Broward County Aviation Department. Special Purpose Financial Statements Years Ended September 30, 2011 and 2010

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1 Broward County Aviation Department A Major Fund of Broward County, Florida Special Purpose Financial Statements Years Ended September 30, 2011 and 2010

2 SPECIAL PURPOSE FINANCIAL STATEMENTS TABLE OF CONTENTS Independent Auditor s Report... 3 Special Purpose Financial Statements: Statements of Net Assets... 4 Statements of Revenues, Expenses and Changes in Net Assets... 6 Statements of Cash Flows... 7 Notes to Special Purpose Financial Statements... 9 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, 2011 and 2010, 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, 2011and 2010, 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, 2011 and 2010, 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 8, 2012, 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. MOORE STEPHENS LOVELACE, P.A. Certified Public Accountants Orlando, Florida February 8,

4 STATEMENTS OF NET ASSETS SEPTEMBER 30, 2011 AND 2010 (in thousands) ASSETS Current Assets Unrestricted Assets Cash and cash equivalents $ 33,179 $ 14,675 Accounts receivable, net of allowance of $175 and $90, respectively 8,128 8,503 Inventories Prepaid expenses and other 14,267 6,775 Total current unrestricted assets 55,963 30,331 Restricted Assets Cash and cash equivalents 71,787 62,494 Passenger facility charges receivable 3,014 3,023 Amounts due from governmental agencies 7,526 14,236 Total current restricted assets 82,327 79,753 Total current assets 138, ,084 Noncurrent Assets Restricted investments 286, ,616 Unrestricted investments 38,949 65,606 Deferred bond issuance cost 7,400 8,014 Capital assets Land and improvements 282, ,797 Buildings and facilities 1,384,766 1,319,821 Equipment 29,657 29,525 Construction in progress 142,041 97,200 Total capital assets 1,839,261 1,729,343 Less accumulated depreciation (439,258) (387,126) Total capital assets, net 1,400,003 1,342,217 Total noncurrent assets 1,732,590 1,752,453 TOTAL ASSETS $ 1,870,880 $ 1,862,537 See accompanying notes to financial statements 4

5 STATEMENTS OF NET ASSETS (Continued) SEPTEMBER 30, 2011 AND 2010 (in thousands) LIABILITIES AND NET ASSETS Current Liabilities Payable from Unrestricted Assets Vouchers payable and accrued liabilities $ 10,219 $ 15,638 Deferred revenue-airline fees and charges 17,194 9,643 Other current liabilities 5,250 7,583 Total current liabilities payable from unrestricted assets 32,663 32,864 Payable from Restricted Assets Vouchers payable and accrued liabilities 21,323 20,012 Accrued interest payable 18,994 20,069 Revenue bonds payable 45,030 42,480 Notes payable 2,766 4,800 Total current liabilities payable from restricted assets 88,113 87,361 Total current liabilities 120, ,225 Noncurrent Liabilities Revenue bonds payable 637, ,200 Notes payable - 2,766 Other long-term liabilities and unamortized discount 5,483 6,089 Total noncurrent liabilities 642, ,055 Total Liabilities 763, ,280 NET ASSETS Invested in capital assets, net of related debt 732, ,637 Restricted Debt service 46,933 47,192 Passenger facility charges 103, ,023 Capital projects 158, ,609 Total restricted net assets 308, ,824 Unrestricted 66,291 67,796 Total Net Assets 1,107,451 1,051,257 TOTAL LIABILITIES AND NET ASSETS $ 1,870,880 $ 1,862,537 See accompanying notes to financial statements 5

6 STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (in thousands) Operating Revenues Concessions $ 47,915 $ 40,619 Parking 38,710 37,672 Terminal rent and charges 39,050 47,513 Airfield fees and charges 14,177 16,465 Building and ground rentals 12,513 15,409 Customer facility charges 25,148 23,755 Miscellaneous operating revenues 1,845 1,860 Total operating revenues 179, ,293 Operating Expenses Personal services 31,360 30,793 Contractual services 34,490 33,112 County support services 29,296 29,368 Other 20,195 22,645 Total operating expenses before depreciation 115, ,918 Operating income before depreciation 64,017 67,375 Depreciation 52,497 42,573 Operating Income 11,520 24,802 Nonoperating Revenues (Expenses) Grants - 1,764 Passenger facility charges 48,363 49,826 Interest income 2,323 4,231 Interest expense (36,689) (39,349) Amortization of bond issuance cost (513) (457) Write-off of discontinued project cost - (13,688) Gain (loss) on disposal of assets 12 (5) Other (34) (8) Total nonoperating revenues (expenses) 13,462 2,314 Income before capital contributions 24,982 27,116 Capital Contributions 31,212 26,891 Increase in net assets 56,194 54,007 Total Net Assets - Beginning of Year 1,051, ,250 Total Net Assets - End of Year $ 1,107,451 $ 1,051,257 See accompanying notes to financial statements 6

7 STATEMENTS OF CASH FLOWS (in thousands) Cash Flows from Operating Activities Cash received from customers $ 184,878 $ 177,039 Cash payments to suppliers for goods and services (94,703) (88,253) Cash payments to employees for services (31,177) (30,167) Net cash provided by operating activities 58,998 58,619 Cash Flows from Noncapital Financing Activities Grants - 1,764 Net cash provided by noncapital financing activities - 1,764 Cash Flows from Capital and Related Financing Activities Acquisition and construction of property, plant and equipment (111,809) (67,603) Debt principal payment (47,280) (43,685) Interest and fiscal charges (37,764) (37,681) Capital contribution 37,922 15,645 Receipt of passenger facility charges 48,372 46,803 Net cash used for capital and related financing activities (110,559) (86,521) Cash Flows from Investing Activities Purchase of investment securities (302,505) (305,952) Proceeds from sale and maturities of investment securities 379, ,446 Interest and dividends on investments 2,323 4,231 Net cash provided by investing activities 79,358 9,725 Net Increase (Decrease) in Cash and Cash Equivalents 27,797 (16,413) Cash and Cash Equivalents, Beginning of Year 77,169 93,582 Cash and Cash Equivalents, End of Year $ 104,966 $ 77,169 Cash and Cash Equivalents - Unrestricted Assets $ 33,179 $ 14,675 Cash and Cash Equivalents - Restricted Assets 71,787 62,494 $ 104,966 $ 77,169 See accompanying notes to financial statements 7

8 STATEMENTS OF CASH FLOWS (Continued) (in thousands) Reconciliation of Operating Income to Net Cash Provided by Operating Activities Operating Income $ 11,520 $ 24,802 Adjustments to Reconcile Operating Income to Cash Flows from Operating Activities Depreciation expense 52,497 42,573 Miscellaneous nonoperating expense (34) (8) Changes in Assets and Liabilities (Increase) Decrease in Accounts Receivable 375 (2,534) Increase in Other Current Assets (7,402) (6,341) Increase (Decrease) in Vouchers Payable and Accrued Liabilities 3,585 (688) Increase (Decrease) in Due to Other Goverments (185) 182 Increase (Decrease) in Other Current Liabilities (1,358) 633 Net Adjustments 47,478 33,817 Net Cash Provided by Operating Activities $ 58,998 $ 58,619 Noncash Investing and Financing Activities Change in Fair Value of Investments $ 1,604 $ 2,973 See accompanying notes to financial statements 8

9 Note 1: Summary of Significant Accounting Policies Note 2: Cash and Investments Note 3: Restricted Assets Note 4: Capital Assets Note 5: Lease and Concession Agreements Note 6: Capital Lease Note 7: Long-Term Liabilities Note 8: Capital Contributions Note 9: Airline-Airport Lease and Use Agreement Note 10: Risk Management Note 11: Pension Costs Note 12: Other Post-employment Benefits Note 13: Commitments and Contingent Liabilities

10 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity Broward County (the County) owns and through the Aviation Fund of Broward County Aviation Department (BCAD), operates the Fort Lauderdale-Hollywood International Airport (FLL), a major air carrier airport and the North Perry Airport (HWO), a general aviation airport. The Aviation Fund is a major enterprise fund of the County. All accounts of FLL and HWO are included in the Aviation Fund. There are no other financial activities or funds considered for inclusion in BCAD s reporting entity. B. Basis of Accounting BCAD s financial statements are presented using the flow of economic resources measurement focus and the accrual basis of accounting. This measurement focus records capital assets and long-term debt on the statements of net assets. In turn, capital assets are depreciated and recorded as an expense on the statement of revenues, expenses and changes in net assets. The accrual basis of accounting recognizes revenues when they are earned and expenses when incurred. Operating revenues and operating expenses are distinguished from nonoperating items. The main sources of operating revenues are from airlines, concessions, rental cars and parking. Passenger facility charges, investment income, federal and state operating grants and other revenues not related to the operations of the airport are reported as nonoperating revenues. Expenses from employee wages and benefits, purchases of services, supplies and materials and other expenses related to operating the airport are reported as operating expenses. Interest expense and financing costs are reported as nonoperating 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, restricted and unrestricted, 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. D. Proprietary Accounting and Financial Reporting BCAD applies all applicable Governmental Accounting Standards Board (GASB) pronouncements. In accordance with GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, BCAD also applies applicable Financial Accounting Standards Board (FASB) Statements and Interpretations, Accounting Principle Board Opinions, and Accounting Research Bulletins issued on or before November 30, 1989, unless those pronouncements conflict or contradict GASB pronouncements. 10

11 E. Cash and Cash Equivalents 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. F. Accounts Receivable Accounts receivable for the Aviation Fund are presented in the accompanying financial statements, net of an allowance for uncollectible accounts of $175,000 and $90,000 at September 30, 2011 and 2010, respectively. G. Inventories 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. 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. I. Deferred Bond Issuance Costs Bond issuance costs include underwriting spreads, insurance and various professional fees. The costs are deferred and amortized over the lives of the respective bond issues. J. Capital Assets Property, plant and equipment acquired by BCAD are carried at cost, net of accumulated depreciation. The capitalization levels are $1,000 for equipment and $5,000 for land and buildings. Routine maintenance and repairs that do not add to the value of the asset or materially extend asset lives are expensed as incurred. Capital assets are depreciated on the straight-line basis over the following estimated useful lives: Buildings and Facilities Furniture, Fixtures and Equipment 3-40 years 3-15 years K. Capitalized Interest Interest is capitalized during construction to Construction in Progress, and consists of interest expense on certain borrowings in excess of interest earned on related investments acquired with the proceeds of borrowings. 11

12 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, 2011 and 2010, such amounts aggregated $4,303,000 and $4,393,000, respectively, and are included in other current and long-term liabilities. M. Deferred Revenues - Airline Fees and Charges Deferred revenues represent revenues earned in excess of certain required deposits in accordance with the Airline-Airport Lease and Use Agreement. N. Capital Contributions Capital contributions consist mainly of grants from Federal and State governments. They 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, Through initial and subsequent FAA approvals, the Aviation Department is currently authorized to collect PFCs up to $1,876,458,000, of which $531,342,000 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, 2011, $430,929,000 of the collected PFCs had been spent on approved projects or debt service, and the remaining $100,413,000, along with a receivable of $3,014,000, is reflected in restricted net assets. 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. P. Reclassifications Certain amounts presented in the prior year data have been reclassified to be consistent with the current year s presentation. 12

13 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. NOTE 2 - CASH AND INVESTMENTS The County maintains a pool for substantially all cash and cash equivalents and investments. BCAD also maintains bond proceeds and debt service accounts with Wells Fargo Bank who, in turn, makes investments. At September 30, 2011 and 2010, the fair value of BCAD s cash and investments regardless of balance sheet classification consist of the following (in thousands): September 30, Cash Deposits $ 6,464 $ 3,542 Investments: U.S. Treasury 6,458 10,012 U.S. Agencies 312, ,501 Money Market Funds 104, ,336 Total Investments 423, ,849 Total Cash, Cash Equivalents and Investments $ 430,153 $ 479,391 Cash and cash equivalents and investments are classified on the balance sheet as follows (in thousands): September 30, Current Assets Cash and cash equivalents, unrestricted $ 33,179 $ 14,675 Cash and cash equivalents, restricted 71,787 62,494 Noncurrent Assets Investments, restricted 286, ,616 Investments, unrestricted 38,949 65,606 Total Cash, Cash Equivalents and Investments $ 430,153 $ 479,391 A portion of noncurrent restricted investments have maturities of three months or less from September 30, 2011, which is sufficient to cover current liabilities payable from restricted assets. 13

14 NOTE 2 - CASH 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 AAA by Standard & Poor s and Fitch Ratings, and Aaa by Moody s Investor Services. The County s investment in TLGP-FDIC backed bonds is backed by the full faith and credit of the U S Government and is AAA rated. The County s investments in commercial paper are rated P-1 by Moody s Investor Services and A-1 by Standard & Poor s or higher. The County s investments in Money Market Mutual Funds are rated AAA m by Standard & Poor s. Concentration of Credit Risk BCAD, through 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% or more in any one issuer. BCAD s investment in the Federal Farm Credit Bank is 7%, the Federal Home Loan Mortgage Corporation is 15%, the Federal National Mortgage Association is 23% and the Federal Home Loan Bank is 26%. NOTE 3 - RESTRICTED ASSETS Restricted assets of BCAD at September 30, 2011 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 receivable, but unspent. The capital projects accounts include bond proceeds available for the design and construction of major projects. 14

15 NOTE 3 - RESTRICTED ASSETS (Continued) Assets were restricted for the following purposes (in thousands): September 30, Bond Reserve Accounts $ 47,473 $ 47,758 Debt Service Accounts 63,484 61,983 Passenger Facility Charges 103, ,023 Capital Projects 154, ,605 $ 368,565 $ 416,369 Restricted assets are classified on the balance sheet as follows (in thousands): September 30, Current Restricted Assets Cash and cash equivalents $ 71,787 $ 62,494 Passenger facility charges receivable 3,014 3,023 Amounts due from governmental agencies 7,526 14,236 Noncurrent Assets Restricted investments 286, ,616 $ 368,565 $ 416,369 15

16 NOTE 4 - CAPITAL ASSETS Changes in capital assets for the years ended September 30, 2011 and 2010, are as follows (in thousands): Balance Transfers Balance September 30, and 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 Other capital assets Buildings and facilities 1,319,821 64,945-1,384,766 Equipment 29, ,657 Total other capital assets 1,349,346 65, ,414,423 Less accumulated depreciation Buildings and facilities 369,869 49, ,263 Equipment 17,257 3, ,995 Total accumulated depreciation 387,126 52, ,258 Total capital assets, net $ 1,342,217 $ 130,976 $ 73,190 $ 1,400,003 Balance Transfers Balance October 1, and September 30, 2009 Additions Deletions 2010 (Unaudited) Capital assets not being depreciated Construction in progress $ 260,093 $ 68,155 $ 231,048 $ 97,200 Land and improvements 282, ,797 Total capital assets not being depreciated 542,890 68, , ,997 Other capital assets Buildings and facilities 1,104, ,413-1,319,821 Equipment 27,913 1, ,525 Total other capital assets 1,132, , ,349,346 Less accumulated depreciation Buildings and facilities 330,314 39, ,869 Equipment 14,557 3, ,257 Total accumulated depreciation 344,871 42, ,126 Total capital assets, net $ 1,330,340 $ 242,942 $ 231,065 $ 1,342,217 16

17 NOTE 5 - LEASE AND CONCESSION AGREEMENTS The following is a schedule by years of minimum future revenues from noncancelable agreements as of September 30, 2011 (in thousands): 2012 $ 59, , , , ,252 Thereafter 105,672 Total minimum future revenues $ 331,566 Four Signatory Airlines had not signed the new Lease and Use Agreement by September 30, 2011 and therefore the minimum future revenues do not include revenues relating to those agreements. The minimum future revenues for the four agreements, which were signed in December 2011, amounts to $3.5 million per annum for the five years ended September 30, 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 $36.8 million and $38.7 million for the years ended September 30, 2011 and 2010, respectively. NOTE 6 - CAPITAL LEASE The Airport has entered into a lease agreement as lessee for financing the acquisition of the shuttle buses used for passenger and employee transportation. This qualifies as a capital lease for accounting purposes. The assets acquired through the capital lease are (in thousands): Asset: Vehicles $ 9,655 Less: accumulated depreciation (4,651) Total $ 5,004 The future minimum lease obligation as of September 30, 2011 is (in thousands): 2012 $ 481 Total minimum lease payments 481 Less: amount representing interest (1) Present value of minimum lease payments $

18 NOTE 7 - LONG-TERM LIABILITIES A summary of long-term liability activity for the years ended September 30, 2011 and 2010 is as follows (in thousands): 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 $ - Bonds Payable: Series E 75,120-17,365 57,755 18,275 39,480 Series G 46,590-4,115 42,475 4,300 38,175 Series H 87,250-4,780 82,470 5,030 77,440 Series I 34,650-1,090 33,560 1,150 32,410 Series J 259,180-8, ,590 9, ,460 Series L 120,750-4, ,000 4, ,080 Series O 101,140-1,790 99,350 2,225 97,125 Unamortized Bond Discounts and Premiums 2, ,124-2,124 Capital Lease 3,359-2, Other Post Employment Benefits Compensated Absences 4,393 1,321 1,411 4,303 1,662 2,641 $ 742,848 $ 1,506 $ 51,763 $ 692,591 $ 49,938 $ 642,653 Balance Balance Amount Due Amount Due October 1, September 30, Within One After One 2009 Additions Deductions 2010 Year Year (Unaudited) Notes Payable $ 12,366 $ - $ 4,800 $ 7,566 $ 4,800 $ 2,766 Bonds Payable: Series E 75, ,120 17,365 57,755 Series F 2,365-2, Series G 50,545-3,955 46,590 4,115 42,475 Series H 91,790-4,540 87,250 4,780 82,470 Series I 35,685-1,035 34,650 1,090 33,560 Series J 267,265-8, ,180 8, ,590 Series K 13,870-13, Series L 125,345-4, ,750 4, ,000 Series O 101, ,140 1,790 99,350 Unamortized Bond Discounts and Premiums 2, ,317-2,317 Capital Lease 6,126-2,767 3,359 2, Other Post Employment Benefits Compensated Absences 4,080 1,895 1,582 4,393 1,634 2,759 $ 788,992 $ 2,083 $ 48,227 $ 742,848 $ 51,793 $ 691,055 18

19 NOTE 7 - LONG-TERM LIABILITIES (Continued) A description of the bonds and notes payable is as follows: Notes Payable $7,566,000 Notes Payable to Florida Department of Transportation State Infrastructure Bank due in fiscal years is a noninterest-bearing loan used to fund the terminal roadways capital project. Series 1998E Bonds $75,560,000 Airport System Revenue Refunding Bonds, Series E, dated July 15, 1998, of which a portion is due October 1 each year beginning in 1998 through Interest at 4.80% to 5.10% is due semi-annually on April 1 and October 1. Series 1998E Bonds were issued for the purpose of redeeming $75,000,000 Airport System Revenue Bonds, Series 1998B Bonds, which were issued to pay for the acquisition of certain properties located in the clear zone with respect to the runways at FLL and the acquisition of certain other properties near the clear zone for noise mitigation purposes. Series 1998G Bonds $63,515,000 Airport System Revenue Bonds, Series G, dated December 16, 1998, of which a portion is due October 1 each year beginning in 1998 through Interest at 3.705% to 5.125% is due semi-annually on April 1 and October 1. Series 1998G Bonds were issued to pay costs of the 1998 Project and to fund additional reserves, capitalized interest and issuance costs. The 1998 Project included a new Terminal 1 and Concourse C, terminal roadway improvements, a new parking garage, Terminal 2, 3 and 4 renovations, replacement parking and landscaping, a maintenance facility and an air freight facility. The 1998 Project was also funded by Series 1998H Bonds and Series 2001I Bonds. Series 1998H Bonds $126,670,000 Passenger Facility Charge/Airport System Revenue Convertible Lien Bonds, Series H, dated December 16, 1998, of which a portion is due October 1 each year beginning in 1998 through Interest at 3.10% to 5.25% is due semi-annually on April 1 and October 1. Series 1998H Bonds were issued for the purpose of funding the 1998 Project and issuance costs. Series 2001I Bonds $41,855,000 Passenger Facility Charge/Airport System Revenue Convertible Lien Bonds, Series I, dated May 24, 2001, of which a portion is due October 1 each year beginning in 2001 through Interest at 4.00% to 5.75% is due semi-annually on April 1 and October 1. Series 2001I Bonds were issued to pay a portion of the cost of the 2001 PFC Project and issuance costs. The 2001 PFC Project consisted of the permitting, design, acquisition and construction of a second concourse at Terminal 1, comprising approximately 80,000 square feet of space with nine passenger boarding gates and other related improvements. Bond Series 2001I also included the payment of certain costs related to the 1998 Project. 19

20 NOTE 7 - LONG-TERM LIABILITIES (Continued) Series 2001J Bonds $285,155,000 Airport System Revenue Bonds, Series J, dated May 24, 2001, of which a portion is due October 1 each year beginning in 2001 through Interest at 5.25% to 6.90% is due semi-annually on April 1 and October 1. Series 2001J Bonds were issued for the purpose of funding the consolidated rental car and public parking facility, capitalized interest and issuance costs. Series 2004L Bonds $142,015,000 Airport System Revenue Bonds, Series L, dated October 22, 2004, of which a portion is due October 1 each year beginning in 2004 through Interest at 2.00% to 4.60% is due semi-annually on April 1 and October 1. Series 2004L Bonds were originally issued as governmental, non-amt bonds to fund exit roadway improvements and grade-separated pedestrian bridges, both of which were components of the 2004 Project, in addition to capitalized interest and issuance costs. The two components were subsequently replaced with other airport capital improvements, including improvements to Terminal 4; runway 9R/27L extension engineering, design and program management and certain other airfield projects; acquisition of new and improvement of existing passenger loading bridges; acquisition of a Security Administration System for credential processing; and a proposed alternate project for Noise Mitigation relating to the extension of runway 9R/27L. A Voluntary Closing Agreement with the Internal Revenue Service that preserves the tax-exempt, non-amt status of the Series 2004L Bonds was executed on May 9, Series 2009O Bonds $101,140,000 Airport System Revenue Bonds, Series O, dated September 3, 2009, of which a portion is due October 1 each year beginning in 2009 through Interest at 2.00% to 5.375% is due semi-annually on April 1 and October 1. Series 2009O Bonds were issued for the purpose of refunding $103,975,000 Airport System Revenue Bonds, Series N, dated July 3, 2008, which were issued for the purpose of refunding $105,225,000 Airport System Revenue Bonds, Series M, dated October 29, Series 2004M Bonds were issued to pay for the permitting, design and construction of Terminal 4 renovations, to include additional ticket counters and offices and expansion of the Federal Inspection Services, additional public parking in the consolidated rental car facility, runway implementation plan initiatives, and various other Airport repairs and improvements, all of which are components of the 2004 Project. Series 2004M Bonds were also issued to fund the increase in Reserve Requirement, capitalized interest and issuance costs. 20

21 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, 2011 is as follows (in thousands): Revenues $ 179,358 Current Expenses 115,341 Net Revenues 64,017 Transfer from General Purposes Account 24,751 Amount Available for Debt Service $ 88,768 Debt Service * Deposit to Principal Account $ 38,850 Deposit to Interest Account 30,901 Transfer from Passenger Facility Charge Capital Improvement Fund (13,826) Total Debt Service $ 55,925 Debt Service Coverage by Account Available for Debt Service 159% 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, 2011 was as follows (in thousands): Current revenue pledged $ 88,768 Current year debt service $ 55,925 Total future revenues pledged $ 987,249 Transfer from Passenger Facility Charge Capital Improvement Fund (173,211) Net future revenues pledged $ 814,038 Total future pledged revenues reflect principal and interest payment requirements on a cash basis through fiscal year

22 NOTE 7 - LONG-TERM LIABILITIES (Continued) A schedule of future debt service is as follows (in thousands): Bonds Payable Fiscal Year Airport System Passenger Facility Revenue Bonds Charge Bonds Total Principal Interest Principal Interest Principal Interest 2012 $ 38,850 $ 29,886 $ 6,180 $ 5,752 $ 45,030 $ 35, ,875 31,537 6,505 1,663 47,380 33, ,140 30, ,140 30, ,890 29, ,890 29, ,515 27, ,515 27, , , , , ,380 52, ,380 52, ,190 8, ,190 8,121 Total $ 669,515 $ 317,734 $ 12,685 $ 7,415 $ 682,200 $ 325,149 Notes Payable * 2012 $ 2,766 Total $ 2,766 * This is a noninterest-bearing loan. NOTE 8 - 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 $ 24,965 $ 23,025 State of Florida Grants 6,247 3,866 $ 31,212 $ 26,891 22

23 NOTE 9 - 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, As of September 30, 2011, five of the nine signatory airlines had signed the agreements. The remaining four signatory airlines signed in December 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 deferred revenue by BCAD at September 30, 2011 and have been included in current liabilities payable from unrestricted assets. For the year ended September 30, 2010, these funds amounted to $17,194,000. NOTE 10 - RISK MANAGEMENT BCAD is exposed to various risks and losses related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. Under the County s Self-Insurance Program, the Risk Management Fund 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 coverage for losses above the self-insured retention limit. Office of Transportation, Auto liability, Medical malpractice, and General liability are entirely self-insured, with the County providing coverage up to the statutory limits of $100,000 per person and $200,000 per occurrence. 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. Settled claims have not exceeded this commercial coverage in the past three years. BCAD makes payments for the Self-Insurance Program to the Risk Management Fund based on actuarial estimates of the amounts needed to pay prior and current year claims and to establish reserves for all losses. The actuarial estimates include the effects of specific, incremental claim adjustment expenses, salvage, subrogation and other allocated claim adjustments. The reserves for the Self-Insurance Program totaled $98,535,000 at September 30, 2011 and are reported as a liability of the Risk Management Fund. BCAD is indemnified against any losses in a given year in excess of the fees charged. Fees charged are expensed as incurred. The total claims liability at September 30, 2011 reflects management s loss estimates of $54,674,000 for all reported claims and $48,360,000 for claims incurred but not reported, net of a discount of $4,499,000 computed based on varying interest rates that range from 0.31% to 1.01%. The net assets accumulated in the County s Self-Insurance Program are designated for future catastrophic losses or for the purchase of additional commercial insurance against such losses when available at advantageous rates. 23

24 NOTE 10 - RISK MANAGEMENT (Continued) Changes in the Program s claims liability amount in Fiscal Year 2010 and 2011 were (in thousands): Liability, Beginning of Year $ 93,221 $ 89,435 Claims and Changes in Estimates 30,244 26,453 Liability Claim Payments (24,930) (22,667) Liability, End of Year $ 98,535 $ 93,221 NOTE 11 - PENSION COSTS BCAD participates in the Florida Retirement System (FRS), a cost-sharing, multiple-employer Public Employment Retirement System, which covers substantially all permanent, full- and part-time employees. The FRS is totally administered by the State of Florida and offers two plans: The FRS Pension Plan and the FRS Investment Plan. The FRS Pension Plan is a defined-benefit plan where benefits are computed on the basis of age, average final compensation and service credit. Final compensation is the average of the five highest fiscal years of earnings. The Pension Plan provides vesting of benefits after six years of creditable service. 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. The FRS must ensure that sufficient funds are available when benefits are due and bears the market risk and investment decisions. The FRS Investment Plan is a defined-contribution plan, in which the employer contributions are based on salary. The contributions are deposited in individual member accounts, based on allocations determined by the participant. The Investment Plan provides vesting of benefits after one year of creditable service. The ultimate benefit depends largely on the performance of the investment funds; there is no fixed benefit level at retirement. The FRS also provides death and disability benefits. A State Statute establishes benefits. 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 Effective July 1, 2011, participant contributions to both plans are 3% of base salary. BCAD s required contribution rate is established by State Statute. Effective July 1, 2011, contribution rates range from 4.91% to 14.10% of covered payroll based on employee class. The contribution rates prior to July 1, 2011, ranged from 9.85% to 20.92%. The contribution by BCAD to the FRS for the fiscal year ended September 30, 2011 was $2,063,000, compared to $2,203,000 for the fiscal year ended September 30, 2010 and $2,128,000 for the fiscal year ended September 30, This represents an average contribution of 9.2% in fiscal year 2011, 10.2% in fiscal year 2010, and 9.6% in fiscal year BCAD has met all contribution requirements for the current year and the two preceding years. 24

25 NOTE 12 - OTHER POST-EMPLOYMENT BENEFITS Plan Description BCAD has a 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 BCAD's 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. 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 other post-employment benefit (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 the County, which includes BCAD's share for the current year and the related information for the plan, is as follows (in thousands): Required contributions rates: Employer Plan members Broward County Employees Pay as you go N/A Annual required contribution $ 4,399 Interest on net OPEB obligations 386 Adjustment to annual required contribution (357) Annual OPEB cost 4,428 Contributions made (1,435) Increase in net OPEB obligation 2,993 Net OPEB obligation - beginning of year 9,646 Net OPEB obligation - end of year $ 12,639 BCAD's share of the increase in the net OPEB obligation for the year ended September 30, 2011 is $185,000. BCAD s net OPEB liability at September 30, 2011 is $718,

26 NOTE 12 - OTHER POST-EMPLOYMENT BENEFITS (Continued) The annual OPEB cost, the percentage of annual OPEB cost contributed to the plan and the net OPEB obligation for 2011 and 2010 for the County plan were as follows (in thousands): Broward County Employees Annual OPEB cost $ 4,428 $ 4,208 Percentage of OPEB cost contributed 32.41% 28.97% Net OPEB obligation $ 12,639 $ 9,646 Funded Status and Funding Progress The funded status of the plan as of October 1, 2009, the date of the latest actuarial valuation, was as follows (in thousands): Actuarial accrued liability $ 43,582 Actuarial value of plan assets Unfunded actuarial accrued liability 43,582 Funded ratio 0.00% Covered payroll $ 270,612 Unfunded actuarial accrued liability as a percentage of covered payroll 16.10% 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 supplemental 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. However, BCAD has not contributed assets to the plan at this time. 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. 26

27 NOTE 12 - OTHER POST-EMPLOYMENT BENEFITS (Continued) Significant methods and assumptions were as follows: Broward County Employees Actuarial valuation date 10/1/2009 Actuarial cost method Entry age Amortization method Level Percent, closed Remaining amortization period 27 years Asset valuation method Unfunded Actuarial assumptions: Investment rate of return 4.00% Projected salary increases 4.5% - 9.5% Healthcare inflation rate 9% initial, 4.5% ultimate NOTE 13 - COMMITMENTS AND CONTINGENT LIABILITIES Federal and State of Florida grants are subject to audit by the granting agencies to determine if activities comply with conditions of the grants. Management believes that no material liability will arise from any such audits. At September 30, 2011, BCAD had in process various uncompleted construction projects with remaining balances totaling $93,084,000. The retainage payable on these contracts totaled $7,788,000. Funding of these projects is to be made primarily through the proceeds of the related bond issues. 27

28 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 Honorable Board of County Commissioners Broward County Aviation Department Broward County, Florida We have audited the 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, 2011, and have issued our report thereon dated February 8, We conducted our audit 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. Internal Control Over Financial Reporting Management of the Aviation Department is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered the Aviation Department s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Aviation Department s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Aviation Department s internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. 28

29 Honorable Board of County Commissioners Broward County Aviation Department Broward County, Florida Compliance and Other Matters As part of obtaining reasonable assurance about whether the Aviation Department s special purpose financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of the Aviation Department s management and the State of Florida Auditor General and is not intended to be, and should not be, used by anyone other than these specified parties. MOORE STEPHENS LOVELACE, P.A. Certified Public Accountants Orlando, Florida February 8,