2001:
Net sales $ -- $ 41,961 $ 9,667 $ -- $ 51,628
Cost of products sold -- 34,481 8,308 -- 42,789
---------------------------------------------------------------------------
Gross profit -- 7,480 1,359 -- 8,839
Total operating expenses 245 4,389 838 -- 5,472
---------------------------------------------------------------------------
Operating income (loss) (245) 3,091 521 -- 3,367
Interest expense 3,442 580 51 -- 4,073
Interest income (175) -- -- -- (175)
Miscellaneous, net 480 148 (5) -- 623
---------------------------------------------------------------------------
Income (loss) before income taxes (3,992) 2,363 475 -- (1,154)
Income tax expense (benefit) (1,595) 1,107 -- -- (488)
---------------------------------------------------------------------------
Net income (loss) $ (2,397) $ 1,256 $ 475 $ -- $ (666)
===========================================================================
Combined Combined
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Total
---------------------------------------------------------------------------
Three months ended June 30, 2000:
Net sales $ -- $ 35,601 $ 5,269 $ -- $ 40,870
Cost of products sold -- 29,475 5,124 -- 34,599
---------------------------------------------------------------------------
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)
===========================================================================
10
13
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2001
H. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
Combined Combined
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Total
---------------------------------------------------------------------------
Six months ended June 30, 2001:
Net sales $ -- $ 74,458 $ 16,109 $ -- $ 90,567
Cost of products sold -- 60,738 13,874 -- 74,612
---------------------------------------------------------------------------
Gross profit -- 13,720 2,235 -- 15,955
Total operating expenses 559 8,675 1,592 -- 10,826
---------------------------------------------------------------------------
Operating income (loss) (559) 5,045 643 -- 5,129
Interest expense 6,883 955 101 -- 7,939
Interest income (404) -- -- -- (404)
Miscellaneous, net 700 139 (9) -- 830
---------------------------------------------------------------------------
Income (loss) before income taxes (7,738) 3,951 551 -- (3,236)
Income tax expense (benefit) (3,093) 2,162 -- -- (931)
---------------------------------------------------------------------------
Net income (loss) $ (4,645) $ 1,789 $ 551 $ -- $ (2,305)
===========================================================================
Combined Combined
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Total
---------------------------------------------------------------------------
Six months ended June 30, 2000:
Net sales $ - $ 71,820 $ 11,310 $ (1) $ 83,129
Cost of products sold - 59,607 10,585 (1) 70,191
---------------------------------------------------------------------------
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)
===========================================================================
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14
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2001
H. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
Summarized consolidating cash flow statements for the six months ended June 30,
2001 and 2000, respectively, for the Company, the guarantor subsidiaries, and
the non-guarantor subsidiaries are as follows (in thousands):
Combined Combined
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Total
------------------------------------------------------------------------------
Six months ended June 30, 2001:
Net cash provided by (used in)
operating activities $ (7,166) $ 6,347 $ (989) $ - $ (1,808)
Investing activities:
Purchases of property, plant, and
equipment - (295) (117) - (412)
Proceeds from sale of property,
plant, and equipment - 47 15 - 62
------------------------------------------------------------------------------
Net cash used in investing activities - (248) (102) - (350)
------------------------------------------------------------------------------
Financing activities:
Net increase in borrowings on notes
payable - 1,155 835 - 1,990
Principal payments on long-term
obligations - (515) (21) - (536)
Distributions for interest on
senior notes 6,374 (6,374) - - -
Intercompany loan activity - (293) 293 - -
------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 6,374 (6,027) 1,107 - 1,454
Exchange rate changes on cash - 4 (10) - (6)
------------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents (792) 76 6 - (710)
Cash and cash equivalents at beginning
of period 16,257 565 120 - 16,942
------------------------------------------------------------------------------
Cash and cash equivalents at end of
period $ 15,465 $ 641 $ 126 $ - $ 16,232
==============================================================================
12
15
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2001
H. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
Combined Combined
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Total
------------------------------------------------------------------------------
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 activities - (959) (88) - (1,047)
------------------------------------------------------------------------------
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 equivalents (1,032) (362) (5) - (1,399)
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
==============================================================================
I. SUBSEQUENT EVENT
On July 19, 2001, the Company purchased certain assets in Alabama from Lippert
Tire & Axle, Inc., for a purchase price of approximately $1,600,000. Lippert
manufactures new axles and refurbishes used axles and tires for the
manufactured housing industry.
13
16
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2001
J. NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and SFAS
No. 142, "Goodwill and Other Intangible Assets". The provisions of SFAS No. 141
are effective for all business combinations accounted for by the purchase method
that are completed after June 30, 2001. SFAS No. 142 is effective January 1,
2002 and applies to all goodwill and other intangible assets recognized in the
Company's statement of financial position at that date, regardless of when those
assets were initially recognized. Under SFAS No. 142, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests. Other intangible assets will continue to be
amortized over their useful lives. The transition provisions in SFAS No. 142
provide that goodwill and intangible assets with indefinite lives acquired in a
business combination completed after June 30, 2001 will not be amortized. The
Company is currently evaluating the provisions of SFAS No. 141 an SFAS No. 142
and has not yet determined the effects of these Statements on the Company's
financial position or results of operations.
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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 28, 2001.
GENERAL
The Company, through its subsidiaries, is primarily engaged in the manufacture
and distribution of bulk material handling and replacement equipment, primarily
for use in the mining industry. The Company is a holding company organized under
the Delaware General Corporation law and conducts all of its business through
its direct and indirect operating subsidiaries. The Company's direct operating
subsidiaries are Continental Conveyor and Equipment Company and Goodman Conveyor
Company. The Company also owns indirectly all of the capital stock of
Continental Conveyor & Equipment Pty. Ltd., an Australian holding company that
owns all of the capital stock of four Australian operating companies. The
Company also owns indirectly all of the capital stock of Continental Conveyor
Ltd., a U.K. operating company, and Continental MECO (Pty.) Ltd., a South
African operating company. During 1998, the Company purchased the majority of
the assets and assumed certain liabilities constituting a majority of the
operations of Huwood International, a U.K. belt conveyor business. The
operations of the Company's existing U.K. facilities were merged with the Huwood
operations.
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, 2001 and 2000.
Three months ended Six months ended
June 30 June 30
-------------------------- -------------------------
2001 2000 2001 2000
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 82.9 84.7 82.4 84.4
Gross profit 17.1 15.3 17.6 15.6
SG&A expenses 9.9 13.7 11.2 13.6
Management fee 0.4 0.1 0.4 0.2
Amortization expense 0.3 0.4 0.3 0.4
Restructuring charges - 0.4 - 0.3
Operating income 6.5 0.7 5.7 1.1
THREE MONTHS ENDED JUNE 30, 2001, COMPARED TO THREE MONTHS ENDED JUNE 30, 2000:
Net Sales
- ---------
Net sales for the quarter increased $10.7 million, or 26%, from $40.9 million in
2000 to $51.6 million in 2001. The increase was the result of an increase in net
sales at the Company's domestic and foreign operations of the conveyor equipment
segment of $7.3 million and $5.9 million, respectively, offset by decreases in
net sales in the manufactured housing and other segments of $2.3 million and
$0.2 million, respectively. The increase in the domestic conveyor operations was
due to increased spending by the Company's customers for replacement equipment
and capital projects primarily in the mining equipment business. The increase
in the foreign conveyor operations resulted from an increase in the standard
manufactured products business primarily in the United Kingdom. The decrease
in the manufactured housing segment was caused by the decrease by the Company's
customers in the production and shipment of manufactured homes as a result of
excess finished home inventory and the tight credit market.
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Gross Profit
- ------------
Gross profit for the quarter increased $2.5 million, or 40%, from $6.3 million
in 2000 to $8.8 million in 2001. Gross profit in the domestic and foreign
operations of the conveyor equipment segment increased $1.1 million and $1.4
million, respectively. The improvement in the Company's domestic gross profit
was due to increased sales volume in the mining equipment business. The
improvement in gross profit in the foreign operations was due to improved
margins resulting from a more favorable mixture of manufactured products which
began in the first quarter combined with the effects of increased sales volume.
SG&A Expenses
- -------------
SG&A expenses for the quarter decreased $0.5 million, or 9%, from $5.6 million
in 2000 to $5.1 million in 2001. Approximately $0.4 million of the decrease
occurred in the foreign operations of the Company's conveyor equipment segment
due to the favorable impact of the restructuring initiatives.
Operating Income
- ----------------
Operating income for the quarter increased $3.1 million, or 1000%, from $0.3
million in 2000 to $3.4 million in 2001. This increase was primarily the result
of the $2.5 million increase in gross profit combined with the $0.5 million
decrease in SG&A expenses.
SIX MONTHS ENDED JUNE 30, 2001, COMPARED TO SIX MONTHS ENDED JUNE 30, 2000:
Net Sales
- ---------
Net sales for the six-month period increased $7.4 million, or 9%, from $83.1
million in 2000 to $90.5 million in 2001. Net sales in the domestic operations
of the Company's conveyor equipment segment increased $7.7 million due to
spending increases by the Company's customers for replacement equipment and
capital projects primarily in the mining equipment business. Net sales in the
foreign operations of the Company's conveyor equipment segment increased $6.2
million as a result of an increase in the standard manufactured products
business primarily in the United Kingdom. Net sales in the manufactured housing
segment decreased $6.0 million due to the decrease by the Company's customers in
the production and shipment of manufactured homes as a result of excess finished
home inventory and the tight credit market. Net sales in the other segment
decreased $0.5 million.
Gross Profit
- ------------
Gross profit for the six-month period increased $3.0 million, or 23%, from $12.9
million in 2000 to $15.9 million in 2001. Gross profit in the domestic
operations of the conveyor equipment segment increased $1.3 million primarily
due to increased sales volume in the mining equipment business. Gross profit
in the foreign operations of the conveyor equipment segment increased $1.9
million as a result of improved margins due to a more favorable mixture of
manufactured products and increased sales volume. Gross profit in the
manufactured housing and other segments decreased $0.2 million.
SG&A Expenses
- -------------
SG&A expenses for the six-month period decreased $1.1 million, or 10%, from
$11.3 million in 2000 to $10.2 million in 2001. Approximately $0.9 million of
the decrease occurred in the foreign operations of the Company's conveyor
equipment segment due to the favorable impact of the restructuring initiatives.
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Operating Income
- ----------------
Operating income for the six-month period increased $4.2 million, or 467%, from
$0.9 million in 2000 to $5.1 million in 2001. This increase was primarily the
result of the $3.0 million increase in gross profit combined with the $1.1
million decrease in SG&A expenses.
Backlog
- -------
Backlog at June 30, 2001 was $49.2 million, an increase of $13.4 million, or
37%, from $35.8 million at December 31, 2000 and was only slightly less than
the $52.3 million backlog at March 31, 2001. The increase was attributable
to a $12.3 million increase in the Company's domestic operations of the conveyor
equipment segment and a $1.1 million increase in the Company's foreign
operations of the conveyor equipment segment. Management believes that
approximately 90% of the backlog will be shipped in 2001.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $1.8 million and $5.0 million for the
six months ending June 30, 2001 and 2000, respectively. Net cash used in
operating activities in 2001 resulted from a net loss of $2.3 million and a net
increase in operating assets and liabilities of $0.2 million, offset by non-cash
expenses such as depreciation, amortization, and deferred income taxes of $0.7
million. Net cash used in operating activities in 2000 resulted primarily from a
net loss of $6.4 million and a net increase in operating assets and liabilities
of $0.4 million, offset by depreciation and amortization of $1.8 million.
Net cash used in investing activities was $0.4 million and $1.0 million for the
six months ending June 30, 2001 and 2000, 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 $1.5 million and $4.7 million for
the six months ending June 30, 2001 and 2000, respectively. Net cash provided by
financing activities in 2001 represents a net increase in borrowings on notes
payable of $2.0 million offset by principal payments on long-term obligations of
$0.5 million. The increase in borrowings on notes payable was due to an increase
of $1.2 million at the Company's domestic operations and an increase of $0.8
million at the Company's foreign operations. 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 was 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 operations. The proceeds from long-term obligations of $0.8 million
completed the financing for the new idler line at the Company's domestic
operations which began in 1999.
At June 30, 2001, the Company had cash and cash equivalents of approximately
$16.2 million and approximately $9.9 million available for use under its
domestic credit facility, representing approximately $26.1 million of liquidity.
On July 19, 2001, the Company purchased certain assets in Alabama from Lippert
Tire & Axle, Inc., for a purchase price of approximately $1.6 million.
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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 decreases to stockholder's equity of approximately
$1.0 million and $1.3 million for the six months ended June 30, 2001 and 2000,
respectively.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and SFAS
No. 142, "Goodwill and Other Intangible Assets". The provisions of SFAS No. 141
are effective for all business combinations accounted for by the purchase method
that are completed after June 30, 2001. SFAS No. 142 is effective January 1,
2002 and applies to all goodwill and other intangible assets recognized in the
Company's statement of financial position at that date, regardless of when those
assets were initially recognized. Under SFAS No. 142, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests. Other intangible assets will continue to be
amortized over their useful lives. The transition provisions in SFAS No. 142
provide that goodwill and intangible assets with indefinite lives acquired in a
business combination completed after June 30, 2001 will not be amortized. The
Company is currently evaluating the provisions of SFAS No. 141 an SFAS No. 142
and has not yet determined the effects of these Statements on the Company's
financial position or results of operations.
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.
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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.
Interest Rate Sensitivity
Principal Amount by Expected Maturity
Average Interest Rate
Fair
Value,
(dollars in thousands) 2001 2002 2003 2004 2005 Thereafter Total 6/30/01
- ---------------------------------------------------------------------------------------------------------
Long-Term Obligations,
including current
portion
Fixed Rate $ - $ - $ - $ - $ - $ 120,000 $ 120,000 $50,400
Average interest rate 11% 11% 11% 11% 11% 11%
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. The Company entered into a foreign currency forward contract
to reduce the Company's exposure to the risk that the eventual net cash inflows
resulting from the sale of products denominated in a currency other than the
businesses functional currency will be adversely impacted by changes in the
exchange rate of the Australian dollar.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: Refer to the index of exhibits.
(b) On April 3, 2001, the Company filed an 8-K related to the Offer
to Purchase outstanding Senior Notes. On May 15, 2001, the
Company filed an 8-K related to the expiration of the Offer to
Purchase outstanding Senior Notes.
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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/ Mark Etchberger
-------------------
Mark Etchberger
Controller (As duly authorized representative and as
Principal Financial and Accounting Officer)
Date: August 14, 2001
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Continental Global Group, Inc.
Form 10-Q
Index of Exhibits
Exhibit
Number Description of Exhibit
------ ----------------------
3.1
(a) Certificate of Incorporation of Continental Global Group,
Inc., as currently in effect. *
(b) Certificate of Amendment of Certificate of Incorporation of
Continental Global Group, Inc. (Filed as Exhibit 3.1(b) to
the Company's Form 10-Q for the quarter ended September 30,
2000, and is incorporated herein by reference.)
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.)
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Continental Global Group, Inc.
Form 10-Q
Index of Exhibits (Continued)
10.1
(f) Letter of Amendment, dated as of March 29, 2001, 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(f) to the Company's Form 10-K for the year ended
December 31, 2000, and is incorporated herein by reference.)
10.2 Management Agreement, dated as of April 1, 1997, between *
Continental Global Group, Inc. and Nesco, Inc.
Certain instruments with respect to long-term debt have not been filed as
exhibits as the total amount of securities authorized under any one of such
instruments does not exceed 10 percent of the total assets of the registrant and
its subsidiaries on a consolidated basis. The registrant agrees to furnish to
the Commission a copy of each such instrument upon request.
* Incorporated by reference from Form S-4 Registration Number 333-27665 filed
under the Securities Act of 1933.
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