Financial Report with Supplemental Information December 31, 2015

Transcription

1 Financial Report with Supplemental Information December 31, 2015

2 Contents Report Letter 1-3 Management's Discussion and Analysis 4-11 Basic Financial Statements Statement of Net Position 12 Statement of Revenues, Expenses, and Changes in Net Position 13 Statement of Cash Flows 14 Notes to Financial Statements Required Supplemental Information 34 Schedule of Changes in the Authority Net Pension Liability and Related Ratios 35 Schedule of Authority Contributions 36 Additional Information 37 Summary of Historical Financial Operations 38 Taxable Value and Maximum Property Tax Rate 39 Authority Debt 40 Recast Historical Pro-Forma Debt Service Coverage 41 Airlines Providing Service to the Airport 42 Authority's Top Ten Taxpayers 43 Compliance Section 44 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 Report on Compliance for the Major Federal Programs and Passenger Facility Charges Program; Report on Internal Control Over Compliance Schedule of Expenditures of Federal Awards 49 Notes to Schedule of Expenditures of Federal Awards 50 Schedule of Findings and Questioned Costs Schedule of Passenger Facility Charges Collected and Expended 53

3 Independent Auditor's Report To the Board of Directors Report on the Financial Statements We have audited the accompanying financial statements of (the "Authority") as of and for the year ended December 31, 2015 and the related notes to the financial statements which collectively comprise the Authority's basic financial statments as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of as of December 31, 2015 and the changes in its financial position and its cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. 1

4 To the Board of Directors Emphasis of Matter As discussed in Note 2 to the basic financial statements, the 2014 basic financial statements have been restated to correct a misstatement. Our opinion is not modified with respect to this matter. Also discussed in Note 2 to the basic financial statements, in 2015, the Authority adopted the provisions of GASB Statement No. 68, Accounting and Financial Reporting for Pensions, and GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date - An Amendment of GASB Statement No. 68, which establishes accounting and financial reporting standards for defined benefit pensions provided to the employees of governmental employers through pension plans. Our opinion is not modified with respect to this matter. Other Matters Report on Prior Year Financial Statements and Restatement The financial statements of as of December 31, 2014 were audited by other auditors, whose report dated March 18, 2015 expressed an unmodified opinion on those financial statements, prior to the restatement described in Note 2. As part of our audit of the 2015 financial statements, we also audited the adjustments described in Note 2 that were applied to restate 2014 financial statements. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2014 financial statements of the Authority other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2014 financial statements as a whole. Required Supplemental Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis, schedule of changes in the net pension liability and related ratios, and schedule of pension contributions, as identified in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, which considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplemental information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise 's basic financial statements. The schedules of expenditures of federal awards, passenger facility charge revenues and expenditures, and additional information are presented for the purpose of additional analysis and are not a required part of the basic financial statements. 2

5 To the Board of Directors The schedules of expenditures of federal awards and passenger facility charge revenues and expenditures are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedules of expenditures of federal awards and passenger facility charge revenues and expenditures are fairly stated in all material respects in relation to the basic financial statements as a whole. The additional information, as listed in the table of contents, has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated May 20, 2016 on our consideration of 's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Bishop International Airport Authority's internal control over financial reporting and compliance. May 20,

6 MANAGEMENT'S DISCUSSION AND ANALYSIS The following Management s Discussion and Analysis (MD&A) of the Bishop International Airport activities and financial performance provides an introduction to the financial statements of Bishop International Airport Authority (the Authority ) for the fiscal years ended December 31, 2015 and The information contained in this MD&A should be considered in conjunction with the information contained in the Annual Financial Statements and Auditor s Report and the accompanying additional information. Following this MD&A are the financial statements of the Authority together with the notes thereto which are essential to a full understanding of the data contained in the financial statements. In addition to the basic financial statements and accompanying notes, this report also presents certain required supplemental information regarding capital assets and accumulated depreciation, debt service requirements to maturity, and a schedule of governmental payments and services. Passenger Traffic HIGHLIGHTED AIRPORT ACTIVITIES The Authority experienced a decrease in air traffic for 2015, with enplanements down from 2014 by 1.98%; 2014 enplanements were up from 2013 by 5.71%. Total Passengers Percentage Change Enplanements 419, , % Deplanements 420, , % Total Passengers 839, , % Total Passengers Percentage Change Enplanements 397, , % Deplanements 391, , % Total Passengers 788, , % Available outbound seats were down for the year in total as some airlines decreased their operations and thus decreased the number of available seats. The decrease from 2014 in available seats was 4.02% while enplanements decreased by only 1.98%. This resulted in an improvement in the overall annual load factor, which was 78.63% in 2014 (which was an improvement from 2013 of 75.23%), to 80.3% in Enplanements vs Available Seats Percentage Change Enplanements 419, , % Seats 533, , % Annual Load Factor 78.63% 80.30% Enplanements vs Available Seats Percentage Change Enplanements 397, , % Seats 527, , % Annual Load Factor 75.23% 78.63% 4

7 Airline Highlights for 2015: Southwest Airlines Co. - Southwest finished the year with a decrease in passengers of 7.27% from 2014 with flights to Baltimore-Washington (BWI), Orlando (MCO), Tampa (TPA), Fort Myers (RSW), and Las Vegas (LAS). Southwest made up approximately 42% of the enplaned passengers for 2015 compared to 44% in In October 2015, Southwest announced that they would be discontinuing service to Orlando, Fort Myers, Tampa, Las Vegas, and Baltimore-Washington effective April At the same time, they announced service to Chicago Midway beginning April American - Enplanements decreased by.5% for the year over American makes up approximately 9% of the enplaned passengers. American currently flies to Chicago O Hare (ORD). United Airlines saw a 7.89% increase in enplaned passengers for 2015 over United currently flies to Chicago O Hare (ORD). United makes up approximately 10% of the enplaned passengers. Delta Air Lines finished the year up 1.57% for enplaned passengers. Delta makes up approximately 39% of the enplaned passengers with flights to Minneapolis (MSP) and Atlanta (ATL). Total Air Cargo and Freight increased.47% for the year. Enplaned freight increased by 7.77% while deplaned freight decreased by 5.46%. Most of the cargo is generated by Federal Express with the sorting facility located at the Airport. Cargo & Freight Percentage Change Enplaned Freight 10,803,020 11,642, % Deplaned Freight 13,317,636 12,591, % Total Cargo & Freight (lbs) 24,120,656 24,233, % Cargo & Freight Percentage Change Enplaned Freight 9,844,887 10,803, % Deplaned Freight 13,787,576 13,317, % Total Cargo & Freight (lbs) 23,632,463 24,120, % Aircraft Operations continued to decline, finishing the year down 6.40% compared to Operations of locally based aircraft decreased 14.02% while Itinerant Aircraft declined by 4.37% from Percentage Change Total Operations 35,793 33, % Percentage Change Total Operations 38,959 35, % FINANCIAL HIGHLIGHTS The assets of the Authority exceeded its liabilities at the close of the most recent fiscal year by $126,401,677 (net position). Of this amount, $12,943,547 (unrestricted net position) may be used to meet the airport s ongoing obligations to its creditors. Net position decreased by $437,931 or.35%. Unrestricted net position increased by $3.77 million primarily due to the release of restricted passenger facility charges of $4.175 million (upon approval of the PFC application) and the reduction of the restricted bond reserve (used toward the repayment of bonds) but offset by the transfer of unrestricted net position to the operation and maintenance fund (refer to Note 4). Net investment in capital assets decreased by $.84 million which reflects additions to capital assets and repayment of bond principal offset by depreciation for the year. 5

8 2015 to 2014 Comparative Statement of Net Position Assets, other than capital, increased during 2015 by $1.85 million due primarily to an increase in due from other governments which reflects the amount due the Authority for capital expenditures that are reimbursable by the Federal Aviation Administration Airport Improvement Program grant funding. Capital assets decreased by $2.55 million due to additions of capital assets offset by disposals and through depreciation. For more information on additions to the section entitled Capital Acquisition and Construction, additional information on the activity in capital assets can be found in Note 5 to the financial statements. Liabilities and deferred inflows decreased by $263,566 which is a reflection of paying bond principal of $1.8 million and the addition of the net pension liability of $1.5 million. Refer to Note 6 to the financial statements for more information on the long-term debt of the Authority and to Note 2 to the financial statements concerning the Net pension liability that was not previously reflected in the Statement of Net Position previous to the year ended December 31, to 2013 Comparative Statement of Net Position Assets, other than capital, increased $.69 million from 2013 due to the excess of operating and nonoperating revenue over expenditures and capital outlay. Capital assets for 2013 does not reflect the change in depreciation for pavements and airfield improvements (please refer to Note 2 to the financial statements); however, capital assets before depreciation increased by $1.1 million due mostly to expenditures related to grant related projects. Liabilities and deferred inflows decreased by $2.1 million, mostly due to paying bond principal of $1.8 million. A condensed summary of the Authority s net position at December 31 follows: * 2013* Assets and Deferred Outflows of Resources Current, restricted, other assets, and deferred outflows $ 22,843,555 $ 20,993,623 $ 20,299,957 Capital assets 127,486, ,037, ,815,841 Total assets and deferred outflows of resources 150,329, ,031, ,115,798 Liabilities and Deferred Inflows of Resources Long-term debt outstanding 16,468,913 16,813,610 18,601,631 Other liabilities and deferred inflows 7,459,102 7,377,971 7,686,171 Total liabilities and deferred inflows of resources 23,928,015 24,191,581 26,287,802 Net Position Net investment in capital assets 110,994, ,832, ,943,909 Restricted 2,464,079 6,919,842 4,452,985 Unrestricted 12,943,547 8,087,293 9,431,102 Total Net Position $ 126,401,677 $ 126,839,608 $ 180,827,996 * These years have not been restated for the implementation of GASB 68. In addition, the year ended December 31, 2013 has not been restated to reflect the effects of the prior period adjustment for the change in depreciation of fixed assets. Please refer to Note 2 to the financial statements. 6

9 The largest portion of the Authority s net position each year (88% at December 31, 2015) represents its investment in capital assets (e.g., land, pavement, building, improvements, and equipment) less any related outstanding debt used to acquire those capital assets. The Authority uses these capital assets to provide services to the many passengers and the meeters and greeters who visit the Airport; consequently, these assets are not available for future spending. Although the Authority s investment in its capital assets is reported net of related debt, it is noted that the resources required to repay this debt must be provided annually from its operations, since the capital assets themselves cannot be used to liquidate liabilities. FINANCIAL OPERATIONS HIGHLIGHTS The statement of revenues, expenses and changes in net position reflects the operating activity of the Authority for the year using the accrual basis of accounting similar to private sector companies. The change in net position is an indicator of whether the overall fiscal condition of the Authority has improved or worsened during the year. The change in net position for the years ended December 31, 2015, 2014, and 2013 was $.66 million, $(4.2) million, and $3.13 million, respectively. SUMMARY OF CHANGES IN NET POSITION * 2013* Operating revenues $ 8,759,228 $ 8,338,764 $ 7,909,015 Operating expenses 9,905,649 10,176,038 10,020,125 Operating loss before depreciation and nonoperating revenues and expenses (1,146,421) (1,837,274) (2,111,110) Depreciation ** 8,307,072 8,250,836 3,464,244 Operating loss before nonoperating revenues and expenses (9,453,493) (10,088,110) (5,575,354) Other nonoperating revenues and expenses, net 4,885,469 4,855,943 4,851,879 Loss before capital contributions (4,568,024) (5,232,167) (723,475) Capital grants 5,230,463 1,013,497 3,851,350 Increase (decrease) in net position $ 662,439 $ (4,218,670) $ 3,127,875 *These years have not been restated for the implementation of GASB 68. **Depreciation was restated for 2014; refer to Note 2 to the financial statements to 2014 Comparative Statements of Revenues, Expenses and Changes in Net Position Operating Revenues increased by $420,464 from 2014 to 2015 or 5.1%. The majority of the increase (86%) is attributed to an increase in rental of facilities due to additional building rental and rental car revenue increases. More modest increases were reflected in parking lot fees and landing fees which account for the remainder of the operating revenue increase. Operating expenses before depreciation decreased $270,389 or 2.66% from Salaries and benefits, marketing/public relations, parking service, utilities, and supplies all reflect a decrease from 2014 offset by increases in contractual services and repairs and maintenance to 2013 Comparative Statements of Revenues, Expenses, and Changes in Net Position Operating revenues increased by $429,749 or 5.44%. The most significant increase is reflected in parking revenue and rental of facilities line items. Operating expenses increased by $155,914 or 1.56%, with the largest increases reflected in the marketing/public relations and contractual services. As a result of the above, operating loss before depreciation decreased by $273,835. Nonoperating revenue (expense) increased from $4.852 million in 2013 to $4.856 million in 2014 as property tax revenue decreased being offset by an increase in passenger facility charge revenue and a decrease in interest expense. 7

10 Income before capital grants increased by approximately $152,711 from 2013 while contributions received in the form of grants from the federal, state, and local sources decreased from $3.85 million in 2013 to $1 million in The increase in net position for 2014 was $442,733 compared to $3.13 million in REVENUES This chart shows the major sources by percentage of the total operating and nonoperating revenues for the years ended December 31, 2015 and Rental of Facilities 26% Landing Fees 3% Other 1% Property Tax 27% Passenger Facility Charge 12% Parking Lot Fees 31% 2015 Other 1% Property Tax 28% Rental of Facilities 24% Landing Fees 3% Passenger Facility Charge 12% Parking Lot Fees 32% 2014 EXPENSES Utiities 11% Other 9% Salaries W ages and Benefits 43% This chart shows the major expense categories, exclusive of depreciation, for the years ended December 31, 2015 and Marketing 7% Parking Service 12% Contractual Services 11% 2015 Interest 7% Utilities 7% Other 9% Salaries W ages and Benefits 31% Marketing 8% Parking Services 8% Contractual Services 6% Interest 24% FINANCIAL STATEMENTS 2014 The Authority s financial statements are prepared on an accrual basis in accordance with generally accepted accounting principles promulgated by the GASB. The Authority is structured as a single enterprise fund with revenues recorded when earned and expenses recorded as incurred. Capital assets are capitalized (except land and land improvements) and are depreciated over their useful lives. See notes to the financial statements for a summary of the Authority s significant accounting policies. 8

11 CAPITAL ACQUISITION AND CONSTRUCTION ACTIVITIES Authority's 2015 Capital Activities Land & Other 1% Obstruction Removal 1% Taxiway C Rehab 2% Equipment 11% Runway 18/36 Rehab 85% Authority's 2014 Capital Activities Runway 18/36 Rehab Design 14% Equipment, Facilities 13% Obstruction Analysis 4% Capital, Other3% Deicing Pad Improvements 57% Taxwiay A Thangar Area Rehab 9% 2015 Capital Asset Activity The Authority had a decrease in capital assets (before depreciation) of $1.989 million (includes $7.739 million in disposal of assets) for the year ended December 31, The Authority added $5.750 million in capital assets of which $5.23 million was funded by federal and state grants for final costs for the deicing pad improvements, the purchase of a fire truck, and for the rehabilitation of Runway 18/36. The Authority expended $519,623 of its own funds which included the local share on the federal and state grants of $285,715, $82,641 in equipment and facility improvements, $88,280 for the Taxiway C rehabilitation design, and $62,987 for a parcel of land. Disposals included the retirement of Taxiway A improvements in 1999 and the retirement of Runway 18/36 improvements completed in Capital Asset Activity The Authority had an increase in capital assets (before depreciation) of $1.125 million (includes $117,000 in disposal of assets) for the year ended December 31, Of this, $1.013 million was funded by federal and state grants for the Taxiway A and T-Hangar area rehabilitation project, deicing pad improvement project, Runway 18/36 rehabilitation design project, and Obstruction Analysis project. During 2014, the Authority expended $229,000 of its own resources on capital activities. Of this amount, $53,400 was the local share of the federal and state grants discussed in the previous paragraph. See the diagram above for a breakdown of these expenditures. Capital asset acquisitions are capitalized at cost. Acquisitions are funded using a variety of financing techniques, including federal, state, and local grants, debt issuance, and Airport revenues. 9

12 LONG-TERM DEBT ADMINISTRATION In 1999, the Authority issued three different bond series. The two remaining issues were refunded during 2010 and are as follows: Outstanding Original Amount of Issue Balance at December 31, Bond Issue 2015 Series 2010-A Limited Tax General Obligation Refunding Bonds $ 10,910,000 $ 10,075,000 Series 2010-B Airport Revenue Refunding Bonds 7,560,000 2,040,000 In 2003, the Authority issued additional debt as follows: Outstanding Balance at Bond Issue Original Amount of Issue December 31, 2014 Series 2003-A Airport Revenue Bonds $ 9,150,000 $ 4,830,000 Additional detail can be found in Note 6 of the accompanied notes to the financial statements. The 2010-B & 2003-A Series Revenue Bonds carry the following ratings: Issue Insurance Agency Insured Rating Airport Revenue bonds Series N/A Moody s Baa3/Stable 2010-B Airport Revenue Bonds Series Radian Asset Assurance Moody s Baa3/Stable 2003-A Standard & Poor s Bbb+/Stable The 2010 Series A Bonds are insured and carry ratings with insurance as follows: Issue Insurance Agency Insured Rating Series 2010 A Assured Guaranty Municipal Corp. Moody s A2 PASSENGER FACILITY CHARGE (PFC) The Authority initially received approval to impose and use a PFC of $3.00 per enplaned passenger beginning October 1993 in an amount not to exceed $32,296,450 for six projects associated with the construction of the existing terminal. Effective October 1, 2001, the Authority received approval to amend the amount to $31,865,870 and increase collections to $4.50 per enplaned passenger. The Authority again amended the application to decrease the amount of eligible interest on bonds associated with those eligible projects as a result of refunding and reissuing the bonds (2010A Series) at lower interest rates. The application reduced the total project expenditures to $30,444,478. Through December 31, 2015, the Authority has incurred $28,485,453 in eligible expenditures on this PFC application. The remainder of eligible expenditures relate to bond interest payments to be made on the 2010A bonds through December 1, On January 6, 2015, the Federal Aviation Administration approved the Authority to impose and use a PFC of $4.50 per enplaned passenger in an amount not to exceed $11,859,545 for eight (8) projects that have been completed. The Authority will be reimbursed for the costs of those projects paid for with Authority funds. Through December 31, 2015, the Authority has received $5,517,457 in PFC revenues toward those expenditures. There are $6,342,088 in eligible expenditures to be reimbursed from this PFC application. 10

13 For more information on the passenger facility charges, refer to the report Schedule of Expenditures of Passenger Facility Charges that accompanies the financial statements for the year ended December 31, REQUEST FOR INFORMATION This financial report is designed to provide a general overview of the Authority s finances for all those interested. Questions concerning any of the information provided in this report or requests for additional information should be addressed in writing to the Deputy Airport Director-Finance & Administration, Bishop International Airport, 3425 W. Bristol Road, Flint, MI or you may call at (810)

14 Statement of Net Position December 31, 2015 December 31, 2014 Assets Current assets: Cash and investments (Note 3) $ 12,815,246 $ 8,975,380 Receivables: Property taxes receivable 3,648,642 3,987,269 Accounts receivable 433, ,541 Due from other governments 2,492,296 1,025,304 Prepaid expense 309, ,935 Deposits - 13,500 Total current assets 19,698,413 14,752,929 Noncurrent assets: Restricted assets - Cash and investments (Notes 3 and 4) 2,464,079 5,835,677 Capital assets (Note 5): Assets not subject to depreciation 39,988,019 44,210,909 Assets subject to depreciation 87,498,118 85,826,657 Total noncurrent assets 129,950, ,873,243 Total assets 149,648, ,626,172 Deferred Outflows of Resources Deferred charges (Note 1) 342, ,017 Deferred outflows related to pensions (Note 9) 338,977 - Total deferred outflows of resources 681, ,017 Liabilities Current liabilities: Accounts and contracts payable 780, ,463 Accrued wages and benefits 151, ,321 Payable from restricted assets 53,985 58,860 Compensated absences 223, ,106 Current portion of long-term debt (Note 6) 1,865,000 1,810,000 Total current liabilities 3,074,206 2,971,750 Noncurrent liabilities: Compensated absences 261, ,204 Net pension liability (Note 9) 1,499,741 - Long-term debt (Note 6) 14,969,172 16,813,610 Total noncurrent liabilities 16,730,901 17,083,814 Total liabilities 19,805,107 20,055,564 Deferred Inflows of Resources - Property taxes levied for the following year 4,122,908 4,136,017 Net Position Net investment in capital assets 110,994, ,832,473 Restricted: Bond reserves 1,396,900 1,660,682 Bond redemption 53,985 - Operation and maintenance 1,013,194 - Passenger facility charges - 4,174,995 Unrestricted 12,943,547 9,171,458 Total net position $ 126,401,677 $ 126,839,608 The Notes to Financial Statements are an Integral Part of this Statement. 12

15 Statement of Revenues, Expenses, and Changes in Net Position December 31, 2015 Year Ended December 31, 2014 Operating Revenue Parking lot fees $ 4,530,261 $ 4,498,154 Rental of facilities 3,697,451 3,337,665 Landing fees 391, ,299 Fuel flowage fees 11,970 11,184 TSA reimbursement 87,460 87,420 Other 40,847 36,042 Total operating revenue 8,759,228 8,338,764 Operating Expenses Salaries, wage, and fringe benefits 4,561,514 4,649,033 Marketing/Public relations 778, ,720 Parking service 1,247,173 1,301,535 Contractual services 1,210,982 1,149,487 Utilities 1,162,532 1,229,893 Repairs and maintenance 331, ,681 Supplies 256, ,792 Insurance 269, ,073 Other 87,288 75,824 Depreciation 8,307,072 8,250,836 Total operating expenses 18,212,721 18,426,874 Operating Loss (9,453,493) (10,088,110) Nonoperating Revenue (Expenses) Property taxes 3,941,376 3,938,149 Passenger facility charges 1,681,649 1,743,582 Investment income 18,463 16,760 Interest expense (765,302) (823,404) Amortization of prepaid bond insurance costs (19,629) (19,144) Gain on sale of assets 28,912 - Total nonoperating revenue 4,885,469 4,855,943 Loss - Before capital contributions (4,568,024) (5,232,167) Capital Contributions Federal 4,955, ,155 State 275,288 54,342 Total capital contributions 5,230,463 1,013,497 Change in Net Position 662,439 (4,218,670) Net Position - Beginning of year - As restated (Note 2) 126,839, ,058,278 Restatement due to implementation of GASB 68 (Note 2) (1,100,370) - Net Position - End of year $ 126,401,677 $ 126,839,608 The Notes to Financial Statements are an Integral Part of this Statement. 13

16 Statement of Cash Flows December 31, 2015 Year Ended December 31, 2014 Cash Flows from Operating Activities Receipts from customers $ 8,667,436 $ 8,430,739 Payments to suppliers (5,229,858) (6,213,896) Payments to employees (4,471,004) (4,698,586) Net cash used in operating activities (1,033,426) (2,481,743) Cash Flows from Noncapital Financing Activities - Property taxes not restricted for capital activities 4,266,894 3,667,826 Cash Flows from Capital and Related Financing Activities Receipt of capital grants 3,763,471 4,027,262 Proceeds from sales of capital assets 36,853 - Purchase of capital assets (5,763,584) (1,215,739) Principal and interest paid on capital debt (2,516,313) (2,513,758) Passenger facility charges collected 1,695,910 1,736,823 Decrease in restricted cash - (1,382,674) Net cash (used in) provided by capital and related financing activities (2,783,663) 651,914 Cash Flows from Investing Activities Interest received on investments 18,463 16,760 Net purchases from sale and maturities of investment securities (1,073,454) (883,296) Net cash used in investing activities (1,054,991) (866,536) Net (Decrease) Increase in Cash and Cash Equivalents (605,186) 971,461 Cash and Cash Equivalents - Beginning of year 12,035,836 11,064,375 Cash and Cash Equivalents - End of year $ 11,430,650 $ 12,035,836 Balance Sheet Classification of Cash and Cash Equivalents Cash and investments $ 15,279,325 $ 14,811,057 Less amounts classified as investments (3,848,675) (2,775,221) Total cash and cash equivalents $ 11,430,650 $ 12,035,836 Reconciliation of Operating Loss to Net Cash from Operating Activities Operating loss $ (9,453,493) $ (10,088,110) Depreciation and amortization 8,307,072 8,250,835 Changes in assets and liabilities: Receivables (91,792) 91,975 Prepaid and other assets 100,278 (365,454) Accounts payable 13,999 (321,436) Accrued and other liabilities 90,510 (49,553) Net cash used in operating activities $ (1,033,426) $ (2,481,743) The Notes to Financial Statements are an Integral Part of this Statement. 14

17 Notes to Financial Statements December 31, 2015 Note 1 - Summary of Significant Accounting Policies The following is a summary of the significant accounting policies used by Bishop International Airport Authority: Reporting Entity (the "Authority") was established under state statute on August 10, 1987 by resolution of the legislative bodies of the City of Flint (the "City") and County of Genesee (the "County"). The Authority was established to operate the Bishop International Airport (the "Airport"). Prior to May 8, 1988, the Airport was a component unit of the City and the Airport financial statements were incorporated within the City's comprehensive annual financial report. Effective May 9, 1988, the operations of the Airport were transferred and leased to the Authority for a term of 99 years ($1.00 per year). Accounting and Reporting Principles The Authority follows accounting principles generally accepted in the United States of America (GAAP) as applicable to governmental units. Accounting and financial reporting pronouncements are promulgated by the Government Accounting Standards Board. Report Presentation This report includes the fund-based statements of the Authority. In accordance with government accounting principles, a government-wide presentation with program and general revenues is not applicable to special purpose governments engaged only in business-type activities. Fund Accounting Proprietary funds include enterprise funds (which provide goods or services to users in exchange for charges or fees). The Authority reports all activity in a single enterprise fund. Basis of Accounting The financial statements of the Authority are prepared using the ecomomic resources measurement focus and the full accrual basis of accounting; revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Revenues from airlines, concessions, and parking are reported as operating revenues. Property tax revenues and transactions which are capital, financing, or investing related are reported as nonoperating. All expenses related to operating the Authority are reported as operating expenses. Interest expense and financing costs are reported as nonoperating expenses. 15

18 Notes to Financial Statements December 31, 2015 Note 1 - Summary of Significant Accounting Policies (Continued) The Authority s net position is reported in three parts: (1) net investment in capital assets, (2) restricted net position, and (3) unrestricted net position. The Authority first utilizes restricted resources to finance qualifying activities. Specific Balances and Transactions Cash and Cash Equivalents - The Authority considers deposits in money market accounts and all highly liquid investments with a maturity of 90 days or less when purchased to be cash and cash equivalents. Investments - Investments are reported at fair value or estimated fair value. Shortterm investments are reported at cost, which approximates fair value. Securities traded on a national or international exchange are valued at the last reported sales price at current exchange rates. Receivables - Receivables are shown net of an allowance for uncollectible amounts. The Authority considers all significant accounts receivable to be fully collectible; accordingly, no allowance for uncollectible amounts is recorded. Prepaid Items - Certain payments to vendors reflect costs applicable to future accounting periods. For such payments, the Authority accrues prepaid items in the financial statements. Capital Assets - Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., runways, taxiways, and similar items), are reported on the statement of net position. Capital assets are defined by the Authority as assets with an initial individual cost of more than $1,000 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. Expenditures for property and equipment and for major renewal and betterments that extend the useful life of the assets are capitalized; routine maintenance and repairs are charged to expense as incurred. At the time fixed assets are sold, retired, or disposed of, the costs of such assets and related accumulated depreciation are removed from the accounts and any gain or loss is then reflected in the results of operations. Capital Asset Class Lives (years) Buildings Equipment 5-20 Pavements and airfield improvements

19 Notes to Financial Statements December 31, 2015 Note 1 - Summary of Significant Accounting Policies (Continued) Long-term Obligations - Bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method; bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are expensed at the time they are incurred. The Authority's enterprise fund is used to liquidate long-term debt. Deferred Outflows/Inflows of Resources In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element represents a consumption of net position that applies to a future period and so will not be recognized as an outflow of resources (expense/expenditure) until then. The Authority has deferred outflow of resources related to (1) the difference between projected and actual earnings on defined benefit plan investments, and (2) contributions to the defined benefit plan made after the December 31, 2014 measurement date of the net pension liability in the amounts of $95,346 and $243,631, respectively. See Note 8 for further details. The Authority also has deferred outflows of resources related to bond refunding loss and prepaid insurance costs for December 31, 2015 and 2014 of $342,086 and $405,017, respectively. In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element represents an acquisition of net position that applies to a future period and so will not be recognized as an inflow of resources (revenue) until that time. The Authority has deferred inflow of resources related to property taxes that have been collected by the Authority prior to year end but are used to fund 2016 operations. Deferred inflows for property taxes levied for the subsequent year were $4,122,908 and $4,136,017 for December 31, 2015 and 2014, respectively. Property Tax Revenue In connection with the state statute establishing the Authority, the Authority levies ad valorem property taxes for the operation of the Airport. The property tax is levied each December 1 on the taxable value of property located in the County as of the preceding December 31 (lien date). Taxable values are established annually by cities and townships and are equalized by the County and State at 50 percent of estimated current market value. Real and personal property in the County for the December 1, 2015 levy (2016 revenue) was equalized at $8.675 billion. The 2015 operating tax rate was.4847 mills (limited to.5 mills). 17

20 Notes to Financial Statements December 31, 2015 Note 1 - Summary of Significant Accounting Policies (Continued) Taxes collected by the cities and townships and remitted to the Authority are recorded as receivable on the levy date. Property taxes become delinquent on March 1 of the year following the levy, at which time the County remits the delinquent portion of the real property taxes to the Authority. Delinquent personal property taxes are collected by the various municipalities and are remitted to the Authority periodically. Property tax revenue for years ended December 31, 2015 and 2014 was $3,941,376 and $3,938,149, respectively. Pension - offers a defined benefit pension plan to its full-time union or AFSCME employees. The Authority records a net pension liability for the difference between the total pension liability calculated by the actuary and the pension plan s fiduciary net position. For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Bishop International Airport Authority Municipal Employees' Retirement System of Michigan Pension Plan and additions to/deductions from the pension plan s fiduciary net position have been determined on the same basis as they are reported by the pension plan. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Other Postemployment Benefit Costs - The Authority offers retirees a defined contribution plan for retiree healthcare benefits. In the Authority's financial statements, OPEB costs are recognized as contributions are made. Compensated Absences (Vacation and Sick Leave) - It is the Authority's policy to permit employees to accumulate earned but unused sick and vacation pay benefits. Employees accrue vacation at various rates depending on length of service. Accrual rates range from 40 hours per year for those with less than two years of service to 166 hours per year for those with more than 19 years of service. The maximum number of hours that can be accrued range from 100 to 290 hours depending on length of service. Upon termination of employment from the Authority, the employee shall be compensated for their accrued vacation at their current rate of pay. Sick leave benefits accrue for full-time employees at a rate of 52 hours per year (two hours per pay period). Sick leave accrues from the date of employment to a maximum of 720 hours. At termination, the amount of accrued sick leave is paid into the Retirement Health Savings Plan at the employee s current rate of pay. All vacation pay is accrued when incurred in the financial statements. The Authority's enterprise fund that reports employees' compensation is used to liquidate the obligation. 18

21 Notes to Financial Statements December 31, 2015 Note 1 - Summary of Significant Accounting Policies (Continued) Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. Note 2 - Change in Accounting and Prior Period Adjustments During the current year, the Authority adopted GASB Statement No. 68, Accounting and Financial Reporting for Pensions, and GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date - An Amendment of GASB Statement No. 68. As a result, the proprietary funds now include a liability for our unfunded legacy costs. Some of the changes in this net pension liability will be recognized immediately as part of the pension expense measurement, and part will be deferred and recognized over future years. Of the restatement, $215,588 was related to the beginning of year deferred outflows for employer contributions made subsequent to the measurement date. The restatement of other deferred inflows and outflows, and of prior periods, was not practical as all necessary information for such a restatement was not available from the pension plan. The financial statements for year ended December 31, 2014 have been restated in order to properly reflect depreciation and accumulated depreciation of capital improvements in pavement and other airfield improvements of the Authority. As a result of correcting the error, beginning of the year net position for 2015 and 2014 has been restated as noted below. The effect of the restatement was to decrease the change in net position for 2014 by $4,661,403. The effect of the change and prior period adjustment is as follows: Net position - Beginning of the year - As previously reported $ 181,270,729 $ 180,827,996 Prior period adjustment - Depreciation of pavements and airfield improvements (54,431,121) (49,769,718) Net position - Beginning of the year - As restated 126,839, ,058,278 Adjustment to record beginning net pension liability (1,100,370) - Net position - As restated $ 125,739,238 $ 131,058,278 19

22 Notes to Financial Statements December 31, 2015 Note 3 - Deposits and Investments Cash and investments reported in the financial statements are classified into the following deposit and investment categories: Deposits with financial institutions $ 11,430,228 $ 13,699,863 Investments: Securities, mutual funds, and similar vehicles 3,848,675 1,110,772 Petty cash or cash on hand Total $ 15,279,325 $ 14,811,057 Michigan Compiled Laws Section (Public Act 20 of 1943, as amended) authorizes local governmental units to make deposits and invest in the accounts of federally insured banks, credit unions, and savings and loan associations that have offices in Michigan. The law also allows investments outside the state of Michigan when fully insured. The local unit is allowed to invest in bonds, securities, and other direct obligations of the United States or any agency or instrumentality of the United States; repurchase agreements; bankers acceptances of United States banks; commercial paper rated within the two highest classifications, which matures not more than 270 days after the date of purchase; obligations of the State of Michigan or its political subdivisions, which are rated as investment grade; and mutual funds composed of investment vehicles that are legal for direct investment by local units of government in Michigan. The Authority has designated five banks for the deposit of its funds. The investment policy adopted by the board in accordance with Public Act 196 of 1997 has authorized investment as allowed by the state statutory authority as listed above. The Authority's deposits and investment policies are in accordance with statutory authority. The Authority's cash and investments are subject to several types of risk, which are examined in more detail below: Custodial Credit Risk of Bank Deposits - Custodial credit risk is the risk that in the event of a bank failure, the Authority's deposits may not be returned to it. The Authority does not have a deposit policy for custodial credit risk. At December 31, 2015 and 2014, the Authority had $10,636,071 and $9,013,154, respectively, of bank deposits (certificates of deposit and checking and savings accounts) that were uninsured and uncollateralized. The Authority believes that due to the dollar amounts of cash deposits and the limits of FDIC insurance, it is impractical to insure all deposits. As a result, the Authority evaluates each financial institution with which it deposits funds and assesses the level of risk of each institution; only those institutions with an acceptable estimated risk level are used as depositories. 20

23 Notes to Financial Statements December 31, 2015 Note 3 - Deposits and Investments (Continued) Custodial Credit Risk of Investments - Custodial credit risk is the risk that, in the event of the failure of the counterparty, the Authority will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The Authority does not have a policy for custodial credit risk. At December 31, 2015 and 2015, the Authority had $3,848,675 and $1,110,772, respectively, of investment securities that were uninsured and unregistered, with securities held by the counterparty or by its trust department or agent but not in the Authority's name. Interest Rate Risk - Interest rate risk is the risk that the value of investments will decrease as a result of a rise in interest rates. The Authority's investment policy does not restrict investment maturities, other than commercial paper which can only be purchased with a 270-day maturity. At December 31, 2015, the Authority had the following investments: Investment Fair Value Weighted Average Maturity U.S. Government agency securities $ 868, years Municipal bonds 893, years Negotiable certificate of deposit 248, years Fixed-income mutual funds - U.S. Government agency securities 1,387,222 N/A Money market 450,924 N/A Total $ 3,848,675 21

24 Notes to Financial Statements December 31, 2015 Note 3 - Deposits and Investments (Continued) Credit Risk - State law limits investments in commercial paper to the top two ratings issued by nationally recognized statistical rating organizations. The Authority has no investment policy that would further limit its investment choices. As of year end, the credit quality ratings of debt securities (other than the U.S. government) are as follows: Investment Fair Value Rating Rating Organization U.S. Government agency securities $ 609,650 Not Rated N/A U.S. Government agency securities 259,309 AA+ S&P Municipal bonds 498,440 AA+ S&P Municipal bonds 251,590 AA- S&P Municipal bonds 143,525 SPI S&P Money market 450,924 Not Rated N/A Negotiable certificate of deposit 248,015 Not Rated N/A Fixed-income mutual funds - U.S. Government agency securities 1,387,222 N/A N/A Note 4 - Restricted Assets Total $ 3,848,675 The restricted assets are restricted for the following purposes: Passenger facility charges $ - $ 4,174,995 Bond redemption fund 53,985 - Bond reserve account 1,396,900 1,660,682 Operations and maintenance reserve account 1,013,194 - Total restricted assets $ 2,464,079 $ 5,835,677 Passenger Facility Charge - These deposits are funds collected from passengers in conjunction with the Federal Passenger Charge Program. The funds may only be used for projects approved by the Federal Aviation Administration in the Authority s record of decision. As of December 31, 2015, all PFC receipts had been fully expended. Bond Interest and Redemption Fund - This fund is restricted for payment of the current portion of bond principal and interest. Bond Reseve - This account maintains a reserve of 125 percent of the average debt service of the Authority s 2010B Refunding and the 2003A bond issues. Operations and Maintenance Fund - This account maintains a reserve for operations and maintenance equal to the estimated operations and maintenance expense for the period of the next month as projected in the most recent Authority budget. 22

25 Notes to Financial Statements December 31, 2015 Note 5 - Capital Assets Capital asset activity for the Authority for the year ended December 31, 2015 was as follows: Business-type Activities Balance January 1, 2015 Additions Disposals and Adjustments Balance December 31, 2015 Capital assets not being depreciated: Land $ 39,692,152 $ 62,987 $ - $ 39,755,139 Construction in progress 4,518,757 5,041,406 (9,327,283) 232,880 Subtotal 44,210,909 5,104,393 (9,327,283) 39,988,019 Capital assets being depreciated: Pavements and airfield improvements 82,154,227 9,340,783 (7,345,778) 84,149,232 Buildings 97,449,997 60,516-97,510,513 Equipment 8,543, ,693 (454,176) 8,735,376 Subtotal 188,148,083 10,046,992 (7,799,954) 190,395,121 Accumulated depreciation: Pavements and airfield improvements 54,431,121 3,960,491 (7,313,478) 51,078,134 Buildings and improvements 41,575,165 3,911,585-45,486,750 Machinery and equipment 6,315, ,996 (418,017) 6,332,119 Subtotal 102,321,426 8,307,072 (7,731,495) 102,897,003 Net capital assets $ 130,037,566 $ 6,844,313 $ (9,395,742) $ 127,486,137 23

26 Notes to Financial Statements December 31, 2015 Note 5 - Capital Assets (Continued) Capital asset activity for the Authority for the year ended December 31, 2014 was as follows: Balance January 1, 2014, as Disposals and Balance December 31, Business-type Activities restated (Note 2) Reclassifications Additions Adjustments 2014 Capital assets not being depreciated: Land $ 27,379,005 $ 12,313,147 $ - $ - $ 39,692,152 Construction in progress 23,973,988 (20,537,572) 1,082,341-4,518,757 Land improvements 92,889,524 (92,889,524) Subtotal 144,242,517 (101,113,949) 1,082,341-44,210,909 Capital assets being depreciated: Pavements and airfield improvements - 82,154, ,154,227 Buildings and improvements 79,491,148 18,081,263 - (122,414) 97,449,997 Machinery and equipment 7,500, , ,412 (41,163) 8,543,859 Subtotal 86,991, ,113, ,412 (163,577) 188,148,083 Accumulated depreciation: Pavements and airfield improvements 49,769,718-4,661,403-54,431,121 Buildings and improvements 38,451,820-3,203,269 (79,924) 41,575,165 Machinery and equipment 5,966, ,163 (37,177) 6,315,140 Subtotal 94,187,692-8,250,835 (117,101) 102,321,426 Net capital assets $ 137,046,124 $ - $ (6,962,082) $ (46,476) $ 130,037,566 The construction in progress as of December 31, 2015 and 2014 of $232,880 and $4,518,757, respectively, relates to various projects being funded by federal, state, and Authority funds. All federal and state funds are administered by the Michigan Department of Transportation. Depreciation expense for the years ended December 31, 2015 and 2014 was $8,307,072 and $8,250,835, respectively. Construction Commitments - The Authority does not have any significant construction contract committments at year end. 24

27 Notes to Financial Statements December 31, 2015 Note 6 - Long-term Debt Long-term debt activity for the year ended December 31, 2015 can be summarized as follows: Balance January 1, 2014 Additions Reductions Balance December 31, 2015 Due Within One Year Bonds: Series 2010-A $ 10,255,000 $ - $ 180,000 $ 10,075,000 $ 180,000 Series 2010-B 3,190,000-1,150,000 2,040,000 1,180,000 Series 2003-A 5,310, ,000 4,830, ,000 Discount on bonds (131,390) - (20,562) (110,828) - Total $ 18,623,610 $ - $ 1,789,438 $ 16,834,172 $ 1,865,000 The long-term obligation activity for year ended December 31, 2014 of the Authority can be summarized as follows: Balance January 1, 2014 Additions Reductions Balance December 31, 2014 Due Within One Year Bonds: Series 2010-A $ 10,430,000 $ - $ 175,000 $ 10,255,000 $ 180,000 Series 2010-B 4,315,000-1,125,000 3,190,000 1,150,000 Series 2003-A 5,765, ,000 5,310, ,000 Discount on bonds (153,369) - (21,979) (131,390) - Total $ 20,356,631 $ - $ 1,733,021 $ 18,623,610 $ 1,810,000 The annual requirements to pay principal and interest (excluding amortization of costs of issuance and original issue discount or premium) on the long-term obligations at December 31, 2015 are summarized as follows: Business-type Activities Year Ending December 31 Principal Interest Total 2016 $ 1,865,000 $ 647,814 $ 2,512, ,930, ,971 2,511, ,000, ,036 2,513, ,070, ,434 2,514, ,145, ,825 2,515, ,935, ,790 7,540,790 Total debt payments $ 16,945,000 $ 3,163,870 $ 20,108,870 25

28 Notes to Financial Statements December 31, 2015 Note 6 - Long-term Debt (Continued) In October 2010, the Authority issued the following refunding bond issues: Series 2010-A Limited Tax General Obligation Refunding Bonds - These bonds, in the amount of $10,910,000, were issued for the purpose of refunding all of the Authority s outstanding 1999-A Limited Tax General Obligation Refunding Bonds. Interest is payable semi-annually on June 1 and December 1 each year at rates ranging from percent to percent. Final payment is due in December There was $223,764 of issuance costs and prepaid insurance costs, $126,172 of original issue discounts, and $382,824 of bond refunding losses when the bonds were issued. Series 2010-B Airport Revenue Refunding Bonds - These bonds, in the amount of $7,560,000, were issued for the purpose of refunding all of the Authority s outstanding 1999-B Airport Revenue Bonds. Interest is payable semi-annually on June 1 and December 1 each year at rates ranging from percent to percent. Final payment is due in December There were $98,335 of issuance costs, $71,759 of original issue discounts, and $157,901 of bond refunding losses when the bonds were issued. During 2003, the Authority issued Series 2003-A Airport Revenue Bonds: These bonds, in the amount of $9,150,000, were issued for the purpose of paying, and reimbursing the Authority for, part of the cost of improving, renovating, enlarging, and extending and paying the cost of issuing the bonds. Interest is payable semi-annually on June 1 and December 1 each year at rates ranging from percent to percent. Final payment is due in December There were $300,366 of issuance costs and prepaid insurance costs and $91,478 of original issue discount when the bonds were issued. Total interest charged to expense for the years ended December 31, 2015 and 2014 was $765,302 and $823,404, respectively. Note 7 - Deferred Compensation Plan The Authority offers all full-time employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The assets of the plan were held in trust as described in IRC Section 457(g) for the exclusive benefit of the participants and their beneficiaries. The custodian thereof for the exclusive benefit of the participants holds the custodial account for the beneficiaries of the Section 457 plan, and the assets may not be diverted to any other use. The administrators are agents of the employer for purposes of providing direction to the custodian of the custodial account from time to time for the investment of the funds held in the account, transfer of assets to or from the account, and all other matters. In accordance with accounting principles generally accepted in the United States of America, plan balances and activities are not reflected in the Authority's financial statements. 26

29 Notes to Financial Statements December 31, 2015 Note 8 - Defined Contribution Pension Plan The Authority provides pension benefits to all of its non-union full-time employees through a noncontributory defined contribution plan administered by ICMA RC Financial Services. In a defined contribution plan, benefits depend solely on amounts contributed to the plan plus investment earnings. Employees are eligible to participate from the date of employment. Under the plan provisions, the Authority contributes 20 percent of employees' gross earnings. The balance plus interest allocated to the employees' accounts are fully vested after five years of service. The Authority's total payroll during the current year was $2,985,960. The current year contribution was calculated based on covered payroll of $741,561, resulting in employer contributions of $148,312. There are no required employee contributions for this plan. Note 9 - Pension Plan Plan Description - The Authority participates in an agent multiple-employer defined benefit pension plan administered by the Municipal Employees' Retirement System of Michigan (MERS of Michigan), that covers all regular employees of the Authority. MERS was established as a statewide public employee pension plan by the Michigan legislature under PA 135 of 1945 and is administered by a nine-member retirement board. MERS issues a publicly available financial report which includes the financial statements and required supplemental information of this defined benefit plan. This report can be obtained at or in writing to MERS at 1134 Municipal Way, Lansing, Michigan Benefits Provided - The plan provides certain retirement, disability, annual cost of living adjustments, and death benefits to plan members and beneficiaries. PA 427 of 1984, as amended, established and amends the benefit provisions of the participants in MERS. The MERS plan covers all regular employees, which means full-time hourly rate bargining unit workers who at the time of employement and thereafter are regularly scheduled to work a normal work week or are regularly scheduled to work eighty (80) hours per payroll period in continuous operations, provided, however, a regular employee whose status changed as a result of lack of work or lack of funds shall remain a regular employee under the AFSCME agreement. 27

30 Notes to Financial Statements December 31, 2015 Note 9 - Pension Plan (Continued) Retirement benefits for employees are calculated as 2.25 percent of the employee s final average salary times the employee s years of service. The final average salary is calculated at three years for AFSCME division employees. Normal retirement age is 60 with early retirement at age 55 with 25 years of service. Employees are offered reduced benefits if they retire at the age of 55 with 15 years of service or at 50 with 25 years of service. Vesting period is 10 years for AFSCME division employees. All employees are eligible for duty-related disability benefits upon hire. Disability retirement benefits are determined in the same manner as retirement benefits but are payable immediately without an actuarial reduction. Benefit terms provide for annual cost-of-living adjustments to each employee s retirement allowance subsequent to the employee s retirement date. The annual adjustments are 2.5 percent, noncompounding. Benefit terms, within the parameters established by MERS, are generally established and amended by authority of the authority board, generally after negotiations of these terms with the affected unions. AFSCME union employees benefit terms may be subject to binding arbitration in certain circumstances. Employees Covered by Benefit Terms - At the December 31, 2014 measurement date, the following employees were covered by the benefit terms: Inactive plan members or beneficiaries currently receiving benefits 11 Inactive plan members entitled to but not yet receiving benefits 1 Active plan members 30 Total employees covered by MERS 42 Contributions - Article 9, Section 24 of the State of Michigan constitution requires that financial benefits arising on account of employee service rendered in each year be funded during that year. Accordingly, MERS retains an independent actuary to determine the annual contribution. The employer is required to contribute amounts at least equal to the actuarially determined rate, as established by the MERS retirement board. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by plan members during the year, with an additional amount to finance any unfunded accrued liability. The employer may establish contribution rates to be paid by its covered employees. For the year ended December 31, 2015, the active employee contribution rate was 5.0 percent of annual pay and the Authority s contribution rate was percent of annual payroll. 28

31 Notes to Financial Statements December 31, 2015 Note 9 - Pension Plan (Continued) Net Pension Liability The net pension liability reported at December 31, 2015 was determined using a measure of the total pension liability and the pension net position as of December 31, The December 31, 2014 total pension liability was determined by an actuarial valuation performed as of that date. Changes in the net pension liability during the measurement year were as follows: Changes in Net Pension Liability Total Pension Liability Increase (Decrease) Plan Net Position Net Pension Liability Balance at December 31, 2014 $ 7,448,025 $ 6,132,100 $ 1,315,925 Service cost 253, ,029 Interest 619, ,595 Contributions - Employer - 215,558 (215,558) Contributions - Employee - 94,213 (94,213) Net investment income - 393,589 (393,589) Benefit payments, including refunds (128,595) (128,595) - Administrative expenses - (14,552) 14,552 Net changes 744, , ,816 Balance at December 31, 2015 $ 8,192,054 $ 6,692,313 $ 1,499,741 Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions For the year ended December 31, 2015, the Authority recognized pension expense of $304,028. At December 31, 2015, the Authority reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows of Resources Net difference between projected and actual earnings on pension plan investments $ 95,346 Employer contributions to the plan subsequent to the measurement date 243,631 Total $ 338,977 29

32 Notes to Financial Statements December 31, 2015 Note 9 - Pension Plan (Continued) Amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows. These amounts are exclusive of the employer contributions to the plan made subsequent to the measurement date ($243,631), which wil impact the net pension liability in the year 2016, rather than pension expense. Years Ending June 30 Amount 2016 $ 23, , , ,837 Actuarial Assumptions - The total pension liability in the December 31, 2014 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Inflation % Salary increases 4.50% With merit increases totaling up to 13% for a total of 4.50% % Investment rate of return 8.25% Gross of pension plan investment expense, including inflation Mortality rates were based on the 1994 Group Annuity Mortality Table of a 50 percent male and 50 percent female blend. For disabled retirees, the regular mortality table is used with a 10-year set forward in ages to reflect the higher expected mortality rates of disabled members. The actuarial assumptions used in the December 31, 2014 valuation were based on the results of the most recent actuarial experience study in The MERS retirement board is currently conducting an actuarial experience study covering the period from January 1, 2009 through December 31, Discount Rate - The discount rate used to measure the total pension liability was 8.25 percent. The projection of cash flows used to determine the discount rate assumes that employee contributions will be made at the current contribution rate and that employer contributions will be made at rates equal to the difference between actuarially determined contribution rates and the employee rate. 30

33 Notes to Financial Statements December 31, 2015 Note 9 - Pension Plan (Continued) Projected Cash Flows Based on those assumptions, the pension plan s fiduciary net position was projected to be available to make all projected future benefit payments of current active and inactive employees. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. The long-term expected rate of return on pension plan investments was determined using a model in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense, and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return as of December 31, 2014, the measurement date, for each major asset class are summarized in the following table: Asset Class Target Allocation (%) Long-term Expected Real Rate of Return Global equity 58 % 5.00 % Global fixed income 20 % 2.20 % Real assets 12 % 4.20 % Diversifying strategies 10 % 6.60 % Sensitivity of the Net Pension Liability to Changes in the Discount Rate - The following presents the net pension liability of the Authority, calculated using the discount rate of 8.25 percent, as well as what the Authority s net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (7.25 percent) or 1 percentage point higher (9.25 percent) than the current rate: 1 Percent Decrease (7.25%) Current Discount Rate (8.25%) 1 Percent Increase (9.25%) Net pension liability of the Authority $ 2,624,733 $ 1,499,741 $ 556,829 31

34 Notes to Financial Statements December 31, 2015 Note 9 - Pension Plan (Continued) Pension Plan Fiduciary Net Position - Detailed information about the plan s fiduciary net position is available in the separately issued financial report. For the purpose of measuring the net pension liability, deferred outflows of resources, and deferred inflows or resources related to pension and pension expense, information about the plan s fiduciary net position and addition to/deduction from fiduciary net position has been determined on the same basis as they are reported by the plan. The plan uses the economic resources measurement focus and the full accrual basis of accounting. Investments are stated at fair value. Contribution revenue is recorded as contributions are due pursuant to legal requirements. Benefit payments and refunds of employee contributions are recognized as expense when due and payable in accordance with the benefit terms. Note 10 - Other Postemployment Benefits The Authority provides retiree healthcare benefits to eligible employees through the Retirement Health Savings Plan. This is a defined contribution plan administered by the ICMA Retirement Corporation. The benefits are provided under collective bargaining agreements. The Authority is required to contribute 2.50 percent of employees' earnings per pay period. Any plan members who receive a normal retirement from the Authority are then eligible to use the balance in their accounts to fund current medical insurance premiums. During the years ended December 31, 2015 and 2014, the Authority made contributions of $74,232 and $135,834, respectively, to the plan. Note 11 - Leases The Authority leases land, terminal space, and offices to various entities under the terms of noncancelable operating leases. Rental receipts include minimum rentals plus contingent rentals based on sales volume. The obligation of the lessees to the Authority is as follows: Years Ending December 31 Amount 2016 $ 1,696, ,113, , , , and after 889,140 Total $ 5,048,042 32

35 Notes to Financial Statements December 31, 2015 Note 11 - Leases (Continued) Minimum future rentals do not include contingent rentals, which are received as stipulated in the lease agreements and are based on the level of activity of the various lessees. These contingent rentals occur only if the level of activity exceeds certain minimums as designated in the contracts. Contingent rentals amounted to $1,885,677 and $1,852,408 for 2015 and 2014, respectively. Note 12 - Risk Management The Authority is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The Authority has purchased commercial insurance for all risk above minimal deductible amounts. In addition, all tenants and users of the Airport are required to have commercial insurance coverage naming the Authority as additional insured. No liability is recorded at December 31, 2015 and 2014 for outstanding claims or for any potential claims incurred but not reported as of that date. Note 13 - Upcoming Accounting Pronouncements In February 2015, the Governmental Accounting Standards Board issued GASB Statement No. 72, Fair Value Measurement and Application. The requirements of this statement will enhance comparability of financial statements among governments by requiring measurement of certain assets and liabilities at fair value using a consistent and more detailed definition of fair value and acceptable valuation techniques. This statement also will enhance fair value application guidance and related disclosures in order to provide information to financial statement users about the impact of fair value measurements on a government s financial position. GASB Statement No. 72 is required to be adopted for years beginning after June 15, The Authority is currently evaluating the impact this standard will have on the financial statements when adopted during the Authority's 2016 fiscal year. In August 2015, the GASB issued Statement No. 77, Tax Abatement Disclosures. This statement will require governments to disclose in their financial statements information related to tax abatement agreements. The Authority is currently evaluating the impact this standard will have on the financial statements when adopted during the 2016 fiscal year. In December 2015, the GASB issued Statement No. 79, Certain External Investment Pools and Pool Participants. This statement will require certain accounting and financial reporting for governments who participate in investment pools. The Authority is currently evaluating the impact this standard will have on the financial statements when adopted during the 2016 fiscal year. 33

36 Required Supplemental Information 34

37 Required Supplemental Information Schedule of Changes in the Authority Net Pension Liability and Related Ratios 2015 Total Pension Liability Service cost $ 253,029 Interest 619,595 Benefit payments, including refunds (128,595) Net change in total pension liability 744,029 Total pension liability - Beginning of year 7,448,025 Total pension liability - End of year $ 8,192,054 Plan Fiduciary Net Position Contributions - Employer $ 215,558 Contributions - Member 94,213 Net investment income 393,589 Administrative expenses (14,552) Benefit payments, including refunds (128,595) Net change in plan fiduciary net position 560,213 Plan fiduciary net position - Beginning of year 6,132,100 Plan fiduciary net position - End of year $ 6,692,313 Authority's net pension liability - Ending $ 1,499,741 Plan fiduciary net position as a percentage of total pension liability % Covered employee payroll $ 1,783,329 Authority's net pension liability as a percentage of covered employee payroll 84.1 % 35

38 Required Supplemental Information Schedule of Authority Contributions Last Ten Fiscal Years Actuarially determined contribution $ 243,631 $ 213,384 $ 209,604 $ 190,620 $ 190,620 $ 192,312 $ 165,552 $ 156,348 $ 140,988 $ 129,060 Contributions in relation to the actuarially determined contribution 243, , , , , , , , , ,966 Contribution deficiency (excess) $ - $ - $ - $ - $ (7,625) $ (11,539) $ (33,110) $ (14,071) $ (11,279) $ (12,906) Covered employee payroll $ 1,783,329 $ 1,865,260 $ 1,873,079 $ 1,822,484 $ 1,824,682 $ 1,630,526 $ 1,511,872 $ 1,474,914 $ 1,390,318 $ 1,316,888 Contributions as a percentage of covered employee payroll 13.7 % 11.4 % 11.2 % 10.5 % 10.9 % 12.5 % 13.1 % 11.6 % 11.0 % 10.8 % Notes to Schedule of Authority Contributions Actuarial valuation information relative to the determination of contributions: Valuation date Methods and assumptions used to determine contribution rates: Actuarial cost method Amortization method Remaining amortization period Asset valuation method Inflation Salary increases Investment rate of return Retirement age Mortality Other information Actuarially determined contribution rates are calculated as of December 31, two years prior to the end of the fiscal year in which the contributions are reported. Contributions for the Authority's fiscal year ended December 31, 2015 were determined based on the actuarial valuation as of December 31, The most recent valuation is as of December 31, Entry age Level percent 30 years 10-year smoothed market 3.00 percent 3.00 percent 8.0%, net of investment expense,including inflation Experience-based table of rates are specific to the type of eligibility condition 1994 Group Annuity Mortality Table of a 50 percent male and 50 percent female blend None 36

39 Additional Information 37

40 Additional Information Summary of Historical Financial Operations Years Ended December 31, 2010 Through Total Operating Revenue Parking lot fees $ 4,040,814 $ 3,963,399 $ 4,315,706 $ 4,167,690 $ 4,498,154 $ 4,530,261 $ 25,516,024 Rental of facilities 2,966,446 2,979,670 2,965,689 3,099,641 3,337,665 3,697,451 19,046,562 Landing fees 427, , , , , ,239 2,307,183 Fuel flowage fees 11,726 9,718 8,794 8,879 11,184 11,970 62,271 TSA reimbursement 147, , ,268 87,600 87,420 87, ,470 Other 105,017 87,030 80, ,696 36,042 40, ,068 Total operating revenue 7,698,967 7,562,543 7,831,061 7,909,015 8,338,764 8,759,228 48,099,578 Operating Expenses Salaries, wage, and fringe benefits 4,214,988 4,289,073 4,457,032 4,438,462 4,649,033 4,561,514 26,610,102 Marketing/public relations 786, , ,396 1,039, , ,568 5,047,396 Parking service 1,092,904 1,171,980 1,108,332 1,186,361 1,301,535 1,247,173 7,108,285 Contractual services 1,359,804 1,268, ,710 1,188,777 1,149,487 1,210,982 7,143,475 Utilities 1,054,126 1,100,076 1,165,347 1,227,677 1,229,893 1,162,532 6,939,651 Repairs and maintenance 330, , , , , ,545 1,877,868 Supplies 246, , , , , ,385 1,771,860 Insurance 246, , , , , ,662 1,540,568 Other 33,310 39,702 48,250 56,801 75,824 87, ,175 Depreciation 3,574,133 3,605,025 3,365,642 3,464,243 8,250,836 8,307,072 30,566,951 Total operating expenses 12,939,060 13,192,019 12,692,288 13,484,369 18,426,874 18,212,721 88,947,331 Operating (Loss) Income (5,240,093) (5,629,476) (4,861,227) (5,575,354) (10,088,110) (9,453,493) (40,847,753) Nonoperating Revenue (Expenses) Property taxes 5,338,072 4,653,473 4,357,119 4,018,584 3,938,149 3,941,376 26,246,773 Passenger facility charges 2,136,403 1,938,861 1,728,222 1,716,638 1,743,582 1,681,649 10,945,355 Investment income 73,287 30,117 26,712 11,160 16,760 18, ,499 Interest expense (1,471,621) (982,609) (925,474) (875,848) (823,404) (765,302) (5,844,258) Amortization of prepaid bond insurance costs (71,375) (49,874) (45,471) (18,654) (19,144) (19,629) (224,147) Gain (loss) on sale of assets ,912 28,912 Total nonoperating revenue 6,004,766 5,589,968 5,141,108 4,851,880 4,855,943 4,885,469 31,329,134 Income (Loss) - Before capital contributions 764,673 (39,508) 279,881 (723,474) (5,232,167) (4,568,024) (9,518,619) Capital Grants 5,674,099 3,459,797 4,191,584 3,851,349 1,013,497 5,230,463 23,420,789 Increase (Decrease) in Net Position $ 6,438,772 $ 3,420,289 $ 4,471,465 $ 3,127,875 $ (4,218,670) $ 662,439 $ 13,902,170 38

41 Additional Information Taxable Value and Maximum Property Tax Rate Fiscal Years Ended or Ending December 31, 2012 through 2016 Taxable Value Assessed Values as of December 31 Year of State Equalization and Tax Levy Authority's Fiscal Years Ended or Ending December 31 Ad Valorem Taxable Value Percent Increase/Decrease over Prior Year $ 9,404,241, % ,769,469, % ,554,752, % ,527,337, % ,675,740, % Per Capita Taxable Value for the fiscal year ended December 31, 2015 $ 20,027 Maximum Property Tax Rate Authority's Fiscal Years Ended or Ending December 31 Millage Classification Millage Authorized Applicable Millage Reduction Fraction Maximum Allowable Millage 2012 Operating Operating Operating Operating Operating

42 Additional Information Authority Debt Year Ended December 31, 2015 The following table reflects a breakdown of the Authority's direct and overlapping debt as of December 31, The Authority's ability to levy its ad valorem property tax is subject to applicable charter, statutory, and constitutional limitations. Debt Outstanding Authority Direct Debt : Limited Tax General Obigation Refunding Bonds, Series 2010-A $ 10,075,000 Airport Refunding Revenue Bonds, Series 2010-B 2,040,000 Airport Revenue Bonds, Series 2003-A 4,830,000 Total Direct Debt 16,945,000 Per Capita Net Direct (2) $ Percent of Net Direct to SEV (3) 0.20% Underlying Debt of the Authority (1): Cities 45,977,339 Townships 37,790,781 Villages 1,024,717 School Districts 332,355,937 County 64,954,380 Community College 40,360,705 Intermediate School District 7,443,758 Total Underlying Debt 529,907,617 Per Capita Net Underlying Debt (2) $ 1, Percent of Net Underlying Debt to SEV (3) 6.10% Net Direct and Overlapping Debt $ 546,852,617 Per Capita Net Direct and Underlying Debt (2) $ 1, Percent of Net Direct and Underlying Debt to SEV (3) 6.30% (1) Underlying debt is the debt of the municipal entitiie located in the County (2) Based on current population esimates of 425,790 (3) Based on SEV of $8,685,345,602 which is the Authority's SEV for the fiscal year ended December 31,

43 Additional Information Recast Historical Pro-forma Debt Service Coverage Years Ended December 31, 2010 through Series 2010-A Bonds Property taxes $ 5,338,072 $ 4,653,473 $ 4,357,119 $ 4,018,584 $ 3,938,149 $ 3,941,376 Debt service on the Series 1999-A/2010-A Bonds 532, , , , , ,481 Series 1999-A/2010-A Bonds Debt service coverage Revenue Bonds Net income available for the revenue bonds Debt service $ 5,349,727 $ 4,067,766 $ 4,086,043 $ 3,101,758 $ 3,330,110 $ 3,990,498 Debt service on revenue bonds 2,133,377 1,985,984 1,985,737 1,982,693 1,982,653 1,982,932 Revenue bonds debt service coverage Combined Bonds Net income available for the revenue bonds debt service $ 5,349,727 $ 4,067,766 $ 4,086,043 $ 3,101,758 $ 3,330,110 $ 3,990,498 Plus: Debt service on the Series 2010-A bonds 532, , , , , ,481 Combined amounts available for debt service 5,881,802 4,597,999 4,616,468 3,635,271 3,861,216 4,523,979 Combined debt service requirements 2,665,452 2,516,217 2,516,162 2,516,206 2,513,759 2,516,413 Combined debt service coverage The Rate Covenant for the revenue bonds issued requires that the Authority s net revenues equal or are greater than 120% of the Maximum Annual Debt Service. 41

44 Additional Information Airlines Providing Service to the Authority Year Ended December 31, 2015 Current Passenger Carriers Carrier Cities Served 2015 Enplaned Passengers Percentage of Total Southwest Airlines Ft. Meyers, Orlando, Tampa, Baltimore/Washington, Las Vegas 171, % Delta Airlines Atlanta, Minieapolis 161, % American Airlines Chicago 38, % United Chicago 39, % Various % Historical Passenger Enplanements by Carrier 411, % Southwest Airlines 198, , , , , ,062 Delta Airlines 199, , , , , ,609 American Airlines 40,962 43,986 39,254 37,505 38,533 38,342 Frontier 31,786 25,845 2, United 25,748 29,895 29,116 32,615 36,611 39,498 Charter Services , , , , , , ,459 Annual Percentage Change 1.26% -4.84% % -3.54% 5.71% -1.98% Air Cargo and Freight Enplaned in Pounds (lbs.) Carrier: FedEx 9,923,520 8,543,862 7,851,741 9,373,483 10,274,733 11,124,860 CSA Air Inc. 434, , , , , ,403 GVA (various) 54, ,904 31, Prior carriers 504 2,562 2, Delta/ASA ,013 2,406 2,704 American ,059 1,184 Northwest (Mesaba)

45 Additional Information Authority's Top Ten Taxpayers Year Ended December 31, 2015 Taxable Value Rank Taxpayer Name Real Personal Specific Total 1 Consumers Energy $ 14,369,061 $ 234,872,800 $ - $ 249,241,861 2 General Motors ETAL 51,021,900 33,669,400 5,804,100 90,495,400 3 Wal-Mart/Sam's 32,152,272 7,195,300-39,347,572 4 LSREF3 Spartan LLC 34,915, ,900-35,138,400 5 Meijer Inc/Good Will Co Inc 20,516,211 8,805,800-29,322,011 6 Edward Rose Assoc ETAL 26,238,197 79,300-26,317,497 7 Magna ETAL 2,525,476 8,366,000 12,972,000 23,863,476 8 Genesys Regional Medical ETAL 19,470,581 2,125,200-21,595,781 9 Comcast Cablevision 731,824 18,445,700-19,177, Michigan Electric Transmission Co LLC - 16,841,300-16,841,300 43

46 Compliance Section 44

47 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 To Management and the Board of Directors Independent Auditor's Report We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of (the "Authority") as of and for the year ended December 31, 2015, and related notes to the financial statements, which collectively comprise the Authority's basic financial statements, and have issued our report thereon dated May 20, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Bishop International Airport Authority's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Authority's internal control. Accordingly, we do not express an opinion on the effectiveness of the Authority's internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. However, as described in the accompanying schedule of findings and questioned costs, we identified a certain deficiency in internal control that we consider to be a material weakness. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider the deficiency described in the accompanying schedule of findings and questioned costs as Finding to be a material weakness. 45

48 To Management and the Board of Directors Compliance and Other Matters As part of obtaining reasonable assurance about whether Bishop International Airport Authority's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. 's Response to Finding 's response to the finding identified in our audit is described in the accompanying schedule of findings and questioned costs. Bishop International Airport Authority's response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Authority's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. May 20,

49 Report on Compliance for the Major Federal Program and Passenger Facility Charge Program; Report on Internal Control Over Compliance Independent Auditor's Report To the Board Report on Compliance for the Major Federal Programs and Passenger Facility Charge Program We have audited s (the Authority ) compliance with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Compliance Supplement that could have a direct and material effect on its major federal program for the year ended December 31, In addition, we audited compliance with the applicable requirements described in the Passenger Facility Charge Audit Guide for Public Agencies, issued by the Federal Aviation Administration (the Guide ) for the year ended December 31, The Authority s major federal program is identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. The passenger facility charge program is identified in the passenger facility charge revenue and expenditure schedule. Management's Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal program and the passenger facility charge program. Auditor's Responsibility Our responsibility is to express an opinion on compliance for the Authority's major federal program and the passenger facility charge program based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, Audit Requirements for Federal Awards (the Uniform Guidance ), and audit requirements in the Guide. Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Authority's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for the major federal program and passenger facility charge program. However, our audit does not provide a legal determination of the Authority s compliance. 47

50 To the Board Opinion on the Major Federal Programs and Passenger Facility Charge Program In our opinion, the Authority complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on its major federal program and its passenger facility charge program for the year ended December 31, Report on Internal Control Over Compliance Management of the Authority is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above for federal programs and the passenger facility charge program. In planning and performing our audit of compliance, we considered the Authority's internal control over compliance with the types of requirements that could have a direct and material effect on a major federal program or the passenger facility charge program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for its major federal program and the passenger facility charge program and to test and report on internal control over compliance in accordance with the Uniform Guidance and the Guide, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the entity's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program or the passenger facility charge program on a timely basis. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program or the passenger facility charge program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program or the passenger facility charge program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance and the Passenger Facility Charge Audit Guide for Public Agencies. Accordingly, this report is not suitable for any other purpose. May 20,

51 Schedule of Expenditures of Federal Awards Year Ended December 31, 2015 Federal Agency/Pass-through Agency Program Title CFDA Number Award Agreement/ State Project Number Federal Program Total Award Amount Funding Sources Total Current Year Expenditures Federal State Local Department of Transportation Airport Improvement Program $ 1,662,894 $ 723,524 $ 641,787 $ 35,655 $ 46, ,874,880 4,792,654 4,313, , ,633 Subtotal 5,516,178 4,955, , ,715 Department of Homeland Security Direct Award - Law Enforcement Officer Reimbursement Agreement Program HSTS0213HSLR278: ,480 65,460 65, HSTS0213HSLR278: ,141 22,000 22, Subtotal 87,460 87, Total expenditures $ 5,603,638 $ 5,042,635 $ 275,288 $ 285,715 See Notes to Schedule of Expenditures of Federal Awards 49

52 Notes to Schedule of Expenditures of Federal Awards Year Ended December 31, 2015 Note 1 - Basis of Presentation The accompanying schedule of expenditures of federal awards (the Schedule ) includes the federal grant activity of under programs of the federal government for the year ended December 31, The information in this Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (the Uniform Guidance ). Because the Schedule presents only a selected portion of the operations of Bishop International Airport Authority, it is not intended to and does not present the financial position, changes in net assets, or cash flows of. Note 2 - Summary of Significant Accounting Policies Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following, as applicable, either the cost principles in OMB Circular A-87, Cost Principles for State, Local Governments, and Non-Profit Organizations, or the cost principles contained in Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, wherein certain types of expenditures are not allowable or are limited as to reimbursement. Pass-through entity identifying numbers are presented where available. The Authority has not elected to use the 10-percent de minimus indirect cost rate to recover indirect costs as allowed under the Uniform Guidance. 50

53 Schedule of Findings and Questioned Costs Year Ended December 31, 2015 Section I - Summary of Auditor's Results Financial Statements Type of auditor's report issued: Unmodified Internal control over financial reporting: Material weakness(es) identified? X Yes No Significant deficiency(ies) identified that are not considered to be material weaknesses? Yes X None reported Noncompliance material to financial statements noted? Yes X No Federal Awards Internal control over major programs: Material weakness(es) identified? Yes X No Significant deficiency(ies) identified that are not considered to be material weaknesses? Yes X None reported Type of auditor's report issued on compliance for major programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with Section 2 CFR (a)? Yes X No Identification of major program: CFDA Number Airport Improvement Program Name of Federal Program or Cluster Dollar threshold used to distinguish between type A and type B programs: $750,000 Auditee qualified as low-risk auditee? X Yes No 51

54 Schedule of Findings and Questioned Costs (Continued) Year Ended December 31, 2015 Section II - Financial Statement Audit Findings Reference Number Finding Type - Material Weakness Finding Criteria - Capital assets should be depreciated over their estimated useful lives unless they are inexhaustible or are infrastructure assets reported under the modified approach as allowed per GASB Statement No. 34 paragraphs Condition - Certain pavements and other airfield improvements previously capitalized onto the statement of net position were not depreciated over their estimated useful lives. An adjustment to the beginning of the year net position was recorded to recognize the effect of accumulated depreciation on such assets to date. Context - The adjustments to net position for 2015 and 2014 were $54,431,121 and $49,769,718, respectively. Cause - Through a current year review of accounting policies and practices, the Authority identified that they had not previously applied generally accepted accounting principles related to pavements and other airfield improvements properly. Effect - The Authority determined that capital asset purchases related to pavements of runways/taxiways and other airfield improvements were capitalized but were not depreciated over their estimated useful lives. The Authoriy calculated, Plante & Moran, PLLC audited the adjustment, and the Authority recorded it in the general ledger. Recommendation - The Authority should implement procedures to ensure the consistent application of generally accepted accounting principles to balances reported in the financial statements at the end of each reporting period. Views of Responsible Officials and Planned Corrective Actions - Management will evaluate its policies and procedures to ensure all depreciable capital assets are identified timely. Section III - Federal Program Audit Findings None 52

55 Schedule of Passenger Facility Charges Collected and Expended For the Year and Each Quarter During the Year Ended December 31, 2015 Application Numbers: C-01-FNT C-00-FNT 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Total Cumulative Balance - January 1, 2015 $ 4,174,995 Collections $ 422,183 $ 430,116 $ 422,587 $ 421,023 1,695,909 Current year allowable expenditures (4,597,213) (430,116) (422,587) (421,023) (5,870,939) Interest Cumulative Balance - December 31, 2015 $ 0 Total PFC Revenue per Quarterly Reports $ 1,695,909 Prior year PFC accounts receivable (169,585) Current year PFC accounts receivable 155,325 Total PFC Revenue per December 31, 2015 Audited Financial Statements $ 1,681,649 53

56 May 20, 2016 To the Board of Directors We have audited the financial statements of (the Authority ) as of and for the year ended December 31, 2015 and have issued our report thereon dated May 20, Professional standards require that we provide you with the following information related to our audit which is divided into the following sections: Section I - Required Communications with Those Charged with Governance Section II - Other Recommendations and Related information Section III - Legislative and Informational items Section I includes information that current auditing standards require independent auditors to communicate to those individuals charged with governance. We will report this information annually to the board of directors of. Section II presents recommendations related to internal control, procedures, and other matters noted during our current year audit. These comments are offered in the interest of helping the Authority in its efforts toward continuous improvement, not just in the areas of internal control and accounting procedures, but also in operational or administrative efficiency and effectiveness. Section III contains updated legislative and informational items that we believe will be of interest to you. We would like to take this opportunity to thank the Authority s staff for the cooperation and courtesy extended to us during our audit, especially the Airport Director, Craig Williams, and the Deputy Director of Finance and Administration, Dionne Griffin. Their assistance and professionalism are invaluable. This report is intended solely for the use of the board of directors and management of Bishop International Airport Authority and is not intended to be and should not be used by anyone other than these specified parties. 1