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Full text of "O'Hare International Airport ... annual report"



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lare International Airport 

\ Annual Report 



LARGE 



TRAN 
HE 

9797. 7C4 
C532a 
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 


(Tons 1 ) 


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 





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 



f/*£ / Uv*^, fc&t&?C> 



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 8 1 /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 



G 
A 
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