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, 1998
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 & 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
(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, 1998, there were 100 shares of the registrant's common stock
outstanding.
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INDEX
CONTINENTAL GLOBAL GROUP, INC.
Part I Financial Information Page Number
Item 1 Financial Statements (Unaudited).............................................. 1
Condensed Consolidated Balance Sheets
March 31, 1998 and December 31, 1997.......................................... 2
Condensed Consolidated Statements of Income and Comprehensive Income
Three Months ended March 31, 1998 and 1997.................................... 3
Condensed Consolidated Statements of Cash Flows
Three Months ended March 31, 1998 and 1997.................................... 4
Notes to Condensed Consolidated Financial Statements.......................... 5-10
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................... 11-13
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K.............................................. 14
Signature................................................................................ 15
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Part I. Financial Information
Item 1. Financial Statements (Unaudited)
1
4
Continental Global Group, Inc.
Condensed Consolidated Balance Sheets
March 31 December 31
1998 1997
------------- --------------
(Unaudited) (Audited)
ASSETS:
Current assets:
Cash and cash equivalents $ 32,539,127 $ 30,882,733
Accounts receivable, net 32,586,241 30,458,953
Inventories 28,747,491 27,572,559
Other current assets 1,109,637 1,198,425
------------- -------------
Total current assets 94,982,496 90,112,670
Property, plant and equipment 20,190,266 19,530,408
Less accumulated depreciation 6,951,989 6,289,081
------------- -------------
13,238,277 13,241,327
Goodwill 20,701,021 20,713,078
Deferred financing costs 4,679,121 4,809,097
Other assets 986,732 848,611
------------- -------------
$ 134,587,647 $ 129,724,783
============= =============
LIABILITIES AND OWNER'S EQUITY:
Current liabilities:
Notes payable $ 4,085,147 $ 455,743
Trade accounts payable 17,981,484 18,874,057
Accrued compensation and employee benefits 5,010,480 6,030,950
Other accrued liabilities 13,225,555 10,466,645
Current maturities of long-term obligations 1,183,215 1,181,715
------------- -------------
Total current liabilities 41,485,881 37,009,110
Senior notes 120,000,000 120,000,000
Other long-term obligations, less current maturities 8,534,926 8,688,529
Stockholder's equity:
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
Retained deficit (35,187,909) (35,456,724)
Accumulated other comprehensive income (2,238,939) (2,509,820)
------------- -------------
(35,433,160) (35,972,856)
------------- -------------
$ 134,587,647 $ 129,724,783
============= =============
See notes to condensed consolidated financial statements.
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5
Continental Global Group, Inc.
Condensed Consolidated Statements of Income and Comprehensive Income
Three months ended March 31
1998 1997
-------------------------------
(Unaudited)
Net sales $ 57,091,275 $ 47,075,637
Cost of products sold 46,588,667 38,493,591
-------------------------------
Gross profit 10,502,608 8,582,046
Operating expenses:
Selling and engineering 4,044,157 3,253,217
General and administrative 1,974,309 1,297,726
Management fee 290,333 775,966
Amortization expense 171,375 89,381
-------------------------------
Total operating expenses 6,480,174 5,416,290
-------------------------------
Operating income 4,022,434 3,165,756
Other expenses (income):
Interest expense, net 3,242,127 1,283,897
Miscellaneous, net (23,889) (42,722)
-------------------------------
Total other expenses 3,218,238 1,241,175
-------------------------------
Income before foreign income taxes 804,196 1,924,581
Foreign income taxes (132,976) (250,000)
-------------------------------
Net income 937,172 2,174,581
Other comprehensive income:
Foreign currency translation adjustment 270,881 (15,599)
-------------------------------
Comprehensive income $ 1,208,053 $ 2,158,982
===============================
See notes to condensed consolidated financial statements.
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6
Continental Global Group, Inc.
Condensed Consolidated Statements of Cash Flows
Three months ended March 31
1998 1997
-------------------------------
(Unaudited)
Operating activities:
Net income $ 937,172 $ 2,174,581
Adjustments to reconcile net income to net cash used in
operating activities:
Deferred foreign income tax credit - (250,000)
Provision for depreciation and amortization 804,949 588,598
Changes in operating assets and liabilities (2,388,759) (3,368,801)
-------------------------------
Net cash used in operating activities (646,638) (855,622)
Investing activities:
Purchases of property, plant, and equipment (net) (513,697) (539,367)
Purchase of BCE, net of notes to seller - (7,189,125)
-------------------------------
Net cash used in investing activities (513,697) (7,728,492)
Financing activities:
Net increase in borrowings on notes payable 3,658,973 6,482,143
Proceeds from long-term obligations 69,182 4,117,703
Principal payments on long-term obligations (295,956) (628,670)
Distributions for income taxes (668,357) (1,185,998)
-------------------------------
Net cash provided by financing activities 2,763,842 8,785,178
Effect of exchange rate on cash 52,887 (15,599)
-------------------------------
Increase in cash and cash equivalents 1,656,394 185,465
Cash and cash equivalents at beginning of period 30,882,733 1,022,033
-------------------------------
Cash and cash equivalents at end of period $ 32,539,127 $ 1,207,498
===============================
See notes to condensed consolidated financial statements.
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Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 1998
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, 1998
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. For further information, refer to the consolidated
financial statements and footnotes of Continental Global Group, Inc. and
subsidiaries for the year ended December 31, 1997, included in the Form 10-K
filed by the Company on March 27, 1998.
B. ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement 130, Reporting Comprehensive Income,
which establishes new rules for the reporting and display of comprehensive
income and its components. Statement 130 requires the Company's foreign currency
translation adjustments to be included in other comprehensive income and the
disclosure of total comprehensive income. The adoption of Statement 130 in the
first quarter of 1998 had no impact on the Company's net income or owner's
equity. The foreign currency translation adjustment included in other
comprehensive income was approximately $271,000 and $(16,000) for the three
months ended March 31, 1998 and 1997, respectively. The accumulated other
comprehensive income included in owner's equity was approximately $(2,239,000)
and $(2,510,000) at March 31, 1998 and December 31, 1997, respectively.
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 66% of
inventories at March 31, 1998 and December 31, 1997, respectively, is determined
using the last-in, first-out (LIFO) method with the remainder determined using
the first-in, first-out (FIFO) method. Had the FIFO method of inventory (which
approximates replacement cost) been used to cost all inventories, inventories
would have increased by approximately $2,140,000 at March 31, 1998 and December
31, 1997.
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Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
D. 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 monthly distributions to the stockholder for payment of income
taxes.
The Company has subsidiaries located in Australia, the United Kingdom, and South
Africa which are subject to income taxes in their respective countries. For the
three months ended March 31, 1998 and 1997, the Company recorded foreign income
tax credits of approximately $133,000 and $250,000, respectively, related to its
Australian subsidiary. The Company did not record foreign income tax expense
related to its subsidiaries in the United Kingdom and South Africa because these
subsidiaries have operating loss carryforwards which offset any current year tax
expense. Pre-tax income (loss) attributable to foreign operations was
approximately $(721,000) and $(729,000) for the three month periods ended March
31, 1998 and 1997, respectively.
E. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
The Company's domestic subsidiaries, Continental Conveyor & Equipment Company
(CCE) and Goodman Conveyor Company (GCC), both of which are wholly owned, are
the only guarantors of the Series B Senior Notes. The guarantees are full,
unconditional, and joint and several. Separate financial statements of these
guarantor subsidiaries are not presented as management has determined that they
would not be material to investors.
The Company's foreign subsidiaries are not guarantors of the Series B Senior
Notes. Summarized consolidating balance sheets as of March 31, 1998 and December
31, 1997 for the Company, the guarantor subsidiaries, and the non-guarantor,
foreign subsidiaries is as follows (in thousands):
Combined Combined
Guarantor Non-Guarantor
The Company Subsidiaries Subsidiaries Eliminations Total
------------------------------------------------------------------------------
March 31, 1998:
Current assets:
Cash and cash equivalents $ 31,436 $ 889 $ 214 $ - $ 32,539
Accounts receivable, net 411 21,098 12,596 (1,519) 32,586
Inventories - 23,764 4,984 - 28,748
Other current assets (14) 1,257 896 (1,029) 1,110
------------------------------------------------------------------------------
Total current assets 31,833 47,008 18,690 (2,548) 94,983
Property, plant, and
equipment, net - 6,070 7,168 - 13,238
Goodwill - 12,193 8,508 - 20,701
Investment in subsidiaries 49,958 7,904 - (57,862) -
Deferred financing costs 4,679 - - - 4,679
Other assets 237 12,399 558 (12,207) 987
------------------------------------------------------------------------------
Total assets $ 86,707 $ 85,574 $ 34,924 $ (72,617) $ 134,588
==============================================================================
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Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
E. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
Combined Combined
Guarantor Non-Guarantor
The Company Subsidiaries Subsidiaries Eliminations Total
------------------------------------------------------------------------------
March 31, 1998:
Current liabilities:
Notes payable $ - $ 411 $ 4,085 $ (411) $ 4,085
Trade accounts payable - 14,207 7,007 (3,232) 17,982
Accrued compensation and
employee benefits - 3,620 1,390 - 5,010
Other accrued liabilities 7,110 3,771 2,345 - 13,226
Current maturities of
long-term obligations - 185 998 - 1,183
------------------------------------------------------------------------------
Total current liabilities 7,110 22,194 15,825 (3,643) 41,486
Series B Senior Notes 120,000 - - - 120,000
Other long-term obligations - 5,557 11,955 (8,977) 8,535
Stockholder's equity (40,403) 57,823 7,144 (59,997) (35,433)
(deficit)
------------------------------------------------------------------------------
Total liabilities and
stockholder's equity $ 86,707 $ 85,574 $ 34,924 $ (72,617) $ 134,588
==============================================================================
December 31, 1997:
Current assets:
Cash and cash equivalents $ 28,073 $ 2,322 $ 488 $ - $ 30,883
Accounts receivable, net - 19,299 11,731 (571) 30,459
Inventories - 23,625 3,948 - 27,573
Other current assets 47 633 1,671 (1,153) 1,198
------------------------------------------------------------------------------
Total current assets 28,120 45,879 17,838 (1,724) 90,113
Property, plant, and
equipment, net - 6,028 7,213 - 13,241
Goodwill - 12,289 8,424 - 20,713
Investment in subsidiaries 49,958 7,903 - (57,861) -
Deferred financing costs 4,809 - - - 4,809
Other assets 232 11,591 504 (11,478) 849
------------------------------------------------------------------------------
Total assets $ 83,119 $ 83,690 $ 33,979 $ (71,063) $ 129,725
==============================================================================
Current liabilities:
Notes payable $ - $ - $ 456 $ - $ 456
Trade accounts payable - 12,731 8,221 (2,078) 18,874
Accrued compensation and
employee benefits - 4,756 1,275 - 6,031
Other accrued liabilities 3,715 3,272 3,479 - 10,466
Current maturities of
long-term obligations - 185 997 - 1,182
------------------------------------------------------------------------------
Total current liabilities 3,715 20,944 14,428 (2,078) 37,009
Series B Senior Notes 120,000 - - - 120,000
Other long-term obligations - 5,586 11,922 (8,819) 8,689
Stockholder's equity (40,596) 57,160 7,629 (60,166) (35,973)
(deficit)
------------------------------------------------------------------------------
Total liabilities and
stockholder's equity $ 83,119 $ 83,690 $ 33,979 $ (71,063) $ 129,725
==============================================================================
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Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
E. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
Summarized consolidating income statements for the three months ended March 31,
1998 and 1997, respectively, for the Company, the guarantor subsidiaries, and
the non-guarantor, foreign subsidiaries is as follows (in thousands):
Combined Combined
The Company Guarantor Non-Guarantor
Subsidiaries Subsidiaries Eliminations Total
-----------------------------------------------------------------------
Three months ended March 31, 1998:
Net sales $ - $ 43,102 $ 14,362 $ (373) $ 57,091
Cost of products sold - 34,638 12,324 (373) 46,589
-----------------------------------------------------------------------
Gross profit - 8,464 2,038 - 10,502
Total operating expenses 93 4,040 2,347 - 6,480
-----------------------------------------------------------------------
Operating income (loss) (93) 4,424 (309) - 4,022
Interest expense 3,004 (139) 377 - 3,242
Miscellaneous, net (141) 82 35 - (24)
-----------------------------------------------------------------------
Income (loss) before foreign
income taxes (2,956) 4,481 (721) - 804
Foreign income taxes - - (133) - (133)
-----------------------------------------------------------------------
Net income (loss) $ (2,956) $ 4,481 $ (588) $ - $ 937
=======================================================================
Combined Combined
The Company Guarantor Non-Guarantor
Subsidiaries Subsidiaries Eliminations Total
-----------------------------------------------------------------------
Three months ended March 31, 1997:
Net sales $ - $ 40,503 $ 6,834 $ (261) $ 47,076
Cost of products sold - 32,747 6,008 (261) 38,494
-----------------------------------------------------------------------
Gross profit - 7,756 826 - 8,582
Total operating expenses - 4,017 1,399 - 5,416
-----------------------------------------------------------------------
Operating income (loss) - 3,739 (573) - 3,166
Interest expense - 1,029 255 - 1,284
Miscellaneous, net - 56 (99) - (43)
-----------------------------------------------------------------------
Income (loss) before foreign
income taxes - 2,654 (729) - 1,925
Foreign income taxes - - (250) - (250)
-----------------------------------------------------------------------
Net income (loss) $ - $ 2,654 $ (479) $ - $ 2,175
=======================================================================
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Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
E. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
Summarized consolidating cash flow statements for the three months ended March
31, 1998 and 1997, respectively, for the Company, the guarantor subsidiaries,
and the non-guarantor, foreign subsidiaries is as follows (in thousands):
Combined Combined
The Company Guarantor Non-Guarantor
Subsidiaries Subsidiaries Eliminations Total
-----------------------------------------------------------------------
Three months ended March 31, 1998:
Net cash provided by (used in)
operating activities $ 214 $ 2,313 $ (3,574) $ 400 $ (647)
Investing activities:
Purchases of property, plant,
and equipment (net) - (311) (203) - (514)
-----------------------------------------------------------------------
Net cash used in investing - (311) (203) - (514)
activities
Financing activities:
Net increase in borrowings on
notes payable - 411 3,659 (411) 3,659
Proceeds from long-term
obligations - - 69 - 69
Principal payments on long-term
obligations - (29) (267) - (296)
Distributions for income taxes (151) (517) - - (668)
Distributions for interest on
senior notes 3,300 (3,300) - - -
-----------------------------------------------------------------------
Net cash provided by (used in)
financing activities 3,149 (3,435) 3,461 (411) 2,764
Effect of exchange rate on cash - - 42 11 53
-----------------------------------------------------------------------
Increase (decrease) in cash and
cash equivalents 3,363 (1,433) (274) - 1,656
Cash and cash equivalents at
beginning of period 28,073 2,322 488 - 30,883
-----------------------------------------------------------------------
Cash and cash equivalents at end
of period $ 31,436 $ 889 $ 214 $ - $ 32,539
=======================================================================
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Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
E. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
Combined Combined
The Company Guarantor Non-Guarantor
Subsidiaries Subsidiaries Eliminations Total
-----------------------------------------------------------------------
Three months ended March 31, 1997:
Net cash provided by (used in)
operating activities $ - $ 2,707 $ (3,563) $ - $ (856)
Investing activities:
Purchases of property, plant,
and equipment (net) - (501) (38) - (539)
Purchase of BCE, net of notes
to seller - (11,300) 4,111 - (7,189)
-----------------------------------------------------------------------
Net cash provided by (used in)
investing activities - (11,801) 4,073 - (7,728)
Financing activities:
Net increase in borrowings on
notes payable - 6,482 - - 6,482
Proceeds from long-term
obligations - 4,471 (353) - 4,118
Principal payments on long-term
obligations - (667) 38 - (629)
Distributions for income taxes - (1,186) - - (1,186)
-----------------------------------------------------------------------
Net cash provided by (used in)
financing activities - 9,100 (315) - 8,785
Effect of exchange rate on cash - - (16) - (16)
-----------------------------------------------------------------------
Increase in cash and cash - 6 179 - 185
equivalents
Cash and cash equivalents at
beginning of period - 1,020 2 - 1,022
-----------------------------------------------------------------------
Cash and cash equivalents at end
of period $ - $ 1,026 $ 181 $ - $ 1,207
=======================================================================
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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 27, 1998.
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 a 43% share of the United States market for idlers used in above ground
conveyor equipment and a significantly higher share of the United States
underground coal mining conveyor equipment market. The Company increased its
market share in 1997 through several acquisitions. In January 1997, the Company
consummated the acquisition of 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.
RESULTS OF OPERATIONS
The following table sets forth, on a comparative basis, selected income
statement data as a percentage of net sales for the three month periods ended
March 31, 1998 and 1997.
Three months ended March 31
----------------------------------
1998 1997
Net sales 100.0% 100.0%
Cost of products sold 81.6 81.8
Gross profit 18.4 18.2
SG&A expenses 10.5 9.7
Management fee 0.5 1.6
Amortization expense 0.3 0.2
Operating income 7.1 6.7
Three months ended March 31, 1998, compared to three months ended March 31,
1997:
Net Sales
- ---------
Net sales increased $10.0 million, or 21%, from $47.1 million in 1997 to $57.1
million in 1998. The acquisitions of Hewitt-Robins and MECO increased net sales
by $12.1 million, which was partially offset by a $3.1 million decrease in the
Company's other conveyor equipment businesses. Net sales in the Company's other
businesses, primarily mobile home products, increased by $1.0 million as a
result of increased sales volumes.
Gross Profit
- ------------
Gross profit increased $1.9 million, or 22%, from $8.6 million in 1997 to $10.5
million in 1998. The acquisitions of Hewitt-Robins and MECO increased gross
profit by $2.3 million. Gross profit in the Company's other conveyor equipment
businesses decreased by $0.3 million, as a result of decreased sales volumes,
which were partially offset by improved margins. Gross profit in the Company's
mobile homes products business decreased by $0.1 million.
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SG&A Expenses
- -------------
Selling, engineering, general and administrative expenses, which do not include
management fees (SG&A expenses), increased $1.5 million, or 32%, from $4.5
million in 1997 to $6.0 million in 1998. This resulted from an increase in
personnel, facilities, and marketing costs as a result of the acquisitions of
Hewitt-Robins and MECO.
Operating Income
- ----------------
Operating income increased $0.8 million, or 27%, from $3.2 million in 1997 to
$4.0 million in 1998. The increase is the result of the $1.9 million increase in
gross profit and a $0.5 million decrease in management fees, offset by the $1.5
million increase in SG&A expenses and a $0.1 million increase in amortization
expense. The decrease in management fees resulted from a limitation on payment
of such fees under a new management agreement that became effective April 1,
1997. The increase in amortization expense is the result of increased goodwill
related to the acquisitions of Hewitt-Robins and MECO.
Backlog
- -------
Backlog at March 31, 1998 was $58.5 million, an increase of $1.8 million, or 3%,
from $56.7 million at December 31, 1997. The increase is attributable to
increased orders in the mining equipment business area. Approximately 95% of the
backlog is expected to be shipped in 1998.
Impact of Year 2000
- -------------------
As the Year 2000 approaches, the Company is aware of the issues associated with
the programming code in existing computer systems. The issue is whether computer
systems will properly recognize date sensitive information when the year changes
to 2000. A company-wide taskforce has been assembled to review all systems to
ensure that they do not malfunction as a result of the Year 2000 and the Company
will utilize both internal and external resources to identify, correct or
reprogram, and test the systems for the Year 2000 compliance. In this process,
the Company expects to both replace some systems and upgrade others. While the
current cost of this effort is still being evaluated, the Company does not
expect the cost to be material.
The Company expects to complete its Year 2000 activities within a timeframe that
will enable its information systems to function without significant disruption
in Year 2000. In addition, the Company's Year 2000 compliance strategy includes
obtaining assurances from third parties that are critical to its business, such
as customers and vendors, regarding their Year 2000 compliance. Failure of the
Company or such third parties to achieve Year 2000 compliance can result in
disruption of the Company's operations that could have a material adverse effect
on the Company's financial condition or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $0.6 million and $0.9 million for the
three months ending March 31, 1998 and 1997, respectively. Net cash used in
operating activities in 1998 resulted from lower net income and a $2.4 million
increase in operating assets. The decline in net income was the result of
increased interest expense related to the Series B Senior Notes. The increase in
operating assets was due to an increase in accounts receivable and inventory
balances. Net cash used in 1997 was primarily due to an increase in operating
assets of $3.4 million employed to support increased business volumes related to
the acquisition of BCE.
Net cash used in investing activities was $0.5 million and $7.7 million for the
three months ending March 31, 1998 and 1997, respectively. The significant
difference between 1998 and 1997 was due to the 1997 acquisition of BCE for $7.2
million. The balance of expenditures for investing
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activities, $0.5 million in 1998 and 1997, represents net purchases of property,
plant, and equipment.
Net cash provided by financing activities was $2.8 million and $8.8 million for
the three months ending March 31, 1998 and 1997, respectively. The cash provided
by financing activities was primarily the result of net increases in borrowings
on notes payable of $3.7 million and $6.5 million in 1998 and 1997,
respectively, and proceeds from long-term obligations of $0.1 million and $4.1
million in 1998 and 1997, respectively. The Company made principal payments on
long-term obligations of $0.3 million in 1998 and $0.6 million in 1997. The
Company made distributions to NES Group, Inc. of $0.7 million in 1998 and $1.2
million in 1997 for the payment of income taxes.
The Company's primary capital requirements consist of capital expenditures and
debt service. The Company expects current financial resources (working capital)
and funds from continuing operations to be adequate to meet current cash
requirements. At March 31, 1998, the Company had cash and cash equivalents of
$32.5 million and an unused credit facility line of $30.0 million.
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.
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Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See index of exhibits
(b) No reports on Form 8-K were filed during the quarter ended March
31, 1998
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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/ LAWRENCE KUKULSKI
-----------------------
LAWRENCE KUKULSKI
Vice President - Finance and Administration
(As duly authorized representative and as
Principal Financial and Accounting Officer)
Date: May 12, 1998
15
18
CONTINENTAL GLOBAL GROUP, INC.
FORM 10-Q
INDEX OF EXHIBITS
Exhibit
Number Description of Exhibit
------ ----------------------
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 Revolving Credit Facility, dated as of September 14, 1992, as amended by Amendment I, *
II, and III, among Continental Conveyor & Equipment Company, Goodman Conveyor Company,
and Bank One, Cleveland, NA
10.2 Share Sale Agreement dated as of November 8, 1996, as amended by First and Second *
Supplementary Deeds, among Continental Pty. Ltd. and various Australian sellers,
relating to the BCE acquisition
10.3 Asset Purchase Agreement, dated as of March 3, 1997, among Continental Conveyor & *
Equipment Company, Process Technology Holdings, Inc., and W.S. Tyler Incorporated,
relating to the Hewitt-Robins acquisition
10.4 Management Agreement, dated as of April 1, 1997, between Continental Global Group, Inc. *
and Nesco, Inc.
10.5 Tax Payment Agreement, dated as of April 1, 1997, among Continental Global Group, Inc., *
Continental Conveyor & Equipment Company, Goodman Conveyor Company, and NES Group, Inc.
10.6 World Wide Purchase and Sale Agreement dated as of October 17, 1997, by and among **
Continental Conveyor International Inc., Joy Technologies, Inc., and certain affiliates
of Joy Technologies Inc. (The "Purchase Agreement"). (All exhibits to the Purchase
Agreement have been omitted, and Registrant will furnish supplementally to the
Commission, upon request, a copy of any omitted exhibit.)
12 Statement regarding computation of ratio of earnings to fixed charges
27 Financial Data Schedule (filed electronically only)
<FN>
* Incorporated by reference from Form S-4 Registration Number 333-27665 filed
under the Securities Act of 1933, as amended
** Incorporated by reference from Form 8-K filed November 3, 1997, under the
Securities Exchange Act of 1934, as amended.