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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission file number 333-41837
CLYDE COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Utah 87-0260879
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
252 West Center Street
Orem, Utah 84057
(801) 802-6901
(Address of principal executive offices and telephone number)
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 [ ].
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. On November 10, 1998, there
were 6,554,328 outstanding shares of the Registrant's Common Stock, no par
value.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Clyde Companies, Inc. and Subsidiaries
(Formerly W.W. Clyde Investment Co.)
CONSOLIDATED BALANCE SHEETS
September 30, 1998 (unaudited) and December 31, 1997 (audited)
(Dollars in Thousands)
ASSETS
September 30, December 31,
1998 1997
------------- -------------
CURRENT ASSETS
Cash and cash equivalents $ 15,980 $ 14
Accounts receivable 40,799 --
Inventories 10,784 --
Costs and estimated earnings in excess of billings on
uncompleted contracts 842 --
Other current assets 2,277 9
------------- -------------
Total current assets 70,682 23
PROPERTY, PLANT AND EQUIPMENT, AT COST 141,371 --
Less accumulated depreciation and depletion 72,559 --
------------- -------------
68,812 --
LAND 823 --
DEFERRED TAX ASSET 63 --
INVESTMENT IN AFFILIATES -- 27,433
INTANGIBLE ASSETS 20,812 --
OTHER ASSETS, AT COST
Less accumulated amortization 2,975 338
------------- -------------
$ 164,167 $ 27,794
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The accompanying notes are an integral part of these financial statements.
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Clyde Companies, Inc. and Subsidiaries
(Formerly W.W. Clyde Investment Co.)
CONSOLIDATED BALANCE SHEETS - CONTINUED
September 30, 1998 (unaudited) and December 31, 1997 (audited)
(Dollars in Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, December 31,
1998 1997
------------- -------------
CURRENT LIABILITIES
Due to related party $ -- $ 338
Trade accounts payable 8,801 --
Current maturities of long-term obligations 446 --
Accrued liabilities 7,699 --
Billings in excess of costs and estimated earnings on
uncompleted contracts 1,133 --
------------- -------------
Total current liabilities 18,079 338
LONG-TERM OBLIGATIONS, less current maturities 5,422 --
ACCRUED PENSION COSTS 829 --
DEFERRED INCOME TAXES 31,265 10,039
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDERS' EQUITY
Common stock, no par value; authorized 10,000,000
shares; outstanding 6,554,328 and 2,303,920
shares in 1998 and 1997, respectively 90,901 707
Retained Earnings 17,671 16,710
------------- -------------
Total shareholders' equity 108,572 17,417
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$ 164,167 $ 27,794
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The accompanying notes are an integral part of these financial statements.
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Clyde Companies, Inc. and Subsidiaries
(Formerly W.W. Clyde Investment Co.)
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in thousands, except per share data)
Nine months ended Three months ended
September 30, September 30,
---------------------------------- ----------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
Revenues, net $ 53,656 $ -- $ 53,656 $ --
Costs of goods sold 43,042 -- 43,042 --
------------- ------------- ------------- -------------
Gross profit 10,614 -- 10,614 --
General and administrative expenses 2,545 5 2,545 5
------------- ------------- ------------- -------------
Operating profit 8,069 (5) 8,069 (5)
Other income
Equity in net earnings
of affiliates 535 2,089 -- 1,431
Interest, net 60 1 60 --
Other, net 18 111 18 93
------------- ------------- ------------- -------------
Total other income 613 2,201 78 1,524
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Earnings before income
taxes 8,682 2,196 8,147 1,519
Income taxes 3,222 789 3,049 569
------------- ------------- ------------- -------------
NET EARNINGS $ 5,460 $ 1,407 $ 5,098 $ 950
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Earnings per common share - basic $ 1.47 $ 0.61 $ 0.78 $ 0.41
============= ============= ============= =============
Weighted-average shares outstanding 3,709,108 2,303,920 6,554,328 2,303,920
============= ============= ============= =============
The accompanying notes are an integral part of these financial statements.
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Clyde Companies, Inc. and Subsidiaries
(Formerly W.W. Clyde Investment Co.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 1998 and 1997 (Unaudited)
(Dollars in Thousands)
1998 1997
------------- -------------
Increase in cash and cash equivalents
Cash flows from operating activities
Net earnings $ 5,460 $ 1,407
Adjustments to reconcile net earnings to net cash
provided by operating activities
Equity in net earnings of affiliates (535) (2,089)
Loss on disposal of equipment 93 --
Depreciation and amortization 2,707 --
Deferred income taxes 210 780
Changes in assets and liabilities
Accounts receivable (8,575) --
Inventories (225) --
Costs and estimated earnings in
excess of billings on contracts 133 --
Other assets (1,407) (17)
Trade accounts payable and
accrued expenses 4,023 --
Due to related party 210 --
Billings in excess of costs and estimated
earnings on contracts 996 --
Accrued pension costs 227 --
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Total adjustments (2,143) (1,327)
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Net cash provided by
operating activities 3,317 81
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Cash flows from investing activities
Purchases of property, plant, and equipment (728) --
Cash acquired in merger 18,022 --
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Net cash provided by
investing activities 17,294 --
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(Continued)
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Clyde Companies, Inc. and Subsidiaries
(Formerly W.W. Clyde Investment Co.)
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Nine months ended September 30, 1998 and 1997 (Unaudited)
(Dollars in Thousands)
1998 1997
------------- -------------
Cash flows from financing activities
Repayment of long-term obligations (146) --
Cash paid to reacquire common stock of subsidiaries (4,499) --
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Net cash used in
financing activities (4,645) --
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Net increase in cash
and cash equivalents 15,966 81
Cash and cash equivalents at beginning of period 14 27
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Cash and cash equivalents at end of period $ 15,980 $ 108
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Supplemental disclosures of cash flow information
Cash paid during the period for
Interest $ 801 $ --
Income taxes 1,390 14
Noncash investing activities
As explained in the notes to these financial
statements, a merger was consummated on June 30, 1998,
where the following was recorded:
Assets acquired $ 129,893
Liabilities assumed 39,699
Common stock issued 90,194
Included in the assets acquired is $18,022 of cash.
The accompanying notes are an integral part of these statements.
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CLYDE COMPANIES, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
1. Interim Financial Statements
The accompanying unaudited financial statements have been prepared by
Clyde Companies, Inc. (the "Company") in accordance with instructions to
Form 10-Q and Rule 10-01 of S-X. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared
under generally accepted accounting principles have been condensed or
omitted pursuant to such regulations. In the opinion of management, all
adjustments considered necessary for a fair presentation of the
Company's financial position, results of operations and cash flows have
been included. All such adjustments are of a normal recurring nature.
This report on Form 10-Q for the nine months ended September 30, 1998
should be read in conjunction with the financial statements of the
Operating Companies (as defined in Note 2 below) and the Company as of
and for the year ended December 31, 1997, which are included in the
Company's Registration Statement on Form S-4 dated May 13, 1998. The
results of operations for the nine months ended September 30, 1998 may
not be indicative of the results that may be expected for the year
ending December 31, 1998.
2. Agreement and Plan of Merger
The merger ("Merger") of W.W. Clyde & Co., Geneva Rock Products, Inc.,
Utah Service, Inc. and Beehive Insurance Agency, Inc. (the "Operating
Companies") with and into wholly-owned subsidiaries of the Company was
consummated as of June 30, 1998, and in connection therewith, 4,634,791
shares of Common Stock of the Company were issued. Each of the Operating
Companies was affiliated with the Company as a result of common
shareholders, common directors, and the Company's minority equity
investment in each entity. Each Operating Company now is a wholly-owned
subsidiary of the Company.
The Merger was effected by exchanging shares of the Company's Common
Stock for shares of common stock of each Operating Company held by their
respective shareholders. The Merger was accounted for using the
"purchase" method of accounting. The exchange ratios used in determining
the number of shares to be exchanged were based upon independent
valuations of each Operating Company.
The purchase method of accounting requires consolidated results of
operations to be reflected only from the date of Merger forward. Because
the Merger was consummated on June 30, 1998, consolidated operating
results are included only in the Consolidated Statements of Earnings for
the three-month period ended September 30, 1998. Prior to June 30, 1998,
the Company recorded only its equity in the net earnings of the
Operating Companies.
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The following unaudited pro forma consolidated data for the nine months
ended September 30, 1998 and the year ended December 31, 1997 presents
the results of operations of the Company as if the Operating Companies
had merged on January 1, 1997 (in thousands except per share data). This
data does not purport to be indicative of the results of operations of
the Company that might have occurred nor which might occur in the
future.
Nine months Twelve months
ended Sept. 30, ended Dec. 31,
1998 1997
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Pro forma net revenues $ 114,465 $ 158,473
Pro forma net earnings 5,498 5,899
Pro forma earnings per
common share--basic 1.48 .85
The property, plant and equipment acquired by the Company in the Merger
will be depreciated over periods ranging from 3 to 12 years, and the
intangible assets are to be amortized over 15 years.
In connection with the Merger, 18 shareholders of the Operating
Companies (the "Dissenting Shareholders"), who collectively own the
equivalent of 419,188 shares of Common Stock of the Company, gave notice
that they intended to exercise their statutory dissenters' rights and
seek payment of the fair value of their shares. Following the
consummation of the Merger, the Dissenting Shareholders were paid an
aggregate of $4,496,890, which is the amount the Operating Companies
determined to be the fair value of the shares held by the Dissenting
Shareholders on the date the Merger was consummated.
After receiving payment for their shares in the Operating Companies, 16
of the Dissenting Shareholders, who collectively own the equivalent of
243,223 shares of Common Stock of the Company, notified the Operating
Companies that, in their opinion, the fair value of their shares on the
date of the Merger was greater than the amounts which the Operating
Companies had paid to them for their shares, and they demanded that the
Operating Companies pay them an additional aggregate amount of
approximately $2,361,666. This amount is not reflected in the
Consolidated Balance Sheets of Clyde Companies, Inc. and Subsidiaries.
The Operating Companies believe that the amounts paid to the Dissenting
Shareholders represented the fair value of their shares on the date of
the Merger. Accordingly, on November 3, 1998 the Operating Companies
filed a Petition with the Third Judicial District Court of Salt Lake
County to request the Court to determine the fair value of the shares of
the Operating Companies held by the Dissenting Shareholders who have
demanded payment of additional amounts for their shares. While the
Company believes that the amounts paid to the Dissenting Shareholders
represented the fair value of the shares they held in the Operating
Companies on the date of the Merger, the Company is not able to predict
the outcome of this proceeding. See Item 1 - Legal Proceedings.
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ITEM 1. LEGAL PROCEEDINGS
In connection with the merger (the "Merger") of W.W. Clyde & Co.
("Clyde"), Geneva Rock Products, Inc. ("Geneva Rock"), Utah Service, Inc. ("Utah
Service") and Beehive Insurance Agency, Inc. ("Beehive Insurance") (which are
together referred to as the "Operating Companies") with and into wholly owned
subsidiaries of Clyde Companies, Inc. (the "Company"), 18 shareholders of the
Operating Companies (the "Dissenting Shareholders"), who collectively own the
equivalent of 419,188 shares of Common Stock of the Company, gave notice that
they intended to exercise their statutory dissenters' rights and seek payment of
the fair value of their shares. Following the consummation of the Merger on June
30, 1998, the Operating Companies paid the Dissenting Shareholders an aggregate
amount of $4,496,890 for their shares, which is the amount the Operating
Companies determined to be the fair value of the shares held by the Dissenting
Shareholders on the date of the Merger. The Dissenting Shareholders were paid
$394.13, $2,779.36, $504.45 and $50.30 for each share of Clyde, Geneva Rock,
Utah Service and Beehive Insurance, respectively, which they held.
After receiving payment for their shares from the Operating Companies,
16 of the Dissenting Shareholders, who collectively own the equivalent of
243,223 shares of Common Stock of the Company, notified the Operating Companies
that, in their opinion, on the date of the Merger the fair value of Clyde,
Geneva Rock, Utah Service and Beehive Insurance was $657, $5,509, $975 and $116
per share, respectively, and they demanded payment of the additional amounts,
plus interest. The aggregate additional amount demanded by the Dissenting
Shareholders, exclusive of interest, is approximately $2,361,666.
The Operating Companies believe that the amounts they paid to the
Dissenting Shareholders represented the fair value of the shares held by the
Dissenting Shareholders on the date of the Merger. Accordingly, pursuant to Utah
Code Annotated, as amended, Section 16-10A-1330, on November 3, 1998, the
Operating Companies filed a Petition with the Third Judicial District Court of
Salt Lake County (Case No. 980911145) to request the Court to determine the fair
value of the shares of the Operating Companies held by the 16 Dissenting
Shareholders who have demanded the payment of additional amounts for their
shares. In addition, the Operating Companies requested a ruling to the effect
that the Estate of Scott Clyde did not properly exercise its dissenters' rights
with respect to Clyde and, therefore, is not entitled to payment for the shares
of Clyde which it held. The Petition named the following Dissenting Shareholders
as respondents: Terry Carlson; Scott Carlson; Claudia Snyder; Kenneth Snyder;
Kurt Gramoll; Junko Gramoll; James Gramoll; Damon Clyde; Christina Schroeder;
Brian Clyde; Ronald Clyde; Stephen W. Clyde; Robert Clyde; Marcia Clyde, as
personal representative of the Estate of Daniel Clyde, deceased; Janice Clyde,
personally; and Janice Clyde, as personal representative of the Estate of Scott
Clyde, deceased. While the Company believes that the amounts paid to the
Dissenting Shareholders represent the fair value of the shares they held in the
Operating Companies on the date of the Merger, the Company is not able to
predict the outcome of this proceeding.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The purpose of this section is to discuss and analyze the Company's
results of operations, financial condition, liquidity and capital resources.
OVERVIEW
Clyde Companies, Inc. was organized as a holding company for shares of
common stock of Clyde, Geneva Rock, Utah Service and Beehive Insurance. On June
30, 1998, Clyde, Geneva Rock, Utah Service and Beehive Insurance were merged
(the "Merger") with and into the Company, and each issued and outstanding share
of common stock (except for shares owned by the Company) of Clyde, Geneva Rock,
Utah Service and Beehive Insurance was converted into, respectively, 33.93,
239.27, 43.43 and 4.33 shares of Common Stock of the Company. For a description
of the Merger and the transactions contemplated thereby, see the Company's Proxy
Statement/Prospectus dated May 13, 1998.
RESULTS OF OPERATIONS
The Merger was accounted for using the purchase method of accounting.
The purchase method of accounting requires that consolidated results of
operations be reflected only from the date of the Merger, forward. Because the
Merger was consummated on June 30, 1998, consolidated operating results are
included in the Consolidated Statements of Earnings only for the three-month
period ended September 30, 1998. Prior to June 30, 1998, the Company recorded
only its equity in the net earnings of the Operating Companies. Since the
three-month period ended September 30, 1998 was the first quarter of
consolidated results of operations for the Company, it is not possible to
compare operating results for that period with operating results in prior
periods.
During the nine-month period ended September 30, 1998, the Utah
construction markets continued to be strong and the economic climate in Utah
during the period was positive. Unemployment in Utah continued at the rate of
about 3.2%, which resulted in continuing labor shortages. Such labor shortages
exerted an upward pressure on wages which in turn increased costs, resulting in
lower profit margins.
The construction market in Utah is seasonal, slowing down significantly
during winter months. Historically the third quarter of the year has been the
most profitable quarter of the year, due to favorable weather conditions, and
construction work normally begins to slow down in the fourth quarter, as the
weather becomes more unfavorable.
LIQUIDITY AND CAPITAL RESOURCES
As explained in Note 2 to the Interim Financial Statements and under
Item 1 - Legal Proceedings, in connection with the Merger certain shareholders,
who collectively own the equivalent of 419,188 shares of Common Stock of the
Company, exercised their statutory dissenters' rights and demanded payment for
the fair value of the shares they held in the
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Operating Companies. The Operating Companies have paid the Dissenting
Shareholders an aggregate amount of $4,496,890, which is the amount the
Operating Companies determined to be the fair value of the shares held by the
Dissenting Shareholders on the date of the Merger. The Dissenting Shareholders
notified the Operating Companies that, in their opinion, the fair value of their
shares on the date of the Merger was greater than the amounts paid to them by
the Operating Companies, and demanded that the Operating Companies pay them
additional amounts for their shares, in the aggregate amount of approximately
$2,361,666. The Operating Companies have petitioned the Third Judicial District
Court of Salt Lake County to determine the fair value of the shares held by such
Dissenting Shareholders. The Company believes that the amounts paid to the
Dissenting Shareholders represented the fair value of the shares they held in
the Operating Companies on the date of the Merger, but there can be no assurance
that the Court will not determine that the fair value of the Operating Companies
was higher, and require that additional amounts be paid to the Dissenting
Shareholders. If the Company is required to pay substantial additional amounts
to the Dissenting Shareholders, the ability of the Company to pay dividends to
its shareholders and make capital expenditures may be adversely affected.
Commencing in 1999, the Company will make funds available for the
redemption of a limited number of shares of its Common Stock pursuant to a Stock
Redemption Plan. The Stock Redemption Plan provides for a Redemption Fund (a)
for the years 1999 through 2003 in an amount which is greater than or equal to
7% and less than or equal to 15% of the net earnings of the Company (after
taxes) for the prior year and (b) for the years 2004 and thereafter an amount
which is greater than or equal to 5% and less than or equal to 10% of net
earnings of the Company (after taxes) for the prior year. Management believes
the limitation of the Redemption Fund to an amount not greater than 15% for the
years 1999 through 2003, and 10% for the years 2004 and thereafter, of the net
earnings of the Company (after taxes) for the prior year is a limitation
sufficient to protect the liquidity requirements of the Company and would not
adversely affect the Company's cash requirements.
INFLATION
Inflation in the U.S. economy has been relatively moderate during the
last few years. Price increases for labor and materials, for the most part, have
kept pace with inflation. The low unemployment rate in Utah and the rapid
increase in the number of workers required in the construction industry in the
state has put increased pressure on the cost of labor. Labor contracts
negotiated in 1997 provide for increases in the 5% to 6% range per year through
the year 2000.
The Company expects that inflation will affect cost of wages and
materials during the remainder of 1998, and that the current competitive
circumstances of the Utah market will preclude the Company from passing all of
such increases on to its customers. This circumstance may result in lower profit
margins for the Company in the remainder of 1998.
SEASONALITY
Because the operations of the Company are located primarily in central
and northern Utah, the Company experiences significantly lower sales during the
winter months due to adverse weather conditions. Historically, the months of
November through March have shown
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losses, with April through October being profitable months. The Company has
historically been able to deal with these seasonal variations in sales and has
established adequate cash reserves to address its liquidity requirements in the
winter months.
CAUTIONARY STATEMENT FOR FORWARD LOOKING INFORMATION
Certain statements contained in this Management's Discussion and
Analysis of Financial Condition and Results of Operations, including without
limitation statements containing the words "believes," "anticipates," "intends,"
"expects" and words of similar import, constitute forward-looking statements.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or achievements
of the Company and its subsidiaries to be materially different from any future
results, performance or achievements expressed or implied by such forward
looking statements. Such factors include, among other things, the following: (1)
expected cost savings from the Merger may not be realized; (2) costs or
difficulties related to the integration of the businesses of Clyde, Geneva Rock,
Utah Service and Beehive Insurance may be greater than expected; (3) an increase
of competitive pressure in the industries of Clyde, Geneva Rock, Utah Service
and Beehive Insurance may adversely affect the businesses of the Company; and
(4) general economic conditions, either nationally or in the states in which the
Company does business, may be less favorable than expected. The Company
disclaims any obligation to update such factors or to publicly announce the
result of any revisions to any forward-looking statements included or
incorporated by reference herein to reflect future events or developments.
YEAR 2000 ISSUE
The Company utilizes computer hardware and software in its operations.
Certain computer operations could fail or create erroneous results due to the
upcoming change in the century (the "Year 2000 Issue"). The Company regularly
upgrades its computer hardware and believes that it will not incur any
additional expense to modify computer hardware due to the Year 2000 Issue. The
Company does not expect that its expenditures related to the Year 2000 Issue
will have a material adverse effect on the results of operations or financial
condition of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is filed with this report:
27 Financial Data Schedule
(b) A current report on Form 8-K was filed on July 13, 1998 to report
the consummation of the Merger, under Item 2 and Item 7. Amendment
No. 1 to that report was filed on July 16, 1998.
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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.
CLYDE COMPANIES, INC.
By /s/ Don C. McGee
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Don C. McGee
Assistant Secretary and Treasurer
(Authorized Signatory and
Principal Financial and Accounting Officer)
Date: November 12, 1998
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INDEX TO EXHIBITS
Exhibits
27 Financial Data Schedule.
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