<PAGE> 1
Cedar GROUP, INC.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From __________ To __________
CEDAR GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-10372 23-2577796
(State of Incorporation) (Commission File No.) (IRS Employer Identification No.)
500 Notre Dame Street
Lachine, Quebec CANADA H8S 2B2
(Address of principal executive offices)
Registrant's Telephone Number: (514) 634-3550
Indicate by ( X ) whether 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 12 months and (2) has been subject to such filing requirements
for the past 90 days.
(1) Yes X No _____
(2) Yes X No _____
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS.
Check whether Registrant filed all documents and report required to be filed
by Section 12, 13 or 15 (d) of the Exchange Act after the distribution of
securities under a plan confirmed by a Court.
Yes X No _____
APPLICABLE ONLY TO CORPORATE ISSUERS.
As of May 10, 1996, there were 15,897,582 shares of Common Stock, par
value $.001 per share, outstanding.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets at March 31, 1996 (unaudited)
and September 30, 1995 3-4
(Unaudited) Consolidated Statement of Cash Flows for the six
months ended March 31, 1996 and March 31, 1995 5-6
(Unaudited) Consolidated Statement of Operations for the
three months and six months ended March 31, 1996 and March
31, 1995 7
Notes to consolidated Financial Statements (Unaudited) 8-9-10
Item 2. Management's discussion and Analysis of Financial Condition 11-12-13
and Results of Operations 14-15-16
PART II OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Events 18
Item 6. Exhibits and Reports on Form 8-K 18
</TABLE>
2
<PAGE> 3
CEDAR GROUP, INC.
CONSOLIDATED BALANCE SHEET
March 31, 1996 and September 30, 1995
<TABLE>
<CAPTION>
MARCH 31 1996 SEPTEMBER 30, 1995
-------------- ------------------
<S> <C> <C>
Unaudited Audited
(in thousands of U.S. dollars)
ASSETS
CURRENT ASSETS
Cash....................................................... 40,467 4,765
Short Term Deposits and investments........................ 3,147 4,467
Accounts receivable, net of allowances..................... 101,258 44,169
Current portion of assets transferred under contractual
arrangements............................................. 180 --
Inventories................................................ 66,731 12,746
Prepaid expenses and other assets.......................... 11,089 1,822
-------- --------
TOTAL CURRENT ASSETS....................................... 222,872 67,969
Property, plant and equipment, net......................... 33,116 20,661
Advances to a shareholder.................................. 738 1,198
Assets of business transferred under contractual
arrangements (preferred shares).......................... 3,463 3,640
Pension assets............................................. 1,708 1,619
Other Assets............................................... 5,880 1,312
-------- --------
TOTAL ASSETS............................................... 267,777 96,399
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank Indebtedness.......................................... 30,331 6,688
Accounts payable and accrued expenses...................... 137,866 31,991
Customer Advances.......................................... 8,307 6,062
-------- --------
TOTAL CURRENT LIABILITIES.................................. 176,504 44,741
Advances from unincorporated joint venture................. 310 750
Note payable............................................... -- 488
Deferred income taxes...................................... 13,974 5,994
Accrued post-retirement benefits other than pension........ 515 522
Long-term debt............................................. 1,663 --
Minority Interest.......................................... 33,629 10,161
-------- --------
50,091 17,915
-------- --------
STOCKHOLDERS' EQUITY
Common Stock............................................... 18 15
Additional paid-in capital................................. 40,350 36,345
Retained earnings (deficit)................................ 3,285 (874)
Cumulative translation adjustment.......................... (586) 142
-------- --------
43,067 35,628
Subscriptions Receivable................................... (1,885) (1,885)
-------- --------
41,182 33,743
-------- --------
TOTAL LIABILITIES STOCKHOLDERS' EQUITY..................... 267,777 96,399
======== ========
</TABLE>
3
<PAGE> 4
CEDAR GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
Six months ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
<S> <C> <C>
(in thousands of U.S. dollars)
CASH FLOW FROM OPERATING ACTIVITIES
Net income.................................................... 4,159 3,055
Adjustments to reconcile net income to net cash provided by
(used for) operating activities
Minority Interest in net income............................. 11 --
Depreciation and amortization............................... 1,476 3,322
Deferred income tax......................................... 343 (172)
Income from operations of a joint venture................... (732) --
Cash advances received from joint venture................... 292 --
(Increase) decrease in accounts receivable.................. (1,636) (2,836)
(Increase) decrease in contractual arrangements............. (3) 565
(Increase) decrease in prepaid expenses and other assets.... 1,033 1,255
(Increase) decrease in inventories.......................... (2,113) 2,174
(Decrease) increase in accounts payable..................... (6,840) (4,480)
(Decrease) increase in customer advances.................... (129) 871
--------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES........... (4,139) 3,754
--------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Decrease (Increase) in short term investments................. 1,320 310
Cash consideration paid for acquired businesses............... (23,505)
Cash of acquired businesses................................... 35,301
Proceeds from sale of investments............................. 739
Repayment by a shareholder.................................... 460 212
Redemption of minority interest............................... (6,163) (8,983)
Decrease (increase) of pension assets......................... (89) --
Proceeds from sale of equipment............................... 30 --
Investment in other assets.................................... (1,952) (27)
--------- --------
Net cash provided by (used in) investing activities........... 5,402 (7,749)
--------- --------
CASH FLOW FROM FINANCING ACTIVITIES
Repayment of Long term debt................................... (1) --
Proceeds from issuance of common stock........................ 4,008 3,318
Post retirement benefits other than pension................... (7) (18)
Minority Interest (issue of preferred shares of subsidiary)... 22,374 --
Net increase in bank indebtedness............................. 8,750 --
--------- --------
Net cash provided by financing activities..................... 35,124 3,300
--------- --------
Effect of foreign exchange rate changes on cash............... (685) (384)
NET INCREASE (DECREASE) IN CASH............................... 35,702 (1,079)
Cash at beginning of period................................... 4,765 5,578
--------- --------
Cash at end of period......................................... 40,467 4,499
========= ========
</TABLE>
4
<PAGE> 5
CEDAR GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months and Three Months Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
3 MONTHS 3 MONTHS
ENDED ENDED YEAR-TO-DATE YEAR-TO-DATE
31/03/96 31/03/95 31/03/96 31/03/95
<S> <C> <C> <C> <C>
(in thousands of U.S. dollars)
SALES............................... 53,517 25,703 104,958 60,090
----------- ----------- ----------- -----------
Cost of Sales....................... 45,813 22,487 89,525 53,263
Selling, general and administrative
expenses.......................... 4,317 959 9,350 3,403
----------- ----------- ----------- -----------
50,130 23,446 98,875 56,666
----------- ----------- ----------- -----------
Profit from operations.............. 3,387 2,257 6,083 3,424
Interest income, net................ (3) (2) 43 (2)
Income -- operations of
joint-venture..................... 244 0 732 0
Other Income........................ 61 644 234 916
----------- ----------- ----------- -----------
Net Income before income taxes &
minority interest................. 3,689 2,899 7,092 4,338
----------- ----------- ----------- -----------
Income taxes
Current........................... (1,176) (873) (2,374) (1,373)
Deferred.......................... (230) 1 (343) 1
----------- ----------- ----------- -----------
(1,406) (872) (2,717) (1,372)
----------- ----------- ----------- -----------
Net income before minority
interest.......................... 2,283 2,027 4,375 2,966
----------- ----------- ----------- -----------
Minority interest
Dividends on preferred shares..... (131) 0 (205) 0
Common stock...................... 28 45 (11) 89
----------- ----------- ----------- -----------
NET INCOME.......................... 2,180 2,072 4,159 3,055
----------- ----------- ----------- -----------
Retained earnings (deficit),
beginning of period............... 1,105 (877) (874) (1,860)
----------- ----------- ----------- -----------
RETAINED EARNINGS (DEFICIT), END OF
PERIOD............................ 3,285 1,195 3,285 1,195
Net Income per common share and
common share equivalent
Primary........................... 0.13 0.14 0.25 0.22
Fully diluted..................... 0.13 0.14 0.24 0.22
----------- ----------- ----------- -----------
Weighted average number of common
shares and common share equivalent
Primary........................... 16,329,589 14,464,624 16,320,488 14,109,661
Fully diluted..................... 17,357,811 14,464,624 17,334,599 14,109,661
=========== =========== =========== ===========
</TABLE>
5
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the consolidated
accounts of CEDAR GROUP, INC. (the "Company") and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
the consolidation.
The condensed consolidated financial statements do not include footnotes
and certain financial information normally presented annually under
generally accepted accounting principles and, therefore, should be read in
conjunction with the Company's September 30, 1995 annual report on Form
10-KSB. Accounting measurements at interim dates inherently involve greater
reliance on estimates than at year-end. The results of operations for the
six months ended March 31, 1996 are not necessarily indicative of results
that can be expected for the full year.
The condensed consolidated financial statements included herein are
unaudited however, they contain all adjustments (consisting of normal
recurring accruals) which, in the opinion of the Company, are necessary to
present fairly its consolidated financial position at March 31, 1996 and
its consolidated results of operations for the three months and six months
ended March 31, 1996 and cash flows for the six months ended March 31,
1996.
2. BUSINESS
The Company through its operating subsidiaries, participates in two
principal market segments: infrastructure engineering and manufacturing
services, and in shipbuilding, as a result of the acquisition of Groupe MIL
Inc. with effect as at March 31, 1996.
3. INVENTORIES
Work-in-process related to construction contracts is stated at accumulated
cost less amounts charged to income based on the percentage-of-completion
of individual contracts. Raw materials are stated at the lower of cost
(first-in, first-out) or net replacement cost. Finished goods comprise
steel and steel hardware products held for sale and are stated at the lower
of cost (first-in, first-out) or net realizable value.
4. CONSTRUCTION CONTRACTS
Income on construction contracts is recognized on the
percentage-of-completion basis. Provisions for anticipated losses on
uncompleted contracts are made in the period in which such losses are first
determined.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at March 31, 1996 include normal
trade payables, construction sub-contractor payables, job cost accruals
based on percentage of completion of individual contracts and recurring
payroll and overhead accruals.
Accrued expenses at March 31, 1996 include the unpaid consideration for the
ordinary shares of McConnell Dowell Corporation Limited acquired by the
Company ($14.1 million) and for the repurchase of the 25% of the common
shares held by minority shareholders by Steen Contractors Limited ($1.6
million). These amounts were satisfied on April 30, 1996 and May 3, 1996,
respectively.
6. CAPITAL STOCK
Preferred stock: $.001 par value; 5,000,000 shares authorized, none issued.
Common Stock: $.001 par value, 20,000,000 shares authorized; as of March
31, 1996: 15,897,582 shares were issued and outstanding and 14,524,625
shares were issued and outstanding as of March 31, 1995.
7. FOREIGN CURRENCY TRANSLATION
Gains and losses on foreign currency transactions are recognized currently
in the Consolidated Statement of Operations, and are not significant. Gains
and losses on translation of the Company's subsidiaries
6
<PAGE> 7
operating outside the United States are reported separately and accumulated
in the "Cumulative Foreign Currency Translation Adjustment" in the
Consolidated Balance Sheets.
8. COMMITMENTS AND CONTINGENCIES
The Company's wholly-owned Canadian subsidiary, Dominion Bridge, Inc.,
periodically enters into forward exchange contracts to hedge specific
anticipated currency inflows. It does not engage in speculation. The
foreign exchange contracts do not subject the Company to operating risk due
to exchange rate movements because gains and losses on these contracts
offset losses and gains on the transactions being hedged. The forward
exchange contracts generally have maturities which do not exceed one year
and are agreed to at the inception of the contracts. No significant foreign
exchange gains or losses are deferred in the consolidated balance sheets.
The Company leases office and warehouse space under non-cancelable
operating leases. The terms of the various leases run between one and five
years, the last of which expires in November, 1997. Future minimum lease
payments under all non-cancelable leases for the years subsequent to March
31, 1996 consist of the following:
<TABLE>
<S> <C>
1996............................ $730,000
1997............................ $343,000
</TABLE>
A number of claims and lawsuits seeking unspecified damages and other
relief are pending against the Company. It is impossible at this time for
the Company to predict with any certainty the outcome of such litigation.
However, management is of the opinion, based upon information presently
available, that it is unlikely that any liability, to the extent not
provided for through insurance or otherwise, would be material in relation
to the Company's consolidated financial position.
The Company is subject to a risk of claims for product liability. If a
product liability claim exceeding the company's insurance coverage or its
own available resources were to be successfully asserted against the
Company, it would have a material adverse effect on the Company's financial
condition. The Company has general liability insurance coverage of
approximately $5 million per occurrence, with a maximum of $5 million of
claims payable during any policy year. There is no assurance that such
coverage will be sufficient to fully insure against claims brought against
the Company and its subsidiaries, or that the Company will be able to
maintain such insurance at affordable rates or obtain additional insurance
covering the products.
7
<PAGE> 8
FINANCIAL CONDITION & RESULTS OF OPERATIONS
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ACQUISITION OF STEEN CONTRACTORS LIMITED
On July 31, 1995 (but effective April 1, 1995) Cedar Group, Inc. (the
"Company") acquired 75% of the outstanding common shares of Steen
Contractors Limited ("Steen") for a purchase price of Cdn $6,300,000 (US
$4,575,000). Steen is an engineering company specializing in mechanical,
heating, ventilation and air conditioning contracts for industrial,
commercial, manufacturing and processing plants.
Effective March 31, 1996, Steen repurchased the 25% of the common shares of
Steen not owned by the Company for cash consideration payable of Cdn
$2,135,000 (US $1,571,000). The full amount was paid May 3rd, 1996.
The acquisition of Steen has been accounted for under the purchase method
of accounting and has been given effect from April 1, 1995 for the first
purchase and from March 31, 1996 for the repurchase. Accordingly, the
results of operations for the six months ended March 31, 1996 include the
operations of Steen for the entire period but are excluded from the
comparative six month period ended March 31, 1995.
The Company has accrued the US $1,571,000 that was paid by Steen for the
repurchase of 25% of the common shares, which amount was paid to the
minority shareholders on May 3, 1996.
ACQUISITION OF MCCONNELL DOWELL CORPORATION LIMITED
On March 29, 1996, Cedar Group Australia Pty Ltd ("CGA"), an Australian
corporation and a wholly-owned subsidiary of Cedar Group, Inc. (the
"Company"), for and on behalf of Cedar Group Canada Inc., purchased through
the facilities of the Australian Stock Exchange 12,640,000 ordinary shares
of McConnell Dowell Corporation Limited ("MDC"), constituting approximately
30.4% of the issued ordinary shares of MDC, at a purchase price of
A$20,224,000 (US $15,774,720), or A$1.60 (US $1.25) per share. CGA had made
a tender offer for all of the outstanding ordinary shares of MDC, which
expired on April 9, 1996, with 11,178,115 shares having been tendered into
the offer, constituting 26.89% of the issued ordinary shares of MDC. The
tender offer was for A$1.25 (US $.98) per share (later increased to A$1.60
(US $1.25), net to the seller in cash. Prior to the commencement of the
tender offer, CGA owned approximately 19.9% of the issued ordinary shares
of MDC, which it had acquired from Morrison Knudsen Corporation. As a
result of these transactions, CGA owns as of April 11, 1996, 31,091,400
ordinary shares, constituting 77.2% of the issued ordinary shares of MDC.
The total amount of funds required to purchase all of the shares of MDC
owned by CGA and to pay related fees and expenses was US $41,433,806.
The Company committed to provide these funds to CGA through another of its
wholly-owned subsidiaries, Cedar Group Canada Inc., a Canadian corporation
("CGC"). CGC obtained such funds from a newly created credit facility ($30
million) pursuant to that certain credit facility agreement dated as of
March 29, 1996 (the "Credit Agreement") among CGC, the Company and BT
Commercial Corporation ("BTCC").
In addition, funds were provided by an offshore private placement of US $15
million of 6% Convertible Preferred Shares (the "TCI Preferred Shares") of
Cedar Group (TCI) Inc. LLC. The TCI Preferred Shares pay cash dividends at
the rate of 6% per annum. The TCI Preferred Shares are convertible into the
Company's Common Stock, beginning May 31, 1996, at a conversion price which
is equal to 12% less than the market price of the Common Stock during the
five trading days prior to conversion if converted prior to June 30, 1996,
or 15% less than the market price of the Common Stock during the five
trading days prior to conversion if converted thereafter. All TCI Preferred
Shares outstanding on October 31, 1998 will be automatically converted into
the Company's Common Stock.
MDC's assets consist of cash, accounts receivable, inventories and
property, plant and equipment. These assets are utilized in its
infrastructure, including pipeline, mechanical and electrical, engineering
and its
8
<PAGE> 9
construction groups of subsidiaries operating throughout Asia, Australia,
and New Zealand. The Company plans for MDC to continue such course of
business under its control. The consideration paid by CGA was determined by
the Company's management based on prevailing market conditions.
No material relationship existed between MDC and the Company or any of its
affiliates, any director or officer of the Company, or any associate of any
such director or officer prior to the Company's acquisition of the ordinary
shares of MDC.
The Company has accounted for the acquisition of MDC using the purchase
method as of March 29, 1996, the date at which the Company achieved voting
control of MDC. Accordingly, the assets and liabilities of MDC as at March
31, 1996 are consolidated into the accounts of the Company. The minority
interest of 22.8%, being the shares remaining outside of Cedar's control
after April 11,1996, have been accounted for as minority interest as at
March 31, 1996. At March 31, 1996, the Company had paid for 50.3% of the
MDC outstanding shares and its transaction related fees and expenses at a
cost of approximately US $27.3million. At March 31, 1996, the Company was
committed to the purchase of a further 26.87% of the MDC shares for
approximately US $14.1 million. This $14.1 million is accrued for in
current liabilities as at March 31, 1996.
Prior to March 29, 1996, the Company accounted for its investment in MDC
using the equity method.
ACQUISITION OF GROUPE MIL INC. ("MIL")
On April 25, 1996, but effective March 31, 1996, the Company's wholly owned
subsidiary Cedar Group Canada Inc. acquired from Societe Generale de Financement
("SGF"), 100% of the equity of Groupe MIL Inc. for the purchase price of $1.00.
MIL is an industrial manufacturing concern operating through two subsidiaries
and an operating division;
MIL Davie Inc., founded in 1829 is Canada's oldest and largest shipbuilding
and ship repair facility and has in excess of 1,000,000 square feet of
manufacturing space, fabricates major industrial components for the energy,
pulp and paper and petro-chemical sectors.
Intermodal Inc. is a designer and a manufacturer of road-rail
interchangeable systems, a recently developed proprietary technology which
provides significant economic and logistic advantages to the surface
transportation industry.
MIL Systems, is the engineering division located in Ottawa, Canada, which
is classified as ISO 9001 and specializes in advanced ship design software,
naval systems, computer aided logistics and global telecommunications.
SGF has assumed all current and contingent encumbrances and liabilities as
of the date of closing, including accumulated working capital deficiencies. In
addition, by May 15, 1996, SGF will invest a further Cdn $25 million to upgrade
facilities and contribute to the working capital requirements of MIL over the
next two years.
The Company hopes to increase MIL's industrial and naval capability on a
global scale pursuant to a recently developed plan. This plan, estimated to be
implemented over the next five years, is to include the participation of SGF,
which has agreed to contribute up to 25% of funds invested to implement the
development plan over the five years period to a maximum of Cdn $25 million.
The Company intends to continue the existing shipbuilding and ship repair
activities for both commercial and military vessels while attempting to expand
MIL Davie's capabilities to the manufacturing of offshore platforms, supply
vessels and large scale container handling systems.
The acquisition of MIL has been accounted for under the purchase method of
accounting and has been given effect as at March 31, 1996. Accordingly, the
balance sheet accounts of MIL are included in the consolidated balance sheets at
March 31, 1996 but the reported results of operations for Cedar's current and
comparative interim periods exclude the results of MIL.
The Company will consolidate the revenues and expenses of MIL commencing
April 1, 1996.
9
<PAGE> 10
RESULTS OF OPERATIONS
Consolidated sales for the first half of the fiscal year increased from
$60.0 million in 1995 to $104.9 million in 1996. Of this increase of
approximately $45 million, over $27 million relates to the inclusion of Steen's
results for fiscal 1996 and the balance of approximately $18 million is
attributable to significant new contracts being processed by Dominion Bridge,
Inc. The second quarter's sales growth of $27,8 million from fiscal 1995's sales
of $25.7 million to $53.5 million in the quarter ended March 31, 1996 is
similarly comprised of the inclusion of Steen -- $15 million and the balance is
due to internal growth at Dominion Bridge of $12.8 million.
Gross margins as a percentage of sales have increased from 11.3% for the
first six months of fiscal 1995 to 14.7% for the six months ended March 31,
1996. This improvement in overall margins is due to performance gains being
recognized on several significant Dominion Bridge projects, greater sales volume
at Dominion Bridge to allow fixed plant overheads to be allocated over a broader
sales bases, and improved operating management at Unimetric. These gains offset
the lower gross margin earned on the Steen sales (9% on six month year to date
results) compared to the rest of the operating units.
Income from joint ventures relates to Steen's interest in an offshore
construction project. Steen accounts for this joint venture income using the
equity method.
Selling, General and Administrative expenses have increased by $5.9 million
for the six months ended March 31, 1996 compared to 1995. Of this increase, $1.9
million relates to the inclusion of Steen in fiscal 1996 and $4.0 million
relates to Dominion Bridge's overhead cost increases associated with the
increased sales volume at Dominion Bridge both domestically and internationally.
All costs associated with foreign development projects have been expensed as
incurred in fiscal 1996.
The selling, general and administration costs for the quarter ended March
1996 are similarly increased from fiscal 1995. Of the total increase in the
quarter's costs of $3.3 million, $1.0 million relates to Steen, and the balance
to Dominion Bridge.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended March 31, 1996, the Company, through its wholly
owned subsidiary, Cedar Group Canada Inc. entered into a bridge loan facility
for US $30 million to partially fund the acquisition of the ordinary shares of
MDC. The bridge loan was restated and converted to a term loan maturing April
30, 1997. This loan facility to the subsidiary is secured by the Company's
parental guarantee, the guarantees of the Company's operating subsidiaries,
pledges of the shares of the Company's principal operating subsidiaries
(Dominion Bridge, Steen and MDC) and liens on the real and moveable properties
of the operating subsidiaries, excluding MDC. The credit facility has replaced
the Company's previous Canadian chartered bank lines of credit.
On or about October 31, 1995, Cedar Group (TCI) Inc., LLC, ("TCI"), a
limited life company duly incorporated and established under the laws of the
Turks and Caicos Islands, British West Indies, a wholly owned subsidiary of the
Company, accepted subscriptions in the approximate amount of $8.5 million of 6%
Cumulative Convertible Preferred Shares of TCI at $8.50 per share (the "Original
Preferred Shares"). The net proceeds realized by TCI from the offering of the
Original Preferred Shares were loaned to the Company (the "Loan"), with interest
calculated and payable semi-annually by the Company to TCI at a rate of 6% per
annum. The Company utilized the net proceeds of the Loan to provide additional
working capital and to fund portions of the purchase price of Steen Contractors
Ltd. and McConnell Dowell Corporation Limited of Australia ("MDC"). The Loan is
repayable by the Company issuing shares of its Common Stock to satisfy the
conversion of the Original Preferred Shares.
On or about March 15, 1996, TCI issued approximately an additional $13
million of Preferred Shares (the "Additional Preferred Shares") which funds were
likewise advanced to the Company to finance its tender offer for MDC Limited of
Australia. This latest advance is also repayable by the conversion of the
Additional Preferred Shares into shares of Common Stock of the Company.
Each Original Preferred Share is convertible into one share of Company
Common Stock at a price of $7.375 per share. Each Additional Preferred Share is
convertible into Company Common Stock at a discount
10
<PAGE> 11
ranging from 12% to 15% from the market price of the Common Stock on the date of
the conversion. Holders of the Original and Additional Preferred Shares will be
able to convert their Preferred Shares into shares of Common Stock of the
Company at the option of the holder at any time during the Conversion Period
which runs from May 31, 1996 up to and including October 31, 1998 (the "Maturity
Date"). It is anticipated that the Board of Directors of the Company will
consider a change in the conversion terms of the Original Preferred Shares to be
the same as the conversion terms for the Additional Preferred Shares.
As presently structured, the day following the Maturity Date (the
"Redemption Date"), all of the remaining unconverted Original Preferred Shares
will automatically be converted into shares of Common Stock of the Company at a
price equal to the lesser of the weighted average of the closing price of the
Company's Common Stock traded on NASDAQ during the twenty (20) trading days
proceeding the Maturity Date and $7.375.
TCI completed its amended first closing of its private placement and
accepted and deposited $8.5 million of subscriptions. TCI continued to raise the
balance of its private placement and achieved a second closing on or about March
29, 1996, on which it accepted and deposited $15.7 million of subscriptions.
The Company used the proceeds of the above-mentioned loan facility and TCI
Preferred Shares issues to effect the purchase of MDC, to buy out a portion of
the Dominion Bridge Preferred Shares minority interest, and to fund general
working capital requirements.
The TCI Preferred Shares have been classified as minority interest as they
are Preferred Shares of TCI and are not yet convertible into common equity of
the Company.
Total minority interests of US $33,629,000 as at March 31, 1996 consist of
United Dominion Industries Limited's remaining balance of Cdn $3,200,000 of
Class A Preferred Shares in Dominion Bridge, US $22,344,000 of net proceeds on
the issuance Preferred Shares of Cedar Group (TCI) Inc. LLC and US $8,774,000
representing the 22.8% minority interest in McConnell Dowell Corporation.
At March 31, 1996 the Company has significantly increased cash and working
capital balances from previously reported position due to the inclusion of the
balance sheets of MDC and MIL. MDC has a net negative cash balance of $1.6
million but a net positive working capital position of $26.1 million. This
reflects MDC's current financial position of being heavily invested in
inventories ($50.5 million) and accounts receivable ($43.1 million) on several
major projects that are only partially funded by accounts payable ($72.9
million). These projects are expected to become cash flow positive in the
Company's 3rd and 4th fiscal quarters. MIL has a net positive cash position of
$22 million and positive working capital of $12.4 million. This reflects MIL's
current financial position of cash invested by the SGF to defray expected costs
of internal investments and restructuring. The MIL cash balance is restricted to
investment within the MIL operating company group.
The Company expects to be able to fund its immediate cash requirements from
its operating cash flow but may require additional capital in the form of debt,
convertible debt or equity to fund continued internal expansion or potential
future acquisitions.
EFFECT OF INFLATION
The Company's operating costs are subject to general economic and
inflationary pressures. While operating cost have increased during the past
years, the Company does not believe that its operations have been significant
affected by inflation.
11
<PAGE> 12
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently involved in any litigation or proceedings
which are material either individually or in the aggregate, and, to the
Company's knowledge, no other legal proceedings of a material nature
involving the Company are currently contemplated by any individuals,
entities or governmental authorities except as outlined below.
The Company commenced an action against Stelco Inc. on December 20, 1994 in
the Ontario Court to obtain a declaration that it is the rightful owner of
75% of the common shares of Stelco Fasteners Ltd. and for damages as a
result of a dispute that arose between the parties in connection with the
acquisition by the Company of 75% of the common shares of Stelco Fasteners
Ltd., a company owned by Stelco Inc. The Ontario Court (General Division)
denied the Company's claims in a judgment released on December 21, 1995.
Upon reviewing the elements of the case, the Company has accepted the
recommendation of its counsel and of a further legal opinion that, based
upon significant errors of law, an appeal is warranted. Consequently, on
January 19, 1996 the Company filed a notice of appeal with the Ontario
Court of Appeal for the Decision of the Ontario Court General Division. The
appeal is expected to be heard in November, 1996.
By complaint dated November 7, 1995, certain shareholders (the
"Plaintiffs") brought a shareholders derivative suit in the Chancery Court
of the State of Delaware against Cedar Group, Inc. and Michel L. Marengere,
Micheline Prud'homme and Rene Amyot, individually. The complaint alleges
certain interest and self-dealing transactions by Mr. Marengere. Plaintiffs
seed judgment for the damages suffered by the Company as a result of the
alleged transactions, costs and expenses of the action, including
reasonable attorneys' fees and any other relief that the Court may deem
just and proper. The Company and the other defendants have filed a motion
for the dismissal of the suit, however, no date has yet been determined for
the hearing by the Chancery Court.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER EVENTS
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
-- Change of auditors April 3, 1996
-- Acquisition of MDC March 29, 1996
-- Acquisition of MIL May 10, 1996
12
<PAGE> 13
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT. OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON BEHALF OF THE UNDERSIGNED
THEREUNTO DULY AUTHORIZED.
<TABLE>
<S> <C>
CEDAR GROUP, INC.
DATE: MAY 10, 1996
By: /s/ Michel L. Marengere
--------------------------------------------
Michel L. Marengere
Chairman and Chief Executive Officer
By: /s/ Robert Chartier
--------------------------------------------
Robert Chartier
Principal Accounting Officer
</TABLE>
13
