-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Jr2DsFm61q2IqB7vwJmKbpBmZlOJI8IQs5ZOAANKvc2JvUegq1u1L6f8mdELBiS8 lz1/Bvy59lP0E35nySqMLA== 0000030067-94-000013.txt : 19941122 0000030067-94-000013.hdr.sgml : 19941122 ACCESSION NUMBER: 0000030067-94-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DRAVO CORP CENTRAL INDEX KEY: 0000030067 STANDARD INDUSTRIAL CLASSIFICATION: 1400 IRS NUMBER: 250447860 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05642 FILM NUMBER: 94559046 BUSINESS ADDRESS: STREET 1: 3600 ONE OLIVER PLZ CITY: PITTSBURGH STATE: PA ZIP: 15222-2651 BUSINESS PHONE: 2054322651 MAIL ADDRESS: STREET 1: P O BOX 2068 CITY: MOBILE STATE: AL ZIP: 36652 10-Q 1 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: September 30, 1994 Commission File Number: 1-5642 DRAVO CORPORATION (Exact name of registrant as specified in its charter) Pennsylvania 25-0447860 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) One Oliver Plaza, Pittsburgh, Pennsylvania 15222 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (412) 566-3000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares outstanding of each of the registrant's classes of common stock as of October 31, 1994. Title of Class Shares Outstanding Common Stock, $1.00 par value 14,866,618 DRAVO CORPORATION AND SUBSIDIARIES INDEX PART I - FINANCIAL INFORMATION Page No. Consolidated Balance Sheets at September 30, 1994 and December 31, 1993 3, 4 Consolidated Statements of Operations for the Quarters ended September 30, 1994 and 1993 5 Consolidated Statements of Operations for the Nine month period ended September 30, 1994 and 1993 6 Consolidated Statements of Cash Flows for the Nine month period ended September 30, 1994 and 1993 7, 8 Notes to Consolidated Financial Statements 9 - 15 Management's Discussion and Analysis of Financial Condition and Results of Operations 16, 17 PART II - OTHER INFORMATION Item 1. Legal Proceedings 18 Item 6. Exhibits and Reports on Form 8-K 18 SIGNATURES 19 -2- DRAVO CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets ($ in 000's) September 30, December 31, 1994 1993 (unaudited) ASSETS Current assets: Cash and cash equivalents $ 838 $ 808 Accounts receivable, net 47,851 44,225 Notes receivable, net 2,690 3,318 Inventories 50,955 57,536 Other current assets 6,509 2,417 Total current assets 108,843 108,304 Advances to and equity in joint ventures 4,070 4,348 Notes receivable 5,541 6,870 Other assets 24,623 17,729 Deferred tax asset 24,853 24,853 Property, plant and equipment 341,368 311,822 Less: accumulated depreciation and amortization 206,411 201,854 Net property, plant and equipment 134,957 109,968 Total assets $302,887 $272,072 See accompanying notes to consolidated financial statements. -3- DRAVO CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets ($ in 000's) September 30, December 31, 1994 1993 (unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term notes $ 4,502 $ 4,488 Accounts payable - trade 35,640 28,622 Income taxes 508 23 Accrued insurance 3,209 3,049 Accrued retirement contribution 6,838 2,101 Net liabilities of discontinued operations 1,913 2,006 Accrued loss on leases - discontinued operations 2,344 2,448 Other current liabilities 7,940 6,113 Total current liabilities 62,894 48,850 Long-term notes 104,909 88,520 Other liabilities 5,439 3,033 Net liabilities of discontinued operations 11,400 14,276 Accrued loss on leases - discontinued operations 6,189 7,854 Redeemable preference stock: Par value $1, issued 200,000 shares: Series D, $12.35 cumulative, convertible, exchangeable (entitled in liquidation to $20.0 million) 20,000 20,000 Shareholders' equity: Preference stock, par value $1, authorized 1,878,870: Series B, $2.475 cumulative, convertible; issued 29,386 and 32,386 shares (entitled in liquidation to $1.6 million and $1.8 million); 29 32 Series D, reported above Common stock, par value $1, authorized 35,000,000 shares; issued 14,982,623 and 14,967,824 14,983 14,968 Other capital 63,290 63,260 Retained earnings 15,594 13,119 Treasury stock at cost: Common shares - 119,221 (1,840) (1,840) Total shareholders' equity 92,056 89,539 Total liabilities and shareholders' equity $302,887 $272,072 See accompanying notes to consolidated financial statements. -4- DRAVO CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (unaudited, $ in 000's, except per share data) Quarters ended September 30, 1994 1993 Revenue $ 75,305 $ 76,126 Cost of revenue 62,636 62,189 Gross profit 12,669 13,937 Selling, general and administrative expenses 7,379 7,865 Earnings from operations 5,290 6,072 Other income (expense): Equity in earnings (loss) of joint ventures 689 (42) Other income (50) 413 Interest income 224 318 Interest expense (2,480) (2,306) Net other expense (1,617) (1,617) Earnings before taxes 3,673 4,455 Provision (benefit) for income taxes (194) 224 Net earnings 3,867 4,231 Preference dividends 636 638 Net earnings available for common stock $ 3,231 $ 3,593 Earnings per share: Operations $ 0.22 $ 0.24 Weighted average shares outstanding 14,927 14,904 See accompanying notes to consolidated financial statements. -5- DRAVO CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (unaudited, $ in 000's, except per share data) Nine months ended September 30, 1994 1993 Revenue $205,614 $208,129 Cost of revenue 172,725 169,972 Gross profit 32,889 38,157 Selling, general and administrative expenses 22,195 23,861 Earnings from operations 10,694 14,296 Other income (expense): Equity in earnings (loss) of joint ventures 1,467 (35) Other income 566 514 Interest income 568 985 Interest expense (7,118) (6,913) Net other expense (4,517) (5,449) Earnings before taxes 6,177 8,847 Provision for income taxes 432 530 Earnings before cumulative effect of accounting change 5,745 8,317 Cumulative effect of accounting change, net of tax (1,361) -- Net earnings 4,384 8,317 Preference dividends 1,909 1,916 Net earnings available for common stock $ 2,475 $ 6,401 Earnings (loss) per share: Operations $ 0.26 $ 0.43 Cumulative effect of accounting change (0.09) -- Total $ 0.17 $ 0.43 Weighted average shares outstanding 14,932 14,874 See accompanying notes to consolidated financial statements. -6- DRAVO CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (unaudited, $ in 000's) Nine months ended September 30, 1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 4,384 $ 8,317 Adjustments to reconcile net earnings to net cash provided (used) by continuing operations activities: Depreciation and amortization 13,139 13,385 Cumulative effect of accounting change 1,361 -- Gain on sale of assets (566) (514) Equity in joint ventures 278 (1,996) Changes in assets and liabilities: Increase in accounts receivable (3,626) (13,358) Decrease (increase) in notes receivable 757 (46) Decrease in inventories 6,581 6,655 Increase in other current assets (4,092) (14) Increase in accounts payable and accrued expenses 14,227 985 Increase in other assets (6,894) (6,866) Increase in other liabilities 1,045 428 Net cash provided by continuing operations activities 26,594 6,976 Decrease in net liabilities of discontinued operations (4,738) (8,718) Proceeds from repayment of notes receivable from sale of discontinued operations 1,200 1,592 Net cash used by discontinued operations activities (3,538) (7,126) Net cash provided (used) by operating activities 23,056 (150) CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of assets 1,456 874 Additions to property, plant and equipment (39,018) (8,486) Net cash used by investing activities $(37,562) $ (7,612) See accompanying notes to consolidated financial statements. -7- DRAVO CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (unaudited, $ in 000's) Nine months ended September 30, 1994 1993 CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowing under revolving credit agreements $ 6,900 $ 11,099 Principal payments under long-term notes (1,477) (1,462) Principal payments under capital lease obligations -- (257) Proceeds from long-term notes 10,980 386 Proceeds from issuance of common stock 42 101 Dividends on preference stock (1,909) (1,916) Net cash provided by financing activities 14,536 7,951 Net increase in cash and cash equivalents 30 189 Cash and cash equivalents at beginning of period 808 970 Cash and cash equivalents at end of period $ 838 $ 1,159 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid (received) during the period for: Interest (net of amount capitalized) $ 6,970 $ 6,885 Income tax (53) 601 See accompanying notes to consolidated financial statements. -8- 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). 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) September 30, December 31, 1994 1993 Finished goods $34,176 $40,660 Work in process 2,730 3,092 Materials and supplies 14,049 13,784 Net inventories $50,955 $57,536 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. -9- DRAVO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (3) Contingent Liabilities The company has been notified by the Federal Environmental Protection Agency (EPA) that the EPA believes the company is a potentially responsible party (PRP) for the clean-up of soil and groundwater contamination at three subsites in Hastings, Nebraska, one of the EPA's priority sites for taking remedial action under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). At one of these subsites, a municipal landfill, the company, after a limited investigation, has determined that it believes it disposed of no hazardous substances at the particular site and has so informed the EPA. On December 31, 1991, the EPA sent a formal demand to the company as well as other PRPs at this subsite demanding that they reimburse the EPA for already incurred response costs in the amount of $1.2 million, and requesting that the PRPs submit a good faith proposal to perform soil and groundwater remediation at this subsite. The company has rejected the EPA's demand and decided not to submit the offer requested by the EPA. No PRP at this subsite has agreed to pay the EPA's response costs. As a result, statutory interest is being added to the EPA's response costs. Other PRPs, including the local municipality, have agreed to perform the remedial investigation and to design soil and groundwater remediation remedies at this subsite, but no party has agreed to conduct the remediation. At the second subsite, the company, again after a limited investigation, concluded that release of contaminants from this subsite is not sufficient to warrant the taking of remedial action. In January, 1994 the EPA sent a specific notice to the company that the EPA considered it and three other parties PRPs at this subsite. The letter invited the company and the other PRPs to make an offer to conduct a remedial investigation and feasibility study (RI/FS) of this subsite and stated that the EPA was in the process of preparing a workplan for the RI/FS. With respect to the third subsite, the company and another PRP were served with administrative orders in 1990 and 1993 directing them to undertake soil remediation and interim groundwater remediation at that subsite. On October 26, 1994, the EPA amended these administrative orders to add a third PRP as a respondent. The company is currently complying with these orders while reserving its right to seek reimbursement from the United States for its costs if it is determined it is not liable for response costs or if it is required to incur costs because of arbitrary, capricious or unreasonable requirements imposed by the EPA. The issuance of the order concerning interim groundwater remediation followed many months of unresolved negotiations with the EPA, with one of the other PRPs and with the company's insurers with respect to the EPA's demands that the company and the other PRP either finance or voluntarily undertake the interim groundwater remediation as well as their liability to complete the soil remediation and to pay for past response costs. The State of Nebraska has indicated it will consider a petition to adopt alternate groundwater clean-up criteria for this subsite. The EPA is also considering whether -10- DRAVO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (3) Contingent Liabilities (continued) it can adopt alternate standards approved by the EPA. If an alternate groundwater clean-up criteria is approved by the State and the EPA, it might substantially affect groundwater remediation costs. The company is considering whether to file such a request with the State of Nebraska. The EPA has taken no legal action with respect to its demand that the company and the other PRPs pay its past response costs. A total of five parties have been named by the EPA as PRPs at this subsite. The company believes other persons should also be named as PRPs. The company may proceed against other parties at the subsite who have not been named by the EPA as PRPs or who have not contributed to the company's cost in complying with the EPA's administrative orders. In addition to subsite clean-up, the EPA is seeking a clean-up of area- wide contamination associated with various subsites in and around Hastings, Nebraska, including those subsites at which the company has been named a PRP. The company, along with other PRPs from this subsite and various other subsites, has recommended that the EPA adopt institutional controls as the area-wide remedy. The EPA has decided to conduct an area- wide remedial investigation utilizing existing information and some additional data it plans to gather. The EPA has asked all of the Hastings PRPs to undertake an area-wide feasibility study. The company, along with seven other PRPs, has indicated to the EPA that it is willing to discuss this possibility. The State of Nebraska has indicated it is willing to consider alternate groundwater clean-up levels for the area-wide groundwater contamination, and the EPA is considering whether it can adopt such standards for the area-wide groundwater contamination. The PRPs have not yet decided whether to petition the state to approve alternative clean-up levels. The company notified its primary and excess general liability insurance carriers of the claims by the EPA at the first and third subsites. Although one primary carrier agreed to pay for a part of the company's defense, it has not done so and has refused to pay for expenses the company has already incurred. The company's other primary carrier has declined coverage altogether. On August 10, 1992 the company filed suit in the Alabama District Court against its primary liability insurance carriers 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). This complaint is limited to the EPA's claims at the third subsite. The suit has been amended to include as a defendant the excess liability carrier of the company's predecessor at the site. An investigation of the coverage provided by the primary carrier of the company's predecessor is also underway. An award of punitive damages is being sought against two of these carriers for their bad faith in failing to investigate the company's claim and/or denying the company's claim. The case is proceeding in accordance with a case management order issued by the District Court Magistrate assigned to handle pretrial matters. The -11- DRAVO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (3) Contingent Liabilities (continued) 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 subsite. Estimated total cleanup costs, including capital outlays and future maintenance costs for soil and groundwater remediation of approximately $17 million, are based on independent engineering studies. The company has assumed that it will participate in 33 percent of the costs. Included in the discontinued operations provision is the company's estimate of its share of the likely cost of soil and groundwater remediation at these three subsites. 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. In June 1994, the company received two general notices of liability from EPA advising the company that it is potentially liable for the cost of responding to the release or threat of a release of hazardous substances at a site located in Slidell, St. Tammany Parish, Louisiana. These notices contain an offer from the EPA to enter into negotiations with potentially responsible parties to conduct necessary response actions at the site. The company believes that similar notices were sent to 200 other parties. The company has decided not to enter into negotiations with the EPA to conduct response actions. The company does not believe that it transported cargo or waste of any kind to the site. The only transactions involving the site of which the company has any knowledge involve equipment repairs that did not involve cleaning, sandblasting or other activities which might have generated hazardous substances. The company has notified its primary liability insurers of the receipt of these notices. They are investigating the matter and have not yet advised the company of their coverage positions. In 1990, the company filed an action now pending in Luzerne County, Pennsylvania alleging breach of contract and unjust enrichment arising out of the termination of a Turnkey Construction Contract for the Hazleton Gasification Facility Expansion. The suit named as defendants Continental Energy Associates (CEA), the project owner, Continental Cogeneration Corporation (CCC), the general partner of CEA, and Swiss Bank Corporation, the project lender. CEA and CCC filed a separate suit against the company which, as amended, seeks damages for breach of contract, negligent design and construction, negligent misrepresentation, fraud and tortious interference with the contract of surety. The two suits, along with a third action commenced by CEA and CCC against the company's surety, the Insurance Company of North America, have been consolidated. Documents produced by CEA and CCC during the course of discovery allege claims at an amount from approximately $10 million to approximately $35 million. However, the construction contract contains a provision limiting damages -12- DRAVO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (3) Contingent Liabilities (continued) to the value of the contract (a net of approximately $10 million) which the company would seek to have specifically enforced. The company continues to vigorously assert its claims and to deny any liability. If these lawsuits, claims and assertions, discussed above, are sustained against the company, material charges would be recorded in the company's financial statements. However, in some instances, it is not possible to determine the outcome of these matters or to estimate with any degree of certainty the range of potential costs which may be involved. In other instances, based upon the knowledge the company has of these lawsuits, claims and assertions, management believes the ultimate disposition of these matters will not result in material charges to earnings in excess of amounts recorded in the financial statements. Other claims and assertions made against the company, will be resolved, in the opinion of management, without material additional charges to earnings. The company has asserted claims, both in lawsuits and in administrative proceedings for contract adjustments under various contracts, which management believes to be meritorious, but no estimate can be made at present of the timing or the amount of recovery. The company filed an action in 1981 to collect on a promissory note issued by Meladuras Portuguesa, C.A. (Melaport) and its principal, Alberto Caldera (Caldera). In 1985, Melaport and Caldera filed a counterclaim for damages alleging the company breached a contract between Melaport and the company relating to engineering and procurement services rendered between 1973 and 1978 for a sugar cane processing facility. A local Venezuelan court ruled partially in favor of Melaport's counterclaim. The ruling was upheld by a Venezuelan appeals court on September 25, 1992 and by the Venezuelan Supreme Court on June 8, 1993. The court ruling did not specify damages to be paid but rather identified certain categories of damages to which Caldera and Melaport are entitled. The amount of damages in these categories was to have been established by an appraisal process conducted by the trial court. Opposing counsel asserted that the damages would be in excess of $35 million. On November 2, 1993, the company filed suit against Melaport and Caldera in the United States District court for the Western District of Pennsylvania, seeking an injunction and a declaratory judgment with respect to the proceedings in Venezuela. The company also requested a determination that any judgment in the Venezuelan proceedings could not be enforceable against the company. By agreement dated September 7, 1994, the parties agreed to settle all disputes related to these matters in exchange for the payment by the company of $4.5 million. Both the Venezuelan and U.S. lawsuits have since been dismissed. -13- DRAVO CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (4) Discontinued Operations In December, 1987, Dravo's Board of Directors approved a major restructuring program which concentrated the company's future direction exclusively on opportunities involving its natural resources business. The plan included the sale or other disposition of the former Engineering and Construction segment. No provision has been made, except as noted, for the ultimate outcome of the matters in litigation which are disclosed in Note 3: Contingent Liabilities, because the outcome of these matters cannot be predicted or reasonably estimated. A ruling by the courts or a settlement of the disputes that is adverse to Dravo's position, or other unforeseen developments, could require a future additional provision for losses on discontinued operations. The remaining assets and liabilities at September 30, 1994 and December 31, 1993 of the discontinued operations relate to certain remaining unresolved construction contract issues, accrued losses on leases and various insurance, environmental, and other matters associated with exiting the engineering and construction business and are presented below: ($ in 000's) September 30, December 31, 1994 1993 Current assets: Accounts and retainers receivable $ 24 $ 23 Other 6,400 3,512 Total current assets 6,424 3,535 Accounts and retainers receivable 444 472 Other 1,852 309 Total assets $ 8,720 $ 4,316 Current liabilities: Accounts and retainers payable $ 130 $ 178 Accrued loss on leases 2,344 2,448 Other 8,207 5,363 Total current liabilities 10,681 7,989 Accounts and retainers payable -- 45 Accrued loss on leases 6,189 7,854 Other 13,696 15,012 Total liabilities $ 30,566 $ 30,900 Net liabilities and accrued loss on leases of discontinued operations $(21,846) $(26,584) -14- (5) Notes Payable In August, the company entered into an arrangement with Prudential Power Funding Associates, a unit of The Prudential Insurance Company of America, to finance an expansion project at the company's Black River lime facility located in Carntown, Kentucky. The company may borrow up to $50 million during construction on Senior Secured Construction Notes bearing interest at 10.13 percent per annum. After substantial completion of the project, but no later than September 30, 1995, the Construction Notes will be paid in full and Prudential will purchase Senior Secured Term Notes due August 1, 2010, in the maximum principal amount of $50 million. The Term Notes will bear interest at 10.13 percent per annum and have semi-annual payments of principal and interest starting in February, 1996. The principal security for the financing is a long-term lime supply contract with Ohio Power Company, a ground lease with Dravo Lime Company and the physical assets of the expansion project, including two new lime kilns. -15- DRAVO CORPORATION AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations Quarterly earnings were $3.9 million, 22 cents per share, compared to $4.2 million, 24 cents per share, in last year's third quarter. Income from the company's aggregate operations decreased marginally due to flat sales tonnage and revenue. An increase in lime sales tonnage helped to partially offset the income decline experienced because of price concessions given as part of the company's efforts to renew long-term lime supply contracts that were approaching expiration. Earnings from joint ventures were improved over last year due to strong demand for phosphorus produced by an Idaho joint venture mining operation and improved results by a Louisiana shell dredging joint venture. Year-to-date earnings of $4.4 million reflect a $1.4 million first quarter expense resulting from the adoption of a change in accounting for postemployment benefits. Excluding the impact of the accounting change, earnings are $2.6 million less than last year due to price competition in the utility lime market and increased production costs. Higher production costs were incurred at lime and aggregate facilities located in the Ohio River Valley as a result of unusually bad weather in the first quarter and adverse river conditions which continued through April. Partially offsetting the gross profit shortfall in the lime and aggregate operations were lower selling, general and administrative expenses, primarily from a cost reduction program, and higher earnings from the phosphorus ore mining and shell joint ventures. In the third quarter a settlement agreement was reached for $4.5 million resolving litigation in which a Venezuelan client of our discontinued engineering and construction operations had claimed damages in excess of $35 million. The uncertainty associated with this dispute having been eliminated, previously accrued 1994 federal income tax expense was reversed, thus restoring to its original amount a tax asset recorded in 1993. The company has net operating loss carryforwards in excess of the recorded tax asset and has the ability to implement the same tax planning strategy that resulted in booking the 1993 tax asset. In August, the company finalized a $50 million debt financing arrangement with Prudential Power Funding Associates, a unit of The Prudential Insurance Company of America. Borrowings under the 15-year, 10.13 percent fixed rate loan are being used to finance an increase in production capacity at the Black River lime facility located in Carntown, Kentucky. Start-up of the expanded facility is expected early in 1995. At September 30, 1994, $11.0 million was borrowed under the financing agreement. The company reached an agreement in principle with Allegheny Power System, Inc. (APS) to renew a long-term supply agreement for APS's Pleasants Station. Under this agreement, the company will supply approximately 175,000 tons of lime annually for ten years. Prices under the renewal agreement are lower than the contract that it replaces. Future sales prices will be subject to escalation. -16- DRAVO CORPORATION AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations On September 26, 1994, the company signed a letter of intent with Martin Marietta Materials, Inc. (MMM) whereby MMM would purchase for cash the assets of the company's construction aggregates business. It is anticipated that the assets, including accounts receivable and inventories, will be purchased for a price between $125 and $135 million. The company would retain substantially all of the liabilities associated with the aggregates business. The transaction is expected to close in December, 1994 following completion of due diligence investigations and a Hart-Scott-Rodino antitrust review. The company anticipates using the net proceeds from the sale to reduce short-term and long-term debt. -17- DRAVO CORPORATION AND SUBSIDIARIES PART II - Other Information Item 1. Legal Proceedings On October 17, 1994, the Fifth Civil, Mercantile and Traffic Court of First Instance for the Judicial District of Metropolitan Caracas, Venezuela accepted the settlement negotiated between the company and Meladuras Portugesa and the heirs of its principal, Alberto Caldera. On October 28, 1994, the United States District Court for the Western District of Pennsylvania entered a dismissal of the related lawsuit brought by the company against Meladuras Portugesa. Additional information relating to this matter can be found in Note 3, Contingent Liabilities. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits The following is filed as an exhibit to Part I of this Form 10-Q: Exhibit No. 11 - Statement re computation of per share earnings. (b) Reports on Form 8-K The company filed no Reports on Form 8-K for the quarter ended September 30, 1994. -18- 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: November 11, 1994 /s/ERNEST F. LADD III Ernest F. Ladd III Executive Vice President, Finance and Administration Date: November 11, 1994 /s/LARRY J. WALKER Larry J. Walker Controller (Principal Accounting Officer) -19- Exhibit 11. Statement Re Computation of Per Share Earnings (In 000's, except per share data) Quarters ended September 30, Primary 1994 1993 Earnings: Net earnings $ 3,867 $ 4,231 Deduct dividends on preference stock 636 638 Net earnings applicable to common stock $ 3,231 $ 3,593 Shares: Weighted average number of common shares outstanding 14,863 14,838 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) 64 66 Weighted average number of shares outstanding, as adjusted 14,927 14,904 Primary earnings per share $ 0.22 $ 0.24 Fully diluted Earnings: Net earnings $ 3,867 $ 4,231 Deduct dividends on preference stock (1) 636 638 Net earnings applicable to common stock $ 3,231 $ 3,593 Shares: Weighted average number of common shares outstanding 14,863 14,838 Dilutive effect of outstanding options and rights (as determined by the application of the treasury stock method at the higher of the closing or the average market price for the period) 101 64 Weighted average number of shares outstanding, as adjusted 14,964 14,902 Fully diluted earnings per share $ 0.22 $ 0.24 -20- Exhibit 11. Statement Re Computation of Per Share Earnings (continued) (In 000's, except per share data) Quarters ended September 30, Additional Fully Diluted Computation (2) 1994 1993 Earnings: Net earnings $ 3,867 $ 4,231 Shares: Weighted average number of common shares outstanding 14,863 14,838 Dilutive effect of outstanding options and rights (as determined by the application of the treasury stock method at the higher of the closing or average market price for the period) 65 64 Shares issuable from assumed exercise of convertible preference stock 1,695 1,708 Weighted average number of shares outstanding, as adjusted 16,623 16,610 Fully diluted earnings per share $ 0.23 $ 0.25 (1) The inclusion of preference stock in the fully dilutive computation would have an anti-dilutive effect on earnings per share. (2) This calculation is submitted in accordance with Securities Exchange Act of 1934, Regulation S-K, paragraph 229.601 (b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15 because it produces an anti-dilutive result. -21- Exhibit 11. Statement Re Computation of Per Share Earnings (In 000's, except per share data) Nine months ended September 30, Primary 1994 1993 Earnings: Earnings before cumulative effect of accounting change $ 5,745 $ 8,317 Deduct dividends on preference stock 1,909 1,916 Earnings before cumulative effect of accounting change applicable to common stock 3,836 6,401 Cumulative effect of accounting change (1,361) -- Net earnings applicable to common stock $ 2,475 $ 6,401 Shares: Weighted average number of common shares outstanding 14,858 14,831 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) 74 43 Weighted average number of shares outstanding, as adjusted 14,932 14,874 Primary earnings per share: Operations $ 0.26 $ 0.43 Cumulative effect of accounting change (0.09) -- Net earnings per share $ 0.17 $ 0.43 Fully diluted Earnings: Net earnings $ 4,384 $ 8,317 Deduct dividends on preference stock (1) 1,909 1,916 Net earnings applicable to common stock $ 2,475 $ 6,401 Shares: Weighted average number of common shares outstanding 14,858 14,831 Dilutive effect of outstanding options and rights (as determined by the application of the treasury stock method at the higher of the closing or the average market price for the period) 101 48 Weighted average number of shares outstanding, as adjusted 14,959 14,879 -22- Exhibit 11. Statement Re Computation of Per Share Earnings (continued) (In 000's, except per share data) Nine months ended September 30, 1994 1993 Fully diluted earnings (loss) per share: Operations $ 0.26 $ 0.43 Cumulative effect of accounting change (0.09) -- Net earnings per share $ 0.17 0.43 Additional Fully Diluted Computation (2) Earnings: Net earnings $ 4,384 $ 8,317 Shares: Weighted average number of common shares outstanding 14,858 14,831 Dilutive effect of outstanding options and rights (as determined by the application of the treasury stock method at the higher of the closing or average market price for the period) 70 48 Shares issuable from assumed exercise of convertible preference stock 1,698 1,711 Weighted average number of shares outstanding, as adjusted 16,626 16,590 Fully diluted earnings per share $ 0.26 $ 0.50 (1) The inclusion of preference stock in the fully dilutive computation would have an anti-dilutive effect on earnings per share. (2) This calculation is submitted in accordance with Securities Exchange Act of 1934, Regulation S-K, paragraph 229.601 (b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15 because it produces an anti-dilutive result. -23- EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DRAVO CORPORATION'S 10-Q DATED SEPTEMBER 30, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1994 SEP-30-1994 838 0 49,033 1,182 50,955 108,843 341,368 206,411 302,887 62,894 0 14,983 20,000 29 77,044 302,887 205,614 205,614 172,725 172,725 0 189 7,118 6,177 432 5,745 0 0 (1,361) 4,384 .17 .17
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