Airport Authority of the City of Lincoln, Nebraska

Transcription

1 Independent Auditor s Report and Financial Statements June 30, 2013 and 2012

2 June 30, 2013 and 2012 Contents Independent Auditor s Report on Financial Statements and Supplementary Information... 1 Management s Discussion and Analysis... 4 Financial Statements Balance Sheets Statements of Revenues, Expenses and Changes in Net Position Statements of Cash Flows Notes to Financial Statements Supplementary Information Schedule of Cash and Investments and Changes in Account Balances (Cash Basis) Schedule of Operating Revenues Schedule of Direct Operating Expenses Schedule of Indirect Operating Expenses Schedule of Expenditures of Federal Awards Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of the Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor s Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A Schedule of Findings and Questioned Costs Summary Schedule of Prior Audit Findings... 44

3 Independent Auditor s Report on Financial Statements and Supplementary Information Board of Directors Airport Authority of the City of Report on Financial Statements We have audited the accompanying basic financial statements of the Airport Authority of the City of (the Authority), which are comprised of balance sheets as of June 30, 2013 and 2012, and statements of revenues, expenses and changes in net position and of cash flows for the years then ended, and the related notes to the financial statements, as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Airport Authority of the City of as of June 30, 2013 and 2012, and the changes in its financial position and its cash flows for the years 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 financial statements, in 2013 the Authority implemented the provisions of GASB Statement No. 65, which changed its method of accounting for bond issuance costs through retroactive application to prior year s financial statements. Our opinion is not modified with respect to this matter. Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis listed in the table of contents be presented to supplement the basic financial statements. Such information, although not 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 audits 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. Supplementary Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying supplementary information, which consists of the schedules of cash and investments and changes in account balances; operating revenues; direct operating expenses; indirect operating expenses, and the schedule of expenditures of federal awards required by OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, as listed in the table of contents, is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements as a whole. 2

5 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated September 10, 2013, on our consideration of the Authority s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards considering the Authority s internal control over financial reporting and compliance. September 10,

6 Management s Discussion and Analysis June 30, 2013 and 2012 The following discussion and analysis of the financial performance and activity of the Airport Authority of the City of (LAA) is to provide an introduction and overview that users need to interpret the financial statements of LAA for the fiscal years ended June 30, 2013 and 2012, with selected comparative information for the fiscal year ended June 30, This discussion has been prepared by management and should be read in conjunction with the financial statements and the notes thereto, which follows this section. LAA s financial statements are prepared on the accrual basis of accounting in accordance with generally accepted accounting principles promulgated by the Governmental Accounting Standards Board (GASB). LAA operates as a special purpose political subdivision of the State of Nebraska engaged in business-type activities. Tenants and other users of LAA s facilities and services provide the revenues to operate and maintain LAA s facilities. LAA s financial statements consist of three statements a balance sheet, a statement of revenues, expenses and changes in net position, and a statement of cash flows. These statements provide information about the activities of LAA, including resources held by LAA but restricted for specific purposes by creditors, contributors, or enabling legislation. LAA is accounted for as a business-type activity and presents its financial statements using the economic resources measurement focus and the accrual basis of accounting. The balance sheets and the statements of revenues, expenses, and changes in net position report information about LAA s resources and its activities. These statements include all restricted and unrestricted assets and all liabilities using the accrual basis of accounting. Using the accrual basis of accounting means that all of the current year s revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report LAA s net position and changes in it. LAA s total net position the difference between assets and liabilities is one measure of LAA s financial health or financial position. Over time, increases or decreases in LAA s net position is an indicator of whether its financial health is improving or deteriorating. The statement of cash flows reports cash receipts, cash payments and net changes in cash and cash equivalents resulting from three defined types of activities. It provides answers to such questions as where did cash come from, what was cash used for and what was the change in cash and cash equivalents during the reporting period. The LAA Board of Directors has retained staff to operate and manage the daily affairs and all of the assets of the Lincoln Airport Authority. 4

7 Airport Activity and Financial Highlights The most current available passenger information is based on a calendar year comparison and is not available for a fiscal year comparison Difference Enplaned passengers 134, ,813-1% Aircraft operations Air carrier 6,701 7,142-6% Air taxi 5,035 4,858 4% General aviation 38,343 36,800 4% Military 14,237 10,796 32% Total operations 64,316 59,596 8% Scheduled airlines operate in Lincoln under annual operating and lease agreements. The Airport Authority adjusts rates and charges for airline operations annually. Airline rates and charges for the noted calendar years are: Landing fee (per 1,000 lbs.) $1.85 $1.79 Terminal lease rates Finished space (per yr.) $30.00/sq. ft. $29.00/sq. ft. Unfinished space (per yr.) $23.00/sq. ft. $22.25/sq. ft Loading bridge fees (per mo.) $ $ While airline service continues to be a challenge due to Lincoln s proximity to Omaha s Eppley Airfield, calendar year 2012 saw passenger numbers begin to level off. While we were still down 1% over 2011, the rate of decrease seemed to slow as time progressed. We remain hopeful that passenger declines have ended, and that some firming up of passenger numbers will happen going forward. Lincoln continues to be served by two air carriers providing daily service. United Airlines provides four flights a day to Chicago and three or four flights a day to Denver based on seasonal adjustments. Delta continues to provide three flights a day to Minneapolis. Both carriers provide service through their regional airline affiliates utilizing 50 and 66 seat regional jets. The Airport Authority continues to talk to airlines both currently serving Lincoln and those not serving Lincoln about adding service. As the economy continues to improve both locally and nationally, and the airlines respond with some additional capacity, we remain hopeful that additional service will be forth coming in the future. 5

8 Similar to last year, general aviation continues to show strength in Lincoln, with both privately owned and corporate aircraft activity increasing. Duncan Aviation remains a strong driver in general aviation activity in Lincoln. Since completion of a new large aircraft paint facility last year, Duncan has begun construction of a new maintenance and modification hangar facility. They expect to begin using one hangar bay in the facility before the end of calendar year 2013, with the balance of the facility completed by mid Silverhawk Aviation has also shown growth in the past couple of years, and has even begun some very preliminary discussions about future growth needs and additions to their facilities. The airport t-hangar relocation project was completed late last year with all tenants relocated and settled into their hangars. Even with the addition of two brand new hangar rows as part of that project, the airport is maintaining a 90%-95% occupancy rate with only 10 or fewer hangars available for rent at any given time. Military operations on the airfield saw a surprisingly strong increase last year in spite of Federal budget restraints. The Guard continues to provide the aircraft rescue and fire-fighting capabilities on the air field for both military and civilian operations. The Army National Guard completed the new joint forces headquarters building on the Army Guard portion of the Base. That facility becoming operational has increased traffic to and from the airport proper, but to date, has not shown to be a strain of the airport road system. Activity in the Airport Industrial Park remains strong. The airport continues to move forward with plans to develop the north acreage into four large rail-served industrial tracts. Infrastructure design is currently on-going and construction is anticipated to take place next year. New real-estate and industrial marketing services have been secured and progress is being made in the development of an Industrial Marketing Plan and Covenants Conditions and Restrictions (CCR s). Existing tenant activity has also continued to increase. Sadoff Iron and Metal began construction of their new facility last year with completion expected in the fall of G.T. Exhaust selected Lincoln to consolidate and grow their operation, and construction activity on a new 160,000 square foot facility is currently underway with completion expected by mid In addition, Hexagon Lincoln is also in a growth mode and the Airport Authority will begin constructing a new building for them in tract 13 with completion expected in early fall of Jacob North Printing, which had financial problems and an inability to make lease payments over the last three to four years, was forced to declare bankruptcy earlier this year. They were able to sell the assets of the company and the new owners, Midstates Printing of Aberdeen, South Dakota, who kept the Jacob North name for the local operation, made the decision to stay in the current facility. So for the first time in several years, the airport has a tenant in that facility paying a market lease rate which will make a nice improvement to our income. Overall, the Airport Authority s financial outlook looks strong, primarily due to its wide diversification both on the airfield, split between airlines and a strong general aviation community, and in the industrial park with a wide variety of unrelated industries occupying space and in many cases growing. 6

9 The following condensed financial statements summarize the financial position of the Authority as of June 30, 2013, 2012 and 2011 and its activities for the years then ended: Condensed Balance Sheets June 30 Variance 2013/ / Dollars Percent Dollars Percent Current assets $ 8,912,111 $ 8,702,098 $ 9,747,262 $ 210, % $ (1,045,164) % Capital assets 65,359,682 62,045,757 61,231,965 3,313, % 813, % Investments, restricted for debt service & public safety 998,555 1,385, ,992 (386,908) % 517, % Total assets $ 75,270,348 $ 72,133,318 $ 71,847,219 $ 3,137, % $ 286, % Current liabilities $ 3,566,489 $ 3,316,374 $ 2,229,134 $ 250, % $ 1,087, % Noncurrent liabilities 13,404,057 9,450,117 9,299,335 3,953, % 150, % Total liabilities 16,970,546 12,766,491 11,528,469 4,204, % 1,238, % Net investment in capital assets 51,252,584 51,708,565 52,086,456 (455,981) -0.88% (377,891) -0.73% Restricted for debt service 611, , ,835 (281,168) % 176, % Restricted for other purposes 1,001 8,240 - (7,239) % 8, % Unrestricted 6,434,813 6,757,450 7,516,459 (322,637) -4.77% (759,009) % Total liabilities and net position $ 75,270,348 $ 72,133,318 $ 71,847,219 $ 3,137, % $ 286, % Condensed Statement of Revenues, Expenses and Changes in Net Position June 30 Variance 2013/ / Dollars Percent Dollars Percent Operating revenue Airport revenue $ 10,229,394 $ 10,138,066 $ 10,021,806 $ 91, % $ 116, % Total operating revenue 10,229,394 10,138,066 10,021,806 91, % 116, % Operating expenses Direct operating expenses 8,972,335 9,393,632 9,286,213 (421,297) -4.48% 107, % Indirect operating expenses 4,256,863 4,032,914 4,032, , % % Total operating expenses 13,229,198 13,426,546 13,318,371 (197,348) -1.47% 108, % Operating loss (2,999,804) (3,288,480) (3,296,565) 288, % 8, % Net nonoperating expenses (83,299) (169,207) (305,658) 85, % 136, % Capital contributions 2,016,078 2,505,764 1,554,589 (489,686) % 951, % Change in net position $ (1,067,025) $ (951,923) $ (2,047,634) $ (115,102) % $ 1,095, % In comparing fiscal year 2012 to fiscal year 2013, the change in net position decreased due to a decrease in capital contributions. While not completed at year end, the 2013ABC Bond series was issued to construct a building to be leased to Sadoff Iron and Metal, construct a building to be leased to G.T. Exhaust, Inc., and construct various infrastructure improvements to the Authority s Lincoln Air Park West Industrial Park. In addition, a portion of the proceeds of the Series 2013 Bonds are being used, together with other available moneys of the Authority, for the purpose of redeeming and refunding the Authority s outstanding Series 2007A, 2007B and 2009A Bonds during the bond issuance process. Moody s assigned an Aa1 rating to the 2013 bonds. 7

10 In fiscal year 2013, the 2012A Bond series was sold to fund the t-hangar relocation project which relocated 6 nested rows. Total project costs were $4.2 million. This project cleared the way for Duncan expansion and realigned the layout of the General Aviation area to be more in line with the Master Plan. In fiscal year 2012, $1,150,000 in debt was issued to fund the improvement and extension of the Airport s existing concrete infrastructure, including extending an existing parking apron and constructing a taxiway to connect the apron extension to the Airport s runway system. Normal depreciation was taken on capital assets during fiscal years 2012 and As of June 30, 2013, the Authority has commitments under construction in the amount of $19,500,000 as compared to June 30, 2012 of $7,560,000. There was no change to landing fee rates in fiscal year However revenue increased slightly between 2011 and Effective January 1, 2013, the landing fee rate was increased from $1.79 per 1,000 pounds to $1.85 per 1,000 pounds. Landing fee revenue decreased marginally. During fiscal year 2012, terminal area revenues experienced an increase due to an entire year of occupancy at the air freight building and an increase in rental car revenue. There was no change in terminal rental rates in fiscal year In fiscal year 2013, terminal revenues showed an increase due to parking revenue receipts and an increase in terminal rates. Revenues in General Aviation area increased in fiscal year 2012 and 2013 due to hangar rental rate adjustments and increased rental revenue from Duncan. Revenues in Lincoln Air Park West decreased in fiscal year 2012 due to a renegotiation of lease terms with an existing tenant. During fiscal year 2013, revenues in Lincoln Air Park West decreased slightly because of tenant bankruptcy, which was partially offset by an increase in aviation related revenue. Federal grant income from capital grants decreased from $2,505,764 in 2012 to $2,016,078 in Landing field expenses increased slightly from 2012 to 2013 due to the unseasonably warm, dry winter in fiscal year Terminal area costs increased in 2012 due to utilities and repairs & maintenance costs. In fiscal year 2013, terminal area costs increased due to contracted services and repairs and maintenance. Air Park West costs for fiscal year 2013 experienced a decrease of approximately $250,000. This is due to a sizable bad debt expense in Public safety costs in fiscal year 2013 decreased due to a full year under the renegotiated joint use agreement with the Guard to provide crash fire and rescue services. General and administrative expenses increased in 2013, primarily due to implementation of GASB Statement No. 65, which required the expensing of bond issuance costs. The Airport Authority remains on a sound financial footing. Modernizing and redeveloping the Airport Industrial Park will position the park to recruit new tenants and create new jobs for the Lincoln area. The recent new tenants mentioned previously are an indication of the positive effects of the improvements. 8

11 This financial report is designed to provide the Airport s management, creditors, customers and citizens with a general view of LAA s finances and to demonstrate LAA s accountability for the funds it receives and expends. For additional information about this report or, if you need additional financial information, please contact: April L. McDaniel, CPA, CGFM John Wood Deputy Director for Administration Executive Director Lincoln Airport Authority Lincoln Airport Authority P.O. Box P.O. Box Lincoln, NE Lincoln, NE (402) (402)

12 Balance Sheets June 30, 2013 and 2012 Assets 2012 (As Restated See Note 1) Current Assets Cash and cash equivalents $ 5,393,310 $ 4,495,894 Investments 2,744,000 3,240,000 Accounts receivable, net 374, ,236 Grants receivable 43, ,194 Prepaid expenses 356, ,774 Total current assets 8,912,111 8,702,098 Restricted Cash and Cash Equivalents 998,555 1,385,463 Capital Assets, At Cost, Net of Accumulated Depreciation 65,359,682 62,045,757 Total assets $ 75,270,348 $ 72,133,318 Liabilities and Net Position Current Liabilities Accounts payable and accrued expenses $ 2,110,781 $ 1,878,630 Current maturities of long-term debt 630, ,000 Unearned revenue 604, ,707 Interest payable 221, ,037 Total current liabilities 3,566,489 3,316,374 Noncurrent Liabilities Long-term debt 12,240,000 8,670,000 Compensated absences 321, ,254 Unearned revenue 842, ,863 Total noncurrent liabilities 13,404,057 9,450,117 Total liabilities 16,970,546 12,766,491 Net Position Net investment in capital assets 51,252,584 51,708,565 Restricted for debt service 611, ,572 Restricted for public safety 1,001 8,240 Unrestricted 6,434,813 6,757,450 Total net position 58,299,802 59,366,827 Total liabilities and net position $ 75,270,348 $ 72,133,318 See Notes to Financial Statements 10

13 Statements of Revenues, Expenses and Changes in Net Position Years Ended June 30, 2013 and (As Restated See Note 1) Operating Revenues Landing field $ 409,122 $ 427,089 Terminal 2,543,274 2,506,881 General aviation 1,829,544 1,621,791 Air Park West 5,293,965 5,373,908 Air Park South 153, ,157 Seizure revenue - 8,240 Total operating revenues 10,229,394 10,138,066 Direct Operating Expenses Landing field 995, ,956 Terminal 1,955,404 1,904,501 General aviation 267, ,114 Air Park West 656, ,473 Air Park South 49,472 44,575 Depreciation 5,048,001 5,338,013 Total direct operating expenses 8,972,335 9,393,632 Operating Income After Direct Expenses 1,257, ,434 Indirect Operating Expenses Public safety 1,317,704 1,362,419 Service equipment 464, ,540 General and administrative 2,069,388 1,934,818 Depreciation 405, ,137 Total indirect operating expenses 4,256,863 4,032,914 Operating Loss (2,999,804) (3,288,480) Nonoperating Revenues (Expenses) Investment income 28,917 18,665 Interest expense (234,200) (297,273) Bond issuance costs - (23,236) Farm income, net of expense 118,353 80,502 Gain on sale of assets - 51,837 Other 3, Net nonoperating revenues (expenses) (83,299) (169,207) Decrease in Net Position Before Capital Grants (3,083,103) (3,457,687) Capital Grants Federal grants 2,016,078 2,505,764 Decrease in Net Position (1,067,025) (951,923) Net Position, Beginning of Year (As Restated - See Note 1) 59,366,827 60,318,750 Net Position, End of Year $ 58,299,802 $ 59,366,827 See Notes to Financial Statements 11

14 Statements of Cash Flows Years Ended June 30, 2013 and Operating Activities Cash received from providing services $ 10,704,195 $ 10,225,880 Cash paid to suppliers (3,837,705) (4,012,458) Cash paid to employees (3,961,225) (3,959,180) Net cash provided by operating activities 2,905,265 2,254,242 Capital and Related Financing Activities Purchase of property and equipment (8,260,192) (5,371,225) Proceeds from issuance of long-term debt 4,200,000 1,126,750 Federal grants received 2,288,282 2,524,253 Principal payments on long-term debt (870,000) (690,000) Proceeds from sale of equipment - 52,870 Interest paid (399,748) (308,832) Other 3, Net cash used in capital and related financing activities (3,038,027) (2,665,886) Investing Activities Proceeds from sale of investments 3,738,000 2,648,415 Purchases of investments (3,242,000) (3,240,000) Farm income 118,353 80,502 Interest received on investments 28,917 18,665 Net cash provided by (used in) investing activities 643,270 (492,418) Increase (Decrease) in Cash and Cash Equivalents 510,508 (904,062) Cash and Cash Equivalents, Beginning of Year 5,881,357 6,785,419 Cash and Cash Equivalents, End of Year $ 6,391,865 $ 5,881,357 Reconciliation of Cash and Cash Equivalents to Balance Sheets Cash and cash equivalents $ 5,393,310 $ 4,495,894 Restricted cash and cash equivalents 998,555 1,385,463 $ 6,391,865 $ 5,881,357 See Notes to Financial Statements 12

15 Statements of Cash Flows - Continued Years Ended June 30, 2013 and Reconciliation of Operating Loss to Net Cash Provided by Operating Activities Operating loss $ (2,999,804) $ (3,288,480) Item not requiring cash Depreciation 5,453,220 5,632,150 Changes in operating assets and liabilities Accounts receivable (59,806) 213,781 Prepaid expenses (20,995) (17,054) Accounts payable and accrued expenses 16,590 (175,164) Unearned revenue 516,060 (110,991) Net Cash Provided by Operating Activities $ 2,905,265 $ 2,254,242 Supplemental Cash Flows Information Capital asset acquisitions included in accounts payable $ 1,401,737 $ 1,109,806 Capitalized interest included in capital asset additions $ 215,022 $ 31,453 See Notes to Financial Statements 13

16 Notes to Financial Statements June 30, 2013 and 2012 Note 1: Nature of Operations and Summary of Significant Accounting Policies Nature of Operations The Airport Authority of the City of (Authority) was created pursuant to Nebraska State Law on February 25, The affairs of the Authority are conducted by a Board whose members are elected by citizens of the City. Operating income is generated primarily from terminal, general aviation and industrial park areas pursuant to lease agreements which are recognized on the operating method. The Authority does not receive any property tax revenue. Basis of Accounting and Presentation The financial statements of the Authority have been prepared on the accrual basis of accounting. Revenues, expenses, gains, losses, assets and liabilities from exchange and exchange-like transactions are recognized when the exchange transaction takes place, while those from government-mandated nonexchange transactions (principally federal grants) are recognized when all applicable eligibility requirements are met. Operating revenues and expenses include exchange transactions and program-specific, government-mandated nonexchange transactions. Investment income and interest on capital asset-related debt are included in nonoperating revenues and expenses. The Authority first applies restricted net position when an expense or outlay is incurred for purposes for which both restricted and unrestricted net position is available. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses and other changes in net position during the reporting period. Actual results could differ from those estimates. Cash Equivalents The Authority considers all liquid investments with original maturities of three months or less to be cash equivalents. At June 30, 2013 and 2012, cash equivalents consisted primarily of money market funds and investment pool funds. 14

17 Notes to Financial Statements June 30, 2013 and 2012 Note 1: Nature of Operations and Summary of Significant Accounting Policies - Continued Investments and Investment Income All investments are carried at fair value. Fair value is determined using quoted market prices. Fair value of the equity in the External Investment Pool is the same as the value of the pool shares determined using the fair value of the pool s underlying investment portfolio. Investment income includes dividend and interest income. Accounts Receivable Accounts receivable consist of amounts owed from airlines, rental car companies, tenants and other operators. Accounts receivable are ordinarily due 30 days after the issuance of the invoice. Delinquent receivables are charged off as they are deemed uncollectible. Capital Assets Capital assets are recorded at cost at the date of acquisition, or fair value at the date of donation if acquired by gift. Depreciation is computed using the straight-line method over the estimated useful life of each asset. The following useful lives are being used by the Authority: Buildings and improvements years Furniture and equipment 3-20 years Runways 5-30 years For taxable borrowings, the Authority capitalizes interest costs as a component of construction in progress, based on the weighted-average rates paid for long-term borrowing. For tax-exempt borrowings, the Authority capitalizes interest costs as a component of construction in progress, based on interest costs of borrowing specifically for the project, net of interest earned on investments acquired with the proceeds of the borrowing. Total interest incurred was: Interest costs capitalized $ 215,022 $ 31,453 Interest costs charged to expense 234, ,273 Total interest incurred $ 449,222 $ 328,726 15

18 Notes to Financial Statements June 30, 2013 and 2012 Note 1: Nature of Operations and Summary of Significant Accounting Policies - Continued Grants Certain outlays for airport capital improvements involve significant federal funding through the Airport Improvement Program of the Federal Aviation Administration (FAA). Capital and other funding provided under government grants is considered earned as the related approved outlays are incurred. Costs claimed from reimbursement are subject to audit and acceptance by the granting agency. Compensated Absences Authority policies permit most employees to accumulate vacation and sick leave benefits that may be realized as paid time off or, partially, as a cash payment. The Authority also has a deferred compensation program for management employees, which accrues as service is provided. Expense and the related liability are recognized as vacation benefits are earned whether the employee is expected to realize the benefit as time off or in cash. Expense and the related liability for sick leave benefits are recognized when earned up to a certain percentage to the extent the employee is expected to realize the benefit in cash upon retirement or death. Sick leave benefits expected to be realized as paid time off are recognized as expense when the time off occurs and no liability is accrued for such benefits employees have earned but not yet realized. Compensated absence liabilities are computed using the regular pay and termination pay rates in effect at the balance sheet date plus an additional amount for compensation-related payments such as social security and Medicare taxes computed using rates in effect at that date. Unearned Revenue Unearned revenue consists primarily of rental payments received in advance and lump-sum payments made by tenants, which relate to future year commitments. The Authority recorded unearned revenue of $1,446,630 and $930,570, for the years ended June 30, 2013 and 2012, respectively. 16

19 Notes to Financial Statements June 30, 2013 and 2012 Note 1: Nature of Operations and Summary of Significant Accounting Policies - Continued Net Position Classification Net position is required to be classified into three components net investment in capital assets; restricted; and unrestricted. These classifications are defined as follows: Net investment in capital assets This component of net position consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. If there are significant unspent related debt proceeds at year-end, the portion of the debt attributable to the unspent proceeds is not included in the calculation of net investment in capital assets. Restricted This component of net position consists of constraints placed on net position use through external constraints imposed by creditors (such as through debt covenants), contributors, or law or regulations of other governments or constraints imposed by law through constitutional provisions or enabling legislation. Unrestricted This component of net position consists of net position that does not meet the definition of restricted or net investment in capital assets. Implementation of New Accounting Principles In 2013, the Authority implemented the provisions of the following accounting principles: GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. This standard was created to incorporate into the GASB s authoritative literature certain accounting and financial reporting guidance that is included in pre-november 1989 FASB and AICPA pronouncements, which do not conflict with or contradict GASB pronouncements. GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. This statement amends the net asset reporting requirements in GASB Statement No. 34 and other pronouncements by incorporating deferred outflows of resources and deferred inflows of resources into the definitions of the required components of the residual measure and by renaming that measure as net position, rather than net assets. The implementation of these standards did not have a significant impact on the Authority s financial statements. 17

20 Notes to Financial Statements June 30, 2013 and 2012 Note 1: Nature of Operations and Summary of Significant Accounting Policies - Continued Implementation of New Accounting Principles - Continued In 2013, the Authority also implemented the provisions of GASB Statement No. 65, Items Previously Reported as Assets and Liabilities, which established accounting and financial reporting standards that reclassify, as deferred outflows of resources or deferred inflows of resources, certain items that were previously reported as assets and liabilities and recognizes, as outflows of resources or inflows of resources, certain items that were previously reported as assets and liabilities. Adoption of GASB 65 changed how the Authority reports various debt issuance costs, and resulted in the following reclassifications and restatements: Balance Sheet Items Affected As Previously Reported Implementation As Restated 2012 of GASB Unamortized bond issuance costs $ 197,229 $ (197,229) $ - Net position Unrestricted 6,954,679 (197,229) 6,757,450 Statement of Revenues, Expenses and Changes in Net Position Items Affected Interest expense (313,912) 16,639 (297,273) Bond issuance costs - (23,236) (23,236) Net position, beginning of year 60,509,382 (190,632) 60,318,750 Increase (decrease) in net position (945,326) (6,597) (951,923) Net position, end of year 59,564,056 (197,229) 59,366,827 Note 2: Deposits, Investments and Investment Income Deposits Custodial credit risk is the risk that in the event of a bank failure, a government s deposits may not be returned to it. The Authority s deposit policy for custodial credit risk requires compliance with the provisions of state law. State law requires collateralization of all deposits with federal depository insurance, bonds and other obligations of the U.S. Treasury, U.S. agencies or instrumentalities having an aggregate value at least equal to the amount of the deposits. Pursuant to legislation enacted in 2010, the FDIC fully insured all noninterest-bearing transaction accounts through December 31, 2012, at all FDIC-insured institutions. This legislation expired on December 31, Beginning January 1, 2013, noninterest-bearing transaction accounts are subject to the $250,000 limit on FDIC insurance per covered institution. At June 30, 2013, the Authority s bank balances exceeded federally insured limits by approximately $1,080,

21 Notes to Financial Statements June 30, 2013 and 2012 Note 2: Deposits, Investments and Investment Income - Continued Investments The Authority may legally invest in direct obligations of and other obligations guaranteed as to principal by the U.S. Treasury and U.S. agencies and instrumentalities and in repurchase agreements collateralized by U.S. Treasury securities and U.S. government agencies. It may also invest to a limited extent in municipal bonds. At June 30, 2013 and 2012, the Authority had the following investments: Maturities in Years Credit Fair Less Rating Value Than Moody's / S&P June 30, 2013 External investment pool $ 2,736,340 $ 2,736,340 $ - N/A Negotiable certificates of deposit 1,244,000 1,244,000 - Not rated Government securities money market funds 1,568,620 1,568,620 - Aaa-mf/ AAAm $ 5,548,960 $ 5,548,960 $ - June 30, 2012 External investment pool $ 2,731,531 $ 2,731,531 $ - N/A Negotiable certificates of deposit 1,740,000 1,492, ,000 Not rated Government securities money market funds 2,520,088 2,520,088 - Aaa-mf/ AAAm $ 6,991,619 $ 6,743,619 $ 248,000 Interest Rate Risk - As a means of limiting its exposure to fair value losses arising from rising interest rates, the Authority s investment policy requires that market conditions and investment securities be monitored to determine the maximum yield that can be obtained while minimizing the impact of rising interest rates. The government securities money market funds and external investment pool are presented as investments with a maturity of less than one year because they are redeemable in full immediately. Credit Risk - Credit risk is the risk that the issuer or other counterparty to an investment will not fulfill its obligations. It is the Authority s policy to limit its investments in municipal bonds to the top two ratings issued by nationally recognized statistical rating authorities. Credit ratings of the external investment pool are not available, however, the pool is invested in U.S. agency obligations. Custodial Credit Risk - For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the Authority will not be able to recover the value of its investment or collateral securities that are in the possession of an outside party. Negotiable certificates of deposit are held in the custodian s name for the benefit of the Authority. 19

22 Notes to Financial Statements June 30, 2013 and 2012 Note 2: Deposits, Investments and Investment Income - Continued Investments - Continued Concentration of Credit Risk - The Authority s investment policy places no limit on the amount that may be invested in any one issuer. All of the money market funds held at June 30, 2013 and 2012 are invested with one financial depository. This financial depository also serves as the Trustee or Paying Agent for all of the Authority s bonded debt. Summary of Carrying Values The carrying values of deposits and investments shown above are included in the balance sheets as follows: Deposits $ 3,586,905 $ 2,129,738 Investments 5,548,960 6,991,619 $ 9,135,865 $ 9,121,357 Included in the following balance sheet captions: Current assets Operations and maintenance fund $ (112,246) $ (121,821) Employee pay flex 2,945 15,343 Revenue fund 1,513, ,907 Airport parking account 1,010, ,657 Capital improvement fund 591, ,485 Insurance fund 2,365,158 2,685,803 Airport CNG station fund 22,088 6,520 Total cash and cash equivalents 5,393,310 4,495,894 Investments - insurance fund 2,744,000 3,240,000 Restricted cash and cash equivalents Airport bond fund 832,915 1,064,609 Airport bond project fund 164, ,614 Police department equitable sharing revenue 1,001 8,240 Total restricted cash and cash equivalents 998,555 1,385,463 $ 9,135,865 $ 9,121,357 20

23 Notes to Financial Statements June 30, 2013 and 2012 Note 2: Deposits, Investments and Investment Income - Continued Summary of Carrying Values - Continued Funds in the capital improvement fund are a result of monies transferred from the revenue fund and the airport parking account, which are to be used for improvements, extensions, betterments, renewals and replacements, payment of principal and interest on any subordinate indebtedness, purchase or redemption of bonds or for any other lawful purpose. The Authority has established an insurance fund for the purpose of self-insurance on losses on property damage not covered by insurance and environmental protection costs. Funds in the airport bond fund are to be applied solely for the purpose of paying the principal and interest on bonds when due. Investment Income Investment income was $28,917 and $18,665 for the years ended June 30, 2013 and 2012, respectively, and was comprised entirely of interest and dividend income. Note 3: Capital Assets Capital asset activity for the years ended June 30, 2013 and 2012 was: 2013 Beginning Less Ending Balance Additions Retirements Transfers Balance Land $ 2,350,187 $ - $ - $ - $ 2,350,187 Buildings 111,718, ,990 5,331, ,404,056 Furniture and equipment 7,689, , ,244 8,571,422 Runways 60,106, ,188,127 61,294,280 Construction in progress 5,215,552 8,548,303 - (7,183,152) 6,580, ,079,466 8,767, , ,200,648 Less accumulated depreciation Buildings 69,866,746 3,649, ,963-72,870,604 Furniture and equipment 6,171, , ,565,842 Runways 48,995,462 1,409, ,404, ,033,709 5,453, , ,840,966 Capital assets, net $ 62,045,757 $ 3,313,952 $ 27 $ - $ 65,359,682 21

24 Notes to Financial Statements June 30, 2013 and 2012 Note 3: Capital Assets - Continued 2012 Beginning Less Ending Balance Additions Retirements Transfers Balance Land $ 2,350,187 $ - $ - $ - $ 2,350,187 Buildings 111,205, , ,718,265 Furniture and equipment 6,996, , , ,356 7,689,309 Runways 60,029,663 1,039-75,451 60,106,153 Construction in progress 243,723 6,198,328 - (1,226,499) 5,215, ,825,698 6,446, , ,079,466 Less accumulated depreciation Buildings 66,131,140 3,735, ,866,746 Furniture and equipment 6,081, , ,174-6,171,501 Runways 47,381,484 1,613, ,995, ,593,733 5,632, , ,033,709 Capital assets, net $ 61,231,965 $ 814,825 $ 1,033 $ - $ 62,045,757 22

25 Notes to Financial Statements June 30, 2013 and 2012 Note 4: Long-Term Liabilities The following is a summary of long-term obligation transactions for the Authority for the years ended June 30, 2013 and 2012: Type of Debt 3.70%-4.4% Airport Bonds, Series 2007A, due semi-annually on January 1 and July 1 with a final payment due July 1, %-4.75% Airport Bonds, Series 2007B, due semi-annually on January 1 and July 1 with a final payment due July 1, %-4.45% Airport Bonds, Series 2009A, due semi-annually on June 15 and December 15 with a final payment due December 15, %-4.875% Airport Bonds, Series 2009B, due semi-annually on January 1 and July 1 with a final payment due July 1, %-3.80% Airport Bonds, Series 2010, due semi-annually on January 1 and July 1 with a final payment due July 1, %-4.00% Airport Bonds, Series 2011A, due semi-annually on January 1 and July 1 with a final payment due July 1, %-4.00% Airport Bonds, Series 2012A, due semi-annually on January 1 and July 1 with a final payment due July 1, July 1, June 30, Due Within 2012 Additions Reductions 2013 One Year $ 600,000 $ - $ 30,000 $ 570,000 $ 30, ,000-40, ,000 40,000 1,455,000-65,000 1,390,000 70,000 3,480, ,000 3,340, ,000 2,010, ,000 1,470, ,000 1,150,000-55,000 1,095,000 50,000-4,200,000-4,200, ,000 Total bonds payable 9,540,000 4,200, ,000 12,870, ,000 Compensated absences 588, , , , ,000 Unearned revenue 930, , ,392 1,446, ,197 Total long-term liabilities $ 11,058,824 $ 5,416,905 $ 1,552,475 $ 14,923,254 $ 1,519,197 23

26 Notes to Financial Statements June 30, 2013 and 2012 Note 4: Long-Term Liabilities - Continued Type of Debt 2012 July 1, June 30, Due Within 2011 Additions Reductions 2012 One Year 3.65%-4.4% Airport Bonds, Series 2007A, due semi-annually on January 1 and July 1 with a final payment due July 1, %-4.75% Airport Bonds, Series 2007B, due semi-annually on January 1 and July 1 with a final payment due July 1, %-4.45% Airport Bonds, Series 2009A, due semi-annually on June15andDecember15withafinal payment due December 15, %-4.875% Airport Bonds, Series 2009B, due semi-annually on January 1 and July 1 with a final payment due July 1, %-3.80% Airport Bonds, Series 2010, due semi-annually on January 1 and July 1 with a final payment due July 1, %-4.00% Airport Bonds, Series 2011A, due semi-annually on January 1 and July 1 with a final payment due July 1, 2031 $ 625,000 $ - $ 25,000 $ 600,000 $ 30, ,000-35, ,000 40,000 1,520,000-65,000 1,455,000 65,000 3,620, ,000 3,480, ,000 2,435, ,000 2,010, ,000-1,150,000-1,150,000 55,000 Total bonds payable 9,080,000 1,150, ,000 9,540, ,000 Compensated absences 605, , , , ,000 Unearned revenue 1,041, , , , ,707 Total long-term liabilities $ 10,726,947 $ 1,779,516 $ 1,447,639 $ 11,058,824 $ 1,608,707 24

27 Notes to Financial Statements June 30, 2013 and 2012 Note 4: Long-Term Liabilities - Continued The basic resolutions authorizing the issuance of all the Airport Bonds require compliance with certain covenants and debt service coverage ratios. Management believes the Authority is in compliance with these requirements. The bonds are not general obligations of the City of Lincoln, Nebraska, but are general obligations of the Authority. The bonds are secured by a pledge of all revenues and income derived by the Authority directly or indirectly from the ownership, use, and operation of the Airport. The total principal and interest remaining to be paid on the bonds is $18,385,231, with annual payments expected to require approximately 11 percent of net revenues. Principal and interest for the current year and net operating revenues were $1,269,748 and $10,229,394, respectively. The Series 2007A and 2007B bonds are subject to early redemption at the Authority s option on or after July 1, 2012 at 100% of face value. The Series 2009A and 2009B bonds are subject to early redemption at the Authority s option on or after December 15, 2013 and July 1, 2014, respectively, at 100% of face value. The Series 2010 bonds are subject to early redemption at the Authority s option on or after July 1, 2015 at 100% of face value. The Series 2011A bonds are subject to early redemption at the Authority s option on or after September 14, 2016 at 100% of face value. The Series 2012A bonds are subject to early redemption at the Authority s option on or after July 1, 2017 at 100% of face value. The debt service requirements at June 30, 2013 are as follows: Total to be Year Ending June 30, Paid Principal Interest 2014 $ 1,074,134 $ 630,000 $ 444, ,066, , , ,066, , , ,064, , , ,066, , , ,603,611 3,025,000 1,578, ,100,380 3,075,000 1,025, ,098,235 1,630, , ,126, , , ,118,438 1,020,000 98,438 $ 18,385,231 $ 12,870,000 $ 5,515,231 25