Indianapolis Airport Authority

INDIANAPOLIS, IN

COMPREHENSIVE ANNUAL FINANCIAL REPORT

FOR THE FISCAL YEAR ENDED December 31, 2008 Comprehensive Annual Financial Report Fiscal Year Ended December 31, 2008

Indianapolis Airport Authority Indianapolis, IN

Prepared by the Finance Department Indianapolis Airport Authority Introductory section

Mission statement 4 Indianapolis Airport Authority facilities map 5 Board of Directors 6 Organizational structure and senior management team 7 Letter of transmittal to the Board 8-22 Certificate of Achievement for Excellence in Financial Reporting 23

Financial section

Independent accountants’ report 26 Management’s discussion and analysis 27-41 Audited financial statements Balance Sheets 42-43 Statements of Revenues, Expenses and Changes in Net Assets 44 Statements of Cash Flows 46-47 Notes to Financial Statements 48-78 Supplementary information Schedules of Balance Sheet Information 80-83 Schedules of Revenues, Expenses, and Changes in Net Assets Information 84-85 Schedules of Operating Revenues 86 Schedule of Operating Expenses 88-89 Schedule of Bond Debt Service Requirements to Maturity 90-91

Statistical section

Financial trend data Balance Sheets 94-95 Net Assets and Changes in Net Assets 96-97 Changes in Cash and Cash Equivalents 98-99 Revenue capacity data Operating Revenues 100-101 Signatory Airline Rates and Charges 102 Debt capacity data Outstanding Debt by Type and Revenue Bond Debt Service Ratios 104-105 Revenue Bond Debt Service Coverage 106-107 Operating information Airline Landing Weight Statistics 108-109 Enplaned Passenger Statistics 110-111 Number of Airport Employees by Identifiable Activity 112-113 Schedule of Insurance 114 Demographic and economic data Indianapolis – Carmel MSA Demographic and Economic Statistics 115 Principal Employers in Indianapolis – Carmel MSA 115 Capital Assets and Other Airport Information 116

Comprehensive Annual Financial Report

Fiscal Year Ended December 31, 2008

This section contains the following subsections:

> Mission statement

> Indianapolis Airport Authority Facilities Map

> Board of Directors

> Organizational structure and senior management team

> Letter of transmittal to the Board

> Certificate of Achievement Our vision is to be a world-class, globally competitive transportation center. Our mission is to operate the transportation center to provide safe, efficient, attractive facilities and excellent services. We recognize our responsibilities for:

1. Being responsive to the 6. Working in cooperation with needs of our customers and private and public entities to communities. enhance the region’s economic vitality. 2. Providing superior value for our customers. 7. Ensuring cultural diversity in all entities that do business 3. Anticipating change and with the Authority. planning for the future, mea- suring our progress, meeting 8. Providing a positive, cultur- our commitments, and main- ally diverse, and productive taining the public trust. working environment.

4. Providing prudent manage- 9. Operating in an environment of our assets and financial mentally safe and compatible resources. manner.

5. Promoting and marketing domestic and international transportation services for both passengers and cargo.

New Board Members joining IAA in 2009

Randall L. Tobias, President Chairman Emeritus Eli Lilly & Company Alex M. Azar, II Years of service: 1 Sr. Vice President, Corporate Affairs & Communications Lilly USA LLC

Lacy M. Johnson, Vice President Partner, Ice Miller LLP Years of service: 9 Andrew Miller Bose Public Affairs Group

Alfred R. Bennett, Secretary Correctional Facilities Consultant Retired Superintendent, Indiana Boy’s School Years of service: 4 Jean Wojtowicz Cambridge Capital Management Corp

N. Stuart Grauel, Treasurer Retired Vice President, IPALCO Years of service: 9

Advisory Board Members

Kelly J. Flynn Senior Partner, Flynn & Zinkan Realty Co. Years of service: 4

Jack Morton Director, Information Technology YMCA of Greater Indianapolis Years of service: 7 Hancock County Shirley M. Haflich Retired Educator Years of service: 5

Lynn T. Gordon President & CEO Citizens Bank Years of service: 5 Michael Stayton Morgan County Former Chief of Staff & COO United Nations World Food Programme Years of service: 1

no picture Steven C. Dillinger available Owner, S.C. Dillinger & Associates Insurance Agency Years of service: 12 Robert H. Voorhies Hamilton County Retired President, Central Indiana Labor Council Years of service: 9 IAA Board of Directors

Executive Director

Communications Engineering & Airport Properties Special Finance Air Service & Marketing Environmental Director & IMC Projects Matters

John J. Kish Greta Hawvermale Executive Director Senior Director of Engineering & Environmental Matters 8 years of service 7 years of service

Robert A. Duncan, A.A.E. Eric Anderson Airport Director Director of Properties & IMC 36 years of service 19 years of service

Marsha A. Stone Christofer A. Matney Senior Director of Finance Director of Air Service 15 years of service 3 years of service

Patzetta Trice Jennifer Tillman Senior Director of Communications & Marketing Director of Special Projects 4 years of service 7 years of service

Note: Years of service included total time employed by IAA and/or BAA. Suite 100

June 30, 2009

The Comprehensive Annual Financial Report of the Indianapolis Airport Authority (the

“Authority” or “IAA”), for the fiscal year ended December 31, 2008, is submitted herewith.

Responsibility for both the accuracy of the presented data and the completeness and fairness of the presentation, including all disclosures, rests with the Authority and its management.

We believe the data, as presented, is accurate in all material aspects, that the information is presented in a manner designed to fairly set forth the financial condition of the Authority, and that all disclosures necessary to enable the reader to gain the maximum understanding of the

Authority’s financial affairs have been included.

This report has been prepared following the guidelines recommended by the Government

Finance Officers Association of the United States and Canada (GFOA). The GFOA awards

Certificates of Achievement to those governmental entities whose annual financial reports are judged to conform substantially to the high standards of public financial reporting, including generally accepted accounting principles promulgated by the Governmental Accounting

Standards Board (GASB). It is our belief that the accompanying 2008 Comprehensive Annual

Financial Report (CAFR) meets program standards, and will be submitted to the Government

Finance Officers Association for review. PROFILE OF THE AUTHORITY

Reporting Entity The Authority is a municipal corporation established January 1, 1962, to own and operate airports in and around Indianapolis, Indiana, which is more fully discussed in the Management’s Discussion and Analysis – Authority Powers and Purposes. The Authority administers an airport system comprised of Indianapolis International Airport (IND), four general aviation reliever airports, and a general aviation heliport located in downtown Indianapolis.

All financial and non-financial information included in this CAFR relates solely to the Authority unless specifically stated otherwise. You may also refer to Note 1 of the financial statements for more information regarding the financial reporting entity determination underG ASB Statement No. 14.

Accounting / Budgetary Control The Authority consists of a single enterprise fund and its financial statements are presented on the accrual basis of accounting using the economic resources measurement focus. This Comprehensive Annual Financial Report and each of the Authority’s monthly financial statements use the accrual method preferred for enterprise funds.

Annual budgets and monthly budget reports are also prepared using the accrual basis of accounting. The Authority’s annual budget is prepared by the IAA Finance Department and is adopted by ordinance upon approval of the Authority Board. It is submitted to the Indianapolis/Marion County City-County Council as part of the review process. The State of Indiana Department of Local Government Finance reviews the budget in the same manner. Public hearings are held at each step of the review process, and a notice of said hearings is published in accordance with Indiana law. In addition, a ten year Capital Improvement plan is prepared annually with estimates of future capital improvements and their financial impact. B udgetary control is maintained at the department, object, and character level.

Internal Controls In developing and evaluating the Authority’s accounting system, consideration has been given to the adequacy of the internal control structure so that it provides reasonable, but not absolute, assurance regarding: (1) the safeguarding of assets against loss from unauthorized use or disposition; and (2) the reliability of financial records for preparing financial statements and maintaining accountability for assets. The concept of reasonable assurance recognizes that: (1) the cost of implementing and utilizing a control should not exceed the benefits likely to be derived; and (2) the evaluation of costs and benefits requires estimates and judgments made by management.

All internal control evaluations occur within the above framework. We believe that the Authority’s internal accounting controls adequately safeguard assets and provide reasonable assurance in the proper recording of financial transactions. The Authority’s internal controls are reviewed annually by the Authority for applicability, relevance, and effectiveness.

Audit Function At the close of each calendar year, an independent firm of certified public accountants audits the Authority’s books and records. In addition, the Indiana State Board of Accounts retains the right to audit the Authority. In connection with the Authority’s federal financial assistance, a Single Audit is performed and reports are issued to the U.S. Department of Transportation (the federal over- sight agency), the Federal Aviation Administration, the U.S. Department of Homeland Security, the Transportation Security Administration, and the Indiana State Board of Accounts by the independent certified public accountants under contract to the Authority. INFORMATION USEFUL IN ASSESSING THE FINANCIAL CONDITION OF THE AUTHORITY

1 THE STATE AND LOCAL ECONOMY

Economic Conditions for 2009 The Indianapolis International Airport (IND) serves as the primary airport for not only the Indianapo- lis-Carmel metropolitan area2 (I-C MSA) but also much of Indiana. As a result, this section examines the economies of the I-C MSA and the entire state in the context of the national economy.

Population Indiana’s population in 2008 was estimated to be 6,376,792, and the Indianapolis-Carmel MSA population was 1,715,459, more than a quarter of the state population. The I-C MSA has significantly higher percentages of its population in the school-age (5-17) and younger adult (25-44) ranges than either the state or the nation. The I-C MSA has grown by 12.5% since 2000, more than double the state’s population growth of 4.9% and higher than the 8.0% national growth rate. Much of the I-C MSA’s growth is occurring in the rapidly growing counties surrounding Indianapolis. Two counties in the I-C MSA, Hamilton and Hendricks, are among the top 100 fastest growing counties in the nation according to the latest census estimates for 2008.

Educational Attainment While Indiana ranks fairly low nationally in the proportion of adults whose highest level of education is a bachelor’s degree or higher, attainment of such degrees is significantly higher in the I-C MSA (26%) than in the state (19%) or the nation (24%). It should also be noted that Hamilton County continues to rank 5th in the nation in the percentage of adults who have attained a bachelor’s degree, at 49%.

Incomes Per capita personal income (PCPI) is a broad measure of income from earnings and other sources for individuals in a given region. Indiana’s PCPI in previous years has been fairly close to the national average, and although rising in absolute terms, the state’s PCPI has been slipping in relative terms for many years. At $33,215, Indiana’s PCPI in 2007 ranked 40th in the nation; this was 86% of the national PCPI. The PCPI in the I-C MSA, however, was 17.4% above the state average and ranks 70th out of 363 metro areas nationwide. Hamilton County has one of the highest PCPI’s in the nation and, at $46,378, it ranks 117th out of 3,141 counties.

Median household incomes are another common indicator of the relative earning and spending power of an area and at $83,059, Hamilton County ranks 22nd nationwide (out of 3,141 counties). The I-C MSA has a higher median household income ($53,101) than the state ($47,422). Indiana enjoys a moderate cost of living where incomes tend to stretch farther.

1 The State and Local Economy section was prepared with significant input from the Indiana Business Research Center at Indiana University’s Kelley School of Business.

2 The Indianapolis Metropolitan Statistical Area was renamed the Indianapolis-Carmel Metropolitan Statistical Area in 2006 by the federal Office of Management and Budget, recognizing that Carmel has passed the 50,000 population mark and qualifies as a central city under that agency’s definition. Employment and Average Wages The I-C MSA labor force (i.e., people who are working and people looking for work) averaged 900,000 individuals in 2007, up 6% from five years earlier. That growth rate surpassed Indiana’s growth rate (1.4%) and matched the nation’s growth rate (6%) during this period, providing a significantly increased labor pool in the I-C MSA.

For the state, the decline in the labor force growth reflects the downsizing of the manufacturing workforce over the years. More than 100,000 manufacturing jobs have been lost over the past ten years due to a combination of improved productivity in manufacturing and outsourcing.

Notably, total output from Indiana’s manufacturing sector continues to grow due to increased efficiencies, as manufacturing employment shrinks. However, manufacturing remains the state’s largest employment sector, accounting for 19% of all jobs and 25% of total payrolls in Indiana. The corresponding manufacturing shares of total jobs and total payroll are 11% and 16% for the Indianapolis-Carmel MSA, and 11% and 13% for the nation as a whole.

Employment and average annual wages/salary for major economic sectors are shown in the following table separately for the United States, Indiana and the I-C MSA. Average weekly wages in the I-C MSA are lower overall than the U.S., but metro area wages lead the U.S. in several of the sectors, most notably manufacturing, agriculture, and management of companies and enterprises. Quarterly Census of Employment and Wages (QCEW): 3rd Qtr. 2008

United States Indiana I-C MSA

Jobs Weekly Wage jobs Weekly Wage jobs Weekly Wage Total 134,523,028 $841 2,876,412 $718 870,205 $798

Agriculture, Forestry, Fishing and Hunting 1,282,588 $493 14,768 $522 1,365 $635 Mining 733,396 $1,559 6,562 $1,096 750 $973 Utilities 823,583 $1,375 15,156 $1,311 4,519 $1,329 Construction 7,530,446 $920 151,675 $904 49,052 $960 Manufacturing 13,443,364 $1,007 519,138 $953 94,761 $1,144 Wholesale Trade 5,974,193 $1,140 125,564 $984 41,360 $1,054 Retail Trade 15,317,734 $499 322,819 $434 92,536 $470 Transportation & Warehousing 5,323,723 $842 130,274 $745 43,145 $748 Information 3,141,072 $1,298 46,767 $817 4,242 $951 Finance and Insurance 5,884,950 $1,361 98,720 $948 14,026 $1,135 Real Estate and Rental and Leasing 2,179,672 $785 35,321 $617 3,777 $734 Professional, Scientific, and Technical Services 7,884,060 $1,363 97,509 $1,011 11,933 $1,158 Management of Companies and Enterprises 1,902,211 $1,634 28,997 $1,280 11,348 $1,360 Admin. & Support & Waste Mgt. & Rem. Services 8,223,372 $603 162,520 $497 61,624 $535 Educational Services 10,665,401 $797 225,532 $722 1,454 $680 Health Care and Social Services 17,475,278 $813 371,904 $747 2,336 $688 Arts, Entertainment, and Recreation 2,631,120 $549 50,536 $498 6,016 $334 Accommodation and Food Services 11,728,092 $323 247,770 $246 6,263 $227 Other Services (Except Public Administration) 4,576,120 $547 84,749 $494 7,771 $479 Public Administration 7,559,329 $997 135,713 $716 42,702 $854

Highest Paying Industries in the I-C MSA

Management of Companies and Enterprises

Utilities

Professional, Scientific and Technical Services

Manufacturing

Finance and Insurance

Wholesale Trade

$0 200 400 600 800 1000 1200 1400 1600

Average Weekly Wage - Q3 200 Residential Construction Construction had been strong in the I-C MSA through early 2004, with a 9.9% increase in housing units from 2000 to 2004 compared to 6.3% for Indiana and 5.8% for the nation. However, since the fall of 2006, new home construction has slowed nationwide as well as in the I-C MSA. Between 2007 and 2008, the I-C MSA saw permits fall by 16%, less than half of the decline of the nation (35%) and the state (30%).

Commercial and Industrial Development Long recognized as the “Crossroads of America”, Indiana’s central location and the many major highways, railroads and airline routes that pass through the state provide visual truth to that nickname. In line with one of the state’s major strategic emphases, there has been significant recent construction of new distribution facilities for the logistics industry, both in the I-C MSA and in other parts of the state. Large new shopping centers have sprouted up in response to population growth in the suburban Indianapolis area, and several major medical centers continue to expand in the area. The infusion of federal recovery dollars, particularly for infrastructure, will allow the state to enhance its Major Moves upgrades.

2009 Outlook for Indiana’s Economy3 Indiana’s economy will be sluggish in 2009, along with the rest of the nation, especially the Mid- west. The domestic automobile industry is undergoing massive transformation and foreign auto- makers producing in Indiana (Subaru, Toyota, and Honda) are all cutting back on production to some extent. Fewer jobs and greater unemployment will reduce the demand for goods and services of many Indiana firms, while business travel is expected to decrease slightly as well. The heavy industrial and road and bridge building sector is expected to rebound due to large infusions of both federal and state dollars. Residential construction may begin a noticeable uptick toward year end. Indiana and the Indianapolis region, in particular, have seen a number of plant expansions and new plant locations. The new logistics and warehousing establishments in Boone and Hendricks counties have helped mitigate job losses in those counties and keep retail sales stable or increasing.

The Indianapolis-Carmel area remains an engine of economic growth in the state. While it too has felt the impact of the economic recession, the impact has been less than that experienced in the rest of the state.

3 Forecasts per the Indiana Business Research Center STATE OF THE AIRLINE INDUSTRY

The revenues of the Authority are affected substantially by the economic health of the airline industry and the airlines serving the Airport. Historically, the financial performance of the airline industry generally has correlated with the strength of the national economy. Certain factors that may materially affect the air transportation industry, IND and the airlines include, but are not limited to: national and international economic and political conditions, hostilities and disasters, growth of population and the economic health of the region and the nation, the financial health and viability of the airline industry, changes in demand for air travel, service and cost competition, the availability and cost of aviation fuel, financing, and employees, labor relations within the airline industry, regulation by the federal government, environmental risks and regulations, and other risks.

As a result of these and other factors, the major U.S. passenger airlines collectively recorded operating losses of over $2 billion in 2008 compared to a $10.1 billion operating profit in 2007. Operat- ing revenues (passenger and cargo) were up 8.8% in 2008, reflecting higher fares, but operating expenses increased more rapidly, by 16.9%, as jet fuel prices increased 52.1% compared to the previous year. The U.S. economy, and subsequently the airline industry, was progressively challenged throughout 2008 as energy prices spiked in the first half of the year, housing foreclosures climbed, credit tightened and unemployment surged. This chain of events resulted in less than expected growth in air travel demand for the year. Airlines combated the economic conditions throughout the year with moderate fare increases, added passenger usage fees, and decreasing capacity primarily in their domestic network. U.S. airline capacity and enplanements sustained positive growth rates throughout the first half of 2008, and then began a steep decline as airlines reacted to a rapidly declining economy. U.S. commercial air carriers still posted a 1.2% increase in system capacity, primarily from scheduled operations in the first half of 2008, while enplanements for the year were down 1.0%.

The most significant shift in U.S. airline operations for 2008 was the completed merger between Delta Airlines and Northwest Airlines. Although the restructuring of both airlines’ operations is currently in process, it may significantly affect the air service system if redundant hub operations are drawn down and overlapping flight operations are potentially consolidated. In 2008, various U.S. airlines also filed for bankruptcy and/or ceased operations, most notably: (1) ATA shut down operations in early April after filing for Chapter 11 bankruptcy protection; (2) Aloha Airlines ceased operations after filing for bankruptcy protection in late March and subsequently failing to secure financing to maintain operations; (3) Skybus ceased operations, citing rising fuel costs and a slowing economic environment as the cause; (4) Frontier Airlines filed for Chapter 11 bankruptcy protection on April 10, 2008; and (5) ExpressJet ceased flying its branded service on September 1, 2008.

Worldwide air cargo demand also experienced a severe slowing of growth in 2008 as carried volumes increased only 1.1% compared to a 4.5% growth in 2007. Three U.S. air cargo carriers ceased operations in 2008 (Focus Air Cargo, Gemini Air Cargo, Kitty Air Cargo) and two merged (Southern Air and Cargo 360). INDIANAPOLIS AIRPORT AUTHORITY

Passenger and Cargo Volume As the challenges of the economy took its toll on the airline industry in 2008, passenger and cargo volume traffic at IND were able to hold on a little bit longer than average, posting better than average results nationally. In 2008, IND experienced a slight decrease in passenger traffic while daily flight departures and seat capacity remained basically unchanged. For 2008, the airport averaged 175 daily departures, the same as in 2007, and capacity declined only 0.5% to 15,158 average daily seats.

Overall cargo volume at Indianapolis International decreased in 2008 to 1,111,080 tons, down 4.8% compared to the previous year. One positive cargo statistic is that international freight volumes from IND increased 6.7% in 2008. FedEx remained the largest contributor of cargo volume at the airport (97.3%), followed by Trade Winds (2.4%) and Cargolux (0.2%).

Enplaned Passenger Trend In 2008, the U.S. airline industry saw annual passenger enplanements, those passengers flying out of a destination, decline by 1.0%; the first year-over-year decline in passenger traffic since 2002. Despite the drop in passenger traffic, system revenue passenger miles grew 0.7%, which can be attributed to airlines increasing their airfares.

2008 passenger enplanements at IND were 4,088,526, down 1.3% compared to 2007. Five of the airport’s eleven signatory airlines improved their traffic numbers in 2008 with Southwest Airlines (14.8%), AirTran (6.5%), and Frontier (4.7%) posting annual increases at IND. United Airlines (-8.4%) and U.S. Airways (-5.8%) posted the largest declines in passenger enplanements. Initiatives and Development

Opening of the New Indianapolis International Airport With soaring glass walls and naturally illuminated interior, the new Indianapolis International Air- port and its Col. H. Weir Cook Terminal Building accepted its first arriving flight on Veteran’s Day, November 11, 2008, and opened for arriving and departing flights on November 12, 2008; all scheduled passenger service was transferred to the new airport at that time.

The new $1.1 billion airport consists of a new terminal building with two concourses, each contain- ing 20 boarding gate areas. The airport includes an attached parking garage with four levels of public parking, consisting of approximately 5,900 parking spaces and one level for rental car ready return areas. Adjacent to the parking garage are two surface lots that can accommodate more than 11,000 additional vehicles. The construction of the new airport also included a new apron, a new air traffic control tower, and a new highway entrance and roadway system.

The $1.1 billion cost of the new airport project was borne through a combination of general airport revenue bond proceeds, Authority revenue, federal grants, and passenger facility charges. No state or local tax money was used to pay for the construction of the new airport.

The new terminal has been constructed to achieve Leadership in Energy and Environmental Design (LEED) certification, one of the first airport terminals in the nation to pursue this certification. Energy efficiency and the integration of sustainable concepts were priorities in the design and construction of the new terminal. Customers experience natural lighting and the opportunities for recycling with much reduced times for taxiing during takeoff and landings at the midfield terminal.

Also, in an effort to expand the concession offerings for the Authority’s customers, the Authority successfully negotiated and executed over sixty (60) new concession agreements consisting of food and beverage, news and gift, specialty retail, ATM, advertising, personal services, vending, and car rental offerings. The Authority’s new concession program was recognized by Airport Revenue News in February 2009 as having the best concession program among airports with 4 million to 10 million enplaned passengers.

Departmental Initiatives and Development Safety and Security remains a priority for the Authority. Several initiatives and accomplishments that occurred in 2008 are listed below:

• Indianapolis International Airport completed its ninth consecutive annual Part 139 inspection by the FAA with “no discrepancies” in operating a safe airport. In the FAA’s Great Lakes Region that covers eight states and includes 71 air carrier airports, Indianapolis International continues to have the highest number of consecutive perfect inspections.

• All four reliever airports and the heliport received “no discrepancy” reports following their Indiana Department of Transportation (INDOT) annual inspection audits. This is the seventh year in a row they have received clean reports.

• The new Fire Station 1 was formally dedicated on January 18, 2008.

• Prior to opening of the new Indianapolis Airport Terminal, more than three hundred firefighters and Chief Officers from our primary mutual aid departments were guided through the facility for pre-planning and familiarization. A table top exercise was conducted simulating an improvised explosive device with participation from the following agencies: the TSA, the FBI, Emergency Management, Airport Directors, and many others.

• The APD developed a “Security Watch” program that was shared with IAA employees, airlines, vendors, and tenants. The presentation explained how everyone at IND has a role and responsibility in maintaining a safe airport. In addition, an anonymous hot-line has been established to help provide a safer and more secure work place.

The Authority continues to invest a considerable amount of time and money into Capital Improve- ment Projects. For 2008, some of the more significant capital improvement projects completed by the Authority included the following:

• Construction for the FedEx expansion added more than 600,000 square feet to the existing sorting facility. In conjunction with this expansion, the Authority completed the final phase of the expansion that included fourteen additional aircraft parking spaces adjacent to the current cargo apron as part of a lease amendment with FedEx signed in 2006.

• Construction of the new Rental Car Facility was completed in November of 2008. The new facility consists of the Ground Transportation Center (GTC), Ready Return Area, Service Center and Quick Turn Around Area (QTA). Up to eight rental car brands occupy the first level of the Ground Transportation Center, enabling customers to rent vehicles without being shuttled to off-site locations. In addition, the Ready Return Area will have between 1,258 and 1,332 stalls, which exceed the standard industry minimum of 1,250 stalls. The Quick Turn Around Area serves as the fueling, cleaning and primary storage site for vehicles.

In the midst of the economic challenges facing the airline industry, the Property Department worked diligently to maintain, extend and enter into lease agreements to increase the Authority’s revenue position. Developments during 2008 included new leases, new construction, and facility refurbish- ment along with additional bankruptcies.

• The Property Department entered into or extended approximately eighty-five (85) agreements, amendments or use permits in the transition to the new terminal. Those entities that did not transition to the new terminal were replaced by other third party providers thereby providing for a seamless transition for the airlines and their support companies.

• The Property Department successfully negotiated the Hawker Beechcraft (Hawker) Agreement with a new term of thirty-two years. This new agreement includes construction on a new $15 million facility for Hawker that will support aircraft maintenance and fixed base operations. The new facility will be financed with Special Facility Bonds. • The Greater Indianapolis Foreign trade Zone (FTZ) made its transition into the IAA’s Building #24 after making a substantial investment into the building and grounds to support its operation.

• In April 2008, American Trans Air filed for bankruptcy and shut down its airline operations followed by a September 30th closure of its corporate headquarters. The Property Department is marketing the campus and looking for a mid-year 2009 sale or re-lease of the facilities.

The Authority’s commitment to our passengers is to provide a variety of retail / concession options supported by outstanding customer service. In 2008, the Authority focused on and successfully maintained the options available in the existing terminal by extending terms up to the completion and occupation of the New Indianapolis Airport. Concurrently, early in 2008, the new business development and retail teams worked together to solicit letters of interest for the new terminal which resulted in the new terminal concessions program being 100% leased, open and operating on opening day, November 12, 2008.

• For the year ended December 31, 2008, dollars spent per enplaned passenger in food and beverage, news and gift, and specialty retail shops equaled $8.00. This spend per enplaned passenger is a $0.10 decrease from 2007 for these three (3) combined categories; however, when considering the economic conditions our nation was beginning to experience in the second half of the year and the opening of a new terminal, the program experienced a seamless transition with minimal financial impact or disruption in service.

• when considering all components that make up the concessions program, with the exception of car rental and the convenience center (external service station), the spend per enplaned passenger was $9.45 ($0.01 decrease for 2007).

• 2008 also saw the transition of eight (8) on airport car rental companies to their new operations at the new terminal. Car rental spend is calculated per deplaned passenger and was $22.07 for 2008.

The Information Technology (IT) department has completed several projects in order to provide our patrons easy access to pertinent information and to improve customer service for Authority employees.

• During 2008, the IT department and Real Estate Services upgraded and enhanced the Noise Management and Operations System. The enhanced system provides a better means to submit and file noise complaints through the www.indianapolisairport.com website. Operationally, the IAA now has improved flight tracking of all air traffic arriving and departing IND as well as more robust reporting capabilities within this system upgrade.

• The successful transition and relocation of new and legacy IT systems to the new facility consumed much of the department in 2008. IT assisted in the successful and smooth transition to 3 additional network domains, doubled the number of servers IT now supports and manages, and tripled the number of data switches to manage. In addition, IT is now supporting the IAA’s own PBX (telephone system) and assisted in the transition to and opening of the new state of the art Airport Operations and Emergency Center. All of these initiatives place the Indianapolis Airport Authority in a stronger position to adapt to future economic and technology needs as the Authority moves forward. The Indianapolis Airport Authority (IAA) is committed to engaging in environmentally responsible, sustainable operations and to minimizing any adverse environmental impacts of its business on the environment and local communities.

• The Environment, Conservation and Wildlife Department successfully completed another year of management and monitoring of the Habitat Conservation Plan. IAA manages property set aside for permanent protection for the endangered Indiana bat and other natural resources as part of measures taken to avoid, minimize, and mitigate impacts associated with current development and future aviation-related development of IND.

• IAA is near completion on a project to ensure that the federal Spill Prevention Control and Counter-Measure (SPCC) requirements are met at IND and the general aviation airports. New facilities have been constructed to ensure that any petroleum releases on IAA property are properly captured and managed to avoid any impact on water quality and natural resources.

These initiatives and developments have been instrumental in furthering our purpose of promoting the responsible and profitable growth of air travel. Our vision is to ensure the safety and security of the Authority’s airports while providing superior value for our customers.

I ndianapolis Maintenance Center Since 2003, when United Airlines’ (UAL) bankruptcy proceedings resulted in the Indianapolis Maintenance Center (IMC) reverting to the Authority, the IAA has worked diligently to lease the approximately 1.7 million square feet of space within that facility. In June 2004, the Authority entered into a lease agreement with AAR Aircraft Services, Inc. (“AAR”) to lease up to approximately 750,000 square feet of the building, including ten of the twelve hangar bays. As of 2008, AAR is occupying seven of the ten hangar bays, plus a segment of the office space at the IMC. In addition, AAR oc- cupies two other bays on an “as needed” basis for their immediate, short-term maintenance needs. AAR’s lease is for an initial term of ten years, with the option to extend for an additional ten years.

Currently, the IMC has six other leases related to the IMC as well as one concessionaire agreement. These leases are for various areas of the facility, including the remaining two hangars, office areas, the backshops, portions of the supply building, the commons area, the office area and certain portions of land at the IMC. Very little open space remains at the IMC (approximately 43,000 square feet), consisting primarily of warehouse space.

See Note 9 of the financial statements for more information on the IMC and its financial impact on the Authority. Financial Summary

Financial Results Total operating revenue in 2008 was $111,916,355, an increase of $7,195,037, or 6.9% over 2007. This increase is primarily due to the increase in terminal complex revenues ($4.7 million) and revenue from rented buildings ($1.5 million). Total operating expenses, which include $73,550,562 of depreciation expense, increased in 2008 by $32,189,555, or 31.9%, to $133,190,282. This increase in depreciation was driven by 1) accelerated depreciation related to the proper accounting treatment for the old terminal assets, and 2) depreciation on the new $1 billion terminal.

The resulting loss from operations of $21,273,927 represents a decrease in net revenue from 2007 of $24,994,518 or -672%. This net decrease was primarily due to the net effect of an increase in terminal complex revenue ($4.7 million), an increase in airfield operating expenses ($9.5 million) and an increase in terminal complex operating expenses ($20.2 million) as a result of accelerated depreciation on old terminal assets. The 2008 net non-operating gain was $8,188,697, a decrease of $16,627,443 or -67.0% from 2007. This net decrease was primarily due to the decrease in investment income ($14.9 million) and an increase in interest expense ($3.1 million).

A more detailed analysis of the financial results of the Authority is contained in the Management’s Discussion and Analysis – Statements of Revenues, Expenses, and Changes in Net Assets.

Debt Administration The outstanding long-term debt of the Authority on December 31, 2008 aggregated $1,440,444,004. Bond maturities range from 2008 through 2037 and related interest rates range from 1.75% to 5.6%. All principal and interest is paid from airport revenues. Details of all debt are shown in Note 5 to the financial statements.

On July 1, 2008, the Authority entered into four floating-to-fixed swaps with a total notional amount of $350 million. The Authority receives 75% of 30-day LIBOR under these swaps and pays fixed rates ranging from 3.778% to 4.150%. The termination date on these swaps range from 2033 to 2037. On July 1, 2008, the Authority entered into two floating-to-floating swaps with a total notional amount of $200 million. The termination dates on these swaps range from 2012 to 2033. Details of all swap transactions are shown in Note 7 of the financial statements.

The general obligation debt limit for the Authority is 2% of the assessed valuation of Marion County. The Authority has no outstanding general obligation debt.

At the end of 2008, the Authority’s commercial paper limit and corresponding letter of credit were authorized to $250 million, the proceeds of which is used as an interim financing source for various capital projects included in the Authority’s Capital Improvement Program. The Authority had no commercial paper outstanding as of December 31, 2008. Cash Management Cash temporarily idle during the year was invested in short-term investments by the Authority’s As- sistant Treasurer and the trustee. Indiana statute authorizes the Authority to invest in United States obligations and issues of federal agencies, secured repurchase agreements fully collateralized by U.S. Government agency securities, certificates of deposit, and open-ended money market mutual funds. Interest rates for the investments during 2008 varied depending on the amounts and the length of time invested. Details are shown in Note 2 to the financial statements.

Risk Management It is the policy of the Authority to measure, manage and monitor risk associated with its operations. As a business practice, certain risks are transferred by way of insurance instruments and others are self-assumed, with risk management and mitigation being key elements. Risks involving lease operations are typically managed by way of enforcement of minimum insurance requirements to be maintained by lessors, as well as inclusion of “hold harmless” and indemnification wording in favor of the Authority. Additional vendors, service providers, concessionaires, retailers and other outside parties are managed similarly. Use of contractors for construction or professional services is closely monitored to ensure that financial responsibility (insurance) is adequate and that the appropriate coverage is afforded to the Authority.

The Authority itself maintains liability insurance coverage in excess of $250 million. Additional discussion of risk management is contained in Note 10 to the financial statements and a schedule of insurance is included in the Statistical Section of this report.

Litigation and Claims IAA’s General Counsel manages much of the litigation that arises in the ordinary course of business at the airport. The Indianapolis Airport Authority was involved in general business related litigation in the ordinary course of business at the airport.

A complaint was filed by various passenger airline companies with the Federal Aviation Administra- tion (FAA) under 49 C.F.R. Part 16 alleging that the Authority had violated its grant assurances with the FAA as a result of a lease between the Authority and Federal Express at the Indianapolis Interna- tional Airport. The FAA rendered a decision in August, 2008 dismissing the complaint. The Airport Authority, however, has filed an appeal requesting that the FAA affirm its determination but remove from the opinion unnecessary analysis, conclusions and dictum from the opinion.

Further discussion of Litigation and Claims is contained in Note 13 to the financial statements. AWARDS AND ACKNOWLEDGEMENTS

Certificate of Achievement The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the Indianapolis Airport Authority for its Comprehensive Annual Financial Report (CAFR) for the fiscal year ended December 31, 2007. This was the 26th consecutive year that the Authority has achieved this prestigious award. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and ef- ficiently organized CAFR. This report must satisfy both accounting principles generally accepted in the United States of America and applicable legal requirements.

A Certificate of Achievement is valid for a period of one year only. We believe our current Compre- hensive Annual Financial Report continues to meet the Certificate of Achievement Program requirements, and we are submitting it to the GFOA to determine its eligibility for another certificate.

Acknowledgments The timely completion of this report could not be accomplished without the assistance and dedication of many individuals. We acknowledge the assistance of BKD, LLP, Certified Public Accountants and the Indianapolis Airport Authority staff for their assistance in making this financial presentation possible.

Appreciation is also expressed to the Authority Board members, to the Executive Director of the Authority and to the Airport Director for their continued support of accounting and reporting in accordance with accounting principles generally accepted in the United States of America.

Respectfully submitted,

Jeremiah Wise Marsha A. Stone Treasurer Chief Financial Officer abce2ln3pq4u vwxy4BDEFGI

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indianapolis Airport Authority

Management’s Discussion and Analysis December 31, 2008 (Unaudited)

The following discussion and analysis of the financial performance and activity of the Indianapolis Airport Authority (Authority) is to provide an introduction and overview that users need to interpret the financial statements of the Authority for the years ended December 31, 2008 and 2007. This discussion has been prepared by management and should be read in conjunction with the financial statements and the notes thereto, which follow this section.

1 Authority Powers and Purposes

In 1962, the City Council of the City of Indianapolis (City), the Mayor of the City and the County Council of Marion County (County) created the Authority pursuant to the Authority Act as a municipal corporation, separate from the City and the County. The Authority Act authorizes the Authority to own and operate public airports. The Authority is empowered to do all things necessary or reasonably incident to carrying out the purposes of the Authority Act, including the power to: (i) acquire, establish, construct, improve, equip, maintain, control, lease and regulate municipal airports, landing fields and other air navigation facilities, either inside or outside the County; (ii) manage and operate airports, landing fields and other air navigation facilities acquired or maintained by the Authority; (iii) adopt a schedule of reasonable charges and collect them from all users of facilities and services within the County; (iv) lease all or any part of an airport, landing field or any buildings or other structures, and fix, charge and collect rentals, tolls, fees and charges to be paid for the use of the whole or a part of the airports, landing fields or other air navigation facilities by aircraft landing there and for the servicing of the aircraft; (v) make rules and regulations, consistent with laws regarding air commerce, for management and control of its airports, landing fields, air navigation facilities and other property under its control; and (vi) incur indebtedness in accordance with the Authority Act.

The operations of the Authority depend heavily on revenues received from airlines serving Indianapolis International Airport. Airlines are given the option to sign an Agreement and Lease of Premises (the Airline Agreement), which sets forth rates and charges for use of Authority assets and which utilizes a residual rate-making methodology. The residual nature of the Airline Agreement essentially requires the airlines to assume certain financial risks to guarantee the Airport has sufficient revenue to cover all operating and capital borrowing costs. In return, the Authority has less autonomy over capital asset development decisions in that the airlines have the ability to delay and, in certain instances, veto certain proposed capital improvement projects at the Airport. The current Airline Agreements were entered into as of March 15, 2001, and expire December 31, 2010. Airlines that sign the Airline Agreement are subject to favorable Signatory rates, as opposed to the Authority’s Non-Signatory rates. As of December 31, 2008, eleven passenger carriers and two cargo carriers represent the Signatory Airlines.

Prior to 2007, the Authority Board had contracted with BAA Indianapolis LLC (BAA) for the management of primarily all of the Authority’s assets. This contract ended on December 31, 2007, following an amendment signed in June 2007, and the subsequent transition of employees to the Authority in July 2007. Further information regarding the BAA Management Contract and early termination of the contract is included in Note 1 to the financial statements. indianapolis Airport Authority

Airport Operations Activity and Financial Highlights

2008 2007 Variance

Enplaned passengers (1) 4,088,526 4,142,657 -1.3% Landed weight (1,000 lb. units) Passenger airlines 5,192,567 5,244,914 -1.0% Cargo airlines 5,250,166 5,325,616 -1.4%

Total landed weights 10,442,733 10,570,530 -1.2%

Aircraft operations 197,202 203,136 -2.9%

(1) - Includes domestic air carriers, international air carriers and air taxi/commuter flights

1 Airport Operations Activity • In 2008, the number of enplaned passengers was 1.3% lower than in 2007. The decrease reflects passenger trends throughout the country attributable to the slowdown in the national economy.

• Passenger airlines accounted for approximately 50% of total landed weight at the Airport in 2008, consistent with prior year; cargo airlines accounted for the other 50% during 2008 and 2007. Passenger airline landed weight decreased by 1.0% in 2008 from prior year; cargo airline landed weight decreased 1.4% from prior year.

• Aircraft operations represent landings and takeoffs for air carrier, air taxi and commuter, general aviation and military operations. This activity decreased 2.9% over the prior year.

1 Authority Financial Highlights • The Authority experienced an increase in total assets of approximately $206.4 million during 2008. This increase is primarily due to an additional $338.1 million in capital assets, offset by a $137.5 million decrease in the balances of restricted investment securities and cash and cash equivalents. These fluctuations are principally due to the construction of the New Indianapolis Airport (formerly referred to as the new Midfield Terminal), which is discussed later in the management’s discussion and analysis.

• Total liabilities increased $158.6 million in 2008. This change is primarily attributable to an additional $350.0 million in revenue bonds issued to support capital development at the Airport and to refinance $170.0 millionin outstanding commercial paper.

• The increase in net assets for 2008 was $47.8 million compared to $94.1 million for 2007. 2008 resulted in a loss from operations of $21.3 million, which is a $25.0 million decrease from the income from operations in 2007 of $3.7 million. Net non-operating revenue (expense) reflected decreased net revenue of $16.6 million, primarily due to a decrease in investment income of $14.9 million and an increase in interest expense of $2.3 million. Capital contributions, grants and charges decreased by $4.6 million, a 7.1% decrease, primarily due to decreases in federal and state grants of $9.2 million, offset by an increase in capital contributions from lessees of $4.5 million over 2007. indianapolis Airport Authority

1 New Indianapolis Airport Program

The Authority’s multi-year Capital Improvement Program which included approximately $1.1 billion in capital improvements relating to the acquisition, development, construction and implementation of a New Indianapolis Airport and related infrastructure projects (the “New Indianapolis Airport Program”), was significantly completed in late 2008. Passenger airline operations transitioned to the new Col. H. Weir Cook Terminal building effective November 12, 2008. During 2008, approximately $281.3 million was expended on capital activities for the New Indianapolis Airport Program. A significant portion of the 2008 costs related to apron and terminal construction, installation of the baggage handling system and construction of parking facilities and roadways.

The Authority incurred certain non-recurring operating expenses related to the opening of the New Indianapolis Airport. These expenses were related to supplemental parking and shuttle operations, enhanced airport security and IT services in support of opening activities, along with advertising and marketing programs and various opening events. The total expense incurred in 2008 for these non-recurring operating costs to commission the New Indianapolis Airport was approximately $2.9 million.

1 Overview of Financial Statements

The Authority only engages in business-type activities. These are activities that are intended to recover all or a significant portion of their costs through user fee charges to external parties for goods or services. The Authority reports its business-type activities in a single enterprise fund, meaning that its activities are operated and reported like a private-sector business.

The Authority’s financial report includes comparative Balance Sheets, Statements of Revenues, Expenses and Changes in Net Assets and Statements of Cash Flows. Also included are notes to the financial statements that provide more detailed data. These financial statements are prepared in accordance with accounting principles generally accepted in the United States of America as promulgated by the Govern- mental Accounting Standards Board (GASB).

The net assets of the Authority are comprised of these categories:

• Invested in capital assets, net of related debt - reflects the Authority’s investment in capital assets (e.g. land, buildings, machinery and equipment), less any related debt used to acquire those assets that is still outstanding. The Authority uses these capital assets to provide services to the public; consequently, these assets are not available for future spending.

• Restricted net assets - represent resources that are subject to external restrictions on how they may be used.

• Unrestricted net assets - represent resources that may be used to meet the Authority’s ongoing obligations to the public and creditors. indianapolis Airport Authority

Balance Sheets The Balance Sheets present the financial position of the Authority at the end of the fiscal year and include all assets and liabilities of the Authority. The net assets of the Authority represent the difference between total assets and total liabilities and are an indicator of the current fiscal health of the Authority. A sum- marized comparison of the Authority’s assets, liabilities and net assets at December 31, 2008, 2007 and 2006 follows:

2008 2007 2006 (Table Amounts in Thousands)

Current assets - unrestricted $ 77,189 $ 70,050 $ 45,976 7,139 Current assets - restricted 40,018 41,359 38,009 (1,341) Noncurrent assets - Capital assets, net 2,182,892 1,844,781 1,174,325 338,111 Other noncurrent assets 257,112 394,576 417,999 (137,464)

Total assets $ 2,557,211 $ 2,350,766 $ 1,676,309 206,445

Current liabilities $ 11,782 $ 8,784 $ 5,118 2,998 Current liabilities - payable from restricted 132,191 278,690 76,891 (146,499) Noncurrent liabilities 2,213 - - 2,213 Noncurrent liabilities - payable from restricted 1,440,444 1,140,558 823,410 299,886 Total liabilities 1,586,630 1,428,032 905,419 158,598

Net assets Invested in capital assets, net of related debt 810,960 711,132 612,581 99,828 Restricted 92,120 144,681 111,310 (52,561) Unrestricted 67,501 66,921 46,999 580 Total net assets 970,581 922,734 770,890 47,847

Total liabilities and net assets $ 2,557,211 $ 2,350,766 $ 1,676,309 206,445

- 2008 to 2007 Comparative Balance Sheets The increase in unrestricted current assets of $7.1 million primarily reflects an increase in cash and cash equivalents of $6.9 million from airport operations. All amounts linked from the back schedules NFNY: Plugged $1 rounding difference for 2007 Restricted current assets have decreased $1.3 million, which is primarily a $2.1 million decrease in restricted cash and cash equivalents, offset by a $.7 million increase in reimbursement receivables for IMC expenses.

Total noncurrent assets increased by $200.5 million. Restricted cash and cash equivalents, investment securities and bond issue costs decreased by $133.2 million, primarily due to payments made to construct the New Indianapolis Airport. Total depreciable and non-depreciable capital assets increased $343.6 million. Construction in progress relating to the New Indianapolis Airport Program, along with other construction in progress activity and land acquisitions by the Authority increased net capital assets $378.5 million. Depreciation and land dispositions decreased net capital assets $40.4 million.

Total current liabilities decreased by $143.6 million. Current liabilities payable from restricted assets decreased $146.6 million due to the long-term refinancing of $170.0 million in commercial paper. The current portion of debt and accrued interest on debt decreased $167.8 million while noncurrent liabilities payable from restricted assets for bonds and other debt increased $299.9 million. indianapolis Airport Authority

2007 to 2006 Comparative Balance Sheets The increase in unrestricted current assets of $24.8 million primarily reflects an increase in cash and cash equivalents of $15.4 million from airport operations, and an $11.4 million increase in grants receivable.

Restricted current assets have decreased $5.7 million, which is primarily a $4.5 million decrease in restricted cash and cash equivalents, and a $1.2 million decrease in various receivables.

Total noncurrent assets increased by $156.5 million. Restricted cash and cash equivalents, investment securities and bond issue costs decreased by $243.1 million primarily due to payments made to construct the New Indianapolis Airport. Total depreciable and non-depreciable capital assets increased $400.8 million. Construction in progress relating to the New Indianapolis Airport Program, along with other construction in progress activity and land acquisitions by the Authority increased net capital assets $452.9 million. Depreciation and land dispositions decreased net capital assets $54.7 million.

Total current liabilities increased by $118.6 million. Current liabilities payable from unrestricted assets increased $1.8 million due to a $1.9 million increase in accrued and withheld items. The current portion of debt and accrued interest on debt increased $137.8 million while accounts payable from restricted assets decreased $21.0 million. indianapolis Airport Authority

2008 to 2007 Comparative Statements of Revenues, Expenses and Changes in Net Assets The Statements of Revenues, Expenses and Changes in Net Assets reflect the operating activity of the Authority for the year using the accrual basis of accounting, similar to private sector companies. The change in net assets is an indicator of whether the overall fiscal condition of the Authority has improved or worsened during the year. The change in net assets for the years ended December 31, 2008 and 2007 was $47.7 million and $94.1 million, respectively. The comparative analysis below is a summary of the Statements of Revenues, Expenses and Changes in Net Assets for 2008 and 2007.

2008 2007 $ Variance % Variance (Table Amounts in Thousands)

Operating Revenues Airfield $ 23,889 $ 24,750 $ (861) -3.5% Terminal complex 36,529 31,785 4,744 14.9% Parking 29,437 28,581 856 3.0% Rented buildings and other 12,406 10,922 1,484 13.6% Indianapolis Maintenance Center (IMC) 7,253 6,478 775 12.0% Reliever airports 2,402 2,205 197 8.9% Total operating revenues 111,916 104,721 7,195 6.9%

Nonoperating Revenues State and local appropriations 26,927 26,821 106 0.4% Federal operating grants 1,111 1,138 (27) -2.4% Customer facility charges (rental cars) 5,115 5,137 (22) -0.4% Investment income 12,726 27,622 (14,896) -53.9% Total nonoperating revenues 45,879 60,718 (14,839) -24.4% Total revenues 157,795 165,439 (7,644) -4.6%

Operating Expenses (includes depreciation) Airfield 28,731 19,241 9,490 49.3% Terminal complex 33,646 13,435 20,211 150.4% Parking 8,574 7,233 1,341 18.5% Rented buildings and other 10,134 10,339 (205) -2.0% Indianapolis Maintenance Center (IMC) 26,792 25,091 1,701 6.8% Reliever airports 3,698 3,565 133 3.7% Public safety 10,051 9,436 615 6.5% Administration 11,564 12,661 (1,097) -8.7% Total operating expenses 133,190 101,001 32,189 31.9%

Nonoperating Expenses Interest expense, net of interest capitalized 36,265 33,954 2,311 6.8% Loss on disposals of capital assets and other 1,426 1,947 (521) -26.8% Net nonoperating expenses 37,691 35,901 1,790 5.0% Total expenses 170,881 136,902 33,979 24.8%

Income (Loss) Before Capital Contributions, Grants and Charges (13,086) 28,537 (41,623) -145.9%

Capital Contributions, Grants and Charges 60,931 65,573 (4,642) -7.1%

Increase in Net Assets 47,845 94,110 (46,265) -49.2%

Net Assets, Beginning of Year 922,735 828,625 94,110 11.4%

Net Assets, End of Year $ 970,580 $ 922,735 $ 47,845 5.2%

Check Figure Total net assets per BS 770,890 indianapolis Airport Authority

Operating revenue in 2008 increased $7.2 million, Parking revenues increased from prior year by $.9 or 6.9% from prior year. This represents increases million or 3.0%, resulting in $29.4 million in 2008 in activity-based revenues consisting primarily of Parking revenue. A rate increase was imple- terminal complex revenues, along with applicable mented in January 2008 for the parking garage rental rate adjustments, increased parking rev- (maximum $22.00/day from maximum $20.00/ enues, rented buildings and other and increased day) contributing to the increased revenues. operating expense reimbursements related to the IMC. This is offset by a decrease in airfield Revenues from Rented Buildings and Other revenue. increased by $1.5 million or 13.6%, primarily attributable to special facility rental revenues Airfield revenue in 2008 of $23.9 million was lower received following substantial completion of Phase than 2007 by $.9 million or 3.5%. Total landed 1 and 2 cargo apron expansion in December 2006 weights decreased 1.2% from prior year as pas- and November 2007, respectively. senger carriers decreased 1.0% and cargo carriers decreased 1.4%. The 2008 landing fee signatory Revenues from Indianapolis Maintenance Center rate of $1.95 was maintained from prior year. The (IMC) increased by $.8 million or 12.0%. This rep- 2008 Non-Signatory landing fee rate increased resents revenues due the Authority for reimburse- to $2.86, as compared to the 2007 rate of $2.78. ment of eligible expenditures under the terms of Apron rental revenue was lower than prior year as the Settlement Agreement reached between the the 2008 rental rate was $2.05 per square foot as Authority and the trustee for the special facility compared to $2.56 in 2007. revenue bonds the Authority had previously issued on behalf of United Airlines. The increase from Terminal complex revenues exceeded prior year prior year is due to increased hangar bay activa- by $4.7 million, or 14.9%. Airline terminal rental tion and reimbursements for capital costs. rates increased in 2008 as the basic average rental rate in 2008 was $74.69 per square foot com- Investment income decreased $14.9 million. This pared to an average rental rate in 2007 of $63.57 was primarily due to lower interest rates received per square foot. Automobile rental revenues on a portion of the Authority’s investment portfo- exceeded prior year by $.9 million as most of lio, as well as lower investment balances resulting the operators exceeded their Minimum Annual from the use of bond construction funds to com- Guarantee (MAG) rents. Other commissions, fees, plete construction of the New Indianapolis Airport. etc. increased $.7 million from prior year which includes new 2008 revenues for a fuel farm and Operating expense for the years ended December additional rent for car rental agency space in the 31, 2008 and 2007 totaled $133.2 million and Ground Transportation Center, Ready/Return $101.0 million, respectively. area in the parking garage and the Quick Turn Around area. indianapolis Airport Authority indianapolis Airport Authority

Airfield expenses increased $9.5 million, or 49.3%, Administration costs decreased $1.1 million, or primarily due to an increase in depreciation ex- 8.7% from prior year. The decrease is primarily pense resulting from the capitalization of ancillary attributable to the termination of the manage- assets relating to the new terminal, including the ment contract agreement between the Authority new firehouse, the new Emergency Operations and BAA Indianapolis LLC (BAA) as of December Center (EOC), Taxiway R/H, and South Perimeter 31, 2007. Road. Additionally, higher costs were incurred in 2008 for snow/ice chemicals. This was due to a Interest expense increased $2.3 million over the significant price increase for potassium acetate, as prior year, which was attributable to the issuance well as the occurrence of significant ice storms in of $350 million of additional revenue bonds in February and December 2008. 2008.

Terminal complex expenses increased $20.2 million, Capital contributions, grants and charges of $60.9 or 150.4% from the prior year. This increase is million decreased $4.6 million compared to prior attributable to an increase in operating costs due year. Federal and State grants were lower than to the opening of the new terminal in November, prior year by $9.1 million as 2007 included grants 2008. Depreciation expense represents $16.3 received relating to the construction of the new million of the increase. The remaining increase firehouse and the Airport Command and Control includes additional staffing of maintenance Center. Contributions from lessees of $26.4 mil- technicians, janitorial and guest services positions, lion were $4.5 million greater than prior year for opening event communications/marketing costs, leased property tenant improvements. utilities and the dockmaster and baggage claim maintenance contracts.

Parking expenses increased $1.3 million, or 18.5% from prior year. The increase is related to higher costs incurred for snow/ice chemicals, shuttle bus repairs, and an increase in operating costs due to the opening of the new terminal for outsourced shuttle bus services and depreciation expense.

Indianapolis Maintenance Center (IMC) expenses increased $1.7 million or 6.8%, primarily due to an increase in depreciation expense related to the capitalization of lessee-financed improvements. indianapolis Airport Authority indianapolis Airport Authority

2007 to 2006 Comparative Statements of Revenues, Expenses and Changes in Net Assets The change in net assets for the years ended December 31, 2007 and 2006 was $94.1 million and $57.7 million, respectively. The comparative analysis below is a summary of the Statements of Revenues, Expenses and Changes in Net Assets for 2007 and 2006.

2007 2006 $ Variance % Variance (Table Amounts in Thousands)

Operating Revenues Airfield $ 24,750 $ 21,075 $ 3,675 17.4% Terminal complex 31,786 30,461 1,325 4.3% Parking 28,581 27,128 1,453 5.4% Rented buildings and other 10,922 9,124 1,798 19.7% Indianapolis Maintenance Center (IMC) 6,478 4,049 2,429 60.0% Reliever airports 2,205 2,119 86 4.1% Total operating revenues 104,722 93,956 10,766 11.5%

Nonoperating Revenues State and local appropriations 26,821 21,492 5,329 24.8% Federal operating grants 1,138 1,147 (9) -0.8% Customer facility charges (rental cars) 5,137 3,527 1,610 45.6% Investment income 27,622 25,468 2,154 8.5% Total nonoperating revenues 60,718 51,634 9,084 17.6% Total revenues 165,440 145,590 19,850 13.6%

Operating Expenses (includes depreciation) Airfield 19,241 14,773 4,468 30.2% Terminal complex 13,435 14,525 (1,090) -7.5% Parking 7,233 7,077 156 2.2% Rented buildings and other 10,339 8,108 2,231 27.5% Indianapolis Maintenance Center (IMC) 25,091 24,605 486 2.0% Reliever airports 3,565 3,604 (39) -1.1% Public safety 9,436 8,984 452 5.0% Administration 12,661 12,908 (247) -1.9% Total operating expenses 101,001 94,584 6,417 6.8%

Nonoperating Expenses Interest expense, net of interest capitalized 33,954 40,390 (6,436) -15.9% Loss on disposals of capital assets and other 1,947 3,373 (1,426) -42.3% Net nonoperating expenses 35,901 43,763 (7,862) -18.0% Total expenses 136,902 138,347 (1,445) -1.0%

Income Before Capital Contributions, Grants and Charges 28,538 7,243 21,295 294.0%

Capital Contributions, Grants and Charges 65,573 50,492 15,081 29.9%

Increase in Net Assets 94,111 57,735 36,376 63.0%

Net Assets, Beginning of Year 828,625 770,890 57,735 7.5%

Net Assets, End of Year $ 922,736 $ 828,625 $ 94,111 11.4%

All amounts linked from the back schedules indianapolis Airport Authority indianapolis Airport Authority

Operating revenue in 2007 increased $10.8 million, or 11.5% from prior year. Increases in activity- based revenues consisting primarily of airfield revenues and terminal complex revenues, along with applicable rental rate adjustments, increased parking revenues, rented buildings and other, and increased operating expense reimbursements related to the IMC.

Airfield revenue in 2007 of $24.7 million was higher than 2006 by $3.7 million or 17.4%. Total landed weights were primarily flat with prior year as passenger carriers decreased 1.8% and cargo carriers increased 1.0%. The 2007 landing fee signatory rate was $1.95, as compared to the 2006 rate of $1.74. The 2007 Non-Signatory landing fee rate decreased to $2.78, as compared to the 2006 rate of $2.90. Apron rental revenue was higher than prior year as the 2007 rental rate was $2.56 per square foot as compared to $.72 in 2006.

Terminal complex revenues exceeded prior year by $1.3 million, or 4.3%. Airline terminal rental rates increased slightly in 2007 as the basic average rental rate in 2007 was $63.57 per square foot compared to an average rental rate in 2006 of $62.67 per square foot. Concession revenues within the terminal also increased by $.4 million, while car rental revenues exceeded prior year by $.5 million related to new operator contracts that went into effect in 2007 with increased Minimum Annual Guarantee rents.

Parking revenues increased from prior year by $1.5 million or 5.4%. An increase in enplaned passengers from 2007 to 2006 of 2.4% contributed to the increase. Additionally, a rate increase was implemented in January 2007 for the Tiger long-term lot ($8.00/day from $7.50/day) resulting in increased revenues, along with higher yields in various Airport parking products.

Revenues from Rented Buildings and Other increased by $1.8 million or 19.7% primarily attributable to special facility rental revenues received following substantial completion of Phase 1 and 2 cargo apron expansion in December 2006 and November 2007, respectively. Current year increases were also experienced related to favorable lease negotiations and increased percentage rental revenues.

Revenues from Indianapolis Maintenance Center (IMC) increased by $2.5 million or 60.0%. This represents revenues due the Authority as reimbursement of eligible expenditures under the terms of the Settlement Agreement reached between the Authority and the trustee for the special facility revenue bonds the Authority issued on behalf of United Airlines. Increase from prior year due to increased oc- cupancy and a reduction in rental credits issued.

State and local appropriations increased $5.3 million or 24.8% related to the 2004 refunding of the Indiana Transportation Finance Authority (ITFA) 1992/1996 and 1995 bonds issued in connection with the construction of the IMC. The principal payments on the 2004 ITFA bonds increased by $7.0 million from 2006 to 2007. Customer Facility Charges (CFC) on car rental transactions increased $1.6 million or 45.6%.

Operating expense for the years ended December 31, 2007 and 2006 totaled $101.0 million and $94.6 million, respectively. indianapolis Airport Authority indianapolis Airport Authority

Airfield expenses increased $4.5 million, or 30.2%, primarily due to an increase in depreciation expense related to capitalization of the new FAA Air Traffic Control Tower. Additionally, higher costs were incurred related to snow operations resulting from significant snowfall in early 2007.

Terminal complex expenses decreased $1.1 million, or 7.5% from prior year. This decrease is primarily attributable to a decrease in depreciation expense related to the Midfield Terminal Project Definition that was fully depreciated at the end of 2006.

Rented buildings and other expenses increased $2.2 million, or 27.5% from prior year. The increase is related to environmental remediation costs associated with the implementation of GASB Statement 49, Accounting and Financial Reporting for Pollution Remediation Obligations. Additional disclosure describ- ing the nature of these costs is included in Note 13.

Investment income increased $2.1 million due to higher rates, greater bond proceeds and commercial paper balances.

Interest expense decreased $6.4 million over the prior year attributable to an increase in capitalized interest of $16.7 million relating to the construction of the New Indianapolis Airport program, offset by an increase in interest expense related to the 2006 Revenue bonds of $9.2 million, and increased interest expense on commercial paper of $1.9 million due to higher commercial paper balances.

Loss on disposals of capital assets and other increased $1.4 million related to current year land sale transactions and the disposal of other various assets.

Capital contributions, grants and charges of $65.6 million increased $15.1 million compared to the prior year primarily due to a 2007 increase in contributions from lessees of $13.2 million for leased property tenant improvements. In addition, Federal and State grants were higher than prior year by $2.5 million related to the construction of the New Firehouse and the Airport Command and Control Center. indianapolis Airport Authority indianapolis Airport Authority

The following is a graphic illustration of operating revenues by source for the years ended December 31, 2008 and 2007:

OPERATING REVENUES - 2008

33% TERMINAL COMPLEX

22% AIRFIELD

11% RENTED BUILDINGS AND OTHER

6% INDIANAPOLIS MAINTENANCE CENTER (IMC)

2% RELIEVER AIRPORTS

26% PARKING

OPERATING REVENUES - 2007

31% TERMINAL COMPLEX

24% AIRFIELD

10% RENTED BUILDINGS AND OTHER

6% INDIANAPOLIS MAINTENANCE CENTER (IMC)

2% RELIEVER AIRPORTS

27% PARKING indianapolis Airport Authority indianapolis Airport Authority

The following is a graphic illustration of the total operating expenses by source for the years ended December 31, 2008 and 2007 (excluding depreciation):

OPERATING EXPENSES - 2008 (Excluding Depreciation)

17% INDIANAPOLIS MAINTENANCE CENTER (IMC)

18% ADMINISTRATION

2% RENTED BUILDINGS AND OTHER

17% PUBLIC SAFETY

14% AIRFIELD

10% PARKING

20% TERMINAL COMPLEX

2% RELIEVER AIRPORTS

OPERATING EXPENSES - 2007 (Excluding Depreciation)

16% PUBLIC SAFETY

21% ADMINISTRATION

2% RELIEVER AIRPORTS

19% INDIANAPOLIS MAINTENANCE CENTER (IMC)

13% AIRFIELD

9% PARKING

14% TERMINAL COMPLEX

6% RENTED BUILDINGS AND OTHER pindiana olis Airport Authority indianapolis Airport Authority

1 Capital Asset and Debt Administration

Capital Assets During 2008, the Authority expended approximately $347.1 million on capital activities. This included $13.7 million for land acquisition and sound insulation costs in conjunction with the Authority’s approved Part 150 Noise Compatibility Program. The balance of capital expenditures related to multiple construction and acquisition projects, including the Authority’s New Indianapolis Airport Program, Extend Taxiway “R” / Reconstruct Taxiway “H”, Rental Car Facilities, New Airport Command and Control Center, and continued development of cargo apron construction and various other projects.

During 2008, completed projects totaling $1.2 billion were closed from construction-in-progress to their respective capital asset accounts. These major completed projects included:

New Indianapolis Airport $1.1 billion Extend Taxiway “R”/ Reconstruct Taxiway $13.5 million New Airport Command and Control Center $11.3 million Rental Car Facilities $20.1 million

Note 4 to the financial statements provides additional information on the Authority’s capital asset activity.

Long-Term Debt Capital acquisitions are funded using a variety of financing mechanisms, including federal and state grants, passenger facility charges, public debt issues and airport operating revenues.

On June 17, 2008, the Authority issued a total of $350.0 million of revenue bonds (the Series 2008A Revenue Bonds) as part of its financing program related to the New Indianapolis Airport, as well as other capital projects. In conjunction with the 2008 bond issuance, insured ratings were provided: “Aaa” by Moody’s, “AAA” by S&P, and “AAA” by Fitch. In addition, the Authority received the following underlying ratings: “A1” by Moody’s, “A” by S&P, and “A+” by Fitch. As of December 31, 2008, all of the proceeds of the 2008 Revenue Bonds had been utilized to fund capital project expenditures.

The Authority’s Master Bond Ordinance enables it to adopt an ordinance or resolution irrevocably des- ignating certain revenues as Dedicated Revenues (which may include, without limitation, PFC revenues, state and/or federal grants, or other identified revenues) to be used to pay debt service on Authority revenue bonds. Note 5 of the financial statements explains the details of resolutions adopted in 2003, 2004, 2006 and 2008.

As of December 31, 2008, the Authority had $1.26 billion in outstanding senior lien bonds and no outstanding subordinate securities. The Authority, through its Master Bond Ordinance, has covenanted to maintain a debt service coverage ratio of not less than 1.25 for senior lien debt. Debt service coverage is calculated based on a formula included in the Master Ordinance and the Airline Agreements. Histori- cally, the Authority has maintained a coverage ratio higher than its requirement. During 2008 and 2007, respectively, the Authority’s debt service coverage was 3.70 and 3.77 for senior lien debt.

Notes 5, 6, 7 and 8 to the financial statements provide additional information regarding the Authority’s debt activities. indianapolis Airport Authority indianapolis Airport Authority

Economic Factors and Next Year’s Rates and Charges The Authority experienced a 1.3% decrease in passenger enplanements over last year, resulting in total 2008 enplanements of 4,088,526. Passenger traffic was able to sustain positive growth in Indianapolis during the first eight months of 2008. However, the dramatic slowdown in the national economy and subsequent pullback by airlines throughout their whole network led to an accelerated decline in air travel. Although Indianapolis experienced negative growth, this decline in passenger traffic was relatively better than the national average of the U.S.’ top airports. In 2008, the Airport benefited from a 24% increase in flight service from Southwest Airlines, and a less severe pullback in all services at IND by airlines during the last four months of the year when compared to similar actions at other top U.S. airports. For 2008, IND experienced a .4% decrease in seat capacity by airlines while the average seat capacity change of the top 75 U.S. airports showed a 3.9% decrease.

Indianapolis International Airport is served by most major and several national airlines operating to the majority of domestic hubs. In addition, point-to-point service is provided to major business and leisure destina- tions on the East and West coasts. The Authority remains significantly an Origination and Destination (O&D) airport, with approximately 94% of its traffic being generated by the population and economy of the region, rather than the schedule of service or hub operations by an airline. The Authority’s passenger profile has not significantly changed during 2008 with a profile balanced almost equally between leisure (52%) and business (48%) travel. Passenger airlines represent 50% of total landed weight at the airport, which approximated 5.2 billion pounds in 2008, a 1.0% decrease from 2007.

In addition to passenger activity, the Airport continues to benefit from the sustained activity of cargo operations, which are significantly dominated by FedEx. In 2008, cargo carriers represented 50% of the landed weight at the Airport, and experienced a 1.5% decrease in cargo landed weight compared to 2007, for a total of approximately 5.3 billion pounds.

Future increases in passenger and cargo traffic at the Airport will be influenced by several key factors, which include, but are not limited to, the following: • Economic and political conditions • Airline consolidation and alliances • Aviation security concerns • Availability and price of aviation fuel • Financial health of the airline industry • Capacity of national air traffic control • Airline service and routes and airport systems • Capacity of the airport • Airline competition and airfares

Fuel costs and economic conditions can have a significant effect on air travel and transportation industries. The Authority cannot predict how future air travel may be impacted by various economic or other factors or the extent of any adverse impact on net revenues (gross operating revenues less operating and maintenance expenses), passenger facility charge collections, passenger enplanements, operations or the financial condition of the Authority.

The anticipated passenger traffic in 2009 is based on those trends seen during late 2008, and takes into account load factors by carrier, average daily departures and seat capacity, average nonstop fares, average fares by market, airline communication, aircraft orders/retirements and posted 2009 schedules via APGDat. The restructuring or liquidation of one or more of the large network airlines could drastically affect airline service at many connecting hub airports, present business opportunities for the remaining airlines, and change travel patterns throughout the U.S. aviation system.

Request for Information: This financial report is designed to provide a general overview of the Authority’s finances for all those interested. Questions concerning any of the information provided in this report or requests for additional information should be addressed in writing to the Senior Director of Finance, 7800 Col. H. Weir Cook Memorial Drive, Suite 100, Indianapolis, IN 46241-4941 or via the “Contact Us” area of the Authority’s website www.indianapolisairport.com. indianapolis Airport Authority indianapolis Airport Authority

Balance Sheets Balance Sheets December 31, 2008 and 2007 December 31, 2008 and 2007

Assets Liabilities and Net Assets

2008 2007

Current Assets Unrestricted Assets Cash and cash equivalents $ 50,607,883 $ 43,744,912 Accounts receivable, net of allowance of $235,000 and $51,000, respectively 2,075,647 2,107,936 Unbilled revenues 3,210,662 3,463,696 Grants receivable 17,539,045 17,074,218 Receivable - other governments 1,020,603 1,025,664 Supplies and materials inventories 1,819,886 1,569,521 Other 915,231 1,064,073 Total unrestricted current assets 77,188,957 70,050,020

Restricted Assets Cash and cash equivalents 33,058,552 35,163,905 Cash and cash equivalents - customer deposits 378,182 361,970 Receivable - passenger facility charges 1,438,181 1,333,567 Receivable - other governments 3,768,003 3,837,542 Receivable - reimbursable IMC expenses 1,374,631 662,371 Total restricted current assets 40,017,549 41,359,355

Total current assets 117,206,506 111,409,375

Noncurrent Assets Cash and cash equivalents, restricted 230,246,068 363,451,293 Investment securities, restricted - 9,920,173 Rent receivable 2,797,272 2,945,290 Receivable - other governments - 971,668 Deferred lease costs 1,509,334 1,789,181 Bond issue and loan administration costs, net 22,559,560 15,498,050 Non-depreciable capital assets 328,008,228 1,100,732,503 Depreciable capital assets, net 1,854,883,235 744,048,733 Total noncurrent assets 2,440,003,697 2,239,356,891

Total assets $ 2,557,210,203 $ 2,350,766,266

See Notes to Financial Statements indianapolis Airport Authority indianapolis Airport Authority

Balance Sheets Balance Sheets December 31, 2008 and 2007 December 31, 2008 and 2007

Assets Liabilities and Net Assets

2008 2007

Current Liabilities Payable From Unrestricted Assets AccruedAccounts and payable withheld items (including compensated $ 4,742,490 $ 2,921,494 absences) 6,154,837 5,862,118 Deferred revenue - interest rate swap 885,000 - Total current liabilities payable from unrestricted assets 11,782,327 8,783,612

Payable From Restricted Assets Accounts payable 76,312,013 51,250,429 Customer deposits payable 378,182 361,970 Current portion of debt 29,949,992 201,989,887 Accrued interest on debt 25,550,627 25,087,924 Total current liabilities payable from restricted assets 132,190,814 278,690,210 Total current liabilities 143,973,141 287,473,822

Noncurrent Liabilities Deferred revenue - interest rate swap 2,212,500 - Bonds payable and other debt, payable from restricted assets 1,440,444,004 1,140,557,779 Total liabilities 1,586,629,645 1,428,031,601

Net Assets Invested in capital assets, net of related debt 810,959,611 711,131,725 Restricted for Capital projects 33,689,024 64,387,595 Debt service 57,111,138 80,057,548 Other 1,320,049 236,325 Total restricted net assets 92,120,211 144,681,468 Unrestricted 67,500,736 66,921,472 Total net assets 970,580,558 922,734,665

Total liabilities and net assets $ 2,557,210,203 $ 2,350,766,266

See Notes to Financial Statements indianapolis Airport Authority

Statements of Revenues, Expenses and Changes in Net Assets Years Ended December 31, 2008 and 2007

2008 2007

Operating Revenues Airfield $ 23,889,270 $ 24,749,685 Terminal complex 36,528,432 31,785,560 Parking 29,437,187 28,580,692 Rented buildings and other 12,406,054 10,922,239 Indianapolis Maintenance Center (IMC) 7,253,302 6,478,363 Reliever airports 2,402,110 2,204,779 Total operating revenues 111,916,355 104,721,318

Operating Expenses (includes depreciation of $73,550,562 and $44,089,619 in 2008 and 2007, respectively) Airfield 28,731,397 19,241,100 Terminal complex 33,646,151 13,434,667 Parking 8,573,596 7,232,770 Rented buildings and other 10,133,664 10,339,335 Indianapolis Maintenance Center (IMC) 26,792,019 25,091,033 Reliever airports 3,697,927 3,565,141 Public safety 10,051,414 9,435,519 Administration 11,564,114 12,661,162 Total operating expenses 133,190,282 101,000,727

Income (Loss) From Operations (21,273,927) 3,720,591

Nonoperating Revenues (Expenses) State and local appropriations 26,927,491 26,820,632 Federal operating grants 1,110,925 1,137,976 Customer facility charges (rental cars) 5,115,044 5,136,987 Investment income 12,726,364 27,621,747 Interest expense, net of $37,963,261 and $28,807,982 interest capitalized in 2008 and 2007, respectively (36,264,684) (33,954,139) Loss on disposals of capital assets and other (1,426,443) (1,947,063) 8,188,697 24,816,140

Increase (Decrease) in Net Assets Before Capital Contributions, Grants and Charges (13,085,230) 28,536,731

Capital Contributions, Grants and Charges Passenger facility charges 16,852,737 16,774,356 Federal, state and local grants 17,606,125 26,730,086 Contributions from lessees and other 26,447,287 21,940,009 Contributions from other governments 24,974 128,264 60,931,123 65,572,715

Increase in Net Assets 47,845,893 94,109,446

Net Assets, Beginning of Year 922,734,665 828,625,219

Net Assets, End of Year $ 970,580,558 $ 922,734,665

See Notes to Financial Statements abce2ln3pq4u vwxy4BDEFGI

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Statements of Cash Flows Statements of Cash Flows Years Ended December 31, 2008 and 2007 Years Ended December 31, 2008 and 2007

2008 2007 Cash Flows From Operating Activities Cash receipts from customers and users $ 111,055,351 $ 107,469,850 Cash payments to vendors for goods and services (31,349,141) (32,131,513) Cash payments for employees services (24,920,169) (23,550,634) Net cash provided by operating activities 54,786,041 51,787,703

Cash Flows From Noncapital Financing Activities Operating grants received 1,121,737 1,155,976 Customer facility charges received 5,115,044 5,136,987 Insurance recoveries 111,324 2,502,640 Net cash provided by noncapital financing activities 6,348,105 8,795,603

Cash Flows From Capital and Related Financing Activities Proceeds from issuance of commercial paper 597,665,000 525,335,000 Proceeds from issuance of revenue bonds 350,000,000 - Principal paid on bonds and commercial paper (803,480,000) (407,085,000) Bond issue and commercial paper costs paid (9,344,714) (566,372) Interest paid (22,860,849) (23,297,191) Advance payment on interest rate swap agreement 3,540,000 - Acquisition and construction of capital assets (363,430,609) (453,714,278) Proceeds from sale of capital assets 1,234,927 5,543,239 Passenger facility charges received 16,748,123 17,370,089 Capital grants received 17,130,486 13,163,917 Contributions from other governments 1,001,703 3,710,612 Net cash used in capital and related financing activities (211,795,933) (319,539,984)

Cash Flows From Investing Activities Purchase of investment securities (139,819,901) (171,495,362) Proceeds from sales and maturities of investment securities 152,710,000 253,652,000 Interest received on investments and cash equivalents 9,340,293 23,018,214 Net cash provided by investing activities 22,230,392 105,174,852

Net Decrease in Cash and Cash Equivalents (128,431,395) (153,781,826)

Cash and Cash Equivalents, Beginning of Year 442,722,080 596,503,906

Cash and Cash Equivalents, End of Year $ 314,290,685 $ 442,722,080

See Notes to Financial Statements indianapolis Airport Authority indianapolis Airport Authority

Statements of Cash Flows Statements of Cash Flows Years Ended December 31, 2008 and 2007 Years Ended December 31, 2008 and 2007

2008 2007 Reconciliation of Income (Loss) From Operations to Net Cash Provided by Operating Activities Income (loss) from operations $ (21,273,927) $ 3,720,591 Item not requiring cash Depreciation of capital assets 73,550,562 44,089,619 Change in assets and liabilities Accounts receivable and unbilled revenues (861,004) 2,748,532 Supplies and materials inventories (250,365) 58,837 Other assets 428,689 76,704 Accounts payable 2,257,370 (370,671) Accrued and withheld items 934,716 1,464,091

Net cash provided by operating activities $ 54,786,041 $ 51,787,703

Noncash Capital and Related Financing Activities Capital assets included in accounts payable at end of year $ 72,026,557 $ 47,547,856 Capital assets contributed by lessees and other governments 26,447,287 21,940,009 State and local appropriations used to fund capital lease obligations 26,926,976 26,817,377

See Notes to Financial Statements indianapolis Airport Authority indianapolis Airport Authority

Notes to Financial Statements Notes to Financial Statements December 31, 2008 and 2007 December 31, 2008 and 2007

1 Note 1: Nature of Organization and Summary of Significant Accounting Policies

The Indianapolis Airport Authority (Authority) is a municipal corporation established January 1, 1962, under authority granted by Indiana statute (1961 Acts, Chapter 283, I.C. 1979 19 6 2, superseded by I.C. 8 22 3). The Authority was established for the general purpose of acquiring, maintaining, operating and financing airports and landing fields in and bordering on Marion County, Indiana. In connection therewith, the Authority is authorized, among other things, to issue general obligation and revenue bonds and to levy taxes in accordance with the provisions of the statute. The Authority administers an airport system comprised of the Indianapolis International Airport, three general aviation reliever airports, one general aviation airport and one general aviation reliever heliport. The Authority has no stockholders or equity holders and all revenue and other receipts must be disbursed in accordance with such statute.

The Authority’s Board consists of eight members, six of which are appointed by the Mayor of the Consolidated City of Indianapolis-Marion County (a unified form of government commonly referred to as Unigov), one by the Marion County Board of Commissioners and one by the Hendricks County Board of Commissioners. Each member is appointed to a four-year term. Also, the Board has three non-voting, advisory board members.

Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Management Contract On October 1, 1995, the Authority entered into an Agreement for the Operation and Maintenance of the Indianapolis International Airport Facilities (BAA Management Contract) with BAA Indianapolis, LLC and BAA USA Holdings, Inc. (collectively, BAA). Pursuant to an amendment signed by the Authority and BAA on June 14, 2007, both parties mutually agreed to conclude the BAA Management Contract with termination scheduled to occur no later than December 31, 2007 and provide for an early transition (the Transition) of personnel and operations back to the Authority effective July 16, 2007. The BAA Manage- ment Contract expired December 31, 2007 and all personnel and operations transferred to the Author- ity’s responsibility effective July 16, 2007. No significant change in the operation and management of the airport facilities occurred in connection with the Transition.

BAA was paid a performance fee, monthly fixed fee and transition incentive fee under the terms of the June 14, 2007 amendment. As of December 31, 2007, there were no additional receivables or liabilities relating to the BAA Management Contract. indianapolis Airport Authority indianapolis Airport Authority

Notes to Financial Statements Notes to Financial Statements December 31, 2008 and 2007 December 31, 2008 and 2007

Financial Reporting Entity The definition of the reporting entity under Governmental Accounting Standards Board (GASB) Statement No. 14, The Financial Reporting Entity, as amended, is based primarily on the concept of financial accountability. Although the Mayor appoints a voting majority of the Authority’s governing body, neither of the other two tests of financial accountability is met. Unigov is unable to impose its will on the Authority. Also, the Authority does not impose a financial burden or provide a financial benefit to Unigov.

The following criteria were considered: I. Imposition of will criteria

A. Remove appointed members of Authority Board at will The appointed members of the Authority Board cannot be removed by the Mayor without cause, and removal must be through an impeachment procedure.

B. Modify or approve the Authority’s budget The Authority Board is responsible for reviewing, approving, and modifying its budget. The City-County Council (the governing body for Unigov) holds public budget hearings, and may review and modify the budget. Since a tax levy is not currently required to finance the budget of the Authority, the Council’s review is considered a routine administrative approval.

C. Modify or approve changes in fees and charges The Authority establishes all fees and charges and negotiates contracts with commercial enterprises.

D. Veto, overrule or modify decisions of the Authority Board Decisions of the Board are not subject to change by Unigov.

E. Appoint, hire, reassign or dismiss management of the Authority Unigov has no control over the employment of Authority personnel. indianapolis Airport Authority indianapolis Airport Authority

Notes to Financial Statements Notes to Financial Statements December 31, 2008 and 2007 December 31, 2008 and 2007

Financial Reporting Entity (con’t.) II. Financial benefit/burden criteria

A. Legally entitled to or can otherwise access the Authority’s resources The Authority’s resources cannot be accessed by Unigov. Legislation was enacted in 1992, which authorized the City-County Council to impose a payment in lieu of taxes (PILOT) from various municipal corporations, including the Authority, to recover the cost of providing governmental services to public entities that operate as private enterprises and are exempt from property taxes. However, under the Airport and Airway Improvement Act of 1982, as amended, PILOTs may not be imposed without the risk of loss of all federal funding, unless there exists adequate documentation of services actually provided. Purchases of services are considered exchange transactions, which are not manifestations of a financial benefit relationship.

B. Legally obligated to finance the deficits of, or provide financial support to, the Authority The Authority is solely responsible for financing its deficits. The Authority may levy taxes on property within Marion County. It does not currently, and has no future plans to, levy such taxes.

C. Obligated in some manner for the debt of the Authority The Authority is empowered to issue revenue bonds payable solely from revenue derived from the operation of the airport system and special facility revenue bonds payable exclusively from lease-rental payments. The Authority is also empowered to issue general obligation bonds. These bonds are not general obligations of Unigov, and neither the faith and credit nor the taxing power of Unigov is pledged to their payment.

Careful review of these criteria, therefore, has resulted in the conclusion that the Authority is a separate reporting entity and is not a component of Unigov or any other government. indianapolis Airport Authority indianapolis Airport Authority

Notes to Financial Statements Notes to Financial Statements December 31, 2008 and 2007 December 31, 2008 and 2007

Basis of Accounting and Financial Reporting The financial statements consist of a single-purpose business-type activity, which is reported on the accrual basis of accounting using the economic resources measurement focus.

The Authority prepares its financial statements in conformity with accounting principles generally accepted in the United States of America as applied to governmental units. GASB is the accepted standard- setting body for establishing governmental accounting and financial reporting principles. Under GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, the Authority follows all applicable GASB pronouncements. In addition, the Authority follows all Financial Accounting Standards Board (FASB) pronouncements and Accounting Principles Board (APB) opinions, issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements.

Cash Equivalents For purposes of the statements of cash flows, the Authority considers all highly liquid investments (including restricted assets) with a maturity of three months or less when purchased to be cash equivalents.

Investment Securities Investment securities are stated at fair value in accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools.

Unbilled Revenues The Authority accrues revenue for rentals earned but not yet billed as of year end.

Inventories Inventories of supplies and materials are valued at average cost and consist primarily of building, vehicle and airfield maintenance parts and supplies.

Lessee-Financed Improvements Certain leases include provisions whereby lessee-financed improvements become the property of the Authority. Prior to the adoption of GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, the Authority recorded lessee-financed improvements only upon leasehold reversion or lease termination, at which time the improvements were capitalized at fair value and recorded as a capital contribution. Upon implementation of GASB Statement No. 33, the Authority began recognizing lessee-financed improvements at cost or estimated cost upon completion of construction, or upon the asset being placed in service, whichever occurs first. However, lessee-financed improvements placed in service prior to the adoption of GASB Statement No. 33 continue to be recognized only upon leasehold reversion or lease termination indianapolis Airport Authority indianapolis Airport Authority

Notes to Financial Statements Notes to Financial Statements December 31, 2008 and 2007 December 31, 2008 and 2007

Capital Assets Capital assets are defined by the Authority as assets with an initial, individual cost of more than $2,500. Capital assets purchased by the Authority are stated at historical cost. Depreciation is computed using the straight-line method over the estimated useful lives of such assets. The estimated lives by general classification are as follows:

Years

Buildings, including parking garage 20 to 40 Sewers 25 to 40 Runways, taxiways and aprons 15 to 25 Roads, ramps, parking areas, runway and apron lighting, etc. 15 to 20 Heavy equipment, furniture and fixtures and fencing 10 to 20 Vehicles, office equipment and other 3 to 10

Interest incurred during construction periods is capitalized and included in the cost of property and equipment. Maintenance and repairs are expensed as incurred. Environmental mitigation costs incurred to establish wetlands are capitalized, while costs related to maintaining wetlands and habitats are generally charged to expense as incurred. Gains and losses on disposition of capital assets are included in nonoperating revenues and expenses.

Issue Costs Bond issue costs are deferred and amortized over the life of the respective bond issue using the interest method. Commercial paper issuance costs are being amortized on a straight-line basis over the original term of the respective letter of credit that secures each debt issuance.

Original Issue Discount Original issue discounts on bonds are amortized using the interest method over the lives of the bonds to which they relate.

Employee Health Benefits The Authority offers health benefit plans which provide employees with a choice of coverage under a Health Savings Account plan or a plan provided by a Preferred Provider Organization. During 2007, the Authority also offered coverage under a self-insured plan. indianapolis Airport Authority indianapolis Airport Authority

Notes to Financial Statements Notes to Financial Statements December 31, 2008 and 2007 December 31, 2008 and 2007

Compensated Absences In accordance with the vesting method provided under GASB Statement No. 16, Accounting for Com- pensated Absences, accumulated vacation and personal time is accrued based on assumptions concerning the probability that certain employees will become eligible to receive these benefits in the future.

Through the effective date of the Transition of BAA employees to the Authority on July 16, 2007, employees received compensation for vacations, holidays, illness and certain other qualifying absences. Accu- mulated unused sick leave benefits for BAA employees were nonvesting until retirement. At retirement, any accumulated sick leave in excess of 160 hours (224 hours for fire department personnel) was to be paid to the employee at a rate of one hour for every two excess hours. The maximum number of sick leave hours that could be paid to any BAA employee was 96. In conjunction with the Transition of BAA employees back to the Authority in 2007, accrued sick time was paid out to any employee who met the eligibility requirements for pay-out of sick leave in accordance with BAA’s policy, although retirement was not required in order for the pay-out to occur. The Authority did not adopt this unused sick leave benefit policy following the Transition of BAA employees to the Authority and, as such, no further accruals have been recorded relating to unused sick leave pay at December 31, 2007 or 2008. BAA employees were also paid for any accrued and unused vacation and personal time at the effective date of the Transition back to the Authority in 2007.

Federal and State Grants Outlays for airport capital improvements and certain airport operating expenses, primarily those relating to airport security, are subject to reimbursement from federal grant programs. Funds are also received for airport development from the State of Indiana. Funding provided from government grants is considered earned as the related approved capital outlays or expenses are incurred. Costs claimed for reimbursement are subject to audit and acceptance by the granting agency.

From time to time, the Authority disposes of land or other assets which were originally purchased with federal assistance. In accordance with the Airport Improvement Program (AIP), the Authority must rein- vest the federal government’s proportionate share of the proceeds realized from the sale or exchange of such assets in approved AIP projects or return such amounts to the federal government.

Revenue and Expense and Net Assets Recognition Revenues from airlines, concessionaires, lessees, and parking are reported as operating revenues. Operat- ing expenses include the cost of administering the airport system, including depreciation and amortization of capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses or capital contributions, grants and charges.

When both restricted and unrestricted net assets are available for use, it is the Authority’s policy to use restricted net assets first, and then unrestricted net assets as they are needed. indianapolis Airport Authority indianapolis Airport Authority

Notes to Financial Statements Notes to Financial Statements December 31, 2008 and 2007 December 31, 2008 and 2007

Passenger Facility Charges The Authority received approval from the Federal Aviation Administration (FAA) to impose and use a passenger facility charge (PFC) of $3.00 per eligible enplaned passenger and has imposed the PFC since September 1993. PFC’s are restricted for use in the acquisition of real estate and the construction of certain airport improvements and other costs, as approved by the FAA.

During 2001, the Authority received approval from the FAA to increase the collection level from $3.00 to $4.50 per enplaned passenger beginning April 2002. In addition, approvals received in March 2001 and August 2003 allow the Authority to impose and use $524,907,606 in PFC’s for various capital and debt related purposes. Included in the use approval is $208,872,000 for principal payments on debt, $178,668,000 for interest payments on debt and $56,330,000 for the New Indianapolis Airport and associated program construction.

PFC’s, which are recognized as earned, are included in capital contributions, grants and charges and amounted to $16,852,737 and $16,774,356 for 2008 and 2007, respectively.

Customer Facility Charges (Rental Cars) The Authority collects a customer facility charge (CFC) of $3 per rental car transaction per day, up to 14 days, on all rental car concessionaires that operate facilities on the airport. Under the adopting ordinance, CFC’s may be pledged or dedicated for the payment of airport bonds or other obligations, as defined by applicable bond documents, or other costs as agreed to by the Authority. CFC revenue totaled $5,115,044 and $5,136,987 for 2008 and 2007, respectively.

Rental Income All leases wherein the Authority is the lessor are accounted for as operating leases. Rental income is generally recognized as it becomes receivable over the respective lease terms. The Authority has some leases which provide for waived rent during the initial period of the lease term and/or rental escalations throughout the lease term. In accordance with GASB Statement No. 13, Accounting for Operating Leases With Scheduled Rent Increases, the related rental income for leases in which the rental income stream is not systematic, if significant, is reported using the straight-line method rather than using the terms of the lease agreements. Accordingly, the Authority has recorded a receivable of $2,797,272 and $2,945,290 at December 31, 2008 and 2007, respectively. The current receivable will be recognized in full in 2034.

Reclassifications Certain reclassifications have been made to the 2007 financial statements to conform to the 2008 financial statement presentation. These reclassifications had no effect on the change in net assets. indianapolis Airport Authority indianapolis Airport Authority

Notes to Financial Statements Notes to Financial Statements December 31, 2008 and 2007 December 31, 2008 and 2007

1 Note 2: Cash, Cash Equivalents and Investment Securities

Deposits Custodial credit risk is the risk that in the event of a bank failure, the Authority’s deposits may not be returned to it. The Authority’s deposit policy for custodial credit risk requires compliance with the provisions of Indiana statutes.

The financial institutions holding the Authority’s deposit accounts are participating in the Federal Deposit Insurance Corporation’s (FDIC) Transaction Account Guarantee Program. Under that program, all nonin- terest-bearing accounts are fully guaranteed by the FDIC for the entire amount in the accounts. Effective October 3, 2008, the FDIC’s insurance limits increased to $250,000 for all interest-bearing accounts. These increases in federally insured limits are currently set to expire December 31, 2009.

Any cash deposits in excess of the FDIC limits described above are insured by the Indiana Public Deposits Insurance Fund (Fund). The Indiana Public Deposits Insurance Fund is a multiple financial institution collateral pool as provided under Indiana Code, Section 5-13-12-1.

Investments Indiana statutes generally authorize the Authority to invest in United States obligations and issues of federal agencies, secured repurchase agreements fully collateralized by U. S. Government or U. S. Govern- ment agency securities, certificates of deposit, and open end money market mutual funds.

At December 31, 2008 and 2007, the Authority had the following investment securities, all of which mature within one year:

2008 2007

Repurchase agreements $ 86,246,745 $ 91,388,245 U. S. agency obligations 27,569,365 61,843,276 Money market mutual funds 63,841,285 67,321,715

$ 177,657,395 $ 220,553,236

Interest Rate Risk - As a means of limiting its exposure to fair value losses arising from rising interest rates, the Authority is limited to investing in securities with a stated maturity of not more than two years after the date of purchase or entry into a repurchase agreement, as defined by Indiana Code, Section 5-13-9-5.6. The Authority’s investment policy for interest rate risk requires compliance with the provisions of Indiana statutes. The money market mutual funds are presented as an investment with a maturity of less than one year because they are redeemable in full immediately. indianapolis Airport Authority indianapolis Airport Authority

Notes to Financial Statements Notes to Financial Statements December 31, 2008 and 2007 December 31, 2008 and 2007

Credit Risk - Credit risk is the risk that the issuer or other counterparty to an investment will not fulfill its obligations. The Authority’s investment policy for credit risk requires compliance with the provisions of Indiana statutes, and Indiana Code Section 5-13-9-2.5 requires that the Authority only invest in securities that are rated AAA by Standard and Poor’s or Aaa by Moody’s Investor’s Service. At December 31, 2008 and 2007, the Authority’s investments in money market mutual funds and U. S. agency obligations not directly guaranteed by the U. S. Government were rated AAA by Standard & Poor’s.

Custodial Credit Risk - For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the Authority will not be able to recover the value of its investment or collateral securities that are in the possession of an outside party. At December 31, 2008 and 2007, all of the Authority’s investments in repurchase agreements (which are secured by U. S. Government and U. S. Government agency obligations), as well as its investments in U. S. agency obligations, were exposed to custodial credit risk. These investments were uninsured and the collateral was held by the pledging financial institution’s trust department or agent in other than the Authority’s name. The Authority’s investment in money market mutual funds was not subject to custodial credit risk at December 31, 2008 and 2007, as their existence is not evidenced by securities that exist in physical or book entry form. The Authority’s investment policy does not address how investment securities and securities underlying repurchase agreements are to be held.

Concentration of Credit Risk - The Authority places no limit on the amount that may be invested in any one issuer. The following investments held by the Authority are not explicitly guaranteed by the U. S. Government and are subject to concentration of credit risk:

2008 2007

Federal National Mortgage Association discount notes $ - $ 40,499,000 Federal Home Loan Mortgage Corporation discount notes - 9,920,173 Federal Home Loan Bank discount notes 27,569,365 11,424,103

$ 27,569,365 $ 61,843,276

Foreign Currency Risk - This risk relates to adverse affects on the fair value of an investment from changes in exchange rates. The Authority’s investment policy prohibits investments in foreign investments. indianapolis Airport Authority indianapolis Airport Authority

Notes to Financial Statements Notes to Financial Statements December 31, 2008 and 2007 December 31, 2008 and 2007

Summary of Carrying Values Cash, cash equivalents, and investment securities included in the balance sheets are classified as follows:

2008 2007

Cash and cash equivalents Current - unrestricted $ 50,607,883 $ 43,744,912 Current - restricted 33,436,734 35,525,875 Noncurrent - restricted 230,246,068 363,451,293 314,290,685 442,722,080 Investment securities - restricted - 9,920,173 2008 2007 $ 314,290,685 $ 452,642,253 Cash and cash equivalents Current - unrestricted $ 50,607,883 $ 43,744,912 Current - restricted 33,436,734 35,525,875 Noncurrent - restricted 230,246,0682008 363,451,2932007 314,290,685 442,722,080 InterestInvestment and securitiesdividend income- restricted $ 12,726,364 - $ 27,621,747 9,920,173 Investment Income Investment income for the years ended December 31, 2008 and 2007 consisted $ 314,290,685 of: $ 452,642,253

2008 2007

Interest and dividend income $ 12,726,364 $ 27,621,747 indianapolis Airport Authority indianapolis Airport Authority

Notes to Financial Statements Notes to Financial Statements December 31, 2008 and 2007 December 31, 2008 and 2007

Cash, cash equivalents and investment securities are restricted as follows:

2008 2007

Revenue Bond Interest and Principal Fund $ 33,058,552 $ 35,163,905 Revenue Bond Reserve Fund 106,861,375 85,521,395 Operation and Maintenance Reserve Fund 11,964,857 11,676,001 Renewal and Replacement Fund 2,540,939 2,479,596 Capital Improvement Fund 7,212,582 31,298,655 Passenger Facility Charge Fund 25,038,261 31,755,373 Debt Service Coverage Fund 13,648,599 7,464,618 Construction Fund - 2004A Revenue Bonds 44,491,545 67,370,610 Capitalized Interest Account 2005A Revenue Bonds 6,159,633 15,898,685 Construction Fund - 2005A Revenue Bonds 114,370 838,012 Capitalized Interest Account - 2006 Revenue Bonds 11,518,318 28,625,125 Construction Fund - 2006 Revenue Bonds 21,959 33,447,533 Capitalized Interest Account - 2008 Revenue Bonds 2,864 - Construction Fund - 2008 Revenue Bonds 430,047 - Construction Fund - Commercial Paper Issuance - 56,759,538 Customer deposits 378,182 361,970 Air Service Task Force and other 240,719 236,325

$ 263,682,802 $ 408,897,341

The above funds and accounts have been established in accordance with the Authority’s General Or- dinance No. 6-1985, the Master Bond Ordinance, as amended and restated by a Revised Master Bond Ordinance No. 4-2002, and further amended by various supplemental ordinances (collectively, the Ordi- nance). The Ordinance provides, among other things, that certain accounting procedures be followed and certain funds be established to provide bond holders a degree of security against certain contingencies. Brief descriptions of these funds follow.

Deposits into the Airport System Fund are disbursed in accordance with the Authority’s annual budget to provide for current operation and maintenance expenses. Such deposits are also used to replenish balances in other funds to their required levels under the Ordinance. Amounts in the Airport System Fund are pledged to secure the Authority Revenue Bonds, but all current operation and maintenance expenses of the Airport System are paid prior to debt service on the Authority Revenue Bonds. indianapolis Airport Authority indianapolis Airport Authority

Notes to Financial Statements Notes to Financial Statements December 31, 2008 and 2007 December 31, 2008 and 2007

Assets included in the Revenue Bond Interest and Principal Funds, Revenue Bond Reserve Funds and Capitalized Interest Accounts are used for the payment of bond principal, interest and redemption premiums, as well as any amounts due under Qualified Derivative Agreements (as defined under the Or- dinance) entered into with regard to any of the Authority’s Revenue Bonds. The Subordinate Securities Interest and Principal Fund and Subordinate Securities Reserve Fund are used to pay principal, interest and redemption premiums on any securities secured in whole or in part by liens on the Net Revenues of the Authority that are junior and subordinate to the lien on Net Revenues securing payment of the Revenue Bonds and to pay amounts due under certain derivative agreements. The Operation and Main- tenance Reserve Fund must be maintained at a balance at least equal to one sixth of the Authority’s current operating budget as a reserve for payment of operation and maintenance expenses. Assets of the Renewal and Replacement Fund are used to pay extraordinary costs of replacing depreciable property and equipment and/or making extraordinary repairs, replacements, or renovations to the airport system. The Capital Improvement Fund can be used for any lawful airport system purpose, including payment for capital improvements and land acquisition. The Construction Funds are used to pay the project costs for each respective debt issuance. Finally, amounts in the Debt Service Coverage Fund are used for the purposes of establishing future coverage on outstanding Revenue Bonds.

Funds not used for these purposes are transferred into a Prepaid Airline Revenue Fund and used as a credit against the rentals and fees to be paid by Signatory Airlines (as defined later in these notes) in subsequent years. Balances included in the Airport System Fund and Prepaid Airline Revenue Fund are classified in current unrestricted assets in the accompanying balance sheets.

The Authority’s Passenger Facility Charge Fund provides for the segregation of PFC receipts, as required by the FAA. Such revenues are to be expended only for allowable capital projects, or to repay debt issued for allowable capital projects, under a Record of Decision granted by the FAA.

1 Note 3: Grants Receivable

Grants receivable from government agencies represent reimbursements due from the federal government and/or the State of Indiana for allowable costs incurred on federal and state award programs. Grants receivable at December 31, 2008 and 2007 consist of:

2008 2007

State of Indiana $ 36,721 $ 6,700 Federal Aviation Administration 16,422,894 16,017,774 U. S. Department of Homeland Security 1,079,430 1,049,744

$ 17,539,045 $ 17,074,218

The maximum amount of federal and state participation available for eligible continuing projects during 2008 totaled $63,315,989. At December 31, 2008, a cumulative total of $37,139,568 has been earned against these grant commitments. indianapolis Airport Authority

Notes to Financial Statements December 31, 2008 and 2007

1 Note 4: Capital Assets

A summary of changes in capital assets for the years ended December 31, 2008 and 2007 is as follows:

2008 Beginning Ending Balance, Transfers Transfers Balance, January 1, and and December 31, 2008 Additions Disposals 2008

Capital assets, not being depreciated: Land $ 271,427,016 $ 13,749,969 $ (3,952,053) $ 281,224,932 Construction in progress 829,305,487 374,666,006 (1,172,275,777) 31,695,716 Idle capital assets - 15,087,580 - 15,087,580 Total capital assets, not being depreciated 1,100,732,503 403,503,555 (1,176,227,830) 328,008,228

Capital assets, being depreciated: Buildings 811,394,899 745,076,806 (15,863,477) 1,540,608,228 Runways and other airport infrastructure 490,907,097 359,008,467 (23,176,057) 826,739,507 Equipment, furniture and fixtures and other 121,695,647 95,387,371 (13,130,238) 203,952,780 Total capital assets, being depreciated 1,423,997,643 1,199,472,644 (52,169,772) 2,571,300,515

Less accumulated depreciation for: Buildings (295,231,213) (42,187,689) 12,060,992 (325,357,910) Runways and other airport infrastructure (291,708,687) (19,491,085) 13,191,167 (298,008,605) Equipment, furniture and fixtures and other (93,009,010) (11,871,788) 11,830,033 (93,050,765) Total accumulated depreciation (679,948,910) (73,550,562) 37,082,192 (716,417,280) Total capital assets, being depreciated, net 744,048,733 1,125,922,082 (15,087,580) 1,854,883,235

Capital assets, net $ 1,844,781,236 $ 1,529,425,637 $ (1,191,315,410) $ 2,182,891,463 indianapolis Airport Authority

Notes to Financial Statements December 31, 2008 and 2007

2007 Beginning Ending Balance, Transfers Transfers Balance, January 1, and and December 31, 2007 Additions Disposals 2007

Capital assets, not being depreciated: Land $ 267,463,434 $ 14,619,483 $ (10,655,901) $ 271,427,016 Construction in progress 535,465,776 483,488,018 (189,648,307) 829,305,487 Total capital assets, not being depreciated 802,929,210 498,107,501 (200,304,208) 1,100,732,503

Capital assets, being depreciated: Buildings 744,682,521 66,762,378 (50,000) 811,394,899 Runways and other airport infrastructure 421,939,213 68,967,884 - 490,907,097 Equipment, furniture and fixtures and other 112,258,950 11,368,090 (1,931,393) 121,695,647 Total capital assets, being depreciated 1,278,880,684 147,098,352 (1,981,393) 1,423,997,643

Less accumulated depreciation for: Buildings (270,923,018) (24,321,862) 13,667 (295,231,213) Runways and other airport infrastructure (277,646,126) (14,062,561) - (291,708,687) Equipment, furniture and fixtures and other (89,228,163) (5,705,196) 1,924,349 (93,009,010) Total accumulated depreciation (637,797,307) (44,089,619) 1,938,016 (679,948,910) Total capital assets, being depreciated, net 641,083,377 103,008,733 (43,377) 744,048,733

Capital assets, net $ 1,444,012,587 $ 601,116,234 $ (200,347,585) $ 1,844,781,236

The new terminal at the Indianapolis International Airport was placed in service in November 2008. Accordingly, the Authority reevaluated the service utility of the assets associated with the terminal that is no longer in service. This resulted in the Authority accelerating the depreciation on certain assets and ceasing depreciation on other assets that are currently idle. The Authority recorded approximately $14.7 million of additional depreciation as a result of this reevaluation. As presented in the table above, the net book value of the Authority’s idle capital assets was approximately $15.1 million at December 31, 2008. indianapolis Airport Authority

Notes to Financial Statements December 31, 2008 and 2007

1 Note 5: Bonds Payable and Other Debt Bonds and other debt outstanding at December 31, 2008 and 2007 consist of:

2008 2007

Revenue Bonds, Series 2008 Term bonds, maturing January 1, 2033, 2036 and 2037. Interest is variable (ranging from 1.75% to 5.00% at December 31, 2008), due semiannually on January 1 and July 1 $ 350,000,000 $ -

Revenue Bonds, Series 2006 Serial bonds, maturing January 1, 2009 to January 1, 2037 in payments from $4,460,000 to $48,785,000. Interest at 4.00% to 5.59%, due semiannually on January 1 and July 1 264,010,000 268,255,000 Term bonds, maturing January 1, 2027 and 2036. Interest at 4.75% and 5.00%, respectively, due semiannually on January 1 and July 1 121,530,000 121,530,000 385,540,000 389,785,000 Unamortized premium 6,774,141 7,159,583 392,314,141 396,944,583

Revenue Bonds, Series 2005A Serial bonds, maturing January 1, 2023 to January 1, 2030 in payments from $7,735,000 to $19,080,000. Interest at 5.125% to 5.25%, due semiannually on January 1 and July 1 133,970,000 133,970,000 Term bonds, maturing January 1, 2033. Interest at 4.75%, due semiannually on January 1 and July 1 63,415,000 63,415,000 197,385,000 197,385,000 Unamortized premium 3,025,131 3,180,568 200,410,131 200,565,568

Revenue Bonds, Series 2004A Serial bonds, maturing January 1, 2009 to January 1, 2024 in payments from $3,375,000 to $11,075,000. Interest at 5.00% to 5.25%, due semiannually on January 1 and July 1 87,130,000 90,345,000 Term bonds, maturing January 1, 2026 to January 1, 2034. Interest at 4.75% to 5.00%, due semiannually on January 1 and July 1 125,330,000 125,330,000 212,460,000 215,675,000 Unamortized premium 3,413,699 3,647,107 215,873,699 219,322,107 indianapolis Airport Authority

Notes to Financial Statements December 31, 2008 and 2007

2008 2007 (Continued) Revenue Bonds, Series 2003A Serial bonds, maturing January 1, 2009 to January 1, 2023 in payments from $2,995,000 to $6,135,000. Interest at 4.625% to 5.625%, due semiannually on January 1 and July 1 $ 66,320,000 $ 69,175,000 Term bonds, maturing January 1, 2027 and January 1, 2033. Interest at 5.00%, due semiannually on January 1 and July 1 36,660,000 36,660,000 102,980,000 105,835,000 Deferred loss on refunding (1,368,934) (1,483,032) Unamortized premium 2,229,376 2,415,191 103,840,442 106,767,159

Refunding Revenue Bonds, Series 1996A Serial bonds, paid in full during 2008 - 7,475,000 Term bonds, paid in full during 2008 - 18,025,000 - 25,500,000 Deferred loss on refunding - (2,374,752) Unamortized discount - (167,468) - 22,957,780 Total revenue bonds 1,262,438,413 946,557,197

Other Debt Obligations under capital lease 207,955,583 225,990,469 Commercial paper - 170,000,000 207,955,583 395,990,469 Total bonds payable and other debt 1,470,393,996 1,342,547,666 Current portion (29,949,992) (201,989,887)

Long-term portion $1,440,444,004 $1,140,557,779 pindiana olis Airport Authority indianapolis Airport Authority

Notes to Financial Statements Notes to Financial Statements December 31, 2008 and 2007 December 31, 2008 and 2007

Revenue Bonds In June 2008, the Authority issued $350,000,000 of tax-exempt variable rate demand revenue bonds (the 2008 Revenue Bonds). The 2008 Revenue Bonds represent the Authority’s fifth long-term financing package used to fund the costs of the 2001-2010 Capital Improvement Program, including the construction of the New India- napolis Airport. The 2008 Revenue Bonds bear interest at daily and weekly rates and are subject to mandatory redemption upon conversion of the interest rate to a different rate type or rate period.

The 2008 Revenue Bonds are secured by a Standby Bond Purchase Agreement with available principal and interest commitments totaling $353,912,329, which includes accrued interest. The Standby Bond Purchase Agreement expires June 25, 2011. In the event any of the 2008 Revenue Bonds are tendered for purchase and the Authority is required to draw on the Standby Bond Purchase Agreement, the Authority would be required to pay interest on the unpaid principal of the amount drawn for the first 60 days following the draw at a rate equal to the greater of twelve percent or the Prime Rate or the Federal Funds Rate plus .50%. If the bonds are not remarketed within 60 days of a draw on the Standby Bond Purchase Agreement, the Authority would be required to pay interest on the unpaid principal of the amount drawn for the subsequent 120 days at a rate equal to the greater of the Prime Rate plus 1% or the Federal Funds Rate plus 1.50%. If the bonds are not remarketed within 180 days of a draw on the Standby Bond Purchase Agreement, the Authority would be required to pay interest on the unpaid principal of the amount drawn at a rate equal to the greater of the Prime Rate plus 2% or the Federal Funds Rate plus 2.50%. As of December 31, 2008, there were no amounts drawn on the Standby Bond Purchase Agreement.

The Authority’s Series 2003A, 2004A, 2005A, and 2006 Revenue Bonds are subject to optional redemption by the Authority at various dates in the future. The 2008 Revenue Bonds are currently subject to optional redemption by the Authority upon notification to the bondholders.

The Series 2003A Revenue Bonds, maturing on January 1, 2027 (the 2027 Term Bonds) and January 1, 2033 (the 2033 Term Bonds) are subject to redemption from mandatory sinking fund payments during 2024 to 2027 and 2028 to 2033, respectively.

The Series 2004A Revenue Bonds, maturing January 1, 2026 (the 2026 Term Bonds), January 1, 2028 (the 2028 Term Bonds), January 1, 2031 (the 2031 Term Bonds), and January 2034 (the 2034 Term Bonds) are subject to redemption from mandatory sinking fund payments during 2025 to 2026, 2027 to 2028, 2029 to 2031, and 2032 to 2034, respectively. inp diana olis Airport Authority indianapolis Airport Authority

Notes to Financial Statements Notes to Financial Statements December 31, 2008 and 2007 December 31, 2008 and 2007

The Series 2005A Revenue Bonds, maturing January 1, 2033 (the 2033 Term Bonds), are subject to redemption from mandatory sinking fund payments during 2031 to 2033.

The Series 2006 Revenue Bonds, maturing January 1, 2027 (the 2027 Term Bonds) and January 1, 2036 (the 2036 Term Bonds) are subject to redemption from mandatory sinking fund payments during 2024 to 2027 and 2034 to 2036, respectively.

The Series 2008 Revenue Bonds, maturing January 1, 2033, 2036 and 2037 are subject to redemption from mandatory sinking fund payments during 2012 to 2037.

The Authority’s Revenue Bonds are secured under the Master Bond Ordinance (as referenced in a previous footnote) by a pledge of net revenues of the Airport System and on parity with each other, except with respect to their Revenue Bond Reserve Funds.

Pursuant to its Master Bond Ordinance, the Authority adopted a resolution in 2003 irrevocably dedicating $1.1 million per year, from 2003 through 2010, of passenger facility charges (the Dedicated Revenues) to be used exclusively to pay debt service on the Authority’s Revenue Bonds. The Authority adopted a similar resolution in 2004 irrevocably dedicating approximately $1,150,000 in 2004 and $12,160,000 per year, from 2005 through 2010, in additional passenger facility charges. In 2006, another resolution was adopted, which dedicates substantially all customer facility charges to be received in the years 2006 through 2010, for the purpose of paying debt service on the Authority’s Revenue Bonds.

In accordance with the Rate Covenant contained in the Master Bond Ordinance, rates and fees charged by the Authority for the use of its facilities must be sufficient to provide annual net revenues when combined with moneys in the coverage fund to equal the larger of: (a) all amounts required to be deposited to the credit of the Revenue Bond Interest and Principal Fund and the Revenue Bond Reserve Fund; or (b) an amount not less than 125% of the Debt Service Requirement for all Revenue Bonds. For the purpose of complying with the Rate Covenant, the Authority includes within net revenues in any fiscal year amounts transferred from the Prepaid Airline Fund and amounts on deposit in the Debt Service Coverage Fund pursuant to the Master Bond Ordi- nance and excludes from interest due on Authority Revenue Bonds any interest paid from bond proceeds. The Authority can also exclude debt service to be paid from dedicated revenues from its Rate Covenant calculation. indianapolis Airport Authority indianapolis Airport Authority

Notes to Financial Statements Notes to Financial Statements December 31, 2008 and 2007 December 31, 2008 and 2007

Commercial Paper From time to time, the Authority issues commercial paper, the proceeds of which are used to finance various capital projects included in the Authority’s Capital Improvement Program. The commercial paper is a short- term promissory note that is sold in traunches with maturities ranging from 1 to 180 days. At maturity, interest is paid to the investor and the commercial paper is resold. During 2007, the Authority increased its commercial paper capacity to $245,000,000. To mitigate the risk of an unsuccessful remarketing, the commercial paper is backed by a commitment for a letter of credit in the amount of $257,283,563. The commercial paper is payable from and secured by a lien on net revenues of the airport system. This lien is junior and subordinate to the lien of the Revenue Bonds, and therefore, the commercial paper is considered to be a Subordinate Security as defined in the Master Bond Ordinance. The Authority had no commercial paper outstanding at December 31, 2008, as the previous borrowings were repaid using the proceeds from the 2008 Revenue Bonds. At Decem- ber 31, 2007, the Authority had $170,000,000 in commercial paper outstanding with interest rates which ranged from 3.56% to 3.68%.

Debt Service Requirements Debt service requirements to maturity for all debt of the Authority, excluding any unamortized discount or premium and its capital lease agreements, are as follows at December 31, 2008:

Years Ending Revenue Bonds December 31 Principal Interest Total

2009 $ 10,830,000 $ 56,665,825 $ 67,495,825 2010 11,390,000 56,080,348 67,470,348 2011 21,340,000 55,205,425 76,545,425 2012 24,540,000 54,001,406 78,541,406 2013 24,900,000 52,734,427 77,634,427 2014 - 2018 146,960,000 243,044,261 390,004,261 2019 - 2023 189,900,000 202,527,991 392,427,991 2024 - 2028 262,005,000 151,464,904 413,469,904 2029 - 2033 331,505,000 88,480,082 419,985,082 2034 - 2038 224,995,000 19,980,797 244,975,797

$ 1,248,365,000 $ 980,185,466 $ 2,228,550,466 indianapolis Airport Authority indianapolis Airport Authority

Notes to Financial Statements Notes to Financial Statements December 31, 2008 and 2007 December 31, 2008 and 2007

The following is a summary of long-term obligation transactions (excluding capital leases) for the Authority for the years ended December 31, 2008 and 2007:

2008 Beginning Ending Current Balance Additions Deductions Balance Portion Long-term obligations Revenue bonds payable $ 934,180,000 $ 350,000,000 $ (35,815,000) $ 1,248,365,000 $ 10,830,000 Bond discounts/premium 16,234,981 - (792,634) 15,442,347 - Loss on refunding (3,857,784) 2,488,850 - (1,368,934) - Total revenue bonds payable 946,557,197 352,488,850 (36,607,634) 1,262,438,413 10,830,000 Commercial paper 170,000,000 597,665,000 (767,665,000) - - Obligations under capital lease 225,990,469 - (18,034,886) 207,955,583 19,119,992

Total long-term obligations $ 1,342,547,666 $ 950,153,850 $ (822,307,520) $ 1,470,393,996 $ 29,949,992

2007 Beginning Ending Current Balance Additions Deductions Balance Portion Long-term obligations Revenue bonds payable $ 965,930,000 $ - $ (31,750,000) $ 934,180,000 $ 13,955,000 Bond discounts/premium 17,116,715 - (881,734) 16,234,981 - Loss on refunding (5,241,832) 1,384,048 - (3,857,784) - Total revenue bonds payable 977,804,883 1,384,048 (32,631,734) 946,557,197 13,955,000 Commercial paper 20,000,000 525,335,000 (375,335,000) 170,000,000 170,000,000 Obligations under capital lease 243,085,450 - (17,094,981) 225,990,469 18,034,887

Total long-term obligations $ 1,240,890,333 $ 526,719,048 $ (425,061,715) $ 1,342,547,666 $ 201,989,887

1 Note 6: Special Facility Revenue Bonds

To provide for the construction of the FedEx Corporation Sort Facility, Indianapolis Maintenance Center (IMC) (formerly leased to United Air Lines, Inc.) and the FedEx Corporation Hangar Facility at the airport, the Author- ity issued three series of Special Facility Revenue Bonds (conduit debt obligations). These bonds are special limited obligations of the Authority, payable solely from and secured by a pledge of lease rentals to be received by the Authority. The bonds do not constitute a debt or pledge of the faith and credit of the Authority, the County, the City or the State and are therefore not reported in the accompanying financial statements.

At December 31, 2008, the Special Facility Revenue Bonds outstanding were as follows:

Special Facility Revenue Bonds, Series 2004 (FedEx Corporation Sort Facility) $ 237,755,000 Special Facility Revenue Bonds, Series 1998 (FedEx Corporation Hangar Facility) 23,425,000 Special Facility Revenue Bonds, Series 1995 (Indianapolis Maintenance Center) 172,112,018

$ 433,292,018 indianapolis Airport Authority indianapolis Airport Authority

Notes to Financial Statements Notes to Financial Statements December 31, 2008 and 2007 December 31, 2008 and 2007

1 Note 7: Interest Rate Swap Agreements

Objective of the Interest Rate Swaps The Authority has entered into four interest rate swap agreements and two basis rate swap agreements (collectively, the Swap Agreements) since 2004 to provide a hedge against future interest rate risk. The primary intention of the Swap Agreements is to effectively convert the Authority’s variable interest rates on its 2008 Revenue Bonds to synthetic fixed rates. The Swap Agreements were forward swaps and became effective on July 1, 2008.

Terms The general terms of each agreement are set forth in the table below:

Fair Value at Effective Date of Termination Rate Authority Variable Rate December 31, Notional Amount Trade Date Swap Agreement Date Pays Authority Receives 2008

Interest Rate Swaps $ 125,000,000 October 14, 2004 July 1, 2008 January 1, 2036 4.033% 75% LIBOR $ (33,595,525) K.301 JPMorgan 75,000,000 October 14, 2004 July 1, 2008 January 1, 2037 4.150% 75% LIBOR (21,954,877) K.301 JPMorgan 50,000,000 October 7, 2005 July 1, 2008 January 1, 2033 3.786% 75% LIBOR (9,116,012) K.302 SBS 100,000,000 October 11, 2005 July 1, 2008 January 1, 2033 3.778% 75% LIBOR (26,336,052) K.303 UBS

$ 350,000,000 (91,002,466)

Basis Swaps 100,000,000 April 23, 2007 July 1, 2008 January 1, 2033 75% LIBOR 75% ISDA Swap Rate (1,000,762) K.303 UBS (A) 100,000,000 February 14, 2008 July 1, 2008 July 2, 2012 75% ISDA 75% LIBOR Swap Rate (1,878,698) K.303 UBS

$ (93,881,926)

(A) This agreement resulted in an up front payment of $3,540,000 to the Authority, which is being amortized into income over the period July 1, 2008 through July 2, 2012.

Payments due under these interest rate swap agreements, excluding any termination payments, and payments on any repayment obligation will be payable from net revenues of the airport system on a parity with the Rev- enue Bonds. Under the interest rate swap agreements, the Authority pays or receives the net interest amount monthly, with the monthly settlements included in interest expense. With the exception of the one basis rate agreement noted above, the Swap Agreements resulted in no initial cash receipts or payments to be made by the Authority. indianapolis Airport Authority indianapolis Airport Authority

Notes to Financial Statements Notes to Financial Statements December 31, 2008 and 2007 December 31, 2008 and 2007

Fair Value The fair values of the Swap Agreements are based on estimated discounted future cash flows determined using the counterparty’s proprietary models based upon financial principles and estimates about relevant future market conditions. The fair values of the Swap Agreements are not recognized in the Authority’s financial statements.

Credit Risk The fair value of each of the Swap Agreements represents the Authority’s credit exposure to the counterparties as of December 31, 2008. Should the counterparties to these transactions fail to perform according to the terms of the Swap Agreements, the Authority has a maximum possible loss equivalent to the fair value at that date. As of December 31, 2008, the Authority was not exposed to credit risk because each of the swaps had a negative fair value. In order to mitigate the potential for credit risk, if any of the counterparties’ credit quality rating falls below a rating threshold of Aa3 by Moody’s Investors Service or Aa3 by Standard & Poors, the fair value of that counterparty’s swap or swaps is to be fully collateralized by the counterparty with eligible securities (as defined in the Schedule to the Master Agreement) to be held by a third-party custodian on behalf of the Authority. The ratings of the various counterparties at December 31, 2008 are as follows:

Ratings of the Counterparty Moody's Investors Standard & Service Poor's

JPMorgan Chase Bank, N.A., Counterparty of the interest rate swaps with notional amounts of $125,000,000 and $75,000,000 Aaa AA- SBS Financial Products, LLC, Counterparty of the interest rate swap with the notional amount of $50,000,000 A2 A UBS AG, Counterparty of the interest rate swap with the notional amount of $100,000,000 and both basis swap agreements Aa2 A+

Basis Risk The swaps expose the Authority to basis risk should the relationship between LIBOR and the prime rates set by the Authority’s lenders change in a manner adverse to the Authority. If an adverse change occurs in the relationship between these rates, the expected cost savings may not be realized. indianapolis Airport Authority indianapolis Airport Authority

Notes to Financial Statements Notes to Financial Statements December 31, 2008 and 2007 December 31, 2008 and 2007

Termination Risk The Authority or the counterparties may terminate the Swap Agreements if the other party fails to perform under the terms of the contract. In addition, the Authority has the unilateral option to terminate the Swap Agreements. If the Swap Agreements have a negative fair value at the time of termination, the Authority would be liable to the counterparty for a payment equal to the fair value of the respective swap.

Swap Payments and Associated Debt The variable rate bond interest payments and net swap payments will vary with changes in interest rates. Using rates as of December 31, 2008, debt service requirements of the variable rate debt and net swap payments, assuming current interest rates remain the same, for their term are set forth in the table below.

Variable Rate Bonds Interest Rate Principal Interest Swaps, Net Total

2009 $ - $ 11,675,000 $ 12,678,969 $ 24,353,969 2010 - 11,675,000 12,678,969 24,353,969 2011 - 11,675,000 12,678,969 24,353,969 2012 4,030,000 11,599,304 12,603,458 24,202,762 2013 4,235,000 11,443,998 12,448,594 23,892,592 2014 - 2018 24,650,000 54,598,427 59,628,246 114,226,673 2019 - 2023 31,610,000 49,339,644 54,383,617 103,723,261 2024 - 2028 105,540,000 38,214,368 42,286,422 80,500,790 2029 - 2033 136,940,000 19,065,662 20,787,399 39,853,061 2034 - 2037 42,995,000 2,618,039 5,008,454 7,626,493

$ 350,000,000 $ 221,904,442 $ 245,183,097 $ 467,087,539 indianapolis Airport Authority indianapolis Airport Authority

Notes to Financial Statements Notes to Financial Statements December 31, 2008 and 2007 December 31, 2008 and 2007

1 Note 8: Obligations Under Capital Leases

In November 1991, the Authority entered into an agreement (the MOC-II Agreement) with the State of Indiana, the City of Indianapolis, and United Air Lines, Inc. (United) to provide a 300-acre site for United’s India- napolis Maintenance Center (IMC).

The State, the City and Hendricks County, Indiana provided the initial funding for the IMC. The State provided $184,500,000 from the proceeds of tax-exempt lease revenue bonds and a $15,200,000 grant. The City provided approximately $111,000,000 from the proceeds of tax-exempt current interest and capital appreciation bonds. Hendricks County provided $8,000,000, in the form of a grant, from the proceeds of an economic development income tax revenue bond issue. Concurrently with the execution of the MOC-II Agreement in 1991, the Authority entered into a tenancy in common agreement and various lease agreements, which created certain leasehold interests in the IMC site and facilities and provided the framework for financing the costs of its construction. Accordingly, the Authori- ty’s leases with the State and the City for the IMC and its lease with the State for a building and related equipment ancillary to IMC, the Aviation Technology Center (ATC), have been reflected as capital lease obligations in these financial statements. The leases expire at various dates between 2016 and 2018. The gross amounts of capital assets and related accumulated depreciation recorded under these capital leases at December 31, 2008 and 2007 follow:

2008 2007 2008 2007 Accumulated Amortization Accumulated Amortization Capital assets Capital assets $ 352,111,077 $ 352,111,077 $ 352,111,077 $ 352,111,07720 08 2007 2008 2006 2007 2006 Accumulated depreciation Accumulated depreciation (125,974,086) (120,656,580) (125,974,086) (120,656,580)$ 125,974,086 $ 1$20,656,518205,9$74,086 1$12,738,211280,656,580 $ 112,738,218 $ 5,317,506 $ $ 7,918,3625,317,506 $ 7,918,362 $ 226,136,991 $ 231,454,497 $ 226,136,991 $ 231,454,4974 % 7% 4% 7% Appears reasonable Appears reasonable

The present value of future minimum capital lease payments at December 31, 2008 follows:

2009 2009 $ 28,133,410 $ 28,133,410 2010 2010 27,855,798 27,855,798 2011 2011 27,991,961 27,991,961 2012 2012 28,118,454 28,118,454 2013 2013 28,169,993 28,169,993 2014 - 2018 2014 - 2018 117,571,691 117,571,691 Total minimum lease payments Total minimum lease payments 257,841,307 257,841,307 Amounts representing interest Amounts representing interest (49,885,724) (49,885,724) Present value of future minimum Present value of future minimum capital leasePresentcapital payments leasevalue payments of future minimum capital lease$ 207,955,583 payments $ 207,955,583

2009 2009 $ 21,538,335 $ 21,538,335 2010 2010 21,567,495 21,567,495 2011 2011 21,524,609 21,524,609 2012 2012 21,553,598 21,553,598 2013 2013 21,558,152 21,558,152 2014 - 2018 2014 - 2018 108,238,188 108,238,188

$ 215,980,377 $ 215,980,377

2009 2009 $ 14,261,446 $ 14,261,446 2010 2010 14,218,310 14,218,310 2011 2011 14,216,930 14,216,930 2012 2012 14,220,160 14,220,160 2013 2013 14,215,120 14,215,120 2014 - 2016 2014 - 2016 42,651,413 42,651,413

$ 113,783,379 $ 113,783,379 indianapolis Airport Authority indianapolis Airport Authority

Notes to Financial Statements Notes to Financial Statements December 31, 2008 and 2007 December 31, 2008 and 2007

2009 2009 $ 28,133,410 $ 28,133,410 2010 The Authority’s capital2010 lease payments to the State27,855,798 are payable solely from monies to be appropriated by the 27,855,798 2011 2011 27,991,961 27,991,961 2012 Indiana General Assembly,2012 the governing body for28,118,454 the State. There is no requirement that these amounts be 28,118,454 2013 appropriated. However,2013 the Authority cannot be28,169,993 held liable, should an appropriation not be made, for the 28,169,993 2014 - 2018 2014 - 2018 117,571,691 117,571,691 State’s debt obligations relative to the IMC and ATC facilities. Assuming appropriations from the General Total minimum lease payments Total minimum lease257,841,307 payments 257,841,307 Amounts representing interest Assembly continue, theAmounts Authority representing expects to interest receive(49,885,724) the following future amounts to fund its capital lease (49,885,724) obligations with the State: Present value of future minimum capital lease payments Present value of future$ 207,955,583 minimum capital lease payments $ 207,955,583

20092009 2009 $$ 21,538,33528,133,410 $$ 21,538,33528,133,410 20102010 2010 21,567,49527,855,798 21,567,49527,855,798 20112011 2011 21,524,60927,991,961 21,524,60927,991,961 20122012 2012 21,553,59828,118,454 21,553,59828,118,454 20132013 2013 21,558,15228,169,993 21,558,15228,169,993 20142014 -- 20182018 2014 - 2018 108,238,188117,571,691 108,238,188117,571,691 Total minimum lease payments Total minimum lease257,841,307 payments 257,841,307 Amounts representing interest Amounts representing interest $ 215,980,377(49,885,724) $ 215,980,377(49,885,724)

Present value of future minimum capital lease payments Present value of future$ 207,955,583 minimum capital lease payments $ 207,955,583

2009 2009 $ 14,261,446 $ 14,261,446 2010 2010 14,218,310 14,218,310 2011 2011 14,216,930 14,216,930 The Authority’s capital lease payments to the City are secured by an irrevocable pledge of a distributive share 20092012 20122009 $ 14,220,16021,538,335 $ 14,220,160 21,538,335 of Marion County Option Income Taxes (the Pledged Revenues). The City-County Council has covenanted 20102013 20132010 14,215,12021,567,495 14,215,120 21,567,495 20112014 - 2016 not to repeal or rescind20142011 this - 2016tax as long as such rentals 42,651,41321,524,609 remain due. The Authority is not obligated for the debt 42,651,413 21,524,609 2012 2012 21,553,598 21,553,598 incurred by the City with regard to the IMC facilities.$ 113,783,379 Future Pledged Revenues to be received by the Authority $ 113,783,379 2013 2013 21,558,152 21,558,152 2014 - 2018 to fund its capital lease2014 obligation - 2018 with the City 108,238,188 follow: 108,238,188

$ 215,980,377 $ 215,980,377

$ 113,783,379 $ 113,783,379 pindiana olis Airport Authority indianapolis Airport Authority

Notes to Financial Statements Notes to Financial Statements December 31, 2008 and 2007 December 31, 2008 and 2007

1 Note 9: Indianapolis Maintenance Center

As discussed previously in these footnotes, the Authority, the State of Indiana, the City of Indianapolis and United financed the construction and equipping of the IMC. As a part of the financing of these facilities, the Authority issued $220,705,000 ($172,112,018 remains outstanding at December 31, 2008) in special facility revenue bonds. The Authority had, and continues to have, no obligation to make interest and principal payments on these special facility bonds other than from revenues derived from leasing the IMC facilities. Previously, the interest and principal payments for the Series 1995 Special Facility Revenue Bonds were funded by rentals paid by United under its lease agreement with the Authority. On December 9, 2002, United filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. On May 9, 2003, the Bankruptcy Court made effective United’s rejection of its lease of the IMC and United abandoned the IMC facilities, whereby all of the IMC assets reverted to the Authority’s control.

In 2004, the Authority and the Trustee of the bondholders entered into a Settlement Agreement which, among other things, provides for up to $7.5 million in reimbursements for certain costs incurred after May 2003. The Settlement Agreement also provides for reimbursement for up to $6.5 million of capital improvements, if certain conditions are met.

For the years ended December 31, 2008 and 2007, the Authority incurred approximately $13.0 million and $10.6 million of costs for the IMC, respectively. Some of these costs are not reimbursable. However, the majority of these costs may be recovered in future years, along with any costs incurred in excess of the aforementioned amounts from future revenues of the IMC. The Authority has received reimbursements under the Settlement Agreement aggregating approximately $6.1 million and $6.6 million in 2008 and 2007, respectively. Also, as of December 31, 2008 and 2007, the Authority has accrued approximately $1.3 million and $.6 million, respectively, in reimbursements for allowable costs incurred.

United emerged from bankruptcy effective February 1, 2006, however, the Settlement Agreement remains in effect for the life of the original special facility revenue bonds. During 2007, the Indianapolis Airport Authority received over $487,000 in United Airlines’ bankruptcy distributions. These distributions paid off all remaining pre-petition bankruptcy invoices and awarded the Authority over $420,000 in damages related to unearned rental revenues resulting from United Airlines’ bankruptcy.

The Authority has entered into various leases for certain portions of the IMC. Those portions, which include hangar space, office areas and the backshops, are being used primarily for the maintenance, repair and over- haul of commercial aircraft. During 2006, the Authority entered into additional leases for the remaining office areas and certain warehouse space for non-aviation related use. As a part of the Settlement Agreement, rentals collected for the IMC are not considered revenue to the Authority, but instead are required to be deposited into a trust held on behalf of the United bondholders. The monies held in trust are to be used to pay ongoing operating and maintenance costs of the IMC and must be applied in a manner prescribed by the terms of the Settlement Agreement, including reimbursement of past capital and operating costs, payment of ground rent and payment of debt service on the bonds. indianapolis Airport Authority indianapolis Airport Authority

Notes to Financial Statements Notes to Financial Statements December 31, 2008 and 2007 December 31, 2008 and 2007

The aforementioned lease agreements contain a number of incentives to be provided by the Author- ity in the form of grants and rent credits over the terms of these leases, which currently range from six months to ten years. These grants and rent credits are designed to assist the tenants with start-up costs and the acquisition of certain capital assets, including leasehold improvements, and to encourage them to expand their operations and/or increase the amount of space they lease. Grants for start-up costs are recorded as deferred lease costs by the Authority and amortized over the respective lease term, while grants for capital improvements result in new depreciable assets of the Authority. Success payments (for expanding operations) and other similar grants are expensed as they are earned by the tenants. All existing IMC capital assets, as well as those acquired by the tenants through Authority grants or otherwise, remain the property of the Authority, subject only to the tenants’ rights to use such assets during their respective lease terms. As of December 31, 2008, the Authority has provided $6.0 million in grants and $3.9 million in rental credits to the lessees of the IMC.

1 Note 10: Risk Management

Risk management is the responsibility of the Authority. Operationally, the Authority is exposed to various risks of loss related to theft of, damage to and destruction of assets, natural disasters as well as certain tort liabilities for which commercial insurance is carried. The commercial insurance policies carry deductibles ranging from $0 to $100,000. Insurance policies procured, including commercial general liability and commercial property damage, are inclusive of coverage for certain war casualty and acts of terror- ism. Coverage terms, limits, and deductibles have each been benchmarked in comparison with those maintained at other mid-size airports and found to be within the range of our peers. Although coverage limits are significant, no assurance can be given that such coverage will continue to be available at such amounts and/or at a reasonable cost.

Termination of the management contract with BAA created a reduction in “excess” coverage on certain exposures; however, in critical areas, local, specific coverage limits were increased in response. Claim settlements have not exceeded insurance coverage for the previous three years and no situation exists presently, to the best of the Authority’s knowledge that has the potential of doing so for the 2008 calendar year.

Effective June 1, 2005, the Authority secured separate insurance coverage that it maintained in conjunction with the construction of the New Indianapolis Airport. Insurance coverage included worker’s compensation, commercial general liability and excess liability. The worker’s compensation and general liability both utilized an Owner Controlled Insurance Program (OCIP) concept, typical with large construction projects. This type of program was selected for its cost efficacy as well as increased supervision of construction firms performing work under contract. Enrolled contractors in the OCIP each paid a proportionate share of premium. Self-insured retention amounts under this program are $500,000 per occurrence for worker’s compensation and $500,000 per occurrence for general liability. An aggregate deductible of $8,750,000 over the term of the project also applies. A letter of credit in the amount of $5,000,000 was a requirement of the OCIP insurer in support of the deductible amounts and loss payments contained therein. indianapolis Airport Authority indianapolis Airport Authority

Notes to Financial Statements Notes to Financial Statements December 31, 2008 and 2007 December 31, 2008 and 2007

With the opening of the new airport facility in the fall of 2008, the OCIP program was terminated, however, losses insured under the program will continue to be discovered, reported and settled, and the letter of credit security will remain a requirement of the insurer until such time as all losses mature and claims have been closed.

Casualty loss involving damage to or destruction of physical property in the course of construction is covered by a separate Builders Risk policy. This policy contains a deductible of $100,000 per occurrence applicable to all covered causes of loss, including flood and earth movement. The Authority recognized $2,000,000 in insurance recoveries as non-operating revenue in 2007 under the builders risk policy associated with the New Indianapolis Airport.

Lastly, an owner’s protective professional indemnity policy is in place insuring the Authority from financial loss or damages assessed in relation to claims involving contracted professional services, such as archi- tects or engineers. This policy contains a per claim self-insured retention amount of $1 million; however, contracted professional service firms participating in this project are required to provide evidence of coverage, naming the Authority as an additional insured, in amounts equal to or exceeding this retention, leaving the Authority minimally exposed.

1 Note 11: Benefit Plan

Through the effective date of the transition of BAA employees back to the Authority, BAA maintained a 401(k) defined-contribution pension plan for the benefit of substantially all of its employees which allowed for both employee and employer contributions. Under this plan, employer contributions could range up to eight and one half percent of eligible compensation. In accordance with the BAA Manage- ment Contract, these expenses were paid by the Authority. Contributions to the plan were approximately $862,870 for 2007.

Effective July 15, 2007, the Authority provides a 401(a) defined-contribution employee retirement plan for employer contributions and a 457(b) deferred compensation plan for employee contributions. The Authority is the administrator of these plans, which are available to substantially all of its employees. Employer contributions to the 401(a) plan can range up to eight and one half percent of eligible compensation. Contributions to the plan were approximately $749,616 for 2008 and $539,902 for 2007.

1 Note 12: Rental Income From Operating Leases

The Authority leases space in the Indianapolis International Airport terminal along with other land and buildings on a fixed fee as well as a contingent rental basis. Many of the leases provide for a periodic review and adjustment of the rental amounts. Substantially all capital assets are held by the Authority for the purpose of rental or related use. indianapolis Airport Authority indianapolis Airport Authority

Notes to Financial Statements Notes to Financial Statements December 31, 2008 and 2007 December 31, 2008 and 2007

Minimum future rentals on noncancelable operating leases to be received in each of the next five years and thereafter as of December 31, 2008 are as follows:

2009 2009 $ 60,970,360 $ 60,970,360 2010 2010 58,976,528 58,976,528 2011 2011 28,159,680 28,159,680 2012 2012 27,718,158 27,718,158 2013 2013 26,562,462 26,562,462 Thereafter Thereafter 162,987,545 162,987,545

$ 365,374,733 $ 365,374,733

The Authority has entered into an Agreement and Lease of Premises (Airline Agreement) with certain passenger, charter and cargo airlines serving the airport (collectively, the Signatory Airlines). Other airlines operate under an airport use permit that generally has a term of no more than two years. The Airline Agreement’s residual rate-making features are designed to ensure that the Authority’s debt service and related coverage obligations, including the Rate Covenant, will be met. The Airline Agreement authorizes the Authority to implement new fees and charges as necessary. In the event of an airline bankruptcy, the Authority may adjust the rates and charges for all Signatory Airlines in the current rate period to recover the rates and charges due from the bankrupt carrier. However, there can be no assurance that such other airlines will be financially able to absorb the additional costs. All of the Airline Agreements expire on December 31, 2010. Rental rates under these agreements are determined annually.

Contingent rentals and fees aggregated approximately $37,700,000 in 2008 and $36,600,000 in 2007, and are accrued in arrears.

1 Note 13: Commitments and Contingencies

Land Acquisition In 1991, the Authority updated its FAA Part 150 Noise and Land Use Compatibility Study and final recommendations were adopted by the Authority Board in April 1992. The recommendations included expanding the Guaranteed Purchase Program to add approximately 750 more homes at an estimated cost of $101.0 million. As of December 31, 2008, the Authority has spent approximately $101.7 million (including relocation costs) under this program (Phase II), substantially all of which was eligible for 80% reimbursement from the FAA. There are an estimated 32 homes remaining eligible for purchase under Phase II.

A second update and five-year review of the Authority’s noise compatibility program (Phase III) began in 1996. Final recommendations were adopted by the Authority Board in February 1998, followed by FAA approval in October 1998. The recommendations include continuation of the Guaranteed Purchase Program with respect to approximately 132 additional homes. In addition, approximately 367 homes are eligible for the Sound Insulation and Purchase Assurance Programs. indianapolis Airport Authority indianapolis Airport Authority

Notes to Financial Statements Notes to Financial Statements December 31, 2008 and 2007 December 31, 2008 and 2007

The Sound Insulation Program pays for a home within the impacted noise area to be sound insulated with respect to doors, window treatments, etc., with no further cash outlay required by the Authority. Under the Purchase Assurance Program, the Authority will purchase the property, sound insulate the home and then resell the property on the open market. Participation in either the Sound Insulation or Purchase Assurance programs requires the homeowner to grant an aviation easement in favor of the Authority. A third program, Sales Assistance, is available to approximately 963 homes. Sales Assistance consists of a benefit payment to homeowners adjacent to the 65DNL noise contour. The benefit payment is equal to 10% of the contract sales price between the homeowner and third-party buyer, in exchange for the inclusion of a Noise Disclosure Statement in the deed of conveyance. The estimated cost of the Phase III programs approximate $96.7 million. These programs, excluding Sales Assistance, are eligible for reimbursement from passenger facility charges and FAA noise grants (at 80% reimbursement). As of December 31, 2008, the Authority has spent approximately $81.6 million in conjunction with these programs. As of December 31, 2008, approximately 120 homeowners have participated in Purchase Assurance, approximately 21 homes remain to be sound insulated, and approximately 380 homeowners have requested participation in Sales Assistance, while 321 of those Sales Assistance requests have closed.

The noise mitigation land use programs described above are voluntary on the part of the homeowner as there is no legal requirement that homeowners participate in any of these programs, therefore, the fore- going comments regarding the number of homeowners eligible for participation in the various programs assumes 100% participation, which is unlikely.

In 2001, the Authority began development south of Interstate 70 (I-70). This land contains at least two parcels needed to facilitate additional airside development space and development of an Airport inter- change off of I-70. Some of the parcels will protect land needed for the future development of a third parallel runway. As of December 31, 2008, the Authority has expended approximately $6.6 million for this project.

Environmental Mitigation and Remediation In order to comply with environmental laws, the Authority has implemented a natural resource mitigation program to create, monitor and maintain wetlands along with habitats for the endangered Indiana bat. As of December 31, 2008, the Authority has acquired approximately 1,645 acres in order to replace those wetland and bat habitat areas that were removed by construction of the Indianapolis Maintenance Center and runway 5L-23R. The Authority will continue to maintain and monitor interim bat habitats under this program through the year 2016 and approximately 2,000 acres of wetlands and certain associated summer bat habitats in perpetuity, or until control over such areas can be transferred to an appropriate conservation organization. Approximately $22.3 million has been spent under this program, of which 28% is eligible for reimbursement from the FAA. The Authority’s share of the costs for this conservation plan is estimated to be $2.4 million, of which $1.4 million has been incurred through December 31, 2008. indianapolis Airport Authority

Notes to Financial Statements December 31, 2008 and 2007

The Authority is currently involved in six separate pollution remediation obligations that meet the requirements for accounting treatment under GASB Statement 49, Accounting and Financial Reporting for Pollution Remediation Obligations. These obligations are related primarily to the removal and/or treatment of con- taminated soil associated with underground fuel tanks. The pronouncement dictates that for each obligating event, an estimate of the expected pollution remediation outlays is required to be accrued as a liability and expensed in the current period. Re-measurement of the liability is required when new information indicates increases or decreases in estimated outlays.

The amount of the estimated liability as of December 31, 2008 and 2007 is $2,350,000, which represents the approximate present value of the amounts the Authority expects to pay for future remediation activities. This estimate was generated using input and guidance from internal management and professional consultants, and represents a wide array of remediation activities ranging from one time events to longer term sustained monitoring activity.

The Authority will continue to closely monitor each of these obligations, working toward the point of ultimate resolution, and will make any necessary adjustments to the potential liability as new information becomes available.

Capital Improvements As of December 31, 2008, the Authority had outstanding commitments for certain airport improvements aggregating approximately $75.1 million.

Litigation and Claims The nature of the business of the airport generates certain litigation against the Authority arising in the ordinary course of business. However, the Authority believes that the ultimate outcome of these matters, in the aggregate or individually, should not have a materially adverse effect on its financial position or changes in financial position.

As of December 31, 2008, there exists a dispute with one contractor concerning services performed during the construction of the Phase Two Cargo Apron. The dispute relates to a potential pay deduction the Author- ity would owe the contractor should the contractor meet specific measurement criteria related to the apron construction. Independent third-party testing, using defined industry standards, showed that the contractor did not meet specific measurement criteria, and the contractor is disputing that finding. The amount accrued at December 31, 2008 was $1.3 million, which represents the entire amount of the pay deduction in ques- tion. A suit was filed in this matter on December 1, 2008 in the U.S. District Court for the Southern District of Indiana.

Current Economic Conditions The current economic environment presents the Authority and similar entities with circumstances and challenges that in some cases have resulted in large declines in the fair value of investments and other assets, declines in passengers and related revenue, declines in the shipment of freight, constraints on liquidity and difficulty obtaining financing. The financial statements have been prepared using values and information currently available to the Authority.

The Authority’s operations are heavily dependent on passenger-related revenue, in addition to non-passenger- related revenue sources. A significant decline in such revenues or the inability of the Authority to collect these revenues from business partners could have an adverse impact on the Authority’s future operating results, including increasing allowances for uncollectible receivables.

In addition, the Authority’s debt service and plan of finance is dependent on nominal and relative interest rates. Given the volatility of current economic conditions, the Authority’s debt service requirements may become greater than the requirements shown in the financial statements, which could negatively impact the Authority’s ability to meet debt covenants or maintain sufficient liquidity, should other revenue sources not be sufficient to mitigate these effects. abce2ln3pq4u vwxy4BDEFGI

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Schedule of Balance Sheet Information Schedule of Balance Sheet Information December 31, 2008 December 31, 2008

Assets Liabilities and Net Assets

2008 Authority IMC Total

Current Assets Unrestricted Assets Cash and cash equivalents $ 50,607,383 $ 500 $ 50,607,883 Accounts receivable, net 2,075,647 - 2,075,647 Unbilled revenues 3,210,662 - 3,210,662 Grants receivable 17,539,045 - 17,539,045 Receivable - other governments 1,020,603 - 1,020,603 Supplies and materials inventories 1,819,886 - 1,819,886 Other 915,231 - 915,231 Total unrestricted current assets 77,188,457 500 77,188,957

Restricted Assets Cash and cash equivalents 33,058,552 - 33,058,552 Cash and cash equivalents - customer deposits 378,182 - 378,182 Receivable - passenger facility charges 1,438,181 - 1,438,181 Receivable - other governments 343,336 3,424,667 3,768,003 Receivable - reimbursable IMC expenses 277,953 1,096,678 1,374,631 Total restricted current assets 35,496,204 4,521,345 40,017,549 Total current assets 112,684,661 4,521,845 117,206,506

Noncurrent Assets Cash and cash equivalents, restricted 230,246,068 - 230,246,068 Rent receivable 2,797,272 - 2,797,272 Deferred lease costs - 1,509,334 1,509,334 Bond issue and loan administration costs, net 22,559,560 - 22,559,560 Capital assets, net 1,804,183,970 378,707,493 2,182,891,463 Total noncurrent assets 2,059,786,870 380,216,827 2,440,003,697

Total assets $ 2,172,471,531 $ 384,738,672 $ 2,557,210,203 indianapolis Airport Authority indianapolis Airport Authority

Schedule of Balance Sheet Information Schedule of Balance Sheet Information December 31, 2008 December 31, 2008

Assets Liabilities and Net Assets

2008 Authority IMC Total

Current Liabilities Payable From Unrestricted Assets Accounts payable $ 4,742,490 $ - $ 4,742,490 Accrued and withheld items 6,154,837 - 6,154,837 Deferred revenue - interest rate swap 885,000 - 885,000 Total current liabilities payable from unrestricted assets 11,782,327 - 11,782,327

Payable From Restricted Assets Accounts payable 73,328,390 2,983,623 76,312,013 Customer deposits payable 378,182 - 378,182 Current portion of debt 11,311,274 18,638,718 29,949,992 Accrued interest on debt 24,803,752 746,875 25,550,627 Total current liabilities payable from restricted assets 109,821,598 22,369,216 132,190,814 Total current liabilities 121,603,925 22,369,216 143,973,141

Noncurrent Liabilities Deferred revenue - interest rate swap 2,212,500 - 2,212,500 Bonds payable and other debt, payable from restricted assets 1,256,979,593 183,464,411 1,440,444,004 Total liabilities 1,380,796,018 205,833,627 1,586,629,645

Net Assets Invested in capital assets, net of related debt 637,043,569 173,916,042 810,959,611 Restricted for Capital projects 33,689,024 - 33,689,024 Debt service 54,433,346 2,677,792 57,111,138 Other 518,672 801,377 1,320,049 Total restricted net assets 88,641,042 3,479,169 92,120,211 Unrestricted 65,990,902 1,509,834 67,500,736 Total net assets 791,675,513 178,905,045 970,580,558

Total liabilities and net assets $ 2,172,471,531 $ 384,738,672 $ 2,557,210,203 indianapolis Airport Authority indianapolis Airport Authority

Schedule of Balance Sheet Information Schedule of Balance Sheet Information December 31, 2007 December 31, 2007

Assets

2007 Authority IMC Total

Current Assets Unrestricted Assets Cash and cash equivalents $ 43,744,412 $ 500 $ 43,744,912 Accounts receivable, net 2,107,936 - 2,107,936 Unbilled revenues 3,463,696 - 3,463,696 Grants receivable 17,074,218 - 17,074,218 Receivable - other governments 892,324 133,340 1,025,664 Supplies and materials inventories 1,569,521 - 1,569,521 Other 1,064,073 - 1,064,073 Total unrestricted current assets 69,916,180 133,840 70,050,020

Restricted Assets Cash and cash equivalents 35,163,905 - 35,163,905 Cash and cash equivalents - customer deposits 356,970 5,000 361,970 Receivable - passenger facility charges 1,333,567 - 1,333,567 Receivable - other governments 413,791 3,423,751 3,837,542 Receivable - reimbursable IMC expenses - 662,371 662,371 Total restricted current assets 37,268,233 4,091,122 41,359,355 Total current assets 107,184,413 4,224,962 111,409,375

Noncurrent Assets Cash and cash equivalents, restricted 363,451,293 - 363,451,293 Investment securities, restricted 9,920,173 - 9,920,173 Rent receivable 2,945,290 - 2,945,290 Receivable - other government 971,668 - 971,668 Deferred lease costs - 1,789,181 1,789,181 Bond issue and loan administration costs, net 15,498,050 - 15,498,050 Capital assets, net 1,468,879,543 375,901,693 1,844,781,236 Total noncurrent assets 1,861,666,017 377,690,874 2,239,356,891

Total assets $ 1,968,850,430 $ 381,915,836 $ 2,350,766,266 indianapolis Airport Authority indianapolis Airport Authority

Schedule of Balance Sheet Information Schedule of Balance Sheet Information December 31, 2007 December 31, 2007

Liabilities and Net Assets

2007 Authority IMC Total

Current Liabilities Payable From Unrestricted Assets Accounts payable $ 2,921,494 $ - $ 2,921,494 Accrued and withheld items 5,862,118 - 5,862,118 Total current liabilities payable from unrestricted assets 8,783,612 - 8,783,612

Payable From Restricted Assets Accounts payable 47,909,464 3,340,965 51,250,429 Customer deposits payable 356,970 5,000 361,970 Current portion of debt 184,407,008 17,582,879 201,989,887 Accrued interest on debt 24,240,798 847,126 25,087,924 Total current liabilities payable from restricted assets 256,914,240 21,775,970 278,690,210 Total current liabilities 265,697,852 21,775,970 287,473,822

Noncurrent Liabilities Bonds payable and other debt, payable from restricted assets 938,454,651 202,103,128 1,140,557,779 Total liabilities 1,204,152,503 223,879,098 1,428,031,601

Net Assets Invested in capital assets, net of related debt 557,543,558 153,588,167 711,131,725 Restricted for Capital projects 64,387,595 - 64,387,595 Debt service 77,480,923 2,576,625 80,057,548 Other 236,325 - 236,325 Total restricted net assets 142,104,843 2,576,625 144,681,468 Unrestricted 65,049,526 1,871,946 66,921,472 Total net assets 764,697,927 158,036,738 922,734,665

Total liabilities and net assets $ 1,968,850,430 $ 381,915,836 $ 2,350,766,266 indianapolis Airport Authority indianapolis Airport Authority

Schedules of Revenues, Expenses and Schedules of Revenues, Expenses and Changes in Net Assets Information Changes in Net Assets Information Years Ended December 31, 2008 and 2007 Years Ended December 31, 2008 and 2007

2008 Authority IMC Total Operating Revenues Airfield $ 23,889,270 $ - $ 23,889,270 Terminal complex 36,528,432 - 36,528,432 Parking 29,437,187 - 29,437,187 Rented buildings and other 12,406,054 - 12,406,054 Indianapolis Maintenance Center (IMC) - 7,253,302 7,253,302 Reliever airports 2,402,110 - 2,402,110 Total operating revenues 104,663,053 7,253,302 111,916,355

Operating Expenses (including depreciation) Airfield 28,731,397 - 28,731,397 Terminal complex 33,646,151 - 33,646,151 Parking 8,573,596 - 8,573,596 Rented buildings and other 10,133,664 - 10,133,664 Indianapolis Maintenance Center (IMC) - 26,792,019 26,792,019 Reliever airports 3,697,927 - 3,697,927 Public safety 10,051,414 - 10,051,414 Administration 11,564,114 - 11,564,114 Total operating expenses 106,398,263 26,792,019 133,190,282

Income (Loss) From Operations (1,735,210) (19,538,717) (21,273,927)

Nonoperating Revenues (Expenses) State and local appropriations 825,542 26,101,949 26,927,491 Federal operating grants 1,110,925 - 1,110,925 Customer facility charge (rental cars) 5,115,044 - 5,115,044 Investment income 12,726,364 - 12,726,364 Interest expense, net of capitalized interest (27,372,079) (8,892,605) (36,264,684) Loss on disposals of capital assets and other (1,426,443) - (1,426,443) (9,020,647) 17,209,344 8,188,697

Increase (Decrease) in Net Assets Before Capital Contributions, Grants and Charges (10,755,857) (2,329,373) (13,085,230)

Capital Contributions, Grants and Charges Passenger facility charges 16,852,737 - 16,852,737 Federal, state and local grants 17,606,125 - 17,606,125 Contributions from lessees and other 26,447,287 - 26,447,287 Contributions from local governments 24,974 - 24,974 60,931,123 - 60,931,123

Increase (Decrease) in Net Assets 50,175,266 (2,329,373) 47,845,893

Net Assets, Beginning of Year 764,722,350 158,012,315 922,734,665

Transfers (23,222,103) 23,222,103 -

Net Assets, End of Year $ 791,675,513 $ 178,905,045 $ 970,580,558 indianapolis Airport Authority indianapolis Airport Authority

2007 Authority IMC Total

$ 24,749,685 $ - $ 24,749,685 31,785,560 - 31,785,560 28,580,692 - 28,580,692 10,922,239 - 10,922,239 - 6,478,363 6,478,363 2,204,779 - 2,204,779 98,242,955 6,478,363 104,721,318

19,241,100 - 19,241,100 13,434,667 - 13,434,667 7,232,770 - 7,232,770 10,339,335 - 10,339,335 - 25,091,033 25,091,033 3,565,141 - 3,565,141 9,435,519 - 9,435,519 12,661,162 - 12,661,162 75,909,694 25,091,033 101,000,727

22,333,261 (18,612,670) 3,720,591

825,542 25,995,090 26,820,632 1,137,976 - 1,137,976 5,136,987 - 5,136,987 27,621,747 - 27,621,747 (24,228,487) (9,725,652) (33,954,139) (1,947,063) - (1,947,063) 8,546,702 16,269,438 24,816,140

30,879,963 (2,343,232) 28,536,731

16,774,356 - 16,774,356 26,730,086 - 26,730,086 21,940,009 - 21,940,009 128,264 - 128,264 65,572,715 - 65,572,715

96,452,678 (2,343,232) 94,109,446

672,338,322 156,286,897 828,625,219

(4,068,650) 4,068,650 -

$ 764,722,350 $ 158,012,315 $ 922,734,665 indianapolis Airport Authority

Schedules of Operating Revenues Years Ended December 31, 2008 and 2007

Increase 2008 2007 (Decrease)

Airfield Landing fees - scheduled airlines $ 10,009,060 $ 10,221,629 $ (212,569) Landing fees - freight and other 10,416,247 10,569,883 (153,636) Apron fees 3,189,783 3,669,273 (479,490) Commissions - aviation fuel sales 271,005 276,225 (5,220) Other 3,175 12,675 (9,500) 23,889,270 24,749,685 (860,415)

Terminal Complex Space rental Airlines 19,600,939 16,252,701 3,348,238 Concessionaires 5,361,681 5,534,302 (172,621) Administration building 244,646 253,278 (8,632) Other space rental 306,780 245,166 61,614 Automobile rental commissions 8,753,326 7,903,073 850,253 Security fees 402,965 415,021 (12,056) Other commissions, fees, etc. 1,858,095 1,182,019 676,076 36,528,432 31,785,560 4,742,872

Parking - parking operations 29,437,187 28,580,692 856,495

Rented Buildings and Other Space rental - freight buildings 694,008 624,781 69,227 Space rental - hangars 48,635 38,908 9,727 Space rental - other buildings 5,986,034 4,532,613 1,453,421 Ground leases 5,129,328 5,011,896 117,432 Farm income 25,479 33,075 (7,596) International building 21,612 61,757 (40,145) Other 500,958 619,209 (118,251) 12,406,054 10,922,239 1,483,815

Indianapolis Maintenance Center (IMC) 7,253,302 6,478,363 774,939

Reliever Airports 2,402,110 2,204,779 197,331

$ 111,916,355 $ 104,721,318 $ 7,195,037 abce2ln3pq4u vwxy4BDEFGI

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Schedule of Operating Expenses Schedule of Operating Expenses Year Ended December 31, 2008 Year Ended December 31, 2008 (With Comparative Totals for 2007) (With Comparative Totals for 2007)

2008 Rented Indianapolis Terminal Buildings Maintenance Airfield Complex Parking and Other Center (IMC)

Personal Services Salaries and wages $ 2,012,873 $ 3,284,413 $ 2,538,744 $ 192,760 $ 305,924 Professional fees 471,623 72,503 799 17,383 5,326 Employee insurance 412,925 720,097 483,835 46,291 44,405 Retirement and social security 267,272 394,081 316,138 23,535 45,821 3,164,693 4,471,094 3,339,516 279,969 401,476 Contractual Services Transportation and communication 54,351 43,196 56,610 17,876 24,143 Utilities 1,743,044 2,411,377 197,538 231,691 4,222,269 Printing and advertising 744 1,888,777 4,464 - 884 Repairs and maintenance 216,870 637,570 99,345 113,522 366,275 Facilities maintenance and security 169,867 1,312,007 12,234 11,610 3,941,768 Other contractual services 89,908 296,193 1,482,055 26,015 576,853 BAA compensation - - - - - Environmental remediation 299,846 - - 195,767 6,214 2,574,630 6,589,120 1,852,246 596,481 9,138,406 Supplies Fuel 504,502 - 90,988 - 26,632 Garage and motor 51,942 1,761 31,768 1,079 4,411 Institutional and medical 19,211 295,859 51,407 2,813 49,523 Office supplies 3,315 3,083 60,503 4,310 3,002 Snow and ice chemicals 1,057,985 2,872 200,488 - 11,963 Other 50,666 186,667 31,969 650 124,272 1,687,621 490,242 467,123 8,852 219,803 Materials Building 2,160 3,327 2,157 1,500 (18,562) Pavement and grounds 218,237 1,162 911 1,009 - Repair parts 338,475 86,118 291,448 1,851 750 Small equipment and tools 12,509 2,095 8,675 - 7,330 Other 33,030 8,788 2,363 324 16,990 604,411 101,490 305,554 4,684 6,508 General Insurance 211,404 228,195 178,146 31,449 238,793 Equipment rental - - - - 21,154 Other (including bad debts) 3,469 840 1,045 2,942 280,358 214,873 229,035 179,191 34,391 540,305

Subtotal 8,246,228 11,880,981 6,143,630 924,377 10,306,498

Depreciation 20,485,169 21,765,170 2,429,966 9,209,287 16,485,521

$ 28,731,397 $ 33,646,151 $ 8,573,596 $ 10,133,664 $ 26,792,019 indianapolis Airport Authority indianapolis Airport Authority

Schedule of Operating Expenses Schedule of Operating Expenses Year Ended December 31, 2008 Year Ended December 31, 2008 (With Comparative Totals for 2007) (With Comparative Totals for 2007)

2008 Year Ended Reliever Public December 31, Increase Airports Safety Administration Total 2007 (Decrease)

$ 258,890 $ 6,498,149 $ 4,247,633 $ 19,339,386 $ 18,122,024 $ 1,217,362 4,957 36,120 1,868,818 2,477,529 2,790,566 (313,037) 58,164 1,381,827 659,189 3,806,733 4,140,469 (333,736) 38,734 891,268 731,917 2,708,766 2,752,232 (43,466) 360,745 8,807,364 7,507,557 28,332,414 27,805,291 527,123

12,204 141,414 787,581 1,137,375 1,217,370 (79,995) 198,803 137,741 77,075 9,219,538 7,381,894 1,837,644 - 5,187 184,660 2,084,716 143,857 1,940,859 31,060 31,082 722,271 2,217,995 1,809,786 408,209 (2,480) (2,272) 8,879 5,451,613 6,514,886 (1,063,273) 96,195 94,826 471,059 3,133,104 2,107,329 1,025,775 - - - - 1,975,922 (1,975,922) - - - 501,827 2,806,147 (2,304,320) 335,782 407,978 2,251,525 23,746,168 23,957,191 (211,023)

416,775 - - 1,038,897 814,234 224,663 5,203 16,769 3,361 116,294 120,529 (4,235) 10,268 41,925 2,620 473,626 469,512 4,114 631 33,675 58,670 167,189 185,213 (18,024) 20,891 76 - 1,294,275 426,603 867,672 11,802 142,133 65,156 613,315 601,905 11,410 465,570 234,578 129,807 3,703,596 2,617,996 1,085,600

3,740 695 261 (4,722) (2,745) (1,977) 28,438 2 711 250,470 275,575 (25,105) 36,101 84,940 34,450 874,133 865,129 9,004 988 33,799 - 65,396 48,071 17,325 6,303 3,814 1,232 72,844 98,040 (25,196) 75,570 123,250 36,654 1,258,121 1,284,070 (25,949)

55,198 258,467 20,191 1,221,843 1,218,519 3,324 - - 149,524 170,678 173,224 (2,546) - 14,697 903,549 1,206,900 (145,183) 1,352,083 55,198 273,164 1,073,264 2,599,421 1,246,560 1,352,861

1,292,865 9,846,334 10,998,807 59,639,720 56,911,108 2,728,612

2,405,062 205,080 565,307 73,550,562 44,089,619 29,460,943

$ 3,697,927 $ 10,051,414 $ 11,564,114 $ 133,190,282 $ 101,000,727 $ 32,189,555 indianapolis Airport Authority indianapolis Airport Authority

Schedule of Bond Debt Service Schedule of Bond Debt Service Requirements to Maturity Requirements to Maturity December 31, 2008 December 31, 2008

2008 Revenue Bonds 2006 Revenue Bonds 2005A Revenue Bonds 2004A Revenue Bonds 2003A Revenue Bonds Total Debt Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Service

2009 $ - $ 11,675,000 $ 4,460,000 $ 19,236,289 $ - $ 10,035,969 $ 3,375,000 $ 10,514,323 $ 2,995,000 $ 5,204,244 $ 67,495,825 2010 - 11,675,000 4,695,000 18,989,550 - 10,035,969 3,545,000 10,336,891 3,150,000 5,042,938 67,470,348 2011 - 11,675,000 14,290,000 18,475,433 - 10,035,969 3,730,000 10,145,923 3,320,000 4,873,100 76,545,425 2012 4,030,000 11,599,304 13,090,000 17,731,316 - 10,035,969 3,925,000 9,944,979 3,495,000 4,689,838 78,541,406 2013 4,235,000 11,443,998 12,845,000 17,028,668 - 10,035,969 4,135,000 9,733,404 3,685,000 4,492,388 77,634,427 2014 4,455,000 11,280,744 13,675,000 16,323,789 - 10,035,969 4,350,000 9,510,672 3,890,000 4,281,644 77,802,818 2015 4,680,000 11,109,170 14,410,000 15,604,570 - 10,035,969 4,580,000 9,276,260 4,105,000 4,056,785 77,857,754 2016 4,915,000 10,928,901 15,145,000 14,865,695 - 10,035,969 4,820,000 9,029,510 4,340,000 3,819,269 77,899,344 2017 5,170,000 10,739,379 15,915,000 14,089,195 - 10,035,969 5,325,000 8,763,204 4,580,000 3,568,394 78,186,141 2018 5,430,000 10,540,233 16,730,000 13,273,070 - 10,035,969 5,610,000 8,476,160 4,835,000 3,327,772 78,258,204 2019 5,710,000 10,330,965 17,570,000 12,415,570 - 10,035,969 5,895,000 8,174,154 5,065,000 3,089,337 78,285,995 2020 6,000,000 10,110,954 18,465,000 11,514,695 - 10,035,969 6,210,000 7,864,160 5,315,000 2,836,481 78,352,259 2021 6,305,000 9,879,765 19,410,000 10,567,820 - 10,035,969 6,520,000 7,545,910 5,565,000 2,571,125 78,400,589 2022 6,630,000 9,636,715 20,390,000 9,572,820 - 10,035,969 6,845,000 7,211,785 5,845,000 2,285,875 78,453,164 2023 6,965,000 9,381,245 14,135,000 8,709,695 7,735,000 9,837,759 7,190,000 6,860,910 6,135,000 1,986,375 78,935,984 2024 18,965,000 8,948,865 1,220,000 8,327,345 13,265,000 9,291,344 11,075,000 6,404,285 2,915,000 1,760,125 82,171,964 2025 19,980,000 8,329,768 1,275,000 8,268,089 17,480,000 8,484,288 8,135,000 5,930,136 3,060,000 1,610,750 82,553,031 2026 21,050,000 7,677,664 1,335,000 8,206,101 18,420,000 7,541,913 8,530,000 5,526,010 3,215,000 1,453,875 82,955,563 2027 22,180,000 6,990,765 1,400,000 8,141,145 19,420,000 6,548,613 8,945,000 5,097,769 3,375,000 1,289,125 83,387,417 2028 23,365,000 6,267,306 - 8,107,895 20,470,000 5,501,500 9,390,000 4,643,978 3,540,000 1,116,250 82,401,929 2029 24,610,000 5,505,486 - 8,107,895 18,100,000 4,489,038 13,345,000 4,094,631 3,725,000 934,625 82,911,675 2030 25,930,000 4,703,130 - 8,107,895 19,080,000 3,513,063 13,980,000 3,445,662 3,905,000 743,875 83,408,625 2031 27,310,000 3,858,080 - 8,107,895 20,130,000 2,534,125 14,645,000 2,765,819 4,100,000 543,750 83,994,669 2032 28,775,000 2,968,138 - 8,107,895 21,120,000 1,554,438 15,340,000 2,034,500 4,305,000 333,625 84,538,596 2033 30,315,000 2,030,828 - 8,107,895 22,165,000 526,419 16,105,000 1,248,375 4,520,000 113,000 85,131,517 2034 12,035,000 1,323,894 36,860,000 7,186,395 - - 16,915,000 422,875 - - 74,743,164 2035 12,650,000 860,088 38,735,000 5,296,520 ------57,541,608 2036 13,295,000 372,623 40,705,000 3,310,520 ------57,683,143 2037 5,015,000 61,434 48,785,000 1,146,448 ------55,007,882

$ 350,000,000 $ 221,904,442 $ 385,540,000 $ 316,928,108 $ 197,385,000 $ 200,326,066 $ 212,460,000 $ 175,002,285 $ 102,980,000 $ 66,024,565 $ 2,228,550,466 indianapolis Airport Authority indianapolis Airport Authority

Schedule of Bond Debt Service Schedule of Bond Debt Service Requirements to Maturity Requirements to Maturity December 31, 2008 December 31, 2008

$ 350,000,000 $ 221,904,442 $ 385,540,000 $ 316,928,108 $ 197,385,000 $ 200,326,066 $ 212,460,000 $ 175,002,285 $ 102,980,000 $ 66,024,565 $ 2,228,550,466 abce2ln3pq4u vwxy4BDEFGI

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Statistical Section (Unaudited) Fiscal Year Ended Dec. 31, 2008

The Statistical Section provides information with up to ten years of comparable data, when available, and differs from the audited financial statements as some non-accounting data is presented.

Financial trend data These schedules depict the financial position of the IAA over the past several years. The trend information provided allows for an understanding of how revenues and expenses have changed over the years as well as how cash has been utilized.

• Balance Sheets • Net Assets and Changes in Net Assets • Changes in Cash and Cash Equivalents

Revenue capacity data These schedules identify the significant sources of IND’s Operating Revenues and the airline rates and charges associated with generating these revenues.

• Operating Revenues • Signatory Airline Rates and Charges

Debt capacity data The data in these schedules reveals the trends in outstanding debt that the airport has carried over the past ten years, related debt service ratios, as well as the airport’s ability to repay the outstanding debt.

• Outstanding Debt and Debt Service Ratios • Revenue Bond Debt Service Coverage

Operating information These schedules provide information on the distribution of IND’s carriers, passenger traffic, and airport personnel over the past ten years as well as how the airport is insured against material risk.

• Airline Landing Weight Trends • Enplaned Passenger Trends • Airport Employee Trends • Schedule of Insurance

Demographic and economic data The data in these schedules illustrates the current demographic and economic status of the Indianapolis-Carmel Metropolitan Statistical Area (MSA) as well as trends over the past ten years. The Indianapolis-Carmel MSA supports the majority of the traffic passing through IND.

• Demographic and Economic Statistics • Principal Employers in MSA • Other Airport Information indianapolis Airport Authority indianapolis Airport Authority

Balance Sheets Balance Sheets For the Last Ten Years Ended December 31 (1) For the Last Ten Years Ended December 31 (1) (in thousands) (in thousands) Indianapolis Airport Authority Balance Sheets For the Last Ten Years Ended December 31 (1) (in thousands)

2008 2007 2006 2005 2004 2003 2002 2001 Assets Current Assets - Unrestricted $ 77,189 $ 70,050 $ 45,264 $ 45,976 $ 27,115 $ 24,473 $ 26,743 $ 34,316 Current Assets - Restricted 40,018 41,359 47,049 38,009 26,321 23,944 57,549 17,123 Noncurrent Assets: Capital Assets, Net 2,182,892 1,844,781 1,444,013 1,174,325 1,084,480 1,043,843 1,175,032 1,162,099 Other Noncurrent Assets 257,112 394,576 638,799 417,999 317,167 110,166 191,962 178,208 Total Assets $ 2,557,211 $ 2,350,766 $ 2,175,125 $ 1,676,309 $ 1,455,083 $ 1,202,426 $ 1,451,286 $ 1,391,746

Liabilities Current Liabilities - payable from unrestricted $ 11,782 $ 8,784 $ 6,941 $ 5,118 $ 7,505 $ 4,912 $ 4,635 $ 3,320 Current Liabilities - payable from restricted 132,191 274,445 157,664 76,891 85,512 84,604 123,929 82,364 Noncurrent Liabilities - payable from unrestricted 2,213 ------Noncurrent Liabilities - payable from restricted 1,440,444 1,144,802 1,181,895 823,410 651,294 452,030 861,572 890,479 Total Liabilities 1,586,630 1,428,031 1,346,500 905,419 744,311 541,546 990,136 976,163

Net Assets Invested in capital assets, net of related debt $ 810,960 $ 711,132 $ 615,800 $ 612,581 $ 626,727 $ 582,707 $ 273,486 $ 279,189 Restricted 92,120 144,630 167,713 111,310 61,253 55,738 162,878 102,825 Unrestricted 67,501 66,973 45,112 46,999 22,792 22,435 24,786 33,569 Total Net Assets 970,581 922,735 828,625 770,890 710,772 660,880 461,150 415,583

Total Liabilities and Net Assets $ 2,557,211 $ 2,350,766 $ 2,175,125 $ 1,676,309 $ 1,455,083 $ 1,202,426 $ 1,451,286 $ 1,391,746

(1) The Authority adopted GASB Statement No. 33 and No. 34 in FY 2001, resulting in changes to the financial statement format; (1) The Authoritytherefore, adopted comparative GASB Statement amounts No. for 33 theand yearsNo. 34 1999-2000 in FY 2001, resultingare not inavailable. changes to the financial statement format; therefore, comparative amounts for the years 1999-2000 are not available. indianapolis Airport Authority indianapolis Airport Authority

Total Liabilities and Net Assets $ 2,557,211 $ 2,350,766 $ 2,175,125 $ 1,676,309 $ 1,455,083 $ 1,202,426 $ 1,451,286 $ 1,391,746

Net Assets and Changes in Net Assets Net Assets and Changes in Net Assets For the Last Ten Years Ended December 31 (1) For the Last Ten Years Ended December 31 (1) (in thousands) (in thousands)

2008 2007 2006 2005 2004 2003 2002 2001 Operating Revenues Airfield $ 23,889 $ 24,750 $ 21,075 $ 22,597 $ 21,691 $ 20,808 $ 15,326 $ 17,168 Terminal complex 36,529 31,785 30,461 27,862 27,566 25,128 23,747 24,490 Parking 29,437 28,581 27,128 25,701 23,202 20,704 19,798 22,231 Rented buildings and other 12,406 10,922 9,124 9,384 8,849 9,401 8,774 8,524 Indianapolis Maintenance Center (IMC) 7,253 6,478 4,049 3,313 4,469 2,185 - - Reliever airports 2,402 2,205 2,119 2,028 2,008 1,947 1,863 1,591 Special facility debt service rentals (2) ------42,522 41,862 Total Operating Revenues 111,916 104,721 93,956 90,885 87,785 80,173 112,030 115,866

Non-operating Revenues State and local appropriations 26,928 26,821 21,492 17,575 31,547 31,133 30,754 30,057 Federal operating grants 1,111 1,138 1,147 1,136 1,381 840 1,179 68 Customer facility charges (rental cars) 5,115 5,137 3,527 - - - - - Investment income 12,726 27,622 25,468 11,007 1,765 1,439 2,242 5,194 Total Non-Operating Revenues 45,880 60,718 51,634 29,718 34,693 33,412 34,175 35,319

Total Revenues 157,795 165,439 145,590 120,603 122,478 113,585 146,205 151,185

Operating Expenses Airfield 8,246 7,120 5,540 5,619 5,624 5,251 4,477 3,962 Terminal complex 11,881 7,922 7,737 7,689 7,136 6,486 6,537 6,006 Parking 6,144 5,269 4,761 4,457 4,166 4,189 4,016 3,640 Rented buildings and other 924 3,477 1,780 849 1,496 1,362 675 608 Indianapolis Maintenance Center (IMC) 10,306 10,637 10,239 9,570 9,139 3,669 - - Reliever airports 1,293 1,241 1,060 931 918 1,004 937 790 Public safety 9,846 9,208 8,836 8,607 9,040 9,915 9,777 8,068 Administration 10,999 12,037 12,279 11,332 10,417 9,165 8,506 8,846 Depreciation 73,551 44,090 42,352 42,742 45,112 45,104 54,431 52,191 Total Operating Expenses 133,190 101,001 94,584 91,796 93,048 86,145 89,356 84,111

Non-Operating Expenses Interest expense 36,265 33,954 40,390 29,173 27,264 28,894 61,853 64,587 Loss on disposals of capital assets and other 1,426 1,947 3,373 7,385 349 389 203 576 Total Non-Operating Expenses 37,691 35,901 43,763 36,558 27,613 29,283 62,056 65,163

Total Expenses 170,881 136,902 138,347 128,354 120,661 115,428 151,412 149,274

Income (Loss) Before Capital Contributions, Grants and Charges (13,086) 28,537 7,243 (7,751) 1,817 (1,843) (5,207) 1,911

Capital Contributions, Grants and Charges Passenger facility charges 16,853 16,774 17,480 17,461 16,723 15,607 14,568 13,909 Federal and state grants 17,606 26,730 22,149 28,791 30,705 23,032 23,007 16,601 Contributions from lessees 26,447 21,940 8,676 14,063 647 1,846 13,199 4,860 Contributions from local governmental entity 25 128 2,187 7,554 - - - - Total Capital Contributions, Grants and Charges 60,931 65,572 50,492 67,869 48,075 40,485 50,774 35,370

Increase in Net Assets 47,845 94,109 57,735 60,118 49,892 38,642 45,567 37,281

Net Assets, Beginning of Year, as previously reported 922,735 828,625 770,890 710,772 660,880 461,149 415,582 378,301

Cumulative Effect of Change in Acct. Principle (2) - - - - - 161,089 - -

Net Assets, Beginning of Year, as restated 922,735 828,625 770,890 710,772 660,880 622,238 415,582 378,301

Net Assets, End of Year $ 970,580 $ 922,734 $ 828,625 $ 770,890 $ 710,772 $ 660,880 $ 461,149 $ 415,582

(1) The Authority adopted GASB Statement No. 33 and No. 34 in FY 2001, resulting in changes to the financial statement format; therefore, comparative amounts for the years 1999-2000 are not available. (2) Due to a change in accounting for conduit debt obligations, special facility debt rentals are no longer recorded on the Authority’s financial statements. indianapolis Airport Authority indianapolis Airport Authority