SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For Quarter Ended: March 31, 1998
Commission File Number: 1-5642
DRAVO CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 25-0447860
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
11 Stanwix Street, Pittsburgh, Pennsylvania 15222
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 995-5500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The number of shares outstanding of each of the registrant's classes of common
stock as of April 30, 1998:
Title of Class Shares Outstanding
Common Stock, $1.00 par value 14,718,509
DRAVO CORPORATION AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Page No.
Consolidated Balance Sheets at March 31, 1998
and December 31, 1997 3, 4
Consolidated Statements of Earnings for the
Quarters ended March 31, 1998 and 1997 5
Consolidated Statements of Cash Flows for the
Quarters ended March 31, 1998 and 1997 6, 7
Notes to Consolidated Financial Statements 8 - 12
Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders 14 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
-2-
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
($ in 000's)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,737 $ 1,477
Accounts receivable, net 20,943 24,995
Notes receivable, net 723 769
Inventories 16,743 17,434
Other current assets 1,018 980
Total current assets 44,164 45,655
Advances to and equity in joint ventures 2,325 2,450
Notes receivable 5,680 6,873
Other assets 27,149 27,627
Deferred income taxes 29,976 29,976
Property, plant and equipment 267,305 263,926
Less: accumulated depreciation and
amortization 123,972 121,277
Net property, plant and equipment 143,333 142,649
Total assets $252,627 $255,230
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
($ in 000's)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current portion of long-term notes $ 9,762 $ 9,736
Accounts payable - trade 15,631 17,546
Accrued insurance 1,917 1,482
Net liabilities of discontinued operations 3,056 3,613
Redeemable preference stock 5,000 5,000
Other current liabilities 5,820 4,368
Total current liabilities 41,186 41,745
Long-term notes 70,469 74,396
Net liabilities of discontinued operations 5,008 5,401
Other liabilities 8,959 9,022
Redeemable preference stock:
Par value $1, issued 200,000 shares:
Series D, $12.35 cumulative, convertible,
exchangeable (entitled in liquidation to
$20.0 million) 15,000 15,000
Shareholders' equity:
Preference stock, par value $1, authorized
1,878,870: Series B, $2.475 cumulative,
convertible; issued 16,000 shares and 18,386
shares (entitled in liquidation to $880,000 and 16 18
$1.0 million); Series D, reported above
Common stock, par value $1, authorized
35,000,000 shares; issued 15,110,922
and 15,103,249 15,111 15,103
Other capital 66,813 66,819
Retained earnings 35,001 32,662
Treasury stock at cost:
Common shares 397,413 (4,936) (4,936)
Total shareholders' equity 112,005 109,666
Total liabilities and shareholders' equity $252,627 $255,230
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
(unaudited, $ in 000's, except per share data)
<TABLE>
<CAPTION>
Quarters ended March 31,
1998 1997
<S> <C> <C>
Revenue $ 42,374 $ 37,624
Cost of revenue 32,366 29,851
Gross profit 10,008 7,773
Selling, general and administrative expenses 4,807 5,284
Earnings from operations 5,201 2,489
Other income (expense):
Equity in earnings of joint ventures 195 199
Other income 12 --
Interest income 98 32
Interest expense (1,867) (1,562)
Net other expense (1,562) (1,331)
Earnings before taxes 3,639 1,158
Provision for income taxes 673 84
Net earnings 2,966 1,074
Preference dividends 627 630
Net earnings available
for common shares $ 2,339 $ 444
Earnings per share:
Basic $ 0.16 $ 0.03
Diluted $ 0.16 $ 0.03
Weighted average shares outstanding:
Basic 14,708 14,769
Diluted 14,749 14,880
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited, $ in 000's)
<TABLE>
<CAPTION>
Quarters ended March 31,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 2,966 $ 1,074
Adjustments to reconcile net earnings
to net cash provided by continuing
operations activities:
Depreciation and amortization 2,820 2,530
Gain on sale of assets (12) --
Equity in joint ventures 125 (291)
Changes in assets and liabilities:
Decrease in accounts receivable 4,052 1,220
Decrease (increase) in notes receivable 1,239 (454)
Decrease (increase) in inventories 691 (784)
Decrease (increase) in other current assets (38) 175
Decrease in accounts payable
and accrued expenses (628) (947)
Increase in taxes payable 602 19
Decrease in other assets 478 180
Increase (decrease) in other liabilities (63) 364
Net cash provided by continuing
operations activities 12,232 3,086
Net cash used by discontinued
operations activities (950) (787)
Net cash provided by operating activities 11,282 2,299
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of assets 12 --
Additions to property, plant and equipment (3,504) (13,484)
Other, (net) -- 1
Net cash used by investing activities $(3,492) $(13,483)
</TABLE>
See accompanying notes to consolidated financial statements.
-6-
DRAVO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited, $ in 000's)
<TABLE>
<CAPTION>
Quarters ended March 31,
1998 1997
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing under revolving credit
agreements $ 3,000 $ 15,690
Principal payments under long-term notes (6,901) (6,084)
Proceeds from issuance of long-term notes -- 1,663
Dividends on preference stock (629) (630)
Net cash provided (used) by financing activities (4,530) 10,639
Net increase (decrease) in cash
and cash equivalents 3,260 (545)
Cash and cash equivalents at beginning of
period 1,477 1,600
Cash and cash equivalents at end of period $ 4,737 $ 1,055
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ 1,990 $ 1,575
Income taxes 72 89
</TABLE>
See accompanying notes to consolidated financial statements.
-7-
DRAVO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Dravo Corporation and its majority-owned subsidiaries (the company). The
principal subsidiary is Dravo Lime Company, one of the nation's largest lime
producers. Significant intercompany balances and transactions have been
eliminated in the consolidation process.
These unaudited consolidated financial statements include all adjustments,
consisting only of normal, recurring accruals, which management considers
necessary for a fair presentation of the company's consolidated financial
position, results of operations, and cash flows for the interim periods
presented. Certain reclassifications of previously reported balances have
been made to conform to the current period's presentation.
(2) Inventories
Inventories are classified as follows:
($ in 000's)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
<S> <C> <C>
Materials and supplies $ 13,537 $ 14,615
Finished goods 3,206 2,819
Total inventories $ 16,743 $ 17,434
</TABLE>
Finished goods are valued at average production cost or market,
whichever is lower, and include raw materials, direct labor, and
operating overhead. Materials and supplies are valued at average
cost.
-8-
DRAVO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Contingent Liabilities
The company has been notified by the federal Environmental Protection
Agency (EPA) that the EPA believes the company is a potentially
responsible party (PRP) for the 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.
-9-
DRAVO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Contingent Liabilities (continued)
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.
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 remediation 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.
-10-
DRAVO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Contingent Liabilities (continued)
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 regarding the third sub-site, 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 handling the company's claim. A
tentative trial date has been set for early 1999. 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 $6.2 million, are based on independent
engineering studies. Included in the discontinued operations
provision is the company's estimate that it will participate in 33
percent of these remediation costs and a pro rata share of the EPA's
past response costs. The company's estimated share of the costs is
based on its assessment of the total cleanup costs, its potential
exposure, and the viability of other named PRPs. These estimates
are, by their nature, uncertain and dependent upon numerous factors,
any of which could cause actual results to differ materially from
projected amounts.
Other claims and assertions made against the company will be
resolved, in the opinion of management, without material additional
charges to earnings.
-11-
DRAVO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Discontinued Operations
Discontinued operations' assets and liabilities at March 31, 1998 and
December 31, 1997 relate to non-cancelable leases, insurance, environmental,
legal and other matters associated with exiting the engineering and
construction business and are presented below:
<TABLE>
<CAPTION>
($ in 000's) March 31, December 31,
1998 1997
<S> <C> <C> <C> <C>
Current assets:
Accounts and retainers receivable $ 140 $ 209
Total assets $ 140 $ 209
Current liabilities:
Accounts and retainers payable $ -- $ 135
Accrued loss on leases 379 1,026
Insurance 410 405
Environmental 1,783 1,684
Other 624 572
Total current liabilities 3,196 3,822
Insurance 2,669 2,706
Environmental 1,107 1,286
Other 1,232 1,409
Total liabilities $ 8,204 $ 9,223
Net liabilities and accrued loss
on leases of discontinued operations $ (8,064) $ (9,014)
</TABLE>
(5) Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130). SFAS 130 requires the reporting of changes in equity during the
period from nonowner sources, such as minimum pension liability adjustments.
There were no items of comprehensive income in equity at March 31, 1998 or
December 31, 1997.
-12-
DRAVO CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Revenue and earnings for the first quarter of 1998 increased
substantially over 1997's results. Increased demand from Ohio Valley
coal-fired power plant customers enabled the company's two production
sites located in northern Kentucky to produce at higher, more cost
efficient levels. The higher production levels utilized a portion of the
surplus capacity created when a fourth kiln at Maysville, Kentucky was
completed last summer. Commercial market demand in the Southeast region,
served by the Longview facility located near Birmingham, Alabama, also
remained strong.
A comparison between this year's earnings of $.16 per common share and
last year's earnings of $.03 per share is affected by two factors. First,
unprecedented flooding conditions in northern Kentucky last year severely
depressed earnings. Second, the company's net earnings for reporting
purposes reflects an effective tax rate of 19 percent this year versus 7
percent last year. This change in tax rate is the result of the
reassessment of the recoverability of the deferred tax asset during last
year's fourth quarter as required by Statement of Financial Accounting
Standard No. 109. The effective tax rate is used for financial reporting
purposes only and will not affect actual taxes paid, which will remain low
due to net operating loss utilization.
Net cash provided from operating activities for the quarter improved $9
million from the prior year period on higher earnings, working capital
reductions and collection of $1.4 million on a note receivable. Cash and
marketable securities increased by $3.3 million over year-end levels while
the company's overall debt level decreased $3.9 million.
As previously reported, construction of a new kiln and ancillary equipment
is planned at Longview over the next 18 months. The new capacity will allow
the company to meet additional lime requirements for a new long-term contract
with SMI for precipitated calcium carbonate satellite production facilities.
The company is currently finalizing funding options with its existing
creditor group.
-13-
DRAVO CORPORATION AND SUBSIDIARIES
PART II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders was held on April 23, 1998 in
Birmingham, Alabama. Listed below are the proposals submitted to
shareholders in the company's Proxy Statement dated March 27, 1998
and the results of the shareholder votes.
Election of two directors for a three year term:
For Withheld
<TABLE>
<S> <C> <C>
Carl A. Gilbert 13,525,515 430,828
William G. Roth 13,516,308 440,035
</TABLE>
Following the election, the company's Board of Directors consisted
of Mr. Arthur E. Byrnes, Mr. James C. Huntington, Jr., Mr.
Gilbert, Mr. William E. Kassling, Mr. Peter T. Kross, and Mr.
Roth.
Election of Certified Public Accountants:
For Against Abstain
KPMG Peat Marwick LLP 13,827,404 80,647 48,292
Proposal to hold the Annual Meeting in the city where the greatest
percentage of common shares is held by investors:
For Against Abstain Broker Non-Votes
1,788,325 8,070,967 105,392 4,964,825
Proposal to adopt a corporate-wide cost-reduction program with
fixed targets of 10% in 1998, 5% in 1999 and 5% in 2000:
For Against Abstain Broker Non-Votes
2,040,120 7,802,159 122,405 4,964,825
-14-
DRAVO CORPORATION AND SUBSIDIARIES
PART II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders (continued)
Proposal to set a moratorium on all new expansion in excess of
$5,000,000 until gross profit margins are at or exceed 30% for at
least thirty months:
For Against Abstain Broker Non-Votes
1,494,523 8,328,545 141,616 4,964,825
Item 6. Exhibits and Reports on Form 8-K
Exhibits
The following is filed as an exhibit to Part I of this Form 10-Q:
Exhibit No. 11 - Statement re computation of per share earnings.
(b)Reports on Form 8-K
The company filed no reports on Form 8-K for the quarter ended
March 31, 1998.
-15-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DRAVO CORPORATION
(Registrant)
Date: May 13, 1998 /s/EARL J. BELLISARIO
Earl J. Bellisario
Senior Vice President,
Chief Financial Officer
and Secretary
Date: May 13, 1998 /s/LARRY J. WALKER
Larry J. Walker
Vice President and Controller
(Principal Accounting Officer)
-16-
Exhibit 11. Statement Re Computation of Per Share Earnings
<TABLE>
<CAPTION>
(In 000's, except per share data)
Quarters ended March 31,
1998 1997
<S> <C> <C>
Basic earnings per share:
Net earnings $ 2,966 $ 1,074
Deduct dividends on preference stock 627 630
Net earnings applicable to common stock $ 2,339 $ 444
Shares:
Weighted average number of common
shares outstanding 14,708 14,769
Basic earnings per share $ 0.16 $ 0.03
Diluted earnings per share:
Net earnings applicable to common stock $ 2,339 $ 444
Shares:
Weighted average number of common
shares outstanding 14,708 14,769
Dilutive effect of outstanding
options and rights (as determined
by the application of the treasury
stock method at the average market
price for the period) 41 111
Weighted average number of shares
outstanding, as adjusted 14,749 14,880
Diluted earnings per share $ 0.16 $ 0.03
</TABLE>
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DRAVO
CORPORATION'S MARCH 31, 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 4737
<SECURITIES> 0
<RECEIVABLES> 22366
<ALLOWANCES> 700
<INVENTORY> 16743
<CURRENT-ASSETS> 44164
<PP&E> 267305
<DEPRECIATION> 123972
<TOTAL-ASSETS> 252627
<CURRENT-LIABILITIES> 41186
<BONDS> 0
<COMMON> 15111
15000
16
<OTHER-SE> 96878
<TOTAL-LIABILITY-AND-EQUITY> 252627
<SALES> 42374
<TOTAL-REVENUES> 42374
<CGS> 32366
<TOTAL-COSTS> 32366
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1867
<INCOME-PRETAX> 3639
<INCOME-TAX> 673
<INCOME-CONTINUING> 2966
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2339
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
