Ogden Projects, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and notes thereto.
RESULTS OF OPERATIONS
Year Ended December 31, 1993, Compared with 1992
Income from services (service revenues less operating costs and debt service
charges) in 1993 of $76,403,000 was $8,527,000 higher than in 1992 due primarily
to enhanced performance at certain existing facilities and the income generated
at the three waste-to-energy facilities operated as part of the acquisition of
RRS Holdings, Inc. ("RRS") in 1993. Construction profit (construction revenues
less construction costs) of $16,495,000 in 1993 was $6,339,000 higher than in
1992 due primarily to increased construction activity during 1993.
Service revenues for the year ended December 31, 1993 were $60,940,000 higher
than in 1992. This increase was due primarily to the addition of the three RRS
facilities in 1993.
Construction revenues in 1993 were $154,083,000 higher than in 1992. This
increase was primarily due to a full year of construction activity in 1993 at
the Lee County, Florida, facility which broke ground in October 1992, new
construction activity at the Montgomery County, Maryland, facility which broke
ground in April 1993, and construction activity relating to the retrofit project
at the Detroit, Michigan, facility which was part of the acquisition of RRS.
These increases were partially offset by reduced construction activity for the
year at the Union County, New Jersey, facility as the project nears completion.
Additionally, $7,681,000 of construction revenues was recognized in 1992 on the
sale of limited partnership interests in and related tax benefits of the
Huntington, New York, waste-to-energy facility. Construction of the Union County
facility is expected to be completed in the early part of 1994, while
construction of the other three facilities is expected to continue throughout
the entire year. The company recognizes profit on the percentage-of-completion
method commencing at the level of completion at which the total profit is
reasonably determinable.
Operating costs increased $53,483,000 in 1993 compared to 1992. This increase
was due primarily to the three RRS facilities being included in the results of
operations during 1993,including the costs to overhaul the acquired facilities.
Operating costs included $35,134,000 and $34,551,000 in 1993 and 1992,
respectively, for depreciation of waste-to-energy facilities.
General and administrative expenses in 1993 increased $7,492,000 compared to
1992 due primarily to increased marketing efforts associated with the
development of new business.
In December 1993, the Company adopted a plan to discontinue its fixed-site
hazardous waste business. The net charge for all discontinued operations
activity in 1993, which was not material, has been included in other deductions.
See Note 3 for a further discussion on discontinued operations.
The effective rate of the charge equivalent to income taxes for 1993 was 45.5%
as compared to 40.0% in 1992. This increase was due primarily to the Omnibus
Budget Reconciliation Act of 1993, enacted in August 1993, which increased the
corporate Federal income tax rate from 34% to 35% retroactively to January 1,
1993. In accordance with the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes", the net deferred income
tax liabilities were adjusted for the effect of the change in rate, resulting in
a one-time charge of $4,402,000 in 1993.
Year Ended December 31, 1992, Compared with 1991
Income from services in 1992 of $67,876,000 was $14,343,000 higher than in 1991
due primarily to six additional waste-to-energy facilities in operation
throughout the entire year, partially offset by increased maintenance and repair
costs incurred in 1992 at certain facilities. Construction profit of $10,156,000
in 1992 was $11,492,000 lower than in 1991 due primarily to a decrease of
$10,098,000 in the construction revenues recognized in 1992 from the sale of
limited partnership interests and related tax benefits of the Huntington
facility.
Service revenues for the year ended December 31, 1992 were $50,308,000 higher
than in 1991. This increase was due primarily to six facilities that were in
operation for only a portion of 1991 generating revenue for the entire year in
1992.
Construction revenues in 1992 were $51,488,000 higher than in 1991. This
increase was primarily attributable to increased construction activity at the
Union County waste-to-energy facility and the commencement of construction at
the Lee County waste-to-energy facility, partially offset by lower construction
revenues recognized on the aforementioned sale of limited partnership interests
and related tax benefits.
Operating costs increased $25,189,000 in 1992 as compared to 1991. This
increase was due primarily to the six facilities that were in operation for only
a portion of 1991 incurring costs for the full year in 1992 as well as from
additional maintenance and repair costs incurred in 1992 at certain other
operating facilities. Operating costs included $34,551,000 and $26,911,000 in
1992 and 1991, respectively, for depreciation of waste-to-energy facilities.
Debt service charges in 1992 were $10,776,000 higher than in 1991. This
increase was due primarily to four additional privately-owned waste-to-energy
facilities, which were in commercial operation for only a portion of
1991, incurring debt service charges for the full year in 1992. Such increase
was partially offset by a reduction in interest rates in 1992 on various
adjustable rate revenue bonds.
Effective January 1, 1992, the Company adopted the provisions of SFAS No. 109.
The adoption of this standard required the Company to recognize the benefit of
certain deferred tax assets that were not recognizable under previous standards.
This benefit of $43,852,000 was recognized as a cumulative effect of a change in
accounting principle in 1992. The effective rate of the charge equivalent to
income taxes increased to 40.0% in 1992 from 26.3% in 1991 principally as a
result of the adoption of SFAS No. 109.
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions",
effective January 1, 1993. This Statement requires the accrual of the obligation
for future costs of health benefits after retirement during the period employees
render the service necessary to earn the benefits. In 1992, the Company
discontinued its policy of providing postretirement health care and life
insurance benefits for its employees, except those employees that were retired
or eligible for retirement at December 31, 1992. The estimated accumulated
postretirement benefit obligation as of January 1, 1993 and the effect on
current results of operations from the implementation of SFAS No. 106 were not
material.
Statement of Financial Accounting Standards (SFAS) No. 112,
"Employers' Accounting for Postemployment Benefits", was issued in November 1992
and is effective for fiscal years beginning after December 15, 1993. This
Statement establishes accounting standards for the estimated cost of benefits
provided by an employer to former or inactive employees after employment but
before retirement and requires the accrual of the future cost of postemployment
benefits. The implementation of SFAS No. 112 will not have a material effect on
the Company's consolidated financial position or results of operations.
FINANCIAL CONDITION
December 31, 1993, Compared with December 31, 1992
Receivables at December 31, 1993 increased by $49,990,000 due primarily to
$15,000,000 related to the RRS facilities, $14,460,000 related to construction
activity, and $22,962,000 which reflects amounts recorded for services performed
currently which will be billed by contract at later dates.
Restricted funds held in trust decreased by $60,347,000 during 1993
principally as a result of funds disbursed to cover expenditures for the
privately-owned Onondaga County, New York, waste-to-energy facility.
Property, plant, and equipment at December 31, 1993 increased by $45,144,000.
This increase was due primarily to construction costs incurred on the Onondaga
County facility, partially offset by normal depreciation for the year.
Contract acquisition costs at December 31, 1993 increased by $39,318,000 due
primarily to the amounts associated with the acquisition of RRS.
Other liabilities increased by $20,794,000 in 1993 due primarily to billings
in excess of costs on uncompleted construction contracts and additional
retainage on construction in progress.
LIQUIDITY AND CAPITAL RESOURCES
The Company's most significant cash requirements are for construction
expenditures for its privately-owned waste-to-energy facilities. The project
debt associated with the financing of such facilities is generally arranged by
municipalities through the issuance of tax-exempt or taxable revenue bonds. In
addition to the proceeds of these revenue bonds, generally between 10% and 25%
of the cost of construction is invested by operating subsidiaries in each of the
facilities they own. Additional significant cash requirements include
expenditures for project proposal and development efforts, acquisitions, the
equity portion of rent for the lease under the Tulsa sale and leaseback
arrangements, and normal replacement, modernization, and growth.
The Company's cash needs in excess of funds provided by project debt have been
met by cash generated from operations, the sale of limited partnership interests
and related tax benefits, and amounts held by Ogden on behalf of the Company.
Funds from Ogden may also include payments to the Company under a tax sharing
agreement. The Company expects that its cash requirements will continue to be
met from the proceeds of project debt, from operations and, if necessary, from
amounts held by Ogden.
Ogden has stated that it intends to continue to fund the Company's cash
requirements as necessary. Such funding is expected to be provided in the form
of advances repayable on demand which bear interest at a mutually agreed rate.
The Company advances its excess cash to Ogden to be invested by Ogden at a
mutually agreed rate. Advances to Ogden totaled $136,664,000 at December 31,
1993.
At December 31, 1993, commitments for direct-equity investments in
waste-to-energy facilities, exclusive of funds provided by project debt issued
by municipalities and municipal agencies, and for normal replacement,
modernization, and growth amounted to $24,909,000, which is expected to be
expended over the next 18 months.
Ogden Projects, Inc. and Subsidiaries
SELECTED FINANCIAL DATA
December 31, 1993 1992(a) 1991 1990 1989
(In thousands of dollars, except per-share amounts)
TOTAL REVENUES............................. $ 681,060 $ 466,037 $ 364,241 $ 362,600 $ 321,713
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE........... 80,214 71,719 69,652 48,319 31,912
INCOME (LOSS) FROM:
Continuing operations...................... 43,726 43,007 52,560 39,159 26,303
Discontinued operations.................... (20,101) (3,100) (877)
Cumulative effect of change in
accounting principle..................... 43,852
Net income................................. 43,726 86,859 32,459 36,059 25,426
EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations...................... 1.15 1.14 1.40 1.07 .77
Discontinued operations.................... (.54) (.08) (.03)
Cumulative effect of change in
accounting principle.................... 1.16
Total...................................... 1.15 2.30 .86 .99 .74
TOTAL ASSETS............................... 2,432,327 2,287,284 2,006,080 1,884,891 1,874,267
LONG-TERM OBLIGATIONS:
Project Debt............................... 1,551,366 1,582,813 1,444,680 1,363,205 1,377,730
Other borrowings........................... 28,423 28,423 28,423
Total............................ 1,579,789 1,611,236 1,473,103 1,363,205 1,377,730
REDEEMABLE PREFERRED STOCK PLUS ACCRUED
DIVIDENDS................................ 14,913
COMMON STOCKHOLDERS' EQUITY................ 389,863 344,052 253,763 218,939 145,252
COMMON STOCKHOLDERS' EQUITY PER SHARE...... 10.26 9.08 6.74 5.84 4.05
- ------------
(a) See Note 10 to the Consolidated Financial Statements for the effect of a
change in accounting principle effective January 1, 1992.
Ogden Projects, Inc. and Subsidiaries
STATEMENTS OF CONSOLIDATED INCOME
For the years ended December 31, 1993 1992 1991
REVENUES:
Service revenues............. $432,609,000 $371,669,000 $321,361,000
Construction revenues........ 248,451,000 94,368,000 42,880,000
Total revenues........... 681,060,000 466,037,000 364,241,000
COSTS AND EXPENSES:
Operating costs.............. 257,542,000 204,059,000 178,870,000
Construction costs........... 231,956,000 84,212,000 21,232,000
Debt service charges......... 98,664,000 99,734,000 88,958,000
General and administrative
expenses................... 16,066,000 8,574,000 6,813,000
Other deductions (income) -
net........................ (3,382,000) (2,261,000) (1,284,000)
Total costs and expenses. 600,846,000 394,318,000 294,589,000
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES AND CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING
PRINCIPLE.................. 80,214,000 71,719,000 69,652,000
Charge equivalent to income
taxes...................... (36,488,000) (28,712,000) (17,092,000)
INCOME FROM CONTINUING
OPERATIONS................. 43,726,000 43,007,000 52,560,000
LOSS FROM DISCONTINUED
OPERATIONS................. (20,101,000)
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE.... 43,852,000
NET INCOME................... $ 43,726,000 $ 86,859,000 $ 32,459,000
EARNINGS PER SHARE OF COMMON
STOCK:
Income from continuing
operations................. $ 1.15 $ 1.14 $ 1.40
Loss from discontinued
operations................. (.54)
Cumulative effect of change
in accounting principle.... 1.16
Total........................ $ 1.15 $ 2.30 $ .86
See Notes to Consolidated Financial Statements
Ogden Projects, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS December 31, 1993 1992
Cash..................................... $ 3,558,000 $ 7,938,000
Receivables (net of allowances of
$7,321,000 in 1993 and $4,776,000 in
1992).................................. 224,561,000 174,571,000
Restricted funds......................... 359,416,000 419,763,000
Property, plant, and equipment........... 1,563,362,000 1,518,218,000
Contract acquisition costs............... 55,519,000 16,201,000
Unamortized bond issuance costs.......... 36,984,000 39,945,000
Due from affiliated companies............ 136,664,000 64,696,000
Other assets............................. 52,263,000 45,952,000
TOTAL ASSETS............................. $ 2,432,327,000 $ 2,287,284,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable......................... $ 24,647,000 $ 11,681,000
Accrued expenses......................... 156,806,000 110,490,000
Project Debt:
Revenue bonds issued by and prime
responsibility of municipalities.. 1,210,935,000 1,234,910,000
Revenue bonds issued by municipal
agencies with sufficient service
revenues guaranteed by third
parties........................... 340,431,000 347,903,000
Other borrowings......................... 28,423,000 28,423,000
Deferred income.......................... 52,028,000 52,613,000
Deferred income taxes.................... 155,130,000 102,353,000
Minority interest........................ 12,130,000 13,719,000
Other liabilities........................ 61,934,000 41,140,000
Total liabilities.................... 2,042,464,000 1,943,232,000
Common Stockholders' Equity:
Common stock: authorized, 40,000,000
shares of $.50 par value; shares
outstanding: 38,010,000 in 1993 and
37,872,000 in 1992..................... 19,005,000 18,936,000
Additional Capital:
Paid-in surplus.......................... 150,445,000 148,429,000
Retained earnings........................ 220,413,000 176,687,000
Total additional capital............. 370,858,000 325,116,000
Common stockholders' equity.......... 389,863,000 344,052,000
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................. $ 2,432,327,000 $ 2,287,284,000
See Notes to Consolidated Financial Statements
Ogden Projects, Inc. and Subsidiaries
STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
For the years ended December 31, 1993 1992 1991
COMMON STOCK (AUTHORIZED,
40,000,000 SHARES OF
$.50 PAR VALUE):
Issuance of shares upon
exercise of stock options.. $ 69,000 $ 110,000 $ 76,000
Balance at beginning of year. 18,936,000 18,826,000 18,750,000
Balance at end of year... 19,005,000 18,936,000 18,826,000
ADDITIONAL CAPITAL:
Paid-in Surplus:
Issuance of shares upon
exercise of stock options.. 2,016,000 3,320,000 2,289,000
Balance at beginning of year. 148,429,000 145,109,000 142,820,000
Balance at end of year... 150,445,000 148,429,000 145,109,000
Retained Earnings:
Net income for year.......... 43,726,000 86,859,000 32,459,000
Balance at beginning of year. 176,687,000 89,828,000 57,369,000
Balance at end of year... 220,413,000 176,687,000 89,828,000
Total additional capital..... 370,858,000 325,116,000 234,937,000
COMMON STOCKHOLDERS' EQUITY.. $ 389,863,000 $ 344,052,000 $ 253,763,000
See Notes to Consolidated Financial Statements
Ogden Projects, Inc. and Subsidiaries
STATEMENTS OF CONSOLIDATED CASH FLOWS
For the years ended December 31, 1993 1992 1991
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income...................... $ 43,726,000 $ 86,859,000 $ 32,459,000
Adjustments to reconcile net
income to net cash provided by
operating activities:
Cumulative effect of change in
accounting principle.......... (43,852,000)
Depreciation and amortization... 47,168,000 42,156,000 34,031,000
Deferred income taxes........... 53,231,000 37,224,000 23,844,000
Estimated loss on disposal of
discontinued operations....... 17,373,000
Other........................... (5,526,000) (5,529,000) 6,877,000
Management of Operating Assets
and Liabilities:
Receivables..................... (40,674,000) (48,614,000) (7,850,000)
Other assets.................... (26,050,000) (22,486,000) (25,959,000)
Accounts payable and accrued
expenses...................... 51,337,000 17,081,000 (15,265,000)
Deferred income................. (1,152,000) (926,000) 364,000
Billings in excess of costs and
estimated profit on uncompleted
contracts..................... 21,128,000 7,649,000 2,533,000
Other liabilities............... 7,477,000 (3,692,000) (4,735,000)
Net operating activities of
discontinued operations....... (636,000) (2,959,000) 3,004,000
Net cash provided by
operating activities...... 150,029,000 62,911,000 66,676,000
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of revenue bonds....... 225,686,000 1,800,000
Repayments and advances to
affiliated companies.......... (52,005,000) (27,186,000) (31,631,000)
Decreases in (additions to)
restricted funds held in trust 60,347,000 (139,705,000) 161,271,000
Repayment of revenue bonds...... (31,447,000) (95,462,000) (122,855,000)
Proceeds from exercise of stock
options....................... 1,631,000 2,623,000 2,365,000
Distributions to minority
partners...................... (2,040,000) (1,932,000) (588,000)
Other financing activities...... (1,446,000) (48,000)
Net cash provided by
(used in) financing
activities................ (24,960,000) (35,976,000) 10,314,000
CASH FLOWS FROM INVESTING
ACTIVITIES:
Investments in waste-to-energy
facilities.................... (77,777,000) (29,856,000) (68,144,000)
Entities purchased, net of cash
acquired...................... (47,696,000) (13,240,000)
Other property, plant, and
equipment expenditures........ (4,035,000) (3,433,000) (4,069,000)
Proceeds from sale of property
and equipment................. 59,000 91,000
Proceeds from sale of limited
partnership interests......... 8,238,000 10,521,000
Net investing activities of
discontinued operations....... 827,000
Net cash used in investing
activities................ (129,449,000) (24,960,000) (74,105,000)
NET INCREASE (DECREASE) IN CASH. (4,380,000) 1,975,000 2,885,000
CASH AT BEGINNING OF YEAR....... 7,938,000 5,963,000 3,078,000
CASH AT END OF YEAR............. $ 3,558,000 $ 7,938,000 $ 5,963,000
See Notes to Consolidated Financial Statements
Ogden Projects, Inc. and Subsidianes
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS
ORGANIZATION: Ogden Projects, Inc. ("OPI") and its subsidiaries (the
"Company") design, build, and operate, with affiliated companies,
waste-to-energy facilities utilizing the mass-burn combustion technology of
Martin GmbH fur Umwelt-und Energietechnik of Germany ("Martin"). Ogden
Martin Systems, Inc. ("OMS"), a subsidiary of the Company, holds the
exclusive rights to develop and market facilities utilizing the Martin
technology in North America, most of Central and South America, and certain
other countries, for which royalty and other fees are paid. The Company also
operates, and in certain instances owns, waste-to-energy facilities
utilizing technologies other than the Martin technology.
The Company's parent is Ogden Corporation ("Ogden"), which owns 84.2% of
the capital stock of OPI.
OPERATIONS: Through certain of its subsidiaries, the Company is responsible,
through long-term contracts, for the operation and maintenance of both
privately-owned waste-to-energy facilities (in which equity of approximately
10% to 25% of the facility price is invested by the Company) and such
facilities owned solely by municipalities or unrelated third parties. The
Company, through these subsidiaries, is also responsible for the
construction of all facilities except those acquired after completion.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The Consolidated Financial Statements include
the accounts of OPI and all of its subsidiaries. All intercompany accounts
and transactions have been eliminated in the Consolidated Financial
Statements.
SERVICE REVENUES: Service revenues represent the fees earned under
long-term contracts to operate and maintain the waste-to-energy facilities
and, with respect to privately-owned facilities, to service the facilities'
debt. Additional fees are earned from the processing of excess waste and
from energy generation. The Company typically receives all of the revenue
for electricity and steam sales or, in certain cases, alternative fees
during the facility's start-up period prior to the date the facility is
accepted for full commercial operation by the municipality. Upon acceptance
for commercial operation, revenues from energy sales are generally allocated
90% to the municipality and 10% to the Company. Long-term unbilled
receivables for services performed currently, which are due by contract at a
later date, are discounted in recognizing the present value of such
services.
CONSTRUCTION REVENUES: Construction revenues from waste-to-energy facilities
which are not owned by the Company are recognized as work progresses on the
percentage-of-completion method based on the percentage of costs incurred to
date to total estimated costs. Profit recognition on individual contracts
commences when construction has progressed to the point at which the total
profit is reasonably determinable. Estimated losses are provided in full as
soon as identified. In addition, construction revenues include amounts
relating to sales of limited partnership interests and related tax benefits
as well as other activities prior to the commencement of commercial
operations.
RESTRICTED FUNDS: Restricted funds represent proceeds from the financing of
privately-owned facilities. Funds are held in trust and released as
expenditures are made or upon satisfaction of conditions provided under the
respective trust agreements.
PROPERTY, PLANT, AND EQUIPMENT: For those facilities that the Company owns,
the construction costs are capitalized in property, plant, and equipment.
Property, plant, and equipment is stated at cost. Depreciation is provided
on the straight-line method over the estimated useful lives of the assets,
which range generally from 50 years for waste-to-energy facilities to five
years for certain machinery and equipment, for financial reporting purposes.
Accelerated depreciation is generally used for Federal income tax purposes.
Landfill costs are amortized based on the rate at which the total estimated
capacity of such landfill cell is used.
CONTRACT ACQUISITION COSTS: Costs associated with the acquisition of certain
contracts are amortized over the term of the respective contract.
BOND ISSUANCE COSTS: Costs incurred in connection with issuance of revenue
bonds are amortized over the terms of the respective debt issues.
DEFERRED CHARGES ON PROJECTS: Costs incurred in connection with certain
project development efforts are deferred until the award of the related
project is determined. Costs on awarded projects are deferred until the
commencement of construction, at which time they are either capitalized in
property, plant, and equipment for privately-owned facilities or charged to
construction costs for municipally-owned facilities. Costs associated with
general marketing efforts and with projects which are no longer under
consideration are charged to operating costs.
INCOME TAXES: The Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes",
effective January 1, 1992.
The Company and its subsidiaries are included in the consolidated Federal
income tax return of Ogden. A tax sharing agreement among Ogden and its
principal subsidiaries provides for payments to those affiliated groups that
generate tax deductions and credits that are used to reduce taxable income
otherwise payable by the Ogden consolidated group.
EARNINGS PER SHARE OF COMMON STOCK: Earnings per common share are computed
by dividing net income by the weighted average of the number of shares of
common stock outstanding.
The weighted average number of shares outstanding during each period were
as follows:
1993 1992 1991
Weighted average shares outstanding... 37,948,000 37,828,000 37,570,000
RECLASSIFICATIONS: Prior-year amounts in the accompanying financial
statements have been reclassified to conform with the 1993 presentation.
3. DISCONTINUED OPERATIONS
In December 1993, the Company adopted a plan to discontinue its fixed-site
hazardous waste business (the "hazardous waste business"). As part of the
disposal of this business, the Company ceased all development activities and
in 1994 intends to dispose of the assets related to this business, primarily
a permit to build and operate a hazardous waste incineration facility.
Provision has been made in 1993 for the write down of assets resulting in a
pretax loss of $12,629,000.
In December 1991, the Company adopted a plan to discontinue its on-site
remediation business utilizing mobile technology (the "remediation
business"). During 1993, the Company recognized a pretax gain from the
remediation business totaling $12,379,000. This gain resulted primarily from
the receipt of amounts previously withheld pending satisfactory completion
of obligations under existing contracts and from proceeds received from the
sale of assets in excess of previously estimated net realizable values.
For the year ended December 31, 1993, the net loss of $250,000 from
discontinued operations is included in "Other deductions (income)-net" in
the Statement of Consolidated Income. At December 31, 1993, the remaining
net liabilities of approximately $1,000,000 related to discontinued
operations are included in "Other liabilities" in the accompanying
Consolidated Balance Sheet.
For the year ended December 31, 1991, the results of operations of the
discontinued remediation business, and the estimated loss on disposal,
presented as Discontinued Operations in the accompanying Statement of
Consolidated Income (expressed in thousands of dollars), were as follows:
Service revenues and other income................................. $ 4,540
Operating costs................................................... 8,014
Loss from operations before taxes................................. (3,474)
Benefit equivalent to income taxes................................ 746
Loss from operations.............................................. (2,728)
Loss on disposal (net of income tax benefit of $4,747)............ (17,373)
Loss from discontinued operations................................. $(20,101)
--------
4. ACQUISITION
On January 8, 1993, the Company completed the purchase of all of the
outstanding capital stock of RRS Holdings, Inc. ("RRS"), the United States
waste-to-energy subsidiary of Asea Brown Boveri Inc. The purchase price of
$47,696,000 was paid from amounts held by Ogden on behalf of the Company.
The assets acquired consisted primarily of long-term contracts to operate
three municipally-owned waste-to-energy facilities in Detroit, Michigan;
Honolulu, Hawaii; and Hartford, Connecticut.
The acquisition was accounted for using the purchase method of accounting.
Accordingly, the assets and liabilities of RRS have been recorded at their
estimated fair values at the date of acquisition and are included in the
Consolidated Balance Sheet of the Company at December 31, 1993. The results
of operations of RRS have been included in the Statements of Consolidated
Income of the Company since the date of acquisition.
The unaudited pro forma total revenues of the Company and RRS for the year
ended December 31, 1992 were $551,708,000, calculated as if the acquisition
had occurred on January 1, 1992. The effect on income from continuing
operations, net income, and earnings per share is not material. The pro
forma information is for comparative purposes only and does not purport to
be indicative of the results of operations that would have occurred had the
acquisition been consummated at the beginning of 1992 or of results which
may occur in the future.
5. RECEIVABLES
Receivables (expressed in thousands of dollars) were comprised of the
following:
1993 1992
Billed services....................................... $ 68,082 $ 51,333
Unbilled services..................................... 108,108 85,146
Construction contract billings........................ 22,025 13,361
Costs in excess of billings on uncompleted
construction contracts.............................. 435 7,678
Retainage on uncompleted construction contracts....... 17,447 4,408
Other................................................. 15,785 17,421
Allowance for doubtful accounts....................... (7,321) (4,776)
Total................................................. $224,561 $174,571
Unbilled service revenues due from municipalities at December 31, 1993 are
scheduled, by contract, to be billed as follows: $27,026,000 in 1994,
$32,075,000 in 1995, and $49,007,000 thereafter.
6. RESTRICTED FUNDS HELD IN TRUST
Funds held by trustees from proceeds received from financing of facilities
are segregated principally for the construction of the waste-to-energy
facilities, debt service reserves for payment of principal and interest on
revenue bonds, and capitalized interest for payment of interest generally
during the construction period. Such funds are invested principally in
United States Treasury bills and notes and United States government agencies
securities.
Fund balances (expressed in thousands of dollars) were as follows:
1993 1992
Construction funds.................................... $ 71,725 $129,913
Debt service funds.................................... 197,649 195,841
Capitalized interest funds............................ 19,289 28,788
Other funds........................................... 70,753 65,221
Total................................................. $359,416 $419,763
Based on anticipated construction schedules, the remaining construction funds
at December 31, 1993 are expected to be disbursed as follows: $41,701,000 in
1994 and $30,024,000 in 1995.
7. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment (expressed in thousands of dollars) consisted
of the following:
1993 1992
Land............................................. $ 5,049 $ 5,049
Waste-to-energy facilities....................... 1,539,373 1,538,762
Buildings and improvements....................... 48,146 39,498
Machinery and equipment.......................... 23,016 19,228
Landfills........................................ 8,464 8,306
Construction in progress......................... 95,789 24,993
Total............................................ 1,719,837 1,635,836
Less accumulated depreciation and amortization... 156,475 117,618
Net.............................................. $1,563,362 $1,518,218
Depreciation and amortization (expressed in thousands of dollars) charged
to expense were as follows:
1993 1992 1991
Waste-to-energy facilities,
including improvements..................... $35,134 $34,551 $26,911
Machinery and equipment...................... 2,661 2,162 1,702
Landfills.................................... 363 32 609
Total........................................ $38,158 $36,745 $29,222
8. OTHER ASSETS
Other assets (expressed in thousands of dollars) were comprised of the
following:
1993 1992
Deferred charges on projects - net...................... $12,704 $16,014
Spare parts............................................. 25,825 16,458
Prepaid insurance....................................... 8,391 4,363
Other................................................... 5,343 9,117
Total................................................... $52,263 $45,952
9. ACCRUED EXPENSES
Accrued expenses (expressed in thousands of dollars) consisted of the
following:
1993 1992
Interest.............................................. $ 36,430 $ 34,252
Construction costs.................................... 27,314 11,828
Lease payments........................................ 12,234 10,906
Insurance............................................. 16,201 8,869
Municipalities' share of service revenues............. 18,747 12,764
Other................................................. 45,880 31,871
Total................................................. $156,806 $110,490
10. INCOME TAXES
Effective January 1, 1992, the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes". SFAS No. 109 requires the asset and liability method of accounting
for income taxes. Under the asset and liability method, deferred taxes are
recognized based on the expected future tax consequences of events that have
been included in the financial statements or tax returns by applying
currently enacted statutory tax rates applicable to future years to
differences between the financial statement and tax bases of assets and
liabilities. This standard required the Company to recognize the benefit of
certain deferred tax assets that were not recognizable under the previous
standard, Accounting Principles Board Opinion (APB) No. 11. This benefit of
$43,852,000, or $1.16 per share, as of January 1, 1992 was recognized in the
first quarter of 1992 as a cumulative effect of a change in accounting
principle.
In August 1993, the Omnibus Budget Reconciliation Act of 1993 was enacted
which, among other things, increased the corporate Federal income tax rate
from 34% to 35%, effective retroactively to January 1, 1993. In accordance
with the provisions of SFAS No. 109, the effect of the change in rate,
primarily a $4,402,000 adjustment of deferred tax liabilities and assets, is
included in the charge equivalent to income taxes for the current year.
The components of the charge equivalent to income taxes (expressed in
thousands of dollars) were as follows:
1993 1992 1991
CURRENT:
State........................................ $ 2,724 $ 1,381 $ 1,677
DEFERRED:
Federal...................................... 29,461 22,176 8,804
State........................................ 4,303 5,155 4,739
Total deferred............................... 33,764 27,331 13,543
Total charge equivalent to income taxes...... 36,488 28,712 15,220
Reduction in charge equivalent to income
taxes for benefits utilized by Ogden
affiliates................................. (3,621)
Charge equivalent to income taxes............ $36,488 $28,712 $11,599
The charge equivalent to income taxes (expressed in thousands of dollars)
on a separate group return basis varied from the Federal statutory income tax
rate due to the following:
1993 1992 1991
Taxes at statutory rate...................... $28,075 $24,385 $14,980
State income taxes, net of Federal tax
beneft..................................... 4,568 4,313 4,235
Investment tax credits....................... (1,807) (4,717)
Adjustment of deferred tax balances.......... 4,402
Benefits utilized by Ogden affiliates........ (3,621)
Other - net.................................. 1,250 14 722
Charge equivalent to income taxes............ $36,488 $28,712 $11,599
Statutory rate............................... 35.0% 34.0% 34.0%
Effective rate............................... 45.5% 40.0% 26.3%
The charge (benefit) equivalent to income taxes (expressed in thousands of
dollars) was included in the financial statements as follows:
1993 1992 1991
Continuing operations........................ $36,488 $28,712 $17,092
Discontinued operations...................... (5,493)
Charge equivalent to income taxes............ $36,488 $28,712 $11,599
Deferred income taxes were determined under the provisions of SFAS No. 109
for 1993 and 1992 and under the provisions of APB No. 11 for 1991. Deferred
income tax (credits) charges for 1991 (expressed in thousands of dollars),
arising from differences between tax and financial reporting, were as
follows:
Interest income.................................................... $(1,672)
Deferred income.................................................... 7,770
Investment tax credits............................................. 2,430
Depreciation....................................................... 62,786
Investment tax credit carryforwards................................ (7,148)
Net operating loss carryforwards................................... (49,778)
Accrued expenses................................................... (1,150)
Waste-to-energy facility grant..................................... (1,438)
Disposal of discontinued operations................................ (7,521)
Sale of limited partnership interests.............................. 8,532
Other - net........................................................ 732
Total.............................................................. $13,543
-------
The components of the net deferred income tax liability (expressed in
thousands of dollars) at December 31, 1993 and 1992 were as follows:
1993 1992
Deferred tax assets:
Deferred income................................... $ 21,690 $ 17,660
Accrued expenses.................................. 28,780 25,741
Investment tax credits............................ 80,097 77,317
Net operating loss carryforwards.................. 157,347 145,170
Total deferred tax assets......................... 287,914 265,888
Deferred tax liabilities:
Unbilled accounts receivable...................... 29,490 22,040
Property, plant, and equipment.................... 406,828 340,363
Other............................................. 6,726 5,838
Total deferred tax liabilities.................... 443,044 368,241
Net deferred tax liability............................ $155,130 $102,353
Under the tax sharing agreement with Ogden, investment and other tax
credits recognizable in connection with such tax sharing arrangement are
reflected as a reduction of the charge equivalent to income taxes in the
accompanying Statement of Consolidated Income for the year ended December 31,
1991. For the years ended December 31, 1993 and 1992, these payments from
Ogden are reflected as a reduction of the deferred tax assets. At December
31, 1993, the Company had investment and other tax credit carryforwards with
Ogden for Federal income tax purposes of approximately $80,100,000 and net
operating loss carryforwards of approximately $364,600,000. The carryforwards
will expire in 2004 through 2008. Deferred Federal income taxes have been
reduced by the tax effect of these amounts.
Under the tax sharing agreement, the Company received $19,963,000,
$13,008,000, and $9,718,000 for 1993,1992, and 1991, respectively, primarily for
utilization of its tax deductions (principally accelerated depreciation)
against taxable income otherwise payable by the Ogden consolidated tax group.
The utilization of these deductions by other Ogden affiliates resulted in a
reduction in the charge equivalent to income taxes (expressed in thousands of
dollars) in 1991 as follows:
Tax deductions of the Company utilized by the Ogden
consolidated group................................................ $9,718
Deferred taxes provided............................................. 6,097
Reduction in charge equivalent to income taxes...................... $3,621
------
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11. PROJECT DEBT
Project debt (expressed in thousands of dollars) is summarized as follows:
1993 1992
Revenue Bonds Issued by and Prime Responsibility
of Municipalities:
3.5-10% serial revenue bonds
maturing 1994 through 2005........................ $ 257,180 $ 269,055
5.4-10% term revenue bonds due 1995 through 2019.... 934,685 865,285
Adjustable rate revenue bonds due 1994 through 2013. 19,070 100,570
Total............................................... 1,210,935 1,234,910
Revenue Bonds Issued by Municipal Agencies with
Sufficient Service Revenues
Guaranteed by Third Parties:
4.15-8.9% serial revenue bonds maturing 1994
through 2007...................................... 91,290 94,280
7.25-7.4% term revenue bonds due 1999 through 2011.. 105,610 105,610
Adjustable rate revenue bonds due 1994 through 2011. 143,531 148,013
Total............................................... 340,431 347,903
Total project debt.................................. $1,551,366 $1,582,813
The project debt associated with the financing of waste-to-energy facilities
is generally arranged by municipalities through the issuance of tax-exempt and
taxable revenue bonds. The category "Revenue Bonds Issued by and Prime
Responsibility of Municipalities" includes bonds issued with respect to which
debt service is an explicit component of the client community's obligation under
the related service agreement. In the event that a municipality is unable to
satisfy its payment obligations, the bondholders' recourse with respect to the
Company is limited to the waste-to-energy facility and restricted funds pledged
to secure such obligation. The category "Revenue Bonds Issued by Municipal
Agencies with Sufficient Service Revenues Guaranteed by Third Parties" includes
bonds issued to finance three facilities for which contractual obligations of
third parties to deliver waste ensure sufficient revenues to pay debt service,
although such debt service is not an explicit component of a third party's
service fee obligation.
Payment obligations for the project debt, which are limited recourse to the
Operating Subsidiary and nonrecourse to the Company and Ogden, subject to
construction and operating performance guarantees and commitments, are secured
by the revenues pledged under the respective indentures and are collateralized
principally by assets of the respective Operating Subsidiary. At December 31,
1993, such project debt is collateralized by property, plant, and equipment with
a net carrying value of $1,534,958,000, credit enhancements of approximately
$200,000,000 for which Ogden has certain reimbursement obligations, and
substantially all of the restricted funds held in trust (see Note 6).
The interest rates on adjustable rate revenue bonds are adjusted periodically
to reflect current market rates, generally with an upside cap of 15%. The
average adjustable rates during the years ended December 31, 1993 and 1992 were
2.65% and 3.40%, respectively.
In May 1993, the Company entered into two interest rate swap agreements as
hedges against interest rate exposure on certain adjustable rate revenue bonds
in the category "Revenue Bonds Issued by Municipal Agencies with Sufficient
Service Revenues Guaranteed by Third Parties". Both swap agreements expire in
May 1999. Under one swap agreement, the Company pays a fixed rate of 3.95%
per annum on a semi-annual basis and receives a floating rate based on an index
of tax-exempt variable rate obligations. Under the second swap agreement, the
Company pays a fixed rate of 5.25% per annum on a semi-annual basis and receives
a floating rate based on a defined commercial paper rate. At December 31, 1993,
the floating rates on the two swaps were 2.34% and 3.36%, respectively. The
notional amounts of the swaps at December 31, 1993 were $91,070,000 and
$48,305,000, respectively, and are reduced in accordance with the scheduled
repayments of the applicable revenue bonds. The counterparties to both swaps are
major financial institutions. The Company believes the credit risk associated
with nonperformance is not significant.
The maturities and sinking fund installments (expressed in thousands of
dollars) on the project debt are as follows:
1994............................................................ $ 32,632
1995............................................................ 37,867
1996............................................................ 48,597
1997............................................................ 52,617
1998............................................................ 58,132
Later years..................................................... 1,321,521
Total........................................................... $1,551,366
Interest incurred, related capitalization of such interest costs, and
amortization of bond issuance costs (expressed in thousands of dollars) were as
follows:
1993 1992 1991
Interest incurred on taxable
and tax-exempt borrowings............... $107,846 $99,828 $101,906
Interest earned on temporary investment of
borrowings during construction, etc..... 9,985 6,095 8,919
Net interest incurred..................... 97,861 93,733 92,987
Interest capitalized during construction
in property, plant, and equipment....... 5,538 753 9,166
Interest expense - net.................... 92,323 92,980 83,821
Amortization of bond issuance costs....... 6,341 6,754 5,137
Debt service charges...................... $ 98,664 $99,734 $ 88,958
12. DEFERRED INCOME
Deferred income (expressed in thousands of dollars) was comprised of the
following:
1993 1992
Sale and leaseback arrangement.......................... $27,930 $29,954
Advance billings to municipalities...................... 14,297 9,862
Other................................................... 9,801 12,797
Total................................................... $52,028 $52,613
The gain from a sale and leaseback arrangement (see Note 15) has been deferred
and is being recognized in income as a credit against future rental expenses.
13. OTHER BORROWINGS AND OTHER LIABILITIES
In 1991, the Company assumed an obligation for $28,423,000 representing the
equity component of a sale and leaseback arrangement relating to the Hennepin
County, Minnesota, waste-to-energy facility. This arrangement is accounted for
as a financing. The obligation, which has an effective interest rate of 5% and
does not require a principal payment in the next five years, extends through
2017.
Other liabilities (expressed in thousands of dollars) were comprised of the
following:
1993 1992
Retainage on construction in progress................... $11,136 $ 3,109
Lease reserve payments.................................. 10,605 10,605
Billings in excess of costs and estimated profit on
uncompleted contracts................................. 17,939 4,235
Other................................................... 22,254 23,191
Total................................................... $61,934 $41,140
14. COMMON STOCK AND STOCK OPTIONS
In 1989, the Board of Directors approved a non-qualified Employees' Stock
Option Plan. Under such plan, options are granted to officers and key management
employees to purchase common stock of the Company. Options granted prior to
August 2, 1989 to certain employees of the Company became exercisable over a
three-year period ending on December 31, 1991. Options granted prior to August
2, 1989 to all other persons, including persons employed by affiliates of the
Company, became exercisable on August 9, 1989. The exercise price of such
options for 797,000 shares is $11.90 per share. The exercise price for any
options granted under the Employees' Stock Option Plan after August 2, 1989 is
to be the fair market value as of the date of the grant. During 1990, options
for 10,000 shares were granted at an exercise price of $24.75 per share. Such
options became exercisable over a three-year period ending on December 31, 1992.
As adopted, the plan calls for a maximum of 825,000 shares of the Company's
common stock to be available for issuance upon exercise of options.
Also in 1989, the Board of Directors approved a non-qualified Directors' Stock
Option Plan. Under such plan, options to purchase 25,000 shares of common stock
of the Company were granted to each person who as of August 9, 1989, was a
director or member of the Advisory Board of the Board of Directors and who was
not otherwise an employee of the Company, Ogden, or any of their respective
affiliates. The exercise price of such options for 275,000 shares is $11.90 per
share. The options became exercisable on August 9, 1989. As adopted, the plan
calls for a maximum of 275,000 shares of the Company's common stock to be
available for issuance upon exercise of options.
Information regarding the activity of the Company's stock option plans is
summarized as follows:
AVAILABLE
OUTSTANDING EXERCISABLE FOR GRANT
Balance at December 31,1990......... 943,334 872,334 30,666
Became exercisable.................. 66,333
Cancelled........................... (1,334) 1,334
Exercised........................... (152,998) (152,998)
Balance at December 31,1991......... 789,002 785,669 32,000
Became exercisable.................. 3,333
Exercised........................... (220,500) (220,500)
Balance at December 31,1992......... 568,502 568,502 32,000
Exercised........................... (137,000) (137,000)
Balance at December 31, 1993........ 431,502 431,502 32,000
All options exercised or cancelled to date had an exercise price of $11.90 per
share. At December 31, 1993, there were 463,502 shares of the Company's common
stock reserved for issuance under such plans.
15. LEASES
Total rental expenses amounted to $13,632,000, $13,306,000, and $13,420,000
for the years ended December 31, 1993, 1992, and 1991, respectively.
In 1986 and 1987, the Company sold, under a sale and leaseback arrangement,
its ownership interests in the Tulsa, Oklahoma, waste-to-energy facility for an
aggregate sale price of $140,500,000, of which $92,375,000 represented the
assumption of revenue bonds. These leases, which extend through 2012, are
accounted for as operating leases.
Future minimum rental payments (expressed in thousands of dollars) required
under operating leases that have initial or remaining noncancelable lease terms
in excess of one year, principally for the Tulsa facility leases, leases on
waste-to-energy facility sites, and amounts to be paid under a leasehold for a
landfill through 1997 at the rate of $2.71 per ton of waste, are as follows:
1994.............................................................. $ 12,845
1995.............................................................. 12,447
1996.............................................................. 14,561
1997.............................................................. 13,915
1998.............................................................. 13,748
Later years....................................................... 181,667
Total............................................................. $249,183
Operating leases at December 31, 1993 include $144,916,000 of future
nonrecourse rental payments that are supported by third-party commitments to
provide sufficient service revenues to meet such obligations.
16. RELATED PARTY TRANSACTIONS
ADMINISTRATIVE SERVICE CHARGE: Ogden affiliates provide the Company with
administrative services that include cash management, financing, employee
benefits, insurance, and similar services. For such services, the Company
incurred charges of $2,500,000, $2,364,000, and $2,364,000 for the years ended
December 31, 1993, 1992, and 1991, respectively.
In the opinion of management, such service charges have been made on a basis
which is considered to be reasonable; however, these charges are not necessarily
indicative of the total costs that the Company would have incurred had it
operated on a stand-alone basis.
CASH MANAGEMENT: The Company participates in Ogden's centralized cash
management system whereby all of the Company's cash requirements are satisfied
by Ogden affiliates; any excess cash is held by Ogden on behalf of the Company.
Commencing April 1, 1991, the Company was charged or credited interest on
advances from or to affiliated companies. During 1991, the Company was charged
net interest in the amount of $81,000. During 1993 and 1992, the Company was
credited for interest in the amount of $2,436,000 and $1,872,000, respectively.
WASTE-TO-ENERGY FACILITY PERSONNEL: Except for the manager of facility
administration, who is a Company employee, the work force at each facility is
generally supplied, by agreement, by Ogden Services Corporation, an Ogden
affiliate. The fee for such services, which is equal to payroll costs plus 10%
of the respective facilities' total payroll, amounted to $79,982,000,
$53,160,000, and $47,915,000 for the years ended December 31, 1993, 1992, and
1991, respectively.
17. RETIREMENT PLANS
The pension plan provides benefits to substantially all of the salaried
employees, normally upon retirement at age 65, based on years of service and
average compensation for the most highly compensated five consecutive years out
of the employee's last ten years of service. The Company's funding policy for
this plan is to contribute annually an actuarially recommended amount no less
than the minimum funding required by ERISA. Contributions are intended to
provide not only for benefits attributed to service to date but also for those
expected to be earned in the future.
Benefits under the plan have been temporarily frozen as of December 31, 1993
due to the Plan not being able to satisfy certain tests under ERISA regulations
effective January 1, 1994. Clarification of the new requirements is being
sought and a final determination of the status of the plan is expected in 1994.
The following table sets forth the pension plan's funded status at December
31, 1993 and 1992 (expressed in thousands of dollars):
1993 1992
Accumulated benefit obligations (including vested
benefits of $3,248 and $1,698 in 1993 and
1992, respectively).................................... $ 4,163 $2,515
Projected benefit obligations............................ $ 6,614 $4,420
Plan assets, primarily common stocks and U S. government
securities, at fair value.............................. 5,222 4,275
Underfunded projected benefits........................... $(1,392) $ (145)
Source of Underfunded Status:
Unrecognized net gains (losses) from past experience
different from that assumed and effects
of changes in assumptions.............................. $(1,265) $ 55
Unrecognized net transition asset being recognized over
16 years............................................... 428 483
Accrued pension costs.................................... (555) (683)
Underfunded projected benefits........................... $(1,392) $ (145)
The 1993, 1992, and 1991 cost for the Company's pension plan included the
following components (expressed in thousands of dollars):
1993 1992 1991
Service cost on benefits earned during the year....... $699 $674 $656
Interest cost on projected benefit obligations........ 371 294 226
Net amortization and deferral......................... (224) 126 119
Actual return on plan assets.......................... (188) (461) (357)
Net pension cost...................................... $658 $633 $644
The expected long-term rate of return on plan assets was 8.0% at December 31,
1993, 1992 and 1991. The weighted average discount rate and the rate of increase
in future compensation levels used in determining the actuarial present value of
the projected benefit were as follows:
1993 1992
Discount rate................................................ 7.5 % 8.5 %
Compensation increase........................................ 4.5 % 5.0 %
Contributions and costs for defined contribution plans are determined by a
benefit formula based on a percentage of compensation as well as discretionary
contributions. The cost for 1993, 1992, and 1991 was $1,950,000, $1,663,000, and
$1,439,000, respectively.
18. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Payments of debt service charges and income taxes (expressed in thousands of
dollars) were as follows:
1993 1992 1991
------- ------- --------
Interest paid (net of amounts capitalized).. $93,831 $96,416 $ 82,648
Charge equivalent to income taxes - net paid
(refunded)................................ (99) 913 1,855
Noncash investing and financing activities (expressed in thousands of dollars)
were as follows:
1993 1992 1991
Adjustment to acquired property, plant, and
equipment to pretax amounts upon
adoption of SFAS No 109................... $38,051
Acquisition of net assets in connection with
a merger.................................. 4,375
Adjustment to property, plant, and equipment
resulting from purchase price and
contract cost adjustments................. $ 8,300
Detail of entities acquired:
Fair value of assets acquired............... $62,438 $254,778
Cash paid for capital stock................. 47,696 13,250
Liabilities assumed......................... $14,742 $241,528
19. COMMITMENTS AND CONTINGENT LIABILITIES
The Company and certain of its subsidiaries are contingently liable as a
result of transactions arising in the ordinary course of business and are
involved in legal proceedings in which damages and other remedies are sought. In
the opinion of Company management, after review with counsel, the eventual
disposition of these matters will not have a material adverse effect on the
Company's Consolidated Financial Statements.
The Company intends to indemnify Ogden for any payments Ogden or its
affiliates may be required to make under credit enhancements and guarantees
arising from the performance by the Company and its Operating Subsidiaries of
obligations under construction and service agreements in connection with
waste-to-energy facilities constructed and/or operated by Operating
Subsidiaries. In the opinion of Company management, there will be no requirement
for Ogden to make any payments under guarantees arising out of a default with
respect to the construction or operation of such facilities.
At December 31, 1993, capital commitments, exclusive of funds provided by
revenue bonds issued by municipalities and municipal agencies, amounted to
$24,909,000, of which $12,302,000 was for direct equity investments in
waste-to-energy facilities and $12,607,000 was for normal replacement,
modernization, and growth.
20. SALE OF LIMITED PARTNERSHIP INTERESTS
During October 1991 and January 1992, the Company sold limited partnership
interests in and related tax benefits of its Huntington, New York,
waste-to-energy facility. Construction revenues in the accompanying Statements
of Consolidated Income include $7,681,000 and $17,779,000 for the years ended
December 31, 1992 and 1991, respectively, from these transactions.
The accounts of the partnership have been consolidated as part of the
Company's Consolidated Financial Statements, with intercompany accounts and
transactions having been eliminated. At December 31, 1993 and 1992, the balance
of the capital accounts of minority partners totaling $12,130,000 and
$13,719,000, respectively, is reflected as "Minority Interest" in the
accompanying Consolidated Balance Sheets.
21. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments have been determined by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgement is required in interpreting
market data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the Company
could realize in a current market exchange.
The carrying amount and estimated fair values of financial instruments
(expressed in thousands of dollars) at December 31, 1993 and 1992 are
summarized as follows:
1993 1992
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
ASSETS:
Cash................... $ 3,558 $ 3,558 $ 7,938 $ 7,938
Receivables............ 224,561 233,841 174,571 180,790
Restricted funds....... 359,416 366,006 419,763 424,940
LIABILITIES:
Project debt........... 1,551,366 1,691,939 1,582,813 1,668,372
Other borrowings....... 28,423 19,810 28,423 14,835
Other liabilities...... 8,300 7,175 8,300 6,395
OFF BALANCE SHEET
FINANCIAL INSTRUMENTS:
Unrealized loss on
interest rate swap
agreements........... 430
The following methods and assumptions were used to estimate the fair value of
financial instruments presented above:
Cash - the carrying amount is a reasonable approximation of fair
value.
Receivables - the fair value of long-term unbilled receivables is
estimated by using a discount rate that approximates the current rate for
comparable notes. The carrying amount of all other receivables is a
reasonable approximation of fair value.
Restricted funds - the fair value of funds held in trust is estimated
based on quoted market prices of the investments held by the trustee.
Project debt - the fair value of the revenue bonds is estimated based
on quoted market prices for the same or similar issues.
Other borrowings - the fair value of the obligation assumed as part
of a sale and leaseback transaction accounted for as a financing is
estimated by discounting the future stream of payments using the
incremental borrowing rate of Ogden, the Company's primary source of
recourse financing.
Other liabilities - the fair value of liabilities that come due
beyond one year of the balance sheet date are estimated by discounting the
future stream of payments using the incremental borrowing rate of Ogden.
Interest rate swap agreements - the fair value of the interest rate
swap agreements is the estimated amount the Company would have to pay to
the financial institutions to terminate the agreements.
INDEPENDENT AUDITORS' REPORT
Deloitte & Touche 1633 Broadway
New York, NY 10019
The Board of Directors and Stockholders of Ogden Projects, Inc.:
We have audited the accompanying consolidated balance sheets of Ogden Projects,
Inc. and subsidiaries as of December 31, 1993 and 1992 and the related
statements of common stockholders' equity, consolidated income and cash flows
for each of the three years in the period ended December 31, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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, such financial statements present fairly, in all material
respects, the financial position of the companies at December 31, 1993 and 1992
and the results of their operations and cash flows for each of the three years
in the period ended December 31, 1993 in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the financial statements, in 1992 the Company changed
its method of accounting for income taxes to conform with Statement of Financial
Accounting Standards No. 109.
[Signature]
February 2, 1994
42 1993 ANNUAL REPORT
Ogden Projects, Inc. and Subsidiaries
REPORT OF MANAGEMENT
Ogden Projects, Inc.'s management is responsible for the information and
representations contained in this annual report. Management believes that the
financial statements have been prepared in conformity with generally
accepted accounting principles appropriate in the circumstances to reflect in
all material respects the substance of events and transactions that should be
included and that the other information in the annual report is consistent with
those statements. In preparing the financial statements, management makes
informed judgments and estimates of the expected effects of events and
transactions currently being accounted for.
In meeting its responsibility for the reliability of the financial statements,
management depends on the Company's internal control structure. This structure
is designed to provide reasonable assurance that assets are safeguarded and
transactions are executed in accordance with management's authorization and
recorded properly to permit the preparation of financial statements in
accordance with generally accepted accounting principles. In designing control
procedures, management recognizes that errors or irregularities may
nevertheless occur. Also, estimates and judgments are required to assess and
balance the relative cost and expected benefits of such controls. Management
believes that the Company's internal control structure provides reasonable
assurance that errors or irregularities that could be material to the financial
statements are prevented or would be detected within a timely period by
employees in the normal course of performing their assigned functions.
The Board of Directors pursues its oversight role for these financial
statements through the Audit Committee, which is composed solely of
non-affiliated directors. The Audit Committee, in this oversight role,
meets periodically with management and internal auditors to monitor their
respective responsibilities. The Audit Committee also meets periodically
with the independent auditors and the internal auditors, both of whom
have free access to the Audit Committee without management present.
The independent auditors express an opinion on our financial statements. Their
opinion is based on procedures they consider to be sufficient to enable them to
reach a conclusion as to the fairness of the presentation of the financial
statements.
[Signature] [Signature]
Scott G. Mackin William E. Whitman
President and Executive Vice President and
Chief Operating Officer Chief Financial Officer
Ogden Projects, Inc. and Subsidiaries
QUARTERLY RESULTS OF OPERATIONS
1993 QUARTER ENDED MARCH 31 JUNE 30 SEPT. 30 DEC. 31
(In thousands of dollars,
except per-share amounts)
Total revenues............... $ 141,506 $ 171,836 $ 182,846 $ 184,872
Income before income taxes... $ 14,200 $ 19,118 $ 21,373 $ 25,523
Net income................... $ 8,520 $ 11,471 $ 7,875 $ 15,860
Earnings per common share.... $ .22 $ .30 $ .21 $ .42
1992 QUARTER ENDED MARCH 31 JUNE 30 SEPT. 30 DEC. 31
(In thousands of dollars,
except per-share amounts)
Total revenues............... $ 111,033 $ 107,577 $ 109,892 $ 137,535
Income from continuing
operations before income
taxes and cumulative effect
of change in accounting
principle.................. $ 16,861 $ 16,842 $ 16,039 $ 21,977
INCOME FROM:
Continuing operations........ $ 10,111 $ 10,099 $ 9,619 $ 13,178
Cumulative effect of change
in accounting principle.... 43,852
Net income................... $ 53,963 $ 10,099 $ 9,619 $ 13,178
EARNINGS PER COMMON SHARE:
Continuing operations........ $ .27 $ .27 $ .25 $ .35
Cumulative effect of change
in accounting principle.... 1.16
Total........................ $ 1.43 $ .27 $ .25 $ .35
Ogden Projects, Inc. and Subsidiaries
PRICE RANGE OF STOCK AND DIVIDEND DATA
1993 1992
HIGH LOW HIGH LOW
Common:
First Quarter............................... 20 5/8 17 1/4 24 1/4 20 1/4
Second Quarter.............................. 22 3/4 16 3/8 22 17
Third Quarter............................... 23 7/8 15 3/8 20 5/8 14 5/8
Fourth Quarter.............................. 18 15 1/8 20 3/4 15
No dividends have been paid on Ogden Projects, Inc. common stock. The common
stock is listed on the New York Stock Exchange.