<PAGE> 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 13-1947395
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 Great Neck Road, Great Neck, N.Y. 11021
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (5l6) 487-8610
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $1 par value American Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
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:
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Document Part
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<S> <C>
1997 Proxy Statement of Registrant (to be filed with the III
Commission pursuant to Regulation 14A no later than 120 days
after the close of its fiscal year)
Registrant's 1997 Annual Report to Shareholders I, II, IV
</TABLE>
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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.
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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
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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
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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.
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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.
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ITEM 3. LEGAL PROCEEDINGS
In 1988, Texaco Canada Inc. (Texaco) (now known as McColl-
Frontenac Inc.) instituted a lawsuit (the Texaco Lawsuit) in the Supreme Court
of Ontario, Canada against the Corporation, the Corporation's Canadian
subsidiary (now owned by Hudson LLC) and Petro-Canada Inc. (the corporation
which supplied aviation fuel for the Corporation's Canadian fixed base
operations). The Texaco Lawsuit's allegations, as amended, are that the
defendants interfered with contractual and fiduciary relations, conspired to
injure, and induced the breach of a fuel supply agreement between Texaco and
Innotech Aviation Limited (Innotech) in connection with the purchase by the
Corporation from Innotech in 1984 of certain assets of Innotech's airport ground
services business. The Texaco Lawsuit seeks compensatory and punitive damages
totaling $110,000,000 (Canadian) (approximately $80,000,000 (U.S.)) plus all
profits earned by the defendants subsequent to the alleged breach. The trial,
which began in May 1996, 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
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Corporation has advised based on the facts as disclosed at trial, that the
Corporation will successfully defend this action.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - Not
applicable
ADDITIONAL ITEM
EXECUTIVE OFFICERS OF THE CORPORATION
<TABLE>
<CAPTION>
Name Age Position with Corporation
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<S> <C> <C>
Jay B. Langner 67 Chairman of the Board, Chief Executive Officer and
Director
Michael Rubin 50 President and Director
Paul R. Pollack 55 Executive Vice President, Chief Operating Officer
and Director
Fernando DiBenedetto 48 Senior Vice President - Operations
Raymond J. Rieder 47 Senior Vice President and Chief Marketing
Officer
Barry I. Regenstein 40 Vice President, Chief Financial Officer and
Controller
Noah E. Rockowitz 48 Vice President, Secretary and General Counsel
</TABLE>
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 President-
Finance since 1985. He has been employed in various capacities with the
Corporation since 1971. Mr. Rubin is a Certified Public Accountant.
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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 President-
Marketing 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
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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.
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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.
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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.
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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.
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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.
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Location
in 10-K
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(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 F1
Statement Schedule
II - Valuation and Qualifying Accounts F2
FINANCIAL STATEMENTS OF HUDSON GENERAL LLC AND SUBSIDIARIES:
Independent Auditors' Report of KPMG Peat Marwick LLP. F4
Consolidated Balance Sheets of Hudson General LLC and Subsidiaries at F6
June 30, 1997 and 1996.
Consolidated Statements of Earnings of Hudson General LLC and F5
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 F7
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 F8
</TABLE>
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<TABLE>
<CAPTION>
Location
in 10-K
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<S> <C>
Subsidiaries for the Year Ended June 30, 1997 and the Period June 1,
1996 (Inception) to June 30, 1996.
Notes to Consolidated Financial Statements. F9-F17
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 F18
FINANCIAL STATEMENTS OF KOHALA JOINT VENTURE AND SUBSIDIARY:
Independent Auditors' Report of KPMG Peat Marwick LLP. F20
Consolidated Balance Sheets of Kohala Joint Venture and Subsidiary at F21
June 30, 1997 and 1996.
Consolidated Statements of Operations and Partners' Deficit of Kohala F22
Joint Venture and Subsidiary for the Years Ended June 30, 1997, 1996
and 1995.
Consolidated Statements of Cash Flows of Kohala Joint Venture and F23
Subsidiary for the Years Ended June 30, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements. F24-F31
FINANCIAL STATEMENT SCHEDULE OF KOHALA JOINT VENTURE AND
SUBSIDIARY FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995:
II - Valuation and Qualifying Accounts F32
</TABLE>
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.
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(a)(3) Exhibits
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<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT DESCRIPTION
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<S> <C>
3.1 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.
3.2(a) Amendment to By-laws of the Registrant.
3.2(b) By-laws of the Registrant, as amended to date.
4.4(a) 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.
4.4(b) 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.
4.4(c) 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.
4.4(d) 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.
4.4(e) 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.
10.1(a) 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.
10.1(b) Amended and Restated Joint Venture Agreement dated April 29, 1981
between Hudson Kohala Inc. and The Hilton Head Company of Hawaii,
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT DESCRIPTION
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<S> <C>
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.
10.1(d) 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.
10.1(e) 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.
10.1(f) 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.
10.1(g) 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.
10.1(h) 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.
10.1(i) 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.
10.2* 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.
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT DESCRIPTION
------- -------------------
<S> <C>
10.3* 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.
10.4(a)* 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.
10.4(b)* 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.
10.4(c)* 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.
10.5(a)* 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.
10.5(b)* 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.
10.5(c)* 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.
10.5(d)* 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.
10.5(e)* 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.
10.5(f)* 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.
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT DESCRIPTION
------- -------------------
<S> <C>
10.6(a)* 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.
10.6(b)* 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.
10.6(c)* 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.
10.7* 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.
10.8(a) 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.
10.8(b) 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.
10.8(c) 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.
10.8(d) 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.
11 Computation 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.
21 Subsidiaries of the Registrant.
23 Consent of KPMG Peat Marwick LLP, the Corporation's independent
auditors, to the incorporation by reference into the
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT DESCRIPTION
------- -------------------
<S> <C>
Corporation's Registration Statement on Form S-8, as amended,
Registration No. 2-75137.
(b) No reports on Form 8-K have been filed by the Registrant
during the last quarter of the period covered by this report.
(c) Reference is made to Item 14(a)(3) above.
(d) Reference is made to Item 14(a)(2) above.
* Denotes management contract for compensatory plan or
arrangement.
</TABLE>
21
<PAGE> 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/ Signature Title
--------- -----
/s/ Jay B. Langner Chairman of the Board, and
-------------- Chief Executive Officer
Jay B. Langner
/s/ Michael Rubin President
--------------
Michael Rubin
/s/ Barry I. Regenstein Chief Financial Officer and Controller
-------------------
Barry I. Regenstein
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 /s/ Michael Rubin
-------------- -------------
Jay B. Langner Michael Rubin
/s/ Milton H. Dresner /s/ Hans H. Sammer
----------------- --------------
Milton H. Dresner Hans H. Sammer
/s/ Paul R. Pollack /s/ Richard D. Segal
--------------- ----------------
Paul R. Pollack Richard D. Segal
/s/ Edward J. Rosenthal /s/ Stanley S. Shuman
------------------- -----------------
Edward J. Rosenthal Stanley S. Shuman
22
<PAGE> 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
<PAGE> 24
SCHEDULE II
HUDSON GENERAL CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
..........ADDITIONS.........
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COSTS AND OTHER FROM END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS RESERVES OF YEAR
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 - Allowance for doubtful
accounts receivable... $ --- $ --- $ --- $ --- $ ---
========== ========= =========== ========= ==========
1996 - Allowance for doubtful
accounts receivable.. $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
========== ========= =========== ========= ==========
</TABLE>
NOTES:
(A) Write-offs.
(B) Foreign exchange.
(C) Recoveries.
(D) Includes transfer of $1,804,000 to Hudson General LLC.
24
<PAGE> 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
<PAGE> 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
<PAGE> 27
CONSOLIDATED STATEMENTS OF EARNINGS
Hudson General LLC and Subsidiaries
(in thousands)
<TABLE>
<CAPTION>
Period June 1
YEAR ENDED (Inception) to
JUNE 30, June 30,
1997 1996
--------- --------
<S> <C> <C>
Revenues ................................. $ 167,729 $ 12,096
--------- --------
Costs and expenses:
Operating ............................ 128,749 9,259
Depreciation and amortization ........ 7,510 673
Selling, general & administrative .... 13,625 1,317
--------- --------
Total costs and expenses .......... 149,884 11,249
--------- --------
Operating income ......................... 17,845 847
Interest income .......................... 1,137 217
Interest expense ......................... (958) (168)
--------- --------
Earnings before provision for income taxes 18,024 896
Provision for income taxes ............... 2,085 41
--------- --------
Net earnings ............................. $ 15,939 $ 855
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE> 28
CONSOLIDATED BALANCE SHEETS
Hudson General LLC and Subsidiaries
(in thousands)
<TABLE>
<CAPTION>
June 30,
--------------------------
1997 1996
-------- --------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents .......................... $ 12,324 $ 19,269
Accounts and notes receivable - net ................ 15,289 18,055
Inventory .......................................... 1,272 1,115
Prepaid expenses and other assets .................. 1,439 1,202
-------- --------
Total current assets ......................... 30,324 39,641
Property, equipment and leasehold rights at cost,
less accumulated depreciation and amortization ..... 44,948 37,442
Long-term receivables - net ........................... 1,361 2,028
Deferred income taxes ................................. 174 852
Excess cost over fair value of net assets acquired .... 713 761
-------- --------
$ 77,520 $ 80,724
======== ========
Liabilities and Members' Equity
Current liabilities:
Accounts payable ................................... $ 18,528 $ 15,104
Income taxes payable ............................... 1,280 350
Accrued expenses and other liabilities ............. 17,511 17,735
Advances from Hudson General Corporation - net ..... 361 7,233
-------- --------
Total current liabilities .................... 37,680 40,422
-------- --------
Long-term debt, subordinated .......................... -- 28,751
Note payable to Hudson General Corporation ............ 4,630 --
-------- --------
Total noncurrent liabilities ................. 4,630 28,751
-------- --------
Members' Equity:
Contributed capital ................................ 19,966 12,123
Retained earnings .................................. 16,794 855
Equity adjustments from foreign currency translation (1,550) (1,427)
-------- --------
Total members' equity ........................ 35,210 11,551
-------- --------
$ 77,520 $ 80,724
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 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)
<TABLE>
<CAPTION>
Equity
Adjustments from
Contributed Retained Foreign Currency Members'
Capital Earnings Translation Equity
------- -------- ----------- ------
<S> <C> <C> <C> <C>
Balance, June 1, 1996 (Inception) ..................... $ -- $ -- $ -- $ --
Equity contributions .............................. 12,123 -- (1,470) 10,653
Equity adjustment from foreign currency translation -- -- 43 43
Net earnings ...................................... -- 855 -- 855
----------------------------------------------------------
Balance, June 30, 1996 ................................ 12,123 855 (1,427) 11,551
Equity contributions .............................. 7,843 -- -- 7,843
Equity adjustment from foreign currency translation -- -- (123) (123)
Net earnings ...................................... -- 15,939 -- 15,939
----------------------------------------------------------
Balance, June 30, 1997 ................................ $19,966 $16,794 ($1,550) $ 35,210
==========================================================
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 30
CONSOLIDATED STATEMENTS OF CASH FLOWS
Hudson General LLC and Subsidiaries
(in thousands)
<TABLE>
<CAPTION>
Period June 1
YEAR ENDED (Inception) to
JUNE 30, June 30,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings .................................................... $ 15,939 $ 855
Adjustments to reconcile net earnings to net cash provided (used)
by operating activities
Depreciation and amortization ............................ 7,510 673
Provision for losses on accounts receivable - net ........ 188 15
Loss (gain) on sale of equipment ......................... (60) 67
Change in other current assets and liabilities:
Accounts and notes receivables - net ................... 2,533 (7,011)
Inventory .............................................. (162) (40)
Prepaid expenses and other assets ...................... (242) (256)
Accounts payable ....................................... 3,435 2,365
Income taxes payable ................................... 940 38
Accrued expenses and other liabilities ................. (179) (1,698)
Decrease in long-term receivables - net .................. 666 36
Decrease in deferred income taxes ........................ 676 --
Other - net .............................................. 44 5
-------- --------
Net cash provided (used) by operating activities ....... 31,288 (4,951)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment ......................... (15,218) (1,825)
Proceeds from sale of property and equipment ................ 166 23
-------- --------
Net cash used by investing activities .................. (15,052) (1,802)
-------- --------
Cash flows from financing activities:
Capital contributions ....................................... 7,843 15,848
Advances from (repayments to) Hudson General Corporation .... (7,302) 7,233
Principal repayment of note payable to Hudson General
Corporation .............................................. (21,283) --
Principal repayments on long-term debt ...................... (2,408) (70)
-------- --------
Net cash (used) provided by financing activities ....... (23,150) 23,011
-------- --------
Effect of exchange rate changes on cash ......................... (31) 9
-------- --------
Net (decrease) increase in cash and cash equivalents ............ (6,945) 16,267
Cash and cash equivalents at beginning of period ................ 19,269 3,002
-------- --------
Cash and cash equivalents at end of period ...................... $ 12,324 $ 19,269
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
JUNE 30, June 30,
1997 1996
------- -------
(in thousands)
<S> <C> <C>
Rental and service fees receivable .................................... $14,762 $17,500
Note receivable ....................................................... 1,888 2,414
Equipment rental contracts and other notes receivable
(less unearned finance income of $39,000 in 1996) ................ -- 169
------- -------
16,650 20,083
Less: current portion (net of allowance for doubtful
accounts of $1,670,000 and $1,784,000) ........................... 15,289 18,055
------- -------
Long-term portion ..................................................... $ 1,361 $ 2,028
======= =======
</TABLE>
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
33
<PAGE> 34
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.
Accrued expenses and other liabilities at June 30, 1997 and 1996 consisted of
the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Salaries and wages............................ $ 6,327 $ 6,204
Insurance..................................... 5,608 3,798
Operating expenses payable.................... 3,102 3,318
Other......................................... 2,474 4,415
-------- --------
$ 17,511 $ 17,735
======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
Estimated
Useful Lives 1997 1996
------------ ---- ----
(in thousands)
<S> <C> <C> <C>
Operating equipment........................................... 2 - 12 $85,349 $72,916
Leasehold rights.............................................. 25 2,400 2,400
Buildings..................................................... 20 1,474 1,468
Office furnishings and equipment.............................. 3 - 10 3,868 3,365
Leasehold improvements........................................ 2 - 28 6,464 6,220
------- -------
99,555 86,369
Accumulated depreciation and amortization (54,607) (48,927)
------- -------
$44,948 $37,442
======= =======
</TABLE>
34
<PAGE> 35
5. CANADIAN OPERATIONS
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
<PAGE> 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.
<TABLE>
<CAPTION>
1997 1996
------ ------
(in thousands)
<S> <C> <C>
Foreign:
Current ..................................... $1,061 $ 41
Deferred .................................... 659 --
State:
Current ..................................... 344 --
Deferred .................................... 21 --
------ ----
$2,085 $ 41
====== ====
</TABLE>
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):
<TABLE>
<CAPTION>
1997 1996
---- ----
Deferred tax assets: (in thousands)
<S> <C> <C>
Reserves for doubtful accounts, claims, etc..................... $277 $196
Minimum tax credit carryforward................................. --- 65
Property, equipment and leasehold rights, principally
depreciation - foreign....................................... -- 591
--- ----
Total deferred tax assets................................ 277 852
--- ----
</TABLE>
36
<PAGE> 37
<TABLE>
<CAPTION>
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Deferred tax liabilities:
State and local income taxes................................ (21) ---
Property, equipment and leasehold rights, principally
depreciation - foreign................................... (82) ---
------
Total deferred tax liabilities....................... (103) ---
------
Net deferred tax asset........................... $ 174 $852
====== ====
</TABLE>
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
<PAGE> 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. COMMITMENTS AND CONTINGENCIES
(a) 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
<PAGE> 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
<PAGE> 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
<TABLE>
<CAPTION>
COLUMN A 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
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 - Allowance for doubtful
accounts receivable $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
========== ======== ======== ========= ==========
</TABLE>
NOTES:
(A) Write-offs.
(B) Foreign exchange.
(C) Recoveries.
(D) Represents transfer of $1,804,000 from Hudson General
Corporation.
40
<PAGE> 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
<PAGE> 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
<PAGE> 43
KOHALA JOINT VENTURE AND SUBSIDIARY
Consolidated Balance Sheets
June 30, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
------------ -----------
<S> <C> <C>
Cash $ 730,000 266,800
Accounts receivable 39,200 48,300
Accrued interest receivable 179,200 237,600
Mortgage notes receivable, net (including amounts from related parties
of $142,700 and $386,500 in 1997 and 1996, respectively) 2,561,000 4,926,000
Land and development costs, net 9,264,200 26,709,400
Property, plant and equipment, net 1,560,900 1,646,000
Model home, net -- 593,600
Foreclosed real estate, net 2,853,600 2,200,200
Other 28,700 85,700
------------ -----------
$ 17,216,800 36,713,600
============ ===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Note payable -- 576,200
Partner advances and accrued interest payable 54,012,600 50,219,500
Accounts payable and accrued expenses 1,162,500 1,292,000
------------ -----------
Total liabilities 55,175,100 52,087,700
Contingencies
Partners' deficit (37,958,300) (15,374,100)
------------ -----------
$ 17,216,800 36,713,600
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
43
<PAGE> 44
KOHALA JOINT VENTURE AND SUBSIDIARY
Consolidated Statements of Operations and Partners' Deficit
Years ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- ----------
<S> <C> <C> <C>
Net sales $ 1,455,300 676,800 503,600
Cost of sales 1,106,400 365,400 191,300
Write-down of real estate assets 17,000,000 -- --
Selling, general and administrative
expenses 2,340,000 2,952,400 2,851,600
------------ ----------- ----------
Operating loss (18,991,100) (2,641,000) (2,539,300)
Other (income) expense:
Interest expense 3,858,300 3,755,400 3,514,500
Interest income and other (265,200) (354,200) (558,500)
------------ ----------- ----------
Net loss (22,584,200) (6,042,200) (5,495,300)
Partners' deficit, beginning of year (15,374,100) (9,331,900) (3,836,600)
------------ ----------- ----------
Partners' deficit, end of year $(37,958,300) (15,374,100) (9,331,900)
============ =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
44
<PAGE> 45
KOHALA JOINT VENTURE AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Proceeds from land sales $ 765,500 105,200 23,000
Interest income received 266,800 347,300 579,000
Proceeds from water company sales 294,500 341,300 246,600
Land and development cost expenditures (115,200) (159,000) (243,700)
Interest paid (118,100) (212,000) (477,400)
Selling, general and administrative expenditures paid (1,533,700) (1,847,500) (2,062,800)
Collections on mortgage notes 1,279,500 1,678,300 1,404,500
Proceeds from sale of and deposits relating to assets
held in foreclosure 209,100 57,000 89,800
----------- ---------- ----------
Net cash provided by (used in)
operating activities 1,048,400 310,600 (441,000)
----------- ---------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment (12,500) (21,000) (10,900)
Proceeds from sale of property, plant and equipment 500 -- --
----------- ---------- ----------
Net cash used in investing activities (12,000) (21,000) (10,900)
----------- ---------- ----------
Cash flows from financing activities:
Net advances received from partners -- 2,714,400 2,346,100
Contributions in aid of construction received -- -- 6,000
Payments on notes payable (573,200) (2,826,200) (1,932,300)
----------- ---------- ----------
Net cash (used in) provided by financing activities (573,200) (111,800) 419,800
----------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents 463,200 177,800 (32,100)
Cash and cash equivalents at beginning of year 266,800 89,000 121,100
----------- ---------- ----------
Cash and cash equivalents at end of year $ 730,000 266,800 89,000
=========== ========== ==========
Non cash financing:
Issuance of note payable for land development $ -- -- 576,200
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
45
<PAGE> 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).
(d) Revenue Recognition and Land Sales
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
<PAGE> 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) Estimated Costs to Complete
At 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.
(h) Property, Plant and Equipment
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:
<TABLE>
<CAPTION>
Estimated
useful lives 1997 1996
------------ ---- ----
<S> <C> <C> <C>
Water distribution systems 20-50 years $ 2,773,700 2,773,700
Plant structures and equipment 3-10 years 182,900 190,400
----------- ---------
2,956,600 2,964,100
Accumulated depreciation (867,200) (789,600)
Contributions in aid of construction (528,500) (528,500)
----------- ---------
$ 1,560,900 1,646,000
=========== =========
</TABLE>
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
<PAGE> 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) Income Taxes
As 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.
(k) Statements of Cash Flows
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:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net loss $(22,584,200) (6,042,200) (5,495,300)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Write-down of real estate assets 17,000,000 -- --
Depreciation and amortization 183,400 173,600 176,400
Provision for losses and discounts on
mortgages receivable 600,000 600,000 988,500
Provision for losses on foreclosed real estate -- 356,300 --
Sale of assets held in foreclosure 209,100 57,000 89,800
Interest expense in excess of interest paid 3,740,200 3,543,400 3,037,100
Mortgage loans originated on land sales (339,900) (206,000) (209,500)
Cash collections on mortgage loans 1,279,500 1,678,300 1,404,500
Excess of cost of sales over land and
development costs paid 991,200 206,400 52,400
Accrued interest on mortgages receivable 58,400 2,200 23,900
Cash for water sales in excess of accrual 9,100 (4,900) (4,300)
Real estate tax accruals (48,000) 35,700 (434,400)
Other (50,400) (89,200) (70,100)
------------ ---------- ----------
Total adjustments 23,632,600 6,352,800 5,054,300
------------ ---------- ----------
Net cash provided by (used in) operating activities $ 1,048,400 310,600 (441,000)
============ ========== ==========
</TABLE>
(Continued)
48
<PAGE> 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:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Mortgage notes receivable $ 5,796,600 7,944,700
Allowance for uncollectible accounts (3,166,300) (2,949,400)
Reserve for cash discounts and other
allowances (69,300) (69,300)
----------- ----------
Mortgage notes receivable, net $ 2,561,000 4,926,000
=========== ==========
</TABLE>
(Continued)
49
<PAGE> 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:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1998 $4,543,300
1999 114,000
2000 160,100
2001 151,500
2002 827,700
----------
$5,796,600
==========
</TABLE>
(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
<PAGE> 51
6
KOHALA JOINT VENTURE AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Foreclosed real estate $ 3,530,300 2,903,300
Allowance for losses (676,700) (703,100)
----------- ----------
Foreclosed real estate, net $ 2,853,600 2,200,200
=========== ==========
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 54
Schedule II
KOHALA JOINT VENTURE
AND SUBSIDIARY
Valuation and Qualifying Accounts
Years ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
---------------------------
Balance at Charged to Charged to Deductions Balance at
beginning costs and other from end of
Description of year expenses accounts reserves year
----------- ------- -------- -------- -------- ----
<S> <C> <C> <C> <C> <C>
1997 - Allowance for
uncollectible accounts $2,949,400 600,000 -- 383,100(B) 3,166,300
========== ======== ======== ======== =========
1996 - Allowance for
uncollectible accounts $2,464,200 600,000 -- 114,800(B) 2,949,400
========== ======== ======== ======== =========
1995 - Allowance for
uncollectible accounts $1,661,800 988,500 -- 186,100(B) 2,464,200
========== ======== ======== ======== =========
1997 - Allowance for loss on
foreclosed real estate $ 703,100 -- -- 26,400(B) 676,700
========== ======== ======== ======== =========
1996 - Allowance for loss on
foreclosed real estate $ 486,400 356,300 -- 139,600(B) 703,100
========== ======== ======== ======== =========
1995 - Allowance for loss on
foreclosed real estate $ 745,900 -- (259,500)(A) -- 486,400
========== ======== ======== ======== =========
</TABLE>
(A) Recoveries and other adjustments
(B) Write-offs
54
<PAGE> 55
HUDSON GENERAL CORPORATION & SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
No. Exhibit Pages
--- ------- -------
<S> <C> <C>
3.2(a) Amendment to By-laws of the Registrant. 56-57
3.2(b) By-laws of the Registrant, as amended to date. 58-95
11 Computations of Earnings Per Share Information 96-98
- Primary and Fully Diluted.
13 The Registrant's 1997 Annual Report to Shareholders, which 99-127
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.
21 Subsidiaries of the Registrant. 128-129
23 Consent of KPMG Peat Marwick LLP, the Corporation's 130-131
independent auditors, to the incorporation by reference
into the Corporation's Registration Statement on Form
S-8, as amended, Registration No. 2-75137.
27 Financial Data Schedule. 132
</TABLE>
55
<PAGE> 1
EXHIBIT 3.2(a)
Amendment to By-laws of the Registrant
56
<PAGE> 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
<PAGE> 1
EXHIBIT 3.2(b)
By-laws of the Registrant, as amended to date.
58
<PAGE> 2
As in effect 5/30/97
BY-LAWS OF
HUDSON GENERAL CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
ARTICLE I - Offices
Section 1. Registered Office 1
2. Other Offices 1
ARTICLE II - Meetings of Stockholders
Section 1. Place of Meetings 1
2. Annual Meeting 1
3. Special Meetings 4
4. Notice of Meetings 4
5. List of Stockholders 5
6. Quorums, Adjournments 6
7. Organization 6
8. Order of Business 7
9. Voting 7
10. Inspectors 8
ARTICLE III - Board of Directors
Section 1. General Powers 9
2. Number, Qualifications, Election and
Term of Office 9
3. Nomination of Directors 10
4. Place of Meetings 13
5. First Meeting 13
6. Regular Meetings 13
7. Special Meetings 14
8. Notice of Meetings 14
9. Quorum and Manner of Acting 15
10. Organization 15
11. Resignations 16
12. Vacancies 16
13. Removal of Directors 16
14. Compensation 16
15. Committees 17
16. Action by Consent 17
17. Telephonic Meeting 18
</TABLE>
59
<PAGE> 3
By-Law Index (Continued)
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
ARTICLE IV - Officers
Section 1. Number and Qualifications 18
2. Resignations 19
3. Removal 19
4. Chairman of the Board 20
5. The President 19
6. Vice-President 20
7. Treasurer 20
8. Secretary 21
9. The Assistant Treasurer 22
10. The Assistant Secretary 22
11. Officers' Bonds or Other Security 22
12. Compensation 23
ARTICLE V - Stock Certificates and Their Transfer
Section 1. Stock Certificates 23
2. Facsimile Signatures 24
3. Lost or Abandoned Certificates 24
4. Transfers of Stock 25
5. Transfer Agents and Registrars 25
6. Regulations 25
7. Fixing Record Date 26
8. Registered Stockholders 26
ARTICLE VI - Indemnification
Section 1. Power to Indemnify in Actions, Suits or
Proceedings other than Those by or in
the Right of the Corporation 27
2. Power to Indemnify in Actions, Suits or
Proceedings by or in the Right of the
Corporation 28
3. Authorization of Indemnification 28
4. Good Faith Defined 29
5. Indemnification by a Court 30
6. Expenses Payable in Advance 31
7. Non-exclusivity and Survival of
Indemnification 31
8. Insurance 32
9. Meaning of "Corporation" for Purposes of
Article VI 32
ARTICLE VII - General Provisions
Section 1. Dividends 33
2. Reserves 33
3. Seal 34
4. Fiscal Year 34
5. Checks, Notes, Drafts, etc. 34
6. Execution of Contracts, Deeds, etc. 34
7. Voting of Stocks in Other Corporations 34
ARTICLE VIII - Amendments 35
</TABLE>
60
<PAGE> 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 may also have an office or
offices other than said registered office at such place or places, either within
or without the State of Delaware, as the Board of Directors shall from time to
time determine or the business of the Corporation may require.
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
<PAGE> 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
<PAGE> 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 be-
63
<PAGE> 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 rec-
64
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
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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
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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.
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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.
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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.
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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.
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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 with-
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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
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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.
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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;
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(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
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(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.
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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 Cor-
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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 indem-
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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.
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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.
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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.
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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 de-
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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
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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
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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
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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
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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
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<PAGE> 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
<PAGE> 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
<PAGE> 1
EXHIBIT 11
Computations
of
Earnings Per Share Information
Primary and Fully Diluted
96
<PAGE> 2
HUDSON GENERAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE INFORMATION
PRIMARY - NET EARNINGS
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996 1995
------ ------ ------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Net earnings for computing earnings per share - primary $ 475 $ 10,466 $4,593
========= ========= ======
Weighted average number of common and
common equivalent shares outstanding ................. 1,844 1,180 1,245
========= ========= ======
Net earnings per common and common equivalent
share - primary ...................................... $ .26 $ 8.87 $ 3.69
========= ========= ======
</TABLE>
97
<PAGE> 3
HUDSON GENERAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE INFORMATION
FULLY DILUTED - NET EARNINGS
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996 1995
------ ------- ------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Net earnings for computing earnings per
share - primary ........................ $ 475 $10,466 $ 4,593
Reduction of interest expense less
applicable income taxes assuming
conversion of 7% convertible
subordinated debentures due 2011 ........ 50 1,032 1,137
------ ------- ------
Net earnings for computing earnings
per share - fully diluted ............... $ 525 $11,498 $5,730
====== ======= ======
Weighted average number of
common and common equivalent
shares outstanding ...................... 1,844 1,186 1,260
Addition from assumed conversion as of the
beginning of each period of the 7%
convertible subordinated debentures
outstanding at the end
of each period .......................... ---* 884 885
------ ------- ------
Weighted average number of
common and common equivalent
shares outstanding on a fully diluted
basis ................................... 1,844 2,070 2,145
====== ======= ======
Net earnings per common and
common equivalent share - fully
diluted ................................. $ .26 $ 5.56 $ 2.67
====== ======= ======
</TABLE>
* Assumed conversion is antidilutive, and accordingly, the Debentures are
excluded from the computation.
98
<PAGE> 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.
99
<PAGE> 2
[Hudson General Logo]
DEDICATED TO QUALITY SERVICE
1997 ANNUAL REPORT
100
<PAGE> 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
101
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
105
<PAGE> 8
OUR CORE BUSINESS CONTINUES TO GROW,
[PHOTO] 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
106
<PAGE> 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
<PAGE> 10
HUDSON GENERAL AIRPORT LOCATIONS
UNITED STATES LOCATIONS
1 Baltimore-Washington International Airport
2 Fort Lauderdale/Hollywood International Airport
3 Ellington Field (Houston)
4 William P. Hobby Airport (Houston)
5 JFK International Airport
6 LaGuardia Airport
7 Logan International Airport
8 Los Angeles International Airport
9 Miami International Airport
10 Newark International Airport
11 O'Hare International Airport
12 Orlando International Airport
13 Salt Lake City International Airport
14 Washington National Airport
15 Calgary International Airport
16 Edmonton International Airport
17 Halifax International Airport
18 Montreal International Airport (Dorval)
19 Montreal International Airport (Mirabel)
20 Ottawa International Airport
21 St. John's International Airport
22 Toronto International Airport
23 Vancouver International Airport
24 Winnipeg International Airport
[MAP OF UNITED STATES AND CANADA WITH CIRCLED NUMBERS SHOWING AIRPORT LOCATIONS]
108
<PAGE> 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
<PAGE> 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.
<TABLE>
<CAPTION>
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
Revenues .......................... $167,729 $168,811
-------- --------
Costs and expenses:
Operating ....................... 128,749 123,003
Depreciation and amortization ... 7,510 7,693
Selling, general & administrative 13,625 13,052
-------- --------
Total costs and expenses .......... 149,884 143,748
-------- --------
Operating income .................. $ 17,845 $ 25,063
======== ========
</TABLE>
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
<PAGE> 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
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.
<TABLE>
<CAPTION>
Hudson
General Hudson
Corporation LLC Combined
Fiscal June Fiscal Fiscal
1996 1996 1996 1995
-------- ------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Revenues .......... $157,100 $12,096 $169,196 $134,862
-------- ------- -------- --------
Costs and expenses:
Operating ........ 113,744 9,259 123,003 106,070
Depreciation and
amortization .... 7,165 673 7,838 7,528
Selling, general &
administrative .. 16,755 1,317 18,072 14,306
-------- ------- -------- --------
Total costs and
expenses ......... 137,664 11,249 148,913 127,904
-------- ------- -------- --------
Operating income .. $ 19,436 $ 847 $ 20,283 $ 6,958
======== ======= ======== ========
</TABLE>
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
<PAGE> 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
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
<PAGE> 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
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.
113
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA
Hudson General Corporation and Subsidiaries
<TABLE>
<CAPTION>
Fiscal Years Ended June 30,
---------------------------------------------------------------------------
1997(a) 1996(a) 1995 1994 1993
---------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues ..................................... $ 5,064 $157,100 $134,862 $141,784 $ 131,917
Earnings (loss) before extraordinary items and
cumulative effect of change in the method of
accounting for income taxes ................ 475(b) 10,466 4,593 7,310 (2,045)(c)
Earnings (loss) per share before extraordinary
items and cumulative effect of change in the
method of accounting for income taxes:
Primary .................................. .26 8.87 3.69 5.86 (1.65)
Fully diluted ............................ .26 5.56 2.67 3.96 (1.65)
Net earnings (loss) .......................... 475(b) 10,466 4,593 7,760 (2,180)(c)
Net earnings (loss) per share:
Primary .................................. .26 8.87 3.69 6.22 (1.75)
Fully diluted ............................ .26 5.56 2.67 4.17 (1.75)
Total assets ................................. 68,188 48,776 87,568 77,889 72,414
Long-term obligations less current maturities -- -- 29,000 29,000 32,700
Stockholders' equity ......................... 65,384 43,895 21,616 19,223 12,141
Capital expenditures ......................... 326 13,158 10,806 9,815 5,786
Cash dividends per common share .............. .75 .50 .50 -- --
============================================================================
</TABLE>
(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.
(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).
(c) 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.
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996
Market Price Range*
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter ...... 40 32 3/4 24 20
Second Quarter ..... 39 1/2 34 34 1/4 23 5/8
Third Quarter ...... 41 3/8 36 43 3/8 33
Fourth Quarter ..... 40 3/8 35 5/8 43 3/8 34 3/8
</TABLE>
* 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
<PAGE> 17
CONSOLIDATED STATEMENTS OF EARNINGS
Hudson General Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------
1997 1996 1995
-------- --------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Revenues ................................................... $ 5,064 $ 157,100 $ 134,862
-------- --------- ---------
Costs and expenses:
Operating ................................................ -- 113,744 106,070
Depreciation and amortization ............................ 772 7,165 7,528
Selling, general & administrative ........................ 8,047 16,755 14,306
-------- --------- ---------
Total costs and expenses ............................... 8,819 137,664 127,904
-------- --------- ---------
Operating income (loss) .................................... (3,755) 19,436 6,958
Equity in earnings of Hudson General LLC ................... 11,955 855 --
Equity in loss of Kohala Joint Venture ..................... (11,292) (3,021) (2,747)
Interest income ............................................ 3,958 2,222 2,062
Interest expense ........................................... -- (1,843) (2,030)
-------- --------- ---------
Earnings before provision (benefit) for income taxes ....... 866 17,649 4,243
Provision (benefit) for income taxes ....................... 391 7,183 (350)
-------- --------- ---------
Net earnings ............................................... $ 475 $ 10,466 $ 4,593
======== ========= =========
Earnings per share, primary ................................ $ .26 $ 8.87 $ 3.69
======== ========= =========
Earnings per share, fully diluted .......................... $ .26 $ 5.56 $ 2.67
======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
115
<PAGE> 18
CONSOLIDATED BALANCE SHEETS
Hudson General Corporation and Subsidiaries
<TABLE>
<CAPTION>
June 30,
------------------
1997 1996
------------------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $18,425 $12,701
Investment securities available for sale....................................... 8,792 --
Receivables.................................................................... 540 238
Advances to Hudson General LLC -- net.......................................... 361 7,233
Prepaid expenses and other assets.............................................. 250 302
------------------
Total current assets......................................................... 28,368 20,474
Property and equipment at cost, less accumulated
depreciation and amortization.................................................. 2,902 3,428
Investment in Hudson General LLC................................................. 26,395 8,738
Investment in Kohala Joint Venture -- net........................................ 5,893 15,420
Note receivable from Hudson General LLC.......................................... 4,630 --
Other assets -- net.............................................................. -- 716
------------------
$68,188 $48,776
==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................... $ 161 $ 471
Accrued expenses and other liabilities......................................... 2,536 3,648
------------------
Total current liabilities.................................................... 2,697 4,119
------------------
Deferred income taxes............................................................ 107 762
------------------
Stockholders' Equity:
Serial preferred stock (authorized 100,000 shares of $1 par value)
-- none outstanding......................................................... -- --
Common stock (authorized 7,000,000 shares of $1 par value)
-- issued 2,092,160 and 1,277,401 shares.................................... 2,092 1,277
Paid in capital................................................................ 48,732 18,033
Retained earnings.............................................................. 25,722 26,595
Treasury stock, at cost, 357,311 and 114,300 shares............................ (11,162) (2,010)
------------------
Total stockholders' equity................................................... 65,384 43,895
------------------
$68,188 $48,776
==================
</TABLE>
See accompanying notes to consolidated financial statements.
116
<PAGE> 19
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Hudson General Corporation and Subsidiaries
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1994.................................... 1,250,802 $1,251 $ 6,717 $12,716 $(1,461) $ -- $19,223
Common stock issued in connection with exercise of
stock options......................................... 3,000 3 42 -- -- -- 45
Dividends ($.50 per share).............................. -- -- -- (602) -- -- (602)
Equity adjustment from foreign currency translation -- -- -- -- (22) -- (22)
Purchase of treasury stock.............................. -- -- -- -- -- (1,621) (1,621)
Net earnings............................................ -- -- -- 4,593 -- -- 4,593
--------------------------------------------------------------------
Balance, June 30, 1995.................................... 1,253,802 1,254 6,759 16,707 (1,483) (1,621) 21,616
Common stock issued in connection with exercise of
stock options......................................... 16,000 16 249 -- -- -- 265
Dividends ($.50 per share).............................. -- -- -- (578) -- -- (578)
Equity adjustment from foreign currency translation -- -- -- -- 13 -- 13
Effect of equity infusion in Hudson General LLC -- net -- -- 10,783 -- 1,470 -- 12,253
Purchase of treasury stock.............................. -- -- -- -- -- (389) (389)
Conversion of convertible subordinated debentures 7,599 7 242 -- -- -- 249
Net earnings............................................ -- -- -- 10,466 -- -- 10,466
--------------------------------------------------------------------
Balance, June 30, 1996.................................... 1,277,401 1,277 18,033 26,595 -- (2,010) 43,895
Common stock issued in connection with exercise of
stock options......................................... 10,500 11 154 -- -- -- 165
Dividends ($.75 per share).............................. -- -- -- (1,348) -- -- (1,348)
Equity adjustment from foreign currency translation -- -- (101) -- -- -- (101)
Effect of equity infusion in Hudson General LLC -- net -- -- 5,805 -- -- -- 5,805
Purchase of treasury stock.............................. -- -- -- -- -- (9,152) (9,152)
Conversion of convertible subordinated debentures 804,259 804 24,841 -- -- -- 25,645
Net earnings............................................ -- -- -- 475 -- -- 475
--------------------------------------------------------------------
BALANCE, JUNE 30, 1997.................................... 2,092,160 $2,092 $48,732 $25,722 $ -- $(11,162) $65,384
====================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
117
<PAGE> 20
CONSOLIDATED STATEMENTS OF CASH FLOWS
Hudson General Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------
1997 1996 1995
----------------------------------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings ............................................................................. $ 475 $ 10,466 $ 4,593
Adjustments to reconcile net earnings to net cash (used) provided by operating activities:
Depreciation and amortization .......................................................... 772 7,165 7,528
Provision for losses on accounts receivable -- net ..................................... -- 362 178
Increase (decrease) in deferred income taxes ........................................... (655) (1,090) 149
Equity in earnings of Hudson General LLC ............................................... (11,955) (855) --
Equity in loss of Kohala Joint Venture ................................................. 11,292 3,021 2,747
Accrual of interest income on Kohala Joint Venture advances ............................ (1,765) (1,604) (1,471)
Gain on sale of equipment .............................................................. -- (139) (454)
Change in other current assets and liabilities:
Accounts and notes receivables ....................................................... (302) 2,845 5
Inventory ............................................................................ -- (135) (31)
Prepaid expenses and other assets .................................................... 52 (369) 215
Deferred income taxes ................................................................ -- 2,342 (1,656)
Accounts payable ..................................................................... (310) 892 3,650
Income taxes payable ................................................................. -- 165 333
Accrued expenses and other liabilities ............................................... (1,112) 1,785 3,136
Decrease in other assets ............................................................... 23 54 92
Decrease in long-term receivables -- net ............................................... -- 522 553
Other -- net ........................................................................... -- 37 127
----------------------------------
Net cash (used) provided by operating activities ..................................... (3,485) 25,464 19,694
----------------------------------
Cash flows from investing activities:
Purchases of investment securities available for sale .................................... (8,792) -- --
Purchases of property, equipment and leasehold rights .................................... (326) (13,158) (10,806)
Proceeds from sale of property and equipment ............................................. 80 244 935
Repayments from (advances to) Hudson General LLC ......................................... 7,302 (7,233) --
Collections of note receivable from Hudson General LLC ................................... 21,283 -- --
Advances to Kohala Joint Venture -- net .................................................. -- (772) (1,720)
Net cash transferred to Hudson General LLC upon formation ................................ -- (3,002) --
Fees related to transfer of assets to Hudson General LLC ................................. -- (825) --
----------------------------------
Net cash provided (used) by investing activities ..................................... 19,547 (24,746) (11,591)
----------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock ................................................... 162 335 45
Cash dividends paid ...................................................................... (1,348) (578) (602)
Purchase of treasury stock ............................................................... (9,152) (389) (1,621)
----------------------------------
Net cash used by financing activities ................................................ (10,338) (632) (2,178)
----------------------------------
Effect of exchange rate changes on cash .................................................... -- 2 (39)
----------------------------------
Net increase in cash and cash equivalents .................................................. 5,724 88 5,886
----------------------------------
Cash and cash equivalents at beginning of year ............................................. 12,701 12,613 6,727
----------------------------------
Cash and cash equivalents at end of year ................................................... $ 18,425 $ 12,701 $ 12,613
==================================
</TABLE>
See accompanying notes to consolidated financial statements.
118
<PAGE> 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
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
119
<PAGE> 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
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:
<TABLE>
<CAPTION>
1997 1996
------------------
(in thousands)
<S> <C> <C>
Cash and cash equivalents .............. $12,324 $19,269
Accounts and notes receivable -- net ... 15,289 18,055
Other current assets ................... 2,711 2,317
------------------
Total current assets ............... 30,324 39,641
Property, equipment and leasehold rights
at cost, less accumulated depreciation
and amortization ..................... 44,948 37,442
Other assets -- net .................... 2,248 3,641
------------------
$77,520 $80,724
==================
Accounts payable ....................... $18,528 $15,104
Accrued expenses and other liabilities . 18,791 18,085
Advances from Hudson General
Corporation -- net ................... 361 7,233
------------------
Total current liabilities .......... 37,680 40,422
Long-term debt, subordinated ........... -- 28,751
Note payable to Hudson General
Corporation .......................... 4,630 --
Members' equity ........................ 35,210 11,551
------------------
$77,520 $80,724
==================
</TABLE>
Summary results of operations for Hudson LLC for fiscal 1997 and the month of
June 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------
(in thousands)
<S> <C> <C>
Revenues ................................. $167,729 $ 12,096
--------------------
Operating costs .......................... 128,749 9,259
Depreciation and amortization ............ 7,510 673
Selling, general & administrative costs .. 13,625 1,317
--------------------
Total costs and expenses ............... 149,884 11,249
--------------------
Operating income ......................... 17,845 847
Interest income -- net ................... 179 49
--------------------
Earnings before provision for income taxes 18,024 896
Provision for income taxes ............... 2,085 41
--------------------
Net earnings ........................... $ 15,939 $ 855
====================
</TABLE>
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.
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
120
<PAGE> 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:
<TABLE>
<CAPTION>
1997 1996
---------------------
(in thousands)
<S> <C> <C>
Cash and equivalents ......................... $ 730 $ 267
Land and development costs (including capital-
ized interest of $6,591,000 and $6,680,000) 9,264 26,710
Mortgages, accounts and notes receivable ..... 2,779 5,212
Foreclosed real estate -- net ................ 2,854 2,200
Other assets -- net .......................... 1,590 2,325
---------------------
$ 17,217 $ 36,714
=====================
Note payable ................................. $ -- $ 576
Partner advances and accrued interest payable 54,013 50,220
Accounts payable and accrued expenses ........ 1,162 1,292
Partners' deficit ............................ (37,958) (15,374)
---------------------
$ 17,217 $ 36,714
=====================
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------
(in thousands)
<S> <C> <C> <C>
Net sales ...................... $ 1,455 $ 677 $ 504
----------------------------------
Cost of sales .................. 1,106 365 191
Write-down of real estate assets 17,000 -- --
Selling, general and
administrative costs ......... 2,340 2,953 2,852
Interest -- net ................ 3,593 3,401 2,956
----------------------------------
Net loss ....................... $(22,584) $ (6,042) $ (5,495)
==================================
</TABLE>
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.
121
<PAGE> 24
4. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
Accrued expenses and other liabilities at June 30, 1997 and 1996 consisted of
the following:
<TABLE>
<CAPTION>
1997 1996
--------------------
(in thousands)
<S> <C> <C>
Salaries and wages...................... $ 1,940 $2,172
Interest................................ -- 767
Retirement plan costs................... 319 333
Other................................... 277 376
--------------------
$ 2,536 $3,648
====================
</TABLE>
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:
<TABLE>
<CAPTION>
Estimated
Useful Lives 1997 1996
-------------------------------
(in thousands)
<S> <C> <C> <C>
Operating equipment 2 - 12 $ 7,640 $ 8,318
Office furnishings and
equipment............... 5 - 10 821 669
Leasehold improvements 6 - 9 239 216
------------------
8,700 9,203
Accumulated depreciation
and amortization (5,798) (5,775)
------------------
$ 2,902 $ 3,428
==================
</TABLE>
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 termination in fiscal 1995, the Corporation accelerated
the amortization of the remaining carrying value of leasehold improvements made
to a hangar facility at a domestic airport location in the amount of $744,000.
Such amount is included in "Depreciation and amortization" in the accompanying
consolidated statements of earnings.
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
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:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------
(in thousands)
<S> <C> <C> <C>
Federal:
Current......................... $ 97 $3,415 $ 847
Deferred........................ (456) 1,485 (137)
Foreign:
Current......................... -- 324 --
Deferred........................ -- 449 (1,300)
State:
Current......................... 687 789 313
Deferred........................ 63 721 (73)
-------------------------
$ 391 $7,183 $ (350)
=========================
</TABLE>
122
<PAGE> 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:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------
(in thousands)
<S> <C> <C> <C>
Tax at federal statutory rate ........ $ 295 $ 6,001 $ 1,442
Increase (decrease) in income taxes
resulting from:
Reevaluation of valuation allowance -- (960) (1,300)
Utilization of foreign net operating
loss carryforwards and
depreciation differences ......... -- -- (804)
Foreign tax differential ........... -- 395 204
Effect of foreign income,
previously taxed ................. (449) -- --
State income taxes, net of
Federal income tax effect ........ 495 997 158
Provision for future repatriation
of Canadian earnings ............. -- 750 --
Other -- net ....................... 50 -- (50)
-------------------------------
Provision (benefit) for income taxes . $ 391 $ 7,183 $ (350)
===============================
</TABLE>
Deferred tax assets (liabilities) are comprised of the following as of June
30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Reserves for doubtful accounts, claims, etc $ 319 $ 264
Retirement plans ........................... 108 --
Alternative minimum tax .................... 285 --
----------------
Current deferred tax assets ............ 712 264
----------------
State income taxes ......................... 510 --
Difference between book and tax
carrying value of Hudson LLC ............. 193 137
Difference in the Venture's book and
tax year-end ............................. 525 554
----------------
Noncurrent deferred tax assets ......... 1,228 691
----------------
Net deferred tax assets ................ $1,940 $ 955
----------------
Deferred tax liabilities:
Difference between book and tax
carrying value of Hudson LLC $ -- $ (65)
Property, equipment and leasehold
rights, principally depreciation -- domestic (857) (407)
Provision for future repatriation of
Canadian earnings................... (750) (750)
Interest capitalized on financial statements (440) (495)
----------------
Noncurrent deferred tax liabilities (2,047) (1,717)
----------------
Net deferred tax liabilities $ (107) $ (762)
================
</TABLE>
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:
<TABLE>
<S> <C>
Outstanding June 30, 1995........................... 61,500
Exercised ($14.79 per share)........................ (10,000)
Exercised ($19.07 per share)........................ (1,900)
Canceled ($19.07 per share)......................... (200)
---------
Outstanding June 30, 1996........................... 49,400
Exercised ($14.79 per share)........................ (8,500)
Exercised ($19.07 per share)........................ (700)
---------
Outstanding June 30, 1997........................... 40,200
=========
</TABLE>
123
<PAGE> 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:
<TABLE>
<S> <C>
Outstanding June 30, 1995.......................... 18,000
Exercised ($17.32 per share)....................... (18,000)
---------
Outstanding June 30, 1996.......................... --
=========
</TABLE>
(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:
<TABLE>
<S> <C>
Outstanding June 30, 1995.......................... 48,800
Exercised ($17.00 per share)....................... (36,000)
Exercised ($19.88 per share)....................... (4,100)
Canceled ($19.88 per share)........................ (400)
---------
Outstanding June 30, 1996.......................... 8,300
Exercised ($19.88 per share)....................... (1,300)
---------
Outstanding June 30, 1997.......................... 7,000
=========
</TABLE>
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:
<TABLE>
<S> <C>
Exercise of incentive stock options -- 1981 Plan............ 7,000
Exercise of non-qualified stock options -- 1981 Plan........ 40,200
---------
Total..................................................... 47,200
=========
</TABLE>
(d) 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 $9,152,000.
(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, the Corporation's Canadian subsidiary (which effective
June 1, 1996 became a direct subsidiary of Hudson LLC) established a Group
Registered Retirement Savings Plan (RRSP) covering substantially all of its
employees not subject to collective bargaining agreements. Under the RRSP such
subsidiary may make a discretionary annual contribution. During fiscal 1996 and
1995, such subsidiary contributed $79,000 and $61,000, respectively, to the
RRSP.
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.
124
<PAGE> 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:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
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
===================================================================
</TABLE>
(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
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
125
<PAGE> 28
CORPORATE INFORMATION
<TABLE>
<CAPTION>
DIRECTORS CORPORATE OFFICERS DIVISIONAL OFFICERS
<S> <C> <C>
Jay B. Langner Jay B. Langner UNITED STATES
Chairman Chairman of the Board
and Chief Executive Officer Salvatore J. Altizio, Jr.
Milton H. Dresner Vice President--Operations Administration
Developer, Builder and Private Investor Michael Rubin
President Glenn J. Bassett
Paul R. Pollack Regional Vice President
Executive Vice President Paul R. Pollack
Executive Vice President and David L. Finch
Edward J. Rosenthal Chief Operating Officer; Vice President--Contract Services
Vice Chairman President, Hudson General LLC
Cramer Rosenthal McGlynn, Inc. D. Ross Jacobs
Fernando DiBenedetto Vice President--Marketing
Michael Rubin Senior Vice President--Operations
President Frederick C. Knapp, Jr.
Raymond J. Rieder Vice President--Fuel Services and Planning
Hans H. Sammer Senior Vice President
Consultant, Retired Director, and Chief Marketing Officer; Bert J. Smith
Investment Banking Group Executive Vice President, Vice President--Airport Operations
Prudential Securities Incorporated Hudson General LLC
Gary D. Watson
Richard D. Segal Rocco Daloia Regional Vice President
Chairman and Chief Executive Officer Vice President--Maintenance and Facilities
Seavest Inc. David M. Ziolkowski
Barry I. Regenstein Regional Vice President
Stanley S. Shuman Vice President and Chief Financial Officer
Executive Vice President CANADA
and Managing Director Noah E. Rockowitz
Allen & Company Incorporated Vice President, General Counsel Thomas D. Culp
and Secretary Vice President--Marketing
Henry A. Satinskas Audrey J. Laurin
Vice President--Transportation Services Vice President and Controller
Denis A. A. Lawn
Vice President--Operations
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
TRANSFER AGENT AND REGISTRAR INDEPENDENT AUDITORS CORPORATE HEADQUARTERS
<S> <C> <C>
BankBoston, N.A. KPMG Peat Marwick LLP 111 Great Neck Road
c/o Boston EquiServe, One Jericho Plaza Great Neck, New York 11021
Limited Partnership Jericho, New York 11753 (516) 487-8610
P.O. Box 8040
Boston, Massachusetts 02266-8040 10-K AVAILABLE CANADIAN ADMINISTRATIVE OFFICES
SHARES LISTED The Annual Report, on Form 10-K, as 100 Alexis Nihon, Suite 400
Common-- filed with the Securities and Exchange Ville St. Laurent, Quebec
American Stock Exchange Commission, is available to shareholders H4M 2N9
(Symbol: HGC) without charge upon written request to: (514) 748-2277
Secretary
Hudson General Corporation
111 Great Neck Road
Great Neck, New York 11021
</TABLE>
126
<PAGE> 29
HUDSON GENERAL CORPORATION
111 Great Neck Road
P.O. Box 355
Great Neck, New York 11022
127
<PAGE> 1
EXHIBIT 21
Subsidiaries of the Registrant
128
<PAGE> 2
EXHIBIT 21
HUDSON GENERAL CORPORATION
SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction
of
Incorporation
-------------
<S> <C>
Hudson General Aviation Services Inc. Canada
Hudson Aviation Services, Inc. California California
Hudson General Coach Lines, Inc. California
Hudson Aviation Services, Inc. Delaware Delaware
Hudson Aviation Services, Inc. Massachusetts
Hudson Aviation Services-Oakland, Inc. California
Hudson Kohala Inc. Delaware
Hudson General LLC Delaware
Hudson General Leasing Corporation Delaware
</TABLE>
129
<PAGE> 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.
130
<PAGE> 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
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 18,425
<SECURITIES> 8,792
<RECEIVABLES> 540
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 28,368
<PP&E> 2,902
<DEPRECIATION> 0
<TOTAL-ASSETS> 68,188
<CURRENT-LIABILITIES> 2,697
<BONDS> 0
0
0
<COMMON> 2,092
<OTHER-SE> 63,292
<TOTAL-LIABILITY-AND-EQUITY> 68,188
<SALES> 5,064
<TOTAL-REVENUES> 5,064
<CGS> 0
<TOTAL-COSTS> 8,819
<OTHER-EXPENSES> 8,047
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 866
<INCOME-TAX> 391
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 475
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
