TABLE OF CONTENTS. PAGE Letter of Transmittal...2. Independent Auditors Report...6. Management s Discussion and Analysis...8

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1 Fort Collins ~ Loveland Municipal Airport Year Ended December 31, 2009

2 TABLE OF CONTENTS PAGE Letter of Transmittal...2 Independent Auditors Report...6 Management s Discussion and Analysis...8 Basic Financial Statements Statement of Net Assets...10 Statement of Revenues, Expenses and Changes in Net Assets...11 Statement of Cash Flows...12 Notes to Financial Statements...13 Supplementary Information Budgetary Comparison Schedule (Non-GAAP Budgetary Basis)...18 Passenger Facility Charge (PFC) Report on Internal Control over Financial Reporting and on Compliance And other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards...20 Report on Compliance with Requirements Applicable to the Passenger Facility Charge Program and on Internal Control over Compliance...22 Schedule of Findings and Questioned Costs...24 Management Response to Schedule of Findings and Questioned Costs...28 Statement of Passenger Facility Charge...29 Note to Statement of Passenger Facility Charge...30

3 May 10, 2010 The Fort Collins/Loveland Airport annual financial statements for the year ended December 31, 2009 are respectfully submitted. This report was prepared by the City of Loveland, Colorado s Finance Department. The responsibility for both the accuracy of the presented data and fairness of the presentation, including all the disclosures rests with the City of Loveland. We believe the data as presented is accurate in all material respects; that it is presented in a manner designed to fairly set forth the financial position and results of operations of the airport as measured by the financial activity of the airport; and that all disclosures necessary to enable the reader to gain an understanding of the Airport s financial affairs have been included. Generally Accepted Accounting Principles (GAAP) requires management provide a narrative introduction, overview and analysis to accompany the basic financial statements in the Management s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The Airport s MD&A can be found immediately following the external auditor letter. Overview of the Airport The Fort Collins/Loveland Airport (FNL) has served as a regional airport since It is a general aviation and commercial service airport. It is jointly owned by the City of Fort Collins and the City of Loveland on a 50/50 basis. It is currently operated under an intergovernmental agreement originated in 1994 and an Administrative Guidelines Memorandum Airport Statistics Size 1,100 Acres Runway (Main) 8,500 X 100 Runway (Crosswind) 2,273 X 40 Based Aircraft 245 Hangars 210 also generated in 1994, updated in Full control and decision-making authority is placed with the City Councils of both cities. Under the current governance model, an Airport Steering Committee is charged with facilitating the communication between the cities and advising the Councils concerning Airport issues such as general policies, land use, budget, capital improvements, and strategic planning. The steering committee members include the Mayor of each city and the City Manager of each city. The Public Works Director at the City of Loveland and the Chief Financial Officer of the City of Fort Collins serve as the airport liaisons. The Airport Manager reports to both airport liaisons. The Airport had approximately 110,000 take-offs and landings for the year, which includes 4 commercial flights per week. Take-offs and landings are expected to grow to 152,000 by Enplanements are expected to grow from 28,000 to 112,000 in Allegiant Air is the commercial air carrier provider. There is one Fixed Base Operator who is a contractor to the airport. The addition of these commercial flights beginning in 2005 allowed the airport to surpass the threshold of enplanements necessary to receive Federal Aviation Administration entitlement grant funds of $1 million annually. As a result significant capital improvements have been made possible. Recent improvements include: new passenger boarding building, air carrier ramp reconstruction, 55 new private hangars, taxiway extension, Taxiway Alpha Rehabilitation, new taxiway lighting system, runway 15/33 partial reconstruction, runway 6/24 rehabilitation, and detention pond reconstruction. Several financial indicators demonstrate the additional investment that has been made over 10 years. 2 P a g e

4 Ending Balance 12/31/09 Ending Balance 12/31/99 3 P a g e Change in Value % Change in Value Net Capital Assets (after accumulated depreciation) $15,085,567 $7,355,037 $7,730, % Passenger Facility Charges $139,255 $3,245 $136,010 4,191% Cash and Investments $439,366 $300,113 $139,253 46% Unrestricted Net Assets $765,792 $639,356 $126,436 20% $140 million of airport improvements are planned through the year The most substantial future capital improvements expected to be made possible by future FAA funding is a 1,000 foot runway extension, a new parallel runway 15/33 and taxiway lights, and a new air traffic control tower. The Airport has become an economic driver in the region. The Colorado Department of Transportation Division of Aeronautics issued an Economic Impact report in 2008 that reported there were significant direct and indirect economic impacts of the Fort Collins/Loveland Airport. It is estimated that 749 jobs generated compensation of $21.6 million and a total $56.3 million of total output. The objective is to ensure that regional and community impact contribution is sustainable years into the future. Financial Measures for Sustainability and the 2009 Financial Statement The goal of self-sufficiency is important to the airport as strategies around sustainability are established. There are some financial indicators that will be important to monitor as we work toward that goal related to reserves and cash flows associated with operations. Reserves are critical. The Airport would need to be reserving its own 3% TABOR reserve rather than relying on the City of Loveland to hold it within its reserves. While there isn t a reserve policy in excess of the TABOR reserve, there should be around 15% of operating expenditures, excluding depreciation, held in reserve to respond to uncertainty. It is critical that there is a reserve for ensuring that operations could continue for a short time while response strategies could be implemented. The 2009 reserve would be $111,000. Finally, there has been considerable growth of capital assets for the airport. Currently the depreciation is not covered by revenues generated by the airport. This means that a funding resource is not being retained to cover replacements and capital maintenance. $909,000 is the depreciation in Much of this work would likely be eligible for future federal grants, so perhaps percentage of the typical local grant match applied to the depreciation amount should be retained for the replacement purposes. Under current Federal Aviation Administration Guidelines most grants awarded to Fort Collins- Loveland Airport require a 10% match of local funds; currently each City would be responsible for matching the need at 50% each. The cash balance is strong at 12/31/09 is $439,366, which does not include restricted Passenger Facility Charges and are shown separately in the assets section of the Balance Sheet. The Statement of Cash Flows demonstrates that in 2009 cash received from customers is less than the cash paid to employees and vendors by $230,554 and that amount has grown from 2008 when the cash received from customers was short of the cash paid to employees and vendors by $115,744. This is a trend that must improve and in fact reverse itself to become self sufficient. There are several initiatives identified to address this issue that are reported later in this letter. The Airport does a tremendous job of leveraging available dollars for the completion of many critical capital improvements. Often state dollars are eligible to help serve as Federal grant matches. The aviation dollars at the State are in a separate fund and appear to be less subject to the targeted reduction strategies to balance a devastated State budget. An indicator trend to monitor is the percentage of capital

5 projects covered by State and Federal dollars. The Airport would want to make sure that the percentage stay constant or increase. The Statement of Cash Flows indicates that $1.8 million was received from State and Federal Grants, and $2.1 million was invested in capital. This would imply that 81% of the capital dollars were covered by outside revenue sources in Notice that in 2008 the $2.4 million was collected in State and Federal Grants and $2.9 million was invested in capital. This comparison highlights the need to do a separate analysis of the capital projects. We know that the accounting occurs on a full accrual basis and that these grants are generally on a reimbursement basis; this implies that in 2008 some of the 2007 capital expenditures were reimbursed. As the sustainability target is reached the grant resources will need to be well matched with expenditures and it will be important to retain the percentage expenditure coverage. The 2009 financial report demonstrates positive budget performance. The Budgetary Comparison Schedule demonstrates that the Airport in the revised (FINAL) budget column intended to use reserves. It was in fact the intent to use accumulated funds to address some infrastructure maintenance items that are not eligible for grant funding, for example road and parking lot repair. The actual amount that the expenditures exceeded revenues was less than budgeted; however, that is mostly attributable to capital that was not complete or delivered by year end (savings of $348k in the capital outlay line). Those funds and any associated grant revenue will be re-appropriated in The other notable difference between budget and actual is in Gas and Oil Commissions revenues. The Airport Gas and Oil Commission in 2008 were reflective of the significant spike in the fuel prices during The 2009 budget reflected a lower collections as prices leveled out and were in fact less than we thought they would be. The budget control over resources seems appropriate. The Airport goals reflect that a 10 year financial plan for the airport will be developed by Part of achieving sustainability is having the modeling capability to verify that policy and procedure assumptions are achievable within the resources expected to be available. The Statement of Revenues, Expenses and Changes in Net Assets compares actual revenue and expenditures between 2008 and Net assets increased over the previous year. The increase in net assets in both years is primarily the capital improvements made possible by Federal and State grants. The 2008 spike in fuel prices is reflected in the Gas and Oil Commissions as well as State Aircraft Fuel Tax. As prices leveled out less was collected in The other notable comparison is between Purchased Services in 2008 and Both an environmental study and the business plan were started in 2008 and completed in 2009, with the majority of the work in Capital fluctuated with the projects for completion in each of those years based on grant funding available from the BUSINESS PLAN NEAR-TERM GOALS RE-NEGOTIATE FIXED BASE OPERATOR LEASE RE-NEGOTIATE TRIAD AGREEMENT ECONOMIC DEVELOPMENT FINANCIAL PLANNING ENCOURAGE PRIVATE DEVELOPMENT 4 P a g e ENCOURAGE PRIVATE DEVELOPMENT LONG-TERM INCREASE IN REVENUES IMPLEMENT ACCESS FEES BECOME COMPLIANT WITH FAA ASSURANCES ENCOURAGE PRIVATE DEVELOPMENT RETAIN BROKER TO LIST AIRPORT PROPERTY MARKETING MATERIALS FOR AIRPORT OPPORTUNITIES ENHANCE AIRPORT WEB SITE FOR DEVELOPMENT ADOPT GOAL OF FINANCIAL SELF-SUFFICIENCY BY 2013 ADOPT 10-YEAR FINANCIAL PLAN BY JANUARY 2011 CITIES CONTINUE MAKING APPROPRIATE FINANCIAL CONTRIBUTIONS TO SUPPORT COMMUNITY GOALS INSTALL INFRASTRUCTURE MARKET PROPERTY RETAIN BROKER SERVICES 11

6 Federal and State governments. Future of the Airport A Business Plan has been prepared. The graphic below highlights the goals and objectives for the near term. If the Airport expects to be self sufficient then there are several financial strategies that need to be successful to enhance the revenues of the Airport, including a new Fixed Base Operator lease, Triad Through the Fence Agreement, Rocky Mountain Through the Fence Agreement, new lease revenue from south hangars and increasing commercial air service. The Airport has options for enhancing revenue and becoming more self-sufficient. There are short term and long term options that can be taken that will not only improve airport operations, but will also provide much needed funding for making improvements to the airport in general. Both Cities fully expect that a plan will be put into place to assist the Airport to meet its potential as a regional economic driver and community asset. It is with sincere appreciation to the Steering Committee; Keith Reester, City of Loveland Public Works Director; Mike Freeman, Chief Financial Officer; and Dave Gordon, Airport Manager for assessing the current operation and setting a strategic vision for the full potential of the Airport over the next 20 years. Respectfully, Renee Wheeler, Assistant City Manager/Finance Director 5 P a g e

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9 MANAGEMENT S DISCUSSION & ANALYSIS Our discussion and analysis of the Fort Collins Loveland Municipal Airport s financial performance provides an overview of the Airport s financial activities for the year ended December 31, Please read it in conjunction with the financial statements, which begin on page 4. Financial Highlights In 2009, net assets increased by $1,221,928 (8.26%) primarily due to construction of capital assets. Total operating revenues decreased to $586,191, a decrease of $82,837 (12.38%) compared to Total operating expenses increased to $1,648,811, an increase of $76,283 (4.85%) compared to Overview of the Financial Statements The Statement of Net Assets presents information on all the Airport s assets and liabilities. Over time, increases or decreases in the net assets may serve as a useful indicator of whether the financial position of the Airport is improving or deteriorating. The Statement of Revenues, Expenses and Changes in Net Assets presents information that reflects how the Airport s net assets changed during the year. All changes in the net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of the related cash flows. The Statement of Cash Flows reports the Airport s cash flows from operating, capital and non-capital financing and investing activities. The financial statement demonstrates how the various activities of the Airport impact its cash balances. The Notes to Financial Statements provide additional information that is essential for a full understanding of the data provided in the financial statements. Entity-wide Financial Analysis As noted earlier, net assets may serve over time as a useful indicator of the Airport s financial position. As of December 31, 2009, assets exceeded liabilities by $16,009,761. Net Assets Net assets of the Airport at December 31, 2009 are shown to the right. The largest portion of the Airport s net assets (94%) is the investment in capital assets (land, buildings, improvements, runways, leasehold improvements and equipment). The Airport uses these capital assets to provide aviation services to the surrounding communities. Consequently, these assets are not available for future spending. Unrestricted net assets may be used to meet the Airport s ongoing obligations. Net Assets Current Assets $ 1,130,425 $ 1,274,359 Capital Assets 15,085,567 13,822,916 Total Assets 16,215,991 15,097,275 Current Liabilities 206, ,442 Net Assets: Invested in Capital Assets 15,085,567 13,822,916 Restricted for Capital 158, ,135 Unrestricted 765, ,782 Total Net Assets $ 16,009,761 $ 14,787,833 8 P a g e

10 Changes in Net Assets Program Revenues $ 586,191 $ 669,028 Program Expenses 1,648,811 1,572,528 Operating Loss (1,062,620) (903,500) Non-operating Revenues City Contributions 170, ,000 Passenger Facility Charge 139, ,650 Interest Income 32,508 38,561 Gain (Loss) on Disposal of Capital Assets 31,105 (4,150) Total Non-operating Revenues 372, ,061 Net Loss before Capital Contributions (689,752) (563,439) Change in Net Assets The Airport s total revenues of $2,870,739 exceeded total operating expenses of $1,648,811 for an increase in net assets of $1,221,928 for A summary of revenues and expenses is shown to the right. Debt Administration & Capital Assets Debt Administration The Airport currently has no long-term debt. Capital Contributions 1,911,680 1,572,596 Capital Assets At the end of December 31, Change in Net Assets 1,221,928 1,009, , the Airport had Net Assets - Beginning 14,787,833 13,778,676 $15,085,567 invested in capital assets. This represents a net Net Assets - Ending $ 16,009,761 $ 14,787,833 increase of $1,262,652, or 9.13%, from This increase is due primarily to infrastructure improvements. More detailed information about the Airport s capital assets is presented in the Notes to Financial Statements. Budgetary Highlights The airport had numerous capital projects in 2009 funded by FAA Entitlement, Federal ARRA Stimulus Funds and State Grant funds. The FAA Entitlement funds totaled 1 million and the stimulus funds totaled $529,661. Work accomplished included a new taxiway in the hangar area, reconstruction of two existing taxiways and access control security fencing and gates. Economic Factors and Next Year s Budget The success of Allegiant Airlines continues to give the Airport more opportunities for improvements. In 2010, the Airport expects to be eligible to receive the million dollars of entitlement money given annually when passenger counts are above 10,000 per year. The 2009 enplaned passengers were approximately 30,000 and this number is expected to be about the same for Requests For Information This financial report is designed to provide a general overview of the Airport s finances. If you have questions about this report or need additional financial information, contact the City of Loveland Finance Department at 500 East Third Street, Loveland, Colorado, P a g e

11 FORT COLLINS - LOVELAND MUNICIPAL AIRPORT STATEMENT OF NET ASSETS December 31, 2009 (With Summarized Comparative Totals December 31, 2008) ASSETS Current Assets Cash and Investments $ 439,366 $ 752,403 Restricted Cash - PFC 158, ,135 Accounts Receivable 47,979 48,182 Grants Receivable 484, ,639 Total Current Assets 1,130,425 1,274,359 Noncurrent Assets Capital Assets, Net of Accumulated Depreciation 15,085,567 13,822,916 TOTAL ASSETS 16,215,991 15,097,275 LIABILITIES Current Liabilities Accounts Payable 145, ,432 Accrued Liabilities 60,632 52,010 Total Current Liabilities 206, ,442 NET ASSETS Invested in Capital Assets 15,085,567 13,822,916 Restricted for Capital 158, ,135 Unrestricted 765, ,782 TOTAL NET ASSETS $ 16,009,761 $ 14,787,833 The accompanying notes are an integral part of the financial statements. 10 P a g e

12 FORT COLLINS - LOVELAND MUNICIPAL AIRPORT STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS Year Ended December 31, 2009 (With Summarized Comparative Totals for the year ended December 31, 2008) OPERATING REVENUES Hangar Rental $ 87,292 $ 71,948 FBO Rent 68,033 66,758 Gas and Oil Commissions 105, ,332 State Aircraft Fuel Tax 33,284 54,058 Land Lease 97,445 84,518 Terminal Lease and Landing Fees 43,578 41,059 Concessions Parking 137, ,466 Miscellaneous 12,947 38,889 TOTAL REVENUES 586, ,028 OPERATING EXPENSES Personal Services 387, ,068 Purchased Services 244, ,594 Supplies 55,194 39,268 Fixed Charges 53,003 49,140 Depreciation 909, ,458 TOTAL OPERATING EXPENSES 1,648,811 1,572,528 OPERATING LOSS (1,062,620) (903,500) NON-OPERATING REVENUES (EXPENSES) City Contributions 170, ,000 Passenger Facility Charge 139, ,650 Interest Income 32,508 38,561 Gain (Loss) on Disposal of Capital Assets 31,105 (4,150) TOTAL NON-OPERATING REVENUES (EXPENSES) 372, ,061 NET INCOME (LOSS) BEFORE CAPITAL CONTRIBUTIONS (689,752) (563,439) Capital Contributions 1,911,680 1,572,596 CHANGE IN NET ASSETS 1,221,928 1,009,157 NET ASSETS, Beginning 14,787,833 13,778,676 NET ASSETS, Ending $ 16,009,761 $ 14,787,833 The accompanying notes are an integral part of the financial statements. 11 P a g e

13 FORT COLLINS - LOVELAND MUNICIPAL AIRPORT STATEMENT OF CASH FLOWS Year Ended December 31, 2009 Increase (Decrease) in Cash and Cash Equivalents (With Summarized Comparative Totals for the year ended December 31, 2008) Cash Flows from Operating Activities Cash Received from Customers $ 586,394 $ 631,082 Cash Payments for Goods and Services (438,528) (396,959) Cash Payments to Employees (378,420) (349,867) Net Cash Used by Operating Activities (230,554) (115,744) Cash Flows from Noncapital Financing Activities Due to City of Loveland - (75,211) Contributions from Cities 170, ,000 Net Cash Provided by Noncapital Financing Activities 170,000 94,789 Cash Flows from Capital and Related Financing Activities Proceeds on Sale of Capital Assets 35,305 Proceeds from State and Federal Grants 1,791,641 2,362,647 Passenger Facility Charge Revenue 139, ,650 Payments for Capital Acquisition (2,201,925) (1,884,764) Net Cash Provided (Used) by Capital and Related Financing Activities (235,724) 613,533 Cash Flows from Investing Activities Interest Received 32,508 38,561 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (263,770) 631,139 CASH AND CASH EQUIVALENTS, Beginning 861, ,399 CASH AND CASH EQUIVALENTS, Ending $ 597,768 $ 861,538 RECONCILIATION OF OPERATING LOSS TO NET CASH USED BY OPERATING ACTIVITIES Operating Loss $ (1,062,620) $ (903,500) Adjustments to Reconcile Operating Loss to Net Cash Used by Operating Activities Depreciation 909, ,458 Changes in Assets and Liabilities Increase/Decrease in Accounts Receivable 203 (24,186) Increase/Decrease in Accounts Payable (85,904) (13,957) Increase/Decrease in Deferred Revenue - (13,759) Increase/Decrease in Accrued Liabilities 8,622 8,200 Total Adjustments 832, ,756 Net Cash Used by Operating Activities $ (230,554) $ (115,744) The accompanying notes are an integral part of the financial statements. 12 P a g e

14 NOTES TO FINANCIAL STATEMENTS December 31, 2009 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the Fort Collins Loveland Municipal Airport (the Airport) have been prepared in conformity with Generally Accepted Accounting Principles (GAAP) as applied to governmental units. The more significant accounting policies of the Airport are described below. Reporting Entity In accordance with governmental accounting standards, the Airport has considered the possibility of inclusion of additional entities in its financial statements. The definition of the reporting entity is based primarily on financial accountability. The Airport is financially accountable for organizations that make up its legal entity. It is also financially accountable for legally separate organizations if Airport officials appoint a voting majority of the organization s governing body and either it is able to impose its will on that organization or there is a potential for benefits to, or to impose specific financial burdens on, the Airport. The Airport may also be financially accountable for other organizations that are fiscally dependent upon it. Based upon the application of these criteria, no additional organizations are includable within the Airport s reporting entity. The Airport is jointly operated under an Intergovernmental Agreement between the Cities of Fort Collins and Loveland, Colorado. Only the financial transactions of this joint venture are included in this report and the Airport is not included as a component unit of any other government. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The Airport uses an enterprise fund to account for its operations. Enterprise funds are used to account for operations that are financed and operated in a manner similar to private business enterprises, where the intent of the governing body is that costs of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges. The financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when the liability is incurred, regardless of the timing of related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in the financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. Governments also have the option of following subsequent private-sector guidance for their enterprise funds, subject to this same limitation. The Airport has elected not to follow subsequent private-sector guidance. 13 P a g e

15 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Enterprise funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the Airport s principal ongoing operations. Operating expenses include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the Airport s practice to use restricted resources first, then unrestricted resources as they are needed. Cash and Investments The Airport s cash and investments are pooled with those of the City of Loveland. The City s Investment Policy authorizes investments in accordance with State statutes for investing of public funds. Current investment holdings include Money Market Funds, Certificates of Deposit, a local Government Investment Pool, U.S. Treasury Notes, Federal Home Loan Bank, Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, and Federal Farm Credit Bureau and Corporate Bonds that mature within five years. Investments are stated at fair value. Because the investments are part of a pool, the underlying securities cannot be determined. For the purposes of the statement of cash flows, management considers all investments to be cash equivalents. Capital Assets Capital assets include land, improvements, buildings, runways, leasehold improvements and equipment. Capital assets are defined by the Airport as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Buildings are depreciated over a period of 50 years, improvements from 5 40 years, runways from years, leasehold improvements from 5 50 years and equipment from 5 10 years. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the period. Compensated Absences Airport employees are allowed to accumulate vacation and sick time as stipulated in the administrative regulations of the City of Loveland. A liability is recorded on the Airport financial statements for these accrued compensated absences. Net Assets Net assets are restricted when constraints placed on the net assets are externally imposed. 14 P a g e

16 Comparative Data Comparative total data for the prior year has been presented in the financial statements in order to provide an understanding of changes in financial position and operations. However, complete comparative data in accordance with generally accepted accounting principles has not been presented since its inclusion would make the financial statements unduly complex and difficult to read. Accordingly, such information should be read in conjunction with the Airport s financial statements for the year ended December 31, NOTE 2: NOTE 3: STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Budgets and Budgetary Accounting The budget is developed by the City of Loveland, Colorado s staff on a non-gaap budgetary basis, which includes budgeting for capital outlay and excludes depreciation. The budget is then submitted to the City Councils of Fort Collins and Loveland, Colorado. Upon approval by the two City Councils, the City of Loveland legally adopts the budget before commencement of the following fiscal year. The budget includes proposed expenditures and the means of financing them. Expenditures may not legally exceed budgeted appropriations at the fund level. Revisions that alter total expenditures of the fund must be approved by the City Councils. Appropriations lapse at year end. CAPITAL ASSETS Capital assets activity for the year ended December 31, 2009 is summarized below: Balances Balances 12/31/08 Additions Deletions Adjustments 12/31/09 Capital Assets, Not Being Depreciated Land $ 563,614 $ - $ - $ - $ 563,614 Construction in Progress - 110, ,664 Total Capital Assets, Not Being Depreciated 563, , ,278 Capital Assets, Being Depreciated Runways 16,523, ,523,579 Improvements 2,326,444 2,025, ,352,424 Equipment 1,313,821 39,350 62,000-1,291,171 Buildings 198, ,087 Leasehold Improvements 2,528, ,528,477 Total Capital Assets, Being Depreciated 22,890,408 2,065,330 62,000-24,893,738 Less Accumulated Depreciation For Runways (7,356,012) (577,149) - - (7,933,161) Improvements (212,661) (192,769) - (194,228) (599,658) Equipment (570,791) (81,210) (57,802) - (594,199) Buildings (29,932) (14,237) - - (44,169) Leasehold Improvements (1,461,710) (43,780) - 194,228 (1,311,262) Total Accumulated Depreciation (9,631,106) (909,145) (57,802) - (10,482,449) Total Capital Assets, Being Depreciated, Net 13,259,302 1,156,185 4,198-14,411,289 Total Capital Assets, Net $ 13,822,916 $ 1,266,849 $ 4,198 $ - $ 15,085,567 NOTE 4: RISK MANAGEMENT The Airport is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. 15 P a g e

17 The Cities of Fort Collins and Loveland carry commercial insurance for these risks of loss. During the last three years, there have not been any claims that exceeded coverage. NOTE 5: CONTRACTURAL AGREEMENTS Facilities Leased to Fixed Base Operator The Airport leases certain facilities to the Fixed Base Operator (FBO). The ten-year lease agreement, effective December 5, 1994, includes monthly rent for the first five years of $4,250. Subsequently, monthly rent payments are adjusted for inflation every five years. An extension to the contract was granted in August of 2009 for an additional 5-year term ending on December 4, The new annual rental rate for the last five year term is $74,934 per year. The agreement also provides for a fuel flowage fee of 6% of delivered fuel cost or $.05 per gallon, whichever is higher. Intergovernmental Agreement The Airport is jointly operated under an Intergovernmental Agreement between the City of Fort Collins, Colorado and the City of Loveland, Colorado. Pursuant to the agreement, any needed contributions for annual operating budgets or capital improvements are shared equally by both cities. Also, either city may invest additional funds in the Airport as it sees fit. Since July 3, 1979, ownership of assets vests equally with each city. Assets acquired prior to July 3, 1979 vested one-third with the City of Loveland and two-thirds with the City of Fort Collins. The agreement provides that if either city does not pay its one-half of agreed expenses in a given year, it will convey to the other city 10% of its total Airport ownership. Each city contributed $85,000 in Certain administrative services are provided by the City of Loveland. These include legal services, accounting and purchasing, audit costs, personnel and benefits administration, engineering, facilities maintenance, general administration, environment services and risk and insurance management. In 2009, the City of Loveland was paid $23,450 for these services. As part of personnel administration, the employees of the Airport also participate in the City of Loveland s 401(a) money purchase plan that was established (and may be amended) by City Council of the City of Loveland. This Plan requires contributions of 5% from the employer and 3% from the employee. The Airport contributed $14,716 to the Plan in 2009, representing the required contributions. NOTE 6: COMMITMENTS AND CONTINGENCIES TABOR Amendment In November 1992, Colorado voters passed an amendment to the State Constitution, Article X, Section 20, which has several limitations, including raising revenue, spending abilities, and other specific requirements of state and local governments. The Amendment 16 P a g e

18 is complex and subject to judicial interpretation. The Airport believes it is in compliance with the requirements of the Amendment. The Airport is operated as a unit of each City through the Intergovernmental Agreement, therefore both the City of Loveland and the City of Fort Collins included the Airport s emergency reserves in its city-wide financial statements. Claims and Judgments The City of Loveland receives Federal and State grants for use by the Airport. These grants are reported as grant revenues in the Airport s financial statements. However, certain Federal compliance and reporting requirements remain the responsibility of the City of Loveland. Expenses financed by grants are subject to audit by the appropriate grantor government. If expenses are disallowed due to noncompliance with grant program regulations, the Airport may be required to reimburse the grantor government. As of December 31, 2009, significant amounts of grant expenses have not been audited but management believes that subsequent audits will not have a material effect on the overall financial position of the Airport. Construction Commitments At December 31, 2009 the Airport had one construction project in process. Project Budget Cost to date Rehabilitate Runway 15/33 Phase I $ 235,000 $ 110, P a g e

19 FORT COLLINS - LOVELAND MUNICIPAL AIRPORT BUDGETARY COMPARISON SCHEDULE (NON-GAAP BUDGETARY BASIS) Year Ended December 31, BUDGET DIFFERENCE WITH FINAL 2008 ORIGINAL FINAL ACTUAL BUDGET ACTUAL REVENUES Hangar Rental $ 90,000 $ 90,000 $ 87,292 $ (2,708) $ 71,948 FBO Rent 66,760 66,760 68,033 1,273 66,758 Gas and Oil Commissions 150, , ,876 (44,124) 196,332 Passenger Facility Charge 125, , ,255 14, ,650 State Aircraft Fuel Tax 40,000 40,000 33,284 (6,716) 54,058 Land Lease 102, ,000 97,445 (4,555) 84,518 Terminal Lease and Landing Fees 36,000 36,000 43,578 7,578 41,059 Concessions (98) - Parking 135, , ,334 2, ,466 Miscellaneous 38,500 73,000 44,052 (28,948) 34,739 Interest Income 28,500 28,500 32,508 4,008 38,561 Federal and State Grants 1,450,000 2,075,620 1,911,680 (163,940) 1,572,596 City Contributions 170, , , ,000 TOTAL REVENUES 2,432,260 3,092,380 2,870,739 (221,641) 2,581,685 EXPENDITURES Personal Services 383, , ,042 9, ,068 Purchased Services 245, , ,427 65, ,594 Supplies 27,100 31,900 55,194 (23,294) 39,268 Fixed Charges 66,150 66,150 53,003 13,147 49,140 Capital Outlay 1,582,230 2,524,030 2,175, ,035 1,264,481 TOTAL EXPENDITURES 2,304,930 3,328,550 2,915, ,890 2,005,551 CHANGE IN NET ASSETS, Budgetary Basis $ 127,330 $ (236,170) (44,921) $ 191, ,134 RECONCILIATION TO GAAP BASIS Capital Outlay 2,175,995 1,264,481 Depreciation (909,145) (831,458) CHANGE IN NET ASSETS, GAAP Basis $ 1,221,928 $ 1,009,157 See the accompanying Independent Auditors Report. 18 P a g e

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29 MANAGEMENT RESPONSE TO THE SCHEDULE OF FINDINGS AND QUESTIONED COSTS 09-01: Passenger Facility Charges The City of Loveland concurs with this finding and recognizes the importance of quarterly reporting to the carriers. The reporting to the carriers was an oversight; however, reporting to the FAA was being conducted quarterly. Based on this Finding, the City has implemented a process in which quarterly reporting of the revenue collected from the Passenger Facility Charges is sent to the carriers along with the FAA. In the first quarter of 2010, the City has remediated this finding by reporting to the carriers the revenue collected from Passenger Facility Charges. 28 P a g e

30 FORT COLLINS - LOVELAND MUNICIPAL AIRPORT SCHEDULE OF PASSENGER FACILITY CHARGES COLLECTED AND EXPENDED For Each of the Quarters In the Year Ended December 31, st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total Receipts $ 37,785 $ 25,883 $ 45,125 $ 30,462 $ 139,255 Interest 4,026 1,753 1,103 3,597 10,479 Total PFC Revenue Received 41,811 27,636 46,228 34, ,734 Expenditures: Application #6: (1) Construct Taxiway A1 Extension 20,213 20,213 (2) North Airfield Drainage Improvements 2,162 2,162 (3) Wildlife Assessment Study 3,127 3,127 (4) Taxiway I Grading and Utility Lowering 8,446 8,446 (5) Purchase Snow Removal Equipment ,070 11,070 (6) Security Enhancements 3 6,794 6,794 (7) Taxiway E Construction 20,948 20,948 (8) T-Hangar Fencing 1,935 1,935 (9) T-Hangar Pavement Reconstruction 4,151 4,151 (10) Taxiway D Pavement Maintenance 21,621 21,621 (11) Purchase ARFF Truck - - (12) Rehabilitate Airport Rotating Beacon - - (13) Install Airfield Electrical Vault Backup - - (14) Security Enhancements Total Application # , ,467 Total PFC Expenditures , ,467 Net Change in Passenger Facility Charges $ 41,811 $ 27,636 $ 46,228 $ (66,408) 49,267 Passenger Facility Charges, Beginning of year 109,135 Passenger Facility Charges, End of year $ 158,402 The accompanying notes are an integral part of the financial statements. 29 P a g e

31 NOTES TO SCHEDULE OF PASSENGER FACILITY CHARGES COLLECTED AND EXPENDED December 31, 2009 NOTE 1: GENERAL The Aviation Safety and Capacity Expansion Act of 1990 (Public Law , Title II, Subtitle B) authorized the imposition of local Passenger Facility Charges (PFCs) and use of resulting PFC revenue for Federal Aviation Administration (FAA) approved projects meeting at least one of the following criteria: (1) preserve or enhance safety, security, or capacity of the national air transportation system; (2) reduce noise or mitigate noise impacts resulting from an airport; or (3) furnish opportunities for enhanced competition between or among carriers. NOTE 2: SCHEDULE OF PASSENGER FACILITY CHARGES COLLECTED AND EXPENDED The accompanying Schedule of Passenger Facility Charges Collected and Expended (Schedule) presents the PFC collected and interest earned thereon, and expenditures incurred on approved projects. PFC s received and expenditures spent on approved projects in the accompanying Schedule represent amounts reported to the FAA on the Passenger Facility Charge Quarterly Status Reports. PFC charges collected represent cash collected for the year ended December 31, 2009 as reported to the FAA. The interest earned represents the actual interest collected on the unexpended PFCs during the year. Expenditures represent FAA-approved projects expended in prior and current years and are reported when projects are complete. The Schedule is not intended to be a complete presentation of the Airport s assets, liabilities, revenue and expenses in conformity with generally accepted accounting principles. 30 P a g e

32 Prepared by: Finance Department Accounting Division