Sarasota Manatee Airport Authority Management's ......Sarasota Manatee Airport Authority Management's Discussion and Analysis (Unaudited) September 30, 2003 and 2002 4 An additional

Sarasota Manatee Airport Authority Management's Discussion and Analysis (Unaudited) September 30, 2003 and 2002

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The following discussion and analysis of the financial performance and activity of the Sarasota Manatee Airport Authority (the Authority) is to provide an introduction and understanding of the basic financial statements of the Authority for the year ended September 30, 2003 with selected comparative information for the year ended September 30, 2002. 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. The Authority is an independent special district pursuant to the constitution and laws of Florida, particularly Chapter 91-358, Laws of Florida, as amended, revising and consolidating Chapter 31263, Special Laws of Florida, 1955, which, by the Act authorized the Authority to own and operate the Sarasota Bradenton International Airport (the Airport). The Authority has jurisdiction, control, supervision and management of the Airport.

The Authority's Board consists of six members who are appointed on a non-partisan basis to four-year staggered terms. The Act requires that three members of the Authority be residents of, and be appointed within, each of Sarasota and Manatee Counties. It is mandated that the Chairperson elected by the members thereof, alternate county representation on an annual basis.

The Airport is situated on approximately 1,100 acres located in Sarasota and Manatee Counties and the City of Sarasota. It is classified as a small hub airport by the Federal Aviation Administration (FAA). The airport has two crossing asphalt-surfaced runways, 4/22 (NE/SW) and 14/32 (SE/NW). Both runways were built in the early 1940s. Runway 4/22, at 5,004 feet long, was resurfaced in 1961, strengthened in 1969 and completely rehabilitated in early 1995. It is used almost exclusively by general aviation aircraft. Runway 14/32 was extended in 1969 to 7,003 feet, rehabilitated in 1989/1990, and again extended in 2001 to its present length of 9,500 feet. As the main carrier runway, it is used by commercial jets and other aircraft. The current terminal building opened to travelers on October 29, 1989. It is located southwest of the intersection of runways 4/22 and 14/32 and has approximately 240,000 square feet of interior space. The terminal project, including the new building, parking area, ramp space and landscaping took nearly ten years to apply for and be approved by the local governments, regional planning councils and the State of Florida. Construction began in 1987 and was completed in 1990. The construction costs were approximately $58 million for which $72.8 million in bonds were issued with $12 million being subsequently redeemed, leaving approximately $61 million outstanding. The Authority is self supporting, using aircraft landing fees, fees from terminal and other rentals, and revenues from concessions to fund operating expenses. The Authority is not taxpayer funded. Construction programs are funded by federal and state grants, Passenger Facility Charges (PFCs), and Authority revenues.


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Sarasota Bradenton International Airport activities decreased in every major area during 2003 as follows:

FY 2003 FY 2002 % Decrease

Enplanements 537,000 557,000 -3.6%Aircraft Operations 136,000 162,000 -16.0%Landed Weight 674,123,000 721,603,000 -6.6%

The Airport, like most airports, was closed from September 11 through 13, 2001 and reopened on September 14, 2001. The Authority received federal and state funds of approximately $.9 million in fiscal year 2003 and $1.1 million in fiscal year 2002 to replace lost revenues and additional expenses incurred as a result of the events of September 11, 2001 (September 11). This Federal and State compensation is included in non-operating revenues in the Statements of Revenues, Expenses and Changes in Net Assets. The financial results of fiscal 2003 and 2002 were shaped largely by the events of September 11 described above. The majority of the operating revenues at the Airport are directly related to the number of passenger and aircraft operations. After the events of September 11, there was a significant decrease in aviation activity and a resulting decrease in operating revenues at the Authority. The following is a summary of the financial results for the year ended September 30, 2003: Operating revenues increased by 17.2% from $11.8 million in fiscal 2002 to $13.9 million in fiscal 2003 due to the following: Airline landing fees as a result of Section 6.09 of the Authority’s Scheduled Airline Agreement and terminal building lease requiring a year-end adjustment to actual airline rates and charges. For fiscal year 2003, this resulted in a $.6 million adjustment increasing landing fees; fiscal year 2002 realized a $.6 million adjustment decreasing landing fees. Additionally, a temporary cessation of landing fees for air carriers in fiscal year 2002 following the terrorist attacks of September 11, 2001 resulted in a $.3 million decrease in landing fees. The remaining $.6 million difference consists of increases of $.4 million in building rentals, $.1 million in parking lot fees, and $.1 million in other airfield revenue. Operating expenses (excluding depreciation and amortization) increased from $10.4 million in fiscal 2002 to $11.1 million in fiscal 2003 primarily as a result of increased salaries and employee benefits. Depreciation and amortization increased from $5.2 million in fiscal 2002 to $5.3 million in fiscal 2003. Operating loss before non-operating revenues and expenses decreased from a loss of $3.9 million in fiscal 2002 to a loss of $2.6 million in fiscal 2003. Non-operating revenues and expenses increased from a net expense of $1.3 million in fiscal 2002 to $1.4 million in fiscal 2003 due primarily to the decreases in the prime interest rate by the Federal Reserve and revenues received from the bankruptcy court on delinquent customer accounts. Capital contributions received in the form of grants from Federal and State governments decreased from $13.7 million in fiscal 2002 to $11.4 million in fiscal 2003 as a result of additional projects in the prior year and the timing of when the expenditures were incurred, and thus became eligible for Federal and State funding.


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SUMMARY OF OPERATIONS AND CHANGES IN NET ASSETS

FY 2003 FY 2002

Operating revenues 13,871,167$ 11,833,453$ Operating expenses (16,467,405) (15,759,343) Loss before non-operating revenues and expenses (2,596,238) (3,925,890) Non-operating revenues and expenses, net (1,374,108) (1,305,581) Loss before capital contributions (3,970,346) (5,231,471) Capital contributions 11,363,447 13,663,601

Increase in Net Assets 7,393,101$ 8,432,130$ SUMMARY OF NET ASSETS Net assets may serve over time as a useful indicator of the Authority’s financial position. The Authority’s net assets exceeded liabilities by approximately $97.3 million at September 30, 2003, a $7.4 million increase from September 30, 2002.

FY 2003 FY 2002ASSETS:

Current and other assets 36,954,043$ 36,541,511$ Capital assets, net 108,802,397 103,344,866 Total assets 145,756,440 139,886,377

LIABILITIES:Revenue bonds payable, less current portion 40,456,178 43,164,188 Other liabilities 8,043,172 6,858,200 Total liabilities 48,499,350 50,022,388

NET ASSETS:Invested in capital assets, net of related debt 66,252,977 57,071,469 Restricted 12,343,240 15,061,700 Unrestricted 18,660,873 17,730,820

TOTAL NET ASSETS 97,257,090$ 89,863,989$ The largest portion of the Authority’s net assets each year represents its investment in capital assets (e.g., land, buildings, improvements and equipment), less the related indebtedness outstanding used to acquire and construct those capital assets. The Authority uses these capital assets to provide services to its passengers and visitors to the Airport; consequently, these assets are not available for future spending. Although the Authority’s investment in its capital assets is reported net of related debt, the resources required to repay this debt must be provided annually from operations, since it is unlikely the capital assets themselves will be liquidated to pay liabilities.


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An additional portion of the Authority’s net assets represents bond reserve funds that are subject to external restrictions on how they can be used under bond resolutions, and Passenger Facility Charges that are restricted by Federal regulations and a bond resolution until they can be used to pay future indebtedness. The remaining unrestricted net assets may be used to meet any of the Authority’s ongoing obligations. AIRPORT USE AGREEMENTS The Authority has entered into Airport Use Agreements with the principal commercial air carriers that serve the airport. The signatory airlines are American Eagle, Air Sunshine, American Trans Air, Continental, Delta Airlines, and USAirways. American Eagle terminated service in April 2001, but as a signatory, is required to pay rent until September 2004, the end of its five-year signatory agreement. The signatory airlines are granted the non-exclusive use of the airport for the purpose of operating an air transportation system for the carriage of persons, property, cargo and mail, according to the rules and regulations of the Authority. The term of the use agreement is five years, subject to each airline’s right to terminate its agreement for cause upon sixty days prior written notice to the Authority. The current agreements were originally set to expire in September 2004. The fiscal year 2001 rate reconciliation, wherein airline rates and charges are reconciled to actual year-end costs, resulted in approximately $800,000 in additional charges being owed to the Authority by the airlines. Considering the financial stresses on the airline industry after the September 11 tragedy and this sizeable amount owed, the Authority successfully negotiated a two-year extension of the agreements with the remaining active airlines in exchange for a waiver of the amount owed. Consequently, the $800,000 is included in other long-term assets and is being amortized over the remaining term of the agreements. The agreements are now set to expire at the end of September 2006. Each of the signatory airlines also leases space in the terminal for its exclusive use with the right to make certain leasehold improvements. Each of the signatory airlines pay monthly: (1) rentals for terminal building space, (2) landing fees, and (3) preferential apron space. Rentals and landing fees may be adjusted by the Authority, usually on an annual basis, to maintain a balanced budget. LANDING FEES All charges for the use of the field and runway area are combined in a monthly landing fee based upon the signatory airline’s aircraft arrivals at the airport during the month. The landing fee is computed by multiplying the maximum gross certified landing weight of the aircraft arrival by a landing fee rate expressed in terms of thousand pound units of landed weight.


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REVENUES A summary of revenues for the year ended September 30, 2003 and the amount and percentage of change in relation to prior year amounts is as follows:

Increase Percent2003 Percent (Decrease) Increase

Amount of Total from 2002 (Decrease)

Operating Revenues:Building rentals 5,290,059$ 33.8% 407,879$ 8.4%Car rental concessions 2,714,804 17.4% (116,623) -4.1%Parking lot fees 1,463,374 9.4% 136,479 10.3%Landing fees 1,508,041 9.6% 1,461,199 3119.4%Other airfield revenue 1,257,993 8.0% 86,999 7.4%Other concessions 651,574 4.2% (31,428) -4.6%Non-aviation system revenue 925,775 5.9% 60,008 6.9%Other revenue 59,547 0.4% 33,201 126.0%

Total Operating Revenues 13,871,167 88.7% 2,037,714 17.2%

Non-Operating Revenues:Federal/state compensation, net 905,534 5.8% (152,162) -14.4%Interest and other investment income 704,698 4.5% (273,305) -27.9%Other miscellaneous 158,951 1.0% 158,354 26525.0% Total Non-Operating Revenues 1,769,183 10.3% (267,113) -13.1%

TOTAL REVENUES 15,640,350$ 100.0% 1,770,601$ 12.8% The following chart shows the major sources and the percentage of revenues for the year ended September 30, 2003:

33.8%

17.4%9.4%9.6%

8.0%

4.2%

5.9%

0.4%

1.0%

5.8%

4.5%

Building rentals

Car rental concessions

Parking lot fees

Landing fees

Other airfield revenue

Other concessions

Non-aviation system revenue

Other revenue

Other miscellaneous

Federal/state compensation, net

Interest and other investmentincome


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EXPENSES A summary of expenses for the year ended September 30, 2003 and the amount and percentage of change in relation to prior year amounts is as follows:

Increase Percent2003 Percent (Decrease) Increase

Amount of Total from 2002 (Decrease)

Operating Expenses:Depreciation and amortization 5,333,481$ 27.2% 70,860$ 1.3%Salaries and employee benefits 6,841,592 34.9% 451,981 7.1%Administration and general 2,446,865 12.5% 51,414 2.1%Maintenance 1,133,087 5.8% 94,250 9.1%Utilities 712,380 3.6% 39,557 5.9%

Total Operating Expenses 16,467,405 84.0% 708,062 4.5%

Non-Operating Expenses:Interest expense 3,054,451 15.6% (189,228) -5.8%Amortization of bond issuance costs 88,840 0.5% (9,358) -9.5%

Total Non-Operating Expenses 3,143,291 16.0% (198,586) -5.9%

TOTAL EXPENSES 19,610,696$ 100.0% 509,476$ 2.7%

The following chart shows the major cost centers and the percentage of expenses for the year ended September 30, 2003:

27.2%

34.9%

12.5%

5.8%

3.6%0.5%

15.6%

Depreciation and amortization

Salaries and employee benefits

Administration and general

Maintenance

Utilities

Interest expense

Amortization of bond issuance costs


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SUMMARY OF CASH FLOW ACTIVITIES The following shows a summary of the major sources and uses of cash and cash equivalents for the past two years. Cash equivalents are considered cash-on-hand, bank deposits and highly liquid investments with an original maturity of three months or less.

FY 2003 FY 2002

Cash flows from Operating Activities 2,804,305$ 413,363$ Cash flows from Investing Activities 324,376 (3,918,270) Cash flows from Capital and Related Financing Activities (2,970,594) (8,683,439)

Net increase (decrease) in Cash and Cash Equivalents 158,087 (12,188,346)

Cash and Cash Equivalents:Beginning of year 16,458,224 28,646,570

End of Year 16,616,311$ 16,458,224$ The Authority’s available cash and cash equivalents increased from approximately $16.5 million at the end of fiscal year 2002 to approximately $16.6 million at the end of fiscal year 2003 mainly due to cash from operations offsetting the use of funds for investment purchases and the use of funds for capital activities related to land and easement acquisitions, the extension of runway 14/32, construction of the noise barrier, and the extension and refurbishment of taxiway C. AIRPORT STATISTICS The following operating and passenger data are provided to comply with the Authority’s covenant to holders of the Series 1996 and Series 2003 bonds to provide continuing disclosure of such information.

Fiscal Year TotalYearly percent

(decrease) increaseAirport as percent of

U.S. total

1999 762,735 -2.3% 0.122000 765,011 0.3% 0.122001 631,460 -17.5% 0.112002 557,165 -11.8% n.a.2003 537,119 -3.6% n.a.

Fiscal Year Historical Passenger Enplanements


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Calendar Year TotalYearly percent

(decrease) increaseAirport as percent

of U.S. total

1999 759,311 -2.5% 0.122000 746,401 -1.7% 0.122001 592,491 -20.6% 0.112002 564,516 -4.7% n.a.

2003 1 447,939 -5.8% n.a.

1 Calendar year 2003 total and percentage data is for the ten-month period of January through October 2003.

Calendar Year Historical Passenger Enplanements

Fiscal YearTotal

DeparturesAverage Daily

DeparturesEnplaned Passengers

per Departure

1999 9,591 26 802000 9,876 27 772001 7,710 21 822002 7,361 20 762003 6,863 19 79

Airline Aircraft Departures

As of January 2003, the Airport was served by five national airlines (American TransAir, Continental, Delta, Northwest and US Airways) and four commuter airlines (Air Sunshine, Atlantic Southeast, Cape Air, and Comair) (collectively, the “Participating Airlines”). In fiscal year 2003, the top four airlines accounted for 80.2% of total enplanements. Delta Air Lines ranks first in number of enplaned passengers (42.6%), with US Airways ranking second (15.6%), American TransAir third (13.6%) and Continental Airlines ranking forth (8.3%). The tables below set forth information on passenger enplanements and landed weight by airlines. The Airport remains actively engaged in on-going marketing activities to enhance service by incumbent carriers as well as recruit service from airlines not currently serving the Airport Service Area.


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1999 2000 2001 2002 2003

ATA 71,806 67,274 71,647 68,805 73,053Continental 66,544 72,622 54,704 44,594 44,863Delta 303,894 308,217 267,066 253,652 229,048Northwest 1 54,811 42,949 29,036 28,026 24,445TWA 2 36,886 36,807 - - - US Airways 136,302 136,206 124,036 94,031 83,770Other Airlines 3 92,492 100,936 84,971 68,057 81,940

Totals 762,735 765,011 631,460 557,165 537,119

1999 2000 2001 2002 2003

ATA 9.4% 8.8% 11.3% 12.3% 13.6%Continental 8.7% 9.5% 8.7% 8.0% 8.4%Delta 39.8% 40.3% 42.3% 45.5% 42.6%Northwest 1 7.2% 5.6% 4.6% 5.0% 4.6%TWA 2 4.8% 4.8% 0.0% 0.0% 0.0%US Airways 17.9% 17.8% 19.6% 16.9% 15.6%Other Airlines 3 12.1% 13.2% 13.5% 12.2% 15.3%

Totals 100.0% 100.0% 100.0% 100.0% 100.0%

1 Changed to charter operations in May 20002 Discontinued operations September 20003 Includes American, Air Sunshine, Atlantic Southeast, Comair and Gulfstream

(Fiscal Years ended September 30, 1999 - 2003)

Airline Passenger Enplanements(Fiscal Years ended September 30, 1999 - 2003)

Airline Market SharesEnplaned Passengers


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1999 2000 2001 2002 2003

ATA 73,680 80,034 87,186 79,907 85,395Continental 65,799 92,272 70,444 57,392 51,920Delta 288,088 380,502 320,029 353,841 297,565Northwest 1 56,836 52,193 33,962 34,760 29,308TWA 2 43,784 47,311 - - - US Airways 112,363 140,530 126,785 97,678 101,287Other Airlines 3 104,310 141,563 117,503 98,019 108,648

Totals 744,860 934,403 755,908 721,597 674,123

1999 2000 2001 2002 2003ATA 9.9% 8.6% 11.5% 11.1% 12.7%Continental 8.8% 9.9% 9.3% 8.0% 7.7%Delta 38.7% 40.7% 42.3% 49.0% 44.1%Northwest 1 7.6% 5.6% 4.5% 4.8% 4.3%TWA 2 5.9% 5.1% 0.0% 0.0% 0.0%US Airways 15.1% 15.0% 16.8% 13.5% 15.0%Other Airlines 3 14.0% 15.2% 15.5% 13.6% 16.1%

Totals 100.0% 100.0% 100.0% 100.0% 100.0%

1 Changed to charter operations in May 20002 Discontinued operations September 20003 Includes American, Air Sunshine, Atlantic Southeast, Comair and Gulfstream

Landed Weights(Fiscal Years ended September 30, 1999 - 2003)

Share of total landed weight

Airline Landed Weights(Fiscal Years ended September 30, 1999 - 2003)

(in thousand pounds)

Airline Market Shares


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AIRCRAFT OPERATIONS The volume of aircraft operations at the Airport, as reported by the FAA air traffic control tower, is presented below. Aircraft operations consist of aircraft landings and departures and are reported by the FAA in four categories: air carrier, air taxi and commuter airline, general aviation, and military. As shown, total aircraft operations have fluctuated from a high of 194,151 in fiscal year 1999 to a low of 136,466 in fiscal year 2003.

Fiscal Year Air CarrierAir Taxi and Commuter

General Aviation Military Total

1999 12,257 9,974 169,244 2,676 194,1512000 11,983 11,408 159,373 2,327 185,0912001 9,823 10,157 147,057 1,271 168,3082002 8,821 11,663 139,935 1,794 162,2132003 9,511 10,035 114,156 2,764 136,466

Aircraft Operations(Fiscal Years ended September 30, 1999 - 2003)

FINANCIAL STATEMENTS The Authority’s financial statements are prepared on an accrual basis in accordance with generally accepted accounting principals promulgated by the Government Accounting Standards Board (“GASB”). The Authority is structured as a single enterprise fund with revenues recognized when earned, not when received. Expenses are recognized when incurred, not when they are paid. Capital assets are capitalized and, except for land, depreciated over their useful lives. Amounts are restricted for debt service and, where applicable, for construction activities. The financial statements are comprised of the Statements of Net Assets; the Statements of Revenues, Expenses and Changes in Net Assets; and the Statements of Cash Flows. Net assets are displayed in three components: invested in capital assets, net of related debt; restricted; and unrestricted. The component of net assets comprising invested in capital assets, net of related debt, includes restricted capital assets, is net of accumulated depreciation and reduced by the outstanding balances of any outstanding debt that is attributable to the acquisition, construction or improvements of those assets. For the year ended September 30, 2001, the Authority adopted GASB Statement No. 33, Accounting and Financial Reporting for Non Exchange Transactions (“GASB 33”). For the year ended September 30, 2002, the Authority adopted GASB Statement No. 34, Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments (“GASB 34”) as amended by GASB Statement No. 37, Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments: Omnibus, and GASB Statement No. 38, Certain Financial Statement Note Disclosures. GASB 34 was required to be applied on a retroactive basis to all periods presented. GASB 33 required that non exchange and exchange-like transactions be recognized as non-operating revenue. The Authority’s adoption of GASB 33 eliminated the direct reporting of grants on the Authority’s Statements of Net Assets. The Statements of Revenues, Expenses and Changes in Net Assets categorize revenues and expenses as either operating or non-operating based on management’s policy as established in accordance with definitions set forth in GASB 33 and 34.


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The Statements of Cash Flows present information showing how the Authority’s cash and cash equivalents changed during the fiscal year. The Statements of Cash Flows classify cash receipts and cash payments as resulting from operating activities, capital related financing activities, and investing activities. CAPITAL ACQUISITIONS AND CONSTRUCTION ACTIVITIES During fiscal year 2003, the Authority expended approximately $10.6 million on capital activities. This included $860,000 for sound insulation and easement acquisitions, with the remaining balance for major construction projects, principally the construction for the extension and refurbishment of taxiway C and design and construction of an improved security system and emergency operations center. During fiscal year 2003, completed projects totaling approximately $1.5 million were closed from construction-in-progress to their respective capital accounts. The major projects completed were: HVAC system upgrade $756,754 Development of Regional Impact study $522,266 ADA study $ 98,190 Acquisitions are funded using a variety of financing techniques, including Federal grants with matching State grants, PFCs and airport funds. Additional information on the Authority’s capital assets and commitments can be found in Note 7 – Commitment and Contingencies, of the Notes to the Financial Statements. LONG-TERM DEBT ADMINISTRATION

The Authority issued series 1984-A and B Revenue Bonds totaling $72.8 million in December 1984 in order to finance construction of new airport terminal facilities to handle existing and projected traffic levels. During calendar year 1988, the Authority determined that Series A ($11.8 million of annual variable rate bonds) would not be needed for completion of the construction project. The $11.8 million was retired on February 1, 1989 from proceeds of the bonds and interest thereon. On January 21, 1988, the Authority amended and restated the 1984-B Revenue Bonds to a fixed rate series.

On June 30, 1993, the Authority issued $8.695 million in Revenue Refunding Bonds with an interest rate ranging from 3.0% to 5.3% to refinance $7.5 million of its outstanding Series 1984-B Revenue Bonds with an interest rate ranging from 6.8% to 7.8%. The refinancing resulted in an accounting loss of approximately $1.16 million which has been deferred in accordance with GASB Statement No. 23 and is being amortized over the life of the new bonds which were equivalent to the remaining life of the old bonds. On February 9, 1995, the Authority executed and delivered an interest rate swap agreement with Goldman Sachs Mitsui Marine Derivative Products, L.P. for the remainder of the outstanding Series 1984B bonds to take advantage of and prudently lock in what at the time was considered historic interest rate savings. On May 7, 1996, the Authority issued $53.68 million in Airport System Revenue Refunding Bonds with an interest rate ranging from 3.6% to 5.4% to refinance all of the remaining outstanding Series 1984-B Revenue Bonds. Airport System Taxable Revenue Bonds in the amount of $1.21 million with an interest rate ranging from 5.6% to 6.1% were issued simultaneously with the Series 1996 bonds to pay all or a portion of the termination payment required of the Authority to terminate the swap agreement. This arrangement was made necessary by Internal Revenue Service regulations restricting permissible uses of funds provided by tax exempt bonds. The taxable bonds were completely redeemed on August 1, 1997.


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The refinancing resulted in an accounting loss of approximately $6.989 million. The Authority, in accordance with GASB Statement No. 23, is amortizing this loss over the life of the new bond issue, which is equivalent to the remaining life of the old bonds. The Authority, in effect, reduced its aggregate debt service payments by approximately $6.5 million over the next 18 years and obtained an economic gain (which is the difference between present values of the old and new debt service payments) of approximately $4.1 million. The bonds are limited obligations payable solely from the net revenues of the Authority. The Authority is required to maintain a debt coverage ratio of at least 125% as defined in the Bond Resolution. Certain major air carriers serving the airport have entered into Airline Use Agreements which, taken as a whole, provide that the air carriers will make payments sufficient to enable the Authority to meet its debt coverage obligations. At September 30, 2003 and 2002, the Authority met the minimum debt coverage ratio of 1.25. Principal on the outstanding bonds is payable annually on August 1, and interest is payable semi-annually on February 1 and August 1. The Authority is required to deposit, ratably over the twelve months preceding each maturity date, a defined amount calculated to pay the principal amount plus accrued interest due at the payment date. Payment of the principal and interest on the fixed rate bonds are guaranteed by a municipal bond insurance policy. The bonds are subject to redemption at defined prices, plus accrued interest throughout their maturity. PASSENGER FACILITY CHARGES (PFC) On June 29, 1992, the Authority received approval from the FAA of its first application to impose a $3.00 Passenger Facility Charge (PFC) at the Airport effective September 1, 1992. The authorization to impose the PFC is contingent on continued compliance with the terms of the Federal Aviation Regulations. A second application to "use" the proceeds of the first application was filed with the FAA and approval was granted in its Record of Decision dated January 31, 1995. Applications three and four were combined “impose and use” PFC applications and were approved by the FAA in Records of Decision dated December 15, 1995 and October 3, 2000, respectively. On February 22, 2002 an amendment to the fourth application was administratively approved by the FAA that increased the charge level from $3.00 to $4.50 per enplaned passenger and increased the approved collection amount. Since inception of the PFC program, the Authority has collected approximately $25.2 million and expended approximately $21.8 million of these locally generated funds. 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 request for additional information should be addressed in writing to the Vice President, Chief Financial Officer, Sarasota Manatee Airport Authority, 6000 Airport Circle, Sarasota, FL 34243 or by email to [email protected].

SARASOTA MANATEE AIRPORT AUTHORITY Financial Statements with Management’s Discussion and Analysis, Supplemental Schedules and Report of Independent Certified Public Accountants For the Years Ended September 30, 2003 and 2002

Table of Contents

Page(s) Management’s Discussion and Analysis (Unaudited)...............................................................1-13 Report of Independent Certified Public Accountants..............................................................14-15 Financial Statements:

Statements of Net Assets ..................................................................................................16-17 Statements of Revenues, Expenses and Changes in Net Assets ............................................ 18 Statements of Cash Flows...................................................................................................... 19 Notes to Financial Statements...........................................................................................20-31

Supplemental Schedules:

Schedule of Operating Expenses ........................................................................................... 32 Schedule of Receipts and Disbursements – Bond Proceeds Account.................................... 33 Schedule of Receipts and Disbursements – Cash – Unrestricted Operating and

Investment Accounts ....................................................................................................... 34

Error! Not a valid link. SARASOTA MANATEE AIRPORT AUTHORITYSTATEMENTS OF NET ASSETS (continued)SEPTEMBER 30, 2003 AND 2002

LIABILITIES AND NET ASSETS 2003 2002Current Liabilities

Payable from unrestricted assetsAccounts payable 3,476,037$ 2,534,983$ Accrued expenses and other liabilities 859,504 786,437

Total unrestricted liabilities 4,335,541 3,321,420

Current liabilities payable from restricted assetsAccrued revenue bond interest payable 406,961 430,693 Security deposits 101,345 95,062 Current portion of revenue bonds payable 3,195,000 2,950,000

Total restricted liabilities 3,703,306 3,475,755

Total current liabilities 8,038,847 6,797,175

Non-Current LiabilitiesPayable from unrestricted assets

Obligations under capital lease 4,325 61,025

Payable from restricted assetsRevenue bonds payable, less current portion 40,456,178 43,164,188

Total non-current liabilities 40,460,503 43,225,213

Total liabilities 48,499,350 50,022,388

NET ASSETSInvested in capital assets, net of related debt 66,252,977 57,071,469 Restricted 12,343,240 15,061,700 Unrestricted 18,660,873 17,730,820

Total net assets 97,257,090 89,863,989

Total Liabilities and Net Assets 145,756,440$ 139,886,377$

The accompanying notes are an integral part of these financial statements.

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SARASOTA MANATEE AIRPORT AUTHORITYSTATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETSFOR THE YEARS ENDED SEPTEMBER 30, 2003 AND 2002

2003 2002OPERATING REVENUES

Building rentals $ 5,290,059 $ 4,882,180 Car rental concessions 2,714,804 2,831,427 Parking lot fees 1,463,374 1,326,895 Landing fees 1,508,041 46,842 Other airfield revenue 1,257,993 1,170,994 Other concessions 651,574 683,002 Non-aviation system revenue 925,775 865,767 Other revenue 59,547 26,346

Total operating revenues 13,871,167 11,833,453

OPERATING EXPENSESDepreciation and amortization 5,333,482 5,262,621 Salaries and employee benefits 6,841,591 6,389,611 Administration and general 2,446,865 2,395,451 Maintenance 1,133,087 1,038,837 Utilities 712,380 672,823 Total operating expenses 16,467,405 15,759,343

OPERATING LOSS (2,596,238) (3,925,890)

NON-OPERATING REVENUES (EXPENSES)Interest expense (3,054,451) (3,243,679)Interest and other investment income 704,698 978,003 Federal/state compensation, net 905,534 1,057,696 Amortization of bond issuance costs (88,840) (98,198)Other miscellaneous 158,951 597 Total non-operating expenses (1,374,108) (1,305,581)

LOSS BEFORE CAPITAL CONTRIBUTIONS (3,970,346) (5,231,471)

CAPITAL CONTRIBUTIONSPassenger facility charges 2,162,386 1,853,913 Federal and state grants 9,201,061 11,809,688 Total capital contributions 11,363,447 13,663,601

NET ASSETS

Increase in net assets 7,393,101 8,432,130 Total net assets, beginning of year 89,863,989 81,431,859

Total net assets, end of year $97,257,090 $89,863,989 The accompanying notes are an integral part of these financial statements.

17

SARASOTA MANATEE AIRPORT AUTHORITYSTATEMENTS OF CASH FLOWSFOR THE YEARS ENDED SEPTEMBER 30, 2003 AND 2002

2003 2002Cash Flows from Operating Activities:

Cash received from customers 13,646,536$ 11,836,828$ Cash paid to employees (6,857,386) (6,390,352) Cash paid to suppliers for goods and services (3,984,845) (5,033,113)

Net cash provided by operating activities 2,804,305 413,363

Cash Flows from Capital and Related Financing Activities:Principal paid on revenue bonds maturity (2,950,000) (2,730,000) Interest paid (2,591,193) (2,726,035) Purchases of capital assets (10,556,041) (16,574,641) Contributions and grants 12,271,522 12,225,600 Federal/state compensation from 9/11 disaster 905,534 1,227,935 Payment of capital lease obligations (56,700) (88,708)

Increase (decrease) in security deposits 6,283 (17,590) Net cash used in capital and related financing activities (2,970,595) (8,683,439)

Cash Flows from Investing Activities:Proceeds from sales and maturities of investments 20,569,330 4,000,000 Purchases of investments (21,000,625) (9,000,000) Interest on restricted investments 359,120 474,932 Interest on unrestricted investments 396,552 606,798

Net cash provided by (used in) investing activities 324,377 (3,918,270)

Net increase (decrease) in Cash and Cash Equivalents 158,087 (12,188,346) Cash and Cash Equivalents, Beginning of Year 16,458,224 28,646,570

Cash and Cash Equivalents, End of Year 16,616,311$ 16,458,224$

Cash and Cash Equivalents:Unrestricted 6,414,928$ 10,600,601$ Restricted 10,201,383 5,857,623

16,616,311$ 16,458,224$

Reconciliation of Operating Loss to Net Cash Provided by Operating Activities:Operating loss (2,596,238)$ (3,925,890)$ Adjustments to reconcile operating loss to net cash provided by operations:

Depreciation and amortization 5,333,482 5,262,621 Car rental concession settlement - 597 Other non-operating expenses/income 158,951 (170,239) (Increase) decrease in accounts receivable (471,116) 724,725 Decrease in inventory, prepaid expenses and other assets (634,895) (853,042) Increase (decrease) in accounts payable and accrued expenses 1,014,121 (625,409)

Net cash provided by operating activities 2,804,305$ 413,363$

The accompanying notes are an integral part of these financial statements.

18

12

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Entity – The Sarasota Manatee Airport Authority (the Authority) is an independent special district pursuant to the constitution and laws of Florida, particularly Chapter 91-358, Laws of Florida, as amended, revising and consolidating Chapter 31263, Special Laws of Florida, 1955, which, by the Act authorized the Authority to own and operate the Sarasota Bradenton International Airport (the Airport). The Authority has jurisdiction, control, supervision and management of the Airport. The Authority's Board consists of six members who are appointed on a non-partisan basis to four-year staggered terms. The Act requires that three members of the Authority be residents of, and be appointed within, each of Sarasota and Manatee Counties. It is mandated that the Chairperson elected by the members thereof, alternate county representation on an annual basis. The Airport is situated on approximately 1,100 acres located in Sarasota and Manatee Counties and the City of Sarasota. It is classified as a small hub airport by the Federal Aviation Administration (FAA). 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. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Basis of Presentation – The Authority's financial statements are presented in the form of a single enterprise fund which encompasses all financial activity relative to owning, operating, and improving the Airport facilities. Governmental proprietary operations (enterprise funds) are accounted for using a flow of economic resources measurement focus on an accrual basis of accounting. Revenues are recognized in the period in which they are earned and expenses are recognized in the period incurred. Revenues from airlines, concessions, rental cars and parking are reported as operating revenues. Transactions which are capital, financing or investing related are reported as non-operating revenues. All expenses related to operating the Airport are reported as operating expenses. Interest expense and financing costs are reported as non-operating expenses. The accounting and reporting policies of the Authority conform with the accounting rules prescribed by the Governmental Accounting Standards Board (GASB). The Authority has elected under GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting to apply all applicable GASB pronouncements, as well as all applicable Financial Accounting Standards Board (FASB) Statements and Interpretations issued on or before November 30, 1989, except for those that conflict with or contradict GASB pronouncements. For the year ended September 30, 2002, the Authority adopted GASB Statement No. 34, Basic Financial Statements and Management’s Discussion and Analysis – for State and Local Governments (GASB 34) as amended by GASB Statements No. 37 and No. 38, and applied these standards on a retroactive basis to all periods presented. GASB Statement No. 34 establishes standards for external financial reporting for state and local governments and requires that resources be classified for accounting and reporting purposes into the following four net asset categories:

• Invested in capital assets, net of related debt: Capital assets, net of accumulated depreciation and

outstanding principal balances of debt attributable to the acquisition, construction or improvement of those assets.

• Restricted:

SARASOTA MANATEE AIRPORT AUTHORITY NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 2003 AND 2002

Nonexpendable – Net assets subject to externally imposed stipulations requiring that the Airport Authority maintain them permanently. The Authority has no nonexpendable net assets. Expendable – Net assets whose use by the Authority is subject to externally imposed stipulations that can be fulfilled by actions of the Authority pursuant to those stipulations or that expire by the passage of time. Such assets included the Authority’s bond construction funds on hand.

• Unrestricted: Net assets that are not subject to externally imposed stipulations. Unrestricted net assets

may be designated for specific purposes by action of management or the Board of Directors or may otherwise be limited by contractual agreements with outside parties.

The provisions of GASB Statement No. 34 have been applied to the years presented. Contributed capital in the financial statements historically represented grants received by the Airport Authority primarily associated with capital construction. In the net asset section, contributed capital has been restated primarily as invested in capital assets, net of debt, with any remaining grants on hand reported as restricted. Retained earnings, which formally represented the residual value of operations and capital assets constructed with funds other than grants has now been restated to direct the capital assets to invested in capital assets, net of related debt and the remaining assets resulting from operations, as unrestricted. A small portion of retained earnings was restated as restricted assets. Reporting Entity – The accompanying financial statements present the financial position, results of operations and cash flows of the Authority in accordance with GASB Statement No. 14, The Financial Reporting Entity, as amended by GASB Statement No. 39, Determining Whether Certain Organizations are Component Units. As a result of applying the reporting entity criteria in GASB Statement Nos. 14 and 39, no other component units exist in which the Authority has any financial accountability, which would require inclusion in the Authority's financial statements. Cash and Cash Equivalents – The Authority considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Investments – The Authority's investments are managed by the Vice President and Chief Financial Officer in conjunction with the Sarasota County Clerk's Office. Investments in commercial paper are recorded at cost, which approximates fair value. Investments in U.S. Treasury and government agency securities are recorded at fair value, as determined by quoted market prices. The Local Government Investment Pool operated by the Florida State Board of Administration is treated as a "2a-7 like" pool in accordance with GASB Statement No. 31; therefore, it is presented at its actual pooled share price, which approximates fair value. All investment income, including changes in the fair value of investments, is reported as interest and other investment income in the Statements of Revenues, Expenses and Changes in Net Assets. Concentrations of Credit Risk – The Authority maintains its cash and cash equivalents with a large financial institution. All accounts are guaranteed by the Federal Deposit Insurance Corporation up to $100,000 per bank. The Authority has cash deposited that exceeds the federally insured amount, however, management does not anticipate non-performance by the financial institution. Additionally, the Authority has unrestricted and restricted investments in federal government agencies that have a high credit standing. The Authority does not believe there is a significant risk of non-performance from these agencies.

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Inventories of Materials and Supplies – Inventories of materials and supplies are valued at the lower of cost, using the moving-average method, or market. Restricted Assets – Restricted assets are segregated in accordance with grant requirements and bond covenants or as required by law. Capital Assets – Capital assets are recorded at cost, or the fair value at receipt for contributions. They are depreciated under the straight-line method over the following estimated useful lives: Building and structures 10 – 40 years Runways, taxiways and ramps 20 – 30 years Land improvements 10 – 20 years Fencing 7 – 10 years Lights and signs 7 – 10 years Equipment, furniture and fixtures 5 – 10 years Computers 3 – 5 years Project costs are capitalized and included in construction in progress as the costs are incurred and maintenance and repair costs are expensed as incurred. The accumulated project costs are transferred to capital assets upon completion. The gain or loss recognized on assets retired or otherwise disposed of is reflected in operations and the associated cost and related accumulated depreciation are removed from the accounts. Construction in progress consists mainly of the airport communications and security project, and taxiway and runway construction. Deferred Bond Issuance Costs – Deferred bond issue costs are amortized over the life of the bonds using the effective interest method. Capital Contributions – Contributions and grants are funds donated by various governmental agencies and Airport tenants for specific improvement to the Airport facilities (Improvements). In the normal course of business, the Authority applies for and receives money from the FAA under Airport Improvement Program grant agreements. Costs incurred under these agreements are subject to review and approval by the FAA. Contributions and grants for Improvements are reported in the Statements of Revenues, Expenses and Changes in Net Assets after non-operating revenues and expenses as capital contributions. Passenger Facility Charges - On June 29, 1992, the Authority received approval from the FAA to impose a $3.00 Passenger Facility Charge (PFC) at the Airport effective September 1, 1992. The authorization to impose the PFC is contingent on continued compliance with the terms of the Federal Aviation Regulations. A use application was filed with the FAA and a decision of approval was granted on December 15, 1995. In addition, another impose and use PFC application was filed and approved by the FAA in its Record of Decision dated October 3, 2000. On February 22, 2002 an amendment to that application was administratively approved by the FAA that increased the charge level from $3.00 to $4.50 per enplaned passenger and increased the approved collection amount. Revenue Recognition Airfield Landing Fee Charges – Landing fees are principally generated from scheduled airlines and non-scheduled commercial aviation and are based on the landed weight of the aircraft. The estimated landing fee structure is determined annually pursuant to an agreement between the Authority and the signatory airlines based on the operating budget of the Authority and is adjusted at year end for the actual landed weight of all aircraft. Landing fees are recognized as revenue when the related facilities are utilized (See Note 6).

14


Terminal Rents, Out parcel Rentals, Concessions and Ground Transportation – Rental and Concession fees are generated from airlines, parking lots, food and beverage, retail, rental cars, advertising and other commercial tenants. Leases are for terms from one to fifty years and generally require rentals based on the volume of business, with specific minimum annual rental payments required. Rental revenue is recognized over the life of the respective leases and concession revenue is recognized based on reported concessionaire revenue. Other – All other types of revenues are recognized when earned.

Federal/State Compensation – As a result of the terrorist acts of September 11, 2001 (September 11) the federal and state governments have provided compensation to the Authority to replace lost revenue and offset capital and operating expenditures for increased security costs (see Note 7).

2. CASH, CASH EQUIVALENTS, AND INVESTMENTS

The Authority maintains its cash deposits (unrestricted and restricted) in interest-bearing money market accounts. The carrying value of the Authority's deposits at September 30, 2003 and 2002 of approximately $16,616,000 and $16,458,000, respectively, were covered by Federal Deposit Insurance Corporation or the State of Florida collateral pool, a multiple financial institution pool with the ability to assess its members for collateral shortfalls if a member institution fails. The Authority invests in U.S. government and U.S. agency mortgage backed securities in part to maximize yields and in part to hedge against interest rate fluctuations. These securities are based on cash flows from underlying mortgages. Therefore, the principal repayment portions are sensitive to prepayment of mortgages, which may be affected by interest rate changes (prepayment risk). For example, if interest rates rise and homeowners do not refinance their mortgages, then the cash flows for principal repayments slow, thus extending the average life maturity of these bonds and the value of the securities declines. Likewise, if homeowners refinance their mortgage as interest rates decline, the average life maturity shortens and the value of the securities rise. In addition, within this mortgage backed securities category are investments in floating and inverse floating rate mortgage bonds. The Authority attempts to match the average lives of the securities to create a fixed rate of return when combined, in any rate environment. The Authority’s investment policy is authorized under Florida Statutes, Sections 218.345 and 218.415; and Section 5(21) of Chapter 91-358, Laws of Florida, to invest in the following: • The Local Government Surplus Funds Trust Fund, as created by Florida Statutes Section 218.405; • Negotiable direct obligations of, or obligations the principal and interest of which are unconditionally

guaranteed by, the United States Government at the then prevailing market price for such securities;

• Interest-bearing time deposits or savings accounts in banks organized under the laws of Florida, in national banks organized under the laws of the United States and doing business and situated in this state, in savings and loan associations which are under state supervision, or in federal savings and loan associations located in this state and organized under federal law and federal supervision, provided that any such deposits are secured by collateral as may be prescribed by law;

• Obligations of the Federal Farm Credit Banks, Federal Home Loan Mortgage Corporation, or Federal

Home Loan Bank or its district banks, including Federal Home Loan Mortgage Corporation participation certificates, or obligations guaranteed by the Government National Mortgage Association;

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• Obligations of the Federal National Mortgage Association, including Federal National Mortgage Association participation certificates, or obligations guaranteed by the Federal National Mortgage Association;

• Securities of, or other interest in, any open-end or closed-end management type investment company

or investment trust registered under the Investment Company Act of 1940, 15 U.S.C. ss. 80a-1 et seq., as amended from time to time, provided the portfolio of such investment company or investment trust is limited to obligations of the United States Government or any agency or instrumentality thereof and to repurchase agreements fully collateralized by such United States Government obligations, and provided such investment company or investment trust takes delivery of such collateral either directly or through an authorized custodian; and

• Such investments as are authorized by law or ordinance for the investment of surplus public funds by

the Boards of County Commissioners of Sarasota or Manatee County. All of the Authority's investments held at September 30, 2003 and 2002 are uninsured and unregistered investments for which the securities are held by the bank's trust department or agent in the Authority's name.

2003 2002UNRESTRICTED

Federal National Mortgage Association collateralized 4,987,810$ 8,049,700$ mortgage obligations

Federal Home Loan Mortgage Corp. securities and Federal Home Loan Bank floating rate notes 9,039,590 -

14,027,400$ 8,049,700$ RESTRICTED

Federal Home Loan Mortgage Corp. securities and Federal Home Loan Bank floating rate notes -$ 5,546,405$

September 30,

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SARASOTA MANATEE AIRPORT AUTHORITY NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 2003 AND 2002 3. CAPITAL ASSETS

A summary of changes in capital assets for the years ended September 30, 2003 and 2002 is as follows:

Beginning Transfers Transfers EndingBalance and and Balance

Oct. 1, 2002 Additions Deletions Sept. 30, 2003

Land 27,342,661$ 748,484$ (90,000)$ 28,001,145$ Site prep., util. and drainage 14,193,950 - 14,193,950 Buildings and structure 48,452,245 869,659 49,321,904 Runways, taxiways & ramps 41,372,887 580,153 (36,703) 41,916,337 Land improvements 4,732,499 - - 4,732,499 Fencing 431,091 3,082 - 434,173 Lights and signs 1,194,882 - - 1,194,882 Computers 260,987 11,082 (9,410) 262,659 Equip., furn. and fixtures 14,870,841 167,336 (18,512) 15,019,665

152,852,043 2,379,796 (154,625) 155,077,214

Less accum. depreciation (70,900,676) (5,098,508) 154,625 (75,844,559)

81,951,367 (2,718,712) - 79,232,655 Construction in progress 21,393,499 9,696,488 (1,520,245) 29,569,742

103,344,866$ 6,977,776$ (1,520,245)$ 108,802,397$

Beginning Transfers Transfers Ending balanceBalance and and Balance

Oct. 1, 2001 Additions Deletions Sept. 30, 2002

Land 26,205,987$ 3,220,720$ (2,084,046)$ 27,342,661$ Site prep., util. and drainage 14,193,950 - - 14,193,950 Buildings and structure 48,385,468 66,777 - 48,452,245 Runways, taxiways & ramps 41,063,212 377,525 (67,850) 41,372,887 Land improvements 3,590,756 1,141,743 - 4,732,499 Fencing 431,091 - - 431,091 Lights and signs 1,194,882 - - 1,194,882 Computers 272,159 14,872 (26,044) 260,987 Equip., furn. and fixtures 14,639,250 249,174 (17,583) 14,870,841

149,976,755 5,070,811 (2,195,523) 152,852,043

Less accum. depreciation (65,983,941) (5,028,212) 111,477 (70,900,676)

83,992,814 42,599 (2,084,046) 81,951,367 Construction in Progress 7,805,623 14,794,610 (1,206,734) 21,393,499

91,798,437$ 14,837,209$ (3,290,780)$ 103,344,866$

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Depreciation expense for the years ended September 30, 2003 and 2002 was approximately $5,099,000 and $5,028,000 respectively.

4. PENSION PLAN

Plan Description – The Sarasota Manatee Airport Authority Pension Plan (the Plan) is a single-employer defined benefit pension plan controlled by the provisions adopted pursuant to the Authority Agreement. The Plan is governed by the Authority, which is responsible for the management of plan assets. The Plan is administered by The Principal Mutual Life Insurance Company. The Plan provides retirement, disability, and death benefits to Plan members and beneficiaries. The Principal Mutual Life Insurance Company provides the Authority with a financial report that includes financial statements and required supplementary information for the Plan. The report is available to the public and can be obtained directly from the Authority. Active members of the Plan do not contribute to the Plan. Funding Policy – The contribution requirements of the Plan are established and may be amended by the Board Members of the Authority. The Authority is required to contribute at an actuarially determined rate; the current rate is 10.3% of annual covered payroll. Annual Pension Cost – For the year ended September 30, 2003 and 2002, the Authority's annual pension costs of approximately $640,000 and $551,000 respectively were equal to the Authority's required and actual contributions. The required contribution was determined as part of the October 1, 2002 actuarial valuation using the aggregate cost method. The actuarial assumptions included (a) a 7.75% investment rate of return (net of administrative expenses), and (b) projected salary increases ranging from 4.8% to 7.8% per year. Both (a) and (b) included an inflation component of 2.75%. The Plan’s unfunded actuarial liability was being amortized using the level dollar on a closed basis method. The weighted average remaining amortization period at September 30, 2003 was 29 years. The following is a schedule of the Plan’s total funding progress:

Plan Year End

Annual Required

ContributionActual

ContributionPercentage Contributed

Net Pension

Obligation

1999 $354,678 $354,678 100% $--2000 $396,695 $396,695 100% $--2001 $551,438 $551,438 100% $--2002 $639,845 $639,845 100% $--

The following is a Schedule of Funding Progress for the Plan:

Actuarial Valuation

Date

Actuarial Value of Assets

Actuarial Accrued Liability

Unfunded Actuarial

Liability (UAL)Funded Ratio

Annual Covered Payroll

UAL Ratio to Covered

Payroll

1999 $5,555,054 $5,570,296 $15,242 99.73 $3,431,138 0.442000 $6,015,686 $6,015,686 -- 100 $3,800,043 --2001 $6,385,820 $6,385,820 -- 100 $3,978,974 --2002 $4,785,101 $4,785,101 -- 100 $3,687,455 --

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SARASOTA MANATEE AIRPORT AUTHORITY NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 2003 AND 2002 5. REVENUE BONDS PAYABLE

Series 1984-B Revenue Bonds totaling $72.8 million were issued by the Authority in December 1984 in order to finance construction on new airport terminal facilities to handle current and projected traffic levels. During calendar year 1988, the Authority determined that $11.8 million of the annual variable rate bonds would not be needed for completion of the construction project. The $11.8 million was retired on February 1, 1989 from proceeds of the bonds and interest thereon. On June 30, 1993, the Authority issued $8.695 million in Revenue Refunding Bonds with an interest rate ranging from 3.0% to 5.3% to refinance $7.5 million of its outstanding Series 1984-B Revenue Bonds with an interest rate ranging from 6.8% to 7.8%. The refinancing resulted in an accounting loss of approximately $1.16 million which has been deferred in accordance with GASB Statement No. 23 and is being amortized over the life of the new bonds which is equivalent to the remaining life of the old bonds (see Note 10). On May 7, 1996, the Authority issued $53.68 million in Airport System Revenue Refunding Bonds with an interest rate ranging from 3.6% to 5.4% and issued $1.2 million in Airport System Taxable Revenue Bonds with an interest rate ranging from 5.6% to 6.1% to refinance all of the remaining outstanding Series 1984-B Revenue Bonds. The refinancing resulted in an accounting loss of approximately $6.989 million. The Authority, in accordance with GASB Statement No. 23, is amortizing this loss over the life of the new bond issue, which is equivalent to the remaining life of the old bonds. The Authority, in effect, reduced its aggregate debt service payments by approximately $6.5 million over the next 18 years and obtained an economic gain (which is the difference between present values of the old and new debt service payments) of approximately $4.1 million. The bonds are limited obligations payable solely from the net revenues of the Authority. The Authority is required to maintain a debt coverage ratio of at least 125% as defined in the Bond Resolution. Certain major air carriers serving the airport have entered into Airline Use Agreements which, taken as a whole, provide that the air carriers will make payments sufficient to enable the Authority to meet its rate covenant obligations. At September 30, 2003 and 2002, the Authority met the minimum debt coverage ratio. Principal on the outstanding bonds is payable annually on each August 1, and interest is payable semi-annually on each February 1 and August 1. The Authority is required to deposit, ratably over the twelve months preceding each maturity date, a defined amount calculated to pay the principal amount plus accrued interest due at the payment date. Payment of the principal and interest on the fixed rate bonds are guaranteed by a municipal bond insurance policy. The bonds are subject to redemption at defined prices, plus accrued interest throughout their maturity. The bonds and respective interest are payable in the following amounts and maturities:

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1996 1996 1993 1993Maturity Non-taxable Interest Issue Interest Total

2004 $ 2,765,000 $ 2,106,329 $ 430,000 $ 335,440 $ 5,636,769 2005 2,930,000 1,970,844 455,000 313,510 5,669,354 2006 3,070,000 1,824,344 475,000 289,850 5,659,194 2007 3,225,000 1,667,774 505,000 264,675 5,662,449 2008 3,405,000 1,500,074 525,000 238,162 5,668,236

2009-2013 15,505,000 4,087,153 2,410,000 658,969 22,661,122 2014 9,060,000 736,913 1,410,000 120,094 11,327,007

39,960,000 $13,893,431 6,210,000 $ 2,220,700 $62,284,131 (2,765,000) (430,000) (2,219,390) (299,432)

$34,975,610 $ 5,480,568

Current portion of long-term debtUnamortized loss on refunding

Total long-term debt

A summary of the changes in long-term indebtedness during 2003 is as follows:

Amounts due9/30/2002 Issued Payments 9/30/2003 within one year

1993 Issue 6,605,000$ -$ (395,000)$ 6,210,000$ 430,000.00$ 1996 non-taxable 42,515,000 - (2,555,000) 39,960,000 2,765,000.00

49,120,000$ -$ (2,950,000)$ 46,170,000$ 3,195,000.00$

Arbitrage Rebate – The Tax Reform Act of 1986 generally requires earnings from investments of bond proceeds, which exceed the issuer’s bond yield to be rebated to the U.S. Treasury at periodic intervals, usually every five years. Computations are performed to determine the yield on the bonds, the yield on the invested funds and the determination of the resulting arbitrage rebate liability. As of September 30, 2003 and 2002 there was no liability.

6. LEASES

Five-year Airline leases were signed effective October 1, 1999. Five airlines signed scheduled airline operating agreements and two signed scheduled regional and commuter airline agreements. The agreements provide funding for the ongoing maintenance, operations, debt service with coverage, and capital improvements of the Airport through various rates and charges. In connection with the new leases, the Authority paid approximately $377,000 in incentive payments to the airlines, which are included in other long-term assets and are being amortized over the life of the leases. The airline leases require an annual year-end adjustment to the actual amount of airline rates and charges, wherein charges calculated using budgeted data at the beginning of the fiscal year are reconciled to actual year-end costs, resulting in an under or over collection of revenues with the airlines signatory to the lease agreements. The fiscal year 2001 rate reconciliation resulted in $760,689 owed by the airlines. Considering the financial stresses of the airline industry after the September 11 tragedy and the sizeable amount owed in fiscal year 2002, the Authority successfully negotiated a two-year extension of the leases with the remaining active airlines in exchange for a waiver of the amount owed. Consequently, the $760,689 is included in other long-term assets and is being amortized over the remaining term of the agreements. The lease agreements are now set to expire at the end of September 2006.

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The fiscal year 2002 year-end adjustment to actual resulted in an over collection of $819,456 from the airline’s signatory to the agreements. This large over collection amount was primarily due to the federal/state compensation received in fiscal year 2002 to replace lost revenues and additional expenses incurred as a result of September 11. The total amount of $819,456 due to the signatory airlines is included in accounts payable at September 30, 2002, with $170,239 offset to federal/state compensation and the remainder offset to the respective landing fees, building rentals and other airfield revenues. The fiscal year 2003 year-end adjustment to actual was an under collection of $598,472. This amount is due from the signatory airlines and is included in accounts receivable at September 30, 2003. The under collection was primarily due to the loss of revenue from parking. A portion of the Authority's revenue is provided by non-airline lease and concession agreements. These agreements relate to a portion of the Authority's buildings, land, and the privilege to do business at the Airport and have terms ranging from one to ninety-nine years. Many of the agreements contain contingent rental provisions whereby additional amounts, in excess of stated minimums, are due based upon the lessees' gross revenue.

Minimum future lease payments to be received under these operating lease agreements are as follows:

Year Ending Car RentalSeptember 30, Restaurants Agencies Other Total

2004 207,000$ 306,700$ 1,111,800$ 1,625,500$ 2005 207,000 273,700 788,500 1,269,200 2006 207,000 270,700 738,900 1,216,600 2007 207,000 73,600 743,500 1,024,100 2008 207,000 55,700 742,300 1,005,000

2009-2013 224,200 116,000 3,470,700 3,810,900 2014-2018 -- -- 2,919,100 2,919,100 2019-2023 -- -- 1,680,000 1,680,000 2024-2028 -- -- 492,700 492,700 2029-2033 -- -- 189,100 189,100 2034-2038 -- -- 87,300 87,300 2039-2043 -- -- 87,300 87,300 2044-2048 87,300 87,300 2049-2053 -- -- 87,300 87,300 2054-2057 -- -- 55,400 55,400

Rents received from non-airline leases and concession agreements amounted to approximately $3,800,000 and $4,000,000 for the years ended September 30, 2003 and 2002, respectively. Amounts received under contingent rental clauses were approximately $452,000 and $409,000 for the years ended September 30, 2003 and 2002, respectively. The Authority has entered into two noncancellable capital leases to purchase equipment. The minimum future lease payments to be paid under these capital lease agreements are as follows:

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Year Ending LeaseSeptember 30, Payment

2004 65,776$2005 2,472 2006 2,060

Less amount representing interest (1,493) Present value of future minimum lease payments 68,815 Less current maturities (included in accounts payable) (64,490) Total long term portion 4,325$

7. COMMITMENTS AND CONTINGENCIES

Following September 11, 2001, the Florida Airport Managers Association (FAMA) Board of Directors met with the Governor in Tallahassee to discuss the impacts of the September 11 tragedy on state airports. As a result of this meeting, the governor of the state of Florida signed legislation on November 16, 2001 that authorized state airports to utilize Florida Department of Transportation (FDOT) grant money to pay for capital and operating costs for security and replacement of lost revenue resulting from the events of September 11. Two fiscal years were included in the legislation, fiscal year 2001-2002 and fiscal year 2002-2003, and all state funds available for airport use from prior years’ awards were eligible for this program. The Governor’s office has subsequently extended the funding to pay for lost revenues and additional security costs through fiscal year 2007. On December 17, 2001, the Authority’s Board approved, and the Authority filed, an Expenditure Plan with the FDOT for reimbursement of lost revenue and security expenses as a result of the events of September 11. The plan included a request for up to $2,000,000 to be set aside from existing capital grants for anticipated lost revenue subsequent to September 30, 2001. This Expenditure Plan was approved by the FDOT on April 24, 2002. As a result, the Authority received $905,534 and $1,227,935 in federal and state compensation for the years ended September 30, 2003 and 2002, respectively. These amounts are included in non-operating revenues in the Statements of Revenues, Expenses and Changes in Net Assets. For the year ended September 30, 2002 the amount is net of $170,239 that was refunded to the signatory airlines pursuant to the airline lease agreements (see Note 6). The Authority has entered into contracts to purchase property, plant and equipment aggregating approximately $77,228,000 as of September 30, 2003. Of that amount, approximately $56,200,000 has been expended, with the remaining amount anticipated to be expended over the next two years. The majority of these expenditures are expected to be reimbursed to the Authority through grant funding. The Authority is involved in certain legal actions and claims arising in the ordinary course of its business. It is the opinion of management (based on the advice of legal counsel) such litigation and claims will be resolved without material adverse effect on the Authority's net assets, results of operations or cash flows. Grant monies received and disbursed by the Authority are for specific purposes and are subject to review by the grantor agencies. Such audits may result in requests for reimbursement due to disallowance of expenditures. Based on prior experience, the Authority does not believe that such disallowances, if any, would have a material effect on the financial position of the Authority.

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SARASOTA MANATEE AIRPORT AUTHORITY NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 2003 AND 2002 8. MAJOR AIRLINE USER

The Authority derived a significant portion of its revenues from a major airline user for the years ended September 30, 2003 and 2002. During 2003, this major airline user handled approximately 42% of the total passenger traffic at the Airport as compared to 44% during 2002. Additionally, this major airline user has a number of separate agreements with the Authority covering various types of property and buildings. Several of those agreements allocate charges to the carrier based upon the airline's market share of passengers and flight activity. Revenues from this airline were approximately $3.0 million and $2.5 million for the years ended September 30, 2003 and 2002, respectively. The majority of these revenues were derived from building rentals and landing fees.

9. RISK MANAGEMENT

The Authority is a member of the Public Risk Management of Florida (PRM), a liability risk pool. PRM administers insurance activities relating to workers' compensation, property, liability, and automobiles. PRM absorbs the risk of loss up to a specified amount annually and purchases excess and other specific coverages from third-party carriers. PRM assesses each member its pro rata share of the estimated amount required to meet current year losses and operating expenses. During the fiscal years ended September 30, 2003 and 2002, the Authority had no significant reductions in insurance coverage from the prior years. In addition, there have been no settlements, which exceeded the Authority's insurance coverage in any of the past three fiscal years.

10. SUBSEQUENT EVENTS

On October 23, 2003, the Authority sold $6.34 million of revenue refunding bonds with an average coupon of 3.276% and a true-interest-cost of 3.364% to refinance and replace the Series 1993 issue. The new bonds will retain the same final maturity date (September 30, 2014) and will save the Authority over a half-million dollars of gross debt service payments over their remaining term. Net present value savings are approximately $317,000 or 5.1% of the refunded principal.

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SARASOTA MANATEE AIRPORT AUTHORITY

SUPPLEMENTAL SCHEDULES

FOR THE YEARS ENDED SEPTEMBER 30, 2003 AND 2002


2003 2002

Depreciation and amortization 5,333,482$ 5,262,621$ Salaries and wages 4,620,134 4,395,664 Operating supplies, maintenance and repairs 1,137,289 1,043,478 Health insurance 1,078,610 998,098 General insurance 749,818 406,158

Pension 639,845 551,438 Electricity 563,979 542,291 Marketing 394,233 582,670 Social security 348,599 334,194 Legal 256,823 206,346

Service contract 253,417 239,844 Professional services 153,028 229,186 Customs 141,118 97,598 Workers’ compensation insurance 93,734 75,600 Telephone 68,729 54,338

Travel 65,893 52,263 Office supplies, postage and publishing 57,550 53,685 Advertising and entertainment 56,593 66,309 Data processing supplies 53,157 52,128 Water and sewer 49,213 46,282

Uniforms and identification 48,708 47,598 Training 48,148 30,201 Accounting and audit fees 45,300 40,000 Dues and subscriptions 43,225 43,017 Disability 33,913 27,305

Sanitation 30,458 29,912 Employment expenses 19,096 2,441 Taxes 18,061 10,877 Miscellaneous 13,981 17,532 Car allowance 10,416 9,998

Unemployment insurance 7,659 4,871 Community relations 7,456 4,424 Equipment rental 6,618 813 Interior plants 6,205 2,582 Shuttle service 5,435 2,033

Bond and banking fees 3,885 6,221 Bad debt 2,770 187,327 Employee service awards 827 2,000

Total Operating Expenses 16,467,405$ 15,759,343$

See Report of Independent Certified Public Accountants

Year Ended September 30,

SCHEDULE OF OPERATING EXPENSES

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SCHEDULE OF RECIPTS AND DISBURSEMENTS - BOND PROCEEDS ACCOUNT

Debt Service Sinking FundReserve Principal Interest Total

PROCEEDS AT BEGINNING OF YEAR –October 1, 2002 5,725,066$ 567,455$ 404,868$ 6,697,389$

RECEIPTS:Interest earnings 201,153 116,731 54,706 372,590 Operating revenue transfers in (out) (224,259) 2,882,360 2,469,788 5,127,889

(23,106) 2,999,091 2,524,494 5,500,479

DISBURSEMENTS:Interest payments - - (2,584,159) (2,584,159) Principal payments - (2,950,000) - (2,950,000)

- (2,950,000) (2,584,159) (5,534,159)

PROCEEDS AT END OF YEAR –September 30, 2003 5,701,960$ 616,546$ 345,203$ 6,663,709$


FOR THE YEAR ENDED SEPTEMBE 30, 2003

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SCHEDULE OF RECEIPTS AND DISBURSEMENTS – CASH – UNRESTICTED OPERATING AND INVESTMENT ACCOUNTS

Operations & Renewal & CapitalRevenue Maintenance Replacement Improvements Authority PAR Airline Total

BALANCE October 1, 2002 -$ 1,861,576$ 2,000,000$ -$ 12,254,004$ 2,534,721$ 18,650,301$

RECEIPTS:Revenue and grants 14,810,365 - - 10,808,623 - - 25,618,988 Gain on sale of investments - - - - 464,787 - 464,787 Transfer from restricted assets 224,259 - - - - - 224,259

TRANSFERS (NET) (12,392,181) 13,497,244 - (1,602,910) 281,899 215,948 -

DISBURSEMENTS:Capital - - - (8,133,304) - - (8,133,304) Operating - (13,388,064) - - (352,196) - (13,740,260) Interest and Principal fund deposit (2,642,443) - - - - - (2,642,443)

BALANCESeptember 30, 2003 -$ $ 1,970,756 2,000,000$ 1,072,409$ 12,648,494$ 2,750,669$ 20,442,328$


General Purpose

FOR THE YEAR ENDED SEPTEMBER 30, 2003

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Documents

Sarasota Manatee Airport Authority Management's ......Sarasota Manatee Airport Authority Management's Discussion and Analysis (Unaudited) September 30, 2003 and 2002 4 An additional