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.
During the past two years, Ogden disposed of most of the operations,
which were not part of its core business segments--Entertainment, Aviation,
and Energy. Ogden elected to change the reporting of its business segments
as of January 1, 1997, and restated its prior years' presentation to conform
to this revised segment reporting. Two of Ogden's core businesses formerly
reported as part of the Services segment--Entertainment and Aviation--have
been designated as separate business segments. All other operations formerly
in the Services segment, mainly the Facility Management and Technology
groups, were transferred to the Other segment except for Facility Management
operations at Ogden's waste-to-energy plants and its environmental business,
which have been transferred to the Energy segment. Noncore businesses
scheduled for disposition are included in the Other segment.
Operations: Revenues for 1997 were $1,749,725,000, which was 13.9% or
$281,400,000 lower than the comparable period of 1996. This was primarily
due to a decline of $239,900,000 in the Other segment's revenues, primarily
reflecting businesses sold during 1996 and 1997--namely, Facility Services,
W.J. Schafer Associates, and Ogden Professional Services (formerly in the
Technology group) and certain operations of Atlantic Design Company (ADC), a
contract manufacturing business. This reduction in revenues was partially
offset by the net gain on such sales as well as the gain on the 1997 sale of
the Corporation's 50% equity investment in the Universal Ogden joint venture.
The Entertainment segment's revenues increased $34,000,000, chiefly
associated with the inclusion of full- year results for Florida Leisure,
Inc., which was acquired in 1996, new accounts, and the start-up of the
American Wilderness Experience-TM- in the United States as well as operations
in Germany and Aruba. The Aviation segment's revenues were $63,500,000
lower, primarily resulting from the 1997 sales of the Miami and Spanish
in-flight catering operations and certain ground services operations, which
was partially offset by the gain on the sale of such businesses as well as
the sale of a 5% interest in the Hong Kong ground services company. The
Energy segment's revenues were $12,000,000 lower, primarily due to reduced
activity in the consulting and engineering groups and reduced construction
activity and the effect of certain favorable legal settlements in 1996. This
reduction in revenues was partially offset by increased customer activity at
several waste-to-energy facilities and the commencement of operations of the
independent power group's Edison Bataan facility and its acquisition of
Pacific Energy, Inc., in September 1997.
Consolidated operating income for 1997 was $137,714,000, which was
approximately 16.5% or $19,500,000 higher than 1996. The Entertainment
segment's income from operations was $10,300,000 higher, primarily reflecting
new accounts and increased customer activity in several domestic sports and
amphitheater venues and European operations, partially offset by development
costs associated with the American Wilderness Experience-TM- project. The
Aviation segment's income from operations increased $19,100,000, chiefly
associated with the sales of the Miami and Spanish in-flight catering
operations, a 5% interest in the Hong Kong ground services company, and
certain ground services operations in 1997 and a charge in 1996 reflecting
the decision to close a ground services location, which were partially offset
by reduced activity in catering and European customer activity. The Energy
segment's income from operations was $4,000,000 higher, primarily reflecting
increased income in the independent power group, reflecting the acquisitions
of the Edison Bataan facility in August 1996 and Pacific Energy, Inc., in
September 1997. These increases were partially offset by reduced income in
the waste-to-energy group, chiefly associated with the effect of 1996
favorable legal settlements, which more than offset increased activity at
several waste-to-energy facilities. The Other segment's income from
operations decreased $16,200,000 due to the net impact of the businesses sold
in 1996 and 1997 and the effect of the 1997 provision for the disposition of
certain operations of ADC, partially offset by the gain on the sales in 1997
of Facility Services' operations in New York City and the Corporation's 50%
equity interest in the Universal Ogden joint venture.
Selling, general, and administrative expenses for 1997 were $109,148,000,
which was approximately 8.4% or $10,000,000 lower than 1996, chiefly
associated with the sale of noncore businesses and the benefit of Ogden's
restructuring activities. Debt service charges for 1997 were $2,800,000
lower than the comparable period of 1996, primarily due to lower average debt
outstanding on various waste-to-energy facilities, partially offset by
increased project debt associated with the Edison Bataan facility. The
Energy segment 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 costs of $300,000 and $700,000
for 1997 and 1996, respectively. The effect of these swap agreements on the
weighted-average interest rate of project debt was not significant.
Interest income for 1997 was $8,300,000 higher than 1996, chiefly
associated with interest earned on increased loans to customers and joint
ventures and notes receivable received in connection with the sale of various
operations, as well as higher cash and cash equivalents. Interest expense
was $3,500,000 higher, chiefly associated with borrowings relating to loans
to customers, partially offset by lower borrowings on revolving credit lines.
X-1
Ogden has two interest rate swap agreements covering notional amounts of
$100,000,000 and $4,700,000, 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 on November 30, 2000, and was entered into in
order to convert Ogden's $4,700,000 variable-rate debt to a fixed rate.
These agreements resulted in additional interest expense in 1997 and 1996 of
$400,000 and $200,000, respectively. 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 1997 was
$1,600,000 lower, chiefly associated with the sale of the Corporation's 50%
equity interest in the Universal Ogden joint venture in the first quarter of
1997 and lower income in Entertainment's overseas joint ventures, partially
offset by increased earnings in Aviation's Macau joint venture as well as in
connection with Energy's acquisition of Pacific Energy, Inc., and its joint
ventures.
The effective income tax rate for 1997 was 40.6%, compared with 42.1% in
1996. This decrease of 1.5% was due to a net reduction in the net permanent
differences between book and taxable income. Note 22 to the Consolidated
Financial Statements contains a more detailed reconciliation of the variances
from the Federal statutory income tax rate.
Revenues for 1996 were $2,031,081,000, which was approximately 7.0% or
$153,900,000 lower than the comparable period of 1995. The Other segment's
revenues declined $175,800,000, primarily reflecting the sale of Facility
Services' operations outside of New York City as of June 30, 1996, and
certain Technology businesses sold in late 1995 and 1996 and a decrease in
revenues in an air range and pilot training systems company. This decline in
revenues was partially offset by increased revenues of ADC and a net gain of
$13,200,000 from the disposition of certain businesses in 1996. The Energy
segment's revenues declined $45,500,000, reflecting lower construction
revenues of $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 as well as a reduction of
$24,200,000 due to the sale of its laboratory business in January 1996. This
decline was partially offset by increased waste-to-energy services revenues
of $41,300,000 reflecting a full year of 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.
The Aviation segment's revenues were $23,300,000 lower, chiefly associated
with the sale of ground handling service operations at John F. Kennedy
International Airport in 1996 and the sale of a Brazilian aviation unit in
1995. The revenue declines in the Other, Energy, and Aviation segments were
partially offset by increased revenues of $90,600,000 in the Entertainment
segment, 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.
Consolidated operating income for 1996 was $118,200,000 as compared with
$49,400,000 in 1995. Operating income for 1995 was reduced by charges
totaling $82,800,000, 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. These charges
in 1995 were partially offset by a gain of $13,500,000 from the sale of a
noncore business in 1995. In addition, 1996 reflects an increase of
$23,200,000 in the Entertainment segment's income from operations, primarily
due to new contracts, increased customer activity, a reduction of losses in
European operations, the start-up of operations in Argentina, and the
acquisition of Florida Leisure, Inc., in 1996. The Other segment's income
from operations was $5,800,000 lower, chiefly associated with businesses that
have been disposed of and reduced margins, higher operating costs, adjustment
to inventories and deferred charges at ADC, and lower earnings in overseas
operations, partially offset by a net gain of $13,200,000 from the
disposition of certain noncore businesses included in the Other segment,
namely, the sale of Facility Services' operations outside of New York City
and a unit of the Technology group--Ogden Professional Services--and the
discontinuance of asbestos abatement operations. The Energy segment's income
from operations was $6,700,000 lower, primarily reflecting a decrease 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 as well as a reduction of $3,500,000 in the independent power
group's income, primarily due to increased development costs and a facility
shutdown for major boiler repairs, decreased energy rates at one facility,
and reduced profitability at several facilities. These decreases were
partially offset by an increase of $21,500,000 in waste-to-energy income,
chiefly associated with the effect of certain legal settlements in 1995 and
1996 also referred to above and the effect of restructuring costs incurred in
1995. 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.
X-2
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
of 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 30, 2000, and was entered
into in 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 the independent
power group's joint ventures due to reduced energy 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 22 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 1997, capital investments
amounted to $116,201,000 of which $28,500,000, inclusive of restricted funds
transferred from funds held in trust, was for Energy facilities and
$87,701,000 was for normal replacement and growth in Entertainment
($52,523,000), Aviation ($19,008,000), Energy ($11,467,000), and Corporate
and Other ($4,703,000) operations.
At December 31, 1997, future capital commitments amounted to
$158,700,000, which included $86,100,000 for normal replacement,
modernization, and growth in Entertainment ($45,200,000); Aviation
($23,200,000); Energy ($16,800,000); and Corporate and Other ($900,000)
operations. Also included was $61,200,000 for Energy's coal-fired power
project in the Philippines reflecting $41,800,000 for the remaining mandatory
equity contributions, $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 remaining mandatory equity contribution is
being provided through a bank credit facility, which must be repaid in
December 2001. The Corporation also has a $11,400,000 contingent equity
contribution in an entertainment venture. In addition, compliance with
standards and guidelines under the Clean Air Act Amendments of 1990 will
require further Energy capital expenditures currently estimated at
$40,000,000 by December 2000, subject to final time schedules determined by
the individual states in which the Corporation's waste-to-energy facilities
are located.
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. In connection with certain contractual
arrangements, Ogden has agreed to provide two vendors with specified amounts
of business over a three-and-a-half-year period. If these amounts are not
provided, the Corporation may be liable for prorated damages of approximately
$5,700,000. 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 Ogden entered into a 30-year facility
management contract, pursuant to which it agreed to advance funds to a
customer, and if necessary, to assist the customer's refinancing of senior
secured debt incurred in connection with the construction of the facility.
During 1997, Ogden purchased the customer's senior secured debt in the amount
of $95,000,000 using borrowed funds, which senior secured debt was
subsequently sold and the borrowed funds repaid. Ogden is obligated to
repurchase such senior secured debt in the amount of $97,679,000 on December
30, 2002, if such debt is not refinanced prior to that time. Ogden's
repurchase obligation is collateralized by bank letters of credit. Ogden is
also required to repurchase the outstanding amount of certain subordinated
secured debt issued by such customer on December 30, 2002. The amount
outstanding at December 31, 1997, was $46,562,000. In February 1998, this
amount was increased to $51,624,000. During 1997, this customer purchased
certain subordinated secured debt and repaid other amounts owed to Ogden in
an aggregate amount of $38,900,000. In February 1998, this customer repaid
an additional $7,343,000 owed to Ogden. In addition, at December 31, 1997,
the Corporation had guaranteed indebtedness of $20,683,000 of an affiliate
and principal tenant of this customer, which indebtedness is due in September
1998. Ogden has also guaranteed borrowings of another customer amounting to
approximately $14,400,000 as well as $15,500,000 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.
X-3
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information." The adoption of these
Statements, which concern disclosure standards only, will have no impact on
Ogden's consolidated results of operations, financial position, or cash
flows. 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.
Liquidity/Cash Flow: Net cash provided by operating activities in 1997
was $66,400,000 higher than 1996, primarily due to the sales of businesses in
1996 and 1997 and the collection of receivables reflecting the settlement of
certain matters in dispute. Net cash used in investing activities increased
$101,800,000. The principal changes were a net increase of $46,200,000 in
acquisitions reflecting the purchase of Pacific Energy, Inc., Enchanted
Castle, and a 60% interest in four cogeneration plants in China; an increase
of $52,000,000 in capital expenditures primarily in the Entertainment
segment, reflecting investments in the American Wilderness Experience-TM-
project and expansion projects at several other facilities, and at Aviation's
cargo facility in the Czech Republic; lower proceeds of $29,800,000 received
from the sale of businesses; and a decrease in other receivables of
$40,500,000, primarily due to the collection of notes receivable from a
customer. Net cash used in financing activities decreased $37,500,000,
primarily due to an increase in net borrowings of $40,000,000. This decrease
was partially offset by lower use of restricted funds held in trust of
$3,000,000.
Exclusive of changes in Energy facility construction activities and the
contracts discussed herein, the Corporation's other 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;
proceeds from the sale of debt or equity securities; and the Corporation's
unused credit facilities to the extent needed.
At December 31, 1997, the Corporation had $185,671,000 in cash and cash
equivalents and unused revolving credit lines of $217,000,000.
In January 1998, Ogden's Board of Directors reauthorized the purchase of
shares of the Corporation's common stock in an amount up to $100,000,000.
Fifty thousand (50,000) shares of common stock were purchased in February
1998 for $1,372,000. In addition, in January 1998, a joint venture in which
the Corporation has a 28% interest was awarded a 30-year concession contract
to develop, improve, and operate 33 airports in Argentina. Ogden has a
commitment of $28,000,000 for its equity contribution in this joint venture.
In 1996, the Corporation started a program to upgrade its principal
computer hardware and software systems. Completion of this project,
scheduled for 1998, will result in the related systems being able to process
information after the turn of the century. In connection with the Year 2000
problem, the Corporation is presently assessing the impact of this problem on
its business, including its facility systems, its operational systems, and
its overseas operations. Certain noncompliant systems are in the process of
being replaced or upgraded with packaged software that is Year 2000
compliant. The Corporation intends to request third parties with whom it
does business to ascertain whether they will be Year 2000 compliant. The
Corporation may be adversely impacted if such third parties do not adequately
address this issue. Both internal and external resources may be used in
addressing Year 2000 issues. Based on information obtained to date, costs of
addressing potential Year 2000 problems are not expected to have a material
adverse impact on Ogden's financial position, results of operations, or cash
flows.
Any statements in this communication, which may be considered to be
"forward looking statements" as that term is defined in the Private
Securities Litigation Reform Act of 1995, are subject to certain risks and
uncertainties. The factors that could cause actual results to differ
materially from those suggested by any such statements include, but are not
limited to, those discussed or identified from time to time in the
Corporation's public filings with the Securities and Exchange Commission and
more generally, general economic conditions, including changes in interest
rates and the performance of the financial markets; changes in domestic and
foreign laws, regulations, and taxes; changes in competition and pricing
environments; and regional or general changes in asset valuations.
X-4
OGDEN CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
DECEMBER 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
(In thousands of dollars, except per-share
amounts)
Total Revenues............................. $ 1,749,725 $ 2,031,081 $ 2,184,993 $ 2,104,547 $ 2,035,860
------------ ------------ ------------ ------------ ------------
Income before cumulative effect of changes
in accounting principles................. 75,673 64,534 7,444 67,826 62,130
Cumulative effect of changes in accounting
principles............................... (1,520) (5,340)
------------ ------------ ------------ ------------ ------------
Net income................................. 75,673 64,534 7,444 66,306 56,790
------------ ------------ ------------ ------------ ------------
Basic Earnings Per Share:
Income before cumulative effect of changes
in accounting principles................. 1.51 1.30 0.15 1.55 1.43
Cumulative effect of changes in accounting
principles............................... (0.03) (0.12)
------------ ------------ ------------ ------------ ------------
Total...................................... 1.51 1.30 0.15 1.52 1.31
------------ ------------ ------------ ------------ ------------
Diluted Earnings Per Share:
Income before cumulative effect of changes
in accounting principles................. 1.49 1.28 0.15 1.51 1.39
Cumulative effect of changes in accounting
principles............................... (0.03) (0.11)
------------ ------------ ------------ ------------ ------------
Total...................................... 1.49 1.28 0.15 1.48 1.28
------------ ------------ ------------ ------------ ------------
Total Assets............................... 3,639,295 3,597,532 3,652,671 3,644,886 3,340,729
------------ ------------ ------------ ------------ ------------
Long-Term Obligations...................... 1,927,330 1,958,717 2,044,186 2,047,031 1,946,547
------------ ------------ ------------ ------------ ------------
Shareholders' Equity....................... 566,091 550,925 546,978 596,818 486,267
------------ ------------ ------------ ------------ ------------
Shareholders' Equity Per Common Share...... 11.24 11.06 11.04 12.21 11.15
------------ ------------ ------------ ------------ ------------
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 $.98 per
share, diluted (see Notes 20 and 21 to the Consolidated Financial Statements).
Net income in 1993 was reduced by $.08 per share, diluted, 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.
X-5
OGDEN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
Service revenues........................................... $ 1,133,108,000 $ 1,392,686,000 $ 1,563,748,000
Net sales.................................................. 582,134,000 621,830,000 551,345,000
Construction revenues...................................... 3,402,000 69,900,000
Net gain on sale of businesses............................. 34,483,000 13,163,000
---------------- ---------------- ----------------
Total revenues............................................. 1,749,725,000 2,031,081,000 2,184,993,000
---------------- ---------------- ----------------
Operating costs and expenses............................... 855,959,000 1,089,265,000 1,318,847,000
Costs of goods sold........................................ 539,640,000 592,223,000 518,457,000
Construction costs......................................... 2,196,000 41,756,000
Selling, administrative, and general expenses.............. 109,148,000 119,147,000 144,714,000
Debt service charges....................................... 107,264,000 110,055,000 111,850,000
---------------- ---------------- ----------------
Total costs and expenses................................... 1,612,011,000 1,912,886,000 2,135,624,000
---------------- ---------------- ----------------
Consolidated operating income.............................. 137,714,000 118,195,000 49,369,000
Equity in net income of investees and joint ventures....... 2,036,000 3,604,000 6,866,000
Interest income............................................ 23,476,000 15,142,000 15,126,000
Interest expense........................................... (32,077,000) (28,572,000) (30,491,000)
Other income (deductions)-net.............................. (371,000) 1,272,000 (344,000)
---------------- ---------------- ----------------
Income before income taxes and minority interests.......... 130,778,000 109,641,000 40,526,000
Income taxes............................................... (53,100,000) (46,161,000) (34,237,000)
Minority interests......................................... (2,005,000) 1,054,000 1,155,000
---------------- ---------------- ----------------
Net income................................................. $ 75,673,000 $ 64,534,000 $ 7,444,000
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Basic Earnings Per Share................................... $ 1.51 $ 1.30 $ 0.15
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Diluted Earnings Per Share................................. $ 1.49 $ 1.28 $ 0.15
---------------- ---------------- ----------------
---------------- ---------------- ----------------
See Notes to Consolidated Financial Statements
X-6
OGDEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
----------------------------------
ASSETS 1997 1996
- ------ ---------------- ----------------
Current Assets:
Cash and cash equivalents.................................................... $ 185,671,000 $ 140,824,000
Restricted funds held in trust............................................... 103,882,000 101,326,000
Receivables (less allowances: 1997, $20,207,000 and 1996, $38,275,000)....... 393,185,000 503,424,000
Inventories.................................................................. 34,235,000 56,566,000
Deferred income taxes........................................................ 56,690,000 31,434,000
Other........................................................................ 58,408,000 52,598,000
---------------- ----------------
Total current assets......................................................... 832,071,000 886,172,000
Property, plant, and equipment-net........................................... 1,947,547,000 1,851,304,000
Restricted funds held in trust............................................... 206,013,000 209,485,000
Unbilled service and other receivables (less allowances: 1997, $3,000,000 and
1996, $6,000,000).......................................................... 174,962,000 218,422,000
Unamortized contract acquisition costs....................................... 136,462,000 138,777,000
Goodwill and other intangible assets......................................... 79,889,000 81,555,000
Other assets................................................................. 262,351,000 211,817,000
---------------- ----------------
Total Assets................................................................. $ 3,639,295,000 $ 3,597,532,000
---------------- ----------------
---------------- ----------------
Liabilities and Shareholders' Equity
- ------------------------------------
Liabilities:
Current Liabilities:
Current portion of long-term debt............................................ $ 19,696,000 $ 3,560,000
Current portion of project debt.............................................. 68,052,000 60,966,000
Dividends payable............................................................ 15,721,000 15,547,000
Accounts payable............................................................. 109,719,000 104,978,000
Federal and foreign income taxes payable..................................... 1,913,000 7,648,000
Accrued expenses, etc........................................................ 267,874,000 302,597,000
Deferred income.............................................................. 42,962,000 46,228,000
---------------- ----------------
Total current liabilities.................................................... 525,937,000 541,524,000
Long-term debt............................................................... 354,032,000 309,377,000
Project debt................................................................. 1,424,648,000 1,500,690,000
Deferred income taxes........................................................ 383,341,000 325,925,000
Other liabilities............................................................ 208,179,000 212,538,000
Minority interests........................................................... 28,417,000 7,903,000
Convertible subordinated debentures.......................................... 148,650,000 148,650,000
---------------- ----------------
Total Liabilities............................................................ 3,073,204,000 3,046,607,000
---------------- ----------------
Shareholders' Equity:
Serial cumulative convertible preferred stock, par value $1.00 per share;
authorized, 4,000,000 shares; shares outstanding: 44,346 in 1997 and 47,689
in 1996, net of treasury shares of 29,820 in 1997 and 1996................. 45,000 48,000
Common stock, par value $.50 per share; authorized, 80,000,000 shares; shares
outstanding: 50,295,123 in 1997 and 49,744,527 in 1996, net of treasury
shares of 3,135,123 in 1997 and 3,606,123 in 1996.......................... 25,147,000 24,872,000
Capital surplus.............................................................. 212,383,000 202,162,000
Earned surplus............................................................... 343,237,000 330,302,000
Cumulative translation adjustment-net........................................ (13,862,000) (5,768,000)
Pension liability adjustment................................................. (324,000) (565,000)
Net unrealized loss on securities available for sale......................... (535,000) (126,000)
---------------- ----------------
Total Shareholders' Equity................................................... 566,091,000 550,925,000
---------------- ----------------
Total Liabilities and Shareholders' Equity................................... $ 3,639,295,000 $ 3,597,532,000
---------------- ----------------
---------------- ----------------
See Notes to Consolidated Financial Statements
X-7
OGDEN CORPORATION AND SUBSIDIARIES
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------------
1997 1996 1995
------------------------------ ---------------------------- --------------------------
SHARES AMOUNTS SHARES AMOUNTS SHARES AMOUNTS
-------------- -------------- -------------- ------------ ------------ ------------
Serial Cumulative Convertible
Preferred Stock, Par Value
$1.00 Per Share; Authorized,
4,000,000 Shares:
Balance at beginning of
year........................ 77,509 $ 78,000 79,289 $ 80,000 83,323 $ 84,000
Shares converted into common
stock....................... (3,343) (3,000) (1,780) (2,000) (4,034) (4,000)
-------------- -------------- -------------- ------------ ------------ ------------
Total......................... 74,166 75,000 77,509 78,000 79,289 80,000
Treasury shares............... (29,820) (30,000) (29,820) (30,000) (29,820) (30,000)
-------------- -------------- -------------- ------------ ------------ ------------
Balance at end of year
(aggregate involuntary
liquidation value-1997,
$894,000)................... 44,346 45,000 47,689 48,000 49,469 50,000
-------------- -------------- -------------- ------------ ------------ ------------
Common Stock, Par Value $.50
Per Share; Authorized,
80,000,000 Shares:
Balance at beginning of
year........................ 53,350,650 26,675,000 53,202,904 26,602,000 52,641,215 26,320,000
Exercise of stock options,
less common stock
utilized.................... 59,640 30,000 137,134 68,000 10,735 6,000
Shares used for pooling of
interests................... 526,869 264,000
Conversion of preferred
shares...................... 19,956 10,000 10,612 5,000 24,085 12,000
-------------- -------------- -------------- ------------ ------------ ------------
Total......................... 53,430,246 26,715,000 53,350,650 26,675,000 53,202,904 26,602,000
-------------- -------------- -------------- ------------ ------------ ------------
Treasury shares at beginning
of year..................... 3,606,123 1,803,000 3,735,123 1,868,000 3,864,123 1,932,000
Exercise of stock options..... (471,000) (235,000) (129,000) (65,000) (129,000) (64,000)
-------------- -------------- -------------- ------------ ------------ ------------
Treasury shares at end of
year........................ 3,135,123 1,568,000 3,606,123 1,803,000 3,735,123 1,868,000
-------------- -------------- -------------- ------------ ------------ ------------
Balance at end of year........ 50,295,123 25,147,000 49,744,527 24,872,000 49,467,781 24,734,000
-------------- -------------- -------------- ------------ ------------ ------------
Capital Surplus:
Balance at beginning of
year........................ 202,162,000 197,921,000 194,496,000
Exercise of stock options,
less common stock
utilized.................... 10,228,000 4,244,000 2,620,000
Arising from pooling of
interests................... 813,000
Conversion of preferred
shares...................... (7,000) (3,000) (8,000)
-------------- ------------ ------------
Balance at end of year........ 212,383,000 202,162,000 197,921,000
-------------- ------------ ------------
Earned Surplus:
Balance at beginning of
year........................ 330,302,000 328,047,000 381,864,000
Net income.................... 75,673,000 64,534,000 7,444,000
-------------- ------------ ------------
Total......................... 405,975,000 392,581,000 389,308,000
-------------- ------------ ------------
Preferred dividends-per share
1997, 1996, and 1995,
$3.35....................... 152,000 161,000 171,000
Common dividends-per share
1997, 1996, and 1995,
$1.25....................... 62,586,000 62,118,000 61,090,000
-------------- ------------ ------------
Total dividends............... 62,738,000 62,279,000 61,261,000
-------------- ------------ ------------
Balance at end of year........ 343,237,000 330,302,000 328,047,000
-------------- ------------ ------------
Cumulative Translation
Adjustment-Net.............. (13,862,000) (5,768,000) (2,657,000)
-------------- ------------ ------------
Pension Liability
Adjustment.................. (324,000) (565,000) (760,000)
-------------- ------------ ------------
Net Unrealized Loss on
Securities Available For
Sale........................ (535,000) (126,000) (357,000)
-------------- ------------ ------------
Total Shareholders' Equity.... $ 566,091,000 $550,925,000 $546,978,000
-------------- ------------ ------------
-------------- ------------ ------------
See Notes to Consolidated Financial Statements
X-8
OGDEN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
Cash Flows From Operating Activities:
Net income........................................................................... $ 75,673,000 $ 64,534,000 $ 7,444,000
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and amortization........................................................ 104,377,000 115,263,000 109,604,000
Deferred income taxes................................................................ 24,975,000 20,027,000 18,153,000
Long-lived asset write-downs......................................................... 45,260,000
Other................................................................................ (26,015,000) (20,663,000) 11,986,000
Management of Operating Assets and Liabilities:
Decrease (Increase) in Assets:
Accounts receivable.................................................................. 111,326,000 54,633,000 (43,852,000)
Inventories.......................................................................... 18,916,000 (27,392,000) (11,825,000)
Other assets......................................................................... (5,313,000) (25,231,000) (56,410,000)
Increase (Decrease) in Liabilities:
Accounts payable..................................................................... 7,892,000 (1,608,000) 8,472,000
Accrued expenses..................................................................... (46,582,000) (1,689,000) 1,920,000
Deferred income...................................................................... (3,393,000) 10,233,000 3,861,000
Other liabilities.................................................................... (19,306,000) (11,927,000) (22,369,000)
------------ ------------ ------------
Net cash provided by operating activities............................................ 242,550,000 176,180,000 72,244,000
------------ ------------ ------------
Cash Flows From Investing Activities:
Entities purchased, net of cash acquired............................................. (63,212,000) (16,968,000) (15,474,000)
Proceeds from sale of marketable securities available for sale....................... 13,970,000 13,158,000 71,364,000
Proceeds from sale of businesses..................................................... 61,164,000 90,946,000 18,000,000
Proceeds from sale of property, plant, and equipment................................. 4,865,000 6,803,000 5,402,000
Investments in Energy facilities..................................................... (28,459,000) (14,303,000) (26,827,000)
Other capital expenditures........................................................... (87,742,000) (49,888,000) (65,999,000)
Decrease (increase) in other receivables............................................. 51,046,000 10,553,000 (2,809,000)
Investments in marketable securities available for sale.............................. (13,970,000)
Distributions from investees and joint ventures...................................... 49,605,000
Increases in investments in and advances to investees and joint ventures............. (68,748,000) (19,985,000) (27,983,000)
------------ ------------ ------------
Net cash provided by (used in) investing activities.................................. (81,481,000) (20,316,000) (44,326,000)
------------ ------------ ------------
Cash Flows From Financing Activities:
Borrowings for Energy facilities..................................................... 57,358,000 124,272,000 96,822,000
Other new debt....................................................................... 102,266,000 6,552,000 40,948,000
Payment of debt...................................................................... (217,970,000) (229,206,000) (139,205,000)
Dividends paid....................................................................... (62,564,000) (62,026,000) (59,604,000)
Decrease in funds held in trust...................................................... 928,000 3,903,000 9,514,000
Proceeds from exercise of stock options.............................................. 10,493,000 4,377,000 2,691,000
Other................................................................................ (5,447,000) (289,000) 630,000
------------ ------------ ------------
Net cash used in financing activities................................................ (114,936,000) (152,417,000) (48,204,000)
------------ ------------ ------------
Effect of foreign currency exchange rate changes on cash and cash equivalents........ (1,286,000) (37,000) (291,000)
------------ ------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents................................. 44,847,000 44,042,000 (20,577,000)
Cash and Cash Equivalents at Beginning of Year....................................... 140,824,000 96,782,000 117,359,000
------------ ------------ ------------
Cash and Cash Equivalents at End of Year............................................. $185,671,000 $140,824,000 $ 96,782,000
------------ ------------ ------------
------------ ------------ ------------
See Notes to Consolidated Financial Statements
X-9
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 1997, in transactions accounted for as purchases, Ogden acquired the
shares of Pacific Energy, Inc., and Enchanted Castle as well as a 60% interest
in four cogeneration plants in China for a total cost of $124,217,000. 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, 1996, consolidated revenues, net income, and diluted earnings per
share would have been $1,796,779,000, $84,169,000, and $1.64 for 1997 and
$2,079,398,000, $73,187,000, and $1.45 for 1996.
In December 1996, in transactions accounted for as purchases, Ogden acquired
the shares of Florida Leisure, Inc., and Edison (Bataan) Cogeneration
Corporation for a total cost of $16,968,000. 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, 1995,
consolidated revenues, net income, and diluted earnings per share would have
been $2,033,000,000, $60,565,000, and $1.20 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 1995 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, 1995, total
revenues, net income, and diluted earnings per share would have been
$2,185,000,000, $7,346,000, and $.14 for 1995. 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.
In connection with Ogden's restructuring plan, the Facility Services group's
operations in New York City were sold in July 1997; the Charlotte, North
Carolina, operations of Atlantic Design, a contract manufacturing company, were
sold in September 1997; and the Binghamton, New York, and Cork, Ireland,
operations of Atlantic Design were sold in January 1998. The environmental
business of Ogden Environmental and Energy Services (OEES) was transferred to
the Energy segment, 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
business, another unit of Ogden Technology Services, was sold in April 1996. In
June 1996, the Facility Services group's operations outside of New York City
were sold, and the asbestos abatement operations were discontinued.
Use of Estimates: The preparation of consolidated 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 gains and losses on
marketable securities available for sale are credited or charged to
Shareholders' Equity (see Note 2).
Contracts and Revenue Recognition: Service revenues primarily include only
the fees for cost-plus contracts and other types of contracts. Both the service
revenues and operating expenses exclude reimbursed expenditures of $283,900,000,
$357,698,000, and $450,696,000 for the years ended December 31, 1997, 1996, and
1995, 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
$130,388,000 and $123,420,000 at December 31, 1997 and 1996, 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 three years for computer 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.
X-10
Contract Acquisition Costs: Costs associated with the acquisition of
specific contracts are amortized over their respective contract terms.
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 or debt
service charges, as appropriate.
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.
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, which are
considered to be permanently invested overseas. 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 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," 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 20). When indications of impairment are present, Ogden 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.
Earnings per Share: Ogden adopted SFAS No. 128, "Earnings per Share," in the
fourth quarter of 1997. The Statement establishes standards for computing basic
earnings per share, which is represented by net income available to common
shareholders divided by the weighted-average number of common shares outstanding
during the period. Diluted earnings per share reflects the potential dilution
that could occur if securities or stock options were exercised or converted into
common stock during the period, if dilutive (see Note 24). Earnings per share
amounts for prior years have been restated to reflect this revised standard.
Reclassification: The accompanying financial statements have been
reclassified to conform with the 1997 presentation.
2. INVESTMENTS IN MARKETABLE SECURITIES AVAILABLE FOR SALE
At December 31, 1997 and 1996, marketable equity and debt securities held
for noncurrent uses, such as nonqualified pension liabilities and a deferred
compensation plan, are classified as long-term assets (see Note 6). Net
unrealized losses on marketable equity and debt securities held for noncurrent
uses are charged to Shareholders' Equity.
Marketable securities at December 31, 1997 and 1996 (expressed in thousands
of dollars), include the following:
1997 1996
-------------------- --------------------
MARKET MARKET
VALUE COST VALUE COST
--------- --------- --------- ---------
Classified as Noncurrent Assets:
Mutual and bond funds.................................................................. $ 25,543 $ 26,495 $ 21,159 $ 21,410
--------- --------- --------- ---------
Total.................................................................................. $ 25,543 $ 26,495 $ 21,159 $ 21,410
--------- --------- --------- ---------
--------- --------- --------- ---------
Unrealized holding losses at December 31, 1997 and 1996, amounted to
$952,000 and $251,000, respectively. Deferred tax benefits on these losses
amounted to $417,000 and $125,000, respectively, resulting in net charges of
$535,000 and $126,000, respectively, to Shareholders' Equity.
Proceeds and realized gains and losses from the sales of securities
classified as available for sale for the years ended December 31, 1997, 1996,
and 1995, were $13,970,000, $3,444,000, and zero; $13,158,000, $1,455,000, and
$304,000; and $71,364,000, $235,000, and $1,749,000, respectively. For the
purpose of determining realized gains and losses, the cost of securities sold
was based on specific identification.
X-11
3. UNBILLED SERVICE AND OTHER RECEIVABLES
Unbilled service and other receivables (expressed in thousands of dollars)
consisted of the following:
1997 1996
--------- ---------
Unbilled service receivables............................................................................... $ 130,388 $ 123,420
Notes receivable........................................................................................... 44,574 95,002
--------- ---------
Total...................................................................................................... $ 174,962 $ 218,422
--------- ---------
--------- ---------
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 $41,357,000
and $35,747,000 at December 31, 1997 and 1996, 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 include proceeds received from financing the
construction of waste-to-energy 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:
1997 1996
---------------------- ----------------------
CURRENT NONCURRENT CURRENT NONCURRENT
--------- ----------- --------- -----------
Construction funds.............................................................. $ 3,201 $ 2,888
Debt service funds.............................................................. 43,423 $ 139,961 53,960 $ 142,149
Revenue funds................................................................... 8,811 13,289
Lease reserve funds............................................................. 9,629 5,050 19,556
Other funds..................................................................... 38,818 61,002 31,189 47,780
--------- ----------- --------- -----------
Total........................................................................... $ 103,882 $ 206,013 $ 101,326 $ 209,485
--------- ----------- --------- -----------
--------- ----------- --------- -----------
5. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment (expressed in thousands of dollars) consisted
of the following:
1997 1996
------------- -------------
Land.............................................................................................. $ 7,068 $ 6,654
Waste-to-energy facilities........................................................................ 1,720,990 1,721,670
Power plants...................................................................................... 224,120 105,738
Buildings and improvements........................................................................ 242,345 192,566
Machinery and equipment........................................................................... 312,525 305,723
Landfills......................................................................................... 17,618 14,508
Construction in progress.......................................................................... 32,523 47,329
------------- -------------
Total............................................................................................. 2,557,189 2,394,188
Less accumulated depreciation and amortization.................................................... 609,642 542,884
------------- -------------
Property, plant, and equipment-net................................................................ $ 1,947,547 $ 1,851,304
------------- -------------
------------- -------------
X-12
6. OTHER ASSETS
Other assets (expressed in thousands of dollars) consisted of the following:
1997 1996
--------- ---------
Investment in and advances to investees and joint ventures................................................. $ 151,435 $ 91,980
Unamortized bond issuance costs............................................................................ 31,604 35,517
Spare parts................................................................................................ 9,779 17,045
Noncurrent securities available for sale................................................................... 25,543 21,159
Deferred charges on projects............................................................................... 3,178 3,819
Insurance deposits......................................................................................... 5,388 5,388
Other...................................................................................................... 35,424 36,909
--------- ---------
Total...................................................................................................... $ 262,351 $ 211,817
--------- ---------
--------- ---------
7. ACCRUED EXPENSES, ETC.
Accrued expenses, etc. (expressed in thousands of dollars), consisted of the
following:
1997 1996
--------- ---------
Debt service charges and interest.......................................................................... $ 31,416 $ 32,755
Payroll.................................................................................................... 21,834 23,196
Insurance.................................................................................................. 34,655 45,415
Operating expenses......................................................................................... 43,075 49,445
Municipalities' share of energy revenues................................................................... 28,145 25,162
Lease payments............................................................................................. 15,243 16,747
Payroll and other taxes.................................................................................... 19,794 16,983
Pension and profit sharing................................................................................. 7,383 7,727
Commissions................................................................................................ 7,972 7,983
Other...................................................................................................... 58,357 77,184
--------- ---------
Total...................................................................................................... $ 267,874 $ 302,597
--------- ---------
--------- ---------
8. DEFERRED INCOME
Deferred income (expressed in thousands of dollars) consisted of the
following:
1997 1996
---------------------- ----------------------
CURRENT NONCURRENT CURRENT NONCURRENT
--------- ----------- --------- -----------
Sale and leaseback arrangements................................................... $ 1,523 $ 20,313 $ 1,523 $ 21,963
Advance billings to municipalities................................................ 14,662 16,505
Other............................................................................. 26,777 28,200
--------- ----------- --------- -----------
Total............................................................................. $ 42,962 $ 20,313 $ 46,228 $ 21,963
--------- ----------- --------- -----------
--------- ----------- --------- -----------
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:
1997 1996
----------- -----------
Adjustable-rate revenue bonds due 2014-2024........................................................... $ 124,755 $ 124,755
9.25% debentures due 2022............................................................................. 100,000 100,000
6% notes due through 2000............................................................................. 36,186
Other long-term debt.................................................................................. 93,091 84,622
----------- -----------
Total................................................................................................. $ 354,032 $ 309,377
----------- -----------
----------- -----------
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 3.44% and 3.49% in 1997 and 1996,
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 $440,000,000.
At December 31, 1997, Ogden was in compliance with all requirements and had
$126,091,000 in excess of the required amount of Shareholders' Equity.
X-13
At December 31, 1997, Ogden had two long-term interest rate swap agreements
covering notional amounts of $100,000,000 and $4,700,000, 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 $4,700,000 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 $4,700,000 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, 1997, the three-month LIBOR rate was
5.81%. 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 paid on swap agreements
amounted to $400,000, $200,000, and $600,000 for 1997, 1996, and 1995,
respectively, and were charged to interest expense. The effect on Ogden's
weighted-average borrowing rate for 1997, 1996, and 1995 was an increase of
.09%, .04%, and .14%, 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. Long-term debt also includes $24,645,000 due to financial
institutions relating to the Corporation's investment in a coal-fired power
project in the Philippines, which bears interest at the Eurodollar rate plus
.235% (8.5% at December 31, 1997) and matures in 2001. The remaining other debt
of $17,596,000 consists primarily of debt associated with entertainment
facilities in the United Kingdom and Argentina and debt acquired in the Firehole
acquisition. These loans bear various interest rates and maturity dates.
The maturities on long-term debt (expressed in thousands of dollars) at
December 31, 1997, were as follows:
1998.............................................................................. $ 19,696
1999.............................................................................. 25,483
2000.............................................................................. 19,007
2001.............................................................................. 24,971
2002.............................................................................. 226
Later years....................................................................... 284,345
---------
Total............................................................................. 373,728
Less current portion.............................................................. 19,696
---------
Total long-term debt.............................................................. $ 354,032
---------
---------
10. PROJECT DEBT
Project debt (expressed in thousands of dollars) consisted of the following:
1997 1996
------------- -------------
Revenue Bonds Issued by and Prime Responsibility of Municipalities:
4.25-7.6% serial revenue bonds due through 2008................................................... $ 212,368 $ 238,908
5.4-7.75% term revenue bonds due through 2015..................................................... 745,350 764,876
Adjustable-rate revenue bonds due through 2013.................................................... 86,185 86,590
------------- -------------
Total............................................................................................. 1,043,903 1,090,374
------------- -------------
Revenue Bonds Issued by Municipal Agencies with Sufficient Service Revenues Guaranteed by Third
Parties:
4.95-8.9% serial revenue bonds due through 2007................................................... 53,938 62,886
7.25-7.4% term revenue bonds due 1999 through 2011................................................ 105,871 105,859
Adjustable-rate revenue bonds due through 2011.................................................... 115,428 121,723
------------- -------------
Total............................................................................................. 275,237 290,468
------------- -------------
Other project debt................................................................................ 105,508 119,848
------------- -------------
Total long-term project debt...................................................................... $ 1,424,648 $ 1,500,690
------------- -------------
------------- -------------
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, "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.
X-14
Payment obligations for the project debt associated with waste-to-energy
facilities are limited recourse to the operating subsidiary and 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, 1997, such revenue bonds were collateralized by
property, plant, and equipment with a net carrying value of $1,479,743,000,
credit enhancements of approximately $161,000,000 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 4.35% and 4.6%
in 1997 and 1996, respectively.
Other project debt includes an obligation of a special-purpose limited
partnership acquired by special-purpose subsidiaries of Ogden and represents the
lease of a geothermal power plant, which has been accounted for as a financing.
This obligation, which amounted to $77,502,000 at December 31, 1997, 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
$93,556,000 at December 31, 1997. Other project debt also includes $17,206,000
due to 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 obligation has
an effective interest rate of 7.05% and extends through 2005. In addition, other
project debt includes $10,800,000, which is due to financial institutions and
bears interest at an adjustable rate equal to the three-month LIBOR rate plus
3.5% (9.5% at December 31, 1997). The debt extends through 2001 and is secured
by substantially all the assets of a diesel-fired power plant in the
Philippines, which had a net carrying value of approximately $47,140,000 at
December 31, 1997.
At December 31, 1997, 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, 1997, of
$91,070,000, $27,685,000, 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, 1997, the floating rates on the
three swaps were 3.72%, 5.65%, and 6.23%, 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 $107,905,000 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 $300,000, $700,000, and
$(230,000) for 1997, 1996, and 1995, respectively, and were charged or
(credited) to debt service charges. The effect on Ogden's weighted-average
borrowing rate was an increase (decrease) of .02%, .04%, and (.01)% for 1997,
1996, and 1995, respectively.
The maturities on long-term project debt (expressed in thousands of dollars)
at December 31, 1997, were as follows:
1998.................................................................. $ 68,052
1999.................................................................. 80,407
2000.................................................................. 80,736
2001.................................................................. 89,832
2002.................................................................. 116,555
Later years........................................................... 1,057,118
------------
Total................................................................. 1,492,700
Less current portion.................................................. 68,052
------------
Total long-term project debt.......................................... $ 1,424,648
------------
------------
X-15
11. CREDIT ARRANGEMENTS
At December 31, 1997, Ogden had unused revolving credit lines amounting to
$217,000,000, of which $200,000,000 is available under its principal revolving
credit line at various borrowing rates including prime, the Eurodollar rate plus
.225%, or certificate-of-deposit rates plus .35%. Ogden is not required to
maintain compensating balances; however, Ogden pays a facility fee of 1/8 of 1%
on its principal revolving credit line of $200,000,000, which expires July 1,
2002.
12. CONVERTIBLE SUBORDINATED DEBENTURES
Convertible subordinated debentures (expressed in thousands of dollars)
consisted of the following:
1997 1996
--------- ---------
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.
These debentures are redeemable at Ogden's option at 101.2% of principal amount
during the year commencing June 1, 1997, 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.
These 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 ten-year period ending March 10,
1996. At December 31, 1997, 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 ten-year period ending October 11,
2000; 1,555,000 shares were available for grant at December 31, 1997.
Under the foregoing plans, Ogden issued 4,549,500 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 Ogden Energy
Group, Inc. (OEGI), Ogden assumed the pre-existing OEGI 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.
X-16
14. COMMON STOCK AND STOCK OPTIONS (CONTINUED)
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 1997, 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 6.2%,
5.7% and 6.2%; volatility of 25.84%, 22.74%, and 24.77%; risk-free interest rate
of 6.43%, 5.42%, and 7.72%; and an expected life of 7.5 years--the effect on net
income and diluted earnings per share would have been $334,000 and $.01 for
1997; $214,000 and zero for 1996; and zero and zero for 1995. The
weighted-average fair value of options granted during 1997, 1996, and 1995 was
$2.56, $2.38, and $2.62, respectively.
Information regarding the Corporation's stock option plans is summarized
as follows:
WEIGHTED-
OPTION AVERAGE
PRICE EXERCISE
PER SHARE OUTSTANDING EXERCISABLE PRICE
------------ ----------- ----------- -----------
1986 Plan:
December 31, 1994, Balance..................... $14.98-$28.54 1,127,543 878,043 $ 18.84
Became Exercisable............................. $18.31-$28.54 157,100
Exercised...................................... $14.98 (16,618) (16,618) $ 14.98
------------ ----------- ----------- -----------
December 31, 1995, Balance..................... $14.98-$28.54 1,110,925 1,018,525 $ 18.89
Became Exercisable............................. $22.50 23,100
Exercised...................................... $14.98 (235,425) (235,425) $ 14.98
------------ ----------- ----------- -----------
December 31, 1996, Balance..................... $18.31-$28.54 875,500 806,200 $ 19.93
Became Exercisable............................. $22.50 23,100
Cancelled...................................... $28.54 (10,000) (10,000) $ 28.54
------------ ----------- ----------- -----------
December 31, 1997, Balance..................... $18.31-$28.54 865,500 819,300 $ 19.74
------------ ----------- ----------- -----------
1990 Plan:
December 31, 1994, Balance..................... $18.31-$23.56 3,585,500 1,799,800 $ 19.99
Granted........................................ $20.06-$22.69 409,000 $ 20.26
Became Exercisable............................. $18.31-$23.56 699,900
Exercised...................................... $18.31-$21.31 (129,000) (129,000) $ 18.56
Cancelled...................................... $18.31-$23.56 (184,700) (34,000) $ 20.31
------------ ----------- ----------- -----------
December 31, 1995, Balance..................... $18.31-$23.56 3,680,800 2,336,700 $ 20.06
Granted........................................ $21.00-$21.94 252,500 $ 21.83
Became Exercisable............................. $18.31-$23.56 346,800
Exercised...................................... $18.31-$21.31 (129,000) (129,000) $ 18.85
Cancelled...................................... $18.31-$23.56 (147,300) (84,300) $ 20.06
------------ ----------- ----------- -----------
December 31, 1996, Balance..................... $18.31-$23.56 3,657,000 2,470,200 $ 20.21
Granted........................................ $20.19 570,000 $ 20.19
Became Exercisable............................. $18.31-$23.56 385,400
Exercised...................................... $18.31-$21.93 (471,000) (471,000) $ 18.62
Cancelled...................................... $18.31-$23.56 (72,000) (11,000) $ 21.90
------------ ----------- ----------- -----------
December 31, 1997, Balance..................... $18.31-$23.56 3,684,000 2,373,600 $ 20.39
------------ ----------- ----------- -----------
Conversion of OEGI Plan:
December 29, 1994, Balance..................... $14.17-$29.46 266,561 266,561 $ 14.60
December 31, 1995, Balance..................... $14.17-$29.46 266,561 266,561 $ 14.60
Exercised...................................... $14.17 (19,740) (19,740) $ 14.17
Cancelled...................................... $14.17 (3,360) (3,360) $ 14.17
------------ ----------- ----------- -----------
December 31, 1996, Balance..................... $14.17-$29.46 243,461 243,461 $ 14.70
Exercised...................................... $14.17 (59,640) (59,640) $ 14.17
Cancelled...................................... $29.46 (8,400) (8,400) $ 29.46
------------ ----------- ----------- -----------
December 31, 1997, Balance..................... $14.17 175,421 175,421 $ 14.17
------------ ----------- ----------- -----------
Total December 31, 1997........................ $14.17-$28.54 4,724,921 3,368,321 $ 20.05
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
X-17
The following table summarizes information about stock options outstanding
at December 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ ------------------------------
RANGE OF NUMBER OF WEIGHTED-AVERAGE WEIGHTED-AVERAGE NUMBER OF WEIGHTED-AVERAGE
EXERCISE SHARES REMAINING EXERCISE SHARES EXERCISE
PRICES OUTSTANDING CONTRACTUAL LIFE PRICE OUTSTANDING PRICE
- ------------ ----------- ---------------- ----------------- ----------- -----------------
$14.17-$18.31 2,223,921 2.74 years $ 17.99 2,223,921 $ 17.99
$20.06-$28.54 2,501,000 6.72 years $ 21.89 1,144,400 $ 22.61
- ------------ ----------- ---------------- ------ ----------- ------
$14.17-$28.54 4,724,921 4.84 years $ 20.05 3,368,321 $ 19.56
- ------------ ----------- ---------------- ------ ----------- ------
- ------------ ----------- ---------------- ------ ----------- ------
The weighted-average exercise price for all exercisable options at December
31, 1997, 1996, and 1995, was $19.56, $19.10, and $18.49, respectively.
At December 31, 1997, there were 10,243,886 shares of common stock reserved
for the exercise of stock options and the conversion of preferred shares and
debentures.
In January 1998, Ogden's Board of Directors authorized the purchase of
shares of the Corporation's common stock in an amount up to $100,000,000. Fifty
thousand (50,000) shares of common stock were purchased in February 1998 for
$1,372,000.
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, 1997,
50,295,123 Rights were outstanding.
16. FOREIGN EXCHANGE
Foreign exchange translation adjustments for 1997, 1996, and 1995, amounting
to $(8,094,000), $(3,111,000), and $(1,258,000), respectively, have been
credited (charged) directly to Shareholders' Equity. Foreign exchange
transaction adjustments, amounting to $(683,000), $(215,000), and $1,590,000,
have been credited (charged) directly to income for 1997, 1996, and 1995,
respectively.
17. DEBT SERVICE CHARGES
Debt service charges for Ogden's project debt (expressed in thousands of
dollars) consisted of the following:
1997 1996 1995
--------- --------- ---------
Interest incurred on taxable and tax-exempt borrowings............................................ $ 104,890 $ 107,595 $ 112,029
Interest earned on temporary investment of borrowings during construction, etc.................... 3,992 4,256 4,908
--------- --------- ---------
Net interest incurred............................................................................. 100,898 103,339 107,121
Interest capitalized during construction in property, plant, and equipment........................ 631 485 1,512
--------- --------- ---------
Interest expense-net.............................................................................. 100,267 102,854 105,609
Amortization of bond issuance costs............................................................... 6,997 7,201 6,241
--------- --------- ---------
Debt service charges.............................................................................. $ 107,264 $ 110,055 $ 111,850
--------- --------- ---------
--------- --------- ---------
18. 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.
X-18
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):
1997 1996
---------------------------- ----------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
------------- ------------- ------------- -------------
Accumulated Benefit Obligation:
Vested.................................................................. $ 10,887 $ 10,008 $ 8,820 $ 10,480
Nonvested............................................................... 397 497 314 442
------------- ------------- ------------- -------------
Total................................................................... $ 11,284 $ 10,505 $ 9,134 $ 10,922
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Projected benefit obligation for services rendered to date.............. $ 15,795 $ 14,976 $ 12,715 $ 15,355
Plan assets at fair value............................................... 16,914 5,386 13,495 5,764
------------- ------------- ------------- -------------
Over (underfunded) projected benefits................................... $ 1,119 $ (9,590) $ 780 $ (9,591)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Source of Underfunded Status:
Unrecognized net gain (loss) from past experience different from that
assumed and effects of changes in assumptions......................... $ 1,501 $ 67 $ 588 $ (1,037)
Unrecognized net transition asset (obligation) at January 1, 1986, being
recognized over 15 years.............................................. 335 (240) 417 (320)
Pension liability costs................................................. (1,145) (7,659) (688) (5,916)
Unrecognized prior service costs........................................ 428 (1,758) 463 (2,318)
------------- ------------- ------------- -------------
Over (underfunded) projected benefits................................... $ 1,119 $ (9,590) $ 780 $ (9,591)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
At December 31, 1997 and 1996, the accumulated benefit obligation of certain
pension plans exceeded plan assets. The Corporation's minimum liability for
those plans amounted to $911,000 and $1,463,000 at December 31, 1997 and 1996,
respectively. Such amounts were offset by intangible assets and reductions in
Shareholders' Equity, net of income taxes of $324,000 and $565,000 at December
31, 1997 and 1996, respectively.
At December 31, 1997 and 1996, the Corporation has designated $13,970,000 of
its marketable securities (Note 2) as pertaining to a nonqualified pension plan
that is underfunded by $7,050,000, which underfunding is reflected above under
plans in which accumulated benefits exceeded assets.
Pension costs for Ogden's defined benefit plans included the following
components (expressed in thousands of dollars):
1997 1996 1995
------ ------- -------
Service cost on benefits earned during the period...... $2,193 $ 2,139 $ 2,078
Interest cost on projected benefit obligation.......... 1,929 1,900 1,716
Net amortization and deferral.......................... 3,623 2,268 2,584
Actual return on plan assets........................... (4,501) (2,746) (3,260)
------ ------- -------
Net periodic pension cost.............................. $3,244 $ 3,561 $ 3,118
------ ------- -------
------ ------- -------
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% and 4 1/2% for 1997 and 7 1/2% and 4 1/2%
for 1996 and 1995. 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 $8,652,000, $7,954,000, and $10,358,000 in 1997, 1996,
and 1995, respectively. Plan assets at December 31, 1997, 1996, and 1995,
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 1997, 1996, and 1995 was
$16,700,000, $26,600,000, and $27,900,000, respectively.
19. 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.
X-19
For the years ended December 31, 1997, 1996, and 1995, 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:
1997 1996 1995
---------- ---------- ----------
Service costs................................................................ $ 101,204 $ 126,879 $ 131,966
Interest..................................................................... 828,446 806,016 755,944
Amortization of unrecognized net (gain) loss................................. (27,193) 18,481 (22,113)
---------- ---------- ----------
Total........................................................................ $ 902,457 $ 951,376 $ 865,797
---------- ---------- ----------
---------- ---------- ----------
As of December 31, 1997 and 1996, the actuarial recorded liabilities for
these postretirement benefits, none of which have been funded, were as
follows:
Accumulated Postretirement Benefit Obligation:
Retirees........................................................... $ 7,087,053 $5,618,399
Eligible active participants....................................... 4,246,196 4,616,340
Other active....................................................... 1,130,645 959,853
----------- ----------
Total accumulated postretirement obligation........................ 12,463,894 11,194,592
Unrecognized net loss.............................................. 1,386,694 603,201
----------- ----------
Accrued postretirement benefit liability........................... $11,077,200 $10,591,391
----------- ----------
----------- ----------
The accumulated postretirement benefit obligation was determined using
discount rates of 7% and 7 1/2% for 1997 and 1996, respectively; an estimated
increase in compensation levels of 4 1/2%; 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 $75,391 and $817,580, respectively.
20. IMPAIRMENT OF LONG-LIVED ASSETS
Ogden adopted the provisions of SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and 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 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 $.69 per share, diluted.
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.
21. 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, diluted. The charge of $37,500,000
included, 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.
X-20
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 1995
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.
22. INCOME TAXES
The components of the provision for income taxes (expressed in thousands of
dollars) were as follows:
1997 1996 1995
--------- --------- ---------
Current:
Federal.......................................................................... $ 9,806 $ 14,661 $ 6,444
State............................................................................ 12,195 9,048 5,038
Foreign.......................................................................... 6,124 2,425 4,602
--------- --------- ---------
Total current.................................................................... 28,125 26,134 16,084
--------- --------- ---------
Deferred:
Federal.......................................................................... 25,288 18,984 17,120
State............................................................................ (2,577) 1,043 1,033
Foreign.......................................................................... 2,264
--------- --------- ---------
Total deferred................................................................... 24,975 20,027 18,153
--------- --------- ---------
Total provision for income taxes................................................. $ 53,100 $ 46,161 $ 34,237
--------- --------- ---------
--------- --------- ---------
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:
1997 1996
------------- -------------
PERCENT PERCENT
OF INCOME OF INCOME
AMOUNT BEFORE AMOUNT BEFORE AMOUNT
OF TAX TAXES OF TAX TAXES OF TAX
--------- ------------- --------- ------------- ---------
Taxes at statutory rate................................ $ 45,772 35.0% $ 38,374 35.0% $ 14,184
State income taxes, net of
Federal tax benefit.................................... 6,252 4.8 6,559 5.9 3,946
Settlement of tax liability with former subsidiary..... (2,638) (2.4)
Taxes on foreign earnings.............................. 1,135 .9 738 .7 6,694
Amortization of goodwill............................... 866 .6 1,070 1.0 1,206
Write-down of goodwill................................. 1,750 1.3 648 .6 5,263
Pooling-related taxes and costs........................ 1,807
Benefit relating to sale of stock of former
subsidiary........................................... (3,581) (2.7)
Other-net.............................................. 906 .7 1,410 1.3 1,137
--------- --- --------- --- ---------
Provision for income taxes............................. $ 53,100 40.6% $ 46,161 42.1% $ 34,237
--------- --- --------- --- ---------
--------- --- --------- --- ---------
1995
-------------
PERCENT
OF INCOME
BEFORE
TAXES
-------------
Taxes at statutory rate................................ 35.0%
State income taxes, net of
Federal tax benefit.................................... 9.7
Settlement of tax liability with former subsidiary.....
Taxes on foreign earnings.............................. 16.5
Amortization of goodwill............................... 3.0
Write-down of goodwill................................. 13.0
Pooling-related taxes and costs........................ 4.5
Benefit relating to sale of stock of former
subsidiary...........................................
Other-net.............................................. 2.8
---
Provision for income taxes............................. 84.5%
---
---
The components of the net deferred income tax liability (expressed in
thousands of dollars) as of December 31, 1997 and 1996, were as follows:
1997 1996
---------- ----------
Deferred Tax Assets:
Deferred income....................................................... $ 4,029 $ 8,200
Accrued expenses...................................................... 79,093 62,904
Other liabilities..................................................... 28,325 24,936
Investment tax credits................................................ 20,813 24,081
Alternative minimum tax credits....................................... 47,704 46,917
Net operating loss carryforwards...................................... 58,066
---------- ----------
Total deferred tax assets............................................. 179,964 225,104
---------- ----------
Deferred Tax Liabilities:
Unbilled accounts receivable.......................................... 45,384 46,270
Property, plant, and equipment........................................ 428,185 440,293
Other................................................................. 33,046 33,032
---------- ----------
Total deferred tax liabilities........................................ 506,615 519,595
---------- ----------
Net deferred tax liability............................................ $ 326,651 $ 294,491
---------- ----------
---------- ----------
X-21
Deferred tax assets and liabilities (expressed in thousands of dollars) are
presented as follows in the accompanying balance sheets:
1997 1996
---------- ----------
Net deferred tax liability-noncurrent................................. $ 383,341 $ 325,925
Less net deferred tax asset-current................................... 56,690 31,434
---------- ----------
Net deferred tax liability............................................ $ 326,651 $ 294,491
---------- ----------
---------- ----------
At December 31, 1997, for Federal income tax purposes, the Corporation
had investment and energy tax credit carryforwards of approximately
$20,813,000, which will expire in 2004 through 2008, and alternative minimum
tax credit carryforwards of approximately $47,704,000 that have no expiration
date. Deferred Federal income taxes have been reduced by these amounts.
23. LEASES
Total rental expense amounted to $100,449,000, $91,351,000, and $93,396,000
(net of sublease income of $2,113,000, $1,427,000, and $193,000) for 1997, 1996,
and 1995, respectively. Included in rental expense are amounts based on
contingent factors (principally sales) in excess of minimum rentals amounting to
$23,365,000, $20,970,000, and $21,676,000, for 1997, 1996, and 1995,
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,
1997:
1998............................................................. $ 82,482
1999............................................................. 77,522
2000............................................................. 65,502
2001............................................................. 59,049
2002............................................................. 54,437
Later years...................................................... 303,385
---------
Total.......................................................... $ 642,377
---------
---------
These future minimum rental payment obligations include $91,736,000 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 $64,344,000 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:
1998............................................................. $ 19,492
1999............................................................. 20,797
2000............................................................. 21,402
2001............................................................. 21,402
2002............................................................. 21,411
Later years...................................................... 51,576
---------
Total............................................................ $ 156,080
---------
---------
24. EARNINGS PER SHARE
Basic earnings per share was computed by dividing net income, reduced by
preferred stock dividend requirements, by the weighted average of the number of
shares of common stock outstanding during each year.
Diluted earnings per share was 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 reconciliation of the income and common shares included in the
computation of basic earnings per common share and diluted earnings per common
share for years ended December 31, 1997, 1996, and 1995, is as follows:
X-22
1997 1996
------------- -------------
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE INCOME
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR)
------------ ------------- ------------- ------------ ------------- ------------- ------------
Net income........... $75,673,000 $64,534,000 $7,444,000
Less: preferred stock
dividend........... 152,000 161,000 171,000
------------ ------------ ------------
Basic Earnings
Per Share............ 75,521,000 50,030,000 $ 1.51 64,373,000 49,663,000 $ 1.30 7,273,000
----- -----
----- -----
Effect of Dilutive
Securities:
Stock options........ 538,000 501,000
Convertible preferred
stock.............. 152,000 275,000 161,000 289,000
6% convertible
debentures......... 2,353,000 1,631,000 (A)
5 3/4% convertible
debentures......... 1,693,000 1,143,000 (A)
------------ ------------- ------------ ------------- ------------
Diluted Earnings
Per Share............ $79,719,000 53,617,000 $ 1.49 $64,534,000 50,453,000 $ 1.28 $7,273,000
------------ ------------- ----- ------------ ------------- ----- ------------
------------ ------------- ----- ------------ ------------- ----- ------------
1995
-------------
SHARES PER-SHARE
(DENOMINATOR) AMOUNT
------------- -------------
Net income...........
Less: preferred stock
dividend...........
Basic Earnings
Per Share............ 49,385,000 $ 0.15
-----
-----
Effect of Dilutive
Securities:
Stock options........ 605,000
Convertible preferred
stock.............. (A)
6% convertible
debentures......... (A)
5 3/4% convertible
debentures......... (A)
-------------
-------------
Diluted Earnings
Per Share............ 49,990,000 $ 0.15
------------- -----
------------- -----
- ------------------------
(A) Antidilutive Outstanding stock options to purchase common stock with an
exercise price greater than the average market price of common stock were
not included in the computation of diluted earnings per share. The balance
of such options was 80,000 in 1997, 2,100,400 in 1996, and 1,443,200 in
1995. Shares of common stock to be issued, assuming conversion of
convertible preferred shares, the 6% convertible debentures, and the 5 3/4%
convertible debentures, were not included in computations of diluted
earnings per share if to do so would have been antidilutive. The common
shares excluded from the calculation were 306,000 in 1995 for convertible
preferred shares; 544,000 in 1997 and 2,175,000 in 1996 and 1995 for the 6%
convertible debentures; and 381,000 in 1997 and 1,524,000 in 1996 and 1995
for the 5 3/4% convertible debentures.
25. 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. In connection with certain contractual arrangements,
Ogden has agreed to provide two vendors with specified amounts of business
over a three-and-a-half-year period. If these amounts are not provided, the
Corporation may be liable for prorated damages of approximately $5,700,000.
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 Ogden entered into a 30-year facility
management contract, pursuant to which it agreed to advance funds to a
customer, and if necessary, to assist the customer's refinancing of senior
secured debt incurred in connection with the construction of the facility.
During 1997, Ogden purchased the customer's senior secured debt in the amount
of $95,000,000 using borrowed funds, which senior secured debt was
subsequently sold and the borrowed funds repaid. Ogden is obligated to
repurchase such senior secured debt in the amount of $97,679,000 on December
30, 2002, if such debt is not refinanced prior to that time. Ogden's
repurchase obligation is collateralized by bank letters of credit. Ogden is
also required to repurchase the outstanding amount of certain subordinated
secured debt issued by such customer on December 30, 2002. The amount
outstanding at December 31, 1997, was $46,562,000. In February 1998, this
amount was increased to $51,624,000. During 1997, this customer purchased
certain subordinated secured debt and repaid other amounts owed to Ogden in
an aggregate amount of $38,900,000. In February 1998, this customer repaid an
additional $7,343,000 owed to Ogden. In addition, at December 31, 1997, the
Corporation had guaranteed indebtedness of $20,683,000 of an affiliate and
principal tenant of this customer, which indebtedness is due in September
1998. Ogden has also guaranteed borrowings of another customer amounting to
approximately $14,400,000 as well as $15,500,000 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.
In January 1998, a joint venture in which the Corporation has a 28% interest
was awarded a 30-year concession contract to develop, improve, and operate 33
airports in Argentina. Ogden has a commitment of $28,000,000 for its equity
contribution to this joint venture.
At December 31, 1997, capital commitments amounted to $158,700,000, which
included $86,100,000 for normal replacement, modernization, and growth in
Entertainment ($45,200,000); Aviation ($23,200,000); Energy ($16,800,000); and
Corporate and Other ($900,000) operations. Also included was $61,200,000 for
Energy's coal-fired power project in the Philippines reflecting $41,800,000 for
the remaining mandatory equity contributions, $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 remaining mandatory equity
contribution is being provided through a bank credit facility, which must be
repaid in December 2001. The Corporation also has a $11,400,000 contingent
equity contribution in an entertainment venture. In addition, compliance with
standards and guidelines under the Clean Air Act Amendments of 1990 will require
further Energy capital expenditures currently estimated at $40,000,000 by
December 2000, subject to final time schedules determined by the individual
states in which the Corporation's waste-to-energy facilities are located.
X-23
26. INFORMATION CONCERNING BUSINESS SEGMENTS
Ogden elected to change the reporting of its business segments as of January
1, 1997, and restated its prior years' presentation to conform to this revised
segment reporting. Two of Ogden's core businesses formerly reported as part of
the Services segment-Entertainment and Aviation-have been designated as separate
business segments. All other operations formerly in the Services segment, mainly
the Facility Management and Technology groups, were transferred to the Other
segment except the Facility Management operations at Ogden's waste-to-energy
plants and its environmental business, which have been transferred to the Energy
segment. Noncore businesses scheduled for disposition are included in the Other
segment.
In connection with Ogden's restructuring plan, in 1997 Facility Services'
New York City operations and the Charlotte, North Carolina, operations of
Atlantic Design were sold. In 1996, the environmental laboratory business of
Energy was sold, and in addition, the Other segment sold the operations of W.J.
Schafer Associates, Ogden Professional Services, and the Facility Services
group's operations outside of New York City and discontinued its asbestos
abatement operations.
The Entertainment segment consists principally of interests in themed
attractions; live theater; concerts; gaming; large-format theaters and films;
performing artist management; recorded music and video development; food,
beverage, and novelty concession operations; and facility management at arenas,
stadiums, amphitheaters, civic-convention centers, and other recreational
facilities. Most of these services are provided at a wide variety of public and
private facilities including stadiums, convention and exposition centers,
arenas, parks, amphitheaters, and fairgrounds located in the United States,
Mexico, Canada, Argentina, Germany, Australia, Spain, and the United Kingdom.
Entertainment also operates a racetrack and four off-track betting parlors in
Illinois.
The Aviation segment provides specialized support services to airlines at
locations in the United States, Canada, Europe, Latin America, and the Pacific
Rim. The specialized support services provided by this group include
comprehensive ground handling, ramp, passenger, cargo and warehouse, aviation
fueling, and in-flight catering services. These services are performed through
joint ventures, consortia, contracts with individual airlines, consolidated
agreements with several airlines, and contracts with various airport
authorities.
The operations of Ogden's Energy segment are conducted by Ogden Energy
Group, Inc., through four principal business groups-independent power, waste to
energy, water and wastewater, and environmental consulting and engineering
(collectively, "Energy").
Revenues and income from continuing operations (expressed in thousands of
dollars) for the years ended December 31, 1997, 1996, and 1995, were as follows:
1997 1996 1995
------------ ------------ ------------
REVENUES:
Entertainment........................................................... $ 425,922 $ 391,933 $ 301,315
Aviation................................................................ 363,264 426,746 450,046
Energy.................................................................. 712,272 724,281 769,754
Other................................................................... 248,267 488,121 663,878
------------ ------------ ------------
Total revenues.......................................................... $ 1,749,725 $ 2,031,081 $ 2,184,993
------------ ------------ ------------
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS:
Entertainment........................................................... $ 30,545 $ 20,259 $ (9,458)
Aviation................................................................ 34,015 14,940 1,381
Energy.................................................................. 94,433 90,464 64,716
Other................................................................... 528 16,745 22,518
------------ ------------ ------------
Total income from operations............................................ 159,521 142,408 79,157
EQUITY IN NET INCOME (LOSS) OF INVESTEES AND JOINT VENTURES:
Entertainment........................................................... (3,091) (1,196) (392)
Aviation................................................................ 3,343 1,231 368
Energy.................................................................. 1,605 325 4,423
Other................................................................... 179 3,244 2,467
------------ ------------ ------------
Total................................................................... 161,557 146,012 86,023
Corporate unallocated income and expenses-net........................... (22,178) (22,941) (30,132)
Corporate interest-net.................................................. (8,601) (13,430) (15,365)
------------ ------------ ------------
CONSOLIDATED INCOME BEFORE INCOME
TAXES AND MINORITY INTEREST............................................. $ 130,778 $ 109,641 $ 40,526
------------ ------------ ------------
------------ ------------ ------------
In 1995, income from operations of Entertainment, Aviation, Energy, and
Other reflects pretax charges of $6,500,000, $10,800,000, $32,400,000, and
$19,600,000, respectively, reflecting the adoption of SFAS No. 121 and other
unusual charges (see Notes 20 and 21).
Ogden's revenues include $53,600,000, $137,600,000, and $280,846,000 from
the United States government contracts for the years ended December 31, 1997,
1996, and 1995, 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.
X-24
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, 1997, 1996, and 1995, is as follows
(reportable amounts for 1995 are shown as originally reported since the
Corporation cannot practically restate these amounts):
IDENTIFIABLE DEPRECIATION AND CAPITAL
ASSETS AMORTIZATION ADDITIONS
------------ ---------------- ----------
1997
Entertainment......................................................... $ 317,313 $ 14,731 $ 52,523
Aviation.............................................................. 250,474 13,129 19,008
Energy................................................................ 2,808,571 72,835 39,967
Other................................................................. 81,512 2,423 2,131
Corporate............................................................. 181,425 1,259 2,572
------------ -------- ----------
Consolidated.......................................................... $ 3,639,295 $ 104,377 $ 116,201
------------ -------- ----------
------------ -------- ----------
1996
Entertainment......................................................... $ 294,653 $ 13,980 $ 17,618
Aviation.............................................................. 219,510 15,444 10,401
Energy................................................................ 2,681,820 77,487 28,157
Other................................................................. 203,748 6,909 6,037
Corporate............................................................. 197,801 1,443 1,978
------------ -------- ----------
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
------------ -------- ----------
------------ -------- ----------
Ogden's areas of operations are principally in the United States. Operations
outside of the United States are worldwide but primarily in Europe, South
America, and Asia. No single foreign country or geographic area is significant
to the consolidated operations. Foreign operations' revenues, income from
operations, and identifiable assets were $248,970,000, $22,513,000, and
$387,294,000, respectively, for 1997 and $238,500,000, $10,900,000, and
$275,100,000, respectively, for 1996.
27. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
(EXPRESSED IN THOUSANDS OF DOLLARS) 1997 1996 1995
- ----------------------------------------------------------------------------- ---------- ---------- ----------
CASH PAID FOR INTEREST AND INCOME TAXES:
Interest (net of amounts capitalized)........................................ $ 145,270 $ 134,560 $ 140,878
Income taxes................................................................. 24,187 20,552 9,885
NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of preferred shares for common shares............................. 3 2 4
Detail of Entities Acquired:
Fair value of assets acquired................................................ 152,836 38,019 32,293
Liabilities assumed.......................................................... (89,624) (21,051) (16,819)
Net cash paid for acquisitions............................................... 63,212 16,968 15,474
X-25
28. 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.
The estimated fair value (expressed in thousands of dollars) of financial
instruments at December 31, 1997 and 1996, is summarized as follows:
1997 1996
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
ASSETS:
Cash and cash equivalents..................................... $ 185,671 $ 185,671 $ 140,824 $ 140,824
Receivables................................................... 568,147 571,159 721,846 725,075
Restricted funds.............................................. 309,895 309,711 310,811 310,716
Other assets.................................................. 26,659 26,659 23,799 23,799
LIABILITIES:
Debt.......................................................... 373,728 413,453 312,937 335,819
Convertible subordinated debentures........................... 148,650 143,342 148,650 142,546
Project debt.................................................. 1,492,700 1,563,877 1,561,656 1,617,690
Other liabilities............................................. 21,175 18,729 21,245 18,330
OFF BALANCE-SHEET FINANCIAL INSTRUMENTS:
Unrealized losses on interest rate swap agreements............ 3,529 1,413
Unrealized gains on interest rate swap agreements............. 201 670
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. 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 marketable securities, 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 on quoted market prices. 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 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 customers (see Note 25) 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, 1997 and 1996. 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.
X-26
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, 1997 and 1996, and the
related statements of shareholders' equity, consolidated income and cash
flows for each of the three years in the period ended December 31, 1997.
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, 1997 and
1996, and the results of their operations and cash flows for each of the
three years in the period ended December 31, 1997, 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.
/s/ Deloitte & Touche LLP
February 27, 1998
X-27
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 and
President, and Chief Financial Officer
Chief Executive Officer
X-28
OGDEN CORPORATION AND SUBSIDIARIES
QUARTERLY RESULTS OF OPERATIONS
1997 QUARTER ENDED MARCH 31 JUNE 30 SEPT. 30 DEC. 31
- ----------------------------------------------------------------- ---------- ---------- ---------- ----------
(In thousands of dollars, except per-share amounts)
Total revenues................................................... $ 427,054 $ 457,914 $ 462,577 $ 402,180
---------- ---------- ---------- ----------
Gross profit..................................................... $ 78,400 $ 91,554 $ 95,128 $ 89,044
---------- ---------- ---------- ----------
Net income....................................................... $ 10,777 $ 20,009 $ 24,605 $ 20,282
---------- ---------- ---------- ----------
Basic earnings per common share.................................. $ 0.22 $ 0.40 $ 0.49 $ 0.40
---------- ---------- ---------- ----------
Diluted earnings per common share................................ $ 0.21 $ 0.39 $ 0.48 $ 0.39
---------- ---------- ---------- ----------
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..................................................... $ 82,057 $ 89,216 $ 91,111 $ 85,013
---------- ---------- ---------- ----------
Net income....................................................... $ 9,288 $ 16,888 $ 20,388 $ 17,970
---------- ---------- ---------- ----------
Basic earnings per common share.................................. $ 0.19 $ 0.34 $ 0.41 $ 0.36
---------- ---------- ---------- ----------
Diluted earnings per common share................................ $ 0.18 $ 0.34 $ 0.40 $ 0.35
---------- ---------- ---------- ----------
OGDEN CORPORATION AND SUBSIDIARIES
PRICE RANGE OF STOCK AND DIVIDEND DATA
1997 1996
-------------------- --------------------
HIGH LOW HIGH LOW
--------- --------- --------- ---------
Common:
First Quarter............................ 22 5/8 18 3/8 23 7/8 19 3/8
Second Quarter........................... 22 19 20 7/8 17 7/8
Third Quarter............................ 24 5/8 20 3/8 21 5/8 18
Fourth Quarter........................... 28 7/16 23 5/8 20 5/8 17 5/8
--------- --------- --------- ---------
Preferred:
First Quarter............................ 118 118 128 128
Second Quarter........................... 114 1/2 114 1/2 121 117 1/4
Third Quarter............................ 121 121 125 1/2 125 1/2
Fourth Quarter........................... 153 153 Not Traded
--------- --------- --------- ---------
Quarterly common stock dividends of $.3125 per share were paid to
shareholders of record for the four quarters of 1997 and 1996, the dividends for
the last quarters of 1997 and 1996 being paid in January of the subsequent
years. Quarterly dividends of $.8376 were paid for the four quarters of 1997 and
1996 on the $1.875 preferred stock.
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