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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________________ TO____________________
COMMISSION FILE NUMBER 1-3122
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OGDEN CORPORATION
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------------------------------------------------
DELAWARE 13-5549268
- --------------------------------- ------------------------------------
(State or Other Jurisdiction (I.R.S. Employee Identification No.)
of Incorporation or Organization)
TWO PENNSYLVANIA PLAZA, NEW YORK, N.Y. 10121
- ----------------------------------------- --------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code - (212) 868-6000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of each class Which Registered
-----------------------------------
Common Stock, par value
$.50 per share New York Stock Exchange
$1.875 Cumulative Convertible
Preferred Stock (Series A) New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO______
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]
The aggregate market value of registrant's voting stock, held by non-affiliates
based on the New York Stock Exchange closing price as reported in the
consolidated transaction reporting system as of the close of business on March
31, 2000 was as follows:
Common Stock, par value $.50 per share $511,488,044
$1.875 Cumulative Convertible
Preferred Stock (Series A) $2,798,775
The number of shares of the registrant's Common Stock outstanding as of March
31, 2000 was 49,495,891 shares. The following documents are hereby incorporated
by reference into this Form 10-K:
(1) Portions of the Registrant's Proxy Statement for its 2000 Annual Meeting of
Stockholders are incorporated by reference in Part III (Items 10, 11, 12
and 13).
PART I
Item 1. BUSINESS
Ogden Corporation was incorporated in Delaware as a public utilities
holding company on August 4, 1939. In 1948 Ogden registered with the Securities
and Exchange Commission as a closed-end investment company. Following several
acquisitions the company no longer qualified as an investment company and since
1953 Ogden has operated as a diversified holding company operating through
subsidiaries. In May 1966 Ogden was listed on the New York Stock Exchange. Ogden
Corporation (hereinafter together with its consolidated subsidiaries referred to
as "Ogden" or the "Company"), is a global company which has offered a wide range
of operations and services through its operating groups within each of three
principal business units, Energy, Entertainment and Aviation.
1999 DEVELOPMENTS
In March, 1999 Ogden announced that it was exploring ways to split
its existing businesses into two separate public companies, one company would
consist of its Energy business and the other would comprise its Entertainment
and Aviation businesses. After a review of this approach, in September 1999
Ogden decided instead to adopt a plan to discontinue its Entertainment and
Aviation operations, to pursue the sale or other disposition of these
businesses, pay down corporate debt and to concentrate on its Energy
business. The process of selling the Aviation and Entertainment businesses is
underway. As of March 31, 2000 the following agreements and sales have been
effected: (i) on March 9, 2000 Ogden announced that it had signed a
definitive agreement with Alfa Alfa Holdings, SA of Greece to sell its theme
and water parks-related operations, subject to certain lender and regulatory
approvals, for approximately $148 million, consisting of cash and the
assumption of approximately $80 million of associated debt; (ii) on March 10,
2000 Ogden sold its Fairmount Park racing operations located in Collinsville,
Illinois, for $15.5 million in cash and a $7.5 million note subject to
certain contingencies; (iii) on March 30, 2000 Ogden announced that it has
signed a definitive agreement to sell its Food and Beverage Concessions and
Venue Management businesses, subject to certain lender and regulatory
approvals, for approximately $236 million, consisting of cash and the
assumption of approximately $11.0 million in associated debt; (iv) on April
4, 2000 Ogden announced that it completed an agreement with one of its
partners in the Aeropuertos Argentina 2000 consortium whereby Ogden received
$27.5 million and will receive an additional $2.5 million at a later date;
(v) have sold or have under contract to sell, various other assets for
approximately $11.5 million; and (vi) the Company has received preliminary
bids for its Aviation ground-handling business and has invited a select
number of these bidders to perform due diligence in advance of requesting
final bids.
The Energy group develops, owns and operates independent power
facilities and waste to energy facilities, and provides water and wastewater
infrastructure services; the Entertainment group has interests in themed and
location-based attractions; food and beverage concessions; venue management;
large format films and theatres; concert promotions, artist management and
recordings; and the Aviation group provides ground and cargo handling; passenger
services; fueling; and airport infrastructure development and management.
Following is a more detailed description of the continuing operations of the
Energy Group's businesses.
ENERGY
Ogden's Energy segment seeks to develop, own or operate energy
generating facilities and water and wastewater facilities in the United States
and abroad. The operations of Ogden's Energy segment are conducted by Ogden
Energy Group, Inc. and subsidiaries through four principal business areas:
independent power; waste-to-energy; water and wastewater; and environmental
consulting, engineering and construction (collectively, together with its
subsidiaries, the "Energy Group"). Since the early 1980s, the Energy Group has
been engaged in developing, and in some cases owning, energy-generating projects
fueled by municipal solid waste, and providing long-term services from these
projects to communities. The Energy Group is now the largest full service vendor
(i.e., builder/operator) in the world for large-scale waste-to-energy projects.
In addition, since 1989, the Energy Group has been engaged in developing, owning
and/or operating independent power production projects utilizing a variety of
fuels. The Energy Group's involvement in the operation of water and wastewater
facilities began in 1994.
The Energy Group generally seeks to participate in projects in which it
can make an equity investment and become the operator; its returns are derived
from equity distributions and/or operating fees. It also seeks to have a role in
the development of the projects. The types of projects in which the Energy Group
seeks to participate sell the electrical power services they generate, or the
waste or water-related services they provide, under long-term contracts or
market concessions to utilities, government agencies providing power
distribution, creditworthy industrial users, or local government units. In
selected cases, such services may be provided under short-term arrangements as
well. For power projects utilizing a combustible fuel or geothermal sources, the
Energy Group typically seeks projects which have a secure supply of fuel or
geothermal brine through long-term supply arrangements or by obtaining control
of the fuel source. Similarly, for water and wastewater-related services, the
Energy Group seeks to operate under long-term contracts with governmental units
or market concessions.
The Energy Group generally looks to finance its projects using equity
or capital commitments provided by it and other investors, combined with limited
recourse debt for which the lender's source of payment is project revenues and
collateralized by project assets. Consequently, the ability of the Energy Group
to declare and pay cash dividends to the Company is subject to certain
limitations in the project loan and other documents entered into by such project
subsidiaries. In some project situations, the Energy Group or Ogden has provided
limited support such as operating guarantees, financial guarantees of bridge
loans or other interim debt arrangements. The Company will continue to do so in
the future where it deems this warranted.
The number of projects being pursued at any given time by the Energy
Group will fluctuate. The complexities and uniqueness of international project
development in particular requires that the Energy Group continually assess the
likelihood of successful project financing throughout the development stage and
weigh that against expected benefits. In addition, the
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Energy Group may, depending upon circumstances and at the appropriate time,
elect to dispose of a portion of an equity interest it may have in a project
after financing.
The Energy Group presently has interests in projects with an
aggregate generating capacity of approximately 2570 MW (gross) either
operating or under construction in the United States, Central and South
America, Europe and Asia. It continues to seek to expand its ownership and
operation of projects in these and other regions. In addition to its
headquarters in Fairfield, New Jersey, the Energy Group's business is
facilitated through two principal regional offices, each responsible for
distinct geographic areas where its efforts are concentrated. The Energy
Group's Asian businesses and development efforts are managed from its Hong
Kong office, with field offices in Manila, The Philippines; Bangkok,
Thailand; Beijing, China; and Calcutta, India. The Energy Group's businesses
and development efforts in Europe and the Americas are managed from its
Fairfax, Virginia office, with field offices in London, England, Sao Paulo,
Brazil and Ankara, Turkey.
INDEPENDENT POWER
The Energy Group's independent power business is conducted by its
wholly-owned subsidiary, Ogden Energy, Inc. ("OEI"). OEI develops, operates
and/or invests in independent (i.e., non-utility) energy generation
("Independent Power Production" or "IPP") projects in the United States and
abroad which sell their output to utilities, electricity distribution companies
or industrial consumers.
Within the commercial parameters of each project, the Energy Group
attempts to sell electricity under long-term power sales contracts, and to
structure the revenue provisions of such power sales contracts such that the
revenue components of such contracts correspond to the projects' cost structure
(including changes therein due to inflation and currency fluctuations) of
building, financing, operating and maintaining the projects.
On many of its projects, the Energy Group performs operation and
maintenance services on behalf of the project owner. While all operation and
maintenance contracts are different, the Energy Group typically seeks to perform
these services on a cost-plus-fixed-fee basis, with a bonus and limited penalty
payment mechanism related to specified benchmarks of plant performance.
(a) FACILITIES UNDER CONSTRUCTION.
- Samalpatti, India
In 1999, the Energy Group acquired an equity interest in a 105
MW heavy fuel oil fired generating facility located near Samalpatti, Tamil Nadu,
India. This project is under construction and commercial operation is expected
in March, 2001. The project will be operated by the Energy Group. The Energy
Group currently owns a 49% interest in the project company, and will own
approximately 60% after the project achieves commercial operation. Shapoorji
3
Pallonji Infrastructure Capital Co. Ltd. and its affiliates will own 29% of such
equity with the remainder of 11% being held by Wartsila India Power Investment,
LLC. The electrical output of the project will be sold to the Tamil Nadu
Electricity Board (TNEB) pursuant to a long-term agreement. Bharat Petroleum
Corporation Ltd. will supply the oil requirements of the project. TNEB's
obligations are guaranteed by the Government of the State of Tamil Nadu.
- Linasa, Spain
In 1999, the Energy Group acquired a 50% equity interest in
Linasa Cogeneracion y Associados, a Spanish limited liability company created as
a joint venture with Industria Jabonera LINA, S.A., a Spanish soap and detergent
manufacturing company, to construct and operate a 15 MW natural gas-fired diesel
engine based cogeneration project in the Province of Murcia SDG, S.A. The
electrical output of the project will be sold under a long-term purchase
contract with the Spanish electrical utility, Iberdrola, at governmentally
established preferential rates for cogeneration projects (currently expected to
extend until November 2007) and at market rates thereafter. The thermal output
and some of the electrical output from the project will be sold to Industria
Jabonera LINA, S.A.
The project is being financed by BSCH Bank, through a limited
recourse project financing. The construction contractor is Wartsila NSD Finland
Oy. Operating revenue is expected upon commercial operation, projected for
fourth quarter 2000.
(b) OPERATING FACILITIES. The Energy Group's operating IPP projects utilize a
variety of energy sources: water (hydroelectric), natural gas, coal, geothermal
energy, wood waste, landfill gas, heavy fuel oil, and diesel fuel.
- DOMESTIC PROJECTS
- Geothermal Energy.
The Energy Group has interests in two geothermal facilities in
Southern California, the Heber and SIGC facilities, with a combined gross
generating capacity of 100 MW. The Energy Group is the sole lessee of the SIGC
project and is the sole owner of the Heber project. The Energy Group operates
these facilities. The Energy Group also owns a geothermal resource, which is
adjacent to and supplies fluid to both geothermal facilities. The electricity
from both projects is sold under long-term contracts with Southern California
Edison.
The Energy Group also owns a 50% partnership interest in
Mammoth-Pacific, L.P., which owns three geothermal power plants with a gross
capacity of 40 MW, located on the eastern slopes of the Sierra Nevada Mountains
at Casa Diablo Hot Springs, California. The projects have contractual rights to
the geothermal brine resource for a term not less than the term of the power
contracts. All three projects sell electricity to Southern California Edison
under long-term contracts.
4
- Hydroelectric.
The Energy Group owns 50% equity interests in two run-of-river
hydroelectric projects which generate a total of 30 MW: Koma Kulshan
Hydroelectric Project ("Koma Kulshan") and Weeks Falls Hydroelectric Project
("Weeks Falls"). Both Koma Kulshan and Weeks Falls are located in Washington
State. Koma Kulshan and Weeks Falls each sell electricity to Puget Sound Power &
Light Company under long-term contracts.
The Catalyst New Martinsville, West Virginia project, is a 40
MW run-of-river project which is operated through a subsidiary. The Energy Group
is the lessee. The output is sold to Monongahela Power Company under a long-term
contract.
- Waste Wood.
The Energy Group owns 100% interests in three waste wood fired
electric power plants in California: Burney Mountain Power Station, Mount Lassen
Power Station and Pacific Oroville Power Station. A fourth, Pacific Ultrapower
Chinese Station Power Station, is owned by a partnership in which the Energy
Group holds a 50% interest. Generally, fuel supply is procured from local
sources through a variety of short-term waste wood supply agreements. The four
projects have a gross capacity of 67 MW. All four projects sell electricity to
Pacific Gas & Electric Company under long-term contracts.
- Landfill Gas.
The Energy Group owns and operates eight landfill gas projects
which produce electricity by burning methane gas produced by the anaerobic
digestion of the solid waste contained in sanitary landfills. Seven of the
projects are located in California, and one is located in Maryland. The eight
projects have a gross capacity of 43 MW. All sell electricity generated to local
utilities, under contracts having varying lengths, the longest expiring in 2011.
- INTERNATIONAL PROJECTS
- Coal.
A consortium, of which the Energy Group is a 26% member, has a
510 MW (gross) coal-fired electric generating facility in the Republic of the
Philippines (the "Quezon Project"). The project first generated electricity in
October, 1999, and is now selling electricity during project commissioning. Full
commercial operation is expected during the second quarter, 2000. The other
members of the consortium are an affiliate of International Generating Company,
(itself an affiliate of Bechtel Enterprises, Inc.), an affiliate of General
Electric Capital Corporation, and PMR Limited Co., a Philippines partnership.
The consortium sells electricity to Manila Electric Company ("Meralco"), the
largest electric distribution company in the Philippines, which serves the area
surrounding and including metropolitan Manila. Under a long-term agreement,
Meralco is obligated to take or pay for stated minimum annual quantities of
electricity produced
5
by the facility. The consortium has entered into contracts for the supply of
coal at stated prices for a portion of the term of the power purchase agreement.
The Energy Group will operate the project under a long term agreement with the
consortium.
The Energy Group has majority equity interests in four
coal-fired cogeneration facilities in three different provinces in the Peoples
Republic of China. These projects are operated, in each case, by an affiliate of
the minority equity stakeholder in the projects. Parties holding minority
positions in the projects include a private company, a local government
enterprise and in the remaining two cases, affiliates of the local municipal
government. A majority of the electrical output of the projects is sold to the
relevant local Municipal Power Bureau and steam is sold to various host
industrial facilities, both pursuant to long-term power and steam sales
agreements.
- Natural Gas.
In 1998, the Energy Group acquired an equity interest in a
barge-mounted 122 MW diesel/natural gas fired facility located near Haripur,
Republic of Bangladesh. This project entered commercial operation in June, 1999,
and is operated by the Energy Group. The Energy Group owns approximately 45% of
the project company equity. An affiliate of El Paso Energy Corporation owns 50%
of such equity, and the remaining interest is held by Wartsila NSD North
America, Inc. The electrical output of the project is sold to the Bangladesh
Power Development Board (BPDB) pursuant to a long-term agreement. That agreement
also obligates the BPDB to supply all of the natural gas requirements of the
project. The BPDB's obligations under agreement are guaranteed by the Government
of Bangladesh. In 1999, the project received $87 million in financing and
political risk insurance from the Overseas Private Investment Corporation.
In 1999, the Energy Group acquired ownership interests in two
122 MW gas-fired combined cycle facilities in Thailand: the Sahacogen facility
and the Rojana Power facility. Both facilities, which commenced operations in
1999, sell power under long-term contracts to adjacent industrial parks, and the
excess is sold into the national power grid. The Energy Group acquired a 74%
ownership interest in the Sahacogen facility, and a 25% ownership interest the
Rojana Power facility. Both facilities are operated under the supervision of the
Energy Group. In connection with these acquisitions, the Energy Group acquired
an interest in an operating company in Thailand.
The Energy Group owns an approximately 12% interest in Empresa
Valle Hermoso ("EVH") which was formed by the Bolivian government as part of the
capitalization of the government-owned utility ENDE. EVH owns and operates 182
MW of gas-fired generating capacity. The Energy Group also participates in a
joint venture that supplies EVH with management services support.
- Hydroelectic.
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The Energy Group operates the Don Pedro project and the Rio
Volcan project in Costa Rica, pursuant to long term contracts, through an
operating subsidiary. The Energy Group also has a nominal equity investment in
each project. The electric output from both of these facilities is sold to
Instituto Costarricense de Electricidad, a Costa Rica national electric utility.
Through its investment in EVH (See discussion above, under "Natural Gas") the
Energy Group also has a small (less than 7%) ownership interest in a 12 MW
hydroelectric project in Rio Yura, Bolivia. The Rio Yura project sells its
output to mining companies, local residents and the national grid.
- Diesel.
The Energy Group owns interests in three diesel fuel
facilities in The Philippines. The Bataan Cogeneration project is a 65 MW
facility that has a long-term contract to sell its electrical output to the
National Power Corporation (with which it also has entered into a fuel
management agreement for fuel supply) and the Bataan Export Processing Zone
Authority. The Island Power project is a 7 MW facility that has a long-term
power contract with the Occidental Mindoro Electric Cooperative. Both projects
are operated by the Energy Group.
In 1999, the Energy Group acquired 100% of the stock of
Magellan Cogeneration, Inc. a Philippine company that owns and operates a 65 MW
diesel fired electric generating facility located in the province of Cavite, The
Philippines. This project sells a portion of its energy and capacity to the
National Power Corporation and a portion to the Cavite Export Processing Zone
Authority pursuant to long-term power purchase agreements.
c) PROJECT SUMMARIES. Certain information with respect to the Energy Group's
IPP projects as of March 1, 2000 is summarized in the following table:
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IPP PROJECTS
DATE OF ACQUISITION/
COMMENCEMENT
IN OPERATION LOCATION SIZE NATURE OF INTEREST OF OPERATIONS
- ------------- --------- ------ ------------------ ---------------
A. HYDROELECTRIC
-------------
1. New Martinsville West Virginia 40MW Lessee/Operator 1991
2. Rio Volcan Costa Rica 16MW Part Owner/Operator 1997
3. Don Pedro Costa Rica 16MW Part Owner/Operator 1996
4. Koma Kulshan(1) Washington 12MW Part Owner 1997
5. Weeks Falls(1) Washington 5MW Part Owner 1997
6. Rio Yura (2) Bolivia 12MV Part Owner 1998
----
SUBTOTAL 101MW
B. GEOTHERMAL
----------
1. Heber California 52MW Owner/ Operator 1989
2. SIGC California 48MW Lessee/Operator 1994
3. Mammoth G1(1) California 10MW Part Owner/Operator 1997
4. Mammoth G2(1) California 15MW Part Owner/Operator 1997
5. Mammoth G3(1) California 15MW Part Owner/Operator 1997
----
SUBTOTAL 140MW
C. NATURAL GAS
------------
1. Empresa Valle Bolivia 182MW Part Owner/ 1995
Hermoso (3) Operations Mgmt.
2. Sahacogen (4) Thailand 122MW Owner/Operator 1999
3. Rojana (5) Thailand 122MW Owner/Operator 1999
4. Haripur(6) Bangladesh 120MW Part Owner/Operator 1999
-----
SUBTOTAL 546MW
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D. COAL
1. Quezon(7) Philippines 510MW Part Owner/Operator 2000
2. Lin'an(8) China 24MW Part Owner 1997
3. Huantai(8) China 24MW Part Owner 1997
4. Taixing(8) China 24MW Part Owner 1997
5. Yanjiang(8) China 24MW Part Owner 1997
----
SUBTOTAL 606MW
E. DIESEL
1. Island Power Philippines 7MW Part Owner/ 1996
Corporation(9) Operator
2. Bataan Philippines 65MW Owner/Operator 1996
Cogeneration
3. Magellan Philippines 65MW Owner/Operator 1999
----
SUBTOTAL 137MW
F. WASTE WOOD
1. Burney Mountain California 11.4MW Owner/Operator 1997
2. Pacific Ultrapower California 25.6MW Part Owner 1997
Chinese Station(1)
3. Mount Lassen California 11.4 MW Owner/Operator 1997
4. Pacific Oroville California 18.7MW Owner/Operator 1997
------
SUBTOTAL 67MW
G. LANDFILL GAS
1. Gude Maryland 3MW Owner/Operator 1997
2. Otay California 3.7MW Owner/Operator 1997
3. Oxnard California 5.6MW Owner/Operator 1997
4. Penrose California 10MW Owner/Operator 1997
5. Salinas California 1.5MW Owner/Operator 1997
6. Santa Clara California 1.5MW Owner/Operator 1997
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7. Stockton California 0.8MW Owner/Operator 1997
8. Toyon California 10MW Owner/Operator 1997
----
SUBTOTAL 36MW
TOTAL MW IN OPERATION: 1633MW
=========
UNDER CONSTRUCTION:
1. Samalpatti (10) India 105MW Part Owner/Operator 2001(est.)
2. Linasa (1) Spain 15MW Part Owner/Operator 2000(est.)
----
TOTAL MW UNDER CONSTRUCTION 120MW
-------
-------
TOTAL ALL PROJECTS 1753MW
========
NOTES
(1) The Energy Group has a 50% ownership interest in the project.
(2) The Energy Group has an approximately 12% interest in a company that
owns 58% of this project.
(3) The Energy Group owns an approximate 24% interest in a consortium that
purchased 50% of Empresa Valle Hermoso. The remaining 50% is owned by
Bolivian pension funds.
(4) The Energy Group has a 74% ownership interest in this project.
(5) The Energy Group has a 25% ownership interest in this project.
(6) The Energy Group has an approximately 45% interest in this project,
This project is capable of operating through combustion of diesel oil
in addition to natural gas.
(7) The Energy Group has an approximately 26% ownership interest in this
project.
(8) The Energy Group has a 60% ownership interest in this project.
(9) The Energy Group has an approximately 40% ownership interest in this
project.
(10) The Energy Group has a 49% interest in this project, and upon
commercial operation will own 60% of this project.
10
(d) OTHER DEVELOPMENT EFFORTS. The Energy Group is actively pursuing a number of
projects, some of which have achieved significant development milestones such as
executed power purchase agreements, site acquisition or receipt of key
governmental approvals. Among the most advanced development efforts are:
(i) Three Mountain Power (U.S.): a 500 MW gas-fired combined cycle
merchant facility, to be located at the same site as the Energy Group's
Burney facility in Shasta County, California. The project is presently
in the permitting stage, which the Energy Group expects to conclude
during 2000.
(ii) Balaji (India): a 106 MW oil-fired project in the State of Tamil
Nadu, India with similar design and technology to the Samalpatti
project. The Energy Group has executed agreements pursuant to which it
will have a majority ownership position and will operate the project.
(iii) Maheshwar (India): a 400 MW hydroelectric project in the State of
Madya Pradesh, India. The Energy Group has executed agreements giving
it the right to purchase 49% of the project equity, subject to certain
conditions relating to the project development progress.
(iv) Thai Gulf Acquisition (Thailand): an acquisition of a 50% interest
in a Thai holding company which owns interests in two projects: (1) a
100% interest in a 107 MW operating gas-fired project, selling power
under long term contracts to the Electric Generating Authority of
Thailand ("EGAT") and several industrial customers, and (2) a 60%
interest in a 734 MW coal-fired project that is in the late stages of
development. This project has a long term contract with EGAT to sell
its electricity.
As with all development efforts, however, there are in each
case numerous conditions to be satisfied prior to financing, some of which are
not within the Energy Group's control. As such, no assurance can be given that
these projects will ultimately be developed successfully.
WASTE-TO-ENERGY
The Energy Group's waste-to-energy operations are managed
through a wholly-owned subsidiary, Ogden Waste to Energy, Inc. ("OWTE").
Waste-to-energy facilities combust municipal solid waste to make saleable energy
in the form of electricity or steam. This group completed construction of its
first waste-to-energy project in 1986. It currently operates 26 waste-to-energy
projects. OWTE's subsidiaries are the owners or lessees of 17 of its
waste-to-energy projects. The Energy Group has the exclusive right to market in
the United States the proprietary, mass-burn technology of Martin GmbH fur
Umwelt und Energietechnik ("Martin"). All of the waste-to-energy facilities the
Energy Group has constructed use this Martin technology. In addition, the Energy
Group owns and/or operates waste-to-energy facilities using other technologies.
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Generally, the Energy Group provides waste-to-energy services
pursuant to long-term service contracts ("Service Agreements") with local
governmental units sponsoring the waste-to-energy project ("Client
Communities"). Certain of its waste-to-energy facilities do not have sponsoring
Client Communities.
(a) TERMS AND CONDITIONS OF SERVICE AGREEMENTS. Each Service Agreement is
different in order to reflect the specific needs and concerns of the Client
Community, applicable regulatory requirements, and other factors. The following
description sets forth terms that are generally common to these agreements:
- The Energy Group designs the facility, helps to
arrange for financing, and then constructs and
equips the facility on a fixed price and schedule
basis.
- The Energy Group operates the facility and
generally guarantees it will meet minimum
processing capacity and efficiency standards,
energy production levels, and environmental
standards. The Energy Group's failure to meet these
guarantees or to otherwise observe the material
terms of the Service Agreement (unless caused by
the Client Community or by events beyond its
control ("Unforeseen Circumstances")) may result in
liquidated damages being charged to the Energy
Group or, if the breach is substantial, continuing
and unremedied, the termination of the Service
Agreement. In the case of such Service Agreement
termination, the Energy Group may be obligated to
discharge project indebtedness.
- The Client Community is generally required to
deliver minimum quantities of municipal solid waste
("MSW") to the facility and is obligated to pay a
service fee for its disposal, regardless of whether
that quantity of waste is delivered to the
facility. The service fee escalates to reflect
indices of inflation. In many cases the Client
Community must also pay for other costs, such as
insurance, taxes, and transportation of the residue
to the disposal site. If the facility is owned by
the Energy Group, the Client Community also pays as
part of the Service Fee an amount equal to the debt
service due to be paid on the bonds issued to
finance the facility. Generally, expenses resulting
from the delivery of unacceptable and hazardous
waste on the site are also borne by the Client
Community. In addition, the contracts generally
require that the Client Community pay increased
expenses and capital costs resulting from
Unforeseen Circumstances, subject to limits which
may be specified in the Service Agreement.
- The Client Community usually retains a portion of
the energy revenues (generally 90%) generated by
the facility, with the balance paid to the Energy
Group.
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(b) OTHER ARRANGEMENTS FOR PROVIDING WASTE-TO-ENERGY SERVICES. The Energy Group
owns one facility that is not operated pursuant to a Service Agreement with a
Client Community. The Energy Group may undertake additional such projects in the
future. In such projects, the Energy Group generally assumes the project debt
and risks relating to waste availability and pricing, risks relating to the
continued performance of the electricity purchaser, as well as risks associated
with Unforeseen Circumstances. In these projects, the Energy Group generally
retains all of the energy revenues from sales of power to utilities or
industrial power users and disposal fees for waste accepted at these facilities.
Accordingly, the Energy Group believes that such projects carry both greater
risks and greater potential rewards than projects in which there is a Client
Community.
In addition, the Energy Group has recently undertaken,
together with three Client Communities, restructuring of its waste-to-energy
projects. In Union County, a municipally-owned facility has been leased to the
Energy Group, and the Client Community has agreed to deliver approximately 50%
of the facility's capacity on a put-or-pay basis. The balance of facility
capacity will be marketed by the Energy Group, at its risk. The Company provided
limited credit support in the form of an operating performance guaranty, as well
as a rent guaranty supporting one series of subordinated bonds. In connection
with this restructuring, the Client Community assigned to the Energy Group the
long term power contract with the local utility. As part of this assignment, the
power contract was amended to give the Energy Group the right to sell all or a
portion of the plant's output to other purchasers. In 1999, the Energy Group
elected to sell 20 MW of power to Sempra Energy Trading Corporation under a two
year arrangement which the Energy Group believes will enhance project revenues.
Other such arrangements may be considered in the future.
In Tulsa, Oklahoma, the Client Community paid a fee to
terminate its Service Agreement. At the same time the parties entered into a new
arrangement pursuant to which the Energy Group is required to fund the cost
of the facility's Clean Air Act retrofit; the Client Community is committed
to deliver tonnages on a put or pay basis, for a fee per ton; and the parties
agreed to sharing of certain excess revenues from facility operations. In
addition, the Energy Group no longer has the right to require an adjustment
to fees to cover the costs of unforeseen circumstances, but may terminate the
contract if the Client Community declines to accept such increases. Under the
new contract, the Client Community has accepted the obligation to repay bonds
issued to finance the facility, including prepayment as a result of
termination of the Service Agreement, regardless of the reasons for the
termination.
In Warren County, New Jersey the Energy Group has agreed to
market the facility's capacity, at its risk, in a restructuring plan that
includes State assistance with debt retirement. The Warren County restructuring
is subject to several conditions precedent, some of which are beyond the control
of the Energy Group, notably the securing of State funds. Currently, the
project's debt service reserve funds have been depleted, and the State provided
funds to ensure debt service was paid to bondholders in December, 1999. The
parties are now negotiating a restructuring with the State's participation and
supervision. There can be no assurance, however, that an acceptable resolution
will be achieved. If such a resolution cannot be
13
achieved, the Warren County Client Community may default on its obligations,
including obligations to bondholders, in which case a restructuring would need
to be addressed between the Energy Group and the project's lenders and credit
enhancement providers. The project is mortgaged to its lenders; it is possible
that such restructuring could result in the Energy Group no longer owning and/or
operating the Facility.
In Lake County, Florida, the Client Community has indicated
its intention to reduce or terminate its continuing payment obligations with
respect to the facility, and has expressed its desire to restructure its
relationship with the Energy Group subsidiary to substantially reduce its
payment obligation or to institute condemnation proceedings to purchase the
Facility from the Energy Group. If discussions regarding a mutually acceptable
resolution of these matters are not successful, litigation and/or condemnation
proceedings may result. There can be no assurance that the efforts to
restructure this project will succeed, or that litigation or condemnation can be
avoided. Although the company wishes to find mutually acceptable ways to resolve
the County's concerns, it will vigorously contest any effort by the County to
evade its contractual responsibilities.
The Energy Group may agree to additional such restructurings
in the future for other projects, depending upon the particular facts and
circumstances applicable to each situation where a restructuring is proposed.
(c) PROJECT FINANCING. Financing for the Energy Group's domestic projects is
generally accomplished through the issuance of tax-exempt and taxable revenue
bonds issued by or on behalf of the Client Community. If the facility is owned
by the Energy Group subsidiary the Client Community loans the bond proceeds to
the subsidiary to pay for facility construction, and pays to the subsidiary
amounts necessary to pay debt service. For such facilities, project-related debt
is included as a liability in Ogden's consolidated financial statements.
Generally, such debt is secured by the revenues pledged under the respective
indenture and is collateralized by the assets of the Energy Group subsidiary and
otherwise provides no recourse to Ogden, subject to construction and operating
performance guarantees and commitments.
(d) OWTE PROJECTS. Certain information with respect to projects as of March 1,
2000 is summarized in the following table:
14
WASTE-TO-ENERGY PROJECTS
BOILER COMMENCEMENT
UNITS TONS PER DAY UNITS MW OF OPERATIONS
----- -------------- ------ -------------
Tulsa, OK (I) (1) 750 2 11 1986
Marion County, OR 550 2(2) 13 1987
Hillsborough County, FL (3) 1,200 3(2) 29 1987
Tulsa, OK (II) (1)(4) 375 1 -- 1987
Bristol, CT 650 2(2) 16.3 1988
Alexandria/Arlington, VA 975 3 22 1988
Indianapolis, IN 2,362 3(2) N.A. 1988
Hennepin County, MN (1)(5) 1,200 2 38.7 1989
Stanislaus County, CA 800 2 22.5 1989
Babylon, NY 750 2(2) 16.8 1989
Haverhill, MA 1,650 2 46 1989
Warren County, NJ (5) 450 2 13 1988
Kent County, MI (3) 625 2(2) 18 1990
Wallingford, CT (5) 420 3(2) 11 1989
Fairfax County, VA 3,000 4(2) 79 1990
Huntsville, AL (3) 690 2(2) N.A. 1990
Lake County, FL 525 2(2) 14.5 1991
Lancaster County, PA (3) 1,200 3(2) 35.7 1991
Pasco County, FL (3) 1,050 3(2) 31.2 1991
Huntington, NY (6) 750 3(2) 4.25 1991
Hartford, CT (3)(7)(8) 2,000 3 68.5 1987
Detroit, MI (1)(8) 3,300 3 68 1991
Honolulu, HI (1)(8) 2,160 2 57 1990
Union County, NJ (9) 1,440 3 44 1994
Lee County, FL (3) 1,200 2(2) 39.7 1994
Onondaga County NY (6) 990 3 39.5 1995
Montgomery County, MD (3) 1,800 3(2) 55 1995
------ ----
TOTAL 32,862 TONS/DAY 813.65 MW
- --------------------------------
(1) Facility is owned by an owner/trustee pursuant to a sale/leaseback
arrangement.
(2) Facility has been designed to allow for the addition of another unit.
(3) Facility is owned by the Client Community.
(4) Phase II of the Tulsa facility, which was financed as a separate
project, expanded the capacity of the facility from two to three units.
(5) Energy Group subsidiaries were purchased after completion, and use a
mass-burn technology that is not the Martin Technology.
(6) Owned by a limited partnership in which the limited partners are not
affiliated with Ogden.
(7) Under contracts with the Connecticut Resource Recovery Authority and
Northeast Utilities, the Energy Group operates only the boiler and
turbine for this facility.
15
(8) Operating contracts were acquired after completion. Facility uses a
refuse-derived fuel technology and does not employ the Martin
Technology.
(9) The Union Facility is leased to an Energy Group subsidiary.
(e) TECHNOLOGY. The principal feature of the Martin Technology is the
reverse-reciprocating stoker grate upon which the waste is burned. The patent
for the basic stoker grate technology used in the Martin Technology expired in
1989, and a related patent expired in 1999. The Energy Group believes that
unexpired patents on other portions of the Martin Technology and other
proprietary know how would limit the ability of other companies to effectively
use the basic stoker grate technology in competition with the Energy Group.
There are several unexpired patents related to the Martin Technology including:
(i) Method and Arrangement for Reducing NOx Emissions from Furnaces - expires
2000; (ii) Method and Apparatus for Regulating the Furnace Output of
Incineration Plants - expires 2007; (iii) Method for Regulating the Furnace
Output in Incineration Plants - expires 2008; and (iv) Feed Device with Filling
Hopper and Adjoining Feed Chute for Feeding Waste to Incineration Plants -
expires 2008. More importantly, the Energy Group believes that it is Martin's
know-how and worldwide reputation in the waste-to-energy field, and the Energy
Group's know-how in designing, constructing and operating waste-to-energy
facilities, rather than the use of patented technology, that is important to the
Energy Group's competitive position in the waste-to-energy industry in the
United States. Ogden does not believe that the expiration of the patent covering
the basic stoker grate technology or patents on other portions of the Martin
Technology will have a material adverse effect on Ogden's financial condition or
competitive position.
The Energy Group believes that mass burn technology is now the
predominant technology used for the combustion of solid waste. Overall, there
are several other mass-burn technologies available in the market including those
of Von Roll, W+E, Takuma, Volund, Steinmueller, Deutsche Babcock, Lurgi, and
Detroit Stoker. Martin and other vendors seek to implement improvements and
modifications to its technology in order to maintain their competitive position
with non-mass burn technologies. The Energy Group believes that the Martin
technology is a proven and reliable mass burn technology, and that its
association with Martin has created significant name recognition and value for
the Energy Group's domestic waste-to-energy business. The Energy Group's efforts
internationally have not been technology-specific.
(f) THE COOPERATION AGREEMENT. Under an agreement between Martin and an Ogden
affiliate (the "Cooperation Agreement"), the Energy Group has the exclusive
rights to market the proprietary technology (the "Martin Technology") of Martin
in the United States, Canada, Mexico, Bermuda, certain Caribbean countries, most
of Central and South America, and Israel. Martin is obligated to assist the
Energy Group in installing, operating, and maintaining facilities incorporating
the Martin Technology. The 15-year term of the Cooperation Agreement renews
automatically each year unless notice of termination is given, in which case the
Cooperation Agreement would terminate 15 years after such notice. Additionally,
the Cooperation Agreement may be terminated by either party if the other fails
to remedy its material default within 90 days of notice. The
16
Cooperation Agreement is also terminable by Martin if there is a change of
control (as defined in the Cooperation Agreement) of Ogden Martin Systems, Inc.
Termination would not affect the rights of the Energy Group to design,
construct, operate, maintain, or repair waste-to-energy facilities for which
contracts have been entered into or proposals made prior to the date of
termination.
(g) OTHER DEVELOPMENT EFFORTS. OWTS is actively pursuing
several development efforts, some of which are in advanced stages of
development. Among the most advanced projects are:
In February of 2000, the Energy Group acquired a 13% equity interest
in Prima s.r.l. ("PRIMA"), a special purpose Italian limited liability
company, to develop, construct and operate a 15 MW mass burn waste-to-energy
project near the City of Trezzo Sull' Lombardy Region, Italy (the "Trezzo
Project"). The remainder of the equity in PRIMA is currently held by TTR
Tecno Trattamento Rifiuti s.r.l., a subsidiary of Falck S.p.a. ("Falck"). The
Trezzo Project will be operated by Ambiente 2000 s.r.l. ("A2000"), an Italian
special purpose limited liability company of which Ogden owns 40% of the
equity. The municipal solid waste used to fuel the project will come from
municipalities under long term contracts with PRIMA and is guaranteed by
Falck. PRIMA shall pay A2000 a Service Fee based on the number of tons of
waste processed under a long term Operations and Maintenance Agreement, the
terms of which have been finalized and such agreement is expected to be
signed in the second quarter, 2000. The electrical output from the Trezzo
Project will be sold at governmentally established preferential rates under a
long term purchase contract to Italy's state owned utility company Ente
Nazionale de Electtricita s.p.a. PRIMA is in the later stages of financing
the development and construction of the facility through a limited recourse
financing through Credit Agricole Indosuez and San Paolo IMI. The Energy
Group has no other commitments in its waste-to-energy backlog as of
December 31, 1999.
In the first quarter of 2000, OWTE was selected by the Solid
Waste Management Authority of Puerto Rico to negotiate an agreement for the
design, construction and operation of an 1800 tons per day facility in northwest
Puerto Rico. The project is expected to generate approximately 60MW of
electricity, which will be sold to the Puerto Rico Electric Power Authority.
As with all development efforts, however, there are in each
case numerous conditions to be satisfied prior to financing or closing, some of
which are not within the Energy Group's control. As such, no assurance can be
given that these products will ultimately be developed successfully.
WATER AND WASTEWATER
The Energy Group's water and wastewater business is conducted
through Ogden Water Systems, Inc. ("OWS"). OWS's mission is to develop, design,
construct, maintain, operate and, in some cases, own, water and wastewater
treatment facilities and distribution and collection networks in the United
States, the Middle East, Latin America and elsewhere.
17
In the United States, the Energy Group seeks to participate in
water projects in which, under contracts with municipalities, it privatizes
water and/or wastewater facilities, agrees to build new or substantially
augment existing facilities and agrees to operate and maintain the facilities
under long-term contracts. In addition, the Energy Group currently has
contracts with five communities in New York State for the operation of
facilities in which it has no ownership or long-term leasehold interest.
In countries other than the United States, the Energy Group is
seeking water and wastewater opportunities in which it will provide services to
municipalities in which it can own an equity interest in facilities under a
concession that grants it the right to provide service to, and collect revenues
from, consumers. The Energy Group believes that the lack of creditworthiness of
some non-U.S. municipalities, which may result from their limited ability to
raise revenues or from other causes, makes the collection of tariffs from the
consumer a more secure source of revenue. In circumstances where the
creditworthiness of a sponsoring municipality is adequate to support a limited
recourse financing, the Energy Group may provide services to and collect fees
from municipal entities or other governmental agencies.
Under contractual arrangements, the Energy Group may be
required to warrant certain levels of performance and may be subject to
financial penalties or termination if it fails to meet these warranties. The
Energy Group may be required to guarantee the performance of OWS. OWS seeks
to not take responsibility for conditions that are beyond its control.
During 1999, OWS purchased a controlling interest in DSS
Environmental, Inc., which owns the patent for the DualSand -Registered
Trademark- filtration technology. OWS believes that this technology offers
superior performance at a competitive cost, and that it will have wide
application for both water and wastewater projects. In addition, OWS believes
that, because the DualSand -Registered Trademark- system is based on a
modular design, it can be implemented over a wide range of project sizes.
(a) WATER AND WASTEWATER PROJECTS. The Energy Group operates
and maintains wastewater treatment facilities for five small municipalities in
New York State. Such facilities together process approximately 16 million
gallons per day ("mgd").
(b) PROJECTS UNDER CONSTRUCTION. The Energy Group entered into
a Water Facilities Services Agreement with The Governmental Utility Services
Corporation (the "GUSC") of the City of Bessemer, Alabama in 1997. The Agreement
provides that the Energy Group will design, construct, operate and maintain a 25
mgd potable water treatment facility and associated transmission and pumping
equipment, which will supply water to residents and businesses in Bessemer,
Alabama, a suburb of Birmingham. The Energy Group will be compensated on a fixed
price basis for design and construction of the facility, and will be paid a
fixed fee plus passthrough costs for delivering processed water to the City's
water distribution system. GUSC closed on its financing in 1998, and the Energy
Group commenced design and construction shortly thereafter. Construction
completion is expected during the second quarter of 2000.
18
(c) OTHER DEVELOPMENT EFFORTS. OWS has a number of development
projects which it pursues at any given time. Among its most advanced development
projects are:
A consortium of which OWS is a member has received a project
award with respect to a 32-year concession serving a population in excess of
700,000 in the City of Muscat, the capital of the Sultanate of Oman. The project
encompasses taking over the existing wastewater treatment and collection
facilities in Muscat, as well as the construction and operation of new
wastewater infrastructure. The infrastructure capital program would be phased in
over several years, with the first phase projected to require approximately $200
million in new construction. The Energy Group's role would be as operator on
behalf of a joint venture to be formed. The joint venture's arrangement with the
government would be on a Build/Own/Operate/Transfer basis, and some equity
capital, expected to be approximately $15 million, would be required of the
Energy Group. The implementation of the Muscat project remains subject to
several conditions precedent, many of which are beyond the control of the Energy
Group, including successful completion of key project contracts.
OWS has also received an award as winning bidder for a $59
million, 4 mgd wastewater collection and sewer system in Key Largo, Florida. OWS
expects to sign definitive agreements for the projects during the second
quarter, 2000.
During 1999, OWS also entered into an agreement with a
consortium that has been awarded the exclusive rights to develop a wastewater
system in Ajman, United Arab Emirates. The agreement gives OWS the exclusive
rights to operate the project as well as the right to purchase a controlling
interest in the project consortium.
As with all development efforts, however, there are in each
case numerous conditions to be satisfied prior to financing or closing each
project, many of which are not within the Energy Group's control. As such, there
can be no assurance that these projects will ultimately be developed
successfully.
ENVIRONMENTAL CONSULTING AND ENGINEERING
The Energy Group's environmental consulting services are
provided through Ogden Environmental and Energy Services Co., Inc. ("OEES")
which provides a comprehensive range of environmental, infrastructure and energy
consulting, engineering and design services to industrial and commercial
companies, electric utilities and governmental agencies. These services include
analysis and characterization, remedial investigations, engineering and design,
data management, project management, regulatory assistance and remedial
construction as well as concrete and civil construction projects which are
provided to a variety of clients in the public and private sectors in the United
States and abroad. Principal clients include major Federal agencies,
particularly the Department of Defense, as well as major corporations in the
chemical, petroleum, transportation, public utility and health care industries
and Federal and state regulatory authorities. United States Government contracts
may be terminated, in whole or in part, at the
19
convenience of the government or for cause. In the event of a convenience
termination, the government is obligated to pay the costs incurred under the
contract plus a fee based upon work completed. In 1999, Ogden announced its
intention to sell its environmental consulting services.
OTHER
Datacom, Inc. (formerly Atlantic Design Company, Inc.) a contract
manufacturer which conducts assembly and manufacturing operations at its
facility located in Reynosa, Mexico near the boarder with McAllen, Texas.
Datacom sells an overwhelming majority of its output under a supply contract
with the Genicom Corporation, a specialty printer supplier. Genicom filed for
protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code on
March 10, 2000. If the Genicom contract is rejected by Genicom, Datacom would be
limited to its remedies as an unsecured creditor.
DISCONTINUED BUSINESSES
(A) ENTERTAINMENT
During 1999, the Company conducted business in its Entertainment
segment through Ogden Entertainment, Inc. ("Entertainment"). Entertainment was
engaged in business activities related to owning, servicing, and operating
public assembly facilities and entertainment attractions in the United States,
Canada, Europe, South America, Latin America and Australia both directly and
through partnerships and joint ventures Entertainment's business operations were
divided into two categories: Concessions and Venue Management; and Parks and
Attractions. In addition, Entertainment owns a 50% interest in the Metropolitan
Entertainment Group, which is engaged in a number of activities related to the
development and exhibition of entertainment products. Since September, 1999, the
Company has reported the Entertainment Group as discontinued operations in its
financial statements, and is currently in the process of selling the
Entertainment business.
(B) AVIATION
Prior to September, 1999, the Company conducted business in its
Aviation segment through two major operations: (i) Aviation Services, and (ii)
Airport Privatization and Infrastructure Development. Aviation's Airport
Privatization and Infrastructure operations designs, finances, builds and
operates major airport facilities and other aviation infrastructure projects;
provides airport development and management; Aviation Services provides ground
handling and passenger services; cargo facility development and operations; and
fueling and fuel facility management. These diversified services are performed
throughout the world through joint ventures, consortiums, contracts with
individual airlines, consolidated agreements with several airlines, and
contracts with various airport authorities. Ogden Aviation's customer base
consists of airlines companies and aviation authorities. The first step in
providing aviation services is to obtain operating licenses at key locations
from the governing aviation authorities. These licenses grant Aviation the right
to compete in the airline services market at a particular airport and tend to be
long-term in nature. Since September, 1999, the Company has reported its
Aviation segment as discontinued operations in its financial statements, and is
currently in the process of selling the Aviation business.
20
OTHER INFORMATION
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 Ogden 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.
MARKETS, COMPETITION AND GENERAL BUSINESS CONDITIONS
Ogden's Energy businesses can be adversely affected by general
economic conditions, war, inflation, adverse competitive conditions,
governmental restrictions and controls, natural disasters, energy shortages,
weather, the adverse financial condition of customers and suppliers, various
technological changes and other factors over which Ogden has no control.
The Energy Group's independent power business faces a domestic
market that is expected to change substantially in the years ahead from a
mature, highly regulated and uncompetitive market for energy services to a less
regulated and more competitive market as utilities restructure for deregulation
and termination of their traditional monopolies. The international market for
energy services is characterized by a large demand and much competition for
projects within a relatively immature market framework.
The domestic market for the Energy Group's waste-to-energy
services has largely matured and is now heavily regulated. New opportunities for
domestic projects are expected to be scarce for the foreseeable future. This
reflects a number of factors that adversely affected communities' willingness to
make long-term capital commitments to waste disposal projects, including:
declining prices at which energy can be sold, and low alternative disposal
costs. Another factor adversely affecting the demand for new waste-to-energy
projects, as well as having an impact on existing projects, was a 1994 United
States Supreme Court decision invalidating state and local laws and regulations
mandating that waste generated within a given jurisdiction be taken to a
designated facility. The invalidation of such laws has created pressure on
Client Communities as well as the Energy Group to lower costs or restructure
contractual arrangements in order to continue to attract waste supplies and
ensure that revenues are sufficient to pay for all project costs. See Waste to
Energy, "Other Arrangements for Providing Waste-to-Energy Services".
Foreign demand for waste to energy projects in which OWTE
would participate is expected to exist only in unique circumstances where other
disposal options are unavailable or unusually costly.
21
The Energy Group's water and wastewater business faces an
immature but developing domestic market for private water and wastewater
services, and, like energy, a large foreign demand within an immature
marketplace.
Competition for business is intense in all the domestic and
foreign markets in which Ogden conducts or intends to conduct its businesses and
its businesses are subject to a variety of competitiveness and market
influences. The economic climate can adversely affect Ogden's operations.
Ogden's Energy group expends substantial amounts for the development of new
businesses. The financial support required to undertake some of these activities
comes from Ogden. Beyond staffing costs, expenditures can include the costs of
contract and site acquisition, feasibility and environmental studies, technical
and financial analysis, and in some cases the preparation of extensive proposals
in response to public or private requests for proposals. Development of some
projects involves substantial risks which are not within their control. Success
of a project may depend upon obtaining in a timely manner acceptable contractual
arrangements and financing, appropriate sites, acceptable licenses,
environmental permits and governmental approvals. Even after the required
contractual arrangements are achieved, implementation of the project often is
subject to substantial conditions that may be outside the control of the
Company. In some, but not all, circumstances, the Energy group will make
contractual arrangements for the partial recovery of development costs if the
project fails to be implemented for reasons beyond its control.
INTERNATIONAL BUSINESS DEVELOPMENT
The Energy Group develops projects in many countries, and in
doing so seeks to implement its strategy for the development of its business in
selected international markets where private development is encouraged. It seeks
to do so by focusing on a limited number of opportunities which can be developed
in conjunction with local and international partners. Offices have been
established in Hong Kong, Manila, Sao Paulo, Calcutta, Bangkok, Beijing, Ankara
and London in order to service foreign projects. Opportunities in foreign
countries for the services provided by the Energy Group are highly dependent
upon the elimination of historic legal and political barriers to the
participation of foreign capital and foreign companies in the financing,
construction, ownership and operation of infrastructure facilities.
The Energy Group has ownership interest and/or operates (or
will operate upon completion of construction) projects in four continents. They
are:
- North America: 46 energy generating projects totaling
1114 MW (gross); 6 water or wastewater projects
totaling 41 mgd capacity.
- Asia: 12 energy generating projects totaling 1212 MW
(gross).
- South and Central America: 4 energy generating
projects totaling 226 MW (gross).
- Europe: 1 energy generating project of 15 MW (gross).
22
The development, construction, ownership and operation of
facilities in foreign countries entails significant political and financial
uncertainties and other structuring issues that typically are not involved in
such activities in the United States. These risks include unexpected changes in
electricity tariffs, conditions in financial markets, currency exchange rate
fluctuations, currency repatriation restrictions, currency inconvertibility,
unexpected changes in laws and regulations, political, economic or military
instability, civil unrest and expropriation. Such risks have the potential to
cause substantial delays or material impairment to the value of the project
being developed or business being operated.
Many of the countries in which the Energy Group is or intends
to be active are lesser developed countries or developing countries. The
political, social and economic conditions in some of these countries is
typically less stable than those prevalent in the United States. The financial
condition and creditworthiness of the potential purchasers of power and services
provided by the Energy Group (which may be a governmental or private utility or
industrial consumer) or of the suppliers of fuel for projects in these countries
may not be as strong as those of similar entities in developed countries. The
obligations of the purchaser under the power purchase agreement, the service
recipient under the related service agreement and the supplier under the fuel
supply agreement generally are not guaranteed by any host country or other
creditworthy governmental agency. Whenever such governmental guarantees are not
available, the Energy Group undertakes a credit analysis of the proposed power
purchaser or fuel supplier. It also seeks, to the extent appropriate and
achievable within the commercial parameters of a project, to require such
entities to provide financial instruments such as letters of credit or
arrangements regarding the escrowing of the receivables of such parties in the
case of power purchasers.
The Energy Group's IPP and waste-to-energy projects in
particular are dependent on the reliable and predictable delivery of fuel
meeting the quantity and quality requirements of the project facilities. The
Energy Group will typically seek to negotiate long-term contracts for the supply
of fuel with creditworthy and reliable suppliers. However, the reliability of
fuel deliveries may be compromised by one or more of several factors that may be
more acute or may occur more frequently in developing countries than in
developed countries, including a lack of sufficient infrastructure to support
deliveries under all circumstances, bureaucratic delays in the import,
transportation and storage of fuel in the host country, customs and tariff
disputes and local or regional unrest or political instability. In most of the
projects in which the Energy Group participates internationally, it seeks, to
the extent practicable, to shift the consequences of interruptions in the
delivery of fuel, whether due to the fault of the fuel supplier or due to
reasons beyond the fuel supplier's control, to the electricity purchaser or
service recipient by securing a suspension of its operating responsibilities
under the applicable agreements and an extension of its operating concession
under such agreements and/or, in some instances, by requiring the energy
purchaser or service recipient to continue to make payments in respect of fixed
costs. In order to mitigate the effect of short-term interruptions in the supply
of fuel, the Energy Group endeavors to provide on-site storage of fuel in
sufficient quantities to address such interruptions.
23
Payment for services that the Energy Group provides will often
be made in whole or part in the domestic currencies of the host countries.
Conversion of such currencies into U.S. dollars generally is not assured by a
governmental or other creditworthy country agency, and may be subject to
limitations in the currency markets, as well as restrictions of the host
country. In addition, fluctuations in value of such currencies against the value
of the U.S. dollar may cause the Energy Group's participation in such projects
to yield less return than expected. Transfer of earnings and profits in any form
beyond the borders of the host country may be subject to special taxes or
limitations imposed by host country laws. The Energy Group seeks to participate
in projects in jurisdictions where limitations on the convertibility and
expatriation of currency have been lifted by the host country and where such
local currency is freely exchangeable on the international markets. In most
cases, components of project costs incurred or funded in the currency of the
United States are recovered without risk of currency fluctuation through
negotiated contractual adjustments to the price charged for electricity or
service provided. This contractual structure may cause the cost in local
currency to the project's power purchaser or service recipient to rise from time
to time in excess of local inflation, and consequently there is risk in such
situations that such power purchaser or service recipient will, at least in the
near term, be less able or willing to pay for the project's power or service.
Due to the fact that many of the countries in which the Energy
Group is or intends to be active are lesser developed countries or developing
countries, the successful development of a project or projects may be adversely
impacted by economic changes in such countries or by changes in government
support for such projects. Adverse economic changes may, and have, resulted in
initiatives (by local governments alone or at the request of world financial
institutions) to reduce local commitments to pay long-term obligations in US
dollars or US dollar equivalents. There is therefore risk that the Energy
Group's development efforts in such countries may from time to time be adversely
affected by such changes on a temporary or long-term basis.
In addition, the Energy Group will generally participate in
projects which provide services that are treated as a matter of national or key
economic importance by the laws and politics of many host countries. There is
therefore risk that the assets constituting the facilities of these projects
could be temporarily or permanently expropriated or nationalized by a host
country, or made subject to local or national control.
The Energy Group will seek to manage and mitigate these risks
through all available means that it deems appropriate. They will include:
political and financial analysis of the host countries and the key participants
in each project; guarantees of relevant agreements with creditworthy entities;
political risk and other forms of insurance; participation by international
finance institutions, such as affiliates of the World Bank, in financing of
projects in which it participates; and joint ventures with other companies to
pursue the development, financing and construction of these projects.
24
EQUAL EMPLOYMENT OPPORTUNITY
In recent years, governmental agencies (including the Equal
Employment Opportunity Commission) and representatives of minority groups and
women have asserted claims against many companies, including some Ogden
subsidiaries, alleging that certain persons have been discriminated against in
employment, promotions, training, or other matters. Frequently, private actions
are brought as class actions, thereby increasing the practical exposure. In some
instances, these actions are brought by many plaintiffs against groups of
defendants in the same industry, thereby increasing the risk that any defendant
may incur liability as a result of activities which are the primary
responsibility of other defendants. Although Ogden and its subsidiaries have
attempted to provide equal opportunity for all of its employees, the combination
of the foregoing factors and others increases the risk of financial exposure.
YEAR 2000 ISSUES
See discussion on Ogden's Year 2000 issues set forth in Part
II, Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS of this Form 10-K Report.
EMPLOYEE AND LABOR RELATIONS
Ogden and its subsidiaries currently employ approximately
2,600 U.S. and foreign employees in its continuing businesses. This figure does
not include employees currently employed in discontinued businesses.
Certain employees of Ogden are employed pursuant to collective
bargaining agreements with various unions. During 1999 Ogden successfully
renegotiated collective bargaining agreements in certain of its business sectors
with no strike-related loss of service. Ogden considers relations with its
employees to be good and does not anticipate any significant labor disputes in
2000.
ENVIRONMENTAL REGULATORY LAWS
(a) DOMESTIC. Ogden's business activities in the United States
are pervasively regulated pursuant to Federal, state and local environmental
laws. Federal laws, such as the Clean Air Act and Clean Water Act, and their
state counterparts, govern discharges of pollutants to air and water. Other
federal, state, and local laws, comprehensively govern the generation,
transportation, storage, treatment, and disposal of solid waste, and also
regulate the storage and handling of petroleum products, including hazardous
waste (such laws and the regulations thereunder, "Environmental Regulatory
Laws").
The Environmental Regulatory Laws and other federal, state,
and local laws, such as the Comprehensive Environmental Response Compensation
and Liability Act ("CERCLA") (collectively, "Environmental Remediation Laws"),
make Ogden potentially liable on a joint and several basis for any environmental
contamination which may be associated with the Company's
25
activities and the activities at sites, including landfills, which the Energy
Group's subsidiaries have owned, operated, or leased or at which there has been
disposal of residue or other waste handled or processed by such subsidiaries or
at which there has been disposal of waste generated by the Energy Group's
activities. Through its subsidiaries, the Energy Group leases and operates a
landfill in Haverhill, Massachusetts, and leases a landfill in Bristol,
Connecticut, in connection with its projects at those locations. Some state and
local laws also impose liabilities for injury to persons or property caused by
site contamination. Some Service Agreements provide for indemnification of the
operating subsidiaries from some such liabilities. In addition, other
subsidiaries involved in landfill gas projects have access rights to landfills
pursuant to certain leases at landfill sites which permit the installation,
operation and maintenance of landfill gas collection systems. A portion of these
landfill sites is and has been a federally designated "superfund" site. Each of
these leases provide for indemnification of the Energy Group subsidiary from
some liabilities associated with these sites.
The Environmental Regulatory Laws require that many permits be
obtained before the commencement of construction and operation of
waste-to-energy, independent power and water and wastewater projects. There can
be no assurance that all required permits will be issued, and the process of
obtaining such permits can often cause lengthy delays, including delays caused
by third-party appeals challenging permit issuance. Failure to meet conditions
of these permits or of the Environmental Regulatory Laws and the corresponding
regulations can subject an operating subsidiary to regulatory enforcement
actions by the appropriate governmental unit, which could include monetary
penalties, and orders requiring certain remedial actions or limiting or
prohibiting operation. In addition, certain of Ogden's discontinued businesses
also are required to comply with various regulatory and permitting requirements
and can be subject to regulatory enforcement actions. To date, Ogden has not
incurred material penalties, been required to incur material capital costs or
additional expenses, nor been subjected to material restrictions on its
operations as a result of violations of environmental laws, regulations, or
permits.
The Environmental Regulatory Laws and Federal and state
governmental regulations and policies governing their enforcement are subject to
revision. New technology may be required or stricter standards may be
established for the control of discharges of air or water pollutants for storage
and handling of petroleum products or for solid or hazardous waste or ash
handling and disposal. Thus, as new technology is developed and proven, it may
be required to be incorporated into new facilities or major modifications to
existing facilities. This new technology may often be more expensive than that
used previously.
The Clean Air Act Amendments of 1990 required EPA to
promulgate New Source Performance Standards ("NSPS") and Emission Guidelines
("EG") applicable to new and existing municipal waste combustion units for
particulate matter (total and fine), opacity, sulfur dioxide, hydrogen chloride,
oxides of nitrogen, carbon monoxide, dioxins and dibenzofurans.
The NSPS and EG, which were issued in final form in 1995,
require capital improvements or operating changes to most of the waste-to-energy
facilities operated by OWTE to control emissions of nitrogen oxides, organics,
mercury and acid gases. EPA has since issued a
26
final rule which slightly revised the emission limits for NOX, CO, SO2, HCl,
dioxin, cadmium, and lead, tightening all but the NOX limit. The general
compliance deadline for the NSPS and EG is December 19, 2000, the deadline for
these seven revised limits is August 26, 2002. As a practical matter the capital
and operating changes necessary to meet them is very nearly identical to that
needed to achieve the prior NSPS and EG limits. OWTE anticipates that projects
to install all new equipment needed to achieve the applicable new limits under
the NSPS and EG will be undertaken in a single effort, to be completed by
December 19, 2000.
The costs to meet new rules for existing facilities owned by
Client Communities generally will be borne by the Client Communities. For
projects owned or leased by Ogden and operated under a Service Agreement, the
Client Community has the obligation to fund such capital improvements, to which
Ogden may be required to make an equity contribution. In certain cases, Ogden is
required to fund the full cost of these capital improvements at those facilities
that are either not operated pursuant to a Service Agreement or whose Service
Agreement does not require the costs to be borne by the Client Community. The
Company estimates that its commitments for these capital improvements will total
approximately $30 million during 2000. Only moderate additional costs are likely
to be incurred during 2001 and 2002. OWTE believes that most costs incurred to
meet EG and operating permit requirements at facilities it operates may be
recovered from Client Communities and other users of its facilities through
increased service fees permitted under applicable contracts. Such increased
service fees will be paid for either out of their general revenues or by
increasing fees charged to facility users by the Client Community. Because of
the reluctance or inability of some municipalities to increase taxes, or tipping
fees if the market may not bear the increase without some loss of waste
deliveries, Client Communities may seek to have OWTE subsidize the cost, or
modify its contractual relationship.
The Environmental Remediation Laws prohibit disposal of
hazardous waste other than in small, household-generated quantities at OWTE's
municipal solid waste facilities. The Service Agreements recognize the potential
for improper deliveries of hazardous wastes and specify procedures for dealing
with hazardous waste that is delivered to a facility. Although certain Service
Agreements require the Operating Subsidiary to be responsible for some costs
related to hazardous waste deliveries, to date, no Operating Subsidiary has
incurred material hazardous waste disposal costs.
Domestic drinking water facilities developed in the future by
OWS will be subject to regulation of water quality by the EPA under the Federal
Safe Drinking Water Act and by similar state laws. Domestic wastewater
facilities are subject to regulation under the Federal Clean Water Act and by
similar state laws. These laws provide for the establishment of uniform minimum
national water quality standards, as well as governmental authority to specify
the type of treatment processes to be used for public drinking water. Under the
Federal Clean Water Act, OWS may be required to obtain and comply with National
Pollutant Discharge Elimination System permits for discharges from its treatment
stations. Generally, under its current contracts, the client community is
responsible for fines and penalties resulting from the delivery to OWS's
treatment facilities of water not meeting standards set forth in those
contracts.
27
(b) INTERNATIONAL. Among the Energy Group's objectives is
providing energy generating and other infrastructure through environmentally
protective project designs, regardless of the location of a particular project.
This approach is consistent with the increasingly stringent environmental
requirements of multilateral financing institutions, such as the World Bank, and
also with the Energy Group's experience in domestic waste-to-energy projects,
where environmentally protective facility design and performance has been
required. The laws of other countries also may require regulation of emissions
into the environment, and provide governmental entities with the authority to
impose sanctions for violations, although these requirements are generally not
as rigorous as those applicable in the United States. Compliance with
environmental standards comparable to those of the United States may be
conditions to the provision of credit by multilateral banking agencies as well
as other lenders or credit providers. As with domestic project development,
there can be no assurance that all required permits will be issued, and the
process can often cause lengthy delays.
ENERGY AND WATER REGULATIONS
The Energy Group's domestic businesses are subject to the
provisions of federal, state and local energy laws applicable to their
development, ownership and operation of their domestic facilities, and to
similar laws applicable to their foreign operations. Federal laws and
regulations govern transactions with utilities, the types of fuel used and the
power plant ownership. State regulatory regimes govern rate approval and other
terms under which utilities purchase electricity from independent power
producers, except to the extent such regulation is pre-empted by federal law.
Pursuant to Federal Public Utility Regulatory Policies Act
("PURPA"), the Federal Energy Regulatory Commission ("FERC") has promulgated
regulations that exempt qualifying facilities (facilities meeting certain size,
fuel and ownership requirements, or "QFs") from compliance with certain
provisions of the Federal Power Act ("FPA"), the Public Utility Holding Company
Act of 1935 ("PUHCA"), and certain state laws regulating the rates charged by,
or the financial and organizational activities of, electric utilities. PURPA was
enacted in 1978 to encourage the development of cogeneration facilities and
other facilities making use of non-fossil fuel power sources, including
waste-to-energy facilities. The exemptions afforded by PURPA to qualifying
facilities from regulation under the FPA and PUHCA and most aspects of state
electric utility regulation are of great importance to the Energy Group and its
competitors in the waste-to-energy and independent power industries.
Except with respect to waste to energy facilities with a net
power production capacity in excess of thirty megawatts (where rates are set by
FERC), state public utility commissions must approve the rates, and in some
instances other contract terms, by which public utilities purchase electric
power from QFs. PURPA requires that electric utilities purchase electric energy
produced by QFs at negotiated rates or at a price equal to the incremental or
"avoided" cost that would have been incurred by the utility if it were to
generate the power itself or purchase it from another source. PURPA does not
expressly require public utilities to enter into long-term contracts to purchase
the output supplied by QFs.
28
Under PUHCA, any entity owning or controlling ten percent or
more of the voting securities of a "public utility company" or company which is
a "holding company" of a public utility company is subject to registration with
the Securities and Exchange Commission (the "SEC") and regulation by the SEC
unless exempt from registration. Under PURPA, most projects that satisfy the
definition of a "qualifying facility" are exempt from regulation under PUHCA.
Under the Energy Policy Act of 1992, projects that are not QFs under PURPA but
satisfy the definition of an "exempt wholesale generator" ("EWG") are not deemed
to be public utility companies under PUHCA. Finally, projects that satisfy the
definition of "foreign utility companies" are exempt from regulation under
PUHCA. The Energy Group believes that all of its operating projects involved in
the generation, transmission and/or distribution of electricity, both
domestically and internationally, qualify for an exemption from PUHCA and that
it is not and will not be required to register with the SEC.
In the past there has been consideration in the U.S. Congress
of legislation to repeal PURPA entirely, or at least to repeal the obligation of
utilities to purchase power from QFs. There is continuing support for
grandfathering existing QF contracts if such legislation is passed. Various
bills have also proposed repeal of PUHCA. Repeal of PUHCA would allow both
independents and vertically integrated utilities to acquire electric assets
throughout the United States that are geographically widespread, eliminating the
current requirement that the utility's electric assets be capable of physical
integration. Also, registered holding companies would be free to acquire
non-utility businesses, which they may not do now, with certain limited
exceptions. With the repeal of PURPA or PUHCA, competition for independent power
generators from utilities would likely increase. This is likely to have little
or no impact on existing Energy Group projects, but may mean additional
competition from highly-capitalized companies seeking to develop projects in the
U.S.
In addition, the FERC, many state public utility commissions
and Congress have implemented or are considering a series of proposals to
restructure the electric utility industry in the United States to permit utility
customers to choose their utility supplier in a competitive electric energy
market. The FERC has issued a series of orders requiring utilities to offer
wholesale customers and suppliers open access on their transmission lines on a
comparable basis to the utilities' own use of the line. All public utilities
have already filed "open access" tariffs to implement this requirement. As the
trend toward increased competition continues, the utilities contend that they
are entitled to recover from departing customers their fixed costs that will be
"stranded" by the ability of their wholesale customers (and perhaps eventually,
their retail customers) to choose new electric power suppliers. These include
the costs utilities are required to pay under many QF contracts which the
utilities view as excessive when compared with current market prices. Many
utilities are therefore seeking ways to lower these contract prices, or rescind
or buy out these contracts altogether, out of concern that their shareholders
will be required to bear all or part of such "stranded" costs. Regulatory
agencies to date have recognized the continuing validity of approved power
purchase agreements, and have rejected attempts by some utilities to abrogate
these contracts. At the same time, regulatory agencies have encouraged
renegotiations of power contracts where rate payer savings can be achieved as a
result. The
29
Energy Group anticipates that the regulatory impetus to restructure "above
market" power purchase agreements will continue in many of the jurisdictions
where it owns or operates generating facilities. Future U.S. electric rates may
be deregulated in a restructured U.S. electric utility industry and increased
competition may result in lower rates and less profit for U.S. electricity
sellers developing new projects. Falling electricity prices and uncertainty as
to the future structure of the industry can be expected to inhibit United States
utilities from entering into long-term power purchase contracts. On the other
hand, deregulation could open up markets for the sale of electricity, including
retail markets, previously available only to regulated utilities.
The Energy Group presently has, and intends to continue to
acquire, ownership and operating interests in electric generating projects
outside the United States. Most countries have expansive systems for the
regulation of the power business. These generally include provisions relating to
ownership, licensing, rate setting and financing of generating and transmission
facilities.
OWS's business may be subject to the provisions of state,
local and, in the case of foreign operations, national utility laws applicable
to the development, ownership and operation of water supply and wastewater
facilities. Whether such laws apply depends upon the local regulatory scheme as
well as the manner in which OWS provides its services. Where such regulations
apply, they may relate to rates charged, services provided, accounting
procedures, acquisitions and other matters. In the United States, rate
regulations have typically been structured to provide a predetermined return on
the regulated entities investments. In other jurisdictions, the trend is towards
periodic price reviews comparing rates to anticipated capital and operating
revenues. The regulated entity benefits from efficiencies achieved during the
period for which the rate is set.
30
Item 2. PROPERTIES
Ogden's executive offices are located at Two Pennsylvania
Plaza, New York, New York 10121, pursuant to a lease that expires on April 30,
2008, subject to an option by Ogden to renew the lease for an additional five
years. Ogden Services Corporation also owns a 12,000 square-foot warehouse and
office facility located in Long Island City, New York.
The principal executive offices of Ogden Energy Group, Inc.
are located in Fairfield, New Jersey, in an office building located on a 5.4
acre site owned by Ogden Projects, Inc. It also leases approximately 47,000
square feet of office space in Fairfax, Virginia, and approximately 910 square
meters of office space in Hong Kong.
The following table summarizes certain information relating to
the locations of the properties owned or leased by Ogden Energy Group, Inc. or
its subsidiaries:
APPROXIMATE
SITE SIZE
LOCATION IN ACRES SITE USE NATURE OF INTEREST(1)
- -------- --------- --------- -----------------------
1. Fairfield, New Jersey 5.4 Office space Own
2. Marion County, Oregon 15.2 Waste-to-energy facility Own
3. Alexandria/Arlington,
Virginia 3.3 Waste-to-energy facility Lease
4. Bristol, Connecticut 18.2 Waste-to-energy facility Own
5. Bristol, Connecticut 35.0 Landfill Lease
6. Indianapolis, Indiana 23.5 Waste-to-energy facility Lease
7. Stanislaus County, California 16.5 Waste-to-energy facility Lease
8. Babylon, New York 9.5 Waste-to-energy facility Lease
9. Haverhill, Massachusetts 12.7 Waste-to-energy facility Lease
10. Haverhill, Massachusetts 16.8 RDF processing facility Lease
11. Haverhill, Massachusetts 20.2 Landfill Lease
12. Lawrence, Massachusetts 11.8 RDF power plant (closed) Own
13. Lake County, Florida 15.0 Waste-to-energy facility Own
14. Wallingford, Connecticut 10.3 Waste-to-energy facility Lease
15. Fairfax County, Virginia 22.9 Waste-to-energy facility Lease
16. Union County, New Jersey 20.00 Waste-to-energy facility Lease
31
17. Huntington, New York 13.0 Waste-to-energy facility Lease
18. Warren County, New Jersey 19.8 Waste-to-energy facility Lease
19. Hennepin County, Minnesota 14.6 Waste-to-energy facility Lease
20. Tulsa, Oklahoma 22.0 Waste-to-energy facility Lease
21. Onondaga County, New York 12.0 Waste-to-energy facility Lease
22. New Martinsville, W. VA N/A Hydroelectric Power Generating Lease
23. Heber, California N/A Geothermal Power Plant Lease
24. Heber, California N/A Geothermal Power Plant Lease
25. Bataan, Philippines 3,049 sq. meters Diesel Power Plant Lease
26. Zhejiang Province, N/A Coal-fired Land Use Right
People's Republic of Cogeneration Facility reverts to China
China Joint Venture Partner
Upon termination of
Joint Venture
Agreement.
27. Shandong Province, N/A Coal-fired Land Use Right
People's Republic of Cogeneration Facility reverts to China Joint
China Venture Partner upon
termination of Joint
Venture Agreement.
28. Jiangsu Province, N/A Coal-fired Land Use Right
People's Republic of Cogeneration Facility reverts to China Joint
China Venture Partner upon
termination of Joint
Venture Agreement
29. Jiangsu Province, N/A Coal-fired Land Use Right
People's Republic of China Cogeneration Facility reverts to China Joint
Venture Partner upon
termination of Joint Venture Agreement
30. Casa Diablo Hot Springs, 1,510 Geothermal Projects Land Use Rights from
California Geothermal Resource
Lease
31. Rockville, Maryland N/A Landfill Gas Project Lease
32. San Diego, California N/A Landfill Gas Project Lease
33. Oxnard, California N/A Landfill Gas Project Lease
32
34. Sun Valley, California N/A Landfill Gas Project Lease
35. Salinas, California N/A Landfill Gas Project Lease
36. Santa Clara, California N/A Landfill Gas Project Lease
37. Stockton, California N/A Landfill Gas Project Lease
38. Los Angeles, California N/A Landfill Gas Project Lease
39. Burney, California 40 Wood Waste Project Lease
40. Jamestown, California 26 Wood Waste Project Own (50%)
41. Westwood, California 60 Wood Waste Project Own
42. Oroville, California 43 Wood Waste Project Lease
43. Whatcom County, Washington N/A Hydroelectric Project Own (50%)
44. Weeks Falls, Washington N/A Hydroelectric Project Lease
45. Haripur, Bangladesh 4.6 Gas/Diesel Project Lease
46. Cavite, Philippines 13,122 Diesel Project Lease
sq. meters
47. Chonburi, Thailand 5.92 Gas Project Own
- -----------------------
(1) All ownership or leasehold interests relating to projects are
subject to material liens in connection with the financing of
the related project, except those listed above under items 12,
26-29, and 31-42. In addition, all leasehold interests extend
at least as long as the term of applicable project contracts,
and several of the leasehold interests are subject to renewal
and/or purchase options.
33
ITEM 3. LEGAL PROCEEDINGS
The Company has various legal proceedings involving matters
arising in the ordinary course of business. The Company does not believe that
there are any pending legal proceedings, other than ordinary routine litigation
incidental to its business, to which the Company is a party or to which any of
its property is subject, the outcome of which would have a material adverse
effect on the Company's consolidated position or results of operation.
The Company's operations are subject to various Federal, state
and local environmental laws and regulations, including the Clean Air Act, the
Clean Water Act, the Comprehensive Environmental Response Compensation and
Liability Act (CERCLA) and Resource Conservation and Recovery Act (RCRA).
Although the Company's operations are occasionally subject to proceedings and
orders pertaining to emissions into the environment and other environmental
violations, the Company believes that it is in substantial compliance with
existing environmental laws and regulations.
In connection with certain previously divested operations, the
Company may be identified, along with other entities, as being among potentially
responsible parties responsible for contribution for costs associated with the
correction and remediation of environmental conditions at various hazardous
waste disposal sites subject to CERCLA. In certain instances the Company may be
exposed to joint and several liability for remedial action or damages. The
Company's ultimate liability in connection with such environmental claims will
depend on many factors, including its volumetric share of waste, the total cost
of remediation, the financial viability of other companies that also sent waste
to a given site and its contractual arrangement with the purchaser of such
operations.
The potential costs related to all of the foregoing matters and
the possible impact on future operations are uncertain due in part to the
complexity of government laws and regulations and their interpretations, the
varying costs and effectiveness of cleanup technologies, the uncertain level of
insurance or other types of recovery, and the questionable level of the
Company's responsibility.
Although the ultimate outcome and expense of any litigation,
including environmental remediation, is uncertain, the Company believes that the
following proceedings will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
(a) Environmental Matters
(i) Ogden Aviation Fueling Company of Virginia, Inc. ("Ogden Virginia") has
tentatively agreed with the U.S. Department of Justice to accept one misdemeanor
plea for negligent violation of the Clean Water Act as a result of a fuel spill
from a holding tank in October 1996 at a tank farm formerly operated by Ogden
Virginia at Dulles International Airport in Washington, D.C. The plea includes
payment of a $200,000 penalty.
34
(ii) Ogden was recently served with a lawsuit entitled "AIRFRANCE, ET. AL. V.
OGDEN AVIATION FUELING COMPANY OF VIRGINIA, INC. AND OGDEN AVIATION SERVICES,
INC." (Circuit Ct., Fairfax Co., Index No. 183590) in which certain of the
airlines seek recovery of cleanup costs for which they reimbursed Ogden, arising
from a spill of aviation fuel from a holding tank in October 1996 at the former
tank farm operated by Ogden at Dulles International Airport. The plaintiffs
include United, the largest carrier that operated out of Dulles in 1996, as well
as nine other airlines - Air France, America West, Austrian Airlines, British
Airways, Continental, Lufthansa, Northwest, UPS and Virgin.
The suit claims damages in the amount of at least $731,149.76, plus
interest. This dollar amount reflects the portion of the spill cleanup paid by
the named plaintiffs. Total cleanup costs were in the range of $1,000,000, but
apparently not all the airlines have joined in the suit at this time. The suit
alleges damages on two theories: (1) breach of contract in that Ogden was not
authorized under the contract to charge the airlines spill related costs; and
(2) equitable relief in that Ogden has been unjustly enriched at the expense of
the airlines.
Ogden has filed a motion to dismiss the complaint on the grounds that
it was never a party to the fuel service agreements, a motion to dismiss the
unjust enrichment claim and has answered the claim arising under the contract.
Ogden has taken the position that fuel spill clean up costs were properly
charged back to the plaintiff airlines.
(iii) Ogden has been in negotiations with the Port Authority of New York and
New Jersey to resolve all liabilities associated with Ogden's operations at the
Bulk and Satellite Tank Farms located at the John F. Kennedy International
Airport in New York, New York. Ogden has reached an agreement in principle with
the Port Authority under which Ogden will make an upfront payment of $1,000,000
with additional payments tied to the extension of the lease totaling $1,200,000
from 1999 through 2008 ($200,000 for first 4 years and $100,000 for remaining 4
years). The active groundwater remediation currently being conducted at the
Satellite tank farm has been ongoing since 1991 and is paid for by the airlines.
The active groundwater remediation at the Bulk tank farm is being performed and
paid for by the Port Authority pursuant to an Administrative Order with New York
State Department of Environmental Conservation.
(iv) Ogden has been requested by United Airlines ("United") and American
Airlines ("American") to participate in the remediation of underground
environmental contamination at Buildings 56 & 57 at the John F. Kennedy
International Airport in New York, New York. United held the lease to Building
56 from the mid-1950's to 1991, and subleased to American for the period 1989 to
1991. Since 1991, American has been the lessee of Building 56. American entered
into a lease agreement for Building 57 in August 1976.
By letter dated March 6, 1996, United notified Ogden of its potential
liability under New York's Navigation Law (the "Spill Law") for petroleum
discharges at Building 56. United advised that it spent approximately $500,000
in investigatory costs and that it estimated an additional $3,000,000 to
$4,000,000 in remediation costs. Ogden received a letter dated April 6, 1998,
from United and American (the "Airlines") notifying Ogden of potential liability
under the Spill Law and under agreements between Ogden and the Airlines for
petroleum discharges at Building 56. The Airlines further notified Ogden that
they spent $1,050,000 on a remediation program to date, estimated an additional
$3,300,000 in expenditures and that they expected Ogden (without citing any
facts with respect to the cause of the problem or Ogden's role) to cooperate in
the remediation and be responsible for 75% of the costs. Ogden received a letter
dated September 30, 1999 from American further notifying Ogden of its potential
liability under the Spill
35
Law and the Fuel Service Agreement between Ogden and American. American demanded
that Ogden participate in financing of investigation and remediation activities
at Buildings 56 & 57. American estimated that it would incur future costs of
$70,000,000 to remediate its leasehold in accordance with New York State
Department of Environmental Conservation requirements. American has since
advised Ogden that its cost estimate has been reduced to approximate $30,000,000
- - $35,000,000.
United Airlines filed suit against Ogden in the Supreme Court of the
State of New York, County of New York on January 4, 2000 seeking $1,972,000 in
technical contractor and legal costs incurred in connection with Building 56 and
declaratory judgement for future costs and damages that United may incur.
Ogden believes that under their respective leases with the Port
Authority of New York and New Jersey, United and American are responsible for
the underground piping and the hydrant pits on the leased premises. Ogden is
only responsible for the hydrants heads. United and American have failed to
demonstrate how Ogden is responsible for any environmental contamination on the
Buildings 56 & 57 leaseholds. Ogden also believes it has meritorious defenses to
the allegations made in the United suit and to the allegations brought by
American.
(b) Shareholder Litigation
On September 22, October 1, and October 12, 1999, complaints (the
"Complaints") denominated as class actions (the "Actions") were filed in the
United States District Court for the Southern District of New York against the
Company, the Company's former Chairman and Chief Executive, R. Richard Ablon,
and Robert M. DiGia (incorrectly identified in the Complaints as the Chief
Financial Officer and Senior Vice President of the Company). The Complaints,
which are largely identical to one another, are brought by alleged shareholders
of the Company and purport to assert claims under the federal securities laws.
In general, the Complaints allege that the Company and the individual defendants
disseminated false and misleading information during the period of March 11,
1999 through September 17, 1999 (the "Class Period") with respect to the
Company's intended reorganization plans and its financial condition. The
Complaints seek the certification of a class of all purchasers of Ogden
Corporation common stock during the Class Period. By order dated December 22,
1999, the Actions have been consolidated for all purposes and lead plaintiffs
and lead counsel have been appointed. On February 28, 2000 plaintiffs filed a
consolidated amended compliant (the "Amended Compliant"). The Amended Complaint
repeats the allegations made in the original complaints and adds new allegations
with respect to the timing of the reporting of certain losses experienced by
Ogden. In the Amended Complaint, Plaintiffs have added Raymond E. Dombrowski,
Jr., Ogden's Senior Vice President and Chief Financial Officer as a defendant.
There has been no discovery in the Actions. While the Actions are at a
36
very early stage, the Company believes it has meritorious defenses to the
allegations made in the Complaints and intends to defend the Actions vigorously.
(c) Other Litigation
On November 5, 1999, the Company received a summons and complaint filed
in the Supreme Court of the State of New York, brought by R. Richard Ablon, the
Company's former Chairman, President and Chief Executive Officer. In general,
this complaint alleges that the Company has breached the employment agreement
between the Company and Mr. Ablon (the terms of which are described in the
company's most recent proxy statement), and seeks damages in the amount of $12.5
million, plus continuation of pension and certain other benefits valued in such
complaint at approximately $10 million.
In December 1999 a settlement was reached between Ogden and Mr. Ablon
whereby Ogden agreed (i) to pay Mr. Ablon an aggregate of $15.0 million between
January 3, 2000 and July 3, 2000; (ii) not to assert any offsets to the
foregoing payments; (iii) to pay a portion of Mr. Ablon's legal fees in the
amount of $50,000; (iv) that the Demand Notes of Mr. Ablon in the amount of
$1,816,757 would be forgiven and no interest would be charged or forgiven; (v)
to maintain Mr. Ablon's medical insurance program as currently provided until
December 31, 2004 at which time his participation would continue at Mr. Ablon's
own cost; (vi) to provide him with $2.0 million of term life insurance until he
reaches age 65; and (vii) that Mr. Ablon's obligations under his Employment
Agreement would be deemed fulfilled. Mr. Ablon agreed to immediately withdraw
his lawsuit by stipulation and without prejudice pending the payment of the
$15.0 million on or before July 3, 2000, whereupon the withdrawal will
automatically become a withdrawal with prejudice.
37
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of
Ogden during the fourth quarter of 1999.
EXECUTIVE OFFICERS OF OGDEN
Set forth below are the names, ages, positions and offices held
and years appointed, of Ogden's current "executive officers" (as defined by Rule
3b-7 of the Securities Exchange Act of 1934).
CONTINUALLY
AN OGDEN
POSITION AND EXECUTIVE
OFFICE HELD AGE AS OF 3/1/2000 OFFICER SINCE
NAME
Scott G. Mackin(1) President and Chief 43 1992
Executive Officer
Jesus Sainz Executive Vice President 56 1998
Raymond E. Dombrowski, Jr. Senior Vice President and 45 1998
Chief Financial Officer
Lynde H. Coit Senior Vice President and 45 1991
General Counsel
Rodrigo Arboleda Executive Vice President, 59 1995
Business Development, Latin
America
David L. Hahn Senior Vice President, 48 1995
Aviation
38
CONTINUALLY
AN OGDEN
POSITION AND EXECUTIVE
NAME OFFICE HELD AGE AS OF 3/1/2000 OFFICER SINCE
- ------ ------------ ----------------- --------------
Gary D. Perusse Senior Vice President, Risk 51 1996
Management
Peter Allen Senior Vice President 63 1998
Bruce W. Stone Executive Vice President 52 1997
for Waste-to-Energy
Operations and Managing
Director-Ogden Energy
Group, Inc.
B. Kent Burton Senior Vice President, 48 1997
Policy and Communications
Peter Cain Vice President, Finance and 42 1997
Treasurer
William J. Metzger Vice President, and Chief 41 1999
Accounting Officer
(1) ON SEPTEMBER 16, 1999 R. RICHARD ABLON RESIGNED AS A DIRECTOR OF OGDEN AND
AS OGDEN'S CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER AND OGDEN'S
BOARD OF DIRECTORS APPOINTED MR. MACKIN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER AND DIRECTOR.
There is no family relationship by blood, marriage or adoption (not
more remote than first cousins) between any of the above individuals
and any Ogden director.
The term of office of all officers shall be until the next election of
directors and until their respective successors are chosen and
qualified.
There are no arrangements or understandings between any of the above
officers and any other person pursuant to which any of the above was
selected as an officer.
39
The following briefly describes the business experience, the principal
occupation and employment of the foregoing Executive Officers during
the past five years:
Scott G. Mackin, has served as President and Chief Executive Officer of
Ogden since September 1999, prior thereto he served as Executive Vice
President of Ogden from January 1997 to September 1999 and as President
and Chief Operating Officer of Ogden Energy Group, Inc., an Ogden
subsidiary, since January 1991.
Jesus Sainz served as an Ogden director from 1994 until January 1,
1998. On January 15, 1998 he was appointed Executive Vice President of
Ogden. For more than five years prior to 1997, Mr. Sainz served as
Executive Vice Chairman of a private Spanish company which he created
in 1984 and which holds interests in companies operating in such fields
as foreign trade, fast food and real estate.
Raymond E. Dombrowski, Jr. was appointed Senior Vice President and
Chief Financial Officer of Ogden on September 17, 1998. From 1997 until
he joined Ogden he served as General Attorney, Finance, Bell Atlantic
Headquarters, responsible for all domestic and international finance
transactions. Between 1994 and 1997 Mr. Dombrowski served as Counsel,
Treasury and Finance, Bell Atlantic Headquarters, with responsibilities
in the area of structuring, negotiating and documenting sensitive
financing structures.
Lynde H. Coit has been Senior Vice President and General Counsel of
Ogden for more than the last five years.
Rodrigo Arboleda was appointed Senior Vice President of Ogden in
January 1995 and Executive Vice President in March 1999. For more than
the last five years he served as Ogden's Senior Vice President-Business
Development-Latin America operations.
David L. Hahn was appointed Senior Vice President, Business
Development, Asia in January 1995 and since 1997 he has served as
Ogden's Senior Vice President, Aviation and Chief Operating Officer of
Ogden's Aviation operations. Prior to 1995 he served as Vice
President-Marketing of Ogden Services Corporation.
Gary D. Perusse was appointed Senior Vice President - Risk Management
in September, 1996. Prior thereto he had served as Director - Risk
Management of Ogden for more than five years.
Peter Allen has served as a Senior Vice President of Ogden since
January 1998 and as Senior Vice President and General Counsel of Ogden
Services Corporation, an Ogden subsidiary, for more than the last five
years.
Bruce W. Stone was designated an Executive Officer of Ogden in 1997. He
currently
40
serves as Executive Vice President and Managing Director of Ogden
Energy Group, Inc., an Ogden subsidiary, a position he has held since
January 29, 1991.
B. Kent Burton has served as Senior Vice President - Policy and
Communications of Ogden since May 1999, from May 1997 to May 1999 he
served as Vice President-Policy and Communications of Ogden and prior
thereto he served as Senior Vice President of the Ogden Energy Group,
Inc., an Ogden subsidiary, in political affairs and lobbying
activities.
Peter Cain has served in various financial capacities as a senior
officer of many of Ogden's major subsidiaries for more than the last
five years. He has served as Ogden's Vice President of Finance since
1997 and was appointed Ogden's Treasurer in 1998.
William J. Metzger has served as Vice President and Chief Accounting
Officer of Ogden since May, 1999, from April, 1996 to April, 1999 he
served as the Chief Accounting Officer of Ogden Energy Group, Inc., an
Ogden subsidiary, and from September 1990 to April 1996 he served as a
Senior Manager at Deloitte & Touche LLP.
41
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Ogden Corporation and Subsidiaries
PRICE RANGE OF STOCK AND DIVIDEND DATA
1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
High Low High Low
Common:
First Quarter.......................................... 28 22-5/8 29-3/4 24-1/2
Second Quarter......................................... 25-15/16 23-3/16 32-1/2 26-15/16
Third Quarter.......................................... 27-1/2 9-1/2 28-7/8 23
Fourth Quarter......................................... 14-3/8 8-7/16 28-7/16 23-5/8
--------------------------------------------------------------------
Preferred:
First Quarter.......................................... 160 160 170 170
Second Quarter......................................... 160 155 180 177
Third Quarter.......................................... 155 154 158 150
Fourth Quarter......................................... 154 68 165 145
--------------------------------------------------------------------
Ogden's common and $1.875 preferred stocks are listed on the New York Stock
Exchange. As of March 31, 2000 there were approximately 5,665 common
stockholders.
Quarterly common stock dividends of $.3125 per share were paid to shareholders
of record for the first two quarters of 1999 and the four quarters of 1998, the
dividend for the last quarter of 1998 being paid in January of 1999. The Company
suspended its common stock dividend in the third quarter of 1999. Quarterly
dividends of $.8376 were paid for the four quarters of 1999 and 1998 on the
$1.875 preferred stock.
On March 3, 1999, pursuant to an Agreement and Plan of Merger, a subsidiary
of Ogden acquired 100% of the issued and outstanding stock of Flight Services
Group, Inc. ("FSG") from the two individual shareholders (the "Shareholders")
of FSG. Pursuant to this transaction Ogden issued an aggregate of 207,190
shares of restricted common stock, par value $.50 per share (the "Common
Stock") to the Shareholders.
The Common Stock issued to the Shareholders was exempt from registration
pursuant to Rule 501 and 505 of Regulation D of the Securities Act of 1933,
as amended (the "1933 Act") and Rule 144 of the Securities Exchange Act of
1934, as amended. The Shareholders executed an Investment Letter agreeing to
abide by all of the requirements of the foregoing Rules and Regulations and
each share of Common Stock issued to the Shareholders contains a legend to
the effect that the shares were acquired for investment and not with a view
to the public distribution thereof and will not be transferred in violation
of the 1933 Act.
42
Ogden Corporation and Subsidiaries
ITEM 6. SELECTED FINANCIAL DATA
- -----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
(In thousands of dollars, except per-share amounts)
TOTAL REVENUES FROM CONTINUING OPERATIONS............... $ 1,000,350 $ 896,496 $ 958,371 $ 1,209,045 $ 1,433,632
------------- ------------- ------------- ------------ --------------
Income (loss) from continuing operations before
cumulative effect of change in accounting principle.... (36,290) 37,248 36,787 39,081 17,442
Income (loss) from discontinued operations............. (41,851) 49,722 38,886 25,453 (9,998)
Cumulative effect of change in accounting principle.... (3,820)
------------- ------------- ------------- ------------ --------------
Net income (loss)...................................... (81,961) 86,970 75,673 64,534 7,444
------------- ------------- ------------- ------------ --------------
BASIC EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing operations before
cumulative effect of change in accounting principle.... (0.74) 0.74 0.73 0.78 0.35
Income (loss) from discontinued operations............. (0.85) 1.00 0.78 0.51 (0.20)
Cumulative effect of change in accounting principle.... (0.08)
------------- ------------- ------------- ------------ --------------
Total.................................................. (1.67) 1.74 1.51 1.29 0.15
------------- ------------- ------------- ------------ --------------
DILUTED EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing operations before
cumulative effect of change in accounting principle.... (0.74) 0.73 0.72 0.77 0.35
Income (loss) from discontinued operations............. (0.85) 0.98 0.76 0.50 (0.20)
Cumulative effect of change in accounting principle.... (0.08)
------------- ------------- ------------- ------------ --------------
Total.................................................. (1.67) 1.71 1.48 1.27 0.15
------------- ------------- ------------- ------------ --------------
TOTAL ASSETS........................................... 3,727,148 3,647,554 3,443,981 3,401,382 3,451,407
------------- ------------- ------------- ------------ --------------
LONG-TERM OBLIGATIONS.................................. 1,884,427 1,864,772 1,911,707 1,935,306 2,022,734
------------- ------------- ------------- ------------ --------------
SHAREHOLDERS' EQUITY................................... 443,050 549,100 566,091 550,925 546,978
------------- ------------- ------------- ------------ --------------
SHAREHOLDERS' EQUITY PER COMMON SHARE.................. 8.94 11.20 11.24 11.06 11.04
------------- ------------- ------------- ------------ --------------
CASH DIVIDENDS DECLARED PER COMMON SHARE............... .625 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
diluted share, reflecting the impairment of assets and other charges. Net income
in 1999 reflects net after-tax charges of $97.8 million, or $1.99 per share,
reflecting costs associated with existing non-core businesses and impairment of
certain assets, comprised of $62.5 million, or $1.27 per diluted share, for
continuing operations, and $35.3 million, or $.72 per diluted share, for
discontinued operations.
43
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
The following discussion and analysis should be read in conjunction with the
Company's Financial Statements and Notes thereto.
DISCONTINUED OPERATIONS
On September 29, 1999, the Board of Directors of the Company decided to sell
all of the operations of the Entertainment and Aviation segments and to
report the results of operations from those segments prospectively as
"Discontinued Operations." Information for two segments previously reflected
under the segment headings "Energy" and "Other" are now reported as
Continuing Operations and will continue to be reported under those headings.
At December 31, 1999, the Company had approximately $568,000,000 in net
assets associated with its discontinued operations. In addition, the Company
had associated debt with respect to the discontinued operations of
approximately $160,000,000. Since September 29, 1999 the Company has retained
financial advisors to assist it in determining how best to group the assets
to maximize sales proceeds. As part of that process, the Company is actively
pursuing sales of its Themed Parks and Attractions; Food and Beverage/Venue
Management; and Aviation Services and Airport Privatization Businesses. The
Company has reached definitive agreements to sell its Themed Parks and
Attractions and a substantial majority of its Food/Beverage Venue
Management businesses; it has received preliminary indications of interest
with respect to its Aviation businesses; and is in various stages with
respect to a number of other assets included within discontinued operations.
Finally, certain aspects of the businesses will require the Company to pay
monies to terminate leases or cancel other contractual commitments. Based
upon the results of the sales processes, results from discontinued operations
will be recognized currently, and gains and losses on disposal of portions of
the discontinued operations will be deferred until substantially all assets
of the discontinued operations have been sold. The Company believes that it
will receive net proceeds in excess of its carrying value of net assets of
its discontinued operations.
44
1999 VS. 1998
CONTINUING OPERATIONS: Revenues from continuing operations for 1999 were
$103,900,000 higher than 1998, reflecting an increase in Energy segment
revenues of $118,100,000. The increase in Energy segment revenues is
primarily due to increased construction revenues of $74,600,000 comprised of
increased activity in civil construction ($42,000,000), increased retrofit
activity at several locations ($23,000,000), and the construction of a
potable water treatment plant ($9,000,000). The Company anticipates that
retrofit construction activity will decline during 2000, as facilities attain
compliance with the Clean Air Act Amendments of 1990, mandated by the end of
2000 and that civil construction activity will decline during 2000 as
projects are completed. In addition, Energy segment revenue increased by
$53,000,000 associated with new plants in Thailand ($23,000,000) and the
Philippines ($13,000,000) that began operations in 1999, the acquisition of
an additional 50% interest in a power plant in California in 1999
($11,300,000), and the gain on the sale of the Company's interest in a joint
venture in Maine ($5,700,000). In addition, Energy segment revenues increased
by $3,100,000 at several facilities, primarily Union County, New Jersey
($12,300,000), reflecting a new service agreement negotiated in the third
quarter of 1998, an increase in revenues at the Tulsa, Oklahoma facility
($4,700,000) primarily due to a renegotiated service agreement, and an
insurance settlement ($7,800,000) attributable to the Lawrence, Massachusetts
facility, partially offset by the gain on the buyout of a power sales
agreement in 1998 ($9,000,000), lower revenues in 1999 due to the closing of
the Lawrence facility in the prior year ($9,600,000) and the effect of
amortization of the prepayment of a power sales agreement ($6,000,000). These
increases were partially offset by reduced activity in environmental
consulting of $12,600,000.
The Other Segment's revenues decreased $14,200,000 primarily due to lower
activity at Datacom, Inc. (Datacom, previously known as Atlantic Design
Company), a contract manufacturing business ($12,100,000), and Support
Services ($5,400,000), which is now discontinued, as well as gains in 1998
from disposition of businesses ($1,500,000), partially offset by increased
activity at Applied Data Technology, Inc. (ADTI) ($5,000,000).
Consolidated operating income for 1999 was $84,700,000 lower than the comparable
period of 1998 primarily reflecting a decrease of $45,900,000 in the Energy
segment's income from operations chiefly
45
associated with the adoption of a plan to sell its environmental consulting
and engineering business and discontinue its civil construction business once
the remaining construction projects are completed. Management anticipates
that the remaining construction projects will be completed during 2000, with
the exception of one project that is estimated to continue into 2001. In
connection with the planned sale and discontinuation of these businesses, the
carrying value of their assets was reduced to estimated net realizable value.
As a result, write-offs of $28,400,000 were recorded, of which approximately
$23,000,000 related to goodwill, and $5,400,000 related to property and other
assets.
The decrease in income from operations is also attributed to a decrease of
approximately $11,000,000 due to a gain on the buyout of a power sales
agreement and related closure of the Lawrence facility in mid-1998, the
effect of amortization of the prepayment of a power sales agreement of
$6,000,000 and an $8,000,000 gain recognized in 1998 in connection with a
payment received for the termination and restructuring of a facility
operating contract. In connection with the Clean Air Act Amendments, the
Company has shortened the estimated useful lives of certain air pollution
control equipment resulting in additional depreciation expense of $5,000,000
in 1999. In addition, decreases in income from operations of approximately
$7,800,000 were experienced at various facilities due to reduced activity and
increased costs, and a charge of approximately $3,000,000 was recorded to
provide for a negotiated settlement with a contractor. Income from operations
was also negatively impacted by approximately $9,000,000 by increased
development and overhead expenses and increased losses in construction
activity of $6,300,000 chiefly associated with losses in civil construction
($10,200,000), partially offset by income in plant construction ($3,900,000).
These decreases were partially offset by the receipt of $9,300,000 in 1999
for the termination and restructuring of the Tulsa facility's operating
contract, an adjustment of approximately $9,000,000 associated with the
favorable resolution of matters related to the Heber facility in California,
and a $5,700,000 gain on the sale of a joint venture interest in Maine. In
addition, the Company recorded a net gain of $7,800,000 associated with an
insurance settlement at the Lawrence facility and had increased income of
$6,500,000 from new facilities that became operational in 1999.
46
The Other segment's loss from operations increased $17,700,000 in 1999 chiefly
associated with lower income of $7,400,000 at ADTI. In the fourth quarter of
1999, the Company adopted a plan to dispose of ADTI. As a result, the carrying
value of its assets was reduced to estimated net realizable value. This resulted
in a write-off of $7,800,000 related to goodwill. In March 2000, the Company
sold ADTI at approximately its remaining carrying value.
Also in the Other segment, Datacom had a higher loss from operations of
$11,800,000 primarily reflecting the write-down of obsolete inventory,
receivables, and other assets totaling $15,200,000, offset by reduced
operating losses of $3,400,000. This decrease was partially offset by an
increase of $1,300,000 in income at Support Services. Datacom is a contract
manufacturer which sells an overwhelming majority of its output under a
supply contract with Genicom Corporation (Genicom), a specialty printer
supplier. On March 10, 2000, Genicom filed for protection from its creditors
under the provisions of Chapter 11 of the U.S. Bankruptcy Code. At December
31, 1999, Datacom had approximately $8,000,000 in net inventory associated
with Genicom, approximately $8,000,000 in commitments to purchase parts for
use in the assembly of inventory for sale to Genicom, and approximately
$7,500,000 in receivables owed to it by Genicom. Based on discussions with
the new management of Genicom, the Company understands that Genicom intends
to sell its business within the second quarter of 2000. Genicom has stated
that it does not intend to reject the Datacom contract and consequently the
Company believes it will be able to substantially realize the carrying value
of its inventory and receivables and the value of its commitments. However,
were the contract rejected, the Company would be limited to its remedies as
an unsecured creditor.
Selling, administrative and general expenses were $30,500,000 higher in 1999
than in 1998, chiefly associated with an increase in severance charges and an
employment contract termination settlement together totaling $33,900,000, as
well as increased professional fees, international office expansion, the
accelerated amortization of a new data processing system and Y2K costs,
partially offset by the settlement of certain litigation and proxy-related
charges in 1998. Debt service charges decreased by approximately $5,400,000
compared with 1998 due mainly to lower project debt outstanding on various
47
facilities caused by redemption and maturity of bonds and certain refinancings.
The Energy segment had three interest rate swap agreements (two of which were
terminated in 1998) entered into as hedges against interest rate exposure on
adjustable-rate project debt that resulted in additional debt service expense of
$1,700,000 and $800,000 for 1999 and 1998, respectively. The effect of these
swap agreements on the weighted-average interest rate of project debt was not
significant.
Interest income for 1999 was $8,000,000 lower than 1998 primarily reflecting
lower cash balances available for investment, interest on a customer note repaid
in 1998 and interest received on a legal settlement in 1998. Interest expense
was $2,900,000 higher chiefly associated with increased borrowings on the
Company's revolving line of credit and interest accrued on an Internal Revenue
Service tax assessment.
In addition to the Energy segment's swaps, Ogden Corporation had two interest
rate swap agreements (one of which expired in December 1998) covering
notional amounts of $100,000,000 and $1,600,000, respectively. The first swap
was entered into 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 Entertainment's $1,600,000 variable-rate debt
to a fixed rate. These agreements resulted in additional interest expense in
1999 and 1998 of zero and $100,000, 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 decreased by
approximately $6,300,000, of which $6,800,000 related to the buyout of an
energy sales agreement with respect to a 50% owned joint venture.
The effective income tax rate for 1999 was 18.7% compared with 34.2% for
1998. This decrease of 15.5% was primarily due to the write-off of goodwill
for which the Company did not have any tax basis, higher foreign taxes and
non-deductible foreign losses. Note 21 to the Consolidated Financial
48
Statements contains a more detailed reconciliation of the variances from the
Federal statutory income tax rate.
DISCONTINUED OPERATIONS: Losses from discontinued operations for 1999 were
$41,900,000, a decrease in earnings of $91,600,000 from the comparable period
of 1998. Operating income (loss) of discontinued operations was ($35,200,000)
in 1999 compared to $87,200,000 in 1998. This $122,400,000 decrease was
primarily associated with a decrease of $67,400,000 in Entertainment
operations reflecting, in part, severance charges of $13,300,000, and a
charge of $10,500,000 relating to a non-refundable deposit and related
expenditures for the proposed purchase of Volume Services America (VSA). In
addition, in the third quarter of 1999, the Company reached agreements to
sell its interest in the Grizzly Nature Center and its interest in a casino
operation in Aruba, resulting in losses of $4,000,000 and $2,500,000,
respectively. It also wrote off unrecoverable contract acquisition costs at
two sport facilities, $5,000,000 related to the Great Western Forum and
$1,500,000 related to the U.S. Air Arena, both of which had ceased to be
utilized by professional sports teams. The Company continues to perform
concession services at the new venues (the Staples Center and the MCI Arena)
utilized by those teams. Ongoing income is not expected to be materially
altered as a result of these events. The Company also abandoned its casino
development activities in South Africa resulting in charges of $7,300,000. In
1999, the Company changed its accounting for its investment in the LaRural
project in Argentina to the equity method due to a change in control of the
project. As a result, its operating income in 1999 for LaRural was
$10,800,000 lower than in 1998 which included a $3,400,000 charge due to the
venture's inability to obtain necessary building permits to complete a new
facility. The Entertainment segment also had lower income in its gaming
operations of $10,400,000, themed attractions of $5,300,000, and restaurants
in malls of $10,200,000, as well as increased overhead of $3,800,000 and
other charges of $3,700,000. These decreases were partially offset by
increased income of $10,100,000 from water parks acquired in 1999, the
increase in gains on the sale of certain amphitheater contracts of $2,300,000
and a gain of $6,000,000 on the negotiation of a revised management contract
at Arrowhead Pond in Anaheim, California.
49
Aviation's operating income in 1999 was $55,000,000 lower than 1998 chiefly due
to the $39,900,000 gain on the sale of its in-flight catering business in 1998
and an additional gain of $10,500,000 from related transactions; 1999 severance
charges of $11,800,000; lower income of $4,000,000 on reduced sales of ownership
interests in the Hong Kong airport ground services company; and increased
overhead costs of $3,300,000. These decreases were partially offset by the
additional gain in 1999 on the sales of the Spanish in-flight kitchens, domestic
catering operations and certain ground operations of $6,800,000; settlement of
litigation in 1998 of $1,500,000; insurance proceeds of $1,500,000; management
fee income from South American ventures of $3,200,000; increased operating
income in domestic fueling and ground services operations of $2,000,000; and a
$700,000 increase from operations of companies acquired in 1999 in the Fixed
Base Operations Group.
1998 VS. 1997
CONTINUING OPERATIONS: Revenues from continuing operations for 1998 were
$61,900,000 lower than the comparable period of 1997. This decrease was
primarily due to a decline of $153,700,000 in the Other segment's revenues
chiefly associated with the sale of Facility Services New York operations in
July 1997 and certain operations of Datacom in late 1997 and early 1998. These
decreases in revenues were partially offset by an increase of $91,800,000 in the
Energy segment's revenues chiefly associated with the acquisition in late 1997
of Pacific Energy, Inc. of $20,100,000; a 60% interest in four cogeneration
plants in China of $30,700,000; increased income at the Edison Bataan facility
of $5,500,000 due to increased production; the buyout of a waste-to-energy
power sales contract of $9,100,000; increased construction revenues of
$44,900,000 associated with retrofit activity at several facilities
($17,100,000); increased activity in civil construction ($19,800,000); and
the construction of a potable water treatment plant ($7,800,000), partially
offset by lower revenues of $3,900,000 at several facilities, primarily at the
Haverhill facility due to the amortization of a prepayment of a power sales
agreement; the receipt of a settlement of litigation for $6,000,000 in 1997;
and the closing of the Lawrence facility of $8,600,000.
50
Consolidated operating income for 1998 was $17,300,000 lower than 1997
primarily reflecting a decrease of $5,600,000 in the Other segment chiefly
associated with the sale of certain non-core businesses and an investment in
the Universal Ogden joint venture in 1997. The Energy segment's income from
operations was $400,000 higher primarily due to income from Pacific Energy,
Inc. (acquired in late 1997) of $2,000,000, income from a 60% interest in four
cogeneration plants in China of $10,000,000, increased activity at the
Edison Bataan facility of $2,500,000, the gain on the buyout of a power
sales agreement of $9,100,000 and receipt of a contract termination payment
of $8,000,000, as well as an increase in construction income of $5,000,000
primarily related to retrofit activity. These increases were partially offset
by increased development costs of $7,000,000; reduced income at several
waste-to-energy facilities of $8,300,000 primarily due to increased
maintenance costs; the effect of amortization of the prepayment of a power
sales agreement of $5,100,000; a favorable legal settlement in 1997 of
$6,000,000; the write-off of uncollectible notes receivable of $3,000,000; a
reduction in environmental consulting operations of $4,800,000 and a legal
settlement of $1,500,000.
Selling, administrative and general expenses for 1998 were $2,900,000 higher
than 1997 primarily due to a $10,700,000 increase in corporate overhead costs
which includes the installation of a new data processing system, severance
payments, the settlement of certain litigation and proxy-related charges,
partially offset by the effects of the sale of non-core businesses in 1997
and 1998. Debt service charges for 1998 were $1,300,000 lower than the
comparable period of 1997, primarily due to lower average debt outstanding,
partially offset by increased project debt associated with the Pacific Energy
companies. 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 amount
includes $200,000 representing the net cost to terminate two of the three
interest rate swap agreements that related to refinanced debt. The effect of
these swap agreements on the weighted-average interest rate of project debt
was not significant.
Interest income for 1998 was $4,200,000 higher primarily reflecting higher
income on overnight investments and interest earned on a legal settlement.
51
Interest expense was $2,900,000 higher chiefly associated with increased
recourse debt issued in connection with the acquisition in 1997 of Pacific
Energy. In addition to the Energy segment's swaps, Ogden Corporation 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
Entertainment's $3,200,000 variable-rate debt to a fixed rate. These
agreements 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 income of investees and joint ventures for 1998 was $17,600,000 higher
than the comparable period of 1997, chiefly associated with the results of
Pacific Energy joint ventures of which $6,800,000 related to the buyout of
an energy sales agreement with respect to a 50% owned joint venture.
The effective income tax rate for 1998 was 34.2% compared with 35.9% for 1997.
This decrease of 1.7% was primarily due to a net reduction in permanent
differences between book and taxable income. Note 21 to the Consolidated
Financial Statements contains a more detailed reconciliation of the variances
from the Federal statutory income tax rate.
DISCONTINUED OPERATIONS: Income from discontinued operations for 1998 was
$49,700,000 or $10,800,000 higher than the comparable period of 1997. Operating
income of discontinued operations for 1998 was $87,200,000, an increase of
$23,100,000. This increase was primarily due to an increase of $25,100,000 in
the Aviation segment, chiefly associated with a gain of $39,900,000 on the sale
of the domestic in-flight catering business and an increase due to gains on the
sale of an interest in the Hong Kong ground services company of $4,000,000.
These increases were partially offset by the gain of $13,000,000 on the sales of
the Miami and Spanish in-flight kitchens and certain ground services operations
in 1997; reduced activity in European operations of $3,500,000, which included
the relocation of its headquarters; severance payments and certain legal claims
in 1998; and lower operating income of
52
$2,600,000 associated with the sale of the domestic catering operation.
Entertainment's income from operations was $2,000,000 lower primarily
reflecting the effects of the NBA lockout of $1,600,000; start-up costs at
the Tinseltown operations of $1,700,000; lower results on gaming operations
of $1,500,000; lower results on theme park operations of $2,800,000;
lower results of $1,100,000 at other locations; and increased overhead of
$2,800,000. These decreases were partially offset by the gain in 1998 of
$4,900,000 on the sale of certain amphitheater contracts and increased
activity at various venues and convention centers of $4,900,000.
CAPITAL INVESTMENT AND COMMITMENTS: For the year ended December 31, 1999,
capital investments for continuing operations amounted to $65,700,000, of
which $64,600,000 was for Energy and $1,100,000 was for Other and Corporate
operations.
At December 31, 1999, capital commitments for continuing operations amounted
to $29,000,000 for normal replacement and growth in Energy. Other capital
commitments for Energy as of December 31, 1999 amounted to approximately
$96,600,000. This amount includes a commitment to pay, in 2008, $10,600,000
for a service contract extension at an energy facility. In addition, this
amount includes $28,000,000 for a 50% interest in a project in Thailand;
$18,500,000 and $15,300,000, respectively, for two oil-fired projects in
India; $5,000,000 for additional equity commitments related to a coal-fired
power project in the Philippines;$3,500,000 for a mass-burn waste-to-energy
facility in Italy; $1,900,000 for a natural gas-fired diesel engine based
cogeneration project in Spain; and $13,800,000 for standby letters of credit
in support of debt service reserve requirements. Funding for the additional
mandatory equity contributions to the coal-fired power project in the
Philippines is being provided through bank credit facilities, which must be
repaid in 2000. In addition, compliance with the standards and guidelines
under the Clean Air Act Amendments of 1990 will require further Energy
capital expenditures of approximately $30,000,000 through December 2000,
subject to the final time schedules determined by the individual states in
which the Company's waste-to-energy facilities are located.
53
Commitments for Discontinued Operations amounted to $37,000,000 for normal
replacement and growth in Aviation ($100,000) and Entertainment ($36,900,000),
the latter relating primarily to Entertainment's Jazzland theme park in
New Orleans,Louisiana. As part of its agreement to sell its themed
attractions, the Company has agreed to complete the construction of the
Jazzland theme park. The Company also had a $2,500,000 contingent equity
contribution for Entertainment's investment at Isla Magica at December 31,
1999. The Company has no further obligations with respect to its previous
agreement to acquire VSA. The Company acquired a 50% interest in an Aviation
ground handling business in Rome, Italy and in March 2000, made a
contractually required investment of $6,600,000 in connection therewith.
Ogden and certain of its subsidiaries have issued or are party to performance
bonds and guarantees and related contractual obligations undertaken mainly
pursuant to agreements to construct and operate certain waste-to-energy,
entertainment, and other facilities. In the normal course of business, they are
involved in legal proceedings in which damages and other remedies are sought.
Management does not expect that these contractual obligations, legal
proceedings, or any other contingent obligations incurred in the normal course
of business will have a material adverse effect on Ogden's Consolidated
Financial Statements. (SEE LIQUIDITY SECTION BELOW.)
The Company did not include its interests in either the Arrowhead Pond or the
Corel Centre near Ottawa, Canada as part of the sale of its Venue Management
business announced in March 2000. The Company manages the Arrowhead Pond under a
long-term contract. As part of this contract, the Company is a party, along
with the City of Anaheim, to a reimbursement agreement in connection with a
letter of credit in the amount of approximately $120,000,000. Under the
reimbursement agreement, the Company is responsible for draws, if any, under
the letter of credit caused by the Company's failure to perform its duties
under its management contract at that venue. The Company is exploring
alternatives for disposing of these operations along with the related
obligations.
During 1994, a subsidiary of Ogden entered into a 30-year facility management
contract at the Corel Centre pursuant to which it agreed to advance funds to a
customer, and if necessary, to assist the
54
customer's refinancing of senior secured debt incurred in connection with the
construction of the facility. Ogden is obligated to purchase such senior debt in
the amount of $97,100,000 on December 23, 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 23, 2002. At
December 31, 1999, the amount outstanding was $51,600,000. In addition, as of
December 31, 1999, the Company had guaranteed $3,500,000 of senior secured term
debt of an affiliate and principal tenant (the NHL Ottawa Senators) of this
customer and had guaranteed up to $3,500,000 of the tenant's secured revolving
debt. Further, Ogden is obligated to purchase $20,800,000 of the tenant's
secured subordinated indebtedness on January 29, 2004, if such indebtedness has
not been repaid or refinanced prior to that time. In October 1999, Ogden also
agreed to advance a secured loan to that tenant of up to approximately
$8,400,000 if certain events occur. Separately, Ogden has guaranteed
approximately $3,800,000 of borrowings of Metropolitan Entertainment Group, an
Entertainment joint venture in which Ogden has an equity interest. The Company
expects this guarantee to be assumed by the ultimate purchaser of this interest.
Management does not expect that these arrangements will have a material adverse
effect on Ogden's Consolidated Financial Statements.
The Company is exposed to various market risks including changes in interest
rates and foreign currency exchange rates. Since approximately 81% of the
Company's debt is at fixed interest rates, the Company's exposure to
interest-rate fluctuations is not material to the Consolidated Financial
Statements. The Company has entered into financial instruments on several
occasions to reduce the impact of changes in interest rates. At December 31,
1999, Ogden had two interest rate swap agreements, which are described above and
in the Long-Term Debt and Project Debt notes to the Consolidated Financial
Statements. Ogden is also exposed to foreign currency risks due to changes in
exchange rates. Foreign countries in which the Company operates are primarily
Canada and countries in Latin America, Europe and Asia. Since the
Company does not plan to repatriate foreign assets and considers foreign
earnings to be permanentlyinvested overseas, the exposure to changes in
foreign currency exchange rates is primarily limited to cumulative translation
adjustments, which have been charged to
55
Other Comprehensive Income. Ogden does not enter into derivatives or other
financial instruments for trading or speculative purposes.
LIQUIDITY/CASH FLOW: Net cash provided by operating activities of continuing
operations was $217,336,000 lower than in 1998, primarily reflecting a
decrease in net income from continuing operations of $77,400,000, and a
decrease of $35,800,000 in deferred income taxes. These decreases were
partially offset by non-cash items, primarily the write-down of companies to
be sold totaling $36,150,000; severance and other employment charges of
$32,600,000 and an increase in depreciation and amortization of $14,900,000.
In addition, there was a decrease of $195,800,000 in deferred income
associated with the prepayment of a power sales agreement in 1998, and an
increase of $23,800,000 in accounts receivable, partially offset by an
increase of $35,300,000 in accounts payable and accrued expenses. Net cash
used in investing activities was $28,300,000 lower primarily relating to a
decrease in purchases of marketable securities of $57,100,000, and an
increase from the sales of: marketable securities ($52,100,000); a 50%
interest in a joint venture ($10,300,000); a security investment
($5,100,000); and equipment ($1,000,000). In addition, there was a decrease
in capital expenditures of $2,600,000 and an increase of $4,000,000 in
distributions from joint ventures. These decreases were partially offset by
increases in companies purchased of $58,500,000, increases in investments in
Energy facilities of $31,900,000; and increased investments in and advances to
joint ventures of $11,500,000. In addition, there was a reduction of
$2,000,000 in the collection of other receivables. Net cash used in financing
activities was $140,500,000 lower primarily due to lower net debt payments of
$96,700,000, reduced purchases of treasury shares of $53,900,000 and lower
dividends paid of $16,300,000. These decreases were partially offset by a
decrease of $19,400,000 in the use of funds held in trust and lower proceeds
from the exercise of stock options of $8,500,000.
In addition, cash used by discontinued operations increased $68,000,000
primarily reflecting increased capital expenditures and acquisitions, including
water and theme parks, and aviation fixed base operations.
56
At December 31, 1999, the Company had approximately $154,000,000 in cash and
cash equivalents, of which $101,000,000 related to continuing operations. In
addition, the Company had a $200,000,000 revolving credit facility, of which
the Company had drawn $50,000,000 at year-end. At December 31, 1999, the
Company agreed with its credit providers (including its revolving credit
lenders and certain other banks that have similar covenants in their
respective facilities, collectively the "Credit Providers"), to amend certain
of the Company's financial covenants relating to leverage and fixed charge
coverages through the end of March 2000. As part of this agreement, the
Company agreed to forego borrowing additional sums under the revolver pending
further discussions. In March 2000, the Company and its revolving credit
lenders agreed to reduce the amount of the revolving credit facility to
$100,000,000 and provide the Company with access to a $50,000,000 liquidity
facility, which is secured by certain assets of the Company and matures on
July 31, 2000, in addition to the outstanding $50,000,000 which is unsecured.
At the same time, the Company and all of its Credit Providers agreed to amend
certain covenants relating to limits on indebtedness as a percentage of its
capitalization, interest coverage as a function of income from continuing
operations and its minimum Shareholders' Equity, all through the end of July
2000, and to permit the sales of the Aviation and Entertainment segments
provided certain minimum prices are obtained. Management believes such
minimum prices can be obtained. In addition, the lenders agreed to permit the
Company to retain the first $100,000,000 in cash proceeds received from the
asset sales to fund operations. The Company expects to use the remaining
proceeds from such sales principally to repay existing corporate debt where
economically feasible. With certain exceptions, the Company has further
agreed not to incur any additional indebtedness other than that incurred
under the revolving credit facility.
The Company expects that it will close a series of sales transactions with
respect to the Themed Attractions, Parks, Venue Management/Food and
Beverage Operations in its Entertainment segment during the second quarter of
2000. These businesses are currently under two separate agreements of sale.
The Company further expects that it will close a transaction with respect to
the sale of its Aviation business either late in the second quarter or in the
third quarter of 2000. The Company also determined in the fourth quarter 1999
to sell all of the operations currently reflected in the "Other Segment". It
also decided to sell its domestic Environmental Consulting business and its
Spanish subsidiary and to wind down the operations of its civil construction
business all of which have been reported in its Energy segment. Additional
charges have been taken in connection with these decisions, for which the
Company has sought, and received, changes in its debt covenants. Accordingly,
the Company expects to repay the revolving credit facility and the secured
facility, have sufficient proceeds to fund normal operations (including
additional energy investments), and repay certain other indebtedness, on or
before the specified maturity date. The Company expects to obtain a new
facility on or before July 31, 2000, more tailored to its Energy business. The
Company continues to have discussions concerning possible new credit facilities
and/or obtaining equity for such purpose.
57
Company continues to have discussions concerning possible new credit facilities
and/or obtaining equity for such purpose.
Under certain agreements previously entered into by the Company, if the
Company's outstanding debt securities are no longer rated investment grade, it
may be required to post additional collateral or letters of credit. The failure
to take such actions could result in a forfeiture of certain contracts or could
result in a default under the agreements requiring the posting of such letters.
Such a default would also be a default under certain of the Company's credit
facilities. The Company would need the consent of its Credit Providers to obtain
the funds necessary to post the letters of credit if they become due, obtain
equity, or potentially utilize sales proceeds for such purpose. The Company's
Credit Providers have agreed to work with the Company to explore solutions to
this issue should it arise.
The Company believes its recent agreement with its Credit Providers is
consistent with its prior stated intention of using the proceeds from the sales
of the Entertainment and Aviation businesses to pay down existing debt.
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 2000, 2,223,000 shares of common stock were purchased for a total cost
of $58,890,000.
In addition, the Company suspended its common stock dividend in the third
quarter of 1999.
The Company adopted Statement of Position 98-5 (SOP) "Reporting on the Costs of
Start-Up Activities" on January 1, 1999. This SOP established accounting
standards for these costs and requires that they
58
generally be expensed as incurred. The effect of adopting the SOP is shown as a
cumulative effect of a change in accounting principle and is reflected as a net
charge to income of $3,820,000 in 1999. In addition, in June 1998, the Financial
Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Ogden will adopt SFAS No. 133 in January,
2001. This Statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and hedging activities and requires recognition of all
derivative instruments as assets or liabilities and requires measurement of
those instruments at fair value. The Corporation is in the process of
determining the impact adoption of this standard will have on Ogden's
financial position and results of operations.
YEAR 2000 ISSUES: The Company had established, and successfully completed, a
Year 2000 Project that actively addressed its Year 2000 issues. The total
cost associated with resolving the Company's Year 2000 issues was $8,972,000
and was not material to the Company's financial condition. The Company's
successful transition through the New Year and the Leap Day without any
material adverse effect leads the Company to conclude that its Year 2000
Project has successfully addressed any potential risks associated with Year
2000 issues.
59
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 Company'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.
60
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the Capital Investments and Commitments portion of Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS of this Form 10-K Report.
61
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
Page
--------
Statements of Consolidated Income and Comprehensive Income
for the Years ended December 31, 1999, 1998 and 1997 63
Consolidated Balance Sheets - December 31, 1999 and 1998 64
Statements of Shareholders' Equity - for the Years
ended December 31, 1999, 1998 and 1997 65
Statements of Consolidated Cash Flows
for the Years ended December 31, 1999, 1998 and 1997 66
Notes to Consolidated Financial Statements 67-126
Independent Auditors' Report 127
Report of Management 128
Quarterly Results of Operations 129
Financial Statement Schedules 130-132
Schedule II - Valuation and Qualifying Accounts
for the Years ended December 31, 1999, 1998 and 1997
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
62
Ogden Corporation and Subsidiaries
STATEMENTS OF CONSOLIDATED INCOME
AND COMPREHENSIVE INCOME
- -----------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------- ----------------
Service revenues.............................................. $820,233,000 $ 783,051,000 $ 807,786,000
Net sales..................................................... 54,997,000 67,113,000 133,374,000
Construction revenues......................................... 119,455,000 44,861,000
Net gain on sale of businesses................................ 5,665,000 1,471,000 17,211,000
--------------- ---------------- ----------------
Total revenues................................................ 1,000,350,000 896,496,000 958,371,000
--------------- ---------------- ----------------
Operating costs and expenses.................................. 618,370,000 543,868,000 599,708,000
Costs of goods sold........................................... 65,676,000 57,685,000 87,954,000
Construction costs............................................ 120,774,000 39,855,000
Selling, administrative, and general expenses................. 123,164,000 92,712,000 89,768,000
Debt service charges.......................................... 95,003,000 100,363,000 101,658,000
--------------- ---------------- ----------------
Total costs and expenses...................................... 1,022,987,000 834,483,000 879,088,000
--------------- ---------------- ----------------
Consolidated operating income (loss).......................... (22,637,000) 62,013,000 79,283,000
Equity in income of investees and joint ventures.............. 13,005,000 19,340,000 1,784,000
Interest income............................................... 4,790,000 12,785,000 8,616,000
Interest expense.............................................. (35,487,000) (32,597,000) (29,661,000)
Other income (deductions)-net................................. 3,298,000 1,317,000 303,000
--------------- ---------------- ----------------
Income (loss) from continuing operations before income taxes,
minority interests and the cumulative effect of change in
accounting principle........................................ (37,031,000) 62,858,000 60,325,000
Income taxes.................................................. 6,917,000 (21,557,000) (21,715,000)
Minority interests ........................................... (6,176,000) (4,053,000) (1,823,000)
--------------- ---------------- ----------------
Income (loss)from continuing operations....................... (36,290,000) 37,248,000 36,787,000
Income (loss) from discontinued operations (net of income
taxes of: 1999, $6,000; 1998, $40,240,000; and
1997, $31,385,000).......................................... (41,851,000) 49,722,000 38,886,000
Cumulative effect of change in accounting principle
(net of income taxes of $1,313,000)......................... (3,820,000)
--------------- ---------------- ----------------
NET INCOME (LOSS)............................................. (81,961,000) 86,970,000 75,673,000
--------------- ---------------- ----------------
Other Comprehensive Income, Net of Tax:
Foreign currency translation adjustments...................... (4,631,000) (2,170,000) (8,094,000)
Unrealized Gains (Losses) on Securities:
Unrealized holding gains (losses) arising during period....... (60,000) 470,000 1,637,000
Less: reclassification adjustment for losses (gains)
included in net income...................................... 275,000 (2,046,000)
Minimum pension liability adjustment.......................... 409,000 (392,000) 241,000
--------------- ---------------- ----------------
Other comprehensive income.................................... (4,007,000) (2,092,000) (8,262,000)
--------------- ---------------- ----------------
Comprehensive income (loss)................................... $ (85,968,000) $ 84,878,000 $ 67,411,000
--------------- ---------------- ----------------
--------------- ---------------- ----------------
Basic Earnings Per Share:
Income (loss) from continuing operations...................... $ (0.74) $ 0.74 $ 0.73
Income (loss) from discontinued operations.................... (0.85) 1.00 0.78
Cumulative effect of change in accounting principle........... (0.08)
--------------- ---------------- ----------------
Net Income (Loss)............................................. $ (1.67) $ 1.74 $ 1.51
--------------- ---------------- ----------------
--------------- ---------------- ----------------
Diluted Earnings Per Share:
Income (loss) from continuing operations...................... $ (0.74) $ 0.73 $ 0.72
Income (loss) from discontinued operations.................... (0.85) 0.98 0.76
Cumulative effect of change in accounting principle........... (0.08)
--------------- ---------------- ----------------
Net Income (Loss)............................................. $ (1.67) $ 1.71 $ 1.48
--------------- ---------------- ----------------
--------------- ---------------- ----------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
63
Ogden Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------------------------------------------------
ASSETS December 31, 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents................................................. $ 101,020,000 $ 181,169,000
Marketable securities available for sale.................................. 44,685,000
Restricted funds held in trust............................................ 103,662,000 110,553,000
Receivables(less allowances:1999,$17,942,000 and 1998,$18,130,000)........ 294,051,000 274,307,000
Inventories............................................................... 10,767,000 20,162,000
Deferred income taxes..................................................... 36,189,000 47,921,000
Other..................................................................... 65,713,000 49,448,000
Net assets of discontinued operations..................................... 568,146,000 455,726,000
------------------ ------------------
Total current assets................................................... 1,179,548,000 1,183,971,000
Property, plant, and equipment-net........................................ 1,841,811,000 1,736,241,000
Restricted funds held in trust............................................ 166,784,000 180,922,000
Unbilled service and other receivables.................................... 159,457,000 159,409,000
Unamortized contract acquisition costs.................................... 102,137,000 69,260,000
Goodwill and other intangible assets...................................... 12,520,000 41,935,000
Investments in and advances to investees and joint ventures............... 180,523,000 149,663,000
Other assets.............................................................. 84,368,000 126,153,000
------------------ ------------------
Total Assets.............................................................. $ 3,727,148,000 $ 3,647,554,000
------------------ ------------------
------------------ ------------------
- -------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
- -------------------------------------------------------------------------------------------------------------------------
Liabilities:
Current Liabilities:
Current portion of long-term debt......................................... $ 113,815,000 $ 21,888,000
Current portion of project debt........................................... 80,383,000 63,201,000
Dividends payable......................................................... 15,403,000
Accounts payable.......................................................... 75,169,000 50,556,000
Federal and foreign income taxes payable.................................. 21,776,000
Accrued expenses, etc..................................................... 360,155,000 236,774,000
Deferred income........................................................... 45,806,000 45,090,000
------------------ ------------------
Total current liabilities.............................................. 675,328,000 454,688,000
Long-term debt............................................................ 344,945,000 348,594,000
Project debt.............................................................. 1,390,832,000 1,367,528,000
Deferred income taxes..................................................... 380,812,000 392,850,000
Deferred income........................................................... 182,663,000 201,563,000
Other liabilities......................................................... 127,559,000 158,875,000
Minority interests........................................................ 33,309,000 25,706,000
Convertible subordinated debentures....................................... 148,650,000 148,650,000
------------------ ------------------
Total liabilities...................................................... 3,284,098,000 3,098,454,000
------------------ ------------------
Shareholders' Equity:
Serial cumulative convertible preferred stock, par value $1.00 per share,
authorized, 4,000,000 shares; shares outstanding: 39,246 in 1999 and
42,218 in 1998, net of treasury shares of 29,820 in 1999 and 1998......... 39,000 43,000
Common stock, par value $.50 per share; authorized, 80,000,000 shares;
outstanding: 49,468,195 in 1999 and 48,945,989 in 1998, net of treasury
shares of 4,405,103 and 4,561,963, respectively........................... 24,734,000 24,473,000
Capital surplus........................................................... 183,915,000 173,413,000
Earned surplus............................................................ 255,182,000 367,984,000
Accumulated other comprehensive income.................................... (20,820,000) (16,813,000)
------------------ ------------------
Total Shareholders' Equity................................................ 443,050,000 549,100,000
------------------ ------------------
Total Liabilities and Shareholders' Equity................................ $ 3,727,148,000 $ 3,647,554,000
------------------ ------------------
------------------ ------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
64
Ogden Corporation and Subsidiaries
STATEMENTS OF SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
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 .......... 72,038 $ 73,000 74,166 $ 75,000 77,509 $ 78,000
Shares converted into common stock .... (2,972) (4,000) (2,128) (2,000) (3,343) (3,000)
----------- ------------ ----------- ------------ ----------- -----------
Total ................................. 69,066 69,000 72,038 73,000 74,166 75,000
Treasury shares ....................... (29,820) (30,000) (29,820) (30,000) (29,820) (30,000)
----------- ------------ ----------- ------------ ----------- -----------
Balance at end of year (aggregate
involuntary liquidation value--
1999, $791,000) ....................... 39,246 39,000 42,218 43,000 44,346 45,000
----------- ------------ ----------- ------------ ----------- -----------
COMMON STOCK, PAR VALUE $.50 PER SHARE;
AUTHORIZED, 80,000,000 SHARES:
Balance at beginning of year .......... 53,507,952 26,754,000 53,430,246 26,715,000 53,350,650 26,675,000
Exercise of stock options ............. 155,801 78,000 65,000 33,000 59,640 30,000
Shares issued for acquisition ......... 191,800 96,000
Conversion of preferred shares ........ 17,745 9,000 12,706 6,000 19,956 10,000
----------- ------------ ----------- ------------ ----------- -----------
Total ................................. 53,873,298 26,937,000 53,507,952 26,754,000 53,430,246 26,715,000
----------- ------------ ----------- ------------ ----------- -----------
Treasury shares at beginning of year .. 4,561,963 2,281,000 3,135,123 1,568,000 3,606,123 1,803,000
Purchase of treasury shares ........... 102,000 51,000 2,121,100 1,060,000
Exercise of stock options ............. (258,860) (129,000) (694,260) (347,000) (471,000) (235,000)
----------- ------------ ----------- ------------ ----------- -----------
Treasury shares at end of year ........ 4,405,103 2,203,000 4,561,963 2,281,000 3,135,123 1,568,000
----------- ------------ ----------- ------------ ----------- -----------
Balance at end of year ................ 49,468,195 24,734,000 48,945,989 24,473,000 50,295,123 25,147,000
----------- ------------ ----------- ------------ ----------- -----------
CAPITAL SURPLUS:
Balance at beginning of year........... 173,413,000 212,383,000 202,162,000
Exercise of stock options.............. 8,061,000 16,355,000 10,228,000
Shares issued for acquisition.......... 4,904,000
Purchase of treasury shares............ (2,458,000) (55,321,000)
Conversion of preferred shares......... (5,000) (4,000) (7,000)
-------------- -------------- ------------
Balance at end of year................. 183,915,000 173,413,000 212,383,000
-------------- -------------- ------------
EARNED SURPLUS:
Balance at beginning of year........... 367,984,000 343,237,000 330,302,000
Net income (loss)...................... (81,961,000) 86,970,000 75,673,000
-------------- -------------- ------------
Total.................................. 286,023,000 430,207,000 405,975,000
-------------- -------------- ------------
Preferred dividends-per share 1999,
1998, and 1997, $3.35.................. 137,000 144,000 152,000
Common Dividends-per share 1999,
$.625; 1998 and 1997, $1.25.......... 30,704,000 62,079,000 62,586,000
------------- -------------- ------------
Total dividends........................ 30,841,000 62,223,000 62,738,000
------------- ------------- ------------
Balance at end of year................. 255,182,000 367,984,000 343,237,000
------------- -------------- ------------
CUMULATIVE TRANSLATION ADJUSTMENT-NET. (20,663,000) (16,032,000) (13,862,000)
-------------- -------------- ------------
MINIMUM PENSION LIABILITY ADJUSTMENT... (307,000) (716,000) (324,000)
-------------- -------------- ------------
NET UNREALIZED GAIN (LOSS) ON
SECURITIES AVAILABLE FOR SALE....... 150,000 (65,000) (535,000)
-------------- -------------- ------------
TOTAL SHAREHOLDERS' EQUITY............. $443,050,000 $549,100,000 $566,091,000
-------------- -------------- ------------
-------------- -------------- ------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
65
Ogden Corporation and Subsidiaries
STATEMENTS OF CONSOLIDATED CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................................ $ (81,961,000) $ 86,970,000 $ 75,673,000
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided by Operating Activities of Continuing Operations:
(Income) loss from discontinued operations ....................... 41,851,000 (49,722,000) (38,886,000)
Depreciation and amortization .................................... 94,905,000 79,981,000 76,446,000
Deferred income taxes ............................................ (16,944,000) 18,820,000 21,384,000
Cumulative effect of change in accounting principle .............. 3,820,000
Write-down of assets for sale .................................... 36,150,000
Severance and other employment charges ........................... 32,602,000
Other ............................................................ 3,170,000 (8,601,000) (11,744,000)
Management of Operating Assets and Liabilities:
Decrease (Increase) in Assets:
Accounts receivable .............................................. (25,365,000) (1,522,000) 78,366,000
Inventories ...................................................... 2,208,000 1,132,000 20,125,000
Other assets ..................................................... 18,834,000 (25,110,000) 4,785,000
Increase (Decrease) in Liabilities:
Accounts payable ................................................. 19,572,000 (7,584,000) 2,719,000
Accrued expenses ................................................. 35,921,000 27,799,000 (65,983,000)
Deferred income .................................................. (3,698,000) 192,137,000 (3,393,000)
Other liabilities ................................................ (51,214,000) 12,887,000 (1,501,000)
------------- ------------- -------------
Net cash provided by operating activities of continuing operations 109,851,000 327,187,000 157,991,000
------------- ------------- -------------
Cash Flows From Investing Activities:
Entities purchased, net of cash acquired ......................... (59,436,000) (900,000) (58,190,000)
Proceeds from sale of marketable securities available for sale ... 66,355,000 14,232,000 13,970,000
Proceeds from sale of businesses and other ....................... 10,560,000 225,000 35,155,000
Proceeds from sale of property, plant, and equipment .............. 1,175,000 181,000 1,318,000
Proceeds from sale of investment ................................. 5,138,000
Investments in facilities ........................................ (50,749,000) (18,847,000) (28,459,000)
Other capital expenditures ....................................... (15,048,000) (17,675,000) (14,030,000)
Decrease in other receivables .................................... 820,000 2,865,000 11,252,000
Investments in marketable securities available for sale .......... (1,815,000) (58,917,000) (13,970,000)
Distributions from investees and joint ventures .................. 12,459,000 8,479,000 45,749,000
Increase in investments in and advances to investees
and joint ventures ............................................... (43,997,000) (32,458,000) (55,506,000)
------------- ------------- -------------
Net cash used in investing activities of continuing operations ... (74,538,000) (102,815,000) (62,711,000)
------------- ------------- -------------
Cash Flows From Financing Activities:
Borrowings for Energy Facilities ................................. 150,894,000 506,518,000 57,358,000
Other new debt ................................................... 90,508,000 34,525,000 102,266,000
Payment of debt .................................................. (205,089,000) (601,396,000) (213,809,000)
Dividends paid ................................................... (46,241,000) (62,541,000) (62,564,000)
Purchase of treasury shares ...................................... (2,509,000) (56,381,000)
Decrease in funds held in trust .................................. 21,019,000 40,415,000 928,000
Proceeds from exercise of stock options .......................... 8,268,000 16,735,000 10,493,000
Other ............................................................ (4,412,000) (5,922,000) (5,447,000)
------------- ------------- -------------
Net cash provided by (used in) financing activities
of continuing operations ......................................... 12,438,000 (128,047,000) (110,775,000)
------------- ------------- -------------
Net cash provided by (used in) discontinued operations ........... (127,900,000) (59,880,000) 70,714,000
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............. (80,149,000) 36,445,000 55,219,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................... 181,169,000 144,724,000 89,505,000
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ......................... $ 101,020,000 $ 181,169,000 $ 144,724,000
============= ============= =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
66
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 or the Company or the Corporation). Companies in which Ogden has
equity investments of 50% or less are accounted for using the "Equity
Method," if appropriate. All intercompany transactions and balances have been
eliminated.
On September 17, 1999, the Company announced that it intended to sell its
Aviation and Entertainment businesses and on September 29, 1999 the Board of
Directors of the Company formally adopted a plan to sell the operations of its
Aviation and Entertainment units which were previously reported as separate
business segments. As a result of the adoption of this plan, the presentation of
the financial results has been reclassified in the accompanying financial
statements to show these operations as discontinued and the prior periods have
been restated. (See Note 2.)
In 1999, in transactions accounted for as purchases, Ogden acquired the shares
of a Philippine diesel-fired power plant, a 74% interest in a Thailand gas-fired
facility, a 90% interest in a Thailand company that operates and maintains
several power plant facilities, the unowned 50% partnership interests in the
Heber Geothermal Company, which owns a geothermal power plant in California, and
Heber Field Company in California for a total cost of $58,500,000. The
operations of these companies have been included in the accompanying financial
statements from the dates of acquisition. If Ogden had acquired these companies
at January 1, 1998, consolidated revenues, net income (loss) and diluted
earnings (loss) per share would have been $1,004,900,000, ($85,568,000) and
($1.74) for 1999 and $919,259,000, $81,633,000 and $1.60 for 1998.
67
In 1998, in transactions accounted for as purchases, Ogden acquired the
shares of a civil construction company for a total cost of $900,000. The
operations of this company have been included in the accompanying financial
statements from date of acquisition. If Ogden had acquired this company at
January 1, 1997, consolidated revenues, net income and diluted earnings per
share would have been $897,524,000, $87,406,000 and $1.72 for 1998 and
$959,931,000, $75,752,000 and $1.49 for 1997.
In 1997, in transactions accounted for as purchases, Ogden acquired the
shares of Pacific Energy, Inc., as well as a 60% interest in four
cogeneration plants in China for a total cost of $118,967,000. 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 $1,000,762,000, $84,077,000, and $1.65 for 1997.
In connection with an earlier restructuring plan, the Binghamton, New York
and Cork, Ireland operations of Datacom, Inc. (Datacom, previously known as
Atlantic Design Company), a contract manufacturing company, were sold in
January 1998; the Facility Services group's operations in New York City were
sold in July 1997; and the Charlotte, North Carolina, operations of Datacom,
were sold in September 1997.
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.
68
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 3).
CONTRACTS AND REVENUE RECOGNITION: Service revenues primarily include only the
fees for cost-plus contracts and other types of contracts. Both service revenues
and operating expenses exclude reimbursed expenditures of zero, $1,800,000 and
$30,794,000 for the years ended December 31, 1999, 1998 and 1997, 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 $151,257,000
and $149,341,000 at December 31, 1999 and 1998, 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.
69
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.
RESTRICTED FUNDS: Restricted funds represent proceeds from the financing and
operations of energy facilities. 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 25 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
70
distributions, which 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 are evaluated in
relation to the estimated net realizable value.
EARNINGS PER SHARE: Basic Earnings (Loss) per Share is represented by net income
(loss) available to common shareholders divided by the weighted-average number
of common shares outstanding during the period. Diluted earnings (loss) 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 23).
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. This SOP established accounting
standards for these costs and requires that they generally be expensed as
incurred. Ogden adopted SOP 98-5 on January 1, 1999. The effect of adopting the
SOP is shown as a cumulative effect of a change in accounting principle and is
reflected as a net charge to income of $3,820,000 in 1999.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS: In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards (SFAS) No.
133, "Accounting for Derivative Instruments andHedging Activities." This
SFAS establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and hedging activities and requires recognition of all derivative
instruments as assets or liabilities and requires measurement of those
instruments at fair value. Ogden will adopt SFAS No. 133 in January, 2001.
The Corporation is in the process of determining the impact adoption of this
standard will have on Ogden's financial position and results of operations.
71
RECLASSIFICATION: The accompanying financial statements have been reclassified
to conform with the 1999 presentation, principally for discontinued operations.
72
2.DISCONTINUED OPERATIONS
As a result of the adoption of the plan to discontinue the operations of the
Entertainment and Aviation businesses, the Company's financial statement
presentation has changed. Information for two units previously reported under
the segment headings "Energy" and "Other" is now reported as Continuing
Operations and will continue to be reported under those headings. Results
previously reported for "Entertainment" and "Aviation" are now reported as
Discontinued Operations.
Management expects the process of selling the discontinued operations to be
substantially completed in the third quarter of 2000 and will involve the sale
of various individual and groups of entities or operations. Based upon a number
of assumptions and judgments, management believes that these dispositions will,
in the aggregate after costs of disposition, be at book value or greater.
Therefore, results from discontinued operations will be recognized currently and
gains or losses on disposal of portions of the discontinued operations will be
deferred until substantially all assets of the discontinued operations have been
sold.
Revenues and income (loss) from discontinued operations (expressed in thousands
of dollars) were as follows:
YEARS ENDED DECEMBER 31
------------------------------------------------------
1999 1998 1997
Revenues $ 807,430 $ 795,879 $ 791,354
========== ========= ==========
Operating income (loss) $ (35,183) $ 87,203 $ 64,079
----------- --------- ---------
Income (Loss) Before Income Taxes and
Minority Interests $ (40,169) $ 90,172 $ 70,453
Income Taxes 6 40,240 31,385
Minority Interests 1,676 210 182
------------ ------------- -------------
Income (Loss) from Discontinued Operations $ (41,851) $ 49,722 $ 38,886
=========== ========= =========
73
Net assets of discontinued operations (expressed in thousands of dollars)
were as follows:
December 31
----------------------------------------
1999 1998
Current Assets $ 221,200 $ 226,953
Property, Plant and Equipment - Net 375,211 251,402
Other Assets 336,700 253,409
Notes Payable and Current Portion of
Long-Term Debt (51,081) (53,347)
Other Current Liabilities (142,327) (121,152)
Long-Term Debt (108,681) (42,693)
Other Liabilities (62,876) (58,846)
--------- ---------
Net Assets of Discontinued Operations $ 568,146 $ 455,726
========= =========
74
3. INVESTMENTS IN MARKETABLE SECURITIES AVAILABLE FOR SALE
At December 31, 1999 and 1998, marketable equity and debt securities held for
current and noncurrent uses, such as non-qualified pension liabilities and
deferred compensation plan, are classified as current assets and long-term
assets (see Note 7), respectively. Net unrealized gains and losses on
marketable equity and debt securities held for current and noncurrent uses
are charged to Other Comprehensive Income.
Marketable securities at December 31, 1999 and 1998 (expressed in thousands of
dollars), include the following:
1999 1998
- --------------------------------------------------------------------------------------------
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 $ 6,777 $ 6,627 $27,451 $27,673
------- ------- ------- -------
Total Classified as Noncurrent Assets $ 6,777 $ 6,627 $27,451 $27,673
======= ======= ======= =======
At December 31, 1999 and 1998, unrealized gains (losses) were $150,000 and
($251,000), respectively. The deferred tax benefits on these gains (losses) at
December 31, 1999 and 1998 were zero and $186,000, respectively, resulting in
net (credits) charges of ($150,000) and $65,000, respectively, to Accumulated
Other Comprehensive Income.
Proceeds, realized gains, and realized losses from the sales of securities
classified as available for sale for the years ended December 31, 1999, 1998,
and 1997, were $66,355,000, $743,000, and $1,963,000; $14,232,000, zero, and
zero; and $13,970,000, $3,444,000, and zero; respectively. For the purpose of
determining realized gains and losses, the cost of securities sold was based on
specific identification.
75
4. UNBILLED SERVICE AND OTHER RECEIVABLES
Unbilled service and other receivables (expressed in thousands of dollars)
consisted of the following:
1999 1998
- ---------------------------- -------- --------
Unbilled service receivables $151,257 $150,389
Notes receivable 8,200 9,020
-------- --------
Total $159,457 $159,409
======== ========
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 $49,305,000
and $41,822,000 at December 31, 1999 and 1998, respectively. Long-term notes
receivable primarily represent notes received relating to the sale of noncore
businesses.
76
5. 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; 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:
1999 1998
- -------------------------------------- -------- -------- -------- --------
Current Noncurrent Current Noncurrent
- -------------------------------------- -------- -------- -------- ----------
Construction funds $ 1,074 $ 14,604
Debt service funds 56,624 $121,929 24,871 $131,873
Revenue funds 23,932 13,626
Lease reserve funds 4,112 22,774 10,075 14,488
Other funds 17,920 22,081 47,377 34,561
-------- -------- ------- --------------
Total $103,662 $166,784 $110,553 $180,922
======== ======== ======= ==============
77
6. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment (expressed in thousands of dollars) consisted of
the following:
1999 1998
- ---------------------------------------------- ---------- ----------
Land $ 8,111 $ 6,137
Energy facilities 2,112,057 1,948,329
Buildings and improvements 111,490 102,963
Machinery and equipment 121,587 109,577
Landfills 12,955 17,959
Construction in progress 49,836 26,614
---------- ----------
Total 2,416,036 2,211,579
Less accumulated depreciation and amortization 574,225 475,338
---------- ----------
Property, plant, and equipment-net $1,841,811 $1,736,241
========== ==========
78
7. OTHER ASSETS
Other assets (expressed in thousands of dollars) consisted of the following:
1999 1998
- ---------------------------------------- -------- --------
Unamortized bond issuance costs $ 41,352 $ 43,420
Noncurrent securities available for sale 6,777 27,451
Deposits on potential acquisition 13,478
Deferred financing costs 11,858 12,248
Other 24,381 29,556
-------- --------
Total $ 84,368 $126,153
======== ========
79
8. ACCRUED EXPENSES, ETC.
Accrued expenses, etc. (expressed in thousands of dollars), consisted of the
following:
1999 1998
- ---------------------------------------------- -------- --------
Operating expenses $ 83,646 $ 51,787
Severance and employment litigation settlement 50,532
Insurance 24,476 21,398
Debt service charges and interest 31,008 24,580
Municipalities' share of energy revenues 28,160 36,300
Payroll 14,763 17,138
Payroll and other taxes 17,200 21,080
Lease payments 15,193 16,038
Construction costs 11,636 3,377
Pension and profit sharing 8,391 9,958
Other 75,150 35,118
-------- --------
Total $360,155 $236,774
======== ========
80
9. DEFERRED INCOME
Deferred income (expressed in thousands of dollars) consisted of the following:
1999 1998
- ------------------------------------------------ -------------------- --------------------
Current Noncurrent Current Noncurrent
- ------------------------------------------------ -------- ---------- ------- ----------
Power sales agreement prepayment $ 9,001 $165,311 $ 9,001 $174,328
Sale and leaseback arrangements 1,523 17,352 1,523 18,876
Advance billings to municipalities 6,733 11,523
Other 28,549 23,043 8,359
-------- --------- ------- --------
Total $ 45,806 $182,663 $ 45,090 $201,563
======== ======== ======= =========
The gains from sale and leaseback transactions consummated in 1986 and 1987 were
deferred and are being amortized as a reduction of rental expense over the
respective lease terms. Advance billings to various customers are billed one or
two months prior to performance of service and are recognized as income in the
period the service is provided. In 1998, Ogden received a payment for future
energy deliveries required under a power sales agreement. This prepayment is
being amortized over the life of the agreement.
81
10. LONG-TERM DEBT
Long-term debt (expressed in thousands of dollars) consisted of the following:
1999 1998
- -------------------------------------------------- -------- -------- -----
Adjustable-rate revenue bonds due 2014-2024 $124,755 $124,755
9.25% debentures due 2022 100,000 100,000
Revolving credit facility 50,000
Other long-term debt 70,190 123,839
-------- --------
Total $344,945 $348,594
======== ========
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 3.21% and 3.38% in 1999 and 1998, 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,
1999, Ogden was in compliance with all requirements and had $3,050,000 in excess
of the required amount of Shareholders' Equity. This covenant has been amended
to require a minimum Shareholders' Equity of $400,000,000 through July 31, 2000
(see Note 12).
At December 31, 1999, the Company had drawn $50,000,000 on its $200,000,000
principal revolving credit facility due in 2002. The interest rate on this
facility at December 31, 1999 was 6.225% and was based on the six-month LIBOR
plus 0.225% (see Note 12).
Other long-term debt includes an obligation for approximately $28,450,000,
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. Other
long-term debt also includes $22,450,000 resulting from the sale of limited
partnership interests in and
82
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.
The remaining other long-term debt of $19,290,000 consists primarily of notes
payable, loans and capital leases associated with the acquisition of Energy
assets. These instruments bear interest at rates ranging from 6% to 8.6% with
various maturity dates.
At December 31, 1999 Ogden had one long-term interest rate swap agreement
covering a notional amount of $1,600,000, which expires November 30, 2000. This
swap was entered into to convert Ogden's $1,600,000 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, 1999, the three-month LIBOR rate was 5.81%. 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 zero, $100,000, and
$400,000, for 1999, 1998, and 1997, respectively, and were charged to
interest expense. The effect on Ogden's weighted-average borrowing rate for
1999, 1998, and 1997 was an increase of zero, .04%, and .09%, respectively.
83
The maturities of long-term debt (expressed in thousands of dollars) at December
31, 1999, were as follows:
2000 $113,815
2001 14,672
2002 51,633
2003 1,279
2004 1,253
Later years 276,108
--------
Total 458,760
Less current portion 113,815
--------
Total long-term debt $344,945
========
84
11. PROJECT DEBT
Project debt (expressed in thousands of dollars) consisted of the following:
1999 1998
- ---------------------------------------------------------------------------- ---------- ----------
Revenue Bonds Issued by and Prime Responsibility of Municipalities:
3.4 - 6.75% serial revenue bonds due 2001 through 2011 $ 442,205 $ 341,284
4.65 - 7.625% term revenue bonds due 2001 through 2015 412,838 557,595
Adjustable-rate revenue bonds due 2006 through 2013 80,220 80,220
------- ----------
Total 935,263 979,099
------- ----------
Revenue Bonds Issued by Municipal Agencies with Sufficient Service
Revenues Guaranteed by Third Parties -
5.0 - 8.9% serial revenue bonds due 2001 through 2008 90,666 98,091
------- ----------
Other Revenue Bonds:
4.5 - 5.5% serial revenue bonds due 2001 through 2015 98,720 104,414
5.5 - 6.7% term revenue bonds due 2014 through 2019 68,020 58,020
------- ----------
Total 166,740 162,434
------- ----------
Other project debt 198,163 127,904
------- ----------
Total long-term project debt $1,390,832 $1,367,528
======= ==========
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
85
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 Company anticipates renewing such
contracts prior to 2011.
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, 1999, such revenue bonds were collateralized by
property, plant, and equipment with a net carrying value of $1,427,550,000, a
credit enhancement of approximately $5,200,000 for which Ogden has certain
reimbursement obligations, and restricted funds held in trust of approximately
$231,200,000 (see Note 5).
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 5.5% and 5.4% in 1999 and 1998, 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 $55,921,000 at December 31, 1999, 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
86
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 $80,579,000 at December
31, 1999. Other project debt also includes $12,940,000 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 $3,600,000, which is due to financial institutions and
bears interest at an adjustable rate equal to the three-month LIBOR rate plus
3.5% (9.5% at December 31, 1999). The debt extends through 2001 and is secured
by substantially all the assets of a diesel-fired power plant in the
Philippines, which had a net carrying value of approximately $47,410,000 at
December 31, 1999.
Other project debt includes $34,386,000 due to financial institutions which
bears interest at an adjustable rate that was the two-month LIBOR rate plus
1.2% (7.10% at December 31, 1999). 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 $90,358,000 at
December 31, 1999, and a credit enhancement of $10,000,000.
Other project debt includes $57,878,000 due to banks of which $45,343,000 is
denominated in US dollars and $12,535,000 is denominated in Thai Baht. This
debt relates to a Thailand gas-fired energy facility acquired in 1999. The US
dollar debt bears interest at the three-month LIBOR plus 3.5% (9.5% at
December 31, 1999) and the Thai Baht debt bears an interest rate of Thai bank
MLR plus 1.75% (10.25% at December 31, 1999). The MLR, which is the melded
Maximum Lending Rate of the consortium of Thai banks that have lent to the
project, was approximately 8.5% at December 31, 1999. The debt extends
87
through 2012, is non recourse to Ogden and is secured by all project assets,
which had a net carrying value of approximately $97,800,000 at December 31,
1999.
Other project debt includes $33,438,000 related to the purchase of the MCI
power plant in the Philippines. This debt bears interest at rates equal to
the six-month LIBOR plus spreads that increase from plus 3.5% until February
10, 2000, to plus 4.5% thereafter until the final maturity on August 10, 2002.
The rate was 9.26% at December 31, 1999. This debt is nonrecourse to Ogden
and is secured by all assets of the project, which had a net carrying value of
$48,055,000 at December 31, 1999, and all revenues and contracts of the
project and by pledge of the Company's ownership in the project.
At December 31, 1999, the Company had one interest rate swap agreement as a
hedge against interest rate exposure on certain adjustable-rate revenue bonds.
The swap agreement 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 Company 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, 1999, the floating rate on the swap was 5.05%. The notional amount
of the swap at December 31, 1999 was $80,220,000 and is reduced in accordance
with the scheduled repayments of the applicable revenue bonds. In addition, the
Company terminated two other interest rate swap agreements during 1998. The swap
agreements resulted in increased debt service expense of $1,659,000, $824,000
and $300,000 for 1999, 1998 and 1997, respectively, including $211,000 paid to
terminate two swap agreements during the year ended December 31, 1998. The
effect on Ogden's weighted average borrowing rate on project debt was an
increase of .11%, .06% and .02% for 1999, 1998 and 1997, respectively. The
counterparty to the swap is a major financial institution. The Company
believes the credit risk associated with nonperformance by the counterparty
is not significant.
88
The maturities on long-term project debt (expressed in thousands of dollars) at
December 31, 1999 were as follows:
2000 $ 80,383
2001 100,062
2002 98,870
2003 100,634
2004 101,877
Later years 989,389
--------------
Total 1,471,215
Less current portion 80,383
--------------
Total long-term project debt $ 1,390,832
==============
89
12. CREDIT AGREEMENTS
At December 31, 1999, the Company had an unused revolving credit line of $150
million under its principal revolving credit facility 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. The Company agreed with
its revolving credit lenders at year-end to not make further draws under its
principal revolving credit facility in consideration of obtaining certain
waivers of financial covenants contained in that document. In addition, the
Company and all of its credit providers (including its revolving credit
lenders and certain other banks that have similar covenants in their
respective facilities) agreed to amend certain covenants relating to limits
on indebtedness as a percentage of its capitalization, interest coverage as a
function of income from continuing operations and its minimum Shareholders'
Equity, all through the end of July 2000, and to permit the sales of the
Aviation and Entertainment segments provided certain minimum prices are
obtained. Consequently, all the Company's credit providers have agreed to
permit the Company to sell its Aviation and Entertainment businesses and
retain the first $100 million in cash proceeds to fund operations and to
extend the waivers of the financial covenants through the end of July 2000.
Moreover, the revolving credit lenders have agreed to provide the Company
with access to $50,000,000 of credit on a secured basis, in addition to the
outstanding $50,000,000 which is unsecured. The rate on the $50,000,000
secured facility has been set at either the Eurodollar Rate plus 3% or the
prime rate plus 1%. In addition, the Company will pay a 2% fee for the
secured facility, which matures on July 31, 2000.
The Company expects to obtain a new facility on or before July 31, 2000, more
tailored to its Energy business. The Company continues to have discussions
concerning possible new credit facilities and/or obtaining equity for such
purpose.
90
13. CONVERTIBLE SUBORDINATED DEBENTURES
Convertible subordinated debentures (expressed in thousands of dollars)
consisted of the following:
1999 1998
- -------------------------------------- -------- --------
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% of face value. 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.
91
14. 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 $.0667 per share.
92
15. 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, which become
exercisable during a 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; 183,000 shares were available for grant at December 31, 1999.
In 1999, Ogden adopted a nonqualified stock option plan (the "1999 Plan"). Under
this plan, nonqualified options, incentive stock options, limited stock
appreciation rights (LSARs) and performance-based cash awards may be granted to
employees and outside directors to purchase Ogden common stock at an exercise
price not less than 100% of the fair market value of the common stock on the
date of grant which become exercisable over a three-year period from the date
of grant. These options are exercisable for a period of ten years after the
date of grant. In addition, performance based cash awards may also be granted
to employees and outside directors. As adopted, the 1999 plan calls for up to
an aggregate of 4,000,000
93
shares of Ogden common stock to be available for issuance upon the exercise of
such options and LSAR's, which may be granted over a ten-year period ending May
19, 2009. At December 31, 1999, 2,563,000 shares were available for grant.
Effective January 1, 2000 the 1999 Plan was amended and restated, subject to
shareholder approval, to change the name of the plan to the "1999 Stock
Incentive Plan" and to include the award of restricted stock to key employees
based on the attainment of pre-established performance goals. The maximum
number of shares of common stock that is available for awards of restricted
stock is 1,000,000. No awards of restricted stock have been made under the
plan.
Under the foregoing plans, Ogden issued 6,282,400 LSARs in conjunction with
the stock options granted. These LSARs 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 February, 2000 Ogden adopted the Restricted Stock Plan for Non-Employee
Directors (the "Directors Plan") and the Restricted Stock Plan for key
employees (the "Key Employees Plan"). Awards of restricted stock will be made
from treasury shares of Ogden common stock, par value $.50 per share.
Restricted shares awarded under the Directors Plan vest 100% at the end of
three months from the date of the award. Shares of restricted stock awarded
under the Key Employees Plan are subject to a two-year vesting schedule, 50%
one year following the date of award and 50% two years following the date of
award. As of December 31, 1999, no shares of restricted stock had been
awarded under these plans. Between January 1, 2000 and February 29, 2000, an
aggregate of 80,700 restricted shares were awarded under the Key Employees
Plan and an aggregate of 27,218 restricted shares were awarded under the
Directors Plan.
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. All of these options were exercised or cancelled at August 31,
1999.
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 1999, 1998, and 1997 under these plans been determined
consistent with the provisions of SFAS No. 123, using the binomial
option-pricing model with the following weighted-average assumptions -- dividend
yield of 0.0%, 4.8% and 6.2%; volatility of 33.52%, 27.22% and 25.84%; risk-free
interest rate of 5.89%, 5.42% and 6.43%; and a weighted-average expected life of
7.5 years -- the effect on net income and diluted earnings per share would have
been $1,334,000 and $0.03 for 1999, $626,000 and $.01 for 1998, and $334,000 and
$.01 for 1997. The
94
weighted-average fair value of options granted during 1999, 1998, and 1997 was
$4.53, $3.84 and $2.56, respectively.
95
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, 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-$28.54 (28,000) (20,000) $27.32
------------- ------- ------- ------
December 31, 1998, balance $18.31-$28.54 620,500 601,400 $19.69
Became exercisable $22.50 19,100
Cancelled $28.54 (50,000) (50,000) $28.54
------------- ------- -------- ------
December 31, 1999, balance $18.31-$22.50 570,500 570,500 $19.01
------------- ------- ------- ------
1990 Plan:
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, balance $18.31-$31.50 4,060,600 2,293,600 $20.56
Granted $26.78 655,000 $26.78
Became exercisable $20.06-$29.38 589,800
Exercised $18.31-$23.56 (242,600) (242,600) $19.47
Cancelled $20.06-$31.50 (198,500) $23.21
------------- --------- -------- ------
December 31, 1999, balance $18.31-$29.38 4,274,500 2,640,800 $21.14
------------- --------- --------- ------
1999 Plan:
Granted $8.66-$26.59 1,437,400 $13.13
------------ --------- ---------- ------
December 31, 1999, balance $8.66-$26.59 1,437,400 $13.13
------------ --------- ---------- ------
Conversion of OEGI Plan:
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
Exercised $14.17 (172,061) (172,061) $14.17
------------- --------- ---------- ---------
December 31, 1999, balance 0 0 0 0
------------ -------- -------- --------
Total December 31, 1999 $8.66 - $29.38 6,282,400 3,211,300 $20.76
============== ========= ========= ======
96
The following table summarizes information about stock options outstanding at
December 31, 1999:
Options Outstanding Options Exercisable
------------------------------------------------- ------------------------------
Number of Weighted-Average Number of
Range of Exercise Shares Remaining Weighted-Average Shares Weighted-Average
Prices Outstanding Contractual Life Exercise Price Outstanding Exercise Price
- ----------------- ----------- ---------------- ---------------- ----------- ----------------
$ 8.66-$15.56 1,412,400 9.9 years $12.89 0 $0
$18.31-$29.38 4,870,000 4.9 years $22.27 3,211,300 $20.76
- ------------- --------- --------- ------ --------- ------
$ 8.66-$29.38 6,282,400 6.0 years $20.16 3,211,300 $20.76
- ------------- --------- --------- ------ --------- ------
- ------------- --------- --------- ------ --------- ------
The weighted-average exercise prices for all exercisable options at December 31,
1999, 1998, and 1997, were $20.76, $20.04, and $19.56, respectively.
At December 31, 1999, there were 12,961,485 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
2000, 2,223,000 shares of common stock were purchased at total cost of
$58,890,000.
97
16. PREFERRED STOCK PURCHASE RIGHTS
In 1990, the Board of Directors declared a dividend of one preferred stock
purchase right (Right) on each outstanding share of common stock. Among other
provisions, each Right may be exercised to purchase a one one-hundredth share of
a new series of cumulative participating preferred stock at an exercise price of
$80, subject to adjustment. The Rights may only be exercised after a party has
acquired 15% or more of the Corporation's common stock or commenced a tender
offer to acquire 15% or more of the Corporation's common stock. The Rights do
not have voting rights, expire October 2, 2000, and may be redeemed by the
Corporation at a price of $.01 per Right at any time prior to the acquisition of
15% of the Corporation's common stock.
In the event a party acquires 15% or more of the Corporation's outstanding
common stock in accordance with certain defined terms, each Right will then
entitle its holders (other than such party) to purchase, at the Right's
then-current exercise price, a number of the Corporation's common shares having
a market value of twice the Right's exercise price. At December 31, 1999,
49,468,195 Rights were outstanding.
98
17. FOREIGN EXCHANGE
Foreign exchange translation adjustments for 1999, 1998, and 1997, amounting
to $4,631,000, $2,170,000, and $8,094,000, respectively, have been charged
directly to Other Comprehensive Income. Foreign exchange transaction
adjustments, amounting to ($7,000), zero, and $30,000, have been charged
(credited) directly to income for 1999, 1998, and 1997, respectively.
99
18. DEBT SERVICE CHARGES
Debt service charges for Ogden's project debt (expressed in thousands of
dollars) consisted of the following:
1999 1998 1997
- ------------------------------------------------------- ----------- ------------ -----------
Interest incurred on taxable and tax-exempt borrowings $ 90,430 $ 96,939 $ 99,284
Interest earned on temporary investment of certain
restricted funds 1,991 4,192 3,992
----------- ------------ -----------
Net interest incurred 88,439 92,747 95,292
Interest capitalized during construction in property,
plant, and equipment 631
----------- ------------ -----------
Interest expense-net 88,439 92,747 94,661
Amortization of bond issuance costs 6,564 7,616 6,997
----------- ------------ -----------
Debt service charges $ 95,003 $ 100,363 $ 101,658
=========== ============ ===========
100
19. PENSIONS 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
participate 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.
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.
In 1999, the Corporation discontinued a defined benefit retirement plan for
certain Ogden Corporation salaried employees and paid benefits due to employees
at December 31, 1999.
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 (expressed in thousands of dollars):
101
PENSION BENEFITS OTHER BENEFITS
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 26,869 $ 22,850 $ 8,580 $ 10,771
Service cost 2,866 2,434 39 35
Interest cost 1,871 1,620 593 547
Plan amendments 382
Effect of curtailment (3,081)
Effect of settlement (7,047)
Actuarial (gain) loss (1,618) 154 (374) (2,474)
Benefits paid (786) (571) (414) (299)
-------- -------- -------- --------
Benefit obligation at end of year 19,074 26,869 8,424 8,580
-------- -------- -------- --------
CHANGE IN PLAN ASSETS:
Plan assets at fair value at beginning of year 16,827 14,790
Actual return on plan assets 1,749 1,647
Company contributions 7,653 962 414 299
Effect of settlement (7,047)
Benefits paid (786) (571) (414) (299)
-------- -------- -------- --------
Plan assets at fair value at end of year 18,396 16,828
-------- -------- -------- --------
RECONCILIATION OF PREPAID (ACCRUED) AND
TOTAL RECOGNIZED:
Funded status of the plan (678) (10,041) (8,424) (8,580)
UNRECOGNIZED:
Net transition (asset) obligation (107)
Prior service cost 76 818
Net (gain) loss (4,346) (2,503) (1,206) (956)
-------- -------- -------- --------
Net amount recognized $ (5,055) ($11,726) $ (9,630) $ (9,536)
======== ======== ======== ========
AMOUNTS RECOGNIZED IN THE CONSOLIDATED
BALANCE SHEET CONSIST OF:
Accrued benefit liability $ (5,055) ($11,726) $ (9,630) ($ 9,536)
-------- -------- -------- --------
Net amount recognized $ (5,055) ($11,726) $ (9,630) ($ 9,536)
======== ======== ======== ========
WEIGHTED-AVERAGE ASSUMPTIONS AS OF
DECEMBER 31:
Discount rate 7.75% 6.75% 7.75% 6.75%
Expected return on plan assets 8.00% 8.00%
Rate of compensation increase 4.50% 4.00% 4.50% 4.00%
102
For management purposes, annual rates of increase of 8.5% and 7.5% in the per
capita cost of health care benefits were assumed for 1999 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 that level.
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the pension plans with accumulated benefit obligations in
excess of plan assets were $2,502,000, $2,676,000 and zero, respectively, as of
December 31, 1999 and $6,431,000, $10,481,000 and zero, respectively, as of
December 31, 1998.
Contributions and costs for defined contribution plans are determined by benefit
formulas based on percentage of compensation as well as discretionary
contributions and totaled $9,002,000, $8,257,000, and $8,652,000 in 1999, 1998,
and 1997, respectively. Plan assets at December 31, 1999, 1998, and 1997,
primarily consisted of common stocks, United States government securities, and
guaranteed insurance contracts.
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
------------------------------- -------------------------------
1999 1998 1997 1999 1998 1997
------- ------- ------- ------- ------- -------
COMPONENTS ON NET PERIODIC BENEFIT COST:
Service cost $ 2,866 $ 2,434 $ 1,923 $ 39 $ 35 $ 54
Interest cost 1,871 1,620 1,340 593 547 713
Expected return on plan assets (1,441) (1,191) (899)
Amortization of unrecognized:
Net transition (asset) obligation 27 27 27
Prior service cost 233 416 378
Net (gain) loss (33) (22) (62) (124) (170) 9
------- ------- ------- ------- ------- -------
Net periodic benefit cost $ 3,523 $ 3,284 $ 2,707 $ 508 $ 412 $ 776
======= ======= ======= ======= ======= =======
Curtailment gain $(2,493)
Settlement gain (51)
103
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 the assumed
health care trend rate would have the following effects (expressed in thousands
of dollars):
One Percentage One Percentage
Point Increase Point Decrease
-------------- --------------
Effect on total service and interest
cost components $ 15 $ (14)
Effect on postretirement benefit obligation $ 206 $(194)
104
20. SPECIAL CHARGES
In September 1999, the Company's Board of Directors approved a plan to
dispose of its Aviation and Entertainment businesses and close its New York
City headquarters, and in December 1999 approved a plan to exit other
non-core businesses so that Ogden can focus its resources on its Energy
business.
As a result of these decisions, the Company has incurred various expenses
which have been recognized in its continuing and discontinued operations.
These expenses include severance costs mainly for its New York City employees
of $41,500,000; contract termination costs of its former Chairman and Chief
Executive Officer of $17,500,000; the write-down to estimated net realizable
value of other non-core businesses of $36,200,000 based upon the estimated
proceeds from the sale of such businesses; and the accelerated amortization
of a new data processing system of $2,300,000 based upon a revised useful
life of 15 months starting October 1, 1999. Such expenses also include the
costs to abandon expansion plans of its Entertainment business totaling
$17,800,000, which includes the forfeiture of the non-refundable deposit and
related costs totaling $10,500,000 in connection with the termination of the
proposed acquisition of Volume Services America (VSA). In addition, charges
totaling $13,200,000 were recorded to recognize losses prior to the decision
to discontinue the Entertainment business relating to the sale of assets and
to the write-down of unamortized contract acquisition costs at two venues.
In addition, Datacom, Inc. (Datacom), a subsidiary of Ogden which primarily
manufactures products for its major customer Genicom Corporation (Genicom),
recorded write-downs of its inventories and accounts receivable from Genicom of
$10,500,000, primarily as a result of Genicom's poor financial position in 1999
evidenced by Genicom's announcement of its violation of its credit facilities in
the third quarter and its subsequent filing for protection from creditors under
the provisions of Chapter 11 of the Bankruptcy Code on March 10, 2000. As of
December 31, 1999, Datacom had net inventory in connection with the Genicom
contract of approximately $8,000,000, commitments to purchase parts for use in
the assembly of inventory for sale to Genicom of approximately $8,000,000, and
accounts receivable net of allowances of approximately $7,500,000. Since Datacom
is a principal supplier of
105
goods to Genicom, the Company is in conversation with the credit institutions
and others about continuing to ship products to Genicom and the related
payment terms. The Company believes that it will be successful in resuming
its business relationship with Genicom and will realize the net carrying
value of its accounts receivable and inventory on hand at December 31, 1999.
The following is a summary of the principal special charges recognized in
1999 and the remaining accruals at December 31, 1999 (expressed in thousands
of dollars):
Total Amounts Balance at
Continuing Discontinued Special Paid in December
Operations Operations Charges 1999 31, 1999
---------- ------------ ---------- ------- ----------
Cash charges:
Severance for approximately 220 employees $16,400 $25,100 $41,500 $ 1,100 $40,400
Contract termination settlement 17,500 17,500 1,800 15,700
Termination of VSA acquisition 10,500 10,500 10,500 0
------- ------- ------- -------- -------
Cash charges 33,900 35,600 69,500 $ 13,400 $56,100
------- ------- ------- ======== =======
Noncash charges:
Write-downs of non-core businesses:
OEES goodwill ($23,000) and property and other
assets ($5,400); ADTI goodwill ($7,800) 36,200 36,200
Datacom inventory ($7,200), and
receivables ($3,300) 10,500 10,500
Entertainment asset sales and abandonment:
Sale of the Grizzly Nature Center
($4,200) and a casino in Aruba ($2,500);
and unrecoverable contract
acquisition costs ($6,500) 13,200 13,200
Abandonment of Entertainment expansion:
Casino facilities in South Africa 7,300 7,300
Accelerated amortization of new data
processing system 500 1,800 2,300
---------- --------- ----------
Noncash charges 47,200 22,300 69,500
---------- --------- ----------
Total charges $ 81,100 $ 57,900 $ 139,000
========== ========= ==========
For continuing operations, severance accruals, the provision for contract
termination settlement, the write-down of non-core businesses, the accelerated
depreciation of a new data processing system and the provisions relating to
Datacom receivables are included in selling, administrative, and general
106
expenses, and a provision relating to Datacom's inventory is included in cost
of sales in the accompanying 1999 Statement of Consolidated Income and
Comprehensive Income.
The amount accrued for severance is based upon the Company's written severance
policy and the positions eliminated. The accrued severance does not include any
portion of the employees' salaries through their severance dates. Based upon
current severance dates and the severance accrual remaining at December 31,
1999, the Company expects to pay these amounts largely in 2000.
The amount accrued for the contract termination costs of the Company's former
Chairman and Chief Executive Officer is based upon a settlement agreement
reached in December 1999. Pursuant to the settlement agreement, the Company
forgave demand notes dated August 1999 in the face amount of approximately
$1,800,000, and with the exception of certain insurance benefits, expects to
pay these amounts largely in 2000.
107
21. INCOME TAXES
The components of the provision (benefit) for income taxes (expressed in
thousands of dollars) were as follows:
1999 1998 1997
-------- -------- --------
Current:
Federal $ 4,552 $ (1,354) $ (8,703)
State 4,108 3,191 7,358
Foreign 1,367 900 1,676
-------- -------- --------
Total current 10,027 2,737 331
-------- -------- --------
Deferred:
Federal (13,809) 17,459 24,127
State (3,543) 1,436 (2,743)
Foreign 408 (75)
-------- -------- --------
Total deferred (16,944) 18,820 21,384
-------- -------- --------
Total provision (benefit) for income taxes $ (6,917) $ 21,557 $ 21,715
======== ======== ========
The provision for income taxes (expressed in thousands of dollars) varied from
the Federal statutory income tax rate due to the following:
108
1999 1998 1997
--------------------- --------------------- ----------------------
Percent of Percent of Percent of
Income Income Income
Amount of Before Amount of Before Amount of Before
Tax Taxes Tax Taxes Tax Taxes
--------- ---------- --------- ---------- --------- ----------
Taxes at statutory rate $(12,961) 35.0% $ 22,074 35.0% $ 21,177 35.0%
State income taxes, net of
Federal tax benefit 367 (1.0) 3,007 4.8 2,999 4.9
Taxes on foreign earnings (3,469) 9.3 (2,384) (3.8) (1,550) (2.5)
Amortization of goodwill 651 (1.7) 691 1.1 665 1.1
Write-down of goodwill 10,795 (29.1) 1,750 2.9
Benefit relating to sale of stock
of former subsidiary (3,581) (5.9)
Energy credits (2,338) 6.3 (2,511) (3.9)
Other--net 38 (.1) 680 1.0 255 .4
-------- ------ -------- ------ -------- -------
Provision (benefit) for
income taxes $ (6,917) 18.7% $ 21,557 34.2% $ 21,715 35.9%
======== ====== ======== ====== ======== ======
109
The components of the net deferred income tax liability (expressed in thousands
of dollars) as of December 31, 1999 and 1998, were as follows:
1999 1998
-------- --------
Deferred Tax Assets:
Deferred Income $ 7,234 $ 6,828
Accrued expenses 89,140 84,469
Other liabilities 32,834 34,271
Investment tax credits 7,042
Alternative minimum tax credits 32,298 45,032
-------- --------
Total deferred tax assets 168,548 170,600
-------- --------
Deferred Tax Liabilities:
Unbilled accounts receivable 51,088 52,003
Property, plant, and equipment 430,867 433,693
Other 31,216 29,833
-------- --------
Total deferred tax liabilities 513,171 515,529
-------- --------
Net deferred tax liability $344,623 $344,929
======== ========
110
Deferred tax assets and liabilities (expressed in thousands of dollars) are
presented as follows in the accompanying balance sheets:
1999 1998
--------- ---------
Net deferred tax liability--noncurrent $ 380,812 $ 392,850
Less net deferred tax asset--current (36,189) (47,921)
--------- ---------
Net deferred tax liability $ 344,623 $ 344,929
========= =========
At December 31, 1999, for Federal income tax purposes, the Corporation had
investment and energy tax credit carryforwards of approximately $7,042,000,
which will expire in 2006 through 2009, and alternative minimum tax credit
carryforwards of approximately $32,298,000 which have no expiration date.
Deferred Federal income taxes have been reduced by these amounts.
111
22. LEASES
Total rental expense amounted to $54,301,000, $42,331,000, and $39,015,000
(net of sublease income of $5,242,000, $3,398,000, and $1,815,000) for 1999,
1998, and 1997, respectively. Principal leases are for leaseholds, sale and
leaseback arrangements on waste-to-energy facilities, trucks and automobiles,
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,
1999:
2000 $ 49,352
2001 49,556
2002 47,020
2003 45,423
2004 36,480
Later years 432,516
--------
Total $660,347
========
These future minimum rental payment obligations include $430,636,000 of future
nonrecourse rental payments that relate to energy facilities of which
$277,828,000 are supported by third-party commitments to provide sufficient
service revenues to meet such obligations. The remaining $152,808,000 relates to
a waste-to-energy facility at which the Company serves as operator and directly
markets one-half of the facility's disposal capacity. This facility currently
generates sufficient revenues from short- and medium-term contracts to meet
rental payments. The Company 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 are $42,896,000 of
nonrecourse rental payments relating to an energy 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
112
revenues to make the rent payments. These nonrecourse rental payments (in
thousands of dollars) are due as follows:
2000 $ 34,554
2001 36,006
2002 36,488
2003 36,664
2004 25,940
Later years 303,880
--------
Total $473,532
========
113
23. 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, 1999, 1998, and 1997, is as follows:
114
1999 1998 1997
------------------------------------ -------------------------------- ----------------------------------
Per- Per- Per
Income Shares Share Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------ ------------- ------ ----------- ------------- ------ ----------- ------------- ------
Income (loss) from
continuing operations $ (36,290,000) $37,248,000 $36,787,000
Less: preferred
stock dividend 137,000 144,000 152,000
------------- ----------- -----------
BASIC EARNINGS
(LOSS)PER SHARE (36,427,000) 49,235,000 $(0.74) 37,104,000 49,836,000 $ 0.74 36,635,000 50,030,000 $ 0.73
====== ====== ======
Effect of Dilutive
Securities:
Stock options (A) 807,000 538,000
Convertible
preferred stock (A) 144,000 257,000 152,000 275,000
6% convertible
debentures (A) (A) (A)
5 3/4% convertible
debentures (A) (A) (A)
------------- ---------- ------ ----------- ---------- ------ ----------- ---------- -----
DILUTED EARNINGS
(LOSS) PER SHARE $ (36,427,000) 49,235,000 $(0.74) $37,248,000 50,900,000 $ 0.73 $36,787,000 50,843,000 $0.72
============= ========== ====== =========== ========== ====== =========== ========== =====
(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 2,954,000 in 1999, 75,000 in 1998, and 80,000 in 1997. 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
2,175,000 in 1999, 1998 and 1997 for the 6% convertible debentures; 1,524,000
in 1999, 1998 and 1997 for the 5 3/4% convertible debentures; 308,000 in 1999
for stock options; and 245,000 in 1999 for convertible preferred stock.
115
24. COMMITMENTS AND CONTINGENT LIABILITIES
Ogden and certain of its subsidiaries have issued or are party to performance
bonds and guarantees and related contractual obligations undertaken mainly
pursuant to agreements to construct and operate certain waste-to-energy,
entertainment, and other facilities. In the normal course of business, they are
involved in legal proceedings in which damages and other remedies are sought.
Management does not expect that these contractual obligations, legal
proceedings, or any other contingent obligations incurred in the normal course
of business will have a material adverse effect on Ogden's Consolidated
Financial Statements.
The Company did not include certain of its operations at either the Arrowhead
Pond in Anaheim, California or the Corel Centre near Ottawa, Canada as part
of its agreement to sell its Food and Beverage/Venue Management business
which was announced in March 2000. The Company manages the Arrowhead Pond
under a long-term contract. As part of that contract, the Company is a party,
along with the City of Anaheim, to a reimbursement agreement under a letter
of credit in the amount of approximately $120,000,000. Under the
reimbursement agreement, the Company is responsible for draws, if any, under
the letter of credit caused by the Company's failure to perform its duties
under its management contract at that venue. The Company is exploring
alternatives for disposing of these operations along with the reimbursement
agreement and related obligations.
During 1994, a subsidiary of Ogden entered into a 30-year facility management
contract at the Corel Centre, 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 debt in the amount of $97,100,000 on
December 23, 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 23, 2002. At December 31, 1999, the
amount outstanding was $51,600,000. In addition, as of December 31, 1999, the
Corporation had guaranteed $3,500,000 of senior secured term debt of an
affiliate and principal tenant (the NHL Ottawa Senators) of this customer and
had guaranteed up to $3,500,000 of the tenant's secured
116
revolving debt. Further, Ogden is obligated to purchase $20,800,000 of the
tenant's secured subordinated indebtedness on January 29, 2004, if such
indebtedness has not been repaid or refinanced prior to that time. In October
1999, Ogden also agreed to advance a secured loan to that tenant of up to
approximately $8,400,000 if certain events occur. Separately, Ogden has
guaranteed approximately $3,800,000 of borrowings of Metropolitan
Entertainment Group, an Entertainment joint venture in which Ogden has an
equity interest. Management expects this guarantee to be assumed by the
ultimate purchaser of this interest. Management does not expect that these
arrangements will have a material adverse effect on Ogden's Consolidated
Financial Statements.
Under certain agreements previously entered into by the Company, if the
Company's outstanding debt securities are no longer rated investment grade,
it may be required to post additional collateral or letters of credit. The
failure to take such actions could result in a forfeiture of certain
contracts or could result in a default under the agreements requiring the
posting of such letters. Such a default would also be a default under certain
of the Company's credit facilities. The Company would need the consent of its
Credit Providers to obtain the funds necessary to post the letters of credit
if they become due, obtain equity, or potentially utilize sales proceeds for
such purpose. The Company's Credit Providers have agreed to work with the
Company to explore solutions to this issue should it arise.
At December 31, 1999, capital commitments for continuing operations amounted
to $29,000,000 for normal replacement and growth in Energy. Other capital
commitments for Energy as of December 31, 1999 amounted to approximately
$96,600,000. This amount includes a commitment to pay, in 2008, $10,600,000
for a service contract extension at an energy facility. In addition, this
amount includes $28,000,000 for a 50% interest in a project in Thailand;
$18,500,000 and $15,300,000, respectively, for two oil-fired projects in
India; $5,000,000 for additional equity commitments related to Energy's
interest in a coal-fired power project in the Philippines; $3,500,000 for a
mass-burn waste-to-energy facility in Italy; $1,900,000 for a natural
gas-fired diesel engine cogeneration project in Spain; and $13,800,000 for
standby letters of credit in support of debt service reserve requirements.
Funding for the remaining mandatory equity contributions to the coal-fired
power project in the Philippines is being provided through bank credit
facilities, which must be repaid in 2000. In addition, compliance with the
standards and guidelines under the Clear Air Act Amendments of 1990 will
require further Energy capital expenditures of approximately $30,000,000
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.
117
Commitments for discontinued operations amounted to $37,000,000 for normal
replacement and growth in Aviation ($100,000) and Entertainment
($36,900,000), the latter relating primarily to Entertainment's Jazzland
theme park in New Orleans. As part of its agreement to sell the themed
attractions, the Company has agreed to complete the construction of its
Jazzland theme park. The Corporation also has a $2,500,000 contingent equity
contribution for Entertainment's investment at Isla Magica. The Corporation
has no further obligations with respect to its previous agreement to acquire
VSA. The Company acquired a 50% interest in an Aviation ground handling
business in Rome Italy and in March 2000, made a contractually required
investment of $6,600,000 in connection therewith.
118
25. INFORMATION CONCERNING BUSINESS SEGMENTS
As of September 29, 1999, the Corporation adopted a plan to discontinue the
operations of its Aviation and Entertainment segments. As a result of this
decision, these segments are now reflected as discontinued operations. The
Corporation now has two reportable segments, Energy and Other.
Ogden's Energy segment seeks to develop, own or operate energy generating
facilities in the United States and abroad that utilize a variety of fuels, as
well as water and wastewater facilities that will similarly serve communities on
a long-term basis. The Energy segment also includes environmental consulting
and engineering, and construction activities which are being sold and
discontinued, respectively.
The Other segment is primarily comprised of non-core businesses of the
Corporation. Ogden substantially completed the disposition of its non-core
businesses during 1997 and early 1998, principally through the sale of the
remaining Facility Services operations (New York Region) which provided
facility management, maintenance, janitorial and manufacturing support
services; and the sale of the Charlotte, North Carolina, Binghamton, New York
and Cork, Ireland operations of Datacom. Datacom continues to provide
contract manufacturing at its remaining facility located in Reynosa, Mexico
near the boarder with McAllen, Texas. Applied Data Technology, Inc. ("ADTI"),
located in San Diego, California, is a leading supplier of air combat
maneuvering instrumentation systems and after-action reporting and display
systems. The Company sold this business in March 2000.
119
Revenues and income from continuing operations (expressed in thousands of
dollars) for the years ended December 31, 1999, 1998 and 1997 were as follows:
1999 1998 1997
----------- ----------- -----------
Revenues:
Energy $ 922,099 $ 804,043 $ 712,272
Other 78,251 92,453 246,099
----------- ----------- -----------
Total revenues $ 1,000,350 $ 896,496 $ 958,371
=========== =========== ===========
Income (Loss) from Operations:
Energy $ 54,602 $ 100,513 $ 100,081
Other (22,731) (4,982) 1,010
----------- ----------- -----------
Total income from operations 31,871 95,531 101,091
Equity in Income of Investees and Joint Ventures:
Energy 13,005 19,251 1,605
Other 89 179
----------- ----------- -----------
Total 44,876 114,871 102,875
Corporate unallocated income and expenses--net 51,210 32,201 21,505
Interest--net 30,697 19,812 21,045
----------- ----------- -----------
Income (Loss) from Continuing Operations Before Income Taxes,
Minority Interests and the Cumulative Effect of Change in
Accounting Principle $ (37,031) $ 62,858 $ 60,325
=========== =========== ===========
Ogden's revenues include $59,887,000, $62,148,000, and $53,600,000 from the
United States government contracts for the years ended December 31, 1999, 1998,
and 1997, respectively.
Total revenues by segment reflect sales to unaffiliated customers. In computing
income from operations, none of the following have been added or deducted:
unallocated corporate expenses, nonoperating interest expense, interest income,
and income taxes.
120
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, 1999, 1998, and 1997, is as follows:
Identifiable Depreciation and Capital
Assets Amortization Additions
------------ ---------------- ---------
1999
Energy $3,010,723 $ 86,735 $ 64,655
Other 51,440 2,007 735
Corporate 96,839 6,163 407
---------- ---------- ----------
Consolidated $3,159,002 $ 94,905 $ 65,797
========== ========== ==========
1998
Energy $2,858,816 $ 75,809 $ 32,237
Other 72,680 1,909 2,051
Corporate 260,332 2,263 2,234
---------- ---------- ----------
Consolidated $3,191,828 $ 79,981 $ 36,522
========== ========== ==========
1997
Energy $2,808,571 $ 72,835 $ 39,967
Other 109,587 2,736 2,295
Corporate 179,518 875 227
---------- ---------- ----------
Consolidated $3,097,676 $ 76,446 $ 42,489
========== ========== ==========
121
Ogden's areas of operations are principally in the United States. Operations
outside of the United States are primarily in Asia, Latin America and Europe.
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, 1999, 1998 and 1997
(expressed in thousands of dollars) is as follows:
1999 1998 1997
---------- ---------- -----------
Revenues:
United States $ 900,642 $ 827,344 $ 911,327
Asia 80,811 47,344 11,331
Latin America 11,375 11,025 11,362
Europe 7,522 10,783 22,003
Other 2,348
---------- ---------- ----------
$1,000,350 $ 896,496 $ 958,371
========== ========== ==========
Identifiable Assets:
United States $2,749,888 $2,979,825 $2,930,539
Asia 399,136 200,913 141,547
Latin America 2,784 890 11,221
Europe 7,194 10,200 13,582
Other 787
---------- ---------- ----------
Total $3,159,002 $3,191,828 $3,097,676
========== ========== ==========
122
26. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
(Expressed in thousands of dollars) 1999 1998 1997
- ------------------------------------------------------------------- ----------------- -----------------
Cash Paid for Interest and Income Taxes:
Interest (net of amounts capitalized).................. $147,597 $131,178 $136,114
Income taxes........................................... 22,278 14,419 24,193
Noncash Investing and Financing Activities:
Conversion of preferred shares for common shares....... 4 2 3
Acquisition of property, plant, and equipment for debt. 21,660
Detail of Entities Acquired:
Fair value of assets acquired.......................... 165,829 900 147,428
Liabilities assumed.................................... (106,393) (89,238)
Net cash paid for acquisitions......................... 59,436 900 58,190
123
27. 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, 1999 and 1998, is summarized as follows:
124
1999 1998
- ----------------------------------------------------------------- -------------- ---------------- -------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- ----------------------------------------------------------------- -------------- ---------------- -------------
Assets:
Cash and cash equivalents $101,020 $101,020 $181,169 $181,169
Marketable Securities 6,777 6,777 72,136 72,136
Receivables 453,508 445,627 433,716 430,282
Restricted funds 270,446 233,319 291,475 290,141
Other assets 310 310
Liabilities:
Debt 458,760 485,634 370,482 418,056
Convertible subordinated debentures 148,650 123,275 148,650 142,581
Project debt 1,471,215 1,487,025 1,430,729 1,539,765
Other liabilities 1,838 1,838 2,648 2,648
Off Balance-Sheet Financial Instruments:
Unrealized losses on interest rate swap agreements 8,913 14,542
Unrealized gains on interest rate swap agreements 4
Guarantees 7,449 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 and 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
125
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 debt were determined based on interest rates that are
currently available to the Corporation for issuance of debt with similar
terms and remaining maturities for debt issues that are not traded on quoted
market prices. With respect to convertible subordinated debentures, fair
values are based on quoted market prices. The fair value of project debt is
estimated based on quoted market prices for the same or similar issues. Other
liabilities are valued by discounting the future stream of payments using the
incremental borrowing rate of the Corporation. The fair value of the
Corporation's interest rate swap agreements is the estimated amount that the
Corporation would receive or pay to terminate the swap agreements at the
reporting date based on third-party quotations. The fair value of Ogden
financial guarantees provided on behalf of customers (see Note 24) 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, 1999 and 1998. 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.
126
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Ogden Corporation:
We have audited the accompanying consolidated balance sheets of Ogden
Corporation and subsidiaries (the "Company") as of December 31, 1999 and
1998, and the related consolidated statements of shareholders' equity,
consolidated income and comprehensive income, and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1999 and 1998,
and the results of their operations and cash flows for each of the three years
in the period ended December 31, 1999 in conformity with generally accepted
accounting principles.
As more fully described in Notes 2, 12 and 20 to the financial statements,
the Company has adopted plans to discontinue its Entertainment and Aviation
business segments and dispose of certain other non-core assets, utilize the
proceeds to pay down debt, and focus solely on its Energy business.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for the costs of start-up activities in 1999.
Deloitte & Touche LLP
New York, New York
March 30, 2000
127
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 their 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.
Scott G. Mackin Raymond E. Dombrowski, Jr.
President and Chief Executive Officer Senior Vice President and
Chief Financial Officer
128
Ogden Corporation and Subsidiaries
QUARTERLY RESULTS OF OPERATIONS
1999 Quarter Ended March 31 June 30 Sept. 30 Dec. 31
- ------------------------------------------------------------------------------------------------------------------------------
(In thousands of dollars, except per-share amounts)
Total revenues from continuing operations....................... $234,824 $252,070 $255,623 $ 257,833
----------- ----------- ----------- -----------
Gross profit.................................................... $ 53,684 $ 72,437 $ 58,636 $ 10,773
----------- ----------- ----------- -----------
Income (loss) from continuing operations before cumulative
effect of change in accounting principle........................ $ 4,059 $ 16,268 $ 8,353 $ (64,970)
Income (loss) from discontinued operations...................... 6,462 8,724 (16,069) (40,968)
Cumulative effect of change in accounting principle............. (3,820)
----------- ----------- ----------- -----------
Net income (loss)............................................... $ 6,701 $ 24,992 $ (7,716) $ (105,938)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic earnings (loss) per common share:
Income (loss) from continuing operations before cumulative
effect of change in accounting principle........................ $ 0.08 $ 0.33 $ 0.17 $ (1.31)
Income (loss) from discontinued operations...................... 0.13 0.18 (0.33) (0.83)
Cumulative effect of change in accounting principle............. (0.08)
----------- ----------- ----------- -----------
Total........................................................... $ 0.13 $ 0.51 $ (0.16) $ (2.14)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted earnings (loss) per common share:
Income (loss) from continuing operations before cumulative
effect of change in accounting principle........................ $ 0.08 $ 0.33 $ 0.17 $ (1.31)
Income (loss) from discontinued operations...................... 0.13 0.17 (0.33) (0.83)
Cumulative effect of change in accounting principle............. (0.08)
----------- ----------- ----------- -----------
Total........................................................... $ 0.13 $ 0.50 $ (0.16) $ (2.14)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
1998 Quarter Ended March 31 June 30 Sept. 30 Dec. 31
- ------------------------------------------------------------------------------------------------------------------------------
(In thousands of dollars, except per-share amounts)
Total revenues from continuing operations....................... $211,263 $229,545 $217,632 $238,056
----------- ----------- ----------- -----------
Gross profit.................................................... $ 55,766 $ 62,361 $ 71,196 $ 65,765
----------- ----------- ----------- -----------
Income from continuing operations .............................. $ 2,705 $ 6,051 $ 14,059 $ 14,433
Income from discontinued operations............................. 8,995 21,009 14,096 5,622
----------- ----------- ----------- -----------
Net income...................................................... $ 11,700 $ 27,060 $ 28,155 $ 20,055
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic earnings per common share:
Income from continuing operations .............................. $ 0.05 $ 0.12 $ 0.28 $ 0.29
Income from discontinued operations............................. 0.18 0.42 0.29 0.12
----------- ----------- ----------- -----------
Total........................................................... $ 0.23 $ 0.54 $ 0.57 $ 0.41
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted earnings per common share:
Income from continuing operations .............................. $ 0.05 $ 0.12 $ 0.28 $ 0.29
Income from discontinued operations............................. 0.17 0.41 0.28 0.11
----------- ----------- ----------- -----------
Total........................................................... $ 0.22 $ 0.53 $ 0.56 $ 0.40
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
129
ITEM 14.(a)2). FINANCIAL STATEMENT SCHEDULES
OGDEN CORPORATION AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1999
- -----------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
------------------------------------
BALANCE AT CHARGED TO
BEGINNING CHARGED TO COSTS OTHER BALANCE AT
DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
- -----------------------------------------------------------------------------------------------------------------------------------
ALLOWANCES DEDUCTED IN THE BALANCE SHEET
FROM THE ASSETS TO WHICH THEY APPLY:
DOUBTFUL RECEIVABLES-CURRENT $18,135,000 $ 5,130,000 $ 3,468,000 (E) $ 2,094,000 (A) $17,942,000
6,697,000 (C)
DEFERRED CHARGES ON PROJECTS 13,070,000 13,070,000 (D)
----------------------------------------------------------------------------------------
TOTAL $31,205,000 $ 5,130,000 $ 3,468,000 $21,861,000 $17,942,000
========================================================================================
ALLOWANCES NOT DEDUCTED:
PROVISION FOR RESTRUCTURING $ 274,000 $ 274,000 (C)
RESERVES RELATING TO TAX INDEMNIFICATION
AND OTHER CONTINGENCIES IN CONNECTION
WITH THE SALE OF LIMITED PARTNERSHIP
INTERESTS IN AND RELATED
TAX BENEFITS OF A
WASTE-TO-ENERGY FACILITY 300,000 $ 300,000
OTHER 1,850,000 1,850,000 (B)
----------------------------------------------------------------------------------------
TOTAL $ 2,424,000 $ 2,124,000 $ 300,000
======================================================================================
NOTES:
(A) WRITE-OFFS OF RECEIVABLES CONSIDERED UNCOLLECTIBLE.
(B) PAYMENTS CHARGED TO ALLOWANCES.
(C) REVERSAL OF PROVISIONS NO LONGER REQUIRED.
(D) WRITE-OFF OF DEFERRED CHARGES.
(E) TRANSFER FROM OTHER ACCOUNTS.
130
ITEM 14.(a)2). FINANCIAL STATEMENT SCHEDULES
OGDEN CORPORATION AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
COLUMN C
COLUMN A COLUMN B ADDITIONS COLUMN D COLUMN E
--------------------------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER BALANCE AT
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
- -----------------------------------------------------------------------------------------------------------------------------------
ALLOWANCES DEDUCTED IN THE BALANCE SHEET
FROM THE ASSETS TO WHICH THEY APPLY:
DOUBTFUL RECEIVABLES-CURRENT $14,643,000 $ 7,336,000 $ 3,318,000 (A) $18,135,000
526,000 (E)
DOUBTFUL RECEIVABLES-NONCURRENT 3,000,000 3,000,000 (A)
DEFERRED CHARGES ON PROJECTS 10,741,000 2,609,000 280,000 (D) 13,070,000
------------------------------------------------------------------------------------
TOTAL $28,384,000 $ 9,945,000 $ 7,124,000 $31,205,000
====================================================================================
ALLOWANCES NOT DEDUCTED:
ESTIMATED COST OF DISPOSAL OF ASSETS $ 296,000 $ 296,000 (B)
PROVISION FOR RESTRUCTURING 1,141,000 867,000 (B) $ 274,000
RESERVES RELATING TO TAX INDEMNIFICATION
AND OTHER CONTINGENCIES IN CONNECTION WITH
THE SALE OF LIMITED PARTNERSHIP INTERESTS IN
AND RELATED TAX BENEFITS OF A
WASTE-TO-ENERGY FACILITY 3,000,000 2,700,000 (C) 300,000
OTHER 3,979,000 $ 100,000 1,223,000 (B) 1,850,000
1,006,000 (C)
------------------------------------------------------------------------------------
TOTAL $ 8,416,000 $ 100,000 $ 6,092,000 $ 2,424,000
====================================================================================
NOTES:
(A) WRITE-OFFS OF RECEIVABLES CONSIDERED UNCOLLECTIBLE.
(B) PAYMENTS CHARGED TO ALLOWANCES.
(C) REVERSAL OF PROVISIONS NO LONGER REQUIRED.
(D) WRITE-OFF OF DEFERRED CHARGES.
(E) TRANSFER TO OTHER ACCOUNTS.
131
ITEM 14.(a)2). FINANCIAL STATEMENT SCHEDULES
OGDEN CORPORATION AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
--------------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING AND COSTS OTHER BALANCE AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- -----------------------------------------------------------------------------------------------------------------------------------
ALLOWANCES DEDUCTED IN THE BALANCE SHEET
FROM THE ASSETS TO WHICH THEY APPLY:
DOUBTFUL RECEIVABLES-CURRENT $30,321,000 $ 1,974,000 $11,652,000 (A) $14,643,000
6,000,000 (C)
DOUBTFUL RECEIVABLES-NONCURRENT 6,000,000 3,000,000 (C) 3,000,000
DEFERRED CHARGES ON PROJECTS 8,638,000 6,707,000 4,604,000 (D) 10,741,000
-----------------------------------------------------------------------------------
TOTAL $44,959,000 $ 8,681,000 $25,256,000 $28,384,000
===================================================================================
ALLOWANCES NOT DEDUCTED:
ESTIMATED COST OF DISPOSAL OF ASSETS $ 863,000 $ 567,000 (B) $ 296,000
PROVISION FOR RESTRUCTURING 2,507,000 1,213,000 (B) 1,141,000
153,000 (C)
RESERVES RELATING TO TAX INDEMNIFICATION
AND OTHER CONTINGENCIES IN CONNECTION WITH
THE SALE OF LIMITED PARTNERSHIP INTERESTS IN
AND RELATED TAX BENEFITS OF A
WASTE-TO-ENERGY FACILITY 3,000,000 3,000,000
OTHER 5,500,000 $ 2,832,000 1,953,000 (B) 3,979,000
1,900,000 (C)
500,000 (E)
----------------------------------------------------------------------------------
TOTAL $11,870,000 $ 2,832,000 $ 6,286,000 $ 8,416,000
==================================================================================
NOTES:
(A) WRITE-OFFS OF RECEIVABLES CONSIDERED UNCOLLECTIBLE.
(B) PAYMENTS CHARGED TO ALLOWANCES.
(C) REVERSAL OF PROVISIONS NO LONGER REQUIRED.
(D) WRITE-OFF OF DEFERRED CHARGES.
(E) WRITE-OFF TO OTHER ACCOUNTS.
132
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF OGDEN
Pursuant to General Instruction G (3), the information regarding directors
called for by this item is hereby incorporated by reference from Ogden's 2000
Proxy Statement to be filed with the Securities and Exchange Commission. The
information regarding executive officers called for by this item is included at
the end of Part I of this document under the heading "Executive Officers of
Ogden."
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G (3), the information called for by this
item is hereby incorporated by reference from Ogden's 2000 Proxy Statement to be
filed with the Securities and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G (3), the information called for by this
item is hereby incorporated by reference from Ogden's 2000 Proxy Statement to be
filed with the Securities and Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G (3), the information called for by this
item is hereby incorporated by reference from Ogden's 2000 Proxy statement to be
filed with the Securities and Exchange Commission.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Listed below are the documents filed as a part of this report:
1). All financial statements: see Index to financial statements, Page 62.
2). Financial statement schedules: see Index to financial statements,
Page 62.
(b) During the fourth quarter of 1999 a Form 8-K Report was filed on
November 9, 1999 under Item 5. Other Events, and is incorporated
herein by reference.
(c) Those exhibits required to be filed by Item 601 of Regulation S-K:
133
EXHIBITS
--------
2.0 Plans of Acquisition, Reorganization, Arrangement, Liquidation or
Succession.
2.1 Agreement and Plan of Merger, dated as of October 31, 1989, among
Ogden, ERCI Acquisition Corporation and ERC International, Inc.*
2.2 Agreement and Plan of Merger among Ogden Corporation, ERC
International, Inc., ERC Acquisition Corporation and ERC
Environmental and Energy Services Co., Inc., dated as of January
17, 1991.*
2.3 Amended and Restated Agreement and Plan of Merger among Ogden
Corporation, OPI Acquisition Corp. and Ogden Projects, Inc.,
dated as of September 27, 1994.*
3.0 Articles of Incorporation and By-laws.
3.1 Ogden's Restated Certificate of Incorporation as amended.*
3.2 Ogden's By-Laws, as amended through April 8, 1998.*
4.0 Instruments Defining Rights of Security Holders.
4.1 Fiscal Agency Agreement between Ogden and Bankers Trust Company,
dated as of June 1, 1987, and Offering Memorandum dated June 12,
1987, relating to U.S. $85 million Ogden 6% Convertible
Subordinated Debentures, Due 2002.*
4.2 Fiscal Agency Agreement between Ogden and Bankers Trust Company,
dated as of October 15, 1987, and Offering Memorandum, dated
October 15, 1987, relating to U.S. $75 million Ogden 5-3/4%
Convertible Subordinated Debentures, Due 2002.*
4.3 Indenture dated as of March 1, 1992 from Ogden Corporation to The
Bank of New York, Trustee, relating to Ogden's $100 million debt
offering.*
10.0 Material Contracts
10.1(a) U.S. $95 million Term Loan and Letter of Credit and
Reimbursement Agreement among Ogden, the Deutsche Bank AG, New
York Branch and the signatory Banks thereto, dated March 26,
1997.*
134
10.1(b) $200 million Credit Agreement among Ogden, The Bank of New York
as Agent and the signatory Lenders thereto, dated as of June
30, 1997.*
10.2 Rights Agreement between Ogden Corporation and Manufacturers Hanover
Trust Company, dated as of September 20, 1990 and amended August 15,
1995 to provide The Bank of New York as successor agent.*
10.3 Executive Compensation Plans and Agreements.
(a) Ogden Corporation 1990 Stock Option Plan as Amended and Restated
as of January 19, 1994.*
(i) Amendment adopted and effective as of September 18, 1997.*
(b) Ogden Corporation 1999 Stock Option Plan, as amended.*
(i) Ogden Corporation 1999 Stock Incentive Plan Amended and
Restated as of January 1, 2000. Transmitted herewith as
Exhibit 10.3(b)(i).
(c) Ogden Services Corporation Select Savings Plan Amendment and
Restatement as of January 1, 1995.*
(i) Amendment Number One to the Ogden Services Corporation
Select Savings Plan as Amended and Restated January 1,
1995, effective January 1, 1998.*
(d) Ogden Services Corporation Select Savings Plan Trust Amendment
and Restatement dated as of January 1, 1995.*
(e) (i) Ogden Corporation Restricted Stock Plan and Restricted Stock
Agreement. Transmitted herewith as Exhibit 10.3(e)(i).
(ii) Ogden Corporation Restricted Stock Plan for Non-Employee
Directors and Restricted Stock Agreement. Transmitted
herewith as Exhibit 10.3(e)(ii).
(f) Ogden Corporation Profit Sharing Plan as Amended and Restated
effective as of January 1, 1995.*
(g) Ogden Corporation Core Executive Benefit Program.*
(h) Ogden Projects Pension Plan.*
135
(i) Ogden Projects Profit Sharing Plan.*
(j) Ogden Projects Supplemental Pension and Profit Sharing Plans.*
(k) Ogden Projects Core Executive Benefit Program.*
(l) (i) Form of Amended Ogden Projects, Inc. Profit Sharing Plan,
effective as of January 1, 1994.*
(ii) Form of Amended Ogden Projects, Inc. Pension Plan, effective
as of January 1, 1994.*
(m) Ogden Executive Performance Incentive Plan. Transmitted herewith
as Exhibit 10.3(m).
(n) Ogden Key Management Incentive Plan.*
10.4 Employment Agreements
(a) Employment Agreement between Ogden and Lynde H. Coit dated March
1, 1999.*
(b) Employment Agreement between Ogden and R.Richard Ablon dated as
of January 1, 1998.*
(c) Termination Agreement between Ogden and Philip G. Husby, Senior
Vice President and CFO, dated as of September 17, 1998.*
(d) Employment Agreement between Scott G. Mackin, Executive Vice
President and Ogden Corporation dated as of October 1, 1998.*
(e) Employment Agreement between David L. Hahn and Ogden Corporation,
dated December 1, 1995.*
i. Letter Amendment to Employment Agreement between Ogden
Corporation and David L. Hahn, Senior Vice President,
Aviation, effective as of October 1, 1998.*
(f) Employment Agreement between Ogden Services Corporation and
Rodrigo Arboleda dated January 1, 1997.*
i. Letter Amendment to Employment Agreement between Ogden and
Rodrigo Arboleda, Senior Vice President, effective as of
136
October 1, 1998.*
(g) Employment Agreement between Ogden Energy Group, Inc. and Bruce
W. Stone dated May 1, 1999. Transmitted herewith as Exhibit
10.4(g).
(h) Employment Agreement between Ogden Corporation and Quintin G.
Marshall, dated October 30, 1996.*
i. Letter Amendment to Employment Agreement between Ogden and
Quintin G. Marshall, Senior Vice President-Corporate
Development, effective as of October 1, 1998.*
(i) Employment Agreement between Ogden Corporation and Jesus Sainz,
effective as of January 1, 1998.*
i. Letter Amendment to Employment Agreement between Ogden and
Jesus Sainz, Executive Vice President, effective October 1,
1998.*
(j) Employment Agreement between Alane Baranello, Vice
President-Human Resources and Ogden dated October 28, 1996.*
i. Letter Amendment to Employment Agreement between Ogden and
Alane Baranello, Vice President-Human Resources dated
October 13, 1998.*
(k) Employment Agreement between Peter Allen, Senior Vice President
and Ogden, dated July 1, 1998.*
(l) Employment Agreement between Ogden and Raymond E. Dombrowski,
Jr., Senior Vice President and Chief Financial Officer, dated as
of September 21, 1998.*
10.5 First Amended and Restated Ogden Corporation Guaranty Agreement
made as of January 30, 1992 by Ogden Corporation for the benefit
of Mission Funding Zeta and Pitney Bowes Credit Corporation.*
10.6 Ogden Corporation Guaranty Agreement as of January 30, 1992 by
Ogden Corporation for the benefit of Allstate Insurance Company
and Ogden Martin Systems of Huntington Resource Recovery Nine
Corporation.*
11 Not Applicable.
137
12 Not Applicable.
13 Not Applicable.
21 Subsidiaries of Ogden. Transmitted herewith as Exhibit 21.
23 Independent Auditors Consent. Transmitted herewith as Exhibit
23.
27 Financial Data Schedule (EDGAR Filing Only).
* INCORPORATED BY REFERENCE AS SET FORTH IN THE EXHIBIT INDEX OF
THIS ANNUAL REPORT ON FORM 10-K.
138
SIGNATURES
----------
Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
OGDEN CORPORATION
DATE: MARCH 13, 2000
By /S/ SCOTT G. MACKIN
---------------------------------
Scott G. Mackin
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints jointly and severally, Scott G. Mackin and
William J. Metzger, or either of them as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Report on Form 10-K, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
139
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated.
SIGNATURE TITLE DATE
- --------- ----- -----
/S/ SCOTT G. MACKIN President, Chief Executive Officer and March 13, 2000
- -------------------------------- Director
SCOTT G. MACKIN
/S/ RAYMOND E. DOMBROWSKI, JR. Senior Vice President and Chief Financial Officer March 13, 2000
- --------------------------------
RAYMOND E. DOMBROWSKI, JR.
/S/ WILLIAM J. METZGER Vice President and Chief Accounting Officer March 13, 2000
- --------------------------------
WILLIAM J. METZGER
/S/ DAVID M. ABSHIRE Director March 13, 2000
- --------------------------------
DAVID M. ABSHIRE
/S/ ANTHONY J. BOLLAND Director March 13, 2000
- --------------------------------
ANTHONY J. BOLLAND
/S/ NORMAN G. EINSPRUCH Director March 13, 2000
- --------------------------------
NORMAN G. EINSPRUCH
/S/ GEORGE L. FARR Director March 13, 2000
- --------------------------------
GEORGE L. FARR
/S/ JEFFREY F. FRIEDMAN Director March 13, 2000
- --------------------------------
JEFFREY F. FRIEDMAN
/S/ ATTALLAH KAPPAS Director March 13, 2000
- --------------------------------
ATTALLAH KAPPAS
/S/ JUDITH D. MOYERS Director March 13, 2000
- --------------------------------
JUDITH D. MOYERS
140
/S/ HOMER A. NEAL Director March 13, 2000
- --------------------------------
HOMER A. NEAL
/S/ ROBERT E. SMITH Director March 13, 2000
- --------------------------------
ROBERT E. SMITH
/S/ HELMUT F.O. VOLCKER Director March 13, 2000
- --------------------------------
HELMUT F.O. VOLCKER
141
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF DOCUMENT FILING INFORMATION
2 Plans of Acquisition, Reorganization
Arrangement, Liquidation or Succession.
2.1 Agreement and Plan of Merger, dated as of Filed as Exhibit 2 to Ogden's Form S-4
October 31, 1989, among Ogden, ERCI Acquisition Registration Statement File No. 33-32155,
Corporation and ERC International Inc. and incorporated herein by reference.
2.2 Agreement and Plan of Merger among Ogden Filed as Exhibit (10)(x) to Ogden's Form
Corporation, ERC International Inc., ERC 10-K for the fiscal year ended December 31,
Acquisition Corporation and ERC Environmental 1990 and incorporated herein by reference.
and Energy Services Co., Inc. dated as of
January 17, 1991.
2.3 Amended and Restated Agreement and Plan of Filed as Exhibit 2 to Ogden's Form S-4
Merger among Ogden Corporation, OPI Acquisition Registration Statement File No. 33-56181 and
Corporation sub. and Ogden Projects, Inc. dated incorporated herein by reference.
as of September 27, 1994.
3 Articles of Incorporation and By-Laws.
3.1 Ogden Restated Certificate of Incorporation as Filed as Exhibit (3)(a) to Ogden's Form 10-K
amended. for the fiscal year ended December 31, 1988
and incorporated herein by reference.
3.2 Ogden By-Laws, as amended. Filed as Exhibit 3.2 to Ogden's Form 10-Q
for the quarterly period ended March 31,
1998 and incorporated herein by reference.
142
4 Instruments Defining Rights of Security Holders.
4.1 Fiscal Agency Agreement between Ogden and Filed as Exhibits (C)(3) and (C)(4) to
Bankers Trust Company, dated as of June 1, 1987 Ogden's Form 8-K filed with the Securities
and Offering Memorandum dated June 12, 1987, and Exchange Commission on July 7, 1987 and
relating to U.S. $85 million Ogden 6% incorporated herein by reference.
Convertible Subordinated Debentures, Due 2002.
4.2 Fiscal Agency Agreement between Ogden and Filed as Exhibit (4) to Ogden's Form S-3
Bankers Trust Company, dated as of October 15, Registration Statement filed with the
1987, and Offering Memorandum, dated October Securities and Exchange Commission on
15, 1987, relating to U.S.$75 million Ogden December 4, 1987, Registration No. 33-18875,
5-3/4% Convertible Subordinated Debentures, Due and incorporated herein by reference.
2002.
4.3 Indenture dated as of March 1, 1992 from Ogden Filed as Exhibit (4)(C) to Ogden's Form 10-K
Corporation to The Bank of New York, Trustee, for fiscal year ended December 31, 1991, and
relating to Ogden's $100 million debt offering. incorporated herein by reference.
10 Material Contracts
10.1(a) U.S. $95 million Term Loan and Letter of Credit Filed as Exhibit 10.6 to Ogden's Form 10-Q
and Reimbursement Agreement among Ogden, the for the quarterly period ended March 31,
Deutsche Bank AG, New York Branch and the 1997 and incorporated herein by reference.
signatory Banks thereto, dated March 26, 1997.
10.1(b) $200 million Credit Agreement among Ogden, The Filed as Exhibit 10.1(i) to Ogden's Form
Bank of New York as Agent and the signatory 10-Q for the quarterly period ended June 30,
Lenders thereto, dated as of June 30, 1997. 1997 and incorporated herein by reference.
10.2 Rights Agreement between Ogden Corporation and Filed as Exhibit (10)(h) to Ogden's Form
Manufacturers Hanover Trust Company, dated as 10-K for the fiscal year ended December 31,
of September 20, 1990 and amended August 15, 1990 and incorporated herein by reference.
1995 to provide The Bank of New York as
successor agent.
143
10.3 Executive Compensation Plans.
(a) Ogden Corporation 1990 Stock Option Filed as Exhibit 10.6(b)(i) to Ogden's Form
Plan as Amended and Restated as of 10-Q for the quarterly period ended
January 19, 1994. September 30, 1994 and incorporated herein
by reference.
Amendment adopted and effective as of Filed as Exhibit 10.7(a)(ii) to Ogden's Form
September 18, 1997. 10-K for the fiscal year ended December 31,
1997 and incorporated herein by reference.
(b) Ogden Corporation 1999 Stock Option Filed as Exhibit 10.3(a)(a) to Ogden's Form 10-Q for the
Plan, as amended. quarterly period ended June 30,
1999 and incorporated herein by reference.
(i) Ogden Corporation 1999 Stock Transmitted herewith as Exhibit 10.3 (b) (i).
Incentive Plan Amended and
Restated as of January 1,
2000.
(c) Ogden Services Corporation Select Filed as Exhibit 10.7(c)(ii) to Ogden's Form
Savings Plan Amendment and Restatement 10-K for the fiscal year ended December 31,
as of January 1, 1995. 1994 and incorporated herein by reference.
(i) Amendment Number One to the Ogden Filed as Exhibit 10.7(c)(ii) to Ogden's Form
Services Corporation Select and 10-K for the fiscal year ended December 31,
Savings Plan as Amended and Restated 1997 incorporated herein by reference.
January 1, 1995,
144
effective January 1, 1998.
(d) Ogden Services Corporation Select Filed as Exhibit 10.7(e)(i) to Ogden's Form
Savings Plan Trust Amendment and 10-K for the fiscal year ended December 31,
Restatement as of January 1, 1995. 1994 and incorporated herein by reference.
(e) (i) Ogden Corporation Restricted Transmitted herewith as Exhibit 10.3(e)(i).
Stock Plan and Restricted
Stock Agreement.
(ii) Ogden Corporation Restricted Stock Transmitted herewith as Exhibit 10.3(e)(ii).
Plan for Non-Employee
Directors and Restricted
Stock Agreement.
(f) Ogden Profit Sharing Plan as Amended Filed as Exhibit 10.7(p)(ii) to Ogden's Form
and Restated effective as of January 1, 10-K for fiscal year ended December 31, 1994
1995. and incorporated herein by reference.
(g) Ogden Corporation Core Executive Filed as Exhibit 10.8(q) to Ogden's Form 10-K
Benefit Program. for fiscal year ended December 31, 1992 and
incorporated herein by reference.
(h) Ogden Projects Pension Plan. Filed as Exhibit 10.8(r) to Ogden's
Form 10-K for fiscal year ended December 31, 1992 and
incorporated herein by reference.
(i) Ogden Projects Profit Sharing Plan. Filed as Exhibit 10.8(s) to Ogden's Form 10-K for fiscal
year ended December 31, 1992 and incorporated herein by
reference.
(j) Ogden Projects Supplemental Pension Filed as Exhibit 10.8(t) to Ogden's Form 10-K for fiscal
145
and Profit Sharing Plans. year ended December 31, 1992 and incorporated herein by
reference.
(k) Ogden Projects Core Executive Benefit Filed as Exhibit 10.8(v) to Ogden's Form 10-K for fiscal
Program. year ended December 31, 1992 and incorporated herein by
reference.
(l) (i) Form of amended Ogden Projects Profit Filed as Exhibit 10.7(w)(i) to Ogden's Form 10-K for fiscal
Sharing Plan effective as of January year ended December 31, 1994 and incorporated herein by
1, 1994. reference.
(ii) Form of amended Ogden Projects Filed as Exhibit 10.7(w)(ii) to Ogden's Form 10-K for fiscal
Pension Plan, effective as of year ended December 31, 1994 and incorporated herein by
January 1, 1994. reference.
(m) Executive Performance Incentive Plan Transmitted herewith as Exhibit 10.3(m).
(n) Ogden Key Management Incentive Plan. Filed as Exhibit 10.7(p) to Ogden's Form 10-K for fiscal
year ended December 31, 1997 and incorporated herein by
reference.
10.4 Employment Agreements
(a) Employment Agreement between Ogden Filed as Exhibit 10.4(a) to Ogden's Form
and Lynde H. Coit dated March 1, 1999. 10-K for fiscal year ended December 31, 1998
and incorporated herein by reference.
(b) Employment Agreement between R. Filed as Exhibit10.3(h) to Ogden's Form
Richard Ablon and Ogdend. 10-Q for the quarterly period ended June 30, 1998
dated as of January 1, 1998. and incorporated herein by reference.
146
(c) Termination Agreement between Ogden Filed as Exhibit 10.8(c) to Ogden's Form
and Philip G. Husby, Senior Vice 10-Q for the quarterly period ended
President and CFO dated as of September 30, 1998 and incorporated herein
September 17, 1998. by reference.
(d) Employment Agreement between Scott G. Filed asExhibit 10.8(e) to Ogden's Form
Mackin, Executive Vice President and 10-Q for quarterly period ended September
Ogden Corporation, dated as of October 30, 1998 and incorporated herein by
1, 1998. reference.
(e) Employment Agreement between Ogden Filed as Exhibit 10.8(i) to Ogden's Form
Corporation and David L. Hahn, dated 10-K for fiscal year ended December 31, 1995
December 1, 1995. and incorporated herein by reference.
i. Letter Amendment to Employment Filed as Exhibit 10.8(f)i. to Ogden's Form
Agreement between Ogden 10-Q for quarterly period ended September
Corporation and David L. 30, 1998 and incorporated herein by
Hahn, Senior Vice President, reference.
dated as of October 1, 1998.
(f) Employment Agreement between Ogden Filed as Exhibit 10.8(j) to Ogden's Form 10-K for fiscal
Corporation and Rodrigo Arboleda, year ended December 31, 1996 and incorporated herein by
dated January 1, 1997. reference.
i. Letter Amendment to Filed as Exhibit 10.8(g)(i) to Ogden's Form
Employment Agreement between 10-Q for quarterly period ended September
Ogden and Rodrigo Arboleda, 30, 1998 and incorporated herein by
Senior Vice President, reference.
effective as of October 1, 1998.
(g) Employment Agreement Transmitted herewith as Exhibit
147
between Ogden Energy Group, 10.4(g)
Inc. and Bruce W. Stone, dated
May 1, 1999.
(h) Employment Agreement Filed as Exhibit 10.8(l) to Ogden's Form
between Ogden Corporation and 10-K for fiscal year ended December 31, 1996
Quintin G. Marshall, dated and incorporated herein by reference.
October 30, 1996. 10.4(g).
i. Letter Amendment to Filed as Exhibit 10.8(i)i. to Ogden's Form
Employment Agreement between 10-Q for the quarter ended September 30,
Ogden and Quintin G. 1998 and incorporated herein by reference.
Marshall, Senior Vice
President, Corporate
Development, effective as of
October 1, 1998.
(i) Employment Agreements between Ogden Filed as Exhibit 10.8(m) to Ogden's Form
and Jesus Sainz, effective as of 10-K for the fiscal year ended December 31,
January 1, 1998. 1997 and incorporated herein by reference.
i. Letter Amendment to Filed as Exhibit 10.8(j)i. to Ogden's Form
Employment Agreement between 10-Q for the quarter ended September 30,
Ogden and Jesus Sainz, 1998 and incorporated herein by reference.
Executive Vice President,
effective as of October 1,
1998.
(j) Employment Agreement between Filed as Exhibit 10.3(m) to Ogden's Form
Alane Baranello, Vice President - 10-Q for the quarterly period ended June 30,
Human Resources and Ogden dated 1998 and incorporated herein by reference.
October 28, 1996.
i. Letter Amendment to Filed as Exhibit 10.8(k)i. to Ogden's Form
Employment Agreement between 10-Q for the quarterly period ended September 30,
Ogden and Alane Baranello, 1998 and incorporated herein by reference.
Vice
148
President-Human
Resources, dated
October 13,1998.
(k) Employment Agreement between Ogden Filed as Exhibit 10.3(l) to Ogden's
and Peter Allen, Senior Vice President, Form 10-Q for the quarterly period ended
dated July 1, 1998. June 30, 1998 and incorporated herein by
reference.
(l) Employment Agreement between Ogden and Filed as Exhibit 10.4(m) to Ogden's Form 10-K
Raymond E. Dombrowski, Jr., Senior for fiscal year ended December 31, 1998
Vice President and CFO, dated as of and incorporated herein byreference.
September 21, 1998.
10.5 First Amended and Restated Ogden Corporation Filed as Exhibit 10.3(b)(i) to Ogden's Form
Guaranty Agreement made as of January 30, 1992 10-K for fiscal year ended December 31, 1991
by Ogden Corporation for the benefit of Mission and incorporated herein by reference.
Funding Zeta and Pitney Bowes Credit.
10.6 Ogden Corporation Guaranty Agreement made as of Filed as Exhibit 10.3(b)(iii) to Ogden's
January 30,1992 by Ogden Corporation for the Form 10-K for fiscal year ended December 31,
benefit of Allstate Insurance Company and Ogden 1991 and incorporated herein by reference.
Martin Systems of Huntington Resource Recovery
Nine Corp.
11 Not Applicable.
12 Not Applicable.
13 Not Applicable.
21 Subsidiaries of Ogden. Transmitted herewith as Exhibit 21.
23 Independent Auditors Consent Transmitted herewith as Exhibit 23.
27 Financial Data Schedule. Transmitted herewith as Exhibit 27.
149