FY07 Audited Financial Statements (PDF)

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FY07 Audited Financial Statements (PDF) AIRPORT COMMISSION CITY AND COUNTY OF SAN FRANCISCO SAN FRANCISCO INTERNATIONAL AIRPORT Financial Statements with Schedule of Passenger Facility Charge Revenues and Expenditures June 30, 2007 and 2006 (With Independent Auditors’ Report Thereon) AIRPORT COMMISSION CITY AND COUNTY OF SAN FRANCISCO SAN FRANCISCO INTERNATIONAL AIRPORT Table of Contents Page Independent Auditors’ Report 1 Management’s Discussion and Analysis 3 Financial Statements: Statements of Net Assets 23 Statements of Revenues, Expenses, and Changes in Net Assets 25 Statements of Cash Flows 26 Notes to Financial Statements 28 Schedule of Passenger Facility Charge Revenues and Expenditures 52 Notes to Schedule of Passenger Facility Charge Revenues and Expenditures 53 Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 54 Report on Compliance with Requirements Applicable to the Passenger Facility Charge Program and on Internal Control over Compliance 56 Schedule of Findings and Questioned Costs 58 Independent Auditors’ Report The Honorable Mayor and Board of Supervisors City and County of San Francisco: We have audited the accompanying financial statements of the Airport Commission, City and County of San Francisco, San Francisco International Airport (the Airport), an enterprise fund of the City and County of San Francisco, California (the City), as of and for the years ended June 30, 2007 and 2006, as listed in the table of contents. These financial statements are the responsibility of the Airport’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free 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 Airport’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 audits provide a reasonable basis for our opinion. As discussed in note 1 to the financial statements, the financial statements present only the Airport and do not purport to, and do not, present fairly the financial position of the City as of June 30, 2007 and 2006, the changes in its financial position, or, where applicable, its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Airport Commission, City and County of San Francisco, San Francisco International Airport as of June 30, 2007 and 2006, and its changes in financial position and 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 October 29, 2007, on our consideration of the Airport’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The Management’s Discussion and Analysis on pages 3 through 22 is not a required part of the basic financial statements but is supplementary information required by U.S. generally accepted accounting principles. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required 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 basic financial statements of the Airport Commission, City and County of San Francisco, San Francisco International Airport. The accompanying Schedule of Passenger Facility Charge Revenues and Expenditures is presented for purposes of additional analysis as specified in the Passenger Facility Charge Audit Guide for Public Agencies, issued by the Federal Aviation Administration, and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. As discussed in note 5 to the financial statements, the Airport changed its method of accounting for indirect costs associated with capital projects on July 1, 2006. October 29, 2007 2 AIRPORT COMMISSION CITY AND COUNTY OF SAN FRANCISCO SAN FRANCISCO INTERNATIONAL AIRPORT Management’s Discussion and Analysis June 30, 2007 and 2006 The management of the Airport Commission, City and County of San Francisco, San Francisco International Airport (the Airport or SFO) presents the following narrative overview and analysis of the financial activities of the Airport for the fiscal year ended June 30, 2007 with comparative data for the fiscal year ended June 30, 2006. All amounts are expressed in thousands of dollars unless otherwise indicated. The Airport’s financial statements are comprised of two components: (1) Financial Statements and (2) Notes to Financial Statements. The Airport’s financial statements include: Statements of Net Assets present information on the Airport’s assets and liabilities as of year-end, with the difference between the two reported as net assets. Increases or decreases in net assets may serve as a useful indicator of whether the financial position of the Airport is improving or deteriorating. While the Statements of Net Assets provide information about the nature and amount of resources and obligations at year-end, the Statements of Revenues, Expenses, and Changes in Net Assets present the results of the Airport’s operations over the course of the fiscal year and information as to how the net assets changed during the year. These Statements can be used as an indicator of the extent to which the Airport has successfully recovered its costs through user fees and other charges. All changes in net assets are reported during the period in which the underlying event giving rise to the change occurs, regardless of the timing of the related cash flows. The Statements of Cash Flows present changes in cash and cash equivalents resulting from operational, capital, noncapital, and investing activities. These statements summarize the annual flow of cash receipts and cash payments, without consideration of the timing of the event giving rise to the obligation or revenue and exclude noncash accounting measures of depreciation or amortization of assets. The Notes to Financial Statements provide additional information that is essential to a full understanding of the data provided in the basic financial statements. Highlights of Airline Operations at the Airport The restructuring in the aviation industry in recent years to meet financial pressures following 9/11 continued in fiscal year 2007. Results from prior efforts were evident, as persistent cost-cutting strategies, higher ticket prices, disciplined capacity management and historically high load factors (ratio of passengers to seats) increased yields (cents per mile) and resulted in positive operating margins in calendar year 2006 for most major airlines which operate at SFO. Major air carriers at SFO that had entered bankruptcy (United Airlines, Delta Airlines, Northwest Airlines and US Airways) all emerged from bankruptcy by the end of the fiscal year 2007. However, fuel prices, which have risen sharply since early 2005, continue to put pressure on airline unit costs and although operating margins have improved, interest on debt and restructuring costs may continue to impact the financial condition of several major air carriers at SFO. The number of passenger airline operations at the Airport showed a positive increase in both of the last two fiscal years, following several years of decline. While in fiscal year 2006 the increase was fully attributable to short-haul flights using commuter aircrafts (regional jets and turboprops) as airlines downsized aircraft size to improve yields, in fiscal year 2007, 62% of the increase was with narrow and wide body jets as airlines made modest domestic capacity increases, primarily to their hub markets, and increased international
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