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 September 30, 2003
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 by check mark if the registrant is an accelerated filer (as defined in
Rule 12b-2 of the Act). Yes [ ] No [x]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practical date.
As of October 31, 2003, there were 100 shares of the registrant's common stock
outstanding.
INDEX
CONTINENTAL GLOBAL GROUP, INC.
Page
Part I Financial Information Number
Item 1 Financial Statements (Unaudited) 1
Condensed Consolidated Balance Sheets
September 30, 2003 and December 31, 2002 2
Condensed Consolidated Statements of Operations
Three Months and Nine Months ended September 30, 2003 and 2002 3
Condensed Consolidated Statements of Cash Flows
Nine Months ended September 30, 2003 and 2002 4
Notes to Condensed Consolidated Financial Statements 5-14
Item 2 Management's Discussion and Analysis of Financial Condition and Results of
Operations 15-20
Item 3 Quantitative and Qualitative Disclosures about Market Risk 21
Item 4 Controls and Procedures 21
Part II Other Information
Item 1 Legal Proceedings 22
Item 6 Exhibits and Reports on Form 8-K 22
Signatures 23
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
1
Continental Global Group, Inc.
Condensed Consolidated Balance Sheets
September 30 December 31
2003 2002
-------------------- --------------------
(Unaudited) (Audited)
Assets:
Current assets:
Cash and cash equivalents $ 1,354,113 $ 5,635,042
Accounts receivable, net 32,958,343 25,634,100
Inventories 28,361,209 27,752,503
Deferred income taxes 32,483 25,893
Other current assets 1,158,341 1,959,369
-------------------- --------------------
Total current assets 63,864,489 61,006,907
Property, plant and equipment 30,618,566 28,681,527
Less accumulated depreciation 17,868,645 15,800,206
-------------------- --------------------
12,749,921 12,881,321
Goodwill 13,587,517 13,155,269
Deferred financing costs 1,819,658 2,209,584
Other assets 489,136 414,400
-------------------- --------------------
$ 92,510,721 $ 89,667,481
==================== ====================
Liabilities and Stockholder's Equity (Deficit):
Current liabilities:
Notes payable $ 11,031,331 $ 11,285,602
Trade accounts payable 25,642,119 20,039,041
Accrued compensation and employee benefits 5,273,462 4,974,168
Accrued interest on senior notes 6,600,000 3,300,000
Other accrued liabilities 9,288,328 6,696,110
Current maturities of long-term obligations 1,143,903 1,010,032
-------------------- --------------------
Total current liabilities 58,979,143 47,304,953
Pension obligations 2,960,636 2,645,640
Deferred income taxes 610,162 561,420
Senior notes 120,000,000 120,000,000
Other long-term obligations, less current maturities 1,816,403 1,876,928
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 (87,218,864) (77,654,146)
Accumulated other comprehensive loss (6,630,447) (7,061,002)
-------------------- --------------------
(91,855,623) (82,721,460)
-------------------- --------------------
$ 92,510,721 $ 89,667,481
==================== ====================
See notes to condensed consolidated financial statements.
2
Continental Global Group, Inc.
Condensed Consolidated Statements of Operations
Three months ended Nine months ended
September 30 September 30
2003 2002 2003 2002
----------------------------------- --------------------------------------
(Unaudited) (Unaudited)
Net sales $ 46,728,313 $ 52,582,633 $ 146,311,834 $ 144,228,729
Cost of products sold 40,755,254 44,671,903 126,199,702 119,950,103
----------------------------------- --------------------------------------
Gross profit 5,973,059 7,910,730 20,112,132 24,278,626
Operating expenses:
Selling and engineering 3,289,280 3,313,649 9,837,898 10,107,940
General and administrative 2,356,953 2,156,287 7,384,974 6,538,354
Management fee 42,893 149,080 223,105 463,502
Amortization expense 6,590 30,918 19,771 90,859
Restructuring charges 8,872 - 66,796 -
----------------------------------- --------------------------------------
Total operating expenses 5,704,588 5,649,934 17,532,544 17,200,655
----------------------------------- --------------------------------------
Operating income 268,471 2,260,796 2,579,588 7,077,971
Other expenses:
Interest expense 3,793,795 3,901,983 11,434,344 11,572,873
Interest income (2,487) (46,941) (15,279) (151,169)
Miscellaneous, net 202,552 44,327 725,241 85,762
----------------------------------- --------------------------------------
Total other expenses 3,993,860 3,899,369 12,144,306 11,507,466
----------------------------------- --------------------------------------
Loss before income taxes and
cumulative effect of change in
accounting principle (3,725,389) (1,638,573) (9,564,718) (4,429,495)
Income tax benefit - - - (340,518)
----------------------------------- --------------------------------------
Loss before cumulative effect of
change in accounting principle (3,725,389) (1,638,573) (9,564,718) (4,088,977)
Cumulative effect of change in
accounting principle - - - (3,850,000)
----------------------------------- --------------------------------------
Net loss $ (3,725,389) $ (1,638,573) $ (9,564,718) $ (7,938,977)
=================================== ======================================
See notes to condensed consolidated financial statements.
3
Continental Global Group, Inc.
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30
2003 2002
---------------------- ---------------------
(Unaudited)
Operating activities:
Net loss $ (9,564,718) $ (7,938,977)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Provision for depreciation and amortization 1,659,407 1,728,819
Amortization of deferred financing costs 389,926 389,927
Cumulative effect of change in accounting principle - 3,850,000
Deferred income taxes - (340,518)
Loss on disposal of assets 49,830 28,227
Changes in operating assets and liabilities 4,906,185 6,485,359
---------------------- ---------------------
Net cash provided by (used in) operating activities (2,559,370) 4,202,837
---------------------- ---------------------
Investing activities:
Purchases of property, plant, and equipment (585,236) (1,002,761)
Proceeds from sale of property, plant, and equipment 64,270 43,938
---------------------- ---------------------
Net cash used in investing activities (520,966) (958,823)
---------------------- ---------------------
Financing activities:
Net decrease in borrowings on notes payable (792,766) (569,554)
Principal payments on long-term obligations (442,478) (768,948)
---------------------- ---------------------
Net cash used in financing activities (1,235,244) (1,338,502)
Effect of exchange rate changes on cash 34,651 9,361
---------------------- ---------------------
Increase (decrease) in cash and cash equivalents (4,280,929) 1,914,873
Cash and cash equivalents at beginning of period 5,635,042 14,671,806
---------------------- ---------------------
Cash and cash equivalents at end of period $ 1,354,113 $ 16,586,679
====================== =====================
See notes to condensed consolidated financial statements.
4
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2003
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 nine-month period ended September 30,
2003 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2003. For further information, refer to the
consolidated financial statements and footnotes of Continental Global Group,
Inc. and subsidiaries for the year ended December 31, 2002, included in the Form
10-K filed by the Company on March 31, 2003.
Certain amounts from the prior year financial statements have been reclassified
to conform to current year presentation.
In the fourth quarter of 2002, the Company recorded a non-cash impairment
write-down for goodwill of $3,850,000 in accordance with the provisions of SFAS
No. 142, "Goodwill and Other Intangible Assets". This transition adjustment has
been reported as a cumulative effect of a change in accounting principle. The
Company has restated the results of operations for the nine months ended
September 30, 2002 to reflect this goodwill impairment as of January 1, 2002.
B. Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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 56% and 63% of
inventories at September 30, 2003 and December 31, 2002, 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 $1,457,000 at
September 30, 2003 and December 31, 2002.
5
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2003
D. Warranty Costs
The Company's products are generally covered by warranties against defects in
material and workmanship for periods up to two years from the date of sale or
installation of the product. The Company records a provision for estimated
warranty cost based on actual experience and continuously assesses the adequacy
of its product warranty accrual and makes adjustments as needed. A summary of
accrued warranty costs follows:
2003
-----------------
Balance as of January 1 $ 1,678,002
Warranties issued during the period 609,159
Settlements made during the period (977,616)
Effect of exchange rate changes 62,250
-----------------
Balance as of September 30 $ 1,371,795
=================
E. Financing Arrangements
On August 12, 2003, the Company successfully completed negotiations of an
amended $26 million domestic revolving credit facility. The amended revolving
credit facility has a maturity date of July 31, 2004. The availability under
this revolving credit facility is equal to the sum of (i) 85% of eligible
accounts receivable and (ii) 55% of eligible inventory. The amended revolving
credit facility continues to be guaranteed by the Company and secured by a lien
on substantially all of the assets of Continental Conveyor & Equipment Company
(CCE) and Goodman Conveyor Company (GCC). In addition, the amended revolving
credit facility contains requirements for financial covenants regarding debt
coverage and tangible net worth that are more favorable to the Company than the
financial covenants under its previous agreement.
F. Restructuring Charges
The Company incurred additional restructuring charges of approximately $67,000
for the nine months ended September 30, 2003 related to changes in staffing and
production requirements in its domestic operations. These charges consist
primarily of relocation costs associated with the merger of certain domestic
facilities. Total restructuring charges incurred to date pertaining to the
actions started by the Company in 2002 are approximately $707,000. As part of
this restructuring, during 2003, the Company plans to discontinue the
manufacturing operations in certain of its domestic facilities and merge these
operations with other existing facilities. The Company expects the additional
cost of this restructuring to be approximately $430,000. These charges consist
primarily of severance and relocation costs and will be expensed as incurred. As
of September 30, 2003, the Company has paid approximately $215,000 of the
charges incurred to date.
6
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2003
G. Comprehensive Loss
The components of comprehensive loss for the three months and nine months ended
September 30, 2003 and 2002 are as follows:
Three months ended September 30 Nine months ended September 30
2003 2002 2003 2002
---------------------------------- ---------------------------------
Net loss $ (3,725,389) $ (1,638,573) $ (9,564,718) $ (7,938,977)
Other comprehensive income (loss):
Foreign currency translation
adjustment 55,788 (164,145) 424,707 601,795
Change in fair value of cash flow
hedges (net of tax) (71,582) (20,614) 5,848 154
---------------------------------- ---------------------------------
Comprehensive loss $ (3,741,183) $ (1,823,332) $ (9,134,163) $ (7,337,028)
================================== =================================
H. Income Taxes
Income taxes are provided using the liability method in accordance with FASB
Statement No. 109, "Accounting for Income Taxes". For tax reporting purposes,
the Company is included in the consolidated federal tax return of N.E.S.
Investment Co. (the parent company of Continental Global Group, Inc.). 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.
The Company's effective tax rate differs from the statutory rate in the United
States due to losses incurred without a corresponding tax benefit.
I. Segment Information
While the Company 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.
7
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2003
I. Segment Information (Continued)
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 tire and rim assemblies
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.
Three months ended September 30 Nine months ended September 30
2003 2002 2003 2002
-------------------------------- ---------------------------------
(in thousands) (in thousands)
Net sales:
Conveyor equipment $ 40,187 $ 44,522 $ 126,953 $ 119,955
Manufactured housing products 6,394 7,886 18,700 23,543
Other 147 175 659 731
-------------------------------- ---------------------------------
Total net sales $ 46,728 $ 52,583 $ 146,312 $ 144,229
================================ =================================
Segment operating income:
Conveyor equipment $ 209 $ 2,121 $ 2,741 $ 6,765
Manufactured housing products 386 529 1,036 1,451
Other 50 21 214 77
-------------------------------- ---------------------------------
Total segment operating income 645 2,671 3,991 8,293
Management fee 43 149 223 464
Amortization expense 7 31 20 91
Restructuring charges 9 - 67 -
Corporate expense 318 230 1,102 660
-------------------------------- ---------------------------------
Total operating income 268 2,261 2,579 7,078
Interest expense 3,793 3,902 11,434 11,573
Interest income (2) (47) (15) (151)
Miscellaneous, net 202 44 725 85
-------------------------------- ---------------------------------
Loss before income taxes $ (3,725) $ (1,638) $ (9,565) $ (4,429)
================================ =================================
8
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2003
J. 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 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 September 30, 2003 and December
31, 2002 for the Company, the guarantor subsidiaries, and the non-guarantor
subsidiaries are as follows (in thousands):
Combined Combined
Guarantor Non-Guarantor
September 30, 2003: The Company Subsidiaries Subsidiaries Eliminations Total
-------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 337 $ 841 $ 176 $ - $ 1,354
Accounts receivable, net - 18,634 14,359 (35) 32,958
Inventories - 21,344 7,017 - 28,361
Deferred income taxes 81 - 336 (385) 32
Other current assets 28 392 748 (9) 1,159
-------------------------------------------------------------------------------
Total current assets 446 41,211 22,636 (429) 63,864
Property, plant, and
equipment, net - 8,291 4,459 - 12,750
Goodwill - 12,835 753 - 13,588
Investment in subsidiaries 60,009 20,194 - (80,203) -
Deferred financing costs 1,820 - - - 1,820
Other assets 11,715 1,856 - (13,082) 489
-------------------------------------------------------------------------------
Total assets $ 73,990 $ 84,387 $ 27,848 $ (93,714) $ 92,511
===============================================================================
Current liabilities:
Notes payable $ - $ 6,332 $ 5,380 $ (681) $ 11,031
Trade accounts payable - 15,219 10,468 (45) 25,642
Accrued compensation and
employee benefits - 3,873 1,401 - 5,274
Accrued interest 6,600 - - - 6,600
Other accrued liabilities 623 4,002 5,400 (737) 9,288
Current maturities of
long-term obligations - 1,061 83 - 1,144
-------------------------------------------------------------------------------
Total current liabilities 7,223 30,487 22,732 (1,463) 58,979
Pension obligation - 2,961 - - 2,961
Deferred income taxes - 12,025 - (11,415) 610
Senior Notes 120,000 - - - 120,000
Other long-term obligations - 1,632 1,082 (898) 1,816
Stockholder's equity
(deficit) (53,233) 37,282 4,034 (79,938) (91,855)
-------------------------------------------------------------------------------
Total liabilities and
stockholder's equity
(deficit) $ 73,990 $ 84,387 $ 27,848 $ (93,714) $ 92,511
===============================================================================
9
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2003
J. Guarantor and Non-Guarantor Subsidiaries (Continued)
Combined Combined
Guarantor Non-Guarantor
December 31, 2002: The Company Subsidiaries Subsidiaries Eliminations Total
-------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 4,524 $ 1,109 $ 2 $ - $ 5,635
Accounts receivable, net - 16,469 9,165 - 25,634
Inventories - 23,479 4,274 - 27,753
Deferred income taxes 81 - 280 (335) 26
Other current assets 37 1,095 827 - 1,959
-------------------------------------------------------------------------------
Total current assets 4,642 42,152 14,548 (335) 61,007
Property, plant, and
equipment, net - 8,713 4,168 - 12,881
Goodwill - 12,528 627 - 13,155
Investment in subsidiaries 60,009 18,118 - (78,127) -
Deferred financing costs 2,210 - - - 2,210
Other assets 9,817 1,833 - (11,236) 414
-------------------------------------------------------------------------------
Total assets $ 76,678 $ 83,344 $ 19,343 $ (89,698) $ 89,667
===============================================================================
Current liabilities:
Notes payable $ - $ 9,536 $ 2,139 $ (389) $ 11,286
Trade accounts payable 16 12,404 7,619 - 20,039
Accrued compensation and
employee benefits 42 3,957 975 - 4,974
Accrued interest 3,300 - - - 3,300
Other accrued liabilities 564 4,247 2,613 (728) 6,696
Current maturities of
long-term obligations - 963 47 - 1,010
-------------------------------------------------------------------------------
Total current liabilities 3,922 31,107 13,393 (1,117) 47,305
Pension obligation - 2,645 - - 2,645
Deferred income taxes - 10,253 - (9,692) 561
Senior Notes 120,000 - - - 120,000
Other long-term obligations - 1,766 985 (874) 1,877
Stockholder's equity
(deficit) (47,244) 37,573 4,965 (78,015) (82,721)
-------------------------------------------------------------------------------
Total liabilities and
stockholder's equity
(deficit) $ 76,678 $ 83,344 $ 19,343 $ (89,698) $ 89,667
===============================================================================
10
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2003
J. Guarantor and Non-Guarantor Subsidiaries (Continued)
Summarized consolidating statements of operations for the three months and nine
months ended September 30, 2003 and 2002, respectively, for the Company, the
guarantor subsidiaries, and the non-guarantor subsidiaries are as follows (in
thousands):
Combined Combined
Guarantor Non-Guarantor
The Company Subsidiaries Subsidiaries Eliminations Total
------------- ------------- --------------- ------------- -------------
Three months ended September 30, 2003:
Net sales $ - $ 34,993 $ 11,765 $ (30) $ 46,728
Cost of products sold - 29,325 11,460 (30) 40,755
------------- ------------- --------------- ------------- -------------
Gross profit - 5,668 305 - 5,973
Total operating expenses 158 4,301 1,246 - 5,705
------------- ------------- --------------- ------------- -------------
Operating income (loss) (158) 1,367 (941) - 268
Interest expense 3,433 267 93 - 3,793
Interest income (2) - - - (2)
Miscellaneous, net - 207 (5) - 202
------------- ------------- --------------- ------------- -------------
Income (loss) before income taxes (3,589) 893 (1,029) - (3,725)
Income tax expense (benefit) (484) 484 - - -
------------- ------------- --------------- ------------- -------------
Net income (loss) $ (3,105) $ 409 $ (1,029) $ - $ (3,725)
============= ============= =============== ============= =============
Combined Combined
Guarantor Non-Guarantor
The Company Subsidiaries Subsidiaries Eliminations Total
------------- ------------- --------------- ------------- -------------
Three months ended September 30, 2002:
Net sales $ - $ 42,445 $ 10,138 $ - $ 52,583
Cost of products sold - 35,688 8,984 - 44,672
------------- ------------- --------------- ------------- -------------
Gross profit - 6,757 1,154 - 7,911
Total operating expenses 241 4,346 1,063 - 5,650
------------- ------------- --------------- ------------- -------------
Operating income (loss) (241) 2,411 91 - 2,261
Interest expense 3,440 437 25 - 3,902
Interest income (47) - - - (47)
Miscellaneous, net 3 44 (3) - 44
------------- ------------- --------------- ------------- -------------
Income (loss) before income taxes (3,637) 1,930 69 - (1,638)
Income tax expense (benefit) (879) 879 - - -
------------- ------------- --------------- ------------- -------------
Net income (loss) $ (2,758) $ 1,051 $ 69 $ - $ (1,638)
============= ============= =============== ============= =============
11
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2003
J. Guarantor and Non-Guarantor Subsidiaries (Continued)
Combined Combined
Guarantor Non-Guarantor
The Company Subsidiaries Subsidiaries Eliminations Total
------------- ------------- --------------- ------------- -------------
Nine months ended September 30, 2003:
Net sales $ - $ 115,895 $ 30,658 $ (241) $ 146,312
Cost of products sold - 97,473 28,968 (241) 126,200
------------- ------------- --------------- ------------- -------------
Gross profit - 18,422 1,690 - 20,112
Total operating expenses 1,055 12,852 3,626 - 17,533
------------- ------------- --------------- ------------- -------------
Operating income (loss) (1,055) 5,570 (1,936) - 2,579
Interest expense 10,301 900 233 - 11,434
Interest income (15) - - - (15)
Miscellaneous, net 323 426 (24) - 725
------------- ------------- --------------- ------------- -------------
Income (loss) before income taxes (11,664) 4,244 (2,145) - (9,565)
Income tax expense (benefit) (1,724) 1,724 - - -
------------- ------------- --------------- ------------- -------------
Net income (loss) $ (9,940) $ 2,520 $ (2,145) $ - $ (9,565)
============= ============= =============== ============= =============
Combined Combined
Guarantor Non-Guarantor
The Company Subsidiaries Subsidiaries Eliminations Total
------------- ------------- --------------- ------------- -------------
Nine months ended September 30, 2002:
Net sales $ - $ 116,402 $ 27,827 $ - $ 144,229
Cost of products sold - 95,794 24,156 - 119,950
------------- ------------- --------------- ------------- -------------
Gross profit - 20,608 3,671 - 24,279
Total operating expenses 692 13,401 3,108 - 17,201
------------- ------------- --------------- ------------- -------------
Operating income (loss) (692) 7,207 563 - 7,078
Interest expense 10,320 1,199 54 - 11,573
Interest income (151) - - - (151)
Miscellaneous, net 3 73 9 - 85
------------- ------------- --------------- ------------- -------------
Income (loss) before income taxes and (10,864) 5,935 500 - (4,429)
cumulative effect of change in
accounting principle
Income tax expense (benefit) (2,715) 2,375 - - (340)
------------- ------------- --------------- ------------- -------------
Income (loss) before cumulative effect
of change in accounting principle (8,149) 3,560 500 - (4,089)
Cumulative effect of change in
accounting principle - (3,850) - - (3,850)
------------- ------------- --------------- ------------- -------------
Net income (loss) $ (8,149) $ (290) $ 500 $ - $ (7,939)
============= ============= =============== ============= =============
12
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2003
J. Guarantor and Non-Guarantor Subsidiaries (Continued)
Summarized consolidating cash flow statements for the nine months ended
September 30, 2003 and 2002, respectively, for the Company, the guarantor
subsidiaries, and the non-guarantor subsidiaries are as follows (in thousands):
Combined Combined
Guarantor Non-Guarantor
The Company Subsidiaries Subsidiaries Eliminations Total
------------- ------------- --------------- ------------- -------------
Nine months ended September 30, 2003:
Net cash provided by (used in)
operating activities $ (7,962) $ 7,590 $ (2,185) $ (2) $ (2,559)
Investing activities:
Purchases of property, plant, and
equipment - (343) (242) - (585)
Proceeds from sale of property,
plant, and equipment - 61 3 - 64
------------- ------------- --------------- ------------- -------------
Net cash used in investing activities - (282) (239) - (521)
------------- ------------- --------------- ------------- -------------
Financing activities:
Net increase (decrease) in
borrowings on notes payable - (3,503) 2,710 - (793)
Principal payments on long-term
obligations - (386) (56) - (442)
Distributions for interest on
senior notes 3,950 (3,950) - - -
Intercompany loan activity (175) 262 (87) - -
------------- ------------- --------------- ------------- -------------
Net cash provided by (used in)
financing activities 3,775 (7,577) 2,567 - (1,235)
Exchange rate changes on cash - 1 31 2 34
------------- ------------- --------------- ------------- -------------
Increase (decrease) in cash and cash
equivalents (4,187) (268) 174 - (4,281)
Cash and cash equivalents at beginning
of period 4,524 1,109 2 - 5,635
------------- ------------- --------------- ------------- -------------
Cash and cash equivalents at end of
period $ 337 $ 841 $ 176 $ - $ 1,354
============= ============= =============== ============= =============
13
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2003
J. Guarantor and Non-Guarantor Subsidiaries (Continued)
Combined Combined
Guarantor Non-Guarantor
The Company Subsidiaries Subsidiaries Eliminations Total
------------- ------------- --------------- ------------- -------------
Nine months ended September 30, 2002:
Net cash provided by (used in)
operating activities $ (7,574) $ 12,062 $ (301) $ 16 $ 4,203
Investing activities:
Purchases of property, plant, and
equipment - (637) (366) - (1,003)
Proceeds from sale of property,
plant, and equipment - 29 15 - 44
------------- ------------- --------------- ------------- -------------
Net cash used in investing activities - (608) (351) - (959)
------------- ------------- --------------- ------------- -------------
Financing activities:
Net increase (decrease) in
borrowings on notes payable - (2,018) 1,449 - (569)
Principal payments on long-term
obligations - (748) (21) - (769)
Distributions for interest on
senior notes 5,450 (5,450) - - -
Intercompany loan activity - 1,462 (1,462) - -
------------- ------------- --------------- ------------- -------------
Net cash provided by (used in)
financing activities 5,450 (6,754) (34) - (1,338)
Exchange rate changes on cash - (57) 82 (16) 9
------------- ------------- --------------- ------------- -------------
Increase (decrease) in cash and cash
equivalents (2,124) 4,643 (604) - 1,915
Cash and cash equivalents at beginning
of period 12,548 1,518 606 - 14,672
------------- ------------- --------------- ------------- -------------
Cash and cash equivalents at end of
period $ 10,424 $ 6,161 $ 2 $ - $ 16,587
============= ============= =============== ============= =============
14
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 31, 2003.
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 2001, the Company acquired certain assets in
Alabama from Lippert Tire & Axle, Inc. The Company's existing Alabama operations
of its manufactured housing products segment have been combined with the Lippert
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 nine months
ended September 30, 2003 and 2002.
Three months ended Nine months ended
September 30 September 30
-------------------------- ------------------------
2003 2002 2003 2002
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 87.2 85.0 86.3 83.2
Gross profit 12.8 15.0 13.7 16.8
SG&A expenses 12.1 10.4 11.8 11.5
Management fee 0.1 0.2 0.1 0.3
Amortization expense - 0.1 - 0.1
Restructuring charges - - - -
Operating income 0.6 4.3 1.8 4.9
Three months ended September 30, 2003, compared to three months ended September
30, 2002:
Net Sales
- ---------
Net sales for the quarter decreased $5.9 million, or 11%, from $52.6 million in
2002 to $46.7 in 2003. Net sales in the domestic operations of the Company's
conveyor equipment segment decreased $7.6 million. Of this decrease, $7.5
million was the result of a decrease in the domestic engineered systems business
due to the shipment of a significant project in the third quarter of 2002 which
did not recur in 2003. The domestic engineered systems business is
project-oriented and is subject to significant fluctuations when comparing
period to period due to the timing of shipment of these projects. After a period
of lower capital spending by the Company's major customers in the coal industry,
net sales in the mining equipment business area were flat for the three months
ended September 30, 2003 compared to the same period in 2002. Net sales in the
foreign operations of the Company's conveyor equipment segment increased $3.2
million. Changes in foreign currency translation rates resulted in $2.0 million
15
of this increase. Adjusted for foreign currency fluctuations, net sales in the
Company's Australian and United Kingdom subsidiaries increased $0.5 million and
$0.7 million, respectively. The increase in Australia resulted from increased
sales of new mining projects. The increase in the United Kingdom was due to
increased sales of engineered system contracts, primarily to the tunneling
industry, offset by reduced sales of standard manufactured products. Net sales
in the Company's manufactured housing segment decreased $1.5 million, or 19%,
due to the decrease by the Company's customers in the production and shipment of
manufactured homes. Based upon the Manufactured Housing Institute's economic
report for August 2003, shipments of manufactured homes decreased 25% for the
three months ending August 2003 compared to the same period in 2002.
Gross Profit
- ------------
Gross profit for the quarter decreased $1.9 million, or 24%, from $7.9 million
in 2002 to $6.0 million in 2003. Gross profit in the domestic operations of the
Company's conveyor equipment segment decreased $1.1 million due to lower sales
volume in the engineered systems business area. Before adjusting for the effects
of foreign currency fluctuations, gross profit in the foreign operations of the
Company's conveyor equipment segment decreased $0.6 million. Adjusted for the
effects of changes in foreign currency translation rates, gross profit in the
Company's Australian and South African subsidiaries were flat while gross profit
in the Company's United Kingdom subsidiary decreased $0.8 million. During the
third quarter, the estimated cost to complete two large conveyor systems
contracts in the United Kingdom was increased. The value of these two contracts
totaled approximately $25 million, of which $7.7 million was billed year-to-date
in 2003 with a balance left to bill of approximately $1.9 million. As a result
of the increase in the estimated costs to complete, gross profit for the quarter
was decreased $0.6 million. The remaining $0.2 million decrease in gross profit
in the United Kingdom was due to a higher mixture of sales of engineered system
contracts which had lower profit margins than the standard manufactured product
sales. Gross profit in the Company's manufactured housing segment decreased $0.2
million due to the decrease in sales volume.
Gross profit as a percentage of net sales decreased from 15.0% in 2002 to 12.8%
in 2003. This decline resulted from the decreased profit margins in the United
Kingdom.
SG&A Expenses
- -------------
SG&A expenses for the quarter increased $0.2 million, or 4%, from $5.4 million
in 2002 to $5.6 million in 2003. SG&A expenses in the domestic operations of the
Company's conveyor equipment segment decreased $0.1 million primarily due to
decreased administrative expenses. SG&A expenses in the foreign operations of
the Company's conveyor equipment segment increased $0.2 million as a result of
changes in foreign currency translation rates. Corporate SG&A expenses increased
$0.1 million due to higher insurance and personnel expenses.
Operating Income
- ----------------
Operating income for the quarter decreased $2.0 million, or 87%, from $2.3
million in 2002 to $0.3 million in 2003. The decrease in operating income
resulted from the $1.9 million decrease in gross profit combined with the $0.2
million increase in SG&A expenses, partially offset by a $0.1 million decrease
in management fees.
Nine months ended September 30, 2003, compared to nine months ended September
30, 2002:
Net Sales
- ---------
Net sales for the nine-month period increased $2.1 million, or 1%, from $144.2
million in 2002 to $146.3 million in 2003. Net sales in the domestic operations
of the Company's conveyor equipment segment decreased $6.3 million. This
decrease resulted from a $5.5 million decrease in the domestic engineered
systems business primarily due to the shipment of a significant project in the
third quarter of 2002. The domestic engineered systems business is
project-oriented and is subject to significant fluctuations when comparing
16
period to period. Net sales in the domestic conveyor components business
decreased $2.3 million while net sales in the domestic mining equipment business
increased $1.5 million. Net sales in the foreign operations of the Company's
conveyor equipment segment increased $13.3 million, of which $7.6 million was
attributable to changes in foreign currency translation rates. Adjusted for the
effects of foreign currency fluctuations, net sales in the Company's Australian
and South African subsidiaries increased $6.5 million and $0.2 million,
respectively, while net sales in the United Kingdom subsidiary decreased $1.0
million. The sales increase in Australia resulted from sales of conveyor
equipment for new mining projects. The sales increase in South Africa was due to
increased sales of conveyor components in the coal industry. The decreased sales
in the United Kingdom resulted from decreases in the standard manufactured
products business and sales to the tunneling industry. Net sales in the
Company's manufactured housing segment decreased $4.8 million, or 21%, due to
the decrease by the Company's customers in the production and shipment of
manufactured homes. Based upon the Manufactured Housing Institute's economic
report for August 2003, year over year production and shipment of manufactured
homes decreased 25%. Net sales in the Company's other segment decreased $0.1
million.
Gross Profit
- ------------
Gross profit for the nine-month period decreased $4.2 million, or 17%, from
$24.3 million in 2002 to $20.1 million in 2003. Gross profit in the domestic
operations of the Company's conveyor equipment segment decreased $2.6 million.
Approximately $1.5 million of this decrease was due to a decline in profit
margins in the mining equipment business which primarily resulted from the
Company's inability to pass through raw material price increases, predominantly
in steel and steel-related products, occurring in the second half of 2002. The
balance of the gross profit decrease in the domestic conveyor equipment
operations was largely due to lower sales volume in the engineered systems
business area. Gross profit in the foreign operations of the Company's conveyor
equipment segment decreased $1.2 million. Changes in foreign currency
translation rates resulted in a $0.8 million increase in gross profit at the
foreign subsidiaries. Adjusted for the effects of foreign currency fluctuations,
gross profit in the Company's Australian subsidiary increased $0.3 million as a
result of increased sales volume while gross profit in the United Kingdom
subsidiary decreased $2.3 million. The decrease in the United Kingdom primarily
resulted from lower profit margins in complete conveyor systems and reduced
sales volume of the higher margin standard manufactured products business.
During the third quarter, the estimated cost to complete two large conveyor
systems contracts in the United Kingdom was increased, which decreased gross
profit approximately $0.6 million. The value of these two contracts totaled
approximately $25 million, of which $7.7 million was billed in 2003 with a
balance left to bill of approximately $1.9 million. Gross profit in the
Company's manufactured housing segment decreased $0.4 million due to the
decrease in net sales.
Gross profit as a percentage of net sales decreased from 16.8% in 2002 to 13.7%
in 2003. This decline primarily resulted from the lower margins on mining
equipment business in the Company's domestic operations of the conveyor
equipment segment and the decreased profit margins in the United Kingdom.
SG&A Expenses
- -------------
SG&A expenses for the nine-month period increased $0.6 million, or 4%, from
$16.6 million in 2002 to $17.2 million in 2003. SG&A expenses in the domestic
operations of the Company's conveyor equipment segment decreased $0.8 million,
primarily due to a $0.5 million decease in selling expenses which resulted from
reduced sales personnel and related expenses and a $0.3 million decline in
administrative expenses. SG&A expenses in the foreign operations of the
Company's conveyor equipment segment increased $1.1 million. Of this increase in
the foreign operations, $0.8 million resulted from changes in the foreign
currency translation rates and the remaining $0.3 million increase primarily
resulted from increased administrative expenses. Corporate SG&A expenses
17
increased $0.4 million due to higher insurance and personnel expenses. SG&A
expenses in the Company's other segment decreased $0.1 million.
Operating Income
- ----------------
Operating income for the nine-month period decreased $4.5 million, or 63%, from
$7.1 million in 2002 to $2.6 million in 2003. The decrease in operating income
resulted from the $4.2 million decrease in gross profit combined with the $0.6
million increase in SG&A expenses, partially offset by a $0.3 million decrease
in management fees.
Restructuring Charges
- ---------------------
The Company incurred additional restructuring charges of approximately $0.1
million for the nine months ended September 30, 2003 related to changes in
staffing and production requirements in its domestic operations. These charges
consist primarily of relocation costs associated with the merger of certain
domestic facilities. Total restructuring charges incurred to date pertaining to
the actions started by the Company in 2002 are approximately $0.7 million. As
part of this restructuring, during 2003, the Company plans to discontinue the
manufacturing operations in certain of its domestic facilities and merge these
operations with other existing facilities. The Company expects the additional
cost of this restructuring to be approximately $0.4 million. These charges
consist primarily of severance and relocation costs and will be expensed as
incurred. As of September 30, 2003, the Company has paid approximately $0.2
million of the charges incurred to date.
Cumulative Effect of Change in Accounting Principle
- ---------------------------------------------------
In the fourth quarter of 2002, the Company recorded a non-cash impairment
write-down for goodwill of approximately $3.9 million in accordance with the
provisions of SFAS No. 142, "Goodwill and Other Intangible Assets". This
transition adjustment has been reported as a cumulative effect of a change in
accounting principle. The Company has restated the results of operations for the
nine months ended September 30, 2002 to reflect this goodwill impairment as of
January 1, 2002.
Backlog
- -------
Backlog at September 30, 2003 was $37.5 million, a decrease of $4.6 million, or
11%, from $42.1 million at December 31, 2002 and a decrease of $10.0 million, or
21%, from $47.5 million at June 30, 2003. At September 30, 2003, backlog in the
domestic operations of the Company's conveyor equipment segment was $12.9
million, a decrease of $2.3 million from June 30, 2003, and backlog in the
foreign operations of the Company's conveyor equipment segment was $24.6
million, a decrease of $7.7 million from June 30, 2003. Management believes that
approximately 70% of the backlog will be shipped in 2003.
Liquidity and Capital Resources
Net cash provided by (used in) operating activities was $(2.6) million and $4.2
million for the nine months ending September 30, 2003 and 2002, respectively.
Net cash used in operating activities in 2003 resulted primarily from a net loss
of $9.6 million, partially offset by non-cash expenses of $2.1 million and a net
decrease in operating assets and liabilities of $4.9 million. The net decrease
in operating assets and liabilities from December 31, 2002 to September 30,
2003, is primarily due to the increase in trade accounts payable, accrued
interest on senior notes, and other accrued liabilities, partially offset by the
significant increase in trade accounts receivable which resulted from higher
sales in the third quarter of 2003 compared to the fourth quarter of 2002. The
increase in trade accounts payable and other accrued liabilities resulted from
higher purchases necessary to support the increased sales. The increase in
accrued interest on senior notes occurred due to the scheduled semi-annual
interest payment due on October 1, 2003. Net cash provided by operating
activities in 2002 resulted from a net loss of $7.9 million offset by a net
decrease in operating assets and liabilities of $6.5 million and non-cash
expenses of $5.6 million.
18
Net cash used in investing activities was $0.5 million and $1.0 million for the
nine months ending September 30, 2003 and 2002, respectively, and represents net
purchases of property, plant, and equipment for both years.
Net cash used in financing activities was $1.2 million and $1.3 million for the
nine months ending September 30, 2003 and 2002, respectively. Net cash used by
financing activities in 2003 resulted from a net decrease in borrowings on notes
payable of $0.8 million and principal payments on long-term obligations of $0.4
million. Net borrowings on notes payable under the Company's domestic credit
facility decreased $3.6 million while net borrowings on notes payable under the
Company's various credit facilities at the foreign subsidiaries increased $2.8
million. Net cash used in financing activities in 2002 represented a net
decrease in borrowings on notes payable of $0.6 million and principal payments
on long-term obligations of $0.7 million.
The Company's primary capital requirements consist of capital expenditures and
debt service. The Company utilizes cash on hand and its available credit
facilities to satisfy these requirements. The Company anticipates that capital
expenditures in 2003, which are primarily for maintenance capital, will be less
than those made in 2002. The Company anticipates that its debt service
requirements in 2003 (not including principal obligations under the Company's
credit facilities) will be approximately $16.0 million. In addition, as of
September 30, 2003, the Company's domestic and foreign credit facilities had
outstanding principal balances of approximately $4.4 million and $6.6 million,
respectively.
The Company's United Kingdom subsidiary completed negotiations during the second
quarter of 2003 on an amended credit facility. The amended facility increases
the credit limit to (pound)3.3 million and has a maturity date of April 30,
2004. The United Kingdom subsidiary was not in compliance with its debt
covenants at September 30, 2003. However, the subsidiary's principle lender has
continued to allow the subsidiary to borrow under the facility to date. The
credit facility of the Company's Australian facility matured on August 31, 2003
but has been extended until March 31, 2004.
On August 12, 2003, the Company successfully completed negotiations of an
amended $26 million revolving credit facility. The amended revolving credit
facility has a maturity date of July 31, 2004. The availability under this
revolving credit facility is equal to the sum of (i) 85% of eligible accounts
receivable and (ii) 55% of eligible inventory. The amended revolving credit
facility continues to be guaranteed by the Company and secured by a lien on
substantially all of the assets of CCE and GCC. The amended revolving credit
facility contains fewer financial covenants than the previous agreement. The
financial covenants included in the amended facility relate to debt coverage and
tangible net worth and are less restrictive to the Company than the previous
agreement. Notwithstanding the less restrictive covenants, considering operating
performance to date, the Company does not expect to be in compliance with the
required debt coverage ratio at December 31, 2003. The Company will need to
materially improve its results of operations in order to both meet its future
debt service requirements and remain in compliance with its financial covenants
under the amended credit facility. Failure to materially improve operations
could impact the Company's ability to borrow under the amended credit facility
and to meet its future working capital and debt service requirements.
At September 30, 2003, the Company had cash and cash equivalents of
approximately $1.4 million and approximately $12.6 million available for use
under its domestic credit facility, representing approximately $14.0 million of
liquidity. On October 1, 2003, the Company made a semi-annual interest payment
of $6.6 million on its $120 million of outstanding Senior Notes due 2007. The
Company utilized its cash and cash equivalents and available bank borrowings to
fund the October 2003 interest payment. The Company's Board of Directors is
presently exploring alternative methods of enhancing the Company's short and
long-term liquidity position, including refinancing its outstanding Senior
19
Notes, in order to meet its working capital and debt service obligations in the
future. Failure to refinance the Senior Notes or to otherwise take steps to
improve the Company's liquidity position could materially impact the Company's
ability to meet its short and long-term working capital and debt service
requirements.
International Operations
The Company transacts business in a number of countries throughout the world and
has facilities in the United States, Australia, the United Kingdom, and South
Africa. As a result, the Company is subject to business risks inherent in
non-U.S. operations, including political and economic uncertainty, import and
export limitations, exchange controls and currency fluctuations. The Company
believes that the risks related to its foreign operations are mitigated by the
relative political and economic stability of the countries in which its largest
foreign operations are located. As the U.S. dollar strengthens and weakens
against foreign currencies in which the Company transacts business, its
financial results will be affected. The principal foreign currencies in which
the Company transacts business are the Australian dollar, the British pound
sterling, and the South African rand. The fluctuation of the U.S. dollar versus
other currencies resulted in increases to stockholder's equity (deficit) of
approximately $0.4 million and $0.6 million for the nine months ended September
30, 2003 and 2002, respectively.
Cautionary Statement for Safe Harbor Purposes
This Management's Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) contains forward-looking statements within the meaning of the
federal securities laws. As a general matter, forward-looking statements are
those focused upon future plans, objectives or performance as opposed to
historical items and include statements of anticipated events or trends and
expectations and beliefs relating to matters that are not historical in nature.
Such forward looking statements are subject to uncertainties and factors
relating to the Company's operations and business environment which are outside
the Company's control, such as the continued availability of funds under the
Company's credit facilities. All such uncertainties and factors are difficult to
predict and could cause actual results to differ materially from those matters
expressed in or implied by such forward-looking statements.
In addition, the Company's future results of operations, financial condition,
liquidity and capital resources could be materially adversely affected by, among
other things, the economic and political uncertainties or prolonged economic
recession.
20
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The following table provides information about the Company's Senior Notes. The
table presents principal cash flows and interest rate by expected maturity date.
Interest Rate Sensitivity
Principal Amount by Expected Maturity
Average Interest Rate
Fair
Value,
(dollars in thousands) 2003 2004 2005 2006 2007 Total 9/30/03
- ------------------------------------------------------------------------------------------------
Long-Term Obligations,
including current
portion
Fixed Rate $ - $ - $ - $ - $ 120,000 $ 120,000 $36,000
Average interest rate 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 revolving credit facilities. 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.
Item 4. Controls and Procedures
As of September 30, 2003, the Company carried out an evaluation, under the
supervision and with the participation of the Company's management, including
the Company's Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company (including its consolidated subsidiaries) required to be
included in the Company's periodic filings with the Securities and Exchange
Commission. There were no significant changes in the Company's internal controls
over financial reporting that occurred during the Company's most recent fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.
21
Part II. Other Information
Item 1. Legal Proceedings
In August and September 2003, Continental Conveyor & Equipment Company was
served as one of fifty-eight known and unknown defendants in nineteen separate
actions pending in various state courts in the State of Alabama alleging various
contract, tort and warranty claims. All claims in such actions arose out of
alleged injuries and deaths occurring at the Jim Walters Resources No. 5 Mine
which occurred on September 23, 2001. The plaintiffs in such actions do not
allege a particular set of actions or omissions by Continental Conveyor &
Equipment Company that give rise to the claims, nor is there a specific amount
of damages sought. The Company believes that these claims are without merit and
intends to vigorously defend all claims. The Company considers such claims to be
the type of claims that arise in the normal course of its business. While it is
not feasible to predict the outcome of these matters with certainty, management
is of the opinion that their ultimate disposition should not have a material
adverse effect on the Company's financial condition.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: Refer to the index of exhibits.
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 2003.
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONTINENTAL GLOBAL GROUP, INC.
By: /s/ Jimmy L. Dickinson
----------------------
Jimmy L. Dickinson
Vice President and Chief Financial Officer
(As duly authorized representative and as
Principal Financial and Accounting Officer)
CONTINENTAL CONVEYOR & EQUIPMENT COMPANY
By: /s/ Jimmy L. Dickinson
----------------------
Jimmy L. Dickinson
Vice President - Finance (As duly authorized
representative and as Principal Financial
and Accounting Officer)
GOODMAN CONVEYOR COMPANY
By: /s/ J. Mark Etchberger
----------------------
J. Mark Etchberger
Controller (As duly authorized representative
and as Principal Financial and Accounting
Officer)
Date: November 19, 2003
23
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 Amended and Restated Credit Facility and Security Agreement, dated as of July 25, 2002,
among Bank One, NA, Continental Conveyor & Equipment Company, and Goodman
Conveyor Company. (Filed as Exhibit 10.1 to the Company's Form 10-Q for the quarter
ended September 30, 2002, and is incorporated herein by reference.)
10.2 Management Agreement, dated as of April 1, 1997, between Continental Global Group, Inc. *
and Nesco, Inc.
10.3 Employment Agreement, effective November 4, 2002, between Continental Global Group, Inc.
and Robert Hale. (Filed as Exhibit 10.3 to the Company's Form 10-K for the year ended
December 31, 2002, and is incorporated herein by reference.)
10.4 Continental Global Group, Inc. Phantom Stock Plan dated as of November 4, 2002. (Filed
as Exhibit 10.4 to the Company's Form 10-K for the year ended December 31, 2002, and is
incorporated herein by reference.)
10.5 Second Amendment to Amended and Restated Credit Facility and Security Agreement,
effective as of August 12, 2003, by and among Bank One, NA, Continental Conveyor &
Equipment Company, and Goodman Conveyor Company. (Filed as Exhibit 10.5 to the
Company's Form 10-Q for the quarter ended June 30, 2003, and is incorporated
herein by reference.)
31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32 Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to
18, U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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.