<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, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From __________ To __________
DOMINION BRIDGE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1-10372 23-2577796
(State of Incorporation) (Commission File No.) (IRS Employer Identification No.)
</TABLE>
500 Notre Dame Street
3rd Floor
Lachine, Quebec CANADA H8S 2B2
(Address of principal executive office)
Registrant's telephone number, including area code: (514) 634-3550
NOT APPLICABLE
(Former name, if changed since last report)
Check whether the Registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.
(1) Yes X No _____
(2) Yes X No _____
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS
Check whether the registrant has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.
Yes X No _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the Registrant's sole class of common stock,
as of May 20, 1998, is 33,370,725.
<PAGE> 2
DOMINION BRIDGE CORPORATION
INDEX
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PAGE
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PART I FINANCIAL INFORMATION*
Item 1. Consolidated Balance Sheets at March 31, 1998 (Unaudited) and
September 30, 1997 3
Consolidated Statements of Operations for the Three Months
and Six Months ended March 31, 1998 and 1997 (Unaudited) 4
Consolidated Statements of Cash Flows for the Six Months ended
March 31, 1998 and 1997 (Unaudited) 5
Consolidated Statements of Stockholders' Equity for the Six
Months ended March 31, 1998 (Unaudited) 6
Notes to consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 20
</TABLE>
*The accompanying financial information at March 31, 1998 and the quarter and
six months then ended is unaudited.
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
DOMINION BRIDGE CORPORATION
CONSOLIDATED BALANCE SHEETS
as at March 31, 1998 and September 30, 1997
(in thousands of U.S. dollars, except share amounts)
<TABLE>
<CAPTION>
March 31 September 30
1998 1997
--------- -------------
$ $
Unaudited Audited
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash...................................................... 20,830 9,021
Accounts receivable, net.................................. 100,721 107,956
Inventories............................................... 49,629 47,621
Prepaid expenses and other current assets................. 7,990 5,862
------- -------
TOTAL CURRENT ASSETS...................................... 179,170 170,460
------- -------
Property, plant and equipment, net........................ 56,412 51,827
Goodwill.................................................. 9,156 9,306
Pension assets............................................ 2,579 2,652
Investments in unincorporated joint ventures.............. - 996
Other assets.............................................. 9,635 7,523
------- -------
TOTAL ASSETS.............................................. 256,952 242,764
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank indebtedness (Note 4)................................ 4,451 7,165
Term loan (Note 4)........................................ - 15,000
Accounts payable and accrued expenses..................... 139,882 132,010
Customer advances......................................... 8,374 8,447
Deferred income taxes..................................... 2,441 805
Current portion of obligations under capital leases....... 1,738 3,779
------- -------
TOTAL CURRENT LIABILITIES................................... 156,886 167,206
------- -------
Long term debt (Note 4)................................... 35,218 -
Deferred income taxes..................................... 5,334 492
Accrued post-retirement benefits other than pensions...... 1,643 1,791
Obligations under capital leases.......................... 6,253 9,363
Minority interest......................................... 20,705 19,243
Negative goodwill......................................... 5,256 7,812
Other long-term liabilities............................... 5,285 1,458
------- -------
TOTAL LIABILITIES........................................... 236,580 207,365
------- -------
STOCKHOLDERS' EQUITY
Common Stock.............................................. 36 34
Additional paid-in capital................................ 79,525 74,529
Deficit................................................... (45,034) (32,511)
Cumulative translation adjustment......................... (12,331) (4,829)
------- -------
22,196 37,223
Subscription receivable................................... (1,824) (1,824)
------- -------
TOTAL STOCKHOLDERS' EQUITY................................ 20,372 35,399
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................ 256,952 242,764
======= =======
Commitments and contingencies (Note 5)
</TABLE>
See accompanying notes
<PAGE> 4
DOMINION BRIDGE CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Period ended March 31, 1998 and 1997
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------- --------------------------
March 31 March 31 March 31 March 31
1998 1997 1998 1997
--------- -------- -------- --------
$ $ $ $
<S> <C> <C> <C> <C>
Sales............................................. 123,785 132,732 237,719 257,536
------- ------- ------- -------
Cost of sales..................................... 116,657 120,199 215,764 232,080
Selling, general and
administrative expenses........................... 14,375 14,949 28,051 27,268
------- ------- ------- -------
131,032 135,148 243,815 259,348
Income from operations of a joint venture.......... - 268 - 483
------- ------- ------- -------
(Loss) income from operations..................... (7,247) (2,148) (6,096) (1,329)
Interest expense.................................. (2,877) (1,530) (4,418) (2,919)
Other Income...................................... 1,765 3,967 1,832 4,319
------- ------- ------- -------
(Loss) before income
taxes; and minority Interest...................... (8,359) 289 (8,682) 71
------- ------- ------- -------
Income taxes
Current........................................... 141 (529) (2,108) (1,149)
Deferred.......................................... (1,100) - - -
------- ------- ------- -------
(959) (529) (2,108) (1,149)
------- ------- ------- -------
(Loss) Income before minority interest............ (9,318) (240) (10,790) (1,078)
Minority interest-common stocks................... (569) (96) (1,733) (373)
------- ------- ------- -------
Net (loss) Income................................. (9,887) (336) (12,523) (1,451)
======= ======= ======= =======
Net income (loss) per
common share and
common share
equivalents
Primary........................................... (0.31) (0.01) (0.40) (0.05)
Fully diluted..................................... - - -
Weighted average
number of common
shares and common
share equivalents
Primary........................................... 31,447,648 28,963,204 31,447,648 28,138,171
Fully diluted..................................... 31,447,648 28,963,204 31,447,648 28,893,818
</TABLE>
<PAGE> 5
DOMINION BRIDGE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended March 31, 1998 and 1997
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
$ Unaudited $ Unaudited
<S> <C> <C>
Cash flow from operating activities
Net (loss) .................................................. (12,523) (1,451)
Adjustments to reconcile net income to the
cash provided by (used for) operating activities
Minority interest in net income.......................... 1,733 373
Gain in disposal of subsidiaries common shares........... - (3,000)
Common stock issued for services......................... - 553
Depreciation and amortization............................ 5,766 5,360
Amortization of negative goodwill........................ (2,406) (2,513)
Deferred income taxes.................................... 6,478 995
Deferred pension cost.................................... - (121)
Income from operations of a joint venture................ - (483)
Cash advance received from joint venture................. 996 1,637
Decrease (Increase) in accounts receivable............... 7,235 25,544
(Increase) in prepaid expenses an other
assets............................................... (2,128) (3,676)
Increase in inventories.................................. (2,008) (13,226)
(Decrease) increase in accounts payable.................. 8,726 (17,099)
(Decrease) increase in customer advances................. (73) 7,021
Other - net.............................................. (273) 345
------- -------
Net cash provided by (used in) operating activities.......... 11,523 259
------- -------
Cash flow from investing activities
Increase in short term deposits.............................. - (6,255)
Proceeds on disposal of subsidiary common shares............. - 10,436
Decrease of pension asset.................................... 73 -
Cash payment for purchase of equipment....................... (10,351) (8,427)
(Increase) in other assets................................... (2,112) (3,310)
------- -------
Net cash provided by (used for) investing activities......... (12,390) (7,556)
------- -------
Cash flow from financing activities
Term loan (Note 4)........................................... 35,218 -
(Repayment) issuance of term loan............................ (15,000) (10,000)
Proceeds from issuance of common stock....................... 5,000 -
Accrued post retirement benefits
other the pension......................................... (148) -
(Decrease) in bank indebtedness.............................. (2,714) (4,151)
Other long-term liabilities.................................. 3,827 1,728
Decrease) Increase in capital lease obligations.............. (5,151) 502
Issue costs of subsidiary preferred shares................... - -
------- -------
Net cash provided by financing activities.................... 21,032 (11,921)
------- -------
Effect of foreign exchange rate fluctuations on cash......... (8,356) 140
------- -------
Net change in cash........................................... 11,809 (19,078)
Cash, at beginning of period................................. 9,021 26,231
------- -------
Cash, at end of period....................................... 20,830 7,153
======= =======
Non-cash investing and financing activities
Issuance of common stock on conversion of
minority interest preferred shares......................... - 8,537
Purchase of preferred stock minority interest
of subsidiaries............................................ - (8,537)
</TABLE>
See accompanying notes
<PAGE> 6
DOMINION BRIDGE CORPORATION
Consolidated Statements of Stockholders' Equity
Three month period ended March 31, 1998 (unaudited)
(dollar amounts in thousands of U.S. dollars)
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<CAPTION>
Additional Cumulative
Common Paid-In Translation Subscription
Shares Stock Amount Capital Deficit Adjustment Receivable
$ $ $ $ $
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Balance at September 30, 1997.... 31,447,648 34 74,529 (32,511) (4,829) (1,824)
Translation adjustment, net
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)
Insurance of Common Stock for
cost consideration............. 1,923,077 2 4,996
Translation adjustments,
net of income taxes of nil..... - - - - (10,372) -
Net loss for the period.......... - - - (9,887) -
---------- -- ------ ------- ------- ------
Balance at March 31, 1998........ 33,370,725 36 79,525 (45,034) (12,331) (1,824)
========== == ====== ======= ======= ======
</TABLE>
See accompanying notes
<PAGE> 7
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 six months ended March 31, 1998 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 March 31, 1998, its
consolidated results of operations for the three and six months ended March
31, 1998 and 1997, its cash flows for the three months ended March 31, 1998
and 1997 and its consolidated statement of stockholders' equity for the six
months ended March 31, 1998.
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.
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.
<PAGE> 8
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
During the previous fiscal year, the Company disposed of a portion of its
interest in McConnell Dowell Corporation Limited ("MDC") reducing its
interest to 63% at September 30, 1997. These transactions result in the
financial results of the six months ended March 31, 1998 including a larger
minority interest than the comparative period for the six months ended
March 31, 1997.
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).
<PAGE> 9
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.
<PAGE> 10
Net loss per common share for the periods ending March 31, 1998 and 1997 is
not presented on a fully-diluted basis as the existence of potentially
dilutive options have an antidilutive effect on loss per common share.
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 $35.2 million was
outstanding at March 31, 1998. The agreement is for an original term of
three years and shall be automatically renewed for successive terms of one
year unless terminated, under specific conditions, 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.
Minimum shareholder's equity covenant which was effective as at September
30, 1997 and thereafter was not met at September 30, 1997, December 31,
1997 or March 31, 1998. The Company has negotiated waivers for this
covenant through and until March 31, 1998. The Company is currently
negotiating a waiver of or a revision to the covenants on its loan for the
remainder of fiscal 1998.
<PAGE> 11
A subsidiary of the Company has entered into operating credit facilities
totaling $6.2 million bearing interest at variable rates. At March 31,
1998, $4.5 million 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.
During 1995, the Company submitted a Claim Notification Letter to a
customer and issued invoices to another customer against which a cash
advance of $2.1 million 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 $3.7 million. 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.
<PAGE> 12
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 up to $5.0 million of a subsidiary debt. At
March 31, 1998, 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 $4.9 million. Accordingly,
A $2,4 million is guaranteed by the Company's subsidiary. At March 31,
1998, 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 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.
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.
6. SUBSEQUENT EVENTS
In May 1998 the Company entered into a Management Arrangement with EIFH
Holdings, Inc., (EIFH). Effective May 1, 1998, EIFH will provide
management services to DBC in connection with its ongoing, day-to-day,
operations including financing and administrative support services,
marketing administration and support services, human resources management
and overnight and administration of DBC's operating units. In return for
services, DBC has agreed to pay EIFH a fee of $100,000 per month, and
reimburse all reasonable out-of-pocket expenses and disbursements EIFH
incurs in rendering such services. The term of the agreement is for six
months cancellable by either party with 30 days notice.
Subsequent to the end of the current quarter, the Company announced an
agreement in principle to sell its entire interest in MDC to a third party
for cash consideration of approximately $68 million. As of the date of
this Report, there is no definitive agreement with respect to this
transaction, which would also be subject to regulatory approval and other
customary conditions. No accounting effect has been given to the proposed
sale of the Company's investment in MDC.
An affiliate of a principal stockholder, Lamar Investments, Inc. ("Lamar")
has agreed to provide the Company with a credit facility in the principal
amount of up to $10 million. In addition, former executive officers of
Company (the "Executives") agreed to reinvest $4.8 million due them
under certain settlement agreements into the Company on the same terms.
These amounts were invested by Lamar and the Executives pursuant to the
terms of a Credit Agreement ("Credit Agreement") by and among the Company,
Lamar and an affiliate of the Executives, Wellgate International Ltd.
("Wellgate"). The Company is obligated to make monthly interest payments
to Lamar and Wellgate based on the outstanding principal amount due under
the Credit Agreement.
Pursuant to the Credit Agreement, the Company issued a Convertible
Revolving Note to Lamar in the principal amount of up to $10 million (the
"Lamar Note") and a Convertible Term Note to Wellgate in the principal
amount of $4.8 million (the "Executive Note" and together with the Lamar
Note, the "Notes"). The Notes bear interest at the rate of 11.5%, are
secured by a second priority perfected security interest in substantially
all of the assets of the Company and are convertible into shares of Common
Stock of the Company at $2.60 per share. The Company also issued warrants
(the "Warrants") to purchase shares of Common Stock of the Company at $3.00
per share for a three (3) year period; 333,708 Warrants were issued to
Wellgate and up to 1,668,536 Warrants will be issued to Lamar based on the
amount of advances made under the Loan. As of May 11, 1998, approximately
$7.55 million has been advanced by Lamar to the Company under the Credit
Agreement.
<PAGE> 13
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
GENERAL
The following discussion relates to selected financial information from
the Company's Consolidated Statements of Operations for the three months and
six months ended March 31, 1998 (the "Current Quarter" and "Current Six
Months," respectively) and the three and six months ended March 31, 1998 (the
"Comparable Quarter" and "Comparable Six Months," respectively).
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Sales for the Current Quarter decreased 6.7% to $123.8 million as compared
to $132.7 million in the Comparable Quarter. The $8.9 million total decrease in
sales in the Current Quarter over the Comparable Quarter is principally
attributable to the North American operations. The Company's North American
operations consist of Dominion Bridge, Inc., Steen Contractors Ltd. and Davie
Industries Inc. These units were adversely affected by uncertainties relating to
the possible sale of the Company and a shortage of working capital. In addition,
these operations were adversely affected by a suspension of the Company's
bonding during a brief period due to the working capital shortage faced by the
Company. Following the end of the quarter the Company underwent a change in its
executive management and obtained a $10 million working capital facility from a
principal stockholder of the Company, as described below under "Liquidity and
Capital Resources." This working capital facility has temporarily addressed the
working capital shortage and the Company is once again bidding for new work with
its normal bonding line. The Company is in the process of formulating a
restructuring plan which will provide a longer-term solution to the Company's
working capital requirements so that the Company can resume normal operations.
The Company's Australian subsidiary, McConnell Dowell Corporation Limited
("MDC") continued to perform well notwithstanding the difficult economic climate
in the Asia/Pacific region. Sales at MDC increased by 10.8% during the Current
Quarter over the Comparable Quarter to $75.8 million.
As of March 31, 1998, the backlog in the North American operations,
representing the uncompleted portions of construction and engineering contracts,
was 96.6 million. Not included within the backlog are three offshore drilling
projects for the Company's Davie subsidiary which are subject to financing and
bonding contingencies. The Company's management is in the process of attempting
to finalize the bonding and financing and expect that these projects will
commence by the end of the fiscal year, but there can be no assurances to this
effect. 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.
<PAGE> 14
The Company's Current Quarter gross profit margin decreased to 4.8% from
9.4% in the Comparable Quarter. This decrease reflects the relatively fixed
direct costs in the North American operations being spread over lower revenues.
Gross margin was also adversely impacted by the inability of the Company to
purchase steel directly from manufacturers due to working capital restraints,
leading to higher costs of purchasing steel and other raw material. The
Company's new management is conducting a review of the North American operations
to determine methods to increase the Company's operating margins.
The accounting for the Company's construction operations are significantly
affected by management estimates of project profitability. As a result of a
re-evaluation of management estimates, during the quarter the Company wrote down
approximately $4.1 million in the carrying value of work-in process, reflecting
lower profit estimates.
Selling, general and administrative costs in the Current Quarter remained
relatively constant over the Comparable Quarter, but increased as a percentage
of sales due to the lower revenue during the Current Quarter. As a result of
fees and costs incurred in connection with the Company's recent change in
control, the Company expects that its selling, general and administrative costs
will experience a significant increase in the third quarter of fiscal 1998.
The Company's net interest expense increased from $1.5 million in the
Comparable Quarter to $2.9 million in the Current Quarter, reflecting greater
loan balances under the Company's credit facility with a syndicate of lenders
led by BNY Financial Corporation of Canada, an affiliate of Bank of New York
("BNY").
The minority interest attributable to common stock of $569,000, and the
increase of $473,000 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 result of the loss from operations, the increase in
interest expense associated with the Company's borrowings, income tax provisions
and minority interest, the Company recorded a net loss of $9.9 million in the
Current Quarter as compared to a loss of $336,000 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 $.70, and US $.74, respectively and for the
Australian dollar were A $1.00 equals US $.67 and US $.78, respectively. The
cumulative currency translation loss which has been deferred as part of
shareholders' equity increased to $12.3 million at March 31, 1998 as compared to
$4.8 million at September 30, 1997, reflecting continued weakness in the Asian
currencies where MDC principally operates.
SIX MONTHS ENDED MARCH 31, 1998 AND 1997
Sales in the Current Six Months were $237.7 million compared to $257.5
million, a 7.7% decline. This decline was likewise caused by a decrease in sales
in the North American operations due to financing and bonding difficulties.
MDC's sales in the Current Six Months increased to $145.8 million from $130.7
million in the Comparable Six Months.
The gross profit margin declined to 8.2% from 9.9% in the Current Quarter,
reflecting the decline in gross profit margin in the Current Quarter.
The selling, general and administrative expenses during the Current Six
Months were essentially flat, increasing by approximately $900,000, but as a
percent of revenues increased at a greater rate due to the lower revenues.
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 $.72 and US $.74, respectively, and
for the Australian dollar were A $1.00 equals US $.67 and US $.78, respectively.
Notwithstanding the increase in the net loss during the Current Quarter,
the Company's consolidated operations were essentially cash neutral, with an
EBITDA for the six months of ($231,000).
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 debt and 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.
<PAGE> 15
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
quarter ended December 31, 1997, the Company entered into $40 million credit
facility (the "BNY Facility") with a syndicate led by 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 $32 million as of September 30 and
December 31, 1997. This covenant was not met as of these dates and thereafter
and constituted a technical default under the BNY Facility. The Company has
negotiated waivers for these defaults through March 31, 1998. 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.
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.
<PAGE> 16
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 and entered into a $10 million credit facility with Lamar
Investments, Inc. ("Lamar"), an affiliate of a principal stockholder of the
Company. Lamar has agreed to provide the Company with a credit facility in the
principal amount of up to $10 million. In addition, former executive officers
of Company (the "Executives") agreed to reinvest the $4.8 million due them under
certain settlement agreements into the Company on the same terms. These
obligations were invested by Lamar and the Executives pursuant to the terms of a
Credit Agreement ("Credit Agreement") by and among the Company, Lamar and an
affiliate of the Executines, Wellgate International Ltd. ("Wellgate"). The
Company is obligated to make monthly interest payments to Lamar and Wellgate
based on the outstanding principal amount due under the Credit Agreement.
Pursuant to the Credit Agreement, the Company issued a Convertible
Revolving Note to Lamar in the principal amount of up to $10 million (the "Lamar
Note") and a Convertible Term Note to Wellgate in the principal amount of $4.8
million (the "Executive Note" and together with the Lamar Note, the "Notes").
The Notes bear interest at the rate of 11.5%, are secured by a second priority
perfected security interest in substantially all of the assets of the Company
and are convertible into shares of Common Stock of the Company at $2.60 per
share. The Company also issued warrants (the "Warrants") to purchase shares of
Common Stock of the Company at $3.00 per share for a three (3) year period;
333,708 Warrants were issued to Wellgate and up to 1,668,536 Warrants will be
issued to Lamar based on the amount of advances made under the Loan. As of May
11, 1998, approximately $7.55 million has been advanced by Lamar to the Company
under the Credit Agreement.
As a result of the recent change in control, the Company retained the
services of EIF Holdings, Inc. to conduct a review of the Company's operations.
This review is intended to identify alternatives to restructure the Company to
return it to profitability. As of the date of this Report, this review is
continuing and no definitive recommendations have been made. The Company is
exploring the possibility of a sale of its stake in MDC and recently announced
an agreement in principle which would provide the Company with gross proceeds of
$68 million, which would be used to retire debt and provide the Company with
operating capital for its North American operations. However, as of the date of
this Report there is no definitive agreement with respect to this transaction,
which would also be subject to regulatory approvals and customary conditions.
The Company also recently engaged a principal stockholder of the Company, Deere
Park Equities LLC, to identify potential financing sources for the Company.
There can be no assurances that the Company will be able to complete these
transactions successfully or that the Company will be able to restructure its
North American operations to return them to profitability.
<PAGE> 17
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.
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.
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 March 31, 1998, 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, as of the date of this report, there have been no material
developments in any of these matters.
On March 5, 1998 the United States District Court for the Eastern District
of Pennsylvania in the case captioned Smith v. Dominion Bridge Corporation
entered an order certifying as a class, investors who purchased shares of the
Company's common stock through the NASDAQ between April 20, 1995 and May 18,
1996. The court also dismissed from the case those investors during the same
period who purchased common stock through the Vancouver Stock Exchange.
ITEM 2. CHANGES IN SECURITIES
On April 28, 1998, the Company issued 2,002,224 Common Stock Purchase
Warrants (the "Warrants") and Convertible Promissory Notes (the "Notes") in the
aggregate principal amount of up to $14.8 million pursuant to an exemption from
the registration requirements of the Securities Act of 1933, as amended,
provided by Section 4(2) thereunder. This transaction is described in detail in
the Company's Current Report on Form 8-K dated April 28, 1998 which is
incorporated herein by reference.
The Warrants are exercisable at $3.00 per share for a three (3) year
period. The Notes bear interest at 11.5%, are secured by a second priority
perfected security interest in substantially all of the Company's assets and
mature on September 30, 1999. The principal amount due under the Notes is
convertible at any time at the option of the holder thereof into shares of the
Company's Common Stock at $2.60 per share.
A Note in the principal amount of $4.8 million together with 333,708
Warrants were issued to Wellgate International, Ltd, an affiliate of certain
former executive officers of the Company, representing payments owed by the
Company to these former executives under certain settlement agreements. A Note
in the principal amount of up to $10 million together with 1,668,536 Warrants
were issued to Lamar Investments, Inc. ("Lamar"), an affiliate of Deere Park
Equities, LLC, which is a principal stockholder of the Company, for cash
proceeds. As of May 11, 1998, approximately $7.55 million has been advanced
under this Note. The Company may be obligated to pay an advisory fee to its
former financial advisor equal to 5% of the aggregate proceeds advanced by
Lamar.
<PAGE> 18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1998 Annual Meeting of Stockholders was adjourned to May 21,
1998. The results of the Annual Meeting of Stockholders will be reported under
this Item in the Quarterly Report on Form 10-Q, for the fiscal quarter ending
June 30, 1998.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- ------------
<S> <C>
11 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
Report on Form 8-K, dated April 28, 1998, reporting on the a change in
Control of the Company.
<PAGE> 19
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/ Allen S. Gerrard Dated: May 20, 1998
-----------------------------
Allen S. Gerrard
Chairman of the Board
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert Chartier Dated: May 20, 1998
-----------------------------
Robert Chartier
Vice President and Interim Chief
Financial Officer
(Principal Financial
and Accounting Officer)
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
11 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule.
</TABLE>
