HUNTSVILLE-MADISON COUNTY AIRPORT AUTHORITY AUDITED FINANCIAL STATEMENTS JUNE 30, 2015 AND 2014

Transcription

1 HUNTSVILLE-MADISON COUNTY AIRPORT AUTHORITY AUDITED FINANCIAL STATEMENTS JUNE 30, 2015 AND 2014

2 CONTENTS FINANCIAL STATEMENTS Independent Auditor's Report Page 1 Management s Discussion and Analysis 3 Statement of Net Position 8 Statement of Revenue and Expenses 10 Statement of Changes in Net Position 11 Statement of Cash Flows 12 Notes to Financial Statements 14 REQUIRED SUPPLEMENTARY INFORMATION Schedule of Changes in the Net Pension Liability 30 Schedule of Employer Contributions 31 ADDITIONAL INFORMATION Independent Auditor's Report on Additional Information 32 Additional Information 33 Notes to Schedules Included in Additional Information 40 ADDITIONAL REPORTS Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 41 Independent Auditor's Report on Compliance for Each Major Program and Passenger Facility Charge (PFC) Program and on Internal Control Over Compliance Required by OMB Circular A Schedule of Expenditures of Federal Awards 45 Schedule of Passenger Facility Charges 46 Schedule of Findings and Questioned Costs 47

3 Mercer & Associates, PC a CPA firm 201 Williams Ave., Suite 280 Huntsville, Alabama (256) Fax (256) Jerry Mercer, CPA, owner Lisa Eaton, CPA Misty Whiting, CPA Carol Crews, CPA Jacqueline Sasser, CPA Jordan Gibbs, CPA Members Alabama Society of C.P.A.s American Institute C.P.A.s Board of Directors Airport Authority Huntsville, Alabama Report on the Financial Statements INDEPENDENT AUDITOR'S REPORT We have audited the accompanying financial statements of the business-type activities of the Huntsville- Madison County Airport Authority, as of and for the years ended June 30, 2015 and 2014, 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 audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the business-type activities of the Airport Authority as of June 30, 2015 and 2014, and the changes in financial position and cash flows thereof for the years then ended in conformity with accounting principles generally accepted in the United States of America.

4 Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that a management s discussion and analysis on pages 3 through 9, schedule of changes in the net pension liability on page 30 and schedule of employer contributions on page 31 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 Airport Authority s financial statements. The schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, as well as the Schedule of Passenger Facility Charges as specified in the Passenger Facility Charge Audit Guide for Public Agencies, issued by the Federal Aviation Administration, and are not a required part of the financial statements. The schedule of expenditures of federal awards and the Schedule of Passenger Facility Charges are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards and the Schedule of Passenger Facility Charges are fairly stated, in all material respects, in relation to the financial statements taken as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated September 25, 2015, on our consideration of the Airport Authority s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Huntsville-Madison County Airport Authority s internal control over financial reporting and compliance. September 25,

5 MANAGEMENT S DISCUSSION & ANALYSIS This discussion and analysis of the Airport Authority (the Authority ) financial performance provides an overview of the Authority s financial activities for the fiscal year ended June 30, Please read it in conjunction with the Authority s financial statements and notes to the financial statements, which immediately follow this analysis. Airport Activities and Highlights At June 30, 2015, the Huntsville International Airport was served by American Airlines, Delta Airlines, U.S. Airways and United Airlines directly or through their affiliates. At the date of this report non-stop passenger service is provided to Dallas, Chicago, Atlanta, Houston, Charlotte, Detroit, Washington D.C. (DCA and IAD), and Denver. Air cargo carriers include Atlas, Cargolux, Federal Express and UPS. Air cargo service includes domestic destinations as well as international destinations in Luxembourg, England, Mexico, Hong Kong, and Brazil. The following chart highlights selected key activities of the Airport Authority: % FY 15 FY 14 Difference Difference Enplanements 534, ,694 5, % Landed Weight-Air Carriers (000 pounds) 664, ,637 (51,828) (7.2%) Landed Weight-Air Cargo (000 pounds) 408, ,001 4, % Air Carrier Landings 9,358 9,902 (544) (5.5%) Rail Lifts 26,346 28,794 (2,448) (8.5%) July 2015/2014 Number of Monthly Departing Passenger Flights Number of Seats on Monthly Departing Flights % 60,009 64,665 (4,656) (7.2%) Passenger enplanements for FY15 increased by 1.1%. The preceding year, FY14, passenger enplanements declined by 3.1%. During FY15, both Delta Airlines and US Air enplanements increased, 7.0% and 2.6%, respectively. American Airlines enplanements decreased by 4.9% and United Airlines by 6.2%. Enplanements increased for all four quarters in FY15 after declining for the previous ten consecutive quarters beginning with the first quarter of FY12. Our market was also highly impacted by the recent threatened defense cuts and uncertainty of governmental spending over the past two years. Governmentrelated travel was severely impacted. However, the last two quarters of FY14 saw increases year over year, with the fourth quarter increasing by 5.7%. Landing Weights for passenger carriers decreased during the past year by 7.2%. July 2015 departing passenger flights increased by 4.7% from July 2014, although seats decreased by 7.2%. On December 9, 2013, AMR Corporation, the parent company of American Airlines, and U.S. Airways Group, the parent company of U.S. Airways, merged to form American Airlines Group, Inc. American Airlines and U.S. Airways serve the Huntsville market, and their operations were merged at the Huntsville International Airport in July For FY15, American had a 17.8% share of enplanements at the Airport and U.S. Airways had a 22.9% share. The destinations served directly from Huntsville by the two carriers do not overlap. The merger has resulted in slightly decreased service. Landed weights for air cargo carriers declined by 1.9% from FY14, following a 4.0% decline the previous year. The decline was due to an overall tightening of air cargo shipments internationally

6 MANAGEMENT S DISCUSSION AND ANALYSIS (CONTINUED) Rail lifts decreased to 26,346, 8.5% below FY14. During FY15 the Airport has contracted with Thyssen Krupp Airport Systems to purchase 12 new state of the art glass jet loading bridges. This project will replace the original 10 steel bridges installed in 1989 and will accommodate regional jets as well as narrow and wide body aircraft. The bridges will be equipped with new HVAC systems, Airplane Preconditioned Air. Huntsville is one of the first airports in the country to order 100% new glass open architecture bridges more commonly found in international markets. The first seven bridges will be complete and in place by the end of November The remaining 5 bridges are scheduled for installation in 2018 (2 units) and 2020 (3 units). The project will be funded with current and future year entitlement grants from the FAA at 90% with the remaining 10% match coming from PFC. In June 2012, Panalpina began serving the Airport with the new Boeing freighter which made Huntsville International Airport the smallest airport to receive a FAA certification to accommodate such large aircrafts. Based on this service, the FAA issued the Airport grants totaling $44 million to date, which has completed the west side and provided paved shoulders for the east R/W. The remaining Group VI work is estimated to be $51 million, which includes a 10,000 foot taxiway C east of the runway for safety improvements and will require three to five years to complete, pending funding approval. Using the Financial Statements - An Overview for the User The financial section consists of five parts - management's discussion and analysis (this section), the independent auditors' report, the basic financial statements, required supplemental information and other supplemental information. Analysis of the Airport Authority's Overall Financial Position As indicated earlier, net assets may serve over time as a useful indicator of a government's financial position. Refer to Table 1 when reading the following analysis of net assets. The Authority's assets and deferred outflows exceeded liabilities and deferred inflows by $285.4 million at June 30, Of this figure, $227.1 million reflects the Authority's investment in capital assets (e.g., land, buildings, improvements other than buildings, furniture and equipment, and transportation equipment), less accumulated depreciation and debt related to the acquisition of the assets. The major changes between 2015 and 2014 were the result of $15.16 million capital acquisitions net of retirements, depreciation expense and a decrease in related debt. The Authority uses these capital assets to provide services to the airlines, passengers and to service providers at the Airport; consequently, these assets are not available for future spending. Although the Authority s equity in its capital assets is reported net of related debt, it is noted that the resources required to repay this debt must be provided annually from operations, since it is unlikely the capital assets themselves will be liquidated to pay liabilities. The increase in restricted assets is largely due to an increased balance in PFC funds available. The Authority made payments on long-term debt as required by bond indentures totaling $5.3 million in principal. Unrestricted Net Position may be used at the Authority's discretion to meet ongoing obligations to passengers and other airport users, creditors and for future operations. Unrestricted Net Position decreased from $49.1 million to $47.2 million

7 MANAGEMENT S DISCUSSION AND ANALYSIS (CONTINUED) Table 1: Summary of Net Position Current assets $46,802,426 $50,923,204 Restricted assets 12,641,484 12,280,015 Property and equipment, net of accumulated depreciation 281,087, ,506,124 Other assets 1,214,994 1,271,855 Total Assets 341,746, ,981,198 Deferred Outflow of Resources 1,455,315 1,412,664 Current liabilities 2,424,329 5,063,777 Current liabilities, payable from restricted assets 6,479,942 6,345,538 Long-term debt, net of current portion 48,480,078 54,131,027 Total Liabilities 57,384,349 65,540,342 Deferred Inflow of Resources 390,988 0 Total Net Position $285,426,382 $279,853,520 Analysis of the Airport Authority s Operations The results of this fiscal year's operations as a whole are reported in detail in the Statement of Revenues and Expenditures. Table 2 below condenses the results of operations for the fiscal year into a format where the reader can easily see the total revenues of the Authority for the year. It also shows the impact the operations had on changes in net position as of June 30, As shown in Table 2, Operating Loss increased in the current year. It is important to note that none of these costs were borne by the taxpayers of Huntsville. Much of the revenue, $29.04 million, was collected from users who benefited from services provided during the year, such as airlines, concessionaires, passengers, tenants, pilots using hangers and other users. State and federal grants funded capital projects totaling $9.97 million. Passenger facility charges of $2.14 million were collected. Interest earnings provided for $0.20 million in revenues. Table 2: Statement of Revenue and Expenses and Changes in Net Position Operating Revenues Airport $25,189,154 $24,859,676 Industrial Park 88,295 84,172 Hotel 3,759,147 3,503,478 Total Operating Revenues 29,036,596 28,447,326 Operating Expenses Airport 12,641,068 13,701,039 Industrial Park 803, ,090 Hotel 3,053,898 2,927,177 Total Operating Expenses 16,498,122 17,389,

8 MANAGEMENT S DISCUSSION AND ANALYSIS (CONTINUED) Excess of Operating Revenue 12,538,474 11,058,020 Depreciation 13,865,043 11,587,805 Operating Income (Loss) (1,326,569) (529,785) Interest income 200, ,424 Interest, amortization and other expense and income (2,646,146) (2,766,624) Federal, State and Local Grants 9,967,193 15,413,512 Passenger Facility Charges 2,140,115 2,043,053 Interest income on passenger facility charges 3,170 8,630 Increase in Net Position 8,338,020 14,383,210 Net Position Beginning 279,853, ,470,310 Prior Period Adjustment (Note M) (2,765,158) 0 Net Position Ending $285,426,382 $279,853,520 Analysis of Airline Rates and Charges The Authority s Statement of Policy regarding Airline Use and Occupancy of Airport Facilities and Periodic Adjustment of Airline Rentals, Fees and Charges for Fiscal Year 2015 establishes how the airlines will be assessed annual rates and charges for their use of the Airport. The agreement includes a methodology for fueling, security and facilities charges. The Authority also has the ability under the Agreement to adjust airline rates and charges at any time throughout the year to ensure adherence to all financial covenants in its bond resolutions. No such adjustments were required during Airfield landing fees and terminal rental rates billed by the Airport are adjusted based on an annual year end settlement calculation for the landing fee and the terminal rental rate based on actual income and expenditures allocated to the cost centers. The airline cost per enplanement calculated after the settlement of all rates and charges was $15.69 for 2015 and $16.34 for Capital Acquisitions and Construction Activities During fiscal year 2015, the Authority expended $15.5 million on capital activities. This included major construction projects, including pavement rehabilitation, jetbridge upgrade and Group VI infrastructure improvements. Capital asset acquisitions are capitalized at cost. Acquisitions are funded using a variety of financing techniques including Federal grants with matching Airport funds, private investment, debt issuances, and Airport revenues. At June 30, 2015, the Authority has signed contracts for a number of construction projects. Payments of $0.69 million on a $10.1 million contract for Passenger Boarding Bridges are included in construction in progress at year end. Certain of these costs are funded with grants from the Federal Aviation Administration (FAA), and the remainder from Authority funds, including bond proceeds and PFCs for approved projects. Long Term Debt Administration A summary of the bonds payable by the Authority and outstanding at June 30, 2015 and 2014 from airport operations or, in the case of the PFC bonds, the PFC charges, are as follows: - 6 -

9 MANAGEMENT S DISCUSSION AND ANALYSIS (CONTINUED) Issue Interest Rate June 30, 2015 June 30, 2014 Airport Revenue Bonds % 15,425,000 16,025,000 Airport Revenue Bonds % 14,930,000 17,500,000 Airport Revenue Bonds 2010A % 7,640,000 8,370,000 Airport Revenue Bonds 2010B % 2,005,000 2,385,000 PFC Bonds % 13,617,508 14,656,296 Total Face Amount of Airport Bonds $ 53,617,508 $ 58,936,296 Credit Rating and Bond Insurance On February 5, 2013, Moody s Investors Service downgraded the ratings on the Authority s outstanding Revenue Bonds to A3 from A2, with a stable outlook. In connection with the sale of each General Airport Revenue Bond issue, an insurance policy has been purchased by the Authority to guarantee the payment of principal and interest when due. The 2006, 2007, 2010-A and 2010-B Issues are insured by Assured Guaranty Municipal Corp. (formerly known as Financial Security Assurance Inc.). Passenger Facility Charges (PFC) The Authority collected a PFC of $4.50 per enplaned passenger. During the current year, the Authority collected a total of $2.1 million in PFCs. Passengers pay PFCs on the first two and last two portions of any trip. No PFCs are collected from non-revenue passengers such as a passenger using a frequent flier award ticket. PFCs are used for expenditures approved by FAA based upon formal request by the Authority. For further details, see the Schedule of Passenger Facility Charges in the Compliance Section of this report. Financial Statements The Authority s financial statements are prepared on an accrual basis in accordance with generally accepted accounting principles promulgated by the Governmental Accounting Standards Board (GASB). The Authority is structured as 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 land) are depreciated over their useful lives. Amounts are restricted for debt service, passenger facility charges, FAA expenditures and, where applicable, for construction activities. See the notes to the financial statements for a summary of the Authority s significant accounting policies. Request for Information This Management Discussion and Analysis is designed to provide detail information on the Authority s operations to all those with an interest in the Authority s financial affairs. Questions concerning any of the information provided in this report or any request for additional information should be addressed to the Director of Finance & Administration by at rtaylor@hsvairport.org - 7 -

10 HUNTSVILLE-MADISON COUNTY AIRPORT AUTHORITY STATEMENT OF NET POSITION JUNE 30, 2015 AND 2014 ASSETS AND DEFERRED OUTFLOWS OF RESOURCES Current Assets Cash and cash equivalents (Notes A & B) $ 16,538,177 $ 18,652,088 Short-term investments (Note B) 27,639,558 27,597,078 Accounts receivable 1,646,967 1,885,112 Investment interest receivable 211,442 87,994 Grants receivable 384,886 2,319,537 Inventories 121, ,897 Prepaid expenses 259, ,498 Total Current Assets 46,802,426 50,923,204 Restricted Assets Cash in bank, trust funds (Notes B & C) 5,813,767 5,897,402 Cash in bank - FAA land (Note B) 3,804,530 3,800,218 Cash in bank - passenger facility charges (Note B) 3,023,134 2,582,342 Interest receivable Total Restricted Assets 12,641,484 12,280,015 Property and Equipment (Note A) Land 45,554,081 43,233,171 Structures and improvements 383,050, ,950,381 Furniture and equipment 20,266,614 19,293,792 Construction in progress 4,344,325 18,573,220 Total 453,215, ,050,564 Accumulated depreciation 172,127, ,544,440 Total Property and Equipment 281,087, ,506,124 Other Assets and Long-Term Investments Regulatory asset - bond issue costs (Note C) 1,076,863 1,232,568 Net pension asset (Note D) 138,131 0 Other accounts receivable, less current portion (Note F) 0 39,287 Total Other Assets and Long-Term Investments 1,214,994 1,271,855 Total Assets 341,746, ,981,198 Deferred Outflows of Resources Losses on debt refundings 1,148,463 1,412,664 Pension employer contributions subsequent to measurement date 306,852 0 Total Deferred Outflows of Resources 1,455,315 1,412,664 TOTAL ASSETS AND DEFERRED OUTFLOWS OF RESOURCES $ 343,201,719 $ 345,393,862 See notes to financial statements

11 HUNTSVILLE-MADISON COUNTY AIRPORT AUTHORITY STATEMENT OF NET POSITION JUNE 30, 2015 AND 2014 LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND NET POSITION Current Liabilities Accounts payable $ 1,000,961 $ 3,601,138 Accrued vacations, sick leave, salaries and retiree benefits 1,352,976 1,392,247 Unearned income and deposits 70,392 70,392 Total Current Liabilities 2,424,329 5,063,777 Current Liabilities Payable From Restricted Assets (Note C) Accrued interest 931,338 1,026,571 Current portion of long-term debt 5,548,604 5,318,967 Total Current Liabilities Payable From Restricted Assets 6,479,942 6,345,538 Long-Term Debt, Net of Current Portion (Note C) Bonds payable 48,480,078 54,131,027 Total Long-Term Debt, Net of Current Portion 48,480,078 54,131,027 Total Liabilities 57,384,349 65,540,342 Deferred Inflows of Resources Difference between projected and actual earnings on pension plan investments 390,988 0 Total Deferred Inflows of Resources 390,988 0 Net Position Invested in capital assets, net of related debt 227,058, ,056,130 Restricted for: Debt service 4,882,482 4,870,884 Passenger facility charges 3,023,134 2,582,342 FAA Expenditures 3,240,411 3,240,411 Unrestricted 47,221,537 49,103,753 Total Net Position 285,426, ,853,520 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND NET POSITION $ 343,201,719 $ 345,393,862 See notes to financial statements

12 HUNTSVILLE-MADISON COUNTY AIRPORT AUTHORITY STATEMENT OF REVENUE AND EXPENSES FOR THE YEARS ENDED JUNE 30, 2015 AND Operating Revenue Airport $ 25,189,154 $ 24,859,676 Industrial Park 88,295 84,172 Hotel 3,759,147 3,503,478 Total Operating Revenue 29,036,596 28,447,326 Operating Expenses Airport 12,641,068 13,701,039 Industrial Park 803, ,090 Hotel 3,053,898 2,927,177 Total Operating Expenses 16,498,122 17,389,306 Excess of Operating Revenue 12,538,474 11,058,020 Depreciation 13,865,043 11,587,805 Operating Income (Loss) (1,326,569) (529,785) Other Revenue and Expenses Interest income - Airport Operations 59,426 66,368 Interest income - Industrial Park 140, ,056 Interest expense (2,306,340) (2,528,737) Amortization of discount and bond issue costs (Note C) (317,383) (317,383) Gain (loss) on sale of land and equipment (22,423) 79,496 Federal grants (Note A) 9,967,193 15,413,512 State grants 0 0 Passenger facility charges 2,140,115 2,043,053 Interest income on passenger facility charges 3,170 8,630 Change in Net Position $ 8,338,020 $ 14,383,210 See notes to financial statements

13 HUNTSVILLE-MADISON COUNTY AIRPORT AUTHORITY STATEMENT OF CHANGES IN NET POSITION FOR THE YEARS ENDED JUNE 30, 2015 AND Net Position, Beginning of Year $ 279,853,520 $ 265,470,310 Prior Period Adjustment (Note M) (2,765,158) 0 Net Position, Beginning of Year, Restated 277,088, ,470,310 Change in Net Position 8,338,020 14,383,210 Net Position, End of Year $ 285,426,382 $ 279,853,520 See notes to financial statements

14 HUNTSVILLE-MADISON COUNTY AIRPORT AUTHORITY STATEMENT OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2015 AND Cash Flows from Operating Activities: Received from customers $ 29,314,028 $ 28,361,533 Paid to suppliers for goods and services (8,688,973) (9,084,010) Paid for employee services (11,004,417) (8,478,109) Net Cash Provided (Used) by Operating Activities 9,620,638 10,799,414 Cash Flows from Non-Capital Financing Activities: 0 0 Cash Flows from Capital Financing Activities: Federal, state and local grants 11,901,844 16,378,059 Passenger facility charges 2,140,115 2,043,053 Interest earned on passenger facility charges 3,170 8,630 Payment to bonds payable (5,318,788) (5,105,466) Interest paid on long-term debt and expensed (2,401,573) (2,571,103) Interest paid on long-term debt and capitalized 0 (48,944) Proceeds from sale of land, other 0 125,000 Proceeds from sale of equipment 0 47,095 Cost of construction and equipment (15,411,267) (17,793,522) Cost of land purchased (2,320,910) 0 Net Cash Provided (Used) by Capital Financing Activities (11,407,409) (6,917,198) Cash Flows from Investing Activities: Interest income 76, ,430 Proceeds from / (Purchase of) short term investments (42,480) (17,211,493) Net (funding) receipt of restricted passenger facilities charges cash (440,792) 2,048,391 Net (funding) receipt of restricted deposits 79, ,121 Net Cash Provided (Used) by Investing Activities (327,140) (14,737,551) Net change in cash and cash equivalents (2,113,911) (10,855,335) Cash and cash equivalents at beginning of year 18,652,088 29,507,423 Cash and cash equivalents at end of year $ 16,538,177 $ 18,652,088 See notes to financial statements

15 HUNTSVILLE-MADISON COUNTY AIRPORT AUTHORITY STATEMENT OF CASH FLOWS - CONTINUED FOR THE YEARS ENDED JUNE 30, 2015 AND 2014 Reconciliation of operating income to net cash provided (used) by operating activities: Operating Income (Loss) $ (1,326,569) $ (529,785) Adjustments to reconcile operating income to net cash provided (used) by operating activities: Depreciation 13,865,043 11,587,805 Prior period adjustment (2,765,158) 0 Changes in assets, deferred outflows of resources, liabilities and deferred inflows of resources Accounts receivable 277,432 (85,793) Net pension asset (138,131) 0 Deferred outflows of resources (306,852) 0 Other current assets (1) (43,629) Other current liabilities (376,114) (129,184) Deferred inflows of resources 390,988 0 Net Cash Provided (Used) by Operating Activities $ 9,620,638 $ 10,799,414 See notes to financial statements

16 HUNTSVILLE-MADISON COUNTY AIRPORT AUTHORITY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Reporting Entity - The Airport Authority (the Authority), a public corporation, applied for and received permission to reincorporate on October 10, 1991, under Title 4 of the Code of Alabama, 1975 as amended in the 1991 session. The Authority consists of a five member Board of Directors, of which two are appointed by the City Council of Huntsville, Alabama, two by the Madison County Commission and one jointly by the City Council and County Commission. The Authority is considered an enterprise fund that has financial accountability over the Huntsville International Airport and is the primary government for reporting purposes. The Authority is not considered a component unit of any other governmental reporting entity. In addition, there are no component units over which the Authority exercises control. The Authority has three operating categories for presentation purposes. Airport operations include all terminal and airport activity as it relates to the Authority's public airport operations. The Industrial Park includes investments and property that are leased or held for future development of industrial and commercial tenants engaged in activities unrelated to the Authority's public airport operations. As described in Note I, financing leases with the industrial park tenants are not recorded in the Authority s financial statements. The Four Points Hotel is owned by the Authority and operated by a managing agent as described in Note D. The financial section of the financial statements consists of five parts - management's discussion and analysis, the independent auditors' report, the basic financial statements, required supplemental information, and other supplemental information. Accounting Principles - The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. GASB 65 is applicable to the Authority s June 30, 2015, financial statements. However, the Authority is also subject to GASB 62. GASB 62 includes the accounting concept that a business-type activity may depart from specific accounting pronouncements and account for various transactions on a basis consistent with its ratemaking practices. The Authority recognizes a regulatory asset for bond issue costs. Revenue - Revenue is recognized as billed to airport users based on usage rates or rental agreements adopted by the Authority's Board. Related expenditures are charged against revenue when incurred. Reserve for Doubtful Accounts - A reserve for doubtful accounts is established for those accounts considered, by management, to be doubtful of collection. At June 30, 2015, $137,606 has been reserved as doubtful. Passenger Facility Charges - Passenger Facility Charges (PFC) are recognized as collected. Accrual of PFC revenue is not reasonably measurable; therefore, no accrued PFC revenue will be recorded. Governmental Grants Grant proceeds are recognized as revenue in the current year. Grants from FAA are included in revenues. Most FAA grants are for capital project purposes and are recognized as additions to assets. FAA grants are accrued as partial completion of grant requirements are met, and grant proceeds receivable are credited directly as grant income in the accompanying financial statements. Inventories - Inventories are stated at the lower of cost or market. Advertising Advertising costs are expensed as incurred

17 NOTES TO FINANCIAL STATEMENTS CONTINUED NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Deferred Outflows/Inflows of Resources - The Authority has deferred outflows and inflows of resources. Deferred outflows of resources is a consumption of assets by the Authority that is applicable to a future reporting period and consist of the pension employer contributions subsequent to the September 30, 2014, measurement date and losses on refundings of debt. Deferred inflows of resources is an acquisition of assets by the Authority that is applicable to a future reporting period and consist of the difference between projected and actual earnings on pension plan investments. Investments - The Authority is legally authorized to invest in obligations of the U.S. Treasury and securities of federal agencies. The Authority had no investments at June 30, 2015, except deposits in bank accounts and certificates of deposit with local banks. Net Position Net position on the Statement of Net Position includes the following: Investment in Capital Assets, Net of Related Debt The component of net position that reports the difference between capital assets less both the accumulated depreciation and the outstanding balance of debt that is directly attributable to the acquisition, construction or improvement of these capital assets. Restricted for Debt Service The component of net position that represents amounts required by debt covenants to be separated for debt service. Restricted for Passenger Facility Charges The component of net position that represents passenger facility charge revenue in excess of expenditures. Restricted for FAA expenditures Land sales from land purchased with PFC, FAA noise or other federal funds are designated as restricted until proceeds are used in FAA-approved expenditures. Unrestricted Net position that is not reported in Investment in Capital Assets, Net of Related Debt, Net Position Restricted for Debt Service, Net Position Restricted for Passenger Facility Charges, and Net Position Restricted for FAA Expenditures. Airport Property and Equipment- Property and equipment are stated at cost, less accumulated depreciation. Depreciation expense is computed using the straight-line method over the estimated useful lives of the related assets. Estimated useful lives of plant and equipment items range from 40 years for buildings, 20 to 40 years for roads and field improvements, and 3 to 10 years for furniture and equipment. Land is not depreciated. Interest costs relating to airport construction are capitalized during the construction period. Costs related to development of property in the Industrial Park are capitalized as improvements to the property. No interest was capitalized during the current period. Maintenance and repairs are charged to operations in the period incurred. The costs and accumulated depreciation of properties disposed of are removed from the related asset accounts and the difference is recorded as an expense in the period of disposition. Pensions - The Employees Retirement System of Alabama (the Plan) financial statements are prepared using the economic resources measurement focus and accrual basis of accounting. Contributions are recognized as revenues when earned, pursuant to the plan requirements. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan. Expenses are recognized when the corresponding liability is incurred, regardless of when the payment is made. Investments are reported at fair value. Financial statements are prepared in accordance with requirements of the Governmental Accounting Standards Board (GASB). Under these requirements, the Plan is considered a component unit of the State of Alabama and is included in the State s Comprehensive Annual Financial Report

18 NOTES TO FINANCIAL STATEMENTS CONTINUED NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Annual leave accruals A liability is recorded at June 30 for accrued vacation, accrued salaries and the estimated portion of accrued sick leave to be paid to employees at retirement. The liability is based on personnel policies for vacation and sick leave. Statement of Cash Flows - For purposes of the statement of cash flows, the Board considers all highly liquid debt instruments purchased with maturities of 90 days or less to be cash equivalents, except restricted funds. Estimates Preparation of financial statements in conformity with U.S. generally accepted accounting principles requires use of management s estimates. Management has made estimates related to accruals of revenues and expenses. NOTE B - CASH AND RESTRICTED TRUST FUNDS At June 30, 2015 and 2014, unrestricted deposits on hand at banks and in certificates of deposit were fully collateralized by banks qualifying under the Security for Alabama Funds Enhancement Act (SAFE) as qualified public depositories. Funds held by the banks' trust departments or agents are invested in U.S. Government securities or are secured by U.S. Government Securities. The unrestricted funds may be invested at the discretion of the Authority in accordance with state law. The Authority has invested $27,639,558 in certificates of deposit as of June 30, 2015, as follows. The certificates of deposit maturing September 16, 2016, have one-time options to convert to cash at any time prior to maturity with no penalty. Amount Interest rate Maturity Date Amount Interest Rate Maturity Date $5,235, % 1/28/16 $2,500, % 9/16/16 1,000, % 9/15/16 2,500, % 9/16/16 1,000, % 9/15/16 2,500, % 9/16/16 150, % 9/16/16 2,500, % 9/16/16 5,253, % 9/22/15 2,500, % 9/16/16 2,500, % 9/16/16 The restricted funds may be invested at the discretion of the Authority in accordance with state law and the related trust indentures. As stated in note C, the restricted trust funds are invested by their respective trustees (as authorized by related trust indentures). Funds invested in the trustee's U.S. Government security money market accounts and other U.S. Government secured investments are part of the funds held by trustees. June 30, 2015 June 30, 2014 Unrestricted Cash and short-term savings $ 16,538,177 $ 18,652,088 Certificates of deposit $ 27,639,558 $ 27,597,078 Restricted Trust funds, Airport Operations Cash and short-term savings $ 5,813,767 $ 5,897,402 FAA land Cash and short-term savings $ 3,804,530 $ 3,800,218 Passenger facility charges Cash and short-term savings $ 3,023,134 $ 2,582,

19 NOTES TO FINANCIAL STATEMENTS CONTINUED NOTE B - CASH AND RESTRICTED TRUST FUNDS (CONTINUED) Market value equals carrying value for these unrestricted and restricted accounts. When the Authority incurs an expenditure for which it may use either restricted or unrestricted assets, restricted assets are used. NOTE C - LONG-TERM DEBT A summary of the bonds payable by the Authority and outstanding at June 30, 2015 and 2014, from airport operations, or in the case of the PFC bonds, the PFC charges, are as follows: Issue June 30, 2014 Additions Deletions and Reclassifications June 30, 2015 Airport Revenue Bonds 2006 $ 16,025,000 $ 0 $ (600,000) $ 15,425,000 Airport Revenue Bonds ,500,000 0 (2,570,000) 14,930,000 Airport Revenue Bonds 2010A 8,370,000 0 (730,000) 7,640,000 Airport Revenue Bonds 2010B 2,385,000 0 (380,000) 2,005,000 PFC Bonds ,656,296 0 (1,038,788) 13,617,508 Total Face Amount of Airport Bonds 58,936,296 0 (5,318,788) 53,617,508 Plus Unamortized Premium 528,292 0 (105,376) 422,916 Less Unamortized Discount (14,595) 0 2,853 (11,742) Total Long-Term Debt per Financial Statements 59,449,993 0 (5,421,311) 54,028,682 Less Current Portion (5,318,967) 0 (229,637) (5,548,604) Net Long-Term Debt $ 54,131,027 $ 0 $ (5,650,948) $ 48,480,078 In December 2010, the Authority issued Airport Revenue Bonds Series 2010-A for $10,175,000 and Series 2010-B for $3,310,000. Proceeds from the sale of the Series 2010-A Bonds were used to pay the cost of refunding the Authority's Airport Revenue Bonds, Series 1998 and the costs of issuing the Series 2010-A Bonds. Proceeds from the sale of the Series 2010-B Bonds were used to pay the cost of refunding the Authority's Airport Revenue Bonds, Series 2001 and the costs of issuing the Series 2010-B Bonds. The Series 2010-A Bonds and Series 2010-B Bonds were issued under the Eighth Supplemental Trust Indenture, which states additional requirements regarding funding of special trust funds originally created under the 1989 Trust Indenture. The Series 2010-A Bonds and Series 2010-B Bonds are insured as to payment of principal and interest by a municipal bond insurance policy issued by Assured Guaranty Municipal Corp. (formerly known as Financial Security Assurance Inc.). In March 2007, the Authority issued its Series 2007 Bonds for $27,210,000 for the purpose of refunding certain outstanding indebtedness of the Authority, financing a portion of the costs of constructing improvements to the terminal building at the airport, paying the premium for a debt service reserve fund surety bond and paying the costs of issuance. The Series 2007 Bonds were issued under the Seventh Supplemental Trust Indenture, which states additional requirements regarding funding of special trust funds originally created under the 1989 Trust Indenture. The Series 2007 Bonds are insured as to payment of principal and interest by a municipal bond insurance policy issued by Assured Guaranty Municipal Corp. (formerly known as Financial Security Assurance Inc.)

20 NOTES TO FINANCIAL STATEMENTS CONTINUED NOTE C LONG -TERM DEBT (CONTINUED) In April 2006, the Authority issued its Series 2006 Bonds for $18,705,000 for the purpose of financing a portion of the costs of constructing a new public parking deck, improving public roadways and drainage at the Airport and payment of certain costs of issuance. The Series 2006 Bonds were issued under the Sixth Supplemental Trust Indenture, which states additional requirements regarding funding of special trust funds originally created under the 1989 Trust Indenture. The Series 2006 Bonds are insured as to payment of principal and interest by a municipal bond insurance policy issued by Assured Guaranty Municipal Corp. (formerly known as Financial Security Assurance Inc.). The Series 2006, Series 2007, Series 2010-A and Series 2010-B Airport Revenue Bonds will be payable solely out of the pledged revenues derived from operation of the airport remaining after payment of operating expenses as defined in the indenture. The indenture does not constitute a mortgage on any of the physical properties forming a part of the airport. None of the Bonds are general obligations of the Authority and do not constitute a personal charge against the general credit of the Authority. The Series 2010-A Bonds are nontaxable bonds with stated rates ranging from 2.0% to 4.5% and with maturities ranging from July 1, 2011, to July 1, The Series 2010-B Bonds are nontaxable bonds with stated rates ranging from 2.5% to 4.25% and with maturities ranging from July 1, 2011, to July 1, The Series 2007 Bonds are nontaxable bonds with stated rates ranging from 3.75% to 5.0% and with maturities ranging from July 1, 2007, to July 1, The Series 2006 Bonds are nontaxable bonds with stated rates ranging from 3.60% to 5.0% and with maturities ranging from July 1, 2009, to July 1, The Series 2010-A Bonds having a stated maturity in 2021 and thereafter shall be subject to redemption and payment, at the option of the Authority, on July 1, 2020, and on any date thereafter at a redemption price of 100% of the principal amount, plus accrued interest. The Series 2010-B Bonds are not subject to redemption. The Series 2007 Bonds with a stated maturity in 2017 and thereafter are subject to redemption and payment, at the option of the Authority, on July 1, 2016, or any date thereafter at a redemption price of 100% of the principal amount, plus accrued interest. The Series 2006 Bonds with a stated maturity on July 1, 2016, and thereafter are subject to redemption and payment, at the option of the Authority, on January 1, 2016, or any date thereafter at a redemption price of 100% of the principal amount, plus accrued interest. In November 2010, the Authority issued its 2010 PFC Bond for $18,000,000 for the purpose of additions to and renovation of the baggage claim area and payment of certain costs of issuance. The 2010 PFC Bond is a nontaxable bond with a stated rate of 3.75%, payable solely out of PFC collections in monthly payments of $130,900 through December 1, This Bond does not constitute a lien on, nor is it payable from, any other property or assets of the Authority. The principal of this Bond is subject to redemption and payment on or after November 9, 2015, at the option of the Authority, at the redemption price of 100%. Issuance of the Series 2010-A and Series 2007 bonds included bonds issued at a net premium. The premium of $1,299,716 was amortized $105,376 in the current period with accumulated amortization of $876,800. Issuance of the Series 2010-B and 2006 bonds included bonds issued at a net discount. The discount of $878,814 was amortized $2,853 in the current period with accumulated amortization of $867,072. The remaining net premium increases the carrying value of Bonds Payable. Bond issue costs of $2,261,096 were paid related to the Series 2010-A, Series 2010-B, Series 2010 PFC, Series 2007 and Series The bond issue costs were amortized $155,705 in the current year, with accumulated amortization at June 30, 2015, of $1,184,

21 NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE C LONG -TERM DEBT (CONTINUED) There were no current or advance refundings of Authority debt during fiscal year 2015, and for debt that was advance refunded and defeased in prior years, there was no refunded debt outstanding at June 30, Losses realized on prior advance refundings are being amortized over the shorter of the life of the refunded or refunding debt. Unamortized losses on refundings are reported as deferred outflows in the statement of net position. The Series 1989 Trust Indenture, the Series 2006 Sixth Supplemental Trust Indenture, the 2007 Seventh Supplemental Trust Indenture and the 2010 Eighth Supplemental Trust Indenture created special trust funds. All pledged revenues are required to be deposited as received into the Revenue Fund, and moneys in such fund are required to be applied and allocated on a monthly basis in the manner and priority established by the Indentures. Funding requirements at June 30, 2015, have been met as set forth in the Indentures. The special funds and their balances are as follows: Rebate Fund $ 122,883 $ 122,867 Bond Funds 5,359,034 5,260,867 Debt Service Reserve Fund 331, ,679 Construction Fund ,989 Restricted Trust Funds (Airport Operations) $ 5,813,767 $ 5,897,402 Operating Reserve Account (Considered Unrestricted) $ 2,087,313 $ 2,185,041 Revenue Fund (Considered Unrestricted) $ 8,525,539 $ 2,706,299 The Indentures also require the Authority to maintain adequate rates and charges in a manner that produces Net Revenues (as described therein) in excess of 1.25 times the current Annual Debt Service on Airport Revenue Bonds (as described therein). Maturities for the Bonds due over the next five and succeeding fiscal years are as follows: A 2010-B 2010 PFC Total 2016 $ 625,000 $ 2,705,000 $ 750,000 $ 390,000 $ 1,078,604 $ 5,548, ,000 2,835, , ,000 1,119,755 5,769, ,000 2,980, , ,000 1,162,475 6,012, ,000 3,130, , ,000 1,206,825 6,276, ,000 3,280, , ,000 1,252,866 6,487,866 Succeeding 12,035, ,690, ,796,983 23,521,983 $ 15,425,000 $ 14,930,000 $ 7,640,000 $ 2,005,000 $ 13,617,508 $ 53,617,508-19

22 NOTES TO FINANCIAL STATEMENTS CONTINUED NOTE C LONG -TERM DEBT (CONTINUED) Principal and interest payments for the Bonds due over their remaining lives are as follows: Fiscal Series 2006 Series 2007 Year Principal Interest Principal Interest 2016 $ 625,000 $ 700,111 $ 2,705,000 $ 651, , ,893 2,835, , , ,143 2,980, , , ,818 3,130, , , ,034 3,280,000 68, , , , , , , , , , , , , ,015, , ,065, , ,115, , ,170, , ,220,000 87, ,280,000 29, Total $ 15,425,000 $ 6,949,619 $ 14,930,000 $ 1,813,400 Fiscal Series 2010-A Series 2010-B Series 2010 PFC Year Principal Interest Principal Interest Principal Interest 2016 $ 750,000 $ 266,750 $ 390,000 $ 65,850 $ 1,078,604 $ 492, , , ,000 53,750 1,119, , , , ,000 40,325 1,162, , , , ,000 24,650 1,206, , , , ,000 8,075 1,252, , , , ,300, , , , ,350, , ,000 64, ,401, , ,000 22, ,455, , ,510,804 59, ,142 8,519 Total $ 7,640,000 $ 1,437,152 $ 2,005,000 $ 192,650 $ 13,617,508 $ 2,877,159 NOTE D - OPERATING CONTRACTS AND LEASES The Authority has issued a rate ordinance with the air carriers, which, among other provisions, requires the airline to pay landing fees based upon the total landing weight of all aircraft landed. The ordinance also sets rates for counter space, loading bridges, and fuel flowage required at the airport by the airline in its conduct of air transportation. Rates are determined based upon a formula that covers expenses, debt service, and capital expenditures. The Authority has entered into lease agreements with rental car agencies that include charges based upon revenue and space requirements. Minimum annual lease payment requirements in the leases total $555,000 per year. However, actual payments are based upon revenue of the lessee if it exceeds the minimum payment