SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 1996
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. XX
Common shares outstanding as of March 20, 1997: 14,771,620
Aggregate market value of the voting stock held by non-affiliates
of the Registrant as of March 20, 1997: $160,641,368
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended
December 31, 1996 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 24,
1997 are incorporated by reference to the extent set forth in
Part III of this Report.
TABLE OF CONTENTS
Page
PART I Item 1. Business 3 - 5
Item 2. Properties 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote
of Security Holders 7
PART II
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matter 8 - 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 12
Item 8. Financial Statements and Supplementary Data 12
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 12
PART III
Item 10. Directors and Executive Officers of the
Registrant 13
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial
Owners and Management 14
Item 13. Certain Relationships and Related
Transactions 14
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 15 - 21
Signatures 22
Independent Auditors' Report on Schedules 23
Schedule I. Condensed Financial Information of Registrant 24 - 31
Table of Contents for documents filed herein as Exhibits
4, 11, 13, 21, 23, 24 and 27 32
-2-
PART I
Item 1. Business
(a) General Development of the Business
Dravo Corporation (the Registrant or company) 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.
Operations are carried on by a wholly-owned subsidiary, Dravo
Lime Company (Dravo Lime). Activities include the production of
lime for utility, metallurgical, pulp and paper, municipal,
construction and miscellaneous chemical and industrial
applications as well as the development and marketing of related
environmental technologies, products and services. Three major
utility companies with whom the company has long-term contracts -
American Electric Power, Pennsylvania Power Company and
Cincinnati Gas & Electric Company - each accounted for more than
10 percent of consolidated revenue in 1996. All reserves are
located on properties 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. In 1995 a two kiln expansion was
completed at the Black River plant in Butler, Kentucky. With the
Black River expansion on-line, Dravo Lime's annual quicklime
capacity totals approximately three million tons. This capacity
will further increase to slightly over 3,300,000 tons-per-year
when a fourth 1,100 tons-per-day kiln now in the process of being
constructed at Maysville, Kentucky is completed early in the
second quarter of 1997.
The Maysville plant, currently a three kiln, 1,050,000 tons-per-
year facility, is located along the Ohio River and produces a
material marketed under the trade name Thiosorbicr Lime that has
a product chemistry ideally suited for removing sulfur 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 future four kiln operation in excess of seventy-five
years.
-3-
Item 1. Business (continued)
Dravo Lime's Black River facility is an integrated Thiosorbicr
quicklime, high calcium pebble and pulverized quicklime, and bulk
and bagged hydrated lime facility. Located along the Ohio River
at Butler, Kentucky, Black River has 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 and paper
customers under long-term contracts with price escalation
provisions. Limestone 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. Longview's
annual lime production capacity is approximately 570,000 tons-per-
year. The company is currently evaluating the possibility of
building a fourth kiln at Longview. In early 1997, Dravo Lime
purchased a number of land parcels adjacent to the Longview
quarry that doubled its limestone reserves. Recoverable reserves
are estimated to last approximately 40 years at the current
quarry production rate. Although it will not be necessary until
the distant future, Longview could be converted to an underground
mine if a further extension of reserves is necessary.
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 certain aggregate by-
products. In 1995, an aggregates processing plant was
constructed at the Longview facility that annually produces
between 500,000 to 1,000,000 tons of aggregates for purchase by
Martin Marietta. A benefit of this installation is to make a
marketable by-product out of limestone that is chemically
unsuitable for lime production, thereby reducing the cost Dravo
Lime incurs to recover the high calcium limestone reserves that
are beneath the aggregate quality material.
Dravo Lime products are distributed through quicklime
distribution terminals located in Aliquippa, Donora and Monaca,
Pennsylvania; Porterfield, Ohio; Brunswick, Georgia; and Tampa,
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, strategically located reserves and technical
expertise in the flue gas desulfurization industry give it
certain competitive advantages.
-4-
Item 1. Business (continued)
Dravo's research and development expenditures were $3.7 million
in 1996 and $3.6 million in 1995. Research and development
spending in 1997 is expected to exceed $3.3 million. The company
expects the research, much of which is being conducted jointly
with utility customers, to lower both the capital and operating
costs associated with flue gas desulfurization (FGD). A major
advancement toward that goal was achieved with the development of
a second generation, proprietary ThioClearr FGD technology. A
commercial scale demonstration facility using this technology is
currently being engineered and constructed at Applied Energy
Services' Beaver Valley cogeneration facility in Monaca,
Pennsylvania. Construction is expected to be completed in the
second quarter of 1997. Other research projects are aimed at
developing proprietary technologies for use in reducing stack gas
emissions of combined SOx/NOx and air toxins while recovering and
processing salable by-products. Dravo believes that in this
field its long-term contracts, accumulated experience and
technical skill represent significant competitive advantages.
With the exception of its research and development capabilities,
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. The company announced in October 1996 that it was
undertaking an investment banking review of strategic
alternatives to accelerate growth and enhance shareholder value.
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, primarily involved in the production, processing and
supply of lime for environmental, metallurgical, pulp and paper,
municipal, construction and miscellaneous chemical and industrial
applications as well as the development and marketing of related
environmental technologies, products and services. 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 1996 Annual Report to Shareholders which
accompanies this report:
Caption in Annual Report Page No.
Results of Operations 12 - 14
Note 16: Research and Development 32
Employees at Year-End 35
-5-
Item 2. Properties
The following is a listing of principal offices, plants and mines
currently used in operations:
Use Location Owned or 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
Tampa, Florida Owned/Leased
Sanford, Florida Leased
Brunswick, Georgia Owned/Leased
Baton Rouge, Louisiana Owned
Porterfield, Ohio Leased
Donora, Pennsylvania Leased
Monaca, Pennsylvania Owned/Leased
The following table shows a summary of the company's reserves at
December 31, 1996 and tons mined by Dravo Lime in 1996.
(Tons in millions)
Recoverable 1996
Reserves Production
Underground Mines:
Owned 592.6 6.2
Quarries:
Owned (1) 31.1 1.4
623.7 7.6
(1) Does not include over 27 million tons of reserves purchased
in early 1997.
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.
-6-
Item 3. Legal Proceedings
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 25 and 26 of the 1996 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, 1996.
-7-
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 1996 Annual Report to Shareholders which accompanies this
report:
Caption in Annual Report Page No.
Common Stock Market Price 15
Shareholders at year-end 35
Dividends 14, 35
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, 1996 issued preference and common shares were 220,386 and
15,096,817, respectively and there were 333,168 shares of common
stock held in the treasury.
Four series of preference stock have been established by
resolutions of the Board of Directors: $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; and $12.35 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
20,386 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.
The Board of Directors did not extend the rights to issue Series
C stock, pursuant to the Shareholders' Rights Agreement, past the
April 17, 1996 expiration date. Other series of preference stock
may be created by resolution 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
-8-
Item 5. Market for the Registrant's Common Stock and Related
Stockholder
Matters (continued)
Dividend Rights (continued)
stock ranking after 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 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 24 and 25 of the 1996 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; 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.
-9-
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters (continued)
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 D Preference Stock may be redeemed in
whole or in part at the option of Dravo at any time after January
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, the
Series B Preference Stock or the Series D Preference Stock.
-10-
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters (continued)
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 common stock.
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.
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.
-11-
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 35 of the 1996 Annual Report to Shareholders which
accompanies this report. Dravo has declared no common stock
dividends in the five-year period ending December 31, 1996.
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 12 through 15 of the 1996 Annual Report to Shareholders
which accompanies this report, to the information set forth under
the caption Note 2: "Discontinued Operations" on page 23, Note 3:
"Dispositions" on pages 23 and 24, Note 7: "Commitments" on page
25, Note 8: "Contingent Liabilities" on pages 25 and 26, Note 13:
"Income Taxes" on pages 31 and 32 and Note 14: "Extraordinary
Item" on page 32 in the Notes to Consolidated Financial
Statements of the 1996 Annual Report to Shareholders.
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 16
through 33, and the Independent Auditors' Report set forth on
page 34 of the 1996 Annual Report to Shareholders which
accompanies this report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable.
-12-
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 24, 1997.
The following information indicates the position and age at March
22, 1997 of the non-director executive officers of Dravo
Corporation and their business experience during the last five
years:
Marshall S. Johnson, Age 55, 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 56, 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 52, Vice President, Administration since
January, 1989.
James J. Puhala, Age 54, Vice President, General Counsel and
Secretary since September, 1987.
Richard E. Redlinger, Age 45, Vice President, Corporate
Development, and Treasurer since July, 1995; prior thereto Vice
President, Finance and Planning, Dravo Lime Company.
Donald H. Stowe, Jr., Age 45, 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 44, Vice President and Controller since
July, 1995; Controller since December, 1989.
-13-
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 24, 1997.
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 24, 1997.
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 24, 1997.
-14-
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 1996 Annual Report to Shareholders
which accompanies this report.
Description Page No.
Consolidated Balance Sheets at December 31, 1996 and 1995 16, 17
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 18
Consolidated Statements of Retained Earnings for the years
ended December 31, 1996, 1995 and 1994 19
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 20, 21
Notes to Consolidated Financial Statements 22 - 33
Independent Auditors' Report 34
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 23
Schedule I. Condensed Financial Information of 24 - 31
Registrant
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.
-15-
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(continued)
(a) 3. Exhibits
(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 incorporated by
reference to Exhibit 3 (ii) of the December 31,
1995 Form 10-K of the Registrant.
(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) 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.
(iii) 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.
(iv) 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.
-16-
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(continued)
(a) 3. Exhibits (continued)
(4)(v) 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.
(vi) 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) of
the September 27, 1988 Form 8-K of the Registrant.
(vii) (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.,
Regions Bank of Alabama (formerly 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.
(e) Intercreditor Agreement
dated September 20, 1990 by and among The
Prudential Insurance Company of America,
Regions Bank of Alabama (formerly 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.
-17-
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(continued)
(a) 3. Exhibits (continued)
(4)(viii) 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.
(ix) Override Agreement, dated January 21,
1992, between Dravo Corporation, The Prudential
Insurance Company of America, Regions Bank of
Alabama (formerly First Alabama Bank), PNC Bank,
N. A. (formerly Pittsburgh National Bank) and Bank
of America Illinois (formerly Continental Bank, N.
A.) is incorporated by reference to Exhibit 10.1
of the February 12, 1992 Form 8-K of the
Registrant.
(x) 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.
(xi) 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.
(xii) 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.
(xiii) Four copies of the First Amendment, (one
each for The Prudential Insurance Company of
America, Regions Bank of Alabama (formerly First
Alabama Bank), PNC Bank, N.A. and Bank of America
Illinois (formerly 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.
(xiv) 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.
-18-
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(continued)
(a) 3. Exhibits (continued)
(4)(xv) 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 incorporated by reference to Exhibit 4 (xvii)
of the December 31, 1994 Form 10-K of the
Registrant.
(xvi) Amendment Agreement dated December 31,
1995 encompassing the Fifth Amendment to the
Override Agreement dated January 21, 1992 and the
Fifth Amendment to the Amended and Restated
Revolving Credit Agreement dated January 21, 1992
is incorporated by reference to Exhibit 4 (xvii)
of the December 31, 1995 Form 10-K of the
Registrant. (Note: There is no Fourth Amendment
to the Amended and Restated Revolving Credit
Agreement due to a numbering error.)
(xvii) Amendment and Restatement of Articles
IV, V, VI and Appendix A dated February 15, 1996
of the Override Agreement dated January 21, 1992
is incorporated by reference to Exhibit 4(xviii)
of the December 31, 1995 Form 10-K of the
Registrant.
(xviii) Amendment Agreement dated June 28,
1996 encompassing the Sixth 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 (xiv),
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.
-19-
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(continued)
(a) 3. Exhibits (continued)
(10)(iv) 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.
(v) Dravo Corporation Incentive Compensation
Plan is incorporated by reference to Exhibit 10
(v) of the December 31, 1995 Form 10-K of the
Registrant.
(vi) Dravo Corporation Stock Option Plan of
1994, as amended December, 1995, is incorporated
by reference to Exhibit 10 (vi) of the December
31, 1996 Form 10-K of the Registrant.
(vii) Dravo Corporation Non-Employee
Directors' Retainer Fee Plan, incorporated by
reference to the Registrant's Registration
Statement No. 333-01689 on Form S-8 dated March
13, 1996.
(viii) Dravo Corporation Stock Incentive
Compensation Plan, incorporated by reference to
the Registrant's Registration Statement No. 333-
01691 on Form S-8 dated March 13, 1996.
(ix) 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.
(x) 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.
(xi) 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.
(xii) Agreement dated June 1, 1993 between
Dravo Corporation and James J. Puhala is
incorporated by reference to Exhibit 10 (xii) of
the December 31, 1995 Form 10-K of the Registrant.
(xiii) Agreement dated January 1, 1995 between
Dravo Corporation and Donald H. Stowe, Jr., is
incorporated by reference to Exhibit 10 (xiii) of
the December 31, 1995 Form 10-K of the Registrant.
(xiv) 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.
-20-
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(continued)
(a) 3. Exhibits (continued)
(11) Statement Re Computation of Per Share Earnings
filed under separate cover.
(13) 1996 Annual Report to Shareholders attached to
this report under separate 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 separate cover.
(23) Consent of Independent Auditors filed under separate cover.
(24) Powers of Attorney are filed herein under separate cover.
(b) Reports on Form 8-K
There were no reports on Form 8-K for the three months ended
December 31, 1996.
-21-
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 26, 1997 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 26, 1997
/s/ ERNEST F. LADD III Executive Vice President,
Ernest F. Ladd III Chief Financial Officer March 26, 1997
/s/ LARRY J. WALKER Vice President and
Larry J. Walker Controller March 26, 1997
*ARTHUR E. BYRNES Director March 26, 1997
Arthur E. Byrnes
*JAMES C. HUNTINGTON, JR. Director March 26, 1997
James C. Huntington, Jr.
*WILLIAM E. KASSLING Director March 26, 1997
William E. Kassling
*WILLIAM G. ROTH Director March 26, 1997
William G. Roth
*KONRAD M. WEIS Director March 26, 1997
Konrad M. Weis
/s/ ERNEST F. LADD III
*By Ernest F. Ladd III, Attorney-in-fact
-22-
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Dravo Corporation:
Under date of January 22, 1997, we reported on the consolidated
balance sheets of Dravo Corporation and subsidiaries as of
December 31, 1996, and 1995, 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,
1996, as contained in the 1996 annual report to shareholders. As
discussed in Note 10 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. These consolidated financial
statements and our report thereon are incorporated by reference
in the annual report on Form 10-K for the year 1996. In
connection with our audits of the aforementioned consolidated
financial statements, we also audited the related financial
statement schedule as listed in the accompanying index. 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, presents fairly, in all material
respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Pittsburgh, Pennsylvania
January 22, 1997
-23-
DRAVO CORPORATION (PARENT COMPANY)
Schedule I - Condensed Financial Information of Registrant
Balance Sheets
<TABLE>
(In thousands) December 31,
<CAPTION>
1996 1995
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,390 $ 279
Accounts receivable 517 879
Current income tax benefit from affiliates 6,104 4,724
Net assets of discontinued operations -- 923
Other current assets 183 434
Total current assets 8,194 7,239
Due from affiliates 23,094 --
Investments in affiliates 52,525 141,836
Deferred income tax benefit from affiliates 29,718 26,723
Other assets 23,561 19,532
Property, plant and equipment 123 6,832
Less accumulated depreciation and amortization 123 6,824
Net property, plant and equipment -- 8
Total assets $137,092 $195,338
</TABLE>
See accompanying notes to financial statements.
-24-
DRAVO CORPORATION (PARENT COMPANY)
Schedule I - Condensed Financial Information of Registrant
Balance Sheets
<TABLE>
(In thousands) December 31,
1996 1995
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable-trade $ 1,038 $ 1,566
Accrued retirement contribution 1,785 2,423
Net liabilities of discontinued operations 6,299 --
Other current liabilities 637 641
Total current liabilities 9,759 4,630
Advances from affiliates -- 75,046
Net liabilities of discontinued operations 6,786 9,517
Other liabilities 6,632 6,290
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 20,386 and 25,386 shares
(entitled in liquidation to $1.1 million
and $1.4 million); 20 25
Series D, reported above
Common stock, par value $1, authorized 35,000,000
shares; issued 15,096,817 and 15,055,237
shares 15,097 15,055
Other shareholders' equity 78,798 64,775
Total shareholders' equity 93,915 79,855
Total liabilities and shareholders' equity $137,092 $195,338
</TABLE>
See accompanying notes to financial statements.
-25-
DRAVO CORPORATION (PARENT COMPANY)
Schedule I - Condensed Financial Information of Registrant
Statements of Operations
<TABLE>
Years ended December 31,
(In thousands) 1996 1995 1994
<CAPTION>
<S> <C> <C> <C>
General and administrative
expenses $ (709) $ (961) $ (1,433)
Other expense (4) -- --
Interest expense -- (9) (16)
Interest income 10 -- 9
Loss from continuing operations
before taxes and affiliate earnings (703) (970) (1,440)
Income tax benefit (provision) 4,142 2,038 (4,107)
Earnings (loss) from continuing
operations before affiliate earnings 3,439 1,068 (5,547)
Equity in affiliate earnings 10,689 9,913 1,544
Earnings (loss) from
continuing operations 14,128 10,981 (4,003)
Loss from discontinued operations -- -- (6,554)
Net earnings (loss) $14,12 8 $10,981 $(10,557)
</TABLE>
See accompanying notes to financial statements.
-26-
DRAVO CORPORATION (PARENT COMPANY)
Schedule I - Condensed Financial Information of Registrant
Statements of Cash Flows
<TABLE>
<CAPTION>
(In thousands) Years ended December 31,
<S> <C> <C> <C>
1996 1995 1994
Cash flows from operating activities:
Earnings (loss) from continuing
operations $14,128 $ 10,981 $ (4,003)
Adjustments to reconcile earnings (loss) from
continuing operations to net cash provided
(used) by continuing operations activities:
Depreciation and amortization 4 6 9
Loss on disposal of assets 4 -- --
Equity in earnings of affiliates (10,689) (9,913) (1,544)
Changes in assets and liabilities:
Decrease (increase) in accounts
receivable 362 726 (1,036)
Decrease (increase) in current income
tax benefits (1,381) (2,783) 2,542
Decrease (increase) in other current
assets 318 1,151 (1,269)
Increase in other assets (1,991) (3,517) (7,791)
Decrease (increase) in deferred
income taxes (2,995) 9,689 1,591
Increase (decrease) in accounts payable
and accrued expenses (1,062) (1,404) 961
Increase in other liabilities 342 390 3,352
Net cash provided (used) by continuing
operations activities (2,960) 5,326 (7,188)
Loss from discontinued operations -- -- (6,554)
Increase (decrease) in net liabilities of
discontinued operations 4,491 (13,099) (4,592)
Proceeds from repayment of notes receivable
from sale of discontinued operations -- 2,200 1,600
Net cash provided (used) by discontinued
operations activities 4,491 (10,899) (9,546)
Net cash provided (used) by operating
activities $ 1,531 $(5,573) $(16,734)
</TABLE>
See accompanying notes to financial statements.
-27-
DRAVO CORPORATION (PARENT COMPANY)
Schedule I - Condensed Financial Information of Registrant
Statements of Cash Flows
<TABLE>
(In thousands) Years ended December 31,
1996 1995 1994
<CAPTION>
<S> <C> <C> <C>
Cash flows from investing activities:
Increase (decrease) in advances from
subsidiaries $(98,140) $(77,757) $19,187
Dividends received from affiliates 100,000 88,000 --
Other, net 1 -- 266
Net cash provided (used) by investing
activities 1,861 10,243 19,453
Cash flows from financing activities:
Proceeds from issuance of common stock 248 557 42
Purchase of treasury stock -- (2,667) --
Dividends paid (2,529) (2,535) (2,544)
Net cash used by financing activities (2,281) (4,645) (2,502)
Net increase in cash and cash
equivalents 1,111 25 217
Cash and cash equivalents at beginning
of year 279 254 37
Cash and cash equivalents at end of year $ 1,390 $ 279 $ 254
</TABLE>
See accompanying notes to financial statements.
-28-
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. Certain reclassifications of previously reported
balances have been made to conform to the current year's
presentation.
Note 1: Commitments
There was no continuing operations rental expense for 1996, 1995
or 1994. The minimum future rentals under noncancelable
operating leases and minimum future rental receipts from
subleases to third parties as of December 31, 1996 are indicated
in the table below. Of the $4.0 million net minimum payments,
$3.3 million has been expensed in connection with discontinued
operations.
<TABLE>
(In thousands)
<CAPTION>
<C> <C>
1997 $10,555
1998 3,561
1999 --
2000 --
2001 --
After 2001 --
Total minimum payments required 14,116
Less: Minimum sublease rental
receipts (10,203)
Net minimum payments $ 3,913
</TABLE>
Note 2: Income Taxes
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.
-29-
Note 2: Income Taxes (continued)
The income tax benefit (provision) for the years ended December
31 are comprised of the following:
<TABLE>
(In thousands) 1996 1995 1994
<CAPTION>
<S> <C> <C> <C>
Provision to offset tax benefits
of subsidiaries $ -- $ -- $ (4,107)
Benefit to offset tax liabilities
of subsidiaries 4,142 2,038 --
$ 4,142 $ 2,038 $ (4,107)
</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>
<S> <C> <C>
1996 1995
Deferred tax assets:
Provision for discontinued operations $ 4,580 $ 3,008
Net operating loss carryforwards 62,808 67,229
Investment tax credit carryforwards 791 1,411
Other 721 --
Total gross deferred tax assets 68,900 71,648
Less valuation allowance 34,829 36,381
Net deferred tax assets after
valuation allowance 34,071 35,267
Deferred tax liabilities:
Pension accrual 4,353 6,151
Other -- 2,393
Total gross deferred tax liabilities 4,353 8,544
Net deferred tax asset $29,718 $26,723
</TABLE>
Management believes it is more likely than not that the net
deferred tax asset 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 $70.9 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
enough taxable income to realize the deferred tax asset prior to
the NOLs expiring.
-30-
Note 3: Dividends
Cash dividends paid to the Registrant for the respective years
ended December 31:
<TABLE>
(In thousands)
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Consolidated affiliates $100,000 $88,000 $-0-
50 percent or less owned companies
accounted for by the equity method 1,090 916 792
</TABLE>
-31-
EXHIBITS
Table of Contents
Exhibit (Exhibit No.) Page No.
4. Instruments Defining the Rights of Security Holders,
Including Indentures
(xviii) Amendment Agreement dated June 28,
1996 encompassing the Sixth Amendment
to the Amended and Restated Revolving
Credit Agreement. (4)(xviii)1-7
11. Statement RE Computation of Per Share Earnings (11) 1, 2
13. 1996 Annual Report (13) 12-35
21. Subsidiaries of the Registrant (21) 1
23. Consent of Experts and Counsel (23) 1
24. Powers of Attorney (24) 1-5
27. Financial Data Schedule (EDGAR filing only) (27) 1
-32-
EXECUTION COPY
AMENDMENT AGREEMENT
THIS AMENDMENT AGREEMENT (this "Agreement" or this
"Amendment"), dated as of June 28, 1996, 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, a subsidiary of Regions Financial Corporation
("FAB"), PNC BANK, NATIONAL ASSOCIATION (formerly known as
Pittsburgh National Bank) ("PNC"), BANK OF AMERICA ILLINOIS
(formerly known as Continental Bank and Continental Bank N.A.)
("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") and BAI,
as documentation agent for the Lenders (in such capacity,
together with its successors and assigns, the "Documentation
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, the Amendment Agreement, dated as of August 1,
1994, the Amendment Agreement, dated as of January 3, 1995, the
Amendment Agreement, dated as of December 31, 1995 and the
Amendment and Restatement of Articles IV, V and VI of the
Override Agreement and Amendment and Restatement of Appendix A
Definitions dated as of February 15, 1996 (as so amended and
restated, the "Override Agreement"). In addition, the Companies,
the Agent, the Documentation 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, by the Amendment Agreement dated as of August 1, 1994, the
Amendment Agreement dated as of January 3, 1995, and the
Amendment Agreement dated as of December 31, 1995 (as so amended,
the "Revolving Credit Agreement"). Capitalized terms used but
not defined herein shall have the meanings assigned to such terms
in the Override Agreement.
(2) The parties hereto desire to amend the Revolving Credit
Agreement and certain other Operative Documents to extend the
Maturity Date of the Revolving Line of Credit from July 31, 1997
to July 31, 1998, and to extend the availability of the Letters
of Credit until July 31, 1998, among other things.
NOW, THEREFORE, in consideration of the premises, the
parties hereto agree as follows:
4(xviii) -1
ARTICLE I
SIXTH AMENDMENT TO
REVOLVING CREDIT AGREEMENT
SECTION 1.01. 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 2.01 hereof, amended as follows:
(a) The first sentence of Section 1.1(a) is amended by
deleting the date "July 31, 1997" and substituting therefor the
date "July 31, 1998."
(b) The fourth sentence of Section 1.1(a) is amended by
deleting the date "July 31, 1997" and substituting therefor the
date "July 31, 1998."
(c) Section 1.1(a) is further amended by the addition at
the end thereof of the following:
"Notwithstanding anything in this Agreement to the
contrary, the maximum available Revolving Line of
Credit, together with the Stated Amount of all
outstanding Letters of Credit shall, as of August 1,
1997, and thereafter, be reduced from SIXTY FIVE
MILLION DOLLARS ($65,000,000.00) to FORTY-EIGHT MILLION
DOLLARS ($48,000,000.00), and, as of August 1, 1997,
the maximum limitation for each Lender shown opposite
the name of each Lender on Schedule I shall be reduced
on a proportionate basis to the foregoing reduction in
the maximum available Revolving Line of Credit,
together with the Stated Amount of all outstanding
Letters of Credit."
(d) The first sentence of Section 1.1(b)(i) is amended by
deleting "the Maturity Date" and substituting therefor "July 31,
1997."
(e) The first sentence of Section 1.1(b)(iii) is amended by
deleting "the Maturity Date" and substituting therefor "July 31,
1997."
(f) Section 1.1(c) is amended by the addition at the end
thereof of the following:
"On July 31, 1997, the Revolving Notes shall be amended
by Borrowers and each respective Lender to indicate the
extension of the Maturity Date to July 31, 1998, and
the reduction of the maximum available Revolving Line
of Credit, together with the Stated Amount of all
outstanding Letters of Credit, from $65,000,000.00 to
$48,000,000.00."
(g) The fourth sentence of Section 1.3 is amended by
deleting the date "July 31, 1997" and substituting therefor the
date "July 31, 1998."
4(xviii) -2
(h) Section 1.6 is amended by the addition of the following
parenthetical immediately after the number "$65,000,000.00", to-
wit:
"($48,000,000.00 after July 31, 1997)"
ARTICLE II
CONDITIONS PRECEDENT
SECTION 2.01. 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 parties hereto, (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:
(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) all documents evidencing all Governmental
Approvals, if any, with respect to this Amendment and
the matters contemplated hereby and thereby.
(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
any other documents to be delivered by such Dravo Party
hereunder.
(iii) 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.
(b) The representations and warranties contained herein
shall be true on and as of the effective date hereof; there shall
exist on the effective date hereof no Event of Default or
Default; there shall exist no material adverse change in the
financial condition, business operation or prospects of any Dravo
Party or its Subsidiaries since December 31, 1995; and each Dravo
Party shall have delivered to the Lenders an Officer's
Certificate, dated as of the effective date hereof, to such
effect.
4(xviii) -3
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. 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 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 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
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) 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) law, 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 upon or with
respect to any of its properties.
(iii) 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 not subject to appeal.
(iv) 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.
(v) Except as set forth in the Form 10-K filed by
Dravo with the Securities Exchange Commission for the
year ended December 31, 1995, there
4(xviii) -4
are no pending or threatened actions, suits or
proceedings affecting such Dravo Party or any of its
Subsidiaries or the properties of such Dravo Party or
any of its Subsidiaries before any court, governmental
agency or arbitrator, that may, if adversely
determined, materially adversely affect the financial
condition, properties, business, operations or
prospects of such Dravo Party and its Subsidiaries,
considered as a whole, or affect the legality, validity
or enforceability of the Override Agreement or any
other Operative Document, in each case as amended by
this Amendment.
ARTICLE IV
CONSENT OF GUARANTOR
SECTION 4.01. Consent of Guarantor. Dravo, by its
execution hereof, does hereby consent to and approve the terms of
this Amendment and does hereby ratify and affirm its guaranty
obligations in favor of Lenders.
ARTICLE V
MISCELLANEOUS
SECTION 5.01. 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 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
4(xviii) -5
the Agent under any of the Operative Documents, nor constitute a
waiver of any provision of any of the Operative Documents.
SECTION 5.02. 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 and thereunder,
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 Transaction
Documents 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 5.02.
SECTION 5.03. 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 5.04. Governing Law. This Amendment shall be
governed by, and construed in accordance with, the laws of the
State of New York.
[Signatures on Next Two Pages]
4(xviii) -6
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,
Individually and as Agent
By: /s/ PETER P. GAILLARD
Name: Peter P. Gaillard
Title: Senior Vice Presiden
PNC BANK, NATIONAL ASSOCIATION
By: /s/ MICHAEL J. BEYER
Name: Michael J. Beyer
Title: Vice President
BANK OF AMERICA ILLINOIS,
Individually and as Documentation Agent
By: /s/ MICHAEL J. MCKINNEY
Name: Michael J. McKinney
Title: Vice President
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By: /s/ KEVIN J. KRASKA
Name: Kevin J. Kraska
Title: Vice President
DRAVO CORPORATION
By: /s/ ERNEST F. LADD III
Name: Ernest F. Ladd III
Title: Executive Vice President
DRAVO LIME COMPANY
By: /s/ ERNEST F. LADD III
Name: Ernest F. Ladd III
Title: Executive Vice President
DRAVO BASIC MATERIALS COMPANY, INC.
By: /s/ ERNEST F. LADD III
Name: Ernest F. Ladd III
Title: Executive Vice President
4(xviii) -7
Exhibit 11. Statement Re Computation of Per Share Earnings
<TABLE>
($ in thousands, except per share amounts)
Years ended December 31,
1996 1995 1994
<CAPTION>
<S> <C> <C> <C>
Primary
Earnings:
Earnings from continuing operations
before extraordinary item $14,128 $10,981 $ 4,930
Deduct dividends on preferred stock 2,529 2,535 2,544
Earnings from continuing operations
applicable to common stock 11,599 8,446 2,386
Loss from discontinued operations -- -- (6,554)
Loss from extraordinary item -- -- (7,572)
Cumulative accounting change -- -- (1,361)
Net earnings (loss) applicable to
common stock $11,599 $ 8,446 $(13,101)
Shares:
Weighted average number of common
shares outstanding 14,735 14,756 14,859
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) 159 119 --(1)
Weighted average number of shares
outstanding, as adjusted 14,894 14,875 14,859
Primary earnings (loss) per share:
Continuing operations $ 0.78 $ 0.57 $ 0.16
Discontinued operations -- -- (0.44)
Extraordinary item -- -- (0.51)
Cumulative accounting change -- -- (0.09)
Net earnings (loss) per share $ 0.78 $ 0.57 $ (0.88)
Fully Diluted
Earnings:
Net earnings (loss) $ 14,128 $ 10,981 $ (10,557)
Deduct dividends on preferred stock (2) 2,529 2,535 2,544
Net earnings (loss) applicable to
common stock $ 11,599 $ 8,446 $ (13,101)
Shares:
Weighted average number of common
shares outstanding 14,735 14,756 14,859
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) 190 119 --(1)
</TABLE>
11-1
Exhibit 11. Statement Re Computation of Per Share Earnings (continued)
<TABLE>
($ in thousands, except per share amounts)
Years ended December 31,
1996 1995 1994
<CAPTION>
<S> <C> <C> <C>
Fully Diluted (continued)
Shares (continued):
Shares issuable from assumed exercise
of convertible preference stock (2) -- -- --
Weighted average number of shares
outstanding, as adjusted 14,925 14,875 14,859
Fully diluted earnings (loss) per share:
Continuing operations $ 0.78 $ 0.57 $ 0.16
Discontinued operations -- -- (0.44)
Extraordinary item -- -- (0.51)
Cumulative accounting change -- -- (0.09)
Earnings (loss) per share $ 0.78 $ 0.57 $ (0.88)
Additional Fully Diluted Computation (3)
Earnings:
Net earnings (loss) $14,128 $10,981 $ (10,557)
Shares:
Weighted average number of common
shares outstanding 14,735 14,756 14,859
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) 190 119 87
Shares issuable from assumed exercise of
convertible preference stock 1,678 1,685 1,697
Weighted average number of shares
outstanding, as adjusted 16,603 16,560 16,643
Fully diluted earnings (loss) per share $ 0.85 $ 0.66 $ (0.63)
</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 1996,
1995 and 1994.
11-2
FINANCIAL REVIEW
OVERVIEW
By most measures, 1996 was a year of improvement for Dravo.
Revenue, gross profit and net income were up 8 percent, 9 percent
and 29 percent, respectively. Most of the problems experienced
in 1995 during the startup of the $60-million Black River
expansion project were resolved. Good progress was made on the
construction of an additional kiln and related material handling
equipment at the Maysville plant in northern Kentucky, with
startup scheduled for the second quarter of 1997. Net cash
provided by operating activities improved markedly due, in part,
to one-time receipts from a lawsuit ruling, insurance settlements
and a state tax refund. Also, in 1995, the company paid the
liabilities, principally accounts payable, retained when it sold
the assets of a major subsidiary. Earnings improved, but the
improvement was smaller than anticipated. Earnings were
constrained by a prolonged interruption in lime deliveries to a
major customer and a reduction in demand for utility lime.
Earnings for the year were $14.1 million, or $0.78 per share,
compared to $11.0 million, or $0.57 per share, in 1995. In 1994,
Dravo reported a net loss of $10.6 million, or $0.88 per share.
A charge to discontinued operations of $6.5 million, or $0.44 per
share, was recorded in 1994 for legal fees and to provide for the
settlement of a lawsuit. Also, an extraordinary charge of $7.6
million, or $0.51 per share, was recorded to reflect the write-
off of fees associated with debt instruments prepaid or
substantially altered as a result of the sale of the assets of
Dravo Basic Materials (DBM), the company's construction
aggregates operations. A one-time charge of $1.4 million, or
$0.09 per share, reflects the cumulative accounting effect of the
adoption in 1994 of Statement of Financial Accounting Standards
No. 112, "Employers Accounting for Postemployment Benefits."
RESULTS OF OPERATIONS
CONTINUING OPERATIONS
Revenue: Most of the $12.1 million revenue increase over last
year was attributable to higher sales in the southeast market
region. The southeast market consists mostly of commercial
accounts and is supplied primarily by the company's Longview
facility located near Birmingham, Alabama. Strong commercial
demand, augmented by the sale of brokered lime as demand exceeded
production capacity, contributed to the revenue increase.
Revenue also increased because a new aggregates plant, completed
at Longview in late 1995, converts quarried limestone chemically
unsuitable for lime production into crushed stone aggregates
byproducts. Sales in the Ohio Valley area exceeded last year's
results due to strong demand in the metallurgical market.
Utility lime sales were dampened by prolonged delivery
interruptions to a major utility customer caused by problems at
the customer's generating station and by a reduction in the value
of sulfur-dioxide (SO2)emission allowances. SO2 allowances,
which are traded in the open market, are awarded to utility
companies that exceed their mandated SO2 removal requirements.
Inefficiencies in the allowance trading, a tendency by many
utilities to "bank" earned credits for future use rather than
trade them, and higher-than-anticipated levels of low-sulfur coal
utilization all combined to cause a marked decline in allowance
prices in 1996. The lower allowance prices made it less
attractive for utility customers to fully utilize their flue gas
desulfurization (FGD)systems and reduced their demand for lime
used for SO2 removal.
Revenue in 1995 was $146.1 million compared to $278.1 million in
1994, which included DBM for the entire year. Lime revenue in
1994 was $125.7 million. The increased lime revenue in 1995 was
mainly due to first-year shipments to American Electric Power's
Gavin Station under a 15-year supply contract. Shipments under a
new supply agreement with the Henderson Municipal Power and Light
Station operated by Big Rivers Electric Cooperative and strong
spot market pricing in 1995 also contributed to the revenue
increase.
Costs and Expenses: Gross profit increased $3.4 million over
1995; however, profit margins remained essentially the same at 25
percent. Gross profit was affected by higher inventory costs as
prolonged delivery interruptions to a major customer caused
production inefficiencies and increased costs. The sale of
brokered lime in the southeast market region also held down gross
margins.
Gross profit of $36.5 million was $7.5 million lower in 1995 than
in 1994, which included DBM. Margins, however, were much
improved: 25 percent in 1995 versus 16 percent in 1994. The
improvement reflects the dilutive effect of the aggregates
business on the company's margins before the divestiture. Gross
margins on lime sales were slightly higher than 1994's pro forma
results, but the increase was less than expected because of
higher production costs related to the expansion project at Black
River.
Selling expense was modestly lower in 1996 than 1995. There was
a significant drop from 1994 to 1995, due primarily to the DBM
sale. Selling expense varies depending on research and
development expense 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, governmental agencies, public utilities or private
groups may reimburse all or a portion of a project's costs.
Third-party billings are treated as a reduction in costs.
Research and development costs and billings to third parties are
detailed in Note 16, Research and Development, in the Notes to
Consolidated Financial Statements.
13-12
General and administrative expenses were essentially unchanged in
1996. A $1.3 million pension expense increase was more than
offset by a $1.7 million drop in retiree medical costs. The
company began participating in various Medicare HMOs in 1996 and
fixed the amount it contributes toward the cost of retiree
medical coverage. General and administrative expenses were $6.3
million lower in 1995 than 1994 due to personnel reductions
following the DBM sale and consolidation of administrative
functions. On a pro forma basis, administrative expenses were
higher because of differences between actual experience and the
assumptions used in preparing the pro forma analysis.
Equity in earnings of joint ventures includes the company's share
in two 50-percent owned joint ventures: a contract phosphate rock
mining operation in Idaho and a small contract coke operation in
Wyoming. The phosphate mining operation's profitability varies
depending on mining conditions and the requirements of its single
contract customer. Earnings from joint ventures were higher in
1996 due to strong phosphate demand and a return to more normal
maintenance expense. Prior to 1995, the company also had a 50-
percent share in a shell dredging operation. Earnings from joint
ventures in 1995 were down $1.1 million from 1994 due to higher
maintenance expense at the phosphate rock mining operation and
the sale of the shell dredging operation as part of the DBM
transaction.
Other income (expense) includes the gain or loss on the sale or
abandonment of property, plant and equipment. In 1996 and 1995,
the amounts are insignificant. The $1.1 million gain in 1994
included the sale of the company's airplane, $324,000, and
$487,000 from the sale, after accrued expenses, of DBM's assets.
See Note 3, Dispositions, in the Notes to Consolidated Financial
Statements for a further discussion of the latter transaction.
Interest income was $815,000 higher than last year due to
interest on a refund received from a state taxing authority after
the company filed amended tax returns based on its current
interpretation of the state tax code. The decline in interest
income from 1994 to 1995 reflects the collection, early in 1995,
of an interest-bearing note receivable.
Interest expense increased $1.6 million because of higher debt
levels in 1996 versus 1995. The proceeds from the DBM sale
enabled the company to reduce debt, including amounts borrowed
under a revolving line of credit, $85.5 million at the beginning
of 1995. The revolver debt level subsequently increased
throughout 1995 as the company satisfied retained DBM
liabilities, principally accounts payable, and completed the
Black River expansion project. Debt remained at the higher level
in 1996 as cash flow was invested in $20.0 million of capital
projects. Interest capitalized in 1996 and 1995 was $328,000 and
$2.8 million, respectively. Interest expense of $4.8 million in
1995 was significantly lower than 1994's expense of $12.4
million. The reduction reflects the early 1995 prepayment of
loans totaling $85.5 million from cash received from the DBM
transaction. Lower interest rates also lowered expense.
The company's income tax expense was zero in 1996 because of net
operating loss carryforwards (NOLs) that sheltered the company's
income from both federal and state income taxes. Income tax
expense of $340,000 in 1995 was for estimated state income taxes.
In 1994, income tax expense of $597,000 included an accrual of
$300,000 for federal alternative minimum tax arising from the DBM
assets sale. The company recorded a $24.9 million benefit for
income taxes in 1994 under the provisions of Statement of
Financial Accounting Standards No. 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 use of NOLs in future
years is more likely than not. The amount of the net deferred
tax asset reflects that portion of the gross deferred tax asset
that management believes, based on current projections and
estimates, is more likely than not to be realized. After all
NOLs have been recognized in the consolidated financial
statements, the company's tax rate will return to a more normal,
higher effective rate.
In conjunction with the sale of DBM's assets, existing loan
agreements were substantially altered. 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. With
Prudential Power Funding's consent, the entire amount borrowed
was prepaid. The fees associated with these agreements were
written off as extraordinary items in 1994.
Effects of inflation: Inflation rates have been low during the
past three years and as a result have not affected 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 most significant event involving discontinued operations was
the collection in 1996 of a $7.3 million judgment and interest
awarded by a Georgia court related to a contract dispute with a
discontinued engineering subsidiary's subcontractor. The
judgment and interest were classified as a discontinued
operations current receivable in the company's 1995 year-end
13-13
financial statements. Also in 1996, an issue with one of the
company's insurance carriers regarding deductible limits on
asbestos and other retroactive claim adjustments was resolved
with the insurance carrier refunding $2.6 million in past
payments. The discontinued operations provision was credited
$1.1 million for the insurance refunds. The company received a
$2.2 million refund from a state taxing authority in 1996 after
the company filed amended income tax returns based on its current
interpretation of the state tax code. The refund included
$575,000 that was recorded as interest income. The original tax
returns were filed on a separate basis and included only the
results of entities that had operations in the state. These
entities were, for the most part, profitable and paid income
taxes. The amended tax returns were filed on a combined basis,
which included an apportionment of the results of all the
company's operations, including losses from discontinued
operations. The amended returns reported tax losses instead of
taxable income and resulted in the refund, of which $1.7 million
was credited to the discontinued operations reserve. The amended
returns also generated a state tax NOL that can be used to
shelter future taxable income.
In 1994, a previously established provision for discontinued
operations was increased $6.6 million to cover legal fees related
to an insurance claim and to provide for the settlement of a
lawsuit. The insurance claim involves the company's assertion
that it is entitled to a defense and indemnity under its
insurance contracts for environmental clean-up costs in Hastings,
NE. See Note 8, Contingent Liabilities, in the Notes to
Consolidated Financial Statements for a further discussion of the
Hastings matter.
FINANCIAL POSITION AND LIQUIDITY
The company's financial position improved over the past year.
Long-term debt decreased by $757,000 and shareholders' equity
increased by $14.1 million. The capitalization ratio, total debt
divided by total debt and equity, decreased to 0.38 from 0.41.
Additions to property, plant and equipment included capital
expenditures of $20.0 million, of which $8.6 million was for the
fourth kiln at Maysville. Net liabilities of discontinued
operations increased $4.5 million, primarily due to the
collection of the judgment, tax refund and insurance claims
discussed above, offset by other previously reserved discontinued
operations expenditures.
The company has sufficient funds and borrowing capacity 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.
A $65 million revolving credit/letter of credit facility is
provided by a consortium of lenders that includes Regions Bank of
Alabama (formerly First Alabama Bank); PNC Bank, N.A.; and Bank
of America Illinois. Interest on the revolver equals either the
base lending rate of Regions Financial Corporation, Regions Bank
of Alabama's parent, or, at the option of the company, the
Eurodollar interest rate plus 2 percent. The facility expires
July 31, 1998, but includes renewal provisions.
Part of the line of credit is being used to finance construction
of a new kiln and related material-handling equipment at the
Maysville facility. On July 31, 1997, up to $17 million borrowed
under the facility may be converted to a five-year term loan.
Also on July 31, 1997, the amount available under the revolver
will be reduced from $65 million to $48 million.
Obligations under the revolving credit/letter of 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
Dravo Lime Company's 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 to
maintain minimum net worth levels and fixed charge ratios on a
consolidated basis; restrict incurrence of debt, liens and lease
obligations; restrict the sale of significant assets; and limit
payment of dividends. These restrictions are not expected to
have an adverse impact on the company's ability to meet its
obligations.
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. The remaining
discontinued operations liabilities will not have a material
adverse impact on liquidity, because cash payments needed to
satisfy them are spread over several years.
DIVIDENDS
The company's loan agreement contains a covenant that limits
common stock dividend payments. A common stock dividend may not
be declared if that dividend plus all other common dividends paid
after September 30, 1995, exceeds 25 percent of cumulative
earnings from continuing operations after September 30, 1995.
Cumulative earnings exclude gains from the sale of capital
assets, extraordinary gains and unremitted earnings of joint
ventures. At December 31, 1996, cumulative earnings since
September 30, 1995 from which dividends could be declared totaled
$16.9 million. No dividends on common stock were declared.
Dividends on the $3.0875 cumulative, convertible, exchangeable,
Series D Preference Stock and the $2.475 cumulative convertible
Series B Preference Stock were declared quarterly throughout each
of the last three years. All declared preference dividends have
been paid on a timely basis.
13-14
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 1996
and 1995 as reported for New York Stock Exchange composite
transactions were:
<TABLE>
1996 1995
<CAPTION>
Quarter High Low High Low
<S> <C> <C> <C> <C>
First 13 3/4 11 1/4 11 3/4 10
Second 14 7/8 12 3/4 14 3/4 10 1/4
Third 14 5/8 12 14 3/4 12 1/2
Fourth 15 3/4 12 1/2 13 5/8 11 1/2
</TABLE>
OUTLOOK
Continuing operations: Dravo Corporation's balance sheet, income
and cash flow have greatly improved since the company's strategic
direction was focused exclusively on its lime business two years
ago. Investments continue to be made in property, plant and
equipment to improve short-term performance and provide the
mineral reserves and equipment necessary to sustain acceptable
returns over the long term. A new Maysville kiln and ancillary
equipment valued at $20 million is scheduled to start production
in the second quarter of 1997. Early in 1997, more than 27
million tons of high calcium reserves adjacent to the Longview
facility were purchased as a necessary first step in expanding
production capacity in the southeastern market region. A major
refurbishing of the largest of Black River's pre-expansion kilns
is slated for 1997. This project will increase the kiln's
throughput while also significantly improving its thermal
efficiency.
The company will continue to promote the commercialization of its
proprietary lime-based environmental technologies. Currently
being installed at the AES Beaver Valley Cogeneration Station in
Monaca, PA, the first full-scale THIOCLEAR FGD system is
scheduled to startup in the second quarter. This project is an
important step toward providing the technical underpinning for an
aggressive sales and marketing effort of the THIOCLEAR
technology. Full-scale applications of Dravo technologies for
producing commercial FGD system byproducts were announced in
1996, and others are under consideration. Process development
work with significant commercial potential will be carried out
during 1997 at Dravo's Miami Fort pilot plant facility in the
area of combined sulfur dioxide and nitrogen oxides (SOx/NOx)
removal in wet scrubbers. Other environmental technology markets
in which the company will be active during 1997 include materials
and systems for controlling air toxics emissions, and land
applications of residual solids from lime-based FGD systems.
Despite the considerable progress made in recent years, the
company remains disproportionately small relative to the
obligations left over from Dravo's earlier history as a
diversified conglomerate. The company's size makes its quarter-
to-quarter operating performance acutely susceptible to changes
in production and sales volume, and with more than 60 percent of
its capacity committed to a small number of utility customers,
earnings are particularly sensitive to disruptions in utility
operating rates. On a longer-term basis, however, utility
operating rates are steadier and more dependable than those of
most other industrial markets, thus the large portion of Dravo's
backlog committed to utility customers represents one of the
company's most favorable characteristics. Nevertheless, because
of the company's short-term earnings sensitivity, it became
apparent that the company needed to accelerate its growth plans.
In response, management announced in October 1996 that it was
undertaking an investment banking review of strategic
alternatives for accelerating growth. If this process fails to
present Dravo with merger, acquisition or other opportunities
advantageous to the interest of the company's shareholders,
management is fully prepared to aggressively pursue its business
plan, and is confident that implementation of the plan will
enhance shareholder value.
Discontinued operations: The company formerly operated a metal
fabrication facility in Hastings, NE. 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 sub-sites in the
Hastings area. In January 1997, the company reached a monetary
settlement with the EPA regarding one of the sub-sites in
exchange for the EPA excluding the company from any further
liability at that sub-site. See Note 8, Contingent Liabilities,
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.
Management estimated the assets and liabilities associated with
discontinued operations and believes the provision for losses on
discontinued operations is adequate at this time. If these
estimates are inaccurate or should other unforeseen developments
occur, a future additional provision for discontinued operations
could be required.
Investors are cautioned that statements which relate to the
future are, by their nature, uncertain and dependent upon
numerous contingencies, any of which could cause actual results
and events to differ materially from those indicated in such
forward-looking statements. This is particularly true of efforts
to commercially develop new technologies, and regarding estimates
of the ultimate cost of environmental remediation, including
participation in such costs by other PRPs.
13-15
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
December 31,
1996 1995
(In thousands)
<CAPTION>
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,600 $ 1,086
Accounts receivable, net of allowance for
uncollectibles of $176 and $934 23,265 24,251
Notes receivable (Note 15) 921 1,296
Inventories (Note 4) 16,481 14,194
Net assets of discontinued
operations (Note 2) -- 923
Other current assets 751 1,322
Total current assets 43,018 43,072
Advances to and equity in joint ventures 2,093 2,466
Notes receivable (Note 15) 4,380 3,497
Other assets (Note 10) 25,066 23,205
Deferred income taxes (Note 13) 24,853 24,853
Property, plant and equipment:
Land 7,480 6,164
Mine development 9,218 9,218
Building and improvements 13,147 11,562
Machinery and equipment 208,180 198,891
238,025 225,835
Less accumulated depreciation
and amortization 112,026 109,667
Net property, plant and equipment 125,999 116,168
Total assets $225,409 $213,261
</TABLE>
See accompanying notes to consolidated financial statements.
13-16
DRAVO CORPORATION AND SUBSIDIARIES
<TABLE>
Consolidated Balance Sheets
December 31,
1996 1995
<CAPTION>
(In thousands,
except share amounts)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current portion of long-term
notes (Notes 5 and 15) $ 6,166 $ 6,099
Accounts payable - trade 14,542 17,969
Accrued insurance 1,906 1,639
Accrued retirement contribution 1,785 2,423
Net liabilities of discontinued
operations (Note 2) 6,299 --
Other current liabilities 3,843 5,177
Total current liabilities 34,541 33,307
Long-term notes (Notes 5 and 15) 63,535 64,292
Other liabilities 6,632 6,290
Net liabilities of discontinued
operations (Note 2) 6,786 9,517
Redeemable preference stock (Notes 6 and 15):
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 (Notes 6 and 12):
Preference stock, par value $1, authorized
1,878,870 shares: Series B, $2.475
cumulative, convertible, issued 20,386
and 25,386 shares (entitled in liquidation
to $1.1 million and $1.4 million); 20 25
Series D, reported above
Common stock, par value $1,
authorized 35,000,000 shares:
issued 15,096,817 and 15,055,237 shares 15,097 15,055
Other capital 63,077 60,818
Retained earnings 20,063 8,464
Treasury stock at cost;
333,168 and 347,691 common shares (4,342) (4,507)
Total shareholders' equity 93,915 79,855
Total liabilities and
shareholders' equity $225,409 $213,261
</TABLE>
See accompanying notes to consolidated financial statements.
13-17
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
Years ended December 31,
(In thousands, except per share data) 1996 1995 1994
<CAPTION>
<S> <C> <C> <C>
Revenue $158,133 $146,067 $278,052
Cost of revenue 118,165 109,541 234,018
Gross profit 39,968 36,526 44,034
Selling expenses 4,560 5,009 7,116
General and administrative expenses 16,410 16,228 22,497
Earnings from operations 18,998 15,289 14,421
Other income (expense):
Equity in earnings of joint ventures 710 572 1,672
Other income (expense) (54) 182 1,088
Interest income 900 85 754
Interest expense ( 6,426) ( 4,807) (12,408)
Net other expense ( 4,870) ( 3,968) ( 8,894)
Earnings before taxes from
continuing operations 14,128 11,32 15,527
Income tax expense (Note 13) -- 340 597
Earnings from continuing operations 14,128 10,981 4,930
Loss on discontinued operations (Note 2) -- -- 6,554
Earnings (loss) before extraordinary item
and cumulative accounting change 14,128 10,981 ( 1,624)
Extraordinary item (Note 14) -- -- ( 7,572)
Cumulative effect of accounting
change (Note 10) -- -- ( 1,361)
Net earnings (loss) 14,128 10,981 (10,557)
Preference dividends 2,529 2,535 2,544
Net earnings (loss) available
for common stock $ 11,599 $ 8,446 $ (13,101)
Weighted average shares outstanding 14,894 14,875 14,859
Primary earnings (loss) per share
Continuing operations $ 0.78 $ 0.57 $ 0.16
Discontinued operations -- -- ( 0.44)
Extraordinary item -- -- ( 0.51)
Cumulative effect of
accounting change -- -- ( 0.09)
Net earnings (loss) $ 0.78 $ 0.57 $ ( 0.88)
</TABLE>
See accompanying notes to consolidated financial statements.
13-18
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Retained Earnings
<TABLE>
Years ended December 31,
(In thousands) 1996 1995 1994
<CAPTION>
<S> <C> <C> <C>
Retained earnings at beginning of year $ 8,464 $ 18 $ 13,119
Net earnings (loss) 14,128 10,981 (10,557)
22,592 10,999 2,562
Dividends declared:
Series B preference stock 59 65 74
Series D preference stock 2,470 2,470 2,470
2,529 2,535 2,544
Retained earnings at end of year $20,063 $ 8,464 $ 18
</TABLE>
See accompanying notes to consolidated financial statements.
13-19
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
Years ended December 31,
(In thousands) 1996 1995 1994
<CAPTION>
<S> <C> <C> <C>
Cash flows from operating activities:
Earnings from continuing operations $ 14,128 $ 10,981 $ 4,930
Adjustments to reconcile earnings from
continuing operations to net cash provided
(used) by continuing operations activities:
Depreciation and amortization 10,124 9,536 17,626
Change in accounting principle -- -- (1,361)
Loss (gain) on sale of assets 54 (182) (1,088)
Equity in joint ventures 373 70 (116)
Changes in assets and liabilities, net of
effects from DBM disposition:
Decrease (increase) in accounts receivable 986 (4,113) (143)
Decrease (increase) in notes receivable (507) 568 464
Decrease (increase) in inventories (2,287) (1,556) 3,909
Decrease (increase) in other current assets 638 745 (869)
Decrease (increase) in other assets 177 (5,150) (6,302)
Increase (decrease) in accounts payable
and accrued expenses (4,522) (27,142) 7,873
Increase (decrease) in income taxes payable (502) (144) 329
Increase in other liabilities 342 390 3,178
Total adjustments 4,876 (26,978) 23,500
Net cash provided (used) by continuing
operations activities 19,004 (15,997) 28,430
Loss from discontinued operations -- -- (6,554)
Increase (decrease) in net liabilities of
discontinued operations 4,491 (13,099) (4,592)
Proceeds from repayment of notes receivable
from sale of discontinued operations -- 2,200 1,600
Net cash provided (used) by discontinued
operations activities 4,491 (10,899) (9,546)
Net cash used by extraordinary item -- -- (7,572)
Net cash provided (used) by
operating activities $ 23,495 $(26,896) $ 11,312
</TABLE>
See accompanying notes to consolidated financial statements.
13-20
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
Years ended December 31,
(In thousands) 1996 1995 1994
<CAPTION>
<S> <C> <C> <C>
Cash flows from investing activities:
Proceeds from sale of assets $ -- $ 120,867 $ 2,148
Additions to property, plant and equipment (20,009) ( 33,144) (44,757)
Other, net (1) 3 509
Net cash provided (used) by
investing activities (20,010) 87,726 (42,100)
Cash flows from financing activities:
Net borrowing under revolving
credit agreements 5,160 27,948 19,300
Principal payments under long-term notes (6,123) (85,259) (4,736)
Proceeds from issuance of long-term notes 273 185 19,945
Proceeds from issuance of common stock 248 557 42
Purchase of treasury stock -- (2,667) --
Dividends (2,529) (2,535) (2,544)
Net cash provided (used) by
financing activities (2,971) (61,771) 32,007
Net increase (decrease) in cash
and cash equivalents 514 (941) 1,219
Cash and cash equivalents at
beginning of year 1,086 2,027 808
Cash and cash equivalents at end of year $ 1,600 $ 1,086 $ 2,027
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest (net of amount capitalized) $ 6,492 $ 5,695 $ 12,408
Income taxes 502 175 (143)
</TABLE>
See accompanying notes to consolidated financial statements.
13-21
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
subsidiary is Dravo Lime Company, one of the nation's
largest lime producers. Lime is sold to electric utility
companies under long-term contracts and to the pulp and
paper, metals, chemicals, municipal and construction
markets. Three major utility companies, with whom the
company has long-term contracts, each accounted for more
than 10 percent of consolidated revenue in 1996. 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 assets and liabilities sold are
removed from the company's December 31, 1996 and 1995
consolidated balance sheets. The December 31, 1994
consolidated statement of operations and consolidated
statement of cash flows include the results of DBM for the
entire year.
Principles of Consolidation: Significant intercompany
balances and transactions have been eliminated in the
consolidation process.
Use of Estimates: The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amount of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
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. Depreciation is
computed using the straight-line method over estimated
useful lives of 10 to 30 years for buildings and 3 to 30
years for machinery and equipment. 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.
Income Taxes: 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. Future tax benefits, such as net
operating loss carryforwards, are recognized to the extent
that realization of such benefits are more likely than not.
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 1996, 1995
and 1994 and are not presented. Stock-based compensation is
accounted for using the intrinsic value approach as
prescribed by Accounting Principles Board Opinion No. 25.
13-22
Note 2: Discontinued Operations
An additional provision of $6.5 million was taken in 1994
for a previously established discontinued operations
reserve. Part of the provision was for legal fees
anticipated to pursue various lawsuits and claims, including
the Hastings insurance litigation discussed in Note 8,
Contingent Liabilities.
The company received a refund from a state taxing authority
in 1996 after filing amended tax returns based on its
current interpretation of the state tax code. The original
tax returns were filed on a separate basis and included only
the results of entities that had operations in the state.
Those entities were, for the most part, profitable and paid
income taxes. The amended tax returns were filed on a
combined basis, which included an apportionment of the
results of all the company's operations, including losses
from discontinued operations. The amended returns reported
tax losses instead of taxable income and resulted in a $1.7
million refund, which was credited to the discontinued
operations reserve.
The company received cash proceeds of $2.2 million in 1995
and $1.6 million in 1994 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>
(In thousands) 1996 1995
<CAPTION>
<S> <C> <C>
Current assets:
Accounts and retainers receivable $ 323 $ 122
Other -- 7,185
Total current assets 323 7,307
Accounts and retainers receivable -- 333
Other 309 309
Total assets $ 632 $ 7,949
Current liabilities:
Accounts and retainers payable $ 536 $ 140
Accrued loss on leases 2,304 2,240
Other 3,782 4,004
Total current liabilities 6,622 6,384
Accrued loss on leases 954 3,328
Other 6,141 6,831
Total liabilities $ 13,717 $ 16,543
Net liabilities and accrued loss
on leases of discontinued operations $(13,085) $( 8,594)
</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 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 company, DBM and AMC retained substantially all obligations
and liabilities which arose from, or in connection with,
operations prior to the sales transaction. After expenses, a net
pre-tax gain of $487,000 was recorded as other income.
The assets and liabilities sold to Martin Marietta were removed
from the company's December 31, 1994 balance sheet, and a
corresponding receivable from the sale of DBM of $120.5 million
was recorded. The December 31, 1994 consolidated statement of
operations includes the results of DBM for the entire year.
The following pro forma consolidated statement of operations
presents the results of operations assuming the disposition of
DBM 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 assumed to have been received in excess of
liabilities paid. Pro forma data is provided for comparative
purposes only and does not purport to be indicative of the
results which actually would have been obtained if the
disposition had taken place prior to the pro forma dates.
13-23
Note 3: Dispositions (continued)
<TABLE>
(In thousands, except per share data)
<CAPTION>
1996 1995 1994
Actual Actual Pro forma
(Unaudited)
<S> <C> <C> <C>
Revenue $ 158,133 $ 146,067 $ 125,661
Cost of revenue 118,165 109,541 94,859
Gross profit 39,968 36,526 30,802
Selling expenses 4,560 5,009 4,530
General and administrative expenses 16,410 16,228 12,872
Earnings from operations 18,998 15,289 13,400
Other income (expense):
Equity in earnings of joint ventures 710 572 1,115
Other income (expense) (54) 182 199
Interest income 900 85 1,727
Interest expense (6,426) (4,807) (5,717)
Net other expense (4,870) (3,968) (2,676)
Earnings before taxes from
continuing operations 14,128 11,321 10,724
Income tax expense -- 340 489
Earnings from continuing operations $ 14,128 $ 10,981 $ 10,235
Earnings per share, continuing operations $ 0.78 $ 0.57 $ 0.52
</TABLE>
Note 4: Inventories
Inventories for the respective years ended December 31 are
classified as follows:
<TABLE>
(In thousands) 1996 1995
<CAPTION>
<S> <C> <C>
Finished goods $ 2,586 $ 1,677
Materials and supplies 13,895 12,517
Net inventories $16,481 $14,194
</TABLE>
Note 5: Notes Payable
Notes payable at December 31 include the following:
<TABLE>
(In thousands)
1996 1995
<CAPTION>
<S> <C> <C>
Variable rate revolving line of credit $33,110 $27,950
11.21% notes, payable through 2002 35,828 41,800
Other notes, payable through 2005 763 641
69,701 70,391
Deduct: Current portion of notes 6,166 6,099
Total long-term notes $63,535 $64,292
</TABLE>
The variable rate revolving line of credit is a $65.0
million revolving credit/letter of credit facility with
Regions Bank of Alabama (formerly First Alabama Bank); PNC
Bank, N.A.; and Bank of America Illinois. Interest on the
revolver equals either the base lending rate of Regions
Financial Corporation, Regions Bank of Alabama's parent, or,
at the option of the company, the Eurodollar interest rate
plus 2 percent. The facility expires July 31, 1998, but
includes renewal provisions.
The company used a portion of the line of credit to finance
construction of a new kiln and related material-handling
equipment at its Maysville facility. On July 31, 1997, up
to $17.0 million borrowed under the facility may be
converted to a five-year term loan. Also on July 31, 1997,
the amount available under the revolver will be reduced from
$65.0 million to $48.0 million.
Note 5: Notes Payable (continued)
The 11.21 percent term notes require quarterly interest
payments and annual principal repayments in the amount of
$6.0 million.
Obligations under the 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 Dravo Lime Company's 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 to maintain
minimum net worth levels and fixed charge ratios on a
consolidated basis; restrict incurrence of debt, liens and
lease obligations; restrict the sale of significant assets;
and limit payment of dividends. The company may not declare
a common stock dividend if that dividend plus all other
common dividends paid after September 30, 1995, exceed 25
percent of cumulative earnings from continuing operations
after September 30, 1995. Cumulative earnings exclude gains
from the sale of capital assets, extraordinary gains and
unremitted earnings of joint ventures. At December 31,
1996, cumulative earnings since September 30, 1995 from
which dividends could be declared totaled $16.9 million. No
dividends on common stock were declared.
Assets pledged under certain notes and leases had a book
value of $141.7 million at December 31, 1996.
Amounts payable on long-term debt, excluding the variable
rate revolving line of credit, due in 1997 and thereafter
are: 1997, $6.2 million; 1998, $6.2 million; 1999, $6.1
million; 2000, $6.0 million; 2001, $6.0 million; and after
2001, $6.1 million.
13-24
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 Series D Preference 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 all accumulated and unpaid dividends.
The company had outstanding 20,386 and 25,386 shares of
cumulative, convertible Series B Preference Stock on
December 31, 1996 and 1995, 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 expense for 1996, 1995, and 1994 was $3.0
million, $3.1 million and $35.2 million, respectively. The
1994 amount includes Dravo Basic Materials rental expense.
The minimum gross rentals under non-cancelable operating
leases for these years were $12.4 million, $13.0 million and
$17.3 million, respectively. Of these amounts, $10.2
million, $10.5 million and $10.5 million in 1996, 1995 and
1994, respectively, were provided for in the discontinued
operations provision.
The minimum future rentals under non-cancelable operating
leases and future rental receipts from subleases to third
parties as of December 31, 1996 are indicated in the
following table. Of the $6.9 million net minimum payments,
$3.3 million relates to, and has been expensed as part of,
discontinued operations.
Minimum Future Rentals and Rental Receipts
<TABLE>
(In thousands)
<CAPTION>
<C> <C>
1997 $ 12,487
1998 4,193
1999 312
2000 74
2001 49
After 2001 --
Total minimum payments required 17,115
Less: Sublease rental receipts (10,203)
Net minimum payments $ 6,912
</TABLE>
A joint venture phosphate mining operation, in which the
company is a 50-percent partner, has credit available under
a bank loan agreement for equipment purchases. The company
would be required to repay the entire loan in the event of a
failure of both the joint venture and the other partner. At
December 31, 1996 and 1995, $3.1 million and $4.6 million,
respectively, was borrowed under the agreement.
At December 31, 1996 and 1995, the company had outstanding
letters of credit totaling $4.8 million and $5.0 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 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.
13-25
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.
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.
Note 8: Contingent Liabilities (continued)
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.
Other claims and assertions made against the company will be
resolved, in the opinion of management, without material
additional charges to earnings.
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 such 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.
In 1996, the company changed the date it measures plan assets and
obligations to September 30. The following table reconciles the
plans' funded status as of September 30, 1996 and December 31,
1995 to the amounts recognized in the company's balance sheets at
December 31, 1996 and 1995, respectively:
13-26
<TABLE>
1996 1995
Plans which have Plans which have Plans which have Plans which have
funded assets accumulated funded assets accumulated
in excess of benefit in excess of benefit
accumulated obligations accumulated obligations
benefit in excess of benefit in excess of
(In thousands) obligations funded assets obligations funded assets
<CAPTION>
<S> <C> <C> <C> <C>
Actuarial present
value of projected
benefit obligation:
Vested employees $157,288 $24,628 $179,649 $27,100
Non-vested employees 153 1,201 277 855
Accumulated benefit
obligation 157,441 25,829 179,926 27,955
Effect of projected
future salary increases 2,865 1,480 3,264 1,410
Total projected
benefit obligation 160,306 27,309 183,190 29,365
Plan assets including
fourth quarter
contributions 157,442 19,720 182,661 19,555
Assets less than projected
benefit obligation (2,864) (7,589) (529) (9,810)
Unamortized net
liability existing
at transition date -- 280 -- 325
Unrecognized net loss from
actuarial experience 27,275 4,622 22,450 7,187
Recognition of additional
minimum liability -- (4,093) -- (6,175)
Prepaid (accrued)
pension expense $ 24,411 $(6,780) $ 21,921 $(8,473)
</TABLE>
Note 9: Retirement Plans (continued)
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 1996, 1995 and 1994 net periodic pension expense are
as follows:
<TABLE>
Years ended December 31,
1996 1995 1994
<CAPTION>
(In thousands)
<S> <C> <C> <C>
Service cost of benefits
earned during the year $ 670 $ 470 $ 1,023
Interest cost on projected
benefit obligation 15,098 14,356 13,981
Actual (return) loss on
plan assets 2,299 (52,972) 14,570
Net amortization (deferral) (16,430) 38,446 (29,521)
Curtailment and special
termination benefits expense -- -- 921
Net pension expense for year $ 1,637 $ 300 $ 974
</TABLE>
Expected long-term rate of
return on assets used to determine
net pension expense 7.75% 9.0% 8.0%
The following assumptions were used for the valuation of the
pension obligations as of September 30, 1996 and December 31,
1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Discount rate 8.0% 7.25% 8.55%
Rate of increase in
compensation levels 5.0% 5.0% 5.0%
</TABLE>
Note 10: Postretirement and Postemployment Benefits
The company provides 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. The company participates in various Medicare
HMOs. Retirees have the option of joining a Medicare HMO or
selecting other health care plans; however, the company
contributes a fixed amount toward the cost of the coverage
regardless of the plan selected.
13-27
The company accrues for the expected cost of providing
postretirement benefits to the employee and the employee's
beneficiaries and covered dependents during the years of
employment service. Expense in 1994 included 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 8.0 percent and a health care cost trend
rate of 8.25 percent in 1997, gradually declining to 6.0 percent
in 2001. An increase in the health care cost trend rate of 1
percent would increase the APBO at September 30, 1996, by
$126,000 and the total service and interest rate components of
the 1996 postretirement benefit cost by $10,000.
Postretirement benefit cost for 1996, 1995 and 1994 includes the
following components:
Note 10: Postretirement and Postemployment Benefits (continued)
<TABLE>
(In thousands) 1996 1995 1994
<CAPTION>
<S> <C> <C> <C>
Service cost - benefits earned
during the period $ 31 $ 44 $ 105
Interest cost on accumulated
postretirement benefit obligation 1,516 2,683 2,659
Net amortization and deferral 1,192 1,705 1,789
Curtailment loss -- -- 471
Postretirement benefit cost $2,739 $4,432 $5,024
</TABLE>
In 1996, the company changed the date it measures plan
obligations to September 30. The following table reconciles the
plans' funded status as of September 30, 1996 and December 31,
1995 to the amounts recognized in the company's balance sheets at
December 31, 1996 and 1995, respectively:
<TABLE>
(In thousands) 1996 1995
<CAPTION>
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees and related beneficiaries $ 18,296 $ 21,505
Other fully eligible participants 870 1,284
Other active participants not fully eligible 854 866
Accumulated postretirement
benefit obligation: 20,020 23,655
Fourth quarter cash flow (232) --
Unrecognized transition obligation (13,520) (15,122)
Unrecognized net loss ( 4,468) ( 6,536)
Accrued postretirement
benefit liability $ 1,800 $ 1,997
</TABLE>
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.
13-28
Note 11: Stock Options, Stock Appreciation Rights and
Performance Shares
The company has awarded to executives and key employees common
stock options and stock appreciation rights (collectively,
rights) under four plans: the 1978 Plan, the 1983 Plan, the 1988
Plan and the 1994 Plan. Under the 1988 and 1994 Plans, 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 provided 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 average of the company's high and low market prices on the
grant date. Rights cannot be exercised until one year after the
grant date and expire 10 years from date of grant. 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, 1996 and 1995.
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.
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (SFAS 123) requires financial
statements for fiscal years beginning after December 15, 1995 to
estimate the fair value of stock-based compensation awarded to
employees in 1995 and thereafter. SFAS 123 allows companies to
choose between continuing to account for stock-based awards using
the intrinsic value, as prescribed by Accounting Principles Board
Opinion No. 25 (APB 25), or the fair value. The company applies
APB 25 and related Interpretations in accounting for options.
The fair value of each stock option grant awarded in 1996 and
1995 was estimated on the date of grant using the Black-Scholes
option pricing model. The weighted average fair values
determined by the model and assumptions used are presented below:
<TABLE>
1996 1995
<CAPTION>
<S> <C> <C>
Weighted average fair value $ 5.17 $ 5.08
Risk-free interest rate 6.6% 6.8%
Expected dividend yield 0% 0%
Expected option life 6.0 6.0
Expected volatility 23.96% 23.96%
</TABLE>
The table below shows the pro forma amounts for income and
earnings per share at December 31 assuming compensation expense
had been recorded at fair value:
<TABLE>
(In thousands, except per share data)
<CAPTION>
1996 1995
<S> <C> <C>
Net income
As reported $14,128 $10,981
Pro forma 13,129 9,844
Earnings per share
As reported $0.78 $0.57
Pro forma $0.71 $0.49
</TABLE>
13-29
Note 11: Stock Options, Stock Appreciation Rights and
Performance Shares (continued)
The following summary shows the changes in outstanding rights for
the last three years:
<TABLE>
Weighted
Exercise Price Average
Shares Per Share Exercise Price
<CAPTION>
<S> <C> <C> <C>
Outstanding at
January 1, 1994 1,298,950 $ 5.94 - $19.31 $12.60
Granted 12,000 $11.69 $11.69
Exercised (11,300) $ 7.94 - 11.25 $ 9.78
Expired (13,100) $11.25 $11.25
Outstanding at
December 31, 1994 1,286,550 $ 5.94 - $19.31 $12.63
Granted 417,500 $10.69 - $14.06 $12.92
Exercised ( 59,750) $ 5.94 - $11.88 $ 9.26
Forfeited (144,700) $10.25 - $19.31 $13.80
Expired ( 27,050) $14.38 $14.38
Outstanding at
December 31, 1995 1,472,550 $ 5.94 - $19.31 $12.70
Granted 63,500 $13.12 - $13.56 $13.18
Exercised (25,500) $ 5.94 - $11.88 $ 9.72
Forfeited (27,150) $10.25 - $19.31 $14.84
Outstanding at
December 31, 1996 1,483,400 $ 5.94 - $19.31 $12.74
The outstanding stock options at December 31, 1996 have an
estimated weighted average contractual life of 4.8 years.
Rights
exercisable at
December 31, 1996 1,419,900 $5.94 - $19.31 $12.72
Shares available
for future grants
at December 31,
1996 624,500
</TABLE>
Note 12: Shareholders' Equity
Components of shareholders' equity at December 31 (except
retained earnings, which is set forth in the Consolidated
Statements of Retained Earnings) are presented below:
<TABLE>
Preference Common Other Treasury
(In thousands) Stock Stock Capital Shares
<CAPTION>
<S> <C> <C> <C> <C>
Balance, January 1, 1994 $32 $14,968 $63,260 $(1,840)
Common shares issued through:
Conversion of Series B
Preference stock (12,864) (4) 13 (9)
Common stock options
exercised (5,151) 5 37
Minimum pension liability adjustment 266
Balance, December 31, 1994 $28 $14,986 $63,554 $(1,840)
Common shares issued through:
Conversion of Series B
Preference stock (9,648) (3) 9 (6)
Common stock options
exercised (59,750) 60 496
Purchase of treasury shares (228,470) (2,667)
Minimum pension liability adjustment (3,226)
Balance, December 31, 1995 $25 $15,055 $60,818 $(4,507)
Common shares issued through:
Conversion of Series B
Preference stock (16,080) (5) 16 (11)
Common stock options
exercised (25,500) 26 222
Executive incentive
compensation (9,523) (5) 113
Directors' fees (5,000) 15 52
Minimum pension liability adjustment 2,038
Balance, December 31, 1996 $20 $15,097 $63,077 $(4,342)
</TABLE>
13-30
Note 13: Income Taxes
Income before taxes and provisions for income tax expense from
continuing operations at December 31 are:
<TABLE>
(In thousands) 1996 1995 1994
<CAPTION>
<S> <C> <C> <C>
Income before taxes $14,128 $11,321 $5,527
Current federal income taxes $ -- $ -- $ 350
Deferred federal income taxes -- -- --
Current state income taxes -- 340 247
Total $ 0 $ 340 $ 597
</TABLE>
The actual income tax expense attributable to earnings from
continuing operations differed from the amounts computed by
applying the U. S. federal tax rate of 35 percent in 1996 and 34
percent in 1995 and 1994 to pretax earnings from continuing
operations as a result of the following:
<TABLE>
(In thousands) 1996 1995 1994
<CAPTION>
<S> <C> <C> <C>
Computed "expected" tax expense $ 4,945 $ 3,849 $ 1,879
Alternative minimum tax -- -- 300
Percentage depletion ( 720) ( 992) (1,880)
State income taxes, net of federal
income tax benefit -- 224 163
Other items 553 51 135
Benefit of operating
loss carryforwards (4,778) (2,792) --
Provision for income tax $ 0 $ 340 $ 597
</TABLE>
Note 13: Income Taxes (continued)
The significant components of the deferred income tax expense
(benefit) attributable to income from continuing operations for the
years ended December 31 are as follows:
<TABLE>
(In thousands) 1996 1995 1994
<CAPTION>
<S> <C> <C> <C>
Deferred tax expense (benefit)(exclusive of the
effect of other component listed below) $ 1,552 $(6,058) $ 1,340
Increase (decrease) in balance of the valuation
allowance for deferred tax assets (1,552) 6,058 (1,340)
Total $ -- $ -- $ --
</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>
1996 1995
<CAPTION>
<S> <C> <C>
Deferred tax assets:
Provision for discontinued operations $ 4,580 $ 3,008
Accounts receivable, principally due
to allowance for doubtful accounts 59 302
Inventories, principally due to additional
costs inventoried for tax purposes
pursuant to the Tax Reform Act of 1986 6 19
Compensated absences, principally due to
accrual for financial reporting purposes 500 500
Net operating loss carryforwards 62,808 67,229
Investment tax credit carryforwards 976 1,722
Other 916 1,022
Total gross deferred tax assets 69,845 73,802
Less valuation allowance (34,829) (36,381)
Net deferred tax assets 35,016 37,421
Deferred tax liabilities:
Properties and equipment, principally due
to depreciation 5,810 6,417
Pension accrual 4,353 6,151
Total gross deferred tax liabilities 10,163 12,568
Net deferred tax asset $ 24,853 $ 24,853
</TABLE>
Note 13: Income Taxes (continued)
The net change in the total valuation allowance for the years
ended December 31, 1996 and 1995 was a decrease of $1.6 million
and an increase of $6.1 million, respectively.
The company had NOLs of approximately $179.5 million at December
31, 1996, because of losses associated with discontinued
businesses. These NOLs expire as follows:
<TABLE>
(In thousands)
<CAPTION>
<C> <C>
2002 $ 1,601
2003 76,662
2004 38,856
2005 17,222
2006 6,471
2007 1,629
2008 15,031
2009 12,008
2010 9,973
</TABLE>
13-31
Tax benefits of $1.0 million for investment tax credits expiring
in 1997 and later are also being carried forward.
Current accounting standards require 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, future tax
benefits, such as NOLs, are required to be recognized to the
extent that realization of such benefits is more likely than not.
A valuation allowance is established for those benefits that do
not meet the more likely than not criteria.
Note 13: Income Taxes (continued)
In assessing the valuation allowance established at December 31,
1996 and 1995, estimates were made as to the potential financial
impact on the company should resolution of the remaining
substantive uncertainty associated with discontinued operations
substantially exceed management's estimates. The uncertainty
involves the Hastings, Nebraska, environmental matter and is
discussed more fully in Note 8, Contingent Liabilities.
Management's position is to vigorously pursue its claims against
other PRPs and to contest the 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 this matter. Also, operating profits were
lower than forecasted in 1996 primarily due to operational
difficulties and higher-than-expected expenses at Black River.
Management believes that the company will generate sufficient
future taxable income to realize the entire deferred tax asset
prior to expiration of any NOLs and that the realization of a
$24.9 million net deferred tax asset is more likely than not.
Income projections for the contract lime business are based on
historical information adjusted for contract terms. In order to
fully realize the net deferred tax asset, the company will need
to generate future taxable income of approximately $70.9 million
prior to the expiration of the NOLs.
Historically, Dravo Lime's cumulative taxable earnings for the
past five years total $61.5 million. There can be no assurance,
however, that the company will generate enough taxable income to
realize the deferred tax asset prior to the NOLs expiring.
Note 14: Extraordinary Item
In conjunction with the sale of DBMs' 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 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. Cash received from the Dravo Basic
Materials asset sale equaling the outstanding principal on the
Prudential Power Funding facility, interest through May 16, 1995
and an exit fee was placed in escrow. With Prudential Power
Funding's consent, the entire amount borrowed was prepaid. The
fees associated with these agreements were written off as an
extraordinary item in 1994.
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 is presented below:
<TABLE>
(In thousands)
<CAPTION>
1996 1995
Carrying Fair Carrying Fair
Value Value Value Value
<S> <C> <C> <C> <C>
Notes payable $69,701 $70,623 $70,391 $72,124
Series D Preference Stock 20,000 22,533 20,000 23,242
</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.
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>
(In thousands) 1996 1995 1994
<CAPTION>
<S> <C> <C> <C>
Total research and development expense $3,742 $3,558 $4,393
Billings to third parties 1,784 1,255 2,361
Net research and development expense $1,958 $2,303 $2,032
</TABLE>
13-32
Note 17: Interim Financial Information
<TABLE>
(Unaudited, in millions, First Second Third Fourth
except earnings per share) Quarter Quarter Quarter Quarter
<CAPTION>
<S> <C> <C> <C> <C>
1996
Revenue $38.2 $39.3 $40.8 $39.8
Gross profit 9.7 9.3 10.6 10.4
Earnings before taxes
from continuing operations 3.2 3.6 3.7 3.6
Provision (benefit) for income taxes 0.1 0.1 0.1 (0.3)
Net earnings 3.1 3.5 3.6 3.9
Net earnings per share 0.17 0.19 0.20 0.22
1995
Revenue $33.9 $35.7 $37.8 $38.6
Gross profit 8.7 9.5 9.5 8.8
Earnings before taxes from
continuing operations 2.7 2.9 3.1 2.6
Provision (benefit) for income taxes 0.2 0.2 0.2 (0.3)
Net earnings 2.5 2.7 2.9 2.9
Net earnings per share 0.13 0.14 0.15 0.15
</TABLE>
13-33
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 careful selection and training of
qualified personnel, and 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 Director of Internal
Auditor 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 Director of Internal Auditor 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, 1996 and
1995, 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, 1996. 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 as of December 31,
1996 and 1995, and the results of their operations and their cash
flows for each of the years in the three-year period ended
December 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in Note 10 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.
KPMG Peat Marwick LLP
Pittsburgh, Pennsylvania
January 22, 1997
13-34
Five-Year Summary
<TABLE>
Years ended December 31, 1996 1995 1994 1993 1992
<CAPTION>
($ Amounts in millions, except per share data)
<S> <C> <C> <C> <C> <C>
Summary of operations:
Revenue $158.1 $146.1 $278.1 $277.6 $273.0
Gross profit 40.0 36.5 44.0 49.3 51.7
Interest expense 6.4 4.8 12.4 9.2 10.5
Depreciation expense 10.1 9.5 17.6 18.0 18.6
Earnings before taxes
from continuing operations 14.1 11.3 5.5 10.5 12.7
Provision (benefit) for
income taxes -- 0.3 0.6 (24.6) 2.4
Earnings from continuing
operations 14.1 11.0 4.9 35.1 10.3
Loss from discontinued
operations, net of
income taxes -- -- (6.5) (35.3) --
Extraordinary item -- -- (7.5) -- 1.6
Cumulative accounting change -- -- (1.4) -- --
Net earnings (loss) 14.1 11.0 (10.5) (0.2) 11.9
Preferred dividends declared 2.5 2.5 2.5 2.6 2.6
Capital expenditures 20.0 33.1 44.8 13.6 8.5
Employees at year end 781 756 768 1,416 1,421
Summary of financial position:
Total assets $225.4 $213.3 $307.3 $272.1 $268.5
Working capital 8.5 9.8 6.3 59.5 60.1
Long-term obligations and
redeemable preference stock 83.5 84.3 62.4 108.5 108.1
Total debt and redeemable
preference stock 89.7 90.4 147.5 113.0 112.8
Property, plant and
equipment, net 126.0 116.2 93.5 110.0 114.9
Shareholders' equity 93.9 79.9 76.7 89.5 95.0
Per common share data:
Earnings from continuing
operations $ 0.78 $ 0.57 $ 0.16 $ 2.20 $ 0.52
Loss from discontinued
operations -- -- (0.44) (2.38) --
Extraordinary item -- -- (0.51) -- 0.11
Cumulative accounting change -- -- (0.09) -- --
Net earnings (loss) 0.78 0.57 (0.88) (0.18) 0.63
Book value 6.29 5.33 5.06 6.15 6.27
Shareholders at year end 2,741 2,924 3,192 3,442 3,376
Mineral resources (in millions of tons):
Proven and probable reserves
Total reserves 623.7 522.2 502.1 1,121.2 1,142.1
Tons mined 7.6 7.1 23.2 22.8 25.4
</TABLE>
13-35
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 Delaware 100
Dravo Lime Company Delaware 100
Princeton Ridge, Inc. New Jersey 100
Subsidiary of Dravo Basic Materials
Company, Inc.:
Dravo Natural Resources Company Delaware 50
Subsidiary of Dravo Lime Company:
Dravo Natural Resources Company Delaware 50
</TABLE>
21-1
Exhibit 23. Consents of Experts and Counsel
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Dravo Corporation:
We consent to incorporation by reference in registration
statements Nos. 33-23632, 2-84462, 2-64137, 33-54179, 333-01689,
333-01691 and 333-07537 on Form S-8, No. 33-17356 on Form S-3,
Amendment No. 1 to No. 2-87555 on Form S-8/S-3, and No. 2-71993
on Form S-16 amended by Form S-3 of Dravo Corporation, of our
reports dated January 22, 1997 relating to the consolidated
balance sheets of Dravo Corporation and subsidiaries as of
December 31, 1996 and 1995 and the related consolidated
statements of operations, retained earnings, and cash flows and
related schedule for each of the years in the three-year period
ended December 31, 1996 which reports appear in, or are
incorporated by reference in, the December 31, 1996 annual report
on Form 10-K of Dravo Corporation. Our reports refer to the
adoption of the methods of accounting for postemployment benefits
prescribed by Statements of Financial Accounting Standards No.
112.
/s/ KPMG PEAT MARWICK LLP
Pittsburgh, Pennsylvania
March 26, 1997
23-1
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, 1996 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 23 day of January,
1997.
/s/ ARTHUR E. BYRNES
24-1
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, 1996 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 23 day of January,
1997.
/s/ JAMES C. HUNTINGTON, JR.
24-2
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, 1996 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 23 day of January,
1997.
/s/ WILLIAM E. KASSLING
24-3
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, 1996 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 23 day of January,
1997.
/s/ WILLIAM G. ROTH
24-4
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, 1996 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 23 day of January,
1997.
/s/ KONRAD M. WEIS
24-5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DRAVO
CORPORATION'S DECEMBER 31, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1600
<SECURITIES> 0
<RECEIVABLES> 24362
<ALLOWANCES> 176
<INVENTORY> 16481
<CURRENT-ASSETS> 43018
<PP&E> 238025
<DEPRECIATION> 112026
<TOTAL-ASSETS> 225409
<CURRENT-LIABILITIES> 34541
<BONDS> 0
<COMMON> 15097
20000
20
<OTHER-SE> 78798
<TOTAL-LIABILITY-AND-EQUITY> 225409
<SALES> 158133
<TOTAL-REVENUES> 158133
<CGS> 118165
<TOTAL-COSTS> 118165
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6426
<INCOME-PRETAX> 14128
<INCOME-TAX> 0
<INCOME-CONTINUING> 14128
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<NET-INCOME> 14128
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<EPS-DILUTED> 0
</TABLE>
