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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, 2004
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, 2004, 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, 2004 and December 31, 2003 2
Condensed Consolidated Statements of Operations
Three Months and Nine Months ended September 30, 2004 and 2003 3
Condensed Consolidated Statements of Cash Flows
Nine Months ended September 30, 2004 and 2003 4
Notes to Condensed Consolidated Financial Statements 5-16
Item 2 Management's Discussion and Analysis of Financial Condition and Results of
Operations 17-25
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 3 Defaults upon Senior Securities 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
2004 2003
-------------------- --------------------
(Unaudited) (Audited)
Assets:
Current assets:
Cash and cash equivalents $ 2,437,312 $ 850,727
Accounts receivable, net 40,142,460 32,225,793
Inventories 27,136,501 24,534,307
Deferred income taxes 239,338 264,770
Other current assets 1,258,354 942,179
-------------------- --------------------
Total current assets 71,213,965 58,817,776
Property, plant and equipment 32,535,569 32,269,483
Less accumulated depreciation 20,510,723 19,355,298
-------------------- --------------------
12,024,846 12,914,185
Goodwill 13,737,998 13,863,527
Deferred financing costs 1,299,755 1,689,682
Other assets 450,479 477,631
-------------------- --------------------
$ 98,727,043 $ 87,762,801
==================== ====================
Liabilities and Stockholder's Equity (Deficit):
Current liabilities:
Notes payable $ 11,216,243 $ 13,960,369
Trade accounts payable 35,173,653 24,703,137
Accrued compensation and employee benefits 6,114,333 7,422,648
Accrued interest on senior notes 1,180,300 3,300,000
Other accrued liabilities 8,541,053 8,520,662
Current maturities of long-term obligations 11,712,744 2,546,055
Senior notes in default - 120,000,000
-------------------- --------------------
Total current liabilities 73,938,326 180,452,871
Pension obligations 790,836 340,836
Deferred income taxes 824,511 874,783
Other long-term obligations, less current maturities 707,098 369,449
Senior notes 115,749,370 -
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 (89,095,078) (90,287,074)
Accumulated other comprehensive loss (6,181,708) (5,981,752)
-------------------- --------------------
(93,283,098) (94,275,138)
-------------------- --------------------
$ 98,727,043 $ 87,762,801
==================== ====================
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
2004 2003 2004 2003
----------------------------------- ------------------------------------
(Unaudited) (Unaudited)
Net sales $ 63,226,177 $ 46,728,313 $ 180,340,352 $ 146,311,834
Cost of products sold 52,753,698 40,755,254 151,681,953 126,199,702
----------------------------------- ------------------------------------
Gross profit 10,472,479 5,973,059 28,658,399 20,112,132
Operating expenses:
Selling and engineering 3,559,490 3,289,280 10,229,350 9,837,898
General and administrative 2,714,731 2,356,953 8,255,655 7,384,974
Management fee 236,366 42,893 582,319 223,105
Amortization expense 6,590 6,590 19,770 19,771
Restructuring charges 38,469 8,872 212,007 66,796
--------------------------------------------------------------------------
Total operating expenses 6,555,646 5,704,588 19,299,101 17,532,544
--------------------------------------------------------------------------
Operating income 3,916,833 268,471 9,359,298 2,579,588
Other expenses:
Interest expense (income), net (2,119,289) 3,791,308 5,688,529 11,419,065
Miscellaneous, net 2,153,360 202,552 2,478,773 725,241
----------------------------------- ------------------------------------
Total other expenses 34,071 3,993,860 8,167,302 12,144,306
----------------------------------- ------------------------------------
Net income (loss) $ 3,882,762 $ (3,725,389) $ 1,191,996 $ (9,564,718)
=================================== ====================================
See notes to condensed consolidated financial statements.
3
Continental Global Group, Inc.
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30
2004 2003
---------------------- ---------------------
(Unaudited)
Operating activities:
Net income (loss) $ 1,191,996 $ (9,564,718)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Provision for depreciation and amortization 1,704,772 1,659,407
Amortization of deferred financing costs 389,927 389,926
Loss (gain) on disposal of assets (8,449) 49,830
Changes in operating assets and liabilities 2,692,012 4,906,185
---------------------- ---------------------
Net cash provided by (used in) operating activities 5,970,258 (2,559,370)
---------------------- ---------------------
Investing activities:
Purchases of property, plant, and equipment (531,357) (585,236)
Proceeds from sale of property, plant, and equipment 15,755 64,270
---------------------- ---------------------
Net cash used in investing activities (515,602) (520,966)
---------------------- ---------------------
Financing activities:
Net decrease in borrowings on notes payable (2,727,258) (792,766)
Principal payments on long-term obligations (1,105,746) (442,478)
---------------------- ---------------------
Net cash used in financing activities (3,833,004) (1,235,244)
Effect of exchange rate changes on cash (35,067) 34,651
---------------------- ---------------------
Increase (decrease) in cash and cash equivalents 1,586,585 (4,280,929)
Cash and cash equivalents at beginning of period 850,727 5,635,042
---------------------- ---------------------
Cash and cash equivalents at end of period $ 2,437,312 $ 1,354,113
====================== =====================
See notes to condensed consolidated financial statements.
4
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2004
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,
2004 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2004. For further information, refer to the
consolidated financial statements and footnotes of Continental Global Group,
Inc. and subsidiaries for the year ended December 31, 2003, included in the
Company's Form 10-K.
The Company was not in compliance with certain covenants under its revolving
credit facilities as of December 31, 2003 or the subsequent ending quarters,
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.
Accordingly, the Senior Notes were recorded as current liabilities in the
consolidated balance sheet as of December 31, 2003. 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 prior to May 31, 2004. On May 27, 2004, June 14, 2004 and July 13, 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 Company expected to fund
the cash payment from (a) $12,000,000 of new subordinated indebtedness from
N.E.S. Investment Co., (b) additional borrowings under an amended credit
facility, and (c) cash available from operations. 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, 2004
A. Organization and Basis of Presentation (Continued)
On May 1, 2004, June 1, 2004, June 15, 2004, July 13, 2004, July 29, 2004 and
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, Continental Conveyor & Equipment Company and Goodman Conveyor
Company 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. The Company is currently in discussions with the lenders under its
existing foreign revolving credit facilities to extend such credit facilities
that have matured or are expiring in 2004.
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,
Continental Conveyor & Equipment Company and Goodman Conveyor Company
(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. In October 2005, the Series A and Series B bondholders will
receive 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 October 4, 2004 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 October 4, 2004 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, 2004
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 Company 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 Company accrues interest at a rate of 9%, payable in kind, compounded
annually. The additional consideration to be paid by the Company in October 2005
to the Series A and Series B bondholders will be funded with an additional
$2,000,000 of subordinated indebtedness to N.E.S. Investment Company.
The debt exchange will be 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 will record 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. Interest expense of approximately
$3,005,000 recorded by the Company in the second quarter of 2004 on the Old
Notes was reversed in the third quarter in connection with the finalization of
the terms of the new agreement and additionally, third quarter interest expense
of approximately $3,005,000 under the terms of the Old Notes was not recorded.
Because the debt exchange meets the definition of a troubled debt restructuring,
U.S. generally accepted accounting principles require that the Company follow
the provisions of SFAS No. 15. However, the Company believes that additional
information is necessary in order to keep the condensed consolidated financial
statements from being misleading. Under the provisions of SFAS No. 15, interest
accrued in prior periods was reversed in the third quarter of 2004 and included
in the statement of operations as interest income. In addition, in future
periods, the Company will not record any of the interest payments on the Series
A and Series B Notes as interest expense in the statement of operations but
rather as a reduction of the debt balance on the balance sheet. If the
restructuring of the Company's Senior Notes had not occurred, the Company's
interest expense for the three months and nine months ended September 30, 2004
would have been approximately $6,010,000 higher than reported, and the Company
would not have incurred debt restructuring expenses of approximately $1,952,000
and $2,414,000 for the three months and nine months ended September 30, 2004,
respectively, which are included in miscellaneous, net. The following table
compares the Company's results of operations as presented in the consolidated
statement of operations to the results which would have been reported if the
Company had not completed the debt restructuring:
Three months ended Nine months ended
September 30, 2004 September 30, 2004
---------------------------------- ----------------------------------
Pro-forma Pro-forma
With debt Without debt With debt Without debt
restructuring restructuring restructuring restructuring
----------------- ---------------- ----------------- ----------------
Operating income, as reported $ 3,916,833 $ 3,916,833 $ 9,359,298 $ 9,359,298
Other expenses:
Interest expense (income), net (2,119,289) 3,890,561 5,688,529 11,698,379
Miscellaneous, net 2,153,360 200,981 2,478,773 64,837
----------------- ---------------- ----------------- ----------------
Total other expenses 34,071 4,091,542 8,167,302 11,763,216
----------------- ---------------- ----------------- ----------------
Net income (loss) $ 3,882,762 $ (174,709) $ 1,191,996 $(2,403,918)
================= ================ ================= ================
7
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2004
A. Organization and Basis of Presentation (Continued)
The outstanding indebtedness has been classified as short and long-term
liabilities as of September 30, 2004 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, 2004 of Senior Notes, including
current portion of $10,260,480 $ 126,009,850
Gain to be recorded in 4th quarter of 2004 (3,391,923)
October 2004 payment as additional consideration (14,114,042)
October 2005 payment as additional consideration (1,821,167)
Interest payments on Series A Notes, 2004-2008 (23,971,106)
Interest payments on Series B Notes, 2004-2008 (3,687,862)
Maturity of outstanding 11% Senior Notes due 2007 (10,730,000)
-----------------
Maturity of Series A and Series B Notes due 2008 $ 68,293,750
=================
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 62% and 57% of
inventories at September 30, 2004 and December 31, 2003, 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 $3,941,000 and
$1,316,000 at September 30, 2004 and December 31, 2003, respectively.
8
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2004
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:
Balance as of January 1, 2004 $ 1,275,401
Provision for warranties 707,049
Settlements made during the period (451,126)
Effect of exchange rate changes (6,184)
-----------------
Balance as of September 30, 2004 $ 1,525,140
=================
E. Restructuring Charges
The Company incurred restructuring charges of approximately $212,000 and $67,000
for the nine months ended September 30, 2004 and 2003, respectively, related to
changes in staffing and production requirements in its domestic operations. 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. However, in the fourth quarter of 2003, the
Company hired a third-party consultant to re-evaluate the restructuring plan and
make further recommendations. These recommendations are currently under review
by the Company's management and board of directors. The additional cost of this
restructuring has not been determined. The charges incurred in 2004 consist
primarily of consulting fees while the charges incurred in 2003 consist
primarily of severance costs associated with a reduction in personnel which
occurred in 2002 and 2003. Total restructuring charges incurred since this plan
was developed are approximately $919,000. As of September 30, 2004, the Company
has paid approximately $524,000 of the charges incurred to date, with the
majority of the remainder expected to be paid by 2008.
F. Comprehensive Income (Loss)
The components of comprehensive income (loss) for the three months and nine
months ended September 30, 2004 and 2003 are as follows:
Three months ended September 30 Nine months ended September 30
2004 2003 2004 2003
---------------------------------- ---------------------------------
Net income (loss) $ 3,882,762 $ (3,725,389) $ 1,191,996 $ (9,564,718)
Other comprehensive income (loss):
Foreign currency translation
adjustment 186,673 55,788 (195,072) 424,707
Change in fair value of derivative
hedge, net of tax 253,491 (71,582) (4,884) 5,848
---------------------------------- ---------------------------------
Comprehensive income (loss) $ 4,322,926 $ (3,741,183) $ 992,040 $ (9,134,163)
================================== =================================
9
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2004
G. Employee Benefit Plans
As of September 30, 2004, the Company has made contributions to its defined
benefit plan of approximately $2,477,000, including a required contribution of
$266,000 and a voluntary contribution of approximately $2,211,000 due to the
underfunded status of the plan. The Company does not expect to make any further
contributions in 2004.
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
2004 2003 2004 2003
--------------- --------------- --------------- ---------------
Service cost $ 50,950 $ 46,717 $ 152,850 $ 140,151
Interest cost 115,570 110,401 346,710 331,203
Expected return on plan assets (127,960) (78,318) (383,880) (234,954)
Amortization of prior service cost 4,133 4,133 12,399 12,399
Recognized loss 14,933 17,626 44,799 52,878
--------------- --------------- --------------- ---------------
Net periodic benefit cost $ 57,626 $ 100,559 $ 172,878 $ 301,677
=============== =============== =============== ===============
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. A tax provision or benefit was not applied
against the income or loss before income taxes in the three and nine months
ended September 30, 2004 and 2003 as a result of the tax valuation allowance
recorded in previous periods in accordance with SFAS 109, "Accounting for Income
Taxes" due to the uncertainty regarding the full utilization of the Company's
deferred income taxes. The valuation allowance was reduced offsetting a portion
of the net tax expense in the three and nine months ended September 30, 2004,
while the valuation allowance was increased in the three and nine months ended
September 30, 2003 offsetting the net income tax benefit in those periods.
The Company has subsidiaries located in Australia, the United Kingdom, and South
Africa, which are subject to income taxes in their respective countries.
10
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2004
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 September 30 Nine months ended September 30
2004 2003 2004 2003
-------------------------------------------------------------------
(in thousands) (in thousands)
Net sales:
Conveyor equipment $ 56,260 $ 40,187 $ 161,013 $ 126,953
Manufactured housing products 6,801 6,394 18,829 18,700
Other 165 147 498 659
-------------------------------------------------------------------
Total net sales $ 63,226 $ 46,728 $ 180,340 $ 146,312
===================================================================
Segment operating income:
Conveyor equipment $ 4,207 $ 209 $ 10,608 $ 2,741
Manufactured housing products 319 386 647 1,036
Other 47 50 158 214
-------------------------------------------------------------------
Total segment operating income 4,573 645 11,413 3,991
Management fee 236 43 582 223
Amortization expense 7 7 20 20
Restructuring charges 38 9 212 67
Corporate expense 375 318 1,240 1,102
-------------------------------------------------------------------
Total operating income 3,917 268 9,359 2,579
Interest expense (income), net (2,119) 3,791 5,688 11,419
Miscellaneous, net 2,153 202 2,479 725
-------------------------------------------------------------------
Income (loss) before income taxes $ 3,883 $ (3,725) $ 1,192 $ (9,565)
===================================================================
11
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2004
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
$120,000,000 Senior Notes due 2007. 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, 2004 and December
31, 2003 for the Company, the guarantor subsidiaries, and the non-guarantor
subsidiaries are as follows (in thousands):
Combined Combined
Guarantor Non-Guarantor
September 30, 2004: The Company Subsidiaries Subsidiaries Eliminations Total
-------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 75 $ 2,049 $ 313 $ - $ 2,437
Accounts receivable, net - 28,110 12,072 (39) 40,143
Inventories - 19,742 7,395 - 27,137
Deferred income taxes 81 - 355 (197) 239
Other current assets 151 180 934 (7) 1,258
-------------------------------------------------------------------------------
Total current assets 307 50,081 21,069 (243) 71,214
Property, plant, and
equipment, net - 7,268 4,757 - 12,025
Goodwill - 12,942 796 - 13,738
Investment in subsidiaries 60,009 20,917 - (80,926) -
Deferred financing costs 1,300 - - - 1,300
Other assets 15,276 2,978 - (17,804) 450
-------------------------------------------------------------------------------
Total assets $ 76,892 $ 94,186 $ 26,622 $ (98,973) $ 98,727
===============================================================================
Current liabilities:
Notes payable $ - $ 7,789 $ 4,505 $ (1,078) $ 11,216
Trade accounts payable 1,595 22,722 10,890 (33) 35,174
Accrued compensation and
employee benefits 229 4,589 1,296 - 6,114
Accrued interest 1,180 - - - 1,180
Other accrued liabilities 2,133 4,460 3,357 (1,409) 8,541
Current maturities of
long-term obligations 10,261 1,433 19 - 11,713
-------------------------------------------------------------------------------
Total current liabilities 15,398 40,993 20,067 (2,520) 73,938
Pension obligation - 791 - - 791
Deferred income taxes - 15,801 - (14,976) 825
Other long-term obligations - 261 1,416 (970) 707
Senior notes 115,749 - - - 115,749
Stockholder's equity (54,255) 36,340 5,139 (80,507) (93,283)
(deficit)
-------------------------------------------------------------------------------
Total liabilities and
stockholder's equity
(deficit) $ 76,892 $ 94,186 $ 26,622 $ (98,973) $ 98,727
===============================================================================
12
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2004
J. Guarantor and Non-Guarantor Subsidiaries (Continued)
Combined Combined
Guarantor Non-Guarantor
December 31, 2003: The Company Subsidiaries Subsidiaries Eliminations Total
-------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 114 $ 734 $ 3 $ - $ 851
Accounts receivable, net - 17,951 14,338 (63) 32,226
Inventories - 19,925 4,609 - 24,534
Deferred income taxes 81 - 372 (188) 265
Other current assets 51 647 2,061 (1,817) 942
-------------------------------------------------------------------------------
Total current assets 246 39,257 21,383 (2,068) 58,818
Property, plant, and
equipment, net - 8,182 4,732 - 12,914
Goodwill - 13,031 832 - 13,863
Investment in subsidiaries 60,009 21,520 - (81,529) -
Deferred financing costs 1,690 - - - 1,690
Other assets 12,285 2,023 - (13,830) 478
-------------------------------------------------------------------------------
Total assets $ 74,230 $ 84,013 $ 26,947 $ (97,427) $ 87,763
===============================================================================
Current liabilities:
Notes payable $ - $ 11,298 $ 3,393 $ (731) $ 13,960
Trade accounts payable 34 12,922 11,810 (63) 24,703
Accrued compensation and
employee benefits 42 6,006 1,375 - 7,423
Accrued interest 3,300 - - - 3,300
Other accrued liabilities 878 5,737 4,441 (2,535) 8,521
Current maturities of
long-term obligations - 2,456 90 - 2,546
Senior Notes in default 120,000 - - - 120,000
-------------------------------------------------------------------------------
Total current liabilities 124,254 38,419 21,109 (3,329) 180,453
Pension obligation - 341 - - 341
Deferred income taxes - 12,860 - (11,985) 875
Other long-term obligations - 196 1,131 (958) 369
Stockholder's equity
(deficit) (50,024) 32,197 4,707 (81,155) (94,275)
-------------------------------------------------------------------------------
Total liabilities and
stockholder's equity
(deficit) $ 74,230 $ 84,013 $ 26,947 $ (97,427) $ 87,763
===============================================================================
13
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2004
J. Guarantor and Non-Guarantor Subsidiaries (Continued)
Summarized consolidating statements of operations for the three months and nine
months ended September 30, 2004 and 2003, 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, 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 (income), net (2,579) 264 196 - (2,119)
Miscellaneous, 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
------------- ------------- --------------- ------------- -------------
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, net 3,431 267 93 - 3,791
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
------------- ------------- --------------- ------------- -------------
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, 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
============= ============= =============== ============= =============
14
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2004
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, net 10,286 900 233 - 11,419
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)
============= ============= =============== ============= =============
Summarized consolidating cash flow statements for the nine months ended
September 30, 2004 and 2003, 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, 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 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
Continental Global Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2004
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 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
============= ============= =============== ============= =============
As described in Note A, in October 2004, the Company issued new Series A and
Series B Notes. The Company's Australian subsidiaries are not guarantors of
these new notes. If the Australian subsidiaries had not been included in the
"Combined Guarantor Subsidiaries" column as of September 30, 2004, the total
assets for the combined guarantor subsidiaries would have been approximately
$98,342,000 (including an investment in Australia of approximately $26,461,000).
Net income for the combined guarantor subsidiaries includes approximately
$474,000 and $2,456,000 for the three and nine months ended September 30, 2004,
respectively, related to the Australian subsidiaries.
16
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, 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.
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, 2004 and 2003.
Three months ended Nine months ended
September 30 September 30
-------------------------- -------------------------
2004 2003 2004 2003
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 83.4 87.2 84.1 86.3
Gross profit 16.6 12.8 15.9 13.7
SG&A expenses 9.9 12.1 10.3 11.8
Management fee 0.4 0.1 0.3 0.1
Amortization expense - - - -
Restructuring charges 0.1 - 0.1 -
Operating income 6.2 0.6 5.2 1.8
Three months ended September 30, 2004, compared to three months ended September
30, 2003:
Net Sales
Net sales for the quarter increased $16.5 million, or 35%, from $46.7 million in
2003 to $63.2 million in 2004. Compared to the third quarter of 2003, the
Company has received significant steel price increases from its vendors
requiring selling prices on its products to increase in order to recover these
increased costs. The Company passed these steel price increases along to its
customers in the form of additional sales surcharges and sales price increases.
These increased selling prices along with increased sales volume contributed to
the improved sales results. Net sales in the domestic operations of the
Company's conveyor equipment segment increased $12.5 million. Improved sales
volume and increased selling prices in the mining equipment and conveyor
components business areas resulted in $9.6 million of this increase. This
increase in sales volume was due primarily to the improved market conditions in
the coal industry creating higher demand for coal which resulted in increased
capital spending by the Company's major customers in the coal industry. The
17
remaining $2.9 million increase occurred in the engineered systems business area
due to the shipment of two projects in the third quarter of 2004. Net sales in
the foreign operations of the Company's conveyor equipment segment increased
$3.6 million, of which $2.1 million resulted from increases in foreign currency
translation rates. Adjusted for foreign exchange variations, net sales in the
Company's Australian subsidiary increased $5.0 million due to improved market
conditions in the coal industry. Net sales in the Company's United Kingdom
subsidiary decreased $3.7 million after foreign currency adjustments due to the
shipment of significant engineered systems contracts, primarily to the tunneling
industry in the third quarter of 2003 which did not recur in 2004, offset
partially by an increase in the more profitable standard manufactured products
business. Net sales in the Company's South African subsidiary increased $0.2
million after foreign currency adjustments. Net sales in the Company's
manufactured housing segment increased $0.4 million as a result of higher
selling prices.
Gross Profit
Gross profit for the quarter increased $4.5 million, or 75%, from $6.0 million
in 2003 to $10.5 million in 2004. This increase in gross profit is the result of
a $3.2 million increase due to increased sales volume combined with a $1.3
million increase due to improved margins. Gross profit in the domestic
operations of the Company's conveyor equipment segment increased $2.5 million as
a result of increased sales volume and $0.4 million from improved margins. This
improved gross profit was primarily attributable to more efficient utilization
of overhead expenses as a result of increased volumes. Gross profit in the
foreign operations of the Company's conveyor equipment segment increased $1.6
million, of which $0.3 million resulted from increases in foreign currency
translation rates. The remaining increase was primarily due to increases in the
Company's Australian and United Kingdom subsidiaries of $0.6 million each. The
increase in Australia was the result of increased sales volume. During the third
quarter of 2003, the estimated cost to complete two large conveyor systems
contracts in the United Kingdom was increased which decreased gross profit for
the third quarter of 2003 by $0.6 million.
Gross profit as a percentage of net sales increased from 12.8% in 2003 to 16.6%
in 2004. This increase primarily resulted from improved margins due to increased
sales volume in the Company's conveyor equipment segment.
SG&A Expenses
SG&A expenses for the quarter increased $0.7 million, or 13%, from $5.6 million
in 2003 to $6.3 million in 2004. SG&A expenses in the domestic operations of the
Company's conveyor equipment segment increased $0.4 million primarily due to
increased selling expenses which resulted from increased sales. SG&A expenses in
the foreign operations of the Company's conveyor equipment segment increased
$0.2 million almost entirely as a result of increases in foreign currency
translation rates. SG&A expenses in the Company's manufactured housing segment
increased $0.1 million.
Operating Income
Operating income for the quarter increased $3.6 million, from $0.3 million in
2003 to $3.9 million in 2004. The increase resulted from the $4.5 million
increase in gross profit, offset the $0.7 million increase in SG&A expenses and
a $0.2 million increase in management fees.
Interest Expense (Income)
Interest expense for the quarter decreased $5.9 million, from an expense of $3.8
million in 2003 to income of $2.1 million in 2004. This decrease resulted from
the reduction of interest expense on the Company's Senior Notes. On October 4,
2004, the Company completed a restructuring of its 11% Senior Notes due 2007
which will be accounted for according to Statement of Financial Accounting
Standards ("SFAS") No. 15, "Accounting by Debtors and Creditors for Troubled
18
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. Interest expense recorded in the
third quarter of 2004 on the outstanding 11% Senior Notes due 2007 was only $0.3
million compared to $3.3 million in 2003. In addition, in the third quarter of
2004, the Company reversed 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.
Miscellaneous, Net
Miscellaneous expenses for the quarter increased $1.9 million, from $0.2 million
in 2003 to $2.1 million in 2004. This increase is primarily the result of the
incurrence of $2.0 million in legal, professional, and other expenses in the
third quarter of 2004 related to the Company's debt restructuring.
Net Income (Loss)
Net income (loss) for the quarter increased $7.6 million, or 205%, from a loss
of $3.7 million in 2003 to income of $3.9 million in 2004. The increase resulted
from the $3.6 million increase in operating income combined with the $5.9
million decrease in net interest expense and partially offset by the $1.9
million increase in miscellaneous, net.
Nine months ended September 30, 2004, compared to nine months ended September
30, 2003:
Net Sales
Net sales for the nine-month period increased $34.0 million, or 23%, from $146.3
million in 2003 to $180.3 million in 2004. During the year the Company has
received significant steel price increases from its vendors requiring selling
prices on its products to increase in order to recover these increased costs.
The Company passed these steel price increases along to its customers in the
form of additional sales surcharges and sales price increases. These increased
selling prices along with increased sales volume contributed to the improved
sales results. Net sales in the domestic operations of the Company's conveyor
equipment segment increased $17.1 million due to increased sales volume and
increased selling prices in the mining equipment and conveyor components
business areas. This increase in sales volume was due primarily to the improved
market conditions in the coal industry creating higher demand for coal which
resulted in increased capital spending by the Company's major customers in the
coal industry. Net sales in the foreign operations of the Company's conveyor
equipment segment increased $17.0 million. Changes in foreign currency
translation rates resulted in $9.2 million of this increase. Adjusted for
foreign exchange variations, net sales in Australia increased $9.3 million due
to improved market conditions in the coal industry and significant shipments
on a major contract in the second quarter of 2004. Net sales in the United
Kingdom decreased $1.9 million (after adjustments for foreign currency
fluctuations) due to decreased sales of engineered systems contracts, primarily
to the tunneling industry, offset partially by an increase in the more
profitable standard manufactured products business. Net sales in South Africa
increased $0.4 million, adjusted for foreign currency fluctuations, due to
improved market conditions in the coal industry. Net sales in the Company's
manufactured housing segment increased by $0.1 million while net sales in the
other segment decreased by $0.2 million.
Gross Profit
Gross profit for the nine-month period increased $8.6 million, or 43%, from
$20.1 million in 2003 to $28.7 million in 2004. This increase in gross profit is
the result of a $5.4 million increase due to increased sales volume combined
with a $3.2 million increased due to improved margins. Gross profit in the
domestic operations of the Company's conveyor equipment segment increased $3.4
million as a result of increased sales volume and $1.3 million from improved
margins. This improved gross profit was due to a more favorable product mixture
19
in the mining equipment business area and increased sales volume in the higher
margin conveyor components business area. The increased sales volumes
contributed to a more efficient utilization of overhead expenses which improved
the gross profit margins. Gross profit in the foreign operations of the
Company's conveyor equipment segment increased $4.1, of which $1.1 million
resulted from changes in foreign currency translation rates. The remaining
increase was primarily attributable to increases in Australia and the United
Kingdom of $1.6 million and $1.2 million, respectively. The increase in
Australia was primarily attributable to improved profit margins due to the
increased sales volume which resulted in more efficient utilization of overhead
expenses. During the third quarter of 2003, the estimated cost to complete two
large conveyor systems contracts in the United Kingdom was increased which
decreased gross profit in 2003 by $0.6 million. In addition, gross profit in the
United Kingdom improved due to a more favorable mixture of the higher margin
standard manufactured products business. Gross profit in the Company's
manufactured housing segment decreased $0.2 million.
Gross profit as a percentage of net sales increased from 13.7% in 2003 to 15.9%
in 2004. This increase primarily resulted from improved margins due to increased
sales volume in the Company's conveyor equipment segment.
SG&A Expenses
SG&A expenses for the nine-month period increased $1.3 million, or 8%, from
$17.2 million in 2003 to $18.5 million in 2004. SG&A expenses in the domestic
operations of the Company's conveyor equipment segment increased $0.3 million
primarily due to increased selling expenses which resulted from increased sales.
SG&A expenses in the foreign operations of the Company's conveyor equipment
segment increased $0.6 million due to increases in foreign currency translation
rates. SG&A expenses in the Company's manufactured housing segment increased
$0.2 million due to higher administrative expenses. Corporate SG&A expenses
increased $0.2 million due to higher insurance and personnel costs.
Operating Income
Operating income for the nine-month period increased $6.8 million, or 262%, from
$2.6 million in 2003 to $9.4 million in 2004. The increase resulted from the
$8.6 million increase in gross profit, offset by the $1.3 million increase in
SG&A expenses, a $0.4 million increase in management fees, and a $0.1 million
increase in restructuring charges.
Interest Expense (Income)
Interest expense for the nine-month period decreased $5.7 million, or 50%, from
$11.4 million in 2003 to $5.7 million in 2004. 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 will
be 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. Interest expense related to the 11%
Senior Notes due 2007 decreased $6.0 million from $9.9 million in 2003 to $3.9
million in 2004.
Miscellaneous, Net
Miscellaneous expenses for the nine-month period increased $1.8 million, from
$0.7 million in 2003 to $2.5 million in 2004. This increase is primarily the
result of the incurrence of $2.4 million in legal, professional, and other
expenses in 2004 related to the Company's debt restructuring.
Net Income (Loss)
Net income (loss) for the nine-month period increased $10.7 million, or 113%,
from a loss of $9.5 million in 2003 to income of $1.2 million in 2004. This
increase resulted from the $6.8 million increase in operating income combined
with the $5.7 million decrease in interest expense and partially offset by the
$1.8 million increase in miscellaneous, net.
20
Restructuring Charges
The Company incurred restructuring charges of approximately $0.2 million and
$0.1 million for the nine months ended September 30, 2004 and 2003,
respectively, related to changes in staffing and production requirements in its
domestic operations. 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. However, in the
fourth quarter of 2003, the Company hired a third-party consultant to
re-evaluate the restructuring plan and make further recommendations. These
recommendations are currently under review by the Company's management and board
of directors. The additional cost of this restructuring has not been determined.
The charges incurred in 2004 consist primarily of consulting fees while the
charges incurred in 2003 consist primarily of severance costs associated with a
reduction in personnel which occurred in 2002 and 2003. Total restructuring
charges incurred since this plan was developed are approximately $0.9 million.
As of September 30, 2004, the Company has paid approximately $0.5 million of the
charges incurred to date, with the majority of the remainder expected to be paid
by 2008.
Backlog
Backlog at September 30, 2004 was $40.4 million, an increase of $5.4 million, or
15%, from $35.0 million at December 31, 2003 and a decrease of $3.9 million, or
9%, from $44.3 million at June 30, 2004. At September 30, 2004, backlog in the
domestic operations of the Company's conveyor equipment segment was $19.1
million, a decrease of $4.2 million from June 30, 2004, and backlog in the
foreign operations of the Company's conveyor equipment segment was $21.3
million, an increase of $0.3 million from June 30, 2004. Management believes
that approximately 75% of the backlog will be shipped in 2004.
Liquidity and Capital Resources
Net cash provided by (used in) operating activities was $6.0 million and $(2.6)
million for the nine months ended September 30, 2004 and 2003, respectively. 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 operating
activities in 2003 resulted from a net loss of $9.6 million offset by non-cash
expenses of $2.1 million and a net decrease in operating assets and liabilities
of $4.9 million. The increase in net cash from operations from 2003 to 2004 was
primarily due to the reduction in the net loss which resulted from higher net
sales, improved gross profit margins, and lower interest expense.
Net cash used in investing activities was $0.5 million for the nine months ended
September 30, 2004 and 2003, and represents net purchases of property, plant,
and equipment for both years.
Net cash used in financing activities was $3.8 million and $1.2 million for the
nine months ended September 30, 2004 and 2003, respectively. Net cash used in
financing activities in 2004 resulted from a net decrease in borrowings on notes
payable of $2.7 million and principal payments on long-term obligations of $1.1
million. Net borrowings on notes payable in the domestic subsidiaries decreased
$1.3 million and net borrowings on notes payable in the foreign subsidiaries
decreased $1.4 million. Principal payments on long-term obligations included the
payment by Australia of a term loan with National Australia Bank of 850,000
Australian dollars. Net cash used in 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.
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
21
expenditures in 2004, which will be primarily for maintenance capital, will
approximate those made in 2003. In addition to the Company's debt service
requirements for interest expense, as of September 30, 2004, the Company's
domestic and foreign credit facilities had outstanding principal balances of
approximately $7.8 million and $3.4 million, respectively.
The Company was not in compliance with certain covenants under its revolving
credit facilities as of December 31, 2003 or the subsequent ending quarters,
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.
Accordingly, the Senior Notes were recorded as current liabilities in the
consolidated balance sheet as of December 31, 2003. 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 prior to May 31, 2004. On May 27, 2004, June 14, 2004 and July 13, 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 Company expected to fund
the cash payment from (a) $12,000,000 of new subordinated indebtedness from
N.E.S. Investment Co., (b) additional borrowings under an amended credit
facility, and (c) cash available from operations. The exchange offer was made
exclusively to holders of the 11% Senior Notes due 2007.
On May 1, 2004, June 1, 2004, June 15, 2004, July 13, 2004, July 29, 2004 and
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, Continental Conveyor & Equipment Company and Goodman Conveyor
Company 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,
Continental Conveyor & Equipment Company and Goodman Conveyor Company
(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
22
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. In October 2005, the Series A and Series B bondholders will
receive 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 October 4, 2004 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 October 4, 2004 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 Company 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 Company accrues interest at a rate of 9%, payable in kind, compounded
annually. The additional consideration to be paid by the Company in October 2005
to the Series A and Series B bondholders will be funded with an additional
$2,000,000 of subordinated indebtedness to N.E.S. Investment Company.
The debt exchange will be 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 will record 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. Interest expense of approximately
$3,005,000 recorded by the Company in the second quarter of 2004 on the Old
Notes was reversed in the third quarter in connection with the finalization of
the terms of the new agreement and additionally, third quarter interest expense
of approximately $3,005,000 under the terms of the Old Notes was not recorded.
Because the debt exchange meets the definition of a troubled debt restructuring,
U.S. generally accepted accounting principles require that the Company follow
the provisions of SFAS No. 15. However, the Company believes that additional
information is necessary in order to keep the condensed consolidated financial
statements from being misleading. Under the provisions of SFAS No. 15, interest
accrued in prior periods was reversed in the third quarter of 2004 and included
in the statement of operations as interest income. In addition, in future
periods, the Company will not record any of the interest payments on the Series
A and Series B Notes as interest expense in the statement of operations but
rather as a reduction of the debt balance on the balance sheet. If the
restructuring of the Company's Senior Notes had not occurred, the Company's
interest expense for the three months and nine months ended September 30, 2004
would have been approximately $6,010,000 higher than reported, and the Company
would not have incurred debt restructuring expenses of approximately $1,952,000
and $2,414,000 for the three months and nine months ended September 30, 2004,
respectively, which are included in miscellaneous expenses. The following table
23
compares the Company's results of operations as presented in the consolidated
statement of operations to the results which would have been reported if the
Company had not completed the debt restructuring:
Three months ended Nine months ended
September 30, 2004 September 30, 2004
----------------- ---------------- ----------------- ----------------
Pro-forma Pro-forma
With debt Without debt With debt Without debt
restructuring restructuring restructuring restructuring
----------------- ---------------- ----------------- ----------------
Operating income, as reported $ 3,916,833 $ 3,916,833 $ 9,359,298 $ 9,359,298
Other expenses:
Interest expense (income), net (2,119,289) 3,890,561 5,688,529 11,698,379
Miscellaneous, net 2,153,360 200,981 2,478,773 64,837
Total other expenses 34,071 4,091,542 8,167,302 11,763,216
----------------- ---------------- ----------------- ----------------
Net income (loss) $ 3,882,762 $ (174,709) $ 1,191,996 $(2,403,918)
================= ================ ================= ================
The outstanding indebtedness has been classified as short and long-term
liabilities as of September 30, 2004 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, 2004 of Senior Notes, including
current portion of $10,260,480 $ 126,009,850
Gain to be recorded in 4th quarter of 2004 (3,391,923)
October 2004 payment as additional consideration (14,114,042)
October 2005 payment as additional consideration (1,821,167)
Interest payments on Series A Notes, 2004-2008 (23,971,106)
Interest payments on Series B Notes, 2004-2008 (3,687,862)
Maturity of outstanding 11% Senior Notes due 2007 (10,730,000)
----------------
Maturity of Series A and Series B Notes due 2008 $ 68,293,750
================
The credit facility of the Company's United Kingdom subsidiary matured on March
31, 2004. The subsidiary was not in compliance with its debt covenants at March
31, 2004. However, the subsidiary's principal lender has continued to allow the
subsidiary to borrow under the facility to date at a reduced line of 1.86
million British pounds sterling. The subsidiary is currently in negotiations for
a new agreement. The credit facility of the Company's Australian subsidiary also
matured on March 31, 2004 but has been extended until December 31, 2004.
At September 30, 2004, the Company had cash and cash equivalents of
approximately $2.4 million and approximately $16.1 million available for use
under its domestic credit facility, representing approximately $18.5 million of
liquidity. With the completion of the debt exchange in October 2004, the Company
has reduced its annual debt service requirements related to its Senior Notes
from $13.2 million to approximately $8.4 million (including an in kind payment
of $0.9 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. In addition, 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 Company in
the amount of $10 million. The annual debt service requirements related to
these debt instruments will be approximately $0.2 million in cash and $0.9
million in kind. In October 2005, the Company will make a cash payment as
additional consideration to the Series A and Series B bondholders for
approximately $2 million, funded by an increase in the subordinated promissory
note with N.E.S. Investment Company and increasing the annual debt service
24
requirements by approximately $0.2 million in kind. 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 three months
and nine months ended September 30, 2004 increased by approximately $2.1 million
and $9.2 million, respectively, over the corresponding periods in the prior year
due to changes in foreign currency translation rates, primarily the
strengthening of the Australian dollar and the British pound sterling against
the U.S. dollar. The fluctuation of the U.S. dollar versus other currencies also
resulted in increases (decreases) to the accumulated other comprehensive loss
component of stockholder's equity (deficit) in the balance sheet of
approximately $(0.2) million and $0.4 million for the nine months ended
September 30, 2004 and 2003, 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, 2004, 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 3. Defaults upon Senior Securities
On April 1, 2004, the Company failed to make its $6.6 million semi-annual
interest payment due for the 11% Senior Notes due 2007. Following expiration of
the 30-day grace period provided for in the indenture, the Senior Notes were in
default and the Company subsequently received a notice of default from the
Trustee for the Senior Notes.
As described in Note A to the condensed consolidated financial statements and
the Management's Discussion and Analysis of Financial Condition and Results of
Operations, on October 4, 2004, the Company completed a restructuring of the 11%
Senior Notes due 2007.
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 15, 2004
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.
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 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 Reserved
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.
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.
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.