Sarasota Manatee Airport Authority Sarasota, Florida

Transcription

1 Sarasota Manatee Airport Authority Sarasota, Florida Financial Statements with Management s Discussion and Analysis including Supplementary and Compliance Reports and Schedules For the years ended September 30, 2016 and September 30, 2015 Prepared by: Finance Department

2 Contents Report of Independent Auditor... 1 Management s Discussion and Analysis... 3 Basic Financial Statements Enterprise Fund Statements of Net Position Statements of Revenues, Expenses and Changes in Net Position Statements of Cash Flows Pension Trust Fund Statements of Plan Net Position Statements of Changes in Plan Net Position Notes to Financial Statements Required Supplementary Information Pension Plan Schedule of Changes in Authority s Net Pension Liability and Related Ratios Pension Plan Schedule of Authority Contributions Pension Plan Schedule of Investment Returns Supplemental Schedules Schedule of Operating Expenses Schedule of Application of Revenues Government Auditing Standards and Single Audit Report of Independent Auditor on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Report of Independent Auditor on Compliance for Each Major Program and on Internal Control over Compliance Required by the Uniform Guidance and Chapter Rules of the Auditor General Schedule of Expenditures of Federal Awards Schedule of Expenditures of State Financial Assistance Projects Notes to Schedules of Expenditures of Federal Awards and State Financial Assistance Projects Schedule of Findings and Questioned Costs Summary Schedule of Prior Year Audit Findings Passenger Facility Charge Program Report of Independent Auditor on Compliance with Requirements Applicable to the Passenger Facility Charge Program and Internal Control over Compliance in Accordance with the Passenger Facility Program Audit Guide Schedule of Passenger Facility Charges Collected and Expended Notes to Schedule of Passenger Facility Charges Schedule of Findings and Questioned Costs Passenger Facility Charge Program Independent Auditor s Management Letter Report of Independent Accountant on Compliance with Local Government Investment Polices... 70

3 Report of Independent Auditor Members of the Board Sarasota Manatee Airport Authority Sarasota, Florida Report on the Financial Statements We have audited the accompanying financial statements of the enterprise fund and the pension trust fund of the Sarasota Manatee Airport Authority (the Authority ), as of and for the years ended September 30, 2016 and 2015, 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 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 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 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 in 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 respective financial position of the enterprise fund and the pension trust fund of the Sarasota Manatee Airport Authority, as of, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter Restatements As discussed in Note 13 to the basic financial statements, the 2015 financial statements have been restated to correct two misstatements. Our opinion is not modified with respect to these matters. 1

4 Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and the required supplementary information, as listed on the table of contents, on pages 3 through 16 and 47 through 49, 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 Authority's basic financial statements. The supplemental schedules, as listed in the table of contents, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The accompanying schedule of expenditures of federal awards, schedule of expenditures of state financial assistance projects and the schedule of passenger facility charges collected and expended are presented for the purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards ( Uniform Guidance ), Chapter , Rules of the Auditor General Local Governmental Entity Audits and Passenger Facility Charge Audit Guide for Public Agencies, issued by the Federal Aviation Administration, respectively, and are also not a required part of the basic financial statements. The supplemental schedules, schedule of expenditures of federal awards, schedule of expenditures of state financial assistance projects and schedule of passenger facility charges collected and expended are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, such information is fairly stated in all material respects in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated January 20, 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 the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Authority s internal control over financial reporting and compliance. Tampa, Florida January 20,

5 Management s Discussion and Analysis The following Management s Discussion and Analysis ( MD&A ) of the Sarasota Manatee Airport Authority s (the Authority ) activities and financial performance provides an introduction to the basic financial statements of the Authority for the year ended September 30, 2016 with comparative information for the year ended September 30, 2015 and The information contained in this MD&A should be considered in conjunction with the information contained in the financial statements and the notes thereto, which are essential to a full understanding of the financial statement data. Authority Background and History The Authority is an independent special district pursuant to the constitution and laws of Florida, particularly Chapter , Laws of Florida, as amended (the Act ), revising and consolidating Chapter 31263, Special Laws of Florida, 1955, which, by the Act, authorized the Authority to own and operate the Sarasota Bradenton International Airport (the Airport ). The Authority has jurisdiction, control, supervision and management of the Airport. The Authority s Board consists of six members who are appointed on a non-partisan basis to four-year staggered terms. The Act requires that three members of the Authority be residents of, and be appointed within, each of Sarasota and Manatee Counties. The Act further requires that the Chairperson elected by the members thereof, alternate county representation annually. The Airport is situated on approximately 1,100 acres located in Sarasota and Manatee Counties and the City of Sarasota. It is classified as a small hub airport by the Federal Aviation Administration ( FAA ). The Airport has two crossing asphalt-surfaced runways, 4/22 (NE/SW) and 14/32 (SE/NW). Both runways were built in the early 1940 s. Runway 4/22, at 5,004 feet long is used almost exclusively by general aviation aircraft. Runway 14/32 was extended in 1969 to 7,003 feet and again in 2001 to its present length of 9,500 feet. As the main carrier runway, it is used by commercial jets as well as general aviation aircraft. The current terminal building opened to travelers on October 29, It is located southwest of the intersection of runways 4/22 and 14/32 and has approximately 240,000 square feet of interior space. A complete remodel of the entire terminal building was completed June New flooring, wall coverings, lighting and ceiling grids, HVAC and fire alarm systems were installed. Also during 2015, the Customs facility was expanded to be able to process wide body aircraft (300 passengers per hour). A project to realign and expand the roadway and curbside area in front of the terminal building began in November 2015 and is scheduled to be completed mid-december Construction on a new Air Traffic Control Tower ( ATCT ) began in November 2015 and will be financed with a joint funding effort by the Authority, the Florida Department of Transportation ( FDOT ), and FAA. The total cost, including design, construction, and equipment, is anticipated to reach $25 million. The new 139-foot-tall tower is scheduled to be completed in 2017 and will be equipped with the latest aviation technology that will enable air traffic controllers to have more precise, system-wide information about weather and flight data. The tower cab will give controllers a birds-eye, unobstructed view of the entire airfield. Last year, the FAA ATCT at SRQ (SRQ is the Airport Identifier Code for the Sarasota Bradenton International airport) handled about 100,000 aircraft operation. A 9,000 square-foot base building will house administrative offices and training facilities. The new tower will replace a facility that has served SRQ since The Authority is self-supporting, using aircraft landing fees, fees from terminal and other rentals, and revenues from concessions to fund operating expenses. Operating expenses of the Authority are not taxpayer funded. Construction programs are funded by federal and state grants, Passenger Facility Charges ( PFCs ), and Authority revenues. 3

6 Management s Discussion and Analysis Airport Activities during 2016 as compared to 2015 are as follows: % Increase FY 2016 FY 2015 (Decrease) Enplanements 602, , % Aircraft Operations 105, , % Landed Weight 674,974, ,250, % Aviation is a highly cyclical industry that has been repositioning itself in fiscal year Changes have been focused on building a new foundation for profitability which has primarily been centered upon adjustment in capacity and stimulation of improved yield for the airlines within the entire industry. The capacity adjustments at SRQ have been in step with changes across the nation. These changes are the foundation blocks for industry profitability and future growth at SRQ. With the desire of the Authority to increase air service to the Airport, the Authority passed serval resolutions waiving fees, such as landing fees and terminal rent fees, in an effort to attract new air service. The following is a summary of the financial results for the years ended September 30, 2016, 2015 and 2014: Fiscal year 2016 operating revenue increased by 1.4% from 2015 as a result of increased parking and car rentals. Fiscal year 2015 operating revenue decreased by 0.7% from 2014 due to the decrease in building rental rates and new airline operating agreement. A large percentage of operating revenues at the Authority is directly related to passenger volumes and aircraft operations. In fiscal year 2016, operating expenses before depreciation and amortization increased 3.1% from In fiscal year 2015, operating expenses before depreciation and amortization increased 4.9% over The primary increase for both was salaries and benefits. Non-operating revenues and expenses in fiscal year 2016 decreased 7.8% from 2015 due to the decrease in interest and other investment income and loss on disposal of fixed assets. Non-operating revenues and expenses in fiscal year 2015 increased 13.3% from 2014 due to the decrease in interest expense. Capital contributions decreased 21.4% in Capital contributions in fiscal year 2015 increased 125.0% from These fluctuations are influenced by factors such as grant availability and project timing. 4

7 Management s Discussion and Analysis Summary of Operations and Changes in Net Position FY 2015 FY 2014 FY 2016 (As Restated) (As Restated) Operating revenues $ 18,270,591 $ 18,013,969 $ 18,141,768 Operating expenses (24,690,676) (23,716,006) (22,751,330) Loss before non-operating revenues and expenses (6,420,085) (5,702,037) (4,609,562) Non-operating revenues and expenses, net 2,553,521 2,768,244 2,444,317 Loss before capital contributions (3,866,564) (2,933,793) (2,165,245) Capital contributions 9,528,408 12,124,948 5,388,036 Increase in Net Position 5,661,844 9,191,155 3,222,791 Net Position - beginning of year 150,483, ,846, ,623,559 Cumulative effect of change in accounting principle - (4,553,661) - Related beginning Net Position 150,483, ,292, ,623,559 Net Position - end of year $ 156,145,688 $ 150,483,844 $ 145,846,350 Summary of Net Position Over time, net position may serve as a useful indicator of the Authority s financial position. The Authority s assets and deferred outflow of resources exceeded liabilities and deferred inflow of resources by approximately $156.1 million at September 30, 2016, a net $5.6 million increase over September 30, The Authority s assets and deferred outflow of resources exceeded liabilities and deferred inflow by approximately $150.4 million at September 30, 2015, a $4.6 million increase over September 30, 2014 restated balance. FY 2015 FY 2014 FY 2016 (As Restated) (As Restated) Assets: Current and other assets $ 35,260,981 $ 32,294,130 $ 31,260,956 Capital assets, net 130,623, ,588, ,906,655 Total Assets $ 165,884,416 $ 158,883,063 $ 149,167,611 Deferred outflow of resources $ 2,571,333 $ 1,697,954 $ - Liabilities: Other liabilities $ 5,037,181 $ 3,690,193 $ 3,321,261 Net pension liability 6,636,902 6,344,537 - Total Liabilities $ 11,674,083 $ 10,034,730 $ 3,321,261 Deferred inflow of resources $ 635,978 $ 62,443 $ - Net Position: Net investment in capital assets $ 130,623,435 $ 126,588,933 $ 117,906,655 Restricted 12,186,203 9,985,311 7,615,433 Unrestricted 13,336,050 13,909,600 20,324,262 Total net position $ 156,145,688 $ 150,483,844 $ 145,846,350 5

8 Management s Discussion and Analysis Summary of Net Position (continued) The largest portion of the Authority s net position each year represents its investment in capital assets (e.g., land, buildings, improvements and equipment), less the related indebtedness outstanding used to acquire and construct those capital assets. 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, the resources required to repay this debt must be provided annually from operations, since it is unlikely the capital assets themselves will be liquidated to pay liabilities. An additional portion of the Authority s net position represents PFC s that are restricted by Federal regulations and the Final Agency Decision Letter from the FAA Airport District Office. The remaining unrestricted net position may be used to meet any of the Authority s ongoing obligations. Airport Use Agreements The Authority has entered into Airport Use Agreements with the principal commercial air carriers that serve the airport. For 2016 and 2015, the signatory airlines were Delta Air Lines, JetBlue Airways, and US Air (name changed to American Airlines effective October 18, 2015). The signatory airlines are granted the non-exclusive use of the Airport for the purpose of operating an air transportation system for the carriage of persons, property, cargo and mail, according to the rules and regulations of the Authority. The agreement for signatory airline agreements expired at September 30, The Authority entered into a new four-year Airport Use Agreement with three commercial air carriers that serve SRQ. For 2016, the signatory airlines are Delta Air Lines, JetBlue Airways, and US Air (name changed to American Airlines effective October 18, 2015). Rate and Charges Each of the signatory airlines lease space in the terminal for its exclusive use with the right to make certain leasehold improvements. Each of the signatory airlines pays monthly: (1) rentals for terminal building space, (2) landing fees, and (3) preferential apron space rental. Rentals and landing fees may be adjusted by the Authority, usually on an annual basis, to maintain a balanced budget. Rates and charges for recent years are as follows: FY 2016 FY 2015 FY 2014 Landing fee (per 1,000 lbs landed weight) Signatory Non-Signatory Average terminal rate (per square foot) Signatory Non-Signatory Apron fee rental (per linear foot) Air cargo facility (per square foot)

9 Management s Discussion and Analysis Landing Fees All costs of the airfield runway area, as well as the cost of unleased terminal space, are combined in a monthly landing fee based upon the signatory airline s aircraft arrivals during the month. The landing fee is computed by multiplying the maximum gross certified landing weight of the aircraft by a landing fee rate expressed in terms of thousand pound units of landed weight. Revenues A summary of revenues for the year ended September 30, 2016 and the amount and percentage of change in relation to prior year amounts is as follows: Operating Revenues: Increase Percent 2016 Percent (Decrease) Increase Amount of Total form 2015 (Decrease) Building rentals $ 6,620, % $ (10,183) 0% Car rental concessions 3,644, % 171,116 5% Parking lot fees 2,736, % 318,726 13% Landing fees 156, % (469,666) -75% Other airfield revenue 2,362, % 19,963 1% Concessions 1,089, % 82,605 8% Non-aviation system revenue 1,465, % 72,118 5% Other revenue 195, % 71,943 58% Total Operating Revenues 18,270, % 256,622 1% Non-Operating Revenues: Interest and other investment income 238, % (84,560) -26% Passenger facility charges 2,353, % (46,078) -2% Other miscellaneous - 0.0% (45,182) -100% Total Non-Operating Revenues 2,592, % (175,820) -6% Total Revenues $ 20,863, % $ 80,802 0% The following chart shows the major sources and the percentage of revenues for the year ended September 30, 2016: 13.1% 17.5% % 31.7% 5.3% 7.0%.9% 1.1% 11.3% Building rentals Car rental concessions Parking lot fees Landing fees Other airfield revenue Concessions Non-aviation system revenue Other revenue Interest and other investment income Passenger Facility Charges 7

10 Management s Discussion and Analysis Expenses A summary of expenses for the year ended September 30, 2016 and the amount and percentage of change in relation to prior year amounts is as follows: Increase Percent 2016 Percent (Decrease) Increase Amount of Total from 2015 (Decrease) Operating Expenses: Depreciation and amortization $ 8,321, % $ 488,397 6% Salaries and employee benefits 11,211, % 388,243 4% Administration and general 2,995, % 170,713 6% Maintenance 1,275, % (74,803) -6% Utilities 886, % 2,120 0% Total Operating Expenses 24,690, % 974,670 4% The following chart shows the major cost centers and the percentage of expenses for the year ended September 30, 2016: 33.7% 45.4% Depreciation and amortization Salaries and employee benefits Administration and general Maintenance 3.6% 5.2% 12.1% Utilities Summary of Cash Flow Activities The following show a summary of major sources and uses of cash and cash equivalents for the past three years. Cash equivalents are considered cash-on-hand, bank deposits and highly liquid investments with an original maturity of three months or less. FY 2015 FY 2014 FY 2016 (As Restated) (As Restated) Cash Flows from Operating Activities $ 3,393,012 $ 2,785,385 $ 3,447,611 Cash Flows from Capital & Related Financing Activities (1,453,005) (1,096,293) (6,296,762) Cash Flows from Non-Capital Financing Activities - 27,693 9,381 Cash Flows from Investing Activities (2,734,958) (1,657,248) 375,016 Net increase (decrease) in Cash and Cash Equivalents (794,951) 59,537 (2,464,754) Cash and Cash Equivalents: Beginning of year 25,481,504 25,421,967 27,886,721 End of year $ 24,686,553 $ 25,481,504 $ 25,421,967 8

11 Management s Discussion and Analysis Summary of Cash Flow Activities (continued) The Authority s available cash and cash equivalents decreased from approximately $25.5 million at the end of fiscal year 2015 to approximately $24.7 million at the end of fiscal year 2016 and increased from approximately $25.4 million at the end of fiscal year 2014 to approximately $25.5 million at the end of fiscal year Airport Statistics The following operating and passenger data are provided for additional historical perspective, context and detail to assist in using the information in the Financial Statements and Notes to Financial Statements to understand and assess the Authority s economic condition. Fiscal Year Historical Passenger Enplanements Yearly Percent Airport as Increase Percent of Fiscal Year Total (Decrease) U.S. Total , % 0.09% , % 0.09% , % 0.09% , % 0.09% , % 0.09% Calendar Year Historical Passenger Enplanements Yearly Percent Airport as Increase Percent of Calendar Year Total (Decrease) U.S. Total , % 0.09% , % 0.09% , % 0.08% , % 0.08% , % 0.08% 9

12 Management s Discussion and Analysis Airport Statistics (continued) Airline Aircraft Departures Enplaned Total Average Daily Passengers Fiscal Year Departures Departures per Departure , , , , , As of September 2015, the Airport was served by five national airlines: Delta, JetBlue, United, and US Airways (named changed to American Airlines, effective October 18, 2015) and Air Canada. On May 2, 2011 Southwest Airlines closed on its purchase of AirTran Holdings, Inc., the former parent company of AirTran Airways (AirTran). After the operating certificates for AirTran and Southwest were merged on March 1, 2012, the merged airline ceased service at SRQ in August In November 2012, United reopened the former Continental leasehold at SRQ, and began daily operations to Chicago O Hare. In February 2013, American Airlines and US Airways announced plans to merge. Final Department of Justice approval was obtained in November 2013, and the two airlines completed the merger shortly thereafter. The integration of American Airlines and US Airways under a single operating certificate was completed on July 13, 2015, and American announced that it planned to discontinue the US Airways brand name on October 17, WestJet, a low cost Canadian carrier, announced on July 20, 2015 they would begin seasonal service to SRQ from Toronto on December 18, In September 2016, Elite Airways announced they would begin twice a week non-stop service between SRQ and Portland, ME in November The addition of Elite Airways brings the total number of air carriers serving SRQ to seven. In fiscal year 2016, the top four airlines accounted for 95% of total enplanements. Delta ranked first in number of enplaned passengers (55%), with American ranking second (16%), JetBlue third (15%) and United ranking fourth (9%). The tables below set forth information on passenger enplanements and landed weight by airlines. The Airport remains actively engaged in on-going marketing activities to enhance service by incumbent carriers as well as recruit service from airlines not currently serving the Airport Service Area. 10

13 Management s Discussion and Analysis Airport Statistics (continued) Airline Passenger Enplanements Fiscal Years ended September 30, AirTran 167, Delta 287, , , , ,690 JetBlue 97, , , ,518 88,319 United - 40,430 44,771 59,486 53,020 American 95,979 89,116 98,226 93,832 98,590 Other Airlines 1 15,091 15,942 17,520 21,751 30,869 Totals 663, , , , ,488 Airline Market Shares Enplaned Passengers Fiscal Years ended September 30, AirTran 25.3% Delta 43.3% 53.0% 54.7% 54.2% 55.1% JetBlue 14.7% 22.4% 18.3% 17.1% 14.7% United % 9.7% 8.8% American 14.5% 15.1% 16.5% 15.4% 16.4% Other Airlines 1 2.2% 2.7% 2.9% 3.6% 5.0% Totals 100.0% 100.0% 100.0% 100.0% % 1 Includes Air Canada, Allegiant, Republic, Sun Country & Vision 11

14 Management s Discussion and Analysis Airport Statistics (continued) Airline Landed Weights Fiscal Years ended September 30, (in thousand pounds) AirTran 183, Delta 332, , , , ,671 JetBlue 107, , , ,762 99,386 United - 45,334 53,877 69,508 64,943 American 116, , , , ,300 Other Airlines 1 22,366 21,689 21,349 27,778 35,674 Totals 761, , , , ,974 Airline Market Shares Landed Weights Fiscal Years ended September 30, Share of total landed weight AirTran 24.1% Delta 43.6% 52.1% 53.7% 52.7% 51.7% JetBlue 14.1% 22.4% 18.6% 17.1% 14.7% United - 6.6% 8.1% 10.2% 9.6% American 15.3% 15.7% 16.4% 16.0% 18.7% Other Airlines 1 2.9% 3.2% 3.2% 4.0% 5.3% Totals 100.0% 100.0% 100.0% 100.0% 100% 1 Includes Air Canada, Allegiant, Republic, Sun Country & Vision 12

15 Management s Discussion and Analysis Aircraft Operations The volume of aircraft operations at the Airport, as reported by the FAA air traffic control tower, is presented below. Aircraft operations consist of aircraft landings and departures and are reported by the FAA in four categories: air carrier, air taxi and commuter airline, general aviation, and military. Aircraft operations for fiscal year 2016 totaled 105,619. Aircraft Operations Fiscal Years ended September30, Air Taxi and General Fiscal Year Air Carrier Commuter Aviation Military Total ,988 5,542 85,530 2, , ,934 5,520 80,355 2,114 98, ,582 5,703 81,895 2, , ,156 6,975 82,361 2, , ,528 7,666 83,956 2, ,619 Financial Statements The Authority s financial statements are prepared on an accrual basis in accordance with generally accepted accounting principles promulgated by the Government Accounting Standards Board ( GASB ). The bulk of the operations of the Authority are recorded in a single enterprise fund with revenues recognized when earned, not when received. Expenses are recognized when incurred, not when they are paid. Capital assets are capitalized and, except for land, depreciated over their useful lives. The accompanying financial statements include statements for the enterprise fund and the Authority s employee pension plan. The enterprise fund statements are comprised of the Statements of Net Position; the Statements of Revenues, Expenses and Changes in Net Position; and the Statements of Cash Flows. Net position is displayed in three components: net investment in capital assets, restricted; and unrestricted. The component of net position comprising net investment in capital assets, is net of accumulated depreciation. The statements of Cash Flows present information showing how the Authority s cash and cash equivalents changed during the fiscal year. The Statements of Cash Flows classify cash receipts and cash payments as resulting from operating activities, capital and related financing activities, non-capital financing activities, and investing activities. The pension fund statements include a Statements of Plan Net Position and a Statements of Changes in Plan Net Position. Capital Acquisitions and Construction Activities During fiscal year 2016, the Authority expended approximately $12.4 million on capital activities. $7.1 million was expended on terminal building improvements, terminal access roadway and curbside project. 13

16 Management s Discussion and Analysis Capital Acquisitions and Construction Activities (continued) $4.9 million was expended for the new traffic control tower. Additionally, $0.4 million was expended for capital equipment purchases. During fiscal year 2016, many projects came to completion and were closed from construction-in-progress to their respective capital accounts. These projects totaled approximately $4.8 million and were as follows: Terminal Improvements $3,737,511 Eastside Road 422,507 Access Control & Video Mgmt. 292,663 Federal Inspection Services (FIS) 261,284 Electrical Vault 76,310 Capital projects are funded using a variety of financing techniques, including federal grants with matching state grants, PFCs and airport funds. Additional information on the Authority s capital asset commitments can be found in Note 10 Commitments and Contingencies, of the Notes to the Financial Statement. Passenger Facilities Charges (PFC) On June 29, 1992, the Authority received approval from the FAA of its first application to impose a $3.00 PFC at the Airport effective September 1, The authorization to impose the PFC is contingent on continued compliance with the terms of Federal Aviation Regulations. A second application to use the proceeds of the first application was filed with the FAA and approval was granted in its Record of Decision dated January 31, Applications three and four were combined impose and use PFC applications and were approved by the FAA in Records of Decision dated December 15, 1995 and October 3, 2000, respectively. On February 22, 2002 an amendment to the fourth application was administratively approved by the FAA that increased the charge level from $3.00 to $4.50 per enplaned passenger and increased the approved collection amount. On June 17, 2009, amendments to application numbers one, two and three were administratively approved by the FAA. The effect of these amendments was to decrease the allowed collection amounts in each application to the amounts already imposed and used for each project within those applications, effectively closing each one. At that time, PFC collections held in trust fund accounts totaled approximately $5 million. These funds were then immediately available to be used for application four. On July 23, 2009, an amendment to application four was approved by the FAA that increased the allowed impose and use amount by $22,194,844. Application four is now the only active application. The Authority estimated this action has extended the charge expiration date to February Since inception of the PFC s program, the Authority has collected approximately $60.1 million, including interest earnings, and expended approximately $54.7 million of these locally generated funds. Economic Factors and Next Year s Budgets and Rates In September 2014, the Authority paid off its bond debt and negotiated new airline lease agreements with five air carriers that provide service to SRQ. Three of the carriers (Delta Airlines, American Airlines, and JetBlue Airways) signed a four-year signatory agreement. The two other airlines (United Airlines, and Air Canada) choose to operate under a non-signatory airline agreement. On October 1, 2014, the new four-year signatory airline lease agreements went into effect. 14

17 Management s Discussion and Analysis Economic Factors and Next Year s Budgets and Rates (continued) Over the past few years, there have been numerous changes to air service affecting SRQ. In January of 2012, southwest Airlines announced it would cease AirTran Airways service at SRQ effective August Although service was discontinued, Southwest remained responsible for terminal fixed rents through September In February 2012, United Airlines announced they would start non-stop service to SRQ from Chicago O Hare (ORD) effective November 4, On June 11, 2012, JetBlue announced new year round service to New York LaGuardia (LGA), doubling their existing service to New York City area. They also upgraded their seasonal non-stop Boston (BOS) service to year round on October 5, On December 15, 2012, Delta Airlines also announced new non-stop service to LaGuardia (LGA) and replaced existing aircraft serving SRQ with higher seat capacity aircraft. Despite losing AirTran Airways, who provided approximately 30% of the passengers at SRQ, fiscal year 2013 total passenger activity was down 10.9% compared to the previous year. During fiscal year 2015, the US Airways and American Airlines merger process was completed when the merged company announced it would discontinue the US Airways brand name on October 17, The resulting merger did not change service levels at SRQ. For fiscal year 2015, SRQ experienced a 2.4% increase in traffic over fiscal year This was due to increased service by United Airlines with new non-stop service to Newark, NJ (EWR), Air Canada extending Toronto (YYZ) service from seasonal to year round, and Delta adding seasonal flights to New York (JFK). During fiscal year 2016, WestJet began seasonal service to SRQ from Toronto (YYZ) in December. A new air carrier called Raven Air started service in February to Key West (EYW). Unfortunately, due to the ownership of the airline changing hands, Raven Air discontinued service at SRQ in May. For fiscal year 2016, SRQ experienced a 1.6% decrease in traffic. This was due to United discontinuing summer service to Chicago (ORD) and JetBlue discontinuing summer service to New York (JFK). The addition of WestJet brought the total number of air carriers serving SRQ to six. For fiscal year 2017, SRQ is expected to continue to see passenger traffic decrease slightly over fiscal year This is due to the loss of one daily flight on JetBlue to New York (LGA), a thirty-day delay in the start of the seasonal JetBlue Boston (BOS) service, and United Airlines reducing the size aircraft for Chicago (ORD) service in October. On a positive note, Elite Airways started non-stop service to Portland, ME (PWM) in November, The addition of Elite Airways brings the total number of air carriers serving SRQ to seven. Based on service announcements and preloaded airline schedules, passenger numbers for fiscal year 2017 are expected to be 3% to 4% lower than fiscal year Airport management will continue to closely monitor the level of airline and passenger activity at SRQ to determine impacts on operating requirement and the fiscal year budget. The Authority reviews its airline rates and charges as part of the annual budget development and adoption process. The fiscal year 2016 budget rates and charges resulted in a decrease of 27.4% to landing fees, but an increase of 0.8% in terminal building rental rates. Request for Information This financial report is designed to provide a general overview of the Authority s finances for all those interested. Questions concerning any of the information provided in this report, or request for additional information should be addressed in writing to the Executive Vice President, Chief Financial Officer, 15

18 Management s Discussion and Analysis Request for Information (continued) Sarasota Manatee Airport Authority, 6000 Airport Circle, Sarasota, FL or by to martin.lange@srq-airport.com. 16

19 Statements of Net Position 2015 Assets 2016 (As Restated) Current Assets Unrestricted Assets Cash and cash equivalents $ 12,620,249 $ 15,700,567 Investments 7,000,190 4,026,400 Accounts receivable 398, ,217 Notes receivable 16,417 19,531 Grants receivable 2,078, ,563 Inventory of materials and supplies 207, ,532 Prepaid expenses and other current assets 304, ,842 Total unrestricted assets 22,626,515 21,816,652 Restricted Assets Cash and cash equivalents 12,066,304 9,780,937 Accounts receivable 330, ,120 Total restricted assets 12,397,075 10,081,057 Total current assets 35,023,590 31,897,709 Non-Current Assets Notes receivable 237, ,421 Capital assets, net 130,623, ,588,933 Total non-current assets 130,860, ,985,354 Total Assets 165,884, ,883,063 Deferred Outflow of Resources Deferred Actuarial Losses - Pension 2,571,333 1,697,954 Total deferred outflow of resources 2,571,333 1,697,954 The accompanying notes are an integral part of these financial statements. 17

20 Statements of Net Position (continued) Liabilities and Net Position 2016 (As Restated) Current Liabilities Payable from unrestricted assets Accounts payable $ 3,464,621 $ 2,185,726 Accrued expenses and other liabilities 1,280,105 1,262,833 Unearned revenue 81, , Total unrestricted liabilities 4,826,309 3,594,447 Current liabilities payable from restricted assets Security deposits 210,872 95,746 Total restricted liabilities 210,872 95,746 Non-Current Liabilities Net Pension Liabilities 6,636,902 6,344,537 Total liabilities 11,674,083 10,034,730 Deferred Inflow of Resources Deferred Actuarial Gains - Pensions 635,978 62,443 Total deferred inflow of resources 635,978 62,443 Net Position Net investment in capital assets 130,623, ,588,933 Restricted 12,186,203 9,985,311 Unrestricted 13,336,050 13,909,600 Total net position $ 156,145,688 $ 150,483,844 The accompanying notes are an integral part of these financial statements. 18

21 Statements of Revenues, Expenses and Changes in Net Position For the Years ended (As Restated) Operating Revenues Building rentals 6,620,808 $ 6,630,991 Car rental concessions 3,644,522 3,473,406 Parking lot fees 2,736,434 2,417,708 Landing fees 156, ,970 Other airfield revenue 2,362,397 2,342,434 Concessions 1,089,229 1,006,624 Non-aviation system revenue 1,465,602 1,393,484 Other revenue 195, ,352 Total operating revenues 18,270,591 18,013,969 Operating Expenses Depreciation an amortization 8,321,706 7,833,309 Salaries and employee benefits 11,211,401 10,823,158 Administration and general 2,995,079 2,824,366 Maintenance 1,275,864 1,350,667 Utilities 886, ,506 Total operating expenses 24,690,676 23,716,006 Operating Loss (6,420,085) (5,702,037) Non-Operating Revenues (Expenses) Interest and other investment income 238, ,392 Passenger facility charges 2,353,592 2,399,670 (Loss) Gain on disposal of capital assets (38,903) 17,489 Other financing activities - 27,693 Total non-operating revenues 2,553,521 2,768,244 Loss before Capital Contributions (3,866,564) (2,933,793) Capital Contributions Federal and state grants 9,528,408 12,124,948 Total capital contributions 9,528,408 12,124,948 Change in Net Position 5,661,844 9,191,155 Total net position, beginning of year 150,483, ,846,350 Cumulative effect of change in accounting principle (GASB 68 & 71) - (4,553,661) Total net position, end of year 156,145, ,483,844 The accompanying notes are an integral part of these financial statements. 19

22 Statements of Cash Flows For the Years ended (As Restated) Cash Flows from Operating Activities: Cash received from customers 18,397,890 $ 17,859,317 Cash paid to employees (11,233,135) (10,598,051) Cash paid to suppliers for goods and services (3,771,743) (4,475,881) Net cash provided by operating activities 3,393,012 2,785,385 Cash Flows from Capital and Related Financing Activities: Purchases of capital assets (12,258,858) (16,515,587) Purchases of intangible assets (97,350) - Proceeds from sale of capital assets (38,903) 17,491 Capital contributions and grants 10,681,096 15,379,549 Decrease in notes receivable 145,884 3,236 Increase in security deposits 115,126 19,018 Net cash used in capital and related financing activities (1,453,005) (1,096,293) Cash Flows from Non-Capital Financing Activities: Other financing activities - 27,693 Net cash provided by non-capital financing activities - 27,693 Cash Flows from Investing Activities: Proceeds from sales & maturities of investments 4,000,000 4,997,000 Purchase of investments (7,000,000) (7,000,000) Interest on unrestricted investments 265, ,752 Net cash used in investing activities (2,734,958) (1,657,248) Net increase (decrease) in Cash and Cash Equivalents (794,951) 59,537 Cash and Cash Equivalents, beginning of year 25,481,504 25,421,967 Cash and Cash Equivalents, end of year $ 24,686,553 $ 25,481,504 Cash and Cash Equivalents: Unrestricted $ 12,620,249 $ 15,700,567 Restricted 12,066,304 9,780,937 $ 24,686,553 $ 25,481,504 Reconciliation of Operating Loss to Net Cash Provided by Operating Activities: Operating loss $ (6,420,085) $ (5,702,037) Adjustment to reconcile operating loss to net cash provided by Operations: Depreciation 8,311,738 7,789,616 Amortization 9,968 43,693 (Decrease) increase change in pension (7,479) 155,363 (Increase) decrease in accounts and notes receivable 169, ,828 Decrease (increase) in inventory, prepaid expenses and other assets 97,188 (6,992) Increase in accounts payable and accrued expenses 1,231, ,914 Net cash provided by operating activities $ 3,393,012 $ 2,785,385 Non cash investing activities Unrealized gain on investments $ 26,210 $ 22,360 The accompanying notes are an integral part of these financial statements. 20

23 Statements of Plan Net Position Pension Trust Fund - Employee Retirement Fund Assets Investments, at fair value Equity investments $ 7,156,785 $ 6,404,313 Bonds/Fixed income 13,318,793 12,382,408 Total assets $ 20,475,578 $ 18,786,721 Net Position Held in trust for pension benefits $ 20,475,578 $ 18,786,721 The accompanying notes are an integral part of these financial statements. 21

24 Statements of Changes in Plan Net Position Pension Trust Fund - Employee Retirement Fund For the Years ended Additions Contributions Employer $ 1,105,021 $ 1,001,004 Investment income Net depreciation in fair value of investments 1,351,302 (43,535) Total additions 2,456, ,469 Deductions Benefits paid 764, ,915 Administrative expenses 3,263 13,652 Total deductions 767, ,567 Change in net position 1,688, ,902 Net Position Held in trust for pension benefit Beginning of year 18,786,721 18,446,819 End of year $ 20,475,578 $ 18,786,721 The accompanying notes are an integral part of these financial statements. 22

25 Notes to the Financial Statements 1. Significant Accounting Policies Nature of Entity The Sarasota Manatee Airport Authority (the Authority ) is an independent special district pursuant to the constitution and laws of Florida, particularly Chapter , Laws of Florida, as amended (the Act ), revising and consolidating Chapter 31263, Special Laws of Florida, 1955, which, by the Act authorized the Authority to own and operate the Sarasota Bradenton International Airport (the Airport ). The Authority has jurisdiction, control, supervision and management of the Airport. The Authority s Board consists of six members who are appointed on a non-partisan basis to four-year staggered terms. The Act requires that three members of the Authority be residents of, and be appointed within, each of Sarasota and Manatee Counties. It is mandated that the Chairperson elected by the members thereof, alternate county representation on an annual basis. The Airport is situated on approximately 1,100 acres located in Sarasota and Manatee Counties and the City of Sarasota. It is classified as a small hub airport by the Federal Aviation Administration ( FAA ). Use of Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Basis of Presentation The Authority s financial statements are presented in the form of a single enterprise fund which encompasses all financial activity relative to owning, operating, and improving the Airport facilities plus a pension trust fund for the employee defined benefit pension plan. Governmental proprietary operations (enterprise funds) and pension trust funds are accounted for using a flow of economic resources measurement focus on an accrual basis of accounting. Revenues are recognized in the period in which they are earned and expenses are recognized in the period incurred. Revenues from airlines, concessions, rental cars and parking are reported as operating revenues. Transactions which are capital, financing or investing related are reported as non-operating revenues. All expenses related to operating the Airport are reported as operating expenses. Net position for enterprise funds on the accompanying Statement of Net Position is required to be segregated into the following four categories: Net investment in capital assets: Capital assets, net of accumulated depreciation and outstanding debt balances attributable to the acquisition, construction or improvement of those assets. Restricted: Nonexpendable Net position subject to externally imposed stipulations requiring that the Authority maintain them permanently. The Authority has no nonexpendable net position. 23

26 Notes to the Financial Statements Significant Accounting Policies (continued) Expendable Net position whose use by the Authority is subject to externally imposed stipulations that can be fulfilled by actions of the Authority pursuant to those stipulations, or that expire by the passage of time. Such position included the Authority s bond construction funds on hand. Unrestricted: Net position that is not subject to externally imposed stipulations and is not invested in capital assets. Unrestricted net position may be designated for specific purposes by action of management or the Commissioners or may otherwise be limited by contractual agreements with outside parties. Reporting Entity The accompanying financial statements present the financial position, results of operations and cash flows of the Authority in accordance with GASB Statement No. 61, The Financial Reporting Entity: Omnibus, an amendment of GASB Statements No. 14 and No. 34. As a result of applying the reporting entity criteria in GASB Statement No. 61, no component units exist in which the Authority has any financial accountability, which would require inclusion in the Authority s financial statements. Cash and Cash Equivalents The Authority considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Investments The Authority s investments are managed by the Executive Vice President, Chief Financial Officer in conjunction with the Sarasota County Clerk s Office. Investments in commercial paper are recorded at cost, which approximates fair value. Investments in U.S. Treasury and government agency securities are recorded at fair value, as determined by quoted market prices. All investment income of the enterprise fund, including changes in the fair value of investments, is reported as interest and other investment income in the Statement of Revenues, Expenses and Changes in Net Position. Receivables Accounts and grants receivable are reported at realizable value. All receivables are expected to be collected. As such, no allowance for doubtful accounts has been reflected. Inventories of Materials, Supplies and Fuel Inventories of materials and supplies are valued at First In First Out ( FIFO ) and fuel is valued at weighted average cost. Restricted Assets Certain assets are restricted in accordance with FAA restrictions, or as required by law. When both restricted and unrestricted resources are available for use, it is the Authority s policy to use restricted resources first, then unrestricted resources as needed. 24

27 Notes to the Financial Statements Significant Accounting Policies (continued) Capital Assets Assets with a cost of $2,000 or more are capitalized and recorded at cost or at acquisition value for receipt for contributions. They are depreciated under the straight-line method over the following estimated useful lives: Runways, taxiways and ramps Building and Structures Site prep, utilities and drainage Land Improvements Fencing Lights and signs Equipment, furniture and fixtures Computers and other intangibles years years years years 7-10 years 7-10 years 5-10 years 3-5 years Project costs are capitalized and included in construction in progress as the costs are incurred and maintenance and repair costs are expensed as incurred. The accumulated project costs are transferred to depreciable capital assets upon completion. The gain or loss recognized on assets retired or otherwise disposed of is reflected in the Statement of Revenues, Expenses and Changes in Net Position as nonoperating revenue (expense) and the associated cost and related accumulated depreciation are removed from the accounts. Construction in progress consists mainly of terminal modifications to enhance the ticket wing, baggage claim, baggage screening security and concourse, taxiway and runway construction, curbside renovations, construction of terminal entrance sidewalk, FIS renovation, installation of fiber optics, airfield guidance sign replacement, additional terminal parking lot security, building a new control tower, upgrading our accounting software and video management system. The costs of various easement rights, including the expenses incurred in sound proofing residences, are reported as aviation easements. Easements have indefinite lives and therefore are not amortized. Deferred Outflow/Inflow of Resources In addition to assets, the Statement of Net Position will sometimes report a separate section for deferred outflow of resources. This separate Financial Statement element, deferred outflows of resources represent a consumption of net position that applies to a future period and so will not be recognized as an expense until then. In addition to liabilities, the Statement of Net Position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period and so will not be recognized as revenue until that time. Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Sarasota Manatee Airport Authority Pension Plan (the Plan ) and additions to/deductions from the Plan s fiduciary net position have been determined on the same basis as they are reported by the Plan. For this purpose, benefit payments are recognized when due and payable in accordance with the benefit terms. Investments are reported at their fair value or net asset value. 25

28 Notes to the Financial Statements Significant Accounting Policies (continued) Capital Contributions Contributions and grants are funds donated by various governmental agencies and Airport tenants for specific improvement to the Airport facilities ( Improvements ). In the normal course of business, the Authority applies for and receives money from the FAA under Airport Improvement Program grant agreements. Costs incurred under these agreements are subject to review and approval by the FAA. Contributions and grants for improvements are reported in the Statement of Revenues, Expenses and Changes in Net Position after non-operating revenues and expenses as capital contributions. Passenger Facility Charges On June 29, 1992, the Authority received approval from the FAA to impose a $3.00 Passenger Facility Charge ( PFC ) at the Airport effective September 1, The authorization to impose the PFC is contingent on continued compliance with the terms of the Federal Aviation Regulations. A use application was filed with the FAA and a decision of approval was granted on December 15, In addition, another impose and use PFC application was filed and approved by the FAA in its Record of Decision dated October 3, On February 22, 2002 an amendment to that application was administratively approved by the FAA that increased the charge level from $3.00 to $4.50 per enplaned passenger and increased the approved collection amount. PFCs are restricted to expenditures for specified capital assets, or debt service thereon, and are reported as non-operating revenue on the accompanying Statements of Revenues, Expenses and Changes in Net Position. On June 17, 2009, amendments to application numbers one, two and three were administratively approved by the FAA. The effect of these amendments was to decrease the allowed collection amounts in each application to the amounts already imposed and used for each project within those applications, effectively closing each one. On July 23, 2009, an amendment to application four was approved by the FAA that increased the allowed impose and use amount by $22,194,844. Application four is now the only active application. The Authority estimated this action has extended the charge expiration date to February Revenue Recognition Airfield Landing Fee Charges Landing fees are principally generated from scheduled airlines and nonscheduled commercial aviation and are based on the landed weight of the aircraft. The estimated landing fee structure is determined annually pursuant to an agreement between the Authority and the signatory airlines based on the operating budget of the Authority and is adjusted at year end for the actual landed weight of all aircraft. Landing fees are recognized as revenue when the related facilities are utilized. Terminal Rents, Out Parcel Rentals, Concessions and Ground Transportation Rental and Concession fees are generated from airlines, parking lots, food and beverage, retail, rental cars, advertising and other commercial tenants. Leases are for terms from one to fifty years and generally require rentals based on the volume of business, with specific minimum annual rental payments required. Rental revenue is recognized over the life of the respective leases and concession revenue is recognized based on reported concessionaire revenue. Parking Lot Per the management agreement with Republic Parking, Authority revenue is recognized as gross parking sales net of operating expenses, including the management fee. 26

29 Notes to the Financial Statements Significant Accounting Policies (continued) Unearned Revenue The Authority received a grant under the American Recovery & Reinvestment Act ( ARRA ) of 2009 to contract with a design/architectural consultant in order to produce the design documents for a new Air Traffic Control Tower. Unearned revenue was recognized when the funds were received. As expenses are incurred, the revenue is recognized. Other All other types of revenues are recognized when earned. 2. Concentrations of Credit Risk The Authority maintains its cash and cash equivalents with a large financial institution. All accounts are guaranteed by the Federal Deposit Insurance Corporation up to $250,000 per bank. Cash deposits that exceed the federally insured amount are covered under Florida Statues Chapter 280 (see Note 3). Additionally, The Authority has unrestricted investments in federal government agencies that have a high credit standing. The Authority does not believe there is a significant risk of non-performance from these agencies. 3. Cash, Cash Equivalents and Investments Deposits All of the Authority s public deposits are held in qualified public depositories pursuant to Florida Statues, Chapter 280. Qualified public depositories are required to pledge collateral to the State Treasurer with a market value equal to 50% of the average daily balance of all public deposits in excess of any federal deposit insurance. In addition, to the extent that total public deposits exceed the total amount of the regulatory capital accounts of a bank or the regulatory net worth of a savings association, the required collateral shall have a market value equal to 125% of the deposits. In event of default by a qualified public depository, all claims for public deposits would be satisfied by the State Treasurer from the proceeds of federal deposit insurance, pledged collateral of the public depository in default and, if necessary, a pro rata assessment to the other qualified public depositories in the collateral pool. Therefore, the cash and time deposits are fully insured or collateralized. The carrying value of the Authority s deposits at are approximately $24.7 million and $25.5 million, respectively. In addition to cash deposits, the Authority maintains cash on hand for the purpose of making change on transactions. The amount of cash on hand as of was $

30 Notes to the Financial Statements Cash, Cash Equivalents and Investments (continued) Investments Investments are reported at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value determinations are made based upon a hierarchy that prioritizes the inputs to valuation techniques. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurements). Level 1 Inputs are unadjusted quoted prices for identical assets or liabilities in active markets that the District has the ability to access. Level 2 Inputs include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. Level 3 Inputs to the valuation methodology are unobservable inputs in situations where there is little or no market activity for the asset or liability, and the reporting entity makes estimates and assumptions related to the pricing of the asset or liability including assumptions regarding risk. The asset s or liability s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. Following is a description of the valuation methodologies used for assets and liabilities measured at fair value: Bonds Includes Corporate Obligations and US Government/Agency Bonds that are valued on quoted prices, classified as Level 2 Equity Securities Valued on quoted prices in an active market, classified as Level 1 Fixed Income Investments This investment is valued using the net asset value NAV provided by the administrator of the fund, as a practical expedient. The NAV is based on the value of the underlying assets owned by the fund, minus it liabilities, and then divided by the number of shares outstanding. The NAV is excluded from the valuation hierarchy. The asset s or liability s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. While the Authority believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. 28

31 Notes to the Financial Statements Cash, Cash Equivalents and Investments (continued) As of the Authority has the following investments and maturities: Fair Value Measurement Less More Using Significant FY 2016 than than Effective Other Observable Investment Type Fair Value 1 Year 1-3 Years 3 Years Duration Inputs (Level 2) Unrestricted Fed. Nat'l Mortgage Assoc. $ 7,000,190 $ - $ 7,000,190 $ $ 7,000,190 Total Unrestricted $ 7,000,190 $ - $ 7,000,190 $ - $ 7,000,190 Fair Value Measurement Using Significant FY 2015 Less than More than Effective Other Observable Investment Type Fair Value 1 Year 1-3 Years 3 Years Duration Inputs (Level 2) Unrestricted Federal Farm Credit Bureau $ 2,011,600 $ - $ - $ 2,011, $ 2,011,600 Fed. Nat'l Mortgage Assoc. 2,014,800 2,014, ,014,800 Total Unrestricted $ 4,026,400 $ 2,014,800 $ - $ 2,011,600 $ 4,026,400 Investments of the Authority conform to the provisions of Section 5(21) of Chapter Laws of Florida (the Sarasota-Manatee Airport Authority Act ), and an investment policy adopted pursuant to Florida Statutes, Section Interest Rate Risk As a means of limiting its exposure to fair value losses arising from rising interest rates, the Authority s investment policy limits its risk by maintaining an investment portfolio with limited volatility. Accordingly, no security shall have an estimated average return of principal exceeding five years. The weighted average duration of principal return for the portfolio shall generally be less than two years. However, securities in restricted accounts will have a maximum maturity consistent with the nature of the restricted accounts. Credit Risk The Authority is authorized under Florida Statutes, Section (16) and Section 5(21) of Chapter , Laws of Florida to invest in certain investments. All of the Authority s investments carried a credit rating of AAA by Standard & Poor s and Aaa by Moody s as of September 30, Custodial Credit Risk For an investment, custodial credit risk is the risk that in the event of failure of the counterparty, the Authority will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The Authority s investments are either held in the name of the Authority or held in trust under the Authority s name by an independent third-party custodian. Concentration of Credit Risk The Authority s investment policy established limitations of portfolio composition in order to control concentration of credit risk. The policy allows 100% of the portfolio to be invested in U.S. Treasury bills or notes, 75% to be invested in near cash accounts such as the State investment pool or money market and accounts, 65% to be invested in other U.S. Government agencies, 75% to be invested in certificates of deposit, 30% to be invested in commercial paper, and 25% to be invested in bankers acceptances. 29

32 Notes to the Financial Statements Cash, Cash Equivalents and Investments (continued) No more than 30% of the entire portfolio may be purchased through on security dealer or bank. The Authority purchased 7.3% from Jeffries, 7.3% from Gateway, 18.2% from FTN Financial, and 25.5% from TD Bank during the year ended September 30, The Authority places no limit on the amount they may invest in any one issuer. Deposits and Investments Pension Trust Fund Deposits At, the plan held no deposits. Investments The investment manager has been delegated with investment discretion for plan assets by the Authority. Investment balances in the plan are not allocated to individual participants, nor are investments subject to custodial credit risk or foreign currency risk. At September 30, 2016, the plan held investments as indicated below: Measured Measured Investments Measured at Net Asset Value (NAV): Fixed Income Investments Fair Value Effective at NAV Fair Value Effective at NAV 2016 Duration Duration 2015 Core Plus Bond I Separate Account $ 8,106, $ 8,106,277 $ 7,578, $ 7,578,757 Bond and Mortgage Separate Account 2,666, ,666,563 2,563, ,563,229 High Yield Separate Account 1,299, ,299,504 1,131, ,131,507 U.S. Property Separate Account 1,246,449 N/A 1,246,449 1,108,915 N/A 1,108,915 Total Investments Measured at NAV 13,318,793 $ 13,318,793 12,382,408 $ 12,382,408 Fair Value Fair Value Measurement Measurement Using Using Quoted Prices Quoted Prices in an Active in an Active Fair Value Market (Level 1) Fair Value Market (Level 1) Investments By Fair Value Level: Marketable Securities Large U.S. Equity 4,298,164 4,298,164 3,421,740 3,421,740 Small/Mid U.S. Equity 774, , , ,847 International Equity 1,661,126 1,661,126 1,308,414 1,308,414 Balanced/Asset Allocation 423, , , ,312 Total Investments By Fair Value Level 7,156,785 $ 7,156,785 6,404,313 $ 6,404,313 Total Investments $ 20,475,578 $ 18,786,721 30

33 Notes to the Financial Statements Cash, Cash Equivalents and Investments (continued) The valuation method for investments measured at the NAV per share is presented on the following table: September 30, 2016 Investments by Fair Value Level Redemption Fair Value Unfunded Redemption Notice 2016 Commitments Frequency Period Core Plus Bond 1 Separate Account (a) $ 8,106,277 - Daily 1 Day Bond and Mortgage Separate Account (b) 2,666,563 - Daily 1 Day High Yield Separate Account (c) 1,299,504 - Daily 1 Day U.S. Property Separate Account (d) 1,246,449 - Daily 1 Day Investments Measured at Net Asset Value (NAV) $ 13,318,793 September 30, 2015 Investment by Fair Value Level Core Plus Bond 1 Separate Account (a) $ 7,578,757 - Daily 1 Day Bond and Mortgage Separate Account (b) 2,563,229 - Daily 1 Day High Yield Separate Account (c) 1,131,507 - Daily 1 Day U.S. Property Separate Account (d) 1,108,915 - Daily 1 Day Investments Measured at Net Asset Value (NAV) $ 12,382,408 (a) Core Plus Bond 1 Separate Account This investment option invests primarily in intermediate-term, fixed-income investments such as public and private corporate bonds, commercial and residential mortgages, asset-backed securities, and US government and agency-backed securities. Value is added primarily through sector allocation and security selection. The Separate Account may enter into reverse repurchase agreements to attempt to enhance portfolio return and income. (b) Bond and Mortgage Separate Account This investment seeks to achieve its investment objective by investing primarily in securities that are AAA rated or issued by the US government, its agencies or instrumentalities. The investment may invest in mortgage-backed securities representing an interest in a pool or mortgage loans. These securities are rated AAA by Standard & Poor s Corporation or Aaa by Moody s Investor Services, Inc. or, if unrated, determined by the sub-advisor to be of equivalent quality. Management seeks undervalued securities that represent good long-term investment opportunities. (c) High Yield Separate Account This investment seeks high current income. The fund normally invests at least 80% of its net assets, plus any borrowings for investment purposes, in below investment grade bonds (sometimes called high yield bonds or junk bonds ) which are rated at the time of each purchase Ba1 or lower by Moody s and BB+ or lower by S&P. It also invests in bank loans (also known as senior floating rate interests) and securities of foreign issuers. 31

34 Notes to the Financial Statements Cash, Cash Equivalents and Investments (continued) (d) U.S. Property Separate Account This investment invests the majority of assets in commercial real estate holdings. It focuses on properties that return both lease income and appreciation of the buildings marketable value. The property holdings usually contain real estate from the multi-family, office, warehouse/manufacturing, and retail sectors. This investment option is subject to investment and liquidity risk and other risks inherent in real estate such as those associated with general and local economic conditions. Credit Risk The fixed income investment accounts above are not rated for credit risk. Concentration of Credit Risk At, the following are in any one organization, which represents five percent or more of net position available for benefits: Principal Financial Group ("PFG") $ 20,475,578 $ 18,786,721 Custodial Credit Risk All pension plan investments are held by PFG. 4. Notes Receivable In February 2005, the President, Chief Executive Officer s ( CEO ), three-year employment contract included a provision that the Authority acquire a private residence, including furnishing to be used as the CEO s personal residence. A provision in the renegotiated contract of July 2008, provided for the CEO to purchase the residence, including furnishings, at an independently determined market price of $316,500, with the Authority providing a private mortgage over thirty years at an interest rate of 4.37%. In March 2015, the Authority agreed to refinance the remaining balance of the mortgage on the CEO s personal residence. As a result of a much lower interest rate environment, the annual rate would decline to the then current Applicable Federal Rate of 2.17%. As a consideration for the modification, the President, CEO agreed to accelerate the term to 15 years with a balloon payment of the remaining principle due in 10 years. In addition, in April 2003, the Authority agreed to advance $170,000 of expenditures of Development of Regional Impact ( DRI ) costs to one of their tenants, Innovation Green, for thirty years at an interest rate of 7%. As the result of the sale of its hotel and leasehold on one of its leased parcels, Innovation Green agreed to pay off the balance owed in the amount of $143,000 in June The principal and interest of the CEO note is payable in the following amounts: Fiscal Year Ending September 30 Principal Interest Total 2017 $ 16,417 $ 5,345 $ 21, ,758 4,986 21, ,126 4,618 21, ,501 4,243 21, ,884 3,859 21, ,122 16, ,203 Total $ 253,808 $ 39,132 $ 292,940 32

35 Notes to the Financial Statements 5. Capital Assets A summary of changes in capital assets for the years ended is as follows: Balance at October 1, Transfers Balance at 2015 and September 30, (As Restated) Additions Deletions 2016 Capital assets, not being depreciated: Land $ 22,532, $ 22,532,250 Aviation easements 19,662, ,662,419 Construction in progress 21,825,583 11,987,055 (4,790,275) 29,022,363 Total capital assets not being depreciated 64,020,252 11,987,055 (4,790,275) 71,217,032 Capital assets, being depreciated: Intangibles 1,106,976-55,747 1,162,723 Site prep, utilities and drainage 13,887, ,887,064 Buildings and structures 70,385,046-2,161,320 72,546,366 Runways, taxiways and ramps 85,051, ,051,367 Land improvements 17,435, ,507 17,857,568 Fencing 473, ,861 Light and signs 4,535,842 - (440,986) 4,094,856 Computers 1,216,617 17,316 (525,045) 708,888 Equipment, furniture and fixtures 20,413, ,742 (1,772,010) 19,032,365 Total capital assets, being depreciated 214,505, ,058 (98,467) 214,815,058 Less accumulated depreciation (151,936,786) (8,321,706) 4,849,837 (155,408,655) Capital assets, net $ 126,588,933 $ 4,073,407 (38,905) $ 130,623,435 Balance at Balance at October 1, Transfers September 30, 2014 Additions and 2015 (As Restated) (As Restated) Deletions (As Restated) Capital assets, not being depreciated: Land $ 22,532, $ 22,532,250 Aviation easements 19,662, ,662,419 Construction in progress 13,373,096 15,836,623 (7,384,136) 21,825,583 Total capital assets not being depreciated 55,567,765 15,836,623 (7,384,136) 64,020,252 Capital assets, being depreciated: Intangibles 1,125,998 - (19,022) 1,106,976 Site prep, utilities and drainage 13,887, ,887,064 Buildings and structures 67,925,440-2,459,606 70,385,046 Runways, taxiways and ramps 85,051, ,051,367 Land improvements 16,734, ,868 17,435,061 Fencing 473, ,861 Light and signs 4,297,574 25, ,139 4,535,842 Computers 951, ,181 19,536 1,216,617 Equipment, furniture and fixtures 16,347, ,654 3,657,014 20,413,633 Total capital assets, being depreciated 206,795, ,964 7,031, ,505,467 Less accumulated depreciation (144,456,472) (7,833,309) 352,995 (151,936,786) Capital assets, net $ 117,906,655 $ 8,682,278 - $ 126,588,933 33

36 Notes to the Financial Statements Capital Assets (continued) Depreciation expense for the years ended on the above capital assets was $8,311,738 and $7,789,616 respectively. Amortization expense for the year ended September 30, 2016 and 2015 on the above capital assets was $9,968 and $43,693 respectively. 6. Pension Plan Pension Description The Sarasota Manatee Airport Authority Pension Plan (the Plan ) is a single-employer defined benefit pension plan controlled by the provisions adopted pursuant to the Authority Agreement for employees hired before October 1, The Plan is governed by the Authority, which is responsible for the management of plan assets. The Authority consists of six (6) members who are appointed by the Governor of Florida on a non-partisan basis to four-year terms. The Plan is administered by The Principal Financial Group. The Principal Financial Group provides the Authority with a financial report that includes financial statements and required supplementary information for the Plan. The report is available to the public and can be obtained directly from the Authority. Active members of the Plan do not contribute to the Plan. Benefits Provided The Plan provides a retirement benefit at no cost to full-time eligible employees. Part-time employees may be eligible depending on number of hours worked. After 6 months of employment, an employee 21 years or older may be eligible to be enrolled depending upon hours worked in the Plan year. Employees under 55 do not vest during the first five years of employment. Employees over 55 vest after two years. Benefits are calculated as 2.25% of the member s final five-year average compensation multiplied by accrual service with a maximum of thirty years. Maximum benefit is $15,000. Members are eligible for normal retirement after they have attained age 62 and complete two years of service; however, there is a benefit reduction for each year prior to normal retirement age. The plan also provides death and disability benefits. Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pension. At September 30, 2016, the Authority reported a liability of $6,636,902 for the net pension liability. The net pension liability was measured as of October 1, 2015, and the total pension liability used to calculate the pension liability was determined by an actuarial valuation as of this dated. For the year ended September 30, 2016, the Authority recognized pension expense of $1,101,542 and reported deferred outflows of resources and deferred inflows of resources related to pensions from the flowing sources: 34

37 Notes to the Financial Statements Pension Plan (continued) Deferred Outflows of Resources Deferred Inflows of Resources Difference between expected and actual experience $ 191,436 - Effects of changes in assumptions 223,105 $ 589,146 Net difference between expected and net investment income 1,051,771 46,832 Contribution after Measurement Period 1,105,021 - $ 2,571,333 $ 635,978 $1,105,021 reported in deferred outflows of resources, resulting from contribution subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended September 30, Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions as of September 30, 2016 will be recognized in pension expense as follows: Plan Membership Year Ended September $ 304, , , ,942 The Plan provides retirement benefits to eligible employees hired before October 1, 2007 except for those employees employed by the Authority on September 30, 2006, and employed by Rural Metro for services at the Sarasota Bradenton International Airport no later than October 2, 2006 and continuously through September 30, 2009 and rehired by the Authority on October 1, The Plan s membership consisted of: Active employees Retirees and beneficiaries currently receiving benefits Terminated employees entitled to benefits, not yet receiving Disabled plan members entitled to benefits 1 1 Total Funding Policy The contribution requirements of the Plan are established and may be amended by the Board Members of the Authority. The Authority is required to contribute an actuarially determined fixed amount annually. 35

38 Notes to the Financial Statements Pension Plan (continued) Funding Status and Funding Progress As of October 1, 2015, the most recent actuarial valuation date, the Plan was 74% funded. The actuarial accrued liability for the benefits was $25,423,623 and the actuarial value of assets was $18,786,721 resulting in an unfunded actuarial accrued liability ( UAAL ) of $6,636,902. The covered payroll (annual payroll of active employees covered by the Plan) was $3,875,727 and the ratio of the UAAL to the covered payroll was 171%. The schedule of funding progress, presented as Required Supplementary Information ( RSI ) following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets are increasing or decreasing over time relative to the actuarial accrued liability for benefits. Annual Pension Cost The Authority s actuarially determined contribution for the measurement period ending September 30, 2016 and 2015 were $1,105,201 and $1,001,004 respectively. As such, there is no net pension obligation. The required contributions for 2016 and 2015 were determined as part of the actuarial valuations dated October 1, 2015 and 2014 respectively, using the entry age actuarial cost method. This method does not identify and separately amortize unfunded actuarial liabilities. The following is three-year trend information for the plan: Investment Policy Year ended Pension % of PC Net Pension September 30, Cost (PC) Contributed Obligation 2014 $1,200, % ,001, % ,105, % - The Authority has an Investment Policy for the Plan. The President, with recommendation from the Executive Vice President, Chief Financial Officer, has the Authority with the assistance of the Plan administrator s financial consultants, to select which funds to invest in. Asset allocation is a strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio. Based on the principle that asset types perform differently in different market and economic conditions, asset allocation is an important factor in determining returns for an investment portfolio. Target asset allocations are set by ranges by the Executive Vice President, Chief Financial Officer and President with the assistance of the Plan administrator s financial consultants and adjusted within those ranges periodically to adjust to market conditions. Fair value of investments is based on quoted market prices. Money-weighted Rate of Return The money-weighted rate of return is calculated as a rate of return on pension plan investments incorporating the timing and amount of cash flows. This return is calculated net of investment expenses. 36

39 Notes to the Financial Statements Pension Plan (continued) The annual money-weighted rate of return on plan investments for the fiscal year ended September 30, 2016 is (0.23%). Actuarial Assumptions The following is a summary of actuarial methods and assumptions used in the last actuarial valuation as of September 30, 2016: Long-term inflation: 2.25% Salary increases range from: 4.13% to 6.43% depending on age Long-term rate of return: 6.25% Mortality rates during Benefit Payment period is based on IRS Prescribed Mortality-Generational Annuitant, male and female and before the Benefit Payment period is based on IRS Prescribed Mortality- Generational Non-annuitant, male and female. RP % blue collar, 50% white collar for males and 100% white collar for females. The actuarial assumptions used in the September 30, 2016 valuation were based on the results of an actuarial experience study for the period of October 1, 2015 to September 30, The assumption changes are: The long-term rate of return on investments was changed to reflect current expectations of the Plan s long term investment performance based on the investment mix The retirement age assumption for active participants was adjusted to reflect that most actives are working past normal retirement age Mortality assumptions were updated based on recent SOA studies that show that people are living longer Discount Rate The discount rate used to measure the total pension liability was 6.25%. The long-term rate of return was used to calculate the actuarial present value of projected benefit payments for each future period when the projected fiduciary net position is greater than the projected expected benefit payments. The projection of cash flows used to determine the discount rate assumed that Authority contributions will be made at rates equal to the difference between actuarially determined contribution rates. Based on those assumptions, the pension plan s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. 37

40 Notes to the Financial Statements Pension Plan (continued) Changes in Net Pension Liability The net pension asset at October 1, 2015 and net pension liability at September 30, 2016 was measured as of October 1, 2015, using the total pension liability that was determined by an actuarial valuation as of October 1, Changes in Net Pension Liability Total Pension Plan Fiduciary Net Pension Liability Net Position Liability (Asset) Balances at 10/1/15 $ 24,791,356 $ 18,446,819 $ 6,344,537 Changes for the year Service Cost 380, ,235 Interest 1,501,532-1,501,532 Differences between expected and actual experience 221, ,460 Changes in assumptions (867,045) - (867,045) Contributions - employer - 1,001,004 (1,001,004) Net investment income - (43,535) 43,535 Benefits payments, including refunds of employee contributions (603,915) (603,915) - Administrative expense - (13,652) 13, , , ,365 Balances at 9/30/16 $ 25,423,623 $ 18,786,721 $ 6,636,902 Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the net pension liability of the Authority, calculated under GASB No. 68 using the discount rate of 6.25%, as well as what the Authority s net pension liability would be if it were calculated using a discount rate that is 1-percentage -point lower (5.25%) or 1-percentage-point higher (7.25%) than the current rate: 1% Current 1% Decrease Discount Increase 5.25% 6.25% 7.25% Authority's net pension liability $ 9,738,985 $ 6,636,902 $ 4,003,918 38

41 Notes to the Financial Statements Pension Plan (continued) Long-Term Rate of Return The long-term interest rate assumption is developed as a weighted average rate based on the target asset allocation of the plan and the long-term capital market assumptions. The overall return for each asset class was developed by combining a long-term inflation component and the associated expected real rates. The development of the capital market assumptions utilized a variety of methodologies, including, but not limited to, historical analysis, stock valuation models such as dividend discount models and earnings yields models, expected economic growth outlook, and market yield analysis. Best estimates of Geometric real rates of return for each major asset class included in the pension plans target asset allocation as of September 30, 2016 are summarized in the following table: Other Asset Class US Equity - Large Cap US Equity - Mid Cap US Equity - Small Cap Non US Equity - Developed REITS Real Estate (Direct Property) TIPS Core Bond Expected Geometric Return Target Allocation 7.45% 20.74% 7.45% 2.25% 7.45% 2.32% 7.45% 7.33% 6.55% 0.95% 5.95% 5.43% 3.90% 1.42% 4.15% 53.54% High Yield 5.90% 6.02% % The actuarial value of plan assets is determined using a four-year smoothing technique. Administrative and investment expenses are funded with contributions and investment income. Pension Plan Reporting: Net Pension Liability GASB Statement No. 67, Financial Reporting for Pension Plans an Amendment of GASB Statement No 25 requires pension plans to include certain disclosures about the plan as well as the net pension liability in the notes to the financial statements. As the retirement systems do not issue separate financial statements, the required disclosures for pension plan reporting are found in this section of the notes to the financial statements and in the required supplementary information section. The net pension liability is calculated as the total pension liability less the pension plans net fiduciary position. The total pension liability is the present value of pension benefits attributable to past service of the pension plans and the net fiduciary position is the resources currently available in the pension plans trusts to pay benefits. 39

42 Notes to the Financial Statements Pension Plan (continued) Net Pension Liability Components (Pension Plan Reporting) The components of the net pension liability of the retirement systems at September 30, 2016 were as follows. Total pension liability $ 26,306,683 Plan pension liability 20,475,578 Retirement Plan's net pension liability (asset) $ 5,831,105 Plan fiduciary net position as a percentage of the total pension liability 77.83% Actuarial Assumptions (Pension Plan Reporting) The total pension liability was determined based on a roll-forward of the entry-age normal liabilities from the October 1, 2015 actuarial valuation. The pension plans use the Entry Age Normal Actuarial Cost Method with a level percent closed amortization method. Under the Entry Age Normal Cost Method, an annual Normal Cost is determined for each covered active member which is the contribution required to provide all the projected pension benefits assuming this contribution is payable over a period ending on the date of retirement and expressed as a level percentage of compensation. The total pension liability for the pension plan as of September 30, 2016 was determined based on a rollforward of entry age normal liabilities from the October 1, 2015 actuarial valuation, using the following actuarial assumptions, applied to all periods included in the measurement: Long-term inflation: 2.25% Salary increases range from: 4.13% to 6.43% depending on age Long-term rate of return: 6.25% Mortality rate table: RP % blue collar, 50% white collar for males and 100% white collar for females - Mortality Actuarial changes from the prior year: The mortality table has been changed to align with the table the State of Florida uses in their valuation. Long-Term Rate of Return The long-term interest rate assumption is developed as a weighted average rate based on the target asset allocation of the plan and the long-term capital market assumptions. The overall return for each asset class was developed by combining a long-term inflation component and the associated expected real rates. The development of the capital market assumptions utilized a variety of methodologies, including, but not limited to, historical analysis, stock valuation models such as dividend discount models and earnings yields models, expected economic growth outlook, and market yield analysis. 40

43 Notes to the Financial Statements Pension Plan (continued) Best estimates of Geometric real rates of return for each major asset class included in the pension plans target asset allocation as of September 30, 2016 are summarized in the following table: Asset Class US Equity - Large Cap US Equity - Mid Cap US Equity - Small Cap Non US Equity - Developed REITS Real Estate (Direct Property) TIPS Core Bond High Yield Expected Geometric Return Target Allocation 7.45% 21.64% 7.45% 2.38% 7.45% 1.52% 7.45% 7.73% 6.55% 0.53% 5.95% 6.03% 3.90% 0.79% 4.15% 53.29% 5.90% 6.09% % Discount Rate The discount rate used to measure the total pension liability was 6.25%. The long-term rate of return was used to calculate the actuarial present value of projected benefit payments for each future period when the projected fiduciary net position is greater than the projected expected benefit payments. The projection of cash flows used to determine the discount rate assumed that Authority contributions will be made at rates equal to the difference between actuarially determined contribution rates. Based on those assumptions, the pension plan s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the net pension liability of the Authority, calculated under GASB No. 67 using the discount rate of 6.04%, as well as what the Authority s net pension liability would be if it were calculated using a discount rate that is 1-percentage -point lower (5.25%) or 1-percentage-point higher (7.25%) than the current rate: 1% Current 1% Decrease Discount Increase 5.25% 6.25% 7.25% Authority's net pension liability $ 8,977,563 $ 5,831,105 $ 3,160,048 41

44 Notes to the Financial Statements 7. Compensation Plans Deferred Compensation Plan The Authority offers its employees a deferred compensation plan (the 457 Plan) created in accordance with IRS Code Section 457. The 457 Plan, which is available to all employees, permits employees 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. Investments are managed by the 457 Plan s trustee under one of several investment options, or a combination thereof. The choice of the investment options(s) is made by the employee. All 457 Plan assets are held by trustees for the exclusive benefits of the participants and beneficiaries. Thus, the assets and liabilities relating to the 457 Plan are not reflected on the Authority s statements of net position. The fair value of the 457 Plan investments were $2.6 million and $2.4 million respectively, as of. Defined Compensation Plan The Authority also provides a defined compensation plan (the 401(a) Plan), created in accordance with employee twenty-one years or older may be eligible to be enrolled depending upon hours worked in the plan year. Employees do not vest during the first five years of employment. The Authority s annual contribution is a percentage of annual salary as designated by the Board each fiscal year. If employees elect to participate in the 457 Plan, the Authority will match the employee s annual contribution up to two percent of the employee s annual salary. The Authority match is deposited into the 401(a) plan. The 401(a) compensation is not available to employees until termination, retirements or death. Investments are managed by the 401(a) Plan s trustee under one of several investment options, or a combination thereof. The choice of the investment options is made by the employee. All 401(a) Plan assets are held by trustees for the exclusive benefits of the participants and beneficiaries. Thus, the assets and liabilities relating to the 401(a) Plan are not reflected on the Authority s statements of net position. The fair value of the 401(a) Plan investments were $0.9 and $0.6 million respectively, as of September 30, 2016 and For the year ended, the Authority recognized pension expense of $207,194 and $149,979, respectively. 8. Post-Employment Health and Other Benefits The Authority provides medical, dental and vision insurance benefits for eligible retirees and their dependents under the healthcare plan administered by the Authority. To be eligible for retiree benefits, the employee must be covered un the medical plan as an active participant immediately prior to retirement. Participants who are not eligible for retirement at the time of their termination are no eligible for immediate or future benefits from the plan. Retirees opting to participate are asked to pay a premium amount that is equal to the cost the Authority pays for the insurance. The Authority does not subsidize any of the premium. Retiree and spousal overage is provided for the lifetime of the participants, but once they no longer choose to participate in the plans, they may not re-enter at a later date. The Authority values their postretirement health and other benefits every three years. The most recent actuarial valuation date was fiscal year ended September 30, Expenses for fiscal year 2016 and 2015 were $17,

45 Notes to the Financial Statements 9. Leases Five-year airline leases were originally signed effective October 1, Five airlines signed scheduled airline operating agreements and two signed scheduled regional and commuter airline agreements. The agreements provide funding for the ongoing maintenance, operations, debt service with coverage, and capital improvements of the Airport through various rates and charges. The leases were subsequently extended through September As of September 30, 2016, the five signatory airlines covered under the agreements were AirTran Airways, Delta Air Lines, JetBlue Airways, United Airlines and US Airways. The airline leases require an annual year-end adjustment to the actual amount of airline rates and charges, wherein charges calculated using budgeted data at the beginning of the fiscal year are reconciled to actual year-end costs, resulting in an under or over collection of revenues with the airlines signatory to the lease agreements. The fiscal year 2016 year-end adjustment to actual was an over collection of $954,431. This amount is due to the signatory airlines and is included in accounts payable at September 30, The fiscal year 2015 year-end adjustment to actual was an over collection of $624,812. The Authority entered into a new four-year Airport Use Agreement with three commercial air carriers that serve SRQ. For 2015, the signatory airlines are Delta Airlines, JetBlue Airways, and US Airways (name changed to American Airlines, effective October 18, 2015). United Airlines and Air Canada continue to serve the airport as non-signatory carriers. WestJet, a low cost Canadian carrier, announced on July 20, 2015 they would begin seasonal service to SRQ from Toronto on December 18, The addition of WestJet brings the total number of air carriers serving SRQ to six. A portion of the Authority s revenue is provided by non-airline lease and concession agreements. These agreements relate to a portion of the Authority s buildings, land, and the privilege to do business at the Airport and have terms ranging from one to ninety-nine years. Many of the non-airline agreements contain contingent rental provisions whereby additional amounts, in excess of stated minimums, are due based upon the lessees gross revenue. Minimum future lease payments to be received on the operating lease agreements are as follows: 43

46 Notes to the Financial Statements Leases (continued) Year Ending Car Rental September 30, Restaurants Agencies Other Total 2017 $ 276,094 $ 2,832,593 $ 2,420,329 $ 5,529, ,094 2,832,593 2,375,295 5,483, ,094 2,832,593 2,337,573 5,446, ,094-2,280,480 2,556, ,094 1,727,587 2,003, ,086-6,364,044 6,617, ,382,239 5,382, ,006,889 5,006, ,041,422 3,041, ,202,331 1,202, ,202,331 1,202, ,119,035 1,119, , , , , , , ,225 84,225 Total $ 1,633,556 $ 8,497,779 $ 36,234,856 $ 46,366,191 Rents received from non-airline leases and concession agreements amounted to approximately $5,219,000 and $5,146,000 for the years ended respectively. Amounts received under contingent rental clauses were approximately $956,991 and $819,000 for the years ended September 31, 2016 and 2015, respectively. 10. Commitments and Contingencies The Authority has entered into contracts to purchase property, plant and equipment aggregating approximately $37.9 million as of September 30, Of that amount, approximately $23.9 million has been expended, with the remaining amount anticipated to be expended over the next two years. The majority of these expenditures are expected to be reimbursed to the Authority through grant funding. The Authority is involved in certain legal actions and claims arising in the ordinary course of its business. It is the opinion of management (based on the advice of legal counsel) that such litigation and claims will be resolved without material adverse effect on the Authority s net position, results of operations or cash flows. Grant monies received and disbursed by the Authority are for specific purposes and are subject to review by the grantor agencies. Such audits may result in request for reimbursement due to disallowance of expenditures. Based on prior experience, the Authority does not believe that such disallowances, if any, would have a material effect on the financial position of the Authority. 44

47 Notes to the Financial Statements 11. Major Airline User The Authority derived a significant portion of its revenues from a major airline user for the years ended September 30, During 2016, this major airline user handled approximately 55% of the total passenger traffic at the Airport. Additionally, this major airline user has a number of separate agreements with the Authority covering various types of property and buildings. Several of those agreements allocate charges to the carrier based upon the airline s market share of passengers and flight activity. 12. Risk Management The Authority is a member of the Public Risk Management of Florida ( PRM ), a liability risk pool. PRM administers insurance activities relating to workers compensation, property, liability, and automobiles. PRM absorbs the risk of loss up to a specified amount annually and purchases excess and other specific coverage from third-party carriers. PRM assesses each member its pro rata shares of the estimated amount required to meet current year losses and operating expenses. During the fiscal years ended, the Authority had no significant reductions in insurance coverage from the prior years. In addition, there have been no settlements which exceeded the Authority s insurance coverage in any of the past three fiscal years. Additionally, the Authority continues to utilize the services of an Independent Risk Management Consultant to advise on appropriate terms, conditions, and coverage needs. 13. Restatements The Authority recorded an adjustment to correct the accounting for certain grant funds received in a prior year and the capitalized design costs for which those funds were expended. The subject funds were received from the Federal Aviation Administration under the American Recovery and Reinvestment Act of 2009 in connection with the relocation of the air traffic control tower at the Airport. The previously presented financial statements 2015 have also been restated to correct an error in the presentation of the cumulative effect of the change in accounting principle relating to the recording of the Authority s net pension liability as of September 30, 2015 upon the adoption of Statement 68 of the Government Accounting Standards Board, Accounting and Financial Reporting for Pensions. 45

48 Notes to the Financial Statements Restatements (continued) The 2015 financial statements have been restated to reflect these items as follows: As Previously Prior Period As Stated Adjustment Restated Statement of Net Position: September 30, 2015 Grant Funds Received and Expended Capital assets, net $ 125,434,820 $ 1,154,113 $ 126,588,933 Net investment in capital assets 125,434,820 1,154, ,588,933 Presentation of change in accounting for pensions Unrestricted net position 13,617, ,365 13,909,600 Statement of Revenues, expenses and Changes in Net Position: Year Ended September 30, 2015 Grant Funds Received and Expended Federal and State Grants 11,978, ,279 12,124,948 Total net position, beginning of year before change in accounting principle 144,838,516 1,007, ,846,350 Presentation of change in accounting for pensions: Cumulative effect of change in accounting principle (4,846,026) 292,365 (4,553,661) 46

49 Required Supplementary Information For the Year Ended September 30, 2016

50 Required Supplementary Information Schedule of Changes in the Authority's Net Pension Liability and Related Ratios Last 10 Fiscal Years Previous Years Not Available Total pension liability Service cost $ 450,261 $ 380,235 $ 432,411 Interest 1,592,327 1,501,532 1,425,682 Differences between expected and actual experience (306,138) 221, ,470 Changes of assumptions (89,187) (867,045) 954,595 Benefit payments (764,203) (603,915) (555,406) Net change in total pension liability 883, ,267 2,445,752 Total pension liability-beginning 25,423,623 24,791,356 22,345,604 Total pension liability-ending (a) $ 26,306,683 $ 25,423,623 $ 24,791,356 Plan fiduciary net position Contributions - Employer $ 1,105,021 $ 1,001,004 $ 1,200,366 Net Investment Income 1,351,302 (43,535) 1,234,170 Benefit payments (764,203) (603,915) (555,406) Administrative expense (3,263) (13,652) (23,888) Net change in plan fiduciary net position (b) 1,688, ,902 1,855,242 Plan fiduciary net position - beginning 18,786,721 18,446,819 16,591,577 Plan fiduciary net position - ending $ 20,475,578 $ 18,786,721 $ 18,446,819 Authority's net position liability -ending (a) - (b) $ 5,831,105 $ 6,636,902 $ 6,344,537 Plan fiduciary net position as a percentage of the total pension liability 77.83% 73.89% 74.41% Covered-employee payroll 3,540,676 3,875,727 3,949,576 Authority's net position liability as a percentage of covered-employee payroll % % % Notes to Schedule for Changes in Assumptions: Long-term rate of return on assets 6.25% 6.25% 6.75% Discount rate 6.25% 6.25% 6.04% 47

51 Required Supplementary Information Schedule of Authority Contributions Last 10 Fiscal Years Actuarially determined contribution $ 1,105,021 $ 1,001,004 $ 1,200,366 $ 1,351,949 $ 1,386,614 $ 1,101,584 $ 924,367 $ 811,783 $ 745,001 $ 756,320 Contributions in relation to the actuarially determined contribution 1,105,021 1,001,004 1,200,366 1,351,949 1,386,614 1,101, , , , ,320 Contribution deficiency (excess) $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Covered-employee payroll $ 3,540,676 $ 3,875,727 $ 3,949,576 $ 3,923,379 $ 4,681,625 $ 4,976,793 $ 4,844,115 $ 4,555,248 $ 4,600,115 $ 4,525,357 Contributions as a percentage of covered-employee payroll 31.21% 25.83% 30.39% 34.46% 29.62% 22.13% 19.08% 17.82% 16.20% 16.71% Notes to Schedule: Beginning with plan year 2007, the entry age actuarial cost method is utilized for actuarial valuations. Prior to that time. The aggregate cost method was used. Methods and assumptions used to determine contribution rates: Actuarial cost method Amortization period Amortization method Asset valuation method Entry age 15 years Level dollar amortization Market value Inflation 2.25% Cost of Living Adjustment 0% Retirement Age 65 Investment Rate of Return Mortality Table 6.25%, net of pension plan investment expense RP 2000 (Table is what the state of Florida is using in their evaluation) 48

52 Required Supplementary Information Schedule of Investment Returns Last 10 Fiscal Years Annual money-weighted rate of return net of investment expense 7.03% -0.23% 7.21% 7.11% 15.11% 1.48% 11.11% 0.84% % 10.43% 49

53 Supplemental Schedules For the Year Ended September 30, 2016

54 Schedule of Operating Expenses Year Ended September 30, Depreciation and amortization $ 8,321,706 $ 7,833,309 Salaries and wages 7,554,568 7,258,429 Health insurance 1,602,906 1,553,050 Operating supplies, maintenance and repairs 1,281,971 1,355,881 Pension 1,308,736 1,322,724 General insurance 501, ,673 Electricity 535, ,218 Social security 548, ,713 Service contract 470, ,036 Marketing 517, ,038 Advertising and entertainment 189, ,192 Professional services 273, ,060 Telephone 240, ,939 Workers compensation insurance 184, ,265 Data processing supplies 152, ,480 Customs 128, ,871 Legal 151, ,083 Travel 132, ,674 Dues and subscriptions 90,086 83,884 Water and sewer 70,856 64,026 Uniforms and identification 85,420 54,220 Training 67,417 51,315 Office supplies, postage and publishing 39,156 49,857 Accounting and audit fees 40,700 39,500 Sanitation 40,045 30,323 Air Carrier Incentive 28,994 28,461 Public relations 27,807 23,611 Taxes 19,722 19,622 Miscellaneous 27,461 15,519 Bond and banking fees 11,743 12,726 Interior plants 7,656 10,275 Shuttle service 5,554 6,984 Equipment rental 8,111 6,865 Disability 5,838 5,574 Employee service awards 2,659 2,148 Unemployment insurance 6,050 1,650 Car allowance 846 1,189 Bad debt 9, Total Operating Expenses $ 24,690,676 $ 23,716,006 50

55 Application of Revenues For the Year Ended September 30, 2016 Operations & Operation & Renewal & Maintenance Maintenance Replacement Authority General Revenue Account Reserve Reserve Purpose Account Total Beginning Balances: October 1, 2015 $ - $ - $ 2,830,513 $ 2,000,000 $ 14,896,454 $ 19,726,967 Receipts: Operating Revenue $ 21,023,655 $ - $ - $ - $ - $ - FAA & FDOT Grants 8,293, Portfolio Activity 199, Transfer from/(to) 178, restricted assets $ 29,695,054 $ - $ - $ - $ - $ 29,695,054 Transfers (Net): $ 29,695,055 $ 19,735,853 $ (39,620) $ - $ 9,998,821 $ - Disbursements: Capital $ - $ - $ - $ - $ (10,065,729) $ (10,065,729) Operating - (19,735,853) $ (19,735,853) Ending Balances: September 30, 2016 $ - $ - $ 2,790,893 $ 2,000,000 $ 14,829,546 $ 19,620,439 51

56 Report of Independent Auditor 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 Members of the Board Sarasota Manatee Airport Authority Sarasota, Florida 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 enterprise fund and the pension trust fund of the Sarasota Manatee Airport Authority (the Authority ) as of and for the years ended September 30, 2016, and the related notes to the financial statements, which collectively comprise the Authority s financial statements, and have issued our report thereon dated January 20, Internal Control Over Financial Reporting In planning and performing our audits 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 entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. 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 and therefore, material weaknesses or significant deficiencies may exist that were not identified. We did identify a deficiency in internal control, , described in the accompanying schedule of findings and questioned costs that we consider to be a material weakness. 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. 52

57 s Response to Finding The Authority s response to the finding identified in our audit is described in the accompanying schedule of findings and questioned costs. The Authority s response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Tampa, Florida January 20,

58 Report of Independent Auditor on Compliance for Each Major Federal Program and on Internal Control over Compliance Required by the Uniform Guidance and Chapter , Rules of the Auditor General Members of the Board Sarasota Manatee Airport Authority Sarasota, Florida Report on Compliance for Each Major Federal Program and State Financial Assistance Project We have audited the Sarasota Manatee Airport Authority s (the Authority ) compliance with the types of compliance requirements described in the OMB Compliance Supplement and the requirements described in the Florida Department of Financial Services, State Projects Compliance Supplement that could have a direct and material effect on its major federal programs and state financial assistance projects for the year ended September 30, The Authority's major federal programs and state financial assistance projects are identified in the summary of the auditors' 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 and state assistance projects. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of the Authority s major federal programs and state financial assistance projects based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance); and Chapter , Rules of the Auditor General. Those standards, the Uniform Guidance, and Chapter , Rules of the Auditor General, 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 or state financial assistance project 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 and state financial assistance project. However, our audit does not provide a legal determination on the Authority's compliance. Opinion on Each Major Federal Program and State Financial Assistance Project In our opinion, the Authority complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on its major federal programs and state financial assistance projects for the year ended September 30,

59 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 requirements that could have a direct and material effect on each major federal program and state financial assistance project 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 state financial assistance project and to test and report on internal controls over compliance in accordance with the Uniform Guidance and Chapter , but not for the purpose of expressing our 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 or state financial assistance project on a timely basis. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program or state financial assistance project will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program or state financial assistance project that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance and Chapter Accordingly, this report is not suitable for any other purpose. Tampa, Florida January 20,

60 SARASOTA MANATEE AIRPORT AUTHORITY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED SEPTEMBER 30, 2016 Federal Grantor/Program Title/Grant Number Federal CFDA # Federal Expenditures U.S. Department of Transportation, Federal Aviation Administration Airport Improvement Program $ 37, ,515, ,033 Total Federal Expenditures $ 6,662,478 See accompanying Notes to the Schedules of Expenditures of Federal Awards and State Financial Assistance Projects. 56

61 SARASOTA MANATEE AIRPORT AUTHORITY SCHEDULE OF EXPENDITURES OF STATE FINANCIAL ASSISTANCE PROJECTS YEAR ENDED SEPTEMBER 30, 2016 Federal or State Grantor/Program Title/Grant Number State CSFA # State Expenditures Florida Department of Transportation Aviation Development Grants ,337, , , , , Total State Financial Assistance $ 2,801,625 See accompanying Notes to the Schedules of Expenditures of Federal Awards and State Financial Assistance Projects. 57

62 SARASOTA MANATEE AIRPORT AUTHORITY NOTES TO SCHEDULES OF EXPENDITURES OF FEDERAL AWARDS AND STATE FINANCIAL ASSISTANCE PROJECTS YEAR ENDED SEPTEMBER 30, 2016 Note 1 Summary of significant accounting policies The accounting policies and presentation of the accompanying schedules of expenditures of federal awards and state financial assistance projects of the Sarasota Manatee Airport Authority (the Authority ) have been designed to conform with accounting principles generally accepted in the United States of America applicable to governmental units. This includes the audit, reporting and compliance requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), the Florida Single Audit Act, and Chapter , Rules of the Auditor General. Reporting Entity - The Authority is an independent special district pursuant to the constitution and laws of Florida, particularly Chapter , Laws of Florida, as amended, revising and consolidating Chapter 31263, Special Laws of Florida, 1955, which, by the Act authorized the Authority to own and operate the Sarasota Bradenton International Airport (the Airport ). The Authority has jurisdiction, control, supervision and management of the Airport. Basis of Accounting - The accompanying schedules of expenditures of federal awards and state financial assistance projects are presented using the accrual basis of accounting. Revenue is recognized (accrued) when the corresponding expense has been determined to be eligible for reimbursement under the terms of the grant. Expenses are recognized when incurred. Note 2 Contingencies Grant monies received and disbursed by the Authority are for specific purposes and are subject to review by the grantor agencies. Such audits may result in requests for reimbursement due to disallowance of expenditures. Based upon prior experience, the Authority does not believe that such disallowances, if any, would have a material effect on the financial position of the Authority. Note 3 Indirect Cost Rate The Authority did not utilize indirect cost rates for reimbursement of grant expenditures for the fiscal year ended September 30,

63 SARASOTA MANATEE AIRPORT AUTHORITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED SEPTEMBER 30, 2016 Part I Summary of auditor s results Financial Statement Section Type of auditors' report issued: Unmodified Internal control over financial reporting: Material weakness(es) identified? x yes no Significant deficiency(ies) identified not considered to be material weakness(es)? yes x none reported Noncompliance material to financial statements noted yes x no Federal Awards Programs and State Projects Section Internal control over major programs: Material weakness(es) identified? yes x no Significant deficiency(ies) identified not considered to be material weakness(es)? yes x none reported Type of auditors' report on compliance for major federal programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with 2 CFR (a) and Chapter yes x no Identification of major federal programs and state projects: Federal programs: State projects. CFDA Numbers Name of Program or Cluster Airport Improvement Program CSFA Numbers Name of Project Aviation Development Grants 59

64 SARASOTA MANATEE AIRPORT AUTHORITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) YEAR ENDED SEPTEMBER 30, 2016 Part I Summary of auditor s results (continued) Dollar threshold used to determine Type A programs: Federal programs State projects $ 750,000 $ 300,000 Auditee qualified as low-risk auditee for federal purposes? x yes no Part II Schedule of financial statement findings This section identifies the significant deficiencies, material weaknesses, and instances of noncompliance related to the financial statements that are required to be reported in accordance with Government Auditing Standards. Finding : Material Weakness in Internal Controls over Project Ownership and Financial Reporting Criteria: The Authority is responsible for establishing and maintaining internal controls over their project management process. Condition: In previous fiscal years, the Authority received funds under the American Recovery and Reinvestment Act of 2009 to design and plan relocation of the air traffic control tower at the Airport. At that time, the air traffic control tower was to become the property of the FAA and the Authority was simply managing the project. Later in the project, the Authority received communication that ownership of the project was being transferred to the Authority; however, that information was not updated in the accounting records. This resulted in an understatement of federal grant revenues and capital assets (construction in progress). Effect: The effect of the error was a $1,007,834 understatement of net position and capital assets for the year ending September 30, 2014 and a $146,279 understatement of federal grant revenues and capital asset additions for the year ending September 30, Cause: Those in the Authority who are responsible for the preparation of Authority s Financial Statements did not update the accounting records to reflect the transfer of ownership of the air traffic control tower project to the Authority. Recommendation: We recommend that communication at the Authority is strengthened to provide those in the Authority who are responsible for the accounting records in a manner timely enough to allow for changes in ownership to be properly reflected in the accounting records. We further recommend that the Authority perform an analysis of capital assets to ensure that all assets owned by the Authority are properly reflected in the accounting records. Management s Response and Corrective Action Plan: We agree with the findings. Any unusual, uncommon or unfamiliar funds received in the future like the funds from the American Recovery and Reinvestment Act of 2009 will be thoroughly researched, tracked and properly recorded. 60

65 SARASOTA MANATEE AIRPORT AUTHORITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) YEAR ENDED SEPTEMBER 30, 2016 Part III Findings and questioned costs major federal award programs This section identifies the significant deficiencies, material weaknesses, and instances of noncompliance, including questioned costs, related to the audit of major federal programs, as required to be reported by the Uniform Guidance. There were no findings required to be reported in accordance with the Uniform Guidance. Part IV Findings and questioned costs major state financial assistance projects This section identifies the significant deficiencies, material weaknesses, and instances of noncompliance, including questioned costs, related to the audit of major state projects, as required to be reported by Chapter There were no findings required to be reported in accordance with Chapter

66 SARASOTA MANATEE AIRPORT AUTHORITY SUMMARY SCHEDULE OF PRIOR YEAR AUDIT FINDINGS YEAR ENDED SEPTEMBER 30, 2016 A Summary Schedule of Prior Year Audit Findings is not necessary since there were no prior audit findings. 62

67 Report of Independent Auditor on Compliance with Requirements Applicable to the Passenger Facility Charge Program and Internal Control over Compliance in Accordance with the Passenger Facility Program Audit Guide Members of the Board Sarasota Manatee Airport Authority Sarasota, Florida Report on Compliance for Passenger Facility Charge Program We have audited the Sarasota Manatee Airport Authority s (the Authority ) compliance 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 the Authority s passenger facility charge program for the year ended September 30, Management s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts and grants applicable to its passenger facility charge program. Auditor s Responsibility Our responsibility is to express an opinion on the Authority's compliance 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 passenger facility charge 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 with the passenger facility charge program. However, our audit does not provide a legal determination on the Authority's compliance. Opinion on Passenger Facility Charge Program In our opinion, the Authority complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on its passenger facility charge program for the year ended September 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 requirements that could have a direct and material effect on the passenger facility charge program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing our opinion on compliance for a passenger facility charge program and to test and report on internal controls over compliance in accordance with the Guide, but not for the purpose of expressing our 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. 63

68 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 the passenger facility charge program on a timely basis. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of the passenger facility charge program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of the passenger facility charge program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirement of the Guide. Accordingly, the report is not suitable for any other purpose. Tampa, Florida January 20,

69 SARASOTA MANATEE AIRPORT AUTHORITY SCHEDULE OF PASSENGER FACILITY CHARGES COLLECTED AND EXPENDED YEAR ENDED SEPTEMBER 30, 2016 Beginning Balance Passenger Facility Charges $ 2,983,076 Collections (1) December 31, ,031 March 31, ,652 June 30, ,041 September 30, ,217 Total 2,322,941 Ending Balance Passenger Facility Charges $ 5,306,017 (1) No PFC collections were applied to eligible expenditures during the year ended September 30, See Notes to Schedule of Passenger Facility Charge Collected and Expended 65

70 SARASOTA MANATEE AIRPORT AUTHORITY NOTES TO SCHEDULE OF PASSENGER FACILITY CHARGES YEAR ENDED SEPTEMBER 30, 2016 Note 1 General The accompanying schedule of passenger facility charges collected and expended presents the activity of all passenger facility charges of the Sarasota Manatee Airport Authority for the year ended September 30, Note 2 Basis of Accounting The accompanying schedule of passenger facility charges is presented using the cash basis of accounting. End of year receivables totaled $330,771. Beginning of year receivables totaled $300,

71 SARASOTA MANATEE AIRPORT AUTHORITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS PASSENGER FACILITY CHARGE PROGRAM YEAR ENDED SEPTEMBER 30, 2016 Part A Summary of audit results 1. The Report of Independent Auditor expresses unmodified opinions on the enterprise fund and the pension trust fund of the Sarasota Manatee Airport Authority (the Authority ) as of and for the year ended September 30, A material weakness, , related to the internal control over financial reporting was reported relating to the audit of the financial statements and is reported in the Report of Independent Certified Public Accountants 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. 3. No instances of noncompliance material to the financial statements of the Authority were disclosed during the audit. Passenger Facility Charge Program 4. No significant deficiencies or material weaknesses were disclosed during the audit of internal control over the passenger facility charge program are reported in the Report of Independent Certified Public Accountants on Compliance with Requirements Applicable to the Passenger Facility Charge Program and Internal Control over Compliance in Accordance with the Passenger Facility Program Audit Guide. 5. The auditors' report on compliance for the passenger facility charge program for the Authority expresses an unmodified opinion. Part B Financial statement finding See the preceding schedule of findings and questioned costs Part 1 for the material weakness related to the financial statement section. Part C Passenger Facility Charge Program finding and questioned costs None reported Part D Schedule of current and prior year findings and questioned costs No summary schedule of prior audit findings is required because there were no prior audit findings related to the passenger facility charge program for the year ended September 30, No corrective action plan is required for the year ended September 30, 2016 because there were no current year findings requiring correction under the passenger facility charge program. 67

72 Independent Auditor s Management Letter Members of the Board Sarasota Manatee Airport Authority Sarasota, Florida Report on the Financial Statements We have audited the financial statements of the Sarasota Manatee Airport Authority (the Authority"), as of and for the year ended September 30, 2016, and have issued our report thereon dated January 20, Auditor s Responsibility We conducted our audit 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; Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance); Chapter , Rules of the Auditor General; and Passenger Facility Charge Audit Guide for Public Agencies, issued by the Federal Aviation Administration Other Reports We have issued our Report of Independent Auditor on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards; Report of Independent Auditor on Compliance for each Major Federal Program and State Financial Assistance Project and on Internal Control Over Compliance Required by the Uniform Guidance and Chapter Rules of the Auditor General; Report of Independent Auditor on Compliance with Requirements Applicable to the Passenger Facility Charge Program and Internal Control over Compliance in Accordance with the Passenger Facility Program Audit Guide; Schedules of Findings and Questioned Costs; and Report of Independent Accountant on Compliance with Local Investment Policies, regarding compliance requirements in accordance with Chapter , Rules of the Auditor General. Disclosure in those reports and schedules, which are dated January 20, 2017, should be considered in conjunction with this management letter. Prior Audit Findings Section (1)(i)1., Rules of the Auditor General, requires that we determine whether or not corrective actions have been taken to address findings and recommendations made in the preceding annual financial audit report. There were no findings or recommendations made in the preceding annual financial audit report. Official Title and Legal Authority Section (1)(i)4., Rules of the Auditor General, requires that the name or official title and legal authority for the primary government and each component unit of the reporting entity be disclosed in this management letter, unless disclosed in the notes to the financial statements. The Authority was established pursuant to the constitution and laws of Florida, particularly Chapter , Laws of Florida, as amended, revising and consolidating Chapter 31263, Special Laws of Florida, There were no component units related to the entity. 68

73 Financial Condition Section (1)(i)5.a. and (7), Rules of the Auditor General, requires that we report the results of our determination as to whether or not the Authority has met one or more of the conditions described in Section (1), Florida Statutes, and identification of the specific condition(s) met. In connection with our audit, the results of our tests did not indicate the Authority met and of the conditions in Section (1), Florida Statutes. Pursuant to Sections (1)(i)5.c. and (8), Rules of the Auditor General, we applied financial condition assessment procedures. It is management s responsibility to monitor the Authority s financial condition, and our financial condition assessment was based in part on representations made by management and the review of financial information provided by same. Annual Financial Report Section (1)(i)5.b. and (7), Rules of the Auditor General, requires that we apply appropriate procedures and report the results of our determination as to whether the annual financial report for the Authority for the fiscal year ended September 30, 2015, filed with the Florida Department of Financial Services pursuant to Section (1)(a), Florida Statutes, is in agreement with the annual financial audit report for the fiscal year ended September 30, In connection with our audit, we determined that these two reports were in agreement. Other Matters Section (1)(i)2., Rules of the Auditor General, requires that we address in the management letter any recommendations to improve financial management. In connection with our audit, we did not have any such recommendations. Section (1)(i)3., Rules of the Auditor General, requires that we address noncompliance with provisions of contracts or grant agreements, or abuse, that have occurred, or are likely to have occurred, that have an effect on the financial statement amounts that is less than material but warrants the attention of those charged with governance. In connection with our audit, we did not have any such findings. Purpose of this Letter The purpose of this management letter is to communicate certain matters prescribed by Chapter , Rules of the Auditor General. Accordingly, this management letter is not suitable for any other purpose. Tampa, Florida January 20,

74 Report of Independent Accountant on Compliance with Local Government Investment Policies Members of the Board Sarasota Manatee Airport Authority Sarasota, Florida Report on Compliance We have examined the Sarasota Manatee Airport Authority s (the Authority ) compliance with the local government investment policy requirements of Sections , Florida Statutes, during the year ended September 30, Management is responsible for the Authority s compliance with those requirements. Our responsibility is to express an opinion on the Authority s compliance based on our examination. Scope Our examination was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants and, accordingly, included 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 examination provides a reasonable basis for our opinion. Our examination does not provide a legal determination on the Authority s compliance with specified requirements. Opinion In our opinion, the Authority complied, in all material respects, with the aforementioned requirements for the year ended September 30, Tampa, Florida January 20,