<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1994
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 1-9891
HADSON CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 31-0679954
---------------------------- --------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
</TABLE>
<TABLE>
<S> <C>
2777 Stemmons Freeway, Suite 700, Dallas, Texas 75356-9550
------------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
214-640-6800
--------------------------------------------------
Registrant's telephone number, including area code
________________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report.)
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 _______.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X . No _______.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
<TABLE>
<CAPTION>
Class Outstanding at June 30, 1994
- - ---------------------------------- ------------------------------------------
<S> <C>
Common Stock, par value $.01 25,690,596 shares
</TABLE>
<PAGE> 2
HADSON CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. Financial Information: Page
- - -------------------------------- --------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited)
December 31, 1993 and June 30, 1994 2
Consolidated Statements of Operations (Unaudited)
Three and Six Months Ended June 30, 1993 and 1994 3
Consolidated Statements of Cash Flow (Unaudited)
Six Months Ended June 30, 1993 and 1994 4
Notes to Consolidated Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6 - 9
PART II. Other Information:
- - -----------------------------
Item 6. Exhibits 10
</TABLE>
<PAGE> 3
HADSON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1993 1994
------------ --------
(Unaudited)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 2,466 5,310
Accounts receivable 85,097 95,695
Inventories 5,754 9,741
Prepaid expenses and other current assets 9,363 3,869
------------ --------
Total current assets 102,680 114,615
------------ --------
Property, equipment and improvements at costs, net 99,431 96,233
Gas supply contract 6,798 6,312
Other assets 2,732 4,128
------------ --------
$ 211,641 221,288
============ ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current long-term debt $ 1,000 6,000
Accounts payable 88,872 86,794
Accrued liabilities 4,289 4,571
Deferred revenue 4,385 9,683
------------ --------
Total current liabilities 98,546 107,048
------------ --------
Long-term debt 55,800 57,900
Other long-term liabilities 15,123 13,351
Deferred income taxes 2,699 2,656
Stockholder's equity:
Preferred stock, par value $.01 per share
Authorized, 25,000,000 shares:
Senior Cumulative, Series A; issued 2,080,000 and 2,208,861 shares,
at aggregate carrying value 49,000 52,035
Junior Exercisable Automatically Convertible, Series B; issued
4,983,180 and 4,981,751 shares, at par value 50 50
Common stock, par value $.01 per share
Authorized, 35,000,000 ;
issued 25,689,147 and 25,690,596 shares 257 257
Additional paid-in capital 196,625 196,621
Accumulated deficit (206,459) (208,630)
------------ --------
Total stockholders' equity 39,473 40,333
------------ --------
$ 211,641 221,288
============ ========
</TABLE>
See accompanying notes to consolidated financial statements
-2-
<PAGE> 4
HADSON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ------------------------
1993 1994 1993 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Sales $ 121,145 177,220 252,974 370,083
Gain on insurance recovery - 1,257 - 1,257
Equity in earnings of unconsolidated
affiliate 222 - 629 -
Interest and other income 40 59 189 360
--------- ------- ------- -------
121,407 178,536 253,792 371,700
--------- ------- ------- -------
Expenses:
Cost of sales and services 117,506 169,905 245,330 355,120
Depreciation and amortization 1,540 2,549 3,066 5,129
Selling, general and administrative 3,934 4,254 7,881 8,107
Interest 921 1,182 1,802 2,346
--------- ------- ------- -------
123,901 177,890 258,079 370,702
--------- ------- ------- -------
Earnings (loss) before income taxes (2,494) 646 (4,287) 998
Income tax expense - 134 - 134
--------- ------- ------- -------
Net earnings (loss) (2,494) 512 (4,287) 864
Preferred stock dividend requirements (397) (1,420) (794) (2,798)
--------- ------- ------- -------
Net loss attributable to common stock $ (2,891) (908) (5,081) (1,934)
========= ======= ======= =======
Loss per common share and common
equivalent share $ (.34) (.04) (.61) (.08)
========= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE> 5
HADSON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
1993 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (4,287) 864
Items not affecting cash flow:
Depreciation and amortization 3,066 5,129
Gain on insurance recovery (1,257)
Deferred income taxes - (43)
Equity in earnings of unconsolidated affiliate and other (513) (5)
Accruals of operating cash receipts and payments:
Change in trade receivables 2,854 (11,823)
Change in inventories (2,327) (3,987)
Change in prepaid expenses and other current assets (2,954) 2,719
Change in current liabilities 7,419 3,346
--------- -------
Cash flow provided (used) by operating activities 3,258 (5,057)
--------- -------
Cash flows from investing activities:
Additions to property, equipment and improvements (2,103) (3,178)
Dispositions of properties 33 6,130
Other (266) (74)
--------- -------
Cash flows provided (used) by investing activities (2,336) 2,878
--------- -------
Cash flows from financing activities:
Proceeds from borrowings from banks 274 7,100
Repayments of borrowings - -
Transaction costs related to restructuring (1,023) (2,077)
--------- -------
Cash flows provided (used) by financing activities (749) 5,023
--------- -------
Net increase in cash and cash equivalents 173 2,844
Cash and cash equivalents at beginning of period 3,445 2,466
--------- -------
Cash and cash equivalents at end of period $ 3,618 5,310
========= =======
Supplemental disclosures of cash flow information:
Cash paid for:
Interest (net of amounts capitalized and including amounts
attributable to discontinued operations) 1,179 2,565
Income taxes (net of refunds) (2) 143
--------- -------
$ 1,177 2,708
========= =======
</TABLE>
See accompanying notes to consolidated financial statements
-4-
<PAGE> 6
HADSON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1994
(UNAUDITED)
1. The accompanying financial information includes the financial position
of Hadson Corporation and Subsidiaries (the "Company") as of December
31, 1993 and June 30, 1994, the results of operations for the three
and six month periods ended June 30, 1993 and 1994, and changes in
cash flows for the six month periods ended June 30, 1993 and 1994.
The financial information is prepared in conformity with generally
accepted accounting principles and such principles are applied on a
basis consistent with those reflected in the 1993 Form 10-K filed with
the Securities and Exchange Commission. The financial information
included herein, other than the consolidated balance sheet as of
December 31, 1993, has been prepared by management without audit by
independent certified public accountants who do not express an opinion
thereon. The consolidated balance sheet as of December 31, 1993 has
been derived from, but does not include all the disclosures contained
in, the audited consolidated financial statements for the year ended
December 31, 1993. The information furnished includes all adjustments
and accruals consisting of normal recurring accrual adjustments which
are, in the opinion of management, necessary for a fair presentation
of results for the interim period.
2. The results of operations for the three and six month periods ended
June 30, 1994 are not necessarily indicative of the results to be
expected for the full year.
3. For the three and six month periods ended June 30, 1993 and 1994, net
loss per common share is based upon the weighted average shares of
common stock outstanding of 8,485,000, 8,373,000, 25,691,000 and
25,690,000, respectively. The weighted average shares of common stock
are computed after giving effect to the approximate one-for-15 reverse
split of the Company's common stock that occurred on December 14,
1993. Primary earnings per common share include the effect of common
stock equivalents which would arise from the exercise of stock options
and warrants, unless such effect would be anti- dilutive. Fully
diluted earnings per common share assume the conversion of convertible
debt and equity securities and common stock equivalents, unless such
items would be anti-dilutive. Primary and fully diluted earnings per
share are the same for all periods presented.
4. The Company and certain of its subsidiaries purchase natural gas from
and sell natural gas to Santa Fe Energy Resources, Inc. ("Santa Fe")
and certain of its subsidiaries. For the three and six month periods
ended June 30, 1993 and 1994, purchases from Santa Fe totalled
approximately $2,505,000, $6,690,000, $25,689,000 and $56,395,000,
respectively, while sales to Santa Fe totalled approximately $56,000,
$56,000, $4,709,000 and $9,774,000, respectively. Trade payables to
Santa Fe at June 30, 1993 and 1994, were $733,000 and $7,794,000
respectively, while trade receivables from Santa Fe were $28,000 and
$1,828,000, respectively.
-5-
<PAGE> 7
HADSON CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
A. MATERIAL CHANGES IN FINANCIAL CONDITION
For the three and six months ended June 30, 1994, the Company's
earnings (loss) before interest, taxes, depreciation and amortization amounted
to $4,377,000 and $8,473,000, respectively, as compared to $(33,000) and
$581,000, respectively, for the same periods in 1993. This improvement is a
result of improvements in the Company's operations subsequent to the
acquisition of Adobe Gas Pipeline Company from Santa Fe (the "Acquisition")
which was completed in December, 1993. In addition to the cash flow provided
from the gas gathering, transmission and processing facilities which were
acquired in this transaction, the Company's natural gas marketing volumes have
increased significantly as more fully discussed below. This increase is due
largely to expanded capacity to acquire supplies of natural gas. As a result
of the Company's improved financial position subsequent to the transaction with
Santa Fe, the Company has been able to obtain increasing levels of trade credit
without security, such as stand-by letters of credit. As results of operations
improve, the Company expects this trend to continue in spite of the continued
general concerns within the natural gas industry over credit exposure.
In April 1994, one of the Company's gas processing plants sustained
damage as a result of a fire. This damage was fully covered by insurance,
except for a small deductible amount. The accompanying statement of operations
reflects a $1,257,000 gain that resulted from the receipt of insurance proceeds
in excess of the net book value of damaged property plus actual and estimated
expenses to be incurred by the plant during its non-operational period. The
Company expects to complete repairs to the facility during the third quarter of
this year. Substantially all of the proceeds are expected to be reinvested as
capital expenditures to the plant.
Concurrently with the completion of the transaction with Santa Fe, the
Company's working capital facility with the Bank of Montreal was expanded to
$50,000,000 from $37,500,000, thereby increasing the Company's capacity to
issue letters of credit to support purchases of natural gas. In April 1994,
the Company and Bank of Montreal completed the syndication of this credit
facility to four additional banks thereby expanding the total capacity of the
facility to $60,000,000.
-6-
<PAGE> 8
HADSON CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
B. MATERIAL CHANGES IN RESULTS OF OPERATIONS
As an aid in understanding the Company's operating results, the
following table shows operating profit by line of business for the periods
indicated. Operating profit is defined as sales of energy products and
services less cost of sales which includes operating expenses.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------------
1993 1994 1993 1994
---- ---- ---- ----
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Operating Profit:
Natural gas marketing $ 1,175 4,258 $ 3,122 9,674
Gas gathering, processing and transmission 1,855 2,669 3,198 4,396
Natural gas liquids ("NGL") marketing 609 392 1,324 897
-------- ----- ------- ------
$ 3,639 7,319 $ 7,644 14,967
======== ===== ======= ======
</TABLE>
Natural Gas Marketing
Average daily volumes and gross profit margins related to the
marketing of natural gas are provided below.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -----------------------
1993 1994 1993 1994
---- ---- ---- ----
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Natural Gas Marketing
Sales Volumes (MMBTU/Day) 447 876 476 848
Average Gross Margin .029 .054 .036 .063
</TABLE>
Natural gas volumes and margins have increased dramatically in the
first six months of 1994 as compared to 1993. Sales volumes increased from the
first to the second quarters of 1994 in spite of the second quarter being
generally considered a "shoulder" period (a period of reduced demand). In
1993, sales volumes decreased from the first to the second quarter. The
increase in 1994 volumes results primarily from the effects of the Acquisition
which was completed in December, 1993, and the resulting increased access to
natural gas supplies. These additional supplies arose from (a) production
purchased from Santa Fe pursuant to the gas purchase contract acquired as a
part of the Acquisition, (b) additional letter of credit capacity to secure
gas purchases and (c) greater availability of open credit from suppliers.
-7-
<PAGE> 9
HADSON CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Acquisition and debt and equity recapitalization which was completed
concurrently with the Acquisition have strengthened the Company's financial
position. This improved financial position and continued improvement in the
Company's operating results has led to increased open trade credit lines with
certain suppliers. Record demand for natural gas during portions of January
and February in certain parts of the Country and the resulting significant
increases in natural gas prices in some instances provided for the Company to
enhance its margins in the first quarter of 1994. Margins for the first six
months of 1993 were adversely affected by losses from certain contracts with
small institutional and retail customers. These contracts were renegotiated in
the third quarter of 1993 and have returned to profitable levels.
Gas Gathering, Processing and Transmission
Average daily natural gas throughput through the Company's gathering
and transmission systems, the Company's net share of average daily NGL
production from its processing plants and NGL prices are summarized in the
following table.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1993 1994 1993 1994
---- ---- ---- ----
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Gas gathering and transmission systems:
Natural gas throughput (MMBTU/Day) 81 111 74 110
Processing Plants:
NGL production (MGAL/Day) 130 121 123 146
NGL sales price ($/GAL) $ .273 .224 $.264 .212
</TABLE>
Natural gas throughput through the Company's gathering and
transmission systems and NGL production was higher in the first six months of
1994 as compared to 1993 due to the acquisition of additional pipeline systems
and processing plants in December 1993. As a result of the fire at one of the
Company's gas processing facilities, there has been no production from that
facility since early April. However, in June 1994, the natural gas normally
processed at this facility was diverted to a third party processing plant. NGL
sales prices were approximately 20% lower in the first six months of 1994
verses the first six months of 1993. Thus, the gross profit per barrel of NGL
produced is significantly lower in the first six months of 1994.
NGL Marketing
Average daily volumes and gross profit margins relating to NGL
marketing are provided below.
-8-
<PAGE> 10
HADSON CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1993 1994 1993 1994
---- ---- ---- -----
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
NGLs:
Sales Volumes (MGAL/Day) 1,025 1,041 1,061 1,041
Average Gross Margin ($/Gal) .007 .003 .007 .004
</TABLE>
Sales volumes for NGL's have remained relatively consistent when
comparing the six months ended June 30, 1994 to the same period in 1993. Gross
margins have decreased because of continually increasing competition which has
led to compressed margins.
Other
Depreciation and amortization for the 1994 periods are greater than in
the 1993 periods because of the effect of the gas gathering, processing and
transmission assets acquired in the Acquisition as well as the effect of
amortizing the gas supply contract also acquired at that time.
Interest expense was higher in the first six months of 1994 as
compared to 1993 due primarily to a higher interest rate on the Company's
senior secured debt. Such higher rate resulted from the debt and equity
recapitalization which was effected in December, 1993.
Results for the three and six month periods ended June 30, 1993
include equity in earnings of unconsolidated affiliate of $222,000 and
$629,000, respectively. The Company sold its interest in the affiliate in the
third quarter of 1993.
-9-
<PAGE> 11
HADSON CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits
11.01 - Computation of Fully Diluted Earnings/Loss per Share.
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.
HADSON CORPORATION
(REGISTRANT)
/S/ROBERT P. CAPPS
ROBERT P. CAPPS
EXECUTIVE VICE PRESIDENT
CHIEF FINANCIAL OFFICER
DATE AUGUST 15, 1994
-10-
<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- - ------ -----------
<S> <C>
11.01 Computation of Fully Diluted Earnings/Loss per Share.
</TABLE>
<PAGE> 1
EXHIBIT 11.01
COMPUTATION OF FULLY DILUTED EARNINGS/LOSS
PER SHARE
<PAGE> 2
Exhibit 11.01
COMPUTATION OF FULLY DILUTED EARNINGS/LOSS
PER SHARE (1)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------------------- -------------------------
1993 1994 1993 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) as reported $(2,494) 512 (4,287) 864
Preferred stock dividend requirements 397 1,420 794 2,798
------- ------ ------ ------
Fully diluted net loss $(2,891) (908) (5,081) (1,934)
======= ====== ====== ======
Average number of common shares as
reported (primary) 8,485 25,691 8,373 25,690
Additional shares assumed issued:
Junior Preferred Stock 5,733 - 5,813 -
------- ------ ------ ------
Average number of common shares-
fully diluted 14,218 25,691 14,186 25,690
======= ====== ====== ======
Fully diluted earnings net loss per
common and common
equivalent share (.20) (.04) (.36) (.08)
======= ====== ====== ======
</TABLE>
(1) This computation is submitted in accordance with Regulation S-K, item
601(b)(11) although it is contrary to paragraph 10 of APB Opinion No.
15 because it produces an anti-dilutive result.
