<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, 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 90
days.
(1) Yes [X] No [ ]
(2) Yes [X] No [ ]
<PAGE> 2
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 17, 1998, is 31,447,648.
<PAGE> 3
DOMINION BRIDGE CORPORATION
INDEX
PART I FINANCIAL INFORMATION* PAGE
----------------------
Item 1. Consolidated Balance Sheets at December 31,
1997 (Unaudited) and September 30, 1997 3
Consolidated Statements of Operations for
the Three Months ended December 31, 1997
and 1996 (Unaudited) 4
Consolidated Statements of Cash Flows for the
Three Months ended December 31, 1997
and 1996 (Unaudited) 5
Consolidated Statements of Stockholders' Equity
for the Three Months ended December 31, 1997
(Unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and
Analysis of Financial Condition and Results
of Operation 12
PART II OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote
of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 19
*The accompanying financial information at December 31, 1997 and the quarter
then ended is unaudited.
2
<PAGE> 4
PART I - FINANCIAL INFORMATION
DOMINION BRIDGE CORPORATION
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31, 1997 AND SEPTEMBER 30, 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
------------ ------------
1997 1997
------------ ------------
<S> <C> <C>
$ $
ASSETS UNAUDITED AUDITED
CURRENT ASSETS
Cash 4,876 9,021
Accounts receivable, net 98,582 107,956
Inventories 46,885 47,621
Prepaid expenses and other current assets 10,336 5,862
------------ ------------
TOTAL CURRENT ASSETS 160,679 170,460
------------ ------------
Property, plant and equipment, net 55,768 51,827
Goodwill, net 9,231 9,306
Pension assets 2,690 2,652
Investments in unincorporated joint ventures 270 996
Other assets 10,964 7,523
------------ ------------
TOTAL ASSETS 239,602 242,764
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank indebtedness (Note 4) 1,367 7,165
Term loan (Note 4) -- 15,000
Accounts payable and accrued expenses 108,687 132,010
Customer advances 6,205 8,447
Deferred income taxes 2,565 805
Current portion of obligations under capital leases 1,864 3,778
------------ ------------
TOTAL CURRENT LIABILITIES 120,688 167,205
------------ ------------
Long term debt (Note 4) 37,336 --
Deferred income taxes 5,746 492
Accrued post-retirement benefits other than pensions 1,472 1,791
Obligations under capital leases 5,557 9,363
Minority interest 20,397 19,243
Negative goodwill 6,559 7,812
Other long-term liabilities 6,214 1,459
============ ============
TOTAL LIABILITIES 203,969 207,365
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: 31,447,648 shares at
September 30 and December 31, 1997 34 34
Additional paid-in capital 74,529 74,529
Deficit (35,147) (32,511)
Cumulative translation adjustment (1,959) (4,829)
------------ ------------
37,457 37,223
Subscription receivable (1,824) (1,824)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 35,633 35,399
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 239,602 242,764
============ ============
</TABLE>
Commitments and contingencies (Note 5)
See accompanying notes
3
<PAGE> 5
DOMINION BRIDGE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
$ UNAUDITED $
SALES 113,933 124,804
----------- -----------
Cost of sales 100,330 112,475
Selling, general and administrative expenses 13,676 12,321
----------- -----------
114,006 124,796
Income from operations of joint ventures 687 215
----------- -----------
Income (loss) from operations 614 223
Interest (expense) income, net (1,540) (1,389)
Other income 604 947
----------- -----------
Income (loss) before income taxes and minority interest (322) (219)
----------- -----------
Income taxes (recovery)
Current 2,250 620
Deferred (1,100) --
----------- -----------
1,150 620
----------- -----------
Income (loss) before minority interest (1,472) (839)
Minority interest - common stock (1,164) (276)
----------- -----------
NET (LOSS) INCOME (2,636) (1,115)
=========== ===========
Net income (loss) per common share and common
share equivalents
Primary (0.08) (0.04)
Fully diluted -- --
----------- -----------
Weighted average number of common shares
and common share equivalents outstanding
Primary 31,447,648 27,454,931
Fully diluted 31,572,648 29,057,311
----------- -----------
</TABLE>
See accompanying notes
4
<PAGE> 6
DOMINION BRIDGE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
$ UNAUDITED $
CASH FLOW FROM OPERATING ACTIVITIES
Net (loss) income (2,636) (1,115)
Adjustments to reconcile net income to the
cash provided by (used for) operating activities
Minority interest in net income 1,164 276
Depreciation and amortization 3,001 2,749
Amortization of negative goodwill (1,253) (668)
Deferred income taxes 7,014 598
Deferred pension cost -- (153)
Income from operations of joint ventures -- (215)
Cash distributions from joint ventures 726 960
Decrease (Increase) in accounts receivable 9,374 28,152
(Increase) Decrease in prepaid expenses
and other assets (4,474) (5,362)
Decrease (increase) in inventories 736 (17,240)
(Decrease) increase in accounts payable (23,323) (9,254)
(Decrease) increase in customer advances (2,242) 8,350
Other - net (10) (385)
------- -------
Net cash provided by (used in) operating activities (11,923) 6,693
------- -------
CASH FLOW FROM INVESTING ACTIVITIES
Decrease (Increase) in short term deposits (2,352)
Decrease (Increase) of pension asset (38) --
Cash payment for purchase of equipment (6,687) (3,295)
(Increase) in other assets (3,441) (1,875)
------- -------
Net cash provided by (used for) investing activities (10,346) (7,522)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES
Term loan (Note 4) 37,336 --
(Repayment) issuance of term loan (15,000) --
Accrued post retirement benefits
other the pension (319) --
Proceeds from issuance of common stock -- 104
Issue costs of subsidiary preferred shares -- (15)
(Decrease) in Bank indebtedness (5,798) (3,915)
Other long-term liabilities 4,755 (697)
(Payment) Issue of capital lease obligations (5,270) 944
------- -------
Net cash provided by financing activities 15,254 (3,579)
------- -------
Effect of foreign exchange rate fluctuations on cash 2,870 (19)
------- -------
Net change in cash (4,145) (4,427)
Cash, at beginning of period 9,021 26,231
------- -------
CASH, AT END OF PERIOD 4,876 21,804
======= =======
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>
See accompanying notes
5
<PAGE> 7
DOMINION BRIDGE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTH PERIOD ENDED DECEMBER 31, 1997 (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, 1997 31,447,648 34 74,529 (32,511) (4,829) (1,824)
Translation adjustments, net of income
taxes of nil -- -- -- -- 2,870 --
Net loss for the period -- -- -- (2,636) --
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1997 31,447,648 34 74,529 (35,147) (1,959) (1,824)
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes
6
<PAGE> 8
DOMINION BRIDGE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying Condensed Consolidated Financial Statements include the
consolidated accounts of Dominion Bridge Corporation, a Delaware
corporation (the "Company"), and its subsidiaries. All significant
inter-company 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 Annual Report on Form 10-K for the
year ended September 30, 1997. 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, 1997 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 condition at December 31,
1997, its consolidated results of operations for the three months ended
December 31, 1997 and 1996, its cash flows for the three months ended
December 31, 1997 and 1996 and its consolidated statement of
stockholders' equity for the three months ended December 31, 1997.
2. 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.
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.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
7
<PAGE> 9
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
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 disposed of a portion of
its interest in McConnell Dowell Corporation Limited reducing its
interest to 63% at September 30, 1997. These transactions result in the
financial results of the 3 months ended December 31, 1997 including a
larger minority interest than the comparative period for the 3 months
ended December 31, 1996.
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.
Management establishes these estimates by periodically assessing the
status of each contract using actual costs incurred compared to budgeted
costs and hours worked compared to plan.
In the ordinary course of its construction business, the Company,
together with its client, may conduct a review following the completion
of the project for the purpose of establishing a final contract amount.
Income is recorded only when the Company's entitlement to additional
amounts under such contracts is established.
Inventories
Inventories consist principally of work in progress related to
construction contracts which are stated at accumulated costs less
amounts charged to income based on the percentage-of-completion of
individual contracts. Work in process inventories, accounted for under
the percentage-of-completion basis, are adjusted to reflect the lower of
cost or net realizable value by accruing for any losses anticipated
under such construction contracts as soon as such losses are identified.
Raw materials consist principally of raw steel and supplies not held for
resale and are stated at the lower of cost (first in, first out) or
replacement cost (net realizable value). The policy of carrying these
raw material inventories at the lower of cost and replacement cost
reflects obsolescence or decline in market value of these inputs to the
Company's end products. Finished goods comprise steel and steel hardware
products held for sale and are stated at the lower of cost (first in,
first out) or market (net realizable value).
Investment in unincorporated joint ventures
The Company's investment in 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.
8
<PAGE> 10
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
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 twenty 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 (loss) per share
Primary net income (loss) 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 (loss) 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.
Net loss per common share for the periods ending December 31, 1997 and
1996 is not presented on a fully-diluted basis as the existence of
potentially dilutive options have an antidilutive effect on loss per
common share.
9
<PAGE> 11
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
The loss per common share is computed by dividing net loss by the
weighted average number of common shares outstanding.
4. FINANCING ARRANGEMENTS
On September 26, 1997, with effect on October 8, 1997, the Company
entered into an agreement with a syndicate of bankers which provides the
Company with a $40 million revolving credit facility, of which $37.4
million was outstanding at December 31, 1997. The agreement is for an
original term of threes years and shall be automatically renewed for
successive terms of one year unless terminated, under a specific
condition by the Company or its Lenders. The facility bears interest at
prime plus 3% and is secured by substantially all assets of the
Company's North American operations and the shares of MDC owned by the
Company. The Agreement provides for various covenants including but not
restricted to the maintenance of certain financial ratios, such as
minimum shareholders' equity, minimum working capital and total
liabilities EBITDA, limitation on incurrence of indebtedness, payment of
dividends, capital expenditures and the sale of assets. The facility was
used to retire existing debt and for general corporate purposes.
Although the loan was disbursed in October 1997, minimum shareholder's
equity covenant which was effective as at September 30, 1997 was not met
at September 30, 1997 and December 31, 1997. The Company has negotiated
waivers for this covenant at September 30, 1997 and December 31, 1997.
The Company is currently negotiating a waiver of or a revision to the
covenants on its loan for the remainder of fiscal 1998.
A subsidiary of the Company has entered into operating credit facilities
totaling $6,200 bearing interest at variable rates. At December 31,
1997, $430 was outstanding under these facilities. Certain facilities
have restrictions on their usage and are limited for use on specific
projects.
5. 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.
In May 1997, the "Committee to Revitalize Dominion Bridge Corporation"
(the "Committee") commenced a law suit against the Company seeking a
declaration that it should be permitted to solicit written consent from
the Company's stockholders. The claim seeks injunctive relief but no
material monetary damages. The Company subsequently filed a counterclaim
seeking declaratory and injunctive relief against the Committee for its
consent solicitation and monetary damages. Motions are pending before
the courts with respect to the continuation of discovery on both the
Committee's claim and the Company's counterclaim. As no monetary
material damage has been claimed by the Committee, no provision has been
recorded in the accounts.
10
<PAGE> 12
5. COMMITMENTS AND CONTINGENCIES (CONT'D)
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.
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 Company has guaranteed $5,000 of a subsidiary debt. At December 31,
1997, the subsidiary had sufficient assets to meet such obligations.
A subsidiary of the Company has guaranteed 49% of the debt of an equity
investee. The debt of the equity investee is A $4,893. Accordingly, A
$2,398 is guaranteed by the Company's subsidiary. At December 31, 1997,
the equity investee has sufficient assets to meet such obligations.
In connection with the acquisition of Davie Industries, the Company
agreed to make CDN $45M in capital additions pursuant to a 3 year
revitalization plan. This investment is on a best efforts basis and is
subject to financial market conditions and the general conditions in the
chosen industrial markets contemplated in the revitalization plan.
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.
11
<PAGE> 13
6. COMPARATIVE FIGURES
Certain comparatives figures have been reclassified to conform with the
presentation adopted in 1997.
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, 1997 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, 1997 (the "Current Quarter")
and the three months ended December 31,1996 (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, 1997 DEC 31, 1996 DEC 31, 1997 DEC 31, 1996
<S> <C> <C> <C> <C>
Sales 113,933 124,804 100.0 100.0
Cost of Sales (excluding depreciation) (97,930) (110,370) (86.0) (88.4)
Gross profit 16,003 14,434 14.0 11.6
Sales, general and administrative (13,075) (11,751) (11.5) (9.4)
Income from operations of joint venture 687 215 0.6 0.1
Other Income (expenses) (619) 353 (0.5) 0.3
Profit (loss) from operations (EBITDA) 2,996 3,251 2.6 2.6
EBITDA PER COMMON SHARE
AND EQUIVALENT 0.09 0.11 -- --
Depreciation and amortization (1,778) (2,081) (1.6) (1.7)
Profit (loss) before interest and
taxes (EBIT) 1,213 1,170 1.1 0.9
EBIT PER COMMON SHARE AND
EQUIVALENT 0.04 0.04 -- --
Interest income (expenses), net (1,540) (1,389) (1.4) (1.1)
Income tax provision (1,150) (620) (1.0) (0.5)
Net income (loss) before minority
interest (1,472) (839) (1.3) (0.7)
Minority interest (1,164) (276) (1.0) (0.2)
NET INCOME (LOSS) (2,636) (1,115) (2.3) (0.9)
Net income (loss) per common share
and common share equivalent
Primary (0.08) (0.04)
Fully diluted -- --
Weighted average number of common
shares and common share equivalent
outstanding
Primary 31,447,648 27,454,931
Fully diluted 31,572,648 29,059,311
</TABLE>
12
<PAGE> 14
Sales for the Current Quarter decreased 8.7% to $113.9 million as
compared to $124.8 million in the Comparable Quarter. The $10.9 million total
decrease in sales growth in the Current Quarter over the Comparable Quarter is
principally attributable to the postponement of the startup of the offshore oil
platforms to be fabricated at Davie Industries, Inc. ("Davie") and Dominion
Bridge Inc. ("DBI"). The Company's North American operations were also adversely
affected by uncertainties relating to the possible sale of the Company and a
shortage of working capital. The Company's Australian subsidiary, McConnell
Dowell Corporation Limited ("MDC") continued to perform well notwithstanding the
difficult economic climate in the Asia/Pacific region.
As of December 31, 1997, the Company's backlog, representing the
uncompleted portions of construction and engineering contracts, was $512 million
including $178 million for the work to be done on the platforms at Davie during
1998. Although the dollar amount of backlog is not necessarily indicative of the
future earnings of the Company, the backlog represents business which is
considered to be firm. However, there can be no assurance that cancellations or
scope adjustments will not occur.
The Company may be limited in competing for new business by its limited
working capital and by its bonding capacity.
The Company's Current Quarter gross profit margin increased to 14% from
11.6% in the Comparable Quarter. This increase reflects efforts undertaken by
management during fiscal 1997 to increase profit margins including a reduction
in redundant operations at DBI and Steen.
Selling, general and administrative costs increased from $12.3 million
or 9.9% of sales in the Comparable Quarter to $13.7 million or 12.0% of sales in
the Current Quarter. This increase was due to expenses incurred in connection
with (i) the process of enhancing stockholder value through the sale of the
Company or obtaining a strategic investment partner; and (ii) the closing of a
$40 million credit facility with a syndicate of banks led by BNY Financial
Corporation-Canada (the "BNY Facility"). These expenses included extensive
professional fees and related costs.
Income from the operations of joint ventures represents (i) 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; and
(ii) the sale of the Company's interest in a wind farm in Big Springs, Texas to
York Research for $1.5 million, $750,000 of which is payable to the Company.
Profit from operations (EBITDA) decreased slightly to $3.0 million in
the Current Quarter from $3.3 million in the Comparable Quarter.
The Company's net interest expense increased slightly from $1.4 million
in the Comparable Quarter to $1.5 million in the Current Quarter. Interest
expense incurred consisted of the interest cost and amortization of financing
fees incurred in connection with the $40 million credit facility with BNY
Financial Corporation. During the Comparable Quarter, the Company was a party to
a $30 million facility with Bankers Trust Credit Corporation ("BTCC").
The minority interest attributable to common stock of $1.2 million, and
the increase of $0.9 million in the Current Quarter is attributable to the 37%
of MDC not owned by the Company as opposed to the 22.6% not owned by the Company
in the Comparable Quarter. As a
13
<PAGE> 15
result of the increase in interest expense associated with the Company's
borrowings, income tax provisions and minority interest, the Company recorded a
net loss of $2.6 million in the current Quarter as compared to a loss of $1.1
million in the Comparable Quarter.
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 $.71, and US $.74, respectively and for the
Australian dollar were A $1.00 equals US $.73 and US $.79, respectively. The
cumulative currency translation loss which has been deferred as part of
shareholders' equity was $4.8 million at September 30, 1997 and was reduced to
$1.9 million at December 31, 1997.
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
SGF, to fund Davie's operating deficit and to modernize Davie's operating
facilities.
As of the fiscal year-end, the Company had a $30 million credit facility
from BTCC, of which $15 million was outstanding as of September 30, 1997. This
facility provided funding for the Company's acquisition of MDC. During the
Current Quarter, the Company entered into the $40 million BNY Facility with a
syndicate led by BNY Financial Corporation-Canada ("BNY"). The BNY Facility was
used to pay off BTCC and to provide working capital for the Company's North
American operation. The amount available to the Company under the BNY Facility
is based upon a percentage of the value of certain eligible assets of the
Company, including the MDC shares owned by the Company and the accounts
receivable, inventory and property, plant and equipment of the North American
operations. As a result of the decline in the value of the Australian dollar,
which affects the amount the Company can borrow tied to the value of the
Company's shares in MDC, the Company has limited availability under the BNY
Facility.
The BNY Facility matures in three years and bears interest at a floating
rate based upon BNY's prime rate. The BNY 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 BNY 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 BNY Facility
agreements, including certain financial covenants.
The BNY Facility contains various financial and other covenants
including maintaining a minimum shareholders equity of $52 million as of
September 30 and December 31, 1997. This covenant was not met as of these dates
and constituted a technical default under the BNY Facility. The Company has
negotiated and obtained waivers for these defaults. The Company is currently
negotiating a waiver of or a revision to the shareholders equity and other
covenants contained in the BNY Facility for the remainder of fiscal 1998. There
can be no assurance that such negotiations will result in a waiver or revision
of such covenants. The Company's failure to successfully negotiate such waiver
or revisions would adversely affect the Company's ability to obtain necessary
working capital and would have a material adverse effect on the continuing
operations of the Company.
14
<PAGE> 16
During the Current Quarter, the Company's operations used cash in the
amount of $11.9 million compared to generating cash in the amount of $6.7
million in the Comparable Quarter. The net use of cash from operations was
attributable to the net operating loss and was increased by the $4.4 million
increase in prepaid expenses and $22.3 million decrease in accounts payable. 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.
Since November 1997, Davie has been engaged in the upgrade of the Spirit
of Columbus, an oil production platform. The Company has yet to obtain financing
for this project and has been incurring costs on behalf of Davie. As of the date
of this Report, Davie has received a portion of the progress payments for the
work performed. In order to conserve limited working capital, the Company has
determined to cut back on the scope of work authorized until such time as
progress payments are received and financing is in place.
To address the Company's working capital needs the Company issued Units
consisting of Common Stock and Warrants to American Eco Corporation for gross
proceeds of $5 million. See Part II, Item 5 for a description of the
transaction. The Company is in discussions with American Eco Corporation
regarding an additional $25 million credit facility which should be available,
if at all, by the end of March, 1998. However, this credit facility is subject
to a number of conditions, including negotiation of definitive agreements and
obtaining required bank consents. There can be no assurances that this
transaction will be completed.
The Company has instituted several significant business initiatives to
improve the operating cash flow. The Company has initiated plant and
administrative staff reductions in its DBI operations to achieve operating cost
savings and benefits from rationalization of operations with those of Steen and
these savings are currently being felt principally through increased margins and
reductions in SG&A. The Company has initiated its business plan at Davie to
focus on running the operation profitably.
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 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.
The Company's operations are not significantly dependent upon computer
programs which are subject to the so-called "Year 2000" problem and, therefore,
the Company does not anticipate any material impact on its financial condition
or results of operation as a result therefrom.
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
15
<PAGE> 17
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.
In connection with the acquisition of Davie, the Company agreed to make
Cdn $45 million in capital additions pursuant to a three year revitalization
plan. This investment is on a best efforts basis and is subject to financial
market conditions and the general conditions in the chosen industrial markets
contemplated in the revitalization plan.
16
<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.
During the three month period ended December 31, 1997, the Company has
not become a party to any material legal proceeding which requires reporting
under this Item and to the Company's knowledge, no other material proceeding
involving the Company is currently contemplated by any governmental authority.
Other than as reported in Part I, Item 3 captioned "Legal Proceedings"
of the Company's Annual Report on Form 10-K for the fiscal year ended September
30, 1997, the Company is not currently involved in any litigation or proceeding
which is material, either individually or in the aggregate and other than as
set forth below, during the three month period ended December 31, 1997, there
have been no material developments in any of these matters.
ITEM 2. CHANGES IN SECURITIES
As reported in the Company's Current Report on Form 8-K dated November
26, 1997 (the "Form 8-K"), the Company amended its Shareholder Rights Plan. The
description of the Amendment to 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
17
<PAGE> 19
On February 20, 1998, the Company entered into a Securities
Purchase Agreement (the "Agreement") with American Eco Corporation ("American
Eco"), a corporation organized under the laws of Ontario, Canada. The Agreement
provided for the sale of 1,923,077 Units at $2.60 per Unit for an aggregate
purchase price of $5,000,000. Each Unit consists of one (1) share of common
stock, $.001 par value per share, of the Company and one tenth (1/10) of a
Common Stock Purchase Warrant. Each full Warrant entitles American Eco to
purchase one (1) additional share of Company common stock at $3.00 per share
during the next three (3) years. The Agreement also provided for the appointment
of Michael E. McGinnis, the President and Chief Executive Officer of American
Eco, to the Company's Board of Directors and Executive Committee. The sale was
effectuated as a private placement transaction pursuant to the exemption from
the registration requirements of the Securities Act of 1933, as amended,
provided by Section 4(2) thereunder. Legg Mason Wood Walker, Inc., the Company's
financial advisor, is entitled to receive an advisory fee equal to 5 percent
(5%) of the gross proceeds of this offering.
The Company expects to utilize the proceeds from this placement
for general working capital purposes. The Company entered into the Agreement
with American Eco in connection with a letter of intent, also dated February 20,
1998 (the "Letter of Intent"). The Letter of Intent provides for (i) the
placement described above; (ii) a $25,000,000 line of credit to be provided by
American Eco to the Company (the "Line of Credit") not later than March 23 ,
1998; (iii) concurrent with the provision of the Line of Credit, a management
services agreement pursuant to which American Eco will provide executive
management services to the Company; and (iv) American Eco's purchase of all of
the issued and outstanding shares of common stock of the Company in exchange for
convertible promissory notes of American Eco in the principal amount of $3.00
per share of the Company which are convertible into American Eco common stock at
$15.00 per share. The Letter of Intent provides that the parties shall negotiate
and execute definitive agreements regarding the acquisition transaction by no
later than April 6, 1998.
Except for the placement of the Units and the provisions of the Letter
of Intent relating to confidentiality, non-solicitation of competing offers and
fees which are payable to American Eco in the event the Company is acquired by
someone other than American Eco, the Letter of Intent is non-binding. The
transactions, other than the placement of the Units, are also subject to a
number of conditions, including required regulatory and stockholder approvals.
There can, therefore, be no assurance that the Company will be able to
consummate the transactions with American Eco.
18
<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
4 Amendment No. 1 to Rights Agreement, dated as of November 26,
1997 and effective to of November 26, 1997, between Dominion
Bridge Corporation and Continental Stock Transfer & Trust
Company. (Incorporated by reference to Exhibit 4.1 to the
Company's report on Form 8-K dated November 26, 1997.)
11 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
Report on Form 8-K, dated November 26, 1997, reporting on the Amendment
to the Shareholder Rights Plan.
19
<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 23, 1998
--------------------------------------
Michel L. Marengere
Chairman of the Board
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert Chartier Dated: February 23, 1998
--------------------------------------
Robert Chartier
Vice President and Interim Chief
Financial Officer
(Principal Financial
and Accounting Officer)
20
<PAGE> 22
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
11 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule
21
<PAGE> 1
EXHIBIT 11
DOMINION BRIDGE CORPORATION
COMPUTATIONS OF EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
(In thousands of U.S. dollars except share data)
<TABLE>
<CAPTION>
3 Months 3 Months
ended ended
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Income (loss) applicable
to Common Stock (2,636) (1,115)
Primary shares:
Average number of common shares
outstanding during the period 31,447,648 27,454,931
Common-equivalent shares
attributable to options and
deferred stock -- --
---------- ----------
Total common and common
equivalent shares 31,447,648 27,454,931
========== ==========
Primary earnings (loss) per common
and common-equivalent share (0.08) (0.04)
Income (loss) applicable to
Common Stock (2,636) (1,115)
Fully diluted shares:
Average number of common shares
outstanding during the period 31,447,648 27,454,931
Common-equivalent shares
attributable to options and
deferred stock 125,000 1,604,380
Dilutive preferred shares -- --
---------- ----------
Total common and
common-equivalent shares 31,572,648 29,059,311
========== ==========
Fully diluted earnings (loss) per
common and common-equivalent share (0.08) (0.04)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,876
<SECURITIES> 0
<RECEIVABLES> 98,582
<ALLOWANCES> 0
<INVENTORY> 46,885
<CURRENT-ASSETS> 160,679
<PP&E> 55,768
<DEPRECIATION> 0
<TOTAL-ASSETS> 239,602
<CURRENT-LIABILITIES> 120,688
<BONDS> 0
0
0
<COMMON> 34
<OTHER-SE> 35,599
<TOTAL-LIABILITY-AND-EQUITY> 239,602
<SALES> 113,933
<TOTAL-REVENUES> 115,224
<CGS> 100,330
<TOTAL-COSTS> 114,006
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,540
<INCOME-PRETAX> (322)
<INCOME-TAX> 1,150
<INCOME-CONTINUING> (1,472)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,636)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
