TUCSON AIRPORT AUTHORITY 2012COMPREHENSIVE ANNUAL FINANCIAL REPORT Prepared by the Finance Department Year Ended September 30, 2012 Tucson, Arizona This page intentionally left blank. MISSION STATEMENT The mission of the Tucson Airport Authority is to promote aviation and foster economic development by strategically planning, developing and operating the most effective and efficient airport system for southern Arizona. I 2012 BOARD OF DIRECTORS AND MEMBERS CHAIRMAN ACTIVE MEMBERS Lisa H. Israel Judith K. Abrams Thomas E. Chestnut Michael W. Franks Robert Johnston President/CEO Owner President/CEO President (Ret.) Lieutenant General La Posada at Park Centre, Judith K. Abrams Chestnut Construction Seaver Franks Architects U.S. Marine Corps. Inc. Consulting Corporation Peter V. Gallo Gary Kippur CHAIRMAN-ELECT Hal D. Adamson Stephen W. Christy President President President Board Member Monterey Water Co. Tucson Iron & Metal Edwin L. Biggers Adamac Rubber Mfg., Inc. Arizona State Transportation Board, Jaime Esteban Gibbons Rosemary J. Koberlein (Ret.) Vice President Larry R. Adamson, Esq. PAG & RTA Owner Chief Executive Officer Hughes Aircraft Co. Shareholder ABCD Realty, Ltd. Long Companies Duffield, Adamson, Ginny L. Clements David Goldstein Roy W. Kyle SECRETARY Helenbolt, PC Chairman Golden Eagle President Partner Bruce I. Ash Diamond Ventures, Inc. Lewis and Roca LLP Steven R. Cole Distributors, Inc. President President Paul Ash Management D. June Crawford Dr. Thomas Grogan David J. Lane Southwest Appraisal Co., LLC President Founder & Chief Medical President Associates Copygraphix, Inc. Officer Lane Arizona Properties William R. Assenmacher Ventana Medical TREASURER President & CEO Richard Davis Systems, Inc. Larry M. Lang CAID Industries, Inc. Partner/Trial Lawyer President Steven D. Fell Mesch, Clark & David E. Hameroff Diversified Design & Senior Vice President Raymond Bernal Rothschild PC Attorney Construction, Inc. Commercial Banking Management The Hameroff Law Manager Big River Darryl B. Dobras F i r m, P.C. Dr. Taylor W. Lawrence National Bank of Arizona Development Ent. President President DBD Investments Michael S. Hammond Raytheon Missile Systems ASSISTANT SECRETARY Henry K. Boice President/CEO President Robert L. Draper Cushman & Wakefield Jan Lesher Tony Finley Northern Trust Company President PICOR Commercial Real Deputy County Chief Financial Officer O’Rielly Chevrolet, Inc. Estate Services Administrator Long Companies/Long Paul J. Bonavia Pima County Administration Realty Company Chairman, President, CEO Michael J. Duran Barbara L. Harper, DM Unisource Energy Corp. Vice President & Chief Pilot Wendell M. Long ASSISTANT TREASURER Development Officer Aviation Consultant CEO Susan G. Boswell Tucson Medical Center Pascua Yaqui Gaming Ent. Gregory A. Pivirotto Attorney & TMC Foundation Edward D. Harrow (Ret.) President/CEO Quarles & Brady LLP Colonel, USAF, Ret. Humberto S. Lopez University Medical Center Bruce L. Dusenberry Past Executive Director President John H. Bremond President Pima Air and Space HSL Properties, Inc. President DIRECTOR Horizon Moving Systems, Museum Bremond Company, LLC Inc. Lisa M. Lovallo Dr. Ann Weaver Hart VP & Market Manager Michael F. Hannley Archibald M. Brown, Jr. Vance L. Falbaum President for Southern Arizona President & CEO Retired Sr. Vice President & The University of Arizona Cox Communications, Inc. Bank of Tucson Merlin, Inc. Financial Advisor RBC Wealth Management Duff Hearon David M. Lovitt, Jr. DIRECTOR Chanda S. Budhabhatti President/CEO President Vice President George Favela Ashland Group & DM Lovitt Insurance Francine L. Katz A&A Structural Director, State & Local The Hearon Co. Agency Associate Publisher Engineers, Inc. Government Affairs Tucson Lifestyle Magazine CenturyLink Lawrence M. Hecker Richard Lukso Joseph R. Cesare Attorney Aviation Engineering DIRECTOR President John L. Fendenheim Hecker & Muehlebach, Consultant Broadway Realty & Owner PLLC Lux Aviation James H. Moore, Jr. Trust, Inc. Fendenheim Enterprises President/CEO K. La Monte Hunley David Lyons University of Arizona Dr. Vicki L. Chandler Sally G. Fernandez Owner Executive Vice President, Foundation Chief Program Officer, President Arizona Health, LLC Regional President Science, Gordon and Betty Safety Dynamics, Inc. National Bank of Arizona Moore Foundation Daisy M. Jenkins Louise L. Francesconi Executive Vice President, S. James Manilla, Ph.D. (Ret.) President Chief Administrative/HR Consultant Raytheon Company, Officer Missile Systems Carondelet Health Network II TUCSON AIRPORT AUTHORITY 2012 CAFR LIFE MEMBERS Michael McGrath Lea Márquez Peterson Lucinda J. Smedley Laura T. Almquist Dr. Peter Likins Partner President/CEO Publisher/Principal Hal W. Ashton Christopher Maloney Mesch, Clark & Tucson Hispanic Chamber TREND Report/Real Edith Sayre Auslander Octavio A. Molera Rothschild PC of Commerce Estate Consulting Group Elizabeth T. Bilby Gary M. Munsinger, David L. McPherson Ricardo Platt George Steele Fred T. Boice Ph.D. (Ret.) Sr. Vice President Account Executive (Ret.) Executive Officer James J. Burns James E. Neihart Raytheon Company Crest Insurance Valley National Corp. Jack C. Camper R. B. O’Rielly Sharon B. Megdal, Ph.D. Timothy J. Prouty Phillip Swaim John L. Carter William E. Page Director, Water Resources Managing Director, President Paul W. Cella Mary Levy Peachin Research Center Brokerage Services Swaim Associates, Ltd. Jim H. Click, Jr. Bobby R. Pennington The University of Arizona CB Richard Ellis Jack D. Davis Lloyd J. Perper Steven Thu Tucson, LLC Lee Davis Charles M. Pettis Frances McL. Merryman Managing Partner Vice President Stephen E. Quinlan 4-D Properties Donald R. Diamond Ernesto V. Portillo Sr. Wealth Strategist Chairman Katie Dusenberry Mickey R. Prim Northern Trust Company Long Realty Company Steven D. Touché Arnold R. Elias Karl G. Ronstadt President Robert A. Elliott Lowell E. Rothschild Forrest L. Metz James F. Ronstadt Lovitt & Touché, Inc. President CFO Dr. Roy Flores Roberto C. Ruiz Urban Engineering, Inc. Ronstadt Insurance Co. Richard K. Underwood Edward S. Frohling Warren S. Rustand President Arthur L. Gonzales Richard L. Sainz Omar Mireles Joaquin Ruiz AAA Landscape Elizabeth Gonzalez James M. Sakrison President Dean, College of Science Marcia Grand John P. Schaefer, Ph.D. HSL Asset Management The University of Arizona Izaro Urreiztieta Senior Vice President & Michael W. Hard Floyd W. Sedlmayr, Jr. Chris Monson Ronald K. Sable Manager John L. Huerta Donald G. Shropshire Owner President Tucson Commercial Richard F. Imwalle Jacob F. Struble Aberdeen Group Concord Solutions Ltd. Banking, BBVA Compass Charles Jackson Esther Don Tang Rebecca R. Montaño, Rubin Salter, Jr. Mercy A. Valencia, Ed.D. Darryl O. Jones Richard S. Walden Ed.D. Attorney (Ret.) Assistant Vice Al Kivel Arthur B. (Art) Waller Educational Consultant Rubin Salter, Jr. President Dr. Henry Koffler Paul Weitman Education Trust Law Offices Real Estate Administration Cressworth C. Lander Joseph B. Wilcox Beat the Odds Institute University of Arizona S. L. Schorr Meg Olson Lee David T.C. Wright Rick T. Myers, Jr. Senior Partner Taunya Villicana Board of Regents Lewis and Roca LLP Co-Founder/Managing Partner Ned L. Norris, Jr. Christopher H. Sheafe Affinity Financial Group Chairman President Tohono O’odham Nation C. Sheafe Company Jonathan D. Walker (Ret.) President/CEO Tim J. Overton Keri L. Silvyn Metropolitan Tucson Vice President Attorney/Partner/Owner Convention & Visitors Northern Trust Company Lazarus, Silvyn & Bangs, Bureau P.C. Steve Pagnucco Katherine R. Ward General Manager, Scott M. Sirois Manager, Economic Manufacturing Division CEO/Tohono O’odham Development & Comm. Universal Avionics Gaming Enterprise Town of Sahuarita Desert Diamond Casino Richard D. Parlett Michael R. Wattis President Ted Sitterley, Jr. President General Tool & Supply Co. (Ret.) Financial Executive Michael R. Wattis, Inc. Industrial Tool and Supply Division W. David Sitton Ellen K. Wheeler, J.D. President Claims Manager Judith A. Patrick Enterprise Communications Pima County Finance and Board Chair Group, Ltd. Risk Management SCF Arizona David C. Smallhouse Thomas A. Zlaket Managing Partner Attorney Miramar Ventures, LLC Thomas A. Zlaket, PLLC III TABLE OF CONTENTS INTRODUCTION SECTION PAGES Transmittal Letter Organization 1 Economic Conditions and Outlook 2 2012 Air Travel Industry Recap 2 2013 Air Travel Industry Outlook 2 State and Local Economic Outlook 3 Air Service at Tucson International Airport 3 Major Initiatives 4 Capital Improvement Program 4 Major Maintenance Program 7 Federal and State Funding 8 Passenger Facility Charge Program 8 Leasing, Business Development and Concession Activity 9 Financial Policies and Practices 10 Internal Control Environment 10 Budgetary Controls 10 Long-Term Financial Planning 12 Cash Management and Investments 12 Capital Financing and Debt Management 12 Risk Management 13 Pension and Other Post-Employment Benefits 13 Other Information 14 Community Involvement 14 Requests For Information 15 Awards and Acknowledgments 15 Certificate of Achievement 16 Organizational Structure 17 Airlines and Tenants 18 FINANCIAL SECTION Independent Auditors’ Report 21 Management’s Discussion and Analysis 22 Statements of Net Assets 36 Statements of Revenues, Expenses and Changes in Net Assets 40 Statements of Cash Flows 41 Notes to Financial Statements 43 Note 1 Organization and Reporting Entity 43 Note 2 Summary of Significant Accounting Policies 43 Note 3 Cash, Cash Equivalents and Investments 47