DALLAS/FORT WORTH INTERNATIONAL AIRPORT CONTINUING DISCLOSURE STATEMENTS

Transcription

1 DALLAS/FORT WORTH INTERNATIONAL AIRPORT CONTINUING DISCLOSURE STATEMENTS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2014 The Finance Department P.O. Box DFW Airport, Texas

2 Continuing Disclosure Statements For The Fiscal Year Ended September 30, 2014 Table of Contents Required Table Section (Unaudited) Table 1 - Aircraft Operations Table 2 - Domestic Markets Table 3 - Total Domestic and International Enplanements Statistics Table 4 - Total Domestic and International Enplanements Table 5 - Landed Weights and Cargo Tonnage Table 6 - Average Signatory Landing Fee and Terminal Rentals Rates Table 7 - Airline Cost and Passenger Airline Cost Per Enplanement (CPE) Table 8 - Summary of Key Parking Financial and Operational Information Table 9 - Summary of Key Terminal and Non-Terminal Concessions Financial and Operational information Table 10 - Summary of Key Rental Car Financial and Operational Information Table 11 - Summary of Key Commercial Development Financial and Operational Information Table 12 - Summary of Key Natural Gas Financial and Operational Information Table 13 - Actual/Proforma PFIC Cash Flows and Coverage Table 14 - Cash and Investment Balances Table 15 - Joint Revenue Debt Service Requirements Table 16 - Debt Service Coverage Page i ii iii iv v vi vii viii ix x xi xii xiii xiv xv xvi Annual Financial Report Dallas/Fort Worth International Airport Independent Auditor s Report 1 Management s Discussion and Analysis (Unaudited) 4 Basic Financial Statements Statement of Net Position 18 Statement of Revenues, Expenses and Changes in Net Position 19 Statement of Cash Flows 20 Statement of Fiduciary Net Position (DFW Pension Plans) 21 Statement of Changes in Fiduciary Net Position (DFW Pension Plans) 22 Notes to the Basic Financial Statements 23 Required Supplementary Information Schedule of Funding Progress - Pension 60 Schedule of Funding Progress Other Post Employment Benefits 61 Supplementary Information Combining Statements of Fiduciary Net Position 62 Combining Statements of Changes in Fiduciary Net Position 63 Grand Hyatt Hotel Financial Position, Revenue and Expenses 61

3 Required Tables

4 Table 1 Dallas/Fort Worth International Airport Aircraft Operations (Unaudited, in thousands) Fiscal Year Ended, September Ops % Ops % Ops % Ops % Ops % Domestic Passenger % % % % % International Passenger 64 10% 59 9% 51 8% 50 8% 48 7% Total Passenger % % % % % Cargo Aircraft 19 3% 19 3% 21 3% 23 3% 22 4% General Aviation Aircraft 9 1% 8 1% 7 1% 7 1% 6 1% Total Annual Operations Source: DFW Airport Finance Department, based on flight activity reports provided by airlines. *Numbers may not add due to rounding i

5 Monthly Frequencies Monthly Seats Rank Market Total Market Largest Market Carrier Rank Market Total Market Largest Market Carrier 1 ORD 738 AA 1 LAX 110,594 AA 2 LAX 719 AA 2 ATL 97,955 DL 3 ATL 675 DL 3 ORD 93,778 AA 4 LGA 623 AA 4 DEN 80,632 AA 5 DEN 590 AA 5 LGA 78,387 AA 6 SFO 511 AA 6 SFO 71,899 AA 7 IAH 485 UA 7 PHX 68,886 AA 8 PHX 444 AA 8 CLT 66,835 US 9 SAT 438 AA 9 LAS 62,157 AA 10 AUS 418 AA 10 SAT 61,045 AA 11 MSP 418 DL 11 AUS 59,014 AA 12 LAS 417 AA 12 MIA 55,405 AA 13 CLT 413 US 13 PHL 52,696 AA 14 PHL 382 US 14 MCO 52,593 AA 15 MCO 347 AA 15 IAH 49,011 AA 16 DTW 340 DL 16 SEA 48,315 AA 17 MIA 331 AA 17 MSP 47,933 AA 18 BOS 321 AA 18 BOS 46,651 AA 19 SEA 309 AA 19 SAN 44,050 AA 20 DCA 300 AA 20 DCA 43,975 AA Source: Sabre ADI, 12 Months ended September 2014 Table 2 Dallas/Fort Worth International Airport Domestic Markets (Unaudited) ii

6 Table 3 Dallas/Fort Worth International Airport Total Domestic and International Enplanements Statistics (Unaudited, in millions) Fiscal Year Ended, September Pass % Pass % Pass % Pass % Pass % Domestic/International Domestic International Total Enplanements O&D/Connecting Origination (O) Destination (D) Connecting Total Enplanements By Airline American American Eagle (Envoy Air) US Airways Delta (includes Northwest) (1) United (includes Continental) (2) AirTran Other less than 1% Total Enplanements Source: DFW Airport Finance Department, based on flight activity reports provided by airlines. (1) As of December 2009, Delta and Northwest Airlines began operating under a single certificate. (2) As of November 2011, United and Continental Airlines began operating under a single certificate. iii

7 Table 4 Dallas/Fort Worth International Airport Total Domestic and International Enplanements (Unaudited, in thousands) October 2,593 2,485 2,497 2,469 2,374 November 2,353 2,385 2,326 2,312 2,229 December 2,417 2,435 2,332 2,387 2,313 January 2,445 2,314 2,173 2,160 2,131 February 2,214 2,187 2,126 1,939 1,922 March 2,643 2,555 2,498 2,436 2,401 April 2,566 2,457 2,321 2,316 2,344 May 2,760 2,636 2,597 2,438 2,428 June 2,939 2,766 2,675 2,698 2,605 July 3,021 2,838 2,711 2,775 2,677 August 2,856 2,695 2,583 2,551 2,484 September 2,612 2,375 2,288 2,384 2,280 Total 31,419 30,128 29,127 28,867 28,188 Increase (Decrease) over Prior Period 4.3% 3.4% 0.9% 2.4% 0.9% iv

8 Table 5 Dallas/Fort Worth International Airport Landed Weights and Cargo Tonnage (Unaudited, in billions of pounds) Fiscal Year Ended, September Weight. % Weight. % Weight. % Weight. % Weight. % By Carrier Type Domestic Passenger Airlines International Pass. Airlines Cargo/Integrator Airlines Total Landed Weights By Major Airline American American Eagle (Envoy Air) US Airways UPS Delta (includes Northwest) (1) Federal Express United (includes Continental) (2) AirTran Other Total Landed Weights Cargo Tonnage Source: DFW Finance Department, based on flight activity reports provided by airlines. (1) As of December 2009, Delta and Northwest Airlines began operating under a single certificate. (2) As of November 2011, United and Continental Airlines began operating under a single certificate. v

9 Table 6 Dallas/Fort Worth International Airport Average Signatory Landing Fee and Terminal Rentals Rates (Unaudited) Fiscal Year Ended, September Average Landing Fee Rates* Final Rates at the True-up $ 2.71 $ 2.72 $ 2.98 $ 2.90 $ 4.49 Budgeted (1) $ 2.82 $ 3.21 $ 3.33 $ 3.11 $ 4.70 Average Terminal Rental Rates** Final Rates at the True-up $ $ $ $ n/a Budgeted (1) $ $ $ $ n/a * Per 1,000 pounds ** Per square foot, not available prior to FY 2011 as terminal costs were calculated differently under old Use Agreement before credits Source - DFW Finance Department. (1) For the purposes of Continuing Disclosure, the Budgeted rate is what was formerly called the Interim Rate. vi

10 Table 7 Dallas/Fort Worth International Airport Airline Cost and Passenger Airline Cost Per Enplanement (CPE) (Unaudited) Fiscal Year Ended, September Airline Cost (millions)* Final Rates at the True-up $ $ $ $ $ Budgeted (1) $ $ $ $ $ Cost per Enplanement* Final Rates at the True-up $ 7.53 $ 7.20 $ 6.54 $ 6.30 $ 6.74 Budgeted (1) $ 8.04 $ 7.91 $ 6.72 $ 6.73 $ 7.29 * Includes Air Service Incentive rebates from DFW Capital Account beginning in FY11 Source - DFW Finance Department. (1) For the purposes of Continuing Disclosure, the Budgeted rate is what was formerly called the Interim Rate. vii

11 Table 8 Dallas/Fort Worth International Airport Summary of Key Parking Financial and Operational Information (Unaudited) Fiscal Year Ended, September Parking Revenues (Ms) Terminal/Infield $ 73.2 $ 71.7 $ 69.6 $ 71.2 $ 64.8 Express/Remote Drop Off/Meeter-Greeter Pass-Through Other Total Revenues $ $ $ $ $ 97.3 Parking Transactions (Ms) Terminal/Infield Express/Remote Drop Off/Meeter-Greeter Pass-Through Total Transactions Average Length of Stay (Days) Terminal Infield Express Remote Weighted Average Parking Rev/Originating Pax* $ 8.24 $ 7.98 $ 7.75 $ 8.02 $ 7.91 * Does not include Pass-throughs Source: DFW Finance and Parking Departments viii

12 Table 9 Dallas/Fort Worth International Airport Summary of Key Terminal and Non-Terminal Concessions Financial and Operational Information (Unaudited) Fiscal Year Ended, September Number of concessions locations Leased sq. ft. EOY (000s) Concessions Sales-Terminal (Ms): Food and beverage $ $ $ $ $ Retail and duty free Other In Terminal Total concessions sales $ $ $ $ $ Concessions sales/enplanement $ $ $ $ $ 9.49 Concession sales/sq. ft. $ 1,503 $ 1,254 $ 1,320 $ 1,224 $ 1,159 Concessions Income to DFW-Terminal (Ms): Food and beverage $ 26.0 $ 24.0 $ 21.5 $ 20.6 $ 19.6 Retail and duty free Other In Terminal Income-Terminal Subtotal $ 66.9 $ 62.2 $ 59.4 $ 51.6 $ 48.6 Concessions income/enplanement $ 2.13 $ 2.07 $ 2.04 $ 1.79 $ 1.73 Concessions income/sq. ft. $ 298 $ 245 $ 266 $ 214 $ 211 Concessions - Not In Terminal* Total Concessions income to DFW $ 73.3 $ 68.2 $ 65.7 $ 57.5 $ 51.2 Source: DFW Finance and Concessions Departments, from concessionaire on-line reporting. * Non-passenger/non-terminal income. Includes reimbursable services. Not included in ratios. ix

13 Table 10 Dallas/Fort Worth International Airport Summary of Key Rental Car Financial and Operational Information (Unaudited) Fiscal Year Ended, September Transaction days (millions) Rental car sales (millions) $ $ $ $ $ Income to DFW (millions) $ 32.4 $ 31.4 $ 27.7 $ 27.7 $ 25.7 Income/destination passenger $ 2.50 $ 2.56 $ 2.32 $ 2.37 $ 2.31 Source: DFW Finance and Concessions Departments, from rental car companies self-reporting. x

14 Table 11 Dallas/Fort Worth International Airport Summary of Key Commercial Development Financial and Operational Information (Unaudited) Fiscal Year Ended, September Ground Lease Revs. (millions) $ 37.3 $ 34.3 $ 33.5 $ 33.2 $ 28.0 Acres Leased (end of period) 1,284 1,247 1,166 1,166 1,165 Average Lease Rate per Acre $ 29,023 $ 27,502 $ 28,737 $ 28,494 $ 24,032 Source: DFW Finance and Commercial Development Departments. xi

15 Table 12 Dallas/Fort Worth International Airport Summary of Key Natural Gas Financial and Operational Information (Unaudited) Fiscal Year Ended, September Revenues (millions) Royalties $ 6.2 $ 6.2 $ 7.7 $ 16.2 $ 23.8 Surface use and other revenues Bonus n/a n/a n/a n/a n/a Total Natural Gas Revenues $ 6.3 $ 8.5 $ 8.7 $ 20.1 $ 25.5 Operational Information Wells in production Production (MMcf) Average price paid to DFW $ 3.71 $ 3.19 $ 2.10 $ 3.82 $ 4.01 Source: DFW Finance and Commercial Development Departments, production data from Chesapeake Energy. xii

16 Table 13 Actual/Proforma PFIC Cash Flows and Coverage Fiscal Year Ended September 30, 2014 (Unaudited in millions) Grand Hyatt RAC - CFC Hyatt Place Total Revenues $ 35.0 $ 20.9 $ - $ 55.9 Less: Expenses Net Available for Debt Service (1.3) 31.4 Debt Service $ 3.7 $ 14.5 $ - $ 18.2 Coverage Ratio xiii

17 Table 14 Dallas/Fort Worth International Airport Cash and Investment Balances (Unaudited, in millions) As of September 30 (Fiscal Year End) Unrestricted Cash and Investments Operating revenue and expense fund $ 211 $ 214 $ 202 $ 191 $ 164 Capital improvement fund PFIC Total unrestricted cash/investments Restricted Cash and Investments Passenger facility charges Bond/construction funds 1,505 1, Debt Service Fund Debt Service Reserve Fund PFIC Other Total restricted cash/investments 2,064 2, Total DFW cash/investments 2,770 2,815 1,623 1,161 1,019 Operating Expenses $ 424 $ 410 $ 363 $ 352 $ 333 Unrestricted Cash and Investments/Ops Exps - Days Source: DFW Airport Finance Department records. xiv

18 Table 15 Dallas/Fort Worth International Airport Joint Revenue Debt Service Requirements (1) (Unaudited) 12 Net Months Capitalized Debt Service Ending Principal Interest Total Interest Outstanding 11/1/2014 $ 83,345,000 $ 149,101,991 $ 232,446,991 $ (46,549,968) $ 185,897,024 11/1/ ,785, ,019, ,804,628 (66,834,285) 326,970,343 11/1/ ,920, ,141, ,061,773 (23,749,840) 382,311,933 11/1/ ,085, ,755, ,840,266 (539,833) 413,300,433 11/1/ ,775, ,683, ,458, ,458,815 11/1/ ,405, ,758, ,163, ,163,345 11/1/ ,925, ,996, ,921, ,921,285 11/1/ ,890, ,724, ,614, ,614,237 11/1/ ,500, ,883, ,383, ,383,788 11/1/ ,305, ,907, ,212, ,212,275 11/1/ ,555, ,351, ,906, ,906,563 11/1/ ,560, ,163, ,723, ,723,888 11/1/ ,075, ,211, ,286, ,286,688 11/1/ ,360, ,120, ,480, ,480,288 11/1/ ,155, ,758, ,913, ,913,081 11/1/ ,270, ,653, ,923, ,923,094 11/1/ ,730, ,709, ,439, ,439,006 11/1/ ,890, ,985, ,875, ,875,069 11/1/ ,975, ,575, ,550, ,550,244 11/1/ ,835, ,681, ,516, ,516,488 11/1/ ,625, ,773, ,398, ,398,150 11/1/ ,885, ,047, ,932, ,932,588 11/1/ ,310, ,290, ,600, ,600,244 11/1/ ,760, ,866, ,626, ,626,881 11/1/ ,645,000 92,961, ,606, ,606,913 11/1/ ,115,000 83,309, ,424, ,424,038 11/1/ ,275,000 73,003, ,278, ,278,344 11/1/ ,140,000 61,857, ,997, ,997,344 11/1/ ,815,000 50,168, ,983, ,983,794 11/1/ ,990,000 37,897, ,887, ,887,056 11/1/ ,515,000 25,593, ,108, ,108,688 11/1/ ,675,000 13,419, ,094, ,094,975 11/1/2046 5,000,000 1,031,250 6,031,250 6,031,250 11/1/2047 5,000, ,000 5,825,000 5,825,000 11/1/2048 5,000, ,750 5,618,750 5,618,750 11/1/2049 5,000, ,500 5,412,500 5,412,500 11/1/2050 5,000, ,250 5,206,250-5,206,250 Totals $ 6,316,090,000 $ 5,690,464,573 $ 12,006,554,573 $ (137,673,927) $ 11,868,880,646 (1) May not add due to rounding. XV

19 Table 16 Dallas/Fort Worth International Airport Debt Service Coverage (Unaudited, in millions) Fiscal Year Ended September Coverage Calculation - Gross Revenues Operating Revenues Airfield cost center $ $ $ $ $ Terminal cost center DFW cost center (non-airline revenues) Total Operating Revenues $ $ $ $ $ Non-operating Revenues Rolling coverage Total Gross Revenues $ $ $ $ $ Less Operating Expenses (376.9) (352.9) (344.0) (332.5) (328.2) Gross Revenues available for debt service $ $ $ $ $ Debt Service $ $ $ $ $ Coverage ratio - Gross Revenues Coverage Calculation - Current Gross Revenues Gross Revenues available for debt service $ $ $ $ $ Less: Transfers and Rolling Coverage (84.6) (90.2) (85.8) (85.0) (29.6) Current Gross Revenues available for debt service $ $ $ $ $ Debt Service $ $ $ $ $ Coverage ratio - Current Gross Revenues Coverage Calculation - All Revenues Sources Current Gross Revenues available for debt service $ $ $ $ $ Natural Gas Royalties, Land Sales, Interest Income PFIC n/a All Current Revenues available for debt service $ $ $ $ $ Debt Service $ $ $ $ $ Coverage ratio - All Current Revenues Coverage ratio - All Current Revenues plus Capital Transfers and Rolling Coverage xvi

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21 Independent Auditor's Report, Management's Discussion and Analysis and Basic Financial Statements

22 INDEPENDENT AUDITORS' REPORT Members of the Board of Directors Dallas/Fort Worth International Airport We have audited the accompanying financial statements of the business-type activities and the remaining fund information of the Dallas/Fort Worth International Airport ( Airport ), as of and for the year ended September 30, 2014, and the related notes to the financial statements, which collectively comprise the Airport s basic financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 Airport 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 Airport 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 respective financial position of the business-type activities and the aggregate remaining fund

23 information of the Airport, as of September 30, 2014, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note 1 to the basic financial statements, the Airport implemented Governmental Accounting Standards Board Statement No. 65, Items Previously Reported as Assets and Liabilities during the year ended September 30, 2014, which established accounting and financial reporting standards that reclassified, as deferred outflows of resources or deferred inflows of resources, certain items that were previously reported as assets and liabilities and recognized, as outflows of resources or inflows of resources, certain items that were previously reported as assets and liabilities. Our opinion is not modified with respect to this matter. Other Matters - Required Supplementary Information Accounting principles generally accepted in the United States of America require that management's discussion and analysis and the schedules of funding progress for pensions and other post-employment benefits 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. February 2,

24 Financial Table of Contents For The Fiscal Year Ended September 30, 2014 Management s Discussion and Analysis (Unaudited) 4 Basic Financial Statements Statement of Net Position 18 Statement of Revenues, Expenses and Changes in Net Position 19 Statement of Cash Flows 20 Statement of Fiduciary Net Position (DFW Pension Plans) 21 Statement of Changes in Fiduciary Net Position (DFW Pension Plans) 22 Notes to the Basic Financial Statements 23 Required Supplementary Information Schedule of Funding Progress - Pension 60 Schedule of Funding Progress Other Post Employment Benefits 61 Supplementary Information Combining Statements of Fiduciary Net Position 62 Combining Statements of Changes in Fiduciary Net Position 63 Grand Hyatt Hotel Financial Position, Revenue and Expenses 64 3 DFW International Airport

25 MANAGEMENT S DISCUSSION AND ANALYSIS The following discussion and analysis of the financial performance and activity of the Dallas/Fort Worth International Airport ( DFW or the Airport ) provides an introduction and understanding of DFW s Basic Financial Statements for the fiscal year ended September 30, The Airport is a business-type activity. As such, DFW s Basic Financial Statements and Required Supplementary Information consist of Management s Discussion and Analysis ( MD&A ); Statement of Net Position; Statement of Revenues, Expenses, and Changes in Net Position; Statement of Cash Flows; and Notes to the Basic Financial Statements. Also included are the Statementt of Fiduciary Net Position; Statement of Changes in Fiduciary Net Position; and Schedules of Funding Progress for the Airport t Fiduciary Funds which have a December 31st year end. The MD&A has been preparedd by management and should be read in conjunction with the Basic Financial Statements and the attached notes. DFW s Controlling Documents DFW was created by a Contract and Agreement between the Cities of Dallas and Fort Worth ( the Cities ), dated April 15, 1968, for the purpose of developing and operating an airport as a joint venture between the Cities. The 1968 Concurrent Bond Ordinance and the 30th Supplemental Bond Ordinance were amended and restated by the Master Bond Ordinance, and approved by the Cities of Fort Worth and Dallas on September 21, 2010 and September 22, 2010, respectively. The Master Bond Ordinance became effective on July 5, 2013 after the required approval of bondholders was obtained. Bonds are issued under provisions of the Master Bond Ordinance, Supplemental Bond Ordinances, as approved by the Cities of Fort Worth and Dallas, and Applicable Laws, including Chapter 22 of the Texas Transportation Code, Chapter 1371 of the Texas Governmentt Code, as amended. DFW is in compliance with all bond covenants. The Leasee and Use Agreements ( Use Agreement ) with the signatory airlines define DFW s rate setting methodology and business relationships with the airlines. DFW s current ten- are referred to as the Controlling Documents. Each year, management prepares an Annual Budget (approved by the DFW Board and the Cities) of year Use Agreement became effective October 1, Collectively, the abovementioned documents projected expenses for the Operating Revenue and Expense Fund (commonly referred to as the 102 Fund ). Management also prepares an annual Schedule of Charges which is the basis for chargingg the airlines, tenants, and other airport users for DFW services during the fiscal year. The Use Agreement created threee primary cost centers: the Airfield, Terminal, and DFW. The airfield and terminal cost centers are residual in nature. Per Federal Aviation Administration ( FAA ) regulations, DFW can only charge the airlines for the net cost to operatee these cost centers (including debt service) primarily through landing fees and terminal rentals. The Use Agreement also requires certain cash transfers from capital accounts to the 102 Fund each year through FY DFW can generate net revenues or profits in the DFW cost center whichh includes non-airline business units such as concessions, parking, rental car, commercial development, and transportation (e.g. employeee busing). If DFW generates net revenues in excess of the upper threshold ($64.3 million in FY 2014), 75% of the excess is to be used to reduce landing fees in the following fiscal year. If the DFW cost center generates revenues below the lower threshold ($ $43.0 million), landing fees are increased so that the DFW cost center will achieve the lower threshold. If net revenues from the DFW Cost Center are budgeted above the upper threshold, airline landing rates are reduced at the beginning of the fiscal year. Conversely, if net revenues are budgeted below the lower threshold, then the airlines are assessed incremental landingg fee rates to achieve the lower threshold amount in the current fiscal year by adjusting rates at thee beginning of the fiscal year. The upper threshold and lower threshold amounts are adjusted annually for inflation. 4 DFW International Airport

26 At the end of each fiscal year, the airport computes a true-up for the airfield and terminal cost centers and applies any overcharge or undercharge to the following years landing fee rate and/or terminal rental rate, respectively. DFW s Capital Improvement Fund has three accounts: the joint capital account, DFW capital account and rolling coverage capital account. The joint capital account generally requires approval from both DFW and the airlines prior to any expenditure of funds, while the DFW capital account may be used at the DFW s sole discretion for any legal purpose. The joint capital account is funded primarily from natural gas royalties and the sale of land. The DFW capital account is funded primarily from DFW Cost Center net revenues, subject to upper threshold limits discussed previously. Both accounts can be supplemented with the issuance of debt. The rolling coverage account was initially fundedd from the Capital Improvement Account when the lease agreement was signed. The rolling coverage balance is transferred or rolled into the 102 Fund each year to fund debt service coveragee requirements. It is thenn transferred back into the rolling coverage account at the end of the fiscal year. If additional coverage is required in any year, it is added to rates and charges and is collected during the fiscal year. Although DFW uses the word fund to designate the sourcee and prospective use of proceeds, DFW is an enterprise fund and does not utilize traditional fund accounting commonly used by government organizations. The following table summarizes the primary funds used by y DFW and whether the related assets and liabilities are restricted or not restricted: Fund Number , , s 600s 907 Fund Description Net Investment in Capital Assetss Operating Revenues and Expenses Department of Public Safety Passenger Facility Charges (PFC) Joint Capital (non-jrb) Joint Capital (JRB) Joint Capital (JRB) DFW (non-jrb) DFW (JRB) Rolling Coverage Debt Service Sinking Debt Service Reserve PFIC - Rent-A-Car Center (RAC) Primary Use Capital Assets, Bonds Operations Seized Funds Collections, Debt Service Capital Projects Bond Proceeds Construction Capital Projects Bond Proceeds, Construction Rate Covenant Principal and Interestt Reservee Requirements Facilities Transportation 910 PFIC - Grand Hyattt Hotel Operations, Capital Working Capital, FFE 914 PFIC - Hyatt Place Hotel Construction Restricted (R), Not Restricted (NR) R NR R R NR R R NR R NR R R NR R NR R R FFE - Furniture, Fixtures and Equipment PFIC - Public Facility Improvement Corporation JRB - Joint Revenue Bond 5 DFW International Airport

27 The basic financial statements include all of DFW s funds. DFW manages its day-to-day airport operations primarily through the 102 Operating Fund in accordance with the Controlling Documents. The Airport s financial statements include all of the transactions of the Public Facility Improvement Corporation ( PFIC ), which operates the Grand Hyatt Hotel, collects customer facility charges and customer transaction charges from the Rental Car companies, and is currently constructing a Hyatt Place Hotel near the south entrance of the airport. Althoughh the PFIC is a legally separate entity, the financial transactions of the PFIC have been combined intoo the Airport s Enterprise Fund due to their nature and significance to the Airport. The PFIC is considered a blendedd component unit becausee the component units governing bodies are substantively the samee as DFW s, the primary government. Operational and Financial Highlights DFW utilizes a performance measurement process that is closely aligned with the Airport s Strategic Plan shown in the graphic below. DFW management believes that if it focuses on achieving the four Key Drivers/Results, it will be well positioned to achieve its primary business goal of Growing thee Core Business. 6 DFW International Airport

28 Operations Overview The following table highlights changes in the Airport s key operating statistics for FY 2014 and FY Key Operating Information Total Passengers (millions) Total Seats (millions) International Seats (millions) International Destinations Aircraft Operations (000s) Landed Weight (millions of pounds) Cargo Landed Weight (millions of pounds) Cargo Tons (000s) For the Yea FY ,348 3, r Ended FY ,331 3, Passengers, seats, operations, landed weights and cargo tons are key airport activity indicators. Refer to the Grow the Core Business and Keep DFW Cost Competitive narratives in the following section of the MD&A for explanations regarding changes in key operating information from year to year. Additional detail can be found in the Statistical section of the CAFR in the Operating Information sub-section. Grow the Core Business Total passengers for the FY 2014 were 62.9 million, a 2.6 million (4.3%) increase over the 60.3 million in FY 2013, primarily driven by new and increased air servicee by hub carrier American Airlines ( AA ), Alaska Airlines and Delta, low cost carriers like Spirit, Frontier, and Sun Country, and international carriers. The market share for AAA (which now includes USS Airways and American Eagle) remained roughly the same at 85.3%. DFW s second largest carrier for FY 2014 was Delta at a 3.9% market share of total passengers followed by Spirit at 3.7%. Total seats increased 0.6 million (0.8%) from FY 2013 to FY In December 2013, DFW achieved 59 announced international destinations, including Hongg Kong, Shanghai, Doha, Abu Dhabi, Beijing, and Edmonton. By the end of the fiscal year, the numberr of international destinations dropped to 55 after the loss of two small Mexican markets; Caracas, Venezuela; and Brisbane, Australia due to commencement of A3800 service to Sydney. Total international seat capacity grew 9.4% to 9.1 million in FY 2014 from 8.3 million in FY Aircraft operations decreased 0.6% to 671,000 in FY 2014 primarily due to a declinee in operations by American Eagle/Envoy. Total landed weights increased 2.9% to 39.3 billion pounds in FY 2014 primarily due to newer/heavier r aircraft from AA and Qantas, andd additional flights from Alaska, Frontier, Aeromexico, and Korean Air. AA is replacing their MD80 aircraft with heavier and A320 family aircraft. Additionally, AA has continued to add back the capacity that was cut during the bankruptcy process. AA s share of DFW s landed weights, with the inclusion of US Airways, increased to 76.9% in FY 2014 from 74.0% in FY Cargo tons increased 25,000 (3.9%) from 647,000 in FY 2013 to 682,000 in FY 2014 primarily due to AirBridge Cargo adding new servicee to DFW in FY DFW International Airport

29 Keep DFW Cost Competitive Two industry metrics for cost competitivene ss are airline cost and passenger airline cost per enplanement ( CPE ). Airline cost represents the fees paid by the airlines primarily for landing fees and terminal rentals. Both of these metrics will increase in the future as DFW issues bonds to finance its Terminal Renewal and Improvement Program ( TRIP ). Thee airlines agreed to pay these higher costs when they approved the capital program as part of the Use Agreement. Airline cost was $256.6 million in FY 2014, a $21.0 million (8.9%) increase over FY 2013, and CPE increased from $7.20 in FY 2013 to $7.53 in FY 2014 primarily due to increased debt service andd operating costs. Despitee these increases, DFW is competitively positioned, being one of the lowest cost large hub airports in North America, especially when considering other factors like delay and taxiing costs and airplane property taxes which are not recorded on DFW s books. To help keep airline costs low and maximize discretionary capital funds, DFW works to increase the net revenues, or profit, from its non-airline In FY 2014, these four business units generated $268.2 million in revenues, a $18.22 million (7.3%) improvement over the prior business units (i.e., parking, concessions, rental car and commercial development). year primarily due to higher rates and passenger traffic. DFW Cost Center net revenues were $ million, $6.0 million (6.2%) better than FY 2013 and $38.4 million higher than the Upper Threshold of $64.3 million. This allowed DFW to share $28.8 million, 75% of the excess amount, with the airlines to reduce landing fees. The remaining $73.9 million was transferred to the DFW Capital Account at the end of the fiscal year. Create Customer Satisfaction DFW is very focused on customer satisfaction. Some of the new customer enhancements added in FY 2014 were: a new Parking Control System that eliminated lines at the entrances and exits of the airport; a new Automated Passport Control system that reduced average customs processing time to 14 minutes in the peak of summer, a 50% reduction from the prior year; and the addition of light rail service ( DART ) which connects downtown Dallas with Terminal A. DFW uses the Airports Council International ( ACI ) passenger survey to track its progress for this key result. DFW achieved a 4.14 rating in FY 2014, slightly lower than the 4.18 in the previous fiscal year due primarily due to TRIP construction in three terminals and three parking garages. Deliver Operational Excellence Operational Excellencee reflects the effectivenesss and efficiency of DFW s key processes. The Airport has hundreds of operational excellence metrics, most of which are monitored at the department level. Significant accomplishments in FY 2014 include zero notices of regulatory enforcement violations and exceeding aspirational goals for minority, woman and small business participation. 8 DFW International Airport

30 Foster Employee Engagement Employeee engagement is highly valued by DFW management and requires a focused effort every year. Management evaluates engagement scores regularly to determine where the organization can improve. This year, customized training was developedd and delivered through 16 workshops to 388 leaders across the airport with satisfaction ratings above 90%. The training provided specific actions managers can take to effectively engage with their employees. This concentrated effort continues to pay-off as DFW achieved 86% engagement in FY This result is in the top five percent of all companies on a national basis. The accompanying chart shows engagement results since FY Capital Programs and Airport Development Plan Update The Terminal Renewal and Improvement Program ( TRIP ) is the largest component of DFW s capital improvement program, budgeted at $2.7 billion as of September 30, TRIP is scheduled between 2011 and 2020 and is approximately 37% spent and complete with an additional 14% committed but not yet paid, for a total spent and committed of 51% as of September 30, TRIP provides renovation and renewal of the Airport s four oldest domestic terminalss (A, B, C, and E) that were constructed between 35 and 40 years ago. Approximatel y two-thirds of the TRIP budget will be used for the replacement of original end-of-life building systems such ass electrical, plumbing, heating and cooling, security, fire safety, conveyances, telecommunications, lighting, information technology systems, and jethalls, bridges in Terminals A and C. The majority of the remaining budget will be used to upgrade ticket TSA security areas, certain baggage systems, and concessions villages. TRIP also includes improvements to the terminal exteriors, entrances, and certainn parking structures not being replaced. During FY 2014, DFW began to incur higher costs, primarilyy due to cost escalation resulting from the improved economy, asbestos remediation in excess of budget, airline scope modifications, and schedule slippage. Management and the airlines worked collaborativel ly to minimize the cost impact and agree on the final approved budget increasee of $652.0 million. Thiss included $100.0 million for new scope to build-out 4 gates on the south end of Terminal C to replace the existing temporary structure. The increased debt and debt service will not have a material impact on future airline cost or DFW s financial position. Excluding TRIP as of September 30, 2014, DFW had 209 approved capital projects in process for a total estimated cost of $1.02 billion through completion. As of September 30, 2014, $668.4 million of this total had been expended and an additional $310.5 million was under contract and committed; leaving approximately $43.0 million remaining to be committed and spent. The more significant projects include reconstruction of Terminal A Enhanced Parking Garage ($199.0 million), Southgate commercial development expansion ($93.0 million), reconstruction of Taxiway L ($51.1 million), Terminal E Enhanced Parking Garage and Roadway ($161.1 million), Terminal B North Stinger gate expansion ($40.0 million), and construction of a new DART Rail Station adjacent to Terminal A ($ $35.6 million). During FY 2014, the airlines approved $81.0 millionn of new projects to be funded throughh the issuance of debt. For a comprehensive review of DFW s capital programs and funding plan, please see a copy of the DFW Financial Plan, available on DFW s web page under the Investors/financials tab at 9 DFW International Airport

31 Revenues, Expenses, and Change in Net Position: For the Year Ended (000s) Change in Net Position Operating revenues Operating expensess Operating loss Non-operating expenses, net Losss before capital contributions and special item Capital contributions Special item (Decrease) in net position before change in accounting principle Change in accounting principle Total Change in Net Position $ $ FY ,662 (667,660) (42,998) (91,907) ( 134,905) 15,984 (12,281) ( 131,202) ( 117,556) (248,758) $ $ FY ,481 (637,546) (60,065) (79,647) (139,712) 20,960 (32,283) (151,035) - (151,035) The following table is a summary of Revenues, Expenses, Non-operating expenses, net, Capital contributions, Special items, and the Change in Net Positionn for the years ended September 30, 2014 and Detailed descriptions and variances of the components of revenues, expenses and net non- operating expenses are described in the following sections. DFW s Controlling Documents require that DFW establish rates, fees and charges adequate to provide for the payment of operating costss (excluding depreciation) ) and debt service (including principal and coverage) ). In years when depreciation is greater than principal payments, as in FY 2014 and FY 2013, DFW s Change in Net Position on a Generally Accepted Accounting Principle ( GAAP ) basis can be expected to be a negative amount. Also, theree may be timing differences between the recognition of certain costs for rate recovery and for GAAP. For example, the recognitionn of certain environmental costs that are part of TRIP are recognized immediately through GAAP but will be reflected in the rates as part of future services. However, on a Use Agreement basis, the airport s rate settingg methodology results in DFW exceeding its debt covenants in FY 2014 (see Liquidity section pg.16-17). DFW generated $199.5 million of net cash flow provided by operating activities. In FY 2014, DFW recognized a Special item charge of $12.3 million associated with TRIP asbestos removal. DFW also implemented a change in accounting principle that resulted in the expensing of certain bond issuance costs that had been previously deferred, for $117.6 million. 10 DFW International Airport

32 Operating Revenues: The following table highlights the major components of operating revenues for the fiscal years ended September 30, 2014 and Significant variances are explained below. Operating Revenues Terminal rent and use fees Landing fees Federal Inspection Services (FIS) Other airline Total airline revenue Parking Concessions Ground and facilities leases Grand Hyatt Hotel Rent-A-Car lease and rentals Employee transportation Rent-A-Car customer transportationn charges Taxi and limo fees Natural gas Other non-airline Total non-airline revenue Total Operating Revenues For the Year Ended (000s) FY 2014 FY 2013 $ 132,835 $ 109, , ,610 18,707 21, , , , ,092 73,288 68,229 37,266 34,297 35,028 31,032 32,419 31,425 13,970 12,345 11,507 11,106 8,980 8,133 6,287 8,498 24,733 23, , ,024 $ 624,662 $ 577,481 Total Airline Revenue consists of fees paid by the airlines for the use of the airfield and terminals at DFW based on DFW s net cost to provide these related facilities as defined in the Use Agreement. Landing fees for passenger and cargo carriers are assessedd per 1,000 pounds of maximum approved landed weight for each specific aircraft as certified by the FAA. Landing fees, including passenger and cargo fees, increased $3.7 million (3.7%) from $100.6 millionn in FY 2013 to $104.3 million in FY 2014, primarily to cover higher airfield costs due to bad winter weather requiring more deicing and overtime. Terminal rents and use fees ( Terminal Revenues ) include terminal rentt from gates leased by airlines and gate use fees from DFW-owned gates. Terminal revenues increased $23.1 million (21.1%) from $109.7 million in FY 2013 to $132.8 million in FY 2014 due to an increase in rates necessary to cover the increased debt service incurred from TRIP and higher operating costs. Federal Inspection Service ( FIS ) fees per departing international passenger in Terminal D decreased $4.1 million (18.8%), from $21.8 million in FY 2013 to $18.77 million in FY 2014 primarily due to a per passenger fee decrease of $1.67 from $8.63 to $6.96 relatedd to lower allocation of debt service costs to DFW s inspection facilities. Parking fees are charged based on the length of stay andd parking product. DFW s primary parking products include Terminal ($18-20 per day), Express ($11-13 per day) and Remote ($9 per day). Parking revenues increased $9.1 million (7.8%) from $116.1 million in FY 2013 to $125.2 million in FY 2014 due to additional originatingg passengers, an increase in the Remote daily rate and intra-day terminal rates, longer length l of stays in Terminal and Remote, and an increase in off-airport parking fee collections. Terminal parking revenues accounted for 58.6% and 61.8% of total parking revenues in FY 2014 and FY 2013, respectively. 11 DFW International Airport

33 Concession revenues increased $5.1 million (7.5%), from $68.2 million in FY 2013 to $73.3 million in FY 2014, primarily due to an increase in enplaned passengers, and increased food and beverage, passenger services, and advertising sales. Ground and facility lease revenues, also referred to as Commercial Development, consist primarily of ground leases of Airport property, various facility leases, Hyatt Regency Hotel, and other. Ground and facility lease revenue increased $3..0 million (8.7%) from $34.3 million in FY 2013 to $37.3 million in FY 2014 primarily due to an increase in the average lease rate per acre, additional leased acreagee and surface damage fees from DART bringing rail service to thee Airport, and higher leasee proceeds in the International Commerce Park development. Rent-a-car ( RAC ) lease and rentals revenue consists of ground leases plus a percentage rent based on gross revenues. RAC revenues increased $1.0 million (3.2%), from $31.4 million in FY 2013 to $32.4 million in FY 2014, primarily due to an increase in destination passengers. Percentage rent accounted for 85.0% of the total RAC rental revenues in FY 2014 and 85.2% in FY The Grand Hyatt Hotel operations include room rental, food and beverage and other revenues. Revenues increased $4.0 million ( 12.9%), from $31.0 million in FY 2013 to $35.0 million in FY 2014 primarily due to higher occupancy and average room rates, and improved food and beverage sales. Employeee transportation revenues are derived primarily from a monthly fee paid by airlines and other tenants to pay for the cost of employee transportation services between remote parking lots and the terminals. Employee transportationn revenues increased $1.77 million (13.8%) from $12.3 million in FY 2013 to $14.0 million in FY 2014 primarily due to an increase in fees required to cover increased employeee bussing activity. RAC customer transportation revenue is derived from a $ $2.20 per rental day transaction fee. The proceeds of this fee are used to fund the operation and maintenance of the bus fleet that transports passengers between the airport terminals and the RAC.. RAC customer transportation revenue increased $0.4 million (3.6%), from $11.1 million in FY to $11.5 million in FY 2014 due to slightly higher car rental transaction days. Taxi and limo fees (Ground Transportation) revenues represent the access, decal, and application fees charged to taxicab, limousine, shared ride, and courtesy vehicle companies and providers. Revenues increased $0.9 million (11.1%), from $8.1 million in FY to $9.0 million in FY 2014 due to slightly higher passenger traffic and increased access rates. Natural gas revenues include royalties and property and surface use fees resulting from natural gas drilling. Natural gas revenues decreased $2.22 million (25.9%) from $8.5 million in FY 2013 to $6.3 million in FY 2014 as a result of lower production offsetting a higher average price of natural gas and lower surface damage and pipeline fees. Other non-airline revenue is comprised of General Aviation fees related to fueling and aircraft service; fuel farm fees paid by the airlines to pay the debt incurred to construct the fueling system and operating costs; non-airline utilities; pass-through/reimbursable revenues from airline and tenants; building code/standard fees; and other miscellaneous revenues offset by non-airline bad debt. Other revenue increased $0.9 million (3.8%) primarily as a result of higher earned discounts and reimbursable services. 12 DFW International Airport