Ogden Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED OPERATIONS
The following discussion and analysis should be read in conjunction with the
Corporation's Financial Statements and Notes thereto.
OPERATIONS: Revenues for 1998 were $1,692,375,000, which was 3.3% or
$57,350,000 lower than the comparable period of 1997. This was primarily due to
a decline of $155,814,000 in the Other segment's revenues, chiefly associated
with the sales of Facility Services' New York operations in July 1997 and
certain operations of Atlantic Design Company (ADC), a contract manufacturing
business, in late 1997 and early 1998. The Entertainment segment's revenues were
$59,633,000 higher, primarily reflecting increased activity at certain sports,
amphitheatre, and convention venues and the World Trade Center, as well as the
acquisition of the Enchanted Castle in late 1997 and the start-up of
TinseltownTM operations in late 1998. The Aviation segment's revenues were
$52,940,000 lower, primarily reflecting the sale of the domestic catering
operations in the second quarter of 1998 as well as the sale of the Miami and
Spanish in-flight catering businesses and certain ground handling operations in
1997. These decreases in the Aviation segment's revenues were partially offset
by the gain on the sale of a 10% interest in the Hong Kong ground services
company. The Energy segment's revenues were $91,771,000 higher, primarily due to
the acquisition in late 1997 of Pacific Energy, Inc., and a 60% interest in four
cogeneration plants in China; increased production at the Edison Bataan
facility; the buyout of a waste-to-energy power sales contract; increased
construction revenues associated with retrofit activity at several facilities;
and an increase in Environmental consulting, engineering, and construction
activity.
Consolidated operating income for 1998 was $149,216,000, which was
approximately 4.1% higher than the comparable period of 1997. The Entertainment
segment's income from operations was $535,000 higher, primarily reflecting
increased activity at the World Trade Center, convention centers, and South
American operations, as well as the sale of certain contracts. These increases
in Entertainment's income from operations were partially offset by the effects
of the NBA lockout, start-up expenses at the TinseltownTM operation, and lower
results at our Florida theme park and Aruba gaming operations. The Aviation
segment's income from operations was $19,852,000 higher, primarily reflecting
the gain on the sale of the domestic in-flight catering operations in June 1998
and the sale of a 10% interest in the Hong Kong ground services company. These
increases in Aviation's income from operations were offset in part by reduced
European operations, including the relocation of its headquarters, severance
payments, and certain legal claims in 1998, and in part by the sale in 1997 of
the Miami and Spanish in-flight catering businesses and certain ground services
operations. The Energy segment's income from operations was $432,000 higher,
chiefly associated with the acquisition in late 1997 of Pacific Energy, Inc.,
and a 60% interest in four cogeneration plants in China; increased activity at
the Edison Bataan facility; the gain on the buyout of a power sales agreement
and a contract termination agreement; as well as an increase in construction
income, primarily related to increased retrofit activity. These increases were
partially offset by increased development costs; reduced income at several
waste-to-energy facilities, primarily due to increased maintenance costs; the
amortization of the prepayment of a power sales agreement; legal settlements;
and a decrease in environmental income from operations chiefly associated with
the write-off of uncollectible notes receivable. The Other segment's income from
operations was $3,248,000 lower, chiefly associated with the sale of certain
noncore businesses and an investment in the Universal Ogden joint venture in
1997.
Selling, general, and administrative expenses were $113,260,000, which was
approximately 3.8% or $4,112,000 higher than 1997, primarily due to increased
development costs; international office expansion; amortization of new data
processing systems; as well as the settlement of certain litigation and
proxy-related charges, partially offset by the sale of noncore businesses in
1997 and 1998. Debt service charges for 1998 were $1,295,000 lower than the
comparable period of 1997, primarily due to lower debt outstanding. The Energy
segment had 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 $800,000 and $300,000 in 1998 and
1997, respectively. The 1998 amounts include $211,000 representing the net cost
to close two of the three interest rate swap agreements that related to the
refinancing of debt. The effect of these swap agreements on the weighted-average
interest rate of project debt was not significant.
Interest income for 1998 was $5,522,000 lower than 1997, primarily
reflecting the repayment of debt by customers. Interest expense was $3,825,000
lower, chiefly associated with reduced borrowings and repayments on outstanding
debt, partially offset by increased interest on notes issued in connection with
the acquisition of Pacific Energy, Inc., and overseas operations. Ogden had two
interest rate swap agreements covering notional amounts of $100,000,000 and
$3,200,000, respectively. The first swap agreement expired 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 to convert Ogden's $3,200,000 variable-rate debt
to a fixed rate. These agreements
20
resulted in additional interest expense in 1998 and 1997 of $100,000 and
$400,000, respectively. The effect of these swap agreements on the
weighted-average interest rate was not significant.
Equity in income of investees and joint ventures for 1998 was $16,861,000
higher than the comparable period of 1997, chiefly associated with the results
of Pacific Energy, Inc., joint ventures, which included the buyout of an energy
sales agreement with respect to a 50% joint venture, and increased activity at
several Entertainment and Aviation joint ventures. These increases were
partially offset by start-up costs of Aviation's Bogota, Colombia, joint venture
operations and lower activity at Entertainment's Spanish theme park joint
venture.
The effective income tax rate for 1998 was 40.4%, compared with 40.6% in
1997. Note 19 to the Consolidated Financial Statements contains a detailed
reconciliation of the variances from the Federal statutory income tax rate.
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 revenues of
businesses sold during 1996 and 1997--namely Facility Services, W.J. Schafer
Associates, Ogden Professional Services (formerly in the Technology group), and
certain operations of ADC. 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 operations 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 service operations, which were 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, 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, the
commencement of operations of the Independent Power group's Edison Bataan
facility, and the acquisition of Pacific Energy, Inc., in September 1997.
Consolidated operating income for 1997 was $143,362,000, which was
approximately 16.9% or $20,700,000 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 amphitheatre
venues and in 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 service
location, which were partially offset by reduced activity in catering and
European customer activity. The Energy segment's income from operations was
$5,100,000 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 a 1996 favorable legal settlement, 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 administration 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 $4,600,000 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 had 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 $4,700,000
21
higher, chiefly associated with borrowings relating to loans to customers,
partially offset by lower borrowings on revolving credit lines. Ogden had two
interest rate swap agreements covering notional amounts of $100,000,000 and
$4,700,000, respectively. The first swap agreement expired 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 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 19 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 1998, capital investments
amounted to $141,200,000, of which $19,000,000, inclusive of restricted funds
transferred from funds held in trust, was for Energy facilities and $122,200,000
was for normal replacement and growth in Entertainment ($73,400,000), Aviation
($31,000,000), Energy ($13,200,000), Other ($2,200,000), and Corporate
($2,400,000) operations.
At December 31, 1998, capital commitments amounted to $224,735,000, which
included $148,035,000 for normal replacement, modernization, and growth in
Entertainment ($125,503,000), Aviation ($7,221,000), Energy ($15,200,000), and
Corporate ($111,000) operations. Energy also has a commitment to pay, in 2008,
$10,600,000 for a service contract extension at a waste-to-energy facility. Also
included was $66,100,000 for Energy's coal-fired power project in the
Philippines, a natural gas-fired power plant in Bangladesh, and an investment in
a joint venture, reflecting $44,400,000 for the remaining mandatory equity
contributions, $5,700,000 for contingent equity contributions, and $16,000,000
for a standby letter of credit in support of debt service reserve requirements.
Funding for the remaining mandatory equity contributions is being provided
through bank credit facilities, which must be repaid in June 2000 through
December 2001. The Corporation also has a $24,400,000 contingent equity
contribution in Entertainment ($11,400,000) and Aviation ($13,000,000) joint
ventures. In addition, compliance with the standards and guidelines under the
Clean Air Act Amendments of 1990 may require further Energy capital expenditures
of approximately $54,000,000, including amounts that would be required if
certain service agreement amendments are finalized through December 2000,
subject to the 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 a
vendor with specified amounts of business over a three-year period. If these
amounts are not provided, the Corporation may be liable for prorated damages of
up to approximately $3,000,000. 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. Ogden is obligated
to purchase such senior secured debt in the amount of $97,685,000 on December
30, 2002, if the debt is not refinanced prior to that time. Ogden is also
required to repurchase the outstanding amount of certain subordinated secured
debt of such customer on December 30, 2002. At December 31, 1998, the amount
outstanding was $51,625,000. In addition, on December 31, 1998, the Corporation
had guaranteed indebtedness of $19,363,000 of an affiliate and principal tenant
of this customer. Subsequent to December 31, 1998, such tenant repaid $8,637,000
of indebtedness owed to Ogden, and Ogden's previous guarantees of the tenant's
indebtedness were released and replaced by a guarantee of $3,284,000 of the
tenant's senior secured term debt and a guarantee of up to $7,882,000 of the
tenant's secured revolving debt. In addition, Ogden is obligated to purchase
$19,704,000 of the tenant's secured subordinated indebtedness on January 29,
2004, if such indebtedness has not been repaid or refinanced prior to that time.
22
Ogden has guaranteed borrowings of another customer amounting to approximately
$12,900,000 as well as $8,800,000 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.
The Corporation is exposed to various market risks including changes in
interest rates and foreign currency exchange rates. Since approximately 85% of
the Corporation's debt is at fixed interest rates, the Corporation's exposure to
interest-rate fluctuations is not material to the Consolidated Financial
Statements. The Corporation has entered into financial instruments on several
occasions to reduce the impact of changes in interest rates. At December 31,
1998, Ogden had two interest rate swap agreements, which are described above and
in the Long-Term and Project Debt notes to the Consolidated Financial
Statements. Ogden is also exposed to foreign currency risks due to changes in
exchange rates. The Corporation primarily operates in Latin America, Europe,
Asia, and Canada. Since the Corporation does not plan to repatriate foreign
assets and considers foreign earnings to be permanently invested overseas, the
exposure to changes in foreign currency exchange rates is primarily limited to
cumulative translation adjustments, which have been charged to Other
Comprehensive Income. Ogden does not enter into derivatives or other financial
instruments for trading or speculative purposes.
LIQUIDITY/CASH FLOW: Net cash provided from operating activities was
$65,276,000 higher than the comparable period of 1997, primarily reflecting an
increase of $198,400,000 in deferred income chiefly associated with the
prepayment of a power sales agreement for a waste-to-energy facility, partially
offset by the collection in 1997 of $41,700,000 relating to certain legal
settlements as well as the collection of receivables relating to businesses
sold. Net cash used in investing activities increased $72,708,000, primarily
reflecting an increase in marketable securities available for sale of
$46,169,000, reduced collections of loans to customers of $36,200,000, lower
distributions from investees and joint ventures of $37,500,000, and increased
capital expenditures of $24,974,000. These increases were partially offset by
increased proceeds from the sale of businesses of $22,700,000 and a decrease of
$42,495,000 in amounts expended for the purchase of business. Net cash used in
financing activities was $37,045,000 lower, chiefly associated with a net
increase in debt of $48,149,000 primarily reflecting refinancing of certain
project debt and debt associated with foreign operations, a decrease of
$39,487,000 in restricted funds held in trust, and a $6,242,000 increase in
proceeds from the exercise of stock options. These decreases in net cash used in
financing activities were partially offset by the purchase of treasury shares
amounting to $56,381,000.
At December 31, 1998, the Corporation had $261,119,000 in cash and cash
equivalents and unused revolving credit lines of $200,000,000. In 1998, Ogden's
Board of Directors increased the authorization to purchase shares of the
Corporation's common stock up to a total of $200,000,000. Through January 1999,
2,182,800 shares of common stock were purchased for a total cost of $57,884,000.
YEAR 2000 ISSUES: Background -- The term "Year 2000 issue" generally refers
to the problems that may occur from the improper processing of date-sensitive
calculations, date comparisons, and leap-year determination by computers and
other machinery containing computer chips (i.e., "embedded systems"). In an
effort to save expensive memory and processing time, most of the world's
computer hardware and software historically used only two digits to identify the
year in a date. If not corrected or replaced, many systems will fail to
distinguish between the years 2000 and 1900 and will incorrectly process related
date information.
STATE OF READINESS -- Ogden has established a Year 2000 project plan that is
actively addressing its Year 2000 issues. The project is comprised of four
phases: awareness, assessment, action, and anticipation. The awareness phase
included the education of the Corporation's Board of Directors, management, and
staff regarding the Year 2000 issue and Ogden's strategy to address the issues.
The awareness phase of the project is completed. The objective of the project's
assessment phase is to inventory and assess the Year 2000 compliance of Ogden's
internal information technology and embedded systems, as well as to ascertain
the compliance of the products and services provided to Ogden by third parties.
Ogden's internal assessment was largely completed in 1998. The assessment of
third parties on which the Corporation relies for key services and products is
in progress. The assessment phase is expected to be completed by the end of the
first quarter of 1999, which is slightly behind the original schedule. Ogden's
action phase includes the prioritization, remediation, and testing of Year 2000
solutions. The Corporation has begun the remediation of all its mission-critical
systems through a series of projects with completion dates between January 1997
and October 1999. Additional corrective efforts will be initiated as assessments
are finalized and the related issues prioritized. The fourth phase of Ogden's
Year 2000 project, the anticipation phase, includes the development and
implementation of contingency plans for key business functions that are in
jeopardy of not being thoroughly tested or Year 2000 compliant on a timely
basis. The anticipation phase of the project is scheduled to commence in the
first quarter of 1999 and is expected to continue throughout 1999.
23
Ogden has made considerable progress toward Year 2000 compliance as a result of
its initiative to improve access to business information through the
implementation of common, integrated computing systems across the operations of
the Corporation. This initiative commenced in 1996 with the replacement of
Ogden's domestic administrative systems with PeopleSoft systems and the upgrade
of associated infrastructure. The implementations of these Year 2000 compliant
systems are 90% completed, with all expected to be achieved by the first quarter
of 1999. Additionally, efforts are in progress to replace or upgrade the
international administrative systems and a variety of key operating systems.
Ogden has not deferred any specific information technology project as a result
of the implementation of the Year 2000 project.
COSTS -- The total costs associated with resolving the Corporation's Year
2000 issues are not expected to be material to Ogden's financial condition.
Based on the assessments completed to date, the estimated costs of the Year 2000
project are $11,200,000, the majority of which will be incurred in 1999. The
estimated costs will be refined as remedial plans are executed and contingency
plans developed. Ogden is implementing or upgrading a number of systems (e.g.,
PeopleSoft), as part of its initiative to improve access to key business
information. The costs of implementing those systems are not included in these
estimates.
RISKS -- Ogden believes that the diversity of its business and the
implementation of its Year 2000 project will significantly reduce the
possibility of interruptions of normal operations. Ogden believes that by the
end of the first quarter of 1999, it will be able to fully determine its most
reasonably likely worst-case scenarios. Based on the assessment efforts to date,
Ogden does not believe that the Year 2000 issue will have a material adverse
effect on the Corporation's financial condition. However, failing to resolve
Year 2000 issues on a timely basis could have a material adverse effect on the
Corporation's operations, although it is not possible at this time to quantify
the amount of business that may be lost or the costs that may be incurred.
CONTINGENCY PLANS -- Ogden's Year 2000 project strategy includes the
development of contingency plans for any business functions determined to be at
risk of being unable to remediate or properly test Year 2000 issues on a timely
basis. While Ogden is not presently aware of any significant exposure that its
systems will not be properly remediated on a timely basis, there can be no
assurances that all Year 2000 remediation processes will be completed and
properly tested before the year 2000 or that contingency plans will sufficiently
mitigate the risk of a Year 2000 compliance problem. Ogden expects to develop
and implement contingency plans starting in the first quarter of 1999. The
contingency planning process is an ongoing one that will continue through 1999
as Ogden obtains relevant Year 2000 compliance information resulting from its
internal remediation and testing efforts as well as from third parties.
Any statements in this communication, including but not limited to the "Year
2000 Issue" discussion, 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 risk 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.
24
Ogden Corporation and Subsidiaries
SELECTED FINANCIAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands of dollars, except per-share amounts)
TOTAL REVENUES ............................... $ 1,692,375 $ 1,749,725 $ 2,031,081 $ 2,184,993 $ 2,104,547
------------- ------------- ------------- ------------- -------------
Income before cumulative effect of
changes in accounting principles ............. 86,970 75,673 64,534 7,444 67,826
Cumulative effect of changes in
accounting principles ........................ (1,520)
------------- ------------- ------------- ------------- -------------
Net income ................................... 86,970 75,673 64,534 7,444 66,306
------------- ------------- ------------- ------------- -------------
BASIC EARNINGS PER SHARE:
Income before cumulative effect of
changes in accounting principles ............. 1.74 1.51 1.30 0.15 1.55
Cumulative effect of changes in
accounting principles ........................ (0.03)
------------- ------------- ------------- ------------- -------------
Total ........................................ 1.74 1.51 1.30 0.15 1.52
------------- ------------- ------------- ------------- -------------
DILUTED EARNINGS PER SHARE:
Income before cumulative effect of
changes in accounting principles ............. 1.70 1.49 1.28 0.15 1.51
Cumulative effect of changes in
accounting principles ........................ (0.03)
------------- ------------- ------------- ------------- -------------
Total ........................................ 1.70 1.49 1.28 0.15 1.48
------------- ------------- ------------- ------------- -------------
Total Assets ................................. 3,922,843 3,639,295 3,597,532 3,652,671 3,644,886
------------- ------------- ------------- ------------- -------------
Long-Term Obligations ........................ 1,907,465 1,927,330 1,958,717 2,044,186 2,047,031
------------- ------------- ------------- ------------- -------------
Shareholders' Equity ......................... 549,100 566,091 550,925 546,978 596,818
------------- ------------- ------------- ------------- -------------
Shareholders' Equity Per Common Share ........ 11.20 11.24 11.06 11.04 12.21
------------- ------------- ------------- ------------- -------------
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, REFLECTING THE IMPAIRMENT OF ASSETS AND OTHER CHARGES.
25
Ogden Corporation and Subsidiaries
STATEMENTS OF CONSOLIDATED INCOME
AND COMPREHENSIVE INCOME
- -----------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Service revenues .............................................. $ 1,089,208,000 $ 1,133,108,000 $ 1,392,686,000
Net sales ..................................................... 512,958,000 582,134,000 621,830,000
Construction revenues ......................................... 41,025,000 3,402,000
Net gain on sale of businesses ................................ 49,184,000 34,483,000 13,163,000
--------------- --------------- ---------------
Total revenues ................................................ 1,692,375,000 1,749,725,000 2,031,081,000
--------------- --------------- ---------------
Operating costs and expenses .................................. 860,985,000 855,917,000 1,088,546,000
Costs of goods sold ........................................... 432,438,000 539,640,000 592,223,000
Construction costs ............................................ 36,113,000 2,196,000
Selling, administrative, and general expenses ................. 113,260,000 109,148,000 119,147,000
Debt service charges .......................................... 100,363,000 101,658,000 106,306,000
--------------- --------------- ---------------
Total costs and expenses ...................................... 1,543,159,000 1,606,363,000 1,908,418,000
--------------- --------------- ---------------
Consolidated operating income ................................. 149,216,000 143,362,000 122,663,000
Equity in income of investees and joint ventures .............. 18,897,000 2,036,000 3,604,000
Interest income ............................................... 17,953,000 23,476,000 15,142,000
Interest expense .............................................. (33,900,000) (37,725,000) (33,040,000)
Other income (deductions) -net ................................ 864,000 (371,000) 1,272,000
--------------- --------------- ---------------
Income before income taxes and minority interests ............. 153,030,000 130,778,000 109,641,000
Income taxes .................................................. (61,797,000) (53,100,000) (46,161,000)
Minority interests ............................................ (4,263,000) (2,005,000) 1,054,000
--------------- --------------- ---------------
NET INCOME .................................................... 86,970,000 75,673,000 64,534,000
--------------- --------------- ---------------
Other Comprehensive Income, Net of Tax:
Foreign currency translation adjustments ...................... (2,170,000) (8,094,000) (3,111,000)
Unrealized Gains on Securities:
Unrealized holding gains arising during period ................ 470,000 1,637,000 1,074,000
Less: reclassification adjustment for gains
included in net income ........................................ (2,046,000) (843,000)
Minimum pension liability adjustment .......................... (392,000) 241,000 195,000
--------------- --------------- ---------------
Other comprehensive income .................................... (2,092,000) (8,262,000) (2,685,000)
--------------- --------------- ---------------
Comprehensive income .......................................... $ 84,878,000 $ 67,411,000 $ 61,849,000
--------------- --------------- ---------------
--------------- --------------- ---------------
Basic Earnings Per Share ...................................... $ 1.74 $ 1.51 $ 1.30
--------------- --------------- ---------------
--------------- --------------- ---------------
Diluted Earnings Per Share .................................... $ 1.70 $ 1.49 $ 1.28
--------------- --------------- ---------------
--------------- --------------- ---------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
26
Ogden Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
Assets December 31, 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents ................................................................ $ 261,119,000 $ 185,671,000
Marketable securities available for sale ................................................. 44,685,000
Restricted funds held in trust ........................................................... 110,553,000 103,882,000
Receivables (less allowances: 1998, $30,595,000 and 1997, $20,207,000) ................... 394,923,000 393,185,000
Inventories .............................................................................. 31,100,000 34,235,000
Deferred income taxes .................................................................... 49,327,000 56,690,000
Other .................................................................................... 62,742,000 59,211,000
-------------- --------------
Total current assets ..................................................................... 954,449,000 832,874,000
Property, plant, and equipment--net ...................................................... 1,987,643,000 1,947,547,000
Restricted funds held in trust ........................................................... 180,922,000 206,013,000
Unbilled service and other receivables (less allowances: 1997, $3,000,000) ............... 173,630,000 174,962,000
Unamortized contract acquisition costs ................................................... 132,818,000 141,281,000
Goodwill and other intangible assets ..................................................... 130,031,000 93,847,000
Investments in and advances to investees and joint ventures .............................. 205,702,000 137,323,000
Other assets ............................................................................. 157,648,000 105,448,000
-------------- --------------
TOTAL ASSETS ............................................................................. $3,922,843,000 $3,639,295,000
-------------- --------------
-------------- --------------
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Current Liabilities:
Notes payable ............................................................. $ 45,600,000 $
Current portion of long-term debt ......................................... 30,232,000 19,696,000
Current portion of project debt ........................................... 63,201,000 68,052,000
Dividends payable ......................................................... 15,403,000 15,721,000
Accounts payable .......................................................... 94,629,000 109,719,000
Federal and foreign income taxes payable .................................. 21,776,000 1,913,000
Accrued expenses, etc ..................................................... 305,942,000 267,874,000
Deferred income ........................................................... 47,991,000 42,962,000
-------------- --------------
Total current liabilities ................................................. 624,774,000 525,937,000
Long-term debt ............................................................ 391,287,000 354,032,000
Project debt .............................................................. 1,367,528,000 1,424,648,000
Deferred income taxes ..................................................... 396,648,000 383,341,000
Deferred income ........................................................... 201,563,000 20,313,000
Other liabilities ......................................................... 215,119,000 187,866,000
Minority interests ........................................................ 28,174,000 28,417,000
Convertible subordinated debentures ....................................... 148,650,000 148,650,000
-------------- --------------
TOTAL LIABILITIES ......................................................... 3,373,743,000 3,073,204,000
-------------- --------------
-------------- --------------
SHAREHOLDERS' EQUITY:
Serial cumulative convertible preferred stock, par value $1.00 per share;
authorized, 4,000,000 shares; shares outstanding: 42,218 in 1998 and 44,346
in 1997, net of treasury shares of 29,820 in 1998 and 1997 ................ 43,000 45,000
Common stock, par value $.50 per share; authorized, 80,000,000 shares;
shares outstanding: 48,945,989 in 1998 and 50,295,123 in 1997, net of
treasury shares of 4,561,963 in 1998 and 3,135,123 in 1997 ................ 24,473,000 25,147,000
Capital surplus ........................................................... 173,413,000 212,383,000
Earned surplus ............................................................ 367,984,000 343,237,000
Accumulated other comprehensive income .................................... (16,813,000) (14,721,000)
-------------- --------------
Total Shareholders' Equity ................................................ 549,100,000 566,091,000
-------------- --------------
Total Liabilities and Shareholders' Equity ................................ $3,922,843,000 $3,639,295,000
-------------- --------------
-------------- --------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
27
Ogden Corporation and Subsidiaries
STATEMENTS OF SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
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 ........... 74,166 $ 75,000 77,509 $ 78,000 79,289 $ 80,000
Shares converted into common stock ..... (2,128) (2,000) (3,343) (3,000) (1,780) (2,000)
------------- ------------- ------------- ------------- ------------- -------------
Total .................................. 72,038 73,000 74,166 75,000 77,509 78,000
Treasury shares ........................ (29,820) (30,000) (29,820) (30,000) (29,820) (30,000)
------------- ------------- ------------- ------------- ------------- -------------
Balance at end of year (aggregate
involuntary liquidation value--1998,
$851,000) .............................. 42,218 43,000 44,346 45,000 47,689 48,000
------------- ------------- ------------- ------------- ------------- -------------
Common Stock, Par Value $.50 Per Share;
Authorized, 80,000,000 Shares:
Balance at beginning of year ........... 53,430,246 26,715,000 53,350,650 26,675,000 53,202,904 26,602,000
Exercise of stock options, less
common stock utilized .................. 65,000 33,000 59,640 30,000 137,134 68,000
Conversion of preferred shares ......... 12,706 6,000 19,956 10,000 10,612 5,000
------------- ------------- ------------- ------------- ------------- -------------
Total .................................. 53,507,952 26,754,000 53,430,246 26,715,000 53,350,650 26,675,000
------------- ------------- ------------- ------------- ------------- -------------
Treasury shares at beginning of year ... 3,135,123 1,568,000 3,606,123 1,803,000 3,735,123 1,868,000
Purchase of treasury shares ............ 2,121,100 1,060,000
Exercise of stock options .............. (694,260) (347,000) (471,000) (235,000) (129,000) (65,000)
------------- ------------- ------------- ------------- ------------- -------------
Treasury shares at end of year ......... 4,561,963 2,281,000 3,135,123 1,568,000 3,606,123 1,803,000
------------- ------------- ------------- ------------- ------------- -------------
Balance at end of year ................. 48,945,989 24,473,000 50,295,123 25,147,000 49,744,527 24,872,000
------------- ------------- ------------- ------------- ------------- -------------
Capital Surplus:
Balance at beginning of year ........... 212,383,000 202,162,000 197,921,000
Exercise of stock options,
less common stock utilized ............. 16,355,000 10,228,000 4,244,000
Purchase of treasury shares ............ (55,321,000)
Conversion of preferred shares ......... (4,000) (7,000) (3,000)
------------- ------------- -------------
Balance at end of year ................. 173,413,000 212,383,000 202,162,000
------------- ------------- -------------
Earned Surplus:
Balance at beginning of year ........... 343,237,000 330,302,000 328,047,000
Net income ............................. 86,970,000 75,673,000 64,534,000
------------- ------------- -------------
Total .................................. 430,207,000 405,975,000 392,581,000
------------- ------------- -------------
Preferred dividends--per share 1998,
1997, and 1996, $3.35 .................. 144,000 152,000 161,000
Common dividends--per share 1998, 1997,
and 1996, $1.25 ........................ 62,079,000 62,586,000 62,118,000
------------- ------------- -------------
Total dividends ........................ 62,223,000 62,738,000 62,279,000
------------- ------------- -------------
Balance at end of year ................. 367,984,000 343,237,000 330,302,000
------------- ------------- -------------
Cumulative Translation Adjustment--Net . (16,032,000) (13,862,000) (5,768,000)
------------- ------------- -------------
Minimum Pension Liability Adjustment ... (716,000) (324,000) (565,000)
------------- ------------- -------------
Net Unrealized Loss on Securities
Available For Sale ..................... (65,000) (535,000) (126,000)
------------- ------------- -------------
Total Shareholders' Equity ............. $ 549,100,000 $ 566,091,000 $ 550,925,000
------------- ------------- -------------
------------- ------------- -------------
See Notes to Consolidated Financial Statements
28
Ogden Corporation and Subsidiaries
STATEMENTS OF CONSOLIDATED CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................... $ 86,970,000 $ 75,673,000 $ 64,534,000
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and amortization ................................... 114,334,000 104,377,000 115,263,000
Deferred income taxes ........................................... 18,696,000 24,975,000 20,027,000
Other ........................................................... (51,278,000) (26,015,000) (20,663,000)
Management of Operating Assets and Liabilities:
Decrease (Increase) in Assets:
Accounts receivable ............................................. (10,475,000) 111,326,000 54,633,000
Inventories ..................................................... 2,137,000 18,916,000 (27,392,000)
Other assets .................................................... (26,348,000) (5,313,000) (25,231,000)
Increase (Decrease) in Liabilities:
Accounts payable ................................................ (29,861,000) 7,892,000 (1,608,000)
Accrued expenses ................................................ (19,401,000) (46,582,000) (1,689,000)
Deferred income ................................................. 195,038,000 (3,393,000) 10,233,000
Other liabilities ............................................... 28,014,000 (19,306,000) (11,927,000)
------------- ------------- -------------
Net cash provided by operating activities ....................... 307,826,000 242,550,000 176,180,000
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Entities purchased, net of cash acquired ........................ (20,717,000) (63,212,000) (16,968,000)
Proceeds from sale of marketable securities available for sale .. 14,232,000 13,970,000 13,158,000
Proceeds from sale of businesses ................................ 83,817,000 61,164,000 90,946,000
Proceeds from sale of property, plant, and equipment ............ 7,074,000 4,865,000 6,803,000
Investments in Energy facilities ................................ (18,847,000) (28,459,000) (14,303,000)
Other capital expenditures ...................................... (122,328,000) (87,742,000) (49,888,000)
Decrease in other receivables ................................... 14,827,000 51,046,000 10,553,000
Investments in marketable securities available for sale ......... (60,139,000) (13,970,000)
Distributions from investees and joint ventures ................. 12,102,000 49,605,000
Increases in investments in and advances to investees
and joint ventures .............................................. (46,500,000) (68,748,000) (19,985,000)
Other ........................................................... (17,710,000)
------------- ------------- -------------
Net cash provided by (used in) investing activities ............. (154,189,000) (81,481,000) 20,316,000
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings for Energy facilities ................................ 506,518,000 57,358,000 124,272,000
Other new debt .................................................. 90,806,000 102,266,000 6,552,000
Payment of debt ................................................. (607,521,000) (217,970,000) (229,206,000)
Dividends paid .................................................. (62,541,000) (62,564,000) (62,026,000)
Purchase of treasury stock ...................................... (56,381,000)
Decrease in funds held in trust ................................. 40,415,000 928,000 3,903,000
Proceeds from exercise of stock options ......................... 16,735,000 10,493,000 4,377,000
Other ........................................................... (5,922,000) (5,447,000) (289,000)
------------- ------------- -------------
Net cash used in financing activities ........................... (77,891,000) (114,936,000) (152,417,000)
------------- ------------- -------------
Effect of foreign currency exchange rate changes
on cash and cash equivalents .................................... (298,000) (1,286,000) (37,000)
------------- ------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ....................... 75,448,000 44,847,000 44,042,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .................. 185,671,000 140,824,000 96,782,000
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ........................ $ 261,119,000 $ 185,671,000 $ 140,824,000
------------- ------------- -------------
------------- ------------- -------------
See Notes to Consolidated Financial Statements
29
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 and
has the ability to exercise significant influence are accounted for using
the "Equity Method." All intercompany transactions and balances have been
eliminated.
In 1998, in transactions accounted for as purchases, Ogden acquired the
shares of Casino Iguazu in Argentina and an environmental related
construction company for a total cost of $45,500,000. 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, 1997, consolidated revenues, net income, and diluted earnings per share
would have been $1,727,900,000, $81,605,000, and $1.60 for 1998 and
$1,794,140,000, $80,508,000, and $1.58 for 1997.
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,
1996, consolidated revenues, net income, and diluted earnings per share
would have been $2,033,000,000, $60,565,000, and $1.20 for 1996.
In connection with Ogden's restructuring plan, the Binghamton, New York,
and Cork, Ireland, operations of Atlantic Design Company (ADC), a contract
manufacturing company, were sold in January 1998, and the Aviation segment's
domestic in-flight catering operations were sold in June 1998; the Facility
Services group's operations in New York City were sold in July 1997; and the
Charlotte, North Carolina, operations of ADC were sold in September 1997.
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 as well
as 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 Other
Comprehensive Income (see Note 2).
CONTRACTS AND REVENUE RECOGNITION: Service revenues include the fees for
cost-plus contracts and other types of contracts. Both the service revenues
and operating expenses exclude reimbursed expenditures of $135,444,000,
$283,900,000, and $357,698,000 for the years ended December 31, 1998, 1997,
and 1996, 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
$150,389,000 and $130,388,000 at December 31, 1998 and 1997, 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, work in
progress, 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.
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.
30
RESTRICTED FUNDS: Restricted funds represent proceeds from the financing and
operation of waste-to-energy facilities 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 is amortized by the straight-line method over periods
ranging from 15 to 40 years.
RETIREMENT PLANS: Ogden 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 that may be received from foreign subsidiaries, which
are considered to be permanently invested overseas.
LONG-LIVED ASSETS: Ogden accounts for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of by evaluating the carrying value
of its long-lived assets in relation to the operating performance and future
undiscounted cash flows of the underlying businesses when indications of
impairment are present. Long-lived assets to be disposed of, if any, are
evaluated in relation to the net realizable value.
EARNINGS PER SHARE: "Earnings per Share" 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 21).
REPORTING ON COSTS OF START-UP ACTIVITIES: The American Institute of
Certified Public Accountants (AICPA) issued Statement of Position (SOP)
98-5, "Reporting on the Costs of Start-Up Activities," in April 1998, which
is effective for years beginning after December 15, 1998. This SOP
establishes accounting standards for these costs and requires that they
generally be expensed as incurred. The effect of the initial application of
this SOP will be reported as a cumulative effect of a change in accounting
principles. This SOP will be implemented as of January 1, 1999, and is not
expected to have a significant effect on Ogden's future operations or
financial position.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS: The Financial Accounting Standards
Board issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," in June 1998, which is effective for fiscal years
beginning after June 1999. This Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and hedging activities. At this
time, management has not determined the effect, if any, that the
implementation of this Statement will have on Ogden's financial position and
results of operations.
COMPREHENSIVE INCOME: The Financial Accounting Standards Board issued SFAS
No. 130, "Reporting Comprehensive Income," in June 1997, which was effective
for years beginning after December 31, 1997. This Statement established
standards for reporting and display of comprehensive income and its
components in financial statements. Ogden adopted SFAS 130 as of January 1,
1998, and has restated prior years' presentations in the accompanying
financial statements.
RECLASSIFICATION: The accompanying financial statements have been
reclassified to conform with the 1998 presentation.
2. INVESTMENTS IN MARKETABLE SECURITIES AVAILABLE FOR SALE
At December 31, 1998 and 1997, marketable equity and debt securities held
for current and noncurrent uses, such as nonqualified pension liabilities
and a deferred compensation plan, are classified as current assets and
long-term assets (see Note 6), respectively. Accumulated net unrealized
losses on marketable equity and debt securities held for current and
noncurrent uses are charged to Other Comprehensive Income.
Marketable securities at December 31, 1998 and 1997 (expressed in thousands
of dollars), include the following:
1998 1997
---------------------------------------------------------------------------
Market Market
Value Cost Value Cost
---------------------------------------------------------------------------
Classified as Current Assets:
Mutual and bond funds ................. $44,685 $44,714
------- -------
Total Classified as Current Assets .... $44,685 $44,714
------- -------
------- -------
Classified as Noncurrent Assets:
Mutual and bond funds ................. $27,451 $27,673 $25,543 $26,495
------- ------- ------- -------
Total Classified as Noncurrent Assets.. $27,451 $27,673 $25,543 $26,495
------- ------- ------- -------
------- ------- ------- -------
At December 31, 1998 and 1997, unrealized losses were $251,000 and
$952,000, respectively. The deferred tax benefits on these losses at
December 31, 1998 and 1997, were $186,000 and $417,000, respectively,
resulting in net charges of $65,000 and $535,000, respectively, to Other
Comprehensive Income.
31
Proceeds, realized gains, and realized losses from the sales of
securities classified as available for sale for the years ended December 31,
1998, 1997, and 1996, were $14,232,000, zero, and zero; $13,970,000,
$3,444,000, and zero; and $13,158,000, $1,455,000, and $304,000,
respectively. For the purpose of determining realized gains and losses, the
cost of securities sold was based on specific identification.
3. UNBILLED SERVICE AND OTHER RECEIVABLES
Unbilled service and other receivables (expressed in thousands of dollars)
consisted of the following:
1998 1997
---------------------------------------------------------------------------
Unbilled service receivables ....................... $150,389 $130,388
Notes receivable ................................... 23,241 44,574
-------- --------
Total .............................................. $173,630 $174,962
-------- --------
-------- --------
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
$41,822,000 and $41,357,000 at December 31, 1998 and 1997, 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:
1998 1997
-------------------------------------------------------------------
Current Noncurrent Current Noncurrent
-------------------------------------------------------------------
Construction funds ... $ 14,604 $ 3,201
Debt service funds ... 24,871 $131,873 43,423 $139,961
Revenue funds ........ 13,626 8,811
Lease reserve funds .. 10,075 14,488 9,629 5,050
Other funds .......... 47,377 34,561 38,818 61,002
-------- -------- -------- --------
Total ................ $110,553 $180,922 $103,882 $206,013
-------- -------- -------- --------
-------- -------- -------- --------
5. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment (expressed in thousands of dollars) consisted
of the following:
1998 1997
----------------------------------------------------------------------------
Land ............................................. $ 10,219 $ 7,068
Waste-to-energy facilities ....................... 1,721,018 1,720,990
Power plants ..................................... 227,311 224,120
Buildings and improvements ....................... 248,568 242,345
Machinery and equipment .......................... 354,975 312,525
Landfills ........................................ 17,959 17,618
Construction in progress ......................... 52,972 32,523
---------- ----------
Total ............................................ 2,633,022 2,557,189
Less accumulated depreciation and amortization ... 645,379 609,642
---------- ----------
Property, plant, and equipment--net .............. $1,987,643 $1,947,547
---------- ----------
---------- ----------
6. OTHER ASSETS
Other assets (expressed in thousands of dollars) consisted of the following:
1998 1997
----------------------------------------------------------------------------
Unamortized bond issuance costs .................. $ 43,420 $ 35,761
Noncurrent securities available for sale ......... 27,451 25,543
Investment at cost ............................... 17,710
Deposits on potential acquisitions ............... 13,478
Deferred financing costs ......................... 12,292 4,475
Insurance deposits ............................... 5,388
Other ............................................ 43,297 34,281
---------- ----------
Total ............................................ $ 157,648 $ 105,448
---------- ----------
---------- ----------
32
7. ACCRUED EXPENSES, ETC.
Accrued expenses, etc. (expressed in thousands of dollars), consisted of the
following:
1998 1997
----------------------------------------------------------------------------
Operating expenses ............................... $ 62,173 $ 51,827
Insurance ........................................ 30,046 39,489
Debt service charges and interest ................ 24,655 31,416
Municipalities' share of energy revenues ......... 36,300 28,145
Payroll .......................................... 26,016 21,834
Payroll and other taxes .......................... 22,412 19,794
Lease payments ................................... 16,038 15,243
Commissions ...................................... 8,736 7,972
Pension and profit sharing ....................... 11,960 7,383
Other ............................................ 67,606 44,771
---------- ----------
Total ............................................ $ 305,942 $ 267,874
---------- ----------
---------- ----------
8. DEFERRED INCOME
Deferred income (expressed in thousands of dollars) consisted of the
following:
1998 1997
---------------------------------------------------------------------------------------
Current Noncurrent Current Noncurrent
---------------------------------------------------------------------------------------
Power sales agreement prepayment .... $ 9,001 $ 174,328
Sale and leaseback arrangements ..... 1,523 18,876 $ 1,523 $ 20,313
Advance billings to municipalities .. 11,523 14,662
Other ............................... 25,944 8,359 26,777
--------- --------- --------- ---------
Total ............................... $ 47,991 $ 201,563 $ 42,962 $ 20,313
--------- --------- --------- ---------
--------- --------- --------- ---------
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 municipalities are billed one or two months prior to
performance of service and are recognized as income in the period the
service is provided. In 1998, Ogden received a prepayment for future energy
deliveries required under a power sales agreement. This prepayment is being
amortized over the life of the agreement.
9. LONG-TERM DEBT
Long-term debt (expressed in thousands of dollars) consisted of the
following:
1998 1997
------------------------------------------------------------------------------
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 16,699 36,186
9.96% notes due through 2008 21,827
Other long-term debt 128,006 93,091
---------- ----------
Total $ 391,287 $ 354,032
---------- ----------
---------- ----------
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 rates for this debt were 3.38% and 3.44% in 1998 and 1997,
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, 1998, Ogden was in compliance with all
requirements and had $109,100,000 in excess of the required amount of
Shareholders' Equity.
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 a 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
$50,155,000 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% (5.5% at December 31, 1998) and
matures in 2001. The remaining other debt of $27,001,000 consists primarily
of debt associated with overseas entertainment and aviation facilities as
well as debt acquired in the Firehole acquisition. These loans bear various
interest rates and maturity dates.
33
At December 31, 1998, Ogden had one long-term interest rate swap
agreement covering a notional amount of $3,200,000, which expires November
30, 2000. This swap was entered into to convert Ogden's $3,200,000
variable-rate debt to a fixed rate. 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, 1998, the three-month LIBOR rate was 5.07%.
The counterparty to this interest rate swap is a major financial
institution. Management believes its credit risk associated with
nonperformance by the counterparty is not significant. Ogden also had a swap
agreement to convert its fixed-rate $100,000,000, 9.25% debentures into
variable-rate debt, which expired December 16, 1998. Amounts paid on swap
agreements amounted to $100,000, $400,000, and $200,000, for 1998, 1997, and
1996, respectively, and were charged to interest expense. The effect on
Ogden's weighted-average borrowing rate for 1998, 1997, and 1996 was an
increase of .04%, .09%, and .04%, respectively.
The maturities on long-term debt (expressed in thousands of dollars) at
December 31, 1998, were as follows:
1999 ........................................................... $ 30,232
2000 ........................................................... 22,132
2001 ........................................................... 59,711
2002 ........................................................... 6,058
2003 ........................................................... 5,711
Later years .................................................... 297,675
--------
Total .......................................................... 421,519
Less current portion ........................................... 30,232
--------
Total long-term debt ........................................... $391,287
========
10. PROJECT DEBT
Project debt (expressed in thousands of dollars) consisted of the following:
1998 1997
-----------------------------------------------------------------------------------------------------------
Revenue Bonds Issued by and Prime Responsibility of Municipalities:
3.3--7.3% serial revenue bonds due through 2011 ................................. $ 341,284 $ 212,368
4.25--7.625% term revenue bonds due through 2015 ................................ 557,595 745,350
Adjustable-rate revenue bonds due through 2013 .................................. 80,220 86,185
---------- ----------
Total ........................................................................... 979,099 1,043,903
---------- ----------
Revenue Bonds Issued by Municipal Agencies with Sufficient Service Revenues
Guaranteed by Third Parties:
4.0--6.6% serial revenue bonds due through 2008 ................................. 98,091 53,938
7.25--7.4% term revenue bonds ................................................... 105,871
Adjustable-rate revenue bonds ................................................... 115,428
---------- ----------
Total ........................................................................... 98,091 275,237
---------- ----------
Other Revenue Bonds:
4.35--5.5% serial revenue bonds due through 2015 ................................ 104,414
5.5--5.6% term revenue bonds due 2019 ........................................... 58,020
----------
Total ........................................................................... 162,434
----------
Other project debt .............................................................. 127,904 105,508
---------- ----------
Total long-term project debt .................................................... $1,367,528 $1,424,648
========== ==========
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 two 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.
The category, "Other Revenue Bonds," includes bonds issued to finance
one facility for which current contractual obligations of third parties to
deliver waste provide sufficient revenues to pay debt service related to
that facility through 2011, although such debt service is not an explicit
component of the third parties' service fee obligations. The Corporation
anticipates renewing such contracts prior to 2011.
34
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, 1998, such
revenue bonds were collateralized by property, plant, and equipment, with a
net carrying value of $1,439,768,000, a credit enhancement of approximately
$7,868,000 for which Ogden has certain reimbursement obligations, and
restricted funds held in trust of approximately $246,020,000 (see Note 4).
The interest rates on adjustable-rate revenue bonds are adjusted
periodically to reflect current market rates. The average adjustable rate
for such revenue bonds was 5.4% and 4.35% in 1998 and 1997, 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 $67,211,000 at December 31,
1998, 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 sales 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 $88,148,000 at December 31, 1998. Other project debt
also includes $15,493,000 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 $7,200,000, which is due to financial
institutions and bears interest at an adjustable rate equal to the
three-month LIBOR rate plus 3.5% (8.56% at December 31, 1998). 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 $50,702,000 at December 31, 1998.
Other project debt includes $38,000,000 due to financial institutions,
which bears interest at an adjustable rate that was the three-month LIBOR
rate plus 1.2% (6.27% at December 31, 1998). The debt extends through 2005
and is secured by substantially all the assets of a subsidiary that owns
various power plants in the United States, which had a carrying value of
approximately $92,931,000 at December 31, 1998, and a credit enhancement of
$10,000,000.
At December 31, 1998, the Corporation had one interest rate swap
agreement as a hedge against interest rate exposure on certain
adjustable-rate revenue bonds. The swap agreement was entered into in
September 1995 and expires in January 2019. This swap agreement relates to
adjustable-rate revenue bonds in the category, "Revenue Bonds Issued by and
Prime Responsibility of Municipalities," and any payments made or received
under the swap agreement are therefore included as an explicit component of
the client community's obligation under the related service agreement. Under
the swap agreement, the Corporation pays a fixed rate of 5.18% per annum on
a semi-annual basis and receives a floating rate based on a defined
LIBOR-based rate. At December 31, 1998, the floating rate on the swap was
2.75%. The notional amount of the swap at December 31, 1998, was $80,220,000
and is reduced in accordance with the scheduled repayments of the applicable
revenue bonds. In addition, the Corporation terminated two other interest
rate swap agreements during 1998. The swap agreements resulted in increased
debt service expense of $824,000, including $211,000 paid to terminate two
swap agreements, for the year ended December 31, 1998. The effect on Ogden's
weighted-average borrowing rate was an increase of .06%, .02%, and .04% for
1998, 1997, and 1996, respectively. The counterparty to the remaining swap
is a major financial institution. The Corporation believes the credit risk
associated with nonperformance by the counterparty is not significant.
The maturities on long-term project debt (expressed in thousands of
dollars) at December 31, 1998, were as follows:
1999 ........................................................ $ 63,201
2000 ........................................................ 78,121
2001 ........................................................ 97,692
2002 ........................................................ 95,630
2003 ........................................................ 96,874
Later years ................................................. 999,211
-----------
Total ....................................................... 1,430,729
Less current portion ........................................ 63,201
-----------
Total long-term project debt ................................ $ 1,367,528
===========
35
11. CREDIT ARRANGEMENTS
At December 31, 1998, Ogden had unused revolving credit lines amounting to
$200,000,000 under its principal revolving credit line at various borrowing
rates including prime, the Eurodollar rate plus .225%, and
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, which expires July 1, 2002.
12. CONVERTIBLE SUBORDINATED DEBENTURES
Convertible subordinated debentures (expressed in thousands of dollars)
consisted of the following:
1998 1997
----------------------------------------------------------------------------
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 100.6% of
principal amount during the year commencing June 1, 1998, 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, 1998, 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 and 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; 667,000 shares were available for
grant at December 31, 1998.
Under the foregoing plans, Ogden issued 4,681,100 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.
36
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 1998, 1997, and 1996 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 4.8%, 6.2%, and 5.7%; volatility of 27.22%, 25.84%, and 22.74%;
risk-free interest rate of 5.42%, 6.43%, and 5.42%; and an expected life of
7.5 years--the effect on net income and diluted earnings per share would
have been $626,000 and $0.01 for 1998, $334,000 and $0.01 for 1997, and
$214,000 and zero for 1996. The weighted-average fair value of options
granted during 1998, 1997, and 1996 was $3.17, $2.56, and $2.38,
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, 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
Became exercisable ............... $22.50 19,100
Exercised ........................ $18.32-$26.40 (217,000) (217,000) $18.92
Cancelled ........................ $22.50-$28.24 (28,000) (20,000) $27.32
------------- ----------- ----------- -----------
December 31, 1998, balance ....... $18.31-$28.54 620,500 601,400 $19.69
------------- ----------- ----------- -----------
1990 PLAN:
December 31, 1995, balance ....... $18.31-$23.56 3,680,800 2,336,700 $20.06
Granted .......................... $21.00-$31.50 252,500 $21.83
Became exercisable ............... $18.31-$31.50 346,800
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-$31.50 3,657,000 2,470,200 $20.21
Granted .......................... $20.19 570,000 $20.19
Became exercisable ............... $18.31-$31.50 385,400
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-$31.50 3,684,000 2,373,600 $20.39
Granted .......................... $25.97-$29.38 923,000 $26.29
Became exercisable ............... $20.06-$31.50 460,900
Exercised ........................ $18.31-$23.56 (538,900) (538,900) $19.05
Cancelled ........................ $20.06-$20.31 (7,500) (2,000) $20.17
------------- ----------- ----------- -----------
December 31, 1998 ................ $18.31-$31.50 4,060,600 2,293,600 $20.56
------------- ----------- ----------- -----------
CONVERSION OF OEGI PLAN:
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
Exercised ........................ $14.17 (3,360) (3,360) $14.17
------------- ----------- ----------- -----------
December 31, 1998, balance ....... $14.17 172,061 172,061 $14.17
------------- ----------- ----------- -----------
Total December 31, 1998 .......... $14.17-$31.50 4,853,161 3,067,061 $20.04
============= =========== =========== ===========
37
The following table summarizes information about stock options
outstanding at December 31, 1998:
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-$20.31 2,315,661 3.4 years $18.55 1,840,061 $18.14
$21.19-$31.50 2,537,500 6.6 years $24.08 1,227,000 $22.90
------------- --------- --------- ------ --------- ------
$14.17-$31.50 4,853,161 5.0 years $21.43 3,067,061 $20.04
------------- --------- --------- ------ --------- ------
------------- --------- --------- ------ --------- ------
The weighted-average exercise price for all exercisable options at
December 31, 1998, 1997, and 1996, was $20.04, $19.56, and $19.10,
respectively.
At December 31, 1998, there were 9,453,968 shares of common stock
reserved for the exercise of stock options and the conversion of preferred
shares and debentures.
In 1998, Ogden's Board of Directors authorized the purchase of shares of
the Corporation's common stock in an amount up to $200,000,000. Through
January 1999, 2,182,800 shares of common stock were purchased at a total
cost of $57,884,000.
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 be
exercised only 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, 1998, 48,945,989 Rights were outstanding.
16. FOREIGN EXCHANGE
Foreign exchange translation adjustments for 1998, 1997, and 1996, amounting
to $2,170,000, $8,094,000, and $3,111,000, respectively, have been charged
directly to Other Comprehensive Income. Foreign exchange transaction
adjustments, amounting to $750,000, $683,000, and $215,000, have been
charged directly to income for 1998, 1997, and 1996, respectively.
17. DEBT SERVICE CHARGES
Debt service charges for Ogden's project debt (expressed in thousands of
dollars) consisted of the following:
1998 1997 1996
-----------------------------------------------------------------------------------------------
Interest incurred on taxable and tax-exempt borrowings .. $ 96,939 $ 99,284 $ 103,846
Interest earned on temporary investment
of borrowings during construction, etc. ................. 4,192 3,992 4,256
--------- --------- ---------
Net interest incurred ................................... 92,747 95,292 99,590
Interest capitalized during construction in property,
plant, and equipment .................................... 631 485
--------- --------- ---------
Interest expense--net ................................... 92,747 94,661 99,105
Amortization of bond issuance costs ..................... 7,616 6,997 7,201
--------- --------- ---------
Debt service charges .................................... $ 100,363 $ 101,658 $ 106,306
--------- --------- ---------
--------- --------- ---------
18. PENSION AND OTHER POSTRETIREMENT BENEFITS
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.
38
In 1992, the Corporation discontinued its policy of providing
postretirement health care and life insurance benefits for all salaried
employees, except those employees who were retired or eligible for
retirement at December 31, 1992, or who were covered under certain
company-sponsored union plans.
The following table sets forth the details of Ogden's defined benefit
plans' and other postretirement benefit plans' funded status and related
amounts recognized in Ogden's Consolidated Balance Sheets in accordance with
Statement of Financial Accounting Standards No. 132 (expressed in thousands
of dollars):
Pension Benefits Other Benefits
- --------------------------------------------------------------------------------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------------------
Change in Benefit Obligation:
Benefit obligation at beginning of year ...... $ 30,771 $ 27,987 $ 12,464 $ 11,195
Service cost ................................. 2,721 2,192 70 101
Interest cost ................................ 2,197 1,924 607 828
Plan amendments .............................. 382
Actuarial (gain) loss ........................ 1,048 1,038 (3,210) 756
Benefits paid ................................ (1,576) (2,370) (465) (417)
-------- -------- -------- --------
Benefit obligation at end of year ............ 35,543 30,771 9,466 12,463
-------- -------- -------- --------
Change in Plan Assets:
Plan assets at fair value at beginning of year 22,300 19,162
Actual return on plan assets ................. 2,183 4,448
Company contributions ........................ 1,773 1,060 465 417
Benefits paid ................................ (1,576) (2,370) (465) (417)
-------- -------- -------- --------
Plan assets at fair value at end of year ..... 24,680 22,300
-------- -------- -------- --------
Reconciliation of Prepaid (Accrued) and
Total Recognized:
Funded status of the plan .................... (10,863) (8,471) (9,466) (12,464)
Unrecognized:
Net transition (asset) obligation ............ (92) (95)
Prior service cost ........................... 1,150 1,331
Net (gain) loss .............................. (1,130) (1,568) (1,619) 1,387
-------- -------- -------- --------
Net amount recognized ........................ $(10,935) $ (8,803) $(11,085) $(11,077)
======== ======== ======== ========
Amounts Recognized in the Statement of
Financial Position Consist of:
Accrued benefit liability .................... $(12,362) $ (9,714) $(11,085) $(11,077)
Intangible asset ............................. 332 478
Accumulated other comprehensive income ....... 1,095 433
-------- -------- -------- --------
Net amount recognized ........................ $(10,935) $ (8,803) $(11,085) $(11,077)
======== ======== ======== ========
Weighted Average Assumptions as of
December 31:
Discount rate ................................ 6.75% 7.00% 6.75% 7.00%
Expected return on plan assets ............... 8.00% 8.00%
Rate of compensation increase ................ 4.00% 4.50% 4.00% 4.50%
For management purposes, 9% and 8% annual rates of increase in the per
capita cost of health care benefits were assumed for 1998 for covered
employees under age 65 and over age 65, respectively. The rates were assumed
to decrease gradually to 5.5% and 5% for employees under age 65 and over age
65, respectively, in 2005 and remain at those levels.
The accumulated benefit obligation, projected benefit obligation, and
fair value of plan assets for the pension plans with accumulated benefit
obligations in excess of plan assets were $13,208,000, $17,259,000, and
$5,757,000, respectively, as of December 31, 1998, and $10,505,000,
$14,976,000, and $5,386,000, respectively, as of December 31, 1997.
Contributions and costs for defined contribution plans are determined by
benefit formulas based on percentage of compensation as well as
discretionary contributions and totaled $8,257,000, $8,652,000, and
$7,954,000 in 1998, 1997, and 1996, respectively. Plan assets at December
31, 1998, 1997, and 1996, 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 1998,
1997, and 1996 was $4,777,000, $16,700,000, and $26,600,000, respectively.
At December 31, 1998, the Corporation has designated $15,359,000 of its
marketable securities as pertaining to a nonqualified pension plan that is
underfunded by $7,979,000.
39
Pension costs for Ogden's defined benefit plans and other postretirement
benefit plans included the following components (expressed in thousands of
dollars):
Pension Benefits Other Benefits
1998 1997 1996 1998 1997 1996
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Components on Net Periodic Benefit Cost:
Service cost $ 2,721 $ 2,192 $ 2,068 $ 70 $ 101 $127
Interest cost 2,197 1,924 1,738 607 828 806
Expected return on plan assets (1,759) (1,486) (2,580)
Amortization of unrecognized:
Net transition (asset) obligation 5 3 27
Prior service cost 563 525 596
Net (gain) loss 54 (45) 1,636 (204) (27) 18
------- ------- ------- ----- ----- ----
Net periodic benefit cost $ 3,781 $ 3,113 $ 3,485 $ 473 $ 902 $951
======= ======= ======= ===== ===== ====
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one percentage point change in
assumed health care trend rate would have the following effects:
One Percentage One Percentage
Point Increase Point Decrease
- --------------------------------------------------------------------------------
Effect on total service and interest
cost computations $ 27,094 $ (23,768)
Effect on postretirement benefit obligation $ 300,153 $(274,143)
19. INCOME TAXES
The components of the provision for income taxes (expressed in thousands of
dollars) were as follows:
1998 1997 1996
- --------------------------------------------------------------------------------
Current:
Federal ................................ $ 25,901 $ 9,806 $14,661
State .................................. 9,424 12,195 9,048
Foreign ................................ 7,776 6,124 2,425
-------- -------- -------
Total current .......................... 43,101 28,125 26,134
-------- -------- -------
Deferred:
Federal ................................ 17,665 25,288 18,984
State .................................. 1,321 (2,577) 1,043
Foreign ................................ (290) 2,264
-------- -------- -------
Total deferred ......................... 18,696 24,975 20,027
-------- -------- -------
Total provision for income taxes ....... $ 61,797 $ 53,100 $46,161
======== ======== =======
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:
- ---------------------------------------------------------------------------------------------
1998 1997 1996
Percent Percent Percent
of Income of Income of Income
Amount Before Amount Before Amount Before
of Tax Taxes of Tax Taxes of Tax Taxes
- ---------------------------------------------------------------------------------------------
Taxes at statutory rate ......... $ 53,561 35.0% $45,772 35.0% $38,374 35.0%
State income taxes, net of
Federal tax benefit ............. 6,984 4.6 6,252 4.8 6,559 5.9
Settlement of tax liability
with former subsidiary .......... (2,638) (2.4)
Taxes on foreign earnings ....... 835 .5 1,135 .9 738 .7
Amortization of goodwill ........ 841 .5 866 .6 1,070 1.0
Write-down of goodwill .......... 945 .6 1,750 1.3 648 .6
Benefit relating to sale of stock
of former subsidiary ............ (3,581) (2.7)
Energy credits .................. (2,511) (1.6)
Other--net ...................... 1,142 .8 906 .7 1,410 1.3
-------- ---- ------- ---- ------- ----
Provision for
income taxes .................... $ 61,797 40.4% $53,100 40.6% $46,161 42.1%
======== ==== ======= ==== ======= ====
40
The components of the net deferred income tax liability (expressed in
thousands of dollars) as of December 31, 1998 and 1997, were as follows:
1998 1997
- --------------------------------------------------------------------------------
Deferred Tax Assets:
Deferred income ................................ $ 999 $ 4,029
Accrued expenses ............................... 81,742 79,093
Other liabilities .............................. 34,271 28,325
Investment tax credits ......................... 20,813
Alternative minimum tax credits ................ 45,032 47,704
-------- --------
Total deferred tax assets ...................... 162,044 179,964
-------- --------
Deferred Tax Liabilities:
Unbilled accounts receivable ................... 46,174 45,384
Property, plant, and equipment ................. 428,858 428,185
Other .......................................... 34,333 33,046
-------- --------
Total deferred tax liabilities ................. 509,365 506,615
-------- --------
Net deferred tax liability ..................... $347,321 $326,651
======== ========
Deferred tax assets and liabilities (expressed in thousands of dollars)
are presented as follows in the accompanying balance sheets:
1998 1997
- --------------------------------------------------------------------------------
Net deferred tax liability--noncurrent ............. $396,648 $383,341
Less net deferred tax asset--current ............... 49,327 56,690
-------- --------
Net deferred tax liability ......................... $347,321 $326,651
-------- --------
-------- --------
At December 31, 1998, for Federal income tax purposes, the Corporation
had alternative minimum tax credit carryforwards of approximately
$45,032,000 that have no expiration date. Deferred Federal income taxes have
been reduced by these amounts.
20. LEASES
Total rental expense amounted to $115,402,000, $100,449,000, and $91,351,000
(net of sublease income of $4,032,000, $2,113,000, and $1,427,000) for 1998,
1997, and 1996, respectively. Included in rental expense are amounts based
on contingent factors (principally sales) in excess of minimum rentals
amounting to $23,419,000, $23,365,000, and $20,970,000, for 1998, 1997, and
1996, respectively. Principal leases are for one waste-to-energy facility,
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, 1998:
1999 ............................................................... $ 95,769
2000 ............................................................... 87,183
2001 ............................................................... 83,829
2002 ............................................................... 79,997
2003 ............................................................... 78,315
Later years ........................................................ 667,381
----------
Total .............................................................. $1,092,474
==========
These future minimum rental payment obligations include $453,184,000 of
future nonrecourse rental payments that relate to waste-to-energy
facilities, of which $310,562,000 is supported by third-party commitments to
provide sufficient service revenues to meet such obligations. The remaining
$142,622,000 relates to a waste-to-energy facility of which the Corporation
serves as operator and directly markets one half of the facility's waste
disposal capacity. This facility presently generates sufficient revenues
from short- and medium-term contracts to meet rental payments. The
Corporation anticipates renewing the short- and medium-term contracts or
entering into new contracts to generate sufficient revenues to meet those
remaining future rental payments. Also included is $53,620,000 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 rental payments. These
nonrecourse rental payments (in thousands of dollars) are due as follows:
1999 ................................................................. $ 33,273
2000 ................................................................. 34,554
2001 ................................................................. 36,006
2002 ................................................................. 36,488
2003 ................................................................. 36,664
Later years .......................................................... 329,819
--------
Total ................................................................ $506,804
========
41
21. 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, 1998, 1997, and 1996, is as
follows:
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Income Shares Per-Share Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
- ------------------------------------------------------------------------------------------------------------------------------------
Net income ....... $86,970,000 $75,673,000 $64,534,000
Less: preferred
stock dividend ... 144,000 152,000 161,000
----------- ----------- -----------
Basic Earnings
Per Share ........ 86,826,000 49,836,000 $ 1.74 75,521,000 50,030,000 $ 1.51 64,373,000 49,663,000 $ 1.30
========= ======== =======
Effect of Dilutive
Securities:
Stock options .... 807,000 538,000 501,000
Convertible
preferred
stock ............ 144,000 257,000 152,000 275,000 161,000 289,000
6% convertible
debentures ....... 2,329,000 1,631,000 2,353,000 1,631,000 (A)
5 3/4%
convertible
debentures ....... 1,701,000 1,143,000 1,693,000 1,143,000 (A)
----------- ---------- ----------- ---------- ----------- ---------- -------
Diluted Earnings
Per Share ........ $91,000,000 53,674,000 $ 1.70 $79,719,000 53,617,000 $ 1.49 $64,534,000 50,453,000 $ 1.28
=========== ========== ========= =========== ========== ======== =========== ========== =======
(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 75,000 in 1998, 80,000 in 1997, and 2,100,400 in 1996.
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 544,000 in 1998 and 1997 and 2,175,000 in 1996 for the
6% convertible debentures and 381,000 in 1998 and 1997 and 1,524,000 in 1996
for the 5 3/4% convertible debentures.
22. COMMITMENTS AND CONTINGENT LIABILITIES
Ogden and certain of its subsidiaries have issued or are party to
performance bonds, 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 a vendor with specified amounts of
business over a three-year period. If these amounts are not provided, the
Corporation may be liable for prorated damages of up to approximately
$3,000,000. 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 $97,685,000 on December
30, 2002, if such debt is not refinanced prior to that time. 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, 1998, was $51,625,000.
In addition, at December 31, 1998, the Corporation had guaranteed
indebtedness of $19,363,000 of an affiliate and principal tenant of this
customer. Subsequent to December 31, 1998, such tenant repaid $8,637,000 of
indebtedness owed to Ogden, and Ogden's previous guarantees of the tenant's
indebtedness were released and replaced by a guarantee of $3,284,000 of the
tenant's senior secured term debt and a guarantee of up to $7,882,000 of the
tenant's
42
secured revolving debt. In addition, Ogden is obligated to purchase
$19,704,000 of the tenant's secured subordinated indebtedness on January 29,
2004, if such indebtedness has not been repaid or refinanced prior to that
time. Ogden has guaranteed borrowings of another customer amounting to
approximately $12,900,000 as well as $8,800,000 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.
At December 31, 1998, capital commitments amounted to $224,735,000,
which included $148,035,000 for normal replacement, modernization, and
growth in Entertainment ($125,503,000); Aviation ($7,221,000); Energy
($15,200,000); and Corporate ($111,000) operations. Also included was
$66,100,000 for Energy's coal-fired power project in the Philippines, a
natural gas-fired power plant in Bangladesh, and an investment in a joint
venture, reflecting $44,400,000 for the remaining mandatory equity
contributions, $5,700,000 for contingent equity contributions, and
$16,000,000 for a standby letter of credit in support of debt service
reserve requirements. Funding for the remaining mandatory equity
contributions is being provided through bank credit facilities, which must
be repaid in June 2000 through December 2001. Energy also has a commitment
to pay, in 2008, $10,600,000 for a service contract extension at a
waste-to-energy facility. The Corporation also has contingent equity
contributions of $24,400,000 in Entertainment ($11,400,000) and Aviation
($13,000,000) joint ventures. In addition, compliance with the standards and
guidelines under the Clean Air Act Amendments of 1990 may require further
Energy capital expenditures of approximately $54,000,000 including amounts
that would be required if certain service agreement amendments are finalized
through December 2000, subject to the final time schedules determined by the
individual states in which the Corporation's waste-to-energy facilities are
located.
23. INFORMATION CONCERNING BUSINESS SEGMENTS
The Entertainment segment consists principally of interests in themed
attractions; live theatre; concerts; gaming; large-format theatres and
films; performing artist management; recorded music and video development;
food, beverage, and novelty concession operations; and facility management
at arenas, stadiums, amphitheatres, 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, amphitheatres, 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, and
aviation fueling 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").
The Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," in
June 1997, which is effective for years beginning after December 15, 1997.
This Statement establishes standards for the way in which public business
enterprises report information about operating segments in annual financial
statements.
Revenues and income from continuing operations (expressed in thousands
of dollars) for the years ended December 31, 1998, 1997, and 1996, were as
follows:
1998 1997 1996
- -----------------------------------------------------------------------------------------------------
Revenues:
Entertainment .............................................. $ 485,555 $ 425,922 $ 391,933
Aviation ................................................... 310,324 363,264 426,746
Energy ..................................................... 804,043 712,272 724,281
Other ...................................................... 92,453 248,267 488,121
----------- ----------- -----------
Total revenues ............................................. $ 1,692,375 $ 1,749,725 $ 2,031,081
=========== =========== ===========
Income (Loss) from Operations:
Entertainment .............................................. $ 31,080 $ 30,545 $ 20,259
Aviation ................................................... 53,867 34,015 14,940
Energy ..................................................... 100,513 100,081 94,932
Other ...................................................... (2,720) 528 16,745
----------- ----------- -----------
Total income from operations ............................... 182,740 165,169 146,876
Equity in Net Income (Loss) of Investees and Joint Ventures:
Entertainment .............................................. (3,388) (3,091) (1,196)
Aviation ................................................... 2,945 3,343 1,231
Energy ..................................................... 19,251 1,605 325
Other ...................................................... 89 179 3,244
----------- ----------- -----------
Total ...................................................... 201,637 167,205 150,480
Corporate unallocated income and expenses--net ............. (32,660) (22,178) (22,941)
Corporate interest--net .................................... (15,947) (14,249) (17,898)
----------- ----------- -----------
Consolidated Income Before Income
Taxes and Minority Interest ................................ $ 153,030 $ 130,778 $ 109,641
=========== =========== ===========
43
Ogden's revenues include $62,148,000, $53,600,000, and $137,600,000 from
United States government contracts for the years ended December 31, 1998,
1997, and 1996, respectively.
Total revenues by segment reflect sales to unaffiliated customers. In
computing income from operations, none of the following has been added or
deducted: unallocated corporate expenses, nonoperating interest expense,
interest income, and income taxes.
A summary (expressed in thousands of dollars) of identifiable assets,
depreciation and amortization, and capital additions of continuing
operations for the years ended December 31, 1998, 1997, and 1996, is as
follows:
Identifiable Depreciation and Capital
Assets Amortization Additions
- --------------------------------------------------------------------------------
1998
Entertainment ................ $ 489,995 $ 22,197 $ 73,344
Aviation ..................... 235,214 11,402 31,055
Energy ....................... 2,858,816 75,809 32,237
Other ........................ 69,621 2,242 2,167
Corporate .................... 269,197 2,684 2,372
---------- -------- --------
Consolidated ................. $3,922,843 $114,334 $141,175
========== ======== ========
1997
Entertainment ................ $ 332,915 $ 14,731 $ 52,523
Aviation ..................... 191,710 13,129 19,008
Energy ....................... 2,808,571 72,835 39,967
Other ........................ 114,068 2,423 2,131
Corporate .................... 192,031 1,259 2,572
---------- -------- --------
Consolidated ................. $3,639,295 $104,377 $116,201
========== ======== ========
1996
Entertainment ................ $ 300,899 $ 13,980 $ 17,618
Aviation ..................... 213,264 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
========== ======== ========
Ogden's areas of operations are principally in the United States.
Operations outside of the United States are worldwide but primarily in
Europe, Latin America, Asia, and Canada. No single foreign country or
geographic area is significant to the consolidated operations.
A summary of revenues and identifiable assets by geographic area for the
years ended December 31, 1998, 1997, and 1996 (expressed in thousands of
dollars), is as follows:
1998 1997 1996
- --------------------------------------------------------------------------------
Revenues:
United States .................. $1,420,526 $1,500,755 $1,792,564
Europe ......................... 107,107 125,512 139,857
Latin America .................. 84,403 75,696 58,214
Asia ........................... 58,136 19,717 5,479
Canada ......................... 22,203 28,045 34,967
---------- ---------- ----------
Total .......................... $1,692,375 $1,749,725 $2,031,081
========== ========== ==========
Identifiable Assets:
United States .................. $3,348,609 $3,252,001 $3,322,455
Europe ......................... 123,820 113,936 140,327
Latin America .................. 170,306 68,688 53,875
Asia ........................... 233,039 160,209 28,564
Canada ......................... 39,341 43,433 52,311
Other .......................... 7,727 1,028
---------- ---------- ----------
Total .......................... $3,922,842 $3,639,295 $3,597,532
========== ========== ==========
44
24. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
(Expressed in thousands of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Cash Paid for Interest and Income Taxes:
Interest (net of amounts capitalized) .......... $ 134,604 $ 145,270 $ 134,560
Income taxes ................................... 14,419 24,187 20,552
Noncash Investing and Financing Activities:
Conversion of preferred shares for common shares 2 3 2
Detail of Entities Acquired:
Fair value of assets acquired .................. 72,039 152,836 38,019
Liabilities assumed ............................ (51,322) (89,624) (21,051)
Net cash paid for acquisitions ................. 20,717 63,212 16,968
25. 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, 1998 and 1997, is summarized as
follows:
- --------------------------------------------------------------------------------------------------
1998 1997
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- --------------------------------------------------------------------------------------------------
Assets:
Cash and cash equivalents ........................ $ 261,119 $ 261,119 $ 185,671 $ 185,671
Marketable securities ............................ 72,136 72,136 25,543 25,543
Receivables ...................................... 568,553 565,119 568,147 571,159
Restricted funds ................................. 291,475 290,141 309,895 309,711
Other assets ..................................... 641 641 1,116 1,116
Liabilities:
Notes payable .................................... 45,600 45,600
Debt ............................................. 421,519 469,093 373,728 413,453
Convertible subordinated debentures .............. 148,650 142,581 148,650 143,342
Project debt ..................................... 1,430,729 1,539,765 1,492,700 1,563,877
Other liabilities ................................ 17,699 14,098 21,175 18,729
Off Balance-Sheet Financial Instruments:
Unrealized losses on interest rate swap agreements 14,542 3,529
Unrealized gains on interest rate swap agreements 201
Guarantees ....................................... 9,190
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, cash equivalents, and marketable securities, 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 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. The fair
value of restricted funds held in trust is based on quoted market prices of
the investments held by the trustee. Other assets, consisting primarily of
insurance and escrow deposits and other miscellaneous financial instruments
used in the ordinary course of business, are valued based on quoted market
prices or other appropriate valuation techniques.
Fair values for notes payable and 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. Ogden
financial guarantees provided on behalf of customers for which Ogden
receives fees are valued by discounting the future stream of payments using
the incremental borrowing rate of the Corporation.
The fair-value estimates presented herein are based on pertinent
information available to management as of December 31, 1998 and 1997.
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.
45
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, 1998 and 1997, and the related
statements of shareholders' equity, consolidated income and comprehensive
income, and cash flows for each of the three years in the period ended December
31, 1998. 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, 1998 and 1997,
and the results of their operations and cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
February 9, 1999
46
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/ Raymond E. Dombrowski, Jr.
R. Richard Ablon Raymond E. Dombrowski, Jr.
Chairman of the Board, Senior Vice President and
President, and Chief Financial Officer
Chief Executive Officer
47
Ogden Corporation and Subsidiaries
QUARTERLY RESULTS OF OPERATIONS
1998 Quarter Ended March 31 June 30 Sept. 30 Dec. 31
- -------------------------------------------------------------------------------------------
(In thousands of dollars, except per-share amounts)
Total revenues .................................... $384,875 $472,455 $441,113 $393,932
-------- -------- -------- --------
Gross profit ...................................... $ 77,411 $102,098 $ 98,378 $ 84,952
-------- -------- -------- --------
Net income ........................................ $ 11,700 $ 27,060 $ 28,155 $ 20,055
-------- -------- -------- --------
Basic earnings per common share ................... $ 0.23 $ 0.54 $ 0.57 $ 0.41
-------- -------- -------- --------
Diluted earnings per common share ................. $ 0.23 $ 0.52 $ 0.55 $ 0.40
-------- -------- -------- --------
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 $ 91,551 $ 95,156 $ 89,061
-------- -------- -------- --------
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
-------- -------- -------- --------
Ogden Corporation and Subsidiaries
PRICE RANGE OF STOCK AND DIVIDEND DATA
1998 1997
- ----------------------------------------------------------------
High Low High Low
Common:
First Quarter ........ 29 3/4 24 1/2 22 5/8 18 3/8
Second Quarter ....... 32 1/2 26 15/16 22 19
Third Quarter ........ 28 7/8 23 24 5/8 20 3/8
Fourth Quarter ....... 28 7/16 23 5/8 28 7/16 23 5/8
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Preferred:
First Quarter ........ 170 170 118 118
Second Quarter ....... 180 177 114 1/2 114 1/2
Third Quarter ........ 158 150 121 121
Fourth Quarter ....... 165 145 153 153
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Quarterly common stock dividends of $.3125 per share were paid to shareholders
of record for the four quarters of 1998 and 1997, the dividends for the last
quarters of 1998 and 1997 being paid in January of the subsequent years.
Quarterly dividends of $.8376 were paid for the four quarters of 1998 and 1997
on the $1.875 preferred stock.
48