TUCSON AIRPORT AUTHORITY 2012COMPREHENSIVE ANNUAL FINANCIAL REPORT

Prepared by the Finance Department Year Ended September 30, 2012

Tucson, Arizona This page intentionally left blank. MISSION STATEMENT

The mission of the Tucson Airport Authority is to promote aviation and foster economic development by strategically planning, developing and operating the most effective and efficient airport system for southern Arizona.

i 2012 BOARD OF DIRECTORS AND MEMBERS

CHAIRMAN ACTIVE MEMBERS Lisa H. Israel Judith K. Abrams Thomas E. Chestnut Michael W. Franks Robert Johnston President/CEO Owner President/CEO President (Ret.) Lieutenant General La Posada at Park Centre, Judith K. Abrams Chestnut Construction Seaver Franks Architects U.S. Marine Corps. Inc. Consulting Corporation Peter V. Gallo Gary Kippur CHAIRMAN-ELECT Hal D. Adamson Stephen W. Christy President President President Board Member Monterey Water Co. Tucson Iron & Metal Edwin L. Biggers Adamac Rubber Mfg., Inc. Arizona State Transportation Board, Jaime Esteban Gibbons Rosemary J. Koberlein (Ret.) Vice President Larry R. Adamson, Esq. PAG & RTA Owner Chief Executive Officer Hughes Aircraft Co. Shareholder ABCD Realty, Ltd. Long Companies Duffield, Adamson, Ginny L. Clements David Goldstein Roy W. Kyle SECRETARY Helenbolt, PC Chairman Golden Eagle President Partner Bruce I. Ash Diamond Ventures, Inc. Lewis and Roca LLP Steven R. Cole Distributors, Inc. President President Paul Ash Management D. June Crawford Dr. Thomas Grogan David J. Lane Southwest Appraisal Co., LLC President Founder & Chief Medical President Associates Copygraphix, Inc. Officer Lane Arizona Properties William R. Assenmacher Ventana Medical TREASURER President & CEO Richard Davis Systems, Inc. Larry M. Lang CAID Industries, Inc. Partner/Trial Lawyer President Steven D. Fell Mesch, Clark & David E. Hameroff Diversified Design & Senior Vice President Raymond Bernal Rothschild PC Attorney Construction, Inc. Commercial Banking Management The Hameroff Law Manager Big River Darryl B. Dobras F i r m, P.C. Dr. Taylor W. Lawrence National Bank of Arizona Development Ent. President President DBD Investments Michael S. Hammond Raytheon Missile Systems ASSISTANT SECRETARY Henry K. Boice President/CEO President Robert L. Draper Cushman & Wakefield Jan Lesher Tony Finley Northern Trust Company President PICOR Commercial Real Deputy County Chief Financial Officer O’Rielly Chevrolet, Inc. Estate Services Administrator Long Companies/Long Paul J. Bonavia Pima County Administration Realty Company Chairman, President, CEO Michael J. Duran Barbara L. Harper, DM Unisource Energy Corp. Vice President & Chief Pilot Wendell M. Long ASSISTANT TREASURER Development Officer Aviation Consultant CEO Susan G. Boswell Tucson Medical Center Pascua Yaqui Gaming Ent. Gregory A. Pivirotto Attorney & TMC Foundation Edward D. Harrow (Ret.) President/CEO Quarles & Brady LLP Colonel, USAF, Ret. Humberto S. Lopez University Medical Center Bruce L. Dusenberry Past Executive Director President John H. Bremond President Pima Air and Space HSL Properties, Inc. President DIRECTOR Horizon Moving Systems, Museum Bremond Company, LLC Inc. Lisa M. Lovallo Dr. Ann Weaver Hart VP & Market Manager Michael F. Hannley Archibald M. Brown, Jr. Vance L. Falbaum President for Southern Arizona President & CEO Retired Sr. Vice President & The University of Arizona Cox Communications, Inc. Bank of Tucson Merlin, Inc. Financial Advisor RBC Wealth Management Duff Hearon David M. Lovitt, Jr. DIRECTOR Chanda S. Budhabhatti President/CEO President Vice President George Favela Ashland Group & DM Lovitt Insurance Francine L. Katz A&A Structural Director, State & Local The Hearon Co. Agency Associate Publisher Engineers, Inc. Government Affairs Tucson Lifestyle Magazine CenturyLink Lawrence M. Hecker Richard Lukso Joseph R. Cesare Attorney Aviation Engineering DIRECTOR President John L. Fendenheim Hecker & Muehlebach, Consultant Broadway Realty & Owner PLLC Lux Aviation James H. Moore, Jr. Trust, Inc. Fendenheim Enterprises President/CEO K. La Monte Hunley David Lyons University of Arizona Dr. Vicki L. Chandler Sally G. Fernandez Owner Executive Vice President, Foundation Chief Program Officer, President Arizona Health, LLC Regional President Science, Gordon and Betty Safety Dynamics, Inc. National Bank of Arizona Moore Foundation Daisy M. Jenkins Louise L. Francesconi Executive Vice President, S. James Manilla, Ph.D. (Ret.) President Chief Administrative/HR Consultant Raytheon Company, Officer Missile Systems Carondelet Health Network ii TUCSON AIRPORT AUTHORITY 2012 CAFR LIFE MEMBERS Michael McGrath Lea Márquez Peterson Lucinda J. Smedley Laura T. Almquist Dr. Peter Likins Partner President/CEO Publisher/Principal Hal W. Ashton Christopher Maloney Mesch, Clark & Tucson Hispanic Chamber TREND Report/Real Edith Sayre Auslander Octavio A. Molera Rothschild PC of Commerce Estate Consulting Group Elizabeth T. Bilby Gary M. Munsinger, David L. McPherson Ricardo Platt George Steele Fred T. Boice Ph.D. (Ret.) Sr. Vice President Account Executive (Ret.) Executive Officer James J. Burns James E. Neihart Raytheon Company Crest Insurance Valley National Corp. Jack C. Camper R. B. O’Rielly Sharon B. Megdal, Ph.D. Timothy J. Prouty Phillip Swaim John L. Carter William E. Page Director, Water Resources Managing Director, President Paul W. Cella Mary Levy Peachin Research Center Brokerage Services Swaim Associates, Ltd. Jim H. Click, Jr. Bobby R. Pennington The University of Arizona CB Richard Ellis Jack D. Davis Lloyd J. Perper Steven Thu Tucson, LLC Lee Davis Charles M. Pettis Frances McL. Merryman Managing Partner Vice President Stephen E. Quinlan 4-D Properties Donald R. Diamond Ernesto V. Portillo Sr. Wealth Strategist Chairman Katie Dusenberry Mickey R. Prim Northern Trust Company Long Realty Company Steven D. Touché Arnold R. Elias Karl G. Ronstadt President Robert A. Elliott Lowell E. Rothschild Forrest L. Metz James F. Ronstadt Lovitt & Touché, Inc. President CFO Dr. Roy Flores Roberto C. Ruiz Urban Engineering, Inc. Ronstadt Insurance Co. Richard K. Underwood Edward S. Frohling Warren S. Rustand President Arthur L. Gonzales Richard L. Sainz Omar Mireles Joaquin Ruiz AAA Landscape Elizabeth Gonzalez James M. Sakrison President Dean, College of Science Marcia Grand John P. Schaefer, Ph.D. HSL Asset Management The University of Arizona Izaro Urreiztieta Senior Vice President & Michael W. Hard Floyd W. Sedlmayr, Jr. Chris Monson Ronald K. Sable Manager John L. Huerta Donald G. Shropshire Owner President Tucson Commercial Richard F. Imwalle Jacob F. Struble Aberdeen Group Concord Solutions Ltd. Banking, BBVA Compass Charles Jackson Esther Don Tang Rebecca R. Montaño, Rubin Salter, Jr. Mercy A. Valencia, Ed.D. Darryl O. Jones Richard S. Walden Ed.D. Attorney (Ret.) Assistant Vice Al Kivel Arthur B. (Art) Waller Educational Consultant Rubin Salter, Jr. President Dr. Henry Koffler Paul Weitman Education Trust Law Offices Real Estate Administration Cressworth C. Lander Joseph B. Wilcox Beat the Odds Institute University of Arizona S. L. Schorr Meg Olson Lee David T.C. Wright Rick T. Myers, Jr. Senior Partner Taunya Villicana Board of Regents Lewis and Roca LLP Co-Founder/Managing Partner Ned L. Norris, Jr. Christopher H. Sheafe Affinity Financial Group Chairman President Tohono O’odham Nation C. Sheafe Company Jonathan D. Walker (Ret.) President/CEO Tim J. Overton Keri L. Silvyn Metropolitan Tucson Vice President Attorney/Partner/Owner Convention & Visitors Northern Trust Company Lazarus, Silvyn & Bangs, Bureau P.C. Steve Pagnucco Katherine R. Ward General Manager, Scott M. Sirois Manager, Economic Manufacturing Division CEO/Tohono O’odham Development & Comm. Universal Avionics Gaming Enterprise Town of Sahuarita Desert Diamond Casino Richard D. Parlett Michael R. Wattis President Ted Sitterley, Jr. President General Tool & Supply Co. (Ret.) Financial Executive Michael R. Wattis, Inc. Industrial Tool and Supply Division W. David Sitton Ellen K. Wheeler, J.D. President Claims Manager Judith A. Patrick Enterprise Communications Pima County Finance and Board Chair Group, Ltd. Risk Management SCF Arizona David C. Smallhouse Thomas A. Zlaket Managing Partner Attorney Miramar Ventures, LLC Thomas A. Zlaket, PLLC

iii TABLE OF CONTENTS

INTRODUCTION SECTION PAGES

Transmittal Letter Organization 1 Economic Conditions and Outlook 2 2012 Air Travel Industry Recap 2 2013 Air Travel Industry Outlook 2 State and Local Economic Outlook 3 Air Service at Tucson International Airport 3 Major Initiatives 4 Capital Improvement Program 4 Major Maintenance Program 7 Federal and State Funding 8 Passenger Facility Charge Program 8 Leasing, Business Development and Concession Activity 9 Financial Policies and Practices 10 Internal Control Environment 10 Budgetary Controls 10 Long-Term Financial Planning 12 Cash Management and Investments 12 Capital Financing and Debt Management 12 Risk Management 13 Pension and Other Post-Employment Benefits 13 Other Information 14 Community Involvement 14 Requests For Information 15 Awards and Acknowledgments 15 Certificate of Achievement 16 Organizational Structure 17 Airlines and Tenants 18

FINANCIAL SECTION

Independent Auditors’ Report 21 Management’s Discussion and Analysis 22 Statements of Net Assets 36 Statements of Revenues, Expenses and Changes in Net Assets 40 Statements of Cash Flows 41 Notes to Financial Statements 43 Note 1 Organization and Reporting Entity 43 Note 2 Summary of Significant Accounting Policies 43 Note 3 Cash, Cash Equivalents and Investments 47

iv TUCSON AIRPORT AUTHORITY 2012 CAFR FINANCIAL SECTION (continued)

Note 4 Inventories 52 Note 5 Capital Assets 52 Note 6 Deferred Revenues 54 Note 7 Long-Term Debt 54 Note 8 Arizona State Retirement System 57 Note 9 Arizona Public Safety Personnel Retirement System 58 Note 10 Operating Leases with Lessees 63 Note 11 Concentration of Operating Revenues 63 Note 12 Passenger Facility Charges 63 Note 13 Risk Management 64 Note 14 Commitments 64 Note 15 Environmental Matters, Litigation and Contingencies 64 Note 16 Operating Lease 66

STATISTICAL SECTION

Financial Trends Net Assets and Changes in Net Assets 72 Revenue Capacity Principal Revenues Sources 74 Principal Revenue Source Ratios 76 Rates and Charges 76 Debt Capacity Ratios of Outstanding Debt, Debt Service and Debt Limits 78 Airport Revenue Bond Coverage Per Bond Resolutions 80 Demographic and Economic Information Population in the Air Service Area 82 Unemployment Rates in the Air Service Area 82 Major Employers in the Air Service Area 84 Operating Information Authority Employees 86 Airport Information ­— Tucson International Airport 88 Airport Information — Ryan Airfield 90 Passenger, Cargo and Mail Summary 92 Aircraft Operations Summary 94 Enplaned Passengers By Scheduled Carrier 94 Scheduled Carrier Landed Weights 96 Scheduled Air Service Information 98

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March 29, 2013

Board of Directors Tucson Airport Authority 7005 S. Plumer Ave. Tucson, Arizona 85756

Ladies and Gentlemen:

It is our pleasure to present the Comprehensive Annual Financial Report (CAFR) of the Tucson Airport Authority, Inc. (Authority) for the fiscal year ended September 30, 2012. Responsibility for both the accuracy of the data and completeness and fairness of the presentation, including all disclosures, rests with management of the Authority. To the best of our knowledge and belief the enclosed information is accurate and complete in all material respects and reported in a manner designed to present fairly the financial position, results of operations, and cash flows in accordance with Generally Accepted Accounting Principles (GAAP).

GAAP requires that management provide a narrative overview and analysis to accompany the financial statements in the form of a Management’s Discussion and Analysis (MD&A). This introductory letter should be read in conjunction with the MD&A, which can be found immediately following the report of the independent auditors in the financial section of the CAFR.

ORGANIZATION

The Authority was established April 12, 1948, as a civic, non-profit corporation as provided for under Arizona law, to develop, promote, operate and maintain airports and air transportation facilities adjacent to the City of Tucson (City) and in Pima County (County). Under Arizona law, the City is authorized to acquire, own, control, equip, improve, maintain, operate, and regulate airports and enter into agreements with corporations engaged in the air transportation industry for the operation of airports. The Authority operates Tucson International Airport (TIA) and Ryan Airfield (Ryan) as an essential government function under Arizona law.

The Authority’s active membership is comprised of up to 115 individuals who are residents of the County. There were 104 active members as of September 30, 2012. Members are elected for life, and active members fill vacancies through election at each annual meeting.

The Authority is governed by a Board of Directors (Board) consisting of nine Authority members. Board members are elected by active Authority members, typically to staggered terms of three consecutive years, and may serve a maximum of two successive terms. Directors receive no salary or compensation for their services, but by resolution of the Board they may be reimbursed for their actual expenses paid or obligated to be paid in connection with services rendered solely for the benefit of the Authority.

The Board appoints the President/Chief Executive Officer (CEO), who serves at its pleasure. The Authority’s staff is organized into three divisions, each managed by personnel appointed by and reporting directly to the CEO. These three divisions are: Administration and Finance, Planning and Development, and Operations. Additionally, the CEO appoints a Senior Vice President/ General Counsel and Executive Assistant to the CEO, both reporting to the CEO. The organizational chart that follows this letter reflects the operational structure as of September 30, 2012.

The Authority’s airport system consists of TIA and Ryan. TIA is a commercial service airport serving the Tucson metropolitan area, southern Arizona, and northern Sonora, Mexico. Ryan serves as a general aviation reliever airport for TIA.

TIA encompasses 8,343 acres of land and is located eight miles south of the City’s central business district. There are approximately 130 separate buildings on the airport property providing approximately 2.5 million square feet of floor space.

On October 14, 1948, the City and the Authority entered into a 25-year lease for TIA. A March 15, 1971 amendment extended the term of the lease to October 14, 2023 and provided an option to extend the term of the lease to October 14, 2048. The Authority exercised this extension option in 1986.

The TIA lease obligates the Authority to make rent payments to the City, calculated by taking gross operating revenues and deducting operating expenses and certain other funding requirements. The Arizona Superior Court, in and for the County, approved the validity of the lease and ruled that in calculating rents due the City, the Authority may deduct a sum equal to the total amount required to pay all of its outstanding obligations, regardless of what amount may be due in any year. The Authority has not been required to make any payments to the City under this formula and does not expect an obligation to do so while its revenue bonds are outstanding.

INTRODUCTION 1 ORGANIZATION (continued)

Ryan, located 12 miles southwest of downtown Tucson, encompasses 1,804 acres of land. The airfield accommodates a wide variety of general aviation activity. The Authority holds a separate lease for Ryan with the City that expires in 2053. The lease was originally entered into with the State of Arizona on August 31, 1954, but ownership of the land was transferred by the State of Arizona and accepted by the City on December 21, 1959. Annual lease payments are based on a nominal amount ($.05) per acre, plus 10% of Ryan’s net profits. The Authority has not been required to make any payments to the City under the percentage of net profits provision and does not expect an obligation to do so in the foreseeable future.

ECONOMIC CONDITIONS AND OUTLOOK

2012 AIR TRAVEL INDUSTRY RECAP

The air travel industry in 2012 was much like the last several years. A continued slow and uneven recovery from economic recession in the United States, improving but still high unemployment, overseas conflict, oil price instability and airline mergers all contributed to another unsettled year for air carriers and airports alike.

Modest growth in the U.S. economy in 2010 and 2011 led to an increase in business travel and airlines were hopeful that this trend would continue in 2012. It was also hoped that leisure travel would finally begin to recover more robustly with continued improvement in the economy. These hopes were largely unrealized as the U.S. economy struggled to sustain a recovery and jet fuel prices remained at historically high levels. As a result, U.S. airlines continued to restrict domestic seat capacity to increase pricing power and improve profitability.

Among the most noticeable aspects of the airline industry once again in 2012 was strict adherence to seat capacity discipline. According to the International Air Transport Association (IATA), U.S. passenger traffic rose just 0.8% in 2012, with nearly flat capacity growth of 0.4%. This followed minimal passenger and capacity growth of 1.5% and 0.5%, respectively, in 2011. IATA attributes this trend to the maturity of the U.S. domestic travel market and subdued growth of the U.S. economy. Significant declines in airline seat capacity began as a result of oil price escalation in 2007 and 2008, and then continued as the U.S. economy went into a deep recession. The U.S. air travel industry has been slow to recover ever since, with IATA reporting that U.S. domestic seat capacity has stabilized at approximately 10% below pre-recession levels. Growth has returned to large hub airports, but most smaller airports like TIA have yet to recover even a small portion of seat capacity and passenger traffic lost during the recession.

Competition for market share has historically been the reason that airlines failed to limit capacity, but with the economic downturn and resulting decrease in demand, airlines have exercised a greater degree of capacity discipline than ever before. Limiting capacity has given the airlines more pricing power, which together with ancillary charges for baggage and other fees has produced profits for most airlines over the last three years in spite of historically high fuel prices. Passengers have seen the results of capacity constraint in very full planes and higher fares.

Given the greater ability of most U.S. airlines to sustain profits even through difficult economic climates, airlines have accelerated efforts to acquire new aircraft. However, most of this activity is to replace older and less fuel-efficient aircraft rather than to increase capacity in their route networks.

Industry consolidation has been ongoing since 2008, not only in the number of aircraft in active service, but also in the number of carriers. During 2012, United Continental Holdings continued work on fully integrating operations of the former United Airlines and Continental Airlines, and Southwest Airlines continued work on merging AirTran into the Southwest network. In early 2013, American Airlines and U.S. Airways announced their intention to merge, subject to bankruptcy court and regulatory approvals. This followed American’s bankruptcy filing in late 2011.

2013 AIR TRAVEL INDUSTRY OUTLOOK

With many of the same economic headwinds facing them in 2013 as in the last three years, a cautious business approach by the airline industry is expected to continue. In November 2012, Airlines for America (A4A), an association representing major U.S. airlines, projected a 2.4% reduction in scheduled domestic flights in 2013, along with a 1.3% decline in domestic seats. A4A’s chief economist, John Heimlich, said, “We are poised, once again, to see all-time high jet fuel prices for this year (2013), with a fair degree of volatility throughout the year. That is a major factor driving results and driving service levels.” While the projected decline in overall seat capacity is modest, all indications are that smaller airports will continue to see significant air service reductions, while large hub airports will see growth.

2 TUCSON AIRPORT AUTHORITY 2012 CAFR ECONOMIC CONDITIONS AND OUTLOOK (continued)

STATE AND LOCAL ECONOMIC OUTLOOK

The U.S. Census Bureau defines the Tucson Metropolitan Statistical Area (MSA) as being all of Pima County. The County covers an area of approximately 9,240 square miles and had an estimated population of 990,380 as of July 1, 2012, which represents an increase of 0.4% from July 1, 2011. The Tucson metro area consists of about 495 square miles that contain more than 95% of the County’s population. The metro area is the origin or destination of most airport users.

Tourism and recreation are important components of the Tucson economy. The area has a sunny climate with a high temperature averaging 82 degrees and a low of 55. Average annual precipitation is approximately 11 inches. Tucson averages 350 days of sunshine a year, creating ideal conditions for year-round play at approximately fifty golf courses in and around the city. These and other visitor benefits are aggressively marketed by local businesses and the Metropolitan Tucson Convention and Visitors Bureau. Tourism has been a significant contributor to past growth in annual passenger traffic at TIA.

The Tucson area is also home to a diverse group of employers in industry sectors such as aerospace, defense, biotechnology and solar energy. Davis-Monthan Air Force Base in Tucson and Fort Huachuca Army Intelligence Center southeast of Tucson are also two of the area’s largest employers. The University of Arizona, Pima Community College and a large health care sector are other significant sources of jobs for southern Arizona residents.

Arizona’s rapid population growth leading up to the economic recession led to a thriving homebuilding industry. Reliance on this industry for economic growth contributed to Arizona and Tucson being among the hardest hit areas in the country with the burst of the housing bubble beginning in 2007. Like most of the rest of the country, recovery from the recession has been slow.

Marshall J. Vest, Forecasting Project Director for the Economic and Business Research Center at the University of Arizona, had expected the slow pace of economic recovery in Tucson and Arizona to quicken in 2012. However, in the October 2012 issue of Arizona’s Economy, he says, “The Arizona economy continues to expand at a painfully slow pace”, and now expects this situation to continue into 2013 before faster growth materializes. A major reason is that the housing market on which Arizona has been so dependent for economic growth is expected for a variety of reasons to remain subdued for the next couple of years. Job growth in Tucson and Arizona has also continued to be very slow. Vest expects that it will be mid-decade before damage from the recession is repaired. He cites continued tight credit, still damaged housing markets, reduced population mobility, lack of consumer confidence, cautious spending and hiring and a continued drag from the public sector.

AIR SERVICE AT TUCSON INTERNATIONAL AIRPORT

TIA is the principal air carrier airport serving metropolitan Tucson, southern Arizona and northern Sonora, Mexico. The Authority considers Pima County as its primary airport service area.

The Authority focuses its strategic air service development effort on achievable goals that are consistent with the dynamics of the airline industry. TIA is subject to competition for airline services and passengers residing in the Tucson service area with Phoenix Sky Harbor Airport 110 highway miles to the north. TIA’s competitive position is strengthened economically through its relationships with key air service stakeholders that include the Metropolitan Tucson Convention and Visitors Bureau, the Metropolitan Tucson Chamber of Commerce and Tucson Regional Economic Opportunities, Inc.

The Authority’s primary objectives are to accommodate air service demand by increasing nonstop services throughout the U.S. to new and existing hub destinations with new and incumbent carriers, while reducing both leakage and spillage of passengers to Phoenix. Emphasis has also been directed toward attracting carriers that could serve markets appropriate for shorter-range point-to-point domestic service, as well as establishing scheduled service to key destinations in Mexico and Canada.

The airlines that provide regularly scheduled service to TIA include network carriers, their wholly owned regional carrier subsidiaries, and contract regional carriers. As no single carrier holds a dominant market position, competition remains robust along Tucson’s top origin and destination routes.

Like most airports nationwide, TIA began experiencing significant jet fuel cost and demand-related service cuts beginning in late summer 2008, a situation accelerated by the severe economic recession. Smaller airports similar in size to TIA and having relatively greater proportions of leisure travelers (as TIA does) were among the hardest hit as airlines also refocused route networks on their large hub operations.

INTRODUCTION 3 ECONOMIC CONDITIONS AND OUTLOOK (continued)

While passenger traffic levels overall in the U.S. and in Tucson fell significantly in 2008 and 2009, airline capacity fell at an even greater rate. As a result, airline load factors increased and have remained at levels that are approaching full passenger capacity. In this environment, increases in passenger levels are highly dependent on the addition of new capacity.

TIA’s total passenger traffic fell from 3,676,894 in FY 2011 to 3,649,783 in FY 2012, a decrease of 0.7%. This followed a decrease of 0.9% in the previous year. Total scheduled inbound/outbound seat capacity in FY 2012 decreased 3.4% from FY 2011.

During both FY 2012 and FY 2011, 15 destination airports were served nonstop from TIA. Average daily departures in FY 2012 were 60, versus 62 in FY 2011. The nonstop destinations served in FY 2012 were: • Albuquerque (ABQ) • Denver (DEN) • Phoenix (PHX) • Atlanta (ATL) • Houston (IAH) • Salt Lake City (SLC) • Chicago O’Hare (ORD) • Las Vegas (LAS) • San Diego (SAN) • Chicago Midway (MDW) • Los Angeles (LAX) • San Francisco (SFO) • Dallas (DFW) • Minneapolis (MSP) • Seattle (SEA)

The most significant service addition in FY 2012 was Southwest adding seasonal service to Baltimore/Washington (BWI) from mid-February through mid-April 2012. Alaska also added a second daily flight to Seattle during the same time period, which is historically the peak passenger traffic period each year at TIA. These gains in service were offset by Frontier discontinuing service to Denver in May 2012, although both United and Southwest continue to serve this route.

The FY 2013 outlook for scheduled carrier service at TIA is negative. The FY 2012 seasonal gains discussed previously will not return in FY 2013. We will also have the full year effect of Frontier exiting the Tucson market. While retaining the routes, United is reducing capacity to Los Angeles, San Francisco and Denver. Southwest is phasing out service to Albuquerque in 2013 and reducing capacity on their routes to Los Angeles and Las Vegas. The Los Angeles capacity reductions are likely a delayed response to American capturing market share upon entering this market in 2011.

While the Authority believes that sufficient demand exists for year-round daily service to new destinations such as Detroit, New York, Philadelphia, Washington, D.C., Portland and several cities in Mexico, and for increased capacity on existing routes such as Seattle, Minneapolis, Chicago and Houston, continued tight airline capacity constraints in view of high fuel prices and a still uncertain economic environment will make success in obtaining new destinations and increased capacity on existing routes in FY 2013 challenging.

MAJOR INITIATIVES

CAPITAL IMPROVEMENT PROGRAM

The Authority’s Board and management are responsible for the development of TIA and Ryan. As such, the Board approved a Master Plan for TIA in June 2004 that sets out an overall development plan to address anticipated growth. Additionally, the Master Plan includes a land use plan which identifies the highest and best use of property owned by the Authority and identifies land which should be acquired in the future for expansion.

The Authority anticipates and responds to changing air travel needs through its Capital Improvement Program (CIP), which is updated and adopted annually. The Board defines long-term goals through updates of the Master Plan. An update to the 2004 Master Plan will be completed and submitted to TAA’s Board for approval in FY 2013.

Capital improvement projects require funding apart from routine operating expenses. Such projects entail the purchase, construction, or replacement of the physical assets of the Authority. The purpose of the CIP process is to evaluate, prioritize, and coordinate proposed projects for a five-year period through a program reflecting the Authority’s goals.

The compilation of the CIP has as its primary goal the development of a detailed capital budget for the current fiscal year and a plan for capital development during the four subsequent years. The Board, by approving the CIP, sets a strategy and schedule for budgeting and constructing facilities at TIA and Ryan.

4 TUCSON AIRPORT AUTHORITY 2012 CAFR MAJOR INITIATIVES (continued)

FY 2012 COMPLETED CIP CONSTRUCTION AND PROJECTS AT TIA (GREATER THAN $75,000)

SOUND INSULATION PROGRAM. Completed acoustical treatment of 104 homes within the 65 Ldn noise contours to the northwest of TIA. This was the final phase of TIA’s residential sound insulation program that began in 1992. Cost: $3.3 million. Funding: FAA/ADOT/TAA. Architect: Corlett, Skaer & DeVoto Architects, Inc. and Earl Kai Chann Associates. Contractor: G & G Specialty Contractor.

PAVEMENT PRESERVATION. This project was completed in two phases. Phase I work was to sealcoat various service roads and parking lots and Phase II was to reconstruct various public roads and parking lots throughout the TIA complex. Cost: $2.3 million. Funding: TAA. Engineer: Environmental Engineering Consultants. Contractor: Phase 1 - Ace Asphalt, Phase II - Pavex Corporation.

RECONSTRUCTION OF RUNWAY 3/21. This project consisted of milling, 3” asphaltic concrete paving, runway light fixture adjustments, asphaltic concrete shoulder and erosion control paving, grooving, remarking, drainage swale realignment end treatments of two pipe culverts for Taxiways A6 and A9, and appurtenances. The project also included reconstruction of part of Taxiways A2 and A3 and pavement grooving and striping of Taxiway A13. Cost: $8 million. Funding: FAA/ADOT/TAA. Engineer: Stantec Consulting Services, Inc. Contractor: Granite Construction Company.

TAXIWAY RECONSTRUCTION. This project consisted of the reconstruction of Taxiways A, A7, A10, Air Freight, Customs, Condo and D with asphaltic concrete or Portland cement concrete paving, remarking and appurtenances. Cost: $2.4 million. Funding: FAA/ADOT/TAA. Engineer: Stantec Consulting Services, Inc. Contractor: Granite Construction Company.

REHABILITATE A PORTION OF RUNWAY 11L/29R. This project consisted of the rehabilitation of a portion of the keel section of Runway 11L/29R. Cost: $511,000. Funding: ADOT/TAA. Engineer: Stantec Consulting Services, Inc. Contractor: Granite Construction Company.

SEALCOAT AND STRIPE TAXIWAYS A, D AND GENERAL AVIATION APRON. This project consisted of sealcoating and striping Taxiways A and D and the General Aviation Apron. Work also included concrete joint sealing of taxiways A1, A17 and A15, the run-up apron and last chance area. Cost: $1.7 million. Funding: ADOT/TAA. Engineer: Kimley-Horn Associates, Inc. Contractor: Eagle Rock Paving and Sealcoating.

AIRFIELD SAFETY ENHANCEMENT STUDY. This project identified opportunities for airfield safety enhancements at Tucson International Airport. Cost: $104,000. Funding: FAA/ADOT/TAA. Consultant: HNTB Corporation.

REPLACE FIRE DOORS ON OUTBOUND BAG BELTS AT TICKET COUNTERS. This project consisted of the removal and replacement of the fire doors on the outbound bag belts at the ticket counters. Cost: $86,400. Funding: TAA. Contractor: Kittle Design and Construction.

FY 2012 COMPLETED CIP CONSTRUCTION AND PROJECTS AT RYAN (GREATER THAN $75,000)

INSTALL STANDBY GENERATORS. This project consisted of the installation of three standby generators at Ryan Airfield to provide backup power for the airfield, control tower pedestal, security gates, parking aprons, fuel farm, and administration and maintenance buildings. Cost: $383,700. Funding: FAA/ADOT/TAA. Engineer: Monrad Engineering, Inc. Contractor: GN Construction.

INTRODUCTION 5 MAJOR INITIATIVES (continued)

FY 2013 CIP AT TIA – ONGOING AND NEW PROJECTS (GREATER THAN $500,000)

UPDATE PART 150 PROGRAM. $819,500. Update to the FAR Part 150 Noise Compatibility Plan for Tucson International Airport.

800 MHZ RADIO SYSTEM UPGRADE. $1.4 million. Replace existing repeaters, hand-held and mobile radios and dispatch radio interface consoles and base stations for the public safety and maintenance bands.

TERMINAL OPTIMIZATION STUDY. $800,000. Study to develop recommendations on how to optimize utilization of available terminal complex space.

TIA MASTER PLAN UPDATE. $750,000. Update the 2004 Master Plan to reflect current conditions and requirements. Project will include updated aviation demand forecasts, facility requirements and airport development plan.

EMERGENCY OPERATIONS CENTER (EOC) AND COMMUNICATIONS DISPATCH CENTER (CDC) RELOCATION. $4.8 million. Relocate the existing Emergency Operations Center (EOC) from the TAA fire station and the Communications Dispatch Center (CDC) from the passenger terminal to the International Building. Existing EOC and CDC will be retained as secondary operation sites and will have Dispatch and radio equipment upgraded to be compatible with new EOC and CDC installations.

SOLAR PHOTOVOLTAIC PROJECT – PHASE 1. $7.3 million. Phase 1 construction of a solar canopy structure within the existing main terminal daily parking lot at Tucson International Airport. The solar canopy will generate 1 MGW of power annually that will be fed into the terminal complex central plant electrical system.

SOLAR PHOTOVOLTAIC PROJECT – PHASE 2. $11.2 million. Phase 2 construction of a solar canopy structure within the existing main terminal daily parking lot at Tucson International Airport. The solar canopy will generate 1.5 MGW of power annually that will be fed into the terminal complex central plant electrical system.

MAIN TERMINAL APRON RECONSTRUCTION. $21.4 million. Design and construction of Phase 1 for the removal of the existing 12” concrete terminal apron that is at the end of its useful life and replacement with 16” concrete.

RECONSTRUCT TERMINAL ROADWAYS. $691,000. Reconstruction of terminal roadways. Work includes re-striping.

REHABILITATE ECONOMY PARKING LOT. $1.5 million. Reconstruct the Economy Parking Lot. Work includes compaction of the aggregate base course and restriping. Project also calls for the replacement of row markers.

REPLACE ARFF VEHICLE. $950,000. Purchase replacement Aircraft Rescue Fire Fighting (ARFF) vehicle for TAA 212/ AP763. ARFF vehicle will be equipped with a 3,000-gallon water tank, 400-gallon foam tank, 500-pound dry chemical tank and a HRET (High Reach Extendable Turret).

TAXIWAY LIGHTING AND SIGNAGE. $908,200. Install taxiway lighting & lighted signs: Taxiway B (west of Runway 21, 6,000 linear feet), Taxiway B (Runway 21 & D, 1,500 linear feet), Taxiway A13 (south of Runway 11R, 3,000 linear feet), Taxiway D1 (west of Runway 21, 1,000 linear feet), general aviation ramp (at ATCT 1,000 linear feet), Taxiway A5 (Taxiway A to Bombardier, 7,600 linear feet).

ELECTRICAL UPGRADES FOR AIRFIELD LIGHTING. $1.5 million. Installation of upgraded runway edge lighting and cabling for Runway 3/21; installation of new cabling and isolation transformers for Runway 11L/29R semi-flush lighting; installation of new cabling in remaining taxiway edge light circuits. Installation of grounding for all existing signs, pullboxes and manholes and other airfield signage improvements.

6 TUCSON AIRPORT AUTHORITY 2012 CAFR MAJOR INITIATIVES (continued)

FY 2013 CIP AT RYAN – ONGOING AND NEW PROJECTS (GREATER THAN $500,000)

SECURITY PERIMETER FENCING AND ROADWAY. $2.9 million. Install new chain link security fencing and a 24’ paved service road, striping and signage, gates and plunge basins.

RUNWAY AND TAXIWAY PAVEMENT PRESERVATION. $584,500. Place a thin asphaltic concrete overlay on existing asphaltic concrete on Runway 6R/24L and a portion of Taxiway T at Ryan Airfield.

SECURITY FENCE UPGRADE. $1.7 million. This project is to install new 6’ chain link security fencing with three-strand barbed wire along the south side of Ryan Airfield. Includes grading, fencing, gates and appurtenances (approximately 2,100 linear feet).

RECONSTRUCTION OF RESTAURANT APRON. $1.4 MILLION. Reconstruction of the Restaurant Apron asphalt pavement (approximately 24,586 square yards). Pavements will be removed by milling to full depth, followed by lime treatment of subgrade and installation of four inches of asphalt pavement with six inches of aggregate base course. Install new apron markings and aircraft tie-downs.

RECONSTRUCT A PORTION OF TAXIWAY B2 AND RUNWAY 6R OVERRUN. $980,000. This project consists of the reconstruction of the 50 ft. wide asphalt pavement (5,300 sq. yds.) on Taxiway B2. Mill and remove pavement and asphalt base course, lime treat subgrade, and repave with 2.5 in. asphalt pavement and restripe. Mill surface, seal cracks, perform minor repairs and install a 1.5 in. thin overlay (6,000 sq. yds.). Work also includes the reconstruction of Runway 6R Overrun (approximately 8,333 sq. yds.). Pavements will be removed by milling to full depth. Lime treat subgrade and install new two inch asphalt pavement with four inch aggregate base course. Remove and reinstall cut-off walls. Install new overrun markings.

MAJOR MAINTENANCE PROGRAM

The Authority’s Board and management are responsible for the maintenance of TIA and Ryan. As such, the Board approves a Major Maintenance Program (MMP) as part of each year’s budget process. MMP projects require funding apart from routine maintenance operations. Such projects entail the update of the physical assets of the Authority. The purpose of the MMP is to evaluate, prioritize, and coordinate proposed projects for a five-year period.

FY 2013 COMPLETED MMP PROJECTS AT TIA (GREATER THAN $75,000)

Standby Generator at Economy Parking Lot. Installation of a diesel driven standby generator to provide standby power for the Economy Parking lot. Cost: $99,200. Funding: TAA. Engineer: RA Alcala & Associates. Contractor: 4-L Construction.

INTRODUCTION 7 MAJOR INITIATIVES (continued)

FEDERAL AND STATE FUNDING

The Authority participates in the FAA’s Airport Improvement Program (AIP), which provides Airport and Airway Trust Fund money for airport development, airport planning, and noise compatibility programs. The FAA offers both entitlement and discretionary grants for eligible projects. Grants received under this program in FY 2012 totaled $29 million. The FAA has awarded $113 million in grants to the Authority during the past ten years.

The State of Arizona also provides grant assistance to airports. These may cover up to half of the Authority’s required match for AIP projects or total funding for projects of smaller size and scope. Grants received under this program in FY 2012 totaled $3 million. ADOT has awarded $17.7 million to the Authority during the past ten years.

PASSENGER FACILITY CHARGE PROGRAM

Passenger Facility Charges (PFCs) are fees imposed on enplaned passengers by airport sponsors to generate revenues for airport projects that increase capacity, enhance competition among and between air carriers, enhance safety or security, or mitigate noise impacts. PFCs were established by Title 49 U.S.C. §40117, and authorized airport sponsors to collect PFCs in the amount of $1.00 to $3.00 per eligible enplaning originating and connecting passenger. The Aviation Investment and Reform Act (AIR-21) increased the maximum PFC airport sponsors could collect to $4.50 per enplaning passenger. In return for the right to assess PFCs in the amount of $1.00 to $3.00, large and medium hub airports must forego up to 50% of their AIP entitlement funds. Large and medium hub airports that collect a PFC of $4.00 or $4.50 must forego 75% of their AIP entitlement funds. Airport sponsors planning to impose PFCs must apply to the FAA and meet specific requirements set forth in the enabling legislation. Airport operators may impose PFCs after receiving written approval and authorization from the FAA.

Beginning February 1, 1998, the Authority imposed a PFC of $3.00 per eligible enplaning passenger at TIA under the terms of its initial PFC application and the Record of Decision (97-01-C-01-TUS) issued by the FAA. In March 2006, the Authority submitted to the FAA an amendment to its existing PFC program to increase the current PFC level from $3.00 to $4.50 per eligible enplaned passenger and a new application to impose and use PFCs at the $4.50 level for the Concourse Renovation Project. On June 6, 2006, the Authority received approval for the new application (06-02-C-00-TUS) and on April 7, 2006, the Authority received approval for the amendment. The increase in the PFC level from $3.00 per enplaning passenger to $4.50 began October 1, 2006. The Authority currently has approval from the FAA to collect $100,461,860 under PFC application 97-01-C-01-TUS and $44,194,512 under PFC application 06-02-C-00-TUS, extending through September 1, 2017. As of September 30, 2012, the Authority had earned $88,212,063 in PFCs since the inception of the program, plus associated interest.

The current $4.50 PFC is expected to continue generating between $6.5 million and $7.5 million of revenue annually. The FAA’s PFC approvals included authorization to utilize PFCs for the payment of principal and interest on general airport revenue bonds issued to pay construction costs related to eligible projects. PFCs are currently being used to pay 100% of the debt service on subordinate lien revenue bonds issued in July 2001 for landside terminal expansion and land acquisitions completed in 2005, and approximately 78% of the debt service on subordinate lien revenue bonds issued in December 2006 for the Concourse Renovation Project completed in 2008.

8 TUCSON AIRPORT AUTHORITY 2012 CAFR MAJOR INITIATIVES (continued)

LEASING, BUSINESS DEVELOPMENT AND CONCESSION ACTIVITY

As previously discussed, the airport use agreement between the Authority and its airline tenants defines the terms and conditions under which airlines operate and lease facilities at TIA. The existing airport use agreement between the Authority and its signatory airlines expires at the end of the next fiscal year on September 30, 2013. Discussions have been ongoing concerning an extension of the agreement under substantially the same terms for a period of several years.

The Authority continues to work with our existing airline partners as their business needs dictate. United and Continental continued to operate throughout FY 2012 as two separate airlines at TIA since their merger in 2010. It is anticipated that final consolidation of their operations at TIA will occur in mid-2013. While they will be consolidating space, there was no overlap in route networks and the merger has had no direct impact on air service at TIA.

A Terminal Optimization Study was completed in 2012 that provided analysis of the adequacy and layout of existing terminal facility space including security checkpoints, concession space and mechanical systems, as well as outbound baggage systems. The study included development of a preferred design concept that will utilize existing vacant ticket counter lobby space for new and expanded security checkpoints. The plan also calls for significant additional terminal square footage to be made available for revenue generating post-security concessions opportunities. TAA’s Board of Directors approved the plan and Authority staff is in the process of engaging an architect to provide cost estimates and a schedule in order to move forward with study implementation.

The recommendations from the Terminal Optimization Study also included ways to consolidate Authority staff within the terminal complex and Police Department functions into the area immediately adjacent to the future Communications Dispatch and Emergency Operations Centers. These relocations would make the Authority’s current Administration Building available for lease to third parties.

In anticipation of staff relocations and implementation of recommendations from the Terminal Optimization Study, the Authority amended the concession agreement with our retail concession operator Paradies Desert-House. This amendment included closure of one underperforming gift shop on the pre-security terminal mezzanine level, relocation of warehouse functions to an underutilized air cargo facility and an increase in revenue to TAA on existing percentage rent. Additional gift kiosks and retail vending locations will be added on each concourse this year.

Following the comprehensive review of general aviation development and investment activities at TIA from 1998 to 2011 and multiple listening sessions and associated surveys of the TIA General Aviation (GA) community, the Authority began the process of updating its General Aviation Strategic Plan. This plan will provide a guide for GA growth at TIA including recommendations for managing and developing GA activities at TIA for the next ten years.

Following a competitive bid process, Lease and Concession Agreements were entered into with seven rental car companies for five years beginning August 1, 2012 after expiration of the previous five-year agreement. Based on the significantly lower passenger levels at TIA due to economic conditions and airline industry capacity reductions, minimum annual guaranteed fees bid by the rental car companies and payable to the Authority were much lower than in the previous contract. This will result in a significant decline in rental car revenues to the Authority beginning in FY 2013.

Raytheon Technical Services Company, LLC leased several bays in TIA’s cargo facility for use in their engine testing program for the new Boeing 787 airliner. Raytheon is providing this service through an agreement with Rolls Royce.

INTRODUCTION 9 FINANCIAL POLICIES AND PRACTICES

FINANCIAL POLICIES AND PRACTICES

INTERNAL CONTROL ENVIRONMENT

The Authority is responsible for establishing and maintaining internal controls designed to ensure that its assets are protected from loss, theft or misuse, and to ensure that adequate accounting data is compiled to allow for preparation of financial statements in conformity with GAAP. Internal controls are designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that the cost of a control should not exceed the benefits likely to be derived, and the valuation of costs and benefits requires estimates and judgments by management.

As a recipient of federal and state financial assistance, the Authority is also responsible for ensuring that adequate internal controls are in place for documenting compliance with applicable laws and regulations related to these programs. This internal control is subject to periodic evaluation by management, internal audit staff and external independent accountants.

In addition, the Authority maintains extensive budgetary controls. The objective of these controls is to ensure compliance with various legal and regulatory provisions such as grant assurances and FAA regulations, as well as to ensure funds are expended according to management’s direction.

BUDGETARY CONTROLS

An annual budget is prepared on a residual cost basis as established by Section 5.03(a) of the Airport Use Agreement dated April 27, 1977 for all accounts and funds established by the agreement. The annual budget serves as a foundation for the Authority’s financial planning and control. All appropriations with the exception of those for open project accounts lapse at the end of each fiscal year. Since there is no legal requirement for the Authority to report on a budgetary basis, no additional budget information is presented in the accompanying financial statements.

Section 4 of the City of Tucson Agreement (Lease) dated October 14, 1948 requires the Authority to present a biennial version of the budget to the Mayor and City Council for information purposes. The annual budget is approved by the Board prior to its implementation and, in accordance with the Airport Use Agreement, is presented to the Airline Affairs Committee for review, but not approval.

The “residual cost” approach forms the basis of the Authority’s contractual relationship with signatory airlines. This approach is common, but not universal, among U.S. airport operators. It is a methodology that encompasses the following concepts:

Residual Cost — a method of determining which costs are the responsibility of the airlines as payment to the Authority for providing, operating and managing the airport system (TIA and Ryan). The result is coverage of all Authority operating and capital improvement costs on a break-even basis.

Airline Reserve Fund — the excess, if any, of revenues over costs calculated in accordance with the Airport Use Agreement at the end of each year.

Long-term Agreements — a common feature of residual cost contracts. The Authority’s current agreement was executed in 1977 with an original expiration date of September 30, 2006. Through several extensions, the agreement’s current expiration date is September 30, 2013. In recent years, the average length of most residual airport use agreements has decreased, with three to five years becoming more common.

Majority-In-Interest (MII) — a voting formula used by the signatory airlines in considering approval of significant capital expenditures and use of Airline Reserve Fund monies. The use agreement defines MII as a numerical majority of the signatory airlines that represent more than 50% of the total landed weight at the airport.

Exclusive Rights — rights provided to individual airlines through the Airport Use Agreement for the use of exclusive space to accommodate their operations and paid for in the form of rents.

Preferential Rights — rights provided to individual airlines through the Airport Use Agreement for the use of leased gate and holdroom space to accommodate their operations and paid for in the form of rents. The preferential rights concept was introduced at TIA with the recent use agreement extensions in order to allow the Authority more flexibility to accommodate future growth in air service.

10 TUCSON AIRPORT AUTHORITY 2012 CAFR FINANCIAL POLICIES AND PRACTICES (continued)

Joint (or common use) Rights — rights provided to individual airlines for use of space in common with other users to provide baggage claim facilities and certain gate areas paid for in the form of rents.

To provide financial resources adequate to meet the Authority’s needs, the Airport Use Agreement includes a formula for the calculation of rates and charges, including landing fees. This formula, the “Airport System Income Requirement,” serves as a template in creating the annual budget, and is commonly referred to simply as the “Airport System.” The formula consists of four elements:

• Operation and Maintenance Expenses — in addition to day-to-day operating requirements, this item provides for capital needs, short-term debt obligations, and any other requirements not included elsewhere in the formula.

• Debt Service Requirements — includes 125% of the principal and interest payments due in accordance with senior lien revenue bond resolutions and debt amortization schedules. The 25% excess is called “coverage.” For subordinate lien revenue bonds where other revenue sources such as PFCs are not pledged for debt service, the excess coverage requirement is 10%. Providing coverage fulfills a covenant in the bond resolutions that requires this surplus as assurance to bond holders that adequate funds will be available to pay debt service requirements on a timely basis. In the normal course of business, the coverage is not needed and it flows through the airport system.

• Fund Replenishments — provides for the funding and refunding of the various reserve funds required by the Authority’s senior and subordinate lien bond resolutions and the Airport Use Agreement.

• Adjustments — 100% of operating income flows through the airport system. At year-end, certain revenues defined in the use agreement are transferred out of the airport system into the Special Reserve Fund and are excluded from the residual cost calculation. These revenues include:

• 52% of the net income generated from designated “industrial area” developments, which are geographic locations at TIA.

• Interest income earned from the investment of monies accumulated in the Special Reserve Fund and Insurance Reserve Fund.

Together, these four elements (Debt Service, Operations & Maintenance, Fund Replenishment, and Adjustments) comprise the “Total Gross Requirement.” This requirement is then reduced by all of the available resources that include:

• Operating income.

• Beginning cash balance that is the coverage from the prior year, adjusted by any overage or shortfall from operations.

The net amount resulting from this calculation is the residual amount that is used to calculate landing fees required to be paid by the signatory airlines in order to “balance” the budget.

INTRODUCTION 11 FINANCIAL POLICIES AND PRACTICES (continued)

LONG-TERM FINANCIAL PLANNING

One of the tools the Authority uses for long-term planning is the Master Plan, which was last updated for TIA in 2004. This document is prepared with the input of Authority staff, the signatory airlines and other key tenants and stakeholders. The Master Plan projects airport growth and then specifies the physical improvements that are needed to meet these projections of future demand. It consists of a technical report that specifies the logic and reasoning for the proposed capital improvements as well as large scale drawings that illustrate the physical layout of the improvements. The financial implications of a master plan are very important because they serve as the basis for requesting federal funds for the construction of capital improvements proposed in the plan. The Authority’s most recent update of the Master Plan provides a flexible and cost-effective guide for the future development of TIA through the year 2015. Capital improvements recommended by the plan are demand-driven. This means that although there are a large number of projects proposed by the plan, only those that are needed as a result of actual increase in demand will be constructed. A TIA Master Plan Update process commenced in 2011 and will be completed in 2013. The most recent Master Plan Update for Ryan was completed in 2011.

The airport master plans form the basis for a multi-year capital improvement plan, which is updated on a regular basis. The plan typically contains at least five years of projections, longer if necessary for a particular need such as a bond-financing project or airline use agreement negotiations. Capital improvement plan assumptions are based on the best information available of needs on a project-by-project basis extending through the planning horizon.

CASH MANAGEMENT AND INVESTMENTS

The Authority invests cash as permitted under the Amended and Restated Senior Lien Airport Revenue Bond Resolution dated November 28, 2006, and according to internal policies and applicable state statutes. The single most important objective under these policies is to preserve the principal of funds within the portfolio. The portfolio is managed to ensure that funds are available as needed to meet immediate and projected future operating requirements and to maximize the return on investments within the constraints of the resolutions, policies and state statutes.

While other forms of investments are permitted, cash is most commonly invested in direct obligations of, or obligations guaranteed by the United States of America and obligations of specific agencies of the United States of America. Funds awaiting investment are held in U.S. government security money market funds. Investments are insured, registered or held by a trustee in the Authority’s name.

At September 30, 2012, the investments held by the Authority yielded interest ranging from 0.192% to 1.4% and mature on various dates through June 28, 2017. The operating portfolio balance, at cost, was $115.3 million with an average yield to maturity of 0.582%.

Additional detailed information on cash and investments may be found in the financial section (Note 3) of this report.

CAPITAL FINANCING AND DEBT MANAGEMENT

Capital improvements that require long-term financing are typically funded using either Authority reserves or airport revenue bonds. Unrestricted Special Reserve Fund balances that are the result of the sharing of industrial area revenues with airline tenants, as described in the budgetary controls section of this letter, give the Authority considerable flexibility in financing capital improvements. The most significant benefit is that the Authority’s share (amounts not reimbursed with grants or passenger facility charges) of most capital improvements is financed internally rather than through issuance of airport revenue bonds. This practice avoids bond issuance and interest costs, creates administrative efficiencies, and results in a lower total cost of financing for airline tenants. Reserve funds are restored as the costs of improvements are amortized, with interest, over their useful lives and paid back to the Authority by the airline tenants through rates and charges.

Capital expenditures for FY 2012 were financed through a combination of FAA grants, State grants, internal financing from unrestricted reserve funds, and funds generated through the Airport System Income Requirement formula.

The Authority purchased bond insurance on its outstanding senior and subordinate lien revenue bonds in order to enhance the credit rating at the time of issue. Credit market turmoil over the last several years has resulted in a series of downgrades of credit insurers by the three major U.S. credit rating agencies. Due to these insurer downgrades, the Authority’s current insured bond ratings are now equivalent to the underlying credit rating, which is based solely on the rating companies’ assessments of the

12 TUCSON AIRPORT AUTHORITY 2012 CAFR FINANCIAL POLICIES AND PRACTICES (continued)

Authority’s financial strength. The following table summarizes the insured and underlying credit ratings of the Authority’s outstanding senior and subordinate lien revenue bonds at the time of issue and as of March 2013:

Ratings at Issue Date March 2013 Ratings Issue/Rating Agency Bond Insurer Insured Underlying Insured Underlying

2001 Subordinate Ambac Moody’s Aaa A3 A2 A2 Fitch AAA A A A Standard & Poor’s AAA A- — —

2003 Senior AGC Moody’s (Formerly FSA) Aaa A2 A1 A1 Fitch — — A+ A+ Standard & Poor’s AAA — — —

2006 Subordinate MBIA Moody’s Aaa A2 A2 A2 Fitch AAA A A A Standard & Poor’s — — — —

Detailed information on long-term debt may be found in the financial section (Note 7) of this report.

RISK MANAGEMENT

It is the objective of the Authority to reduce or transfer risk where possible through a comprehensive insurance program and through various other means. One aspect of this is managed through the ongoing development and implementation of an effective safety program. The program is managed through a safety committee with representatives from the major work areas. The committee plans and implements proactive safety programs, identifies unsafe conditions, recommends remedial actions, monitors progress, and creates and maintains a library of materials that is available to departments for use in safety training. The Authority also structures its contractual relationships in such a manner as to transfer risk to the parties responsible for losses.

PENSION AND OTHER POST-EMPLOYMENT BENEFITS

The Authority participates in the Arizona State Retirement System (ASRS), which is a pension system for public employees in the State of Arizona. The State administers this defined benefit plan in accordance with Title 38, Chapter 5 of the Arizona Revised Statutes and it is overseen by a nine member board. Participation in ASRS is mandatory and automatic for all regular full-time Authority employees (excluding fire and police personnel) at the time of employment. The plan provides pension, long-term disability and death benefits, as well as a retirement health care premium subsidy. The Authority and covered employees are required to contribute at actuarially determined rates. See Note 8 in the financial section for more information.

The Authority also provides retirement benefits to all full-time fire and police employees through the Arizona Public Safety Personnel Retirement System (ASPRS). This is also a defined benefit plan where the Authority and covered employees are required to contribute at actuarially determined rates. In addition to pension and disability benefits, this plan also offers a retirement health insurance premium subsidy. See Note 9 in the financial section for more information.

INTRODUCTION 13 OTHER INFORMATION

OTHER INFORMATION

COMMUNITY INVOLVEMENT

As the primary gateway to the community, the Authority is committed to ensuring a positive and enjoyable experience for visitors as well as residents of the Tucson area. Not only are there excellent air service options, TIA’s facilities and amenities provide a comfortable respite for the traveler with changing exhibits in five art galleries around the terminal and performances by local entertainers as part of the Live @ TIA! Performing Arts Program. Last year, TIA hosted 20 exhibits featuring more than 60 artists. As part of the Arizona Centennial celebration, TAA commissioned a solar sculpture that was accepted as a Legacy project by the Arizona Centennial Commission. The sculpture, located in front of the rental car facility, can be seen by visitors as they leave the terminal and celebrates aviation’s contributions to southern Arizona’s past, present and future.

News of solar at TIA continued with the announcement that the FAA awarded a $5.7 million grant to TAA to fund design and construction of the first phase of a project that, when complete, will provide an approximately 20-foot-tall solar array over the entire main public parking lot in front of the terminal. In addition, vegetated “green walls” with live plants are planned in order to help create a cooling microclimate effect within the parking lot. The federal grant is part of a new program that provides funding for airport projects that promote energy efficiency under the FAA Modernization and Reform Act of 2012. Construction begins in May 2013. The Arizona Department of Transportation will also provide $280,000 to help offset TAA’s federal grant matching requirement for phase one. The entire three-phase project is estimated to be complete in two to three years at a total cost of $18 million and employ 20 to 70 workers.

Authority staff launched the Working Together program, an initiative recognized by the Public Relations Society of America (PRSA) Southern Arizona chapter for best in Community Outreach programs. This program brings staff together with community and business leaders, members of southern Arizona’s vibrant tourism community and others to discuss air service needs. Community partnerships are an important component of our approach as we work with airlines to demonstrate our region’s ability to support existing and expanded air service.

Business and government groups alike stepped up their efforts to help identify service needs and opportunities and provide data to airlines. Standing together as a united community is the only way to ensure the continued air service that drives tourism and business growth for southern Arizona.

A new economic impact study conducted by the University of Arizona’s Eller College of Management determined TIA contributes $3.2 billion annually to the local economy and supports nearly 35,000 local jobs through direct, indirect and induced effects.

The Authority concluded a nearly 20-year sound insulation program in 2012, bringing the total number of homes receiving acoustical treatment to over 1,100, as well as one school, representing an investment in the community of approximately $30 million since 1992. This comprehensive program created a quieter environment for families living in the areas most affected by aircraft noise. We have also recently completed a new Part 150 noise compatibility study update, which has been adopted by the Authority’s Board and submitted to the FAA following a public involvement process. We anticipate final approval in late spring 2013.

The Authority’s Board of Directors helped lay the groundwork for high-speed passenger rail service by passing a resolution regarding a system being planned by the Arizona Department of Transportation between Tucson and Phoenix. The resolution conveys the importance of including a TIA stop in the first phase of development. Pima County adopted its own resolution in support of the Authority’s and we continue to work with local municipalities to do the same.

Authority employees are actively engaged in civic and charitable activities in the community. Some of those efforts in the past year included collections for the local food bank and Toys for Tots, a charity golf tournament benefiting University of Arizona scholarship funds, and the second annual TIA potluck that united the airport community of Authority staff, tenants and vendors, and raised funds for Habitat for Humanity. Employees also volunteer for the Authority’s Reading Team at Los Ranchitos Elementary School. Collections of unopened beverages and toiletries surrendered at the security checkpoints continue for the Primavera Foundation.

14 TUCSON AIRPORT AUTHORITY 2012 CAFR OTHER INFORMATION (continued)

REQUESTS FOR INFORMATION

This financial report, along with the audited financial statements, is designed to provide a general overview of the Tucson Airport Authority. Questions concerning the information contained in this report should be addressed to the Tucson Airport Authority Administration and Finance Department, 7005 S. Plumer Avenue, Tucson, Arizona 85756.

AWARDS AND ACKNOWLEDGMENTS

The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the Authority for its CAFR for the fiscal year ended September 30, 2011. This was the 18th consecutive year that the Authority achieved this prestigious award. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized CAFR. This report must satisfy both GAAP and applicable legal requirements.

A Certificate of Achievement is valid for a period of one year only. We believe that our current CAFR continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. This report will continue to be offered in a PDF format, allowing the user to download it and save, print or view it online at the airport website, www.flytucsonairport.com.

The publication of this CAFR is a reflection of the level of excellence and professionalism of the Authority’s Finance Department. In addition to the Finance Department, we wish to express our appreciation to all members of the Authority staff, who contributed not only to the preparation of this CAFR, but also to the accomplishments that we are privileged to report.

We also wish to thank each of you for your continuing interest and support of the staff’s efforts to conduct the financial operations of the Tucson Airport Authority in a responsible and progressive manner.

Respectfully submitted,

Bonnie A. Allin, A.A.E. Richard J. Gruentzel, C.M. President/Chief Executive Officer Vice President, Administration & Finance/CFO

INTRODUCTION 15 16 TUCSON AIRPORT AUTHORITY 2012 CAFR Board of Directors

President & CEO Bonnie A. Allin

Senior Vice President/ General Counsel Executive Assistant Linda Mabry Marjorie Perry

Vice President Vice President Vice President Planning and Developing Operations Administration & Finance/CFO Jill Merrick Jim Garcia Richard Gruentzel

Environmental/Regulatory Maintenance/Custodial Internal Audit Services

Public Safety Properties/Concessions Planning Police/Fire Ground Transportation Communications

Programming Operations/Safety Finance/Accounting

Design Services Flight Line Services Information Technology

Administrative Services Construction Services Ryan Airfield Human Relations/ Contracting/Procurement/ Records Management

Business Development/ Marketing/Public Information/ Government Affairs

INTRODUCTION 17 AIRLINES AND TENANTS AS OF SEPTEMBER 30, 2012

PASSENGER RYAN AIRFIELD Arizona Stagecoach Lan-Dale Co. Transportation AIRLINES Security Administration Aero Smith Ascent Aviation Leading Edge Aviation Alaska Airlines Services Tucson Aero Hangars, Air Center West Matheson Flight LLC American Airlines Ashton Company Extenders, Inc. Aircrafters Tucson Jet Center Continental Airlines Atlantic Aviation Max Air Air Ventures Ltd. Tucson Police Delta Air Lines Baggage Airline Guest Med-Trans Corp./Air Alpha Air, Inc. Department Services Evac EMS, Inc. Frontier Airlines Cherokee Cabañas University of Arizona Bank of America Metal Works Mesa Airlines Environmental Corsair Condos BEM Systems Military Liaison Office Research Lab SkyWest Airlines Hangar 31 Aircraft Birdman Air Million Air Universal Avionics Southwest Airlines Services, LLC Enterprises, Inc. Operation Blessing U.S. Customs & United Airlines Jim’s Aircraft Bombardier Border Protection OTG Management, US Airways Kelly’s Aviation Aerospace/Learjet Inc. Inc. U.S. Postal Service Mobile Aire Hangars Broward Aviation Paradies - Desert U.S. REIF Tucson CARGO AIRLINE Plane Care City of Tucson House Commerce Center Ameriflight Todd’s Place Civil Air Patrol Pasqua Yaqui Housing Velocity Air Restaurant Division Federal Express Clear Channel – Velocity Air Holdings Tucson Upholstery Interspace Airport Pickens Fuel Verizon Wireless Advertising Corporation Tyconic, Inc. CAR RENTALS Victor II, Ltd. Delta Global Logistics Pima Community United Indian Missions Alamo College Wright Flight, Inc. Discount Cab VistaWest Hangars Avis Pizza Hut, Inc. Yellow Cab Double Eagle Aviation Budget Flight School Premier Aviation TUCSON Dollar Federal Aviation Prospect International INTERNATIONAL Administration Airport Services, Inc. Enterprise AIRPORT Flash Cab, LLC Real Air Hangar, Inc. Hertz AT&T FlightSafety Raytheon Missile AAA Sedan National International, Inc. Systems AAA Airport Cabs, GA Telesis, LLC Sierra Pacific Airlines LLC Inc. General Services A.E. Petsche Administration Smarte Carte, Inc. Company, Inc. Gordon Engineering, Sonoran Wings Flight Ace Parking Inc. Training Centre, Inc. Management, Inc. Granite Construction Southwest Airport AERGO-TUS, LLC Company Services Aerospace Hangar, Great American Shoe SOS Security LLC Shine Co. Southwest Aerovation HIDTA-AZ Heliservices Airport Information Hotton Aviation Southwest Liquidators, Centre Inc. Huddleston Trucking Apple Autos Service, Inc. Suarez International, Arizona Aero-Tech Inc. Hughes Federal Credit Arizona Air National Union Surplus World Guard JPMorgan Chase Tower Co. Arizona Aviation Bank Associates

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Independent Auditors’ Report

Board of Directors Tucson Airport Authority, Inc. Tucson, Arizona

We have audited the accompanying basic financial statements of Tucson Airport Authority, Inc. as of and for the years ended September 30, 2012 and 2011, as listed in the table of contents. These financial statements are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with U.S. generally accepted auditing standards established by the AICPA Auditing Standards Board and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Organization’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Tucson Airport Authority, Inc. as of September 30, 2012 and 2011, and changes in its financial position and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

In accordance with Government Auditing Standards, we have also issued our report dated January 16, 2013 on our consideration of Tucson Airport Authority, Inc.’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. Accordingly, we express no such opinion. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.

The Management’s Discussion and Analysis on pages 22 through 35 is not a required part of the basic financial statements, but is supplementary information required by generally accepted accounting principles. We have applied certain limited procedures to the information, which consisted principally of inquires of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it.

Our audits were conducted for the purpose of forming an opinion on the financial statements that collectively comprise Tucson Airport Authority Inc.’s basic financial statements. The accompanying introductory and statistical sections, as listed in the table of contents, are presented for purposes of additional analysis and are not a required part of the basic financial statements. This information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on it.

January 16, 2013 Tucson, Arizona

FINANCIALS 21 MANAGEMENT’S DISCUSSION AND ANALYSIS September 30, 2012

The following discussion and analysis of the financial performance and activity of the Tucson Airport Authority, Inc. (Authority) provides an introduction to the Authority’s financial statements for the fiscal year ended September 30, 2012 (FY 2012). Information for the two preceding fiscal years ended September 30, 2011 and 2010 (FY 2011 and FY 2010) has been included to provide a better insight into the overall financial position of the Authority.

The Authority is a business-type activity and, as such, the Basic Financial Statements and Required Supplementary Information (RSI) consists of Management’s Discussion and Analysis (MD&A), the Statements of Net Assets, the Statements of Revenues, Expenses and Changes in Net Assets, the Statements of Cash Flows, and the Notes to Financial Statements. This MD&A has been prepared by management and should be read and considered in conjunction with the Authority’s basic financial statements.

AIRPORT ACTIVITIES & HIGHLIGHTS

Passenger and air carrier activity was relatively flat at the Tucson International Airport (TIA) from FY 2010 to FY 2012. Total passengers for FY 2012 and FY 2011 decreased by .7% and .9% respectively, giving back the modest gain of 1.1% in FY 2010. As a consequence of continued weak economic conditions and the uncertainty of aviation fuel prices, airlines are maintaining tight capacity discipline, especially at origination and destination airports such as TIA. While this has not led to any change in the number of nonstop destinations it has resulted in reductions in the number of nonstop daily departures and correspondingly the number of available seats. The number of nonstop destinations remained the same at 15 for the fiscal years ending 2012, 2011 and 2010. Daily nonstop departures decreased by 6 to 52 at the end of FY 2012 from 58 at the end of FY 2011, which followed a decrease of two departures from the previous year end. Daily nonstop departures are impacted by seasonal conditions and vary slightly from month-to-month. The average daily seat capacity in FY 2012 was 6,171 a 3.4% decline over FY 2011, which followed a decrease of .3% in FY 2011 compared to FY 2010.

Total aircraft operations (take-offs and landings) at TIA decreased 8.3% in FY 2012 after decreasing 6.0% in FY 2011 and decreasing 7.1% in FY 2010. Total FY 2012 operations were comprised of 65,545 general aviation operations, 54,732 air carrier and air taxi (passenger airline, cargo airline, and charter) operations and 24,887 military operations. In contrast to air carrier and air taxi operations that generate landing fee revenue, general aviation and military operations do not directly generate revenue for the Authority. The primary change in total aircraft operations in FY 2012 compared to FY 2011 was in general aviation operations, which decreased by 7,348 (10.1%). The decrease in general aviation operations was likely due primarily to a slow recovery from the national economic recession and persistently high aviation fuel prices.

Landed weight decreased by 1.9% in FY 2012 from FY 2011 to 2,266,479 one thousand pound units, after increasing by .5% in FY 2011 and decreasing by .9% in FY 2010. The changes have been caused by variations in passenger carrier air service through a combination of increases and/or decreases in flights and the size of aircraft used for flights.

Mail and express cargo shipments increased by 15.9% in FY 2012 from FY 2011, following a decrease of 11.2% in FY 2011 and an increase of 10.4% in FY 2010. The changes in mail and express cargo shipments in each of these years were primarily a result of changes experienced by Federal Express, the single major cargo carrier operating at TIA.

As of September 30, 2012 seven major domestic passenger carriers served TIA, compared to eight at September 30, 2011 and 2010. Frontier Airlines discontinued service between Tucson and Denver in May 2012, its only service at TIA. Southwest Airlines and United Airlines continue to serve this route. Southwest Airlines and American Airlines have dominated in both passenger activity and landed weight over the three reporting periods. These two carriers accounted for 57.7% of passenger traffic in FY 2012, 55.9% in FY 2011 and 53.9% in FY 2010.

22 TUCSON AIRPORT AUTHORITY 2012 CAFR MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) September 30, 2012

AIRPORT ACTIVITIES & HIGHLIGHTS (continued)

Activities & Highlights 2012 2011 2010 Total passengers 3,649,783 3,676,894 3,709,178 % increase/decrease(-) -0.7% -0.9% 1.1%

Average daily seat capacity 6,171 6,388 6,407 % increase/decrease(-) -3.4% -0.3% 0.8%

Aircraft operations 145,164 158,332 168,483 % increase/decrease(-) -8.3% -6.0% -7.1%

Landed weight (1,000 lb. Units) 2,266,479 2,311,462 2,299,851 % increase/decrease(-) -1.9% 0.5% -0.9%

Mail & express cargo (pounds) 71,431,830 61,621,228 69,380,453 % increase/decrease(-) 15.9% -11.2% 10.4%

TOTAL PASSENGERS AND LANDED WEIGHT (thousands)

Passengers Landed Weight

4,000

3,500

3,000

2,500

2,000

1,500

1,000

2012 2011 2010

TOTAL PASSENGERS BY AIRLINE (thousands)

2012 2011 2010

1,400

1,200

1,000

800

600

400

200

0

Southwest American US Airways Delta United Continental Frontier Alaska

FINANCIALS 23 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) September 30, 2012

AIRPORT ACTIVITIES & HIGHLIGHTS (continued)

LANDED WEIGHT BY AIRLINE (thousands)

2012 2011 2010

1,000

800

600

400

200

0 Southwest American US Airways Delta United Continental Federal Frontier Others ExpressExpress

OPERATIONS BY TYPE (thousands)

2012 2011 2010

120

80

40

0

Air Carrier Air Taxi Military General Aviation

24 TUCSON AIRPORT AUTHORITY 2012 CAFR MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) September 30, 2012

FINANCIAL HIGHLIGHTS

The Authority’s assets exceeded liabilities at the end of FY 2012 by $324.7 million, compared to $306.1 million and $291 million at the end of FY 2011 and FY 2010, respectively. Unrestricted net assets for fiscal years 2012, 2011 and 2010 were $82.7 million, $75.9 million, and $73.3 million, respectively. The Authority may use unrestricted net assets for any lawful purpose.

The Authority experienced a larger increase in net assets for FY 2012 over FY 2011 primarily as a result of an increase of $4 million in capital contributions partially offset by lower operating income. The Authority experienced a lower increase in net assets in FY 2011 compared to FY 2010 due primarily to the significant decline in capital contributions of $7.3 million, however this was largely offset by higher operating income and lower nonoperating expenses.

The Authority’s total long-term debt, net of the current portion, decreased by $6.9 million in FY 2012 and $15.8 million in FY 2011 over FY 2010. The decreases represented scheduled debt service payments, but also included early redemption of TAA’s 2001 senior lien bonds in FY 2011.

Summary of Operations and Changes in Net Assets 2012 2011 2010

Operating revenues $ 47,842,526 $ 49,394,059 $ 48,757,539 Operating expenses 29,286,727 30,145,524 29,017,766 Operating income before depreciation & amortization 18,555,799 19,248,535 19,739,773 Depreciation & amortization 15,386,500 15,298,186 16,783,060 Operating income 3,169,299 3,950,349 2,956,713 Non-operating revenues 7,650,150 8,013,171 8,259,500 Non-operating expenses (4,807,101) (5,088,612) (9,299,732) Income (loss) before capital contributions and special item 6,012,348 6,874,908 1,916,481 Capital contributions 12,633,202 8,606,611 15,868,166 Special item - (403,565) (1,891,123) Increase in net assets $ 18,645,550 $ 15,077,954 $ 15,893,524

SUMMARY OF OPERATIONS AND CHANGES IN NET ASSETS

Total operating revenues decreased $1.5 million (3.1%) in FY 2012 over FY 2011 and increased $.6 million (1.3%) in FY 2011 over FY 2010. Landing fees decreased in FY 2012 and FY 2011 over the previous years as the landing fee per 1,000 pound unit decreased from $1.35 to $1.32 in FY 2012 and $1.55 to $1.35 in FY 2011. Most other revenue categories decreased in FY 2012 and 2011, which primarily reflects changes in passenger traffic and flight activity, which drives operating revenues.

FY 2012 operating expenses decreased by $.8 million (2.8%) over FY 2011. The FY 2012 decreases related to lower professional fees and lower cost of product sales, which is a function of reduced general aviation activities and lower fuel prices. FY 2011 operating expenses increased $1.1 million (3.9%) over FY 2010. The most significant increase in FY 2011 related to the cost of product sales, reflective of higher jet fuel and aviation fuel prices.

Non-operating revenues in FY 2012 and FY 2011 decreased 4.5% and 3.0% respectively compared to FY 2011 and FY 2010. This was mainly due to fluctuations in passenger facility charge revenue and interest income on investments. Non-operating expenses decreased in FY 2012 and FY 2011 by 5.5% and 45.3% respectively. The FY 2012 decrease was a combination of lower interest expense reduced by higher environmental expenses. The FY 2011 decrease was due to a significant reduction in environmental remediation expenses, $3.9 million (82.3%).

Capital contributions in FY 2012 increased by 46.8% from FY 2011 and FY 2011 capital contributions decreased by 45.8% over FY 2010. Year-to-year variances in capital contributions are determined by factors such as grant availability and project timing.

FINANCIALS 25 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) September 30, 2012

FINANCIAL POSITION

Increase % Increase Summary of Net Assets 2012 2011 (decrease) decrease (-) Assets Current (unrestricted) $ 111,504,081 $ 102,959,563 $ 8,544,518 8.5% Current (restricted) 37,831,656 37,464,931 366,725 1.0% Net capital assets 275,034,955 271,904,969 3,129,986 1.2% Other noncurrent assets 87,195 2,431,271 (2,344,076) -96.4% Total assets 424,457,887 414,760,734 9,697,153 2.3%

Liabilities Current (payable from unrestricted assets) 10,631,850 9,834,838 797,012 8.1% Current (payable from restricted assets) 4,609,743 6,329,451 (1,719,708) -27.2% Noncurrent 84,487,381 92,513,082 (8,025,701) -8.7% Total liabilities 99,728,974 108,677,371 (8,948,397) -8.2%

Net assets Invested in capital assets, net of related debt 208,795,492 198,997,844 9,797,648 4.9% Restricted 33,221,914 31,135,480 2,086,434 6.7% Unrestricted 82,711,507 75,950,039 6,761,468 8.9% Total net assets $ 324,728,913 $ 306,083,363 $ 18,645,550 6.1%

Increase % Increase Summary of Net Assets 2011 2010 (decrease) decrease (-) Assets Current (unrestricted) $ 102,959,563 $ 100,680,525 $ 2,279,038 2.4% Current (restricted) 37,464,931 36,010,518 1,454,413 4.0% Net capital assets 271,904,969 277,409,371 (5,504,402) -2.0% Other noncurrent assets 2,431,271 5,424,624 (2,993,353) -55.2% Total assets 414,760,734 419,525,038 (4,764,304) -1.1%

Liabilities Current (payable from unrestricted assets) 9,834,838 11,463,094 (1,628,256) -14.2% Current (payable from restricted assets) 6,329,451 6,751,066 (421,615) -6.2% Noncurrent 92,513,082 110,305,469 (17,792,387) -16.1% Total liabilities 108,677,371 128,519,629 (19,842,258) -15.4%

Net assets Invested in capital assets, net of related debt 198,997,844 188,439,666 10,558,178 5.6% Restricted 31,135,480 29,259,452 1,876,028 6.4% Unrestricted 75,950,039 73,306,291 2,643,748 3.6% Total net assets $ 306,083,363 $ 291,005,409 $ 15,077,954 5.2%

26 TUCSON AIRPORT AUTHORITY 2012 CAFR MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) September 30, 2012

FINANCIAL POSITION (continued)

Current unrestricted assets increased in FY 2012 over FY 2011 by $8.5 million and in FY 2011 over FY 2010 by $2.3 million due mainly to higher cash and investment balances. Current restricted assets increased by $.4 million in FY 2012 compared to FY 2011 and increased by $1.5 million in FY 2011 compared to FY 2010. Both of these variances were favorably impacted by increases in the Passenger Facility Charge (PFC) Fund as cash accumulates for future debt service on PFC-backed bonds. Net capital assets increased by $3.1 million in FY 2012 over FY 2011 and decreased by $5.5 million in FY 2011 over FY 2010, both years being impacted by projects in the Authority’s capital improvement program. Other noncurrent assets decreased in both FY 2012 and FY 2011 due mainly to spending on environmental remediation projects.

Current liabilities payable from unrestricted assets increased by $.8 million in FY 2012 compared to FY 2011 due primarily to an increase in accounts payable and accrued expenses. Current liabilities payable from unrestricted assets decreased by $1.6 million in FY 2011 compared to FY 2010 due primarily to a decrease of $.4 million in the current portion of bonds payable, and a decrease of $1.0 million in construction contracts payable. Total noncurrent liabilities decreased by $8.0 million in FY 2012 compared to FY 2011 due to normal debt service. Total noncurrent liabilities decreased by $17.8 million in FY 2012 compared to FY 2011 due to normal debt service and early redemption of outstanding 2001 senior lien bonds.

The largest portion of the Authority’s net assets 64.3% for FY 2012, 65.0% for FY 2011, and 64.8% for FY 2010 represents its investment in capital assets (e.g. land, buildings, machinery and equipment), less outstanding debt used to acquire those assets. The Authority uses these assets to provide services to its passengers, visitors and tenants that generate future revenue streams. Although the Authority’s investment in its capital assets is reported net of related debt, the resources needed to repay this debt must be provided from operations, since the capital assets themselves cannot be used to retire these liabilities.

An additional portion of the Authority’s net assets 10.2% for FY 2012, 10.2% % for FY 2011 and 10.1% for FY 2010 represents resources that are subject to restrictions from government grantors, bond resolutions and State and Federal regulators on how they may be used. The changes in restricted net assets over the three-year period are primarily attributable to passenger facility charge funds that are accumulating for retirement of debt used to finance completed terminal expansion and concourse renovation projects. The remaining unrestricted net asset balances of $82.7 million for FY 2012, $75.9 million for FY 2011 and $73.3 million for FY 2010 may be used for any lawful purpose of the Authority.

REVENUES

In FY 2012, total revenues of $68.1 million were greater than the prior fiscal year by 3.2%, whereas FY 2011 revenues of $66.0 million were less than FY 2010 by 9.4%.

Operating revenues decreased in FY 2012 over FY 2011 by $1.5 million (3.1%). Almost all revenue categories decreased as a consequence of lower FY 2012 flight and passenger activity. Landing fees were $0.2 million (4.8%) lower than the prior year due primarily to a decrease in the landing fee rate from $1.35 to $1.32 per thousand pound unit. Space and land rentals decreased by .4% and 2.0%, respectively, due lower occupancy levels. Concession revenues in FY 2012 were less than FY 2011 by $.3 million (1.5%) due to lower passenger activity. Product sales decreased due to a significant reduction in general aviation activity and lower fuel prices.

For other operating revenues, the FY 2012 increase over FY 2011 was the result of increases in fuel flowage fees, royalties from sand and gravel excavating and customer facility charges on car rentals.

FINANCIALS 27 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) September 30, 2012

REVENUES (continued)

Increase % Increase Revenues by Major Source 2012 2011 (decrease) decrease (-)

Landing fees $ 3,065,212 $ 3,218,611 $ (153,399) -4.8% Space rentals 14,404,808 14,464,321 (59,513) -0.4% Land rent 2,639,679 2,694,612 (54,933) -2.0% Concession revenue 16,717,118 16,978,230 (261,112) -1.5% Product sales 2,624,936 3,386,663 (761,727) -22.5% Airport services 3,626,002 4,016,841 (390,839) -9.7% Other operating revenues 4,764,771 4,634,781 129,990 2.8% Total operating revenues 47,842,526 49,394,059 (1,551,533) -3.1%

Interest income 757,378 850,527 (93,149) -11.0% Net increase (decrease) in fair value of investments (12,558) 87,404 (99,962) -114.4% Passenger facility charges 6,884,959 7,064,715 (179,756) -2.5% Other non-operating revenues 20,371 10,525 9,846 93.5% Total non-operating revenues 7,650,150 8,013,171 (363,021) -4.5% Capital contributions 12,633,202 8,606,611 4,026,591 46.8% Total revenues $ 68,125,878 $ 66,013,841 $ 2,112,037 3.2%

The following charts show the major sources and the percentage of operating revenues for fiscal years 2012 and 2011:

Operating Revenues FY 2012 Operating Revenues FY 2011

Airport Services Airport Services 7.6% 8.1%

Product Sales Other Operating Product Sales Other Operating 5.5% Revenues 6.9% Revenues 10.0% 9.4%

Landing Fees Landing Fees 6.4% 6.5% Concession Concession Revenue Revenue 34.9% 34.4% Space Rentals Space Rentals 30.1% 29.3%

Land Rent Land Rent 5.5% 5.5%

Operating revenues increased in FY 2011 over FY 2010 by $.6 million (1.3%) due to contractual commitments for space and land rentals and concession revenues not impacted by the lower FY 2012 passenger activity. Landing fees were $.5 million (13.4%) lower than the prior year due primarily to a decrease in the landing fee rate from $1.55 to $1.35 per thousand pound unit. Space and land rentals increased by 1.3% and 2.4%, respectively, due mainly to rental rate increases. Concession revenues in FY 2011 were greater than FY 2010 by $.5 million (3.2%) due primarily to increases in rental car contract minimum annual guarantees. While product sales increased due to high fuel prices they were more than offset by an increase in the cost of product sales for fuel sold.

28 TUCSON AIRPORT AUTHORITY 2012 CAFR MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) September 30, 2012

REVENUES (continued)

Increase % Increase Revenues by Major Source 2011 2010 (decrease) decrease (-)

Landing fees $ 3,218,611 $ 3,716,258 $ (497,647) -13.4% Space rentals 14,464,321 14,271,708 192,613 1.3% Land rent 2,694,612 2,632,103 62,509 2.4% Concession revenue 16,978,230 16,451,297 526,933 3.2% Product sales 3,386,663 3,111,248 275,415 8.9% Airport services 4,016,841 3,997,120 19,721 0.5% Other operating revenues 4,634,781 4,577,805 56,976 1.2% Total operating revenues 49,394,059 48,757,539 636,520 1.3%

Interest income 850,527 1,104,984 (254,457) -23.0% Net increase (decrease) in fair value of investments 87,404 (273,985) 361,389 -131.9% Passenger facility charges 7,064,715 7,418,447 (353,732) -4.8% Other non-operating revenues 10,525 10,054 471 4.7% Total non-operating revenues 8,013,171 8,259,500 (246,329) -3.0% Capital contributions 8,606,611 15,868,166 (7,261,555) -45.8% Total revenues $ 66,013,841 $ 72,885,205 $ (6,871,364) -9.4%

The following charts show the major sources and the percentage of operating revenues for fiscal years 2011 and 2010:

Operating Revenues FY 2011 Operating Revenues FY 2010

Airport Services Airport Services 8.1% 8.2%

Product Sales Other Operating Product Sales Other Operating 6.9% Revenues 6.4% Revenues 9.4% 9.4%

Landing Fees Landing Fees 6.5% 7.6% Concession Concession Revenue Revenue 34.4% 33.7% Space Rentals Space Rentals 29.3% 29.3%

Land Rent Land Rent 5.5% 5.4%

NON-OPERATING REVENUES

Non-operating revenues consist mainly of interest income on investments and passenger facility charges (PFCs). FY 2012 non-operating revenues decreased $.4 million (4.5%) from the previous year primarily as a result of lower PFCs and investment income. FY 2011 non-operating revenues decreased $.2 million (3.0%) from FY 2010 due mainly to a deteriorating interest rate environment for investments.

FINANCIALS 29 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) September 30, 2012

CAPITAL CONTRIBUTIONS

Capital contributions consist of various federal and state grants and vary from year-to-year depending on grant availability and timing of projects.

EXPENSES

Total expenses for FY 2012 decreased 2.9% from FY 2011. Operating expenses decreased $.9 million (2.8%). The largest decreases were in cost of product sales due to lower general aviation fuel sales and contractual services due mainly to lower legal fees related to a landfill pollution investigation. Non-operating expenses were $.3 million (5.5%) lower in FY 2012 than FY 2011. This was caused mainly by a $.6 million increase in noncash charges for environmental remediation expenses and a $.9 million decrease in interest expense.

Increase % Increase Expenses by Major Category 2012 2011 (decrease) decrease (-) Personnel $ 18,813,878 $ 18,565,829 $ 248,049 1.3% Contractual services 5,759,286 6,301,918 (542,632) -8.6% Materials & supplies 1,405,494 1,390,653 14,841 1.1% Cost of product sales 2,063,364 2,612,723 (549,359) -21.0% Other operating expenses 1,244,705 1,274,401 (29,696) -2.3% Total operating expenses 29,286,727 30,145,524 (858,797) -2.8%

Depreciation and amortization 15,386,500 15,298,186 88,314 0.6%

Interest expense 3,373,283 4,252,272 (878,989) -20.7% Environmental expenses 1,420,602 834,444 586,158 70.2% Other non-operating expenses 13,216 1,896 11,320 100.0% Total non-operating expenses 4,807,101 5,088,612 (281,511) -5.5% Special item - loss on asset impairment 0 403,565 (403,565) -100.0% Total expenses $ 49,480,328 $ 50,935,887 $ (1,455,559) -2.9%

The following charts show the major operating expense categories for the Authority for FY 2012 and FY 2011:

Operating Expenses FY 2012 Operating Expenses FY 2011

Cost of Product Sales Cost of Product Sales 7.0% 8.7% Materials and Supplies Materials and Supplies Other Operating Other Operating 4.8% 4.6% Expenses Expenses Contractual Services 4.3% Contractual Services 4.2% 19.7% 20.9% Personnel Personnel 64.2% 61.6%

30 TUCSON AIRPORT AUTHORITY 2012 CAFR MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) September 30, 2012

EXPENSES (continued)

Total expenses for FY 2011 decreased 10.6% from FY 2010. Operating expenses increased $1.1 million (3.9%), spread across all operating expense categories. The largest increase was in cost of product sales, reflecting higher costs of jet and aviation fuel. Most of the increase in materials and supplies was due to higher costs of gasoline and diesel fuel for Authority vehicles. Other operating expense increases in FY 2011 compared to FY 2010 were related primarily to travel and training returning to more normal levels after several years of cutbacks, and special events. Non-operating expenses were $4.2 million (45.3%) lower in FY 2011 than FY 2010. This was caused mainly by a $3.9 million decrease in noncash charges for environmental remediation expenses and a $.3 million decrease in interest expense.

Increase % Increase Expenses by Major Category 2011 2010 (decrease) decrease (-) Personnel $ 18,565,829 $ 18,338,923 $ 226,906 1.2% Contractual services 6,301,918 6,064,411 237,507 3.9% Materials & supplies 1,390,653 1,264,250 126,403 10.0% Cost of product sales 2,612,723 2,260,029 352,694 15.6% Other operating expenses 1,274,401 1,090,153 184,248 16.9% Total operating expenses 30,145,524 29,017,766 1,127,758 3.9%

Depreciation and amortization 15,298,186 16,783,060 (1,484,874) -8.8%

Interest expense 4,252,272 4,591,809 (339,537) -7.4% Environmental expenses 834,444 4,707,923 (3,873,479) -82.3% Other non-operating expenses 1,896 0 1,896 100.0% Total non-operating expenses 5,088,612 9,299,732 (4,211,120) -45.3% Special item - loss on asset impairment 403,565 1,891,123 (1,487,558) -78.7% Total expenses $ 50,935,887 $ 56,991,681 $ (6,055,794) -10.6%

The following charts show the major operating expense categories for the Authority for FY 2011 and FY 2010:

Operating Expenses FY 2011 Operating Expenses FY 2010

Cost of Product Sales Cost of Product Sales 8.7% 7.8% Materials and Supplies Materials and Supplies Other Operating Other Operating 4.6% 4.4% Expenses Expenses Contractual Services 4.2% Contractual Services 3.8% 20.9% 20.9% Personnel Personnel 61.6% 63.1%

FINANCIALS 31 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) September 30, 2012

CAPITAL ASSETS

Net capital assets increased $3.1 million (1.2%) in FY 2012 over FY 2011. The increase resulted from spending on capital improvement program projects being higher than current year depreciation expense. Among the more significant projects completed in FY 2012 were reconstruction of runway 3/21 and taxiways, residential sound insulation and partial reconstruction of runway 11L/29R.

Increase % Increase Net Capital Assets 2012 2011 (decrease) decrease (-)

Land $ 82,228,059 $ 78,893,131 $ 3,334,928 4.2% Land improvements 138,164,666 119,042,798 19,121,868 16.1% Buildings and improvements 213,721,560 213,698,663 22,897 0.0% Utilities 5,951,108 5,951,108 0 0.0% Computer software 5,578,465 4,865,168 713,297 14.7% Furniture, fixtures, machinery and equipment 36,536,719 35,806,678 730,041 2.0% Artwork 424,337 424,337 0 0.0% Construction in progress 6,203,507 12,029,264 (5,825,757) -48.4% Gross capital assets 488,808,421 470,711,147 18,097,274 3.8% Less accumulated depreciation 213,733,466 198,806,178 14,967,288 7.5% Net capital assets $ 275,034,955 $ 271,904,969 $ 3,129,986 1.2%

Net capital assets decreased $5.5 million (2.0%) in FY 2012 over FY 2011. The decrease resulted from spending on capital improvement program projects being lower than current year depreciation expense. Among the more significant projects completed in FY 2012 were residential sound insulation, main terminal apron expansion and refurbishment of the ground power system used by aircraft at the terminal gates.

Increase % Increase Net Capital Assets 2011 2010 (decrease) decrease (-)

Land $ 78,893,131 $ 69,692,850 $ 9,200,281 13.2% Land improvements 119,042,798 108,208,861 10,833,937 10.0% Buildings and improvements 213,698,663 213,176,356 522,307 0.2% Utilities 5,951,108 5,951,108 0 0.0% Computer software 4,865,168 4,865,168 0 0.0% Furniture, fixtures, machinery and equipment 35,806,678 34,296,534 1,510,144 4.4% Artwork 424,337 429,337 (5,000) -1.2% Construction in progress 12,029,264 25,385,454 (13,356,190) -52.6% Gross capital assets 470,711,147 462,005,668 8,705,479 1.9% Less accumulated depreciation 198,806,178 184,596,297 14,209,881 7.7% Net capital assets $ 271,904,969 $ 277,409,371 $ (5,504,402) -2.0%

Additional detailed information regarding capital asset activity may be found in Note 5 to the financial statements.

32 TUCSON AIRPORT AUTHORITY 2012 CAFR MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) September 30, 2012

DEBT ACTIVITY

At the end of FY 2012, the Authority had total long-term debt outstanding of $65.2 million. The debt consists of bonds that are secured by airport revenues, with most of the bonds also secured by a pledge of passenger facility charge revenues. The decrease of $6.5 million (9.1%) from FY 2011 is a result of normal debt service activity.

Increase % Increase Outstanding Long-term Debt 2012 2011 (decrease) decrease (-)

Authority revenue bonds: Series 2001 subordinate lien $ 33,825,000 $ 34,865,000 $ (1,040,000) -3.0% Series 2003 refunding senior lien 4,510,000 8,810,000 (4,300,000) -48.8% Series 2006 subordinate lien 26,905,000 28,095,000 (1,190,000) -4.2% Total long-term debt $ 65,240,000 $ 71,770,000 $ (6,530,000) -9.1%

At the end of FY 2011, the Authority had total long-term debt outstanding of $71.8 million. The debt consists of bonds that are secured by airport revenues, with most of the bonds also secured by a pledge of passenger facility charge revenues. The decrease of $16.3 million (18.5%) from FY 2011 is a result of normal debt service activity, as well as early redemption of series 2001 A,B,C senior lien bonds.

Additional detailed information regarding long-term debt activity may be found in Note 7 to the financial statements.

Increase % Increase Outstanding Long-term Debt 2011 2010 (decrease) decrease (-)

Authority revenue bonds: Series 2001 A,B,C senior lien $ 0 $ 10,050,000 $ (10,050,000) -100.0% Series 2001 subordinate lien 34,865,000 35,850,000 (985,000) -2.7% Series 2003 refunding senior lien 8,810,000 12,900,000 (4,090,000) -31.7% Series 2006 subordinate lien 28,095,000 29,225,000 (1,130,000) -3.9% Total long-term debt $ 71,770,000 $ 88,025,000 $ (16,255,000) -18.5%

FINANCIALS 33 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) September 30, 2012

DEBT SERVICE COVERAGE

Debt service coverage is a covenant of the Authority’s bond resolutions requiring that annual net airport system revenues be maintained in the amount of 1.25 times annual principal and interest on senior lien bond debt and 1.10 times annual principal and interest on subordinate lien bond debt. This coverage serves as an indicator to bondholders that funds are available for timely debt service payments. In FY 2012, net airport system revenues available for senior lien bond debt service were 4.40 times senior lien debt service and net airport system revenues available for subordinate lien bond debt service were 3.85 times subordinate lien debt service. Total senior and subordinate lien bond debt service coverage stood at 2.52 times as of September 30, 2012. The bond resolutions do not specify a requirement for total senior and subordinate lien bond debt service coverage.

Following is a summary of bond debt service coverage over the last three fiscal years. The increases in senior and subordinate lien debt service coverage from FY 2011 to FY 2012 and decreases in FY 2011 from FY 2010 were the direct result of corresponding changes in operating income, exclusive of depreciation and amortization, and transfers from the airline reserve fund. Also contributing to improved coverage ratios in FY 2012 was reduced debt service due to early redemption of 2001 senior lien bonds in FY 2011.

Bond Resolution Senior and Subordinate Lien Debt Service Coverage 2012 2011 2010

Senior lien bond debt service coverage 4.40 3.63 4.12 Required minimum 1.25 1.25 1.25

Subordinate lien bond debt service coverage 3.85 3.82 4.36 Required minimum 1.10 1.10 1.10

Total senior and subordinate lien bond debt service coverage 2.52 2.34 2.59

AIRLINE RATES AND CHARGES

The Authority has a long-term residual cost airport use agreement with the major passenger airlines (signatory airlines). This agreement provides a method for securing the financial stability of the Authority through a schedule of rates and charges. Following are some of the key rates and charges included in the agreement:

Signatory Airline Rates and Charges 2012 2011 2010

Ticketing per sq. ft. $ 73.86 $ 73.86 $ 71.44 Hold room per gate 107,701.00 107,701.00 105,152.00 Baggage claim per sq. ft. 70.04 70.04 67.74 Baggage makeup per sq. ft. 24.61 24.61 23.80 Into plane hydrant flowage per gallon 0.052 0.052 0.052 Landing fee per 1,000 lbs. 1.32 1.35 1.55

The seven passenger airlines that provided TIA with scheduled service in FY 2012 have executed signatory use agreement extensions through September 30, 2013. One of these carriers, Frontier Airlines, discontinued its Tucson service in May 2012, but remains obligated for terminal space rent for the term of the agreement.

34 TUCSON AIRPORT AUTHORITY 2012 CAFR MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) September 30, 2012

AIRLINE COST PER ENPLANEMENT

Airline Cost Per Enplanement (CPE) is a measure used in the airline and airport industries to show the average cost an airline incurs to enplane one passenger at a given airport. This figure is derived by dividing total passenger airline revenues earned at an airport by the total number of enplaned passengers.

CPE has remained nearly flat from FY 2010 to FY 2012 as the negative impact of lower passenger levels has been offset by expense reductions that have allowed the Authority to lower landing fee rates for the airlines serving TIA.

Airline Cost Per Enplanement 2012 2011 2010 Passenger airline revenues $ 13,361,269 $ 13,474,662 $ 13,650,542 Enplaned passengers 1,826,046 1,841,834 1,855,615 Cost per enplanement $ 7.32 $ 7.32 $ 7.36

FINANCIALS 35 STATEMENTS OF NET ASSETS September 30, 2012 and 2011

ASSETS 2012 2011

Current assets: Unrestricted assets: Cash and cash equivalents - Note 3 $ 20,912,827 $ 16,613,107 Investments - Note 3 87,083,967 82,557,284 Accounts receivable, net of allowance for doubtful accounts of $431,267 and $431,348 for 2012 and 2011, respectively 914,619 1,286,062 Accrued interest receivable 176,041 175,020 Grants receivable 1,296,846 1,454,993 Notes receivable 9,471 8,767 Inventories - Note 4 563,254 646,056 Prepaid expenses and other assets 547,056 218,274

Total unrestricted current assets 111,504,081 102,959,563

Restricted assets: Debt Service Funds - Note 3: Airport Senior Lien Revenue Bonds, Series 2001: Cash and cash equivalents 119,657 106,141 Investments 834,456 848,706 Deferred bond issuance costs 590,740 644,739 1,544,853 1,599,586 Airport Revenue Bonds, Refunding Series 2003: Cash and cash equivalents 197,963 175,652 Investments 1,380,538 1,404,515 Deferred bond issuance costs 29,549 102,046 1,608,050 1,682,213 Airport Subordinate Lien Revenue Bonds, Series 2006: Cash and cash equivalents 186,098 161,598 Investments 1,297,796 1,292,139 Deferred bond issuance costs 444,996 500,543 1,928,890 1,954,280 Passenger Facility Charge Fund - Note 3: Cash and cash equivalents 2,699,704 2,131,066 Investments 18,856,082 17,047,330 Accrued interest receivable 32,496 31,181 Accounts receivable 809,302 1,061,264 22,397,584 20,270,841

See Accompanying Notes.

36 TUCSON AIRPORT AUTHORITY 2012 CAFR STATEMENTS OF NET ASSETS (continued) September 30, 2012 and 2011

ASSETS (continued) 2012 2011

Current assets - continued: Restricted assets - continued: Land Acquisition Fund - Note 3: Cash and cash equivalents $ 230,643 $ 205,834 Investments 1,610,425 1,646,174 Accrued interest receivable 3,604 3,541 1,844,672 1,855,549 Construction Fund - Note 3: Cash and cash equivalents 303,795 267,994 Investments 2,117,522 2,139,132 Accrued interest receivable 4,843 4,749 2,426,160 2,411,875 Debt Service Reserve Fund - Note 3: Cash and cash equivalents 323,340 286,596 Investments 2,254,885 2,291,629 2,578,225 2,578,225 Environmental Remediation Trust - Notes 3 and 15: Cash and cash equivalents 3,503,222 5,112,362 Investments 0 0 Accrued interest receivable 0 0 3,503,222 5,112,362 Total restricted current assets 37,831,656 37,464,931

Total current assets 149,335,737 140,424,494

Noncurrent assets: Unrestricted assets: Notes receivable, net of current portion 87,195 96,666 Capital assets - Notes 5 and 7 275,034,955 271,904,969 Total unrestricted noncurrent assets 275,122,150 272,001,635

Restricted assets - Environmental Remediation Trust - Notes 3 and 15: Cash and cash equivalents 0 334,625 Investments 0 1,999,980 Total restricted noncurrent assets 0 2,334,605

Total noncurrent assets 275,122,150 274,336,240

Total assets $ 424,457,887 $ 414,760,734

See Accompanying Notes.

FINANCIALS 37 STATEMENTS OF NET ASSETS (continued) September 30, 2012 and 2011

LIABILITIES AND NET ASSETS 2012 2011 Liabilities: Current liabilities: Payable from unrestricted assets: Accounts payable $ 1,477,988 $ 943,513 Accrued expenses 1,772,420 1,470,120 Deferred revenues - Note 6 220,120 560,487 Construction contracts payable 187,286 330,718 Current portion of environmental remediation payable - Note 15 119,036 0 Current portion of bonds payable - Note 7: Airport Subordinate Lien Revenue Bonds, Series 2001 1,095,000 1,040,000 Airport Revenue Bonds, Refunding Series 2003 4,510,000 4,300,000 Airport Subordinate Lien Revenue Bonds, Series 2006 1,250,000 1,190,000 Total payable from unrestricted assets 10,631,850 9,834,838

Payable from restricted assets: Accrued interest payable: Airport Subordinate Lien Revenue Bonds, Series 2001 589,113 608,180 Airport Revenue Bonds, Refunding Series 2003 75,167 146,833 Airport Subordinate Lien Revenue Bonds, Series 2006 442,240 462,076 1,106,520 1,217,089

Current portion of environmental remediation payable - Note 15 3,503,223 5,112,362

Total payable from restricted assets 4,609,743 6,329,451

Total current liabilities 15,241,593 16,164,289

Noncurrent liabilities: Payable from unrestricted assets: Bonds payable, net of current portion - Note 7: Airport Subordinate Lien Revenue Bonds, Series 2001 32,730,000 33,825,000 Original issue discount (112,119) (122,368)

See Accompanying Notes.

38 TUCSON AIRPORT AUTHORITY 2012 CAFR STATEMENTS OF NET ASSETS (continued) September 30, 2012 and 2011

LIABILITIES AND NET ASSETS (continued) 2012 2011 Noncurrent liabilities - continued: Payable from unrestricted assets - continued: Bonds payable, net of current portion - Note 7 - continued: Airport Revenue Bonds, Refunding Series 2003 $ 0 $ 4,510,000 Original issue premium 29,287 101,139 Deferred loss on bond refunding (25,355) (87,563) Airport Subordinate Lien Revenue Bonds, Series 2006 25,655,000 26,905,000 Original issue premium 1,107,650 1,245,917 Environmental remediation payable, net of current portion - Note 15 25,102,918 23,801,352 Total payable from unrestricted assets 84,487,381 90,178,477

Payable from restricted assets - Environmental remediation payable, net of current portion - Note 15 0 2,334,605

Total noncurrent liabilities 84,487,381 92,513,082

Total liabilities 99,728,974 108,677,371

Commitments and contingencies - Notes 14, 15 and 16

Net assets: Invested in capital assets, net of related debt 208,795,492 198,997,844

Restricted for: Debt service 6,553,498 6,597,215 Capital projects 24,823,744 22,682,716 Land acquisition 1,844,672 1,855,549 Total restricted net assets 33,221,914 31,135,480

Unrestricted 82,711,507 75,950,039

Total net assets 324,728,913 306,083,363

Total liabilities and net assets $ 424,457,887 $ 414,760,734

See Accompanying Notes.

FINANCIALS 39 STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS Years ended September 30, 2012 and 2011

2012 2011 Operating revenues: Landing fees $ 3,065,212 $ 3,218,611 Space rentals 14,404,808 14,464,321 Land rent 2,639,679 2,694,612 Concession revenue 16,717,118 16,978,230 Product sales 2,624,936 3,386,663 Airport services 3,626,002 4,016,841 Other operating revenues 4,764,771 4,634,781 Total operating revenues 47,842,526 49,394,059

Operating expenses: Personnel expenses 18,813,878 18,565,829 Contractual services 5,759,286 6,301,918 Materials and supplies 1,405,494 1,390,653 Cost of product sales 2,063,364 2,612,723 Other operating expenses 1,244,705 1,274,401 Total operating expenses 29,286,727 30,145,524

Depreciation and amortization 15,386,500 15,298,186

Operating income 3,169,299 3,950,349

Nonoperating revenues (expenses): Interest income 757,378 850,527 Net increase/(decrease) in fair value of investments (12,558) 87,404 Passenger facility charges - Note 12 6,884,959 7,064,714 Interest expense and fiscal charges (3,373,283) (4,252,272) Gain/(loss) on disposition of capital assets 20,371 (1,896) Environmental remediation expenses - Note 15 (1,420,602) (834,444) Other nonoperating revenues (13,216) 10,526 2,843,049 2,924,559

Income before capital contributions and special item 6,012,348 6,874,908

Capital contributions and special item: Capital contributions: Federal 11,622,165 6,094,986 State 1,011,037 2,511,625 12,633,202 8,606,611 Special item - Notes 5 and 7 0 (403,565)

Increase in net assets 18,645,550 15,077,954 Total net assets, beginning of year 306,083,363 291,005,409

Total net assets, end of year $ 324,728,913 $ 306,083,363

See Accompanying Notes.

40 TUCSON AIRPORT AUTHORITY 2012 CAFR STATEMENTS OF CASH FLOWS Years ended September 30, 2012 and 2011

2012 2011

Cash flows from operating activities: Receipts from airlines and tenants $ 47,350,414 $ 48,405,614 Federal/state grants in aid 569,694 392,835 Payments to suppliers (10,035,555) (11,474,221) Payments for personnel services (18,660,380) (18,439,641) Payments for environmental remediation (3,943,764) (3,125,425) Net cash provided by operating activities 15,280,409 15,759,162

Cash flows from capital and related financing activities: Federal/state contributed capital, grants in aid 12,749,091 10,802,429 Acquisition of capital assets (18,477,871) (10,541,986) Proceeds from sale of capital assets 16,123 0 Principal paid on long-term debt (6,530,000) (16,255,000) Passenger facility charges receipts 7,136,921 7,137,589 Interest paid on long-term debt (3,621,515) (4,351,963) Net cash used in capital and related financing activities (8,727,251) (13,208,931)

Cash flows from investing activities: Interest on investments 603,013 1,140,715 Maturity and calls of investments 146,215,151 158,369,180 Purchase of investments (150,297,815) (159,914,939) Collections of notes receivable 8,767 8,450 Net cash used in investing activities (3,470,884) (396,594)

Net increase in cash and cash equivalents 3,082,274 2,153,637

Cash and cash equivalents, beginning of year 25,394,975 23,241,338

Cash and cash equivalents, end of year $ 28,477,249 $ 25,394,975

See Accompanying Notes.

FINANCIALS 41 STATEMENTS OF CASH FLOWS (continued) Years ended September 30, 2012 and 2011

2012 2011

Reconciliation of operating income to net cash provided by operating activities: Operating income $ 3,169,299 $ 3,950,349

Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization 15,386,500 15,298,187 Payments for environmental remediation (3,943,764) (3,125,425) Effects of changes in operating assets and liabilities: Receivables 417,949 (333,463) Inventories 82,802 (100,733) Prepaid expenses and other assets (328,786) 278,499 Accounts payable 534,476 (63,128) Accrued expenses 302,300 117,023 Deferred revenues (340,367) (262,147)

Net cash provided by operating activities $ 15,280,409 $ 15,759,162

Noncash non-operating, capital, financing and investing activities: Net appreciation/(depreciation) in fair value of investments $ (12,558) $ 87,404 Special item: (Loss) on early redemption of 2001 senior lien bonds $ 0 $ (403,565) Increase in estimate of environmental remediation liability $ 1,420,602 $ 834,444

See Accompanying Notes.

42 TUCSON AIRPORT AUTHORITY 2012 CAFR NOTES TO FINANCIAL STATEMENTS September 30, 2012 and 2011

NOTE 1 – ORGANIZATION AND REPORTING ENTITY

Tucson Airport Authority, Inc. (Authority), a civic, nonprofit corporation as provided for under the laws of the State of Arizona, was established April 12, 1948 for the purpose of developing and promoting transportation and commerce in the State through the operation and maintenance of airports and related facilities adjacent to the City of Tucson in Pima County, Arizona. The Authority’s membership consists of up to 115 residents of Pima County who elect a Board of Directors (Board) which governs the Authority. The Authority has no taxing power and presently operates two airports: Tucson International Airport (Airport) and Ryan Airfield.

The land and improvements comprising the Airport are owned by the City of Tucson (City) and are leased by the City to the Authority pursuant to a lease dated October 14, 1948, as amended (Airport Lease). Pursuant to the terms of the Airport Lease, which expires October 14, 2048, the Authority has the obligation to operate, maintain and develop the Airport as a public facility for the accommodation of air commerce. In addition, the Airport Lease provides for certain other rights, powers and obligations as specified therein. Under the terms of the Airport Lease, the Authority has been required to make only nominal payments to date. Upon expiration of the Airport Lease, the Airport and improvements thereon, except as provided for in the Airport Lease, return to the custody of the City.

Substantially all of the passenger airlines utilizing the Airport have entered into Airport Use Agreements with the Authority and are referred to as Signatory Airlines. In general, the Airport Use Agreements provide that fixed rentals are to be paid monthly by each Signatory Airline for use and occupancy of certain terminal space and other facilities. In addition, the Signatory Airlines collectively pay landing fees which are determined so that the aggregate landing fees paid in each fiscal year by all Signatory Airlines, after taking into consideration other revenues of the Authority, is an amount which provides sufficient operating funds to cover annual debt service of the bonds, annual operating expenses and satisfies other bond resolution requirements. The Airport Use Agreement expires on September 30, 2013.

The accompanying financial statements include the accounts of the Authority. There are no potential component units, nor has the Authority been determined to be a component unit of any other entity.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of significant accounting policies follows:

Basis of presentation

The Authority is accounted for as an enterprise fund. The accounting policies of the Authority conform to U.S. generally accepted accounting principles applicable to governmental units characterized as special districts. Such funds are used to account for operations (1) that are financed and operated in a manner similar to private business enterprises where the intent of the governing body is that the costs (expenses including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or (2) where the governing body has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability or other purposes.

Use of estimates in preparing financial statements

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make a number of estimates and assumptions, e.g., useful lives of capital assets, that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities at the date of the financial statements. The most significant estimate recorded in the financial statements is the environmental remediation liability (Note 15).

FINANCIALS 43 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2012 and 2011

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Measurement focus and basis of accounting

The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. Proprietary funds are accounted for on a flow of economic resources measurement focus. With this measurement focus, all assets and liabilities associated with the operation of these funds are included on the statements of net assets. Net assets are segregated into components. Proprietary fund-type operating statements present increases (e.g., revenues) and decreases (e.g., expenses) in net total assets.

On proprietary fund financial statements, operating revenues are those that flow directly from the operations of that activity, (i.e., charges to customers or users who purchase or use the goods or services of that activity). Operating expenses are those that are incurred to provide those goods or services. Nonoperating revenues and expenses are items such as investment income and interest expense that are not a result of the direct operations of the activity.

Basis of accounting refers to when revenues and expenses are recognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurements made, regardless of the measurement focus applied. The accrual basis of accounting is utilized by proprietary fund types. Under this method, revenues are recorded when earned and expenses are recorded at the time liabilities are incurred. When both restricted and unrestricted resources are available for use, it is the Authority’s practice to use restricted resources first, then unrestricted resources as they are needed.

The Governmental Accounting Standards Board (GASB) is the accepted standard for establishing governmental accounting and financial reporting principles. In accordance with GASB Statement 20,Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities that Use Proprietary Fund Accounting, the Authority has elected not to implement all private sector guidance, including Financial Accounting Standards Board (FASB) Statements and Interpretations, issued after November 30, 1989.

Budgets

The Authority utilizes a budget process for planning purposes with adoption by the Board of Directors. Pursuant to the Airport Lease, the Authority prepares a biennial budget that is presented to the Mayor and Council of the City for informational purposes. An annual budget is also reviewed by representatives of the Signatory Airlines. The budget is prepared in sufficient detail to enable its use by management in monitoring operations.

Cash and cash equivalents

Investments are categorized as cash equivalents if their maturity date is 90 days or less at the date of purchase. Those assets having a maturity of more than 90 days are classified as investments for statement of net assets presentation. Cash equivalents include cash on hand, checking, savings, money market accounts and cash equivalent mutual funds.

Accounts receivable

Receivables are reported at their gross value when earned as the underlying exchange transaction occurs. Receivables are reduced by an allowance for the estimated portion that is expected to be uncollectible. This estimate is made based on collection history, aviation industry trends and current information regarding the credit worthiness of the debtors. When collection activity results in receipt of amounts previously written off against the allowance, revenue is recognized for the amount collected.

Inventories

Inventories consist of operating and maintenance supplies, fuel and flight line merchandise and are recorded at the lower of cost or market with cost determined on an average cost basis.

44 TUCSON AIRPORT AUTHORITY 2012 CAFR NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2012 and 2011

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Investments

Investments are stated at fair value. The Authority’s policy is to invest in certificates of deposit, federal treasury and agency securities, cash equivalent mutual funds and repurchase agreements, and to hold such investments to maturity. In accordance with this policy, investments are purchased so that maturities will occur as projected cash flow needs arise in connection with daily operations, construction projects and bond debt service requirements.

Bond issuance costs

Costs of issuing general airport revenue bonds are deferred and amortized over the life of the bonds using the effective interest method.

Capital assets

Capital assets are stated at cost or estimated historical cost if original cost is not available and include expenditures which substantially increase the useful lives of existing assets. Capital assets, includes intangible assets, which are without physical substance that provide economic benefits through the rights and privileges associated with their possession, including computer software. Gifts or contributions of such assets are stated at estimated fair value at the date received. The Authority’s policy is to capitalize assets with a cost of $2,500 or more. Routine maintenance and repairs are expensed as incurred.

Depreciation (including amortization of intangible assets) has been provided using the straight-line method over the following estimated useful lives of the related assets:

Utilities 9 to 20 years Land improvements 3 to 50 years Buildings and improvements 3 to 50 years Intangibles 2 to 25 years Furniture, fixtures, machinery and equipment 2 to 25 years

Depreciation of capital assets is recorded as an expense in the statements of revenues, expenses and changes in net assets.

Interest incurred on debt obligations to finance construction projects is capitalized during the construction period. Interest income from funds obtained through Authority bond proceeds that are restricted for construction purposes is netted against interest expense incurred on the bonds in determining the amount of capitalized interest.

Capital assets are considered impaired if there is a significant unexpected decline in the service utility of the asset. Impaired capital assets that will no longer be used by the Authority are reported at the lower of carrying or fair value. Impairment losses on capital assets that will continue to be used by the Authority are measured using the method that best reflects the diminished service utility of the capital asset.

Restricted assets

Certain resources of the Authority are classified as restricted assets on the Statements of Net Assets because their use is limited by applicable bond covenants, passenger facility charge applications or the environmental consent decree for payment of the respective liabilities.

FINANCIALS 45 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2012 and 2011

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Compensated absences

The Authority’s personnel policy provides full-time employees with vacation in varying amounts and, at termination, an employee is paid for accumulated (vested) vacation. Accordingly, compensation for vacation and administrative leave is charged to expense as earned by the employee, and accumulated unpaid vacation and administrative leave payable upon an employee’s termination is recorded as a current liability.

Deferred loss on bond refunding

The Authority accounts for deferred loss on bond refundings in accordance with Governmental Accounting Standards Board Statement No. 23, Accounting and Financial Reporting for Refunding of Debt Reported by Proprietary Activities. The loss on the Refunding Series 2003 Airport Revenue Bonds is being amortized as a component of interest expense using the effective interest method over the remaining life of the related bonds. The losses on the 2001 Series A, B and C Refunding Bonds were amortized in the same manner until the bonds were redeemed in September 2011, at which time the remaining unamortized losses were expensed.

Net assets

The Authority’s policy is to record a reservation of net assets to the extent that assets restricted for bond debt service exceed the applicable debt service liabilities, and these assets are funded from operations rather than bond proceeds. Because these restricted assets do not exceed debt service liabilities at September 30, 2012 and 2011, no reservation of net assets is required.

Environmental remediation costs

The Authority accounts for environmental remediation costs in accordance with Governmental Accounting Standards Board Statement No. 49, Accounting and Financial Reporting for Pollution Remediation Obligations. See Note 15 for disclosures regarding information reported in the financial statements for known obligations.

Passenger facility charges

In 1990, Congress approved the Aviation Safety and Capacity Expansion Act (Act), which authorized domestic airports to impose a Passenger Facility Charge (PFC) on enplaning passengers. In May 1991, the Federal Aviation Administration (FAA) issued the regulations for the use and reporting of PFCs. PFCs may be used for airport projects which meet at least one of the following criteria: preserve or enhance safety, security or capacity of the national air transportation system; reduce noise or mitigate noise impacts resulting from an airport; or furnish opportunities for enhanced competition between or among carriers.

The Authority was granted permission to begin collection of a $3 per passenger PFC effective February 1, 1998. In April 2006, the FAA approved the Authority’s application amendment to increase the PFC from $3 to $4.50. The increase in rate was effective October 1, 2006. The charges, less an ($0.11) administrative fee charged by the airlines for processing, are collected by the airlines and remitted on a monthly basis to the Authority.

At the present time, GASB has not released authoritative guidance on the accounting treatment of PFCs. The Authority’s position is that PFCs should be treated as revenue because: 1) the Authority earns the PFCs due to a passenger’s use of the Airport; 2) after receipt, the Authority has clear title to the funds and is not required to refund or return them; 3) the Authority is entitled to assess late charges on any payment not received by the deadlines specified in the Act; and 4) the fee is reserved for specific purposes as defined in the approval letter received from the FAA.

Since the Authority’s applications for PFCs were approved as Impose and Use, it is the position of the Authority that revenue should be recognized immediately when PFCs are earned. Due to their restricted use, however, PFCs are categorized as nonoperating revenues and are accounted for on the accrual basis.

46 TUCSON AIRPORT AUTHORITY 2012 CAFR NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2012 and 2011

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Pronouncements issued but not effective

The GASB issued pronouncements that may impact future financial presentations. Management has not currently determined what, if any, impact implementation of the following statements may have on the financial statements of the Airport Authority:

• GASB Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements, effective for the Airport Authority’s fiscal year 2013.

• GASB Statement No. 61, The Financial Reporting Entity: Omnibus—an amendment of GASB Statements No. 14 and No. 34, effective for the Airport Authority’s fiscal year 2013.

• GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance contained in Pre- November 30, 1989 FASB and AICPA Pronouncements, effective for the Airport Authority’s Fiscal year 2013.

• GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, effective for the Airport Authority’s fiscal year 2013.

• GASB Statement No. 65, Items Previously Reported as Assets and Liabilities, effective for the Airport Authority’s fiscal year 2014.

• GASB Statement No. 66, Technical Corrections—2012—an amendment of GASB Statements No. 10 and No. 62, effective for the Airport Authority’s fiscal year 2014.

• GASB Statement No. 68, Accounting and Financial Reporting for Pensions—an amendment of GASB Statement No. 27, effective for the Airport Authority’s fiscal year 2015.

NOTE 3 – CASH, CASH EQUIVALENTS AND INVESTMENTS

The Authority maintains a cash, cash equivalents and investment pool (Pooled Investment Fund) for all funds except environmental remediation trust assets, which are maintained in a separate investment pool (Master Environmental Trust Fund). The Authority maintains detailed records sufficient to meet any and all requirements and restrictions on both funds, which include PFC, and Land Acquisition Funds. Additionally, the Board, at its discretion, may internally designate certain funds for specific purposes.

Deposits

At September 30, 2012, the carrying amount of the Authority’s deposits was $8,428,438 and the bank balance was $8,750,688. At September 30, 2011, the carrying amount of the Authority’s deposits was $6,277,824 and the bank balance was $7,056,015. The difference between the carrying amounts and the bank balances represents outstanding checks, deposits in transit and other reconciling items.

Custodial credit risk - deposits and investments

In the case of deposits, this is the risk that in the event of a bank failure, the Authority’s deposits may not be returned to it. For an investment, this 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 investments or collateral securities that are in the possession of an outside party.

The Authority’s investment policy requires that all deposits at financial institutions, certificates of deposit, repurchase agreements and money market mutual funds be insured, registered in the Authority’s name or collateralized to 102% and held by the Authority’s safekeeping agent in the Authority’s name. Collateral is restricted to United States treasuries, agencies or instrumentalities.

FINANCIALS 47 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2012 and 2011

NOTE 3 – CASH, CASH EQUIVALENTS AND INVESTMENTS (continued)

The Authority invests in obligations of the U.S. Government and its agencies. Some of these obligations are classified as cash equivalents on the accompanying balance sheets as the amounts are in money market fund pools of such securities. The amount shown below includes all U.S. Government securities, regardless of classification. The Authority’s mutual fund investments are invested exclusively in short-term, U.S. Government Treasury obligations. The investments are valued at amortized cost, which approximates market. These assets are classified as cash equivalents.

Interest rate risk

In accordance with its investment policy, the Authority manages its exposure to interest rate risk by regular (not less than semi- annually) evaluation in conjunction with Authority investment advisors of the Authority’s cash position to determine the amount of short and long-term funds available for investment within the context of the entire portfolio and to project the term for such investments. Funds that can be invested for a longer duration are to be invested predominantly in high credit quality U.S. obligations with an individual obligation not to exceed 10 years and a weighted-average maturity of all such investments of not greater than 5 years.

Credit risk

In the absence of definitive legal requirements, the Authority has elected to conform to Arizona Revised Statutes (Statutes) concerning the investment of all assets in the Pooled Investment Fund, if such statutes are more restrictive than its investment policy. The Statutes permit the following investments:

1. Certificates of deposit in eligible depositories with collateralization requirements and that do not exceed 12 months to maturity from date of issue;

2. Obligations issued or guaranteed by the United States Government or any of the senior debt of its agencies, corporations, sponsored corporations or instrumentalities;

3. Repurchase agreements with a maximum maturity of 180 days;

4. Guaranteed investment contracts structured in a collateralized repurchase agreement format;

5. SEC registered money market mutual funds holding only federal securities;

6. Bonds, notes or other evidences of indebtedness of:

a. The State or any of its counties, incorporated cities or towns, or school districts;

b. Certain county or municipal districts of any state that are payable from revenues, earnings or a special tax specifically pledged for payment of the principal and interest on the obligations and if no default has occurred within the last 5 years; and

c. Special assessment bonds of county or municipal improvement districts of any state;

7. Interest-bearing savings accounts in banks and savings and loan institutions doing business in the State whose accounts are insured by the Federal Deposit Insurance Corporation (FDIC) but only if such deposits in excess of insured amounts are collateralized to the same extent as public deposits;

8 State investment pool;

9. Commercial domestic paper of prime quality that is rated “P1” or better by Moody’s or “A1” or better by Standard & Poor’s;

10. Bonds, debentures and notes that are issued by corporations organized in the United States that are rated “A” or better by Moody’s or Standard & Poor’s.

48 TUCSON AIRPORT AUTHORITY 2012 CAFR NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2012 and 2011

NOTE 3 – CASH, CASH EQUIVALENTS AND INVESTMENTS (continued)

The Master Remediation Trust Fund Agreement permits the following investments in the Master Environmental Trust Fund:

1. “Permitted investments” as outlined in the Authority’s bond resolution:

a. Bank savings accounts, time certificates of deposit or open account certificates of deposit;

b. Direct obligations of or guaranteed by the United States Government or issued by the following agencies:

1) Banks or Cooperatives, the Export-Import Bank of the United States, Federal Intermediate Credit Banks, Federal Home Loan Banks, Federal Land Banks, Fannie Mae or Ginnie Mae;

2) Repurchase agreements collateralized solely by federal securities;

3) Guaranteed investment contracts structured in a collateralized repurchase agreement format and involving only federal securities;

4) Money market mutual funds holding only federal securities;

5) Full faith and credit direct and general obligations of the State or political subdivisions which are rated in the two highest rating categories by two nationally recognized bond rating agencies and are legal investments for fiduciaries in the State of Arizona;

6) Bank savings accounts, time certificates of deposit or open certificates of deposit.

2. Such other prudent investments as are consistent with investment policies adopted by the Authority’s Board of Directors:

a. Certificates of deposit issued by state and national banks doing business in Arizona that:

1) Are guaranteed by the FDIC or its successor;

2) Are collateralized at 102% by obligations of the United States Government or its agencies and instrumentalities; and

3) Do not exceed 6 months to maturity from date of issuance;

b. Obligations of the United States, its agencies and instrumentalities;

c. The United States Government or its agencies and instrumentalities, collateralized at 102%, executed through primary government securities dealers and with collateral held by third-party custodians;

d. Bankers’ acceptances with a maximum maturity of 270 days, eligible as collateral for borrowing from a Federal Reserve Bank and from a United States bank with short-term ratings not less than A1/P1 or an equivalent;

e. Fully collateralized guaranteed investment contracts executed with a primary securities dealer as defined by the Federal Reserve;

f. Securities and Exchange Commission (SEC) registered money market funds provided the fund conforms to all bond resolutions; g. Bonds or notes issued by any state or municipality, with ratings not less than AA, or an equivalent.

3. Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933.

FINANCIALS 49 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2012 and 2011

NOTE 3 – CASH, CASH EQUIVALENTS AND INVESTMENTS (continued)

Concentration and credit risk

In order to provide for diversification and reduce market and credit risk exposures, the following diversification parameters have been established in the Authority’s investment policies:

Maximum % of portfolio Certificates of deposit 20% U.S. Treasuries, agencies and instrumentalities 100% Repurchase agreements 50% Bankers’ acceptances 10% Guaranteed investment contracts 10% Money market mutual funds 50% State/municipality bonds or notes 20%

At September 30, 2012 and 2011, the Authority had the following investments:

Fair Value

2012 2011 Pooled investment fund: $ % $ % Ratings U.S. Agency securities: Federal Farm Credit Bank $ 36.024.000 31% $ 14,999,103 14% AAA Federal Home Loan Bank 36,039,683 31% 36,099,860 33% AAA Federal Home Loan Mortgage Corp. 20,040,248 17% 28,043,794 26% AAA Federal National Mortgage Association 9,031,600 9% 30,084,152 28% AAA U.S. Treasury Bills 14,300,140 12% 0 0% AAA 115,435,671 100% 109,226,909 100%

Master Environmental Trust Fund: Federal Home Loan Mortgage Corp. Discount Note 0 0% 1,000,000 50% AAA Federal National Mortgage Association Discount Note 0 0% 999,980 50% AAA 0 0% 1,999,980 100% $ 115,435,671 $ 111,226,889

50 TUCSON AIRPORT AUTHORITY 2012 CAFR NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2012 and 2011

NOTE 3 – CASH, CASH EQUIVALENTS AND INVESTMENTS (continued)

Concentration and credit risk (continued)

Cash, cash equivalents and investments are classified on the Statements of Net Assets at September 30, 2012 and 2011 as follows:

Cash and cash equivalents Investments

2012 2011 2012 2011 Unrestricted $ 20,912,827 $ 16,613,107 $ 87,083,967 $ 82,557,284 Airport Subordinate Lien Revenue 119,657 106,141 834,456 848,706 Bonds, Series 2001 Airport Revenue Bonds, Refunding 197,963 175,652 1,380,538 1,404,515 Series 2003 Airport Subordinate Lien Revenue 186,098 161,598 1,297,796 1,292,139 Bonds, Series 2006 Passenger Facility Charge Fund 2,699,704 2,131,066 18,856,082 17,047,330 Land Acquisition Fund 230,643 205,834 1,610,425 1,646,174 Construction Fund 303,795 267,994 2,117,522 2,139,132 Debt Service Reserve Fund 323,340 286,596 2,254,885 2,291,629 Environmental Remediation Trust: Current 3,503,222 5,112,362 0 1,999,980 Long-term 0 334,625 0 0 $ 28,477,249 $ 25,394,975 $ 115,435,671 $ 111,226,889

Cash and cash equivalents are comprised of the following at September 30, 2012 and 2011:

2012 2011 Ratings Deposits at financial institutions $ 8,432,631 $ 6,277,823 N/A JP Morgan Money Market Treasury Fund 4,499,519 6,447,032 AAA Goldman Sachs Financial Square Treasury Obligations 15,533,476 12,655,897 AAA Cash on hand 11,623 14,223 N/A Total cash and cash equivalents $ 28,477,249 $ 25,394,975

At September 30, 2012, the Authority’s investments are scheduled to mature as follows:

Investment maturities (in months)

Fair value Less than 5 5-8 9-12 13-16 17-20 21-24 >24 Pooled investment fund: U.S. Agency securities $ 115,435,671 $ 8,004,080 $ 8,996,800 $ 8,011,420 $ 4,004,453 $12,078,580 $8 ,035,320 $ 66,305,018

FINANCIALS 51 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2012 and 2011

NOTE 4 – INVENTORIES

Inventories at September 30, 2012 and 2011 follow:

2012 2011

Flightline merchandise, including fuel, for resale $ 205,702 $ 302,859 Operating and maintenance supplies 357,552 343,197 $ 563,254 $ 646,056

NOTE 5 – CAPITAL ASSETS

Capital asset activity for the year ended September 30, 2012 follows:

Beginning Ending balance Transfers Increases Decreases balance Business type activities: Capital assets not being depreciated: Land $ 78,893,131 $ 1,981,063 $ 1,353,865 $ 82,228,059 Artwork 424,337 424,337 Construction in progress 12,029,264 (10,020,644) 4,194,887 6,203,507 Total assets not being depreciated 91,346,732 (8,039,581) 5,548,752 88,855,903

Capital assets being depreciated: Utilities 5,951,108 5,951,108 Land improvements 119,042,798 7,402,996 11,718,902 138,164,666 Buildings and improvements 213,698,663 17,103 5,794 213,721,560 Computer software 4,865,168 541,734 171,563 5,578,465 Furniture, fixtures, machinery and equipment 35,806,678 77,778 889,431 $ (237,168) 36,536,719

Total assets being depreciated 379,364,415 8,039,581 12,785,690 (237,168) 399,952,518

Less accumulated depreciation for: Utilities 5,606,442 82,200 5,688,642 Land improvements 71,363,140 5,117,478 76,480,618 Buildings and improvements 98,485,374 7,917,374 106,402,748 Computer software 4,865,168 4,865,168 Furniture, fixtures, machinery and equipment 18,486,054 2,087,404 (237,168) 20,336,290 198,806,178 0 15,204,456 (237,168) 213,773,466

Net capital assets being depreciated 180,558,237 8,039,581 (2,418,766) 0 186,179,052

Net capital assets $ 271,904,969 $ 0 $ 3,129,986 $ 0 $ 275,034,955

52 TUCSON AIRPORT AUTHORITY 2012 CAFR NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2012 and 2011

NOTE 5 – CAPITAL ASSETS (continued)

Capital asset activity for the year ended September 30, 2011 follows:

Beginning Ending balance Transfers Increases Decreases balance Business type activities: Capital assets not being depreciated: Land $ 69,692,850 $ 9,178,775 $ 21,506 $ 0 $ 78,893,131 Artwork 429,337 (5,000) 424,337 Construction in progress 25,385,454 (21,352,023) 8,355,027 (359,194) 12,029,264 Total assets not being depreciated 95,507,641 (12,173,248) 8,376,533 (364,394) 91,346,732

Capital assets being depreciated: Utilities 5,951,108 5,951,108 Land improvements 108,208,861 10,669,968 163,969 119,042,798 Buildings and improvements 213,176,356 336 521,971 213,698,663 Computer software 4,865,168 4,865,168 Furniture, fixtures, machinery and equipment 34,296,534 1,502,944 843,693 (836,493) 35,806,678

Total assets being depreciated 366,498,027 12,173,248 1,529,633 (836,493) 379,364,415

Less accumulated depreciation for: Utilities 5,509,965 96,477 5,606,442 Land improvements 66,726,249 4,636,891 71,363,140 Buildings and improvements 90,418,159 8,067,215 98,485,374 Computer software 4,730,024 135,144 4,865,168 Furniture, fixtures, machinery and equipment 17,211,900 2,110,647 (836,493) 18,486,054 184,596,297 0 15,046,374 (836,493) 198,806,178

Net capital assets being depreciated 181,901,730 12,173,248 (13,516,741) 0 180,558,237

Net capital assets $ 277,409,371 $ 0 $ (5,140,208) $ (364,194) $ 271,904,969

Depreciation expense was $15,204,456 and $15,046,374 for the years ended September 30, 2012 and 2011, respectively.

Invested in capital assets, net of related debt, as of September 30 is as follows:

2012 2011

Capital assets $ 488,808,421 $ 470,711,147 Less accumulated depreciation (213,773,466) (198,806,178) Less outstanding debt (66,239,463) (72,907,125) Invested in capital assets, net $ 208,795,492 $ 198,997,844

FINANCIALS 53 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2012 and 2011

NOTE 6 – DEFERRED REVENUES

The Authority has been awarded certain amounts by the Pima County Superior Court in connection with assets seized by Authority law enforcement officers (forfeiture funds) in narcotics investigations. Such amounts have been recorded as deferred revenues pending approval for expenditure by the Pima County Attorney’s Office. The Authority’s Board of Directors has approved the use of 25% of these funds for the Pima County Anti-Drug/Anti-Gang Program and the remainder for drug enforcement and prevention by the Authority’s Police Department.

At September 30, 2012 and 2011, the Authority had received rent from certain tenants and certain other payments applicable to the subsequent year. Such amounts have been classified as deferred revenue. A detail of deferred revenues at September 30, 2012 and 2011 follows:

2012 2011 Forfeiture funds $ 77,622 $ 25,552 Tenant rent payments 87,709 482,715 Rental car company advances 54,789 52,520 Total deferred revenues $ 220,120 $ 560,487

NOTE 7 – LONG-TERM DEBT

Long-term debt at September 30, 2012 and 2011 follows:

Beginning Ending balance Increases Decreases balance 2012 activity: Business-type activities: Authority bonds: 2001 subordinate lien $ 34,865,000 $ (1,040,000) $ 33,825,000 2003 refunding series senior lien 8,810,000 (4,300,000) 4,510,000 2006 subordinate lien airport revenue bonds 28,095,000 (1,190,000) 26,905,000 Total debt 71,770,000 $ 0 (6,530,000) 65,240,000 Less current portion (6,530,000) (325,000) (6,855,000) Noncurrent debt $ 65,240,000 $ 0 $ (6,855,000) $ 58,385,000

Beginning Ending balance Increases Decreases balance 2011 activity: Business-type activities: Authority bonds: 2001 series A, B and C senior lien $ 10,050,000 $ (10,050,000) $ 0 2001 subordinate lien 38,850,000 (985,000) 34,865,000 2003 refunding series senior lien 12,900,000 (4,090,000) 8,810,000 2006 subordinate lien airport revenue bonds 29,225,000 (1,130,000) 28,095,000 Total debt 88,025,000 $ 0 (16,225,000) 71,770,000 Less current portion (6,950,000) 420,000 (6,530,000) Noncurrent debt $ 81,075,000 $ 0 $ (15,835,000) $ 65,240,000

54 TUCSON AIRPORT AUTHORITY 2012 CAFR NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2012 and 2011

NOTE 7 – LONG-TERM DEBT (continued)

2012 2011

$41,580,000 Subordinate Lien Revenue Bonds, Series 2001. Bonds due in $ 33,825,000 $ 34,865,000 annual amounts, ranging from $715,000 to $2,720,000, June 1, 2004 through June 1, 2031; interest payable semiannually at 4.30% to 5.35%.

$37,830,000 Refunding Revenue Senior Lien Bonds, Series 2003. Bonds due 4,510,000 8,810,000 in annual amounts ranging from $3,165,000 to $4,510,000, June 1, 2004 through June 1, 2013; interest payable semiannually at 4.00% to 5.00%.

$32,110,000 Subordinate Lien Airport Revenue Bonds, Series 2006. Bonds due in annual amounts, ranging from $750,000 to $2,470,000, December 1, 2007 through December 1, 2026; interest payable semiannually at 4.25% to 5.00%. 26,905,000 28,095,000

$ 65,240,000 $ 71,770,000

FINANCIALS 55 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2012 and 2011

NOTE 7 – LONG-TERM DEBT (continued)

In March 1993, the Authority issued Airport Revenue Bonds Refunding Series 1993 (1993 Bonds). The net proceeds from the issuance of the 1993 Bonds were used to purchase government securities, and those securities were deposited in an irrevocable trust with an escrow agent until June 1993, when the trust paid in full the General Revenue Bonds, Series 1977 and 1983. As a result of the 1993 refunding, the Authority originally recognized a deferred loss of $3,844,848 in 1993. In June 2003, the Authority issued Airport Revenue Bonds Refunding series 2003 (2003 Bonds). The proceeds from the issuance of the 2003 Bonds were used to pay in full the 1993 Bonds. As a result of the 2003 refunding, the Authority recognized a deferred loss of $1,855,855 (inclusive of the remaining unamortized deferred loss of $1,120,455 from the 1993 Bonds), of which $25,355 has not been amortized at September 30, 2012.

In July 2001, the Authority issued Airport Revenue Bonds Refunding Series 2001 A, B and C (2001 Bonds). The net proceeds from the 2001 Bonds were invested in government securities and deposited with a refunding trust until August 2001 when the trust paid in full the Airport Revenue Bonds, Series 1990. As a result of the 2001 refunding, the Authority originally recognized a deferred loss of $875,665. During 2011, the remaining outstanding bonds were redeemed and all unamortized costs related to the bonds were expensed. The total of these unamortized costs, $403,565, is included in Special Items in the Statement of Revenues, Expenses and Changes in Net Assets.

The purpose of the refundings was to take advantage of lower interest rates, as well as to restructure future debt service payments. This refunding decreased the Authority’s total debt requirement and resulted in an economic gain (the difference between the present value of the debt service payments on the old and new debt) of $2,206,901. Amortization of the deferred losses on bond refunding totaled $62,208 and $145,766 for the years ended September 30, 2012 and 2011.

A summary of long-term debt service requirements to maturity as of September 30, 2012, including required annual principal installments to the bond fund of $65,240,000 and interest payments of $30,735,933 totaling $95,975,933 follows:

Airport Revenue Bonds Refunding Series 2003

Principal Interest Year ending September 30, 2013 $ 4,510,000 $ 150,333

Airport Subordinate Lien Airport Subordinate Lien Revenue Bonds, Series 2006 Revenue Bonds, Series 2001

Principal Interest Principal Interest

Year ending September 30, 2013 $ 1,250,000 $ 1,274,642 $ 1,095,000 $ 1,749,090 2014 1,305,000 1,209,850 1,150,000 1,693,423 2015 1,375,000 1,141,683 1,210,000 1,634,923 2016 1,440,000 1,070,225 1,270,000 1,573,423 2017 1,520,000 994,892 1,330,000 1,508,923 2018-2022 8,790,000 3,708,875 7,730,000 6,456,633 2023-2027 11,225,000 1,193,604 9,965,000 4,172,376 2028-2031 0 0 10,075,000 1,203,038 $ 26,905,000 $ 10,593,771 $ 33,825,000 $ 19,991,829

56 TUCSON AIRPORT AUTHORITY 2012 CAFR NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2012 and 2011

NOTE 7 – LONG-TERM DEBT (continued)

The Authority’s bond resolutions require periodic transfers from gross operating income to bond funds restricted for the payment of principal and interest. Other transfers to certain accounts are required by the bond resolutions after payment of operating and maintenance expenses. At September 30, 2012 and 2011, the Authority was in compliance with these and other bond resolution covenants.

Under U.S. Treasury regulations, all governmental tax-exempt debt issued after August 31, 1986, is subject to arbitrage rebate requirements. The requirements stipulate, in general, that the earnings from the investment of tax-exempt bond proceeds, which exceed related interest expenditure on the bonds, must be remitted to the Federal government on every fifth anniversary of each bond issue. The Authority’s practice is to engage an independent consultant to evaluate outstanding tax-exempt debt for arbitrage liability and the Authority is of the opinion that no liability has been incurred as of September 30, 2012.

The debt is secured by a lien on net revenues of the airport system.

NOTE 8 – ARIZONA STATE RETIREMENT SYSTEM

Substantially all full-time employees of the Authority (excluding fire and police personnel) participate in the Arizona State Retirement Plan (ASRP), a cost-sharing multiple-employer defined benefit pension plan. The plan is authorized under Title 38 of the Arizona Revised Statutes. The State of Arizona designates the management of the system, establishes the contribution rate, and has budgetary control. Arizona State Retirement System (ASRS) administers the ASRP and prepares the comprehensive annual financial report, which can be obtained by writing to ASRS, 3300 North Central Avenue, Suite 1300, Phoenix, Arizona 85012. The following information is based upon the most recent Comprehensive Annual Financial report of the ASRS for the year ended June 30, 2011.

The Plan provides for retirement, disability, health insurance premium benefits, and death and survivor benefits. Participants in the plan begin vesting after five years of total credited service and are fully vested after ten years of credited service. Participants hired before July 1, 2011 and attaining the earlier of ages 65 or 62 with 10 or more years of service or any combination of years of service and age which totals 80 are entitled to full retirement benefits. Participants hired after June 30, 2011 are entitled to full retirement benefits upon reaching age 60 and 25 years of service or age 55 and 30 years of service.

The monthly benefit is the product of the participant’s highest 36-month average compensation (highest 60-month compensation for participants hired after June 30, 2011) in the last 120 months of service, multiplied by his or her years of total credited service, multiplied by the respective benefit multiplier as defined in the plan. The plan permits early retirement at the age of 50 after the completion of at least 5 years of service, but at a reduced retirement benefit. In addition, active employees who become disabled receive up to two-thirds of their salary reduced by any public disability benefits to which the member is entitled, payable commencing 6 months after date of disability.

Disability benefits are paid until the employee returns to work, ceases to be under a physician’s care, or reaches normal retirement age. The minimum disability benefit is $50 per month. If an active employee dies, his or her designated beneficiary receives 2 times the amount of contributions made to the retirement plan plus any amounts transferred from other systems, together with interest at the valuation rate up until the month of death. The beneficiary receives a benefit, which may be paid in a single sum or, in some cases, in the form of a monthly annuity payment as defined in the plan.

If a member’s employment is terminated before the member is eligible for any other benefits under the ASRP, the member may receive a refund of all employee contributions made to his or her retirement account, plus interest at the determined rate, or the member may leave his or her contributions in the ASRP subject to normal retirement requirements.

FINANCIALS 57 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2012 and 2011

NOTE 8 – ARIZONA STATE RETIREMENT SYSTEM (continued)

Funding policy

Arizona Revised Statutes provide statutory authority for determining employees’ and employers’ contribution amounts. Employers are required to contribute at the same rate as employees. The current contribution rate for employees and the Authority is 10.9% for retirement and .24% for disability. The contribution rate for the two preceding years ended 2011 and 2010 was 10.50% for retirement and .25% for disability and 9.60% for retirement and .25% for disability, respectively. The actuarially determined rates effective July 1, 2013 are 11.3% for retirement and .24% for disability. Although the Statutes prescribe the basis of making the actuarial calculation, the Arizona legislature is authorized to set a contribution rate other than the actuarially determined rate.

Annual pension cost/actuarial information

The Authority’s annual pension cost for the years ended September 30, 2012, 2011, and 2010 was $1,194,689, $1,079,502 and $1,024,109 respectively, and was equal to the required and actual contributions. The contribution rates were actuarially determined using the Projected Unit Credit (PUC) funding method. The contribution rate consists of a factor to cover normal costs using the same actuarial assumptions used to compute the pension benefit obligation and a factor to amortize the under-funded past service liability. The actuarial assumptions used include (a) a rate of return on investments of 8.% per year, compounded annually; (b) projected salary increases of 4.0% to 9.0% per year; and (c) wage inflation rate of 3.25% per year.

The cost to the Authority for the long-term disability portion of the plan for the years ended September 30, 2012, 2011, and 2010 was $27,592, $28,031 and $40,901, respectively.

NOTE 9 – ARIZONA PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM

Plan description

Employees of the Authority who are employed in either police or firefighting capacities and work at least 40 hours a week for more than 6 months a year participate in the Arizona Public Safety Personnel Retirement System (APSPRS), an agent multiple- employer defined benefit pension plan. The plan provides retirement and disability benefits to members and death benefits to beneficiaries.

Based on Arizona Revised Statutes, normal retirement benefits commence after 20 years of service or following a participant’s 62nd birthday and completion of 15 years of service.

The amount of monthly normal pension is based on credited service and average monthly compensation as follows:

• For retirement with 25 or more years of credited service, 50% of average monthly compensation for the first 20 years of credited service, plus 2-1/2% of average monthly compensation for each year of credited service above 20 years.

• For retirement with 20 years of credited service but less than 25 years of credited service, 50% of average monthly compensation for the first 20 years of credited service, plus 2% of average monthly compensation for each year of credited service between 20 and 25 years.

• For retirement with less than 20 years of credited service, the percent of average monthly compensation is reduced at a rate of 4% for each year less than 20 years of credited service.

58 TUCSON AIRPORT AUTHORITY 2012 CAFR NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2012 and 2011

NOTE 9 – ARIZONA PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM (continued)

Plan description (continued)

The maximum amount payable as a normal retirement pension is 80% of the average monthly compensation.

A post-employment health insurance subsidy up to specified fixed amounts is payable on behalf of retired members and survivors who elect coverage provided by the state or participating employer. This portion of the APSPRS plan is considered an other post-employment benefit for purposes of GASB reporting requirements.

The APSPRS issues a publicly available financial report, which may be obtained by contacting the APSPRS in Phoenix, Arizona.

Funding policy

APSPRS members currently are required to contribute 9.55% of covered compensation, increasing to 10.35% on July 1, 2013. The Authority currently contributes at rates of 43.73% and 45.28% of fire and police employees’ covered compensation, respectively. Based on the June 30, 2012 valuation, these rates will change to 47.84% and 41.88%, respectively, effective July 1, 2013. These rates include the portions attributable to the health insurance subsidy, which currently are 1.42% and 1.31% of fire and police employees’ covered compensation, respectively. Based on the June 30, 2012 valuation, these rates will change to 1.42% and 1.31%, respectively, effective July 1, 2013. Contribution requirements are established and can be amended by the APSPRS Board of Trustees.

Annual pension cost

The Authority’s 2012 expense for fire and police employees was $396,227 and $507,309, respectively. The Authority’s 2011 expense for fire and police employees was $307,163 and $373,973, respectively.

The following is a summary of actuarial methods and assumptions used in the June 30, 2012 actuarial valuation for both the fire and police plans: Actuarial cost method Entry Age Normal Amortization method for unfunded actuarial accrued liability Level percent-of-pay closed Remaining amortization period 25 years for underfunded Asset valuation method 7-year smoothed market Actuarial assumptions: Inflation Rate 3.0% - 4.0% Investment rate of return 8.00% Projected salary increases 5.0% - 9.0% Payroll growth 5.0% Cost-of-living adjustment None Healthcare subsidy increase None Healthcare cost trend rate Not applicable

Due to the fixed nature of the health insurance subsidy amounts, no assumption regarding healthcare cost trend is applicable. Actuarial valuations for the healthcare subsidy involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. Healthcare subsidy actuarial calculations reflect a long-term perspective and are based on the benefits provided under the terms of the substantive plan in effect at the time of each valuation and on the pattern of sharing costs between the employer and plan member to that point. Actuarially determined amounts for the healthcare subsidy are subject to continual revision as results are compared to past expectations and new estimates are made about the future.

FINANCIALS 59 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2012 and 2011

NOTE 9 – ARIZONA PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM (continued)

The schedules of annual pension cost and net pension obligation are presented below:

Annual Percent Net pension Year ended pension cost contributed obligation

Fire: June 30, 2003 $ 72,207 100% $ 0 June 30, 2004 108,108 100% 0 June 30, 2005 112,407 100% 0 June 30, 2006 117,667 100% 0 June 30, 2007 152,088 100% 0 June 30, 2008 221,252 100% 0 June 30, 2009 298,654 100% 0 June 30, 2010 247,487 100% 0 June 30, 2011 303,114 100% 0 June 30, 2012 329,303 100% 0

Police: June 30, 2003 $ 186,651 100% $ 0 June 30, 2004 211,544 100% 0 June 30, 2005 190,448 100% 0 June 30, 2006 272,451 100% 0 June 30, 2007 260,268 100% 0 June 30, 2008 294,057 100% 0 June 30, 2009 404,424 100% 0 June 30, 2010 319,600 100% 0 June 30, 2011 432,749 100% 0 June 30, 2012 447,164 100% 0

60 TUCSON AIRPORT AUTHORITY 2012 CAFR NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2012 and 2011

NOTE 9 – ARIZONA PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM (continued)

The funding progress for pension (excluding health insurance subsidy beginning June 30, 2008) is shown below:

Actuarial UAAL as a Actuarial accrued Unfunded percentage Actuarial value of liability (AAL) AAL Funded Covered of covered valuation assets - entry age (UAAL) ratio payroll payroll date (a) (b) (b - a) (a / b) (c) ((b - a) / c)

Fire: 6/30/2003 $ 5,790,301 $ 5,671,232 $ (119,069) 102.1% $ 1,061,420 n/a 6/30/2004 5,891,494 6,256,501 365,007 94.2% 1,025,121 35.6% 6/30/2005 6,183,976 7,740,724 1,556,748 79.9% 954,433 163.1% 6/30/2006 6,307,344 9,528,264 3,220,920 66.2% 985,417 326.9% 6/30/2007 5,881,801 9,627,457 3,745,656 61.1% 788,663 474.9% 6/30/2008 6,087,926 9,456,407 3,368,481 64.4% 911,739 369.5% 6/30/2009 6,440,035 9,966,452 3,526,417 64.6% 892,311 395.2% 6/30/2010 5,977,197 10,075,072 4,097,875 59.3% 824,821 496.8% 6/30/2011 5,503,991 10,776,375 5,272,384 51.1% 919,603 573.3% 6/30/2012 5,026,584 11,451,157 6,424,573 43.9% 1,003,678 640.1%

Police: 6/30/2003 $ 4,390,145 $ 5,766,461 $ 1,376,316 76.1% $ 1,444,928 95.3% 6/30/2004 4,425,430 6,288,486 1,863,056 70.4% 1,217,106 153.1% 6/30/2005 4,303,343 7,400,691 3,097,348 58.1% 1,365,703 226.8% 6/30/2006 4,580,672 8,463,600 3,882,928 54.1% 1,475,964 263.1% 6/30/2007 4,510,430 9,071,003 4,560,573 49.7% 1,236,111 368.9% 6/30/2008 4,438,396 9,026,118 4,587,722 49.2% 1,537,319 298.4% 6/30/2009 4,757,324 9,737,336 4,980,012 48.9% 1,360,169 366.1% 6/30/2010 4,777,835 10,119,183 5,341,348 47.2% 1,220,399 437.7% 6/30/2011 4,468,359 10,968,644 6,500,285 40.7% 1,109,967 585.6% 6/30/2012 4,233,091 12,009,632 7,776,541 35.2% 1,430,042 543.8%

FINANCIALS 61 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2012 and 2011

NOTE 9 – ARIZONA PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM (continued)

The funding progress for the health insurance subsidy is shown below:

Actuarial UAAL as a Actuarial accrued Unfunded percentage Actuarial value of liability (AAL) AAL Funded Covered of covered valuation assets - entry age (UAAL) ratio payroll payroll date (a) (b) (b - a) (a / b) (c) ((b - a) / c)

Fire: 6/30/2006 $ 0 $ 255,757 $ 255,757 0.0% $ 985,417 26.0% 6/30/2007 0 290,078 290,078 0.0% 788,663 36.8% 6/30/2008 0 244,313 244,313 0.0% 911,739 26.8% 6/30/2009 0 216,799 216,799 0.0% 892,311 24.3% 6/30/2010 0 228,854 228,854 0.0% 824,321 27.7% 6/30/2011 0 228,507 228,507 0.0% 919,603 24.9% 6/30/2012 0 211,815 211,815 0.0% 1,003,678 21.1%

Police: 6/30/2006 $ 0 $ 223,046 $ 223,046 0.0% $ 1,475,964 15.1% 6/30/2007 0 216,890 216,890 0.0% 1,236,111 17.5% 6/30/2008 0 201,895 201,895 0.0% 1,537,319 13.1% 6/30/2009 0 209,813 209,813 0.0% 1,360,169 15.4% 6/30/2010 0 216,207 216,207 0.0% 1,220,399 17.7% 6/30/2011 0 248,093 248,093 0.0% 1,109,967 22.4% 6/30/2012 0 263,643 263,643 0.0% 1,430,042 18.4%

The annual required contributions for the health insurance subsidy are as follows: Normal Accrued Net Valuation Year Cost Liability Total Dollar Percent OPEB date Ended (a) (b ) (a + b) Amount Contributed Obligation

Fire: 6/30/2006 6/30/2008 0.50% 1.20% 1.72% $ 15,500 100% $ 0 6/30/2007 6/30/2009 0.62% 1.74% 2.36% 21,517 100% 0 6/30/2008 6/30/2010 0.50% 1.29% 1.79% 16,320 100% 0 6/30/2009 6/30/2011 0.61% 1.18% 1.79% 17,778 100% 0 6/30/2010 6/30/2012 0.60% 1.40% 2.00% 18,361 100% 0 6/30/2011 6/30/2013 0.34% 1.32% 1.66% 16,830 100% 0 6/30/2012 6/30/2014 0.31% 1.11% 1.42% 15,713 100% 0

Police: 6/30/2006 6/30/2008 0.48% 0.70% 1.18% $ 18,140 100% $ 0 6/30/2007 6/30/2009 0.72% 0.83% 1.55% 23,828 100% 0 6/30/2008 6/30/2010 0.52% 0.64% 1.16% 17,833 100% 0 6/30/2009 6/30/2011 0.61% 0.76% 1.37% 20,740 100% 0 6/30/2010 6/30/2012 0.65% 0.90% 1.55% 21,054 100% 0 6/30/2011 6/30/2013 0.44% 1.20% 1.64% 20,069 100% 0 6/30/2012 6/30/2014 0.34% 0.97% 1.31% 20,654 100% 0

Health insurance subsidy payments reported for the plan years ended June 30, 2012 and June 30, 2011 were $10,840 and $9,800 for fire and $11,475 and $6,542 for police, respectively. 62 TUCSON AIRPORT AUTHORITY 2012 CAFR NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2012 and 2011

NOTE 10 – OPERATING LEASES WITH LESSEES

The Authority is the lessor of various land, facilities and equipment within the Airport System. Lease contracts are generally written with noncancelable terms of up to 30 years. Costs and related accumulated depreciation of property under leases are not practically determinable as the majority of the leases relate only to portions of buildings.

A summary of minimum noncancelable rentals under operating leases at September 30, 2012 follows:

Year ending September 30, 2013 15,865,132 2014 6,731,712 2015 5,129,300 2016 4,370,077 2017 3,596,606 Thereafter 19,272,926 $ 54,965,753

Several lease agreements have provisions for contingent rentals calculated on the tenant’s gross revenue if greater than contractual minimum annual guarantees. The amount of contingent rental revenue under these leases totaled $293,000 and $285,000 for the years ended September 30, 2012 and 2011, respectively, and is included in concession revenues.

NOTE 11 – CONCENTRATION OF OPERATING REVENUES

Concession fees from the airport rental car operations amounted to approximately 16.5% of total operating revenues for the years ended September 30, 2012 and 2011. Net revenues from the airport parking lot operations amounted to approximately 13.2% and 12.8% of total operating revenues in the years ended September 30, 2012 and 2011, respectively.

NOTE 12 – PASSENGER FACILITY CHARGES

Passenger Facility Charges (PFCs) are collected in accordance with FAA regulations allowing airports to impose a charge on enplaning passengers. As described in the summary of significant accounting policies, the Authority was granted permission to begin collection of such charges in February 1998. The total amount of PFCs to be collected under this FAA approved application was based on the estimated costs of approved PFC projects. The FAA approval letter provided total aggregate collection authority of $101,234,420.

In April 2006, the FAA approved an amendment to the approved PFC application. The amendment approved an increase in the collection level from $3 to $4.50 for the following projects of the Authority: terminal expansion, land acquisition for airport expansion and land acquisition for noise mitigation. In June 2006, the FAA approved an additional application to include the concourse renovation project. The total effect of approved applications and amendments results in total aggregate collection authority of $144,656,372. The increase in rate was effective October 1, 2006. During the years ended September 30, 2012 and 2011, the Authority earned PFCs of $6,884,959 and $7,064,714, respectively.

In accordance with FAA regulations, based on the approval date and continuing through September 30, 2012, the Authority’s share of entitlement grants was reduced 50% while at the $3.00 collection level and 75% while at the $4.50 collection level. The FAA has changed the hub status of TAA from medium to small beginning October 1, 2012. Consequently there will be no entitlement grant reduction beginning with the year ending September 30, 2013. Entitlement grants totaled $1,349,455 and $1,206,384 for the years ended September 30, 2012 and 2011, respectively, and are estimated to be approximately $4,934,504 for the year ended September 30, 2013.

FINANCIALS 63 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2012 and 2011

NOTE 13 – RISK MANAGEMENT

The Authority is exposed to various risks or losses related to torts, theft of, damage to and destruction of assets, errors and omissions, injuries to employees, and natural disasters. The Authority’s risk management activities include purchase of commercial insurance with standard deductibles for all significant insurable risks. There have been no significant reductions in insurance coverage in the last year. The amounts of settlements have not exceeded insurance coverage for the past four years. Other than for certain environmental remediation liabilities as discussed in Note 15, the financial statements do not include any liability for uninsured claims at September 30, 2012 and 2011.

Losses arising from claims and judgments are expensed when 1) it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements; and 2) the amount of the loss can be reasonably estimated.

NOTE 14 – COMMITMENTS

Commitments for contractual services for federally funded and other construction projects at September 30, 2012 totaled approximately $9,804,273. These commitments will be funded in whole or in part by federal and state grants of $8,126,198 and the Authority’s previously issued revenue bonds and Authority funds, as necessary, of $1,678,075.

In connection with their law enforcement responsibilities, the Authority’s police department confiscates cash from suspected felons. Assets held by the Authority totaled $15,817 and $16,159 at September 30, 2012 and 2011, respectively. The Authority has established a bank account to maintain these funds. At September 30, 2012 and 2011, the Authority has recorded an offsetting liability for those assets held in trust and has included this liability in deferred revenue on the accompanying Statements of Net Assets.

NOTE 15 – ENVIRONMENTAL MATTERS, LITIGATION AND CONTINGENCIES

Groundwater Remediation (“TARP Consent Decree”) and Soils/Vadose Zone Remediation (“Soils Consent Decree”):

In 1991, the Authority and other obligated parties entered into the Tucson Airport Remediation Project (TARP) Consent Decree with the Environmental Protection Agency (EPA). The TARP Consent Decree requires performance of and funding for certain groundwater remediation activities.

In 1999, the Authority and other obligated parties entered into another Consent Decree (the “Soils Consent Decree”) with the EPA. The Soils Consent Decree requires performance of and funding for certain soil and shallow groundwater remediation activities on Authority property.

In 1999, the Authority and several other parties entered into a settlement pursuant to which other parties paid certain amounts to TAA, there was an allocation of responsibility for obligations under both of the above-referenced Consent Decrees, and the Authority funded a trust for the purpose of providing primary funding for the Authority’s financial responsibilities under the Consent Decrees. The Trust is referred to as the “Environmental Remediation Trust.”

As a result of the 1999 settlement, the Authority is obligated to pay 100% of the costs associated with the TARP Consent Decree and 80% of the costs of the work required under the Soils Consent Decree. Two other parties are each obligated to pay 10% of the costs of the work required under the Soils Consent Decree, for a combined obligation of 20%. It is assumed that in the future these two parties will continue to meet their payment obligations for purposes of calculating the Authority’s environmental liability.

64 TUCSON AIRPORT AUTHORITY 2012 CAFR NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2012 and 2011

NOTE 15 – ENVIRONMENTAL MATTERS, LITIGATION AND CONTINGENCIES (continued)

The liability for remediation obligations is calculated using the expected cash flow technique, which measures the liability as the sum of probability-weighted amounts in a range of possible expected amounts – the estimated mean or average. This technique uses all expectations about possible cash flows. Estimated future cash outlays are based on existing technologies currently in use to perform the required remediation, stated at current value. These outlays include all operation and maintenance costs, remediation monitoring costs (including post-remediation monitoring), regulatory oversight costs, and facility construction costs. These costs are subject to potentially significant future price increases or decreases for materials, utilities and labor.

Changes in the estimated environmental remediation liability for the years ended September 30, 2012 and 2011 follow:

2012 2011

Environmental remediation liability, beginning of year $ 31,248,319 $ 33,527,630 Current year expense 1,420,602 834,444 Investment earnings on Environmental Remediation Trust assets 20 11,670 Current year payments (3,943,764) (3,125,425) Environmental remediation liability, end of year $ 28,725,177 $ 31,248,319

Environmental remediation liability: Current - payable from restricted assets $ 3,503,223 $ 5,112,362 Current - payable from unrestricted assets 119,036 Long-term - payable from restricted assets 0 2,334,605 Long-term - payable from unrestricted assets 25,102,918 23,801,352 $ 28,725,177 $ 31,248,319

Trust assets available, end of year $ 3,503,223 $ 7,446,967

1,4 Dioxane Remedial Investigation and Feasibility Study

In a letter dated July 17, 2008, the U.S. EPA requested that the Authority, the City of Tucson, the U.S. Air Force, Boeing Corporation and Raytheon Corporation conduct a Remedial Investigation and Feasibility Study regarding 1,4 Dioxane in the regional groundwater aquifer near Tucson International Airport. This contaminant is not addressed in or covered by the TARP Consent Decree. The Authority has taken the position that it is not responsible for this contamination and another party has agreed to perform a substantial portion of the work demanded. The Authority is currently unable to determine the probability of an unfavorable outcome, if any, related to this matter.

FINANCIALS 65 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2012 and 2011

NOTE 15 – ENVIRONMENTAL MATTERS, LITIGATION AND CONTINGENCIES (continued)

Landfill Investigation

On April 18, 2007, the Arizona Department of Environmental Quality (“ADEQ”) sent the Authority a request for information in connection with ADEQ’s investigation of groundwater contamination near the Broadway North Landfill (“BNL”) in Tucson, which is part of the Broadway-Pantano Water Quality Assurance Fund Registry Site (“Site”). Similar requests were also sent to many other entities. The request related to waste purportedly generated by the Authority and its tenants at Tucson International Airport and Ryan Airfield between 1961 and 1972 and that ADEQ alleged may have been transported to BNL. On May 15, 2007, ADEQ sent a letter to the Authority and many other entities notifying each entity that it may be a responsible party for the Site and that a remedial investigation and feasibility study designed to identify a remedy were being conducted. The Authority is unable to determine the probability of an unfavorable outcome, if any, related to this matter.

Federal and State Grants

All federal and state grants are subject to audit by the granting agencies for compliance with applicable grant requirements. The Authority anticipates that the amount, if any, of disallowed grant expenditures in the event of granting agency audits would be immaterial.

Other Contingencies

The Authority is involved in other claims in the ordinary course of business. In the opinion of management, based on consultations with legal counsel, these matters are considered immaterial to the Authority or will be covered by insurance.

The Authority has significant contracts and leases that include contingent amounts due to the Authority based upon revenues of the lessees and concessionaires. The Authority monitors such agreements and includes adjustments in the revenues earned under the contracts when such amounts are collected or a negotiated settlement has been reached with the respective lessee/ concessionaire.

NOTE 16 – OPERATING LEASE

The Authority leases office equipment under a noncancelable operating lease expiring in September 2014. In addition to monthly rental payments, additional charges for certain usage may apply. Future minimum lease payments required under the operating lease are as follows:

Year ending September 30, 2013 $ 55,433 2014 55,433 $ 110,866

Rental expenses for the years ended September 30, 2012 and 2011 were $56,000 and $56,000, respectively.

66 TUCSON AIRPORT AUTHORITY 2012 CAFR This page intentionally left blank. This page intentionally left blank.

STATISTICAL SECTION

TABLE OF CONTENTS PAGES

Financial Trends 72-73 These schedules contain trend information to help the reader understand how the Authority’s financial performance and well-being have changed over time.

Revenue Capacity 74-77 These schedules contain information to help the reader assess the factors affecting the Authority’s ability to generate its airline and non-airline revenues.

Debt Capacity 78-81 These schedules present information to help the reader assess the affordability of the Authority’s current levels of outstanding debt and its ability to issue additional debt in the future.

Demographic and Economic Information 82-85 These schedules offer demographic and economic indicators to help the reader understand the environment within which the Authority’s financial activities take place and to help make comparisons over time with other airports

Operating Information 86-98 These schedules contain information about the Authority’s operations and resources to help the reader understand how its financial information relates to the services the Authority provides and the activities it performs.

STATISTICAL 71 NET ASSETS AND CHANGES IN NET ASSETS Fiscal Years Ended September 30 2003 2004 2005 2006 Operating revenues Landing fees $ 3,005,040 $ 2,942,919 $ 3,236,284 $ 3,271,027 Space rentals 10,740,247 10,992,258 12,357,922 13,284,485 Land rent 2,166,000 2,400,905 2,414,854 2,407,852 Concession revenue 11,340,754 12,619,269 13,751,539 15,048,512 Product sales 3,092,533 4,479,776 4,511,370 4,762,575 Airport services 3,238,587 3,404,943 3,306,136 3,433,166 Other operating revenues 4,306,369 4,636,337 4,950,461 5,197,505 Total operating revenues 37,889,530 41,476,407 44,528,566 47,405,122

Nonoperating revenues Interest income 1,566,081 751,770 1,129,347 2,830,181 Passenger facility charges 4,907,636 5,039,403 5,351,062 5,510,943 Other non-operating revenues 115 57,554 18,478 153,626 Total non-operating revenues 6,473,832 5,848,727 6,498,887 8,494,750

Total revenues 44,363,362 47,325,134 51,027,453 55,899,872

Operating expenses Personnel expenses 14,825,829 15,574,112 16,414,949 17,869,467 Contractual services 5,842,420 6,104,801 5,885,644 5,858,967 Materials and supplies 1,277,074 1,245,899 1,432,318 1,432,059 Cost of product sales 1,882,699 2,966,217 3,099,020 3,403,189 Other operating expenses 1,659,419 1,633,337 2,054,827 1,573,256 Depreciation and amortization 9,319,630 9,235,438 10,761,153 11,522,975 Total operating expenses 34,807,071 36,759,804 39,647,911 41,659,913

Non-operating expenses Interest expense and fiscal charges 3,615,382 2,534,983 4,221,701 4,505,016 Environmental remediation expenses (1) 491,491 552,983 - 1,120,745 Other nonoperating expenses 802,615 86,004 4,190 - Total non-operating expenses 4,909,488 3,173,970 4,225,891 5,625,761

Total expenses 39,716,559 39,933,774 43,873,802 47,285,674

Capital contributions 6,167,149 7,059,210 10,201,190 13,483,783 Special item - Loss on asset impairment (175,997) (3,071,953)

Increase in net assets $ 10,813,952 $ 14,450,570 $ 17,178,844 $ 19,026,028

Net assets at year-end (1) Invested in capital assets, net of related debt $ 105,450,740 $ 124,599,573 $ 138,869,887 $ 152,760,570 Restricted 23,401,918 12,744,246 7,981,267 9,919,281 Unrestricted 42,176,329 48,135,738 55,807,247 59,004,578 Total net assets $ 171,028,987 $ 185,479,557 $ 202,658,401 $ 221,684,429

(1) See note 15 in the financial section of this report for additional environmental remediation information. (2) Beginning with the year ending September 30, 2008 environmental remediation expenses are reported in accordance with GASB Statement No. 49, Accounting and Reporting for Pollution Remediation Obligations. See Note 15 for additional details. Beginning net assets for the year ending September 30, 2008 have been restated to reflect this change.

Source: Authority audited financial statements.

72 TUCSON AIRPORT AUTHORITY 2012 CAFR 2007 2008 2009 2010 2011 2012

$ 4,091,446 $ 4,514,982 $ 3,955,954 $ 3,716,258 $ 3,218,611 $ 3,065,212 13,677,431 14,982,283 14,642,735 14,271,708 14,464,321 14,404,808 2,410,087 2,358,601 2,485,048 2,632,103 2,694,612 2,639,679 17,706,891 18,082,017 15,914,805 16,451,297 16,978,230 16,717,118 5,079,304 5,434,965 2,959,860 3,111,248 3,386,663 2,624,936 3,257,465 3,567,743 3,244,457 3,997,120 4,016,841 3,626,002 5,044,216 6,120,531 4,308,162 4,577,805 4,634,781 4,764,771 51,266,840 55,061,122 47,511,021 48,757,539 49,394,059 47,842,526

4,303,866 3,758,394 1,947,288 1,104,984 850,527 757,378 8,837,539 8,564,157 7,221,319 7,418,447 7,064,714 6,884,959 6,289 (128,747) 590,487 (263,931) 97,930 7,813 13,147,694 12,193,804 9,759,094 8,259,500 8,013,171 7,650,150

64,414,534 67,254,926 57,270,115 57,017,039 57,407,230 55,492,676

18,726,957 19,436,788 19,289,037 18,338,923 18,565,829 18,813,878 5,981,561 6,700,706 6,268,927 6,064,411 6,301,918 5,759,286 1,448,754 1,604,514 1,197,635 1,264,250 1,390,653 1,405,494 3,800,984 4,320,579 2,108,804 2,260,029 2,612,723 2,063,364 1,629,556 1,671,420 1,346,920 1,090,153 1,274,401 1,244,705 11,530,943 13,470,556 16,530,294 16,783,060 15,298,186 15,386,500 43,118,755 47,204,563 46,741,617 45,800,826 45,443,710 44,673,227

4,173,111 3,714,983 4,872,368 4,591,809 4,252,272 3,373,283 1,960,058 599,092 6,128,082 4,707,923 834,444 1,420,602 14,008 14,491 26,950 - 1,896 13,216 6,147,177 4,328,566 11,027,400 9,299,732 5,088,612 4,807,101

49,265,932 51,533,129 57,769,017 55,100,558 50,532,322 49,480,328

15,197,348 8,765,633 9,196,017 15,868,166 8,606,611 12,633,202 (17,208) (34,460) (14,063) (1,891,123) (403,565) -

$ 30,328,742 $ 24,452,970 $ 8,683,052 $ 15,893,524 $ 15,077,954 $ 18,645,550

$ 158,023,312 $ 168,169,113 $ 176,927,712 $ 188,439,666 $ 198,997,844 $ 208,795,492 17,902,932 21,705,586 26,738,088 29,259,452 31,135,480 33,221,914 76,086,927 76,554,134 71,446,085 73,306,291 75,950,039 82,711,507 $ 252,013,171 $ 266,428,833 $ 275,111,885 $ 291,005,409 $ 306,083,363 $ 324,728,913

STATISTICAL 73 PRINCIPAL REVENUE SOURCES Fiscal Years Ended September 30

2003 2004 2005 2006 Passenger airline rates and charges Landing fees $ 2,801,497 $ 2,708,774 $ 2,938,477 $ 2,895,754 Terminal rentals 6,161,570 6,491,412 7,504,797 8,154,409 Security fees 800,376 1,336,818 1,300,663 1,048,764 Terminal use fees 448,119 475,440 31,590 33,477 Custodial, equipment and parking 512,738 545,118 561,406 613,293 Total passenger airline rates and charges 10,724,300 11,557,562 12,336,933 12,745,697

Concession revenues Parking lots 5,074,806 6,111,597 6,666,905 7,045,309 Rental cars 4,607,424 4,755,957 5,227,812 5,949,881 News and gift 737,330 799,003 830,464 816,263 Food and beverage 461,105 501,566 582,156 675,307 Other 460,089 451,146 444,202 561,752 Total concession revenues 11,340,754 12,619,269 13,751,539 15,048,512

Other operating revenues Space rental 3,667,336 3,621,800 4,113,652 4,290,870 Land rent 2,166,000 2,400,905 2,414,854 2,407,852 Tenant finishes 769,405 661,297 351,192 470,053 Cargo airline landing fees 183,296 234,145 297,807 306,016 Air cargo space rentals 211,985 293,424 480,797 369,153 Fuel flowage 1,847,161 1,820,596 2,524,563 2,645,255 TSA reimbursements 339,923 305,002 307,495 329,951 Rental car customer facility charges 900,841 927,213 1,009,145 1,096,273 General aviation product sales 3,092,533 4,479,776 4,511,370 4,762,575 Other 2,645,996 2,555,418 2,429,219 2,932,915 Total other operating revenues 15,824,476 17,299,576 18,440,094 19,610,913

Total operating revenues 37,889,530 41,476,407 44,528,566 47,405,122

Non-operating revenues Interest income 1,566,081 751,770 1,129,347 2,830,181 Passenger facility charges 4,907,636 5,039,403 5,351,062 5,510,943 Other non-operating revenues 115 57,554 18,478 153,626 Total non-operating revenues 6,473,832 5,848,727 6,498,887 8,494,750

Total revenues $ 44,363,362 $ 47,325,134 $ 51,027,453 $ 55,899,872

Source: Authority audited financial statements and records.

74 TUCSON AIRPORT AUTHORITY 2012 CAFR 2007 2008 2009 2010 2011 2012

$ 3,652,290 $ 4,065,168 $ 3,530,022 $ 3,319,897 $ 2,919,614 $ 2,787,533 8,374,134 8,601,069 8,408,438 8,183,398 8,444,687 $ 8,604,629 869,004 968,220 1,152,120 1,780,152 1,757,292 1,673,772 32,017 50,262 26,379 18,579 - - 447,692 475,761 360,384 348,516 353,069 295,335 13,375,137 14,160,480 13,477,343 13,650,542 13,474,662 13,361,269

7,802,071 8,276,347 6,355,839 6,142,297 6,305,069 6,299,860 7,249,854 6,930,285 7,100,966 7,701,287 8,157,476 7,941,530 785,138 869,755 742,644 755,931 707,181 677,861 1,117,886 1,228,100 1,015,971 1,079,669 1,117,322 1,118,681 751,942 777,530 699,386 772,112 691,181 679,186 17,706,891 18,082,017 15,914,806 16,451,296 16,978,229 16,717,118

4,665,758 5,704,270 5,617,955 5,597,873 5,541,202 5,315,138 2,410,087 2,358,601 2,485,048 2,632,103 2,694,612 2,639,679 330,270 330,270 330,270 224,621 249,221 226,888 309,500 345,236 298,302 232,481 200,488 203,776 307,269 288,308 286,072 265,816 229,211 258,153 2,648,461 2,780,578 1,989,537 2,173,138 2,033,772 1,949,201 473,784 503,811 534,701 506,675 476,118 527,436 1,043,219 1,421,868 1,105,380 1,100,777 1,148,769 1,168,421 5,079,304 5,434,965 2,959,860 3,111,248 3,386,663 2,624,936 2,917,160 3,650,718 2,511,747 2,810,969 2,981,112 2,850,511 20,184,812 22,818,625 18,118,872 18,655,701 18,941,168 17,764,139

51,266,840 55,061,122 47,511,021 48,757,539 49,394,059 47,842,526

4,303,866 3,758,394 1,947,288 1,104,984 850,527 757,378 8,837,539 8,564,157 7,221,319 7,418,447 7,064,714 6,884,959 6,289 (128,747) 590,487 (263,931) 97,930 7,813 13,147,694 12,193,804 9,759,094 8,259,500 8,013,171 7,650,150

$ 64,414,534 $ 67,254,926 $ 57,270,115 $ 57,017,039 $ 57,407,230 $ 55,492,676

STATISTICAL 75 PRINCIPAL REVENUE SOURCE RATIOS Fiscal Years Ended September 30 2003 2004 2005 2006 Passenger airline rates and charges as a percentage of total operating revenues 28.3% 27.9% 27.7% 26.9%

Concession revenues as a percentage of total operating revenues 29.9% 30.4% 30.9% 31.7%

Non-passenger airline revenues as a percentage of total operating revenues 71.7% 72.1% 72.3% 73.1%

Enplaned passengers 1,766,859 1,841,791 2,023,785 2,120,996

Airline cost per enplaned passenger $ 6.07 $ 6.28 $ 6.10 $ 6.01

Concession revenues per enplaned passenger $ 6.42 $ 6.85 $ 6.79 $ 7.10

Operating revenues per enplaned passenger $ 21.44 $ 22.52 $ 22.00 $ 22.35

Total revenues per enplaned passenger $ 25.11 $ 25.70 $ 25.21 $ 26.36

Source: Enplaned passengers as reported by airlines.

RATES AND CHARGES Fiscal Years Ended September 30

2003 2004 2005 2006 Signatory airlines Landing fee (per 1,000 lbs.) $ 1.20 $ 1.20 $ 1.20 $ 1.18 Ticketing space (per sq. ft. per year) $ 61.88 $ 61.88 $ 63.87 $ 63.87 Baggage claim (per sq. ft. per year) $ 58.68 $ 58.68 $ 60.57 $ 60.57 Baggage makeup (per sq. ft. per year) $ 37.12 $ 37.12 $ 38.32 $ 38.32 Baggage claim office (per sq. ft. per year) $ 61.88 $ 61.88 $ 63.87 $ 63.87 Operations space (per sq. ft. per year) $ 52.58 $ 52.58 $ 54.27 $ 54.27 Hold room (per sq. ft. per year) $ 52.58 $ 52.58 $ 54.27 $ 54.27 Hold room (per gate per year) N.A. N.A. N.A. N.A. Aircraft parking position (per gate per year) $ 6,480.48 $ 6,480.48 $ 6,689.28 $ 6,689.28

Parking Hourly lot (per hour) $ 1.25 $ 2.00 $ 2.00 $ 2.00 Daily lot (per day) $ 6.00 $ 8.00 $ 8.00 $ 8.00 Garage (per day Oct - Mar) N.A. N.A. N.A. N.A. Garage (per day Apr - Sep) N.A. N.A. N.A. N.A. Economy uncovered (per day) $ 4.00 $ 4.00 $ 4.00 $ 4.00 Economy covered (per day Oct. - Mar.) N.A. N.A. N.A. $ 6.00 Economy covered (per day Apr. - Sep.) N.A. N.A. N.A. $ 8.00

Rental car privilege fee (% of gross receipts) On-airport operators 10.0% 10.0% 10.0% 10.0% Off-airport operators 7.5% 7.5% 7.5% 7.5%

N.A.: Not applicable. Source: Authority records.

76 TUCSON AIRPORT AUTHORITY 2012 CAFR 2007 2008 2009 2010 2011 2012

26.1% 25.7% 28.4% 28.0% 27.3% 27.9%

34.5% 32.8% 33.5% 33.7% 34.4% 34.9%

73.9% 74.3% 71.6% 72.0% 72.7% 72.1%

2,195,493 2,202,373 1,837,175 1,855,615 1,841,834 1,826,046

$ 6.09 $ 6.43 $ 7.34 $ 7.36 $ 7.32 $ 7.32

$ 8.07 $ 8.21 $ 8.66 $ 8.87 $ 9.22 $ 9.15

$ 23.35 $ 25.00 $ 25.86 $ 26.28 $ 26.82 $ 26.20

$ 29.34 $ 30.54 $ 31.17 $ 30.73 $ 31.17 $ 30.39

2007 2008 2009 2010 2011 2012

$ 1.40 $ 1.51 $ 1.65 $ 1.55 $ 1.35 $ 1.32 $ 67.44 $ 67.44 $ 71.44 $ 71.44 $ 73.86 $ 73.86 $ 63.95 $ 63.95 $ 67.74 $ 67.74 $ 70.04 $ 70.04 $ 40.46 $ 40.46 $ 42.86 $ 23.80 $ 24.61 $ 24.61 $ 67.44 $ 67.44 $ 71.44 $ 71.44 $ 73.86 $ 73.86 $ 57.30 $ 57.30 $ 60.70 $ 60.70 $ 62.76 $ 62.76 N.A. N.A. N.A. N.A. N.A. N.A. $ 98,333.04 $ 98,333.04 $ 104,163.41 $ 105,152.00 $ 107,700.75 $ 107,700.75 $ 7,055.18 $ 7,055.18 $ 7,473.50 $ 7,473.50 $ 7,726.84 $ 7,726.84

$ 2.00 $ 2.00 $ 2.00 $ 2.00 $ 2.00 $ 2.00 $ 9.00 $ 9.00 $ 9.00 $ 9.00 $ 9.00 $ 9.00 N.A. $ 9.00 $ 9.00 $ 9.00 $ 9.00 $ 9.00 $ 13.00 $ 13.00 $ 11.00 $ 9.00 $ 9.00 $ 9.00 $ 4.00 $ 4.00 $ 4.00 $ 4.00 $ 4.00 $ 4.00 $ 6.00 $ 6.00 $ 5.00 $ 5.00 $ 5.00 $ 5.00 $ 8.00 $ 8.00 $ 6.00 $ 5.00 $ 5.00 $ 5.00

10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%

STATISTICAL 77 RATIOS OF OUTSTANDING DEBT, DEBT SERVICE AND DEBT LIMITS Fiscal Years Ended September 30 2003 2004 2005 2006 Outstanding Debt Ratios Outstanding debt by type Senior lien revenue bonds $ 52,220,000 $ 48,520,000 $ 44,680,000 $ 40,670,000 Subordinate lien revenue bonds 41,580,000 40,865,000 40,115,000 39,335,000 Junior subordinate lien revenue bonds 6,815,000 6,815,000 6,815,000 6,815,000 Notes payable 250,665 213,927 175,067 133,962 Total outstanding debt $ 100,865,665 $ 96,413,927 $ 91,785,067 $ 86,953,962

Enplaned passengers 1,766,859 1,841,791 2,023,785 2,120,996 Outstanding debt per enplaned passenger $ 57.09 $ 52.35 $ 45.35 $ 41.00

Operating revenues $ 37,889,530 $ 41,476,407 $ 44,528,566 $ 47,405,122 Ratio of outstanding debt to operating revenues 2.66 2.32 2.06 1.83

Total revenues $ 44,363,362 $ 47,325,134 $ 51,027,453 $ 55,899,872 Ratio of outstanding debt to total revenues 2.27 2.04 1.80 1.56

Debt Service Ratios Debt service Principal (1) $ 3,555,071 $ 4,512,193 $ 4,628,860 $ 4,896,105 Interest 5,160,533 4,529,233 4,512,155 4,385,872 Total debt service $ 8,715,604 $ 9,041,426 $ 9,141,015 $ 9,281,977

Debt service per enplaned passenger $ 4.93 $ 4.91 $ 4.52 $ 4.38

Total expenses $ 39,716,559 $ 39,933,774 $ 43,873,802 $ 47,285,674 Ratio of debt service to total expenses 0.22 0.23 0.21 0.20

Debt Limit (2) N.A. N.A. N.A. N.A.

(1) Excludes amounts paid for early retirement of debt. (2) The Authority has no statutory debt limit. Senior lien revenue bond limits would be calculated through an additional bonds test (ABT) established in the Authority’s senior lien bond resolution.

Source: Authority audited financial statements.

78 TUCSON AIRPORT AUTHORITY 2012 CAFR 2007 2008 2009 2010 2011 2012

$ 36,500,000 $ 32,155,000 $ 27,630,000 $ 22,950,000 $ 8,810,000 $ 4,510,000 70,630,000 69,030,000 67,095,000 65,075,000 62,960,000 60,730,000 6,815,000 3,635,000 3,635,000 - - - 90,482 44,490 - - - - $ 114,035,482 $ 104,864,490 $ 98,360,000 $ 88,025,000 $ 71,770,000 $ 65,240,000

2,195,493 2,202,373 1,837,175 1,855,615 1,841,834 1,826,046 $ 51.94 $ 47.61 $ 53.54 $ 47.44 $ 38.97 $ 35.73

$ 51,266,840 $ 55,061,122 $ 47,511,021 $ 48,757,539 $ 49,394,059 $ 47,842,526 2.22 1.90 2.07 1.81 1.45 1.36

$ 64,414,534 $ 67,254,926 $ 57,270,115 $ 57,017,039 $ 57,407,230 $ 55,492,676 1.77 1.56 1.72 1.54 1.25 1.18

$ 5,028,480 $ 5,990,992 $ 6,504,490 $ 6,700,000 $ 6,950,000 $ 6,530,000 4,991,062 5,403,934 5,135,005 4,775,942 4,761,308 3,621,515 $ 10,019,542 $ 11,394,926 $ 11,639,495 $ 11,475,942 $ 11,711,308 $ 10,151,515

$ 4.56 $ 5.17 $ 6.34 $ 6.18 $ 6.36 $ 5.56

$ 49,265,932 $ 51,533,129 $ 57,769,017 $ 55,100,558 $ 50,532,322 $ 49,480,328 0.20 0.22 0.20 0.21 0.23 0.21

N.A. N.A. N.A. N.A. N.A. N.A.

STATISTICAL 79 AIRPORT REVENUE BOND COVERAGE PER BOND RESOLUTIONS Fiscal Years Ended September 30 2003 2004 2005 2006 Senior Lien Revenue Bond Debt Service Coverage Operating revenues $ 37,889,530 $ 41,476,407 $ 44,528,566 $ 47,405,122 Interest income (1) 948,175 413,604 792,395 2,060,252 Transfer from airline reserve fund (2) 1,946,342 1,850,886 1,850,387 1,832,748 Total revenues 40,784,047 43,740,897 47,171,348 51,298,122 Operation and maintenance expenses (25,487,441) (27,524,366) (28,886,758) (30,136,938) Net revenues 15,296,606 16,216,531 18,284,590 21,161,184

Senior lien debt service requirement Series 1993 refunding 4,534,552 - - - Series 2001A,B,C 1,310,373 1,307,602 1,309,979 1,307,615 Series 2003 refunding 380,374 4,733,829 4,723,008 4,735,763 Total senior lien debt service $ 6,225,299 $ 6,041,431 $ 6,032,987 $ 6,043,378

Senior lien revenue bond debt service coverage 2.46 2.68 3.03 3.50 Required minimum coverage 1.25 1.25 1.25 1.25

Subordinate Lien Revenue Bond Debt Service Coverage Net revenues $ 15,296,606 $ 16,216,531 $ 18,284,590 $ 21,161,184 PFC revenues transferred for subordinate lien debt service 2,385,278 2,863,363 2,866,200 2,864,437 Subtotal 17,681,884 19,079,894 21,150,790 24,025,621 Senior lien debt service (6,225,299) (6,041,431) (6,032,987) (6,043,378) Net revenues available for subordinate lien debt service 11,456,585 13,038,463 15,117,803 17,982,243

Subordinate lien debt service requirement Series 2001 2,385,278 2,863,363 2,866,200 2,864,437 Series 2006 - - - - Total subordinate lien debt service $ 2,385,278 $ 2,863,363 $ 2,866,200 $ 2,864,437

Subordinate lien revenue bond debt service coverage 4.80 4.55 5.27 6.28 Required minimum coverage 1.10 1.10 1.10 1.10

Total Revenue Bond Debt Service Coverage Net revenues $ 15,296,606 $ 16,216,531 $ 18,284,590 $ 21,161,184 PFC revenues transferred for subordinate lien debt service 2,385,278 2,863,363 2,866,200 2,864,437 Subtotal 17,681,884 19,079,894 21,150,790 24,025,621

Total revenue bond debt service requirement Senior lien bonds 6,225,299 6,041,431 6,032,987 6,043,378 Subordinate lien bonds 2,385,278 2,863,363 2,866,200 2,864,437 Junior subordinate lien bonds 55,115 86,721 191,917 324,251 Total revenue bond debt service $ 8,665,692 $ 8,991,515 $ 9,091,104 $ 9,232,066

Total revenue bond debt service coverage 2.04 2.12 2.33 2.60 Required minimum coverage 1.00 1.00 1.00 1.00

(1) Net revenues per the Authority’s bond resolutions excludes interest income on restricted funds and certain unrestricted insurance proceeds. (2) This amount is calculated in accordance with the airport use agreement. See the introduction letter for a description of the Authority’s airport use agreement.

80 TUCSON AIRPORT AUTHORITY 2012 CAFR 2007 2008 2009 2010 2011 2012

$ 51,266,840 $ 55,061,122 $ 47,511,021 $ 48,757,539 $ 49,394,059 $ 47,842,526 3,119,822 2,684,419 1,290,242 675,665 483,890 423,027 1,830,935 2,354,525 2,078,826 4,471,531 2,217,351 1,867,127 56,217,597 60,100,066 50,880,089 53,904,735 52,095,300 50,132,680 (31,587,812) (33,734,007) (30,211,323) (29,017,766) (30,145,524) (29,286,727) 24,629,785 26,366,059 20,668,766 24,886,969 21,949,776 20,845,953

------1,305,469 1,305,996 1,307,268 1,309,878 1,307,078 - 4,734,563 4,737,362 4,739,196 4,737,575 4,736,833 4,738,833 $ 6,040,032 $ 6,043,358 $ 6,046,464 $ 6,047,453 $ 6,043,911 $ 4,738,833

4.08 4.36 3.42 4.12 3.63 4.40 1.25 1.25 1.25 1.25 1.25 1.25

$ 24,629,785 $ 26,366,059 $ 20,668,766 $ 24,886,969 $ 21,949,776 $ 20,845,953

3,563,076 4,659,322 4,875,789 4,876,327 4,878,142 4,897,807 28,192,861 31,025,381 25,544,555 29,763,296 26,827,918 25,743,760 (6,040,032) (6,043,358) (6,046,464) (6,047,453) (6,043,911) (4,738,833)

22,152,829 24,982,023 19,498,091 23,715,843 20,784,007 21,004,927

2,865,410 2,865,365 2,864,257 2,864,665 2,863,990 2,882,873 697,666 2,294,062 2,572,292 2,572,458 2,575,642 2,576,642 $ 3,563,076 $ 5,159,427 $ 5,436,549 $ 5,437,123 $ 5,439,632 $ 5,459,515

6.22 4.84 3.59 4.36 3.82 3.85 1.10 1.10 1.10 1.10 1.10 1.10

$ 24,629,785 $ 26,366,059 $ 20,668,766 $ 24,886,969 $ 21,949,776 $ 20,845,953

3,563,076 4,659,322 4,875,789 4,876,327 4,878,142 4,897,807 28,192,861 31,025,381 25,544,555 29,763,296 26,827,918 25,743,760

6,040,032 6,043,358 6,046,464 6,047,453 6,043,911 4,738,833 3,563,076 5,159,427 5,436,549 5,437,123 5,439,632 5,459,515 366,522 142,229 49,594 10,785 - - $ 9,969,630 $ 11,345,014 $ 11,532,607 $ 11,495,361 $ 11,483,543 $ 10,198,348

2.83 2.73 2.21 2.59 2.34 2.52 1.00 1.00 1.00 1.00 1.00 1.00

Source: Authority audited financial statements and bond resolutions.

STATISTICAL 81 POPULATION IN THE AIR SERVICE AREA As of July 1 (April 1 for U.S. Census Data) 2003 2004 2005 2006 Primary service area Pima County, Arizona 897,838 914,011 940,004 959,474 Annual % change 1.9% 1.8% 2.8% 2.1%

Secondary service area Cochise County, Arizona 121,871 124,805 126,459 128,623 Graham County, Arizona 33,310 34,703 34,186 34,823 Greenlee County, Arizona 8,452 8,299 8,220 8,202 Pinal County, Arizona 204,075 219,048 250,195 304,889 Santa Cruz County, Arizona 40,528 42,038 43,809 44,929 Total secondary service area 408,236 428,893 462,869 521,466 Annual % change 3.6% 5.1% 7.9% 12.7%

Total primary and secondary service areas 1,306,074 1,342,904 1,402,873 1,480,940 Annual % change 2.4% 2.8% 4.5% 5.6%

State of Arizona 5,554,235 5,725,610 5,924,476 6,116,409 Annual % change 2.6% 3.1% 3.5% 3.2%

United States 290,210,914 292,892,127 295,560,549 298,362,973 Annual % change 0.9% 0.9% 0.9% 1.0%

Source: Arizona Department of Administration, Office of Employment and Population Statistics, The State Demographer’s Office; except for 2010, which is based on census data from the U.S. Census Bureau.

UNEMPLOYMENT RATES IN THE AIR SERVICE AREA Annual Average 2003 2004 2005 2006 Primary service area Pima County, Arizona 5.3% 4.6% 4.5% 3.9%

Secondary service area Cochise County, Arizona 5.6% 4.9% 4.8% 4.4% Graham County, Arizona 6.9% 6.6% 6.0% 5.0% Greenlee County, Arizona 6.9% 5.1% 4.9% 3.7% Pinal County, Arizona 7.0% 6.0% 5.6% 4.9% Santa Cruz County, Arizona 9.5% 9.4% 8.6% 7.4% Total secondary service area 6.8% 6.0% 5.6% 4.9%

Total primary and secondary service areas 5.7% 5.0% 4.8% 4.2%

State of Arizona 5.7% 5.0% 4.7% 4.1%

United States 6.0% 5.5% 5.1% 4.6%

Source: Arizona Department of Administration, Office of Employment and Population Statistics, in cooperation with the U.S. Dept. of Labor, Bureau of Labor Statistics. Local Area Unemployment Statistics (LAUS) data.

82 TUCSON AIRPORT AUTHORITY 2012 CAFR 2007 2008 2009 2010 2011 2012

977,258 984,032 984,274 980,263 986,081 990,380 1.9% 0.7% 0.0% -0.4% 0.6% 0.4%

129,522 130,567 130,296 131,346 130,537 130,752 35,485 36,453 37,281 37,220 37,710 37,314 8,278 8,808 8,533 8,437 8,380 8,599 333,977 358,190 364,995 375,770 384,231 389,192 46,519 47,016 47,384 47,420 48,088 48,724 553,781 581,034 588,489 600,193 608,946 614,581 6.2% 4.9% 1.3% 2.0% 1.5% 0.9%

1,531,039 1,565,066 1,572,763 1,580,456 1,595,027 1,604,961 3.4% 2.2% 0.5% 0.5% 0.9% 0.6%

6,274,981 6,368,649 6,389,081 6,392,017 6,438,178 6,498,569 2.6% 1.5% 0.3% 0.1% 0.7% 0.9%

301,290,332 304,059,724 307,006,550 308,745,538 311,591,917 313,914,040 1.0% 0.9% 1.0% 0.6% 0.9% 0.8%

2007 2008 2009 2010 2011 2012

3.6% 5.6% 8.8% 9.4% 8.4% 7.3%

4.0% 5.6% 7.8% 8.8% 8.8% 7.9% 4.2% 6.8% 14.7% 14.3% 10.5% 9.2% 3.2% 5.1% 18.5% 11.5% 8.3% 6.2% 4.5% 7.1% 12.0% 11.7% 10.3% 8.8% 7.3% 10.6% 15.4% 17.2% 17.1% 16.7% 4.5% 6.9% 11.4% 11.5% 10.5% 9.1%

3.9% 6.0% 9.7% 10.2% 9.1% 7.9%

3.7% 6.0% 9.9% 10.5% 9.5% 8.3%

4.6% 5.8% 9.3% 9.6% 8.9% 8.1%

STATISTICAL 83 MAJOR EMPLOYERS IN THE AIR SERVICE AREA Full-Time Equivalent Employees

Employer Industry Sector 2003 2004 2005 2006

University of Arizona Education 11,335 10,078 10,348 10,282 Raytheon Missile Systems Manufacturing 10,100 10,171 10,300 10,756 State of Arizona State Government 9,732 9,753 9,750 9,742 Davis-Monthan Air Force Base Military 9,947 7,692 8,727 8,233 Wal-Mart Stores, Inc. Retail 4,000 4,420 4,595 4,980 Tucson Unified School District No. 1 Education 8,234 7,690 7,684 7,623 U.S. Army Intelligence Center, Fort Huachuca Military 11,580 11,939 12,250 13,098 Pima County Local Government 7,135 6,987 6,767 6,765 U.S. Customs and Border Protection Federal Government 1,808 2,189 2,300 2,500 The University of Arizona Health Network Health Services 2,566 2,700 2,918 2,969 Freeport-McMoRan Copper & Gold Inc. Mining 3,348 3,400 3,702 4,123 Carondelet Health Network Health Services 2,905 2,689 3,746 3,751 City of Tucson Local Government 6,168 5,495 5,200 5,306 Tohono O’Odham Nation Local Government 3,375 3,515 3,665 3,665 Fry’s Food and Drug Stores Retail 1,822 1,855 2,034 2,063 TMC HealthCare Health Services 2,436 2,562 3,135 3,276 Corrections Corporation of America Government Services 349 446 424 443 Pima Community College Education 2,274 2,204 2,226 2,248 Asarco LLC Mining 1,900 1,500 1,714 1,689 Afni, Inc. Call Center 1,024 1,134 1,243 1,437 Southern Arizona V.A. Health Care System Health Services 1,357 1,605 1,648 1,665 Sunnyside Unified School District Education 2,070 2,173 2,223 2,126 Citi Call Center (1) (1) (1) 1,201 Pinal County Local Government 1,573 1,699 1,718 1,830 Amphitheater Unified School District Education 1,905 2,255 2,014 2,174 Bashas’ Inc. Retail 2,250 2,175 1,963 2,021 Safeway Inc. Retail 2,033 2,054 1,841 1,600 Apac Customer Services Inc. Call Center (1) (1) (1) (1) Target Corp. Retail 605 600 800 1,200 Marana Unified School District Education 1,483 1,551 1,562 1,663 U.S. Postal Service Federal Government 1,373 1,230 800 1,121 Northwest Medical Center Health Services 1,322 1,890 2,038 1,900 Vail School District Education (1) (1) (1) (1) Walgreen Co. Retail 1,395 1,440 1,487 1,351 International Business Machines Corp. Manufacturing 1,651 1,701 1,701 1,801 University Physicians Healthcare Health Services 942 1,029 1,460 1,731

Source: Arizona Daily Star, Star 200 survey. Participation in the survey is voluntary. Includes employers in the Authority’s primary and secondary service areas.

(1) Prior year data not provided and/or not a major employer. (2) University Physicians merged with the University Medical Center in 2011.

84 TUCSON AIRPORT AUTHORITY 2012 CAFR Percentage of Total 2007 2008 2009 2010 2011 2012 Employment

10,354 10,535 10,575 10,363 10,481 10,681 1.7% 11,184 12,515 11,539 12,140 10,500 10,500 1.7% 9,927 10,754 9,329 8,708 8,866 9,061 1.5% 8,233 7,701 7,509 7,755 8,462 8,566 1.4% 5,625 5,805 6,715 7,192 7,308 7,300 1.2% 7,419 8,018 7,227 7,012 6,709 6,674 1.1% 9,119 6,701 6,463 6,236 6,225 6,198 1.0% 7,290 6,954 6,235 6,511 6,403 6,170 1.0% 2,763 2,975 3,468 3,530 3,669 6,000 1.0% 3,094 3,304 3,552 3,542 5,982 5,594 0.9% 4,900 5,840 5,987 3,997 4,803 5,068 0.8% 4,319 4,766 4,570 4,566 4,690 4,635 0.7% 5,848 5,848 5,635 5,399 4,930 4,541 0.7% 3,825 2,725 4,553 4,353 4,353 4,350 0.7% 1,806 2,268 2,668 3,109 3,100 3,100 0.5% 3,474 3,038 3,184 3,050 2,966 2,904 0.5% 1,441 1,778 2,468 2,512 2,487 2,482 0.4% 2,211 2,325 2,299 2,309 2,336 2,386 0.4% 1,950 2,185 2,575 2,125 2,262 2,348 0.4% 1,471 1,409 1,628 1,893 2,100 2,198 0.4% 1,730 1,729 2,026 2,117 2,208 2,151 0.3% 2,690 2,685 2,358 2,120 2,145 2,125 0.3% 2,000 1,900 2,400 2,500 2,000 2,000 0.3% 2,134 2,321 2,450 2,455 2,340 1,952 0.3% 2,187 2,096 2,096 1,965 1,924 1,920 0.3% 1,938 1,938 1,938 1,900 1,800 1,800 0.3% 1,620 1,489 1,715 1,685 1,685 1,685 0.3% (1) (1) (1) 1,475 1,570 1,650 0.3% 1,200 1,623 1,800 1,900 1,773 1,639 0.3% 1,776 1,866 1,836 1,755 1,606 1,600 0.3% 1,837 1,800 1,930 1,810 1,899 1,562 0.3% 1,808 2,124 1,671 1,658 1,758 1,532 0.2% (1) (1) (1) 1,444 1,362 1,442 0.2% 1,381 1,303 1,443 1,511 1,726 1,399 0.2% 1,750 1,457 1,432 1,400 1,350 1,350 0.2% 1,904 1,856 2,039 2,219 (2) (2) 0.0%

STATISTICAL 85 AUTHORITY EMPLOYEES Authorized Full-Time Equivalent Positions as of September 30

2006 2007 2008 2009 2010

Management 3.00 4.25 4.25 4.25 4.00 Legal 2.50 2.50 2.50 2.50 4.00 Public Information/Government Affairs 4.00 4.00 4.00 4.00 4.00 Administration/Properties 9.00 9.00 9.00 9.00 9.00 Information Technology and Telecommunications 11.00 11.00 11.00 11.00 11.00 Human Relations 5.50 6.00 6.00 6.00 5.00 Administrative Services 11.75 9.50 9.50 9.50 9.00 Business Development - - - - - Finance 9.75 9.75 9.75 9.75 10.00 Planning and Development 30.75 31.75 31.75 31.75 31.00 Operations Management 4.00 3.00 3.00 3.00 7.00 Operations - 5.00 5.00 5.00 - Police 53.50 53.50 52.50 53.50 53.50 Fire 18.00 19.00 19.00 19.00 18.00 Communications/Dispatch 14.00 13.00 13.00 13.00 13.00 Custodial 55.00 54.00 54.00 54.00 53.00 Flight Line Services 33.00 31.50 31.50 29.50 29.00 Maintenance 41.00 41.00 41.00 41.00 43.00 Ryan Airfield 3.00 2.50 2.50 2.50 - Total 308.75 310.25 309.25 308.25 303.50

Source: Authority records. Information in this format was not available for periods prior to fiscal year 2006.

86 TUCSON AIRPORT AUTHORITY 2012 CAFR 2011 2012

4.00 4.00 4.00 3.00 - - 7.00 7.00 11.00 9.00 5.00 5.00 9.00 9.00 7.00 5.00 10.00 9.00 25.00 22.00 7.00 7.00 - - 51.00 48.50 17.00 16.50 12.00 12.00 53.00 44.00 25.00 23.00 42.00 40.00 - - 289.00 264.00

STATISTICAL 87 AIRPORT INFORMATION TUCSON INTERNATIONAL AIRPORT As of September 30

Airport code: TUS FAA category: Commercial service, medium hub (2) Location: 8 miles south of downtown Tucson, Arizona Elevation: 2,641 feet above sea level International: 24/7 U.S. Customs Federal Inspection Station Tower: FAA-staffed 24/7

2006 2007 2008 2009

Land area (acres): 8,244 8,244 8,343 8,343

Runways: 11L-29R (main) 10,996 x 150 ft. 10,996 x 150 ft. 10,996 x 150 ft. 10,996 x 150 ft. 3-21 (crosswind) 7,000 x 150 ft. 7,000 x 150 ft. 7,000 x 150 ft. 7,000 x 150 ft. 11R-29L (GA & commuter) 8,408 x 75 ft. 8,408 x 75 ft. 8,408 x 75 ft. 8,408 x 75 ft.

Main terminal: Airlines (sq. ft.) 201,851 201,851 202,451 202,451 Concessions 33,555 33,555 35,067 35,067 TSA & security checkpoints 10,401 10,401 10,401 10,401 Public/common 116,273 116,273 115,300 115,300 Authority use 13,338 13,338 12,076 12,076 Mechanical 76,607 76,607 76,730 76,730 Total (sq. ft.) 452,025 452,025 452,025 452,025

Number of gate positions 19 19 19 19 Number of active gates 15 18 18 18 Apron (sq. ft.) 1,474,485 1,474,485 1,474,485 1,474,485

Consolidated Number of companies 7 7 7 7 rental car facility: Quick turnaround facilities 7 7 7 7 Customer service building (sq. ft.) 18,000 18,000 18,000 18,000 3-level parking structure (spaces) Rental car use 1,347 697 697 697 Airport employee use 661 661 661 661 Public parking - 605 605 605

Public parking lots Hourly 469 469 469 469 (surface spaces): Daily 908 908 908 908 Covered economy 308 308 308 308 Uncovered economy 5,337 5,337 5,337 5,337 Total 7,022 7,022 7,022 7,022

Air cargo: Number of buildings 3 3 3 3 Total sq. ft. 35,000 35,000 35,000 35,000 Apron (sq. ft.) 819,000 819,000 819,000 819,000

General aviation: Number of FBOs (1) 5 5 5 5 Apron (sq. ft.) 1,301,767 1,301,767 1,301,767 1,301,767

(1) Includes a limited service FBO (fueling, tie-downs and pilot facilities) owned and operated by the Authority. (2) Effective 10/01/2012 TAA’s FAA category changed to, commercial services, small hub.

88 TUCSON AIRPORT AUTHORITY 2012 CAFR 2010 2011 2012

8,343 8,343 8,343

10,996 x 150 ft. 10,996 x 150 ft. 10,996 x 150 ft. 7,000 x 150 ft. 7,000 x 150 ft. 7,000 x 150 ft. 8,408 x 75 ft. 8,408 x 75 ft. 8,408 x 75 ft.

202,451 202,451 202,451 35,067 35,067 35,067 10,401 10,401 10,401 115,300 115,300 115,300 12,076 12,076 12,076 76,730 76,730 76,730 452,025 452,025 452,025

19 19 19 18 18 18 1,941,985 1,941,985 1,941,985

7 7 7 7 7 7 18,000 18,000 18,000

697 697 697 661 661 661 605 605 605

469 469 469 908 908 908 308 308 308 5,337 5,337 5,337 7,022 7,022 7,022

3 3 3 35,000 35,000 35,000 819,000 819,000 819,000

5 5 5 1,301,767 1,301,767 1,301,767

Source: Authority records. Information in this format was not available for periods prior to fiscal year 2006.

STATISTICAL 89 AIRPORT INFORMATION RYAN AIRFIELD As of September 30

Airport code: RYN FAA category: General aviation Location: 12 miles southwest of downtown Tucson, Arizona Elevation: 2,417 feet above sea level International: No international facilities Tower: Contract - staffed 6:00 A.M. - 8:00 P.M. daily

2006 2007 2008 2009

Land area (acres): 1,804 1,804 1,804 1,804

Runways: 6R-24L 5,500 x 75 ft. 5,500 x 75 ft. 5,500 x 75 ft. 5,500 x 75 ft. 6L-24R 4,900 x 75 ft. 4,900 x 75 ft. 4,900 x 75 ft. 4,900 x 75 ft. 15-33 (crosswind) 4,000 x 75 ft. 4,000 x 75 ft. 4,000 x 75 ft. 4,000 x 75 ft.

Terminal: None None None None

FBO services: Number of FBOs (1) 1 1 1 1 Apron (sq. ft.) 465,000 465,000 465,000 465,000

(1) Includes a limited service FBO (fueling, tie-downs and pilot facilities) owned and operated by the Authority. Aircraft maintenance services are offered by various private businesses on the airport.

Source: Authority records. Information in this format was not available for periods prior to fiscal year 2006.

90 TUCSON AIRPORT AUTHORITY 2012 CAFR 2010 2011 2012

1,804 1,804 1,804

5,500 x 75 ft. 5,500 x 75 ft. 5,500 x 75 ft. 4,900 x 75 ft. 4,900 x 75 ft. 4,900 x 75 ft. 4,000 x 75 ft. 4,000 x 75 ft. 4,000 x 75 ft.

None None None

1 1 1 465,000 465,000 465,000

STATISTICAL 91 PASSENGER, CARGO AND MAIL SUMMARY TUCSON INTERNATIONAL AIRPORT Fiscal Years Ended September 30

2003 2004 2005 2006 Passengers Enplaned 1,766,859 1,841,791 2,023,785 2,120,996 Deplaned 1,758,213 1,833,039 2,017,524 2,106,792 Total 3,525,072 3,674,830 4,041,309 4,227,788

Annual % change 2.5% 4.2% 10.0% 4.6%

Air Freight (pounds) All-cargo carriers Enplaned 19,663,457 20,712,428 24,831,348 31,723,581 Deplaned 36,592,619 38,302,743 48,553,371 49,210,617 Total 56,256,076 59,015,171 73,384,719 80,934,198

Annual % change 17.6% 4.9% 24.3% 10.3%

Passenger carriers Enplaned 1,780,192 1,956,317 1,236,440 1,199,723 Deplaned 2,714,979 2,696,079 2,415,737 2,744,285 Total 4,495,171 4,652,396 3,652,177 3,944,008

Annual % change -11.3% 3.5% -21.5% 8.0%

Mail (pounds) Enplaned 2,323,006 1,530,979 1,379,690 744,882 Deplaned 2,284,352 1,757,025 2,911,882 2,258,600 Total 4,607,358 3,288,004 4,291,572 3,003,482

Annual % change -6.7% -28.6% 30.5% -30.0%

Source: Authority records based on airline reporting.

92 TUCSON AIRPORT AUTHORITY 2012 CAFR 2007 2008 2009 2010 2011 2012

2,195,493 2,202,373 1,837,175 1,855,615 1,841,834 1,826,046 2,178,878 2,192,832 1,832,749 1,853,563 1,835,060 1,823,737 4,374,371 4,395,205 3,669,924 3,709,178 3,676,894 3,649,783

3.5% 0.5% -16.5% 1.1% -0.9% -0.7%

30,376,299 29,434,704 26,312,873 27,826,292 25,242,128 26,487,591 47,832,536 43,990,112 33,482,706 38,460,356 33,726,997 42,433,770 78,208,835 73,424,816 59,795,579 66,286,648 58,969,125 68,921,361

-3.4% -6.1% -18.6% 10.9% -11.0% 16.9%

1,060,634 851,369 714,317 938,253 840,931 915,005 2,453,912 2,661,911 2,312,730 2,146,039 1,798,178 1,595,464 3,514,546 3,513,280 3,027,047 3,084,292 2,639,109 2,510,469

-10.9% 0.0% -13.8% 1.9% -14.4% -4.9%

189,674 1,871 243 189 1,681 5,391 608,901 10,614 8,852 9,324 11,313 6,991 798,575 12,485 9,095 9,513 12,994 12,382

-73.4% -98.4% -27.2% 4.6% 36.6% -4.7%

STATISTICAL 93 AIRCRAFT OPERATIONS SUMMARY Fiscal Years Ended September 30 2003 2004 2005 2006 Tucson International Airport Air carrier 37,766 37,991 43,319 44,767 Air taxi 15,879 17,464 27,676 29,239 Military 46,445 47,836 43,679 43,050 General aviation 162,679 141,591 158,425 164,337 Total 262,769 244,882 273,099 281,393

Annual % change -1.1% -6.8% 11.5% 3.0%

Ryan Airfield (1) Air carrier - - - - Air taxi 15 2 6 2 Military 2,028 3,349 4,449 4,085 General aviation 123,053 150,200 164,626 177,556 Total 125,096 153,551 169,081 181,643

Annual % change -15.9% 22.7% 10.1% 7.4%

(1) Data collected during Ryan UNICOM regular hours of operation (6:00 a.m. - 8:00 p.m.).

Source: FAA “Air Traffic Activity” reports, Tucson International Airport air traffic control tower records, and Ryan air traffic control tower records.

ENPLANED PASSENGERS BY SCHEDULED CARRIER Fiscal Years Ended September 30 Carrier 2003 % of Total 2004 2005 2006 Southwest Airlines 454,585 25.8% 504,781 572,575 632,624 American Airlines 363,635 20.6% 381,962 444,067 481,945 US Airways 267,509 15.1% 251,610 282,190 309,694 Delta Air Lines 247,362 14.0% 244,167 263,792 240,856 United Airlines 198,693 11.2% 245,503 245,944 228,105 Continental Airlines 86,243 4.9% 92,433 113,808 122,590 Alaska Airlines 59,994 3.4% 50,263 46,383 52,371 Frontier Airlines 33,785 1.9% 29,240 39,792 45,139 Sun Country Airlines - 0.0% - - - Aerolitoral 4,264 0.2% 4,416 6,100 7,401 ExpressJet Airlines - 0.0% - - - JetBlue Airways - 0.0% - - 271 Aero California 8,551 0.5% 9,047 9,134 - Horizon Air 42,238 2.4% 28,369 - - SkyWest Airlines - 0.0% - - - Total 1,766,859 100.0% 1,841,791 2,023,785 2,120,996

Note: Where available, information for regional affiliate carriers is included with the associated major carriers. Predecessor airline information is included in the current carrier totals.

Source: Authority records based on airline reports.

94 TUCSON AIRPORT AUTHORITY 2012 CAFR 2007 2008 2009 2010 2011 2012

42,666 43,078 35,551 35,143 35,911 34,423 28,158 30,481 21,953 23,388 21,959 20,309 31,601 28,437 29,412 30,687 27,569 24,887 154,215 129,965 94,470 79,265 72,893 65,545 256,640 231,961 181,386 168,483 158,332 145,164

-8.8% -9.6% -21.8% -7.1% -6.0% -8.3%

- 2 2 - - - 4 4 9 4 20 - 3,374 3,210 5,287 4,190 3,446 9,744 216,745 197,832 121,881 117,518 108,541 107,531 220,123 201,048 127,179 121,712 112,007 117,275

21.2% -8.7% -36.7% -4.3% -8.0% 4.7%

2007 2008 2009 2010 2011 % of Total 2012 % of Total 638,929 644,277 594,120 606,913 618,007 33.5% 623,484 34.1% 442,813 419,600 391,376 388,036 405,851 22.0% 428,093 23.4% 289,967 268,939 237,138 225,715 220,409 12.0% 210,701 11.5% 236,613 252,517 213,295 212,276 199,841 10.9% 199,117 10.9% 227,042 192,550 184,839 197,206 173,472 9.4% 178,838 9.8% 155,990 150,343 86,479 91,364 90,418 4.9% 83,407 4.6% 53,175 56,856 49,490 50,134 52,967 2.9% 57,391 3.1% 65,351 72,904 74,500 79,777 80,869 4.4% 45,015 2.5% - 5,772 5,932 4,194 - 0.0% 0.0% 5,442 8,249 6 - - 0.0% 0.0% 41,549 108,524 - - - 0.0% 0.0% 38,622 21,842 - - - 0.0% 0.0% - - - - - 0.0% 0.0% - - - - - 0.0% 0.0% - - - - - 0.0% 0.0% 2,195,493 2,202,373 1,837,175 1,855,615 1,841,834 100.0% 1,826,046 100.0%

STATISTICAL 95 SCHEDULED CARRIER LANDED WEIGHTS (1,000 LBS. UNITS) Fiscal Years Ended September 30

Carrier 2003 % of Total 2004 2005 2006 Passenger carriers Southwest Airlines 558,008 24.3% 578,854 640,614 730,408 American Airlines 498,766 21.8% 449,804 507,643 516,683 US Airways 353,177 15.4% 295,772 341,089 374,502 Delta Air Lines 393,370 17.1% 288,937 313,627 274,575 United Airlines 170,745 7.4% 315,370 315,721 288,572 Continental Airlines 98,066 4.3% 104,119 126,191 125,982 Alaska Airlines 77,108 3.4% 54,963 47,637 55,651 Frontier Airlines 56,324 2.5% 26,931 43,086 58,127 Sun Country Airlines - 0.0% - - - Aerolitoral 3,458 0.2% 3,546 6,382 10,346 ExpressJet Airlines - 0.0% - - - JetBlue Airways - 0.0% - - 486 Aero California 13,399 0.6% 14,298 13,726 - Horizon Air 68,005 3.0% 37,319 - - Total 2, 290,426 100.0% 2,169,913 2,355,716 2,435,331

Cargo carriers Federal Express 83,202 54.4% 88,518 114,159 149,739 Ameriflight - 0.0% 4,218 6,119 956 UPS 43,331 28.4% 63,358 57,772 57,094 DHL 26,214 17.2% 26,112 27,846 51,570 Total 152,747 100.0% 182,206 205,896 259,359

Grand total 2, 443,173 2,352,119 2,561,612 2,694,690

Note: Where available, information for regional affiliate carriers is included with the associated major carriers. Predecessor airline information is included in the current carrier totals.

Source: Authority records based on airline reports.

96 TUCSON AIRPORT AUTHORITY 2012 CAFR 2007 2008 2009 2010 2011 % of Total 2012 % of Total

794,498 880,596 787,992 762,806 800,968 37.0% 810,352 38.4% 471,519 446,023 413,082 399,509 418,232 19.3% 437,222 20.7% 346,905 319,098 262,784 262,163 278,913 12.9% 246,542 11.7% 271,156 273,467 218,425 230,247 208,625 9.6% 213,304 10.1% 265,512 226,775 216,508 242,904 215,474 10.0% 206,101 9.8% 179,483 168,350 84,597 100,019 99,571 4.6% 93,787 4.4% 51,019 61,490 52,302 52,205 52,495 2.4% 58,787 2.8% 92,775 103,673 95,306 91,767 88,674 4.1% 46,009 2.2% - 7,300 8,367 5,983 - 0.0% 0.0% 10,036 10,559 43 - - 0.0% 0.0% 71,278 167,190 - - 0.0% 0.0% 55,899 35,862 - - 0.0% 0.0% - - - - 0.0% 0.0% - - - - 0.0% 0.0% 2,610,080 2,700,383 2,139,406 2,147,603 2,162,952 100.0% 2,112,104 100.0%

140,682 136,694 141,821 144,005 139,971 94.3% 145,331 94.1% 3,075 4,347 9,706 8,243 8,539 5.7% 9,044 5.9% 58,800 62,768 22,470 - - 0.0% 0.0% 31,204 29,171 6,630 - - 0.0% 0.0% 233,761 232,980 180,627 152,248 148,510 100.0% 154,374 100.0%

2,843,841 2,933,363 2,320,033 2,299,851 2,311,462 2,266,479

STATISTICAL 97 SCHEDULED AIR SERVICE INFORMATION TUCSON INTERNATIONAL AIRPORT Month of September

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Number of daily nonstop destinations 16 15 15 17 24 18 15 15 15 14

Number of nonstop flights per day Albuquerque 2 2 2 2 2 2 2 2 2 2 Atlanta 2 2 3 2 2 2 2 2 2 2 Austin - - - - 2 - - - - - Charlotte - - - - - 1 - - - - Chicago Midway - - 1 1 2 2 1 1 1 2 Chicago O’Hare 3 3 3 3 3 2 2 2 2 2 Dallas/Fort Worth 8 10 8 8 8 7 7 7 7 7 Denver 4 6 5 6 6 6 7 8 7 4 El Paso - - - - 1 - - - - - Hermosillo, Mexico 2 2 1 1 1 1 - - - - Houston Bush 4 4 4 4 4 4 4 4 4 4 Kansas City - - - - 1 - - - - - Las Vegas 5 5 8 8 7 5 5 5 5 4 Los Angeles International 9 11 10 10 11 10 10 10 12 9 Minneapolis 1 1 1 1 1 1 1 1 1 - Oakland - - - - - 1 - - - - Ontario, CA - - - - 3 - - - - - New York Kennedy - - - 1 1 - - - - - Newark - 1 - - 1 - - - - - Phoenix 12 12 12 11 11 9 10 9 9 8 Sacramento - - - - 2 - - - - - Salt Lake City 4 5 8 4 5 4 3 4 3 3 San Antonio - - - - 2 - - - - - San Diego 3 3 3 3 3 4 4 3 3 3 San Francisco 1 - - 1 1 1 1 1 2 1 San Jose 2 ------Seattle 1 1 1 1 1 1 1 1 1 1 Total 63 68 70 67 81 63 60 60 61 52

Average scheduled seats per day 5,718 6,344 6,964 7,004 7,804 6,546 6,081 6,245 5,949 5,518

Source: Official Airline Guide.

98 TUCSON AIRPORT AUTHORITY 2012 CAFR