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, 1997
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, 1997:
Title of Class Shares Outstanding
Common Stock, $1.00 par value 14,777,620
DRAVO CORPORATION AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Page No.
Consolidated Balance Sheets at March 31, 1997
and December 31, 1996 3, 4
Consolidated Statements of Earnings for the
Quarters ended March 31, 1997 and 1996 5
Consolidated Statements of Cash Flows for the
Quarters ended March 31, 1997 and 1996 6, 7
Notes to Consolidated Financial Statements 8 - 12
Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
-2-
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
($ in 000's)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,055 $ 1,600
Accounts receivable, net 22,045 23,265
Notes receivable, net 922 921
Inventories 17,265 16,481
Other current assets 576 751
Total current assets 41,863 43,018
Advances to and equity in joint ventures 2,384 2,093
Notes receivable 4,833 4,380
Other assets 24,886 25,066
Deferred income taxes 24,853 24,853
Property, plant and equipment 251,508 238,025
Less: accumulated depreciation and
amortization 114,555 112,026
Net property, plant and equipment 136,953 125,999
Total assets $235,772 $225,409
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
($ in 000's)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current portion of long-term notes $ 6,326 $ 6,166
Accounts payable - trade 13,704 14,542
Accrued insurance 1,807 1,906
Accrued retirement contribution 1,565 1,785
Net liabilities of discontinued operations 6,126 6,299
Other current liabilities 4,011 3,843
Total current liabilities 33,539 34,541
Long-term notes 74,645 63,535
Net liabilities of discontinued operations 6,172 6,786
Other liabilities 6,996 6,632
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 19,386 shares and 20,386
shares(entitled in liquidation
to $1.1 million); 19 20
Series D, reported above
Common stock, par value $1, authorized
35,000,000 shares; issued 15,100,033
and 15,096,817 15,100 15,097
Other capital 63,075 63,077
Retained earnings 20,507 20,063
Treasury stock at cost:
Common shares 328,413 and 333,168 (4,281) (4,342)
Total shareholders' equity 94,420 93,915
Total liabilities and shareholders' equity $235,772 $225,409
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
(unaudited, $ in 000's, except per share data)
<TABLE>
<CAPTION>
Quarters ended March 31,
1997 1996
<S> <C> <C>
Revenue $ 37,624 $ 38,224
Cost of revenue 29,851 28,486
Gross profit 7,773 9,738
Selling, general and administrative expenses 5,284 5,071
Earnings from operations 2,489 4,667
Other income (expense):
Equity in earnings of joint ventures 199 234
Interest income 32 --
Interest expense (1,562) (1,696)
Net other income (expense) (1,331) (1,462)
Earnings before taxes 1,158 3,205
Provision for income taxes 84 96
Net earnings 1,074 3,109
Preference dividends 630 633
Net earnings available
for common shares $ 444 $ 2,476
Earnings per share:
Operations $ 0.03 $ 0.17
Weighted average shares outstanding 14,880 14,823
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited, $ in 000's)
<TABLE>
<CAPTION>
Quarters ended March 31,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,074 $ 3,109
Adjustments to reconcile net earnings
to net cash provided (used) by continuing
operations activities:
Depreciation and amortization 2,530 2,790
Equity in joint ventures (291) (238)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 1,220 (2,671)
Decrease (increase) in notes receivable (454) 9
Increase in inventories (784) (2,183)
Decrease (increase) in other current assets 175 (352)
Decrease in accounts payable
and accrued expenses (947) (4,531)
Increase (decrease) in taxes payable 19 (125)
Decrease in other assets 180 460
Increase in other liabilities 364 429
Net cash provided (used) by continuing
operations activities 3,086 (3,303)
Net cash provided (used) by discontinued
operations activities (787) 5,971
Net cash provided by operating activities 2,299 2,668
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (13,484) (2,716)
Other, (net) 1 --
Net cash used by investing activities $(13,483) $(2,716)
</TABLE>
See accompanying notes to consolidated financial statements.
-6-
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited, $ in 000's)
<TABLE>
<CAPTION>
Quarters ended March 31,
1997 1996
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing under revolving credit
agreements $ 15,690 $ 6,150
Principal payments under long-term notes (6,084) (6,001)
Proceeds from issuance of long-term notes 1,663 --
Proceeds from issuance of common stock -- 32
Dividends on preference stock (630) (633)
Net cash provided (used) by
financing activities 10,639 (452)
Net decrease in cash and cash equivalents (545) (500)
Cash and cash equivalents at beginning of
period 1,600 1,086
Cash and cash equivalents at end of period $ 1,055 $ 586
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ 1,575 $ 1,712
Income taxes 89 221
</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. 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. Certain reclassifications of
previously reported balances have been made to conform to
the current period's presentation.
(2) Inventories
<TABLE>
Inventories are classified as follows:
($ in 000's)
<CAPTION>
March 31, December 31,
1997 1996
<S> <C> <C>
Materials and supplies $ 14,058 $ 13,895
Finished goods 3,207 2,586
Total inventories $ 17,265 $ 16,481
</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.
-8-
DRAVO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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, NE. 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).
The company participated in an EPA-initiated allocation
proceeding for a municipal landfill sub-site to allocate
shares of liability for past response costs and costs of a
proposed cap of the landfill. As part of this proceeding,
the allocator conducted a mediation session which resulted
in a settlement among the EPA and the PRPs. Pursuant to
the settlement, the company agreed to pay $702,000, or
14.33 percent of the $4.9 million past costs and estimated
source control costs for this sub-site. In exchange, the
company received contribution protection against third-
party claims as well as a covenant from the EPA not to sue
for its past and future response costs at this sub-site.
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 primarily
responsible for proper closure of the landfill and the
remediation of any release of hazardous substances. In
January, 1994, the 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.
-9-
DRAVO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Contingent Liabilities (continued)
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, NE. 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. On motion of the defendant insurance carriers, the
suit was transferred to the District Court for the Western
District of Pennsylvania on October 31, 1996. 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 second and fourth
sub-sites.
Estimated total clean-up costs, including capital outlays
and future maintenance costs for soil and groundwater
remediation of approximately $14 million, are based on
independent engineering studies. Included in the
discontinued operations provision is the company's
estimate that it will participate in 33 percent of these
remediation costs. The company's estimated share of the
costs is based on its assessment of the total clean-up
costs, its potential exposure, and the viability of other
named PRPs. These estimates are, by their nature,
uncertain and dependent upon numerous factors, any of
which could cause actual results to differ materially from
projected amounts.
-10-
DRAVO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Contingent Liabilities (continued)
Other claims and assertions made against the company will
be resolved, in the opinion of management, without
material additional charges to earnings.
(4) Discontinued Operations
Discontinued operations' assets and liabilities at March
31, 1997 and December 31, 1996 relate to non-cancelable
leases, insurance, environmental, legal and other matters
associated with exiting the engineering and construction
business and are presented below:
<TABLE>
<CAPTION>
($ in 000's) March 31, December 31,
1997 1996
<S> <C> <C>
Current assets:
Accounts and retainers receivable $ 288 $ 323
Total current assets 288 323
Other 309 309
Total assets $ 597 $ 632
Current liabilities:
Accounts and retainers payable $ 536 $ 536
Accrued loss on leases 2,592 2,304
Other 3,286 3,782
Total current liabilities 6,414 6,622
Accrued loss on leases 384 954
Other 6,097 6,141
Total liabilities $ 12,895 $ 13,717
Net liabilities and accrued loss
on leases of discontinued
operations $(12,298) $(13,085)
</TABLE>
-11-
DRAVO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Earnings Per Share
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.
128, Earnings per Share (FAS 128). FAS 128 supersedes APB
Opinion No. 15, Earnings per Share (APB 15) and requires
the calculation and dual presentation of Basic and Diluted
earnings per share, replacing the measures of Primary and
Fully-diluted earnings per share as reported under APB 15.
FAS 128 is effective for financial statements issued for
periods ending after December 15, 1997; earlier
application is not permitted. After the effective date,
all prior-period earnings per share data presented must be
restated to conform with the provisions of FAS 128. The
impact of FAS 128 on the company's earnings per share
calculation will be immaterial.
-12-
DRAVO CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Net earnings for the quarter of $1.1 million were down $2.0
million, or 65 percent, from 1996's first quarter. Several
factors contributed to the variance. The Ohio River serves as
the major transportation link between the Maysville and Black
River lime production facilities and several major utility
customers. An early March flood in northern Kentucky stopped
the company from loading barges and its customers from unloading
barges for an extended period. Further compounding the problem,
the Corps of Engineers was forced to close various sections of
the river to towboat and barge traffic for up to a week. Once
the river was reopened, obtaining barges for lime delivery was
complicated by a lack of towboat availability and a delay in
getting barges back into a normal operating cycle. The flood,
barge unloading equipment problems at a major utility customer's
plant and other brief, but unscheduled power plant outages,
caused utility lime sales to be down 51,000 tons compared to
last year. The company's Longview operation in northern Alabama
experienced operating related disruptions that also contributed
to the lower earnings. Two of Longview's three kilns had to be
shut down several days for major maintenance work that was
scheduled to occur later in the year. The down time not only
reduced the lime tons produced, but also drove the cost of the
tons that were produced, and ultimately cost of sales, much
higher than normal. Lower production also required the purchase
of lime from outside sources to meet contractual requirements
and maintain key customer relationships. Profit margins were
reduced because purchased lime costs more than company produced
lime. While revenue was down $600,000 from last year, the sales
variance would have been larger had the company not purchased
lime for resale. Production and customer demand returned to
more normal and anticipated levels in April.
Capital expenditures for the quarter were $13.5 million compared
to $2.7 million last year. Construction progress payments for
the new Maysville kiln and the $7.4 million purchase of more
than 27 million tons of high calcium reserves adjacent to the
Longview facility accounted for a large part of the additions to
property, plant and equipment. Long-term debt increased $11.1
million from year-end primarily due to funding capital
expenditures.
As previously reported, the company announced that it was
undertaking an investment banking review of strategic
alternatives for accelerating growth including merger or
acquisition opportunities. Although this process has not
resulted to date in any formal offers to buy the company,
discussions continue with prospective buyers.
-13-
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, 1997.
-14-
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 12, 1997 /s/ERNEST F. LADD III
Ernest F. Ladd III
Executive Vice President
and Chief Financial
Officer
Date: May 12, 1997 /s/LARRY J. WALKER
Larry J. Walker
Vice President and
Controller
(Principal Accounting
Officer)
-15-
Exhibit 11. Statement Re Computation of Per Share Earnings
<TABLE>
<CAPTION>
(In 000's, except per share data)
Quarters ended March 31,
1997 1996
<S> <C> <C>
Primary
Earnings:
Net earnings $ 1,074 $ 3,109
Deduct dividends on preference stock 630 633
Net earnings applicable to
common stock $ 444 $ 2,476
Shares:
Weighted average number of common
shares outstanding 14,769 14,708
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) 111 115
Weighted average number of shares
outstanding, as adjusted 14,880 14,823
Primary earnings per share $ 0.03 $ 0.17
Fully diluted
Earnings:
Net earnings $ 1,074 $ 3,109
Deduct dividends on preference
stock (1) 630 633
Net earnings applicable to
common stock $ 444 $ 2,476
Shares:
Weighted average number of common
shares outstanding 14,769 14,708
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) 111 143
Weighted average number of shares
outstanding, as adjusted 14,880 14,851
Fully diluted earnings per share $ 0.03 $ 0.17
</TABLE>
-16-
Exhibit 11. Statement Re Computation of Per Share Earnings
(continued)
<TABLE>
<CAPTION>
(In 000's, except per share data)
Quarters ended March 31,
1997 1996
<S> <C> <C>
Additional Fully Diluted Computation (2)
Earnings:
Net earnings $ 1,074 $ 3,109
Shares:
Weighted average number of common shares
outstanding 14,769 14,708
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) 111 143
Shares issuable from assumed exercise of
convertible preference stock 1,664 1,682
Weighted average number of shares
outstanding, as adjusted 16,544 16,533
Fully diluted earnings per share $ 0.06 $ 0.19
(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.
</TABLE>
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM DRAVO
CORPORATION'S MARCH 31, 1997 FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1055
<SECURITIES> 0
<RECEIVABLES> 23164
<ALLOWANCES> 197
<INVENTORY> 17265
<CURRENT-ASSETS> 41863
<PP&E> 251508
<DEPRECIATION> 114555
<TOTAL-ASSETS> 235772
<CURRENT-LIABILITIES> 33539
<BONDS> 0
<COMMON> 15100
20000
19
<OTHER-SE> 79301
<TOTAL-LIABILITY-AND-EQUITY> 235772
<SALES> 37624
<TOTAL-REVENUES> 37624
<CGS> 29851
<TOTAL-COSTS> 29851
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1562
<INCOME-PRETAX> 1158
<INCOME-TAX> 84
<INCOME-CONTINUING> 1074
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1074
<EPS-PRIMARY> .03
<EPS-DILUTED> 0
</TABLE>
