Hudsongeneralco10k405 1997
Hudsongeneralco10k405 1997
Hudsongeneralco10k405 1997
Assignment: Value Hudson General. What do you think this company is worth? Hint: read the footnotes carefully.
If you struggle, you can go to the book: Value Investing from Graham to Buffett and Beyond by Bruce C. N. Greenwald And read Chapter 4 starting on page 51. The analysis will be posted in a few days.
Form 10-K405
HUDSON GENERAL CORP - HGC
Filed: September 12, 1997 (period: June 30, 1997)
Annual report. The Regulation S-K Item 405 box on the cover page is checked
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Table of Contents
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PART I
ITEM 1. ITEM 2. ITEM 3. ITEM 4. BUSINESS PROPERTIES LEGAL PROCEEDINGS SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - Not
PART II
ITEM 5. ITEM 6. ITEM 7. ITEM 8. ITEM 9. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER SELECTED FINANCIAL DATA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
PART III
ITEM 10. ITEM 11. ITEM 12. ITEM 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT EXECUTIVE COMPENSATION SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K SIGNATURES EXHIBIT INDEX EX-3.2.A EX-3.2.B EX-11 (Statement regarding computation of per-share earnings) EX-13 (Annual report to security holders) EX-21 (Subsidiaries of the registrant) EX-23 (Consents of experts and counsel) EX-27
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1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1997 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
to
HUDSON GENERAL CORPORATION (Exact Name of Registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 13-1947395 (I.R.S. Employer Identification No.)
111 Great Neck Road, Great Neck, N.Y. (Address of principal executive offices)
(5l6) 487-8610
Securities registered pursuant to Section 12(g) of the Act: None (Title of Class)
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Indicate by a check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value of voting stock held by non-affiliates of Registrant based on the closing price on July 31, 1997 was $57,033,559. The number of shares outstanding (net of treasury stock) of the Registrant's common stock as of July 31, 1997 was 1,735,849 shares. Specific portions of the following documents are incorporated herein by reference in the parts hereof indicated, and only such specific portions are to be deemed filed as part of this report: Document -------1997 Proxy Statement of Registrant (to be filed with the Commission pursuant to Regulation 14A no later than 120 days after the close of its fiscal year) Registrant's 1997 Annual Report to Shareholders Part ---III
I, II, IV
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ITEM 1.
Hudson General Corporation (the "Corporation" or "Registrant") was organized in Delaware in 1961. Effective June 1, 1996, pursuant to the terms of a Unit Purchase and Option Agreement dated February 27, 1996 (the Purchase Agreement) between the Corporation and Lufthansa Airport and Ground Services GmbH (LAGS), a German corporation and an indirect wholly-owned subsidiary of Deutsche Lufthansa AG, the Corporation transferred substantially all of the assets and liabilities of its aviation services business (the Aviation Business) to Hudson General LLC (Hudson LLC), a newly formed limited liability company. In exchange for the transfer of such assets and liabilities and the assumption by Hudson LLC, as co-obligor with the Corporation, of all of the Corporation's 7% convertible subordinated debentures, the Corporation received a 74% interest in Hudson LLC. In addition, Hudson LLC sold LAGS a 26% interest in Hudson LLC, for a purchase price of $23,686,000 in cash (after certain adjustments), of which $15,848,000 was paid at the closing, and deferred payments of $2,650,000 and $5,188,000 plus interest thereon were made, respectively, in September 1996 and December 1996. The Purchase Agreement also provided for the grant to LAGS of an option (the LAGS Option), exercisable on October 1 of each year from 1996 through 2000, effective as of the preceding July 1, pursuant to which LAGS may increase its equity ownership in Hudson LLC from 26% to a maximum of 49%, for a price based on a formula related to the average earnings of the Aviation Business over the four fiscal years preceding the exercise of the option, subject to certain minimum and maximum amounts. Effective December 1996, the Purchase Agreement was amended so that the LAGS Option now expires on October 1, 1999. 2
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The Corporation's executive offices at 111 Great Neck Road, Great Neck, New York contain approximately 13,000 square feet and are under lease through December 31, 2002. Hudson LLC leases office, warehouse, hangar and maintenance shop space as well as fuel storage facilities at various airport locations in the United States and Canada. These leases expire at various dates through 2009 and contain various renewal options through 2020. A portion of this leased space has been sublet to non-affiliated sublessees. The properties owned and leased by Hudson LLC are suitable and adequate to conduct its business. For information relating to the Corporation's interest in land in Hawaii, see Note 3 to Item 14(a)(1) Financial Statements and page 8 of the Registrant's 1997 Annual Report to Shareholders. 6
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In 1988, Texaco Canada Inc. (Texaco) (now known as McCollFrontenac Inc.) instituted a lawsuit (the Texaco Lawsuit) in the Supreme Court of Ontario, Canada against the Corporation, the Corporation's Canadian subsidiary (now owned by Hudson LLC) and Petro-Canada Inc. (the corporation which supplied aviation fuel for the Corporation's Canadian fixed base operations). The Texaco Lawsuit's allegations, as amended, are that the defendants interfered with contractual and fiduciary relations, conspired to injure, and induced the breach of a fuel supply agreement between Texaco and Innotech Aviation Limited (Innotech) in connection with the purchase by the Corporation from Innotech in 1984 of certain assets of Innotech's airport ground services business. The Texaco Lawsuit seeks compensatory and punitive damages totaling $110,000,000 (Canadian) (approximately $80,000,000 (U.S.)) plus all profits earned by the defendants subsequent to the alleged breach. The trial, which began in May 1996, concluded after several adjournments on May 7, 1997, at which time the trial judge indicated that he intended to issue his decision on or about June 30, 1997. However, to date the judge has not yet rendered his decision. Innotech (which due to a name change is now called Aerospace Realties (1986) Limited (Aerospace)) had agreed to defend and indemnify the Corporation against claims of whatever nature asserted in connection with, arising out of or resulting from the fuel supply agreement with Texaco. By a letter dated February 15, 1996, the Corporation was notified by Aerospace that Aerospace had entered into a liquidation phase and could no longer defray the cost of defending the Texaco Lawsuit or pay for any damages resulting therefrom. The Corporation has agreed to indemnify and hold harmless Hudson LLC, LAGS and each affiliate of LAGS against all losses related to the Texaco Lawsuit. The Corporation's management believes, and counsel for the 7
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No family relationships exist among the executive officers of the Corporation. Each of the executive officers holds office at the pleasure of the Board of Directors, except as noted below. Mr. Langner has served as a Director of the Corporation since 1961 and as Chairman since 1977. He served as President from 1989 until September 1996, and previously served in such capacity from 1961 until 1979. The Corporation has an employment contract with Mr. Langner pursuant to which Mr. Langner has agreed to render services to the Corporation as Chairman and Chief Executive Officer for a period ending January 31, 2001. Mr. Rubin was elected as a Director of the Corporation in November 1996. Mr. Rubin has served as President of the Corporation since September 1996 and prior to such time served as Executive Vice President and Chief Financial Officer of the Corporation since 1990. He has been Treasurer of the Corporation since 1983. Previously, Mr. Rubin had been Vice PresidentFinance since 1985. He has been employed in various capacities with the Corporation since 1971. Mr. Rubin is a Certified Public Accountant. 9
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ITEM 5.
MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information required to be provided under Part II, Item 5(a) and (c) is incorporated by reference from page 13 of the Registrant's 1997 Annual Report to Shareholders under the caption "Selected Consolidated Financial Data". At June 30, 1997, there were 197 holders of record of the Corporation's common stock. The Corporation's Revolving Credit Agreement, as amended (Credit Agreement), permits the payment of dividends (see Note 7 to Item 14(a)(1) Financial Statements) and the purchase, redemption or retirement by the Corporation of its stock so long as certain financial covenants are maintained. In fiscal 1997, the Board of Directors authorized the repurchase of up to 400,000 shares of the Corporation's common stock, which purchases could be made from time to time in either open market or privately negotiated transactions. Prior to the fiscal 1997 authorizations, the Corporation still had the authority to purchase up to 35,700 shares from a previous authorization. During fiscal 1997, the Corporation repurchased 243,000 shares in the open market for an aggregate purchase price of $9,152,000. 12
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The information required to be provided under Part II, Item 6 is incorporated by reference from page 13 of the Registrant's 1997 Annual Report to Shareholders under the caption "Selected Consolidated Financial Data".
ITEM 7.
The information required to be provided under Part II, Item 7 is incorporated by reference from pages 9-12 of the Registrant's 1997 Annual Report to Shareholders under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations".
ITEM 8.
The consolidated financial statements and the required financial statement schedule of the Corporation and the independent auditors' reports thereon of KPMG Peat Marwick LLP, independent auditors, for the Corporation's fiscal years ended June 30, 1997, 1996 and 1995 are filed pursuant to Items 14(a)(1) and (2) of this Report. The financial statements and the required financial statement schedule of Hudson LLC and the independent auditors' report thereon of KPMG Peat Marwick LLP, independent auditors, for the fiscal year ended June 30, 1997 and the month ended June 30, 1996 and the financial statements and the required financial statement schedule of the Venture and the independent auditors' report thereon of KPMG Peat Marwick LLP, independent auditors, for the fiscal years ended June 30, 1997, 1996 and 1995, are filed pursuant to Item 14(d) of this Report. All such financial statements and financial statement schedules are included herein, except for the consolidated financial statements of the Corporation which are incorporated herein by reference. 13
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ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - Not Applicable
PART III
ITEM 10.
The information required to be provided under Part III, Item 10, relative to Directors of the Registrant is incorporated by reference from the Registrant's 1997 definitive proxy statement to be filed with the Securities and Exchange Commission (the "Commission") pursuant to Regulation 14A no later than 120 days after the close of its fiscal year and, relative to executive officers, to Part I of this report under the caption "Executive Officers of the Corporation".
ITEM 11.
EXECUTIVE COMPENSATION
ITEM 12.
ITEM 13.
The information required to be provided under Part III, Items 11, 12 and 13 is incorporated by reference from the Registrant's 1997 definitive proxy statement to be filed with the Commission pursuant to Regulation 14A no later than 120 days after the close of its fiscal year. 14
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) FINANCIAL STATEMENTS OF THE REGISTRANT, all of which are incorporated herein by reference to the Registrant's 1997 Annual Report to Shareholders. Independent Auditors' Report of KPMG Peat Marwick LLP, independent auditors, appearing on page 24 of the 1997 Annual Report to Shareholders. Consolidated Balance Sheets of Hudson General Corporation and Subsidiaries at June 30, 1997 and 1996, appearing on page 15 of the 1997 Annual Report to Shareholders. Consolidated Statements of Earnings of Hudson General Corporation and Subsidiaries for the Years Ended June 30, 1997, 1996 and 1995, appearing on page 14 of the 1997 Annual Report to Shareholders. Consolidated Statements of Cash Flows of Hudson General Corporation and Subsidiaries for the Years Ended June 30, 1997, 1996 and 1995, appearing on page 17 of the 1997 Annual Report to Shareholders. Consolidated Statements of Stockholders' Equity of Hudson General Corporation and Subsidiaries for the Years Ended June 30, 1997, 1996 and 1995, appearing on page 16 of the 1997 Annual Report to Shareholders. Notes to Consolidated Financial Statements appearing on pages 18-24 of the 1997 Annual Report to Shareholders.
Location in 10-K -------(a)(2) FINANCIAL STATEMENT SCHEDULE OF THE REGISTRANT FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995 Independent Auditors' Report of KPMG Peat Marwick LLP on Financial Statement Schedule II - Valuation and Qualifying Accounts FINANCIAL STATEMENTS OF HUDSON GENERAL LLC AND SUBSIDIARIES: Independent Auditors' Report of KPMG Peat Marwick LLP. Consolidated Balance Sheets of Hudson General LLC and Subsidiaries at June 30, 1997 and 1996. Consolidated Statements of Earnings of Hudson General LLC and Subsidiaries for the Year Ended June 30, 1997 and the Period June 1, 1996 (Inception) to June 30, 1996. Consolidated Statements of Members' Equity of Hudson General LLC and Subsidiaries for the Year Ended June 30, 1997 and the Period June 1, 1996 (Inception) to June 30, 1996. Consolidated Statements of Cash Flows of Hudson General LLC and F4 F6 F5 F1 F2
F7
F8
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Location in 10-K -------Subsidiaries for the Year Ended June 30, 1997 and the Period June 1, 1996 (Inception) to June 30, 1996. Notes to Consolidated Financial Statements. FINANCIAL STATEMENT SCHEDULE OF HUDSON GENERAL LLC AND SUBSIDIARIES FOR THE YEAR ENDED JUNE 30, 1997 AND THE PERIOD JUNE 1, 1996 (INCEPTION) TO JUNE 30, 1996: II - Valuation and Qualifying Accounts FINANCIAL STATEMENTS OF KOHALA JOINT VENTURE AND SUBSIDIARY: Independent Auditors' Report of KPMG Peat Marwick LLP. Consolidated Balance Sheets of Kohala Joint Venture and Subsidiary at June 30, 1997 and 1996. Consolidated Statements of Operations and Partners' Deficit of Kohala Joint Venture and Subsidiary for the Years Ended June 30, 1997, 1996 and 1995. Consolidated Statements of Cash Flows of Kohala Joint Venture and Subsidiary for the Years Ended June 30, 1997, 1996 and 1995. Notes to Consolidated Financial Statements. FINANCIAL STATEMENT SCHEDULE OF KOHALA JOINT VENTURE AND SUBSIDIARY FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995: II - Valuation and Qualifying Accounts
Schedules other than those listed above are omitted because of the absence of the conditions under which they are required or because the information required therein is set forth in all material respects in the financial statements, including the notes thereto. 16
F9-F17
F18
F23 F24-F31
F32
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Exhibits -------EXHIBIT DESCRIPTION ------------------Restated Certificate of Incorporation of the Registrant, as amended to date, filed as Exhibit 3.1 to Quarterly Report on Form 10-Q for the quarter ended December 31, 1986, incorporated herein by reference. Amendment to By-laws of the Registrant. By-laws of the Registrant, as amended to date. Revolving Credit Agreement dated as of November 25, 1992 among Hudson General Aviation Services Inc., various banking institutions named therein and Bank of Boston Canada, as agent, filed as Exhibit 4.4(i) to Quarterly Report on Form 10-Q for the quarter ended March 31, 1993, incorporated herein by reference. First Amendment to the Revolving Credit Agreement dated as of November 25, 1992 among Hudson General Aviation Services Inc., various banking institutions named therein and The Chase Manhattan Bank of Canada, as successor agent, dated as of March 15, 1995, filed as Exhibit 4.4(f) to Annual Report on Form 10-K for the fiscal year ended June 30, 1995, incorporated herein by reference. Second Amendment to the Revolving Credit Agreement dated as of November 25, 1992, among Hudson General Aviation Services Inc., ABN Amro Bank Canada and The Chase Manhattan Bank of Canada individually and as successor agent, dated as of June 1, 1996, filed as Exhibit 4.4(c) to Annual Report on Form 10-K for the fiscal year ended June 30, 1996, incorporated herein by reference. Revolving Credit Agreement dated as of June 1, 1996 among Hudson General Corporation and The First National Bank of Boston, European American Bank, The Chase Manhattan Bank, N.A. and The First National Bank of Boston, as agent, filed as Exhibit 4.4(d) to Annual Report on Form 10-K for the fiscal year ended June 30, 1996, incorporated herein by reference. Amended and Restated Revolving Credit Agreement dated as of November 25, 1992 among Hudson General Corporation, Hudson General LLC and The First National Bank of Boston, European American Bank, The Chase Manhattan Bank, N.A. and The First National Bank of Boston, as agent, as amended and restated as of June 1, 1996, filed as Exhibit 4.4(e) to Annual Report on Form 10-K for the fiscal year ended June 30, 1996, incorporated herein by reference. Development Agreement dated April 29, 1981 between Kahua Ranch, Limited, and the Registrant, filed as Exhibit 3 to Quarterly Report on Form 10-Q for the quarter ended March 31, 1981, incorporated herein by reference. Amended and Restated Joint Venture Agreement dated April 29, 1981 between Hudson Kohala Inc. and The Hilton Head Company of Hawaii, 17
4.4(b)
4.4(c)
4.4(d)
4.4(e)
10.1(a)
10.1(b)
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10.1(d)
10.1(e)
10.1(f)
10.1(g)
10.1(h)
10.1(i)
10.2*
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EXHIBIT DESCRIPTION ------------------1981 Incentive Stock Option and Stock Appreciation Rights Plan, filed as Exhibit 15.2 to Form S-8 Registration Statement under the Securities Act of 1933, Registration No. 2-75137, incorporated herein by reference. Form of Severance Agreement, dated as of June 3, 1986, between the Registrant and Michael Rubin, filed as Exhibit 10.5(a) to Annual Report on Form 10-K for the fiscal year ended June 30, 1988, incorporated herein by reference. Amendment effective January 23, 1996, amending the Form of Severance Agreement between the Registrant and Michael Rubin dated as of June 3, 1986, filed as Exhibit 10.4(c) to Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, incorporated herein by reference. Amended schedule of executive officers entitled to benefits of Severance Agreements, filed as Exhibit 10.4(d) to Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, incorporated herein by reference. Employment Agreement dated July 28, 1988, between the Registrant and Jay B. Langner, filed as Exhibit 10.6(a) to Annual Report on Form 10-K for the fiscal year ended June 30, 1988, incorporated herein by reference. Amendment dated April 16, 1990, amending the Employment Agreement between the Registrant and Jay B. Langner dated as of July 28, 1988, filed as Exhibit 10.5(b) to Annual Report on Form 10-K for the fiscal year ended June 30, 1990, incorporated herein by reference. Amendment dated August 16, 1994, amending the Employment Agreement between the Registrant and Jay B. Langner dated as of July 28, 1988, as amended, filed as Exhibit 10.5(c) to Annual Report on Form 10-K for the fiscal year ended June 30, 1994, incorporated herein by reference. Amendment effective January 23, 1996, amending the Employment Agreement between the Registrant and Jay B. Langner dated July 28, 1988, as amended, filed as Exhibit 10.5(e) to Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, incorporated herein by reference. Severance Agreement dated April 16, 1990 between the Registrant and Jay B. Langner, filed as Exhibit 10.5(c) to Annual Report on Form 10-K for the fiscal year ended June 30, 1990, incorporated herein by reference. Amendment effective January 23, 1996, amending the Severance Agreement between the Registrant and Jay B. Langner dated April 16, 1990, filed as Exhibit 10.5(f) to Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, incorporated herein by reference.
19
10.4(a)*
10.4(b)*
10.4(c)*
10.5(a)*
10.5(b)*
10.5(c)*
10.5(d)*
10.5(e)*
10.5(f)*
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EXHIBIT DESCRIPTION ------------------Form of Employment Agreement, dated February 8, 1990, between the Registrant and Michael Rubin, filed as Exhibit 10.7(a) to Annual Report on Form 10-K for the fiscal year ended June 30, 1990, incorporated herein by reference. Amendment effective January 23, 1996, amending the Form of Employment Agreement between the Registrant and Michael Rubin, dated February 8, 1990, filed as Exhibit 10.7(c) to Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, incorporated herein by reference. Amended schedule of executive officers entitled to benefits of Employment Agreements, filed as Exhibit 10.7(d) to Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, incorporated herein by reference. Description of Executive Incentive Program adopted by the Compensation Committee of the Board of Directors on December 1, 1993, as amended on May 17, 1996, filed as Exhibit 10.9 to Annual Report on Form 10-K for the fiscal year ended June 30, 1996, incorporated herein by reference. Unit Purchase and Option Agreement, dated February 27, 1996 between the Registrant and Lufthansa Airport and Ground Services GmbH, a German corporation, filed as Exhibit 99.1 to Form 8-K dated March 6, 1996, incorporated herein by reference. Limited Liability Company Agreement dated May 31, 1996, effective as of June 1, 1996, among the Registrant, LAGS (USA) Inc. and Hudson General LLC, filed as Exhibit 99.3 to Form 8-K dated May 31, 1996, incorporated herein by reference. First Amendment to the Unit Purchase and Option Agreement dated February 27, 1996 between the Registrant and Lufthansa Airport and Ground Services GmbH, a German corporation, dated as of December 12, 1996, filed as Exhibit 10.10(c) to Quarterly Report on Form 10-Q for the quarter ended December 31, 1996, incorporated herein by reference. Third Amendment to the Limited Liability Company Agreement dated May 31, 1996, effective as of June 1, 1996, among the Registrant, LAGS (USA) Inc. and Hudson General LLC dated as of December 12, 1996, filed as Exhibit 10.10(d) to Quarterly Report on Form 10-Q for the quarter ended December 31, 1996, incorporated herein by reference. Computation of Earnings Per Share Information - primary and fully diluted. The Registrant's 1997 Annual Report to Shareholders, which report, except for those portions thereof which are expressly incorporated by reference in this filing, is furnished for the information of the Commission and is not to be deemed to be filed as part of this filing. Subsidiaries of the Registrant. Consent of KPMG Peat Marwick LLP, the Corporation's independent auditors, to the incorporation by reference into the
10.6(b)*
10.6(c)*
10.7*
10.8(a)
10.8(b)
10.8(c)
10.8(d)
11 13
21 23
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/s/
/s/
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in their capacities as Directors on the 11th day of September 1997. /s/ Jay B. Langner -------------Jay B. Langner Milton H. Dresner ----------------Milton H. Dresner Paul R. Pollack --------------Paul R. Pollack Edward J. Rosenthal ------------------Edward J. Rosenthal 22 /s/ Michael Rubin ------------Michael Rubin Hans H. Sammer -------------Hans H. Sammer Richard D. Segal ---------------Richard D. Segal Stanley S. Shuman ----------------Stanley S. Shuman
/s/
/s/
/s/
/s/
/s/
/s/
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KPMG PEAT MARWICK LLP Jericho, New York August 15, 1997 23
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$ --========== $ --==========
$1,631,000 ==========
$ 178,000 =========
$ (85,000)(B,C) ===========
$ 145,000(A) =========
$1,579,000 ==========
NOTES: (A) (B) (C) (D) Write-offs. Foreign exchange. Recoveries. Includes transfer of $1,804,000 to Hudson General LLC. 24
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June 30, -------------------------1997 1996 --------------Assets Current assets: Cash and cash equivalents .......................... Accounts and notes receivable - net ................ Inventory .......................................... Prepaid expenses and other assets .................. Total current assets ......................... Property, equipment and leasehold rights at cost, less accumulated depreciation and amortization ..... Long-term receivables - net ........................... Deferred income taxes ................................. Excess cost over fair value of net assets acquired .... $ 12,324 15,289 1,272 1,439 -------30,324 44,948 1,361 174 713 -------$ 77,520 ======== $ 19,269 18,055 1,115 1,202 -------39,641 37,442 2,028 852 761 -------$ 80,724 ========
Liabilities and Members' Equity Current liabilities: Accounts payable ................................... Income taxes payable ............................... Accrued expenses and other liabilities ............. Advances from Hudson General Corporation - net ..... Total current liabilities .................... Long-term debt, subordinated .......................... Note payable to Hudson General Corporation ............ Total noncurrent liabilities ................. Members' Equity: Contributed capital ................................ Retained earnings .................................. Equity adjustments from foreign currency translation Total members' equity ........................ 19,966 16,794 (1,550) -------35,210 -------$ 77,520 ======== 12,123 855 (1,427) -------11,551 -------$ 80,724 ======== $ 18,528 1,280 17,511 361 -------37,680 --------4,630 -------4,630 -------$ 15,104 350 17,735 7,233 -------40,422 -------28,751 --------28,751 --------
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Contributed Capital ------Balance, June 1, 1996 (Inception) ..................... Equity contributions .............................. Equity adjustment from foreign currency translation Net earnings ...................................... $ -12,123 --
-855 -855 ---------------------------------------------------------12,123 7,843 -855 --(1,427) -(123) 11,551 7,843 (123)
Balance, June 30, 1996 ................................ Equity contributions .............................. Equity adjustment from foreign currency translation Net earnings ......................................
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Basis of Presentation: The consolidated financial statements include the accounts of Hudson General LLC and its subsidiaries (Hudson LLC). All material intercompany accounts and transactions have been eliminated in consolidation. Description of Business: Hudson LLC provides a broad and diverse range of services to the aviation industry at twenty-four (24) airports throughout the United States and Canada. These services include aircraft ground handling; aircraft fueling; fuel management; ground transportation; snow removal; cargo warehousing; and sale, leasing and maintenance of airline ground support equipment. Inventories: Inventories are carried at the lower of average cost or market.
Depreciation and Amortization: Depreciation of property and equipment is provided on the straight-line method over their estimated useful lives. Leasehold rights are amortized over the original and anticipated renewal terms of the underlying leases. Excess Cost over Fair Value of Net Assets Acquired: The excess cost over fair value of net assets acquired, net of accumulated amortization of $1,275,000 and $1,232,000 at June 30, 1997 and June 30, 1996, respectively, is amortized on a straight-line basis over periods not to exceed forty years. Hudson LLC periodically reviews its intangible assets and analyzes the propriety of maintaining the stated values. Income Taxes: Hudson LLC has adopted Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes", which requires the use of the liability method of accounting for deferred income taxes. Financial Instruments: Hudson LLC believes that the book values of its monetary assets and liabilities approximate fair values as a result of the short-term nature of such assets and liabilities. Foreign Currency Translation: The financial position and results of operations of Hudson LLC's Canadian operations are measured using local currency as the functional currency. Assets and liabilities are translated into U.S. dollars at year-end rates of exchange, and revenues and expenses are translated at the average rates of exchange for the year. Gains or losses resulting from translating foreign currency financial statements are accumulated as a separate component of members' equity. Statements of Cash Flows: For purposes of the consolidated statements of cash flows, Hudson LLC considers all securities with an original maturity of three months or less at the date of acquisition to be cash equivalents. In fiscal 1997 income taxes (net of refunds) of 31
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Effective June 1, 1996, pursuant to the terms of the Unit Purchase and Option Agreement dated February 27, 1996 (the Purchase Agreement) between Hudson General Corporation (the Corporation) and Lufthansa Airport and Ground Services GmbH (LAGS), a German corporation and an indirect wholly-owned subsidiary of Deutsche Lufthansa AG, the Corporation transferred substantially all of the assets and liabilities of its aviation services business (the Aviation Business) to Hudson LLC, a newly formed limited liability company (the Transaction). In exchange for the transfer of such assets and liabilities and the assumption by Hudson LLC, as co-obligor with the Corporation, of all of the Corporation's 7% convertible subordinated debentures, the Corporation received a 74% interest in Hudson LLC. In addition, Hudson LLC sold LAGS a 26% interest in Hudson LLC, for a purchase price of $23,686,000 in cash (after certain adjustments), of which $15,848,000 was paid at the closing, and deferred payments (the Deferred Payments) of $2,650,000 and $5,188,000 plus interest thereon were made, respectively, in September 1996 and December 1996. The Purchase Agreement also provided for the grant to LAGS of an option, exercisable on October 1 of each year from 1996 through 2000, effective as of the preceding July 1, pursuant to which LAGS may increase its equity ownership in Hudson LLC from 26% to a maximum of 49%, for a price based on a formula related to the average earnings of the Aviation Business over the four fiscal years preceding the exercise of the option, subject to certain minimum and maximum amounts. Effective December 1996, the Purchase Agreement was amended so that this option now expires on October 1, 1999. Pursuant to the Purchase Agreement, Hudson LLC, the Corporation and LAGS USA Inc., a wholly owned subsidiary of LAGS (LAGS USA), entered into a Limited Liability Company Agreement effective June 1, 1996 (the LLC Agreement). The LLC Agreement, as amended, stipulates that the Corporation and LAGS USA will share profits and losses in the same 32
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Accounts, notes and long-term receivables - net at June 30, 1997 and June 30, 1996 consisted of the following: JUNE 30, June 30, 1997 1996 ------------(in thousands) Rental and service fees receivable .................................... Note receivable ....................................................... Equipment rental contracts and other notes receivable (less unearned finance income of $39,000 in 1996) ................ Less: current portion (net of allowance for doubtful accounts of $1,670,000 and $1,784,000) ........................... Long-term portion ..................................................... $14,762 1,888 -------16,650 15,289 ------$ 1,361 ======= $17,500 2,414 169 ------20,083 18,055 ------$ 2,028 =======
On January 6, 1994, the Corporation assigned its leases and ceased operations at Long Island MacArthur Airport in Islip, New York (LIMA) where the Corporation had provided ground handling and fueling services to commercial airlines and related fixed base operation services to general aviation aircraft. At the closing, the Corporation was paid $150,000 in cash and received a promissory note from the purchaser of its leases in the amount of $3,750,000, payable over seven years with interest at the rate of 7%. The outstanding balance of the note receivable at June 30, 1997 and 1996 was $1,888,000 and $2,414,000, respectively. The promissory note is secured by the assigned leases and other assets located at LIMA. Hudson LLC provides various services at airports throughout the United States and Canada. Hudson LLC grants credit to customers based upon an analysis of its customers' financial position and then-existing conditions in the aviation industry. Five of Hudson LLC's customers had individual balances outstanding greater than 5%, and aggregating 40%, of accounts and notes receivable-net at June 30, 1997. Bad debt expenses were $188,000 and $17,000 for fiscal 1997 and the month of June 1996, respectively.
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Accrued expenses and other liabilities at June 30, 1997 and 1996 consisted of the following:
1997 ---(in thousands) Salaries and wages............................ Insurance..................................... Operating expenses payable.................... Other......................................... $ 6,327 5,608 3,102 2,474 -------$ 17,511 ======== $
Maintenance and repair expenses were $8,760,000 and $664,000 for fiscal 1997 and the month of June 1996, respectively. 4. PROPERTY, EQUIPMENT AND LEASEHOLD RIGHTS
The number of years over which major classes of assets are being depreciated and amortized, and the costs and related accumulated depreciation and amortization as of June 30, 1997 and 1996 are set forth below:
Estimated Useful Lives -----------1997 ---(in thousands) Operating equipment........................................... Leasehold rights.............................................. Buildings..................................................... Office furnishings and equipment.............................. Leasehold improvements........................................ 2 - 12 25 20 3 - 10 2 - 28 $85,349 2,400 1,474 3,868 6,464 ------99,555 (54,607) ------$44,948 ======= $72,916 2,400 1,468 3,365 6,220 ------86,369 (48,927) ------$37,442 ======= 1996 ----
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5.
The consolidated financial statements include: assets of $18,635,000 and $16,671,000, and net assets of $12,406,000 and $10,831,000 at June 30,1997 and 1996, respectively; and revenues of $45,987,000 and $3,197,000 and earnings of $1,784,000 and $52,000 for fiscal 1997 and the month of June 1996, respectively, related to Hudson LLC's Canadian operations. 6. LONG-TERM DEBT
In connection with the Transaction, the revolving credit agreement that the Corporation had with a group of banks dated November 25, 1992, as amended, was amended and restated as of June 1, 1996, and Hudson LLC assumed and agreed to become jointly and severally liable for any obligations thereunder (the LLC Credit Agreement). Pursuant to the LLC Credit Agreement, Hudson LLC may borrow funds (including outstanding letters of credit) up to a limit of $18,000,000 (the LLC Limit) until September 30, 1998. At such time, and at the end of each subsequent quarter, the LLC Limit will be reduced by one-sixteenth of the LLC Limit that was in effect on June 30, 1998 until June 30, 2002, at which time the LLC Credit Agreement terminates. The limit may also be reduced by asset sales in excess of certain amounts. There were no direct borrowings outstanding at June 30, 1997 and 1996 and $3,020,000 and $3,045,000 of outstanding letters of credit at June 30, 1997 and 1996, respectively. The LLC Credit Agreement provides Hudson LLC with the option of selecting a rate of interest at either the base rate or 1 3/8% above the LIBO rate, as defined. The LLC Credit Agreement requires that Hudson LLC maintain certain minimum effective net worth requirements, as defined, which are subject to incremental annual increases and further stipulates that Hudson LLC not incur a consolidated net loss for any fiscal year. The LLC Credit Agreement also requires that Hudson LLC meet certain other financial covenants. Hudson LLC has granted the banks a security interest in substantially all of its domestic assets. Hudson LLC also has an agreement with a group of banks to provide a credit facility for its Canadian subsidiary (the Canadian Agreement) in the amount of $5,000,000 (Cdn) (the Canadian Limit). The Canadian Limit will be reduced commencing September 30, 1998 on the same basis as the LLC Limit. The Canadian Agreement provides Hudson LLC with the option of selecting a rate of interest at either 1/2% above the prime rate or 1 5/8% above the cost of funds rate, as defined. In connection with the Canadian Agreement, Hudson LLC has guaranteed the obligations of its Canadian subsidiary and granted the banks a security interest in substantially all of its Canadian accounts receivable and certain of its other assets. In July 1986, the Corporation issued $30,000,000 of 7% convertible subordinated debentures due 2011 (the Debentures). In connection with the Transaction, effective June 1, 1996, Hudson LLC assumed the obligations of the Debentures and the Corporation remained as a co-obligor. The Debentures were convertible at any time prior to maturity into shares of the Corporation's common stock. At June 1, 1996, there was $28,821,000 principal balance of the Debentures outstanding. During June and August 1996, the Debentures were called for redemption and as a result, $2,408,000 35
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Provision for income taxes consisted of the following for fiscal 1997 and the month of June 1996. 1997 1996 ----------(in thousands) Foreign: Current ..................................... Deferred .................................... State: Current ..................................... Deferred .................................... 344 21 -----$2,085 ====== -----$ 41 ==== $1,061 659 $ 41 --
Deferred tax assets (liabilities) are comprised of the following as of June 30, 1997 and 1996 (Deferred tax assets were transferred to Hudson LLC from the Corporation on June 1, 1996): 1997 ---Deferred tax assets: Reserves for doubtful accounts, claims, etc..................... Minimum tax credit carryforward................................. Property, equipment and leasehold rights, principally depreciation - foreign....................................... Total deferred tax assets................................ $277 -----277 --(in thousands) $196 65 591 ---852 ---1996 ----
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Hudson LLC has adopted SFAS No. 109, "Accounting for Income Taxes". SFAS No. 109 requires that deferred income taxes be recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS No. 109, the effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. In April 1997, Hudson LLC's Canadian subsidiary was notified by Canadian taxation authorities of their intention to disallow loss and depreciation deductions and carryforwards related to an internal recapitalization in fiscal 1990 by the Corporation of such Canadian subsidiary. If the position of the Canadian taxation authorities (as currently proposed) is sustained, a foreign income tax liability of approximately $3,900,000, plus interest, would result. The Corporation has agreed to indemnify and hold harmless Hudson LLC, LAGS and each affiliate of LAGS against any liability resulting from this matter. The Corporation's management disagrees with the position of the Canadian taxation authorities and intends to vigorously contest any potential assessments made by them. Accordingly, no provision has been made in the accompanying consolidated financial statements for foreign income taxes related to this matter. As a limited liability company, Hudson LLC has elected to be taxed as a partnership under the provisions of the Internal Revenue Code, and therefore, the U.S. taxable results and available tax credits of Hudson LLC pass directly to the Members' U.S. corporate income tax returns in the manner prescribed in the LLC Agreement, as amended. 8. RETIREMENT PLANS
As of January 1, 1997, Hudson LLC established a 401(k) Profit Sharing Plan covering substantially all of its domestic employees not subject to collective bargaining agreements (the LLC Plan). Pursuant to the LLC Plan, Hudson LLC makes a matching contribution equal to 25% of the Compensation (as defined in the Plan) that each participant elects to defer (up to 5% of the participant's Compensation) and contribute to the LLC Plan. In addition, Hudson LLC may make a discretionary annual contribution. Prior to January 1, 1997 such employees were covered under the Corporation's 401(k) Profit Sharing Plan (the Plan), which contains terms and conditions similar to those of the LLC Plan. During fiscal 1997 and the month of June 1996, Hudson LLC contributed $766,000 and $11,000, respectively, to the LLC Plan and the Plan representing employer matching and discretionary contributions for Hudson LLC's covered employees. 37
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Minimum rental payments for leased premises and operating equipment for future fiscal years under non-cancelable operating leases (including $3,563,000 to be paid subsequent to June 30, 1997 for operating equipment on lease to Hudson LLC from the Corporation and excluding $1,591,000 to be received subsequent to June 30, 1997 under non-cancelable subleases) are: $5,240,000 in 1998; $4,482,000 in 1999; $3,626,000 in 2000; $3,105,000 in 2001; $2,602,000 in 2002; and $8,115,000 thereafter. Total rental expense incurred amounted to $6,486,000 and $475,000 (excluding sublease income of $755,000 and $36,000) for fiscal 1997 and the month of June 1996, respectively. (b) Litigation
In 1988, Texaco Canada Inc. (Texaco) (now known as McColl-Frontenac Inc.) instituted a lawsuit (the Texaco Lawsuit) in the Supreme Court of Ontario, Canada against the Corporation, the Corporation's Canadian subsidiary (now owned by Hudson LLC) and Petro-Canada Inc. (the corporation which supplied aviation fuel for the Corporation's Canadian fixed base operations). The Texaco Lawsuit's allegations, as amended, are that the defendants interfered with contractual and fiduciary relations, conspired to injure, and induced the breach of a fuel supply agreement between Texaco and Innotech Aviation Limited (Innotech) in connection with the purchase by the Corporation from Innotech in 1984 of certain assets of Innotech's airport ground services business. The Texaco Lawsuit seeks compensatory and punitive damages totaling $110,000,000 (Canadian) (approximately $80,000,000 (U.S.)) plus all profits earned by the defendants subsequent to the alleged breach. The trial, which began in May 1996, concluded after several adjournments on May 7, 1997, at which time the trial judge indicated that he intended to issue his decision on or about June 30, 1997. However, to date the judge has not yet rendered his decision. Innotech (which due to a name change is now called Aerospace Realties (1986) Limited (Aerospace)) had agreed to defend and indemnify the Corporation against claims of whatever nature asserted in connection with, arising out of or resulting from the fuel supply agreement with Texaco. By a letter dated February 15, 1996, the Corporation was notified by Aerospace that Aerospace had entered into a liquidation phase and could no longer defray the cost of defending the Texaco Lawsuit or pay for any damages resulting therefrom. The Corporation has agreed to indemnify and hold harmless Hudson LLC, LAGS and each affiliate of LAGS against all losses related to the Texaco Lawsuit. The Corporation's management believes, 38
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$1,784,000 ==========
$188,000 ========
$ 30,000(B,C) ========
$(332,000)(A) =========
$1,670,000 ==========
$1,804,000(D) ==========
$ 14,000 ========
$(31,000)(B,C) ========
$ 3,000(A) =========
$1,784,000 ==========
NOTES: (A) (B) (C) (D) Write-offs. Foreign exchange. Recoveries. Represents transfer of $1,804,000 from Hudson General Corporation. 40
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Cash Accounts receivable Accrued interest receivable Mortgage notes receivable, net (including amounts from related parties of $142,700 and $386,500 in 1997 and 1996, respectively) Land and development costs, net Property, plant and equipment, net Model home, net Foreclosed real estate, net Other
LIABILITIES AND PARTNERS' DEFICIT Liabilities: Note payable Partner advances and accrued interest payable Accounts payable and accrued expenses Total liabilities Contingencies Partners' deficit (37,958,300) -----------$ 17,216,800 ============ (15,374,100) ----------36,713,600 =========== -54,012,600 1,162,500 -----------55,175,100 576,200 50,219,500 1,292,000 ----------52,087,700
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105,200 347,300 341,300 (159,000) (212,000) (1,847,500) 1,678,300 57,000 ---------310,600 ---------(21,000) ----------(21,000) ---------2,714,400 -(2,826,200) ---------(111,800) ---------177,800 89,000 ---------266,800 ========== -==========
23,000 579,000 246,600 (243,700) (477,400) (2,062,800) 1,404,500 89,800 ---------(441,000) ---------(10,900) ----------(10,900) ---------2,346,100 6,000 (1,932,300) ---------419,800 ---------(32,100) 121,100 ---------89,000 ========== 576,200 ==========
209,100 ----------1,048,400 ----------(12,500) 500 ----------(12,000) ------------(573,200) ----------(573,200) ----------463,200 266,800 ----------$ 730,000 =========== $ -===========
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The Kohala Joint Venture (the Venture) is a partnership which was formed to acquire, develop and sell approximately 4,000 contiguous acres of land in Hawaii (the Project). The Partners in the Venture are Hudson Kohala, Inc. (Hudson, a wholly-owned subsidiary of Hudson General Corporation) and Oxford Kohala, Inc. (Oxford, a wholly-owned subsidiary of Oxford First Corporation) (Oxford First) (together, the Partners). The terms of the partnership are contained in the Restated Joint Venture Agreement dated April 29, 1981, as amended (the Agreement). The Project is being developed in four successive phases. The first two phases, containing approximately 2,100 acres, have been developed and substantially sold. The third phase, containing approximately 550 acres, has also been developed and has 85 parcels available for sale. The fourth phase has yet to be developed, except to the extent common improvements (main roadway, water wells, etc.) have been completed. The Partners plan to reevaluate the fourth phase of the Project. (b) Principles of Consolidation
The consolidated financial statements include the accounts of the Venture and its 99% owned subsidiary, the Kohala Ranch Water Company (KRWC) (note 8). All significant intercompany accounts and transactions have been eliminated in consolidation. (c) Partners' Deficit and Allocation of Profits and Losses
Partners' deficit includes the Partners' capital accounts in the Venture and the minority interest (the remaining 1%) of the Partners in KRWC. In accordance with the Agreement, profits are shared equally by the Partners. Losses are shared by the Partners on a pro-rata basis, based first on their respective capital accounts and then on their respective combined advances to the Venture including accrued interest (note 6). Revenue Recognition and Land Sales
(d)
All sales to date have been from the first, second and third phases of the Project. Revenue is being recognized under the full accrual method of accounting. The minimum down payment for sales to be recorded is 10%. (e) Interest Income on Mortgage Notes Receivable
Interest is not accrued on mortgage notes receivable in arrears 90 days or more. (f) Capitalization of Costs
Land and development costs (including interest) are initially capitalized and subsequently carried at the lower of average cost or fair value. These costs are charged to cost of sales when the corresponding land sale is recorded based upon the relative fair value of the parcel sold to the aggregate fair value of all parcels in the phase. As indicated in note 2, the Venture recorded a $17,000,000 write-down of its real estate assets in fiscal 1997. (Continued) 46
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(h)
Property, plant and equipment is recorded at the lower of cost or fair value. Depreciation is provided on the straight-line method. The number of years over which major classes of assets are depreciated and the costs and related accumulated depreciation as of June 30, 1997 and 1996 are set forth below: Estimated useful lives -----------Water distribution systems Plant structures and equipment 20-50 years 3-10 years 1997 ---$ 2,773,700 182,900 ----------2,956,600 (867,200) (528,500) ----------$ 1,560,900 =========== 1996 ---2,773,700 190,400 --------2,964,100 (789,600) (528,500) --------1,646,000 =========
Contributions in aid of construction represent contributions by customers for plant additions made for the benefit of the customer. Accordingly, such contributions are recorded as a reduction against property, plant and equipment. During fiscal 1997, the Venture sold the model home. Depreciation expense relating to the model home was $85,800 for fiscal 1997 and $93,600 for both fiscal years 1996 and 1995. Depreciation expense was $183,400, $173,600 and $176,400 for fiscal 1997, 1996 and 1995, respectively. (Continued) 47
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Effective July 1, 1996, the Venture adopted Statement of Financial Accounting Standards (SFAS) No.121, "Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to Be Disposed Of". SFAS No.121 addresses accounting for the impairment of long-lived assets (including real estate), certain identifiable intangibles and goodwill relating to those assets to be held and used and for long lived assets and certain identifiable intangibles to be disposed of. The adoption of SFAS No.121 did not have an effect on the Venture's consolidated financial position or results of operations. (j) As Income Taxes a partnership, the Venture is not a taxable entity under the provisions of the Internal Revenue Code. The taxable results and available tax credits of the Venture and KRWC pass directly to the Partners' corporate income tax returns in the manner prescribed in the Agreement. Statements of Cash Flows
(k)
For the purposes of presenting the consolidated statements of cash flows, the Venture considers all securities with an original maturity of three months or less at the date of acquisition to be cash equivalents. A reconciliation of net loss to net cash provided by (used in) operating activities for fiscal 1997, 1996 and 1995 is as follows:
1997 ---Net loss Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Write-down of real estate assets Depreciation and amortization Provision for losses and discounts on mortgages receivable Provision for losses on foreclosed real estate Sale of assets held in foreclosure Interest expense in excess of interest paid Mortgage loans originated on land sales Cash collections on mortgage loans Excess of cost of sales over land and development costs paid Accrued interest on mortgages receivable Cash for water sales in excess of accrual Real estate tax accruals Other Total adjustments Net cash provided by (used in) operating activities $(22,584,200) 17,000,000 183,400 600,000 -209,100 3,740,200 (339,900) 1,279,500 991,200 58,400 9,100 (48,000) (50,400) -----------23,632,600 -----------$ 1,048,400 ============ 1996 ---(6,042,200) -173,600 600,000 356,300 57,000 3,543,400 (206,000) 1,678,300 206,400 2,200 (4,900) 35,700 (89,200) ---------6,352,800 ---------310,600 ========== 1995 ---(5,495,300) -176,400 988,500 -89,800 3,037,100 (209,500) 1,404,500 52,400 23,900 (4,300) (434,400) (70,100) ---------5,054,300 ---------(441,000) ==========
(Continued) 48
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(4)
Land and Development Costs Land and development costs include all costs directly associated with the acquisition and development of the land parcels. Major components of land and development costs are the initial costs to acquire the land, roadways, water drainage, electrical and telephone lines, and various project management expenditures, as well as unamortized capitalized interest of $6,590,912 and $6,680,400 as of June 30, 1997 and 1996, respectively.
(5)
Foreclosed Real Estate Foreclosed real estate represents land parcels that were reacquired in connection with previously financed mortgages. Such parcels are valued at the lower of their remaining receivable balance outstanding, or their estimated fair value (determined in the same manner as the allowance for uncollectible accounts), as follows: 50
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During fiscal 1997 and 1996, ten and four mortgage notes receivable were transferred to foreclosed real estate, respectively, and five and one parcels in foreclosed real estate were sold. The carrying values of the mortgage notes receivable transferred and parcels sold were $1,212,500 and $585,500 in fiscal 1997 and $581,100 and $559,400 in fiscal 1996, respectively. (6) Partner Advances Payable The Partners have agreed to make equal advances to the Venture for all costs necessary for the orderly development of the Project. During fiscal 1997, the Partners each advanced $300,000 to the Venture. Such advances were repaid by the Venture on June 30, 1997. Additional contributions from the Partners may be required in fiscal 1998. Advances earn interest from the date of the advance compounded quarterly at the prime rate minus 1% (7.50% and 7.25% at June 30, 1997 and 1996, respectively). On October 13, 1994, Oxford First filed for reorganization under Chapter 11 of the Bankruptcy Code. Pursuant to an order of the Bankruptcy Court, Oxford First (through its subsidiary, the Oxford Finance Companies, Inc.) was permitted to transfer certain amounts to Oxford. The amounts so authorized were not sufficient to allow Oxford to make its full share of required advances. Hudson opted to make additional advances (the Additional Advances) to cover Oxford's funding deficiency. During November 1995, Oxford resumed making advances, and in January 1996, Oxford repaid to Hudson the entire amount of the Additional Advances of $702,000 together with $37,000 of interest thereon. The Venture has been informed by Oxford, that Oxford First has substantially met all its financial obligations under its confirmed plan of reorganization and is no longer restricted in the amount of required advances it may make to the Venture. Advances accrued an average rate of interest of 7.3% during both fiscal 1997 and 1996 and 7.2% during fiscal 1995. (7) Note Payable During fiscal 1991, the Venture entered into agreements with banks pursuant to which $8,797,000 of the Venture's mortgage receivables were sold. An additional sale of $3,148,000 of mortgage receivables to a bank was completed during fiscal 1992. These transactions were accounted for as financing arrangements. On April 30, 1996, the Venture repurchased $1,373,000 of such mortgage receivables which represented the entire outstanding balance thereof. The maximum amounts of notes payable outstanding during fiscal 1996 and 1995 were $2,826,000 and $4,758,500, respectively. The average amounts outstanding for fiscal 1996 and 1995, based upon month-end balances, were $1,561,000 and $3,860,100, respectively. The weighted average interest rates for fiscal 1996 and 1995 were 11.3% and 11.9%, respectively. (Continued) 51
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Description ----------1997 - Allowance for uncollectible accounts 1996 - Allowance for uncollectible accounts 1995 - Allowance for uncollectible accounts 1997 - Allowance for loss on foreclosed real estate 1996 - Allowance for loss on foreclosed real estate 1995 - Allowance for loss on foreclosed real estate
$2,949,400 ========== $2,464,200 ========== $1,661,800 ========== $ 703,100 ========== $ 486,400 ========== $ 745,900 ==========
600,000 ======== 600,000 ======== 988,500 ======== -======== 356,300 ======== -========
383,100(B) ======== 114,800(B) ======== 186,100(B) ======== 26,400(B) ======== 139,600(B) ======== -========
3,166,300 ========= 2,949,400 ========= 2,464,200 ========= 676,700 ========= 703,100 ========= 486,400 =========
(A) (B)
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EXHIBIT INDEX Exhibit No. --3.2(a) 3.2(b) 11 Sequentially Numbered Pages ------56-57 58-95 96-98
Exhibit ------Amendment to By-laws of the Registrant. By-laws of the Registrant, as amended to date. Computations of Earnings Per Share Information - Primary and Fully Diluted.
13
The Registrant's 1997 Annual Report to Shareholders, which report, except for those portions thereof which are expressly incorporated by reference in this filing, is furnished for the information of the Commission and is not to be deemed to be filed as part of this filing. Subsidiaries of the Registrant. Consent of KPMG Peat Marwick LLP, the Corporation's independent auditors, to the incorporation by reference into the Corporation's Registration Statement on Form S-8, as amended, Registration No. 2-75137. Financial Data Schedule. 55
99-127
21 23
128-129 130-131
27
132
</TEXT> </DOCUMENT>
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ARTICLE II - Meetings of Stockholders Section 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Place of Meetings Annual Meeting Special Meetings Notice of Meetings List of Stockholders Quorums, Adjournments Organization Order of Business Voting Inspectors 1 1 4 4 5 6 6 7 7 8
ARTICLE III - Board of Directors Section 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. General Powers Number, Qualifications, Election and Term of Office Nomination of Directors Place of Meetings First Meeting Regular Meetings Special Meetings Notice of Meetings Quorum and Manner of Acting Organization Resignations Vacancies Removal of Directors Compensation Committees Action by Consent Telephonic Meeting 59 9 9 10 13 13 13 14 14 15 15 16 16 16 16 17 17 18
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ARTICLE V - Stock Certificates and Their Transfer Section 1. 2. 3. 4. 5. 6. 7. 8. Stock Certificates Facsimile Signatures Lost or Abandoned Certificates Transfers of Stock Transfer Agents and Registrars Regulations Fixing Record Date Registered Stockholders 23 24 24 25 25 25 26 26
ARTICLE VI - Indemnification Section 1. 2. 3. 4. 5. 6. 7. 8. 9. Power to Indemnify in Actions, Suits or Proceedings other than Those by or in the Right of the Corporation Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation Authorization of Indemnification Good Faith Defined Indemnification by a Court Expenses Payable in Advance Non-exclusivity and Survival of Indemnification Insurance Meaning of "Corporation" for Purposes of Article VI
27 28 28 29 30 31 31 32 32
ARTICLE VII - General Provisions Section 1. 2. 3. 4. 5. 6. 7. Dividends Reserves Seal Fiscal Year Checks, Notes, Drafts, etc. Execution of Contracts, Deeds, etc. Voting of Stocks in Other Corporations 33 33 34 34 34 34 34 35 60
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(a) have charge and custody of, and be responsible for, all the funds and securities of the Corporation; (b) keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation; (c) deposit all moneys and other valuables to the credit of the Corporation in such depositaries as may be designated by the Board of Directors or pursuant to its direction; (d) receive, and give receipts for, moneys due and payable to the Corporation from any source whatsoever; 80
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(a) keep or cause to be kept in one or more books provided for the purpose, the minutes of all meetings of the Board of Directors, the committees of the Board of Directors and the stockholders; (b) see that all notices are duly given in accordance with the provisions of these By-Laws and as required by law; (c) be custodian of the records and seal of the Corporation and affix and attest the seal to all certificates for shares of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal; (d) see that the books, reports, statements, certificates and other documents and records required by law are kept and filed; and 81
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1 EXHIBIT 11 Computations of Earnings Per Share Information Primary and Fully Diluted
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Year Ended June 30, 1997 1996 1995 ----------------(in thousands, except per share amounts) Net earnings for computing earnings per share - primary ........................ Reduction of interest expense less applicable income taxes assuming conversion of 7% convertible subordinated debentures due 2011 ........ Net earnings for computing earnings per share - fully diluted ............... Weighted average number of common and common equivalent shares outstanding ...................... Addition from assumed conversion as of the beginning of each period of the 7% convertible subordinated debentures outstanding at the end of each period .......................... Weighted average number of common and common equivalent shares outstanding on a fully diluted basis ................................... Net earnings per common and common equivalent share - fully diluted ................................. $ 475 $10,466 $ 4,593
1,844
1,186
1,260
---* ------
884 -------
885 ------
1,844 ======
2,070 =======
2,145 ======
$ .26 ======
$ 5.56 =======
$ 2.67 ======
* Assumed conversion is antidilutive, and accordingly, the Debentures are excluded from the computation. 98 </TEXT> </DOCUMENT>
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1 EXHIBIT 13 The Registrant's 1997 Annual Report to Shareholders, which report, except for those portions thereof which are expressly incorporated by reference in this filing, is furnished for the information of the Commission and is not to be deemed to be filed as part of this filing.
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100 3 CONTENTS Letter to Shareholders..........................1 Aviation Services...............................3 Land Development................................8 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................9 Selected Consolidated Financial Data...........13 Consolidated Financial Statements..............14 Notes to Consolidated Financial Statements.....18 Independent Auditors' Report...................24 Corporate Information...........Inside Back Cover
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[Photo of airplane, truck] QUALITY SERVICE TO ITS CUSTOMERS HAS BEEN HUDSON GENERAL'S GUIDING PRINCIPLE SINCE IT WAS FOUNDED IN 1961.
as ancillary services such as ground power and air conditioning. Aircraft fueling services are offered through contract fueling, fuel management and retail sales of fuel. Contract fueling services are provided to airlines and fuel suppliers by delivery of fuel from airport storage facilities into commercial aircraft. Fuel management services consist of functioning as the out-sourced fuel procurement department responsible for managing the sourcing, negotiation, purchase, payment, supply and distribution of fuel both domestically and internationally for scheduled and charter passenger and cargo airlines.
[Photo of Bus] Ground transportation services are provided for airline passengers and airport employees through Hudson LLC operated airport shuttle bus systems. These operations also include operation and maintenance of passenger boarding bridges and specialized airfield passenger transport vehicles. In addition to its airport-related transportation services, Hudson LLC provides transportation management services for various governmental agencies and authorities.
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[MAP OF UNITED STATES AND CANADA WITH CIRCLED NUMBERS SHOWING AIRPORT LOCATIONS]
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LAND DEVELOPMENT The Corporation is a 50% partner in a joint venture to develop approximately 4,000 contiguous acres of land situated in the North Kohala District on the Island of Hawaii. The Project is being developed in four successive phases. Substantially all of the parcels in Phases I and II, which comprise approximately 2,100 acres of the Project, have been sold. Phase III consists of 100 five acre parcels, with 85 parcels remaining available for sale. During fiscal 1992, the County of Hawaii passed an ordinance pursuant to which, after the obtaining of subdivision approvals, Phase IV could be developed into 1,490 units. The validity of this ordinance has been challenged in a lawsuit brought by two local residents of Hawaii, and development of Phase IV must await the ultimate outcome of this litigation. The joint venture partners are reevaluating plans for Phase IV which has to date only had limited development. 109
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Revenues decreased from $168.8 to $167.7 million, a decrease of $1.1 million, or .6%. The decrease reflects lower: (i) snow removal revenues of $8.9 million due mainly to the mild winter weather in the northeastern United States during fiscal 1997; and (ii) ground transportation revenues of $.6 million due primarily to the loss of contracts to operate information kiosks and airfield passenger transport vehicles. Partially offsetting the revenue decrease were higher: (i) ground handling service revenues (net of lower sales of de-icing fluid in the U.S.) of $8.1 million due primarily to expanded services to new and existing customers; and (ii) domestic aircraft fueling revenues of $.5 million resulting primarily from expanded intoplane fueling services. Costs and expenses increased from $143.7 to $149.9 million, an increase of $6.1 million, or 4.3%. Operating costs increased from $123.0 to $128.7 million, an increase of $5.7 million, or 4.7%. The increase was attributable to higher labor and related costs associated with expanded ground handling operations and schedule changes by airline customers, and higher equipment rental costs due primarily to expanded intoplane fueling services. Partially offsetting the increases were lower costs related to: (i) snow removal operations; (ii) workers' compensation insurance as a result of the positive trend of related claims; and (iii) the loss of ground transportation contracts to operate information kiosks and airfield passenger transport vehicles. Depreciation and amortization expenses decreased from $7.7 to $7.5 million, a decrease of $.2 million, or 2.4%. The decrease was due primarily to the elimination of depreciation relating to equipment that became fully depreciated. Selling, general and administrative expenses increased from $13.1 to $13.6 million, an increase of $.6 million, or 4.4%. The increases primarily reflect higher administrative and related costs. 110
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Hudson General Corporation Fiscal 1996 -------Revenues .......... Costs and expenses: Operating ........ Depreciation and amortization .... Selling, general & administrative .. Total costs and expenses ......... Operating income .. $157,100 -------113,744 7,165 16,755 -------137,664 -------$ 19,436 ========
Hudson LLC Combined June Fiscal 1996 1996 -------------(in thousands) $12,096 ------9,259 673 1,317 ------11,249 ------$ 847 ======= $169,196 -------123,003 7,838 18,072 -------148,913 -------$ 20,283 ========
Fiscal 1995 -------$134,862 -------106,070 7,528 14,306 -------127,904 -------$ 6,958 ========
Revenues increased from $134.9 to $169.2 million, an increase of $34.3 million, or 25.5%. The increase reflected higher: (i) snow removal revenues of $14.0 million as a result of record snowfalls in the northeast; (ii) ground handling service revenues of $18.2 million due primarily to expanded services to new and existing customers and to higher sales of de-icing fluid; (iii) domestic aircraft fueling revenues of $4.3 million resulting primarily from expanded intoplane fueling services and retail sales of fuel at existing locations; and (iv) revenues due to the effect of fluctuation in the average rates of exchange used in translating Canadian revenues to their U.S. dollar equivalent. Partially offsetting the revenue increases were lower: (i) aircraft fueling and hangar rental revenues in Canada of $2.3 million as a result of the cessation of operations of the Corporation's Canadian fixed based operations (FBO's) on October 31, 1994; and (ii) ground transportation revenues of $1.0 million due primarily to the loss of contracts to operate information kiosks and specialized airfield passenger transport vehicles. 111
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.26 8.87 3.69 6.22 (1.75) .26 5.56 2.67 4.17 (1.75) 68,188 48,776 87,568 77,889 72,414 --29,000 29,000 32,700 65,384 43,895 21,616 19,223 12,141 326 13,158 10,806 9,815 5,786 .75 .50 .50 --============================================================================
(a)
As a result of a transaction with Lufthansa Airport and Ground Services GmbH (see Note 2), effective June 1, 1996 the Corporation's interest in its aviation services business is accounted for under the equity method. Includes a pre-tax charge of $8,500 related to the Corporation's investment in and advances to the Kohala Joint Venture (see Note 3). Includes $4,287 of accelerated amortization of leasehold rights related to the Corporation's Canadian Fixed Base Operations, which the Corporation ceased operating during fiscal 1995. Fiscal 1997 Fiscal 1996 High ---24 34 1/4 43 3/8 43 3/8 Low --20 23 5/8 33 34 3/8
(b) (c)
Market Price Range* High ---First Quarter ...... 40 Second Quarter ..... 39 1/2 Third Quarter ...... 41 3/8 Fourth Quarter ..... 40 3/8 Low --32 3/4 34 36 35 5/8
* The range of per share closing prices of the Corporation's common stock on the American Stock Exchange in each fiscal quarter from July 1, 1995 through June 30, 1997. At June 30, 1997, there were 197 record holders of the Corporation's common stock. 114
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Operating income (loss) .................................... Equity in earnings of Hudson General LLC ................... Equity in loss of Kohala Joint Venture ..................... Interest income ............................................ Interest expense ........................................... Earnings before provision (benefit) for income taxes ....... Provision (benefit) for income taxes ....................... Net earnings ...............................................
Earnings per share, primary ................................ Earnings per share, fully diluted ..........................
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$18,425 $12,701 8,792 -540 238 361 7,233 250 302 -----------------28,368 20,474 2,902 3,428 26,395 8,738 5,893 15,420 4,630 --716 -----------------$68,188 $48,776 ================== $ 161 $ 471 2,536 3,648 -----------------2,697 4,119 -----------------107 762 --------------------
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable............................................................... Accrued expenses and other liabilities......................................... Total current liabilities.................................................... Deferred income taxes............................................................ Stockholders' Equity: Serial preferred stock (authorized 100,000 shares of $1 par value) -- none outstanding......................................................... Common stock (authorized 7,000,000 shares of $1 par value) -- issued 2,092,160 and 1,277,401 shares.................................... Paid in capital................................................................ Retained earnings.............................................................. Treasury stock, at cost, 357,311 and 114,300 shares............................ Total stockholders' equity...................................................
2,092 1,277 48,732 18,033 25,722 26,595 (11,162) (2,010) -----------------65,384 43,895 -----------------$68,188 $48,776 ==================
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Years Ended June 30, 1997, 1996 and 1995 ----------------------------------------------------------------------Equity Adjustments From Foreign Total Common Stock Issued Paid in Retained Currency Treasury Stockholders' Shares Amounts Capital Earnings Translation Stock Equity ----------------------------------------------------------------------(in thousands, except share amounts)
Balance, June 30, 1994.................................... Common stock issued in connection with exercise of stock options......................................... Dividends ($.50 per share).............................. Equity adjustment from foreign currency translation Purchase of treasury stock.............................. Net earnings............................................ Balance, June 30, 1995.................................... Common stock issued in connection with exercise of stock options......................................... Dividends ($.50 per share).............................. Equity adjustment from foreign currency translation Effect of equity infusion in Hudson General LLC -- net Purchase of treasury stock.............................. Conversion of convertible subordinated debentures Net earnings............................................ Balance, June 30, 1996.................................... Common stock issued in connection with exercise of stock options......................................... Dividends ($.75 per share).............................. Equity adjustment from foreign currency translation Effect of equity infusion in Hudson General LLC -- net Purchase of treasury stock.............................. Conversion of convertible subordinated debentures Net earnings............................................ BALANCE, JUNE 30, 1997....................................
1,250,802
$1,251
$ 6,717
$12,716
$(1,461)
--
$19,223
3,000 3 42 ---45 ---(602) --(602) ----(22) -(22) -----(1,621) (1,621) ---4,593 --4,593 -------------------------------------------------------------------1,253,802 1,254 6,759 16,707 (1,483) (1,621) 21,616 16,000 16 249 ---265 ---(578) --(578) ----13 -13 --10,783 -1,470 -12,253 -----(389) (389) 7,599 7 242 ---249 ---10,466 --10,466 -------------------------------------------------------------------1,277,401 1,277 18,033 26,595 -(2,010) 43,895 10,500 11 154 ---165 ---(1,348) --(1,348) --(101) ---(101) --5,805 ---5,805 -----(9,152) (9,152) 804,259 804 24,841 ---25,645 ---475 --475 -------------------------------------------------------------------2,092,160 $2,092 $48,732 $25,722 $ -$(11,162) $65,384 ====================================================================
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Cash flows from operating activities: Net earnings ............................................................................. Adjustments to reconcile net earnings to net cash (used) provided by operating activities: Depreciation and amortization .......................................................... Provision for losses on accounts receivable -- net ..................................... Increase (decrease) in deferred income taxes ........................................... Equity in earnings of Hudson General LLC ............................................... Equity in loss of Kohala Joint Venture ................................................. Accrual of interest income on Kohala Joint Venture advances ............................ Gain on sale of equipment .............................................................. Change in other current assets and liabilities: Accounts and notes receivables ....................................................... Inventory ............................................................................ Prepaid expenses and other assets .................................................... Deferred income taxes ................................................................ Accounts payable ..................................................................... Income taxes payable ................................................................. Accrued expenses and other liabilities ............................................... Decrease in other assets ............................................................... Decrease in long-term receivables -- net ............................................... Other -- net ........................................................................... Net cash (used) provided by operating activities ..................................... Cash flows from investing activities: Purchases of investment securities available for sale .................................... Purchases of property, equipment and leasehold rights .................................... Proceeds from sale of property and equipment ............................................. Repayments from (advances to) Hudson General LLC ......................................... Collections of note receivable from Hudson General LLC ................................... Advances to Kohala Joint Venture -- net .................................................. Net cash transferred to Hudson General LLC upon formation ................................ Fees related to transfer of assets to Hudson General LLC ................................. Net cash provided (used) by investing activities ..................................... Cash flows from financing activities: Proceeds from issuance of common stock ................................................... Cash dividends paid ...................................................................... Purchase of treasury stock ............................................................... Net cash used by financing activities ................................................ Effect of exchange rate changes on cash .................................................... Net increase in cash and cash equivalents .................................................. Cash and cash equivalents at beginning of year ............................................. Cash and cash equivalents at end of year ...................................................
(302) 2,845 5 -(135) (31) 52 (369) 215 -2,342 (1,656) (310) 892 3,650 -165 333 (1,112) 1,785 3,136 23 54 92 -522 553 -37 127 ---------------------------------(3,485) 25,464 19,694 ---------------------------------(8,792) --(326) (13,158) (10,806) 80 244 935 7,302 (7,233) -21,283 ---(772) (1,720) -(3,002) --(825) ----------------------------------19,547 (24,746) (11,591) ---------------------------------162 335 45 (1,348) (578) (602) (9,152) (389) (1,621) ---------------------------------(10,338) (632) (2,178) ----------------------------------2 (39) ---------------------------------5,724 88 5,886 ---------------------------------12,701 12,613 6,727 ---------------------------------$ 18,425 $ 12,701 $ 12,613 ==================================
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Accounts payable ....................... Accrued expenses and other liabilities . Advances from Hudson General Corporation -- net ................... Total current liabilities .......... Long-term debt, subordinated ........... Note payable to Hudson General Corporation .......................... Members' equity ........................
361 7,233 -----------------37,680 40,422 -28,751 4,630 -35,210 11,551 -----------------$77,520 $80,724 ==================
Summary results of operations for Hudson LLC for fiscal 1997 and the month of June 1996 are as follows: 1997 1996 -------------------(in thousands) Revenues ................................. Operating costs .......................... Depreciation and amortization ............ Selling, general &administrative costs .. Total costs and expenses ............... Operating income ......................... Interest income -- net ................... Earnings before provision for income taxes Provision for income taxes ............... Net earnings ........................... $167,729 $ 12,096 -------------------128,749 9,259 7,510 673 13,625 1,317 -------------------149,884 11,249 -------------------17,845 847 179 49 -------------------18,024 896 2,085 41 -------------------$ 15,939 $ 855 ====================
The Corporation's share of Hudson LLC's results is shown as "Equity in earnings of Hudson General LLC" in the accompanying consolidated statements of earnings.
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being developed in four successive phases. The first two phases, containing approximately 2,100 acres, have been developed and substantially sold. The third phase, containing approximately 550 acres, has also been developed and has 85 parcels available for sale. The fourth phase has yet to be developed, except to the extent common improvements (main road, water wells, etc.) have been completed. During fiscal 1992, the County of Hawaii passed an ordinance pursuant to which the Venture, after subdivision approvals are obtained, would be able to develop Phase IV into 1,490 units. Shortly after passage of the ordinance, a lawsuit against the County of Hawaii was filed in the Circuit Court of Hawaii by two local residents of Hawaii (Plaintiffs) seeking to invalidate such ordinance on various grounds including that the ordinance was adopted without following State of Hawaii procedure relating to the preparation of an Environmental Impact Statement. During fiscal 1993, the Judge in this action granted Plaintiffs' motion for partial summary judgment without indicating any effect on Phase IV zoning. The County and the Venture appealed this ruling. The appeal was heard before the Hawaii Supreme Court in March 1994, and on May 6, 1997, the Supreme Court vacated the summary judgment which was previously granted and remanded certain related issues to the Circuit Court for that Court to decide. The Venture cannot, at this time, determine the impact of the Supreme Court's ruling and the Circuit Court's proceedings on the timing of development of Phase IV or the expenditures related thereto. The joint venture partners are reevaluating plans for Phase IV which has to date only had limited development. The Corporation's partner in the Venture is Oxford Kohala, Inc. (the Partner), a wholly-owned subsidiary of Oxford First Corporation (Oxford First). Under the Restated Joint Venture Agreement dated April 29, 1981, as amended (the Agreement), the partners have agreed to make equal advances to the Venture for all costs necessary for the orderly development of the land and to share profits equally. During fiscal 1997, the Corporation advanced $300,000 to the Venture. Such advances were repaid by the Venture to the Corporation on June 30, 1997. On October 13, 1994, Oxford First filed for reorganization under Chapter 11 of the Bankruptcy Code. Pursuant to an order of the Bankruptcy Court, Oxford First (through its subsidiary, The Oxford Finance Companies, Inc.) was permitted to transfer certain amounts to the Partner. The amounts so authorized were not sufficient to allow the Partner to make its full share of required advances. The Corporation opted to make additional advances (the Additional Advances) to cover the Partner's funding deficiency. During November 1995, the Partner resumed making advances, and in January 1996, the Partner repaid to the Corporation the entire amount of the Additional Advances of $702,000 together with $37,000 of interest thereon. The Corporation has been informed by the Partner, that Oxford First has met all its financial obligations under its confirmed plan of reorganization and is no longer restricted in the amount of required advances it may make to the Venture. The Corporation accrues interest income on its advances to the Venture at the rate agreed to by the Partners (currently 1% below prime). The Corporation defers recognition of such interest income to the extent that such interest rate exceeds the Corporation's weighted average cost of funds. At June 30, 1997 and 1996, the amount of deferred interest income was $2,159,000 and $2,028,000, respectively. The Corporation will recognize deferred interest income when additional distributions or payments related to the Venture, if any, are made to the Corporation. Interest income accrued by the Corporation for fiscal 1997 and 1996 was $1,765,000 and $1,604,000, respectively. The summary consolidated balance sheets for the Venture as of June 30, 1997 and 1996 are as follows: 1997 1996 --------------------(in thousands)
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Cash and equivalents ......................... Land and development costs (including capitalized interest of $6,591,000 and $6,680,000) Mortgages, accounts and notes receivable ..... Foreclosed real estate -- net ................ Other assets -- net ..........................
730
267
9,264 26,710 2,779 5,212 2,854 2,200 1,590 2,325 --------------------$ 17,217 $ 36,714 ===================== $ -54,013 1,162 $ 576 50,220 1,292
Note payable ................................. Partner advances and accrued interest payable Accounts payable and accrued expenses ........ Partners' deficit ............................
In the fourth quarter of fiscal 1997, the Venture recorded a charge of $17,000,000 to write-down its real estate assets to their estimated fair values. The charge is the result of the continuing periodic evaluation of the carrying value of the Venture's real estate assets. The Partners concluded, as a result of their most recent in-depth analysis of an updated independent appraisal of such assets and the consideration of other factors affecting the development of the property, that the carrying value of the real estate assets should be reduced. Factors considered by the Partners included the Partners' plans to reevaluate the fourth phase of the Project which has to date only had limited development, the current condition of the Hawaiian real estate market and general economic conditions. In connection with the Venture's reduction of the carrying value of its real estate assets as discussed above, the Corporation reduced the carrying value of a portion of its advances to the Venture in the amount of $8,500,000. The Corporation's total advances (including accrued interest) at June 30, 1997 (after such reduction) and 1996 were $18,506,000 and $25,110,000, respectively. Summary results of operations for the Venture for the fiscal years ended June 30, 1997, 1996 and 1995 are as follows: 1997 1996 1995 ---------------------------------(in thousands) Net sales ...................... Cost of sales .................. Write-down of real estate assets Selling, general and administrative costs ......... Interest -- net ................ Net loss ....................... $ 1,455 $ 677 $ 504 ---------------------------------1,106 365 191 17,000 --2,340 2,953 2,852 3,593 3,401 2,956 ---------------------------------$(22,584) $ (6,042) $ (5,495) ==================================
As a partnership, the Venture is not subject to federal or state income taxes. The Corporation's share of the Venture's results is shown as "Equity in loss of Kohala Joint Venture" in the accompanying consolidated statements of earnings.
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Maintenance and repair expenses were $7,536,000 and $7,400,000 for fiscal 1996 and 1995, respectively. Bad debt expenses were $362,000 and $178,000 for fiscal 1996 and 1995, respectively. 5. PROPERTY AND EQUIPMENT The number of years over which major classes of assets are being depreciated and amortized, and the costs and related accumulated depreciation and amortization as of June 30, 1997 and 1996 are set forth below: Estimated Useful Lives 1997 1996 ------------------------------(in thousands) Operating equipment Office furnishings and equipment............... Leasehold improvements Accumulated depreciation and amortization 2 - 12 5 - 10 6 - 9 $ 7,640 $ 8,318
821 669 239 216 -----------------8,700 9,203 (5,798) (5,775) -----------------$ 2,902 $ 3,428 ==================
At June 30, 1997 and 1996, the Corporation leased operating equipment to Hudson LLC with a net book value of $2,394,000 and $3,099,000, respectively. Due to an early lease the amortization of the to a hangar facility at Such amount is included consolidated statements 6. CANADIAN OPERATIONS The consolidated financial statements include: assets of $12,301,000 and net assets of $7,655,000 at the end of fiscal 1995; and revenues of $38,005,000 and $34,099,000; and earnings of $3,166,000 and $3,352,000 in fiscal 1996 and 1995, respectively, related to the Corporation's Canadian operations. 7. LONG-TERM DEBT Pursuant to a Revolving Credit Agreement with a group of banks dated June 1, 1996 (the Credit Agreement), the Corporation may borrow funds (including outstanding letters of credit) up to a limit of $6,000,000 until June 30, 1999 at which time the Credit Agreement terminates. There were no direct borrowings termination in fiscal 1995, the Corporation accelerated remaining carrying value of leasehold improvements made a domestic airport location in the amount of $744,000. in "Depreciation and amortization" in the accompanying of earnings.
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$ 97 (456) ---
687 789 313 63 721 (73) ------------------------$ 391 $7,183 $ (350) =========================
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A reconciliation of the provision (benefit) for income taxes to the amount computed by applying the statutory federal income tax rate to earnings before provision (benefit) for income taxes for the years ended June 30, 1997, 1996 and 1995 follows: 1997 1996 1995 ------------------------------(in thousands) Tax at federal statutory rate ........ Increase (decrease) in income taxes resulting from: Reevaluation of valuation allowance Utilization of foreign net operating loss carryforwards and depreciation differences ......... Foreign tax differential ........... Effect of foreign income, previously taxed ................. State income taxes, net of Federal income tax effect ........ Provision for future repatriation of Canadian earnings ............. Other -- net ....................... Provision (benefit) for income taxes . $ 295 ---(449) 495 $ 6,001 (960) -395 -997 $ 1,442 (1,300) (804) 204 -158
Deferred tax assets (liabilities) are comprised of the following as of June 30, 1997 and 1996: 1997 1996 ---------------(in thousands) Deferred tax assets: Reserves for doubtful accounts, claims, etc Retirement plans ........................... Alternative minimum tax .................... Current deferred tax assets ............ State income taxes ......................... Difference between book and tax carrying value of Hudson LLC ............. Difference in the Venture's book and tax year-end ............................. Noncurrent deferred tax assets ......... Net deferred tax assets ................ Deferred tax liabilities: Difference between book and tax carrying value of Hudson LLC Property, equipment and leasehold rights, principally depreciation -- domestic Provision for future repatriation of Canadian earnings................... Interest capitalized on financial statements
525 554 ---------------1,228 691 ---------------$1,940 $ 955 ---------------$ -(857) (750) (440) $ (65) (407) (750) (495)
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Under SFAS No. 109, a valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. At July 1, 1993, the Corporation provided a 100% valuation allowance for the net operating loss carryforwards and depreciation differences relating to its Canadian operations since realization of the related deferred tax assets was uncertain at that time. The net change in the valuation allowance for fiscal 1996 and 1995 was a decrease of $960,000 and $2,104,000, respectively. The decrease reflects: (i) the tax effect resulting from utilization of a portion of the Corporation's Canadian depreciation differences to offset its provision for foreign income taxes in the amount of $804,000 for fiscal 1995; and (ii) the recognition of $960,000 and $1,300,000 for fiscal 1996 and 1995, respectively, of deferred tax assets resulting from a review of prior Canadian operating results and anticipation of future Canadian earnings, which together with cessation of operations of the Corporation's Canadian fixed base operations, made the realization of additional Canadian depreciation differences more likely than not. As a result of the Transaction, $852,000 of deferred tax assets related to the Corporation's Canadian subsidiary were transferred to Hudson LLC on June 1, 1996 and the Corporation will no longer be required to provide for or reflect foreign taxes in its consolidated financial statements. In addition, beginning June 30, 1996, the Corporation's deferred tax assets and liabilities relating to Hudson LLC appear as a separate item within deferred taxes. Due to anticipation by the Corporation of the future repatriation of Canadian earnings, the Corporation provided in fiscal 1996 for U.S. income taxes of $750,000. In April 1997, Hudson LLC's Canadian subsidiary was notified by Canadian taxation authorities of their intention to disallow loss and depreciation deductions and carryforwards related to an internal recapitalization in fiscal 1990 by the Corporation of such Canadian subsidiary. If the position of the Canadian taxation authorities (as currently proposed) is sustained, a foreign income tax liability of approximately $3,900,000, plus interest, would result. The Corporation has agreed to indemnify and hold harmless Hudson LLC, LAGS and each affiliate of LAGS against any liability resulting from this matter. The Corporation's management disagrees with the position of the Canadian taxation authorities and intends to vigorously contest any potential assessments made by them. Accordingly, no provision has been made in the accompanying consolidated financial statements for foreign income taxes related to this matter. For tax purposes, the Corporation will receive a pass-through of its share of taxable income or loss from Hudson LLC and will provide for and pay federal and state taxes on its share of the income or loss of Hudson LLC. 9. COMMON STOCK (a) The Corporation's 1981 Non-Qualified Stock Option and Stock Appreciation Rights Plan (the Plan) provided for the issuance of non-qualified stock options (Options) to key employees. In connection with these Options, the Board of Directors' Stock Option and Appreciation Rights Committee (the Committee) could also grant stock appreciation rights (Rights) exercisable in lieu of the Options, and/or limited rights (Limited Rights) exercisable under certain circumstances in lieu of the Options. No further Options or Rights may be granted under the Plan. The exercise price of outstanding Options under the Plan is the fair market value (as defined in the Plan) of the shares of the Corporation's common stock on the date of grant. Activity in Options during fiscal 1997 and 1996 was as follows: Outstanding June 30, 1995........................... Exercised ($14.79 per share)........................ Exercised ($19.07 per share)........................ Canceled ($19.07 per share)......................... Outstanding June 30, 1996........................... 61,500 (10,000) (1,900) (200) --------49,400
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(b) The Corporation's 1981 Incentive Stock Option (ISO) and Stock Appreciation Rights Plan (the Plan) provided for the issuance of ISO's to key employees. The fair market value, as defined, at the date of grant, for which an individual may have been awarded ISO's, was limited to $100,000 per calendar year. No further ISO's may be granted under the Plan. The exercise price of all ISO's outstanding under the Plan is one hundred percent (100%) of the fair market value (as defined in the Plan) of the shares of the Corporation's common stock on the date of grant. The Committee was also authorized to grant Rights and/or Limited Rights in conjunction with ISO's granted under the Plan. In all material respects, Rights and Limited Rights granted under the ISO Plan operate in a manner identical to Rights and Limited Rights granted under the 1981 Non-Qualified Stock Option and Stock Appreciation Rights Plan. Activity in ISO's (and Rights) during fiscal 1997 and 1996 was as follows: Outstanding June 30, 1995.......................... Exercised ($17.00 per share)....................... Exercised ($19.88 per share)....................... Canceled ($19.88 per share)........................ Outstanding June 30, 1996.......................... Exercised ($19.88 per share)....................... Outstanding June 30, 1997.......................... 48,800 (36,000) (4,100) (400) --------8,300 (1,300) --------7,000 =========
Limited Rights were also granted in conjunction with ISO's granted in June 1991 of which 7,000 ($19.88 per share) were outstanding at June 30, 1997. At June 30, 1997 the aggregate ISO price and quoted market value of Corporation stock subject to outstanding ISO's were $139,000 and $266,000, respectively. All outstanding ISO's were granted with a term of ten years and are currently exercisable. (c) Common Stock Reserved: Common shares were reserved for issuance at June 30, 1997 as follows: Exercise of incentive stock options -- 1981 Plan............ Exercise of non-qualified stock options -- 1981 Plan........ Total..................................................... 7,000 40,200 --------47,200 =========
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Net expense related to the Corporation's retirement plans, including the RRSP, was $238,000, $877,000 and $701,000 for fiscal 1997, 1996 and 1995, respectively. 11. COMMITMENTS AND CONTINGENCIES (a) LEASES Minimum rental payments for future fiscal years under non-cancelable operating leases are: $460,000 in 1998; $471,000 in 1999; $482,000 in 2000; $492,000 in 2001; $503,000 in 2002; and $282,000 thereafter. Total rental expense incurred amounted to $346,000, $5,740,000 and $6,592,000 for fiscal 1997, 1996 and 1995 (excluding sublease income amounting to $517,000 and $1,337,000 in fiscal 1996 and 1995), respectively. (b) LITIGATION In 1988, Texaco Canada Inc. (Texaco) (now known as McColl-Frontenac Inc.) instituted a lawsuit (the Texaco Lawsuit) in the Supreme Court of Ontario, Canada against the Corporation, the Corporation's Canadian subsidiary (now owned by Hudson LLC) and Petro-Canada Inc. (the corporation which supplied aviation fuel for the Corporation's Canadian fixed base operations). The Texaco Lawsuit's allegations, as amended, are that the defendants interfered with contractual and fiduciary relations, conspired to injure, and induced the breach of a fuel supply agreement between Texaco and Innotech Aviation Limited (Innotech) in connection with the purchase by the Corporation from Innotech in 1984 of certain assets of Innotech's airport ground services business. The Texaco Lawsuit seeks compensatory and punitive damages totaling $110,000,000 (Canadian) (approximately $80,000,000 (U.S.)) plus all profits earned by the defendants subsequent to the alleged breach. The trial, which began in May 1996, concluded after several adjournments on May 7, 1997, at which time the trial judge indicated that he intended to issue his decision on or about June 30, 1997. However, to date the judge has not yet rendered his decision.
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(a) As a result of the Transaction (see Note 2), effective June 1, 1996 the Corporation's interest in the Aviation Business is accounted for under the equity method. (b) Includes a pre-tax charge of $8,500 related to the Corporation's investment in and advances to the Kohala Joint Venture (see Note 3).
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The Stockholders and Board of Directors Hudson General Corporation We have audited the accompanying consolidated balance sheets of Hudson General Corporation and subsidiaries as of June 30, 1997 and 1996 and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the years in the three year period ended June 30, 1997. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hudson General Corporation and subsidiaries at June 30, 1997 and 1996 and the results of their operations and their cash flows for each of the years in the three year period ended June 30, 1997, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Jericho, New York August 15, 1997
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TRANSFER AGENT AND REGISTRAR BankBoston, N.A. c/o Boston EquiServe, Limited Partnership P.O. Box 8040 Boston, Massachusetts 02266-8040 SHARES LISTED Common-American Stock Exchange (Symbol: HGC)
INDEPENDENT AUDITORS KPMG Peat Marwick LLP One Jericho Plaza Jericho, New York 11753 10-K AVAILABLE The Annual Report, on Form 10-K, as filed with the Securities and Exchange Commission, is available to shareholders without charge upon written request to: Secretary Hudson General Corporation 111 Great Neck Road Great Neck, New York 11021
CORPORATE HEADQUARTERS 111 Great Neck Road Great Neck, New York 11021 (516) 487-8610 CANADIAN ADMINISTRATIVE OFFICES 100 Alexis Nihon, Suite 400 Ville St. Laurent, Quebec H4M 2N9 (514) 748-2277
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Jurisdiction of Incorporation ------------Hudson General Aviation Services Inc. Hudson Aviation Services, Inc. California Hudson General Coach Lines, Inc. Hudson Aviation Services, Inc. Delaware Hudson Aviation Services, Inc. Hudson Aviation Services-Oakland, Inc. Hudson Kohala Inc. Hudson General LLC Hudson General Leasing Corporation Canada California California Delaware Massachusetts California Delaware Delaware Delaware
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1 EXHIBIT 23 Consent of KPMG Peat Marwick LLP, the Corporation's independent auditors to the incorporation by reference into the Corporation's Registration Statement on Form S-8, as amended, Registration No. 2-75137.
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KPMG PEAT MARWICK LLP Jericho, New York September 11, 1997
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<ARTICLE> 5 <PERIOD-TYPE> <FISCAL-YEAR-END> <PERIOD-START> <PERIOD-END> <CASH> <SECURITIES> <RECEIVABLES> <ALLOWANCES> <INVENTORY> <CURRENT-ASSETS> <PP <DEPRECIATION> <TOTAL-ASSETS> <CURRENT-LIABILITIES> <BONDS> <PREFERRED-MANDATORY> <PREFERRED> <COMMON> <OTHER-SE> <TOTAL-LIABILITY-AND-EQUITY> <SALES> <TOTAL-REVENUES> <CGS> <TOTAL-COSTS> <OTHER-EXPENSES> <LOSS-PROVISION> <INTEREST-EXPENSE> <INCOME-PRETAX> <INCOME-TAX> <INCOME-CONTINUING> <DISCONTINUED> <EXTRAORDINARY> <CHANGES> <NET-INCOME> <EPS-PRIMARY> <EPS-DILUTED> 12-MOS JUN-30-1997 JUL-01-1996 JUN-30-1997 18,425 8,792 540 0 0 28,368 2,902 0 68,188 2,697 0 0 0 2,092 63,292 68,188 5,064 5,064 0 8,819 8,047 0 0 866 391 0 0 0 0 475 .26 .26
</TEXT> </DOCUMENT>
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