2018 Comprehensive Annual Financial Report

METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

A component unit of the City of Knoxville, Tennessee For the fiscal years ended June 30, 2018 and 2017

PREPARED BY: Accounting and Finance Department of Metropolitan Knoxville Airport Authority

www.flyknoxville.com

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Metropolitan Knoxville Airport Authority Knoxville, Tennessee

A COMPONENT UNIT OF THE CITY OF KNOXVILLE

Comprehensive Annual Financial Report

For the Fiscal Years ended June 30, 2018 and 2017

PREPARED BY THE ACCOUNTING AND FINANCE DEPARTMENT

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Introductory Section

This section contains the following subsections:

Table of Contents

Metropolitan Knoxville Airport Authority Officials

Letter of Transmittal and Exhibits

Organizational Chart

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2 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

TABLE OF CONTENTS 5. Long-Term Debt (continued) Introductory section

Metropolitan Knoxville Airport Authority Officials 5 Scheduled DebtLetter Service of transmittal Requi andrements exhibits 7 As of June 30,Organizational 2016, scheduled chart debt service requirements of the variable-rate debt and net swap16 payments, assuming currentFinancial interest section rates remain the same for their term are as follows. As rates vary, variable-rate bond interest paymentsReport ofand Independent net swap Auditors payments will vary. 19 Management’s discussion and analysis 22

Financial statements: Year endingStatements of net positionVariable Rate Bonds Interest Rate 32 June 30 Statements of Principalrevenues, expenses and changesInterest in net position Swaps, net 34 Total Statements of cash flows 35 2017 Notes to financial$ 4,590,000 statements $ 562,983 $ 985,043 37$ 6,138,026 2018 Statistical section4,825,000 (unaudited) 522,361 830,113 6,177,474 Schedule 1: Operating revenues and expenses—last ten years 52 2019 Schedule 2: Debt5,075,000 service coverage—last ten 479,483years 667,315 54 6,221,798 2020 Schedule 3: Ratios5,335,000 of debt servic e and outstanding434,090 debt—last ten years 496,213 56 6,265,303 2021 Schedule 4: McGhee5,610,000 Tyson Airport annual term386,211inal rents and landing fees—last316,408 ten years 58 6,312,619 Schedule 5: Airline arrivals and departures—last ten calendar years 60 2022-2026 Schedule 6: Historical32,520,000 airline passenger activity—last1,107,156 ten calendar years 405,195 61 34,032,351 2027-2028 Schedule 7: Distribution12,680,000 of airline passengers—calendar86,013 year ended December 31, 2017- 61 12,766,013 Schedule 8: Cargo—last ten calendar years 62 Total Schedule 9: Distribution$70,635,0 00of cargo—calendar $3,578,297 year ended December 31, 2017$3,700,287 62$ 77,913,584 Schedule 10: Aircraft landed weights—last ten calendar years 63 6. Fair ValueSchedule 11: Aircraft landed weights—ten calendar year trend history 64 Schedule 12: Total passengers—ten calendar year trend history 66 Schedule 13: Distribution of total cargo—ten calendar year trend history 68 The Authority Schedulecategorizes 14: Authority its fair employeesvalue measurements and demographic within data—population the fair value hierarchy established70 by generally accepted accountingSchedule principles. 15: Demographic The data—unemploymenthierarchy is based information on the valuation last ten years inputs used to measure71 the fair value Schedule 16: Demographic data—per capita personal income last ten years 71 of the assets. Schedule Level 117: inputs Demographic are quoted data—total prices personal in income active last markets ten years for identical assets. Level71 2 inputs are significant otherSchedule observable 18: Demographic inputs. Level data—top 3 inputs employer ares significantin Knoxville areaunobservable for last ten years inputs. 72 Schedule 19: Airlines serving McGhee Tyson Airport 74 Debt securitiesSchedule are valued 20: Flight based information on the securities’ relationship to benchmark quoted prices.75 Derivative Schedule 21: Companies conducting business on airport property 76 instruments areSchedule valued 22: using Use ofa debtmarket proceeds approach that considers benchmark interest rates. 77 Schedule 23: Insurance in force 79 The following Schedule table sets24: Capital forth asset by information level, within the fair value hierarchy, the fair value of 80 the Authority’s Compliance section investments andSchedule interest of expendituresrate swap liabilities of federal awards,as of June state financial30, 2016 assi: stance and passenger facility charges collected and expended 82 Schedule of long-term debt principal andLevel interest 1 requirementsLevel 2 Level 3 86Total Investments: Report of independent auditors on internal control over financial reporting and on compliance and other matters based on an audit of financial statements performed Government debtin accordance securities with Governmental$ Auditing –Standards $ 39,998,469 $ – $ 88 39,998,469 Report of independent auditors on compliance for each major federal program and the passenger Interest rate swapfacility liabilities charge program and on$ internal control– over$ compliance4,502,609 in accordance $ with –the $ 4,502,609 Uniform Guidance 90 Schedule of findings and questioned costs 92 The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 3 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

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4 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

OFFICIALS

5. Long-TermAs of June Debt 30, 2018 (continued)

Board of Commissioners Position Term Expires Scheduled Debt Service Requirements As of June 30,Eddie 2016 Mannis, scheduled debt service requirementsChairman of the variable-rate June debt 30, and 2023 net swap payments, assuming currentBrian M. interest Simmons rates remain the same for theirVice Chairman term are as follows. AsJune rates 30, vary,2025 variable-rate bond interest payments and net swap payments will vary. Charles R. Harr Secretary June 30, 2022 Year ending Variable Rate Bonds Interest Rate Joseph M. Dawson Assistant Secretary June 30, 2023 June 30 Principal Interest Swaps, net Total Ursula Bailey June 30, 2019 2017 $ 4,590,000 $ 562,983 $ 985,043 $ 6,138,026 2018 Julia A. Bentley 4,825,000 522,361 830,113 June 30, 2024 6,177,474 2019 Maribel Koella 5,075,000 479,483 667,315 June 30, 2021 6,221,798 2020 5,335,000 434,090 496,213 6,265,303 2021 Jeff W. Smith 5,610,000 386,211 316,408 June 30, 2023 6,312,619 2022-202Howard6 Vogel 32,520,000 1,107,156 405,195 June 30, 2020 34,032,351 2027-2028 12,680,000 86,013 - 12,766,013 Total $70,635,000 $3,578,297 $3,700,287 $77,913,584 OFFICERS AND KEY STAFF MEMBERS 6. Fair ValueWilliam F. Marrison, A.A.E. President

Nancy White, CPA, C.M. Vice President of Finance The Authority categorizes its fair value measurements within the fair value hierarchy established by generally accepted accountingJames H. Evans, principles. Jr., C.M. The hierarchy is basedVice onPresident the valuation of Marketing inputs & Air used Service to Developmentmeasure the fair value of the assets. Level 1 inputs are quoted prices in active markets for identical assets. Level 2 inputs are Trevis D. Gardner, A.A.E. Vice President of Airport Operations significant other observable inputs. Level 3 inputs are significant unobservable inputs. Bryan White, PE, C.M. Vice President of Engineering & Planning Debt securitiesWillie T. are Aiken valued based on the securities’Director relationship of Public Safety to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates. Becky Huckaby, APR, A.A.E. Vice President of Public Relations The followingJennifer table Whitaker sets forth by level, within theController fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016: Treva H. Best, CAP, OM Senior Executive Assistant Mark Mamantov Level Legal1 Counsel,Level Bass, Berry2 & SimsLevel PLC 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 5 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

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M E T R O P O L I TA N KNOXVILLE AIRPORT AUTHORITY

November 14, 2018

To the Board of Commissioners of the Metropolitan Knoxville Airport Authority:

The Comprehensive Annual Financial Report of the Metropolitan Knoxville Airport Authority (the Authority) for the fiscal year ended June 30, 2018, is hereby submitted. The purpose of the report is to present fairly and disclose fully the Authority’s financial position and the results of its operations. The report consists of four sections: Introductory, Financial, Statistical and Compliance.

The financial statements were audited by Coulter & Justus, P.C., Certified Public Accountants, and the supplementary information was prepared by the Accounting and Finance Department. This report is published in accordance with the laws and/or regulations of the State of Tennessee. The audit was conducted in accordance with Government Auditing Standards issued by the Comptroller General of the United States and requirements prescribed by the Comptroller of the Treasury, State of Tennessee.

This report consists of management’s representations concerning the financial position of the Authority. Consequently, management assumes full responsibility for the completeness and reliability of all information presented in this report. To provide a reasonable basis for making these representations, management of the Authority has established a comprehensive internal control framework that has been designed to both protect the Authority’s assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the Authority’s financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP). Because the cost of internal controls should not outweigh their benefits, the Authority’s comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatements. As management, we assert that, to the best of our knowledge and belief, this report is complete and reliable in all material respects.

The goal of the independent audit is to provide reasonable assurance that the financial statements of the Authority for the years ended June 30, 2018 and 2017, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and any significant estimates made by management and evaluating the overall financial statements presentation. The independent auditors concluded based upon their audit, that there was a reasonable basis for rendering an unmodified opinion and that the Authority’s financial statements for the years ended June 30, 2018 and 2017, are in conformity with GAAP. The independent auditors’ report is the first component of the financial section of this report.

The independent audit of the financial statements is part of the broader mandated provisions of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards, relative to federal financial awards received from the U.S. Government. It is also in conformity with the provisions of the September 2000 Audit Compliance and Reporting Guide for Public Agencies relative to the collection and use of Passenger Facility Charges.

McGhee Tyson Airport • P.O. Box 15600 • Knoxville, TN 37901 • 865/342-3000 • Fax 865/342-3050 • email: [email protected] 7 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

The standards governing these provisions require the independent auditors not only to report on the 5. Long-Termfair presentation Debt (continued) of the financial statements, but also on the Authority’s internal controls and compliance with legal requirements, with special emphasis on internal controls and legal requirements involving the

administration of federal and state grant awards. See reports of independent auditors presented in the Scheduled DebtCompliance Service Section. Requi rements As of June 30, 2016, scheduled debt service requirements of the variable-rate debt and net swap payments, assuming currentGAAP interestrequires that rates management remain theprovide same a narrative for their intr oduction,term are overview, as follows. and analysis As rates to accompany vary, variable the -rate bond interest paymentsfinancial and statements net swap in thepayments form of willa Management vary. Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The MD&A

is in the financial section immediately following the report of independent auditors. Year ending Variable Rate Bonds Interest Rate June 30REPORTING Principal ENTITY Interest Swaps, net Total

2017 The Metropolitan $ Knoxville4,590,000 Airport Authority $ 562,983 was established in 1978 under$ 985,043 Chapter No. 174, Public$ 6,138,026 2018 Acts of the State of4,825,000 Tennessee, 1969, and pursuant522 ,361 to Resolution No. R-63-78830,113 of the Council of the City 6,177,474 2019 of Knoxville, Tennessee.5,075,000 It was organized for479,483 and has as its sole purpose the667,315 ownership, management, 6,221,798 operation and maintenance of McGhee Tyson Airport and other airports, auxiliary fields and other 2020 properties, either acquired5,335,000 by or placed under434,090 the control of the Authority as496,213 outlined in Chapter 174. 6,265,303 2021 The Authority currently5,610,000 controls two airports: 386,211McGh ee Tyson Airport and Knoxville316,408 Downtown Island 6,312,619 2022-202Airport.6 32,520,000 1,107,156 405,195 34,032,351 2027-2028 12,680,000 86,013 - 12,766,013 The Authority is a component unit of the City of Knoxville, governed by a nine-member Board of TotalCommissioners appointed$70,635,0 by00 the Mayor of $the3,578,297 City of Knoxville. Each Commissioner$3,700,287 is appointed for $a77,913,584 seven-year term and must be confirmed by the Knoxvill e City Council. Since the Authority was established, it has been financially self-sufficient, with no local tax support. 6. Fair Value The Board employs a President, who is the chief administrative and executive officer of the Authority. The AuthorityThe categorizesPresident manages its fair the valueairports measurements under the Authority’s within control the withfair avalue staff of hierarchy 155 full-time established equivalent by generally employees. The staff is responsible for the day-to-day financial, administration, operational and personnel accepted accountingmatters pertaining principles. to the Theairports hierarchy and the contract is basedual arrangementson the valuation with various inputs aviation used businesses.to measure the fair value of the assets. Level 1 inputs are quoted prices in active markets for identical assets. Level 2 inputs are significant otherAn annual observable operating inputs.budget is Level prepared 3 inputsand approved are significant by the Airport unobservable Authority’s Board inputs. of Commissioners. All appropriations for operating expenditures lapse at the end of the fiscal year and must be reappropriated for the following year. Separate accounts are maintained for major capital projects, which are closed when Debt securitiesthe asset are isvalued placed in based service. on Since the there securities’ is no legal relationship requirement to to report benchmark on the budgetary quoted basis, prices. no Derivative instruments budgetare valued information using is a presented market approachin the accompanying that considers financial benchmarkstatements. interest rates.

McGhee Tyson Airport The followingLocated table just sets 15 miles forth from by downto level,wn within Knoxville, the McGhee fair value Tyson hierarchy,Airport lies in the Blount fair County value on of 2,787 the Authority’s investmentsacres and ininterest the rolling rate foothills swap of liabilities the Great asSmoky of June Mountains 30, 2016 and provides: employment for more than 2,800 people. McGhee Tyson has two parallel 9,000-foot runways, one is currently under construction, and is served by most major U.S. airlines and/orLevel their re1 gional partner.Level These 2 airlines provideLevel numerous3 non-Total stop flights to destinations throughout the United States for approximately 2 million passengers each year. Investments:The airport is also home to the Tennessee Air Nati onal Guard’s 134th Air Refueling Wing. McGhee Tyson Governmentis classified debt by securities the Federal Aviation Administration$ (FAA)– $as a39,998,469 small air traffic hub$ airport. – $ 39,998,469

Interest rateKnoxville swap liabilities Downtown Island Airport$ – $ 4,502,609 $ – $ 4,502,609 Knoxville Downtown Island Airport is a general aviation airport located less than three miles from downtown Knoxville and is base for more than one hundred and fifty private and corporate aircrafts. The airport The followinghas a table 3,500-foot sets runway forth with by a level, published within localizer-only the fair approach. value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 8 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued) ECONOMIC CONDITIONS AND OUTLOOK

The primary service area for McGhee Tyson Airport is the City of Knoxville and its Metropolitan Statistical 5. Long-TermArea (MSA), Debt which (continued) comprises the heart of “Tennessee's Resource Valley”. According to the Bureau of the Census, in 2017 the population of Knox County was 461,860 and the population for the City of Knoxville was 187,347. The estimated 2017 population for the Knoxville MSA was 877,104. Scheduled Debt Service Requirements As of June 30,In addition, 2016, scheduleda broader regional debt marketservice is definedrequirements as the Tennessee, of the variableKentucky,-rate Virginia, debt North and Carolina,net swap payments, assuming currentSouth Carolinainterest and rates Georgia remain counties the lying same within for 100their miles term of McGhee are as follows.Tyson Airport, As rates which vary, is the variablelargest -rate bond interest paymentsairport inand the net region. swap payments will vary.

The Knoxville MSA witnessed a decrease from 4.7 to 2.9 percent in unemployment in 2017 as compared to Year ending2016, while the State Variableof Tennessee Rate saw a Bondsdecrease from 5.1 to 3.3 percent.Interest On Ratea national level, the June 30unemployment ratePrincipal decreased from 4.9 to 4.1 percent.Interest Swaps, net Total

2017 According to an$ economic 4,590,000 report prepared $ by562,983 the Boyd Center for Business$ 985,043 and Economic Research, $ 6,138,026 Haslam College of Business, University of Tennessee, the Tennessee economy is continuing to show signs 2018 of growth. Moderate4,825,000 growth is expected to cont522inue,361 through 2018 and throughout830,113 2019. Data indicates 6,177,474 2019 further improvement5,075,000 in most measures of economic479,483 activity. Nominal personal667,315 income in Tennessee is 6,221,798 2020 expected to be up 4.35,335,000 percent in 2018 and 2019.434,090 Nonfarm job growth is expected496,213 to slow in the future as 6,265,303 the economy gets closer to full employment. Manufact uring job growth is expected to slow markedly, a 2021 reflection of the return5,610,000 to high levels of production386,211 in many sectors of the316,408 economy, including the 6,312,619 2022-202transportation6 equipment32,520,000 sector. This outlook1,107,156 is consistent with exceptionally low405,195 unemployment rates as34,032,351 2027-2028the state unemployment12,680,000 rate is expected to average86,013 3.1 percent in 2018 and 2019. - 12,766,013

TotalKnox County is $the70,635,0 principal00 Gateway to the$ Great3,578,297 Smoky Mountains National$3,700,287 Park, which is the country’s$77,913,584 most visited national park. Approximately 11 million adventurers and sightseers visit the park each year. More than one-half of the nation’s population lives within 500 miles of the park, which is located half in 6. Fair ValueTennessee and half in North Carolina. Part of the Appalachian Range, Great Smoky Mountains National Park contains 16 peaks higher than 6,000 feet, the highest being Clingmans Dome. The Authority categorizes its fair value measurements within the fair value hierarchy established by generally accepted accountingThe continuing principles. economic The growth hierarchy experienced is basedin the ov onerall the economy valuation is reflected inputs in usedthe aviation to measure industry. the fair value According to the most recent FAA’s Aerospace Forecast FY2018, an improving economy both at home of the assets.and Levelabroad 1translated inputs into are a quotedgood year prices for U.S. in aviation active in markets2017, continuing for identical into 2018. assets. Fundamentally, Level 2 inputs are significant otherover the observable medium and inputs. long term, Level dema 3 ndinputs for aviation are significant is driven by unobservable economic activity, inputs. and a growing U.S. and world economy provides the basis for aviation to grow over the long run. The FAA forecast calls for U.S. carrier passenger growth over the next 20 years to average 1.9 percent per year. However, aviation is Debt securitiesparticularly are valuedsusceptible based and sensitive on the to securities’many variables relationship that could impact to benchmarkthis forecast. quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates. AIRLINE INFORMATION The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s As of June 30, 2018, McGhee Tyson Airport’s five passenger airlines and/or their regional affiliates offered investmentsover and 5,000 interest daily ratedeparting swap seats liabilities in 21 nonstop as of markets. June 30, In addition,2016: two cargo airlines linked the airport with three major air cargo hubs. A complete listing of air carriers and destinations is as follows: Level 1 Level 2 Level 3 Total Investments:Passenger Airlines GovernmentAllegiant debt Air securities $ – $ 39,998,469 $ – $ 39,998,469 American Airlines* Delta Air Lines* Interest rateFrontier swap Airlines liabilities $ – $ 4,502,609 $ – $ 4,502,609 United Airlines*

The following*some tableor all service sets offered forth through by regional level, airline withinaffiliates shown the below fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 9 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued) Regional Airline Affiliates Air Wisconsin Airlines, Inc./American Airlines Piedmont Airlines/American Airlines Commute Air/United Airlines PSA Airlines Inc./American Airlines Endeavor Air/Delta Air Lines Republic Airlines/United Airlines 5. Long-TermEnvoy Airlines/AmericanDebt (continued) Airlines Shuttle America Airlines/Delta Air Lines ExpressJet/American Airlines Skywest Airlines/American Airlines Scheduled DebtExpressJet/Delta Service Requi Air Linesrements Skywest Airlines/Delta Air lines As of June 30,ExpressJet/United 2016, scheduled Airlines debt service requirementsSkywest of Airlines/Unitedthe variable -Airlinesrate debt and net swap payments, GoJet Airlines/United Airlines TransStates Airlines/American Airlines assuming currentMesa Airlines/American interest rates remain Airlines the same for theirTransStates term are Airlines/United as follows. AsAirlines rates vary, variable-rate bond interest paymentsMesa Airlines/United and net swap Airlines payments will vary.

Year endingCargo Airlines Variable Rate Bonds Interest Rate FedEx, Inc. June 30UPS Airlines, Inc.Principal Interest Swaps, net Total

2017 Passenger Airline$ 4,590,000 Destinatio ns (as of$ June 562,983 30, 2018) $ 985,043 $ 6,138,026 2018 Atlanta, Baltimore/Washington,4,825,000 Charlotte, Chicago-O’Hare,522,361 Dallas/Fort Worth, 830,113Denver, Destin/Fort Walton6,177,474 Beach, Detroit, Fort Lauderdale, Houston, Las Vegas, Minneapolis/St. Paul, Newark, New York-LaGuardia, 2019 Orlando, Orlando-Sanford,5,075,000 Philadelphia, Punta 479,483Gorda/SW Florida, St. Petersburg/Tampa667,315 Bay, Washington-6,221,798 2020 Dulles, and Washington-National5,335,000 434,090 496,213 6,265,303 2021 5,610,000 386,211 316,408 6,312,619 Cargo Airline Destinations 2022-202Indianapolis,6 Louisville32,520,000 and Memphis 1,107,156 405,195 34,032,351 2027-2028 12,680,000 86,013 - 12,766,013 Airline Activity TotalMcGhee Tyson Airport’s$70,635,0 five00 passenger airlines$3,578,297 and/or their regional affiliates$ 3,700,287operated over 120 daily (arrivals$77,913,584 and departures) flights and had a record breaking year of passenger traffic serving 2,108,507 passengers in FY2018, an increase of 10.4 percent when compared to FY2017. Available airlines seats increased 5.4 percent 6. Fair Valueduring the year. The FY2018 airport load factor (percentage of airline seats filled) was 79 percent, which was consistent with FY2017. The Authority categorizes its fair value measurements within the fair value hierarchy established by generally 82,377,022 pounds of freight and mail moved through the airport during FY2018, a decrease of 3 percent accepted accountingcompared to principles. the previous Theyear. hierarchy is based on the valuation inputs used to measure the fair value of the assets. Level 1 inputs are quoted prices in active markets for identical assets. Level 2 inputs are significant otherFINANCIAL observable INFORMATION inputs. Level 3 inputs are significant unobservable inputs.

Long-term Financial Planning Debt securitiesThe current are valued Airport Master based Plan on for the McGhee securities’ Tyson Airport relationship was adopted to by benchmark the Board of Commissioners quoted prices. on Derivative instruments Novemberare valued 15, using 2006. aA marketFacility Planning approach Study that for theconsiders Knoxville benchmark Downtown Island interest Airport rates. was prepared for the Authority on November 19, 2008, as a guide for future development of that airport. The Authority is in the process of updating the McGhee Tyson Airport Master Plan and preparing an Airport Master Plan for the The followingKnoxville table Downtown sets forth Island by Airport. level, within the fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016: The Airport Master Plan for McGhee Tyson defines a concept for development of the airport over the course of a 20-year planning period and is prepared in collaboration with Federal and State agencies, local municipalities and interested airport users.Level The primary 1 objectiveLevel of the 2 Airport MasterLevel Plan 3 is to produceTotal a Investments:comprehensive planning guide for the continued development of a safe, efficient and environmentally Governmentcompatible debt aviation securities facility that meets$ the goals of the– Authority. $ 39,998,469 The plan incorp $orates a financial– model$ 39,998,469that evaluates the financial impact of the capital projects identified for the 20-year planning horizon, from 2005 through 2024. Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609 The Authority prepares an annual operating and capital budget. The capital improvement program included in the budget identifies funding sources for capital projects for planning horizons of 0-5 years, 6-10 years and 11- The following20 years. table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 10 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued) The Authority’s five year Airport Lease and Use Agreement with the airlines that serve McGhee Tyson Airport, due to expire on June 30, 2018, was extended through December 31, 2018. The Authority is in the process of renewing the Agreement. The extended Agreement became effective on July 1, 2013 and the extension does not change the terms or conditions. The Airport Lease and Use Agreement with the signatory airlines is a 5. Long-Termhybrid agreement.Debt (continued) Airfield costs are recovered using the residual method. The Authority recovers the airfield cost by charging commercial aircraft a landing fee and general aviation aircraft a fuel flowage fee. The military Scheduled Debtpays a Servicejoint use feeRequi for theirrements share of the airfield costs. Airline terminal rents are calculated using a compensatory As of June 30,method. 2016 The, scheduled terminal costs debt are calculated service by requirements adding the operating of theand maintenancevariable-rate cost debtand the and capital net expense swap payments, associated with the terminal complex and allocating the cost to the tenants. Passenger facility charge revenue assuming currentis applied interest to the ratesterminal remain debt service the same to fund for the their eligible term portions are as of follows. the terminal As capitalrates vary,expense. variable The -rate bond interest paymentsapplicable and terminal net swap rent is paymentsthen calculated will by vary.dividing the total remaining cost by the total usable terminal square footage. The Agreement provides for a mid-year adjustment, if projections vary by more than ten percent, and Year endinga year-end settlement. IfVariable airline rentals, Rate fees andBonds charges paid during the fiscalInterest year are moreRate than required, the excess will be issued as a credit to the airlines. If they are less, the airlines will be invoiced the deficiency. June 30 Principal Interest Swaps, net Total Relevant Financial Policies 2017 Financial policies $ for 4,590,000 the operation of the two$ airports562,983 are detailed in the Authority’s$ 985,043 by-laws. The Authority $ 6,138,026 2018 also adopted a comprehensive4,825,000 set of financial policies522,361 in an effort to standardize the830,113 issuance and management6,177,474 of debt and provide additional guidance on cash reserves and capital improvements on April 18, 2001. 2019 5,075,000 479,483 667,315 6,221,798 2020 Debt is to be used only5,335,000 to finance capital projects434,090 and equipment, except in case of496,213 emergency. The Authority6, 265,303 2021 has no commitments 5 ,610,000to issue any additional debt386,211 within the next fiscal year. 316,408 6,312,619

2022-202Cash6 reserves are intended32,520,000 to protect the Authority1,107,156 from unforeseen increases in 405,195expenditures or reductions 34,032,351in 2027-2028revenues, or both. 12,680,000 Reserves are also to be used to 86,013minimize borrowings, provide funding to- match grants from12,766,013 other entities, provide liquidity to fund operating expe nses and used to generate interest income for the TotalAuthority. The Authority$70,635,0 will00 maintai n cash $reserves3,578,297 at a minimum amount equal$3,700,287 to normal cash requirements$77,913,584 for operations and capital projects plus $10,000,000 or the outstanding minimum annual debt service on all existing debt, whichever is greater. The Authority currently holds approximately $50,226,000 in unrestricted 6. Fair Valuecash and investments. The Authority is building up the cash balance above the minimum required to advance fund future capital projects rather than using debt and/or provide additional security in the case of an economic The Authoritydownturn categorizes or financial its emergency.fair value measurements within the fair value hierarchy established by generally accepted accountingThe Authority principles. actively seeks The grants hierarchy or other iscontributi based onson tothe offset valuation capital costs inputs and minimizeused to borrowing measure for the fair value of the assets.projects Level that 1are inputs consistent are with quoted the Authority’s prices Capital in active Improvement markets Plan. for identical assets. Level 2 inputs are significant other observable inputs. Level 3 inputs are significant unobservable inputs. The Authority believes its prospects for the future are excellent.

Debt securitiesMAJOR are INITIATIVES valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates. Current Year Projects The Airport Authority has primarily been focused on the Airfield Modernization Program this year. The The followingAirfield table Modernization sets forth program by level, is a multi-year within program the fair to valueimprove hierarchy, the McGhee the Tyson fair Airport value runway of the and Authority’s investmentstaxiway and interest systems rateat an swapestimated liabilities cost of $130,200,000 as of June funded 30, 2016 primarily: with Federal and State grant funds. A construction contract for $24,207,280 was awarded to The Harper Company in FYE June 30, 2018 for Project III of the Runway 5L/23R reconstruction. The Harper Company construction contract for Project III was modified to include an additional award forLevel $6,278, 1044 in FYE JuneLevel 30, 2019.2 CHA LevelConsulting 3 was awardedTotal a Investments:contract for $2,784,155 for construction administration on the runway project in FYE June 30, 2018. A portion Governmentof the contractsdebt securities are to be funded 100$ percent by the Tennessee– $ 39,998,469 Air National Guar$ d. The remaining– portions$ 39,998,469 will be funded 90 percent with Federal grant funds, 5 percent with State grant funds and 5 percent Airport Authority funds. Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609 The Airport Authority entered into contracts during FYE June 30, 2018 to install new passenger boarding bridges at McGhee Tyson Airport. Contracts totaling $4,137,164 were awarded for Phase I of the project. The followingContracts table totaling sets forth$4,114,879 by were level, awarded within for thePhase fair II of value the project. hierarchy, Phase I twahes significantly fair value completed of the Authority’s investmentsduring and derivative FYE June 30, investments 2018. The project as of is fundJuneed 30,100 2015percent: with Airport Authority funds.

Level 1 Level 2 Level 3 Total Investments: 11 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued) The Knoxville Downtown Island Airport is wrapping up construction of the taxi lane, apron and new 24 unit T-hangar building project. The new hangars are being leased to new tenants. The project was funded with a combination of Federal grant funds, State grant funds and 5 percent Airport Authority funds.

5. Long-TermFuture Debt Year Projects (continued) Several major projects are in the planning stages for McGhee Tyson and Knoxville Downtown Island Airports Scheduled Debtfor the Service next fiscal Requi year: rements As of June 30, 2016, scheduled debt service requirements of the variable-rate debt and net swap payments, At McGhee Tyson Airport, the replacement of the flight information display systems (FIDs) at the 12 gates in assuming currentthe terminal interest is planned. rates Thisremain project the includes same newfor pagingtheir termstations, are boarding as follows. pass readers, As rates baggage vary, information variable -rate bond interest paymentsdisplay unitsand andnet digital swap sign paymentsing throughout will the vary. airport. The cost is approximately $1,200,000 and will be funded 100 percent with Airport Authority funds. Year ending Variable Rate Bonds Interest Rate At the Knoxville Downtown Island Airport, the runway is in need of repair or replacement. To facilitate this June 30evaluation, CHA Consulting,Principal Inc. has been hiredInterest to evaluate the need associatedSwaps, with this net project and to prepareTotal design and specifications to bid a final project. This project is being funded by a combination of Federal grant 2017 funds, State grant $ funds 4,590,000 and 5 percent Airport $ Authority562,983 funds. $ 985,043 $ 6,138,026 2018 4,825,000 522,361 830,113 6,177,474 The master plans for both airports are in the process of being updated. McGhee Tyson Airport’s Master Plan 2019 will be funded 100 percent5,075,000 with Airport Authority479,483 funds. Knoxville Downtown Island667,315 Airport is being funded6,221,798 2020 95 percent State grant5,335,000 funds and 5 percent Airport434,090 Authority funds. 496,213 6,265,303 2021 5,610,000 386,211 316,408 6,312,619 The Airport Authority is continuing the planning and programming process on the Oak Ridge general aviation 2022-202airport.6 At present, 32,520,000 the FAA is working with 1,107,156the Authority on the Master Planning405,195 process for the proposed34,032,351 2027-2028airport. Pending 12,680,000FAA approval of the Master Plan,86,013 the next logical step would likely be- an Environmental12,766,013 Assessment of the airport site. CHA, Inc. is the Authority's Program Manager and is providing strategic Totalguidance on the process.$70,635,0 00 $3,578,297 $3,700,287 $77,913,584

MAJOR AIRPORT CAPITAL IMPROVEMENTS COMPLETED 6. Fair Value Year The AuthorityCom categorizespleted itsDescri fair pvaluetion measurements within the fair value hierarchy establishedCost by generally 1989 Parking Garage Phase I (775 spaces) $5.7 million accepted accounting1991 principles.Air Car Thego Comhierarchyplex (FedEx is based and UPS on) the valuation inputs used to$12 measure million the fair value of the assets.1993 Level 1 inputsRunwa arey 5R/23L quoted 3,000 prices foot in extension active markets for identical assets.$14 million Level 2 inputs are significant other1995 observable Parkininputs.g Gara Levelge Phase3 inputs II (619 are s psignificantaces) unobservable inputs. $3.2 million 1998 Parking Garage Phase III (1,417 spaces) $8.2 million 2000 Passenger Terminal Building Renovation and Expansion $72 million Debt securities2000 are valued Ex basedpress J onet Maintenance the securities’ Facilit yrelationship to benchmark quoted$13.7 million prices. Derivative instruments 2002are valued usingDelta a market Air Lines approach Maintenance that Facilitconsidersy benchmark interest rates.$8.5 million 2008 Airport Rescue and Fire Fighting Facility $11.6 million 2009 West Aviation Area $53 million The following2010 table sets forthTaxiwa byy B level, Reconstruction within the fair value hierarchy, the fair value$5.4 million of the Authority’s investments2013 and interest rateA swapirfield Maintenanceliabilities as Com of pJunelex 30, 2016: $18.7 million 2015 Land acquisition in Runway 23R Runway Protection Zone $6.1 million 2016 Aircraft Storage Hangar for Cirrus Design Corp. $2.3 million 2017 Air Cargo Building (LevelDelta) 1 Level 2 Level 3 $2.0 millionTotal Investments:2018 Knoxville Downtown Island Airport T-Hangars, Taxiway & Apron $2.7 million Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 12 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued) CERTIFICATE OF ACHIEVEMENT

The Government Finance Officers Association of the United States and Canada (GFOA) awarded a 5. Long-TermCertificate Debt of Achievement (continued) for Excellence in Financial Reporting to the Metropolitan Knoxville Airport Authority for its comprehensive annual financial report for the fiscal year ended June 30, 2017. This was the twenty-fifth consecutive year that the government has achieved this prestigious award. In order Scheduled Debtto be Serviceawarded aRequi Certificaterements of Achi evement, a government must publish an easily readable and efficiently As of June 30,organized 2016 ,comprehensive scheduled debt annual service financial requirements report. This reportof the must variable satisfy-rate both debt generally and acceptednet swap payments, assuming currentaccounting interest principles rates and remain applicable the legalsame requirements. for their term are as follows. As rates vary, variable-rate bond interest payments and net swap payments will vary. A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual financial report continues to meet the Certificate of Achievement Program’s requirements, and we Year endingare submitting it to theVariable GFOA to determine Rate Bonds its eligibility for another certificate.Interest Rate June 30 Principal Interest Swaps, net Total ACKNOWLEDGEMENTS 2017 $ 4,590,000 $ 562,983 $ 985,043 $ 6,138,026 2018 The preparation of4,825,000 this report could not have 522been,361 accomplished without the830,113 professional assistance of 6,177,474 the entire Finance and Accounting staff and the cooperation of each department within the Metropolitan 2019 Knoxville Airport Authority.5,075,000 We also extend our479,483 apprec iation to the staff of 667,315Coulter & Justus, P.C. for 6,221,798 2020 their technical assistance5,335,000 and guidance in the preparation434,090 of this report. 496,213 6,265,303 2021 5,610,000 386,211 316,408 6,312,619 We would also like to thank the individual members of the Board of Commissioners of Metropolitan 2022-202Knoxville6 Airport 32,520,000 Authority for their interest,1,107,156 support, and leadership in planning405,195 and conducting the34,032,351 2027-2028financial operations12,680,000 of the Authority in a responsible86,013 and progressive manner. - 12,766,013 Total $70,635,000 $3,578,297 $3,700,287 $77,913,584 Respectfully submitted,

6. Fair Value

Bill Marrison, The AuthorityA.A.E. categorizes President its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the assets. Level 1 inputs are quoted prices in active markets for identical assets. Level 2 inputs are significant other observable inputs. Level 3 inputs are significant unobservable inputs. Nancy White, CPA, C.M. Debt securitiesVice President, are valued Finance based on the securities’ relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates.

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 13 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

5. Long-Term Debt (continued)

Year ending Variable Rate Bonds Interest Rate June 30 Principal Interest Swaps, net Total

2017 $ 4,590,000 $ 562,983 $ 985,043 $ 6,138,026 2018 4,825,000 522,361 830,113 6,177,474 2019 5,075,000 479,483 667,315 6,221,798 2020 5,335,000 434,090 496,213 6,265,303 2021 5,610,000 386,211 316,408 6,312,619 2022-2026 32,520,000 1,107,156 405,195 34,032,351 2027-2028 12,680,000 86,013 - 12,766,013 Total $70,635,000 $3,578,297 $3,700,287 $77,913,584

6. Fair Value

Debt securities are valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates.

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 14 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

5. Long-Term Debt (continued)

Year ending Variable Rate Bonds Interest Rate June 30 Principal Interest Swaps, net Total

6. Fair Value

The Authority categorizes its fair value measurements within the fair value hierarchy established by generally accepted accountingDESTINATIONS principles. The hierarchy is based on the valuation inputs used to measure the fair value of the assets. Level 1 inputs are quoted prices in active markets for identical assets. Level 2 inputs are significant otherAllegiant observable Air inputs. Level 3 inputs are significantDelta/Delta unobservable Connection inputs. Fort Lauderdale Atlanta Orlando-Sanford Detroit Debt securities areSt. valuedPetersburg/Tampa based on Bay the securities’ relationshipMinneapolis/St. to benchmark Paul quoted prices. Derivative instruments are valuedPunta using Gorda/SW a market Florida approach that considers benchmarkNew York-LaGuardia interest rates. Baltimore/Washington* Destin/Fort Walton* Frontier The following tableLas setsVegas forth by level, within the fair value Denver hierarchy, the fair value of the Authority’s investments and interestNewark rate swap liabilities as of June 30, 2016 : Orlando*

American/American Eagle Airlines United/United Express Chicago-O’Hare Level 1 Level Chicago-O’Hare 2 Level 3 Total Investments: Dallas/Fort Worth Denver Government debtCharlotte securities $ – $ 39,998,469 Washington-Dulles $ – $ 39,998,469 Philadelphia Houston Washington-National Newark Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609 *Denotes seasonal service The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 15 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued) ORGANIZATIONAL CHART

5. Long-Term Debt (continued) Board of Commissioners

Scheduled Debt Service Requirements As of June 30, 2016, scheduled debt service requirements of the variable-rate debt and net swap payments, assuming current interest rates remain the same for their term are as follows. As rates vary, variable-rate bond interest payments and net Legalswap Counsel payments will vary. External Auditor

Year ending Variable Rate Bonds Interest Rate June 30 Principal Interest Swaps, net Total

2017 $ 4,590,000 $ 562,983 $ 985,043 $ 6,138,026 2018 4,825,000 522,361 830,113 6,177,474 2019 5,075,000 479,483President 667,315 6,221,798 2020 5,335,000 434,090 496,213 6,265,303 2021 5,610,000 386,211 316,408 6,312,619

2022-202 6 32,520,000 1,107,156 405,195 34,032,351 2027-2028 12,680,000 86,013 - 12,766,013 Executive Assistant Total $70,635,000 $3,578,297 $3,700,287 $77,913,584

6. Fair Value

The Authority categorizes its fair value measurements within the fair value hierarchy established by generally accepted accountingVice President principles. of The hierarchy is based on the valuation inputs used to measure the fair value Vice President Vice President Vice President Marketing and Vice President of Director of of the assets. Level 1 inputs are quoted pricesof Airport in active of markets Engineering for identical assets. of Level Public 2 inputs are Air Services Finance Public Safety Operations and Planning Relations significant otherDevelopment observable inputs. Level 3 inputs are significant unobservable inputs.

Debt securities are valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates.

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 16 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

FINANCIAL SECTION

This section contains the following subsections:

Report of independent auditors

Management’s discussion and analysis

Financial statements

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Report of Independent Auditors

Board of Commissioners Metropolitan Knoxville Airport Authority

Report on the Financial Statements

We have audited the accompanying financial statements of Metropolitan Knoxville Airport Authority (the Authority), a component unit of the City of Knoxville, Tennessee as of and for the years ended June 30, 2018 and 2017, and the related notes to the financial statements, which collectively compromise the Authority’s basic financial statements as listed in the table of contents.

Management’s Responsibility for the Financial Statements

The Authority’s management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Authority’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Authority’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Metropolitan Knoxville Airport Authority as of June 30, 2018 and 2017, and the changes in its financial position and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Board of Commissioners Metropolitan Knoxville Airport Authority

Other Matters

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis on pages 22 through 31 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Information

Our audits were conducted for the purpose of forming an opinion on the financial statements that collectively comprise the Authority’s basic financial statements. The introductory section, Schedules of Long- Term Debt Principal and Interest Requirements and statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The Schedule of Expenditures of Federal Awards, State Financial Assistance and Passenger Facility Charges Collected and Expended is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and the Passenger Facility Charge Audit Guide for Public Agencies, issued by the Federal Aviation Administration, and is also not a required part of the basic financial statements.

The Schedule of Expenditures of Federal Awards, State Financial Assistance and Passenger Facility Charges Collected and Expended and the Schedules of Long-Term Debt Principal and Interest Requirements are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements as a whole.

The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them.

Board of Commissioners Metropolitan Knoxville Airport Authority

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated November 14, 2018, on our consideration of the Authority’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 solely 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 effectiveness of the Authority’s internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Authority’s internal control over financial reporting and compliance.

Coulter & Justus, P.C.

November 14, 2018 Knoxville, Tennessee

21 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

MANAGEMENT’S DISCUSSION AND ANALYSIS

5. Long-TermThe following Debt (continued)discussion and analysis of the Metropolitan Knoxville Airport Authority’s financial performance provides an overview of the financial activities of the McGhee Tyson Airport and the Knoxville Downtown Island Airport for the fiscal year ended June 30, 2018. Following this MD&A are the basic Scheduled Debtfinancial Service statements Requi of rementsthe Authority together with the notes thereto. As of June 30, 2016, scheduled debt service requirements of the variable-rate debt and net swap payments, assuming currentAirport interest activiti rateses highlights remain the same for their term are as follows. As rates vary, variable-rate bond interest paymentsIn conjunction and net with swap the continuingpayments economic will vary. growth experienced in the overall economy, the major activity indicators at McGhee Tyson Airport increased during fiscal year 2018.

Year endingThe details of major airportVariable indicators Rate for the Bonds fiscal years 2016-2018 areInterest as follows: Rate June 30 Principal Interest Swaps, net Total

2018 2017 2016 En planements 1,057,578 958,429 898,671 2017 % (decrease ) increase$ 4,590,000 $ 562,983 10.34% $ 6.65%985,043 2.96% $ 6,138,026 2018 A ircraft operations4,825,000 522,361 111,989 99,859830,113 94,376 6,177,474 2019 % (decrease ) increase5,075,000 479,483 12.15% 5.81%667,315 (3.80)% 6,221,798 Landed weight (thousand pound units) 1,511,615 1,407,277 1,281,716 2020 % (decrease ) increase5,335,000 434,090 7.41% 9.80%496,213 .69% 6,265,303 2021 Cargo (pounds5,610,000) 386,211 82,377,022 85,287,015316,408 80,470,932 6,312,619 2022-2026 % (decrease ) increase32,520,000 1,107,156 (3.41)% 5.98%405,195 6.15% 34,032,351

2027-2028During fiscal year12,680,000 2018, McGhee Tyson Airport86,013 offered East Tennessee travelers -21 nonstop airline12,766,013 Totaldestinations flown $70,635,0 by five airlines00 and their affiliates.$3,578,297 Few other communities$ of3,700,287 this size provide such a broad$77,913,584 range of nonstop cities.

6. Fair ValueFinancial highlights The Airport Authority is treated as a component unit of the City of Knoxville, Tennessee. The Authority issues a Comprehensive Annual Financial Report, which is incorporated in the City of Knoxville’s Comprehensive The AuthorityAnnual categorizes Financial Report.its fair The value financial measurements statements following within thisthe MD&A fair value are comprised hierarchy of theestablished Statements by generally accepted accountingof Net Position, principles. the Statements The hierarchy of Revenues, is based Expenses on andthe Changesvaluation in Net inputs Position, used the to Statements measure ofthe fair value Cash Flows and the accompanying Notes to the Financial Statements. The financial information herein of the assets.is presented Level 1at inputsa summarized are quoted level for pricesanalysis inpurpos activees only. markets See Note for 1 to identical the financial assets. statements Level for 2 inputs are significant othersignificant observable accounting inputs. policie sLevel related 3 to inputs the Authority. are significant unobservable inputs.

2017 – 2018: Debt securitiesThe Airport are valued Authority’s based operating on the revenues securities’ increase relationshipd by 4.51% from to benchmarkFY2017 to FY2018 quoted due prices.to the Derivative instruments following:are valued using a market approach that considers benchmark interest rates.

The followingAviation table and sets terminal forth area by revenues level, increased within 4.04% the fair and value4.65%, hierarchy,respectively, due the to fair a 10.34% value increase of the of Authority’s enplanements, a 3.06% increase in rental car revenue and a 4.17% increase in parking revenue received from investmentspassengers and interest leading rate to swap improved liabilities revenues as inof theJune term 30,inal 2016 area.: Air cargo and other property revenues increased 4.42% primarily due to additional leased areas. Level 1 Level 2 Level 3 Total Operating expenses increased 1.78%. The relatively flat increase was a result of effective cost management. Investments: GovernmentThe Authority debt securities realized a 19.33% decrease$ in interest ex–pense. $ The39,998,469 decrease was primarily$ due– to the refinance$ 39,998,469 of the Authority’s Series II-D-1 bond to a lower interest rate note and a reduction in the principal balance.

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 22 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

There was an increase in net position from $184,085,854 at the beginning of FY2018 to $206,273,988 at the end of the fiscal year. The change in net position is an indication of whether the overall fiscal condition of 5. Long-Termthe Authority Debt has (continued) improved or worsened during the year. We feel the overall fiscal condition of the Authority remains strong.

Scheduled Debt2016 –Service 2017: Requirements As of June 30,The Airport2016, Authority’sscheduled operating debt service revenues requirements increased by 5.05% of from the FY2016variable to -FY2017rate debt due toand the netfollowing: swap payments, assuming current interest rates remain the same for their term are as follows. As rates vary, variable-rate bond interest paymentsAviation and and netterminal swap area payments revenues increased will vary. .46% and 6.51%, respectively, due to increases in landing fees charged to airlines, a 13.54% increase in rental car revenue and a 3.5% increase in parking revenue received

from passengers leading to improved revenues in the terminal area. Air cargo and other property revenues Year endingincreased 3.98% primarilyVariable due to additional Rate leased Bonds areas. Interest Rate June 30 Principal Interest Swaps, net Total Operating expenses increased 5.63% due to an 11.7% increase in administrative area expenses, a 6.68% increase in terminal area expenses and a 4.90% increase in safety area expenses offset by a 5.28% decrease in aviation 2017 expenses and a 4.97%$ 4,590,000 decrease in air cargo $ and562,983 other properties expense. $The 985,043 administrative area expense$ 6,138,026 2018 increases were primarily4,825,000 due to an increase in expenses522,361 associated with project costs830,113 associated with potential6,177,474 2019 future projects and5,075,000 loan refunding. The terminal479,483 area expenses were due to667,315 an increase in repair and6,221,798 maintenance expenses and the safety area expenses increased due to increased passenger traffic. The decrease 2020 in aviation expenses5,335,000 was primarily due to a decrease434,090 in repairs and maintenance496,213 and the air cargo and other6, 265,303 2021 properties expense was5,610,000 primarily due to a decrease386,211 in fuel costs. 316,408 6,312,619 2022-202 6 32,520,000 1,107,156 405,195 34,032,351 The Authority realized a 4.6% increase in interest expense due to an increase in current interest rates. Changes 2027-2028in the projected interest12,680,000 rate environment resulted86,013 in $923,279 of income from the change- in fair value of12,766,013 Totalthe derivative instrument$70,635,0 associat00 ed with the$ 3,578,297Series V-A-1 bonds. $3,700,287 $77,913,584

There was an increase in net position from $151,556,882 at the beginning of FY2017 to $184,085,854 at the 6. Fair Valueend of the fiscal year.

2015 – 2016: The AuthorityThe categorizesAirport Authority’s its fair operating value revenues measurements increased by within 0.79% fromthe fairFY2015 value to FY2016 hierarchy due to established the following: by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value Aviation and terminal area revenues increased 1.90 % and 1.20%, respectively, due to increases in landing fees of the assets.charged Level to airlines 1 inputs and a are 2.93% quoted increase prices in parking in activerevenue marketsreceived fr om for passengers. identical Air assets. cargo and Level other 2 inputs are significant otherproperty observable revenues decreased inputs. 2.62% Level due 3 inputsto a decrease are significantin net revenues unobservable at the Downtown inputs. Island Airport.

Operating expenses increased 2.96% largely due to a 14.25% increase in administrative area expenses. The Debt securitiesadministrative are valued area expense based increases on the were securities’ primarily an increase relationship in employee to benchmarkhealth insurance quoted cost and expenses prices. Derivative instruments associatedare valued with using expensing a market planning approach costs for Oak that Ridge considers Airport. benchmark interest rates.

The followingThe Authority table sets realized forth a 4.50% by level, reduction within in interest the expense fair value mostly hierarchy, due to decreases the of fair 5.82% value in the of amount the Authority’s of debt outstanding and 12.32% in the notional amount of the derivative instruments. The lower notional investmentsamount and interest also contributed rate swap to the liabilities $255,123 asof incomeof June from 30, the 2016 change: in fair value of the derivative instrument associated with the Series V-A-1 bonds; this was a decline of 46.80% year-to-year. Level 1 Level 2 Level 3 Total There was an increase in net position from $136,533,414 at the beginning of FY2016 to $151,556,882 at the Investments:end of the fiscal year. Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 23 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

Summary of revenues, expenses and changes in net position

5. Long-Term Debt (continued) Year ended June 30 2018 2017 2016 Scheduled Debt Service Requirements Operating revenues $ 30,402,784 $ 29,091,286 $ 27,692,492 As of June 30,O 2016peratin, gscheduled expenses debt service requirements of(21,708,611 the variable) (21,328,731-rate debt) and(20,191,678 net swap) payments, assuming currentExcess interest before ratesdepreciation remain and the other same income, for nettheir term8,694,173 are as follows. 7,762,555 As rates vary,7,500,814 variable -rate bond interest paymentsDep reciationand net and swap amortization payments will vary. (9,499,946) (9,539,399) (9,912,070) Operating loss (805,773) (1,776,844) (2,411,256) Year endingNet nonoperating incomeVariable (expense Rate) Bonds 3,812,308 Interest2,620,125 Rate 2,599,725 Income before capital contributions 3,006,535 843,281 188,469 June 30 Principal Interest Swaps, net Total Capital contributions 19,181,599 31,685,691 14,834,999 2017 $ 4,590,000 $ 562,983 $ 985,043 $ 6,138,026 2018 Increase in net p4,825,000osition 522,361 22,188,134 32,528,972830,113 15,023,468 6,177,474 Net position at beginning of year 184,085,854 151,556,882 136,533,414 2019 Net position at5,075,000 end of year 479,483 $206,273,988 $184,085,854667,315 $151,556,882 6,221,798 2020 5,335,000 434,090 496,213 6,265,303 2021 Financial summary 5,610,000 386,211 316,408 6,312,619 2022-202 6 32,520,000 1,107,156 405,195 34,032,351 Year ended June 30 2027-2028 12,680,000 86,013 2018 2017 - 2016 12,766,013 Total $70,635,000 $3,578,297 $3,700,287 $77,913,584 Current assets $ 60,925,770 $ 61,853,194 $ 61,542,805 Restricted assets 1,937,806 1,924,721 2,029,096 6. Fair ValueCa pital assets, net 209,828,418 192,092,127 164,857,876 Master plan and other plans, net 393,642 61,548 62,192 Other 512,713 579,343 633,229 The AuthorityT categorizesotal assets its fair value measurements within273,598,349 the fair value256,510,933 hierarchy established229,125,198 by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value Deferred outflows – debt refunding 1,222,222 1,375,000 – of the assets. Deferred Level 1outflows inputs – areinterest quoted rate swaps prices in active markets– for identical– assets.2,388,073 Level 2 inputs are significant otherTotal observable deferred outf inputs.low of Level resources 3 inputs are significant1,222,222 unobservable 1,375,000 inputs. 2,388,073

Debt securitiesT otal are assets valued and baseddeferred on outflows the securities’ of resources relationship $274,820,571 to benchmark $257,885,933 quoted $231,513,271 prices. Derivative instruments are valued using a market approach that considers benchmark interest rates. Current liabilities $ 10,894,574 $ 10,213,823 $ 9,408,780 Long-term debt, less current portion 57,045,000 62,395,000 66,045,000 The followingInterest table rate sets swap forth liabilities by level,– Hedging within the fair value hierarchy,– the fair– value2,388,073 of the Authority’s investments andInterest interest rate swaratep liabilitiesswap liabilities – Investment as of June 30, 2016607,009: 1,191,256 2,114,536 Total liabilities 68,546,583 73,800,079 79,956,389

Net investment in capital assets Level 1 146,198,639Level 2 123,577,195Level 3 91,628,740Total Investments: Restricted net position 1,937,806 1,924,721 2,029,096 GovernmentUnrestricted debt securities net position $ – $ 58,137,54339,998,469 58,583,938$ – 57,899,046$ 39,998,469 Total net position 206,273,988 184,085,854 151,556,882

Interest rate swapTotal liabilitiesliabilities and net position$ – $274,820,571$ 4,502,609 $257,885,933 $ – $231,513,271 $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 24 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

The largest portion of the Authority’s net position each year represents its investment in capital assets less the related indebtedness outstanding used to acquire those capital assets. The Authority uses these capital 5. Long-Termassets to Debt provide (continued) services to its passengers and visitors; consequently, these assets are not available for future spending. Scheduled Debt Service Requirements Although the Authority’s investment in its capital assets is reported net of related debt, the resources As of June 30,required 2016 to, repayscheduled this debt debt must service be provided requirements annually from of operations,the variable since-rate it isdebt unlikely and the net capital swap payments, assuming currentassets themselvesinterest rates will be remain liquidated the to same pay liabilities.for their Another term are portion as follows. of net position As rates is restrictedvary, variable and -rate bond interest paymentsprimarily and represents net swap Passenger payments Facility will Charges vary. (PFC) that are restricted by Federal regulations. The remaining portion of net position is unrestricted and may be used to meet any of the Authority’s ongoing obligations. Year ending Variable Rate Bonds Interest Rate June 30Airline signatoryPrincipal rates and charges Interest Swaps, net Total The Authority and certain airlines ne gotiated an agreement effective July 1, 2013, for five years, which 2017 established how those$ 4,590,000 airlines would be assessed $ 562,983 annual rates and charged for$ their985,043 use of the airport. This$ 6,138,026 2018 agreement was extended4,825,000 through December 31,522 2018,361 and the Authority is in the830,113 process of renewing the 6,177,474 Agreement. 2019 5,075,000 479,483 667,315 6,221,798 2020 Terminal rates and landing5,335,000 fees are estimated at the434,090 beginning of the year with an496,213 annual year-end settlement 6,265,303 2021 calculation. The rates5,610,000 and charges for the signatory386,211 airlines were as follows: 316,408 6,312,619

2022-2026 32,520,000 1,107,156 Year ended405,195 June 30 34,032,351 2027-2028 12,680,000 86,013 2018 2017 - 2016 12,766,013 Total $70,635,000 $3,578,297 $3,700,287 $77,913,584 Landing fees (per 1,000 lbs. MCLW) $3.13 $3.23 $3.50 Terminal rates (per square foot) $43.22 $42.01 $38.75 6. Fair ValueLoading bridge rate per bridge $43,802 $45,176 $45,436 Apron charge per gate $86,085 $82,788 $81,934

The AuthorityCost categorizes per enplaned its fairpassenger value measurements within the fair value hierarchy established by generally accepted accountingCost per enplaned principles. passenger The or hierarchy airline cost isper based passenger on isthe generally valuation considered inputs to usedbe part to of measurean airline’s the fair value cost of doing business at an airport. Cost per enplaned passenger is defined as all landing fees, airside usage of the assets.charges, Level terminal 1 inputs rents and are other quoted airline pricespayments in to activeairports marketsdivided by forenplaned identical passengers. assets. The cost Level per 2 inputs are significant otherenplaned observable passenger forinputs. McGhee Level Tyson 3 inputsAirport wereare significantas follows: unobservable inputs.

Debt securities are valued based on the securities’ relationship2018 to benchmark2017 quoted2016 prices. Derivative Cost per enplaned passenger $7.20 $7.56 $8.12 instruments are valued using a market approach that considers benchmark interest rates.

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 25 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

Financial details

5. Long-TermRevenues Debt (continued) The following schedule presents a summary of operating revenues:

Scheduled Debt Service Requirements Year ended June 30 As of June 30, 2016, scheduled debt service requirements of2018 the variable-2017rate debt and2016 net swap payments, assuming currentOperating interest revenues: rates remain the same for their term are as follows. As rates vary, variable-rate bond interest paymentsAviation and area net swap payments will vary. $ 5,365,728 $ 5,157,606 $ 5,133,877 Terminal area 21,008,481 20,075,555 18,848,009 Air cargo and other properties 4,028,575 3,858,125 3,710,606 Year endingTotal operating revenuesVariable Rate Bonds 30,402,784 Interest29,091,286 Rate 27,692,492 June 30 Principal Interest Swaps, net Total Other income (deductions) and capital 2017 contributions: $ 4,590,000 $ 562,983 $ 985,043 $ 6,138,026 2018 Passenger facility4,825,000 charges, net 522,361 4,291,948 3,767,376830,113 3,412,227 6,177,474 Interest income 449,928 373,275 298,709 2019 Change in fair value5,075,000 of investment interest rate479,483 swap 584,247 667,315923,279 255,123 6,221,798 2020 Other nonoperating,5,335,000 net 434,090 268,308 (234,762)496,213 745,585 6,265,303 2021 Capital contributions 5,610,000 – grant receipts from 386,211 316,408 6,312,619 governmental agencies 19,181,599 31,685,691 14,834,999 2022-2026 Net other income32,520,000 and capital contributions1,107,156 24,776,030 36,514,859405,195 19,546,643 34,032,351 2027-2028 Total revenues12,680,000 and other income 86,013 $ 55,178,814 $ 65,606,145 - $ 47,239,135 12,766,013 Total $70,635,000 $3,578,297 $3,700,287 $77,913,584

6. Fair Value

Debt securities are valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates.

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 26 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

The following chart shows the operating revenues for the past three fiscal years.

5. Long-Term Debt (continued) 35,000,000 Scheduled Debt Service Requirements As of June 30, 2016, scheduled30,000,000 debt service requirements of the variable-rate debt and net swap payments, assuming current interest rates remain the same for their term are as follows. As rates vary, variable-rate bond interest payments and net swap25,000,000 payments will vary.

Year ending Variable Rate Bonds Interest Rate June 30 Principal20,000,000 Interest Swaps, net Total

2017 $ 4,590,00015,000,000 $ 562,983 $ 985,043 $ 6,138,026 2018 4,825,000 522,361 830,113 6,177,474

2019 5,075,00010,000,000 479,483 667,315 6,221,798 2020 5,335,000 434,090 496,213 6,265,303 2021 5,610,000 386,211 316,408 6,312,619 2022-2026 32,520,0005,000,000 1,107,156 405,195 34,032,351 2027-2028 12,680,000 86,013 - 12,766,013 0 Total $70,635,000 2018$3,578,297 2017 2016$3,700,287 $77,913,584

6. Fair ValueThe sources and the percentage of operating revenue for fiscal year ended June 30, 2018, are shown below.

The Authority categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the assets. Level 1 inputs are quoted prices in active markets for identical assets. Level 2 inputs are significant other observable inputs. Level 3 inputs are significant unobservable inputs. Aviation area 18% Debt securities are valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates.

Air Cargo and other The following table sets forth by level, within the fair value property hierarchy, 13% the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016: Terminal area 69%

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 27 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

Expenses The following schedule presents a summary of operating expenses for the fiscal years ended June 30, 2018, 5. Long-TermJune 30, Debt 2017, and(continued) June 30, 2016:

Scheduled Debt Service Requirements Year ended June 30 As of June 30, 2016, scheduled debt service requirements of2018 the variable-2017rate debt and 2016net swap payments, Operating expenses: assuming currentAviation interest area rates remain the same for their term $ 2,332,940 are as follows. $ 2,203,523 As rates $vary, 2,326,391 variable -rate bond interest paymentsTerminal and net area swap payments will vary. 5,847,724 5,874,317 5,506,569 Air cargo and other properties 1,530,434 1,453,788 1,529,873 Year endingSafety Variable Rate Bonds 4,628,650 Interest4,609,726 Rate 4,394,476 Administration 7,368,863 7,187,377 6,434,369 June 30 Total operatingPrincipal expenses Interest 21,708,611 Swaps,21,328,731 net 20,191,678 Total

2017 Depreciation $and 4,590,000 amortization $ 562,983 9,499,946 $ 9,539,399985,043 9,912,070 $ 6,138,026 2018 4,825,000 522,361 830,113 6,177,474 2019 Interest expense5,075,000 479,483 1,782,123 2,209,043667,315 2,111,919 6,221,798 2020 Total expenses5,335,000 434,090 $32,990,680 $33,077,173496,213 $ 32,215,667 6,265,303

2021 5,610,000 386,211 316,408 6,312,619 2022-202The6 following chart32,520,000 shows the operating expenses1,107,156 for the past three fiscal years.405,195 34,032,351 2027-2028 12,680,000 86,013 - 12,766,013 Total $70,635,025,000,00000 $3,578,297 $3,700,287 $77,913,584

6. Fair Value 20,000,000 The Authority categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the assets. Level 1 inputs15,000,000 are quoted prices in active markets for identical assets. Level 2 inputs are significant other observable inputs. Level 3 inputs are significant unobservable inputs.

Debt securities are valued 10,000,000 based on the securities’ relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates.

The following table sets forth5,000,000 by level, within the fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016:

0 Level 1 Level 2 Level 3 Total Investments: 2018 2017 2016 Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 28 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

The sources and the percentage of operating expense for fiscal year ended June 30, 2018, are shown below.

5. Long-Term Debt (continued)

Scheduled Debt Service Requirements As of June 30, 2016, scheduled debt service requirements of the variable-rate debt and net swap payments, assuming current interest rates remain the same for their termAviation area 11% are as follows. As rates vary, variable-rate bond interest payments and net swap payments will vary. Administration 34% Year ending Variable Rate Bonds Interest Rate June 30 Principal Interest Swaps, net Total Terminal area 27%

2017 $ 4,590,000 $ 562,983 $ 985,043 $ 6,138,026 2018 4,825,000 522,361 830,113 6,177,474 2019 5,075,000 479,483 667,315 6,221,798

2020 5,335,000 434,090 Air Cargo and other 496,213 6,265,303 Safety 21% 2021 5,610,000 386,211 Property 7% 316,408 6,312,619 2022-2026 32,520,000 1,107,156 405,195 34,032,351 2027-2028 12,680,000 86,013 - 12,766,013 Total $70,635,000 $3,578,297 $3,700,287 $77,913,584

Summary of cash flow activities 6. Fair Value Year ended June 30 The Authority categorizes its fair value measurements within 2018the fair value2017 hierarchy established2016 by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value Operating activities $ 8,894,883 $ 7,620,830 $ 7,940,660 of the assets. Investing Level 1 activities inputs are quoted prices in active 6,183,959 markets for identical1,464,105 assets. 356,878 Level 2 inputs are significant otherCapital observable and related inputs. financing Level activities 3 inputs are significant(13,125,696) unobservable (7,351,180) inputs. (7,347,055) Net increase in cash and equivalents 1,953,146 1,733,755 950,483 Debt securitiesCash are and valued cash equivalents based onat beginning the securities’ of year relationship16,230,289 to benchmark14,496,534 quoted13,546,051 prices. Derivative instruments areCash valued and cashusing equivalents a market atapproach end of year that considers$18,183,435 benchmark $16,230,289 interest rates.$14,496,534

The followingFinancial table setsstatements forth by level, within the fair value hierarchy, the fair value of the Authority’s investmentsThe and Authority’s interest rate financial swap statements liabilities are as preparedof June on30, an 2016 accrual: basis in accordance with accounting principles generally accepted in the United States of America promulgated by the Governmental Accounting Standards Board. The Authority is structured as a single enterprise fund with revenue recognized when earned, not when received. Expenses are Levelrecognized 1 when incurred,Level not 2 when theyLevel are paid. 3 Capital assetsTotal Investments:are capitalized and (except land and construction in progress) are depreciated over their useful lives. GovernmentAmounts debt are securitiesrestricted for debt service$ and, where ap–plicable, $ 39,998,469 for construction purposes.$ See– the notes$ 39,998,469to the financial statements for a summary of the Authority’s significant accounting policies. Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 29 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

Capital acquisitions and construction activities During fiscal year ended June 30, 2018, the Authority expended $26,996,390 on capital activities. This 5. Long-Termincluded Debt land acquisitions (continued) and major construction projects.

Scheduled DebtDuring Service fiscal yearRequi endedrements June 30, 2018, completed projects totaling $3,271,219 were closed from construction-in-progress to their respective capital accounts. As of June 30, 2016, scheduled debt service requirements of the variable-rate debt and net swap payments, assuming currentProperty interest and equipment rates remain acquisitions the sameare capitalized for their at termcost. Acquisitionsare as follows. are funded As rates using vary, a variety variable of -rate bond interest paymentsfinancing and techniques, net swap including payments federal will grants, vary. state grants, debt issuances, and airport revenues. Please see Note 4 in the notes to the financial statements for more detailed information on capital asset activity.

Year endingLong-term debt Variable Rate Bonds Interest Rate June 30The outstanding long-termPrincipal debt of the AuthorityInterest is $62,395,000 including currentSwaps, maturities net of $5,350,000 Total at June 30, 2018. This debt consists of Local Government Public Improvement Revenue Bonds and notes 2017 payable. $ 4,590,000 $ 562,983 $ 985,043 $ 6,138,026 2018 4,825,000 522,361 830,113 6,177,474 A portion of the V-A-1 Bonds totaling $13,010,000 is subject to an interest rate swap agreement. Based on 2019 the swap agreement,5,075,000 the Authority owes interest479,483 at an effective fixed rate of667,315 2.55% on the Series V-A-1 6,221,798 2020 Bonds. The variable 5,335,000rate was 1.55% on the remaining434,090 portion of $39,570,000 on the496,213 V-A-1 Bonds at June 30, 6,265,303 2021 2018. Maturities range5,610,000 from 2019 to 2028. The386,211 principal and interest payable316,408 on the debt is paid from 6,312,619 airport revenues. 2022-202 6 32,520,000 1,107,156 405,195 34,032,351 2027-2028The latest series of12,680,000 Local Government Public Improv86,013ement Revenue Bonds issued by the- Authority was the12,766,013 TotalSeries V-A-1 issued$70,635,0 in December00 2008. The $bonds3,578,297 are secured by and payable$3,700,287 solely from the net revenues$77,913,584 derived from the operations of the airport by the Authority as defined in the Master Plan Resolution. On January 28, 2018 Moody’s Rating Committee affirmed a rating of Baa1 for bonds issued by the Authority. 6. Fair ValueDetailed information on long-term debt activity can be found in Note 5 of the notes to the financial statements.

The AuthorityThe categorizesAuthority’s most its recentfair value issuance measurements of debt was the withinAirport Revenuethe fair Refundingvalue hierarchy Note, Series established 2017A, in by generally accepted accountingthe amount principles.of $11,000,000 The in May hierarchy 2017. The is notes based are onsecured the byvaluation and payable inputs solely fromused the to net measure revenues the fair value derived from the operations of the airport by the Authority as defied in the Master Plan Resolution. The of the assets.Series Level 2017A 1 Note inputs was areissued quoted to refund prices the Authorit in activey’s Series markets II-D-1 Bonds, for identical to terminate assets. the associated Level 2 inputs are significant otherinterest observable rate swap agreement inputs. Leveland to pay3 inputs certain arecosts significant of issuance unobservablerelating to the Note. inputs. The refunding did not extend the maturity date of the bonds but reduced the total principal and interest, for the remaining Debt securitiesterm due, are by valued approximately based $428,000. on the Maturities securities’ range relationship from 2019 to 2026. to benchmark quoted prices. Derivative instruments Passengerare valued facility using acharges market approach that considers benchmark interest rates. On October 6, 1993, the Metropolitan Knoxville Airport Authority received approval from the Federal The followingAviation table Administration sets forth (FAA) by level, to collect within a $3.00 the PFC fair on value each passenger hierarchy, enplaning the fair at McGhee value ofTyson the Authority’s Airport. On September 16, 2003, the FAA approved an increase in the Authority’s PFC rate to $4.50 per investmentsenplaning and interest passenger. rate Theswap FAA liabilities determined as thatof June the earl 30,iest 2016 effective: date for the new rate was October 1, 2003. The collection authority has been extended to July 1, 2022. As of June 30, 2018, the Authority had collected $70,005,438 of PFC revenue andLevel expended 1 $69,353,523Level on 2approved Levelprojects. 3 The FAA hasTotal Investments:authorized $103,771,921 PFC collection by the Airport Authority as of June 30, 2018. Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 30 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

Request for information The financial report is designed to provide a general overview of the Authority’s finances for all those 5. Long-Terminterested. Debt Questions (continued) concerning any of the information provided in this report or request for additional information should be addressed in writing to the Vice President of Finance or the Controller, Metropolitan Scheduled DebtKnoxville Service Airport Requi Authority,rements P. O. Box 15600, Knoxville, TN 37901 or by email to [email protected] or to [email protected]. As of June 30, 2016, scheduled debt service requirements of the variable-rate debt and net swap payments, assuming currentRespectfully interest submitted, rates remain the same for their term are as follows. As rates vary, variable-rate bond interest payments and net swap payments will vary.

Year ending Variable Rate Bonds Interest Rate

June 30 Principal Interest Swaps, net Total

2017 Nancy White, CPA,$ C.M.4,590,000 $ 562,983 Jennifer Whitaker $ 985,043 $ 6,138,026 2018 Vice President, Finance4,825,000 522,361 Controller 830,113 6,177,474 2019 5,075,000 479,483 667,315 6,221,798

2020 5,335,000 434,090 496,213 6,265,303 2021 5,610,000 386,211 316,408 6,312,619 2022-2026 32,520,000 1,107,156 405,195 34,032,351 2027-2028 12,680,000 86,013 - 12,766,013 Total $70,635,000 $3,578,297 $3,700,287 $77,913,584

6. Fair Value

Debt securities are valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates.

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 31 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

STATEMENTS OF NET POSITION 5. Long-Term Debt (continued)

Scheduled Debt Service Requirements As of June 30, 2016, scheduled debt service requirements of the variable-rateJune debt 30 and net swap payments, assuming current interest rates remain the same for their term are as follows.2018 As rates vary,2017 variable-rate bond interest paymentsAssets and net swap payments will vary. Unrestricted current assets: Year endingCash and cash equivalentsVariable Rate Bonds $ Interest 17,065,629 Rate$ 14,985,568 June 30 Investments Principal Interest Swaps,33,160,279 net 38,902,166 Total Receivables: 2017 Trade $ 4,590,000 $ 562,983 $ 856,827985,043 1,058,256 $ 6,138,026 2018 Government agencies4,825,000 522,361 8,975,806830,113 6,185,775 6,177,474 2019 Interest 5,075,000 479,483 66,716667,315 58,860 6,221,798 2020 Prepaid expenses5,335,000 and other current assets 434,090 800,513496,213 662,569 6,265,303 2021 Total unrestricted 5 current,610,000 assets 386,211 60,925,770 316,408 61,853,194 6,312,619 2022-2026 32,520,000 1,107,156 405,195 34,032,351 2027-2028Restricted current12,680,000 assets: 86,013 - 12,766,013 Cash and cash equivalents 1,117,806 1,244,721 Total Receivables for$ 70,635,0passenger 00facility charges $3,578,297 $3,700,287820,000 680,000$77,913,584 Total restricted current assets 1,937,806 1,924,721 6. Fair ValueTotal current assets 62,863,576 63,777,915

The AuthorityNoncurrent categorizes assets: its fair value measurements within the fair value hierarchy established by generally Capital assets, net of accumulated depreciation 209,828,418 192,092,127 accepted accountingMaster plans principles. and other Theplans, hierarchy net of accumulated is based on the valuation inputs used to measure the fair value of the assets. Levelamortization 1 inputs are quoted prices in active markets for identical393,642 assets. Level61,548 2 inputs are significant otherOther observable inputs. Level 3 inputs are significant unobservable512,713 inputs. 579,343 Total noncurrent assets 210,734,773 192,733,018 Debt securities are valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments Totalare valued assets using a market approach that considers benchmark 273,598,349 interest rates. 256,510,933

The followingDeferred table outflows sets forth of resources by level, within the fair value hierarchy, the fair value of the Authority’s investments andDeferred interest charge rate on swapdebt refunding liabilities as of June 30, 2016: 1,222,222 1,375,000 Total assets and deferred outflows of resources $ 274,820,571 $ 257,885,933 Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 32 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

STATEMENTS OF NET POSITION (continued) 5. Long-Term Debt (continued)

Scheduled Debt Service Requirements As of June 30, 2016, scheduled debt service requirements of the variable-rateJune debt 30 and net swap payments, assuming current interest rates remain the same for their term are as follows.2018 As rates vary,2017 variable-rate bond interest paymentsLiabilities and and net net swap position payments will vary. Current liabilities: Year endingAccounts payable - non-constructionVariable Rate Bonds $ Interest 1,321,927 Rate$ 1,301,435 June 30 Accounts payablePrincipal - construction Interest Swaps,2,850,643 net 2,431,480 Total Accrued payroll and other expenses 1,363,334 1,313,231 2017 Accrued interest $ 4,590,000 $ 562,983 $ 985,043 8,670 42,677 $ 6,138,026 2018 Current portion of4,825,000 long-term debt 522,361 5,350,000830,113 5,125,000 6,177,474 2019 Total current liabilities5,075,000 479,483 10,894,574667,315 10,213,823 6,221,798 2020 5,335,000 434,090 496,213 6,265,303 2021 Long-term liabilities:5,610,000 386,211 316,408 6,312,619 Long-term debt, less current portion 57,045,000 62,395,000 2022-2026 32,520,000 1,107,156 405,195 34,032,351 Investment interest rate swap liability 607,009 1,191,256 2027-2028Total long-term 12,680,000liabilities 86,013 57,652,009 - 63,586,256 12,766,013 Total Total liabilities $70,635,000 $3,578,297 68,546,583$3,700,287 73,800,079$77,913,584

6. Fair ValueNet position: Net investment in capital assets 146,198,639 123,577,195 Restricted - expendable: The Authority categorizesPassenger facility its chargesfair value measurements within the fair value 1,471,915 hierarchy established 1,378,566 by generally accepted accountingLaw enforcement principles. The hierarchy is based on the valuation inputs 465,891 used to measure 546,155 the fair value of the assets. Unrestricted Level 1 inputs are quoted prices in active markets for 58,137,543 identical assets. 58,583,938 Level 2 inputs are significant otherTotal observable net position inputs. Level 3 inputs are significant unobservable 206,273,988 inputs. 184,085,854

Debt securities are valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates.

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments Totaland interest liabilities rate and swapnet position liabilities as of June 30, 2016: $ 274,820,571 $ 257,885,933

Level 1 Level 2 Level 3 Total Investments: See accompanying Notes to Financial Statements. Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 33 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

STATEMENTS OF REVENUES, EXPENSES 5. Long-Term Debt (continued)AND CHANGES IN NET POSITION

Scheduled Debt Service Requirements As of June 30, 2016, scheduled debt service requirements of the variableYear- rateended debt June and 30 net swap payments, assuming current interest rates remain the same for their term are as follows.2018 As rates 2017vary, variable-rate bond interest paymentsOperating and revenues: net swap payments will vary. Aviation area $ 5,365,728 $ 5,157,606 Year endingTerminal area Variable Rate Bonds Interest 21,008,481 Rate 20,075,555 June 30 Air cargo and otherPrincipal properties Interest Swaps,4,028,575 net 3,858,125 Total Total operating revenues 30,402,784 29,091,286

2017 $ 4,590,000 $ 562,983 $ 985,043 $ 6,138,026 Operating expenses: 2018 Aviation area 4,825,000 522,361 2,332,940830,113 2,203,523 6,177,474 2019 Terminal area 5,075,000 479,483 5,847,724667,315 5,874,317 6,221,798 2020 Air cargo and other5,335,000 properties 434,090 1,530,434496,213 1,453,788 6,265,303 2021 General area: 5,610,000 386,211 316,408 6,312,619 Safety 4,628,650 4,609,726 2022-2026 Administration 32,520,000 1,107,156 7,368,863405,195 7,187,377 34,032,351 2027-2028Total operating 12,680,000expenses 86,013 21,708,611 - 21,328,731 12,766,013 Total Operating revenues $70,635,0 in excess00 of operating$3,578,297 expenses $3,700,287 $77,913,584 before depreciation and amortization 8,694,173 7,762,555 6. Fair ValueDepreciation and amortization (9,499,946) (9,539,399) Operating loss (805,773) (1,776,844) The Authority categorizes its fair value measurements within the fair value hierarchy established by generally Nonoperating income (expense): accepted accountingPassenger principles. facility charges, The net hierarchy is based on the valuation4,291,948 inputs used to 3,767,376measure the fair value of the assets. Interest Level income 1 inputs are quoted prices in active markets for 449,928 identical assets.373,275 Level 2 inputs are significant otherChange observable in fair value inputs. of investment Level interest3 inputs rate are swap significant unobservable 584,247 inputs. 923,279 Interest expense (1,782,123) (2,209,043) Debt securitiesOther are nonoperating, valued based net on the securities’ relationship to benchmark268,308 quoted (234,762) prices. Derivative Net nonoperating income 3,812,308 2,620,125 instruments Incomeare valued before using capital a market contributions approach that considers benchmark 3,006,535 interest rates. 843,281

The followingCapital table contributions sets forth by level, within the fair value hierarchy, 19,181,599 the fair value31,685,691 of the Authority’s investments Increaseand interest in net rate position swap liabilities as of June 30, 2016: 22,188,134 32,528,972

Net position at beginning of year Level 1 Level 2184,085,854 Level 3151,556,882 Total Investments: $ 206,273,988 $ 184,085,854 GovernmentNet position debt securities at end of year $ – $ 39,998,469 $ – $ 39,998,469 See accompanying Notes to Financial Statements. Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 34 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

STATEMENTS OF CASH FLOWS 5. Long-Term Debt (continued)

Scheduled Debt Service Requirements Year ended June 30 As of June 30, 2016, scheduled debt service requirements of the variable2018-rate debt and2017 net swap payments, assuming currentOperating interest activities rates remain the same for their term are as follows. As rates vary, variable-rate bond interest paymentsOperating and cash net received swap frompayments customers will vary. $ 30,604,213 $ 28,570,409 Cash payments to suppliers of goods and services (9,278,792) (8,504,500) Year endingCash payments to employeesVariable for services Rate Bonds Interest (12,430,538) Rate (12,445,079) June 30Net cash providedPrincipal by operating activities Interest Swaps, 8,894,883 net 7,620,830 Total

Investing activities 2017 Interest received $ 4,590,000 $ 562,983 $ 985,043 442,072 367,802 $ 6,138,026 2018 Purchases of investments4,825,000 522,361 (19,269,455)830,113 (14,000,000) 6,177,474 2019 Proceeds from maturities5,075,000 of investments 479,483 25,011,342667,315 15,096,303 6,221,798 2020 Net cash provided5,335,000 by investing activities 434,090 6,183,959496,213 1,464,105 6,265,303 2021 5,610,000 386,211 316,408 6,312,619 Capital and related financing activities 2022-202Interest6 paid 32,520,000 1,107,156 (1,816,130) 405,195 (2,240,366) 34,032,351 2027-2028Note proceeds 12,680,000 86,013 -- 11,000,00012,766,013 Total Payment for redemption$70,635,0 of refunded00 bonds$3,578,297 $ 3,700,287 - (9,525,000) $77,913,584 Repayments on bonds (5,125,000) (4,590,000) Purchases of capital assets (26,996,390) (36,989,674) 6. Fair ValueReceipts of passenger facility charges 4,151,948 3,557,376 Grant receipts from governmental agencies and other income (expense) 16,659,876 32,811,484 The AuthorityTermination categorizes of hedging its fair interest value rate measurements swap within the fair value hierarchy - established (1,375,000) by generally accepted accountingNet cash usedprinciples. in capital The and hierarchy related financing is based activities on the valuation inputs (13,125,696) used to measure (7,351,180) the fair value of the assets.Net Level increase 1 in inputs cash and are cash quotedequivalents prices in active markets for identical 1,953,146 assets. 1,733,755 Level 2 inputs are significant otherCash andobservable cash equivalents inputs. at beginningLevel 3 ofinputs year are significant unobservable 16,230,289 inputs. 14,496,534 Cash and cash equivalents at end of year $ 18,183,435 $ 16,230,289 Debt securities are valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments Reconciliationare valued using of operating a market loss approach to net cash that considers benchmark interest rates. provided by operating activities: Operating loss $ (805,773) $ (1,776,844) The following Adjustments table sets to forth reconcile by operating level, within loss to net the cash fair value hierarchy, the fair value of the Authority’s investments and interest provided rateby operating swap liabilitiesactivities: as of June 30, 2016: Depreciation and amortization 9,499,946 9,539,399 Changes in operating assets and liabilities:Level 1 Level 2 Level 3 Total Investments: Receivables—trade 201,429 (520,877) Government debtPrepaid securities expenses and other$ assets – $ 39,998,469 $(71,314) – (147,062)$ 39,998,469 Accounts payable—non-construction 20,492 486,113 Interest rate swap liabilitiesAccrued payroll and other expenses$ – $ 4,502,609 $ 50,103 – 40,101$ 4,502,609 Net cash provided by operating activities $ 8,894,883 $ 7,620,830

The followingContinued table on setsnext page forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 35 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

STATEMENTS OF CASH FLOWS (continued) 5. Long-Term Debt (continued)

Scheduled DebtNoncash Service and Requirelatedrements financing transactions As of June 30,Payables 2016 related, scheduled to the purchase debt ofservice capital assetsrequirements totaled $2,850,643 of the and variable $2,431,480-rate as ofdebt June and 30, 2018net andswap payments, 2017, respectively. assuming current interest rates remain the same for their term are as follows. As rates vary, variable-rate bond interest paymentsReceivables and fromnet swap governmental paymentsagencies will related vary.to capital contributions total $8,981,095 and $6,185,775 as of June 30, 2018 and 2017, respectively. Grant receipts from governmental agencies and other income Year ending(expense) also includesVariableother income Rate of $99,532 Bondsas of June 30, 2018 andInterestother expense Rateof $266,891 as of June 30June 30, 2017. Principal Interest Swaps, net Total

2017 Noncash and related$ 4,590,000 investing transactions $ 562,983 $ 985,043 $ 6,138,026 2018 Changes in fair value4,825,000of investment interest rate522 swaps,361 totaled $584,247 and $923,279830,113 for the years ended 6,177,474 June 30, 2018 and 2017, respectively. 2019 5,075,000 479,483 667,315 6,221,798 2020 5,335,000 434,090 496,213 6,265,303 2021 5,610,000 386,211 316,408 6,312,619 2022-202See6 accompanying Notes32,520,000 to Financial Statements. 1,107,156 405,195 34,032,351 2027-2028 12,680,000 86,013 - 12,766,013 Total $70,635,000 $3,578,297 $3,700,287 $77,913,584

6. Fair Value

Debt securities are valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates.

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 36 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

NOTES TO FINANCIAL STATEMENTS

5. Long-Term Debt (continued) 1. Significant Accounting Policies Scheduled Debt Service Requirements As of June 30,Organization 2016, scheduled and Reporting debt service Entity requirements of the variable-rate debt and net swap payments, The Metropolitan Knoxville Airport Authority (the Authority) is a component unit of the City of Knoxville, assuming currentTennessee interest (the City), rates governed remain by the a nine-member same for theirBoard term of Commissioners are as follows. appointed As rates by the vary, Mayor variable of the -rate bond interest paymentsCity and and confirmed net swap by members payments of Citywill Council.vary. A Master Resolution was adopted in 2000 whereby the Authority issues its own revenue obligations. Year ending Variable Rate Bonds Interest Rate The reporting entity, as a component unit of the City of Knoxville, Tennessee, includes the accounts of June 30McGhee Tyson AirportPrincipal and Knoxville DowntownInterest Island Airport. As Swaps,a component net unit, there are noTotal agencies, departments or funds subordinate to the Authority, which might be considered for inclusion in the 2017 reporting entity. $ 4,590,000 $ 562,983 $ 985,043 $ 6,138,026 2018 4,825,000 522,361 830,113 6,177,474 2019 The Authority operates5,075,000 under, and pursuant to,479,483 the authority granted by the Metropolitan667,315 Airport Authority6,221,798 Act of 1969 (Tennessee Code Annotated Section 42-4-101, et seq.). 2020 5,335,000 434,090 496,213 6,265,303 2021 Basis of Accounting 5,610,000 386,211 316,408 6,312,619 2022-202The6 Authority reports32,520,000 as a Business Type Activity.1,107,156 Business Type Activities are405,195 those that are financed 34,032,351in whole or in part by fees charged to external parties for goods or services. 2027-2028 12,680,000 86,013 - 12,766,013 TotalThe Authority’s $activities70,635,0 are00 accounted for $similar3,578,297 to those often found in $the3,700,287 private sector using the flow$77,913,584 of economic resources measurement focus and the accrual basis of accounting. All assets, liabilities, net position, revenues and expenses are accounted for through a single enterprise fund with revenues recorded 6. Fair Valuewhen earned and expenses recorded at the time liabilities are incurred. Current assets include cash and amounts convertible to cash during the next normal operating cycle or one year. Current liabilities include those obligations to be liquidated with current assets. The Authority categorizes its fair value measurements within the fair value hierarchy established by generally accepted accountingRevenues from principles. airlines, concessions,The hierarchy rental is cars based and onparking the arevaluation reported inputsas operating used revenues. to measure Capital, the fair value of the assets.grants, Level financing 1 inputs or investing are related quoted transactions prices inare activereported markets as nonoperating for identical revenues. All assets. expenses Level related 2 inputs are significant otherto operating observable the Authority inputs. are Level reported 3 inputs as operating are significant expenses. Interestunobservable expense inputs.and financing costs are reported as nonoperating deductions.

Debt securitiesFiscal are Year-End valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments Theare Authorityvalued using operates a marketon a fiscal approach year ending that June considers 30. All references benchmark in these interestnotes refer rates. to the fiscal year- end unless otherwise specified.

The followingEstimates table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investmentsThe and preparation interest rateof financial swap liabilitiesstatements asin conformityof June 30, with 2016 accounting: principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly,Level actual 1 results couldLevel differ 2 from thoseLevel estimates. 3 Total

Investments:Budgets GovernmentUnder debtthe by-laws securities of the Authority, $management must– submit$ 39,998,469 an annual operating $ budget –to the Board$ 39,998,469 of Commissioners for approval. In addition, management must submit to the Board of Commissioners annually Interest ratea capital-improvements swap liabilities budget covering$ a period of six– years.$ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 37 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

5. Long-Term Debt (continued) 1. Significant Accounting Policies (continued) Scheduled Debt Service Requirements As of June 30,Budgets 2016 (continued), scheduled debt service requirements of the variable-rate debt and net swap payments, assuming currentThe Authority interest is ratesnot required remain to the demonstrate same for statutory their term compliance are as withfollows. its annual As ratesoperating vary, or variablecapital- -rate bond improvements budget. Accordingly, budgetary data is not included in the financial statements. All budgets are interest paymentsprepared and in accordance net swap with payments bond covenants. will vary. Unexpended appropriations lapse at year-end.

Year endingCash and Cash EquivalentsVariable Rate Bonds Interest Rate June 30Cash and cash equivalentsPrincipal include cash on hand,Interest demand deposits, moneySwaps, market accounts net and short-term Total investments with original maturities of three months or less from the date of acquisition.

2017 $ 4,590,000 $ 562,983 $ 985,043 $ 6,138,026 Investments 2018 The Authority’s investments4,825,000 are reported at fair 522value,361 using quoted market price 830,113or the best available estimate6,177,474 2019 thereof. Fair value is5,075,000 defined as the amount at which479,483 a financial instrument could667,315 be exchanged in a current6,221,798 2020 transaction with willing5,335,000 parties, other than in a434,090 forced or liquidation sale. All investment496,213 income, including6, 265,303 changes in the fair value of investments, is reported as nonoperating income in the accompanying statements 2021 of revenues, expenses5,610,000 and changes in net position.386,211 316,408 6,312,619 2022-202 6 32,520,000 1,107,156 405,195 34,032,351 2027-2028Amounts Due from12,680,000 Governmental Agencies86,013 - 12,766,013 Certain expenditures for airport capital improvements are significantly funded through the Airport TotalImprovement Program$70,635,0 (AIP)00 of the Federal$ Aviation3,578,297 Administration (FAA)$ and3,700,287 the National Guard Bureau,$77,913,584 with certain matching funds provided by the State of Tennessee (State) and the Authority, or from various state allocations or grant programs. Capital funding provided under government grants is considered earned 6. Fair Valuewhen the related allowable expenditures are incurred and the funds are available.

The AuthorityRestricted categorizes Assets its fair value measurements within the fair value hierarchy established by generally accepted accountingRestricted assetsprinciples. are held The to satisfy hierarchy bond principal is based an don interest the valuationsinking fund inputs requirements used toor aremeasure otherwise the fair value held for certain capital improvement and certain other restricted expenditures. For expenditures for which of the assets.both Level restricted 1 inputsand unrestricted are quoted net positions prices are in availa activeble, the markets Authority for first identical applies restricted assets. assets Level when 2 inputs are significant othersuch expenditures observable are inputs. incurred. Level 3 inputs are significant unobservable inputs.

Debt securitiesCapital are Assets valued based on the securities’ relationship to benchmark quoted prices. Derivative Capital assets are stated at cost and defined by the Authority as assets with an initial cost greater than $5,000. instruments Donatedare valued capital using assets, a marketif any, are approach reported thatat acquisition considers value. benchmark Maintenance interest and repairs rates. are charged to expense as incurred, and renewals and betterments are capitalized. The cost and accumulated depreciation on The followingretired table assets sets are removed forth byfrom level, the books within and the the gain fair or loss, value if any, hierarchy, is reflected thein nonoperating fair value activities. of the Authority’s investmentsDepreciable and interest capital rate assets swap are liabilities depreciated as using of Junethe stra 30,ight-line 2016 method: over the following estimated useful lives: Level 1 Level 2 Level 3 Total Investments: Land improvements 5 – 20 years Buildings and building improvements 5 – 30 years Government debt Equipment, securities furniture and fixtures$ – 3$ – 1039,998,469 years $ – $ 39,998,469

Interest rateMaster swap Plans liabilities $ – $ 4,502,609 $ – $ 4,502,609 Master plans are stated at cost. Amortization is computed using the straight-line method over the plans’ estimated useful lives of five years. The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 38 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

5. Long-Term Debt (continued) 1. Significant Accounting Policies (continued) Scheduled Debt Service Requirements As of June 30,Deferred 2016 ,Outflows scheduled of Resourcesdebt service requirements of the variable-rate debt and net swap payments, assuming currentIn addition interest to assets, rates the remain statement the of same net position for their will term sometimes are as report follows. a sepa Asrate rates section vary, for deferredvariable -rate bond outflows of resources. Deferred outflows of resources represent a consumption of net position that applies to interest paymentsa future andperiod net and swap will not payments be recognized will asvary. an outf low of resources (expense) until then. The Authority has one item that qualifies for reporting in this category. The deferred charge on debt refunding results from the Year endingdifference in the carryingVariable value of refundedRate Bonds debt and its reacquisition Interestprice. The amount Rate is deferred and June 30amortized over thePrincipal shorter of the life of the refundedInterest or refunding debt. Swaps, net Total

2017 Compensated $Absences 4,590,000 $ 562,983 $ 985,043 $ 6,138,026 Compensated absences are accrued as payable when earned and are cumulative from one fiscal year to the 2018 next. The liability is4,825,000 included with accrued payroll522 in,361 the financial statements. Th830,113 e Authority does not have6,177,474 2019 any long-term liabilities5,075,000 for compensated absences.479,483 667,315 6,221,798 2020 5,335,000 434,090 496,213 6,265,303 2021 Net position 5,610,000 386,211 316,408 6,312,619 Net position is classified in the following categories: 2022-202 6 32,520,000 1,107,156 405,195 34,032,351 2027-2028 Net investment12,680,000 in capital assets: Capital assets,86,013 net of accumulated depreciation,- plus capital-related12,766,013 deferred outflows of resources, less outstanding principal of debt attributable to the acquisition, Total construction$ or70,635,0 improvement00 of those assets.$3,578,297 $3,700,287 $77,913,584

6. Fair Value Restricted: Nonexpendable – Net position subject to externally imposed stipulations that the Authority maintains them permanently. As of June 30, 2018 and 2017, the Authority does not have nonexpendable net The Authority categorizesposition. its fair value measurements within the fair value hierarchy established by generally accepted accountingExpendable principles. – Net Theposition hierarchy on which isuse based by the onAuthority the valuation is subject to inputs externally used imposed to measure stipulations the fair value that can be fulfilled by actions of the Authority pursuant to those stipulations or that expire by the of the assets. Levelpassage 1 inputs of time. are quoted prices in active markets for identical assets. Level 2 inputs are significant other observable inputs. Level 3 inputs are significant unobservable inputs. Unrestricted: Net position that is not subject to externally imposed stipulations. Unrestricted net position may be designated for specific purposes by action of management or the Board of Commissioners or Debt securitiesmay are otherwise valued be based limited by on contractua the securities’l agreements relationship with outside parties. to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates. Operating Revenues and Expenses The followingAviation table area sets revenues forth are by those level, revenues within received the fairfrom valuethe use hierarchy,of the airfield the such fair as landing value fees, of thefuel Authority’s flowage fees, airfield site leases and a military joint use agreement. investments and interest rate swap liabilities as of June 30, 2016: Terminal area revenues are those revenues received from space rentals paid by airlines conducting operations in the terminal and revenues received fromLevel public 1 parking, Levelrental car 2 concessionsLevel and 3other businessesTotal Investments:operating in the terminal.

GovernmentAir cargo debt revenues securities are those revenues$ received from– space$ leases39,998,469 in the cargo $ building and– the air$ cargo 39,998,469 complex. Revenues from other properties are those revenues received from the hotel lease and nonaviation Interest rateproperty swap leases.liabilities $ – $ 4,502,609 $ – $ 4,502,609

All expenses related to operating the Airport are reported as operating expenses. The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 39 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

5. Long-Term Debt (continued) 1. Significant Accounting Policies (continued) Scheduled Debt Service Requirements As of June 30,Risk 2016 Management, scheduled debt service requirements of the variable-rate debt and net swap payments, assuming currentThe Authority interest is ratessubject remain to risks the that same include for personal their terminjury, are property as follows. damage, As employee rates vary, bodily variable injury, -rate bond employee theft, employee medical, public officials and employee conduct and workers’ compensation. The interest paymentsAuthority and has net purchased swap insurancepayments policies will vary.that transfer these risks, subject to policy limits. Settlements have not exceeded insurance coverage in any of the past three fiscal years. Year ending Variable Rate Bonds Interest Rate June 30Recently IssuedPrincipal Accounting PronouncementsInterest Swaps, net Total In June 2017, the Governmental Accounting Standards Board (GASB), issued Statement No. 87, Leases. This 2017 Statement requires $ recognition4,590,000 of certain lease$ assets562,983 and liabilities for leases $that 985,043 previously were classified $ as6,138,026 operating leases and recognized as inflows of resources or outflows of resources based on the payment 2018 provisions of the contract.4,825,000 Under this Statement,522 a,361 lessor is required to recognize830,113 a lease receivable and a6,177,474 2019 deferred inflow of5,075,000 resources, thereby enhancing479,483 the relevance and consistency667,315 of information about6,221,798 2020 governments’ leasing5,335,000 activities. Statement No. 87434,090 is ef fective for periods beginning496,213 after December 15, 2019.6, 265,303 The Authority has elected not to adopt this standard early and has not completed the process of evaluating 2021 the impact of this statement5,610,000 on its financial statements.386,211 316,408 6,312,619 2022-202 6 32,520,000 1,107,156 405,195 34,032,351 2027-2028In April 2018, GASB12,680,000 issued Statement No. 88, Certain86,013 Disclosures Related to Debt, Including- Direct Borrowings and12,766,013 Direct Placements. The primary objective of this Statement is to improve the information that is disclosed in Totalnotes to government $70,635,0 financial00 statements related$3,578,297 to debt, including direct borrowings$3,700,287 and direct placements.$77,913,584 Statement No. 88 is effective for periods beginning after June 15, 2018. The Authority has elected not to 6. Fair Valueadopt this standard early and has not completed the process of evaluating the impact of this statement on its financials.

The Authority2. Deposits categorizes and itsInvestments fair value measurements within the fair value hierarchy established by generally accepted accountingDeposits principles. The hierarchy is based on the valuation inputs used to measure the fair value of the assets.Deposits Level are 1 included inputs in are the Authorit quotedy’s prices financial in statements active marketsas “cash and for cash identical equivalents” assets. and “restricted Level 2 inputs are significant othercash and observable cash equivalents.” inputs. As Level of June 3 inputs30, 2018 are and significant 2017, all bank unobservable balances in excess inputs. of federal insurance limits were covered by the bank collateral pool administered by the Treasurer of the State of Tennessee. Banks participating in the pool report the aggregate balance of their public fund accounts to the State. Debt securitiesCollateral are to valued secure these based deposits on themust securities’be pledged to relationship the State Treasurer to benchmark on behalf of the quoted bank collateral prices. Derivative instruments pool.are valuedThe securities using pledgeda market to approachprotect these that accounts considers are pledged benchmark in aggregate interest rather rates. than against each individual account. Public fund accounts covered by the pool are considered entirely insured or collateralized. The followingDeposits table total sets $19,194,512 forth byand level,$17,028,319 within as of the June fair 30, 2018 value and hierarchy,2017, respectively. the fair value of the Authority’s investmentsInvestments and interest rate swap liabilities as of June 30, 2016: Statutes authorize the Authority to invest idle funds in obligations of the United States Treasury; Certificates of Deposits; the Local Government InvestmentLevel Pool; 1 bonds ofLevel any state 2 or politicalLevel subdivision 3 rated ATotal or higher by any nationally recognized rating service; and nonconvertible debt securities of the following Investments:government sponsored enterprises: Federal Home Loan Bank, Fe deral National Mortgage Association, GovernmentFederal debt Home securities Loan Mortgage Corporat$ ion and Federal– Farm$ Credit39,998,469 Bank. $ – $ 39,998,469

Interest rateInterest swap Rate liabilities Risk: To limit the Authority’s$ exposure to –fair value$ losses4,502,609 arising from$ changing interest– rates,$ the4,502,609 Authority’s investment policy prohibits more than 20% of investments (as defined) to be invested with maturities of greater than two years from the acquisition date. Also, investment maturities may not exceed The followingfive years table from sets the forth acquisition by date. level, Investments within the with fairmaturities value of hierarchy,greater than two the years fair require value approval of the of Authority’s investmentsthe and finance derivative committee. investments as of June 30, 2015 :

Level 1 Level 2 Level 3 Total Investments: 40 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

5. Long-Term Debt (continued) 2. Deposits and Investments (continued)

Scheduled DebtInvestments Service (continued) Requirements As of June 30,Credit 2016 Risk:, Thescheduled Authority’s debt investment service policy requirements allows only investments of the variable rated in- ratethe highest debt categoryand net by swap two payments, assuming currentnationally interest recognized rates ra tingremain services. the As same of June for 30, their 2018, term all Authority’s are as follows. investments As inrates debt vary,securities variable were -rate bond interest paymentsrated at andleast Aaanet byswap Moody’s payments Investor willServices vary. or AA+ by Standard & Poor’s rating services. The Authority’s investments meet this requirement.

Year endingCustodial Credit Risk: ForVariable an investment, Rate custodial Bonds credit risk is the risk that,Interest in the event Rate of a failure of the June 30custodian, the AuthorityPrincipal will not be able to recoverInterest the value of the investSwaps,ments or collateralnet securities thatTotal are in the possession of an outside party. The Authority’s investments are typically uninsured and 2017 unregistered investments$ 4,590,000 for which the securities $ 562,983 are held by the custodian’s $ trust 985,043 department or agent in $the 6,138,026 Authority’s name. 2018 4,825,000 522,361 830,113 6,177,474 2019 As of June 30, 2018,5,075,000 the Authority had the following479,483 investments: 667,315 6,221,798 2020 5,335,000 434,090 496,213 6,265,303 Weighted Average Interest Maturity 2021 5,610,000 Maturit386,211y (Months ) Fair Value 316,408 Rates Dates 6,312,619 2022-2026 32,520,000 1,107,156 405,195 34,032,351 2027-2028Federal Loan Mo12,680,000rtgage Company 86,0139.25 $16,240,879 1.00%-1.70%- 11/15/2018-12,766,013 05/15/2020 Total Federal Farm Credit$70,635,0 Bank 00 $3,578,29718.28 8,992,920$3,700,287 1.03%-2.55% 09/06/2018-$77,913,584 06/11/2020 Federal Home Loan Bank 16.25 7,926,480 1.62%-1.74% 10/16/2019- 6. Fair Value 11/29/2019 Total investments $33,160,279 The Authority categorizes its fair value measurements within the fair value hierarchy established by generally accepted accountingPortfolio principles.weighted average The maturity hierarchy is based13.37 on the valuation inputs used to measure the fair value of the assets. Level 1 inputs are quoted prices in active markets for identical assets. Level 2 inputs are 3. Leases significant other observable inputs. Level 3 inputs are significant unobservable inputs. The Authority, as lessor, leases certain capital assets under operating leases expiring in various years through Debt securities2052. As are of valuedJune 30, 2018, based minimum on the future securities’ base rentals relationship to be received on to noncancelable benchmark leases quoted are as follows: prices. Derivative instruments are2019 valued using a market approach that considers benchmark $ 8,054,876 interest rates. 2020 1,978,882 The following2021 table sets forth by level, within the fair value hierarchy,1,260,272 the fair value of the Authority’s investments and2022 interest rate swap liabilities as of June 30, 2016: 773,616 2023 756,429 Thereafter 12,726,385 Total minimum future base rentals Level 1 Level $25,550,460 2 Level 3 Total Investments: GovernmentUnder debtthe terms securities of one of these leases,$ payments in– future$ 39,998,469years increase signif$ icantly. The– Authority$ 39,998,469 is recognizing income for this lease on a straight-line basis, considering total payments over the lease term. Accordingly, advance rents of approximately $508,000 and $573,000 are included in other noncurrent assets Interest ratein swapthe accompanying liabilities statements of $net position as –of June$ 30,4,502,609 2018 and 2017,$ respectively.– Contingent$ 4,502,609 rentals, which consist primarily of rental car concessions and other similar revenues, amounted to $2,508,091 The followingin 2018 table and sets$2,697,925 forth in 2017. by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 41 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

NOTES TO FINANCIAL STATEMENTS (continued) 5. Long-Term Debt (continued) 4. Capital Assets Scheduled DebtCapital Service asset activity, Requi includingrements master plans, for the years ended June 30, 2018 and 2017, is as follows: As of June 30, 2016, scheduled debt service requirements of the variable-rate debt and net swap payments, assuming current interest rates remain the sameBeginning for their term are as follows. As rates vary,Ending variable-rate bond interest paymentsYear ended and netJune swap 30, 2018 payments will vary.Balance Increases Decreases Balance

Year endingNondepreciable capitalVariable assets: Rate Bonds Interest Rate Land $ 38,232,497 $ 962,018 $ - $ 39,194,515 June 30 Land easementsPrincipal Interest625,903 - Swaps, net - 625,903 Total Construction in progress 51,337,130 26,233,321 (3,271,219) 74,299,23 2 2017 Total nondepreciable $ 4,590,000 capital assets $ 90,195,530 562,983 27,195,339 $ (3,271,21985,043 9) 114,119,6 50$ 6,138,026 2018 4,825,000 522,361 830,113 6,177,474 2019 Depreciable capital5,075,000 assets: 479,483 667,315 6,221,798 2020 Land improvements5,335,000 117,571,521434,090 1,552,585 496,213 - 119,124,106 6,265,303 2021 Buildings and building5,610,000 386,211 316,408 6,312,619 improvements 170,365,708 1,350,822 (50,000) 171,666,530 2022-2026Equipment, furniture32,520,000 and 1,107,156 405,195 34,032,351 2027-2028 fixtures 12,680,000 14,993,55786,013 261,167 (119,328)- 15,135,396 12,766,013 Total Total depreciable $70,635,0 capital assets00 $ 3,578,297302,930,786 3,164,574 $ 3,700,287 (169,328) 305,926,032$77,913,584 Less accumulated depreciation: Land improvements (88,918,286) (2,979,949) - (91,898,235) 6. Fair ValueBuildings and building improvements (102,418,096) (5,546,579) 50,000 (107,914,675) The AuthorityEquipment, categorizes furniture its fair and value measurements within the fair value hierarchy established by generally accepted accountingfixtures principles. The hierarchy is based (9,697,807) on the valuation (799,317) inputs 92,770 used to (10, measure404,354) the fair value Total accumulated depreciation (201,034,189) (9,325,845) 142,770 (210,217,264) of the assets. Level 1 inputs are quoted prices in active markets for identical assets. Level 2 inputs are Net depreciable capital assets 101,896,597 (6,161,271) (26,558) 95 ,708,768 significant otherTotal observable capital assets, inputs. net of Level 3 inputs are significant unobservable inputs. accumulated depreciation $ 192,092,127 $ 21,034,068 $ (3,297,777) $ 209,828,418 Debt securities are valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments Otherare valued capital using assets: a market approach that considers benchmark interest rates. Master plans and other plans $ 9,940,894 $ 353,418 $ - $ 10,294,312 The followingAccumulated table sets amortization forth by level, within (9,879,346) the fair value (21,324) hierarchy, the fair - value (9,900,670) of the Authority’s Net other capital assets $ 61,548 $ 332,094 $ - $ 393,642 investments and interest rate swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 42 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

NOTES TO FINANCIAL STATEMENTS (continued) 5. Long-Term Debt (continued) (continued) 4. Capital Assets Scheduled Debt Service Requirements Beginning Ending As of June 30,Year 2016 ended, scheduled June 30, 2017 debt service requirementsBalance ofIncreases the variableDecreases-rate debt andBalance net swap payments, assuming current interest rates remain the same for their term are as follows. As rates vary, variable-rate bond interest paymentsNondepreciable and net swap capital payments assets: will vary. Land $ 37,889,922 $ 342,575 $ - $ 38,232,497 Land easements 625,903 - - 625,903 Year endingConstruction in progressVariable Rate Bonds19,608,181 35,386,104Interest (3,657,15 Rate5) 51,337,130 June 30Total nondepreciable Principal capital assets 58,124,006 Interest 35,728,679 Swaps, (3,657,15 net5) 90,195,53 0 Total

2017 Depreciable capital$ 4,590,000 assets: $ 562,983 $ 985,043 $ 6,138,026 2018 Land improvements4,825,000 117,514,091522,361 57,430 830,113 - 117,571,521 6,177,474 2019 Buildings and building5,075,000 479,483 667,315 6,221,798 2020 improvements 5,335,000 167,985,132434,090 3,094,259 496,213 (713,683) 170,365,708 6,265,303 Equipment, furniture and 2021 fixtures 5,610,000 13,884,247386,211 1,556,019 316,408 (446,709) 14,993,557 6,312,619 2022-202Total6 depreciable 32,520,000 capital assets 1,107,156299,383,470 4,707,708 (1,160,39405,195 2) 302,930,7 86 34,032,351 2027-2028Less accumulated12,680,000 depreciation: 86,013 - 12,766,013 Total Land improvements $70,635,000 $ 3,578,297 (85,959,918) (2,958,368) $ 3,700,287 - (88,918,286)$77,913,584 Buildings and building improvements (97,241,264) (5,890,515) 713,683 (102,418,096) 6. Fair ValueEquipment, furniture and fixtures (9,448,418) (669,194) 419,805 (9,697,807) The AuthorityTotal categorizes accumulated its depreciation fair value measurements (192,649,600) within (9,518,077)the fair value 1,133,488 hierarchy (established201,034,189) by generally accepted accountingNet depreciable principles. capital The assets hierarchy is 106,733,870 based on the (4,810,369) valuation inputs (26,904) used to 10 measure1,896,597 the fair value Total capital assets, net of of the assets. accumulated Level 1 inputs depreciation are quoted prices$ 164,857,876 in active $ markets 30,918,310 for$ identical (3,684,059) assets.$ 192,092,1 Level27 2 inputs are significant other observable inputs. Level 3 inputs are significant unobservable inputs. Other capital assets: Debt securitiesMaster are plans valued and other based plans on the securities’$ 9,920,216 relationship$ 20,678 to benchmark$ - quoted$ 9,940,894 prices. Derivative instruments areAccumulated valued using amortization a market approach that (9,858,024) considers benchmark (21,322) interest - rates. (9,879,346) Net other capital assets $ 62,192 $ (644) $ - $ 61,548 The followingThe tableAuthority sets is forth contractually by level, obligated withinto theexpend fairan value additional hierarchy,$37,453,000 the for fairvarious valueprojects. of the Authority’s investments Estimatedand interestcosts rateto complete swap liabilities construction asin ofprogress June 30, for these2016 projects: total approximately $75,300,000 as of June 30, 2018. The work will be funded through proceeds from Federal and State grants and other Authority funds. Level 1 Level 2 Level 3 Total Investments: Subsequent to year-end, the State of Tennessee (the State) has brought four condemnation actions against Governmentthe Authority debt securitiesunder eminent domain$ laws to acquire– certain$ 39,998,469 parcels of real$ property –owned by$ the 39,998,469 Authority in connection with the Alcoa Highway Relocation Project. The State alleges it owes the Interest rateAuthority swap liabilities $6,530,005 for these parcels,$ and the Authority– $ in4,502,609November 2018$ received –approximately $ 4,502,609 $5,300,000 of this amount for certain of the parcels. The Authority asserts the amount assessed by the The followingState tabledoes not setsreflect forththe bycurrent level,fair withinvalue of the the parcels fair valueand seeks hierarchy,a jury trial t asheto fairthe amount value of just the Authority’s compensation to be paid by the State. The lawsuits are currently in the discovery phase of litigation and investments noand trial derivative date has been investments set at this time. as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 43 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

5. Long-Term Debt (continued) 5. Long-Term Debt Scheduled Debt Service Requirements Long-term debt includes the following Airport Revenue Obligations payable from operating revenues for the As of June 30,years 2016 ended, Junescheduled 30, 2018 anddebt 2017: service requirements of the variable-rate debt and net swap payments, assuming current interest rates remain the same for their term are as follows. As rates vary, variable-rate bond interest payments and net swap paymentsBeginning will vary. Ending Balance Additions Payments Retirements Balance Year ended June 30, 2018 Year ending Series V -A-1 Variable$56,520,000 Rate $Bonds – $3,940,000 Interest $ Rate– $52,580,000 June 30Series 2017A Principal 11,000,000 Interest– 1,185,000 Swaps, net– 9,815,000Total Total long-term portion 67,520,000 $ – $5,125,000 $ – 62,395,000 2017 Less current p ortion$ 4,590,000 5,125,000 $ 562,983 $ 985,043 5,350,000$ 6,138,026 2018 Lon g-term portion 4,825,000$62,395,000 522,361 830,113 $57,045,0006,177,474

2019Y ear ended June 30,5,075,000 2017 479,483 667,315 6,221,798 2020 Series II-D-1 5,335,000$10,360,000 $ 434,090 – $ 835,000 $ 496,2139,525,000 $ –6, 265,303 2021 Series V-A-1 5,610,00060,275,000 386,211 – 3,755,000 316,408 – 56,520,0006,312,619 Series 2017A – 11,000,000 – – 11,000,000 2022-202 Total6 long-term portion32,520,000 70,635,000 $11,000,0001,107,156 $4,590,000 $ 405,1959,525,000 67,520,00034,032,351 2027-2028 Less current portion12,680,000 4,590,000 86,013 - 5,125,00012,766,013 Total Lon g-term portion $ 70,635,0$66,045,00000 $3,578,297 $3,700,287 $62,395,000$77,913,584

During 2000, the Authority’s Board of Commissioners adopted a Master Resolution allowing the Authority to 6. Fair Valueissue Airport Revenue Obligations. The Authority has pledged revenues, as defined in the Master Resolution, to repay the long-term debt issued under the Master Resolution for the term of the debt. For the year ended June 30, 2018, debt service on all debt issues was approximately 51% of the pledged revenues. The Authority categorizes its fair value measurements within the fair value hierarchy established by generally accepted accountingUnder this principles.resolution, the The Authority hierarchy is required is based to establish on the certainvaluation funds, inputs accounts used and to subaccounts measure tothe fair value of the assets.deposit Level funds 1 to inputs be held arein trust quoted by the pricesAuthority in in activeorder to marketsmeet the requirements for identical of the assets. resolution. Level These 2 inputs are funds include: significant other observable inputs. Level 3 inputs are significant unobservable inputs. Revenue Fund, including accounts for General Revenue and PFC Revenue into which the Authority is to Debt securitiesdeposit are valuedall such revenues. based on the securities’ relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates. Sinking Fund, including a payments account and a debt service reserve account, into which the Authority will deposit funds from the Revenue Fund as needed to pay revenue obligations as they come due. The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments andRenewal interest and rate Extension swap Fund,liabilities into which as of the June Authority 30, 2016 may :deposit any monies or securities held in the Revenue Fund (excluding PFC funds) in excess of 45 days’ estimated expenses.

Project Fund, into which proceeds fromLevel issuance 1 of revenueLevel obligations 2 will beLevel deposited 3 to fund projectTotal Investments: costs. Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 44 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

5. Long-Term Debt (continued) 5. Long-Term Debt (continued) Scheduled Debt Service Requirements As of June 30,Outstanding 2016, scheduleddebt as of June debt 30, 2018,service consists requirements of the following: of the variable-rate debt and net swap payments, assuming currentSeries interest V-A-1 rates– $84,645,000 remain theof Loca samel Government for their termPublic areImprovemen as follows.t Bonds As ratesissued vary,by the variable Public -rate bond interest paymentsBuilding and netAuthority swap of payments Sevier County will on vary. December 1, 2008, with remaining annual installments ranging from $4,130,000 to $6,490,000 through 2028. Of the bonds outstanding at June 30, 2018, $13,010,000 Year endingbears interest at a synthetiVariablec fixed Rate rate of Bonds 4.10%. The remaining $39,570,000Interest bears Rate interest at a variable rate (1.55% as of June 30, 2018). Interest is paid monthly. June 30 Principal Interest Swaps, net Total Series 2017A – $11,000,000 Airport Revenue Refunding Note issued on May 25, 2017, bears interest at a 2017 fixed rate of $1.95%. 4,590,000 Remaining annual $ installments 562,983 ranging from $650,000$ 985,043 to $1,400,000 through June$ 6,138,026 2018 2026. Interest is4,825,000 paid annually. 522,361 830,113 6,177,474 2019 5,075,000 479,483 667,315 6,221,798 The Authority issued the Series 2017A note to provide funds to retire outstanding $9,525,000 of Series II-D-1 2020 bonds and to terminate5,335,000 the interest rate swap434,090 agreement associated with the496,213 Series II-D-1 bonds. The6, 265,303 2021 refunding resulted in5 ,610,000a difference between the reacquisition386,211 price and the net carrying316,408 amount of the old debt6,312,619 2022-202of6 $1,375,000. At June32,520,000 30, 2018, the remaining1,107,156 balance of $1,222,222 is reported405,195 in the accompanying financial34,032,351 statements as a deferred outflow of resources and is being amortized through 2026. 2027-2028 12,680,000 86,013 - 12,766,013 TotalIn connection with$70,635,0 the Series00 V-A-1 bonds, $the3,578,297 Authority has entered into a$ 3,700,287Reimbursement Agreement $with77,913,584 Branch Banking and Trust Company who has issued an irrevocable letter of credit in an amount not to exceed $85,758,140. This letter of credit was renewed subsequent to year-end and now expires June 30, 2021. Costs of 6. Fair Valuemaintaining this letter of credit and other administrative fees are included in interest expense.

Derivative Instruments The AuthorityIn order categorizes to protect itsagainst fair the value potential measurements of rising interest within rates and the to fair balance value its mixturehierarchy of variable established and fixed by generally accepted accountingrate debt, the principles. Authority entered The hierarchy into an interest is based rate swap on agreement the valuation (the swap). inputs The intentionused to ofmeasure the swap theis fair value of the assets.to effectively Level 1 change inputs the areAuthority’s quoted variable prices interest in activerate on the markets bonds to for a synthetic identical fixed assets.rate. Level 2 inputs are significant otherThe fair observable value of the inputs.interest rate Level swap 3 has inputs been determinedare significant by an independent unobservable third-party inputs. advisory firm from a model that calculates the future net settlement payments required by the swap, assuming that the current Debt securitiesforward are rates valued implied based by the onyield thecurve securities’ correctly antici relationshippate future spot to interest benchmark rates. These quoted payments prices. are Derivative instruments thenare valueddiscounted using using a the market spot rates approach implied bythat the considers current yield benchmark curve for hypothetical interest zero-couponrates. bonds due on the date of each future net settlement on the swap. Implied discount rates are then adjusted for non- performance risk using market-observed credit spreads. The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investmentsThe and terms interest of the rate outstanding swap liabilitiesswap as of Juneas of 30, June 2018: 30, 2016: Swap Associated Effective Fixed Rate Variable Rate Termination Bond Issues Date Level Paid 1 Level Received 2 Level 3 Date Total Investments: Series V-A-1 6/28/2001 4.355% 62.5% of 5 Year LIBOR 6/1/2021 Government debt securities $ – $ 39,998,469 $ – $ 39,998,469 The notional amounts of the swap match principal amounts of the associated debt. The Authority’s swap agreement contains scheduled reductions to outstanding notional amounts that are expected to approximately Interest ratefollow swap scheduled liabilities reductions of the associated$ bond principal.– $ However,4,502,609 the swap $ terminates –on June 1,$ 2021, 4,502,609 and does not extend to the maturity date (May 25, 2028) of the associated bonds. The notional amounts of The followingthe swap table were sets $13,010,000 forth by and level,$16,950,000 within as of the June fair 30, 2018 value and hierarchy,2017, respectively. the fair value of the Authority’ s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 45 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

5. Long-Term Debt (continued) 5. Long-Term Debt (continued) Scheduled Debt Service Requirements As of June 30,Investment 2016, Derivativescheduled Instrument debt service Risks requirements of the variable-rate debt and net swap payments, assuming currentThe Authority’s interest ratesswap associatedremain the with same the forSeries their V-A-1 term bond are is as considered follows. anAs investmentrates vary, derivative. variable -rate bond Accordingly, the $584,247 decrease in the fair value in fiscal year 2018 is reported as a change in fair value of interest paymentsinvestment and interest net swap rate swap payments in the nonoperating will vary. income portion of the Statements of Revenues, Expenses and Changes in Net Position. The estimated fair value of $607,009 and $1,191,256 have been reported as a Year endinglong-term liability at JuneVariable 30, 2018 and Rate 2017, Bondsrespectively. Interest Rate

June 30Credit risk: As of JunePrincipal 30, 2018, the Authority’s Interestinvestment derivative is not Swaps,exposed to netcredit risk because theTotal swap has a negative fair value and as such has no collateral requirements. However, should interest rates 2017 change and the fair$ 4,590,000value of the swap becomes $ 562,983positive, the Authority would$ be985,043 exposed to credit risk in $the 6,138,026 2018 amount of the derivative’s4,825,000 fair value. 522,361 830,113 6,177,474 2019 5,075,000 479,483 667,315 6,221,798 For swap counterparty, Raymond James Financial Products, Inc. was rated Baa1/BBB+ by Moody’s and 2020 Standard & Poor’s, 5,335,000respectively, as of June 30, 2018,434,090 with its Credit Support Provider,496,213 Deutsche Bank, rated6, 265,303 2021 A3/BBB+/A- by Moody’s,5,610,000 Standard & Poor’s and386,211 Fitch, respectively. 316,408 6,312,619

2022-202Interest6 rate risk : The32,520,000 Authority is exposed to interest1,107,156 rate risk on this instrument. 405,195As the LIBOR decreases, the34,032,351 2027-2028Authority’s net payment12,680,000 on the swap increases. 86,013 - 12,766,013

TotalScheduled Debt $Service70,635,0 Requirements00 $3,578,297 $3,700,287 $77,913,584 As of June 30, 2018, scheduled debt service requireme nts of all outstanding debt and net swap payments, 6. Fair Valueassuming current interest rates remain the same for their term, are as follows. As rates vary, variable-rate bond interest payments and net swap payments will vary.

The AuthorityYear categorizes ending its fair value measurements within the fairInterest value Rate hierarchy established by generally accepted accountingJune 30 principles. The Principal hierarchy is based Interest on the valuation Swap, inputs net used to measure Total the fair value of the assets. Level2019 1 inputs are$ 5,350,000 quoted prices $ in998,179 active markets $321,242 for identical assets. $ 6,669,421 Level 2 inputs are significant other observable2020 inputs.5,580,000 Level 3 inputs are910,021 significant unobservable215,453 inputs. 6,705,474 2021 5,825,000 818,176 104,426 6,747,602 2022 6,190,000 722,210 – 6,912,210 Debt securities are2023 valued based6,455,000 on the securities’620,619 relationship to benchmark – quoted7,075,619 prices. Derivative instruments areThereafter valued using a market 32,995,000 approach that 1,487,698 considers benchmark interest – rates. 34,482,698 Total $62,395,000 $5,556,903 $641,121 $68,593,024 The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments6. and Fair interest Value rate swap liabilities as of June 30, 2016:

The Authority categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchyLevel is based 1 on the valuationLevel 2inputs usedLevel to measure 3 the fair valueTotal Investments:of the assets. Level 1 inputs are quoted prices in active markets for identical assets. Level 2 inputs are Governmentsignificant debt other securities observable inputs. Level$ 3 inputs are –significant $ 39,998,469 unobservable inputs.$ – $ 39,998,469

Debt securities are valued based on the securities’ relationship to benchmark quoted prices. Derivative Interest rateinstruments swap liabilities are valued using a market$ approa ch that considers– $ benchmark4,502,609 interest $ rates. – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 46 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

5. Long-Term Debt (continued) 6. Fair Value (continued) Scheduled Debt Service Requirements As of June 30,The 2016following, scheduled table sets forthdebt byservice level, withinrequirements the fair value of thehierarchy, variable the -fairrate value debt of andthe Authority’snet swap payments, investments and interest rate swap liabilities as of June 30, 2018: assuming current interest rates remain the same for their term are as follows. As rates vary, variable-rate bond interest payments and net swap payments will vary.Level 1 Level 2 Level 3 Total Investments: Year ending Government debt securitiesVariable Rate $ Bonds– $33,160,279 Interest$ – Rate$33,160,279

June 30Interest rate swaPrincipalp liability $ Interest– $ 607,009 Swaps,$ – net $ 607,009 Total

2017 The following table$ 4,590,000 sets forth by level, within$ 562,983 the fair value hierarchy, the$ fair985,043 value of the Authority’s $ 6,138,026 2018 investments and deriv4,825,000ative investments as of June522 30,,361 2017: 830,113 6,177,474 2019 5,075,000 479,483 667,315 6,221,798 Level 1 Level 2 Level 3 Total 2020 Investments: 5,335,000 434,090 496,213 6,265,303 2021 Government debt5 ,610,000securities $ 386,211 – $38,902,166 $ 316,408 – $38,902,166 6,312,619 2022-202 6 32,520,000 1,107,156 405,195 34,032,351 2027-2028Interest rate swap12,680,000 liability $ 86,013– $ 1,191,256 $ – - $ 1,191,256 12,766,013

Total7. Deferred Compensation$70,635,000 Plan $3,578,297 $3,700,287 $77,913,584

The Authority offers its employees a deferred compensation plan created in accordance with Internal 6. Fair ValueRevenue Code Section 457 and is administered by International City Management Association Retirement Corporation. The plan, available to all Authority employees, permits them to defer a portion of their salary The Authorityuntil categorizes future years. itsThe fair deferred value compensation measurements is not withinavailable the to employeesfair value unti hierarchyl termination, established retirement, by generally accepted accountingdeath or unforeseeable principles. emergency. The hierarchy Employee is contributionsbased on the to the valuation Plan were inputs $123,670 used in 2018 to andmeasure $116,370 the fair value in 2017. Separate audited financial reports are not available for this plan. of the assets. Level 1 inputs are quoted prices in active markets for identical assets. Level 2 inputs are significant other8. Retirement observable Plan inputs. Level 3 inputs are significant unobservable inputs.

Debt securitiesThe Authority are valued provides based retirement on thebenefits securities’ for all of its relationship full-time employees to benchmark through a defined quoted contribution prices. Derivative plan (Metropolitan Knoxville Airport Authority Plan) which was established and can be amended under the instruments authorityare valued of the using Board a ofmarket Commissioners approach and thatis administered considers by benchmark International Cityinterest Management rates. Association Retirement Corporation. In a defined contribution plan, benefits depend solely on amounts contributed to The followingthe plan table plus sets investment forth byearnings. level, All within full-time the employees fair value are hierarchy,eligible to participate the fair from value the ofdate the of Authority’s employment. investments and interest rate swap liabilities as of June 30, 2016: The Authority’s contributions for each employee (and investment income allocated to the employees’ account) are vested after one year of employment.Level 1 Under the termsLevel of 2the plan, employerLevel contributions3 Total are Investments:determined annually by the Board of Commissioners. There are no minimum required employer contributions under the terms of the plan and there is no outstanding employer liability as of June 30, 2018 Governmentand 2017. debt Employee securities contributions are$ optional. Employer– contribution$ 39,998,469 expense totaled$ $929,495– in 2018$ 39,998,469and $894,413 in 2017. There were no forfeitures during 2018 and 2017. Separate audited financial reports are not Interest rateavailable swap forliabilities this plan. $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 47 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

5. Long-Term Debt (continued) 9. Passenger Facility Charges Scheduled Debt Service Requirements As of June 30,Passenger 2016 Facility, scheduled Charges debt (PFC) service are fees requirementsimposed on enplaning of the passengers variable by-rate airports debt to andfinance net eligible swap payments, assuming currentairport-related interest projects rates thatremain preserve the or same enhance for the their safe ty,term security are oras capacity;follows. reduce As rates noise; vary, or increase variable air -rate bond carrier competition. Since September 2003, the air carriers have been collecting a $4.50 PFC on qualifying interest paymentspassengers and at netMcGhee swap Tyson payments Airport onwill behalf vary. of the Authority. Both the fee and its intended projects must be reviewed and approved by the FAA. PFCs, along with related interest earnings, are recorded as deferred Year endingrevenues until authorizedVariable to use for Rateconstruction Bonds and related debt servicesInterest payments Rate under FAA approved June 30Application to Use.Principal Once authorized to use, theInterest PFC receipts are recognizedSwaps, and recorded net as nonoperating Total income in the year collected by the air carriers. PFC revenues totaled $4,291,948 in 2018 and $3,767,376 in 2017. All PFCs were authorized for use, and no deferred revenues were recorded. 2017 $ 4,590,000 $ 562,983 $ 985,043 $ 6,138,026 2018 The Authority has received4,825,000 approval to collect $95,522800,334,361 on currently approved830,113 projects through July 2022,6,177,474 2019 unless extended. Cumulative5,075,000 expend itures to date479,483 on these approved PFC projects667,315 total $61,381,935. 6,221,798

2020 As of June 30, 20185,335,000 and 2017, the Authority has434,090 $1,471 ,915 and $1,378,566, respectively,496,213 of PFCs available6, 265,303 2021 and authorized for use.5,610,000 This amount is included 386,211in restricted net position on the 316,408balance sheet (see Note 12). 6,312,619 2022-202 6 32,520,000 1,107,156 405,195 34,032,351 2027-202810. Conduit Debt12,680,000 86,013 - 12,766,013

TotalThe Authority issued$70,635,0 $8,500,00000 Metropolitan$3,578,297 Knoxville Airport Authority $Special3,700,287 Purpose Revenue Bonds$77,913,584 on June 18, 2002. The bonds bear interest at 8% and are due in an aggregate prin cipal amount of $8,500,000 on April 1, 2032. Interest is payable semiannually on each April 1 and October 1. 6. Fair Value The bonds were issued pursuant to a lease agreement between the Authority and Northwest Airlines, Inc. The Authority(Northwest) categorizes dated itsJuly fair 12, 2001,value and measurements subsequently amended. within Northwest the fair valuehas subsequently hierarchy been established acquired by by generally Delta Air Lines (Delta). The proceeds of the bonds were used for the construction by Northwest of an accepted accountingaircraft maintenance principles. hangar The and hierarchy related facilities is based to be on leased the byvaluation Northwest inputs from the used Authority to measure under the the fair value of the assets.lease Level agreement. 1 inputs Under the are terms quoted of the prices lease agreement, in active Delta, markets formerly for Northwest identical is obligated assets. to Level pay base 2 inputs are significant otherrental observableto a trustee assigned inputs. by Level the Authority 3 inputs in theare amount significant necessary unobservable to meet debt inputs.service requirements on the bonds as they are due.

Debt securitiesThe Authority are valued has no based liability onfor repaymentthe securities’ of these relationshipbonds and, accordingly, to benchmark the bonds are quoted not reported prices. in Derivative instruments theare Authority’s valued using financial a market statements. approach Revenues that and receiptsconsiders derived benchmark from the lease interest agreement rates. and a guaranty by Delta, are the only security for the bondholders. The entire amount of the bonds is outstanding at June 30, 2018. The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments11. and Business interest Concentrations rate swap liabilities as of June 30, 2016:

The Authority is dependent to a large extentLevel on 1 five major Levelairlines and2 their regionalLevel affiliates 3 in thatTotal a significant portion of aviation area revenues are generated by these airlines. These airlines accounted for Investments:aviation area revenues totaling $4,865,199 in 2018 and $4,859,773 in 2017 and maintenance facility rent from Governmenta regional debt affiliate securities accounted for $1,099,780$ of air –cargo $revenue 39,998,469 in both 2018$ and 2017.– In addition,$ 39,998,469 a significant portion of terminal area revenue is directly and indirectly generated from four of these airlines’ Interest ratepassengers, swap liabilities which accounted for approximately$ 97%– of total$ passengers4,502,609 in 2018$ and 96%– in 2017.$ As 4,502,609of June 30, 2018 and 2017, 91% and 92%, respectively, of trade accounts receivable are due from these major airlines. The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 48 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

NOTES TO FINANCIAL STATEMENTS (continued) 5. Long-Term Debt (continued)

Scheduled Debt12. Net Service Position Requirements As of June 30,Net 2016position, scheduled consists of the debt following service as of requirements June 30: of the variable-rate debt and net swap payments, assuming current interest rates remain the same for their term are as follows.2018 As rates vary,2017 variable-rate bond interest paymentsNet investment and net inswap capital payments assets will vary. Noncurrent assets: Year endingCapital assets, net Variable Rate Bonds $ Interest 209,828,418 Rate$ 192,092,127 June 30 Master plans Principaland other plans, net Interest Swaps,393,642 net 61,548 Total Total noncurrent assets 210,222,060 192,153,675 2017 $ 4,590,000 $ 562,983 $ 985,043 $ 6,138,026 2018 Deferred outflows4,825,000 - deferred charge on debt522 refundings,361 1,222,222830,113 1,375,000 6,177,474 2019 Less related liabilities:5,075,000 479,483 667,315 6,221,798 2020 Accounts payable5,335,000 (for construction) 434,090 2,850,643496,213 2,431,480 6,265,303 2021 Long-term debt5,610,000 386,211 62,395,000316,408 67,520,000 6,312,619 2022-2026Total related liabilities32,520,000 1,107,156 65,245,643405,195 69,951,48034,032,351 2027-2028Net investment 12,680,000in capital assets 86,013 $ 146,198,639 -$ 123,577,19512,766,013 Total Restricted net position:$70,635,000 $3,578,297 $3,700,287 $77,913,584 Cash and cash equivalents - passenger facility charges $ 651,915 $ 698,566 6. Fair ValueCash and cash equivalents - law enforcement 465,891 546,155 Passenger facility charges receivable 820,000 680,000 Restricted net position $ 1,937,806 $ 1,924,721 The Authority categorizes its fair value measurements within the fair value hierarchy established by generally accepted accountingUnrestricted principles. net position The (all hierarchy other items is on based statements on the valuation inputs used to measure the fair value of the assets. of Level net position 1 inputs not reflected are quoted above): prices in active markets for identical assets. Level 2 inputs are significant otherAssets: observable inputs. Level 3 inputs are significant unobservable inputs. Cash and cash equivalents $ 17,065,629 $ 14,985,568 Investments 33,160,279 38,902,166 Debt securitiesReceivables are valued based on the securities’ relationship to benchmark9,899,349 quoted7,302,891 prices. Derivative instruments are Prepaidvalued expenses using aand market other current approach assets that considers benchmark 800,513interest rates. 662,569 Other long-term assets 512,713 579,343 The followingTotal table unrestricted sets forth assets by level, within the fair value hierarchy, 61,438,483 the fair value 62,432,537 of the Authority’s investments andLess interest liabilities: rate swap liabilities as of June 30, 2016: Accounts payable (non-construction) 1,321,927 1,301,435 Accrued payroll and other expenses 1,363,334 1,313,231 Accrued interest Level 1 Level 2 8,670Level 3 42,677Total Investments: Investment interest rate swaps 607,009 1,191,256 GovernmentTotal debt liabilities securities $ – $ 39,998,469 3,300,940$ – 3,848,599$ 39,998,469 Unrestricted net position $ 58,137,543 $ 58,583,938 Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 49 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

NOTES TO FINANCIAL STATEMENTS (continued) 5. Long-Term Debt (continued) 13. Division Information Scheduled Debt Service Requirements As of June 30,The 2016 Metropolitan, scheduledKnoxville debt Airport serviceAuthority requirementsprovides services ofthrough the variabletwo divisions-rate- McGheedebt and Tyson netAirport swap payments, and Knoxville Downtown Island Airport. Key financial data as of and for the years ended June 30, 2018 and 2017 assuming currentfor the interesttwo divisions rates is as remainfollows: the same for their term are as follows. As rates vary, variable-rate bond interest payments and net swap payments will vary. McGhee Tyson Downtown Island 2018 2017 2018 2017 Year ending Variable Rate Bonds Interest Rate June 30Unrestricted currentPrincipal assets Interest$ 59,968,568 $ 61,722,326Swaps,$ 1,036,084net $ 130,868 Total Restricted current assets 1,858,924 1,924,721 - -

2017 Capital assets, net$ 4,590,000 $ 562,983 206,023,937 188,676,031 $ 985,043 4,198,123 3,477,644 $ 6,138,026 Other assets, net 508,450 573,219 4,263 6,124 2018 Intercompany receivable4,825,000 522,361 4,680,734 3,786,922 830,113 - - 6,177,474 2019 Deferred outflows 5,075,000 479,483 1,222,222 1,375,000 667,315 - - 6,221,798 2020 Total assets and deferred5,335,000 outflows 434,090$ 274,262,835 $ 258,058,219 496,213 $ 5,238,470 $ 3,614,636 6,265,303 2021 5,610,000 386,211 316,408 6,312,619 Current liabilities $ 10,820,281 $ 10,186,909 $ 74,293 $ 26,914 2022-202Intercompany6 payable32,520,000 1,107,156 - - 405,195 4,680,734 3,786,92234,032,351 2027-2028Long-term debt, less12,680,000 current portion 86,01356,614,791 61,964,791 430,209- 430,20912,766,013 Total Swap liabilities $70,635,000 $3,578,297 602,222 1,182,189$3,700,287 4,787 9,067$77,913,584 $ 68,037,294 $ 73,333,889 $ 5,190,023 $ 4,253,112 Total liabilities 6. Fair ValueNet position: Net investment in capital assets $ 142,430,725 $ 120,529,760 $ 3,767,914 $ 3,047,435 The AuthorityRestricted categorizes its fair value measurements within 1,937,806 the fair 1,924,721 value hierarchy -established - by generally Unrestricted 61,857,010 62,269,849 (3,719,467) (3,685,911) accepted accountingTotal net position principles. (deficit) The hierarchy is based$ 206,225,541 on the valuation$ 184,724,330 inputs$ used 48,447 to measure$ (638,476) the fair value of the assets. Level 1 inputs are quoted prices in active markets for identical assets. Level 2 inputs are significant otherOperating observable revenues inputs. Level 3 inputs are$ significant 29,202,310 $unobservable 27,979,604 $ inputs. 1,200,474 $ 1,111,682 Operating expenses (20,360,572) (20,036,762) (1,348,039) (1,291,969) Debt securitiesDepreciation are valued and amortization based on the securities’ relationship(9,362,735) (9,421,653) to benchmark (137,211) quoted (117,746) prices. Derivative Operating loss (520,997) (1,478,811) (284,776) (298,033) instruments Netare nonoperatingvalued using income a market (deductions) approach that considers3,826,690 benchmark2,629,750 interest (14,382) rates. (9,625) Capital contributions 18,195,518 30,198,577 986,081 1,487,114 The followingIncrease table in setsnet position forth by level, within the$ fair21,501,211 value $ hierarchy, 31,349,516 the$ fair 686,923 value$ 1,179,456 of the Authority’s investments and interest rate swap liabilities as of June 30, 2016: Cash flows: Operating activities $ 9,038,509 $ 7,821,935 $ (143,626) $ (201,105) Investing activities Level 1 6,183,959Level 1,464,105 2 Level 3 - Total - Investments:Capital and related financing activities (13,269,323) (7,552,286) 143,627 201,106 GovernmentNet change debt in securities cash and cash equivalents$ – 1,953,145 $ 39,998,469 1,733,754 $ – 1 $ 39,998,469 1 Cash and cash equivalents at beginning of the year 16,229,890 14,496,136 399 398 Interest rateCash swap and cashliabilities equivalents at end of the $year $ – 18,183,035 $ 4,502,609 $ 16,229,890 $ $ 400– $ $ 399 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 50 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

STATISTICAL SECTION

This part of the Metropolitan Knoxville Airport Authority’s comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the airport’s overall financial health.

Contents

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

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

Revenue Capacity These schedules contain information to help the reader assess the airport’s most significant local revenue sources.

Demographic and Economic Information These schedules offer demographic and economic indicators to help the reader understand the environment within which the airport’s financial activities take place.

Operating Information These schedules contain service and infrastructure data to help the reader understand how the information in the airport’s financial report relates of the services the airport provides and activities it performs.

51 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIALSCHEDULE STATEMENTS 1: (continued) Operating revenues and expenses - last ten years (unaudited) 2018 2017 2016 2015 2014 5. LongOperating-Term revenues: Debt (continued) Aviation area $ 5,365,728 $ 5,157,606 $ 5,133,877 $ 5,038,282 $ 4,693,762 ScheduledTerminal Debt area Service Requirements 21,008,481 20,075,555 18,848,009 18,625,307 17,922,026 Air cargo and other properties 4,028,575 3,858,125 3,710,606 3,810,517 3,693,140 As of June 30, 2016, scheduled debt service requirements of the variable-rate debt and net swap payments, assumingTotal current operating interest revenues rates remain the same30,402,784 for their 29,091,286 term are as 27,692,492 follows. As 27,474,106 rates vary, variable 26,308,928-rate bond interest payments and net swap payments will vary. Operating expenses: Aviation area 2,332,940 2,203,523 2,326,391 2,241,790 2,190,390 YearTerminal ending area Variable Rate 5,847,724 Bonds 5,874,317 5,506,569Interest Rate 5,579,811 5,273,861 JuneAir cargo 30 and other propertiesPrincipal 1,530,434Interest 1,453,788 1,529,873Swaps, net 1,621,939 1,673,103Total General area: 2017Safety $ 4,590,000 4,628,650 $ 562,983 4,609,726 4,394,476$ 985,043 4,536,099 4,599,895$ 6,138,026 Administration 7,368,863 7,187,377 6,434,369 5,631,927 5,047,911 2018 4,825,000 522,361 830,113 6,177,474 2019Total operating expenses 5,075,000 21,708,611479,483 21,328,731 20,191,678667,315 19,611,566 18,785,1606,221,798

2020Operating income before adjustments5,335,000 8,694,173434,090 7,762,555 7,500,814496,213 7,862,540 7,523,7686,265,303 2021 5,610,000 386,211 316,408 6,312,619 202Depreciation2-2026 and amortization 32,520,000 (a) (9,499,946)1,107,156 (9,539,399) (9,912,070)405,195 (10,717,072) (11,004,758)34,032,351

202Operating7-2028 loss 12,680,000 (805,773)86,013 (1,776,844) (2,411,256) (2,854,- 532) (3,480,990)12,766,013 Total $70,635,000 $3,578,297 $3,700,287 $77,913,584 Net nonoperating income (deductions) (a) 3,812,308 2,620,125 2,599,725 1,933,972 1,345,107

6. FairLoss Value before capital contributions 3,006,535 843,281 188,469 (920,560) (2,1 35,883)

Capital contributions - grant receipts from The Authoritygovernmental categorizes agencies its fair value measurements 19,181,599 within 31,685,691 the fair 14,834,999 value hierarchy 9,437,726 established 4,547,269 by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the Increase assets. in Level net position 1 inputs are quoted 22,188,134 prices in active 32,528,972 markets 15,023,468 for identical 8,517,166 assets. Level 2,411,38 2 6 inputs are significantNet positionother atobservable beginning of year, inputs. as Level 3 184,085,854 inputs are significant 151,556,882 unobservable 136,533,414 inputs. 128,016,248 125,604,862 previously reported Restatement of beginning net position for Debt securitiesadoption of arenew accounting valued guidance based (a) on the securities’ - relationship - to benchmark - quoted - prices. - Derivative instrumentsNet position are valued at end of using year a market approach$ 206,273,988 that $considers 184,085,854 benchmark$ 151,556,882 interest$ 136,533,41 rates.4 $ 128,016,248

Net position at end of year: The followingNet investment table in setscapital forthassets by level,$ 146,198,639 within the$ fair123,577,195 value $ hierarchy, 91,628,740 the$ 81,407,805 fair value$ of 75, 967,891 the Authority’s investmentsRestricted-expendable and interest rate swap liabilities 1,937,806as of June 30, 1,924,721 2016: 2,029,096 1,704,693 1,532,747 Unrestricted 58,137,543 58,583,938 57,899,046 53,420,916 50,515,610

Net position at end of year $ 206,273,988 Level 1$ 184,085,854Level$ 151,556,882 2 $ Level 136,533,414 3 $ 128,016,248Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 52 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIALSCHEDULE STATEMENTS 1: (continued) Operating revenues and expenses - last ten years (unaudited) (continued) 2013 2012 2011 2010 2009 5. LongOperating-Term revenues: Debt (continued) Aviation area $ 4,453,779 $ 4,559,117 $ 4,600,042 $ 4,092,297 $ 4,420,850 ScheduledTerminal Debt area Service Requirements 16,327,587 16,909,768 15,942,418 15,008,917 15,578,397 Air cargo and other properties 3,759,280 3,650,100 3,747,735 3,537,641 3,599,473 As of June 30, 2016, scheduled debt service requirements of the variable-rate debt and net swap payments, assumingTotal current operating interest revenues rates remain the 24,540,646same for their 25,118,985 term are as 24,290,195 follows. As 22,638,855 rates vary, 23,598,variable720 -rate bond interest payments and net swap payments will vary. Operating expenses: Aviation area 2,031,595 2,060,220 2,052,420 1,846,296 1,606,297 YearTerminal ending area Variable Rate 5,328,985 Bonds 5,479,501 5,488,460Interest Rate5,211,340 5,525,804 JuneAir cargo 30 and other propertiesPrincipal 1,644,636 Interest 1,536,805 1,430,679Swaps, 1,215,671net 1,386,129Total General area: 2017Safety $ 4,590,000 4,282,979 $ 562,983 4,087,663 4,021,409$ 985,043 3,908,435 3,827,547$ 6,138,026 Administration 5,114,112 5,423,518 4,679,484 4,318,658 4,587,923 2018 4,825,000 522,361 830,113 6,177,474 2019Total operating expenses 5,075,000 18,402,307479,483 18,587,707 17,672,452 667,315 16,500,400 16,933,7006,221,798

2020Operating income before adjustments5,335,000 6,138,339 434,090 6,531,278 6,617,743 496,213 6,138,455 6,665,0206,265,303 2021 5,610,000 386,211 316,408 6,312,619 202Depreciation2-2026 and amortization 32,520,000 (a) (11,387,084) 1,107,156 (12,269,546) (13,194,950)405,195 (12,056,454) (12,006,890)34,032,351

202Operating7-2028 loss 12,680,000 (5,248,745) 86,013 (5,738,268) (6,577,207) (5,917,999) - (5,341, 870)12,766,013 Total $70,635,000 $3,578,297 $3,700,287 $77,913,584 Net nonoperating income (deductions) (a) (2,650,537) 358,676 604,526 924,371 77,185

6. FairLoss Value before capital contributions (7,899,282) (5,379,592) (5,972,681) (4,993,628) (5,264,685)

Capital contributions - grant receipts from The Authoritygovernmental categorizes agencies its fair value measurements 14,463,193 within 5,598,693 the fair 6,929,117 value hierarchy 9,771,088 established 10,814,592 by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the Increase assets. in Level net position 1 inputs are quoted 6,563,911 prices in active 219,101 markets 956,436 for identical 4,777,460 assets. Level 5,549,907 2 inputs are significantNet positionother atobservable beginning of year, inputs. as Level 3119,040,951 inputs are 118,821,850significant unobservable 120,241,621 115,464,161inputs. 109,914,254 previously reported Restatement of beginning net position for Debt securitiesadoption of arenew accounting valued guidance based (a) on the securities’ - relationship - (2,376,207) to benchmark quoted - prices. - Derivative instrumentsNet position are valued at end of using year a market approach$ 125,604,862 that$ considers 119,040,951 benchmark$ 118,821,850 interest$ 120,241 rates.,621 $ 115,464,161

Net position at end of year: The followingNet investment table in setscapital forthassets by level,$ within82,343,430 the$ fair 75,944,810 value $ hierarchy, 74,579,458 the$ 77,855,580 fair value$ of 74,649, the890 Authority’s investmentsRestricted-expendable and interest rate swap liabilities 1,411,832 as of June 30, 1,358,687 2016: 1,050,744 1,187,852 1,113,328 Unrestricted 41,849,600 41,737,454 43,191,648 41,198,189 39,700,943

Net position at end of year $ 125,604,862Level $1 119,040,951Level$ 118,821,850 2 $ Level 120,241,621 3 $ 115,464,161Total Investments: GovernmentSource: Audited Financialdebt securities Statements, 2009-2018 $ – $ 39,998,469 $ – $ 39,998,469 (a) The Authority adopted GASB Statement No. 65 in 2013, which requires bond issuance costs be expensed in the period incurred. Accordingly, fiscal years 2012 and 2011 have been restated to reflect the elimination of both unamoritized bond issuance costs and Interestdeferred rate loss swap on bond liabilitiesrefunding. The Authority does not consider$ it practicable to– restate$ 2009-2010. 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 53 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIALSCHEDULE STATEMENTS 2: (continued) Debt service coverage - last ten years (unaudited) 2018 2017 2016 2015 2014 5. LongOperating-Term revenues: Debt (continued) Aviation area $ 5,365,728 $ 5,157,606 $ 5,133,877 $ 5,038,282 $ 4,693,762 ScheduledTerminal Debt area Service Requirements 21,008,481 20,075,555 18,848,009 18,625,307 17,922,026 Air cargo and other properties 4,028,575 3,858,125 3,710,606 3,810,517 3,693,140 As of June 30, 2016, scheduled debt service requirements of the variable-rate debt and net swap payments, assumingTotal current operating interest revenues rates remain the same for 30,402,784 their term 29,091,286 are as follows. 27,692,492 As rates 27,474,106 vary, variable 26,308,928-rate bond interest payments and net swap payments will vary. Operating expenses: Aviation area 2,332,940 2,203,523 2,326,391 2,241,790 2,190,390 YearTerminal ending area Variable Rate Bonds 5,847,724 5,874,317 Interest 5,506,569 Rate 5,579,811 5,273,861 JuneAir cargo 30 and other propertiesPrincipal Interest 1,530,434 1,453,788 Swaps, 1,529,873 net 1,621,939 1,673,103Total General area: 2017Safety $ 4,590,000 $ 562,983 4,628,650 4,609,726 4,394,476$ 985,043 4,536,099 4,599,895$ 6,138,026 Administration 7,368,863 7,187,377 6,434,369 5,631,927 5,047,911 2018 4,825,000 522,361 830,113 6,177,474 2019Total operating expenses 5,075,000 21,708,611479,483 21,328,731 20,191,678667,315 19,611,566 18,785,1606,221,798 2020 5,335,000 434,090 496,213 6,265,303 202Operating1 income before other5,610,000 386,211 316,408 6,312,619 income and other expenses 8,694,173 7,762,555 7,500,814 7,862,540 7,523,768 2022-2026 32,520,000 1,107,156 405,195 34,032,351 202Other7-2028 income 12,680,000 24,194,73586,013 35,833,765 19,289,065 13,082,418- 8,318,11012,766,013 Total $70,635,000 $3,578,297 $3,700,287 $77,913,584 Net revenues 32,888,908 43,596,320 26,789,879 20,944,958 15,841,878

Less capital contributions - grant receipts 6. Fair Valuefrom government agencies included in other income (19,181,599) (31,685,691) (14,834,999) (9,437,726) (4,547,269) The Authority categorizes its fair value measurements within the fair value hierarchy established by generally Net revenues less grant receipts from accepted governmentaccounting agencies principles. in other income The hierarchy is$ based 13,707,309 on $the 11,910,629 valuation$ 11,954,880 inputs used$ 11,507,232 to measure$ 11,294,609 the fair value of the assets. Level 1 inputs are quoted prices in active markets for identical assets. Level 2 inputs are significantDebt otherservice onobservable airport revenue inputs. Level 3 inputs are significant unobservable inputs. general obligation debt (a) $ 6,907,123 $ 6,799,043 $ 6,476,919 $ 6,366,528 $ 6,377,790 Debt securitiesCoverage ratio are - airport valued revenue based on the securities’ relationship to benchmark quoted prices. Derivative instrumentsgeneral are obligation valued debt using a market approach that 198.5%considers benchmark175.2% 184.6% interest rates.180.7% 177.1%

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 54 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIALSCHEDULE STATEMENTS 2: (continued) Debt service coverage - last ten years (unaudited) (continued) 2013 2012 2011 2010 2009 5. LongOperating-Term revenues: Debt (continued) Aviation area $ 4,453,779 $ 4,559,117 $ 4,600,042 $ 4,092,297 $ 4,420,850 ScheduledTerminal Debt area Service Requirements 16,327,587 16,909,768 15,942,418 15,008,917 15,578,397 Air cargo and other properties 3,759,280 3,650,100 3,747,735 3,537,641 3,599,473 As of June 30, 2016, scheduled debt service requirements of the variable-rate debt and net swap payments, assumingTotal current operating interest revenues rates remain the same for 24,540,646 their term 25,118,985 are as follows. 24,290,195 As rates 22,638,855 vary, variable 23,598,720-rate bond interest payments and net swap payments will vary. Operating expenses: Aviation area 2,031,595 2,060,220 2,052,420 1,846,296 1,606,297 YearTerminal ending area Variable Rate Bonds 5,328,985 5,479,501 Interest 5,488,460 Rate 5,211,340 5,525,804 JuneAir cargo 30 and other propertiesPrincipal Interest 1,644,636 1,536,805 Swaps, 1,430,679 net 1,215,671 1,386,129Total General area: 2017Safety $ 4,590,000 $ 562,983 4,282,979 4,087,663 4,021,409$ 985,043 3,908,435 3,827,547$ 6,138,026 Administration 5,114,112 5,423,518 4,679,484 4,318,658 4,587,923 2018 4,825,000 522,361 830,113 6,177,474 2019Total operating expenses 5,075,000 18,402,307 479,483 18,587,707 17,672,452667,315 16,500,400 16,933,7006,221,798 2020 5,335,000 434,090 496,213 6,265,303 202Operating1 income before other5,610,000 386,211 316,408 6,312,619 income and other expenses 6,138,339 6,531,278 6,617,743 6,138,455 6,665,020 2022-2026 32,520,000 1,107,156 405,195 34,032,351 202Other7-2028 income 12,680,000 18,127,924 86,013 9,742,814 10,976,093 14,017,466- 15,568,62812,766,013 Total $70,635,000 $3,578,297 $3,700,287 $77,913,584 Net revenues 24,266,263 16,274,092 17,593,836 20,155,921 22,233,648

Less capital contributions - grant receipts 6. Fair Valuefrom government agencies included in other income (14,463,193) (5,598,693) (6,929,117) (9,771,088) (10,814,592) The Authority categorizes its fair value measurements within the fair value hierarchy established by generally Net revenues less grant receipts from accepted governmentaccounting agencies principles. in other income The hierarchy is$ based 9,803,070 on $the 10,675,399 valuation$ 10,664,719 inputs used$ 10,384,833 to measure$ 11,419,056 the fair value of the assets. Level 1 inputs are quoted prices in active markets for identical assets. Level 2 inputs are significantDebt otherservice onobservable airport revenue inputs. Level 3 inputs are significant unobservable inputs. general obligation debt (a) $ 6,645,106 $ 6,862,478 $ 6,998,949 $ 6,561,014 $ 7,768,148 Debt securitiesCoverage ratio are - airport valued revenue based on the securities’ relationship to benchmark quoted prices. Derivative instrumentsgeneral are obligation valued debt using a market approach that147.5% considers 155.6%benchmark152.4% interest rates.158.3% 147.0% Source: Audited Financial Statements, 2009-2018 The following(a) Amounts based table on scheduled sets principal forth payments. by level, within the fair value hierarchy, the fair value of the Authority’s investmentsNote: Revenues, and as interest defined in the rateMaster swapResolutions, liabilities are pledged for payments.as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 55 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIALSCHEDULE STATEMENTS 3: (continued) Ratios of debt service and outstanding debt - last ten years (unaudited) 2018 2017 2016 2015 2014 5. Long-Term Debt (continued) Principal (a) $ 5,125,000 $ 4,590,000 $ 4,365,000 $ 4,155,000 $ 3,950,000

ScheduledInterest Debt (b) Service Requirements 1,782,123 2,209,043 2,111,919 2,211,528 2,427,790 As of June 30, 2016, scheduled debt service requirements of the variable-rate debt and net swap payments, assumingTotal current debt service interest rates remain the same$ 6,907,123 for their$ term 6,799,043 are as$ follows. 6,476,919 As$ rates6,366,528 vary,$ variable 6,377,790 -rate bond interest payments and net swap payments will vary. $ 32,990,680 $ 33,077,173 $ 32,215,667 $ 32,540,166 $ 32, 217,708 Total expenses YearLess ending depreciation and amortizationVariable (c) Rate (9,499,946)Bonds (9,539,399) (9,912,070)Interest (10,717,072)Rate (11,004,758) June 30 Principal Interest Swaps, net Total Add principal (a) 5,125,000 4,590,000 4,365,000 4,155,000 3,950,000 2017 $ 4,590,000 $ 562,983 $ 985,043 $ 6,138,026 Total general expenditures $ 28,615,734 $ 28,127,774 $ 26,668,597 $ 25,978,094 $ 25, 162,950 2018 4,825,000 522,361 830,113 6,177,474 2019Ratio of debt service to expenditures5,075,000 479,48324.1% 24.2% 24.3%667,315 24.5% 25.3%6,221,798 2020 5,335,000 434,090 496,213 6,265,303 Outstanding debt (d) $ 62,395,000 $ 67,520,000 $ 70,635,000 $ 75,000,000 $ 79, 155,000 2021 5,610,000 386,211 316,408 6,312,619 202Total2-202 number6 of passengers 32,520,000 (e) 1,988,3911,107,156 1,828,927 1,774,290405,195 1,739,716 1,711,66434,032,351 2027-2028 12,680,000 86,013 - 12,766,013 Outstanding debt per passenger $ 31.38 $ 36.92 $ 39.81 $ 43.11 $ 46.24 Total $70,635,000 $3,578,297 $3,700,287 $77,913,584 Debt service per passenger $ 3.47 $ 3.72 $ 3.65 $ 3.66 $ 3.73 6. Fair Value

Debt securities are valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates.

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 56 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIALSCHEDULE STATEMENTS 3: (continued) Ratios of debt service and outstanding debt - last ten years (unaudited) (continued) 2013 2012 2011 2010 2009 5. Long-Term Debt (continued) Principal (a) $ 3,755,000 $ 3,575,000 $ 3,400,000 $ 3,235,000 $ 3,075,000

ScheduledInterest Debt (b) Service Requirements 2,890,106 3,287,478 3,598,949 3,326,014 4,693,148 As of June 30, 2016, scheduled debt service requirements of the variable-rate debt and net swap payments, assumingTotal current debt service interest rates remain the same$ 6,645,106 for their$ term 6,862,478 are as$ follows. 6,998,949 As$ rates 6,561,014 vary,$ variable 7,768,148 -rate bond interest payments and net swap payments will vary. $ 32,679,497 $ 34,144,731 $ 34,528,903 $ 31,882,868 $ 33, 633,738 Total expenses YearLess ending depreciation and amortizationVariable (c) Rate (11,387,084) Bonds (12,269,546) (13,257,502)Interest Rate(12,056,454) (12,006,890) June 30 Principal Interest Swaps, net Total Add principal (a) 3,755,000 3,575,000 3,400,000 3,235,000 3,075,000 2017 $ 4,590,000 $ 562,983 $ 985,043 $ 6,138,026 Total general expenditures $ 25,047,413 $ 25,450,185 $ 24,671,401 $ 23,061,414 $ 24, 701,848 2018 4,825,000 522,361 830,113 6,177,474 2019Ratio of debt service to expenditures5,075,000 479,48326.5% 27.0% 28.4%667,315 28.5% 31.4%6,221,798 2020 5,335,000 434,090 496,213 6,265,303 Outstanding debt (d) 2021 5,610,000 $ 79,850,000 386,211 $ 80,505,000 $ 89,151,626 316,408 $ 92,414,952 $ 95, 505,4196,312,619 202Total2-202 number6 of passengers 32,520,000 (e) 1,746,0741,107,156 1,773,654 1,687,763405,195 1,680,428 1,742,34,032,351090 2027-2028 12,680,000 86,013 - 12,766,013 Outstanding debt per passenger $ 45.73 $ 45.39 $ 52.82 $ 54.99 $ 54.82 Total $70,635,000 $3,578,297 $3,700,287 $77,913,584 Debt service per passenger $ 3.81 $ 3.87 $ 4.15 $ 3.90 $ 4.46 6. Fair Value Source: Audited Financial Statements, 2009-2018 The Authority(a) Amounts basedcategorizes on scheduled principal its payments.fair value measurements within the fair value hierarchy established by generally (b) Includes net capitalized interest. accepted(c) Theaccounting Authority adopted principles. GASB Statement No.The 65 inhierarchy 2013, which requires is basedbond issuance on costs the be expensed valuation in the period inputs incurred. Accordingly, used to measure the fair value of the fiscal assets. years 2012 Level and 2011 1 have inputs been restated are to reflect quoted the elimination prices of both unamoritized in active bond issuance markets costs and deferred for identicalloss on bond refunding. assets. Level 2 inputs are The Authority does not consider it practicable to restate 2009-2010. significant(d) Outstanding other debt observable is for Airport Revenue inputs. Obligations, Level payable 3 from inputs general airport are revenue. significant unobservable inputs. (e) Passenger numbers for the calendar year ended during the fiscal year. Debt securities are valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates.

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 57 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIALSCHEDULE STATEMENTS 4: (continued) McGhee Tyson Airport annual terminal rents and landing fees last ten years (unaudited)

5. Long-Term Debt (continued) 2018 2017 2016 2015 2014 Terminal rent: ScheduledTicket Debt counter Service (per linear Requifoot) rements $43.22 $42.01 $38.76 $38.62 $37.69 As of JuneTicket queuing30, 2016 (per ,square scheduled foot) (a) debt service$43.22 requirements$42.01 of the variable$38.76 -rate debt$38.62 and net$37.69 swap payments, assuming current interest rates remain the same for their term are as follows. As rates vary, variable-rate bond Office space (per square foot) $43.22 $42.01 $38.76 $38.62 $37.69 interest payments and net swap payments will vary. Outbound baggage space (per square foot) $43.22 $42.01 $38.76 $38.62 $37.69 Year ending Variable Rate Bonds Interest Rate Operations space (per square foot) $43.22 $42.01 $38.76 $38.62 $37.69 June 30 Principal Interest Swaps, net Total Baggage service office (per square foot) $43.22 $42.01 $38.76 $38.62 $37.69 2017 $ 4,590,000 $ 562,983 $ 985,043 $ 6,138,026 2018Holdroom area (per square foot)4,825,000 $43.22 522,361 $42.01 $38.76 830,113 $38.62 $37.69 6,177,474 2019Baggage claim (per square foot)5,075,000 $43.22 479,483 $42.01 $38.76 667,315 $38.62 $37.69 6,221,798 2020 5,335,000 434,090 496,213 6,265,303 202Apron1 charge (per gate) (a) 5,610,000 $86,085.00 386,211$82,788.00 $81,934.00 316,408 $77,624.00 $75,751.006,312,619 202Loading2-202 6bridge rent (per bridge)32,520,000 (a) $43,802.001,107,156$45,176.00 $45,436.00 405,195 $51,378.00 $45,955.0034,032,351 2027-2028 12,680,000 86,013 - 12,766,013 Landing fee (per 1,000 pounds) $3.13 $3.23 $3.50 $3.43 $3.28 Total $70,635,000 $3,578,297 $3,700,287 $77,913,584

6. Fair Value

Debt securities are valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates.

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 58 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIALSCHEDULE STATEMENTS 4: (continued) McGhee Tyson Airport annual terminal rents and landing fees - last ten years (unaudited) last ten years (unaudited) (continued)

5. Long-Term Debt (continued) 2013 2012 2011 2010 2009 Terminal rent: ScheduledTicket Debt counter Service (per linear Requifoot) rements $38.90 $39.33 $39.45 $36.11 $39.69 As of JuneTicket queuing30, 2016 (per ,square scheduled foot) (a) debt service$38.90 requirements$39.33 of the $39.45variable-rate$36.11 debt and net$39.69 swap payments, assuming current interest rates remain the same for their term are as follows. As rates vary, variable-rate bond Office space (per square foot) $38.90 $39.33 $39.45 $36.11 $39.69 interest payments and net swap payments will vary. Outbound baggage space (per square foot) $38.90 $39.33 $39.45 $36.11 $39.69 Year ending Variable Rate Bonds Interest Rate Operations space (per square foot) $38.90 $39.33 $39.45 $36.11 $39.69 June 30 Principal Interest Swaps, net Total Baggage service office (per square foot) $38.90 $39.33 $39.45 $36.11 $39.69 2017 $ 4,590,000 $ 562,983 $ 985,043 $ 6,138,026 2018Holdroom area (per square foot)4,825,000 $38.90 522,361 $39.33 $39.45 830,113 $36.11 $39.69 6,177,474 2019Baggage claim (per square foot)5,075,000 $38.90 479,483 $39.33 $39.45 667,315 $36.11 $39.69 6,221,798 2020 5,335,000 434,090 496,213 6,265,303 202Apron1 charge (per gate) (a) 5,610,000 $70,476.00 386,211$67,492.00 $68,396.00 316,408 $63,160.00 $60,331.00 6,312,619 202Loading2-202 6bridge rent (per bridge)32,520,000 (a) $47,828.001,107,156$43,557.00 $46,324.00 405,195 $36,518.00 $49,607.0034,032,351 2027-2028 12,680,000 86,013 - 12,766,013 Landing fee (per 1,000 pounds) $3.09 $2.82 $2.80 $2.56 $2.46 Total $70,635,000 $3,578,297 $3,700,287 $77,913,584

Notes: 6. FairThe Value revenue bases to which these rates are applied and their principal payers can be found in schedules 7, 9 and 11. (a) Fees and rental charges became effective with beginning of fiscal year for which amounts are shown. The Authority categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the assets. Level 1 inputs are quoted prices in active markets for identical assets. Level 2 inputs are significant other observable inputs. Level 3 inputs are significant unobservable inputs.

Debt securities are valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates.

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 59 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIALSCHEDULE STATEMENTS 5: (continued) Airline arrivals and departures - last ten calendar years (unaudited) Calendar General 5. Long-Term DebtYear (continued)Air carrier Air taxi aviation Military Total

Scheduled Debt Service2008 Requirements10,265 46,210 47,631 17,554 121,660 As of June 30, 20162009, scheduled 10,007debt service requirements41,567 of37,993 the variable14,706-rate debt 104,273and net swap payments, assuming current interest rates remain the same for their term are as follows. As rates vary, variable-rate bond interest payments and2010 net swap payments9,705 will 42,526vary. 41,651 16,274 110,156

2011 8,328 40,101 40,229 19,138 107,796 Year ending Variable Rate Bonds Interest Rate June 30 2012 Principal8,150 35,988Interest 36,077 Swaps,25,591 net 105,806 Total

2017 2013 $ 4,590,0008,939 34,382$ 562,983 32,592 $24,928 985,043 100,841 $ 6,138,026 2018 2014 4,825,00011,250 30,499522,361 34,113 24,559830,113 100,421 6,177,474 2019 5,075,000 479,483 667,315 6,221,798 2020 2015 5,335,00011,162 30,120434,090 32,794 21,473496,213 95,549 6,265,303 2021 2016 5,610,00014,260 27,268386,211 34,856 19,830316,408 96,214 6,312,619 2022-2026 32,520,000 1,107,156 405,195 34,032,351 2027-2028 2017 12,680,00021,265 21,460 86,013 42,598 20,282 - 105,605 12,766,013 Total $70,635,000 $3,578,297 $3,700,287 $77,913,584 Source: McGhee Tyson Airport F.A.A. Control Tower Note: Air carriers are passenger, charter, and cargo aircraft certified by the F.A. A. to carry 60 or more passengers. Air taxis include regional, 6. Fair Valuecharter, and cargo aircraft that are certified to carry less than 60 passengers.

Debt securities are valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates.

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 60 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIALSCHEDULE STATEMENTS 6: (continued) Historical airline passenger activity - last ten calendar years (unaudited)

Calendar Passengers Passengers Total 5. Long-Term DebtYear (continued)enplaned deplaned passengers

2008 869,460 872,630 1,742,090 Scheduled Debt Service2009 Requirements842,347 838,081 1,680,428 As of June 30, 20162010, scheduled debt851,275 service requirements836,488 of the1,687,763 variable-rate debt and net swap payments, assuming current interest2011 rates remain888,146 the same for885,508 their term are1,773,654 as follows. As rates vary, variable-rate bond 2012 875,687 870,387 1,746,074 interest payments and2013 net swap payments858,671 will vary.852,993 1,711,664 2014 871,964 867,752 1,739,716 Year ending 2015 Variable892,666 Rate Bonds881,624 1,774,290Interest Rate June 30 2016 Principal916,583 Interest912,344 1,828,927Swaps, net Total 2017 998,969 989,422 1,988,391

2017 Source: Metropolitan $ Knoxville 4,590,000 Airport Authority Aviation's $ Activities562,983 Statistics Report $ 985,043 $ 6,138,026 2018 4,825,000 522,361 830,113 6,177,474 2019 5,075,000 479,483 667,315 6,221,798 2020 5,335,000 SCHEDULE434,090 7: 496,213 6,265,303 2021 5Distribution,610,000 of airline passengers - calendar386,211 year ended December 31, 2017 (unaudited)316,408 6,312,619 2022-2026 32,520,000Enplaned 1,107,156Deplaned Total 405,195 Percentage 34,032,351 2027-2028Airline 12,680,000passengers passengers86,013 passengers of passengers- 12,766,013 Total United $70,635,0188,93500 $3,578,297187,392 376,327 $3,700,287 18.93% $77,913,584 Allegiant Air 167,525 164,565 332,090 16.70% American 293,235 295,348 588,583 29.60% 6. Fair ValueDelta 327,143 320,955 648,098 32.59% Frontier 18,703 18,044 36,747 1.85% Other 3,428 3,118 6,546 0.33% The Authority categorizes its fair value measurements within the fair value hierarchy established by generally accepted accountingTotal principles. The998,969 hierarchy is based989,422 on the valuation1,988,391 inputs used100.00% to measure the fair value of the assets. Source: Level Metropolitan 1 inputs Knoxville areAirport quotedAuthority, Annual prices Activity in Report active markets for identical assets. Level 2 inputs are Note: The Authority has elected not to report a ten-year history of passengers by airline because history has shown when a particular airline withdraws significant otherfrom observablethe market, another airlineinputs. enters theLevel market or3 an inputs existing airline are expands significant their flights. unobservable inputs.

Debt securities are valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates.

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 61 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIALSCHEDULE STATEMENTS 8: (continued) Cargo - last ten calendar years (in pounds) (unaudited) Calendar Freight Total 5. Long-Term DebtYear (continued)Enplaned Deplaned cargo 2008 48,079,845 51,042,101 99,121,946 Scheduled Debt Service2009 Requirements45,843,610 39,398,046 85,241,656 As of June 30, 20162010, scheduled 49,734,211debt service requirements44,055,635 of the 93,789,846variable-rate debt and net swap payments, 2011 49,099,154 43,466,038 92,565,192 assuming current interest2012 rates remain49,394,961 the same for their42,102,846 term are as91,497,807 follows. As rates vary, variable-rate bond interest payments and2013 net swap payments43,486,588 will vary. 40,005,659 83,492,247 2014 36,102,190 38,011,913 74,114,103 Year ending 2015 Variable36,628,013 Rate Bonds40,807,682 77,435,695Interest Rate 2016 37,507,288 48,009,809 85,517,097 June 30 2017 Principal36,469,016 Interest46,441,873 82,910,889Swaps, net Total

2017 Source: Metropolitan Knoxville$ 4,590,000 Airport Authority Aviation's $ Activities 562,983 Statistics Report $ 985,043 $ 6,138,026 2018 4,825,000 522,361 830,113 6,177,474 2019 5,075,000 479,483 667,315 6,221,798 2020 5,335,000 SCHEDULE434,090 9: 496,213 6,265,303 2021 5Distribution,610,000 of cargo - calendar year 386,211ended December 31, 2017 (in pounds) (unaudited)316,408 6,312,619 2022-2026 32,520,000 Freight1,107,156 405,195 34,032,351 2027-2028 Airline 12,680,000Enplaned 86,013Deplaned Total Percentage- 12,766,013 Total Major: $70,635,000 $3,578,297 $3,700,287 $77,913,584 Delta 149,071 199,364 348,435 0.42% Regional: 6. Fair Value PSA 21,680 50,531 72,211 0.09%

Cargo: The Authority categorizesFedEx its fair26,543,106 value measurements36,342,799 within the 62,885,905fair value hierarchy75.85% established by generally accepted accountingUPS principles. The9,714,537 hierarchy is based9,685,994 on the valuation19,400,531 inputs used23.40% to measure the fair value of the assets. LevelAmeriFlight 1 inputs are quoted- prices in active151,707 markets151,707 for identical assets.0.18% Level 2 inputs are significant other observableOther Freight inputs.40,622 Level 3 inputs are significant11,478 unobservable52,100 inputs.0.06%

100% Debt securities areTotal valued based36,469,016 on the securities’46,441,873 relationship82,910,889 to benchmark quoted prices. Derivative instruments areSource: valued Metropolitan using Knoxville a Airportmarket Authority, approach Annual Activity that Report considers benchmark interest rates. Note: The Authority has elected not to report a ten-year history of cargo by airline because history has shown when a particular airline withdraws from the market, another airline enters the market or an existing airline expands their flights. The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 62 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIALSCHEDULE STATEMENTS 10: (continued) Aircraft landed weights - last ten calendar years (in thousand pound units) (unaudited) Calendar Major passenger Regional Cargo 5. Long-Term DebtYear (continued)airlines airlines airlines Total

Scheduled Debt Service2008 Requirements64,228 1,065,072 343,897 1,473,197 2009 13,333 1,075,228 307,491 1,396,052 As of June 30, 20162010, scheduled debt30,030 service requirements1,083,329 of the variable312,442 -rate debt1,425,801 and net swap payments, assuming current interest2011 rates remain38,956 the same for1,025,804 their term are as311,389 follows. As rates1,376,149 vary, variable-rate bond interest payments and2012 net swap payments55,273 will vary. 933,345 313,711 1,302,329 2013 190,816 782,492 303,604 1,276,912 2014 261,204 732,616 284,087 1,277,907 Year ending 2015 Variable305,212 Rate Bonds686,658 270,808Interest Rate1,262,678 June 30 2016 Principal287,249 Interest762,655 294,085Swaps, net1,343,989 Total 2017 357,605 823,674 274,572 1,455,851 2017 $ 4,590,000 $ 562,983 $ 985,043 $ 6,138,026

2018 Source: Metropolitan Knoxville4,825,000 Airport Authority Aviation's Activities522 Statistics,361 Report 830,113 6,177,474 2019 5,075,000 479,483 667,315 6,221,798 2020 5,335,000 434,090 496,213 6,265,303 2021 5,610,000 386,211 316,408 6,312,619 2022-2026 32,520,000 1,107,156 405,195 34,032,351 2027-2028 12,680,000 86,013 - 12,766,013 Total $70,635,000 $3,578,297 $3,700,287 $77,913,584

6. Fair Value

Debt securities are valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates.

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 63 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIALSCHEDULE STATEMENTS 11: (continued) Aircraft landed weights - ten calendar year trend history (in thousand pound units) (unaudited)

2017 2016 2015 2014 2013 5. LongAirline-Term Debt (continued)Number % Number % Number % Number % Number % PSA 212,436 15% 224,151 17% 203,659 17% 216,880 17% 222,720 17% FedEx 207,660 14% 220,114 16% 190,465 15% 194,247 15% 215,904 17% ScheduledPinnacle Debt Service Requi 194,489 rements13% 165,308 12% 163,057 13% 155,464 12% 144,815 12% As of JuneAllegiant 30, Air 2016, scheduled 169,633 debt12% service 127,661 requirements10% 102,894 of the 8%variable 103,242 -rate debt8% and net98,341 swap8% payments, assumingExpressJet current interest rates 140,617 remain10% the 205,223 same for15% their term 210,068 are 17%as follows. 211,504 As rates16% vary, 209,541 variable17%-rate bond Delta 126,825 9% 140,618 11% 135,218 11% 135,464 11% 79,204 6% interestSkywest payments and net swap 74,582 payments5% will 17,996 vary.1% 1,457 0% - 0% - 0% UPS 65,600 4% 72,800 6% 78,954 6% 87,938 7% 85,739 7% YearASA ending 57,532 Variable4% Rate 56,511 Bonds4% 47,893 4% Interest 33,584 Rate3% 76,112 6% JuneUnited 30 Principal 42,673 3% - Interest0% - 0% Swaps, - net0% - Total0% Mesa 39,784 3% - 0% - 0% - 0% 3,747 0% Trans States 28,331 2% 46,251 4% 43,644 3% - 0% - 0% 2017GO Jets $ 4,590,00028,207 2% 13,936 $ 562,9831% - 0% $ 985,043 - 0% - $ 0%6,138,026 2018American Eagle 4,825,00027,436 2% 5,164 5220% ,361 44,747 4% 89,496 830,113 7% 98,729 8%6,177,474 Frontier 18,474 1% 18,970 1% 15,886 1% 22,498 2% 12,768 1% 2019Air Wisconsin 5,075,00010,669 1% 26,618 479,4832% 14,570 1% 12,737 667,3151% 3,995 0%6,221,798 2020AmeriFlight 5,335,000 1,313 0% 1,171 434,0900% 1,389 0% 496,213 1,544 0% 1,621 0%6,265,303 202Piedmont1 5 1,091 ,610,0000% - 386,2110% - 0% 316,408 394 0% 3,235 0%6,312,619 Mountain Air 205 0% 156 0% - 0% 217 0% 128 0% 202Shuttle2-202 America6 32,520,000 - 0% - 1,107,1560% 2,596 0% 405,195 - 0% - 34,032,3510% 202Chatauqua7-2028 12,680,000 - 0% - 0%86,013 - 0% 12,558 1%- 16,049 12,766,0131% Air Net - 0% - 0% - 0% 72 0% 187 0% TotalCompass $ 70,635,0 - 000% $ - 3,578,2970% - 0% $ 3,700,287 - 0% 3,523 $77,913,5840% Continental Express - 0% - 0% - 0% - 0% - 0% AirTran Airways - 0% - 0% - 0% - 0% - 0% 6. FairComair Value - 0% - 0% - 0% - 0% - 0% Mesaba - 0% - 0% - 0% - 0% - 0% The AuthorityVision Airlines categorizes its fair - value0% measurements - 0% within the - 0%fair value hierarchy - 0% established - 0%by generally Freedom - 0% - 0% - 0% - 0% - 0% acceptedDHL accounting principles. - The0% hierarchy is- based0% on the valuation- 0% inputs - used0% to measure - the0% fair value of the Other assets. Level 1 inputs 8,294 are 0% quoted prices1,341 0% in active 6,181 markets0% for identical 68 0% assets. Level 554 20% inputs are significantTotal other observable 1,455,851 inputs.100% Level 1,343,989 3 inputs100% are significant 1,262,678 unobservable100% 1,277, 907 inputs.100% 1,276 ,912 100%

Debt securities are valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates.

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 64 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIALSCHEDULE STATEMENTS 11: (continued) Aircraft landed weights - ten calendar year trend history (in thousand pound units) (unaudited) (continued)

2012 2011 2010 2009 2008 5. LongAirline-Term Debt (continued)Number % Number % Number % Number % Number % PSA 211,818 16% 203,805 15% 222,195 16% 180,509 13% 184,484 13% FedEx 244,906 19% 251,577 18% 252,764 18% 240,053 17% 215,264 15% ScheduledPinnacle Debt Service Requi 180,081 rements14% 159,691 12% 153,709 11% 190,705 13% 175,401 12% As of JuneAllegiant 30, Air 2016, scheduled 94,506 debt7% service 95,997 requirements7% 105,754 of the 7%variable 108,339 -rate debt8% and net 89,689 swap6% payments, assumingExpressJet current interest rates 112,772 remain9% the same116,312 for8% their term 77,703 are as6% follows. 25,732 As rates2% vary, variable - 0%-rate bond Delta 33,442 3% 38,956 3% 30,030 2% 1,013 0% 64,228 4% interestSkywest payments and net swap 8,320 payments1% will 22,469 vary.2% 53,019 4% 53,659 4% 66,564 5% UPS 55,273 4% 57,600 4% 55,862 4% 66,235 5% 76,258 5% YearASA ending 109,435 Variable8% Rate 107,859 Bonds8% 136,356 10% Interest 132,687 Rate9% 98,002 6% JuneUnited 30 Principal - 0% - Interest0% - 0% Swaps, - net0% - Total0% Mesa - 0% 67 0% 3,600 0% 24,038 2% 12,574 1% Trans States 36 0% 4,851 0% 18,722 1% 36,805 3% 62,930 4% 2017GO Jets $ 4,590,000 - 0% $ - 562,9830% - 0% $ 985,043 - 0% -$ 6,138,0260% 2018American Eagle 4,825,000163,255 13% 135,089 52210%,361 145,312 10% 130,633 830,113 9% 120,159 8%6,177,474 Frontier 2,914 0% 15,601 1% - 0% - 0% - 0% 2019Air Wisconsin 5,075,000 - 0% 47 479,4830% 47 0% 667,315 - 0% 2,444 0%6,221,798 2020AmeriFlight 5,335,000 - 0% 1,576 434,0900% 720 0% 496,213 - 0% - 0%6,265,303 202Piedmont1 5 ,610,000 368 0% 6,724 386,2110% 797 0% 316,40825,544 2% 23,947 2%6,312,619 Mountain Air - 0% 298 0% - 0% 81 0% 94 0% 202Shuttle2-202 America6 32,520,000 - 0% -1,107,1560% 1,839 0% 405,19526,202 2% 19,714 34,032,3511% 202Chatauqua7-2028 12,680,000 1,530 0% 8,970 86,0131% 8,893 1% 851 -0% 8,040 12,766,0131% Air Net - 0% 338 0% 3,096 0% - 0% - 0% TotalCompass $ 70,635,0 56 000% 5,022 $3,578,2970% - 0% $ 3,700,287 - 0% -$77,913,5840% Continental Express 67,181 5% 85,028 6% 87,362 6% 93,466 7% 109,789 7% AirTran Airways 9,569 1% 27,216 2% 28,256 2% 12,320 1% - 0% 6. FairComair Value 2,785 0% 14,194 1% 16,168 1% 34,557 2% 69,294 5% Mesaba 2,625 0% 9,150 1% 5,700 0% - 0% - 0% The AuthorityVision Airlines categorizes its 1,457 fair value0% measurements 7,712 1% within the - fair0% value hierarchy - 0% established - 0%by generally Freedom - 0% - 0% 17,469 1% 10,880 1% 21,358 1% acceptedDHL accounting principles. The- 0% hierarchy is - based0% on the valuation - 0% inputs 1,122 used0% to measure 52,280 the4% fair value of the Other assets. Level 1 inputs are - 0% quoted prices - in0% active markets 428 0% for identical 621 0% assets. Level 684 20% inputs are significantTotal other observable 1,302,329 inputs.100% Level 3 1,376,149 inputs 100%are significant 1,425,801 unobservable100% 1,396, 052 inputs.100% 1,473 ,197 100%

Debt securitiesSource: Metropolitan are Knoxville valued Airport basedAuthority, Annual on theActivity securities’Report relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates.

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 65 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIALSCHEDULE STATEMENTS 12: (continued) Total Passengers - ten calendar year trend history (unaudited)

2017 2016 2015 2014 2013 5. LongAirline-Term Debt (continued)Number % Number % Number % Number % Number % Delta 535,299 27% 520,258 28% 513,790 29% 493,167 28% 130,373 8% Allegiant Air 332,090 17% 256,833 14% 215,756 12% 219,023 13% 209,320 12% ScheduledPSA Debt Service Requi rements 324,336 17% 356,417 20% 340,055 19% 352,850 20% 351,831 21% As of JuneAmerican 30, Eagle 2016, scheduled 205,377 debt service10% requirements 209,638 11% of 242,441 the variable14% -153,565 rate debt9% and 222,315 net swap13% payments, assumingExpressJet current interest rates 160,734 remain the8% same 179,626 for their10% term 219,067 are as12% follows. 374,418 As rates22% vary, 326,156 variable19%-rate bond ASA 96,787 5% 102,241 6% 87,774 5% 61,053 4% 140,937 8% interestUnited payments and net swap 63,905payments3% will vary. - 0% - 0% - 0% - 0% Mesa 60,679 3% - 0% - 0% - 0% 5,113 0% YearTrans ending States Variable 49,121 2% Rate Bonds86,458 5% 78,376 5%Interest - Rate0% - 0% Go Jets 45,564 2% 24,077 1% - 0% - 0% - 0% JuneSkywest 30 Principal 40,325 2% 32,396 Interest2% 6,668 0% Swaps, - net0% - 0%Total Frontier 36,747 2% 37,402 2% 30,558 2% 42,839 2% 24,355 1% 2017Air Wisconsin $ 4,590,000 14,945 1% $ 19,362 562,983 1% 18,528 1% $ 985,043 16,567 1% 4,971 $ 0%6,138,026 2018Commute Air 4,825,000 13,935 1% 522 - ,361 0% - 0% 830,113 - 0% - 0%6,177,474 Shuttle America - 0% - 0% 5,003 0% - 0% - 0% 2019Chautauqua 5,075,000 - 0% 479,483 - 0% - 0% 667,315 20,444 1% 25,833 2%6,221,798 2020Piedmont 5,335,000 1,779 0% 434,090 - 0% - 0% 496,213 833 0% 5,774 0%6,265,303 202Endeavor1 Air 5,610,000 - 0% 386,211 - 0% - 0% 316,408 - 0% 248,227 15%6,312,619 Compass - 0% - 0% - 0% - 0% 5,598 0% 202Continental2-2026 Express 32,520,000 - 0% 1,107,156 - 0% - 0% 405,195 - 0% - 34,032,3510% 202AirTran7-2028 Airways 12,680,000 - 0% 86,013 - 0% - 0% - -0% - 12,766,0130% Comair - 0% - 0% - 0% - 0% - 0% TotalVision Airlines $70,635,0 00 - 0% $ 3,578,297 - 0% - 0% $ 3,700,287 - 0% - $77,913,5840% Mesaba - 0% - 0% - 0% - 0% - 0% Freedom Airlines - 0% - 0% - 0% - 0% - 0% 6. FairNorthwest Value - 0% - 0% - 0% - 0% - 0% Other 6,768 0% 4,219 0% 16,274 1% 4,957 0% 10,861 1% Total The Authority categorizes its 1,988,391 fair value100% measurements 1,828,927 100% within 1,774,290 the fair100% value 1,739,716 hierarchy100% established 1,711,664 100% by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the assets. Level 1 inputs are quoted prices in active markets for identical assets. Level 2 inputs are significant other observable inputs. Level 3 inputs are significant unobservable inputs.

Debt securities are valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates.

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 66 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIALSCHEDULE STATEMENTS 12: (continued) Total Passengers - ten calendar year trend history (unaudited) (continued)

2012 2011 2010 2009 2008 5. LongAirline-Term Debt (continued)Number % Number % Number % Number % Number % Delta 94,695 5% 64,708 4% 42,002 2% 1,906 0% 88,882 5% Allegiant Air 186,968 11% 191,284 11% 209,772 12% 207,695 12% 171,092 10% ScheduledPSA Debt Service Requi 347,084 rements20% 315,902 18% 305,421 18% 264,914 16% 263,692 15% As of JuneAmerican 30, Eagle 2016, scheduled 206,837 debt12% service 216,316 requirements12% 202,054 of the12% variable 205,582 -rate debt12% and 198,903 net swap11% payments, assumingExpressJet current interest rates 321,320 remain19% the same 185,454 for10% their term 111,514 are 7%as follows. 39,344 As 2%rates vary, variable - 0% -rate bond ASA 199,860 11% 195,141 11% 239,675 14% 217,978 13% 161,352 9% interestUnited payments and net swap payments - 0% will vary. - 0% - 0% - 0% - 0% Mesa 602 0% - 0% 3,859 0% 30,669 2% 18,943 1% YearTrans ending States Variable - 0% Rate 7,854 Bonds0% 25,022 2% Interest 50,272 Rate3% 91,730 5% Go Jets - 0% - 0% - 0% - 0% - 0% JuneSkywest 30 Principal - 0% 26,649 Interest2% 67,220 4% Swaps, 72,037 net5% 99,809 5%Total Frontier 47,930 3% 25,779 1% - 0% - 0% - 0% 2017Air Wisconsin $ 4,590,000 2,649 0% $ 30 562,9830% 30 0% $ 985,043 - 0% 2,716 $0% 6,138,026 2018Commute Air 4,825,000 - 0% - 5220%,361 - 0% 830,113 - 0% - 0%6,177,474 Shuttle America - 0% - 0% 2,069 0% 31,150 2% 28,467 2% 2019Chautauqua 5,075,000 - 0% 16,422 479,4831% 13,117 1% 1,294667,315 0% 12,745 1%6,221,798 2020Piedmont 5,335,000 5,824 0% 11,749 434,0901% 1,081 0% 37,330 496,213 2% 33,461 2%6,265,303 202Endeavor1 Air 5 ,610,000 284,617 16% 268,014 386,21115% 220,188 13% 282,009 316,408 17% 256,577 15%6,312,619 Compass 4,568 0% 8,321 0% - 0% - 0% - 0% 202Continental2-2026 Express 32,520,000 13,930 1% 132,351 1,107,1567% 129,071 8% 141,162 405,195 8% 169,315 10%34,032,351 202AirTran7-2028 Airways 12,680,000 13,928 1% 49,462 86,0133% 50,374 3% 23,682 1%- - 0%12,766,013 Comair 5,576 0% 21,931 1% 21,868 1% 44,147 3% 98,636 6% TotalVision Airlines $ 70,635,0 - 000% 11,799 $3,578,2971% - 0% $ 3,700,287 - 0% - $0%77,913,584 Mesaba - 0% 11,398 1% - 0% - 0% - 0% Freedom Airlines - 0% - 0% 26,047 2% 18,328 1% 35,487 2% 6. FairNorthwest Value - 0% - 0% - 0% - 0% 894 0% Other 9,686 1% 13,090 1% 17,379 1% 10,929 1% 9,389 1% Total The Authority categorizes its 1,746,074 fair value100% measurements 1,773,654 100% within 1,687,763 the 100%fair value 1,680,428 hierarchy100% established1,742,090 100% by generally acceptedSource: accounting Schedule 7 of Comprehensive principles. Annual FinancialThe hierarchy Report is based on the valuation inputs used to measure the fair value of the assets. Level 1 inputs are quoted prices in active markets for identical assets. Level 2 inputs are significant other observable inputs. Level 3 inputs are significant unobservable inputs.

Debt securities are valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates.

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 67 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIALSCHEDULE STATEMENTS 13: (continued) Distribution of total cargo - ten calendar year trend history (in pounds)(unaudited)

2017 2016 2015 2014 2013 5. LongAirline-Term Debt (continued)Number % Number % Number % Number % Number % Passenger: ScheduledDelta Debt Service Requi 348,435rements 0% 352,557 0% 343,781 0% 389,097 1% 331,408 0% PSA 72,211 0% 105,819 0% 216,789 0% 130,537 0% 161,698 0% As of JuneAmerican 30, Eagle 2016, scheduled 12,024 debt 0% service 20,955requirements 0% of 1,641 the variable0% - 3,033rate debt0% and net -swap0% payments, assumingSkywest current interest rates 4,752remain 0% the same for - 0%their term are - as0% follows. As - rates0% vary, variable - 0% -rate bond interestASA payments and net swap payments - 0% will vary. - 0% - 0% - 0% - 0% Pinnacle - 0% - 0% - 0% - 0% - 0%

Comair - 0% - 0% - 0% - 0% - 0% YearChautauqua ending Variable - 0% Rate Bonds - 0% - 0% Interest - Rate0% - 0% JuneContinental 30 Express Principal - 0% Interest- 0% - 0% Swaps, - net0% - 0%Total Shuttle America - 0% - 0% - 0% - 0% - 0% 2017Other $ 4,590,000 3,457 0% $ -562,983 0% 3,725 0% $ 985,043 - 0% - $0% 6,138,026 2018Cargo: 4,825,000 522,361 830,113 6,177,474 2019FedEx 62,885,9055,075,000 76% 64,014,484479,483 75% 54,079,356 70% 51,335,089667,315 69% 61,376,305 74%6,221,798 UPS 19,400,531 24% 20,832,399 25% 22,576,617 30% 22,016,786 30% 21,383,678 26% 2020AmeriFlight 5,335,000 151,707 0% 170,657434,090 0% 208,316 0% 225,980496,213 0% 219,296 0%6,265,303 202Mountain1 Air 5 ,610,000 25,081 0% 14,266386,211 0% - 0% 316,408 - 0% - 0%6,312,619 202Air2- 202Net 6 32,520,000 - 0% 1,107,156 - 0% - 0% 405,195 531 0% 19,862 0%34,032,351 DHL - 0% - 0% - 0% - 0% - 0% 202Other7-2028 12,680,000 6,786 0% 5,960 86,0130% 5,470 0% 13,050 0%- - 0%12,766,013 TotalTotal $70,635,082,910,889 00100% 85,517,097$3,578,297100% 77,435,695 100% 74,114,103$3,700,287 100% 83,492,247 $100%77,913,584

6. Fair Value

Debt securities are valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates.

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 68 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIALSCHEDULE STATEMENTS 13: (continued) Distribution of total cargo - ten calendar year trend history (in pounds)(unaudited) (continued)

2012 2011 2010 2009 2008 5. LongAirline-Term Debt (continued)Number % Number % Number % Number % Number % Passenger: ScheduledDelta Debt Service Requi 250,349rements0% 155,741 0% 159,235 0% - 0% 404,524 0% PSA 232,477 0% 143,361 0% 98,960 0% - 0% - 0% As of JuneAmerican 30, Eagle 2016, scheduled debt - 0% service requirements - 0% of the - 0%variable - 29,864rate debt0% and net23,232 swap0% payments, assumingSkywest current interest rates remain - 0% the same for - 0%their term are - as0% follows. As - rates0% vary, variable 217 0% -rate bond interestASA payments and net swap 16,437 payments0% will 41,931 vary. 0% 49,589 0% 24,950 0% 38,990 0% Pinnacle 14,273 0% 8,669 0% 9,306 0% 66,197 0% 136,690 0%

Comair 2,374 0% 2,383 0% 47,025 0% 9,911 0% 14,856 0% YearChautauqua ending Variable 486 0% Rate Bonds188 0% - 0% Interest -Rate0% 310 0% JuneContinental 30 Express Principal - 0% Interest - 0% - 0% Swaps, 63,924 net0% 135,820 0%Total Shuttle America - 0% - 0% - 0% - 0% 1,794 0% 2017Other $ 4,590,000 8 0% $ 76 562,9830% - 0% $ 985,043 - 0% 1,507 $ 0%6,138,026 2018Cargo: 4,825,000 522,361 830,113 6,177,474 2019FedEx 70,280,0495,075,000 77% 75,006,336 479,48381% 77,185,499 83% 71,579,915 667,315 84% 68,529,873 69%6,221,798 UPS 20,443,189 23% 16,883,576 19% 15,722,927 17% 13,262,819 16% 14,750,798 15% 2020AmeriFlight 5,335,000 227,381 0% 252,284 434,0900% 138,004 0% 496,213 - 0% - 0%6,265,303 202Mountain1 Air 5 ,610,000 - 0% 32,439386,2110% - 0% 316,408 14,992 0% 10,382 0%6,312,619 202Air2- 202Net 6 32,520,000 8,744 0% 38,2081,107,1560% 379,301 0% 405,195 - 0% - 34,032,3510% DHL - 0% - 0% - 0% 189,084 0% 15,072,953 16% 202Other7-2028 12,680,000 22,040 0% - 86,0130% - 0% - 0%- - 12,766,0130% TotalTotal $70,635,091,497,807 00100% 92,565,192$3,578,297100% 93,789,846 100% $85,241,656 3,700,287 100% 99,121, 946 $100%77,913,584 Source: Schedule 9 of Comprehensive Annual Financial Report 6. Fair Value

Debt securities are valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates.

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 69 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIALSCHEDULE STATEMENTS 14: (continued) Authority employees and demographic data - population (unaudited) Full-time equivalent employees as of fiscal year-end 5. Long-Term Debt (continued) 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 Administration 11.5 12.0 13.0 12.5 12.5 12.5 12.5 12.5 12.5 12.5

Scheduled Marketing/PublicDebt Service Relations Requirements 8.5 9.0 9.0 7.0 7.0 8.0 7.5 10.0 8.0 8.0 As of June 30, 2016, scheduled debt service requirements of the variable-rate debt and net swap payments, assuming currentEngineering interest & Planning rates remain the 6.0 same 7.0 for their 7.0 term 7.0 are 6.0 as follows. 6.0 6.0As rates 5.5 vary, 5.5 variable 5.5 -rate bond interest paymentsSafety (Police and & Fire)net swap payments 56.0 will 49.0 vary. 47.0 45.0 42.0 45.0 45.0 46.0 46.0 46.0 Operations Administration 12.0 12.0 13.0 12.0 10.5 9.5 10.0 9.5 9.5 9.0 Year ending Variable Rate Bonds Interest Rate Building Maintenance (a) 7.5 9.0 10.5 8.0 9.5 9.0 10.0 11.0 10.0 11.0 June 30 Principal Interest Swaps, net Total Airfield Maintenance 20.5 20.0 22.0 22.0 21.5 21.5 24.0 24.0 21.0 19.5 2017Building Services (Custodial)$ 4,590,000 26.5 28.0$ 562,983 29.0 29.0 28.5 28.5$ 985,043 31.0 30.0 29.5 28.0$ 6,138,026

2018Knoxville Downtown Island4,825,000 Airport 6.0 7.0 522 7.0,361 7.0 6.5 7.0 830,113 9.0 7.5 7.5 7.56,177,474 2019 5,075,000 479,483 667,315 6,221,798 2020To tal Employees 5,335,000 154.5 153.0 434,090 157.5 149.5 144.0 147.0 496,213 155.0 156.0 149.5 147.0 6,265,303 Notes: 2021A full-time employee is scheduled to5 work,610,000 2,080 hours per year (including vacation386,211 and sick leave). Full-time equivalent employment is316,408 calculated by dividing total labor 6,312,619 2022-202 hours6 by 2,080. 32,520,000 1,107,156 405,195 34,032,351 2027-2028 (a) Includes electrical maintenance.12,680,000 86,013 - 12,766,013 Total $70,635,000 Demographic$3,578,297 data - population (unaudited) $3,700,287 $77,913,584 Metropolitan Actual City County area (b) 6. Fair Value 1960 111,827 250,563 424,586 1970 174,587 (a) 276,293 461,876 The Authority categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles.1980 The hierarchy 175,045is based on the valuation319,694 inputs used546,488 to measure the fair value of the assets. Level 11990 inputs are quoted prices165,121 in active markets335,749 for identical assets.585,926 Level 2 inputs are significant other observable2000 inputs. Level 3 inputs173,890 are significant unobservable382,032 inputs.687,249 2010 178,874 432,226 787,919

Debt securitiesSource: Bureau are of the valuedCensus based on the securities’ relationship to benchmark quoted prices. Derivative instrumentsNotes: are valued using a market approach that considers benchmark interest rates. (a) Large increase in population due to annexation. The following(b) Knoxville's table Metropolitan sets Statistical forth Area (MSA) by level, includes Anderson, within Blount, theKnox, Loudon, fair Sevier, value and Union hierarchy, counties. Prior to the1983, statistics fair were value gathered only of for the Authority’s Anderson, Blount, Knox, and Union counties. investments and interest rate swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 70 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIALSCHEDULE STATEMENTS 15: (continued) Demographic data - unemployment information last ten years (unaudited)

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 National 5.8% 10.0% 9.1% 8.9% 8.1% 6.7% 6.2% 5.0% 4.9% 4.1% 5. Long-TermTennessee Debt (continued)6.4 10.9 9.4 9.2 8.2 7.7 6.7 5.8 5.1 3.3 Major Tennessee Scheduled Debtmetropolitan Service areas: Requirements Chattanooga 5.7 9.1 8.8 8.3 7.5 6.7 6.5 5.1 4.9 3.3 As of June 30,Knoxville 2016 (a), scheduled 5.1debt service8.7 requirements7.9 7.3 6.7of the 6.0variable5.8-rate 5.0debt and4.7 net2.9 swap payments, assuming currentMemphis interest rates remain6.6 10.3the same10.3 for their9.9 term9.1 are 8.5as follows.7.6 As6.1 rates 5.3vary, variable3.7 -rate bond interest paymentsNashville and net swap payments5.5 9.4 will 8.7vary. 8.0 6.8 5.5 5.2 4.2 3.8 2.4 Source: Tennessee Department of Labor and Workforce Development Year ending(a) Knoxville's Metropolitan StatisticalVariable Area (MSA) includes Rate Anderson, Bonds Blount, Knox, Loudon, Sevier, and Union Counties.Interest Rate June 30 Principal Interest Swaps, net Total

2017 $ 4,590,000 $SCHEDULE 562,983 16: $ 985,043 $ 6,138,026 2018 4,825,000Demographic data - per capita522 personal,361 income last ten years (unaudited)830,113 6,177,474 2019 Calendar Year5,075,000 Tennessee479,483 United States 667,315 6,221,798 2020 2008 5,335,000 35,322434,090 41,082 496,213 6,265,303 2009 34,635 39,376 2021 2010 5,610,000 35,653386,211 40,277 316,408 6,312,619 2022-2026 2011 32,520,000 37,4521,107,156 42,453 405,195 34,032,351 2012 38,771 44,267 2027-2028 2013 12,680,000 38,80686,013 44,462 - 12,766,013 Total 2014 $70,635,000 40,233$3,578,297 46,414 $3,700,287 $77,913,584 2015 42,094 48,112 2016 43,380 49,255 6. Fair Value 2017 45,517 51,631 Source: U.S. Department of Commerce Bureau of Economic Analysis The Authority categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the assets. Level 1 inputs are quoted pricesSCHEDULE in active 17: markets for identical assets. Level 2 inputs are significant other observableDemographic inputs. data Level - total 3personal inputs income are last significant ten years (thousands unobservable of dollars) (unaudited) inputs. Calendar Year Tennessee United States Debt securities are 2008 valued based on the220,669,541 securities’ relationship12,492,705,000 to benchmark quoted prices. Derivative instruments are valued2009 using a market approach218,408,222 that considers12,079,444,000 benchmark interest rates. 2010 226,633,982 12,459,613,000 2011 239,633,734 13,233,436,000 The following table2012 sets forth by level, 250,285,838 within the fair value13,904,485,000 hierarchy, the fair value of the Authority’s investments and interest2013 rate swap liabilities252,091,031 as of June 30, 201614,068,960,000: 2014 263,437,186 14,801,624,000 2015 277,832,327 15,463,981,000 2016 288,531,063Level 1 15,912,777,000Level 2 Level 3 Total Investments: 2017 297,292,992 16,413,551,000 Government debt securities $ – $ 39,998,469 $ – $ 39,998,469 Source: U.S. Department of Commerce Bureau of Economic Analysis Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 71 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIALSCHEDULE STATEMENTS 18 (continued) Demographic data - top employers in Knoxville area for the last ten years (unaudited)

2017 2016 2015 2014 2013 5. Long-Term Debt (continued) Employees % Employees % Employees % Employees % Employees % Major Employers: U.S. Department of Energy Scheduled OakDebt Ridge Service Operations Requirements 12,618 3% 11,750 3% 11,986 3% 11,637 3% 11,877 4% As of JuneCovenant 30, 2016Health, scheduled debt service 10,419 3%requirements 10,119 3% of the 10,304 variable 3% - rate 10,458 debt 3%and net 9,122 swap3% payments, assumingKnox current County interest Schools rates remain the 7,881 same 2% for their 8,146 term2% are 7,241as follows. 2% As 6,804 rates 2% vary, variable 7,066 2%-rate bond The University of Tennessee interest paymentsKnoxville and net swap payments 6,689 will 2% vary. 6,646 2% 6,609 2% 6,660 2% 6,550 2% Wal-Mart Stores, Inc. 5,881 1% 6,206 2% 5,951 2% 6,006 2% 5,776 2% Year endingMcGhee Tyson Variable Rate Bonds Interest Rate June Air30 National Guard BasePrincipal 1,728 0% Interest 1,728 0% 1,717 Swaps,0% 1,717 net 0% 4,897 Total1% University of Tennessee Medical Center 5,316 1% 5,144 1% 4,941 1% 4,224 1% 4,061 1% 2017The Dollywood Co. $ 4,590,000 4,000 1%$ 562,983 4,000 1% 3,000 1%$ 985,043 2,521 1% 2,521 $ 6,138,0261% 2018K-VA-T Food Stores 4,825,000 3,328 1% 522 3,545,361 1% 3,913 1% 830,113 4,078 1% 3,857 6,177,4741% Denso Manufacturing 2019Tennessee 5,075,000 4,439 1% 479,483 3,900 1% 3,800 1% 667,315 3,500 1% 3,400 6,221,7981% 2020Tennova Healthcare 5,335,000 4,001 1% 434,090 4,033 1% 3,997 1% 496,213 4,067 1% 3,124 6,1%265,303 2021 5,610,000 386,211 316,408 6,312,619 Major Manufacturing: 2022-CNS202 -6 Y-12 32,520,000 4,975 1%1,107,156 4,300 0% n/a 0% 405,195 4,300 1% 4,300 34,032,3511% 2027-Denso2028 Manufacturing 12,680,000 86,013 - 12,766,013 Tennessee 4,439 1% 3,900 1% 3,800 1% 3,500 1% 3,400 1% TotalArconic (Aluminum Company$70,635,0 00 $3,578,297 $3,700,287 $77,913,584 of America) 1,160 0% 1,160 0% 1,160 0% 1,176 0% 1,207 0% Keurig Dr. Pepper (Green 6. Fair ValueMountain Coffee) 900 0% 1,000 0% 1,000 0% 975 0% 975 0% SL America Corp 1,150 0% 1,127 0% 790 0% 775 0% 850 0% The AuthorityBrunswick categorizes Boat Group its fair value measurements 763 0% 670within 0% the fairn/a value0% hierarchyn/a 0% establishedn/a by0% generally Eagle Bend Manufacturing 800 0% 700 0% 700 0% 700 0% 750 0% accepted JTEKTaccounting principles. The hierarchy 1,125 0% is based 1,050 on 0%the valuation 1,032 0% inputs used 923 0%to measure 720 the0% fair value of the assets.Aisin Automotive Level 1Casting inputs are quoted 800 prices 0% in active 676 0% markets 676 for 0% identical 615 assets. 0% Level 600 20% inputs are significantCharles other Blalock observable & Sons, Inc. inputs. Level 7403 inputs 0% are significant690 0% unobservable 600 0% inputs. 625 0% 600 0% Major Customer Debt securitiesService Centers: are valued based on the securities’ relationship to benchmark quoted prices. Derivative Wal-Mart Stores, Inc. 5,881 1% 6,206 2% 5,951 2% 6,006 2% 5,776 2% instrumentsK-VA-T are Food valued Stores using a market approach 3,328 1% that considers3,545 1% benchmark 3,913 1% interest 4,078 rates. 1% 3,857 1% The Kroger Co. 2,952 1% 3,129 1% 2,952 1% 2,616 1% 2,555 1% The followingDollywood table Co. sets forth by level, 4,000 within 1% the 4,000 fair 1% value hierarchy, 3,000 1% the 2,521 fair value1% of 2,521 the 1% Authority’s McDonald's Corp. 2,906 1% 2,848 1% 2,846 1% 2,377 1% 2,416 1% investmentsYum! andBrands interest RSC rate swap liabilities 1,852 as0% of June 1,809 30, 20160% : 1,853 0% 1,830 0% 1,806 1% Cracker Barrel 1,598 0% 1,557 0% 1,608 0% 1,608 0% 1,758 1% CVS Caremark Rx 1,560 Level0% 1 1,701 0% Level 1,673 2 0% Level 1,740 30% 1,524 Total0% Pilot Flying J 1,893 0% 1,841 0% 1,610 0% 1,529 0% 1,451 0% Investments:Copper Cellar Corp. 1,722 0% 1,619 0% 1,591 0% 1,265 0% 1,253 0% Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 72 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIALSCHEDULE STATEMENTS 18: (continued) Demographic data - top employers in Knoxville area for the last ten years (unaudited) (continued)

2012 2011 2010 2009 2008 5. Long-Term Debt (continued) Employees % Employees % Employees % Employees % Employees % Major Employers: U.S. Department of Energy Scheduled OakDebt Ridge Service Operations Requirements 12,947 3% 13,082 4% 13,925 4% 13,182 4% 12,927 4% As of JuneCovenant 30, 2016Health, scheduled debt service 6,771 2%requirements 9,494 3% of the 9,000 variable2% -rate 8,982 debt 3%and net 9,016 swap3% payments, assumingKnox current County interest Schools rates remain the 6,409 same2% for their 6,891 term2% are as6,945 follows.2% As 8,382 rates3% vary, variable 7,553 2%-rate bond The University of Tennessee interest paymentsKnoxville and net swap payments 9,328 will2% vary. 6,400 2% 9,326 3% 11,901 4% 8,754 3% Wal-Mart Stores, Inc. 4,613 1% 4,668 1% 4,336 1% 5,330 2% 4,869 1% Year endingMcGhee Tyson Variable Rate Bonds Interest Rate June Air30 National Guard BasePrincipal 2,174 0% Interestn/a 0% n/a Swaps,0% netn/a 0% n/a Total0% University of Tennessee Medical Center 3,986 1% 3,942 1% 3,802 1% 3,724 1% 3,727 1% 2017The Dollywood Co. $ 4,590,000 2,558 1%$ 562,983 2,534 1% 2,467 1%$ 985,043 2,550 1% 2,573 $ 6,138,0261% 2018K-VA-T Food Stores 4,825,000 3,537 0% 522,361 n/a 0% n/a 0% 830,113 n/a 0% 3,853 6,177,4740% Denso Manufacturing 2019Tennessee 5,075,000 2,184 1% 479,483 2,346 1% 2,700 1% 667,315 2,500 1% 3,000 6,221,7981% 2020Tennova Healthcare 5,335,000 5,326 1% 434,090 3,857 1% 5,700 2% 496,213 4,368 1% 5,711 6,2%265,303 2021 5,610,000 386,211 316,408 6,312,619 Major Manufacturing: 2022-CNS202 -6 Y-12 32,520,000 4,478 1%1,107,156 4,690 0% n/a 0% 405,195 n/a 0% n/a34,032,3510% 2027-Denso2028 Manufacturing 12,680,000 86,013 - 12,766,013 Tennessee 2,184 1% 2,346 1% 2,700 1% 2,500 1% 3,000 1% TotalArconic (Aluminum Company$70,635,0 00 $3,578,297 $3,700,287 $77,913,584 of America) 1,207 0% 1,233 0% 1,218 0% 1,368 0% 1,758 1% Keurig Dr. Pepper (Green 6. Fair ValueMountain Coffee) 900 0% 900 0% n/a 0% n/a 0% n/a 0% SL America Corp 900 0% 400 0% n/a 0% n/a 0% n/a 0% The AuthorityBrunswick categorizes Boat Group its fair value measurementsn/a 0% n/awithin0% the fairn/a value0% hierarchyn/a 0% establishedn/a by0% generally Eagle Bend Manufacturing 700 0% 624 0% n/a 0% n/a 0% n/a 0% accepted JTEKTaccounting principles. The hierarchy 722 0% is based 596 on 0%the valuationn/a 0% inputs usedn/a to0% measuren/a the0% fair value of the assets.Aisin Automotive Level 1Casting inputs are quoted 512 prices0% in active 512 0% marketsn/a for0% identicaln/a assets.0% Leveln/a 20% inputs are significantCharles other Blalock observable & Sons, Inc. inputs. Level 590 3 inputs0% are significant 525 0% unobservablen/a 0% inputs.n/a 0% n/a 0% Major Customer Debt securitiesService Centers: are valued based on the securities’ relationship to benchmark quoted prices. Derivative Wal-Mart Stores, Inc. 5,326 1% 4,668 1% 4,336 1% 5,330 2% 4,869 1% instrumentsK-VA-T are Food valued Stores using a market approach 3,537 0% that considersn/a 0% benchmarkn/a 0% interestn/a rates.0% 3,853 1% The Kroger Co. 2,668 0% n/a 0% n/a 0% n/a 0% 2,089 1% The followingDollywood table Co. sets forth by level, 2,558 within1% the 2,534 fair 1% value hierarchy, 2,467 1% the 2,550 fair value1% of 2,573 the 1% Authority’s McDonald's Corp. 2,858 0% n/a 0% n/a 0% n/a 0% 1,650 0% investmentsYum! andBrands interest RSC rate swap liabilities 1,945 as0% of June n/a30, 0%2016: n/a 0% n/a 0% 2,019 1% Cracker Barrel 1,467 0% n/a 0% n/a 0% n/a 0% 1,599 0% CVS Caremark Rx 1,484 Level0% 1 1,377 0% Level 1,200 2 0% Level 1,775 31% 1,259 Total0% Pilot Flying J 1,365 0% n/a 0% n/a 0% n/a 0% 1,128 0% Investments:Copper Cellar Corp. 1,223 0% n/a 0% n/a 0% n/a 0% 1,167 0% Government debt securities $ – $ 39,998,469 $ – $ 39,998,469 Source: Knoxville Area Chamber Partnership Notes: Percentages reported above are based upon total employment in the Knoxville Metropolitan Statistical Area (MSA). Interestn/a rate= not available swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 73 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIALSCHEDULE STATEMENTS 19: (continued) Airlines serving McGhee Tyson Airport (unaudited) June 30, 2018

5. Long-TermMajor/domestic Debt (continued) passenger airlines Allegiant Air Scheduled DebtAmerican Service Airlines* Requirements As of June 30,Delta 2016 Air, Lines*scheduled debt service requirements of the variable-rate debt and net swap payments, Frontier Airlines assuming currentUnited interest Airlines* rates remain the same for their term are as follows. As rates vary, variable-rate bond interest payments and net swap payments will vary. *Some or all service offered through regional airline affiliates shown below. Year ending Variable Rate Bonds Interest Rate Regional Airline Affiliates June 30 Air Wisconsin Airlines/AmericanPrincipal Airlines Interest Swaps, net Total Commute Air/United Airlines 2017 Envoy Airlines/American $ 4,590,000 Airlines $ 562,983 $ 985,043 $ 6,138,026 2018 Endeavor Air /Delta4,825,000 Air Lines 522,361 830,113 6,177,474 2019 ExpressJet/American 5,075,000 Airlines 479,483 667,315 6,221,798 ExpressJet/Delta Air Lines 2020 ExpressJet/United 5,335,000 Airlines 434,090 496,213 6,265,303 2021 GoJet Airlines/United 5,610,000 Airlines 386,211 316,408 6,312,619 2022-2026Mesa Airlines/American 32,520,000 Airlines 1,107,156 405,195 34,032,351 2027-2028Mesa Airlines/United12,680,000 Airlines 86,013 - 12,766,013 Piedmont Airlines/American Airlines Total PSA Airlines/American $70,635,0 Airlines00 $3,578,297 $3,700,287 $77,913,584 Republic Airlines/United Airlines Shuttle America Airlines/Delta Air Lines 6. Fair ValueSkywest Airlines/American Airlines Skywest Airlines/Delta Air Lines The AuthoritySkywest categorizes Airlines/United its fair Airlines value measurements within the fair value hierarchy established by generally TransStates Airlines/American Airlines accepted accountingTransStates principles. Airlines/United The Airlines hierarchy is based on the valuation inputs used to measure the fair value of the assets. Level 1 inputs are quoted prices in active markets for identical assets. Level 2 inputs are significant otherCargo observable airlines inputs. Level 3 inputs are significant unobservable inputs. FedEx, Inc. UPS Airlines, Inc. Debt securities are valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates.

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 74 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIALSCHEDULE STATEMENTS 20: (continued) Flight information (unaudited)

June 30, 2018

5. Long-TermPassenger Debt (continued) Daily Daily Airlines Destination flights seats Aircraft Scheduled DebtAllegiant Service Air* Requirements St. Petersburg/Tampa Bay 1 177 MD80/A320 Fort Lauderdale 1 177 MD80/A320 As of June 30, 2016, scheduled debt serviceOrlando-Sanford requirements of the1 variable177-rate debtMD80/A320 and net swap payments, assuming current interest rates remain Puntathe same Gorda/SW for theirFlorida term are1 as follows.177 As ratesMD80/A320 vary, variable-rate bond interest payments and net swap paymentsBaltimore/Washington will vary. 1 177 MD80/A320 Destin/Fort Walton 1 177 MD80/A320 Year ending VariableLas Rate Vegas Bonds 1 Interest177 RateMD80/A320 June 30 Principal Newark Interest 1 Swaps,177 net MD80/A320 Total American Airlines Dallas/Fort Worth 5 357 RJ 2017 $ 4,590,000 Chicago-O'Hare $ 562,983 2 $140 985,043 RJ $ 6,138,026 2018 4,825,000 Philadelphia 522,361 3 150830,113 RJ 6,177,474 2019 5,075,000 Charlotte 479,483 8 519667,315 RJ 6,221,798 2020 5,335,000 Washington-National434,090 3 150496,213 RJ 6,265,303 2021 5,610,000 386,211 316,408 6,312,619 2022-2026Delta Air Lines 32,520,000 Atlanta 1,107,156 9 764405,195 RJ/MD90 34,032,351 2027-2028 12,680,000 New York-LaGuardia86,013 2 145 - RJ 12,766,013 Detroit 5 250 RJ Total $70,635,000 Minneapolis/St.$3,578,297 Paul 1 $3,700,28776 RJ $77,913,584

Frontier Airlines* Denver 1 180 A320 6. Fair Value Orlando 1 180 A320

The AuthorityUnited categorizes Airlines its fair valueChicago-O'Hare measurements within the4 fair value240 hierarchy establishedRJ by generally accepted accounting principles. The hierarchyDenver is based on the valuation1 inputs50 used to measureRJ the fair value Washington-Dulles 2 120 RJ of the assets. Level 1 inputs are quotedHouston prices in active markets3 for 150 identical assets.RJ Level 2 inputs are significant other observable inputs. LevelNewark 3 inputs are significant2 unobservable200 inputs. RJ / 737

Debt securitiesTotals are valued based on the securities’ relationship60 to benchmark5,087 quoted prices. Derivative instruments are*Less valued than daily usingservice and/or a market seasonal service approach in some markets. that considers benchmark interest rates.

The followingCargo table sets forth by level, within the fair valueDaily hierarchy,Daily the fair value of the Authority’s investments andAirlines interest rate swap liabilitiesDestination as of June 30, 2016flights: seats Aircraft FedEx, Inc Indianapolis 1 N/A A310 Memphis 2 N/A A310 Level 1 Level 2 Level 3 Total Investments:UPS Airlines Louisville 1 N/A B757 Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 75 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIALSCHEDULE STATEMENTS 21: (continued) Companies conducting business on airport property (unaudited)

June 30, 2018

5. Long-TermAviation Debt service (continued) operators Rental car companies Aircraft Technicians, Inc. Alamo Rent A Car Scheduled DebtG2 SecureService Staff, Requi LLCrements Avis Car Rental Grande Aviation, LLC Budget Car Rental As of June 30,Horizon 2016 Avionics,, scheduled Inc. debt service requirements ofDollar the Rent-a-Car variable-rate debt and net swap payments, assuming currentJetstar interest Aviation, rates LLC remain the same for their termEnterprise are as Rent-A-Carfollows. As rates vary, variable-rate bond interest paymentsKnoxville and Flight net swap Training payments Center, Inc. will vary. Hertz Rent-a-Car MaxAir Charters dba Flight Choice National Car Rental Year endingQuick Flight Variable Rate Bonds Payless Car RentalInterest Rate Standard Aero Alliance Thrifty Rent-a-Car June 30 TAC Air Principal Interest Zipcar Swaps, net Total The Jet Shop, LLC 2017 Xpress Aircraft $ Maintenance, 4,590,000 LLC $ 562,983 Other $ 985,043 $ 6,138,026 2018 United Ground Express4,825,000 522,361 Airport Office Partners,830,113 LLC 6,177,474 2019 5,075,000 479,483 ARINC 667,315 6,221,798 U.S. government agencies CNN Network 2020 Federal Aviation Administration5,335,000 434,090 Cirrus Design Corp496,213 dba Cirrus Aviation 6,265,303 2021 Knox County Sheriff's5,610,000 Dept. 386,211 Delta Cargo, Inc. 316,408 6,312,619 2022-2026Tennessee Air National32,520,000 Guard 1,107,156 G2 Secure Staff 405,195 34,032,351 2027-2028Tennessee Army12,680,000 National Guard 86,013 GAT Security Services, Inc.- 12,766,013 Transportation Security Administration Global Logistic, LLC Total $70,635,000 $3,578,297 Lyft $3,700,287 $77,913,584 Airline maintenance Massey Properties, LLC ExpressJet National Safe Skies Alliance 6. Fair ValueEndeavor Air (Delta Connection) Passur Aerospace R Squared Construction The AuthorityBank categorizes ATMs its fair value measurements withinRemote the fair Area value Medical hierarchy established by generally accepted accountingFirst Tennessee principles. Bank The hierarchy is based on theRepublic valuation Parking inputs System used to measure the fair value Regions Bank SITA of the assets.Suntrust Level Bank 1 inputs are quoted prices in active Uber markets for identical assets. Level 2 inputs are significant otherTN Stateobservable Bank inputs. Level 3 inputs are significantVolunteer unobservable Turf, LLC inputs.

Debt securitiesConcessionaires are valued based on the securities’ relationship to benchmark quoted prices. Derivative Classic Shine instruments areFive valued Star Food using Service a market approach that considers benchmark interest rates. HMS Host Corporation The followingKnoxville table setsAirport forth Hotel Company by level, dba within the fair value hierarchy, the fair value of the Authority’s investments andKnoxville interest Airport rate swapHilton liabilities as of June 30, 2016: Knoxville Coca-Cola Co. Ruby Tuesday, Inc. Smarte Carte, Inc. Level 1 Level 2 Level 3 Total Investments:Paradies-Knoxville, LLC GovernmentSecurity debt Point securities Media, LLC $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 76 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued) SCHEDULE 22: Use of debt proceeds (unaudited)

5. Long-TermDescriptions Debt (continued) of the uses of proceeds from the Authority's debt are summarized below.

ScheduledAirport Debt revenueService Requirefundingrements note As of JuneSeries 30, 2017A2016,— scheduled$11,000,000 debt service requirements of the variable-rate debt and net swap payments, assumingProceeds current from interest this debt rates issuance remain was the used same to refund for thetheir series term 2000 are II -D-as 1follows. bonds and As to ratesterminate vary, the variable associated-rate bond interest paymentsinterest rate andswap. net swap payments will vary.

Year endingLocal government publicVariable improvement Rate Bonds revenues bonds Interest Rate Series 2008 V-A-1—$84,645,000 JuneProceeds 30 from this bondPrincipal issue were used to refund Interestthe Series III -A outstanding Swaps, bonds in advance net of their maturity.Total

2017 $ 4,590,000 $ 562,983 $ 985,043 $ 6,138,026 Special purpose revenue bonds 2018Series 2002 —$8,500,0004,825,000 522,361 830,113 6,177,474 2019The Authority issued these5,075,000 bonds on behalf of Northwest479,483 Airlines, Inc., now Delta667,315 Air Lines, to construct6,221,798 a 2020regional jet maintenance5,335,000 hangar for their affiliate airline,434,090 Pinnacle Airlines, Inc., in496,213 the West Aviation Area. The6,265,303 202Authority1 is not at risk 5for,610,000 these bonds. 386,211 316,408 6,312,619

2022-Local2026 government 32,520,000 public improvement 1,107,156revenue bonds (retired) 405,195 34,032,351 2027-Series2028 2000 II-D-1—12,680,000$18,500,000 (retired) 86,013 - 12,766,013 TotalProceeds from this $bond70,635,0 issue 00were used to finance$3,578,297 a regional jet maintenance$3,700,287 facility for ExpressJet, formerly$77,913,584 Continental Express, Inc., and for the West Aviation Area at McGhee Tyson Airport. These were the first bonds issued under the new Master Bond Resolution. 6. Fair Value Series 2001 III-A—$ 95,000,000 (retired) Proceeds from this bond issue were used for repayment of all outstanding General Obligation bonds, including The AuthoritySeries E categorizes-1, E-2, II-G- 2,its III fair-B- 1,value III-G- measurements2, and IV-A-1. They within were alsothe usedfair forvalue completion hierarchy of the established renovation andby generally accepted expansionaccounting of theprinciples. terminal Thebuilding hierarchy at McGhee is based Tyson onAirport, the valuation for the West inputs Aviation used Area, to measure and for theland fair value of the assets.acquisition. Level 1 inputs are quoted prices in active markets for identical assets. Level 2 inputs are significant other observable inputs. Level 3 inputs are significant unobservable inputs. Series 1999 IV-A-1—$20,300,000 (retired) Proceeds from this bond issue were used to finance the renovation and expansion of the terminal building at Debt securitiesMcGhee Tyson are valued Airport, basedconstruct on a 750the-space securities’ public parking relationship lot, and refinance to benchmark the outstanding quoted Airport prices. Revenue Derivative- instrumentsGeneral are Obligationvalued using Series a Gmarket and H bonds.approach that considers benchmark interest rates.

Series 1999 111-G-2—$5,500,000 (retired) The followingProceeds table from setsthis bond forth issue by were level, used within to finance the the fair renovation value hierarchy,and expansion the of fairthe terminal value ofbuilding the Autat hority’s investmentsMcGhee and Tysoninterest Airport. rate swap liabilities as of June 30, 2016:

Series 1998 1MB-1—$36,500,000 (retired)Level 1 Level 2 Level 3 Total Proceeds from this bond issue were used to finance the renovation and expansion of the terminal building at Investments:McGhee Tyson Airport. Government debt securities $ – $ 39,998,469 $ – $ 39,998,469 Series 1997 II-G-2—$ 8,000,000 (retired) InterestProceeds rate swap from liabilities this bond issue were used$ to finance the– renovation$ 4,502,609 and expansion $ of the terminal– building$ 4,502,609 at McGhee Tyson Airport.

The followingSeries table1996 E sets-2— forth$5,350,000 by level, (retired) within the fair value hierarchy, the fair value of the Authority’s investmentsProceeds and fromderivative this bond investments issue were used as of to Junefinance 30, the 2015 construction: of improvements to the air cargo facilities at the McGhee Tyson Airport and aircraft T-hangars at the Knoxville Downtown Island Airport. They were also used to refinance the outstanding Airport Revenue-General Obligation Bonds, Series F. Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863 77

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued) SCHEDULE 22: Use of debt proceeds (unaudited) (continued)

5. LongSeries-Term 1996 Debt E-1— (continued)$7,150,000 (retired) Proceeds from this bond issue were used to expand the public garage in front of the terminal building from 1,394 to Scheduled2,811 Debt spaces. Service Requirements As of June 30, 2016, scheduled debt service requirements of the variable-rate debt and net swap payments, assumingAirport current revenue interest— ratesgeneral remain obligation the same bonds for their (retired) term are as follows. As rates vary, variable-rate bond Series 1994 H—$3,400,000 (retired) interest paymentsProceeds from and this net bond swap issue payments were used will to vary.refund the remaining Series E outstanding bonds in advance of

their maturity. Year ending Variable Rate Bonds Interest Rate JuneSeries 30 1993 G—$8,850,000Principal (retired) Interest Swaps, net Total Proceeds from this bond issue were used for a 619-space expansion to the public parking garage next to the 2017terminal, roadway improvements,$ 4,590,000 and refunding $ a562,983 portion of Series E outstanding$ 985,043 bonds in advance of$ their 6,138,026 2018maturity . 4,825,000 522,361 830,113 6,177,474

2019Series 1990 F—$7,500,0005,075,000 (retire d) 479,483 667,315 6,221,798 2020Proceeds of this bond5,335,000 issue were used for certain434,090 airport improvements, consisting496,213 of an air cargo facility,6,265,303 202improvements1 to the airport5,610,000 terminal, and land for386,211 airport development. 316,408 6,312,619

2022-The202 air6 cargo complex 32,520,000 includes three special purpose1,107,156 buildings totaling 54,200 square405,195 feet, 430,000 square feet34,032,351 of 2027-aircraft2028 apron and more12,680,000 than 300,000 square feet of vehicular86,013 parking areas. Improvements -to the airport terminal12,766,013 Totalinclude improvements $70,635,0 to the concourses00 and main$3,578,297 terminal building. Land for $use3,700,287 by the Authority includes$ 77,913,584the acquisition of certain tracts within the immediate vicinity of the airport for future airport development.

6. Fair ValueSeries 1988 E—$10,000,000 (retired) Proceeds from this bond issue were used for certain airport improvements consisting of a parking structure, an air cargo complex and certain general aviation improvements. The Authority categorizes its fair value measurements within the fair value hierarchy established by generally accepted Theaccounting parking facility principles. is the 775 The-space hierarchy public parking is based garage on constructed the valuation next to inputsthe terminal. used The to airmeasure cargo funds the fair value of the assets.were used Level for design 1 inputs and earth are work quoted for the prices air cargo in comp activelex financed markets by forthe Series identical 1990 F assets. Bonds. The Level general 2 inputs are significantaviation other improvements observable includedinputs. rampLevel pavement 3 inputs in arethe significantgeneral aviation unobservable area of the airport. inputs.

Series 1976 D—$2,250,000 (retired) Debt securitiesProceeds were are used valued for improvements based on theto Runways securities’ 5R/23L relationship and 5L/23R. to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates. Series 1974 C—$3,000,000 (retired) Proceeds were used for improvements to the terminal area. The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investmentsSeries and 1972 interest B—$4,000,000 rate swap (retired) liabilities as of June 30, 2016: Proceeds were used to construct a new three-level terminal, terminal apron, taxiway construction and access roads. Level 1 Level 2 Level 3 Total

Investments:Series 1972 A—$2,220,000 (retired) GovernmentProceeds were debt used securities for improvements to$ the terminal area.– $ 39,998,469 $ – $ 39,998,469

InterestSpecial rate swap facilities liabilities revenue bonds (retired)$ – $ 4,502,609 $ – $ 4,502,609 Series 1969—$385,000 These bonds were used for the construction of an air cargo building. The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investmentsMunicipal and derivative airport bondsinvestments (retired) as of June 30, 2015: Series 1963 E, 1961D and 1950-1957—$2,235,000 These bonds were issued to pay for construction,Level repairs, 1 and improvementsLevel 2 to the McGheeLevel Tyson3 AirportTotal and Investments:the Knoxville Downtown Island Airport. Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863 78

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

SCHEDULE 23: NOTES TO FINANCIALInsurance in force (unaudited)STATEMENTS (continued) June 30, 2018

Expiration Policy 5. LongType-Term of policy Debt (continued)Policy insurer date limit Risk Coverage

ScheduledAirport Debt Liability Service (a) RequirementsACE USA July 11, 2019 $200,000,000 Personal injury and aggregate limit property damage As of June 30, 2016, scheduled debt service requirements of the variable-rate debt and net swap payments, assumingCommercial current Property interest rates remainAffiliated FMthe same for theirJune 30,term 2019 are as$234,308,097 follows. AsBuildings rates - vary,Fire and variable-rate bond interest payments(Includes Terrorism) and net swap payments Insurance will vary. other perils (includes Boiler & Machinery contents, rental income and extra expense) Year ending Variable Rate Bonds Interest Rate JunePublic 30 Officials and PrincipalACE USA InterestDecember 18, 2018 $10,000,000Swaps,Commissioners net and Total Employer Liability employee professional 2017 $ 4,590,000 $ 562,983 $ 985,043 liability $ 6,138,026 2018Public Employee 4,825,000Cincinnati Insurance 522,361July 27, 2019 $500,000 830,113 Employee dishonesty 6,177,474 2019Dishonesty Bond 5,075,000 Company 479,483 667,315 6,221,798

2020Automobile Liability 5,335,000Cincinnati Insurance 434,090June 30, 2019 $1,000,000 496,213 Automobile liability 6,265,303 2021 5,610,000 Company 386,211 316,408 6,312,619 2022-2026 32,520,000 1,107,156 405,195 34,032,351 Physical Damage - Two National Hangar November 29, 2018 $1,433,250 Property damage - 2027-2028Fire Trucks 12,680,000Insurance Co. 86,013 two fire- trucks 12,766,013 Total $70,635,000 $3,578,297 $3,700,287 $77,913,584 Workers' Compensation AIG June 30, 2019 By Law Employer's liability - employee bodily injury 6. Fair Value Employee Health, Vision CIGNA Health Care May 30, 2019 Employee medical and Dental and dental The Authority categorizes its fair value measurements within the fair value hierarchy established by generally acceptedEmployee accounting Long-Term principles. CIGNAThe hierarchy is basedMay on 30, the2020 valuation inputsEmployee used to earnings measure the fair value Disability after 90 days of the assets. Level 1 inputs are quoted prices in active markets for identicaldisability assets. Level 2 inputs are significant other observable inputs. Level 3 inputs are significant unobservable inputs. Employee Life CIGNA May 30, 2020 Life, accidental death, and dismemberment Debt securities are valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates.

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments(a) Includes and terrorism interest and war risk rate coverage swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 79 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIALSCHEDULE STATEMENTS 24: (continued) Capital Asset Information (unaudited) As of June 30, 2018

5. Long-TermAirport Code: Debt (continued)TYS DKX

Location: Alcoa, TN Knoxville, TN Scheduled Debt Service Requirements As of June Coordinates:30, 2016, scheduledN35° debt 48.66' service requirements of the variableN35°-rate 57' 49.8" debt and net swap payments, assuming current interest rates remainW83° 59.64' the same for their term are as follows.W83° 52'As 25.2" rates vary, variable-rate bond interest paymentsElevation: and net swap 979payments feet will vary. 833.2 feet

Year endingTower: Variable24/7 121.2 Rate Bonds InterestNone Rate June 30Total acreage: Principal2,787 acres Interest Swaps,179.5 acres net Total Runways: RWY 05L-23R Under construction RWY 08-26 3499 x 75 ft 2017 $ 4,590,000RWY 05R-23L $ 562,983 9,000 x 150 ft. $ 985,043 $ 6,138,026

2018Apron area-sq ft: 4,825,000Cargo Airlines 522,361 314,284 830,113 6,177,474 2019 5,075,000Fixed Base Operator 479,483 1,985,064 667,315 6,221,798

2020Terminal Complex 5,335,000Number of passenger gates434,090 12 496,213 6,265,303 2021 5,610,000Number of loading bridges386,211 11 316,408 6,312,619 2022-2026 32,520,000Total area - sq ft 1,107,156 258,871 405,195 34,032,351 Useable space - sq ft 227,624 2027-2028 12,680,000Leasable space - sq ft 86,013 98,222 - 12,766,013 Total $70,635,0Mechanical00 - sq ft $3,578,297 31,247 $3,700,287 $77,913,584

Parking spaces, number: Garage: 6. Fair Value Short-term 663 Long-term 1,680 The Authority categorizes its fair Rentalvalue Cars measurements within the fair435 value hierarchy established by generally Total Garage 2,778 accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value Surface: of the assets. Level 1 inputs areShort-term quoted prices in active markets45 for identical assets. Level 2 inputs are significant other observable inputs.Long-term Level 3 inputs are significant unobservable695 inputs. Economy 829 Rental Cars and Taxi 87 Debt securities are valued basedEmployees on the securities’ relationship 472 to benchmark quoted prices. Derivative instruments are valued using a marketTotal Surface approach that considers benchmark2,128 interest rates.

The following table sets forth Total by Parking level, within the fair value 4,906hierarchy, the fair value of the Authority’s investmentsFixed and Base interest Operator rate swapTAC liabilities Air as of June 30, 2016:

Source: Metropolitan Knoxville Airport Authority EngineeringLevel and Planning 1 department Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 80 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

COMPLIANCE SECTION

This section contains the following items:

Schedule of Expenditures of Federal Awards, State Financial Assistance and Passenger Facility Charges Collected and Expended

Schedule of Long-Term Debt Principal and Interest Requirements

Reports of Independent Auditors

Schedule of Findings and Questioned Costs

81 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued) SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS, STATE FINANCIAL ASSISTANCE AND PASSENGER FACILITY CHARGES COLLECTED AND EXPENDED 5. Long-Term Debt (continued) Year ended June 30, 2018

CFDA Contract ScheduledFederal Debt Grantor Service / Pass-Through Requi Grantorrements Program Title Number Number Expenditures

As of JuneFederal 30, Awards 2016, scheduled debt service requirements of the variable-rate debt and net swap payments, assuming currentU.S. Department interest of Transportation rates remain theAirport same Improvement for Programtheir term are as follows.20.106 As ratesN/A vary, $ variable 15,930,385 -rate bond interest paymentsPassed Through and Tennessee net Department swap ofpayments will vary. Transportation- Aeronautics Division Airport Improvement Program 20.106 47-555-1110-04 624,797 20.106 47-555-0179-18 13,512 Year ending Variable Rate Bonds InterestTotal RateProgram 20.106* 16,568,694 June U.S.30 Department of Defense Principal National Guard MilitaryInterest Construction Program Swaps,12.400 W912L7-13-2-2101 net 623,033Total 12.400 W912L7-17-2-2101 588,830 12.400 W912L7-18-2-2101 101,986 2017 $ 4,590,000 $ 562,983 $ 985,043 Total Program 12.400 1,313,849 $ 6,138,026 2018U.S. Department of Homeland Security4,825,000 522,361 830,113 6,177,474 Passed Through Tennessee Department of 2019 Military - Emergency Management5,075,000 Agency Federal Emergency479,483 Management Agency 97.036667,315 34101-22318 69,0436,221,798

2020Executive Office of the President5,335,000 434,090 496,213 6,265,303 2021 Passed Through the Office of National5,610,000 Drug 386,211 316,408 6,312,619 Control Policy High Intensity Drug Trafficking Area 95.001 G17AP0001A 13,485 2022-2026 32,520,000 1,107,156 95.001405,195 G18AP0001A 16,29434,032,351 2027-2028 12,680,000 86,013 Total Program- 95.001 29,77912,766,013 U.S. Department of Justice Equitable Sharing Program 16.922 TN0050700 37,936 Total $70,635,000 $3,578,297 $3,700,287 $77,913,584 U.S. Department of Treasury Equitable Sharing Program 21.016 TN0050700 30,330 TOTAL FEDERAL AWARDS 18,049,631 6. Fair Value*Major federal financial assistance program.

The Authority categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based82 on the valuation inputs used to measure the fair value of the assets. Level 1 inputs are quoted prices in active markets for identical assets. Level 2 inputs are significant other observable inputs. Level 3 inputs are significant unobservable inputs.

Debt securities are valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates.

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

CFDA Contract ScheduledFederal Debt Grantor Service / Pass-Through Requi Grantorrements Program Title Number Number Expenditures As of June 30, 2016, scheduled debt service requirements of the variable-rate debt and net swap payments, State Financial Assistance assuming current interest rates remain the same for their term are as follows. As rates vary, variable-rate bond Tennessee Department of Transportation Airport Improvements – McGhee Tyson Airport N/A 47-555-0748-04 $ 40,062 interest paymentsTennessee Department and ofnet Transportation swap payments Airportwill Improvementsvary. – McGhee Tyson Airport N/A 47-555-0742-04 (5,402) Tennessee Department of Transportation Airport Improvements – McGhee Tyson Airport N/A 47-555-0746-04 (1,000) Tennessee Department of Transportation Airport Improvements – McGhee Tyson Airport N/A 47-555-0747-04 1,480 Year endingTennessee Department of TransportationVariable RateAirport Improvements Bonds – McGhee Tyson Airport InterestN/A 47-555-0750-04Rate (891) Tennessee Department of Transportation Airport Improvements – McGhee Tyson Airport N/A 47-555-0757-04 12,749 June Tennessee30 Department of TransportationPrincipal Airport ImprovementsInterest – McGhee Tyson Airport Swaps,N/A 47-555-0763-04net 41,851Total Tennessee Department of Transportation Airport Improvements – McGhee Tyson Airport N/A 47-555-0766-04 37,943 2017Tennessee Department of Transportation$ 4,590,000 Airport Improvements$ 562,983 – McGhee Tyson Airport $N/A 985,043 47-555-0768-16 547,515$ 6,138,026 Tennessee Department of Transportation Airport Improvements – McGhee Tyson Airport N/A 47-555-0778-18 258,994 2018Tennessee Department of Transportation4,825,000 Airport Improvements522 –,361 McGhee Tyson Airport N/A830,113 47-555-0770-16 18,9816,177,474 Tennessee Department of Transportation Airport Improvements – McGhee Tyson Airport N/A 47-555-0772-16 (163) 2019Tennessee Department of Transportation5,075,000 Airport Improvements479,483 – McGhee Tyson Airport N/A667,315 47-555-1099-04 (835)6,221,798 Tennessee Department of Transportation Airport Improvements – Downtown Island Airport N/A 47-555-0477-18 19,800 2020Tennessee Department of Transportation5,335,000 Airport Improvements434,090 – Downtown Island Airport N/A496,213 47-555-0761-04 59,4756, 265,303 2021Tennessee Department of Transportation5,610,000 Airport Improvements386,211 – Downtown Island Airport N/A316,408 47-555-0764-04 233,0366,312,619 Tennessee Department of Transportation Airport Improvements – Downtown Island Airport N/A 47-555-1110-04 34,711 2022-202Tennessee6 Department of Transportation32,520,000 Airport Improvements1,107,156 – Downtown Island Airport N/A405,195 47-555-0179-18 75034,032,351 2027-TOTAL2028 STATE AWARDS 12,680,000 86,013 - 1,299,05612,766,013 TotalTOTAL FEDERAL AND STATE$70,635,0 AWARDS 00 $3,578,297 $3,700,287 $ 19,348,687$77,913,584

6. Fair Value

The Authority categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based83 on the valuation inputs used to measure the fair value of the assets. Level 1 inputs are quoted prices in active markets for identical assets. Level 2 inputs are significant other observable inputs. Level 3 inputs are significant unobservable inputs.

Debt securities are valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates.

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

ScheduledPassenger Debt Facility Service Charges Requirements As of JuneAvailable 30, at2016 July 1, 2017, scheduled debt service requirements of the variable-rate debt and net $ 1,378,566swap payments, Charges collected 4,296,274 assuming currentInterest earned, interest net of service rates charges remain the same for their term are as follows. As rates vary, variable (4,326) -rate bond Total available 5,670,514 interest paymentsExpended and net swap payments will vary. (4,198,599) Available at June 30, 2018 $ 1,471,915 Year ending Variable Rate Bonds Interest Rate June 30 Principal Interest Swaps, net Total

6. Fair Value

The Authority categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based84 on the valuation inputs used to measure the fair value of the assets. Level 1 inputs are quoted prices in active markets for identical assets. Level 2 inputs are significant other observable inputs. Level 3 inputs are significant unobservable inputs.

Debt securities are valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates.

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS, STATE FINANCIAL ASSSITANCE AND 5. Long-Term PASSENGERDebt (continued) FACILITY CHARGES COLLECTED AND EXPENDED

Scheduled Debt1. Basis Service of Presentation Requirements As of June 30, 2016, scheduled debt service requirements of the variable-rate debt and net swap payments, assuming currentThe above interest Schedule rates of remainExpenditures the sameof Federal for Awartheirds, term State areFinancial as follows. Assistance, As andrates Passenger vary, variable Facility -rate bond Charges Collected and Expended (the Schedule) summarizes the federal and state expenditures of interest paymentsMetropolitan and netKnoxville swap paymentsAirport Authority will vary. (the Authority) under programs of the federal and state government for the year ended June 30, 2018 and Passenger Facility Charges (PFCs) collected and expended Year endingfor the year ended JuneVariable 30, 2018. These Rate amounts Bonds were obtained from the InterestAuthority’s generalRate ledger, which is June 30prepared on the accrualPrincipal basis. Because the ScheduleInterest presents only a selectedSwaps, portion of net the operations of theTotal Authority, it is not intended to and does not present the financial position, change in net position, and current revenues and expenditures of the Authority. 2017 $ 4,590,000 $ 562,983 $ 985,043 $ 6,138,026 2018 For purposes of the4,825,000 Schedule, federal assistance522 ,361includ es all grants and contracts830,113 entered into directly6,177,474 2019 between the Authority5,075,000 and agencies and departments479,483 of the federal government.667,315 The awards are classified6,221,798 into major program categories in accordance with the provisions of Title 2 U.S. Code of Federal Regulations 2020 Part 200, Uniform Administrative5,335,000 Requirements, Cost434,090 Principles, and Audit Requirements496,213 for Federal Awards (Uniform6, 265,303 2021 Guidance). The Authority5,610,000 did not elect to apply 386,211the 10% de minimis indirect cost316,408 rate. 6,312,619 2022-202 6 32,520,000 1,107,156 405,195 34,032,351 2. Passenger Facility Charge Program 2027-2028 12,680,000 86,013 - 12,766,013 TotalThe objective of $the70,635,0 Passenger00 Facility Charge$3,578,297 program is to authorize public$ ag3,700,287encies controlling commercial$77,913,584 service airports to impose a charge of $1 to $4.50 per enplaned passenger. The proceeds from such PFCs are to be used to finance approved, eligible airport-related projects that preserve or enhance safety, capacity, or 6. Fair Valuesecurity; reduce noise; or increase air carrier competition. PFCs are not considered to be Federal financial assistance defined by the Uniform Guidance.

The Authority3. Summary categorizes of Significant its fair valueAccounting measurements Policies within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the assets.For Levelpurposes 1 of inputs the Schedule, are quoted expenditures prices for federa in activel assistance markets programs for and identical PFCs are assets.recognized Level on the 2 inputs are significant otheraccrual observable basis of accounting. inputs. FederalLevel 3expenditures inputs are are significant primarily for unobservable administering an inputs. Airport Improvement Program for Knoxville, Tennessee.

Debt securitiesThe expenditures are valued reported based in onthe Schedulethe securities’ for the Federal relationship Emergency to Management benchmark Agency quoted program prices. were Derivative instruments incurredare valued in 2017. using In accordance a market with approach the requirements that considers of CFDA benchmark97.036, the expenditures interest rates.have been reported in 2018 when the grant was approved by the Federal Emergency Management Agency.

The followingThe tableAuthority sets uses forth PFCs byfor various level, improvement within the project fair value expansions hierarchy, of the airport the facilities fair value and payments of the Authority’s investmentsfor and debt interest service onrate bonds swap incurred liabilities to carry as out of suchJune projects. 30, 2016 :

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 85 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

SCHEDULE OF LONG-TERM DEBT PRINCIPAL 5. Long-Term Debt (continued)AND INTEREST REQUIREMENTS

Scheduled Debt Service Requirements June 30, 2018 As of June 30, 2016, scheduled debt service requirements of the variable-rate debt and net swap payments, assuming current interest rates remain the same for their term are as follows. As rates vary, variable-rate bond interest paymentsLocal Government and net swapPublic paymentsImprovement will Bonds, vary. Series V-A-I ($13,010,000 at synthetic fixed rate of 4.10% and $39,570,000 at a variable rate of 1.55% at June 30, 2018): Year ending Variable Rate Bonds Interest Rate June 30 Year endingPrincipal Interest Swaps, net Total June 30: Principal Interest Total 2017 $ 4,590,000 $ 562,983 $ 985,043 $ 6,138,026 2018 2019 4,825,000 $ 4,130,000522,361 $ 1,129,918 830,113 $ 5,259,918 6,177,474 2020 4,335,000 959,801 5,294,801 2019 2021 5,075,000 4,545,000 479,483 781,260 667,315 5,326,260 6,221,798 2020 2022 5,335,000 4,880,000 434,090 605,875 496,213 5,485,875 6,265,303 2021 2023 5,610,000 5,115,000 386,211 529,875 316,408 5,644,875 6,312,619 2022-2026 2024 32,520,000 5,365,000 1,107,156 450,211 405,195 5,815,211 34,032,351 2027-2028 2025 12,680,000 5,625,000 86,013 366,656 - 5,991,656 12,766,013 2026 5,905,000 279,040 6,184,040 Total 2027 $70,635,000 $ 6,190,000 3,578,297 187,077$3,700,287 6,377,077 $77,913,584 2028 6,490,000 90,673 6,580,673 6. Fair Value Total $ 52,580,000 $ 5,380,386 $ 57,960,38 6

Debt securities are valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates.

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 86 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

45 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

NOTES TO FINANCIAL STATEMENTS (continued)

SCHEDULE OF LONG-TERM DEBT PRINCIPAL 5. Long-Term Debt (continued)AND INTEREST REQUIREMENTS (continued)

Year ending Variable Rate Bonds Interest Rate June 30 Year endingPrincipal Interest Swaps, net Total June 30: Principal Interest Total 2017 $ 4,590,000 $ 562,983 $ 985,043 $ 6,138,026 2018 2019 4,825,000 $ 1,220,000522,361 $ 189,502 830,113 $ 1,409,502 6,177,474 2020 1,245,000 165,674 1,410,674 2019 2021 5,075,000 1,280,000479,483 141,342 667,315 1,421,342 6,221,798 2020 2022 5,335,000 1,310,000434,090 116,335 496,213 1,426,335 6,265,303 2021 2023 5,610,000 1,340,000386,211 90,744 316,408 1,430,744 6,312,619 2022-2026 2024 32,520,000 1,370,0001,107,156 64,567 405,195 1,434,567 34,032,351 2027-2028 2025 12,680,000 1,400,00086,013 37,806 - 1,437,806 12,766,013 Total 2026 $70,635,000 $ 3,578,297650,000 11,668$3,700,287 661,668 $77,913,584

6. Fair Value Total $ 9,815,000 $ 817,638 $ 10,632,638

Debt securities are valued based on the securities’ relationship to benchmark quoted prices. Derivative instruments are valued using a market approach that considers benchmark interest rates.

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and interest rate swap liabilities as of June 30, 2016:

Level 1 Level 2 Level 3 Total Investments: Government debt securities $ – $ 39,998,469 $ – $ 39,998,469

Interest rate swap liabilities $ – $ 4,502,609 $ – $ 4,502,609

The following table sets forth by level, within the fair value hierarchy, the fair value of the Authority’s investments and derivative investments as of June 30, 2015:

Level 1 Level 2 Level 3 Total Investments: 87 Government debt securities $ – $ 40,071,930 $ – $ 40,071,930 Derivative instruments: Interest rate swaps $ – $ 4,883,863 $ – $ 4,883,863

Report of Independent Auditors 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

Board of Commissioners Metropolitan Knoxville Airport Authority

We have audited, in accordance with the 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, the financial statements of Metropolitan Knoxville Airport Authority (the Authority), a component unit of the City of Knoxville, Tennessee, as of and for the year ended June 30, 2018, and the related notes to the financial statements, which collectively comprise the Authority’s basic financial statements, and have issued our report thereon dated November 14, 2018.

Internal Control over Financial Reporting

In planning and performing our audit of the financial statements, we considered the Authority’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Authority’s internal control. Accordingly, we do not express an opinion on the effectiveness of the Authority’s internal control.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the Authority’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

Board of Commissioners Metropolitan Knoxville Airport Authority

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the Authority’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

We noted certain matters that we have reported to management and those charged with governance of the Authority on November 14, 2018.

Purpose of this Report

The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Authority’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Authority’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

Coulter & Justus, P.C.

November 14, 2018 Knoxville, Tennessee

Report of Independent Auditors on Compliance for Each Major Federal Program and the Passenger Facility Charge Program and on Internal Control Over Compliance in Accordance with the Uniform Guidance

Board of Commissioners Metropolitan Knoxville Airport Authority

Report on Compliance for Each Major Federal Program and Passenger Facility Charge Program

We have audited compliance of the Metropolitan Knoxville Airport Authority (the Authority), a component unit of the City of Knoxville, Tennessee, with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Compliance Supplement that could have a direct and material effect on the Authority’s major federal program and the compliance requirements of the Passenger Facility Charge (PFC) program as described in the Passenger Facility Charge Audit Compliance and Reporting Guide for Public Agencies for the year ended June 30, 2018. The Authority’s major federal program is identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs.

Management’s Responsibility

Management is responsible for compliance with the requirements of federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs and the PFC program.

Auditor’s Responsibility

Our responsibility is to express an opinion on compliance for the Authority’s major federal program and PFC program based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; the audit requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance); and the Passenger Facility Charge Audit Compliance and Reporting Guide for Public Agencies, issued by the Federal Aviation Administration. Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on the major federal program or the PFC program occurred. An audit includes examining, on a test basis, evidence about the Authority’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion on compliance for the major federal program and PFC program. However, our audit does not provide a legal determination of the Authority’s compliance.

Board of Commissioners Metropolitan Knoxville Airport Authority

Opinion on the Major Federal Program and the PFC Program

In our opinion, the Authority complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on its major federal program and the PFC program for the year ended June 30, 2018.

Report on Internal Control Over Compliance

Management of the Authority is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the Authority’s internal control over compliance with the types of requirements that could have a direct and material effect on the major federal program or the PFC program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and the PFC program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Authority’s internal control over compliance.

A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.

Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. …..

The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose.

Coulter & Justus, P.C. November 14, 2018 Knoxville, Tennessee

SCHEDULE OF FINDINGS AND QUESTIONED COSTS Year ended June 30, 2018

Section I - Summary of Auditors’ Results

Financial Statements

Type of auditors’ report issued on whether the financial statements audited were prepared in accordance with GAAP: Unmodified

Internal control over financial reporting: Material weakness(es) identified? None reported

Significant deficiency(s) identified? None reported

Noncompliance material to financial statements noted?: No

Federal Awards

Type of auditors’ report issued on compliance for major federal program: Unmodified

Internal control over major federal program: Material weakness(es) identified? None reported

Significant deficiency(s) identified? None reported

Any audit findings disclosed that are required to be reported in accordance with 2 CFR 200.516(a)? None reported

Identification of major programs: CFDA Number Name of Program 20.106 Airport Improvement Program

Dollar threshold used to distinguish between Type A and Type B programs: $750,000

Auditee qualified as low-risk auditee? No

SCHEDULE OF FINDINGS AND QUESTIONED COSTS (continued) Year ended June 30, 2018

Section II – Financial Statement Audit Findings

None reported.

Section III – Single Audit Findings

None reported.

Section IV – Corrective Action Plan

Not applicable as there were no 2018 findings reported.

Section V – Schedule of Prior Year Audit Findings

Not applicable as there were no 2017 findings reported.

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METROPOLITAN KNOXVILLE AIRPORT AUTHORITY

McGhee Tyson Airport P.O. Box 15600 Knoxville, TN 37901

865/342-3000 * Fax 865/342-3050 Email: [email protected]