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EXHIBIT 13
The Registrant's
1995 Annual Report to Shareholders
-33-
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HUDSON GENERAL CORPORATION
1995 Annual Report
DIVERSE SERVICES
STRENGTH IN MANAGEMENT
DEDICATED EMPLOYEES
[PHOTO 1]
[HUDSON GENERAL LOGO]
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LETTER TO SHAREHOLDERS
FELLOW SHAREHOLDERS:
Although financial results for the fiscal year ended June 30, 1995 did not reach
the record levels attained in fiscal 1994, Hudson General Corporation did enjoy
a very successful and exciting year. We started off the year with our airport
ground equipment "co-starring" with Jim Carrey in the hit movie "Dumb and
Dumber", and ended it by achieving the second highest revenues and third highest
net earnings in the history of the Company.
This past winter was relatively mild in the midwest and northeast United
States as well as in many parts of Canada, especially when compared to the
extreme winter in those regions in the previous year. Despite the lack of help
that Mother Nature gave our snow removal and de-icing operations in fiscal 1994,
fiscal 1995 produced sound financial results. Revenues for the fiscal year ended
June 30, 1995 were $135.5 million compared to $142.1 million in fiscal 1994, a
decline of $6.6 million. Given that snow removal revenues were $14.2 million
lower in fiscal 1995 than in fiscal 1994, and that revenues from our Canadian
fixed base operations (FBO's) (which we ceased operating in November 1994) were
$6.2 million lower, it is clear that we have found other means of increasing
revenues. Overall, we are pleased with the progress our Company made this past
year.
FISCAL 1995 HAS SEEN MANY SUCCESSES IN OUR EFFORTS TO EXPAND OUR BUSINESS.
Bottom line results also showed strength as net earnings were $4,593,000
and earnings per share were $3.69. We believe that these results are due to our
successful effort to expand our aviation services business at a moderate pace
with conservative risk as well as to ongoing programs to improve efficiency.
Hudson General and its competitors are being presented with many new
business opportunities as the entire airline industry continues to seek ways to
return to sustained profitability. Outsourcing "under wing" services to
independent aviation service companies such as Hudson General is one of the
avenues available to airlines to achieve this goal. In addition, the Open Skies
Agreement between the United States and Canada which was signed during fiscal
1995 is increasing air traffic between these neighboring countries and the
related need for support services. While competitive pricing remains a primary
factor in the award of the new business resulting from these initiatives, the
airlines will continue to insist on high quality services. Hudson General excels
in such an environment.
Fiscal 1995 has seen many successes in our efforts to expand our business.
We have secured additional contracts as carriers continue to outsource services
to independent service companies. Our fueling operations have expanded
significantly in Boston, Miami and Chicago. In Boston we have also begun to
maintain and operate the fuel farm owned by Delta Air Lines.
Not all the changes in the airline industry have had a positive effect on
Hudson General. In some cases, mergers, alliances and code sharing agreements
between airlines can negatively affect our business. For example, when Southwest
Airlines acquired Morris Air, our ground handling contract with Morris Air in
Salt Lake City was terminated as Southwest brought this function in-house.
However, to date the pluses have far outweighed the minuses.
In Canada, the FBO's which we had operated since 1985 were terminated
during
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fiscal 1995 when the subleases covering their facilities expired. These FBO's
originally offered great promise, but changes over the past ten years in the
segment of the aviation industry served by these FBO's left us with no
alternative but to terminate our involvement in this business. On the other
hand, our business of providing services to airlines in Canada continued to
perform well in fiscal 1995. A highlight was the obtaining of the contract to
provide de-icing and snow removal services for all carriers at Terminal 1 of
Pearson International Airport in Toronto.
We continue to have disappointing sales activity at our real estate joint
venture in Hawaii. The recently instituted "Buy/Fly" program which is designed
to encourage California residents to visit our project and see its beauty first
hand has not produced any sales so far. However, we remain cautiously optimistic
that it will yield results as marketing efforts for this program increase. We
continue to monitor the Chapter 11 proceedings of Oxford First Corporation, the
parent of our joint venture partner, including Oxford's proposals to meet its
obligations to the joint venture.
ALSO DURING FISCAL 1995, THE BOARD APPROVED THE RESUMPTION OF A REGULAR
SEMI-ANNUAL DIVIDEND.
Effective March 15, 1995 the Company amended its Revolving Credit Agreement
with a group of banks to extend the term by two years to December 31, 2000 and
reduce the interest rate on outstanding borrowings. The amendment also permits
the Company, until March 31, 1996, to expend up to $3.0 million to repurchase
shares of its common stock (so long as no proceeds from borrowings under the
Revolving Credit Agreement are utilized for such purpose) and also continues to
allow the Company to expend a maximum of $1.2 million per fiscal year for stock
repurchases subject to certain earnings and net worth tests, less the amount of
dividends paid on the Company's stock.
In April 1995, the Board of Directors approved the repurchase of up to
150,000 shares of the Company's common stock from time to time, and as of August
25, 1995 the Company had repurchased 112,800 shares in the open market for an
aggregate purchase price of approximately $2.0 million. The Board believes that
this repurchase program will enhance shareholder value and is an excellent use
of a portion of the Company's available cash. Also during fiscal 1995, the Board
approved the resumption of the payment of a regular semi-annual dividend and
declared two such dividends of 25 cents per share of common stock. The dividend
had been discontinued after July 1989, at which time the semi-annual rate was 20
cents per share.
We once again would like to thank our employees for their hard work and
dedication. We also thank our customers, suppliers and banking group for their
loyalty and confidence in us. Finally, we thank our shareholders for their
continued trust and support.
Sincerely,
/s/ Jay B. Langner
Jay B. Langner
Chairman of the Board, President and
Chief Executive Officer
/s/ Paul R. Pollack
Paul R. Pollack
Executive Vice President and Chief Operating Officer
/s/ Michael Rubin
Michael Rubin
Executive Vice President and Chief Financial Officer
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AVIATION SERVICES
Hudson General Corporation is one of the major aviation services companies
engaged in providing a broad array of services at airports throughout the United
States and Canada.
Aircraft ground handling services are provided to 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; de-icing; ramp sweeping and
glycol recovery; water and lavatory service; maintenance and service checks;
weight and balance; cargo and mail transferring; aircraft pushbacks; ground
power and air-conditioning.
[PHOTO 2]
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Ground transportation services are provided for airline passengers and
airport employees through Hudson General operated airport shuttle bus systems
and ground transportation information kiosks. These operations also include
operation and maintenance of passenger boarding bridges and specialized airfield
passenger transport vehicles. Besides its airport-related transportation
services, Hudson General provides transportation management services for various
governmental agencies and authorities.
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 acting as an
agent, managing the purchase, supply and distribution of fuel both domestically
and internationally for regional scheduled and international cargo carriers, as
well as charter passenger airlines.
Hudson General also operates one of the newest and most technologically
advanced perishables center at any airport in the United States for cargo
requiring a climate-controlled environment.
[PHOTO 3]
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[PHOTO 4]
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[PHOTO 5]
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[PHOTO 6]
Snow removal services are performed at airports in the northeastern and
midwestern United States under contracts with airport operators and airlines
serving these airports. Snow removal services are also performed at various
seaport facilities.
Maintenance services are provided for ground support, cargo handling,
ground transportation and other airport related equipment. In 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 including corporate and private aircraft owners.
This year Hudson General will be celebrating its thirty-fifth anniversary
as it continues to bring to its customers the broad experience and knowledge of
aviation services they need, with the quality they demand, to help them succeed
in the highly competitive aviation industry.
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[PHOTO 7]
LAND DEVELOPMENT
Hudson General 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 86 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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Hudson General Corporation and Subsidiaries
RESULTS OF OPERATIONS
FISCAL 1995 COMPARED WITH FISCAL 1994
Revenues decreased from $142.1 to $135.5 million, a decrease of $6.6
million, or 4.7%. The decrease reflects lower: (i) snow removal revenues of
$14.2 million due mainly to the mild winter weather during fiscal 1995; (ii)
aircraft fueling and hangar rental revenues in Canada of $6.2 million due to
lower volumes of retail fuel sales and the expiration on October 31, 1994 of the
Company's subleases (see Note 4) at its Canadian fixed base operations (FBO's);
and (iii) 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 decreases were higher: (i) ground handling
service revenues (net of decreased sales volumes of de-icing fluid) of $7.1
million due primarily to expanded services to new and existing customers and to
a new contract to provide various winter related aircraft ground handling
services at Terminal 1 in Toronto's Lester B. Pearson International Airport;
(ii) domestic aircraft fueling revenues of $5.2 million resulting primarily from
expanded intoplane fueling services at new and existing locations; (iii) ground
transportation revenues of $1.6 million due mainly to expanded services to
existing customers; and (iv) building maintenance revenues of $.8 million due
primarily to expanded services to new and existing customers in the U.S.
Costs and expenses were substantially unchanged at $128.5 million in fiscal
1995 as compared with $128.6 million in fiscal 1994. Operating costs decreased
by $.4 million, or .3%. The decrease was attributable to lower: (i) snow removal
costs due to the mild winter weather in the U.S.; (ii) fuel and facility rental
costs related to the Company's Canadian FBO's (see Note 4); and (iii) the effect
of fluctuation in the average rates of exchange used in translating Canadian
costs to their U.S. dollar equivalent. Partially offsetting the decreases were
higher: (i) domestic labor and related costs due primarily to expanded services
to new and existing customers; (ii) equipment rental costs due mainly to
expanded intoplane fueling services; (iii) labor and related costs associated
with ground handling operations in Canada due primarily to expanded services to
new and existing customers; and (iv) domestic maintenance associated with
expansion of the Company's fleet of equipment.
Depreciation and amortization expenses increased from $7.0 to $7.5 million,
an increase of $.5 million, or 6.9%. The increase was due primarily to the
accelerated amortization of the remaining carrying value of leasehold
improvements made to a hangar facility at a domestic airport location (see Note
3).
Selling, general and administrative expenses increased from $13.8 to $14.3
million, an increase of $.5 million, or 3.6%, due mainly to higher facility,
personnel and related costs associated with the Company's expanded operations as
noted above.
Interest expense decreased from $1.3 to $.6 million, a decrease of $.7
million, or 56.4%, due mainly to lower average outstanding borrowings and the
increase in the Company's capitalization of interest on its advances to its real
estate joint venture in Hawaii (the Venture).
Earnings before equity in loss of joint venture, provision (benefit) for
income taxes, extraordinary item and cumulative effect of change in the method
of accounting for income taxes decreased from $13.5 to $7.0 million, a decrease
of $6.5 million, or 48.3%, due primarily to reduced results from snow removal
operations and lower sales volumes of de-icing fluid due mainly to the mild
winter weather; the accelerated amortization of the remaining carrying value of
leasehold improvements; and higher selling, general and administrative expenses
as described above. Partially offsetting the decreases were improved results
from domestic aircraft fueling and ground transportation operations and lower
interest expense.
Results of the Company's aircraft ground handling operations fluctuate
depending upon the flight activity and schedules of customers and the ability of
the Company to deploy equipment and manpower in the most efficient manner to
service such customers.
The Company's snow removal and aircraft de-icing services are seasonal in
nature. The results of these operations are normally reflected in the second and
third quarters of the fiscal year, and fluctuate depending upon the severity of
the winter season.
The Company's 50% share of losses from the Venture increased from $1.8 to
$2.7 million, an increase of $.9 million, or 52.5%. The increase in the
Venture's losses is due mainly to the cessation of interest capitalization by
the Venture on Phase IV of the Project as of July 1, 1994. 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.
The Company's provision (benefit) for income taxes decreased from a
provision of $4.4 million to a benefit of $.4 million, a decrease of $4.8
million. The decrease reflects lower federal and state tax provisions totaling
$3.5 million due to decreased pre-tax earnings in the U.S., and the recognition
in fiscal 1995 of $1.3 million of deferred tax assets resulting from a
reevaluation of the operating results of the Company's Canadian subsidiary (see
Note 7).
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 Company, the state of the airline industry has
resulted in several airlines outsourcing services to independent aviation
service companies. This trend as well as the Open Skies Agreement between the
United States and Canada, whereby there will be more access for airlines to fly
between these bordering countries, has provided additional opportunities for the
Company. The Company is unable, at this time, to evaluate the full 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 Company's capital expenditures or
results of operations for fiscal 1995, 1994 and 1993, 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
Company, including
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Hudson General Corporation and Subsidiaries
(Continued)
expenditures for the testing, decommissioning and/or replacement of certain of
its fuel and de-icing fluid storage facilities, and the clean-up of fuel spills.
The Company is presently engaged in several such decommissioning, replacement
and clean-up 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 Company cannot predict at this time, the amount, if any, that it
may be required to pay in connection with such airport authority initiatives.
FISCAL 1994 COMPARED WITH FISCAL 1993
Revenues increased from $132.2 to $142.1 million, an increase of $9.9
million, or 7.5%. The increase reflects higher: (i) snow removal revenues of
$8.9 million due mainly to the severe winter weather in the United States in
fiscal 1994; (ii) ground handling service revenues of $2.8 million due primarily
to expanded services to new and existing customers in the U.S.; (iii) ground
transportation revenues aggregating $1.6 million due mainly to expanded services
to existing customers; and (iv) building maintenance revenues of $1.0 million
due primarily to expanded services to new and existing customers in the U.S.
Partially offsetting the revenue increases were lower: (i) aircraft fueling
revenues of $1.4 million resulting primarily from lower volumes of retail fuel
sales at the Company's Canadian FBO's and the cessation of operations at Long
Island MacArthur Airport, net of increases in domestic intoplane fueling
revenues; and (ii) revenues due to the effect of fluctuation in the average
rates of exchange used in translating Canadian revenues to their U.S. dollar
equivalent.
Costs and expenses decreased from $129.7 to $128.6 million, a decrease of
$1.2 million, or .9%. The principal reason for this decrease was that fiscal
1993 costs and expenses included accelerated amortization of the remaining
carrying value of leasehold rights related to the Company's Canadian FBO's in
the amount of $4.3 million (the FBO Accelerated Amortization). Operating costs
increased from $103.2 to $106.4 million, an increase of $3.3 million, or 3.2%.
The increase was attributable to higher: (i) snow removal costs; (ii) domestic
labor and related costs due primarily to expanded services to new and existing
customers; (iii) equipment rental costs due mainly to expanded intoplane fueling
and ground transportation services; and (iv) maintenance costs associated with
expansion of the Company's fleet of equipment and increased use in snow removal
operations. Partially offsetting the increases were lower: (i) labor and related
costs associated with ground handling operations in Canada due mainly to a
reduction in employees associated with improved manpower utilization resulting
from favorable changes to the flight activity and schedules of the Company's
airline customers; (ii) fuel costs due primarily to lower volumes of retail fuel
sales at the Company's Canadian FBO's; and (iii) the effect of fluctuation in
the average rates of exchange used in translating Canadian costs to their U.S.
dollar equivalent.
Depreciation and amortization expenses decreased from $7.2 to $7.0 million,
a decrease of $.2 million, or 2.2%. The decrease reflects the absence of
amortization of leasehold rights related to the Company's Canadian FBO's as such
rights were fully amortized as of June 30, 1993 due to the FBO Accelerated
Amortization.
Selling, general and administrative expenses increased from $13.3 to $13.8
million, an increase of $.5 million, or 4.0%, due to higher administrative and
related costs mainly attributable to higher bonus provisions under the Company's
Executive Incentive Program, which were partially offset by a decrease of $.7
million in the provision for bad debts.
Interest expense decreased from $1.8 to $1.3 million, a decrease of $.5
million, or 27.8%, due to: (i) the prepayment in fiscal 1993 of the remaining
balance of the Company's privately held 14% subordinated notes; (ii) lower
average outstanding borrowings; and (iii) the payment of the remaining balance
of the Company's 11% debentures in fiscal 1993.
Earnings before equity in loss of joint venture, provision (benefit) for
income taxes, extraordinary item and cumulative effect of change in the method
of accounting for income taxes increased from $2.5 to $13.5 million, an increase
of $11.0 million, due mainly to: (i) the absence in fiscal 1994 of the FBO
Accelerated Amortization; (ii) improved results from snow removal operations;
(iii) improved margins from ground handling operations; (iv) improved results
from ground transportation operations; and (v) lower interest expense. Partially
offsetting the increase were: (i) reduced results from the Company's Canadian
FBO's; and (ii) higher selling, general and administrative expenses as described
above.
The Company's 50% share of losses from the Venture decreased from $2.8 to
$1.8 million, a decrease of $1.0 million, due mainly to reduced provisions
during fiscal 1994 for a Hawaii excise tax and doubtful mortgage receivables.
The Venture's losses resulted mainly from a lack of sales of the Venture's land
parcels, which sales were negatively impacted by general economic conditions.
Effective July 1, 1993, the Company and its Venture partner (the Partners)
reduced the interest rate that the Venture must pay for advances made to it by
the Partners from 1% over prime to 1% below prime to reflect lower incremental
borrowing costs of the Partners. This change resulted in a reduction of interest
expense to the Venture of $.3 million for fiscal 1994 compared with fiscal 1993
net of lower interest income on mortgage receivables.
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 (FAS 109), Accounting for Income Taxes, and
reported a benefit of $450,000 as the cumulative effect of the change in the
method of accounting for income taxes. Such benefit was reported inclusive of
the effect of the Canadian net operating loss carryforwards referred to in the
next paragraph, net of the related valuation allowance, in the consolidated
statements of operations.
The Company's provision for income taxes increased from $1.7 to $4.4
million, an increase of $2.7 million, due to higher provisions for federal and
state income taxes associated with increased pre-tax earnings in the U.S.
Pursuant to FAS 109, the Company utilized in full its
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Canadian net operating loss carryforwards and a portion of its depreciation
differences to offset its provision for foreign income taxes in the amount of
$.8 million.
LIQUIDITY AND CAPITAL EXPENDITURES AND COMMITMENTS
The Company's recurring sources of liquidity are funds provided from
operations and bank lines of credit. The Company has a Revolving Credit
Agreement (the Credit Agreement) with a group of banks, as amended during fiscal
1995, which provides for a revolving credit facility pursuant to which the
Company may borrow funds (including outstanding letters of credit) to a limit of
$18.3 million (the Limit) until March 31, 1997. At such time, and at the end of
each subsequent quarter, the Limit will be reduced by one-sixteenth of the Limit
that was in effect on December 31, 1996 until December 31, 2000, at which time
the Credit Agreement terminates. As of June 30, 1995, there were no direct
borrowings and $3.7 million of letters of credit were outstanding under the
Credit Agreement.
In fiscal 1995, 1994 and 1993, net cash provided by operating activities was
$19.7, $16.4, and $10.8 million, respectively. Capital expenditures net of
proceeds from the sale of property and equipment were $9.9, $9.2, and $5.5
million in fiscal 1995, 1994 and 1993, respectively. Net cash advanced to the
Venture was $1.7, $.9 and $.2 million in fiscal 1995, 1994 and 1993,
respectively. Net cash used by financing activities was $2.2, $5.7 and $2.6
million for fiscal 1995, 1994 and 1993, respectively. Cash and cash equivalents
were $12.6, $6.7, and $6.4 million at June 30, 1995, 1994 and 1993,
respectively. At June 30, 1995 the Company had commitments to fund approximately
$5.1 million for operating equipment, the majority of which is expected to be
expended during the first six months of fiscal 1996. Capital expenditures are
primarily for equipment and facilities used in the Company's operations. The
Company is unable to determine the extent of additional future capital
expenditures since, as a service company, its capital expenditure requirements
fluctuate depending upon facility requirements and equipment purchases
associated with the Company's ability to successfully obtain additional
contracts.
During fiscal 1995, the Board of Directors approved the repurchase of up to
150,000 shares of the Company's common stock from time to time in either open
market or privately negotiated transactions. As of August 25, 1995 the Company
had repurchased in the open market 112,800 shares for an aggregate purchase
price of approximately $2.0 million pursuant to this authorization.
At June 30, 1995, the Venture had commitments aggregating $2.9 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, 1996. It is
expected that funds for most of the Venture's other commitments will be expended
subsequent to fiscal 1996. In addition, the Venture is obligated to repurchase
during fiscal 1996 and 1997 the unpaid balance of certain mortgage receivables
that were previously sold to two banks (see Note 6). The Venture has begun
discussions with financial institutions to extend or refinance such obligations.
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 (in addition to the commitments noted above)
approximately $2.3 million for improvements and in lieu payments. Shortly after
passage of the ordinance, a lawsuit against the County of Hawaii was filed by
two local residents of Hawaii (Plaintiffs) seeking to invalidate such ordinance
on various grounds including that the ordinance was adopted without following
State of Hawaii procedure relating to the preparation of an Environmental Impact
Statement. During fiscal 1993, the Judge in this action granted Plaintiffs'
motion for partial summary judgment without indicating any effect on Phase IV
zoning. The County and the Venture have appealed this ruling. The appeal was
heard before the Hawaii Supreme Court in March 1994, and the Court has taken the
matter under advisement. The Venture cannot, at this time, determine the impact
of the Court's ruling on the timing of development of Phase IV or the
expenditures related thereto.
The Joint Venture Agreement provides that the Company 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 Company and the Partner. It is expected that any advances which the
Company may be required to make to the Venture will be provided from the
Company's cash flow and lines of credit. Pursuant to the Credit Agreement the
Company may advance up to $2.0 million to the Venture in any fiscal year or up
to $4.0 million during the term of the Credit Agreement, net of any
distributions received from the Venture by the Company during such periods.
Since the inception of the Credit Agreement the Company has increased its net
advances to the Venture by $2.8 million. Distributions, if any, received by the
Company with respect to the Venture, net of advances made by the Company during
the applicable period, in excess of $4.0 million in any four consecutive
quarters, or in excess of $2.0 million in any fiscal year, reduce the Limit. 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 or that
the Credit Agreement will be amended to allow for any excess.
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 dated November 28,
1994, Oxford First (through its subsidiary, The Oxford Finance Companies, Inc.)
was permitted to transfer funds to the Partner in an aggregate amount not to
exceed $376,000 with respect to the period October 1, 1994 through March 31,
1995, which amounts were intended to enable the Partner to make its share of
advances required by the Venture. The amount so authorized by the Bankruptcy
Court was not sufficient to allow the Partner to make its full share of required
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Hudson General Corporation and Subsidiaries
(Continued)
advances. To date, the Company has opted to make additional advances (the
Additional Advances) to cover the Partner's funding deficiency. The Company has
filed a claim with the Bankruptcy Court in an amount equal to the Additional
Advances. In addition, Oxford First has filed an amended reorganization plan
with the Bankruptcy Court contemplating Oxford First's transfer of funds to the
Partner in amounts set forth in the plan covering periods through December 31,
1997. The Company, at present, is unable to determine whether the Bankruptcy
Court will confirm Oxford First's reorganization plan so as to enable Oxford
First to transfer additional funds to the Partner or whether any transfers
authorized by the Bankruptcy Court will be sufficient in order for the Partner
to make its share of future advances to the Venture. Should the Partner be
unable to make its share of future advances to the Venture, the Company has the
option to make Additional Advances (subject to its right of reimbursement)
necessary up to the limits set forth in the Credit Agreement. The Partner did
not file for reorganization under Chapter 11 of the Bankruptcy Code. During
fiscal 1995, the Company advanced $1.7 million to the Venture including $.5
million of Additional Advances.
The extent to which advances to the Venture will be required in the future,
as well as the timing of the return to the Company of the advances made by it,
will depend upon the amount of sales generated by the Venture, the terms upon
which parcels are sold, expenses incurred in the planning and development of
future phases of the Project and the ability of the Partner to fund its
obligations under the Joint Venture Agreement. The general economic climate has
negatively impacted the sale of the Venture's land parcels.
It is expected that the sources of the Company's liquidity, as noted above,
will provide sufficient funding to allow the Company to meet its liquidity
requirements.
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SELECTED CONSOLIDATED FINANCIAL DATA
Fiscal Years Ended June 30,
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1995 1994 1993 1992 1991
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(in thousands, except per share amounts)
Revenues .......................................... $135,453 $142,075 $ 132,186 $126,744 $128,978
Earnings (loss) before extraordinary items and
cumulative effect of change in the method of
accounting for income taxes ..................... 4,593 7,310 (2,045)(a) 1,128 2,723
Earnings (loss) per share before extraordinary
items and cumulative effect of change in the
method of accounting for income taxes:
Primary ........................................ 3.69 5.86 (1.65) .90 2.19
Fully diluted .................................. 2.67 3.96 (1.65) 1.06 1.79
Net earnings (loss) ............................... 4,593 7,760 (2,180)(a) 2,005(b) 4,014(b)
Net earnings (loss) per share:
Primary ........................................ 3.69 6.22 (1.75) 1.60 3.23
Fully diluted .................................. 2.67 4.17 (1.75) 1.47 2.39
Total assets ...................................... 87,568 77,889 72,414 79,038 82,870
Long-term obligations less current maturities ..... 29,000 29,000 32,700 34,800 39,416
Capital expenditures .............................. 10,806 9,815 5,786 7,359 6,175
Cash dividends per common share ................... .50 -- -- -- --
=============================================================
For information related to restrictions on the payment of cash dividends see
Note 5.
(a) Includes $4,287 of accelerated amortization of leasehold rights related to
the Company's Canadian Fixed Base Operations.
(b) Includes extraordinary tax benefit from net operating loss carryforwards of
$800 and $1,123 in fiscal 1992 and 1991, respectively.
Fiscal 1995 Fiscal 1994
------------------------------------------------
Market Price Range* High Low High Low
------------------------------------------------
First Quarter . . . . . . . . . . . . . . . . . . . . . . . 20 15 1/8 12 3/8 10 3/4
Second Quarter . . . . . . . . . . . . . . . . . . . . . . 18 3/8 15 7/8 15 1/8 11 1/8
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . 16 3/4 15 3/4 16 7/8 13 1/2
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . 20 1/2 16 16 3/4 15 1/8
------------------------------------------------
* The range of per share closing prices of the Company's common stock on the
American Stock Exchange in each fiscal quarter from July 1, 1993 through June
30, 1995.
At June 30, 1995, there were 220 record holders of the Company's common stock.
13
16
CONSOLIDATED STATEMENTS OF OPERATIONS
Hudson General Corporation and Subsidiaries
Year Ended June 30,
----------------------------------------
1995 1994 1993
----------------------------------------
(in thousands, except per share amounts)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $135,453 $142,075 $132,186
----------------------------------------
Costs and expenses:
Operating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,070 106,424 103,160
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . 7,528 7,042 7,202
Selling, general & administrative . . . . . . . . . . . . . . . . . . . . . . . 14,306 13,806 13,280
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 559 1,283 1,776
Accelerated amortization of leasehold rights . . . . . . . . . . . . . . . . . - - 4,287
----------------------------------------
Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 128,463 128,555 129,705
----------------------------------------
Earnings before equity in loss of joint venture, provision (benefit) for
income taxes, extraordinary item and cumulative effect of change
in the method of accounting for income taxes . . . . . . . . . . . . . . . . . 6,990 13,520 2,481
Equity in loss of joint venture . . . . . . . . . . . . . . . . . . . . . . . . . (2,747) (1,801) (2,788)
----------------------------------------
Earnings (loss) before provision (benefit) for income taxes, extraordinary item
and cumulative effect of change
in the method of accounting for income taxes . . . . . . . . . . . . . . . . . 4,243 11,719 (307)
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . . (350) 4,409 1,738
----------------------------------------
Earnings (loss) before extraordinary item and cumulative effect of
change in the method of accounting for income taxes . . . . . . . . . . . . . . 4,593 7,310 (2,045)
Extraordinary loss on repurchase of debt (net of applicable income taxes) . . . . - - (135)
Cumulative effect of change in the method of accounting for income taxes . . . . - 450 -
----------------------------------------
Net earnings (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,593 $ 7,760 $ (2,180)
========================================
Earnings (loss) per share, primary:
Earnings (loss) before extraordinary item and cumulative effect of
change in the method of accounting for income taxes . . . . . . . . . . . . . $ 3.69 $ 5.86 $ (1.65)
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - (.11)
Cumulative effect of change in the method of accounting
for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - .36 -
----------------------------------------
Net earnings (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.69 $ 6.22 $ (1.75)
========================================
Earnings (loss) per share, fully diluted:
Earnings (loss) before extraordinary item and cumulative effect of
change in the method of accounting for income taxes . . . . . . . . . . . . . $ 2.67 $ 3.96 $ (1.65)
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - (.11)
Cumulative effect of change in the method of accounting for income taxes . . . - .21 -
----------------------------------------
Net earnings (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.67 $ 4.17 $ (1.75)
========================================
See accompanying notes to consolidated financial statements.
14
17
CONSOLIDATED BALANCE SHEETS
Hudson General Corporation and Subsidiaries
June 30,
--------------------
1995 1994
--------------------
(in thousands)
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $12,613 $ 6,727
Accounts and notes receivable - net . . . . . . . . . . . . . . . . . . 14,457 14,628
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 936 904
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . 876 1,090
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 4,602 2,946
--------------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 33,484 26,295
Property, equipment and leasehold rights at cost, less accumulated
depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 33,864 31,047
Investment in Hawaii joint venture - net . . . . . . . . . . . . . . . . . 16,065 15,621
Long-term receivables - net . . . . . . . . . . . . . . . . . . . . . . . . 2,585 3,138
Other assets - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 770 862
Excess cost over fair value of net assets acquired. . . . . . . . . . . . . 800 926
--------------------
$87,568 $77,889
====================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,305 $ 8,652
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . 1,557 1,224
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . 21,233 18,079
--------------------
Total current liabilities . . . . . . . . . . . . . . . . . . . 35,095 27,955
--------------------
Long-term debt, subordinated . . . . . . . . . . . . . . . . . . . . . . . 29,000 29,000
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,857 1,711
--------------------
Total noncurrent liabilities . . . . . . . . . . . . . . . . . . 30,857 30,711
--------------------
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 1,253,802 and 1,250,802 shares . . . . . . . . . . . . . . 1,254 1,251
Paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,759 6,717
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,707 12,716
Equity adjustments from foreign currency translation . . . . . . . . . . (1,483) (1,461)
Treasury stock, at cost, 96,600 shares . . . . . . . . . . . . . . . . . (1,621) --
--------------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . 21,616 19,223
--------------------
$87,568 $77,889
====================
See accompanying notes to consolidated financial statements.
15
18
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Hudson General Corporation and Subsidiaries
For the Years Ended June 30, 1995, 1994 and 1993
------------------------------------------------------------------------------------
Equity
Common Stock Adjustments
Issued From Foreign
------------------- Paid in Retained Currency Treasury Stockholders'
Shares Amounts Capital Earnings Translation Stock Equity
------------------------------------------------------------------------------------
(in thousands, except share amounts)
Balance, June 30, 1992 ...... 1,242,802 $1,243 $6,607 $ 7,136 $ 80 $ -- $15,066
Equity adjustment from
foreign currency
translation ............. -- -- -- -- (745) -- (745)
Net loss .................. -- -- -- (2,180) -- -- (2,180)
----------------------------------------------------------------------------------
Balance, June 30, 1993 ...... 1,242,802 1,243 6,607 4,956 (665) -- 12,141
Common stock issued in
connection with exercise
of stock options ........ 8,000 8 110 -- -- -- 118
Equity adjustment from
foreign currency
translation ............. -- -- -- -- (796) -- (796)
Net earnings .............. -- -- -- 7,760 -- -- 7,760
----------------------------------------------------------------------------------
Balance, June 30, 1994 ...... 1,250,802 1,251 6,717 12,716 (1,461) -- 19,223
Common stock issued in
connection with exercise
of stock options ........ 3,000 3 42 -- -- -- 45
Dividends ($.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
==================================================================================
See accompanying notes to consolidated financial statements.
16
19
CONSOLIDATED STATEMENTS OF CASH FLOWS
Hudson General Corporation and Subsidiaries
Year Ended June 30,
---------------------------------
1995 1994 1993
---------------------------------
(in thousands)
Cash flows from operating activities:
Earnings (loss) before extraordinary item and cumulative effect of
change in the method of accounting for income taxes ......................... $ 4,593 $ 7,310 $ (2,045)
Adjustments to reconcile earnings (loss) before extraordinary item
and cumulative effect of change in the method of accounting for income taxes
to net cash provided by operating activities:
Depreciation and amortization ............................................. 7,528 7,042 7,202
Provision for losses on accounts receivable - net ......................... 178 160 878
Accelerated amortization of leasehold rights .............................. -- -- 4,287
Loss on repurchase of debt ................................................ -- -- (135)
Increase (decrease) in deferred income taxes excluding cumulative
effect of change in the method of accounting for income taxes ........... 149 178 (408)
Equity in loss of joint venture ........................................... 2,747 1,801 2,788
Capitalization of interest cost on Hawaii joint venture advances .......... (1,471) (947) (1,035)
Gain on sale of equipment ................................................. (454) (133) (238)
Change in other current assets and liabilities:
Accounts and notes receivable .......................................... 5 (2,797) (479)
Inventory - net ........................................................ (31) (121) 216
Prepaid expenses and other assets ...................................... 215 129 (316)
Deferred income taxes .................................................. (1,656) (1,489) 82
Accounts payable ....................................................... 3,650 1,261 2,150
Income taxes payable ................................................... 333 575 186
Accrued expenses and other liabilities ................................. 3,136 3,123 (2,594)
Decrease (increase) in other assets ....................................... 92 155 (12)
Decrease in long-term receivables - net ................................... 553 23 115
Other - net ............................................................... 127 130 145
---------------------------------
Net cash provided by operating activities .............................. 19,694 16,400 10,787
---------------------------------
Cash flows from investing activities:
Purchases of property, equipment and leasehold rights ......................... (10,806) (9,815) (5,786)
Proceeds from sale of property and equipment .................................. 935 648 270
Advances to Hawaii joint venture - net ........................................ (1,720) (870) (206)
---------------------------------
Net cash used by investing activities .................................. (11,591) (10,037) (5,722)
---------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock ........................................ 45 118 --
Cash dividends paid ........................................................... (602) -- --
Purchase of treasury stock .................................................... (1,621) -- --
Proceeds from borrowings ...................................................... -- 500 15,580
Principal repayments of borrowings ............................................ -- (6,333) (18,147)
---------------------------------
Net cash used by financing activities .................................. (2,178) (5,715) (2,567)
---------------------------------
Effect of exchange rate changes on cash ......................................... (39) (297) (66)
---------------------------------
Net increase in cash and cash equivalents ....................................... 5,886 351 2,432
---------------------------------
Cash and cash equivalents at beginning of year .................................. 6,727 6,376 3,944
---------------------------------
Cash and cash equivalents at end of year ........................................ $ 12,613 $ 6,727 $ 6,376
=================================
See accompanying notes to consolidated inancial statements.
17
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Hudson General Corporation and Subsidiaries
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION: The consolidated financial statements
include the accounts of Hudson General Corporation and its subsidiaries (the
Company). A land development venture in which the Company has a 50% interest
(the Venture) is accounted for under the equity method of accounting (see Note
6). All material intercompany accounts and transactions have been eliminated in
consolidation.
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 being 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 $1,188,000 and
$1,060,000 at June 30, 1995 and 1994, respectively, is amortized on a
straight-line basis over periods not to exceed forty years.
INCOME TAXES: Effective July 1, 1993, the Company 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 (see Note 7).
FOREIGN CURRENCY TRANSLATION: The financial position and
results of operations of the Company'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 stockholders' equity.
STATEMENTS OF CASH FLOWS: For purposes of the consolidated statements of cash
flows, the Company considers all securities with an original maturity of three
months or less at the date of acquisition to be cash equivalents. In fiscal
1995, 1994 and 1993 income taxes (net of refunds) of $362,000, $4,677,000 and
$2,515,000, respectively, were paid. Interest of $2,030,000, $2,241,000 and
$2,786,000 was paid in fiscal 1995, 1994 and 1993, respectively.
EARNINGS (LOSS) PER SHARE: Primary earnings (loss) 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 (loss) per common and common equivalent share
was 1,245,122, 1,246,889 and 1,242,802 in fiscal 1995, 1994 and 1993,
respectively. Fully diluted earnings (loss) per common and common equivalent
share have been computed based upon the assumption that the Company's
convertible debentures are converted into common shares at the beginning of each
period in which their effect is dilutive (such debentures were dilutive only as
to fiscal 1995 and 1994 results) and that the related interest expense that
would not have been incurred had conversion taken place, net of applicable
taxes, is added back to net earnings (loss). The weighted average number of
common and common equivalent shares used in computing fully diluted earnings
(loss) per share in fiscal 1995 and 1994 was 2,145,175 and 2,134,789,
respectively.
RECLASSIFICATIONS: Certain reclassifications of fiscal 1994 and 1993 balances
have been made to conform with the fiscal 1995 presentation.
2. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
Accounts, notes and long-term receivables - net at June 30, 1995 and 1994
consisted of the following:
1995 1994
------------------
(in thousands)
Rental and service fees receivable ....................... $13,905 $13,997
Note receivable (a) ...................................... 2,941 3,553
Equipment rental contracts and other
notes receivable (less unearned
finance income of $59,000 and $84,000) ................. 196 216
------------------
17,042 17,766
Less: current portion (net of allowance
for doubtful accounts of $1,579,000
and $1,631,000) ........................................ 14,457 14,628
------------------
Long-term portion ........................................ $ 2,585 $ 3,138
==================
(a) On January 6, 1994, the Company assigned its leases and ceased operations at
Long Island MacArthur Airport in Islip, New York (LIMA) where the Company had
provided ground handling and fueling services to commercial airlines and related
fixed base operation services to general aviation aircraft. At the closing, the
Company 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, 1995 and 1994 was $2,941,000 and $3,553,000, respectively. The
promissory note is secured by the assigned leases and other assets located at
LIMA. This transaction did not have a material effect on the Company's
consolidated financial position or results of operations.
The Company provides various services at airports throughout the United
States and Canada. The Company grants credit to customers based upon an analysis
of its customers' financial position and then-existing conditions in the
aviation industry. Six of the Company's customers had individual balances
outstanding greater than 5%, and aggregating 48%, of accounts receivable - net
at June 30, 1995. During the three fiscal years ended June 30, 1995 certain
airline customers of the Company filed for protection under the bankruptcy laws
or ceased operations. Bad debt expenses were $178,000, $160,000 and $878,000 for
fiscal 1995, 1994 and 1993, respectively.
Accrued expenses and other liabilities at June 30, 1995 and 1994 consisted
of the following:
1995 1994
---------------------
(in thousands)
Salaries and wages ................................. $ 5,353 $ 5,137
Interest ........................................... 956 956
Insurance .......................................... 6,022 3,607
Operating expenses payable ......................... 3,176 2,748
Customer advances and deposits ..................... 1,739 614
Other .............................................. 3,987 5,017
---------------------
$21,233 $18,079
=====================
Maintenance and repair expenses were $7,400,000, $6,540,000 and $5,930,000
for fiscal 1995, 1994 and 1993, respectively.
18
21
Interest income included in revenues was $615,000, $374,000 and $337,000 for
fiscal 1995, 1994 and 1993, respectively.
3. PROPERTY, EQUIPMENT AND LEASEHOLD RIGHTS
The number of years over which major classes of assets are being depreciated and
amortized, and the costs and the related accumulated depreciation and
amortization thereof at June 30, 1995 and 1994 are set forth below.
Estimated
Useful Lives 1995 1994
----------------------------------------
(in thousands)
Operating equipment ................. 3 - 12 $ 70,232 $ 63,760
Leasehold rights .................... 25 2,400 9,030
Buildings ........................... 14 - 20 1,458 1,454
Office furnishings and
equipment ......................... 3 - 10 3,193 3,184
Leasehold improvements .............. 2 - 28 5,829 7,356
----------------------------------------
83,112 84,784
Accumulated depreciation
and amortization ................. (49,248) (53,737)
----------------------
$ 33,864 $ 31,047
======================
Due to an early lease termination, at March 31, 1995, the Company
accelerated the amortization of the remaining carrying value of its 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 operations.
Leasehold rights at June 30, 1994 include $6,630,000 related to the Company's
Canadian FBO's (see Note 4).
4. CANADIAN OPERATIONS
The consolidated financial statements include: assets of $12,301,000,
$14,895,000 and $15,672,000; net assets of $7,655,000, $8,866,000 and
$8,145,000; and revenues of $34,376,000, $40,144,000 and $48,576,000 in fiscal
1995, 1994 and 1993, respectively; and earnings of $3,352,000 and $1,717,000 in
fiscal 1995 and 1994, respectively, and a loss of $3,901,000 in fiscal 1993,
related to the Company's Canadian operations. In fiscal 1995 and 1993, the
Company's Canadian subsidiary redeemed for cash preferred shares held by the
Company for $4,500,000 and $4,100,000, respectively.
The Company did not renew the subleases (Subleases) covering its fixed base
operation (FBO) locations at several Canadian airports beyond their October 31,
1994 expiration dates and as a result ceased operating the FBO's on such date.
At June 30, 1993 the Company accelerated the amortization of the remaining
carrying value of its sublease rights in the amount of $4,287,000.
5. LONG-TERM DEBT
(a) Pursuant to a Revolving Credit Agreement with a group of banks dated
November 25, 1992, as amended (the Credit Agreement), the Company may borrow
funds (including outstanding letters of credit) up to a limit of $18,300,000
(the Limit) until March 31, 1997. At such time, and at the end of each
subsequent quarter, the Limit will be reduced by one-sixteenth of the Limit that
was in effect on December 31, 1996 until December 31, 2000, at which time the
Credit Agreement terminates. The Limit may also be reduced by asset sales in
excess of certain amounts and by any distributions to the Company from the
Venture, net of advances made by the Company during the applicable period, in
excess of $4,000,000 in any four consecutive quarters, or in excess of
$2,000,000 in any fiscal year. There were no direct borrowings outstanding at
June 30, 1995 and 1994. At June 30, 1995 and 1994 there were $3,655,000 and
$4,451,000, respectively, of outstanding letters of credit. The Credit Agreement
provides the Company with the option of selecting a rate of interest at either
the base rate or 13/8% above the LIBO rate, as defined.
The Credit Agreement contains various restrictions, among which are
provisions restricting the Company from paying cash dividends or purchasing,
redeeming or retiring its stock unless consolidated tangible net worth (TNW), as
defined, is greater than $16,500,000 both immediately before and after giving
effect to such dividend, purchase, redemption or retirement. At June 30, 1995,
the Company's TNW was $22,298,000. Furthermore, any such payments are limited to
an annual amount not to exceed the lesser of (i) $1,200,000 or (ii) 50% of
consolidated net income, as defined, for the most recently ended fiscal year. In
addition, the Company may, until March 31, 1996, expend up to an additional
$3,000,000 to repurchase shares of its common stock so long as no proceeds from
borrowings under the Credit Agreement are utilized for such purpose.
Pursuant to the Credit Agreement, the Company may advance up to $2,000,000
to the Venture in any fiscal year or up to $4,000,000 during the term of the
Credit Agreement, net of any distributions received from the Venture by the
Company during such periods. Since the inception of the Credit Agreement the
Company has increased its net advances to the Venture by $2,805,000.
Additionally, the Credit Agreement requires that the Company maintain certain
minimum effective net worth requirements, as defined, which are subject to
incremental annual increases and further stipulates that the Company not incur a
consolidated net loss for any fiscal year. The Credit Agreement also requires
that the Company meet certain other customary financial covenants and permits
the Company, with certain limitations, to prepay or otherwise purchase
subordinated debt.
The Company has granted the banks a security interest in substantially all
of its domestic equipment and accounts receivable and certain of its other
assets. The Company's obligations under the Credit Agreement are guaranteed by
the Company's domestic subsidiaries, and the guarantees of those subsidiaries
with material operations are similarly secured.
The Company also has an agreement with Canadian affiliates of the same group
of banks to provide a credit facility for its Canadian subsidiary (the Canadian
Agreement) in the amount of $5,000,000 (Cdn). Any borrowings made pursuant to
the Canadian Agreement reduce the availability under the Credit Agreement. The
$5,000,000 (Cdn) borrowing limit will be reduced commencing March 31, 1997 on
the same basis as the Limit. The Canadian Agreement provides the Company with
the option of selecting a rate of interest at either 1/2% above the prime rate
or 15/8% above the cost of funds rate, as defined.
In connection with the Canadian Agreement, the Company has guaranteed the
obligations of its Canadian subsidiary and granted the banks a security interest
in substantially all
19
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Hudson General Corporation and Subsidiaries
(Continued)
of its Canadian accounts receivable and certain of its other assets, including
inter-company debt from its Canadian subsidiary. The guarantees of the Company's
domestic subsidiaries referred to above extend to the Company's obligations as a
guarantor under the Canadian Agreement.
(b) In July 1986 the Company issued $30,000,000 of 7% convertible
subordinated debentures due 2011 (the Debentures), which are convertible at any
time prior to maturity, unless previously redeemed, into shares of the Company's
common stock at a conversion price of $32.75 per share (see Note 8), subject to
adjustment in certain events. Interest on the Debentures is payable
semi-annually in January and July. The Debentures are redeemable at any time at
the option of the Company, in whole or in part, at declining premiums (101.4% of
the principal amount at June 30, 1995), subject to certain conditions. The
Debentures are subject to a mandatory sinking fund, beginning in July 1997, in
annual installments of $1,500,000, which will retire 70% of the Debentures prior
to maturity. The Company previously repurchased $1,000,000 of the Debentures.
Such repurchased amount may, at the Company's discretion, be used to meet
sinking fund obligations. The Debentures are subordinate to all superior debt as
defined in the indenture. At June 30, 1995 and 1994 there was $29,000,000 of the
Debentures outstanding.
Maturities of long-term debt for the next five fiscal years are: none in
1996 and 1997; $500,000 in 1998 (assuming application of the $1,000,000 of
repurchased Debentures to the sinking fund); $1,500,000 in 1999; $1,500,000 in
2000; and $25,500,000 thereafter.
6. INVESTMENT IN HAWAII 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 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 86 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. 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 by two local residents of Hawaii
(Plaintiffs) seeking to invalidate such ordinance on various grounds including
that the ordinance was adopted without following State of Hawaii procedure
relating to the preparation of an Environmental Impact Statement. During fiscal
1993, the Judge in this action granted Plaintiffs' motion for partial summary
judgment without indicating any effect on Phase IV zoning. The County and the
Venture have appealed this ruling. The appeal was heard before the Hawaii
Supreme Court in March 1994, and the Court has taken the matter under
advisement. The Venture cannot, at this time, determine the impact of the
Court's ruling on the timing of development of Phase IV or the expenditures
related thereto.
The Company's partner in the Venture is Oxford Kohala, Inc. (the Partner), a
wholly owned subsidiary of Oxford First Corporation (Oxford First). Under the
Restated Joint Venture Agreement dated April 29, 1981, as amended (the
Agreement), the partners have agreed to make equal advances to the Venture for
all costs necessary for the orderly development of the land. The Company's total
advances (including accrued interest) at June 30, 1995 (including Additional
Advances referred to in the next paragraph) and 1994 were $22,565,000 and
$19,333,000, 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 dated
November 28, 1994, Oxford First (through its subsidiary, The Oxford Finance
Companies, Inc.) was permitted to transfer funds to the Partner in an aggregate
amount not to exceed $376,000 with respect to the period October 1, 1994 through
March 31, 1995, which amounts were intended to enable the Partner to make its
share of advances required by the Venture. The amount so authorized by the
Bankruptcy Court was not sufficient to allow the Partner to make its full share
of required advances. To date, the Company has opted to make additional advances
(the Additional Advances) to cover the Partner's funding deficiency. The Company
has filed a claim with the Bankruptcy Court in an amount equal to the Additional
Advances. In addition, Oxford First has filed an amended reorganization plan
with the Bankruptcy Court contemplating Oxford First's transfer of funds to the
Partner in amounts set forth in the plan covering periods through December 31,
1997. The Company, at present, is unable to determine whether the Bankruptcy
Court will confirm Oxford First's reorganization plan so as to enable Oxford
First to transfer additional funds to the Partner or whether any transfers
authorized by the Bankruptcy Court will be sufficient in order for the Partner
to make its share of future advances to the Venture. Should the Partner be
unable to make its share of future advances to the Venture, the Company has the
option to make Additional Advances (subject to its rights of reimbursement)
necessary up to the limits set forth in the Credit Agreement (see Note 5). The
Partner did not file for reorganization under Chapter 11 of the Bankruptcy Code.
During fiscal 1995, the Company advanced $1,720,000 including $548,000 of
Additional Advances to the Venture.
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. Since the Venture has accounted for these transactions as
financing arrangements, the unpaid balances of the mortgage receivables in the
amount of $2,826,000 and $4,759,000 are shown as "Notes payable" in the
consolidated balance sheets of the Venture at June 30, 1995 and 1994,
respectively. The agreements with the banks require that all payments received
in connection with the underlying mortgage receivables be remitted to the banks
until fiscal 1996 under the fiscal 1991 sales and until fiscal 1997 under the
fiscal 1992 sale, when any unpaid balance due to the banks is to be repaid by
the Venture. In addition, the Venture is required to make additional payments to
the banks should the yield to the banks be less than 113/4% for the fiscal 1991
sales, or less than 2% over the prime rate (as defined) for the fiscal 1992
sale. The Venture remitted $97,000 and $129,000 during fiscal 1995 and 1994,
respectively, for such purpose.
20
23
The Company defers recognition of interest income on its advances to the
Venture and capitalizes interest costs at its weighted average cost of funds on
such advances. At June 30, 1995 and 1994, the amount of deferred interest income
was $1,859,000 and $1,819,000, respectively. The Company will recognize deferred
interest income as the balance of the notes payable to the banks is reduced and
when additional distributions or payments related to the Venture, if any, are
made to the Company. Interest costs capitalized by the Company for fiscal 1995
and 1994 were $1,471,000 and $947,000, respectively.
The summary consolidated balance sheets for the Venture as of June 30, 1995
and 1994 are as follows:
1995 1994
------------------------
(in thousands)
Cash and equivalents ............................. $ 89 $ 121
Land and development costs (including
capitalized interest of $6,706,000 and
$6,736,000) .................................... 26,863 26,255
Mortgages, accounts and notes receivable ......... 7,732 10,197
Foreclosed real estate - net ..................... 2,395 2,138
Other assets - net ............................... 2,461 2,640
------------------------
$ 39,540 $ 41,351
========================
Notes payable .................................... $ 3,402 4,759
Partner advances and accrued interest
payable ........................................ 44,048 38,664
Accounts payable and accrued expenses ............ 1,422 1,765
Partners' deficit ................................ (9,332) (3,837)
------------------------
$ 39,540 $ 41,351
========================
Summary results of operations for the Venture are as follows for the fiscal
years ended June 30, 1995, 1994 and 1993:
Year Ended June 30,
------------------------------------
1995 1994 1993
------------------------------------
(in thousands)
Net sales ............................ $ 504 $ 536 $ 398
Cost of sales ........................ 191 163 182
Selling, general and
administrative costs ............... 2,852 2,797 4,336
Interest - net ....................... 2,956 1,178 1,456
------------------------------------
Net loss ............................. $(5,495) $(3,602) $(5,576)
====================================
As a partnership, the Venture is not subject to federal or state income
taxes. The Company's portion of the Venture's results is shown as "Equity in
loss of joint venture" in the accompanying consolidated statements of
operations.
7. INCOME TAXES
Provision (benefit) for income taxes consisted of the following for the years
ended June 30, 1995, 1994 and 1993:
1995 1994 1993
------------------------------------
(in thousands)
Federal:
Current ............................ $ 847 $ 3,855 $ 1,807
Deferred ........................... (137) (946) (719)
Foreign:
Current ............................ -- -- --
Deferred ........................... (1,300) -- --
State:
Current ............................ 313 1,791 645
Deferred ........................... (73) (291) 5
------------------------------------
$ (350) $ 4,409 $ 1,738
====================================
A reconciliation of the provision (benefit) for income taxes to the amount
computed by applying the statutory federal income tax rate to earnings (loss)
before provision (benefit) for income taxes, extraordinary item and cumulative
effect of change in the method of accounting for income taxes for the years
ended June 30, 1995, 1994 and 1993 follows:
1995 1994 1993
------------------------------------
(in thousands)
Computed "expected" tax
provision (benefit) ................ $ 1,442 $ 3,984 $ (104)
Increase (decrease) in income
taxes resulting from:
Reevaluation of valuation
allowance ...................... (1,300) -- --
Utilization of foreign net
operating loss carry-forwards
and depreciation differences ... (804) (752) --
Foreign tax differential ......... 204 168 --
State income taxes, net of
Federal income tax effect ...... 158 990 429
Losses for which no tax
benefit was recorded ........... -- -- 1,326
Other - net ...................... (50) 19 87
------------------------------------
Provision (benefit) for
income taxes ....................... $ (350) $ 4,409 $ 1,738
====================================
Major components of deferred tax expense (income) are as follows for the
years ended June 30, 1995, 1994 and 1993:
1995 1994 1993
----------------------------------
(in thousands)
Differences in tax and book
depreciation .......................... $ 850 $ 284 $ 1,646
Interest capitalized in financial
statements ............................ 28 73 32
Reserves for doubtful accounts,
disputed claims, losses on
assets and contracts, etc ............. 32 (712) (1,787)
Retirement plans ........................ 59 (82) (132)
Accrued insurance ....................... (472) (841) (328)
State taxes ............................. 269 (125) 3
Difference in Hawaii joint
venture's book and tax
year-end .............................. (226) 175 (223)
Reevaluation of valuation
allowance ............................. (1,300) -- --
Utilization of foreign net
operating loss carryforwards
and depreciation differences .......... (804) -- --
Other ................................... 54 (9) 75
----------------------------------
Total ................................... $(1,510) $(1,237) $ (714)
==================================
21
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Hudson General Corporation and Subsidiaries
(Continued)
Deferred tax assets (liabilities) are comprised of the following as of June
30, 1995 and 1994:
1995 1994
---------------------
(in thousands)
Deferred tax assets:
Reserves for doubtful accounts, claims, etc ........ $ 860 $ 892
Retirement plans ................................... 368 427
Property, equipment and leasehold rights,
principally depreciation - foreign ............... 2,235 2,929
Accrued insurance .................................. 2,099 1,627
---------------------
Current deferred tax assets ........................ 5,562 5,875
---------------------
State income taxes ................................. 618 887
Difference in Hawaii joint venture's book
and tax year-end ................................. 545 319
Other .............................................. -- 53
---------------------
Noncurrent deferred tax assets ..................... 1,163 1,259
---------------------
6,725 7,134
Valuation allowance .................................. (960) (3,064)
---------------------
Net deferred tax assets ............................ 5,765 4,070
---------------------
Deferred tax liabilities:
Property, equipment and leasehold rights,
principally depreciation - domestic .............. (2,463) (2,306)
Interest capitalized on financial statements ....... (557) (529)
---------------------
Noncurrent deferred tax liabilities ................ (3,020) (2,835)
---------------------
Deferred tax assets - net ............................ $ 2,745 $ 1,235
=====================
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, and has reported the
cumulative effect of the change in the method of accounting for income taxes in
the consolidated statement of operations for fiscal 1994, without restating
prior period financial statements.
Statement 109 requires a change from the deferred method under APB Opinion
11 to the asset and liability method of accounting for income taxes. Under the
asset and liability method of Statement 109, deferred income taxes are
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
Statement 109, the effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
Pursuant to the deferred method under APB Opinion 11, which was applied by
the Company in fiscal 1993 and prior years, deferred income taxes were
recognized for income and expense items that were reported in different years
for financial reporting purposes and income tax purposes using the tax rate
applicable for the year the timing difference arose. Under the deferred method,
deferred taxes are not adjusted for subsequent changes in tax rates.
Under Statement 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 Company 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
1995 and 1994 was a decrease of $2,104,000 and $1,211,000, respectively. The
decrease reflects: (i) the tax effect resulting from utilization of a portion of
the Company's Canadian depreciation differences to offset its provision for
foreign income taxes in the amount of $804,000 and $1,211,000 for fiscal 1995
and 1994, respectively; and (ii) the recognition of $1,300,000 of deferred tax
assets in fiscal 1995 resulting from a review of prior Canadian operating
results and anticipation of future Canadian earnings, which together with
cessation of operations of the Company's Canadian FBO's (see Note 4), made the
realization of additional Canadian depreciation differences more likely than
not.
8. COMMON STOCK
(a) The Company'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 Company's
common stock on the date of grant.
Activity in Options during fiscal 1995 and 1994 was as follows:
Outstanding June 30, 1993 ...................................... 79,600
Exercised ($14.79 per share) ................................... (8,000)
------
Outstanding June 30, 1994 ...................................... 71,600
Exercised ($14.79 per share) ................................... (3,000)
Canceled ($14.79 per share) .................................... (6,500)
Canceled ($19.07 per share) .................................... (600)
------
Outstanding June 30, 1995 ...................................... 61,500
======
Limited Rights were also granted in conjunction with Options granted in May
1990 and June 1991 of which 55,000 ($14.79 per share) and 6,500 ($19.07 per
share) were outstanding at June 30, 1995. At June 30, 1995 the aggregate Option
price and quoted market value of Company stock subject to outstanding Options
were $937,000 and $1,253,000, 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. There were 18,000 Independent Rights outstanding ($17.32 per share) at
June 30, 1995 and 1994.
At June 30, 1995 the aggregate Independent Right price and quoted market
value of outstanding Independent Rights were $312,000 and $367,000,
respectively.
(b) The Company'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 Company's common stock on the date of
grant.
22
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Hudson General Corporation and Subsidiaries
(Continued)
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 1995 and 1994 was as follows:
Outstanding June 30, 1994 and 1993 ............................. 51,900
Canceled ($17.00 per share) .................................... (2,000)
Canceled ($19.88 per share) .................................... (1,100)
------
Outstanding June 30, 1995 ...................................... 48,800
======
Rights and Limited Rights were also granted in conjunction with ISO's
granted in May 1990 of which 36,000 ($17.00 per share) were outstanding at June
30, 1995. Limited Rights were also granted in conjunction with ISO's granted in
June 1991 of which 12,800 ($19.88 per share) were outstanding at June 30, 1995.
At June 30, 1995 the aggregate ISO (and Right) price and quoted market value of
Company stock subject to outstanding ISO's (and the Rights) were $866,000 and
$994,000, respectively. All outstanding ISO's and Rights were granted with a
term of ten years and are currently exercisable.
(c) In 1985, the Company sold $15,000,000 of subordinated notes due 1995
(the Notes). In connection with the sale of the Notes, the Company issued
warrants entitling the holders to purchase an aggregate of 65,000 shares of
common stock. During fiscal 1992, 1,300 warrants were surrendered in connection
with the Company's repurchase of a portion of the Notes. The balance of the
Notes was prepaid in fiscal 1993 and the remaining warrants expired on June 27,
1995.
(d) Common Stock Reserved: Common shares were reserved for issuance at June
30, 1995 as follows:
Conversion of convertible debentures ........................... 885,496
Exercise of incentive stock options - 1981 Plan ................ 48,800
Exercise of non-qualified stock options - 1981 Plan ............ 79,500
Exercise of stock appreciation rights .......................... 161,004
---------
Total .......................................................... 1,174,800
=========
(e) In April 1995, the Board of Directors approved the repurchase of up to
150,000 shares of the Company's common stock from time to time in either open
market or privately negotiated transactions. As of June 30, 1995 the Company had
repurchased 96,600 shares in the open market for an aggregate purchase price of
$1,621,000 pursuant to this authorization.
9. RETIREMENT PLANS
The Company maintains a 401(k) Profit Sharing Plan (the Plan) covering
substantially all of its domestic employees not subject to collective bargaining
agreements. Under the Plan the Company contributes a discretionary contribution
and 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. During fiscal 1995 and
1994, the Company contributed $845,000 and $635,000, respectively, to the Plan,
representing employer matching and discretionary contributions.
During fiscal 1995, the Company established a Group Registered Retirement
Savings Plan (RRSP) covering substantially all of its Canadian employees not
subject to collective bargaining agreements. Under the RRSP the Company
contributes a discretionary contribution. During fiscal 1995, the Company
contributed $61,000 to the RRSP.
Net expense related to the Company's retirement plans was $701,000, $844,000
and $745,000 for fiscal 1995, 1994 and 1993, respectively.
10. COMMITMENTS AND CONTINGENCIES
(a) LEASES
Minimum rental payments for future fiscal years under non-cancelable
operating leases (after deducting $493,000 to be received subsequent to June 30,
1995 under non-cancelable subleases) are: $3,992,000 in 1996; $3,608,000 in
1997; $3,310,000 in 1998; $2,991,000 in 1999; $2,514,000 in 2000; and $8,154,000
thereafter.
Total rental expense incurred amounted to $6,592,000, $7,237,000 and
$7,179,000 for fiscal 1995, 1994 and 1993 (excluding sublease income amounting
to $1,337,000, $3,411,000 and $4,156,000 in fiscal 1995, 1994 and 1993),
respectively.
(b) CAPITAL COMMITMENTS
At June 30, 1995 the Company had commitments to fund $5,084,000 for
operating equipment and facility improvements.
(c) LITIGATION
In 1988, Texaco Canada Inc. (Texaco) (now known as McColl-Frontenac Inc.)
instituted a suit in the Supreme Court of Ontario, Canada against the Company
and Petro-Canada Inc., the corporation which supplied aviation fuel for the
Company's Canadian fixed base operations. The suit's allegations, as amended in
1992, are that the defendants interfered with contractual and fiduciary
relations and induced the breach of a fuel supply agreement between Texaco and
Innotech Aviation Limited (Innotech) in connection with the purchase by the
Company from Innotech in 1984 of certain assets of Innotech's airport ground
services business. The suit 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. A trial date has been
set for May 1996.
Innotech (which due to a name change is now called Aerospace Realties (1986)
Limited) has agreed to defend and indemnify the Company against claims of
whatever nature asserted in connection with, arising out of or resulting from
the fuel supply agreement with Texaco, and is defending the Company in the suit
by Texaco.
Company management believes, and counsel for the Company has advised based
on available facts, that the Company will successfully defend this action.
11. RELATED PARTY TRANSACTION
In February 1988, the Company engaged an investment banking firm of which a
director of the Company is affiliated to render certain investment banking
services and paid a retainer fee relating to such services in the amount of
$125,000. During fiscal 1993, the Company paid such firm an additional $50,000
for additional investment banking services.
23
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Hudson General Corporation and Subsidiaries
(Continued)
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth unaudited quarterly financial information for
fiscal 1995 and 1994:
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------------------------------------------
(in thousands, except per share amounts)
1995
Revenues ......................... $31,348 $33,177 $37,953 $32,975
Gross profit ..................... 4,446 5,296 7,008 5,397
Net earnings ..................... 235 633 3,474(a) 251
Earnings per share, primary:
Net earnings .................... $ .19 $ .50 $ 2.76 $ .21
===========================================
Earnings per share, fully diluted:
Net earnings .................... $ .19 $ .43 $ 1.75 $ .21
===========================================
1994
Revenues ......................... $28,818 $30,715 $50,910 $31,632
Gross profit ..................... 4,601 4,800 14,537(b) 4,974(b)
Net earnings ..................... 1,136(c) 393 4,242(b) 1,989(b)
Earnings per share, primary:
Net earnings .................... $ .91(c) $ .32 $ 3.40 $ 1.59
===========================================
Earnings per share, fully diluted:
Net earnings .................... $ .67(c) $ .32 $ 2.12 $ 1.06
===========================================
(a) Includes the recognition of $1,300 of deferred tax assets (See note 7).
(b) In March 1994 a jury in Manhattan, New York rendered a verdict against the
Company in a civil lawsuit for personal injuries and awarded the plaintiff a
total of $21,436 in damages, of which $19,186 is covered by insurance. At
March 31, 1994, the Company accrued a provision for the entire uninsured
punitive damage amount of $2,250 in the Company's consolidated statements of
operations. In June 1994, as a result of a ruling by the judge in the case
vacating the uninsured punitive damage award against the Company, the
Company reversed the $2,250 provision which it had previously accrued.
(c) Earnings before cumulative effect of change in the method of accounting for
income taxes were $686 in the first quarter of fiscal 1994. Earnings per
share, primary and fully diluted, before cumulative effect of change in the
method of accounting for income taxes were $.55 and $.46, respectively, in
the first quarter of fiscal 1994.
INDEPENDENT AUDITORS' REPORT
[KPMG PEAT MARWICK LLP LOGO]
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, 1995 and 1994 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three year period ended June 30, 1995. These
consolidated financial statements are the responsibility of the Company'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, 1995 and 1994 and the results
of their operations and their cash flows for each of the years in the three year
period ended June 30, 1995, in conformity with generally accepted accounting
principles.
As discussed in the notes to the consolidated financial statements, the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," on a prospective basis in fiscal 1994.
/s/ KPMG PEAT MARWICK, LLP
Jericho, New York
August 16, 1995
24
27
[HUDSON GENERAL LOGO]
HUDSON GENERAL CORPORATION
111 Great Neck Road
P.O.Box 355
Great Neck, New York 11022
CORPORATE INFORMATION
Hudson General Corporation and Subsidiaries
DIRECTORS
Jay B. Langner
Chairman
Milton H. Dresner
Developer, Builder
and Private Investor
Edward J. Rosenthal
Executive Vice President
Cramer Rosenthal McGlynn, Inc.
Hans H. Sammer
Consultant, Retired Director,
Investment Banking Group
Prudential Securities Incorporated
Richard D. Segal
Chairman and Chief Executive Officer
Seavest Inc.
Stanley S. Shuman
Executive Vice President
and Managing Director
Allen & Company Incorporated
TRANSFER AGENT AND REGISTRAR
First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
One Jericho Plaza
Jericho, New York 11753
SHARES LISTED
Common --
American Stock Exchange
(Symbol: HGC)
10-K AVAILABLE
The Annual Report, on Form
10-K, as filed with the
Securities and Exchange
Commission, is available to
stockholders without charge
upon written request to:
Secretary
Hudson General Corporation
111 Great Neck Road
Great Neck, New York 11021
CORPORATE OFFICERS
Jay B. Langner
Chairman of the Board, President
and Chief Executive Officer
Paul R. Pollack
Executive Vice President
and Chief Operating Officer
Michael Rubin
Executive Vice President
and Chief Financial Officer
Fernando DiBenedetto
Senior Vice President -- Operations
Raymond J. Rieder
Senior Vice President
and Chief Marketing Officer
Donald S. Croot
Vice President --
Canadian Operations
Rocco Daloia
Vice President -- Maintenance and Facilities
Barry I. Regenstein
Vice President and Controller
Noah E. Rockowitz
Vice President, General Counsel and Secretary
Henry A. Satinskas
Vice President -- Transportation Services
DIVISIONAL OFFICERS
UNITED STATES
Salvatore J. Altizio, Jr.
Regional Vice President
David L. Finch
Vice President --
Contract Services
Frederick C. Knapp, Jr.
Vice President -- Fuel Services and Planning
Bert J. Smith
Regional Vice President
David M. Ziolkowski
Regional Vice President
CANADA
Thomas D. Culp
Vice President -- Marketing
Audrey J. Laurin
Vice President and Controller
Denis A. A. Lawn
Vice President -- Operations
CORPORATE HEADQUARTERS
111 Great Neck Road
Great Neck, New York 11021
(516) 487-8610
UNITED STATES LOCATIONS
Baltimore-Washington
International Airport
Fort Lauderdale/Hollywood
International Airport
Houston
Ellington Field
William P. Hobby Airport
JFK International Airport
LaGuardia Airport
Logan International Airport
Los Angeles International Airport
Miami International Airport
Newark International Airport
O'Hare International Airport
Orlando International Airport
Salt Lake City International Airport
Washington National Airport
CANADIAN LOCATIONS
Administrative Offices
100 Alexis Nihon, Suite 400
Ville St. Laurent, Quebec
H4M 2N9
(514) 748-2277
Calgary International Airport
Edmonton Municipal Airport
Halifax International Airport
Montreal International Airport
(Dorval)
Montreal International Airport
(Mirabel)
Ottawa International Airport
St. John's Airport
Toronto International Airport
Vancouver International Airport
Winnipeg International Airport
28
[HUDSON GENERAL LOGO]
HUDSON GENERAL CORPORATION
110 Great Neck Road
P.O. Box 355
Great Neck, New York 11022