BIRMINGHAM AIRPORT AUTHORITY FINANCIAL STATEMENTS. June 30, With Independent Auditor's Report

Transcription

1 FINANCIAL STATEMENTS June 30, 2014 With Independent Auditor's Report

2 Birmingham, Alabama TABLE OF CONTENTS PAGE INDEPENDENT AUDITOR'S REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) 3-10 FINANCIAL STATEMENTS Statements ofnet Position Statements ofrevenues, Expenses and Changes in Net Position Statements of Cash Flows Notes to the Financial Statements COMPLIANCE SECTION Independent Auditor's 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 Auditor's Report on Compliance for each Major Federal Program and on Internal Control over Compliance Required by OMB Circular A Schedule of Expenditures of Federal Awards 38 Notes to the Schedule ofexpenditures of Federal Awards 39 Schedule of Findings and Questioned Costs 40 Independent Auditor's Report on Compliance for the Passenger Facility Charge Program and Report on Internal Control over Compliance Required by the Federal Aviation Administration Schedule of Passenger Facility Charges Collected and Expended 43 Notes to the Schedule of Passenger Facility Charges Collected and Expended 44 Passenger Facility Charge Program Schedule of Findings and Questioned Costs 45

3 lui BANKS, FINLEY, 1111 WHITE & CO. CERI'IFIIID PUBLIC' AC<..'OUNTANTS To the Board ofdirectors of the Birmingham Airport Authority Birmingham, Alabama Report on the Financial Statements INDEPENDENT AUDITOR'S REPORT We have audited the accompanying basic financial statements of the Birmingham Airport Authority ("the Authority") a component unit of the City of Birmingham, Alabama, as of and for the years ended June 30,2014 and 2013, and the related notes to the financial statements. 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 opinions on these financial statements based on our audits. We conducted our audits 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 opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Birmingham Airport Authority as of June 30, 2014 and 2013, and the respective changes in financial position and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. 617 THIRTY-SEVENTH STREET SOUTH BIRMINGHAM, AL (205)

4 ~~~ To tbe Board of Directors of the Bimringham Airport Authority Pa e2 Emphasis of Matter As described in Note 17 to the financial statements, in fiscal year 2014, the Authority adopted new accounting guidance, GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 3 through 10 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 St~dards 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 fmancial 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 audits were conducted for the purpose of forming opinions on the Authority's basic financial statements. The accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is not a required part of the basic fmancial statements of the Authority. The accompanying Schedule of Passenger Facility Charges Collected and Expended for the year ended June 30, 2014, is also presented for purposes of additional analysis as specified in the Passenger Facility Charge Audit Guide for Public Agencies, issued by the Federal Aviation Administration, and is also not a required part of the basic financial statements. The Schedule of Expenditures of Federal Awards and the Schedule of Passenger Facility Charges Collected and Expended are the responsibility of the Authority's management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. The information in these schedules have 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 Schedule of Expenditures of Federal Awards and Schedule of Passenger Facility Charges Collected and Expended are fairly stated in all material respects in relation to the basic financial statements as a whole. September 17,2014 2

5 BIRMINGHAM/II~ BIRMINGHAM AIRPORT AUTHORITY Management's Discussion and Analysis (Unaudited) Fiscal Years Ended June 30,2014 and 2013 The following Management Discussion and Analysis {MD&A) of the Birmingham Airport Authority {"the Authority") presents a narrative overview of the financial activities of the Authority, which operates the Birmingham-Shuttlesworth International Airport {''the Airport"), for the fiscal years ended June 30,2014 and Following this MD&A are the basic financial statements of the Authority and the notes to the financial statements. The report includes the following three basic financial statements: the statements of net position, the statements of revenues, expenses and changes in net position, and the statements of cash flows. The accompanying notes to the financial statements are essential to a full understanding of the data contained in the financial statements. AIRPORT ACTIVITIES AND HIGHLIGHTS Activities at the Airport decreased by at least 7.1% in every major area during 2014, as follows: Enplanernents 1,307,885 1,408,170 % increase/( decrease) (7.1)% (2.7)% Total Passengers 2,613,264 2,815,266 % increase/( decrease) (7.2)% (2.6)% Air Carrier Operations 37,306 41,916 %increase/( decrease) (11.0)% (5.8)% Air Carrier Landed Weight 1,642,368 1,835,261 % increase/{ decrease) (10.5)% (5.6)% Most of these reductions are attributed to the economic recession which resulted in a decrease in the number of landings by 11. 0%. Despite the decreases in activity levels, the Authority achieved another year with an increase in its net position due to an increase in airline user charges. As of June 30, 2014, five major passenger carriers, ten regional carriers, and three regularly scheduled all-cargo carriers served the Airport Messer Airport Highway Birmingham, Alabama (205) FAX (205)

6 Management's Discussion and Analysis (Unaudited) Fiscal Years Ended June 30,2014 and 2013 FINANCIAL OPERATIONS HIGHLIGHTS The increase in net position for 2014 was $32.0 million as compared to $18.0 million in Operating Revenues increased by 8.6% from $37.5 million to $40.8 million. Airline user charges increased by 19.5%. Concession fees decreased 1.8%. Ground hanger rentals decreased by 6.9%. Operating Expenses increased by 12.0% from $23.2 million to $25.9 million. Operating expenses increased for personnel costs, security and fire protection, utilities, materials and supplies, repairs and maintenance, and other services. They decreased for professional services. The net result of the above was operating income before depreciation and amortization increased from $14.3 million to $14.8 million or 3.2%. The operating income before nonoperating revenues and expenses increased from $0.9 million in 2013 to $5 million in Non-Operating Revenues and Expenses, net increased from $4.7 million in 2013 to $6.9 million in 2014, due primarily to the collection of a Customer Facility Charge (CFC) for the purpose of constructing a consolidated rental car facility at the airport. Capital contributions received in the form of grants from the Federal government increased from $12.8 million in 2013 to $20.3 million in Grants have been used for terminal modernization projects allowed under various federal grant programs. SUMMARY OF REVENUES, EXPENSES AND CHANGES IN NET POSITION Operating revenues Operating expenses Total operating income before depreciation, amortization and non-operating revenues and expenses Depreciation and amortization Operating income before other non-operating revenues and expenses Non-operating revenues and expenses, net Income before capital contributions from federal agency Capital contributions from federal agency Increase in net position Total net position, beginning of the year- restated Total net position, end of the year- restated 2014 $ 40,778,224 ( ) 14,798,901 ( ) 5,023, ,871, , ,530,400 $ $ 37,543,144 ( ) 14,339, ) 891, ,598, , ,172,765 $

7 Management's Discussion and Analysis (Unaudited) Fiscal Years Ended June 30,2014 and 2013 FINANCIAL POSITION SUMMARY The statements of net position present the financial position of the Authority as of June 30, 2014 and The statements include all assets, deferred outflows of resources, liabilities and net position of the Authority. A summary comparison of the Authority's assets, deferred outflows of resources, liabilities and net position at June 30,2014 and 2013 is as follows: ASSETS Current assets Non-current assets Total assets DEFERRED OUTFLOWS OF RESOURCES TOTAL ASSETS AND DEFERRED OUTFLOWS OF RESOURCES LIABILITIES Current liabilities Non~current liabilities Total liabilities NET POSITION Net investment in capital assets Restricted Unrestricted Total net position~restated TOTAL LIABILITIES AND NET POSITION $ 85,666, $ $ 18,154, ,798,716 32,224, $ $ 104,744, $ $ 21,495, ,957,529 27,246, $ Net position may serve over time as a useful indicator of the Authority's financial position. The Authority's net position exceeded liabilities by $429 million at June 30, 2014, a $32.2 million increase from June 30, The largest portion of the Authority's net position (85.6% at June 30, 2014) represents its investment in capital assets (e.g., land, buildings, infrastructure improvements, and equipment), less the amount of related debt outstanding. The Authority uses these capital assets to provide services to its passengers and visitors to 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 operations. 5

8 Management's Discussion and Analysis (Unaudited) Fiscal Years Ended June 30,2014 and 2013 An additional portion of the Authority's net position (7.5% at June 30, 2014) represents bond reserve funds, passenger facility charges, and federal grant contributions that are subject to restrictions and federal regulations. The remaining unrestricted net position ( 6.9% at June 30, 2014) may be used to meet any of the Authority's ongoing obligations. The Authority is required by certain agreements to maintain two months of operating expenses on hand which is included in the total of unrestricted net position. AIRLINE RATES AND CHARGES From January 1, 2006 until March 1, 2009, the airlines operated without an agreement in place, but were charged rental rates and landing fees based on the methodology contained in the expired agreement. On March 1, 2009, the Authority changed its rate setting methodology to an approach of crediting the Airport's terminal cost center with 25% of all terminal building nonairline revenues, and calculating landing fees based on a full compensatory methodology. Effective July 1, 2011, the Authority entered into a new agreement with each of the six major airlines serving Birmingham. Under the tenns of the agreement, the airlines will be charged full compensatory landing fee rates for the airfield, and will be charged commercial compensatory rates for the terminal building reduced by a 35% non-airline terminal building revenue credit. Although the new agreement is for a one year term, it contains a provision that allows for automatic annual renewals for up to five years. The agreement can be terminated by either party by giving 90-days notice prior to the next anniversary date. The revenues realized from the airlines are shown below. Prior to July 1, 2011, the rate cycles began at times other than the start of the Authority's fiscal year, therefore, each fiscal year, prior to July 1, 2011, embraces different rate cycles within each year which means that rental rates and/or landing fee rates are blended for those fiscal years. Terminal Building Charges Aircraft Parking Charges Landing Fees Total Signatory Airline Charges Airline Cost per Enplaned Passenger 2014 $ 6,745, , $ $ $ 4,887, , $ $9.36 The airline cost per enplaned passenger is calculated by adding all the airport charges to the airlines during a fiscal year and dividing that sum by the number of passengers enplaned by the airlines during the twelve-month period. 6

9 Management's Discussion and Analysis (Unaudited) Fiscal Years Ended June 30,2014 and 2013 REVENUES A summary of revenues for the year ended June 30, 2014, and the amount and percentage of change in relation to prior year amounts is as follows: Increase Percent 2014 Percent (Decrease) Increase Amount of Total From 2013 (Decrease} Operating: Space rentals $ 9,808, % $ 2,692, % Concession fees - parking 12,545, % (570,116) (4.3)% Concession fees - other 6,530, % 228, % Landing fees and fuel flowage 9,543, % 787, % Ground hangar rentals 1,441, % (118,069) (7.6)% Other revenues 908, % 214, % Total operating 40,778, % 3,235, % Non-Operating: Passenger facility charges 5,175, % (396,758) (7.1)% Customer facility charges 4,480, % 2,308, % Interest income 161, % (58,508) (26.6)% Loss on disposal of capital assets (~2Q.22S) (1.0)% (422,J22) % Total non-operating 2.22~ % 1,42J,7~2 18.1% TOTAL REVENUES $ 50.oz4, % $ % EXPENSES A summary of expenses for the year ended June 30, 2014, and the amount and percentage of change in relation to prior year amounts is as follows: Increase Percent 2014 Percent (Decrease) Increase Am2unt of Total From2~13 ffiecrease} Operating: Personnel costs $ 11,879, % $ 1,647, % Security and fire protection 4,078, % 348, % Utilities 1,955, % 47, % Professional services 1,474, % (451,913) (4.9)% Materials and supplies 1,253, % 138, % Repairs and maintenance 3,024, % 792, % Other services 2,314, % 275,~Q2 13.5% Total operating 25,979, % 2,798, % Depreciation and amortization 9,775, % (3,671,874) (32.5)% Non-Operating: Interest expense 2,479, % (733,721) (22.8)% Unrealized gain on investments (31,443) (0.1)% 15,988 (33.7)% Total non-operating 2,448, % (717,Z22) (56.5)% TOTAL EXPENSES $ ~ ~2~ % ~ (11~141170) '4.1)% 7

10 Management's Discussion and Analysis (Unaudited) Fiscal Years Ended June 30,2014 and 2013 SUMMARY OF CASH FLOW ACTIVITIES The following shows a summary of the major sources and uses of cash and cash equivalents for the past two years. Cash and cash equivalents are considered cash-on-hand, bank deposits and highly liquid investments with an original maturity of three months or less: Cash Flow from Operating Activities Cash Flow from Investing Activities Cash Flow from Capital and Related Financing Activities Net Increase in Cash and Cash Equivalents Cash and Cash Equivalents: Beginning ofthe Year End of the Year ~ $ I 0,979, ,269,162 ( ) 16,057, $ $ 14,138,248 24,628,253 ( ) (7,1 14,752) ~ ~~~2 The Authority's available cash and cash equivalents increased from $49.3 million at the end of 2013 to $65.4 million at the end of2014 due to the maturity ofinyestments in the Construction Fund which will be used to pay current construction cost of Airport improvements. FINANCIAL STATEMENTS The Authority's financial statements are prepared on an accrual basis in accordance with U.S. generally accepted accounting principles promulgated by the Governmental Accounting Standards Board (GASB). The Authority is structured as a proprietary fund with revenues recognized when earned and expenses are recognized when incurred. Capital assets are capitalized and (except land and construction in progress) are depreciated over their useful lives. Amounts are restricted for debt service and, where applicable, for construction activities. See the notes to the financial statements for a summary of the Authority's significant accounting policies. CAPITAL ACQUISITIONS AND CONSTRUCTION ACTIVITIES During 2014, the Authority expended $57.3 million on capital activities. Major capital activities were as follows: terminal modernization - $52.6 million, runway and taxiway improvements - $3.3 and other projects - $1.4 million. Capital asset acquisitions and improvements exceeding $5,000 are capitalized at cost. Acquisitions are funded using a variety of financing techniques, including federal grants with matching airport funds, passenger facility charges, bond proceeds and airport revenues. 8

11 Management's Discussion and Analysis (Unaudited) Fiscal Years Ended June 30,2014 and 2013 LONG-TERM DEBT OUTSTANDING In 2003, the Authority issued $20,820,000 of Series 2003-A Airport Revenue Refunding Bonds dated October 22, 2003, maturing annually from 2014 through 2023, with interest on a variable rate determined weekly. On December 1, 2009, the Authority reoffered the bonds with fixed interest rates ranging from 3.25 percent to 4.5 percent, with a net interest cost of3.99 percent. Balance outstanding at June 30, $20,820,000; June 30, $20,820,000 In 2003, the Authority issued $18,875,000 of Series 2003-B Airport Revenue Refunding Bonds dated October 22, 2003, maturing annually from 2004 through 2014, with interest coupons ranging from 2.00 percent to 5.00 percent, with a net interest cost of3.91 percent. Balance outstanding at June 30, $960,000; June 30,2013-$3,000,000 In 2007, the Authority issued $44,635,000 of Series 2007 Airport Revenue Refunding Bonds, dated July 11, 2007, maturing annually from 2008 through 2026, with interest coupons ranging from 5.00 percent to 5.25 percent, with a net interest cost of 4.82 percent. Balance outstanding at June 30,2014- $31,330,000; June 30, $33,810,000 In 2010, the Authority issued $151,705,000 of Series 2010 Airport Revenue Bonds, dated December 22, 2010, maturing annually from 2011 through 2040, with interest coupons ranging from 3.00 percent to 6.00 percent, with a net interest cost of 5.52 percent. Balance outstanding at June 30, $148,750,000; June 30, $149,995,000 The total Authority bonds outstanding at June 30, 2014, totals $201,860,000 compared to June 30,2013- $207,625,000. PASSENGER FACILITY CHARGE ("PFC") The Authority initially received approval from the FAA to impose a PFC of $3.00 per enplaned passenger beginning August 1, 1997, not to exceed $7,657,558, principally to finance the rehabilitation of the main runway. Subsequently, the Authority requested and received approval to increase the charge per enplanement to $4.50 and to increase the total collection amount to $212,777,466. The Authority has used and will continue to use PFCs to finish the rehabilitation of the main runway, to pay for the rehabilitation of the air carrier apron, to relocate a sanitary sewer lift station, to remove obstructions from beyond the end of the main runway, and to design, construct and finance a terminal modernization program. The collection period is scheduled to end on February 1, Through June 30, 2014, the Authority has collected PFCs, including interest earnings thereon, totaling$ 79,604,765. For further details related to the current year activity, see the Schedule of Passenger Facility Charges in the Compliance Section of this report. 9

12 Management's Discussion and Analysis (Unaudited) Fiscal Years Ended June 30, 2014 and 2013 REQUEST FOR INFORMATION This financial report is designed to provide a general oyerview of the Authority's finances for all those interested. Questions concerning any of the information provided in this report or request for additional information should be addressed in writing to the Director of Finance, Birmingham Airport Authority, 5900 Airport Highway, Birmingham, Alabama 35212, or cal

13 STATEMENTS OF NET POSITION June 30,2014 and ASSETS AND DEFERRED OUTFLOWS OF RESOURCES CURRENT ASSETS Unrestricted Assets: Cash and cash equivalents $ 28,492,963 $ 24,681,350 Grants receivable 342,492 Accounts receivable (net of allowance for uncollectibles of $45,558 and $85,503 in 2014 and 2013, respectively) 1,628,543 1,471,356 Other accounts receivable 1,779 4,025 Prepaid insurance 386, ,443 Inventory 217~6~2 22~047 Total unrestricted assets 30~727~0~2 22,898,713 Restricted Assets: Compensation Plan Funds: Investments 1,501,515 Passenger Facility Char ges Funds: Cash and cash equivalents 2,162,507 2,353,171 Accounts receivable 608, ,196 Customer Facility Charges Funds: Cash and cash equivalents 6,291,526 1,659,176 Accounts receivable 364, ,268 Revenue Bond Reserve Funds: Cash and cash equivalents 18,049,450 9,385,861 Investments 9,900,000 14,115,844 Accrued interest receivable 50,625 24,824 Construction Bond Funds: Cash and cash equivalents 10,404,547 11,263,974 Investments 7,068,000 35,924,325 Accrued interest receivable 39, ,951 Total restricted assets 54,939,224 Z7,B46,105 Total current assets 85,666, NON-CURRENT ASSETS Capital Assets, net of accumulated depreciation 556,765, ,702,556 Restricted Assets: Revenue Bond Reserve Funds: Investments 2.2QQ,QOO Total non-current assets 556,765,57Q 214,202,556 Total Assets 642,432, ,374 DEFERRED OUTFLOWS OF RESOURCES Deferred refunding 1,292,298 1~242,702 Total deferred outflows of resources 1,292,998 1,549,709 TOTAL ASSETS AND DEFERRED OUTFLOWS OF RESOURCES ~ $ ,083 See Accompanying Notes to the Financial Statements. 11

14 STATEMENTS OF NET POSITION (CONT'D) June 30, 2014 and LIABILITIES AND NET POSITION CURRENT LIABILITIES Payable From Unrestricted Assets: Accounts payable and accrued expenses $ Total payable from unrestricted assets Payable From Restricted Assets: Construction contracts payable 6,391,114 Accrued interest payable 5,202,569 Current maturities of revenue bonds payable 6,005,000 Total payable from restricted assets ,683 Total current liabilities NON-CURRENT LIABILITIES Compensated employee absences 456,469 Revenue bonds payable, net of unamortized bond premium 195,375,976 Total non-current liabilities 195, Total liabilities 213,986,898 NET POSITION Net investment in capital assets, net of related debt 367,798,716 Restricted: For debt service 22,797,506 Federal grants and programs 9,427,381 Compensation plan Total restricted 400, Unrestricted 29, Total net position 429,738,450 TOTAL LIABILITIES AND NET POSITION ~ 643! $ ,290,724 5,325, , , ,597 2Q1,413, ,957,529 20,313,401 5,431,811 1,501, ,256 25,326, ,400 i See Accompanying Notes to the Financial Statements. 12

15 STATEl\IENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION For the years ended June 30, 2014 and 2013 OPERATING REVENUES Space rentals Concession fees - parking Concession fees - other Landing fees Fuel flowage Ground hangar rentals Other revenues Total operating revenues OPERATING EXPENSES Personnel costs Security and fire protection Utilities Professional services Materials and supplies Repairs and maintenance Other services Total operating expenses before depreciation and amortization Depreciation and amortization Total operating expenses Operating income before non-operating revenues NON-OPERATING REVENUES (EXPENSES) Passenger facility charges Customer facility charges futerest income futerest expense Gain on disposal of capital assets Unrealized loss on investments (net) Total non-operating revenues (expenses) fucome before capital contributions from federal agency Capital contributions from federal agency NET POSITION fucrease in net position Total net position, beginning of the year-restated Total net position, end of the year-restated 2014 $ 9,808,742 12,545,705 6,530,087 9,238, ,531 1,441, ,900 40, ,879,459 4,078,188 1,955,324 1,474,436 1,253,762 3,024,011 2,314,143 25,979,323 9,775,644 35,754, ,175,057 4,480, ,504 (2,479,850) (520,928) 31,443 6,848,065 11,871,322 20,336,728 32,208, ~ $ 7,116,657 13,115,821 6,301,301 8,450, ,626 1,559, , ,144 10,231,827 3,729,969 1,907,361 1,926,349 1,114,914 2,231, ,635 23,203,887 1~,447,518 J2.651, ,739 5,571,815 2,172, ,012 (3,2 13,571) (91,536) ,598,322 12, ,357, ~ ~2Z 1530a400 See Accompanying Notes to the Financial Statements. 13

16 STATEMENTS OF CASH FLOWS For the years ended June 30, 2014 and CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers and tenants $ 40,623,283 $ 37,172,345 Cash paid to suppliers for goods and services (17,761,987) (12,883,683) Cash paid for personnel costs (11~881.~87) (1Q,150,414) Net cash provided by operating activities 10,979, CASH FLOWS FROM INVESTING ACTMTIES Maturity of investment securities 53,043,199 32,928,744 futerest on investments 293, ,430 Purchase of investment securities (11,068,QOO) (S,524,921) Net cash provided by investing acti\.ities 42,269,162 24,628,253 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition and construction of capital assets (59,605,042) (65,488, 760) Federal grants, passenger facility charges, and customer 30,781,232 28,735,297 facility charges futerest paid on capital debt (2,602,600) (3,329,971) Principal paid on capital debt (5,765,0QQ) (5,127,819) Net cash (used for) capital and related financing activities (37, ) (45, ) Net increase in cash and cash equivalents 16,057,461 (7,114,752) Cash and cash equivalents, beginning of the year 49, Cash and cash equivalents, end of the year $ ,993 $ RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income $ 5,023,257 $ 891,739 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization 9,775,644 13,447,518 Bad debt expense 22,993 Change in Assets and Liabilities: Receivables (net) (157,187) (380,044) Other receivable 2,246 9,245 Prepaid insurance and inventory (204,311) 33,372 Compensated employee absences (2,128) 81,413 Accounts payable and accrued expenses (3,457,~ 12) 32,012 Total adjustments 5, , Net cash flows from operating activities ~ ,709 $ See Accompanying Notes to the Financial Statements. 14

17 NOTES TO THE FINANCIAL STATEMENTS NOTEl NATURE OF ORGANIZATION AND REPORTING ENTITY A. Nature of Organization The Birmingham Airport Authority ("the Authority") was incorporated on June 6, 1986, as a nonprofit corporation under the provisions of the Code of Alabama, Title 4, Chapter 3, Article 2. The Authority is governed by a seven (7) member Board of Directors, who are nominated by the Mayor and elected by the City Council of the City of Birmingham ("the City"). The City owns the Birmingham-Shuttlesworth International Airport (the "Airport"). Pursuant to a Lease Assignment and Operating Agreement ("Agreement 11 ) dated September 16, 1986 and amended October 1, 2009, the City transferred to the Authority custody, control and management of the Airport for a term that currently expires September 15, 2045, subject to certain conditions contained in the Agreement. The Authority pays the sum of $1 0 as annual rent to the City during the term of the Agreement. As of June 30, 2014, the Authority was in compliance with the terms and conditions of the Agreement. B. Reporting Entity The Authority meets the criteria set forth in generally accepted accounting principles as promulgated by the Governmental Accounting Standards Board (GASB) for inclusion as a component unit within the City's general purpose financial statements based on the City's responsibility for the appointment of the Authority members, and their approval of capital programs and certain debt issuances and the Authority's annual operating budget. As a component urut of the City, the Authority's financial statements are discretely presented on the City's general purpose fmancial statements. The accompanying financial statements present the financial position of the Authority only. The Authority does not have any component units and is not involved in any joint ventures. NOTE2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Measurement Focus and Basis of Accounting The accounting policies of the Authority conform to accounting principles generally accepted in the United States of America applicable to state and local governmental agencies, and as such, the Authority is accounted for as a proprietary fund. The basic financial statements presented are reported using the economic resources measurement focus and the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded at the time the liabilities are incurred. This measurement focus emphasizes the determination of the change in Authority net assets. The financial statements are presented in accordance with GASB Standard No. 34, Basic Financial Statements - and Management's Discussion and Analysis - For State and Local Governments, and related GASB pronouncements. 15

18 NOTES TO THE FINANCIAL STATEMENTS B. Use of Accounting Estimates The preparation of financial statements 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. C. Investments State statutes authorize the Authority to invest in U.S. government obligations or in bonds of the State of Alabama or in any county or municipality therein, or in certificates of deposit collaterally secured by a pledge of U.S. government obligations. The current and noncurrent portfolios of investments are marketable debt securities and are carried at cost plus amortized premium, or fair value, at the statements of net position date. Related premiums are amortized to income over the terms of the investments. Interest income on investments is accrued as earned. D. Restricted Assets Funds are set aside as restricted and they are not available for current expenses when constraints placed on their use are legally enforceable due to either: Externally imposed requirements by creditors (such as through debt covenants), grantors or contributors; Laws or regulations of other governments. E. Designated Assets The Authority's management designates funds for capital projects, debt service and other specific commitments; these funds would otherwise be available for operations. F. Inventory Inventories include the following at June 30, 2014: Baggage Handling System Parts Jet Bridge Parts $136,250 $81,389 Inventory is valued at the lower of cost or replacement value. The cost is determined on a first in, first out basis. 16

19 NOTES TO THE FINANCIAL STATEMENTS G. Capital Assets Capital assets are recorded at cost, except for property contributed by third parties, which is recorded at fair value at date of contribution, less accumulated depreciation. Depreciation has been provided over the estimated useful lives using the straight-line method. Estimated useful lives by asset category are as follows: Buildings Infrastructure improvements Machinery and equipment Furniture and fixtures years 5-30 years 5-15 years 5-15 years Cost of constructed fixed assets includes net interest expense during the construction period. No depreciation is provided on construction in progress until construction is substantially complete and the asset is placed.. m servtce. When property and equipment are disposed of, the related cost and accumulated depreciation are removed from the accounts with any gains or losses on disposition being reflected in current operations. The Authority capitalizes all capital assets in excess of $5,000. Maintenance and repairs are expensed as incurred. H. Deferred Outflows of Resources A deferred outflow of resources is a consumption of net assets by the Authority that is applicable to a future reporting period. I. Airport Improvement Program Certain expenditures for airport capital improvements are significantly funded through the Airport Improvement Program (AlP) of the Federal Aviation Administration ("the FAA''), with 5% to 10% of project expenditures provided by the Authority. Funding provided under government grants is considered earned as the related allowable expenditures are incurred. J. Transportation Security Administration Grant Certain expenditures for airport capital improvements are funded through a Transportation Security Administration ("TSA") grant program, with 5% provided by the Authority. Funding provided under government grants is considered earned as the related allowable expenditures are incurred. 17

20 NOTES TO THE FINANCIAL STATEMENTS K. Passenger Facilities Charges The Authority is authorized to impose a Passenger Facility Charge ("PFC") on enplaning passengers. The PFC can be collected until the date on which the total PFC revenue collected, plus interest thereon, equals the allowable cost of the approved projects, which is $212,777,466. However, the collection period ends on February 1, The PFC funds are available for authorized construction projects and debt sen ice under an approved FAA application. PFCs, along with related interest earnings, are recorded as non-operating revenue when earned. L. Consolidated Rental Car Facility Agreement and Customer Facility Charge (CFC) On November 19, 2012, the Authority's Board of Directors adopted a resolution authorizing Rental Car Agencies operating at the Birmingham Shuttlesworth International Airport (the "Airport") to impose a Customer Facility Charge ("CFC"). The purpose of the CFC is in effect to provide funding for a Consolidated Rental Car Facility to house all rental car companies. Effective January 1, 2013, companies that operate under a Rental Car Concession Agreement at the Airport began assessing each customer an initial CFC of $5.00 per transaction day. The total amounts collected are reported and remitted monthly to the Authority by the rental car companies. The Authority has authorized to pledge the CFCs collected, by resolution or trust indenture, to secure the repayment of bonds issued to pay the costs and expenses of purchasing property, financing, designing, constructing, operating, relocating, and maintaining the Consolidated Rental Car Facilities. The CFCs are segregated from all other funds and assets of the Authority. The total amount collected during fiscal year 2014 was $4,480,839. M. Revenue Classifications Revenue is recognized when earned. The Authority will classify revenues as operating or non-operating based on the following criteria: Operating revenues are from the revenue sources that constitute the principal ongoing activity of the operations of the Airport. The major components of operating revenue consist of landing fees and terminal building and ground rentals, concession and parking fees, and other miscellaneous fees and charges. Landing fees and terminal building rates are charged on the basis of recovery of actual costs for operating and maintaining the Airport airfield and terminal areas. 18

21 NOTES TO THE FINANCIAL STATEMENTS Non-operating revenues are from revenue sources related to financing activities and other activities which do not constitute the principal ongoing activities of the Authority's operations. These include PFCs, interest income, and grant contributions related to specific programs. N. Expense Classifications The Authority will classify expenses as operating or non-operating based on the following criteria: Operating expenses relate to the principal ongoing activities of the operations of the Airport. The major components of operating expenses consist of personnel costs, contractual services, utilities, maintenance, materials and supplies, professional services, depreciation and amortization, and equipment rentals and repairs. Non-operating expenses relate to financing activities and other activities which do not constitute the principal ongoing activities of the Authority's operations. These include primarily interest expense. 0. Federal Grants When a grant agreement is approved and all eligibility requirements have been met, the expenditures are recorded as a federal grant receivable and as a capital grant contribution. P. Cash and Cash Equivalents The Authority considers cash-on-hand, bank deposits and highly liquid investments with an original maturity of three months or less to be cash and cash equivalents. Q. Receivables Accounts Receivables are reported at their gross value when earned and are reduced by the estimated portion that is expected to be uncollectible. The allowance for uncollectible amounts is based on collection history, and current infonnation regarding the credit worthiness of the tenants and others doing business with the Authority. When continued collection activity results in receipt of amounts previously written off, revenue is recognized for the amount collected. R. Interest Capitalization Interest cost related to construction financing is capitalized, net of interest earned, on the borrowed proceeds, from the time of borrowing until construction is substantially complete and the assets are placed in service. Cumulative interest capitalized was $24,807,751 and $17,092,417 for the years ended June 30,2014 and 2013, respectively. 19

22 NOTES TO THE FINANCIAL STATEMENTS S. Bond Issue Costs, Original Issue Discount and Deferred Loss on Bond Refunding Bond issue costs, original issue discount and deferred loss on refunding on long-tenn indebtedness are deferred and amortized using the effective interest method over the life of the debt to which it relates. T. Compensated Absences The Authority's employees earn vacation leave at graduated rates based on their length of service (one day per month of service initially) and up to forty days of unused leave may be carried over to the following year. Sick leave is earned at the rate of eight hours for each month of service and can accumulate up to sixty days. The Authority funds sick leave as taken. An accrual is recorded for accumulated unpaid vacation pay. As of June 30, 2014 and 2013, accrued vacation pay totaled $456,469 and $458,597, respectively. U. Arbitrage Rebate The U.S. Treasury has issued regulations on calculating the rebate due the Federal government on arbitrage profits, calculating arbitrage penalties, and determining compliance with the arbitrage rebate provisions of the Tax Reform Act of Arbitrage profits arise when the Authority temporarily invests the proceeds of tax exempt debt in securities with higher yields. For the years ended June 30, 2014 and 2013, the Authority has no arbitrage rebate liability. V. Retention Payable The Authority enters into construction contracts that may include retention provisions such that a certain percentage of the contract amount is held for payment until completion of the contract and acceptance by the Authority. The Authority's policy is to record retention payable as contract work is completed and accepted. Retention payable is included in construction contracts payable on the accompanying statements of net position. W. Reclassifications Certain reclassifications have been made to the 2013 financial information in order to conform to the 2014 presentation. NOTE3 CASH AND CASH EQUIVALENTS AND INVESTMENTS It is the Authority's policy to invest only in obligations of the U.S. Treasury, U.S. Government Agencies, State of Alabama obligations, and short-term bank certificates of deposit. The Authority's cash and cash equivalents and investments are subject to several types of risk, which are examined in more detail below: 20

23 NOTES TO THE FINANCIAL STATEMENTS Custodial Credit Risk of Bank Deposits Custodial credit risk is the risk that, in the event of a bank failure, the Authority's deposits (in excess of FDIC insurance) may not be returned to it. The carrying amount of the AuthoritYs deposits, certificates of deposits and cash on hand was $28,492,963 and $24,681,350 and the related bank balance was $33,439,862 and $29,123,354 at June 30, 2014 and 2013, respectively. The Authority also had restricted cash deposited with a trustee, with a carrying amount of $36,908,029 and $24,662,182, which are the same as the bank balances at June 30, 2014 and 2013, respectively. The Authority's deposit policy for custodial credit risk limits deposits to financial institutions that are members of the Alabama State Treasury's Security for Alabama Funds Enhancement ("SAFE") Program. Under the SAFE program, the Authority's funds are protected through a collateral pool administered by the Alabama State Treasury. Banks doing business within the State of Alabama and holding deposits of public funds belonging to the state, counties, cities, or agencies of state and local governments must pledge securities to the SAFE program pool which are held as collateral against these deposits. In the event of the failure of a bank, securities pledged by that bank would be liquidated by the State Treasurer to replace the public deposits. If the securities pledged failed to produce adequate funds for that purpose, every bank participating in the pool would share the liability for the remaining balance. Credit Risk Credit risk is the possibility that the issuer/counterparty to an investment will be unable to fulfill its obligations. The investments held by the bond trustee in the Revenue Bond Reserve Funds and the Construction Bond Funds are U.S. Government obligations which had a market value of $16,968,000 and $55,940,169 as of June 30, 2014 and 2013, respectively. U.S. Government obligations are not considered to have credit risk and do not require disclosure of credit quality. The investments held in the Compensation Plan Funds had a market value of$0 and $1,501,515 as of June 30, 2014 and 2013, respectively. Concentration of Credit Risk Concentration of credit risk is the inability to recover the value of deposits, investments, or collateral securities in the possession of an outside party caused by a lack of diversification (investments acquired from a single issuer). The Authority's cash deposits are held in several financial institutions and are fully insured by the Federal Deposit Insurance Corporation (FDIC), the U.S. Government, and the SAFE Program. The Authority's investment policy limits its investments by security type and institution. With the exception of U.S. Treasury securities and authorized pools, no more than 50% of the Authority's total investment portfolio will be invested in a single security type or with a single financial institution. 21

24 NOTES TO THE FINANCIAL STATEMENTS Interest Rate Risk Interest rate risk is the possibility that an interest rate change could adversely affect an investment's fair value. Tyoe of Investment Compensation Plan, Revenue Bond Reserve Funds and and Construction Bond Funds: U.S. Treasury/SLGS Investment Maturities at Fair Value (in Years) Less Than Agency Securities $ 16,968,000 s _ Totals 6/30/14 Totals 6/30/13 More Than 10 Totals Totals $ s s s Total Debt Securities $ $ J 6,968,000 $ The Authority's investment policy is to match its investments with anticipated cash flow requirements. Unless matched to a specific cash flow, the Authority will not directly invest in securities maturing more than three years from the date of purchase. However, the Revenue Bond Reserve Funds and Construction Bond Funds may be invested in securities exceeding three years if the maturities of such investments are made to coincide as nearly as practicable with the expected use of the funds. NOTE4 FAIR VALUE MEASUREMENTS The Authority accounts for investments in accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, which requires governmental entities to report investments at fair value in the balance sheets. The Authority's marketable securities (U.S. Treasury/ Agency Securities) are stated at fair value based on the quoted market prices and the Authority's non-marketable securities (U.S. Treasury/State and Local Government Series (SLGS) Securities) are stated at fair value or the best estimate of fair value as determined by the Authority's management. The fair values of the investment securities for the years ended June 30, 2014 and 2013, are as follows: Fair Value Description 6/30/14 6/30/13 U.S. Treasury/State and Local Government Securities and Agency Securities $ $

25 NOTES TO THE FINANCIAL STATEMENTS NOTES OPERATING LEASES The Authority is the lessor of terminal space, land and buildings at the Airport under various operating leases for periods through Some of the leases, in addition to noncancellable amounts at fixed rates, provide for additional payments based on usage or activity. The following is a table of future minimum noncancellable lease payments to the Authority: 2015 $ 8,188, ,884, ,577, ,422, ,680, ,032, $ NOTE6 CHANGES IN CAPITAL ASSETS A summary of the changes in capital assets for the year ended June 30, 2014 and 2013, is as follows: Balance at Balance at Governmental Activities 07/01/13 Additions Deductions 06/30/14 Capital assets not being depreciated: Land $ 167,901,708 s 15,703,866 $ $ 183,605,574 ConstJUction in progress 121.~~4,856 36,439, ,663,904 Total capital assets, not being depreciated J~2.12~,564 52,142,914 41!,269,478 Capital assets being depreciated: Buildings 107,795, ,795,177 Infrastructure improvements 200,495,086 7,839,123 {2,586,121) 205,748,088 Machinery and equipment 14,079, ,559 (86,679) 14,360,790 Furniture and fixtures 8Q9, Total capital assets being depreciated ~~J,I72,82~ 8,206,682 (2,672, 0Q) 328,713,777 Less accumulated depreciation on: Buildings (68,550,829) (2,601,806) (71, 152,635} Infrastructure improvements (92,61 0,084} (5,925,907} {98,535,991) Machinery and equipment (11,633,759) (1,085,741} (12,719,500) Furniture and fixtures ( Q2,231} (328} (809,559} Total accumulated depreciation (IZJ,60J,2QJ) (9,613,782) (183,217,685} Total capital assets depreciated, net 112.~7~,222 (1,407,100} (2,67~, QQ} 145,496,022 Total capital assets, net s ~ ~ 50, ~!2.672,800) s

26 NOTES TO THE FINANCIAL STATEMENTS Balance at Governmental Activities 07101/12 Additions Deductions Capital assets not being depreciated: Laud s 162,828,305 $ 5,073,403 Construction in progress 14!,~~~.~26 42,563,260 Total capital assets, not ~ being depreciated ~~.4~ ,636,663 Capital assets being depreciated: Buildings 106,262,985 4,966,914 (3,434,722) Infrastructure improvements 193,180,723 7,826,949 (512,586) Machinery and equipment 13,719, ,632 (55,088) Furniture and fixtures ~09,722 Total capital assets being depreciated 313,972,796 13,209,495 (4,002,~96) Less accum11lated depreciation on: Buildings (65,979,663) ( 6,005,888) 3,434,722 Infrastructure improvements (86,503,756) (6,106,328) Machinery and equipment (10,468,876) (1,164,883) Furniture and fixtures 808,202) 329) Total accwnulated depreciation 16J,761,197} (13,277,428) 3,4J4,Z22 Total capital assets depreciated, net 150,211, ) 567,674) Total capital assets, net $ 454,701,500 $ 54,568,730 $ (567,674) Balance at 06/30/13 $ 167,901,708 12],224,856 J~2,126, ,795, ,495,086 14,079, ,179,895 (68,550,829) (92,610,084) ( 11,633,759) 802,231) (17~,60J,2Q3l ]42,515,992 $ 508, NOTE 7 LINE OF CREDIT The Authority has an unsecured line of credit with a financial institution. The maximum available line of credit is $3,893,000. At June 30, 2014, there was no outstanding balance on the line of credit. The expiration date of the agreement is July 18,2014. NOTE S REVENUE BONDS PAYABLE On October 22, 2003, the Authority issued the Birmingham Airport Authority Airport Revenue Refunding Bonds, Series 2003-A and the Airport Revenue Refunding Bonds, Series 2003-B in the amounts of $20,820,000 and $17,875,000 respectively. The Series 2003-A Bonds and the Series 2003-B were issued to provide funds to refund the Authority's Series 1993-A and 1993-B Bonds outstanding in the principal amounts of $20,390,000 and $18,060,000 respectively. The Series 2003-A Bonds were originally issued at variable interest rates determined weekly. On December 1, 2009, the Authority reo:ffered the bonds with fixed interest rates ranging from 3.25% to 4.5%. Principal payments on the Series 2003-A Bonds are due annually beginning July 1, 2014, and the final principal payment is due on July 1, The Series 2003-A net bond proceeds of $20,258,123 (after payment of$750,909 in issuance cost and depositing $1,778,227 into the 2003 Reserve Fund) plus an additional $1,967,259 of Series 1993-A and 1993-B sinking fund monies were deposited into the 1993 Escrow Fund. 24

27 NOTES TO THE FINANCIAL STATEMENTS The Series 2003-B Bonds mature no later than July 1, 2014, and require semiannual interest payments on January 1 and July 1 beginning January 1, 2004, at rates ranging between 2 and 5 percent. Principal payments on the Series B Bonds are due annually b~ginning July 1, The Series 2003-B net bond proceeds of $19,764,504 (after payment of $577,619 in issuance cost) plus an additional $2,012,283 of Series 1993-A and 1993-B sinking fund monies were deposited into the 1993 Escrow Fund. In refunding the Series 1993-A and Series 1993-B Bonds, the Authority incurred a loss of approximately $1,802,751 which was deferred and is being amortized over the life of the new debt in accordance with GASB 23. The Authority is expected to reduce its aggregate debt service payments over the next 20 years and will obtain an economic gain (difference between the present value of debt service of the refunded bonds and the Series 2003-A and 2003-B Airport Revenue Refunding Bonds) estimated to be approximately $2,177,000. On July 11, 2007, the Authority issued the Birmingham Airport Authority Airport Revenue Refunding Bonds, Series 2007, in the amount of $44,635,000. The Series 2007 Bonds were issued to provide funds to refund the Authority's Series 1996 and 1999 Bonds outstanding in the principal amounts of $24,220,000 and $20,515,000, respectively. The Series 2007 Bonds mature no later than July 1, 2026, and require semi-annual interest payments on January 1 and July 1, beginning January 1, 2008, at rates ranging between 5 and 5.25 percent. Principal payments on the Series 2007 Bonds are due annually beginning July 1, The Series 2007 net bond proceeds of $45,622,343 (after payment of $343,478 in issuance cost) plus an additional $141,713 of Series 1996 and 1999 sinking fund monies were deposited into the 1996 and 1999 Escrow Fund. In refunding the Series 1996 and Series 1999 Bonds, the Authority incurred a loss of approximately $1,375,552, which was deferred and is being amortized over the life of the new debt in accordance with GASB 23. The Authority is expected to reduce its aggregate debt service payments over the next 19 years and will obtain an economic gain (difference between the. present value of debt service of the refunding bonds and the Series 2007 Airport Revenue Refunding Bonds) estimated to be approximately $1,496,970. On December 22, 2010, the Authority issued the Birmingham Airport Authority Airport Revenue Bonds, Series 2010 in the amount of $151,705,000. The Series 2010 Bonds were issued to provide funds for certain airport improvements, primarily the renovation of the main terminal building at the Airport. 25

28 BIRMINGHAl\1 AIRPORT AUTHORITY NOTES TO THE FINANCIAL STATEMENTS The Series 2010 Bonds mature no later than July 1, 2040, and reqwre semi-annual interest payments on January 1 and July 1, beginning January 1, 2011, at rates ranging between 3 and 6 percent. Principal payments on the S~es 2010 Bonds are due annually beginning July 1, The Series 2010 net bond proceeds of $146,267,329 (after payment of $3,677,933 issuance cost) were deposited into the Series 2010 Capitalized Interest Account ($10,704,988), the Reserve Fund ($10,448,058) and the 2010 Construction Fund ($125,114,283). Revenue bonds payable consist of the following as of June 30, 2013 Total principal outstanding Unamortized bond premium Total Due within one year $201,860,000 ( ) $ $ $207,625,000 ( ) $ $ The following shows debt service to maturity for the Series 2003-A and B Bonds, the Series 2007 Bonds, and the Series 2010 Bonds: FYEJune30, Principal Interest Total 2015 $ 6,005,000 $ 10,405,138 $ 16,410, ,295,000 10,143,900 16,438, ,590,000 9,864,700 16,454, ,930,000 9,572,400 16,502, ,270,000 9,250,551 16,520, ,230,000 40,681,342 82,911, ,635,000 28,278,350 82,913, ,475,000 13,290,688 56,765, ,195,000 5,819,550 25,014, Total ~ 2011~ ~ 138; i ~~2a NOTE9 CAPITAL CONTRIBUTIONS AND NET POSITION Since its inception, the Authority has received capital contributions from the City of Birmingham, in the form of net assets transferred as of the date of inception and through Federal grants and Passenger Facility Charges as follows: 26

29 BIRl\IINGHAM AIRPORT AUTHORITY NOTES TO THE FINANCIAL STATEMENTS CaJ!ital Contributions Inception To-Date 2014 City of Birmingham $ 12,359,477 Federal 351,553,049 $ 20,336,728 $ Passenger Facility Charges Total ~ 443,517,291 $ ~ ,759, ,652 All unrestricted net assets were undesignated as of June 30, NOTE 10 PENSION PLAN Plan Description The Authority contributes to the City of Birmingham Retirement and Relief System--a single employer defined benefit pension plan ("the Plan"). This system covers substantially all employees and certain elected officials and appointed employees. Membershig is mandatory for covered employees and is effective upon employment. Employees contribute 6.5% of payroll, exclusive of overtime. The City of Birmingham ("the City") is required by statute to fund that part of current service cost and past service cost which exceeds participants' contributions as determined by annual actuarial studies. The City acts as trustee for the Plan. Funding Policy The funding methods and determination of benefits payable were established by the legislative acts creating the Plan and provide that the Plan's fund is to be accumulated from employee contributions, employer contributions, and income from the investment of accumulated funds. The cost of administering the Plan is funded by the City. The Plan's financial statements and required supplementary information is presented in the City's, June 30, 2014, comprehensive annual financial report. Summary of Significant Accounting Policies The activities and the financial statements of the Plan is accounted for on the accrual basis of accounting. Plan member contributions are recognized in the period in which the contributions are due. The City's contributions are recognized when due and a formal commitment to provide the contributions has been made. Benefits and refunds are recognized when due and payable in accordance with the terms of the Plan. The Plan's cash assets are invested in equity and fixed-income securities and are reported at fair value. Investments are traded on the national exchange. 27

30 NOTES TO THE FINANCIAL STATEMENTS The Authority's payroll for employees covered by the pension plan was $5,805,447 and $5,564,760 and the total payroll was $7,633,951 and $6,326,451 for the years ended June 30,2014 and 2013, respectively. The Authority's measurements of assets and pension benefit obligations are not shown separately from the City of Birmingham Retirement and Relief System's actuarial assumption valuation. The following are disclosure requirements of that all-inclusive actuarial assumption valuation, as of the last actuarial study of June 30,2013, for the Plan. City of Birmingham Retirement and Relief System Schedule of EmElo~er Contributions Plan Year Ended Annual Required Actual Percentage June 30, Contributions Contributions Contributed 2008 $ 14,818,900 $ 12,061, % ,050,689 12,770, % ,118,910 13,224, % ,147,791 13,772, % ,904,668 13,676, % ,516,938 13,591, % ,212,467 City of Birmingham Retirement and Relief System Schedule of Funding ProB!:ess Actuarial Accrued UMLasa Actuarial Acruarial Liability Unfunded Pen:entagc Valuation Valuation (ML)- (O, crfunded) Fw1ded Covered of Covered Date of Assets ~AI!e MLlUML} Ratio Pal:!!!Jl Pal:!!!ll 7.' s s $ 97, "..4 $ % 7. li , I, , , "/o % 7-' % 193, % , % % , % % 7/1! , , "/o % 28

31 NOTES TO THE FINANCIAL STATEMENTS City of Birmingham Retirement and Relief System Actuarial Methods and Assumptions Actuarial Valuation: Frequency Latest Date Basis for Contributions Cost Method Amortization: Method Open/Closed Equivalent Single Period Remaining Asset Valuation Method Assumptions: Investment rate of return Projected salary increases: Inflation Annual 7/1/2013 7/1/2013 Entry Age Normal Level Dollar Open/Rolling 30 years 30 Market value of assets less unrecognized returns in each of the last five years. Unrecognized return is equal to the difference between the actual market return and the expected return on the market value, and is recognized over a five-year period, further adjusted, if necessary, to be within 20% of the market value. 7.00% 3.00% Merit, Longevity, etc. Varies from 0.00% to 6.50% Plan Membership: Retired participants and beneficiaries receiving benefits 2,834 Terminated participants entitled to, but not yet recehing benefits 283 Active participants Total membership Pla.o Year Elided June s City of Birmingham Retirement and Relief System Development of the Net Pension Obligation and the Annual Pension Cost Employer Annual Emplo)'C' Required Amount lntc:n:st on AJlC Amortization Pension Changem Contnlrution Contributed NP0@7% Adjll5tment Faa or Cost NPO ,900 $ 12,061,584 s (702,264) s ( ) 13.2~77 s 14,872,216 $ $ NPO Balance (7, ) NOTE ,689 12,770,110 (505,520) ( ) ,089, ,958 21, ,224,808 (203,193) ( ) ,134,337 7,909,529 18,W,791 13, ,223,476 4,450, , 13,676, S l9.0~ ,371, ,591, , ,8S ,149,252 OTHER POST-EMPLOYMENT BENEFITS (2,902,759) 5,006, ,756 14,828, ,090 Plan Description The Authority adopted a policy to pay for the cost of post-employment health insurance for eligible employees. Employees of the Authority must meet the following eligibility requirements for pension benefits as defined by the City of Birmingham Retirement and Relief System for retirement: 29

32 NOTES TO THE FINANCIAL STATEMENTS Retirees with 30 years of service at any age Retirees with 5 or more years of service and age 60 or older Retirees receiving ordinary or extraordinary disability pension benefits Retirees may elect to continue their health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA). COBRA provides the retirees with health insurance coverage generally for a period of 18 months. Retirees may continue the same coverage (single or family) at the time of retirement. The retiree must elect health insurance coverage under COBRA within 60 days of the retirement date. Retirees who meet the eligibility requirements, as listed above, are entitled to receive a subsidy amount equal to the amount the Authority pays for single coverage for an active employee. Retirees may receive the subsidy until they reach the age of 65, become Medicare eligible, covered under another policy or deceased. The retiree is responsible for paying the applicable balance of the monthly health insurance premium. The retiree may elect to have their portion of the health insurance deducted from their monthly pension benefit or elect to mail a check to the Authority by the 1Oth of each month for their portion. The plan is a single-employer defined benefit plan. The Authority reserves the right to make changes to retiree benefits, insurance providers and co-payments that are considered necessary and at the Authority's discretion. Retirees will be notified whenever premium and/or benefits change. Benefits under the plan will be reviewed on an annual basis. The Authority intends no implied promise to continue the benefits for future retirees. Funding Policy The funding policy under the plan is to provide payments on a pay-as-you-go basis. During the fiscal year ended June 30, 2014 and 2013, the Authority paid $23,503 and $50,618, respectively, for health care insurance premiums for retired employees. NOTE 12 DEFERRED COMPENSATION PLAN The Authority offers certain executive employee(s) a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The plan, available to executive employee(s), permits them to defer a portion of their salary until future years. The deferred compensation is not available to employees until termination, retirement, death, or unforeseeable emergency. 30

33 NOTES TO THE F1NANCIAL STATEMENTS All amounts of compensation deferred under the plan, all property and rights purchased with those amounts, and all income attributable to those amounts, property, or rights are (until paid or made available to the employee or beneficiary) solely the property and rights of the Authority (without being restricted to the provisions of benefits under the plan), subject only to the claims of the Authority's general creditors. Participants' rights under the plan are equal to those of general creditors of the Authority in an amount equal to the fair value of the deferred account for each participant. It is the opinion of the Authority's legal counsel that the Authority has no liability for losses under the plan but does have the duty of due care that would be required of an ordinary prudent investor. The Authority believes that it is unlikely that it will use the assets to satisfy the claims of general creditors in the future. NOTE 13 MAJOR CUSTOMERS Five major airlines operated at the Airport during the 2013 fiscal year. Prior to December 31, 2005, the airlines operated at the Airport under a long-term Airport Use and Lease Agreement that credited the airlines' landing fee requirement with 50% of all non-airfield net revenues. From January 1, 2006 until March 1, 2009, the airlines operated without an agreement in place, but were charged rental rates and landing fees based on the methodology contained in the expired agreement. As of March 1, 2009, the Authority changed its rate setting methodology to an approach of crediting the airport's terminal cost center with 25% of all terminal building non-airline revenues, and calculating landing fees based on a full compensatory methodology. Effective July 1, 2011, the Authority entered into a new agreement with each of the major airlines serving the Airport. Under the terms of the agreement, the airlines will be charged full compensatory landing fee rates for the airfield, and will be charged commercial compensatory rates for the terminal building reduced by a 35% non-airline terminal building revenue credit. Although the new agreement is for a one year term, it contai.ns a provision that allows for automatic annual renewals for up to five years. The agreement can be terminated by either party by giving 90-days notice prior to the next anniversary date. The Authority received approximately 39% and 35% of its revenue during 2014 and 2013, respectively, from rentals and services provided to the commercial airlines. NOTE 14 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 coverages naming the Authority as additional insured. 31

34 NOTES TO THE FINANCIAL STATEMENTS Following the events of September 11, 2001, all insurance companies canceled their war risk liability coverage for airlines and airports. During fiscal year 2014, the Authority was able to obtain $216,866,342 of coverage for a premium of $170,054. No liability is recorded at June 30, 2014, for outstanding claims or for any potential claims incurred but not reported as of that date. Settled claims have not exceeded these commercial coverages by any material amounts during the year ended June 30,2014. NOTE 15 RELATED PARTY TRANSACTIONS The Authority reimburses the City for the cost of providing security and fire protection services to the Airport. Amounts charged by the City are reported as operating expenses during the year incurred and totaled $4,078,188 and $3,729,969 for the fiscal years ended June 30, 2014 and 2013, respectively. NOTE 16 COMMITMENTS At June 30, 2014, the Authority is committed under contracts for the following construction and planning projects: Committed Amount Terminal Modification Parking Deck Restoration and Revenue Control Airfield and Taxiway Projects Total Committed Amounts $ 52,600,024 1,983, $ NOTE 17 RECENTLY ISSUED ACCOUNTING STANDARDS During the fiscal year ended June 30, 2014, the Authority adopted the following new accounting standards issued by GASB: Effective July 1, 2013, the Authority implemented Governmental Accounting Standards Board Statement Number 65 - Items Previously Reported as Assets and Liabilities (GASB Statement 65). GASB Statement 65 required restatement of certain items previously reported as assets or liabilities. For the Authority, the items required to be restated were limited to deferred bond issuance expenses. This required restatement of the previously reported beginning net position to reflect the expense of certain previously deferred bond issuance expenses which resulted in a decrease of $4,311,350 to the net assets position reported at June 30,

35 NOTES TO THE FINANCIAL STATEMENTS Future adoption of GASB pronouncements that have been issued but not yet effective at June 30, 2014: GASB Statement No. 66, Technical Corrections an Amendment of GASB Statements No. 10 and No. 61. Issued March 2012, the objective of this Statement is to improve accounting and financial reporting for a governmental financial reporting entity by resolving conflicting guidance that resulted from the issuance of two pronouncements, Statements No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, and No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 F ASB and AICPA Pronouncements. The requirements of this Statement are effective for financial statements for periods beginning after December 15, The Authority is currently evaluating the impact, if any, the GASB 66 will have on its financial statements. GASB Statement No. 67, Financial Reporting (or Pension Plans - an Amendment o(gasb Statement No. 15. Issued June 2012, the objective of this Statement is to improve financial reporting by state and local governmental pension plans. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for pensions with regard to providing decision-useful information, supporting assessments of accountability and interperiod equity, and creating additional transparency. This Statement replaces the requirements of Statements No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and No. 50, Pension Disclosures, as they relate to pension plans that are administered through trusts or equivalent arrangements (hereafter jointly referred to as trusts) that meet certain criteria. The requirements of Statements 25 and 50 remain applicable to pension plans that are not administered through trusts covered by the scope of this Statement and to defined contribution plans that provide postemployment benefits other than pensions. The requirements of this Statement are effective for financial statements for periods beginning after June 15, The Authority is currently evaluating the impact, if any, the GASB 67 will have on its financial statements. The Authority will implement the new GASB pronouncement in the fiscal year no later than the required effective date. The Authority has not yet determined if the above listed new GASB pronouncements will have a significant financial impact on the Authority or in issuing its financial statements. NOTE 18 PRIOR PERIOD ADJUSTMENTS In 2007, the cost of a deferred compensation plan, in the amount of $1,200,000 was improperly expensed. The prior year's financial statements have been changed to reflect the proper classification of this expense to an asset and the reporting of gains and losses associated with plan investments. The effect to the prior year's Statement ofnet Position is to increase net assets by $1,501,

36 lui BANKS, FINLEY, 1111 WHITE & CO. CEJmlolED PllllUC ACCOUNTANTS INDEPENDENT AUDITOR'S 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 the Board of Directors of the Birmingham Airport Authority Birmingham, Alabama 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 Birmingham Airport Authority (''the Authority") a component unit of the City of Birmingham, Alabama, as of and for the years ended June 30, 2014 and 2013, and the related notes to the financial statements, and have issued our report thereon dated September 17, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the 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. 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 Authority'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. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 617 THIRlY-SEVENTH STREET SOUTH BIRMINGHAM, AL (205)

37 ~~~ To the Board ofdirectors of the Birmingham Airport Authority Pa e2 Compliance and Other Matters As part of obtaining reasonable assurance about whether the 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. 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 Authority'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. September 17,

38 1111 BANKS, FINLEY, 1111 WHITE & CO. CEimFIED PUBUC ACCOUNI'Allt'TS INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY OMB CIRCULAR A-133 To the Board ofdirectors of the Birmingham Airport Authority Birmingham, Alabama Report on Compliance for Each Major Federal Program We have audited the compliance of the Birmingham Airport Authority ("the Authority") with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-1 33 Compliance Supplement that could have a direct and material effect on each of the Authority's major federal programs for the years ended June 30, 2014 and The Authority's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Management's Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor's Responsibility Our responsibility is to express an opinion on compliance for each of the Authority's major federal programs 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 OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 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 each major federal program. However, our audit does not provide a legal determination of the Authority's compliance. 617 THIRTY-SEVENTH STREET SOUTH BIRMINGHAM, AL (205)

39 H To the Board of Directors of the Binningham Airport Authority Pa e2 Opinion on Each Major Federal 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 each of its major federal programs for the year ended June 30,2014. 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. 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 each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with OMB Circular A- 133, 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 Authority'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 on a timely basis. A material weakness in internal control over compliance is a deficiency, or 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 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 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 OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. September 17,

40 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the year ended June 30, 2014 ID CFDA Federal Grantor Number Number U.S. DEPARTMENT OF TRANSPORTATION Direct Programs: Airport Improvement Program AIP Airport Improvement Program AIP Airport Improvement Program AIP Airport Improvement Program AIP Airport Improvement Program AIP Airport Improvement Program AIP Airport Improvement Program AIP Airport Improvement Program AIP Airport Improvement Program AlP Airport Improvement Program AlP Airport Improvement Program AlP Airport Improvement Program AlP Airport Improvement Program AlP Total U.S. Department of Transportation U.S. DEPARTMENT OF HOMELAND SECURITY Direct Programs: ARRA - Transportation Security Administration - Airport Checked Baggage Inspection System Program HSTS H-CTJ Total U.S. Department of Homeland Security Total Expenditures of Federal Awards Ex2enditures $ 12,471 1, ,888 44, , ,263 1,503, ,614 4,086,923 1,519, ,545 5,554, ~ ,53 38

41 NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS NOTEl BASIS OF PRESENTATION The accompanying schedule of expenditures of federal awards include the federal grant activity of the Birmingham Airport Authority ("the Authority") and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, "Audits of States, Local Governments, and Non-Profit Organizations." NOTE2 AMERICAN RECOVERY AND REINVESTMENT ACT CARRA) OF 2009 Expenditures for the following program was funded by ARRA: ARRA - Transportation Security Administration - Airport Checked Baggage Inspection System Program 39

42 SCHEDULE OF FINDINGS AND QUESTIONED COSTS For the year ended June 30,2014 Section 1--Summary of Auditor's Results Financial Statements Type of auditor's report issued: Unmodified Internal control over financial reporting: Material weakness(es) identified? Significant deficiency(ies) identified that are not considered to be material weaknesses? Noncompliance material to fmancial statements noted? Yes X No _ Yes X None reported _ Yes X No Federal Awards Internal control over major programs: Material weakness( es) identified? Significant deficiency(ies) identified that are not considered to be material weaknesses? Type of auditor's report issued on compliance for major programs: Yes X No Yes X N orie reported Unmodified Any audit findings disclosed that are required to be reported in accordance with section 510(a) ofomb Circular A-133? Yes X No Identification of major programs: CFDA Numbers Dollar threshold used to distinguish between Type A and Type B programs: Auditee qualified as low-risk auditee? Name of Federal Program or Cluster Airport Improvement Program ARRA - Transportation Security Administration - Airport Checked Baggage Inspection System Program $595,666 X Yes No Section 11-wFinancial Statement Findings None reported. Section III--Federal Award Findings and Questioned Costs None reported 40

43 lui BANKS, FINLEY, 1111 WHITE & CO. CERTIMED PUBLIC ACCOUNTANTS INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR THE PASSENGER FACILITY CHARGE PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE FEDERAL AVIATION ADMINISTRATION To the Board of Directors of the Birmingham Airport Authority Birmingham, Alabama Report on Compliance We have audited the compliance of the Birmingham Airport Authority ("the Authority"), a component unit of the City of Birmingham, Alabama, with the types of compliance requirements described in the Passenger Facility Charge Audit Guide for Public Agencies, issued by the Federal Aviation Administration ("the Guide"), that could have a direct and material effect on its Passenger Facility Charge ("PFC") program for the year ended June 30, Management's Responsibility Management is responsible for compliance with requirements of laws, regulations, contracts, and grants applicable to the PFC program~ Auditor's Responsibility Our responsibility is to express an opinion on the Authority's compliance for the PFC 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 Guide. Those standards and the Guide 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 the PFC program has 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 PFC program. However, our audit does not provide a legal determination of the Authority's compliance. 617 THIRlY-SEVENTH STREET SOUTH BIRMINGHAM, AL (205)

44 To the Board ofdirectors of the Birmingham Airport Authority Birmingham, Alabama Pa e2 Opinion In our opinion, the Authority complied, in all material respects, with the types of compliance requirements referred to above that are applicable to its PFC program for the year ended June 30, 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. 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 the PFC program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for the PFC program and to test and report on the internal control over compliance in accordance with the Guide, but not for the purpose of expressing an opinio~ on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Authority'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 PFC program on a timely basis. A material weakness in internal control over compliance is a deficiency, or 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 PFC 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 PFC 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 Passenger Facility Charge Audit Guide for Public Agencies, issued by the Federal Aviation Administration (Guide). Accordingly, this report is not suitable for any other purpose. September 17,