<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 March 31, 1997
[ ] 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)
DELAWARE 1-10372 23-2577796
(State of Incorporation) (Commission File No.) (IRS Employer Identification No.)
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 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 May 12, 1997, is 29,003,648.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets at March 31, 1997 (Unaudited) and
September 30, 1996 3
Consolidated Statements of Operations for the Three and Six
Months ended March 31, 1997 and 1996 (Unaudited) 4
Consolidated Statements of Cash Flows for the Six Months ended
March 31, 1997 and 1996 (Unaudited) 5
Consolidated Statements of Stockholders' Equity for the Six
Months ended March 31, 1997 and 1996 (Unaudited) 6
Notes to consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation 11
PART II OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 21
</TABLE>
2
<PAGE> 3
DOMINION BRIDGE CORPORATION
CONSOLIDATED BALANCE SHEETS
as at March 31, 1997 and September 30, 1996
<TABLE>
<CAPTION>
MARCH 31, 1997 SEPTEMBER 30, 1996
-------------- ------------------
Unaudited
(in thousands of U.S. dollars,
except share amounts)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash (Note 3).............................................. 7,153 26,231
Short Term deposits........................................ 6,255
Accounts receivable........................................ 101,367 126,911
Inventories................................................ 56,988 43,762
Prepaid expenses and other current assets.................. 9,093 5,417
------- -------
TOTAL CURRENT ASSETS....................................... 180,856 202,321
Property, plant and equipment, net......................... 41,504 38,289
Assets of business transferred under contractual
arrangements (preferred shares).......................... 3,847 3,847
Goodwill................................................... 11,810 11,958
Pension assets............................................. 1,308 1,187
Advances to and investments in unincorporated joint
ventures................................................. 1,244 2,398
Other assets............................................... 8,557 5,247
------- -------
TOTAL ASSETS............................................... 249,126 265,247
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank indebtedness(Note 4).................................. 1,473 5,624
Term loan (Note 4)......................................... 20,000 30,000
Accounts payable and accrued expenses...................... 102,740 119,839
Customer advances.......................................... 23,187 16,166
Current portion of obligations under capital leases........ 2,425 2,979
------- -------
TOTAL CURRENT LIABILITIES.................................. 149,825 174,608
Deferred income taxes...................................... 7,246 5,147
Accrued post-retirement benefits other than pensions....... 1,604 514
Obligations under capital leases........................... 3,330 2,274
Minority interest.......................................... 17,542 18,783
Negative goodwill.......................................... 10,390 12,945
Other long-term liabilities................................ 3,715 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: 29,003,648 shares in
1997 and 15,697,582 shares in 1996....................... 29 25
Additional paid-in capital (Restated, see note 9).......... 69,795 60,624
Deficit (Restated, see note 9)............................. (11,642) (10,191)
Cumulative translation adjustment.......................... (884) (634)
------- -------
57,298 49,824
Subscription receivable.................................... (1,824) (1,824)
------- -------
Total Stockholders' Equity................................. 55,474 48,000
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................. 249,126 265,247
======= =======
</TABLE>
Commitments and contingencies (Note 7)
See accompanying notes
3
<PAGE> 4
DOMINION BRIDGE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Six months ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- -----------------------
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1997 1996 1997 1996
(in thousands of U.S. dollars, except per share
data)
Unaudited
<S> <C> <C> <C> <C>
SALES................................... 132,732 53,517 257,536 104,958
----------- ----------- ----------- -----------
Cost of sales........................... 120,199 45,813 232,080 89,525
Selling, general and administrative
expenses.............................. 14,949 4,317 27,268 9,350
----------- ----------- ----------- -----------
135,148 50,130 259,348 98,875
Income from operations of joint
ventures.............................. 268 244 483 732
----------- ----------- ----------- -----------
Income (loss) from operations........... (2,148) 3,631 (1,329) 6,815
Interest (expense)...................... (1,530) (3) (2,919) 43
Other income............................ 3,967 61 4,319 234
----------- ----------- ----------- -----------
Income (loss) before income taxes and
minority interest..................... 289 3,689 71 7,092
----------- ----------- ----------- -----------
Income taxes (Note 5)................... (529) (1,406) (1,149) (2,717)
Income (loss) before minority
interest.............................. (240) 2,283 (1,078) 4,375
Minority interest -- dividends on
preferred shares...................... -- (131) -- (205)
Minority interest -- common stock....... (96) 28 (373) (11)
----------- ----------- ----------- -----------
NET (LOSS) INCOME....................... (336) 2,180 (1,451) 4,159
----------- ----------- ----------- -----------
Net income (loss) per common share and
common share equivalents
Primary............................... (0.01) 0.13 (0.05) 0.25
Fully diluted......................... -- 0.13 -- 0.24
----------- ----------- ----------- -----------
Weighted average number of common shares
and common share equivalents
outstanding
Primary............................... 28,963,204 16,329,589 28,138,171 16,320,488
Fully diluted......................... 28,963,204 17,357,811 28,893,818 17,334,599
=========== =========== =========== ===========
</TABLE>
See accompanying notes
4
<PAGE> 5
DOMINION BRIDGE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended March 31
<TABLE>
<CAPTION>
1997 1996
------- -------
(in thousands of
U.S. dollars)
Unaudited
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net (loss) income...................................................... (1,451) 4,159
Adjustments to reconcile net income to the cash provided by (used for)
operating activities
Minority interest in net income...................................... 373 11
Gain on disposal of subsidiary common shares......................... (3,000)
Depreciation and amortization........................................ 5,360 1,476
Common stock issued for services..................................... 553 --
Amortization of negative goodwill.................................... (2,513) --
Deferred income taxes................................................ 995 343
Deferred pension cost................................................ (121) --
Income from operations of joint ventures............................. (483) (732)
Cash distributions from joint ventures............................... 1,637 292
Decrease (Increase) in accounts receivable........................... 25,544 (1,636)
(Increase) Decrease in prepaid expenses and other assets............. (3,676) 1,030
Decrease (increase) in inventories................................... (13,226) (2,113)
(Decrease) increase in accounts payable.............................. (17,099) (6,840)
Increase in customer advances........................................ 7,021 (129)
Other -- net......................................................... 345 --
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.................... 259 (4,139)
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds on disposal of subsidiary common shares....................... 10,436 --
Decrease (Increase) in short term deposits............................. (6,255) 1,320
Cash consideration paid for acquired businesses........................ -- (23,505)
Cash of acquired businesses............................................ -- 35,301
Cash redemption of minority interest................................... -- (6,163)
Repayment by (advance to) a shareholder................................ -- 460
Cash payment for purchase of equipment................................. (8,427) 30
(Increase) in other assets............................................. (3,310) (2,041)
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.................... (7,556) 5,402
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES
Issuance (Repayment) of term loan...................................... (10,000) 14,385
Proceeds from issuance of common stock................................. -- 4,008
Issue of preferred shares of subsidiary to minority interest........... -- 22,374
Bank indebtedness...................................................... (4,151) (5,635)
Other long-term liabilities............................................ 1,728 (8)
(Payment) Issue of capital lease obligations........................... 502 --
-------- --------
Net cash provided by financing activities.............................. (11,921) 35,124
-------- --------
Effect of foreign exchange rate fluctuations on cash................... 140 (685)
-------- --------
Net change in cash..................................................... (19,078) 35,702
Cash, at beginning of period........................................... 26,231 4,765
-------- --------
Cash, at end of period (Note 3)........................................ 7,153 40,467
======== ========
NON-CASH INVESTING AND FINANCING ACTIVITIES
Issuance of common stock on conversion of minority interest preferred
shares (note 6)...................................................... 8,537 --
Purchase of minority interest preferred stock of subsidiaries.......... (8,537) --
-------- --------
</TABLE>
See accompanying notes
5
<PAGE> 6
DOMINION BRIDGE CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Six Month Period Ended March 31, 1997
<TABLE>
<CAPTION>
COMMON ADDITIONAL CUMULATIVE
STOCK PAID-IN TRANSLATION SUBSCRIPTION
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT RECEIVABLE
--------- ------ ---------- ------- ---------- ------------
(dollar amounts in thousands of U.S. dollars)
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1996 as
originally filed................ 24,722,188 25 57,601 (5,931) (634) (1,824)
Deemed dividend (Note 9).......... -- -- 3,023 (4,260) -- --
--
--------- ---------- ------- ---------- ------------
Restated balance at September 30,
1996............................ 24,722,188 25 60,624 (10,191) (634) (1,824)
Issuance of common stock upon
conversion of Dominion Bridge,
Inc. Class A preferred shares... 50,334 -- 104 -- --
Issuance of common stock upon
conversion of Cedar Group (TCI)
LLC preferred shares............ 3,971,126 4 8,533 -- -- --
Share issue costs................. -- -- (18) -- -- --
Translation adjustments, net of
income taxes of nil............. -- -- -- -- (250) --
Issuance of common stock for
services........................ 260,000 -- 552 -- -- --
Net loss for the period........... -- -- -- (1,451) -- --
--
--------- ---------- ------- ---------- ------------
Balance at March 31, 1997......... 29,003,648 29 69,795 (11,642) (884) (1,824)
========= ====== ======= ======= ======== =========
</TABLE>
6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. NATURE OF OPERATIONS
Dominion Bridge Corporation, a Delaware corporation with executive offices
in Montreal, Canada, specializes in international engineering,
infrastructure development and project management and ship building and
repair.
2. 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 ("MDC") and (3) acquired 100% of the outstanding
share capital of Davie Industries Inc. (formerly Groupe MIL Inc.)
("Davie"). Effective March 21, 1997, the Company sold 6,000,000 ordinary
shares of MDC, reducing its ownership to approximately 65% of MDC's
outstanding shares.
These transactions result in the financial results of the three and six
months ended March 31, 1997, including the results of the acquired
subsidiaries while the comparative period for the three and six months
ended March 31, 1996 exclude the results of the MDC and Davie subsidiaries.
Each of the above acquisitions was 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.
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.
7
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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.
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.
3. CASH
The Consolidated cash and short term deposits at March 31, 1997 amounted to
$13,408. Included in this amount is cash and short term deposits in the
amount of $5,850 which are for the sole benefit of Davie for its day to day
operations and business development.
4. FINANCING AGREEMENT
On April 29, 1996, the Company entered into an agreement with BT Commercial
Corporation ("BTCC") for a term loan in the amount of $30,000. The term
loan was reduced to $20,000 on March 21, 1997 following the sale by the
Company of shares of MDC. This loan bears interest at i) the greater of
1.5% per annum above the prime rate announced from time to time by Bankers
Trust Company or 1/2% above the federal funds rate established from time
to time by the Federal Reserve Bank of New York; or ii) at a rate
8
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) -- (Continued)
4. FINANCING AGREEMENT -- (CONTINUED)
equal to 2 1/2% above the London Interbank Offered Rate ("LIBOR") for a
period of up to six months at the election of the borrower. The Loan is
collateralized by all the assets of DBI and Steen and the pledge of the
shares of MDC owned by the Company. The weighted average interest rate on
the term loan was 9.75% for the six month period ended March 31, 1997.
Subsequent to the balance sheet date of March 31, 1997, the Company repaid
US $5 million of the term loan, bringing the balance to US $15 million and
the Company and BTCC entered into an agreement to extend the maturity date
to January 31, 1998. A subsidiary of the Company has entered into operating
credit facilities totaling $6,200 bearing interest at variable rates. At
March 31, 1997, $1,261 was outstanding under these facilities. Certain
facilities have restrictions on their usage and are limited for use on
specific projects.
5. INCOME TAXES
The difference between the Company's effective income tax rate and the
statutory rate on income from operations for the six months ended March 31
of each year is reconciled below:
<TABLE>
<CAPTION>
1997 1986
----- -----
$ $
<S> <C> <C>
Income tax expense (recovery) at U.S. statutory rate (35%)............. 25 2,482
State tax (recovery), net of federal tax benefits (6%)................. 4 426
Foreign income taxes at more (less) than statutory rate................ 356 (396)
Operating losses without tax benefit................................... 764 205
----- -----
1,149 2,717
===== =====
</TABLE>
6. STOCKHOLDERS' EQUITY
During the three months ended December 31, 1996, the Company issued
3,971,126 shares of its common stock at its fair value of $8,533 upon the
conversion of the final 858,826 of Cedar Group (TCI) Inc. LLC. preferred
shares in accordance with the terms of the preferred share agreement. The
fair value of shares issued was determined as the actual trading price of
the shares during the five days prior to the date of each conversion. The
deemed dividend embedded in the Cedar Group (TCI) Inc. LLC. preferred
shares was accrued for as a restatement of September 30, 1996 deficit. (See
Note 9.)
The Company also issued 50,334 shares of its common stock for cash proceeds
of $104.
During the three months ended March 31, 1997, the Company issued 260,000
shares for services valued at $552.
7. COMMITMENTS AND CONTINGENCIES
In December 1996, the Company was notified that a purported 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.
9
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) -- (Continued)
7. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
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 which was initially committed to fund up to an aggregate
of US $2.5 million into up to 17 projects related to energy and power. The
Company had the discretion to select the projects with the highest rate of
return and the highest probability of success. After the joint venture
completed its preliminary due diligence, it was decided to pursue only four
of the original projects and, therefore, the required investment would be
substantially reduced.
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.
8. COMPARATIVE FIGURES
Certain comparatives figures have been reclassified to conform with the
presentation adopted in 1997.
9. RESTATEMENT OF SEPTEMBER 30, 1996
Net loss to common shareholders and deficit for the year ended September
30, 1996 has been increased by $4,260 ($0.23 per share) from amounts
previously reported to reflect a deemed dividend on the Company's TCI
subsidiary convertible preferred shares in accordance with recently
published views of the staff of the Securities and Exchange Commission.
Regarding Accounting for preferred stock which is convertible at a discount
to the market. The Company has charged net income and deficit as at
September 30, 1996 for the full $4,260 of the deemed dividend embedded in
the convertible instruments and recorded offsetting increases of $3,023 in
the Company's paid in capital and $1,233 to its minority interest
obligations at that date. The deemed dividend is determined as the discount
to which the Company's TCI subsidiary preferred shares were convertible
into the Company's common stock. As at September 30, 1996, 1,981,383 of the
2,840,209 originally issued TCI preferred shares had been converted into
7,994,605 common shares of the Company leaving 858,826 still unconverted.
The Company has reflected the realized increase to paid in capital for
those shares converted by year end and the unrealized portion remains in
minority interest representing the discount to be borne on the remaining
conversion. The balance of the TCI preferred shares are converted in the
first quarter of fiscal 1997 into common stock, retiring the fully accrued
fair value of the minority interest with no further charges to net income
for 1997.
10
<PAGE> 11
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.
BACKGROUND
Dominion Bridge Corporation (the "Company"), through its principal
operating companies, participates in four market segments throughout the
world: construction, fabrication, pipeline and shipbuilding. The
construction, fabrication and pipeline businesses were acquired by the
Company in March 1994 through the purchase of Dominion Bridge Inc. ("DBI"),
and were expanded in 1995 with the acquisition of Steen Contractors Limited
("Steen") and in March 1996 with the acquisition of a majority interest in
McConnell Dowell Corporation Limited ("MDC"). The shipbuilding segment
consists of Davie Industries Inc. ("Davie"), which was also acquired in
March 1996. In addition, the Company has a majority-owned specialty
fastener unit in the United States, Unimetric Corporation ("Unimetric"),
which accounted for less than 1% of the Company's consolidated revenue
during the quarter and six months ended March 31, 1997.
Since the acquisitions of MDC and Davie occurred at the end of March 1996,
comparisons of the results for the current periods with the comparable
periods in the prior year are not meaningful. Accordingly, the discussion
which follows is focused upon the results of each of the operating
businesses for the periods discussed, including any period prior to the
acquisition by the Company (the "proforma" information). The proforma
results for 1996 include the results of operations of the Company's
acquisitions that were made in March 1996 as if they had been included from
October 1, 1995. The proforma results are not necessarily indicative of the
results that would have occurred if the acquisitions had occurred at the
beginning of the periods presented.
RESULTS OF OPERATIONS
GENERAL
The following table provides selected financial information from the
Company's Consolidated Statements of Operations stated as a percentage of
sales for the three months and six months ended March 31, 1997 (the
"Current Quarter" and "Current Six Months," respectively) and the three and
six months ended March 31,1996 (the "Comparable Quarter" and "Comparable
Six Months," respectively). It will be referred to in the discussions that
follow the table.
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1996
--------------- ---------------
6 6
Q2 MOS. Q2 MOS.
----- ----- ----- -----
<S> <C> <C> <C> <C>
Sales................................................. 100.0% 100.0% 100.0% 100.0%
Cost of Sales......................................... 90.6% 90.1% 85.6% 85.3%
Gross Profit.......................................... 9.4% 9.9% 14.4% 14.7%
S, G & A.............................................. 11.3% 10.6% 8.1% 8.9%
Other Income.......................................... 3.0% 1.7% 0.1% 0.2%
EBIT.................................................. 1.4% 1.2% 6.9% 6.8%
EBT & Minority Interest............................... 0.3% 0.0% 6.9% 6.8%
Net Income for Common Stock........................... -0.3% -0.6% 4.1% 4.0%
EBITDA................................................ 1.9% 2.2% 9.7% 9.9%
</TABLE>
All companies do not calculate EBITDA in the same fashion and the measure
as presented in this table may not be comparable to similarly-titled
measures reported by other companies. Within Dominion Bridge Corporation
however, all subsidiaries calculate EBITDA on a consistent basis.
11
<PAGE> 12
THREE MONTHS ENDED MARCH 31, 1997
Sales for the Current Quarter increased 148% to $132.7 million as compared
to $53.6 million in the Comparable Quarter. The sales increase of $79.2
million in the Current Quarter over the Comparable Quarter is mainly
attributable to the acquisitions of MDC and Davie. Of the sales increase of
$79.2 million, $68.4 million (or 86% of the Current Quarter increase) is
from the acquisition of MDC on March 29, 1996 and $10.9 million (or 14%) is
from the acquisition of Davie on March 31, 1996. The Comparable Quarter
does not contain any operations of Davie or MDC. On a proforma Comparable
Quarter basis, sales remained relatively flat, increasing slightly from
$131.4 million to $132.7 million. This overall increase in sales was
achieved despite an $8.0 million decline in DBI sales to $28.7 million due
to low demand in its Quebec fabrication division.
During the Current Quarter, the Company's sales in North America
(consisting of DBI, Steen and Davie) increased slightly on a proforma basis
but were flat on a reported basis. Sales increased in the Current Quarter
over the proforma Comparable Quarter in North America sales by $3.1 million
or 5%. The major component of the increase is the pipeline project
undertaken by Steen in the Current Quarter. Steen's sales in the Current
Quarter increased 53% to $23.9 million. Davie sales, on a proforma basis,
increased 42% to $10.9 million. In Asia Pacific, MDC sales for the Current
Quarter declined on a proforma basis 2.5% to $68.4 million. At MDC, the
decline was attributable to the delay in obtaining regulatory approval to
commence its $125 million Queensland pipeline contract that subsequently
began in April of 1997.
In addition, the Company received net proceeds of $10.6 million from the
sale of 6,000,000 ordinary shares of MDC, representing 13% of the equity of
MDC. After giving effect to the sale, the Company continues to own
approximately 65% of the outstanding ordinary shares of MDC, which
percentage being approximately equal to the MDC holdings the Company
originally intended to acquire. The Company recorded a book gain from the
sale of the shares of $3.0 million, which is included in Other Income.
Income taxes of $0.75 million have been provided for in the Company's
quarterly provision. Twenty (20) institutional investors in Australia, New
Zealand, Singapore and Hong Kong acquired the block. The broader
distribution of MDC shares is expected to enhance interest and liquidity in
MDC stock.
Based on new business booked and the contract timing of the Company's
backlog, the Company projects accelerating sales growth beginning in the earlier
portion of the third quarter of fiscal 1997. The Company booked new business in
the Current Quarter of $100.4 million, of which $60.6 was in North America and
$39.8 million in Asia Pacific. Subsequent to the end of the Second Quarter, the
Company announced an additional $26 million pipeline contract in the Republic of
Georgia. Significant new business booked in the second quarter included i) a
Canadian Coast Guard contract to manufacture a number of 47 foot motorized
lifeboats, and ii) an initial $12 million pipeline contract. As of March 31,
1997, the Company's backlog, representing the uncompleted portions of
construction and engineering contracts, was $283.5 million, of which $102.1
million was in North America and $181.4 million in Asia Pacific. This compares
to a total Company backlog of $321 million at December 31, 1996 and $205.4
million at the end of fiscal 1996. The dollar amount of backlog is not
necessarily indicative of the future earnings of the Company related to the
performance of such work. Neither does the backlog include services contracts of
a recurring nature.
In addition to backlog, the Company has been successful in generating
recurring sales for recurring annual projects and services from existing
clients. The Company considers this to be a significant target market and has
been successful in increasing the amount of recurring revenue contracts over the
past two years. During the Current Quarter, contracts representing recurring
work were signed with two major Canadian oil refineries.
Due to a number of factors, including a change in its mix of business to a
substantially greater percentage of construction and engineering, the Company's
Current Quarter gross profit margin moved to 9.4% from 14.4% in the Comparable
Quarter, a margin level which is closer to the average for the construction and
engineering sector. In Asia Pacific, which represented approximately 50% of the
Company's Current Quarter sales, the Company achieved a lower rate of gross
profit margin when compared to the Company's overall Current Quarter rate of
9.4%, and also lower than the rate in MDC's prior quarter. A principal factor in
the lower gross profit margin in Asia Pacific was the decision to recognize a
lower rate of profit on a major project
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<PAGE> 13
which is scheduled for completion in the Third Quarter of 1997 and should result
in MDC's gross margin returning to historic levels. Additionally, there was a
delay in commencement of its Queensland pipeline contract, which has
subsequently commenced in April as well as a number of contracts too early in
their stage of completion to recognize profits. The Company's policy is to not
record any profit on contracts until they have reached a 25% completion stage.
Steen in the Current Quarter improved its gross profit margins over the prior
year due to its mix of business, which included material progress on the
pipeline project in North America.
Also, the inclusion of Davie, which represented less than 10% of the
Company sales in the Current Quarter, had a negative impact on overall gross
profit margins. For the Current Quarter, Davie had a gross profit margin lower
than the corporate average and which was substantially lower than its gross
profit margin in the First Quarter. The rate of profit that the Company accrues
each quarter can vary substantially and is based on many factors. Management is
taking steps that, together with the expected short-term duration of the lower
gross profit margin in Asia Pacific and Davie, should lead to an improvement in
the Company's overall gross profit margin in the Third Quarter of 1997.
Selling, general and administrative costs increased from $4.3 million in
the Comparable Quarter to $14.9 million in the Current Quarter, which represents
an increase of 3.2% of period sales to 11.3%. Of the $10.6 million increase in
total selling, general and administrative expenses in the Current Quarter over
the Comparable Quarter, $5.8 million (55%) and $2.0 million (19%), respectively,
were from the inclusion of MDC and Davie. The remaining $2.8 million (26%)
increase is from increases in the costs and scope of corporate overhead. At its
other North American subsidiaries in the Current Quarter as compared to the
Comparable Quarter, there was a net decrease in selling, general and
administrative costs. DBI reduced its selling, general and administrative
expenses by $0.8 million to $2.8 million while Steen's selling, general and
administrative expenses, reflecting the start of the North American pipeline
contract, increased by $0.4 million to $1.4 million.
The net increase of selling, general and administrative costs at corporate
in the Current Quarter over the Comparable Quarter was $2.5 million, and
reflected primarily the scope and size of corporate operations including legal,
accounting and administrative expenses associated with increasing globalization
of the Company's operations. Also, executive bonuses relating to two years were
paid in a lump sum in the Current Quarter. In the Current Quarter at DBI, Steen
and Davie there were increased marketing costs to increase sales in the Canadian
and North American markets. These expenditures have begun to provide returns,
with the Company having contract proposals outstanding in North America at the
end of the Second Quarter in excess of $700 million, which for Davie includes
expansion or construction of three major offshore semi-submersible oil
platforms.
Other Income increased significantly in the Current Quarter to $4.0
million. Primarily, the increase was from the sale by the Company in March of
6,000,000 shares of the ordinary shares of MDC at Au $2.25 to Asia Pacific
investors for which it had a $3.0 million pre tax gain. With this sale of MDC
shares, the Company reduced its ownership of MDC to its original target of 26
million shares or 65% of the ordinary stock outstanding. A tax provision of
$0.75 million on the gain from the sale is included in the Company's tax
provision for the Current Quarter.
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 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. Management continues to seek
additional offshore drilling projects being planned to replace this stream of
income.
During the Second Quarter, each of the Company's operating subsidiaries and
divisions operated profitably except Davie and DBI. Davie and DBI continue to be
negatively impacted with losses in their Quebec fabrication operations. While
the Quebec construction services division is profitable, the economy in Quebec
remains weak, and steps have been taken to restore DBI to profitability. Davie
is on track with its
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<PAGE> 14
restructuring plan that was implemented at the time of the acquisition.
Management, as previously noted, has initiated sales and marketing programs
while concurrently reducing certain expenses in Quebec to achieve a lower
break-even level. The steps to restore profitability include integrating DBI and
Steen construction operations, which should result in i) increased operational
and marketing efficiencies, ii) reduced total and relative selling, general and
administrative expenses, and iii) substantial enhanced financial control,
financial planning and cash management. The Company's U.S. commodity fastener
business, which lost money in fiscal 1996, was discontinued during the First
Quarter. Its remaining operation, Unimetric that specializes in fastener high
value-added manufacturing, was profitable in the Current Quarter.
The Company's interest expense of $1.5 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. Both the cash interest cost
and amortization of deferred debt issue costs are expected to be reduced
substantially for the Company's third quarter ended June 30, 1997 through the
repayment of $15 million of the outstanding loan facility and the completion of
the issue costs amortization at April 30, 1997. This facility did not exist
during the Comparable Quarter.
The Company's provision for income taxes primarily reflects 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 as well as for the taxable gain on the
sale of the MDC shares. The Company did not recognize all of the income tax
benefits from the losses incurred in the Current Quarter.
During the first three months of fiscal 1997, the remaining $8.5 million of
TCI preferred shares were converted by the holders 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 $0.1 million, and the increase of $0.1 million in the Current Quarter
is attributable to the 22.6% of MDC not owned by the Company, and which
increased to 35% in March 1997 when the Company sold a portion of its holdings
in MDC. 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 $0.74 and US $0.73, respectively. For the
Current Quarter, the Australian dollar was converted to US dollars at the
exchange rate of A $1.00 equals US $0.789. For the Current Quarter, the Company
incurred an additional cumulative currency translation loss of $0.23 million,
and now has a Cumulative Currency Translation Loss of $0.9 million, which has
been deferred as part of shareholders' equity.
SIX MONTHS ENDED MARCH 31, 1997
Sales for the Current Six Months increased 145% to $257.5 million as
compared to $105.0 million in the Comparable Six Months. The $152.6 million
total increase in sales growth in the Current Six Months over the Comparable Six
Months is wholly attributable to the acquisitions of MDC and Davie. Of this
sales increase of $152.6 million, $130.7 million (86%of the Current Six Months
increase) is from the acquisition of MDC on March 29, 1996 and $22.9 million (or
14%) is from the acquisition of Davie on March 31, 1996. During the Current Six
Months, the Company's sales from its continuing operations in North America
remained constant.
In comparison to the proforma Comparable Six Months, Company sales in the
Current Six Months period declined $12.3 million. While sales in North America
in the Current Six Months increased $4.6 million or 3.8% to $126.9 million,
revenues in Asia Pacific declined $16.8 million to $130.7 million due primarily
to the delay of a major pipeline project. In North America, DBI sales of $64.2
million for the Current Six Months were $11.1 lower than the Comparable Six
Months while Steen and Davie had increases of $10.1 million and $5.5 million,
respectively. Primarily, DBI continues to suffer in its Quebec fabrication
division from the region's weak economy.
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<PAGE> 15
Due to a significant shift in its mix of business to construction and
engineering, the Company's Current Six Months gross profit margin moved closer
towards the industry average of that sector, namely to 9.9% from 14.7%. For the
Company's Current Six Months, MDC represented 50% of the Company's sales and its
gross profit margin was slightly higher than the overall corporate average.
Management has initiated steps, including an integration of construction
operations at DBI and Steen, which should lead to improvement in its gross
profit margins beginning in the third quarter of fiscal 1997. The inclusion of
MDC as opposed to Davie for the Current Six Months was positive as MDC had gross
profit margins higher than the corporate average in the Current Six Months.
In addition, the Company received net proceeds of $10.6 million from the
sale of 6,000,000 ordinary shares of MDC, representing 13% of the equity of MDC.
After giving effect to the sale, the Company continues to own approximately 65%
of the outstanding ordinary shares of MDC. The Company recorded a book gain from
the sale of the shares of $3.0 million, which is included in Other Income.
Income taxes of $0.75 million have been provided for in the Company's six months
tax provision.
Selling, general and administrative costs increased from $9.4 million in
the Comparable Six Months to $27.3 million in the Current Six Months, which
represents an increase of 1.7% of sales to 10.6%. Of the $17.9 million increase
in total selling, general and administrative expenses in the Current Six Months,
$10.7 million and $1.2 million, respectively, were from the inclusion of MDC and
Davie. For the Current Six Months, DBI reduced its selling, general and
administrative expenses by $1.0 million to $5.5 while Steen's increased $0.2
million to $2.3 million. The increase at Steen is primarily attributable to the
commencement of its pipeline contract in North America. The remaining $7.2
million increase in selling, general and administrative expenses for the Current
Six Months period reflected primarily the scope and size of corporate operations
including legal, accounting and administrative expenses associated with
increasing globalization of the Company's operations.
Additionally, there were increases in marketing costs expended in the
Current Six Months by DBI, Steen and Davie to expand their sales in their North
American markets. These expenditures have begun to provide returns, with the
December 1996 announcement of the Canadian pipeline contract and over $700
million of contract proposals outstanding on March 31, 1997.
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 Six
Months as compared to the Comparable Six Months reflects that the project should
be completed by the end of calendar 1997, the Company's first quarter of fiscal
1998. Although there can be no assurance of success, management continues to
address additional offshore drilling projects being planned to replace this
stream of income.
Each of the Company's operating subsidiaries and divisions operated
profitably in the Current Six Months period except Davie and DBI. Although its
Construction Services division in Quebec is profitable, DBI continues to be
negatively impacted by its Quebec fabrication operations. Davie is on track with
its restructuring plan that was implemented at the time of the acquisition. The
economy in Quebec remains weak, and steps have been taken to restore DBI to
profitability. Management, as previously noted, has initiated sales and
marketing programs while concurrently reducing expenses in Quebec to achieve a
lower break even sales level. The steps to restore profitability include
integrating DBI and Steen operations, which should result in i) increased
operational and marketing efficiencies, ii) reduced total and relative selling,
general and administrative expenses, and iii) substantial enhanced financial
control, financial planning and cash management The Company's fastener
operations lost $1.5 million in fiscal 1996. The U.S. commodity fastener
business was discontinued during the first three months of fiscal 1997. Its
remaining operation, Unimetric which specializes in high value added
manufacturing, was profitable in the Current Six Months period.
The Company's interest expense of $2.9 million in the Current Six Months 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 MDC. Both the cash interest cost and
amortization of deferred debt issue costs are expected to be reduced
substantially for the Company's third quarter ended June 30, 1997
15
<PAGE> 16
through the repayment of $15 million of the outstanding loan facility and the
completion of the issue costs amortization at April 30, 1997. This facility did
not exist during the Comparable Six Months.
The Company did not recognize all of the income tax benefits from the
losses incurred in the Current Six Months. 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 as well as the taxable gain on the sale of
the 6,000,000 MDC ordinary shares.
The minority interests attributable to common stock of $0.373 million, and
the increase of $0.362 in the Current Six Months is attributable to the 22.6% of
MDC not owned by the Company, and increased during the latter part of the
Current Six Months to 35%. The minority interest attributable to common stock in
the Comparable Six Months 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 Six Months and the Comparable Six Months from Canadian
to U.S. dollars were Cdn $1.00 equals US $0.74 and US $0.73, respectively. For
the Current Six Months, the Australian dollar was converted to US dollars at the
exchange rate of A $1.00 equals US $0.78. For the Current Six Months, the
Company incurred an additional cumulative currency translation loss of $0.25
million, which has been deferred as part of shareholders' equity.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity 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.
During the fiscal year ended September 30, 1996 ("Fiscal 1996"), the
Company issued $24.2 million of preferred shares of its subsidiary, Cedar Group
(TCI) Inc., LLC, ("TCI"), through an offshore private placement, and obtained a
$30 million credit facility from BT Commercial Corporation, an affiliate of
Bankers Trust Company ("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 a prior bridge loan
from BTCC which partially funded the Steen acquisition. 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 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 15% less than 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 first three months of Fiscal 1997, the remaining outstanding
balance of the TCI preferred shares were converted into 3,971,126 shares of the
Company's common stock.
The Company's credit facility with BTCC (the "Facility") had an outstanding
balance of $20 million as of March 31, 1997. 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 original
maturity date for the loan was April 30, 1997; however, on April 29, 1997 the
Company and BTCC entered into an agreement to extend the maturity date of $15
million to January 31, 1998. The Facility is secured by the pledge of the shares
in the operating subsidiary companies and under its agreement of April 29, BTCC
released its lien on the North American capital and operating assets. Both the
extension and lien release by BTCC were predicated upon the Company reducing its
borrowings to $15 million on or before May 7, 1997, which condition was timely
met. The Facility agreements provide for an acceleration of
16
<PAGE> 17
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.
During the Current Quarter, the Company sold 6,000,000 ordinary shares of
MDC for net proceeds of $10.6 million, of which $10 million was paid to BTCC to
reduce the principal balance of 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 BTCC
Facility, these subsidiaries were precluded from drawing on their normal
operating lines of credit. A key priority for the Company in refinancing or
amending the BTCC Facility was to obtain an adequate working capital facility
for the Company's North American operating subsidiaries. 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 Six Months, the Company's operations generated cash in
the amounts of $0.2 million and during the Comparable Six Months used $4.1
million. For the Current Six Months, the uses of cash in operations were
primarily for the increase in the Company's inventories and a decrease in its
accounts payable. These operating uses of cash were offset by the generation of
cash from a reduction in the Company's accounts receivable, an increase of
customer advances, non-cash expenses including depreciation and amortization,
and cash distributions from its joint ventures. The $10.4 million gain from the
sale of 6,000,000 shares of MDC was the primary source of cash from investing
activities.
Until the Company successfully completes a credit arrangement for an
operating line of credit, the Company will rely on its working capital to
finance operations. The level of working capital may adversely impact the
Company's competitive position in bidding for new work. Management is in
preliminary negotiation with several potential sources of replacement financing
and believes it will be able to conclude its refinancing in the Third Quarter,
although there can be assurance to this effect.
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 a combination of customer advances and accounts payable. The working
capital financing previously discussed will be used by the Company to augment
its own internal resources to finance these working capital requirements. DBI,
Steen and MDC were each committed to various infrastructure projects that 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 scheduled to
produce net positive cash flows from changes in working capital accounts over
the remainder of fiscal 1997. Additionally, certain types of projects may
require a short period of cash investment which depending on the amount of cash
investment, the Company may make specific financing arrangements.
In addition to efforts to improve the efficiency of the management of its
working capital accounts to reduce cash requirements for its growth, the Company
has instituted several significant business initiatives to improve the operating
cash flow. The Company has shut down during the first quarter its commodity
fastener business and made Unimetric profitable to eliminate the $1.5 million
operating loss incurred in Fiscal 1996. The Company has liquidated a majority of
its commodity fastener inventory and has written down its balance of inventory
to its estimated realizable amount and has eliminated its remaining commodity
fastener real estate obligations. The Company has also 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.
During the Current Six Months, the Company invested $8.5 million in capital
expenditures, of which $5.3 million was made in the Current Quarter. The
substantial majority of these expenditures was made in Asia Pacific and reflects
necessary equipment for the commencement of new contracts.
At year end, the Company had approximately $68 million of claims which it
expects to settle in the normal course of business. This potential gain is not
reflected in the Company's balance sheet and although in
17
<PAGE> 18
the past, the Company has been successful in settling most claims positively,
these is no assurance that any of these claims may be realized in the future.
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, which it committed to an
investment program at Davie in accordance with the expansion plan proposed by
the Company for Davie at the time of acquisition. As of March 31, 1997, the
Company had invested $9 million of this requirement. The Company also agreed to
use its best efforts to obtain up to $45 million in additional financing for
Davie, which SGF has agreed to match on the basis of $1 for each $3 in
additional investment. There are no penalties if the Company is unable to meet
this requirement.
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. At the current time, the
Company has no product liability claim outstanding.
The Company's sureties limit the annual amount of new 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 sales. 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.
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<PAGE> 19
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. 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
March 31, 1997, 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.
2. 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.
3. 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.
4. 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 complaint 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.
5. By complaint dated July 18, 1995, Paul Kandola, a former employee of
DBI, commenced an action in Quebec Superior Court against UDI, seeking
Cdn$352,933 in severance payments under his employment agreement. On
September 11, 1995, UDI filed an action in warranty against DBI seeking
indemnification for any payments which may be required in this matter.
By complaint dated August 4, 1995, Kandola filed an action in Quebec
Superior Court against DBI for constructive dismissal seeking damages in
the amount of Cdn$490,901.92.
19
<PAGE> 20
The Company has answered these complaints denying liability and intends to
vigorously defend the actions.
6. By complaint dated February 24, 1997, the Company commenced an action
in Quebec Superior Court against Steinar Knai, a former executive of the
Company, DBI and Steen, for misappropriation of corporate property. On
March 14, 1997, Knai answered the complaint and made a cross demand against
the Company in the amount of Cdn$1.5 million for defamation. The Company
intends to vigorously pursue it's action and defend itself against Knai's
cross demand, the whole subject to arbitration.
7. On March 13, 1997, Privateinvest Bank AG (Privatinvest), an investor
in this private placement of the TCI Preferred Shares, filed a Statement of
Claim in the Superior Court for the District of Montreal against the
Company's subsidiary, TCI seeking recission of its investment in the
preferred shares of TCI on the basis of the Company's alleged failure to
deliver the correct number of shares of common stock of the Company upon
conversion of the TCI preferred shares. Alternatively, Privatinvest seeks
$445,849 plus interest reflecting the value of shares not received in time
as alleged by Privatinvest. The Company believes it honored the terms of
the TCI preferred shares and intends to vigorously defend this action. The
Company is not required to file immediately a defence since that the
defendants were ordered to deposit a sum of money in order to guarantee the
payment of court costs in the event that the complaint is dismissed.
8. By complaint dated January 31, 1997 and filed with the courts of
Newfoundland. International Offshore Services Group Inc. and Ocean
Management And Trading Company Ltd, both former consultants to the Company,
are claiming Cdn $973,000 for purported unpaid retainer fees, success fees
and finders fees. The Company intends to vigourously defend this action,
since no agreement or understanding has ever taken place with respect to
the payment of such fees.
ITEM 2. CHANGES IN SECURITIES
None
During the Quarter, the Company issued common stock in exchange for
services to non U.S. citizens. These shares were exempt from registration
under the Securities Act by virtule of Regulation S and Regulation D under
the Securities Act of 1993.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on February 28, 1997.
The following actions were taken:
1) The following directors were elected to serve on the Board of Directors
until the expiration of their term at the 2000 Annual Meeting and until
their respective successors shall be elected and qualified. Tabulated
voting results were as follows:
Michel L. Marengere (For- 23,934,635; Withheld- 819,222) Louis
Berlinguet (For- 23,947,435; Withheld- 806,422)
2) Approval of Deloitte & Touche as the independent auditing firm for the
Company for the fiscal year ending September 30, 1997.
Votes For- 24,627,996; Votes Against- 73,552 Votes Abstained- 52,309
At a Board of Directors meeting following the Annual Meeting of
Shareholders, Mr. Marengere was reelected Chairman and Chief Executive
Officer.
At a subsequent Board of Directors meeting, Messrs. Ladislas Rice and
Andrew Choa and Dr. Nicholas Matossian were elected to the Board of
Directors.
ITEM 5. OTHER INFORMATION
None.
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<PAGE> 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ----------------------------------------------------------------
<S> <C> <C>
4(a) Amendment and Extension Agreement Among the Company, Certain of
its Subsidiaries, and BT Commercial Corporation.
11 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
None.
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
<TABLE>
<S> <C> <C>
By: /s/ MICHEL L. MARENGERE Dated: May 12, 1997
Michel L. Marengere
Chairman of the Board
Chief Executive Officer
(Principal Executive Officer)
By: /s/ ROBERT CHARTIER Dated: May 12, 1997
Robert Chartier
Vice President and Interim Chief
Financial Officer
(Principal Financial
and Accounting Officer)
</TABLE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ----------------------------------------------------------------
<S> <C> <C>
11 Statement Re: Computation of Per Share Earnings.
27 Financial Data Schedule.
</TABLE>
21
