Comprehensive Annual Financial Report. Clark County Department of Aviation. An Enterprise Fund of Clark County, Nevada

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2 Comprehensive Annual Financial Report Clark County Department of Aviation An Enterprise Fund of Clark County, Nevada For the Years Ended June 30, 2007 and 2006 Prepared by the Department of Aviation McCarran International Airport Las Vegas, Nevada

3 CLARK COUNTY DEPARTMENT OF AVIATION Clark County, Nevada Board of County Commissioners Rory Reid, Chairman Chip Maxfield, Vice Chairman Susan Brager Tom Collins Chris Giunchigliani Lawrence Weekly Bruce L. Woodbury County Manager's Office Virginia Valentine, County Manager Darryl Martin, Assistant County Manager Elizabeth Macias Quillin, Assistant County Manager Phil Rosenquist, Assistant County Manager Department of Aviation Randall H. Walker, Director Rosemary A. Vassiliadis, Deputy Director Alan W. Stewart, Assistant Director, Finance

4 CLARK COUNTY DEPARTMENT OF AVIATION CLARK COUNTY, NEVADA FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2007 AND 2006 TABLE OF CONTENTS INTRODUCTORY SECTION Letter of Transmittal...1 Certificate of Achievement for Excellence in Financial Reporting...3 Organization Chart...4 FINANCIAL SECTION Independent Auditors' Report on Financial Statements and Supplementary Information...7 Management's Discussion and Analysis...8 Financial Statements: Statements of Net Assets...22 Statements of Revenues, Expenses and Changes in Net Assets...23 Statements of Unrestricted, Restricted and Designated Cash Flows...24 Notes to Financial Statements...25 Supplementary Information: Schedule of Insurance Coverage...69 Schedule of Airport Revenue Bond Debt Service Coverage...70 Schedule of Cash Receipts and Disbursements - Restricted and Designated Accounts...71 Schedule of Operating Revenues and Expenses by Cost Center...72 Independent Auditors' 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...74 STATISTICAL SECTION Overview of Information Provided in Statistical Section...77 Summary of Operations...78 Schedule of Airport Revenue Bond Debt Service Coverage...79 Summary of Operating Revenues...80 Summary of Restricted Revenues...81 Ratios of Airport Revenue Bond Debt Service to Total Operating Revenues and Expenses...82 Summary of Operating Expenses...83 Passenger and Operating Statistics...84 Visitor, Convention and Room Statistics...85 Market Share of Air Carriers...86 Per Passenger Calculations...87 Schedule of Net Assets...88

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6 December 10, 2007 To the Board of County Commissioners And County Manager Clark County, Nevada The Comprehensive Annual Financial Report (CAFR) of the Clark County Department of Aviation (the Department) for the year ended June 30, 2007, is submitted herewith. The Finance Division of the Department prepared this report. The financial statements were audited, as required by NRS , by Piercy Bowler Taylor and Kern, independent certified public accountants whose unqualified audit report is contained herein. The Department comprises a single enterprise fund of Clark County (the County), and operates as a separate selfsufficient enterprise of the County. The seven-member Clark County Board of County Commissioners (the Board) is responsible for governing the affairs of the Department. The Director of Aviation is appointed by and reports directly to the County Manager. The Department operates and maintains McCarran International Airport (the Airport), the sixth largest airport in North America in terms of passenger volume, and four general aviation airports. The Airport occupies approximately 2,800 acres and is located six miles from downtown Las Vegas and one mile from the Las Vegas Strip, the center of the Las Vegas gaming and entertainment industry. The Airport is primarily an origination and destination (O&D) airport and is the second largest O&D airport in the United States second only to Los Angeles International Airport. In addition to the Airport, the Department operates North Las Vegas Airport, which caters to general aviation activity and is the second busiest airport in the state of Nevada in terms of aircraft operations and; Henderson Executive Airport, a premier corporate aviation facility that features a new state-of-the-art terminal, private hangar facilities and a new control tower designed to meet the needs of the business aviation community. In addition, the Department operates Jean Sports Aviation Center and Overton-Perkins Field which are primarily used for recreational purposes. All of the airports operated and maintained by the Department are collectively referred to as the Airport System. Users of the Department s facilities provide all of the revenues to operate, maintain and acquire necessary services and facilities. The Department is not subsidized by any tax revenues of the County. The Department has been a self-sustaining entity since The Las Vegas metropolitan area has continued its strong growth during calendar year (CY) 2006 with population growth of 5.3% over CY2005. Gaming and tourism dominate the economy and gaming revenues continue to exceed expectations with record revenues in CY2006 of $10.6 billion, an increase of 9.5% over CY2005. Hotel occupancy rates for CY 2006 continued to be in the 89.7% range, about the same as CY 2005, however, average daily room rates were up 16.0% over CY2005. Conventions held in Las Vegas were up 7.5% in CY2006 and convention attendance was up 2.3% and had an economic impact of $8.2 billion to the local economy. 1

7 The Department s management is responsible for the accuracy of the data presented in the financial statements along with the completeness and fairness of the presentation, including all disclosures. To the best of our knowledge, and as indicated in the opinion of our independent auditors, this report fairly presents and fully discloses the Airport s financial position, results of operations and cash flows in accordance with generally accepted accounting principles (GAAP). In developing and evaluating the Department s accounting system, consideration is given to the adequacy of internal control. The objectives of internal control are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management s authorization and recorded properly to permit the preparation of financial statements in accordance with GAAP. The concept of reasonable assurance recognizes that: 1) the cost of a control should not exceed the benefits likely to be derived; and 2) the evaluation of costs and benefits requires estimates and judgments by management. Department management believes that the Department s internal control processes adequately safeguard assets and provide reasonable assurance that financial transactions are recorded properly. This letter of transmittal should be read in conjunction with the management s discussion and analysis (MD&A) contained in the Financial Section. The extraordinary success of the Department is a direct result of the leadership and support of the Board and County Manager. Also recognized for making a tremendous effort in promoting the success of the Airport are the employees of the Department, the airlines, tenants, and other partners of the Airport System. We thank the Board for its continuing support of the Department and its efforts to conduct its financial operations in a responsible and progressive manner, and for making the Airport a global leader in the airport industry. The preparation of this CAFR is due to the dedicated service and professionalism of the Airport s finance staff and other members of the Airport staff who contributed their time. Sincerely submitted: Randall H. Walker Director of Aviation Alan W. Stewart Assistant Director Finance 2

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9 CLARK COUNTY DEPARTMENT OF AVIATION CLARK COUNTY, NEVADA ORGANIZATION CHART As of June 30, 2007 Clark County Board of Commissioners County Manager County Manager Virginia Valentine Virginia Valentine Director of Aviation Randall H. Walker Deputy Director Rosemary A. Vassiliadis Assistant Director Airside Operations Joseph Kubacki Assistant Assistant Director Director Acting Construction & Engineering Dennis Jim Mewshaw Ryan Assistant Director Employee Services Christine Santiago Assistant Director Facilities Robert Kingston Assistant Director Finance Alan Stewart Assistant Director Information Systems Samuel Ingalls Assistant Director Terminal Operations Ralph LePore Assistant Director General Aviation Cecil Johnson Assistant Director Landside Operations Harry Waters

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12 PBTK PIERCY BOWLER TAYLOR & KERN Certified Public Accountants Business Advisors ELTON AVENUE, STE. 1000, LAS VEGAS NEVADA fax pbtk.com

13 Management s Discussion and Analysis The following management s discussion and analysis (MD&A) of the financial performance and activity of the Clark County Department of Aviation (the Department) provides an introduction and understanding of the financial statements of the Department for the fiscal years ended June 30, 2007, and 2006, with selected comparisons to prior fiscal periods. The information presented should be read in conjunction with the financial statements and accompanying notes in this report. Introduction Airport Activity Highlights For the fiscal year (FY) ended June 30, 2007, passenger enplanements totaled 23,628,484 compared to 22,546,814 in FY2006 and 21,439,652 in FY2005, increases of 4.6%, 4.9% and 9.3% respectively. By comparison, according to the Federal Aviation Administration (FAA) statistics, domestic U.S. passenger enplanements increased 1.7% over the same prior 12-month period. The total FY2007 passengers of 47,255,520 is another Department record, exceeding the prior Department record reached in FY2006 by 2,217,304 passengers. Aircraft landed weights in FY2007 totaled 28,626,375 thousand pounds, compared to 27,526,493 thousand pounds in FY2006 and 27,066,272 in FY2005, an increase of 4.0%, 1.7% and 8.1% respectively. The increase in landed weight is the result of 4.1% more landings in FY2007. The continued record growth in passenger traffic at the Airport continues to solidify the strong destination market for Las Vegas. The following presents Airport activities for FY2007 and the previous nine fiscal years: CLARK COUNTY, NEVADA PASSENGER AND OPERATING STATISTICS LAST TEN FISCAL YEARS Total Fiscal Aircraft Operations Landed Weight Enplaned Cargo Year Departures (Pounds per 000) Passengers Tons ,842 19,772,944 15,008,564 79, ,458 20,965,119 15,873,267 88, ,531 24,073,667 17,720, , ,817 24,663,929 18,639, , ,564 23,587,166 16,945,697 88, ,223 23,074,743 17,641,500 89, ,860 24,878,724 19,449,065 92, ,035 27,066,272 21,439, , ,445 27,526,493 22,546, , ,781 28,626,375 23,628, ,761 Average Annual Increase (Decrease) 4.1% 4.2% 5.2% 3.1% 8

14 Airline Rates and Charges Effective July 1, 2003, the Department entered into a Scheduled Airline Operating Agreement and Terminal Building Lease (the Agreement) with the signatory airlines serving the Las Vegas market, which has a term of five years and incorporates the lease and use of the terminal complex, apron areas and airfield at the Airport. The Agreement establishes a residual rate-making methodology for the Airport System in the airfield and a compensatory rate-making methodology for the terminal building square footage rental and apron rental rate. Rates and charges are calculated on an annual basis pursuant to budgeted revenues, expenses and debt service and reviewed and adjusted, if necessary, throughout each fiscal year to ensure that sufficient Airport System revenues are generated to satisfy all of the requirements of the Master Indenture of Trust dated May 1, 2003, as amended. At the end of each fiscal year, the Department recalculates the rates and charges based on audited financial data and any variance of budgeted vs. actual is included in the then subsequent year rates and charges as a credit or additional amount due. The table below summarizes passenger airline terminal building rentals, landing fees, apron fees and the cost per enplaned passenger for FY2007 and FY2006. Cost per enplaned passenger is a standard industry measurement, and the goal of the Department is to maintain a competitive cost per enplanement at the Airport. The actual cost per enplanement for FY2007 was $5.53, compared to $4.62 for FY2006. Passenger Airline Costs Fiscal Years 2007 and 2006 FY 2007 FY 2006 Actual Actual Variance Airline Cost Category (000) (000) (000) Landing Fees $ 32,098 $ 23,947 $ (8,151) Terminal Building Rentals 74,229 65,680 (8,549) Apron Fees 11,000 4,068 (6,932) Gate Usage Fees 5,910 6, Passenger Fee - Ticketing 1,472 1,321 (151) Airline Equipment Rentals 1,912 - (1,912) Airline Ramp Rentals 623 (623) CIT Per Passenger Fee 3,327 2,973 (354) Total Airline Fees and Charges 130, ,217 (26,354) Enplaned Passengers 23,628 22,547 (1,081) Cost per Enplaned Passenger $ 5.53 $ 4.62 $ (0.90) 9

15 Overview of Financial Statement The Department s financial statements are prepared using the accrual method of accounting. Therefore revenue is recognized when earned and expenses are recognized when incurred. Capital assets are capitalized when substantially complete and depreciated over their estimated useful lives. Refer to Note 1 in the accompanying financial statement for a summary of the Department s significant accounting policies. Following this MD&A are the financial statements and supplemental schedules of the Airport System. These statements and schedules, along with the MD&A, are designed to provide the readers with an understanding of the Department s financial position and results of operations. The statements of net assets present information on all of the Department s assets and liabilities as of June 30, 2007, and The statements of revenue, expenses, and changes in net assets present financial information showing how the Department s net assets changed during the fiscal years ended June 30, 2007, and The statements of cash flow relate to the cash and cash equivalent in-flows and out-flows as a result of financial transactions during the two fiscal years and also include reconciliations of operating income to the net cash provided by operating activities. Financial Highlights Assets, Liabilities, and Net Assets The following table provides a condensed summary of the Department s net assets as of June 30, 2007, 2006 and CLARK COUNTY DEPARTMENT OF AVIATION CLARK COUNTY, NEVADA Net Assets As of June 30, 2007, 2006 and 2005 FY FY FY Change 2007 Change 2006 (000) (000) (000) to 2006 to 2005 Assets: Current Assets $ 263,293 $ 230,648 $ 245,252 $ 32,645 $ (14,604) Restricted Assets 1,770,368 1,116,334 1,065, ,034 50,476 Capital Assets, net 2,510,218 2,276,249 2,019, , ,593 Other Noncurrent Assets 43,707 35,283 24,493 8,424 10,790 Total assets $ 4,587,586 $ 3,658,514 $ 3,355,259 $ 929,072 $ 303,255 Liabilities and Net Assets: Current Liabilities $ 744,885 $ 387,888 $ 338,490 $ 356,997 $ 49,398 Noncurrent Liabilities 2,463,386 1,996,618 1,957, ,768 38,935 Total Liabilities 3,208,271 2,384,506 2,296, ,765 88,333 Net assets: Invested in Capital Assets, net of related debt (309,417) 333,719 95,981 (643,136) 237,738 Restricted 1,528, , , , ,466 Unrestricted 160, , ,817 (12,467) (132,282) Total Net Assets 1,379,315 1,274,008 1,059, , ,922 Total Liabilities and Net Assets $ 4,587,586 $ 3,658,514 $ 3,355,259 $ 929,072 $ 303,255 Total Revenues $ 521,076 $ 560,686 $ 431,907 Total Expenses 415, , ,201 Total Net Change in net assets $ 105,307 $ 219,412 $ 119,706 Total assets increased $929.1 million from $3.7 billion in FY2006 to $4.6 billion in FY2007 primarily due to the issuance of $825.6 million in revenue bonds and notes during FY2007. Total assets increased $303.3 million in FY2006 from FY2005. Total liabilities increased $823.8 million in FY2007 from $2.4 billion in FY2006 to $3.2 billion in FY2007 due to increased construction in FY2007 in addition to increased debt. In FY2006, total liabilities increased $88.3 million or 3.8%. 10

16 The following table summarizes net assets as of June 30, 2007, 2006, and CLARK COUNTY DEPARTMENT OF AVIATION CLARK COUNTY, NEVADA Net Assets June 30, 2007, 2006, and 2005 As of June Net assets (000) (000) (000) Invested in capital assets, net of debt $ (309,417) $ 333,719 $ 95,981 Restricted net assets: Capital Programs 1,101, , ,096 Debt Service 426, , ,192 Total restricted 1,528, , ,288 Unrestricted net assets 160, , ,816 Total net assets $ 1,379,315 $ 1,274,008 $ 1,059,085 Investments in capital assets, net of related debt decreased significantly during FY2007 from $333.7 million in FY2006 to ($309.4) million in FY2007, as the Department continues to issue additional debt to finance projects which are in construction in progress (CIP) or are about to begin in the next 12 months. At June 30, 2007, the current and long-term debt at the Airport totaled $2.8 billion while net capital assets totaled $2.5 billion. Investment in capital assets, net of related debt increased $237.7 million in FY2006 over FY2005. Restricted net assets capital programs: represents the cash and investments from interest earnings on bond proceeds that have not yet been spent on the associated capital project, plus funds in the PFC Fund and the Airport s Capital Fund. The significant increase of $716.2 million in this category is attributed to the issuance of airport revenue bonds whereby the proceeds have been restricted as to use. Restricted net assets for capital programs increased $56.6 million in FY2006 primarily due to the issuance of additional long-term debt. Restricted net assets debt service: primarily represents monies set aside for Debt Service Reserve Funds and Debt Service Interest and Sinking Funds as required by the Master Indenture. The restricted net assets for debt service increased $44.7 million in FY2007 primarily due to the new bond issues and associated reserve fund requirements during FY2007. During FY2006, restricted net assets for debt service increased $52.9 million as a result of new debt service reserve fund requirements. Unrestricted net assets at June 30, 2007 were $160.1 million, a decrease of $12.5 million due primarily to increase spending in the Airport s Capital Fund. Each year the Airport deposits the gaming revenues into the Capital Fund which can be used for any lawful purpose. 11

17 Operating Revenues FY FY FY Percentage Percentage Change Change Revenue Category (000) (000) (000) Landings and other aircraft fees $ 37,616 $ 29,405 $ 37, % -20.8% Building and land rentals 112,839 84,940 84, % 0.6% Ground transportation 10,145 9,754 8, % 13.9% Rental car 28,837 28,585 26, % 8.6% Gaming 40,884 39,626 37, % 5.4% Terminal concessions 48,212 45,047 39, % 15.1% Parking 28,014 26,236 22, % 17.6% Consolidated rental car facility rental fees 16,355 16, % 0.0% Other Income 4,030 4,216 1, % 209.3% Net Revenue from reliever airports 5,739 6,479 4, % 38.1% $ 332,671 $ 290,979 $ 261, % 11.2% Discussion of FY2007 Operating Revenues Landing fees are paid by signatory and non-signatory airlines based on the FAA certified weight of the various aircraft that land at the Airport. Signatory airlines represent airlines that have signed the Agreement with the County. Landing fees increased $8.2 million (28.2%), from $29.4 million in FY2006 to $37.6 million in FY2007 due to the impact of higher landing fee rates as a result of an increase in Airport operating expenses of 37.1 %. The landing fee rate for FY2006 was $0.75 per 1,000 pounds of landed weight versus $1.12 for FY2007. Terminal building rents during FY2007 increased 13.0% from $85.20 per square foot in FY2006 to $96.41 in FY2007. This increase can be attributed to an increase in unfunded TSA security related mandates and the operating expenses associated with the Airport s new in-line baggage handling system. Concession revenues at the Airport during FY2007 reached record levels for the third year in a row. Food, beverage and retail concessions in the terminal complex attributed to the highest increase, 7.0% over FY2006. During FY2007, the Airport received $48.2 million in fees from food, beverage and retail sales. The continued growth in terminal concession revenues can be attributed to passengers spending more time in the terminal complex on average together with the introduction of more highly recognized national food, beverage and retail brands. Parking revenues from public parking increased 6.8 % in FY2007 over FY2006. Public parking includes short-term garage, long-term garage, valet parking, and remote economy parking. With the population growth in the Las Vegas valley over the past several years, the Airport has experience increased demand for public parking at the Airport. Ground transportation revenues for FY2007 increased 4.0 % over FY2006. Ground transportation revenues include taxi cab revenues, courtesy vans, busses, and limousines. The Airport has an Automated Vehicle Identification System (AVI) to track all ground transportation vehicles entering and leaving the Airport premises. The significant increase in FY2007 occurred from the limousine operators where the revenues increased 7.9 % due to new contracts being awarded. Taxi cab revenue was relatively flat in FY2007 over FY2006. The rental car companies, who pay the Airport 10.0 % of their gross revenues, reported revenues of $28.8 million, a 1.0 % increase over FY2006. In April of 2007, all rental car companies operating at the Airport relocated to the consolidated rental car facility located on Airport property approximately five miles from the Airport terminals. 12

18 During FY2007, revenues from the Airport s gaming increased 3.2 % over FY2006. The Airport currently has over 1,200 slot machines located throughout the terminal facilities. Total Airport revenues from gaming were $40.9 million in FY2007. All Airport gaming revenue is deposited into the Airport System Capital Fund. Discussion of FY2006 Operating Revenues During FY2006, the number of operations at the Airport increased by 8.0% from 570,947 in FY2005 to 616,623 in FY2006. Landed weights for all commercial aircraft for FY2006 increased by 1.7% over FY2005. Total passengers for FY2006 increased 5.0% from 42,860,463 in FY2005 to 45,038,216 in FY2006. Concession revenues for FY2006 reached an all-time high at $6.62 per enplaning passenger, 6.0% higher than the previous record of $6.25 achieved in FY2005. The largest single increase in concession revenue came from parking, where revenues for FY2006 increased 17.6% over FY2005. This increase can be attributed to several factors, including, increases in the overall population of the region, a full year of the price increase implemented in March of 2005, and a new valet parking contract which provides for a more lucrative share of revenue. The second largest increase in concession revenues at 15.1% came from terminal concessions, which includes food and beverage, news and gift, specialty retail, advertising, and passenger services. During FY2006, the Airport s master food and beverage operator continued to upgrade facilities and add new national brands to the airport s food and beverage mix. These efforts have increased food and beverage revenues by 16.2%. The advertising revenues for FY2006 increased by 29.2% as a result of additional advertising sites and renegotiations of existing sites. During FY2006, revenues from ground transportation activities increased 13.9% over FY2005. Most of this increase is the result of price increases and the implementation of a $3.00 fuel surcharge by the limousine operators at the Airport. Limousine revenues in FY2006 increased by 23.1% over FY2005. Rental car revenue in FY2006 increased 8.5% over FY2005 due to a continued desire by visitors to have more flexibility to visit other sites within the region, the relatively low cost of renting a car in the Las Vegas region and the lack of any overnight parking fees at any of the casino resorts. Revenues from gaming increased 5.4% in FY2006 after relatively flat revenue growth in FY2005. A significant portion of this increase can be attributed to the installation of a new ticket in/ticket out software system in FY2006 that has made the pay-out process more customer friendly. Revenues from the two primary reliever airports, North Las Vegas Airport and Henderson Executive Airport, increased significantly in FY2006, increasing by 38.1% over FY2005. The majority of this increase is attributed to a 66.4% increase in the net sales of Jet A fuel and an 18.9% increase in the net sales of 100 Octane fuel as a result of increases in flight activity and the lower cost of fuel in Nevada as compared to surrounding states. 13

19 Operating Expenses FY FY FY Percentage Percentage Change Change Expenses Category (000) (000) (000) Salaries and benefits $ 82,254 $ 67,128 $ 63, % 6.0% Contract maintenance 19,107 14,206 8, % 75.3% Professional services 49,975 33,535 32, % 3.7% Utilities 20,533 15,973 14, % 7.8% Communications 2,078 1,759 1, % 30.3% Repairs and maintenance 4,023 3,442 4, % -27.2% Materials and supplies 20,826 13,295 7, % 66.8% Insurance 5,889 5,879 5, % 12.0% Administrative 10,573 1,760 2, % -28.3% $ 215,258 $ 156,977 $ 140, % 11.8% Discussion of FY2007 Operating Expenses Overall, operating expenses of the Airport System increased 37.1% over FY2006. This increase of over $58.3 million can be attributed to two primary events; 1) the completion of the Airport s in-line baggage handling system which is owned and operated by the Airport and maintained by Airport System staff; and 2) unfunded security related mandates from the TSA which require the Airport to physically man all terminal access point doorways into the secured areas of the terminal. As detailed below these two events have had a significant impact on the Airport s operating expenses. At June 30, 2007, the Airport System employed 1,345 full-time and 58 part-time employees, an increase of 12.7 % over FY2006. The majority of the increase is the result of new facility maintenance staff associated with maintaining the new in-line baggage handling system. The salaries and wages for FY2007 increased 22.5 % over FY2006. Overtime for FY2007 increased 43.4 % over FY2006. Fringe benefits for FY2007 increased 12.8 % over FY2006. Group insurance increased by 14.2 %, retirement contributions increased by 18.4 % and other benefits increased by 36.2 %. Workers compensation expense for FY2007 was down by 38.7 %. Contract maintenance expenses for FY2007 increased 34.5 % over FY2006. The majority of this increase can be associated with a new contractor for the annual maintenance of escalator and elevator maintenance and an outside consultant needed for maintenance assistance with the new in-line baggage handling system during the first year of operation. Professional services for FY2007 increased 49.0 % over FY2006. Professional services provided to the Airport System from the County increased by 26.9 % with the largest increase in legal costs due to the large number of litigation cases followed by administrative expenses due primarily to the new County SAP financial software system charge backs. The security costs, which represent charge backs from Las Vegas Metropolitan Police Department, increased 32.1 % over FY2006. Shuttle costs at the Airport increased by % as a result of shuttling passengers from Concourse C to Concourses A/B. Other professional services increased % due to increased professional fees associated with new project planning studies and environmental work. Utility costs at the Airport increased by 28.5 % in FY2007 over FY2006. The increased rates for electricity and gas coupled with the increase in passengers and the large number of major construction projects at the Airport contributed to these increases. Electricity expenses increased 27.0 %, gas increased 29.0% and water increased 61.2 % over FY2006 expenses. 14

20 Materials and supplies for FY2007 increased by 56.6 % over FY2006. Increases for computer equipment and software increased 45.4 % as the Airport continues to plan and implement their enterprise resource management systems. Other materials and supplies increases have occurred in gasoline, where an increase of % has occurred as a result of increases in the cost of gasoline; a 65.6 % increase in electrical supplies associated with new airfield construction; and the purchase of new RFID tags for the new in-line baggage system added $4.6 million to the costs of supplies. Miscellaneous expense for FY2007 has increased $8.6 million due primarily to reclassifications and corrections associated with interest income associated with the 2005C interest rate swaps. Discussion of FY2006 Operating Expenses At June 30, 2006, the Airport System employed 1,193 full-time and 52 part-time employees, a 17.1% increase in full-time employment compared to FY2005. The majority of the increase occurred in the custodial and maintenance areas. The salaries for FY2006 increased 4.8% over FY2005. Overtime for FY2006 increased by 34.0%. Fringe benefits for FY2006 increased by 6.9% over FY2005. The largest increase was in workers compensation, where the costs increased by 10.0%, and the group insurance benefits, where the cost of providing medical, dental and life insurance increased by 7.4% in FY2006. The most significant increase in operating and maintenance expenses at the Department occurred in the area of contract maintenance. Contract maintenance services increased by 75.3% in FY2006 as compared to FY2005. The primary reason for this increase is twofold. The first relates to the new in-line baggage handling system. This new $125 million system requires specialized maintenance and during FY2006, the Department contracted with an outside maintenance and repair provider. Secondly, the Department contracted with a new elevator and escalator maintenance company that provides a much improved quality of service at a higher price than in prior years. Utility services at the Airport increased by 7.8% during FY2006. These increases can be attributed to a full year with the northeast wing of Concourse D in operation and a 27.9% increase in the cost of natural gas. Materials and supplies for FY2006 increased by 66.8% over FY2005. A large share of the increase stems from an ongoing effort to develop a Department-wide Enterprise Resource Management System. Computer equipment and software purchases during FY2006 were up by 153.7% over FY2005. Other contributing factors include a 39.5% increase in custodial supplies due to increased traffic and a 71.7% growth in maintenance supplies required by the new in-line baggage handling systems. Insurance costs increased 12.0% in FY2006 due, in part, to the Department securing Pollution and Remediation Legal Liability coverage for the first time. 15

21 Non-Operating Revenues and Expenses FY FY FY Percentage Percentage Change Change Revenue/Expenses Category (000) (000) (000) Unrestricted interest income $ 24,799 $ 20,969 $ 26, % -21.9% Restricted interest income 24,295 11, % PFC interest income 5,229 4, % Interest expense (114,690) (113,460) (105,806) 1.1% 7.2% Passenger facility charges 89,358 85,969 73, % 17.1% Jet A Fuel Tax revenue 9,310 9,271 9, % -1.0% Customer facility charges 5,401 11, % 0.0% Other 4,956 6,265 (1,612) -20.9% % $ 48,658 $ 36,129 $ 2, % % Discussion of FY2007 Non-operating Revenues and Expenses During FY2007 interest income from fund balances and investments in pooled cash and Trustee cash increased 48.1 % over FY2006. This increase can be attributed primarily to the issuance of $525.6 million in bond proceeds during FY2007. Interest expense for FY2007 increased only 1.0 % since a large portion of the new debt interest is being capitalized. Effective September 1, 2006, the Passenger Facility Charge (PFC) rate decreased from $4.50 per qualifying enplaned passenger to $3.00 pursuant to authorization from the Federal Aviation Administration. Effective January 1, 2007, the PFC rate increased from $3.00 per qualifying enplaned passenger to $4.00 and the rate will remain at this level until PFC Application One expires some time in late After that date the rate will increase back to $4.50 per qualifying enplaned passenger. PFCs at the Airport have been used to pay debt service on airport revenue bonds that have been issued to finance PFC approved projects. Effective July 1, 1991, the County enacted an ordinance providing that a two cent per gallon tax on Jet A fuel be imposed and allocated to the Airport to help facilitate the expansion of air transportation facilities in the region. This tax has been an important source of funding to address the capacity, security, safety and noise issues of the Airport. During FY2007 the Department was allocated $9.3 million, approximately the same amount as FY2006. The Jet A Fuel Tax revenues are currently used to pay the principal and interest on the 2003C Jet Aviation Fuel Tax Revenue Bonds. Any revenues in excess of the requirement of the 2003C bonds are currently used to pay the principal and interest on the 2003B General Obligation (Limited Tax) Airport Bonds. Effective May 1, 2004, the County enacted an ordinance requiring all rental car customers, except Clark County residents, to pay a Customer Facility Charge (CFC) of $3.00 for each day they rent a car from an on-airport rental car company. The CFC is collected to pay for a portion of the capital cost of the consolidated rental car facility currently under construction at the Airport. It is also used to pay for a portion of the operating and maintenance expenses of the facility opened in April As of June 30, 2007, the Department has collected $77.0 million in CFC proceeds. All of this revenue has been deferred until such time as it is used to pay for construction or to subsidize rents. During FY2007, $5.4 million of the CFC proceeds were used to reimburse each rental car tenant for tenant improvements to the new facility. In addition, $5.1 million was used to subsidize rents at the new facility. No CFC proceeds have been used to pay for construction until the final construction costs are audited and finalized. The balance of the CFC proceeds is held in a deferred revenue account. 16

22 Discussion of FY2006 Non-operating Revenues and Expenses During FY2006, interest income increased by 34.5% due to increases in interest rates and unspent bond proceeds. Interest expense for FY2006 increased 7.2% due to a restructuring of the Department s bond portfolio where certain interest rates on bonds have been increased in the earlier amortization periods and lowered in later periods. Passenger facility charges for FY2006 represent a full year of the $4.50 PFC collection levels which were increased from $3.00 per qualifying passenger on November 1, Effective July 1, 1991, the County enacted an ordinance providing that a two cent per gallon tax on Jet A fuel be imposed and allocated to the Airport to help facilitate the expansion of air transportation facilities in the region. This tax has been an important source of funding to address the capacity, security, safety and noise issues of the Airport. During FY2006 the Department was allocated $9.3 million, approximately the same amount as FY2005. The Jet A Fuel Tax revenues are currently used to pay the principal and interest on the 2003C Jet Aviation Fuel Tax Revenue Bonds. Any revenues in excess of the requirement of the 2003C bonds are currently used to pay the principal and interest on the 2003B General Obligation (Limited Tax) Airport Bonds. Effective May 1, 2004, the County enacted an ordinance requiring all rental car customers, except Clark County residents, to pay a Customer Facility Charge (CFC) of $3.00 for each day they rent a car from an on-airport rental car company. The CFC is collected to pay for a portion of the capital cost of the consolidated rental car facility currently under construction at the Airport. It is also used to pay for a portion of the operating and maintenance expenses of the facility opened and in early As of June 30, 2006, the Department collected $47.4 million in CFC proceeds. All of this revenue has been deferred until such time as it is used to pay for construction or to subsidize rents. During FY2006, $11.4 million of the CFC proceeds were used to buy a fleet of 41 diesel busses that will be used to transport passengers to and from the facility and the terminal buildings. The balance of the CFC proceeds is held in a deferred revenue account. 17

23 Income before Capital Contributions For FY2007, the Airport System operating income before capital contributions from the federal government totaled $80.3 million, an 18.7% decrease from FY2006. The primary reason for this decrease is the increase of 31.7 % in operating expenses. For FY2006, the income before capital contributions increased $98.7 million, a total of 72.1% due to the recognition of $11.4 million in CFC revenue, in addition to a full year of PFC collections at the $4.50 collection rate. The PFC collection rate increased from $3.00 to $4.50 on November 1,

24 Capital Improvement Program Each fiscal year, the Department updates the five-year capital plan. For FY2007, the Department s comprehensive five-year capital improvement plan totals $3.3 billion. The following is a summary of the capital program along with proposed funding sources: Five-Year Capital Plan Total Federal Capital Improvement New or Existing PFCs or Jet A Budget Grants Fund Bonds PFC Bonds Fuel Tax (000) (000) (000) (000) (000) (000) Airfield Improvements $ 570,622 $ 128,862 $ 11,055 $ 389,587 $ 14,174 26,944 Terminal 1 and 2 Capacity Enhancement Projects 291, ,519 88, Concourse D Expansion 176,210 10,743 1, ,967 - Construction New Terminal Three 1,905, ,844,833 53,794 7,245 Reliever Airport Projects 35,880 14,734 13,050 8, Ivanpah Environmental Impact Study 14,200 10,000 4, McCarran Support Facilities 274, , ,547 28,500 - Total $ 3,268,317 $ 164,339 $ 365,634 $ 2,443,722 $ 260,435 $ 34, % 5.0% 11.2% 74.8% 8.0% 1.0% The signatory airlines serving the Airport have approved all projects listed above. All PFC projects have been approved by the Federal Aviation Administration (FAA). Federal grants include the Department s entitlements and an assumed allocation of $20 million in discretionary monies for each fiscal period. The Capital Improvement Fund consists of the Department s gaming revenue and its portion of Airport System shared revenues. Based on current projections, it is anticipated that future gaming revenues will adequately fund the Capital Improvement Fund requirements. The financing plan for Terminal 3, the single largest project the Department will undertake to date, is described in detail under the Debt Management section of this report. Debt Management At June 30, 2007, the Department had $2.9 billion in outstanding debt. This amount is made up of $245.5 million in senior lien debt, $1.4 billion in subordinate lien debt; $776.4 million in PFC pledged debt, and $182.7 million in third lien general obligation debt. All of the current outstanding debt is naturally or synthetically fixed rate debt, with an average interest rate of approximately 4.0%. Please refer to Note 8 of the financial statements for more detail relating to the Department s outstanding long-term debt. On September 16, 2006, the Department also issued $300 million of bond anticipation notes in anticipation of receiving proceeds from the Series 2008 Bonds which have been authorized and sold with a delivery date of on or about July 1, With an aggressive $3.3 billion five-year capital plan, the Department is continually reviewing strategies to minimize debt service and keep airline costs as reasonable as possible. With interest rates reaching all-time lows during 2005 and 2006, the Department refinanced all of its outstanding variable rate debt and synthetically fixed the debt with interest rate swaps. When these transactions were completed in August of 2005, the outstanding variable rate debt totaled $480.0 million. The Department s variable rate debt capacity will be used to partially fund the new $1.9 billion Terminal 3 project. In addition, the Department entered into four forward starting swap agreements with Citigroup Global Markets, Inc., J.P. Morgan Securities, Inc. and UBS Financial Services, Inc. that will provide $1.275 billion in fixed rate bonds in 2008, 2009, 2010 and 2011 at an average interest rate of around 3.65%. All of the fixed rate bonds will be used for the Terminal 3 project. Until such time as the first forward starting bond issue is completed in July of 2008, the Department will be utilizing bond anticipation notes to finance Terminal 3 and other projects. The Department currently has the authority to utilize up to $300 million of these notes. 19

25 The Department s bonds are rated by three major rating agencies. The most current ratings are as follows: Fitch S&P Moody s General Airport Revenue Bonds Senior Lien AA- AA- Aa2 General Airport Revenue Bonds Subordinate Lien A+ A+ Aa3 General Airport Revenue Bonds Third Lien A A A1 PFC Revenue Bonds A+ A+ Aa3 Bond Anticipation Note F1+ SP-1+ MIG 1/Aa3 In addition, Standard & Poor s Rating Service has rated the Department s interest rate swap portfolio, and based on the Debt Derivative Profile (DDP) scores, the Department s swap portfolio was given the highest possible rating. The Department s score of 1 indicates that the impact from debt derivatives on the Department s financial statements is manageable and represents a neutral credit factor. The Master Indenture of Trust, dated May 1, 2003, as amended, which governs the issuance of senior lien debt, requires the Department to have net revenues available for bond debt service coverage equal to 1.25 times the amount of senior lien debt service, and 1.10 times the amount of debt service on any subordinate lien bonds. PFC bonds have no debt service coverage requirement due to the fact that any debt service not payable from PFC proceeds is payable as a subordinate lien to the senior bonds. As of June 30, 2007, the actual coverage on the senior lien bonds was 3.90 times and the coverage of the subordinate lien debt service was PFC debt service coverage was The Department continues to meet the challenge of providing users of the Airport System with quality facilities that meet the demands of growth, safety and security, while conscientiously and creatively managing the Department s bonding capacity and keeping airline costs as low as possible. Future Outlook For the fourth straight year, the Department has experienced record growth in passengers and non-airline revenues. As a result, the Department s overall financial position has improved during FY2007. The Department uses the Las Vegas Convention and Visitors Authority s (LVCVA) hotel room construction forecasts to estimate airport passenger traffic for the next five years. For every new hotel room built in Las Vegas, the Department can expect approximately 320 additional annual passengers. Based upon new hotel/casino projects and hotel/casino expansion programs that have been approved and financed, the future growth continues to look very strong. In accordance with the LVCVA hotel room construction forecast dated June 26, 2007, 46,145 new hotel rooms are planned to be constructed in Las Vegas through The Department estimates that these new rooms could generate approximately 14.8 million new passengers (7.4 million enplanements) at the Airport. Several new expansion projects have been initiated at the Airport to accommodate this passenger growth, including the fourth and final wing of Concourse D, the new Concourse C security expansion, the pedestrian bridge from Concourse C to Concourses A and B, and the construction of Terminal 3, to name a few. The Environmental Impact Study continues for the supplemental Ivanpah Airport that could be constructed and operational as early as

26 Additional Information Further information on the results of the Deprtment s financial position is provided in the accompanying audited financial statements and notes thereto for the fiscal years ended June 30, 2007, and This financial report provides the Airport System customers, investors, and creditors with a general overview of the Department s financial condition. The report also presents information about funds it receives and monies it spends for the fiscal periods reported. If you should have questions about this report or need additional financial information, please contact the Finance Division, Clark County, Department of Aviation, at P.O. Box 11005, Las Vegas, Nevada You may also find financial and statistical information for the Airport System at our website at 21

27 Financial Statements CLARK COUNTY DEPARTMENT OF AVIATION CLARK COUNTY, NEVADA Statements of Net Assets June 30, 2007 and Assets (000) (000) Liabilities and Net Assets (000) (000) Current Assets: Current liabilities: Cash and cash equivalents $ 203,878 $ 211,753 Accounts payable and other current liabilities $ 80,073 $ 46,276 Restricted cash and cash equivalents 1,562, ,847 Accounts payable from restricted assets 20,740 21,508 Restricted investments 151, ,011 Accrued interest 57,654 48,999 Accounts receivable, net of allowance for doubtful Securities lending 153, ,286 accounts of $1,022,696 and $581,992 55,249 15,080 Current portion of long-term debt 369,485 40,785 Interest receivable 18,974 10,320 Other accrued expenses 10,557 14,789 Grants receivable 35,815 41,607 Deferred income 53,348 39,245 Other receivables 1,369 1,549 Inventories 2,325 1,917 Prepaid expenses 1,841 1,898 Total current assets 2,033,661 1,346,982 Total current liabilities 744, ,888 Long-Term liabilities: Non-current Assets: Payable from restricted assets Long-term debt, net of current portion, Capital assets: premiums, discounts and loss amortization 2,455,020 1,965,960 Property and equipment: Avigation acquisition liability 8,366 30,658 Land and land improvements 1,610,982 1,448,171 Total long term liabilities 2,463,386 1,996,618 Perpetual Avigation Easement 59,067 Buildings 1,337, ,103 Net assets: Furniture and fixtures 17,345 14,474 Machinery and equipment 214, ,350 Invested in capital assets, net of related debt (309,417) 333,719 Construction in progress 211, ,216 Restricted for: 3,450,805 3,131,314 Capital projects 1,101, ,654 Less accumulated depreciation (940,587) (855,065) Debt service 426, ,100 Total property and equipment, net 2,510,218 2,276,249 Unrestricted 160, ,535 Total net assets 1,379,315 1,274,008 Deferred charges, net 43,707 35,283 Total non-current assets 2,553,925 2,311,532 Total Assets $ 4,587,586 $ 3,658,514 Total liabilities and net assets $ 4,587,586 $ 3,658,514 See accompanying notes to financial statements 22

28 CLARK COUNTY DEPARTMENT OF AVIATION CLARK COUNTY, NEVADA Statements of Revenue, Expenses and Changes in Net Assets For the Years Ended June 30, 2007 and (000) (000) Operating Revenues: Landing fees and other aircraft fees $ 37,616 $ 29,405 Terminal building and use fees 112,839 84,940 Ground rents and use fees 16,355 16,691 Terminal concession fees 48,212 45,047 Public and employee parking fees 28,014 26,236 Ground transportation fees 10,145 9,754 Rental car concession fees 28,837 28,585 Gaming fees 40,884 39,626 General aviation airport fees 5,739 6,479 Other 4,030 4, , ,979 Operating Expenses: Salaries and benefits 82,254 67,128 Contract maintenance 19,107 14,205 Professional services 49,975 33,535 Utilities and communication 22,611 17,736 Repairs and maintenance 4,023 3,444 Materials and supplies 20,826 13,295 Insurance 5,889 5,879 Administrative 10,573 1, , ,977 Operating income before depreciation 117, ,002 Depreciation 85,821 70,853 Operating Income 31,592 63,149 Non-Operating income (expense): Passenger Facility Fees 89,358 85,969 Customer Facility Charges 5,401 11,413 Jet A Fuel Tax Revenue 9,310 9,271 Interest income 54,323 36,129 Interest expense (114,690) (113,460) Other 4,956 6,265 48,658 35,587 Income before capital contributions 80,250 98,736 Capital contributions 25, ,187 Change in net assets 105, ,923 Net assets beginning of year 1,274,008 1,059,085 Net assets end of year $ 1,379,315 $ 1,274,008 See accompanying notes to financial statements 23

29 CLARK COUNTY DEPARTMENT OF AVIATION CLARK COUNTY, NEVADA Statements of Cash Flows For the Years Ended June 30, 2007 and (000) (000) Cash flows from operating activities: Cash received from operations $ 331,770 $ 287,342 Cash paid to employees (80,037) (69,208) Cash paid to outside vendors (153,178) (81,910) Net cash provided by operating activities 98, ,224 Cash flows from capital and related financing activities: Passenger Facility Charges received 78,822 85,969 Jet A Fuel Taxes received 9,490 9,271 Customer Facility Charges received 25,105 23,527 Acquisition and construction of capital assets (323,905) (354,594) Federal Aviation Administration grants received 27,503 7,241 Transportation Safety Administration grants received 50,640 Bond proceeds 854, ,919 Deposit to refunding escrow (251,004) Bond issuance costs (9,486) (5,553) CMA land sale and rental proceeds 8, CMA land expense related payments (7,349) (718) Debt service payments: Principal (40,785) (130,204) Interest (104,822) (110,571) Net cash provided by (used in) capital and related financing activities 517,201 (127,314) Cash flows from investing activities: Interest received 48,076 35,349 Net cash provided by investing activities 48,076 35,349 Increase in cash and cash equivalents 663,832 44,259 Cash and cash equivalents, beginning of year 1,102,600 1,058,341 Cash and cash equivalents, end of year $ 1,766,432 $ 1,102,600 Unrestricted Cash and cash equivalents $ 203,878 $ 211,753 Restricted cash and cash equivalents 1,562, ,847 Cash and cash equivalents, end of year $ 1,766,432 $ 1,102,600 Reconciliation of operating income to net cash provided by operating activities: Operating income $ 31,592 $ 63,149 Depreciation 85,821 70,853 (Increase) decrease in accounts receivable--operations 3,977 (1,807) (Increase) decrease in inventories (408) (340) (Increase) decrease in prepaid expenses 57 (649) Increase (decrease) in accounts payable--operations (19,822) 8,929 Increase (decrease) in accrued payroll 2,216 (2,080) (Decrease) in deferred income (4,878) (1,831) Net cash provided by operating activities $ 98,555 $ 136,224 See accompanying notes to financial statements 24

30 CLARK COUNTY DEPARTMENT OF AVIATION CLARK COUNTY, NEVADA Notes to Financial Statements For the Years Ended June 30, 2007 and ) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (a) Reporting Entity The Airport System is operated as an enterprise fund of Clark County (the County) and is managed by the Department of Aviation of the County (the Department) under the supervision of the Clark County Board of County Commissioners (the Board) and the County Manager. The Board is the governing body of the County and is comprised of seven members that are elected from County commission election districts for four-year staggered terms. The Board appoints the Director of Aviation, who is charged with the day-to-day operations of the Airport. (b) Basis of Accounting The accounting principles used are similar to those applicable to a private business enterprise (accrual basis of accounting), where the costs of providing services to the public are recovered through user fees. The Department is not subsidized by any tax revenues of the County. Pursuant to the Governmental Accounting Standards Board (GASB) Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities that use Proprietary Fund Accounting, the Department elected not to be bound by pronouncements of the Financial Accounting Standards Board issued after November 30, Accordingly, it selects accounting methods among available alternatives when not otherwise required by GASB or earlier applicable FASB standards. All tabular dollar amounts are presented in thousands. The financial statements of the Department, an enterprise fund, are presented on the accrual basis of accounting. Revenues are recorded when earned. The Department s operating revenues are derived from fees paid by airlines, concessionaires, tenants and others. The fees are based on usage fees established by the Department and approved by the Board or in accordance with the Scheduled Airline Operating Agreement and Terminal Building Lease (the Lease) dated July 1, 2003 and expiring June 30, Expenses are recognized when incurred. (c) Cash, Cash Equivalents, and Investments (1) Cash and cash equivalents The Department s pooled funds, and short-term investments, with original maturities of three months or less from the date of acquisition, are considered to be cash equivalents (Note 2). (2) Investments 25

31 Investments, consisting of federal government obligations and repurchase agreements, guaranteed investment certificates, and money market funds are stated at cost, including amortized discount or premium. Investments in the County s pooled Treasurer s cash account are adjusted to market (Note 2). (d) Accounts Receivable Receivables are reported at their gross value when earned. The Department s collection terms are generally 20 days. The allowance for uncollectible accounts is based on 10 percent of open receivables at June 30 of each fiscal period. As a customer s balance is deemed uncollectible, the receivable is cleared and the amount written off. If the balance is subsequently collected, payments are applied to the allowance account. Accounts receivables are shown net of the allowance for doubtful accounts in the amount of $1.0 million for fiscal year 2007 and $582,992 for fiscal year (e) Inventories Inventories are valued at the lower of cost or market using a last-in first-out inventory valuation method and consist primarily of jet fuel at the reliever airports to be consumed by customers and expendable parts and supplies held for consumption within the next fiscal year. (f) Capital Assets Capital assets are stated at historical cost. The capitalization threshold is $3,000. (See Note 6) Costs related to the alteration or demolition of existing facilities during major expansion programs are capitalized as additional costs of the program. Depreciation is computed using the straight-line method based on useful lives (in years) currently estimated as follows: Land Improvements Buildings Furniture and Fixtures Machinery and Equipment years years 15 years 3-20 years Repairs and maintenance are charged to operations as incurred unless they have the effect of improving or extending the life of an asset, in which case they are capitalized as part of the cost of the asset. (g) Capitalized Interest The Department capitalizes interest costs on bonds outstanding until the asset is placed in service. The amounts of capitalized interest for fiscal years 2007 and 2006 are $17.9 million and $22.4 million, respectively, and are included in capital assets and construction in progress in the accompanying Statement of Net Assets. 26

32 (h) Deferred Charges Deferred charges (Note 7), consisting primarily of underwriter fees and other costs incurred during the issuance of General Airport Revenue Bonds, are amortized over the life of the related bonds using the interest method. (i) Federal Grants Federal Aviation Administration (FAA) grants and Transportation Safety Administration (TSA) grants are restricted for certain capital improvements and reported as capital contributions in accordance with GASB Statement No. 33, Accounting and Financial Reporting for Non-exchange Transactions, as amended by GASB Statement No. 36. (j) Passenger Facility Charges The Federal Aviation Administration (FAA) authorized the County to impose a Passenger Facility Charge (PFC) of $3.00 per qualifying enplaned passenger commencing June 1, The PFC continued to be $3.00 until November 1, 2004, when the FAA authorized the County to increase the PFC to $4.50. Effective September 1, 2006, the Passenger Facility Charge (PFC) rate decreased from $4.50 per qualifying enplaned passenger to $3.00 pursuant to authorization from the Federal Aviation Administration. Effective January 1, 2007, the PFC rate increased from $3.00 per qualifying enplaned passenger to $4.00 and the rate will remain at this level until PFC Application One expires some time in late After that date the rate will increase back to $4.50 per qualifying enplaned passenger Net PFC receipts are restricted and can be used only for those capital projects, including debt service, that have been authorized by the FAA. The County has been authorized to collect PFCs in the aggregate amount of $2.8 billion. Collections and accruals during the year ended June 20, 2007, are $89.4 million, and aggregate collections from the inception through June 30, 2007, are $713.5 million. The majority of PFC collections are used to pay debt service on PFC bonds issued to fund the FAA approved projects. (k) Restricted Assets and Liabilities Restricted assets consist of cash, investments, and other resources that are legally restricted to certain uses pursuant to the Master Indenture of Trust dated May 1, 2003, as amended. Capital program funds are restricted to pay the cost of certain capital projects as defined in various bond ordinances. PFC program funds are restricted to pay the cost of FAA approved capital projects and any debt service incurred to finance these projects. Debt service funds are restricted to make payments for principal, interest, and sinking fund coverage as required by specific bond covenants. 27

33 (l) Budgetary Control As an enterprise fund of the County, the Department is subject to budgetary requirements of the State of Nevada (the State) including budgetary hearings and public meetings as required by the County s overall budget process. Accordingly, the Board approves the Department s annual budget and any subsequent changes thereto. The Department s budget is prepared on the accrual basis of accounting, and actual expenses cannot exceed the total budgeted operating expenses without action pursuant to the State s budgetary requirements. Appropriations for operating expenses lapse at the end of each fiscal period. (m) Legal Defense Costs The Department does not accrue for estimated future legal and related defense costs, if any, to be incurred in connection with outstanding or threatened litigation and other disputed matters but rather, records such as period costs when the related services are rendered. (n) Use of Estimates The preparation of financial statements in accordance with United States generally accepted accounting principles requires the Department to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from these estimates and assumptions. (o) Reclassifications Certain minor 2006 amounts have been reclassified to conform to the 2007 presentation. 28

34 2.) CASH, CASH EQUIVALENTS AND INVESTMENTS All cash (including cash equivalents) and investments of the Department are under the control of the Treasurer of the County. Nevada Revised Statutes (NRS) govern the County's deposit policies. County monies must be deposited in insured banks and savings and loan associations within the County. The County is authorized to use demand accounts, time accounts and certificates of deposit. NRS do not specifically require collateral for demand deposits, but specify that collateral for time deposits may be of the same type as those described for permissible state investments. Permissible state investments are similar to allowable County investments described below except that some state investments are longer term and include securities issued by municipalities outside of Nevada. Securities used to collateralize deposits are usually set aside by the financial institutions' trust departments. Most depository banks submit monthly reports to the County indicating the type, the amount and the market value of the pledged securities. NRS authorize the County to invest in the following: obligations of the U.S. Treasury and U.S. agencies not to exceed ten years maturity; negotiable notes or short-term negotiable bonds issued by other local governments of the State of Nevada; bankers acceptances eligible for rediscount with Federal Reserve Banks, not to exceed 180 days maturity and 20 percent of total investments; commercial paper having an AA-1" rating invested only in Federal Government or agency securities or in repurchase agreements fully collateralized by such securities. Certain bond covenants require the County to invest with security dealers who are primary dealers when investing in repurchase agreements. Primary dealers are a group of dealers that submit daily reports of market and positions and monthly financial statements to the Federal Reserve Bank of New York and are subject to its formal oversight. Securities purchased by the County are delivered against payment and held in a custodial safekeeping account with the trust department of a bank designated by the County and insured by the Federal Deposit Insurance Corporation up to the statutory limit per bank. NRS authorizes the County Treasurer to participate in securities lending transactions, in which the County's U.S. government securities are loaned to broker-dealers and other entities with a simultaneous agreement to return the collateral for the same securities in the future. The County's securities lending agent administers the securities lending program and receives cash equal to at least 102% of the fair value of the loaned securities plus accrued interest as collateral for securities of the type on loan at year end. The collateral for loans is maintained at 102%, and the value of the securities borrowed must be determined on a daily basis. Securities on loan as of June 30, 2007 and 2006, for cash collateral are uncategorized for credit risk purposes. At year end, the County had no credit exposure to borrowers because the amount the County owed to borrowers exceeded the amounts the borrowers owed to the County. The contract with the securities lending agent requires it to indemnify the County for all losses relating to securities lending 29

35 transactions. There were no losses resulting from borrower default during the period, nor were there any recoveries of prior period losses. There are no restrictions on the amount of securities that can be loaned. Either the County or the borrower can terminate all open securities loans on demand. Cash collateral is invested in accordance with the investment guidelines stated in NRS The maturities of the investments made with cash collateral match the maturities of the securities loans. The fair value of the Department's allocated share of the securities on loan at June 30, 2007 and 2006, was $156.0 million and $176.3 million respectively. These securities had cash collateral which has been invested in U.S. Treasury and agency obligations, commercial paper and repurchase agreements with a fair value totaling $153.0 million and $172.0 million, respectively. The Department's cash, cash equivalents, and investments are deposited with the County Treasurer and, in the case of certain restricted cash and investments, held by a trustee bank. Accordingly, the Department's cash balance included in the Treasurer's pooled cash account is not independently available. The County adjusts the investments in the Treasurer's pooled cash account to market and allocates the adjustment to various County departments. The Department's allocated portion of this adjustment resulted in a $1.4 million decrease in the value of the Department's cash deposited with the Treasurer. All cash under the control of the County Treasurer is either covered by Federal Depository Insurance, or by collateral held by the County's agent in the County's name, or by collateral held in the bank's trust department in the County's name. Cash in transit and change funds, which are not collateralized or insured, totaled $725,077 and $175,740 at June 30, 2007 and 2006, respectively. 30

36 3.) GRANTS RECEIVABLE Grants receivable include FAA and TSA grants in the amount of $35.8 million at June 30, ) RESTRICTED ASSETS AND LIABILITIES Assets and liabilities payable from restricted assets reported in the financial statements consist of the following: RESTRICTED AND DESIGNATED ASSETS (000) (000) Assets restricted by Master Indenture of Trust: Restricted for debt service: Cash and investments $ 225,285 $ 240,538 Interest receivable 1,958 1,423 Other receivable 1,369 4, , ,717 Restricted for acquisition of property and equipment: Cash and investments 1,090, ,793 Passenger facility charges 49,684 64,935 Interest receivable 10,064 5,022 1,149, ,750 Other restricted assets: Debt service reserve Cash and investments - PFC bonds 50,329 26,502 Cash and investments - Other bonds 126,953 90,538 Market adjustment (1,372) (4,275) Interest receivable 2,068 2, , ,463 Working capital and contingency cash and investments 17,590 17,540 Capital improvement cash and investments 2,620 5, , ,003 Total restricted assets by Master Indenture of Trust 1,576, ,852 Securities lending collateral 153, ,286 $ 1,729,667 1,074,138 5.) RETIREMENT PLAN (a) The Department contributes to the Public Employees Retirement System (PERS), a cost-sharing multiple-employer defined benefit pension plan administered by the Nevada Public Employees Retirement System. PERS provides retirement and disability benefits, cost-of-living adjustments, and death benefits to plan members and beneficiaries. PERS was established by legislation in 1947 and is governed by a Board that is responsible for administration and management of the fund. The autonomous, seven-member Board is appointed by the Governor. PERS issues a publicly available comprehensive annual financial report that includes financial statements and required supplementary information for PERS. The report can be obtained by writing to Public Employees 31

37 Retirement System of Nevada, 693 W. Nye Lane, Carson City, NV or by calling (775) PERS contribution rates are established by State statute and provide for yearly increases of up to 1% until such time as the actuarially determined unfunded liability is reduced to zero. The current rate in effect is 20.25% of annual covered payroll. The Department s contribution to PERS for the years ended June 30, 2007, 2006, and 2005, were $10.4 million, $9.9 million and $9.3 million, respectively. (b) Other Post-Employment Benefits The County makes available certain post-retirement health insurance and life insurance benefits ( OPEB ) to employees who retire under PERS and elect to receive and pay for these benefits. OPEB are only available to retirees who are then receiving a pension from PERS ( Retirees ). The current OPEB program covers County employees and Retirees and the employees and Retirees of six other local governments in Southern Nevada (the University Medical Center of Southern Nevada, Regional Transportation Commission of Southern Nevada, Clark County Regional Flood Control District, Las Vegas Valley Water District, Clark County Water Reclamation District, and Las Vegas Convention and Visitors Authority; collectively, the Other Agencies ). Legislation enacted during 2007 changed County employee eligibility to join the OPEB. Employees who retire on September 1, 2008 and before will be eligible to the OPEB. All other employees who retire after that date will be able to join the County HMO or PPO programs. (c) Health Insurance. Retirees can elect to continue to participate in the health insurance benefits provided to employees. For each Retiree, the premium for this insurance benefit is based on the number of persons covered (i.e., the premium is greater for a Retiree who elects to also have dependents covered). The County offers two types of health insurance, a self-funded preferred provider organization plan ( PPO ) and a health maintenance organization ( HMO ) plan. Retirees can elect to continue coverage under either of these plans upon payment of the required premium for themselves and their dependents. The premium payable by the Retiree for the self-funded plan is based on the number of years of service with any of the public entities within the benefit plan, and whether the Retiree (or dependent) receives Medicare insurance benefits. Premiums for the HMO are not dependent on the years of County employment, but vary based upon whether or not the employee receives Medicare insurance benefits. In lieu of participating in one of the County health insurance plans, Retirees can elect to obtain health care coverage for themselves and their dependents under the State administered Public Employees' Benefit Program ( PEBP ). If a Retiree elects this option, the County is required by Nevada Revised Statutes (NRS) to pay a statutorily-defined portion of the Retiree s premium for coverage under PEBP; the balance of the premium must be paid by the Retiree. The County s portion of the premium is based on the number of years the Retiree was employed by the County; for employment of 20 years or more, the County is required to pay 100% of the premium subsidy. 32

38 (d) Life Insurance. The life insurance benefit offered to Retirees currently provides a $20,000 death benefit if the Retiree dies before age 70 and a $1,000 death benefit if the Retiree dies after that age; Retirees who elect to obtain this benefit must pay the subsidized premium. Spouses of Retirees can also be covered at additional cost to the Retiree; the death benefit paid on the death of the spouse is $5,000 if the Retiree is under 70 and $1,000 if the Retiree is 70 or older. (e) Valuation of the OPEB Program and County Share. The County historically has funded its OPEB on a pay-as-you-go basis, but beginning in fiscal year , GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, will require that the County begin recording a liability for its share of the OPEB Program. The County has discussed the OPEB Program with consulting actuaries and has conducted a study to determine the actuarial value of its obligations under the OPEB Program. The results of this study indicate that as of July 1, 2006, the total combined unfunded actuarial accrued liability ( UAAL ) of the OPEB Program, excluding the Las Vegas Valley Water District, was approximately $443.5 million. The annual amount required to be paid to amortize this liability over 30 years and to accumulate an appropriate amount for current employees so that UAAL does not increase (the annual contribution ) is approximately $42.1 million. None of that amount has been funded to date. These valuations are based on several assumptions, including future Retiree contribution rates, a 4% per annum discount rate and a 4% per annum investment rate. The County currently expects to allocate the UAAL between it and the Other Agencies. Currently, the County estimates that its share of the UAAL and the annual contribution (ARC) are approximately $301.0 million and $28.1 million, respectively; the portions of these two County amounts applicable to the Airport are estimated to be $54.3 million and $5.1 million, respectively. 33

39 (f) Funding. County financial staff currently does not expect the County to fund the full annual contribution amount during fiscal years 2007 or However, the County financial staff expects the County to continue to contribute amounts to the OPEB program on a pay-as-you-go basis during those years. The Nevada State Legislature, in its 2007 session, authorized the County to create an irrevocable trust account into which it can begin to accumulate monies to fund its UAAL. The legislation contains a provision that allows the County to invest monies in this irrevocable trust account in a manner that will generate an investment return greater than the currently assumed 4% per annum. If the County (including the Airport) funds its annual contribution, including a portion of its UAAL, in the fiscal year, the UAAL and ARC will decrease by approximately fifty percent (50.0%), using an assumed eight percent (8.0%) discount rate. The Other Agencies will be responsible for determining when to begin funding their allocable share of the UAAL and appropriate funding sources. 6.) CHANGES IN CAPITAL ASSETS The following schedule details the additions, retirements and transfers of capital assets during FY2007. The schedule also details changes in accumulated depreciation for FY2007: Balance Additions Deletions Balance July 1, and and June 30, 2006 Reclasses Reclasses 2007 (000) (000) (000) (000) Land and land improvements $ 1,448,171 $ 224,331 $ 2,453 $ 1,670,049 Buildings and improvements 985, ,585-1,337,688 Furniture and fixtures 14,474 2, ,345 Machinery and equipment 193,350 22, ,542 Construction in progress 490, , , ,181 3,131, , ,602 3,450,805 Less accumulated depreciation (855,065) (85,821) 299 (940,587) Capital assets - net $ 2,276,249 $ 827,272 $ 593,901 $ 2,510,218 34

40 7.) DEFERRED CHARGES Deferred charges for fiscal year 2007 and 2006 are as follows: June 30, Bond Issue or Swap Issuance Expenses A $ 671 $ Series A-1 and A Series A Series B 2001 Series A 2001 Series B 2001 Series C 1,091 1, Series A PFC 1,901 1, General Obligation Series A General Obligation Series B Jet A Fuel Tax Series C 2,781 2, Series A-1 1,823 1, Series A-2 3,872 3, Series B 2004 Series C 2005 Series A-1 1,312 1, Series A-2 1,303 1, Series B Series C 3,403 3, Series D 2,822 2, Series E Series A Senior Series A Series B 1, PFC Series A1 1, PFC Series A2 1, Series A1 2, Series A Forward Swap 2,738 2, Forward Swap 5,112 5, Forward Swap 1,462 1, Forward Swap $ 1,669 43,707 $ 35,282 35

41 8.) LONG-TERM DEBT (a) A summary of long-term debt transactions for the FY ended June 30, 2007, follows: LONG-TERM DEBT PRINCIPAL BALANCES OUTSTANDING Balance Balance June 30, June 30, 2006 Additions Refunding Pay downs 2007 (000) (000) (000) (000) (000) SENIOR LIEN BONDS: 1993 Series A $ 199,000 $ - $ - $ 23,100 $ 175, Series A 69, ,590 Sub-Total Senior Lien Bonds 268, , ,490 SUBORDINATE LIEN BONDS: 1998 Series A 97, ,820 90, Series C 115, , Series A-1 128, , Series A-2 232, , Series C 215, , Series D 205, , Series E 58, , Series A - 100, , Series A-1-150, , Series A-2-56, ,225 Sub-Total Subordinate Lien Bonds 1,053, ,625-6,820 1,353,560 PFC BONDS: 1992 Series A 15, ,030 12, PFC 210, , , PFC 30, ,415 24, Series A-1 130, , Series A-2 129, , Series B 50, , Series A-1-113, , Series A-2-105, ,475 Sub-Total PFC Bonds 566, ,985-9, ,405 THIRD LIEN BONDS: 2003 General Obligation Series A 42, , General Obligation Series B 37, , Jet A Fuel Tax Series C 104, , ,105 Sub-Total Third Lien Bonds 184, , ,655 BOND ANTICIPATION NOTES: 2006B1-300, ,000 Total $ 2,073,285 $ 825,610 $ - $ 40,785 $ 2,858,110 36

42 (b) Senior Lien Bonds The issuance of senior lien bonds is authorized pursuant to the Nevada Municipal Airports Act, the Nevada Local Governments Securities Law and the Nevada Registration of Public Securities Law. All senior lien bonds are issued in accordance with the Master Indenture of Trust (the Indenture), dated May 1, 2003, as amended, between Clark County and The Bank of New York Trust Company, N.A. Senior lien bonds are secured by and are payable from Net Revenues of the Airport System after the payment of all Airport System operating and maintenance expenses. Pursuant to the Indenture, the Department has covenanted to fix, charge, and collect rentals, fees and charges for the use of the Airport System in order that in any fiscal year the Gross Revenues, together with any other available funds, will at all times be at least sufficient to: 1) provide for the payment of all Airport System operation and maintenance expenses in such fiscal period; and 2) provide an amount not less than 125% of the aggregate debt service requirement (the Coverage) for all of the senior lien bonds then outstanding for the fiscal year. The actual senior lien Coverage for FY 2007 and 2006 was 3.90 and 3.97 respectively. No senior lien bonds were issued during 2007 and during 2006 $69.6 million of senior lien bonds were issued by the Department. (c) Subordinate Lien Bonds The issuance of subordinate lien bonds is authorized pursuant to the Nevada Municipal Airports Act, the Nevada Local Governments Securities Law and the Nevada Registration of Public Securities Law. All subordinate lien bonds are issued in accordance with the Master Indenture of Trust (the Indenture), dated May 1, 2003, as amended, between Clark County and The Bank of New York Trust Company, N.A. Subordinate lien bonds are secured by and are payable from Net Revenues of the Airport System after the payment of all Airport System operating and maintenance expenses and senior lien debt service. Pursuant to the Indenture, the Department has covenanted to fix, charge, and collect rentals, fees and charges for the use of the Airport System in order that in any fiscal year the Gross Revenues, together with any other available funds, will at all times be at least sufficient to: 1) provide for the payment of all Airport System operation and maintenance expenses in such fiscal period; and 2) provide an amount not less than 110% of the aggregate debt service requirement (the Coverage) for all of the senior lien and subordinate lien bonds then outstanding for the fiscal year. The actual subordinate lien Coverage for FY 2007 and 2006 was 1.79 and 2.03 respectively. During fiscal year 2007 the Department issued $306.6 million of subordinate lien bonds. During 2006, the Department issued $479.4 million. (d) PFC Bonds The issuance of PFC bonds is authorized pursuant to the Nevada Municipal Airports Act, the Nevada Local Governments Securities Law and the Nevada Registration of Public Securities Law. All PFC bonds are issued in accordance with the Master Indenture of Trust (the Indenture), dated May 1, 2003, as amended, between Clark County and The Bank of New York Trust Company, N.A. PFC bonds are secured by a pledge of and lien upon certain pledged PFC revenues derived from $3.00 of a $4.00 PFC which has been imposed by the County under authorization of the Federal Aviation Act. Any additional collections of PFC s resulting from charges exceeding $3.00 that are not pledged to any PFC Bond may be used by the Department for any 37

43 lawful purpose permitted for such PFC revenues. In addition, the PFC Bonds are secured by and are payable from Net Revenues of the Airport System subordinate and junior to the lien on outstanding Senior Lien Bonds. PFC Bonds are secured by and are payable from Net Revenues of the Airport System on a parity with outstanding Subordinate Lien Bonds. For FY 2007, the Department collected a PFC of $4.00 per qualifying enplaned passenger. The Department collected and accrued $89.4 million in PFC revenues during FY 2007 and pledged $61.4 towards debt service payments associated with outstanding PFC Bonds. For FY2006, the Department collected $86.0 million in PFC revenues and used $50.4 million for PFC Bond debt service. There is no coverage required for the PFC Bonds. During fiscal year 2007, the Department issued $219.0 million of PFC bonds. No PFC Bonds were issued in (e) Third Lien Bonds In May of 2003, the County issued two series of Clark County, Nevada, General Obligation (Limited Tax) Airport Bonds in the amount of $79.6 million for the purpose of refunding some 1993 General Obligation Airport Bonds. The issuance of Third Lien bonds is authorized pursuant to the Nevada Municipal Airports Act, the Nevada Local Governments Securities Law and the Nevada Registration of Public Securities Law. The bonds were issued in accordance with the Master Indenture of Trust (the Indenture), dated May 1, 2003, as amended, between Clark County and The Bank of New York Trust Company, N.A. The Third Lien Bonds constitute direct and general obligations of the County. The full faith and credit of the County is pledged for the payment of principal and interest subject to Nevada constitutional and statutory limitations on the aggregate amount of ad valorem taxes and certain other limitations on the amount of ad valorem taxes the County may levy. The Third Lien Bonds are also, in addition, secured by and are payable from Net Revenues of the Airport System subordinate and junior to the lien on Senior Lien Bonds and Subordinate Lien Bonds. Pursuant to the Indenture, the Department has covenanted to fix, charge, and collect rentals, fees and charges for the use of the Airport System sufficient to pay debt service on the Senior Lien Bonds, the Subordinate lien Bonds, and the General Obligation (Limited Tax) Airport Bonds. No additional Third Lien Bonds were issued during fiscal years 2007 or Also in May 2003, the County issued $104.5 million of Jet Aviation Fuel Tax Revenue Bonds to finance certain improvements to the Airport System. The Jet Fuel Bonds are payable from, and secured by a pledge of and lien upon the proceeds of a two cent per gallon tax on jet aviation fuel sold, distributed or used in Clark County, Nevada. These bonds are also secured by and are payable from Net Revenues of the Airport System subordinate and junior to the lien on Senior Lien Bonds and Subordinate Lien Bonds. The Jet Fuel Bonds are secured by and are payable from Net Revenues of the Airport System on a parity with outstanding Third Lien Bonds. The Jet Fuel Bonds do not constitute a debt of Clark County within the meaning of any constitutional or statutory provision or limitations and neither the full faith and credit nor the taxing power of the County is pledged to the payment of these Jet Fuel Bonds. The jet aviation fuel tax collected during fiscal years 2007 and 2006 totaled $9.3 million and $9.3 million respectively. For fiscal years 2007 and 2006, the debt service on the Jet Fuel Tax Bonds totaled $7.0 million and $5.2 million respectively. Excess fuel tax collections were used to pay debt service on the Third Lien Bonds. No additional Jet Fuel Bonds were issued during fiscal years 2007 or

44 (f) Bond Anticipation Notes On September 14, 2006, the Department issued $300 million of Series 2006B Bond Anticipation Notes to provide interim funding for certain Airport System capital projects, including Terminal 3 in anticipation of proceeds from the Series 2008 A and Series 2008 B bonds which have been authorized and sold by the County and have an expected delivery date of July 1, (g) Arbitrage Rebate Requirement The Tax Reform Act of 1986 imposes a rebate requirement with respect to bonds issued by the County. Under this act, an amount may be required to be rebated to the United States Treasury, so that all interest on the bonds qualifies for exclusion from gross income for federal income tax purposes. The Department is current on all required arbitrage payments. As of June 30, 2007, the Department has estimated its potential arbitrage rebate liability and has accrued $4.3 million to cover such estimated liability. (h) A brief description of each bond series issued follows: Senior Lien Bonds: Series 1993A In September 1991, the County entered into a Swap financing agreement. Under the terms of the swap agreement, in May 1993, the County issued $339 million of variable rate twenty-year Airport Revenue Bonds, Series 1993A. Upon issuance of the 1993A bonds, $318 million of the 1983 Airport Revenue Bonds were refunded. Furthermore, the County swapped with the counterparty its variable rate debt for a fixed rate debt service payment based on a fixed rate of 6.69%. Interest is due January 1 and July 1, and principal is due annually on July 1. Annual debt service payments range from $25.5 million to $37.2 million through At the time of the refunding of the 1983 bonds, future cash flow savings amounted to $110 million and had a discounted present value of over $65 million. The then applicable accounting principles required the recognition of an extraordinary loss of $24.7 million on the refunding. Series 2005A: In September 2005, the County issued $69.6 million in Airport System Senior Lien Revenue Bonds. $25.9 million of the term bonds mature in 2037 and provide for an interest rate of 4.5%. The balance of the term bonds matures in 2040 at an average interest rate of 5.0%. The 2005A bonds were issued to finance the cost of certain capital improvements to the Airport System, purchase a reserve fund insurance policy and to pay certain costs of issuance. 39

45 Subordinate Lien Bonds: Series 1998A: In April 1998, the County issued $121 million of Airport System Subordinate Lien Revenue Bonds, Series 1998A, with a premium of $4 million and interest ranging from 3.75% to 5.23%. Interest is due January 1 and July 1, and principal is due annually on July 1. Annual debt service payments range from $1.4 million to $12.0 million through The bond proceeds were used to substantially retire portions of the 1988 bonds, which had interest rates ranging from 6.5% to 8.25%. Future cash flow savings amount to $70.2 million, with a present value savings of $37.8 million. Series 2001C: In August 2001, the County issued $115.6 million of Adjustable Rate Airport System Subordinate Lien Revenue Bonds, Series 2001C. Initially, interest on the bonds is based on a weekly rate and is payable January 1 and July 1. Principal is due from July 2026 through July 2029 ranging from $16.6 million to $35.0 million. The proceeds of the Series 2001C bonds were used to defease $105.2 million of the Series 1999A bonds. The defeasance resulted in a loss of $8.4 million and provided a future cash flow savings of $42.1 million and a present value savings of $16.0 million. Series 2004A: In July 2004, the County issued $361.2 million of Airport System Subordinate Lien Revenue Bonds, Series 2004A. Interest rates for Series 2004A-1 range from 5.00% to 5.25% through maturity at The Series 2004A-2 has a fixed interest rate of 5.125% through 2027 and 5.00% to maturity at Interest is due January 1 and July 1, and principal is due annually on July 1 commencing July 1, 2012 for the 2004 A-1 series and July 1, 2024 for the 2004 A-2 series. The Series 2004 bonds were issued to finance the cost of certain capital improvements, refund the $38.8 million in outstanding Series 1999B-2 bonds, fund capitalized interest, and to pay certain issuance costs. Series 2005B: In March 2005, the County issued $60.2 million in Airport System Subordinate Lien Revenue Bonds. Interest on the bonds is set at a seven-day auction rate. The 2005B bonds were issued for the purpose of refunding the outstanding 1995A bonds. The refunding provided a future cash flow savings of $13.3 million, with a present value savings of $7.7 million. Series 2005C, D, and E: In August 2005, the County issued $479.5 million in Airport System Subordinate Lien Revenue Bonds. The Series 2005C bonds initially were issued as Auction Rate Securities in the aggregate principal amount of $215.2 million. The Series 2005C bonds mature July The Series 2005D 40

46 bonds in the amount of $205.4 million were issued at the Weekly Interest Rate, which is determined by the Remarketing Agent every Tuesday of each week. The Series 2005E bonds in the amount of 58.9 million were issued at a Weekly Interest Rate, which is determined by the Remarketing Agent on Tuesday of each week. The purpose of the refunding was to synthetically fix all of the Airport System s outstanding variable rate debt with more attractive interest rates. The refunding resulted in a loss of $24.6 million which represents the difference between the refunded bonds adjusted for amortized costs and accrued interest and the face value of the new bonds. The refunding associated with the 2005D bonds provided a negative future cash flow savings of ($13.9) million, with a present value savings of $25.7 million. The 2005C and E bonds were conversions of variable rate to fixed rate debt. Series 2006A: In August 2006, the County issued $100.0 million in fixed rate Airport System Subordinate Lien Revenue Bonds. The 2006A bonds mature on July 1, 2040 and have fixed interest rates ranging from 4.0% to 5.0%. Interest is payable on January and July 1 of each year and principal payments are due on July 1. The 2006A bond proceeds are being used to finance certain runway and apron improvements at the Airport. Series 2007A: In May 2007, the County issued $206.6 million in fixed rate Airport System Subordinate Lien Revenue Bonds. The 2007A Bonds mature on July 1, 2040 and have an average fixed interest rate of 5.0%. Interest is payable on January and July 1 of each year and principal payments are due on July 1. The 2007A Bond proceeds are being used to finance the early civil package associated with the new Terminal 3 project. Passenger Facility Charge Revenue Bonds: Series 1992A and B: In September 1992, the County issued $269.0 million of Airport Passenger Facility Charge Revenue Bonds, Series 1992A and B at a discount of $19.8 million. Interest on the bonds ranges from 4.95% to 6.5%. Interest is due January 1 and July 1, and principal is due annually on July 1. Annual debt service payments range from $3.9 million to $10.0 million through The bond proceeds were used primarily to fund Airport System improvements. 41

47 Series 1998: In April 1998, the County issued $214.3 million of Airport Passenger Facility Charge Refunding Revenue Bonds, Series 1998 at a discount of $5.4 million. Interest rates on the bonds range from 4.1% to 5.5%. Interest is due January 1 and July 1, and principal is due annually on July 1. Annual debt service payments range from $10.8 million to $22.9 million through The 1998 bonds refunded $202.5 million of the 1992 PFC bonds. The refunding resulted in a loss of $17.2 million which represents the difference between the refunded bonds adjusted for amortized costs and accrued interest and the face value of the new bonds. This refunding provided a future cash flow savings of $11.6 million, with a present value savings of $10.6 million. Series 2002A: In November 2002, the County issued $34.5 million of Airport Passenger Facility Charge Refunding Revenue Bonds, Series 2002A at a premium of $1.6 million. Interest on the bonds ranges from 2.32% to 4.72%. Interest is due January 1 and July 1, and principal is due annually on July 1. Annual debt service payments range from $920 thousand to $7.0 million through The bonds refunded $33.7 million of 1992 PFC bonds. The refunding resulted in a loss of $2.0 million which represents the difference between the refunded bonds adjusted for amortized costs and accrued interest and the face value of the new bonds. This refunding provided a future cash flow savings of $2.7 million, with a present value savings of $2.1 million. Series 2005A: In March 2005, the County issued $260.0 million of Airport Passenger Facility Charge Refunding Revenue Bonds, Series 2005A. The bonds refunded the outstanding 1995A PFC bonds. The refunding resulted in a loss of $18.8 million which represents the difference between the refunded bonds adjusted for amortized costs and accrued interest and the face value of the new bonds. This refunding provided a future cash flow savings of $23.5 million, with a present value savings of $15.7 million. Series 2007A: In April 2007, the County issued $218.9 million of Airport Passenger Facility Charge Revenue Bonds, Series A-1 and A-2. The Bonds proceeds are being used to reimburse the Airport System for certain capital improvements at the Airport. The Bonds have an interest rate in the 4.0 to 5.0% range with maturity at July 1, Interest payments are due on January and July of each year and principal payments are due every July 1. Series 2003C Jet A Bonds In May 2003, the County issued $105.4 million of Series 2003C AMT Jet Aviation Fuel Tax Revenue Bonds at a premium of $8.0 million. Interest on the bonds ranges from 5.0 % to 5.375%. Interest is due on January 1 42

48 and July 1, and principal is due annually on July 1. Annual debt service ranges from $7.2 million to $13.8 million and the bonds mature July 1, Proceeds from the bond issue are being used to design and construct the in-line baggage system at the Airport. Proceeds from the Jet A Fuel Tax are currently projected to be sufficient to pay all debt service payments relating to the 2003C bonds. General Obligation Airport Bonds Series 2003A General Obligation Airport Bonds In May 2003, the County issued $42.6 million in Series 2003A AMT General Obligation (Limited Tax) Airport Bonds. The 2003A bonds were issued as variable rate bonds with interest rates being reset by auction every 35 days. The proceeds of the 2003A bonds were used to refund the 1993 General Obligation (Limited Tax) Airport Bonds. This transaction resulted in a loss of $1.5 million which represents the total funds required to retire the 1993 bonds less the face value of the retired bonds adjusted for unamortized costs of issuance and related accrued interest. A one time principal payment is due at maturity on July 1, Series 2003B General Obligation Airport Bonds In May 2003, the County issued $37.0 million in Series 2003B Non-AMT General Obligation (Limited Tax) Airport Bonds at a premium of $933 thousand. The 2003B bonds have a fixed interest rate ranging from 4.75% to 5.0%. Interest is payable January 1 and July 1 of each year and principal is due annually commencing on July 1, The proceeds of the 2003B bonds were used to refund the 1993 General Obligation (Limited Tax) Airport Bonds. This transaction resulted in a loss of $2.9 million which represents the total funds required for the retirement of the 1993 bonds less the face value of the retired bonds adjusted for unamortized costs of issuance and related accrued interest. 43

49 (i) Interest Rate Swap Agreements: As summarized in the analysis below, the Department currently has 16 outstanding swap agreements with notional amounts totaling over $3 billion. The outstanding notional amount as of June 30, 2007 was $2.9 billion, including $1.275 billion of forward starting swaps that become effective in FYs 2008, 2009, 2010, and The current market or fair value of each swap is detailed below and the total swap valuation of all outstanding swap agreements is $85.0 million. Excluding the valuations for the forward starting swaps, the valuation as of June 30, 2007 was $48.5 million. The market or fair value for each swap is estimated using the zero-coupon method. Under this method, future payments are calculated assuming that the current forward rates of the appropriate yield curve (Bond Market Association Municipal Swap Index, BMA or London Interbank Offered Rate, LIBOR ) correctly anticipate future spot rates. These payments are then discounted using the spot rates implied by the current LIBOR yield curve for hypothetical zero-coupon rate bonds due on the date of each future net settlement on the swaps. All of the swaps entered into by the Department comply with the County s swap policy. Each swap is written under standard International Swaps and Derivatives Association, ISDA, guidelines and documentation. This includes standard provisions for termination events, such as failure to pay or bankruptcy. The Department retains the right to terminate any swap agreement at the market value prior to maturity. The Department has termination risk under the contract particularly if an Additional Termination Event, ATE, was to occur. An ATE occurs if either the credit rating of the bonds associated with a particular swap agreement and the rating of the swap insurer falls below a predefined credit rating threshold, or the credit rating of the swap counterparty falls below a threshold as defined in the swap agreement. The Department has purchased swap insurance in order to mitigate termination risk. With regard to credit risk, the potential exposure is mitigated through the use of an ISDA Credit Support Annex, CSA. Under the terms of the CSA, each swap counterparty is required to post collateral to a third party when their credit ratings fall below the trigger level as defined in each swap agreement. As long as the Department retains insurance and its credit rating stays above the established threshold, the Department is not required to post any collateral. This protects the Department from credit risks inherent in the swap agreements. Standard and Poor s Rating Services introduced a Debt Derivative Profile, DDP, scoring system in 2004 to provide public finance markets with a simple measure of the complexities of municipal debtrelated derivatives by translating the exposure into an easily understandable measure of risk. The DDP was developed to enhance the transparency of municipal derivative structures and the impact on credit quality. DDP scores range from 1 to 5, with 1 representing the lowest risk and 5 representing the highest risk. Although many factors are considered, the DDP scores principally indicate an issuer s potential financial loss from over-the-counter debt derivatives due to early termination resulting from credit or economic reasons. During FY2007, Standard and Poor s rated the Department s swap portfolio with a score of 1. 44

50 Clark County Department of Aviation Clark County, Nevada Swap Agreements as of June 30, 2007 Initial Outstanding Current Notional Notional Market Swap Associated County County Termination Amount Amount Counterparty Ratings Value Description Bonds Pays Receives Date (000) (000) Counterparty Moody's S&P Fitch (000) 01 Floating-to-Fixed Q 1993A % Bond Rate 7/1/2012 $339,000 $175,900 AIG Financial Products Corp. Aa2 AA+ N/A ($13,659) 02 Floating-to-Fixed Q 2001C 6.00% to 7/10; 2.28% to maturity 67% of USD LIBOR 7/1/ , ,560 Citigroup Financial Products Inc. Aa1 AA- AA+ 8, Basis Swap U BMA Municipal Swap Index % % of USD-LIBOR % 7/1/ , Citigroup Financial Products Inc. Aa1 AA- AA Basis Swap U 2004B BMA Municipal Swap Index % 72.5% of USD LIBOR % 7/1/ ,855 83,948 Citigroup Financial Products Inc. Aa1 AA- AA+ (306) 05 Floating-to-Fixed Q 2005A-1, A % to 7/10, 3.00% to maturity 69% of USD-LIBOR % 7/1/ , ,900 Citibank, N.A., New York Aa1 AA AA+ 1, Basis Swap U BMA Municipal Swap Index 78.4% of USD-LIBOR % 7/1/ , Citigroup Financial Products Inc. Aa1 AA- AA Basis Swap U 2001B BMA Municipal Swap Index 68% of USD-LIBOR % 7/1/ , ,515 Citigroup Financial Products Inc. Aa1 AA- AA+ 2, Floating-to-Fixed Q 2005B 4.97% to 7/10, 3.00% to maturity 62.6% of USD-LIBOR % 7/1/ ,175 50,850 Citigroup Financial Products Inc. Aa1 AA- AA+ 1, Basis Swap U 2004A-1 BMA Municipal Swap Index 62.2% of USD-LIBOR + 7/1/ , ,000 Citigroup Financial Products Inc. Aa1 AA- AA+ 8, % to 7/10, 1.052% to maturity 10A Floating-to-Fixed Q 2005C % to 7/15, 3.00% to maturity 82% of USD-LIBOR % 7/1/ , ,200 Citigroup Financial Products Inc. Aa1 AA- AA+ 12,707 10B Floating-to-Fixed Q 2005C % to 7/15, 3.00% to maturity 82% of USD-LIBOR % 7/1/ , ,975 JPMorgan Chase Bank, N.A. Aa2 AA- AA- 2,688 10C Floating-to-Fixed Q 2005C % to 7/15, 3.00% to maturity 82% of USD-LIBOR % 7/1/ , ,975 UBS AG Aa2 AA+ AA+ 2,688 11A Floating-to-Fixed Q 2005D % to 7/15, 2.515% to maturity 61.9% of USD-LIBOR % 7/1/ , ,815 Citigroup Financial Products Inc. Aa1 AA- AA+ 10,406 11B Floating-to-Fixed Q 2005D % to 7/15, 2.515% to maturity 61.9% of USD-LIBOR % 7/1/ , ,780 JPMorgan Chase Bank, N.A. Aa2 AA- AA- 2,227 11C Floating-to-Fixed Q 2005D % to 7/15, 2.515% to maturity 61.9% of USD-LIBOR % 7/1/ , ,780 UBS AG Aa2 AA+ AA+ 2,227 12A Floating-to-Fixed Q 2005E % to 7/15, 1.21% to maturity 82% of USD-LIBOR % 7/1/ , ,330 Citigroup Financial Products Inc. Aa1 AA- AA+ 3,638 12B Floating-to-Fixed Q 2005E % to 7/15, 1.21% to maturity 82% of USD-LIBOR % 7/1/2036 8, ,795 JPMorgan Chase Bank, N.A. Aa2 AA- AA C Floating-to-Fixed Q 2005E % to 7/15, 1.21% to maturity 82% of USD-LIBOR % 7/1/2036 8, ,795 UBS AG Aa2 AA+ AA A Floating-to-Fixed Q 2008A % to 7/17, 0.25% to maturity 64.7% of USD-LIBOR % 7/1/ , ,000 JPMorgan Chase Bank, N.A. Aa2 AA- AA- 4,172 13B Floating-to-Fixed Q 2008B % to 7/17, 0.25% to maturity 64.7% of USD-LIBOR % 7/1/ , ,000 UBS AG Aa2 AA+ AA+ 4,179 14A Floating-to-Fixed Q 2009A 5.626% to 7/17, 0.25% to maturity 64.70% of USD-LIBOR % 7/1/ , ,000 Citibank, N.A., New York Aa1 AA AA+ 5,927 14B Floating-to-Fixed Q 2009B 6.00% to 7/17, 1.455% to maturity 64.70% of USD-LIBOR % 7/1/ , ,000 Citigroup Financial Products Inc. Aa1 AA- AA+ 12, Floating-to-Fixed Q 2010A 6.00% to 7/17, 1.913% to maturity 61.90% of USD-LIBOR % 7/1/ , ,000 Citigroup Financial Products Inc. Aa1 AA- AA+ 5,153 16A Floating to Fixed Q 2011A % 64.4% of UDA-LIBOR % 7/1/ , ,025 UBS AG Aa2 AA+ AA+ 1,232 16B Floating to Fixed Q 2011A % 64.4% of UDA-LIBOR % 7/1/ , ,975 Citigroup Financial Products Inc. Aa1 AA- AA+ 3,829 Source: The PFM Group $3,363,000 $2,903,118 TOTAL $84,975 1 Swaps terminated on May 16, C D E A & B A & B A A 45

51 An analysis of each swap agreement is presented below: $175.9 Million Floating-to-Fixed Swap Objective: As a means to lower its borrowing costs, the Department executed a floating-to-fixed bond rate swap in connection with its 1993 Series A Variable Rate Bonds. The intention of the swap was to change the Department s variable interest rate on the bonds to a synthetic fixed rate. Terms: Under the swap agreement, the Department pays AIG, the counterparty, a fixed rate with a coupon of percent. In exchange, the Department receives a variable rate equal to the actual bond rate on the 1993 Series A Variable Rate Bonds. The notional amount of the swap matches the amount of the 1993 Series A Variable Rate Bonds outstanding each fiscal year. The bonds and the related swap agreement mature on July 1, Fair Value: As of June 30, 2007, the swap had a fair market value of ($13,659,000). Associated Debt: (000) Actual interest payments on debt $ 8,823 Net payment under swap agreement 3,045 Total payments $11,868 Credit Risk: As of June 30, 2007, the Department was not exposed to credit risk because the swap had a negative fair value. However, should interest rates change and the fair value of the swap become positive, the Department would be exposed to credit risk in the amount of the swap s fair value. The counterparty was rated Aa2 by Moody s Investor Service and AA by Standard & Poor s. As described earlier, a CSA is in place to provide collateral to protect the value of the swap under specific circumstances. Basis or Tax Risk: The swap does not expose the Department to basis or tax risk as the variable payment received from AIG matches the exact payment due on the 1993 Series A Variable rate Bonds. 46

52 Termination Risk: The Department has exposure to termination risk on this particular swap. If either the credit rating of the bonds associated with the swap, or the credit rating of the swap counterparty falls below the threshold defined in the swap agreement, then an Additional Termination Event may occur. At the time of the termination, if the swap has a negative value, the Department would be liable to the counterparty for a payment equal to the swap s fair value C $115,560,000 MSL Swap Objective: As a means to lower its borrowing costs when compared against fixed-rate bonds at the time of issuance, the Department executed a floating-to-fixed Market Spread Language (MSL) swap in connection with its Series 2001C Variable Rate Bonds. The intention of the swap was to change the Department s variable interest rate on the bonds to a synthetic fixed rate that steps down over time. The swap was structured with step-down coupons in order to shift savings from the early years to the later years of the swap. Terms: Under the swap agreement, the Department pays Citigroup, the counterparty, a fixed interest rate of 6.0 percent. On July 1, 2010, the swap coupon steps down to percent until maturity. The percent coupon in the final period reflects the above-market fixed rate required to offset the below-market fixed rate of percent. The effective at-market fixed rate for the entire swap term equals percent. In exchange, the Department receives a variable rate equal to the lesser of 1) the actual bond rate on the Series 2001C bonds, or 2) percent of the one-month LIBOR. The notional amount of the swap matches the amount of the bonds outstanding. The bonds variable-rate coupons are assumed to be based on BMA. The bonds and related swaps mature on July 1, Fair Value: As of June 30, 2007, the swap had a fair market value of $8,631,000. Associated Debt: (000) Actual interest payments on debt $ 4,186 Net payment under swap agreement 2,747 Total payments $ 6,933 Credit Risk: As of June 30, 2007, the Department is exposed to credit risk in the amount of the swap s fair value of $8,631,000. The counterparty was rated Aa1 by Moody s Investor Service, AA- by Standard & Poor s, and AA+ by Fitch Ratings. As described earlier, a CSA is in place to provide collateral to protect the value of the swap under specific circumstances. 47

53 Basis Risk: The swap exposes the Department to basis risk should a temporary mismatch occur between the rate the Department pays on the underlying bonds and the percentage of LIBOR received on the swap. In this circumstance, the expected cost savings of the swap may not be realized. Tax Risk: The swap exposes the Department to tax risk if a permanent mismatch (shortfall) occurs between the floating rate received on the swap and the variable rate paid on the underlying variable-rate bonds due to tax law changes such that the federal or state tax exemption of municipal debt is eliminated or its value reduced. Termination Risk: The Department has exposure to termination risk on this particular swap. If either the credit rating of the bonds associated with the swap, or the credit rating of the swap counterparty falls below the threshold defined in the swap agreement, then an Additional Termination Event may occur. At the time of the termination, if the swap has a negative value, the Department would be liable to the counterparty for a payment equal to the swap s fair value B $185,855,000 Basis Swap Objective: As a means to lower its borrowing costs, the Department executed a floating-to-floating (Basis) swap in connection with its initial Series 1995 A-2, 1998B, 2001A and 2004B Bonds. The intention of the swap was to reduce interest costs. Terms: Under the swap agreement, the Department pays Citigroup, the counterparty, a variable rate computed by taking BMA less percent and receiving a variable rate payment by taking percent of one-month LIBOR less percent. The swap has an outstanding notional amount of $83,948,000 and the associated fixed rate bonds had a similar principal amount outstanding at the time of the swap execution. The swap matures on July 1,

54 Fair Value: As of June 30, 2007, the swap had a fair market value of ($306,000). Associated Debt: (000) Actual interest payments on debt $0.00 Net payment under swap agreement (562) Total payments ($562) Credit Risk: As of June 30, 2007, the Department was not exposed to credit risk because the swap had a negative fair value of $306,000. However, should the interest rates change and the fair value of the swap become positive, the Department would be exposed to credit risk in the amount of the swap s fair value. The counterparty was rated Aa1 by Moody s Investor Service, AA- by Standard & Poor s, and AA+ by Fitch Ratings. As described earlier, a CSA is in place to provide collateral to protect the value of the swap under specific circumstances. Basis Risk: The swap exposes the Department to Basis risk should the relationship between LIBOR and BMA converge. If a change occurs that results in the rates moving to convergence, the expected cost savings of the swap may not be realized. Tax Risk: The swap exposes the Department to tax risk if a permanent mismatch (shortfall) occurs between the floating rate received on the swap and the variable rate paid on the underlying variable-rate bonds due to tax law changes such that the federal or state tax exemption of municipal debt is eliminated or its value reduced. Termination Risk: The Department has exposure to Termination Risk on this particular swap. If either the credit rating of the bonds associated with the swap, or the credit rating of the swap counterparty falls below the threshold defined in the swap agreement, then an Additional Termination Event may occur. At the time of the termination, if the swap has a negative value, the Department would be liable to the counterparty for a payment equal to the swap s fair value $259,900,000 Floating-to-Fixed LIBOR Swap Objective: As a means to lower its borrowing costs and allow the Department to efficiently lock in forward fixed rates, the Department executed a floating-to-fixed swap in connection with its 2005 Series A-1 and A-2 Variable Rate Bonds. The intention of the 49

55 swap was to change the Department s anticipated variable interest rate on the bonds to a synthetic fixed rate. The swap was structured with step-down coupons in order to shift most of the savings from the early years to the later years of the swap. Terms: Under the swap agreement, the Department pays Citigroup, the counterparty, a fixed interest rate of percent. On July 1, 2010, the swap coupon steps down to percent until maturity. The percent coupon in the final period reflects the above-market fixed rate required to offset the below-market fixed rate of percent. In exchange, the Department receives a variable rate equal to the lesser of 1) the actual bond rate on the Series 2005 bonds, or 2) percent of the one-month LIBOR plus 0.35 percent. The notional amount of the swap matches the amount of the bonds outstanding. The bonds variable-rate coupons are assumed to be based on BMA. The bonds and related swaps mature on July 1, Fair Value: As of June 30, 2007, the swap had a fair market value of $1,945,000. Associated Debt: (000) Actual interest payments on debt $ 12,510 Net payment under swap agreement 6,036 Total payments $18,546 Credit Risk: As of June 30, 2007, the Department is exposed to credit risk in the amount of the swap s fair value of $1,945,000. The counterparty was rated Aa1 by Moody s Investor Service, AA- by Standard & Poor s, and AA+ by Fitch Ratings. As described earlier, a CSA is in place to provide collateral to protect the value of the swap under specific circumstances. Basis Risk: The swap exposes the Department to basis risk should the relationship between LIBOR and BMA converge. If a change occurs that results in the rates moving to convergence, the expected cost savings of the swap may not be realized. Tax Risk: The swap exposes the Department to tax risk if a permanent mismatch (shortfall) occurs between the floating rate received on the swap and the variable rate paid on the underlying variable-rate bonds due to tax law changes such that the federal or state tax exemption of municipal debt is eliminated or its value reduced. 50

56 Termination Risk: The Department has exposure to termination risk on this particular swap. If either the credit rating of the bonds associated with the swap, or the credit rating of the swap counterparty falls below the threshold defined in the swap agreement, then an Additional Termination Event may occur. At the time of the termination, if the swap has a negative value, the Department would be liable to the counterparty for a payment equal to the swap s fair value B $200,000,000 Basis Swap Objective: As a means to lower its borrowing costs, the Department executed a floating-to-floating (Basis) swap in connection with its Series 2001B, 1998A and 2003B Bonds. The intention of the swap was to reduce interest costs. Terms: Under the swap agreement, the Department pays Citigroup, the counterparty, BMA and receives percent of onemonth LIBOR plus percent. The swap has an outstanding notional amount of $162,515,000 and the associated fixed rate bonds had a similar principal amount outstanding at the time of the swap execution. The swap matures on July 1, Fair Value: As of June 30, 2007, the swap had a fair market value of $2,935,000. Associated Debt: (000) Actual interest payments on debt $0.00 Net payment under swap agreement (1,020) Total payments ($1,020) Credit Risk: As of June 30, 2007, the Department is exposed to credit risk because the swap has a fair value of $2,935,000. The counterparty was rated Aa1 by Moody s Investor Service, AA- by Standard & Poor s, and AA+ by Fitch Ratings. As described earlier, a CSA is in place to provide collateral to protect the value of the swap under specific circumstances. 51

57 Basis Risk: The swap exposes the Department to basis risk should the relationship between LIBOR and BMA converge. If a change occurs that results in the rates moving to convergence, the expected cost savings of the swap may not be realized. Tax Risk: The swap exposes the Department to tax risk if a permanent mismatch (shortfall) occurs between the floating rate received on the swap and the variable rate paid on the underlying variable-rate bonds due to tax law changes such that the federal or state tax exemption of municipal debt is eliminated or its value reduced. Termination Risk: The Department has exposure to termination risk on this particular swap. If either the credit rating of the bonds associated with the swap, or the credit rating of the swap counterparty falls below the threshold defined in the swap agreement, then an Additional Termination Event may occur. At the time of the termination, if the swap has a negative value, the Department would be liable to the counterparty for a payment equal to the swap s fair value $60,175,000 Floating-to-Fixed LIBOR Swap Objective: As a means to lower its borrowing costs the Department executed a floating-to-fixed LIBOR swap in connection with its 2005B AMT Bonds. Terms: Under the swap agreement, the Department pays Citigroup, the counterparty, a fixed interest rate of percent through July 1, 2010 and percent through maturity and receives percent of one-month LIBOR plus percent. The swap has an outstanding notional amount of $50,850,000, the same amount of the 2005 B Bonds outstanding at June 30, The swap matures on July 1, Fair Value: As of June 30, 2007, the swap had a fair market value of $1,991,000. Associated Debt: (000) Actual interest payments on debt $2,019 Net payment under swap agreement 636 Total payments $2,655 52

58 Credit Risk: As of June 30, 2007, the Department is exposed to credit risk because the swap has a fair value of $1,991,000. The counterparty was rated Aa1 by Moody s Investor Service, AA- by Standard & Poor s, and AA+ by Fitch Ratings. As described earlier, a CSA is in place to provide collateral to protect the value of the swap under specific circumstances. Basis Risk: The swap exposes the Department to basis risk should the relationship between LIBOR and BMA converge. If a change occurs that results in the rates moving to convergence, the expected cost savings of the swap may not be realized. Tax Risk: The swap exposes the Department to tax risk if a permanent mismatch (shortfall) occurs between the floating rate received on the swap and the variable rate paid on the underlying variable-rate bonds due to tax law changes such that the federal or state tax exemption of municipal debt is eliminated or its value reduced. Termination Risk: The Department has exposure to termination risk on this particular swap. If either the credit rating of the bonds associated with the swap or the credit rating of the swap counterparty falls below the threshold defined in the swap agreement, then an Additional Termination Event may occur. At the time of the termination, if the swap has a negative value, the Department would be liable to the counterparty for a payment equal to the swap s fair value $300,000,000 Fixed Spread Basis Swap Objective: As a means to lower its borrowing costs, the Department executed a fixed spread basis swap in connection with its Series 2004 Series A-1 and 2004 Series A-2 Bonds. The intention of the swap was to reduce interest costs. Terms: Under the swap agreement, the Department pays Citigroup, the counterparty, BMA and receives percent of onemonth LIBOR plus percent through July 1, 2010 and plus thereafter through maturity. The swap has an outstanding notional amount of $300,000,000 and the associated fixed rate bonds had a similar principal amount outstanding at the time of the swap execution. The swap matures on July 1, Fair Value: As of June 30, 2007, the swap had a fair market value of $8,805,

59 Associated Debt: (000) Actual interest payments on debt $ 18,626 Net payment under swap agreement (90) Total payments $18,494 Credit Risk: As of June 30, 2007, the Department is exposed to credit risk because the swap has a fair value of $8,805,000. The counterparty was rated Aa1 by Moody s Investor Service, AA- by Standard & Poor s, and AA+ by Fitch Ratings. As described earlier, a CSA is in place to provide collateral to protect the value of the swap under specific circumstances. Basis Risk: The swap exposes the Department to basis risk should the relationship between LIBOR and BMA converge. If a change occurs that results in the rates moving to convergence, the expected cost savings of the swap may not be realized. Tax Risk: The swap exposes the Department to tax risk if a permanent mismatch (shortfall) occurs between the floating rate received on the swap and the variable rate paid on the underlying variable-rate bonds due to tax law changes such that the federal or state tax exemption of municipal debt is eliminated or its value reduced. Termination Risk: The Department has exposure to termination risk on this particular swap. If either the credit rating of the bonds associated with the swap, or the credit rating of the swap counterparty falls below the threshold defined in the swap agreement, then an Additional Termination Event may occur. At the time of the termination, if the swap has a negative value, the Department would be liable to the counterparty for a payment equal to the swap s fair value C $215,150,000 Floating-to-Fixed LIBOR Swap Objective: As a means to lower its borrowing costs, the Department executed a floating-to-fixed LIBOR swap in connection with its 2005 Series C-1, C-2, C-3 AMT Bonds. Terms: Under the swap agreement, the Department pays Citigroup, JP Morgan Chase, and UBS AG, the counterparties, a fixed interest rate of percent through July 1, 2015 and percent through maturity and receives percent of one-month LIBOR minus percent. The swap has an outstanding notional amount of $215,150,000, the same amount of the 2005 C Bonds outstanding at June 30, The swap matures on July 1,

60 Fair Value: As of June 30, 2007, the swap had a fair market value of $18,083,000. Associated Debt: (000) Actual interest payments on debt $8,396 Net payment under swap agreement 818 Total payments $9,214 Credit Risk: As of June 30, 2007, the Department is exposed to credit risk because the swap has a fair value of $18,083,000. The counterparties were rated as of June 30, 2006, as follows: Citigroup was rated Aa1 by Moody s Investor Service, AA- by Standard & Poor s, and AA+ by Fitch Ratings; JP Morgan Case Bank was rated Aa2 by Moody s, AA- by S&P, and A+ by Fitch; and UBS AG was rated Aa2 by Moody s, AA+ by S&P, and AA+ by Fitch. As described earlier, a CSA is in place to provide collateral to protect the value of the swap under specific circumstances. Basis Risk: The swap exposes the Department to basis risk should the relationship between LIBOR and BMA converge. If a change occurs that results in the rates moving to convergence, the expected cost savings of the swap may not be realized. Tax Risk: The swap exposes the Department to tax risk if a permanent mismatch (shortfall) occurs between the floating rate received on the swap and the variable rate paid on the underlying variable-rate bonds due to tax law changes such that the federal or state tax exemption of municipal debt is eliminated or its value reduced. Termination Risk: The Department has exposure to termination risk on this particular swap. If either the credit rating of the bonds associated with the swap, or the credit rating of the swap counterparty falls below the threshold defined in the swap agreement, then an Additional Termination Event may occur. At the time of the termination, if the swap has a negative value, the Department would be liable to the counterparty for a payment equal to the swap s fair value D $205,375,000 Floating-to-Fixed LIBOR Swap Objective: As a means to lower its borrowing costs, the Department executed a floating-to-fixed LIBOR swap in connection with its 2005 Series D-1, D-2, D-3 Non-AMT Bonds. 55

61 Terms: Under the swap agreement, the Department pays Citigroup, JP Morgan Chase, and UBS AG, the counterparties, a fixed interest rate of percent through July 1, 2015 and percent through maturity and receives percent of one-month LIBOR plus percent. The swap has an outstanding notional amount of $205,375,000, the same amount of the 2005 D Bonds outstanding at June 30, The swap matures on July 1, Fair Value: As of June 30, 2007, the swap had a fair market value of $14,860,000. Associated Debt: (000) Actual interest payments on debt $8,155 Net payment under swap agreement 1,661 Total payments $9,816 Credit Risk: As of June 30, 2007, the Department is exposed to credit risk because the swap has a fair value of $14,860,000. The counterparties were rated as of June 30, 2006 as follows: Citigroup was rated Aa1 by Moody s Investor Service, AA- by Standard & Poor s, and AA+ by Fitch Ratings; JP Morgan Case Bank was rated Aa2 by Moody s, AA- by S&P, and A+ by Fitch; and UBS AG was rated Aa2 by Moody s, AA+ by S&P, and AA+ by Fitch. As described earlier, a CSA is in place to provide collateral to protect the value of the swap under specific circumstances. Basis Risk: The swap exposes the Department to basis risk should the relationship between LIBOR and BMA converge. If a change occurs that results in the rates moving to convergence, the expected cost savings of the swap may not be realized. Tax Risk: The swap exposes the Department to tax risk if a permanent mismatch (shortfall) occurs between the floating rate received on the swap and the variable rate paid on the underlying variable-rate bonds due to tax law changes such that the federal or state tax exemption of municipal debt is eliminated or its value reduced. Termination Risk: The Department has exposure to termination risk on this particular swap. If either the credit rating of the bonds associated with the swap, or the credit rating of the swap counterparty falls below the threshold defined in the swap agreement, then an Additional Termination Event may occur. At the time of the termination, if the swap has a negative value, the Department would be liable to the counterparty for a payment equal to the swap s fair value. 56

62 E $58,920,000 Floating-to-Fixed LIBOR Swap Objective: As a means to lower its borrowing costs, the Department executed a floating-to-fixed LIBOR swap in connection with its 2005 Series E-1, E-2, E-3 Non-AMT Bonds. Terms: Under the swap agreement, the Department pays Citigroup, JP Morgan Chase, and UBS AGl, the counterparties, a fixed interest rate of percent through July 1, 2015 and percent through maturity and receives percent of one-month LIBOR minus percent. The swap has an outstanding notional amount of $58,920,000, the same amount as the 2005 E Bonds outstanding at June 30, The swap matures on July 1, Fair Value: As of June 30, 2007, the swap had a fair market value of $5,186,000. Associated Debt: (000) Actual interest payments on debt $2,737 Net payment under swap agreement 865 Total payments $3,602 Credit Risk: As of June 30, 2007, the Department is exposed to credit risk because the swap has a fair value of $5,186,000. The counterparties were rated as of June 30, 2006 as follows: Citigroup was rated Aa1 by Moody s Investor Service, AA- by Standard & Poor s, and AA+ by Fitch Ratings; JP Morgan Case Bank was rated Aa2 by Moody s, AA- by S&P, and A+ by Fitch; and UBS AG was rated Aa2 by Moody s, AA+ by S&P, and AA+ by Fitch. As described earlier, a CSA is in place to provide collateral to protect the value of the swap under specific circumstances. Basis Risk: The swap exposes the Department to basis risk should the relationship between LIBOR and BMA converge. If a change occurs that results in the rates moving to convergence, the expected cost savings of the swap may not be realized. Tax Risk: The swap exposes the Department to tax risk if a permanent mismatch (shortfall) occurs between the floating rate received on the swap and the variable rate paid on the underlying variable-rate bonds due to tax law changes such that the federal or state tax exemption of municipal debt is eliminated or its value reduced. 57

63 Termination Risk: The Department has exposure to termination risk on this particular swap. If either the credit rating of the bonds associated with the swap, or the credit rating of the swap counterparty falls below the threshold defined in the swap agreement, then an Additional Termination Event may occur. At the time of the termination, if the swap has a negative value, the Department would be liable to the counterparty for a payment equal to the swap s fair value Forward Starting Swap Objective: As a means to lower its borrowing costs and provides the Department with a favorable fixed interest rate for financing of the Terminal 3 Project. Terms: Commencing with the issuance of the Series 2008A and 2008B bonds in July 1, 2008, and in accordance with the swap agreements, the Department will pay JP Morgan Chase, and UBS AGl, the counterparties, a fixed interest rate of percent through July 1, 2017, and 0.25 percent through maturity and will receive 64.7 percent of one-month LIBOR plus 0.28 percent. The swap has a notional amount of $300 million. The swap matures on July 1, Fair Value: As of June 30, 2007, the swap had a fair market value of $8,351, Forward Starting Swap Objective: As a means to lower its borrowing costs and provides the Department with a favorable fixed interest rate for financing of the Terminal 3 Project. Terms: Commencing with the issuance of the Series 2009A and 2009B bonds in July 1, 2009, and in accordance with the swap agreements, the Department will pay Citigroup Financial, the counterparty, a fixed interest rate of percent on the 2009A bonds through July 1, 2017, and 0.25 percent through maturity and will receive 64.7 percent of one-month LIBOR plus 0.28 percent and a fixed rate of 6.00 percent on the 2009B bonds through July 1, 2017, and percent to maturity and will receive 64.7 percent of one-month LIBOR plus 0.28 percent. The swap has a notional amount of $550 million. The 2009A swap matures on July 1, 2026, and the 2009B swap matures July 1,

64 Fair Value: As of June 30, 2007, the swaps had a fair market value of $17,939, Forward Starting Swap Objective: As a means to lower its borrowing costs and provides the Department with a favorable fixed interest rate for financing of the Terminal 3 Project. Terms: Commencing with the issuance of the Series 2010 bonds in July 1, 2010, and in accordance with the swap agreements, the Department will pay Citigroup Financial, the counterparty, a fixed interest rate of 6.00 percent through July 1, 2017, and percent to maturity and will receive 61.9 percent of one-month LIBOR plus 0.27 percent. The swap has a notional amount of $150 million. The swap matures on July 1, Fair Value: As of June 30, 2007, the swaps had a fair market value of $5,153, Forward Starting Swap Objective: As a means to lower its borrowing costs and provides the Department with a favorable fixed interest rate for financing of the Terminal 3 Project. Terms: Commencing with the issuance of the Series 2011 bonds in July 1, 2011, and in accordance with the swap agreements, the Department will pay Citigroup Financial, the counterparty, a fixed interest rate of percent to 07/01/2037 maturity on $201,975 million of the swap and will pay UBS AG a fixed interest rate of percent to 07/01/2030 maturity on $73,025 million of the swap. The swap has a notional amount of $275 million. The swap matures on July 1, Fair Value: As of June 30, 2007, the swaps had a fair market value of $5,061,

65 (j) The maturities and interest of long-term debt are as follows: Maturities of Long-Term Debt Total Senior Subordinate PFC Third lien Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Due as of June 30, (000) (000) (000) (000) (000) (000) (000) (000) (000) (000) 2007 $ 369,485 $ - $ 24,700 $ - $ 23,500 $ - $ 19,515 $ - $ 1,770 $ , ,494 26,300 12,585 17,035 55,039 20,600 54,085 2,215 8, , ,018 28,200 10,762 18,900 76,677 21,715 52,916 2,700 8, , ,621 30,100 8,812 20,935 61,902 22,870 48,506 3,225 9, , ,951 32,200 6,728 27,285 59,419 29,010 52,693 3,790 10, , ,773 34,400 4,501 25,880 63,446 37,435 59,920 4,405 9, , ,970-16,749 99, , , ,828 33,095 45, , ,764-16, ,255 90, , ,158 57,785 32, , ,310-16, ,505 80, , ,420 73,670 41, , ,212-16, ,620 39,329 92,250 77, ,545 69,398 25,930 1, ,775 33,820 91,840 34, ,780 19,438 43,660 3, ,120 11,723-4, Total $ 2,858,110 $ 1,960,949 $ 245,490 $ 114,823 $ 1,050,830 $ 706,024 $ 1,079,135 $ 973,514 $ 182,655 $ 166,588 9.) PAYMENTS TO CLARK COUNTY The Department reimburses the County for providing the Airport System with fire services, police services, legal, administrative services and certain maintenance services, based on its actual cost. The total amounts billed for these services for FY2007 was $24.3 million and $19.5 million in FY ) COMMITMENTS AND CONTINGENCIES (a) Federal Grants As of June 30, 2007, the County has remaining commitments from the FAA for grant awards of $23.8 million for land acquisition, certain airport improvements and $32.8 million from the TSA for costs related specifically to the in-line baggage handling system construction. Such funds are generally available for reimbursement upon the acquisition of the specific asset and are generally accrued as receivables at the time the acquisition costs are incurred. (b) Construction in Progress As of June 30, 2007, the Department s management estimates that construction in progress will require an additional outlay of approximately $654.2 million to bring the related projects to completion. 60

66 (c ) Litigation and Claims Inverse Condemnation Litigation. The County is a party to actions concerning Airport System operations in which inverse condemnation and other damages are being sought against the County. Although the facts and circumstances of each case differ, the County believes the ultimate outcomes will all be affected by the Nevada Supreme Court case, Steve Sisolak v. McCarran International Airport and Clark County, 137 P.3d 1110 (Nev. 2006). A discussion of the individual cases is below. Tien Fu Hsu and Lisa Su Family Trust; S.W. Stephen Huang, Peter B. Liao, Lucky Land Company Enterprise, Westgate, West Park, Inc., v. Clark County, District of Nevada, Clark County - Case No. A The plaintiffs alleged inverse condemnation as a result of the Airport s expansion due to increased aircraft operations and the resultant noise, dust, vibration and fumes. The amount of damages claimed is unknown but in a previous case against the County (see the discussions of Case Nos. A and A333961A, below), the Plaintiffs were awarded $13 million for inverse condemnation of the same properties allegedly due to zoning height restrictions. There are meritorious defenses to the claims in this case that the County intends to vigorously assert. It is difficult to predict the ultimate outcome and it is not possible to estimate a minimum loss to the Department at this time. Tien Fu Hsu, et al., v. Clark County, District of Nevada, Clark County Case Nos. A and A333961A consolidated. This matter is an inverse condemnation case wherein judgment was rendered on behalf of the Plaintiffs after the lower court held that there was a per se taking. The judgment was for $13,000,000. Clark County appealed and prevailed. Plaintiffs have subsequently sold the property. The matter was reversed and remanded to the lower court by the Nevada Supreme Court. The case was ultimately dismissed without prejudice because the Plaintiffs failed to file a viable application with Clark County to develop the property, as required by the Supreme Court. Plaintiffs appealed on the basis that the Sisolak opinion should be applied retroactively. While this prior award was overturned by the Nevada Supreme Court, in an unpublished decision, the Sisolak decision calls into question the rationale of the prior unpublished decision in Hsu. The parties fully briefed and argued the case before the Nevada Supreme Court on September 5, The ultimate outcome is difficult to predict. Although there is a possibility that the matter will be dismissed in its entirety because the property was sold prior to the appeal, the County believes there is a possibility that the matter will be remanded for a new trial on damages in accord with Sisolak. If such a hearing occurs, the County believes there will be a reduction from the original jury award. The ultimate outcome is difficult to predict and it is not possible to estimate a minimum loss to the Department at this time. Vacation Village, Inc., v. Clark County ex rel Clark County Department of Aviation (Formerly Case No. A328480), (Bankruptcy Court Case No. BK-S RCJ, Chapter 11, ADV-S RCJ). The Plaintiff, Vacation Village, filed an inverse condemnation action against the Department in December 1993 seeking approximately $17 million in compensation. The Bankruptcy Court issued findings of fact and conclusions of law that the low and frequent flight of aircraft over the Plaintiff s 61

67 property caused a direct, substantial and immediate interference with the enjoyment and use of the Plaintiff s property, demonstrated by a significant and immediate decline in market price. The bankruptcy Court removed the bankruptcy reference and issued an award from the U.S. District Court in favor of Plaintiff in excess of $9 million in damages, interest, fees and costs. The County appealed to the Ninth Circuit and Plaintiff cross-appealed. The Ninth Circuit s July 23, 2007 decision as amended August 10, 2007 remanded the case back to the U.S. District Court for a determination of damages in accord with Sisolak and for a determination of prejudgment interest. The District Court can either agree with the County that interest is limited to two years under NRS or decide in favor of Plaintiff s argument that interest will be calculated back to On September 17, 2007, the County filed a petition for writ of certiorari with the United States Supreme Court and is seeking a stay of the District Court remand case pending the outcome of the writ petition. Although it is difficult to predict, we believe there is a strong basis for granting the certiorari. As a result, the Department has recorded a liability of $10,458,000 as of June 30, Hotels Nevada, LLC v. Clark County, District of Nevada, Clark County, Case No. A The Complaint for inverse condemnation for the alleged taking of air space above Plaintiff s property was filed in July 1999 and was stayed pending the outcome of the first Hsu appeal. Since the decision on the first Hsu appeal, the case has been reassigned to three different departments. No trial date has been set and discovery has just recommenced. With the application of Sisolak, the question of liability will be dependent on the showing of over-flights of the property and the question of damages will be dependent on the height of structures that can be constructed upon the property, if a showing of liability is made under the Sisolak test. It is difficult to predict the outcome of this case or the amount of any award of damages at this juncture given the current stage of discovery in this case. Mickle v. Clark County, District of Nevada, Clark County, Case No. A Plaintiffs have alleged that the County and the Airport have dramatically increased airplane and helicopter operations causing increased noise, dust, fumes, smoke, and vibrations over and upon their property. Plaintiffs further allege that the County has condemned, purchased, removed and/or demolished properties in the neighborhood of plaintiffs residence, thereby blighting Plaintiffs neighborhood such that they can no longer use their property to its highest and best use. The case has been set for trial on March 9, The County believes there is a strong potential to prevail on several affirmative defenses, including Plaintiff s knowledge of the Airport s future expansion, but the ultimate outcome is difficult to predict and it is not possible to estimate a minimum loss to the Department at this time. Mohler Trust v. Clark County, District of Nevada, Clark County, Case No. A The Complaint for inverse condemnation for the alleged per se taking of airspace above the Plaintiff s property was filed on February 6, The case was stayed pending the outcome of the Sisolak case and discovery has just recently commenced. The case was previously set for trial on May 19, 2008; however the parties jointly requested and received a continuance of the discovery deadlines and a vacation of the trial date. It is anticipated that the discovery cut-off will be August 1, 2008, with a trial date in With the application of the Sisolak test of over-flights and the enactment of Clark County Ordinances 1599 and 1221, damages are dependent on the height of structures that can be 62

68 constructed upon the property. It is difficult to predict the amount of any award of damages at this juncture given the current stage of discovery in this case and it is not possible to estimate a minimum loss to the Department at this time. STT Land, LLC v. McCarran International Airport, et al., District of Nevada, Clark County, Case No. A The plaintiffs filed an inverse condemnation complaint on June 28, 2006, alleging the imposition of zoning height restrictions over the Plaintiff s property constitute a per se taking. Clark County filed and prevailed recently on a motion for partial summary judgment due to Plaintiff s failure to file its complaint within the fifteen (15) year statute of limitations period based on height restriction ordinances enacted prior to June 28, The court s ruling left open the question of an ordinance enacted in The Plaintiff s requested the court to convert its ruling to a full motion for summary judgment to dispose of the entire action so that Plaintiff s could appeal the decision to the Nevada Supreme Court. The order granting full summary judgment disposing of this motion will be filed in the near future and Plaintiff will thereafter file its appeal. While the County believes there is a strong basis for the Nevada Supreme Court to affirm the lower court s decision, the outcome of the appeal is difficult to predict. It is impossible to predict the outcome of this case, including any estimation of a minimum loss to the Department, at this juncture. MBP Land, LLC, et al. v. McCarran International Airport, et al., District of Nevada, Clark County Case No. A The plaintiffs filed an inverse condemnation complaint on June 28, 2006, alleging the imposition of zoning height restrictions over the Plaintiff s property constitute a per se taking. Discovery has not commenced and the amount claimed is uncertain. This case has similar statute of limitations issues as those in the STT Land case. Although difficult to predict, the County believes there is a strong likelihood that it will prevail on the statute of limitations issues once they are heard. Plaintiff, however, has successfully moved the court to stay all proceeding pending the outcome of the second Hsu appeal. It is impossible to predict the outcome of this case at this juncture given the current stage of the present litigation and the possible effects of the Hsu and STT Land appeals. Urban Land Nevada v. McCarran International Airport and Clark County, District of Nevada, Clark County Case No. A The Plaintiffs filed an inverse condemnation Complaint on March 12, 2007 alleging the imposition of zoning height restrictions over the Plaintiff s property constitute a per se taking of air space over approximately 140 acres of its land. This case has similar statute of limitations issues as those in the STT Land case. The Plaintiff has refused to stay this case pending the expected appeal in the STT Land case. The County is vigorously defending this action and has filed two motions for partial summary judgment based upon Plaintiff s failure to timely file within the fifteen (15) year statute of limitations and the lack of ownership of approximately 9 acres of the property. The County believes there is a strong likelihood that the County will prevail at the hearing on these motions January 14, Discovery has also just commenced in this case. Given the current stage of the proceedings at this juncture, it is impossible to predict the final outcome of this case. A trial date has been set for November It is impossible to predict the outcome of this case, including any estimation of a minimum loss to the Department, at this juncture. 63

69 Wykoff Newberg Corporation; International Smelting Company, Inc., and Doe Landowners I through XX v. McCarran International Airport and Clark County, District of Nevada, Clark County Case No. A The Plaintiffs filed an inverse condemnation Complaint on February 20, 2007 alleging the imposition of zoning height restrictions over the Plaintiff s property constitute a per se taking. This case has similar statute of limitations issues as those in the STT Land case and therefore the parties are presently negotiating a stay of this action pending the outcome of the appeal to be filed in the STT Land case. It is impossible to predict the outcome of this case at this juncture given the current stage of the present litigation and the possible effect of the STT Land appeal. However, the parties have also engaged in settlement discussions which could resolve favorably to the County. No trial date has been set in this action. It is impossible to predict the outcome of this case, including any estimation of a minimum loss to the Department, at this juncture. McCarran Plaza Suites, Inc. v. McCarran International Airport and Clark County, a political subdivision of the State of Nevada, District of Nevada, Clark County, Case No. A McCarran Plaza Suites, Inc.( MPS ) sued Clark County and McCarran International Airport (collectively, the County ) on January 2, 2002, asserting that the County s airspace regulations constitute an inverse condemnation of MPS s property rights. The case was stayed pending the outcome of the Sisolak case and discovery is now ongoing. Although MPS has not yet placed a dollar value on its alleged damages, the County believes MPS will seek damages in the multi-million dollar range. This case is in the discovery phase. Trial has been scheduled for April of 2008, but the parties have agreed that the trial date should be pushed back to late 2008 or early It is impossible to predict the outcome of this case, including any estimation of a minimum loss to the Department, at this juncture. Pierre Boueri v. Clark County,District of Nevada Clark County, Case No. A Plaintiff, Pierre Boueri ( Boueri ) sued Clark County and McCarran International Airport (collectively, the County ) on April 19, 2005, asserting that the County s airspace regulations constitute an inverse condemnation of Boueri s property rights. The case was stayed pending the outcome of the Sisolak case and discovery is now ongoing. Although Boueri has not yet placed a dollar value on the alleged damages, the County believes he will seek damages in the multi-million dollar range. The case is in the discovery phase. Trial has been scheduled for August 11, It is impossible to predict the outcome of this case, including any estimation of a minimum loss to the Department, at this juncture. 64

70 11.) RENTALS AND OPERATING LEASES The Department derives a substantial portion of its revenue from fees and charges to air carriers and concessionaires. Charges to air carriers are generated from terminal building rentals, gate use fees, and landing fees in accordance with either the Scheduled Airline Operating Agreement and Terminal Building Lease that expires June 30, 2008, or provisions of the County s annual Ordinance. The Department leases land, buildings and terminal space to various tenants and concessionaires under operating agreements that expire at various times through Under the terms of these agreements, concession fees are based principally on a percentage of the concessionaires gross revenues or stated minimum annual guarantee, whichever is greater; and land and building rents that are based on square footage rates. The Department received $107.9 million and $93.8 million in the years ended June 30, 2007 and 2006, respectively, for contingent rental payments in excess of the stated annual minimum guarantees. Following is a schedule of minimum future rental income on non-cancelable operating leases as of June 30, 2007: Contingent Fiscal Year Rents ,019, ,652, ,090, ,305, ,143,381 Thereafter 275,996, ) RISK MANAGEMENT The Department is exposed to various risks of loss related to theft of, damage to and destruction of assets, errors and omissions, injuries to employees and customers, and natural disasters. These risks are covered by commercial insurance purchased from independent third parties and County self-insured programs for off-airport auto liability, employee medical benefits and workers compensation. The County has established a fund for self-insurance related to medical benefits provided to employees and covered dependents. An independent claims administrator handles all claims procedures. The County also provides an option for employees to select an independent health maintenance organization (HMO) for medical benefits. The County has also established a fund for self-insurance related to workers' compensation claims. The County maintains reinsurance coverage obtained from private insurers for losses in excess of $1,000,000 per claim. The Department reimburses the County a per capita rate for employee medical benefits and a percentage of payroll for workers compensation coverage. Rates for this coverage are uniform for all 65

71 County Departments and are adjusted based on the overall performance of the self-insured medical benefits fund and the self-insured workers' compensation fund. As a participant in the County's self-insured programs, the Department is assessed annual fees based on the allocation of each respective fund. These assessments are charged to the Department s expense each year. There is no separate accounting for the Department s claims; accordingly, information regarding claims liability and payments are not presented in this financial report. Settled claims from these risks have not exceeded commercial insurance coverage during the past three years. 66

72 13.) AIRPORT LAND TRANSFERS The Southern Nevada Public Land Management Act of 1998, Public Law , was enacted by Congress in October A provision of this law provides that the Bureau of Land Management (BLM), an agency of the United States Department of the Interior will transfer approximately 5,000 acres of land to the Department, without consideration, subject to the following: 1) Valid existing rights. 2) The land must be managed in accordance with the law and Section of Title 40, United States Code (relating to airport noise compatibility planning), and regulations promulgated pursuant to that section. 3) If any land is sold, leased, or otherwise conveyed by the Department, such sale, lease, or other conveyance shall contain a limitation that requires uses compatible with the law and such Airport Noise Compatibility Planning provisions. 4) If any land is sold, leased, or otherwise conveyed by the Department, such sale, lease, or other conveyance shall be at fair market value. The Department contributes 85% of the gross proceeds from the sale, lease, or other conveyance of such land directly to the BLM for use in purchasing, improving, or developing other land for environmental purposes. The Department contributes 5% of the gross proceeds from the sale, lease, or other conveyance of such land directly to the State for use in its general education program. The remainder is available for use by the Department for the benefit of airport development and the Noise Compatibility Program. Due to the uncertainty of any future benefit to the Department, a value has not been assigned nor was income reported relating to the land not yet sold or leased under the Southern Nevada Public Land Management Act of Gross proceeds from the sale and lease of any CMA land for the year ended June 30, 2007, were $8.3 million and from inception to that date are $80.0 million. The Department's share of these proceeds is $832.0 thousand for the year ended June 30, 2007, and $8.0 million from inception to that date. At June 30, 2007 and 2006, the Department had paid the BLM and the State of Nevada all amounts due. 67

73 Accompanying Information 68

74 CLARK COUNTY DEPARTMENT OF AVIATION CLARK COUNTY, NEVADA Schedule of Insurance As of June 30, 2007 Amount of Coverage Description Limits ($) Insurer Expiration $1.7 billion Blanket policy on property 750M Travelers 10/1/2008 Excess property 100M Continental Casualty 10/1/2008 Excess property 100M AXIS Insurance 10/1/2008 Excess property 25M Integon Insurance 10/1/2008 Excess property 125M Lloyds of London 10/1/2008 Excess property 100M Federal Insurance 10/1/2008 Excess property 150M American Guaranty 10/1/2008 Excess property 350M RSUI Company 10/1/2008 $200 million Terrorism property 150M Lloyds of London 10/1/2008 Excess terrorism 50M Montpelier 10/1/2008 $5 million Employee practices liability Lloyds of London 10/1/2008 $1.05 billion Airport liability 50M Ace Property 10/1/2008 Excess airport liability 500M Lloyds of London 10/1/2008 Excess airport liability 500M Lloyds of London 10/1/2008 $300 million Construction liability Lloyds of London 2/22/2008 $300 million Builders' risk Travelers 6/1/2008 $40 million Pollution & Remediation Indian Harbor 3/27/2013 $400 million Builder's Risk (OCIP) AON 4/24/

75 CLARK COUNTY DEPARTMENT OF AVIATION CLARK COUNTY, NEVADA SCHEDULE of AIRPORT REVENUE BOND DEBT SERVICE COVERAGE For the Years Ended June 30, 2007 and 2006 (000) (000) Reference Operating revenue $ 332,671 $ 290,979 Interest income 24,799 20,969 Operating expenses (215,258) (156,977) Net revenue 1 142, ,971 Other available funds: Senior lien coverage 10,093 10,702 Subordinate lien coverage 5,026 4,076 Net revenue and other available funds 2 157, ,749 PFC revenue 89,358 85,969 PFC fund interest income 5,229 4,473 PFC miscellaneous income 4,956 - Total PFC revenue 3 99,543 90,586 Senior lien debt service 4 40,371 42,807 Subordinate lien debt service 5 47,505 40,760 Senior and subordinate lien debt service 6 87,876 83,567 Subordinate PFC debt service 7 $ 79,970 $ 50,442 Coverage achieved: Net revenue (informational only) 1/ Senior lien including other available funds (1.25 required) 2/ Senior and subordinate lien including other available funds (1.10 required) 2/ Subordinate lien after payment of senior lien (2-4)/ Subordinate PFC bonds (informational only) 3/

76 CLARK COUNTY DEPARTMENT OF AVIATION CLARK COUNTY, NEVADA Schedule of Cash Receipts and Disbursements - Restricted and Designated Accounts FY2007 Working Capital Capital Improvement Passenger Customer Capitalized Current Debt Service and Contingency and Replacement Construction Facility Charge Facility Charge Interest Debt Service Reserve Reserve Reserve Total (000) (000) (000) (000) (000) (000) (000) (000) (000) Cash and investments, beginning of year $ 481,366 $ 62,663 $ 35,981 $ 6,057 $ 134,250 $ 112,720 $ 17,540 $ 5,000 $ 857,849 Cash Receipts: FAA 27,503 27,503 TSA Transfers in 999,706 27,667 65, ,187 51,187 1,338,473 Interest received 16,402 3,413 3, ,420 8,305 1, ,557 Bond proceeds 832,563 21, ,462 Land sale proceeds Jet Aviation Fuel Tax 9,490 9,490 Customer Facility Charges 25,105 25,105 Passenger Facility Charges 78,822 78,822 Total Receipts 1,878, ,902 28, ,097 81,391 1, ,370,412 Total cash and investments available 2,359, ,565 64,395 72, , ,111 18,641 5,171 3,228,261 Cash disbursements: Transfers to refunding escrows Bond issuance costs 6, ,221 9,486 Project costs 181,447 27,537 4, ,119 Principal payments 40,785 40,785 Interest payments 25,600 70,678 8, ,822 Transfers out 1,137,753 94,645 3,425 9,466 39,319 8,285 1, ,296,495 Total cash disbursements 1,325, ,881 8,350 35, ,213 16,829 1, ,665,707 Cash and investments, end of year $ 1,034,047 $ 49,684 $ 56,045 $ 37,152 $ 188,134 $ 177,282 $ 17,590 $ 2,620 $ 1,562,554 71

77 Clark County Department of Aviation Clark County, Nevada Schedule of Operating Revenues and Expenses by Cost Center Actual and Budget for Fiscal Year Ended June 30, 2007 (With Comparative Totals for the Fiscal Year Ended June 30, 2006) Other Consolidated Year Ended June 30,2007 Actual Terminal Airfield Apron Buildings Terminal Reliever Car Rental General and Actual Budgeted Year Ended Building Area Area and Areas Area Airports Facility Administrative Total Total June 30, 2006 (000) (000) (000) (000) (000) (000) (000) (000) (000) (000) (000) Operating Revenues: Landing Fees $ 32,098 $ 32,098 $ 35,530 $ 23,947 Other aircraft fees 5,518 $ 19,444 $ 3,587 28,549 10,109 10,164 Building rentals $ 82,455 $ 4, $ 1,657 89,023 88,560 88,037 Land rentals 2, $ 12, ,351 16,218 15,132 Ground transportation fees 38, ,069 44,093 35,951 38,375 Gaming revenue 40,884 40,884 41,540 39,626 Terminal concessions 48, ,332 38,485 45,111 Parking 28, ,039 25,522 26,261 Other 842 3, ,302 1,375 4,326 Total Operating Revenues 172,393 43,524 19,444 5,046 79,799 5,739 6, , , ,979 Operating Expenses: Salaries, wages and benefits 35,983 8,703 3,401 3,283 13,204 4, ,032 82,254 91,152 67,128 Contracted maintenance 5, , , ,613 19,107 26,106 14,206 County services: Fire services 275 4, ,495 6,790 6,043 Security services 6, ,775 2, ,987 14,105 11,608 10,676 County District Attorney County administration ,590 3,755 5,810 2,380 Professional Fees 6,304 7, , ,140 26,097 15,983 14,044 Utilities 17, , ,533 22,678 15,973 Communication (15) ,038 2,078 1,458 1,759 Repairs and maintenance 1, ,990 4,023 6,813 3,442 Materials and supplies 5,582 1, ,469 20,826 11,117 13,295 Insurance 513 2, , ,889 6,435 5,879 Administrative expenses ,447 10,573 2,139 1,760 Total Operating Expenses 78,360 25,385 5,112 11,590 18,290 7,823 2,380 66, , , ,977 Allocation percentage of general and administrative costs 52.6% 17.0% 3.4% 7.8% 12.3% 5.3% 1.6% 148,940 Allocation of general and administrative costs 34,891 11,303 2,276 5,161 8,144 3,483 1,060 (66,318) - Total Operating Expenses After Allocation 113,251 36,688 7,388 16,751 26,434 11,306 3, , ,977 Loss or Gain $ 59,142 $ 6,836 $ 12,056 $ (11,705) $ 53,365 $ (5,567) $ 3,286 $ - $ 117,413 $ 85,201 $ 134,002 72

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