Supplemen. Prepared by: airport.com

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1 Sarasota, Florida Financial Statements withh Management s Discussion and Analysis including Supplemen ntary and Compliance Reports and Schedules For the years endedd Prepared by: Finance Department airport.com

2 Contents Report of Independent Certified Public Accountants...1 Management s Discussion and Analysis...3 Basic Financial Statements Enterprise Fund Statements of Net Assets Statements of Revenues, Expenses and Changes in Net Assets Statements of Cash Flows Pension Trust Fund Statements of Plan Net Assets Statements of Changes in Plan Net Assets Notes to Financial Statements Required Supplementary Information Pension Plan Schedule of Funding Progress Pension Plan Schedule of Employer Contributions Supplemental Schedules Schedule of Operating Expenses Schedule of Receipts and Disbursements Bond Proceeds Account 2003 Revenue Bonds Schedule of Receipts and Disbursements Cash Unrestricted Operating and Investment Accounts Schedule of Debt Service Coverage Government Auditing Standards and Single Audit 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 Report of Independent Certified Public Accountants on Compliance with Requirements that could have a Material Effect on Each Major Federal Program and State Project and on Internal Control over Compliance in Accordance with OMB Circular A-133 and Chapter Rules of the Auditor General Schedule of Expenditures of Federal Awards Schedule of Expenditures of State Financial Assistance Projects Notes to Schedule of Expenditures of Federal Awards and State Financial Assistance Projects Scheduled of Findings and Questioned Costs Passenger Facility Charge Program Report of Independent Certified Public Accountants on Compliance with Requirements that could have a Direct and Material Effect on 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 Certified Public Accountants Management Letter... 60

3 Report of Independent Certified Public Accountants Members of the Board Sarasota Manatee Airport Authority Sarasota, Florida We have audited the accompanying statements of net assets of the enterprise fund and the statements of plan net assets of the pension trust fund of the Sarasota Manatee Airport Authority (the Authority ), as, and the related statements of revenue, expenses and changes in net assets and cash flows and the statements of changes in plan net assets for the years then ended. These financial statements are the responsibility of the Authority s management. Our responsibility is to express an opinion 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our 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 as of September 30, 2010 and 2009, and the respective changes in financial position, and, where applicable, cash flows thereof for the years then ended in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1 (Impact of Recently Issued Accounting Principles), the September 30, 2009 Governmental Activities assets, liabilities and net assets have been restated to reflect the effects of adopting GASB No. 51: Accounting and Financial Reporting for Intangible Assets and GASB No. 53: Accounting and Financial Reporting for Derivative Instruments. We audited the adjustments necessary to restate the September 30, 2009, net balances provided in Note 1. In our opinion, such adjustments are appropriate and have been properly applied. In accordance with Government Auditing Standards, we have also issued our report dated January 18, 2011 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 and important for assessing the results of our audit. 1

4 The management s discussion and analysis and the pension plan schedules of funding progress and employer contributions on pages 3 through 16 and 41, respectively, are not a required part of the basic financial statements, but are supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures which consisted primarily of inquiries of management regarding the methods of measurement and presentation of the required supplemental information. However, we did not audit the information and express no opinion on it. 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. In addition, the accompanying schedule of expenditures of federal awards and state financial assistance and the schedule of passenger facility charges collected and expended for the year ended September 30, 2010 are presented for the purposes of additional analysis as required by the U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, 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, and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. Tampa, Florida January 18,

5 Management s Discussion and Analysis The following Management 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, 2010 with comparative information for the year ended September 30, The information contained in this MD&A should be considered in conjunctions 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. 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 2010 as compared to 2009 are as follows: % Increase FY 2010 FY 2009 (Decrease) Enplanements 662, , % Aircraft Operations 102, , % Landed Weight 720,958, ,143, % 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 (SRQ is the Airport Identifier Code for the Sarasota Bradenton International Airport) have been in step with reductions 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 several 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 : Fiscal year 2010 operating revenue increased by 1.4% over 2009 and fiscal year 2009 operating revenues decreased by 2.2% from A large percentage of operating revenues at the Authority is directly related to passenger volumes and aircraft operations. In fiscal year 2010, operating expenses before depreciation and amortization increased 1.2% over The primary increase was in salaries and employee benefits due to the reacquisition of the fire department. In fiscal year 2009, operating expenses before depreciation and amortization decreased 2.8% from The primary decrease was a result of a decrease in administration and general expenses. Non-operating revenues and expenses in fiscal year 2010 decreased 17.4% from 2009 due to the defeasance of the 2003 bonds. Non-operating revenues and expenses in fiscal year 2009 decreased 68.4% from 2008 due to the sale of the museum building in fiscal year 2008 and a decrease in PFC s. Capital contributions decreased 39.3% in Capital contributions in fiscal year 2009 decreased by 2.7% from These fluctuations are influenced by factors such as grant availability and project timing. During 2010, the Authority recorded a special item due to the termination of a lease and the purchase of the leasehold interest. 4

7 Management s Discussion and Analysis Summary of Operations and Changes in Net Assets FY 2009 FY 2008 FY 2010 (As Restated) (As Restated) Operating revenues $ 17,845,494 $ 17,603,319 $ 18,007,988 Operating expenses (21,580,718) (21,575,383) (21,692,687) Loss before non-operating revenues and expenses (3,735,224) (3,972,064) (3,684,699) Non-operating revenues and expenses, net 1,765,990 2,137,390 6,766,971 Gain (Loss) before capital contributions and special item (1,969,234) (1,834,674) 3,082,272 Capital contributions 3,768,005 6,210,304 6,381,962 Special item (345,000) - - Increase in Net Assets $ 1,453,771 $ 4,375,630 $ 9,464,234 Summary of Net Assets Over time, net assets may serve as a useful indicator of the Authority s financial position. The Authority s net assets exceeded liabilities by approximately $139.5 million at September 30, 2010, a $1.5 million increase from September 30, 2009 and the authority s net assets exceeded liabilities by approximately $138 million at September 30, 2009, a $4.4 million increase from September 30, FY 2009 FY 2008 FY 2010 (As Restated) (As Restated) Assets: Current and other assets $ 32,495,855 $ 37,581,236 $ 36,581,573 Capital assets, net 122,413, ,689, ,450,553 Total assets $ 154,909,454 $ 162,270,313 $ 161,032,126 Liabilities: Revenue bonds payable, less current portion $ 8,324,120 $ 15,931,426 $ 19,585,357 Deffered revenue bonds payable 811,749 1,002,540 - Other liabilities 6,278,231 7,294,764 7,780,816 Total liabilities $ 15,414,100 $ 24,228,730 $ 27,366,173 Net assets: Invested in capital assets, net of related debt $ 111,374,225 $ 105,010,325 $ 101,272,435 Restricted 8,422,194 13,040,261 8,486,492 Unrestricted 19,698,935 19,990,997 23,907,026 Total net assets: $ 139,495,354 $ 138,041,583 $ 133,665,953 5

8 Management s Discussion and Analysis The largest portion of the Authority s net assets 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 assets represents bond reserve funds that are subject to external restrictions on how they can be used under bond resolutions and PFC s that are restricted by Federal regulations and a bond resolution until they can be used to pay future indebtedness. The remaining unrestricted net assets 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 2010 and 2009, the signatory airlines are AirTran Airways, Continental, Delta Air Lines, JetBlue Airways, and US Airways. 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 current agreement for Continental expires in 2013 and the other signatory airline agreements expire in Rates and Charges Each of the signatory airlines leases 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 FY FY Landing fee (per 1,000 lbs MGLW) Signatory Non-signatory Average terminal rate (per square foot) Signatory Non-signatory Apron fee rental (per linear foot) Air cargo facility (per square foot) 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. 6

9 Management s Discussion and Analysis Revenues A summary of revenues for the year ended September 30, 2010 and the amount and percentage of change in relation to prior year amounts is as follows: Increase Percent 2010 Percent (Decrease) Increase Amount of Total from 2009 (Decrease) Operating Revenues: Building rentals $ 6,957, % $ 495, % Car rental concessions 3,847, % 165, % Parking lot fees 2,105, % 162, % Landing fees 490, % (518,961) -51.4% Other airfield revenue 2,298, % (25,259) -1.1% Concessions 822, % (2,761) -0.3% Non-aviation system revenue 1,282, % 92, % Other revenue 42, % (126,344) -74.9% Total Operating Revenues 17,845, % 242, % Non-Operating Revenues: Interest and other investment income 323, % (265,584) -45.1% Passenger facility charges 2,721, % (37,216) -1.3% Other miscellaneous 26, % (4,450) -14.3% Total Non-Operating Revenues 3,070, % (307,250) -9.1% Total Revenues $ 20,916, % $ (65,075) -0.3% The following chart shows the major sources and the percentage of revenues for the year ended September 30, 2010: 1% 11% 4% Building rentals Car rental concessions 18% 10% 6% 1% 2% 13% 1% Parking lot fees Landing fees Other airfield revenue Concessions Non-aviation system revenue Other revenue Interest and other investment income Passenger Facility Charges 33% Other miscellaneous 7

10 Management s Discussion and Analysis Expenses A summary of expenses for the year ended September 30, 2010 and the amount and percentage of change in relation to prior year amounts is as follows: Increase Percent 2010 Percent (Decrease) Increase Amount of Total from 2009 (Decrease) Operating Expenses: Depreciation and amortization $ 7,745, % $ (152,078) -1.9% Salaries and employee benefits 8,975, % 1,289, % Administration and general 2,698, % (1,101,527) -29.0% Maintenance 1,315, % 174, % Utilities 845, % (205,542) -19.5% Total Operating Expenses 21,580, % 5, % Non-Operating Expenses: Interest expense 955, % (232,108) -19.5% Amortization of bond issuance costs 126, % 74, % Loss on Defeasance of 2003 Bonds 221, % 221, % Total Non-Operating Expenses 1,304, % 64, % Total Expenses $ 22,885, % $ 69, % The following chart shows the major cost centers and the percentage of expenses for the year ended September 30, 2010: 39% Depreciation and amortization Salaries and employee benefits 33% Administration and general Maintenance Utilities 12% Interest expense 1% 1% 4% 4% 6% Amortization of bond issuance costs Loss on Defeasance of 2003 Bonds 8

11 Management s Discussion and Analysis Summary of Cash Flow Activities The following shows a summary of the major sources and uses of cash and cash equivalents for the past two years. Cash equivalents are considered cash-on-hand, bank deposits and highly liquid investments with an original maturity of three months or less. FY 2010 FY 2009 FY 2008 Cash flows from Operating Activities $ 4,026,514 $ 3,146,833 $ 5,949,078 Cash flows from Financing Activities (7,925,719) (4,089,360) 1,332,507 Cash flows from Non-Capital Financing Activities (724,601) - - Cash flows from Investing Activities 3,140,024 (461,722) 2,008,293 Net increase (decrease) in Cash and Cash Equivalents (1,483,782) (1,404,249) 9,289,878 Cash and Cash Equivalents: Beginning of year 19,090,482 20,494,731 11,204,853 End of year $ 17,606,700 $ 19,090,482 $ 20,494,731 The Authority s available cash and cash equivalents decreased from approximately $19.1 million at the end of fiscal year 2009 to approximately $17.6 million at the end of fiscal year 2010 and decreased from approximately $20.5 million at the end of fiscal year 2008 to approximately $19.1 million at the end of fiscal year Airport Statistics The following operating and passenger data are provided to comply with the Authority s covenant to holders of the Series 2006 bonds to provide continuing disclosure of such information. Fiscal Year Fiscal Year Historical Passenger Enplanements Yearly Percent Total (Decrease) Increase Airport as Percent of U.S. Total , % , % , % , % , %

12 Management s Discussion and Analysis Calendar Year Historical Passenger Enplanements Calendar Year Total Yearly Percent (Decrease) Increase Airport as Percent of U.S. Total , % , % , % , % 0.10 Fiscal Year Total Departures Airline Aircraft Departures Average Daily Departures Enplaned Passengers per Departure , , , , , As of September 2010, the Airport was served by five national airlines (AirTran, Continental, Delta, JetBlue and US Airways) and one commuter airline, Comair, (collectively, the Participating Airlines ). In April of 2008, Delta and Northwest announced a merger agreement. The operating certificates for Delta and Northwest were merged on December 31, 2009 and the reservation systems were merged on January 31, 2010; officially retiring the Northwest Brand. In fiscal year 2010, the top four airlines accounted for 98% of total enplanements. Delta ranks first in number of enplaned passengers (41%), with AirTran ranking second (30%), US Airways third (16%) and JetBlue ranking fourth (10%). The tables on the following page 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 Airline Passenger Enplanements Fiscal Years ended September 30, AirTran 191, , , , ,595 Continental 83,041 83,396 75, Delta 274, , , , ,613 JetBlue 1,133 57,006 65,179 77,128 68,454 Northwest 22,480 28,853 18,668 10,843 5,056 US Airways 92, ,206 94,601 85, ,126 Other Airlines 1 24,933 15,255 43,830 15,174 12,530 Totals 689, , , , ,374 Airline Market Shares Enplaned Passengers Fiscal Years ended September 30, AirTran 27.7% 28.9% 28.0% 32.1% 29.5% Continental 12.0% 10.6% 9.7% 0.0% 0.0% Delta 39.8% 34.0% 33.6% 39.7% 41.2% JetBlue 0.2% 7.2% 8.4% 11.5% 10.3% Northwest 3.3% 3.7% 2.4% 1.6% 0.8% US Airways 13.4% 13.7% 12.3% 12.8% 16.3% Other Airlines 1 3.6% 1.9% 5.6% 2.3% 1.9% Totals 100.0% 100.0% 100.0% 100.0% 100.0% 1 Includes Air Canada, Allegiant, American Eagle, Canjet, Cape Air, Florida Coastal, Gold, Ryan/Pace, Tans State, USA 3000, & Vision. 11

14 Management s Discussion and Analysis Airline Landed Weights Fiscal Years ended September 30, (in thousand pounds) AirTran 234, , , , ,256 Continental 92,799 91,724 85, Delta 334, , , , ,972 JetBlue 1,280 63,848 77,215 88,215 77,728 Northwest 29,870 33,394 21,190 12,188 5,965 US Airways 111, , ,727 91, ,647 Other Airlines 1 31,278 20,878 64,839 21,270 18,390 Totals 834, , , , ,958 Airline Market Shares Landed Weights Fiscal Years ended September 30, Share of total landed weight AirTran 28.0% 30.6% 27.2% 31.4% 29.7% Continental 11.1% 9.9% 9.5% 0.0% 0.0% Delta 40.1% 33.0% 33.4% 39.7% 40.4% JetBlue 0.1% 6.9% 8.6% 12.0% 10.8% Northwest 3.6% 3.6% 2.4% 1.7% 0.8% US Airways 13.3% 13.7% 11.7% 12.4% 15.8% Other Airlines 1 3.8% 2.3% 7.2% 2.8% 2.5% Totals 100.0% 100.0% 100.0% 100.0% 100.0% 1 Includes Air Canada, Allegiant, American Eagle, Canjet, Cape Air, Florida Coastal, Gold, Ryan/Pace, Tans State, USA 3000, & 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 2010 totaled 102,190. Aircraft Operations Fiscal Years ended September 30, Fiscal Year Air Carrier Air Taxi and Commuter General Aviation Military Total ,468 11, ,792 2, , ,290 8, ,995 2, , ,335 10, ,367 2, , ,550 7,803 84,251 2, , ,769 6,896 79,578 1, ,190 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. Amounts are restricted for debt service and, where applicable, for construction activities. 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 Assets; the Statements of Revenues, Expenses and Changes in Net Assets; and the Statements of Cash Flows. Net assets are displayed in three components: invested in capital assets, net of related debt; restricted; and unrestricted. The component of net assets comprising invested in capital assets, net of related debt, is net of accumulated depreciation and reduced by the outstanding balances of any outstanding debt that is attributable to the acquisition, construction or improvements of those assets. 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 non-capital related financing activities, and investing activities. The pension fund statements include a Statements of Plan Net Assets and a Statements of Changes in Plan Net Assets. Capital Acquisitions and Construction Activities During fiscal year 2010, the Authority expended approximately $5.5 million on capital activities. $2.3 million was expended on runway, taxiway and airfield improvements including enhancements to the airfield service road, while $1.8 million included continuing projects for terminal building improvements, 13

16 Management s Discussion and Analysis rehabilitation of the public address/paging system, terminal access roadway and parking enhancements. The remaining $1.4 million was expended for land and capital equipment purchases. During fiscal year 2010, many projects came to completion and were closed from construction-inprogress to their respective capital accounts. These projects totaled approximately $8.6 million and were as follows: Vehicle Purchases $ 104,712 Lift Station/Sanitary sewer upgrades 31,355 Parking Lot Toll Booths 49,671 Telephone System Upgrades 50,511 Chiller Replacement 434,792 USS Renovations 43,701 Access Road 243,091 Taxiways 981,663 Runways 2,318,527 ATCT site study 388,886 Vehicle storage building 23,548 Airfield Lighting 1,170,078 Term access/video surveillance 219,696 Public Address System 52,135 Service Road 1,993,389 Master Plan Upgrade 471,095 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 9 Commitments and Contingencies, of the Notes to the Financial Statements. Long-term Debt Administration The Authority had outstanding long-term debt of $12.1 million and $21.2 million as of September 30, 2010 and 2009, respectively. The following table reflects the debt activities that occurred during fiscal year 2010: Total Total Outstanding Bonds Principal Outstanding 10/1/2009 Issued Paid Defeased 9/30/2010 Revenue refunding bonds: Series 2006 $ 18,015,000 $ - $ 5,855,000 $ - $ 12,160,000 Series ,210, ,000 2,610,000 - $ 21,225,000 $ - $ 6,455,000 $ 2,610,000 12,160,000 Less current maturities (2,850,000) Long term portion 9,310,000 Less unamortized loss on refunding (985,880) Total $ 8,324,120 14

17 Management s Discussion and Analysis Bond ratings The Series 2006 bonds are variable rate demand bonds payable from an irrevocable direct pay Letters of Credit issued by SunTrust Banks, Inc. SunTrust s bank rating as of September 30, 2010 were A2 (Moody s) and BBB+ (Standard and Poor s). 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 $45.1 million, including interest earnings, and expended approximately $44.8 million of these locally generated funds. Special Item At the June 2010 board meeting, the Authority approved the early termination of the Asolo lease to allow the site to be developed for aviation use. The Authority paid Asolo $500,000 for the termination and extinguishment of the lease and the leasehold interest. Included in the leasehold interest was a hangar with an appraised value of $155,000 which is in Capital Assets. One of the Authority s Fixed Base Operators is currently using this building and has agreed to purchase this hangar from the Authority in fiscal year Economic Factors and Next Year s Budgets and Rates As a result of high fuel and operating costs, Continental Airlines chose to terminate service at SRQ on September 3, As a signatory carrier, Continental remains responsible for terminal fixed rents through September 2013, the end date of their existing agreement. The remaining signatory carriers have reduced capacity to align more closely with perceived decreases in demand brought on by the general economic slowdown. Airport management has assessed this issue in determining its demand forecast and operating requirements for the next fiscal year. The Authority reviews its airline rates and charges as part of the annual budget development and adoption process. Despite the cost pressures of health and welfare benefits, utilities, increases in TSA mandated 15

18 Management s Discussion and Analysis security costs and technology, the fiscal year 2011 budget rates and charges remain largely unchanged. In particular, the landing fee decreased 1.2% and terminal building rental rates increased only 0.5%. 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 Senior Vice President, Chief Financial Officer, Sarasota Manatee Airport Authority, 6000 Airport Circle, Sarasota, FL or by to martin.lange@srqairport.com. 16

19 Statements of Net Assets 2009 Assets 2010 (As Restated) Current Assets Unrestricted Assets Cash and cash equivalents $ 9,387,528 $ 6,838,190 Investments 11,076,550 13,075,950 Accounts receivable 731, ,670 Notes receivable 8,148 7,740 Grants receivable 455,230 1,280,922 Inventory of materials and supplies 219, ,505 Prepaid expenses and other current assets 647, ,988 Total unrestricted assets 22,526,092 22,670,965 Restricted Assets Cash and cash equivalents 8,219,172 12,252,292 Investments - 636,397 Accounts receivable 346, ,016 Accrued interest receivable - 9,525 Total restricted assets 8,565,573 13,234,230 Total current assets 31,091,665 35,905,195 Non-Current Assets Notes receivable 457, ,827 Capital assets, net 122,413, ,689,077 Deferred outflow of resources 811,749 1,002,540 Deferred bond issuance costs (net of accumulated amortization of approximately $1,591,000 and $1,464,000, respectively) 134, ,674 Total non-current assets 123,817, ,365,118 Total Assets $154,909,454 $ 162,270,313 The accompanying notes are an integral part of these financial statements. 17

20 Statements of Net Assets (continued) 2009 Liabilities and Net Assets 2010 (As Restated) Current Liabilities Payable from unrestricted assets Accounts payable $ 966,038 $ 1,947,297 Accrued expenses and other liabilities 1,028,209 1,198,496 Deferred revenue 1,290,605 - Current portion of revenue bonds payable 2,850,000 3,955,000 Total unrestricted liabilities 6,134,852 7,100,793 Current liabilities payable from restricted assets Accrued revenue bond interest payable 73, ,546 Security deposits 70,209 80,425 Total restricted liabilities 143, ,971 Total current liabilities 6,278,231 7,294,764 Non-Current Liabilities Derivative investments - hedging 811,749 1,002,540 Revenue bonds payable, less current portion 8,324,120 15,931,426 Total non-current liabilities 9,135,869 16,933,966 Total liabilities 15,414,100 24,228,730 Net Assets Invested in capital assets, net of related debt 111,239, ,802,651 Restricted 8,422,194 13,040,261 Unrestricted 19,833,681 20,198,671 Total net assets $ 139,495,354 $ 138,041,583 The accompanying notes are an integral part of these financial statements. 18

21 Statements of Revenues, Expenses and Changes in Net Assets For the Years ended (As Restated) Operating Revenues Building rentals $ 6,957,267 $ 6,461,604 Car rental concessions 3,847,452 3,682,392 Parking lot fees 2,105,387 1,942,814 Landing fees 490,612 1,009,573 Other airfield revenue 2,298,151 2,323,410 Concessions 822, ,824 Non-aviation system revenue 1,282,170 1,189,966 Other revenue 42, ,736 Total operating revenues 17,845,494 17,603,319 Operating Expenses Depreciation and amortization 7,745,428 7,897,506 Salaries and employee benefits 8,975,405 7,685,726 Administration and general 2,698,660 3,800,187 Maintenance 1,315,379 1,140,576 Utilities 845,846 1,051,388 Total operating expenses 21,580,718 21,575,383 Operating Loss (3,735,224) (3,972,064) Non-Operating Revenues (Expenses) Interest expense (955,825) (1,187,933) Interest and other investment income 323, ,705 Amortization of bond issuance costs (126,988) (52,661) Passenger facility charges 2,721,002 2,758,218 Gain on disposal of capital assets 12,700 31,061 Audit Settlement 13,911 - Loss on defeasance of bonds (221,931) - Total non-operating revenues 1,765,990 2,137,390 Loss before Capital Contributions and Special Item (1,969,234) (1,834,674) Capital Contributions Federal and state grants 3,768,005 6,210,304 Total capital contributions 3,768,005 6,210,304 Income before Special Item 1,798,771 4,375,630 Special Item (345,000) - Net Assets Increase in net assets 1,453,771 4,375,630 Restatement, Implementation GASB 51-1,488,067 Total net assets, beginning of year 138,041, ,177,886 Total net assets, end of year $ 139,495,354 $ 138,041,583 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 $ 17,637,413 $ 17,350,135 Cash paid to employees (7,655,672) (7,638,533) Cash paid to suppliers for goods and services (5,955,227) (6,564,769) Net cash provided by operating activities 4,026,514 3,146,833 Cash Flows from Capital and Related Financing Activities: Principal paid on revenue bonds maturity (9,065,000) (3,825,000) Interest paid (643,507) (906,445) Purchases of capital assets (5,505,395) (7,947,986) Defeasance costs (53,560) - Bond Issue costs (500) - Proceeds from sale of PP&E 51,465 31,061 Acquisition of intangibles (3,320) (185,914) Capital contributions and grants 7,304,314 8,787,496 Payment of capital lease obligations - (2,867) Increase in security deposits (10,216) (39,705) Net cash used in capital and related financing activities (7,925,719) (4,089,360) Cash Flows from Non-Capital Financing Activities: Prepayment of bonds (171,581) - Buyout of lease (345,000) - Loss on defeasance of bonds (221,931) - Audit Settlement 13,911 - Net cash used in non-capital financing activities (724,601) - Cash Flows from Investing Activities: Proceeds from sales and maturities of investments 15,628,112 15,364,375 Purchases of investments (13,000,000) (16,403,045) Interest on restricted investments (9,570) (44,963) Interest on unrestricted investments 521, ,911 Net cash provided by (used in) investing activities 3,140,024 (461,722) Net decrease in Cash and Cash Equivalents (1,483,782) (1,404,249) Cash and Cash Equivalents, Beginning of Year 19,090,482 20,494,731 Cash and Cash Equivalents, End of Year $ 17,606,700 $ 19,090,482 Cash and Cash Equivalents: Unrestricted $ 9,387,528 $ 6,838,190 Restricted 8,219,172 12,252,292 $ 17,606,700 $ 19,090,482 Reconciliation of Operating Loss to Net Cash Provided by Operating Activities: Operating loss $ (3,735,224) $ (3,972,064) Adjustments to reconcile operating loss to net cash provided by operations: Depreciation 7,498,436 7,843,323 Amortization 246,992 54,183 (Increase) decrease in accounts receivable (3,667) (78,244) (Increase) decrease in inventory, prepaid expenses and other assets (119,082) (146,466) Increase (decrease) in accounts payable and accrued expenses 139,059 (553,899) Net cash provided by operating activities $ 4,026,514 $ 3,146,833 The accompanying notes are an integral part of these financial statements.

23 Statements of Plan Net Assets Pension Trust Fund - Employee Retirement Fund Assets Investments, at fair value Equity investments $ 4,734,275 $ 3,955,795 Real estate 483, ,308 Bonds/Fixed income 6,382,646 5,691,089 Total assets $11,600,293 $ 10,072,192 Net Assets Held in trust for pension benefits $11,600,293 $ 10,072,192 The accompanying notes are an integral part of these financial statements. 21

24 Statements of Changes in Plan Net Assets Pension Trust Fund - Employee Retirement Fund For the years ended Additions Contributions Employer $ 924,367 $ 811,783 Investment income Net appreciation in fair value of investments 1,140,719 81,638 Total investment income 1,140,719 81,638 Total additions 2,065, ,421 Deductions Benefits paid 506, ,774 Administrative expenses 30,482 26,491 Total deductions 536, ,265 Change in net assets 1,528, ,156 Net Assets Held in trust for pension benefits Beginning of year 10,072,192 9,428,036 End of year $ 11,600,293 $ 10,072,192 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 conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. 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. Interest expense, financing costs are reported as non-operating expenses. The accounting and reporting policies of the Authority conform to the accounting rules prescribed by the Governmental Accounting Standards Board (GASB). Private sector standards of financial accounting and reporting issued prior to December 1, 1989 generally are followed in enterprise fund financial statements, to the extent that those standards do not conflict with or contradict GASB pronouncements. Governments also have the option of following subsequent private sector guidance for their enterprise funds, subject to this same limitation. The Authority has elected not to follow subsequent private sector guidance. 23

26 Notes to the Financial Statements Net assets for enterprise funds on the accompanying Statements of Net Assets are required to be segregated into the following four categories: Invested in capital assets, net of related debt: Capital assets, net of accumulated depreciation and outstanding debt balances (net of deferred losses and unamortized issuance costs) attributable to the acquisition, construction or improvement of those assets. Restricted: Nonexpendable Net assets subject to externally imposed stipulations requiring that the Authority maintain them permanently. The Authority has no nonexpendable net assets. Expendable Net assets 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 assets included the Authority s bond construction funds on hand. Unrestricted: Net assets that are not subject to externally imposed stipulations and are not invested in capital assets. Unrestricted net assets 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. 14, The Financial Reporting Entity, as amended by GASB Statement No. 39, Determining Whether Certain Organizations are Component Units. As a result of applying the reporting entity criteria in GASB Statement Nos. 14 and 39, 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 Senior 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, including changes in the fair value of investments, is reported as interest and other investment income in the Statements of Revenues, Expenses and Changes in Net Assets. Pension investments are valued at fair value. The pension plan s unallocated insurance contracts are valued at contract value. Contract value represents contributions made under the contract plus interest at the contract rate, less funds used to pay benefits or administrative expenses charged by the Principal Life Insurance Company. The pension plan s unallocated separate accounts are valued at fair value. 24

27 Notes to the Financial Statements 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 $100,000 per bank, increasing to $250,000 in October Cash deposits that exceed the federally insured amount are covered under Florida Statutes Chapter 280 (see Note 2). Additionally, the Authority has unrestricted and restricted investments in federal government agencies that have a high credit standing. The Authority does not believe there is a significant risk of nonperformance from these agencies. 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 FIFO and fuel is valued at weighted average cost. Restricted Assets Certain assets are restricted in accordance with the provisions of the bond covenants and in accordance with FAA restrictions, or as required by law. Assets restricted under the bond covenant are designated primarily for payment of debt service. 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. Capital Assets Assets with a cost of $1,000 or more are capitalized and recorded at cost, or the fair value at receipt for contributions. They are depreciated under the straight-line method over the following estimated useful lives: Building and structures Runways, taxiways and ramps Land improvements Fencing Lights and signs Equipment, furniture and fixtures Computers and other intangibles 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 operations and the associated cost and related accumulated depreciation are removed from the accounts. Construction in progress consists mainly of terminal modifications to enhance baggage screening security, taxiway and runway construction, and construction of a new facilities vehicle storage building. 25