SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
for the fiscal year ended
December 31, 1994
Commission file number 1-5642
DRAVO CORPORATION
A PENNSYLVANIA CORPORATION
I.R.S. EMPLOYER IDENTIFICATION NUMBER 25-0447860
3600 ONE OLIVER PLAZA
PITTSBURGH, PENNSYLVANIA 15222-2682
TELEPHONE (412) 566-3000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Class: Registered:
Common Stock, $1.00 Par Value New York Stock Exchange
Preference Stock Purchase Rights New York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months,and (2) has been subject to such filing
requirements for the past 90 days. Yes XX . No_____.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
Common shares outstanding as of March 15, 1995: 14,869,834
Aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of March 15, 1995: $156,133,257
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
1994 are incorporated by reference to the extent set forth in Parts I, II and
IV of this Report. Portions of the Proxy Statement for Annual Meeting of
Shareholders on April 27, 1995 are incorporated by reference to the extent set
forth in Part III of this Report.
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TABLE OF CONTENTS
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Page
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PART I Item 1. Business 3 - 5
Item 2. Properties 6
Item 3. Legal Proceedings 7-8
Item 4. Submission of Matters to a Vote
of Security Holders 8
PART II Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matter 9 - 15
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 15
PART III Item 10. Directors and Executive Officers of the
Registrant 16
Item 11. Executive Compensation 17
Item 12. Security Ownership of Certain Beneficial Owners
and Management 17
Item 13. Certain Relationships and Related Transactions 17
PART IV Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 18 - 23
Signatures 24
Independent Auditors' Report on Schedules 25
Schedule I. Condensed Financial Information of Registrant 26 - 33
Table of Contents for documents filed herein as Exhibits
3, 4, 10, 11, 13, 21, 23, 24 and 27 34
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PART I
Item 1. Business
(a) General Development of the Business
Dravo Corporation (the Registrant) was incorporated in Pennsylvania in 1936 to
consolidate several related corporations then operating various elements of a
business started in 1891 by F. R. Dravo. Its corporate offices are located at
3600 One Oliver Plaza, Pittsburgh, Pennsylvania 15222-2682, and its telephone
number is 412-566-3000. As used herein, the term Dravo includes its
consolidated subsidiaries unless otherwise indicated. In December, 1987,
Dravo's Board of Directors approved a major restructuring program which
concentrated Dravo's future direction exclusively on opportunities involving
its natural resources business. The plan included the sale or other
disposition of the former Engineering and Construction segment, as well as the
sale of the former Materials Handling and Systems segment approved earlier.
All units scheduled for sale were sold by the end of 1989. The remainder of
these businesses have been presented as discontinued operations in the
financial statements.
Late in 1994, the company sold substantially all the assets and certain
liabilities of Dravo Basic Materials Company, its construction aggregates
subsidiary, to Martin Marietta Materials, Inc. (Martin Marietta). As a result,
Dravo is now primarily a lime company operating principally in the United
States. Activities include the production of lime for utility, metallurgical,
pulp and paper, municipal, construction and miscellaneous chemical and
industrial applications. Operations are principally carried on by a wholly-
owned subsidiary, Dravo Lime Company (Dravo Lime). All of the properties on
which the company's reserves are located are physically accessible for purposes
of mining and processing limestone into lime.
Dravo Lime, one of the nation's largest lime producers, owns and operates three
integrated lime production facilities, two in Kentucky and one in Alabama. The
Black River plant in Butler, Kentucky is nearing completion of a two kiln
expansion. When that expansion is on-line, Dravo Lime's annual quicklime
capacity will total approximately three million tons.
The Maysville facility, a 1,050,000 ton-per-year plant near Maysville,
Kentucky, produces material, marketed under the trade name ThiosorbicR Lime,
that has a product chemistry ideally suited for removing sulphur dioxide from
power plant stack gases. All of Maysville's output is committed under long-
term contracts with utility companies in the Ohio Valley region. All contracts
contain provisions for price escalation. Owned reserves at the Maysville site
are recovered from a mine 950 feet underground and are considered adequate to
sustain the current three kiln production in excess of thirty years. Dravo
Lime also holds options on additional limestone reserves to sustain production
for an additional thirty year period.
With the completion of the current two kiln expansion, Dravo Lime's Black River
facility will be an integrated ThiosorbicR and high calcium quicklime, bulk and
bagged hydrated lime facility. Located along the Ohio River at Butler,
Kentucky, Black River will have an annual quicklime capacity of 1,350,000 tons-
per-year. Of that total, in excess of seventy percent is committed to utility
companies and steel producers under contracts with price escalation provisions.
Limestone
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reserves at Black River are recovered from a 600-feet-deep underground mine.
At Black River's expanded rate of capacity, reserves are considered adequate to
sustain production levels for more than seventy-five years.
The company's Longview facility, located near Birmingham, Alabama, is an
integrated facility as well that produces high calcium quicklime, and bulk and
bagged hydrated lime from owned limestone reserves. At this plant, Dravo Lime
also produces dolomitic quicklime from limestone purchased from a nearby
dolomitic stone quarry. Due to its material handling and storage capabilities
and its ability to produce high calcium and dolomitic lime, the Longview
facility is able to custom blend quicklime to its customers' chemical
specifications. In April, 1991, Longview completed an expansion that increased
its annual production capacity to approximately 570,000 tons per year. The
additional production has been used to meet the needs of long-term contracts
for precipitated calcium carbonate, a product used by the pulp and paper
industry. The remainder of Longview's production is marketed to the full range
of traditional lime markets. Limestone at the Longview operation comes from an
above-ground quarry with recoverable reserves estimated to last in excess of
twenty years at the current production rate. Ultimately, Dravo Lime expects to
convert Longview to an underground mine, providing access to additional
reserves sufficient to support current production rates for over sixty years.
In conjunction with the sale of Dravo Basic Materials' assets to Martin
Marietta, Dravo Lime entered into agreements appointing Martin Marietta the
exclusive distributor of aggregate by-products produced by Dravo Lime during
the lime production process. As part of the distributorship agreement covering
Dravo Lime's Longview facility, an aggregates processing facility is being
constructed that will make available between 500,000 and 1,000,000 tons of
aggregates annually for purchase by Martin Marietta. An additional benefit of
this installation will be a reduction in the cost Dravo Lime otherwise would
have incurred to recover the high calcium limestone reserves that lie below the
aggregate quality material.
Dravo Lime products are distributed through quicklime distribution terminals in
Aliquippa, Butler and Elizabeth, Pennsylvania; Porterfield, Ohio; Brunswick and
Savannah, Georgia; and Jacksonville, Fort Lauderdale and Sanford, Florida. At
Baton Rouge, Louisiana, Dravo Lime owns and operates a lime hydration and
bagging facility from which quicklime, and bulk and bagged hydrated lime
products are distributed.
(b) Competitive Conditions
Dravo encounters competition at all its operations but believes that its
experience, its strategically located reserves and its technical expertise in
the flue gas desulfurization industry give it certain competitive advantages.
Dravo's research and development expenditures were $4.4 million in 1994 and
$4.2 million in 1993. Research and development spending in 1995 is expected to
exceed $3.2 million. The company expects the research, much of which is being
conducted jointly with utility customers, to lower both the capital and
operating costs
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associated with Dravo's proprietary ThiosorbicR scrubbing technology. Other
research projects are aimed at developing proprietary reagents for use in
reducing stack gas emissions and at recovering and processing saleable by-
products. Dravo believes that in this field its long-term contracts,
accumulated experience and technical skill represent significant competitive
advantages.
Several firms with which Dravo competes have comparable resources and income.
Dravo competes with other firms for qualified professional personnel,
particularly those with technical skills.
(c) Corporate Development
Dravo's corporate development policy encompasses growth through investment in
existing businesses, internal development and acquisition. Additionally, to
the extent that business units no longer meet management's long-term
profitability performance criteria and business strategies, or do not
contribute significantly to corporate objectives, a policy of divestiture is
followed.
Continuing operations of Dravo Corporation, which are principally domestic in
nature, function in one segment, a natural resource business, involved in the
production, processing and supply of lime for environmental, metallurgical,
pulp and paper, municipal, construction and miscellaneous chemical and
industrial applications. Dravo's position as the world's leading producer of
lime for flue gas desulfurization applications was enhanced by the passage of
the 1990 Clean Air Act Amendments.
Further information required by this item is incorporated by reference to the
information set forth under the captions indicated below in the 1994 Annual
Report to Shareholders which accompanies this report:
Caption in Annual Report Page No.
Results of Operations 18 - 20
Note 16: Research and Development 38
Employees at Year-End 41
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Item 2. Properties
The following is a listing of principal offices, plants and mines used in
operations:
Owned or
Use Location Leased
Executive and general Pittsburgh, Pennsylvania Leased
offices
Production facilities Saginaw, Alabama Owned
Butler, Kentucky Owned
Maysville, Kentucky Owned
Distribution sites Ft. Lauderdale, Florida Leased
Jacksonville, Florida Leased
Sanford, Florida Leased
Brunswick, Georgia Leased
Savannah, Georgia Leased
Baton Rouge, Louisiana Owned
Porterfield, Ohio Leased
Aliquippa, Pennsylvania Leased
Butler, Pennsylvania Leased
Elizabeth, Pennsylvania Leased
Offices and plants associated with businesses treated herein as discontinued
operations have been excluded from this presentation.
The following table shows a summary of the company's reserves at December 31,
1994 and tons mined by Dravo Lime in 1994.
(Tons in millions)
Recoverable 1994
Reserves Production
Underground Mines:
Owned 445.6 4.8
Quarries and Other:
Owned 56.5 1.5
502.1 6.3
Additional information required by this item is incorporated by reference to
the information set forth under Item 1(a) "General Development of the
Business" on pages 3 through 5 of this Form 10-K.
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Item 3. Legal Proceedings
The company has been notified by the U. S. Environmental Protection Agency
(EPA) that the EPA considers the company as a potentially responsible party
(PRP) for soil and groundwater contamination at four subsites in or around
Hastings, Nebraska. The Colorado Avenue subsite includes property on which
the company formerly operated a fabrication facility. For this subsite, the
EPA has issued, pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act, administrative orders to the company and two
other PRPs which require them to provide interim remedies for soil and
groundwater contamination. The company has been complying with these orders
while reserving its right to seek reimbursement from the United States for its
costs if it is determined the company is not liable for response costs or if
it is required to incur costs because of arbitrary, capricious or unreasonable
requirements imposed by EPA.
The EPA has taken no legal action with respect to its demand that the company
and the other PRPs pay its past response costs. A total of five parties have
been named by the EPA as PRPs at this subsite, but two of them have been
granted de minimis status. The company believes other persons should also be
named as PRPs.
The company, along with a number of others, is also considered a PRP with
respect to subsites at the municipally owned North and South Landfills in
Hastings, Nebraska. The North Landfill closed before the company commenced
operations in Hastings, Nebraska. A predecessor may have used this landfill
to dispose of waste materials, but there is no evidence known to the company
that these materials were hazardous. Moreover, Dravo believes the operations
of Dravo's predecessor which might have generated the type of hazardous
substances found at this landfill did not begin until after this landfill was
closed. On December 31, 1991 the EPA issued a formal demand to the company
and other PRPs for reimbursement of costs the EPA has incurred at the North
Landfill and has also solicited an offer from the company and the other PRPs
to conduct or finance remedial work at this subsite for both soil and
groundwater contamination. The company has rejected the EPA's demand to
reimburse the EPA for its costs and decided not to submit the offer requested.
No PRP at this subsite has agreed to pay the EPA's response costs. Other
PRPs, including the local municipality, however, have agreed to perform the
remedial investigation and to design soil and groundwater remedies at this
subsite. EPA has not completed the remedial investigation with respect to the
South Landfill subsite, and it is not evident to the company that remedial
work is warranted. In January, 1994 the EPA sent a specific notice to the
company that the EPA considered it and three other parties (including the City
of Hastings) PRPs at this subsite. At this subsite, the company has
preliminarily concluded that the City of Hastings is primarily responsible for
a proper closure of the South Landfill pursuant to state landfill closure
requirements and that a proper closure might alleviate any release of
contaminants from the landfill.
The fourth subsite (NAD subsite) is a former naval ammunition depot which was
subsequently converted to an industrial park in the 1960s. The company and
its predecessor also owned and operated a fabrication facility in this
industrial park. To date, the company's investigation indicates that it did
not cause the release of hazardous substances at this subsite during the time
it owned and operated the facility. The United States Army Corps of Engineers
has undertaken to conduct the remediation of this subsite.
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In addition to subsite cleanup, the EPA is seeking a cleanup of area-wide
contamination associated with all of the subsites in and around Hastings,
Nebraska. The company, along with other Hastings PRPs, has recommended that
the EPA adopt institutional controls as the area-wide remedy in Hastings and
the final subsite remedy. EPA has indicated some interest in this proposal
but has decided to first conduct an area-wide remedial investigation before
choosing a remedy.
On August 10, 1992, the company filed suit in the Alabama District Court
against its primary general liability insurers, Hartford Accident and
Indemnity Company and Liberty Mutual Insurance Company, and one of its
predecessor's insurers, Bituminous Casualty Company, seeking a declaratory
judgment that the company is entitled to a defense and indemnity under its
contracts of insurance (including certain excess policies provided by
Hartford). The company has settled its claim against Bituminous, but the
company's claims against Hartford and Liberty Mutual are still being
litigated. The company has notified its primary and excess general liability
carriers, as well as its predecessor's carriers, of the potential claims at
the North Landfill, South Landfill and NAD subsites.
On February 21, 1990, the company filed suit against Continental Energy
Associates (CEA), the owner of a cogeneration facility in Hazleton,
Pennsylvania, Continental Cogeneration Corporation (CCC), the owner's general
partner, and Swiss Bank Corporation, the project's lender. The company claims
damages for breach of contract and unjust enrichment arising out of the
termination of the company's contract to construct, as part of the facility, a
coal gasification plant. On February 23, 1990, CEA and CCC filed suit against
the company which, as amended, seeks damages for breach of contract, negligent
misrepresentation, fraud and tortious interference with the contract of
surety. The lawsuits have been consolidated in the Court of Common Pleas of
Luzerne County, Pennsylvania.
On November 14, 1994, during the pendency of discovery in these lawsuits, CEA
filed for Chapter 11 bankruptcy protection in the United States Bankruptcy
Court for the Middle District of Pennsylvania. The company has been
identified as an unsecured creditor in that proceeding. On December 2, 1994,
CCC also filed for Chapter 11 bankruptcy protection in the same court. The
bankruptcy filings of both CEA and CCC have stayed the consolidated Luzerne
County lawsuits pursuant to the applicable provisions of the Bankruptcy Code.
In January, 1995, the Bankruptcy Court entered an order approving non-binding
mediation of these lawsuits with the company. An initial mediation session
held in early March, 1995, did not result in resolution of the lawsuits.
Other information required by this item is incorporated by reference to the
information set forth under the caption Note 8: "Contingent Liabilities" in
the Notes to Consolidated Financial Statements on pages 32 through 33 of the
1994 Annual Report to Shareholders which accompanies this report.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders for the three
months ended December 31, 1994.
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PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
Information required by this item is incorporated by reference to the
information set forth under the captions indicated below in the 1994 Annual
Report to Shareholders which accompanies this report:
Caption in Annual Report Page No.
Common Stock Market Price 21
Shareholders at year-end 41
Dividends 20, 41
Description of Dravo Capital Stock
General
Under its Restated Articles of Incorporation ("the Articles"), as amended,
Dravo is authorized to issue 1,878,870 shares of preference stock, par value
$1.00 per share, and 35,000,000 shares of common stock, par value $1.00 per
share. At December 31, 1994 issued preference and common shares were 228,386
and 14,985,839, respectively.
The Board of Directors has by resolutions established four series of
preference stock: $2.20 Cumulative Convertible Series A Preference Stock
("Series A Preference Stock"), consisting of 26,817 shares, issued on
September 1, 1970; $2.475 Cumulative Convertible Series B Preference Stock
("Series B Preference Stock"), consisting of 165,516 shares, issued on June
12, 1973; Series C Preference Stock consisting of 200,000 shares, which are
issuable pursuant to the exercise of the rights to purchase stock described
below; and Series D Cumulative Convertible Exchangeable Preference Stock
("Series D Preference Stock") consisting of 200,000 shares, issued on
September 21, 1988. All of the shares of Series A Preference Stock were
converted into shares of common stock on April 2, 1978. Presently there are
28,386 shares of Series B Preference Stock and 200,000 shares of Series D
Preference Stock issued and outstanding. No shares of Series C Preference
Stock have been issued or are outstanding. Other series of preference stock
may be created by resolutions of the Board of Directors with such dividend,
liquidation, redemption, sinking fund and conversion rights as shall be
specified therein.
Dividend Rights
The holders of the preference stock are entitled to cumulative dividends,
payable quarterly, which must be paid and the next quarterly dividend set
apart before any dividends (except dividends in common stock or any other
stock ranking after
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the preference stocks as to dividends and assets) are declared, or paid, or
monies set apart for the payment of dividends on any class of stock ranking
after the preference stock as to dividends or assets. The rate of dividends
payable upon the Series B Preference Stock is $2.475 per annum. The rate of
dividends payable upon the Series C Preference Stock is an amount per share
(rounded to the nearest cent) equal to the greater of $10.00 or 100 times the
aggregate per share amount of all cash and non-cash dividends or other
distributions, other than a dividend or distribution payable in shares of
common stock, paid on the common stock in the immediately preceding quarter,
subject to adjustment in certain events. The rate of dividends payable upon
the Series D Preference Stock is 12.35 percent per annum or $12.35 per share,
which rate shall be increased by 2 percent per annum if such dividends are not
paid on any quarterly dividend payment date until accrued and unpaid dividends
on the Series D Preference Stock are paid.
The holders of the common stock are entitled to such dividends as may be
declared by the Board of Directors out of assets properly available for that
purpose. No common stock dividends have been declared since April, 1987.
Other information required by this item is incorporated by reference to the
information set forth under the caption "Note 5: Notes Payable", in the Notes
to Consolidated Financial Statements on pages 30 and 31 of the 1994 Annual
Report to Shareholders which accompanies this report.
Voting Rights
Each share of the common stock and the preference stock is entitled to one
vote, which is cumulative in the election of directors. The Board of
Directors is divided into three classes, and approximately one third of the
directors are elected each year for three year terms. The effect of such
classification of the Board is to increase the number of shares, voted
cumulatively, necessary to elect directors. If dividends on the preference
stock shall be unpaid or in arrears for six quarterly dividend periods, the
holders of the preference stock voting as a class shall have the right to
elect two additional directors.
Liquidation Rights
In the event of the voluntary or involuntary liquidation or dissolution of
Dravo, or the sale or other disposition of substantially all of its assets,
the holders of the Series B Preference Stock shall be entitled to receive the
sum of $55 per share plus all accumulated and unpaid dividends thereon; the
holders of Series C Preference Stock shall be entitled to receive $100 per
share plus all accrued and unpaid dividends plus an amount equal to the
holder's pro rata share of the amount that would be available for distribution
after payment of all liabilities,
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liquidation preferences and a distribution on the common stock, if any, as
determined according to a formula; and the holders of Series D Preference
Stock shall be entitled to receive $100 per share plus all accumulated and
unpaid dividends thereon. The holders of any other series of preference stock
which may be issued shall be entitled to receive the amounts provided for in
the resolutions creating such series. The holders of the common stock shall
share ratably in the remaining assets, if any.
No Preemptive Rights and Non-assessability
No preemptive rights attach to the common stock or the preference stock.
Neither the holders of the common stock nor the preference stock are liable to
further calls or assessment by Dravo.
Redemption and Sinking Fund Provisions
There are no redemption provisions with respect to the common stock. The
Series B Preference Stock may be redeemed, in whole or in part, at the option
of Dravo, on not less than 60 days notice, on any quarterly dividend payment
date by the payment of $55 per share and all accumulated and unpaid dividends
to the redemption date. The Series C Preference Stock may be redeemed as a
whole, but not in part, at the option of Dravo, at any time, at a cash price
per share based upon the average market value, as defined and adjusted, of the
common stock plus all accrued but unpaid dividends. The Series D Preference
Stock may be redeemed in whole or in part at the option of Dravo at any time
after September 21, 1996, by the payment of $100 per share and all accumulated
and unpaid dividends to the redemption date, so long as the current market
price (as defined in the Certificate of Designations, Preferences and Rights
for the Series D Preference Stock) of the common stock on the date the Board
decides to redeem the shares is at least 175 percent of the then effective
conversion price for the Series D Preference Stock. Commencing on the first
quarterly dividend payment date after September 21, 1998 and annually
thereafter, Dravo is required to redeem 50,000 shares of Series D Preference
Stock in cash at the redemption price of $100 per share plus all accumulated
and unpaid dividends. Dravo is also required (unless certain conditions are
met) to redeem all of the then outstanding shares of Series D Preference Stock
in cash at $100 per share plus all accumulated and unpaid dividends (a) if
Dravo declares or pays or sets apart for payment any dividends or makes any
other distribution in cash or other property on or in respect of the common
stock or any other class or series of the capital stock of Dravo ranking
junior to the Series D Preference Stock as to payment of dividends ("Junior
Dividend Stock"), or sets apart money for any sinking fund or analogous fund
for the redemption or purchase of any Junior Dividend Stock and (b) upon any
merger or consolidation of Dravo if, in connection therewith, the holders of
the common stock receive cash, debt instruments or preference stock of the
surviving entity which ranks on a parity with or senior to the Series D
Preference stock with respect to liquidation, dissolution or winding up or
dividends. There are no sinking fund provisions with respect to the common
stock or the Series B Preference Stock, Series C Preference Stock or Series D
Preference Stock.
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Conversion
The Series B Preference Stock is presently convertible at any time prior to
redemption at the option of the holder into common stock on the basis of 3.216
shares of common stock for each share of Series B Preference Stock, subject to
equitable adjustment in the event of certain changes affecting the common
stock. The Series D Preference Stock is presently convertible at any time
prior to redemption at the option of the holder into common stock on the basis
of 8.0 shares of common stock for each share of Series D Preference Stock,
subject to adjustment in the event of certain changes affecting the common
stock. The Series D Preference Stock is convertible or exchangeable in whole
at any time by Dravo for an equal face amount of Dravo Senior Subordinated
Convertible Notes due September 21, 2001 containing the same conversion
rights, transfer restrictions and other terms (other than voting rights) as
the Series D Preference Stock. There are no conversion rights with respect to
the Series C Preference Stock or the common stock.
Rights to Purchase Series C Preference Stock
The Series C Preference Stock is issuable pursuant to the exercise of rights
to purchase Series C Preference Stock. On April 4, 1986, the Board of
Directors declared a distribution of one right for each outstanding share of
common stock to shareholders of record at the close of business on April 17,
1986 (the "Record Date") and with respect to each share of common stock that
may be issued by Dravo prior to the Distribution Date described below or the
earlier redemption or expiration of the rights. Each right entitles the
registered holder, following the occurrence of certain events described below,
to purchase from Dravo a unit consisting of one one-hundredth of a share (a
"Unit") of Series C Preference Stock at a purchase price of $60 per Unit,
subject to adjustment (the "Purchase Price"). The descriptions and terms of
the rights are set forth in a rights agreement (the "Rights Agreement")
between Dravo and PNC Bank, N. A. (formerly Pittsburgh National Bank), as the
rights agent.
Initially, the rights will be attached to all common stock certificates
representing shares then outstanding, and no separate rights certificates will
be distributed. The rights will separate from the common stock and a
distribution date will occur upon the earlier of (a) 10 days following a
public announcement that a person or group of affiliated or associated persons
(an "Acquiring Person") has acquired, or obtained the right to acquire,
beneficial ownership of 20 percent or more of the outstanding shares of common
stock of Dravo (the "Stock Acquisition Date"), or (b) 10 business days
following the commencement of a tender offer or exchange offer that would
result in a person or group beneficially owning 30 percent or more of such
outstanding shares of common stock. Until the distribution date, (i) the
rights will be evidenced by the common stock certificates and will be
transferred with and only with such common stock certificates, (ii) new common
stock certificates issued after the Record Date will contain a notation
incorporating the Rights Agreement by reference, and (iii) the surrender for
transfer of any certificate for common stock outstanding will also constitute
the transfer of the rights associated with the common stock represented by
such certificate.
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The rights are not exercisable until the distribution date and will expire at
the close of business on April 17, 1996, unless earlier redeemed by Dravo as
described below.
In the event that, at any time following the distribution date, (a) Dravo is
the surviving corporation in a merger with an Acquiring Person and its common
stock is not changed or exchanged, (b) an Acquiring Person becomes the
beneficial owner of 30 percent or more of the then outstanding shares of
common stock, (c) an Acquiring Person engages in one or more "self-dealing"
transactions as set forth in the Rights Agreement, or (d) during such time as
there is an Acquiring Person, an event occurs which results in such Acquiring
Person's ownership interest being increased by more than one percent (e.g., a
reclassification of securities, reverse stock split or recapitalization of
Dravo), each holder of a right will thereafter have the right to receive, upon
exercise, common stock (or, in certain circumstances, cash, property or other
securities of Dravo) having a value equal to two times the Purchase Price of
the right. Notwithstanding any of the foregoing, (i) rights are not
exercisable following the occurrence of any of the events set forth in this
paragraph until such time as the rights are no longer redeemable by Dravo as
set forth below, and (ii) following the occurrence of any of the events set
forth above, all rights that are, or (under certain circumstances specified in
the Rights Agreement) were, beneficially owned by any Acquiring Person will be
null and void.
In the event that, at any time following the stock acquisition date, (i) Dravo
is acquired in a merger or other business combination transaction in which
Dravo is not the surviving corporation (other than a merger described in the
preceding paragraph), or (ii) 50 percent or more of Dravo assets or earning
power is sold or transferred, each holder of a right (except rights which
previously have been voided as set forth above) shall thereafter have the
right to receive, upon exercise, common stock of the acquiring company having
a value equal to two times the exercise price of the right. The events set
forth in this paragraph and in the preceding paragraph are referred to as the
"Triggering Events."
The Purchase Price payable, and the number of units of Series C Preference
Stock or other securities or property issuable, upon exercise of the rights
are subject to adjustment from time to time to prevent dilution. No
fractional units may be issued and, in lieu thereof, an adjustment in cash may
be made based on the market price of the Series C Preference Stock on the last
trading date prior to the date of exercise.
At any time until ten days following the stock acquisition date, Dravo may
redeem the rights in whole, but not in part, at a price of $.01 per right.
Under certain circumstances set forth in the Rights Agreement, the decision to
redeem shall require the concurrence of a majority of the continuing
directors, as defined. After the redemption period has expired and prior to
the occurrence of a Triggering Event, Dravo's right of redemption may be
reinstated if an Acquiring Person reduces his beneficial ownership to 10
percent or less of the outstanding
-13-
<PAGE>
shares of common stock in a transaction or series of transactions not
involving Dravo. Immediately upon action of the Board of Directors ordering
redemption of the rights, with, where required, the concurrence of the
continuing directors, the rights will terminate and the only right of the
holders of rights will be to receive the $.01 redemption price.
Until a right is exercised, the holder thereof, as such, will have no rights
as a shareholder of Dravo, including, without limitation, the right to vote or
to receive dividends.
Other than those provisions relating to the principal economic terms of the
rights, any of the provisions of the Rights Agreement may be amended by the
Board of Directors of Dravo prior to the distribution date. Thereafter, the
provisions of the Rights Agreement may be amended by the Board (in certain
circumstances, with the concurrence of the continuing directors) in order to
cure any ambiguity, to make changes which do not adversely affect the
interests of holders of rights (excluding the interests of any Acquiring
Person), to suspend the effectiveness of the provision of the Rights Agreement
pursuant to which certain rights become void as described above, or to shorten
or lengthen any time period under the Rights Agreement; provided, however,
that no amendment to adjust the time period governing redemption shall be made
at such time as the rights are not redeemable.
The rights may have the effect of preventing or discouraging some attempts to
acquire control of Dravo. The rights could cause substantial dilution to a
person or group that attempts to acquire control of Dravo on terms not
approved by its Board of Directors, unless the offer is conditioned on a
substantial percentage of rights being tendered to and acquired by the
Acquiring Person. The rights should not interfere with any merger or other
business combination approved by the Board of Directors prior to the
expiration of the redemption period since the rights may be redeemed by Dravo
prior to the expiration of such period and Dravo may suspend the provisions
that in certain circumstances prevent an Acquiring Person from exercising its
rights. The rights could interfere with a negotiated transaction after an
acquisition of 20 percent or more voting power if the rights were not
redeemed. The rights will not prevent a holder of a controlling interest from
exercising control over Dravo.
A copy of the Rights Agreement has been filed with the Securities and Exchange
Commission as an Exhibit to a Report on Form 8-K. A copy of the Rights
Agreement is available free of charge from Dravo upon the request of any
shareholder. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights
Agreement.
Other Information
Dravo may purchase shares of the preference stock whether or not any dividend
arrearage shall exist with respect thereto, and may hold and dispose of such
shares in such manner as it may elect.
-14-
<PAGE>
The holders of the preference stock who comply with applicable provisions of
law and object to a merger or consolidation involving Dravo shall have all of
the legal rights of objecting shareholders in a merger or consolidation
whether or not they constitute a class otherwise entitled to such rights.
The transfer agent and registrar for the common stock is Continental Stock
Transfer & Trust Company, New York, NY.
Item 6. Selected Financial Data
Information required by this item, with the exception of common stock
dividends declared, is incorporated by reference to the information set forth
under the caption "Five-Year Summary" on page 41 of the 1994 Annual Report to
Shareholders which accompanies this report. Dravo has declared no common
stock dividends in the five-year period ending December 31, 1994.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Information required by this item is incorporated by reference to the
information set forth under the captions "Overview", "Results of Operations",
"Financial Position and Liquidity" and "Outlook" on pages 18 through 21 of the
1994 Annual Report to Shareholders which accompanies this report, to the
information set forth under the caption Note 2: "Discontinued Operations" on
pages 28 and 29, Note 3: "Dispositions" on pages 29 and 30, Note 7:
"Commitments" on pages 31 and 32, Note 8: "Contingent Liabilities" on pages 32
and 33, Note 13: "Income Taxes" on pages 36 through 38 and Note 14:
"Extraordinary Item" on page 38 in the Notes to Consolidated Financial
Statements of the Annual Report to Shareholders, and to Item 3 - "Legal
Proceedings" on pages 7 and 8 of this Form 10-K.
Item 8. Financial Statements and Supplementary Data
Information required by this item is incorporated by reference to the
financial statements and notes thereto set forth on pages 22 through 39, and
the Independent Auditors' Report set forth on page 40 of the 1994 Annual
Report to Shareholders which accompanies this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
-15-
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Information required by this Item as to Directors and nominees for Director is
incorporated by reference to the information set forth under the caption
"Information Concerning Directors and Nominees for Director" in the
Registrant's Proxy Statement for the Annual Meeting of Shareholders on April
27, 1995.
The following information relates to executive officers of Dravo Corporation
who are not directors.
Marshall S. Johnson, Age 53, Vice President, Operations and Engineering since
December, 1994, Vice President, Operations, Dravo Lime Company from April,
1992 to December 1994; prior thereto Regional Operations Manager, Dravo Lime
Company.
Ernest F. Ladd III, Age 54, Executive Vice President, Chief Financial Officer
since December, 1994, Executive Vice President, Finance and Administration
from December, 1989 to December, 1994.
John R. Major, Age 50, Vice President, Administration since January, 1989.
James J. Puhala, Age 52, Vice President, General Counsel and Secretary since
September, 1987.
Donald H. Stowe, Jr., Age 43, Vice President Sales and Technology since
December 1994, Executive Vice President, Sales and Technology, Dravo Lime
Company from March, 1992 to December, 1994; prior thereto Sr. Vice President,
Sales and Technology, Dravo Lime Company.
Larry J. Walker, Age 42, Controller since December, 1989.
Gregory H. Welch, Age 39, Treasurer since January, 1995; Assistant Treasurer
from April, 1994 to January, 1995; prior thereto Cash Manager, Dravo Natural
Resources Company.
-16-
<PAGE>
Item 11. Executive Compensation
Information required by this item is incorporated by reference to the
information set forth under the caption "Executive Compensation" in the
Registrant's Proxy Statement for the Annual Meeting of Shareholders on April
27, 1995.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information required by this item is incorporated by reference to the
information set forth under the captions "Security Ownership of Certain
Beneficial Owners" and "Ownership by Management of Equity Securities" in the
Registrant's Proxy Statement for the Annual Meeting of Shareholders on April
27, 1995.
Item 13. Certain Relationships and Related Transactions
Information required by this item is incorporated by reference to the
information set forth under the caption "Information Concerning Directors and
Nominees for Director" in the Registrant's Proxy Statement for the Annual
Meeting of Shareholders on April 27, 1995.
-17-
<PAGE>
PART - IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements
The following consolidated financial statements of the Registrant are
filed pursuant to Item 8 of this Form 10-K and are incorporated herein
by reference to the page numbers indicated below in the 1994 Annual
Report to Shareholders which accompanies this report.
<TABLE>
<CAPTION>
Description Page No.
<S> <C>
Consolidated Balance Sheets at December 31, 1994 and 1993 22, 23
Consolidated Statements of Operations for the years ended
December 31, 1994, 1993 and 1992 24
Consolidated Statements of Retained Earnings for the years
ended December 31, 1994, 1993 and 1992 25
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992 26, 27
Notes to Consolidated Financial Statements 28 - 39
Independent Auditors' Report 40
2. Financial Statement Schedules
The following financial statement schedules of the Registrant are
required and are filed pursuant to this item in this Form 10-K.
Schedule Page No.
Independent Auditors' Report 25
Schedule I. Condensed Financial Information of
Registrant 26 - 33
</TABLE>
Schedules other than those listed above have been omitted because they are not
applicable or because the required information is reported in the financial
statements or notes.
-18-
<PAGE>
(a) 3. Exhibits
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession
(i) Asset Purchase Agreement dated as of January 3, 1995 among Dravo
Corporation, Dravo Basic Materials Company, Inc., Atchafalaya
Mining Company, Inc. and Martin Marietta Materials, Inc. is
incorporated by reference to Exhibit 2 of the January 17, 1995
Form 8-K of the Registrant.
(3) Articles of Incorporation and By-laws
(i) Articles of Amendment restating Dravo Corporation's Articles of
Incorporation in their entirety and all subsequent amendments
thereto including but not limited to the Statement with Respect
to Shares of Dravo Corporation as filed with the Secretary of the
Commonwealth of Pennsylvania on January 27, 1992 are incorporated
by reference to Exhibit 3.1 of the February 12, 1992 Form 8-K of
the Registrant.
(ii) By-laws of the Registrant as amended are filed herein under
separate cover.
(4) Instruments Defining the Rights of Security Holders, including
Indentures
(i) Articles of Amendment restating Dravo Corporation's Articles of
Incorporation, described in Exhibit (3)(i) in this Form 10-K of
the Registrant.
(ii) Shareholders' Rights Agreement dated as of April 4, 1986 between
Dravo Corporation and PNC Bank, N. A. (formerly Pittsburgh
National Bank), as rights agent, incorporated by reference to
Exhibit (1) of the April, 1986 Form 8-K of the Registrant.
(iii) Statement with Respect to Shares - Domestic Business Corporation
amending Section 3(a) of the Certificate of Designations,
Preferences and Rights of Series D Cumulative Convertible
Exchangeable Preference Stock is incorporated by reference to
exhibit (4) (ii) of the June 30, 1990 Form 10-Q of the
Registrant.
(iv) Form of indemnification agreement between Dravo Corporation and
members of its Board of Directors incorporated by reference to
Exhibit (10)(xvii) of the December 31, 1987 Form 10-K of the
Registrant.
(v) Statement with respect to amended rules for Form S-8 is
incorporated by reference to Exhibit (4)(x) of the December 31,
1990 Form 10-K of the Registrant.
-19-
<PAGE>
(4)(vi) Credit and Note and Stock Purchase Agreement dated as of
September 21, 1988 by and among Dravo Corporation, its wholly-
owned subsidiaries, Dravo Lime Company and Dravo Basic Materials
Company, Inc. and The Prudential Insurance Company of America and
Prudential Interfunding Corp. is incorporated by reference to
Exhibit (4)(i) of the September 27, 1988 Form 8-K of the
Registrant and amendment dated March 13, 1990 to said agreement
is incorporated by reference to Exhibit (4)(v) of the December
31, 1989 Form 10-K of the Registrant.
(vii) Registration agreement dated as of September 21, 1988 between
Dravo Corporation and The Prudential Insurance Company of
America, is incorporated by reference to Exhibit (4)(vi) to the
September 27, 1988 Form 8-K of the Registrant.
(viii) (a) Revolving Line of Credit Agreement with all attendant
schedules and exhibits dated as of September 20, 1990, by and
among Dravo Corporation, Dravo Lime Company, Dravo Basic
Materials Company, Inc., First Alabama Bank, and PNC Bank, N.
A. (formerly Pittsburgh National Bank) is incorporated by
reference to Exhibit (4)(i) of the September 30, 1990 Form
10-Q of the Registrant.
(b) Amendment dated September 20, 1990 to Credit and Note and
Stock Purchase Agreement dated as of September 21, 1988 is
incorporated by reference to Exhibit (4) (ii) of the
September 30, 1990 Form 10-Q of the Registrant.
(c) First amendment to the Companies' Pledge Agreement dated
September 20, 1990 of the Credit and Note and Stock Purchase
Agreement dated September 21, 1988 is incorporated by
reference to Exhibit (4)(iii) of the September 30, 1990 Form
10-Q of the Registrant.
(d) First amendment to the Second Intercreditor Agreement dated
September 20, 1990 of the Credit and Note and Stock Purchase
Agreement dated September 21, 1988 is incorporated by
reference to Exhibit (4)(iv) of the September 30, 1990 Form
10-Q of the Registrant.
-20-
<PAGE>
(4) (viii) (e) Intercreditor Agreement dated September 20, 1990 by and among
The Prudential Insurance Company of America, First Alabama
Bank, PNC Bank, N. A. (formerly Pittsburgh National Bank),
Mellon Bank, N. A., and the Royal Bank of Canada is
incorporated by reference to Exhibit (4) (v) of the September
30, 1990 Form 10-Q of the Registrant.
(ix) (a) Loan Agreement dated as of December 1, 1978 between Dravo
Equipment Company and County of Harrison, Ohio.
The Registrant hereby agrees to furnish to the Commission
upon request a copy of the instrument listed under exhibit
(4)(ix). The instrument does not authorize the issuance of
securities in excess of 10 percent of total assets of the
Registrant and its subsidiaries on a consolidated basis.
(x) Override Agreement, dated January 21, 1992, between Dravo
Corporation, The Prudential Insurance Company of America, First
Alabama Bank, PNC Bank, N. A. (formerly Pittsburgh National Bank)
and Continental Bank, N. A. is incorporated by reference to
Exhibit 10.1 of the February 12, 1992 Form 8-K of the Registrant.
(xi) First Amendment, dated March 10, 1993, to the Override Agreement
dated January 21, 1992 is incorporated by reference to Exhibit 4
(xi) of the December 31, 1992 Form 10-K of the Registrant.
(xii) Second Amendment, dated March 7, 1994, to the Override Agreement
dated January 21, 1992 is incorporated by reference to Exhibit 4
(xii) of the December 31, 1993 Form 10-K of the Registrant.
(xiii) First Amendment, dated March 7, 1994, to the Amended and Restated
Revolving Credit Agreement dated January 21, 1992 is incorporated
by reference to Exhibit 4 (xiii) of the December 31, 1993 Form
10-K of the Registrant.
(xiv) Four copies of the First Amendment, (one each for The Prudential
Insurance Company of America, First Alabama Bank, PNC Bank, N.A.
and Continental Bank N.A.), dated March 7, 1994, to the Amended
and Restated Revolving Credit Agreement dated January 21, 1992
are incorporated by reference to Exhibit 4 (xiv) of the December
31, 1993 Form 10-K of the Registrant.
(xv) Note Purchase Agreement dated August 1, 1994 between Dravo Black
River Limited Partnership and the Prudential Insurance Company of
America is incorporated by reference to the August 18, 1994 Form
8-K of the Registrant.
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<PAGE>
(xvi) Amendment Agreement dated August 1, 1994 encompassing the Third
Amendment to the Override Agreement dated January 21, 1992 and
the Second Amendment to the Amended and Restated Revolving Credit
Agreement dated January 21, 1992 is incorporated by reference to
the August 18, 1994 Form 8-K of the Registrant.
(xvii) Amendment Agreement dated January 3, 1995 encompassing the Fourth
Amendment to the Override Agreement dated January 21, 1992 and
the Third Amendment to the Amended and Restated Revolving Credit
Agreement dated January 21, 1992 is filed herein under separate
cover.
(10) Material Contracts
(All of the following, except item 10 (xi), are Management Contracts
or Compensatory Plans or Arrangements required to be filed as an
Exhibit to this Form 10-K.)
(i) Dravo Corporation Executive Death and Disability Income Executive
Benefits Plan (now Executive Benefit Plan), approved by the Board
of Directors on October 23, 1980, incorporated by reference to
Exhibit (10)(i) of the December 31, 1980 Form 10-K of the
Registrant, and amendment thereto dated July 1, 1984,
incorporated by reference to Exhibit (10)(i) of the December
31, 1984 Form 10-K of the Registrant.
(ii) Dravo Corporation Stock Option Plan of 1978, as amended,
incorporated by reference to Exhibit (10)(vi) of the December 31,
1982 Form 10-K of the Registrant.
(iii) Dravo Corporation Long-Term Incentive Award Plan of 1983, as
amended, incorporated by reference to Exhibit (10)(iv) of the
December 31, 1987 Form 10-K of the Registrant.
(iv) Dravo Corporation Incentive Compensation Plan is filed herein
under separate cover.
(v) Dravo Corporation Employee Stock Option Plan of 1988,
incorporated by reference to the Proxy Statement for the Annual
Meeting of Shareholders on April 28, 1988.
(vi) Agreement dated June 1, 1993 between Dravo Corporation and C. A.
Torbert, Jr. is incorporated by reference to Exhibit 10 (vii) of
the December 31, 1993 Form 10-K of the Registrant.
(vii) Agreement dated June 1, 1993 between Dravo Corporation and Ernest
F. Ladd III is incorporated by reference to Exhibit 10 (viii) of
the December 31, 1993 Form 10-K of the Registrant.
(viii) Agreement dated June 1, 1993 between Dravo Corporation and Carl
A. Gilbert is incorporated by reference to Exhibit 10 (ix) of the
December 31, 1993 Form 10-K of the Registrant.
-22-
<PAGE>
(10) Material Contracts
(ix) Agreement dated June 1, 1993 between Dravo Corporation and John
R. Major is incorporated by reference to Exhibit 10 (xi) of the
December 31, 1993 Form 10-K of the Registrant.
(x) Dravo Corporation Stock Option Plan of 1994 is incorporated by
reference to the Proxy Statement for the Annual Meeting of
Shareholders on April 28, 1994.
(xi) Noncompetition and Nondisclosure Agreement dated January 3, 1995
by and among Dravo Corporation, Dravo Basic Materials Company,
Inc., Dravo Lime Company and Martin Marietta Materials, Inc. is
incorporated by reference to Exhibit 10.1 of the January 17, 1995
Form 8-K of the Registrant.
(xii) Agreement between Dravo Corporation and Carl A. Torbert, Jr.
dated December 31, 1994 is filed herein under separate cover.
(11) Statement Re Computation of Per Share Earnings filed under this
cover.
(13) 1994 Annual Report to Shareholders attached to this report under
this cover. Except for the pages and information thereof expressly
incorporated by reference in this Form 10-K, the Annual Report to
Shareholders is provided solely for the information of the
Securities and Exchange Commission and is not to be deemed "filed"
as part of the Form 10-K.
(21) Subsidiaries of the Registrant filed under this cover.
(23) Consent of Independent Auditors filed under this cover.
(24) Powers of Attorney are filed herein under separate cover.
(b) Reports on Form 8-K
(i) On November 15, 1994 the Registrant filed a Form 8-K reporting on
(a) loan documents related to financing provided by The Prudential
Insurance Company of America for the expansion of a lime production
facility in Carntown, Kentucky and (b) amendments to previously
existing financing agreements to allow for the borrowing of funds
under the expansion financing documents.
(ii) On January 17, 1995 the Registrant filed a Form 8-K reporting on (a)
the sale of substantially all the assets of Dravo Basic Materials
Company, Inc. (DBM) and (b) a noncompetition and nondisclosure
agreement related to the DBM sale. A pro forma balance sheet at
September 30, 1994, pro forma statements of operations for the nine
months ended September 30, 1994 and 12 months ended December 31,
1993 and explanatory notes to the pro forma financial statements
were included in the Form 8-K.
-23-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DRAVO CORPORATION
March 29, 1995 By:/s/ CARL A. GILBERT
Carl A. Gilbert, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title Date
/s/ CARL A. GILBERT President, Chief Executive
Carl A. Gilbert Officer and Director March 29, 1995
/s/ ERNEST F. LADD III Executive Vice President,
Ernest F. Ladd III Chief Financial Officer March 29, 1995
/s/ LARRY J. WALKER Controller March 29, 1995
Larry J. Walker
*E. EUGENE BISHOP Director
E. Eugene Bishop March 29, 1995
*ARTHUR E. BYRNES Director March 29, 1995
Arthur E. Byrnes
*JACK EDWARDS Director March 29, 1995
Jack Edwards
*JAMES C. HUNTINGTON, JR. Director March 29, 1995
James C. Huntington, Jr.
*WILLIAM E. KASSLING Director March 29, 1995
William E. Kassling
*WILLIAM G. ROTH Director March 29, 1995
William G. Roth
*KONRAD M. WEIS Director March 29, 1995
Konrad M. Weis
*ROBERT C. WILBURN Director March 29, 1995
Robert C. Wilburn
/s/ ERNEST F. LADD III
*By Ernest F. Ladd III, Attorney-in-fact
-24-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Dravo Corporation:
Under date of February 10, 1995, we reported on the consolidated balance
sheets of Dravo Corporation and subsidiaries as of December 31, 1994, and
1993, and the related consolidated statements of operations, retained
earnings, and cash flows for each of the years in the three-year period ended
December 31, 1994, as contained in the 1994 annual report to shareholders. As
discussed in Notes 10 and 13 to the consolidated financial statements, the
company adopted the method of accounting for postemployment benefits
prescribed by Statement of Financial Accounting Standards No. 112 in 1994 and
the methods of accounting for postretirement benefits other than pensions and
income taxes prescribed by Statements of Financial Accounting Standard Nos.
106 and 109, respectively, in 1993. These consolidated financial statements
and our report thereon are incorporated by reference in the annual report on
Form 10-K for the year 1994. In connection with our audits of the
aforementioned consolidated financial statements, we also have audited the
related financial statement schedule as listed in answer to Item 14(a)(2).
The financial statement schedule is the responsibility of the company's
management. Our responsibility is to express an opinion on the financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth therein.
Our audit report on the consolidated financial statements of Dravo Corporation
and subsidiaries referred to above contains an explanatory paragraph that
states that a lawsuit and certain claims and assertions have been brought
against the company for contract disputes and environmental costs, the outcome
of which presently cannot be determined.
KPMG PEAT MARWICK LLP
New Orleans, Louisiana
February 10, 1995
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<PAGE>
DRAVO CORPORATION (PARENT COMPANY)
Schedule I - Condensed Financial Information of Registrant
Balance Sheets
<TABLE>
<CAPTION>
(In thousands) December 31,
1994 1993
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 254 $ 37
Accounts receivable 1,605 569
Notes receivable 1,200 1,200
Current income tax benefit from affiliates 1,941 4,483
Other current assets 1,585 316
Total current assets 6,585 6,605
Investments in affiliates 195,497 193,954
Notes receivable 1,300 2,900
Deferred income tax benefit from affiliates 24,853 24,853
Other assets 19,241 11,450
Property, plant and equipment 6,832 6,832
Less accumulated depreciation and
amortization 6,818 6,809
Net property, plant and equipment 14 23
Total assets $247,490 $239,785
</TABLE>
See accompanying notes to financial statements.
-26-
<PAGE>
DRAVO CORPORATION (PARENT COMPANY)
Schedule I - Condensed Financial Information of Registrant
Balance Sheets
<TABLE>
<CAPTION>
(In thousands) December 31,
1994 1993
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 2,404 $ 1,529
Accrued insurance 567 1,197
Accrued retirement contribution 2,388 2,101
Net liabilities of discontinued operations 13,547 4,454
Other current liabilities 675 246
Total current liabilities 19,581 9,527
Advances from affiliates 116,818 96,041
Net liabilities of discontinued operations 8,445 22,130
Other liabilities 5,900 2,548
Redeemable preference stock:
Par value $1, issued 200,000 shares: Series D,
cumulative, convertible, exchangeable
(entitled in liquidation to $20.0 million) 20,000 20,000
Shareholders' equity:
Preference stock, par value $1, authorized
1,878,870 shares: Series B, $2.475 cumulative,
convertible, issued 28,386 and 32,386 shares
(entitled in liquidation to $1.6 million
and $1.8 million); 28 32
Series D, reported above
Common stock, par value $1, authorized 35,000,000
shares; issued 14,985,839 and 14,967,824
shares 14,986 14,968
Other shareholders' equity 61,732 74,539
Total shareholders' equity 76,746 89,539
Total liabilities and shareholders' equity $247,490 $239,785
</TABLE>
See accompanying notes to financial statements.
-27-
<PAGE>
DRAVO CORPORATION (PARENT COMPANY)
Schedule I - Condensed Financial Information of Registrant
Statements of Operations
<TABLE>
<CAPTION>
Years ended December 31,
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
General and administrative
expenses $ (1,433) $ (1,046) $ (1,750)
Interest expense (16) -- --
Interest income 9 49 60
Loss from continuing operations
before taxes, affiliate earnings
and extraordinary item (1,440) (997) (1,690)
Income tax benefit (provision) (4,107) 27,834 448
Earnings (loss) from continuing
operations before affiliate earnings
and extraordinary item (5,547) 26,837 (1,242)
Equity in affiliate earnings 1,544 8,565 11,560
Earnings (loss) from continuing operations
before extraordinary item (4,003) 35,402 10,318
Loss from discontinued operations (6,554) (35,303) --
Extraordinary item -- -- 1,573
Net earnings (loss) before cumulative
effect of change in accounting principle (10,557) 99 11,891
Cumulative effect of change in
accounting for income taxes -- (276) --
Net earnings (loss) $(10,557) $ (177) $ 11,891
</TABLE>
See accompanying notes to financial statements.
-28-
<PAGE>
DRAVO CORPORATION (PARENT COMPANY)
Schedule I - Condensed Financial Information of Registrant
Statements of Cash Flows
<TABLE>
<CAPTION>
(In thousands) Years ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating activities:
Earnings (loss) from continuing
operations $ (4,003) $ 35,402 $ 10,318
Adjustments to reconcile earnings (loss) from
continuing operations to net cash provided
(used) by continuing operations activities:
Depreciation and amortization 9 13 14
Equity in earnings of affiliates (1,544) (8,565) (11,560)
Cumulative effect of change in accounting
principle for income taxes -- (276) --
Changes in assets and liabilities:
Decrease (increase) in accounts
receivable (1,036) 691 (1,245)
Decrease in notes receivable -- -- 450
Decrease (increase) in deferred income
tax benefits 2,542 (6,828) 2,631
Decrease (increase) in other current
assets (1,269) 334 (160)
Decrease (increase) in other assets (7,791) (1,159) 743
Increase (decrease) in accounts payable
and accrued expenses 961 (2,012) (5,715)
Increase (decrease) in other
liabilities 3,352 (224) (26)
Net cash provided (used) by continuing
operations activities (8,779) 17,376 (4,550)
Loss from discontinued operations (6,554) (35,303) --
Increase (decrease) in net liabilities of
discontinued operations (4,592) 21,647 (15,009)
Proceeds from repayment of notes receivable
from sale of discontinued operations 1,600 1,992 2,631
Net cash used by discontinued operations
activities (9,546) (11,664) (12,378)
Extraordinary item -- -- 1,573
Net cash provided (used) by operating
activities $(18,325) $ 5,712 $(15,355)
</TABLE>
See accompanying notes to financial statements.
-29-
<PAGE>
DRAVO CORPORATION (PARENT COMPANY)
Schedule I - Condensed Financial Information of Registrant
Statements of Cash Flows
<TABLE>
<CAPTION>
(In thousands) Years ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Cash flows from investing activities:
Increase (decrease) in advances from
subsidiaries $ 20,778 $ (2,893) $ 17,900
Other, net 266 (581) 39
Net cash provided (used) by investing
activities 21,044 (3,474) 17,939
Cash flows from financing activities:
Proceeds from issuance of common stock 42 101 63
Dividends paid (2,544) (2,554) (2,561)
Net cash used by financing activities (2,502) (2,453) (2,498)
Net increase (decrease) in cash and cash
equivalents 217 (215) 86
Cash and cash equivalents at beginning
of year 37 252 166
Cash and cash equivalents at end of year $ 254 $ 37 $ 252
</TABLE>
See accompanying notes to financial statements.
-30-
<PAGE>
DRAVO CORPORATION (PARENT COMPANY)
Schedule I - Condensed Financial Information of Registrant
Notes to Financial Statements
Notes 1 through 3, 5 through 15, and 17 to Dravo Corporation's Consolidated
Financial Statements have relevance to the parent company financial statements
and should be read in conjunction therewith.
Note 1: Commitments
There was no continuing operations rental expense for 1994, 1993 or 1992. The
minimum future rentals under noncancelable operating leases and minimum future
rental receipts from subleases to third parties as of December 31, 1994 are
indicated in the table below. Of the $11.4 million net minimum payments, $7.9
million has been expensed in connection with discontinued operations.
<TABLE>
(In thousands)
<CAPTION>
<S> <C>
1995 $10,549
1996 10,685
1997 10,828
1998 3,654
1999 --
After 1999 --
Total minimum payments required 35,716
Less: Minimum sublease rental
receipts (24,279)
Net minimum payments $11,437
</TABLE>
Note 2: Income Taxes
The company adopted Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" (SFAS 109) effective January 1, 1993. The
cumulative effect of this change in accounting for income taxes of $276,000 is
determined as of January 1, 1993 and is reported separately in the Statements
of Operations for the year ended December 31, 1993. Prior years financial
statements were not restated to apply the provisions of SFAS 109.
Dravo Corporation files a consolidated federal income tax return which
includes the parent and consolidated subsidiaries. Dravo Corporation parent
company financial statements recognize current income tax benefits to the
extent the benefits are offset by current income tax liabilities of the
consolidated subsidiaries. Long-term deferred income tax benefits are
recognized to the extent that it is more likely than not that the company will
generate sufficient consolidated taxable income to utilize net operating loss
carryforwards prior to their expiration.
-31-
<PAGE>
Note 2: Income Taxes (continued)
The income tax benefit (provision) for the years ended December 31 are
comprised of the following:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
<S> <C> <C>
Provision to offset tax benefits of subsidiaries $(4,107) $ --
Benefit to offset tax liabilities of subsidiaries -- 2,981
Change in net deferred tax asset -- 24,853
$(4,107) $27,834
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31 are as follows:
<TABLE>
(In thousands)
<CAPTION>
1994 1993
<S> <C> <C>
Deferred tax assets:
Provision for discontinued operations $ 7,477 $ 9,039
Accounts receivable, principally due
to allowance for doubtful accounts -- 126
Net operating loss carryforwards 61,713 59,313
Investment tax credit carryforwards 1,506 1,748
Other 721 2,087
Total gross deferred tax assets 71,417 72,313
Less valuation allowance 41,882 44,813
Net deferred tax assets after valuation allowance 29,535 27,500
Deferred tax liabilities:
Pension accrual 4,682 2,647
Total gross deferred tax liabilities 4,682 2,647
Net deferred tax asset $24,853 $24,853
</TABLE>
Management believes it is more likely than not that the net deferred tax asset
of $24.9 million will be realized through the reversal of temporary
differences and through its subsidiaries future income. In order to fully
realize the net deferred tax asset, the parent company and its subsidiaries
will need to generate future taxable income of approximately $73.2 million
prior to the expiration of its net operating loss carryforwards. There can be
no assurance, however, that the parent, or its subsidiaries, will generate any
earnings or any specific level of continued earnings.
-32-
<PAGE>
Note 3: Dividends
Cash dividends paid to the Registrant for the respective years ended December
31:
<TABLE>
(In thousands)
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Consolidated affiliates $ -0- $ -0- $ -0-
50 percent or less owned companies
accounted for by the equity method 792 586 612
</TABLE>
-33-
<PAGE>
EXHIBITS
Table of Contents
<TABLE>
<CAPTION>
Exhibit (Exhibit No.) Page No.
<S> <C>
3. Articles of Incorporation and By-laws
(ii) By-laws of the Registrant as amended (3) 1-11
4. Instruments Defining the Rights of Security Holders,
Including Indentures
(xvii) Amendment Agreement dated January 3, 1995
encompassing the Fourth Amendment to the
Override Agreement and the Third Amendment
to the Amended and Restated Revolving Credit
Agreement. (4) 1-19
10. Material Contracts
(iv) Dravo Corporation Incentive Compensation Plan (10iv) 1-5
(xii) Agreement between Dravo Corporation and Carl A.
Torbert, Jr. (10xii) 1-10
11. Statement RE Computation of Per Share Earnings (11) 1, 2
13. 1994 Annual Report (13) 18-42
21. Subsidiaries of the Registrant (21) 1
23. Consent of Experts and Counsel (23) 1
24. Powers of Attorney (24) 1-8
27. Financial Data Schedule (EDGAR filing only) (27) 1
</TABLE>
-34-
<PAGE>
BY-LAWS
As Amended January 1, 1995
ARTICLE I
Board of Directors
SECTION 1. The Board of Directors shall consist of not less
than seven and not more than twelve persons to be elected by the
shareholders as herein provided, the exact number to be determined from
time to time by proper resolution of the Board of Directors. The
Directors shall be classified with respect to the time during which
they shall severally hold office, by dividing them into three classes,
each consisting as nearly as possible of the same number of Directors.
At each annual meeting of the shareholders, Directors in the number for
those whose terms then expire shall be elected to serve for terms of
three years, except that the number of Directors to be elected to such
terms shall be adjusted if the number of Directors shall have been
decreased as provided herein so as to eliminate the place of a Director
whose term then expires.
Nominations for election to the Board of Directors may be made by
the Board of Directors or by any shareholder of the Corporation
entitled to notice of, and to vote at, any meeting called for the
election of Directors. Nominations, other than those made by or on
behalf of the Board of Directors of the Corporation, shall be noticed
in writing and shall be received by the Secretary of the Corporation
not later than (i) with respect to an election of directors to be held
at an annual meeting of shareholders, ninety (90) days prior to the
anniversary date of the immediately preceding annual meeting, and (ii)
with respect to an election of directors to be held at a special
meeting of shareholders, the close of business on the fifteenth (15th)
day following the date on which notice of such meeting is first given
to shareholders or public disclosure of the meeting is made. Such
notification shall contain the following information to the extent
known to the notifying shareholder: (a) the name and residence address
of each proposed nominee and of the notifying shareholder; (b) the
principal occupation of each proposed nominee; (c) a representation
that the notifying shareholder intends to appear in person or by proxy
at the meeting to nominate the person or persons specified in the
notice; (d) the total number of shares of the Corporation that will be
voted for each proposed nominee; (e) the total number of shares of the
Corporation owned by the notifying shareholder; (f) a description of
all arrangements or understandings between the notifying shareholder
and each nominee and any other person or persons (naming such person or
persons) relating to such nomination or nominations by the notifying
shareholder; (g) such other information regarding each nominee proposed
by such shareholder as would be required to be included in a proxy
statement filed with the Securities and Exchange Commission; and (h)
the consent of each nominee to serve as a director of the Corporation
if so elected. If the information submitted to the Corporation within
the time prescribed above is determined by the Chairman of the Board of
the Corporation to be deficient in any manner, the Chairman shall
advise the notifying shareholder in writing of such deficiencies not
<PAGE> 3-1
Page 2
By-Laws
later than the close of business on the fifth (5th) day following the
date that the Corporation first received written notice of the
nomination made by the notifying shareholder. The notifying shareholder
must thereafter cure such deficiencies by sending a revised
notification to the Secretary of the Corporation setting forth the
required information which must be received by the Secretary in writing
not later than the fifth (5th) day following the date that the
notifying shareholder received notice from the Corporation of the
deficiencies in the notifying shareholder's written nomination.
Notwithstanding the above, these nominating procedures shall not apply
to any special meeting of the shareholders of the Corporation called
for the election of directors for which notice of the meeting was not
given to shareholders at least twenty (20) days prior to the meeting.
The chairman may disregard and refuse to recognize any nomination
determined by him not to have been made in accordance with the
foregoing procedures.
If a vacancy occurs in the Board of Directors from any cause,
including any increase in the number of Directors in the manner
prescribed in this Section, a majority of the remaining members of the
Board of Directors, though less than a quorum, shall have the power to
elect a Director to fill such vacancy to serve for the balance of the
unexpired term of the vacating director and until his or her successor
has been elected and qualified.
In the case of an increase in the number of Directors in the
manner specified in this Section, the additional offices so created
shall be assigned by the Board of Directors to the appropriate class so
that the three classes shall continue to consist, as nearly as
possible, of the same number of Directors.
At any shareholders' meeting at which Directors are to be elected,
separate elections shall be held for the Directors of each class then
to be elected.
The Directors shall hold office during the terms for which they
have been elected and until their successors are elected and qualified.
SECTION 2. The Board of Directors may, by resolution adopted
by a majority of the whole Board, designate one or more committees,
each committee to consist of two or more of the Directors of the
Corporation. Standing committees shall include the Audit and Finance
Committee and the Compensation and Nominating Committee, each of which
shall be comprised exclusively of Directors who are not current
employees of the Corporation.
<PAGE> 3-2<PAGE>
Page 3
By-Laws
SECTION 3. The Board of Directors, as soon as reasonably
possible after each annual meeting of shareholders, shall hold a
meeting to organize, elect officers of the Corporation and transact
other business.
Regular meetings of the Board of Directors may be held without
notice at such time and place as shall from time to time be determined
by the Board of Directors and may be adjourned by the members present
to any other time and place.
Special meetings may be called at any time by the chief executive
officer or any two members of the Board of Directors upon at least 24
hours' notice, which need not be in writing.
A majority of the Directors in office shall constitute a quorum
for the transaction of business.
If all the Directors shall severally or collectively consent in
writing to any action to be taken by the Corporation, such action shall
be as valid corporate action as though it had been authorized at a
meeting of the Board of Directors.
One or more Directors may participate in a meeting of the Board of
Directors, or of a committee thereof, by means of conference telephone
or similar communications equipment by means of which all persons
participating in the meeting can hear each other.
SECTION 4. The Board of Directors shall have the right to
adopt such rules and regulations for the conduct of business, and from
time to time alter and amend the same, as to them may seem proper.
SECTION 5. The Board of Directors (or the Compensation
Committee by delegation from the Board), shall fix the compensation of
the officers of the Corporation and such other employees who are
designated by the Board of Directors as holding major positions of
authority in the Corporation.
ARTICLE II
Officers
SECTION 1. The officers of the Corporation to be elected by
the Board of Directors shall consist of a Chairman, one or more Vice
Chairman (any one or more of whom may have added to his title another
word or words specially designating the further powers and duties
assigned to that officer), a President, one or more Vice Presidents
(any one or more of whom may be designated an Executive Vice President,
Senior Vice President, Group Vice President or have added to his title
another word or words specifically designating the further powers and
<PAGE> 3-3<PAGE>
Page 4
By-Laws
duties assigned to that officer), a Treasurer, a Controller and a
Secretary, who shall hold office until their respective successors are
duly elected and qualified or until the earlier death, resignation or
removal from office of any of them.
SECTION 2. Subordinate officers to be appointed by the Board
of Directors shall include one or more assistant secretaries and one or
more assistant treasurers.
ARTICLE III
Duties of the Chairman
SECTION 1. The Chairman, who shall be elected from among the
Directors, shall preside at all meetings of the shareholders and of the
Board of Directors at which he shall be present.
ARTICLE IV
Duties of the Vice Chairmen
SECTION 1. The Vice Chairmen, who shall be elected from among
the Directors, shall perform such duties as shall be prescribed time to
time by the Board of Directors or the chief executive officer.
ARTICLE V
Duties of the President
SECTION 1. The President, who shall be elected from among the
Directors, shall be the chief executive officer of the Corporation, and
be subject to the control of the Board of Directors, shall be in
general and active charge of the business affairs of the Corporation,
shall establish the various Divisions and units of the Corporation, and
shall appoint and designate the duties of the Managers of Divisions of
the Corporation. In the absence or inability to act of the President,
the officer or officers designated from time to time by the Board of
Directors shall perform the duties pertaining to the office of
President.
ARTICLE VI
Duties of the Vice Presidents
SECTION 1. The Vice Presidents shall perform such duties as
shall be prescribed from time to time by the Board of Directors or the
chief executive officer.
<PAGE> 3-4<PAGE>
Page 5
By-Laws
ARTICLE VII
Duties of the Secretary
SECTION 1. The Secretary shall, under the direction of the
chief executive officer, record the proceeding of all meetings of the
Board of Directors and of the shareholders for presentation in a
suitable book. The Secretary shall notify the shareholders of all
annual and special meetings and the members of the Board of Directors
of all special meetings, have charge of the corporate seal and perform
all the duties which are customary and incident to the office of
Secretary of like companies.
ARTICLE VIII
Duties of the Treasurer
SECTION 1. The Treasurer shall, under the direction of the
Vice President in charge of financial affairs, have general charge of
the funds of the Corporation and shall make such reports of the
receipts and disbursements in such form and manner as the Board of
Directors may direct. He shall if so directed by the chief executive
officer, attend any or all meetings of the Board of Directors and
report on his activities as the chief executive officer may prescribe.
ARTICLE IX
Duties of the Controller
SECTION 1. The Controller shall, under the direction of the
Vice President in charge of financial affairs, maintain adequate
records of all assets, liabilities and transactions of the Corporation;
cause adequate audits to be currently and regularly made; prepare
financial, cost and tax reports and other reports of a financial and
accounting nature required by governmental agencies; and in conjunction
with other officers and heads of departments initiate and enforce
controls and procedures whereby the business of the Corporation shall
be conducted with the maximum of efficiency and economy. He shall, if
so directed by the chief executive officer, attend any or all meetings
of the Board of Directors and report on his activities as the chief
executive officer may prescribe.
ARTICLE X
Checks, Notes and Contracts
SECTION 1. All checks drawn upon the funds of the Corporation
and all promissory notes, drafts, bills of exchange or other negotiable
instruments shall be signed in the name of the Corporation by such
person or persons as the Board of Directors may from time to time
designate.
<PAGE> 3-5
Page 6
By-Laws
SECTION 2. All written contracts other than those mentioned
in Section 1 of this Article shall be signed in the name of the
Corporation by the Chairman or a Vice Chairman or the President or a
Vice President, unless otherwise directed by the Board of Directors.
ARTICLE XI
Elections
SECTION 1. In elections of directors by shareholders, voting
need not be by ballot unless required by vote of the shareholders
before the voting for election of directors begins.
Election of officers shall be in such manner as a majority of the
Directors present and voting at a duly organized meeting may determine.
ARTICLE XII
Offices
SECTION 1. The registered office of the Corporation shall be
in the City of Pittsburgh, County of Allegheny, State of Pennsylvania,
but the Board of Directors may establish another office or other
offices at any place or places in the state of Pennsylvania or
elsewhere.
ARTICLE XIII
Seal
SECTION 1. The seal of the Corporation shall have inscribed
thereon the name of the Corporation, the year of its creation, the name
of the State under whose laws it was created and the words "Corporate
Seal".
ARTICLE XIV
Meetings of the Shareholders
SECTION 1. Meetings of the shareholders may be held at such
places within or without the State of Pennsylvania as may be fixed by
the Board of Directors.
The annual meeting of the shareholders of the Corporation for the
election of Directors shall be held on such date and at such time and
place as may be fixed from time to time by the Board of Directors,
provided, however, that in fixing the date, time and place of said
meeting the Board of Directors shall comply with all applicable
statutes and regulations as well as the rules of the New York Stock
Exchange.
<PAGE> 3-6
Page 7
By-Laws
SECTION 2. Special meetings of the shareholders may be called
at any time by the Board of Directors, the Chairman of the Board or the
President of the Corporation. Notice shall be given by the Secretary of
the time and place of holding the annual and any special meeting of the
shareholders by mailing such notice to the addresses of said
shareholders, as shown by the share register or the records of the
Corporation, at least five days prior to the date of the meeting,
except when a longer period of notice is required by law.
SECTION 3. Unless otherwise provided in a resolution of the
Board of Directors with respect to any meeting of shareholders and
stated in the notice of the meeting, the presence of shareholders
entitled to cast at least a majority of the votes that all shareholders
are entitled to cast on a particular matter to be acted upon at the
meeting shall constitute a quorum for purposes of consideration and
action on the matter. If no quorum be present at any meeting so called,
the holders of less than a majority of said shares may meet and adjourn
the meeting from time to time until a quorum be present or until action
may be taken in the absence of a quorum in the manner prescribed by
law.
ARTICLE XV
Share Certificates
SECTION 1. Share certificates shall be issued to the
shareholders and transfers thereof shall be made by a transfer agent,
if one or more transfer agents are appointed by the Board of Directors,
otherwise by the Secretary or Assistant Secretary. Transfers shall be
made in person or by power of attorney on the books of the Corporation
on the surrender of the certificates. The share certificates shall be
signed by the Chairman, the President or a Vice President or other
officer designated by the Board of Directors, countersigned by the
Treasurer or Assistant Treasurer or other officers designated by the
Board of Directors and sealed with the seal of the Corporation.
One or more transfer agents and registrars of the shares of stock
of the Corporation may be appointed by the Board of Directors. The
signatures, countersignatures, and seal, or any of them on the share
certificates may be executed in facsimile, engraved or printed,
provided that the share certificates are signed or countersigned by a
corporate transfer agent or by a corporate registrar other than the
Corporation itself, appointed by the Board of Directors.
ARTICLE XVI
Resignations
SECTION 1. Any Director or officer may resign his office at
any time, such resignation to be in writing and to take effect from the
time of its receipt by the corporation, unless some time be fixed in
the said resignation, and then from that time. The acceptance of a
resignation shall not be required to make it effective.
<PAGE> 3-7
Page 8
By-Laws
ARTICLE XVII
Indemnification
SECTION 1. The Corporation shall indemnify every person who is
or was a party or is threatened to be made a party to or is involved
(as a witness or otherwise) in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether or not by or in the right of the Corporation
or otherwise (hereafter a "proceeding"), by reason of the fact that he
or she is or was a Director or officer or employee of the Corporation,
or is or was serving at the request of the Corporation as a Director,
officer or trustee or employee of another corporation, partnership,
joint venture, trust or other enterprise, including service with
respect to an employee benefit plan, or by reason of any action alleged
to have been taken or not taken by him or her while acting in any such
capacity, against expenses (including attorneys' fees) and all
liability and loss, including judgments, fines, ERISA excise taxes
and penalties and amounts paid or to be paid in settlement (whether
with or without court approval), actually and reasonable incurred by
him or her in connection with such threatened, pending or completed
action, suit or proceeding, except to the extent prohibited by law as
the same exists or may hereafter be amended (except in the case of any
such amendment which has the effect of narrowing indemnification rights
that the Corporation was permitted to provide prior to such amendment);
provided, however, that except with respect to claims described in
Section 2 hereof, the Corporation shall indemnify any such person
seeking indemnification in connection with a proceeding (or part
thereof), initiated by such person only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation.
Subject to the foregoing indemnification, the right to indemnification
conferred in this Section shall include the right to be paid by the
Corporation expenses incurred; provided, however, that to the extent
required by law, the payment of such expenses in advance of the final
disposition of a proceeding shall be made only upon receipt of an
undertaking by or on behalf of such person to repay such amounts if it
shall ultimately be determined that he or she is not entitled to be
indemnified under this Article or otherwise.
SECTION 2. If a claim under Section 1 is not paid in full by
the Corporation within forty-five (45) days after a written claim has
been received by the Corporation, the claimant may, at any time
thereafter, bring suit against the Corporation to recover the unpaid
amount of the claim. The claimant shall also be entitled to be paid the
expenses of prosecuting such claim to the extent he or she is
successful in whole or in part on the merits or otherwise in
establishing his or her right to indemnification or to the advancement
of expenses.
<PAGE> 3-8<PAGE>
Page 9
By-Laws
SECTION 3. The right to indemnification, including the right
to the advancement of expenses, conferred in this Article shall not be
exclusive of any other rights to which a person seeking indemnification
or advancement of expenses hereunder may be entitled under any by-law,
agreement, vote of shareholders, or directors or otherwise, both as to
action in his or her official capacity and as to action in any other
capacity while holding that office.
SECTION 4. The Corporation may create a fund of any nature,
which may, but need not be, under the control of a trustee, or
otherwise secure or insure in any manner its indemnification
obligations, including its obligation to advance expenses, whether
arising under or pursuant to this Article or otherwise.
SECTION 5. The Corporation shall have the express authority to
enter into such agreements as the Board of Directors deem appropriate
for the indemnification of, including the advancement of expenses to,
present or future Directors, officers and employees of the Corporation
in connection with their service to, or status with, the Corporation or
any other corporation, partnership, joint venture, trust or other
enterprise, including any employee benefit plan, for whom such person
is serving at the request of the Corporation.
SECTION 6. The right to indemnification, including the right
to the advancement of expenses provided herein, shall be a contract
right, shall continue as to a person who has ceased to be a director,
officer, employee, or to serve in any other of the capacities described
herein, and shall inure to the benefit of the heirs, executors and
administrators of such person. Notwithstanding any amendment,
alteration or repeal of this Article or any of its provisions or the
adoption of any provision inconsistent with this Article or any of its
provisions, any person who is or was a director, officer or employee or
is or was serving at the request of the Corporation as a director,
officer, employee, or trustee of another corporation or of a
partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, shall be entitled to
indemnification, including the right to the advancement of expenses, in
accordance with the provisions hereof and thereof with respect to any
action taken or omitted prior to such amendment, alteration or repeal
or the adoption of such inconsistent provision except to the extent
such amendment, alteration, repeal or inconsistent provisions provides
broader rights with respect to indemnification, including the
advancement of expenses, than the Corporation was permitted to provide
prior to the amendment, alteration, repeal, or the adoption of such
inconsistent provision or to the extent otherwise prescribed by law.
<PAGE> 3-9<PAGE>
Page 10
By-Laws
ARTICLE XVIII
By-Laws--Adoption, Alteration, Amendment and Repeal
SECTION 1. The By-Laws of the Corporation may be adopted,
altered, amended or repealed by a majority vote of the shareholders
present and voting at any regular or special meeting duly convened
after notice to the shareholders of that purpose or by a majority vote
of the members of the Board of Directors present and voting at any
regular or special meeting, subject always to the power of the
shareholders to change any such action taken by the Board of Directors.
ARTICLE XIX
Limitation on Director Liability
SECTION 1. A director of the Corporation shall not be
personally liable for monetary damages for any action taken or failure
to take any action unless the director has breached or failed to
perform the duties of his office under Section 8363 of the Directors'
Liability Act and such breach or failure to perform constitutes
self-dealing, willful misconduct or recklessness; provided, however,
that the foregoing provision shall not eliminate or limit the liability
of a director (i) for any responsibility or liability of such director
pursuant to any criminal statute, or (ii) for any liability of a
director for the payment of taxes pursuant to local, State or
Federal law. This Article XIX shall not apply to any actions filed
prior to January 27, 1987 or to any breach of performance of duty or
any failure of performance of duty by any director occurring prior to
January 27, 1987.
SECTION 2. Notwithstanding any other provision of law, the
Articles of Incorporation or the By-Laws of the Corporation, the
affirmative vote of shareholders entitled to cast at least a majority
of the votes which all shareholders would be entitled to cast in an
annual election of directors (or such greater percentage of votes as
shall be required by law) shall be required to adopt any amendment,
alteration or repeal of, or to adopt any provision inconsistent with,
this Article XIX or any of its provision, including this Section 2.
Neither the repeal or modification of this Article XIX or any of its
provisions nor the adoption of any provision inconsistent with this
Article XIX or any of its provisions shall adversely affect any
limitation on the personal liability of a director of the Corporation
existing at the time of such repeal or modification or the adoption of
such inconsistent provision.
<PAGE> 3-10<PAGE>
Page 11
By-Laws
ARTICLE XX
Applicability of Certain provisions of the Pennsylvania Business
Corporation Law
SECTION 1. Subchapters G (relating to Control Share
Acquisitions), H (relating to Disgorgement by Certain Controlling
Shareholders Following Attempts to Acquire Control), I (relating to
Severance Compensation for Employees Terminated Following Certain
Control-Share Acquisitions), and J (relating to the Status of Labor
Contracts Following Certain Business Combination Transactions) of
Chapter 25 of the Pennsylvania Business Corporation Law shall not be
applicable to the Corporation.
<PAGE> 3-11
EXECUTION COPY
AMENDMENT AGREEMENT
This AMENDMENT AGREEMENT (this "Agreement" or this "Amendment"), dated
as of January 3, 1995, is entered into by and among DRAVO CORPORATION, a
Pennsylvania corporation ("Dravo"), DRAVO LIME COMPANY, a Delaware corporation
("Lime"), DRAVO BASIC MATERIALS COMPANY, INC., an Alabama corporation ("Basic",
together with Lime referred to herein as the "Companies"), FIRST ALABAMA BANK
("FAB"), PNC BANK, NATIONAL ASSOCIATION (formerly known as Pittsburgh National
Bank) ("PNC"), BANK OF AMERICA ILLINOIS (formerly known as Continental Bank)
("BAI"), THE PRUDENTIAL INSURANCE COMPANY OF AMERICA (acting through Prudential
Capital Group, "Prudential"; FAB, PNC, BAI and Prudential herein collectively
referred to as "Lenders" and each a "Lender"), and FAB, as agent for the
Lenders (in such capacity, together with its successors and assigns, the
"Agent").
PRELIMINARY STATEMENTS
(1) The Companies, Dravo and the Lenders have entered into an Override
Agreement, dated as of January 21, 1992, as amended by the First Amendment to
Override Agreement, dated March 10, 1993, the Second Amendment to Override
Agreement, dated as of March 7, 1994, and the Amendment Agreement, dated as of
August 1, 1994 (as so amended, the "Override Agreement"). In addition, the
Companies, the Agent and the Lenders have entered into an Amended and Restated
Revolving Credit Agreement, dated as of January 21, 1992, as amended by the
First Amendment to Amended and Restated Revolving Credit Agreement, dated as of
March 7, 1994, and the Amendment Agreement, dated as of August 1, 1994 (as so
amended, the "Revolving Credit Agreement"). In addition, Companies and
Prudential have entered into an Amended and Restated Note and Stock Purchase
Agreement, dated as of January 21, 1992 (the "Note and Stock Purchase
Agreement"). Capitalized terms used but not defined herein shall have the
meanings assigned to such terms in the Override Agreement, as amended hereby.
(2) Dravo, Basic and Atchafalaya Mining Company, Inc. ("AMC"), an
affiliate of Dravo and Basic, have agreed to sell certain assets of Basic and
AMC to Martin Marietta Materials, Inc. ("Martin"), pursuant to that certain
Asset Purchase Agreement, of even date herewith (the "Asset Purchase
Agreement").
(3) Dravo and Companies have requested that Lenders, as parties to the
Override Agreement, Revolving Credit Agreement and other Operative Documents,
and Prudential, as a party to the Note and Stock Purchase Agreement, (i)
consent to the transactions contemplated by the Asset Purchase Agreement, and
(ii) release all liens and security interests held by Lenders and/or Agent on
behalf of Lenders and by Prudential in and to the assets and contract rights of
Basic that Martin is purchasing pursuant to the terms of the Asset Purchase
Agreement.
(4) Dravo and Companies have further requested that Lenders waive as to
Companies and solely with respect to the period commencing July 1, 1994, and
ending March 31, 1995, the
<PAGE> 4-1
negative covenant contained in items (1) and (2) of the proviso to Section
5.02(b) of the Override Agreement.
(5) Dravo and Companies have further requested that the Lenders, among
other things, reduce their revolving loan commitments under the Revolving
Credit Agreement by $35,000.00 (from $75,000,000 to $40,000,000) and that
Lenders reduce the letter of credit facility commitment by $2,500,000 (from
$9,974,600 to $7,474,600) and that Lenders make certain other modifications to
the Override Agreement, Revolving Credit Agreement and certain other Operative
Documents.
(6) Lenders, as parties to the Override Agreement, Revolving Credit
Agreement, and Operative Documents, and Prudential, as a party to the Note and
Stock Purchase Agreement, consent to the foregoing requests, subject to the
satisfaction by Dravo and Companies of the conditions hereinbelow set forth.
(7) The parties hereto desire to amend the Override Agreement, the
Revolving Credit Agreement and certain other Operative Documents and further
desire to set forth the conditions to the foregoing consent of Lenders and
Prudential.
ARTICLE I
FOURTH AMENDMENT TO OVERRIDE AGREEMENT
SECTION 1.01 Amendments to Override Agreement. The Override Agreement
shall be, effective as of the date hereof and subject to the satisfaction of
the conditions precedent set forth in Section 4.01 hereof, amended by adding
the following new subsections (t), (u), (v) and (w) to Section 4.01 of the
Override Agreement at the end thereof:
"(t) Note Purchase Agreement Collateral. Upon payment in full of all
indebtedness incurred in connection with the Project pursuant to the Note
Purchase Agreement and the other Transaction Documents, the Dravo Parties
agree, and further agree to cause the Lime SPV, the SPV General Partner and the
SPV Limited Partner, to grant to the Lenders a first-priority lien and/or
security interest under such security agreements, mortgages and other
instruments satisfactory to Lenders, together with such opinions and other
requirements deemed necessary by the Lenders, in and to all collateral that is
the subject of, and presently secures in favor of PruPower the payment of all
indebtedness incurred pursuant to, the Note Purchase Agreement and the other
Transaction Documents.
(u) Liabilities Assumed in Asset Purchase Agreement. As soon as
practicable and at least one (1) business day prior to the closing of the
transactions described in the Asset Purchase Agreement, the Dravo Parties shall
deliver, or shall have delivered, to each Lender a detailed written report
reporting therein the substance of any liabilities, whether actual or
contingent, to be assumed or proposed to be assumed by any Dravo Party,
including any indemnification provided or to be provided by any Dravo Party in
favor of Martin or any Affiliate or Subsidiary of Martin, as a result of the
transactions contemplated in the Asset Purchase Agreement. At
<PAGE> 4-2
least fifteen (15) days after the closing of the transactions described in the
Asset Purchase Agreement, the Dravo Parties shall further deliver to each
Lender a detailed written report reporting the substance of any liabilities,
whether actual or contingent, assumed by any Dravo Party, including any
indemnification provided in favor of Martin or any Affiliate or Subsidiary of
Martin, as a result of the transactions described in the Asset Purchase
Agreement. Each of the foregoing reports shall contain a good faith estimate
on the part of the management of the Dravo Parties of the dollar amount of the
liabilities, whether actual or contingent, assumed or to be assumed by any
Dravo Party, including any indemnification provided or to be provided by any
Dravo Party in favor of Martin or any Affiliate or Subsidiary of Martin, as a
result of the transactions contemplated or described in the Asset Purchase
Agreement.
(v) Use of Proceeds. The net proceeds received by any Dravo Party or
by any Affiliate or Subsidiary of any Dravo Party from Martin as a result of
the transactions contemplated in the Asset Purchase Agreement shall be
simultaneously used or paid by the Dravo Parties for the following purposes, in
the order of priority set forth below:
(1) The Dravo Parties shall cause the Lime SPV to either (i) pay
in full to PruPower all amounts owed PruPower pursuant to the Note Purchase
Agreement and the other Transaction Documents cancelling the Note Purchase
Agreement and the other Transaction Documents and the commitments arising
thereunder, or (ii) deposit in escrow an amount sufficient to permit the Lime
SPV to pay to PruPower on or before the "Construction Option Amount Prepayment
Date" (as defined in Annex A to the Note Purchase Agreement without amendment
thereto) all amounts owed PruPower as of such date pursuant to the Note
Purchase Agreement and the other Transaction Documents cancelling the Note
Purchase Agreement and the other Transaction Documents and the commitment
arising thereunder. If the Dravo Parties elect option (ii) above, (x) the
Dravo Parties agree that if the Lime SPV shall, after the effective date
hereof, borrow additional funds from PruPower pursuant to the Note Purchase
Agreement and the other Transaction Documents, the Dravo Parties shall
simultaneously with such borrowing deposit into such escrow an amount equal to
the principal amount of such additional funds borrowed by the Lime SPV, plus
five percent (5%) of such amount ; (y) the escrow agent selected by the Dravo
Parties shall be reasonably acceptable to Lenders; and (z) the terms and
conditions of the escrow agreement shall be in form and substance acceptable to
each Lender and each Lender's counsel.
(2) Basic shall pay to Prudential all amounts owed to Prudential
by Basic, solely with respect to the Basic Note Agreement, cancelling the Basic
Note Agreement.
(3) Lime shall pay to FAB all amounts owed FAB by Lime, solely
with respect to the Longview Credit Agreement, wherein FAB loaned Lime
$12,900,000.00 for the purpose of assisting Lime construct a lime kiln facility
at Saginaw, Alabama, which payment will cancel said loan agreement and related
agreements.
(4) The Dravo Parties shall pay the amount necessary to purchase
a guaranteed investment contract in the amount of $3,920,000.00 to secure the
guaranty of Insurance Company of North America in connection with the
settlement agreement dated March 15, 1994,
<PAGE> 4-3
among the plaintiffs named therein, Dravo, Montenay Pacific Power Corporation,
Montenay International Corp. and Insurance Company of North America in order to
obtain the release of Insurance Company of North America of the security
interests granted pursuant to the General Inducement Agreement, dated as of
March 31, 1994, among the Dravo Parties and Insurance Company of North America.
(5) The Dravo Parties shall pay to Agent for the benefit of
Lenders in payment of the Revolving Loans then outstanding pursuant to the
terms of the Revolving Credit Agreement the lesser of (i) such amount as will
reduce the then outstanding aggregate balance of the Revolving Loans owed to
Lenders to $1,000.00, or (ii) the net proceeds received by any Dravo Parties or
by any Affiliate or Subsidiary of any Dravo Party from Martin as a result of
the transactions contemplated in the Asset Purchase Agreement remaining after
the payments and deposits set forth in clauses (1), (2), (3) and (4) of this
subsection (v).
(6) Any of the foregoing net proceeds remaining after the
payments and deposits set forth in clauses (1), (2), (3), (4) and (5) of this
subsection (v) may be used by the Dravo Parties in any manner the Dravo Parties
deem appropriate, but subject to the terms of the Override Agreement and other
Operative Documents.
(w) Negotiations Regarding Covenants. The Dravo Parties agree that as
soon as possible and prior to April 30, 1995, they will commence negotiating
with Lenders in good faith with respect to resetting the negative covenants and
affirmative covenants contained in the Override Agreement and applicable to any
Dravo Party."
ARTICLE II
THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT
SECTION 2.01 Amendments to Revolving Credit Agreement. The Revolving
Credit Agreement shall be, effective as of the date hereof and subject to the
satisfaction of the conditions precedent set forth in Section 4.01 hereof,
amended as follows:
(a) Amendments to Article I. Article I shall be amended as follows:
(i) In the first and sixth sentence of Section 1.1, the phrase
"SEVENTY FIVE MILLION AND NO/100THS ($75,000,000.00) DOLLARS" is deleted in its
entirety and the phrase "FORTY MILLION AND NO/100THS ($40,000,000.00) DOLLARS"
is substituted in place thereof.
(ii) The fifth sentence of Section 1.1 is amended in its entirety
to read as follows:
"All sums advanced pursuant to the Revolving Line of
Credit shall be payable, as to both principal and
interest, and shall bear interest, at the rate and in
the manner stated in the Revolving Notes of Borrowers,
copies of which are attached hereto, marked
<PAGE> 4-4
Exhibits A-1, A-2 and A-3, and expressly made a part hereof as
though fully set forth herein (the "Revolving Notes")."
(iii) The last sentence of Section 1.3 is amended in its entirety
to read as follows:
"Any draw made by the beneficiary of any such Letter of
Credit shall constitute for all purposes hereunder an
advance by the applicable Lender to Borrowers pursuant
to the Revolving Line of Credit."
(iv) The last sentence of Section 1.5 is amended in its entirety
to read as follows:
"In addition, the Borrowers agree to pay to each Lender
that agrees to extend the Maturity Date pursuant to
Section 1.9 an annual renewal fee equal to 0.125% of
the amount of such Lender's Revolving Line of Credit,
payable on June 30 of the year in which such Lender
agrees to such extension."
(v) The first sentence of Section 1.6 is amended in its entirety
to read as follows:
"Borrowers agree to pay to Lenders on a basis
proportionate with such respective Lender's Revolving
Line of Credit commitment hereunder non-usage fees (the
"Non-Usage Fees") in an aggregate amount equal to one-
half of one percent (1/2 of 1%) per annum on the
unutilized portion of the $40,000,000.00 Revolving Line
of Credit payable quarterly in arrears on the fifth
business day following each calendar quarter during the
term of this Agreement."
(b) Amendments to Article IX. The first sentence of Section 9.1(a) of
Article IX is amended in its entirety to read as follows:
"Lenders agree as between themselves that upon receipt
of a request for an advance hereunder by Borrowers (or
either of them), and so along as there shall exist no
Event of Default or Default, FAB will advance 37.28% of
such request, PNC will advance 28.82% of such request,
BAI will advance 33.90% of such request (each such
percentage referred to herein as such Lender's
"Percentage"; provided, however, that in no event shall
the aggregate principal amount of the Revolving Line of
Credit loans made hereunder by Lenders exceed
$40,000,000.00; provided, however, that in no event
shall Prudential be required to make Revolving Line of
Credit loans hereunder."
<PAGE> 4-5
(c) Amendments to Article X. Article X shall be amended as follows:
(i) The last two sentences of Section 10.2 are hereby deleted.
(ii) The last sentence of Section 10.7 is hereby deleted.
(d) Amendment to Party Name. All references to the term "Continental"
in the Revolving Credit Agreement shall be deleted and substituted in place
thereof is the term "BAI".
(e) Schedules and Exhibits. Schedules I and II to the Revolving Credit
Agreement are deleted in their entirety and Schedules I and II attached hereto
are substituted therefor, respectively. Exhibits A-1, A-2 and A-3 to the
Revolving Credit Agreement are deleted in their entirety and Exhibits A-1, A-2
and A-3 attached hereto are substituted therefor, respectively. Each
respective Lender agrees to cancel and return to Companies marked "paid" the
original Revolving Note or Notes of Companies made payable to such Lender,
copies of which are attached to the Revolving Credit Agreement as Exhibits A-4,
A-5, A-6, A-7 and A-8.
(f) Preferential Transfers, Etc. The foregoing notwithstanding, each
of the Lenders and Prudential hereby agree that, to the extent that the
Borrowers or any other Person liable for all or any part of the Revolving Line
of Credit, Letters of Credit or any other obligations arising pursuant to the
Revolving Credit Agreement has made any payment prior to this Amendment or
makes a payment in connection with the transactions contemplated by this
Amendment, which payment or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside and/or required to be paid
to a trustee, receiver or any other party under any bankruptcy act, state or
Federal law, common law or equitable cause, then to the extent of such payment,
each Lender's Percentage and Revolving Line of Credit commitment (including,
but not limited to, the Percentage and Revolving Line of Credit commitment of
Prudential being cancelled as part of this Amendment) shall be reinstated and
revived as to said payment.
(g) Lenders' Acknowledgment. Notwithstanding the foregoing amendments
to the Revolving Credit Agreement, the Lenders acknowledge that Prudential
shall receive payments from Companies on Prudential's Revolving Line of Credit
commitment to Companies, reducing the outstanding balance of such Revolving
Line of Credit indebtedness to zero.
ARTICLE III
CONSENT TO SALE; RELEASE OF COLLATERAL; WAIVER
SECTION 3.01. Consent to Sale. Subject to the satisfaction of the
conditions precedent set forth in Section 4.01 hereof, the Lenders, as parties
to the Override Agreement, Revolving Credit Agreement and other Operative
Documents, and Prudential, as a party to the Note and Stock Purchase Agreement,
do hereby consent to the sale contemplated in the Asset Purchase Agreement.
<PAGE> 4-6
SECTION 3.02 Release of Collateral. Subject to the satisfaction of the
conditions precedent set forth in Section 4.01 hereof, the Lenders, as parties
to the Override Agreement, the Revolving Credit Agreement and other Operative
Documents, and Prudential, as a party to the Note and Stock Purchase Agreement,
do hereby agree to release the collateral that is the subject of Exhibit "I",
attached hereto and incorporated herein by reference, from the lien and/or
security interest held by Lenders and Prudential pursuant to the Security
Documents. Lenders hereby authorize and direct the Agent to execute the
original of the UCC-3 Forms and Release of First Mortgage and Security
Agreement that comprise Exhibit "I" and deliver same to Companies upon the
satisfaction of the conditions precedent set forth in Section 4.01 hereof.
Subject to the satisfaction of the conditions precedent set forth in Section
4.01 hereof, the Lenders release from the lien and/or security interest held by
Lenders and Prudential pursuant to the Security Documents the stock
certificates (Certificate Nos. 6, 8, 9, 11 and 12) of Dravo Bahama Rock
Limited, and Agent is authorized upon satisfaction of such conditions precedent
to deliver such stock certificates to the Dravo Parties. Lenders and
Prudential further acknowledge that upon satisfaction of the conditions
precedent set forth in Section 4.01 hereof Lenders and Prudential shall have no
lien or security interest in the assets of Dravo Bahama Rock Limited, and
thereafter Lenders and Prudential, upon the request of the Dravo Parties, from
time to time, shall execute and deliver, or cause the Agent to execute and
deliver, such further documents or instruments, and do or cause to be done such
further acts as may be necessary to release the lien or security interest of
Lenders and Prudential, or Agent on behalf of Lenders and Prudential, in and to
the assets of Dravo Bahama Rock Limited. Notwithstanding anything herein to
the contrary, (i) no asset or contract right of any Dravo Party or any
Affiliate or Subsidiary of any Dravo Party, except Basic and AMC, and (ii) no
asset or contract right other than those comprised in Exhibit "I" shall be
released hereunder.
SECTION 3.03 Waiver. Subject to the satisfaction of the conditions
precedent set forth in Section 4.01 hereof, the Lenders, pursuant to the
request of the Dravo Parties, waive as to the Companies and solely with respect
to the period commencing July 1, 1994 and ending March 31, 1995, the negative
covenant contained in items (1) and (2) of the proviso to Section 5.02(b) of
the Override Agreement.
ARTICLE IV
CONDITIONS PRECEDENT
SECTION 4.01 Conditions of Effectiveness. This Amendment shall become
effective when, and only when, (a) the Agent shall have received counterparts
of this Amendment executed by each of the Dravo Parties and the Lenders, (b)
all accrued but unpaid interest, fees and expenses under the terms of the
Revolving Credit Agreement, as amended hereby, and all outstanding fees and
expenses of counsel to the Agent and the Lenders, shall have been paid in full
to the extent due and payable after giving effect to this Amendment, (c) the
Agent additionally shall have received all of the following documents, each
(unless otherwise indicated) being dated the date of receipt thereof by the
Agent (which date shall be the same for all such documents), in form and
substance satisfactory to the Agent and the Lenders:
<PAGE> 4-7
(i) Copies of (A) all documents evidencing all requisite
corporate action of each Dravo Party (including any and all
resolutions of the Board of Directors of each Dravo Party)
authorizing the execution, delivery and performance of this
Amendment and the matters contemplated hereby and thereby, and (B)
the Asset Purchase Agreement and each related agreement or
instrument, in each case certified by the Secretary or Assistant
Secretary of the relevant Dravo Party as being in full force and
effect and not having been modified, rescinded or revoked and, in
the case of clause (B) above, as being true and correct copies of
the Asset Purchase Agreement and each related agreement or
instrument,
(ii) A certificate of the Secretary or an Assistant
Secretary of each Dravo Party certifying the names and true
signatures of the officers authorized to sign this Amendment on
behalf of such Dravo Party and the amendments to the other
Operative Documents, and any other documents to be delivered by
such Dravo Party hereunder of thereunder,
(iii) Duly executed copies of the Notes, in substantially the
forms of Exhibits A-1, A-2 and A-3 attached hereto,
(iv) A duly executed copy of the deed conveying all of the
real property, including improvements, located in Shelby County,
Alabama, and more particularly described on Exhibit "II" attached
hereto and incorporated herein by reference, dated on or before the
date of this Amendment, from Basic to Lime, and
(v) Such other documents, instruments, approvals (and, if
required by the Agent, certified duplicates of executed copies
thereof) or opinions as the Agent or any Lender may reasonably
request, and
(d) the representations and warranties contained herein shall be true on and as
of the date of this Amendment; there shall exist on the date of this Amendment
no Event of Default or Default; and there shall exist no material adverse
change in the financial condition, business operation or prospects of any Dravo
Party or its Subsidiaries since August 1, 1994.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.01 Representations and Warranties of the Dravo Parties. (a)
Each of the Dravo Parties hereby repeats and confirms each of the
representations and warranties made by it in Article VII of the Override
Agreement, as amended hereby, as though made on and as of the date hereof, with
each reference therein to "this Agreement", the "Operative Documents",
"hereof", "hereunder", "thereof", "thereunder" and words of like import being
deemed to be
<PAGE> 4-8
a reference to the Override Agreement and the Operative Documents, in each case
as amended hereby.
(b) Each of the Dravo Parties represents and warrants as follows:
(i) Such Dravo Party and each of its Subsidiaries (other than Lime
SPV) is a corporation duly organized, validly existing and in good standing
under the laws of the state of its incorporation and is duly qualified to do
business in, and is in good standing in, all other jurisdictions where the
nature of its business or the nature of property owned or used by it makes such
qualification necessary.
(ii) Lime SPV is a limited partnership duly organized, validly
existing and in good standing under the laws of the state of its organization
and is duly qualified to do business in, and is in good standing in, all other
jurisdictions where the nature of its business or the nature of property owned
or used by it makes such qualification necessary.
(iii) The execution, delivery and performance by such Dravo Party
of this Amendment are within its corporate powers, have been duly authorized by
all necessary corporate action and do not contravene (A) such Dravo Party's
charter or bylaws, (B) any law or governmental regulation, or (C) any legal or
contractual restriction binding on or affecting such Dravo Party; and such
execution, delivery and performance do not or will not result in or require the
creation of any Lien (other than as contemplated hereby) upon or with respect
to any of its properties.
(iv) No Governmental Approval is required for the due execution,
delivery and performance by such Dravo Party of this Amendment, except for such
Governmental Approvals as have been duly obtained or made and which are in full
force and effect on the date hereof and no subject to appeal.
(v) This Amendment constitutes the legal, valid and binding
obligations of such Dravo Party enforceable against such Dravo Party in
accordance with its terms; subject to the qualifications, however, that the
enforcement of the rights and remedies herein is subject to bankruptcy and
other similar laws of general application affecting rights and remedies of
creditors and that the remedy of specific performance or of injunctive relief
is subject to the discretion of the court before which any proceedings therefor
may be brought.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01 Reference to and Effect on the Operative Documents. (a)
Upon the effectiveness of this Amendment, on and after the date hereof each
reference in the Revolving Credit Agreement and the Override Agreement to "this
Agreement", "hereunder", "hereof" or words of like import referring to the
Revolving Credit Agreement and the Override Agreement, respectively, and each
reference in the other Operative Documents to "the Revolving Credit
<PAGE> 4-9
Agreement", "the Override Agreement", "thereunder", "thereof" or words of like
import referring to the Revolving Credit Agreement and the Override Agreement,
shall mean and be a reference to the Revolving Credit Agreement and the
Override Agreement, respectively, as amended hereby.
(b) Except as specifically amended above, the Revolving Credit
Agreement, the Override Agreement and the Notes, and all other Operative
Documents, are and shall continue to be in full force and effect and are hereby
in all respects ratified and confirmed. Without limiting the generality of the
foregoing, the Security Documents and all of the Collateral described therein
do and shall continue to secure the payment of all obligations of the Dravo
Parties under the Revolving Credit Agreement, the Notes and the other Operative
Documents, in each case as amended hereby.
(c) The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of any Lender or the Agent under any of the Operative
Documents, nor constitute a waiver of any provision of any of the Operative
Documents.
SECTION 6.02 Costs and Expenses. The Dravo Parties jointly and
severally agree to pay on demand all costs and expenses incurred by the Agent
and the Lenders in connection with the preparation, execution and delivery of
this Amendment and the other documents to be delivered hereunder, including,
without limitation, the reasonable fees and out-of-pocket expenses of counsel
for the Agent and the Lenders with respect thereto and with respect to advising
the Agent and the Lenders as to their rights and responsibilities under this
Amendment. The Dravo Parties jointly and severally further agree to pay on
demand all costs and expenses, if any (including, without limitation,
reasonable counsel fees and expenses of counsel), incurred by the Agent and the
Lenders in connection with the enforcement (whether through negotiations, legal
proceedings or otherwise) of this Amendment, the Asset Purchase Agreement and
the other documents to be delivered hereunder and thereunder, including,
without limitation, counsel fees and expenses in connection with the
enforcement of rights under this Section 6.02.
SECTION 6.03 Execution in Counterparts. This Amendment may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which taken together shall constitute but one and the
same instrument.
SECTION 6.04 Governing Law. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York.
SECTION 6.05 Further Assurances. Each of the Dravo Parties will, upon
the reasonable request of Lenders or Agent, from time to time, execute and
deliver or cause to be executed and delivered such further instruments, and do
and cause to be done such further acts, as may be necessary or proper to carry
out more effectively the provisions of this Amendment.
[SIGNATURES ON THE FOLLOWING PAGE]
<PAGE> 4-10
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
FIRST ALABAMA BANK
By: PETER P. GAILLARD
Name: Peter P. Gaillard
Title: Senior Vice President
PNC BANK, NATIONAL ASSOCIATION
By: RICHARD D. RODGERS
Name: Richard D. Rogers
Title: Vice President
BANK OF AMERICA ILLINOIS
By: MICHAEL J. MCKENNEY
Name: Michael J. McKenney
Title: Vice President
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By: CATHERINE A. CATES
Name: Catherine A. Cates
Title: Vice President
DRAVO CORPORATION
By: ERNEST F. LADD III
Name: Ernest F. Ladd, III
Title: Executive Vice President
DRAVO LIME COMPANY
By: ERNEST F. LADD III
Name: Ernest F. Ladd, III
Title: Executive Vice President
DRAVO BASIC MATERIALS COMPANY, INC.
By: ERNEST F. LADD III
Name: Ernest F. Ladd, III
Title: Executive Vice President
<PAGE> 4-11
EXHIBIT A-1
EXHIBIT A-1 TO REVOLVING CREDIT AGREEMENT
THIS REVOLVING NOTE IS ISSUED IN SUBSTITUTION FOR, AND NOT IN REPAYMENT
OF, THE AMENDED AND RESTATED REVOLVING NOTE, DATED AUGUST 1, 1994, ISSUED
BY THE BORROWERS (AS DEFINED BELOW) TO THE LENDER (AS DEFINED BELOW) IN
THE AGGREGATE PRINCIPAL AMOUNT OF $22,000,00.00.
AMENDED AND RESTATED REVOLVING NOTE
$14,912,000.00 January 3, 1995
FOR VALUE RECEIVED, DRAVO LIME COMPANY, a Delaware corporation, and
DRAVO BASIC MATERIALS COMPANY, INC., an Alabama corporation (herein called
the "Borrowers"), jointly and severally, promise to pay to the order of FIRST
ALABAMA BANK (herein called "Lender") at the offices of First Alabama Bank at
106 St. Francis Street, Post Office Box 2527, Mobile, Alabama 36622 (or such
other place or as the holder hereof shall designate from time to time by
written notice to the Borrowers) the principal sum of FOURTEEN MILLION NINE
HUNDRED TWELVE THOUSAND AND NO/100THS DOLLARS ($14,912,000.00) or, if less,
the aggregate principal amount of all Revolving Line of Credit loans made by
Lender to Borrowers pursuant to Article I and Section 11.2 of the Revolving
Credit Agreement referred to below, in lawful money of the United States of
America in immediately available funds, by wire transfer, on or before April
30, 1996, together with interest thereon and certain fees and other amounts
due the Lender as set forth in the Revolving Credit Agreement referred to
below.
Borrowers also, jointly and severally, promise to pay to Lender, in like
money at such office, interest monthly in arrears, computed on the basis of
actual days elapsed and a year of 360 days, on the first business day of
each month beginning on the 1st day of February, 1995, on the unpaid average
daily principal balance during such period outstanding hereunder from the
date hereof until the principal indebtedness is paid in full at the rate per
annum equal to the "Commercial Base Rate" as hereinafter defined plus one
and one-quarter percent (1.25%). The term "Commercial Base Rate" is defined
as a per annum rate of interest announced or established from time to time
by Regions Financial Corp. as its base lending rate for domestic commercial
loans, it being understood that Commercial Base Rate is one of the basic
rates from time to time announced or established which serves as a basis
upon which effective rates of interest are calculated for those loans that
make reference thereto. The Commercial Base Rate from day to day
outstanding, plus one and one-quarter percent (1.25%), shall be the effective
per annum rate of interest for each day during the duration of this loan and
shall be adjusted and changed each day that a change in the Commercial Base
Rate occurs.
This Revolving Note is issued in substitution for, and amends and
restates, the Amended and Restated Revolving Note, dated August 1, 1994,
issued by the Borrowers to the Lender in the aggregate principal amount of
$22,000,000.00. This Revolving Note shall be deemed to be a contract made
under the laws of the State of New York and for all purposes shall be
governed by and construed in accordance with the laws of the State of New
York without giving effect to principles of conflict of laws.
<PAGE> 4-12
Borrowers expressly waive any presentment, demand, protest or notice
in connection with this Revolving Note, now or hereafter, required by
applicable law, and further waive as to this debt all right of exemption under
the Constitution and laws of the State of New York, or any other state or
commonwealth.
This Revolving Note is referred to in and issued subject to that
certain Revolving Credit Agreement, dated as of January 21, 1992, as amended
by the First Amendment to Amended and Restated Revolving Credit Agreement,
dated as of March 7, 1994, the Amendment Agreement, dated as of August 1,
1994, and the Amendment Agreement, dated as of January 3, 1995 (as so
amended, and as it may be further amended, modified or supplemented from
time to time, the "Revolving Credit Agreement"), among the Borrowers, Lender,
PNC Bank, National Association, Bank of America Illinois, The Prudential
Insurance Company of America, and First Alabama Bank, as Agent, to which
reference is made for a statement of the terms and conditions under which
the principal hereof, accrued interest thereon and other amounts due
thereunder is secured, may become or may be declared to be forthwith due
and payable and is subject to prepayment.
This Revolving Note shall be binding upon the Borrowers and their
respective successors and assigns and shall inure to the benefit of Lender
and its respective successors and assigns.
Borrowers agree to pay, and save the holders hereof harmless against,
any costs or liability for expenses (including reasonable attorneys' fees)
arising in connection with the enforcement by the holders hereof of any of
the holders' rights under this Revolving Note or the Revolving Credit
Agreement.
In case a Default or Event of Default, as defined in the Revolving
Credit Agreement, shall occur and be continuing, the principal of this
Revolving Note may be declared due and payable in the manner and with the
effect provided in the Revolving Credit Agreement.
DRAVO LIME COMPANY
ATTEST:
JAMES J. PUHALA Name: ERNEST F. LADD III
Its: Secretary Title: Executive Vice President
DRAVO BASIC MATERIALS
COMPANY, INC.
ATTEST:
JAMES J. PUHALA Name: ERNEST F. LADD III
Its: Secretary Title: Executive Vice President
<PAGE> 4-13
EXHIBIT A-2
EXHIBIT A-2 TO REVOLVING CREDIT AGREEMENT
THIS REVOLVING NOTE IS ISSUED IN SUBSTITUTION FOR, AND NOT IN REPAYMENT
OF, THE AMENDED AND RESTATED REVOLVING NOTE, DATED AUGUST 1, 1994, ISSUED
BY THE BORROWERS (AS DEFINED BELOW) TO THE LENDER (AS DEFINED BELOW) IN
THE AGGREGATE PRINCIPAL AMOUNT OF $17,000,00.00.
AMENDED AND RESTATED REVOLVING NOTE
$11,528,000.00 January 3, 1995
FOR VALUE RECEIVED, DRAVO LIME COMPANY, a Delaware corporation, and
DRAVO BASIC MATERIALS COMPANY, INC., an Alabama corporation (herein called
the "Borrowers"), jointly and severally, promise to pay to the order of PNC
BANK, NATIONAL ASSOCIATION (herein called "Lender") at the offices of First
Alabama Bank at 106 St. Francis Street, Post Office Box 2527, Mobile, Alabama
36622 (or such other place or as the holder hereof shall designate from time
to time by written notice to the Borrowers) the principal sum of ELEVEN
MILLION FIVE HUNDRED TWENTY-EIGHT THOUSAND AND NO/100THS DOLLARS
($11,528,000.00) or, if less, the aggregate principal amount of all Revolving
Line of Credit loans made by Lender to Borrowers pursuant to Article I and
Section 11.2 of the Revolving Credit Agreement referred to below, in lawful
money of the United States of America in immediately available funds, by
wire transfer, on or before April 30, 1996, together with interest thereon
and certain fees and other amounts due the Lender as set forth in the
Revolving Credit Agreement referred to below.
Borrowers also, jointly and severally, promise to pay to Lender, in like
money at such office, interest monthly in arrears, computed on the basis of
actual days elapsed and a year of 360 days, on the first business day of
each month beginning on the 1st day of February, 1995, on the unpaid average
daily principal balance during such period outstanding hereunder from the
date hereof until the principal indebtedness is paid in full at the rate per
annum equal to the "Commercial Base Rate" as hereinafter defined plus one
and one-quarter percent (1.25%). The term "Commercial Base Rate" is defined
as a per annum rate of interest announced or established from time to time
by Regions Financial Corp. as its base lending rate for domestic commercial
loans, it being understood that Commercial Base Rate is one of the basic
rates from time to time announced or established which serves as a basis
upon which effective rates of interest are calculated for those loans that
make reference thereto. The Commercial Base Rate from day to day
outstanding, plus one and one-quarter percent (1.25%), shall be the effective
per annum rate of interest for each day during the duration of this loan and
shall be adjusted and changed each day that a change in the Commercial Base
Rate occurs.
This Revolving Note is issued in substitution for, and amends and
restates, the Amended and Restated Revolving Note, dated August 1, 1994,
issued by the Borrowers to the Lender in the aggregate principal amount of
$17,000,000.00. This Revolving Note shall be deemed to be a contract made
under the laws of the State of New York and for all purposes shall be
governed by and construed in accordance with the laws of the State of New
York without giving effect to principles of conflict of laws.
<PAGE> 4-14
Borrowers expressly waive any presentment, demand, protest or notice
in connection with this Revolving Note, now or hereafter, required by
applicable law, and further waive as to this debt all right of exemption under
the Constitution and laws of the State of New York, or any other state or
commonwealth.
This Revolving Note is referred to in and issued subject to that
certain Revolving Credit Agreement, dated as of January 21, 1992, as amended
by the First Amendment to Amended and Restated Revolving Credit Agreement,
dated as of March 7, 1994, the Amendment Agreement, dated as of August 1,
1994, and the Amendment Agreement, dated as of January 3, 1995 (as so
amended, and as it may be further amended, modified or supplemented from
time to time, the "Revolving Credit Agreement"), among the Borrowers, Lender,
First Alabama Bank, Bank of America Illinois, The Prudential Insurance
Company of America, and First Alabama Bank, as Agent, to which reference is
made for a statement of the terms and conditions under which the principal
hereof, accrued interest thereon and other amounts due thereunder is
secured, may become or may be declared to be forthwith due and payable and
is subject to prepayment.
This Revolving Note shall be binding upon the Borrowers and their
respective successors and assigns and shall inure to the benefit of Lender
and its respective successors and assigns.
Borrowers agree to pay, and save the holders hereof harmless against,
any costs or liability for expenses (including reasonable attorneys' fees)
arising in connection with the enforcement by the holders hereof of any of
the holders' rights under this Revolving Note or the Revolving Credit
Agreement.
In case a Default or Event of Default, as defined in the Revolving
Credit Agreement, shall occur and be continuing, the principal of this
Revolving Note may be declared due and payable in the manner and with the
effect provided in the Revolving Credit Agreement.
DRAVO LIME COMPANY
ATTEST:
JAMES J. PUHALA Name: ERNEST F. LADD III
Its: Secretary Title: Executive Vice President
DRAVO BASIC MATERIALS
COMPANY, INC.
ATTEST:
JAMES J. PUHALA Name: ERNEST F. LADD III
Its: Secretary Title: Executive Vice President
<PAGE> 4-15
EXHIBIT A-3
EXHIBIT A-3 TO REVOLVING CREDIT AGREEMENT
THIS REVOLVING NOTE IS ISSUED IN SUBSTITUTION FOR, AND NOT IN REPAYMENT
OF, THE AMENDED AND RESTATED REVOLVING NOTE, DATED AUGUST 1, 1994, ISSUED
BY THE BORROWERS (AS DEFINED BELOW) TO THE LENDER (AS DEFINED BELOW) IN
THE AGGREGATE PRINCIPAL AMOUNT OF $20,000,00.00.
AMENDED AND RESTATED REVOLVING NOTE
$13,560,000.00 January 3, 1995
FOR VALUE RECEIVED, DRAVO LIME COMPANY, a Delaware corporation, and
DRAVO BASIC MATERIALS COMPANY, INC., an Alabama corporation (herein called
the "Borrowers"), jointly and severally, promise to pay to the order of BANK OF
AMERICA ILLINOIS (formerly Continental Bank) (herein called "Lender") at the
offices of First Alabama Bank at 106 St. Francis Street, Post Office Box
2527, Mobile, Alabama 36622 (or such other place or as the holder hereof
shall designate from time to time by written notice to the Borrowers) the
principal sum of THIRTEEN MILLION FIVE HUNDRED SIXTY THOUSAND AND
NO/100THS DOLLARS ($13,560,000.00) or, if less, the aggregate principal
amount of all Revolving Line of Credit loans made by Lender to Borrowers
pursuant to Article I and Section 11.2 of the Revolving Credit Agreement
referred to below, in lawful money of the United States of America in
immediately available funds, by wire transfer, on or before April 30, 1996,
together with interest thereon and certain fees and other amounts due the
Lender as set forth in the Revolving Credit Agreement referred to below.
Borrowers also, jointly and severally, promise to pay to Lender, in like
money at such office, interest monthly in arrears, computed on the basis of
actual days elapsed and a year of 360 days, on the first business day of
each month beginning on the 1st day of February, 1995, on the unpaid average
daily principal balance during such period outstanding hereunder from the
date hereof until the principal indebtedness is paid in full at the rate per
annum equal to the "Commercial Base Rate" as hereinafter defined plus one
and one-quarter percent (1.25%). The term "Commercial Base Rate" is defined
as a per annum rate of interest announced or established from time to time
by Regions Financial Corp. as its base lending rate for domestic commercial
loans, it being understood that Commercial Base Rate is one of the basic
rates from time to time announced or established which serves as a basis
upon which effective rates of interest are calculated for those loans that
make reference thereto. The Commercial Base Rate from day to day
outstanding, plus one and one-quarter percent (1.25%), shall be the effective
per annum rate of interest for each day during the duration of this loan and
shall be adjusted and changed each day that a change in the Commercial Base
Rate occurs.
This Revolving Note is issued in substitution for, and amends and
restates, the Amended and Restated Revolving Note, dated August 1, 1994,
issued by the Borrowers to the Lender in the aggregate principal amount of
$20,000,000.00. This Revolving Note shall be deemed to be a contract made
under the laws of the State of New York and for all purposes shall be
governed by and construed in accordance with the laws of the State of New
York without giving effect to principles of conflict of laws.
<PAGE> 4-16
Borrowers expressly waive any presentment, demand, protest or notice
in connection with this Revolving Note, now or hereafter, required by
applicable law, and further waive as to this debt all right of exemption under
the Constitution and laws of the State of New York, or any other state or
commonwealth.
This Revolving Note is referred to in and issued subject to that
certain Revolving Credit Agreement, dated as of January 21, 1992, as amended
by the First Amendment to Amended and Restated Revolving Credit Agreement,
dated as of March 7, 1994, the Amendment Agreement, dated as of August 1,
1994, and the Amendment Agreement, dated as of January 3, 1995 (as so
amended, and as it may be further amended, modified or supplemented from
time to time, the "Revolving Credit Agreement"), among the Borrowers, Lender,
First Alabama Bank, PNC Bank, National Association, The Prudential Insurance
Company of America, and First Alabama Bank, as Agent, to which reference is
made for a statement of the terms and conditions under which the principal
hereof, accrued interest thereon and other amounts due thereunder is
secured, may become or may be declared to be forthwith due and payable and
is subject to prepayment.
This Revolving Note shall be binding upon the Borrowers and their
respective successors and assigns and shall inure to the benefit of Lender
and its respective successors and assigns.
Borrowers agree to pay, and save the holders hereof harmless against,
any costs or liability for expenses (including reasonable attorneys' fees)
arising in connection with the enforcement by the holders hereof of any of
the holders' rights under this Revolving Note or the Revolving Credit
Agreement.
In case a Default or Event of Default, as defined in the Revolving
Credit Agreement, shall occur and be continuing, the principal of this
Revolving Note may be declared due and payable in the manner and with the
effect provided in the Revolving Credit Agreement.
DRAVO LIME COMPANY
ATTEST:
JAMES J. PUHALA Name: ERNEST F. LADD III
Its: Secretary Title: Executive Vice President
DRAVO BASIC MATERIALS
COMPANY, INC.
ATTEST:
JAMES J. PUHALA Name: ERNEST F. LADD III
Its: Secretary Title: Executive Vice President
<PAGE> 4-17
SCHEDULE I
SCHEDULE I TO REVOLVING CREDIT AGREEMENT
Financing Commitments
FIRST ALABAMA BANK
Revolving Line of Credit and Letters of
Credit Facilities Combined $14,912,000.00
PNC BANK, NATIONAL ASSOCIATION
Revolving Line of Credit and Letters of
Credit Facilities Combined $11,528,000.00
BANK OF AMERICA ILLINOIS
Revolving Line of Credit and Letters of
Credit Facilities Combined $13,560,000.00
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
Revolving Line of Credit and Letters of
Credit Facilities Combined -0-
TOTAL $40,000,000.00
<PAGE> 4-18
SCHEDULE II
SCHEDULE II TO REVOLVING CREDIT AGREEMENT
Maximum Stated Amount of Letters of Credit
To be Issued (or Cause To Be Issued) By Lenders
Stated Amount Lender's Percentage
FIRST ALABAMA BANK $2,786,530.88 37.28%
PNC BANK, NATIONAL
ASSOCIATION $2,154,179.72 28.82%
BANK OF AMERICA ILLINOIS $2,533,889.40 33.90%
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA -0- -0-
TOTAL $7,474,600.00 100.00%
<PAGE> 4-19
Dravo Corporation
Incentive Compensation Plan
(Revised January 1995)
The Dravo Corporation Incentive Compensation Plan provides senior
managers and other key employees the opportunity to earn incentive income
each year by achieving or surpassing predetermined, preapproved
objectives.
Objectives
The objectives of the Incentive Compensation Plan are to:
* Promote individual ownership and accountability in the ongoing success
of the corporation, while focusing team efforts on overall corporate
earnings objectives.
* Encourage and reward management achievements that contribute to the
value of the corporation.
* Communicate key corporate and divisional priorities through the plan.
* Provide senior managers and other key employees with a competitive
compensation opportunity.
Plan Summary
The Dravo Corporation Incentive Compensation Plan (ICP) is a target incentive
plan that provides for the establishment of target, threshold and optimum
incentive awards based upon performance against specific predetermined
performance objectives. Prior to the beginning of each plan year, target,
threshold and optimum performance levels will be established and approved for
Corporate and Dravo Lime divisional performance. Those employees who
function across divisional locations will have a single Corporate component
(100%). Those who are assigned to an individual operating unit will have both a
Corporate component (70%) and a Divisional component (30%).
At the beginning of each year each participant will be provided with a
Participant's Guide, which will give them an overview of the plan and specify
their target award and award components.
<PAGE> 10(iv)-1
Shareholder Protection Provisions
To assure that ICP awards are related to acceptable corporate earnings, the
following shareholder protection provisions will apply:
* In developing each year's Plan, the sum of all projected ICP awards
will not be allowed to exceed 8% of projected after tax earnings from
continuing operations. If the total of all projected ICP awards
exceeds 8% of the projected after tax earnings from continuing
operations, then either the number of participants and/or the
individual target percentages are to be reduced until the total is 8%
or less.
* If the Corporation fails to achieve threshold EPS performance, no
incentive awards will be made under the plan at any level for any
component for any participant.
Eligibility
Participation in the plan may be extended to Corporate and Dravo Lime
senior managers and other key employees. Prior to the beginning of each
plan year, eligible participants are recommended by the President and Chief
Executive Officer (CEO) and approved by the Compensation Committee of the
Board of Directors (Committee).
Individual Target Awards
Target awards are established so as to pay competitive levels of incentive
compensation for achievement of the targeted performance levels. Target
awards will equal a specified percentage of the Midpoint salary of the job
grade for each participant in the plan. Percentages may vary within the job
grade based on accountability of the job as recommended by the CEO and
approved by the Committee each year.
Range of Awards
The target award will be paid at the targeted level of performance on any
component of the plan.
The threshold award, equal to 50 percent of the target award, will be paid
at the threshold level of performance on any component of the plan. If
performance fails to meet the threshold, no award will be made for that
component.
The optimum award, equal to 150 percent of the target award, will be paid for
performance equal to or above the optimum level of performance on any
component of the Plan.
<PAGE> 10(iv)-2
Allocation of Awards Among Components
Awards will be allocated to reflect the organizational level where the
participant has the greatest level of influence on business results.
For all participants awards the greatest weight will be given to corporate
performance. For participants assigned to a specific operating division, a
portion of their award will be allocated to reflect the performance of their
respective division.
Corporate Component
All participants at the Corporate level, and those participants who are not
assigned to a specific operating division will receive 100% of their award
through the Corporate component. Employees who are assigned to a specific
operating division location will receive 70% of their award through the
Corporate component.
The performance measure for the Corporate component is Earnings Per
Share (EPS) from continuing operations. The CEO will recommend to the
Committee for approval threshold, target and optimum levels of EPS
performance for the Plan Year for use in determining awards.
Performance at the threshold level will result in an award of 50% of the
target for this component. At the target level of performance, the target
award will be made and at the optimum level, the optimum award of 150% of
target will be made. For intermediate results, awards will be interpolated.
The Corporate component may be adjusted, with the approval of the
Committee, to reflect the impact of extraordinary events on Corporate EPS.
Divisional Component
Participants employed in the various operating divisions (for example:
Black River, Maysville and Longview) will receive 30% of their awards
through a Divisional component that is based upon the results attained by
their respective operating division.
The performance measure for the Divisional component is earnings before
interest and taxes (EBIT). The CEO will recommend to the Committee for
approval threshold, target and optimum levels of EBIT performance for each
operating division for the plan year for use in determining awards.
The relationship of actual results to awards is determined in the same way
as described above for the Corporate component.
<PAGE> 10(iv)-3
The Divisional component may be adjusted, with the approval of the
Committee, to reflect the impact of extraordinary events on an operating
division's EBIT.
Restricted Stock
For participants in job grade level 24 and above having a target percentage
of 15% or more, the ICP award may be paid in a combination of cash and
restricted stock. The maximum percentage of restricted stock will be
specified for each applicable job grade. The actual amount of the award
paid in restricted stock will be recommended by the CEO and approved by the
Committee. Restricted stock is a grant and the stock must be held by the
individual for a period of two years after which time the restriction will be
lifted. The individual must be actively employed on the date on which the
restriction is lifted in order to assume full ownership of the stock, unless
their leaving the company is as a result of lay off, change of control
termination, retirement, disability, or death, in which case the lifting of
the restriction will be accelerated.
Partial Year Payments
A new employee, hired into an approved ICP position, will have his target
percentage and component allocation established in accordance with the
Plan. The employee's award will be calculated at the end of the year along
with other participants, but the award will be prorated based on the number
of months of employment.
Terminations
Employees who terminate from the company prior to December 31 of the plan
year for any reason, with the exception of lay off, change of control
termination, retirement, disability, or death, will forfeit their incentive
compensation for that year. Employees who leave the company prior to
December 31 due to lay off, change of control termination, retirement,
disability, or in the event of death, will receive a prorated incentive for
those months actually worked. Employees who leave the company after
December 31 will be paid their award, if any, when other ICP payments are
distributed.
Promotions
Employees promoted into an ICP position from a non-ICP position, or
employees who are promoted into a position having a higher salary grade,
target percentage and/or different component allocation, will receive an
award prorated for the number of months spent in the new position. If an
ICP award has been earned in their previous position, that award will be
prorated by the number of months spent in the previous position.
<PAGE> 10(iv)-4
Plan Administration
The plan is administered by the Compensation Committee of the Board of
Directors. The Committee is authorized to interpret the plan, to establish
and amend rules for its administration and to make discretionary
adjustments in awards due to extraordinary events.
Recommendations as to the operation of the plan, eligible participants,
target percentages, component allocations, type (cash and/or restricted
stock) and amount of awards, performance criteria, and extraordinary
adjustments may be made to the Committee by the CEO.
<PAGE> 10(iv)-5
AGREEMENT
THIS AGREEMENT, made and entered into as of the 31st day of
December, 1994, by and between CARL A. TORBERT, JR., presently residing at
16015 Scenic Highway 98, Point Clear, Alabama 36564 (hereinafter referred
to as "Torbert"), and DRAVO CORPORATION, having its principal place of
business at One Oliver Plaza, Pittsburgh, Pennsylvania 15222 (hereinafter
referred to as "Dravo"),
WITNESSETH:
WHEREAS, Torbert is presently employed by Dravo as Chairman
and Chief Executive Officer of Dravo and contemplates completing the sale
of substantially all of the assets of Dravo Basic Materials Company, Inc.
under favorable financial terms on or about December 31, 1994; and
WHEREAS, Torbert desires to reduce his executive
responsibilities with Dravo after December 31, 1994 until December 31, 1996
and to act as Executive Consultant to Dravo during this period; and
WHEREAS, Dravo concurs in the reduction of responsibilities of
Torbert and wishes to have Torbert as an Executive Consultant to Dravo
subsequent to December 31, 1994,
NOW, THEREFORE, the parties hereto, in consideration of the
mutual promises hereinafter made and intending to be legally bound hereby,
do covenant, stipulate, warrant and agree as follows:
<PAGE> 10(xii)-1
1. Torbert and Dravo agree that Torbert shall resign
effective December 31, 1994 as Chairman and Chief
Executive Officer of Dravo, and Dravo agrees to employ
Torbert as an Executive Consultant for a period of two
years until December 31, 1996 at a monthly salary of
$25,000.00 per month ($300,000.00 per year), payable in
accordance with Dravo's regular salary payment
procedures.
2. For the period from December 31, 1994 until December 31,
1996, Torbert shall continue to participate in employee
benefit plans sponsored by Dravo in which senior
executives generally participate, including, without
limitation, the following:
a. Group Health coverage for Torbert and his eligible
dependents.
b. Group Dental coverage for Torbert and his eligible
dependents.
c. Company paid life insurance in the amount of
$300,000.00.
d. Accidental Death and Dismemberment Insurance.
e. Participation in the Company 401(k) savings plan.
f. Supplemental Executive Retirement Plan ("SERP").
g. Executive Benefit Plan.
3. Upon his retirement from Dravo effective January 1, 1997,
Torbert shall receive the following retirement benefits:
(a) For 1997, Torbert shall receive pension
benefits equivalent to $217,797.00 on a "single life"
basis, reduced to reflect whatever form of benefit (e.g.,
50% joint and survivor annuity) Torbert elects in
accordance with the terms of the relevant retirement
plan. Such amount shall be paid in equal monthly
installments and shall be paid in its entirety from the
SERP
<PAGE> 10(xii)-2
and/or the Executive Benefit Plan, in accordance with the
terms of such plans.
(b) For 1998 and subsequent years, Torbert shall
receive pension benefits equivalent to $206,457.00 on a
"single life" basis, reduced to reflect whatever form of
benefit (e.g., 50% joint and survivor annuity) Torbert
elects in accordance with the terms of the relevant
retirement plans. Such amount shall be paid in equal
monthly installments and shall be paid from the
Retirement Plan for Employees of Dravo Corporation and
Subsidiary, Salaried Employees, the SERP and the
Executive Benefit Plan in accordance with the terms of
such plans.
(c) Torbert's account balance in the Dravo
Savings Plan will be distributed in accordance with the
terms thereof.
(d) Torbert and his eligible dependents shall be
eligible for the same coverage under the Dravo retiree
medical and life insurance programs as other eligible
retirees.
4. In the event of Torbert's death during either 1995 or
1996, (i) the consulting payments described in Section 1
above shall be discontinued and (ii) Torbert's designated
beneficiary will receive the proceeds from the group life
policy maintained by Dravo as part of Torbert's benefits.
In addition, if Torbert's wife is still living at the time of
Torbert's death, then Torbert's wife will receive, for the
remainder of her life, the surviving spouse benefit
provided under the Executive Benefit Plan, as in effect
on December 31, 1994, which will be 45% of his earnings (a
benefit equal to $135,000 per year).
<PAGE> 10(xii)-3
5. The Change-In-Control Agreement between Torbert and the
Corporation made as of the 1st day of June, 1993 shall
continue to apply in accordance with the terms thereof.
For purposes of said Agreement, Torbert's office shall be
deemed to be in Mobile, Alabama.
6. (a) Torbert will, upon request of the Chief
Executive Officer of Dravo, provide his services on an as
needed and as available basis and shall perform such
services as the parties may mutually agree. Such
services shall be rendered by Torbert at such time as are
mutually convenient to the parties. While it is
anticipated that the services of Torbert hereunder will
be performed in the United States, such services may be
performed for limited periods of time in those foreign
countries that are mutually agreeable to the parties.
Torbert's status will be that of an Executive Consultant
and not an independent contractor furnishing services on
an established fee basis. As such, Torbert will be
considered an employee of Dravo.
(b) There shall be no obligation on the part of
Torbert, his Executors or Administrators to repay any
portion of said compensation irrespective of whether or
not Dravo utilizes the services of Torbert hereunder or
whether Torbert dies at any time during the term hereof.
7. Except as Dravo may otherwise provide, Torbert shall not
have, nor shall Torbert represent himself as having, any
authority to (i) make proposals or contracts in the name of
Dravo or any of its subsidiaries or affiliated companies,
(ii) bind Dravo, it subsidiaries or affiliated companies in
any matter, (iii) pledge Dravo's credit, or that of its
subsidiaries or affiliates, (iv)
<PAGE> 10(xii)-4<PAGE>
extend credit in Dravo's name, or in the name of its
subsidiaries or affiliates or (v) deal in any manner
whatsoever with regard to the services or equipment of
Dravo, its subsidiaries or affiliates other than within
the scope of the services provided hereunder.
8. In addition to the aforesaid compensation, Dravo will
reimburse Torbert for all reasonable expenses in
accordance with the Dravo standard policy for extended
use of personal car, public transportation, food and
lodging, as authorized by Dravo and incurred in connection
with services furnished under this Agreement. Torbert
shall submit monthly invoices with supporting receipts to
Dravo for expenses incurred hereunder during the
preceding month and Dravo shall pay the amounts due
Torbert on said invoices within thirty (30) days after
receipt thereof.
9. (a) Information which is considered by Dravo to be of a
confidential or proprietary nature, whether of a
business, cost or technical nature, may be disclosed
to, or developed by, Torbert in the course of his
consulting work. Torbert acknowledges his
obligation to hold such confidential or proprietary
information in trust and confidence and not to
disclose such information to any person, in
accordance with applicable common law. These
restrictions shall not apply to any information
which is rightfully in the public domain prior to, or
subsequent to, the time it was disclosed, or
information which is independently developed by
sources other than Dravo. Upon written request by
Dravo, Torbert shall return to Dravo all written or
descriptive matter, including, but not limited to,
sales scriptions, or other papers and documents
which contain such confidential or proprietary
information.
<PAGE> 10(xii)-5
(b) Any documents, forms or any other written matter,
programs, methods or procedures which may be
developed by Dravo and/or Torbert through December
31, 1996 within the scope of the services set forth
herein shall be and remain the property of Dravo
and shall be deemed to be Dravo's confidential or
proprietary information for all purposes of this
paragraph.
10. Dravo shall be entitled to any information beneficial to
the purposes of this Agreement and any ideas, inventions
and discoveries conceived, made or reduced to practice by
Torbert either alone or with others, within the scope of
the services of Torbert hereunder, during the consulting
term arising out of any investigation or work by Torbert
during the consulting term. If any such ideas, inventions
or discoveries can be made the subject of patent
applications and patents in the United States or
elsewhere, Dravo shall have the right, but only at its
expense, to prepare, prosecute, procure and maintain such
patent applications and patents, and Torbert will, upon
the request of Dravo, execute any and all documents and
perform all such other lawful acts that Dravo may deem
necessary or desirable to establish and perfect Dravo's
ownership with respect to any such ideas, inventions and
discoveries and such patent applications and patents.
11. In consideration of the mutual promises recited herein,
Torbert agrees that Torbert shall not for himself or for
any other person, partnership or corporation ("Firm")
compete with Dravo by entering into the lime business
within the market area served by any such business
presently being conducted by Dravo. Further, Torbert
agrees that he shall not participate or consult with any
Firm in establishing a new or revised business
organization which will compete with Dravo in any of its
present businesses or locations
<PAGE> 10(xii)-6
in the area of lime sales or facilities therefor within
such restricted area. Torbert and Dravo agree that the
above provisions shall be effective through December 31,
1996.
12. As long as this Agreement remains in effect, it is agreed
that Dravo may freely use Torbert's name, refer to his
professional qualifications and experience, include his
name in listings of its consultants and describe Torbert
as a consultant to it within the scope of services
described herein, and that Torbert may likewise refer to
himself as an Executive Consultant to Dravo within the
scope of services described herein.
13. Either party hereto, in the event of default by the other
party of any of the terms and conditions herein set forth
to be performed or undertaken by such party, may,
provided such defaulting party has not remedied such
default within thirty days after notice thereof given by
the non-defaulting party, in addition to any remedies
available to it in law or in equity, declare this Agreement
to be ended and of no further force or effect.
14. Dravo relies upon the personal skill, experience and
abilities of Torbert in performing the services provided
in this Agreement. Therefore, Torbert shall not assign
this Agreement in whole or in part.
15. As a material inducement to Dravo to enter into this
Agreement, Torbert hereby irrevocably and
unconditionally releases, acquits and forever discharges
Dravo and each of its owners, stockholders, predecessors,
successors, assigns, agents, directors, members,
officers, employees, representatives, attorneys,
divisions, groups, subsidiaries and affiliates (and
agents, directors, officers, employees, representatives
and attorneys of
<PAGE> 10(xii)-7
Dravo and such divisions, groups, subsidiaries and
affiliates), and all persons acting by, through, under or
in concert with any of them (collectively, "Releasees"), or
any of them, from any and all complaints, claims,
liabilities, causes of action, and expenses (including
attorney fees, costs actually incurred and liquidated
damages), known or unknown, which he may now, at any time
heretofore or hereafter, have or claim to have against
each or any of the Releasees arising from any alleged
violation through the date of this Agreement by Dravo or
any affiliate of the Age Discrimination in Employment Act,
as amended. Similarly, Dravo releases and waives any and
all claims or causes of action it may have against Torbert
which exist up through the date of this Agreement.
Nothing in this Agreement shall be deemed to waive any of
Torbert's rights under ERISA to participate in Dravo's
benefit plans for which he is otherwise eligible to
participate or to receive benefits from those plans which
he is eligible to receive in accordance with the plan
provisions.
16. Torbert represents and acknowledges that in executing
this Agreement he does not rely, and has not relied, upon
any representation or statement made by any of the
Releasees' agents, representatives or attorneys with
regard to the subject matter, basis or effect of this
Agreement or otherwise.
17. Torbert acknowledges that he has been advised in writing
to discuss or review the contents of this Agreement with
a lawyer of his choosing and that he has been given up to
twenty-one (21) days in which to consider the terms of
this Agreement. Torbert acknowledges that if he signs
this Agreement prior to the expiration of the full
twenty-one day period, he has done so voluntarily.
Torbert further acknowledges that he has consulted
<PAGE> 10(xii)-8
with his attorney prior to entering into this Agreement,
and that he has entered into this Agreement voluntarily
and of his own free will.
18. Torbert shall have seven (7) days following the execution
of this Agreement to revoke it. Should Torbert wish to
revoke this Agreement, he must notify John R. Major, Vice
President - Administration, Dravo Corporation, One Oliver
Plaza, Suite 3600, Pittsburgh, Pennsylvania 15222, and
such notice must be received within seven (7) days from
his signature.
19. This Agreement shall be binding upon Torbert and upon his
heirs, administrators, representatives, executors,
successors and assigns, and shall inure to the benefit of
Releasees and each of them, and to their heirs,
administrators, representatives, executors, successors
and assigns.
20. Should any provisions of this Agreement be declared or be
determined by any court to be illegal or invalid, the
validity to the remaining parts, terms or provisions shall
not be affected thereby, and said illegal or invalid part,
term, or provision shall be deemed not to be a part of this
Agreement.
21. Except as otherwise provided herein, this Agreement sets
forth the entire agreement between the parties hereto
and fully supersedes any and all prior agreements or
understandings between the parties hereto pertaining to
the subject matter hereof. This Agreement may not be
modified except in writing signed by both parties.
22. This Agreement is deemed to be made under, and shall be
construed according to, the laws of the State of Alabama.
<PAGE> 10(xii)-9
23. Unless otherwise notified in writing, each party shall
send notices and other communications to the other party
at the address shown below:
If to Torbert:
Carl A. Torbert, Jr.
Post Office Box 1009
Point Clear, Alabama 36564-1009
If to Dravo:
John R. Major
Vice President - Administration
Dravo Corporation
One Oliver Plaza, Suite 3600
Pittsburgh, Pennsylvania 15222
PLEASE READ CAREFULLY. THIS AGREEMENT INCLUDES A RELEASE AS
HEREIN PROVIDED OF CERTAIN KNOWN AND UNKNOWN CLAIMS.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered on the day, month and year first
above written.
ATTEST: DRAVO CORPORATION
JAMES J. PUHALA By:C. A. GILBERT
J.J. Puhala C.A. Gilbert
Vice President - General Counsel President
& Secretary
WITNESS:
BARBARA D. NELSON CARL A. TORBERT, JR.
CARL A. TORBERT, JR.
<PAGE> 10(xii)-10
Exhibit 11. Statement Re Computation of Per Share Earnings
<TABLE>
($ in thousands, except per share amounts)
Years ended December 31,
1994 1993 1992
<CAPTION>
<S> <C> <C> <C>
Primary
Earnings:
Earnings from continuing operations
before extraordinary item $ 4,930 $ 35,126 $ 10,318
Deduct dividends on preferred stock 2,544 2,554 2,561
Earnings from continuing operations
applicable to common stock 2,386 32,572 7,757
Loss from discontinued operations (6,554) (35,303) --
Earnings (loss) from extraordinary item (7,572) -- 1,573
Cumulative accounting change (1,361) -- --
Net earnings (loss) applicable to
common stock $(13,101) $ (2,731) $ 9,330
Shares:
Weighted average number of common
shares outstanding 14,859 14,835 14,820
Dilutive effect of outstanding
options and rights (as determined
by the application of the treasury
stock method at the average market
price for the year) -- (1) -- (1) 13
Weighted average number of shares
outstanding, as adjusted 14,859 14,835 14,833
Primary earnings (loss) per share:
Continuing operations $ 0.16 $ 2.20 $ 0.52
Discontinued operations (0.44) (2.38) --
Extraordinary item (0.51) -- 0.11
Cumulative accounting change (0.09) -- --
Net earnings (loss) per share $ (0.88) $ (0.18) $ 0.63
Fully Diluted
Earnings:
Net earnings (loss) $(10,557) $ (177) $ 11,891
Deduct dividends on preferred stock (2) 2,544 2,554 2,561
Net earnings (loss) applicable to
common stock $(13,101) $ (2,731) $ 9,330
Shares:
Weighted average number of common
shares outstanding 14,859 14,835 14,820
Dilutive effect of outstanding options
and rights (as determined by the
application of the treasury stock
method at the higher of the ending
or average market price for the year) -- (1) -- (1) 25
</TABLE>
11-1
<PAGE>
<TABLE>
<CAPTION>
Years ended December 31,
1994 1993 1992
Fully Diluted (continued)
<S> <C> <C> <C>
Shares (continued):
Shares issuable from assumed exercise
of convertible preference stock (2) -- -- --
Weighted average number of shares
outstanding, as adjusted 14,859 14,835 14,845
Fully diluted earnings (loss) per share:
Continuing operations $ 0.16 $ 2.20 $ 0.52
Discontinued operations (0.44) (2.38) --
Extraordinary item (0.51) -- 0.11
Cumulative accounting change (0.09) -- --
Earnings (loss) per share $ (0.88) $ (0.18) $ 0.63
Additional Fully Diluted Computation (3)
Earnings:
Net earnings (loss) $(10,557) $ (177) $ 11,891
Shares:
Weighted average number of common
shares outstanding 14,859 14,835 14,820
Dilutive effect of outstanding options
and rights (as determined by the
application of the treasury stock
method at the higher of the ending or
average market price for the year) 87 66 25
Shares issuable from assumed exercise of
convertible preference stock 1,697 1,710 1,682
Weighted average number of shares
outstanding, as adjusted 16,643 16,611 16,527
Fully diluted earnings (loss) per share $ (0.63) $ (0.01) $ 0.72
</TABLE>
(1) The inclusion of outstanding options and rights in this computation would
have an anti-dilutive effect on earnings per share.
(2) The inclusion of preference stock in the fully dilutive computation would
have an anti-dilutive effect on earnings per share.
(3) This calculation is submitted in accordance with Securities Exchange Act
of 1934 Regulation S-K, paragraph 229.601 (b) (11) although it is contrary
to paragraph 40 of APB Opinion No. 15 because it produces an anti-dilutive
result in 1994, 1993 and 1992.
11-2
<PAGE>
FINANCIAL REVIEW
OVERVIEW
Two milestone events during 1994 will determine to a great extent Dravo
Corporation's future. The first was the completion late in the year of
negotiations to sell substantially all the assets of Dravo Basic Materials,
the company's construction aggregates business. The aggregates operations
comprised more than half of the company's assets and generated over half of
its revenues. During the past few years, however, the return on investment
from this business had fallen below acceptable levels. The opportunity to
sell the business in excess of book value allowed the company to exit a
business currently earning marginal returns while significantly strengthening
the balance sheet. The result is a highly focused, conservatively financed
lime company.
The second 1994 milestone directly involved the lime business: a 700,000-ton-
per-year expansion of the company's Black River lime production facility
neared completion. Production from this expansion will be used to meet the
450,000-ton-per-year scrubber lime requirement of American Electric Power's
Gavin station, and also to supply the Henderson Municipal Power and Light
Station operated by Big Rivers Electric Cooperative. The company will provide
the Gavin station lime tonnage under a 15-year contract. The extension of
three long-term supply commitments totaling almost 700,000 tons annually, and
the increase in lime utilization expected at existing customer locations as
utilities boost their levels of sulfur-dioxide removal, underpin revenues from
the utility segment of Dravo's lime operations into the next decade.
The Dravo Basic Materials sales transaction was not completed until year-end;
therefore, the consolidated financial results for 1994 reflect both the lime
and construction aggregates operations for the entire year. Continuing
operations pre-tax earnings of $5.5 million were notably lower than the $10.5
million posted in 1993, primarily because of price reductions given to secure
renewal of long-term lime supply contracts, unusually high weather-related
costs, and startup costs associated with the Black River expansion. Earnings
from continuing operations after tax were $4.9 million, or $.16 per share.
Dravo reported a net loss for 1994 of $10.6 million, or $.88 per share. A
charge for discontinued operations of $6.5 million was recorded in 1994 for
expected legal fees for two ongoing lawsuits and to provide for settlement of
a lawsuit brought in Venezuela for contract services provided in the mid-
1970s. Also, an extraordinary charge of $7.6 million, $.51 per share, was
recorded to reflect the write-off of fees associated with debt instruments
that were prepaid or substantially altered as a result of the Dravo Basic
Materials asset sale. A one-time charge of $1.4 million, $.09 per share,
reflects the cumulative accounting effect of the adoption of Statement of
Financial Accounting Standards No. 112, "Employers Accounting for
Postemployment Benefits."
In 1993, earnings from continuing operations were $35.1 million, or $2.20 per
share. Included in the earnings results was a $24.9 million deferred tax
benefit. Loss on discontinued operations was $35.3 million, or $2.38 per
share.
In 1992, earnings from continuing operations were $10.3 million, or $.52 per
share. Under rules in effect in 1992 governing accounting for income taxes,
an extraordinary credit of $1.6 million, or $.11 per share, resulted from the
use of loss carryforwards to offset current tax expense.
RESULTS OF OPERATIONS
CONTINUING OPERATIONS
Revenue: Revenue of $278.1 million during 1994 was up slightly over 1993's
level. Construction aggregates revenue was higher due to continued strong
demand in the Cincinnati and West Virginia areas and a much improved market in
the Southeast and Gulf Coast areas. Lime revenue of $125.7 million was down
due to price concessions granted in return for multi-year extensions of long-
term lime supply contracts and weather-related problems in the first quarter.
The impact of these items was partially mitigated, however, by very strong
demand for non-utility lime. Demand was especially strong for metallurgical
lime used in making steel and aluminum.
Revenue in 1993 of $277.6 million was up $4.6 million over 1992. The increase
was attributable to high demand for construction aggregates in the
metropolitan Cincinnati area and West Virginia. Competition along the
Mississippi River and Gulf Coast was very intense and the company was unable
to increase revenues in those areas. Lime revenue was up due to strong non-
utility demand and increased utility shipments.
Costs and Expenses: Gross profit of $44.0 million was down $5.3 million from
last year. Dravo Lime's gross profit of $30.4 million was down $4.6 million
while Dravo Basic Materials' gross profit of $13.2 million was down $644,000
from a year ago. Lime and aggregates operations located in the Ohio River
Valley were negatively affected by a severe winter that caused operating
difficulties during the first quarter. Price concessions on long-term lime
supply contracts impacted gross profit, as did an unscheduled seven-week
outage at one of the company's electric utility customer's generating
stations. Production costs at the Black River operation were higher as
personnel were added in preparation for expanded underground mining and
startup of the two new lime kilns. Also, the write-off of equipment being
<PAGE> 13-18
replaced as part of the plant expansion and modernization project affected
profit margins. The expansion and upgrades currently being completed at Black
River are expected to reduce production costs significantly.
Gross profit was $2.4 million lower in 1993 than 1992. An unusual number of
significant operating problems at Black River increased production costs.
Operating problems occurred at the Longview facility also, although not to the
same extent as Black River, and the company had to occasionally purchase lime
from outside sources to fill orders.
Selling expense of $7.1 million was lower than both 1993 and 1992 levels of
$7.6 million and $7.3 million, respectively. Selling expense fluctuates
primarily due to amounts of research and development expense that can be
billed to third parties. These research activities involve a variety of lime-
related technologies, with particular emphasis on air pollution control.
Depending on the project, reimbursement may be made by governmental agencies,
public utilities or private groups for all or a portion of project costs.
General and administrative expenses were reduced by more than six percent from
1993 and ten percent from 1992. The reduction reflects lower staffing levels,
employee and retiree medical expenses, and travel expenses, as well as lower
charges related to the amortization of a non-cancelable lease obligation on a
downtown Pittsburgh office building. The decrease from 1992 to 1993 was due
primarily to lower amortization charges on the non-cancelable lease and lower
medical expenses.
Equity in earnings of joint ventures includes the company's share in three 50-
percent owned joint ventures: a shell dredging operation located off the
Louisiana coast, a contract phosphate rock mining operation in Idaho and a
small contract coke operation in Wyoming. Results for the shell dredging
operation were significantly improved over last year due to a major highway
project and a contract with a state agency to place shell in water bottoms to
improve oyster habitat. The phosphate mining operation, whose profitability
varies depending on mining conditions and customer requirements, had strong
demand and improved results over 1993. The shell dredging joint venture was
sold as part of the Dravo Basic Materials asset sale.
Other income reports the gain on the sale of property, plant and equipment.
The $1.1 million gain in 1994 includes the sale of the company's airplane,
$324,000, and $487,000 from the sale, after accrued expenses, of Dravo Basic
Materials' assets. See Note 3, Dispositions, in the Notes to Consolidated
Financial Statements for a further discussion of the Dravo Basic Materials
sale transaction. In 1993, a gain was recognized on the sale of property in
Baton Rouge, Louisiana and excess floating equipment, mainly barges. Other
income in 1992 of $1.7 million resulted primarily from the sale of assets
related to the asphalt and Calcilox businesses. A gain was also recorded when
the lessee of 34 hopper barges and covers exercised an option to purchase the
equipment.
The decline in interest income over the last two years reflects a lower level
of funds available for investment and lower interest rates.
Interest expense of $12.4 million was $3.2 million higher than 1993. The
higher expense was due to higher interest rates on a prime rate-based line of
credit and fees paid to a prospective lender on the Black River financing
package whose participation was terminated by the company. Interest expense
was 13 percent lower in 1993 than 1992. The decrease was due to lower average
debt outstanding and the positive impact of an interest rate swap agreement.
Income tax expense of $597,000 includes an accrual of $300,000 for federal
alternative minimum tax from the sale of Dravo Basic Materials' assets. In
1993, a benefit for income taxes of $24.9 million was recorded under the
provisions of Statement of Financial Accounting Standards No. 109 (SFAS 109),
"Accounting for Income Taxes." Management believes that, due to the large
proportion of revenue generated by long-term supply contracts, income can be
reasonably projected for purposes of determining whether the realization of
the asset resulting from the utilization of NOLs in future years is more
likely than not. The amount of the net deferred tax asset was not adjusted in
1994 due to remaining uncertainties associated with discontinued operations.
In conjunction with the sale of Dravo Basic Materials' assets, existing loan
agreements were substantially altered, including a $35 million reduction in
the amount available under a revolving credit facility. Also, while
negotiating a $50 million financing agreement with Prudential Power Funding
for the Black River expansion, the company purchased a call option that
enabled it to prepay on May 17, 1995, without penalty, amounts outstanding
under the financing agreement. At December 31, 1994, $19.9 million was
borrowed under the agreement. Cash received from the Dravo Basic Materials
asset sale equalling the outstanding principal on the Prudential Power Funding
facility, interest through May 16, 1995 and an exit fee was placed in escrow.
The company agreed that any additional drawings on the facility would also be
escrowed. No additional drawings were made and, with Prudential Power
Funding's consent, the entire amount borrowed was prepaid on February 10,
1995. The fees associated with these agreements were written off as
extraordinary items.
<PAGE> 13-19
Effects of inflation: Inflation rates have been low over the past three years
and as a result have not had a significant impact on the company's operations.
In addition, Dravo Lime's long-term lime supply contracts provide for price
increases for specific production expenses, such as labor, fuel and
electricity.
DISCONTINUED OPERATIONS
The provision for discontinued operations was increased $6.6 million in 1994.
The charge was taken to cover a $4.5 million settlement involving an alleged
breach of contract by the company for work performed between 1973 and 1978 in
Venezuela. Because of the uncertainty surrounding this matter, no amount was
provided previously. Opposing counsel had alleged damages in excess of $35
million. The balance of the provision is, for the most part, estimated legal
fees for two ongoing lawsuits: Continental Energy Associates and the company's
assertion that it is entitled to a defense and indemnity under its contracts
of insurance for environmental clean-up costs in Hastings, Nebraska. See Note
8, Contingent Liabilities, in the Notes to Consolidated Financial Statements
for a further discussion of these matters.
In 1993, a $35.3 million charge was recorded. The provision was primarily to
cover a settlement agreement with the City of Long Beach, Calif., which
included the company giving up its claim to unpaid receivables and interest
totalling $18 million. The provision also recognized an increase in the
estimated environmental clean-up costs at the Hastings superfund site, write-
off of a note receivable due to an unfavorable court ruling and additional
legal fees.
FINANCIAL POSITION AND LIQUIDITY
The company completed negotiations on December 30, 1994 for the sale of
substantially all of the assets and certain liabilities of Dravo Basic
Materials to Martin Marietta Materials, Inc. (Martin Marietta) effective
January 3, 1995. The balance sheet at December 31, 1994 reflects the effect
of the sale transaction, in that the assets and liabilities sold have been
removed and a $120.5 million receivable from Martin Marietta recorded. On
January 3, 1995, cash was received for the assets.
Also on January 3, the company prepaid $65.6 million of debt, including the
revolving line of credit balance of $55.8 million. On February 10, 1995 the
Prudential Power Funding loan balance of $19.9 million was prepaid.
Accordingly, these amounts are presented as current liabilities on the
December 31, 1994 balance sheet. The company's total debt outstanding after
prepaying these loans was $42.4 million and it had available $32.5 million
under a revolving credit/letter of credit facility.
All known outstanding discontinued operations items have been classified as
current or long-term based on the estimated timing of future cash receipts and
disbursements. Despite the size of the discontinued operations liabilities,
they do not pose a threat to liquidity because cash payments needed to satisfy
them will be spread over several years.
The company has on hand and access to sufficient funds to meet its anticipated
operating and capital needs. To minimize interest charges, cash balances are
kept low through a banking arrangement that uses excess cash held in the
company's accounts to reduce the amount of overnight borrowing on a revolving
credit agreement
Cash received from the Dravo Basic Materials transaction, after payment of
debt and expenses, is being invested in short-term interest bearing
instruments.
In January, 1995 the Board of Directors approved a program whereby the company
is authorized to purchase up to 250,000 shares of its common stock on the open
market. The repurchased shares will be held in the treasury and will be used
for general corporate purposes.
A $40 million revolving credit/letter of credit facility is provided by a
consortium of lenders that includes First Alabama Bank; PNC Bank, N.A. and
Bank of America Illinois (formerly Continental Bank, N.A.). Interest on the
revolver is equal to First Alabama Bank's base lending rate plus 1.25 percent.
The credit facility expires April 30, 1996 but the company expects it to be
extended.
Obligations under the company's revolving credit facility and senior term
notes are secured by a pledge of the stock of Dravo Lime Company and Dravo
Basic Materials Company along with their accounts receivable and finished
goods inventories. Additionally, certain contract rights, patents and
mortgages on the company's Maysville, Black River and Longview plants have
been pledged as collateral. The agreements contain uniform restrictive
covenants that require the company on a consolidated basis, and Dravo Lime and
Dravo Basic Materials on a combined basis, to maintain minimum working capital
levels; restrict incurrence of debt, liens and lease obligations; restrict the
sale of significant assets; and as to Dravo Lime and Dravo Basic Materials,
limit payment of dividends or making of loans to the company. At December 31,
1994, approximately $155 million of Dravo Lime and Dravo Basic Materials net
assets were restricted as to payment of dividends or loans to the company.
These restrictions are not expected to have an adverse impact on the company's
ability to meet its cash obligations.
DIVIDENDS
The company may not declare common stock dividends until cumulative earnings
from continuing operations after September 30, 1991 exceed $40 million,
excluding gains from the sale of capital assets and the income
<PAGE> 13-20
impact of recording a net deferred tax asset, or cumulative losses from
discontinued operations after September 30, 1991, whichever is higher, and
then only to the extent of 50 percent of such earnings. At December 31, 1994,
cumulative losses from discontinued operations of $52.3 million exceeded
cumulative earnings from continuing operations, both since September 30, 1991,
by $25.7 million. Dividends on the $3.0875 cumulative, convertible,
exchangeable, Series D Preference Stock were declared quarterly throughout
1994, 1993 and 1992. Quarterly dividends were also declared on the $2.475
cumulative convertible Series B Preference Stock in each of the last three
years. All declared preference dividends have been paid on a timely basis.
COMMON STOCK MARKET PRICE
The principal market on which Dravo's common stock is traded is the New York
Stock Exchange under the symbol, DRV. The high and low common stock sales
prices for each quarterly period in 1994 and 1993 as reported for New York
Stock Exchange composite transactions were:
<TABLE>
1994 1993
<CAPTION>
Quarter High Low High Low
<S> <C> <C> <C> <C>
First 13 3/8 10 1/4 10 1/4 8 3/4
Second 12 1/4 10 11 3/4 8 3/4
Third 12 5/8 9 1/2 12 3/8 9 3/8
Fourth 12 9 3/4 12 1/2 10 1/8
</TABLE>
OUTLOOK
Continuing operations: Dravo Corporation is now a company focused on one
business, lime. Five years ago Congress passed amendments to clean air
standards mandating reduced emissions from coal-fired power plants. The
effective date for the first phase of these mandated emission reductions was
January 1, 1995. In January, 1995 Dravo shipped lime to American Electric
Power's Gavin station under a 15-year supply contact. This marked the
beginning of a major expansion in the company's utility lime operations
directly attributable to the new federal clean air standards. Demand from the
steel, paper and water purification markets has exceeded the company's non-
utility lime production capacity. Additional expansions to supply this
increase in demand are anticipated. In total, Dravo now has nearly 70 percent
of its total production capacity committed under long-term utility and
merchant contracts.
The company's research and development organization is recognized as a leading
source of technical services to lime users and a major developer of lime-
related environmental technologies. The company leverages this competitive
advantage in seeking additional lime and lime-related businesses and also is
committed to commercializing and marketing its patented technologies.
Administrative costs were significantly reduced as part of the corporate
reorganization that followed the sale of Dravo Basic Materials' assets. A
much smaller corporate staff is being consolidated at Dravo's Pittsburgh
headquarters location to better support and complement Dravo Lime's
activities. Ongoing reductions in overhead expenses are a management
priority.
Discontinued operations: The company formerly operated a metal fabrication
facility in Hastings, Nebraska. The federal Environmental Protection Agency
(EPA) has notified the company it believes the company is a potentially
responsible party (PRP) for the clean-up of soil and groundwater contamination
at four subsites in the Hastings area. The company held talks with the EPA in
1992 as to the scope of clean-up required and to determine if the EPA would be
willing to accept an amount, to be paid by the company, other PRPs and the
company's insurance carriers, over time, that would discharge the company from
any further clean-up at the Colorado Avenue subsite. The company discontinued
the discussions with the EPA when its insurance carriers refused coverage
responsibility. The company has since brought legal action against its
insurance carriers whom it believes had coverage responsibility for the time
the company owned the Hastings facility. Two insurance carriers have
approached the company concerning a settlement. The one carrier, whom the
company considered having the least exposure, settled in 1994 for $500,000.
The company intends to pursue a settlement of this matter which will involve a
group of named PRPs and insurance carriers. See Note 2, Discontinued
Operations, in the Notes to Consolidated Financial Statements for further
discussion of the company's estimate of total clean-up costs and its share of
those costs.
A mediation session was held in early March, 1995 between the company and
Continental Energy Associates regarding disputes arising from the construction
of a coal gasification facility in Hazleton, Pennsylvania. Although the
session did not resolve this matter, the company is hopeful that the dialogue
will continue and ultimately lead to a fair settlement acceptable to the
company.
See Note 8, Contingent Liabilities, in the Notes to Consolidated Financial
Statements for a further discussion of these discontinued operations matters.
Management believes the provision for losses on discontinued operations is
adequate at this time. However, in establishing the provision and monitoring
it, management has estimated the cost of exiting discontinued businesses and
pursuing the company's rights through litigation. A ruling by the courts or a
settlement of the disputes that is adverse to Dravo's position, or other
unforeseen developments, could require a future additional provision for
discontinued operations.
<PAGE> 13-21
<TABLE>
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
<CAPTION>
December 31,
(In thousands) 1994 1993
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,027 $ 808
Receivable from sale of Dravo Basic
Materials Company (Note 3) 120,464 --
Accounts receivable, net of allowance for
uncollectibles of $108 and $897 20,138 44,225
Notes receivable (Note 15) 2,803 3,318
Inventories (Note 4) 12,638 57,536
Other current assets 2,067 2,417
Total current assets 160,137 108,304
Advances to and equity in joint ventures 2,536 4,348
Notes receivable (Note 15) 5,061 6,870
Other assets 21,281 17,729
Deferred income taxes (Note 13) 24,853 24,853
Property, plant and equipment:
Land 6,127 23,673
Mine development 8,376 8,148
Building and improvements 9,722 22,830
Floating equipment -- 36,972
Machinery and other equipment 171,108 220,199
195,333 311,822
Less accumulated depreciation and amortization 101,872 201,854
Net property, plant and equipment 93,461 109,968
Total assets $307,329 $272,072
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 13-22
<TABLE>
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
<CAPTION>
December 31,
(In thousands) 1994 1993
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current portion of long-term notes (Notes 5 and 15) $ 85,077 $ 4,488
Accounts payable - trade 36,257 28,622
Accrued insurance 2,265 3,049
Accrued retirement contribution 2,388 2,101
Net liabilities of discontinued operations (Note 2) 13,547 4,454
Other current liabilities 14,264 6,136
Total current liabilities 153,798 48,850
Long-term notes (Notes 5 and 15) 42,440 88,520
Other liabilities 5,900 3,033
Net liabilities of discontinued operations (Note 2) 8,445 22,130
Redeemable preference stock (Notes 6 and 15):
Par value $1, issued 200,000 shares:
cumulative, convertible, exchangeable Series D
(entitled in liquidation to $20.0 million) 20,000 20,000
Shareholders' equity (Notes 6 and 12):
Preference stock, par value $1, authorized
1,878,870 shares: Series B, $2.475 cumulative,
convertible, issued 28,386 and 32,386 shares
(entitled in liquidation to $1.6 million and
$1.8 million); Series D, reported above 28 32
Common stock, par value $1, authorized 35,000,000
shares: issued 14,985,839 and 14,967,824 shares 14,986 14,968
Other capital 63,554 63,260
Retained earnings 18 13,119
Treasury stock at cost;
common shares 119,221 (1,840) (1,840)
Total shareholders' equity 76,746 89,539
Total liabilities and shareholders' equity $307,329 $272,072
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 13-23
<TABLE>
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
<CAPTION>
Years ended December 31,
(In thousands, except per share data) 1994 1993 1992
<S> <C> <C> <C>
Revenue $278,052 $277,590 $272,979
Cost of revenue 234,018 228,266 221,232
Gross profit 44,034 49,324 51,747
Selling expenses 7,116 7,602 7,258
General and administrative expenses 22,497 24,058 24,914
Earnings from operations 14,421 17,664 19,575
Other income (expense):
Equity in earnings (loss) of joint ventures 1,672 (18) 411
Other income 1,088 692 1,683
Interest income 754 1,327 1,598
Interest expense (12,408) (9,194) (10,548)
Net other expense (8,894) (7,193) (6,856)
Earnings before taxes from continuing operations 5,527 10,471 12,719
Income tax expense (benefit) (Note 13) 597 (24,655) 2,401
Earnings from continuing operations 4,930 35,126 10,318
Loss on discontinued operations (Note 2) 6,554 35,303 --
Earnings (loss) before extraordinary item
and cumulative accounting change (1,624) (177) 10,318
Extraordinary item (Notes 13 and 14) (7,572) -- 1,573
Cumulative effect of accounting change (Note 10) (1,361) -- --
Net earnings (loss) (10,557) (177) 11,891
Preference dividends 2,544 2,554 2,561
Net earnings (loss) available for common stock $(13,101) $ (2,731) $ 9,330
Weighted average shares outstanding 14,859 14,835 14,833
Primary earnings (loss) per share:
Continuing operations $ 0.16 $ 2.20 $ 0.52
Discontinued operations (0.44) (2.38) --
Extraordinary item (0.51) -- 0.11
Cumulative effect of accounting change (0.09) -- --
Net earnings (loss) $ (0.88) $ (0.18) $ 0.63
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 13-24
DRAVO CORPORATION AND SUBSIDIARIES
<TABLE>
Consolidated Statements of Retained Earnings
<CAPTION>
Years ended December 31,
(In thousands, except per share data) 1994 1993 1992
<S> <C> <C> <C>
Retained earnings at beginning of year $ 13,119 $ 15,850 $ 6,520
Net earnings (loss) (10,557) (177) 11,891
<CAPTION> 2,562 15,673 18,411
<S> <C> <C> <C> <C> <C> <C>
Dividends declared: 1994 1993 1992
Series B preference stock $ 2.475 $ 2.475 $ 2.475 74 84 91
Series D preference stock 12.350 12.350 12.350 2,470 2,470 2,470
2,544 2,554 2,561
Retained earnings at end of year $ 18 $13,119 $15,850
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 13-25
<TABLE>
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<CAPTION>
(In thousands) Years ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating activities:
Earnings from continuing operations $ 4,930 $ 35,126 $ 10,318
Adjustments to reconcile earnings from
continuing operations to net cash provided by
continuing operations activities:
Depreciation and amortization 17,626 17,985 18,595
Change in accounting principle (1,361) -- --
Gain on sale of assets (1,088) (692) (1,683)
Equity in joint ventures (116) (2,155) 49
Changes in assets and liabilities, net of
effects from DBM disposition:
Decrease (increase) in accounts receivable (143) (5,410) 1,638
Decrease (increase) in notes receivable 464 1,008 (647)
Decrease (increase) in inventories 3,909 6,311 (4,197)
Decrease (increase) in other current assets (869) 721 (400)
Increase in other assets (6,302) (2,373) (680)
Increase in deferred income taxes -- (24,853) --
Increase (decrease) in accounts payable
and accrued expenses 7,873 947 (5,322)
Increase (decrease) in income taxes payable 329 (20) (575)
Increase in other liabilities 3,178 71 329
Total adjustments 23,500 (8,460) 7,107
Net cash provided by continuing
operations activities 28,430 26,666 17,425
Loss from discontinued operations (6,554) (35,303) --
Decrease in net liabilities of
discontinued operations (4,592) 21,647 (15,009)
Proceeds from repayment of notes receivable from
sale of discontinued operations 1,600 1,992 2,631
Net cash used by discontinued operations activities (9,546) (11,664) (12,378)
Net cash provided (used) by extraordinary item (7,572) -- 1,573
Net cash provided by operating activities 11,312 15,002 6,620
Cash flows from investing activities:
Proceeds from sale of assets 2,148 1,249 5,591
Additions to property, plant and equipment (44,757) (13,646) (8,454)
Other, net 509 (553) (363)
Net cash used by investing activities $(42,100) $(12,950) $ (3,226)
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 13-26
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(In thousands) Years ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Cash flows from financing activities:
Net borrowing under revolving credit agreements $ 19,300 $ 4,600 $ 3,700
Principal payments under long-term notes (4,736) (4,446) (5,702)
Principal payments under capital lease obligations -- (306) (142)
Proceeds from issuance of long-term notes 19,945 391 122
Proceeds from borrowing under capital lease
obligations -- -- 388
Proceeds from issuance of common stock 42 101 63
Dividends (2,544) (2,554) (2,561)
Net cash provided (used) by financing activities 32,007 (2,214) (4,132)
Net increase (decrease) in cash and cash equivalents 1,219 (162) (738)
Cash and cash equivalents at beginning of year 808 970 1,708
Cash and cash equivalents at end of year $ 2,027 $ 808 $ 970
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest (net of amount capitalized) $ 12,408 $ 9,195 $ 10,722
Income tax (143) 487 1,333
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 13-27
DRAVO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1: Summary of Significant Accounting Policies
Description of Business: The consolidated financial statements include the
accounts of Dravo Corporation and its majority-owned subsidiaries (the
company). The principal subsidiaries are Dravo Lime Company, one of the
nation's largest lime producers, and Dravo Basic Materials Company, Inc.
(DBM). The company completed a transaction on December 30, 1994 in which it
sold substantially all the assets and certain liabilities of DBM. The assets
and liabilities sold have been removed from the company's December 31, 1994
balance sheet. The December 31, 1994 statement of operations includes the
results of DBM for the entire year.
Principles of Consolidation: Significant intercompany balances and
transactions have been eliminated in the consolidation process.
Cash and Cash Equivalents: For purposes of reporting cash flows, the company
considers all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents.
Inventories: Inventories are valued at average production cost or market,
whichever is lower. The cost of products produced includes raw materials,
direct labor and operating overhead.
Property, Plant, Equipment and Depreciation: Property, plant and equipment
are stated at cost. The cost of buildings, equipment and machinery is
depreciated over estimated useful lives on a straight-line basis. For income
tax purposes, depreciation is calculated principally on an accelerated basis.
Expenditures for maintenance and repairs which do not materially extend the
lives of assets are expensed currently. The asset cost and accumulated
depreciation are removed from the accounts for assets sold or retired, and any
resulting gain or loss is included in other income and expense.
Intangible Assets: Intangible assets include agreements, goodwill, and
unrecognized prior service cost on the company's pension plans. Amortization
is on a straight line basis, generally five to ten years, over estimated
useful lives, or in the case of unrecognized prior service costs, the average
future service period.
Income Taxes: Effective January 1, 1993, the company adopted the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The statement requires that deferred income taxes reflect the tax
consequences on future years of differences between the tax bases of assets
and liabilities and their financial reporting amounts. Prior to 1993,
provisions were made for deferred income taxes where differences existed
between the time transactions affected taxable income and the time those
transactions entered into the determination of income for financial statement
purposes.
Earnings Per Share: Primary earnings per share are based on net earnings less
preference dividends declared in the year, divided by the weighted average sum
of common shares outstanding during the year and common share equivalents.
Shares exercisable as employee stock options and stock appreciation rights are
considered common share equivalents except when their inclusion would be anti-
dilutive. Primary common share equivalents are calculated based on the
average common stock price for the year. Fully diluted earnings per share are
based on net earnings, divided by the sum of the weighted average number of
common shares outstanding during the year, weighted average number of shares
resulting from the assumed conversion of issued preference shares to common
shares and common share equivalents. Fully diluted common share equivalents
are calculated based on the higher of the average or ending common stock price
for the year. Fully diluted earnings per share are anti-dilutive in 1994,
1993 and 1992 and are not presented.
Note 2: Discontinued Operations
In December, 1987, Dravo's Board of Directors approved a major restructuring
program which concentrated the company's future direction exclusively on
opportunities involving its natural resources business. An additional charge
of $6.5 million was taken in 1994 for discontinued operations.
The company filed an action in 1981 to collect on a promissory note issued by
Meladuras Portuguesa, C. A. (Melaport) and its principal, Alberto Caldera
(Caldera). In 1985, Melaport and Caldera filed a counterclaim for damages
alleging the company breached a contract between Melaport and the company
relating to engineering and procurement services rendered between 1973 and
1978 for a sugar cane processing facility. A local Venezuelan court ruled
partially in favor of Melaport's counterclaim. The ruling was upheld by a
Venezuelan appeals court on September 25, 1992 and by the Venezuelan Supreme
Court on July 8, 1993. The court ruling did not specify damages to be paid
but rather identified three categories of damages to which Caldera and
Melaport would be entitled. The amount of damages was to have been
established by an appraisal process conducted by the trial court. Opposing
counsel asserted that the damages would be in excess of $35 million. The 1994
discontinued operations provision includes $4.5 million for the settlement
amount agreed to by the parties to conclude all disputes related to the
Venezuelan matter.
<PAGE> 13-28
Also, an additional amount was provided for estimated legal fees anticipated
to pursue various lawsuits and claims, the most significant of which are the
Hastings insurance litigation and Continental Energy Associates (CEA) matters
discussed in Note 8, Contingent Liabilities.
No loss provision has been made for the CEA dispute because it is not possible
to determine the outcome of this matter or to estimate with any degree of
probability the range of potential costs which may be involved. Claims
against the company, which management believes are grossly overstated, exceed
$10 million.
A $35.3 million provision for discontinued operations expenses was recorded in
1993. The provision covered the write-off of receivables and accrual of a
settlement relating to a resource recover facility built in Long Beach,
Calif.; updated estimates of the potential costs to clean up soil and
groundwater contamination at a former operation located in Hastings, Nebraska;
write-down of a receivable from a Portland, Maine utility to reflect a jury
award; and estimated legal fees.
The company received cash proceeds of $1.6 million in 1994, $2.0 million in
1993 and $2.6 million in 1992 from the repayment of notes received from the
previous sales of discontinued businesses.
The remaining discontinued operations' assets and liabilities for the
respective years ended December 31 relate to non-cancelable leases,
environmental, insurance, legal and other matters associated with exiting the
engineering and construction business and are presented below:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
<S> <C> <C>
Current assets:
Accounts and retainers receivable $ 24 $ 23
Other -- 3,512
Total current assets 24 3,535
Accounts and retainers receivable 444 472
Other 5,121 309
Total assets $ 5,589 $ 4,316
Current liabilities:
Accounts and retainers payable $ 63 $ 178
Accrued loss on leases 2,315 2,448
Other 11,193 5,363
Total current liabilities 13,571 7,989
Accounts and retainers payable -- 4,745
Accrued loss on leases 5,632 7,854
Other 8,378 10,312
Total liabilities $ 27,581 $ 30,900
Net liabilities and accrued loss
on leases of discontinued operations $(21,992) $(26,584)
</TABLE>
Note 3: Dispositions
The company completed a transaction on December 30, 1994 in which it sold to
Martin Marietta Materials, Inc. (Martin Marietta), effective January 3, 1995,
substantially all the assets of its construction aggregates business. Assets
sold included the assets, properties and leases of Dravo Basic Materials
Company, Inc. (DBM), a wholly-owned subsidiary of the company, and Atchafalaya
Mining Company, Inc. (AMC), a wholly-owned subsidiary of DBM, used in the
production, marketing, distribution and sale of various aggregate products.
Also sold was the capital stock of Dravo Bahama Rock Limited (DBR), a wholly-
owned foreign subsidiary of DBM.
The significant terms of the transaction called for Martin Marietta to
purchase substantially all of DBM's and AMC's assets at their December 31,
1994 book value plus a premium of $2.0 million. Assets excluded from the sale
included cash in banks; the capital stock of two subsidiary companies, Dravo
Natural Resources Company and Tideland Industries, Inc.; amounts due from
affiliated companies; notes receivable and certain properties located near
Cincinnati, Ohio and Lake Charles, Louisiana. The company is required to buy
back accounts receivable that are unpaid at May 3, 1995.
Martin Marietta also paid the company $8.0 million in consideration of (i) a
non-competition and non-disclosure agreement and (ii) distributorship
agreements for crushed limestone aggregates produced at Dravo Lime's
Maysville, Black River and Longview facilities.
The company, DBM and AMC retained substantially all obligations and
liabilities which arose from or in connection with operations prior to the
sales transaction. The sales price was reduced for liabilities assumed by
Martin Marietta which included accrued vacations and wages for transferred
employees, liabilities of DBR and land reclamation obligations.
Actual and estimated expenses related to the sale totaled $9.5 million and
included transaction costs, benefit plan curtailment expenses, environmental
clean-up costs, severance pay and various wind-down costs. A net $487,000
pre-tax gain on the transaction was recorded in other income.
The assets and liabilities sold to Martin Marietta have been removed from the
company's December 31, 1994 balance sheet and a corresponding receivable from
the sale of DBM of $120.5 million has been recorded. The December 31, 1994
statement of operations includes the results of DBM for the entire year.
Pro forma data is provided below for comparative purposes only and does not
purport to be indicative of the
<PAGE> 13-29
results which actually would have been obtained if the disposition had been
effected on the pro forma dates, or of the results which may be obtained in
the future.
The following pro forma statement of operations presents the results of
operations assuming the disposition had been completed as of the beginning of
1994. Adjustments have been made to exclude the results of DBM, to decrease
interest expense for loans prepaid in early 1995 from the sale proceeds, and
to record interest income at overnight investment rates for cash received in
excess of liabilities paid.
(Unaudited, in thousands,
except earnings per share)
<TABLE>
<CAPTION>
December 31, 1994
Historical Pro Forma
<S> <C> <C>
Revenue $ 278,052 $ 125,661
Gross profit 44,034 30,802
Selling expenses 7,116 4,530
General and administrative expenses 22,497 12,872
Other income 3,514 3,041
Interest expense (12,408) (5,717)
Earnings before taxes 5,527 10,724
Income tax expense 597 489
Earnings from continuing operations 4,930 10,235
Earnings per share, continuing operations 0.16 0.52
</TABLE>
Cash from the sale of DBM's assets was received on January 3, 1995 and certain
debt obligations were prepaid from the proceeds. The following pro forma
balance sheet is presented to show the financial condition of the company at
December 31, 1994 if these transactions had occurred at the balance sheet
date.
<TABLE>
<CAPTION>
(Unaudited, in thousands) December 31, 1994
Historical Pro Forma
<S> <C> <C>
Cash and cash equivalents $ 2,027 $ 15,502
Receivable from sale of DBM 120,464 --
Accounts receivable, net 20,138 20,280
Other current assets 17,508 17,508
Total current assets 160,137 53,290
Long-term assets 147,192 147,192
Total assets $ 307,329 $ 200,482
Current portion of long-term notes 85,077 112
Accounts payable - trade 36,257 19,638
Net liabilities of discontinued operations 13,547 9,340
Other current liabilities 18,917 18,036
Total current liabilities 153,798 47,126
Long-term notes $ 42,440 $ 42,265
Net liabilities of discontinued operations 8,445 8,445
Other liabilities 5,900 5,900
Redeemable preference stock 20,000 20,000
Shareholders' equity 76,746 76,746
Total liabilities and shareholders' equity $ 307,329 $ 200,482
</TABLE>
In March, 1992, the company sold its asphaltic concrete operation in Loxley,
Alabama to Mobile Asphalt Company (MAC). During the second quarter of 1992,
MAC completed the terms of the sales agreement by purchasing certain assets
related to the company's asphalt operation in Mobile, Alabama. A pre-tax gain
of $894,000 was recognized for these transactions.
Note 4: Inventories
Inventories for the respective years ended December 31 are classified as
follows:
<TABLE>
<CAPTION>
(In thousands)
1994 1993
<S> <C> <C>
Finished goods $ 1,834 $40,660
Work in process -- 3,092
Materials and supplies 10,804 13,784
Net inventories $12,638 $57,536
</TABLE>
Note 5: Notes Payable
Notes payable at December 31 include the following:
<TABLE>
<CAPTION>
(In thousands)
1994 1993
<S> <C> <C>
Short-term:
Current portion of long-term notes $ 85,077 $ 4,488
Total short-term 85,077 4,488
Long-term:
Variable rate revolving line of credit 55,800 36,500
Variable rate note 6,297 8,139
9.95% notes 2,800 5,200
10.13% notes 19,944 --
11.21% notes, payable through 2002 41,800 41,800
Other notes, payable through 2000 876 1,369
127,517 93,008
Deduct: Current portion of notes 85,077 4,488
Total $ 42,440 $ 88,520
</TABLE>
The following is a description of the terms and conditions of the company's
major debt instruments:
The $55.8 million note payable was borrowed under a $75.0 million revolving
credit/letter of credit facility with First Alabama Bank; PNC Bank, N.A.; Bank
of America Illinois (formerly Continental Bank, N.A.) and The Prudential
Insurance Company of America. Interest on the revolver equals First Alabama
Bank's base lending rate plus 1.25 percent. The entire amount borrowed under
the revolving line of credit was repaid on January 3, 1995 from the Dravo
Basic Materials asset sale proceeds. On the same date, the total amount
available for revolving credit/letter of credit requirements under the
facility was reduced to $40.0 million. The interest rate remained unchanged.
Participating institutions in the revised revolving credit/letter of credit
facility are First Alabama Bank;
<PAGE> 13-30
PNC Bank, N.A. and Bank of America Illinois. The facility expires April 30,
1996 but the company expects it to be extended.
The variable rate note and 9.95 percent promissory notes were prepaid on
January 3, 1995.
The 10.13 percent construction notes provided for borrowing up to $50 million
for the Black River plant expansion. An amount sufficient to retire these
notes was escrowed from a portion of the Dravo Basic Materials sale proceeds.
The notes were prepaid on February 10, 1995.
The 11.21 percent term notes require quarterly interest payments and annual
principal repayments in the amount of $6.0 million beginning January, 1996.
Obligations under the revised revolving credit/letter of credit facility and
the 11.21 percent term notes are secured by a pledge of the stock of Dravo
Lime Company and Dravo Basic Materials Company along with their accounts
receivable and finished goods inventories. Additionally, certain contract
rights, patents and mortgages on the company's Maysville, Black River and
Longview plants have been pledged as collateral. The agreements contain
uniform restrictive covenants that require the company on a consolidated
basis, and Dravo Lime and Dravo Basic Materials on a combined basis, to
maintain minimum working capital levels; restrict incurrence of debt, liens
and lease obligations; restrict the sale of significant assets and as to Dravo
Lime and Dravo Basic Materials, limit payment of dividends or making of loans
to the company. The company may not declare common stock dividends until
cumulative earnings from continuing operations after September 30, 1991 exceed
$40.0 million, excluding gains from the sale of capital assets and the income
impact of recording a net deferred tax asset, or cumulative losses from
discontinued operations after September 30, 1991, whichever is higher, and
then only to the extent of 50 percent of such earnings. At December 31, 1994,
cumulative losses from discontinued operations of $52.3 million exceeded
cumulative earnings from continuing operations, both since September 30, 1991,
by $25.7 million.
At December 31, 1994, approximately $155 million of Dravo Lime and Dravo Basic
Materials' net assets were restricted as to payment of dividends or loans to
the company. Assets pledged under certain notes and leases had a book value
of $228.2 million at December 31, 1994.
In February, 1993, the company entered into an interest rate swap agreement
with Continental Bank, N.A. on the $41.8 million fixed rate long-term notes
payable. The transaction was accounted for as a hedge of those notes. On
December 30, 1994, the company paid $1.4 million to unwind the swap agreement.
Amounts payable on long-term debt due in 1995 and thereafter are: 1995, $29.3
million; 1996, $6.2 million; 1997, $6.2 million; 1998, $6.1 million; 1999,
$6.0 million; and after 1999, $17.9 million.
Note 6: Redeemable Preference Stock
The company has outstanding 200,000 shares of cumulative, convertible,
exchangeable, Series D Preference Stock. Cumulative dividends of $3.0875 per
share are payable quarterly. Each share of preference stock may be converted,
at the option of the holder, into 8.0 shares of common stock. The stock is
also exchangeable, at the option of the company, for 12.35 percent Senior
Subordinated Convertible notes due September 21, 2001. The 12.35 percent
senior subordinated notes would contain the same conversion rights,
restrictions and other terms as the preference stock.
The company may redeem the stock, in whole or in part, after January 21, 1996
for $100 per share plus accrued dividends, provided that the market price of
common stock as of the date of the decision to redeem the shares, as defined
in the Certificate of Designations, Preferences and Rights for the Series D
Preference Stock, shall be at least equal to 175 percent of the conversion
price for the preference stock. Mandatory annual redemption of the lesser of
50,000 shares or the number of shares then outstanding begins September 21,
1998 at $100 per share plus accrued dividends. In the event of liquidation of
the company, the holders of outstanding Series D Preference Stock shall be
entitled to receive a distribution of $100 per share plus accrued dividends.
The company had outstanding 28,386 and 32,386 shares of cumulative,
convertible Series B Preference Stock on December 31, 1994 and 1993,
respectively. Cumulative annual dividends of $2.475 per share are payable
quarterly. Each share of Series B Preference Stock may be converted at the
option of the holder to 3.216 shares of common stock. In the event of the
company's liquidation, the holders of the Series B Preference Stock are
entitled to $55 per share plus all accumulated and unpaid dividends.
Note 7: Commitments
Total rental expenses for 1994, 1993 and 1992 were $35.2 million, $34.4
million and $33.1 million, respectively. The minimum rentals under non-
cancelable operating leases for these years were $17.3 million, $17.5 million
and $18.9 million, respectively. The minimum future rentals under non-
cancelable operating leases and future rental receipts from subleases to third
parties as of December 31, 1994 are indicated in the following table. Of the
$15.9 million net minimum payments, $7.9 million has been expensed in
connection with discontinued operations.
<PAGE> 13-31
Minimum Future Rentals and Rental Receipts
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
1995 $ 12,619
1996 12,104
1997 11,746
1998 3,701
1999 --
After 1999 --
Total minimum payments required 40,170
Less: Sublease rental receipts (24,279)
Net minimum payments $ 15,891
</TABLE>
At December 31, 1994 and 1993, the company had outstanding letters of credit
totaling $7.5 million and $10.0 million, respectively.
Note 8: Contingent Liabilities
The company has been notified by the federal Environmental Protection Agency
(EPA) that the EPA believes the company is a potentially responsible party
(PRP) for the clean-up of soil and groundwater contamination at four subsites
in Hastings, Nebraska. The Hastings site is one of the EPA's priority sites
for taking remedial action under the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA).
At one of these subsites, a municipal landfill, the company believes it could
not have disposed of hazardous wastes at the particular subsite because the
landfill was closed prior to the time the company and its predecessor
initiated the operation which generated the type of hazardous substances found
at this subsite. Other PRPs, including the local municipality, have agreed to
perform the remedial investigation and to design soil and groundwater remedies
at this subsite.
The company has also been notified by EPA that EPA considers it a PRP at
another municipal landfill in Hastings. At least three other parties
(including the City of Hastings) are considered by EPA to be PRPs at this
second subsite. At this subsite, the company has concluded that the City of
Hastings is responsible for a proper closure of the landfill and the
remediation of any release of hazardous substances. In January, 1994, EPA
invited the company and the other PRPs to make an offer to conduct a remedial
investigation and feasibility study (RI/FS) of this subsite and stated that
the EPA was in the process of preparing a work plan for the RI/FS. None of
the PRPs has volunteered to undertake the RI/FS.
With respect to the third subsite, the company and two other PRPs have been
served with administrative orders directing them to undertake soil remediation
and interim groundwater remediation at that subsite. The company is currently
complying with these orders while reserving its right to seek reimbursement
from the United States for its costs if it is determined it is not liable for
response costs or if it is required to incur costs because of arbitrary,
capricious or unreasonable requirements imposed by the EPA.
The EPA has taken no legal action with respect to its demand that the company
and the other PRPs pay its past response costs. A total of five parties have
been named by the EPA as PRPs at this subsite, but two of them have been
granted de minimis status. The company believes other persons should also be
named as PRPs.
The fourth subsite is a former naval ammunition depot which was subsequently
converted to an industrial park. The company and its predecessor owned and
operated an HVAC facility in this industrial park. To date the company's
investigation indicates that it did not cause the release of hazardous
substances in this subsite during the time it owned and operated the
facility. The United States has undertaken to conduct the remediation of
this subsite.
In addition to subsite clean-up, the EPA is seeking a clean-up of area-wide
contamination associated with all of the subsites in and around Hastings,
Nebraska. The company, along with other Hastings PRPs, has recommended that
the EPA adopt institutional controls as the area-wide remedy in Hastings.
EPA has indicated some interest in this proposal but has decided to first
conduct an area-wide remedial investigation before choosing a remedy.
On August 10, 1992 the company filed suit in the Alabama District Court
against its primary liability insurance carriers and one of its
predecessor's insurers, seeking a declaratory judgment that the company is
entitled to a defense and indemnity under its contracts of insurance
(including certain excess policies provided by one of the primary carriers)
with regard to the third Hastings subsite. The company recently settled the
claim against its predecessor's insurer, but the case against the company's
insurers is still in litigation. An award of punitive damages is also being
sought against the company's insurers for their bad faith in failing to
investigate the company's claim and/or denying the company's claim. The
company has notified its primary and excess general liability carrier, as
well as the excess carrier of its predecessor, of the receipt of its notice
of potential liability at the first, second and fourth subsites.
Estimated total clean-up costs, including capital outlays and future
maintenance costs for soil and groundwater remediation of approximately $18
million, are based on independent engineering studies. Included in the
discontinued operations provision is the company's estimate that it will
participate in 33 percent of these remediation costs. The company's
estimated share of the costs is based on its assessment of the total clean-
up costs, its potential exposure, and the viability of other named PRPs.
<PAGE> 13-32
In 1990, the company filed an action now pending in Luzerne County,
Pennsylvania alleging breach of contract and unjust enrichment arising out
of the termination of a construction contract for the Hazleton Gasification
Facility Expansion. The suit named as defendants Continental Energy
Associates (CEA), the project owner; Continental Cogeneration Corporation
(CCC), the general partner of CEA; and Swiss Bank Corporation, the project
lender. CEA and CCC filed a separate suit against the company which, as
amended, seeks damages for breach of contract, negligent design and
construction, negligent misrepresentation, fraud and tortious interference
with the contract of surety. The two suits, along with a third action
commenced by CEA and CCC against the company's surety, the Insurance Company
of North America, have been consolidated. Documents produced by CEA and CCC
during the course of discovery allege claims at an amount from approximately
$10 million to approximately $35 million. However, the construction
contract contains a provision limiting damages to the value of the contract
(a net of approximately $10 million) which the company would seek to have
specifically enforced. The company continues to vigorously assert its
claims and to deny any liability.
In late 1994, both CEA and CCC filed for protection from creditors under
Chapter 11 of the United States Bankruptcy Code. In January 1995, the
Bankruptcy Court entered an order approving non-binding mediation of the
dispute with the company. An initial mediation session held early in March,
1995 did not resolve the dispute.
If the lawsuit discussed above is sustained against the company, material
charges would be recorded in the company's financial statements. However,
based upon the knowledge the company has of the lawsuit, management believes
the ultimate disposition of this matter will not result in material charges
to earnings in excess of amounts recorded in the financial statements.
Other claims and assertions made against the company will be resolved, in
the opinion of management, without material additional charges to earnings.
The company has asserted claims that management believes to be meritorious,
but no estimate can be made at present of the timing or the amount of
recovery.
Note 9: Retirement Plans
The company has several defined benefit plans covering substantially all
employees. Benefits for the salaried plan are based on salary and years of
service, while hourly plans are based on negotiated benefits and years of
service. The company's funding policy is to make contributions as are
necessary to provide assets sufficient to meet the benefits to be paid to
plan members in accordance with the requirements of the Employee Retirement
Income Security Act of 1974. Plan assets are composed primarily of
government securities and corporate debt and equities.
The status of combined employee pension benefit plans as of December 31,
1994 and 1993 is shown below:
<TABLE>
<CAPTION>
1994 1993
Plans which have Plans which have Plans which have Plans which have
funded assets in accumulated funded assets in accumulated
(In thousands) excess of benefit excess of benefit
accumulated obligations accumulated obligations
benefit in excess of benefit in excess of
obligations funded assets obligations funded assets
<S> <C> <C> <C> <C>
Actuarial present
value of projected
benefit obligation:
Vested employees $147,801 $ 21,567 $161,662 $ 22,109
Non-vested employees 284 1,710 397 2,859
Accumulated benefit
obligation 148,085 23,277 162,059 24,968
Effect of projected
future salary
increases 2,130 398 4,241 1,051
Total projected
benefit obligation 150,215 23,675 166,300 26,019
Plan assets 148,303 18,357 168,699 20,360
Assets in excess of
(less than) projected
benefit obligation (1,912) (5,318) 2,399 (5,659)
Unamortized net (asset)
liability existing
at transition date (687) 367 (1,375) 897
Unrecognized net loss
from actuarial
experience 20,888 2,755 8,836 4,186
Adjustment to recognize
minimum liability -- (2,922) -- (4,225)
Prepaid (accrued)
pension expense $ 18,289 $ (5,118) $ 9,860 $ (4,801)
</TABLE>
<PAGE> 13-33
The sale of Dravo Basic Materials' assets resulted in the termination of
employment for essentially all Dravo Basic Materials employees and certain
executive and administrative employees of a subsidiary company. As a result,
the company recognized a charge in 1994 for pension curtailment and special
termination benefits expense. The components of 1994, 1993 and 1992 net
periodic pension (income) expense are as follows:
<TABLE>
<CAPTION>
(In thousands) Years ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Service cost of benefits earned during the year $ 1,023 $ 901 $ 900
Interest cost on projected benefit obligation 13,981 14,431 14,101
Actual (return) loss on plan assets 14,570 (30,951) (12,540)
Net amortization (deferral) (29,521) 15,566 (3,028)
Curtailment and special termination
benefits expense 921 -- --
Net pension (income) expense for year $ 974 $ (53) $ (567)
</TABLE>
The following assumptions were used for the valuation of the pension
obligations as of December 31:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Discount rate 8.55% 7.5% 8.5%
Expected long-term rate of return on assets 8.0% 8.0% 9.0%
Rate of increase in compensation levels 5.0% 5.0% 6.0%
</TABLE>
Note 10: Postretirement and Postemployment Benefits
The company and certain subsidiaries provide health care and life insurance
benefits for retired employees. Employees may become eligible for certain
benefits if they meet eligibility qualifications while working for the
company. Currently, the company pays all cost increases for employees who
retired prior to 1985 and who have not elected to participate in a plan in
which they pay cost increases, in exchange for expanded benefits, in excess of
a specified amount. For employees retiring after 1984, the company's
liability is limited to a fixed contribution amount for each participant or
dependent. This amount is reduced significantly when the participant becomes
eligible for Medicare coverage. The company has made no commitment to adjust
the amount of its contributions.
The company adopted the provisions of Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions" (SFAS 106) effective January 1, 1993. The statement requires
that an accrual be made for the expected cost of providing postretirement
benefits to the employee and the employee's beneficiaries and covered
dependents during the years that an employee renders employment services.
Prior to adoption of SFAS 106, the company expensed postretirement benefits on
a pay-as-you-go basis. The cost of postretirement benefits other than
pensions was $5.0 million in 1994, $4.9 million in 1993 and $4.5 million in
1992. Expense in 1994 includes a $471,000 curtailment loss resulting from the
termination of essentially all Dravo Basic Materials employees and certain
executive and administrative employees of a subsidiary company due to the
Dravo Basic Materials asset sale.
No funds are segregated for future postretirement obligations. The company is
amortizing its accumulated postretirement benefit obligation (APBO) over a 20
year period. The APBO was calculated using a discount rate of 8.55 percent
and a health care cost trend rate of 9.5 percent in 1995, gradually declining
to 6.5 percent in 2001. An increase in the health care cost trend rate of one
percent would increase the APBO at December 31, 1994 by $1.1 million and the
total service and interest rate components of the 1994 postretirement benefit
cost by $109,000.
Postretirement benefit cost for 1994 and 1993 includes the following
components:
<TABLE>
<CAPTION>
(In thousands)
1994 1993
<S> <C> <C>
Service cost - benefits earned during the period $ 105 $ 177
Interest cost on accumulated postretirement
benefit obligation 2,659 2,887
Amortization of accumulated postretirement
benefit obligation 1,789 1,789
Curtailment loss 471 --
Postretirement benefit cost $ 5,024 $ 4,853
</TABLE>
The postretirement benefit plans funded status reconciled with the amount
included in the company's consolidated balance sheets at December 31 is as
follows:
<TABLE>
<CAPTION>
(In thousands)
1994 1993
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees and related beneficiaries $ 30,248 $ 34,190
Other fully eligible participants 1,601 888
Other active participants not fully eligible 747 4,887
Accumulated postretirement benefit obligation 32,596 39,965
Unrecognized transition obligation (30,822) (33,994)
Unrecognized loss (134) (5,136)
Accrued postretirement benefit liability $ 1,640 $ 835
</TABLE>
<PAGE> 13-34
The company adopted the provisions of Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits" (SFAS
112) effective January 1, 1994. SFAS 112 requires accrual of the estimated
cost of benefits provided by the employer to former or inactive employees,
including their beneficiaries and covered dependents, after employment but
before retirement. A charge of $1.4 million was recorded in the first quarter
as a cumulative effect for a change in accounting principle to recognize the
company's estimated liability for postemployment benefits covered by SFAS 112.
Note 11: Stock Options, Stock Appreciation Rights and Performance Shares
Prices per share of outstanding common stock options and stock appreciation
rights (collectively, rights) at December 31, 1993 were $5.94 to $19.31.
During 1994 grants were awarded at a price of $11.69, rights were exercised at
$7.94 and $11.25 and rights were forfeited at $11.25. Rights outstanding at
December 31, 1994 are exercisable at prices ranging from $5.94 to $19.31 per
share.
Under the 1978, 1988 and 1994 Plans for executives and key employees, options
may be granted either alone or in tandem with related stock appreciation
rights, or stock appreciation rights may be granted separately. The 1983 Plan
provides for the granting of options, stock appreciation rights (either
separate or in tandem with a related option) and performance shares. The
price of stock options and the basis of stock appreciation rights so granted
is the fair market value on the date of grant. Rights cannot be exercised
until one year after the grant date and expire ten years from date of grant.
Any incremental value of stock appreciation rights and performance shares
granted is recognized as expense, while a decline in the market value of the
stock is recognized as a reduction in expense to the extent previously
recognized. There was no change in the incremental value during the last
three years. The exercise of options does not necessitate a charge or credit
to income.
No additional grants can be made from the 1978 or 1983 Plans, both of which
have expired. There were no performance shares outstanding at December 31,
1994 and 1993.
The following summary shows the changes in outstanding rights:
<TABLE>
<CAPTION>
1978 1983 1988 1994
Plan Plan Plan Plan Total
<S> <C> <C> <C> <C> <C>
Outstanding at
December 31, 1993 53,200 258,450 987,300 -- 1,298,950
Granted -- -- -- 12,000 12,000
Exercised -- (6,300) (5,000) -- (11,300)
Forfeited -- (13,100) -- -- (13,100)
Outstanding at
December 31, 1994 53,200 239,050 982,300 12,000 1,286,550
Rights exercisable:
December 31, 1993 53,200 188,450 836,800 -- 1,078,450
December 31, 1994 53,200 239,050 919,800 -- 1,212,050
Shares available for
future grant:
December 31, 1993 -- -- -- -- --
December 31, 1994 -- -- -- 988,000 988,000
</TABLE>
<PAGE> 13-35
Note 12: Shareholders' Equity
Shareholders' equity at December 31 is presented below:
<TABLE>
<CAPTION>
Preference Common Other Treasury
(In thousands) Stock Stock Capital Shares
<S> <C> <C> <C> <C>
Balance, January 1, 1992 $ 39 $14,933 $65,930 $(1,904)
Common shares issued through:
Retirement of Series B
preference stock (12,864) (4) 12 (9)
Common stock options
exercised (4,000) 64
Recognition of minimum liability
on pension plan 39
Balance, December 31, 1992 $ 35 $14,945 $65,960 $(1,840)
Common shares issued through:
Retirement of Series B
preference stock (9,648) (3) 10 (7)
Common stock options
exercised (12,700) 13 88
Recognition of minimum liability
on pension plan (2,781)
Balance, December 31, 1993 $ 32 $14,968 $63,260 $(1,840)
Common shares issued through:
Retirement of Series B
preference stock (12,864) (4) 13 (9)
Common stock options
exercised (5,151) 5 37
Recognition of minimum liability
on pension plan 266
Balance, December 31, 1994 $ 28 $14,986 $63,554 $(1,840)
</TABLE>
Note 13: Income Taxes
Income before taxes and provisions for income tax expense (benefit) from
continuing operations at December 31 are:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
Income before taxes $ 5,527 $ 10,471 $12,719
Current federal income taxes $ 350 $ -- $5,237
Deferred federal income taxes -- (24,853) (3,664)
Current state income taxes 247 198 828
Total $ 597 $(24,655) $2,401
</TABLE>
The actual income tax expense attributable to earnings from continuing
operations for the years ended December 31, 1994, 1993 and 1992 differed from
the amounts computed by applying the U. S. federal tax rate of 34 percent to
pretax earnings from continuing operations as a result of the following:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
Computed "expected" tax expense $ 1,879 $ 3,560 $ 4,325
Alternative minimum tax 300 -- --
Percentage depletion (1,880) (3,374) (2,641)
State income taxes, net of federal
income tax benefit 163 131 546
Other items 135 (119) 171
Benefit of operating loss carryforwards -- (24,853) --
Provision (benefit) for income tax $ 597 $(24,655) $ 2,401
</TABLE>
The significant components of the deferred income tax benefit attributable to
income from continuing operations for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
<S> <C> <C>
Deferred tax expense (exclusive of the effects
of other components listed below) $ 1,340 $(2,431)
Decrease in balance of the valuation
allowance for deferred tax assets (1,340) (22,422)
Total $ -- $(24,853)
</TABLE>
For the year ended December 31, 1992, a deferred income tax benefit of $3,664
results from timing differences in the recognition of income and expense for
income tax and financial reporting purposes. The sources and tax effects of
those timing differences are presented below:
<TABLE>
<CAPTION>
(In thousands) 1992
<S> <C>
Book depreciation in excess of tax depreciation $(4,783)
Differences in book and tax basis for inventories 695
Pension contribution in excess of book expense 755
State income taxes 177
Expenses allowable for taxes when paid (589)
Other 81
Total $(3,664)
</TABLE>
<PAGE> 13-36
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31 are as
follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Deferred tax assets:
Provision for discontinued operations $ 7,477 $ 9,039
Accounts receivable, principally due
to allowance for doubtful accounts 296 439
Inventories, principally due to additional
costs inventoried for tax purposes
pursuant to the Tax Reform Act of 1986 215 214
Compensated absences, principally due to
accrual for financial reporting purposes 745 758
Net operating loss carryforwards 61,713 59,313
Investment tax credit carryforward 2,543 2,992
Other 721 2,025
Total gross deferred tax assets 73,710 74,780
Less valuation allowance (30,323) (31,663)
Net deferred tax assets 43,387 43,117
Deferred tax liabilities:
Properties and equipment, principally due
to depreciation 13,682 15,603
Pension accrual 4,682 2,647
Other 170 14
Total gross deferred tax liabilities 18,534 18,264
Net deferred tax asset $ 24,853 $24,853
</TABLE>
The net change in the total valuation allowance for the years ended December
31, 1994 and 1993 was a decrease of $1.3 million and $22.4 million,
respectively.
The company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," (SFAS 109) effective January 1, 1993. The
statement requires that deferred income taxes reflect the tax consequences on
future years of differences between the tax bases of assets and liabilities
and their bases for financial reporting purposes. In addition, SFAS 109
requires the recognition of future tax benefits, such as net operating loss
carryforwards (NOLs), to the extent that realization of such benefits are more
likely than not. There was no cumulative effect of this accounting change at
the time of adoption.
The company had NOLs of approximately $181.5 million at December 31, 1994
because of losses associated with discontinued businesses. These
carryforwards, which management expects will be fully utilized, expire as
follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
2002 $ 18,039
2003 76,662
2004 39,012
2005 17,428
2006 7,336
2007 2,744
2008 13,228
2009 7,061
</TABLE>
Under the provisions of SFAS 109, NOLs represent temporary differences that
enter into the calculation of deferred tax assets and liabilities. At January
1, 1993, primarily as a result of the NOLs, the company was in a net deferred
tax asset position under SFAS 109. The full amount of the deferred tax asset
was offset by a valuation allowance due to uncertainties associated with
unresolved issues related to discontinued operations.
In the fourth quarter of 1993, the company reduced its valuation allowance
resulting in a net deferred tax asset of $24.9 million. Two factors
contributed to the reduction in the valuation allowance. First was the
resolution of long-standing litigation between the company and the City of
Long Beach, Calif. regarding a waste-to-energy plant the company built for the
city and the ability to quantify, relying upon advice of legal counsel, the
potential financial impact of the remaining uncertainties associated with
previously discontinued operations. Second, the company was awarded a
contract to supply American Electric Power's Gavin plant with 450,000 tons of
lime annually for 15 years commencing in 1995. In addition, the company had
pending the renewal of existing contracts which were finalized in 1994 and
raised utility lime sales backlog to $800 million. With these contracts in
place, nearly 65 percent of the company's annual revenue will be generated by
long-term contracts. As a result, the company believes that revenues and
income from its lime subsidiary can be reasonably projected over the life of
its long-term contracts for purposes of determining whether the realization of
the asset resulting from the utilization of NOLs in future years is more
likely than not.
Income projections for the contract lime business were based on historical
information adjusted for contract terms. In 1993, the company projected
future income for its aggregates business based on the previous three year's
results, a period of low profitability for Dravo Basic Materials. The
aggregates business assets were sold in 1994.
In assessing the valuation allowance, estimates were made as to the potential
financial impact on the company should adverse judgments be rendered in the
remaining substantive uncertainties associated with discontinued operations.
The significant uncertainties involve the
<PAGE> 13-37
CEA litigation related to contract claims and environmental matters and are
discussed more fully in Note 8, Contingent Liabilities. Management's position
in these cases is to vigorously pursue its claims and to contest the asserted
contract claims and liability for environmental clean-up. In determining the
appropriate valuation allowance, however, management has used the upper limit
of the potential financial impact estimated for these matters. The claims
against the company in the CEA matter, which management believes are grossly
overstated, exceed $10 million.
Supported by the company's forecast that it will generate sufficient future
taxable income to realize the entire deferred tax asset prior to expiration of
any NOLs results in the assessment that the realization of a $24.9 million net
deferred tax asset is more likely than not. In order to fully realize the net
deferred tax asset, the company will need to generate future taxable income of
approximately $73.2 million prior to the expiration of the NOLs.
Historically, Dravo Lime's cumulative taxable earnings for the past five years
total $64.8 million. There can be no assurance, however, that the company
will generate any earnings or any specific level of continuing earnings.
The amount of the net deferred tax asset was not adjusted in 1994 due to
remaining uncertainties associated with the discontinued operations.
Resolution of the Melaport litigation should, however, positively impact the
realization of the net deferred tax asset.
Tax benefits of $7.5 million for investment tax credits expiring in 1995 and
later are also being carried forward.
The company recorded an extraordinary credit of $1.6 million for the year
ended December 31, 1992, representing the recognition of income tax benefits
resulting from the utilization of net operating loss carryforwards for
financial reporting purposes.
Note 14: Extraordinary Item
In conjunction with the sale of Dravo Basic Materials' assets, existing loan
agreements were substantially altered, including a $35 million reduction in
the amount available under a revolving credit facility. Also, while
negotiating a $50 million financing agreement with Prudential Power Funding
for the Black River expansion, the company purchased a call option that
enabled it to prepay on May 17, 1995, without penalty, amounts outstanding
under the financing agreement. At December 31, 1994, $19.9 million was
borrowed under the agreement. Cash received from the Dravo Basic Materials
asset sale equalling the outstanding principal on the Prudential Power Funding
facility, interest through May 16, 1995 and an exit fee was placed in escrow.
The company agreed that any additional drawings on the facility would also be
escrowed. No additional drawings were made and, with Prudential Power
Funding's consent, the entire amount borrowed was prepaid on February 10,
1995. The fees associated with these agreements were written off as
extraordinary items.
Note 15: Fair Value of Financial Instruments
The fair value of financial instruments without extended maturities equals
their carrying values. The estimated fair value of financial instruments with
extended maturities at December 31 are presented below:
<TABLE>
(In thousands)
1994 1993
<CAPTION>
Carrying Fair Carrying Fair
Value Value Value Value
<S> <C> <C> <C> <C>
Notes payable $127,517 $126,220 $93,008 $95,659
Series D Preference Stock 20,000 21,347 20,000 23,544
Off-balance sheet financial
instrument:
Interest rate swap --- --- --- 123
</TABLE>
The carrying amounts of notes receivable approximate fair value. The fair
value of notes payable and the Series D Preference Stock is based upon the
amount of future cash flows associated with each instrument discounted using
the company's estimated borrowing rate for similar debt instruments of
comparable maturity. The Preference Stock fair value also includes an
estimated factor to value the conversion feature. The fair value of the
interest rate swap at December 31, 1993 is the estimated amount the company
would have received if it had terminated the agreement on that date. The swap
was terminated in December, 1994. The company does not intend to enter into
hedging transactions in the future.
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Note 16: Research and Development
Research and development activity for the years ended December 31 is as
follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
Total research and development expense $4,393 $4,166 $3,833
Billings to third parties 2,361 1,915 1,804
Net research and development expense $2,032 $2,251 $2,029
</TABLE>
<PAGE> 13-38
Note 17: Interim Financial Information
<TABLE>
<CAPTION>
(Unaudited, in millions, First Second Third Fourth
except earnings per share) Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
1994
Revenue $57.7 $72.6 $75.3 $72.5
Gross profit 7.6 12.6 12.7 11.1
Earnings before taxes from
continuing operations (1.3) 3.8 3.7 (0.7)
Provision (benefit) for income taxes -- 0.6 (0.2) 0.2
Earnings from continuing operations (1.3) 3.2 3.9 (0.9)
Discontinued operations -- -- -- (6.5)
Earnings (loss) before extraordinary
item and cumulative accounting change (1.3) 3.2 3.9 (7.4)
Extraordinary item -- -- -- (7.5)
Cumulative effect of accounting change (1.4) -- -- --
Net earnings (loss) (2.7) 3.2 3.9 (14.9)
Earnings (loss) per share:
Continuing operations (0.13) 0.17 0.22 (0.10)
Discontinued operations -- -- -- (0.44)
Extraordinary item -- -- -- (0.51)
Cumulative accounting change (0.09) -- -- --
Net earnings (loss) (0.22) 0.17 0.22 (1.05)
1993
Revenue $61.8 $70.2 $76.1 $69.5
Gross profit 10.3 13.9 13.9 11.2
Earnings before taxes from
continuing operations 0.4 4.0 4.5 1.6
Provision (benefit) for income taxes -- 0.3 0.2 (25.1)
Earnings from continuing operations 0.4 3.7 4.3 26.7
Discontinued operations -- -- -- (35.3)
Net earnings (loss) 0.4 3.7 4.3 (8.6)
Earnings (loss) per share:
Continuing operations (0.02) 0.21 0.24 1.77
Discontinued operations -- -- -- (2.38)
Net earnings (loss) (0.02) 0.21 0.24 (0.61)
</TABLE>
<PAGE> 13-39
Management's Report
The consolidated financial statements and other financial information
appearing in this Annual Report were prepared by the management of Dravo
Corporation, which is responsible for their integrity and objectivity. These
financial statements have been prepared in conformity with generally accepted
accounting principles and include amounts that are based on informed judgments
and estimates of the expected effects of events and transactions.
Dravo maintains a system of internal controls to provide reasonable assurance
as to the reliability of the financial records and the protection of assets.
This internal control system is supported by written policies and procedures
that communicate the details of the control system, by careful selection and
training of qualified personnel, and by a broad program of internal audits.
In addition, the company's business ethics policy requires employees to
maintain the highest level of ethical standards in the conduct of the
company's business and their compliance is regularly monitored.
The company's financial statements have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. As stated in their report, their
audit was made in accordance with generally accepted auditing standards and
included such study and evaluation of the company's system of internal
accounting controls as they considered necessary to determine the nature,
timing and extent of the auditing procedures required for expressing an
opinion on the company's financial statements.
The Board of Directors, acting through its Audit Committee composed
exclusively of outside directors, reviews and monitors the company's financial
reports and accounting practices. The Board of Directors, upon the
recommendation of the Audit Committee, appoints the independent certified
public accountants subject to ratification by the shareholders. The Audit
Committee meets periodically with management, the internal auditors and the
independent auditors. These meetings include discussions of internal
accounting control, results of audit work and the quality of financial
reporting. Financial management as well as the internal auditors and
independent auditors have full and free access to the Audit Committee.
Independent Auditors' Report
The Board of Directors and Shareholders
Dravo Corporation:
We have audited the accompanying consolidated balance sheets of Dravo
Corporation and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of operations, retained earnings and cash flows for
each of the years in the three-year period ended December 31, 1994. These
consolidated financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Dravo
Corporation and subsidiaries at December 31, 1994 and 1993, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in Notes 10 and 13 to the consolidated financial statements, the
company adopted the method of accounting for postemployment benefits
prescribed by Statement of Financial Accounting Standards No. 112 in 1994 and
the methods of accounting for postretirement benefits other than pensions and
income taxes prescribed by Statements of Financial Accounting Standards Nos.
106 and 109, respectively, in 1993.
As discussed in Note 8 to the consolidated financial statements, a lawsuit and
certain claims and assertions have been brought against the company for
contract disputes and environmental costs, the outcome of which presently
cannot be determined.
KPMG Peat Marwick LLP
New Orleans, Louisiana
February 10, 1995
<PAGE> 13-40
<PAGE>
<TABLE>
Five-Year Summary
<CAPTION>
(Amounts in millions, except per share Years ended December 31,
data and average mineral resource prices) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Summary of operations:
Revenue $278.1 $277.6 $273.0 $295.7 $295.9
Gross profit 44.0 49.3 51.7 57.7 59.3
Interest expense 12.4 9.2 10.5 11.2 9.8
Depreciation expense 17.6 18.0 18.6 17.7 16.2
Earnings before taxes from continuing operations 5.5 10.5 12.7 16.1 19.7
Provision (benefit) for income taxes 0.6 (24.6) 2.4 3.9 3.9
Earnings from continuing operations 4.9 35.1 10.3 12.2 15.8
Loss from discontinued operations, net
of income taxes (6.5) (35.3) -- (38.5) --
Extraordinary item (7.5) -- 1.6 -- 3.9
Cumulative accounting change (1.4) -- -- -- --
Net earnings (loss) (10.5) (0.2) 11.9 (26.3) 19.7
Preferred dividends declared 2.5 2.6 2.6 2.6 2.6
Capital expenditures 44.8 13.6 8.5 19.7 34.1
Employees at year-end 768 1,416 1,421 1,556 1,713
Summary of financial position:
Total assets $307.3 $272.1 $268.5 $271.8 $299.8
Working capital 6.3 59.5 60.1 45.6 10.0
Long-term obligations and redeemable
preference stock 62.4 108.5 108.1 109.7 74.7
Total debt and redeemable preference stock 147.5 113.0 112.8 114.4 128.7
Property, plant and equipment, net 93.5 110.0 114.9 128.5 127.9
Shareholders' equity 76.7 89.5 95.0 85.5 114.3
Per common share data:
Earnings from continuing operations $ 0.16 $ 2.20 $ 0.52 $ 0.65 $ 0.90
Loss from discontinued operations (0.44) (2.38) -- (2.60) --
Extraordinary item (0.51) -- 0.11 -- 0.26
Cumulative accounting change (0.09) -- -- -- --
Net earnings (loss) (0.88) (0.18) 0.63 (1.95) 1.16
Book value 5.06 6.15 6.27 5.63 7.57
Shareholders at year end 3,192 3,442 3,736 3,893 4,079
Mineral resources (in millions of tons):
Proven and probable reserves
Total reserves 502.1 1,121.2 1,142.1 1,074.7 1,102.7
Tons mined 23.2 22.8 25.4 24.7 26.6
Average market price $ 5.80 $ 6.01 $ 5.85 $ 6.31 $ 6.01
</TABLE>
<PAGE> 13-41
Board of Directors Principal Executives
Carl A. Gilbert Carl A. Gilbert
President and Chief Executive President and
Officer, Chief Executive Officer
Dravo Corporation
E. Eugene Bishop Ernest F. Ladd III
Chairman of the Board, Executive Vice President,
Morrison Restaurants, Inc. Chief Financial Officer
Arthur E. Byrnes Marshall S. Johnson
Chairman, Vice President,
Deltec Asset Management Corporation Operations and Engineering
Jack Edwards John R. Major
Senior Partner, Vice President,
Hand, Arendall, Bedsole, Greaves Administration
& Johnston
James C. Huntington, Jr. James J. Puhala
Retired Senior Vice President, Vice President,
American Standard, Inc. General Counsel and Secretary
Willard L. Hurley Donald H. Stowe, Jr
Retired Chairman and Vice President,
Chief Executive Officer, Sales and Technology
First Alabama Bancshares, Inc.
William E. Kassling Larry J. Walker
Chairman, Chief Executive Officer Controller
and President,
Westinghouse Air Brake Company Gregory H. Welch
Treasurer
William G. Roth
Retired Chairman,
Dravo Corporation
Konrad M. Weis
Retired President and
Chief Executive Officer,
Bayer USA, Inc.
Robert C. Wilburn
President and Chief Executive Officer,
The Colonial Williamsburg Foundation
<PAGE> 13-42
Exhibit 21. Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Percentage
State or country of voting
in which securities
incorporated owned
<S> <S> <C>
Registrant:
Dravo Corporation Pennsylvania --
Subsidiaries of Dravo Corporation:
Dravo Basic Materials
Company, Inc. Alabama 100%
Dravo Equipment Company Delaware 100
Dravo Lime Company Delaware 100
Princeton Ridge, Inc. New Jersey 100
Subsidiaries of Dravo Basic Materials
Company, Inc.:
Dravo Natural Resources Company Delaware 50
Subsidiaries of Dravo Lime Company:
Dravo Natural Resources Company Delaware 50
</TABLE>
21-1
<PAGE>
Exhibit 23. Consents of Experts and Counsel
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Dravo Corporation:
We consent to incorporation by reference in the registration statements No.
33-23632 on Form S-8, No. 33-17356 on Form S-3, No. 2-84462 on Form S-8,
Amendment No. 1 to No. 2-87555 on Form S-8/S-3, No. 2-64137 and 33-54179 on
Form S-8 and No. 2-71993 on Form S-16 amended by Form S-3 of Dravo
Corporation, of our report dated February 10, 1995 relating to the
consolidated balance sheets of Dravo Corporation and subsidiaries as of
December 31, 1994 and 1993 and the related consolidated statements of
operations, retained earnings, and cash flows and related schedules for each
of the years in the three-year period ended December 31, 1994 which report
appears in, or is incorporated by reference in, the December 31, 1994 annual
report on Form 10-K of Dravo Corporation. Our report refers to the adoption
of the methods of accounting for postretirement benefits other than pensions,
income taxes and postemployment benefits prescribed by Statements of Financial
Accounting Standards Nos. 106, 109 and 112, respectively.
Our report dated February 10, 1995 contains an explanatory paragraph that
states that a lawsuit and certain claims and assertions have been brought
against the company for contract disputes and environmental costs, the outcome
of which presently cannot be determined.
KPMG PEAT MARWICK LLP
New Orleans, Louisiana
March 29, 1995
23-1
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby
constitute and appoint Carl A. Gilbert, Ernest F. Ladd III and James J.
Puhala, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him in his name, place
and stead, in any and all capacities (including his capacity as a director
and/or officer of Dravo Corporation), to sign the Form 10-K Annual Report of
Dravo Corporation for the year ended December 31, 1994 and any and all
amendments thereto, and to file the same, with all exhibits thereto, and all
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that attorneys-in-fact and agents or any of them,
or their or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
WITNESS the due execution hereof this 26th day of January, 1995.
E. EUGENE BISHOP
24-1
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby
constitute and appoint Carl A. Gilbert, Ernest F. Ladd III and James J.
Puhala, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him in his name, place
and stead, in any and all capacities (including his capacity as a director
and/or officer of Dravo Corporation), to sign the Form 10-K Annual Report of
Dravo Corporation for the year ended December 31, 1994 and any and all
amendments thereto, and to file the same, with all exhibits thereto, and all
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that attorneys-in-fact and agents or any of them,
or their or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
WITNESS the due execution hereof this 26th day of January, 1995.
ARTHUR E. BYRNES
24-2
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby
constitute and appoint Carl A. Gilbert, Ernest F. Ladd III and James J.
Puhala, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him in his name, place
and stead, in any and all capacities (including his capacity as a director
and/or officer of Dravo Corporation), to sign the Form 10-K Annual Report of
Dravo Corporation for the year ended December 31, 1994 and any and all
amendments thereto, and to file the same, with all exhibits thereto, and all
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that attorneys-in-fact and agents or any of them,
or their or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
WITNESS the due execution hereof this 26th day of January, 1995.
JACK EDWARDS
24-3
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby
constitute and appoint Carl A. Gilbert, Ernest F. Ladd III and James J.
Puhala, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him in his name, place
and stead, in any and all capacities (including his capacity as a director
and/or officer of Dravo Corporation), to sign the Form 10-K Annual Report of
Dravo Corporation for the year ended December 31, 1994 and any and all
amendments thereto, and to file the same, with all exhibits thereto, and all
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that attorneys-in-fact and agents or any of them,
or their or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
WITNESS the due execution hereof this 26th day of January, 1995.
JAMES C. HUNTINGTON, JR.
24-4
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby
constitute and appoint Carl A. Gilbert, Ernest F. Ladd III and James J.
Puhala, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him in his name, place
and stead, in any and all capacities (including his capacity as a director
and/or officer of Dravo Corporation), to sign the Form 10-K Annual Report of
Dravo Corporation for the year ended December 31, 1994 and any and all
amendments thereto, and to file the same, with all exhibits thereto, and all
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that attorneys-in-fact and agents or any of them,
or their or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
WITNESS the due execution hereof this 26th day of January, 1995.
WILLIAM E. KASSLING
24-5
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby
constitute and appoint Carl A. Gilbert, Ernest F. Ladd III and James J.
Puhala, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him in his name, place
and stead, in any and all capacities (including his capacity as a director
and/or officer of Dravo Corporation), to sign the Form 10-K Annual Report of
Dravo Corporation for the year ended December 31, 1994 and any and all
amendments thereto, and to file the same, with all exhibits thereto, and all
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that attorneys-in-fact and agents or any of them,
or their or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
WITNESS the due execution hereof this 26th day of January, 1995.
WILLIAM G. ROTH
24-6
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby
constitute and appoint Carl A. Gilbert, Ernest F. Ladd III and James J.
Puhala, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him in his name, place
and stead, in any and all capacities (including his capacity as a director
and/or officer of Dravo Corporation), to sign the Form 10-K Annual Report of
Dravo Corporation for the year ended December 31, 1994 and any and all
amendments thereto, and to file the same, with all exhibits thereto, and all
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that attorneys-in-fact and agents or any of them,
or their or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
WITNESS the due execution hereof this 26th day of January, 1995.
KONRAD M. WEIS
24-7
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby
constitute and appoint Carl A. Gilbert, Ernest F. Ladd III and James J.
Puhala, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him in his name, place
and stead, in any and all capacities (including his capacity as a director
and/or officer of Dravo Corporation), to sign the Form 10-K Annual Report of
Dravo Corporation for the year ended December 31, 1994 and any and all
amendments thereto, and to file the same, with all exhibits thereto, and all
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that attorneys-in-fact and agents or any of them,
or their or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
WITNESS the due execution hereof this 26th day of January, 1995.
ROBERT C. WILBURN
24-8
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DRAVO
CORPORATION'S FORM 10-K DATED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 2,027
<SECURITIES> 0
<RECEIVABLES> 20,138
<ALLOWANCES> 108
<INVENTORY> 12,638
<CURRENT-ASSETS> 160,137
<PP&E> 195,333
<DEPRECIATION> 101,872
<TOTAL-ASSETS> 307,329
<CURRENT-LIABILITIES> 153,798
<BONDS> 0
<COMMON> 14,986
20,000
28
<OTHER-SE> 61,732
<TOTAL-LIABILITY-AND-EQUITY> 307,329
<SALES> 278,052
<TOTAL-REVENUES> 278,052
<CGS> 234,018
<TOTAL-COSTS> 234,018
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,408
<INCOME-PRETAX> 5,527
<INCOME-TAX> 597
<INCOME-CONTINUING> 4,930
<DISCONTINUED> (6,554)
<EXTRAORDINARY> (7,572)
<CHANGES> (1,361)
<NET-INCOME> (10,557)
<EPS-PRIMARY> (.88)
<EPS-DILUTED> (.88)
</TABLE>
