O'Hare International Airport ... annual report

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1984

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City of Chicago

Harold Washington, Mayor

Department of Aviation

Jerome R. Butler
Commissioner

City Hall, Room 1111
121 North LaSalle Street
Chicago, Illinois 60602
(312) 744-6892

tJfcfirJ

The Honorable Harold Washington

Mayor

City of Chicago

121 North La Salle Street

City Hall - Room 507

Chicago, Illinois 60602

Dear Mayor Washington:

TRANSPORTATION LIBRARY

JUN 25 Ml

NORTHWESTERN UNIVERSITY

We are submitting this letter with the Annual Report of the Department of Aviation
for fiscal year ending December 31 , 1984.

The year was one of continued growth and expansion. The number of passengers
served increased by 6.6% to 45.7 million, while flight operations increased nearly
10%. At the same time, we embarked upon several major construction programs at
O'Hare International Airport totaling more than $1 billion, designed to keep O'Hare
the premier airport among international airport facilities. Our objective in under-
taking such a major expansion is not merely reaching quantitative milestones (e.g.
most passengers, etc.), but rather an effort to make O'Hare a state of the art airport
providing the most efficient and enjoyable service to the millions of travelers who
pass through it annually.

That has been and remains the goal of the City of Chicago Aviation Department at
O'Hare Airport.

Ronald D. Picur
Comptroller
Department of Finance

Jerome R. Butler
Commissioner
Department of Aviation

City of Chicago, Illinois

CHICAGO-O'HARE INTERNATIONAL AIRPORT

A YEAR OF ACHIEVEMENT
AND NEW BEGINNINGS

In 1984, the City of Chicago embarked upon
one of the nation's largest expansion pro-
grams at its already world-leading O'Hare
International Airport. This vast $1 .5 billion
undertaking began even as the Airport
served 45.7 million passengers, an increase
of 6.6% over 1983.

The world's busiest airport for twenty
years, Chicago's O'Hare International Airport
has a vital role in the region's economy. It
contributes an estimated $6 billion annually
and employs approximately 26,000 workers.
Although it has played an essential part in
the region's expansion, the airport facilities
have experienced only minimal growth over
the past two decades.

The airport construction and expansion
program at O'Hare, one of the key public
works programs of the Washington admin-
istration, will allow the airport facilities to
accommodate more effectively its present
and future passenger needs. It now serves
nearly 15 million more passengers annually

than it was originally designed to serve.
Construction of a new interim international
terminal is underway and plans for new ter-
minals for United and American Airlines have
been completed. During 1984, a new Delta
Airlines terminal was completed.

No local tax revenues have been or will be
used to fund the construction costs. Capital
is being raised in the national capital markets
through industrial development financing,
the cost of which is borne collectively by the
airlines. To date, $625 million in industrial
revenue bonds have been issued by the City
of Chicago to fund the various projects which
comprise the O'Hare Development Program.

Contracting with minority businesses
increased markedly at O'Hare in 1984.
Minority business participation in Federal
Aviation Administration-funded contracts
was 20.6% for fiscal year 1984 (October 1 ,
1983 through September 30, 1984) com-
pared to 13% for fiscal year 1983. The
participation of businesses owned by women
increased slightly in the same period. The
FAA contracts for minority business par-
ticipation for fiscal year 1984 represented

City of Chicago, Illinois

CHICAGO-O'HARE INTERNATIONAL AIRPORT

some ten $1 million contracts, mostly in the
construction field. Of the total revenues
spent by O'Hare Associates, the supervising
consultant overseeing and monitoring the
new construction at O'Hare, the total minority
business enterprise expenditures were $3.5
million or 21 .9%. This level of expenditure is
consistent with Mayor Washington's 1984
affirmative action goals.

While the construction program strives
to prepare O'Hare for its projected future
growth, 1984 brought major increases in
day-to-day operations. In addition to near
record passenger traffic, there was also a
significant increase in the total number of
operations — take-offs and landings —
731,742, an increase of 9.5% over 1983.
Total cargo tonnage (the sum of all domestic
and international mail and freight) at O'Hare
was 800,452 tons in 1984. Cargo volume
reflects all non-passenger operations.

The impact of this increased activity is
reflected in the airport's financial perform-
ance. Operating revenues were up by 7.1%

to $105.3 million in 1984. This was a major
achievement in light of the fact that flight fees
decreased by $11 million in 1984 due to an
accounting change made in the Use Agree-
ment between the City's Department of
Aviation and the airlines. Revenues from rent
and concessions increased by $5 million in
1984 and terminal area use charges were up
more than $6 million for the same period.
The five major sources of airport revenue
are flight fees, terminal area use charges,
concessions, rents and income earned
on investments.

More passengers necessitate the expan-
sion of existing facilities of major airlines —
United, American, Delta — and the develop-
ment of new commuter lines, as the majors
move out of smaller markets. In 1984, People
Express, Jetstream, and Worldwide Airlines
began operations at Chicago O'Hare
increasing passenger traffic and also
making the airport an even greater hub
of U.S. air traffic.

In the 1930s and 40s, Chicago was the rail
capital of the U.S. In the 1980s and into the
twenty-first century, the expansion of O'Hare,
undertaken in 1984, will ensure its title as the
busiest air terminal and the connecting link
between the U.S. and the world.

Ground breaking at O'Hare: Mayor Harold Washington. First Deputy Com-
missioner Earl F. Hord, Commissioner Jerome R. Butler, both of the city's
Aviation Department, Commissioner Paul Karas, of the city's Public Works
Department take part in O'Hare ceremony.

City of Chicago, Illinois

CHICAGO O'HARE INTERNATIONAL AIRPORT

1 984 AIRPORT ACTIVITY — WORLD'S MAJOR AIRPORTS

Airport

CHICAGO O'HARE INTERNATIONAL

Hartsfield Atlanta International

Los Angeles International

DallasFort Worth

Kennedy International (New York)

Heathrow Airport (London)

Stapleton International (Denver)

San Francisco International

Newark International

LaGuardia (New York)

Total

Domestic

Total

Total

Cargo

Aircraft

Passengers

(Tons1)

Operations

45,725,939

615,029

731,742

38,989,314

513,731

689,484

34,361,715

860,379

550,755

32,267,444

334,480

525,452

29,934,779

1,258,365

306,737

29,147,200

612,200

298,300

28,806,349

194,774

515,489

24,192,895

346,054

401,970

23,654,163

248,198

345,171

20,302,511

93,363

343,080

1 Metric Ton = .907 x U.S. Ton

Source: Airport Operators Council International

CHICAGO O'HARE AIRPORT ACTIVITY (1980-1984)

1980

Passengers
Domestic scheduled including

commuter 40,427,004

International scheduled 2,776,332

All other 449,831

Total passengers 43,653,167

Aircraft Operations
Scheduled carriers (domestic &

international) 560,385

Commuter 67,905

All other 95,865

Total operations 724,1 55

Cargo (metric tons)

Total cargo (domestic &
international) 826,475

1981 1982 1983 1984

34,846,608 34,712,713 39,567,765 42,179,099

2,742,410 2,566,106 2,793,494 3,252,787

403,133 464,779 512,694 294,053

37,992,151 37,743,598 42,873,953 45,725,939

473,999

442,436

450,031

514,819

84,198

87,541

129,927

139,733

87,417

74,406

88,005

77,190

645,614

828,530

604,383

792,786

667,963

816,135

731 ,742

800,452

FINANCIAL HIGHLIGHTS

Years Ended
December 31,

OPERATIONS 1984 1983

Operating Revenues:

Flight Fees $ 37,304,535* $ 48,532,039

Concessions & Rentals 50,662,493 45,01 1 ,868

Terminal Area Use Charges 17,359,537 1 1 ,603,098

Refund of flightfees =_ (6,847,899)

$105,326,565 $ 98,299,106

Operating Expenses 101,202,158 92,592,692

Operating Income 4,124,407 5,706,414

Non-Operating revenue (expense):

Interest earned on investment 1 5,458,270 1 2,608,490

Interest:

Revenue bonds (13,516,467) (9,114,440)

Junior lien obligation debt (2,258,779) (413,425)

(316,976) 3,080,625

Loss from advance refunding

of debt , ^ (1,635,035)

Net Income $ 3,807,431 $ 7,152,004

*Net of refundable fees

Years Ended
December 31,

FINANCIAL POSITION 1984 1983

Cash and Investments $529,365,195 $146,268,918

Receivables & Other Assets 26,252,704 25,469,453

Fixed Assets-Net 353,419,008 268,542,051

Total Assets $909,036,907 $440,280,422

Revenue Bonds Payable
(1984-Less Bond Discount

Of $16,125,140) 608,424,860 170,817,941

Junior Lien Obligation — 1 4,500,000

Other Liabilities 88,750,454 44,726,953

Total Liabilities $697,175,314 $230,044,894

Total Equity $211,861,593 $210,235,528

Debt Service Coverage 7.91 5.06

City of Chicago, Illinois

CHICAGO O HARE INTERNATIONAL AIRPORT

CHICAGO O'HARE AIRPORT ACTIVITY (1980-1984)

OPERATIONS
and CARGO

PASSENGERS

900,000 -■
800,000 -"
700,000 --
600,000 -
500,000 "
400,000 -■
300,000 ■■
200,000 ■■

100,000 ■■
o ■■

50,000,000

45,000,000

40,000,000

35,000,000

30,000,000

25,000,000

20,000,000

15,000,000

10,000,000

5,000,000

0

1980

1981

1982

1983

1984

O AIRCRAFT OPERATIONS

CARGO (TONS)

PASSENGERS

IS

DC AT Peat> Marwick, Mitchell & Co.

M a r»i * /■•-■/■ Certified Public Accountants

MARWICK Peat Marwick Plaza

303 East Wacker Drive
Chicago, Illinois 60601
312-938-1000

The Members of the City Council

of the City of Chicago
Chicago, Illinois:

We have examined the balance sheet of the Chicago-O'Hare International Airport of the
City of Chicago, Illinois as of December 31, 1984 and the related statements of operations,
changes in retained earnings and contributed capital, 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 the Chicago-O'Hare International Airport for the year ended December 31 , 1983
were examined by other auditors, whose report dated June 14, 1984 expressed an unqualified
opinion of those statements.

We reviewed the adjustment described in note 2 that has been applied to restate the
December 31, 1983 balance sheet, statements of operations, changes in retained earnings
and contributed capital and changes in financial position. In our opinion, the adjustment is
appropriate and has been properly applied to the 1983 financial statements.

In our opinion, the aforementioned financial statements present fairly the financial position of
the Chicago-O'Hare International Airport of the City of Chicago, Illinois at December 31 , 1984
and the results of its operations and the changes in its financial position for the year then
ended, in conformity with generally accepted accounting principles which, after the
adjustment described in the paragraph above, have been applied on a consistent basis.

June 21, 1985

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City of Chicago, Illinois

CHICAGO-O'HARE INTERNATIONAL AIRPORT

BALANCE SHEET

December 31 , 1984 and 1983

Assets 1984 1983

Current assets:

Cash and investments, at cost $ 25,952,866 $ 35,203,007

Accounts receivable, less allowance for doubtful

accounts of $2,500,000 in 1984 and $1,574,384

in 1983 15,901,935 11,147,862

Due from other City of Chicago funds 1 ,436,787 318,802

Prepaid expenses and deposits 490,056 569,621

Accrued interest receivable 1,165,165 200,754

Total current assets 44,946,809 47,440,046

Restricted assets (note 3):

Cash and investments, at cost 503,41 2,329 1 1 1 ,065,91 1

Accrued interest receivable 527,528 2,274,910

503,939,857 113,340,821

Other assets:

Airline terminal construction escrow 3,830,571 10,077,729

Deferred bond issuance costs, net 2,900,662 879,775

6,731,233 10,957,504

Property, plant, and equipment:

Land 55,294,641 55,294,641

Buildings and other facilities 338,768,315 333,273,484

Construction in progress 165,053,032 74,432,382

559,115,988 463,000,507

Less accumulated depreciation 205,696,980 194,458,456

353,419,008 268,542,051

Total assets $909,036,907 $440,280,422

See accompanying notes to financial statements.

10

BALANCE SHEET

December 31 , 1984 and 1983

Liabilities, Retained Earnings, 1984 1983
and Contributed Capital

Current liabilities:

Current portion of revenue bonds payable (note 4) $ 450,000 $ —

Junior lien obligation debt (note 5) 1 0,250,000 —

Accounts payable 18,350,274 16,893,685

Due to other City of Chicago funds 11 ,325,305 9,755,589

Deferred revenue 13,884,622 5,339,869

Total current liabilities 54,260,201 31,989,143

Liabilities payable from restricted assets (note 3):

Accounts payable 19,512,977 4,641,915

Accrued interest payable 14,344,910 12,759,282

Due to other City of Chicago funds — 45,1 1 1

Airlines' deposits 426,587 369,746

34,284,474 17,816,054

Long-term liabilities (notes 4 and 5):

First lien revenue bonds payable 524,550,000 1 75,000,000

Second lien revenue bonds payable 1 00,000,000 —

Junior lien obligation debt — 14,500,000

624,550,000 189,500,000

Less bond discount 16,125,140 4,182,059

608,424,860 185,317,941

Deferred rental income 205,779 261 ,625

Total liabilities 697,175,314 235,384,763

Retained earnings:

Reserved 8,454,340 4,831 ,781

Unreserved 64,289,255 60,512,240

72,743,595 65,344,021

Contributed capital 139,117,998 139,551,638

21 1 ,861 ,593 204,895,659

Commitments and contingencies (note 11)

Total liabilities, retained earnings and contributed capital $909,036,907 $440,280,422

11

City of Chicago, Illinois

CHICAGO-O'HARE INTERNATIONAL AIRPORT

STATEMENTS OF OPERATIONS

Years ended December 31 , 1984 and 1983

1984 1983

Operating revenues:

Flight fees $ 37,304,535 $ 48,532,039

Rent, concessions, and other 50,662,493 45,01 1 ,868

Terminal area use charges 1 7,359,537 1 1 ,603,098

Refund of flight fees (note 8) — (6,847,899)

105,326,565 98,299,106

Operating expenses:

Salaries, wages and benefits 49,346,164 44,499,501

Depreciation 11 ,238,524 1 1 ,1 26,661

Repairs and maintenance, including expenditures

from reserve maintenance account 1 3,505, 1 25 11 ,698,266

Other operating expenses 27,112,345 25,268,264

101,202,158 92,592,692

Operating income 4,124,407 5,706,414

Nonoperating revenue (expense):

Interest earned on investments 1 5,458,270 1 2,608,490

Interest:

Revenue bonds (13,516,467) (9,114,440)

Junior lien obligation debt (2,258,779) (413,425)

(316,976) 3,080,625

Revenues in excess of expenses before
extraordinary item 3,807,431 8,787,039

Extraordinary item — loss on advance refunding
of general airport revenue bonds (note 4) — (1,635,035)

Net income $ 3,807,431 $ 7,152,004

See accompanying notes to financial statements.

12

STATEMENTS OF CHANGES IN RETAINED EARNINGS
AND CONTRIBUTED CAPITAL

Years ended December 31 , 1 984 and 1 983

Retained earnings Contributed

Total Unreserved Reserved capital

Balance at December 31 , 1982,
as restated (note 2) $256,707,121 $59,980,083 $66,130,258 $130,596,780

Add:

Net income, 1983 7,152,004 7,152,004 — —

Contributed capital:

Grants 4,723,808 — — 4,723,808

Operating revenues — (6,162,138) (1,531,817) 7,693,955

Reallocation of provision for

depreciation — 3,462,905 — (3,462,905)

Bond ordinance transfers

(note 3) — (3,920,614) 3,920,614 —

Transfer to City of Chicago

Corporate Fund (note 4) (63,687,274) — (63,687,274) —

Balance at December 31, 1983,
as restated (note 2) 204,895,659 60,512,240 4,831,781 139,551,638

Add:

Net income, 1984 3,807,431 3,807,431 — —

Contributed capital — grants 3,158,503 — — 3,158,503

Reallocation of provision for

depreciation — 3,592,143 — (3,592,143)

Bond ordinance transfers
(note 3) — (3,622,559) 3,622,559 —

Balance at December 3 1,1984 $211,861,593 $ 64,289,255 $ 8,454,340 $139,117,998

See accompanying notes to financial statements.

13

City of Chicago, Illinois

CHICAGO-O'HARE INTERNATIONAL AIRPORT

STATEMENTS OF CHANGES IN FINANCIAL POSITION

Years ended December 31 , 1984 and 1983

1984 1983

Sources of working capital:
From operations:

Net income before extraordinary item $ 3,807,431 $ 8,787,039

Items not requiring (providing) working capital:

Provision for depreciation and amortization 1 1 ,283,533 11,177,072

Working capital provided by operations before

extraordinary item 15,090,964 19,964,1 1 1

Extraordinary item — loss on general airport revenue

bonds refunding — (1,635,035)

Working capital provided by operations 1 5,090,964 1 8,329,076

Proceeds from junior lien obligation debt 1 0,500,000 1 4,500,000

Proceeds from first lien revenue bonds, net 337,748,720 1 70,71 3,825

Proceeds from second lien revenue bond, net 98, 1 02,280 —

Contributed property, plant, and equipment 3,158,503 4,710,498

Airline contributions for property, plant, and equipment — 13,310

Decrease in airline terminal construction escrow 6,247,158 —

470,847,625 208,266,709

Uses of working capital:

Acquisition of property, plant, and equipment 96,1 1 5,481 51 ,672,51 1

Reduction of long-term revenue bonds 450,000 31 ,804,000

Reduction of long-term junior lien obligation debt 25,000,000 —

Increase in net restricted assets 374,046,440 29,364,447

Transfer to City of Chicago Corporate Fund — 63,687,274

Increase in other assets — 10,977,729

495,611,921 187,505,961

Net increase (decrease) in working capital $(24,764,296) $ 20,760,748

Elements of net increase (decrease) in working capital:
Increase (decrease) in current assets:

Cash and investments (9,250,141) 16,094,510

Accounts receivable, net 4,754,073 (2,335,745)

Due from other City of Chicago funds 1,117,985 (2,807,255)

Prepaid expenses and deposits (79,565) 64,367

Accrued interest receivable 964,411 200,754

(2,493,237) 11,216,631

Increase (decrease) in current liabilities:

Current portion of revenue bonds payable 450,000 (6,670,000)

Junior lien obligation debt 10,250,000 —

Accounts payable 1 ,456,589 173,907

Due to other City of Chicago funds 1,569,716 1,913,086

Deferred revenue 8,544,753 (4,961,110)

22,271,058 (9,544,117)

Net increase (decrease) in working capital $(24,764,296) $ 20,760,748

1 4 See accompanying notes to financial statements.

NOTES TO FINANCIAL STATEMENTS

December 31, 1984

1. Summary of Significant Accounting Policies

a. Basis of Presentation

The Chicago-O'Hare International Airport (Airport) is accounted
for as an enterprise fund of the City of Chicago (City). The follow-
ing is a summary of the significant accounting policies.

b. Basis of Accounting

The financial statements of the Airport are maintained on the
accrual basis of accounting.

c. Cash and Investments

Cash on hand is deposited with the City Treasurer who is respon-
sible for City investments. Investments with the City Treasurer
earn a pro rata share of interest income and are stated at cost,
which approximates market.

Investments consist principally of certificates of deposit, U.S.
Treasury securities, and repurchase agreements and are stated
at cost, which approximates market value.

d. Property, Plant and Equipment

Property, plant, and equipment is stated at cost. The Airport has
consistently followed the policy of expensing the cost of vehicles
and other moveable equipment as incurred. Depreciation has
been provided over the estimated useful lives, using the straight-
line method. No depreciation is provided until the first full year the
asset is in service. Depreciation on assets acquired through
contribution is allocated to contributed capital. The estimated
useful lives of the major fixed asset classifications are as follows:

Years
Building and hangars 25

Runways, taxiways, aprons, tunnels, and pits 30

Roads and sidewalks 30

Refrigeration and heating systems 30

Electrical systems 1 5-20

Water drainage and sewer system 20-50

Other 10-30

Maintenance and repairs are charged to expense as incurred.

Interest costs incurred in connection with construction-in-
progress are capitalized as a cost of the asset and will be depreci-
ated over the estimated useful lives of the related assets upon
completion. During 1984 and 1983 the Airport incurred total
interest costs and related amortization of $22,655,382 and
$12,158,263, respectively of which $6,880,136 and $2,630,398,
have been capitalized.

e. Contributed Capital

Contributed capital represents fixed assets financed primarily by
operating revenues, state and federal grants, and City funds.
Under the 1959 Revenue Bond Ordinance capital improvements
were not permitted from operating revenues. Accordingly, prior to
1984, to the extent that the airlines agreed to the financing of
property, plant, and equipment from operating revenues, the
assets were deemed to have been contributed by the airlines.

f. Amortization of Bond Discount

Discount on revenue bonds payable is amortized by the interest
method over the term of the related issues.

g. Revenue Recognition

Flight fees and terminal area use charges are charged to the
various airlines based on predetermined rates which are de-
signed to cover certain expenses, as defined. Deferred revenue
represents terminal area use charges and flight fees charged in
excess of the defined expenses and are utilized to reduce the
following year's charges (note 2).

h. Compensated Absences

Airport employees are granted vacation and sick leave in accor-
dance with prescribed City policies. In the event of termination, an
employee is reimbursed for accumulated vacation time. Accumu-
lated unpaid sick leave is not paid upon termination and therefore
is not accrued.

i. Financial Statement Reclassification
Certain 1983 amounts have been reclassified to conform to the
1984 presentation.

2. Flight Fees and Terminal Area Use Charges

Prior to 1984 flight fees and terminal area use charges in excess
of actual expenses were recorded as revenue. Since such
amounts are refundable to the airlines or are applied as credits to
the following year's charges, such excess amounts are a current
liability rather than reserved retained earnings. Accordingly,
excess flight fees and terminal area use charges are now
recorded as deferred revenue. The effect of this change was
to decrease December 31, 1983 and 1982 reserved retained
earnings by $5,339,869 and $10,300,979 respectively, and to
increase (decrease) 1984 and 1983 revenues in excess of
expenses before extraordinary item and net income by
($8,544,753) and $4,961,110, respectively.

3. Restricted Assets

a. General Airport Revenue Bond Ordinance

The General Airport Revenue Bond Ordinance (Ordinance)
adopted by the City Council on March 31, 1983 authorizing the
issuance of revenue bonds from time to time in one or more
series, provides for the creation of separate accounts to be held
by an outside trustee and are designated as "construction,"
"operation and maintenance," "debt service," "debt service
reserve," and "junior lien obligation debt service."
Pursuant to the terms of the Ordinance, so long as any principal
and interest on any series of revenue bonds authorized and
issued thereunder remains outstanding and unpaid, the trustee
shall be required to make deposits as follows:
Construction account — the proceeds from the issue of any
series of revenue bonds authorized and issued under the Ordi-
nance shall be transferred to the trustee for deposit into the
construction account. Amounts so deposited shall be segregated
into one or more project accounts and capitalized interest
accounts in accordance with a certificate required by the Ordi-
nance to be filed with the trustee prior to the execution and
delivery of bonds of any series.

On the tenth day of each month the following accounts shall be
credited as follows:

Operation and maintenance account — an amount equal to
one-twelfth of the amount provided in the operation and mainte-
nance expense projection (as defined) for the current fiscal year,
plus an amount equal to one-sixth of the amount of any adjust-
ment determined to be necessary from the midyear projection
prepared in accordance with the 1983 Airport Use Agreement
and Terminal Facilities Lease (Agreement) for each of the six
months in the second six-month period of each fiscal year.
Debt service accounts:

I Interest account — an amount equal to one-sixth of the
amount of interest which will be due on all outstanding bonds on
the next January 1 or July 1 , less any amounts from the capitalized
interest account then payable.

II Principal account — an amount equal to one-twelfth of the
amount of the principal installments which will become due on all
outstanding bonds on the next January 1.

15

NOTES TO FINANCIAL STATEMENTS

Special capital projects account (as created under the Agree-
ment, see below) — an amount specified in a certificate filed with
the trustee as the amount to be deposited at such time.
On each business day immediately preceding January 1 and July
1, the above accounts shall be credited as follows:
Debt service accounts — an amount, if any, necessary to
increase the balances of these accounts to an amount sufficient
to pay the interest and principal installments on all outstanding
bonds coming due on January 1, or July 1.
Debt service reserve account — an amount, if any, necessary
to increase the account balance to an amount equal to the max-
imum amount of aggregate debt service for the current or any
future year.

Operation and maintenance reserve account (as created
under the Agreement, see below) — one-half of an amount, if any,
sufficient to increase the account balance to an amount equal to
one-fourth of the current fiscal year's operation and maintenance
expense projection (as defined) as adjusted at midyear in accor-
dance with the Agreement.

Maintenance reserve account (as created under the Agree-
ment, see below) — an amount equal to the lesser of $1 ,500,000
or the amount, if any, to increase the balance of the account to
$3,000,000.

Emergency reserve account (as created under the Agreement,
see below) — one-half of an amount equal to the depreciation on
the investment in fixed assets for the current fiscal year, plus
interest on the net investment in fixed assets and any borrowings
for Airport purposes compensated in accordance with the 1959
Airport Use Agreement. Such amount shall be stated in a certifi-
cate filed with the trustee prior to making the deposit.

Airport development account (as created under the Agree-
ment, see below) — one-half of an amount equal to 20% of the
amount by which concession revenues for the current fiscal year
exceed concession revenues for 1982, reduced by one-half of an
amount equal to 50% of the revenues, if any, for the current fiscal
year from net income of the Land Support Area cost/revenue
center. Such amount shall be stated in a certificate filed with the
trustee prior to making the deposit.

Junior lien obligation debt service account — an amount, if
any, equal to the amount required by any resolution or ordinance
authorizing the issuance of junior lien obligations and specified by
a certificate filed with the trustee.

b. Airport Use Agreement and Terminal Facilities Lease

The Agreement also provides for the creation of separate
accounts designated as "operation and maintenance," "special
capital projects," "operation and maintenance reserve," "mainte-
nance reserve," "emergency reserve," and "airport development."
Pursuant to the terms of the Agreement, at such time as the
principal and interest on any series of revenue bonds authorized
and issued under the Ordinance has been paid in full, the City
shall be required to make the following deposits:
On the first business day immediately preceding the tenth day of
each month the above accounts shall be credited as follows:
Operation and maintenance account — an amount equal to
one-twelth of the amount provided in the operation and mainte-
nance expense projection (as defined) for the current fiscal year,
plus an amount equal to one-sixth of the amount of any adjust-
ment determined to be necessary from the midyear projection
prepared in accordance with the Agreement for each of the six
months in the second six-month period of each fiscal year.
Special capital projects account — an amount, if any, approved
by a Majority-in-lnterest, as defined.

On each business day immediately preceding January 1 and July
1, the above accounts shall be credited as follows:

Operation and maintenance reserve account — one-half of an
amount, if any, sufficient to increase the account balance to an
amount equal to one-fourth of the current fiscal year's operation
and maintenance expense projection (as defined) as adjusted at
midyear in accordance with the Agreement.
Maintenance reserve account — an amount equal to the lesser of
$1,500,000 or the amount, if any, to increase the balance of the
account to $3,000,000.

Emergency reserve account — one-half of an amount equal to
the depreciation on the investment in fixed assets for the current
fiscal year, plus interest on the net investment in fixed assets and
any borrowings for Airport purposes compensated in accordance
with the Agreement. Such amount shall be stated in a certificate
filed with the trustee prior to making the deposit.
Airport development account — one-half of an amount equal to
20% of the amount by which concession revenues for the current
fiscal year exceed concession revenues for 1982, reduced by
one-half of an amount equal to 50% of the net income of the Land
Support Area cost/revenue center for the current fiscal year. Such
amount shall be stated in a certificate filed with the trustee prior to
making the deposit.

c. Restrictions

If on the date the above deposits are required to be made, there
are insufficient revenues to make the required deposits, then the
deficiency shall be made up on the next applicable deposit date
after all other deposits enjoying a higher priority have been made
in full, except that the City is mandatorily and irrevocably obli-
gated to apply funds in the maintenance reserve account to make
up any deficiencies in the debt service reserve account.
Any amounts on deposit in the debt service account, the debt
service reserve account, the operation and maintenance
account, the operation and maintenance reserve account, the
maintenance reserve account, and the junior lien obligation debt
service account in excess of the amounts required under any
ordinance or resolution shall be transferred to general revenues
at the end of the current fiscal year.

Pursuant to the terms of Ordinance and the Agreement, which-
ever applies, funds deposited in the hereinbefore mentioned
accounts are restricted as follows:

Funds accumulated in the operation and maintenance account
shall be used by the City to pay only operation and maintenance
expenses and to repay amounts borrowed from the operation and
maintenance reserve account which shall be repaid as soon as
funds are available in the operation and maintenance account.
Funds accumulated in the debt service accounts shall be used
only to pay principal and interest on the outstanding bonds as
such amounts become due.

Funds accumulated in the special capital projects account shall
be used only for the purpose of making capital project expendi-
tures approved by a Majority-in-lnterest, as defined.
Funds accumulated in the debt service reserve account shall be
used for the payment of principal and interest on outstanding
bonds to the extent that funds in the debt service accounts are
insufficient to make such payments.

Funds accumulated in the operation and maintenance reserve
account shall be used by the City only to make loans to the
operation and maintenance account whenever, and to the extent,
funds in the operation and maintenance account are insufficient
to pay operation and maintenance expenses.
Funds accumulated in the maintenance reserve account shall be
used only for paying the cost of extraordinary maintenance
expenses regardless of whether caused by normal wear and tear
or by unusual and extraordinary occurrences.

16

Funds accumulated in the junior lien obligation debt service
account shall be transferred by the trustee to the appropriate
trustees or paying agents under the appropriate ordinances or
resolutions authorizing the issuance of junior lien obligations for
the purpose of paying such amounts as may be required to be
paid by such ordinances or resolutions.
Funds accumulated in the emergency reserve account shall be
used for one or more of the following purposes, without any
priority among them:

I Whenever the balance in the account exceeds $7,500,000, the
Airport shall transfer the excess amount to the airport develop-
ment account.

II In the event that there are any terminal area rentals, terminal
area use charges, landing fees, indemnification payments, other
rentals and charges, and federal inspection service fees in any
fiscal year which are unpaid when due and reasonably deemed
uncollectible after collection efforts have been undertaken, the
Airport shall pay such fees, charges, and rentals, from the
account before including such fees, charges, and rentals in the
calculation of airport revenues and expenses.

III In the event of any awards, judgments, or settlements result-
ing from suits alleging a taking of property or interest in property
without just compensation, trespass, nuisance, or similar suits
based upon the use of the airport for the landing and taking-off of
aircraft, the Airport shall pay such awards, judgments, or settle-
ments from the account before including any amounts attributa-
ble thereto as operation and maintenance expenses in the
calculation of airport revenues and expenses.

Funds accumulated in the airport development account shall be
used for one or more of the following purposes, without any
priority among them:

I The Airport may make payments out of the account for one or
more of the following purposes at/or related to any airport facility
owned or operated by the City:

a. construction, improvement, or repair of runways, taxiways, or
facilities incidental thereto;

b. installation and maintenance of navigational aids;

c. purchase of land for clear zones and runway and taxiway
expansion;

d. aircraft parking areas used in common and not directly adja-
cent to any exclusive use facilities;

e. roadways, automobile parking lots and garages, and ground
transportation systems;

f. heating and refrigeration facilities and other facilities related to
utilities; and

g. improvements to any portion of any structure which is not
exclusively used by any person.

In no event shall payments be made for improvements to pas-
senger terminals or roadways, automobile parking lots and
garages, or aircraft parking areas directly serving passenger
terminals at any airport except O'Hare.
Also in no event shall payments be made for any improvements
which directly and exclusively benefit any person or persons in
the air transportation business.

II The Airport may make payments out of the account for any
purpose for which it may properly make payments out of the
emergency reserve account only if amounts in the emergency
reserve account have been entirely exhausted and only to the
extent that amounts in the airport development accounttiave not
been obligated for the cost of improvements in (I) above.

17

At December 31, 1984 cash and investments were restricted in
the following accounts:

Construction $317,449,056

Capitalized interest - 68,683,780

Debt service interest 10,838,522

Debt service principal 450,000

Debt service reserve 73,943,742

Operation and maintenance reserve 25,349,176

Maintenance reserve 3,053,699

Emergency reserve 2,442,748

Other (required by 1959 Airport Use Agreement) 1,201,606

Total $503,412,329

4. General Airport Revenue Bonds Payable

The General Airport Revenue Bond Ordinance adopted on March
31 , 1 983 authorized the issuance of first lien revenue bonds from
time to time without limit as to amount for the purpose of financing
or reimbursing the costs of capital improvements and expansion
of the Airport. Under the ordinance, net operating revenues are
pledged for the payment of principal and interest on such first lien
bonds.

The ordinance further permits the issuance of the second lien
notes, bonds, and other obligations which are payable from, and
secured by, a pledge of amounts deposited in the junior lien
obligation debt service account created under the ordinance.
Only first and second lien revenue bonds and junior lien obliga-
tion debt (note 5) have been issued under the ordinance. The
following summarizes revenue bonds outstanding at December
31, 1984 and 1983:

$175,000,000 Series 1983 A and B first 1984

lien bonds issued May 12, 1983, due

1985 to 2013, interest at 6-9.625%
$350,000,000 Series 1984 A and B first
lien bonds issued November 27, 1984,
due 1986 to 2015, interest at
6.5-10.625%
$50,000,000 Series 1984 A second lien
bonds issued December 27, 1984, due

1986 to 2015, interest at 6.5% to

January 1, 1985 and varying thereafter 50,000,000

$50,000,000 Series 1984 B second lien
bonds issued December 27, 1984, due
1986 to 2015, interest at 6.5% to

1983

$175,000,000 $175,000,000

350,000,000

January 1, 19!

35 and varyinq thereafter 50,000,000
625,000,000

—

175,000,000

Less current portion — Series 1983 first

lien bonds

portion

i schedule of debt

450,000
$624,550,000

—

Long-term

$175,000,000

Following is e

service requirements of the first

lien bonds to

maturity:

Year

Principal

Interest

Total

1985

$ 450,000

$ 16,461,053 $

16,911,053

1986

3,380,000

58,511,890

61,891,890

1987

3,965,000

52,281,071

56,246,071

1988

4,270,000

52,003,521

56,273,521

1989

4,590,000

51,683,271

56,273,271

1990-1994

31,425,000

251,664,742

283,089,742

1995-1999

48,955,000

234,138,000

283,093,000

2000-2004

78,555,000

204,525,838

283,080,838

2005-2009

1.26,925,000

156,166,633

283,091,633

2010-2014

187,735,000

77,173,641

264,908,641

2015

34,750,000

3,692,187

38,442,187

$ 525,000,000

$1,158,301,847 $1,683,301,847

NOTES TO FINANCIAL STATEMENTS

Following is a schedule of debt principal payments to maturity of
the second lien bonds:

Year Amount

1985 —

1986 1,030,000

1987 1,165,000

1988 1,205,000

1989 1,350,000
1990-1994 7,890,000
1995-1999 11,195,000
2000-2004 15,750,000
2005-2009 22,010,000
2010-2014 30,840,000

2015 7,565,000
$100,000,000

During 1 983 the Airport was authorized to refund the principal and
interest requirements of the 1959 Revenue Bond Ordinance. The
loss realized on the advance refunding has been reflected as an
extraordinary item in the financial statements in accordance with
Statement of Financial Accounting Standards No. 4.
In accordance with the 1959 Revenue Bond Ordinance, the
$63,687,274 remaining in the Emergency Reserve Account after
the payment of all 1959 Revenue Bonds was paid to the City of
Chicago Corporate Fund.

5. Junior Lien Obligation Debt

During 1983 the Airport obtained a $25,000,000 line of credit
which subsequently expired on June 30, 1984. Upon expiration,
the outstanding balance under the line of credit was converted to
a one-year term loan accruing interest at the bank's corporate
base rate (10.75% at December 31, 1984). The amounts out-
standing under this credit arrangement are payable from, and
secured by, a pledge of amounts deposited in the junior lien
obligation debt service account and consisted of $10,250,000
and $14,500,000 at December 31, 1984 and 1983, respectively.

6. Pension Plan

The employees of the City are covered under several contributory
retirement plans established by state statute and administered by
independent pension boards. Virtually all employees of the Air-
port are members of either the Policemen's Annuity and Benefit
Fund of Chicago (Policemen's Fund), the Firemen's Annuity and
Benefit Fund of Chicago (Firemen's Fund), the Municipal Employ-
ees' Officers and Officials' Annuity and Benefit Fund of Chicago
(Municipal Fund) or the Laborers' and Retirement Board Employ-
ees' Annuity and Benefit Fund of Chicago (Laborer's Fund).
Each pension plan is financed primarily by (1) City contributions,
(2) employee contributions, and (3) income from investments,
principally interest. The employee rate of contribution is 81/2% of
salary. The City contributions, which are established by state
statute, are multiples of the employee contribution made two
years prior.

The City's contributions are financed through a separate property
tax levy and through personal property replacement tax reve-
nues. The Airport reimburses the City's Corporate Fund for the
estimated pension cost applicable to Airport employees. These
reimbursements, recorded as an expense of the Airport, amount
to $4,725,368 and $3,556,719 in 1984 and 1983, respectively.
All pension funds obtain an actuarial valuation annually, with the
last completed valuation being for the year ended December 31 ,
1983. The amount of unfunded accrued liabilities or required
current year actuarial provision which pertain expressly to the
Airport were not computed, as no specific identification of Airport
employees was made for actuarial purposes.

7. Leases

The Airport has entered into lease agreements (see note 3(b))
with major airlines covering the Airport Development Plan (Plan).
Concurrent with the signing of the agreement each airline's obli-
gations under the various lease agreements signed in 1959 were
canceled (see below). The agreements set forth the terms for
financing and construction of the facilities and improvements in
the Plan and each airline's respective rights and obligations
regarding the use and operation of the Airport. The agreements
have a term of 35 years commencing after their effective date or
January 1, 2025, whichever is earlier.

For purposes of billing the airlines, the agreements generally
require the airport to be grouped into cost-revenue centers (as
defined) for the purpose of allocating revenues, operating
expenses, and debt service. Each airline is responsible for paying
its pro rata share of the net cost of each revenue-cost center, plus
the Airport's obligations for certain capital expenditures (as
defined).

Separate lease agreements have been entered into with the
remaining airlines regarding the use of the Airport facilities.
These leases have a term of 40 years commencing January 1,
1959. Lease terms provide for the payment of flight fees based on
the approved maximum landing weight of each aircraft and cer-
tain ground rentals (as defined).

The Airport leases various facilities within the airport system.
Lease contracts are generally written with noncancelable terms
of up to 55 years. Costs and related accumulated depreciation of
property under leases are not practicably determinable as the
majority of the leases relate only to portions of buildings.
A summary of minimum noncancelable rentals under operating
leases at December 31, 1984 are as follows:

1985
1986
1987
1988
1989
Thereafter

Total

$ 8,661,883
8,213,883
8,213,883
8,136,993
8,052,680
43,487,002

$ 84,766,324

Several of the lease agreements have provisions for contingent
rentals calculated on the tenant's gross revenue or other operat-
ing criteria. Included in rent, concession, and other in the state-
ments of operations are contingent rentals amounting to
approximately $12,115,760 and $11,878,000 at December 31,
1984 and 1983, respectively.

8. Refund to Airlines

Certain capital expenditures from operating revenues were for
design, development, and planning associated with the O'Hare
Development Plan. The airline parties approved these expen-
ditures with the understanding that they would be reimbursed by
the City of Chicago from proceeds of the sale of the 1 983 General
Airport Revenue Bonds. The amount refundable to the airlines for
these expenditures totaled $6,847,899. It was paid in June and
November 1983, and was accounted for as a reduction of flight
fees in the statements of operations.

9. Related Party Transactions

Included in operating expenses are reimbursements to the City
Corporate Fund for services provided by other City departments,
employee fringe benefits, and self-insured risks. Such reimburse-
ments amounted to $24,453,189 and $20,018,668 in 1984 and
1983, respectively.

18

10. Debt Service Coverage

Debt service coverage, as required under the agreement, is shown as follows:
Net income for the year ended
December 31 , 1 984 $ 3,807,431

Add (deduct) adjustments to reflect
ordinance basis of accounting:

Interest payable on revenue bonds 11 ,740,092

Depreciation and amortization for
the year ended December 31 , 1 984 11 ,238,524

Amortization of bond discount 70,51 9

Amortization of deferred financing fees 30,336

One-half the net revenue in the Land
Support Cost Revenue Center (784,260)

Balance held in the Revenue Fund at
December 31 , 1 983 5,339,869

Interest earned — Emergency Reserve Fund (140,172)

Interest earned — Construction Fund (8,200,023)

"Net revenues for calculation of coverage,"
asdefined 23,102,316

Less required deposits from revenues to funds —
operations and maintenance reserve (1,500,000)

Amount available for calculation of coverage $ 21,602,316

Aggregate debt service for the bond year,
net of $2,604,81 8 of interest prepaid
by bondholders $ 14,306,235

Less: Amount transferred from the
Capitalized Interest Account for
payment of interest (11,577,065)

2,729,170

Percentage required by the Ordinance 1 25%

Net aggregate debt service as
required by the General Airport
Revenue Bond Ordinance $ 3,41 1 ,463

Debt service coverage ($21,602,316/
$2,729,170) 7.91

11. Commitments and Contingencies

Purchase orders and contract commitments to be financed by
the operation and maintenance account totaled approximately
$21,503,000 and $21,974,000 at December 31, 1984 and 1983,
respectively. In addition, approximately $4,743,000 and
$4,183,000 at December 31, 1984 and 1983, respectively, had
been designated for specific future projects, although not under
purchase order, contract, or other formal commitment.
The Airport has certain contingent liabilities resulting from litiga-
tion, claims, and commitments incident to the ordinary course of
business. It is expected that final resolution of such contingen-
cies will not materially affect the financial position or results of
operations of the Airport.

19

Lt. Commander Edward H. O'Hare

Chicago O'Hare International Airport was
named for Lt. Commander Edward H.
"Butch" O'Hare, a Navy pilot killed in action
in the Pacific on November 26, 1943 at age
29. Lt. Commander O'Hare won the Con-
gressional Medal of Honor in 1942 for
shooting down five enemy bombers and
crippling a sixth near Rabaul in the Pacific
on his first mission. He also received the
Distinguished Flying Cross, the Gold Cross
and the Navy Cross. The Chicago City
Council honored the Chicago hero by naming
the airport, then known as Orchard Field,
for him on June 22, 1949.

20

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