1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commission file number 1-5896
HUDSON GENERAL CORPORATION
(Exact Name of Registrant as specified in its charter)
Delaware 13-1947395
- ------------------------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 Great Neck Road, Great Neck, N.Y. 11021
- ------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 487-8610
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
Common Stock, $1 par value American Stock Exchange, Inc.
7% Convertible Subordinated Debentures
Due 2011 American Stock Exchange, Inc.
- --------------------------------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
None
- --------------------------------------------------------------------------------
(Title of Class)
Indicate by a checkmark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of voting stock held by non-affiliates of Registrant
based on the closing price on July 31, 1996 was $41,698,876.
The number of shares outstanding (net of treasury stock) of the Registrant's
common stock as of July 31, 1996 was 1,586,532 shares.
Specific portions of the following documents are incorporated herein by
reference in the parts hereof indicated, and only such specific portions are to
be deemed filed as part of this report:
Document Part
-------- ----
1996 Proxy Statement of Registrant (to be filed with III
the Commission pursuant to Regulation 14A no later than 120 days after the close
of its fiscal year)
Registrant's 1996 Annual Report to Shareholders I, II, IV
2
PART I
ITEM 1. BUSINESS
General Development of Business
Hudson General Corporation (the "Corporation" or "Registrant") was
organized in Delaware in 1961. Effective June 1, 1996, pursuant to the terms of
a Unit Purchase and Option Agreement dated February 27, 1996 (the Purchase
Agreement) between the Corporation and Lufthansa Airport and Ground Services
GmbH (LAGS), a German corporation and an indirect wholly-owned subsidiary of
Deutsche Lufthansa AG, the Corporation transferred substantially all of the
assets and liabilities of its aviation services business (the Aviation Business)
to Hudson General LLC (Hudson LLC), a newly formed limited liability company. In
exchange for the transfer of such assets and liabilities and the assumption by
Hudson LLC, as co-obligor with the Corporation, of all of the Corporation's 7%
convertible subordinated debentures, the Corporation received a 74% interest in
Hudson LLC. In addition, Hudson LLC sold LAGS a 26% interest in Hudson LLC, for
a purchase price of $23,686,000 in cash (after certain adjustments), of which
$15,848,000 was paid at the closing. The remaining portion of the purchase price
of $7,838,000 (the Deferred Payment) is to be paid in three annual installments
(together with accrued interest from January 1, 1996 at a rate of 11% per
annum), expected to be paid in September 1996, 1997 and 1998, and is subject to
potential downward adjustment based on the future earnings of the Aviation
Business. The earnings of the Aviation Business in fiscal 1996 were sufficient
for Hudson LLC to earn the full portion of the Deferred Payment due in September
1996 of $2,650,000, plus interest thereon. The Purchase Agreement also provided
for the grant to LAGS of an option, exercisable on October 1 of each year from
1996 through 2000, effective as of the preceding July 1, pursuant to which LAGS
may increase its equity
3
ownership in Hudson LLC from 26% to a maximum of 49%, for a price based on a
formula related to the average earnings of the Aviation Business over the four
fiscal years preceding the exercise of the option, subject to certain minimum
and maximum amounts.
Hudson LLC is principally engaged in providing a broad range of
services to the aviation industry. The services, which are conducted by Hudson
LLC and its subsidiaries, include aircraft ground handling; aircraft de-icing;
aircraft fueling; ground transportation services; snow removal; fuel management;
cargo warehousing; ramp sweeping and glycol recovery; the sale, leasing and
maintenance of ground support equipment; specialized maintenance services and
the leasing of hangar, office and tie-down space to private aircraft owners. In
addition to its interest in Hudson LLC, the Corporation is a 50% partner with
Oxford First Corporation in a joint venture for the development and sale of land
on the Island of Hawaii (see Note 3 to Item 14(a)(1) Financial Statements).
Narrative Description of Business
Hudson LLC's snow removal and aircraft de-icing services are seasonal
in nature. The 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. Additional information required to be provided under this
item is incorporated by reference from pages 4-7 of the Registrant's 1996 Annual
Report to Shareholders.
General Information
The Corporation does not spend a material amount for research and
development activities.
During the years ended June 30, 1996, 1995 and 1994, sources of the
Corporation's revenues which exceeded 10% of consolidated revenues in any
4
year were: aircraft ground handling services (including de-icing) $85,948,000,
$74,334,000 and $68,291,000; aircraft fueling services (including fixed base
operations) $23,701,000, $22,923,000 and $21,936,000; ground transportation
services $21,108,000, $23,802,000 and $22,171,000; and snow removal services
$17,487,000, $3,706,000 and $17,871,000, respectively. (Note: In fiscal 1996,
revenues are for the eleven months ended May 31, 1996. Foreign revenues included
above are translated at the average rates of exchange in their respective fiscal
years.)
No customer of the Corporation accounted for more than 10% of
consolidated revenues during fiscal 1996.
Hudson LLC's services are generally subject to competitive bidding, and
Hudson LLC competes principally with airlines and other aviation services
companies, some of which are larger and have resources greater than Hudson LLC.
The major bases of competition are the prices at which services are offered and
the quality and efficiency in the performance of services.
The compliance with federal, state and local provisions which have been
enacted or adopted regulating the discharge of materials into the environment
has not to date had a material effect upon the Corporation's or Hudson LLC's
capital expenditures, results of operations or competitive position. However,
the federal government and many state and local governments have enacted or
proposed legislation and regulations with respect to storage facilities for
fuel, petroleum-based products and chemicals, the disposal of hazardous waste
materials, storm water discharges, and financial responsibility for possible
liability exposures relating to fuel storage facilities. Compliance with such
legislation and regulations has resulted in expenditures by the Corporation,
including expenditures for the testing, decommissioning and/or replacement of
certain of its fuel and de-icing fluid storage facilities, and the cleanup of
fuel spills. The Corporation was and
5
Hudson LLC is presently engaged in several such decommissioning and cleanup
projects, and it is anticipated that additional such expenditures, the amount of
which is presently not expected to be material, will be required.
In addition, airport authorities are coming under increasing pressure
to clean up previous contamination at their facilities, and are seeking
financial contributions from airport tenants and companies which operate at
their airports. The Corporation cannot predict at this time the amount, if any,
that it or Hudson LLC may be required to pay in connection with such airport
authority initiatives.
The Corporation and Hudson LLC employ approximately 40 and 3,700
persons, respectively.
Financial Information About Foreign and Domestic Operations and Export Sales
The Corporation, through its ownership interest in Hudson LLC, operates
in only one industry segment. For information as to foreign operations, see Note
6 to Item 14(a)(1) Financial Statements and Note 5 to Item 14(a)(2) Financial
Statements of Hudson LLC. For information relating to the Corporation's
investment in a joint venture to develop and sell land in Hawaii (the Venture),
see Note 3 to Item 14(a)(1) Financial Statements.
6
ITEM 2. PROPERTIES
The Corporation's executive offices at 111 Great Neck Road, Great Neck,
New York contain approximately 13,000 square feet and are under lease through
December 31, 2002.
Hudson LLC leases office, warehouse, hangar and maintenance shop space
as well as fuel storage facilities at various airport locations in the United
States and Canada. These leases expire at various dates through 2006 and contain
various renewal options through 2020. A portion of this leased space has been
sublet to non-affiliated sublessees. The properties owned and leased by the
Corporation and Hudson LLC are suitable and adequate to conduct their
businesses.
For information relating to the Corporation's interest in land in
Hawaii, see Note 3 to Item 14(a)(1) Financial Statements and page 8 of the
Registrant's 1996 Annual Report to Shareholders.
7
ITEM 3. LEGAL PROCEEDINGS
In 1988, Texaco Canada Inc. (Texaco) (now known as McColl- Frontenac
Inc.) instituted a lawsuit (the Texaco Lawsuit) in the Supreme Court of Ontario,
Canada against the Corporation, the Corporation's Canadian subsidiary (now owned
by Hudson LLC) and Petro-Canada, Inc. (the corporation which supplied aviation
fuel for the Corporation's Canadian fixed base operations). The Texaco Lawsuit's
allegations, as amended, are that the defendants interfered with contractual and
fiduciary relations, conspired to injure, and induced the breach of a fuel
supply agreement between Texaco and Innotech Aviation Limited (Innotech) in
connection with the purchase by the Corporation from Innotech in 1984 of certain
assets of Innotech's airport ground services business. The Texaco Lawsuit seeks
compensatory and punitive damages totaling $110,000,000 (Canadian)
(approximately $80,000,000 (U.S.)) plus all profits earned by the defendants
subsequent to the alleged breach. The trial, which began in May 1996, has been
adjourned until January 1997.
Innotech (which due to a name change is now called Aerospace Realties
(1986) Limited, (Aerospace)) had agreed to defend and indemnify the Corporation
against claims of whatever nature asserted in connection with, arising out of or
resulting from the fuel supply agreement with Texaco. By a letter dated February
15, 1996, the Corporation was notified by Aerospace that Aerospace has entered
into a liquidation phase and can no longer defray the cost of defending the
Texaco Lawsuit or pay for any damages resulting therefrom.
The Corporation has agreed to indemnify and hold harmless Hudson LLC,
LAGS and each affiliate of LAGS against all losses related to the Texaco
Lawsuit. The Corporation's management believes, and counsel for the Corporation
has advised based on available facts, that the Corporation will successfully
defend this action.
8
In March 1994 a jury in New York State Supreme Court in Manhattan, New
York rendered a verdict against the Corporation in a civil lawsuit for personal
injuries and awarded the plaintiff a total of $21,436,000 in damages, of which
$19,186,000 was covered by insurance. The suit arose from an accident involving
a collision between a Corporation vehicle and another vehicle at JFK
International Airport in New York. The judge in the case subsequently vacated
the $2,250,000 punitive damage award (which was not covered by insurance)
against the Corporation. The judge also ruled that the jury's award of
compensatory damages was excessive in several respects, and held that this award
should be reduced to $9,600,000. The compensatory damages were fully covered by
insurance. The Corporation's insurance carrier appealed the judge's ruling,
seeking to further reduce the jury's award. The plaintiff cross-appealed the
judge's ruling which vacated the jury award of $2,250,000 in punitive damages
against the Corporation. However, in such cross-appeal, the plaintiff sought to
reinstate only $750,000 of such damages. On April 23, 1996, the Appellate
Division affirmed the judge's decision, including the judge's decision to vacate
the punitive damage award against the Corporation.
9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a Special Meeting of Stockholders of the Corporation held on May 23, 1996 the
only matter voted upon was the approval of the Purchase Agreement and the
transactions contemplated thereby. The voting was as follows:
Shares Voted Shares Voted
For Against Shares Abstained
------------------------------------ ----------------
891,055 1,160 1,871
ADDITIONAL ITEM
EXECUTIVE OFFICERS OF THE CORPORATION
Name Age Position with Corporation
---- --- -------------------------
Jay B. Langner 66 Chairman of the Board, Chief Executive Officer and
Director
Michael Rubin 49 President and Principal Financial Officer
Paul R. Pollack 54 Executive Vice President and Chief Operating
Officer
Raymond J. Rieder 46 Senior Vice President and Chief Marketing Officer
Fernando DiBenedetto 47 Senior Vice President - Operations
Donald S. Croot 67 Vice President-Canadian Operations
Noah E. Rockowitz 47 Vice President, Secretary and General Counsel
No family relationships exist among the executive officers of the
Corporation. Each of the executive officers holds office at the pleasure of the
Board of Directors, except as noted below.
Mr. Langner has served as a Director of the Corporation since 1961 and
as Chairman since 1977. He served as President from 1989 until September 1996
and previously served in such capacity from 1961 until 1979. The Corporation has
an employment contract with Mr. Langner pursuant to which Mr. Langner has agreed
to render services to the Corporation as Chairman and Chief Executive Officer
for a period ending January 31, 2001.
Mr. Rubin was elected President of the Corporation in September 1996
and prior to such time served as Executive Vice President and Chief Financial
Officer of the Corporation since 1990. He has been Treasurer of
10
the Corporation since 1983. Previously, Mr. Rubin had been Vice
President-Finance since 1985. He has been employed in various capacities with
the Corporation since 1971. Mr. Rubin is a Certified Public Accountant.
Mr. Pollack has served as Executive Vice President and Chief Operating
Officer of the Corporation since 1990, and prior thereto as Senior Vice
President since 1984. He was elected President of Hudson General LLC in
September 1996. He has been employed in various capacities with the Corporation,
including as a divisional officer, since 1968. Mr. Pollack is a Certified Public
Accountant.
Mr. Rieder has served as Senior Vice President and Chief Marketing
Officer of the Corporation since 1990, and prior thereto as Vice President -
Marketing since 1984. Mr. Rieder was elected Executive Vice President of Hudson
General LLC in September 1996. He has been employed in various capacities with
the Corporation, including as a divisional officer, since 1967.
Mr. DiBenedetto has served as Senior Vice President-Operations since
July 26, 1994. Prior thereto he was Vice President-Operations since 1984. He has
been employed in various capacities with the Corporation, including as a
divisional officer, since 1970.
Mr. Croot has served as Vice President-Canadian Operations of the
Corporation since 1989. He has been employed in various capacities with the
Corporation, including as a divisional officer, since 1968.
Mr. Rockowitz has served as Vice President-General Counsel since 1985
and as Secretary since 1986. Prior to joining the Corporation in 1985, he had
been Corporate Secretary and Assistant General Counsel of Belco Petroleum
Corporation since 1978.
The Corporation has employment contracts with Messrs. Pollack, Rubin
and Rieder which currently extend until December 31, 1998 and are subject to
11
extension for additional three year periods unless on or before the September
30th preceding any then-existing expiration date, the Corporation notifies
the executive that it elects not to so extend the term. The Corporation also has
employment contracts with Messrs. DiBenedetto and Rockowitz which currently
extend until December 31, 1997 and are subject to extension for additional two
year periods unless on or before the September 30th preceding any then-existing
expiration date, the Corporation notifies the executive that it elects not to so
extend the term. Hudson LLC has an employment contract with Mr. Croot which
terminates on December 31, 1996, at which time Mr. Croot will retire.
12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The information required to be provided under Part II, Item 5(a) and
(c) is incorporated by reference from page 12 of the Registrant's 1996 Annual
Report to Shareholders under the caption "Selected Consolidated Financial Data".
At June 30, 1996, there were 224 holders of record of the Corporation's common
stock.
The Corporation's Revolving Credit Agreement, as amended (Credit
Agreement), permits the payment of dividends (see Note 7 to Item 14(a)(1)
Financial Statements) and the purchase, redemption or retirement by the
Corporation of its stock so long as certain financial covenants are maintained.
During fiscal 1996, holders of $249,000 principal amount of the Corporation's 7%
Convertible Subordinated Debentures (the Debentures) converted such Debentures
into 7,599 shares of the Corporation's common stock. In addition, primarily as a
result of the call for redemption in July and September 1996 of the outstanding
balance of the Debentures, holders of $26,343,000 principal amount of Debentures
converted such Debentures between July 1, 1996 and September 4, 1996 into
804,259 shares of the Corporation's common stock. At September 5, 1996 no
Debentures remained outstanding.
The Board of Directors has approved the repurchase of up to 150,000
shares of the Corporation's common stock from time to time in either open market
or privately negotiated transactions. As of August 31, 1996 the Corporation had
repurchased 114,300 shares in the open market for an aggregate purchase price of
$2,010,000 pursuant to this authorization.
ITEM 6. SELECTED FINANCIAL DATA
13
The information required to be provided under Part II, Item 6 is
incorporated by reference from page 12 of the Registrant's 1996 Annual Report to
Shareholders under the caption "Selected Consolidated Financial Data".
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required to be provided under Part II, Item 7 is
incorporated by reference from pages 9-11 of the Registrant's 1996 Annual Report
to Shareholders under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and the required financial
statement schedule of the Corporation and the independent auditors' reports
thereon of KPMG Peat Marwick LLP, independent auditors, for the Corporation's
fiscal years ended June 30, 1996, 1995 and 1994 are filed pursuant to Item
14(a)(1) of this Report. The financial statements and the required financial
statement schedule of Hudson LLC and the independent auditors' report thereon of
KPMG Peat Marwick LLP, independent auditors, for the month ended June 30, 1996,
and the financial statements and the required financial statement schedule of
the Venture and the independent auditors' report thereon of KPMG Peat Marwick
LLP, independent auditors, for the fiscal years ended June 30, 1996, 1995 and
1994, are filed pursuant to Item 14(d) of this Report. All such financial
statements and financial statement schedules are included herein, except for the
consolidated financial statements of the Corporation which are incorporated
herein by reference.
Selected quarterly financial data of the Registrant for the fiscal
years ended June 30, 1996 and 1995 appears in Note 13 to Item 14(a)(1) Financial
Statements.
14
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE - Not Applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required to be provided under Part III, Item 10,
relative to Directors of the Registrant is incorporated by reference from the
Registrant's 1996 definitive proxy statement to be filed with the Securities and
Exchange Commission (the "Commission") pursuant to Regulation 14A no later than
120 days after the close of its fiscal year and, relative to executive officers,
to Part I of this report under the caption "Executive Officers of the
Corporation".
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required to be provided under Part III, Items 11, 12
and 13 is incorporated by reference from the Registrant's 1996 definitive proxy
statement to be filed with the Commission pursuant to Regulation 14A no later
than 120 days after the close of its fiscal year.
15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1)
FINANCIAL STATEMENTS OF THE REGISTRANT, all of which are incorporated herein by
reference to the Registrant's 1996 Annual Report to Shareholders.
Independent Auditors' Report of KPMG Peat Marwick LLP, independent auditors,
appearing on page 24 of the 1996 Annual Report to Shareholders.
Consolidated Balance Sheets of Hudson General Corporation and Subsidiaries at
June 30, 1996 and 1995, appearing on page 14 of the 1996 Annual Report to
Shareholders.
Consolidated Statements of Earnings of Hudson General Corporation and
Subsidiaries for the Years Ended June 30, 1996, 1995 and 1994, appearing on page
13 of the 1996 Annual Report to Shareholders.
Consolidated Statements of Cash Flows of Hudson General Corporation and
Subsidiaries for the Years Ended June 30, 1996, 1995 and 1994, appearing on page
16 of the 1996 Annual Report to Shareholders.
Consolidated Statements of Stockholders' Equity of Hudson General Corporation
and Subsidiaries for the Years Ended June 30, 1996, 1995 and 1994 appearing on
page 15 of the 1996 Annual Report to Shareholders.
Notes to Consolidated Financial Statements appearing on pages 17-23 of the 1996
Annual Report to Shareholders.
16
(a)(2) Location
in 10-K
FINANCIAL STATEMENT SCHEDULE OF THE REGISTRANT FOR THE YEARS ENDED
JUNE 30, 1996, 1995 AND 1994:
Independent Auditors' Report of KPMG Peat Marwick LLP on Financial
Statement Schedule F-1
II - Valuation and Qualifying Accounts F-2
FINANCIAL STATEMENTS OF HUDSON GENERAL LLC AND SUBSIDIARIES:
Independent Auditors' Report of KPMG Peat Marwick LLP. F-4
Consolidated Balance Sheet of Hudson General LLC and Subsidiaries
at June 30, 1996. F-6
Consolidated Statement of Earnings of Hudson General LLC and
Subsidiaries for the Period June 1, 1996 (Inception) to
June 30, 1996. F-5
Consolidated Statement of Members' Equity of Hudson General LLC
and Subsidiaries for the Period June 1, 1996 (Inception) to
June 30, 1996. F-7
Consolidated Statement of Cash Flows of Hudson General LLC and
Subsidiaries for the Period June 1, 1996 (Inception) to June 30, 1996. F-8
Notes to Consolidated Financial Statements.
F-9 - F-15
FINANCIAL STATEMENT SCHEDULE OF HUDSON GENERAL LLC AND
SUBSIDIARIES FOR THE MONTH ENDED JUNE 30, 1996:
II - Valuation and Qualifying Accounts F-16
FINANCIAL STATEMENTS OF KOHALA JOINT VENTURE AND SUBSIDIARY:
Independent Auditors' Report of KPMG Peat Marwick LLP. F-18
Consolidated Balance Sheets of Kohala Joint Venture and
Subsidiary at June 30, 1996 and 1995. F-19
Consolidated Statements of Operations and Partners' Deficit of Kohala
Joint Venture and Subsidiary for the Years Ended June 30, 1996, 1995
and 1994. F-20
Consolidated Statements of Cash Flows of Kohala Joint Venture and
Subsidiary for the Years Ended June 30, 1996, 1995 and 1994. F-21
Notes to Consolidated Financial Statements. F-22 - F-30
FINANCIAL STATEMENT SCHEDULE OF KOHALA JOINT VENTURE AND
SUBSIDIARY FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994:
II - Valuation and Qualifying Accounts F-31
Schedules other than those listed above are omitted because of the absence of
the conditions under which they are required or because the information required
therein is set forth in all material respects in the financial statements,
including the notes thereto.
17
(a)(3) Exhibits
- ------ --------
EXHIBIT
NO. EXHIBIT DESCRIPTION
------- -------------------
3.1 Restated Certificate of Incorporation of the
Registrant, as amended to date, filed as
Exhibit 3.1 to Quarterly Report on Form 10-Q
for the quarter ended December 31, 1986,
incorporated herein by reference.
3.2(a) Amendment to By-laws of the Registrant.
3.2(b) By-laws of the Registrant, as amended to date.
4.4(a) Revolving Credit Agreement dated as of November
25, 1992 among Hudson General Aviation Services
Inc., various banking institutions named
therein and Bank of Boston Canada, as agent,
filed as Exhibit 4.4(i) to Quarterly Report on
Form 10-Q for the quarter ended March 31, 1993,
incorporated herein by reference.
4.4(b) First Amendment to the Revolving Credit
Agreement dated as of November 25, 1992 among
Hudson General Aviation Services Inc., various
banking institutions named therein and The
Chase Manhattan Bank of Canada, as successor
agent, dated as of March 15, 1995, filed as
Exhibit 4.4(f) to Annual Report on Form 10-K
for the fiscal year ended June 30, 1995,
incorporated herein by reference.
4.4(c) Second Amendment to the Revolving Credit
Agreement dated as of November 25, 1992, among
Hudson General Aviation Services Inc., ABN Amro
Bank Canada and The Chase Manhattan Bank of
Canada individually and as successor agent,
dated as of June 1, 1996.
4.4(d) Revolving Credit Agreement dated as of June 1,
1996 among Hudson General Corporation and The
First National Bank of Boston, European
American Bank, The Chase Manhattan Bank, N.A.
and The First National Bank of Boston, as
agent.
4.4(e) Amended and Restated Revolving Credit Agreement
dated as of November 25, 1992 among Hudson
General Corporation, Hudson General LLC and The
First National Bank of Boston, European
American Bank, The Chase Manhattan Bank, N.A.
and The First National Bank of Boston, as
agent, as amended and restated as of June 1,
1996.
4.5(a) Indenture dated as of July 1, 1986 between the
Registrant and Chemical Bank (Delaware),
relating to the Registrant's 7% Convertible
Subordinated Debentures Due 2011, filed as
Exhibit 4.1 to Amendment No. 1 to Form S-2
Registration Statement under the Securities Act
of 1933, Registration No. 33-6689, incorporated
herein by reference.
4.5(b) First Supplemental Indenture dated as of April
22, 1996 among the Registrant, Hudson General
LLC and Chemical Bank Delaware to Indenture
dated as of July 1, 1986.
18
4.5(c) Notice of Redemption and Expiration of
Conversion Privilege dated June 3, 1996
relating to the Registrant's 7% Convertible
Subordinated Debentures Due 2011.
4.5(d) Notice of Redemption and Expiration of
Conversion Privilege dated August 5, 1996
relating to the Registrant's 7% Convertible
Subordinated Debentures Due 2011.
10.1(a) Development Agreement dated April 29, 1981
between Kahua Ranch, Limited, and the
Registrant, filed as Exhibit 3 to Quarterly
Report on Form 10-Q for the quarter ended March
31, 1981, incorporated herein by reference.
10.1(b) Amended and Restated Joint Venture Agreement
dated April 29, 1981 between Hudson Kohala Inc.
and The Hilton Head Company of Hawaii, Inc.
(now Oxford Kohala, Inc.), filed as Exhibit 4
to Quarterly Report on Form 10-Q for the
quarter ended March 31, 1981, incorporated
herein by reference.
10.1(c) First Amendment to the Joint Venture Agreement,
Amendment and Restatement dated April 29, 1981,
such Amendment being effective as of June 30,
1984, filed as Exhibit 10 to Quarterly Report
on Form 10-Q for the quarter ended September
30, 1984, incorporated herein by reference.
10.1(d) Receivable Sales Agreement dated January 3,
1990, with amendment letters dated June 22,
1990 and August 2, 1990, between the Registrant
and Oxford First Corporation and Oxford Kohala,
Inc., filed as Exhibit 10.1(d) to Annual Report
on Form 10-K for the fiscal year ended June 30,
1990, incorporated herein by reference.
10.1(e) Commitment Agreement to Purchase Receivables
dated January 3, 1990, with amendment letter
dated August 2, 1990, between Kohala Joint
Venture and The Oxford Finance Companies, Inc.,
filed as Exhibit 10.1(e) to Annual Report on
Form 10-K for the fiscal year ended June 30,
1990, incorporated herein by reference.
10.1(f) Agreement constituting an amendment to the
Joint Venture Agreement, Amendment and
Restatement dated April 29, 1981, dated
November 2, 1990 among the Registrant, Hudson
Kohala Inc., Oxford Kohala, Inc. and Oxford
First Corporation relating to receivables of
the Kohala Joint Venture, filed as Exhibit
10.1(f) to Quarterly Report on Form 10-Q for
the quarter ended September 30, 1990,
incorporated herein by reference.
10.1(g) Agreement constituting an amendment to the
Joint Venture Agreement, Amendment and
Restatement dated April 29, 1981, dated
September 5, 1991 among the Registrant, Hudson
Kohala Inc., Oxford Kohala, Inc. and Oxford
First Corporation relating to distributions
from the Kohala Joint Venture, filed as Exhibit
10.1(g) to Annual Report on Form 10-K for the
fiscal year ended June 30, 1991, incorporated
herein by reference.
19
10.1(h) Agreement constituting an amendment to the
Joint Venture Agreement, Amendment and
Restatement dated April 29, 1981, dated
September 26, 1991 among the Registrant, Hudson
Kohala Inc., Oxford Kohala, Inc. and Oxford
First Corporation relating to distributions
from the Kohala Joint Venture, filed as Exhibit
10.1(h) to Quarterly Report on Form 10-Q for
the quarter ended September 30, 1991,
incorporated herein by reference.
10.1(i) Second Amendment to the Joint Venture
Agreement, Amendment and Restatement dated
April 29, 1981, such Amendment being effective
as of October 1, 1994, filed as Exhibit 10.1(i)
to Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994, incorporated
herein by reference.
10.2* 1981 Non-Qualified Stock Option and Stock
Appreciation Rights Plan, filed as Exhibit 15.1
to Form S-8 Registration Statement under the
Securities Act of 1933, Registration No.
2-75137, incorporated herein by reference.
10.3* 1981 Incentive Stock Option and Stock
Appreciation Rights Plan, filed as Exhibit 15.2
to Form S-8 Registration Statement under the
Securities Act of 1933, Registration No.
2-75137, incorporated herein by reference.
10.4(a)* Form of Severance Agreement, dated as of June
3, 1986, between the Registrant and Michael
Rubin, filed as Exhibit 10.5(a) to Annual
Report on Form 10-K for the fiscal year ended
June 30, 1988, incorporated herein by
reference.
10.4(b)* Amendment effective January 23, 1996, amending
the Form of Severance Agreement between the
Registrant and Michael Rubin dated as of June
3, 1986, filed as Exhibit 10.4(c) to Quarterly
Report on Form 10-Q for the quarter ended March
31, 1996, incorporated herein by reference.
10.4(c)* Amended schedule of executive officers entitled
to benefits of Severance Agreements, filed as
Exhibit 10.4(d) to Quarterly Report on Form
10-Q for the quarter ended March 31, 1996,
incorporated herein by reference.
10.5(a)* Employment Agreement dated July 28, 1988,
between the Registrant and Jay B. Langner,
filed as Exhibit 10.6(a) to Annual Report on
Form 10-K for the fiscal year ended June 30,
1988, incorporated herein by reference.
10.5(b)* Amendment dated April 16, 1990, amending the
Employment Agreement between the Registrant and
Jay B. Langner dated as of July 28, 1988, filed
as Exhibit 10.5(b) to Annual Report on Form
10-K for the fiscal year ended June 30, 1990,
incorporated herein by reference.
10.5(c)* Amendment dated August 16, 1994, amending the
Employment Agreement between the Registrant and
Jay B. Langner dated as of July 28, 1988, as
amended, filed as Exhibit 10.5(c) to Annual
20
Report on Form 10-K for the fiscal year ended
June 30, 1994, incorporated herein by
reference.
10.5(d)* Amendment effective January 23, 1996, amending
the Employment Agreement between the Registrant
and Jay B. Langner dated July 28, 1988, as
amended, filed as Exhibit 10.5(e) to Quarterly
Report on Form 10-Q for the quarter ended March
31, 1996, incorporated herein by reference.
10.5(e)* Severance Agreement dated April 16, 1990
between the Registrant and Jay B. Langner,
filed as Exhibit 10.5(c) to Annual Report on
Form 10-K for the fiscal year ended June 30,
1990, incorporated herein by reference.
10.5(f)* Amendment effective January 23, 1996, amending
the Severance Agreement between the Registrant
and Jay B. Langner dated April 16, 1990, filed
as Exhibit 10.5(f) to Quarterly Report on Form
10-Q for the quarter ended March 31, 1996,
incorporated herein by reference.
10.7(a)* Form of Employment Agreement, dated February 8,
1990, between the Registrant and Michael Rubin,
filed as Exhibit 10.7(a) to Annual Report on
Form 10-K for the fiscal year ended June 30,
1990, incorporated herein by reference.
10.7(b)* Amendment effective January 23, 1996, amending
the Form of Employment Agreement between the
Registrant and Michael Rubin, dated February 8,
1990, filed as Exhibit 10.7(c) to Quarterly
Report on Form 10-Q for the quarter ended March
31, 1996, incorporated herein by reference.
10.7(c)* Amended schedule of executive officers entitled
to benefits of Employment Agreements, filed as
Exhibit 10.7(d) to Quarterly Report on Form
10-Q for the quarter ended March 31, 1996,
incorporated herein by reference.
10.8* Employment Agreement dated September 21, 1990
between the Registrant and Donald S. Croot,
filed as Exhibit 10.9 to Annual Report on Form
10-K for the fiscal year ended June 30, 1991,
incorporated herein by reference.
10.9* Description of Executive Incentive Program
adopted by the Compensation Committee of the
Board of Directors on December 1, 1993, as
amended on May 17, 1996.
21
10.10(a) Unit Purchase and Option Agreement, dated
February 27, 1996 between the Registrant and
Lufthansa Airport and Ground Services GmbH, a
German corporation, filed as Exhibit 99.1 to
Form 8-K dated March 6, 1996, incorporated
herein by reference.
10.10(b) Limited Liability Company Agreement dated May
31, 1996, effective as of June 1, 1996, among
the Registrant, LAGS (USA) Inc. and Hudson
General LLC, filed as Exhibit 99.3 to Form 8-K
dated May 31, 1996, incorporated herein by
reference.
11 Computation of Earnings Per Share Information -
primary and fully diluted.
13 The Registrant's 1996 Annual Report to
Shareholders, which report, except for those
portions thereof which are expressly
incorporated by reference in this filing, is
furnished for the information of the Commission
and is not to be deemed to be filed as part of
this filing.
21 Subsidiaries of the Registrant.
23 Consent of KPMG Peat Marwick LLP, the
Corporation's independent auditors, to the
incorporation by reference into the
Corporation's Registration Statement on Form
S-8, as amended, Registration No. 2-75137.
27 Financial Data Schedule
(b) During the quarter ended June 30, 1996, the Registrant filed a Form 8-K
dated May 31, 1996, which reported the consummation of the Purchase
Agreement and the transactions contemplated thereby.
(c) Reference is made to Item 14(a)(3) above.
-------------
(d) Reference is made to Item 14(a)(2) above.
-------------
* Denotes management contract for compensatory plan or arrangement.
22
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned Chief Executive, Chief Financial and Chief Accounting Officers,
thereunto duly authorized on the 24th day of September 1996.
HUDSON GENERAL CORPORATION
/s/ Signature Title
/s/ Jay B. Langner Chairman of the Board and
-------------- Chief Executive Officer
Jay B. Langner
/s/ Michael Rubin President and Principal Financial Officer
-------------
Michael Rubin
/s/ Barry I. Regenstein Chief Accounting Officer
-------------------
Barry I. Regenstein
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in their capacities as Directors on the 24th day of September 1996.
/s/ Jay B. Langner /s/ Hans H. Sammer
-------------- --------------
Jay B. Langner Hans H. Sammer
/s/ Milton H. Dresner /s/ Richard D. Segal
----------------- ----------------
Milton H. Dresner Richard D. Segal
/s/ Edward J. Rosenthal /s/ Stanley S. Shuman
------------------- -----------------
Edward J. Rosenthal Stanley S. Shuman
23
Independent Auditors' Report
The Board of Directors and Stockholders
Hudson General Corporation:
Under date of August 16, 1996, except as to note 7 which is as of September 5,
1996, we reported on the consolidated balance sheets of Hudson General
Corporation and subsidiaries as of June 30, 1996 and 1995 and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three year period ended June 30, 1996, as contained in
the fiscal 1996 annual report to stockholders. These consolidated financial
statements and our report thereon are incorporated by reference in the annual
report on Form 10-K for the year 1996. In connection with our audits of the
aforementioned consolidated financial statements, we have also audited the
related financial statement schedule as listed in item 14(a)2. This financial
statement schedule is the responsibility of the Corporation's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
Our report refers to a change in the method of accounting for income taxes.
KPMG PEAT MARWICK LLP
Jericho, New York
September 5, 1996
24
SCHEDULE II
HUDSON GENERAL CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 and 1994
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
..........ADDITIONS............
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COSTS AND OTHER FROM END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS RESERVES OF YEAR
- ---------------------------------------------------------------------------------------------------------------
1996 - Allowance for doubtful
accounts receivable... $1,579,000 $ 362,000 $(1,820,000) (B,C,D) $ 121,000 (A) $ --
========== ========== =========== ========== =========
1995 - Allowance for doubtful
accounts receivable... $1,631,000 $ 178,000 $( 85,000) (B,C) $ 145,000 (A) $1,579,000
========== ========== =========== ========== ==========
1994 - Allowance for doubtful
accounts receivable... $1,500,000 $ 160,000 $ 57,000 (B,C) $ 86,000 (A) $1,631,000
========== ========== =========== ========== ==========
NOTES:
(A) Write-offs.
(B) Foreign exchange.
(C) Recoveries.
(D) Includes transfer of $1,804,000 to Hudson General LLC.
25
HUDSON GENERAL LLC
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULE
(FORM 10-K)
JUNE 30, 1996
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
26
INDEPENDENT AUDITORS' REPORT
The Board of Member Representatives
Hudson General LLC
We have audited the accompanying consolidated balance sheet of Hudson General
LLC and subsidiaries as of June 30, 1996 and the related consolidated statements
of earnings, members' equity and cash flows for the period June 1 (inception) to
June 30,1996. We have also audited financial statement schedule II. These
consolidated financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and the financial statement
schedule based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Hudson General LLC
and subsidiaries at June 30, 1996 and the results of their operations and their
cash flows for the period June 1 (inception) to June 30, 1996, in conformity
with generally accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
Jericho, New York
August 16, 1996, except for Note 6 which is
as of September 5, 1996
27
CONSOLIDATED STATEMENT OF EARNINGS
Hudson General LLC and Subsidiaries
For the Period June 1 (Inception) to June 30, 1996
(in thousands)
Revenues ......................................... $12,313
-------
Costs and expenses:
Operating ................................... 9,259
Depreciation and amortization ............... 673
Selling, general & administrative ........... 1,317
Interest .................................... 168
-------
Total costs and expenses ............... 11,417
-------
Earnings before provision for foreign income
taxes ........................................ 896
Provision for foreign income taxes ............... 41
-------
Net earnings ..................................... $ 855
=======
See accompanying notes to consolidated financial statements.
28
CONSOLIDATED BALANCE SHEET
Hudson General LLC and Subsidiaries
June 30, 1996
(in thousands)
Assets
Current assets:
Cash and cash equivalents .......................... $ 19,269
Accounts and notes receivable - net ................ 18,055
Inventory .......................................... 1,115
Prepaid expenses and other assets .................. 1,202
--------
Total current assets ..................... 39,641
Property, equipment and leasehold rights at cost,
less accumulated depreciation and amortization ...... 37,442
Long-term receivables - net ........................... 2,028
Deferred income taxes ................................. 852
Excess cost over fair value of net assets acquired .... 761
--------
$ 80,724
========
Liabilities and Members' Equity
Current liabilities:
Accounts payable ................................... $ 15,104
Income taxes payable ............................... 350
Accrued expenses and other liabilities ............. 17,735
Advances from Hudson General Corporation ........... 7,233
--------
Total current liabilities ................ 40,422
--------
Long-term debt, subordinated .......................... 28,751
--------
Members' Equity:
Contributed capital ................................ 12,123
Retained earnings .................................. 855
Equity adjustments from foreign currency translation (1,427)
--------
Total members' equity .................... 11,551
--------
$ 80,724
========
See accompanying notes to consolidated financial statements.
29
CONSOLIDATED STATEMENT OF MEMBERS' EQUITY
Hudson General LLC and Subsidiaries
For the Period June 1 (Inception) to June 30, 1996
(in thousands)
Equity
Adjustments
From Foreign
Contributed Retained Currency Members'
Capital Earnings Translation Equity
----------- -------- ------------ --------
Balance, May 31, 1996 $ -- $ -- $ -- $ --
Equity contributions 12,123 -- (1,470) 10,653
Equity adjustment from foreign currency translation -- -- 43 43
Net earnings -- 855 -- 855
--------------------------------------------------------------
Balance, June 30, 1996 $12,123 $ 855 $(1,427) $11,551
==============================================================
See accompanying notes to consolidated financial statements.
30
CONSOLIDATED STATEMENT OF CASH FLOWS
Hudson General LLC and Subsidiaries
For the Period June 1 (Inception) to June 30,1996
(in thousands)
Cash flows from operating activities:
Net earnings ............................................ $ 855
Adjustments to reconcile net earnings to net cash used by
operating activities:
Depreciation and amortization ............................ 673
Provision for losses on accounts receivable - net 15
Loss on sale of equipment ........................ 67
Change in other current assets and liabilities:
Accounts and notes receivables ............... (7,011)
Inventory - net .............................. (40)
Prepaid expenses and other assets ............ (256)
Accounts payable ............................. 2,365
Income taxes payable ......................... 38
Accrued expenses and other liabilities ....... (1,698)
Decrease in long-term receivables - net .......... 36
Other - net ...................................... 5
--------
Net cash used by operating activities ........ (4,951)
========
Cash flows from investing activities:
Purchases of property, equipment and leasehold rights ... (1,825)
Proceeds from sale of property and equipment ............ 23
--------
Net cash used by investing activities ........ (1,802)
--------
Cash flows from financing activities:
Capital contribution .................................... 15,848
Advances from Hudson General Corporation ................ 7,233
Principal repayments of borrowings ...................... (70)
--------
Net cash provided by financing activities .... 23,011
--------
Effect of exchange rate changes on cash .................. 9
--------
Net increase in cash and cash equivalents ................ 16,267
Cash and cash equivalents at beginning of period ......... 3,002
--------
Cash and cash equivalents at end of period ............... $ 19,269
========
See accompanying notes to consolidated financial statements.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Hudson General LLC and Subsidiaries
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The consolidated financial statements include the
accounts of Hudson General LLC and its subsidiaries (Hudson LLC). All material
intercompany accounts and transactions have been eliminated in consolidation.
Description of Business: Hudson LLC provides a broad range of aviation services
to the aviation industry at twenty-four (24) airports throughout the United
States and Canada. These services include aircraft ground handling; aircraft
de-icing; aircraft fueling; fuel management; ground transportation; snow
removal; cargo warehousing; and sale, leasing and maintenance of ground support
equipment.
Inventories: Inventories are carried at the lower of average cost or market.
Depreciation and Amortization: Depreciation of property and equipment is
provided on the straight-line method over their estimated useful lives.
Leasehold rights are amortized over the original and anticipated renewal terms
of the underlying leases.
Excess Cost over Fair Value of Net Assets Acquired: The excess cost over fair
value of net assets acquired, net of accumulated amortization of $1,232,000 at
June 30, 1996, is amortized on a straight-line basis over periods not to exceed
forty years.
Income Taxes: Hudson LLC has adopted Statement of Financial Accounting Standards
(SFAS) No. 109 "Accounting for Income Taxes", which requires the use of the
liability method of accounting for deferred income taxes (see Note 7).
Financial Instruments: Hudson LLC believes that the book values of its monetary
assets and liabilities, excluding the convertible debentures (see Note 6),
approximate fair values as a result of the short-term nature of such assets and
liabilities. The fair value of the convertible debentures at June 30, 1996 is
approximately $31,500,000 based on quoted market prices.
Foreign Currency Translation: The financial position and results of operations
of Hudson LLC's Canadian operations are measured using local currency as the
functional currency. Assets and liabilities are translated into U.S. dollars at
year-end rates of exchange, and revenues and expenses are translated at the
average rates of exchange for the year. Gains or losses resulting from
translating foreign currency financial statements are accumulated as a separate
component of members' equity.
Statement of Cash Flows: For purposes of the consolidated statement of cash
flows, Hudson LLC considers all securities with an original maturity of three
months or less at the date of acquisition to be cash equivalents. During the
month ended June 30, 1996, there were no income taxes or interest paid.
32
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. FORMATION AND STRUCTURE OF HUDSON GENERAL LLC
Effective June 1, 1996, pursuant to the terms of a Unit Purchase and Option
Agreement dated February 27, 1996 (the Purchase Agreement) between Hudson
General Corporation (the Corporation) and Lufthansa Airport and Ground Services
GmbH (LAGS), a German corporation and an indirect wholly-owned subsidiary of
Deutsche Lufthansa AG (Lufthansa), the Corporation transferred substantially all
of the assets and liabilities of its aviation services business (the Aviation
Business) to Hudson LLC, a newly formed limited liability company (the
Transaction). In exchange for the transfer of such assets and liabilities and
the assumption by Hudson LLC, as co-obligor with the Corporation, of all of the
Corporation's 7% convertible subordinated debentures, the Corporation received a
74% interest in Hudson LLC. In addition, Hudson LLC sold LAGS a 26% interest in
Hudson LLC, for a purchase price of $23,686,000 in cash (after certain
adjustments), of which $15,848,000 was paid at the closing. The remaining
portion of the purchase price of $7,838,000 (the Deferred Payment) is to be paid
in three annual installments (together with accrued interest from January 1,
1996 at a rate of 11% per annum), expected to be paid in September 1996, 1997
and 1998, and is subject to potential downward adjustment based on the future
earnings of the Aviation Business. The earnings of the Aviation Business in
fiscal 1996 were sufficient for Hudson LLC to earn the full portion of the
Deferred Payment due in September 1996 of $2,650,000, plus interest thereon. The
Purchase Agreement also provides for the grant to LAGS of an option, exercisable
on October 1 of each year from 1996 through 2000, effective as of the preceding
July 1, pursuant to which LAGS may increase its equity ownership in Hudson LLC
from 26% to a maximum of 49%, for a price based on a formula related to the
average earnings of the Aviation Business over the four fiscal years preceding
the exercise of the option, subject to certain minimum and maximum amounts.
Pursuant to the Purchase Agreement, Hudson LLC, the Corporation and LAGS USA
Inc., a wholly owned subsidiary of LAGS (LAGS USA), entered into a Limited
Liability Company Agreement effective June 1, 1996 (the LLC Agreement). The LLC
Agreement stipulates that the Corporation and LAGS USA will share profits and
losses in the same proportion as their respective equity interests in Hudson
LLC, except that the Corporation is entitled to all interest earned on the
Deferred Payment and LAGS USA will not share in any pre-tax earnings, as
defined, of the Aviation Business in excess of $14,690,000 and $15,863,000 in
fiscal 1997 and 1998, respectively. In addition, Hudson LLC's net earnings in
June 1996 were allocated 100% to the Corporation.
In June 1996, primarily as a result of the Corporation retaining certain trade
receivables, the Corporation made net advances of $7,233,000 on behalf of Hudson
LLC. Such balance remained outstanding at June 30, 1996 and is expected to be
repaid to the Corporation by Hudson LLC (together with accrued interest at a
rate of 5.18%).
33
Pursuant to the LLC Agreement: (i) the Corporation will continue to manage the
Aviation Business and will be entitled to charge Hudson LLC an overhead fee
equal to the sum of 3% of Hudson LLC's consolidated domestic revenues and 1% of
Hudson LLC's consolidated Canadian revenues; and (ii) there will be a Member
Board on which the Corporation has three votes and LAGS USA has two votes. The
LLC Agreement allows either Member to veto certain major transactions or any
reduction in distributions stipulated in the LLC Agreement. The LLC Agreement
provides that distributions will be paid annually in an amount at least equal
to 50% of domestic and 10% of Canadian pre-tax earnings, as defined, from the
Aviation Business.
3. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
Accounts, notes and long-term receivables - net at June 30, 1996 (in thousands)
consisted of the following:
Rental and service fees receivable................................... $17,500
Note receivable...................................................... 2,414
Equipment rental contracts and other notes
receivable (less unearned finance income of $39,000)............... 169
--------
20,083
Less: current portion (net of allowance for
doubtful accounts of $1,784,000)................................... 18,055
--------
Long-term portion....................................................$ 2,028
========
On January 6, 1994, the Corporation assigned its leases and ceased operations at
Long Island MacArthur Airport in Islip, New York (LIMA) where the Corporation
had provided ground handling and fueling services to commercial airlines and
related fixed base operation services to general aviation aircraft. At the
closing, the Corporation was paid $150,000 in cash and received a promissory
note from the purchaser of its leases in the amount of $3,750,000, payable over
seven years with interest at the rate of 7%. The outstanding balance of the note
receivable at June 30, 1996 was $2,414,000. The promissory note is secured by
the assigned leases and other assets located at LIMA.
Hudson LLC provides various services at airports throughout the United States
and Canada. Hudson LLC grants credit to customers based upon an analysis of its
customers' financial position and then-existing conditions in the aviation
industry. Six of Hudson LLC's customers had individual balances outstanding
greater than 5%, and aggregating 41%, of accounts receivable-net at June 30,
1996.
Accrued expenses and other liabilities at June 30, 1996 (in thousands) consisted
of the following:
Salaries and wages................................................... $ 6,204
Insurance............................................................ 3,798
Operating expenses payable........................................... 3,318
Other................................................................ 4,415
---------
$17,735
=========
Maintenance and repair expenses were $664,000 for the month ended June 30,1996.
Interest income included in revenues was $217,000 for the month ended June
30, 1996.
34
4. PROPERTY, EQUIPMENT AND LEASEHOLD RIGHTS
The number of years over which major classes of assets are being depreciated and
amortized, and the costs and the related accumulated depreciation and
amortization thereof at June 30, 1996 (in thousands) are set forth below.
Estimated
Useful Lives
------------
Operating equipment.............................. 2 - 12 $72,916
Leasehold rights................................. 25 2,400
Buildings........................................ 14 - 20 1,468
Office furnishings and equipment................. 3 - 10 3,365
Leasehold improvements........................... 2 - 28 6,220
--------
86,369
Accumulated depreciation and amortization........ (48,927)
--------
$37,442
========
5. CANADIAN OPERATIONS
The consolidated financial statements include: assets of $16,671,000, and net
assets of $10,831,000 at June 30, 1996; and revenues of $3,208,000; and earnings
of $52,000 for the month ended June 30, 1996, related to Hudson LLC's Canadian
operations.
6. LONG-TERM DEBT
In connection with the Transaction, the revolving credit agreement that the
Corporation had with a group of banks dated November 25, 1992, as amended, was
amended and restated as of June 1, 1996, and Hudson LLC assumed and agreed to
become jointly and severally liable for any obligations thereunder (the LLC
Credit Agreement). The Corporation is a co-obligor under the LLC Credit
Agreement in an amount equal to the balance of outstanding Debentures (see
below). Pursuant to the LLC Credit Agreement, Hudson LLC may borrow funds
(including outstanding letters of credit) up to a limit of $18,000,000 (the LLC
Limit) until September 30, 1998. At such time, and at the end of each subsequent
quarter, the LLC Limit will be reduced by one-sixteenth of the LLC Limit that
was in effect on June 30, 1998 until June 30, 2002, at which time the LLC Credit
Agreement terminates. The limit may also be reduced by asset sales in excess of
certain amounts. There were no direct borrowings and $3,045,000 of outstanding
letters of credit at June 30, 1996. The LLC Credit Agreement provides Hudson LLC
with the option of selecting a rate of interest at either the base rate or
1 3/8% above the LIBO rate, as defined.
The LLC Credit Agreement requires that Hudson LLC maintain certain minimum
effective net worth requirements, as defined, which are subject to incremental
annual increases and further stipulates that Hudson LLC not incur a consolidated
net loss for any fiscal year. The LLC Credit Agreement also requires that Hudson
LLC meet certain other financial covenants and permits Hudson LLC, with certain
limitations, to prepay or otherwise purchase subordinated debt. Hudson LLC has
granted the banks a security interest in substantially all of its domestic
assets.
Hudson LLC also has an agreement with a group of banks to provide a credit
facility for its Canadian subsidiary (the Canadian Agreement) in the amount of
$5,000,000 (Cdn) (the Canadian Limit). The Canadian Limit will be reduced
commencing September 30, 1998 on the same basis as the LLC Limit. The
35
Canadian Agreement provides Hudson LLC with the option of selecting a rate of
interest at either 1/2% above the prime rate or 1 5/8% above the cost of funds
rate, as defined.
In connection with the Canadian Agreement, Hudson LLC has guaranteed the
obligations of its Canadian subsidiary and granted the banks a security interest
in substantially all of its Canadian accounts receivable and certain of its
other assets, including inter-company debt from its Canadian subsidiary.
In July 1986 the Corporation issued $30,000,000 of 7% convertible subordinated
debentures due 2011 (the Debentures). In connection with the Transaction,
effective June 1, 1996, Hudson LLC assumed the obligations of the Debentures and
the Corporation remained as a co-obligor. The Debentures are convertible at any
time prior to maturity, unless previously redeemed, into shares of the
Corporation's common stock at a conversion price of $32.75 per share, 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 Hudson LLC or the Corporation, in whole or in part, at 100.7% of
the principal amount thereof until July 15, 1996 and thereafter at par. 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 Corporation previously repurchased $1,000,000 of the
Debentures. In addition, as of June 30, 1996, $249,000 principal amount of the
Debentures had been converted into shares of the Corporation's common stock.
Such repurchased and converted amounts may, at Hudson LLC's and the
Corporation'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, 1996 there was $28,751,000 of the Debentures outstanding.
On June 3, 1996, $15,825,000 aggregate principal amount of the Debentures was
called for redemption on July 22, 1996. On July 22, 1996, $2,166,000 of the
Debentures were redeemed, with the $13,659,000 balance having been converted
into shares of the Corporation's common stock on or prior to such redemption
date. In addition, on August 5, 1996 the balance of outstanding Debentures
(approximately $12,800,000) were called for redemption on September 4, 1996. On
September 4, 1996, $242,000 of the Debentures were redeemed, with the
$12,520,000 balance having been converted into shares of the Corporation's
common stock on or prior to such redemption date. At September 5, 1996 no
Debentures remained outstanding.
To the extent that the Debentures are converted into shares of the Corporation's
common stock, Hudson LLC will, on a subordinated basis (as defined), be indebted
to the Corporation. Hudson LLC is obligated to repay such debt to the
Corporation as follows: (i) to the extent that proceeds received by Hudson LLC
at the closing of the Transaction were not used to redeem Debentures; (ii) to
the extent that deferred payments made by LAGS are received by Hudson LLC (see
Note 2); (iii) $500,000 on July 15, 1997; and (iv) $1,500,000 on July 15, 1998
and on each July 15th thereafter until the entire principal balance is
satisfied.
7. INCOME TAXES
Provision for foreign income taxes consisted of $41,000 in current Canadian
income taxes for the month ended June 30, 1996.
Deferred tax assets are comprised of the following as of June 30, 1996 (in
thousands), which represent deferred tax assets transferred to Hudson LLC from
the Corporation on June 1, 1996:
Deferred tax assets:
Reserves for doubtful accounts, claims, etc.....................$196
Property, equipment and leasehold rights, principally
depreciation - foreign........................................ 591
36
Minimum tax credit carryforward................................. 65
----
Net noncurrent deferred tax assets..............................$852
====
Hudson LLC has adopted SFAS No. 109, "Accounting for Income Taxes". SFAS No. 109
requires that deferred income taxes be recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.
As a limited liability company, Hudson LLC is not a taxable entity under the
provisions of the Internal Revenue Code. The U.S. taxable results and available
tax credits of Hudson LLC pass directly to the Members' U.S. corporate income
tax returns in the manner prescribed in the LLC Agreement.
8. RETIREMENT PLANS
The Corporation maintains a 401(k) Profit Sharing Plan (the Plan) covering
substantially all of its domestic employees not subject to collective bargaining
agreements. Each year the Corporation contributes to the Plan 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. It is expected that
Hudson LLC will on or about January 1, 1997, establish a 401(k) Profit Sharing
Plan covering substantially all of its domestic employees not subject to
collective bargaining agreements under terms and conditions similar to those of
the Plan. Until the establishment of such plan, the Corporation will continue to
provide benefits under the Plan on behalf of Hudson LLC. For the month ended
June 30, 1996, Hudson LLC expensed $47,000 relating to the Plan.
Hudson LLC maintains a Group Registered Retirement Savings Plan (RRSP) covering
substantially all of its Canadian employees not subject to collective bargaining
agreements. Under the RRSP Hudson LLC contributes a discretionary contribution.
For the month ended June 30, 1996, the Company expensed $44,000 relating to the
RRSP.
9. COMMITMENTS AND CONTINGENCIES
(a) Leases
Minimum rental payments for future fiscal years under non-cancelable operating
leases (including $3,633,000 to be paid subsequent to June 30,1996 for operating
equipment on lease to Hudson LLC from the Corporation and excluding $1,447,000
to be received subsequent to June 30, 1996 under non-cancelable subleases) are:
$4,791,000 in 1997; $4,290,000 in 1998; $3,902,000 in 1999; $2,983,000 in 2000;
$2,377,000 in 2001; and $7,622,000 thereafter. Total rental expense incurred
amounted to $475,000 for the month ended June 30, 1996 (excluding sublease
income of $36,000).
(b) Litigation
In 1988, Texaco Canada Inc. (Texaco) (now known as McColl-Frontenac Inc.)
instituted a lawsuit (the Texaco Lawsuit) in the Supreme Court of Ontario,
Canada against the Corporation, the Corporation's Canadian subsidiary (now owned
by Hudson LLC) and Petro-Canada Inc. (the corporation which supplied aviation
fuel for the Corporation's Canadian fixed base operations). The Texaco Lawsuit's
allegations, as amended, are
37
that the defendants interfered with contractual and fiduciary relations,
conspired to injure, and induced the breach of a fuel supply agreement between
Texaco and Innotech Aviation Limited (Innotech) in connection with the purchase
by the Corporation from Innotech in 1984 of certain assets of Innotech's airport
ground services business. The Texaco Lawsuit seeks compensatory and punitive
damages totaling $110,000,000 (Canadian) (approximately $80,000,000 (U.S.)) plus
all profits earned by the defendants subsequent to the alleged breach. The
trial, which began in May 1996, has been adjourned until January 1997.
Innotech (which due to a name change is now called Aerospace Realties (1986)
Limited (Aerospace)) had agreed to defend and indemnify the Corporation against
claims of whatever nature asserted in connection with, arising out of or
resulting from the fuel supply agreement with Texaco. By a letter dated February
15, 1996, the Corporation was notified by Aerospace that Aerospace has entered
into a liquidation phase and can no longer defray the cost of defending the
Texaco Lawsuit or pay for any damages resulting therefrom.
The Corporation has agreed to indemnify and hold harmless Hudson LLC, LAGS and
each affiliate of LAGS against all losses related to the Texaco Lawsuit. The
Corporation's management believes, and counsel for the Corporation has advised
based on available facts, that the Corporation will successfully defend this
action.
38
SCHEDULE II
HUDSON GENERAL LLC AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE PERIOD JUNE 1 (INCEPTION) TO JUNE 30, 1996
- ---------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
..........ADDITIONS............
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COSTS AND OTHER FROM END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS RESERVES OF PERIOD
- ---------------------------------------------------------------------------------------------------------------------------------
1996 - Allowance for doubtful
accounts receivable... $1,804,000 (D) $14,000 $(31,000) (B,C) $3,000 (A) $1,784,000
========== ======= ======== ====== ==========
NOTES:
(A) Write-offs.
(B) Foreign exchange.
(C) Recoveries.
(D) Represents transfer of $1,804,000 from Hudson General Corporation.
39
KOHALA JOINT VENTURE
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULE
(FORM 10-K)
JUNE 30, 1996, 1995 AND 1994
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
40
Independent Auditors' Report
The Board of Directors
Hudson General Corporation
The Board of Directors
Oxford First Corporation:
We have audited the accompanying consolidated balance sheets of the Kohala
Joint Venture and subsidiary as of June 30, 1996 and 1995 and the related
consolidated statements of operations and partners' deficit, and cash
flows for each of the years in the three-year period ended June 30, 1996.
We have also audited financial statement schedule II. These consolidated
financial statements and the financial statement schedule are the
responsibility of the Venture's management. Our responsibility is to
express an opinion on these consolidated financial statements and the
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
For the years ended June 30, 1996, 1995 and 1994, the Venture incurred net
losses of $6,042,200, $5,495,300 and $3,601,800 respectively, and at June
30, 1996 the amount of the partners' deficit was $15,374,100.
Additionally, in 1996, 1995 and 1994 the partners advanced $2,714,400,
$2,346,100 and $1,740,000, respectively, to the Venture. Unless land sales
increase significantly, additional contributions from the partners will be
required in fiscal 1997.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Kohala Joint Venture and subsidiary as of June 30, 1996 and 1995 and the
results of their operations and their cash flows for each of the years in
the three-year period ended June 30, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Jericho, New York
August 16, 1996
41
KOHALA JOINT VENTURE AND SUBSIDIARY
Consolidated Balance Sheets
June 30, 1996 and 1995
Assets 1996 1995
------ ---- ----
Cash $ 266,800 89,000
Accounts receivable 48,300 43,500
Accrued interest receivable 237,600 239,900
Mortgage notes receivable, net (including amounts
from related parties of $386,500 and $978,200
in 1996 and 1995, respectively) 4,926,000 7,448,200
Land and development costs 26,709,400 26,863,000
Property, plant and equipment, net 1,646,000 1,705,000
Model home, net 593,600 687,200
Foreclosed real estate, net 2,200,200 2,395,200
Other 85,700 68,800
------------ -----------
$ 36,713,600 39,539,800
============ ===========
Liabilities and Partners' Deficit
---------------------------------
Liabilities:
Notes payable $ 576,200 3,402,400
Partner advances and accrued interest payable 50,219,500 44,047,500
Accounts payable and accrued expenses 1,292,000 1,339,900
Deposits -- 81,900
------------ -----------
Total liabilities 52,087,700 48,871,700
Contingencies
Partners' deficit (15,374,100) (9,331,900)
------------ -----------
$ 36,713,600 39,539,800
============ ===========
See accompanying notes to consolidated financial statements.
42
KOHALA JOINT VENTURE AND SUBSIDIARY
Consolidated Statements of Operations and Partners' Deficit
Years ended June 30, 1996, 1995 and 1994
1996 1995 1994
------------ ---------- ----------
Net sales $ 676,800 503,600 535,900
Cost of sales 365,400 191,300 163,400
------------ ---------- ----------
Gross profit 311,400 312,300 372,500
Selling, general and administrative
expenses 2,952,400 2,851,600 2,796,700
Other (income) expense:
Interest expense 3,755,400 3,514,500 2,111,600
Interest income and other (354,200) (558,500) (934,000)
------------ ---------- ----------
Net loss (6,042,200) (5,495,300) (3,601,800)
Partners' deficit, beginning of year (9,331,900) (3,836,600) (234,800)
------------ ---------- ----------
Partners' deficit, end of year $(15,374,100) (9,331,900) (3,836,600)
============ ========== ==========
See accompanying notes to consolidated financial statements.
43
KOHALA JOINT VENTURE AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended June 30, 1996, 1995 and 1994
1996 1995 1994
----------- ---------- ----------
Cash flows from operating activities:
Proceeds from land sales $ 105,200 23,000 75,000
Interest income received 347,300 579,000 930,100
Proceeds from water company sales 341,300 246,600 281,500
Land and development cost expenditures (159,000) (243,700) (415,400)
Payments on contractor obligations -- -- (737,200)
Interest paid (212,000) (477,400) (693,900)
Selling, general and administrative expenditures paid (1,847,500) (2,062,800) (1,759,700)
Collections on mortgage notes 1,678,300 1,404,500 3,832,600
Proceeds from sale of and deposits relating to assets
held in foreclosure 57,000 89,800 --
----------- ---------- ----------
Net cash provided by (used in) operating activities 310,600 (441,000) 1,513,000
----------- ---------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment (21,000) (10,900) (88,100)
----------- ---------- ----------
Cash flows from financing activities:
Advances received from partners 2,714,400 2,346,100 1,740,000
Contributions in aid of construction received -- 6,000 --
Payments on mortgage receivable financing agreements (2,826,200) (1,932,300) (3,273,500)
=========== ========== ==========
Net cash (used in) provided by financing activities (111,800) 419,800 (1,533,500)
----------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents 177,800 (32,100) (108,600)
Cash and cash equivalents at beginning of year 89,000 121,100 229,700
----------- ---------- ----------
Cash and cash equivalents at end of year $ 266,800 89,000 121,100
=========== ========== ==========
Non cash financing:
Issuance of note payable for land development $ -- 576,180 --
=========== ========== ==========
See accompanying notes to consolidated financial statements.
44
KOHALA JOINT VENTURE AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1996, 1995 and 1994
(1) Summary of Significant Accounting Policies
(a) Description of the Business
The Kohala Joint Venture (the Venture) is a partnership which was formed to
acquire, develop and sell approximately 4,000 contiguous acres of land in
Hawaii (the Project). The Partners in the Venture are Hudson Kohala, Inc.
(Hudson, a wholly-owned subsidiary of Hudson General Corporation) and
Oxford Kohala, Inc. (Oxford, a wholly-owned subsidiary of Oxford First
Corporation) (Oxford First)) (together, the Partners). The terms of the
partnership are contained in the Restated Joint Venture Agreement dated
April 29, 1981, as amended (the Agreement). The Project is being
developed in four successive phases. The first two phases, containing
approximately 2,100 acres, have been developed and substantially sold.
The third phase, containing approximately 550 acres, has also been
developed and has 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.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the Venture
and its 99% owned subsidiary, the Kohala Ranch Water Company (KRWC)(note
7). All significant intercompany accounts and transactions have been
eliminated in consolidation.
(c) Partners' Deficit and Allocation of Profits and Losses
Partners' deficit includes the Partners' capital accounts in the Venture and
the minority interest (the remaining 1%) of the Partners in KRWC.
In accordance with the Agreement, profits are shared equally by the
Partners. Losses are shared by the Partners on a pro-rata basis, based
first on their respective capital accounts and then on their respective
combined advances to the Venture including accrued interest (note 5).
(d) Revenue Recognition and Land Sales
All sales to date have been from the first, second and third phases of the
Project. Revenue is being recognized under the full accrual method of
accounting. The minimum down payment for sales to be recorded is 10%.
(e) Interest Income on Mortgage Notes Receivables
Interest is not accrued on mortgage notes receivables in arrears 90 days or
more.
45
2
KOHALA JOINT VENTURE AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(f) Capitalization of Costs
Land and development costs (including interest) are initially capitalized
and subsequently carried at the lower of average cost or net realizable
value. These costs are charged to cost of sales when the corresponding
land sale is recorded based upon the relative fair value of the parcel
sold to the aggregate fair value of all parcels in the phase. Although
the Venture believes its estimates are reasonable, there can be no
assurance that the estimated future selling prices can be realized or
that the actual costs for Phases III or IV will not exceed such
estimates.
The Venture has capitalized interest costs, as appropriate, for each phase
of the Project. During fiscal 1991, 1989 and 1987, the capitalization of
interest costs relating to the third, second and first phases,
respectively, was discontinued, as these phases were substantially
completed during the respective periods and ready for their intended use.
Effective July 1, 1994, as a result of the lack of further development
activity, capitalization of interest relating to the fourth phase has
been discontinued (note 3).
(g) Estimated Costs to Complete
At June 30, 1996, the Venture estimated that $2,479,000 of additional costs
were necessary to complete the development of Phase III. The portion of
such amount relating to unsold parcels has been offset against land and
development costs in the accompanying consolidated balance sheets.
(h) Property, Plant and Equipment
Property, plant and equipment is recorded at the lower of cost or net
realizable value.
Depreciation is provided on the straight-line method. The number of years
over which major classes of assets are depreciated and the costs and
related accumulated depreciation as of June 30, 1996 and 1995 are set
forth:
Estimated
useful lives 1996 1995
------------ ---------- ---------
Water distribution systems 20-50 years $2,773,700 2,763,200
Plant structures and equipment 3-10 years 190,400 179,900
---------- ---------
2,964,100 2,943,100
Accumulated depreciation (789,600) (709,600)
Contributions in aid of
construction (528,500) (528,500)
---------- ---------
$1,646,000 1,705,000
========== =========
46
3
KOHALA JOINT VENTURE AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Contributions in aid of construction represent contributions by customers
for plant additions made for the benefit of the customer. Accordingly,
such contributions are recorded as a reduction against property, plant
and equipment.
The Venture depreciates the model home based upon an estimated residual
value of $500,000 and a five year useful life. Depreciation expense
relating to the model home was $93,600 for fiscal years 1996 and 1995 and
$97,400 for fiscal 1994.
Depreciation expense was $173,600, $176,400 and $177,400 for fiscal 1996,
1995 and 1994, respectively.
(i) Income Taxes
As a partnership, the Venture is not a taxable entity under the provisions
of the Internal Revenue Code. The taxable results and available tax
credits of the Venture and KRWC pass directly to the Partners' corporate
income tax returns in the manner prescribed in the Agreement.
(j) Statements of Cash Flows
For the purposes of presenting the consolidated statements of cash flows,
the Venture considers all securities with an original maturity of three
months or less at the date of acquisition to be cash equivalents.
A reconciliation of net loss to net cash provided by (used in) operating
activities for fiscal 1996, 1995 and 1994 is as follows:
1996 1995 1994
----------- ---------- ----------
Net loss $(6,042,200) $(5,495,300) $(3,601,800)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 173,600 176,400 177,400
Provision for losses and discounts on
mortgages receivable 600,000 988,500 378,300
Provision for losses on foreclosed real estate 356,300 -- 367,700
Sale of assets held in foreclosure 57,000 89,800 --
Interest expense in excess of interest paid 3,543,400 3,037,100 1,417,700
Mortgage loans originated on land sales (206,000) (209,500) (200,000)
Cash collections on mortgage loans 1,678,300 1,404,500 3,832,600
Excess land and development costs paid
over cost of sales 206,400 52,400 (252,000)
Repayment of contractor obligations -- -- (737,200)
47
4
KOHALA JOINT VENTURE AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Accrued interest on mortgages receivable 2,200 23,900 800
Cash for water sales in excess of accrual (4,900) (4,300) 1,800
Real estate tax accruals 35,700 (434,400) 224,000
Other (89,200) (70,100) (96,300)
----------- ---------- ----------
Total adjustments 6,352,800 5,054,300 5,114,800
----------- ---------- ----------
Net cash provided by (used in) operating activities $ 310,600 (441,000) 1,513,000
=========== ========== ==========
(k) Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities at the date of the consolidated financial statements and the
reported amount of revenues and expenses during the reported period.
Management has made significant estimates as to the amounts required for
allowance for uncollectible accounts and the allowance for losses on
foreclosed real estate as well as the recoverability of land and
development costs. Actual results could differ from those estimates.
(2) Mortgage Notes Receivable
Effective July 1, 1996, the Venture adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of
a Loan" (SFAS No. 114) and Statement of Financial Accounting Standards
No. 118, "Accounting by Creditors for Impairment of a Loan -- Income
Recognition and Disclosures", (SFAS No. 118). SFAS No. 114 addresses the
accounting by creditors for impairment of a loan by specifying how
allowances for credit losses related to certain loans should be
determined. The Venture deems certain loans impaired when, based upon
current information and events, it is probable that the Company will be
unable to collect all amounts due, both principal and accrued interest.
The Venture measures impairment based on a loan's observable market price
or the fair value of the collateral since the loan is collateral
dependent and foreclosure is probable. The amount of the valuation
allowance is determined by comparing principal plus accrued interest to
the fair value of the underlying collateral. The Venture recognizes an
impairment by adjusting its existing valuation allowance with a
corresponding charge to bad debt expense. Subsequent changes in fair
value, if any, are treated in the same manner. Interest is not accrued on
mortgage notes receivable in arrears 90 days or more.
48
5
KOHALA JOINT VENTURE AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
At June 30, 1996 and 1995, mortgage notes receivable from land sales
consisted of the following:
1996 1995
----------- ----------
Mortgage notes receivable $ 7,944,700 9,985,700
Allowance for uncollectible accounts (2,949,400) (2,464,200)
Reserve for cash discounts and other
allowances (69,300) (73,300)
----------- ----------
Mortgage notes receivable, net $ 4,926,000 7,448,200
=========== ==========
At June 30, 1996 and 1995, 29 mortgage notes receivable were 90 days or more
in arrears, aggregating $5,145,000 and $5,174,000, respectively. As of
June 30, 1996, the $5,145,000 of such loans are considered impaired and
the allowance for uncollectible accounts balance has been established for
such accounts. The Venture's average recorded investment in impaired
loans for fiscal 1996 was $5,145,000. Accrued interest receivable on
delinquent mortgage notes receivable was $218,000 and $215,000 as of June
30, 1996 and 1995, respectively.
Stated interest rates on mortgage notes receivable outstanding at June 30,
1996 and 1995, range from 6% to 11% (averaging 9.4% as of June 30, 1996
and 9.6% as of June 30, 1995).
The Venture typically provides financing in connection with the sale of land
parcels. None of the Venture's mortgage notes receivable comprised more
than 5% of the total mortgage notes receivable balance at June 30, 1996
and 1995. The Venture is the first lien holder on all outstanding
mortgage notes receivable.
Purchasers of land parcels are entitled to discounts if certain conditions
are met. Discounts ranging from 10-20% are generally given if the
purchase price is paid in cash at the closing. If the cash is paid within
specified periods after the closing, a reduced sales discount is given.
Reserves have been established for estimated discounts to be taken by
purchasers under the various discount programs.
Scheduled collections of principal during the next five fiscal years and
thereafter are as follows:
Year Amount
---- ------
1997 $4,487,000
1998 1,881,800
1999 414,900
2000 783,100
2001 188,600
49
6
KOHALA JOINT VENTURE AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Thereafter 189,300
-----------
$ 7,944,700
===========
(3) Land and Development Costs
Land and development costs include all costs directly associated with the
acquisition and development of the land parcels. The land was acquired by
the Venture from Hudson and recorded at cost. Major components of land
and development costs are the initial costs to acquire the land,
roadways, water, drainage, electrical and telephone lines, and various
project management expenditures, as well as unamortized capitalized
interest of $6,680,400 and $6,706,300 as of June 30, 1996 and 1995,
respectively.
(4) Foreclosed Real Estate
Foreclosed real estate represents land parcels that were reacquired in
connection with previously financed mortgages. Such parcels are valued at
the lower of their remaining receivable balance outstanding, or their net
estimated realizable value (determined in the same manner as the
allowance for uncollectible accounts), as follows:
1996 1995
----------- ----------
Foreclosed real estate $ 2,903,300 2,881,600
Allowance for losses (703,100) (486,400)
----------- ----------
Foreclosed real estate, net $ 2,200,200 2,395,200
=========== ==========
During fiscal 1996, four mortgage notes receivable were transferred to
foreclosed real estate and one parcel in foreclosed real estate was sold.
The carrying values of the mortgage notes receivable transferred and
parcel sold were $581,100 and $559,400, respectively.
(5) Partner Advances Payable
The Partners have agreed to make equal advances to the Venture for all costs
necessary for the orderly development of the Project. Advances earn
interest from the date of the advance compounded quarterly at the prime
rate minus 1% (7.25% and 8% at June 30, 1996 and 1995, respectively).
On October 13, 1994, Oxford First filed for reorganization under Chapter 11 of
the Bankruptcy Code. Pursuant to an order of the Bankruptcy Court, Oxford First
(through its subsidiary, the Oxford Finance Companies, Inc.) was permitted to
transfer certain amounts to Oxford. The amounts so authorized were not
sufficient to allow Oxford to make its full share of required advances. Hudson
50
7
KOHALA JOINT VENTURE AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
opted to make additional advances (the Additional Advances) to cover
Oxford's funding deficiency. During November 1995, Oxford resumed making
advances, and in January 1996, Oxford repaid to Hudson the entire amount
of the Additional Advances of $702,000 together with $37,000 of interest
thereon. In addition, pursuant to an amended reorganization plan which
was approved by the Bankruptcy Court on September 7, 1995, Oxford First
is permitted to transfer funds to Oxford in an aggregate amount not to
exceed $750,000 in each of the calendar years 1996 and 1997 exclusive of
the repayment of the Additional Advances. The Venture, at present, is
unable to determine whether such permitted transfers will be sufficient
in order for Oxford to make its share of future advances to the Venture
or whether Oxford First will receive permission from the Bankruptcy Court
to transfer additional funds to Oxford, if required. Oxford advanced
$675,000 to the Venture during the first eight months of calendar 1996.
Unless land sales increase significantly, additional contributions from
the Partners will be required in fiscal 1997. It is anticipated that
Hudson will fund, subject to its right of reimbursement, any advances
required in fiscal 1997 in the event Oxford is not able to make its share
of advances.
During fiscal 1996, 1995 and 1994, advances accrued an average rate of
interest of 7.3%, 7.2% and 5.2%, respectively.
(6) Notes Payable
During fiscal 1991, the Venture entered into agreements with banks pursuant
to which $8,797,000 of the Venture's mortgage receivables were sold. An
additional sale of $3,148,000 of mortgage receivables to a bank was
completed during fiscal 1992. On April 30, 1996, the Venture repurchased
$1,373,000 of such mortgage receivables which represented the entire
outstanding balance thereof. Since the Venture had accounted for these
transactions as financing arrangements, the unpaid balance of the
mortgage receivables in the amount of $2,826,200 is shown as notes
payable in the accompanying consolidated balance sheet at June 30, 1995.
The maximum amounts outstanding during fiscal 1996, 1995 and 1994 were
$2,826,000, $4,758,500 and $8,031,800, respectively. The average amounts
outstanding for fiscal 1996, 1995 and 1994, based upon month-end
balances, were $1,561,000, $3,860,100 and $6,091,500, respectively. The
weighted average interest rates for fiscal 1996, 1995 and 1994 were
11.3%, 11.9% and 11.2%, respectively. The weighted average interest rates
on borrowings outstanding as of June 30, 1995 and 1994, based upon
month-end balances was 11.6% and 11.2%, respectively.
At June 30, 1996, the Company has a note payable outstanding in the amount
of $576,200 relating to certain development costs. The note matures in
December 1996 and bears interest at the prime rate plus 1%.
(7) Kohala Ranch Water Company
KRWC provides water to the Project and is owned by the Venture (99%), Hudson
(.5%), and Oxford (.5%). The assets of KRWC are comprised principally of
property, plant and equipment.
51
8
KOHALA JOINT VENTURE AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
KRWC recorded revenues of $336,300, $251,000 and $248,500 and incurred net
losses of $489,700, $487,000 and $512,200 for fiscal 1996, 1995 and 1994,
respectively.
(8) Related Party Transactions
Certain directors and officers of the Partners and certain employees of the
Venture purchased parcels in the Project at discounts from prices
generally offered to the general public. The Venture provided mortgage
financing on all such sales pursuant to which the Venture received a down
payment equal to 5% of the gross sales price before discounts and a
purchase money mortgage. The purchase money mortgages bear interest at a
rate of 8% or 9% per annum and provide for monthly principal payments
based on a 30 year amortization schedule with a balloon payment due after
seven years. In fiscal 1995, certain balloon payment due dates on such
mortgages were extended for one year. Two such balloon payments were not
made in fiscal 1996 and are past due at June 30, 1996. At June 30, 1996
and 1995, mortgage notes receivable (including 1996 past due balloon
payments) of $386,500 and $978,200, respectively, were due from related
parties. During fiscal 1996, two mortgage notes receivable in the
aggregate amount of $271,100 from former employees of a Partner became
delinquent and were foreclosed; the balances are included in foreclosed
real estate in the accompanying consolidated balance sheets.
(9) Contingencies
During fiscal 1992, the County of Hawaii passed an ordinance pursuant to
which the Venture, after subdivision approvals are obtained, would be
able to develop and subdivide the fourth phase of the Project into 1,490
units. Shortly after passage of the ordinance, a lawsuit against the
County of Hawaii was filed by two local residents of Hawaii (Plaintiffs)
seeking to invalidate such ordinance on various grounds including that
the ordinance was adopted without following State of Hawaii procedure
relating to the preparation of an Environmental Impact Statement. During
fiscal 1993, the Judge in this action granted Plaintiffs' motion for
partial summary judgment without indicating any effect on zoning of the
fourth phase. The County and the Venture have appealed this ruling. The
appeal was heard before the Hawaii Supreme Court in March 1994, and
because of an existing backlog in its caseload, the Court has not
rendered a decision. The Venture cannot, at this time, determine the
impact of the Court's ruling on the timing of the development of the
fourth phase or the expenditures related thereto.
(10) Disclosure About Fair Value of Financial Instruments
SFAS 107, "Disclosures About Fair Value of Financial Instruments", defines
the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing
parties. Carrying values for delinquent mortgage notes receivable are
based on the fair value of the underlying collateral obtained from an
independent appraisal. The carrying values of the remaining mortgage
notes receivable approximate market values, since the mortgage notes
52
9
KOHALA JOINT VENTURE AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
receivable are yielding, on average, a return that is consistent with
current market rates offered for similar financing.
(11) Impact of New Accounting Standards
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long Lived Assets and for Long Lived Assets to Be Disposed Of." SFAS
No. 121 addresses accounting for the impairment of long-lived assets
(including real estate), certain identifiable intangibles and goodwill
relating to those assets to be held and used and for long-lived assets
and certain identifiable intangibles to be disposed of. The Venture will
adopt this standard effective July 1, 1996 and believes that such
adoption will not have a material effect on the Venture's financial
position or results of operations.
53
Schedule II
KOHALA JOINT VENTURE
AND SUBSIDIARY
Valuation and Qualifying Accounts
Years ended June 30, 1996, 1995 and 1994
Column A Column B Column C Column D Column E
----------- ---------- ----------------------- -------- ---------
Additions
Balance at Charged to Charged to Deductions Balance at
beginning costs and other from end of
Description of year expenses accounts reserves year
----------- ---------- -------- -------- -------- ---------
1996 - Allowance for
uncollectible accounts $2,464,200 600,000 -- 114,800(B) 2,949,400
========== ======= ======== ======= =========
1995 - Allowance for
uncollectible accounts $1,661,800 980,000 -- 177,600(B) 2,464,200
========== ======= ======== ======= =========
1994 - Allowance for
uncollectible accounts $1,768,300 406,300 -- 512,800(B) 1,661,800
========== ======= ======== ======= =========
1996 - Allowance for loss on
foreclosed real estate $ 486,400 356,300 -- 139,600(B) 703,100
========== ======= ======== ======= =========
1995 - Allowance for loss on
foreclosed real estate $ 745,900 -- (259,500)(A) -- 486,400
========== ======= ======== ======= =========
1994 - Allowance for loss on
foreclosed real estate $ 378,200 367,700 -- -- 745,900
========== ======= ======== ======= =========
(A) Recoveries and other adjustments
(B) Write-offs
54
HUDSON GENERAL CORPORATION & SUBSIDIARIES
EXHIBIT INDEX
Exhibit Sequentially
No. Numbered
Exhibit Pages
3.2(a) Amendment to By-laws of the Registrant. 55
3.2(b) By-laws of the Registrant, as amended to date. 57
4.4(c) Second Amendment to the Revolving Credit Agreement dated as of
November 25, 1992, among Hudson General Aviation Services
Inc., ABN Amro Bank Canada and The Chase Manhattan Bank of
Canada individually and as successor agent, dated as of June
1, 1996. 95
4.4(d) Revolving Credit Agreement dated as of June 1, 1996
among Hudson General Corporation and The First National
Bank of Boston, European American Bank, The Chase
Manhattan Bank, N.A. and The First National Bank of
Boston, as agent. 108
4.4(e) Amended and Restated Revolving Credit Agreement dated as of
November 25, 1992 among Hudson General Corporation, Hudson
General LLC and The First National Bank of Boston, European
American Bank, The Chase Manhattan Bank, N.A. and The First
National Bank of Boston, as agent, as amended and restated as
of June 1, 1996. 200
4.5(b) First Supplemental Indenture dated as of April 22, 1996 among
the Registrant, Hudson General LLC and Chemical Bank Delaware
to Indenture dated as of July 1, 1986. 350
4.5(c) Notice of Redemption and Expiration of Conversion Privilege
dated June 3, 1996 relating to the Registrant's 7% Convertible
Subordinated Debentures Due 2011.
362
4.5(d) Notice of Redemption and Expiration of Conversion
Privilege dated August 5, 1996 relating to the Registrant's 7%
Convertible Subordinated Debentures Due
2011. 371
10.9* Description of Executive Incentive Program adopted by the
Compensation Committee of the Board of Directors on December
1, 1993, as amended on May 17, 1996.
377
11 Computation of Earnings Per Share Information - primary
and fully diluted.
379
13 The Registrant's 1996 Annual Report to Shareholders, which
report, except for those portions thereof which are expressly
incorporated by reference in this filing, is furnished for the
information of the Commission and is not to be deemed to be
filed as part of this filing. 384
21 Subsidiaries of the Registrant. 413
23 Consent of KPMG Peat Marwick LLP, the Corporation's
independent auditors, to the incorporation by reference
into the Corporation's Registration Statement on Form
S-8, as amended, Registration No. 2-75137 415
27 Financial Data Schedule 417