CONTINENTAL GLOBAL GROUP, INC.
438 INDUSTRIAL DRIVE
WINFIELD, ALABAMA 35594
October 21, 2005
Gary Todd
Reviewing Accountant
Securities and Exchange Commission
Division of Corporation Finance
Mail Stop 6010
450 Fifth Street, N.W.
Washington, DC 20549
RE: CONTINENTAL GLOBAL GROUP, INC.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2004
FILED MARCH 31, 2005
FILE NO. 333-27665/000-02959
Dear Mr. Todd:
We write in response to your comment letter dated October 4, 2005,
relating to Continental Global Group, Inc.'s ("Continental Global") Annual
Report on Form 10-K for the year ended December 31, 2004. Set forth below are
the responses of Continental Global. As you may be aware, Continental Global is
a voluntary filer of Exchange Act reports. Continental Global has filed Exchange
Act reports pursuant to the terms of its two indentures pursuant to which
certain secured and unsecured debt securities have been issued. Shares of
Continental Global are owned by one stockholder. To the extent that debt remains
outstanding or Continental Global otherwise continues to voluntarily file
Exchange Act reports, Continental Global will address the items identified below
in future filings, to the extent appropriate.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2004
Financial Statements
Note B. Significant Accounting Policies, page 27
Revenue Recognition, page 27
COMMENT
1. We note that you sell mining equipment which includes design,
manufacturing and testing and that you also provide installation and
maintenance in some locations. Tell us how your revenue practices
consider the multiple element accounting requirements of EITF 00-21.
If you believe that guidance is not applicable, please explain. To the
extent applicable, future filings should
Gary Todd
Reviewing Accountant
October 21, 2005
Page 2
clarify how you apply the guidance from the Abstract. To the extent
applicable, also respond with respect to your other product lines.
RESPONSE
We indicated in our description of business that in the conveyor equipment
segment it included the design, manufacture, and testing (and, outside the
United States, installation and maintenance). In this segment, where we are
furnishing equipment that requires design engineering prior to manufacture, the
design and testing of the equipment is performed prior to shipment and are not
considered separate deliverables under EITF 00-21 as there is no value of these
items to the customer on a stand-alone basis. The cost of this function is
included in price of the product. Under these circumstances, revenue is
recognized at the time the equipment is shipped to the customer.
In the United Kingdom, we have contracts that may call for the installation
of the products we have sold. Under these contracts the revenue for the
installation portion of the contract would be separately stated in the contract.
The value of installation recognized would be based upon the completion of
certain milestones or based upon agreed percent of completion.
Additionally, maintenance is not considered material to our revenues
(approximately $2.5 million annually) and is only performed at our Australian
subsidiary. The maintenance is separate from the initial agreements and is
completed usually several years after the original sale of equipment and
primarily consists of the refurbishment of parts. We recognized the revenue on
these maintenance items on a cost plus basis or a fixed rate per hour for the
labor used in the performance of the maintenance work. Due to the overall
immateriality (approximately 1% of consolidated revenues) as well as the
separation of this from the original sale (and thus not a multiple deliverable
under EITF 00-21), we have not disclosed our policy surrounding the revenue
associated with maintenance activities.
For other product lines (manufactured housing products), sales are recognized
upon shipment and there is no installation related to those items.
COMMENT
2. Unless not significant, please expand future filings to identify
and describe post shipment obligations (maintenance, installation,
etc. . . .), including disclosure about how those obligations are
considered in your revenue practices. Also address customer acceptance
provisions, as applicable. Show us how you intend to apply this
comment.
RESPONSE
As noted previously, maintenance is not material (approximately $2.5 million
annually) and therefore, we have not considered disclosure of the policy
necessary. Customer installation only occurs at our United Kingdom operations,
which is accounted for under the percentage of completion method as discussed in
our Accounting Policies. Based on the above, no revision to the policy note has
been made.
Customer acceptance provisions are not deemed material as under section A.3.b of
SAB 101, the only right of return or replacement is required if the delivered
product is defective or fails to meet the vendor's
Gary Todd
Reviewing Accountant
October 21, 2005
Page 3
published specifications for the product. Therefore, these amounts are
considered as a part of the Company's warranty accruals and are discussed in the
policy in the financial statements.
COMMENT
3. We see that some products are sold through distributors. With respect
to transactions with distributors, please tell us why it is appropriate
to recognize revenue at shipment. Explain the terms and conditions of
transactions with these parties in sufficient detail to support your
disclosed accounting policy.
RESPONSE
For the year ending December 31, 2004, sales of $38.8 million in the conveyor
equipment segment were sold through distribution. This amounted to 16.2% of
total net sales. Sales to distributors are based upon individual purchase orders
from time to time covering specific equipment ordered by the individual
distributors. The Company's terms and conditions of sale are the standard terms
and conditions of sales published by the Company covering all sales in the
conveyor equipment segment, including the transfer of title to the distributor
upon shipment of the goods. Additionally, right of return provisions exist in
most distributor arrangements and these provisions meet the requirements of
FAS 48. Due to the overall immateriality of these returns (less than $100,000
per year), no policy has been disclosed related to the rights to return. Revenue
associated with these individual purchase orders is recognized when the product
is shipped to the distributor.
COMMENT
4. We see that you use percentage of completion accounting for long-term
contracts of the foreign subsidiaries. Please tell us more about the
nature, terms and extent of these arrangements, including detail about
how the customer arrangements are different from those with domestic
customers where revenue is recognized at shipment. Explain why
percentage of completion accounting is appropriate in your
circumstances. Please be detailed and specific.
RESPONSE
For the year ending December 31, 2004, revenues of $19.1 million or 8.1% of
total net sales were recorded under the percentage of completion method of
accounting. This revenue was associated primarily with long term contracts in
our United Kingdom operation. These contracts are based upon the customer's
specific product specifications, where time from award of contract to shipment
generally spans a period of one to three years and where progress payments are
made. During the process of performing these contracts, a significant amount of
cost associated with the engineering design, purchase of material, the
manufacture and shipment of the final product and installation would be incurred
on a prorate basis during execution of the contract.
Profit on long-term contracts is taken as the work is carried out only if the
final outcome can be assessed with reasonable certainty. The profit included is
calculated to reflect the proportion of the work carried out by recording
revenue and related costs as contract activity progresses. Revenue is calculated
as that
Gary Todd
Reviewing Accountant
October 21, 2005
Page 4
proportion of total contract value which costs incurred to date bear to total
expected costs for that contract. Revenues derived from variations on contracts
are recognized only when they have been accepted by the customer. Full provision
is made for losses on all contracts in the period in which they are first
foreseen.
In connection with the foregoing responses, Continental Global hereby
acknowledges that:
o Continental Global is responsible for the adequacy and
accuracy of disclosure in the aforementioned filing;
o Comments of the Securities and Exchange Commission ("SEC")
staff or changes to disclosure in response to such staff
comments does not foreclose the SEC from taking any action
with respect to the aforementioned filing; and
o Continental Global may not assert comments of the SEC staff as
a defense in any proceeding initiated by the SEC or any person
under the federal securities laws of the United States of
America.
If you have any questions on the foregoing responses, please feel free
to contact me at (205) 487-1965.
Sincerely,
Continental Global Group, Inc.
/s/ Jimmy L. Dickinson
------------------------------------------
Jimmy L. Dickinson,
Vice President and Chief Financial Officer