<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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 1-5896
HUDSON GENERAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-1947395
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 GREAT NECK ROAD, GREAT NECK, NEW YORK 11021
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (516) 487-8610
Not Applicable
(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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $1.00 per share: 1,968,760 shares outstanding at October
31, 1996
Page 1 of 19
<PAGE> 2
PART I - FINANCIAL STATEMENTS
2
<PAGE> 3
HUDSON GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1996 1995
---------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues .................................... $ 1,150,000 $ 34,038,000
------------ ------------
Costs and expenses:
Operating .................................. -- 27,130,000
Depreciation and amortization .............. 190,000 1,642,000
Selling, general & administrative .......... 1,773,000 3,760,000
------------ ------------
Total costs and expenses .................. 1,963,000 32,532,000
------------ ------------
Operating income (loss) ..................... (813,000) 1,506,000
Equity in earnings of Hudson General LLC .... 1,584,000 --
Equity in loss of Kohala Joint Venture ...... (685,000) (683,000)
Interest income ............................. 970,000 556,000
Interest expense ............................ -- (512,000)
------------ ------------
Earnings before provision for
income taxes ............................... 1,056,000 867,000
Provision for income taxes .................. 370,000 387,000
------------ ------------
Net earnings ................................ $ 686,000 $ 480,000
============ ============
Earnings per share, primary ................. $ .39 $ .41
============ ============
Earnings per share, fully diluted ........... $ .37 $ .37
============ ============
Cash dividends per common share ............. $ -- $ --
============ ============
Weighted average common and common equivalent
shares outstanding:
Primary .................................... 1,770,000 1,165,000
============ ============
Fully diluted .............................. 2,007,000 2,054,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
HUDSON GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------ ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents .......................................... $ 25,488,000 $ 12,701,000
Accounts and notes receivable - net ................................ 837,000 238,000
Advances to and note receivable from Hudson General LLC ............ 10,157,000 7,233,000
Prepaid expenses and other assets .................................. 13,000 302,000
------------ ------------
Total current assets ............................................ 36,495,000 20,474,000
Property and equipment at cost, less accumulated depreciation
and amortization ................................................. 3,270,000 3,428,000
Investment in Kohala Joint Venture - net ........................... 15,178,000 15,420,000
Investment in Hudson General LLC ................................... 12,287,000 8,738,000
Note receivable from Hudson General LLC ............................ 7,168,000 --
Other assets - net ................................................. -- 716,000
------------ ------------
$ 74,398,000 $ 48,776,000
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable ................................................. $ 102,000 $ 471,000
Accrued expenses and other liabilities ........................... 1,314,000 3,648,000
------------ ------------
Total current liabilities ...................................... 1,416,000 4,119,000
------------ ------------
Deferred income taxes .............................................. 762,000 762,000
------------ ------------
Stockholders' Equity:
Serial preferred stock (authorized 100,000 shares of $1 par
value) - none outstanding ....................................... -- --
Common stock (authorized 7,000,000 shares
of $1 par value) - issued and outstanding 2,083,060 and
1,277,401 shares ................................................ 2,083,000 1,277,000
Paid in capital .................................................. 44,866,000 18,033,000
Retained earnings ................................................ 27,281,000 26,595,000
Treasury stock, at cost, 114,300 shares .......................... (2,010,000) (2,010,000)
------------ ------------
Total stockholders' equity ..................................... 72,220,000 43,895,000
------------ ------------
$ 74,398,000 $ 48,776,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
HUDSON GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1996 1995
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings ............................................ $ 686,000 $ 480,000
Adjustments to reconcile net earnings to net
cash (used) provided by operating activities:
Depreciation and amortization ........................... 190,000 1,642,000
Increase in deferred income tax liabilities ............. -- 26,000
Equity in earnings of Hudson General LLC ................ (1,584,000) --
Equity in loss of Kohala Joint Venture .................. 685,000 683,000
Accrual of interest income on Kohala Joint Venture
advances .............................................. (443,000) (401,000)
Loss (gain) on sale or disposal of equipment ............ -- (87,000)
Change in other current assets and liabilities:
Accounts and notes receivable - net ................... (599,000) (392,000)
Prepaid expenses and other assets ..................... 289,000 (755,000)
Accounts payable ...................................... (369,000) 24,000
Accrued expenses and other liabilities ................ (2,334,000) (743,000)
Other - net ............................................. 23,000 164,000
------------ ------------
Net cash (used) provided by operating activities ...... (3,456,000) 641,000
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment ...................... (36,000) (3,452,000)
Proceeds from sale of property and equipment ............. 4,000 159,000
Repayment of advances by Hudson General LLC - net ........ 156,000 --
Collections of note receivable from Hudson General LLC ... 16,095,000 --
Advances to Kohala Joint Venture - net ................... -- (308,000)
------------ ------------
Net cash provided (used) by investing activities ...... 16,219,000 (3,601,000)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock ................. 24,000 35,000
Purchase of treasury stock ............................. -- (389,000)
------------ ------------
Net cash provided (used) by financing activities ...... 24,000 (354,000)
------------ ------------
Effect of exchange rate changes on cash ................... -- (10,000)
------------ ------------
Net increase (decrease) in cash and cash equivalents ...... 12,787,000 (3,324,000)
Cash and cash equivalents at beginning of period .......... 12,701,000 12,613,000
------------ ------------
Cash and cash equivalents at end of period ................ $ 25,488,000 $ 9,289,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
HUDSON GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited consolidated financial statements were prepared
in accordance with generally accepted accounting principles and include all
adjustments which, in the opinion of management, are necessary to present
fairly the consolidated financial position of Hudson General Corporation
and Subsidiaries (the Corporation) as of September 30, 1996 and June 30,
1996, and the results of operations and cash flows for the three months
ended September 30, 1996 and 1995. In the opinion of management, all
necessary adjustments that were made are of a normal recurring nature.
The consolidated financial statements include the accounts of the
Corporation and the Subsidiaries for which it exercises effective control.
All material intercompany accounts and transactions have been eliminated in
consolidation. Kohala Joint Venture, a land development venture in Hawaii
in which the Corporation has a 50% interest (the Venture), is accounted for
under the equity method of accounting (see Note 3). Effective June 1, 1996,
the Corporation consummated a transaction (the Transaction) in which a
third party, Lufthansa Airport and Ground Services GmbH (LAGS), which is a
German corporation and an indirect wholly owned subsidiary of Deutsche
Lufthansa AG, acquired a 26% interest in the Corporation's aviation
services business (the Aviation Business). As part of the Transaction, the
Corporation transferred substantially all of the assets and liabilities of
the Aviation Business to Hudson General LLC (Hudson LLC), a newly-formed
limited liability company (see Note 2). LAGS received a 26% interest in
Hudson LLC. At the same time, the Corporation, Hudson LLC and LAGS USA
Inc., a wholly owned subsidiary of LAGS (LAGS USA), entered into a Limited
Liability Company Agreement effective June 1, 1996 (the LLC Agreement). Due
to the provisions in the LLC Agreement, effective June 1, 1996, the
Corporation has accounted for its interest in Hudson LLC under the equity
method of accounting. As a result, the consolidated statements of earnings
of the Corporation contain the operating results of the Aviation Business
under the equity method of accounting for the three months ended September
30, 1996 and on a consolidated basis for the three months ended September
30, 1995.
The accounting policies followed by the Corporation are stated in Note 1 to
the Corporation's consolidated financial statements in the 1996 Hudson
General Corporation Annual Report filed under Item 8 to Form 10-K for the
Corporation's fiscal year ended June 30, 1996.
2. The summary consolidated balance sheets for Hudson LLC are as follows:
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 3,525,000 $19,269,000
Accounts and notes receivable - net 17,878,000 18,055,000
Other current assets 2,607,000 2,317,000
----------- -----------
Total current assets 24,010,000 39,641,000
Property, equipment and leasehold rights at cost,
less accumulated depreciation and amortization 39,445,000 37,442,000
Other assets - net 3,544,000 3,641,000
----------- -----------
$66,999,000 $80,724,000
=========== ===========
Accounts payable $16,218,000 $15,104,000
Accrued expenses and other liabilities 17,114,000 18,085,000
Advances from Hudson General Corporation 10,157,000 7,233,000
----------- -----------
Total current liabilities 43,489,000 40,422,000
Note payable to Hudson General Corporation 7,168,000 --
Long-term debt, subordinated -- 28,751,000
Members' equity 16,342,000 11,551,000
----------- -----------
$66,999,000 $80,724,000
=========== ===========
</TABLE>
6
<PAGE> 7
Summary results of operations for Hudson LLC for the three months ended
September 30, 1996 are as follows:
Revenues $ 36,379,000
------------
Operating costs 29,062,000
Depreciation and amortization 1,676,000
Selling, general & administrative costs 3,109,000
------------
Total costs and expenses 33,847,000
------------
Operating income 2,532,000
Interest income 284,000
Interest expense (389,000)
------------
Earnings before provision for foreign income taxes 2,427,000
Provision for foreign income taxes 310,000
------------
Net earnings $ 2,117,000
============
The Corporation's 74% share of Hudson LLC's results was $1,584,000 for the three
months ended September 30, 1996 and is shown as "Equity in earnings of Hudson
General LLC" in the accompanying consolidated statements of earnings.
Effective June 1, 1996, pursuant to the terms of a Unit Purchase and Option
Agreement dated February 27, 1996 between the Corporation and LAGS, the
Corporation transferred substantially all of the assets and liabilities of the
Aviation Business to Hudson LLC. In exchange for the transfer of such assets and
liabilities and the assumption by Hudson LLC, as co-obligor with the
Corporation, of all of the Corporation's 7% convertible subordinated debentures
(the Debentures), the Corporation received a 74% interest in Hudson LLC. In
addition, Hudson LLC sold LAGS a 26% interest in Hudson LLC, for a purchase
price of $23,686,000 in cash (after certain adjustments), of which $15,848,000
was paid at the closing and $2,650,000 (plus interest thereon) was paid in
September 1996. The remaining portion of the purchase price of $5,188,000 (the
Deferred Payment) is to be paid in two annual installments (together with
accrued interest from January 1, 1996 at a rate of 11% per annum), in September
1997 and 1998, and is subject to potential downward adjustment based on the
future earnings of the Aviation Business. The Corporation's investment in Hudson
LLC was increased by its 74% interest in the September 1996 payment from LAGS
noted above.
The LLC Agreement stipulates that the Corporation and LAGS USA will share
profits and losses in the same proportion as their respective equity interests
in Hudson LLC, except that the Corporation is entitled to all interest earned on
the Deferred Payment and LAGS USA will not share in any pre-tax earnings, as
defined, of the Aviation Business in excess of $14,690,000 and $15,863,000 in
fiscal 1997 and 1998, respectively.
During the quarter ended September 30, 1996, $26,343,000 principal amount of
Debentures was converted into shares of the Corporation's common stock, and to
such extent Hudson LLC became indebted on a subordinated basis (as defined) to
the Corporation. Also during the quarter ended September 30, 1996, Hudson LLC
utilized the September 1996 Deferred Payment together with a portion of the
proceeds received at the closing of the Transaction, aggregating $16,095,000, to
partially repay the outstanding balance of its subordinated debt to the
Corporation. At September 30, 1996 the balance of such debt was $10,318,000. The
noncurrent portion of this debt in the amount of $7,168,000 is shown as "Note
receivable from Hudson General LLC" in the accompanying consolidated balance
sheets. In addition, the Corporation's net advances to Hudson LLC (including the
current portion of such note receivable of $3,150,000) increased during the
three months ended September 30, 1996 to $10,157,000.
7
<PAGE> 8
3. The Corporation is a partner in the Venture which was formed to acquire,
develop and sell approximately 4,000 contiguous acres of land in Hawaii.
The summary consolidated balance sheets for the Venture are as follows:
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------ ------------
(Unaudited)
<S> <C> <C>
Cash and equivalents $ 142,000 $ 267,000
Land and development costs 26,570,000 26,710,000
Mortgages, accounts and notes receivable 4,680,000 5,212,000
Foreclosed real estate - net 2,588,000 2,200,000
Other assets - net 2,241,000 2,325,000
------------ ------------
$ 36,221,000 $ 36,714,000
============ ============
Notes payable $ 573,000 $ 576,000
Partner advances and accrued interest payable 51,135,000 50,220,000
Accounts payable and accrued expenses 1,256,000 1,292,000
Partners' deficit (16,743,000) (15,374,000)
------------ ------------
$ 36,221,000 $ 36,714,000
============ ============
</TABLE>
Summary results of operations for the Venture are as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1996 1995
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $ 300,000 $ 81,000
----------- -----------
Cost of sales 202,000 --
Selling, general and administrative costs 615,000 582,000
Interest - net 852,000 865,000
----------- -----------
Total costs 1,669,000 1,447,000
----------- -----------
Net loss $(1,369,000) $(1,366,000)
=========== ===========
</TABLE>
The Corporation's 50% share of the Venture's results were losses of $685,000 and
$683,000 for the three months ended September 30, 1996 and 1995, respectively,
and have been included in "Equity in loss of Kohala Joint Venture" in the
accompanying consolidated statements of earnings. The Corporation's partner in
the Venture is Oxford Kohala, Inc. (the Partner), a wholly owned subsidiary of
Oxford First Corporation (Oxford First). Under the Restated Joint Venture
Agreement dated April 29, 1981, as amended (the Agreement), the partners have
agreed to make equal advances to the Venture for all costs necessary for the
orderly development of the land. The Corporation's total advances (including
accrued interest) at September 30, 1996 were $25,567,000.
On October 13, 1994, Oxford First filed for reorganization under Chapter 11 of
the Bankruptcy Code. Pursuant to an order of the Bankruptcy Court, Oxford First
(through its subsidiary, The Oxford Finance Companies, Inc.) was permitted to
transfer certain amounts to the Partner. The amounts so authorized were not
sufficient to allow the Partner to make its full share of required advances. The
Corporation opted to make additional advances (the Additional Advances) to cover
the Partner's funding deficiency. During November 1995, the Partner resumed
making advances, and in January 1996, the Partner repaid to the Corporation the
entire amount of Additional Advances of $702,000 together with $37,000 of
interest thereon. In addition, pursuant to an amended reorganization plan which
was approved by the Bankruptcy Court on September 7, 1995, Oxford First is
permitted to transfer funds to the Partner in an aggregate amount not to exceed
$750,000 in each of the calendar years 1996 and 1997 exclusive of the repayment
of the Additional Advances. The Corporation, at present, is unable to determine
whether such permitted transfers will be sufficient in order for the Partner to
make its share of future advances to the Venture or whether Oxford First will
receive permission from the Bankruptcy Court to transfer additional funds to the
Partner, if required. The Partner advanced $675,000 to the Venture during the
nine months ended September 30, 1996. Should the Partner be unable to make its
share of future advances to the Venture, the
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<PAGE> 9
Corporation has the option to make further advances on behalf of the
Partner (subject to its rights of reimbursement) necessary up to the limits
set forth in its Revolving Credit Agreement with a group of banks. The
Partner did not file for reorganization under Chapter 11 of the Bankruptcy
Code. During the three months ended September 30, 1996, the Corporation did
not make any advances to the Venture.
4. On June 3, 1996, the Corporation called for redemption on July 22, 1996,
$15,825,000 aggregate principal amount of the Debentures. On July 22, 1996,
$2,166,000 of the Debentures were redeemed, with the $13,659,000 balance
having been converted into shares of the Corporation's common stock on or
prior to such redemption date. In addition, on August 5, 1996 the balance
of outstanding Debentures (approximately $12,800,000) were called for
redemption on September 4, 1996. On September 4, 1996, $242,000 of the
Debentures were redeemed, with the $12,520,000 balance having been
converted into shares of the Corporation's common stock on or prior to such
redemption date. At September 5, 1996 no Debentures remained outstanding.
Had the conversion of the Debentures occurred on July 1, 1996, the reported
earnings per share, primary, for the three months ended September 30, 1996,
would have decreased $.02 to $.37.
In connection with the conversion of the Debentures, during the three
months ended September 30, 1996, the Corporation issued 804,259 shares of
its common stock. As a result, "Paid in capital" as shown in the
accompanying consolidated balance sheets increased by $24,841,000.
5. Certain reclassifications of fiscal 1996 balances have been made to conform
with the fiscal 1997 presentation.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Effective June 1, 1996, the Corporation consummated a transaction (the
Transaction) in which a third party, Lufthansa Airport and Ground Services GmbH
(LAGS), acquired a 26% interest in the Corporation's aviation services business
(the Aviation Business). As part of the Transaction, the Corporation transferred
substantially all of the assets and liabilities of the Aviation Business to
Hudson General LLC (Hudson LLC), a newly-formed limited liability company (see
Notes 1 and 2). Effective June 1, 1996, the Corporation has accounted for its
interest in Hudson LLC under the equity method of accounting. As a result, the
Corporation's consolidated statement of earnings for the three months ended
September 30, 1996 contains the operating results of the Aviation Business under
the equity method of accounting. For the three months ended September 30, 1995,
the Corporation's consolidated statement of earnings contains the operating
results of the Aviation Business on a consolidated basis.
The Corporation's revenues of $1.2 million for the three months ended
September 30, 1996 reflect overhead fees and equipment rental income billed by
the Corporation to Hudson LLC. Depreciation and amortization of $.2 million for
the three months ended September 30, 1996 primarily represent depreciation
related to operating equipment leased to Hudson LLC by the Corporation. Selling,
general and administrative expenses for the three months ended September 30,
1996 of $1.8 million principally reflect administrative and related costs of the
Corporation.
The Corporation's 74% share of earnings from Hudson LLC for the three
months ended September 30, 1996 was $1.6 million. (For an analysis of the
results of the Aviation Business, see the table and related management's
discussion which appears below.)
The Corporation's 50% share of losses from its real estate joint venture
in Hawaii (the Venture) for the three months ended September 30, 1996
approximated that of the corresponding period of the previous year as sales of
land parcels continued to be slow. As is usual for companies with land
development operations, the contribution to future results from such operations
will fluctuate depending upon land sales closed in each reported period.
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<PAGE> 11
Interest income for the three months ended September 30, 1996 increased
$.4 million, or 74.5%, compared with the corresponding period of the prior year.
The increase primarily reflects interest income associated with: (i) the
subordinated note receivable from Hudson LLC related to conversion of the 7%
convertible subordinated debentures (the Debentures) into shares of the
Corporation's common stock (see Note 2); (ii) advances made by the Corporation
to Hudson LLC; and (iii) higher excess cash balances.
Interest expense for the three months ended September 30, 1995 was
attributable to the Debentures (see Notes 2 and 4).
The Corporation's provision for income taxes for the three months ended
September 30, 1996 approximated that of the corresponding period of the previous
year. Included in the Corporation's provision for income taxes for the three
months ended September 30, 1996 is a higher provision associated with increased
pre-tax earnings in the U.S., which was offset by the absence in the current
year period of a provision for foreign income taxes. As a result of the
Transaction, the Corporation is no longer required to provide for or reflect
foreign income taxes in its consolidated financial statements.
The following table and related management's discussion are intended to
provide a presentation and analysis of results of the Aviation Business for the
three months ended September 30, 1996 and 1995 on a comparable basis.
Three Months Ended
September 30,
1996 1995
------- -------
(in thousands)
Revenues $36,379 $34,035
------- -------
Costs and expenses:
Operating 29,062 27,130
Depreciation and amortization 1,676 1,622
Selling, general and administrative 3,109 2,849
------- -------
Total costs and expenses 33,847 31,601
------- -------
Operating income $ 2,532 $ 2,434
======= =======
Revenues for the three months ended September 30, 1996 increased $2.3
million, or 6.9%, compared with the corresponding period of the prior year. The
increase reflects higher ground handling service revenues of $2.9 million due
primarily to expanded services to new and existing customers. Partially
offsetting the revenue increase was lower ground transportation revenues for the
three months ended September 30, 1996 of $.7 million due
11
<PAGE> 12
primarily to the loss of contracts to operate information kiosks and airfield
passenger transport vehicles.
Costs and expenses for the three months ended September 30, 1996
increased $2.2 million, or 7.1%, compared with the corresponding period of the
previous year. Operating costs for the three months ended September 30, 1996
increased $1.9 million, or 7.1%, compared with the corresponding period of the
previous year. The increase was attributable to higher labor and related costs
associated with expanded ground handling operations. Partially offsetting the
increase for the three months ended September 30, 1996 were lower costs as a
result of: (i) the loss of contracts to operate ground transportation
information kiosks and airfield passenger transport vehicles; and (ii) lower
workers' compensation insurance costs as a result of the positive trend of
related claims.
Depreciation and amortization expenses for the three months ended
September 30, 1996 were comparable with those of the corresponding period of the
previous year.
Selling, general and administrative expenses for the three months ended
September 30, 1996 increased $.3 million, or 9.2%, compared with the
corresponding period of the previous year. The increase primarily reflects
higher administrative and related costs.
Operating income for the three months ended September 30, 1996 increased
$.1 million compared with the corresponding period of the previous year due
primarily to improved results from ground handling operations, which was
partially offset by increased selling, general and administrative expenses
described above.
Results of aircraft ground handling operations fluctuate depending upon
the flight activity and schedules of customers and the ability to deploy
equipment and manpower in the most efficient manner to service such customers.
Snow removal and aircraft de-icing services are seasonal in nature. The
results of these operations are normally reflected in the second and third
quarters of the fiscal year, and fluctuate depending upon the severity of the
winter season.
The state of the North American aviation industry has resulted in
increased competitive pressures on the pricing of aviation services and in the
exploration of alliances between major commercial airline carriers. While these
factors may have an adverse effect, several airlines have been
12
<PAGE> 13
outsourcing services to independent aviation service companies. This trend, as
well as the Open Skies Agreement between the United States and Canada, which
provides increased access for airlines to fly between these bordering countries,
has provided additional opportunities for Hudson LLC. The Corporation is unable,
at this time, to evaluate the full impact of these factors.
13
<PAGE> 14
Liquidity and Capital Expenditures and Commitments
The Corporation's recurring sources of liquidity are funds provided from
Hudson LLC and bank lines of credit. As a result of the Transaction, Hudson LLC
will pay to the Corporation an overhead fee equal to the sum of 3% of Hudson
LLC's consolidated domestic revenues and 1% of Hudson LLC's consolidated
Canadian revenues. It is currently anticipated that approximately $3.0 million
of the Corporation's overhead will not be allocated to Hudson LLC on an annual
basis. In addition, the Corporation is expected to receive distributions from
Hudson LLC annually in an amount substantially equal to 50% of domestic and 10%
of Canadian pre-tax earnings from the Aviation Business, as defined, multiplied
by the Corporation's respective equity interest in Hudson LLC (presently 74%).
Furthermore, as a result of the conversion of Debentures into shares of the
Corporation's common stock, Hudson LLC is, on a subordinated basis (as defined),
indebted to the Corporation. In September 1996, Hudson LLC repaid $16.1 million
of such debt to the Corporation. Hudson LLC is obligated to repay the remaining
balance of $10.3 million to the Corporation as follows: (i) to the extent that
deferred payments made by LAGS are received by Hudson LLC (see Note 2); (ii) $.5
million on July 15, 1997; and (iii) $1.5 million on July 15, 1998 and on each
July 15th thereafter until the entire principal balance is satisfied. In
addition, as a result of the Transaction, the Corporation received certain trade
receivables and made advances to Hudson LLC. The balance of such advances (which
Hudson LLC is obligated to repay to the Corporation on demand) totaled $7.0
million as of September 30, 1996.
Pursuant to a Revolving Credit Agreement (the Credit Agreement) with a
group of banks dated June 1, 1996, the Corporation may borrow funds (including
outstanding letters of credit) up to a limit of $6.0 million until June 30, 1999
at which time the Credit Agreement terminates. There were no direct borrowings
or letters of credit outstanding at September 30, 1996.
During the three months ended September 30, 1996, net cash used by
operating activities was $3.5 million due mainly to: (i) payments of accrued
expenses; and (ii) equity in earnings of Hudson LLC which were not distributed
to the Corporation. During the three months ended September 30, 1995, net cash
provided by operating activities was $.6
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<PAGE> 15
million. Net cash provided by investing activities was $16.2 million for the
three months ended September 30, 1996 due mainly to Hudson LLC's partial
repayment of the outstanding balance of its subordinated debt to the
Corporation. Capital expenditures net of proceeds from the sale of property and
equipment were $32,000 and $3.3 million during the three months ended September
30, 1996 and 1995, respectively. In the 1995 period, the majority of capital
expenditures were made in respect of the Aviation Business and as such are now
made by Hudson LLC. Cash and cash equivalents were $25.5 and $12.7 million at
September 30, 1996 and June 30, 1996, respectively. The increase in cash and
cash equivalents primarily reflects the repayment to the Corporation in
September 1996 of $16.1 million from Hudson LLC as noted above.
During fiscal 1992, the County of Hawaii passed an ordinance pursuant to
which the Venture, after subdivision approvals are obtained, would be able to
develop Phase IV of the project into 1,490 units. Pursuant to such ordinance,
the Venture is required to expend approximately $2.3 million for public
infrastructural improvements and in lieu payments. Shortly after passage of the
ordinance, a lawsuit against the County of Hawaii was filed by two local
residents of Hawaii (Plaintiffs) seeking to invalidate such ordinance on various
grounds including that the ordinance was adopted without following State of
Hawaii procedure relating to the preparation of an Environmental Impact
Statement. During fiscal 1993, the Judge in this action granted Plaintiffs'
motion for partial summary judgment without indicating any effect on Phase IV
zoning. The County and the Venture have appealed this ruling. The appeal was
heard before the Hawaii Supreme Court in March 1994, and because of an existing
backlog in its caseload, the Court has not rendered a decision. The Venture
cannot, at this time, determine the impact of the Court's ruling on the timing
of development of Phase IV or the expenditures related thereto.
The Joint Venture Agreement provides that the Corporation and its
partner in the Venture, Oxford Kohala, Inc. (the Partner) are obligated to make
equal advances of any of the Venture's required fundings. It is anticipated that
the Venture's capital commitments will be funded by cash flow from its
operations and advances from the Corporation and the Partner. It is expected
that any advances which the Corporation may be required to make to the Venture
will be provided from the Corporation's
15
<PAGE> 16
cash flow and lines of credit. Pursuant to the Credit Agreement the Corporation
may advance up to $2.0 million to the Venture in any fiscal year or up to $5.0
million during the term of the Credit Agreement, net of any distributions
received from the Venture by the Corporation during such periods. At present, it
is anticipated that the advances required to meet the obligations of the Venture
will not exceed the limits set forth in the Credit Agreement.
At September 30, 1996, the Venture had commitments (in addition to the
commitments noted above) aggregating $3.3 million for project expenditures.
Included in this amount is $1.7 million for the construction of water well
equipment and a reservoir by June 30, 1999. It is currently expected that
approximately $.6 million of funds for the Venture's other commitments will be
expended during fiscal 1997.
The Partner is a subsidiary of Oxford First Corporation (Oxford First).
On October 13, 1994, Oxford First filed for reorganization under Chapter 11 of
the Bankruptcy Code. Pursuant to an order of the Bankruptcy Court, Oxford First
(through its subsidiary, The Oxford Finance Companies, Inc.) was permitted to
transfer certain amounts to the Partner. The amounts so authorized were not
sufficient to allow the Partner to make its full share of required advances. The
Corporation opted to make additional advances (the Additional Advances) to cover
the Partner's funding deficiency. During November 1995, the Partner resumed
making advances, and in January 1996, the Partner repaid to the Corporation the
entire amount of the Additional Advances of $.7 million together with interest
thereon. In addition, pursuant to an amended reorganization plan which was
approved by the Bankruptcy Court on September 7, 1995, Oxford First is permitted
to transfer funds to the Partner in an aggregate amount not to exceed $750,000
in each of the calendar years 1996 and 1997 (exclusive of the repayment of the
Additional Advances). The Corporation, at present, is unable to determine
whether such permitted transfers will be sufficient in order for the Partner to
make its share of future advances to the Venture or whether Oxford First will
receive permission from the Bankruptcy Court to transfer additional funds to the
Partner, if required. The Partner has advanced $675,000 to the Venture during
the nine months ended September 30, 1996. Should the Partner be unable to make
its share of future advances to the Venture, the Corporation has the option to
make
16
<PAGE> 17
further advances on behalf of the Partner (subject to its right of
reimbursement) necessary up to the limits set forth in the Credit Agreement. The
Partner did not file for reorganization under Chapter 11 of the Bankruptcy Code.
During the three months ended September 30, 1996, the Corporation did not make
any advances to the Venture.
The extent to which advances to the Venture will be required in the
future, as well as the timing of the return to the Corporation of the advances
made by it, will depend upon the amount of sales generated by the Venture, the
terms upon which parcels are sold, expenses incurred in the planning and
development of future phases of the Project, and the ability of the Partner to
fund its obligations under the Joint Venture Agreement.
It is expected that the sources of the Corporation's liquidity, as noted
above, will provide sufficient funding to allow the Corporation to meet its
liquidity requirements.
17
<PAGE> 18
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
11 Computations of Earnings Per Share Information, Primary and Fully
Diluted - Net Earnings.
27 Financial Data Schedule.
b) Reports on Form 8-K - None
18
<PAGE> 19
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.
HUDSON GENERAL CORPORATION
--------------------------
(Registrant)
Date: November 12, 1996
------------------------
/s/ JAY B. LANGNER
-----------------------------
Jay B. Langner
Chairman of the Board and
Chief Executive Officer
/s/ MICHAEL RUBIN
-----------------------------
Michael Rubin
President and Principal
Financial Officer
19
<PAGE> 20
HUDSON GENERAL CORPORATION & SUBSIDIARIES
EXHIBIT INDEX
Exhibit
No. Exhibit Page No.
- ---------------------------------------------------------------------
11 Computations of Earnings Per Share Information,
Primary and Fully Diluted - Net Earnings 21 - 23
27 Financial Data Schedule 24 - 25
20
<PAGE> 1
EXHIBIT 11
Computations of Earnings Per Share Information,
Primary and Fully Diluted - Net Earnings.
21
<PAGE> 2
HUDSON GENERAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE INFORMATION
PRIMARY - NET EARNINGS
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1996 1995
------------------
(in thousands, except
per share amounts)
<S> <C> <C>
Net earnings for computing earnings
per share - primary..............................................$ 686 $ 480
===== =====
Weighted average number of
common and common equivalent
shares outstanding............................................. 1,770 1,165
===== =====
Net earnings per common and
common equivalent share-primary..................................$ .39 $ .41
===== =====
</TABLE>
22
<PAGE> 3
HUDSON GENERAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE INFORMATION
FULLY DILUTED - NET EARNINGS
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1996 1995
---------------------
(in thousands, except
per share amounts)
<S> <C> <C>
Net earnings for computing
earnings per share - primary...................................................... $ 686 $ 480
Reduction of interest expense less applicable income
taxes assuming conversion of 7% convertible
subordinated debentures due 2011.................................................. 50 286
----- -----
Net earnings for computing earnings
per share-fully diluted........................................................... $ 736 $ 766
===== =====
Weighted average number of common and common
equivalent shares outstanding..................................................... 1,770 1,165
Addition from assumed conversion as of the beginning
of each period of the 7% convertible subordinated
debentures outstanding at the end of each period.................................. 237 889
------ -----
Weighted average number of common and common
equivalent shares outstanding on a fully diluted
basis.............................................................................. 2,007 2,054
====== ======
Net earnings per common and
common equivalent share - fully diluted $ .37 $ .37
====== ======
</TABLE>
23
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 25,488
<SECURITIES> 0
<RECEIVABLES> 837
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 36,495
<PP&E> 3,270
<DEPRECIATION> 0
<TOTAL-ASSETS> 74,398
<CURRENT-LIABILITIES> 1,416
<BONDS> 0
0
0
<COMMON> 2,083
<OTHER-SE> 70,137
<TOTAL-LIABILITY-AND-EQUITY> 74,398
<SALES> 1,150
<TOTAL-REVENUES> 1,150
<CGS> 0
<TOTAL-COSTS> 1,963
<OTHER-EXPENSES> 1,773
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,056
<INCOME-TAX> 370
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 686
<EPS-PRIMARY> .39
<EPS-DILUTED> .37
</TABLE>
