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, 1997
Commission file number 1-5642
DRAVO CORPORATION
A PENNSYLVANIA CORPORATION
I.R.S. EMPLOYER IDENTIFICATION NUMBER 25-0447860
11 STANWIX STREET
PITTSBURGH, PENNSYLVANIA 15222
TELEPHONE (412) 995-5500
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, 1998: 14,713,509
Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 20, 1998: $161,848,599
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
1997 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 23, 1998 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 Transactions14
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 Registrant24 - 31
Table of Contents for documents filed herein as Exhibits
10, 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 11 Stanwix Street, Pittsburgh, Pennsylvania 15222, and its
telephone number is 412-995-5500. As used herein, the term Dravo includes its
consolidated subsidiaries unless otherwise indicated.
Dravo is 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 & 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 Cinergy Corp. - each accounted for 10
percent or more of consolidated revenue in 1997. All reserves are located on
properties physically accessible for purposes of mining and processing
limestone into lime. Liabilities associated with non-natural resource
businesses sold or disposed of in the late 1980s are presented as a component
of discontinued operations in the financial statements.
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.
With the completion of a fourth kiln at Maysville, Kentucky in 1997, annual
quicklime capacity totals approximately 3,400,000 tons.
The Maysville plant is a four kiln, 1,400,000 tons-per-year facility located
along the Ohio River and produces a material marketed under the trade name
Thiosorbic Lime. Thiosorbic Lime has a chemistry ideally suited for removing
sulfur dioxide from power plant stack gases. Most 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 four kiln operation in excess of eighty
years.
Dravo Lime's Black River facility produces Thiosorbic quicklime, high calcium
pebble and pulverized quicklime, and bulk and bagged hydrated lime. Located
along the Ohio River at Butler, Kentucky, Black River has an annual quicklime
capacity of 1,400,000 tons-per-year. Of that total, forty 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 current
capacity, reserves are considered adequate to sustain production levels for
more than seventy years.
-3-
Item 1. Business (continued)
The company's Longview facility, located near Birmingham, Alabama, has three
kilns that produce 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 has secured the necessary permits and plans to start construction of a
fourth kiln at Longview in 1998. In early 1997, a number of land parcels
adjacent to the Longview quarry were purchased that doubled limestone reserves.
Recoverable reserves are estimated to last approximately forty-five 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.
An aggregates processing plant at the Longview facility annually produces
between 500,000 to 1,000,000 tons of aggregates. 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. A major aggregates company has the exclusive
distributorship rights for certain aggregates by-products produced by the
company.
Dravo Lime products are distributed through quicklime distribution terminals
located in Donora and Monaca, Pennsylvania; Porterfield, Ohio; Brunswick,
Georgia; and Tampa, Fort Lauderdale, Jacksonville 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 flue gas
treatment technologies give it certain competitive advantages.
Dravo's research and development expenditures were $6.5 million in 1997 and
$3.7 million in 1996. Expenditures in 1997 and 1996 included $4.2 million and
$1.0 million, respectively, related to construction of the first commercial
scale ThioClear flue gas desulfurization (FGD) system. ThioClear is a second
generation proprietary FGD technology. The system's construction costs plus
interest will be repaid to the company by the owner, AES Beaver Valley, Inc.
Research and development spending in 1998 is expected to total $2.5 million.
The company anticipates the research, much of which is being conducted jointly
with utility customers, will lower both the capital and operating costs
associated with flue gas treatment. 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
-4-
Item 1. Business (continued)
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. 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.
Dravo Corporation is a domestic natural resource business primarily involved in
the production, processing and supply of lime for environmental, metallurgical,
pulp & paper, municipal, construction and miscellaneous chemical and industrial
applications as well as the development and marketing of related environmental
technologies, products and services. Standards promulgated by the 1990 Clean
Air Act Amendments bolstered Dravo's position as the world's leading producer
of lime for FGD applications.
Further information required by this item is incorporated by reference to the
information set forth under the captions indicated below in the 1997 Annual
Report to Shareholders which accompanies this report:
Caption in Annual Report Page No.
Results of Operations 13 - 15
Note 15: Research and Development 34
Employees at Year-End 37
-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
Jacksonville, Florida Leased
Sanford, Florida Leased
Tampa, Florida Owned/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,
1997 and tons mined by Dravo Lime in 1997.
(Tons in millions)
Recoverable 1997
Reserves Production
<TABLE>
<CAPTION>
<S> <C> <C>
Underground mines 586.7 6.3
Quarries 67.8 1.4
654.5 7.7
</TABLE>
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 27 and 28 of the 1997
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, 1997.
-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 1997 Annual
Report to Shareholders which accompanies this report:
Caption in Annual Report Page No.
Common Stock Market Price 16
Shareholders at year-end 37
Dividends 16, 37
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, 1997 issued preference and common shares were 218,386
and 15,103,249, respectively and there were 397,413 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 18,386 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 25 and 26 of the 1997 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 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 37 of the 1997 Annual Report to
Shareholders which accompanies this report. Dravo has declared no common stock
dividends in the five-year period ending December 31, 1997.
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 13 through 17 of the
1997 Annual Report to Shareholders which accompanies this report, to the
information set forth under the caption Note 2: "Discontinued Operations" on
page 25, Note 3: "Dispositions" on page 25, Note 7: "Commitments" on pages 26
and 27, Note 8: "Contingent Liabilities" on pages 27 and 28 and Note 13:
"Income Taxes" on pages 33 and 34 in the Notes to Consolidated Financial
Statements of the 1997 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 18 through 35, and the
Independent Auditors' Report set forth on page 36 of the 1997 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 captions
"Nominees For Terms To Expire in 2001", "Directors Whose Terms Expire in 2000"
and "Directors Whose Terms Expire in 1999" in the Registrant's Proxy Statement
for the Annual Meeting of Shareholders on April 23, 1998.
The following information indicates the position and age at March 20, 1998 of
the non-director executive officers of Dravo Corporation and their business
experience during the last five years:
Earl J. Bellisario, Age 48, Senior Vice President, Chief Financial Officer and
Secretary since January, 1998; prior thereto Vice President, Chief Financial
Officer & Secretary, Vikimatic Sales Inc. from September, 1996 to January,
1998. Prior thereto, Senior Vice President and Chief Financial Officer, Acme-
Cleveland Corporation from May, 1992 to September, 1996.
John R. Major, Age 53, Senior Vice President, Chief Operating Officer since
November, 1997; prior thereto Vice President, Administration.
Richard E. Redlinger, Age 46, Vice President, Corporate Development and
Treasurer since July, 1995; prior thereto Vice President, Finance and Planning,
Dravo Lime Company.
Larry J. Walker, Age 45, Vice President and Controller since July, 1995; prior
thereto, Controller.
-13-
Item 11. Executive Compensation
Information required by this item is incorporated by reference to the
information set forth under the captions "Compensation Committee Interlocks and
Insider Participation," "Executive Officers' Compensation," "Options/SAR Grants
In Last Fiscal Year," Aggregated Option/SAR Exercises In Last Fiscal Year And
Fiscal Year-End Option/SAR Values," "Severance Arrangements," "Performance
Graph" and "Executive Benefit Plan" in the Registrant's Proxy Statement for the
Annual Meeting of Shareholders on April 23, 1998.
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 "Beneficial Security Ownership Of
Directors And Executive Officers" and "Stock Ownership Of Certain Beneficial
Owners" in the Registrant's Proxy Statement for the Annual Meeting of
Shareholders on April 23, 1998.
Item 13. Certain Relationships and Related Transactions
Not applicable.
-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 1997 Annual Report to Shareholders which accompanies
this report.
Description Page No.
Consolidated Balance Sheets at December 31, 1997 and 1996 18, 19
Consolidated Statements of Earnings for the years ended
December 31, 1997, 1996 and 1995 20
Consolidated Statements of Retained Earnings for the years
ended December 31, 1997, 1996 and 1995 21
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 22, 23
Notes to Consolidated Financial Statements 24 - 35
Independent Auditors' Report 36
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
Registrant 24-31
Schedules other than those listed above have been omitted because they
are either not applicable, immaterial or 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
American National Trust & Savings Association (successor by
merger to 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) First Amendment 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 Fourth Amendment (see note below) 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: The Fourth Amendment to the Amended and Restated
Revolving Credit Agreement was originally incorrectly
designated as the Fifth Amendment. The numbering error was
corrected in the Sixth Amendment dated July 31, 1997.)
(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
Fifth Amendment (see note below) to the Amended and Restated
Revolving Credit Agreement dated January 21, 1992 is
incorporated by reference to Exhibit 4(xviii) of the
December 31, 1996 Form 10-K of the Registrant. (Note: The
Fifth Amendment to the Amended and Restated Revolving Credit
Agreement was originally incorrectly designated as the Sixth
Amendment. The numbering error was corrected in the Sixth
Amendment dated July 31, 1997.)
(xix) Amendment Agreement dated July 27, 1997 encompassing the
Seventh Amendment to the Override Agreement dated January
21, 1992 and the Sixth Amendment to the Amended and Restated
Revolving Credit Agreement dated January 21, 1992 is
incorporated by reference to Exhibit 4(i) of the September
30, 1997 Form 10-Q of the Registrant.
-19-
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(continued)
(10) Material Contracts
(All of the following, except item 10 (ix), are Management
Contracts or Compensatory Plans or Arrangements required to be
filed as an Exhibit to this Form 10-K.)
(i) Dravo Corporation Executive Death and Disability Income
Executive Benefits Plan (now Executive Benefit Plan),
approved by the Board of Directors on October 23, 1980,
incorporated by reference to Exhibit 10 (i) of the December
31, 1980 Form 10-K of the Registrant, and amendment thereto
dated July 1, 1984, incorporated by reference to Exhibit 10
(i) of the December 31, 1984 Form 10-K of the Registrant.
(ii) Dravo Corporation Stock Option Plan of 1978, as amended,
incorporated by reference to Exhibit 10 (vi) of the December
31, 1982 Form 10-K of the Registrant.
(iii) Dravo Corporation Long-Term Incentive Award Plan of 1983, as
amended, incorporated by reference to Exhibit 10 (iv) of the
December 31, 1987 Form 10-K of the Registrant.
(iv) Dravo Corporation 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) 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)
(x) Identical agreements dated September 15, 1997 between Dravo
Corporation and Carl A. Gilbert, Marshall S. Johnson, John
R. Major, James J. Puhala and Donald H. Stowe, Jr. are
incorporated by reference to Exhibit 10(i) of the September
30, 1997 Form 10-Q of the Registrant.
(xi) Agreement dated January 30, 1998 between Dravo Corporation
and Earl J. Bellisario is filed herein under separate cover.
(11) Statement Re Computation of Per Share Earnings filed under
separate cover.
(13) 1997 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 informational
purposes 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, 1997.
-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 27, 1998 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 27, 1998
/s/ EARL J. BELLISARIO Senior Vice President,
Earl J. Bellisario Chief Financial Officer March 27, 1998
and Secretary
/s/ LARRY J. WALKER Vice President and
Larry J. Walker Controller March 27, 1998
*ARTHUR E. BYRNES Director March 27, 1998
Arthur E. Byrnes
*JAMES C. HUNTINGTON, JR. Director March 27, 1998
James C. Huntington, Jr.
*WILLIAM E. KASSLING Director March 27, 1998
William E. Kassling
*PETER T. KROSS Director March 27, 1998
Peter T. Kross
*WILLIAM G. ROTH Director March 27, 1998
William G. Roth
*KONRAD M. WEIS Director March 27, 1998
Konrad M. Weis
/s/ CARL A. GILBERT
*By Carl A. Gilbert, Attorney-in-fact
-22-
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Dravo Corporation:
Under date of January 21, 1998, we reported on the consolidated balance sheets
of Dravo Corporation and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of earnings, retained earnings, and cash
flows for each of the years in the three-year period ended December 31, 1997,
as contained in the 1997 annual report to shareholders. These consolidated
financial statements and our report thereon are incorporated by reference in
the annual report on Form 10-K for the year 1997. 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 21, 1998
-23-
DRAVO CORPORATION (PARENT COMPANY)
Schedule I - Condensed Financial Information of Registrant
Balance Sheets
<TABLE>
<CAPTION>
(In thousands) December 31,
1997 1996
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 388 $ 1,390
Accounts receivable 883 517
Current income tax benefit
from affiliates 3,999 6,104
Other current assets 306 183
Total current assets 5,576 8,194
Due from affiliates 21,387 23,094
Investments in affiliates 60,733 52,525
Deferred income tax benefit 34,654 29,718
Other assets 26,381 23,561
Property, plant and equipment 123 123
Less accumulated depreciation
and amortization 123 123
Net property, plant and equipment -- --
Total assets $148,731 $137,092
</TABLE>
See accompanying notes to financial statements.
-25-
DRAVO CORPORATION (PARENT COMPANY)
Schedule 1 - Condensed Financial Information of Registrant
Balance Sheets
<TABLE>
<CAPTION>
(In thousands) December 31,
1997 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable-trade $ 853 $ 1,038
Accrued retirement contribution -- 1,785
Net liabilities of discontinued operations3,613 6,299
Redeemable preference stock 5,000 --
Other current liabilities 812 637
Total current liabilities 10,278 9,759
Net liabilities of discontinued operations 5,401 6,786
Other liabilities 8,386 6,632
Redeemable preference stock:
Par value $1, issued 200,000 shares: Series D,
cumulative, convertible, exchangeable
(entitled in liquidation to $20.0 million)15,000 20,000
Shareholders' equity:
Preference stock, par value $1, authorized
1,878,870 shares: Series B, $2.475 cumulative,
convertible, issued 18,386 and 20,386 shares
(entitled in liquidation to $1.0 million
and $1.1 million, respectively); 18 20
Series D, reported above
Common stock, par value $1, authorized 35,000,000
shares; issued 15,103,249 and 15,096,817
shares 15,103 15,097
Other shareholders' equity 94,545 78,798
Total shareholders' equity 109,666 93,915
Total liabilities and
shareholders' equity $148,731 $137,092
</TABLE>
See accompanying notes to financial statements.
-25-
DRAVO CORPORATION (PARENT COMPANY)
Schedule I - Condensed Financial Information of Registrant
Statements of Operations
<TABLE>
<CAPTION>
Years ended December 31,
(In thousands) 1997 1996 1995
<S> <C> <C> <C>
General and administrative
expenses $ (464) $ (709) $ (961)
Other expense -- (4) --
Interest expense (98) -- (9)
Interest income -- 10 --
Loss before taxes
and affiliate earnings (562) (703) (970)
Income tax benefit 7,470 4,142 2,038
Earnings before affiliate earnings 6,908 3,439 1,068
Equity in affiliate earnings 8,208 10,689 9,913
Net earnings $15,116 $14,128 $10,981
</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,
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $15,116 $ 14,128 $ 10,981
Adjustments to reconcile net earnings
to net cash provided (used) by
continuing operations activities:
Depreciation and amortization -- 4 6
Loss on disposal of assets -- 4 --
Equity in earnings of affiliates (8,208) (10,689) (9,913)
Changes in assets and liabilities:
Decrease (increase) in accounts
receivable (366) 362 726
Decrease (increase) in current income
tax benefits 2,105 (1,381) (2,783)
Decrease (increase) in other current
assets (61) 318 1,151
Decrease (increase) in other assets 938 (1,991) (3,517)
Decrease (increase) in deferred
income taxes (4,936) (2,995) 9,689
Decrease in accounts payable
and accrued expenses (1,734) (1,062) (1,404)
Increase in other liabilities 1,754 342 390
Net cash provided (used) by continuing
operations activities 4,608 (2,960) 5,326
Increase (decrease) in net liabilities of
discontinued operations (4,071) 4,491 (13,099)
Proceeds from repayment of notes receivable
from sale of discontinued operations -- -- 2,200
Net cash provided (used) by discontinued
operations activities (4,071) 4,491 (10,899)
Net cash provided (used) by operating
activities $ 537 $ 1,531 $(5,573)
</TABLE>
See accompanying notes to financial statements.
-27-
DRAVO CORPORATION (PARENT COMPANY)
Schedule I - Condensed Financial Information of Registrant
Statements of Cash Flows
<TABLE>
<CAPTION>
(In thousands) Years ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Cash flows from investing activities:
Increase (decrease) in advances from
subsidiaries $1,707 $(98,140) $(77,757)
Dividends received from affiliates -- 100,000 88,000
Other, net -- 1 --
Net cash provided by investing
activities 1,707 1,861 10,243
Cash flows from financing activities:
Proceeds from issuance of common stock -- 248 557
Purchase of treasury stock (729) -- (2,667)
Dividends paid (2,517) (2,529) (2,535)
Net cash used by financing activities (3,246) (2,281) (4,645)
Net increase (decrease) in cash and cash
equivalents (1,002) 1,111 25
Cash and cash equivalents at beginning
of year 1,390 279 254
Cash and cash equivalents at end of year $ 388 $ 1,390 $ 279
</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 14, and 16 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 1997, 1996 or 1995. The
minimum future rentals under noncancelable operating leases and minimum future
rental receipts from subleases to third parties as of December 31, 1997 are
indicated in the table below. All of the $1.0 million net minimum payments
were previously expensed in connection with discontinued operations.
<TABLE>
<CAPTION>
(In thousands)
<C> <C>
1998 $3,631
1999 --
2000 --
2001 --
2002 --
After 2002 --
Total minimum payments required3,631
Less: Minimum sublease rental
receipts (2,582)
Net minimum payments $1,049
</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 for the years ended December 31 are
comprised of the following:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
<S> <C> <C> <C>
Benefit to offset tax liabilities
of subsidiaries $ 2,534 $ 1,147 $ 11,727
Change in net deferred tax asset 4,936 2,995 (9,689)
$ 7,470 $ 4,142 $ 2,038
</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>
<CAPTION>
(In thousands)
<S> <C> <C>
1997 1996
Deferred tax assets:
Provision for discontinued operations $ 3,066 $ 4,580
Net operating loss carryforwards 59,024 62,808
Investment tax credit carryforwards 666 791
Alternative minimum tax credit 750 350
Other 3,553 371
Total gross deferred tax assets 67,059 68,900
Less valuation allowance 23,435 34,829
Net deferred tax assets after
valuation allowance 43,624 34,071
Deferred tax liabilities:
Pension accrual 8,970 4,353
Total gross deferred tax liabilities 8,970 4,353
Net deferred tax asset $34,654 $29,718
</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 $98 million prior to the expiration of its net
operating loss carryforwards. The company's cumulative taxable earnings for
the past two years total $22.3 million.
-30-
Note 3: Dividends
Cash dividends paid to the Registrant for the respective years ended December
31:
<TABLE>
<CAPTION>
(In thousands)
1997 1996 1995
<S> <C> <C> <C>
Consolidated affiliates $ -- $100,000 $ 88,000
50 percent or less owned companies
accounted for by the equity method 647 1,090 916
</TABLE>
-31-
EXHIBITS
Table of Contents
Exhibit (Exhibit No.) Page No.
10. Material Contracts
(xi) Agreement dated January 30, 1998
between Dravo Corporation and Earl J.
Bellisario is filed herein under separate
cover. (10)(xi) 1-5
11. Statement RE Computation of Per Share Earnings (11) 1
13. 1997 Annual Report (13) 13-37
21. Subsidiaries of the Registrant (21) 1
23. Consent of Experts and Counsel (23) 1
24. Powers of Attorney. Identical documents were signed
by Arthur E. Byrnes, James C. Huntington, Jr.,
William E. Kassling, Peter T. Kross,
William G. Roth and Konrad M. Weis. (24) 1
27. Financial Data Schedule (EDGAR filing only) (27) 1
-32-
Exhibit 11. Statement Re Computation of Per Share Earnings
<TABLE>
<CAPTION>
($ in thousands, except per share amounts)
Years ended December 31,
<S> <C> <C> <C>
1997 1996 1995
Basic earnings per share:
Net earnings $15,116 $14,128 $10,981
Deduct dividends on
preferred stock 2,517 2,529 2,535
Net earnings applicable to
common stock $12,599 $11,599 $ 8,446
Shares:
Weighted average number of common
shares outstanding 14,768 14,734 14,756
Basic earnings per share $ 0.85 $ 0.79 $ 0.57
Diluted earnings per share:
Net earnings applicable to
common stock $ 12,599 $ 11,599 $ 8,446
Shares:
Weighted average number of common
shares outstanding 14,768 14,734 14,756
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) 67 160 119
Weighted average number of shares
outstanding, as adjusted 14,835 14,894 14,875
Diluted earnings per share $ 0.85 $ 0.78 $ 0.57
</TABLE>
11-1
FINANCIAL REVIEW
OVERVIEW
Revenue and gross profit in 1997 exceeded 1996 levels as did net earnings. The
net earnings improvement resulted from recording a tax benefit for tax net
operating loss carryforwards. Mitigating this benefit were a major flood in
the first quarter that disrupted shipments for an extended period and stopped
the company from loading and its customers from unloading barges, overhead
charges in the fourth quarter for severance costs associated with reducing
executive staff size, expenses for an operations and financial review, and
investment banking fees.
Net earnings for the year were $15.1 million, or $0.85 per diluted share,
compared to $14.1 million, or $0.78 per diluted share, in 1996. The tax
benefit improved 1997's earnings per share by approximately $0.32 while the
overhead charges reduced earnings per share by approximately $0.13. Earnings
for 1995 were $11.0 million, or $0.57 per diluted share.
During 1997, Dravo completed three major capital projects that position the
company for future growth. Early in the year, 27 million tons of high-calcium
reserves were acquired adjacent to the Longview plant in northern Alabama. In
midyear, a new kiln at the Maysville plant in northern Kentucky started
producing utility grade lime with annual capacity of 350,000 tons. A major
refurbishing of an existing kiln at the Black River plant, also located in
northern Kentucky, was completed near year-end. Production from the
refurbished kiln will primarily supply the non-utility lime markets.
RESULTS OF OPERATIONS
CONTINUING OPERATIONS
Revenue: Revenue of $162.5 million was $4.3 million higher than in 1996. Most
of the increase was due to strong commercial market lime demand in the
southeastern United States. Demand for precipitated calcium carbonate, a
product derived from lime and used by the pulp & paper industry, was
particularly strong. Utility lime sales were negatively affected by a
lightning strike that severely damaged equipment at a major customer's
generating station and impacted lime deliveries for several months.
Revenue in 1996 was $12.1 million higher than 1995. As in 1997, much of the
increase was attributable to higher sales in the southeast market region.
Strong commercial demand, augmented by the sale of brokered lime
13-13
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 aggregate byproducts. 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 over-scrubbing due
to a drop in the value of sulfur dioxide (SO2) emission allowances.
Costs and Expenses: Gross profit of $40.8 million was up $867,000 from 1996
while 1996 was up $3.4 million over 1995. Gross profit margins in all three
years were maintained at the 25 percent level despite less demand from
utilities in 1997 and 1996 than required to maximize production and fully
utilize the company's new utility lime kilns. Gross profit and margins were
also suppressed by the need to purchase commercial-grade lime in the southeast
region as demand surpassed production capacity.
Selling expenses were $5.1 million, $4.6 million and $5.0 million in 1997, 1996
and 1995, respectively. Part of the increase in 1997 was for marketing of
Sorbalit technology, a system for acid gas and air toxins removal for which
the company is the exclusive North America licensee, and development costs for
a proprietary nitrous oxide removal process. Selling expenses vary 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 15, Research and Development, in the Notes to Consolidated Financial
Statements.
General and administrative expenses were $2.3 million higher in 1997 than 1996.
The increase was principally due to an accrual for severance costs associated
with reducing executive staff size, consulting fees for an operations and
financial review and expenses related to an investment banking review to
explore merger and acquisition opportunities. General and administrative
expenses were essentially unchanged in 1996 versus 1995. 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.
Equity in earnings of joint ventures includes the company's share in three
50-percent owned joint ventures: a contract phosphate rock mining operation in
Idaho, a small contract coke operation in Wyoming, and an activated carbon
production plant in New York. 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 1997 compared
to 1996 due to strong phosphate demand; however, a loss of $130,000 was
recorded on the activated carbon venture that started operations in late 1997.
Joint venture earnings were higher in 1996 than 1995 due to strong phosphate
demand and a return to more normal maintenance expense.
Other income (expense) includes the gain or loss on the disposal of property,
plant and equipment. In 1997, 1996 and 1995, the amounts were insignificant.
Interest income of $235,000 was $665,000 lower than in 1996. Last year's
amount included interest on a refund received from a state taxing authority
after the company filed amended tax returns based on a revised interpretation
of the state tax code.
Interest expense in 1997 was $7.0 million, $599,000 more than 1996, due to
higher debt levels. Capital expenditures totaled $27.2 million and were
partially funded by debt. Debt increased $14.4 million from year-end 1996 to
year-end 1997. In 1996, interest expense increased $1.6 million from 1995,
also because of higher debt levels. The proceeds from the sale of the assets
of Dravo Basic Materials (DBM), the company's construction aggregates
operation, 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
a $60 million expansion project at Black River.
13-14
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 tax net operating loss carryforwards (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. The company had NOLs of
approximately $173 million at December 31, 1997. Management continually
evaluates the recorded deferred tax valuation allowance and believes that, due
to the large portion of revenue generated by long-term supply contracts and
taxable income generated by the company since it started operating solely as a
lime company three years ago, 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. As a result, the company
reduced its valuation allowance in 1997 and recorded a net tax benefit of $4.1
million. The amount of the net deferred tax asset, $30 million, reflects that
portion of the gross deferred tax asset that management believes, based on
current income projections and tax preference item estimates, is more likely
than not will be realized.
The company's effective tax rate in the future will be partially determined by
the amount actual taxable income differs from the taxable income level assumed
in determining the net tax asset. The company anticipates an effective tax
rate in 1998 of approximately 20 percent. The effective tax rate is used for
financial reporting purposes only and will not affect actual taxes paid, which
will remain low due to NOL utilization.
The company's income tax expense was zero in 1996 because of 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.
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
Discontinued operations had a net cash outlay of $4.1 million in 1997 for
non-cancelable leases, environmental, insurance, legal and other matters, all
of
which were covered by a previously established reserve. In 1996, the company
collected a $7.3 million judgment and interest awarded by a Georgia court
related to a contract dispute with a discontinued engineering subsidiary's
subcontractor. 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 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 in 1996. The
amended returns also generated a state tax NOL that can be used to shelter
future taxable income.
FINANCIAL POSITION AND LIQUIDITY
Working capital at year-end 1997 was $3.9 million, down $4.6 million from
December 31, 1996. In July 1997, the company converted $17.0 million of
revolver debt, classified as long-term at year-end 1996, to a 5-year term note
with quarterly principal payments of $850,000. In addition, $5.0 million of
Series D Preference Stock is scheduled to be redeemed on October 1, 1998 and is
now classified as a current liability. Long-term debt borrowed under the
company's revolving credit/letter of credit facility increased primarily due to
capital expenditures.
13-15
A $53.0 million revolving credit/letter of credit facility is provided by a
consortium of lenders that includes Regions Bank of Alabama; 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, 1999, but includes renewal provisions.
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.
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 the revolving credit agreement. The company
has sufficient funds and borrowing capacity to meet its anticipated operating
and normal capital needs. A portion of a planned major expansion at Longview
for a new kiln and ancillary equipment will require additional outside funding.
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 expected cash payments 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 December 31, 1995 exceeds
$5.0 million plus 25 percent of net earnings available for common stock after
December 31, 1995 less cumulative stock buy-backs after December 31, 1995. Net
earnings exclude gains from the sale of capital assets, extraordinary gains and
unremitted earnings of joint ventures. At December 31, 1997, assuming no other
financial or debt covenant restrictions, common stock dividends were limited to
$9.0 million. No dividends on common stock were declared. Annual dividends on
the $12.35 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.
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 1997 and 1996 as reported for New York
Stock Exchange composite transactions were:
<TABLE>
1997 1996
<CAPTION>
Quarter High Low High Low
<S> <C> <C> <C> <C>
First 14 1/8 10 1/8 13 3/4 11 1/4
Second 11 3/4 8 3/4 14 7/8 12 3/4
Third 11 15/16 10 14 5/8 12
Fourth 12 9/16 9 1/2 15 3/4 12 1/2
</TABLE>
OUTLOOK
Continuing operations: Dravo is highly leveraged, both operationally and
financially. Operationally, maximizing output is critical while operating
production facilities as efficiently as possible. To reach that goal,
additional business must be booked that will fully utilize existing utility
lime production capacity at the Maysville and Black River plants. A
broad-based marketing program is aimed at making all coal-fired power plants in
the market area served by the two northern Kentucky plants aware of the
advantages of lime-based scrubbing.
13-16
Marketing efforts are directed at convincing
potential customers that converting to a lime-based flue gas desulfurization
(FGD) system is more economical than either burning low-sulfur coal or using a
limestone or sodium-based FGD system to scrub stack gas emissions. And
companies currently using lime-based FGD systems are being apprised of the
reduction in scrubbing costs they will experience by converting to the
company's proprietary Thioclear process.
Since the late 1980s, the pulp & paper industry has significantly increased its
consumption of lime. Lime is a raw material used in the production of
precipitated calcium carbonate (PCC), an alkaline-based filler material used to
produce white paper. The company recently renewed for 10 years a supply
contract with a major precipitated calcium carbonate producer. Under the
contract, the company will provide lime to PCC production plants throughout the
southeast. This long-term supply agreement will provide the underpinning for
adding a new 300,000-ton-per-year kiln and ancillary equipment at the company's
Longview plant located near Birmingham, AL.
Financially, the company's goal is to reduce its overall debt level. While
significant parts of the major expansions completed at Black River and
Maysville over the last four years were funded from operational cash flow, a
portion was funded with debt. Debt and preferred stock issued in the late
1980s during the company's exit from various discontinued operations carry high
interest and dividend rates. A management goal is to reduce this high cost debt
as quickly as possible, either by making the required scheduled principal
payments and mandatory preferred stock redemptions, or through a debt
restructuring with less onerous interest rates.
Various financial and process control software is used to manage and operate
business operations. The company is addressing the year 2000 software
compatibility issue and has already replaced numerous financial systems with
year 2000 compliant software. While this issue will require significant time
and effort, the expense is not expected to be material.
In 1997, the company conducted an investment banking review of strategic
alternatives for accelerating growth that included merger, acquisition or other
opportunities advantageous to the interest of the company's shareholders. As
previously reported, the review did not produce a transaction. The company is
pursuing its long-term plan of internal expansion, development of new
businesses based on proprietary technologies and selective merger and/or
acquisition opportunities.
In June 1997 Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130) was issued effective for fiscal years
beginning after December 15, 1997. SFAS 130 requires the reporting by major
component and as a single total the change in equity during the period from
nonowner sources, such as minimum pension liability adjustments. Adoption of
SFAS 130 will not impact the company's consolidated balance sheet, statement of
earnings or cash flows, and any effect will be limited to the form and content
of its disclosure.
Discontinued operations: The company formerly operated a metal fabrication
facility in Hastings, Nebraska. The federal Environmental Protection Agency
(EPA) has notified the company it believes the company is a potentially
responsible party (PRP) for the cleanup of soil and groundwater contamination
at four Hastings area sub-sites. In January 1997, the company reached a
monetary settlement with the EPA regarding one sub-site 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 cleanup 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.
Forward-looking statements: 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 forecasting income levels, cash flows, the success
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.
13-17
<TABLE>
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
<CAPTION>
December 31,
1997 1996
(In thousands)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,477 $ 1,600
Accounts receivable, net of allowance for
uncollectibles of $612 and $176 24,995 23,265
Notes receivable (Note 14) 769 921
Inventories (Note 4) 17,434 16,481
Other current assets 980 751
Total current assets 45,655 43,018
Advances to and equity in joint ventures 2,450 2,093
Notes receivable (Note 14) 6,873 4,380
Other assets (Note 9) 27,627 25,066
Deferred income taxes (Note 13) 29,976 24,853
Property, plant and equipment:
Land 16,871 7,480
Mine development 9,286 9,218
Building and improvements 17,699 13,147
Machinery and equipment 220,070 208,180
263,926 238,025
Less accumulated depreciation and amortization 121,277 112,026
Net property, plant and equipment 142,649 125,999
Total assets $255,230 $225,409
</TABLE>
See accompanying notes to consolidated financial statements.
13-18
<TABLE>
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
<CAPTION>
December 31,
1997 1996
(In thousands,
except share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current portion of long-term notes (Notes 5 and 14)$ 9,736 $ 6,166
Accounts payable - trade 17,546 14,542
Accrued insurance 1,482 1,906
Accrued retirement contribution -- 1,785
Net liabilities of discontinued operations (Note 2) 3,613 6,299
Redeemable preference stock (Notes 6 and 14) 5,000 --
Other current liabilities 4,368 3,843
Total current liabilities 41,745 34,541
Long-term notes (Notes 5 and 14) 74,396 63,535
Other liabilities 9,022 6,632
Net liabilities of discontinued operations (Note 2) 5,401 6,786
Redeemable preference stock (Notes 6 and 14):
Par value $1, issued 200,000 shares: Series D,
$12.35 cumulative, convertible, exchangeable
(entitled in liquidation to $20.0 million) 15,000 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 18,386 and 20,386 shares
(entitled in liquidation to $1.0 million and
$1.1 million, respectively); Series D,
reported above 18 20
Common stock, par value $1, authorized 35,000,000
shares: issued 15,103,249 and 15,096,817 shares 15,103 15,097
Other capital 66,819 63,077
Retained earnings 32,662 20,063
Treasury stock at cost;
397,413 and 333,168 common shares (4,936) (4,342)
Total shareholders' equity 109,666 93,915
Total liabilities and shareholders' equity $255,230 $225,409
</TABLE>
See accompanying notes to consolidated financial statements.
13-19
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
<TABLE>
<CAPTION>
Years ended December 31,
(In thousands, except per share data) 1997 1996 1995
<S> <C> <C> <C>
Revenue $162,476 $158,133 $146,067
Cost of revenue 121,641 118,165 109,541
Gross profit 40,835 39,968 36,526
Selling expenses 5,147 4,560 5,009
General and administrative expenses 18,717 16,410 16,228
Earnings from operations 16,971 18,998 15,289
Other income (expense):
Equity in earnings of joint ventures 740 710 572
Other income (expense) 122 (54) 182
Interest income 235 900 85
Interest expense ( 7,025) ( 6,426) (4,807)
Net other expense ( 5,928) ( 4,870) (3,968)
Earnings before taxes 11,043 14,128 11,321
Income tax expense (benefit) (Note 13) (4,073) -- 340
Net earnings 15,116 14,128 10,981
Preference dividends 2,517 2,529 2,535
Net earnings available for common stock $ 12,599 $ 11,599 $ 8,446
Weighted average shares outstanding:
Basic 14,768 14,734 14,756
Diluted 14,835 14,894 14,875
Earnings per share:
Basic $ 0.85 $ 0.79 $ 0.57
Diluted $ 0.85 $ 0.78 $ 0.57
</TABLE>
See accompanying notes to consolidated financial statements.
13-20
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Retained Earnings
<TABLE>
<CAPTION>
Years ended December 31,
(In thousands) 1997 1996 1995
<S> <C> <C> <C>
Retained earnings at beginning of year $20,063 $ 8,464 $ 18
Net earnings 15,116 14,128 10,981
35,179 22,592 10,999
Dividends declared:
Series B preference stock 47 59 65
Series D preference stock 2,470 2,470 2,470
2,517 2,529 2,535
Retained earnings at end of year $32,662 $20,063 $ 8,464
</TABLE>
See accompanying notes to consolidated financial statements.
13-21
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31,
(In thousands) 1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 15,116 $ 14,128 $10,981
Adjustments to reconcile net earnings
to net cash provided (used) by
continuing operations activities:
Depreciation and amortization 10,506 10,124 9,536
Increase in deferred income taxes (5,123) -- --
Loss (gain) on sale of assets (122) 54 (182)
Equity in joint ventures (357) 373 70
Changes in assets and liabilities, net of
effects from DBM disposition:
Decrease (increase) in accounts receivable (1,730) 986 (4,113)
Decrease (increase) in notes receivable (2,341) (507) 568
Increase in inventories (953) (2,287)(1,556)
Decrease (increase) in other current assets (167) 638 745
Decrease (increase) in other assets 1,197 177 (5,150)
Increase (decrease) in accounts payable
and accrued expenses 1,016 (4,522)(27,142)
Increase (decrease) in income taxes payable 365 (502) (144)
Increase in other liabilities 2,390 342 390
Total adjustments 4,681 4,876 (26,978)
Net cash provided (used) by continuing
operations activities 19,797 19,004 (15,997)
Increase (decrease) in net liabilities of
discontinued operations (4,071) 4,491 (13,099)
Proceeds from repayment of notes receivable
from sale of discontinued operations -- -- 2,200
Net cash provided (used) by discontinued
operations activities (4,071) 4,491 (10,899)
Net cash provided (used) by
operating activities $ 15,726 $ 23,495 $(26,896)
</TABLE>
See accompanying notes to consolidated financial statements.
13-22
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31,
(In thousands) 1997 1996 1995
<S> <C> <C> <C>
Cash flows from investing activities:
Proceeds from sale of assets $ 195 $ -- $120,867
Additions to property, plant and equipment (27,229) (20,009) (33,144)
Other, net -- (1) 3
Net cash provided (used) by
investing activities (27,034) (20,010) 87,726
Cash flows from financing activities:
Net borrowing under revolving
credit agreements 2,990 5,160 27,948
Principal payments under long-term notes (7,222) (6,123) (85,259)
Proceeds from issuance of long-term notes 18,663 273 185
Proceeds from issuance of common stock -- 248 557
Purchase of treasury stock (729) -- (2,667)
Dividends (2,517) (2,529) (2,535)
Net cash provided (used) by
financing activities 11,185 (2,971) (61,771)
Net increase (decrease) in cash
and cash equivalents (123) 514 (941)
Cash and cash equivalents at beginning of year 1,600 1,086 2,027
Cash and cash equivalents at end of year $ 1,477 $ 1,600 $ 1,086
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 6,812 $ 6,492 $ 5,695
Income taxes 706 502 175
</TABLE>
See accompanying notes to consolidated financial statements.
13-23
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 & 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 1997. 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 December 31, 1995
consolidated statement of cash flows includes cash received from the DBM
transaction and the payment of retained obligations, primarily accounts payable.
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 that 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: In December 1997, the company adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). SFAS
128 requires the presentation of basic and diluted earnings per share on
financial statements issued for periods ending after December 15, 1997. SFAS
128 also requires restatement of all prior-period earnings per share data
presented. Basic earnings per share is based on net earnings less preference
dividends declared in the year (net earnings available to common stock),
divided by the weighted average sum of common shares outstanding during the
year. Diluted earnings per share is based on net earnings available to common
stock, divided by the sum of the weighted average number of common shares
outstanding during the year and common share equivalents, unless inclusion of
common share equivalents would be anti-dilutive. Common share equivalents are
calculated using the treasury stock method.
Stock-based compensation: Stock-based compensation is accounted for using the
intrinsic value approach as prescribed by Accounting Principles Board Opinion
No. 25.
Environmental Costs: Liabilities are recorded when environmental assessments
or remedial efforts are probable and the costs can be reasonably estimated.
Such estimates are adjusted, if necessary, as new remediation requirements are
defined or as more information becomes available.
13-24
Note 2: Discontinued Operations
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 various
discontinued businesses and are presented below:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
<S> <C> <C>
Current assets:
Accounts and retainers receivable $ 209 $ 323
Total current assets 209 323
Other -- 309
Total assets $ 209 $ 632
Current liabilities:
Accounts and retainers payable $ 135 $ 536
Accrued loss on leases 1,026 2,304
Environmental 981 1,855
Other 1,680 1,927
Total current liabilities 3,822 6,622
Accrued loss on leases -- 954
Environmental 1,286 423
Other 4,115 5,718
Total liabilities $ 9,223 $ 13,717
Net liabilities and accrued loss
on leases of discontinued operations $ 9,014 $13,085
</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 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 receivable was collected
and a majority of the obligations were paid in 1995 as reflected in the
statement of cash flows.
Note 4: Inventories
Inventories for the respective years ended December 31 are classified as
follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
<S> <C> <C>
Finished goods $ 2,819 $ 2,586
Materials and supplies 14,615 13,895
Net inventories $17,434 $16,481
</TABLE>
Note 5: Notes Payable
Notes payable at December 31 include the following:
<TABLE>
<CAPTION>
(In thousands)
1997 1996
<S> <C> <C>
Variable rate revolving line of credit $36,100 $33,110
11.21% notes, payable through 2002 29,856 35,828
Variable rate term note, payable through 2002 16,150 --
Other notes, payable through 2007 2,026 763
84,132 69,701
Deduct: Current portion of notes 9,736 6,166
Total long-term notes $74,396 $63,535
</TABLE>
The variable rate revolving line of credit is a $53.0 million revolving
credit/letter of credit facility with Regions Bank of Alabama; 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, 1999, but includes renewal provisions.
The 11.21 percent term notes require quarterly interest payments and annual
principal repayments in the amount of $6.0 million.
13-25
In 1997, the company converted $17.0 million borrowed under the line of credit
to a 5-year variable rate term note. Principal payments of $850,000 are paid
quarterly with interest equal to the Eurodollar rate plus 2 percent.
Obligations under the revolving credit/letter of credit facility, the 11.21
percent term notes and the variable rate term note 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. At December 31,
1997, assuming no other financial or debt covenant restrictions, common stock
dividends were limited to $9.0 million. No dividends on common stock were
declared.
Assets pledged under certain notes and leases had a book value of $150.2
million at December 31, 1997.
Amounts payable on long-term debt, excluding the variable rate revolving line
of credit, due in 1998 and thereafter are: 1998, $9.7 million; 1999, $9.7
million; 2000, $9.7 million; 2001, $9.6 million; 2002, $8.8 million; and after
2002, $0.5 million.
Note 6: Redeemable Preference Stock
The company has outstanding 200,000 shares of cumulative, convertible,
exchangeable Series D Preference Stock. Cumulative annual dividends of $12.35
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, 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, is 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 October 1, 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 18,386 and 20,386 shares of cumulative, convertible
Series B Preference Stock on December 31, 1997 and 1996, 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 1997, 1996 and 1995 was $3.3 million, $3.0 million and
$3.1 million, respectively. The minimum gross rentals under non-cancelable
operating leases for these years were $12.8 million, $12.4 million and $13.0
million, respectively. Of these amounts, $10.4 million, $10.2 million and
$10.5 million in 1997, 1996 and 1995, 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, 1997 are
indicated in the following table. Of the $9.1 million net minimum payments,
$1.0 million relates to, and has been expensed as part of, discontinued
operations.
13-26
<TABLE>
<CAPTION>
Minimum Future Rentals and Rental Receipts
(In thousands)
<C> <C>
1998 $ 5,510
1999 1,859
2000 1,216
2001 658
2002 420
After 2002 2,270
Total minimum payments required 11,933
Less: Sublease rental receipts (2,834)
Net minimum payments $ 9,099
</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, 1997 and 1996, $2.1 million and $3.1 million, respectively, was
borrowed under the agreement.
Outstanding letters of credit totaled $4.8 million at December 31, 1997 and
1996.
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 cleanup 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).
Regarding the first sub-site, 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 that
resulted in a settlement among the EPA and the PRPs. Pursuant to the
settlement, the company agreed to pay 14.33 percent of the EPA's past costs and
the estimated costs of the cap and its maintenance. A Consent Decree
incorporating the settlement and requiring the private parties to pay for,
construct and maintain the cap is awaiting the approval of the United States
Justice Department and ultimately the Federal District Court. 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 and matters covered by the settlement.
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. The EPA has conducted the
remedial investigation for this sub-site. The company, along with some of the
other PRPs, including the City of Hastings, is considering a proposal from the
EPA to conduct the feasibility study. In 1997, the company and the other PRPs
at this sub-site received a demand from the EPA that they pay the EPA's
response costs at this sub-site through September 30, 1994. The company and
some of the other PRPs, including the City of Hastings, intend to examine these
costs to determine whether or not they are valid.
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.
In 1997, the company and the other PRPs at this sub-site received a demand from
the EPA that they pay the EPA's response costs at this sub-site through
September 30, 1994. The company and some of the other PRPs intend to examine
these costs to determine whether or not they are valid. 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.
13-27
The fourth sub-site is a former naval ammunition depot that 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 cleanup, the EPA is seeking a cleanup of area-wide
contamination associated with all of the sub-sites in and around Hastings. 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
completed an area-wide remedial investigation and has asked the PRPs to agree
to perform a feasibility study to determine whether institutional controls or
another remedial alternative should be undertaken. The company, along with
eight to ten other PRPs, is considering this proposal. An acceptable area-wide
remediation plan could result in interim remedies at the sub-sites becoming
final remedies. In 1997, the company and the other area-wide PRPs received a
demand from the EPA that they pay the EPA's area-wide response costs through
September 30, 1994. The company and some of the other area-wide PRPs intend to
examine these costs to determine whether or not they are valid.
On August 10, 1992, the company filed suit in the Alabama District Court
against its primary liability insurance carriers and one of its predecessor's
insurers, seeking a declaratory judgment that the company is entitled to a
defense and indemnity under its contracts of insurance (including certain
excess policies provided by one of the primary carriers) with regard to the
third Hastings sub-site. On motion of the defendant insurance carriers, the
suit was transferred to the District Court for the Western District of
Pennsylvania on October 31, 1996. The company has settled the claim against
its predecessor's insurer, but the case against the company's insurers is still
in litigation. An award of punitive damages is also being sought against the
company's insurers for their bad faith in failing to investigate the company's
claim and/or denying the company's claim. The company has notified its primary
and excess general liability carrier, as well as the excess carrier of its
predecessor, of the receipt of its notice of potential liability at the second
and fourth sub-sites.
Estimated future cleanup costs at the third sub-site, including capital outlays
and maintenance costs for soil and groundwater remediation of approximately
$6.2 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 and a pro rata share of
the EPA's past response costs. The company's estimated share of the costs is
based on its assessment of the total cleanup 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 contributions 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, 1997 and 1996 to the amounts recognized in the company's balance
sheets at December 31, 1997 and 1996, respectively:
13-28
<TABLE>
<CAPTION>
1997 1996
Plans which Plans which Plans which Plans which
have have have 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
<S> <C> <C> <C> <C>
Actuarial present
value of benefit
obligation:
Vested employees $184,020 $ 3,862 $157,288 $24,628
Non-vested employees 535 -- 153 1,201
Accumulated benefit
obligation 184,555 3,862 157,441 25,829
Effect of projected
future salary
increases 3,541 655 2,865 1,480
Total projected
benefit obligation 188,096 4,517 160,306 27,309
Plan assets including
fourth quarter
contributions 194,256 80 157,442 19,720
Assets greater (less)
than projected
benefit obligation 6,160 (4,437) (2,864) (7,589)
Unamortized net
liability existing
at transition date 232 5 -- 280
Unrecognized net loss from
actuarial experience 19,989 44 27,275 4,622
Recognition of additional
minimum liability -- -- -- (4,093)
Prepaid (accrued)
pension expense $ 26,381 $(4,388) $ 24,411 $(6,780)
The company recognized a $312,000 charge in 1997 for pension curtailment and
special termination benefits resulting from the termination of employment for
certain executives and administrative employees. The components of 1997, 1996
and 1995 net periodic pension expense are as follows:
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
1997 1996 1995
(In thousands)
<S> <C> <C> <C>
Service cost of benefits
earned during the year $ 618 $ 670 $ 470
Interest cost on projected
benefit obligation 14,406 15,098 14,356
Actual (return) loss on
plan assets (38,346) 2,299 (52,972)
Net amortization (deferral) 25,052 (16,430) 38,446
Curtailment and special
termination benefits expense 312 -- --
Net pension expense for year $ 2,042 $ 1,637 $ 300
Expected long-term rate of
return on assets used to determine
net pension expense:
Salary plan 8.5% 7.75% 9.0%
Hourly plan 8.0% 7.75% 9.0%
</TABLE>
The following assumptions were used for the valuation of the pension
obligations as of September 30, 1997 and 1996 and December 31, 1995:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Discount rate 7.25% 8.0% 7.25%
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. 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.
13-29
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 7.25 percent
and a health care cost trend rate of 7.5 percent in 1998, gradually declining
to 5.25 percent in 2001. An increase in the health care cost trend rate of 1
percent would increase the APBO at September 30, 1997 by $132,000 and the total
service and interest rate components of the 1997 postretirement benefit cost by
$10,000.
Postretirement benefit cost for 1997, 1996 and 1995 includes the following
components:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
<S> <C> <C> <C>
Service cost - benefits earned
during the period $ 29 $ 31 $ 44
Interest cost on accumulated
postretirement benefit obligation 1,509 1,516 2,683
Net amortization and deferral 1,097 1,192 1,705
Postretirement benefit cost $2,635 $2,739 $4,432
</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, 1997 and 1996 to the amounts recognized in the company's balance sheets at
December 31, 1997 and 1996, respectively:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees and related beneficiaries $ 18,082 $ 18,296
Other fully eligible participants 775 870
Other active participants not fully eligible 817 854
Accumulated postretirement
benefit obligation 19,674 20,020
Fourth quarter cash flow (444) (232)
Unrecognized transition obligation (12,675) (13,520)
Unrecognized net loss ( 3,904) ( 4,468)
Accrued postretirement
benefit liability $ 2,651 $ 1,800
</TABLE>
The company accrued $2.6 million and $1.3 million at December 31, 1997 and
1996, respectively, for the estimated cost of benefits to be provided to former
or inactive employees, including their beneficiaries and covered dependents,
after employment but before retirement. Postemployment benefit costs in 1997,
1996 and 1995 were $1.7 million, $300,000 and $300,000, respectively. The 1997
expense included $1.3 million for severance costs associated with reducing
executive staff size.
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 separately 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. There were no performance shares outstanding at December
31, 1997 and 1996.
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.
Stock option grants are accounted for using the intrinsic value approach;
therefore no expense was recognized with respect to such options. As required
by current accounting standards, an estimate of the fair value of stock options
granted in 1997, 1996 and 1995 was made
13-30
using the Black-Scholes option pricing
model. The Black-Scholes model requires the input of highly subjective
assumptions, including stock price volatility, expected option life and
forfeiture rates, all of which can materially affect the fair value estimates.
The weighted average fair value estimates determined by the model and the
assumptions used are presented below:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Weighted average fair value $ 4.22 $ 5.17 $ 5.08
Risk-free interest rate 6.1% 6.6% 6.8%
Expected dividend yield 0% 0% 0%
Expected option life 6.0 6.0 6.0
Expected volatility 30.31% 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 the fair
value estimates:
<TABLE>
<CAPTION>
(In thousands, except per share data)
1997 1996 1995
<S> <C> <C> <C>
Net income:
As reported $15,116 $14,128 $10,981
Pro forma 14,817 13,129 9,844
Basic earnings per share:
As reported $0.85 $0.79 $0.57
Pro forma $0.83 $0.72 $0.49
Diluted earnings per share:
As reported $0.85 $0.78 $0.57
Pro forma $0.83 $0.71 $0.49
</TABLE>
The following summary shows the changes in outstanding rights for the last
three years:
Exercise Price Weighted Average
Shares Per Share Exercise Price
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Outstanding at
January 1, 1995 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
Granted 201,000 $9.69 - $10.19 $10.03
Forfeited (4,500) $14.81 - $16.94 $15.53
Expired (75,850) $11.88 - $19.31 $14.29
Outstanding at
December 31, 1997 1,604,050 $ 5.94 - $16.94 $12.32
</TABLE>
The outstanding stock options at December 31, 1997 have a weighted average
contractual life of 4.8 years.
Rights exercisable at
December 31, 1997 1,403,050 $5.94 - $16.94 $12.64
Shares available
for future grants
at December 31, 1997 428,000
13-31
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>
<CAPTION>
Preference Common Other Treasury
(In thousands, except share data) Stock Stock Capital Shares
<S> <C> <C> <C> <C>
Balance, January 1, 1995 $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)
Common shares issued through:
Conversion of Series B
preference stock (6,432) (2) 6 (4)
Executive incentive
compensation (4,755) 62
Directors' fees (6,000) (12) 74
Purchase of treasury shares (75,000) (730)
Minimum pension liability adjustment 3,758
Balance, December 31, 1997 $18 $15,103 $66,819 $(4,936)
</TABLE>
13-32
Note 13: Income Taxes
Earnings before taxes and income tax expense (benefit) from continuing
operations at December 31 are as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
<S> <C> <C> <C>
Earnings before taxes $11,043 $14,128 $11,321
Current federal income taxes $ 747 $ -- $ --
Deferred federal income tax benefit (5,123) -- --
Current state income taxes 303 -- 340
Total $(4,073) $ -- $ 340
</TABLE>
The actual income tax expense attributable to earnings before taxes differed
from the amounts computed by applying the U. S. federal tax rate of 34 percent
in 1997, 1996 and 1995 to pretax earnings as a result of the following:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
<S> <C> <C> <C>
Computed "expected" tax expense $ 3,753 $ 4,945 $ 3,849
Percentage depletion ( 767) ( 720) ( 992)
State income taxes, net of federal
income tax benefit 200 -- 224
Other items 44 553 51
Benefit of operating loss carryforwards (7,303) (4,778) (2,792)
Income tax expense (benefit) $(4,073) $ -- $ 340
</TABLE>
The significant components of the deferred income tax expense (benefit)
attributable to earnings before taxes for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
<S> <C> <C> <C>
Deferred tax expense (benefit)(exclusive of the
effect of other component listed below) $ 6,271 $ 1,552 $(6,058)
Increase (decrease) in balance of the valuation
allowance for deferred tax assets (11,394) (1,552) 6,058
Total $(5,123) $ -- $ --
</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>
<CAPTION>
<S> <C> <C>
1997 1996
Deferred tax assets:
Provision for discontinued operations $ 3,294 $ 4,580
Accounts receivable, principally due
to allowance for doubtful accounts 206 59
Inventories, principally due to additional
costs inventoried for tax purposes
pursuant to the Tax Reform Act of 1986 6 6
Compensated absences, principally due to
accrual for financial reporting purposes 502 500
Net operating loss carryforwards (NOLs) 59,024 62,808
Investment tax credit carryforwards 666 976
Other 3,995 566
Alternative minimum tax credit 750 350
Total gross deferred tax assets 68,443 69,845
Less valuation allowance (23,435) (34,829)
Net deferred tax assets 45,008 35,016
Deferred tax liabilities:
Properties and equipment, principally due
to depreciation 6,062 5,810
Pension accrual 8,970 4,353
Total gross deferred tax liabilities 15,032 10,163
Net deferred tax asset $ 29,976 $ 24,853
</TABLE>
The net change in the total valuation allowance for the years ended December
31, 1997 and 1996 was a decrease of $11.4 million and $1.6 million,
respectively.
The company had NOLs of approximately $173 million at December 31, 1997 because
of losses associated with discontinued businesses. These NOLs expire as
follows:
<TABLE>
<CAPTION>
(In thousands)
<C> <C>
2003 $72,373
2004 38,856
2005 17,222
2006 6,471
2007 1,629
2008 15,031
2009 12,008
2010 9,973
</TABLE>
13-33
The company has an alternative minimum tax credit carryforward of $750,000.
This credit may be utilized to reduce the company's regular tax liability down
to its alternative minimum tax liability in future tax years and has an
unlimited life.
Tax benefits of $666,000 for investment tax credits expiring in 1998 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.
The company had NOLs of approximately $173 million at December 31, 1997.
Management continually evaluates the recorded deferred tax valuation allowance
and believes that, due to the large portion of revenue generated by long-term
supply contracts and taxable income generated by the company since it started
operating solely as a lime company three years ago, 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. As a
result, the company reduced its valuation allowance in 1997 and recorded a net
tax benefit of $4.1 million. The amount of the net deferred tax asset, $30
million, reflects that portion of the gross deferred tax asset that management
believes, based on current income projections and tax preference item
estimates, will more likely than not be realized.
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 $98 million prior to the expiration of the NOLs. The company's
cumulative taxable earnings for the past two years total $22.3 million.
Note 14: 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>
<CAPTION>
(In thousands)
1997 1996
Carrying Fair Carrying Fair
Value Value Value Value
<S> <C> <C> <C> <C>
Notes payable $84,132 $85,036 $69,701 $70,623
Series D preference stock 20,000 22,561 20,000 22,533
</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 15: Research and Development
Research and development expense is reported in selling expenses and for the
years ended December 31 is as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
<S> <C> <C> <C>
Total research and development expense $6,538 $3,742 $3,558
Billings to third parties 4,605 1,784 1,255
Net research and development expense $1,933 $1,958 $2,303
</TABLE>
13-34
Note 16: Interim Financial Information
<TABLE>
<CAPTION>
(Unaudited, in millions, First Second Third Fourth
except earnings per share) Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
1997
Revenue $37.6 $42.4 $41.0 $41.4
Gross profit 7.8 11.5 11.0 10.5
Earnings before taxes 1.1 4.6 3.9 1.4
Provision (benefit) for income taxes 0.1 0.3 0.1 (4.6)
Net earnings $0.4 $3.7 $3.1 $5.4
Net earnings per share:
Basic $0.03 $0.25 $0.21 $0.36
Diluted $0.03 $0.25 $0.21 $0.36
1996
Revenue $38.2 $39.3 $40.8 $39.8
Gross profit 9.7 9.3 10.6 10.4
Earnings before taxes 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:
Basic $0.17 $0.19 $0.20 $0.22
Diluted $0.17 $0.19 $0.20 $0.22
</TABLE>
13-35
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 auditors. As stated in their report, their audit was made in
accordance with generally accepted auditing standards and included examining,
on a test basis, evidence supporting the amounts and disclosures in 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 auditors subject to ratification by
the shareholders. The Audit Committee meets periodically with management, the
Director of Internal Audit 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 Audit 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, 1997 and 1996, and the related
consolidated statements of earnings, retained earnings and cash flows for each
of the years in the three-year period ended December 31, 1997. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Pittsburgh, Pennsylvania
January 21, 1998
13-36
<TABLE>
<CAPTION>
Five-Year Summary
Years ended December 31, 1997 1996 1995 1994 1993
($ amounts in millions, except per share data)
<S> <C> <C> <C> <C> <C>
Summary of operations:
Revenue $162.5 $158.1 $146.1 $278.1 $277.6
Gross profit 40.8 40.0 36.5 44.0 49.3
Interest expense 7.0 6.4 4.8 12.4 9.2
Depreciation expense 10.5 10.1 9.5 17.6 18.0
Earnings before taxes
from continuing operation 11.0 14.1 11.3 5.5 10.5
Provision (benefit) for
income taxes (4.1) -- 0.3 0.6 (24.6)
Earnings from continuing
operations 15.1 14.1 11.0 4.9 35.1
Loss from discontinued
operations, net of income taxes -- -- -- (6.5) (35.3)
Extraordinary item -- -- -- (7.5) --
Cumulative accounting change -- -- -- (1.4) --
Net earnings (loss) 15.1 14.1 11.0 (10.5) (0.2)
Preferred dividends declared 2.5 2.5 2.5 2.5 2.6
Capital expenditures 27.2 20.0 33.1 44.8 13.6
Employees at year end 738 781 756 768 1,416
Summary of financial position:
Total assets $255.2 $225.4 $213.3 $307.3 $272.1
Working capital 3.9 8.5 9.8 6.3 59.5
Long-term obligations and
redeemable preference stock 94.4 83.5 84.3 62.4 108.5
Total debt and redeemable
preference stock 104.1 89.7 90.4 147.5 113.0
Property, plant and
equipment, net 142.6 126.0 116.2 93.5 110.0
Shareholders' equity 109.7 93.9 79.9 76.7 89.5
Per common share data:
Earnings from continuing
operations $ 0.85 $ 0.79 $ 0.57 $ 0.16 $ 2.20
Loss from discontinued
operations -- -- -- (0.44) (2.38)
Extraordinary item -- -- -- (0.51) --
Cumulative accounting change -- -- -- (0.09) --
Net earnings (loss)
Basic 0.85 0.79 0.57 (0.88) (0.18)
Diluted 0.85 0.78 0.57 (0.88) (0.18)
Book value 7.39 6.29 5.33 5.06 6.15
Shareholders at year end 2,574 2,741 2,924 3,192 3,442
Mineral resources (in millions of tons):
Proven and probable reserves
Total reserves 654.5 623.7 522.2 502.1 1,121.2
Tons mined 7.7 7.6 7.1 23.2 22.8
</TABLE>
13-37
Board of Directors Principal Executives
Arthur E. Byrnes Carl A. Gilbert *
Chairman of the Board President and
Dravo Corporation Chief Executive Officer
Carl A. Gilbert John R. Major *
President and Chief Executive Officer, Senior Vice President,
Dravo Corporation Chief Operating Officer
James C. Huntington, Jr. Earl J. Bellisario *
Retired Senior Vice President, Senior Vice President,
American Standard, Inc. Chief Financial Officer and
Secretary
William E. Kassling Richard E. Redlinger
Chairman, Chief Executive Officer Vice President, Corporate
and President, Development and Treasurer
Westinghouse Air Brake Company
Peter T. Kross Larry J. Walker
Senior Vice President, Vice President and Controller
Everen Securities
William G. Roth *Member of
Retired Chairman, Management Executive Committee
Dravo Corporation
Konrad M. Weis
Retired President and
Chief Executive Officer,
Bayer Corporation
13-38
Exhibit 21. Subsidiaries of the Registrant
Percentage
State or country of voting
in which securities
incorporated owned
<TABLE>
<CAPTION>
<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 21, 1998 relating to the consolidated balance sheets of
Dravo Corporation and subsidiaries as of December 31, 1997 and 1996 and the
related consolidated statements of earnings, retained earnings, and cash flows
and the related financial statement schedule for each of the years in the
three-year period ended December 31, 1997 which reports appear in, or are
incorporated by reference in, the December 31, 1997 annual report on Form 10-K
of Dravo Corporation.
/s/ KPMG PEAT MARWICK LLP
Pittsburgh, Pennsylvania
March 27, 1998
23-1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby
constitute and appoint Carl A. Gilbert and John R. Major, 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, 1997 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 22 day of January, 1998.
/s/ ARTHUR E. BYRNES
/s/ JAMES C. HUNTINGTON, JR.
/s/ WILLIAM E. KASSLING
/s/ PETER T. KROSS
/s/ WILLIAM G. ROTH
/s/ KONRAD M. WEIS
24-1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM DRAVO
CORPORATION'S DECEMBER 31, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 1477 1600
<SECURITIES> 0 0
<RECEIVABLES> 26376 24362
<ALLOWANCES> 612 176
<INVENTORY> 17434 16481
<CURRENT-ASSETS> 45655 43018
<PP&E> 263926 238025
<DEPRECIATION> 121277 112026
<TOTAL-ASSETS> 255230 225409
<CURRENT-LIABILITIES> 41745 34541
<BONDS> 0 0
<COMMON> 15103 15097
15000 20000
18 20
<OTHER-SE> 94545 78798
<TOTAL-LIABILITY-AND-EQUITY> 255230 225409
<SALES> 162476 158133
<TOTAL-REVENUES> 162476 158133
<CGS> 121641 118165
<TOTAL-COSTS> 121641 118165
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 7025 6426
<INCOME-PRETAX> 11043 14128
<INCOME-TAX> (4073) 0
<INCOME-CONTINUING> 15116 14128
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 15116 14128
<EPS-PRIMARY> .85 .79
<EPS-DILUTED> .85 .78
</TABLE>
Dravo Letterhead
January 30, 1998
Mr. Earl J. Bellisario
C/O Dravo Corporation
3600 One Oliver Plaza
Pittsburgh, PA 15222
Dear Earl:
To help ensure your continued dedication as an employee of Dravo
Corporation (the "Company"), the Company desires to provide for, among other
things, the payment of two years' compensation and benefits if your employment
is terminated by the Company without cause. In exchange for this assurance, you
are willing to agree to not compete with the Company for two years after the
termination of your employment. The following sets forth the details of this
agreement.
1. Salary and Benefit Continuation. The Company agrees that if your
employment with the Company is terminated by the Company without cause, the
Company will continue to pay your salary and provide for your benefits for two
years following the date of termination as if you were still an employee of the
Company (including for purposes of eligibility, coverage, vesting and benefit
provisions under the Company's benefit plans) during that period. You are not
required to mitigate this payment by seeking other employment and these
amounts are payable to your estate if you die during the two year period.
2. Stock Options. The Company agrees that if your employment with
the Company is terminated by the Company without cause, you will continue to
hold all stock options and restricted stock held by you on the date of your
termination as if you were an employee of the Company for two years thereafter,
and at the end of that two year period, you will be deemed to have retired from
the Company for purposes of the plans pursuant to which the stock options and
restricted stock were issued.
3. SERP and EBP. The benefits credited to you under the
Company's Supplemental Executive Retirement Plan (SERP) and the Executive
Benefit Plan (EBP) (including any additional age and service credit by reason
ofthe benefit continuation under paragraph 1 of this letter) shall be fully
vested and nonforfeitable through the date of any adverse amendment or
termination of those plans, provided, that you will not be entitled to any
benefits under those plans if your employment is terminated by the Company
for cause. In addition, your "retirement" under the EBP is deemed to be
approved by the Board's Compensation Committee. The Company will pay benefits
under the SERP and the EBP in accordance with the terms of those plans, but if
your salary is continuing under paragraph 1 of this letter, the Company will
begin to pay benefits under the SERP and EBP at the end of your two year salary
continuation period. Further, if your salary is continuing under paragraph 1 of
this letter, you may
elect, during the first 12 months following your termination, to receive a
lump sum of your SERP and EBP benefits at the end of your two-year salary
continuation period.
10-1
4. Noncompete. You agree that for a period of two years after the
termination of your employment with the Company for any reason, you will not
have an ownership interest in or render services to (as an employee, consultant
or otherwise), any company that is engaged in (a) the mining, production,
marketing and sale of limestone or lime, including those companies listed on
Exhibit A and their affiliates, or (b) in the research and development,
marketing and sale of technologies for utilizing limestone or lime. The former
restrictions will apply anywhere the Company is or is then contemplating doing
business and the latter restrictions will apply throughout the world. You agree
to notify the Company of any employment you take during that two year period and
you agree that if you breach this paragraph, the Company can seek an injunction
to prevent you from working at that job, cease the payment of any compensation
and benefits under paragraph 1 and sue you for damages. During this two year
period, you also agree not to solicit for hire any employees of the Company or
its subsidiaries.
5. Definitions. For purposes of this letter, you may be
terminated for "cause" only if the Board (nonemployee directors only)
unanimously determines that you have (i) deliberately and intentionally engaged
in gross misconduct that is intentionally and demonstrably harmful to the
Company, or (ii) you have been convicted of a felony. Further, for purposes of
this letter, you will be deemed to have been terminated by the Company without
cause if you terminate your employment a reasonable time after and because (i)
the Company takes action which results in a material and continuing diminution
in your status as an officer of the Company, (ii) the Company requires you to
relocate your office more than 30 miles, or (iii) the Company reduces your
overall level of compensation (other than as part of a reduction applicable to
all salaried employees of the Company generally), or (iv) a company that
acquires the Company by merger, acquisition of assets or otherwise does not
expressly assume the Company's obligations under this letter agreement at or
prior to the closing of the transaction.
6. Disputes. Disputes under this letter agreement (other than the
Company's enforcement of paragraph 4 in equity) will be resolved by
submitting the matter to binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association in
Pittsburgh, Pennsylvania. If you are required to bring or defend an action
against the Company under this Agreement, the Company will pay your
reasonable legal fees if you are successful. Before the Company is
required to pay you any amounts under this letter agreement, the Company
may require you to execute a reasonable release of any claims you may
have against the Company (other than under this letter agreement).
7. Taxes. You will be responsible for the payment of all taxes on any
payments you receive under this letter agreement, provided, that the Company
will make you whole for taxes under Section 4999 of The Internal Revenue
Code, or any successor provision, if any.
8. Summary. A summary of the compensation and benefits
that are intended to be paid or
provided to you under this letter agreement (which replaces the Change of
Control Agreement to which you are currently a party) and under the Company's
other benefit plans in certain circumstances is attached as Exhibit B.
10-2
The Company intends to be legally bound by this letter agreement. If
you agree with the terms of this letter and intend to be legally bound by it,
please sign this letter where indicated below and return it to me. The
additional enclosed copy of this letter is for your files.
Thank you for your continued service to Dravo.
Very truly yours,
DRAVO CORPORATION
By: /s/ CARL A. GILBERT
Carl A. Gilbert
President & Chief Executive Officer
Date: January 30, 1998
Accepted and Agreed:
/s/ EARL J. BELLISARIO
Earl J. Bellisario
Date: January 30, 1998
10-3
EXHIBIT A
AP Green Industries, Inc.
Ash Grove Cement Co.
Austin White Lime Co.
Bellefonte Lime Company
Blue Circle, Inc.
Calco, Inc.
Carmeuse (Marblehead Lime)
Cheney Lime & Cement Co.
Con Lime Inc.
Continental Lime/Graybec Calc Inc.
Cutler-Magner Co.
Florida Lime Corp.
GenLime Group, LP
Global Stone Corp
Greer Lime Co.
Havelock Lime Co.
Huron Lime Company
Lee Lime Corp.
Linwood Mining & Minerals Corp.
Lhoist/Chemical Lime Co.
LTV Steel
Martin Marietta Materials, Inc.
Mercer Lime & Stone Company
Miller Minerals, Inc.
Minerals Technology, Inc.
Mississippi Lime Co.
National Lime & Stone Company
National Refractories & Minerals Corp.
Pete Lien & Sons.
Redland
Redland Ohio Co.
Redland Stone Products Co.
Resco Products, Inc
Rockwell Lime Co.
Specialty Minerals, Inc.
United States Lime & Minerals Co.
USG Industries, Inc.
Vulcan Materials Co.
Western Lime Corp.
W.S. Frey, Inc.
10-4
Earl J. Bellisario EXHIBIT B
January 30, 1998 Separation Agreement Summary
Page 5 Salary and Benefits Continuation
<TABLE>
Termination Termination by Termination
Termination by Termination by Employee Employee Because Termination
Company without by Company w/o Good Deemed to be by of Due to
Cause for Cause Reason Company w/o Cause Disability Death
(paragraph 5)
<S> <C> <C> <S> <C> <C> <S>
Salary 2 years + None None 2 years + per EBP per EBP
standard standard
severance severance
Bonus Prorate in year of None None* Prorate in year of Prorate in Prorate in year
termination termination year of of death
disability
Health 2 yrs per company plan per company plan 2 yrs per company plan per company plan
Benefits + company plan + company plan
Life 2 years per company plan per company plan 2 years per company plan per company plan
Insurance + company plan + company plan
Perquisites 2 years None None 2 years None None
401(k) Plan 2 years None None 2 years None None
(Co. Match)
Qualified
Pension Plan
- Service
Continuation 2 years None None 2 years None None
SERP
- - Vesting Vest Forfeit Vest Vest Vest Vest
- Service Cont. 2 years N/A None 2 years None None
- Lump Sum
Option Yes N/A No Yes No No
EBP
- - Vesting Vest Forfeit Vest Vest Vest Vest
- - Service Cont. 2 years N/A None 2 years None None
- - Lump Sum
Option Yes N/A No Yes No No
Stock Options
- Vested Retain Retain Retain Retain Retain Retain
- Non-Vested Vest (over 2 years) Forfeit Forfeit Vest (over 2 years) Vest Vest
- Exercise Term 5 years 90 days 90 days* 5 years 5 years 5 years
</TABLE>
* If the employee is eligible to retire under the Company's pension plan as of
the date of his termination then his termination will be considered a retirement
for purposes of the annual incentive plan and stock option plan.
10-5
