<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
--------- ------------
DOMINION BRIDGE CORPORATION
----------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1-10372 23-2577796
-------- ------- ----------
(State of Incorporation) (Commission File No.) (IRS Employer
Identification No.)
</TABLE>
500 NOTRE DAME STREET
3RD FLOOR
LACHINE, QUEBEC, CANADA H8S 2B2
-------------------------------
(Address of principal executive office)
Registrant's telephone number, including area code: (514) 634-3550
NOT APPLICABLE
--------------
(Former name, if changed since last report)
Check whether the Registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
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.
(1) Yes X No
-------- --------
(2) Yes X No
-------- --------
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PAST FIVE YEARS
Check whether the registrant has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.
Yes X No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the Registrant's sole class of common
stock, as of February 12, 1997, is 29,003,648 shares.
1
<PAGE> 2
DOMINION BRIDGE CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
---------------------
<S> <C> <C>
Item 1. Consolidated Balance Sheets at December 31,
1996 (Unaudited) and September 30, 1996 3
Consolidated Statements of Operations for
the Three Months ended December 31, 1996
and 1995 (Unaudited) 4
Consolidated Statements of Cash Flows for the
Three Months ended December 31, 1996
and 1995 (Unaudited) 5
Consolidated Statement of Stockholders' Equity
for the Three Months ended December 31, 1996
(Unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and
Analysis of Financial Condition and Results
of Operation 12
</TABLE>
<TABLE>
<CAPTION>
PART II OTHER INFORMATION
-----------------
<S> <C> <C>
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote
of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 20
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
DOMINION BRIDGE CORPORATION
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31, 1996 AND SEPTEMBER 30, 1996
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
======================================================================================================================
DECEMBER 31 SEPTEMBER 30
1996 1996
- ----------------------------------------------------------------------------------------------------------------------
$ $
UNAUDITED AUDITED
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash (Note 4) 21,804 26,231
Short Term deposits 2,352
Accounts receivable 98,759 126,911
Inventories 61,002 43,762
Prepaid expenses and other current assets 10,779 5,417
- ----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 194,696 202,321
- ----------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 38,909 38,289
Assets of business transferred under contractual
arrangements (preferred shares) 3,847 3,847
Goodwill 11,884 11,958
Pension assets 1,340 1,187
Advances to and investments in unincorporated joint ventures 1,653 2,398
Other assets 7,122 5,247
- ----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 259,451 265,247
======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank indebtedness(Note 5) 1,709 5,624
Term loan (Note 5) 30,000 30,000
Accounts payable and accrued expenses 110,585 119,839
Customer advances 24,516 16,166
Current portion of obligations under capital leases 1,829 2,979
- ----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 168,639 174,608
- ----------------------------------------------------------------------------------------------------------------------
Deferred income taxes 5,745 5,147
Accrued post-retirement benefits other than pensions 518 514
Obligations under capital leases 4,368 2,274
Minority interest 10,133 17,546
Negative goodwill 12,277 12,945
Other long-term liabilities 2,279 2,976
- ----------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value; 25,000,000 shares
authorized, none issued
Common stock, $0.001 par value; 50,000,000 shares authorized;
issued and outstanding: 28,743,648 shares in 1996 and
15,493,681 shares in 1995 29 25
Additional paid-in capital 64,986 57,601
Deficit (7,046) (5,931)
Cumulative translation adjustment (653) (634)
- ----------------------------------------------------------------------------------------------------------------------
57,316 51,061
Subscription receivable (1,824) (1,824)
- ----------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 55,492 49,237
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 259,451 265,247
======================================================================================================================
</TABLE>
Commitments and contingencies (Note 8)
3
<PAGE> 4
DOMINION BRIDGE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
=======================================================================================================================
1996 1995
- ----------------------------------------------------------------------------------------------------------------------
$ UNAUDITED $
<S> <C> <C>
SALES 124,804 51,441
- ----------------------------------------------------------------------------------------------------------------------
Cost of sales 112,475 43,712
Selling, general and administrative expenses 12,321 5,033
- ----------------------------------------------------------------------------------------------------------------------
124,796 48,745
Income from operations of joint ventures 215 488
- ----------------------------------------------------------------------------------------------------------------------
Income from operations 223 3,184
Interest (expense) income, net (1,389) 46
Other income 947 173
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and minority interest (219) 3,403
- ----------------------------------------------------------------------------------------------------------------------
Income taxes (Note 6) 620 1,311
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) before minority interest (839) 2,092
Minority interest - dividends on preferred shares -- (74)
Minority interest - common stock (276) (39)
- ----------------------------------------------------------------------------------------------------------------------
NET (LOSS) INCOME (1,115) 1,979
=======================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------
Net income (loss) per common share and common
share equivalents
Primary (0.04) 0.12
Fully diluted - 0.11
- ----------------------------------------------------------------------------------------------------------------------
Weighted average number of common shares
and common share equivalents outstanding
Primary 27,454,931 16,311,013
Fully diluted 29,057,311 17,984,225
=======================================================================================================================
</TABLE>
4
<PAGE> 5
DOMINION BRIDGE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1996 and 1995
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
=======================================================================================================================
1996 1995
- ----------------------------------------------------------------------------------------------------------------------
$ UNAUDITED $
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net (loss) income (1,115) 1,979
Adjustments to reconcile net income to the
cash provided by (used for) operating activities
Minority interest in net income 276
Depreciation and amortization 2,749 819
Amortization of negative goodwill (668)
Deferred income taxes 598 113
Deferred pension cost (153) --
Income from operations of joint ventures (215) (488)
Cash distributions from joint ventures 960
Decrease (Increase) in accounts receivable 28,152 (3,927)
(Increase) Decrease in prepaid expenses
and other assets (5,362) 1,496
Decrease (increase) in inventories (17,240) 5,021
(Decrease) increase in accounts payable (9,254) (7,901)
Increase in customer advances 8,350 473
Other - net (385)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 6,693 (2,415)
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES
Decrease (Increase) in short term deposits (2,352) 802
Repayment by a shareholder - 467
Cash payment for purchase of equipment (3,295) (75)
Increase in other assets (1,875) (96)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities (7,522) 1,098
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 104 1,967
Issue of preferred shares of subsidiary to minority interest --- 11,096
Issue costs of subsidiary preferred shares (15)
Bank indebtedness (3,915) (3,636)
Other long-term liabilities (697) (17)
Issue of capital lease obligations 944 --
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities (3,579) 9,410
- ----------------------------------------------------------------------------------------------------------------------
Effect of foreign exchange rate fluctuations on cash (19) (106)
- ----------------------------------------------------------------------------------------------------------------------
Net change in cash (4,427) 7,987
Cash, at beginning of period 26,231 4,765
- ----------------------------------------------------------------------------------------------------------------------
CASH, AT END OF PERIOD (NOTE 4) 21,804 12,752
=======================================================================================================================
NON-CASH INVESTING AND FINANCING ACTIVITIES
Issuance of common stock on conversion of
minority interest preferred shares 7,300 --
Purchase of preferred stock minority interest
of subsidiaries (7,300) --
======================================================================================================================
</TABLE>
5
<PAGE> 6
DOMINION BRIDGE CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTH PERIOD ENDED DECEMBER 31, 1996 (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL CUMULATIVE
COMMON PAID-IN TRANSLATION SUBSCRIPTION
SHARES STOCK AMOUNT CAPITAL DEFICIT ADJUSTMENT RECEIVABLE
$ $ $ $ $
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 24,722,188 25 57,601 (5,931) (634) (1,824)
Issuance of common stock for cash proceeds 50,334 - 104 - - -
Issuance of common stock upon
conversion of Cedar Group (TCI)
LLC preferred shares 3,971,126 4 7,296 - - -
Share issue costs - - (15) - - -
Translation adjustments, net of income
taxes of nil - - - - (19) -
Net loss for the period - - - (1,115) - -
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 28,743,648 29 64,986 (7,046) (653) (1,824)
==================================================================================================================================
</TABLE>
6
<PAGE> 7
DOMINION BRIDGE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
consolidated accounts of DOMINION BRIDGE CORPORATION (formerly Cedar
Group, Inc.) (the "Company") and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in the
consolidation. All dollar amounts are presented in thousands of U.S.
dollars, except per share data.
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, 1996 annual report on Form
10-K. Accounting measurements at interim dates inherently involve greater
reliance on estimates than at year-end. The results of operations for the
three months ended December 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 December 31,
1996, its consolidated results of operations for the three months ended
December 31, 1996, its cash flows for the three months ended December 31,
1996 and its consolidated statement of stockholders' equity for the three
months ended December 31, 1996.
2. NATURE OF OPERATIONS
Dominion Bridge Corporation, a Delaware corporation registered in
Conshohocken, Pennsylvania, with executive offices in Montreal, Canada,
specializes in international engineering, infrastructure development and
project management and ship building and repair.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared by management
in accordance with accounting principles generally accepted in the
United States, the most significant of which are outlined below. These
principles require the use of estimates to measure the financial effects
of past transactions or events and the present status of assets and
liabilities.
Principles of consolidation
The financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany accounts and transactions
have been eliminated upon consolidation.
During the previous fiscal year, the Company (1) acquired the remaining
minority interests in Dominion Bridge Inc. and Steen Contractors
Limited, (2) acquired approximately 77.4% of the outstanding shares of
McConnell Dowell Corporation Limited and (3) acquired 100% of the
outstanding share capital of Davie Industries Inc. (formerly Groupe MIL
Inc.) ("Davie")
The financial results of the 3 months ended December 31, 1996, include
the results of the acquired subsidiaries while the comparative period for
the 3 months ended December 31, 1995 exclude the results of the acquired
subsidiaries.
Each of the above acquisitions were accounted for under the purchase
method of accounting. Under the purchase method of accounting, the
assets of the acquired entity are reflected on the balance sheet at
their fair market value on the date of purchase, with the balance of the
purchase price attributed to goodwill. In the case of Davie, since the
purchase price was nominal, the difference between the fair market value
of the assets and the purchase price is treated as negative goodwill.
Goodwill is amortized on a straight-line basis over periods not
exceeding forty years. Negative goodwill is amortized on a
straight-line basis over a period of three years.
Cash
Cash includes short-term deposits with terms less than 90 days.
Short-term deposits with terms longer than 90 days are stated at cost
which approximates fair market value.
7
<PAGE> 8
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
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 losses are first
determinable.
Inventories
Work in process related to construction contracts is stated at
accumulated costs 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 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.
Investment in and advances to unincorporated joint ventures
The Company's investment in and advances to unincorporated joint
ventures is accounted for by the equity method whereby the investment is
initially recorded at cost and the carrying value is adjusted thereafter
to include the Company's pro rata share of earnings less drawings
received.
Property, plant and equipment
Property, plant and equipment, including assets that were acquired under
capital leases, are stated at cost. Maintenance and repairs are charged
to expenses as incurred. When assets are sold or otherwise disposed of,
the cost and related accumulated depreciation are removed from their
respective accounts and the resulting gain or loss is reflected in
current operations. Depreciation is computed on the straight-line
method over the estimated useful lives of the assets, generally five to
seven years for machinery and equipment and forty years for buildings.
Pension costs
The Company maintains defined benefit pension plans which cover certain
of its Canadian employees. Pension plan obligations are valued using the
projected benefit actuarial method and best estimate assumptions.
Pension plan assets are valued at market-related values. The Company
also participates in defined contribution plans for its Australian and
certain of its Canadian employees.
Post-retirement benefits other than pensions
The Company accrues for benefits such as health care, life insurance
coverage and long service leave to which retired employees are entitled.
The obligation is adjusted on an annual basis to reflect the expected
cost of providing post-retirement benefits during the years an employee
renders service.
8
<PAGE> 9
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Translation of foreign currencies and foreign exchange contracts
All assets and liabilities of the Company's subsidiaries operating
outside the United States are translated into U.S. dollars using current
exchange rates and income statement items are translated using weighted
average exchange rates for the year. The resulting translation
adjustment is included as a component of stockholders' equity. Other
foreign currency transaction gains and losses are included in
determining net income.
Income taxes
The Company accounts for income taxes under the liability method.
Deferred taxes reflect the tax consequences in future years of
differences between the tax bases of assets and liabilities and their
financial reporting amounts.
Net income per share
Primary net income per common share is computed by dividing the income
applicable to common shares by the weighted average number of shares of
common stock outstanding and common stock equivalents including the
dilutive effect of options and warrants from the date of grant.
Net income per common share on a fully diluted basis assumes that all
convertible instruments were converted to common stock at the earlier of
the beginning of each year or the date of issuance.
4. CASH
The Consolidated cash and short term deposits at December 31, 1996
amounted to $24,156. Included in this amount is cash and short term
deposits which are for the sole benefit of Davie for its day to day
operations and business development.
5. FINANCING ARRANGEMENTS
On April 29, 1996, the Company entered into an agreement with Bankers
Trust Commercial Corporation ("BTCC") for a term loan in the amount of
$30,000 (the "Facility"). This loan bears interest at LIBOR and is
collateralized by the pledge of the shares in the operating subsidiaries
and a lien on certain of the North American capital and operating
assets. The weighted average interest rate on the term loan was 8.25%
for the period ended September 30, 1996. The maturity date for the loan
is April 30, 1997. The Facility agreements provide for an acceleratio
of the maturity date in the event of an "Event of Default" (as such
term is defined in the Facility agreements). An Event of Default
includes failure to pay when due any installment of interest on or
principal of the Facility and any failure to observe the covenants
provided in the Facility agreement, including certain financial
covenants. The Company is exploring with BTCC the extension of the
Facility. Management of the Company is also exploring alternative
sources to refinance amounts outstanding under the Facility.
Management of the Company believes that it will be able to convert the
Facility or otherwise obtain replacement financing prior to the maturity
date of the Facility. There can be no assurance at this time that the
term loan can be renegotiated on terms acceptable to the lender and the
Company.
A subsidiary of the Company has entered into operating credit facilities
totaling $6,200 bearing interest at variable rates. At December 31,
1996, $1,261 was outstanding under these facilities. Certain
facilities have restrictions on their usage and are limited for use on
specific projects.
9
<PAGE> 10
6. INCOME TAXES
The difference between the Company's effective income tax rate and the
statutory rate on pretax accounting income is reconciled below:
<TABLE>
<CAPTION>
1996 1995
--------------------------------------
$ $
<S> <C> <C>
Income tax expense (recovery) at U.S.
statutory rate (77) 1,191
State tax (recovery), net of federal tax benefits (13) 204
Foreign income taxes at more (less)
than statutory rate 116 (421)
Operating losses without tax benefit 594 337
-------------------------------------------------------------------------------------------
620 1,311
===========================================================================================
</TABLE>
7. STOCKHOLDERS' EQUITY
1996
During the three months ended December 31, 1996, the Company issued
3,971,126 shares of its common stock upon the conversion of $7,300 of
Cedar Group (TCI) Inc. preferred shares in accordance with the terms of
the preferred share agreement and 50,334 shares of its common stock for
cash proceeds of $104.
8. COMMITMENTS AND CONTINGENCIES
In December 1996, the Company was notified that a class action
shareholder complaint had been filed against it and certain executive
officers of the Company. The complaint alleges that the defendants
misled the investing public as to the quality and status of a number of
contracts obtained by the Company as well as failed to disclose various
inaccurate and misleading accounting practices. Management intends to
vigorously defend this claim and believes the claim is without merit. As
the outcome of this claim is indeterminable, no provision has been
recorded in the consolidated financial statements.
During 1995, the Company submitted a Claim Notification Letter to a
customer and issued invoices to another customer against which a cash
advance of $2,100 was applied. These amounts were originated with a view
to recovering substantial cost increases pertaining to the design,
manufacture and delivery of major infrastructure assets. The Company
believes that the costs and expenses claimed are justified and has
obtained a third party analysis as to the reasonability of its claim to
the first customer. It has also received acknowledgment of the invoices
issued to the second customer. During 1995, the value of these claims
has been recognized in sales in the amount of $3,672. While management
believes that the favorable outcome of these claims is probable, their
resolution will involve further negotiation with the clients, or
arbitration, and the ultimate realization may vary from the current
estimates.
10
<PAGE> 11
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.
Certain subsidiaries have given various warranties on asset sales and in
respect of taxation to purchasers of certain of the Company's former
subsidiaries and equity investments. A warranty claim from one purchaser
of a former equity investment is being defended and remains unresolved.
Management is of the opinion that it is unlikely that any liability
would be material to the Company's consolidated financial position.
Certain subsidiaries of the Company are contingently liable for letters
of credit, commitments and performance guarantees arising in the
ordinary course of business.
The purchase offer agreement entered into by the Company and Societe
General de Financement du Quebec ("SGF") dated April 24, 1996 to acquire
the shares of Davie requires, amongst other things, that the Company,
together with strategic investors and SGF, will invest up to Cdn $60,000
over the five years following the acquisition of Davie. This investment
can be raised by Davie through public offerings, private placements or
debt financings. Furthermore, this investment is subject to market
conditions and capital improvement requirements included in the business
plan to restructure the business of Davie.
During the period ended December 31, 1996, the Company entered into a
joint venture agreement in which it is committed to fund up to an
aggregate of US $2.5 million into up to 17 projects related to energy
and power. The Company has the discretion to select the projects with
the highest rate of return and the highest probability of success,
therefore, the Company may not expend the full amount.
The Company and its subsidiaries are engaged in manufacturing activities
subject to numerous environmental laws, regulations and guidelines
adopted by various governmental authorities in the jurisdictions in
which the Company operates. The Company's policy is to accrue for
environmental costs in the accounting period in which a loss is known or
considered probable and the amount can be estimated.
9. COMPARATIVE FIGURES
Certain comparatives figures have been reclassified to conform with the
presentation adopted in 1996.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for historical information, the material contained in
Management's Discussion and Analysis of Financial Condition and Results of
Operations is forward-looking. For the purposes of the safe harbor provisions
for forward-looking statements of the Private Securities Litigation Reform Act
of 1995, readers are urged to review the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1996 for a list of certain important
factors that may cause actual results to differ materially from those described
below.
RESULTS OF OPERATIONS
The following table provides selected financial information from the
Company's Consolidated Statements of Operations stated as a percentage of
revenues for the three months ended December 31, 1996 (the "Current Quarter")
and the three months ended December 31,1995 (the "Comparable Quarter"). It
will be referred to in the discussions that follow the table.
<TABLE>
<CAPTION>
3 MONTHS 3 MONTHS 3 MONTHS 3 MONTHS
ENDED ENDED ENDED ENDED
DEC 31, 1996 DEC 31, 1995 DEC 31, 1996 DEC 31, 1995
-------------- -------------- ------------- -------------
(In thousands of U.S. dollars, except per share data)
$ $ % %
<S> <C> <C> <C> <C>
Sales 124,804 51,441 100.0 100.0
Cost of sales (excluding depreciation) 110,370 43,093 88.4 83.8
--------------- -------------- ------------- ------------
Gross profit 14,434 8,348 11.6 16.2
Sales, general and
administrative (11,751) (4,833) (9.4) (9.4)
Income-operations from joint-venture 215 488 0.1 0.9
Other Incomes 353 173 0.3 0.4
-------------- -------------- ------------- -------------
Profit (loss) from operations (EBITDA) 3,251 4,176 2.6 8.1
EBITDA PER COMMON SHARE AND EQUIVALENT 0.11 0.23 - -
- --------------------------------------
Depreciation and amortization (2,081) (819) (1.7) (1.6)
-------------- -------------- ------------- -------------
Profit (loss) before interest and
taxes (EBIT) 1,170 3,357 0.9 6.5
EBIT PER COMMON SHARE AND EQUIVALENT 0.04 0.19 - -
- ------------------------------------
Interest income (expenses), net (1,389) 46 (1.1) 0.1
Income tax provision (620) (1,311) (0.5) (2.5)
-------------- -------------- ------------- -------------
Net income (loss) before minority interest (839) 2,092 (0.7) 4.1
Minority interest (276) (113) (0.2) (0.2)
-------------- -------------- ------------- -------------
NET INCOME (LOSS) (1,115) 1,979 (0.9) 3.9
============== ============== ============= =============
Net income per (loss) common share and common
share equivalent
Primary (0.04) 0.12
Fully diluted (0.04) 0.11
Weighted average number of common shares
and common share equivalent outstanding
Primary 27,454,931 16,311,013
Fully diluted 29,059,311 17,984,225
</TABLE>
12
<PAGE> 13
Sales for the Current Quarter increased 242% to $124.8 million as
compared to $51.4 million in the Comparable Quarter. The $73.4 million total
increase in sales growth in the Current Quarter over the Comparable Quarter is
principally attributable to the acquisitions of McConnell Dowell Corporation
Limited ("MDC") and Davie Industries Inc. ("Davie"). Of this sales increase of
$73.4 million, $62.3 million (or 85% of the Current Quarter increase) is from
the acquisition of MDC on March 29, 1996 and $12.0 million (or 16%) is from the
acquisition of Davie on March 31, 1996.
During the Current Quarter, the Company's sales from continuing
operations remained relatively constant. Based on new business booked, the
Company projects accelerating sales growth beginning in the latter portion of
the second quarter of fiscal 1997. The Company booked new business in the
Current Quarter of $193.9 million. The new business booked included two
pipeline projects, one in Australia and the other in Canada, with an aggregate
contract value of $125 million. Construction on both of these pipelines is to
begin in February 1997, with the bulk of the revenues to be earned in fiscal
1997. As of December 31, 1996, the Company's backlog, representing the
uncompleted portions of construction and engineering contracts, was $317
million. The dollar amount of backlog is not necessarily indicative of the
future earnings of the Company related to the performance of such work.
In addition to contracted backlog, the Company has been successful
in generating recurring revenues from contracted existing clients.
The Company's working capital and bonding capacity are sufficient for
its current business. In the future, for the Company to sustain its current
rate of growth, it will have to increase both its working capital and bonding
capacities.
MDC has a $28 million revolving credit facility which management
believes is adequate for its current level of business. The principal source
of working capital for the Company's North
13
<PAGE> 14
American operations is its cash. A high priority of management, in refinancing
its credit facility with Bankers Trust Commercial Corporation ("BTCC"), will
be to secure adequate working capital facilities for each of the Company's
operating units to facilitate growth. See "--Liquidity and Capital Resources,"
below.
The Company's annual bonding determines the annual amount of bid and
performance bonds available to the Company. Each year this limit has increased
commensurate with the increase in the growth of the Company's revenues. While
the limitation did not restrict the Company's ability to secure new work in the
Current Quarter, and the Company had substantial unused capacity at the end of
the Current Quarter, there could be circumstances where the limitation might
influence the selection of prospective projects.
Like most engineering and construction contractors, the Company has a
significant number of outstanding revenue claims, which under certain US GAAP
provisions, cannot be given accounting recognition. These net unrecognized
claims at December 31, 1996 total an aggregate of over $66.5 million. While the
Company has a successful track record in settling and collecting on these
claims, there can be no assurance as to the value of the ultimate claims
realized.
The Company's Current Quarter gross profit margin decline to 9.9%
reflects a change in its mix of business to lower margin general construction
and engineering. Management has taken steps, including a reduction in redundant
operations at DBI and Steen, that should lead to improvement in its gross
profit margins beginning in the second quarter of fiscal 1997. In the Current
Quarter, Steen improved its gross profit margins over the prior year but due to
the nature of its engineering business, Steen's gross profit margin is
typically lower than the corporate average. The inclusion of MDC and Davie for
the Current Quarter was positive as both had gross profit margins higher than
the corporate average in the Current Quarter.
Selling, general and administrative costs increased from $5.0 million
in the Comparable Quarter to $12.3 million in the Current Quarter, which
represents a constant 9.4% of sales. Of the $7.3 million increase in total
selling, general and administrative expenses in the Current Quarter, $5.0
million and $1.9 million, respectively, were from the inclusion of MDC and
Davie. The remaining $0.4 million increase includes increases in the costs of
corporate overhead. Significantly, included in this latter category were
substantial marketing costs expended in the Current Quarter by Dominion Bridge
Inc. ("DBI") to expand sales in its Canadian markets. These expenditures have
begun to provide returns, with the December 1996 announcement of the Canadian
pipeline contract.
Income from the operations of joint ventures primarily represents the
Company's interest, through Steen, in the joint venture that is providing
project construction management service and procurement services to the
offshore drilling platform in the Hibernia oil field off the coast of
Newfoundland. The decrease in the Company's earnings from the joint venture
for the Current Quarter as compared to the Comparable Quarter reflects that the
project should be completed by the end of calendar 1997, the Company's first
quarter of fiscal 1998. The termination of the joint venture at the conclusion
of the contract is not expected to result in any expenses to the Company.
Although there can be no assurance of success, management continues to address
additional offshore drilling projects being planned to replace this stream of
income.
14
<PAGE> 15
Each of the Company's operating subsidiaries and divisions are
operating profitably except the U.S. commodity fastener business and the Quebec
operations of DBI. During the Current Quarter, the inventory of the commodity
fastener business was sold and the operations closed. The economy in Quebec
continues to be weak and the Company is attempting to reduce expenses in Quebec
to bring them in line with lower revenue expectations.
The Company's net interest expense of $1.3 million in the Current
Quarter is due to the interest cost and amortization of financing fees incurred
in connection with the $30 million credit facility from BTCC, which was used to
partially finance the acquisition of 77.4% of MDC. This facility did not exist
during the Comparable Quarter.
The Company is not able to give accounting recognition to all of the
income tax benefits from the losses incurred in the Current Quarter. This was
due to the incurrence of taxable income and losses in different international
tax jurisdictions. This precluded obtaining the tax benefits of the Company's
losses to offset the tax burden of its profitable subsidiaries.
During the Current Quarter, the remaining $7.3 million of TCI preferred
shares were converted by the holders thereof into Company common stock according
to a specified formula. As a result no further preferred dividends were paid in
the Current Quarter. The minority interests attributable to common stock of $276
thousand in the Current Quarter is attributable to the 22.6% of MDC not owned by
the Company. The minority interest attributable to common stock in the
Comparable Quarter was attributable to the 25% of Steen owned by minority
shareholders before their interest was purchased effective March 31, 1996.
Exchange rates used in this discussion for the translation of financial
results for the Current Quarter and the Comparable Quarter from Canadian to U.S.
dollars were Cdn $1.00 equals US $.74, and US $.73, respectively. For the
Current Quarter, the Australian dollar was converted to US dollars at the
exchange rate of A $1.00 equals US $.79. For the Current Quarter, the Company
incurred an additional cumulative currency translation loss of $19 thousand,
which has been deferred as part of shareholders' equity.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity since the Company's
reorganization have been proceeds from seller financing provided in connection
with the Company's acquisitions and the private placement of equity securities,
bank financing and cash from operations. In addition, in connection with the
Company's acquisition of Davie, the Company received $18.5 million in cash from
Societe Generale de Financement ("SGF"), the industrial finance arm of the
Government of Quebec, to fund Davie's operating deficit and to modernize
Davie's operating facilities. As of December 31, 1996, the balance of this
funding, committed to Davie's benefit, represented $12.7 million.
During the fiscal year ended September 30, 1996 ("Fiscal 1996"), the
Company issued $24.2 million of preferred shares of its subsidiary, TCI, by way
of an offshore private placement, and obtained a $30 million credit facility
from BTCC. The proceeds, net of issuance costs of approximately $4.0 million,
were used to fund the $40.2 million acquisition of MDC, approximately $4.7
million to partially retire the outstanding minority interest preferred shares
in DBI, and $5.0 million to repay the BTCC Steen acquisition bridge loan. The
balance of approximately $0.3 million was added to working capital. The TCI
preferred shares paid cash dividends at the rate of 6% per annum. The TCI
Preferred Shares became convertible into the
15
<PAGE> 16
Company's common stock, beginning May 31, 1996, at a conversion price 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. There was no minimum conversion price.
All TCI preferred shares outstanding on the maturity date of October 31, 1998
were to automatically convert into shares of common stock of the Company at a
price equal to the weighted average price of the Company's shares traded on
NASDAQ during the 20 previous trading days. As of the end of fiscal 1996, $7.3
million of the preferred shares remained outstanding and $16.9 million had
converted into 7,994,606 shares of the Company's common stock. During the
Current Quarter, the remaining outstanding balance of the TCI preferred shares
were converted into 3,971,126 shares of the Company's common stock.
The Company has a $30 million Credit Facility (the "Facility") from
BTCC, of which $30 million was outstanding as of December 31, 1996. The
Facility provided funding for the Company's acquisition of MDC. Amounts
outstanding under the Facility bear interest at (i) the greater of 1.5% per
annum above the prime rate announced from time to time by Banker's Trust
Company or 0.5% above the federal funds rate established from time to time by
the Federal Reserve Bank of New York; or (ii) at a rate equal to 2.5% above the
London Interbank Offered Rate for a period of up to six months, at the election
of the Borrower. The Facility matures on April 30, 1997 and is secured by the
pledge of the shares in the operating subsidiary companies and a lien on
certain of the North American capital and operating assets. The Facility
agreements provide for an acceleration of the maturity date in the event of an
"Event of Default" (as such term is defined in the Facility agreements). An
Event of Default includes failure to pay when due any installment of interest
on or principal of the Facility and any failure to observe the covenants
provided in the Facility agreements, including certain financial covenants.
The Company is discussing with BTCC an extension of this loan. As described
below, management of the Company is also exploring alternative sources to
refinance amounts outstanding under the Facility.
MDC has a revolving credit facility of $28 million which management
believes is adequate for its current level of operations. The Company's other
subsidiaries in North America rely upon cash on hand, trade payables and
customer advances for working capital. Due to restrictions under the
Facility, these subsidiaries are precluded from drawing on their normal
operating lines of credit. A key priority for the Company in refinancing the
Facility is obtaining an adequate working capital facility for the
Company's operating facilities. In addition, MDC will require additional
working capital facilities in the near future to meet its expanded business.
The Company is exploring a range of financing options which could include
public or private debt or equity financing. There can be no assurance that such
financing will be available, or if available, will be available on terms
attractive to the Company.
During the Current Quarter, the Company's operations provided cash in
the amount of $6.7 million, while operations used cash of $2.4 million in the
Comparable Quarter. The net generation of cash from operations was
attributable to the net operating loss but was offset by the net conversion of
working capital accounts into cash. In its normal course of business, the
Company may be investing in inventories and have amounts due from its customers
that it cannot finance through customer advances and accounts payable. DBI,
Steen and MDC were each committed to various infrastructure projects which were
net users of cash at the previous year end. Several of these major projects
have commenced to reverse the net cash investment and the Company is
16
<PAGE> 17
scheduled to produce net positive cash flows from changes in working capital
accounts over the remainder of fiscal 1997.
In addition to the realization of the working capital accounts, the
Company has instituted several significant business initiatives to improve the
operating cash flow. The Company has entered into arrangements to sell its
commodity fastener trading stock and plant assets for cash proceeds in the first
quarter of 1997. The Company has initiated plant and administrative staff
reductions in its DBI operations to achieve operating cost savings and benefit
from rationalization of operations with those of Steen. The Company has
initiated its business plan at Davie to focus on running the operation
profitability.
The Company is subject to a risk of claims for construction and
product liability. If a liability claim exceeding the Company's insurance
coverage or its own available resources was to be successfully asserted against
the Company, it could have a material adverse effect on the Company's financial
condition. The Company has general liability insurance 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.
17
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, disagreements with individual employees and
disagreements as to the interpretation, effect or nature of individual
agreements arise in the ordinary course of business and may result in legal
proceedings being commenced against the Company.
Other than as set forth below, the Company is not currently involved
in any litigation or proceeding which is material, either individually or in
the aggregate, and, to the Company's knowledge, no other legal proceeding of a
material nature involving the Company is currently contemplated by any
individuals, entities or governmental authorities.
1. 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 Company's acquisition 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 claim in a judgment released on December 21, 1995. On
January 19, 1996 the Company filed a notice of appeal with the Ontario Court of
Appeal from the decision of the Ontario Court General Division, which was
denied on November 13, 1996.
2. By complaint dated November 7, 1995, certain shareholders of
the Company (the "Plaintiffs") brought a shareholders derivative suit in the
Chancery Court of the State of Delaware against the Company and Michel L.
Marengere, Micheline Prud'homme, and Rene Amyot, individually. The complaint
alleged certain interested and self-dealing transactions by Mr. Marengere. The
parties have settled the suit pursuant to a stipulation of settlement, which
provides for (i) the repayment to the Company, prior to December 31, 1996, of
certain loans to affiliates of Mr. Marengere; (ii) the guarantee by a company
controlled by Mr. Marengere of certain payments owed to the Company by the
purchasers of Edinov, a former subsidiary of the Company; (iii) an agreement
that no further interest free loans may be made to Mr. Marengere; (iv) an
agreement that all future transactions not in the ordinary course of business
between the Company and Mr. Marengere be subject to independent director
approval; and (v) payment of attorney's fees in the amount of $140,000. The
loans referred to above were repaid in fiscal 1996. The settlement was
approved by the Chancery Court on January 24, 1997.
3. By letter dated July 24, 1996, United Dominion Industries
Limited ("UDI"), the former owner of DBI, has indicated that it intends to seek
indemnification from the Company and from DBI, with regard to legal proceedings
instituted against UDI by Loblaws Inc. in the Supreme Court of Newfoundland.
The proceedings are based on the collapse of the roof of a building owned by
Loblaws Inc.
The complaint seeks unspecified damages. DBI has informed UDI that
neither itself nor the Company are liable towards UDI in this matter. The
Company has not yet been served with court papers as of the date of this
Quarterly Report.
18
<PAGE> 19
4. IPCO International has commenced legal action in Thailand
seeking damages against the Thai company Si Chang Thong (as first defendant)
and MDC's Thailand subsidiary (as second defendant) in connection with alleged
infringements of intellectual property rights of IPCO International relating to
the construction of the Si Chang Thong Island Deep Sea Terminal and Tank Farm
in Thailand. MDC believes these allegations are baseless and are being
vigorously defended.
5. On or about November 18, 1996 (but not served on the Company
until December 9, 1996), James B. Smith commenced a purported class action
securities lawsuit in the United States District Court for the Eastern District
of Pennsylvania against the Company and Messrs. Marengere and Matossian
individually. The action seeks unspecified damages for the persons who traded
in the Company's common stock during the period commencing on April 20, 1995
and ending on May 18, 1996. The action alleges that during the class period the
Company issued misleading press releases and reports to the Securities and
Exchange Commission in that the Company failed to disclose allegations made by
a former disgruntled employee regarding DBI's accounting practices, bonding
capability and contracts in connection with his action against the Company for
constructive dismissal. On December 12, 1996 the Company filed an answer
denying the allegations, and strongly affirms that the allegations, both by
Smith and the former employee, are entirely without merit.
ITEM 2. CHANGES IN SECURITIES
As reported in the Company's Current Report on Form 8-K dated
November 26, 1996 (the "Form 8-K"), the Company adopted a Shareholder Rights
Plan, which has certain antitakeover effects. The description of the
Shareholder Rights Plan in the Form 8-K is incorporated herein by reference.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
19
<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
---------- -----------
4 Rights Agreement, dated as of November
26, 1996 and effective as of November 26,
1996, between Dominion Bridge Corporation
and Continental Stock Transfer & Trust
Company which includes (i) the Form of
Amendment to the Certificate of
Incorporation of the Company setting
forth the terms of the Series One
Preferred Stock as Exhibit A, (ii) the
Form of Rights Certificate as Exhibit B
and (iii) the Summary of Rights to
Purchase Preferred Stock as Exhibit C.
(Incorporated by reference to Exhibit 4
to the Form 8-K.)
27 Financial Data Schedule.
99 Form of Stockholder Letter. (Incorporated
by reference to Exhibit 99 to the Form
8-K.)
(b) Reports on Form 8-K
Report on Form 8-K, dated November 26, 1996, reporting
on the adoption of the Shareholder Rights Plan.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Form 10-Q to be signed on its behalf by the
undersigned, thereunto duly authorized.
DOMINION BRIDGE CORPORATION
By: /s/ Michel L. Marengere Dated: February 14, 1997
-----------------------------------
Michel L. Marengere
Chairman of the Board
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert Chartier Dated: February 14, 1997
-----------------------------------
Robert Chartier
Vice President and Interim Chief
Financial Officer
(Principal Financial
and Accounting Officer)
<PAGE> 22
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
4 Rights Agreement, dated as of November 26, 1996 and
effective as of November 26, 1996, between Dominion
Bridge Corporation and Continental Stock Transfer &
Trust Company which includes (i) the Form of Amendment
to the Certificate of Incorporation of the Company
setting forth the terms of the Series One Preferred
Stock as Exhibit A, (ii) the Form of Rights Certificate
as Exhibit B and (iii) the Summary of Rights to
Purchase Preferred Stock as Exhibit C. (Incorporated
by reference to Exhibit 4 to the Form 8-K.)
27 Financial Data Schedule.
99 Form of Stockholder Letter. (Incorporated by reference
to Exhibit 99 to the Form 8-K.)
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