Hudsongeneralco10k405 1997

Hudson General Valuation Case Study
Assignment: Value Hudson General. What do you think this company is worth? Hint: read the footnotes carefully.
If you struggle, you can go to the book: Value Investing from Graham to Buffett and Beyond by Bruce C. N. Greenwald And read Chapter 4 starting on page 51. The analysis will be posted in a few days.
Form 10-K405
HUDSON GENERAL CORP - HGC
Filed: September 12, 1997 (period: June 30, 1997)
Annual report. The Regulation S-K Item 405 box on the cover page is checked
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Table of Contents
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PART I
ITEM 1. ITEM 2. ITEM 3. ITEM 4. BUSINESS PROPERTIES LEGAL PROCEEDINGS SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - Not
PART II
ITEM 5. ITEM 6. ITEM 7. ITEM 8. ITEM 9. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER SELECTED FINANCIAL DATA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
PART III
ITEM 10. ITEM 11. ITEM 12. ITEM 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT EXECUTIVE COMPENSATION SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K SIGNATURES EXHIBIT INDEX EX-3.2.A EX-3.2.B EX-11 (Statement regarding computation of per-share earnings) EX-13 (Annual report to security holders) EX-21 (Subsidiaries of the registrant) EX-23 (Consents of experts and counsel) EX-27
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1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 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 (State or other jurisdiction of incorporation or organization) 13-1947395 (I.R.S. Employer Identification No.)
111 Great Neck Road, Great Neck, N.Y. (Address of principal executive offices)
11021 (Zip Code)
Registrant's telephone number, including area code
(5l6) 487-8610
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Common Stock, $1 par value
Name of each exchange on which registered American Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None (Title of Class)
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Indicate by a check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value of voting stock held by non-affiliates of Registrant based on the closing price on July 31, 1997 was $57,033,559. The number of shares outstanding (net of treasury stock) of the Registrant's common stock as of July 31, 1997 was 1,735,849 shares. Specific portions of the following documents are incorporated herein by reference in the parts hereof indicated, and only such specific portions are to be deemed filed as part of this report: Document -------1997 Proxy Statement of Registrant (to be filed with the Commission pursuant to Regulation 14A no later than 120 days after the close of its fiscal year) Registrant's 1997 Annual Report to Shareholders Part ---III
I, II, IV
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2 PART I
ITEM 1.
BUSINESS General Development of Business
Hudson General Corporation (the "Corporation" or "Registrant") was organized in Delaware in 1961. 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 Lufthansa Airport and Ground Services GmbH (LAGS), a German corporation and an indirect wholly-owned subsidiary of Deutsche Lufthansa AG, the Corporation transferred substantially all of the assets and liabilities of its aviation services business (the Aviation Business) to Hudson General LLC (Hudson LLC), a newly formed limited liability company. 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 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 of $2,650,000 and $5,188,000 plus interest thereon were made, respectively, in September 1996 and December 1996. The Purchase Agreement also provided for the grant to LAGS of an option (the LAGS Option), exercisable on October 1 of each year from 1996 through 2000, effective as of the preceding July 1, pursuant to which LAGS may increase its equity ownership in Hudson LLC from 26% to a maximum of 49%, for a price based on a formula related to the average earnings of the Aviation Business over the four fiscal years preceding the exercise of the option, subject to certain minimum and maximum amounts. Effective December 1996, the Purchase Agreement was amended so that the LAGS Option now expires on October 1, 1999. 2
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3 Hudson LLC is principally engaged in providing a broad range of services to the aviation industry. The services, which are conducted by Hudson LLC and its subsidiaries, include aircraft ground handling; aircraft fueling; fuel management; ground transportation; snow removal; cargo warehousing; and sale, leasing and maintenance of airline ground support equipment. In addition to its interest in Hudson LLC, the Corporation is a 50% partner with Oxford First Corporation in a joint venture for the development and sale of land on the Island of Hawaii (see Note 3 to Item 14(a)(1) Financial Statements). Narrative Description of Business Hudson LLC's snow removal and aircraft de-icing services are seasonal in nature. The majority of the results of these operations are normally reflected in the second and third quarters of the Corporation's fiscal year, and fluctuate depending upon the severity of the winter season. Additional information required to be provided under this item is incorporated by reference from pages 3-8 of the Registrant's 1997 Annual Report to Shareholders. General Information The Corporation does not spend a material amount for research and development activities. During the years ended June 30, 1996 and 1995, sources of the Corporation's revenues which exceeded 10% of consolidated revenues in any year were: aircraft ground handling services (including de-icing) $85,948,000 and $74,334,000; aircraft fueling services (including fixed base operations) $23,701,000 and $22,923,000; ground transportation services $21,108,000 and $23,802,000; and snow removal services $17,487,000 and $3,706,000, respectively. (Note: In fiscal 1996, revenues are for the eleven 3
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4 months ended May 31, 1996. Foreign revenues included above are translated at the average rates of exchange in their respective fiscal years.) No customer of the Corporation accounted for more than 10% of consolidated revenues during fiscal 1997. Hudson LLC's services are generally subject to competitive bidding, and Hudson LLC competes principally with airlines and other aviation services companies, some of which are larger and have resources greater than Hudson LLC. The major bases of competition are the prices at which services are offered and the quality and efficiency in the performance of services. The compliance with federal, state and local provisions which have been enacted or adopted regulating the discharge of materials into the environment did not have a material effect upon the Corporation's or Hudson LLC's capital expenditures or results of operations for fiscal 1997 and 1996, or competitive position. However, the federal government and many state and local governments have enacted or proposed legislation and regulations with respect to storage facilities for fuel, petroleum-based products and chemicals, the disposal of hazardous waste materials, storm water discharges, and financial responsibility for possible liability exposures relating to fuel storage facilities. Compliance with such legislation and regulations has resulted in expenditures by the Corporation and Hudson LLC, including expenditures for the testing, decommissioning and/or replacement of certain of its fuel and de-icing fluid storage facilities, and the cleanup of fuel spills. The Corporation was and Hudson LLC is presently engaged in several such decommissioning and cleanup projects, and it is anticipated that additional such expenditures, the amount of which is presently not expected to be material, will be required. In addition, airport authorities are coming under increasing pressure to clean up previous contamination at their facilities, and are seeking financial contributions from airport tenants and companies which 4
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5 operate at their airports. The Corporation cannot predict at this time the amount, if any, that it or Hudson LLC may be required to pay in connection with such airport authority initiatives. The Corporation and Hudson LLC employ approximately 40 and 4,300 persons, respectively. Financial Information About Foreign and Domestic Operations and Export Sales The Corporation, through its ownership interest in Hudson LLC, operates in only one industry segment. For information as to foreign operations, see Note 6 to Item 14(a)(1) Financial Statements and Note 5 to Item 14(a)(2) Financial Statements of Hudson LLC. For information relating to the Corporation's investment in a joint venture to develop and sell land in Hawaii (the Venture), see Note 3 to Item 14(a)(1) Financial Statements. 5
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6 ITEM 2. PROPERTIES
The Corporation's executive offices at 111 Great Neck Road, Great Neck, New York contain approximately 13,000 square feet and are under lease through December 31, 2002. Hudson LLC leases office, warehouse, hangar and maintenance shop space as well as fuel storage facilities at various airport locations in the United States and Canada. These leases expire at various dates through 2009 and contain various renewal options through 2020. A portion of this leased space has been sublet to non-affiliated sublessees. The properties owned and leased by Hudson LLC are suitable and adequate to conduct its business. For information relating to the Corporation's interest in land in Hawaii, see Note 3 to Item 14(a)(1) Financial Statements and page 8 of the Registrant's 1997 Annual Report to Shareholders. 6
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7 ITEM 3. LEGAL PROCEEDINGS
In 1988, Texaco Canada Inc. (Texaco) (now known as McCollFrontenac 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, concluded after several adjournments on May 7, 1997, at which time the trial judge indicated that he intended to issue his decision on or about June 30, 1997. However, to date the judge has not yet rendered his decision. Innotech (which due to a name change is now called Aerospace Realties (1986) Limited (Aerospace)) had agreed to defend and indemnify the Corporation against claims of whatever nature asserted in connection with, arising out of or resulting from the fuel supply agreement with Texaco. By a letter dated February 15, 1996, the Corporation was notified by Aerospace that Aerospace had entered into a liquidation phase and could no longer defray the cost of defending the Texaco Lawsuit or pay for any damages resulting therefrom. The Corporation has agreed to indemnify and hold harmless Hudson LLC, LAGS and each affiliate of LAGS against all losses related to the Texaco Lawsuit. The Corporation's management believes, and counsel for the 7
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8 Corporation has advised based on the facts as disclosed at trial, that the Corporation will successfully defend this action. 8 9 ITEM 4. ADDITIONAL ITEM EXECUTIVE OFFICERS OF THE CORPORATION Name ---Jay B. Langner Michael Rubin Paul R. Pollack Fernando DiBenedetto Raymond J. Rieder Barry I. Regenstein Noah E. Rockowitz Age --67 50 55 48 47 40 48 Position with Corporation ------------------------Chairman of the Board, Chief Executive Officer and Director President and Director Executive Vice President, Chief Operating Officer and Director Senior Vice President - Operations Senior Vice President and Chief Marketing Officer Vice President, Chief Financial Officer and Controller Vice President, Secretary and General Counsel SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - Not applicable
No family relationships exist among the executive officers of the Corporation. Each of the executive officers holds office at the pleasure of the Board of Directors, except as noted below. Mr. Langner has served as a Director of the Corporation since 1961 and as Chairman since 1977. He served as President from 1989 until September 1996, and previously served in such capacity from 1961 until 1979. The Corporation has an employment contract with Mr. Langner pursuant to which Mr. Langner has agreed to render services to the Corporation as Chairman and Chief Executive Officer for a period ending January 31, 2001. Mr. Rubin was elected as a Director of the Corporation in November 1996. Mr. Rubin has served as President of the Corporation since September 1996 and prior to such time served as Executive Vice President and Chief Financial Officer of the Corporation since 1990. He has been Treasurer of the Corporation since 1983. Previously, Mr. Rubin had been Vice PresidentFinance since 1985. He has been employed in various capacities with the Corporation since 1971. Mr. Rubin is a Certified Public Accountant. 9
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10 Mr. Pollack was elected as a Director of the Corporation in November 1996. Mr. Pollack has served as Executive Vice President and Chief Operating Officer of the Corporation since 1990, and prior thereto as Senior Vice President since 1984. He has served as President of Hudson LLC since September 1996. He has been employed in various capacities with the Corporation, including as a divisional officer, since 1968. Mr. Pollack is a Certified Public Accountant. Mr. DiBenedetto has served as Senior Vice President-Operations since 1994. Prior thereto he was Vice President-Operations since 1984. He has been employed in various capacities with the Corporation, including as a divisional officer, since 1970. Mr. Rieder has served as Senior Vice President and Chief Marketing Officer of the Corporation since 1990, and prior thereto as Vice PresidentMarketing since 1984. Mr. Rieder has served as Executive Vice President of Hudson LLC since September 1996. He has been employed in various capacities with the Corporation, including as a divisional officer, since 1967. Mr. Regenstein was elected Chief Financial Officer of the Corporation in July 1997 and has served as the Corporation's Controller since 1987 and as a Vice President since 1994. He has been employed in various capacities with the Corporation since 1982. Mr. Regenstein is a Certified Public Accountant. Mr. Rockowitz has served as Vice President-General Counsel since 1985 and as Secretary since 1986. Prior to joining the Corporation in 1985, he had been Corporate Secretary and Assistant General Counsel of Belco Petroleum Corporation since 1978. The Corporation has employment contracts with Messrs. Rubin, Pollack and Rieder which currently extend until December 31, 1998 and are subject to extension for additional three year periods unless on or before the September 30th preceding any then-existing expiration date, the Corporation notifies the executive that it elects not to so extend the term. The Corporation also 10
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11 has employment contracts with Messrs. DiBenedetto, Regenstein and Rockowitz which currently extend until December 31, 1997 and are subject to extension for additional two year periods unless on or before the September 30th preceding any then-existing expiration date, the Corporation notifies the executive that it elects not to so extend the term. 11 12 PART II
ITEM 5.
MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information required to be provided under Part II, Item 5(a) and (c) is incorporated by reference from page 13 of the Registrant's 1997 Annual Report to Shareholders under the caption "Selected Consolidated Financial Data". At June 30, 1997, there were 197 holders of record of the Corporation's common stock. The Corporation's Revolving Credit Agreement, as amended (Credit Agreement), permits the payment of dividends (see Note 7 to Item 14(a)(1) Financial Statements) and the purchase, redemption or retirement by the Corporation of its stock so long as certain financial covenants are maintained. In fiscal 1997, the Board of Directors authorized the repurchase of up to 400,000 shares of the Corporation's common stock, which purchases could be made from time to time in either open market or privately negotiated transactions. Prior to the fiscal 1997 authorizations, the Corporation still had the authority to purchase up to 35,700 shares from a previous authorization. During fiscal 1997, the Corporation repurchased 243,000 shares in the open market for an aggregate purchase price of $9,152,000. 12
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13 ITEM 6. SELECTED FINANCIAL DATA
The information required to be provided under Part II, Item 6 is incorporated by reference from page 13 of the Registrant's 1997 Annual Report to Shareholders under the caption "Selected Consolidated Financial Data".
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required to be provided under Part II, Item 7 is incorporated by reference from pages 9-12 of the Registrant's 1997 Annual Report to Shareholders under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations".
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and the required financial statement schedule of the Corporation and the independent auditors' reports thereon of KPMG Peat Marwick LLP, independent auditors, for the Corporation's fiscal years ended June 30, 1997, 1996 and 1995 are filed pursuant to Items 14(a)(1) and (2) of this Report. The financial statements and the required financial statement schedule of Hudson LLC and the independent auditors' report thereon of KPMG Peat Marwick LLP, independent auditors, for the fiscal year ended June 30, 1997 and the month ended June 30, 1996 and the financial statements and the required financial statement schedule of the Venture and the independent auditors' report thereon of KPMG Peat Marwick LLP, independent auditors, for the fiscal years ended June 30, 1997, 1996 and 1995, are filed pursuant to Item 14(d) of this Report. All such financial statements and financial statement schedules are included herein, except for the consolidated financial statements of the Corporation which are incorporated herein by reference. 13
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14 Selected quarterly financial data of the Registrant for the fiscal years ended June 30, 1997 and 1996 appears in Note 13 to Item 14(a)(1) Financial Statements.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - Not Applicable
PART III
ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required to be provided under Part III, Item 10, relative to Directors of the Registrant is incorporated by reference from the Registrant's 1997 definitive proxy statement to be filed with the Securities and Exchange Commission (the "Commission") pursuant to Regulation 14A no later than 120 days after the close of its fiscal year and, relative to executive officers, to Part I of this report under the caption "Executive Officers of the Corporation".
ITEM 11.
EXECUTIVE COMPENSATION
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required to be provided under Part III, Items 11, 12 and 13 is incorporated by reference from the Registrant's 1997 definitive proxy statement to be filed with the Commission pursuant to Regulation 14A no later than 120 days after the close of its fiscal year. 14
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15 PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) FINANCIAL STATEMENTS OF THE REGISTRANT, all of which are incorporated herein by reference to the Registrant's 1997 Annual Report to Shareholders. Independent Auditors' Report of KPMG Peat Marwick LLP, independent auditors, appearing on page 24 of the 1997 Annual Report to Shareholders. Consolidated Balance Sheets of Hudson General Corporation and Subsidiaries at June 30, 1997 and 1996, appearing on page 15 of the 1997 Annual Report to Shareholders. Consolidated Statements of Earnings of Hudson General Corporation and Subsidiaries for the Years Ended June 30, 1997, 1996 and 1995, appearing on page 14 of the 1997 Annual Report to Shareholders. Consolidated Statements of Cash Flows of Hudson General Corporation and Subsidiaries for the Years Ended June 30, 1997, 1996 and 1995, appearing on page 17 of the 1997 Annual Report to Shareholders. Consolidated Statements of Stockholders' Equity of Hudson General Corporation and Subsidiaries for the Years Ended June 30, 1997, 1996 and 1995, appearing on page 16 of the 1997 Annual Report to Shareholders. Notes to Consolidated Financial Statements appearing on pages 18-24 of the 1997 Annual Report to Shareholders.
Location in 10-K -------(a)(2) FINANCIAL STATEMENT SCHEDULE OF THE REGISTRANT FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995 Independent Auditors' Report of KPMG Peat Marwick LLP on Financial Statement Schedule II - Valuation and Qualifying Accounts FINANCIAL STATEMENTS OF HUDSON GENERAL LLC AND SUBSIDIARIES: Independent Auditors' Report of KPMG Peat Marwick LLP. Consolidated Balance Sheets of Hudson General LLC and Subsidiaries at June 30, 1997 and 1996. Consolidated Statements of Earnings of Hudson General LLC and Subsidiaries for the Year Ended June 30, 1997 and the Period June 1, 1996 (Inception) to June 30, 1996. Consolidated Statements of Members' Equity of Hudson General LLC and Subsidiaries for the Year Ended June 30, 1997 and the Period June 1, 1996 (Inception) to June 30, 1996. Consolidated Statements of Cash Flows of Hudson General LLC and F4 F6 F5 F1 F2
F7
F8
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15
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16
Location in 10-K -------Subsidiaries for the Year Ended June 30, 1997 and the Period June 1, 1996 (Inception) to June 30, 1996. Notes to Consolidated Financial Statements. FINANCIAL STATEMENT SCHEDULE OF HUDSON GENERAL LLC AND SUBSIDIARIES FOR THE YEAR ENDED JUNE 30, 1997 AND THE PERIOD JUNE 1, 1996 (INCEPTION) TO JUNE 30, 1996: II - Valuation and Qualifying Accounts FINANCIAL STATEMENTS OF KOHALA JOINT VENTURE AND SUBSIDIARY: Independent Auditors' Report of KPMG Peat Marwick LLP. Consolidated Balance Sheets of Kohala Joint Venture and Subsidiary at June 30, 1997 and 1996. Consolidated Statements of Operations and Partners' Deficit of Kohala Joint Venture and Subsidiary for the Years Ended June 30, 1997, 1996 and 1995. Consolidated Statements of Cash Flows of Kohala Joint Venture and Subsidiary for the Years Ended June 30, 1997, 1996 and 1995. Notes to Consolidated Financial Statements. FINANCIAL STATEMENT SCHEDULE OF KOHALA JOINT VENTURE AND SUBSIDIARY FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995: II - Valuation and Qualifying Accounts
Schedules other than those listed above are omitted because of the absence of the conditions under which they are required or because the information required therein is set forth in all material respects in the financial statements, including the notes thereto. 16
F9-F17
F18
F20 F21 F22
F23 F24-F31
F32
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17 (a)(3) - -----EXHIBIT NO. ------3.1
Exhibits -------EXHIBIT DESCRIPTION ------------------Restated Certificate of Incorporation of the Registrant, as amended to date, filed as Exhibit 3.1 to Quarterly Report on Form 10-Q for the quarter ended December 31, 1986, incorporated herein by reference. Amendment to By-laws of the Registrant. By-laws of the Registrant, as amended to date. Revolving Credit Agreement dated as of November 25, 1992 among Hudson General Aviation Services Inc., various banking institutions named therein and Bank of Boston Canada, as agent, filed as Exhibit 4.4(i) to Quarterly Report on Form 10-Q for the quarter ended March 31, 1993, incorporated herein by reference. First Amendment to the Revolving Credit Agreement dated as of November 25, 1992 among Hudson General Aviation Services Inc., various banking institutions named therein and The Chase Manhattan Bank of Canada, as successor agent, dated as of March 15, 1995, filed as Exhibit 4.4(f) to Annual Report on Form 10-K for the fiscal year ended June 30, 1995, incorporated herein by reference. Second Amendment to the Revolving Credit Agreement dated as of November 25, 1992, among Hudson General Aviation Services Inc., ABN Amro Bank Canada and The Chase Manhattan Bank of Canada individually and as successor agent, dated as of June 1, 1996, filed as Exhibit 4.4(c) to Annual Report on Form 10-K for the fiscal year ended June 30, 1996, incorporated herein by reference. Revolving Credit Agreement dated as of June 1, 1996 among Hudson General Corporation and The First National Bank of Boston, European American Bank, The Chase Manhattan Bank, N.A. and The First National Bank of Boston, as agent, filed as Exhibit 4.4(d) to Annual Report on Form 10-K for the fiscal year ended June 30, 1996, incorporated herein by reference. Amended and Restated Revolving Credit Agreement dated as of November 25, 1992 among Hudson General Corporation, Hudson General LLC and The First National Bank of Boston, European American Bank, The Chase Manhattan Bank, N.A. and The First National Bank of Boston, as agent, as amended and restated as of June 1, 1996, filed as Exhibit 4.4(e) to Annual Report on Form 10-K for the fiscal year ended June 30, 1996, incorporated herein by reference. Development Agreement dated April 29, 1981 between Kahua Ranch, Limited, and the Registrant, filed as Exhibit 3 to Quarterly Report on Form 10-Q for the quarter ended March 31, 1981, incorporated herein by reference. Amended and Restated Joint Venture Agreement dated April 29, 1981 between Hudson Kohala Inc. and The Hilton Head Company of Hawaii, 17
3.2(a) 3.2(b) 4.4(a)
4.4(b)
4.4(c)
4.4(d)
4.4(e)
10.1(a)
10.1(b)
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18 EXHIBIT NO. ------EXHIBIT DESCRIPTION ------------------Inc. (now Oxford Kohala, Inc.), filed as Exhibit 4 to Quarterly Report on Form 10-Q for the quarter ended March 31, 1981, incorporated herein by reference. 10.1(c) First Amendment to the Joint Venture Agreement, Amendment and Restatement dated April 29, 1981, such Amendment being effective as of June 30, 1984, filed as Exhibit 10 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1984, incorporated herein by reference. Receivable Sales Agreement dated January 3, 1990, with amendment letters dated June 22, 1990 and August 2, 1990, between the Registrant and Oxford First Corporation and Oxford Kohala, Inc., filed as Exhibit 10.1(d) to Annual Report on Form 10-K for the fiscal year ended June 30, 1990, incorporated herein by reference. Commitment Agreement to Purchase Receivables dated January 3, 1990, with amendment letter dated August 2, 1990, between Kohala Joint Venture and The Oxford Finance Companies, Inc., filed as Exhibit 10.1(e) to Annual Report on Form 10-K for the fiscal year ended June 30, 1990, incorporated herein by reference. Agreement constituting an amendment to the Joint Venture Agreement, Amendment and Restatement dated April 29, 1981, dated November 2, 1990 among the Registrant, Hudson Kohala Inc., Oxford Kohala, Inc. and Oxford First Corporation relating to receivables of the Kohala Joint Venture, filed as Exhibit 10.1(f) to Quarterly Report on Form 10-Q for the quarter ended September 30, 1990, incorporated herein by reference. Agreement constituting an amendment to the Joint Venture Agreement, Amendment and Restatement dated April 29, 1981, dated September 5, 1991 among the Registrant, Hudson Kohala Inc., Oxford Kohala, Inc. and Oxford First Corporation relating to distributions from the Kohala Joint Venture, filed as Exhibit 10.1(g) to Annual Report on Form 10-K for the fiscal year ended June 30, 1991, incorporated herein by reference. Agreement constituting an amendment to the Joint Venture Agreement, Amendment and Restatement dated April 29, 1981, dated September 26, 1991 among the Registrant, Hudson Kohala Inc., Oxford Kohala, Inc. and Oxford First Corporation relating to distributions from the Kohala Joint Venture, filed as Exhibit 10.1(h) to Quarterly Report on Form 10-Q for the quarter ended September 30, 1991, incorporated herein by reference. Second Amendment to the Joint Venture Agreement, Amendment and Restatement dated April 29, 1981, such Amendment being effective as of October 1, 1994, filed as Exhibit 10.1(i) to Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, incorporated herein by reference. 1981 Non-Qualified Stock Option and Stock Appreciation Rights Plan, filed as Exhibit 15.1 to Form S-8 Registration Statement under the Securities Act of 1933, Registration No. 2-75137, incorporated herein by reference. 18
10.1(d)
10.1(e)
10.1(f)
10.1(g)
10.1(h)
10.1(i)
10.2*
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19
EXHIBIT NO. ------10.3*
EXHIBIT DESCRIPTION ------------------1981 Incentive Stock Option and Stock Appreciation Rights Plan, filed as Exhibit 15.2 to Form S-8 Registration Statement under the Securities Act of 1933, Registration No. 2-75137, incorporated herein by reference. Form of Severance Agreement, dated as of June 3, 1986, between the Registrant and Michael Rubin, filed as Exhibit 10.5(a) to Annual Report on Form 10-K for the fiscal year ended June 30, 1988, incorporated herein by reference. Amendment effective January 23, 1996, amending the Form of Severance Agreement between the Registrant and Michael Rubin dated as of June 3, 1986, filed as Exhibit 10.4(c) to Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, incorporated herein by reference. Amended schedule of executive officers entitled to benefits of Severance Agreements, filed as Exhibit 10.4(d) to Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, incorporated herein by reference. Employment Agreement dated July 28, 1988, between the Registrant and Jay B. Langner, filed as Exhibit 10.6(a) to Annual Report on Form 10-K for the fiscal year ended June 30, 1988, incorporated herein by reference. Amendment dated April 16, 1990, amending the Employment Agreement between the Registrant and Jay B. Langner dated as of July 28, 1988, filed as Exhibit 10.5(b) to Annual Report on Form 10-K for the fiscal year ended June 30, 1990, incorporated herein by reference. Amendment dated August 16, 1994, amending the Employment Agreement between the Registrant and Jay B. Langner dated as of July 28, 1988, as amended, filed as Exhibit 10.5(c) to Annual Report on Form 10-K for the fiscal year ended June 30, 1994, incorporated herein by reference. Amendment effective January 23, 1996, amending the Employment Agreement between the Registrant and Jay B. Langner dated July 28, 1988, as amended, filed as Exhibit 10.5(e) to Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, incorporated herein by reference. Severance Agreement dated April 16, 1990 between the Registrant and Jay B. Langner, filed as Exhibit 10.5(c) to Annual Report on Form 10-K for the fiscal year ended June 30, 1990, incorporated herein by reference. Amendment effective January 23, 1996, amending the Severance Agreement between the Registrant and Jay B. Langner dated April 16, 1990, filed as Exhibit 10.5(f) to Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, incorporated herein by reference.
19
10.4(a)*
10.4(b)*
10.4(c)*
10.5(a)*
10.5(b)*
10.5(c)*
10.5(d)*
10.5(e)*
10.5(f)*
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20
EXHIBIT NO. ------10.6(a)*
EXHIBIT DESCRIPTION ------------------Form of Employment Agreement, dated February 8, 1990, between the Registrant and Michael Rubin, filed as Exhibit 10.7(a) to Annual Report on Form 10-K for the fiscal year ended June 30, 1990, incorporated herein by reference. Amendment effective January 23, 1996, amending the Form of Employment Agreement between the Registrant and Michael Rubin, dated February 8, 1990, filed as Exhibit 10.7(c) to Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, incorporated herein by reference. Amended schedule of executive officers entitled to benefits of Employment Agreements, filed as Exhibit 10.7(d) to Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, incorporated herein by reference. Description of Executive Incentive Program adopted by the Compensation Committee of the Board of Directors on December 1, 1993, as amended on May 17, 1996, filed as Exhibit 10.9 to Annual Report on Form 10-K for the fiscal year ended June 30, 1996, incorporated herein by reference. Unit Purchase and Option Agreement, dated February 27, 1996 between the Registrant and Lufthansa Airport and Ground Services GmbH, a German corporation, filed as Exhibit 99.1 to Form 8-K dated March 6, 1996, incorporated herein by reference. Limited Liability Company Agreement dated May 31, 1996, effective as of June 1, 1996, among the Registrant, LAGS (USA) Inc. and Hudson General LLC, filed as Exhibit 99.3 to Form 8-K dated May 31, 1996, incorporated herein by reference. First Amendment to the Unit Purchase and Option Agreement dated February 27, 1996 between the Registrant and Lufthansa Airport and Ground Services GmbH, a German corporation, dated as of December 12, 1996, filed as Exhibit 10.10(c) to Quarterly Report on Form 10-Q for the quarter ended December 31, 1996, incorporated herein by reference. Third Amendment to the Limited Liability Company Agreement dated May 31, 1996, effective as of June 1, 1996, among the Registrant, LAGS (USA) Inc. and Hudson General LLC dated as of December 12, 1996, filed as Exhibit 10.10(d) to Quarterly Report on Form 10-Q for the quarter ended December 31, 1996, incorporated herein by reference. Computation of Earnings Per Share Information - primary and fully diluted. The Registrant's 1997 Annual Report to Shareholders, which report, except for those portions thereof which are expressly incorporated by reference in this filing, is furnished for the information of the Commission and is not to be deemed to be filed as part of this filing. Subsidiaries of the Registrant. Consent of KPMG Peat Marwick LLP, the Corporation's independent auditors, to the incorporation by reference into the
10.6(b)*
10.6(c)*
10.7*
10.8(a)
10.8(b)
10.8(c)
10.8(d)
11 13
21 23
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20
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21 EXHIBIT NO. ------EXHIBIT DESCRIPTION ------------------Corporation's Registration Statement on Form S-8, as amended, Registration No. 2-75137. (b) (c) (d) * No reports on Form 8-K have been filed by the Registrant during the last quarter of the period covered by this report. Reference is made to Item 14(a)(3) above. Reference is made to Item 14(a)(2) above. Denotes management contract for compensatory plan or arrangement. 21
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22 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned Chief Executive Officer, President and Chief Financial Officer/Controller, thereunto duly authorized on the 11th day of September 1997. HUDSON GENERAL CORPORATION /s/ /s/ Signature --------Jay B. Langner -------------Jay B. Langner Michael Rubin -------------Michael Rubin Barry I. Regenstein ------------------Barry I. Regenstein Title ----Chairman of the Board, and Chief Executive Officer President
/s/
/s/
Chief Financial Officer and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in their capacities as Directors on the 11th day of September 1997. /s/ Jay B. Langner -------------Jay B. Langner Milton H. Dresner ----------------Milton H. Dresner Paul R. Pollack --------------Paul R. Pollack Edward J. Rosenthal ------------------Edward J. Rosenthal 22 /s/ Michael Rubin ------------Michael Rubin Hans H. Sammer -------------Hans H. Sammer Richard D. Segal ---------------Richard D. Segal Stanley S. Shuman ----------------Stanley S. Shuman
/s/
/s/
/s/
/s/
/s/
/s/
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23 Independent Auditors' Report The Board of Directors and Stockholders Hudson General Corporation: Under date of August 15, 1997, we reported on the consolidated balance sheets of Hudson General Corporation and subsidiaries as of June 30, 1997 and 1996, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the years in the three-year period ended June 30, 1997, as contained in the fiscal 1997 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1997. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedule listed in item 14(a)2. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP Jericho, New York August 15, 1997 23
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24 SCHEDULE II HUDSON GENERAL CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JUNE 30, 1997, 1996 and 1995
COLUMN A COLUMN B COLUMN C ..........ADDITIONS......... BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT BEGINNING COSTS AND OTHER FROM END DESCRIPTION OF YEAR EXPENSES ACCOUNTS RESERVES OF YEAR - -----------------------------------------------------------------------------------------------------------------------------------1997 - Allowance for doubtful accounts receivable... 1996 - Allowance for doubtful accounts receivable.. COLUMN D COLUMN E
$ --========== $1,579,000 ==========
$ --========= $ 362,000 =========
$ --=========== $(1,820,000)(B,C,D) ===========
$ --========= $ 121,000(A) =========
$ --========== $ --==========
1995 - Allowance for doubtful accounts receivable...
$1,631,000 ==========
$ 178,000 =========
$ (85,000)(B,C) ===========
$ 145,000(A) =========
$1,579,000 ==========
NOTES: (A) (B) (C) (D) Write-offs. Foreign exchange. Recoveries. Includes transfer of $1,804,000 to Hudson General LLC. 24
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25 HUDSON GENERAL LLC AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE (FORM 10-K) JUNE 30, 1997 AND 1996 (WITH INDEPENDENT AUDITORS' REPORT THEREON) 25 26 INDEPENDENT AUDITORS' REPORT The Board of Member Representatives Hudson General LLC We have audited the accompanying consolidated balance sheets of Hudson General LLC and subsidiaries as of June 30, 1997 and 1996 and the related consolidated statements of earnings, members' equity and cash flows for the year ended June 30, 1997 and the period June 1 (inception) to June 30, 1996. We have also audited financial statement schedule II. These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hudson General LLC and subsidiaries at June 30, 1997 and 1996 and the results of their operations and their cash flows for the year ended June 30, 1997 and the period June 1 (inception) to June 30, 1996, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP Jericho, New York August 15, 1997 26
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27 CONSOLIDATED STATEMENTS OF EARNINGS Hudson General LLC and Subsidiaries (in thousands) YEAR ENDED JUNE 30, 1997 --------Revenues ................................. Costs and expenses: Operating ............................ Depreciation and amortization ........ Selling, general &administrative .... Total costs and expenses .......... Operating income ......................... Interest income .......................... Interest expense ......................... Earnings before provision for income taxes Provision for income taxes ............... Net earnings ............................. 128,749 7,510 13,625 --------149,884 --------17,845 1,137 (958) --------18,024 2,085 --------$ 15,939 ========= 9,259 673 1,317 -------11,249 -------847 217 (168) -------896 41 -------$ 855 ======== $ 167,729 --------Period June 1 (Inception) to June 30, 1996 -------$ 12,096 --------
See accompanying notes to consolidated financial statements. 27
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28 CONSOLIDATED BALANCE SHEETS Hudson General LLC and Subsidiaries (in thousands)
June 30, -------------------------1997 1996 --------------Assets Current assets: Cash and cash equivalents .......................... Accounts and notes receivable - net ................ Inventory .......................................... Prepaid expenses and other assets .................. Total current assets ......................... Property, equipment and leasehold rights at cost, less accumulated depreciation and amortization ..... Long-term receivables - net ........................... Deferred income taxes ................................. Excess cost over fair value of net assets acquired .... $ 12,324 15,289 1,272 1,439 -------30,324 44,948 1,361 174 713 -------$ 77,520 ======== $ 19,269 18,055 1,115 1,202 -------39,641 37,442 2,028 852 761 -------$ 80,724 ========
Liabilities and Members' Equity Current liabilities: Accounts payable ................................... Income taxes payable ............................... Accrued expenses and other liabilities ............. Advances from Hudson General Corporation - net ..... Total current liabilities .................... Long-term debt, subordinated .......................... Note payable to Hudson General Corporation ............ Total noncurrent liabilities ................. Members' Equity: Contributed capital ................................ Retained earnings .................................. Equity adjustments from foreign currency translation Total members' equity ........................ 19,966 16,794 (1,550) -------35,210 -------$ 77,520 ======== 12,123 855 (1,427) -------11,551 -------$ 80,724 ======== $ 18,528 1,280 17,511 361 -------37,680 --------4,630 -------4,630 -------$ 15,104 350 17,735 7,233 -------40,422 -------28,751 --------28,751 --------
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29 CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY Hudson General LLC and Subsidiaries Year Ended June 30, 1997 and the Period June 1 (Inception) to June 30, 1996 (in thousands)
Equity Adjustments from Foreign Currency Translation ----------$ -(1,470) 43
Contributed Capital ------Balance, June 1, 1996 (Inception) ..................... Equity contributions .............................. Equity adjustment from foreign currency translation Net earnings ...................................... $ -12,123 --
Retained Earnings -------$ ----
Members' Equity -----$ -10,653 43
-855 -855 ---------------------------------------------------------12,123 7,843 -855 --(1,427) -(123) 11,551 7,843 (123)
Balance, June 30, 1996 ................................ Equity contributions .............................. Equity adjustment from foreign currency translation Net earnings ......................................
-15,939 -15,939 ---------------------------------------------------------$19,966 $16,794 ($1,550) $ 35,210 ==========================================================
Balance, June 30, 1997 ................................
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30 CONSOLIDATED STATEMENTS OF CASH FLOWS Hudson General LLC and Subsidiaries (in thousands) YEAR ENDED JUNE 30, 1997 ---Cash flows from operating activities: Net earnings .................................................... Adjustments to reconcile net earnings to net cash provided (used) by operating activities Depreciation and amortization ............................ Provision for losses on accounts receivable - net ........ Loss (gain) on sale of equipment ......................... Change in other current assets and liabilities: Accounts and notes receivables - net ................... Inventory .............................................. Prepaid expenses and other assets ...................... Accounts payable ....................................... Income taxes payable ................................... Accrued expenses and other liabilities ................. Decrease in long-term receivables - net .................. Decrease in deferred income taxes ........................ Other - net .............................................. Net cash provided (used) by operating activities ....... Cash flows from investing activities: Purchases of property and equipment ......................... Proceeds from sale of property and equipment ................ Net cash used by investing activities .................. Cash flows from financing activities: Capital contributions ....................................... Advances from (repayments to) Hudson General Corporation .... Principal repayment of note payable to Hudson General Corporation .............................................. Principal repayments on long-term debt ...................... Net cash (used) provided by financing activities ....... Effect of exchange rate changes on cash ......................... Net (decrease) increase in cash and cash equivalents ............ Cash and cash equivalents at beginning of period ................ Cash and cash equivalents at end of period ...................... $ 15,939 7,510 188 (60) 2,533 (162) (242) 3,435 940 (179) 666 676 44 -------31,288 -------(15,218) 166 -------(15,052) -------7,843 (7,302) (21,283) (2,408) -------(23,150) -------(31) -------(6,945) 19,269 -------$ 12,324 ======== $ 855 673 15 67 (7,011) (40) (256) 2,365 38 (1,698) 36 -5 -------(4,951) -------(1,825) 23 -------(1,802) -------15,848 7,233 -(70) -------23,011 -------9 -------16,267 3,002 -------$ 19,269 ======== Period June 1 (Inception) to June 30, 1996 ----
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31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Hudson General LLC and Subsidiaries 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The consolidated financial statements include the accounts of Hudson General LLC and its subsidiaries (Hudson LLC). All material intercompany accounts and transactions have been eliminated in consolidation. Description of Business: Hudson LLC provides a broad and diverse range of services to the aviation industry at twenty-four (24) airports throughout the United States and Canada. These services include aircraft ground handling; aircraft fueling; fuel management; ground transportation; snow removal; cargo warehousing; and sale, leasing and maintenance of airline ground support equipment. Inventories: Inventories are carried at the lower of average cost or market.
Depreciation and Amortization: Depreciation of property and equipment is provided on the straight-line method over their estimated useful lives. Leasehold rights are amortized over the original and anticipated renewal terms of the underlying leases. Excess Cost over Fair Value of Net Assets Acquired: The excess cost over fair value of net assets acquired, net of accumulated amortization of $1,275,000 and $1,232,000 at June 30, 1997 and June 30, 1996, respectively, is amortized on a straight-line basis over periods not to exceed forty years. Hudson LLC periodically reviews its intangible assets and analyzes the propriety of maintaining the stated values. Income Taxes: Hudson LLC has adopted Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes", which requires the use of the liability method of accounting for deferred income taxes. Financial Instruments: Hudson LLC believes that the book values of its monetary assets and liabilities approximate fair values as a result of the short-term nature of such assets and liabilities. Foreign Currency Translation: The financial position and results of operations of Hudson LLC's Canadian operations are measured using local currency as the functional currency. Assets and liabilities are translated into U.S. dollars at year-end rates of exchange, and revenues and expenses are translated at the average rates of exchange for the year. Gains or losses resulting from translating foreign currency financial statements are accumulated as a separate component of members' equity. Statements of Cash Flows: For purposes of the consolidated statements of cash flows, Hudson LLC considers all securities with an original maturity of three months or less at the date of acquisition to be cash equivalents. In fiscal 1997 income taxes (net of refunds) of 31
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32 $843,000 was paid. Interest of $933,000 was paid in fiscal 1997. No income taxes or interest was paid during the month of June 1996. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Long-Lived Assets: Effective July 1, 1996 Hudson LLC adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which requires that long-lived assets and certain identifiable intangibles to be held and used or disposed of by an entity be reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The adoption of SFAS No. 121 did not have any impact on Hudson LLC's financial position or results of operations. Reclassifications: Certain reclassifications of June 1996 balances have been made to conform with the fiscal 1997 presentation. 2. FORMATION AND STRUCTURE OF HUDSON GENERAL LLC
Effective June 1, 1996, pursuant to the terms of the Unit Purchase and Option Agreement dated February 27, 1996 (the Purchase Agreement) between Hudson General Corporation (the Corporation) and Lufthansa Airport and Ground Services GmbH (LAGS), a German corporation and an indirect wholly-owned subsidiary of Deutsche Lufthansa AG, the Corporation transferred substantially all of the assets and liabilities of its aviation services business (the Aviation Business) to Hudson LLC, a newly formed limited liability company (the Transaction). 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 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 (the Deferred Payments) of $2,650,000 and $5,188,000 plus interest thereon were made, respectively, in September 1996 and December 1996. The Purchase Agreement also provided for the grant to LAGS of an option, exercisable on October 1 of each year from 1996 through 2000, effective as of the preceding July 1, pursuant to which LAGS may increase its equity ownership in Hudson LLC from 26% to a maximum of 49%, for a price based on a formula related to the average earnings of the Aviation Business over the four fiscal years preceding the exercise of the option, subject to certain minimum and maximum amounts. Effective December 1996, the Purchase Agreement was amended so that this option now expires on October 1, 1999. Pursuant to the Purchase Agreement, Hudson LLC, the Corporation 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). The LLC Agreement, as amended, stipulates that the Corporation and LAGS USA will share profits and losses in the same 32
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33 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. In addition, 100% of Hudson LLC's net earnings in June 1996 were allocated to the Corporation. In June 1996, primarily as a result of the Corporation retaining certain trade receivables, the Corporation made net advances of $7,233,000 on behalf of Hudson LLC. Such balance was repaid to the Corporation by Hudson LLC (together with accrued interest at the Corporation's incremental borrowing rate) during fiscal 1997. As of June 30, 1997, Hudson LLC's net advances from the Corporation were $361,000. Pursuant to the LLC Agreement, as amended: (i) the Corporation will continue to manage the Aviation Business and will be entitled to charge Hudson LLC 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 (the Corporation and LAGS USA agreed to raise these overhead fees for fiscal 1998 to 3-1/2% and 1-1/4%, respectively); and (ii) there will be a Member Board on which the Corporation has three votes and LAGS USA has two votes. The LLC Agreement, as amended, allows either Member to veto certain major transactions and to veto any reduction in distributions stipulated in the LLC Agreement, as amended. The LLC Agreement, as amended, provides that distributions will be paid annually in an amount at least equal to 50% of domestic net income and 10% of Canadian pre-tax earnings, as defined, from the Aviation Business. Such distributions, totaling approximately $8,300,000 for fiscal 1997 and the month of June 1996, are expected to be made during the first half of fiscal 1998. 3. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
Accounts, notes and long-term receivables - net at June 30, 1997 and June 30, 1996 consisted of the following: JUNE 30, June 30, 1997 1996 ------------(in thousands) Rental and service fees receivable .................................... Note receivable ....................................................... Equipment rental contracts and other notes receivable (less unearned finance income of $39,000 in 1996) ................ Less: current portion (net of allowance for doubtful accounts of $1,670,000 and $1,784,000) ........................... Long-term portion ..................................................... $14,762 1,888 -------16,650 15,289 ------$ 1,361 ======= $17,500 2,414 169 ------20,083 18,055 ------$ 2,028 =======
On January 6, 1994, the Corporation assigned its leases and ceased operations at Long Island MacArthur Airport in Islip, New York (LIMA) where the Corporation had provided ground handling and fueling services to commercial airlines and related fixed base operation services to general aviation aircraft. At the closing, the Corporation was paid $150,000 in cash and received a promissory note from the purchaser of its leases in the amount of $3,750,000, payable over seven years with interest at the rate of 7%. The outstanding balance of the note receivable at June 30, 1997 and 1996 was $1,888,000 and $2,414,000, respectively. The promissory note is secured by the assigned leases and other assets located at LIMA. Hudson LLC provides various services at airports throughout the United States and Canada. Hudson LLC grants credit to customers based upon an analysis of its customers' financial position and then-existing conditions in the aviation industry. Five of Hudson LLC's customers had individual balances outstanding greater than 5%, and aggregating 40%, of accounts and notes receivable-net at June 30, 1997. Bad debt expenses were $188,000 and $17,000 for fiscal 1997 and the month of June 1996, respectively.
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Accrued expenses and other liabilities at June 30, 1997 and 1996 consisted of the following:
1997 ---(in thousands) Salaries and wages............................ Insurance..................................... Operating expenses payable.................... Other......................................... $ 6,327 5,608 3,102 2,474 -------$ 17,511 ======== $
1996 ---6,204 3,798 3,318 4,415 -------$ 17,735 ========
Maintenance and repair expenses were $8,760,000 and $664,000 for fiscal 1997 and the month of June 1996, respectively. 4. PROPERTY, EQUIPMENT AND LEASEHOLD RIGHTS
The number of years over which major classes of assets are being depreciated and amortized, and the costs and related accumulated depreciation and amortization as of June 30, 1997 and 1996 are set forth below:
Estimated Useful Lives -----------1997 ---(in thousands) Operating equipment........................................... Leasehold rights.............................................. Buildings..................................................... Office furnishings and equipment.............................. Leasehold improvements........................................ 2 - 12 25 20 3 - 10 2 - 28 $85,349 2,400 1,474 3,868 6,464 ------99,555 (54,607) ------$44,948 ======= $72,916 2,400 1,468 3,365 6,220 ------86,369 (48,927) ------$37,442 ======= 1996 ----
Accumulated depreciation and amortization
34
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35 CANADIAN OPERATIONS
5.
The consolidated financial statements include: assets of $18,635,000 and $16,671,000, and net assets of $12,406,000 and $10,831,000 at June 30,1997 and 1996, respectively; and revenues of $45,987,000 and $3,197,000 and earnings of $1,784,000 and $52,000 for fiscal 1997 and the month of June 1996, respectively, related to Hudson LLC's Canadian operations. 6. LONG-TERM DEBT
In connection with the Transaction, the revolving credit agreement that the Corporation had with a group of banks dated November 25, 1992, as amended, was amended and restated as of June 1, 1996, and Hudson LLC assumed and agreed to become jointly and severally liable for any obligations thereunder (the LLC Credit Agreement). Pursuant to the LLC Credit Agreement, Hudson LLC may borrow funds (including outstanding letters of credit) up to a limit of $18,000,000 (the LLC Limit) until September 30, 1998. At such time, and at the end of each subsequent quarter, the LLC Limit will be reduced by one-sixteenth of the LLC Limit that was in effect on June 30, 1998 until June 30, 2002, at which time the LLC Credit Agreement terminates. The limit may also be reduced by asset sales in excess of certain amounts. There were no direct borrowings outstanding at June 30, 1997 and 1996 and $3,020,000 and $3,045,000 of outstanding letters of credit at June 30, 1997 and 1996, respectively. The LLC Credit Agreement provides Hudson LLC with the option of selecting a rate of interest at either the base rate or 1 3/8% above the LIBO rate, as defined. The LLC Credit Agreement requires that Hudson LLC maintain certain minimum effective net worth requirements, as defined, which are subject to incremental annual increases and further stipulates that Hudson LLC not incur a consolidated net loss for any fiscal year. The LLC Credit Agreement also requires that Hudson LLC meet certain other financial covenants. Hudson LLC has granted the banks a security interest in substantially all of its domestic assets. Hudson LLC also has an agreement with a group of banks to provide a credit facility for its Canadian subsidiary (the Canadian Agreement) in the amount of $5,000,000 (Cdn) (the Canadian Limit). The Canadian Limit will be reduced commencing September 30, 1998 on the same basis as the LLC Limit. The Canadian Agreement provides Hudson LLC with the option of selecting a rate of interest at either 1/2% above the prime rate or 1 5/8% above the cost of funds rate, as defined. In connection with the Canadian Agreement, Hudson LLC has guaranteed the obligations of its Canadian subsidiary and granted the banks a security interest in substantially all of its Canadian accounts receivable and certain of its other assets. In July 1986, the Corporation issued $30,000,000 of 7% convertible subordinated debentures due 2011 (the Debentures). In connection with the Transaction, effective June 1, 1996, Hudson LLC assumed the obligations of the Debentures and the Corporation remained as a co-obligor. The Debentures were convertible at any time prior to maturity into shares of the Corporation's common stock. At June 1, 1996, there was $28,821,000 principal balance of the Debentures outstanding. During June and August 1996, the Debentures were called for redemption and as a result, $2,408,000 35
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36 principal balance of the Debentures were redeemed during fiscal 1997. In addition, during fiscal 1997 and the month of June 1996, $26,343,000 and $70,000, respectively, of the Debentures were converted into shares of the Corporation's common stock and to such extent Hudson LLC became indebted, on a subordinated basis, to the Corporation (the Corporate Subordinated Debt). At September 5, 1996, no Debentures remained outstanding. During fiscal 1997, Hudson LLC utilized the proceeds from 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 the Corporate Subordinated Debt. At June 30, 1997 the balance of the Corporate Subordinated Debt was $5,130,000. The noncurrent portion of such debt in the amount of $4,630,000 is shown as "Note payable to Hudson General Corporation" in the accompanying consolidated balance sheets. Hudson LLC is obligated to repay $500,000 of such debt to the Corporation on July 15, 1997 and $1,500,000 on each July 15th thereafter until the entire principal balance is satisfied. The current portion of this debt at June 30, 1997, in the amount of $500,000 (which was paid in July 1997), is included in "Advances from Hudson General Corporation - - net" in the accompanying consolidated balance sheets. Interest on the Corporate Subordinated Debt is payable semi-annually in January and July at the rate of 7% per annum. 7. INCOME TAXES
Provision for income taxes consisted of the following for fiscal 1997 and the month of June 1996. 1997 1996 ----------(in thousands) Foreign: Current ..................................... Deferred .................................... State: Current ..................................... Deferred .................................... 344 21 -----$2,085 ====== -----$ 41 ==== $1,061 659 $ 41 --
Deferred tax assets (liabilities) are comprised of the following as of June 30, 1997 and 1996 (Deferred tax assets were transferred to Hudson LLC from the Corporation on June 1, 1996): 1997 ---Deferred tax assets: Reserves for doubtful accounts, claims, etc..................... Minimum tax credit carryforward................................. Property, equipment and leasehold rights, principally depreciation - foreign....................................... Total deferred tax assets................................ $277 -----277 --(in thousands) $196 65 591 ---852 ---1996 ----
36
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37 1997 ---(in thousands) Deferred tax liabilities: State and local income taxes................................ Property, equipment and leasehold rights, principally depreciation - foreign................................... Total deferred tax liabilities....................... Net deferred tax asset........................... (21) (82) -----(103) -----$ 174 ====== ------$852 ==== 1996 ----
Hudson LLC has adopted SFAS No. 109, "Accounting for Income Taxes". SFAS No. 109 requires that deferred income taxes be recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS No. 109, the effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. In April 1997, Hudson LLC's Canadian subsidiary was notified by Canadian taxation authorities of their intention to disallow 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 (as currently proposed) is sustained, a foreign income tax liability of approximately $3,900,000, plus interest, would result. The Corporation has agreed to indemnify and hold harmless Hudson LLC, LAGS and each affiliate of LAGS against any liability resulting from this matter. 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. As a limited liability company, Hudson LLC has elected to be taxed as a partnership under the provisions of the Internal Revenue Code, and therefore, the U.S. taxable results and available tax credits of Hudson LLC pass directly to the Members' U.S. corporate income tax returns in the manner prescribed in the LLC Agreement, as amended. 8. RETIREMENT PLANS
As of January 1, 1997, Hudson LLC established a 401(k) Profit Sharing Plan covering substantially all of its domestic employees not subject to collective bargaining agreements (the LLC Plan). Pursuant to the LLC Plan, Hudson LLC makes a matching contribution equal to 25% of the Compensation (as defined in the Plan) that each participant elects to defer (up to 5% of the participant's Compensation) and contribute to the LLC Plan. In addition, Hudson LLC may make a discretionary annual contribution. Prior to January 1, 1997 such employees were covered under the Corporation's 401(k) Profit Sharing Plan (the Plan), which contains terms and conditions similar to those of the LLC Plan. During fiscal 1997 and the month of June 1996, Hudson LLC contributed $766,000 and $11,000, respectively, to the LLC Plan and the Plan representing employer matching and discretionary contributions for Hudson LLC's covered employees. 37
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38 Hudson LLC maintains a Group Registered Retirement Savings Plan (RRSP) covering substantially all of its Canadian employees not subject to collective bargaining agreements. Under the RRSP, Hudson LLC may make a discretionary annual contribution. During fiscal 1997 and the month of June 1996, Hudson LLC contributed $114,000 and $44,000, respectively, to the RRSP. Net retirement expense was $861,000 and $91,000 for fiscal 1997 and the month of June 1996, respectively. 9. (a) COMMITMENTS AND CONTINGENCIES Leases
Minimum rental payments for leased premises and operating equipment for future fiscal years under non-cancelable operating leases (including $3,563,000 to be paid subsequent to June 30, 1997 for operating equipment on lease to Hudson LLC from the Corporation and excluding $1,591,000 to be received subsequent to June 30, 1997 under non-cancelable subleases) are: $5,240,000 in 1998; $4,482,000 in 1999; $3,626,000 in 2000; $3,105,000 in 2001; $2,602,000 in 2002; and $8,115,000 thereafter. Total rental expense incurred amounted to $6,486,000 and $475,000 (excluding sublease income of $755,000 and $36,000) for fiscal 1997 and the month of June 1996, respectively. (b) Litigation
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, concluded after several adjournments on May 7, 1997, at which time the trial judge indicated that he intended to issue his decision on or about June 30, 1997. However, to date the judge has not yet rendered his decision. Innotech (which due to a name change is now called Aerospace Realties (1986) Limited (Aerospace)) had agreed to defend and indemnify the Corporation against claims of whatever nature asserted in connection with, arising out of or resulting from the fuel supply agreement with Texaco. By a letter dated February 15, 1996, the Corporation was notified by Aerospace that Aerospace had entered into a liquidation phase and could no longer defray the cost of defending the Texaco Lawsuit or pay for any damages resulting therefrom. The Corporation has agreed to indemnify and hold harmless Hudson LLC, LAGS and each affiliate of LAGS against all losses related to the Texaco Lawsuit. The Corporation's management believes, 38
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39 and counsel for the Corporation has advised based on the facts as disclosed at trial, that the Corporation will successfully defend this action. 39 40 SCHEDULE II HUDSON GENERAL LLC AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS YEAR ENDED JUNE 30, 1997 AND PERIOD JUNE 1 (INCEPTION) TO JUNE 30, 1996
COLUMN B COLUMN C COLUMN D COLUMN E . . . . . . ADDITIONS. . . . . . BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT BEGINNING OF COSTS AND OTHER FROM END DESCRIPTION PERIOD EXPENSES ACCOUNTS RESERVES OF PERIOD - -------------------------------------------------------------------------------------------------------------------------------1997 - Allowance for doubtful accounts receivable COLUMN A
$1,784,000 ==========
$188,000 ========
$ 30,000(B,C) ========
$(332,000)(A) =========
$1,670,000 ==========
1996 - Allowance for doubtful accounts receivable
$1,804,000(D) ==========
$ 14,000 ========
$(31,000)(B,C) ========
$ 3,000(A) =========
$1,784,000 ==========
NOTES: (A) (B) (C) (D) Write-offs. Foreign exchange. Recoveries. Represents transfer of $1,804,000 from Hudson General Corporation. 40
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41 KOHALA JOINT VENTURE AND SUBSIDIARY Consolidated Financial Statements and Schedule (Form 10-K) June 30, 1997, 1996 and 1995 (With Independent Auditors' Report Thereon) 41 42 INDEPENDENT AUDITORS' REPORT The Board of Directors Hudson General Corporation The Board of Directors Oxford First Corporation: We have audited the accompanying consolidated balance sheets of the Kohala Joint Venture and subsidiary as of June 30, 1997 and 1996, and the related consolidated statements of operations and partners' deficit, and cash flows for each of the years in the three-year period ended June 30, 1997. We have also audited financial statement schedule II. These consolidated financial statements and the financial statement schedule are the responsibility of the Venture's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. For the years ended June 30, 1997, 1996 and 1995, the Venture incurred net losses of $22,584,200, $6,042,200 and $5,495,300, respectively, and at June 30, 1997, the amount of the partners' deficit was $37,958,300. In fiscal 1997, the Venture recorded a $17,000,000 write-down of its real estate assets. In fiscal 1996 and 1995 the partners advanced $2,714,400 and $2,346,100, respectively, to the Venture. Additional contributions from the partners may be required in fiscal 1998. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Kohala Joint Venture and subsidiary as of June 30, 1997 and 1996 and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP Jericho, New York August 15, 1997 42
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43 KOHALA JOINT VENTURE AND SUBSIDIARY Consolidated Balance Sheets June 30, 1997 and 1996
ASSETS 1997 -----------$ 730,000 39,200 179,200 1996 ----------266,800 48,300 237,600 4,926,000 26,709,400 1,646,000 593,600 2,200,200 85,700 ----------36,713,600 ===========
Cash Accounts receivable Accrued interest receivable Mortgage notes receivable, net (including amounts from related parties of $142,700 and $386,500 in 1997 and 1996, respectively) Land and development costs, net Property, plant and equipment, net Model home, net Foreclosed real estate, net Other
2,561,000 9,264,200 1,560,900 -2,853,600 28,700 -----------$ 17,216,800 ============
LIABILITIES AND PARTNERS' DEFICIT Liabilities: Note payable Partner advances and accrued interest payable Accounts payable and accrued expenses Total liabilities Contingencies Partners' deficit (37,958,300) -----------$ 17,216,800 ============ (15,374,100) ----------36,713,600 =========== -54,012,600 1,162,500 -----------55,175,100 576,200 50,219,500 1,292,000 ----------52,087,700
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44 KOHALA JOINT VENTURE AND SUBSIDIARY Consolidated Statements of Operations and Partners' Deficit Years ended June 30, 1997, 1996 and 1995 1997 -----------Net sales Cost of sales Write-down of real estate assets Selling, general and administrative expenses Operating loss Other (income) expense: Interest expense Interest income and other Net loss Partners' deficit, beginning of year Partners' deficit, end of year $ 1,455,300 1,106,400 17,000,000 1996 ----------676,800 365,400 -2,952,400 ----------(2,641,000) 3,755,400 (354,200) ----------(6,042,200) (9,331,900) ----------(15,374,100) =========== 1995 ---------503,600 191,300 -2,851,600 ---------(2,539,300) 3,514,500 (558,500) ---------(5,495,300) (3,836,600) ---------(9,331,900) ==========
2,340,000 -----------(18,991,100) 3,858,300 (265,200) -----------(22,584,200) (15,374,100) -----------$(37,958,300) ============
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45 KOHALA JOINT VENTURE AND SUBSIDIARY Consolidated Statements of Cash Flows Years ended June 30, 1997, 1996 and 1995
1997 ----------Cash flows from operating activities: Proceeds from land sales Interest income received Proceeds from water company sales Land and development cost expenditures Interest paid Selling, general and administrative expenditures paid Collections on mortgage notes Proceeds from sale of and deposits relating to assets held in foreclosure Net cash provided by (used in) operating activities Cash flows from investing activities: Purchases of property, plant and equipment Proceeds from sale of property, plant and equipment Net cash used in investing activities Cash flows from financing activities: Net advances received from partners Contributions in aid of construction received Payments on notes payable Net cash (used in) provided by financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Non cash financing: Issuance of note payable for land development 1996 ---------1995 ----------
765,500 266,800 294,500 (115,200) (118,100) (1,533,700) 1,279,500
105,200 347,300 341,300 (159,000) (212,000) (1,847,500) 1,678,300 57,000 ---------310,600 ---------(21,000) ----------(21,000) ---------2,714,400 -(2,826,200) ---------(111,800) ---------177,800 89,000 ---------266,800 ========== -==========
23,000 579,000 246,600 (243,700) (477,400) (2,062,800) 1,404,500 89,800 ---------(441,000) ---------(10,900) ----------(10,900) ---------2,346,100 6,000 (1,932,300) ---------419,800 ---------(32,100) 121,100 ---------89,000 ========== 576,200 ==========
209,100 ----------1,048,400 ----------(12,500) 500 ----------(12,000) ------------(573,200) ----------(573,200) ----------463,200 266,800 ----------$ 730,000 =========== $ -===========
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46 KOHALA JOINT VENTURE AND SUBSIDIARY Notes to Consolidated Financial Statements June 30, 1997, 1996 and 1995 (1) Summary of Significant Accounting Policies (a) Description of the Business
The Kohala Joint Venture (the Venture) is a partnership which was formed to acquire, develop and sell approximately 4,000 contiguous acres of land in Hawaii (the Project). The Partners in the Venture are Hudson Kohala, Inc. (Hudson, a wholly-owned subsidiary of Hudson General Corporation) and Oxford Kohala, Inc. (Oxford, a wholly-owned subsidiary of Oxford First Corporation) (Oxford First) (together, the Partners). The terms of the partnership are contained in the Restated Joint Venture Agreement dated April 29, 1981, as amended (the Agreement). The Project is being developed in four successive phases. The first two phases, containing approximately 2,100 acres, have been developed and substantially sold. The third phase, containing approximately 550 acres, has also been developed and has 85 parcels available for sale. The fourth phase has yet to be developed, except to the extent common improvements (main roadway, water wells, etc.) have been completed. The Partners plan to reevaluate the fourth phase of the Project. (b) Principles of Consolidation
The consolidated financial statements include the accounts of the Venture and its 99% owned subsidiary, the Kohala Ranch Water Company (KRWC) (note 8). All significant intercompany accounts and transactions have been eliminated in consolidation. (c) Partners' Deficit and Allocation of Profits and Losses
Partners' deficit includes the Partners' capital accounts in the Venture and the minority interest (the remaining 1%) of the Partners in KRWC. In accordance with the Agreement, profits are shared equally by the Partners. Losses are shared by the Partners on a pro-rata basis, based first on their respective capital accounts and then on their respective combined advances to the Venture including accrued interest (note 6). Revenue Recognition and Land Sales
(d)
All sales to date have been from the first, second and third phases of the Project. Revenue is being recognized under the full accrual method of accounting. The minimum down payment for sales to be recorded is 10%. (e) Interest Income on Mortgage Notes Receivable
Interest is not accrued on mortgage notes receivable in arrears 90 days or more. (f) Capitalization of Costs
Land and development costs (including interest) are initially capitalized and subsequently carried at the lower of average cost or fair value. These costs are charged to cost of sales when the corresponding land sale is recorded based upon the relative fair value of the parcel sold to the aggregate fair value of all parcels in the phase. As indicated in note 2, the Venture recorded a $17,000,000 write-down of its real estate assets in fiscal 1997. (Continued) 46
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47 2 KOHALA JOINT VENTURE AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued The Venture capitalized interest costs, as appropriate, for each phase of the Project. Effective July 1, 1994, as a result of the lack of further development activity, capitalization of interest was discontinued. (g) At Estimated Costs to Complete June 30, 1997, the Venture estimated that $2,479,000 of additional costs were necessary to complete the development of Phase III. The portion of such amount relating to unsold parcels has been offset against land and development costs, net in the accompanying consolidated balance sheets. Property, Plant and Equipment
(h)
Property, plant and equipment is recorded at the lower of cost or fair value. Depreciation is provided on the straight-line method. The number of years over which major classes of assets are depreciated and the costs and related accumulated depreciation as of June 30, 1997 and 1996 are set forth below: Estimated useful lives -----------Water distribution systems Plant structures and equipment 20-50 years 3-10 years 1997 ---$ 2,773,700 182,900 ----------2,956,600 (867,200) (528,500) ----------$ 1,560,900 =========== 1996 ---2,773,700 190,400 --------2,964,100 (789,600) (528,500) --------1,646,000 =========
Accumulated depreciation Contributions in aid of construction
Contributions in aid of construction represent contributions by customers for plant additions made for the benefit of the customer. Accordingly, such contributions are recorded as a reduction against property, plant and equipment. During fiscal 1997, the Venture sold the model home. Depreciation expense relating to the model home was $85,800 for fiscal 1997 and $93,600 for both fiscal years 1996 and 1995. Depreciation expense was $183,400, $173,600 and $176,400 for fiscal 1997, 1996 and 1995, respectively. (Continued) 47
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48 3 KOHALA JOINT VENTURE AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued (i) Impairment of Long-Lived Assets
Effective July 1, 1996, the Venture adopted Statement of Financial Accounting Standards (SFAS) No.121, "Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to Be Disposed Of". SFAS No.121 addresses accounting for the impairment of long-lived assets (including real estate), certain identifiable intangibles and goodwill relating to those assets to be held and used and for long lived assets and certain identifiable intangibles to be disposed of. The adoption of SFAS No.121 did not have an effect on the Venture's consolidated financial position or results of operations. (j) As Income Taxes a partnership, the Venture is not a taxable entity under the provisions of the Internal Revenue Code. The taxable results and available tax credits of the Venture and KRWC pass directly to the Partners' corporate income tax returns in the manner prescribed in the Agreement. Statements of Cash Flows
(k)
For the purposes of presenting the consolidated statements of cash flows, the Venture considers all securities with an original maturity of three months or less at the date of acquisition to be cash equivalents. A reconciliation of net loss to net cash provided by (used in) operating activities for fiscal 1997, 1996 and 1995 is as follows:
1997 ---Net loss Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Write-down of real estate assets Depreciation and amortization Provision for losses and discounts on mortgages receivable Provision for losses on foreclosed real estate Sale of assets held in foreclosure Interest expense in excess of interest paid Mortgage loans originated on land sales Cash collections on mortgage loans Excess of cost of sales over land and development costs paid Accrued interest on mortgages receivable Cash for water sales in excess of accrual Real estate tax accruals Other Total adjustments Net cash provided by (used in) operating activities $(22,584,200) 17,000,000 183,400 600,000 -209,100 3,740,200 (339,900) 1,279,500 991,200 58,400 9,100 (48,000) (50,400) -----------23,632,600 -----------$ 1,048,400 ============ 1996 ---(6,042,200) -173,600 600,000 356,300 57,000 3,543,400 (206,000) 1,678,300 206,400 2,200 (4,900) 35,700 (89,200) ---------6,352,800 ---------310,600 ========== 1995 ---(5,495,300) -176,400 988,500 -89,800 3,037,100 (209,500) 1,404,500 52,400 23,900 (4,300) (434,400) (70,100) ---------5,054,300 ---------(441,000) ==========
(Continued) 48
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49 4 KOHALA JOINT VENTURE AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued (l) Use of Estimates The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. Management has made significant estimates as to the amounts required for allowance for uncollectible accounts and the allowance for losses on foreclosed real estate, as well as the recoverability of land and development costs. Actual results could differ from those estimates. (2) Write-down of Real Estate Assets In the fourth quarter of fiscal 1997, the Venture recorded a charge of $17,000,000 to write-down its real estate assets to their estimated fair values. The charge is a result of the continuing periodic evaluation of the carrying value of the Venture's real estate assets. The Partners concluded, as a result of their most recent in-depth analysis of an updated independent appraisal of such assets and the consideration of other factors affecting the development of the property, that the carrying value of the real estate assets should be reduced. Factors considered by the Partners included the Partners' plans to reevaluate the fourth phase of the Project which has to date only had limited development, the current condition of the Hawaiian real estate market and general economic conditions. (3) Mortgage Notes Receivable Effective July 1, 1995, the Venture adopted SFAS No.114, "Accounting by Creditors for Impairment of a Loan" and SFAS No.118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures". SFAS No.114 addresses the accounting by creditors for impairment of a loan by specifying how allowances for credit losses related to certain loans should be determined. The Venture deems certain loans impaired when, based upon current information and events, it is probable that the Company will be unable to collect all amounts due, both principal and accrued interest. The Venture measures impairment based on a loan's observable market price or the fair value of the collateral since the loan is collateral dependent and foreclosure is probable. The amount of the valuation allowance is determined by comparing principal plus accrued interest to the fair value of the underlying collateral. The Venture recognizes an impairment by adjusting its existing valuation allowance with a corresponding charge to bad debt expense. Subsequent changes in fair value, if any, are treated in the same manner. At June 30, 1997 and 1996, mortgage notes receivable from land sales consisted of the following: 1997 ---Mortgage notes receivable Allowance for uncollectible accounts Reserve for cash discounts and other allowances Mortgage notes receivable, net $ 5,796,600 (3,166,300) (69,300) ----------$ 2,561,000 =========== 1996 ---7,944,700 (2,949,400) (69,300) ---------4,926,000 ========== (Continued)
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49
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50 5 KOHALA JOINT VENTURE AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued At June 30, 1997 and 1996, 20 and 29 mortgage notes receivable were 90 days or more in arrears, aggregating $3,705,500 and $5,145,000, respectively. Accrued interest receivable on delinquent mortgage notes receivable was $171,900 and $218,000 as of June 30, 1997 and 1996, respectively. Stated interest rates on mortgage notes receivable outstanding at June 30, 1997 and 1996, range from 6% to 11% (averaging 8.9% as of June 30, 1997 and 9.4% as of June 30, 1996). The Venture typically provides financing in connection with the sale of land parcels. None of the Venture's mortgage notes receivable comprised more than 5% of the total mortgage notes receivable balance at June 30, 1997 and 1996. The Venture is the first lien holder on all outstanding mortgage notes receivable. Purchasers of land parcels are entitled to discounts if certain conditions are met. Discounts are generally given if the purchase price is paid in cash at the closing. If the cash is paid within specified periods after the closing, a reduced sales discount is given. Reserves have been established for estimated discounts to be taken by purchasers under the various discount programs. Scheduled collections of principal during the next five fiscal years and thereafter are as follows: Year ---1998 1999 2000 2001 2002 Amount -----$4,543,300 114,000 160,100 151,500 827,700 ---------$5,796,600 ==========
(4)
Land and Development Costs Land and development costs include all costs directly associated with the acquisition and development of the land parcels. Major components of land and development costs are the initial costs to acquire the land, roadways, water drainage, electrical and telephone lines, and various project management expenditures, as well as unamortized capitalized interest of $6,590,912 and $6,680,400 as of June 30, 1997 and 1996, respectively.
(5)
Foreclosed Real Estate Foreclosed real estate represents land parcels that were reacquired in connection with previously financed mortgages. Such parcels are valued at the lower of their remaining receivable balance outstanding, or their estimated fair value (determined in the same manner as the allowance for uncollectible accounts), as follows: 50
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51 6 KOHALA JOINT VENTURE AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued 1997 ---Foreclosed real estate Allowance for losses Foreclosed real estate, net $ 3,530,300 (676,700) ----------$ 2,853,600 =========== 1996 ---2,903,300 (703,100) ---------2,200,200 ==========
During fiscal 1997 and 1996, ten and four mortgage notes receivable were transferred to foreclosed real estate, respectively, and five and one parcels in foreclosed real estate were sold. The carrying values of the mortgage notes receivable transferred and parcels sold were $1,212,500 and $585,500 in fiscal 1997 and $581,100 and $559,400 in fiscal 1996, respectively. (6) Partner Advances Payable The Partners have agreed to make equal advances to the Venture for all costs necessary for the orderly development of the Project. During fiscal 1997, the Partners each advanced $300,000 to the Venture. Such advances were repaid by the Venture on June 30, 1997. Additional contributions from the Partners may be required in fiscal 1998. Advances earn interest from the date of the advance compounded quarterly at the prime rate minus 1% (7.50% and 7.25% at June 30, 1997 and 1996, respectively). 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 Oxford. The amounts so authorized were not sufficient to allow Oxford to make its full share of required advances. Hudson opted to make additional advances (the Additional Advances) to cover Oxford's funding deficiency. During November 1995, Oxford resumed making advances, and in January 1996, Oxford repaid to Hudson the entire amount of the Additional Advances of $702,000 together with $37,000 of interest thereon. The Venture has been informed by Oxford, that Oxford First has substantially met all its financial obligations under its confirmed plan of reorganization and is no longer restricted in the amount of required advances it may make to the Venture. Advances accrued an average rate of interest of 7.3% during both fiscal 1997 and 1996 and 7.2% during fiscal 1995. (7) Note Payable During fiscal 1991, the Venture entered into agreements with banks pursuant to which $8,797,000 of the Venture's mortgage receivables were sold. An additional sale of $3,148,000 of mortgage receivables to a bank was completed during fiscal 1992. These transactions were accounted for as financing arrangements. On April 30, 1996, the Venture repurchased $1,373,000 of such mortgage receivables which represented the entire outstanding balance thereof. The maximum amounts of notes payable outstanding during fiscal 1996 and 1995 were $2,826,000 and $4,758,500, respectively. The average amounts outstanding for fiscal 1996 and 1995, based upon month-end balances, were $1,561,000 and $3,860,100, respectively. The weighted average interest rates for fiscal 1996 and 1995 were 11.3% and 11.9%, respectively. (Continued) 51
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52 7 KOHALA JOINT VENTURE AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued At June 30, 1996, the Company had a note payable outstanding in the amount of $576,200 relating to certain development costs. The note was repaid in December 1996 and bore interest at the prime rate plus 1%. (8) Kohala Ranch Water Company KRWC provides water to the Project and is owned by the Venture (99%), Hudson (.5%), and Oxford (.5%). The assets of KRWC are comprised principally of property, plant and equipment. KRWC recorded revenues of $285,400, $336,300 and $251,000 and incurred net losses of $566,900, $489,700 and $487,000 for fiscal 1997, 1996 and 1995, respectively. (9) Related Party Transactions Certain directors and officers of the Partners and certain employees of the Venture purchased parcels in the Project at discounts from prices generally offered to the general public. The Venture provided mortgage financing on all such sales pursuant to which the Venture received a down payment equal to 5% of the gross sales price before discounts and a purchase money mortgage. The purchase money mortgages bore interest at a rate of 8% or 9% per annum and provided for monthly principal payments based on a 30 year amortization schedule with a balloon payment due after seven years. In fiscal 1995, certain balloon payment due dates on such mortgages were extended for one year. At June 30, 1997 and 1996, mortgage notes receivable (including past due balloon payments) of $142,700 and $386,500, respectively, were due from related parties. During fiscal 1996, two mortgage notes receivable in the aggregate amount of $271,100 from former officers of Oxford First became delinquent and were foreclosed; the remaining balances are included in "Foreclosed real estate, net" in the accompanying consolidated balance sheets. (10) Contingencies 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 and subdivide the fourth phase 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 zoning of the fourth phase. The County and the Venture appealed this ruling. The appeal was heard before the Hawaii Supreme Court in March 1994, and in May 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 the impact of the Supreme Court's ruling and the Circuit Court's proceedings on the timing of the development of the fourth phase or the expenditures related thereto. (Continued) 52
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53 8 KOHALA JOINT VENTURE AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued (11) Disclosure About Fair Value of Financial Instruments SFAS 107, "Disclosures About Fair Value of Financial Instruments", defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying values of all of the Venture's monetary assets and liabilities approximate fair value. Carrying values for delinquent mortgage notes receivable are based on the fair value of the underlying collateral obtained from an independent appraisal. The carrying values of the remaining mortgage notes receivable approximate market values, since the mortgage notes receivable are yielding, on average, a return that is consistent with current market rates offered for similar financing. 53
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54 Schedule II KOHALA JOINT VENTURE AND SUBSIDIARY Valuation and Qualifying Accounts Years ended June 30, 1997, 1996 and 1995
Column A -------Column B -------Balance at beginning of year ------Column C -------Additions --------------------------Charged to Charged to costs and other expenses accounts --------------Column D -------Deductions from reserves -------Column E -------Balance at end of year ----
Description ----------1997 - Allowance for uncollectible accounts 1996 - Allowance for uncollectible accounts 1995 - Allowance for uncollectible accounts 1997 - Allowance for loss on foreclosed real estate 1996 - Allowance for loss on foreclosed real estate 1995 - Allowance for loss on foreclosed real estate
$2,949,400 ========== $2,464,200 ========== $1,661,800 ========== $ 703,100 ========== $ 486,400 ========== $ 745,900 ==========
600,000 ======== 600,000 ======== 988,500 ======== -======== 356,300 ======== -========
-======== -======== -======== -======== -======== (259,500)(A) ========
383,100(B) ======== 114,800(B) ======== 186,100(B) ======== 26,400(B) ======== 139,600(B) ======== -========
3,166,300 ========= 2,949,400 ========= 2,464,200 ========= 676,700 ========= 703,100 ========= 486,400 =========
(A) (B)
Recoveries and other adjustments Write-offs 54
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55 HUDSON GENERAL CORPORATION & SUBSIDIARIES
EXHIBIT INDEX Exhibit No. --3.2(a) 3.2(b) 11 Sequentially Numbered Pages ------56-57 58-95 96-98
Exhibit ------Amendment to By-laws of the Registrant. By-laws of the Registrant, as amended to date. Computations of Earnings Per Share Information - Primary and Fully Diluted.
13
The Registrant's 1997 Annual Report to Shareholders, which report, except for those portions thereof which are expressly incorporated by reference in this filing, is furnished for the information of the Commission and is not to be deemed to be filed as part of this filing. Subsidiaries of the Registrant. Consent of KPMG Peat Marwick LLP, the Corporation's independent auditors, to the incorporation by reference into the Corporation's Registration Statement on Form S-8, as amended, Registration No. 2-75137. Financial Data Schedule. 55
99-127
21 23
128-129 130-131
27
132
</TEXT> </DOCUMENT>
Page 59
1 EXHIBIT 3.2(a) Amendment to By-laws of the Registrant 56
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2 RESOLVED, that Article VI, Section 6 of the Corporation's By-Laws be, and it hereby is, amended by replacing the word "may" therein by the word "shall". 57 </TEXT> </DOCUMENT>
Page 61
1 EXHIBIT 3.2(b) By-laws of the Registrant, as amended to date. 58
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2 As in effect 5/30/97 BY-LAWS OF HUDSON GENERAL CORPORATION INDEX Page No. -------ARTICLE I - Offices Section 1. 2. Registered Office Other Offices 1 1
ARTICLE II - Meetings of Stockholders Section 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Place of Meetings Annual Meeting Special Meetings Notice of Meetings List of Stockholders Quorums, Adjournments Organization Order of Business Voting Inspectors 1 1 4 4 5 6 6 7 7 8
ARTICLE III - Board of Directors Section 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. General Powers Number, Qualifications, Election and Term of Office Nomination of Directors Place of Meetings First Meeting Regular Meetings Special Meetings Notice of Meetings Quorum and Manner of Acting Organization Resignations Vacancies Removal of Directors Compensation Committees Action by Consent Telephonic Meeting 59 9 9 10 13 13 13 14 14 15 15 16 16 16 16 17 17 18
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3 By-Law Index (Continued) Page No. -------ARTICLE IV - Officers Section 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Number and Qualifications Resignations Removal Chairman of the Board The President Vice-President Treasurer Secretary The Assistant Treasurer The Assistant Secretary Officers' Bonds or Other Security Compensation 18 19 19 20 19 20 20 21 22 22 22 23
ARTICLE V - Stock Certificates and Their Transfer Section 1. 2. 3. 4. 5. 6. 7. 8. Stock Certificates Facsimile Signatures Lost or Abandoned Certificates Transfers of Stock Transfer Agents and Registrars Regulations Fixing Record Date Registered Stockholders 23 24 24 25 25 25 26 26
ARTICLE VI - Indemnification Section 1. 2. 3. 4. 5. 6. 7. 8. 9. Power to Indemnify in Actions, Suits or Proceedings other than Those by or in the Right of the Corporation Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation Authorization of Indemnification Good Faith Defined Indemnification by a Court Expenses Payable in Advance Non-exclusivity and Survival of Indemnification Insurance Meaning of "Corporation" for Purposes of Article VI
27 28 28 29 30 31 31 32 32
ARTICLE VII - General Provisions Section 1. 2. 3. 4. 5. 6. 7. Dividends Reserves Seal Fiscal Year Checks, Notes, Drafts, etc. Execution of Contracts, Deeds, etc. Voting of Stocks in Other Corporations 33 33 34 34 34 34 34 35 60
ARTICLE VIII - Amendments
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4 BY-LAWS OF HUDSON GENERAL CORPORATION ARTICLE I Offices SECTION 1. Registered Office. The registered office of the Corporation within the State of Delaware shall be in the City of Wilmington, County of New Castle. SECTION 2. Other Offices. The Corporation offices other than said registered office at such or without the State of Delaware, as the Board of time determine or the business of the Corporation ARTICLE II Meetings of Stockholders SECTION 1. Place of Meetings. All meetings of the stockholders for the election of directors or for any other purpose shall be held at such place or places either within or without the State of Dela ware, as shall be designated from time to time by the Board of Directors and stated in the notice of meeting to stockholders. SECTION 2. Annual Meeting. The Annual Meeting of Stockholders shall be held on such date and at such time and place as may be fixed by the Board of Directors and stated in the notice of the meeting, for the purpose of electing directors and for the transaction of only such 61 may also have an office or place or places, either within Directors shall from time to may require.
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5 other business as is properly brought before the meeting in accordance with these By-Laws. No business may be transacted at an Annual Meeting of Stockholders, other than business that is either (a) specified in the notice of Annual Meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the Annual Meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof), or (c) otherwise properly brought before the Annual Meeting by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Article II, Section 2 and on the record date for the determination of stockholders entitled to vote at such Annual Meeting, and (ii) who complies with the notice procedures set forth in this Article II, Section 2. In addition to any other applicable requirements, for business to be properly brought before an Annual Meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the anniversary date of the immediately preceding Annual Meeting of Stockholders; provided, however, that in the event that the Annual Meeting is called for a date that is not within thirty 62
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6 (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which notice of the date of the Annual Meeting was mailed or public disclosure of the date of the Annual Meeting was made, whichever first occurs. To be in proper written form, a stockholder's notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the Annual Meeting (v) a brief description of the business desired to be brought before the Annual Meeting and the reasons for conducting such business at the Annual Meeting, (w) the name and record address of such stockholder, (x) the class or series and number of shares of capital stock of the Corporation which are owned beneficially by such stockholder and which are owned of record by such stockholder, (y) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business, and (z) a representation that such stockholder intends to appear in person or by proxy at the Annual Meeting to bring such business before the Annual Meeting. No business shall be conducted at the Annual Meeting of Stockholders except business brought before the Annual Meeting in accordance with the procedures set forth in this Article II, Section 2, provided, however, that, once business has been properly brought be63
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7 fore the Annual Meeting in accordance with such procedures, nothing in this Article II, Section 2 shall be deemed to preclude discussion by any stockholder of any such business. If the Chairman of an Annual Meeting determines that business was not properly brought before the Annual Meeting in accordance with the foregoing procedures, the Chairman shall declare to the Annual Meeting that the business was not properly brought before the Annual Meeting and such business shall not be transacted. SECTION 3. Special Meetings. Unless otherwise prescribed by law or by the Certificate of Incorporation, special meetings of stock holders, for any purpose or purposes, may be called by the Board of Directors, the Chairman of the Board, if there be one, or the President. Special meetings of stockholders may not be called by any other person or persons. SECTION 4. Notice of Meetings. Written notice of each annual and special meeting of stockholders stating the date, place and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each stockholder of record entitled to vote thereat not less than ten nor more than sixty days before the date of the meeting. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Notice shall be given personally or by mail, and if by mail, shall be sent in a postage prepaid envelope, addressed to the stockholder at his address as it appears on the rec64
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8 ords of the Corporation. Notice by mail shall be deemed given at the time when the same shall be deposited in the United States mail, postage prepaid. Notice of any meeting shall not be required to be given to any person who, either before or after the meeting shall submit a signed written waiver of notice, in person or by proxy or who attends such meeting, except when such person attends the meeting in person or by proxy for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, an annual or special meeting of stockholders need be specified in any written waiver of notice. SECTION 5. List of Stockholders. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before each meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city, town or village where the meeting is to be held, which place shall be specified in the notice of meeting, or, if not specified, at the place where the meeting is to be held. The list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 65
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9 SECTION 6. Quorum, Adjournments. The holders of a majority of the voting power of the issued and outstanding stock of the Corporation entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the stockholders, except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum shall not be present or represented at any meeting of stock holders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally called. If the adjournment is for more than thirty days, or, if after adjournment a new record date is set, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. SECTION 7. Organization. At each meeting of stockholders the Chairman of the Board, if one shall have been elected, or in his absence or if one shall not have been elected, the President, shall act as chairman of the meeting. The Secretary, or in his absence or inability to act, the person whom the chairman of the meeting shall appoint secretary of the meeting, shall act as secretary of the meeting and keep the minutes thereof. 66
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10 SECTION 8. Order of Business. The order of business at all meetings of the stockholders shall be as determined by the chairman of the meeting. SECTION 9. Voting. Except as otherwise provided by statute or the Certificate of Incorporation, each stockholder of the Corporation shall be entitled at each meeting of stockholders to one vote for each share of capital stock of the Corporation standing in his name on the record of stockholders of the Corporation: (a) on the date fixed pursuant to the provisions of Section 7 of Article V of these By-Laws as the record date for the determination of the stockholders who shall be entitled to notice of and to vote at such meeting; or (b) if no such record date shall have been so fixed, then at the close of business on the day next preceding the day on which notice thereof shall be given, or, if notice is waived, at the close of business on the date next preceding the day on which the meeting is held. Each stockholder entitled to vote at any meeting of stockholders may authorize another person or persons to act for him by a proxy signed by such stockholder or his attorney-in-fact, but no proxy shall be voted after one year from its date, unless the proxy provides for a longer period. Any such proxy shall be delivered to the secretary of the meeting at or prior to the time designated in the order of business for so delivering such proxies. When a quorum is present at any meeting, the vote of the holders of a majority of the voting power of 67
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11 the issued and outstanding stock of the Corporation entitled to vote thereon, present in person or represented by proxy, shall decide any question brought before such meeting, unless the question is one upon which by express provision of statute or of the Certificate of Incorporation or of these By-Laws, a different vote is required, in which case such express provision shall govern and control the decision of such question. Unless required by statute, or determined by the chairman of the meeting to be advisable, the vote on any question need not be by ballot. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by his proxy, and shall state the number of shares voted. SECTION 10. Inspectors. The Board of Directors shall, in advance of any meeting of stockholders, appoint one or more inspectors or alternate inspectors to act at such meeting or any adjournment thereof. If any of the inspectors or alternate inspectors so appointed shall fail to appear or act, the chairman of the meeting shall appoint one or more inspectors. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors shall determine the number of shares of capital stock of the Corporation outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, the validity of proxies and ballots, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection 68
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12 with the right to vote, count and tabulate all votes, ballots or consents, determine the results, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. The inspectors shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them. Inspectors need not be stockholders. ARTICLE III Board of Directors SECTION 1. General Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. The Board of Directors may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by statute or the Certificate of Incorporation directed or required to be exercised or done by the stockholders. SECTION 2. Number, Qualifications, Election and Term of Office. The number of directors constituting the Board of Directors shall be not less than three. The number of directors may be fixed, from time to time, by the affirmative vote of a majority of the entire Board of Directors or by action of the stockholders of the Corporation. Any decrease in the number of directors shall be effective at the time of the next succeeding annual meeting of stockholders unless there shall be vacancies in the Board of Directors, in which case such decrease may become effective at any time prior to the next succeeding annual meeting to the extent of the number of such vacancies. Directors need 69
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13 not be stockholders. Except as otherwise provided by statute or these By-Laws, the directors shall be elected at the annual meeting of stockholders. Each director shall hold office until his successor shall have been elected and qualified, or until his death, or until he shall have resigned, or have been removed, as hereinafter provided in these By-Laws. SECTION 3. Nomination of Directors. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation. Nominations of persons for election to the Board of Directors may be made at any annual meeting of stockholders, or at any special meeting of stockholders called in the manner set forth in Article II, Section 3 hereof for the purpose of electing directors, (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof), or (b) by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Article III, Section 3 and on the record date for the determination of stockholders entitled to vote at such meeting, and (ii) who complies with the notice procedures set forth in this Article III, Section 3. In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices 70
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14 of the Corporation (a) in the case of an annual meeting, not less than sixty (60) days nor more than ninety (90) days prior to the anniversary date of the immediately preceding Annual Meeting of Stockholders; provided, however, that in the event that the Annual Meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which notice of the date of the Annual Meeting was mailed or public disclosure of the date of the Annual Meeting was made, whichever first occurs, and (b) in the case of a special meeting of stockholders called in the manner set forth in Article II, Section 3 hereof for the purpose of electing directors, not later than the close of business on the tenth (10th) day following the day on which notice of the date of the Special Meeting was mailed or public disclosure of the date of the Special Meeting was made, whichever first occurs. To be in proper written form, a stockholder's notice to the Secretary must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially by the person and which are owned of record by the person, and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings 71
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15 required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder, and (b) as to the stockholder giving the notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially by such stockholder and which are owned of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the Meeting to nominate the persons named in its notice, and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nom- nee to being named as a nominee and to serve as a director if elected. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Article III, Section 3. If the Chairman of the Meeting determines that a nomination was not made in accordance with the foregoing procedures, the Chairman shall declare to the Meeting that the 72
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16 nomination was defective and such defective nomination shall be disregarded. SECTION 4. Place of Meetings. Meetings of the Board of Directors shall be held at such place or places, within or without the State of Delaware, as the Board of Directors may from time to time determine or as shall be specified in the notice of any such meeting. SECTION 5. First Meeting. The Board of Directors shall meet for the purpose of organization, the election of officers and the trans action of other business, as soon as practicable after each annual meeting of stockholders, on the same day and at the same place where such annual meeting shall be held. Notice of such meeting need not be given. Such meeting may be held at any other time or place (within or without the State of Delaware) which shall be specified in a notice thereof given as hereinafter provided in Section 8 of this Article III. SECTION 6. Regular Meetings. Regular meetings of the Board of Directors shall be held at such time and place as the Board of Directors may fix. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day. Notice of regular meetings of the Board of Directors need not be given except as otherwise required by statute or these By-Laws. 73
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17 SECTION 7. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, if one shall have been elected, or by two or more directors of the Corporation or by the President. SECTION 8. Notice of Meetings. Notice of each special meeting of the Board of Directors (and of each regular meeting for which notice shall be required) shall be given by the Secretary as hereinafter provided in this Section 8, in which notice shall be stated the time and place of the meeting. Except as otherwise required by these By-Laws, such notice need not state the purposes of such meeting. Notice of each such meeting shall be mailed, postage prepaid, to each director, addressed to him at his residence or usual place of business, by first-class mail, at least two days before the day on which such meeting is to be held, or shall be sent addressed to him at such place by telegraph, cable, telex, telecopier or other similar means, or be delivered to him personally or be given to him by telephone or other similar means, at least twenty-four hours before the time at which such meeting is to be held. Notice of any such meeting need not be given to any director who shall, either before or after the meeting, submit a signed waiver of notice or who shall attend such meeting, except when he shall attend for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. 74
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18 SECTION 9. Quorum and Manner of Acting. A majority of the entire Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, and, except as otherwise expressly required by statute or the Certificate of Incorporation or these By-Laws, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. In the absence of a quorum at any meeting of the Board of Directors, a majority of the directors present thereat may adjourn such meeting to another time and place. Notice of the time and place of any such adjourned meeting shall be given to the directors unless such time and place were announced at the meeting at which the adjournment was taken, to the other directors. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. The directors shall act only as a Board and the individual directors shall have no powers as such. SECTION 10. Organization. At each meeting of the Board of Directors, the Chairman of the Board, if one shall have been elected, or in the absence of the Chairman of the Board or if one shall not have been elected, the President (or, in his absence, another director chosen by a majority of the directors present) shall act as chairman of the meeting and preside thereat. The Secretary (or, in his absence, any person appointed by the Chairman) shall act as secretary of the meeting and keep the minutes thereof. 75
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19 SECTION 11. Resignations. Any director of the Corporation may resign at any time by giving written notice of his resignation to the Corporation. Any such resignation shall take effect at the time specified therein, or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 12. Vacancies. Any vacancy in the Board of Directors, whether arising from death, resignation, removal (with or without cause), may be filled by the vote of a majority of the directors then in office, though less than a quorum, or by the sole remaining director or by the stockholders at the next annual meeting thereof or at a special meeting thereof. Each director so elected shall hold office until his successor shall have been elected and qualified. SECTION 13. Removal of Directors. Any director may be removed either with or without cause, at any time, by the holders of a majority of the voting power of the issued and outstanding capital stock of the Corporation entitled to vote at an election of directors. Any director may be removed for cause by the Board of Directors. SECTION 14. Compensation. The Board of Directors shall have authority to fix the compensation, including fees and reimbursement of expenses, of directors for services to the Corporation in any capacity. 76
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20 SECTION 15. Committees. The Board of Directors may, by resolution passed by a majority of the entire Board of Directors, designate one or more committees, including an executive committee, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In addition, in the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of such absent or disqualified member. Except to the extent restricted by statute or the Certificate of Incorporation, each such committee, to the extent provided in the resolution creating it, shall have and may exercise all the powers and authority of the Board of Directors and may authorize the seal of the Corporation to be affixed to all papers which require it. Each such committee shall serve at the pleasure of the Board of Directors and have such name as may be determined from time to time by resolution adopted by the Board of Directors. A majority of each committee shall constitute a quorum for the transaction of business. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors. SECTION 16. Action by Consent. Unless restricted by the Certificate of Incorporation, any action required or permitted to be taken by the Board of Directors or any committee thereof may be taken with77
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21 out a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board of Directors or such committee, as the case may be. SECTION 17. Telephonic Meeting. Unless restricted by the Certificate of Incorporation, any one or more members of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation by such means shall constitute presence in person at a meeting. ARTICLE IV Officers SECTION 1. Number and Qualifications. The officers of the Corporation shall be elected by the Board of Directors and shall include the President, one or more Vice-Presidents, the Secretary and the Treasurer. If more than one Vice-President is elected, they shall have the following order of seniority: Executive Vice-President, Senior Vice-President, Vice-President. If the Board of Directors wishes, it may also elect as an officer of the Corporation a Chairman of the Board and may elect other officers including one or more Assistant Treasurers and one or more Assistant Secretaries, as may be necessary or desirable for the business of the Corporation. Any two or more offices may be held by the same person. Each officer shall hold 78
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22 office until his successor shall have been duly elected and shall have qualified, or until his death, or until he shall have resigned or have been removed, as hereinafter provided in these By-Laws. SECTION 2. Resignations. Any officer of the Corporation may resign at any time by giving written notice of his resignation to the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon receipt. Unless otherwise specified therein, the acceptance of any such resignation shall not be necessary to make it effective. SECTION 3. Removal. Any officer of the Corporation may be removed, either with or without cause, at any time, by the Board of Directors at any meeting thereof. SECTION 4. Chairman of the Board. The Chairman of the Board, if one shall have been elected, shall be a member of the Board, an officer of the Corporation, and, if present, shall preside at each meeting of the Board of Directors or the stockholders. Except where by law the signature of the President is required, the Chairman of the Board shall possess the same power as the President to sign all contracts, certificates and other instruments of the Corporation. During the absence or disability of the President, the Chairman of the Board shall exercise all the powers and discharge all the duties of the President. The Chairman of the Board shall also perform such other duties and exercise such other powers as from time to time may be assigned to the Chairman of the Board by these By-Laws or by the Board of Directors. 79
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23 SECTION 5. The President. The President shall, in the absence of the Chairman of the Board, or if a Chairman of the Board shall not have been elected, preside at each meeting of the Board of Directors or the stockholders. The President shall perform all duties incident to the office of President and such other duties as may from time to time be assigned to the President by the Board of Directors. SECTION 6. Vice President. Each Vice-President shall perform all such duties as from time to time may be assigned to him by the Board of Directors or the President. At the request of the President or in his absence or in the event of his inability or refusal to act, the Vice-President, or if there shall be more than one, the Vice- Presidents in the order of their seniority, shall perform the duties of the President, and, when so acting, shall have the powers of and be subject to the restrictions placed upon the President in respect of the performance of such duties. SECTION 7. Treasurer. The Treasurer shall
(a) have charge and custody of, and be responsible for, all the funds and securities of the Corporation; (b) keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation; (c) deposit all moneys and other valuables to the credit of the Corporation in such depositaries as may be designated by the Board of Directors or pursuant to its direction; (d) receive, and give receipts for, moneys due and payable to the Corporation from any source whatsoever; 80
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24 (e) disburse the funds of the Corporation and supervise the investments of its funds, taking proper vouchers therefor; (f) render to the Board of Directors, whenever the Board of Directors may require, an account of the financial condition of the Corporation; and (g) in general, perform all duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Board of Directors. SECTION 8. Secretary. The Secretary shall
(a) keep or cause to be kept in one or more books provided for the purpose, the minutes of all meetings of the Board of Directors, the committees of the Board of Directors and the stockholders; (b) see that all notices are duly given in accordance with the provisions of these By-Laws and as required by law; (c) be custodian of the records and seal of the Corporation and affix and attest the seal to all certificates for shares of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal; (d) see that the books, reports, statements, certificates and other documents and records required by law are kept and filed; and 81
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25 (e) in general, perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board of Directors. SECTION 9. The Assistant Treasurer. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as from time to time may be assigned by the Board of Directors. SECTION 10. The Assistant Secretary. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties as from time to time may be assigned by the Board of Directors. SECTION 11. Officers' Bonds or Other Security. If required by the Board of Directors, any officer of the Corporation shall give a bond or other security for the faithful performance of his duties, in such amount and with such surety as the Board of Directors may require. 82
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26 SECTION 12. Compensation. The compensation of the officers of the Corporation for their services as such officers shall be fixed from time to time by the Board of Directors. An officer of the Corporation shall not be prevented from receiving compensation by reason of the fact that he is also a director of the Corporation. ARTICLE V Stock Certificates and Their Transfer SECTION 1. Stock Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate, signed by, or in the name of the Corporation by, the Chairman of the Board or the Vice Chairman of the Board or the President or the Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assist-ant Secretary of the Corporation, certifying the number of shares owned by him in the Corporation. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restriction of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the General Corporation Law of the State of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Cor83
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27 poration shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. SECTION 2. Facsimile Signatures. Any of or all the signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. SECTION 3. Lost or Abandoned Certificates. The Board of Directors may direct, or establish a procedure providing for, a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, or which have been claimed as abandoned property by a governmental authority or its agent. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to give the Corporation a bond in such sum as it may direct sufficient to indem84
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28 nify it against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. SECTION 4. Transfers of Stock. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its records; provided, however, that the Corporation shall be entitled to recognize and enforce any lawful restriction on transfer. Whenever any transfer of stock shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of transfer if, when the certificates are presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so. SECTION 5. Transfer Agents and Registrars. The Board of Directors may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars. SECTION 6. Regulations. The Board of Directors may make such additional rules and regulations, not inconsistent with these By- Laws, as it may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation. 85
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29 SECTION 7. Fixing Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 8. Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its records as the owner of shares of stock to receive dividends and to vote as such owners, shall be entitled to hold liable for calls and assessments a person registered on its records as the owner of shares of stock, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares of stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. 86
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30 ARTICLE VI Indemnification SECTION 1. Power to Indemnify in Actions, Suits or Proceedings other than Those by or in the Right of the Corporation. Subject to Section 3 of this Article VI, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. 87
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31 SECTION 2. Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation. Subject to Section 3 of this Article VI, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. SECTION 3. Authorization of Indemnification. Any indemnification under this Article VI (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a de88
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32 termination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 1 or Section 2 of this Article VI, as the case may be. Such determination shall be made (a) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (b) if such a quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (c) by the stock-holders. To the extent, however, that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith, without the necessity of authorization in the specific case. SECTION 4. Good Faith Defined. For purposes of any determination under Section 3 of this Article VI, a person shall be deemed to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe his conduct was unlawful, if his action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to him by the officers of the Corporation or another enterprise in the course of their 89
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33 duties, or on the advice of legal counsel for the Corporation or an-other enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term "another enterprise" as used in this Section 4 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. The provisions of this Section 4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Sections 1 or 2 of this Article VI, as the case may be. SECTION 5. Indemnification by a Court. Notwithstanding any contrary determination in the specific case under Section 3 of this Article VI, and notwithstanding the absence of any determination thereunder, any director, officer, employee or agent may apply to any court of competent jurisdiction in the State of Delaware for indemnification to the extent otherwise permissible under Sections 1 and 2 of this Article VI. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standards of conduct set forth in Sections 1 or 2 of this Article VI, as the case may be. Notice of any application for indemnification pursuant to this Section 5 shall 90
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34 be given to the Corporation promptly upon the filing of such application. SECTION 6. Expenses Payable in Advance. Expenses incurred in defending or investigating a threatened or pending action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VI. SECTION 7. Non-exclusivity and Survival of Indemnification. The indemnification and advancement of expenses provided by or granted pursuant to this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any By-Law, agreement, contract, vote of stockholders or disinterested directors or pursuant to the direction (howsoever embodied) of any court of competent jurisdiction or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Sections 1 and 2 of this Article VI shall be made to the fullest extent permitted by law. The provisions of this Article VI shall not be deemed to preclude the indemnification of any person who is not specified in Sections 1 or 2 of this Article VI but whom the 91
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35 Corporation has the power or obligation to indemnify under the provisions of the General Corporation Law of the State of Delaware or otherwise. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VI shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person. SECTION 8. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power or obligation to indemnify him against such liability under the provisions of this Article VI or otherwise. SECTION 9. Meaning of "Corporation" for Purposes of Article VI. For purposes of this Article VI, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its 92
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36 directors, officers and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article VI with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. ARTICLE VII General Provisions SECTION 1. Dividends. Subject to statute and the Certificate of Incorporation, dividends upon the shares of stock of the Corporation may be declared by the Board of Directors at any regular or special meeting. Dividends may be paid in cash, in property or in shares of stock of the Corporation, unless otherwise provided by statute or the Certificate of Incorporation. SECTION 2. Reserves. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors may, from time to time, in its absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors may think conducive to the 93
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37 interests of the Corporation. The Board of Directors may modify or abolish any such reserve in the manner in which it was created. SECTION 3. Seal. The seal of the Corporation shall be in such form as shall be approved by the Board of Directors. SECTION 4. Fiscal Year. The fiscal year of the Corporation shall be fixed, and once fixed, may thereafter be changed, by resolution of the Board of Directors. SECTION 5. Checks, Notes, Drafts, etc. All checks, notes, drafts or other orders for the payment of money of the Corporation shall be signed, endorsed or accepted in the name of the Corporation by such officer, officers, person or persons as from time to time may be designated by the Board of Directors or by an officer or officers authorized by the Board of Directors to make such designation. SECTION 6. Execution of Contracts, Deeds, etc. The Board of Directors shall authorize any officer or officers, agent or agents, in the name and on behalf of the Corporation to enter into or execute and deliver any and all deeds, bonds, mortgages, contracts and other obligations or instruments, and such authority may be general or confined to specific instances. SECTION 7. Voting of Stocks in Other Corporations. Unless otherwise provided by resolution of the Board of Directors, the Chairman of the Board or the President, from time to time, may (or may appoint one or more attorneys or agents to) cast the votes which 94
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38 the Corporation may be entitled to cast as a shareholder or other wise in any other corporation, any of whose shares or securities may be held by the Corporation at meetings of the holders of the shares or other securities of such other corporation, or to consent in writing to any action by any such other corporation. In the event one or more attorneys or agents are appointed, the Chairman of the Board or the President may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent. The Chairman of the Board or the President may, or may instruct the attorneys or agents appointed, to execute or cause to be executed in the name and on behalf of the Corporation and under its seal or otherwise, such written proxies, consents, waivers or other instruments as may be necessary or proper in the premises. ARTICLE VIII Amendments These By-Laws may be amended or repealed or new By-Laws adopted (a) by action of the stockholders entitled to vote thereon at any annual or special meeting of stockholders, or (b) if the Certificate of Incorporation so provides, by action of the Board of Directors at a regular or special meeting thereof. Any By-Law made by the Board of Directors may be amended or repealed by action of the stockholders at an annual or special meeting of stockholders. 95 </TEXT> </DOCUMENT>
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1 EXHIBIT 11 Computations of Earnings Per Share Information Primary and Fully Diluted
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2 HUDSON GENERAL CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE INFORMATION PRIMARY - NET EARNINGS Year Ended June 30, 1997 1996 1995 ---------------(in thousands, except per share amounts) Net earnings for computing earnings per share - primary Weighted average number of common and common equivalent shares outstanding ................. Net earnings per common and common equivalent share - primary ...................................... 97 $ 475 ========= 1,844 ========= $ .26 ========= $ 10,466 ========= 1,180 ========= $ 8.87 ========= $4,593 ====== 1,245 ====== $ 3.69 ======
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3 HUDSON GENERAL CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE INFORMATION FULLY DILUTED - NET EARNINGS
Year Ended June 30, 1997 1996 1995 ----------------(in thousands, except per share amounts) Net earnings for computing earnings per share - primary ........................ Reduction of interest expense less applicable income taxes assuming conversion of 7% convertible subordinated debentures due 2011 ........ Net earnings for computing earnings per share - fully diluted ............... Weighted average number of common and common equivalent shares outstanding ...................... Addition from assumed conversion as of the beginning of each period of the 7% convertible subordinated debentures outstanding at the end of each period .......................... Weighted average number of common and common equivalent shares outstanding on a fully diluted basis ................................... Net earnings per common and common equivalent share - fully diluted ................................. $ 475 $10,466 $ 4,593
50 -----$ 525 ======
1,032 ------$11,498 =======
1,137 -----$5,730 ======
1,844
1,186
1,260
---* ------
884 -------
885 ------
1,844 ======
2,070 =======
2,145 ======
$ .26 ======
$ 5.56 =======
$ 2.67 ======
* Assumed conversion is antidilutive, and accordingly, the Debentures are excluded from the computation. 98 </TEXT> </DOCUMENT>
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1 EXHIBIT 13 The Registrant's 1997 Annual Report to Shareholders, which report, except for those portions thereof which are expressly incorporated by reference in this filing, is furnished for the information of the Commission and is not to be deemed to be filed as part of this filing.
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2 [Hudson General Logo]
DEDICATED TO QUALITY SERVICE
1997 ANNUAL REPORT
100 3 CONTENTS Letter to Shareholders..........................1 Aviation Services...............................3 Land Development................................8 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................9 Selected Consolidated Financial Data...........13 Consolidated Financial Statements..............14 Notes to Consolidated Financial Statements.....18 Independent Auditors' Report...................24 Corporate Information...........Inside Back Cover
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4 FELLOW SHAREHOLDERS: The theme of this year's Annual Report to Shareholders is "Dedicated to Quality Service." Quality service to its customers has been Hudson General's guiding principle since it was founded in 1961, and adherence to this philosophy has enabled Hudson General to grow into one of the foremost aviation service companies in North America. As we continue to build on our expertise and experience, fiscal 1997 saw Hudson General further expand its presence at many of the major airports in the United States and Canada. The year concluded on a high note, as a partnership formed by four of the world's premier international airlines, Air France, Japan Airlines, Korean Airlines and Lufthansa German Airlines, stated its intent to award Hudson General what is expected to be our largest single contract. This partnership is building a new international terminal (Terminal One) at JFK International Airport in New York, which is expected to open in the Spring of 1998. The ultimate success of this state-of-the-art facility depends on its ability to attract other airlines to use it for their JFK operations. The airlines in the Terminal One partnership recognize that providing high quality ground handling services is essential to realize this goal, and have approved Hudson General to be the exclusive provider of these services at Terminal One. Fiscal 1997 was the first full year that our aviation services business has been conducted by Hudson General LLC. Hudson General Corporation holds a 74% interest in Hudson General LLC and accounts for this interest using the equity method of accounting rather than on a consolidated basis. As a result, all aviation services revenues are reported at the Hudson General LLC level, and our financial statements show very low revenues and costs at the Hudson General Corporation level. Page 9 of this report contains a summary table of operating results of the aviation services business. A review of the summary table reveals a significant reduction in operating income in fiscal 1997 compared with fiscal 1996. The primary reason for the lower income was the much milder winter in the Northeast in 1997, which reduced demand for our snow removal and de-icing services. Our year-round businesses remained strong despite the scaling back of the initial flood of flights between the United States and Canada that airlines had scheduled when the Open Skies Agreement between those two countries was signed two years ago. Overcapacity led to a reduction in flights, and this negatively impacted our results in Canada. Our core business continues to grow, and our customers continue to recognize Hudson General's dedication to quality service. Thus, in fiscal 1997, we were successful in expanding our intoplane fueling and cargo handling activities at several locations. In addition, we were successful in our bid to continue to operate the shuttle bus service for the City of Los Angeles at Los Angeles International Airport for an additional five year term. We are proud to have provided that service since 1978. 102
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5 The news from Hawaii is not encouraging. Included in Hudson General Corporation's earnings for the fiscal year ended June 30, 1997 is a pre-tax charge of $8,500,000 relating to our 50% interest in the Kohala Joint Venture real estate development project in Hawaii. This charge is a result of the continuing periodic evaluation of the carrying value of the Joint Venture's real estate assets. The Joint Venture partners concluded, as a result of their most recent in-depth analysis of an updated independent appraisal of such assets and the consideration of other factors affecting the development of the property, that the carrying value of the real estate assets should be reduced. Factors considered by the Joint Venture partners included the partners' plans to reevaluate Phase IV of the project which has to date only had limited development, the current condition of the Hawaiian real estate market and general economic conditions. During fiscal 1997, the Board of Directors authorized the repurchase of up to a total of 400,000 shares of the Corporation's common stock from time to time in either open market or privately negotiated transactions. This authorization was in addition to previous repurchase authorizations by the Board. During fiscal 1997, the Corporation repurchased 243,000 of its shares in the open market for an aggregate purchase price of $9,152,000. Authorization to repurchase 193,000 additional shares remains. The Board continues to believe that this repurchase program will enhance shareholder value and is an excellent use of a portion of the Corporation's available cash. Fiscal 1997 saw Hudson General reach a new level of financial strength, brought about by a combination of solid earnings from our aviation services business, the prepayment by Lufthansa Airport and Ground Services GmbH of the deferred portion of the purchase price for its 26% interest in Hudson General LLC, and the conversion to common stock of the large majority of our previously outstanding 7% Convertible Subordinated Debentures. We believe that our "Dedication to Quality Service" will continue to prompt many airline and airport authority customers to afford us the opportunity to provide additional services to them. We will simultaneously continue to aggressively pursue promising opportunities. Each and every one of our employees is to be thanked for helping to provide the quality service which enables Hudson General to take its credo and translate it into profitable growth. Sincerely, /s/ Jay B. Langner - -----------------Jay B. Langner Chairman of the Board and Chief Executive Officer /s/ Michael Rubin - -----------------Michael Rubin President /s/ Paul R. Pollack - ------------------Paul R. Pollack Executive Vice President and Chief Operating Officer 103
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6 AVIATION SERVICES [PHOTO] Hudson General Corporation (the Corporation) through its 74% ownership interest in Hudson General LLC (Hudson LLC) provides a broad and diverse range of services to the aviation industry at twenty-four (24) airports throughout the United States and Canada. These services include aircraft ground handling; aircraft fueling; fuel management; ground transportation; snow removal; cargo warehousing; and sale, leasing and maintenance of airline ground support equipment. Aircraft ground handling services are provided to both domestic and international airlines, and include: aircraft marshaling; loading and off-loading of baggage, freight and commissary items; passenger ticketing; porter and wheelchair services; aircraft cleaning; ramp sweeping and scrubbing; aircraft de-icing and glycol recovery; water and lavatory services; maintenance and service checks; weight and balance; cargo and mail handling; aircraft pushbacks; as well 104
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7 QUALITY SERVICE
[Photo of airplane, truck] QUALITY SERVICE TO ITS CUSTOMERS HAS BEEN HUDSON GENERAL'S GUIDING PRINCIPLE SINCE IT WAS FOUNDED IN 1961.
as ancillary services such as ground power and air conditioning. Aircraft fueling services are offered through contract fueling, fuel management and retail sales of fuel. Contract fueling services are provided to airlines and fuel suppliers by delivery of fuel from airport storage facilities into commercial aircraft. Fuel management services consist of functioning as the out-sourced fuel procurement department responsible for managing the sourcing, negotiation, purchase, payment, supply and distribution of fuel both domestically and internationally for scheduled and charter passenger and cargo airlines.
[Photo of Bus] Ground transportation services are provided for airline passengers and airport employees through Hudson LLC operated airport shuttle bus systems. These operations also include operation and maintenance of passenger boarding bridges and specialized airfield passenger transport vehicles. In addition to its airport-related transportation services, Hudson LLC provides transportation management services for various governmental agencies and authorities.
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8 [PHOTO] OUR CORE BUSINESS CONTINUES TO GROW, AND OUR CUSTOMERS CONTINUE TO RECOGNIZE HUDSON GENERAL'S DEDICATION TO QUALITY SERVICE. [PHOTO] Snow removal services are performed at airports in the northeastern and midwestern United States under contracts with airport operators as well as airlines and other business entities serving these airports. Snow removal services are also performed at east coast seaport facilities. Hudson LLC also operates one of the newest and most technologically advanced airport perishables centers in the United States for cargo requiring a climate-controlled environment. Maintenance services are provided for ground support, cargo handling, ground transportation and other airport related equipment. In
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9 OUR COMMITMENT TO SERVICE WE BELIEVE THAT OUR "DEDICATION TO QUALITY SERVICE" WILL CONTINUE TO PROMPT MANY AIRLINE AND AIRPORT AUTHORITY CUSTOMERS TO AFFORD US THE OPPORTUNITY TO PROVIDE ADDITIONAL SERVICES TO THEM. [PHOTO] addition, building maintenance services are provided at both terminal and hangar facilities. In Salt Lake City, hangar facilities and tie-down services are offered to the general aviation community comprised of corporate and private aircraft owners. For thirty-six years, the Corporation has been in the forefront of the aviation services industry. Its knowledgeable, experienced employees, wide-range of capabilities, attention to detail and dedication to customer satisfaction continue to make it the company of choice for airlines and airports seeking quality services in the ever-changing, competitive aviation environment. [PHOTO] 107
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10 HUDSON GENERAL AIRPORT LOCATIONS UNITED STATES LOCATIONS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Baltimore-Washington International Airport Fort Lauderdale/Hollywood International Airport Ellington Field (Houston) William P. Hobby Airport (Houston) JFK International Airport LaGuardia Airport Logan International Airport Los Angeles International Airport Miami International Airport Newark International Airport O'Hare International Airport Orlando International Airport Salt Lake City International Airport Washington National Airport Calgary International Airport Edmonton International Airport Halifax International Airport Montreal International Airport (Dorval) Montreal International Airport (Mirabel) Ottawa International Airport St. John's International Airport Toronto International Airport Vancouver International Airport Winnipeg International Airport
[MAP OF UNITED STATES AND CANADA WITH CIRCLED NUMBERS SHOWING AIRPORT LOCATIONS]
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11 GROWING WITH OUR CUSTOMERS THE PARTNERSHIP OF FOUR OF THE WORLD'S PREMIER INTERNATIONAL AIRLINES, AIR FRANCE, JAPAN AIRLINES, [PHOTO] KOREAN AIRLINES AND LUFTHANSA GERMAN AIRLINES, HAS STATED ITS INTENT THAT HUDSON GENERAL BE THE EXCLUSIVE PROVIDER OF GROUND HANDLING SERVICES AT JFK INTERNATIONAL AIRPORT'S TERMINAL ONE.
LAND DEVELOPMENT The Corporation is a 50% partner in a joint venture to develop approximately 4,000 contiguous acres of land situated in the North Kohala District on the Island of Hawaii. The Project is being developed in four successive phases. Substantially all of the parcels in Phases I and II, which comprise approximately 2,100 acres of the Project, have been sold. Phase III consists of 100 five acre parcels, with 85 parcels remaining available for sale. During fiscal 1992, the County of Hawaii passed an ordinance pursuant to which, after the obtaining of subdivision approvals, Phase IV could be developed into 1,490 units. The validity of this ordinance has been challenged in a lawsuit brought by two local residents of Hawaii, and development of Phase IV must await the ultimate outcome of this litigation. The joint venture partners are reevaluating plans for Phase IV which has to date only had limited development. 109
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12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Hudson General Corporation and Subsidiaries RESULTS OF OPERATIONS FISCAL 1997 COMPARED WITH FISCAL 1996 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 fiscal 1997 consolidated statements of earnings of the Corporation contain the operating results of the Aviation Business under the equity method of accounting. The fiscal 1996 consolidated statements of earnings of the Corporation contain the operating results of the Aviation Business on a consolidated basis for eleven months and under the equity method of accounting for one month. (For an analysis of the results of the Aviation Business, see the table and related management's discussion which appear below.) The Corporation's revenues of $5.1 million for fiscal 1997 reflect overhead fees and equipment rentals billed by the Corporation to Hudson LLC. Depreciation and amortization of $.8 million for fiscal 1997 primarily represent depreciation related to operating equipment leased to Hudson LLC by the Corporation. Selling, general and administrative expenses for fiscal 1997 of $8.0 million principally reflect administrative and related costs of the Corporation. The Corporation's 74% share of earnings from Hudson LLC for fiscal 1997 was $12.0 million. The Corporation's 50% share of losses from its real estate joint venture in Hawaii (the Venture) increased from $3.0 to $11.3 million, an increase of $8.3 million. The increase in the Venture's loss is due to the Venture recording a charge of $17.0 million in the Corporation's fourth fiscal quarter to write-down its real estate assets to their estimated fair values. The charge is a result of the continuing periodic evaluation of the carrying value of the Venture's real estate assets. The Corporation and its partner in the Venture, Oxford Kohala, Inc. (the Partners) concluded, as a result of their most recent in-depth analysis of an updated independent appraisal of such assets and the consideration of other factors affecting the development of the property, that the carrying value of the real estate assets should be reduced. Factors considered by the Partners included the Partners' plans to reevaluate the fourth phase of the Project which has to date only had limited development, the current condition of the Hawaiian real estate market and general economic conditions. 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. Interest income increased $1.7 million, or 78.1%. 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 9); (ii) advances made by the Corporation to Hudson LLC; and (iii) higher invested cash balances. Interest expense for fiscal 1996 was attributable to the Debentures. The Corporation's provision for income taxes decreased $6.8 million which primarily reflects: (i) lower pre-tax earnings in the U.S.; and (ii) the absence in fiscal 1997 of a provision for foreign income taxes. As a result of the Transaction, the Corporation is no longer required to provide for or reflect foreign income taxes in its consolidated financial statements. The following table and related management's discussion are intended to provide a presentation and analysis of results of the Aviation Business for fiscal 1997 and 1996 on a comparable basis.
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1997 1996 --------------(in thousands) Revenues .......................... Costs and expenses: Operating ....................... Depreciation and amortization ... Selling, general &administrative Total costs and expenses .......... Operating income .................. $167,729 -------128,749 7,510 13,625 -------149,884 -------$ 17,845 ======== $168,811 -------123,003 7,693 13,052 -------143,748 -------$ 25,063 ========
Revenues decreased from $168.8 to $167.7 million, a decrease of $1.1 million, or .6%. The decrease reflects lower: (i) snow removal revenues of $8.9 million due mainly to the mild winter weather in the northeastern United States during fiscal 1997; and (ii) ground transportation revenues of $.6 million due primarily to the loss of contracts to operate information kiosks and airfield passenger transport vehicles. Partially offsetting the revenue decrease were higher: (i) ground handling service revenues (net of lower sales of de-icing fluid in the U.S.) of $8.1 million due primarily to expanded services to new and existing customers; and (ii) domestic aircraft fueling revenues of $.5 million resulting primarily from expanded intoplane fueling services. Costs and expenses increased from $143.7 to $149.9 million, an increase of $6.1 million, or 4.3%. Operating costs increased from $123.0 to $128.7 million, an increase of $5.7 million, or 4.7%. The increase was attributable to higher labor and related costs associated with expanded ground handling operations and schedule changes by airline customers, and higher equipment rental costs due primarily to expanded intoplane fueling services. Partially offsetting the increases were 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 ground transportation contracts to operate information kiosks and airfield passenger transport vehicles. Depreciation and amortization expenses decreased from $7.7 to $7.5 million, a decrease of $.2 million, or 2.4%. The decrease was due primarily to the elimination of depreciation relating to equipment that became fully depreciated. Selling, general and administrative expenses increased from $13.1 to $13.6 million, an increase of $.6 million, or 4.4%. The increases primarily reflect higher administrative and related costs. 110
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13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Hudson General Corporation and Subsidiaries Operating income decreased from $25.1 to $17.8 million, a decrease of $7.2 million, due primarily to decreased results associated with: (i) reduced 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 also 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. Snow removal and aircraft de-icing services are seasonal in nature. The majority of 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. 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. 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. The compliance with federal, state and local provisions which have been enacted or adopted regulating the discharge of materials into the environment did not have a material effect upon the Corporation's or Hudson LLC's capital expenditures or results of operations for fiscal 1997 and 1996, or competitive position. However, the federal government and many state and local governments have enacted or proposed legislation and regulations with respect to storage facilities for fuel, petroleum-based products and chemicals, the disposal of hazardous waste materials, storm water discharges, and financial responsibility for possible liability exposures relating to fuel storage facilities. Compliance with such legislation and regulations has resulted in expenditures by the Corporation and Hudson LLC, including expenditures for the testing, decommissioning and/or replacement of certain of its fuel and de-icing fluid storage facilities, and the cleanup of fuel spills. The Corporation was and Hudson LLC is presently engaged in several such decommissioning and cleanup projects, and it is anticipated that additional such expenditures, the amount of which is presently not expected to be material, will be required. In addition, airport authorities are coming under increasing pressure to clean up previous contamination at their facilities, and are seeking financial contributions from airport tenants and companies which operate at their airports. The Corporation cannot predict at this time, the amount, if any, that it or Hudson LLC may be required to pay in connection with such airport authority initiatives. In the second quarter of fiscal 1998, the Corporation is required to adopt Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share". This statement establishes standards for computing and presenting earnings per share (EPS), replacing the presentation of currently required Primary EPS with a presentation of Basic EPS. For entities with complex capital structures, the statement requires the dual presentation of both Basic EPS and Diluted EPS on the face of the statement of operations. When SFAS No. 128 is adopted, the Corporation will be required to restate its EPS data for all prior periods presented. The Corporation does not expect the impact of the adoption of this statement to be material to previously reported EPS amounts. FISCAL 1996 COMPARED WITH FISCAL 1995 The table below summarizes the combined revenues, costs and expenses and
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operating results for fiscal 1996 (including the Aviation Business for June 1996) in order to compare them with fiscal 1995 amounts. The table and related management's discussion are intended to provide a presentation and analysis of fiscal 1996 and 1995 results on a comparable basis.
Hudson General Corporation Fiscal 1996 -------Revenues .......... Costs and expenses: Operating ........ Depreciation and amortization .... Selling, general & administrative .. Total costs and expenses ......... Operating income .. $157,100 -------113,744 7,165 16,755 -------137,664 -------$ 19,436 ========
Hudson LLC Combined June Fiscal 1996 1996 -------------(in thousands) $12,096 ------9,259 673 1,317 ------11,249 ------$ 847 ======= $169,196 -------123,003 7,838 18,072 -------148,913 -------$ 20,283 ========
Fiscal 1995 -------$134,862 -------106,070 7,528 14,306 -------127,904 -------$ 6,958 ========
Revenues increased from $134.9 to $169.2 million, an increase of $34.3 million, or 25.5%. The increase reflected higher: (i) snow removal revenues of $14.0 million as a result of record snowfalls in the northeast; (ii) ground handling service revenues of $18.2 million due primarily to expanded services to new and existing customers and to higher sales of de-icing fluid; (iii) domestic aircraft fueling revenues of $4.3 million resulting primarily from expanded intoplane fueling services and retail sales of fuel at existing locations; and (iv) revenues due to the effect of fluctuation in the average rates of exchange used in translating Canadian revenues to their U.S. dollar equivalent. Partially offsetting the revenue increases were lower: (i) aircraft fueling and hangar rental revenues in Canada of $2.3 million as a result of the cessation of operations of the Corporation's Canadian fixed based operations (FBO's) on October 31, 1994; and (ii) ground transportation revenues of $1.0 million due primarily to the loss of contracts to operate information kiosks and specialized airfield passenger transport vehicles. 111
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14 Costs and expenses increased from $127.9 to $148.9 million, an increase of $21.0 million, or 16.4%. Operating costs increased $16.9 million, or 16.0%. The increase was attributable to higher: (i) snow removal costs; (ii) labor and related costs associated with expanded ground handling operations and domestic aircraft fueling services; (iii) cost of sales of de-icing fluid; (iv) fuel costs associated with higher volumes of retail fuel sales and internal fuel usage in the U.S.; and (v) the effect of fluctuation in the average rates of exchange used in translating Canadian costs to their U.S. dollar equivalent. Partially offsetting the increases were lower costs as a result of: (i) the loss of contracts to operate ground transportation information kiosks and specialized airfield passenger transport vehicles; (ii) the positive trending of workers' compensation insurance claims; and (iii) the cessation of operations of the Corporation's Canadian FBO's. Depreciation and amortization expenses increased from $7.5 to $7.8 million, an increase of $.3 million, or 4.1%. The increase was due to additional depreciation in fiscal 1996 due mainly to purchases of ground handling equipment. Partially offsetting the increase was the absence in fiscal 1996 of accelerated amortization of the remaining carrying value of leasehold improvements made to a hangar facility at a domestic airport location in the prior year (the Accelerated Amortization) (see Note 5). Selling, general and administrative expenses increased from $14.3 to $18.1 million, an increase of $3.8 million, or 26.3%, due primarily to the recording of higher provisions relating to the Corporation's bonus and retirement plans and to stock appreciation rights as a result of increases in the market price of the Corporation's common stock. Operating income increased from $7.0 to $20.3 million, an increase of $13.3 million, due primarily to improved results from snow removal, ground handling (including higher sales of de-icing fluid) and domestic aircraft fueling operations. Adding to the increase was the absence of the Accelerated Amortization, a decrease in workers' compensation insurance costs and the elimination of operating losses associated with the Corporation's Canadian FBO's. Partially offsetting the increases were higher selling, general and administrative expenses as described above. The Corporation's 50% share of losses from the Venture increased from $2.7 to $3.0 million, an increase of $.3 million, or 10.0%. The increase in the Venture's loss is due mainly to higher interest expense -- net due mainly to higher balances of partner advances payable. In addition, the Venture's interest income decreased as a result of the reduction in mortgage receivables. The Corporation's provision (benefit) for income taxes increased from a benefit of $.4 million to a provision of $7.2 million, an increase of $7.5 million. The increase primarily reflects: (i) increased pre-tax earnings in the U.S. and Canada; (ii) the Corporation's recognition of a provision of $.8 million for income taxes associated with the anticipated repatriation of Canadian earnings; and (iii) a decrease of $.3 million in fiscal 1996 compared with fiscal 1995 of the recognition of deferred tax assets resulting from a reevaluation of the operating results of the Corporation's Canadian subsidiary. LIQUIDITY, 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 pays 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. (The Corporation and LAGS USA Inc., a wholly-owned subsidiary of LAGS and a party to the Limited Liability Company Agreement of Hudson LLC, agreed to raise these overhead fees for fiscal 1998 to 3 1/2% and 1 1/4%, respectively.) 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 in an amount at least equal to 50% of domestic net income and 10% of Canadian pre-tax earnings for the fiscal year from the Aviation Business, as defined, multiplied by the Corporation's equity interest in Hudson LLC (presently 74%). Such distributions, the Corporation's share of which totals approximately $6.8 million for fiscal 1997 and the month of June 1996, are expected to be made during the first half of fiscal 1998. Furthermore, as a result of the conversion
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of Debentures into shares of the Corporation's common stock, Hudson LLC is, on a subordinated basis (as defined), indebted to the Corporation. During fiscal 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 (which was paid in July 1997); and (ii) $1.5 million on each July 15th thereafter until the entire principal balance is satisfied. 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 June 30, 1997. In fiscal 1997, net cash used by operating activities was $3.5 million due mainly to equity in earnings of Hudson LLC which were not distributed to the Corporation, while in fiscal 1996 and 1995, net cash provided by operating activities was $25.5 and $19.7 million, respectively. Net cash provided by investing activities in fiscal 1997 was $19.5 million 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, $12.9 and $9.9 million in fiscal 1997, 1996 and 1995, respectively. The majority of capital expenditures were made in respect of the Aviation Business and as such are now made by Hudson LLC. In June 1996, primarily as a result of the Corporation retaining certain trade receivables, the Corporation made net advances of $7.2 million on behalf of Hudson LLC. Such balance was repaid to the Corporation by Hudson LLC during fiscal 1997. Net cash advanced to the Venture was $.8 and $1.7 million in fiscal 1996 and 1995, respectively. Net cash used by financing activities was $10.3 (primarily due to increased repurchases of the Corporation's common stock as discussed below), $.6 and $2.2 million for fiscal 1997, 1996 and 1995, respectively. Cash and cash equivalents were $18.4, $12.7 and $12.6 million at June 30, 1997, 1996 and 1995, respectively. 112
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15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Hudson General Corporation and Subsidiaries In fiscal 1997, the Board of Directors authorized the repurchase of up to 400,000 shares of the Corporation's common stock, which purchases could be made from time to time in either open market or privately negotiated transactions. Prior to the fiscal 1997 authorizations, the Corporation still had authority to repurchase up to 35,700 shares from a previous authorization. During fiscal 1997, the Corporation repurchased 243,000 shares in the open market for an aggregate purchase price of $9.2 million. 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 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 the impact of the Supreme Court's ruling and the Circuit Court's 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 and 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. Since the inception of the Credit Agreement, the Corporation has not increased its net advances to the Venture. 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. During fiscal 1997, the Corporation advanced $.3 million to the Venture. Such advances were repaid by the Venture to the Corporation on June 30, 1997. At June 30, 1997, the Venture had commitments (in addition to the commitments noted above) aggregating $2.6 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 funds for most of the Venture's other commitments will be expended subsequent to fiscal 1998. 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 Corporation has been informed by the Partner, that Oxford First has substantially met all its financial obligations under its confirmed plan of reorganization and is no longer restricted in the amount of required advances it may make to the Venture. The extent to which advances to the Venture will be required in the future, as
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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 and expenses incurred in the planning and development of future phases of the Project. 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. SELECTED CONSOLIDATED FINANCIAL DATA Hudson General Corporation and Subsidiaries
Fiscal Years Ended June 30, --------------------------------------------------------------------------1997(a) 1996(a) 1995 1994 1993 --------------------------------------------------------------------------(in thousands, except per share amounts) Revenues ..................................... Earnings (loss) before extraordinary items and cumulative effect of change in the method of accounting for income taxes ................ Earnings (loss) per share before extraordinary items and cumulative effect of change in the method of accounting for income taxes: Primary .................................. Fully diluted ............................ Net earnings (loss) .......................... Net earnings (loss) per share: Primary .................................. Fully diluted ............................ Total assets ................................. Long-term obligations less current maturities Stockholders' equity ......................... Capital expenditures ......................... Cash dividends per common share .............. $ 5,064 475(b) $157,100 10,466 $134,862 4,593 $141,784 7,310 $ 131,917 (2,045)(c)
.26 .26 475(b)
8.87 5.56 10,466
3.69 2.67 4,593
5.86 3.96 7,760
(1.65) (1.65) (2,180)(c)
.26 8.87 3.69 6.22 (1.75) .26 5.56 2.67 4.17 (1.75) 68,188 48,776 87,568 77,889 72,414 --29,000 29,000 32,700 65,384 43,895 21,616 19,223 12,141 326 13,158 10,806 9,815 5,786 .75 .50 .50 --============================================================================
(a)
As a result of a transaction with Lufthansa Airport and Ground Services GmbH (see Note 2), effective June 1, 1996 the Corporation's interest in its aviation services business is accounted for under the equity method. Includes a pre-tax charge of $8,500 related to the Corporation's investment in and advances to the Kohala Joint Venture (see Note 3). Includes $4,287 of accelerated amortization of leasehold rights related to the Corporation's Canadian Fixed Base Operations, which the Corporation ceased operating during fiscal 1995. Fiscal 1997 Fiscal 1996 High ---24 34 1/4 43 3/8 43 3/8 Low --20 23 5/8 33 34 3/8
(b) (c)
Market Price Range* High ---First Quarter ...... 40 Second Quarter ..... 39 1/2 Third Quarter ...... 41 3/8 Fourth Quarter ..... 40 3/8 Low --32 3/4 34 36 35 5/8
* The range of per share closing prices of the Corporation's common stock on the American Stock Exchange in each fiscal quarter from July 1, 1995 through June 30, 1997. At June 30, 1997, there were 197 record holders of the Corporation's common stock. 114
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17 CONSOLIDATED STATEMENTS OF EARNINGS Hudson General Corporation and Subsidiaries
Year Ended June 30, -----------------------------------------1997 1996 1995 -----------------------(in thousands, except per share amounts) Revenues ................................................... Costs and expenses: Operating ................................................ Depreciation and amortization ............................ Selling, general &administrative ........................ Total costs and expenses ............................... $ 5,064 --------772 8,047 -------8,819 -------(3,755) 11,955 (11,292) 3,958 --------866 391 -------$ 475 ======== $ .26 ======== $ .26 ======== $ 157,100 --------113,744 7,165 16,755 --------137,664 --------19,436 855 (3,021) 2,222 (1,843) --------17,649 7,183 --------$ 10,466 ========= $ 8.87 ========= $ 5.56 ========= $ 134,862 --------106,070 7,528 14,306 --------127,904 --------6,958 -(2,747) 2,062 (2,030) --------4,243 (350) --------$ 4,593 ========= $ 3.69 ========= $ 2.67 =========
Operating income (loss) .................................... Equity in earnings of Hudson General LLC ................... Equity in loss of Kohala Joint Venture ..................... Interest income ............................................ Interest expense ........................................... Earnings before provision (benefit) for income taxes ....... Provision (benefit) for income taxes ....................... Net earnings ...............................................
Earnings per share, primary ................................ Earnings per share, fully diluted ..........................
See accompanying notes to consolidated financial statements 115
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18 CONSOLIDATED BALANCE SHEETS Hudson General Corporation and Subsidiaries June 30, -----------------1997 1996 -----------------(in thousands) ASSETS Current assets: Cash and cash equivalents...................................................... Investment securities available for sale....................................... Receivables.................................................................... Advances to Hudson General LLC -- net.......................................... Prepaid expenses and other assets.............................................. Total current assets......................................................... Property and equipment at cost, less accumulated depreciation and amortization.................................................. Investment in Hudson General LLC................................................. Investment in Kohala Joint Venture -- net........................................ Note receivable from Hudson General LLC.......................................... Other assets -- net..............................................................
$18,425 $12,701 8,792 -540 238 361 7,233 250 302 -----------------28,368 20,474 2,902 3,428 26,395 8,738 5,893 15,420 4,630 --716 -----------------$68,188 $48,776 ================== $ 161 $ 471 2,536 3,648 -----------------2,697 4,119 -----------------107 762 --------------------
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable............................................................... Accrued expenses and other liabilities......................................... Total current liabilities.................................................... Deferred income taxes............................................................ 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.................................... Paid in capital................................................................ Retained earnings.............................................................. Treasury stock, at cost, 357,311 and 114,300 shares............................ Total stockholders' equity...................................................
2,092 1,277 48,732 18,033 25,722 26,595 (11,162) (2,010) -----------------65,384 43,895 -----------------$68,188 $48,776 ==================
See accompanying notes to consolidated financial statements.
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19 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Hudson General Corporation and Subsidiaries
Years Ended June 30, 1997, 1996 and 1995 ----------------------------------------------------------------------Equity Adjustments From Foreign Total Common Stock Issued Paid in Retained Currency Treasury Stockholders' Shares Amounts Capital Earnings Translation Stock Equity ----------------------------------------------------------------------(in thousands, except share amounts)
Balance, June 30, 1994.................................... Common stock issued in connection with exercise of stock options......................................... Dividends ($.50 per share).............................. Equity adjustment from foreign currency translation Purchase of treasury stock.............................. Net earnings............................................ Balance, June 30, 1995.................................... Common stock issued in connection with exercise of stock options......................................... Dividends ($.50 per share).............................. Equity adjustment from foreign currency translation Effect of equity infusion in Hudson General LLC -- net Purchase of treasury stock.............................. Conversion of convertible subordinated debentures Net earnings............................................ Balance, June 30, 1996.................................... Common stock issued in connection with exercise of stock options......................................... Dividends ($.75 per share).............................. Equity adjustment from foreign currency translation Effect of equity infusion in Hudson General LLC -- net Purchase of treasury stock.............................. Conversion of convertible subordinated debentures Net earnings............................................ BALANCE, JUNE 30, 1997....................................
1,250,802
$1,251
$ 6,717
$12,716
$(1,461)
--
$19,223
3,000 3 42 ---45 ---(602) --(602) ----(22) -(22) -----(1,621) (1,621) ---4,593 --4,593 -------------------------------------------------------------------1,253,802 1,254 6,759 16,707 (1,483) (1,621) 21,616 16,000 16 249 ---265 ---(578) --(578) ----13 -13 --10,783 -1,470 -12,253 -----(389) (389) 7,599 7 242 ---249 ---10,466 --10,466 -------------------------------------------------------------------1,277,401 1,277 18,033 26,595 -(2,010) 43,895 10,500 11 154 ---165 ---(1,348) --(1,348) --(101) ---(101) --5,805 ---5,805 -----(9,152) (9,152) 804,259 804 24,841 ---25,645 ---475 --475 -------------------------------------------------------------------2,092,160 $2,092 $48,732 $25,722 $ -$(11,162) $65,384 ====================================================================
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20 CONSOLIDATED STATEMENTS OF CASH FLOWS Hudson General Corporation and Subsidiaries
Year Ended June 30, ---------------------------------1997 1996 1995 ---------------------------------(in thousands)
Cash flows from operating activities: Net earnings ............................................................................. Adjustments to reconcile net earnings to net cash (used) provided by operating activities: Depreciation and amortization .......................................................... Provision for losses on accounts receivable -- net ..................................... Increase (decrease) in deferred income taxes ........................................... Equity in earnings of Hudson General LLC ............................................... Equity in loss of Kohala Joint Venture ................................................. Accrual of interest income on Kohala Joint Venture advances ............................ Gain on sale of equipment .............................................................. Change in other current assets and liabilities: Accounts and notes receivables ....................................................... Inventory ............................................................................ Prepaid expenses and other assets .................................................... Deferred income taxes ................................................................ Accounts payable ..................................................................... Income taxes payable ................................................................. Accrued expenses and other liabilities ............................................... Decrease in other assets ............................................................... Decrease in long-term receivables -- net ............................................... Other -- net ........................................................................... Net cash (used) provided by operating activities ..................................... Cash flows from investing activities: Purchases of investment securities available for sale .................................... Purchases of property, equipment and leasehold rights .................................... Proceeds from sale of property and equipment ............................................. Repayments from (advances to) Hudson General LLC ......................................... Collections of note receivable from Hudson General LLC ................................... Advances to Kohala Joint Venture -- net .................................................. Net cash transferred to Hudson General LLC upon formation ................................ Fees related to transfer of assets to Hudson General LLC ................................. Net cash provided (used) by investing activities ..................................... Cash flows from financing activities: Proceeds from issuance of common stock ................................................... Cash dividends paid ...................................................................... Purchase of treasury stock ............................................................... Net cash used by financing activities ................................................ Effect of exchange rate changes on cash .................................................... Net increase in cash and cash equivalents .................................................. Cash and cash equivalents at beginning of year ............................................. Cash and cash equivalents at end of year ...................................................
475 772 -(655) (11,955) 11,292 (1,765) --
$ 10,466 7,165 362 (1,090) (855) 3,021 (1,604) (139)
4,593 7,528 178 149 -2,747 (1,471) (454)
(302) 2,845 5 -(135) (31) 52 (369) 215 -2,342 (1,656) (310) 892 3,650 -165 333 (1,112) 1,785 3,136 23 54 92 -522 553 -37 127 ---------------------------------(3,485) 25,464 19,694 ---------------------------------(8,792) --(326) (13,158) (10,806) 80 244 935 7,302 (7,233) -21,283 ---(772) (1,720) -(3,002) --(825) ----------------------------------19,547 (24,746) (11,591) ---------------------------------162 335 45 (1,348) (578) (602) (9,152) (389) (1,621) ---------------------------------(10,338) (632) (2,178) ----------------------------------2 (39) ---------------------------------5,724 88 5,886 ---------------------------------12,701 12,613 6,727 ---------------------------------$ 18,425 $ 12,701 $ 12,613 ==================================
See accompanying notes to consolidated financial statements.
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21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Hudson General Corporation and Subsidiaries 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION: The consolidated financial statements include the accounts of Hudson General Corporation and the subsidiaries for which it exercises effective control (the Corporation). 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), 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, as amended, effective June 1, 1996, the Corporation has accounted for its interest in Hudson LLC under the equity method of accounting. As a result, the fiscal 1997 consolidated statement of earnings of the Corporation contains the operating results of the Aviation Business under the equity method of accounting. The fiscal 1996 consolidated statement of earnings of the Corporation contains the operating results of the Aviation Business on a consolidated basis for eleven months and under the equity method of accounting for one month. As a result of the Corporation's transfer of substantially all of the Aviation Business assets and liabilities to Hudson LLC, such assets and liabilities are not reflected in the Corporation's accompanying consolidated balance sheets. The Corporation's stockholders' equity was increased by $5,704,000 and $12,253,000 in fiscal 1997 and the month of June 1996, respectively, as a result of the Corporation's equity interest in Hudson LLC's capital transactions. DESCRIPTION OF BUSINESS: The Corporation, through its 74% ownership interest in Hudson LLC, provides a broad and diverse range of services to the aviation industry at twenty-four (24) airports throughout the United States and Canada. These services include aircraft ground handling; aircraft fueling; fuel management; ground transportation; snow removal; cargo warehousing; and sale, leasing and maintenance of airline ground support equipment. DEPRECIATION AND AMORTIZATION: Depreciation of property and equipment is provided on the straight-line method over their estimated useful lives. INCOME TAXES: Effective July 1, 1993, the Corporation adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", which requires the use of the liability method of accounting for deferred income taxes. FINANCIAL INSTRUMENTS: The Corporation believes that the book values of its monetary assets and liabilities approximate fair values as a result of the short-term nature of such assets and liabilities. FOREIGN CURRENCY TRANSLATION: The financial position and results of operations of the Corporation's Canadian operations were measured using local currency as the functional currency. Assets and liabilities were translated into U.S. dollars at year-end rates of exchange, and revenues and expenses were translated at the average rates of exchange for the year. Gains or losses resulting from translating foreign currency financial statements were accumulated as a separate component of stockholders' equity. STATEMENTS OF CASH FLOWS: For purposes of the consolidated statements of cash flows, the Corporation considers all securities with an original maturity of three months or less at the date of acquisition to be cash equivalents. The changes in specified asset and liability accounts in the accompanying
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consolidated statements of cash flows for fiscal 1996 are exclusive of the effect of the transfer of specified assets and liabilities of the Aviation Business to Hudson LLC. In fiscal 1997, 1996 and 1995 income taxes (net of refunds) of $963,000, $5,064,000 and $362,000, respectively, were paid. During fiscal 1997, there was no interest paid. Interest of $2,030,000 was paid in both fiscal 1996 and 1995. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. EARNINGS PER SHARE: Primary earnings per common and common equivalent share have been computed based upon the weighted average number of shares of common stock outstanding and dilutive common stock equivalents assumed outstanding during the respective years. The weighted average number of shares used in computing primary earnings per common and common equivalent share was 1,844,048, 1,179,841 and 1,245,122 in fiscal 1997, 1996 and 1995, respectively. Fully diluted earnings per common and common equivalent share have been computed based upon the assumption that the Corporation's 7% convertible subordinated debentures (the Debentures) were converted into common shares at the beginning of each period in which their effect was dilutive (the Debentures were dilutive only as to fiscal 1996 and 1995 results) and that the related interest expense, net of applicable taxes, that would not have been incurred had conversion taken place was added back to net earnings. The weighted average number of common and common equivalent shares used in computing fully diluted earnings per share in fiscal 1996 and 1995 was 2,069,617 and 2,145,175, respectively. The Debentures were called for redemption in fiscal 1997 and as a result $26,343,000 of Debentures were converted into 804,259 shares of the Corporation's common stock. LONG-LIVED ASSETS: Effective July 1, 1996, the Corporation adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which requires that long-lived assets and certain identifiable intangibles to be held and used or disposed of by an entity be reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The adoption of SFAS No. 121 did not have any impact on the Corporation's consolidated financial position or results of operations. STOCK-BASED COMPENSATION: Effective July 1, 1996, the Corporation adopted SFAS No. 123, "Accounting for Stock-Based Compensation", which encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair
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22 value. The Corporation has chosen to continue to account for stock-based compensation under the existing accounting rules contained in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations, but will provide pro forma disclosures of any future stock-based compensation expense determined under the fair-value provisions of SFAS No. 123, if material. As of June 30, 1995, no further grants were available under any of the Corporation's stock-based employee compensation plans. MARKETABLE SECURITIES: The Corporation has invested $8,792,000 at June 30, 1997 in commercial paper and municipal bonds. The maturities of such investments are generally less than one year. The book values of the investments approximate their respective market values as a result of the short-term nature of the securities and the low level of risk in these types of investments. RECLASSIFICATIONS: Certain items previously reported in specific financial statement captions have been reclassified to conform with the fiscal 1997 presentation. 2. INVESTMENT IN HUDSON GENERAL LLC Effective June 1, 1996 pursuant to the terms of the 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 (see Note 7), 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 (the 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 and paid in capital were increased by its 74% interest in the Deferred Payments. The Purchase Agreement also provided for the grant to LAGS of an option (the LAGS Option), exercisable on October 1 of each year from 1996 through 2000, effective as of the preceding July 1, pursuant to which LAGS may increase its equity ownership in Hudson LLC from 26% to a maximum of 49%, for a price based on a formula related to the average earnings of the Aviation Business over the four fiscal years preceding the exercise of the option, subject to certain minimum and maximum amounts. Effective December 1996, the Purchase Agreement was amended so that the LAGS 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. In addition, 100% of Hudson LLC's net earnings in June 1996 were allocated to the Corporation. In June 1996, primarily as a result of the Corporation retaining certain trade receivables, the Corporation made net advances of $7,233,000 on behalf of Hudson LLC. Such balance was repaid to the Corporation by Hudson LLC (together with accrued interest at the Corporation's incremental borrowing rate) during fiscal 1997. As of June 30, 1997, the Corporation's net advances to Hudson LLC were $361,000. Pursuant to the LLC Agreement, as amended: (i) the Corporation will continue to manage the Aviation Business and will be entitled to charge Hudson LLC 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 (the Corporation and LAGS USA agreed to raise these overhead fees for fiscal 1998 to 3 1/2% and 1 1/4%, respectively); and (ii) there will be a Member Board on which the Corporation has three votes and LAGS USA has two votes. The LLC Agreement, as amended, allows either Member to veto certain major transactions and to veto any reduction in distributions stipulated in the LLC Agreement, as amended. The LLC Agreement, as amended, provides that distributions will be paid annually in an
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amount at least equal to 50% of domestic net income and 10% of Canadian pre-tax earnings, as defined, from the Aviation Business. Such distributions, totaling approximately $8,300,000 for fiscal 1997 and the month of June 1996, are expected to be made during the first half of fiscal 1998. The summary consolidated balance sheets for Hudson LLC as of June 30, 1997 and 1996 are as follows: 1997 1996 -----------------(in thousands) Cash and cash equivalents .............. Accounts and notes receivable -- net ... Other current assets ................... Total current assets ............... Property, equipment and leasehold rights at cost, less accumulated depreciation and amortization ..................... Other assets -- net .................... $12,324 $19,269 15,289 18,055 2,711 2,317 -----------------30,324 39,641 44,948 37,442 2,248 3,641 -----------------$77,520 $80,724 ================== $18,528 18,791 $15,104 18,085
Accounts payable ....................... Accrued expenses and other liabilities . Advances from Hudson General Corporation -- net ................... Total current liabilities .......... Long-term debt, subordinated ........... Note payable to Hudson General Corporation .......................... Members' equity ........................
361 7,233 -----------------37,680 40,422 -28,751 4,630 -35,210 11,551 -----------------$77,520 $80,724 ==================
Summary results of operations for Hudson LLC for fiscal 1997 and the month of June 1996 are as follows: 1997 1996 -------------------(in thousands) Revenues ................................. Operating costs .......................... Depreciation and amortization ............ Selling, general &administrative costs .. Total costs and expenses ............... Operating income ......................... Interest income -- net ................... Earnings before provision for income taxes Provision for income taxes ............... Net earnings ........................... $167,729 $ 12,096 -------------------128,749 9,259 7,510 673 13,625 1,317 -------------------149,884 11,249 -------------------17,845 847 179 49 -------------------18,024 896 2,085 41 -------------------$ 15,939 $ 855 ====================
The Corporation's share of Hudson LLC's results is shown as "Equity in earnings of Hudson General LLC" in the accompanying consolidated statements of earnings.
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3. INVESTMENT IN KOHALA JOINT VENTURE The Venture was formed to acquire, develop and sell approximately 4,000 contiguous acres of land in Hawaii (the Project). The Project is
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23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Hudson General Corporation and Subsidiaries
being developed in four successive phases. The first two phases, containing approximately 2,100 acres, have been developed and substantially sold. The third phase, containing approximately 550 acres, has also been developed and has 85 parcels available for sale. The fourth phase has yet to be developed, except to the extent common improvements (main road, water wells, etc.) have been completed. 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 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 the impact of the Supreme Court's ruling and the Circuit Court's proceedings on the timing of development of Phase IV or the expenditures related thereto. The joint venture partners are reevaluating plans for Phase IV which has to date only had limited development. 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 and to share profits equally. During fiscal 1997, the Corporation advanced $300,000 to the Venture. Such advances were repaid by the Venture to the Corporation on June 30, 1997. 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 $702,000 together with $37,000 of interest thereon. The Corporation has been informed by the Partner, that Oxford First has met all its financial obligations under its confirmed plan of reorganization and is no longer restricted in the amount of required advances it may make to the Venture. The Corporation accrues interest income on its advances to the Venture at the rate agreed to by the Partners (currently 1% below prime). The Corporation defers recognition of such interest income to the extent that such interest rate exceeds the Corporation's weighted average cost of funds. At June 30, 1997 and 1996, the amount of deferred interest income was $2,159,000 and $2,028,000, respectively. The Corporation will recognize deferred interest income when additional distributions or payments related to the Venture, if any, are made to the Corporation. Interest income accrued by the Corporation for fiscal 1997 and 1996 was $1,765,000 and $1,604,000, respectively. The summary consolidated balance sheets for the Venture as of June 30, 1997 and 1996 are as follows: 1997 1996 --------------------(in thousands)
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Cash and equivalents ......................... Land and development costs (including capitalized interest of $6,591,000 and $6,680,000) Mortgages, accounts and notes receivable ..... Foreclosed real estate -- net ................ Other assets -- net ..........................
730
267
9,264 26,710 2,779 5,212 2,854 2,200 1,590 2,325 --------------------$ 17,217 $ 36,714 ===================== $ -54,013 1,162 $ 576 50,220 1,292
Note payable ................................. Partner advances and accrued interest payable Accounts payable and accrued expenses ........ Partners' deficit ............................
(37,958) (15,374) --------------------$ 17,217 $ 36,714 =====================
In the fourth quarter of fiscal 1997, the Venture recorded a charge of $17,000,000 to write-down its real estate assets to their estimated fair values. The charge is the result of the continuing periodic evaluation of the carrying value of the Venture's real estate assets. The Partners concluded, as a result of their most recent in-depth analysis of an updated independent appraisal of such assets and the consideration of other factors affecting the development of the property, that the carrying value of the real estate assets should be reduced. Factors considered by the Partners included the Partners' plans to reevaluate the fourth phase of the Project which has to date only had limited development, the current condition of the Hawaiian real estate market and general economic conditions. In connection with the Venture's reduction of the carrying value of its real estate assets as discussed above, the Corporation reduced the carrying value of a portion of its advances to the Venture in the amount of $8,500,000. The Corporation's total advances (including accrued interest) at June 30, 1997 (after such reduction) and 1996 were $18,506,000 and $25,110,000, respectively. Summary results of operations for the Venture for the fiscal years ended June 30, 1997, 1996 and 1995 are as follows: 1997 1996 1995 ---------------------------------(in thousands) Net sales ...................... Cost of sales .................. Write-down of real estate assets Selling, general and administrative costs ......... Interest -- net ................ Net loss ....................... $ 1,455 $ 677 $ 504 ---------------------------------1,106 365 191 17,000 --2,340 2,953 2,852 3,593 3,401 2,956 ---------------------------------$(22,584) $ (6,042) $ (5,495) ==================================
As a partnership, the Venture is not subject to federal or state income taxes. The Corporation's share of the Venture's results is shown as "Equity in loss of Kohala Joint Venture" in the accompanying consolidated statements of earnings.
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24 4. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION Accrued expenses and other liabilities at June 30, 1997 and 1996 consisted of the following: 1997 1996 -------------------(in thousands) Salaries and wages...................... Interest................................ Retirement plan costs................... Other................................... $ 1,940 $2,172 -767 319 333 277 376 -------------------$ 2,536 $3,648 ====================
Maintenance and repair expenses were $7,536,000 and $7,400,000 for fiscal 1996 and 1995, respectively. Bad debt expenses were $362,000 and $178,000 for fiscal 1996 and 1995, respectively. 5. PROPERTY AND EQUIPMENT The number of years over which major classes of assets are being depreciated and amortized, and the costs and related accumulated depreciation and amortization as of June 30, 1997 and 1996 are set forth below: Estimated Useful Lives 1997 1996 ------------------------------(in thousands) Operating equipment Office furnishings and equipment............... Leasehold improvements Accumulated depreciation and amortization 2 - 12 5 - 10 6 - 9 $ 7,640 $ 8,318
821 669 239 216 -----------------8,700 9,203 (5,798) (5,775) -----------------$ 2,902 $ 3,428 ==================
At June 30, 1997 and 1996, the Corporation leased operating equipment to Hudson LLC with a net book value of $2,394,000 and $3,099,000, respectively. Due to an early lease the amortization of the to a hangar facility at Such amount is included consolidated statements 6. CANADIAN OPERATIONS The consolidated financial statements include: assets of $12,301,000 and net assets of $7,655,000 at the end of fiscal 1995; and revenues of $38,005,000 and $34,099,000; and earnings of $3,166,000 and $3,352,000 in fiscal 1996 and 1995, respectively, related to the Corporation's Canadian operations. 7. LONG-TERM DEBT Pursuant to a Revolving Credit Agreement with a group of banks dated June 1, 1996 (the Credit Agreement), the Corporation may borrow funds (including outstanding letters of credit) up to a limit of $6,000,000 until June 30, 1999 at which time the Credit Agreement terminates. There were no direct borrowings termination in fiscal 1995, the Corporation accelerated remaining carrying value of leasehold improvements made a domestic airport location in the amount of $744,000. in "Depreciation and amortization" in the accompanying of earnings.
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or letters of credit outstanding under the Credit Agreement at June 30, 1997 and 1996. The Credit Agreement provides the Corporation with the option of selecting a rate of interest at either the base rate or 1 3/8% above the LIBO rate, as defined. The Credit Agreement requires that the Corporation meet certain financial covenants and allows the Corporation to pay dividends or purchase, redeem or retire its stock so long as such financial covenants are met. Pursuant to the Credit Agreement, the Corporation may advance up to $2,000,000 to the Venture in any fiscal year or up to $5,000,000 during the term of the Credit Agreement, net of any distributions received from the Venture by the Corporation during such periods. Since the inception of the Credit Agreement, the Corporation has not increased its net advances to the Venture. The Corporation has granted the banks a security interest in all of its membership units of Hudson LLC and certain other assets. In July 1986 the Corporation issued $30,000,000 of 7% convertible subordinated debentures due 2011 (the Debentures). In connection with the Transaction, effective June 1, 1996, Hudson LLC assumed the obligations of the Debentures and the Corporation remained as a co-obligor. The Debentures were convertible at any time prior to maturity into shares of the Corporation's common stock at a conversion price of $32.75 per share. At June 1, 1996 there was $28,821,000 principal balance of the Debentures outstanding. During June and August 1996, the Debentures were called for redemption and as a result, $2,408,000 principal balance of the Debentures were redeemed during fiscal 1997. In addition, during fiscal 1997 and the month of June 1996, $26,343,000 and $70,000, respectively, of the Debentures were converted into shares of the Corporation's common stock and to such extent Hudson LLC became indebted, on a subordinated basis, to the Corporation (the Corporate Subordinated Debt). At September 5, 1996, no Debentures remained outstanding. During fiscal 1997, Hudson LLC utilized the proceeds from 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 the Corporate Subordinated Debt. At June 30, 1997, the balance of the Corporate Subordinated Debt was $5,130,000. The noncurrent portion of such debt in the amount of $4,630,000 is shown as "Note receivable from Hudson General LLC" in the accompanying consolidated balance sheets. Hudson LLC is obligated to repay $500,000 of such debt to the Corporation on July 15, 1997 and $1,500,000 on each July 15th thereafter until the entire principal balance is satisfied. The current portion of this debt at June 30, 1997, in the amount of $500,000 (which was paid in July 1997), is included in "Advances to Hudson General LLC -- net" in the accompanying consolidated balance sheets. Interest on the Corporate Subordinated Debt is payable semi-annually in January and July at the rate of 7% per annum. 8. INCOME TAXES Provision (benefit) for income taxes consisted of the following for the years ended June 30, 1997, 1996 and 1995: 1997 1996 1995 ------------------------(in thousands) Federal: Current......................... Deferred........................ Foreign: Current......................... Deferred........................ State: Current......................... Deferred........................
$ 97 (456) ---
$3,415 1,485 324 449
847 (137) -(1,300)
687 789 313 63 721 (73) ------------------------$ 391 $7,183 $ (350) =========================
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25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Hudson General Corporation and Subsidiaries
A reconciliation of the provision (benefit) for income taxes to the amount computed by applying the statutory federal income tax rate to earnings before provision (benefit) for income taxes for the years ended June 30, 1997, 1996 and 1995 follows: 1997 1996 1995 ------------------------------(in thousands) Tax at federal statutory rate ........ Increase (decrease) in income taxes resulting from: Reevaluation of valuation allowance Utilization of foreign net operating loss carryforwards and depreciation differences ......... Foreign tax differential ........... Effect of foreign income, previously taxed ................. State income taxes, net of Federal income tax effect ........ Provision for future repatriation of Canadian earnings ............. Other -- net ....................... Provision (benefit) for income taxes . $ 295 ---(449) 495 $ 6,001 (960) -395 -997 $ 1,442 (1,300) (804) 204 -158
-750 -50 -(50) ------------------------------$ 391 $ 7,183 $ (350) ===============================
Deferred tax assets (liabilities) are comprised of the following as of June 30, 1997 and 1996: 1997 1996 ---------------(in thousands) Deferred tax assets: Reserves for doubtful accounts, claims, etc Retirement plans ........................... Alternative minimum tax .................... Current deferred tax assets ............ State income taxes ......................... Difference between book and tax carrying value of Hudson LLC ............. Difference in the Venture's book and tax year-end ............................. Noncurrent deferred tax assets ......... Net deferred tax assets ................ Deferred tax liabilities: Difference between book and tax carrying value of Hudson LLC Property, equipment and leasehold rights, principally depreciation -- domestic Provision for future repatriation of Canadian earnings................... Interest capitalized on financial statements
319 $ 264 108 -285 ----------------712 264 ---------------510 -193 137
525 554 ---------------1,228 691 ---------------$1,940 $ 955 ---------------$ -(857) (750) (440) $ (65) (407) (750) (495)
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---------------(2,047) (1,717) ---------------$ (107) $ (762) ================
Noncurrent deferred tax liabilities Net deferred tax liabilities
Under SFAS No. 109, a valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. At July 1, 1993, the Corporation provided a 100% valuation allowance for the net operating loss carryforwards and depreciation differences relating to its Canadian operations since realization of the related deferred tax assets was uncertain at that time. The net change in the valuation allowance for fiscal 1996 and 1995 was a decrease of $960,000 and $2,104,000, respectively. The decrease reflects: (i) the tax effect resulting from utilization of a portion of the Corporation's Canadian depreciation differences to offset its provision for foreign income taxes in the amount of $804,000 for fiscal 1995; and (ii) the recognition of $960,000 and $1,300,000 for fiscal 1996 and 1995, respectively, of deferred tax assets resulting from a review of prior Canadian operating results and anticipation of future Canadian earnings, which together with cessation of operations of the Corporation's Canadian fixed base operations, made the realization of additional Canadian depreciation differences more likely than not. As a result of the Transaction, $852,000 of deferred tax assets related to the Corporation's Canadian subsidiary were transferred to Hudson LLC on June 1, 1996 and the Corporation will no longer be required to provide for or reflect foreign taxes in its consolidated financial statements. In addition, beginning June 30, 1996, the Corporation's deferred tax assets and liabilities relating to Hudson LLC appear as a separate item within deferred taxes. Due to anticipation by the Corporation of the future repatriation of Canadian earnings, the Corporation provided in fiscal 1996 for U.S. income taxes of $750,000. In April 1997, Hudson LLC's Canadian subsidiary was notified by Canadian taxation authorities of their intention to disallow 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 (as currently proposed) is sustained, a foreign income tax liability of approximately $3,900,000, plus interest, would result. The Corporation has agreed to indemnify and hold harmless Hudson LLC, LAGS and each affiliate of LAGS against any liability resulting from this matter. 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. For tax purposes, the Corporation will receive a pass-through of its share of taxable income or loss from Hudson LLC and will provide for and pay federal and state taxes on its share of the income or loss of Hudson LLC. 9. COMMON STOCK (a) The Corporation's 1981 Non-Qualified Stock Option and Stock Appreciation Rights Plan (the Plan) provided for the issuance of non-qualified stock options (Options) to key employees. In connection with these Options, the Board of Directors' Stock Option and Appreciation Rights Committee (the Committee) could also grant stock appreciation rights (Rights) exercisable in lieu of the Options, and/or limited rights (Limited Rights) exercisable under certain circumstances in lieu of the Options. No further Options or Rights may be granted under the Plan. The exercise price of outstanding Options under the Plan is the fair market value (as defined in the Plan) of the shares of the Corporation's common stock on the date of grant. Activity in Options during fiscal 1997 and 1996 was as follows: Outstanding June 30, 1995........................... Exercised ($14.79 per share)........................ Exercised ($19.07 per share)........................ Canceled ($19.07 per share)......................... Outstanding June 30, 1996........................... 61,500 (10,000) (1,900) (200) --------49,400
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Exercised ($14.79 per share)........................ Exercised ($19.07 per share)........................ Outstanding June 30, 1997........................... (8,500) (700) --------40,200 =========
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26 Limited Rights were also granted in conjunction with Options granted in May 1990 and June 1991 of which 36,500 ($14.79 per share) and 3,700 ($19.07 per share) were outstanding at June 30, 1997. At June 30, 1997 the aggregate Option price and quoted market value of Corporation stock subject to outstanding Options were $610,000 and $1,528,000, respectively. All outstanding Options and Rights were granted with a term of ten years and are currently exercisable. The Committee was also authorized to grant additional separate stock appreciation rights (Independent Rights), which are not connected with any Option. Activity in Independent Rights during fiscal 1996 was as follows: Outstanding June 30, 1995.......................... Exercised ($17.32 per share)....................... Outstanding June 30, 1996.......................... 18,000 (18,000) ---------=========
(b) The Corporation's 1981 Incentive Stock Option (ISO) and Stock Appreciation Rights Plan (the Plan) provided for the issuance of ISO's to key employees. The fair market value, as defined, at the date of grant, for which an individual may have been awarded ISO's, was limited to $100,000 per calendar year. No further ISO's may be granted under the Plan. The exercise price of all ISO's outstanding under the Plan is one hundred percent (100%) of the fair market value (as defined in the Plan) of the shares of the Corporation's common stock on the date of grant. The Committee was also authorized to grant Rights and/or Limited Rights in conjunction with ISO's granted under the Plan. In all material respects, Rights and Limited Rights granted under the ISO Plan operate in a manner identical to Rights and Limited Rights granted under the 1981 Non-Qualified Stock Option and Stock Appreciation Rights Plan. Activity in ISO's (and Rights) during fiscal 1997 and 1996 was as follows: Outstanding June 30, 1995.......................... Exercised ($17.00 per share)....................... Exercised ($19.88 per share)....................... Canceled ($19.88 per share)........................ Outstanding June 30, 1996.......................... Exercised ($19.88 per share)....................... Outstanding June 30, 1997.......................... 48,800 (36,000) (4,100) (400) --------8,300 (1,300) --------7,000 =========
Limited Rights were also granted in conjunction with ISO's granted in June 1991 of which 7,000 ($19.88 per share) were outstanding at June 30, 1997. At June 30, 1997 the aggregate ISO price and quoted market value of Corporation stock subject to outstanding ISO's were $139,000 and $266,000, respectively. All outstanding ISO's were granted with a term of ten years and are currently exercisable. (c) Common Stock Reserved: Common shares were reserved for issuance at June 30, 1997 as follows: Exercise of incentive stock options -- 1981 Plan............ Exercise of non-qualified stock options -- 1981 Plan........ Total..................................................... 7,000 40,200 --------47,200 =========
(d) In fiscal 1997, the Board of Directors authorized the repurchase of up to
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400,000 shares of the Corporation's common stock, which purchases could be made from time to time in either open market or privately negotiated transactions. Prior to the fiscal 1997 authorizations, the Corporation still had authority to repurchase up to 35,700 shares from a previous authorization. During fiscal 1997, the Corporation repurchased 243,000 shares in the open market for an aggregate purchase price of $9,152,000. (e) In connection with the conversion of the Debentures, during fiscal 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 $25,645,000. 10. RETIREMENT PLANS The Corporation maintains a 401(k) Profit Sharing Plan (the Plan) covering substantially all of its domestic employees not subject to collective bargaining agreements. Pursuant to the Plan, the Corporation makes a matching contribution equal to 25% of the Compensation (as defined in the Plan) that each participant elects to defer (up to 5% of the participant's Compensation) and contribute to the Plan. In addition, the Corporation may make a discretionary annual contribution. As of January 1, 1997, Hudson LLC established a 401(k) Profit Sharing Plan covering substantially all of its domestic employees not subject to collective bargaining agreements which contains terms and conditions similar to those of the Plan. Prior to this date, such employees were covered under the Plan. During fiscal 1997, 1996 and 1995, the Corporation contributed $219,000, $798,000 and $845,000, respectively, to the Plan representing employer matching and discretionary contributions. During fiscal 1995, June 1, 1996 became a Registered Retirement employees not subject subsidiary may make a 1995, such subsidiary RRSP. the Corporation's Canadian subsidiary (which effective direct subsidiary of Hudson LLC) established a Group Savings Plan (RRSP) covering substantially all of its to collective bargaining agreements. Under the RRSP such discretionary annual contribution. During fiscal 1996 and contributed $79,000 and $61,000, respectively, to the
Net expense related to the Corporation's retirement plans, including the RRSP, was $238,000, $877,000 and $701,000 for fiscal 1997, 1996 and 1995, respectively. 11. COMMITMENTS AND CONTINGENCIES (a) LEASES Minimum rental payments for future fiscal years under non-cancelable operating leases are: $460,000 in 1998; $471,000 in 1999; $482,000 in 2000; $492,000 in 2001; $503,000 in 2002; and $282,000 thereafter. Total rental expense incurred amounted to $346,000, $5,740,000 and $6,592,000 for fiscal 1997, 1996 and 1995 (excluding sublease income amounting to $517,000 and $1,337,000 in fiscal 1996 and 1995), respectively. (b) LITIGATION 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, concluded after several adjournments on May 7, 1997, at which time the trial judge indicated that he intended to issue his decision on or about June 30, 1997. However, to date the judge has not yet rendered his decision.
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27 Innotech (which due to a name change is now called Aerospace Realties (1986) Limited (Aerospace)) had agreed to defend and indemnify the Corporation against claims of whatever nature asserted in connection with, arising out of or resulting from the fuel supply agreement with Texaco. By a letter dated February 15, 1996, the Corporation was notified by Aerospace that Aerospace had entered into a liquidation phase and could no longer defray the cost of defending the Texaco Lawsuit or pay for any damages resulting therefrom. The Corporation has agreed to indemnify and hold harmless Hudson LLC, LAGS and each affiliate of LAGS against all losses related to the Texaco Lawsuit. The Corporation's management believes, and counsel for the Corporation has advised based on the facts as disclosed at trial, that the Corporation will successfully defend this action. 12. RELATED PARTY TRANSACTION Since February 1988, the Corporation has engaged an investment banking firm of which a director of the Corporation is affiliated to render certain investment banking services. In connection with the Transaction, such investment banking firm was paid $517,000 for services rendered in fiscal 1996 and if the LAGS Option is exercised, would be entitled to a fee of 2% of the option price. 13. QUARTERLY FINANCIAL DATA (UNAUDITED) The following table sets forth unaudited quarterly financial information for fiscal 1997 and 1996: First Second Third Fourth Quarter Quarter Quarter Quarter - ------------------------------------------------------------------(in thousands, except per share amounts) 1997(a) REVENUES .......... $ 1,150 $ 1,154 $ 1,426 $ 1,334 GROSS PROFIT ...... 982 988 1,267 1,175 NET EARNINGS ...... 686 1,660 1,901 (3,772)(b) EARNINGS PER SHARE, PRIMARY: NET EARNINGS .. $ .39 $ .84 $ 1.03 $ (2.11) EARNINGS PER SHARE, FULLY DILUTED: NET EARNINGS .. $ .37 $ .84 $ 1.03 $ (2.11) =================================================================== 1996(a) Revenues .......... $ 34,193 $ 41,052 $ 56,510 $ 25,963 Gross profit ...... 5,515 8,675 16,361 6,633 Net earnings ...... 480 2,395 6,059 1,532 Earnings per share, primary: Net earnings .. $ .41 $ 2.04 $ 5.10 $ 1.28 Earnings per share, fully diluted: Net earnings .. $ .37 $ 1.30 $ 3.06 $ .83 ===================================================================
(a) As a result of the Transaction (see Note 2), effective June 1, 1996 the Corporation's interest in the Aviation Business is accounted for under the equity method. (b) Includes a pre-tax charge of $8,500 related to the Corporation's investment in and advances to the Kohala Joint Venture (see Note 3).
INDEPENDENT AUDITORS' REPORT
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The Stockholders and Board of Directors Hudson General Corporation We have audited the accompanying consolidated balance sheets of Hudson General Corporation and subsidiaries as of June 30, 1997 and 1996 and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the years in the three year period ended June 30, 1997. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hudson General Corporation and subsidiaries at June 30, 1997 and 1996 and the results of their operations and their cash flows for each of the years in the three year period ended June 30, 1997, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Jericho, New York August 15, 1997
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28 CORPORATE INFORMATION
DIRECTORS Jay B. Langner Chairman Milton H. Dresner Developer, Builder and Private Investor Paul R. Pollack Executive Vice President Edward J. Rosenthal Vice Chairman Cramer Rosenthal McGlynn, Inc. Michael Rubin President Hans H. Sammer Consultant, Retired Director, Investment Banking Group Prudential Securities Incorporated Richard D. Segal Chairman and Chief Executive Officer Seavest Inc. Stanley S. Shuman Executive Vice President and Managing Director Allen &Company Incorporated CORPORATE OFFICERS Jay B. Langner Chairman of the Board and Chief Executive Officer Michael Rubin President Paul R. Pollack Executive Vice President and Chief Operating Officer; President, Hudson General LLC Fernando DiBenedetto Senior Vice President--Operations Raymond J. Rieder Senior Vice President and Chief Marketing Officer; Executive Vice President, Hudson General LLC Rocco Daloia Vice President--Maintenance and Facilities Barry I. Regenstein Vice President and Chief Financial Officer Noah E. Rockowitz Vice President, General Counsel and Secretary Henry A. Satinskas Vice President--Transportation Services DIVISIONAL OFFICERS UNITED STATES Salvatore J. Altizio, Jr. Vice President--Operations Administration Glenn J. Bassett Regional Vice President David L. Finch Vice President--Contract Services D. Ross Jacobs Vice President--Marketing Frederick C. Knapp, Jr. Vice President--Fuel Services and Planning Bert J. Smith Vice President--Airport Operations Gary D. Watson Regional Vice President David M. Ziolkowski Regional Vice President CANADA Thomas D. Culp Vice President--Marketing Audrey J. Laurin Vice President and Controller Denis A. A. Lawn Vice President--Operations - -----------------------------------------------------------------------------------------------------------------------------------
TRANSFER AGENT AND REGISTRAR BankBoston, N.A. c/o Boston EquiServe, Limited Partnership P.O. Box 8040 Boston, Massachusetts 02266-8040 SHARES LISTED Common-American Stock Exchange (Symbol: HGC)
INDEPENDENT AUDITORS KPMG Peat Marwick LLP One Jericho Plaza Jericho, New York 11753 10-K AVAILABLE The Annual Report, on Form 10-K, as filed with the Securities and Exchange Commission, is available to shareholders without charge upon written request to: Secretary Hudson General Corporation 111 Great Neck Road Great Neck, New York 11021
CORPORATE HEADQUARTERS 111 Great Neck Road Great Neck, New York 11021 (516) 487-8610 CANADIAN ADMINISTRATIVE OFFICES 100 Alexis Nihon, Suite 400 Ville St. Laurent, Quebec H4M 2N9 (514) 748-2277
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29 HUDSON GENERAL CORPORATION 111 Great Neck Road P.O. Box 355 Great Neck, New York 11022 127 </TEXT> </DOCUMENT>
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1 EXHIBIT 21 Subsidiaries of the Registrant
128
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2 EXHIBIT 21 HUDSON GENERAL CORPORATION SUBSIDIARIES
Jurisdiction of Incorporation ------------Hudson General Aviation Services Inc. Hudson Aviation Services, Inc. California Hudson General Coach Lines, Inc. Hudson Aviation Services, Inc. Delaware Hudson Aviation Services, Inc. Hudson Aviation Services-Oakland, Inc. Hudson Kohala Inc. Hudson General LLC Hudson General Leasing Corporation Canada California California Delaware Massachusetts California Delaware Delaware Delaware
129 </TEXT> </DOCUMENT>
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1 EXHIBIT 23 Consent of KPMG Peat Marwick LLP, the Corporation's independent auditors to the incorporation by reference into the Corporation's Registration Statement on Form S-8, as amended, Registration No. 2-75137.
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2 Independent Auditors' Consent Board of Directors Hudson General Corporation: We consent to the incorporation by reference in the Registration Statement (No. 2-75137) on Form S-8 of Hudson General Corporation of (i) our report dated August 15, 1997, relating to the consolidated balance sheets of Hudson General Corporation and subsidiaries as of June 30, 1997 and 1996 and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the years in the three-year period ended June 30, 1997 which report is incorporated by reference in the June 30, 1997 annual report on Form 10-K of Hudson General Corporation, and (ii) our report dated August 15, 1997, relating to the financial statement schedule of Hudson General Corporation for each of the years in the three-year period ended June 30, 1997, our report dated August 15, 1997, relating to the consolidated balance sheets of Hudson General LLC and subsidiaries as of June 30, 1997 and 1996 and the related consolidated statements of earnings, members' equity and cash flows and related financial statement schedule for the year ended June 30, 1997 and the period June 1 (inception) to June 30, 1996, and our report dated August 15, 1997, relating to the consolidated balance sheets of Kohala Joint Venture and subsidiary as of June 30, 1997 and 1996 and the related consolidated statements of operations and partners' deficit, and cash flows and related financial statement schedule for each of the years in the three-year period ended June 30, 1997 which reports appear in the June 30, 1997 annual report on Form 10-K of Hudson General Corporation.
KPMG PEAT MARWICK LLP Jericho, New York September 11, 1997
131 </TEXT> </DOCUMENT>
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<ARTICLE> 5 <PERIOD-TYPE> <FISCAL-YEAR-END> <PERIOD-START> <PERIOD-END> <CASH> <SECURITIES> <RECEIVABLES> <ALLOWANCES> <INVENTORY> <CURRENT-ASSETS> <PP <DEPRECIATION> <TOTAL-ASSETS> <CURRENT-LIABILITIES> <BONDS> <PREFERRED-MANDATORY> <PREFERRED> <COMMON> <OTHER-SE> <TOTAL-LIABILITY-AND-EQUITY> <SALES> <TOTAL-REVENUES> <CGS> <TOTAL-COSTS> <OTHER-EXPENSES> <LOSS-PROVISION> <INTEREST-EXPENSE> <INCOME-PRETAX> <INCOME-TAX> <INCOME-CONTINUING> <DISCONTINUED> <EXTRAORDINARY> <CHANGES> <NET-INCOME> <EPS-PRIMARY> <EPS-DILUTED> 12-MOS JUN-30-1997 JUL-01-1996 JUN-30-1997 18,425 8,792 540 0 0 28,368 2,902 0 68,188 2,697 0 0 0 2,092 63,292 68,188 5,064 5,064 0 8,819 8,047 0 0 866 391 0 0 0 0 475 .26 .26
</TEXT> </DOCUMENT>
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Hudson General Valuation Case Study

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Hudson General Valuation Case Study

For the transition period from

Commission file number 1-5896

11021 (Zip Code)

Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Common Stock, $1 par value

Name of each exchange on which registered American Stock Exchange, Inc.

Hudson General Valuation Case Study

Hudson General Valuation Case Study

BUSINESS General Development of Business

Hudson General Valuation Case Study

Hudson General Valuation Case Study

Hudson General Valuation Case Study

Hudson General Valuation Case Study

Hudson General Valuation Case Study

Hudson General Valuation Case Study

Hudson General Valuation Case Study

Hudson General Valuation Case Study

Hudson General Valuation Case Study

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Hudson General Valuation Case Study

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Hudson General Valuation Case Study

Hudson General Valuation Case Study

Hudson General Valuation Case Study

F20 F21 F22

Hudson General Valuation Case Study

3.2(a) 3.2(b) 4.4(a)

Hudson General Valuation Case Study

Hudson General Valuation Case Study

EXHIBIT NO. ------10.3*

Hudson General Valuation Case Study

EXHIBIT NO. ------10.6(a)*

Hudson General Valuation Case Study

Hudson General Valuation Case Study

Hudson General Valuation Case Study

Chief Financial Officer and Controller

Hudson General Valuation Case Study

Hudson General Valuation Case Study

$ --========== $1,579,000 ==========

$ --========= $ 362,000 =========

$ --=========== $(1,820,000)(B,C,D) ===========

$ --========= $ 121,000(A) =========

1995 - Allowance for doubtful accounts receivable...

Hudson General Valuation Case Study

Hudson General Valuation Case Study

See accompanying notes to consolidated financial statements. 27

Hudson General Valuation Case Study

See accompanying notes to consolidated financial statements. 28

Hudson General Valuation Case Study

Retained Earnings -------$ ----

Members' Equity -----$ -10,653 43

-15,939 -15,939 ---------------------------------------------------------$19,966 $16,794 ($1,550) $ 35,210 ==========================================================

Balance, June 30, 1997 ................................