Annual Report (Form 10-K), fiscal year 1994

Item 1. Business
(a) General Development of the Business
Dravo Corporation (the Registrant) was incorporated in Pennsylvania in 1936 to consolidate several related corporations then operating various elements of a business started in 1891 by F. R. Dravo. Its corporate offices are located at 3600 One Oliver Plaza, Pittsburgh, Pennsylvania 15222-2682, and its telephone number is 412-566-3000. As used herein, the term Dravo includes its consolidated subsidiaries unless otherwise indicated. In December, 1987, Dravo's Board of Directors approved a major restructuring program which concentrated Dravo's future direction exclusively on opportunities involving its natural resources business. The plan included the sale or other disposition of the former Engineering and Construction segment, as well as the sale of the former Materials Handling and Systems segment approved earlier. All units scheduled for sale were sold by the end of 1989. The remainder of these businesses have been presented as discontinued operations in the financial statements.
Late in 1994, the company sold substantially all the assets and certain liabilities of Dravo Basic Materials Company, its construction aggregates subsidiary, to Martin Marietta Materials, Inc. (Martin Marietta). As a result, Dravo is now primarily a lime company operating principally in the United States. Activities include the production of lime for utility, metallurgical, pulp and paper, municipal, construction and miscellaneous chemical and industrial applications. Operations are principally carried on by a wholly- owned subsidiary, Dravo Lime Company (Dravo Lime). All of the properties on which the company's reserves are located are physically accessible for purposes of mining and processing limestone into lime.
Dravo Lime, one of the nation's largest lime producers, owns and operates three integrated lime production facilities, two in Kentucky and one in Alabama. The Black River plant in Butler, Kentucky is nearing completion of a two kiln expansion. When that expansion is on-line, Dravo Lime's annual quicklime capacity will total approximately three million tons.
The Maysville facility, a 1,050,000 ton-per-year plant near Maysville, Kentucky, produces material, marketed under the trade name ThiosorbicR Lime, that has a product chemistry ideally suited for removing sulphur dioxide from power plant stack gases. All of Maysville's output is committed under long- term contracts with utility companies in the Ohio Valley region. All contracts contain provisions for price escalation. Owned reserves at the Maysville site are recovered from a mine 950 feet underground and are considered adequate to sustain the current three kiln production in excess of thirty years. Dravo Lime also holds options on additional limestone reserves to sustain production for an additional thirty year period.
With the completion of the current two kiln expansion, Dravo Lime's Black River facility will be an integrated ThiosorbicR and high calcium quicklime, bulk and bagged hydrated lime facility. Located along the Ohio River at Butler, Kentucky, Black River will have an annual quicklime capacity of 1,350,000 tons- per-year. Of that total, in excess of seventy percent is committed to utility companies and steel producers under contracts with price escalation provisions. Limestone
reserves at Black River are recovered from a 600-feet-deep underground mine. At Black River's expanded rate of capacity, reserves are considered adequate to sustain production levels for more than seventy-five years.
The company's Longview facility, located near Birmingham, Alabama, is an integrated facility as well that produces high calcium quicklime, and bulk and bagged hydrated lime from owned limestone reserves. At this plant, Dravo Lime also produces dolomitic quicklime from limestone purchased from a nearby dolomitic stone quarry. Due to its material handling and storage capabilities and its ability to produce high calcium and dolomitic lime, the Longview facility is able to custom blend quicklime to its customers' chemical specifications. In April, 1991, Longview completed an expansion that increased its annual production capacity to approximately 570,000 tons per year. The additional production has been used to meet the needs of long-term contracts for precipitated calcium carbonate, a product used by the pulp and paper industry. The remainder of Longview's production is marketed to the full range of traditional lime markets. Limestone at the Longview operation comes from an above-ground quarry with recoverable reserves estimated to last in excess of twenty years at the current production rate. Ultimately, Dravo Lime expects to convert Longview to an underground mine, providing access to additional reserves sufficient to support current production rates for over sixty years.
In conjunction with the sale of Dravo Basic Materials' assets to Martin Marietta, Dravo Lime entered into agreements appointing Martin Marietta the exclusive distributor of aggregate by-products produced by Dravo Lime during the lime production process. As part of the distributorship agreement covering Dravo Lime's Longview facility, an aggregates processing facility is being constructed that will make available between 500,000 and 1,000,000 tons of aggregates annually for purchase by Martin Marietta. An additional benefit of this installation will be a reduction in the cost Dravo Lime otherwise would have incurred to recover the high calcium limestone reserves that lie below the aggregate quality material.
Dravo Lime products are distributed through quicklime distribution terminals in Aliquippa, Butler and Elizabeth, Pennsylvania; Porterfield, Ohio; Brunswick and Savannah, Georgia; and Jacksonville, Fort Lauderdale and Sanford, Florida. At Baton Rouge, Louisiana, Dravo Lime owns and operates a lime hydration and bagging facility from which quicklime, and bulk and bagged hydrated lime products are distributed.
(b) Competitive Conditions
Dravo encounters competition at all its operations but believes that its experience, its strategically located reserves and its technical expertise in the flue gas desulfurization industry give it certain competitive advantages. Dravo's research and development expenditures were $4.4 million in 1994 and $4.2 million in 1993. Research and development spending in 1995 is expected to exceed $3.2 million. The company expects the research, much of which is being conducted jointly with utility customers, to lower both the capital and operating costs
associated with Dravo's proprietary ThiosorbicR scrubbing technology. Other research projects are aimed at developing proprietary reagents for use in reducing stack gas emissions and at recovering and processing saleable by- products. Dravo believes that in this field its long-term contracts, accumulated experience and technical skill represent significant competitive advantages.
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.
Continuing operations of Dravo Corporation, which are principally domestic in nature, function in one segment, a natural resource business, involved in the production, processing and supply of lime for environmental, metallurgical, pulp and paper, municipal, construction and miscellaneous chemical and industrial applications. Dravo's position as the world's leading producer of lime for flue gas desulfurization applications was enhanced by the passage of the 1990 Clean Air Act Amendments.
Further information required by this item is incorporated by reference to the information set forth under the captions indicated below in the 1994 Annual Report to Shareholders which accompanies this report:
Caption in Annual Report Page No.
Results of Operations 18 - 20 Note 16: Research and Development 38 Employees at Year-End 41
Item 2.



Item 2. Properties
The following is a listing of principal offices, plants and mines used in operations:
Owned or Use Location 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 Brunswick, Georgia Leased Savannah, Georgia Leased Baton Rouge, Louisiana Owned Porterfield, Ohio Leased Aliquippa, Pennsylvania Leased Butler, Pennsylvania Leased Elizabeth, Pennsylvania Leased
Offices and plants associated with businesses treated herein as discontinued operations have been excluded from this presentation.
The following table shows a summary of the company's reserves at December 31, 1994 and tons mined by Dravo Lime in 1994.
(Tons in millions) Recoverable 1994 Reserves Production
Underground Mines: Owned 445.6 4.8 Quarries and Other: Owned 56.5 1.5
502.1 6.3
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.
Item 3.

Item 3. Legal Proceedings
The company has been notified by the U. S. Environmental Protection Agency (EPA) that the EPA considers the company as a potentially responsible party (PRP) for soil and groundwater contamination at four subsites in or around Hastings, Nebraska. The Colorado Avenue subsite includes property on which the company formerly operated a fabrication facility. For this subsite, the EPA has issued, pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, administrative orders to the company and two other PRPs which require them to provide interim remedies for soil and groundwater contamination. The company has been complying with these orders while reserving its right to seek reimbursement from the United States for its costs if it is determined the company is not liable for response costs or if it is required to incur costs because of arbitrary, capricious or unreasonable requirements imposed by EPA.
The EPA has taken no legal action with respect to its demand that the company and the other PRPs pay its past response costs. A total of five parties have been named by the EPA as PRPs at this subsite, but two of them have been granted de minimis status. The company believes other persons should also be named as PRPs.
The company, along with a number of others, is also considered a PRP with respect to subsites at the municipally owned North and South Landfills in Hastings, Nebraska. The North Landfill closed before the company commenced operations in Hastings, Nebraska. A predecessor may have used this landfill to dispose of waste materials, but there is no evidence known to the company that these materials were hazardous. Moreover, Dravo believes the operations of Dravo's predecessor which might have generated the type of hazardous substances found at this landfill did not begin until after this landfill was closed. On December 31, 1991 the EPA issued a formal demand to the company and other PRPs for reimbursement of costs the EPA has incurred at the North Landfill and has also solicited an offer from the company and the other PRPs to conduct or finance remedial work at this subsite for both soil and groundwater contamination. The company has rejected the EPA's demand to reimburse the EPA for its costs and decided not to submit the offer requested. No PRP at this subsite has agreed to pay the EPA's response costs. Other PRPs, including the local municipality, however, have agreed to perform the remedial investigation and to design soil and groundwater remedies at this subsite. EPA has not completed the remedial investigation with respect to the South Landfill subsite, and it is not evident to the company that remedial work is warranted. In January, 1994 the EPA sent a specific notice to the company that the EPA considered it and three other parties (including the City of Hastings) PRPs at this subsite. At this subsite, the company has preliminarily concluded that the City of Hastings is primarily responsible for a proper closure of the South Landfill pursuant to state landfill closure requirements and that a proper closure might alleviate any release of contaminants from the landfill.
The fourth subsite (NAD subsite) is a former naval ammunition depot which was subsequently converted to an industrial park in the 1960s. The company and its predecessor also owned and operated a fabrication facility in this industrial park. To date, the company's investigation indicates that it did not cause the release of hazardous substances at this subsite during the time it owned and operated the facility. The United States Army Corps of Engineers has undertaken to conduct the remediation of this subsite.
In addition to subsite cleanup, the EPA is seeking a cleanup of area-wide contamination associated with all of the subsites in and around Hastings, Nebraska. The company, along with other Hastings PRPs, has recommended that the EPA adopt institutional controls as the area-wide remedy in Hastings and the final subsite remedy. EPA has indicated some interest in this proposal but has decided to first conduct an area-wide remedial investigation before choosing a remedy.
On August 10, 1992, the company filed suit in the Alabama District Court against its primary general liability insurers, Hartford Accident and Indemnity Company and Liberty Mutual Insurance Company, and one of its predecessor's insurers, Bituminous Casualty Company, 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 Hartford). The company has settled its claim against Bituminous, but the company's claims against Hartford and Liberty Mutual are still being litigated. The company has notified its primary and excess general liability carriers, as well as its predecessor's carriers, of the potential claims at the North Landfill, South Landfill and NAD subsites.
On February 21, 1990, the company filed suit against Continental Energy Associates (CEA), the owner of a cogeneration facility in Hazleton, Pennsylvania, Continental Cogeneration Corporation (CCC), the owner's general partner, and Swiss Bank Corporation, the project's lender. The company claims damages for breach of contract and unjust enrichment arising out of the termination of the company's contract to construct, as part of the facility, a coal gasification plant. On February 23, 1990, CEA and CCC filed suit against the company which, as amended, seeks damages for breach of contract, negligent misrepresentation, fraud and tortious interference with the contract of surety. The lawsuits have been consolidated in the Court of Common Pleas of Luzerne County, Pennsylvania.
On November 14, 1994, during the pendency of discovery in these lawsuits, CEA filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Middle District of Pennsylvania. The company has been identified as an unsecured creditor in that proceeding. On December 2, 1994, CCC also filed for Chapter 11 bankruptcy protection in the same court. The bankruptcy filings of both CEA and CCC have stayed the consolidated Luzerne County lawsuits pursuant to the applicable provisions of the Bankruptcy Code.
In January, 1995, the Bankruptcy Court entered an order approving non-binding mediation of these lawsuits with the company. An initial mediation session held in early March, 1995, did not result in resolution of the lawsuits.
Other 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 32 through 33 of the 1994 Annual Report to Shareholders which accompanies this report.
Item 4.

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, 1994.
PART II
Item 5.

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 1994 Annual Report to Shareholders which accompanies this report:
Caption in Annual Report Page No.
Common Stock Market Price 21
Shareholders at year-end 41
Dividends 20, 41
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, 1994 issued preference and common shares were 228,386 and 14,985,839, respectively.
The Board of Directors has by resolutions established four series of preference stock: $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, which are issuable pursuant to the exercise of the rights to purchase stock described below; and 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 28,386 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. Other series of preference stock may be created by resolutions 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 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 C Preference Stock is an amount per share (rounded to the nearest cent) equal to the greater of $10.00 or 100 times the aggregate per share amount of all cash and non-cash dividends or other distributions, other than a dividend or distribution payable in shares of common stock, paid on the common stock in the immediately preceding quarter, subject to adjustment in certain events. 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 30 and 31 of the 1994 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; the holders of Series C Preference Stock shall be entitled to receive $100 per share plus all accrued and unpaid dividends plus an amount equal to the holder's pro rata share of the amount that would be available for distribution after payment of all liabilities,
liquidation preferences and a distribution on the common stock, if any, as determined according to a formula; 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.
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 C Preference Stock may be redeemed as a whole, but not in part, at the option of Dravo, at any time, at a cash price per share based upon the average market value, as defined and adjusted, of the common stock plus all accrued but unpaid dividends. The Series D Preference Stock may be redeemed in whole or in part at the option of Dravo at any time after September 21, 1996, by the payment of $100 per share and all accumulated and unpaid dividends to the redemption date, so long as the current market price (as defined in the Certificate of Designations, Preferences and Rights for the Series D Preference Stock) of the common stock on the date the Board decides to redeem the shares is at least 175 percent of the then effective conversion price for the Series D Preference Stock. Commencing on the first quarterly dividend payment date after September 21, 1998 and annually thereafter, Dravo is required to redeem 50,000 shares of Series D Preference Stock in cash at the redemption price of $100 per share plus all accumulated and unpaid dividends. Dravo is also required (unless certain conditions are met) to redeem all of the then outstanding shares of Series D Preference Stock in cash at $100 per share plus all accumulated and unpaid dividends (a) if Dravo declares or pays or sets apart for payment any dividends or makes any other distribution in cash or other property on or in respect of the common stock or any other class or series of the capital stock of Dravo ranking junior to the Series D Preference Stock as to payment of dividends ("Junior Dividend Stock"), or sets apart money for any sinking fund or analogous fund for the redemption or purchase of any Junior Dividend Stock and (b) upon any merger or consolidation of Dravo if, in connection therewith, the holders of the common stock receive cash, debt instruments or preference stock of the surviving entity which ranks on a parity with or senior to the Series D Preference stock with respect to liquidation, dissolution or winding up or dividends. There are no sinking fund provisions with respect to the common stock or the Series B Preference Stock, Series C Preference Stock or Series D Preference Stock.
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 Series C Preference Stock or the common stock.
Rights to Purchase Series C Preference Stock
The Series C Preference Stock is issuable pursuant to the exercise of rights to purchase Series C Preference Stock. On April 4, 1986, the Board of Directors declared a distribution of one right for each outstanding share of common stock to shareholders of record at the close of business on April 17, 1986 (the "Record Date") and with respect to each share of common stock that may be issued by Dravo prior to the Distribution Date described below or the earlier redemption or expiration of the rights. Each right entitles the registered holder, following the occurrence of certain events described below, to purchase from Dravo a unit consisting of one one-hundredth of a share (a "Unit") of Series C Preference Stock at a purchase price of $60 per Unit, subject to adjustment (the "Purchase Price"). The descriptions and terms of the rights are set forth in a rights agreement (the "Rights Agreement") between Dravo and PNC Bank, N. A. (formerly Pittsburgh National Bank), as the rights agent.
Initially, the rights will be attached to all common stock certificates representing shares then outstanding, and no separate rights certificates will be distributed. The rights will separate from the common stock and a distribution date will occur upon the earlier of (a) 10 days following a public announcement that a person or group of affiliated or associated persons (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of 20 percent or more of the outstanding shares of common stock of Dravo (the "Stock Acquisition Date"), or (b) 10 business days following the commencement of a tender offer or exchange offer that would result in a person or group beneficially owning 30 percent or more of such outstanding shares of common stock. Until the distribution date, (i) the rights will be evidenced by the common stock certificates and will be transferred with and only with such common stock certificates, (ii) new common stock certificates issued after the Record Date will contain a notation incorporating the Rights Agreement by reference, and (iii) the surrender for transfer of any certificate for common stock outstanding will also constitute the transfer of the rights associated with the common stock represented by such certificate.
The rights are not exercisable until the distribution date and will expire at the close of business on April 17, 1996, unless earlier redeemed by Dravo as described below.
In the event that, at any time following the distribution date, (a) Dravo is the surviving corporation in a merger with an Acquiring Person and its common stock is not changed or exchanged, (b) an Acquiring Person becomes the beneficial owner of 30 percent or more of the then outstanding shares of common stock, (c) an Acquiring Person engages in one or more "self-dealing" transactions as set forth in the Rights Agreement, or (d) during such time as there is an Acquiring Person, an event occurs which results in such Acquiring Person's ownership interest being increased by more than one percent (e.g., a reclassification of securities, reverse stock split or recapitalization of Dravo), each holder of a right will thereafter have the right to receive, upon exercise, common stock (or, in certain circumstances, cash, property or other securities of Dravo) having a value equal to two times the Purchase Price of the right. Notwithstanding any of the foregoing, (i) rights are not exercisable following the occurrence of any of the events set forth in this paragraph until such time as the rights are no longer redeemable by Dravo as set forth below, and (ii) following the occurrence of any of the events set forth above, all rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by any Acquiring Person will be null and void.
In the event that, at any time following the stock acquisition date, (i) Dravo is acquired in a merger or other business combination transaction in which Dravo is not the surviving corporation (other than a merger described in the preceding paragraph), or (ii) 50 percent or more of Dravo assets or earning power is sold or transferred, each holder of a right (except rights which previously have been voided as set forth above) shall thereafter have the right to receive, upon exercise, common stock of the acquiring company having a value equal to two times the exercise price of the right. The events set forth in this paragraph and in the preceding paragraph are referred to as the "Triggering Events."
The Purchase Price payable, and the number of units of Series C Preference Stock or other securities or property issuable, upon exercise of the rights are subject to adjustment from time to time to prevent dilution. No fractional units may be issued and, in lieu thereof, an adjustment in cash may be made based on the market price of the Series C Preference Stock on the last trading date prior to the date of exercise.
At any time until ten days following the stock acquisition date, Dravo may redeem the rights in whole, but not in part, at a price of $.01 per right. Under certain circumstances set forth in the Rights Agreement, the decision to redeem shall require the concurrence of a majority of the continuing directors, as defined. After the redemption period has expired and prior to the occurrence of a Triggering Event, Dravo's right of redemption may be reinstated if an Acquiring Person reduces his beneficial ownership to 10 percent or less of the outstanding
shares of common stock in a transaction or series of transactions not involving Dravo. Immediately upon action of the Board of Directors ordering redemption of the rights, with, where required, the concurrence of the continuing directors, the rights will terminate and the only right of the holders of rights will be to receive the $.01 redemption price.
Until a right is exercised, the holder thereof, as such, will have no rights as a shareholder of Dravo, including, without limitation, the right to vote or to receive dividends.
Other than those provisions relating to the principal economic terms of the rights, any of the provisions of the Rights Agreement may be amended by the Board of Directors of Dravo prior to the distribution date. Thereafter, the provisions of the Rights Agreement may be amended by the Board (in certain circumstances, with the concurrence of the continuing directors) in order to cure any ambiguity, to make changes which do not adversely affect the interests of holders of rights (excluding the interests of any Acquiring Person), to suspend the effectiveness of the provision of the Rights Agreement pursuant to which certain rights become void as described above, or to shorten or lengthen any time period under the Rights Agreement; provided, however, that no amendment to adjust the time period governing redemption shall be made at such time as the rights are not redeemable.
The rights may have the effect of preventing or discouraging some attempts to acquire control of Dravo. The rights could cause substantial dilution to a person or group that attempts to acquire control of Dravo on terms not approved by its Board of Directors, unless the offer is conditioned on a substantial percentage of rights being tendered to and acquired by the Acquiring Person. The rights should not interfere with any merger or other business combination approved by the Board of Directors prior to the expiration of the redemption period since the rights may be redeemed by Dravo prior to the expiration of such period and Dravo may suspend the provisions that in certain circumstances prevent an Acquiring Person from exercising its rights. The rights could interfere with a negotiated transaction after an acquisition of 20 percent or more voting power if the rights were not redeemed. The rights will not prevent a holder of a controlling interest from exercising control over Dravo.
A copy of the Rights Agreement has been filed with the Securities and Exchange Commission as an Exhibit to a Report on Form 8-K. A copy of the Rights Agreement is available free of charge from Dravo upon the request of any shareholder. This summary description of the Rights does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement.
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.
Item 6.

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 41 of the 1994 Annual Report to Shareholders which accompanies this report. Dravo has declared no common stock dividends in the five-year period ending December 31, 1994.
Item 7.

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 18 through 21 of the 1994 Annual Report to Shareholders which accompanies this report, to the information set forth under the caption Note 2: "Discontinued Operations" on pages 28 and 29, Note 3: "Dispositions" on pages 29 and 30, Note 7: "Commitments" on pages 31 and 32, Note 8: "Contingent Liabilities" on pages 32 and 33, Note 13: "Income Taxes" on pages 36 through 38 and Note 14: "Extraordinary Item" on page 38 in the Notes to Consolidated Financial Statements of the Annual Report to Shareholders, and to Item 3 - "Legal Proceedings" on pages 7 and 8 of this Form 10-K.
Item 8.


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 22 through 39, and the Independent Auditors' Report set forth on page 40 of the 1994 Annual Report to Shareholders which accompanies this report.
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
PART III
Item 10.



Item 10. Directors and Executive Officers of the Registrant
Information required by this Item as to Directors and nominees for Director is incorporated by reference to the information set forth under the caption "Information Concerning Directors and Nominees for Director" in the Registrant's Proxy Statement for the Annual Meeting of Shareholders on April 27, 1995.
The following information relates to executive officers of Dravo Corporation who are not directors.
Marshall S. Johnson, Age 53, Vice President, Operations and Engineering since December, 1994, Vice President, Operations, Dravo Lime Company from April, 1992 to December 1994; prior thereto Regional Operations Manager, Dravo Lime Company.
Ernest F. Ladd III, Age 54, Executive Vice President, Chief Financial Officer since December, 1994, Executive Vice President, Finance and Administration from December, 1989 to December, 1994.
John R. Major, Age 50, Vice President, Administration since January, 1989.
James J. Puhala, Age 52, Vice President, General Counsel and Secretary since September, 1987.
Donald H. Stowe, Jr., Age 43, Vice President Sales and Technology since December 1994, Executive Vice President, Sales and Technology, Dravo Lime Company from March, 1992 to December, 1994; prior thereto Sr. Vice President, Sales and Technology, Dravo Lime Company.
Larry J. Walker, Age 42, Controller since December, 1989.
Gregory H. Welch, Age 39, Treasurer since January, 1995; Assistant Treasurer from April, 1994 to January, 1995; prior thereto Cash Manager, Dravo Natural Resources Company.
Item 11.

Item 11. Executive Compensation
Information required by this item is incorporated by reference to the information set forth under the caption "Executive Compensation" in the Registrant's Proxy Statement for the Annual Meeting of Shareholders on April 27, 1995.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management
Information required by this item is incorporated by reference to the information set forth under the captions "Security Ownership of Certain Beneficial Owners" and "Ownership by Management of Equity Securities" in the Registrant's Proxy Statement for the Annual Meeting of Shareholders on April 27, 1995.
Item 13.

Item 13. Certain Relationships and Related Transactions
Information required by this item is incorporated by reference to the information set forth under the caption "Information Concerning Directors and Nominees for Director" in the Registrant's Proxy Statement for the Annual Meeting of Shareholders on April 27, 1995.
PART - IV
Item 14.

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 1994 Annual Report to Shareholders which accompanies this report.
Schedules other than those listed above have been omitted because they are not applicable or because the required information is reported in the financial statements or notes.
(a) 3. Exhibits
(2) Plan of acquisition, reorganization, arrangement, liquidation or succession
(i) Asset Purchase Agreement dated as of January 3, 1995 among Dravo Corporation, Dravo Basic Materials Company, Inc., Atchafalaya Mining Company, Inc. and Martin Marietta Materials, Inc. is incorporated by reference to Exhibit 2 of the January 17, 1995 Form 8-K of the Registrant.
(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 filed herein under separate cover.
(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) Shareholders' Rights Agreement dated as of April 4, 1986 between Dravo Corporation and PNC Bank, N. A. (formerly Pittsburgh National Bank), as rights agent, incorporated by reference to Exhibit (1) of the April, 1986 Form 8-K of the Registrant.
(iii) 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.
(iv) 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.
(v) 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.
(4)(vi) 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.
(vii) 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) to the September 27, 1988 Form 8-K of the Registrant.
(viii) (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., 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.
(4) (viii) (e) Intercreditor Agreement dated September 20, 1990 by and among The Prudential Insurance Company of America, 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.
(ix) (a) 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.
(x) Override Agreement, dated January 21, 1992, between Dravo Corporation, The Prudential Insurance Company of America, First Alabama Bank, PNC Bank, N. A. (formerly Pittsburgh National Bank) and Continental Bank, N. A. is incorporated by reference to Exhibit 10.1 of the February 12, 1992 Form 8-K of the Registrant.
(xi) 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.
(xii) 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.
(xiii) 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.
(xiv) Four copies of the First Amendment, (one each for The Prudential Insurance Company of America, First Alabama Bank, PNC Bank, N.A. and Continental Bank N.A.), dated March 7, 1994, to the Amended and Restated Revolving Credit Agreement dated January 21, 1992 are incorporated by reference to Exhibit 4 (xiv) of the December 31, 1993 Form 10-K of the Registrant.
(xv) Note Purchase Agreement dated August 1, 1994 between Dravo Black River Limited Partnership and the Prudential Insurance Company of America is incorporated by reference to the August 18, 1994 Form 8-K of the Registrant.
(xvi) 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.
(xvii) 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 filed herein under separate cover.
(10) Material Contracts (All of the following, except item 10 (xi), 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 Incentive Compensation Plan is filed herein under separate cover.
(v) 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.
(vi) Agreement dated June 1, 1993 between Dravo Corporation and C. A. Torbert, Jr. is incorporated by reference to Exhibit 10 (vii) of the December 31, 1993 Form 10-K of the Registrant.
(vii) Agreement dated June 1, 1993 between Dravo Corporation and Ernest F. Ladd III is incorporated by reference to Exhibit 10 (viii) of the December 31, 1993 Form 10-K of the Registrant.
(viii) Agreement dated June 1, 1993 between Dravo Corporation and Carl A. Gilbert is incorporated by reference to Exhibit 10 (ix) of the December 31, 1993 Form 10-K of the Registrant.
(10) Material Contracts
(ix) Agreement dated June 1, 1993 between Dravo Corporation and John R. Major is incorporated by reference to Exhibit 10 (xi) of the December 31, 1993 Form 10-K of the Registrant.
(x) Dravo Corporation Stock Option Plan of 1994 is incorporated by reference to the Proxy Statement for the Annual Meeting of Shareholders on April 28, 1994.
(xi) 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.
(xii) Agreement between Dravo Corporation and Carl A. Torbert, Jr. dated December 31, 1994 is filed herein under separate cover.
(11) Statement Re Computation of Per Share Earnings filed under this cover.
(13) 1994 Annual Report to Shareholders attached to this report under this cover. Except for the pages and information thereof expressly incorporated by reference in this Form 10-K, the Annual Report to Shareholders is provided solely for the information of the Securities and Exchange Commission and is not to be deemed "filed" as part of the Form 10-K.
(21) Subsidiaries of the Registrant filed under this cover.
(23) Consent of Independent Auditors filed under this cover.
(24) Powers of Attorney are filed herein under separate cover.
(b) Reports on Form 8-K
(i) On November 15, 1994 the Registrant filed a Form 8-K reporting on (a) loan documents related to financing provided by The Prudential Insurance Company of America for the expansion of a lime production facility in Carntown, Kentucky and (b) amendments to previously existing financing agreements to allow for the borrowing of funds under the expansion financing documents.
(ii) On January 17, 1995 the Registrant filed a Form 8-K reporting on (a) the sale of substantially all the assets of Dravo Basic Materials Company, Inc. (DBM) and (b) a noncompetition and nondisclosure agreement related to the DBM sale. A pro forma balance sheet at September 30, 1994, pro forma statements of operations for the nine months ended September 30, 1994 and 12 months ended December 31, 1993 and explanatory notes to the pro forma financial statements were included in the Form 8-K.
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 29, 1995 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 29, 1995
/s/ ERNEST F. LADD III Executive Vice President, Ernest F. Ladd III Chief Financial Officer March 29, 1995
/s/ LARRY J. WALKER Controller March 29, 1995 Larry J. Walker
*E. EUGENE BISHOP Director E. Eugene Bishop March 29, 1995
*ARTHUR E. BYRNES Director March 29, 1995 Arthur E. Byrnes
*JACK EDWARDS Director March 29, 1995 Jack Edwards
*JAMES C. HUNTINGTON, JR. Director March 29, 1995 James C. Huntington, Jr.
*WILLIAM E. KASSLING Director March 29, 1995 William E. Kassling
*WILLIAM G. ROTH Director March 29, 1995 William G. Roth
*KONRAD M. WEIS Director March 29, 1995 Konrad M. Weis
*ROBERT C. WILBURN Director March 29, 1995 Robert C. Wilburn
/s/ ERNEST F. LADD III *By Ernest F. Ladd III, Attorney-in-fact
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders Dravo Corporation:
Under date of February 10, 1995, we reported on the consolidated balance sheets of Dravo Corporation and subsidiaries as of December 31, 1994, and 1993, and the related consolidated statements of operations, retained earnings, and cash flows for each of the years in the three-year period ended December 31, 1994, as contained in the 1994 annual report to shareholders. As discussed in Notes 10 and 13 to the consolidated financial statements, the company adopted the method of accounting for postemployment benefits prescribed by Statement of Financial Accounting Standards No. 112 in 1994 and the methods of accounting for postretirement benefits other than pensions and income taxes prescribed by Statements of Financial Accounting Standard Nos. 106 and 109, respectively, in 1993. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1994. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedule as listed in answer to Item 14(a)(2). 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, present fairly, in all material respects, the information set forth therein.
Our audit report on the consolidated financial statements of Dravo Corporation and subsidiaries referred to above contains an explanatory paragraph that states that a lawsuit and certain claims and assertions have been brought against the company for contract disputes and environmental costs, the outcome of which presently cannot be determined.
KPMG PEAT MARWICK LLP
New Orleans, Louisiana February 10, 1995
DRAVO CORPORATION (PARENT COMPANY) Schedule I - Condensed Financial Information of Registrant Balance Sheets
See accompanying notes to financial statements.
DRAVO CORPORATION (PARENT COMPANY) Schedule I - Condensed Financial Information of Registrant Balance Sheets
See accompanying notes to financial statements.
DRAVO CORPORATION (PARENT COMPANY) Schedule I - Condensed Financial Information of Registrant Statements of Operations
See accompanying notes to financial statements.
DRAVO CORPORATION (PARENT COMPANY)
Schedule I - Condensed Financial Information of Registrant Statements of Cash Flows
See accompanying notes to financial statements.
DRAVO CORPORATION (PARENT COMPANY) Schedule I - Condensed Financial Information of Registrant Statements of Cash Flows
See accompanying notes to financial statements.
DRAVO CORPORATION (PARENT COMPANY) Schedule I - Condensed Financial Information of Registrant Notes to Financial Statements
Notes 1 through 3, 5 through 15, and 17 to Dravo Corporation's Consolidated Financial Statements have relevance to the parent company financial statements and should be read in conjunction therewith.
Note 1: Commitments
There was no continuing operations rental expense for 1994, 1993 or 1992. The minimum future rentals under noncancelable operating leases and minimum future rental receipts from subleases to third parties as of December 31, 1994 are indicated in the table below. Of the $11.4 million net minimum payments, $7.9 million has been expensed in connection with discontinued operations.
Note 2: Income Taxes
The company adopted Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS 109) effective January 1, 1993. The cumulative effect of this change in accounting for income taxes of $276,000 is determined as of January 1, 1993 and is reported separately in the Statements of Operations for the year ended December 31, 1993. Prior years financial statements were not restated to apply the provisions of SFAS 109.
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.
Note 2: Income Taxes (continued)
The income tax benefit (provision) for the years ended December 31 are comprised of the following:
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:
Management believes it is more likely than not that the net deferred tax asset of $24.9 million 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 $73.2 million prior to the expiration of its net operating loss carryforwards. There can be no assurance, however, that the parent, or its subsidiaries, will generate any earnings or any specific level of continued earnings.
Note 3: Dividends
Cash dividends paid to the Registrant for the respective years ended December 31:
EXHIBITS