-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HmjoPfrbLOdlJ4TR4WgOxmvzVpgkOntGbnthK80rpdeUwyjvLuJZWPvbpqM/BIkg deu0Rk9i9OoMEcjLldfSxA== 0000950123-97-004111.txt : 19970512 0000950123-97-004111.hdr.sgml : 19970512 ACCESSION NUMBER: 0000950123-97-004111 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970509 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUDSON GENERAL CORP CENTRAL INDEX KEY: 0000048948 STANDARD INDUSTRIAL CLASSIFICATION: AIRPORTS, FLYING FIELDS & AIRPORT TERMINAL SERVICES [4581] IRS NUMBER: 131947395 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05896 FILM NUMBER: 97599744 BUSINESS ADDRESS: STREET 1: 111 GREAT NECK RD CITY: GREAT NECK STATE: NY ZIP: 11021 BUSINESS PHONE: 5164878610 MAIL ADDRESS: STREET 1: P O BOX 355 CITY: GREAT NECK STATE: NY ZIP: 11022 FORMER COMPANY: FORMER CONFORMED NAME: HUDSON LEASING CORP DATE OF NAME CHANGE: 19711207 10-Q 1 HUDSON GENERAL CORPORATION 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 2 PART I - FINANCIAL STATEMENTS 2 3 HUDSON GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended Nine Months Ended March 31, March 31, 1997 1996 1997 1996 ----------- ------------ ---------- ------------ (Unaudited) (Unaudited) (Unaudited) (Unaudited) 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 =========== ============ ========== ============
See accompanying notes to consolidated financial statements. 3 4 HUDSON GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 31, June 30, 1997 1996 ----------- ----------- (Unaudited) 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 =========== ===========
See accompanying notes to consolidated financial statements. 4 5 HUDSON GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, 1997 1996 ------------ ------------- (Unaudited) (Unaudited) 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 =========== ============
See accompanying notes to consolidated financial statements. 5 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:
March 31, June 30, 1997 1996 ----------- ----------- (Unaudited) 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 =========== ===========
6 7 Summary results of operations for Hudson LLC are as follows:
Three Months Ended Nine Months Ended March 31, 1997 March 31, 1997 -------------- -------------- (Unaudited) (Unaudited) 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 =========== ============
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 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:
March 31, June 30, 1997 1996 ------------ ------------ (Unaudited) 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 ============ ============
Summary results of operations for the Venture are as follows:
Three Months Ended Nine Months Ended March 31, March 31, 1997 1996 1997 1996 ----------- ----------- ----------- ----------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) 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) =========== =========== =========== ===========
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 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 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 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.
Three Months Ended Nine Months Ended March 31, March 31, 1997 1996 1997 1996 ---- ---- ---- ---- (in thousands) 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 ======= ======= ======== ========
11 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 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 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 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 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 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 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 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 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 EX-11 2 COMPUTATIONS OF EARNINGS PER SHARE 1 HUDSON GENERAL CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE INFORMATION PRIMARY - NET EARNINGS
Three Months Ended Nine Months Ended March 31, March 31, 1997 1996 1997 1996 ---- ---- ---- ---- (in thousands, except per share amounts) 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 ====== ====== ====== ======
22 2 HUDSON GENERAL CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE INFORMATION FULLY DILUTED - NET EARNINGS
Three Months Ended Nine Months Ended March 31, March 31, 1997 1996 1997 1996 ---- ---- ---- ---- (in thousands, except per share amounts) 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 ====== ====== ====== ======
23 EX-27 3 FINANCIAL DATA SCHEDULE
5 9-MOS JUN-30-1997 JUL-01-1996 MAR-31-1997 26,220 0 639 0 0 31,897 3,068 0 77,656 3,685 0 0 0 2,092 71,117 77,656 3,730 3,730 0 6,820 6,259 0 0 6,403 2,156 0 0 0 0 4,247 2.28 2.21
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