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, 2005
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 by check mark if the registrant is a shell company (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, 2005, 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, 2005 and December 31, 2004 2
Condensed Consolidated Statements of Operations
Three Months and Nine Months ended September 30, 2005 and 2004 3
Condensed Consolidated Statements of Cash Flows
Nine Months ended September 30, 2005 and 2004 4
Notes to Condensed Consolidated Financial Statements 5-15
Item 2 Management's Discussion and Analysis of Financial Condition and Results of
Operations 16-25
Item 3 Quantitative and Qualitative Disclosures about Market Risk 26
Item 4 Controls and Procedures 26
Part II Other Information
Item 1 Legal Proceedings 27
Item 6 Exhibits 27
Signatures 28
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
1
Continental Global Group, Inc.
Condensed Consolidated Balance Sheets
September 30 December 31
2005 2004
-------------------- --------------------
(Unaudited) (Audited)
Assets:
Current assets:
Cash and cash equivalents $ 1,519,438 $ 887,256
Accounts receivable, net 53,828,139 39,633,378
Inventories 40,377,668 28,551,137
Deferred income taxes 1,018,904 483,170
Other current assets 1,696,242 2,578,873
-------------------- --------------------
Total current assets 98,440,391 72,133,814
Property, plant and equipment 34,935,662 33,281,329
Less accumulated depreciation 21,907,684 21,174,697
-------------------- --------------------
13,027,978 12,106,632
Goodwill 13,904,986 13,980,994
Deferred financing costs 779,853 1,169,780
Other assets 801,312 835,481
-------------------- --------------------
$ 126,954,520 $ 100,226,701
==================== ====================
Liabilities and Stockholder's Equity (Deficit):
Current liabilities:
Notes payable $ 18,662,800 $ 17,220,041
Trade accounts payable 31,721,413 30,218,195
Accrued compensation and employee benefits 7,049,832 6,342,288
Accrued interest on senior notes 590,150 295,075
Other accrued liabilities 12,834,008 8,684,898
Income taxes payable 7,675,367 1,391,024
Current maturities of long-term obligations 9,561,432 9,454,247
-------------------- --------------------
Total current liabilities 88,095,002 73,605,768
Pension obligations 1,207,550 1,232,550
Deferred income taxes 2,117,435 2,971,644
Senior notes 94,389,842 97,463,061
Note payable to N.E.S. Investment Co. 10,883,973 10,208,973
Other long-term obligations, less current maturities 4,642,059 4,931,102
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 (70,228,237) (86,426,940)
Accumulated other comprehensive loss (6,146,792) (5,753,145)
-------------------- --------------------
(74,381,341) (90,186,397)
-------------------- --------------------
$ 126,954,520 $ 100,226,701
==================== ====================
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
2005 2004 2005 2004
---------------------------------- -------------------------------------
(Unaudited) (Unaudited)
Net sales $ 82,731,072 $ 63,226,177 $ 221,417,119 $ 180,340,352
Cost of products sold 64,241,679 52,753,698 173,613,277 151,681,953
---------------------------------- -------------------------------------
Gross profit 18,489,393 10,472,479 47,803,842 28,658,399
Operating expenses:
Selling and engineering 3,972,142 3,559,490 11,621,166 10,229,350
General and administrative 3,032,751 2,714,731 9,342,537 8,255,655
Management fee 599,427 236,366 1,415,154 582,319
Amortization expense 6,590 6,590 19,770 19,770
Restructuring charges - 38,469 41,682 212,007
--------------------------------------------------------------------------
Total operating expenses 7,610,910 6,555,646 22,440,309 19,299,101
--------------------------------------------------------------------------
Operating income 10,878,483 3,916,833 25,363,533 9,359,298
Other expense:
Interest expense, net 1,176,435 (2,119,289) 3,610,283 5,688,529
Miscellaneous expense, net 125,424 2,153,360 650,001 2,478,773
---------------------------------- -------------------------------------
Total other expenses 1,301,859 34,071 4,260,284 8,167,302
---------------------------------- -------------------------------------
Income before income taxes 9,576,624 3,882,762 21,103,249 1,191,996
Income tax expense 1,795,741 - 4,904,546 -
---------------------------------- -------------------------------------
Net income $ 7,780,883 $ 3,882,762 $ 16,198,703 $ 1,191,996
================================== =====================================
See notes to condensed consolidated financial statements.
3
Continental Global Group, Inc.
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30
2005 2004
---------------------- ---------------------
(Unaudited)
Operating activities:
Net income $ 16,198,703 $ 1,191,996
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for depreciation and amortization 1,524,400 1,704,772
Amortization of deferred financing costs 389,927 389,927
Deferred income taxes (1,379,797) -
Non-cash interest paid in-kind 675,000 -
Gain on disposal of assets (36,158) (8,449)
Changes in operating assets and liabilities (12,523,994) 2,692,012
---------------------- ---------------------
Net cash provided by operating activities 4,848,081 5,970,258
---------------------- ---------------------
Investing activities:
Purchases of property, plant, and equipment (2,346,445) (531,357)
Proceeds from sale of property, plant, and equipment 41,453 15,755
---------------------- ---------------------
Net cash used in investing activities (2,304,992) (515,602)
---------------------- ---------------------
Financing activities:
Net increase (decrease) in borrowings on notes payable 1,734,074 (2,727,258)
Proceeds from long-term obligations 769,000 -
Payments on Senior notes (3,073,219) -
Principal payments on long-term obligations (1,329,926) (1,105,746)
---------------------- ---------------------
Net cash used in financing activities (1,900,071) (3,833,004)
Effect of exchange rate changes on cash (10,836) (35,067)
---------------------- ---------------------
Increase in cash and cash equivalents 632,182 1,586,585
Cash and cash equivalents at beginning of period 887,256 850,727
---------------------- ---------------------
Cash and cash equivalents at end of period $ 1,519,438 $ 2,437,312
====================== =====================
See notes to condensed consolidated financial statements.
4
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2005
A. Organization and 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,
2005 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2005. For further information, refer to the
consolidated financial statements and footnotes of Continental Global Group,
Inc. and subsidiaries for the year ended December 31, 2004, included in the
Company's Form 10-K.
Certain amounts from the prior year financial statements have been reclassified
to conform to current year presentation.
The Company was not in compliance with certain covenants under its revolving
credit facilities as of December 31, 2003 or the subsequent quarters through
September 30, 2004, resulting in a cross default under the terms of the
Company's Senior Notes. In addition, the Company failed to make its $6,600,000
semi-annual interest payment for the Senior Notes due on April 1, 2004.
Following expiration of the 30-day grace period provided for in the indenture,
the Senior Notes were in default and the Company received a notice of default
from the Trustee for the Senior Notes. However, on April 26, 2004, the Company
entered into a forbearance agreement with the holders of a majority interest
("Majority Holders") of the Senior Notes which instructed the Trustee for the
Senior Notes to refrain from taking any action with respect to the default.
Several times in 2004, this agreement was amended to extend the forbearance
agreement until July 23, 2004.
On July 22, 2004, the Company entered into a restructuring agreement with the
Majority Holders of the Senior Notes pursuant to which the Company agreed to
commence an offer to exchange new notes and a cash payment for all of the
outstanding Senior Notes. The restructuring agreement extended the forbearance
agreement with the Majority Holders until the restructuring was consummated or
the restructuring agreement was terminated.
On August 5, 2004, the Company commenced an offer to exchange (i) cash in the
aggregate amount of $17,500,000, (ii) 9% Series A Senior Secured Notes due 2008
in the aggregate principal amount of $65,000,000, and (iii) 13% Series B Senior
Secured Notes due 2008 in the aggregate principal amount of $10,000,000, for all
of its outstanding 11% Senior Notes due 2007 in the aggregate principal amount
of $120,000,000 and all interest accrued thereon. The exchange offer was made
exclusively to holders of the 11% Senior Notes due 2007.
5
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2005
A. Organization and Basis of Presentation (Continued)
Several times through August 31, 2004, the Company and Bank One, N.A. entered
into forbearance agreements under which Bank One agreed not to exercise its
rights with respect to the defaults, including the right to demand payment,
under the revolving credit facility for a stated period while the Company
negotiated a restructuring of its Senior Notes. On July 12, 2004, the Company
received a commitment letter from Bank One for a waiver of the covenant
violations and an extension of the revolving credit facility. On October 4,
2004, the Company's wholly-owned subsidiaries, CCE and GCC entered into a Second
Amended and Restated Credit Facility and Security Agreement (the "Credit
Agreement") with Bank One, N.A. The Credit Agreement extends the Company's
revolving credit facility with Bank One until July 31, 2006.
On October 4, 2004, the Company completed the exchange offer with respect to its
outstanding 11% Senior Notes due 2007 (the "Old Notes") and entered into an
Indenture by and among the Company, two of its wholly-owned subsidiaries, CCE
and GCC (collectively, the "Subsidiary Guarantors") and Wells Fargo Bank,
National Association, as trustee (the "Indenture"). Tenders with respect to Old
Notes representing approximately $109,270,000 or 91.06% of the $120,000,000 of
Old Notes outstanding principal amount were received by Wells Fargo Bank, N.A.,
which acted as depositary in the exchange offer. All Old Notes that were validly
tendered were accepted for exchange. According to the terms of the exchange
offer, on October 4, 2004, the Company issued $59,187,917 of 9% New Series A
Notes due 2008 and $9,105,833 of 13% New Series B Notes due 2008. In addition,
the Company made a cash payment as additional consideration to the Series A and
Series B bondholders of approximately $14,114,000, or $15.50 for every $120 of
Old Notes tendered. On October 3, 2005, the Company made an additional cash
payment to the Series A and Series B bondholders of approximately $1,821,000, or
$2.00 for every $120 of Old Notes tendered.
According to the terms of the Indenture, the New Series A Notes will mature on
October 1, 2008. Interest will accrue at the rate of 9% per annum and will be
payable semiannually in arrears, in cash, on each April 1 and October 1 until
maturity. Interest accrued on the New Series A Notes from April 1, 2004, as if
the New Series A Notes had been issued on such date. The Company paid interest
of $2,663,457 on each of October 4, 2004, April 1, 2005, and October 3, 2005
related to the Series A Notes. The New Series B Notes will also mature on
October 1, 2008. Interest will accrue at the rate of 13% per annum and will be
payable semiannually in arrears, in kind, on each April 1 and October 1 until
maturity. However, the Company has the right to make interest payment on the New
Series B Notes in cash at the same rate and on the same terms as the New Series
A Notes. The Company has assumed the interest will be paid in cash at a rate of
9% in all calculations involving the interest payments on the Series B Notes in
these condensed consolidated financial statements. Interest accrued on the New
Series B Notes from April 1, 2004, as if the New Series B Notes had been issued
on such date. The Company paid interest of $409,763 on each of October 4, 2004,
April 1, 2005, and October 3, 2005 related to the Series B Notes. The New Series
A and Series B Notes are jointly and severally guaranteed by the Subsidiary
Guarantors and secured by substantially all of the assets of the Subsidiary
Guarantors.
6
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2005
A. Organization and Basis of Presentation (Continued)
The cash payment made on October 4, 2004 as additional consideration to the
Series A and Series B bondholders was funded by new subordinated indebtedness to
N.E.S. Investment Co. in the amount of $10,000,000 and additional borrowings
from the Company's revolving line of credit. The note payable to N.E.S.
Investment Co. accrues interest at a rate of 9%, payable in kind, compounded
annually. The additional consideration paid by the Company on October 3, 2005 to
the Series A and Series B bondholders was funded with an additional $2,000,000
of subordinated indebtedness to N.E.S. Investment Co.
The debt exchange was accounted for according to Statement of Financial
Accounting Standards ("SFAS") No. 15, "Accounting by Debtors and Creditors for
Troubled Debt Restructurings". According to the requirements of SFAS No. 15, in
the fourth quarter of 2004, the Company recorded a gain on the exchange of bonds
of approximately $3,392,000, representing the difference between the future cash
outlays of the Series A and Series B Notes and the carrying value of the Old
Notes. All cash payments as additional consideration to Series A and Series B
bondholders and interest payments on the New Series A and Series B Notes will be
recorded as a reduction in the balance of outstanding indebtedness throughout
the terms of the Series A and Series B Notes, and accordingly, the Company will
not recognize any interest expense in the income statement related to the New
Series A and Series B Notes.
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 66% and 64% of
inventories at September 30, 2005 and December 31, 2004, 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 $5,934,000 and
$5,184,000 at September 30, 2005 and December 31, 2004, respectively.
7
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2005
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 historical experience and expectations of future
conditions and continuously assesses the adequacy of its product warranty
accrual and makes adjustments as needed. A summary of accrued warranty costs
follows:
2005 2004
----------------- -----------------
Balance as of January 1 $ 1,634,049 $ 1,275,401
Provision for warranties 1,244,884 707,049
Settlements made during the period (739,095) (451,126)
Effect of exchange rate changes (40,501) (6,184)
----------------- -----------------
Balance as of September 30 $ 2,099,337 $ 1,525,140
================= =================
E. Restructuring Charges
The Company incurred restructuring charges of approximately $42,000 and $212,000
in the first nine months of 2005 and 2004, respectively, related to changes in
staffing and production requirements in its domestic operations. These charges
consist primarily of severance costs associated with a reduction in personnel
which occurred in 2002 and 2003. As part of this restructuring, in 2002 the
Company developed a plan to discontinue the manufacturing operations in certain
of its domestic facilities and merge these operations with other existing
facilities. The process of merging the domestic operations began in 2003 and
continued throughout 2004. As of September 30, 2005, the Company has paid
approximately $718,000 of the charges incurred to date, with the majority of the
remainder expected to be paid by 2008. Due to increases in the Company's
domestic backlog, the Company does not expect any further consolidation at this
time.
F. Comprehensive Income
The components of comprehensive income for the three months and nine months
ended September 30 are as follows:
Three months ended Nine months ended
September 30 September 30
2005 2004 2005 2004
---------------------------------- ---------------------------------
Net income $ 7,780,883 $ 3,882,762 $ 16,198,703 $ 1,191,996
Other comprehensive income:
Foreign currency translation
adjustment (67,143) 186,673 (387,758) (195,072)
Change in fair value of derivative
hedge, net of tax - 253,491 (5,889) (4,884)
---------------------------------- ---------------------------------
Comprehensive income $ 7,713,740 $ 4,322,926 $ 15,805,056 $ 992,040
================================== =================================
8
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2005
G. Employee Benefit Plans
During the third quarter of 2005, the Company made a contribution of $250,000 to
its defined benefit plan. The components of net periodic benefit cost for the
three months and nine months ended September 30 are as follows:
Three months ended Nine months ended
September 30 September 30
2005 2004 2005 2004
--------------- --------------- --------------- ---------------
Service cost $ 53,857 $ 55,386 $ 161,571 $ 166,158
Interest cost 128,347 122,237 385,041 366,711
Expected return on plan assets (146,479) (127,960) (439,437) (383,880)
Amortization of prior service cost 11,161 11,161 33,483 33,483
Recognized loss 14,898 14,933 44,694 44,799
--------------- --------------- --------------- ---------------
Net periodic benefit cost $ 61,784 $ 75,757 $ 185,352 $ 227,271
=============== =============== =============== ===============
H. Income Taxes
Income taxes are provided using the liability method in accordance with SFAS 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.
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 income tax rate is less than the statutory rate in 2005
primarily due to a favorable income tax benefit for interest payments on the New
Series A and Series B Notes due 2008 which are recorded as a reduction of the
outstanding indebtedness for financial reporting purposes. In addition, the
Company has not recognized income tax expense in certain of its foreign
subsidiaries due to the reversal of an income tax valuation allowance. The
Company's effective income tax rate is less than the statutory rate in 2004 as
the previously established valuation allowance was reduced, offsetting the net
tax expense in those periods.
9
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2005
I. Segment Information
While the Company primarily manages its operations on a geographical basis, the
Company operates in two principal business segments: conveyor equipment and
manufactured housing products. The conveyor equipment business markets its
products in four main business areas. The mining equipment business area
includes the design, manufacture and testing (and, outside the United States,
installation and maintenance) of complete belt conveyor systems and components
for mining application primarily in the coal industry. The conveyor components
business area manufactures and sells components for conveyor systems primarily
for resale through distributor networks. The engineered systems business area
uses specialized project management and engineering skills to combine mining
equipment products, purchased equipment, steel fabrication and other outside
services for sale as complete conveyor equipment systems that meet specific
customer requirements. The bulk conveyor equipment business area designs and
manufactures a complete range of conveyor equipment sold to transport bulk
materials, such as cement, lime, food products and industrial waste.
The Company's manufactured housing products business manufactures and/or
refurbishes axle components sold directly to the manufactured housing industry.
As part of this segment the Company also sells mounted 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 Nine months ended
September 30 September 30
2005 2004 2005 2004
-------------------------------------------------------------------
(in thousands) (in thousands)
Net sales:
Conveyor equipment $ 74,618 $ 56,260 $ 197,870 $ 161,013
Manufactured housing products 7,843 6,801 22,983 18,829
Other 270 165 564 498
-------------------------------------------------------------------
Total net sales $ 82,731 $ 63,226 $ 221,417 $ 180,340
===================================================================
Segment operating income:
Conveyor equipment $ 11,229 $ 4,207 $ 26,545 $ 10,608
Manufactured housing products 495 319 1,248 647
Other 18 47 85 158
-------------------------------------------------------------------
Total segment operating income 11,742 4,573 27,878 11,413
Management fee 599 236 1,415 582
Amortization expense 7 7 20 20
Restructuring charges - 38 42 212
Corporate expense 258 375 1,038 1,240
-------------------------------------------------------------------
Total operating income 10,878 3,917 25,363 9,359
Interest expense, net 1,176 (2,119) 3,610 5,688
Miscellaneous expense, net 125 2,153 650 2,479
-------------------------------------------------------------------
Income before income taxes $ 9,577 $ 3,883 $ 21,103 $ 1,192
===================================================================
10
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2005
J. 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 guarantors of the New Series A and Series B 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 Australian, United Kingdom and
South African subsidiaries are not guarantors of the New Series A and Series B
Notes.
Summarized consolidating balance sheets as of September 30, 2005 and December
31, 2004 for the Company, the guarantor subsidiaries, and the non-guarantor
subsidiaries are as follows (in thousands):
Combined Combined
Guarantor Non-Guarantor
September 30, 2005: The Company Subsidiaries Subsidiaries Eliminations Total
-------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 410 $ 619 $ 490 $ - $ 1,519
Accounts receivable, net - 35,942 17,886 - 53,828
Inventories - 31,667 8,711 - 40,378
Deferred income taxes 81 429 509 - 1,019
Other current assets 16,119 2,224 1,573 (18,220) 1,696
-------------------------------------------------------------------------------
Total current assets 16,610 70,881 29,169 (18,220) 98,440
Property, plant, and
equipment, net - 7,038 5,990 - 13,028
Goodwill - 10,986 2,919 - 13,905
Investment in subsidiaries 60,309 35,788 - (96,097) -
Deferred financing costs 780 - - - 780
Other assets 1,057 5,334 123 (5,712) 802
-------------------------------------------------------------------------------
Total assets $ 78,756 $ 130,027 $ 38,201 $ (120,029) $ 126,955
===============================================================================
Current liabilities:
Notes payable $ - $ 16,164 $ 3,300 $ (801) $ 18,663
Trade accounts payable 75 16,944 16,666 (1,964) 31,721
Accrued compensation and
employee benefits - 4,599 2,451 - 7,050
Accrued interest 590 - - - 590
Other accrued liabilities 4,844 4,891 5,369 (2,270) 12,834
Income taxes payable - 23,751 - (16,076) 7,675
Current maturities of
long-term obligations 7,968 500 1,094 - 9,562
-------------------------------------------------------------------------------
Total current liabilities 13,477 66,849 28,880 (21,111) 88,095
Pension obligation - 1,208 - - 1,208
Deferred income taxes - 2,402 772 (1,057) 2,117
Senior notes 94,390 - - - 94,390
N/P to N.E.S. Investment Co. 10,884 - - - 10,884
Other long-term obligations - 4,042 3,021 (2,421) 4,642
Stockholder's equity
(deficit) (39,995) 55,526 5,528 (95,440) (74,381)
-------------------------------------------------------------------------------
Total liabilities and
stockholder's equity
(deficit) $ 78,756 $ 130,027 $ 38,201 $ (120,029) $ 126,955
===============================================================================
11
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2005
J. Guarantor and Non-Guarantor Subsidiaries (Continued)
Combined Combined
Guarantor Non-Guarantor
December 31, 2004: The Company Subsidiaries Subsidiaries Eliminations Total
-------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 12 $ 509 $ 366 $ - $ 887
Accounts receivable, net - 16,281 23,353 - 39,634
Inventories - 22,418 6,133 - 28,551
Deferred income taxes 81 - 519 (117) 483
Other current assets 13,024 2,154 2,518 (15,117) 2,579
-------------------------------------------------------------------------------
Total current assets 13,117 41,362 32,889 (15,234) 72,134
Property, plant, and
equipment, net - 5,770 6,337 - 12,107
Goodwill - 10,986 2,995 - 13,981
Investment in subsidiaries 60,009 34,977 - (94,986) -
Deferred financing costs 1,170 - - - 1,170
Other assets 300 4,922 126 (4,513) 835
-------------------------------------------------------------------------------
Total assets $ 74,596 $ 98,017 $ 42,347 $ (114,733) $ 100,227
===============================================================================
Current liabilities:
Notes payable $ - $ 13,297 $ 5,971 $ (2,048) $ 17,220
Trade accounts payable 72 9,806 22,348 (2,008) 30,218
Accrued compensation and
employee benefits 717 3,149 2,476 - 6,342
Accrued interest 295 - - - 295
Other accrued liabilities 2,485 3,440 4,203 (1,443) 8,685
Income taxes payable - 14,355 - (12,964) 1,391
Current maturities of
long-term obligations 7,967 596 891 - 9,454
-------------------------------------------------------------------------------
Total current liabilities 11,536 44,643 35,889 (18,463) 73,605
Pension obligation - 1,233 - - 1,233
Deferred income taxes 247 1,933 792 - 2,972
Senior notes 97,463 - - - 97,463
N/P to N.E.S. Investment Co. 10,209 - - - 10,209
Other long-term obligations - 4,417 3,097 (2,583) 4,931
Stockholder's equity
(deficit) (44,859) 45,791 2,569 (93,687) (90,186)
-------------------------------------------------------------------------------
Total liabilities and
stockholder's equity
(deficit) $ 74,596 $ 98,017 $ 42,347 $ (114,733) $ 100,227
===============================================================================
12
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2005
J. Guarantor and Non-Guarantor Subsidiaries (Continued)
Summarized consolidating statements of operations for the three months and nine
months ended September 30, 2005 and 2004, 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, 2005:
Net sales $ - $ 62,302 $ 20,429 $ - $ 82,731
Cost of products sold - 47,539 16,703 - 64,242
------------- ------------- --------------- ------------- -------------
Gross profit - 14,763 3,726 - 18,489
Total operating expenses 457 4,367 2,787 - 7,611
------------- ------------- --------------- ------------- -------------
Operating income (loss) (457) 10,396 939 - 10,878
Interest expense, net 650 375 151 - 1,176
Miscellaneous expense, net - 132 (7) - 125
------------- ------------- --------------- ------------- -------------
Income (loss) before income taxes (1,107) 9,889 795 - 9,577
Income tax expense (benefit) (2,428) 4,224 - - 1,796
------------- ------------- --------------- ------------- -------------
Net income (loss) $ 1,321 $ 5,665 $ 795 $ - $ 7,781
============= ============= =============== ============= =============
Combined Combined
Guarantor Non-Guarantor
The Company Subsidiaries Subsidiaries Eliminations Total
------------- ------------- --------------- ------------- -------------
Three months ended September 30, 2004:
Net sales $ - $ 53,788 $ 9,438 $ - $ 63,226
Cost of products sold - 44,513 8,241 - 52,754
------------- ------------- --------------- ------------- -------------
Gross profit - 9,275 1,197 - 10,472
Total operating expenses 408 4,915 1,232 - 6,555
------------- ------------- --------------- ------------- -------------
Operating income (loss) (408) 4,360 (35) - 3,917
Interest expense, net (2,579) 264 196 - (2,119)
Miscellaneous expense, net 1,717 442 (6) - 2,153
------------- ------------- --------------- ------------- -------------
Income (loss) before income taxes 454 3,654 (225) - 3,883
Income tax expense (benefit) (1,385) 1,385 - - -
------------- ------------- --------------- ------------- -------------
Net income (loss) $ 1,839 $ 2,269 $ (225) $ - $ 3,883
============= ============= =============== ============= =============
Combined Combined
Guarantor Non-Guarantor
The Company Subsidiaries Subsidiaries Eliminations Total
------------- ------------- --------------- ------------- -------------
Nine months ended September 30, 2005:
Net sales $ - $ 158,308 $ 63,109 $ - $ 221,417
Cost of products sold - 120,969 52,644 - 173,613
------------- ------------- --------------- ------------- -------------
Gross profit - 37,339 10,465 - 47,804
Total operating expenses 1,254 13,094 8,092 - 22,440
------------- ------------- --------------- ------------- -------------
Operating income (loss) (1,254) 24,245 2,373 - 25,364
Interest expense, net 1,950 1,116 544 - 3,610
Miscellaneous expense, net 11 710 (71) - 650
------------- ------------- --------------- ------------- -------------
Income (loss) before income taxes (3,215) 22,419 1,900 - 21,104
Income tax expense (benefit) (4,415) 9,320 - - 4,905
------------- ------------- --------------- ------------- -------------
Net income (loss) $ 1,200 $ 13,099 $ 1,900 $ - $ 16,199
============= ============= =============== ============= =============
13
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2005
J. Guarantor and Non-Guarantor Subsidiaries (Continued)
Combined Combined
Guarantor Non-Guarantor
The Company Subsidiaries Subsidiaries Eliminations Total
------------- ------------- --------------- ------------- -------------
Nine months ended September 30, 2004:
Net sales $ - $ 147,352 $ 32,996 $ (8) $ 180,340
Cost of products sold - 122,251 29,439 (8) 151,682
------------- ------------- --------------- ------------- -------------
Gross profit - 25,101 3,557 - 28,658
Total operating expenses 1,214 14,280 3,805 - 19,299
------------- ------------- --------------- ------------- -------------
Operating income (loss) (1,214) 10,821 (248) - 9,359
Interest expense, net 4,281 922 485 - 5,688
Miscellaneous expense, net 2,179 320 (20) - 2,479
------------- ------------- --------------- ------------- -------------
Income (loss) before income taxes (7,674) 9,579 (713) - 1,192
Income tax expense (benefit) (2,992) 2,992 - - -
------------- ------------- --------------- ------------- -------------
Net income (loss) $ (4,682) $ 6,587 $ (713) $ - $ 1,192
============= ============= =============== ============= =============
Summarized consolidating cash flow statements for the nine months ended
September 30, 2005 and 2004, 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, 2005:
Net cash provided by (used in)
operating activities $ (192) $ 3,327 $ 1,707 $ 6 $ 4,848
Investing activities:
Purchases of property, plant, and
equipment - (1,986) (360) - (2,346)
Proceeds from sale of property,
plant, and equipment - 36 5 - 41
------------- ------------- --------------- ------------- -------------
Net cash used in investing activities - (1,950) (355) - (2,305)
------------- ------------- --------------- ------------- -------------
Financing activities:
Net increase (decrease) in
borrowings on notes payable - 2,867 (1,133) - 1,734
Proceeds from long-term obligations - - 769 - 769
Payments on senior notes (3,073) - - - (3,073)
Principal payments on long-term
obligations - (471) (859) - (1,330)
Distributions 3,663 (3,663) - - -
------------- ------------- --------------- ------------- -------------
Net cash provided by (used in)
financing activities 590 (1,267) (1,223) - (1,900)
Exchange rate changes on cash - - (5) (6) (11)
------------- ------------- --------------- ------------- -------------
Increase in cash and cash equivalents 398 110 124 - 632
Cash and cash equivalents at beginning
of period 12 509 366 - 887
------------- ------------- --------------- ------------- -------------
Cash and cash equivalents at end of
period $ 410 $ 619 $ 490 $ - $ 1,519
============= ============= =============== ============= =============
14
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2005
J. Guarantor and Non-Guarantor Subsidiaries (Continued)
Combined Combined
Guarantor Non-Guarantor
The Company Subsidiaries Subsidiaries Eliminations Total
------------- ------------- --------------- ------------- -------------
Nine months ended September 30, 2004:
Net cash provided by (used in)
operating activities $ (489) $ 7,925 $ (1,482) $ 16 $ 5,970
Investing activities:
Purchases of property, plant, and
equipment - (219) (312) - (531)
Proceeds from sale of property,
plant, and equipment - 15 - - 15
------------- ------------- --------------- ------------- -------------
Net cash used in investing activities - (204) (312) - (516)
------------- ------------- --------------- ------------- -------------
Financing activities:
Net increase (decrease) in
borrowings on notes payable - (3,453) 726 - (2,727)
Principal payments on long-term
obligations - (1,031) (75) - (1,106)
Distributions 450 (450) - - -
Intercompany loan activity - (1,433) 1,433 - -
------------- ------------- --------------- ------------- -------------
Net cash provided by (used in)
financing activities 450 (6,367) 2,084 - (3,833)
Exchange rate changes on cash - (39) 20 (16) (35)
------------- ------------- --------------- ------------- -------------
Increase (decrease) in cash and cash
equivalents (39) 1,315 310 - 1,586
Cash and cash equivalents at beginning
of period 114 734 3 - 851
------------- ------------- --------------- ------------- -------------
Cash and cash equivalents at end of
period $ 75 $ 2,049 $ 313 $ - $ 2,437
============= ============= =============== ============= =============
15
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the Consolidated
Financial Statements and related notes included in the Company's Form 10-K for
the year ended December 31, 2004.
General
The Company, through its subsidiaries, is a leading designer and manufacturer of
conveyor systems and components for mining applications, primarily in the coal
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. The assets
and liabilities of the Company's foreign subsidiaries are translated at current
exchange rates, while revenues and expenses are translated at average rates
prevailing during the year.
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, 2005 and 2004.
Three months ended Nine months ended
September 30 September 30
-------------------------- -------------------------
2005 2004 2005 2004
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 77.7 83.4 78.4 84.1
Gross profit 22.3 16.6 21.6 15.9
SG&A expenses 8.5 9.9 9.5 10.3
Management fee 0.7 0.4 0.6 0.3
Restructuring charges - 0.1 - 0.1
Operating income 13.1 6.2 11.5 5.2
Three months ended September 30, 2005, compared to three months ended September
30, 2004:
Net Sales
Net sales for the quarter increased $19.5 million, or 31%, from $63.2 million in
2004 to $82.7 million in 2005. Net sales in the domestic operations of the
Company's conveyor equipment segment increased $20.3 million primarily as a
result of increased sales volume in the mining equipment business area. This
increased sales volume was due to continued improvement in the coal industry,
creating higher demand for coal and resulting in increased capital spending by
the Company's major customers in the coal industry. In addition, sales prices
were higher in 2005 than in 2004 due to significant steel price increases from
the Company's vendors which required the Company to increase selling prices on
its products in order to recover the increased costs. Net sales in the foreign
operations of the Company's conveyor equipment segment decreased $1.9 million.
This decrease is net of a $0.6 million increase in net sales due to changes in
16
foreign currency translation rates. Adjusted for changes in foreign currency
translation rates, net sales in the Australian and United Kingdom subsidiaries
decreased $1.8 million and $1.3 million, respectively, and net sales in the
South African subsidiary increased $0.6 million. Net sales in Australia in the
third quarter of 2004 included sales of approximately $3.9 million of conveyor
belting which was not repeated in 2005. The decrease in the United Kingdom
resulted from reduced sales in the engineering systems business (primarily in
the tunneling industry). The increase in South Africa was due to improved market
conditions in the coal industry. Net sales in the Company's manufactured housing
segment increased $1.0 million, or 15%, primarily due to a change in the product
mix with more sales of new manufactured products which have a higher selling
price than refurbished products. In addition, sales volume increased in the
manufactured housing segment as a result of the increased demand for mobile
homes from the Federal Emergency Management Agency for housing for hurricane
victims. Net sales in the Company's other segment increased $0.1 million.
Gross Profit
Gross profit for the quarter increased $8.0 million, or 76%, from $10.5 million
in 2004 to $18.5 million in 2005. This increase in gross profit resulted from a
$4.1 million increase due to increased sales volume combined with a $3.9 million
increase due to improved margins. Gross profit in the domestic operations of the
conveyor equipment segment increased $6.9 million primarily due to improved
margins in the mining equipment business area. The improved margins resulted
from the increased sales volume which contributed to a more efficient
utilization of overhead expense. Gross profit in the foreign operations of the
conveyor equipment segment increased $0.9 million, of which $0.1 million was
caused by changes in foreign currency translation rates. Adjusted for foreign
currency fluctuations, gross profit in the Australian, United Kingdom, and South
African subsidiaries increased by $0.3 million, $0.3 million, and $0.2 million,
respectively. The increase in Australia was the result of improved product mix
with a higher percentage of sales of manufactured products which have a higher
gross margin and a lower percentage of sales of purchased and resale items. The
increase in gross profit in the United Kingdom resulted from a decrease in
engineered systems sales in the tunneling industry (which have lower margins
than sales of standard manufactured products). The increase in South Africa
resulted from the increased sales volume. Gross profit in the manufactured
housing segment increased $0.2 million due to increased sales volume and
increased selling prices.
Gross profit as a percentage of net sales increased from 16.6% in 2004 to 22.3%
in 2005. This increase is attributable to higher profit margins in the domestic
mining equipment business which resulted from increased sales volume and more
efficient overhead utilization and to the improved profit margins in the foreign
operations.
SG&A Expenses
SG&A expenses for the quarter increased $0.7 million, or 11%, from $6.3 million
in 2004 to $7.0 million in 2005. SG&A expenses at the Company's domestic
conveyor equipment operations increased $0.3 million primarily as a result of
increased employee costs and also due to higher professional expenses. SG&A
expenses in the foreign conveyor equipment operations increased $0.5 million
primarily due to unabsorbed engineering costs and increased insurance and
professional expenses at the Company's Australian subsidiary. Corporate SG&A
expenses decreased $0.1 million due to lower personnel expenses.
Operating Income
Operating income for the quarter increased $7.0 million, or more than 100%, from
$3.9 million in 2004 to $10.9 million in 2005. The increase in operating income
resulted from the $8.0 million increase in gross profit, partially offset by the
$0.7 million increase in SG&A expenses and a $0.3 million increase in management
fees.
17
Interest Expense, Net
Interest expense, net, increased $3.3 million from interest income of $2.1
million in 2004 to interest expense of $1.2 million in 2005. This increase can
be attributed to adjustments posted in the third quarter of 2004 related to the
restructuring of the Company's 11% Senior Notes due 2007 which was completed on
October 4, 2004. The debt restructuring was accounted for according to Statement
of Financial Accounting Standards ("SFAS") No. 15, "Accounting by Debtors and
Creditors for Troubled Debt Restructurings". All interest payments on the
Company's newly issued Series A and Series B Notes due 2008 will be recorded as
a reduction of outstanding indebtedness rather than interest expense. In
addition, in the third quarter of 2004, the Company posted an adjustment to
reverse interest expense which had been recorded in the second quarter of 2004
of approximately $3.0 million related to the 11% Senior Notes due 2007 resulting
in net interest income for the period.
Miscellaneous Expense, Net
Miscellaneous expense, net, decreased $2.0 million, from $2.1 million in 2004 to
$0.1 million in 2005. In the third quarter of 2004, the Company incurred
expenses of approximately $1.9 million related to the restructuring of its
Senior notes which were included in miscellaneous expense, net.
Income Tax Expense
The Company recorded income tax expense of $1.8 million in the third quarter of
2005 due to the increase in income and the loss of all domestic tax attributes
in the fourth quarter of 2004 due to the recognition of cancellation of
indebtedness income which resulted from the restructuring of the Company's
Senior Notes.
The Company's effective income tax rate is less than the statutory rate in 2005
primarily due to a favorable income tax benefit for interest payments on the New
Series A and Series B Notes due 2008 which are recorded as a reduction of the
outstanding indebtedness for financial reporting purposes. In addition, the
Company has not recognized income tax expense in certain of its foreign
subsidiaries due to the reversal of an income tax valuation allowance. The
Company's effective income tax rate is less than the statutory rate in 2004 as
the previously established valuation allowance was reduced, offsetting the net
tax expense in those periods.
Net Income
Net income increased $3.9 million, from $3.9 million in 2004 to $7.8 million in
2005. The increase in net income resulted from the $7.0 million increase in
operating income, combined with a $2.0 million decrease in miscellaneous
expense, net, and offset by the $3.3 million increase in interest expense, net,
and the $1.8 million increase in income tax expense.
18
Nine months ended September 30, 2005, compared to nine months ended September
30, 2004:
Net Sales
Net sales for the nine-month period increased $41.1 million, or 23%, from $180.3
million in 2004 to $221.4 million in 2005. Net sales in the domestic operations
of the Company's conveyor equipment segment increased $48.6 million due to
increased sales volumes and increased sales prices in all business areas of the
conveyor equipment segment. The increase in sales volume was due primarily to
improved market conditions in the coal industry, which created higher demand for
coal and resulted in increased capital spending by the Company's major customers
in the coal industry. The increase in sales prices resulted from significant
steel price increases from the Company's vendors which required the Company to
increase selling prices on its products in order to recover the increased costs.
The increases in sales prices began in March 2004 and continued through the end
of the year. Net sales in the foreign operations of the Company's conveyor
equipment segment decreased $11.7 million, net of a $2.3 million increase due to
changes in foreign currency translation rates. When adjusted for variations in
foreign exchange rates, net sales in the foreign operations decreased $14.0
million due to decreases in the Company's Australian and United Kingdom
subsidiaries of $10.0 million and $6.1 million, respectively, offset by an
increase in the Company's South African subsidiary of $2.1 million. The decrease
in Australia resulted from significant shipments on a major contract in May and
June of 2004 which did not recur in 2005. The decrease in the United Kingdom
resulted from decreased sales of engineered systems contracts, primarily to the
tunneling industry. The increase in South Africa was due to improved market
conditions in the coal industry. Net sales in the Company's manufactured housing
segment increased $4.1 million, or 22%, primarily due to a change in the product
mix with more sales of new manufactured products which have a higher selling
price than refurbished products. Based on the Manufactured Housing Institute's
economic report for September 2005, production of manufactured homes for the
nine months ended September 30, 2005 increased 1.9% from the same period in
2004. Net sales in the Company's other segment increased $0.1 million.
Gross Profit
Gross profit for the nine-month period increased $19.1 million, or 67%, from
$28.7 million in 2004 to $47.8 million in 2005. This increase in gross profit
resulted from an $8.9 million increase due to increased sales volume combined
with a $10.2 million increase due to improved margins. Gross profit in the
domestic operations of the Company's conveyor equipment segment increased $17.3
million. This increase was primarily due to increased sales volume which
contributed to a more efficient utilization of overhead expense and improved
gross profit margins. Gross profit in the foreign operations of the conveyor
equipment segment increased $1.2 million. Changes in foreign currency
translation rates caused $0.4 million of this increase. Adjusted for variations
in foreign exchange rates, gross profit in the Australian subsidiary decreased
$0.7 million while gross profit in the United Kingdom and South African
subsidiaries increased $0.9 million and $0.6 million, respectively. The decrease
in Australia resulted from the lower sales volume. The increase in the United
Kingdom resulted from higher margins due to improved production methods and
lower materials costs. In addition, there was also a change in the product
mixture in the United Kingdom with decreased engineered systems sales in the
tunneling industry (which have lower margins than sales of standard manufactured
products) and increased sales to the mining industry which include higher sales
volumes of the more profitable standard conveyor components. The increase in
South Africa resulted from the increase in sales. Gross profit in the
manufactured housing segment increased $0.7 million due to increased sales
volume and increased selling prices. Gross profit in the other segment decreased
$0.1 million.
Gross profit as a percentage of net sales increased from 15.9% in 2004 to 21.6%
in 2005. This increase primarily resulted from the increased sales volume and
improved utilization in the domestic conveyor equipment operations and the
improved margins in the United Kingdom.
19
SG&A Expenses
SG&A expenses for the nine-month period increased $2.5 million, or 14%, from
$18.5 million in 2004 to $21.0 million in 2005. SG&A expenses in the domestic
operations of the Company's conveyor equipment segment increased $1.5 million
due to higher employee costs and increased insurance and professional expenses.
SG&A expenses in the foreign operations of the Company's conveyor equipment
segment increased $1.1 million, of which $0.3 million can be attributed to
changes in foreign currency translation rates. The remaining $0.8 million
increase resulted from increases of $0.6 million and $0.2 million at the
Company's Australian and South African subsidiaries, respectively. The increase
in Australia was primarily due to higher engineering costs and increased
insurance and professional expenses. The increase in South Africa was caused by
increased selling expenses as a result of higher net sales. SG&A expenses and
the Company's manufactured housing segment increased $0.1 million. Corporate
SG&A expenses decreased $0.2 million primarily due to lower personnel expenses.
Operating Income
Operating income for the nine-month period increased $16.0 million, or more than
100%, from $9.4 million in 2004 to $25.4 million in 2005. The increase in
operating income resulted from the $19.1 million increase in gross profit
combined with a $0.2 million decrease in restructuring charges, and partially
offset by the $2.5 million increase in SG&A expenses and a $0.8 million increase
in management fees.
Interest Expense, Net
Interest expense, net, for the nine-month period decreased $2.1 million, or 37%,
from $5.7 million in 2004 to $3.6 million in 2005. This decrease resulted from
the reduction of interest on the Company's Senior Notes. On October 4, 2004, the
Company completed a restructuring of its 11% Senior Notes due 2007 which was
accounted for according to Statement of Financial Accounting Standards ("SFAS")
No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructurings".
On April 1, 2005 and October 3, 2005, the Company made $3.1 million semi-annual
interest payments on the newly issued Series A and Series B Notes due 2008 which
were recorded as a reduction of outstanding indebtedness rather than interest
expense. Interest expense related to the 11% Senior Notes due 2007 decreased
$3.0 million from $3.9 million in 2004 to $0.9 million in 2005.
Miscellaneous Expense, Net
Miscellaneous expense, net, decreased $1.8 million, from $2.5 million in 2004 to
$0.7 million in 2005. In the first nine months of 2004, the Company incurred
expenses of approximately $2.4 million related to the restructuring of its
Senior notes which were included in miscellaneous expense, net.
Income Tax Expense
The Company recorded income tax expense of $4.9 million in the first nine months
of 2005 due to the increase in income and the loss of all domestic tax
attributes in the fourth quarter of 2004 due to the recognition of cancellation
of indebtedness income which resulted from the restructuring of the Company's
Senior Notes.
The Company's effective income tax rate is less than the statutory rate in 2005
primarily due to a favorable income tax benefit for interest payments on the New
Series A and Series B Notes due 2008 which are recorded as a reduction of the
outstanding indebtedness for financial reporting purposes. In addition, the
Company has not recognized income tax expense in certain of its foreign
subsidiaries due to the reversal of an income tax valuation allowance. The
Company's effective income tax rate is less than the statutory rate in 2004 as
the previously established valuation allowance was reduced, offsetting the net
tax expense in those periods.
20
Net Income
Net income for the nine-month period increased $15.0 million, from $1.2 million
in 2004 to $16.2 million in 2005. The increase in net income resulted from the
$16.0 million increase in operating income combined with decreases in interest
expense, net, and miscellaneous expense, net, of $2.1 million and $1.8 million,
respectively, and partially offset by the $4.9 million increase in income tax
expense.
Restructuring Charges
The Company incurred restructuring charges of approximately $42,000 and $212,000
in the first nine months of 2005 and 2004, respectively, related to changes in
staffing and production requirements in its domestic operations. These charges
consist primarily of severance costs associated with a reduction in personnel
which occurred in 2002 and 2003. As part of this restructuring, in 2002 the
Company developed a plan to discontinue the manufacturing operations in certain
of its domestic facilities and merge these operations with other existing
facilities. The process of merging the domestic operations began in 2003 and
continued throughout 2004. As of September 30, 2005, the Company has paid
approximately $718,000 of the charges incurred to date, with the majority of the
remainder expected to be paid by 2008. Due to increases in the Company's
domestic backlog, the Company does not expect any further consolidation at this
time.
Backlog
Backlog at September 30, 2005 was $113.9 million, an increase of $68.3 million,
or 150%, from $45.6 million at December 31, 2004 and an increase of $12.3
million, or 12%, from $101.6 million at June 30, 2005. At September 30, 2005,
backlog in the domestic operations of the Company's conveyor equipment segment
was $77.2 million, an increase of $2.0 million from June 30, 2005, and backlog
in the foreign operations of the Company's conveyor equipment segment was $36.7
million, an increase of $10.3 million from June 30, 2005. Management believes
that approximately 60% of the backlog will be shipped in 2005.
Liquidity and Capital Resources
Net cash provided by operating activities was $4.8 million and $6.0 million for
the nine months ended September 30, 2005 and 2004, respectively. Net cash
provided by operating activities in 2005 resulted from net income of $16.2
million, combined with non-cash expenses of $1.1 million, and partially offset
by a net increase in operating assets and liabilities of $12.5 million. The net
increase in operating assets primarily resulted from increased accounts
receivable and inventory balances at the Company's domestic subsidiaries,
partially offset by increases in other accrued liabilities and income taxes
payable. The increase in accounts receivable resulted from increased sales in
the third quarter of 2005 compared to the fourth quarter of 2004. The increase
in inventory resulted from increased production to support the increased backlog
in the domestic operations. The increase in other accrued liabilities was
primarily due to the accrual of management fee expense of $1.4 million combined
with increases in warranty reserves and other operating accruals. Net cash
provided by operating activities in 2004 resulted from net income of $1.2
million, combined with non-cash expenses of $2.1 million and a net decrease in
operating assets and liabilities of $2.7 million.
Net cash used in investing activities was $2.3 million and $0.5 million for the
nine months ended September 30, 2005 and 2004, respectively, and represents net
purchases of property, plant, and equipment for both years.
Net cash used in financing activities was $1.9 million and $3.8 million for the
nine months ended September 30, 2005 and 2004, respectively. Net cash used in
financing activities in 2005 resulted from a net increase in borrowings on notes
payable of $1.7 million combined with proceeds from long-term obligations of
21
$0.8 million, offset by payments on Senior notes of $3.1 million and principal
payments on long-term obligations of $1.3 million. Net borrowings on notes
payable in the domestic subsidiaries increased $2.8 million while net borrowings
on notes payable in the foreign subsidiaries decreased $1.1 million. Proceeds
from long-term obligations represent additional proceeds on the Australian
subsidiary's term loan with National Australia Bank of 1,000,000 Australian
dollars. Payments on Senior notes represent the April 1, 2005 $3.1 million
interest payment on the Company's New Series A and Series B Senior Notes, which,
as described below, was recorded as a reduction in the balance of outstanding
indebtedness. Net cash used in financing activities in 2004 resulted from a net
decrease in borrowings on notes payable of $2.7 million combined with principal
payments on long-term obligations of $1.1 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 2005 will be approximately $3.0 million, which will include
expenditures to improve productivity and for maintenance capital. In addition to
the Company's debt service requirements for interest expense, as of September
30, 2005, the Company's domestic and foreign credit facilities had outstanding
principal balances of approximately $16.2 million and $2.5 million,
respectively.
The Company was not in compliance with certain covenants under its revolving
credit facilities as of December 31, 2003 or the subsequent quarters through
September 30, 2004, resulting in a cross default under the terms of the
Company's Senior Notes. In addition, the Company failed to make its $6.6 million
semi-annual interest payment for the Senior Notes due on April 1, 2004.
Following expiration of the 30-day grace period provided for in the indenture,
the Senior Notes were in default and the Company received a notice of default
from the Trustee for the Senior Notes. However, on April 26, 2004, the Company
entered into a forbearance agreement with the holders of a majority interest
("Majority Holders") of the Senior Notes which instructed the Trustee for the
Senior Notes to refrain from taking any action with respect to the default.
Several times in 2004, this agreement was amended to extend the forbearance
agreement until July 23, 2004.
On July 22, 2004, the Company entered into a restructuring agreement with the
Majority Holders of the Senior Notes pursuant to which the Company agreed to
commence an offer to exchange new notes and a cash payment for all of the
outstanding Senior Notes. The restructuring agreement extended the forbearance
agreement with the Majority Holders until the restructuring was consummated or
the restructuring agreement was terminated.
On August 5, 2004, the Company commenced an offer to exchange (i) cash in the
aggregate amount of $17.5 million, (ii) 9% Series A Senior Secured Notes due
2008 in the aggregate principal amount of $65 million, and (iii) 13% Series B
Senior Secured Notes due 2008 in the aggregate principal amount of $10 million,
for all of its outstanding 11% Senior Notes due 2007 in the aggregate principal
amount of $120 million and all interest accrued thereon. The exchange offer was
made exclusively to holders of the 11% Senior Notes due 2007.
Several times through August 31, 2004, the Company and Bank One, N.A. entered
into forbearance agreements under which Bank One agreed not to exercise its
rights with respect to the defaults, including the right to demand payment,
under the revolving credit facility for a stated period while the Company
negotiated a restructuring of its Senior Notes. On July 12, 2004, the Company
received a commitment letter from Bank One for a waiver of the covenant
violations and an extension of the revolving credit facility. On October 4,
2004, the Company's wholly-owned subsidiaries, CCE and GCC entered into a Second
22
Amended and Restated Credit Facility and Security Agreement (the "Credit
Agreement") with Bank One, N.A. The Credit Agreement extends the Company's
revolving credit facility with Bank One until July 31, 2006.
On October 4, 2004, the Company completed the exchange offer with respect to its
outstanding 11% Senior Notes due 2007 (the "Old Notes") and entered into an
Indenture by and among the Company, two of its wholly-owned subsidiaries, CCE
and GCC (collectively, the "Subsidiary Guarantors") and Wells Fargo Bank,
National Association, as trustee (the "Indenture"). Tenders with respect to Old
Notes representing approximately $109.3 million or 91% of the $120 million of
Old Notes outstanding principal amount were received by Wells Fargo Bank, N.A.,
which acted as depositary in the exchange offer. All Old Notes that were validly
tendered were accepted for exchange. According to the terms of the exchange
offer, on October 4, 2004, the Company issued approximately $59.2 million of 9%
New Series A Notes due 2008 and approximately $9.1 million of 13% New Series B
Notes due 2008. In addition, the Company made a cash payment as additional
consideration to the Series A and Series B bondholders of approximately $14.1
million, or $15.50 for every $120 of Old Notes tendered. On October 3, 2005, the
Company made an additional cash payment to the Series A and Series B bondholders
of approximately $1.8 million, or $2.00 for every $120 of Old Notes tendered.
According to the terms of the Indenture, the New Series A Notes will mature on
October 1, 2008. Interest will accrue at the rate of 9% per annum and will be
payable semiannually in arrears, in cash, on each April 1 and October 1 until
maturity. Interest accrued on the New Series A Notes from April 1, 2004, as if
the New Series A Notes had been issued on such date. The Company paid interest
of approximately $2.7 million on each of October 4, 2004, April 1, 2005, and
October 3, 2005 related to the Series A Notes. The New Series B Notes will also
mature on October 1, 2008. Interest will accrue at the rate of 13% per annum and
will be payable semiannually in arrears, in kind, on each April 1 and October 1
until maturity. However, the Company has the right to make interest payment on
the New Series B Notes in cash at the same rate and on the same terms as the New
Series A Notes. The Company has assumed the interest will be paid in cash at a
rate of 9% in all calculations involving the interest payments on the Series B
Notes in these condensed consolidated financial statements. Interest accrued on
the New Series B Notes from April 1, 2004, as if the New Series B Notes had been
issued on such date. The Company paid interest of approximately $0.4 million on
each of October 4, 2004, April 1, 2005, and October 3, 2005 related to the
Series B Notes. The New Series A and Series B Notes are jointly and severally
guaranteed by the Subsidiary Guarantors and secured by substantially all of the
assets of the Subsidiary Guarantors.
The cash payment made on October 4, 2004 as additional consideration to the
Series A and Series B bondholders was funded by new subordinated indebtedness to
N.E.S. Investment Co. in the amount of $10 million and additional borrowings
from the Company's revolving line of credit. The note payable to N.E.S.
Investment Co. accrues interest at a rate of 9%, payable in kind, compounded
annually. The additional consideration paid by the Company on October 3, 2005 to
the Series A and Series B bondholders was funded with an additional $2 million
of subordinated indebtedness to N.E.S. Investment Co.
The debt exchange was accounted for according to Statement of Financial
Accounting Standards ("SFAS") No. 15, "Accounting by Debtors and Creditors for
Troubled Debt Restructurings". According to the requirements of SFAS No. 15, in
the fourth quarter of 2004, the Company recorded a gain on the exchange of bonds
of approximately $3.4 million, representing the difference between the future
cash outlays of the Series A and Series B Notes and the carrying value of the
Old Notes. All cash payments as additional consideration to Series A and Series
B bondholders and interest payments on the New Series A and Series B Notes will
be recorded as a reduction in the balance of outstanding indebtedness throughout
23
the terms of the Series A and Series B Notes, and accordingly, the Company will
not recognize any interest expense in the income statement related to the New
Series A and Series B Notes.
The outstanding indebtedness has been classified as short and long-term
liabilities as of September 30, 2005 based upon the payment terms of the new
debt. The following table summarizes the reduction in the balance of the Senior
Notes based upon the payment requirements over the terms of the Series A and
Series B Notes:
Balance at September 30, 2005 of Senior Notes, including
current portion of $7,967,604 $ 102,357,446
October 2005 payment as additional consideration (1,821,166)
Interest payments on Series A Notes, 2005-2008 (18,644,193)
Interest payments on Series B Notes, 2005-2008 (2,868,337)
Maturity of outstanding 11% Senior Notes due 2007 (10,730,000)
-------------------
Maturity of Series A and Series B Notes due 2008 $ 68,293,750
===================
At September 30, 2005, the Company had cash and cash equivalents of
approximately $1.5 million and approximately $10.5 million available for use
under its domestic credit facility, representing approximately $12.0 million of
liquidity. With the completion of the debt exchange in October 2004, the Company
has reduced its annual debt service requirements related to interest payments by
approximately $4.8 million. Annual debt service on the New Series A and Series B
Notes due 2008 combined with the outstanding Senior Notes due 2007 is
approximately $7.3 million, a decrease of $5.9 million from $13.2 million prior
to the debt exchange. In order to partially fund the cash payments as additional
consideration to the Series A and Series B bondholders, the Company increased
the balance of a term loan with Bank One by approximately $3.8 million and
entered into a subordinated promissory note with N.E.S. Investment Co. in the
amount of $10 million. The annual debt service requirements for interest related
to these debt instruments are approximately $0.2 million in cash and $0.9
million in kind. In October 2005, the Company made a cash payment as additional
consideration to the Series A and Series B bondholders for approximately $1.8
million, funded by a $2 million increase in the subordinated promissory note
with N.E.S. Investment Co. and increasing the annual debt service requirements
by approximately $0.2 million in kind. As of September 30, 2005, the Company's
working capital increased approximately $12.1 million from December 31, 2004,
primarily due to higher accounts receivable and inventory balances, partially
offset by increased other accrued liabilities and income taxes payable. The
Company does not expect additional increases in working capital components
during the next quarter. The Company expects current financial resources,
existing lines of credit, and funds from operations to be adequate to meet
anticipated cash 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. The principal foreign currencies in which the
Company transacts business are the Australian dollar, the British pound
sterling, and the South African rand. As the U.S. dollar strengthens and weakens
against these foreign currencies, the Company's financial results will be
affected. As discussed previously, the Company's net sales for the nine months
ended September 30, 2005 increased by approximately $2.3 million over the
corresponding period in the prior year due to changes in foreign currency
translation rates, primarily the strengthening of the Australian dollar and the
24
British pound sterling against the U.S. dollar. The fluctuation of the U.S.
dollar versus other currencies also resulted in foreign currency translation
losses included in the accumulated other comprehensive income (loss) component
of stockholder's equity (deficit) of approximately $0.4 million and $0.2 million
for the nine months ended September 30, 2005 and 2004, 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, 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.
In addition, the Company's future results of operations, financial condition,
liquidity and capital resources could be materially adversely affected by, among
other things, economic and political uncertainties or prolonged economic
recession.
25
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company's interest income and expense are most sensitive to changes in the
general level of U.S. interest rates. In this regard, changes in U.S. interest
rates affect the interest earned on the Company's cash equivalents as well as
interest paid on its debt. To mitigate the impact of fluctuations in U.S.
interest rates, the Company generally borrows on a long-term basis to maintain a
debt structure that is fixed rate in nature.
A portion of the Company's operations consists of manufacturing and sales
activities in foreign jurisdictions. The Company manufactures and sells its
products in the United States, Australia, the United Kingdom, and South Africa.
As a result, the Company's financial results could be significantly affected by
factors such as changes in foreign currency exchange rates or weak economic
conditions in the foreign markets in which the Company distributes its products.
The Company's operating results are exposed to changes in exchange rates between
the U.S. dollar and the Australian dollar, the British pound sterling, and the
South African rand.
Item 4. Controls and Procedures
As of September 30, 2005, 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.
26
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
Exhibits: Refer to the index of exhibits.
27
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 14, 2005
28
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). *
4.2 Supplemental Indenture, dated as of October 4, 2004, between
Continental Global Group, Inc., Continental Conveyor & Equipment
Pty., Ltd., Continental ACE Pty., Goodman Conveyor Company,
Continental Conveyor & Equipment Company, and Wells Fargo Bank,
National Association, as trustee. (Filed as Exhibit 4.2 to the
Company's Form 10-Q for the quarter ended September 30, 2004,
and is incorporated herein by reference.)
4.3 Indenture, dated October 4, 2004, among Continental Global Group,
Inc., Continental Conveyor & Equipment Company, Goodman Conveyor
Company, and Wells Fargo Bank, National Association. (Filed as
Exhibit 4.1 to Form 8-K filed by the Company on October 7, 2004,
and is incorporated herein by reference.)
4.4 9% Convertible Subordinated Promissory Note, dated October 4,
2004, from Continental Global Group, Inc. to N.E.S. Investment
Co. in the amount of $10,000,000. (Filed as Exhibit 4.3 to Form
8-K filed by the Company on October 7, 2004, and is incorporated
herein by reference.)
10.1 Second Amended and Restated Credit Facility and Security
Agreement, dated October 4, 2004, by and among Continental
Conveyor & Equipment Company, Goodman Conveyor Company, and Bank
One, N.A. (Filed as Exhibit 4.2 to Form 8-K filed by the Company
on October 7, 2004, 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 Reserved
10.4 Reserved
10.5 Reserved
Exhibit
Number Description of Exhibit
10.6 Forbearance Agreement, effective as of April 26, 2004, by and
among Continental Global Group, Inc., N.E.S. Investment Co.,
and CFSC Wayland Advisers, Inc. (Filed as Exhibit 10.6 to the
Company's Form 10-K for the year ended December 31, 2003, and
is incorporated herein by reference.)
10.7 Forbearance Agreement, effective as of May 1, 2004, by and among
Bank One, NA, Continental Conveyor & Equipment Company, and
Goodman Conveyor Company. (Filed as Exhibit 10.7 to the Company's
Form 10-K for the year ended December 31, 2003, and is
incorporated herein by reference.)
10.8 Amendment 1, dated as of May 27, 2004, to Forbearance Agreement
effective as of April 26, 2004, by and among Continental Global
Group, Inc., N.E.S. Investment Co., and CFSC Wayland Advisers,
Inc. (Filed as Exhibit 10.8 to the Company's Form 10-K for the
year ended December 31, 2003, and is incorporated herein by
reference.)
10.9 Forbearance Agreement, effective as of June 1, 2004, by and among
Bank One, NA, Continental Conveyor & Equipment Company, and
Goodman Conveyor Company. (Filed as Exhibit 10.9 to the Company's
Form 10-K for the year ended December 31, 2003, and is
incorporated herein by reference.)
10.10 Amendment 2, dated as of June 14, 2004, to Forbearance Agreement
effective as of April 26, 2004, by and among Continental Global
Group, Inc., N.E.S. Investment Co., and CFSC Wayland Advisers,
Inc. (Filed as Exhibit 10.10 to the Company's Form 10-K for the
year ended December 31, 2003, and is incorporated herein by
reference.)
10.11 Forbearance Agreement, effective as of June 15, 2004, by and among
Bank One, NA, Continental Conveyor & Equipment Company, and
Goodman Conveyor Company. (Filed as Exhibit 10.11 to the Company's
Form 10-K for the year ended December 31, 2003, and is
incorporated herein by reference.)
10.12 Commitment Letter, dated as of July 12, 2004, from Bank One, NA to
Continental Conveyor & Equipment Company, Goodman Conveyor
Company, and Continental Global Group, Inc. (Filed as Exhibit
10.12 to the Company's Form 10-K for the year ended December 31,
2003, and is incorporated herein by reference.)
10.13 Amendment 3, dated as of July 13, 2004, to Forbearance Agreement
effective as of April 26, 2004, by and among Continental Global
Group, Inc., N.E.S. Investment Co., and Wayzata Advisers LLC.
(Filed as Exhibit 10.13 to the Company's Form 10-K for the year
ended December 31, 2003, and is incorporated herein by reference.)
10.14 Forbearance Agreement, effective as of July 13, 2004, by and among
Bank One, NA, Continental Conveyor & Equipment Company, and
Goodman Conveyor Company. (Filed as Exhibit 10.14 to the Company's
Form 10-K for the year ended December 31, 2003, and is
incorporated herein by reference.)
10.15 Forbearance Agreement, effective as of July 29, 2004, by and among
Bank One, NA, Continental Conveyor & Equipment Company, and
Goodman Conveyor Company. (Filed as Exhibit 10.15 to the Company's
Form 10-Q for the quarter ended June 30, 2004, and is incorporated
herein by reference.)
10.16 Forbearance Agreement, effective as of August 31, 2004, by and
among Bank One, NA, Continental Conveyor & Equipment Company, and
Goodman Conveyor Company. (Filed as Exhibit 10.16 to the Company's
Form 10-Q for the quarter ended September 30, 2004, and is
incorporated herein by reference.)
Exhibit
Number Description of Exhibit
10.17 Restructuring Agreement, dated as of July 22, 2004, by and among
Continental Global Group, Inc., N.E.S. Investment Co. and Wayzata
Investment Partners LLC. (Filed as Exhibit 99.1 to Form 8-K filed
by the Company on July 23, 2004, and is incorporated herein by
reference.)
10.18 First Amendment, dated as of July 30, 2004, to Restructuring
Agreement, dated as of July 22, 2004, by and among Continental
Global Group, Inc., N.E.S. Investment Co. and Wayzata Investment
Partners LLC. (Filed as Exhibit 99.1 to Form 8-K filed by the
Company on August 3, 2004, and is incorporated herein by
reference.)
10.19 Second Amendment, dated as of October 1, 2004, to Restructuring
Agreement, dated as of July 22, 2004, by and among Continental
Global Group, Inc., N.E.S. Investment Co. and Wayzata Investment
Partners LLC. (Filed as Exhibit 10.19 to the Company's Form 10-Q
for the quarter ended September 30, 2004, 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.