Financial REVIEW
Management's Discussion and
Analysis of Consolidated Operations 16
Selected Financial Data 20
Statements of Consolidated Income 21
Consolidated Balance Sheets 22
Statements of Shareholders' Equity 23
Statements of Consolidated Cash Flows 24
Notes to Consolidated Financial Statements 25
Independent Auditors' Report 41
Report of Management 42
Quarterly Results of Operations/
Price Range of Stock and Dividend Data 43
OGDEN CORPORATION/15
Ogden Corporation and Subsidiaries
Management's Discussion and Analysis of Consolidated Operations
The following discussion and analysis should be read in conjunction with the
Corporation's Financial Statements and notes thereto.
Operations: Revenues for 1996 were $153,900,000 lower than the comparable
period of 1995. Revenues in Facility Services declined $111,000,000, primarily
reflecting the sale of its operations outside of New York as of June 30, 1996;
Technology Services revenues declined $63,800,000, reflecting the disposition of
certain of those businesses sold in late 1995 and 1996, partially offset by
increased revenues of its remaining business, Atlantic Design Company (ADC), a
contract manufacturing operation; construction revenues declined $66,500,000,
primarily due to the completion of the Montgomery County (Maryland)
waste-to-energy facility in August 1995 and reduced construction at the Detroit
(Michigan) facility; Aviation Services revenues declined $37,300,000, chiefly
associated with reduced activity in the air range and pilot training systems
company, the sale of the ground handling service operations at John F. Kennedy
International Airport in 1996, and a Brazilian aviation unit disposed of in
1995; and Ogden Environmental revenues declined $24,200,000, primarily due to
the sale of its laboratory business in January 1996. These revenue decreases
were partially offset by increased revenues of $90,600,000 in Entertainment
Services, primarily reflecting new contracts, increased customer activity,
primarily at sports venues, the start-up of operations in Europe and Argentina,
and the acquisition of Florida Leisure, Inc., in 1996; increased Waste-to-Energy
Services revenues of $41,300,000, reflecting the full commercial operations of
the Onondaga County (New York) and Montgomery County facilities, which commenced
operations in March and August 1995, respectively, increased activity and
efficiency at other facilities, and the effect of certain legal settlements; and
a net gain of $13,200,000 from the disposition of certain businesses in 1996.
Consolidated operating income for 1996 was $118,200,000, as compared with
$49,369,000 in 1995. Operating income for 1995 was reduced by a net charge of
$69,300,000, which reflected the early adoption of 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"; restructuring
initiatives; and other unusual losses and costs that totaled $82,800,000, which
were reduced by a gain of $13,500,000 from the sale of a noncore business. In
addition, 1996 operating income reflects an increase of $21,500,000 in
Waste-to-Energy Services income (service revenues less operating costs and debt
service charges), chiefly associated with the effect of certain legal
settlements in 1995 and 1996 and restructuring costs incurred in 1995, partially
offset by a facility shutdown for major boiler repairs, decreased energy rates
at one facility, and reduced profitability at several facilities; an increase of
$19,000,000 in Entertainment Services income, primarily due to new contracts,
increased customer activity, a reduction in losses in European operations, the
start-up of operations in Argentina, and the acquisition of Florida Leisure,
Inc., in 1996; a net gain of $13,200,000 from the disposition of certain noncore
services businesses, namely the sale of Facility Services' operations outside of
New York and of a unit of the Technology Services group--Ogden Professional
Services--and the discontinuance of asbestos abatement operations; and reduced
costs of approximately $4,700,000, reflecting initial benefits derived from
restructuring initiatives commenced in 1995. Operating income for 1996 also
reflects a reduction of $26,900,000 in construction income, reflecting the
completion of the Montgomery County facility in August 1995 and reduced activity
at the Detroit facility; a reduction of $28,000,000 in operating income of
Technology Services associated with businesses that have been disposed of and
reduced margins, higher operating costs, adjustments to inventories, and
deferred charges at ADC and lower income in its overseas operations; and a
reduction of $3,500,000 in Independent Power Services income, primarily due to
increased development costs. Energy has three interest rate swap agreements
entered into as hedges against interest rate exposure on three series of
adjustable-rate project debt that resulted in additional debt service of
$700,000 in 1996 and lower debt service of $230,000 in 1995. The effect of these
swap agreements on the weighted-average interest rate of project debt was not
significant.
Interest income for 1996 was relatively comparable with 1995. Interest
expense for 1996 was $1,900,000 lower than 1995, chiefly associated with lower
borrowings, lower interest rates on variable-rate debt, and a reduction in
interest costs on two interest rate swap agreements covering notional amounts of
$100,000,000 and $6,300,000, respectively. The first swap agreement expires on
December 16, 1998, and was entered into in order to convert Ogden's fixed-rate
$100,000,000, 9.25% debentures into variable-rate debt. The second swap
agreement expires November 20, 2000, and was entered into in
16/OGDEN CORPORATION
December 1995 in order to convert Ogden's $6,300,000 variable-rate debt to a
fixed rate. These agreements resulted in additional interest expense of $200,000
in 1996 and $600,000 in 1995. The effect of these swap agreements on the
weighted-average interest rate was not significant.
Equity in net income of investees and joint ventures for 1996 was
$3,300,000 lower, primarily reflecting reduced earnings in Independent Power
joint ventures due to reduced prices.
The effective income tax rate for 1996 was 42.1%, compared with 84.5% in
1995. This decrease of 42.4% was primarily due to the effect of adopting SFAS
No. 121 in 1995, which included the write-down of goodwill, for which the
Corporation did not receive tax benefits, as well as higher foreign tax rates
and certain nondeductible foreign losses in 1995, which did not recur in 1996.
Note 23 to the Consolidated Financial Statements contains a more detailed
reconciliation of the variances from the Federal statutory income tax rate.
Revenues for 1995 were $80,400,000 higher than the comparable period of
1994, primarily due to increased revenues of $67,300,000 in Aviation Services,
reflecting the acquisition in 1995 of an air range and pilot training systems
company, four airline catering kitchens in the Canary and Balearic Islands, and
in late 1994, an airline cargo operation at Heathrow Airport in the United
Kingdom; $56,100,000 in Entertainment Services, chiefly associated with new
contracts at Wrigley Field, the Target Center, General Motors Place, and
amphitheaters, as well as the start-up of operations in the United Kingdom;
$39,100,000 in Technology Services due to increased customer activity and new
contracts in the ADC operations as well as the start-up of operations in
Ireland; $35,400,000 in Waste-to-Energy Services, primarily due to revenues
generated at the Lee County (Florida), Onondaga County, and Montgomery County
facilities, which commenced commercial operations in December 1994 and March and
August 1995, respectively; $31,100,000 in Independent Power Services, primarily
reflecting the acquisition of SIGC in December 1994; and $17,500,000 in Facility
Services, reflecting several new contracts and increased customer activity.
These increases were partially offset by a decrease of $143,200,000 in
construction revenues due primarily to the completion of the Union County (New
Jersey) and Lee County facilities in May and December 1994, respectively;
reduced construction activity at the Montgomery County facility; and a reduction
of $26,100,000 in revenues from the gain on the sale of limited partnership
interests and related tax benefits in 1994, which did not recur in 1995.
Consolidated operating income for 1995 was $92,400,000 lower than 1994,
primarily reflecting the effects of the early adoption of SFAS No. 121;
restructuring initiatives; and other unusual losses and costs totaling
$82,800,000, which were reduced by a gain of $13,500,000 from the sale of a
noncore business, for a net charge of $69,300,000. The charges principally
related to the early adoption of SFAS No. 121, amounting to $45,300,000,
included anticipated losses on the sale of noncore businesses of $32,800,000;
costs of restructuring initiatives of $8,200,000; and an impairment loss of
$12,200,000 for the write-down of certain deferred charges relating to a
previously awarded contract not expected to be completed, unusual
waste-to-energy repair costs, and an adjustment of inventory balances resulting
from a physical inventory. Also included in the second quarter of 1995 was a
charge of $17,100,000 relating to the write-off of accounts receivable of
$10,300,000, disposal of inventory of $3,900,000, and $2,900,000 of costs
related to curtailment of operations--all at Ogden Communications, Inc. Of the
net charge of $69,300,000, $36,900,000 was applicable to the Services segment
and $32,400,000 pertained to Energy. (Also see Notes 21 and 22 to the
Consolidated Financial Statements for further information.)
Before the charges discussed above, consolidated operating income for 1995
would have been $23,100,000 lower than 1994, primarily reflecting lower income
of $26,100,000 due to the gain on the sale of limited partnership interests in
and related tax benefits of the Onondaga County facility in 1994, which did not
recur in 1995; lower income of $10,500,000 in Entertainment Services, primarily
reflecting development costs in Europe, lower income from the Corel Centre, and
costs associated with the acquisition of Firehole Entertainment Corp.; lower
income of $6,800,000 at Ogden Environmental, primarily due to reduced activity
in the environmental laboratory area; and lower income of $3,200,000 in
Water/Wastewater Treatment Services, its first year of operations, primarily
reflecting continuing development costs. These decreases were partially offset
by increased income of $9,000,000 in construction activities, primarily
reflecting increased activity on the Detroit facility and an early completion
bonus on the Montgomery County facility; increased income of $5,600,000 in
Independent
OGDEN CORPORATION/17
Power Services, primarily due to the acquisition of SIGC in 1994; and increased
income of $2,600,000 in Waste-to-Energy Services income (service revenues less
operating costs and debt service charges), primarily reflecting increased income
from the full commercial operations of the Lee County, Onondaga County, and
Montgomery County facilities, as well as enhanced performance at the Honolulu
(Hawaii) facility, offset in part by lower income at the Union County and
Hartford (Connecticut) facilities resulting from lower margins in 1995 than 1994
due to a contract renegotiation. Energy has three interest rate swap agreements
entered into as hedges against interest rate exposure on three series of
adjustable-rate project debt that resulted in lower debt service of $230,000 in
1995 and additional debt service of $1,400,000 in 1994. The effect of these swap
agreements on the weighted-average interest rate was not significant.
Interest income for 1995 was $2,400,000 higher than 1994, primarily
reflecting interest earned on loans made in the second half of 1994. Interest
expense was $6,800,000 higher, chiefly associated with higher interest rates on
variable-rate debt, higher borrowings, and a net increase of $1,412,000 in
interest costs on two interest rate swap agreements covering notional amounts of
$100,000,000 each. One swap agreement expired in March 1994. The other swap
agreement expires on December 16, 1998. These swap agreements were entered into
in order to convert Ogden's fixed-rate $100,000,000, 9.25% debentures into
variable-rate debt. During 1995, Ogden paid $603,000 on the remaining swap,
while in 1994, Ogden received $809,000 on the two swaps. The effect of these
swap agreements on the weighted-average interest rate was not significant.
The effective income tax rate for 1995 was 84.5%, compared with 44.4% for
1994. This increase of 40.1% was primarily due to the effect of adopting SFAS
No. 121 in 1995, which included the write-down of goodwill, for which the
Corporation will not receive tax benefits, as well as higher foreign tax rates
and certain nondeductible foreign losses. Note 23 to the Consolidated Financial
Statements contains a more detailed reconciliation of the variances from the
Federal statutory income tax rate.
Capital Investments and Commitments: During 1996, capital investments
amounted to $64,191,000, of which $14,303,000, inclusive of restricted funds
transferred from funds held in trust, was for Energy (principally Independent
Power) facilities and $49,888,000 was for normal replacement and growth in
Services' and Energy's operations.
At December 31, 1996, capital commitments amounted to $121,900,000, which
included $44,500,000 for normal replacement, modernization, and growth in
Services' ($35,100,000) and Energy's ($9,400,000) operations. Also included was
$74,600,000 for a coal-fired power project in The Philippines reflecting
$55,200,000 for a mandatory equity contribution, $5,700,000 for contingent
equity contributions, and $13,700,000 for a standby letter of credit in support
of debt service reserve requirements. Funding for the mandatory equity
contribution has been provided by a credit facility, which must be repaid in
December 2001. The Corporation also has a $2,800,000 contingent equity
contribution in an entertainment joint venture. In addition, compliance with
standards and guidelines under the Clean Air Act Amendments of 1990 may require
further capital expenditures of $30,000,000 during the next four years.
Ogden and certain of its subsidiaries have issued or are party to
performance bonds and guarantees and related contractual obligations undertaken
mainly pursuant to agreements to construct and operate certain waste-to-energy,
entertainment, and other facilities. In the normal course of business, they also
are involved in legal proceedings in which damages and other remedies are
sought. Management does not expect that these contractual obligations, legal
proceedings, or any other contingent obligations incurred in the normal course
of business will have a material adverse effect on Ogden's Consolidated
Financial Statements.
During 1994, a subsidiary of the Corporation entered into a 30-year
facility management contract, pursuant to which it agreed to advance funds to a
customer, if necessary, to assist refinancing senior secured debt incurred in
connection with construction of the facility. Such refinancing requirements are
currently scheduled to amount to $75,000,000 at the refinancing date, which is
January 1, 2001. It is expected that these arrangements will be renegotiated to
provide for an Ogden obligation to purchase such senior secured debt in the
amount of $95,000,000 at the end of March 2000 if the debt is not refinanced. In
addition, at December 31, 1996, the Corporation has guaranteed indebtedness of
$16,100,000 of an affiliate and principal tenant of this customer, which is due
in September 1997.
18/OGDEN CORPORATION
Ogden continues as guarantor of surety bonds and letters of credit totaling
approximately $15,100,000 on behalf of International Terminal Operating Co. Inc.
and has guaranteed borrowings of certain customers amounting to approximately
$26,700,000 as well as $10,500,000 of borrowings of joint ventures in which
Ogden has an equity interest. Management does not expect that these arrangements
will have a material adverse effect on Ogden's Consolidated Financial
Statements.
Liquidity/Cash Flow: Net cash provided by operating activities in 1996 was
$103,900,000 higher than 1995, primarily reflecting higher net income of
$57,100,000; a decrease of $98,500,000 in receivables chiefly associated with
the sale of certain businesses; a decrease in contract acquisition costs of
$13,700,000; and reduced Federal income tax payments of $12,100,000. These
increases in the net cash provided by operating activities were partially offset
by $45,300,000, being the write-down of long-lived assets in 1995, which did not
recur in 1996; an increase in inventories of $15,500,000; and $16,700,000 in
lower amortization of underwriters' discounts, lower restructuring costs, the
effect of certain legal settlements, and other noncash items included in income.
Net cash provided by investing activities was $64,600,000 higher, primarily
reflecting $72,900,000 of increased proceeds from the sale of certain
businesses; $28,600,000 in reduced investments in Energy facilities and other
capital expenditures; a decrease of $8,000,000, primarily reflecting reduced
equity investments and advances to investee affiliates; and the collection of
long-term receivables of $13,400,000. These increases in funds provided by
investing activities were partially offset by reduced proceeds of $58,200,000
from the sale of marketable securities.
Net cash used in financing activities increased $104,200,000, primarily
reflecting increased revolving credit debt repayments of $48,000,000; a
reduction of $34,400,000 in new borrowings; and a $5,600,000 decrease in
restricted funds used. The increases in borrowings for Energy facilities and the
payment of debt include the refinancing of project debt in 1996 in excess of the
amounts refinanced in 1995.
Exclusive of changes in Energy facility construction activities, the
Corporation's various types of contracts are not expected to have a material
effect on liquidity. Debt service associated with project debt, which is an
explicit component of a client community's obligation under its service
agreement, is paid as it is billed and collected. Cash required for investing
and financing activities is expected to be satisfied from operating activities;
available funds, including short-term investments; proceeds from the sale of
noncore businesses; and the Corporation's unused credit facilities to the extent
needed.
At December 31, 1996, the Corporation had $140,800,000 in cash and cash
equivalents and unused revolving credit lines of $217,350,000.
The Corporation adopted American Institute of Certified Public Accountants
Statement of Position No. 96-1, "Environmental Remediation Liabilities," at
December 31, 1996. Management has concluded that it does not have any liability
or disclosure requirements as a result of adopting this Statement of Position.
OGDEN CORPORATION/19
Ogden Corporation and Subsidiaries
Selected Financial Data
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands of dollars, except per-share amounts)
Total Revenues .................................... $2,031,081 $2,184,993 $2,104,547 $2,035,860 $1,766,443
---------- ---------- ---------- ---------- ----------
Income before cumulative effect
of changes in accounting principles ............... 64,534 7,444 67,826 62,130 60,767
Cumulative effect of changes in
accounting principles ............................. (1,520) (5,340) (5,186)
---------- ---------- ---------- ---------- ----------
Net income ........................................ 64,534 7,444 66,306 56,790 55,581
---------- ---------- ---------- ---------- ----------
Earnings per common share
before cumulative effect of changes
in accounting principles .......................... 1.30 0.15 1.55 1.43 1.41
Cumulative effect of changes in
accounting principles ............................. (0.03) (0.12) (0.12)
---------- ---------- ---------- ---------- ----------
Total ............................................. 1.30 0.15 1.52 1.31 1.29
---------- ---------- ---------- ---------- ----------
Earnings per common share--
assuming full dilution--before cumulative
effect of changes in accounting principles ........ 1.29 0.15 1.54 1.42 1.40
---------- ---------- ---------- ---------- ----------
Cumulative effect of changes in
accounting principles ............................. (0.03) (0.12) (0.12)
---------- ---------- ---------- ---------- ----------
Total ............................................. 1.29 0.15 1.51 1.30 1.28
---------- ---------- ---------- ---------- ----------
Total Assets ...................................... 3,597,532 3,652,671 3,644,886 3,340,729 3,187,826
---------- ---------- ---------- ---------- ----------
Long-Term Obligations ............................. 1,958,717 2,044,186 2,047,031 1,946,547 2,003,091
---------- ---------- ---------- ---------- ----------
Shareholders' Equity .............................. 550,925 546,978 596,818 486,267 481,084
---------- ---------- ---------- ---------- ----------
Shareholders' Equity Per Common Share ............. 11.06 11.04 12.21 11.15 11.11
---------- ---------- ---------- ---------- ----------
Cash Dividends Declared Per
Common Share ...................................... 1.25 1.25 1.25 1.25 1.25
---------- ---------- ---------- ---------- ----------
Net income in 1995 reflects a net after-tax charge of $48.9 million, or $.99 per
share. (See Notes 21 and 22 to the Consolidated Financial Statements.)
Net income in 1993 was reduced by $.08 per share, reflecting the retroactive
effect of the increased Federal income tax rate that was enacted in August 1993
on the previous years' deferred income tax balances.
20/OGDEN CORPORATION
Ogden Corporation and Subsidiaries
Statements of Consolidated Income
- ------------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Service revenues ................................................. $ 1,392,686,000 $ 1,563,748,000 $ 1,408,710,000
Net sales ........................................................ 621,830,000 551,345,000 456,586,000
Construction revenues ............................................ 3,402,000 69,900,000 213,125,000
Net gain on sale of businesses ................................... 13,163,000
Gain on sale of limited partnership interests .................... 26,126,000
--------------- --------------- ---------------
Total revenues ................................................... 2,031,081,000 2,184,993,000 2,104,547,000
--------------- --------------- ---------------
Operating costs and expenses ..................................... 1,089,265,000 1,318,847,000 1,127,348,000
Costs of goods sold .............................................. 592,223,000 518,457,000 405,190,000
Construction costs ............................................... 2,196,000 41,756,000 194,022,000
Selling, administrative, and general expenses .................... 119,147,000 144,714,000 135,852,000
Debt service charges ............................................. 110,055,000 111,850,000 100,358,000
--------------- --------------- ---------------
Total costs and expenses ......................................... 1,912,886,000 2,135,624,000 1,962,770,000
--------------- --------------- ---------------
Consolidated operating income .................................... 118,195,000 49,369,000 141,777,000
Equity in net income of investees and joint ventures ............. 3,604,000 6,866,000 7,683,000
Interest income .................................................. 15,142,000 15,126,000 12,709,000
Interest expense ................................................. (28,572,000) (30,491,000) (23,655,000)
Other income (deductions)--net ................................... 1,272,000 (344,000) 850,000
--------------- --------------- ---------------
Income before income taxes and minority interests ................ 109,641,000 40,526,000 139,364,000
Income taxes ..................................................... (46,161,000) (34,237,000) (61,883,000)
Minority interests ............................................... 1,054,000 1,155,000 (9,655,000)
--------------- --------------- ---------------
Income before cumulative effect of change in
accounting principle ............................................. 64,534,000 7,444,000 67,826,000
Cumulative effect of change in accounting principle
(net of income taxes of $1,100,000) ............................. (1,520,000)
--------------- --------------- ---------------
Net income ....................................................... $ 64,534,000 $ 7,444,000 $ 66,306,000
=============== =============== ===============
Earnings (Loss) Per Common Share:
Income before cumulative effect of change in
accounting principle ............................................. $ 1.30 $ .15 $ 1.55
Cumulative effect of change in accounting principle .............. (0.03)
--------------- --------------- ---------------
Total ............................................................ $ 1.30 $ 0.15 $ 1.52
=============== =============== ===============
Earnings (Loss) Per Common Share--Assuming
Full Dilution:
Income before cumulative effect of change in
accounting principle ............................................. $ 1.29 $ 0.15 $ 1.54
Cumulative effect of change in accounting principle .............. (0.03)
--------------- --------------- ---------------
Total ............................................................ $ 1.29 $ 0.15 $ 1.51
=============== =============== ===============
See Notes to Consolidated Financial Statements
OGDEN CORPORATION/21
Ogden Corporation and Subsidiaries
Consolidated Balance Sheets
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Assets December 31, 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents............................................................... $ 140,824,000 $ 96,782,000
Marketable securities available for sale................................................ 13,939,000
Restricted funds held in trust.......................................................... 101,326,000 95,238,000
Receivables (less allowances: 1996, $38,275,000 and 1995, $37,039,000).................. 503,424,000 597,644,000
Inventories............................................................................. 56,566,000 36,583,000
Deferred income taxes................................................................... 31,434,000 31,979,000
Other................................................................................... 52,598,000 54,201,000
-------------- --------------
Total current assets.................................................................... 886,172,000 926,366,000
Property, plant, and equipment--net...................................................... 1,851,304,000 1,879,179,000
Restricted funds held in trust.......................................................... 209,485,000 218,551,000
Unbilled service and other receivables (less allowances: 1996, $6,000,000).............. 218,422,000 191,753,000
Unamortized contract acquisition costs.................................................. 138,777,000 148,342,000
Goodwill and other intangible assets.................................................... 81,555,000 87,596,000
Other assets............................................................................ 211,817,000 200,884,000
-------------- --------------
Total Assets............................................................................ $3,597,532,000 $3,652,671,000
============== ==============
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Current Liabilities:
Current portion of long-term debt ........................................ $ 3,560,000 $ 4,680,000
Current portion of project debt .......................................... 60,966,000 55,774,000
Dividends payable ........................................................ 15,547,000 15,294,000
Accounts payable ......................................................... 104,978,000 114,648,000
Federal and foreign income taxes payable ................................. 7,648,000
Accrued expenses, etc .................................................... 302,597,000 291,421,000
Deferred income .......................................................... 46,228,000 28,702,000
-------------- --------------
Total current liabilities ................................................ 541,524,000 510,519,000
Long-term debt ........................................................... 309,377,000 344,333,000
Project debt ............................................................. 1,500,690,000 1,551,203,000
Deferred income taxes .................................................... 325,925,000 310,400,000
Other liabilities ........................................................ 212,538,000 230,558,000
Minority interests ....................................................... 7,903,000 10,030,000
Convertible subordinated debentures ...................................... 148,650,000 148,650,000
-------------- --------------
Total Liabilities ........................................................ 3,046,607,000 3,105,693,000
-------------- --------------
Shareholders' Equity:
Serial cumulative convertible preferred stock, par value $1.00 per share;
authorized, 4,000,000 shares; shares outstanding: 47,689 in 1996 and 49,469
in 1995, net of treasury shares of 29,820 in 1996 and 1995 ............................. 48,000 50,000
Common stock, par value $.50 per share; authorized, 80,000,000 shares;
shares outstanding: 49,744,527 in 1996 and 49,467,781 in 1995, net of
treasury shares of 3,606,123 and 3,735,123 in 1996 and 1995, respectively .............. 24,872,000 24,734,000
Capital surplus ........................................................................ 202,162,000 197,921,000
Earned surplus ......................................................................... 330,302,000 328,047,000
Cumulative translation adjustment--net ................................................. (5,768,000) (2,657,000)
Pension liability adjustment ........................................................... (565,000) (760,000)
Net unrealized loss on securities available for sale ................................... (126,000) (357,000)
-------------- --------------
Total Shareholders' Equity ............................................................. 550,925,000 546,978,000
-------------- --------------
Total Liabilities and Shareholders' Equity ............................................. $3,597,532,000 $3,652,671,000
============== ==============
See Notes to Consolidated Financial Statements
22/OGDEN CORPORATION
Ogden Corporation and Subsidiaries
Statements of Shareholders' Equity
- ----------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------
Shares Amounts
- ----------------------------------------------------------------------------------------------------------------------------
Serial Cumulative Convertible Preferred Stock, Par Value $1.00 Per Share;
Authorized, 4,000,000 Shares:
Balance at beginning of year......................................................... 79,289 $ 80,000
Shares converted into common stock................................................... (1,780) (2,000)
---------- ---------------
Total................................................................................ 77,509 78,000
Treasury shares...................................................................... (29,820) (30,000)
---------- ---------------
Balance at end of year (aggregate involuntary
liquidation value--1996, $961,000).................................................... 47,689 48,000
---------- ---------------
Common Stock, Par Value $.50 Per Share;
Authorized, 80,000,000 Shares:
Balance at beginning of year......................................................... 53,202,904 26,602,000
Acquisition of Ogden Projects, Inc., minority interests..............................
Exercise of stock options, less common stock utilized................................ 137,134 68,000
Shares used for pooling of interests.................................................
Conversion of preferred shares....................................................... 10,612 5,000
---------- ---------------
Total................................................................................ 53,350,650 26,675,000
---------- ---------------
Treasury shares at beginning of year................................................. 3,735,123 1,868,000
Exercise of stock options............................................................ (129,000) (65,000)
---------- ---------------
Treasury shares at end of year....................................................... 3,606,123 1,803,000
---------- ---------------
Balance at end of year............................................................... 49,744,527 24,872,000
---------- ---------------
- -----------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------
Shares Amounts
- -----------------------------------------------------------------------------------------------------------------------------
Serial Cumulative Convertible Preferred Stock, Par Value $1.00 Per Share;
Authorized, 4,000,000 Shares:
Balance at beginning of year......................................................... 83,323 $ 84,000
Shares converted into common stock................................................... (4,034) (4,000)
---------- ---------------
Total................................................................................ 79,289 80,000
Treasury shares...................................................................... (29,820) (30,000)
---------- ---------------
Balance at end of year (aggregate involuntary
liquidation value--1996, $961,000).................................................... 49,469 50,000
---------- ---------------
Common Stock, Par Value $.50 Per Share;
Authorized, 80,000,000 Shares:
Balance at beginning of year......................................................... 52,641,215 26,320,000
Acquisition of Ogden Projects, Inc., minority interests..............................
Exercise of stock options, less common stock utilized................................ 10,735 6,000
Shares used for pooling of interests................................................. 526,869 264,000
Conversion of preferred shares....................................................... 24,085 12,000
---------- ---------------
Total................................................................................ 53,202,904 26,602,000
---------- ---------------
Treasury shares at beginning of year................................................. 3,864,123 1,932,000
---------- ---------------
Exercise of stock options............................................................ (129,000) (64,000)
---------- ---------------
Treasury shares at end of year....................................................... 3,735,123 1,868,000
---------- ---------------
Balance at end of year............................................................... 49,467,781 24,734,000
---------- ---------------
- -----------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1994
- -----------------------------------------------------------------------------------------------------------------------------
Shares Amounts
- -----------------------------------------------------------------------------------------------------------------------------
Serial Cumulative Convertible Preferred Stock, Par Value $1.00 Per Share;
Authorized, 4,000,000 Shares:
Balance at beginning of year......................................................... 87,017 $ 87,000
Shares converted into common stock................................................... (3,694) (3,000)
---------- ---------------
Total................................................................................ 83,323 84,000
Treasury shares...................................................................... (29,820) (30,000)
---------- ---------------
Balance at end of year (aggregate involuntary
liquidation value--1996, $961,000).................................................... 53,503 54,000
---------- ---------------
Common Stock, Par Value $.50 Per Share;
Authorized, 80,000,000 Shares:
Balance at beginning of year......................................................... 47,472,245 23,736,000
Acquisition of Ogden Projects, Inc., minority interests.............................. 5,139,939 2,570,000
Exercise of stock options, less common stock utilized................................ 6,977 3,000
Shares used for pooling of interests.................................................
Conversion of preferred shares....................................................... 22,054 11,000
---------- ---------------
Total................................................................................ 52,641,215 26,320,000
---------- ---------------
Treasury shares at beginning of year................................................. 3,973,123 1,986,000
Exercise of stock options............................................................ (109,000) (54,000)
---------- ---------------
Treasury shares at end of year....................................................... 3,864,123 1,932,000
---------- ---------------
Balance at end of year............................................................... 48,777,092 24,388,000
---------- ---------------
- ------------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Amounts Shares Amounts Shares Amounts
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Surplus:
Balance at beginning of year ........................................... 197,921,000 194,496,000 100,223,000
Acquisition of Ogden Projects, Inc., minority interests 91,876,000
Exercise of stock options, less common stock utilized .................. 4,244,000 2,620,000 2,164,000
Arising from pooling of interests ...................................... 813,000
Capital transactions of subsidiary companies--net ...................... 241,000
Conversion of preferred shares ......................................... (3,000) (8,000) (8,000)
------------- ------------- -------------
Balance at end of year ................................................. 202,162,000 197,921,000 194,496,000
------------- ------------- -------------
Earned Surplus:
Balance at beginning of year ........................................... 328,047,000 381,864,000 370,231,000
Net income ............................................................. 64,534,000 7,444,000 66,306,000
------------- ------------- -------------
Total .................................................................. 392,581,000 389,308,000 436,537,000
------------- ------------- -------------
Preferred dividends--per share 1996, 1995, and 1994, $3.35 ............. 161,000 171,000 184,000
Common dividends--per share 1996, 1995, and 1994, $1.25 ................ 62,118,000 61,090,000 54,489,000
------------- ------------- -------------
Total dividends ........................................................ 62,279,000 61,261,000 54,673,000
------------- ------------- -------------
Balance at end of year ................................................. 330,302,000 328,047,000 381,864,000
------------- ------------- -------------
Cumulative Translation Adjustment--Net ................................. (5,768,000) (2,657,000) (1,399,000)
------------- ------------- -------------
Pension Liability Adjustment ........................................... (565,000) (760,000) (441,000)
------------- ------------- -------------
Net Unrealized Loss on Securities Available
For Sale ............................................................... (126,000) (357,000) (2,144,000)
------------- ------------- -------------
Total Shareholders' Equity ............................................. $ 550,925,000 $ 546,978,000 $ 596,818,000
============= ============= =============
See Notes to Consolidated Financial Statements
OGDEN CORPORATION/23
Ogden Corporation and Subsidiaries
Statements of Consolidated Cash Flows
- -------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net income.................................................... $ 64,534,000 $ 7,444,000 $ 66,306,000
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and amortization................................. 115,263,000 109,604,000 90,545,000
Deferred income taxes......................................... 20,027,000 18,153,000 37,704,000
Cumulative effect of change in accounting principle........... 1,520,000
Long-lived asset write-downs.................................. 45,260,000
Other......................................................... (20,663,000) 11,986,000 38,390,000
Management of Operating Assets and Liabilities:
Decrease (Increase) in Assets:
Accounts receivable........................................... 54,633,000 (43,852,000) (63,527,000)
Inventories................................................... (27,392,000) (11,825,000) (10,878,000)
Other assets.................................................. (25,231,000) (56,410,000) (50,717,000)
Increase (Decrease) in Liabilities:
Accounts payable.............................................. (1,608,000) 8,472,000 3,153,000
Accrued expenses.............................................. (1,689,000) 1,920,000 17,629,000
Deferred income............................................... 10,233,000 3,861,000 1,222,000
Other liabilities............................................. (11,927,000) (22,369,000) 35,218,000
------------ ------------ ------------
Net cash provided by operating activities..................... 176,180,000 72,244,000 166,565,000
------------ ------------ ------------
Cash Flows From Investing Activities:
Entities purchased, net of cash acquired...................... (16,968,000) (15,474,000) (32,404,000)
Proceeds from sale of marketable securities available for sale 13,158,000 71,364,000 63,545,000
Purchase of marketable securities available for sale.......... (56,418,000)
Proceeds from sale of businesses.............................. 90,946,000 18,000,000 12,516,000
Proceeds from sale of property, plant, and equipment.......... 6,803,000 5,402,000 2,824,000
Investments in Energy facilities.............................. (14,303,000) (26,827,000) (76,686,000)
Other capital expenditures.................................... (49,888,000) (65,999,000) (42,961,000)
Decrease (increase) in other receivables...................... 10,553,000 (2,809,000) (21,127,000)
Other......................................................... (19,985,000) (27,983,000) 268,000
------------ ------------ ------------
Net cash provided by (used in) investing activities........... 20,316,000 (44,326,000) (150,443,000)
------------ ------------ ------------
Cash Flows From Financing Activities:
Borrowings for Energy facilities.............................. 124,272,000 96,822,000
Decrease in funds held in trust............................... 3,903,000 9,514,000 52,337,000
Other new debt................................................ 6,552,000 40,948,000 31,589,000
Payment of debt............................................... (229,206,000) (139,205,000) (38,455,000)
Dividends paid................................................ (62,026,000) (59,604,000) (54,630,000)
Proceeds from exercise of stock options....................... 4,377,000 2,691,000 3,524,000
Other......................................................... (289,000) 630,000 (2,043,000)
------------ ------------ ------------
Net cash used in financing activities......................... (152,417,000) (48,204,000) (7,678,000)
------------ ------------ ------------
Effect of foreign currency exchange rate changes
on cash and cash equivalents.................................. (37,000) (291,000) (182,000)
------------ ------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents.......... 44,042,000 (20,577,000) 8,262,000
Cash and Cash Equivalents at Beginning of Year................ 96,782,000 117,359,000 109,097,000
------------ ------------ ------------
Cash and Cash Equivalents at End of Year...................... $140,824,000 $ 96,782,000 $117,359,000
============ ============ ============
See Notes to Consolidated Financial Statements
24/OGDEN CORPORATION
Ogden Corporation and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Principles of Consolidation, Combinations, etc.: The Consolidated Financial
Statements include the accounts of Ogden Corporation and its subsidiaries
(Ogden). Companies in which Ogden has equity investments of 50% or less are
accounted for using the "Equity Method," if appropriate. All intercompany
transactions and balances have been eliminated.
In 1996, in transactions accounted for as purchases, Ogden acquired
the shares of Florida Leisure, Inc., and Edison (Bataan) Cogeneration
Corporation (Bataan) for a total cost of $16,968,000. The operations of
these companies have been included in the accompanying financial statements
from the dates of acquisition. If Ogden had acquired these companies at
January 1, 1995, consolidated revenues, net income, and earnings per share
would have been $2,033,000,000, $60,565,000, and $1.22 for 1996 and
$2,210,000,000, $2,687,000, and $.05 for 1995.
In December 1995, Ogden issued 526,869 shares of common stock in
exchange for all of the outstanding shares of Firehole Entertainment Corp.
(Firehole). This transaction was accounted for as a pooling of interests.
The accompanying financial statements for 1994 have not been restated to
include the accounts of Firehole, since the amounts did not have a
significant effect on prior period reported results or balances.
In addition, in other transactions accounted for as purchases in 1995,
Ogden acquired the shares of Applied Data Technology, Inc., an air range
and pilot training systems company, and four airline catering kitchens in
the Canary and Balearic Islands for a total cost of $15,474,000. The
operations of these companies have been included in the accompanying
financial statements from dates of acquisition. If Ogden had acquired these
companies at January 1, 1994, total revenues, net income, and earnings per
share would have been $2,185,000,000, $7,346,000, and $.15 for 1995 and
$2,157,000,000, $65,255,000, and $1.49 for 1994, respectively. Ogden also
acquired a 50% interest in Metropolitan Entertainment Company, Inc.; a 50%
interest in IFC, an Australian entertainment company; as well as a 50%
interest in SFTA, a Turkish airport handling company.
On December 29, 1994, in a transaction accounted for as a purchase,
Ogden acquired the minority interest in Ogden Projects, Inc. (OPI), for .84
of an Ogden common share for each OPI share. Ogden issued 5,139,939 shares
of common stock valued at $18.375 per share for a total purchase price of
$94,446,000. The cost of other 1994 acquisitions was $32,404,000.
In connection with Ogden's restructuring plan, the environmental
business of Ogden Environmental and Energy Services (OEES) was transferred
to the Energy group, formerly Projects, as of January 1, 1996. In the first
quarter of 1996, the laboratory business of OEES and W.J. Schafer
Associates, a unit of Ogden Technology Services, were sold. The Ogden
Professional Services group, another unit of Ogden Technology Services, was
sold in April 1996. In June 1996, the Facility Services group's operations
outside of New York were sold, and the asbestos abatement operations were
discontinued.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Cash and Cash Equivalents: Cash and cash equivalents include all cash
balances and highly liquid investments having original maturities of three
months or less.
Marketable Securities: Marketable securities are classified as available
for sale and recorded at current market value. Net unrealized losses on
marketable securities available for sale and noncurrent marketable equity
securities are charged to Shareholders' Equity (see Note 2).
Contracts and Revenue Recognition: Service revenues primarily include only
the fees for cost-plus contracts and the gross billings for fixed-fee and
other types of contracts. Both the service revenues and operating expenses
exclude reimbursed expenditures of $357,698,000, $450,696,000, and
$439,195,000 for the years ended December 31, 1996, 1995, and 1994,
respectively. Subsidiaries engaged in governmental contracting recognize
revenues from cost-plus-fixed-fee contracts on the basis of direct costs
incurred plus indirect expenses and the allocable portion of the fixed fee.
Revenues under time and material contracts are recorded at the contracted
rates as the labor hours and other direct costs are incurred. Revenues
under fixed-price contracts are recognized on the basis of the estimated
percentage of completion of services rendered. Service revenues also
include the fees earned under contracts to operate and maintain the
waste-to-energy facilities and to service the facilities' debt, with
additional fees earned based on excess tonnage processed and energy
generation. Long-term unbilled service receivables related to
waste-to-energy operations are discounted in recognizing the present value
for services performed currently. Such unbilled receivables amounted to
$123,420,000 and $108,953,000 at December 31, 1996 and 1995, respectively.
Subsidiaries engaged in long-term construction contracting record income on
the percentage-of-completion method of accounting and recognize income as
the work progresses. Anticipated losses on contracts are recognized as soon
as they become known.
Inventories: Inventories, consisting primarily of raw materials and
finished goods, are recorded principally at the lower of first-in,
first-out cost or market.
Property, Plant, and Equipment: Property, plant, and equipment is stated at
cost. For financial reporting purposes, depreciation is provided by the
straight-line method over the estimated useful lives of the assets, which
range generally from five years for machinery and equipment to 50 years for
waste-to-energy facilities. Accelerated depreciation is generally used for
Federal income tax purposes. Leasehold improvements are amortized by the
straight-line method over the terms of the leases or the estimated useful
lives of the improvements as appropriate. Landfills are amortized based on
the quantities deposited into each landfill compared to the total estimated
capacity of such landfill. Property, plant, and equipment is periodically
reviewed to determine recoverability by comparing the carrying value to
expected future cash flows.
Contract Acquisition Costs: Costs associated with the acquisition of
specific contracts are amortized over their respective contract terms.
OGDEN CORPORATION/25
Bond Issuance Costs: Costs incurred in connection with the 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
projects that are no longer under consideration are charged to operating
costs.
Restricted Funds: Restricted funds represent proceeds from the financing of
waste-to-energy facilities and the operations of a waste-to-energy facility
and a power plant. Funds are held in trust and released as expenditures are
made or upon satisfaction of conditions provided under the respective trust
agreements.
Interest Rate Swap Agreements: Amounts received or paid relating to swap
agreements during the year are credited or charged to interest expense.
Goodwill: Goodwill acquired subsequent to 1970 is being amortized by the
straight-line method over periods ranging from 15 to 40 years. Goodwill
acquired prior to 1970 is not being amortized.
Retirement Plans: The Corporation and certain subsidiaries have several
retirement plans covering substantially all of their employees. Certain
subsidiaries also contribute to multiemployer plans for unionized hourly
employees that cover, among other benefits, pensions and postemployment
health care.
Ogden adopted Statement of Financial Accounting Standards (SFAS) No. 112,
"Employers' Accounting for Postemployment Benefits," as of January 1, 1994.
The effect of adopting SFAS No. 112 is shown as a cumulative effect of a
change in accounting principle and is reflected as a charge to income of
$1,520,000 in 1994.
Income Taxes: Ogden files a consolidated Federal income tax return, which
includes all eligible United States subsidiary companies. Foreign
subsidiaries are taxed according to regulations existing in the countries
in which they do business. Provision has not been made for United States
income taxes on distributions, which may be received from foreign
subsidiaries, that would be substantially offset by foreign tax credits.
Investment credits are accounted for by the "flow-through" method, and
provisions for income taxes have been reduced by the amount of investment
credits earned.
Long-Lived Assets: Ogden adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," in the fourth quarter of 1995. The effect of adopting SFAS No. 121
resulted in an after-tax charge of $34,700,000 in 1995 (see Note 21). When
indications of impairment are present, the Corporation evaluates the
carrying value of its long-lived assets in relation to the operating
performance and future undiscounted cash flows of the underlying
businesses. Long-lived assets to be disposed of, if any, are evaluated in
relation to the net realizable value.
Reclassification: The accompanying financial statements have been
reclassified to conform with the 1996 presentation.
2. Investments in Marketable Securities Available for Sale
At December 31, 1996 and 1995, marketable equity and debt securities
available for current operations are classified in the balance sheet as
current assets and recorded at current market value. Securities held for
noncurrent uses, such as nonqualified pension liabilities and a deferred
compensation plan, are classified as long-term assets. Net unrealized
losses on marketable equity and debt securities and on noncurrent
securities are charged to Shareholders' Equity.
Marketable securities at December 31, 1996 and 1995 (expressed in thousands
of dollars), include the following:
1996 1995
-----------------------------------------------------------------------------------------------------------------------
Market Market
Value Cost Value Cost
-----------------------------------------------------------------------------------------------------------------------
Classified as Current Assets:
United States government securities................ $ 1,652 $ 1,736
Tax-exempt municipal bonds......................... 6,214 6,374
Mortgage-backed securities......................... 5,560 5,727
Other securities................................... 513 360
------ ------
Total current...................................... 13,939 14,197
------ ------
Classified as Noncurrent Assets:
Mutual and bond funds.............................. $21,159 $21,410 16,538 17,037
------- ------- ------ ------
Total.............................................. $21,159 $21,410 $30,477 $31,234
======= ======= ====== ======
Unrealized holding losses at December 31, 1996 and 1995, amounted to
$251,000 and $757,000, respectively. Deferred tax benefits on these losses
amounted to $125,000 and $400,000, respectively, resulting in net charges
of $126,000 and $357,000, respectively, to Shareholders' Equity.
26/OGDEN CORPORATION
Proceeds and realized gains and losses from the sales of securities
classified as available for sale for the years ended December 31, 1996,
1995, and 1994, were $13,158,000, $1,455,000, and $304,000; $71,364,000,
$235,000, and $1,749,000; and $63,545,000, $256,700, and $476,400,
respectively. For the purpose of determining realized gains and losses, the
cost of securities sold was based on specific identification. Marketable
securities classified as noncurrent assets are included in Other Assets.
3. Unbilled Service and Other Receivables
Unbilled service and other receivables (expressed in thousands of dollars)
consisted of the following:
1996 1995
-------------------------------------------------------------------
Unbilled service receivables................. $123,420 $108,953
Notes receivable............................. 95,002 82,800
Total........................................ $218,422 $191,753
Long-term unbilled service receivables are for services, which have been
performed for municipalities, that are due by contract at a later date and
are discounted in recognizing the present value of such services. Current
unbilled service receivables, which are included in Receivables, amounted
to $35,747,000 and $34,482,000 at December 31, 1996 and 1995, respectively.
Long-term notes receivable primarily represent loans made to the owners of
entertainment and sports facilities and notes received relating to the sale
of noncore businesses.
4. Restricted Funds Held in Trust
Funds held by trustees from proceeds received from the financing of
waste-to-energy facilities and the operations of a waste-to-energy facility
and a power plant are segregated principally for the construction of the
facilities; debt service reserves for payment of principal and interest on
project debt; lease reserves for lease payments under operating leases;
capitalized interest for payment of interest during the construction
period; and deposits of revenues received. 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:
1996 1995
---------------------------------------------------------------------------
Current Noncurrent Current Noncurrent
---------------------------------------------------------------------------
Construction funds.......... $ 2,888 $ 2,931
Debt service funds.......... 53,960 $142,149 64,706 $144,915
Revenue funds............... 13,289 12,173
Lease reserve funds......... 19,556 14,190
Other funds................. 31,189 47,780 15,428 59,446
-------- -------- ------- --------
Total....................... $101,326 $209,485 $95,238 $218,551
======== ======== ======= ========
5. Property, Plant, and Equipment
Property, plant, and equipment (expressed in thousands of dollars)
consisted of the following:
1996 1995
---------------------------------------------------------------------------
Land........................................ $ 6,654 $ 6,667
Waste-to-energy facilities.................. 1,721,670 1,722,375
Geothermal power plant...................... 105,738 105,738
Buildings and improvements.................. 192,566 175,214
Machinery and equipment..................... 305,723 352,238
Landfills................................... 14,508 10,927
Construction in progress.................... 47,329 26,864
---------- ----------
Total....................................... 2,394,188 2,400,023
Less accumulated depreciation and amortization 542,884 520,844
---------- ----------
Property, plant, and equipment--net......... $1,851,304 $1,879,179
========== ==========
OGDEN CORPORATION/27
6. Other Assets
Other assets (expressed in thousands of dollars) consisted of the
following:
1996 1995
------------------------------------------------------------------------
Investment in and advances to investees and
joint ventures $ 91,980 $ 67,095
Unamortized bond issuance costs................ 35,517 38,473
Spare parts.................................... 17,045 19,544
Noncurrent securities available for sale....... 21,159 16,538
Deferred charges on projects................... 3,819 10,975
Insurance deposits............................. 5,388 5,388
Other.......................................... 36,909 42,871
-------- --------
Total.......................................... $211,817 $200,884
======== ========
7. Accrued Expenses, etc.
Accrued expenses, etc. (expressed in thousands of dollars), consisted of
the following:
1996 1995
-------------------------------------------------------------------
Debt service charges and interest............. $ 32,755 $ 33,886
Payroll....................................... 23,196 25,743
Insurance..................................... 45,415 37,278
Construction costs............................ 9,023 12,740
Operating expenses............................ 49,445 37,847
Municipalities' share of energy revenues...... 25,162 18,154
Retainage payable............................. 2,044 6,641
Lease payments................................ 16,747 12,538
Payroll and other taxes....................... 16,983 16,171
Pension and profit sharing.................... 7,727 9,050
Commissions................................... 7,983 8,477
Other......................................... 66,117 72,896
-------- --------
Total......................................... $302,597 $291,421
======== ========
8. Deferred Income
Deferred income (expressed in thousands of dollars) comprised the
following:
1996 1995
-----------------------------------------------------------------------------------------------------
Current Noncurrent Current Noncurrent
-----------------------------------------------------------------------------------------------------
Sale and leaseback arrangements............. $ 1,523 $21,963 $ 1,523 $23,360
Advance billings to municipalities.......... 16,505 11,644
Other....................................... 28,200 15,535
------- ------- ------- -------
Total....................................... $46,228 $21,963 $28,702 $23,360
======= ======= ======= =======
The gain from sale and leaseback transactions consummated in 1986 and 1987
was deferred and is being amortized as a reduction of rental expense.
Advance billings to various customers are billed one or two months prior to
performance of service and are recognized as income in the period the
service is provided. Noncurrent deferred income is included in Other
Liabilities.
9. Long-Term Debt
Long-term debt (expressed in thousands of dollars) consisted of the
following:
1996 1995
-----------------------------------------------------------------------
Adjustable-rate revenue bonds due 2014--2024... $124,755 $124,755
9.25% debentures due 2022...................... 100,000 100,000
Variable-rate revolving credit lines........... 48,000
Other long-term debt........................... 84,622 71,578
-------- --------
Total.......................................... $309,377 $344,333
======== ========
28/OGDEN CORPORATION
The adjustable-rate revenue bonds are adjusted periodically to reflect
current market rates for similar issues, generally with an upside cap of
15%. The average rate for this debt was 3.49% and 3.90% in 1996 and 1995,
respectively. These bonds were issued under agreements that contain various
restrictions, the most significant being the requirements to comply with
certain financial ratios and to maintain Shareholders' Equity of at least
$400,000,000. At December 31, 1996, Ogden was in compliance with all
requirements and had $150,925,000 in excess of the required amount of
Shareholders' Equity.
At December 31, 1996, Ogden had two long-term interest rate swap
agreements covering notional amounts of $100,000,000 and $6,300,000,
respectively, which expire December 16, 1998, and November 30, 2000,
respectively. These swaps were entered into to convert Ogden's fixed-rate
$100,000,000, 9.25% debentures due in 2022 to variable-rate debt and
Ogden's $6,300,000 variable-rate debt to a fixed rate. On the $100,000,000
swap, Ogden receives a fixed rate of 5.52% per annum paid on a semi-annual
basis and pays a floating rate of three months LIBOR set in arrears on a
quarterly basis. On the $6,300,000 swap, Ogden pays a fixed rate of 5.83%
paid on a quarterly basis and receives a floating rate of three months
LIBOR on a quarterly basis. At December 31, 1996, the three-month LIBOR
rate was 5.56%. The counterparties to these interest rate swaps are major
financial institutions. Management believes its credit risk associated with
nonperformance by the counterparties is not significant. Amounts (received)
or paid on swap agreements amounted to $200,000, $600,000, and $(809,000)
for 1996, 1995, and 1994, respectively, and were (credited) or charged to
interest expense. The effect on Ogden's weighted-average borrowing rate for
1996, 1995, and 1994 was an increase (decrease) of .04%, .14%, and (.20)%,
respectively.
Other long-term debt includes an obligation for approximately
$28,400,000, representing the equity component of a sale and leaseback
arrangement relating to a waste-to-energy facility. This arrangement is
accounted for as a financing, has an effective interest rate of 5%, and
extends through 2017. Additionally, other long-term debt includes
$22,450,000 resulting from the sale of limited partnership interests in and
related tax benefits of the Onondaga County, New York, waste-to-energy
facility, which has been accounted for as a financing for accounting
purposes. This obligation has an effective interest rate of 10% and extends
through 2015. The remaining other debt of $33,772,000 consists primarily of
debt associated with entertainment facilities in the United Kingdom and
Argentina, debt acquired in the Firehole acquisition, and debt associated
with an investment in a coal-fired power project in The Philippines. These
loans bear various interest rates and maturity dates.
The maturities on long-term debt (expressed in thousands of dollars)
at December 31, 1996, were as follows:
1997.................................................... $ 3,560
1998.................................................... 7,651
1999.................................................... 5,018
2000.................................................... 2,077
2001.................................................... 11,361
Later years............................................. 283,270
--------
Total................................................... 312,937
Less current portion.................................... 3,560
--------
Total long-term debt.................................... $309,377
========
10. Project Debt
Project debt (expressed in thousands of dollars) consisted of the
following:
1996 1995
-----------------------------------------------------------------------------------------------------------------------
Revenue Bonds Issued by and Prime Responsibility of Municipalities:
4.25--8.1% serial revenue bonds due through 2008 .............................. $ 238,908 $ 198,933
5.4--8.5% term revenue bonds due through 2019 ................................. 764,876 845,476
Adjustable-rate revenue bonds due through 2013 ................................ 86,590 86,965
---------- ----------
Total ......................................................................... 1,090,374 1,131,374
---------- ----------
Revenue Bonds Issued by Municipal Agencies with Sufficient Service
Revenues Guaranteed by Third Parties:
4.95--8.9% serial revenue bonds due through 2007 .............................. 62,886 71,006
7.25--7.4% term revenue bonds due 1999 through 2011 ........................... 105,859 105,901
Adjustable-rate revenue bonds due through 2011 ................................ 121,723 127,820
---------- ----------
Total ......................................................................... 290,468 304,727
---------- ----------
Other project debt ............................................................ 119,848 115,102
---------- ----------
Total long-term project debt .................................................. $1,500,690 $1,551,203
========== ==========
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 Corporation is limited to the waste-to-energy
facilities and restricted funds pledged to secure such obligations. The
category,
OGDEN CORPORATION/29
"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 the third parties' service fee
obligations.
Payment obligations for the project debt associated with
waste-to-energy facilities are nonrecourse to the Corporation subject to
construction and operating performance guarantees and commitments. These
obligations are secured by the revenues pledged under various indentures
and are collateralized principally by a mortgage lien and a security
interest in each of the respective waste-to-energy facilities and related
assets. At December 31, 1996, such revenue bonds were collateralized by
property, plant, and equipment with a net carrying value of $1,509,110,000,
credit enhancements of approximately $170,000,000 for which Ogden has
certain reimbursement obligations, and substantially all restricted funds
(see Note 4).
The interest rates on adjustable-rate revenue bonds are adjusted
periodically to reflect current market rates for similar issues, generally
with an upside cap of 15%. The average rate for such revenue bonds was 4.6%
and 5.28% in 1996 and 1995, respectively.
Other project debt includes an obligation of a special-purpose limited
partnership acquired by two special-purpose subsidiaries of Ogden in
December 1994 and represents the lease of a geothermal power plant, which
has been accounted for as a financing. This obligation, which amounted to
$86,709,000 at December 31, 1996, has an effective interest rate of 5.3%
and extends through 2008 with options to renew for additional periods and
has a fair market value purchase option at the conclusion of the initial
term. Payment obligations under this lease arrangement are limited to
assets of the limited partnership and revenues derived from a power
purchase agreement with a third party, which are expected to provide
sufficient revenues to make rental payments. Such payment obligations are
secured by all the assets, revenues, and other benefits derived from the
geothermal power plant, which had a net carrying value of approximately
$106,811,000 at December 31, 1996. In September 1995, the Corporation
borrowed $20,984,000 from a financial institution as part of the
refinancing of project debt in the category "Revenue Bonds Issued by and
Prime Responsibility of Municipalities." The debt service associated with
this loan is included as an explicit component of the client community's
obligation under the related service agreement. A portion of the funds was
retained in the Corporation's restricted funds and is loaned to the
community each month to cover the community's monthly service fees. The
Corporation's repayment for the other part of the loan is limited to the
extent repayment is received from the client community. This overall
obligation totaled $18,839,000 at December 31, 1996, has an effective
interest rate of 7.05%, and extends through 2005. In addition, other
project debt includes $14,300,000 assumed in August 1996 as part of the
acquisition of Bataan. The debt is due to financial institutions and bears
interest at an adjustable rate equal to the three-month LIBOR rate plus
3.5% (9.2% at December 31, 1996). The debt extends through 2001 and is
secured by all the assets of Bataan, which had a net carrying value of
approximately $32,761,000 at December 31, 1996.
At December 31, 1996, Ogden had three interest rate swap agreements as
hedges against interest rate exposure on certain adjustable-rate revenue
bonds. The first two interest rate swap agreements expire in May 1999 and
the third swap expires in 2019 and had notional amounts at December 31,
1996, of $91,070,000, $33,485,000, and $80,220,000, respectively, which are
reduced in accordance with the scheduled repayments of the revenue bonds.
Under the first swap agreement, Ogden 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,
Ogden 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. Under
the third swap agreement, Ogden pays a fixed rate of 6.07% per annum on a
semi-annual basis through 1998 and thereafter a fixed rate of 5.18% per
annum and receives a floating rate based on a defined LIBOR-based rate. At
December 31, 1996, the floating rates on the three swaps were 3.66%, 5.72%,
and 5.6%, respectively. These swap agreements were entered into to convert
from floating rates to fixed interest rates $91,070,000 of tax-exempt,
adjustable-rate revenue bonds and $113,705,000 of taxable, adjustable-rate
revenue bonds. The counterparties to these interest rate swaps are major
financial institutions. Management believes the credit risk associated with
nonperformance by the counterparties is not significant.
Amounts (received) or paid on these swap agreements amounted to
$700,000, $(230,000), and $1,400,000 for 1996, 1995, and 1994,
respectively, and were charged or (credited) to debt service charges. The
effect on Ogden's weighted-average borrowing rate was an increase
(decrease) of .04%, (.01)%, and .09% for 1996, 1995, and 1994,
respectively.
The maturities on long-term project debt (expressed in thousands of
dollars) at December 31, 1996, were as follows:
1997 ..................................................... $ 60,966
1998 ..................................................... 74,171
1999 ..................................................... 80,101
2000 ..................................................... 80,305
2001 ..................................................... 89,470
Later years .............................................. 1,176,643
----------
Total .................................................... 1,561,656
Less current portion ..................................... 60,966
----------
Total long-term project debt ............................. $1,500,690
==========
30/OGDEN CORPORATION
11. Credit Arrangements
At December 31, 1996, Ogden had unused revolving credit lines amounting to
$217,350,000, of which $200,000,000 is available under its principal
revolving credit line at various borrowing rates including prime, the
Eurodollar rate plus .30%, or certificate-of-deposit rates plus .425%.
Ogden is not required to maintain compensating balances; however, Ogden
pays a facility fee of 3/16 of 1% on its principal revolving credit line of
$200,000,000, which expires October 29, 1998.
12. Convertible Subordinated Debentures
Convertible subordinated debentures (expressed in thousands of dollars)
consisted of the following:
1996 1995
---------------------------------------------------------------------
6% debentures due June 1, 2002 ............. $ 85,000 $ 85,000
5 3/4% debentures due October 20, 2002 ..... 63,650 63,650
-------- --------
Total ........................................ $148,650 $148,650
======== ========
The 6% convertible subordinated debentures are convertible into Ogden
common stock at the rate of one share for each $39.077 principal amount of
debentures. The debentures are redeemable at Ogden's option at 101.8% of
principal amount during the year commencing June 1, 1996, and at decreasing
prices thereafter. The 5 3/4% convertible subordinated debentures are
convertible into Ogden common stock at the rate of one share for each
$41.772 principal amount of debentures. The debentures are redeemable at
Ogden's option at 100% of face value.
13. Preferred Stock
The outstanding Series A $1.875 Cumulative Convertible Preferred Stock is
convertible at any time at the rate of 5.97626 common shares for each
preferred share. Ogden may redeem the outstanding shares of preferred stock
at $50 per share, plus all accrued dividends. These preferred shares are
entitled to receive cumulative annual dividends at the rate of $1.875 per
share, plus an amount equal to 150% of the amount, if any, by which the
dividend paid or any cash distribution made on the common stock in the
preceding calendar quarter exceeded $.667 per share.
14. Common Stock and Stock Options
In 1986, Ogden adopted a nonqualified stock option plan (the "1986 Plan").
Under this plan, options and/or stock appreciation rights were granted to
key management employees to purchase Ogden common stock at prices not less
than the fair market value at the time of grant, which became exercisable
during a five-year period from the date of grant. Options were exercisable
for a period of ten years after the date of grant. As adopted and as
adjusted for stock splits, the 1986 Plan called for up to an aggregate of
2,700,000 shares of Ogden common stock to be available for issuance upon
the exercise of options and stock appreciation rights, which were granted
over a 10-year period ending March 10, 1996. At December 31, 1996, all of
the authorized shares of this plan had been granted.
In October 1990, Ogden adopted a nonqualified stock option plan (the
"1990 Plan"). Under this plan, nonqualified options, incentive stock
options, and/or stock appreciation rights and stock bonuses may be granted
to key management employees and outside directors to purchase Ogden common
stock at an exercise price to be determined by the Ogden Compensation
Committee, which become exercisable during the five-year period from the
date of grant. These options are exercisable for a period of ten years
after the date of grant. Pursuant to the 1990 Plan, which was amended in
1994 to increase the number of shares available by 3,200,000 shares, an
aggregate of 6,200,000 shares of Ogden common stock became available for
issuance upon the exercise of such options, rights, and bonuses, which may
be granted over a 10-year period ending October 11, 2000; 2,053,000 shares
were available for grant at December 31, 1996.
Under the foregoing plans, Ogden issued 4,442,500 limited stock
appreciation rights in conjunction with the stock options granted. These
limited rights are exercisable only during the period commencing on the
first day following the occurrence of any of the following events and
terminate 90 days after such date: the acquisition by any person of 20% or
more of the voting power of Ogden's outstanding securities; the approval by
Ogden shareholders of an agreement to merge or to sell substantially all of
its assets; or the occurrence of certain changes in the membership of the
Ogden Board of Directors. The exercise of these limited rights entitles
participants to receive an amount in cash with respect to each share
subject thereto, equal to the excess of the market value of a share of
Ogden common stock on the exercise date or the date these limited rights
became exercisable, over the related option price.
In connection with the acquisition of the minority interest of OPI,
Ogden assumed the pre-existing OPI stock option plan then outstanding and
converted these options into options to acquire shares of Ogden common
stock. No further options will be granted under this plan.
OGDEN CORPORATION/31
The Corporation has adopted the disclosure-only provisions of SFAS No.
123, "Accounting for Stock-Based Compensation." Accordingly, no
compensation cost has been recognized for these stock option plans. Had
compensation cost for the options granted in 1996 and 1995 under these
plans been determined consistent with the provisions of SFAS No. 123, using
the binomial option-pricing model with the following assumptions --dividend
yield of 5.7% and 6.2%, volatility of 22.74% and 24.77%, risk-free interest
rate of 5.42% and 7.72%, and an expected life of 7.5 years--the effect on
net income and earnings per share for 1996 and 1995 would not have been
significant.
Information regarding the Corporation's stock option plans is
summarized as follows:
Option Available
Price For
Per Share Outstanding Exercisable Grant
-------------------------------------------------------------------------------------------------------------------------
1986 Plan:
December 31, 1993, balance ......................... $14.98-$28.54 1,030,687 762,687 115,500
Granted ............................................ $22.50 115,500 (115,500)
Became exercisable ................................. $18.31-$28.54 134,000
Exercised .......................................... $14.98 (18,644) (18,644)
------------- --------- --------- ---------
December 31, 1994, balance ......................... $14.98-$28.54 1,127,543 878,043
Became exercisable ................................. $18.31-$28.54 157,100
Exercised .......................................... $14.98 (16,618) (16,618)
------------- --------- --------- ---------
December 31, 1995, balance ......................... $14.98-$28.54 1,110,925 1,018,525
Became exercisable ................................. $22.50 23,100
Exercised .......................................... $14.98 (235,425) (235,425)
------------- --------- --------- ---------
December 31, 1996, balance ......................... $22.50-$28.54 875,500 806,200
------------- --------- --------- ---------
1990 Plan:
December 31, 1993, balance ......................... $18.31-$23.56 2,640,000 1,433,300 237,000
Increase in authorized option shares ............... 3,200,000
Granted ............................................ $21.50-$22.50 1,169,500 (1,169,500)
Became exercisable ................................. $18.31-$20.31 507,500
Exercised .......................................... $18.31-$20.31 (109,000) (109,000)
Cancelled .......................................... $18.31-$23.56 (115,000) (32,000) 115,000
------------- --------- --------- ---------
December 31, 1994, balance ......................... $18.31-$23.56 3,585,500 1,799,800 2,382,500
Granted ............................................ $20.06-$22.69 409,000 (409,000)
Became exercisable ................................. $18.31-$23.56 699,900
Exercised .......................................... $18.31-$21.31 (129,000) (129,000)
Cancelled .......................................... $18.31-$23.56 (184,700) (34,000) 184,700
------------- --------- --------- ---------
December 31, 1995, balance ......................... $18.31-$23.56 3,680,800 2,336,700 2,158,200
Granted ............................................ $21.00-$21.94 252,500 (252,500)
Became exercisable ................................. $18.31-$23.56 346,800
Exercised .......................................... $18.31-$21.31 (129,000) (129,000)
Cancelled .......................................... $18.31-$23.56 (147,300) (84,300) 147,300
------------- --------- --------- ---------
December 31, 1996, balance ......................... $18.31-$23.56 3,657,000 2,470,200 2,053,000
------------- --------- --------- ---------
Conversion of OPI Plan:
December 29, 1994 .................................. $14.17-$29.46 266,561 266,561
------------- --------- --------- ---------
December 31, 1995, balance ......................... $14.17-$29.46 266,561 266,561
Exercised .......................................... $14.17 (19,740) (19,740)
Cancelled .......................................... $14.17 (3,360) (3,360)
------------- --------- --------- ---------
December 31, 1996, balance ......................... $14.17-$29.46 243,461 243,461
------------- --------- --------- ---------
Total December 31, 1996 ............................ $14.17-$29.46 4,775,961 3,519,861 2,053,000
============= ========= ========= =========
At December 31, 1996, there were 10,816,264 shares of common stock reserved
for the exercise of stock options and the conversion of preferred shares
and debentures.
32/OGDEN CORPORATION
15. Preferred Stock Purchase Rights
In 1990, the Board of Directors declared a dividend of one preferred stock
purchase right (Right) on each outstanding share of common stock. Among
other provisions, each Right may be exercised to purchase a one
one-hundredth share of a new series of cumulative participating preferred
stock at an exercise price of $80, subject to adjustment. The Rights may
only be exercised after a party has acquired 15% or more of the
Corporation's common stock or commenced a tender offer to acquire 15% or
more of the Corporation's common stock. The Rights do not have voting
rights, expire October 2, 2000, and may be redeemed by the Corporation at a
price of $.01 per Right at any time prior to the acquisition of 15% of the
Corporation's common stock.
In the event a party acquires 15% or more of the Corporation's
outstanding common stock in accordance with certain defined terms, each
Right will then entitle its holders (other than such party) to purchase, at
the Right's then-current exercise price, a number of the Corporation's
common shares having a market value of twice the Right's exercise price. At
December 31, 1996, 49,744,527 Rights were outstanding.
16. Sale of Businesses and Limited Partnership Interests
Revenues for 1996 include a net gain of $13,163,000 relating to the sale of
certain noncore businesses. In 1994, revenues include $26,100,000 from the
sale of limited partnership interests in and related tax benefits of the
Onondaga County waste-to-energy facility, which was partially offset by the
recapture of investment tax credits and minority interests.
17. Foreign Exchange
Foreign exchange translation adjustments for 1996, 1995, and 1994,
amounting to $(3,111,000), $(1,258,000), and $3,240,000, respectively, have
been credited (charged) directly to Shareholders' Equity. Foreign exchange
transaction adjustments, amounting to $(215,000), $1,590,000, and
$(1,844,000), have been credited (charged) directly to income for 1996,
1995, and 1994, respectively.
18. Debt Service Charges
Debt service charges for Ogden's project debt (expressed in thousands of
dollars) consisted of the following:
1996 1995 1994
--------------------------------------------------------------------------------------------------------------------------
Interest incurred on taxable and tax-exempt borrowings ................... $107,595 $112,029 $109,586
Interest earned on temporary investment
of certain restricted funds .............................................. 4,256 4,908 6,782
-------- -------- --------
Net interest incurred .................................................... 103,339 107,121 102,804
Interest capitalized during construction in property,
plant, and equipment ..................................................... 485 1,512 8,893
-------- -------- --------
Interest expense--net .................................................... 102,854 105,609 93,911
Amortization of bond issuance costs ...................................... 7,201 6,241 6,447
-------- -------- --------
Debt service charges ..................................................... $110,055 $111,850 $100,358
======== ======== ========
19. Retirement Plans
Ogden has retirement plans that cover substantially all of its employees. A
substantial portion of hourly employees of Ogden Services Corporation
participates in defined contribution plans. Other employees participate in
defined benefit or defined contribution plans.
The defined benefit plans provide benefits based on years of service
and either employee compensation or a flat benefit amount. Ogden's funding
policy for those plans is to contribute annually an amount no less than the
minimum funding required by ERISA. Contributions are intended to provide
not only benefits attributed to service to date but also for those expected
to be earned in the future.
OGDEN CORPORATION/33
The following table sets forth the defined benefit plans' funded
status and related amounts recognized in Ogden's Consolidated Balance
Sheets (expressed in thousands of dollars):
1996 1995
-------------------------------------------------------------------------------------------------------------------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
-------------------------------------------------------------------------------------------------------------------------------
Accumulated Benefit Obligation:
Vested .................................................................. $ 8,820 $ 10,480 $ 7,015 $ 9,724
Nonvested ............................................................... 314 442 389 501
-------- --------- --------- ---------
Total ................................................................... $ 9,134 $ 10,922 $ 7,404 $ 10,225
======== ========= ========= =========
Projected benefit obligation for services
rendered to date ........................................................ $ 12,715 $ 15,355 $ 10,773 $ 14,319
Plan assets at fair value ............................................... 13,495 5,764 10,325 5,581
-------- --------- --------- ---------
Over (underfunded) projected benefits ................................... $ 780 $ (9,591) $ (448) $ (8,738)
======== ========= ========= =========
Source of Underfunded Status:
Unrecognized net gain (loss) from past experience
different from that assumed and effects of
changes in assumptions .................................................. $ 588 $ (1,037) $ (480) $ (1,241)
Unrecognized net transition asset (obligation)
at January 1, 1986, being recognized
over 15 years ........................................................... 417 (320) 494 (400)
Pension liability costs ................................................. (688) (5,916) (961) (4,146)
Unrecognized prior service costs ........................................ 463 (2,318) 499 (2,951)
-------- --------- --------- ---------
Over (underfunded) projected benefits ................................... $ 780 $ (9,591) $ (448) $ (8,738)
======== ========= ========= =========
At December 31, 1996 and 1995, the accumulated benefit obligation of
certain pension plans exceeded plan assets. The Corporation's liability for
those plans was increased by $1,463,000 and $2,033,000 at December 31, 1996
and 1995, respectively. Such amounts were offset by intangible assets and
reductions in Shareholders' Equity, net of income taxes of $565,000 and
$760,000 at December 31, 1996 and 1995, respectively.
At December 31, 1996, the Corporation has designated $11,000,000 of
its marketable securities (Note 2) as pertaining to a nonqualified pension
plan that is underfunded by $7,000,000, which underfunding is reflected
above under plans in which accumulated benefits exceeded assets.
Pension costs for Ogden's defined plans included the following
components (expressed in thousands of dollars):
1996 1995 1994
----------------------------------------------------------------------------------------------------------------
Service cost on benefits earned during the period ............ $ 2,139 $ 2,078 $ 1,979
Interest cost on projected benefit obligation ................ 1,900 1,716 1,629
Net amortization and deferral ................................ 2,268 2,584 (436)
Actual return on plan assets ................................. (2,746) (3,260) 32
------- ------- -------
Net periodic pension cost .................................... $ 3,561 $ 3,118 $ 3,204
======= ======= =======
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligations were 7 1/2% and 4 1/2% for 1996 and 1995 and
8 1/4% and 5% for 1994, respectively. The expected long-term rate of return
on plan assets was 8% for each year.
Contributions and costs for defined contribution plans are determined
by benefit formulas based on percentage of compensation as well as
discretionary contributions and totaled $7,954,000, $10,358,000, and
$12,052,000 in 1996, 1995, and 1994, respectively. Plan assets at December
31, 1996, 1995, and 1994, primarily consisted of common stocks, United
States government securities, and guaranteed insurance contracts.
With respect to union employees, the Corporation is required under
contracts with various unions to pay, generally based on hours worked,
retirement, health, and welfare benefits. These multiemployer defined
benefit and defined contribution plans are not controlled or administered
by the Corporation. The amount charged to expense for such plans during
1996, 1995, and 1994 was $26,600,000, $27,900,000, and $30,100,000,
respectively.
20. Postretirement Health Care and Life Insurance Benefits
In 1992, the Corporation discontinued its policy of providing
postretirement health care and life insurance benefits for all salaried
employees, except those employees who were retired or eligible for
retirement at December 31, 1992, or who were covered under certain
company-sponsored union plans. The Corporation adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," as
of January 1, 1993. SFAS No. 106 requires the accrual method of accounting
for postretirement health care and life insurance benefits, based on
actuarial determined costs to be recognized over the period from the date
of hire to the full eligibility date of employees who are expected to
qualify for such benefits.
34/OGDEN CORPORATION
For the years ended December 31, 1996, 1995, and 1994, the components
of the periodic expense for these benefits were as follows:
Recognition of Components of Net Periodic Postretirement Benefit Costs for
the Years Ended December 31:
1996 1995 1994
---------------------------------------------------------------------------------------------------------------------------
Service costs ............................................. $ 126,879 $ 131,966 $ 162,107
Interest .................................................. 806,016 755,944 775,142
Amortization of unrecognized net (gain) loss .............. 18,481 (22,113) 67,820
---------- ---------- ----------
Total ..................................................... $ 951,376 $ 865,797 $1,005,069
========== ========== ==========
As of December 31, 1996, 1995, and 1994, the actuarial recorded
liabilities for these postretirement benefits, none of which have been
funded, were as follows:
Accumulated Postretirement Benefit Obligation:
Retirees .................................................. $ 5,618,399 $ 4,352,614 $ 3,884,885
Eligible active participants .............................. 4,616,340 4,832,637 4,581,234
Other active .............................................. 959,853 1,740,792 1,480,725
----------- ----------- -----------
Total accumulated postretirement obligation ............... 11,194,592 10,926,043 9,946,844
Unrecognized net loss ..................................... 603,201 611,978 117,947
----------- ----------- -----------
Accrued postretirement benefit liability .................. $10,591,391 $10,314,065 $ 9,828,897
=========== =========== ===========
The accumulated postretirement benefit obligation was determined using a
discount rate of 7 1/2% for 1996 and 1995 and 8 1/4% for 1994; an estimated
increase in compensation levels of 4 1/2% for 1996 and 1995 and 5% for
1994; and a health care cost rate of approximately 14 1/2%, decreasing in
subsequent years until it reaches 6% in the year 2008 and thereafter. The
effect of a one percentage point increase in the assumed health care cost
trend rates for each future year on the aggregate of the service and
interest cost components of net periodic postretirement health care benefit
cost and the accumulated postretirement benefit obligation for health care
benefits would be $78,623 and $734,319, respectively.
21. Impairment of Long-Lived Assets
Ogden adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," in the fourth quarter of 1995. SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles held and used by an entity,
including any goodwill related to these assets, be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
value of such assets may not be recoverable. In performing this review for
recoverability, the Corporation estimated future cash flows expected from
the use of such assets and their eventual disposition. If the sum of
expected future cash flows (undiscounted) was less than the carrying value
of the assets, an impairment loss was recognized. The Statement also
requires that long-lived assets and certain identifiable intangibles to be
disposed of be reported at the lower of carrying value or fair value less
the costs to sell.
The effect of recognizing SFAS No. 121 resulted in a pretax charge of
$45,300,000 and an after-tax charge of $34,700,000, or $.70 per share. This
charge included estimated losses on the disposal of noncore businesses, as
announced in the fourth quarter of 1995, of $32,800,000 and the write-down
of other long-lived assets of $12,500,000. The loss of $32,800,000 on the
assets to be disposed of was based on the Corporation's estimate of
realizable or liquidation values of the operations and bids received from
prospective purchasers. The impairment loss of $12,500,000 on other
long-lived assets represents the difference between the carrying amount of
the assets and their estimated fair values, which was determined based on
operating projections and future discounted cash flows. The remaining
carrying value of these assets is not significant. These amounts were
charged to cost of goods sold ($4,500,000) and operating expenses
($40,800,000) in the accompanying 1995 financial statements.
22. Other Charges--1995
During 1995, the Corporation recognized unusual charges of $37,500,000,
which were reduced by a $13,500,000 gain on the sale of a noncore business
in the fourth quarter for a net pretax charge of $24,000,000 and an
after-tax charge of $14,200,000 or $.29 per share. The charge of
$37,500,000 includes, in the second quarter, $17,100,000 at Ogden
Communications, Inc. (OCI), for the write-off of receivables of $10,300,000
and related costs recorded in connection with a telecommunications project
at OCI, as well as a loss on the disposal of inventory of $3,900,000 and
costs related to the curtailment of operations of $2,900,000; and in the
fourth quarter, $8,200,000 for costs, principally severance pay relating to
restructuring activities, and $12,200,000 representing the write-down of
deferred charges relating to a previously awarded waste-to-energy project
that is not expected to be completed; unusual waste-to-energy repair costs;
and an adjustment of inventory balances resulting from a physical
inventory. The $17,100,000 charge at OCI resulted from a review of the
activities of this unit, during which the Corporation concluded that
contracts and other documentation did not provide a basis for recovering
any of the accounts receivable related to the telecommunications project
and that the sale of inventory would not recover its full carrying value.
In addition, the Corporation decided to discontinue the business of OCI and
estimated the costs relating thereto.
OGDEN CORPORATION/35
These amounts were charged to sales allowances ($10,300,000);
operating costs ($3,800,000); cost of goods sold ($6,000,000); and selling,
administrative, and general expenses ($3,900,000) in the accompanying
financial statements. The gain on the sale of the noncore business of
$13,500,000 was included as a reduction of operating expenses. In addition,
1995 operating expenses include $3,500,000 for the settlement of litigation
relating to the discontinuance of the fixed-site hazardous waste business.
23. Income Taxes
The components of the provision for income taxes (expressed in thousands of
dollars) were as follows:
1996 1995 1994
------------------------------------------------------------------------
Current:
Federal................................ $14,661 $ 6,444 $10,141
State.................................. 9,048 5,038 11,616
Foreign................................ 2,425 4,602 2,422
------- ------- -------
Total current.......................... 26,134 16,084 24,179
======= ======= =======
Deferred:
Federal................................ 18,984 17,120 36,520
State.................................. 1,043 1,033 1,184
------- ------- -------
Total deferred......................... 20,027 18,153 37,704
------- ------- -------
Total provision for income taxes....... $46,161 $34,237 $61,883
======= ======= =======
The current provision for Federal income taxes results principally from the
alternative minimum tax.
The provision for income taxes (expressed in thousands of dollars)
varied from the Federal statutory income tax rate due to the following:
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Percent Percent Percent
of Income of Income of Income
Amount Before Amount Before Amount Before
of Tax Taxes of Tax Taxes of Tax Taxes
- ------------------------------------------------------------------------------------------------------------------------------------
Taxes at statutory rate ......................... $ 38,374 35.0% $ 14,184 35.0% $ 48,777 35.0%
State income taxes, net of
Federal tax benefit ............................. 6,559 5.9 3,946 9.7 8,320 6.0
Settlement of tax liability
with former subsidiary .......................... (2,638) (2.4)
Recapture (benefit) of
investment tax credits .......................... 1,807 1.3
Foreign taxes and non-
deductible foreign losses ....................... 738 .7 6,694 16.5 1,425 1.0
Amortization of goodwill ........................ 1,070 1.0 1,206 3.0 1,030 .7
Write-down of goodwill .......................... 648 .6 5,263 13.0
Pooling-related taxes and costs ................. 1,807 4.5
Other--net ...................................... 1,410 1.3 1,137 2.8 524 .4
-------- ----- -------- ----- -------- -----
Provision for
income taxes .................................... $ 46,161 42.1% $ 34,237 84.5% $ 61,883 44.4%
======== ===== ======== ===== ======== =====
The components of the net deferred income tax liability (expressed in
thousands of dollars) as of December 31, 1996 and 1995, were as follows:
1996 1995
------------------------------------------------------------------
Deferred Tax Assets:
Deferred income............................... $ 8,200 $ 14,387
Accrued expenses.............................. 62,904 47,125
Other liabilities............................. 24,936 13,500
Investment tax credits........................ 24,081 28,930
Alternative minimum tax credits............... 46,917 27,521
Net operating loss carryforwards.............. 58,066 120,298
-------- --------
Total deferred tax assets..................... 225,104 251,761
-------- --------
Deferred Tax Liabilities:
Unbilled accounts receivable.................. 46,270 48,734
Property, plant, and equipment................ 440,293 448,334
Other......................................... 33,032 33,114
-------- --------
Total deferred tax liabilities................ 519,595 530,182
-------- --------
Net deferred tax liability.................... $294,491 $278,421
======== ========
36/OGDEN CORPORATION
Deferred tax assets and liabilities (expressed in thousands of dollars)
are presented as follows in the accompanying balance sheets:
1996 1995
-------------------------------------------------------------------
Net deferred tax liability--noncurrent......... $325,925 $310,400
Less net deferred tax asset--current........... 31,434 31,979
-------- --------
Net deferred tax liability.................... $294,491 $278,421
======== ========
At December 31, 1996, for Federal income tax purposes, the Corporation had
investment and energy tax credit carryforwards of approximately $24,081,000
and net operating loss carryforwards of approximately $144,954,000, which
will expire in 2004 through 2008. Deferred Federal income taxes have been
reduced by the tax effect of these amounts.
24. Leases
Total rental expense amounted to $91,351,000, $93,396,000, and $77,190,000
(net of sublease income of $1,427,000, $193,000, and $328,000) for 1996,
1995, and 1994, respectively. Included in rental expense are amounts based
on contingent factors (principally sales) in excess of minimum rentals
amounting to $20,970,000, $21,676,000, and $15,181,000 for 1996, 1995, and
1994, respectively. Principal leases are for leaseholds, sale and leaseback
arrangements on waste-to-energy facilities, trucks and automobiles,
airplane, and machinery and equipment. Some of these operating leases have
renewal options.
The following is a schedule (expressed in thousands of dollars), by
year, of future minimum rental payments required under operating leases
that have initial or remaining noncancelable lease terms in excess of one
year as of December 31, 1996:
1997..................................................... $ 70,948
1998..................................................... 70,020
1999..................................................... 63,942
2000..................................................... 60,168
2001..................................................... 50,110
Later years.............................................. 310,218
--------
Total.................................................... $625,406
========
These future minimum rental payment obligations include $100,209,000
of future nonrecourse rental payments that relate to a waste-to-energy
facility, which are supported by third-party commitments to provide
sufficient service revenues to meet such obligations. Also included are
$75,068,000 of nonrecourse rental payments relating to a hydroelectric
power generating facility operated by a special-purpose subsidiary, which
are supported by contractual power purchase obligations of a third party
and which are expected to provide sufficient revenues to make the rent
payments. These nonrecourse rental payments (in thousands of dollars) are
due as follows:
1997..................................................... $ 19,197
1998..................................................... 19,492
1999..................................................... 20,797
2000..................................................... 21,402
2001..................................................... 21,402
Later years.............................................. 72,987
--------
Total.................................................... $175,277
========
25. Earnings Per Share
Earnings per common share were computed by dividing net income, reduced by
preferred stock dividend requirements, by the weighted average of the
number of shares of common stock and common stock equivalents, where
dilutive, outstanding during each year.
Earnings per common share, assuming full dilution, were computed on
the assumption that all convertible debentures, convertible preferred
stock, and stock options converted or exercised during each year or
outstanding at the end of each year were converted at the beginning of each
year or at the date of issuance or grant, if dilutive. This computation
provided for the elimination of related convertible debenture interest and
preferred dividends.
The weighted-average number of shares used in computing earnings per
common share was as follows:
1996 1995 1994
---------------------------------------------------------------------------
Primary............................. 49,663,000 49,385,000 43,610,000
Assuming full dilution.............. 49,953,000 49,691,000 43,939,000
OGDEN CORPORATION/37
26. Commitments and Contingent Liabilities
Ogden and certain of its subsidiaries have issued or are party to
performance bonds and guarantees and related contractual obligations
undertaken mainly pursuant to agreements to construct and operate certain
waste-to-energy, entertainment, and other facilities. In the normal course
of business, they are involved in legal proceedings in which damages and
other remedies are sought. Management does not expect that these
contractual obligations, legal proceedings, or any other contingent
obligations incurred in the normal course of business will have a material
adverse effect on Ogden's Consolidated Financial Statements.
During 1994, a subsidiary of the Corporation entered into a 30-year
facility management contract pursuant to which it agreed to advance funds
to a customer, if necessary, to assist refinancing senior secured debt
incurred in connection with construction of the facility. Such refinancing
requirements are currently scheduled to amount to $75,000,000 at the
refinancing date, which is January 1, 2001. It is expected that these
arrangements will be renegotiated to provide for an Ogden obligation to
purchase such senior secured debt in the amount of $95,000,000 at the end
of March 2000 if the debt is not refinanced. In addition, at December 31,
1996, the Corporation has guaranteed indebtedness of $16,100,000 of an
affiliate and principal tenant of this customer, which is due in September
1997. Ogden continues as guarantor of surety bonds and letters of credit
totaling approximately $15,100,000 on behalf of International Terminal
Operating Co. Inc. (ITO) and has guaranteed borrowings of certain customers
amounting to approximately $26,700,000, as well as $10,500,000 of
borrowings of joint ventures in which Ogden has equity interests.
Management does not expect that these arrangements will have a material
adverse effect on Ogden's Consolidated Financial Statements.
At December 31, 1996, capital commitments amounted to $121,900,000,
which included $44,500,000 for normal replacement, modernization, and
growth in Services' ($35,100,000) and Energy's ($9,400,000) operations.
Also included was $74,600,000 for a coal-fired power project in The
Philippines reflecting $55,200,000 for a mandatory equity contribution,
$5,700,000 for contingent equity contributions, and $13,700,000 for a
standby letter of credit in support of debt service reserve requirements.
Funding for the mandatory equity contribution has been provided by a credit
facility, which must be repaid in December 2001. The Corporation also has a
$2,800,000 contingent equity contribution in an entertainment joint
venture. In addition, compliance with standards and guidelines under the
Clean Air Act Amendments of 1990 may require further capital expenditures
of $30,000,000 during the next four years.
27. Information Concerning Business Segments
Ogden classifies its business segments as Services and Energy (formerly
Projects). The Services segment in 1996 includes a wide variety of services
to the aviation, entertainment, and commercial real estate industries, as
well as a contract manufacturing business. All of these services are
provided to a wide range of customers. The Energy segment includes all of
Ogden's waste-to-energy activities, its independent power business, the
operation of two geothermal power stations and related well field
activities and a hydroelectric power station, its water and wastewater
project business, environmental consulting services, and its construction
activities--all of which activities are commonly managed by Energy.
In connection with Ogden's restructuring plan, the environmental
business of Services was transferred to the Energy segment as of January 1,
1996. Amounts for 1995 and 1994 have been restated to reflect this
transfer. In the first quarter of 1996, the environmental laboratory
business of Energy was sold. In addition, Services sold the operations of
W.J. Schafer Associates, Ogden Professional Services, and the Facility
Services group's operations outside of New York and discontinued its
asbestos abatement operations.
Revenues and income from continuing operations (expressed in thousands
of dollars) for the years ended December 31, 1996, 1995, and 1994, were as
follows:
1996 1995 1994
-----------------------------------------------------------------------------------------
Revenues:
Services ............................................ $1,306,800 $1,415,239 $1,238,705
Energy .............................................. 724,281 769,754 865,842
---------- ---------- ----------
Total revenues ...................................... $2,031,081 $2,184,993 $2,104,547
========== ========== ==========
Income from Operations:
Services ............................................ $ 45,645 $ 5,122 $ 46,185
Energy .............................................. 81,665 56,428 108,626
---------- ---------- ----------
Total income from operations ........................ 127,310 61,550 154,811
Equity in Net Income of Investees and Joint Ventures:
Services ............................................ 3,279 2,443 2,045
Energy .............................................. 325 4,423 5,638
---------- ---------- ----------
Total ............................................... 130,914 68,416 162,494
Corporate unallocated income and expenses--net (7,843) (12,525) (12,184)
Corporate interest--net ............................. (13,430) (15,365) (10,946)
---------- ---------- ----------
Consolidated Income
Before Income Taxes and Minority Interest ....,,,,,,, $ 109,641 $ 40,526 $ 139,364
========== ========== ==========
38/OGDEN CORPORATION
In 1995, income from operations of Services and Energy reflects pretax
charges of $36,900,000 and $32,400,000, respectively, reflecting the
adoption of SFAS No. 121 and other unusual charges (see Notes 21 and 22).
Services' revenues include $121,000,000, $250,300,000, and
$248,500,000 from the United States government contracts for the years
ended December 31, 1996, 1995, and 1994, respectively.
Total revenues by segment reflect sales to unaffiliated customers. In
computing income from operations, none of the following have been added or
deducted: unallocated corporate expenses, nonoperating interest expense,
interest income, and income taxes.
A summary (expressed in thousands of dollars) of identifiable assets,
depreciation and amortization, and capital additions of continuing
operations for the years ended December 31, 1996, 1995, and 1994, is as
follows:
Depreciation
Identifiable and Capital
Assets Amortization Additions
---------------------------------------------------------------------------
1996
Services ................ $ 729,598 $ 37,292 $ 34,964
Energy .................. 2,668,572 77,487 28,157
Corporate ............... 199,362 484 1,070
---------- ---------- -----------
Consolidated ............ $3,597,532 $ 115,263 $ 64,191
========== ========== ===========
1995
Services ................ $ 813,591 $ 37,936 $ 49,940
Energy .................. 2,646,979 70,805 42,875
Corporate ............... 192,101 863 11
---------- ---------- -----------
Consolidated ..,......... $3,652,671 $ 109,604 $ 92,826
========== ========== ===========
1994
Services ............... $ 708,691 $ 32,009 $ 32,328
Energy ................. 2,647,975 56,710 87,297
Corporate .............. 288,220 1,826 22
---------- ---------- -----------
Consolidated ........... $3,644,886 $ 90,545 $ 119,647
========== ========== ===========
Ogden's areas of operations are principally in the United States.
Operations outside of the United States are worldwide but primarily in
Europe and South America. No single foreign country or geographic area is
significant to the consolidated operations. Foreign operations' revenues,
income from operations, and identifiable assets were $238,500,000,
$10,900,000, and $275,100,000, respectively, for 1996.
28. Supplemental Disclosure of Cash Flow Information
(Expressed in thousands of dollars) ............ 1996 1995 1994
-----------------------------------------------------------------------------------
Cash Paid for Interest and Income Taxes:
Interest (net of amounts capitalized) .......... $ 134,560 $ 140,878 $ 119,188
Income taxes ................................... 20,552 9,885 8,298
Noncash Investing and Financing Activities:
Conversion of preferred shares for common shares 2 4 3
Purchase of Minority Interest:
Common stock issued ............................ 94,446
Adjustment to net assets for excess of purchase
price over book value of net assets acquired ... 21,589
Detail of Entities Acquired:
Fair value of assets acquired .................. 38,019 32,293 158,212
Liabilities assumed ............................ (21,051) (16,819) (125,808)
Net cash paid for acquisitions ................. 16,968 15,474 32,404
29. Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments." The estimated
fair-value amounts have been determined using available market information
and appropriate valuation methodologies. However, considerable judgment is
necessarily required in interpreting market data to develop estimates of
fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that Ogden would realize in a current market
exchange.
OGDEN CORPORATION/39
The estimated fair value (expressed in thousands of dollars) of
financial instruments at December 31, 1996 and 1995, is summarized as
follows:
1996 1995
--------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------------------------------------------------------------------------------------------------------------
Assets:
Cash and cash equivalents........................... $ 140,824 $ 140,824 $ 96,782 $ 96,782
Marketable securities--available for sale........... 13,339 13,339
Receivables......................................... 721,846 725,075 789,397 791,712
Restricted funds.................................... 310,811 310,716 313,789 315,987
Other assets........................................ 23,799 23,799 21,495 21,495
Liabilities:
Long-term debt...................................... 312,937 335,819 349,013 378,730
Convertible subordinated debentures................. 148,650 142,546 148,650 137,608
Project debt........................................ 1,561,656 1,617,690 1,606,977 1,694,722
Other liabilities................................... 21,245 18,330 27,178 22,735
Off Balance-Sheet Financial Instruments:
Unrealized losses on interest rate swap agreements.. 1,413 6,839
Unrealized gains on interest rate swap agreements... 670 1,103
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
For cash and cash equivalents, the carrying value of these amounts is
a reasonable estimate of their fair value. The fair value of long-term
unbilled receivables is estimated by using a discount rate that
approximates the current rate for comparable notes. Marketable securities'
fair values are based on quoted market prices or dealer quotes. The fair
value of restricted funds held in trust is based on quoted market prices of
the investments held by the trustee. The fair value of noncurrent
receivables is estimated by discounting the future cash flows using the
current rates at which similar loans would be made to such borrowers based
on the remaining maturities, consideration of credit risks, and other
business issues pertaining to such receivables. Other assets, consisting
primarily of insurance and escrow deposits and other miscellaneous
financial instruments used in the ordinary course of business, are valued
based on quoted market prices or other appropriate valuation techniques.
Fair values for short-term debt and long-term debt were determined
based on interest rates that are currently available to the Corporation for
issuance of debt with similar terms and remaining maturities for debt
issues that are not traded or quoted on an exchange. With respect to
convertible subordinated debentures, fair values are based on quoted market
prices. The fair value of project debt is estimated based on quoted market
prices for the same or similar issues. Other borrowings and liabilities are
valued by discounting the future stream of payments using the incremental
borrowing rate of the Corporation. The fair value of the Corporation's
interest rate swap agreements is the estimated amount that the Corporation
would receive or pay to terminate the swap agreements at the reporting date
based on third-party quotations. The fair value of Ogden financial
guarantees provided on behalf of ITO and customers (see Note 26) would be
zero because Ogden receives no fees associated with such commitments.
The fair-value estimates presented herein are based on pertinent
information available to management as of December 31, 1996 and 1995.
Although management is not aware of any factors that would significantly
affect the estimated fair-value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since
that date, and current estimates of fair value may differ significantly
from the amounts presented herein.
40/OGDEN CORPORATION
Independent Auditors' Report
Deloitte & Touche LLP Two World Financial Center
New York, NY 10281
The Board of Directors and Shareholders of Ogden Corporation:
We have audited the accompanying consolidated balance sheets of Ogden
Corporation and subsidiaries as of December 31, 1996 and 1995 and the related
statements of shareholders' equity, consolidated income and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Corporation'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, 1996 and 1995
and the results of their operations and cash flows for each of the three years
in the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, in 1995 the Corporation
adopted Statement of Financial Accounting Standards No. 121 relating to
long-lived assets and long-lived assets to be disposed of. In 1994 the
Corporation changed its method of accounting for postemployment benefits to
conform with Statement of Financial Accounting Standards No. 112.
/s/ Deloitte & Touche LLP
February 10, 1997
OGDEN CORPORATION/41
Ogden Corporation and Subsidiaries
Report of Management
Ogden'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 Corporation'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 Corporation's internal control structure
provides reasonable assurance that errors or irregularities that could be
material to the financial statements are prevented and 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
nonaffiliated directors. The Audit Committee, in this oversight role, meets
periodically with management to monitor their 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 elected by the shareholders 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.
/s/ R. Richard Ablon /s/ Philip G. Husby
R. Richard Ablon Philip G. Husby
Chairman of the Board, Senior Vice President,
President, and Chief Financial Officer, and
Chief Executive Officer Treasurer
42/OGDEN CORPORATION
Ogden Corporation and Subsidiaries
Quarterly Results of Operations
1996 Quarter Ended March 31 June 30 Sept. 30 Dec. 31
-------------------------------------------------------------------------------------------------------------------------
(In thousands of dollars, except per-share amounts)
Total revenues .................................................. $ 520,672 $ 546,099 $ 500,641 $ 463,669
--------- --------- --------- ---------
Gross profit .................................................... $ 82,522 $ 88,751 $ 91,111 $ 85,013
--------- --------- --------- ---------
Net income ...................................................... $ 9,288 $ 16,888 $ 20,388 $ 17,970
--------- --------- --------- ---------
Earnings per common share ....................................... $ 0.19 $ 0.34 $ 0.41 $ 0.36
--------- --------- --------- ---------
Earnings per common share--assuming full dilution ............... $ 0.19 $ 0.34 $ 0.40 $ 0.36
--------- --------- --------- ---------
1995 Quarter Ended March 31 June 30 Sept. 30 Dec. 31
-------------------------------------------------------------------------------------------------------------------------
(In thousands of dollars, except per-share amounts)
Total revenues .................................................. $ 502,408 $ 537,645 $ 588,402 $ 556,538
--------- --------- --------- ---------
Gross profit .................................................... $ 85,650 $ 82,406 $ 106,547 $ 31,330
--------- --------- --------- ---------
Net income ...................................................... $ 12,092 $ 10,080 $ 23,828 $ (38,556)
--------- --------- --------- ---------
Earnings (loss) per common share ................................ $ 0.24 $ 0.21 $ 0.48 $ (0.78)
--------- --------- --------- ---------
Earnings (loss) per common share--assuming full dilution ........ $ 0.24 $ 0.21 $ 0.48 $ (0.78)
--------- --------- --------- ---------
Ogden Corporation and Subsidiaries
Price Range of Stock and Dividend Data
1996 1995
-----------------------------------------------------------------------------------------------
High Low High Low
Common:
First Quarter............................... 23 7/8 19 3/8 21 1/2 18 1/2
Second Quarter.............................. 20 7/8 17 7/8 22 3/8 19 7/8
Third Quarter............................... 21 5/8 18 23 7/8 22
Fourth Quarter.............................. 20 5/8 17 5/8 24 19 7/8
------------------------------------------------
Preferred:
First Quarter............................... 128 128 120 113 1/2
Second Quarter.............................. 121 117 1/4 Not Traded
Third Quarter............................... 125 1/2 125 1/2 134 3/8 134 3/8
Fourth Quarter.............................. Not Traded 139 133 5/8
------------------------------------------------
Quarterly common stock dividends of $.3125 per share were paid to
shareholders of record for the four quarters of 1996 and 1995, the
dividends for the last quarters of 1996 and 1995 being paid in January of
the subsequent years. Quarterly dividends of $.8376 were paid for the four
quarters of 1996 and 1995 on the $1.875 preferred stock.
OGDEN CORPORATION/43