<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 March 31, 1995
--------------------
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
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HADSON CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 31-0679954
- ------------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2777 Stemmons Freeway, Suite 700, Dallas, Texas 75356-9550
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
214-640-6800
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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.
Class Outstanding at March 31, 1995
- ---------------------------------- -----------------------------
Common Stock, par value $.01 25,710,483 shares
<PAGE> 2
HADSON CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. Financial Information: Page
- -------------------------------- --------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets
December 31, 1994 and March 31, 1995 (Unaudited) 2
Consolidated Statements of Operations (Unaudited)
Three Months Ended March 31, 1994 and 1995 3
Consolidated Statements of Cash Flow (Unaudited)
Three Months Ended March 31, 1994 and 1995 4
Notes to Consolidated Financial Statements (Unaudited) 5 - 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 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, March 31,
1994 1995
----------- --------
(Unaudited)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 3,109 310
Accounts receivable, net 76,045 52,781
Inventories 4,858 4,994
Assets held for sale 4,635 -
Prepaid expenses and other current assets 5,427 4,413
----------- --------
Total current assets 94,074 62,498
----------- --------
Property, equipment and improvements at costs, net 101,169 99,808
Gas supply contract 5,827 5,584
Assets held for sale 1,900 -
Other assets 2,435 4,158
----------- --------
$ 205,405 172,048
=========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Bank borrowings and current long-term debt $ 10,578 15,578
Accounts payable 86,944 56,479
Accrued liabilities 5,861 3,731
Deferred revenue 3,852 2,513
----------- --------
Total current liabilities 107,235 78,301
----------- --------
Long-term debt 57,372 57,260
Other long-term liabilities 1,579 1,500
Deferred income taxes 783 791
Stockholder's equity:
Preferred stock, par value $.01 per share
Authorized, 25,000,000 shares:
Senior Cumulative, Series A; issued 2,335,907 and 2,400,704 shares,
at aggregate carrying value 55,029 56,556
Junior Exercisable Automatically Convertible, Series B; issued
4,981,691 and 4,981,710 shares, at par value 50 50
Common stock, par value $.01 per share
Authorized, 50,000,000;
issued 25,690,640 and 25,710,483 shares 257 257
Additional paid-in capital 196,621 196,621
Accumulated deficit (213,521) (219,288)
----------- --------
Total stockholders' equity 38,436 34,196
----------- --------
$ 205,405 172,048
=========== ========
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE> 4
HADSON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1995
---- ----
<S> <C> <C>
Revenues:
Sales $192,863 104,128
Interest and other income 301 223
--------- --------
193,812 104,351
--------- --------
Expenses:
Cost of sales and services 185,215 100,298
Depreciation and amortization 2,580 2,838
Selling, general and administrative 3,853 3,800
Interest 1,164 1,639
--------- --------
192,812 108,575
--------- --------
Earnings (loss) before income
taxes 352 (4,224)
Income tax expense - 16
--------- --------
Net earnings (loss) from continuing operations 352 (4,240)
Preferred stock dividend requirements 1,378 1,527
--------- --------
Net loss attributable to common stock $ (1,026) (5,767)
========= ========
Loss per common share and common
equivalent share $ (.04) $ (.22)
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 5
HADSON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 352 (4,240)
Items not affecting cash flow:
Depreciation and amortization 2,580 2,838
Accruals of operating cash receipts and payments:
Change in trade receivables (28,631) 22,939
Change in inventories (874) (136)
Change in prepaid expenses and other current assets 2,290 6,923
Change in current liabilities 17,528 (33,171)
-------- -------
Cash flow used by operating activities (6,755) (4,847)
-------- -------
Cash flows from investing activities:
Additions to property, equipment and improvements (1,840) (1,528)
Dispositions of properties 2,500 514
Other (10) (115)
-------- -------
Cash flows provided (used) by investing activities 650 (1,129)
-------- -------
Cash flows from financing activities:
Net borrowings from banks 7,100 5,000
Repayments of borrowings - (112)
Transaction costs related to restructuring and merger (1,348) (1,711)
-------- -------
Cash flows provided by financing activities 5,752 3,177
-------- -------
Net decrease in cash and cash equivalents (353) (2,799)
Cash and cash equivalents at beginning of period 2,466 3,109
-------- -------
Cash and cash equivalents at end of period $ 2,113 310
======== =======
Supplemental disclosures of cash flow information:
Cash paid for:
Interest (net of amounts capitalized and including amounts
attributable to discontinued operations) 1,357 1,409
Income taxes (net of refunds) 143 17
-------- -------
$ 1,500 1,426
======== =======
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE> 6
HADSON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
(UNAUDITED)
1. The accompanying financial information includes the financial position
of Hadson Corporation and Subsidiaries (the "Company") as of December
31, 1994 and March 31, 1995, and the results of operations and changes
in cash flows for the three month periods ended March 31, 1994 and 1995.
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 1994 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, 1994, 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, 1994 has
been derived from, but does not include all the disclosures contained
in, the audited consolidated financial statements for the year ended
December 31, 1994. Certain reclassifications have been made in the
consolidated financial statements for periods presented in 1994 for
consistency with amounts presented in 1995 with no effect on previously
reported earnings. 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 month period ended March 31,
1995 are not necessarily indicative of the results to be expected for
the full year.
3. For the three month periods ended March 31, 1994 and 1995, net loss per
common share is based upon the weighted average shares of common stock
outstanding of 25,689,989 and 25,704,235 respectively. 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 month periods ended
March 31, 1994 and 1995, purchases from Santa Fe totalled approximately
$30,706,000 and $17,038,000, respectively, while sales to Santa Fe
totalled approximately $5,065,000 and $3,732,000, respectively. Trade
payables to Santa Fe at March 31, 1994 and 1995, were $10,423,000 and
10,619,000, respectively, while trade receivables from Santa Fe were
$1,816,000 and $1,188,000, respectively. In November 1994, certain of
the Company's subsidiaries and Santa Fe settled a lawsuit with third
parties. Santa Fe funded the Company's $2,350,000 share of the
settlement with a 10-year, 9% fixed rate balloon note with interest
payable annually. This note is subordinate to the Company's other
lenders.
5. The Company is subject to various legal proceedings and claims that
arise in the normal course of business. In the opinion of management,
based in part on consultation with counsel, the amount of ultimate
liability, if any, with respect to those actions will not have a
material effect on the company's consolidated financial statements.
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<PAGE> 7
6. On February 10, 1995, the Company and its two largest debt and equity
holders, Santa Fe and Prudential, executed definitive agreements with
LG&E Energy Corp. ("LG&E Energy") of Louisville, Kentucky, whereby LG&E
Energy will acquire all of the Company's Common Stock, Senior Preferred
Stock, New Senior Secured Notes, and Santa Fe 9% subordinated note for
an aggregate consideration of $143,000,000 plus acquisition-related fees
and expenses. Pursuant to the agreements, the Company's public
shareholders will receive $2.75 in cash for each share of the Company's
Common Stock. These transactions ("the Merger") were completed May 15,
1995, and resulted in the Company becoming a wholly owned subsidiary of
LG&E Energy.
7. Effective January 1, 1995, the Company sold its United LP Gas
Corporation ("United") subsidiary for a total sales price of $3,100,000
that consisted of a $1,200,000 cash payment, a $1,000,000 note
receivable, and $900,000 in preferred stock of the acquiring company. A
charge of $205,000 was recognized in the Company's results of operations
for the year ended December 31, 1994, to adjust the carrying value of
the net assets of United to net realizable value. United contributed
approximately $27,542,000 to consolidated revenue for the three months
ended March 31, 1994. Pre-tax income or loss for the same period was
not material.
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<PAGE> 8
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 months ended March 31, 1995, the Company's earnings
before interest, taxes, depreciation and amortization amounted to $216,000, as
compared to $4,096,000, for the same period in 1994. This decline resulted
from 1994 events that had an immediate effect within the industry. In November
1994, Sunrise Energy Company, a natural gas marketing company based in Dallas,
filed bankruptcy. The creditworthiness of independent gas marketers similar to
the Company began to come under even greater scrutiny. This situation was
exacerbated by the Company's recent payment delays to various suppliers. In
December 1994, an industry trade periodical published an article that
speculated that the Company might merge or be acquired by another entity and
that the impetus for such a transaction was the Company's financial position.
This article had a very dramatic effect on many suppliers' perception of the
Company's creditworthiness and the willingness of those suppliers to grant open
trade credit. As a result of these events, the Company experienced an
increased demand for letters of credit. With the new level of letter of credit
demands, the Company has been unable to acquire sufficient supplies of natural
gas to maintain natural gas marketing volumes at levels which had been
experienced through November 1994; accordingly, volumes from December 1994
through March 1995 have been below those attained earlier in 1994.
In order for the Company to return gas marketing volumes to levels
attained during 1994, it must reestablish significant open lines of trade
credit, and, to increase volumes beyond 1994 levels, even more credit capacity
must be established either in the form of open trade lines or additional
capacity under credit agreements pursuant to which letters of credit could be
issued to suppliers. Management believes that the underlying financial
stability required to grow volumes back to and beyond 1994 levels will only
come from a significant restructuring and improvement in the Company's capital
structure. Management anticipates that, as a result of the consummation of the
Merger, this restructuring and improvement in the Company's capital structure
will be accomplished during the remainder of 1995.
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<PAGE> 9
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
March 31,
------------------
1994 1995
---- ----
(In Thousands)
<S> <C> <C>
Operating Profit:
Natural gas marketing $ 5,416 1,794
Gas gathering, processing and 1,727 2,036
transmission
Natural gas liquids ("NGL") marketing 505 -
-------- -----
$ 7,648 3,830
======== =====
</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
March 31,
--------------------
1994 1995
---- ----
(In Thousands)
<S> <C> <C>
Natural Gas Marketing
Sales Volumes (MMBTU/Day) 817 745
Average Gross Margin .074 .027
</TABLE>
Record demand for natural gas during portions of January and February
1994 in certain parts of the country resulted in enhanced margins for the
Company in the first quarter of 1994.
Natural gas volumes decreased in the first three months of 1995 as
compared to 1994 as a result of the previously discussed limited access to open
credit from suppliers beginning late in 1994 and continuing into 1995. Margins
for the first three months of 1995 declined from the trend experienced in the
later half of 1994 due to the same credit issues with suppliers and due to
continuing tightening of margins resulting from competitive pressures within
the industry.
-8-
<PAGE> 10
HADSON CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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
March 31,
--------------------
1994 1995
---- ----
(In Thousands)
<S> <C> <C>
Gas gathering and transmission systems:
Natural gas throughput (MMBTU/Day) 110 128
Processing Plants:
NGL production (MGAL/Day) 171 201
NGL sales price ($/GAL) $ .201 .208
</TABLE>
Natural gas throughput through the Company's gathering and
transmission systems and NGL production was higher in the first three months of
1995 as compared to 1994 due to the higher utilization of pipeline systems and
processing plants acquired in December 1993.
NGL Marketing
As previously discussed, the Company sold its NGL marketing business,
United, effective January 1, 1995.
Other
Depreciation and amortization for the first quarter of 1995 are
greater than in the first quarter of 1994 because of the effect of the
$11,145,000 excess of 1994 capital expenditures over dispositions.
Selling, general and administrative expenses remained stable from the
first three months of 1994 to the same period in 1995.
Interest expense was higher in the first three months of 1995 as
compared to 1994 due primarily to a full utilization of the Company's bank
credit agreement during the first three months of 1995.
No recently issued accounting standards are expected to have a
material effect on the Company's financial statements.
-9-
<PAGE> 11
HADSON CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits
11 - Computation of Fully Diluted Earnings/Loss per Share.
27 - Financial Data Schedule.
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 MAY 15, 1995
-10-
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
11 - Computation of Fully Diluted Earnings/Loss per Share.
27 - Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 11
COMPUTATION OF FULLY DILUTED EARNINGS/LOSS
PER SHARE
<PAGE> 2
Exhibit 11
COMPUTATION OF FULLY DILUTED EARNINGS/LOSS
PER SHARE (1)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------
1994 1995
---- ----
<S> <C> <C>
Net income (loss) as reported $ 352 (4,240)
Preferred stock dividend requirements 1,378 1,527
---------- ------
Fully diluted net loss $ (1,026) (5,767)
========== ======
Average number of common shares -
fully diluted 25,690 25,704
========== ======
Fully diluted net loss per common
and common equivalent share $ (.04) (.22)
========== ======
</TABLE>
(1) This computation is submitted in accordance with Regulation S-K, item
601(b)(11).
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT MARCH 31, 1995, THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND THE COMPUTATION OF
FULLY DILUTED EARNINGS/LOSS PER SHARE FOR THE THREE MONTHS ENDED MARCH 31, 1995,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 310
<SECURITIES> 0
<RECEIVABLES> 54,027
<ALLOWANCES> 1,246
<INVENTORY> 4,994
<CURRENT-ASSETS> 62,498
<PP&E> 138,275
<DEPRECIATION> 38,467
<TOTAL-ASSETS> 172,048
<CURRENT-LIABILITIES> 78,301
<BONDS> 57,260
<COMMON> 257
0
56,606
<OTHER-SE> (22,667)
<TOTAL-LIABILITY-AND-EQUITY> 172,048
<SALES> 104,128
<TOTAL-REVENUES> 104,128
<CGS> 100,298
<TOTAL-COSTS> 100,298
<OTHER-EXPENSES> 6,638
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,639
<INCOME-PRETAX> (4,224)
<INCOME-TAX> 16
<INCOME-CONTINUING> (4,240)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,240)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> (.22)
</TABLE>
