SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For Quarter Ended: March 31, 1996
Commission File Number: 1-5642
DRAVO CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 25-0447860
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
One Oliver Plaza, Pittsburgh, Pennsylvania 15222
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 566-3000
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The number of shares outstanding of each of the registrant's classes of common
stock as of April 30, 1996:
Title of Class Shares Outstanding
Common Stock, $1.00 par value 14,712,546
DRAVO CORPORATION AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Page No.
Consolidated Balance Sheets at March 31, 1996
and December 31, 1995 3, 4
Consolidated Statements of Operations for the
Quarters ended March 31, 1996 and 1995 5
Consolidated Statements of Cash Flows for the
Quarters ended March 31, 1996 and 1995 6, 7
Notes to Consolidated Financial Statements 8-10
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
-2-
<TABLE>
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
($ in 000's)
<CAPTION>
March 31, December 31,
1996 1995
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 586 $ 1,086
Accounts receivable, net of allowance
for uncollectibles of $117 and $934 26,922 24,251
Notes receivable, net 1,294 1,296
Inventories 16,377 14,194
Net assets of discontinued operations - 923
Other current assets 1,674 1,322
Total current assets 46,853 43,072
Advances to and equity in joint ventures 2,704 2,466
Notes receivable 3,491 3,497
Other assets 22,745 23,205
Deferred income taxes 24,853 24,853
Property, plant and equipment 228,384 225,835
Less: accumulated depreciation and
amortization 112,290 109,667
Net property, plant and equipment 116,094 116,168
Total assets $216,740 $213,261
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<TABLE>
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
($ in 000's)
<CAPTION>
March 31, December 31,
1996 1995
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current portion of long-term notes $ 6,127 $ 6,099
Accounts payable - trade 14,163 17,969
Income taxes 83 208
Accrued insurance 1,269 1,639
Accrued retirement contribution 2,245 2,423
Net liabilities of discontinued operations 5,025 -
Other current liabilities 4,792 4,969
Total current liabilities 33,704 33,307
Long-term notes 64,414 64,292
Net liabilities of discontinued operations 9,540 9,517
Other liabilities 6,719 6,290
Redeemable preference stock:
Par value $1, issued 200,000 shares:
Series D, $12.35 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: Series B, $2.475 cumulative,
convertible; issued 25,386 shares
(entitled in liquidation to $1.4 million); 25 25
Series D, reported above
Common stock, par value $1, authorized
35,000,000 shares; issued 15,058,237
and 15,055,237 15,058 15,055
Other capital 60,847 60,818
Retained earnings 10,940 8,464
Treasury stock at cost:
Common shares 347,691 (4,507) (4,507)
Total shareholders' equity 82,363 79,855
Total liabilities and shareholders' equity $216,740 $213,261
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<TABLE>
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited, $ in 000's, except per share data)
<CAPTION>
Quarters ended March 31,
1996 1995
<S> <C> <C>
Revenue $ 38,224 $ 33,905
Cost of revenue 28,486 25,204
Gross profit 9,738 8,701
Selling, general and administrative expenses 5,071 5,191
Earnings from operations 4,667 3,510
Other income (expense):
Equity in earnings of joint ventures 234 234
Other income - 179
Interest income - 75
Interest expense (1,696) (1,273)
Net other income (expense) (1,462) (785)
Earnings before taxes 3,205 2,725
Provision for income taxes 96 190
Net earnings 3,109 2,535
Preference dividends 633 634
Net earnings available
for common shares $ 2,476 $ 1,901
Earnings per share:
Operations $ 0.17 $ 0.13
Weighted average shares outstanding 14,823 14,912
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<TABLE>
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited, $ in 000's)
<CAPTION>
Quarters ended March 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings $ 3,109 $ 2,535
Adjustments to reconcile net earnings
to net cash provided (used) by continuing
operations activities:
Depreciation and amortization 2,790 2,151
Equity in joint ventures (238) 376
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (2,671) 2,625
Decrease in notes receivable 9 77
Increase in inventories (2,183) (1,137)
Increase in other current assets (352) (1,368)
Decrease in accounts payable
and accrued expenses (4,531) (19,448)
Increase (decrease) in taxes payable (125) 157
Decrease in other assets 460 359
Increase in other liabilities 429 88
Net cash used by continuing
operations activities (3,303) (13,585)
Increase (decrease) in net liabilities of
discontinued operations 5,971 (4,952)
Proceeds from repayment of notes receivable
from sale of discontinued operations - 2,200
Net cash provided (used) by discontinued
operations activities 5,971 (2,752)
Net cash provided (used) by operating
activities 2,668 (16,337)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets - 120,464
Additions to property, plant and equipment (2,716) (16,954)
Other, (net) - (1)
Net cash provided (used) by investing activities $ (2,716) $103,509
</TABLE>
See accompanying notes to consolidated financial statements.
-6-
<TABLE>
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited, $ in 000's)
<CAPTION>
Quarters ended March 31,
1996 1995
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C>
Net borrowing under revolving credit
agreements $ 6,150 $ 1
Principal payments under long-term notes (6,001) (85,141)
Proceeds from issuance of common stock 32 24
Purchase of treasury stock - (696)
Dividends on preference stock (633) (634)
Net cash used by financing activities (452) (86,446)
Net increase (decrease) in cash and
cash equivalents (500) 726
Cash and cash equivalents at beginning of
period 1,086 2,027
Cash and cash equivalents at end of period $ 586 $ 2,753
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest (net of amount capitalized) $ 1,712 $ 1,748
Income taxes 221 33
</TABLE>
See accompanying notes to consolidated financial statements.
-7-
DRAVO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Basis of Presentation
The accompanying consolidated financial statements include the accounts
of Dravo Corporation and its majority-owned subsidiaries (the company).
The principal subsidiary is Dravo Lime Company, one of the nation's
largest lime producers. The company completed a transaction on December
30, 1994 in which it sold substantially all the assets and certain
liabilities of Dravo Basic Materials Company, Inc. (DBM), a former
principal subsidiary. The consolidated cash flow statement for the
quarter ended March 31, 1995 reflects the collection of proceeds from the
sale of DBM, repayment of debt, and satisfaction of DBM liabilities,
primarily accounts payable. Significant intercompany balances and
transactions have been eliminated in the consolidation process.
These unaudited consolidated financial statements include all
adjustments, consisting only of normal, recurring accruals, which
management considers necessary for a fair presentation of the company's
consolidated financial position, results of operations, and cash flows
for the interim periods presented.
(2) Inventories
<TABLE>
Inventories are classified as follows:
($ in 000's)
<CAPTION>
March 31, December 31,
1996 1995
<S> <C> <C>
Finished goods $ 2,961 $ 1,677
Materials and supplies 13,416 12,517
Net inventories $16,377 $14,194
</TABLE>
Finished goods are valued at average production cost or market, whichever
is lower, and include raw materials, direct labor, and operating
overhead. Materials and supplies are valued at average cost.
(3) 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 sub-sites 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 sub-sites, a municipal landfill, the company believes it
could not have disposed of hazardous wastes at the particular sub-site
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 sub-site. Other PRPs, including the local
municipality, have agreed to perform the remedial investigation and to
design soil and groundwater remedies at this sub-site. The company has
agreed to participate in an EPA-initiated allocation proceeding for this
sub-site.
-8-
DRAVO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Contingent Liabilities (continued)
The company has also been notified by the EPA that the EPA considers it
a PRP at another municipal landfill in Hastings. At least three other
parties (including the City of Hastings) are considered by the EPA to be
PRPs at this second sub-site. At this sub-site, 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 sub-site 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 sub-site, the company and two other PRPs have
been served with administrative orders directing them to undertake soil
remediation and interim groundwater remediation at that sub-site. 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 sub-site, but two of
them have been granted de minimis status. The company believes other
persons should also be named as PRPs.
The fourth sub-site is a former naval ammunition depot which was
subsequently converted to an industrial park. The company and its
predecessor owned and operated a manufacturing facility in this
industrial park. To date, the company's investigation indicates that it
did not cause the release of hazardous substances at this sub-site during
the time it owned and operated the facility. The United States has
undertaken to conduct the remediation of this sub-site.
In addition to sub-site clean-up, the EPA is seeking a clean-up of area-
wide contamination associated with all of the sub-sites 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. The 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 sub-site. The company has
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 sub-sites.
-9-
DRAVO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Contingent Liabilities (continued)
Estimated total clean-up costs, including capital outlays and future
maintenance costs for soil and groundwater remediation of approximately
$18 million, are based on independent engineering studies. Included in
the discontinued operations provision is the company's estimate that it
will participate in 33 percent of these remediation costs. The company's
estimated share of the costs is based on its assessment of the total
clean-up costs, its potential exposure, and the viability of other named
PRPs.
Other claims and assertions made against the company will be resolved,
in the opinion of management, without material additional charges to
earnings.
The company has asserted claims that management believes to be
meritorious, but no estimate can be made at present of the timing or the
amount of recovery.
(4) Discontinued Operations
In December, 1987, Dravo's Board of Directors approved a major
restructuring program which concentrated the company's future direction
exclusively on opportunities involving its natural resources business.
The remaining discontinued operations' assets and liabilities at March
31, 1996 and December 31, 1995 relate to non-cancelable leases,
insurance, environmental, legal and other matters associated with exiting
the engineering and construction business and are presented below:
<TABLE>
<CAPTION>
($ in 000's) March 31, December 31,
1996 1995
<S> <C> <C>
Current assets:
Accounts and retainers receivable $ 2,397 $ 122
Other - 7,185
Total current assets 2,397 7,307
Accounts and retainers receivable 342 333
Other 309 309
Total assets $ 3,048 $ 7,949
Current liabilities:
Accounts and retainers payable $ 146 $ 140
Accrued loss on leases 2,260 2,240
Other 5,016 4,004
Total current liabilities 7,422 6,384
Accounts and retainers payable - -
Accrued loss on leases 2,803 3,328
Other 7,388 6,831
Total liabilities $ 17,613 $ 16,543
Net liabilities and accrued loss
on leases of discontinued operations $(14,565) $ (8,594)
</TABLE>
-10-
DRAVO CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
In 1995, the company completed a major expansion at its Black River facility
in northern Kentucky. The resulting production from the expansion enabled the
company to increase revenue over 1995 levels by nearly 13 percent to $38.2
million. The higher revenue was the principal contributor to first quarter
1996 net earnings increasing to $3.1 million, or 17 cents per common share,
from $2.5 million, or 13 cents per share, in 1995.
The company completed a transaction on December 30, 1994 in which it sold
substantially all the assets and certain liabilities of Dravo Basic Materials
Company, Inc. (DBM), a former principal subsidiary. Proceeds received from
the sale of DBM were used to reduce debt $85 million early in 1995. Debt
levels subsequently increased as DBMs' liabilities were satisfied and the
company internally financed the completion of the Black River expansion
project. The higher debt levels caused 1996 interest expense to be $423,000
higher than 1995.
Current net liabilities of discontinued operations increased $5.0 million and
current net assets decreased $923,000 from December 31, 1995. The changes
reflect the collection of $7.3 million for a judgment and interest awarded to
the company by a Georgia court related to a subcontractor dispute on a contract
performed by a discontinued engineering subsidiary. The judgment and interest,
classified as a discontinued operations current receivable in the company's
year-end financial statements, were collected in March.
The consolidated cash flow statement for the quarter ended March 31, 1995
reflects the collection of proceeds from the sale of DBM, $120 million;
repayment of debt, $85 million; and satisfaction of DBM liabilities, primarily
accounts payable.
The company is currently adding a fourth kiln and ancillary equipment as part
of a $20 million expansion of its lime production facility near Maysville,
Kentucky. The new kiln, expected to start-up late in the first quarter of
1997, will increase Maysville's production capacity by 350,000 tons, or 33
percent.
-11-
DRAVO CORPORATION AND SUBSIDIARIES
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following is filed as an exhibit to Part I of this Form 10-Q:
Exhibit No. 11 - Statement re computation of per share earnings.
(b) Reports on Form 8-K
The Company filed no Reports on Form 8-K for the quarter ended
March 31, 1996.
-12-
SIGNATURES
Pursuant to the requirements 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
(Registrant)
Date: May 15, 1996 /s/ERNEST F. LADD III
Ernest F. Ladd III
Executive Vice President and
Chief Financial Officer
Date: May 15, 1996 /s/LARRY J.WALKER
Larry J. Walker
Vice President and Controller
(Principal Accounting Officer)
-13-
Exhibit 11. Statement Re Computation of Per Share Earnings
<TABLE>
<CAPTION>
(In 000's, except per share data)
Quarters ended March 31,
Primary 1996 1995
Earnings:
<S> <C> <C>
Net earnings $ 3,109 $ 2,535
Deduct dividends on preference stock 633 634
Net earnings applicable to common stock $ 2,476 $ 1,901
Shares:
Weighted average number of common
shares outstanding 14,708 14,853
Dilutive effect of outstanding
options and rights (as determined
by the application of the treasury
stock method at the average market
price for the period) 115 59
Weighted average number of shares
outstanding, as adjusted 14,823 14,912
Primary earnings per share $ 0.17 $ 0.13
Fully diluted
Earnings:
Net earnings $ 3,109 $ 2,535
Deduct dividends on preference stock (1) 633 634
Net earnings applicable to common stock $ 2,476 $ 1,901
Shares:
Weighted average number of common
shares outstanding 14,708 14,853
Dilutive effect of outstanding
options and rights (as determined
by the application of the treasury
stock method at the higher of the
closing or the average market price
for the period) 143 59
Weighted average number of shares
outstanding, as adjusted 14,851 14,912
Fully diluted earnings per share $ 0.17 $ 0.13
</TABLE>
-14-
Exhibit 11. Statement Re Computation of Per Share Earnings (continued)
<TABLE>
<CAPTION>
(In 000's, except per share data)
Quarters ended March 31,
1996 1995
Additional Fully Diluted Computation (2)
Earnings:
<S> <C> <C>
Net earnings $ 3,109 $ 2,535
Shares:
Weighted average number of common shares
outstanding 14,708 14,853
Dilutive effect of outstanding options and
rights (as determined by the application of
the treasury stock method at the higher of
the closing or average market price for
the period) 143 59
Shares issuable from assumed exercise of
convertible preference stock 1,682 1,688
Weighted average number of shares
outstanding, as adjusted 16,533 16,600
Fully diluted earnings per share $ 0.19 $ 0.15
</TABLE>
(1) The inclusion of preference stock in the fully dilutive computation would
have an anti-dilutive effect on earnings per share.
(2) 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.
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DRAVO
CORPORATION'S MARCH 31, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 586
<SECURITIES> 0
<RECEIVABLES> 28333
<ALLOWANCES> 117
<INVENTORY> 16377
<CURRENT-ASSETS> 46853
<PP&E> 228384
<DEPRECIATION> 112290
<TOTAL-ASSETS> 216740
<CURRENT-LIABILITIES> 33704
<BONDS> 0
<COMMON> 15058
20000
25
<OTHER-SE> 67280
<TOTAL-LIABILITY-AND-EQUITY> 216740
<SALES> 38224
<TOTAL-REVENUES> 38224
<CGS> 28486
<TOTAL-COSTS> 28486
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1696
<INCOME-PRETAX> 3205
<INCOME-TAX> 96
<INCOME-CONTINUING> 3109
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3109
<EPS-PRIMARY> .17
<EPS-DILUTED> 0
</TABLE>
