COMPREHENSIVE ANNUAL FINANCIAL REPORT AS OF AND FOR THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007

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1 COMPREHENSIVE ANNUAL FINANCIAL REPORT AS OF AND FOR THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007 NAPLES, FLORIDA NAPLES MUNICIPAL AIRPORT The Best Little Airport in the Country

2 NAPLES, FLORIDA COMPREHENSIVE ANNUAL FINANCIAL REPORT AS OF AND FOR THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007 Prepared By: FINANCE DEPARTMENT

3 Comprehensive Annual Financial Report As of and for the Years Ended September 30, 2008 and 2007 TABLE OF CONTENTS INTRODUCTORY SECTION Letter of Transmittal Board of Commissioners and Executive Director Certificate of Achievement for Excellence in Financial Reporting Organizational Chart PAGE i vii viii ix FINANCIAL SECTION Independent Auditors Report 1 Management s Discussion and Analysis 3 Financial Statements: Statements of Net Assets 10 Statements of Revenues, Expenses, and Changes in Net Assets 11 Statements of Cash Flows 12 Notes to Financial Statements 14 Supplementary Information: Schedule of Revenues, Receipts, Expenses and Expenditures Non-GAAP Budgetary Basis and Actual 26 STATISTICAL SECTION Changes in Net Assets by Component, Last Five Fiscal Years 30 Changes in Net Assets, Last Five Fiscal Years 32 Average Aviation Fuel Margins (Per Gallon) 34 Aviation Fuel Sales (Gallons) 34 Aviation Fuel Sales (Net Revenue) 34 Principal Customers by Gross Sales 36 Principal Customers by Aviation Fuel Gallons 36 Ratios of Outstanding Debt 37 Debt Limitations 37 Pledged-Revenue Coverage 38 Demographic and Economic Statistics 39 Principal Employers 40 Aviation Fuel and Aircraft Operations Statistics 41 Commercial Passenger Statistics 42 Airport Information 43 Capital Contributions 44

4 COMPLIANCE SECTION Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards 45 Report on Compliance with Requirements Applicable to Each Major Federal Program and State Project and to the Passenger Facility Charge Program and on Internal Control over Compliance 47 Schedule of Expenditures of Federal Awards and State Financial Assistance 49 Notes to Schedule of Expenditures of Federal Awards and State Financial Assistance 50 Schedule of Passenger Facility Charges (PFC) 52 Schedule of Findings and Questioned Costs 53 MANAGEMENT LETTER Management Letter 57 Response to Management Letter 59

5 INTRODUCTORY SECTION

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7 unqualified opinion that the Authority s financial statements for the fiscal years ended September 30, 2008 and 2007, are fairly presented in conformity with GAAP. The independent auditors report is the first component of the Financial Section of this report. The independent audit of the financial statements is part of the broader mandated provisions of the Single Audit Act of 1996 and the U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments and Non-Profit Organizations, relative to financial funds received from the U.S. Government and the Florida Single Audit Act relative to financial funds received from the State of Florida. It is also in conformity with the provisions of the September 2000 Audit Compliance and Reporting Guide for Public Agencies relative to the collection and use of Passenger Facility Charges. The standards governing these provisions require the independent auditor not only to report on the fair presentation of the financial statements, but also on the Authority s internal controls and compliance with legal requirements, with special emphasis on internal controls and legal requirements involving the administration of federal awards and state financial assistance. These reports are included in the Compliance Section of this report. GAAP requires that management provide a narrative introduction, overview and analysis to accompany the financial statements in the form of a Management Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The MD&A can be found in the financial section, immediately following the report of the independent auditors. The Airport The Naples Municipal Airport was originally constructed in 1942 as the Naples Airdrome and served as an Air Corps base for training gunners, bomber crews and fighter pilots for combat during World War II. After the end of the war, the city and county jointly operated the airport until the county sold its interest to the city in Naples Municipal Airport is located in western Collier County, approximately two miles from the City of Naples business district and approximately three miles inland of the Gulf of Mexico. The airport, which is owned by the City of Naples, is leased to the Authority under a 99 year lease. Naples Municipal Airport is classified in the National Plan of Integrated Airport Systems as a primary commercial service airport (a commercial service airport which enplanes 10,000 or more passengers each year). Naples Municipal Airport is the only commercial service airport in Collier County and is ranked (by passenger count) as the smallest commercial service airport in Florida. General aviation generates the majority of aircraft activity at Naples Municipal Airport. Of the 130,000 aircraft operations (one operation is one landing or one takeoff) at Naples Municipal Airport during fiscal year 2008, 128,000 or 98.5% were attributed to general aviation. All types of aircraft, from small piston engine trainers to large business jets, can ii

8 be seen at the Naples Municipal Airport. Use of the airport is restricted to aircraft less than 75,000 pounds maximum gross landing weight and Stage 1 and Stage 2 jets are banned, except for public agency and emergency medical flights. The Authority The City of Naples Airport Authority was created by State Enabling Legislation and City of Naples action in The City of Naples, recognizing the benefits of an authority type management concept, established the Authority for the purpose of enhancing service to users, improving the community gateway image and eliminating financial subsidies by city taxpayers. The Authority is an independent reporting entity as defined by the Governmental Account Standards Board (GASB). The Authority s Board of Commissioners is composed of five members appointed by Naples City Council. Commissioners are appointed for a term of four years or until a successor is appointed, except that any person appointed to fill a vacancy is appointed to serve only the unexpired term. The Board of Commissioners retains the Executive Director, who is the chief operating and chief administrative officer, Secretary and Treasurer of the Authority. The Executive Director hires all other Authority employees. The Authority financially supports itself directly from aviation fuel sales and airport user fees, and indirectly by airport user taxes. No local, state or federal general taxes, such as property, utility, sales, intangible or income taxes directly support the Authority. The Authority receives, for certain capital projects, state and federal financial grants from trust funds established largely from aviation fuel taxes and airline ticket taxes. The Authority pays the City of Naples for utility, police and fire fighting services and also built, equips and maintains City Fire Station #3, as well as several stormwater and environmental facilities. The Authority builds and maintains internal roadways and utilities and has constructed many of the external roadway improvements, including horticultural beautification and bicycle paths. The Authority s budget and amendments, if any, are adopted by resolution of the Board of Commissioners, as required by Florida Statutes. The adopted budget regulates the total expenditures of the Authority for the fiscal year, and it is unlawful for any officer of the Authority to expend or contract for expenditures that exceed the budgeted appropriations. The Authority has a September 30 Fiscal Year Ending date, and accordingly, the budget must be adopted by the Board of Commissioners before October 1, the beginning date of the new fiscal year. Financial Condition of the Authority The information presented in the Financial Section of this report is best understood when it is considered from the broader perspective of the specific environment within which the Authority operates. The Authority s economic condition is a composite of its financial health and its ability to meet its financial obligations and service commitments. iii

9 The financial condition of the Authority is primarily dependent upon aviation fuel sales, unlike the majority of U.S. airports that are monetarily supported by significant commercial airline service and/or general taxpayer dollars. Aviation fuel sales, in turn, are usually dependent upon several factors, including the economic conditions in the United States and locally. However, the Authority s local customer base typically offsets any impact of a nationwide economic slowdown. The economic landscape of Collier County is quite different from much of the country. Due to the prosperous tourism market and the large number of very wealthy people, the local economy remains strong. For fiscal year 2008, net fuel sales made up 67.0% of the Authority net operating revenues. The Authority s selling price of aviation fuel is based on a cost plus formula in accordance with the published rates and charges set by the Executive Director. The Authority maintains the exclusive right to fuel sales at the Naples Municipal Airport. A more detailed discussion of the Authority s financial results is contained in the MD&A found in the Financial Section of this report. Relevant Financial Policies The Authority has developed published rates and charges based on a reasonable rate of return, in addition to meeting the requirements of maintenance, operating costs and capital recovery. These rates and charges, as a package, maintain and enhance the healthy financial condition of the Authority. It should be noted that there are significant regulatory guidelines that must be considered when developing airport rates and charges. At a minimum, the Authority s rates and charges are updated annually. As part of the Authority s planning process, a five year capital improvement program is updated at least annually. In conjunction with the budgeting process, the Authority develops a five year cash flow forecast incorporating the five year capital improvement program and five year projections of operating revenues and expenses. These projections allow the Authority to determine the impact of capital projects on future budgets and future revenue requirements, allowing the Authority to develop successful plans. The Authority has maintained a $1.5 million reserve for emergency operating and capital contingencies for many years; however, this reserve was increased to $2 million for FY 2007 and then increased to $2.5 million for FY Current and Long Term Capital Initiatives The two major sources of outside funding for the Authority s capital improvement plan are the FAA and the Florida Department of Transportation (FDOT). The amount of funding that is provided by these two agencies is predicated on whether the airport is designated as a commercial service or general aviation airport. As the operator of a primary commercial service airport, the Authority has been eligible for $1 million per year in Entitlement Funding from the FAA under the Airport Improvement Program, however, appropriations for this program expired September 30, The FAA Reauthorization Act of 2007 that would authorize appropriations for the program for fiscal years 2008 through 2011 has not iv

10 yet been approved. The FAA has maintained funding programs of previous years authorized in Continuing Resolutions by Congress. The 2007 program has been continued though March of With a new administration it is certain the legislation will change. However, the Authority is confident that when completed, the Entitlement Funding will be at the same level, if not greater. The Authority, as a publicly owned Florida airport, is also eligible for state funding. FDOT provides up to one-half of the local share of commercial service airport project costs when FAA funding is received, and when no federal funding is available, FDOT can provide up to 50% of eligible project costs. During fiscal year 2008, the Authority completed the design phase of Taxiway B South, continued construction of the T-hangars in the south quadrant of the Airport, and started a security access control project. The Authority expended $4.8 million on these projects which were eligible for $2.6 million in FAA and FDOT funding during the current year. The Authority expended an additional $1.1 million for non-assisted projects, including the commencement of a Part 150 Noise Study Update, the design of the improvements for the General Aviation Terminal, and major equipment purchases. Capital improvement projects slated for FY 2009 include the first phase of the construction of Taxiway B South, improvements to the General Aviation Terminal Building, continuing with the Part 150 Noise Study Update, completing drainage improvements in the West Quadrant, and various equipment purchases. The Authority anticipates that $5.5 million of its FY 2009 capital improvements will be eligible for $3.4 million in assistance from federal and state agencies. The FAA has committed $4.6 million towards the construction of both phases of Taxiway B South, which is a multi-year project. The Authority's capital improvement plan also includes $4.0 million for non-assisted projects. Awards The Government Finance Officers Association of the United State and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to City of Naples Airport Authority for its comprehensive annual financial report for the fiscal year ended September 30, This was the third 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 efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual financial report continues to meet the Certificate of Achievement Program s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. Acknowledgments The preparation of this report could not have been accomplished without the efficient and dedicated service of the entire Finance Department. We would like to express our v

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12 City of Naples Airport Authority John Allen Chairman Ernest Linneman Commissioner Bill Hobgood Vice-Chairman Peter Manion Commissioner Theodore D. Soliday Executive Director vii Not pictured: Commissioner James Lennane

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14 Administrative Assistant Operations Manager Assistant Operations Manager Duty Officers Operations Staff Director of Operations Operations Manager Security Staff ORGANIZATIONAL CHART Board of Commissioners Executive Director Executive Assistant Director of Finance, Administration and Human Resources Director of Airport Development Director of Facilities and Safety Officer Administrative Assistant Administrative Assistant Administrative Assistant Finance and Administration Manager Noise Abatement Officer Information Technology Manager Facilities Manager Accounting Staff Administration Staff Maintenance Staff Custodial Supervisor Custodial Staff ix

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16 FINANCIAL SECTION

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19 MANAGEMENT'S DISCUSSION AND ANALYSIS The following Management Discussion and Analysis (MD&A) of the City of Naples Airport Authority's activities and financial performance provides the reader with an introduction and overview to the financial statements of the City of Naples Airport Authority (the Authority ) for the fiscal years ended September 30, 2008 and 2007, with selected comparative information for the fiscal year ended September 30, The information presented in this MD&A should be considered in conjunction with the accompanying financial statements, notes, and supplementary information found in this report. This information taken collectively is designed to provide readers with an understanding of the Authority s finances. Airport Activities and Highlights The Authority operates the Naples Municipal Airport which provides both general aviation and commercial airline service to the public. Major areas of activities of the Naples Municipal Airport are as follows: Aviation fuel gallons 5,933,000 6,523,000 6,265,000 % increase (decrease) from prior year (9.0)% 4.1% (0.9)% Aircraft operations 130, , ,000 % increase (decrease) from prior year (2.3)% (3.6)% (15.3)% Enplanements 3,000 19,000 27,000 % increase (decrease) from prior year (84.2)% (29.6)% (10.0)% In 2008, aviation fuel gallons decreased after reaching in 2007 their highest level since the establishment of the Authority in The decrease in fuel volume is attributed to the loss of scheduled regional jet service and reduction in tenant self-fueling. In 2006, aviation fuel gallons remained near the level obtained in From 2006 through 2008, aircraft operations decreased after reaching its highest level ever in The reduction in aircraft operations in 2008 and 2007 may be attributed to a decrease in small piston aircraft activity as a result of the implementation of ramp fees in 2007 for transient aircraft utilizing the airport and not purchasing fuel. Ramp space and airspace capacity in Southwest Florida is demand driven and occasionally ramp space is not available during peak season for all aircraft that wish to utilize the airport for short durations regardless of services received. From 2005 through 2007, the airport enjoyed year-round scheduled regional jet service to Atlanta on forty (40) passenger aircraft in addition to seasonal scheduled air service after having only seasonal service to Miami and Key West on nine (9) passenger aircraft during The decrease of 3,000 enplanements in 2006 reflects a reduction in seasonal scheduled air service and the further reduction of 8,000 enplanements in 2007 reflects a reduction in scheduled regional jet service. With the loss of scheduled regional jet service in October 2007, enplanements decreased by 16,000 in

20 Financial Highlights and Summary The following is a condensed summary of the Authority s revenues, expenses and changes in net assets at September Total operating revenues, net $ 10,973,000 $11,124,000 $ 9,873,000 Total non-operating revenues 2,804,000 1,943,000 1,009,000 Total revenues 13,777,000 13,067,000 10,882,000 Total operating expenses 9,717,000 9,164,000 10,221,000 Total non-operating expenses 689,000 33,000 75,000 Total expenses 10,406,000 9,197,000 10,296,000 Income before capital contributions 3,371,000 3,870, ,000 Capital contributions 2,696,000 2,812,000 4,603,000 Increase in net assets 6,067,000 6,682,000 5,189,000 Beginning net assets 43,628,000 36,946,000 31,757,000 Ending net assets $ 49,695,000 $ 43,628,000 $ 36,946,000 Operating revenues for 2008 decreased $151,000 over the prior year. This 1.4% decrease in operating revenues is attributed to decreased concession fees from rental car companies, offset by increased fuel sales reflecting a slight increase in fuel markup, increased overnight aircraft storage activity, one (1) new land lease and increased ramp fees. In 2007, the rental car companies were awarded five (5) year contracts based on a minimum annual guarantee bid for the first year of the contract. During the remaining contract years, the rental car companies are required to pay a ten percent (10%) concession fee based on their gross revenues. Operating revenues for 2007 increased $1,251,000 over the prior year. This 12.7% increase in operating revenues is attributed to increased fuel sales, increased concession fees from rental car companies resulting from a minimum annual guarantee, increased hangar and tiedown revenues from increased overnight aircraft storage activity and increased line services revenues related to the addition of ramp fees charged for aircraft operator s use of airport when not purchasing other services from the Authority. Non-operating revenues for 2008 increased $861,000 over the prior year. This 44.3% increase is attributed to the settlement of a previous insurance claim. Non-operating revenues for 2007 increased $934,000 over This 92.6% increase is attributed to the gain on the sale of the NAA North Facility and an increase in interest revenue related to the increase in the Authority s bank balances. Operating expenses for 2008 increased $553,000 over the prior year. This 6.0% increase is attributed to increased staffing levels and significant maintenance and repairs completed during the year. Operating expenses for 2007 decreased by $1.1 million over This 10.3% decrease is attributed to no natural disaster recovery and repair offset by increased insurance expense and increased staffing levels. 4

21 In 2008, non-operating expenses increased $656,000 over the prior year. This 1,987.9% increase is attributed to the unrealized loss on investments and the transfer of a sanitary sewer system constructed by the Authority to the City of Naples. Non-operating expenses for 2007 decreased by $42,000 over This 56.0% decreased is attributed to pay-off of outstanding debt during In 2008, capital contributions of $2.7 million were received in the form of grants from Federal and State governments, and payments from tenants for their pro-rata share of specific capital improvements. In 2007, capital contributions of $2.8 million were received in the form of grants from Federal and State governments and the Authority s fuel vendor, and payments from tenants for their pro-rata share of specific capital improvements. In 2006, capital contributions of $4.6 million were received in the form of grants from Federal and State governments, payments from tenants for their pro-rata share of specific capital improvements and in the form of real property. The real property, consisting of a two-story office building and three (3) 10,000 square feet aircraft hangars, became the property of the Authority after a bankruptcy court confirmed the termination of a tenant s lease with the Authority. The following chart shows the major sources of operating revenue as a percentage of total operating revenues for the year ended September 30, The following is a summary of the Authority s operating revenues at 30 September Operating revenues: Fuel sales (net) $ 7,351,000 $ 7,103,000 $ 6,945,000 Concession fees 666,000 1,474, ,000 Hangar/T-shelter/tiedown 1,535,000 1,289,000 1,115,000 Building and land rent 977, , ,000 Line services 408, ,000 97,000 Other 36,000 86,000 96,000 Net operating revenues $ 10,973,000 $ 11,124,000 $ 9,873,000 5

22 The following chart shows the major sources of operating expense before depreciation as a percentage of total operating expenses before depreciation for the year ended September 30, The following is a summary of the Authority s operating expenses before depreciation at September Operating expenses: Personnel $ 4,479,000 $ 3,910,000 $ 3,390,000 Professional fees 541, ,000 1,193,000 Communications 318, , ,000 Insurance 598, , ,000 Utilities and environmental 349, , ,000 ATCT, ARFF and police service 650, , ,000 Maintenance and repair 859, , ,000 Hurricane recovery/repair - - 2,124,000 Other 190, , ,000 Total operating expenses before depreciation $ 7,984,000 $ 7,491,000 $ 8,810,000 The following is a condensed summary of the Authority s net assets at September Current and other assets $ 16,371,000 $ 12,355,000 $ 8,056,000 Capital assets (after depreciation) 37,586,000 33,779,000 33,719,000 Total assets 53,957,000 46,134,000 41,775,000 Current liabilities 3,938,000 2,291,000 4,549,000 Noncurrent liabilities 324, , ,000 Total liabilities 4,262,000 2,506,000 4,829,000 Net assets: Invested in capital assets, net 37,586,000 33,779,000 33,719,000 Restricted - 28,000 87,000 Unrestricted 12,109,000 9,821,000 3,140,000 Net assets 49,695,000 $ 43,628,000 $ 36,946,000 Total assets increased by $7.8 million or 17.0% in This increase is attributed to the increased non-operating revenues and the large amount of capital improvement projects during 6

23 the year. Total assets increased by $4.4 million or 10.4% in This increase is attributed to the increased operating and non-operating revenues and increased prepaid expenses from insurance renewals. Total liabilities increased by $1.8 million or 70.1% in 2008 due to an increase in accounts payable related to capital projects. Total liabilities decreased by $2.3 million or 48.1% in 2007 due to a decrease in accounts payable related capital projects. The Authority s total assets exceeded liabilities by $49.7 million and $43.6 million, in 2008 and 2007 respectively. The largest portion of the Authority s net assets each year (75.6% of total net assets for 2008) represents its investment in capital assets (e.g. land, infrastructure, buildings, improvements, intangible assets and equipment). The restricted portion of the Authority s net assets in 2007 and 2006 represents Passenger Facility Charges that are restricted by Federal PFC regulations. The remaining $12.1 million of net assets (24.4% of total net assets for 2008) may be used to meet any of the Authority s ongoing obligations. A comparison of the Authority's current assets to current liabilities (current ratio) is a way to analyze the Authority's ability to satisfy short-term obligations as they become due. A low ratio may indicate an inability to meet its short-term debt in an emergency. A high ratio is considered favorable to creditors, but may indicate excessive investment in working capital items. The increase in the Authority s current ratio from 1.75 for 2006 to 5.38 for 2007 is attributed to the sale of the NAA North Facility, the increase in revenues, the increase in prepaid expenses from insurance renewals and the decrease in accounts payables related to capital projects. The decrease in the Authority s current ratio to 4.05 for 2008 is attributed to the increase in accounts payable related to capital projects. The Authority s net assets increased $6.7 million in 2007 over 2006, and further increased $6.1 million in The following is a summary of the major sources and uses of cash and cash equivalents for the past three years. Cash Equivalents are considered cash-on-hand, bank deposits and highly liquid investments with a maturity of three months or less when purchased Cash flows from: Operating Activities $ 3,696,000 $ 566,000 $ 3,087,000 Non-Capital Financing Activities 211, , ,000 Capital and Related Financing Activities (583,000) 2,285,000 (3,880,000) Investing Activities (295,000) 506, ,000 Net increase (decrease) in Cash and Cash Equivalents 3,029,000 3,808,000 (3,000) Cash and Cash Equivalents: Beginning of Year 10,028,000 6,220,000 6,223,000 End of Year $ 13,057,000 $10,028,000 $ 6,220,000 The Authority s available cash and cash equivalents increased from $6.2 million at the end of 2006 to $10.0 million at the end of The increase in cash and cash equivalents in 2007 is due to the sale of the NAA North Facility, a decrease in capital project expenditures during the year, and no debt payments as the Authority paid off outstanding loan balances in The 7

24 increase in cash and equivalents in 2008 to $13.1 million is due to the decrease in accounts receivable with the collection of a large receivable outstanding at the end of 2007 and a decrease in the amounts payable to vendors at year-end. Prior to January 2008, all of the Authority s excess funds were invested in the Local Government Surplus Funds Trust Fund Investment Pool (LGIP) administered by the State Board of Administration as provided in Section (17)(a), Florida Statutes. Subsequently, by Board Resolution, the Authority s investment policy was expanded to include SEC registered money market funds, interest-bearing time deposits, savings accounts and nonnegotiable certificates of deposits, and direct obligation of the U.S. Treasury. Also in January 2008, the Board directed that all available Authority funds invested in the LGIP, even those subject to the two percent (2%) redemption fee, to be withdrawn immediately. As of September 30, 2007, the Authority s investment in the Pool was $9.5 million. As of September 30, 2008, $0.5 million is held in Fund B and is not available for withdrawal. It is uncertain if the Authority will recover the total amount of these funds upon maturity. Based on information provided to the Authority by the State Board of Administration, the Authority is recognizing an unrealized loss on this investment in the amount of $101,000. Capital Acquisitions and Construction Activities At the end of 2008, the Authority had $37.6 million invested in a broad range of capital assets, including its terminal and office buildings, aircraft hangars, fuel facilities and equipment, runways and taxiways, and buildings and equipment for fire/rescue and air traffic control. This amount represents a net increase (including additions and deductions) of $3.80 million, or 11.3% greater than last year. During 2008, completed projects totaling $1.7 million were closed from construction-in-progress to their respective capital asset accounts. The major completed projects were: Emergency Generators $ 1,019,000 Taxilane E Extension 240,000 Equipment and Vehicles 395,000 Office and Computer Equipment 27,000 Small Projects 39,000 At the end of 2008, major projects within construction-in-progress consisted of the following: South Quadrant T-Hangars $ 6,577,000 General Aviation Terminal Expansion 302,000 Airfield Pavement Improvements 210,000 Taxiway B Design 160,000 Security Access Control 107,000 Small Projects 166,000 Capital asset acquisitions and improvements are funded using a variety of financing techniques, including Federal and State grants, airport funds, debt issuance, and airport revenues. Additional information on the Authority s capital assets and commitments can be found in Note 3 and Note 14, of the notes to the financial statements. 8

25 Debt In January 2006, the Authority paid off its outstanding debt. No new debt was issued in fiscal year 2007 or Information about the Authority's previous loans and debt capacity is provided in Statistical Section of the Comprehensive Annual Financial Report. Economic Factors and Future Impacts The Authority financially supports itself directly from airport user fees and indirectly by airport user taxes. No local, state or federal general taxes, such as property, utility, sales, intangible or income taxes directly support the Authority. The Authority receives, for certain capital projects, state and federal financial grants from trust funds established largely from aviation fuel taxes and airline ticket taxes. The Authority is dedicated to providing the best possible air service to our public. In order to entice new air carriers to the Naples Municipal Airport, the Authority will continue to waive rents and fees, and provide ground handling and marketing support to scheduled air carriers providing a minimum of twelve months continuous service at Naples Municipal Airport. Contacting the Authority's Financial Management This financial report is designed to provide a general overview of the Authority's finances and to demonstrate the Authority's accountability for the money it receives. If you have questions about this report or require additional financial information, please contact the Authority's Director of Finance at 160 Aviation Drive North, Naples, Florida,

26 STATEMENTS OF NET ASSETS September 30, ASSETS CURRENT ASSETS Cash and cash equivalents $ 13,057,000 $ 10,000,000 Accounts receivable (net) 416,000 1,128,000 Inventories 572, ,000 Due from governmental agencies 1,657, ,000 Prepaid expenses 242, ,000 Total current assets 15,944,000 12,327,000 NONCURRENT ASSETS Investment 399,000 - Restricted cash - 28,000 Other asset 28,000 - Capital assets (net) 37,586,000 33,779,000 Total noncurrent assets 38,013,000 33,807,000 LIABILITIES Total assets 53,957,000 46,134,000 CURRENT LIABILITIES Accounts payable 2,868,000 1,103,000 Deferred revenue 733, ,000 Compensated absences 199, ,000 Accrued expenses and other liabilities 125, ,000 Advance rental credits 13,000 12,000 Total current liabilities 3,938,000 2,291,000 NONCURRENT LIABILITIES Compensated absences 269, ,000 Advance rental credits 55,000 68,000 Total noncurrent liabilities 324, ,000 Total liabilities 4,262,000 2,506,000 NET ASSETS Invested in capital assets 37,586,000 33,779,000 Restricted for capital projects - 28,000 Unrestricted 12,109,000 9,821,000 Total net assets $ 49,695,000 $ 43,628,000 The notes to the financial statements are an integral part of this statement. 10

27 STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS For the Year Ended September 30, OPERATING REVENUES Fuel sales (net) $ 7,351,000 $ 7,103,000 Concession fees 666,000 1,474,000 Hangar/T-shelter/tiedown 1,535,000 1,289,000 Building and land rent 977, ,000 Line services 408, ,000 Other 36,000 86,000 Net operating revenues 10,973,000 11,124,000 OPERATING EXPENSES Personnel 4,479,000 3,910,000 Professional fees 541, ,000 Communications 318, ,000 Insurance 598, ,000 Utilities and environmental 349, ,000 Office/postage/printing 40,000 45,000 ATCT, ARFF and police service 650, ,000 Dues/subscriptions/fees 27,000 25,000 Auto gas and diesel fuel 82,000 71,000 Pilot services 41,000 33,000 Maintenance and repair 859, ,000 Depreciation and amortization 1,733,000 1,673,000 Total operating expenses 9,717,000 9,164,000 Operating income 1,256,000 1,960,000 NON-OPERATING REVENUES (EXPENSES) Customer facility charges 209, ,000 Interest revenue 205, ,000 Unrealized loss on investments (101,000) - Grant revenue 226, ,000 Insurance proceeds 2,154,000 - Advance rental credit expense (32,000) (33,000) Contribution of capital asset to government agency (556,000) - Gain on disposal of capital assets 10, ,000 Total non-operating revenues (expenses) 2,115,000 1,910,000 Income before capital contributions 3,371,000 3,870,000 Capital contributions 2,696,000 2,812,000 Change in net assets 6,067,000 6,682,000 Total net assets - beginning 43,628,000 36,946,000 Total net assets - ending $ 49,695,000 $ 43,628,000 The notes to the financial statements are an integral part of this statement. 11

28 STATEMENTS OF CASH FLOWS For the Year Ended September 30, CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers $ 29,680,000 $ 24,618,000 Cash payments to suppliers for goods and services (21,763,000) (20,264,000) Cash payments for personnel services (4,257,000) (3,874,000) Other operating revenues 36,000 86,000 Net cash provided by operating activities 3,696, ,000 CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Operating grants received 211, ,000 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Customer facility charges 209, ,000 Acquisition and construction of capital assets (4,243,000) (4,691,000) Capital contributed 1,290,000 3,483,000 Proceeds from sale of captial assets 7,000 3,258,000 Insurance proceeds 2,154,000 - Net cash used in capital and related financing activities (583,000) 2,285,000 CASH FLOWS FROM INVESTING ACTIVITIES Interest and dividends on investments 205, ,000 Reduction in cash equivalents for transfer of SBA to Plan B investments (500,000) - Interest received on note receivable - 2,000 Principal repayment on note receivable - 40,000 Net cash provided by investing activities (295,000) 506,000 Net increase in cash and cash equivalents 3,029,000 3,808,000 CASH AND CASH EQUIVALENTS, beginning of year 10,028,000 6,220,000 CASH AND CASH EQUIVALENTS, end of year $ 13,057,000 $ 10,028,000 RECONCILIATION OF CASH AND CASH EQUIVALENTS Current assets - cash and cash equivalents $ 13,057,000 $ 10,000,000 Non-current assets - restricted cash - 28,000 Total cash and cash equivalents $ 13,057,000 $ 10,028,000 (Continued) The notes to the financial statements are an integral part of this statement. 12

29 STATEMENTS OF CASH FLOWS (Continued) For the Year Ended September 30, RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income $ 1,256,000 $ 1,960,000 Adjustments to reconcile operating income to net cash provided by operating activities Depreciation and amortization 1,733,000 1,673,000 Revenue recognized from advance rental credits (44,000) (44,000) Revenue recognized from land lease (28,000) - Changes in net assets and liabilities (Increase) decrease in accounts receivable 712,000 (655,000) (Increase) in inventories (234,000) (38,000) (Increase) decrease in prepaid expenses 367,000 (509,000) (Decrease) in accounts payable (84,000) (2,102,000) Increase in compensated absences 200,000 28,000 Increase in accrued expenses and other current liabilities 22,000 8,000 Increase (decrease) in deferred revenue (204,000) 245,000 Total adjustments 2,440,000 (1,394,000) NET CASH PROVIDED BY OPERATING ACTIVITIES $ 3,696,000 $ 566,000 NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES Capital asset trade-ins $ 3,000 $ 4,000 Reduction in balance of previously received operating grant $ 15,000 $ 60,000 Unrealized loss on investment activities $ (101,000) 13

30 NOTES TO FINANCIAL STATEMENTS September 30, 2008 and 2007 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting entity The City of Naples Airport Authority (the Authority ) was created under Laws of Florida , as amended, as an independent authority responsible for the operation of the airport located in Naples, Florida, or any other airport in Collier County, Florida, which the Authority may contract to operate. The City of Naples, recognizing the benefits of an authority type management concept, established the Authority in 1969 for the purpose of enhancing service to users, improving the community gateway image and eliminating financial subsidies by City taxpayers. Commissioners of the Authority are appointed by the Naples City Council. (Also see Note 12 - Related Party Transactions). Governmental Accounting Standards Board (GASB) Statement Number 14, Financial Reporting Entity, as amended, requires the financial statements of the Authority (the primary government) to include its component units, if any. A component unit is a legally separate organization for which the officials of the primary government are financially accountable. Based on the criteria established in GASB Statement Number 14, there are no component units required to be included in the Authority s financial statements. B. Basis of presentation The Authority uses enterprise fund accounting to report its activities. An enterprise fund is a proprietary fund used to account for business-like activities provided to the general public. These activities are financed primarily by user charges and the measurement of financial activity focuses on net income measurement similar to the private sector. C. Measurement focus The Authority is accounted for on an economic resources measurement focus. Accordingly, all assets and liabilities are included on the statement of net assets, and the reported net assets (total reported assets less total reported liabilities) provides an indication of the economic net worth of the Authority. The operating statement reports increases (revenues) and decreases (expenses) in total economic net worth. D. Basis of accounting Basis of accounting refers to when revenues and expenses are recognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurements made, regardless of the measurement focus applied. The Authority is accounted for by using the accrual basis of accounting. Under this method, revenues are recognized when they are earned; expenses are recognized when they are incurred. Pursuant to GASB Statement Number 20, Accounting and Financial 14

31 NOTES TO FINANCIAL STATEMENTS September 30, 2008 and 2007 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. Basis of accounting (continued) Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, the Authority has elected not to apply accounting standards issued after November 30, 1989 by the Financial Accounting Standards Board. E. Budgetary process The budget is adopted by Resolution of the Board of Commissioners and amendments, if any, are approved by the Board of Commissioners. The budget is adopted consistent with Generally Accepted Accounting Principles (GAAP) except that in order to clarify the Authority s intent for total expenses and expenditures, capital projects and principal payments on notes payable are included as expenditures and depreciation and amortization are excluded. Expenditures cannot legally exceed the total amount of budgeted expenditures. Appropriations lapse at the fiscal year-end. F. 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 amounts reported in the financial statements and accompanying notes. Although these estimates are based on management's knowledge of current events and actions it may undertake in the future, they may differ from actual results. G. Assets, liabilities and net assets Cash and investments Investments are funds invested with the State Board of Administration of Florida in the Fund B Surplus Funds Trust Fund, a fluctuating net asset value (NAV) money market investment pool. These funds are recorded at their fair value. For purposes of the statements of cash flows, the Authority considers all highly liquid investments (including restricted cash assets) with a maturity of three months or less when purchased to be cash equivalents. The Authority s investment in the Fund B Surplus Funds Trust Fund Investment Pool is not considered a cash equivalent and is reported as a noncurrent asset on the statement of net assets. When both restricted and unrestricted resources are available, restricted resources will be used first for eligible incurred expenses, and then unrestricted as needed. 15

32 NOTES TO FINANCIAL STATEMENTS September 30, 2008 and 2007 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) G. Assets, liabilities and net assets (continued) Accounts receivable The Authority s accounts receivable are recorded net of allowance for doubtful accounts. Inventories Inventories, consisting of aviation fuel and other petroleum products, are stated at the lower of cost (first-in, first-out method) or market. Capital assets Capital assets include property, plant, equipment, infrastructure and intangible assets. Infrastructure assets are defined as public domain fixed assets such as roads, drainage systems, lighting systems, runways, and similar assets that are immovable and of value only to the government unit. Intangible assets are without physical substance that provide economic benefits through the rights and privileges associated with their possession. Intangible assets may be classified as identifiable or unidentifiable and externally acquired or internally developed. The threshold for capitalization is $2,000. Capital assets purchased for use in the operations of the Authority are recorded at cost. Interest on borrowed funds for construction projects is capitalized as part of the cost of construction along with all other direct construction costs. Contributed property and equipment are recorded at fair market value at the date of contribution. Expenditures for maintenance, repairs, and minor renewals are expensed as incurred. Major renewals and enhancements are capitalized. The cost of assets retired or sold, together with the related accumulated depreciation, is removed from the accounts, and any gain or loss on disposition is credited or charged to earnings. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets. The estimated useful lives are determined based upon the Authority s experience with similar assets and its planned use of those assets. The ranges of the estimated useful lives are as follows: Assets Years Infrastructure Buildings Equipment 3 30 Improvements other than buildings 5 15 Vehicles 5 10 Intangible 3 7 Furniture and office equipment

33 NOTES TO FINANCIAL STATEMENTS September 30, 2008 and 2007 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) G. Assets, liabilities and net assets (continued) Compensated absences Employees accrue vacation time for each week of service. The amount of time accrued by each employee varies with length of employment and whether they are full-time or part-time employees. The Authority allows employees to carryover into subsequent fiscal years up to 340 hours of vacation time. Employees receive up to 10 sick days per year depending on whether they are full-time or part-time employees. The Authority allows employees to carryover into subsequent fiscal years up to 600 hours of sick time. Employees exceeding 600 hours will be paid 50% of the sick hours exceeding the 600 hours annually. Upon leaving the employ of the Authority, employees with at least seven years of service will be paid 50% of their available sick hours. In accordance with GASB Statement Number 16 Accounting for Compensated Absences, benefits under these policies, plus their related tax and retirement costs, are classified as compensated absences and are accrued when incurred. Deferred revenue The Authority offers a reduced fuel price to customers that pay for aviation fuel in advance. The prepayments are recorded as a liability when received and the liability is reduced as the associated revenues are earned. Net assets Net assets are categorized as invested in capital assets (net of related debt), restricted and unrestricted. Restriction of net assets indicates amounts that are limited for a specific purpose. Restricted for debt service is used to segregate resources accumulated for current or future debt service payments. Restricted for capital projects is used to segregate resources accumulated for capital projects that require Federal Aviation Administration (FAA) approval. H. Revenues and expenses Operating revenues and expenses Operating revenues and expenses for enterprise funds are those that result from providing services and producing and delivering goods. It also includes all revenue and expenses not related to capital and related financing, noncapital financing, or investing activities. 17

34 NOTES TO FINANCIAL STATEMENTS September 30, 2008 and 2007 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) H. Revenues and expenses (continued) Non-operating revenues and expenses Non-operating revenues and expenses represent revenue and expense items that are not incurred from the normal user activity of the Authority. This classification includes revenue received from operating grants, passenger and customer facility charges, surcharges for specific capital improvement expenditures, interest earned on bank accounts and notes receivable, interest paid on debt service, finance charge revenue, noncash interest expense related to an advance rental credit agreement, and the gain or loss on the sale or disposal of Authority property. I. Capital contributions Capital contributions consist primarily of grants and contributions from federal and state governmental agencies. Capital contributions are recognized as earned as related project costs are incurred. Donated property is recognized as received. NOTE 2 - CASH AND INVESTMENTS 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. In accordance with its policy, all Authority depositories are banks designated by the Florida State Chief Financial Officer (CFO) as qualified public depositories. Chapter 280 of the Florida Statutes Florida Security for Public Deposits Act provides procedures for public depositories to ensure public monies in banks and saving and loans are collateralized with the CFO as agent for the public entities. Chapter 280 defines deposits as demand deposit accounts, time deposit accounts, and nonnegotiable certificates of deposit. Financial institutions qualifying as public depositories shall deposit with the CFO eligible collateral having a market value equal to or in excess of the average daily balance of public deposits times the depository collateral pledging level required pursuant to Chapter 280 as computed and reported monthly or 125 percent of the average monthly balance, whichever is greater. The Public Deposit Security Trust Fund has a procedure to allocate and recover losses in the event of a default or insolvency. When public deposits are made 18

35 NOTES TO FINANCIAL STATEMENTS September 30, 2008 and 2007 NOTE 2 - CASH AND INVESTMENTS (Continued) Deposits (continued) in accordance with Chapter 280, no public depositor shall be liable for any loss thereof, and therefore, the Authority is not exposed to custodial credit risk. With the nonnegotiable certificate of deposit, there is no document that, if lost or stolen, would affect the Authority s rights to its assets. Cash was restricted for Passenger Facility Charges at September 30, 2008 and 2007 in the amount of $0 and $28,000 respectively. (See also Note 11.) Investments Until January 2008, the Authority s investment policy limited its investments to the Local Government Surplus Funds Trust Fund Investment Pool (LGIP) administered by the State Board of Administration (SBA) as provided in Section (17)(a), Florida Statutes. In January 2008, the Authority s investment policy was expanded to include investments allowed under Section (17)(b) (d), which include: SEC registered money market funds, interest-bearing time deposits, savings accounts and nonnegotiable certificates of deposits, and direct obligations of the U.S. Treasury. The Authority does not have a policy related to credit risk or interest rate risk. As of December 6, 2007, the Authority s access to its funds invested in LGIP was restricted by the SBA and divided into the LGIP and Fund B. Of the Authority s $11,110,000 held at that time, $9,512,000 remained in the LGIP with $2,000,000 available to the Authority without restriction and $7,512,000 available with a two percent redemption fee. The remaining $1,598,000 was moved to Fund B and was restricted from withdrawals until the underlying assets mature. The Authority subsequently withdrew all of its funds from the LGIP and was assessed a $153,000 penalty which has been reported as a reduction in investment earnings. Fund B is not rated by any nationally recognized statistical rating agency. The weighted average life of Fund B as of September 30, 2008 was 9.36 years. The Authority s investment in the LGIP at September 30, 2007 was $9,465,000 and is reported as cash equivalents on the statement of net assets. The Authority s investment in Fund B at September 30, 2008 is reported as a noncurrent asset on the statement of net assets. The fair value of the investment in Fund B as of September 30, 2008 is $399,