<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 March 31, 1997
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: 1,815,849 shares outstanding at April
30, 1997
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 Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
----------- ------------ ---------- ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues ............................................ $ 1,426,000 $ 56,350,000 $3,730,000 $131,340,000
----------- ------------ ---------- ------------
Costs and expenses:
Operating ......................................... -- 38,119,000 -- 95,786,000
Depreciation and amortization ..................... 184,000 2,127,000 561,000 5,707,000
Selling, general & administrative ................. 2,514,000 4,874,000 6,259,000 12,486,000
----------- ------------ ---------- ------------
Total costs and expenses ........................ 2,698,000 45,120,000 6,820,000 113,979,000
----------- ------------ ---------- ------------
Operating income (loss) ............................. (1,272,000) 11,230,000 (3,090,000) 17,361,000
Equity in earnings of Hudson General LLC ............ 3,838,000 -- 8,529,000 --
Equity in loss of Kohala Joint Venture .............. (705,000) (669,000) (2,053,000) (2,060,000)
Interest income ..................................... 976,000 556,000 3,017,000 1,617,000
Interest expense .................................... -- (506,000) -- (1,529,000)
----------- ------------ ---------- ------------
Earnings before provision for income taxes .......... 2,837,000 10,611,000 6,403,000 15,389,000
Provision for income taxes .......................... 936,000 4,552,000 2,156,000 6,455,000
----------- ------------ ---------- ------------
Net earnings ........................................ $ 1,901,000 $ 6,059,000 $4,247,000 $ 8,934,000
=========== ============ ========== ============
Earnings per share, primary ......................... $ 1.03 $ 5.10 $ 2.28 $ 7.60
=========== ============ ========== ============
Earnings per share, fully diluted ................... $ 1.03 $ 3.06 $ 2.21 $ 4.72
=========== ============ ========== ============
Cash dividends per common share ..................... $ -- $ -- $ .25 $ .25
=========== ============ ========== ============
Weighted average common and common
equivalent shares outstanding:
Primary ........................................... 1,846,000 1,187,000 1,862,000 1,175,000
=========== ============ ========== ============
Fully diluted ..................................... 1,846,000 2,075,000 1,942,000 2,072,000
=========== ============ ========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
HUDSON GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents .............................. $26,220,000 $12,701,000
Receivables ............................................ 639,000 238,000
Advances to and note receivable from Hudson General LLC 4,929,000 7,233,000
Prepaid expenses and other assets ...................... 109,000 302,000
----------- -----------
Total current assets ................................. 31,897,000 20,474,000
Property and equipment at cost,
less accumulated depreciation and amortization ......... 3,068,000 3,428,000
Investment in Kohala Joint Venture - net ................. 14,989,000 15,420,000
Investment in Hudson General LLC ......................... 23,072,000 8,738,000
Note receivable from Hudson General LLC .................. 4,630,000 --
Other assets - net ....................................... -- 716,000
----------- -----------
$77,656,000 $48,776,000
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable ....................................... $ 268,000 $ 471,000
Accrued expenses and other liabilities ................. 2,342,000 3,648,000
Income taxes payable ................................... 1,075,000 --
----------- -----------
Total current liabilities ............................ 3,685,000 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 2,092,160 and 1,277,401 shares ........ 2,092,000 1,277,000
Paid in capital ........................................ 48,834,000 18,033,000
Retained earnings ...................................... 30,361,000 26,595,000
Treasury stock, at cost, 276,311 and 114,300 shares .... (8,078,000) (2,010,000)
----------- -----------
Total stockholders' equity ........................... 73,209,000 43,895,000
----------- -----------
$77,656,000 $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>
Nine Months Ended
March 31,
1997 1996
------------ -------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings ............................................. $ 4,247,000 $ 8,934,000
Adjustments to reconcile net earnings to net
cash (used) provided by operating activities:
Depreciation and amortization .......................... 561,000 5,707,000
Increase in deferred income tax liabilities............. -- 13,000
Equity in earnings of Hudson General LLC ............... (8,529,000) --
Equity in loss of Kohala Joint Venture ................. 2,053,000 2,060,000
Accrual of interest income on Kohala Joint
Venture advances ..................................... (1,322,000) (1,202,000)
Gain on sale or disposal of equipment .................. -- (48,000)
Change in other current assets and liabilities:
Receivables .......................................... (401,000) (9,939,000)
Prepaid expenses and other assets.. .................. 193,000 290,000
Accounts payable ..................................... (203,000) 3,053,000
Income taxes payable ................................. 1,075,000 5,040,000
Accrued expenses and other liabilities ............... (1,306,000) 76,000
Other - net ............................................ 19,000 31,000
----------- ------------
Net cash (used) provided by operating activities ..... (3,613,000) 14,015,000
----------- ------------
Cash flows from investing activities:
Purchases of property and equipment ...................... (205,000) (10,440,000)
Proceeds from sale of property and equipment ............. 7,000 136,000
Repayment of advances to Hudson General LLC - net.. ...... 2,734,000 --
Collections of note receivable from Hudson General LLC.... 21,283,000 --
Advances to Kohala Joint Venture - net ................... (300,000) (97,000)
----------- ------------
Net cash provided (used) by investing activities ..... 23,519,000 (10,401,000)
----------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock ................... 162,000 220,000
Cash dividends paid ...................................... (481,000) (287,000)
Purchase of treasury stock ............................... (6,068,000) (389,000)
----------- ------------
Net cash used by financing activities ............... (6,387,000) (456,000)
----------- ------------
Effect of exchange rate changes on cash .................... -- (1,000)
----------- ------------
Net increase in cash and cash equivalents .................. 13,519,000 3,157,000
Cash and cash equivalents at beginning of period ........... 12,701,000 12,613,000
----------- ------------
Cash and cash equivalents at end of period ................. $26,220,000 $ 15,770,000
=========== ============
</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 March 31,
1997 and June 30, 1996, and the results of operations for the three and
nine months, and cash flows for the nine months ended March 31, 1997 and
1996. 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), 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 and nine months ended March 31, 1997
and on a consolidated basis for the three and nine months ended March 31,
1996.
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>
March 31, June 30,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 6,828,000 $19,269,000
Accounts and notes receivable - net 21,277,000 18,055,000
Other current assets 3,067,000 2,317,000
----------- -----------
Total current assets 31,172,000 39,641,000
Property, equipment and leasehold rights at cost,
less accumulated depreciation and amortization 44,191,000 37,442,000
Other assets - net 3,226,000 3,641,000
----------- -----------
$78,589,000 $80,724,000
=========== ===========
Accounts payable $17,883,000 $15,104,000
Accrued expenses and other liabilities 20,564,000 18,085,000
Advances from Hudson General Corporation 4,929,000 7,233,000
----------- -----------
Total current liabilities 43,376,000 40,422,000
Note payable to Hudson General Corporation 4,630,000 --
Long-term debt, subordinated -- 28,751,000
Members' equity 30,583,000 11,551,000
----------- -----------
$78,589,000 $80,724,000
=========== ===========
</TABLE>
6
<PAGE> 7
Summary results of operations for Hudson LLC are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, 1997 March 31, 1997
-------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $49,486,000 $127,245,000
----------- ------------
Operating costs 37,664,000 98,939,000
Depreciation and amortization 1,970,000 5,534,000
Selling, general & administrative costs 3,569,000 9,936,000
----------- ------------
Total costs and expenses 43,203,000 114,409,000
----------- ------------
Operating income 6,283,000 12,836,000
Interest income 82,000 995,000
Interest expense (196,000) (855,000)
----------- ------------
Earnings before provision for income taxes 6,169,000 12,976,000
Provision for income taxes 982,000 1,666,000
----------- ------------
Net earnings $ 5,187,000 $ 11,310,000
=========== ============
</TABLE>
The Corporation's 74% share of Hudson LLC's results, as calculated in accordance
with the LLC Agreement, were $3,838,000 and $8,529,000 for the three and nine
months ended March 31, 1997, respectively, and are 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 (the Purchase Agreement) 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 deferred
payments (Deferred Payments) of $2,650,000 and $5,188,000 plus interest thereon
were made, respectively, in September 1996 and December 1996. The Corporation's
investment in Hudson LLC was increased by its 74% interest in the Deferred
Payments. The Purchase Agreement granted to LAGS an option originally expiring
on October 1, 2000 to increase its equity ownership in Hudson LLC from 26% to a
maximum of 49%. Effective December 1996, the Purchase Agreement was amended so
that this option now expires on October 1, 1999.
The LLC Agreement, as amended, 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 Payments. In addition, 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, unless the aggregate of
the pre-tax earnings of the Aviation Business for fiscal 1997 and 1998 exceeds
$30,553,000.
During the nine months ended March 31, 1997, $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. Furthermore, during the nine months ended March 31, 1997,
Hudson LLC utilized the Deferred Payments together with a portion of the
proceeds received at the closing of the Transaction to repay $21,283,000 of the
outstanding balance of its subordinated debt to the Corporation. At March 31,
1997 the balance of such debt was $5,130,000. The noncurrent portion of this
debt in the amount of $4,630,000 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 $500,000) were $4,929,000 at March 31, 1997.
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>
March 31, June 30,
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
Cash and equivalents $ 397,000 $ 267,000
Land and development costs 26,447,000 26,710,000
Mortgage notes and accounts receivable -
net 3,184,000 5,212,000
Foreclosed real estate - net 3,082,000 2,200,000
Other assets - net 2,133,000 2,325,000
------------ ------------
$ 35,243,000 $ 36,714,000
============ ============
Note payable $ -- $ 576,000
Partner advances and accrued interest payable 53,610,000 50,220,000
Accounts payable and accrued expenses 1,113,000 1,292,000
Partners' deficit (19,480,000) (15,374,000)
------------ ------------
$ 35,243,000 $ 36,714,000
============ ============
</TABLE>
Summary results of operations for the Venture are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 256,000 $ 157,000 $ 631,000 $ 413,000
----------- ----------- ----------- -----------
Cost of sales 185,000 88,000 387,000 193,000
Selling, general and
administrative costs 587,000 561,000 1,712,000 1,761,000
Interest - net 895,000 844,000 2,638,000 2,578,000
----------- ----------- ----------- -----------
Total costs 1,667,000 1,493,000 4,737,000 4,532,000
----------- ----------- ----------- -----------
Net loss $(1,411,000) $(1,336,000) $(4,106,000) $(4,119,000)
=========== =========== =========== ===========
</TABLE>
The Corporation's 50% share of the Venture's results were losses of
$705,000 and $669,000 for the three months ended March 1997 and 1996,
respectively, and $2,053,000 and $2,060,000 for the nine months ended
March 31, 1997 and 1996, 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 March 31, 1997 were $26,805,000.
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. The Partner made its share of required advances to the
Venture during calendar year 1996. 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 calendar year
1997. 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
8
<PAGE> 9
to the Partner, if required. Should the Partner be unable to make its
share of future advances to the Venture, the 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 nine
months ended March 31, 1997, the Corporation advanced $300,000 to the
Venture.
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. Shortly
after passage of the ordinance, a lawsuit against the County of Hawaii
was filed in the Circuit Court of Hawaii 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
appealed this ruling. The appeal was heard before the Hawaii Supreme
Court in March 1994, and on May 6, 1997, the Supreme Court vacated the
summary judgment which was previously granted and remanded certain
related issues to the Circuit Court for that Court to decide. The
Venture cannot, at this time, determine when proceedings in the Circuit
Court will take place or the impact of the Supreme Court's ruling and
the Circuit Court proceedings on the timing of deveopment of Phase IV
or the expenditures related thereto.
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 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 nine months ended March 31, 1997, would have
decreased $.09 to $2.19.
In connection with the conversion of the Debentures, during the nine
months ended March 31, 1997, the Corporation issued 804,259 shares of its
common stock. As a result, "Stockholders' equity" as shown in the
accompanying consolidated balance sheets increased by $25,646,000.
5. In November 1996, the Board of Directors authorized the repurchase of up
to 200,000 shares of the Corporation's common stock, and in January 1997,
the Board of Directors authorized the repurchase of up to an additional
100,000 shares of the Corporation's common stock. Such purchases may be
made from time to time in either open market or privately negotiated
transactions. Prior to the November 1996 authorization, the Corporation
still had authority to repurchase up to 35,700 shares from a previous
authorization. During the nine months ended March 31, 1997, the
Corporation repurchased 162,000 shares in the open market for an
aggregate purchase price of $6,068,000.
6. In April 1997, Hudson LLC's Canadian subsidiary was notified by Canadian
taxation authorities of their intention to disallow operating loss and
depreciation deductions and carryforwards related to an internal
recapitalization in fiscal 1990 by the Corporation of such Canadian
subsidiary. If the position of the Canadian taxation authorities is
sustained, a foreign income tax liability of approximately $6,700,000,
plus interest would result.
The Corporation's management disagrees with the position of the Canadian
taxation authorities and intends to vigorously contest any potential
assessments made by them. Accordingly, no provision has been made in the
accompanying consolidated financial statements for foreign income taxes
related to this matter.
7. 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 statements of earnings for the three and nine months
ended March 31, 1997 contain the operating results of the Aviation Business
under the equity method of accounting. For the three and nine months ended March
31, 1996, the Corporation's consolidated statements of earnings contain the
operating results of the Aviation Business on a consolidated basis.
The Corporation's revenues of $1.4 and $3.7 million for the three and
nine months ended March 31, 1997, respectively, reflect overhead fees and
equipment rentals billed by the Corporation to Hudson LLC. Depreciation and
amortization of $.2 and $.6 million for the three and nine months ended March
31, 1997, respectively, primarily represent depreciation related to operating
equipment leased to Hudson LLC by the Corporation. Selling, general and
administrative expenses for the three and nine months ended March 31, 1997 of
$2.5 and $6.3 million, respectively, principally reflect administrative and
related costs of the Corporation.
The Corporation's 74% share of earnings from Hudson LLC for the three
and nine months ended March 31, 1997 was $3.8 and $8.5 million, respectively.
(For an analysis of the results of the Aviation Business, see the table and
related management's discussion which appear below.)
The Corporation's 50% share of losses from its real estate joint venture
in Hawaii (the Venture) for the three and nine months ended March 31, 1997
approximated that of the corresponding periods 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.
10
<PAGE> 11
Interest income for the three and nine months ended March 31, 1997
increased $.4 and $1.4 million, or 75.5% and 86.6%, respectively, compared with
the corresponding periods 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 cash
balances.
Interest expense for the three and nine months ended March 31, 1996 was
attributable to the Debentures (see Notes 2 and 4).
The Corporation's provision for income taxes for the three and nine
months ended March 31, 1997 decreased $3.6 and $4.3 million, respectively,
compared with the corresponding periods of the previous year. Included in the
Corporation's provision for income taxes for the three and nine months ended
March 31, 1997 is a lower provision associated with decreased pre-tax earnings
in the U.S., and the absence in the current year periods 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. Therefore, the effective tax rate for the
three and nine months ended March 31, 1997 decreased compared with the
corresponding periods of the prior year as foreign income taxes, which are
provided for at a higher effective tax rate than in the U.S., are reflected on
the financial statements of Hudson LLC.
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 and nine months ended March 31, 1997 and 1996 on a comparable basis.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Revenues $49,486 $56,350 $127,245 $131,334
------- ------- -------- --------
Costs and expenses:
Operating 37,664 38,119 98,939 95,786
Depreciation and amortization 1,970 2,106 5,534 5,646
Selling, general and administrative 3,569 3,137 9,936 8,794
------- ------- -------- --------
Total costs and expenses 43,203 43,362 114,409 110,226
------- ------- -------- --------
Operating income $ 6,283 $12,988 $ 12,836 $ 21,108
======= ======= ======== ========
</TABLE>
11
<PAGE> 12
Revenues for the three and nine months ended March 31, 1997 decreased
$6.9 and $4.1 million, or 12.2% and 3.1%, respectively, compared with the
corresponding periods of the prior year. The decrease reflects lower: (i) snow
removal revenues of $8.2 and $8.9 million, respectively, due mainly to the mild
winter weather in the northeastern United States during fiscal 1997; and (ii)
ground transportation revenues of $1.0 million for the nine months ended March
31, 1997, due primarily to the loss of contracts to operate information kiosks
and airfield passenger transport vehicles. Partially offsetting the revenue
decrease for the three and nine months ended March 31, 1997 were higher ground
handling service revenues (net of lower sales of de-icing fluid in the U.S.) of
$.9 and $5.3 million, respectively, due primarily to expanded services to new
and existing customers.
Costs and expenses for the three months ended March 31, 1997 decreased
$.2 million, or .4%, and for the nine months ended March 31, 1997 increased $4.2
million, or 3.8%,compared with the corresponding periods of the previous year.
Operating costs for the three months ended March 31, 1997 decreased $.5 million,
or 1.2%, compared with the corresponding period of the previous year as a result
of lower costs related to: (i) snow removal operations; (ii) workers'
compensation insurance as a result of the positive trend of related claims; and
(iii) the loss of contracts to operate ground transportation information kiosks
and airfield passenger transport vehicles. Partially offsetting the decrease
were higher labor and related costs associated with expanded ground handling
operations and schedule changes by airline customers in Canada. Operating costs
for the nine months ended March 31, 1997, increased $3.2 million, or 3.3%,
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 and schedule changes by airline customers in Canada, which
exceeded the decreases noted above.
Depreciation and amortization expenses for the three and nine months
ended March 31, 1997 were comparable with those of the corresponding periods of
the previous year.
Selling, general and administrative expenses for the three and nine
months ended March 31, 1997 increased $.4 and $1.1 million, or 13.8% and 13.0%,
respectively, compared with the corresponding periods of the
12
<PAGE> 13
previous year. The increases primarily reflect higher administrative and related
costs.
Operating income for the three and nine months ended March 31, 1997
decreased $6.7 and $8.3 million compared with the corresponding periods of the
previous year due primarily to decreased results associated with: (i) snow
removal operations; (ii) lower sales of de-icing fluid in the U.S.; and (iii)
higher selling, general and administrative expenses as described above. In
addition, reduced ground handling margins in Canada caused mainly by increased
labor costs associated with schedule changes by airline customers contributed to
the decrease in operating results. Partially offsetting the decreases were
improved results from domestic ground handling operations and lower workers'
compensation insurance costs.
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 on the Corporation, several airlines have
been outsourcing services to independent aviation service companies. This trend
has provided additional opportunities for Hudson LLC. The Corporation is unable,
at this time, to evaluate the future 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 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 (during the first half of its following fiscal year)
in an amount substantially equal to 50% of domestic and 10% of Canadian pre-tax
earnings for the fiscal year 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. During the nine months ended
March 31, 1997, Hudson LLC repaid $21.3 million of such debt to the
Corporation. Hudson LLC is obligated to repay the remaining balance of $5.1
million to the Corporation as follows: (i) $.5 million on July 15, 1997; and
(ii) $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 has made
advances to Hudson LLC. The balance of such advances (which Hudson LLC is
obligated to repay to the Corporation on demand) totaled $4.4 million as of
March 31, 1997.
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 March 31, 1997.
During the nine months ended March 31, 1997, net cash used by operating
activities was $3.6 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 nine months ended March 31, 1996, net cash provided by
operating activities was $14.0 million. Net cash provided by investing
activities was $23.5 million for the nine
14
<PAGE> 15
months ended March 31, 1997 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 $.2
and $10.3 million during the nine months ended March 31, 1997 and 1996,
respectively. In the 1996 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 $26.2 and $12.7 million at March 31, 1997 and June 30,
1996, respectively. The increase in cash and cash equivalents primarily reflects
the repayment to the Corporation of $21.3 million from Hudson LLC as noted
above.
In November 1996, the Board of Directors authorized the repurchase of up
to 200,000 shares of the Corporation's common stock, and in January 1997, the
Board of Directors authorized the repurchase of up to an additional 100,000
shares of the Corporation's common stock. Such purchases may be made from time
to time in either open market or privately negotiated transactions. Prior to the
November 1996 authorization, the Corporation still had authority to repurchase
up to 35,700 shares from a previous authorization. During the nine months ended
March 31, 1997, the Corporation repurchased 162,000 shares in the open market
for an aggregate purchase price of $6,068,000.
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 in the Circuit
Court of Hawaii 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
appealed
15
<PAGE> 16
this ruling. The appeal was heard before the Hawaii Supreme Court in March 1994,
and on May 6, 1997, the Supreme Court vacated the summary judgment which was
previously granted and remanded certain related issues to the Circuit Court for
that Court to decide. The Venture cannot, at this time, determine when
proceedings in the Circuit Court will take place or the impact of the Supreme
Court's ruling and the Circuit Court proceedings 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 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 March 31, 1997, the Venture had commitments (in addition to the
commitments noted above) aggregating $2.7 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 no
material funds for the Venture's other commitments will be expended during the
remainder of 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. The Partner made its share of required
16
<PAGE> 17
advances to the Venture during calendar year 1996. 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 calendar year 1997. 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.
Should the Partner be unable to make its share of future advances to the
Venture, the Corporation has the option to make 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 nine months ended March 31,
1997, the Corporation advanced $300,000 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 1. Legal Proceedings
In 1988, Texaco Canada Inc. (Texaco) (now known as McColl-Frontenac
Inc.) instituted a lawsuit (the Texaco Lawsuit) in the Supreme Court
of Ontario, Canada against the Corporation, the Corporation's Canadian
subsidiary (now owned by Hudson LLC) and Petro-Canada, Inc. (the
corporation which supplied aviation fuel for the Corporation's
Canadian fixed base operations). The Texaco Lawsuit's allegations, as
amended, are that the defendants interfered with contractual and
fiduciary relations, conspired to injure, and induced the breach of a
fuel supply agreement between Texaco and Innotech Aviation Limited
(Innotech) in connection with the purchase by the Corporation from
Innotech in 1984 of certain assets of Innotech's airport ground
services business. The Texaco Lawsuit seeks compensatory and punitive
damages totaling $110,000,000 (Canadian) (approximately $80,000,000
(U.S.)) plus all profits earned by the defendants subsequent to the
alleged breach. The trial, which began in May 1996, was adjourned
until January 1997 and concluded on May 7, 1997. The trial judge has
indicated that he expects to issue his decision on or about
June 30, 1997.
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: May 9, 1997
/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
<TABLE>
<CAPTION>
Exhibit
No. Exhibit Page No.
- ---------------------------------------------------------------------------
<S> <C> <C>
11 Computations of Earnings Per Share
Information, Primary and Fully Diluted -
Net Earnings 21 - 23
27 Financial Data Schedule 24 - 25
</TABLE>
20
<PAGE> 1
HUDSON GENERAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE INFORMATION
PRIMARY - NET EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net earnings for computing earnings
per share - primary ................. $1,901 $6,059 $4,247 $8,934
====== ====== ====== ======
Weighted average number of common and
common equivalent shares outstanding 1,846 1,187 1,862 1,175
====== ====== ====== ======
Net earnings per common and common
equivalent share-primary ............ $ 1.03 $ 5.10 $ 2.28 $ 7.60
====== ====== ====== ======
</TABLE>
22
<PAGE> 2
HUDSON GENERAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE INFORMATION
FULLY DILUTED - NET EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net earnings for computing earnings
per share - primary .................. $1,901 $6,059 $4,247 $8,934
Reduction of interest expense less
applicable income taxes assuming
conversion of 7% convertible
subordinated debentures due 2011 ..... -- 283 50 856
------ ------ ------ ------
Net earnings for computing earnings
per share-fully diluted .............. $1,901 $6,342 $4,297 $9,790
====== ====== ====== ======
Weighted average number of common and
common equivalent shares outstanding . 1,846 1,190 1,864 1,187
Addition from assumed conversion as of
the beginning of each period of the 7%
convertible subordinated debentures
outstanding on a fully diluted basis . -- 885 78 885
------ ------ ------ ------
Weighted average number of common and
common equivalent shares outstanding
on a fully diluted basis ............. 1,846 2,075 1,942 2,072
====== ====== ====== ======
Net earnings per common and common
equivalent share - fully diluted ..... $ 1.03 $ 3.06 $ 2.21 $ 4.72
====== ====== ====== ======
</TABLE>
23
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 26,220
<SECURITIES> 0
<RECEIVABLES> 639
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 31,897
<PP&E> 3,068
<DEPRECIATION> 0
<TOTAL-ASSETS> 77,656
<CURRENT-LIABILITIES> 3,685
<BONDS> 0
0
0
<COMMON> 2,092
<OTHER-SE> 71,117
<TOTAL-LIABILITY-AND-EQUITY> 77,656
<SALES> 3,730
<TOTAL-REVENUES> 3,730
<CGS> 0
<TOTAL-COSTS> 6,820
<OTHER-EXPENSES> 6,259
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,403
<INCOME-TAX> 2,156
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,247
<EPS-PRIMARY> 2.28
<EPS-DILUTED> 2.21
</TABLE>
