FORTHENINEMONTHS ENDEDMARCH31,2018

Transcription

1 FORTHENINEMONTHS ENDEDMARCH31,2018 CLARKCOUNTYDEPARTMENTOFAVIATION ANENTERPRISEFUNDOFCLARKCOUNTY,NEVADA

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3 Interim Quarterly Financial Report Clark County Department of Aviation An Enterprise Fund of Clark County, Nevada Prepared by the Department of Aviation McCarran International Airport Las Vegas, Nevada

4 Clark County, Nevada Board of County Commissioners Steve Sisolak, Chairman Chris Giunchigliani, Vice Chairman Susan Brager Larry Brown Marilyn Kirkpatrick Lawrence Weekly James B. Gibson County Manager's Office Yolanda T. King, County Manager Kevin Schiller, Assistant County Manager Randall J. Tarr, Assistant County Manager Jeffrey M. Wells, Assistant County Manager Department of Aviation Rosemary A. Vassiliadis, Director James C. Chrisley, Deputy Director Operations Joseph M. Piurkowski, Airport Chief Financial Officer

5 INTERIM QUARTERLY FINANCIAL REPORT FOR THE NINE MONTHS ENDED MARCH 31, 2018 TABLE OF CONTENTS Management s Discussion and Analysis 1 13 Financial Statements: Statements of Net Position Statements of Revenues, Expenses, and Changes in Net Position 16 Statements of Cash Flows Notes to Financial Statements 19 48

6 Management's Discussion and Analysis (Unaudited) MANAGEMENT'S DISCUSSION AND ANALYSIS The Clark County Department of Aviation ( Department ) is an enterprise fund of Clark County, Nevada ("County"), and it acquires, operates, and maintains the necessary services and resources for the aviation facilities owned and operated by the County ("Airport System"). The Airport System comprises McCarran International Airport ("Airport"), the eighth busiest airport in the United States in terms of passenger volume; North Las Vegas Airport, which caters to general aviation activity and is the second busiest airport in the State of Nevada in terms of aircraft operations; Henderson Executive Airport, a premier corporate aviation facility that features a state-of-the-art terminal and private hangar facilities as well as a new control tower designed to meet the needs of the business aviation community; and Jean Sports Aviation Center and Overton-Perkins Field, which are primarily used for recreational purposes. The following Management Discussion and Analysis ( MD&A ), Financial Statements, and Notes to the Financial Statements (collectively referred to as the "Interim Quarterly Financial Report") provide unaudited information regarding the financial position and the financial operations of the Airport System for the first nine months of fiscal year ( FY ) 2018 ended March 31, This Interim Quarterly Financial Report does not contain certain information included in the Comprehensive Annual Financial Report ("CAFR") issued by the Department and should be read in conjunction with the Department s CAFR for the fiscal year ended June 30, The Department is a self-supporting entity which generates revenues from Airport System users to fund operating expenses and debt service requirements. Capital projects are funded by bond issuances, Passenger Facility Charges, federal awards, and internally generated cash flows. The Department is not subsidized by any tax revenues of the County. Airport Activity Highlights: For the nine months ended March 31, 2018, passenger enplanements were up 2.4 percent compared to the same period one year ago. Total aircraft landed weights at the Airport were up 1.0 percent for the first nine months of FY 2018 over the same period of FY The following schedule details the airline statistics for the nine months ended March 31 for fiscal years 2018, 2017, and

7 Management's Discussion and Analysis (Unaudited) Passenger and Landed Weight Statistics By Month FY 2018, 2017, and 2016 FY 2018 FY 2017 FY 2016 Month Passengers Distribution Passengers Distribution Passengers Distribution July 2,156, % 2,076, % 2,021, % August 2,132, % 2,065, % 2,022, % September 2,026, % 2,010, % 1,881, % October 2,186, % 2,149, % 2,054, % November 1,964, % 1,945, % 1,899, % December 1,894, % 1,840, % 1,797, % January 1,899, % 1,859, % 1,801, % February 1,780, % 1,714, % 1,705, % March 2,133, % 2,083, % 2,027, % Total YTD 18,175, % 17,743, % 17,211, % Increase (decrease) in 3rd quarter enplanements 431, ,970 1,205,175 Percentage increase/decrease 2.4% 3.1% 7.5% FY 2018 FY 2017 FY 2016 Landed Weight Landed Weight Landed Weight Month 1000 lbs. Distribution 1000 lbs. Distribution 1000 lbs. Distribution July 2,313, % 2,266, % 2,194, % August 2,310, % 2,274, % 2,182, % September 2,222, % 2,228, % 2,100, % October 2,354, % 2,328, % 2,217, % November 2,141, % 2,136, % 2,069, % December 2,149, % 2,114, % 2,079, % January 2,205, % 2,178, % 2,089, % February 1,960, % 1,952, % 1,976, % March 2,285, % 2,271, % 2,221, % Total YTD 19,943, % 19,752, % 19,130, % Increase (decrease) in 3rd quarter landed weights 190, , ,721 Percentage increase/decrease 1.0% 3.2% 4.8% Airline Rates and Charges: The airline rates and charges are calculated in accordance with the provisions of the Airline-Airport Use and Lease Agreement dated July 1, 2010 ("Agreement"). The Agreement established a residual rate-making approach to calculating landing fees, terminal building rental rates, and gate use fees. Prior to the start of the fiscal year, the Department established the FY 2018 airline rates and charges, as detailed below, based on the Department s budgeted FY 2018 non-airline revenues, operating expenses, and debt service. The Department closely monitors actual non-airline revenues, operating expenses, and debt service requirements as compared to the budgeted figures, and it has the ability to make mid-year adjustments to the rates if necessary. The Department s non-airline revenues for the first nine months of FY 2018 are up 6.0 percent from the same period in FY Operating expenses are up 11.4 percent over the same period in FY The following table provides the rates and fees in effect through the first three quarters of the fiscal year. 2

8 Management's Discussion and Analysis (Unaudited) FY 2018 FY 2017 Rates and Fees Rates and Fees Landing fee (per 1000 lbs.) $ 1.73 $ 1.93 Terminal rental rate (per square foot) Gate use fee-narrow body (per turn) Gate use fee-wide body (per turn) Gate use lease fee (per annum) 187, , International facility use fee (per deplaned international passenger Common use ticketing fee (per enplaned passenger) The Agreement provides for non-signatory carriers to pay a premium of 1.25 times the rate paid by signatory carriers on all terminal rentals and gate use fees. Seventeen carriers serving the Airport have signed the Agreement as of March 31, Passenger Airline Revenues Nine Months Ended March 31, 2018 and 2017 Nine Months Ended March 31 Fiscal Year Ended June 30 FY 2018 FY 2017 FY 2018 vs. FY 2017 Budget Actuals Actuals Actuals Actuals Landing and other aircraft fees $ 32,736 $ 36,869 $ (4,133) -11.2% $ 44,746 $ 48,833 Terminal building rentals 116, ,472 (3,181) -2.7% 157, ,328 Gate use fees 19,498 19,863 (365) -1.8% 26,037 26,568 Passenger fee - ticketing & customs and border patrol 13,883 14,155 (272) -1.9% 19,407 19,015 Total airline fees and charges collected $ 182,408 $ 190,359 $ (7,951) -4.2% $ 247,666 $ 253,744 Enplaned passengers 18,175 17, % 24,188 24,005 Cost per enplaned passenger $ $ $ (0.69) -6.4% $ $ Total airline revenues for the first nine months of FY 2018 decreased by $8.0 million, or 4.2 percent, relative to the first nine months of FY This decrease is mostly associated with the decrease in airline rental rates and fees, offset by an increase in passenger traffic. The Department is committed to managing airline rates and charges in an attempt to keep the cost per enplanement at reasonable levels to attract and retain air service in the Las Vegas market. The Department continuously looks for ways to maximize non-airline revenues and minimize operating and debt service expenses. 3

9 Management's Discussion and Analysis (Unaudited) Financial Highlights Operating Revenues: Operating Rev enues Nine Months Ended March 31, 2018 and 2017 (Unaudited) Nine Months Ended Mar. 31, 2018 Mar. 31, 2017 Percentage Rev enue Category (000) (000) Change Terminal building and use fees $ 138,157 $ 142, % Terminal concession fees 56,090 53, % Landing fees and other aircraft fees 38,165 42, % Public and employee parking fees 28,763 28, % Rental car facility fees 28,846 28, % Rental car concession fees 27,130 27, % Gaming fees 27,063 25, % Gate use fees 22,099 22, % Ground transportation fees 20,131 18, % Ground rents and use fees 19,019 17, % General aviation fuel sales (net of cost) 3,315 3, % Other 9,856 3, % $ 418,634 $ 413, % Operating revenues for the nine months ended March 31, 2018, increased 1.3 percent when compared to the same nine-month period one year ago. Passenger traffic and other factors, as discussed below, contributed to the overall increase in revenues, offset by decreases in airline rental rates and fees. Terminal building and use fees are comprised of rental fees for space rented by the airlines in the terminal building as well as rentals from other Airport System facilities. Revenues from terminal building rentals and use fees for the first nine months decreased by $3.9 million, or 2.7 percent. Terminal building rental revenues decreased by $3.5 million, which was attributable to a decrease in the terminal building rental rate of approximately 3.7 percent from the prior year. Terminal concession fees are generated from percentage rents and minimum rental guarantees on food and beverage, passenger services, retail, duty free, and newsstand sales. Terminal concession fees are up $2.6 million, or 4.8 percent, during the first nine months of FY 2018 as compared to the same nine-month period in FY Advertising sales increased by $2.1 million. This increase primarily has been due to the addition of digital network advertising in Terminal 3 and at the taxi lanes, as well as due to custom signs and banners at Terminal 1 and the 4

10 Management's Discussion and Analysis (Unaudited) McCarran Rent-A-Car Center. Food and beverage sales increased by $0.6 million, or 3.0 percent. This increase was mainly driven by the increase in passenger traffic and new food and beverage outlets. Landing fees and other aircraft fees are generated based on fees charged to airlines and cargo operators per thousand pounds of the aircraft s landed weight and on a percentage sales on fuel flowage and ground handler services. The revenue from landing fees and other aircraft fees decreased $4.0 million, or 9.5 percent. Although overall landed weights increased during the first nine months of FY 2018 compared to the same period in FY 2017, landing fees and other aircraft fees declined, due to the decrease in the FY 2018 landing fee rate. Public and employee parking revenues are generated from fees charged to users of the Airport s terminal parking structures and surface lots. Public and employee parking revenues were relatively flat during the first nine months of FY 2018 as compared to the same nine-month period in FY 2017 despite an increase in passenger traffic. Rental car facility fees are comprised of rental fees for space rented by the rental car companies in the McCarran Rent-A-Car Center ( MRACC ) as well as revenues derived from the Customer Facility Charge ( CFC ), which is a fee charged per vehicle rental contract based on the number of days a vehicle is rented from the MRACC. Revenue from rental car facility fees for the period increased $0.2 million or 0.6% for the first nine months of FY 2018 compared to the same nine-month period of FY 2017 on increased CFC collections. Rental car concession fees are generated from percentage rents and minimum rental guarantees on rental car contracts charged to users. Revenue from rental car concessions for the period was down $0.5 million, or 1.7 percent. The decrease in rental car concession revenue is due to a decrease in the number of transaction days during the first nine months of 2018 compared to same period in Gaming revenues are generated from a percentage of net revenues and minimum rental guarantees from slot machines located in the Airport terminals and the MRACC. Gaming revenues increased by $1.2 million, or 4.4 percent. The increase can be attributed to the retirement of older machines and replacement with new machines, we have also placed additional slot machines in areas of the airport with higher foot traffic. Gate use fees are generated from fees for aircraft gate usage and parking. Gate use fees decreased by $0.2 million, or 0.8 percent, on a decrease in signatory airline gate use turn fees of $0.4 million offset by an increase of $0.2 million in signatory airline apron parking fees. Ground transportation fees are generated from fees charged to providers of transportation services to and from Airport System facilities. Ground transportation fees increased by $2.0 million, or 10.8 percent. For the first nine months of FY 2018, the Department earned $10.1 million in revenues from TNC operators, as compared to $6.5 million in the same period in FY These increases were offset by decreases in revenues earned from limos, taxis and buses of $1.7 million over the same nine-month period. 5

11 Management's Discussion and Analysis (Unaudited) Ground rents and use fees are generated from fixed and percentage-based rental rates for the use of Airport System property from fixed based operators, private hangers, developer leases, and billboard advertisements. Ground rents and use fees increased for the first six months of FY 2018 by $1.8 million, or 10.7 percent, compared to the same period in FY The increase is driven by $2.2 million in proceeds received from restructuring on a lease agreement. General aviation fuel sales for the first nine months of FY 2018 decreased by $0.5 million, or 12.5 percent, compared to the same period in FY 2017 on reduced gallons sold at the general aviation airports. Other revenue for the first nine months of FY 2018 increased by $6.6 million compared to the same nine-month period in FY This increase is attributable to the sale of several land parcels previously acquired under the Southern Nevada Public Land Management Act of 1998, Public Law for $72.8 million, offset by required land sale contributions to the Bureau of Land Management and the State of Nevada of $65.5 million. Financial Highlights Operating Expenses: Operating Expenses Nine Months Ended March 31, 2018 and 2017 (Unaudited) Nine Months Ended Mar. 31, 2018 Mar. 31, 2017 Percentage Expenses Category (000) (000) Change Salaries and benefits $ 105,497 $ 94, % Professional services 43,528 41, % Utilities and communications 18,592 17, % Repairs and maintenance 16,277 15, % Materials and supplies 11,334 9, % Administrative 5,475 1, % Insurance 1,490 1, % $ 202,193 $ 181, % Operating expenses for the first nine months ending March 31, 2018, increased 11.4 percent when compared to the same nine-month period one year ago. The largest components of operating expenses are salaries and benefits, professional services, utilities and communications, repairs and maintenance, and materials and supplies. Operating costs are being closely monitored in FY 2018 and are within budgeted amounts on a year-to-date basis. Salaries to employees are based on established wage rates provided under a collective bargaining agreement. Benefits provided for employees are comprised primarily of pension and health insurance. Overall salaries and benefits for the first nine months of FY 2018 increased by $11.0 million, or 11.6 percent, compared to the same period in FY Salaries increased by $3.9 million, or 6.3 percent during this period. This increase is mostly 6

12 Management's Discussion and Analysis (Unaudited) attributed to an annual 2.0 percent cost-of-living increase and merit increases, both established pursuant to the collective bargaining agreement with the employee union combined with an increase in headcount. Employee benefits expense increased $7.0 million, driven by increased pension expenses. Professional services are comprised primarily of security services, shuttle services, fire protection, bond underwriting costs, legal expenses, and other professional services. Professional services for the first nine months of FY 2018 increased by $1.8 million, or 4.3 percent, due to a rise in legal, consulting, and security services. Utility costs incurred are based on usage multiplied by usage rates. Communication expenses includes costs for telecommunications services. Overall utilities and communications expense for the first nine months of FY 2018 increased by $1.3 million, or 7.3 percent, over the same period in FY 2017 on increased passenger traffic. Electricity costs increased by $0.9 million on increased fees, comparing the first nine months of FY 2018 to the same period in FY 2017, while water costs increased by $0.3 million for the same period. Repairs and maintenance expenses includes the cost of repair and maintenance services for the Airport System facilities as well as the cost of fuel used in connection with Airport System operations. Repairs and maintenance expenses increased for the first nine months of FY 2018 by $1.1 million, or 7.5 percent, due to an increase in costs associated with the maintenance of land, facilities, and equipment. Materials and supplies expense consists of custodial and maintenance supplies and the cost of minor equipment. Materials and supplies expense for the first nine months of FY 2018 increased by $2.3 million, or 25.5 percent, due the cost of computer equipment deployed with the implementation of the Terminal 1 ticketing modernization. Administrative expense consists mainly of advertising expenses, travel expenses, bank fees, and bad debt expense. During the first six months of FY 2018, administrative expense increased by $3.5 million compared to the same ninemonth period in FY The increase was driven by real estate marketing fees of $3.4 million associated with the sale of several parcels of land previously acquired under the Southern Nevada Public Land Management Act of 1998, Public Law Insurance expense consists of the amortization of property and liability insurance premiums. For the first nine months of FY 2018, insurance expense decreased by $0.2 million, or 13.2 percent, from the same period in FY 2017, due to continuing efforts by the insurance broker to market the insurance program at lower cost to the Airport System. 7

13 Management's Discussion and Analysis (Unaudited) Financial Highlights Non-operating Revenues and Expenses: Non-Operating Rev enues and Expenses Nine Months Ended March 31, 2018 and 2017 (Unaudited) Nine Months Ended Mar. 31, 2018 Mar. 31, 2017 Percentage Non-Operating Rev enue / (Expense) Category (000) (000) Change Passenger Facility Charges $ 70,577 $ 68, % Jet A fuel tax revenue 8,851 8, % Interest and investment income (loss) 14,444 36, % Interest expense (110,665) (135,557) -18.4% Gain (loss) on disposal of capital asset 908 (66) % $ (15,885) $ (22,402) -29.1% Revenues from Passenger Facility Charges ("PFCs") were up 3.3 percent due to increases in enplanements. Jet aviation fuel tax revenue increased 2.8 percent compared to the same period one year ago on increases in the number of gallons sold for the first nine months of FY 2018 compared to the same period of FY Interest and investment income (loss) consist of interest income earned on investments held with the Clark County Treasurer and Trustee and net unrealized gains or losses on investment derivative instruments. Interest income consists of interest earnings on the Department s cash and investment balances. Investment income decreased by $21.9 million, or 60.2 percent over the corresponding nine-month period in the prior year mainly due to the decrease of fair value of the investment interest rate swaps by $27.3 million. This decrease was offset by increase of $5.5 million in interest earnings on investments held with the Clark County Treasurer and the Trustee and interest income from swap contracts. The Department has no out-of-pocket cost for the changes in the fair value of these investment derivatives associated with its swap portfolio, and the Department s swaps are paired with outstanding variable rate debt to achieve a synthetically fixed interest rate. Refer to Note 10, Derivative Instruments Interest Rate Swaps, for further details. Interest expense is down 18.4 percent, from $135.6 million for the nine-months in FY 2017 to $110.7 million for the same period in FY This decrease relates to step-down fixed rates of swap #7A, #7B, #12A, and #18 as of July 1, The net reduction of interest on these swaps was $23.2 million, comparing the nine-month period of FY 2018 to FY Also contributing to this decrease is a reduction of outstanding principal balance as of March 31, 2018 compared to March 31, The Department issued no additional debt and continues to pay down its outstanding principal balances through scheduled debt service payments. 8

14 Management's Discussion and Analysis (Unaudited) Summary of Changes in Net Position: The following is a summary of the Statements of Revenues, Expenses, and Changes in Net Position. Summary of the Statements of Revenues, Expenses, and Changes in Net Position Nine Months Ended March 31, 2018 and 2017 (Unaudited) Nine Months Ended Mar. 31, 2018 Mar. 31, 2017 Percentage (000) (000) Change Operating revenues $ 418,634 $ 413, % Operating expenses 202, , % Income before depreciation 216, , % Depreciation and amortization 143, , % Income from operations 72,778 85, % Non-operating income (expense), net (15,885) (22,402) -29.1% Income (loss) before capital contributions 56,893 62, % Capital contributions 5,445 2, % Increase (decrease) in net position 62,338 65, % Net position, beginning of period 1,309,538 1,223, % Net position, end of period $ 1,371,876 $ 1,289, % Income before depreciation for the first nine months of FY 2018 decreased by 6.6 percent over the same period in FY For the first nine months of FY 2018, airline-related revenues declined by 4.2 percent relative to the first nine months of FY 2017; however, non-airline revenues for the same period increased by 6.0 percent. Operating expenses are up 11.4 percent, as discussed previously. Income before capital contributions totaled $56.9 million, a $5.8 million decrease for the first nine months of FY The decrease in income before capital contributions is primarily attributable to the decline in the fair value of investment swap derivative instruments. Capital contributions of $5.4 million from the Transportation Security Administration were recognized in the first nine months of FY 2018 in connection with project reimbursements from the Transportation Security Administration for substantial completion of a project involving the reconfiguration and optimization of the baggage checking system. Net Position Summary: Net position serves as an indicator of the Department s financial position. As of March 31, 2018, the Department s assets and deferred outflows of resources exceeded its liabilities and deferred inflows of resources by $1.4 billion. 9

15 Management's Discussion and Analysis (Unaudited) A summary of the Department s net position as of March 31, 2018, and fiscal year ended June 30, 2017, follows. Summary of the Statements of Net Position As of March 31, 2018, and June 30, 2017 (Unaudited) As of As of Mar. 31, 2018 June 30, 2017 Change Percentage (000) (000) (000) Change Assets: Current assets $ 1,126,485 $ 1,162,442 $ (35,957) -3.1% Capital assets, net 4,458,857 4,578,703 (119,846) -2.6% Other non-current assets 180, ,030 66, % Total assets 5,766,011 5,855,175 (89,164) -1.5% Deferred outflows of resources: 110, ,450 1, % Total assets and deferred outflows of resources $ 5,876,233 $ 5,963,625 $ (87,392) -1.5% Liabilities: Current liabilities $ 381,010 $ 295,587 $ 85, % Noncurrent liabilities 4,081,891 4,318,212 (236,321) -5.5% Total liabilities 4,462,901 4,613,799 (150,898) -3.3% Deferred inflows of resources: 41,456 40,288 1, % Total liabilities and deferred inflows of resources 4,504,357 4,654,087 (149,730) -3.2% Net position: Net investment in capital assets 685, ,945 (29,310) -4.1% Restricted 393, ,261 33, % Unrestricted 292, ,332 57, % Total net position 1,371,876 1,309,538 62, % Total liabilities, deferred inflows of resources, and net position $ 5,876,233 $ 5,963,625 $ (87,392) -1.5% Assets: Total assets as of March 31, 2018 decreased by $89.2 million for the first nine months of FY This decrease is due in part to capital asset depreciation of $143.7 million offset by capital expenditures of $31.9 million. Cash and cash equivalents, including restricted cash decreased $76.7 million. Refer to the cash flow statement for activities related to cash and cash equivalents. Investments, including current and non-current, increased $122.9 million; this increase was attributable to the purchase of federal securities, with staggered maturities through June 30, 2019, to establish the 2017 Revocable Escrow account to refund and pay the Series 2009C Bonds. Deferred Outflows of Resources: Deferred outflows of resources comprise deferrals associated with pension accounting established under GASB 68, changes in the fair value of interest rate swaps serving as hedging derivatives, unamortized losses on prior bond refundings, and unamortized loss on imputed debt. Under the provisions GASB 68, the Department recorded, as of March 31, 2018, deferred outflows of resources related to the pension plan in the amount of $46.9 million, which comprises contributions to the pension plan and 10

16 Management's Discussion and Analysis (Unaudited) changes in proportions. Contributions to the pension plan increased from $11.5 million at June 30, 2017 to $29.6 million at March 31, The portion attributable to changes in proportions decreased from $18.7 million at June 30, 2017 to $17.3 million at March 31, This decrease relates to normal amortization. Refer to Note 5, "Retirement Plans," for more details. Under the provisions of GASB 53, the Department is required to record the changes in the fair value of its interest rate swaps serving as hedging derivatives. As of March 31, 2018, and June 30, 2017, the deferred outflows of resources associated with hedging derivative instruments had a fair value of $30.6 million and $41.6 million, respectively. Refer to Note 10, "Derivative Instruments Interest Rate Swaps," for additional details. Other deferred costs consist of unamortized losses on prior refunded debt and deferred loss on imputed debt. These costs were deferred and amortized over their remaining terms and decreased from $36.6 million at June 30, 2017, to $32.7 million at March 31, 2018, as a result of normal amortization. Liabilities: Current liabilities for the first nine months of FY 2018 increased by $85.4 million, driven mainly by increase in current scheduled maturities for long-term debt of $143.0 million. This increase is offset by a decrease of $13.8 million in unrestricted accounts payable and other current liabilities. The increase of $2.0 million in accounts payablerestricted is mostly attributed to the change in amount of collateral posted by the counter party in swap #18 and #12A. Refer to Note 10, Derivative instrument-interest Rate Swaps, for further details. Noncurrent liabilities for the first nine months of FY 2018 decreased by $236.3 million. This decrease is attributable to a decrease of $248.9 million in long-term debt and $16.2 million decrease in interest rate swap liabilities. The decreases were offset by an increase of $21.9 million in net pension liability, and $6.9 million in other postemployment benefit liabilities. The increase in other postemployment benefit liabilities and net pension liability are based on estimates, and actuarial valuations are performed at year end. Refer to Note 5, Retirement Plans, for more details. Deferred Inflows of Resources: Deferred inflows of resources comprise deferrals associated with pension accounting established under GASB 68, changes in the fair value of interest rate swaps serving as hedging derivatives, and unamortized gains on prior bond refundings. As of March 31, 2018, under the provisions of GASB 68, the Department recorded deferred inflows of resources related to the pension plan in the amount of $10.0 million, which comprised $9.6 million related to its share of the difference between expected and actual experience and $0.3 million related to changes in proportion and 11

17 Management's Discussion and Analysis (Unaudited) differences between actual contributions and proportionate share of contributions. As of June 30, 2017, the Department recorded deferred inflows of resources related to the pension plan in the amount of $12.1 million, which comprised $11.7 million related to its share of the difference between expected and actual experience and $0.4 million related to changes in proportion and differences between actual contributions and proportionate share of contributions. The differences between expected and actual experience have remaining amortization terms of 3.70 years and 4.55 years for costs for FY 2015 and FY The changes in proportions have remaining amortization terms of 3.70 years to 5.48 years for costs from FY 2015 to FY Refer to Note 5, "Retirement Plans," for more details. As indicated above, the change in the fair value of the hedging swaps flowed to both deferred outflows of resources and deferred inflows of resources. In the case of deferred inflows of resources, the change in the fair value of the hedging swap resulted in an increase in deferred inflows of resources of $4.7 million for the first nine months of FY 2018, from $18.0 million at June 30, 2017, to $22.6 million at March 31, Finally, unamortized gains on refunded bonds decreased by $1.5 million, from June 31, 2017, to March 31, 2018, due to normal amortization. Capital Improvement Program: The Department has completed all the major facility build outs in its capital improvement program. No major changes in capital projects related to facilities are planned in the capital program over the next five years. The Department is evaluating existing facilities in connection with the five-year capital plan and may consider additional upgrades and remodeling projects to be added to the capital improvement program. Debt Management: As of March 31, 2018, the Department had $3,889.9 million of principal in outstanding debt. This amount is made up of $914.4 million in senior lien bonds, $1,783.9 million in subordinate lien bonds, $795.0 million in PFC-pledged bonds, $320.6 million in junior subordinate lien debt and Jet A bonds, and $76.0 million in general obligation bonds. Of the amount of debt outstanding, $1,048.5 million is variable interest rate debt, and $2,841.4 million is fixed interest rate debt. As of March 31, 2018, variable interest rate debt is associated to floating-to-fixed interest rate swaps with an outstanding national balance of $1, million, comprising $755.3 million in hedging derivative instruments and $259.5 million in investment derivative instruments. Also as of March 31, 2018, the Department has outstanding basis swaps and fixed-to-fixed interest swaps with outstanding notional balance of $166.5 million and $229.9 million, respectively. 12

18 Management's Discussion and Analysis (Unaudited) Future Outlook: The Airport experienced increases in passenger enplanements of 2.4 percent through the third quarter of FY 2018, with continued increases in passenger traffic into FY 2018 of 2.6 percent through May The Department will continue to contain costs, explore ways to increase non-aeronautical revenues, manage its outstanding debt, and defer any capital spending not already committed in an effort to keep costs for customers of the Airport System as low as possible. 13

19 FINANCIAL STATEMENTS Clark County Department of Aviation Clark County, Nevada Statements of Net Position As of March 31, 2018, and June 30, 2017 (Unaudited) Mar. 31, 2018 June 30, 2017 Assets and Deferred Outflows of Resources (000) (000) Assets: Current assets: Cash and cash equivalents $ 517,696 $ 447,928 Cash and cash equivalents, restricted 334, ,188 Investments, restricted 205, ,354 Accounts receivable, net of allowance for doubtful accounts of $559 and $581, respectively 47,475 68,822 Interest receivable 2,345 2,483 Grants receivable, restricted 1,679 1,729 Other receivables 6,155 2,852 Inventories 9,139 9,216 Prepaid expenses 1, Total current assets 1,126,485 1,162,442 Non-current assets: Capital assets: Property and equipment: Land 595, ,059 Land improvements 1,746,563 1,745,339 Perpetual avigation easement 332, ,562 Buildings and improvements 3,632,690 3,604,750 Furniture and fixtures 48,773 48,773 Machinery and equipment 560, ,069 Construction in progress 32,219 49,169 6,949,472 6,927,721 Accumulated depreciation (2,490,615) (2,349,018) Capital assets, net 4,458,857 4,578,703 Other non-current assets: Investments, restricted 113,506 48,841 Derivative instruments - interest rate swaps 65,703 63,654 Prepaid expenses 1,460 1,535 Total other non-current assets 180, ,030 Total non-current assets 4,639,526 4,692,733 Total assets 5,766,011 5,855,175 Deferred outflows of resources: Pension 46,926 30,203 Hedging derivative instruments 30,567 41,648 Other deferred costs 32,729 36,599 Total deferred outflows of resources 110, ,450 Total assets and deferred outflows of resources $ 5,876,233 $ 5,963,625 See accompanying notes to financial statements. 14

20 Clark County Department of Aviation Clark County, Nev ada Statements of Net Position As of March 31, 2018, and June 30, 2017 (Unaudited) Mar. 31, 2018 June 30, 2017 Liabilities, Deferred Inflows of Resources, and Net Position (000) (000) Liabilities: Current liabilities: Payable from unrestricted assets: Accounts payable and other current liabilities $ 19,323 $ 33,085 Other accrued expenses 17,312 20,771 Rents received in advance 6,973 4,848 Total payable from unrestricted assets 43,608 58,704 Payable from restricted assets: Accounts payable and other current liabilities 58,690 56,689 Accrued interest 44,892 89,324 Current portion of long-term debt 233,820 90,870 Total payable from restricted assets 337, ,883 Total current liabilities 381, ,587 Non-current liabilities: Payable from unrestricted assets: Other postemployment benefit liabilities 73,123 66,256 Net pension liability 195, ,029 Derivative instruments - interest rate swaps 74,897 91,101 Deposits 1,197 1,201 Total payable from unrestricted assets 345, ,587 Payable from restricted assets: Long-term debt, net of current portion 3,736,740 3,985,625 Total payable from restricted assets 3,736,740 3,985,625 Total non-current liabilities 4,081,891 4,318,212 Total liabilities 4,462,901 4,613,799 Deferred inflows of resources: Pension 9,994 12,067 Hedging derivative instruments 22,652 17,961 Unamortized gain on bond refunding 8,810 10,260 Total deferred inflows of resources 41,456 40,288 Net position: Net investment in capital assets 685, ,945 Restricted for: Capital projects 82,672 66,129 Debt service 228, ,012 Other 82,979 82,120 Total restricted 393, ,261 Unrestricted 292, ,332 Total net position 1,371,876 1,309,538 Total liabilities, deferred inflows of resources, and net position $ 5,876,233 $ 5,963,625 See accompanying notes to financial statements. 15

21 Clark County Department of Aviation Clark County, Nev ada Statements of Revenues, Expenses, and Changes in Net Position For the Three and Nine Months Ended March 31, 2018 and 2017 (Unaudited) Three Months Ended Nine Months Ended Mar. 31, 2018 March 31, 2017 Mar. 31, 2018 March 31, 2017 (000) (000) (000) (000) Operating revenues: Terminal building and use fees $ 45,661 $ 46,864 $ 138,157 $ 142,012 Terminal concession fees 17,378 17,022 56,090 53,506 Landing fees and other aircraft fees 12,540 13,824 38,165 42,191 Public and employee parking fees 8,866 8,609 28,763 28,754 Rental car concession fees 8,466 8,535 27,130 27,595 Rental car facility fees 9,035 8,914 28,846 28,677 Gaming fees 9,169 9,233 27,063 25,913 Gate use fees 7,050 7,504 22,099 22,285 Ground rents and use fees 5,635 5,622 19,019 17,175 Ground transportation fees 6,627 6,567 20,131 18,172 General aviation fuel sales (net of cost) 1,178 1,403 3,315 3,787 Other 1, ,856 3,211 Total operating revenues 132, , , ,278 Operating expenses: Salaries and benefits 34,390 31, ,497 94,538 Professional services 14,178 13,541 43,528 41,730 Utilities and communication 4,942 4,716 18,592 17,322 Repairs and maintenance 6,093 5,246 16,277 15,135 Materials and supplies 3,580 2,894 11,334 9,034 Administrative ,475 1,997 Insurance ,490 1,717 Total operating expenses 64,582 58, , ,473 Operating income before depreciation 68,101 76, , ,805 Depreciation and amortization 48,380 48, , ,669 Operating income 19,721 27,181 72,778 85,136 Non-operating income (expense): Passenger Facility Charges 26,144 25,317 70,577 68,291 Jet A fuel taxes 2,901 2,678 8,851 8,608 Interest and investment income (loss) 12,267 2,880 14,444 36,322 Interest expense (36,963) (44,851) (110,665) (135,557) Gain on disposal of capital assets 54 (183) 908 (66) Total non-operating income (expense) 4,403 (14,159) (15,885) (22,402) Income before capital contributions 24,124 13,022 56,893 62,734 Capital contributions 276 2,821 5,445 2,919 Change in net position 24,400 15,843 62,338 65,653 Net position, beginning of period 1,347,476 1,273,227 1,309,538 1,223,417 Net position, end of period $ 1,371,876 $ 1,289,070 $ 1,371,876 $ 1,289,070 See accompanying notes to financial statements. 16

22 Clark County Department of Aviation Clark County, Nev ada Statements of Cash Flows For the Three and Nine Months Ended March 31, 2018 and 2017 (Unaudited) Three Months Ended Nine Months Ended Mar. 31, 2018 March 31, 2017 Mar. 31, 2018 March 31, 2017 (000) (000) (000) (000) Cash flows from operating activities: Cash received from operations $ 140,044 $ 133,404 $ 436,194 $ 420,038 Cash paid to employees (29,631) (28,556) (98,980) (93,214) Cash paid to outside vendors (40,785) (26,030) (109,673) (90,786) Net cash provided by (used in) operating activities 69,628 78, , ,038 Cash flows from capital and related financing activities: Passenger Facility Charges received 23,377 24,176 67,350 67,981 Jet A Fuel Taxes received 2,901 2,839 8,851 9,503 Acquisition and construction of capital assets (8,185) (26,575) (31,909) (65,174) Federal grants and reimbursements 67-16, Collateralized agreements with swap counterparties (660) 15,890 7,310 51,980 Proceeds from captial asset disposal , Debt service payments: Principal - - (90,870) (125,930) Interest (net of capitalized costs) (76,467) (95,170) (171,229) (193,725) Net cash provided by (used in) capital and related financing activities (58,828) (78,290) (193,093) (254,292) Cash flows from investing activities: Interest and investment income received 8,909 2,460 11,715 8,440 Proceeds from maturity of investments 108,426 52, , ,454 Purchase of investments (183,728) (116,829) (368,672) (276,017) Net cash provided by (used in) investing activities (66,393) (61,645) (111,137) (75,123) Increase (decrease) in cash and cash equivalents (55,593) (61,117) (76,689) (93,377) Cash and cash equivalents, beginning of period 908, , , ,922 Cash and cash equivalents, end of period $ 852,427 $ 813,545 $ 852,427 $ 813,545 Cash and cash equivalent balances: Unrestricted cash and cash equivalents $ 517,696 $ 484,182 $ 517,696 $ 484,182 Restricted cash and cash equivalents 334, , , ,363 Cash and cash equivalents, end of period $ 852,427 $ 813,545 $ 852,427 $ 813,545 See accompanying notes to financial statements. 17

23 Clark County Department of Aviation Clark County, Nev ada Statements of Cash Flows For the Three and Nine Months Ended March 31, 2018 and 2017 (Unaudited) Three Months Ended Nine Months Ended Mar. 31, 2018 March 31, 2017 Mar. 31, 2018 March 31, 2017 (000) (000) (000) (000) Reconciliation of operating income to net cash provided by operating activities: Operating income $ 19,528 $ 27,181 $ 72,777 $ 85,136 Depreciation and amortization 48,380 48, , ,669 (Increase) decrease in accounts receivable - operations 5,188 (703) 13,896 8,370 (Increase) decrease in inventories (Increase) decrease in prepaid expenses 6 1,587 (859) (948) (Increase) decrease in deferred outflows - pension contributions (5,474) (5,551) (16,723) (17,065) Increase (decrease) in accounts payable - operations (12,021) (882) (15,304) (3,167) Increase (decrease) in accrued expenses 1,919-4,651 - Increase (decrease) in accrued payroll and benefits 3,622 4,091 3,408 6,257 Increase (decrease) in unearned revenue 1,743 (449) 2,126 (1,498) Increase (decrease) in deposits 3 85 (4) (98) Increase (decrease) in net pension liability 7,302 5,502 21,906 16,507 Increase (decrease) in deferred inflows - other pension (691) (1,459) (2,072) (4,376) Net cash provided by (used in) operating activities $ 69,640 $ 78,818 $ 227,541 $ 236,038 Non-cash capital and related financing and investing activities Gain (loss) on investment income $ (8,031) $ (580) $ (2,481) $ (29,732) See accompanying notes to financial statements. 18

24 SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES a) Reporting Entity The Clark County Department of Aviation ("Department") is a department of Clark County ("County"), a political subdivision of the State of Nevada ("State"). The Department, under the supervision of a seven-member Board of County Commissioners ("Board") and a County Manager, is established to operate McCarran International Airport ("Airport") and the four other general aviation facilities owned by the County: North Las Vegas Airport, Henderson Executive Airport, Jean Sports Aviation Center, and Overton-Perkins Field (collectively referred to as the "Airport System"). The Board is the governing body of the County. The seven members are elected from County commission election districts to four-year staggered terms. The Board appoints the Director of Aviation, who is charged with the day-to-day operation of the Department. Only the accounts of the Department are included in the reporting entity. The Airport System is owned and operated as an enterprise fund of the County and is included as part of the County s government-wide financial statements and Comprehensive Annual Financial Report. (b) Basis of Accounting The accounting principles used are similar to those applicable to a private business enterprise, where the costs of providing services to the public are recovered through user fees. The Department is not subsidized by any tax revenues of the County. All tabular dollar amounts are presented in thousands as indicated unless expressly stated. Unless otherwise noted, all accounting and reporting policies remain unchanged as discussed in the June 30, 2017 Comprehensive Annual Financial Report. (c) Use of Estimates The preparation of financial statements in accordance with U.S. Generally Accepted Accounting Principles requires the Department to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates and assumptions. 19

25 1.) CASH, CASH EQUIVALENTS, AND INVESTMENTS According to State statutes, County monies must be deposited with federally insured banks, credit unions, or savings and loan associations within the County. The County is authorized to use demand accounts, time accounts, and certificates of deposit. State statutes do not specifically require collateral for demand deposits but do specify that collateral for time deposits may be of the same type as those described for permissible investments. Permissible investments are similar to the allowable County investments described below, except that State statutes permit a longer term and include securities issued by municipalities within Nevada. The County's deposits are fully covered by federal depository insurance or collateral held by the County's agent in the County's name. The County has written custodial agreements in force with the various financial institutions' trust banks for demand deposits and certificates of deposits. These custodial agreements pledge securities totaling 102 percent of the deposits with each financial institution. The County has a written agreement with the State Treasurer for monitoring the collateral maintained by the County's depository institutions. The majority of all cash and investments of the Airport System are included in the investment pool of the Clark County Treasurer ("Treasurer") and the Department s Trustee, the Bank of New York Mellon. The following shows how these amounts are distributed as of March 31, 2018, and June 30, Mar. 31, 2018 June 30, 2017 (000) (000) Clark County Investment Pool $ 750,835 $ 657,939 Cash and Investments with Trustee 358, ,177 Custodian Account 58,690 51,381 Cash on Hand or in Transit 3,161 3,814 Total $ 1,171,474 $ 1,125,311 (a) Clark County Investment Pool The Treasurer invests monies held in individual funds and invests monies through a pooling of funds. The pooled funds, referred to as the Clark County Investment Pool, are invested as a whole and not as a combination of monies from each fund belonging to the pool. In this manner, the Treasurer is able to invest the monies at a higher interest rate for a longer period of time. Interest is apportioned to each participating department or agency on a monthly basis and is based on the average daily cash balance of the fund for the month in which the investments mature. 20

26 NRS does not specifically require collateral for demand and time deposits; however, it does specify that collateral for time deposits may be of the same type as that described for permissible state investments. Permissible state investments are similar to allowable County investments (described below), except that some state investments are longer term and include securities issued by municipalities outside the State of Nevada. Due to the nature of the investment pool, it is not possible to separately identify any specific investment as being that of the Department. Instead, the Department owns a proportionate share of each investment, based on the Department s participation percentage in the investment pool. Once a year, the County records the investments in the Treasurer Investment Pool at market and then apportions the corresponding adjustment to the various participants for the year. The Department's apportioned share of the fair value adjustment made at the end of FY 2017 was $(1.3) million. The Department's share of the investments held in the investment pool at March 31, 2018 was $750.8 million. The respective allocation percentages of the investments held in the investment pool are provided in the table below. Percentage Share of Investment Maturities (in years) Fair Value as of Investment Type Mar. 31, 2018 Less than 1 1 to 3 3 to 5 5 to 10 Over 10 U.S. Treasury Obligations 31.3% 4.3% 56.9% 38.8% 0.0% 0.0% U.S. Agency Obligations 25.2% 22.5% 42.6% 32.6% 2.3% 0.0% Corporate Obligations 18.2% 37.7% 35.1% 27.2% 0.0% 0.0% Money Market Funds 0.4% 100.0% 0.0% 0.0% 0.0% 0.0% Negotiable Certificates of Deposits 14.1% 100.0% 0.0% 0.0% 0.0% 0.0% Commercial Paper 4.8% 100.0% 0.0% 0.0% 0.0% 0.0% Collateralized Mortgage Obligations 0.3% 1.3% 31.3% 17.0% 50.4% 0.0% Asset Backed Securities 3.1% 0.0% 23.4% 64.2% 124.0% 0.0% Local Government Investment Pool 0.8% 100.0% 0.0% 0.0% 0.0% 0.0% Repurchase Agreements 1.8% 100.0% 0.0% 0.0% 0.0% 0.0% 100.0% 38.5% 35.8% 27.3% 1.1% 0.0% As of June 30, 2017, the $657.9 million of the Department s cash held in the investment pool was categorized with maturities as follows: 21

27 Percentage Share of Fair Value Investment Maturities (in years) as of Investment Type June 30, 2017 Less than 1 1 to 3 3 to 5 5 to 10 Over 10 U.S. Treasury Obligations 33.1% 0.0% 41.1% 58.9% 0.0% 0.0% U.S. Agency Obligations 27.9% 23.9% 41.5% 34.6% 0.0% 0.0% Corporate Obligations 19.6% 26.2% 50.3% 23.5% 0.0% 0.0% Money Market Funds 0.8% 100.0% 0.0% 0.0% 0.0% 0.0% Commercial Paper 11.6% 100.0% 0.0% 0.0% 0.0% 0.0% Negotiable Certificates of Deposits 2.8% 100.0% 0.0% 0.0% 0.0% 0.0% Collateralized Mortgage Obligations 0.4% 37.5% 8.9% 52.9% 0.7% 0.0% Asset Backed Securities 3.1% 0.0% 3.3% 82.9% 13.8% 0.0% NV Local Government Investment Pool 0.7% 100.0% 0.0% 0.0% 0.0% 0.0% 100.0% 27.8% 37.9% 33.6% 0.7% 0.0% (b) Interest Rate Risk Interest rate risk is defined as the risk that changes in interest rates will adversely affect the fair value of an investment. Through its investment policy, the County manages its exposure to fair value losses arising from increasing interest rates by limiting the average weighted duration of its investment pool to fewer than 2.5 years. Duration is a measure of the present value of a fixed income instrument s cash flow and is used to estimate the sensitivity of a security s price to interest rate changes. (c) Interest Rate Sensitivity At December 31, 2017, the County invested in the following types of securities that have a higher sensitivity to interest rates: Callable securities are directly affected by the movement of interest rates. Callable securities allow the issuer to redeem, or call, a security before maturity, either on a given date or, generally, on coupon dates. Asset Backed Securities are financial securities backed by a loan, lease, or receivable against assets other than real estate and mortgage backed securities. These securities are subject to interest rate risk in that the value of the assets fluctuates inversely with changes in the general levels of interest rates. A Corporate Note Floater is a note with a variable interest rate that is usually, but not always, tied to an index. Step-up or step-down securities have fixed rate coupons for a specific time interval that will step up or step down a predetermined number of basis points at scheduled coupon dates or other reset dates. These securities are callable either one time or on their coupon dates. 22