1981 ANNUAL FINANCIAL REPORT Chicago-O'Hare International Airport City of Chicago, Illinois Jane M. Byrne, Mayor Anthony N. Fratto, City Comptroller Department of Aviation ■niiniii 3 5556 030 762090 CHICAGO-0 * HARE INTERNATIONAL AIRPORT FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1981 AND 1980 I- TRANSPORTATION . LIBRARY # 4 fo e CHICAGO-O'HARE INTERNATIONAL AIRPORT FINANCIAL STATEMENTS ACCOUNTANTS' REPORT FINANCIAL STATEMENTS EXHIBIT A - BALANCE SHEETS EXHIBIT B - STATEMENTS OF CHANGES IN CONTRIBUTED CAPITAL EXHIBIT C - STATEMENTS OF CHANGES IN RETAINED EARNINGS EXHIBIT D - STATEMENTS OF REVENUES AND EXPENSES EXHIBIT E - STATEMENTS OF CHANGES IN FINANCIAL POSITION NOTES TO FINANCIAL STATEMENTS ACCOUNTANTS' REPORT Bernstein and Bank, Ltd. Certified Public Accountants 6677 No. Lincoln Avenue Chicago, Illinois 60645 The Honorable Mayor and Members of the City Council of the City of Chicago Chicago, Illinois We have examined the balance sheet of Chicago-O'Hare Inter- national Airport as of December 31, 1981, and the related statements of changes in contributed capital, changes in retained earnings, revenues and expenses, and changes in financial position for the year then ended. Our examination was made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. The financial statements of Chicago-O'Hare International Airport for the year ended December 31, 1980, were examined by other auditors whose opinion, dated May 8, 1981, on those statements was qualified as to the effects on the financial statements of the failure to comply with certain provisions of the Revenue Bond Ordinance. As discussed in Note 1 to the financial statements, expendi- 312 tures are made from operating revenues for capital improvements, which is 286 4755 not P erm i tte d under the Revenue Bond Ordinance. In our opinion, except for the effects on the financial state- ments of not complying with certain provisions of the Revenue Bond Member Ordinance as discussed in the preceding paragraph, the 1981 finan- National cial statements referred to above present fairly the financial position CPA Group of Chicago-O'Hare International Airport as of December 31, 1981, and the results of its operations and the changes in its financial position, and Member the changes in its contributed capital and retained earnings for the year Firms in then ended, in conformity with generally accepted accounting principles Principal and the provisions of the Revenue Bond Ordinance applied on a basis C^ies consistent with that of the preceding year. May 21, 1982 3 8 a a 3 52 S i s c a s a -h ?■§ ^ 2 I 5 a § 5 sl 3] ^ <3 w ii! 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S * t? -a s? « < *i ffS. 1-3 S 3 CHICAGO-O'HARE INTERNATIONAL AIRPORT STATEMENTS OF REVENUES AND EXPENSES YEARS ENDED DECEMBER 31, 1981 AND 1980 1981 Operating Revenues Flight Fees Rent, Concessions and Other Total Operating Revenues Operating Expenses Salaries and Wages Provision for Depreciation and Amortization Repairs and Maintenance, Including Expenditures from Reserve Maintenance Account Other Operating Expenses Total Operating Expenses Total Operating Income Nonoperating Income (Expense) Interest Earned on Investments Discount, Net of Premiums on Revenue Bonds Retired Interest Incurred on Revenue Bonds $41,463,349 $45,610,247 47,750,769 48,648,829 89,214,118 94,259,076 33,390,667 28,083,324 11,484,209 11,412,860 11,255,147 13,551,402 23,275,370 22,999,584 79,405,393 76,047,170 9,808,725 18,211,906 12,289,166 7,038,214 156,027 26,106 (3,729,422 ) (4,687,497 ) Net Nonoperating Income Revenues in Excess of Expenses 2,376,823 $18,524,496 $20,588,729 The accompanying notes to financial statements are an integral part of these statements. CHICAGO-O'HARE INTERNATIONAL AIRPORT STATEMENTS OF CHANGES IN FINANCIAL POSITION YEARS ENDED DECEMBER 31, 1981 AND 1980 EXHIBIT E 1981 1980 Sources of Working Capital From Operations Revenues in Excess of Expenses Add (Deduct) Items Not Affecting Working Capital Provision for Depreciation and Amortization Amortization of Deferred Revenue Total From Operations Airline Contributions for Fixed Assets Decrease in Net Restricted Assets Grant Proceeds Received for Prior Years Capital Expenditures City of Chicago Net Contributions for Fixed Assets Total Sources of Working Capital $18,524,496 $20,588,729 11,484,209 (48,697 ) 29,960,008 860,003 698,595 5,454,909 11,412,860 (48,697 ) 31,952,892 328,282 667,686 3,951,994 36,973,515 36,900,854 Uses of Working Capital Acquisition of Fixed Assets Decrease in Long-Term Liabilities Increase in Net Restricted Assets Total Uses of Working Capital Increase in Working Capital 10,666,622 5,717,550 17,751,000 22,190,000 7,104,226 - 35,521,848 27,907,550 $ 1,451,667 $ 8,993,304 Changes in Components of Working Capital Increase (Decrease) in Current Assets Cash U.S. Government Securities Accounts Receivable, Net Due from Other City of Chicago Funds Prepaid Expenses and Deposits Due from Restricted Funds $ 3,393,709 $(2,495,366) 343,481 296,010 511,411 36,969 (222,730) 12,462,300 (3,255,732) (633,901) 134,940 247,154 4,358,850 6,459,395 Increase (Decrease) in Current Liabilities Current Portion of Revenue Bonds Payable Accounts Payable Due to Other City of Chicago Funds Due to Restricted Funds 318,000 300,000 337,954 28,928 2,251,229 (2,764,293) - (98,544 ) Increase in Working Capital 2,907,183 (2,533,909 ) $ 1,451,667 $ 8,993,304 The accompanying notes to financial statements are an integral part of these statements. CHICAGO-O'HARE INTERNATIONAL AIRPORT NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1981 AND 1980 Note 1 - Summary of Significant Accounting Policies Basis of Accounting The financial statements have been prepared on the accrual basis of accounting, accounted for as an enterprise fund of the City of Chicago and con- forming with the reporting requirements set forth in National Council of Govern- mental Accounting (NCGA) Statements 1 and 2. Restricted Assets The authorizing Revenue Bond Ordinance requires that during the period in which bonds are outstanding the City of Chicago will maintain trust accounts for the proceeds from the sale of bonds and certain allocations of "Net Revenues" as defined. The assets of the trust accounts may be used only for the specific purpose of each trust. The Revenue Bond Ordinance requires that all revenues, in each year, shall first be allocated to pay the operation and maintenance expenses of the airport, but not in excess of the amount budgeted by the City of Chicago for such purposes. The Revenue Bond Ordinance requires the remaining available "Net Revenues" shall then be allocated in the following order of priority: a) Revenue Bond Interest - an amount equal to interest payable in the current year. b) Debt Service Reserve - an amount necessary to maintain the balance of this reserve at an amount equal to two years ' interest require- ments on all bonds outstanding. c) Revenue Bond Retirement Reserve - an amount necessary for the required minimum payments. d) Reserve Maintenance Account - an annual payment of $1,160,000 to the Reserve Maintenance Account until $4,833,334 is accumulated. In addition, interest earned on the Reserve Balance is retained in this account . e) Emergency Reserve - an amount equal to the sum of the annual pro- visions for depreciation and amortization of fixed and other assets acquired with City of Chicago money and interest on the City of Chicago money invested in fixed and other assets of the Airport. Any amount of "Net Revenues" not considered deferred income (which is used to reduce future flight fees), as defined by the Revenue Bond Ordinance, and in excess of the required allocations above shall be allocated to the Revenue Bond Retirement Reserve. CHICAGO-O'HARE INTERNATIONAL AIRPORT NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1981 AND 1980 Note 1 - Summary of Significant Accounting Policies - Continued Investments Investments consist of U.S. Treasury Bills and Treasury Notes, which are carried at cost. Interest is accrued only on those securities having stated interest rates, i.e., U.S. Treasury Notes. The aggregate cost and market value at December 31, 1981 and 1980, are as follows: Cost Market 1981 1980 1981 1980 Unrestricted $18,751,272 $18,407,791 $18,817,678 $18,567,654 Restricted 64,082,858 56,615,820 64,535,090 57,047,950 Totals $82,834,130 $75,023,611 $83,352,768 $75,615,604 Fixed Assets All assets are recorded at cost. Land includes the cost of earthwork and landscaping. Assets are acquired with Revenue Bond proceeds and the following three other sources: a. City of Chicago, including capitalized interest of $171,672 in 1981 and $333,154 in 1980 for the use of City of Chicago money. Interest is capitalized from the commencement of the improvement or construction activity through completion. b. Grant proceeds from State and Federal governmental agencies. The Grant proceeds are recognized only as received. Expenditures are initially paid for by the City of Chicago and are transferred to the State and Federal contributed capital category upon receipt of the grant proceeds. As of December 31, 1981, a maximum of approxi- mately $29,990,000 may be realized in future periods from such grants. c. Public utility, concessionaire and airlines by direct reimbursements of amounts expended directly and indirectly from operating revenues. The Revenue Bond Ordinance does not allow the expenditure of operat- ing revenues for capital improvements. However, the airlines' representative has agreed to substantially all of these expendi- tures, which totaled $4,351,710 in 1981 and $1,437,273 in 1980. Using operating revenues for this purpose has the effect of increas- ing flight fees. Depreciation and Amortization The provision for depreciation is provided on a straight-line basis and begins in the year following the year of acquisition or completion. The estimated useful lives of significant fixed asset categories are as follows : Water Drainage and Sewer System 20-50 Years Runways, Aprons, Tunnels, Taxiways and Paved Roads 30 Years Buildings and Hangars 25 Years Electrical System 15-20 Years Other 10-30 Years CHICAGO-O'HARE INTERNATIONAL AIRPORT NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1981 AND 1980 Note 1 - Summary of Significant Accounting Policies - Continued Depreciation and Amortization - Continued Deferred engineering costs were amortized on a straight-line basis over 25 years, which ended December 31, 1980. Note 2 - Revenue Bonds General The Chicago-O'Hare International Airport Revenue Bonds were issued under the authority of an ordinance adopted December 29, 1958, and subsequent supple- mental ordinances. The Bonds, which were issued to provide monies for the initial construction and subsequent improvements of the Airport and its facilities, had a total face value of $232,000,000. The Revenue Bonds payable at December 31, the following: 1981 and 1980 are comprised of 1981 1980 4-3/4% Series of 1959 4-3/4% Series A of 1961 4-1/4% Series B of 1961 4-1/2% Series of 1967 5% Series of 1968 6.80% Series of 1970 6% Series of 1972 Less - Current Maturities Totals $ 18,205,000 $ 27,203,000 3,783,000 425,000 915,000 4,416,000 25,275,000 4,125,000 57,144,000 6,354,000 5,677,000 736,000 1,289,000 5,817,000 29,085,000 4,770,000 74,577,000 6,036,000 $ 50,790,000 $ 68,541,000 Minimum bond retirements for future years are as follows : 1982 1983 1984 1985 1986 1987 through 1995 $ 6,354,000 6,685,000 7,042,000 7,366,000 7,673,000 22,024,000 Total $57,144,000 CHICAGO-O'HARE INTERNATIONAL AIRPORT NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1981 AND 1980 Note 2 - Revenue Bonds - Continued Retirement Revenue Bonds are to be retired as rapidly as practicable through amounts allocated to the Revenue Bond Retirement Reserve. Bonds may be purchased or called at prices ranging from 104.5% to 100% of principal amount plus accrued interest. The cost of bonds purchased or called amounted to $168,179,797 from issuance through 1981 excluding premiums paid. Premiums paid on Bonds purchased or called, which amounted to $1,963,886 from issuance through 1981, are charged to Airport operations in the year of purchase. Discounts on Bonds purchased, which amounted to $6,676,203 from issuance through 1981, are credited to Airport opera- tions in the year of purchase and are retained in the Bond Retirement Reserve. Revenue Bond Ordinance - "Net Revenues" as Defined and Allocation of "Net Revenues" The Revenue Bond Ordinance provides that certain items be accounted for as reductions or increases to Revenues in Excess of Expenses. In 1981 a provision for doubtful accounts of $612,075 in excess of the recorded provision is necessary in determining "Net Revenues" to meet the requirements of the Revenue Bond Ordinance. "Net Revenues" as defined by the Revenue Bond Ordinance is determined as follows : 1981 1980 Revenues in Excess of Expenses $18,524,496 $20,588,729 Add (Deduct) Adjustments to Reflect Ordinance Basis of Accounting Application of Deferred Income from Preceding Year as Reduction of Flight Fees 26,601,267 17,259,265 Provision for Depreciation and Amortization 11,484,209 11,412,860 Interest on Revenue Bonds 3,729,422 4,687,497 Grant Proceeds Received for Prior Years Capital Expenditures 698,595 Expenditures from Reserve Maintenance Account 332,132 60,062 Interest Earned on Investments, Restricted (7,802,385) (4,327,676) Expenditures of Operating Revenues for Capital Improvements (4,351,710) (1,437,273) Additional Provision for Doubtful Accounts (612,075) Discount on Revenue Bonds Retired (175,377 ) (199,856 ) "Net Revenues" as Defined in Revenue Bond Ordinance $48,428,574 $48,043,608 CHICAGO-O'HARE INTERNATIONAL AIRPORT NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1981 AND 1980 Note 2 - Revenue Bonds - Continued Revenue Bond Ordinance - "Net Revenues" as Defined and Allocation of "Net Revenues" - Continu As previously stated in Note 1, the Revenue Bond Ordinance requires the "Net Revenues" to be allocated as follows: Amount 1981 1980 "Net Revenues" as Defined in Revenue Bond Ordinance Revenue Bond Interest Debt Service Reserve Revenue Bond Retirement Reserve Reserve Maintenance Account Emergency Reserve Deferred Income Which is Used to Reduce Future Flight Fees $48,428,574 $48,043,608 3,729,422 4,687,497 6,036,000 1,456,725 5,736,000 1,160,000 1,118,049 27,807,556 26,601,267 39,029,703 39,302,813 $ 9,398,871 $ 8,740,795 Totals Balance to be Allocated to Revenue Bond Retirement Reserve Note 3 - Leasing Arrangements with Tenants Leasing operations consist of the leasing of most of the airport's land, buildings and terminal space to airlines and other tenants. The operating leases for most of the airport's land, buildings and terminal space expire in 1998. The following is a schedule by years of the minimum future rental income on noncancelable operating leases as of December 31, 1981: 1982 1983 1984 1985 1986 Later Years $ 21,241,596 20,915,161 20,230,419 17,816,520 17,784,232 191,122,973 Total Minimum Future Rental Income $289,110,901 CHICAGO-O'HARE INTERNATIONAL AIRPORT NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1981 AND 1980 Note 3 - Leasing Arrangements with Tenants - Continued Minimum future rental income does not include contingent rentals which may be received under certain leases based on the tenants' revenues or fuel flow. Contingent rentals, excluding flight fees, amounted to approximately $8,128,000 for the year ended December 31, 1981. In 1979, the City of Chicago received $461,421 from the sale of a bankrupt tenant's lease. This amount is being amortized- over the remaining life of the lease at approximately $50,000 per year. Note 4 - Airline Deposits Under the terms of a Financing Participation Agreement, the City of Chicago (which is being reimbursed primarily from a Federal grant) and certain participating airlines are sharing the cost of improvements to the Federal Inspec- tion area within the International Terminal Building. The participating airlines deposited $1,022,451 in 1979 with the City, as the airlines' share of the project cost. The deposits, interest earned on the deposits and costs of construction are included in the accompanying financial statements. The following activity took place during 1981 and 1980 relating to this agreement: 1981 1980 Deposit Balance at Beginning of Period $ 907,565 $1,031,901 Interest Income 122,496 101,999 Airlines' Share of Expenditures (771,952 ) (226,335 ) Deposit Balance at End of Period $ 258,109 $ 907,565 Note 5 - Pension Plans The employees of the City of Chicago are covered under various con- tributory retirement plans established by state statute and administered by independent pension boards. Substantially all of the Airport employees are members of the Policemen's Annuity and Benefit Fund of Chicago, the Firemen's Annuity and Benefit Fund of Chicago, the Municipal Employees', Officers' and Officials' Annuity and Benefit Fund of Chicago or the Laborers' and Retirement Board Employees' Annuity and Benefit Fund of Chicago. Each pension plan is financed primarily by (a) City contributions, (b) employee contributions, and (c) income from pension fund investments. The City's contributions, which are established by state statute, are multiples of the employees' contribution made two years prior. The City's contribution is financed through a separate property tax levy and the personal property replacement tax. The Airport reimburses the City's Corporate Fund for the estimated contribution which pertains to Airport employees. These reimbursements, recorded as expense, amounted to $3,157,380 and $2,813,804 in 1981 and 1980. CHICAGO-O'HARE INTERNATIONAL AIRPORT NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1981 AND 1980 Note 5 - Pension Plans - Continued All pension funds receive an actuarial valuation annually. However, the amount of unfunded liabilities or required current year actuarial provisions which pertain expressly to the Airport are not computed, as no specific identification of Airport employees is made for actuarial purposes. Note 6 - Commitments and Contingencies Purchase orders and contract commitments to be financed by the operation and maintenance account totaled approximately $16,221,000 at December 31, 1981. In addition, approximately $7,862,000 as of December 31, 1981, has been earmarked by Airport management for specific future projects, although not under purchase order, contract or other formal commitment. The City of Chicago is a defendant in litigation related to the Airport in which a judgement was entered against the City on January 6, 1982. The City of Chicago has appealed the decision. In the opinion of the City this claim will not have a material effect on the financial condition of the Airport.