MOBILE AIRPORT AUTHORITY

Transcription

1 FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED SEPTEMBER 30, 2016 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2015

2 Introductory Section Transmittal Letter Financial Section CONTENTS Independent Auditors Report 1-3 Page Management's Discussion and Analysis 4-16 Statement of Net Position Statement of Revenues, Expenses and Changes in Net Position 19 Statement of Cash Flows 20 Notes to the Financial Statements Required Supplementary Information Schedule of Changes in Net Pension Liability 47 Schedule of Employer Contributions 48 Other Supplementary Information Information Required by the Uniform Guidance 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 Independent Auditors' Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance Schedule of Expenditures of Federal Awards Notes to the Schedule of Expenditures of Federal Awards 55 Schedule of Findings and Questioned Costs - Uniform Guidance 56 Information Required by Passenger Facility Charges Program Independent Auditors' Report on Compliance with Requirements Applicable to the Passenger Facility Charge Program and on Internal Control Over Compliance Schedule of Expenditures of Passenger Facility Charges Notes to the Schedule of Expenditures of Passenger Facility Charges 61 Summary Schedule of Prior Audit Findings - Passenger Facility Charges Program 62 Information Required by Section 10.4 of the Trust Indenture dated July 1, i - v

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8 The Board of Directors Mobile Airport Authority Mobile, Alabama Report on the Financial Statements INDEPENDENT AUDITORS' REPORT We have audited the accompanying financial statements of each major fund of the Mobile Airport Authority (the Authority), as of and for the year ended September 30, 2016, and the related notes to the financial statements, which collectively comprise the Authority s basic financial statements 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 U.S. generally accepted accounting principles; 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. Auditors' 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 of 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 auditors' 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 Authority 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 financial statements referred to above present fairly, in all material respects, the respective net position of each major fund of the Mobile Airport Authority as of September 30, 2016, and the changes in financial position and cash flows for the years then ended in accordance with U.S. generally accepted accounting principles.

9 Other Matters Report on Summarized Comparative Information We have previously audited the Authority's 2015 financial statements, and we expressed an unmodified audit opinion on those financial statements in our report dated March 17, In our opinion, the summarized comparative information presented herein as of and for the year ended September 30, 2015, is consistent, in all material respects, with the audited financial statements from which it has been derived. Required Supplementary Information U.S. generally accepted accounting principles require that the management s discussion and analysis and retirement plan information on pages 4-16 and 47-48, respectively, 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, who 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 supplementary 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 the Mobile Airport Authority's basic financial statements. The introductory section, schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, schedule of passenger facility charges, as described in the Passenger Facility Charge Audit Guide for Public Agencies, issued by the Federal Aviation Administration, and other information listed in the index on page 63 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The schedule of expenditures of federal awards is the responsibility of management and was derived from and relates 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 financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated, in all material respects, in relation to the financial statements as a whole. The schedule of expenditures of passenger facility charges is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The 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 financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of passenger facility charges is fairly stated, in all material respects, in relation to the financial statements as a whole. -2-

10 The introductory section and other information listed in the table of contents which is the responsibility of management, is of a nonaccounting nature and has not been subjected to the auditing procedures applied in the audit of the financial statements. 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 March 23, 2017, on our consideration of the Authority s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and 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 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 the Authority s internal control over financial reporting and compliance. Mobile, Alabama March 23,

11 MANAGEMENT S DISCUSSION AND ANALYSIS The following Management s Discussion and Analysis (MD&A) presents an introduction to the financial performance of the Mobile Airport Authority (the Authority ) for the fiscal year ended September 30, This information should be considered in conjunction with the Letter of Transmittal included in the introduction section of this report, various historic summaries of activities and the series of financial statements and related notes that follow. The three basic statements are: (a) Statement of Net Position, which presents the assets, liabilities, deferred inflows and outflows of resources, and net position of the Authority as of the end of the fiscal year; (b) Statement of Revenues, Expenses, and Changes in Net Position, which reflects revenues and expenses recognized during the fiscal year; and (c) Statement of Cash Flows, which provides information on all the cash sources and uses for the Authority by major category during the fiscal year. The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U.S.) as promulgated by Governmental Accounting Standards Board (GASB) principles. The financial statements include the operations of Mobile Regional Airport (Regional), Mobile Aeroplex at Brookley (Brookley), and Mobile Downtown Airport (Downtown). The Authority is an enterprise entity, and its finances are accounted for using proprietary fund accounting. Proprietary fund accounting is based on a flow of economic resource measurement focus. This basis of accounting is otherwise known as accrual accounting and provides that revenue is recorded when it is earned and expenses are recorded when they are incurred. AIRPORT ACTIVITIES AND HIGHLIGHTS The Mobile Airport Authority owns, operates and maintains separate books and records for the Mobile Regional Airport, the Mobile Downtown Airport and the Mobile Aeroplex at Brookley. A summary of each entity s activities and historical data for the two airports are highlighted below. Summary financial information provided in this MD&A include certain restatements and reclassifications for FY 2015 for comparative purposes. Mobile Regional Airport Mobile Regional Airport, classified by the FAA as a small non-hub airport, is approximately fourteen miles west of the center of the City of Mobile. Mobile Regional Airport has served as the air transportation facility in the region for air carriers since The Airport has a main runway of approximately 8,500 feet and a general aviation runway of about 4,400 feet. The Airport is situated on nearly 3,000 acres of land of which more than 200 acres are available for industrial and commercial development. There are air cargo, aircraft maintenance and avionics facilities, as well as a full service general aviation operator located on the Airport. On average, Delta Air Lines, American Airlines, and United offer twenty-one week-day departures to Atlanta, Charlotte, Chicago, Dallas/Fort Worth and Houston. -4-

12 On December 9, 2013, AMR Corporation, the parent company of American Airlines, and U.S. Airways Group, the parent company of U.S. Airways, merged to form American Airlines Group, Inc. Both American Airlines and U.S. Airways serve the Mobile market with no overlap in flight routes, so the merger of their flight operations in 2015 had very little if any impact on service at Mobile Regional Airport. FY 16 % Change FY 16 FY 15 FY 14 Enplanements 1.03% 292, , ,781 Total Passengers 0.87% 588, , ,522 Air Carrier Landings -0.83% 6,546 6,601 6,558 Air Carrier Landed Weight (000 s) -4.06% 345, , ,092 TOTAL PASSENGERS BY AIRLINE % of Total AIRLINE FY 2016 FY 2016 FY 2015 FY 2014 FY 2013 American Eagle 14.2% 83,752 76,409 76,591 81,669 Delta 45.1% 265, , , ,108 United 24.2% 142, , , ,606 U.S. Airways 16.5% 96,944 93,186 98,972 94,484 Total 100.0% 588, , , ,867 % Incr / (Decr).87% -3.36% 0.78% 2.84% Passenger enplanements for FY 2016 increased 1.03%, and total passengers increased.87%. However, the airport experienced passenger growth in each of the last 8 months of the 2016 calendar year compared to the same month in The passenger enplanements for Calendar Year 2016 were up 3.8%. Delta continues to be the market leader in terms of passenger counts with 45% market share in FY American Airlines (American Eagle and US Airways) captured almost 31% of the market. At the beginning of 2016 the Executive staff of the Mobile Airport Authority initiated a strategy to create competition among the air carriers serving Mobile Regional Airport. The strategy included actively engaging all the air carriers in our market for more service, and upgraded service and promoting/advertising to our core market to grow the passenger traffic. In December 2015 Delta had a 45% market share. In 2016 and continuing into 2017 we are seeing this strategy take effect, as American Airlines and United Airlines have grown significant market share. Delta market share is down, but Delta has not lost any passengers. American s market share is expected to continue to grow with the added capacity they recently placed in the market. An added benefit has been a decline in roundtrip fares, which have fallen $90 on average, thus making Mobile Regional Airport more competitive with surrounding gulf coast airports. -5-

13 HISTORICAL AIRCRAFT LANDINGS AND TAKEOFFS (Calendar Year) Mobile Regional Airport YEAR DOMESTIC GENERAL MILITARY TOTAL COMMERCIAL AVIATION ,394 29,059 41,770 92, ,151 21,521 67, , ,057 25,637 79, , ,442 20,622 71, , ,927 16,177 56,463 87, ,925 11,992 57,514 84, ,388 10,286 60,866 85, ,363 9,360 56,095 79, ,066 7,978 45,383 67,427 THE MOBILE DOWNTOWN AIRPORT AND MOBILE AEROPLEX AT BROOKLEY The Mobile Downtown Airport and Mobile Aeroplex at Brookley combined are home to more than approximately 4,200 employees working at more than 80 businesses over its 1,650 acre campus. The combined Aeroplex is comprised of 1,229 acres of FAA regulated airfield property at Mobile Downtown Airport and a 421 acre industrial park. The Aeroplex is segmented into two separate business units for accounting purposes: The Mobile Downtown Airport (Downtown) and the Mobile Aeroplex at Brookley (Brookley). -6-

14 Mobile Downtown Airport The Mobile Downtown Airport, located at the Mobile Aeroplex, offers full Fixed Base Operator (FBO) services through Signature Flight Support. The Mobile Downtown Airport serves as a Gulf Coast air hub for a major freight carrier, and is home to one of Mobile County s largest private employers, VT MAE (formerly ST Aerospace). VT MAE, a subsidiary of Singapore Aerospace International, Inc., is Mobile Downtown Airport s largest tenant and employs approximately 1,200 technical, engineering and administrative personnel. In April 2013, Airbus broke ground on its $600 million Final Assembly Line (FAL) at the Mobile Downtown Airport, its first in North America. Construction was substantially completed and plant operations began in 2015, and the first A321 aircraft was completed and delivered in the second quarter of Airbus delivered 17 A321 aircrafts from the Mobile, Alabama plant through December 31, HISTORICAL AIRCRAFT LANDINGS AND TAKEOFFS (Calendar Year) Mobile Downtown Airport YEAR AIR AIR TAXI/ GENERAL LOCAL MILITARY TOTAL CARRIER COMMUTER AVIATION OPERATION CIVILIAN ,911 6,964 19,598 15,860 36,026 81, ,200 4,557 19,882 1,593 38,427 87, ,022 7,809 18,804 12,712 43,255 85, ,682 7,825 14,271 5,552 49,364 77, ,858 5,453 14,101 9,060 44,314 76, * 1,874 2,644 11,535 5,764 49,473 71, * 1,934 2,507 11,100 4,489 41,893 61, * 1,906 2,420 11,152 5,202 36,316 56, * 2,109 3,076 11,614 4,572 37,135 58,506 *Overflights of 3,622; 3,732; 4,183; and 4,209 are excluded from 2013, 2014, 2015, and 2016 respectively. -7-

15 Mobile Aeroplex at Brookley The Mobile Aeroplex at Brookley (Brookley) has attracted several new tenants and seen existing tenants commit new capital into the facilities. Star Aviation built a new 15,000 square foot building to expand operations at Brookley, while Penske invested approximately $6 million into a new state of the art facility. Paris based Hutchinson Group invested over $1 million into a 1940 warehouse to open an aerospace manufacturing center of excellence at Brookley. THE AUTHORITY S OVERALL FINANCIAL POSITION AND RESULTS OF OPERATIONS FINANCIAL HIGHLIGHTS Operating revenues for the Authority decreased approximately $512 thousand (3.5%) during FY 2016 to approximately $14 million. The decrease can be attributed primarily to a decline in Mobile Regional Airport Terminal Revenues and a decrease in Land and Building Rentals. The terminal revenue decrease approximately $347 thousand was primarily attributable to reduced concession revenues from car rental agencies due in part to reduced minimum rental rates. The approximately $185 thousand decrease in land and building rentals is attributed to a large warehousing tenant downsizing warehouse space under lease during the year. Airfield Revenues increased slightly, and Other Operating Revenues decreased slightly. The Authority s operating expenses increased approximately $670 thousand (6.2%) during FY 2016 as a result of an approximate $385 thousand non-cash pension related expense and increased personnel costs. The approximate $385 thousand non-cash pension expense was required to be booked according to GASB Statement No. 68, Accounting and Financial Reporting for Pensions - an amendment of GASB Statement No. 27, due primarily to differences between actuarial projected earnings on the pension plan investments and actual earnings during FY Excluding the accounting charge to record the associated pension expense, the Authority s Operating Expenses were up only 2.6% for the year. As a result in the decreased Operating Revenues and increased Operating Expenses, the Authority s Net Operating Income before Depreciation excluding the non-cash GASB Statement No. 68 pension related charge declined from approximately $3.8 million in FY 2015 to $2.6 million in FY

16 OPERATING REVENUES AND EXPENSES FY 2016 FY 2015 FY 2014 Operating Revenues Airfield $ 3,092,612 $ 3,059,205 $ 3,055,337 Terminal 5,944,493 6,291,908 6,509,452 Building & Land Rent 4,948,951 5,134,411 5,001,969 Other Income 38,135 50,970 55,723 Total Operating Revenues 14,024,191 14,536,494 14,622,481 Operating Expenses Aviation 2,054,375 1,784,345 1,835,412 Non-Aviation 3,683,453 3,359,427 3,501,236 General Maintenance & Security 1,988,318 2,000,714 2,107,522 General Administration 3,694,506 3,605,745 3,942,146 Total Operating Expenses 11,420,652 10,750,231 11,386,316 Operating Income Before Depreciation $ 2,603,539 $ 3,786,263 $ 3,236,165 STATEMENT OF NET POSITION 9/30/16 9/30/15 9/30/14 Assets Current Assets Unrestricted Assets $ 8,259,915 $ 8,085,583 $ 6,345,501 Restricted Assets 14,969,926 13,733,729 17,097,625 Total Current Assets 23,229,841 21,819,312 23,443,126 Non-Current Assets Capital Assets 118,246, ,458,463 93,799,025 Total Non-Current Assets 118,246, ,458,463 93,799,025 Total Assets 141,476, ,277, ,242,151 Deferred Outflows of Resources 1,508, , ,137 Liabilities Current Liabilities Payable from Unrestricted Assets 2,007,790 1,820,492 1,695,563 Payable from Restricted Assets 3,970,989 4,313,429 4,039,564 Total Current Liabilities 5,978,779 6,133,921 5,735,127 Non-current Liabilities Total Non-current Liabilities 22,179,467 20,506,854 21,465,766 Total Liabilities 28,158,246 26,640,755 27,200,893 Deferred Inflows of Resources 236,670 Net Position Net Investment in Capital Assets 101,164,397 88,572,839 76,412,735 Restricted 12,419,453 11,086,138 14,187,523 Unrestricted 1,243,110 1,664, ,137 Total Net Position $ 114,826,960 $ 101,323,474 $ 91,038,395-9-

17 Total Assets increased by approximately $14 million during FY 2016, and Total Net Position increased by approximately $13.5 million. Unrestricted current assets were relatively unchanged while restricted current assets increased by approximately $1.2 million. The primary reason for the increase in restricted current assets was due to collecting more Facility Charge Funds than were expended on approved projects during the year. Non-current assets increased by approximately $12.8 million. Gross capital assets (excluding transfers and depreciation) increased approximately $19 million during FY 2016, while capital assets net of depreciation increased approximately by $14.9 million. The $14.8 million invested in the Taxiway A realignment project at the Downtown airport represents the largest gross increases in non-current assets. The Taxiway realignment project is being funded 90 percent by an FAA Airport Improvement Program grant with the remaining 10 percent paid by the Downtown Airport. The Taxiway realignment project and other capital expenditures during FY 2016 are discussed further under the Capital Assets section. Non-current liabilities increased approximately $1.7 million. The increase is due to an increase of approximately $1.2 million in the Authority s net pension liability and an increase in long term debt of approximately $341 thousand. See the Notes to the Financial Statements for more detail. ANALYSIS OF BALANCES AND TRANSACTIONS OF INDIVIDUAL FUNDS The Mobile Regional Airport, Mobile Downtown Airport and the Mobile Aeroplex all had positive net operating income before depreciation for FY The following charts illustrate operating revenues and operating expenses for fiscal years 2016, 2015, and

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19 MOBILE REGIONAL AIRPORT SOURCES OF REVENUE The following charts show sources of operating revenues for Mobile Regional Airport for the fiscal years ended September 30, 2016 and September 30, Mobile Regional Airport generated Net Operating Income before Depreciation of approximately $1.29 million in FY 2016, which is down from approximately $2.24 million in FY The approximate $950 thousand decline was a result of an approximate $400 thousand decline in Operating Revenues and an approximate $550 thousand increase in Operating Expenses. The airport terminal continues to generate a majority of the operating revenue from rental agreements for use of space, offices, counters, gates, baggage claim, car rental counters and parking spaces. The airport terminal also generates revenue from its public parking lot. An approximate decline of $347 thousand in Operating Revenues was in Terminal Revenues, primarily in the car rental concession revenue category. -12-

20 The increase in Operating Expenses at the Mobile Regional Airport of approximately $600 thousand was spread over the four primary categories of operating expenses: Aviation, Non-aviation, General Maintenance and Security, and General Administration. Of the approximate $600 thousand increase, approximately $248 thousand was a non-cash pension expense required by GASB Statement No. 68 related to recording unfunded liabilities associated with pension plans. The remaining approximately $352 thousand increase in Operating Expenses in FY 2016 were primarily associated with increased personnel costs, increased maintenance and repair on major equipment, and increased professional services. MOBILE DOWNTOWN AIRPORT SOURCES OF REVENUE The following charts show the major sources of operating revenues for the Mobile Downtown Airport for the years ended September 30, 2016 and September 30, DOWNTOWN AIRPORT REVENUE 2015 DOWNTOWN AIRPORT REVENUE Operating Revenues at the Mobile Downtown Airport increased approximately $89 thousand in FY 2016 to approximately $2.6 million. Airfield Revenues increased by approximately $70 thousand, while Land and Building Rent increased by approximately $19 thousand. Operating Expenses increased approximately $87 thousand at the Downtown Airport in FY 2016 to approximately $1.4 million, resulting in a relatively unchanged Net Operating Income before Depreciation of approximately $1.3 million. -13-

21 MOBILE AEROPLEX AT BROOKLEY SOURCES OF REVENUE The following charts show the major sources of Operating Revenues for the Mobile Aeroplex at Brookley for the years ended September 30, 2016 and September 30, AEROPLEX REVENUE 2015 AEROPLEX REVENUE The Net Operating Income before Depreciation at Brookley (Industrial Park) declined approximately $238 thousand to approximately $50 thousand for the Fiscal Year ending September 30, The decline can be primarily attributed to the downsizing of one large warehouse tenant in June The warehouse tenant s annual rental amount decreased from approximately $1 million fiscal year 2015 to approximately $864 thousand in fiscal year The warehouse tenant s rent decreased approximately $70 thousand per month. New tenants and regular rental rate increases during FY 2016 and during the first four months of FY 2017 have begun to replace the lost revenues. Land and Building Rentals were down approximately $198 thousand for the year. Operating Expenses at Brookley were up approximately $30 thousand for the year. BUDGET Although not legally required, the Mobile Airport Authority annually adopts a budget for both income/expenses and for capital expenditures. The budget is used as a management tool to anticipate income and to assist in controlling expenses. The capital budget not only outlines anticipated purchases but also includes the sources for payment of capital equipment and improvements. CAPITAL ASSETS As of September 30, 2016, the Mobile Airport Authority had capital assets consisting of land, buildings, improvements, construction in progress, and equipment totaling approximately $118.2 million, representing an increase of approximately $12.8 million from September 30, A majority of the increase is associated with a construction project underway to realign a taxiway at the Downtown Airport. MOBILE REGIONAL AIRPORT Capital improvements at Mobile Regional Airport during the 2016 fiscal year totaled approximately $3.1 million. The significant projects included an apron rehabilitation project, a security system upgrade, and terminal building roof rehabilitation. -14-

22 MOBILE DOWNTOWN AIRPORT Capital assets at the Downtown Airport increased approximately $13.8 million during FY Taxiway A Phase II, hangar roof replacements, and aircraft engine run-up facility were the drivers of the above increase in assets. During FY 2013 the Mobile Downtown Airport received approval for approximately $15 million in federal funds from the FAA to realign Taxiway A parallel with Runways 14/32 and to make the taxiway/runway intersection at Taxiway H and Runway 14 more functional. This project totaling approximately $32 million includes Phases I and II to realign Taxiway A and position it parallel to Runway 14/32 as well as widening it to be in compliance with FAA standards for the aircraft operating at the airport. At September 30, 2015, approximately $17.1 million had been invested in Phase I of the project with about 90% funding from FAA grants. Phase I was completed in July The Airport Authority received approval for an additional $13.9 million in federal funds from the FAA for Phase II of this project in August Phase II construction, which carried a budget of $15.6 million, began during FY The phase II of this project was completed in September 2016 for a total cost of approximately $14.8 million. The Airport Authority is required to contribute funds equal to 10 percent of these projects. During FY 2016, the Airport Authority (Downtown Airport) began a roof replacement project on several hangar buildings leased to VT MAE after receiving commitments from the City of Mobile and Mobile County to fund a total of $1.7 million. As of September 30, 2016, approximately $1.2 million had been expended on the hangar roofs. The Airport Authority has also begun planning and design for an Engine Run-up Facility for the Mobile Downtown Airport. Approximately $234 thousand was expended on this project in FY This project is expected to cost approximately $6.5 million, and an FAA Grant has been awarded for $5.8 million. Construction began in February MOBILE AEROPLEX Gross Capital Assets increased approximately $2.1 million during FY 2016 at the Mobile Aeroplex at Brookley (Industrial Park). The increase was due primarily to buildings reverting back to the Authority. LONG TERM DEBT At the close of FY 2016, the Mobile Airport Authority had approximately $17.3 million in long term debt, excluding current maturities of approximately $515 thousand, comprised of $10 million for the Mobile Regional Airport, approximately $655 thousand for Taxiway A project at the Downtown Airport, and approximately $6.6 million for infrastructure improvements at Mobile Aeroplex at Brookley. Total bonds payable increased during FY 2016 from approximately $17.5 million to approximately $17.8 million due primarily to additional borrowings of approximately $1 million associated with the refunding of the 2006 bonds less principal payments of approximately $595 thousand made during the year. The refunding of the 2006 bonds during the year generated over $1.4 million in savings due to lower interest rates. Approximately $1 million of the savings was taken in the form of new debt and cash made available to use toward the Authority s portion of the Downtown Airport s portion of the Taxiway A realignment project. In essence, cash and debt increased as a result of the bond refunding. -15-

23 DISCUSSION OF CURRENTLY KNOWN FACTS, DECISIONS OR CONDITIONS This discussion and analysis accompanied by the financial statements and the notes to the financial statements, which follow this section, is designed to provide the community, Authority customers, tenants, investors and creditors with a general overview of the Mobile Airport Authority s finances and to show the Authority s accountability for the assets of the Mobile Regional Airport, Mobile Downtown Airport at Brookley and the Mobile Aeroplex at Brookley. If you have any questions or need any additional information, please contact Mark E. McVay, Director of Finance and Administration at 1891 Ninth Street, Mobile, Alabama

24 STATEMENT OF NET POSITION SEPTEMBER 30, 2016 WITH COMPARATIVE TOTALS AS OF SEPTEMBER 30, 2015 Mobile Regional Airport Mobile Downtown Airport Mobile Aeroplex at Brookley Mobile Airport Authority (Memorandum Only) Total Eliminations Assets Current Assets Unrestricted Cash and cash equivalents $ 4,158,063 $ 376,767 $ 58,376 $ 72,601 $ - $ 4,665,807 $ 4,123,962 Investments 534,640 89,107 1,310, ,933,765 1,923,378 Accounts receivable, net 889,759 76,821 90, ,057,575 1,428,501 Accrued interest receivable , ,042 2,294 Due from other funds ,247,391 - (10,247,391) - - Prepaid expenses 224,846 64, , , ,448 Total Unrestricted 5,807, ,245 12,019,500 72,601 (10,247,391) 8,259,915 8,085,583 Restricted Law Enforcement Forfeiture Funds - Cash and cash equivalents 17, ,278 40,129 Facility Charge Funds - Cash and cash equivalents 8,946, ,946,697 7,453,163 Capital Funds - Receivables 68,272 2,474,551 7, ,550,473 2,647,591 Bond Reserve Funds - Cash and cash equivalents 1,238, ,747 1,685, ,455,420 3,592,788 Accrued interest receivable Total Restricted 10,270,828 3,006,298 1,692, ,969,926 13,733,729 Total Current Assets 16,078,788 3,613,543 13,712,300 72,601 (10,247,391) 23,229,841 21,819,312 Non-Current Assets Capital Assets Land and easements 19,190, ,760 2,198, ,954,582 21,793,000 Buildings, improvements, and equipment, net 28,862,957 49,724,954 14,695, ,283,321 78,346,385 Construction in progress 486,710 1,740, , ,605,897 4,889,368 Intangible assets, net 402, , ,710 Total Non-Current Assets 48,943,154 52,031,133 17,272, ,246, ,458,463 Total Assets 65,021,942 55,644,676 30,984,666 72,601 (10,247,391) 141,476, ,277,775 Deferred Outflows of Resources Deferred charge on refunding 622, , ,492 Pension related 578,048 78, , , ,652 Total Deferred Outflows of Resources 1,200,455 78, , ,508, , Total (continued) See accompanying notes to financial statements -17-

25 STATEMENT OF NET POSITION (CONTINUED) SEPTEMBER 30, 2016 WITH COMPARATIVE TOTALS AS OF SEPTEMBER 30, 2015 Mobile Regional Airport Mobile Downtown Airport Mobile Aeroplex at Brookley Mobile Airport Authority (Memorandum Only) Total Eliminations Liabilities Current Liabilities Payable from Unrestricted Assets Accounts payable and other accrued liabilities $ 737,412 $ 128,281 $ 309,995 $ - $ - $ 1,175,688 $ 1,189,039 Employee benefits, current portion 47,568 2,200 27, ,270 78,540 Due to other funds 2,452,222 7,722,568-72,601 (10,247,391) - - Deferred revenue 288, ,667 29, , ,913 Total Payable from Unrestricted Assets 3,525,818 8,289, ,046 72,601 (10,247,391) 2,007,790 1,820,492 Payable from Restricted Assets Construction contracts payable 71,423 2,916, , ,165,729 3,270,091 Accrued interest payable 120,884 11, , , ,338 Current maturities of long-term debt - 350, , , ,000 Total Payable from Restricted Assets 192,307 3,278, , ,970,989 4,313,429 Total Current Liabilities 3,718,125 11,567, ,691 72,601 (10,247,391) 5,978,779 6,133,921 Non-Current Liabilities Employee benefits, less current portion 335,421 39, , , ,306 Deposits 15,430 18,995 40, ,377 68,177 Net pension liability 2,768, ,990 1,064, ,259,897 3,025,332 Long-term debt, net 10,064, ,414 6,606, ,326,845 16,906,039 Total Non-Current Liabilities 13,184,370 1,139,835 7,855, ,179,467 20,506,854 Total Liabilities 16,902,495 12,707,588 8,722,953 72,601 (10,247,391) 28,158,246 26,640,775 Deferred Inflows of Resources Pension related ,670 Total Deferred Inflows of Resources ,670 Net Position Net investment in capital assets 39,376,940 50,572,233 11,215, ,164,397 88,572,839 Restricted - Law Enforcement Forfeiture Funds 17, ,278 40,129 Facility Charge Funds 8,946, ,946,697 7,453,163 Bond Reserve Funds 1,238, ,747 1,685, ,455,478 3,592,846 Total Restricted 10,202, ,747 1,685, ,419,453 11,086,138 Unrestricted (259,594) (8,088,304) 9,591, ,243,110 1,664,497 Total Net Position $ 49,319,902 $ 43,015,676 $ 22,491,382 $ - $ - $ 114,826,960 $101,323, Total -18-

26 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION YEAR ENDED SEPTEMBER 30, 2016 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2015 Mobile Regional Airport Mobile Downtown Airport Mobile Aeroplex at Brookley Mobile Airport Authority (Memorandum Only) Total Operating Revenues Airfield $ 1,798,509 $ 1,294,103 $ - $ - $ 3,092,612 $ 3,059,205 Terminal 5,944, ,944,493 6,291,908 Land and building rentals 892,454 1,324,242 2,732,255-4,948,951 5,134,411 Other 5,454-32,681-38,135 50,970 Total operating revenues 8,640,910 2,618,345 2,764,936-14,024,191 14,536,494 Operating Expenses Aviation 897,244 1,157, ,054,375 1,784,345 Non-aviation 1,557, ,125,840-3,683,453 3,359,427 General maintenance and security 1,857,934 19, ,473-1,988,318 2,000,714 General administration 3,037, , ,673-3,694,506 3,605,745 Total operating expenses 7,349,946 1,355,720 2,714,986-11,420,652 10,750,231 Operating Income before Depreciation 1,290,964 1,262,625 49,950-2,603,539 3,786,263 Depreciation 3,355,963 2,106, ,786-6,203,268 6,241,585 Net Operating Loss (2,064,999) (843,894) (690,836) - (3,599,729) (2,455,322) Non-Operating Revenues (Expenses) Facility charges 1,780, ,780,146 1,738,658 Interest income 7, ,357-16,640 11,542 Interest expense (405,478) (12,328) (329,969) - (747,775) (953,917) Other 12, ,000 1,508,500-2,320,819 41,430 Net non-operating revenues (expenses) 1,394, ,487 1,186,888-3,369, ,713 Net Income (Loss) before Capital Contributions (670,544) (55,407) 496,052 - (229,899) (1,617,609) Capital contributions 2,154,981 11,542,404 36,000-13,733,385 11,902,688 Net Income 1,484,437 11,486, ,052-13,503,486 10,285,079 Net Position - Beginning 47,835,465 31,528,679 21,959, ,323,474 91,038,395 Net Position - Ending $ 49,319,902 $ 43,015,676 $ 22,491,382 $ - $ 114,826,960 $101,323, Total See accompanying notes to financial statements -19-

27 STATEMENT OF CASH FLOWS YEAR ENDED SEPTEMBER 30, 2016 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2015 Mobile Regional Airport Mobile Downtown Airport Mobile Aeroplex at Brookley Mobile Airport Authority (Memorandum Only) Total Cash Flows from Operating Activities Cash received from customers and tenants $ 9,278,174 $ 2,632,072 $ 2,693,992 $ - $ 14,604,238 $ 14,494,998 Cash payments for operating expenses (3,750,647) (519,072) (1,276,687) - (5,546,406) (5,349,935) Cash payments to employees for services (3,344,526) (679,680) (1,402,654) - (5,426,860) (5,270,328) Net cash provided by operating activities 2,183,001 1,433,320 14,651-3,630,972 3,874,735 Cash Flows from Non-capital Financing Activities Interest paid (3,441) (648) (8,775) - (12,864) (16,690) Transfers in (out) from other funds (16,153) 51, ,653 (374,214) - - Net cash provided by (used in) noncapital financing activities (19,594) 51, ,878 (374,214) (12,864) (16,690) Cash Flows from Capital and Related Financing Activities Facility charges received 286, ,612 1,347,655 Capital contribution and other restricted funds received 2,773,434 11,174,595 42,692-13,990,721 15,657,585 Proceeds from issuance of long term debt - 1,042, ,042,444 - Principal paid on long term debt (557,522) - (165,000) - (722,522) (565,000) Interest paid (491,781) (5,830) (316,487) - (814,098) (909,399) Bond issuance costs - (37,030) - - (37,030) - Payments for acquisition and construction of capital assets (3,016,676) (13,414,418) (410,118) - (16,841,212) (17,555,216) Other non-operating income received 12, ,319 41,380 Net cash used in capital and related financing activities (993,614) (1,240,239) (848,913) - (3,082,766) (1,982,995) Cash Flows from Investing Activities Interest received 7, ,376-15,375 10,698 Interest received on restricted funds 484-1,033-1, Interest income reinvested (2,670) (445) (7,274) - (10,389) (5,959) Net cash provided by investing activities 4, ,135-6,503 5,380 Net increase (decrease) in cash and cash equivalents 1,174, ,545 (503,249) (374,214) 541,845 1,880,430 Cash and Cash Equivalents, beginning of year 2,983, , , ,815 4,123,962 2,243,532 Cash and Cash Equivalents, end of year $ 4,158,063 $ 376,767 $ 58,376 $ 72,601 $ 4,665,807 $ 4,123,962 Reconciliation of Operating Loss to Net Cash Flows from Operating Activities Net Operating Loss $ (2,064,999) $ (843,894) $ (690,836) $ - $ (3,599,729) $ (2,455,322) Adjustments to reconcile net operating loss to net cash flows from operating activities: Depreciation 3,355,963 2,106, ,786-6,203,268 6,241,585 (Increase) decrease in: Accounts receivable 623,330 3,826 (11,830) - 615, ,499 Prepaid expenses 5,564 31,806 (30,649) - 6,721 42,953 Increase (decrease) in: Accounts payable and other accrued liabilities 249, ,159 66, ,663 87,016 Deferred revenue 13,934 5,104 (61,515) - (42,477) (102,313) Deposits - 4,800 2,400-7,200 (40,683) Net cash flows from operating activities $ 2,183,001 $ 1,433,320 $ 14,651 $ - $ 3,630,972 $ 3,874, Total See accompanying notes to financial statements -20-

28 NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2016 AND 2015 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reporting Entity The Mobile Airport Authority (the Authority) was incorporated as a public corporation in The City of Mobile (the City) transferred operation of the Mobile Regional Airport, Mobile Downtown Airport at Brookley and Mobile Aeroplex at Brookley to the Authority effective January 1, The Authority is governed by a five-member Board of Directors appointed by the mayor of the City and approved by the City Council. Directors serve six-year terms which expire on staggered schedules. Although the City established the Authority and appoints its Board of Directors, the Authority acts autonomously. Other than payments for certain services to the City and receipts of rents from the City, there are no financial obligations between the two entities. The Authority is comprised of three major funds and one non-major fund. The major funds are Mobile Regional Airport, Mobile Downtown Airport at Brookley and Mobile Aeroplex at Brookley. Revenues and expenses of the three funds are distinct and represent different facets of the Authority's mission. The non-major fund is entitled Mobile Airport Authority and is an administrative fund. Mobile Regional Airport is the passenger airline facility for South Alabama. This airport provides all services for the various passenger airlines serving the region. These services include ground support, ticketing, baggage claim, terminal concessions such as food and beverage, parking and retail outlets, shuttle service, and car rentals. The Authority also leases land and buildings located on the premises of this airport to various commercial and governmental entities, including general aviation and support companies, car rental companies, retail shopping and farm land. These leases are both fixed and variable rates with fixed minimum amounts due monthly along with certain percentages of profits. Mobile Downtown Airport at Brookley (Mobile Downtown Airport) operates primarily as an industrial airport. It is a freight-only facility and does not provide passenger service. In addition to landing fees generated from the freight airlines, this facility also generates revenues from leases on various buildings and land located on the property. Tenants for these properties are in various industries, including general aviation and support, distribution and aircraft maintenance. Mobile Aeroplex at Brookley (Mobile Aeroplex) consists of land and several industrial buildings. The primary activity of this facility is commercial leasing. Tenants include several commercial and governmental entities engaged in a variety of businesses, including manufacturing, distribution, and other services. Leases on this property are generally long-term, fixed rate leases allowing for periodic adjustments. Mobile Airport Authority is the name given to the Authority's non-major fund. This fund is an administrative fund for all the Authority's other funds and has no assets, liabilities, revenues or expenses of its own. The primary function of this fund is to hold cash and investments for the three major funds in order to maximize cash management opportunities and operating efficiencies for the Authority. -21-

29 NOTES TO FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 2016 AND 2015 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Basis of Accounting, Measurement Focus and Basis of Presentation The Authority's basic financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) issued by the Governmental Accounting Standards Board (GASB) applicable to governmental entities that use proprietary fund accounting, including GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. For financial reporting purposes, the Authority reports its operations on an enterprise fund basis. Enterprise funds (a proprietary fund type) are accounted for on a flow of economic resources measurement focus. This measurement focus provides that all assets and liabilities associated with operations are included on the Statements of Net Position. The accrual basis of accounting is utilized by the Authority for financial reporting. Under the accrual basis of accounting, income is recorded when earned and expenses are recorded at the time liabilities are incurred. The Statement of Revenues, Expenses, and Changes in Net Position present increases (income) and decreases (expenses) in Authority net position. Operating and Non-operating Revenues and Expenses The Authority distinguishes operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services in connection with ongoing operations, primarily airfield, terminal and land and building rentals. Operating expenses include all necessary costs related to the performance and administration of the Authority s ongoing activities as well as depreciation expense on the Authority s capital assets. Airfield revenues are earned for landing fees, runway and apron use by cargo carriers and nonscheduled commercial aviation. These rates are based on landed weights of the aircraft and are recognized as revenue when the related facilities are utilized. Also included in airfield revenues are charges for fixed base operations, hangar and fuel farm leases, and general aviation service revenues. Fixed base operations pay the Authority a minimum amount of rent along with a percentage of their profits. Hangars and fuel farms are charged rent generally based on long-term, fixed rate contracts. General aviation services are provided on a fee for service basis, and include various ground support activities. Also included in Airfield Revenues are charges to airlines for use of Authority facilities exclusive to each airline, such as baggage and ticketing areas along with common use space. These rates are designed to follow the guidelines of the Department of Transportation which allow airports to recover costs and expenses including all airport-related capital investment, operating expenses, debt service requirements and any budgeted deposits to the reserve accounts established pursuant to the 2006 Trust Indentures. These rates are reduced by non-airline rents, fees and other income. -22-

30 NOTES TO FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 2016 AND 2015 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Terminal building revenues are generated from terminal facility use by the scheduled airlines for passenger services such as ticket agents and baggage handling, and by the various concessionaires located in and around the passenger terminal building. These include food and beverage vendors, retail outlets, rental car services, shuttle services, and public parking. These revenues are based upon individual agreements and usually consist of fixed minimum rental amounts and may also include a percentage of profits. These revenues are recognized at the beginning of each lease month. Land and building rentals are generated from ground leases to commercial and governmental entities at the Authority's three locations. Leases are for terms from one to forty years and are generally fixed rates with provisions for recomputation based upon a defined formula. Rental revenues are recognized at the beginning of each lease month. Other non-aviation revenues include those receipts for other ancillary items and services not included above. These revenues are recognized when earned. Non-operating revenues and expenses include facility charges, interest income or expense, and income or loss derived from the disposal of capital assets. Capital contributions include reimbursements for certain expenditures related to airport capital improvements significantly funded through the Airport Improvement Program (AIP) of the Federal Aviation Administration (FAA) and from the Mobile County Commission under the Pay-as-you-go Program. Capital funding provided under government grants is considered earned as the related allowable expenditures are incurred. Prior Year Totals The financial statements include certain prior year summarized comparative information in total but not by fund type. Such information does not include sufficient detail to constitute a presentation in conformity with U.S. generally accepted accounting principles. Accordingly, such information should be read in conjunction with the Authority's financial statements for the year ended September 30, 2015, from which the summarized information was derived. Cash and Cash Equivalents The deposits and investments of Authority funds are governed by provisions of Alabama law. Deposits must be covered by Federal depository insurance with any excess amounts collateralized under the Security for Alabama Funds Enhancement Act, as prescribed in Section 41-14A of the Code of Alabama 1975, as amended. For the purposes of the statement of cash flows, the Authority considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents, which are stated at cost, consist of cash in banks and trust cash sweep accounts. -23-