Broward County Aviation Department. Special Purpose Financial Statements Years Ended September 30, 2012 and 2011

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1 Broward County Aviation Department A Major Fund of Broward County, Florida Special Purpose Financial Statements Years Ended September 30, 2012 and 2011

2 SPECIAL PURPOSE FINANCIAL STATEMENTS TABLE OF CONTENTS Independent Auditor s Report... 3 Special Purpose Financial Statements: Statements of Net Assets... 5 Statements of Revenues, Expenses and Changes in Net Assets... 7 Statements of Cash Flows... 8 Notes to Special Purpose Financial Statements Required Supplementary Information Schedule of Funding Progress Other Post Employment Benefits Independent Auditor s Report on Internal Control over Financial Reporting and on Compliance and Other Matters based on an Audit of Special-Purpose Financial Statements Performed in Accordance with Government Auditing Standards

3 INDEPENDENT AUDITOR S REPORT Honorable Board of County Commissioners Broward County Aviation Department Broward County, Florida We have audited the accompanying special purpose financial statements of the Broward County Aviation Department (the Aviation Department ), an enterprise fund of Broward County, as of and for the year ended September 30, 2012 and 2011, as listed in the table of contents. These financial statements are the responsibility of the Aviation Department s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in Note 1, the financial statements present only the Aviation Department and do not purport to, and do not, present the financial position of Broward County, Florida (the County ), as of September 30, 2012 and 2011, and the changes in its financial position and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In our opinion, the special purpose financial statements referred to above present fairly, in all material respects, the financial position of the Aviation Department, an enterprise fund of Broward County, as of September 30, 2012 and 2011, and the changes in financial position and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated February 15, 2013, on our consideration of the Aviation Department s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in conjunction with this report in considering the results of our audit. 3

4 Honorable Board of County Commissioners Broward County Aviation Department Accounting principles generally accepted in the United States of America require that the Schedule of Funding Progress Other Post Employment Benefits, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. MOORE STEPHENS LOVELACE, P.A. Certified Public Accountants Orlando, Florida February 15,

5 STATEMENTS OF NET ASSETS SEPTEMBER 30, 2012 AND 2011 (in thousands) ASSETS Current Assets Unrestricted Assets Cash and cash equivalents $ 53,041 $ 33,179 Investments 69,386 38,949 Accounts receivable, net of allowance of $181 and $175, respectively 8,507 8,128 Inventories Prepaid expenses and other 13,672 14,267 Total current unrestricted assets 145,039 94,912 Restricted Assets Cash and cash equivalents 600,671 71,787 Passenger facility charges receivable 4,396 3,014 Amounts due from governmental agencies 7,242 7,526 Total current restricted assets 612,309 82,327 Total current assets 757, ,239 Noncurrent Assets Restricted investments 300, ,238 Bond issuance cost 9,570 7,400 Capital assets Land and improvements 282, ,797 Buildings and facilities 1,023, ,299 Property held for leasing 436, ,467 Equipment 30,703 29,657 Construction in progress 232, ,041 Total capital assets 2,005,260 1,839,261 Less accumulated depreciation (490,087) (439,258) Total capital assets, net 1,515,173 1,400,003 Total noncurrent assets 1,825,528 1,693,641 TOTAL ASSETS $ 2,582,876 $ 1,870,880 See accompanying notes to financial statements 5

6 STATEMENTS OF NET ASSETS (Continued) SEPTEMBER 30, 2012 AND 2011 (in thousands) LIABILITIES AND NET ASSETS Current Liabilities Payable from Unrestricted Assets Accounts payable $ 6,617 $ 3,041 Accrued liabilities 2,600 1,856 Due to other County funds 4,802 3,196 Due to other governments Deposits 3,937 4,187 Unearned revenue 17,374 17,898 Compensated absences 1,677 1,662 Capital lease payable Total current liabilities payable from unrestricted assets 37,387 32,670 Payable from Restricted Assets Accounts payable 29,652 13,616 Accrued liabilities 13,889 7,700 Accrued interest payable 12,743 18,994 Revenue bonds payable 22,305 45,030 Notes payable - 2,766 Total current liabilities payable from restricted assets 78,589 88,106 Total current liabilities 115, ,776 Noncurrent Liabilities Revenue bonds payable, net of discount, premiums and deferred amount on refunding 1,271, ,295 Compensated absences 2,694 2,640 Other post employment benefits liability Total noncurrent liabilities 1,275, ,653 TOTAL LIABILITIES 1,391, ,429 NET ASSETS Invested in capital assets, net of related debt 842, ,281 Restricted for Debt service 114,185 46,933 Capital projects 121, ,946 Unrestricted 113,710 66,291 TOTAL NET ASSETS $ 1,191,643 $ 1,107,451 See accompanying notes to financial statements 6

7 STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (in thousands) Operating Revenues Airline revenues $ 48,362 $ 50,662 Rental cars 55,158 54,036 Parking 39,661 38,710 Concessions 22,730 21,830 General aviation and fixed based operators 6,480 5,895 Non-airline terminal rent and other rents 4,411 4,542 North Perry Airport 1, Cargo 1, Miscellaneous operating revenues 2,703 1,833 Total operating revenue 182, ,358 Operating Expenses Salaries, wages and benefits 30,922 31,360 Contractual services 36,030 34,490 Law enforcement and fire rescue 24,953 25,588 Utilities 8,479 8,497 Insurance 5,589 5,680 Services provided by other County departments 5,672 4,626 Maintenance, equipment and supplies 3,537 2,279 General and administrative 4,366 2,821 Total operating expenses before depreciation 119, ,341 Operating income before depreciation 62,735 64,017 Depreciation 56,275 52,497 Operating Income 6,460 11,520 Nonoperating Revenues (Expenses) Passenger facility charges 48,283 48,363 Interest income 2,204 2,323 Interest expense, net of capitalized interest (31,835) (36,689) Amortization of bond issuance cost (551) (513) Write-off of discontinued project cost (3,295) - Gain on disposal of assets Other 166 (34) Total nonoperating revenues (expenses) 14,985 13,462 Income before capital contributions 21,445 24,982 Capital Contributions 62,747 31,212 Increase in net assets 84,192 56,194 Total Net Assets - Beginning of Year 1,107,451 1,051,257 Total Net Assets - End of Year $ 1,191,643 $ 1,107,451 See accompanying notes to financial statements 7

8 STATEMENTS OF CASH FLOWS (in thousands) Cash Flows from Operating Activities Cash received from customers $ 181,147 $ 184,912 Cash payments to suppliers for goods and services (83,051) (94,480) Cash payments to employees for services (30,724) (31,177) Other cash received Other cash paid - (34) Net cash provided by operating activities 67,538 59,221 Cash Flows from Capital and Related Financing Activities Proceeds from issuance of bonds 677,126 - Proceeds from bond refunding 3,250 - Payment to refunded bond escrow agent (30,602) - Payment of bond issuance costs (1,050) - Acquisition and construction of property, plant and equipment (150,765) (108,972) Proceeds from sale of assets Debt principal payment (48,275) (50,159) Interest and fiscal charges (35,641) (37,957) Capital contributions 63,031 37,922 Receipt of passenger facility charges 46,901 48,372 Net cash provided by (used for) capital and related financing activities 523,988 (110,782) Cash Flows from Investing Activities Purchase of investment securities (262,987) (302,505) Proceeds from sale and maturities of investment securities 218, ,540 Interest and dividends on investments 2,204 2,323 Net cash provided by (used for) investing activities (42,780) 79,358 Net Increase in Cash and Cash Equivalents 548,746 27,797 Cash and Cash Equivalents, Beginning of Year 104,966 77,169 Cash and Cash Equivalents, End of Year $ 653,712 $ 104,966 Cash and Cash Equivalents - Unrestricted Assets $ 53,041 $ 33,179 Cash and Cash Equivalents - Restricted Assets 600,671 71,787 $ 653,712 $ 104,966 See accompanying notes to financial statements 8

9 STATEMENTS OF CASH FLOWS (Continued) (in thousands) Reconciliation of operating income to net cash provided by operating activities Operating income $ 6,460 $ 11,520 Adjustments to reconcile operating income to cash flows from operating activities Depreciation expense 56,275 52,497 Miscellaneous nonoperating revenues (expenses) 166 (34) Changes in Assets and Liabilities (Increase) Decrease in accounts receivable (379) 375 Increase in inventories (44) (11) (Increase) Decrease in prepaid expenses and other 595 (7,492) Increase (Decrease) in accounts payable 2,691 (2,505) Increase (Decrease) in accrued liabilities 744 (1,751) Increase in due to other County funds 1,606 1,316 Increase (Decrease) in due to other goverments 29 (185) Decrease in deposits (250) (1,366) Increase (Decrease) in unearned revenue (524) 6,762 Increase (Decrease) in compensated absences 69 (90) Increase in other post employment benefits liability Net adjustments 61,078 47,701 Net cash provided by operating activities $ 67,538 $ 59,221 Noncash Investing, Capital and Financing Activities Amortization of bond issuance costs $ 551 $ 513 Amortization of bond discount, premiums and deferred amount on refunding (883) (193) Issuance of refunding bonds to advance refund existing debt 344,798 - Capital assets acquired through current accounts payable 28,310 10,850 Change in fair value of investments (239) 1,604 See accompanying notes to financial statements 9

10 TABLE OF CONTENTS Note 1: Summary of Significant Accounting Policies Note 2: Deposits and Investments Note 3: Restricted Assets Note 4: Capital Assets Note 5: Lease and Concession Agreements Note 6: Airline-Airport Lease and Use Agreement Note 7: Long-Term Liabilities Note 8: Bond Refunding Note 9: Bond Issuance (other than refunding issues) Note 10: Capital Contributions Note 11: Risk Management Note 12: Pension Plan Note 13: Other Post Employment Benefits Note 14: Related Party Transactions Note 15: Commitments and Contingent Liabilities

11 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity These financial statements present the financial position, changes in net assets and cash flows of the Broward County Aviation Department (BCAD), a major enterprise fund of Broward County (the County), and not the county as a whole. The Board of County Commissioners (the Board) is responsible for legislative and fiscal control of the County. A County Administrator is appointed by the Board and is responsible for administrative and fiscal control of all County departments through the administration of directives and policies established by the Board. Pursuant to the general laws of Florida, the County owns Fort Lauderdale-Hollywood International Airport (FLL), a major air carrier airport, and the North Perry Airport (HWO), a general aviation airport, both of which are operated by BCAD. All accounts of FLL and HWO are included in BCAD s reporting entity; there are no other financial activities or funds considered for inclusion. B. Basis of Accounting BCAD operates as an enterprise fund of the County and uses the enterprise fund type to account for all its operations. The financial statements are presented using the flow of economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of when the related cash flows take place. Operating revenues and operating expenses are distinguished from nonoperating items. Operating revenues and expenses generally result from providing services in connection with BCAD s principal ongoing operations. BCAD s principal operating revenues are from airlines, rental cars, parking and concessions. The principal operating expenses for BCAD include employee wages and benefits, purchases of services and other costs related to operating the airport, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. C. Net Assets Net assets represent the residual interest in BCAD s assets after liabilities are deducted and consist of three sections: Invested in capital assets, net of related debt, restricted and unrestricted net assets. Net assets invested in capital assets, net of related debt includes capital assets, net of accumulated depreciation, reduced by outstanding debt expended for capital assets. Net assets are reported as restricted when constraints are imposed by third parties or enabling legislation. All other net assets are unrestricted. 11

12 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. Proprietary Accounting and Financial Reporting Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed by BCAD to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board (GASB). While BCAD has the option of following subsequent private-sector guidance, BCAD has elected not to follow subsequent private-sector guidance. E. Deposits and Investments Cash and cash equivalents consist of amounts in demand deposits, as well as short-term investments with original maturities at time of purchase of three months or less. BCAD, in addition to investments with Wells Fargo Bank, participates in the investment pool maintained by the County for all cash and cash equivalents and investments. All investments are stated at fair value, which is based on quoted market price. BCAD s portion of the pool is presented as cash and cash equivalents, investments or restricted assets, as appropriate. Earnings are allocated to BCAD based on the average daily balances of cash and investments. F. Accounts Receivable Accounts receivable are composed primarily of monthly billings to airlines and concessionaires operating at BCAD for various rentals and other fees. An allowance for doubtful accounts is provided for receivables where there is a question as to ultimate collectability. Receivables for BCAD are presented in the accompanying financial statements, net of an allowance for uncollectible accounts of $181,000 and $175,000 at September 30, 2012 and 2011, respectively. G. Inventories and Prepaid Expenses Inventories consist of maintenance materials and supplies for consumption and are recorded at the lower of cost or market value, using the first-in, first-out method. Prepaid expenses consist primarily of insurance costs that will benefit future accounting periods. H. Amounts Due from Governmental Agencies The amounts due from other governments represent grants receivable from Federal and State governments for their share of amounts expended on various capital projects. 12

13 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) I. Capital Assets Capital assets, which include property, plant and equipment are recorded at cost or, if donated, at fair value at the date of donation. The capitalization levels are $1,000 for equipment and $5,000 for land and improvements and buildings and facilities. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Capital assets are depreciated on the straight-line basis over the following estimated useful lives: Buildings and Facilities Equipment 3-40 years 3-15 years J. Capitalized Interest Interest incurred during the construction phase of capital assets is included as part of the capitalized value of the assets constructed. The total interest expense incurred by BCAD during the fiscal year ended September 30, 2012 was $33,583,000 and, of this, $1,748,000 was included as part of the cost of construction-in-progress. There was no capitalized interest for the fiscal year ended September 30, K. Long-term Obligations Long-term debt and other long-term obligations are reported as liabilities in the statement of net assets. Bond premiums and discounts, gains/losses on refundings, as well as issuance costs, are deferred and amortized over the life of the bonds using the straight-line method. Bonds payable are reported net of the applicable bond premium or discount and gains/losses on refundings. Bond issuance costs are reported as deferred charges. L. Compensated Absences BCAD s policy is to permit employees to accumulate vacation and sick leave. The cost of earned but unused vacation is accrued as a liability in the period in which the leave is earned. A liability for earned but unused sick leave is accrued only to the extent that the leave will result in cash payments at termination. At September 30, 2012 and 2011, such amounts aggregated $4,371,000 and $4,302,000, respectively, and are included in current and long-term liabilities. M. Unearned Revenue - Airline Fees and Charges Unearned revenue represents revenues collected in excess of certain required deposits in accordance with the Airline-Airport Lease and Use Agreement. 13

14 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) N. Capital Contributions Capital contributions consist mainly of grants from Federal and State governments. These capital contributions are recognized as earned, as related project costs are incurred. O. Passenger Facility Charges In 1990, Congress authorized domestic airports to impose a passenger facility charge (PFC) on each departing passenger. Subsequently, the Federal Aviation Administration (FAA) issued regulations for the use and reporting of PFCs. Airports are authorized to use PFCs for projects that must meet at least one of the following eligibility requirements: (1) preserve or enhance safety, security, or capacity of the national transportation system; (2) reduce noise or reduce noise impacts resulting from an airport; or (3) furnish opportunities for enhanced competition between or among carriers. Effective January 1, 1995, the FAA authorized BCAD to impose and use collected PFCs of $3.00 per departing passenger at FLL. In July 2005, FLL received approval from the FAA to implement a $4.50 PFC effective October 1, The ticketing airline includes the departing PFC in the price of each ticket when it is sold to the traveler. The $4.50 PFC collected by the airlines is remitted monthly to FLL, less an $0.11 per passenger administrative fee. Through initial and subsequent FAA approvals, BCAD is currently authorized to collect PFCs up to $1,876,458,000, of which $579,358,000 has been collected as of September 30, The net receipts from PFCs are nonrefundable and restricted for use on FAA-approved capital projects and debt service on revenue bonds that fund approved PFC-eligible projects. As of September 30, 2012, $469,477,000 of the collected PFCs had been spent on approved projects or debt service, and the remaining $109,881,000, along with a receivable of $4,396,000, is reflected in restricted net assets. P. Reclassifications Certain amounts presented in the prior year data have been reclassified to be consistent with the current year s presentation. Q. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. 14

15 NOTE 2 - DEPOSITS AND INVESTMENTS At September 30, 2012 and 2011, BCAD s deposits and investments consisted of the following (in thousands): September 30, Cash Deposits $ 46,662 $ 6,464 Investments: U.S. Treasuries 26,702 6,458 U.S. Agencies 295, ,929 Commercial Paper 27,434 10,246 Money Market Mutual Funds 627, ,056 Total Investments 977, ,689 Total Cash, Cash Equivalents and Investments $ 1,023,883 $ 430,153 Cash and cash equivalents and investments are classified on the statements of net assets as follows (in thousands): September 30, Current Assets Cash and cash equivalents, unrestricted $ 53,041 $ 33,179 Cash and cash equivalents, restricted 600,671 71,787 Investments, unrestricted 69,386 38,949 Noncurrent Assets Investments, restricted 300, ,238 Total Cash, Cash Equivalents and Investments $ 1,023,883 $ 430,153 15

16 NOTE 2 - DEPOSITS AND INVESTMENTS (Continued) Deposits The custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, the County will not be able to recover deposits or will not be able to recover collateral securities that are in the possession of an outside party. The County mitigates custodial credit risk by requiring public funds to be deposited in a qualified public depository pursuant to State Statutes. Under the Statutes, all qualified public depositories are required to pledge eligible collateral having a market value equal to or greater than the average daily or monthly balance of all public deposits times the depositories collateral pledging level. The pledging level may range from 25% to 200% depending upon the depositories financial condition and establishment period. All collateral must be deposited with an approved financial institution. Any potential losses to public depositors are covered by applicable deposit insurance, sale of securities pledged as collateral, and, if necessary, assessments against other qualified public depositories of the same type as the depository in default. Investments BCAD follows the County s formal investment policy that, in the opinion of management, is designed to insure conformity with State Statutes and seeks to limit exposure to investment risks. The investment policy specifies the types, issuer, maturity, and performance measurement of investment securities that are permissible. Securities are held to maturity with limited exceptions outlined in the investment policy. Qualified institutions utilized for investment transactions are also addressed within the policy, as well as diversification requirements for the investment portfolio. Under State Statutes and County Ordinances, the County is authorized to invest in obligations of the U.S. Treasury, its agencies and instrumentalities, commercial paper, repurchase agreements, certificates of deposit, certain Money Market Funds and the Florida Local Government Investment Trust. County policy requires that securities underlying repurchase agreements must have a market value of at least 101% of the cost of the repurchase agreements. There were no losses during the period due to default by counterparties to investment transactions and, in the opinion of County management, no types of investments during the period other than those permitted as enumerated above. The County does not have any direct exposure to subprime-backed securities. Interest Rate Risk - In accordance with its investment policy, the County manages its exposure to interest rate volatility by limiting the weighted average maturity of its investment portfolio within the following maturity categories: overnight 35%; 1-30 days 80%; days 80%; 91 days to 1 year 70%; 1-2 years 40%; 2-3 years 20%; 3-4 years 15%; 4-5 years 10%. As of September 30, 2012, the portfolio weighted average maturity was 665 days, and was in accordance with the County s investment policy. 16

17 NOTE 2 - DEPOSITS AND INVESTMENTS (Continued) Credit Risk The County s investment policy contains specific rating criteria for certain investments. The policy states that commercial paper, bonds, notes, or obligations of the State of Florida, any municipality or political subdivision or any agency or authority of the state, if such obligations are rated, must be rated in one of the two highest rating categories by at least two nationally recognized rating agencies. Commercial paper not rated must be backed by a letter of credit or line of credit rated in one of the two highest rating categories. Any investments in World Bank Notes, Bonds and Discount Notes must be rated AAA or equivalent by Moody s Investor Service and/or Standard and Poor s Corporation. The County s investments in U.S. Treasuries and U.S. Agencies are rated AA+ by Standard & Poor s, AAA by Fitch Ratings, and Aaa by Moody s Investor Services. The County s investments in commercial paper are rated P-1 by Moody s Investor Services and A-1 or higher by Standard & Poor s. The County s investments in Money Market Mutual Funds are rated AAAm by Standard & Poor s. Concentration of Credit Risk The County places no limit on the amount that may be invested in securities of the U. S. Government and Agencies thereof, or government-sponsored corporation securities. The County requires that all other investments be diversified with no more than 5% of the value of the portfolio invested in the securities of any single issuer. GASB 40 requires disclosure when the percent is 5% of total investments or more in any one issuer. The County s investment in the Federal Home Loan Mortgage Corporation is 15.21%, the Federal National Mortgage Association is 18.33% and the Federal Home Loan Bank is 19.17%. 17

18 NOTE 3 - RESTRICTED ASSETS Restricted assets of BCAD at September 30, 2012 represent amounts designated for construction and restricted for debt service, maintenance and improvements under the terms of outstanding bond agreements and regulatory requirements. The bond reserve accounts contain the maximum amount of required principal and interest payments on all outstanding bonds in the next fiscal year. The debt service accounts contain the principal and interest amounts required for payment due on October 1. The PFC account contains amounts collected and receivables, but unspent. The bond construction funds include bond proceeds available for the design and construction of major capital projects. Composition of restricted accounts is as follows (in thousands): September 30, Bond reserve accounts $ 67,426 $ 47,473 Debt service accounts 81,807 63,484 Passenger facility charges account 114, ,427 Bond construction funds 642, ,655 Other restricted accounts 7,242 7,526 $ 913,094 $ 368,565 Restricted assets are classified on the statements of net assets as follows (in thousands): September 30, Current Restricted Assets Cash and cash equivalents $ 600,671 $ 71,787 Passenger facility charges receivable 4,396 3,014 Amounts due from governmental agencies 7,242 7,526 Noncurrent Assets Restricted investments 300, ,238 $ 913,094 $ 368,565 18

19 NOTE 4 - CAPITAL ASSETS Changes in capital assets for the years ended September 30, 2012 and 2011 are as follows (in thousands): Balance Balance October 1, September 30, 2011 Additions Deletions 2012 Capital assets not being depreciated: Construction in progress $ 142,041 $ 176,184 $ 85,635 $ 232,590 Land and improvements 282, ,797 Total capital assets not being depreciated 424, ,184 85, ,387 Capital assets being depreciated: Buildings and facilities 956,299 74,478 7,611 1,023,166 Property held for leasing 428,467 7, ,004 Equipment 29,657 1, ,703 Total capital assets being depreciated 1,414,423 83,572 8,122 1,489,873 Less accumulated depreciation: Buildings and facilities 313,331 39,948 4, ,328 Property held for leasing 105,932 13, ,355 Equipment 19,995 2, ,404 Total accumulated depreciation 439,258 56,275 5, ,087 Total capital assets being depreciated, net 975,165 27,297 2, ,786 Total capital assets, net $ 1,400,003 $ 203,481 $ 88,311 $ 1,515,173 Balance Balance October 1, September 30, 2010 Additions Deletions 2011 Capital assets not being depreciated: Construction in progress $ 97,200 $ 118,031 $ 73,190 $ 142,041 Land and improvements 282, ,797 Total capital assets not being depreciated 379, ,031 73, ,838 Capital assets being depreciated: Buildings and facilities 906,653 49, ,299 Property held for leasing 413,168 15, ,467 Equipment 29, ,657 Total capital assets being depreciated 1,349,346 65, ,414,423 Less accumulated depreciation: Buildings and facilities 277,507 35, ,331 Property held for leasing 92,362 13, ,932 Equipment 17,257 3, ,995 Total accumulated depreciation 387,126 52, ,258 Total capital assets being depreciated, net 962,220 12, ,165 Total capital assets, net $ 1,342,217 $ 130,976 $ 73,190 $ 1,400,003 19

20 NOTE 5 - LEASE AND CONCESSION AGREEMENTS Property held for leasing consists of property leased under operating leases to commercial enterprises. Lease terms vary from one to fifty years and require, in some cases, the construction of leasehold improvements that will be contributed to the County at lease termination. The following is a schedule by years of minimum future revenues from noncancelable agreements as of September 30, 2012 (in thousands): 2013 $ 62, , , , ,993 Thereafter 94,078 Total minimum future revenues $ 307,229 Total minimum future revenues do not include contingent revenues that may be received under certain concession leases on the basis of a percentage of the tenants gross revenue in excess of stipulated minimums. Contingent revenues amounted to approximately $38,462,000 and $36,825,000 for the years ended September 30, 2012 and 2011, respectively. NOTE 6 - AIRLINE-AIRPORT LEASE AND USE AGREEMENT BCAD has entered into 5-year lease and use agreements with its major airline tenants (Signatory Airlines). The airline agreements, which are based on a residual rate-setting methodology for the terminal complex and the airfield, will terminate on September 30, The agreements require that landing fees and terminal rentals be reviewed annually and adjusted, as necessary, so that the total revenue is sufficient to meet BCAD s requirements, as determined by the signatory airline agreements. At the end of the fiscal year, after all required deposits have been made; any remaining excess funds are used to meet the requirements in the following fiscal year. These excess funds have been recorded as unearned revenue by BCAD and have been included in current liabilities payable from unrestricted assets. For the years ended September 30, 2012 and 2011, these funds amounted to $15,863,000 and $17,194,000, respectively. 20

21 NOTE 7 - LONG-TERM LIABILITIES Changes in long-term obligations for the years ended September 30, 2012 and 2011 are as follows (in thousands): Balance Balance Amount Due Amount Due October 1, September 30, Within One After One 2011 Additions Deductions 2012 Year Year Notes payable $ 2,766 $ - $ 2,766 $ - $ - $ - Revenue Bonds payable 682, , ,860 1,203,525 22,305 1,181,220 Unamortized bond premiums and discount 2,125 98,319 1,613 98,831-98,831 Unamortized deferred amount on refunding - (8,504) (198) (8,306) (8,306) Capital lease Other post employment benefits Compensated absences 4,302 1,466 1,397 4,371 1,677 2,694 $ 692,590 $ 1,022,655 $ 416,006 $ 1,299,239 $ 23,982 $ 1,275,257 Balance Balance Amount Due Amount Due October 1, September 30, Within One After One 2010 Additions Deductions 2011 Year Year Notes payable $ 7,566 $ - $ 4,800 $ 2,766 $ 2,766 $ - Revenue Bonds payable 724,680-42, ,200 45, ,170 Unamortized bond premiums and discount 2, ,125-2,125 Capital lease 3,359-2, Other post employment benefits Compensated absences 4,393 1,321 1,412 4,302 1,662 2,640 $ 742,848 $ 1,595 $ 51,853 $ 692,590 $ 49,937 $ 642,653 21

22 NOTE 7 - LONG-TERM LIABILITIES (Continued) The following is a summary of the major provisions and significant debt service requirements for the outstanding bonds at September 30, 2012 (in thousands): Airport System Revenue Bonds Primary Purpose Optional (O) or Mandatory (M) Interest Payment Redemption * Type Rate % Date Year Final Maturity Date Original Amount Issued Retired/ Refunded Outstanding September J-2 Improvements Serial /1 & 10/1 N/A N/A 10/1/2015 $ 73,725 $ (39,890) $ 33, J-2 Improvements Term 6.9 4/1 & 10/1 M /1/ ,460-75, L Improvements Serial /1 & 10/1 O /1/ ,015 (76,095) 65, O Refunding Serial /1 & 10/1 O /1/ ,395 (4,015) 25, O Refunding Term /1 & 10/1 M /1/ ,745-71, P-1 Refunding Serial /1 & 10/1 O /1/ , , P-2 Refunding Serial /1 & 10/1 O /1/ ,775-92, Q-1 Improvements Serial /1 & 10/1 O /1/ , , Q-1 Improvements Term /1 & 10/1 M /1/ , , Q-2 Improvements Serial 5.0 4/1 & 10/1 O /1/ ,800-51, Q-2 Improvements Term 5.0 4/1 & 10/1 M /1/ ,910-53,910 $ 1,203,525 *The optional and mandatory redemptions are at par A schedule of future debt service is as follows (in thousands): Fiscal Year Principal Interest Total 2013 $ 22,305 $ 18,988 $ 41, ,945 58, , ,175 56,446 92, ,110 54,739 95, ,285 52,693 95, , , , , , , ,265 96, , ,220 66, , ,380 31, , ,340 1,714 39,054 $ 1,203,525 $ 818,964 $ 2,022,489 22

23 NOTE 7 - LONG-TERM LIABILITIES (Continued) Airport System Revenue Bonds are issued to finance the construction or improvement of the Airports facilities and are payable solely from and are secured by a pledge of net revenues, as defined in the Bond Resolution. In accordance with Section 704(a) of the Bond Resolution, the debt service coverage for the fiscal year ended September 30, 2012 is as follows (in thousands): Revenues $ 180,952 Current expenses 119,548 Net revenues 61,404 Transfer from General Purposes Account 17,194 Amount available for debt service $ 78,598 Debt Service* Deposit to Principal Account $ 40,448 Deposit to Interest Account 29,374 Passenger facility charge and grant offset (13,343) Total debt service $ 56,479 Debt Service Coverage by Account Available for Debt Service 139% Required Debt Service Coverage 125% *The debt service in the coverage calculation is on an accrual basis to match the revenues and expenses. Total pledged revenues to repay the principal and interest of Airport System Revenue Bonds as of September 30, 2012 was as follows (in thousands): Current revenue pledged $ 78,598 Current year debt service $ 56,479 Total future revenues pledged $ 2,022,489 Passenger facility charge and grant offset (1,110,765) Net future revenues pledged $ 911,724 Total future pledged revenues are to repay principal and interest on a cash basis through fiscal year

24 NOTE 8 - BOND REFUNDING On May 30, 2012, BCAD issued Airport System Revenue Refunding Bonds, Series 2012P-1 (AMT) and Airport System Revenue Refunding Bonds, Series 2012P-2 (Non-AMT) (the Series 2012P Bonds ) in the principal amounts of $217,080,000 and $92,775,000, respectively, with interest rates ranging from 3% to 5% (the true interest rate is 3.20%). The proceeds were used to advance refund $39,480,000 of Series 1998E Bonds, $38,175,000 of Series 1998G Bonds, $17,390,000 of Series 1998H-1 Bonds, $60,050,000 of Series 1998H-2 Bonds, $32,410,000 of Series 2001I Bonds, $132,165,000 of Series 2001I-1 Bonds and $45,160,000 of Series 2004L Bonds, which had interest rates ranging from 3.3% to 5.75%. The net proceeds of $375,401,000 (consisting of the par amount of $309,855,000, plus original issue premium of $39,497,000, plus $28,210,000 accumulated in the Debt Service Fund relating to the refunded bonds and after the payment of underwriting fees and other issuance costs of $2,161,000), were deposited in an irrevocable trust with an escrow agent to provide funds for the debt service payments on the refunded bonds. As a result, the refunded bonds are considered defeased and the liability for those bonds has been removed from the statement of net assets. The principal amount outstanding at September 30, 2012 for the defeased bonds was $45,160,000. The reacquisition price exceeded the net carrying amount of the old debt by $8,504,000. This amount is being netted against the new debt and amortized over the remaining life of the refunding bonds using the straight-line method. BCAD completed the advance refunding to reduce its total debt service payment over the next 16 years by $52,172,000, which represents an economic gain (the difference between the present values of the old and new debt service payments) of $39,916,000. NOTE 9 - BOND ISSUANCE (OTHER THAN REFUNDING ISSUES) On September 27, 2012, BCAD issued $515,620,000 in Airport System Revenue Bonds, Series 2012Q-1 (Non- AMT) with interest rates ranging from 3% to 5% and $105,710,000 in Airport System Revenue Bonds, Series 2012Q-2 (AMT) with a 5% interest rate, (the Series 2012Q Bonds ) with a combined premium of $58,822,000 resulting in a combined true interest rate of 3.96%. The Series 2012Q Bonds were issued to provide funding for the South Runway Expansion Project and Related Airport Improvement Projects, fund the Reserve Account to satisfy the Reserve Requirements, and pay the underwriters discount and certain other costs of issuance. 24

25 NOTE 10 - CAPITAL CONTRIBUTIONS Grants and other contributions used to acquire capital assets are classified as capital contributions in the Statements of Revenues, Expenses and Changes in Net Assets. Capital contributions consist of the following (in thousands): Federal Grants $ 52,462 $ 24,965 State of Florida Grants 10,285 6,247 $ 62,747 $ 31,212 NOTE 11 - RISK MANAGEMENT BCAD is exposed to various risks and losses related to alleged torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. Self-Insurance Program BCAD participates in the County s Self-Insurance Program, which provides coverage for up to a maximum of $2,000,000 (Self-Insured Retention Limit) for each workers compensation occurrence. In addition, the County has purchased excess workers compensation coverage for losses above the self-insured retention limit in accordance with Florida State Statutes. Mass transit liability, auto liability, medical malpractice, and general liability are entirely self-insured, with the County providing coverage up to the statutory limits of $200,000 per person and $300,000 per occurrence. BCAD makes payments for the County s Self-Insurance Program to the Risk Management Fund based on actuarial estimates of the amounts needed to pay prior and current year BCAD claims and to establish reserves for all BCAD losses. These actuarial estimates include the effects of specific, incremental claim adjustment expenses, salvage, subrogation and other allocated claims adjustments. The reserves for the Self-Insurance Program are reported as a liability of the County s Self-Insurance Fund. BCAD is indemnified against any losses in a given year in excess of the fees charged. Other Insurance Coverage The County (through the Risk Management Fund) purchases commercial insurance for life, disability, airport liability, property damage, and numerous smaller policies that are required by lease agreements, union contracts, State Statutes, etc. In addition, BCAD carries separate airport owners and operators general liability insurance and environmental liability insurance. Settled claims have not exceeded this commercial coverage in the past three years. 25

26 NOTE 11 - RISK MANAGEMENT (Continued) Property Insurance - The County s property policy limit is $1 Billion dollars for all perils, per occurrence, with the exception of the following sub-limits: Windstorm of $295,000,000 per occurrence; Earthquake $350,000 per occurrence/annual aggregate; and Flood $230,000,000 per occurrence/annual aggregate. The deductible is $250,000 per occurrence except for Named Windstorm, which is $20,000,000 per occurrence. Airport Owners and Operators General Liability Insurance - BCAD carries airport owners and operators general liability insurance in the amount of $400,000,000 per occurrence. There is no deductible for this policy. This coverage includes products-completed operations, war, hi-jacking, non-owned aircraft and hangarkeepers liability (not in flight). Also included are excess employers liability (excluding disease) and excess automobile liability (off premises), both limited to $50,000,000 per occurrence. Environmental Liability Insurance - BCAD carries environmental liability insurance in the amount of $10,000,000 dollars per occurrence/aggregate with a $100,000 self-insured limit. NOTE 12 - PENSION PLAN BCAD, as a department of the County, participates in the Florida Retirement System (FRS), a cost-sharing, multiple-employer Public Employment Retirement System, which covers substantially all permanent, fulland part-time employees. The FRS provides retirement, death and disability benefits to plan members and beneficiaries. FRS offers a defined benefit plan (the Pension Plan ) or a defined contribution plan (the Investment Plan ). Benefits for both Plans are established by Florida Statutes and may only be amended by the Florida Legislature. The FRS issues an annual financial report. A copy can be obtained by sending a written request to the Division of Retirement, P.O. Box 9000, Tallahassee, FL or by visiting their website at Pension Plan benefits are computed on the basis of age, average final compensation and service credit. For employees initially enrolled in the Pension Plan on or after July 1, 2011, average final compensation is the average of the eight highest fiscal years of earnings compared with the average of the five highest years of earnings for those enrolled prior to July 1, The Pension Plan provides vesting of benefits after eight years of creditable service for employees initially enrolled in the Pension Plan on or after July 1, 2011 compared with a vesting period of six years for those enrolled prior to July 1, Members initially enrolled in the Pension Plan on or after July 1, 2011 are eligible for normal retirement if they are vested and age 65 or if they have 33 years of service, regardless of age. Members initially enrolled in the Pension Plan prior to July 1, 2011 are eligible for normal retirement if they are vested and age 62 or have 30 years of creditable service, regardless of age. Early retirement may be taken any time after vesting; however, there is a 5% benefit reduction for each year prior to normal retirement age or date. 26

27 NOTE 12 - PENSION PLAN (Continued) BCAD s required contribution rate to the Pension Plan is established by State Statute, and, as of September 30, 2012, ranged from 4.13% to 14.05% of covered payroll, based on employee risk groups. Effective July 1, 2011, the State legislature mandated a 3% employee contribution for all employees participating in the Pension Plan. Employees who were enrolled in the Deferred Retirement Option Program (DROP) before July 1, 2011 are not subject to the contribution. A summary of the covered payroll, contributions and percentage of covered payroll are as follows (in thousands): Covered Payroll $ 17,910 $ 18,900 $ 18,093 Employer Contributions $ 895 $ 1,739 $ 1,845 Employer Contributions % of Covered Payroll 5.0% 9.2% 10.2% BCAD has met all contribution requirements for the Pension Plan for the current year and the two preceding years. The Investment Plan is a participant-directed program selected by employees in lieu of participation in the defined benefit option of the Pension Plan. Benefits are accrued in individual accounts that are participant directed, portable and funded by employer/employee contributions. The Investment Plan offers a diversified mix of investment options that span the risk-return spectrum and give participants opportunity to accumulate retirement benefits. The members are vested after one year of service. Benefits are based on the total value of the account at distribution. This amount is based on contributions, earnings or losses on those contributions, less expenses. BCAD s required contribution rate to the Investment Plan is established by State Statute, and, as of September 30, 2012, ranged from 3.55% to 12.33% of covered payroll, based on employee risk groups. Effective July 1, 2011, the State legislature mandated a 3% employee contribution for all employees participating in the Investment Plan. For the year ended September 30, 2012 BCAD contributed $240,000 and employees contributed $144,000 to the Investment Plan. NOTE 13 - OTHER POST EMPLOYMENT BENEFITS (OPEB) Plan Description BCAD, as a department of the County, participates in the County s single-employer, defined-benefit healthcare plan. The plan allows its employees and their beneficiaries to continue obtaining health, dental and other insurance benefits upon retirement. The benefits of the plan conform to Florida Statutes, which are the legal authority for the plan. The plan has no assets and does not issue separate financial reports. 27

28 NOTE 13 - OTHER POST EMPLOYMENT BENEFITS (Continued) Funding Policy and Annual OPEB Cost BCAD makes no direct contribution to the defined-benefit healthcare plan. Retirees and their beneficiaries pay the same group rates as are charged to BCAD for active employees. However, the County s actuaries, in their actuarial valuation, calculate an offset to the cost of these benefits, which is described below, that is called the Employer Contribution. BCAD's annual OPEB cost for the plan is calculated based on the annual required contribution of the employer, an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The annual required contribution represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and to amortize any unfunded actuarial liabilities over a period not to exceed thirty years. The annual OPEB cost for BCAD for the 2012 and 2011 fiscal years, and the related information for the plan, is as follows (in thousands): Required contributions rates: Employer Pay as you go Pay as you go Plan members N/A N/A Annual required contribution $ 190 $ 272 Interest on net OPEB obligations Adjustment to annual required contribution (33) (22) Annual OPEB cost Contributions made (89) (89) Increase in net OPEB obligation Net OPEB obligation - beginning of year Net OPEB obligation - end of year $ 818 $ 718 The annual OPEB cost, the percentage of annual OPEB cost contributed to the plan and the net OPEB obligation for fiscal years 2012, 2011 and 2010 for BCAD were as follows (in thousands): Annual OPEB cost $ 189 $ 274 $ 263 Percentage of OPEB cost contributed 46.88% 32.41% 28.60% Net OPEB obligation $ 818 $ 718 $

29 NOTE 13 - OTHER POST EMPLOYMENT BENEFITS (Continued) Funded Status and Funding Progress The funded status of the plan as of October 1, 2011, the date of the latest actuarial valuation, was as follows (in thousands): Actuarial accrued liability $ 24,800 Actuarial value of plan assets - Unfunded actuarial accrued liability $ 24,800 Funded ratio 0.00% Covered payroll $ 231,302 Unfunded actuarial accrued liability as a percentage of covered payroll 10.72% Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events in the future. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision, as actual results are compared to past expectations and new estimates are made about the future. The required schedule of funding progress presented as required supplementary information is designed to provide multi-year trend information to show whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. Actuarial Methods and Assumptions Projections of benefits are based on the substantive plan (the plan, as understood by the employer and plan members) and include the types of benefits in force at the evaluation date and the pattern of sharing benefit costs between BCAD and plan members to that point. Actuarial calculations reflect a long-term perspective and employ methods and assumptions that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets. Significant methods and assumptions were as follows: Actuarial valuation date 10/1/2011 Actuarial cost method Entry age Amortization method Level Percent, closed Remaining amortization period 26 years Asset valuation method Unfunded Actuarial assumptions: Investment rate of return* 3.75% Projected salary increases* 4.0% % Healthcare inflation rate* 9% initial, 4.92% ultimate *Includes 3% general inflation rate 29