Fort Walton Beach — Comprehensive Annual Financial Report September 30, 2011

Comprehensive Annual Financial Report Fort Walton Beach, FL City of With Compliance Matters and Responses Fiscal Year Ended September 30, 2011 City of Fort Walton Beach, Florida COMPREHENSIVE ANNUAL FINANCIAL REPORT for the Fiscal Year Ended September 30, 2011 Prepared by The Finance Department City of Fort Walton Beach 107 Miracle Strip Parkway Fort Walton Beach, Florida 32548 WWW.FWB.ORG  CITY OF FORT WALTON BEACH, FL CITY OFFICIALS CITY COUNCIL Left to right (standing): Bobby Griggs (Seat 1), joyce gossom (Seat 2), Bobby Nabors (Seat 5), and Dick Rynearson (Seat 7). Left to right (seated): Dennis Reeves (Seat 3), Mayor Mike Anderson, Trey Goodwin (Seat 4), and C.H. “Bull” Rigdon (Seat 6). CITY MANAGER FINANCE DIRECTOR Robert T. Mearns Brandy Ferris CITY CLERK CITY ATTORNEY Helen Spencer Hayward Dykes I. INTRODUCTORY SECTION ƒ TABLE OF CONTENTS ƒ LETTER OF TRANSMITTAL ƒ GOVERNMENT FINANCE OFFICERS CERTIFICATE OF ACHIEVEMENT FOR EXCELLENCE IN FINANCIAL REPORTING ƒ ORGANIZATIONAL CHART  City of Fort Walton Beach, Florida COMPREHENSIVE ANNUAL FINANCIAL REPORT Year Ended September 30, 2011 Page Exhibit TITLE PAGE CITY OFFICIALS I. INTRODUCTORY SECTION Table of Contents i Letter of Transmittal City Manager and Finance Director iv GFOA Certificate of Achievement ix Organizational Chart x II. FINANCIAL SECTION Independent Auditor’s Report 1 A. MANAGEMENT’S DISCUSSION AND ANALYSIS 3 B. BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements Statement of Net Assets 14 I Statement of Activities 15 II Fund Financial Statements Governmental Funds Balance Sheet 16 IIIA Reconciliation of the Balance Sheet to the Statement of Net Assets 17 IIIB Statement of Revenues, Expenditures and Changes in Fund Balance 18 IVA Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balance to the Statement of Activities 19 IVB Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - General Fund 20 VA Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual – Community Redevelopment Agency 21 VB Proprietary Funds Statement of Net Assets 22 VI Statement of Revenues, Expenses and Changes in Net Assets 24 VII Statement of Cash Flows 25 VIII Fiduciary Funds Statement of Fiduciary Net Assets 27 IX Statement of Changes in Fiduciary Net Assets 28 X Notes to Financial Statements 29 i  City of Fort Walton Beach, Florida COMPREHENSIVE ANNUAL FINANCIAL REPORT Year Ended September 30, 2011 Statement/ Page Schedule II. FINANCIAL SECTION (CONTINUED) C. REQUIRED SUPPLEMENTARY INFORMATION Pension Schedules Schedule of Funding Progress 77 A-1 Schedule of Contributions from the Employer and Other Contributing Entities 78 A-2 Schedule of Other Post-Employment Obligations 79 A-3 D. COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES Non-Major Governmental Funds Combining Balance Sheet 80 B-1 Combining Statement of Revenues, Expenditures and Changes in Fund Balance 81 B-2 Schedules of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Law Enforcement Trust Special Revenue Fund 82 C-1 Law Enforcement Trust Training Special Revenue Fund 83 C-2 Community Development Block Grant Special Revenue Fund 84 C-3 Beal Memorial Cemetery Perpetual Care Special Revenue Fund 85 C-4 Debt Service Fund 86 C-5 Non-Major Fund – Enterprise Fund Statement of Net Assets 87 D-1 Statement of Revenues, Expenses and Changes in Net Assets 88 D-2 Statement of Cash Flows 89 D-3 III. STATISTICAL SECTION (UNAUDITED) Net Assets by Component 90 1 Changes in Net Assets 91 2 Fund Balances - Governmental Funds 93 3 Changes in Fund Balances - Governmental Funds 94 4 Revenues and Other Sources 95 5 Assessed Value of Taxable Property 96 6 Property Tax Rates Per $1,000 of Taxable Value - All Direct and Overlapping Governments 97 7 ii  City of Fort Walton Beach, Florida COMPREHENSIVE ANNUAL FINANCIAL REPORT Year Ended September 30, 2011 Statement/ Page Schedule III. STATISTICAL SECTION (UNAUDITED) Principal Taxpayers 98 8 Property Tax Levies and Collections 99 9 Ratios of Outstanding Debt by Type 100 10 Ratio of Net General Bonded Debt Outstanding 101 11 Pledged Revenue Coverage – Sewer Public Improvement Refunding Revenue Bonds – Series 1998 102 12-A Pledged Revenue Coverage – Golf Public Improvement Refunding Revenue Bonds – Series 1998 103 12-B Pledged Revenue Coverage – Schedule of Revenue Bond Coverage 104 12-C Direct and Overlapping Governmental Activities Debt – General Obligations 105 13 Major Employers 106 14 Miscellaneous Demographical Statistics 107 15 Full-Time Equivalent Employees by Function/Program 108 16 Permits, Licenses and Recreation Facilities 109 17 Elections - Okaloosa County Voter Registration 110 18 Special Assessment Billings and Collections 111 19 Major Revenue Sources 112 20 Water and Wastewater Service Rates 113 21 Sanitation and Recycling Service Rates 114 22 Operating Indicators by Function/Program 115 23 Capital Asset Statistics by Function/Program 116 24 Insurance Coverage 117 25 IV. COMPLIANCE SECTION Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 121 Management Letter 123 iii (THIS PAGE INTENTIONALLY LEFT BLANK.)  City of Fort Walton Beach America's Most Beautiful Beaches 107 Miracle Strip Parkway, SW * Fort Walton Beach, Fl 32548 (850) 833-9500 * Fax (850) 833-9640 * www.fwb.org March 9, 2012 Honorable Mayor, City Council Members, and Citizens of the City of Fort Walton Beach City of Fort Walton Beach 107 Miracle Strip Parkway SW Fort Walton Beach, FL 32548 Ladies and Gentlemen: The Comprehensive Annual Financial Report of the City of Fort Walton Beach, Florida for the fiscal year ended September 30, 2011 is hereby submitted herewith pursuant to Florida Statutes Chapter 218.32(1)(d) requiring each local government entity to complete an audit report within twelve months after the end of the fiscal year. This report consists of management’s representations concerning the finances of the City of Fort Walton Beach, Florida. Consequently, management assumes full responsibility for the completeness and reliability of all the information presented in this report. To provide a reasonable basis for making these representations, management of the City of Fort Walton Beach has established a comprehensive internal control framework that is designed both to protect the government’s assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the City’s financial statements in conformance with GAAP (Generally Accepted Accounting Principles) Because the cost of internal controls should not outweigh their benefits, the City’s comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatement. As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects. The financial statements of the City of Fort Walton Beach have been audited by Warren Averett, LLC, a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City for the fiscal year ending September 30, 2011 are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinion that the City of Fort Walton Beach’s financial statements for the fiscal year ending September 30, 2011 are fairly presented in conformity with GAAP. The independent auditor’s report is presented in Section II - Financial Section as the first component of this section of the report. iv  The independent audit of the financial statements of the City of Fort Walton Beach was part of a broader, state mandated “Single Audit” designed to meet the special needs of state grantor agencies. The standards governing Single Audit engagements require the independent auditor to report not only on the fair presentation of the financial statements, but also on the audited government’s internal controls and compliance with legal requirements, with special emphasis on internal controls and compliance with legal requirements involving the administration of federal awards. These reports are available in the Compliance section of this report. Generally accepted accounting principles require that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement MD&A and should be read in conjunction with it. The City of Fort Walton Beach’s MD&A can be found immediately following the report of the independent auditor. GOVERNMENT PROFILE Originally chartered as a municipality under the laws of the State of Florida, actual formation of the City was in 1941 when the Florida legislature officially named it the Town of Fort Walton. In 1953, the Florida Legislature granted the City a new charter at which time the name was changed to Fort Walton Beach. The City of Fort Walton Beach, Florida prides itself on being a small, family-oriented seaside community boasting a downtown area that was home to a significant prehistoric Native American community on the Gulf Coast of Northwest Florida. Situated at the junction of two major highways - US 98 (Miracle Strip Parkway) and SR 85 (Eglin Parkway) - Fort Walton Beach enjoys the benefits of its crossroads location along the coastal portion of the Northwest Florida regional transportation network. The City offers a full-service government that utilizes a Council-manager form of government. The City provides police and fire protection; cultural and recreational activities including parks, a library, a museum, and two 18-hole golf courses; planning and zoning; public works such as street, sidewalk, right-of-way, and cemetery maintenance; utilities service including water, sewer, and storm water; and garbage collection to a coastal community of 19,534 full-time residents. The financial reporting entity (the government) includes all the funds and account groups of the City of Fort Walton Beach, Florida, as well as component units. Component units are legally separate entities for which the primary government is financially accountable. Accordingly, the Fort Walton Beach Community Redevelopment Agency is reported as a blended component unit of the City of Fort Walton Beach. The annual budget serves as a foundation for the City of Fort Walton Beach’s financial planning and control. The City of Fort Walton Beach prepares a budget designed to meet the highest standards of performance in municipal budgeting. The budget process begins in February with individual strategic planning meetings held with the Mayor, City Council, City Manager, and Department Directors. A Budget Policy Workshop is held with City Council in May to determine City Council’s priorities and position on issues critical to development of the operational and capital budgets. City v  Council’s decisions on the issues presented provide the framework under which the upcoming year’s budget is prepared to meet City Council’s programmatic objectives within available fiscal resources. Department Directors, with the assistance of their division managers, are responsible for identifying their staffing needs, operational funding needs within budget development parameters, five-year capital requests, as well as corresponding revenue sources to fund their needs. In addition, they must conduct a comprehensive review of departmental objectives, accomplishments, and performance measures. The City Charter charges the City Manager with the duty of presenting a balanced budget to City Council. The budget is considered balanced if the total of all available financial resources (either on hand at the beginning of the year or generated during the year) equals or exceeds the total of all financial requirements. In order to accomplish this goal, a Budget Committee is formed comprised of the City Manager, Finance Director, and the Budget & Grants Manager. The Committee conducts comprehensive meetings with Department Directors and Division Managers to review their budget requests and a collaborative effort is undertaken to achieve City Council and department goals within fiscal constraints. The City Council is required by Florida State Statute and City Charter to hold public hearings on the proposed budget and adopt a final budget no later than September 30, the close of the City’s fiscal year. The appropriated budget is prepared by fund, department (e.g. administrative services), and division (e.g. information technology). Department Directors may request transfers of appropriations within a department and between divisions to transfer appropriations between line items, not to increase the total budget or to transfer resources between funds. Transfers of appropriations between funds require the approval of the City Council. The budget may be amended at any time by Resolution of City Council. Budget-to-actual comparisons are provided in the report for each individual governmental fund for which an appropriated annual budget has been adopted. For the General Fund, this comparison is presented on page 20 as part of the basic financial statements for the governmental funds. For governmental funds, other than the General Fund, with appropriated annual budgets, this comparison is presented in the combining and individual fund statements and schedules, section D of this report, which starts on page 80. FACTORS AFFECTING FINANCIAL CONDITION The information presented in the financial statements is best understood when it is considered from the broader perspective of the specific environment within which the City of Fort Walton Beach operates. Local Economy The City of Fort Walton Beach continues to navigate an environment of decreased revenues, coupled with a desire to maintain the same level of programs and services. The City currently faces many of the same economic challenges that are affecting the global economy due to the recessionary environment. Being located on the Gulf of Mexico in Northwest Florida, tourism is a large part of the regional economy. Regional accolades continue to enhance the area’s image, promote visibility, and generate additional tourism and sales tax dollars. Local tourism has benefited from the national shift to vacation sites accessible by driving instead of flying. vi  The Fort Walton Beach-Destin area is a popular drive destination in Florida, according to a survey of auto visitors by Visit Florida. Eglin Air Force Base is the world’s largest Department of Defense installation spanning 724 square miles and defense contractor companies are established throughout the Northwest Florida region. It is estimated that local military bases (Eglin and Hurlburt Air Force Bases and Duke Field) currently represent a $6.0 billion annual economic impact on the area, with approximately 73% of the local economy supported by the military. Long-Term Financial Planning The City undertakes several processes to assist in future planning, such as: • A 5-year CIP (Capital Improvement Program) Plan is developed and approved by City Council each year during the annual budget process. • 5-year replacement plans for capital equipment are also developed and approved by Management each year during the annual budget process Relevant Financial Policies The city has several financial policies that are utilized during daily operations, as well as during the budget and financial planning processes. The City utilizes fund balance reserves only for one-time non-recurring expenditures. In addition, the City maintains its fund balance level in the General Fund at 30% of fund expenditures – this policy helps to ensure that the City has sufficient funding in place for emergency and disaster relief. Major Initiatives The City’s financial policies, as well as other indicators, were taken into account when adopting the City’s budget for fiscal year 2012. The City’s total budget for fiscal year 2012 totals $37.9 million, which is $2.2 million more than the fiscal year 2011 approved budget, due in part to one-time capital improvement projects budgeted in the Utilities fund. Projected declines in interest earnings and property tax revenue account for much of the revenue decline. The 2012 budget allocates $17.4 million, a 1.3% decline as compared to the fiscal year 2011 budget, to the General fund, $18.5 million to the Enterprise funds, and $2.1 million to other funds. For the fiscal year 2012 budget, the ad valorem rate was maintained at 4.5383 mills. A 3% increase in water and sewer rates is included in the budget; no other significant changes to the City’s various rate and fees are included in the fiscal year 2012 budget. Personnel expenses account for approximately 47.0% of the City’s budget. The City’s fiscal year 2012 budget remains relatively stable in this category, at 298.40 full time equivalent positions. AWARDS AND ACKNOWLEDGEMENTS Awards The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Fort Walton Beach for its Comprehensive Annual Financial Report for the fiscal year ended September 30, 2010. This was the twenty-fifth consecutive year that the City vii received this prestigious award. In order to be awarded a Certificate of Achievement, the City must publish an easily readable and efficiently organized Comprehensive Annual Financial Report satisfying both GAAP and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe our current report continues to meet the Certificate of Achievement Program requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. In addition, the government also received the GFOA’s Distinguished Budget Presentation Award for its annual budget dated October 1, 2011. This was the sixteenth consecutive year that the City received this prestigious award. In order to qualify for the Distinguished Budget Presentation Award, the City’s budget document was judged proficient in several categories, including as a policy document, a financial plan, an operations guide, and a communications device. Acknowledgments The preparation of this report would not have been possible without the efficient and dedicated services of the entire staff of the Finance Department. We would like to express our appreciation to all members of the Department who assisted and contributed to the preparation of this report. We would also like to thank the Mayor and City Council for their unfailing support for maintaining the highest standards of professionalism in the management of the City of Fort Walton Beach’s finances and for their attention in conducting the financial operations of the City in a responsible and progressive manner. Appreciation is also expressed to the accounting firm of Warren Averett, LLC for its continued assistance and professionalism. Respectfully submitted, Robert T. Mearns Brandy L. Ferris City Manager Finance Director viii (THIS PAGE INTENTIONALLY LEFT BLANK.) ix (THIS PAGE INTENTIONALLY LEFT BLANK.)  City of Fort Walton Beach Organizational Chart Citizens of Fort Walton Beach Mayor and Boards and City Council Committees City Attorney City Manager City Clerk Administrative Engineering and Financial Fire Police Recreation Services UtilityServices Services Services Services Services x (THIS PAGE INTENTIONALLY LEFT BLANK.) II. FINANCIAL SECTION ƒ INDEPENDENT AUDITOR’S REPORT ƒ MANAGEMENT’S DISCUSSION AND ANALYSIS ƒ BASIC FINANCIAL STATEMENTS GOVERNMENT-WIDE FINANCIAL STATEMENTS FUND FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTS ƒ REQUIRED SUPPLEMENTARY INFORMATION ƒ COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES  45 Eglin Pkwy., N.E. Suite 301 Fort Walton Beach, FL 32548 850.244.5121 Fax: 850.664.2562 www.warrenaverett.com Honorable Mayor and City Council Members City of Fort Walton Beach, Florida INDEPENDENT AUDITOR'S REPORT We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Fort Walton Beach, Florida, as of and for the year ended September 30, 2011, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City of Fort Walton Beach, Florida's management. Our responsibility is to express opinions on these financial statements based on our audit. 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the basic financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the basic financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Fort Walton Beach, Florida, as of September 30, 2011, and the respective changes in financial position and cash flows, where applicable, thereof and the respective budgetary comparison for the General Fund and Community Redevelopment Special Revenue Fund 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 a report dated March 9, 2012, on our consideration of the City of Fort Walton Beach, Florida's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, 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 assessing the results of our audit. 1 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Independent Auditor's Report (Continued) Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis on pages 3-13, the Schedule of Funding Progress on page 77, and the Schedule of Contributions from the Employer and Other Contributing Entities on page 78 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. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Fort Walton Beach, Florida's financial statements as a whole. The introductory section, combining and individual nonmajor fund financial statements, and statistical section, are presented for purposes of additional analysis and are not a required part of the financial statements. The combining and individual nonmajor fund financial statements are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. March 9, 2012 2  MANAGEMENT’S DISCUSSION AND ANALYSIS As management of the City of Fort Walton Beach, Florida, we offer readers of the City of Fort Walton Beach’s financial statements this narrative overview and analysis of the financial activities of the City of Fort Walton Beach for the fiscal year ended September 30, 2011. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found on pages iv-viii of this report. FINANCIAL HIGHLIGHTS ƒ The assets of the City of Fort Walton Beach exceeded its liabilities by $66.4 million (net assets). Of this amount, $19.5 million represents unrestricted net assets that are available to meet the City’s ongoing obligations to citizens and creditors. ƒ The government’s net assets decreased by $673,480, primarily due to a change in estimate of the useful life, which caused an increase in depreciation on the previously purchased force main and the re-use water filtration system. ƒ As of the close of the fiscal year, the City of Fort Walton Beach’s governmental funds reported combined ending fund balances of $17.7 million, an increase of $2.1M in comparison with the prior year. Approximately 55.7% of this amount, or $9.9 million, is available for spending at the discretion of City Council. ƒ At the end of the fiscal year, unrestricted fund balance for the General Fund was $7.9 million, or 46.4% of total General Fund expenditures. ƒ The City of Fort Walton Beach’s total debt decreased by $2.8 million, or 15.1%, during the fiscal year. The key factor in this decrease was the defeasement of the 1999 Golf Revenue Bond. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis intends to serve as an introduction to the City of Fort Walton Beach’s basic financial statements, which are comprised of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. The focus of financial statements prepared in accordance with the Governmental Accounting Standards Board (GASB) Statement 34 is on both the City as a whole (government-wide) and on major individual funds. Both perspectives (government-wide and major funds) allow the user to address relevant questions, broaden a basis for comparison (year-to-year or government-to-government), and enhance the City’s accountability. Government-Wide Financial Statements Designed to be corporate-like, the government-wide financial statements consolidate governmental and business-type activities into two columns, which sum to a total for Primary Government. This provides readers with a broad overview of the City of Fort Walton Beach’s finances in a manner similar to a private-sector business. Two statements, the statement of net assets and the statement of activities, are utilized to provide information on a government-wide basis. The statement of net assets presents information on all of the City of Fort Walton Beach’s assets and liabilities, with the difference between the two reported as net assets. This statement combines and consolidates the governmental funds’ current financial resources (short-term available resources) with capital assets and long-term obligations. Over time, increases or decreases in net assets may serve as a useful indicator of the financial position of the City of Fort Walton Beach. The statement of activities presents information showing how the government’s net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving 3  rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flow in future fiscal periods. Both of the government-wide financial statements distinguish functions of the City of Fort Walton Beach that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City of Fort Walton Beach include general government (city clerk, city council, city manager, community redevelopment agency, human resources, finance, purchasing, fleet maintenance, service maintenance, and non-departmental expenses), public safety (police, fire, and code enforcement services), physical environment (cemetery), transportation (engineering, streets, public works, and right-of-way), economic development (Community Development Block Grant Program), culture and recreation (parks, library, and museum), and debt service interest. The business-type activities of the City of Fort Walton Beach include utilities (water, sewer, and storm water), sanitation, and golf. The government-wide financial statements include not only the City of Fort Walton Beach itself (known as the primary government), but a blended component unit, the Community Redevelopment Agency (CRA), which is a legally separate entity for which the City of Fort Walton Beach is financially accountable, and is included in the governmental activities of the primary government. The government- wide financial statements are found on pages 14-15 of this report. Fund Financial Statements A fund is a grouping of related accounts used to maintain control over resources that have been segregated for specific activities or objectives. The City of Fort Walton Beach, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City of Fort Walton Beach can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. FUNDS Governmental Funds Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements are reported using an accounting method called modified accrual accounting, the focus of which is on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financial requirements. The basic governmental fund financial statements are on pages 16-21 of this report. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balance provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City of Fort Walton Beach maintains seven individual governmental funds (General Fund, Community Redevelopment Agency Fund, Law Enforcement Trust Fund, Law Enforcement Training Fund, Debt Service Fund, Community Development Block Grant Fund, and Beal Memorial Cemetery Perpetual Care Fund). Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balance for the General Fund and the Community Redevelopment Agency Fund. Data from the other five governmental funds are 4  combined into a single, aggregated presentation. Individual fund data for each of these non-major governmental funds is provided in the form of combining statements elsewhere in this report. The City of Fort Walton Beach adopts an annual appropriated budget for its General Fund. A budgetary comparison statement is provided for the General Fund to demonstrate compliance with this budget. Proprietary Funds All proprietary funds of the City of Fort Walton Beach are maintained as enterprise funds. Enterprise funds are used to report the same functions presented as business-type activities in the statement of net assets and the statement of activities. The City of Fort Walton Beach uses enterprise funds to account for its utilities operations (water operations and distribution, sewer collections and treatment, and storm water management), sanitation operations (garbage), and golf club operations. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information on utilities operations, sanitation operations, and golf club operations, all of which are considered major funds of the City of Fort Walton Beach. In addition, information is provided on the nonmajor proprietary fund which includes the stormwater operations. The basic proprietary fund financial statements are found on pages 22-26 of this report. Fiduciary Funds Fiduciary funds are used to account for resources held for the benefit of parties outside the government. The City’s fiduciary funds include the Pension Trust Funds (general employees, police officers, and firefighters). Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City of Fort Walton Beach’s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The basic fiduciary fund financial statements are found on pages 27-28 of this report. NOTES TO THE FINANCIAL STATEMENTS The notes to the financial statements provide additional information that is essential to the full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements begin on page 29 of this report. OTHER INFORMATION In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City of Fort Walton Beach’s progress in funding its obligation to provide pension benefits to its employees. The required supplementary information is found on pages 77-79 of this report. The combining statements referred to earlier in connection with non-major governmental funds immediately follow the required supplementary information on Pension Funds and can be found beginning on page 80 of this report. GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted earlier, net assets may serve over time as a useful indicator of a government’s financial position. In the case of the City of Fort Walton Beach, assets exceeded liabilities by $66.4 million (net assets), as reported in Table 1. The government’s net assets decreased by $673,480 for the fiscal year ended September 30, 2011. By far, the largest portion of the City’s net assets, $41.8 million or 62.9%, reflects its investment in capital assets (e.g. land, infrastructure, buildings, machinery, and equipment) less any related debt still outstanding that was used to acquire those assets. The City uses these capital assets to provide services to 5 citizens; consequently, these assets are not available for future spending. Although the City of Fort Walton Beach reports investment in its capital assets net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the City’s net assets, 7.7%, represents resources that are subject to external restrictions on how they may be used. The remaining balance of $19.5 million is unrestricted and may be used to meet the government’s ongoing obligations to citizens and creditors. Table 1 Statement of Net Assets As of September 30 (In Thousands of Dollars) Governmental Activities Business-Type Activities Total 2011 2010* 2011 2010 2011 2010* Current and Other $ 19,170 $ 17,511 $ 11,998 $ 14,712 $ 31,168 $ 32,223 Capital Assets 30,056 30,270 24,776 26,886 54,832 57,156 Total Assets 49,226 47,781 36,774 41,598 86,000 89,379 Long-Term Liabilities Outstanding 5,268 5,228 10,480 13,349 15,748 18,577 Other Liabilities 1,705 1,725 2,129 1,986 3,834 3,711 Total Liabilities 6,973 6,953 12,609 15,335 19,582 22,288 Net Assets Invested in Capital Net of Related Debt 24,757 25,514 17,038 18,928 41,795 44,442 Restricted 4,830 2,738 267 543 5,097 3,281 Unrestricted 12,666 12,576 6,860 6,792 19,526 19,368 Total Net Assets $ 42,253 $ 40,828 $ 24,165 $ 26,263 $ 66,418 $ 67,091 *Restated to include Community Redevelopment Special Revenue Fund. The overall decrease in the City’s net assets was $673,480 during the fiscal year. The governmental activities experienced an increase, primarily related to increased fiscal control of expenditures due to the recessionary economy, including the elimination of 17 positions and the reduction in hours for 11 positions, the addition of the 2011 Revenue Note for the purchase of a fire engine and miscellaneous golf equipment, the savings of which was partially offset by reduced revenue due to the prior year sale of property to Waste Management. The business activities experienced a decrease due primarily to a change in estimate for the depreciation on a previously purchased force main and re-use water filtration system. The details related to this decrease are analyzed further in the Financial Impacts section of this discussion. 6 Reported in Table 2 are the key elements of the decrease in net assets for the current year. Table 2 Governmental Activities Business-Type Activities Total Activities 2011 2010* 2011 2010 2011 2010* Revenues Program Revenues: Charges for Services $ 3,906,023 $ 4,008,506 $ 13,454,454 $ 12,668,076 $ 17,360,477 $ 16,676,582 Operating Grants & Contributions 761,643 742,819 118,226 - 879,869 742,819 Capital Grants and Contributions 351,006 804,715 65,496 173,370 416,502 978,085 General Revenue: - Property Taxes 4,482,819 4,380,221 - - 4,482,819 4,380,221 Other Taxes 5,993,764 5,857,699 - - 5,993,764 5,857,699 Tax Increments for Redevelopment 1,547,609 1,698,421 - - 1,547,609 1,698,421 Other Revenue 1,071,980 2,198,161 173,289 436,522 1,245,269 2,634,683 Total Revenues 18,114,844 19,690,542 13,811,465 13,277,968 31,926,309 32,968,510 Expenses Primary Government General Government 3,765,536 6,261,147 - - 3,765,536 6,261,147 Public Safety 9,206,784 9,231,632 - - 9,206,784 9,231,632 Physical Environment 393,752 304,907 - - 393,752 304,907 Transportation 1,570,038 1,543,310 - - 1,570,038 1,543,310 Economic Development 545,242 98,996 - - 545,242 98,996 Culture & Recreation 2,677,051 2,944,221 - - 2,677,051 2,944,221 Debt Service Interest 214,470 240,940 - - 214,470 240,940 Business-Type Activities Utilities - - 9,162,926 6,725,349 9,162,926 6,725,349 Sanitation - - 2,524,994 2,466,881 2,524,994 2,466,881 Golf - - 2,199,453 2,203,739 2,199,453 2,203,739 Other - - 339,543 374,951 339,543 374,951 Total Expenses 18,372,873 20,625,153 14,226,916 11,770,920 32,599,789 32,396,073 Increase (Decrease) in Net Assets before Transfers (258,029) (934,611) (415,451) 1,507,048 (673,480) 572,437 Transfers 1,682,717 1,667,644 (1,682,717) (1,667,644) - - Increase (Decrease) in Net Assets 1,424,688 733,033 (2,098,168) (160,596) (673,480) 572,437 Net Assets – 10/01/10 40,828,370 40,095,338 26,262,860 26,423,455 67,091,230 66,518,793 Net Assets – 09/30/11 $ 42,253,058 $ 40,828,370 $ 24,164,692 $ 26,262,860 $ 66,417,750 $ 67,091,230 *Restated to include Community Redevelopment Special Revenue Fund. Current Year Impacts – Governmental Activities Governmental activities increased the City’s net assets by $1.4 million for the fiscal year ended September 30, 2011. Key elements of this change are as follows: ƒ Capital grants for governmental activities decreased $453,709 or 56.4% due to prior year funding received through the American Recovery and Reinvestment Act. ƒ Other revenue for governmental activities decreased $1.1 million or 51.2%. Municipal revenue sharing, interest income, disposal of assets, insurance proceeds, donations, and other miscellaneous revenue sources comprise this revenue category. The prior year sale of property to Waste Management account for this decrease. ƒ Overall, expenses for governmental activities decreased $2.3 million or 10.9% primarily due to increased fiscal control of expenditures due to the recessionary economy, including the elimination of 17 positions and the reduction in hours for 11 positions. 7  Chart 1 Expenses and Program Revenue – Governmental Activities Chart 2 Revenues by Source – Governmental Activities 8 Current Year Impacts – Business-Type Activities Business-type activities decreased the City’s net assets by $2.1 million for the fiscal year ended September 30, 2011. Key elements of this change are as follows: ƒ Capital Grants and Contributions for business-type activities decreased $107,874, or 62.2% due to funding received in the prior fiscal year through State Financial Assistance for CBIR grants in the Utility Fund, as well as Florida Forever Grant funding in the Stormwater Fund. ƒ Other Revenue for business type activities decreased $263,233, or 60.3% primarily due to decreased interest earnings. ƒ Expenses throughout the Enterprise Funds increased $2.5 million or 20.9%. The Utilities Fund experienced an increase as a result of increased depreciation expense due to a change in estimate on the useful life of the force main and re-use water filtration system currently in-service. The Sanitation, Golf, and Stormwater Funds remained relatively flat. Chart 3 Expenses and Program Revenue – Business-Type Activities 9  Chart 4 Revenues by Source – Business-Type Activities FINANCIAL ANALYSIS OF THE CITY’S FUNDS As noted earlier, the City of Fort Walton Beach uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental Funds The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of available resources. Such information is useful in assessing the City’s financing requirements. In particular, unrestricted fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. As of September 30, 2011, the City of Fort Walton Beach’s governmental funds have combined ending fund balances of $17.7 million, an increase of $2.1 million in comparison with the prior year. Approximately 55.7% of this amount, or $9.9 million, is available for spending at the discretion of City Council. The remainder of fund balance is nonspendable or restricted. Details of the fund balance classifications can be found on page 16 of this report, as well as in Note 18. The General Fund is the chief operating fund of the City. At the end of this fiscal year, unrestricted fund balance of the General Fund was $7.9 million, while total fund balance reached $11.2 million. As a measure of the General Fund’s liquidity, it may be useful to compare both unrestricted fund balance and total fund balance to total expenditures. Unrestricted fund balance represents 46.4% of the total General Fund expenditures, while total fund balance represents 65.8% of that same amount. During the 2011 fiscal year, the fund balance of the City’s General Fund increased by $1.4 million. This increase is attributable to increased fiscal control of expenditures due to the recessionary economy. Proprietary Funds The City of Fort Walton Beach’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. Unrestricted net assets of the proprietary funds totaled $6.9 million at September 30, 2011, of which the Utilities Fund amounted to $4.4 million, the Sanitation Fund totaled $2.0 million, and the Stormwater 10  Utility Fund was $401,259. The Golf Fund had positive unrestricted net assets for the first time in several years, of $91,502. In total, net assets of the proprietary funds decreased $2.1 million. The factors concerning the finances of these three funds have already been addressed in the discussion of the City of Fort Walton Beach’s business-type activities. GENERAL FUND BUDGETARY HIGHLIGHTS A schedule comparing the original to the final budget and the variance from the final budget to the actual results is included on page 20 of the financial statements. Differences between the original budget and the final amended budget were $1.9 million. Significant information related to this difference is summarized as follows: ƒ Donations in the amount of $94,542 were received and utilized during the fiscal year. ƒ Donations of capital in the amount of $360,080 were received. ƒ A ladder truck was purchased utilizing debt financing in the amount of $694,347, including $37,853 in issuance costs. ƒ Unanticipated expenses of $234,949 were incurred. These expenses included research for the possible consolidation of the City’s four recreation centers, the purchase of equipment for the Department of Corrections contract, the demolition of a building, and the defeasement of the 1999 Golf Revenue Bond. ƒ Grants in the amount of $439,049 were received during the year. Actual results, when compared to the final budget, show a variance of $2.1 million. This variance is primarily due to amending the budget for donations and the purchase of capital outlay, as well as amending the budget for grant revenue received, but not yet expended. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets The City’s investment in capital assets for its governmental and business-type activities, as of September 30, 2011, was $54.8 million (net of accumulated depreciation). This represents a net decrease of $2.3 million, or 4.1%. Highlights are summarized as follows: ƒ Fewer assets were purchased that were over the GASB 34 threshold. ƒ Capital assets outdated, unserviceable, and no longer used are systematically disposed of on an annual basis. ƒ A change in estimate was recorded related to a previously purchased force main and re-use water filtration system, which accelerated the depreciation schedule, and resulted in $2.0 million of additional depreciation expense when compared to the prior year. 11  Table 3 Total Capital Assets Net of Accumulated Depreciation Governmental Activities Business-Type Activities Total Activities FY 2011 FY 2010* FY 2011 FY 2010 FY 2011 FY 2010* Land $ 9,961,261 $ 9,961,261 $ 765,078 $ 765,078 $ 10,726,339 $ 10,726,339 Buildings 7,286,780 7,684,951 2,218,237 2,336,254 9,505,017 10,021,205 Improvements Other Than Buildings 6,162,400 6,431,057 17,512,714 19,147,799 23,675,114 25,578,856 Infrastructure 4,479,317 4,558,356 - - 4,479,317 4,558,356 Software 397,258 - 7,364 - 404,622 - Machinery & Equipment 1,416,842 1,265,220 2,933,928 2,813,432 4,350,770 4,078,652 Equipment under Capital Lease - 122,478 62,147 221,412 62,147 343,890 Construction in Progress 352,292 247,203 1,276,888 1,601,946 1,629,180 1,849,149 $ 30,056,150 $ 30,270,526 $ 24,776,356 $ 26,885,921 $ 54,832,506 $ 57,156,447 *Restated to include Community Redevelopment Special Revenue Fund. Additional information on the capital assets of the City of Fort Walton Beach can be found in Note 5 of this report on page 47. Long-Term Debt As shown in the following table, as of September 30, 2011, the City had total bonded debt, revenue notes, and capital leases outstanding of $15.9 million. All of the City’s debt represents bonds and notes secured solely by specified revenue sources (i.e. revenue bonds/notes) and capital leases. The City has no general obligation or special assessment debt. The State of Florida does not place a legal limit of debt on municipalities. For general obligation debts greater than one year, the City is required to conduct a voter referendum. Table 4 City of Fort Walton Beach's Outstanding Debt Revenue Bonds and Capital Leases Governmental Activities Business-Type Activities Total Activities 2011 2010 2011 2010 2011 2010 Revenue Bonds $4,570,965 $ 4,708,784 $10,464,872 $13,836,725 $15,035,837 $18,545,509 Revenue Notes 728,480 0 76,586 0 805,065 0 Capital Leases 0 47,374 66,118 141,737 66,118 189,111 Total $5,299,445 $ 4,756,158 $10,607,576 $13,978,462 $15,907,021 $18,734,620 Additional information on the City of Fort Walton Beach’s long-term debt can be found in Note 13 and 14 of this report on pages 65-68. ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND RATES Economic indicators and factors that are useful for evaluating the framework within which the City operates are discussed below. ƒ The Consumer Price Index (CPI) is 3.6% higher than a year ago. This indicator translates into a higher cost of providing services to residents. 12  ƒ The Consumer Confidence Index is 6.1% higher than a year ago. This indicator measures economic conditions by gauging the future spending of consumers. ƒ The Leading Economic Index is 2.7% higher than a year ago and is designed to signal turning point patterns in economic data. ƒ The military has a significant presence in our community. These installations are essential to the continued long-term economic vitality of this area. Combined, the military and defense-related industries have a $6.0 billion annual impact on Okaloosa County’s economy, with approximately 73% of our local economy supported by the military. These indicators, as well as others, were taken into account when adopting the City’s budget for fiscal year 2012. The City’s total budget for fiscal year 2012 totals $37.9 million, which is $2.2 million more than the fiscal year 2011 approved budget, due in part to one-time capital improvement projects budgeted in the Utilities Fund. Projected declines in interest earnings and property tax revenue account for much of the revenue decline. The 2012 budget allocates $17.4 million, a 1.3% decline as compared to the fiscal year 2011 budget, to the General Fund, $18.5 million to the Enterprise funds, and $2.1 million to other funds. For the fiscal year 2012 budget, the ad valorem rate was maintained at 4.5383 mills. A 3% increase in water and sewer rates is included in the budget; no other significant changes to the City’s various rate and fees are included in the fiscal year 2012 budget. Personnel expenses account for approximately 47.0% of the City’s budget. The City’s fiscal year 2012 budget remains relatively stable in this category, at 298.40 full time equivalent positions. REQUESTS FOR INFORMATION This financial report is designed to provide citizens, taxpayers, customers, and creditors with a general overview of the City of Fort Walton Beach’s finances and to demonstrate the City’s accountability for the money it receives. Questions concerning any of the information provided in this report or requests for additional information should be addressed to the Finance Director, 107 Miracle Strip Parkway S.W., City of Fort Walton Beach, Florida, 32548. This document and other financial information are available on the City’s website at www.fwb.org. Inquiries may also be sent via email to the Finance Department at finance@fwb.org. 13 (THIS PAGE INTENTIONALLY LEFT BLANK.)  EXHIBIT I City of Fort Walton Beach, Florida STATEMENT OF NET ASSETS September 30, 2011 Primary Government Governmental Business-Type Activities Activities Total ASSETS Cash and cash equivalents $ 15,243,861 $ 7,736,385 $ 22,980,246 Receivables, net 287,845 708,881 996,726 Internal balances 2,788,552 (2,788,552) - Due from other governments 38,724 1,024 39,748 Inventory, at cost 244,174 44,658 288,832 Restricted assets Cash and cash equivalents 113,816 6,094,708 6,208,524 Capital assets Non-depreciable/amortizable 10,313,553 2,041,966 12,355,519 Depreciable/amortizable, net 19,742,597 22,734,390 42,476,987 Other assets Bond issue costs, net 171,729 200,623 372,352 Net pension asset 281,578 - 281,578 TOTAL ASSETS 49,226,429 36,774,083 86,000,512 LIABILITIES Accounts payable 240,142 491,263 731,405 Accrued liabilities 523,473 899,032 1,422,505 Due to other governments - 14,151 14,151 Due to depositors 5,000 - 5,000 Unearned revenue - 51,844 51,844 Payable from restricted assets Accrued interest 61,054 113,406 174,460 Customer deposits - 170,195 170,195 Non-current liabilities Due within one year Compensated absences 165,906 50,856 216,762 Leases payable - 52,661 52,661 Notes payable 66,683 15,364 82,047 Revenues bonds payable 145,000 270,000 415,000 Due in more than one year Compensated absences 497,719 152,570 650,289 Leases payable - 13,458 13,458 Notes payable 661,797 61,222 723,019 Revenue bonds payable 4,425,965 10,194,872 14,620,837 Other post-employment benefits 180,632 58,497 239,129 TOTAL LIABILITIES 6,973,371 12,609,391 19,582,762 NET ASSETS Invested in capital assets, net of related debt 24,756,705 17,037,456 41,794,161 Restricted Debt service 113,816 184,711 298,527 System improvements - 82,573 82,573 Improvement districts 4,212,984 - 4,212,984 Public safety 268,820 - 268,820 Other purposes 234,568 - 234,568 Unrestricted 12,666,165 6,859,952 19,526,117 TOTAL NET ASSETS $ 42,253,058 $ 24,164,692 $ 66,417,750 The accompanying notes are an integral part of these financial statements. 14  EXHIBIT II City of Fort Walton Beach, Florida STATEMENT OF ACTIVITIES Year Ended September 30, 2011 Program Revenues Net (Expense) Revenue and Changes in Net Assets Primary Government Charges for Operating Grants Capital Grants and Governmental Business-Type Expenses Services and Contributions Contributions Activities Activities Total Function/Program Activities Government activities General government $ 3,765,536 $ 2,556,270 $ 274 $ - $ (1,208,992) $ - $ (1,208,992) Public safety 9,206,784 430,017 514,043 341,270 (7,921,454) - (7,921,454) Physical environment 393,752 394,513 200 - 961 - 961 Transportation 1,570,038 104,776 - 9,736 (1,455,526) - (1,455,526) Economic environment 545,242 16,400 153,012 - (375,830) - (375,830) Culture and recreation 2,677,051 404,047 94,114 - (2,178,890) - (2,178,890) Debt service interest 214,470 - - - (214,470) - (214,470) Total government activities 18,372,873 3,906,023 761,643 351,006 (13,354,201) - (13,354,201) Business-type activities Utilities 9,162,926 7,608,355 45,750 51,496 - (1,457,325) (1,457,325) Sanitation 2,524,994 3,311,744 7,578 - - 794,328 794,328 Golf 2,199,453 2,052,501 64,898 - - (82,054) (82,054) Stormwater 339,543 481,854 - 14,000 - 156,311 156,311 Total business-type activities 14,226,916 13,454,454 118,226 65,496 - (588,740) (588,740) Total primary government $ 32,599,789 $ 17,360,477 $ 879,869 $ 416,502 $ (13,354,201) $ (588,740) $ (13,942,941) General Revenues Taxes Property taxes $ 4,482,819 $ - $ 4,482,819 Sales taxes 2,066,834 - 2,066,834 Utility service taxes 3,926,930 - 3,926,930 Tax increments for redevelopment district 1,547,609 - 1,547,609 Intergovernmental, unrestricted 825,591 - 825,591 Gain (loss) on sale of assets 16,865 75,904 92,769 Miscellaneous 96,105 31,424 127,529 Investment earnings 133,419 65,961 199,380 Transfers 1,682,717 (1,682,717) - Total general revenues, transfers and special item 14,778,889 (1,509,428) 13,269,461 Change in net assets 1,424,688 (2,098,168) (673,480) Net assets - beginning of year, restated 40,828,370 26,262,860 67,091,230 Net assets - end of year $ 42,253,058 $ 24,164,692 $ 66,417,750 The accompanying notes are an integral part of these financial statements. 15  EXHIBIT IIIA City of Fort Walton Beach, Florida GOVERNMENTAL FUNDS BALANCE SHEET September 30, 2011 Community Other Total Redevelopment Governmental Governmental General Fund Agency Funds Funds ASSETS Cash and cash equivalents $ 8,802,219 $ 4,244,719 $ 2,196,923 $ 15,243,861 Receivables 198,005 89,840 - 287,845 Due from other governments 31,972 - 6,752 38,724 Inventory, at cost 244,174 - - 244,174 Advances to other funds 2,788,552 - - 2,788,552 Restricted assets Cash and cash equivalents - - 113,816 113,816 TOTAL ASSETS $ 12,064,922 $ 4,334,559 $ 2,317,491 $ 18,716,972 LIABILITIES AND FUND BALANCE Liabilities Accounts payable $ 215,521 $ 23,667 $ 954 $ 240,142 Accrued liabilities 510,446 8,068 4,959 523,473 Due to depositors 5,000 - - 5,000 Deferred revenue 119,621 89,840 - 209,461 Total liabilities 850,588 121,575 5,913 978,076 Fund balance Nonspendable 3,032,726 - - 3,032,726 Restricted 234,768 4,212,984 382,436 4,830,188 Committed 5,219,706 - 1,929,448 7,149,154 Assigned 1,537,572 - - 1,537,572 Unassigned 1,189,562 - (306) 1,189,256 Total fund balance 11,214,334 4,212,984 2,311,578 17,738,896 TOTAL LIABILITIES AND FUND BALANCE $ 12,064,922 $ 4,334,559 $ 2,317,491 $ 18,716,972 The accompanying notes are an integral part of these financial statements. 16  EXHIBIT IIIB City of Fort Walton Beach, Florida GOVERNMENTAL FUNDS RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET ASSETS September 30, 2011 Fund balance - total governmental funds (page 16) $ 17,738,896 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. Governmental non-depreciable/amortizable assets 10,313,553 Governmental depreciable/amortizable assets 44,808,877 Less accumulated depreciation/amortization (25,066,280) 30,056,150 Other assets used in governmental activities are not current financial resources and therefore are not reported in the governmental funds. Net pension asset 281,578 Bond issuance costs 239,956 Less related accumulated amortization (68,227) 453,307 Deferred revenue in governmental funds is susceptible to full accrual on the entity-wide statements. Special assessment for street resurfacing 119,621 Special assessment for affordable housing 89,840 209,461 Long-term liabilities are not due and payable in the current period and therefore are not reported in the governmental funds. Revenue bonds payable (4,615,000) Discount on bonds payable 44,035 Notes payable (728,480) Accrued interest (61,054) Compensated absences (663,625) Other post-employment benefits (180,632) (6,204,756) Net assets of governmental activities (page 14) $ 42,253,058 The accompanying notes are an integral part of these financial statements. 17  EXHIBIT IVA City of Fort Walton Beach, Florida GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE Year Ended September 30, 2011 Community Other Total Redevelopment Governmental Governmental General Agency Funds Funds REVENUES Taxes $ 9,542,431 $ 896,050 $ - $ 10,438,481 Permits and fees 2,428,621 - - 2,428,621 Intergovernmental 2,525,152 651,559 181,904 3,358,615 Charges for services 911,405 - - 911,405 Fines and forfeits 125,885 - 25,731 151,616 Miscellaneous 778,077 25,030 14,868 817,975 TOTAL REVENUES 16,311,571 1,572,639 222,503 18,106,713 EXPENDITURES Current General governmental services 3,699,506 - - 3,699,506 Public safety 8,509,661 137,882 29,077 8,676,620 Physical environment 306,365 - - 306,365 Transportation 978,272 16,000 - 994,272 Economic environment - 389,665 103,861 493,526 Culture and recreation 2,233,104 - - 2,233,104 Capital outlay 1,242,296 269,043 49,718 1,561,057 Debt service Principal - - 198,699 198,699 Interest - - 235,890 235,890 Other debt service costs - - 378 378 TOTAL EXPENDITURES 16,969,204 812,590 617,623 18,399,417 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (657,633) 760,049 (395,120) (292,704) OTHER FINANCING SOURCES (USES) Debt proceeds 739,805 - - 739,805 Transfers in 1,807,790 - 489,154 2,296,944 Transfers out (489,154) (78,076) (46,997) (614,227) TOTAL OTHER FINANCING SOURCES (USES) 2,058,441 (78,076) 442,157 2,422,522 NET CHANGE IN FUND BALANCE 1,400,808 681,973 47,037 2,129,818 FUND BALANCE - BEGINNING OF YEAR, RESTATED 9,813,526 3,531,011 2,264,541 15,609,078 FUND BALANCE - END OF YEAR $ 11,214,334 $ 4,212,984 $ 2,311,578 $ 17,738,896 The accompanying notes are an integral part of these financial statements. 18  EXHIBIT IVB City of Fort Walton Beach, Florida GOVERNMENTAL FUNDS RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES Year Ended September 30, 2011 Net change in fund balances - total governmental funds (page 18) $ 2,129,818 Amounts reported for governmental activities in the statement of activities are different because: Governmental funds do not report capital assets on the balance sheet; however, they are reported in the government-wide financial statements. Governmental funds report capital outlays as expenditures; however, in the statement of activities, the cost of those assets is depreciated over the estimated useful lives of the assets. Expenditures for capital assets 1,494,136 Less current year depreciation/amortization (1,705,643) (211,507) Governmental funds do not report capital assets on the balance sheet; however, they are reported in the government-wide financial statements. Accordingly, proceeds received for disposals of capital assets are shown as income in the governmental financial statements and a gain or loss is reported in the statement of activities. Disposals of capital assets and adjustments (798,416) Accumulated depreciation associated with disposals and adjustments 797,554 (862) Net transfer of capital assets and related lease liabilities from governmental funds to proprietary funds Transfer of capital assets from business activity 4,589 Accumulated depreciation associated with asset transfer (6,595) (2,006) Special assessment revenue in the governmental funds is recognized when due; however, the revenue was recognized in the Statement of Activities when it was earned (when levied). Special assessment for street resurfacing (5,398) Special assessment for affordable housing 16,400 11,002 The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. Also, governmental funds report the effect of issuance costs, premiums, discounts and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. Note proceeds (739,806) Debt principal payments 198,699 Amortization of current year bond discount (2,181) Current year note issue costs 35,444 Amortization of bond and note issue costs (8,293) Change in accrued interest on long-term debt (3,174) (519,311) Some expenses reported in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. Net pension asset 42,405 Change in long-term compensated absences (24,851) 17,554 Change in net assets of governmental activities (page 15) $ 1,424,688 The accompanying notes are an integral part of these financial statements. 19  EXHIBIT VA City of Fort Walton Beach, Florida GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Year Ended September 30, 2011 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Taxes $ 9,160,668 $ 9,160,668 $ 9,542,431 $ 381,763 Permits and fees 2,416,638 2,408,840 2,428,621 19,781 Intergovernmental 2,271,171 2,704,771 2,525,152 (179,619) Charges for services 858,142 858,821 911,405 52,584 Fines and forfeits 139,200 149,860 125,885 (23,975) Miscellaneous 346,213 765,692 778,077 12,385 TOTAL REVENUES 15,192,032 16,048,652 16,311,571 262,919 EXPENDITURES Current General government services 3,992,172 4,028,754 3,699,506 329,248 Public safety 8,955,982 8,792,367 8,509,661 282,706 Physical environment 252,400 294,072 306,365 (12,293) Transportation 1,052,115 1,093,796 978,272 115,524 Culture and recreation 2,265,158 2,339,156 2,233,104 106,052 Capital outlay 665,792 2,517,866 1,242,296 1,275,570 TOTAL EXPENDITURES 17,183,619 19,066,011 16,969,204 2,096,807 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (1,991,587) (3,017,359) (657,633) 2,359,726 OTHER FINANCING SOURCES (USES) Debt proceeds - 732,200 739,805 7,605 Transfers in 1,987,420 2,041,973 1,807,790 (234,183) Transfers out (449,995) (471,070) (489,154) (18,084) TOTAL OTHER FINANCING SOURCES (USES) 1,537,425 2,303,103 2,058,441 (244,662) NET CHANGE IN FUND BALANCE (454,162) (714,256) 1,400,808 2,115,064 FUND BALANCE - BEGINNING OF YEAR 454,162 714,256 9,813,526 9,099,270 FUND BALANCE - END OF YEAR $ - $ - $ 11,214,334 $ 11,214,334 The accompanying notes are an integral part of these financial statements. 20  EXHIBIT VB City of Fort Walton Beach, Florida COMMUNITY REDEVELOPMENT AGENCY STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Year Ended September 30, 2011 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Taxes $ 898,803 $ 898,803 $ 896,050 $ (2,753) Intergovernmental 651,559 651,559 651,559 - Miscellaneous 30,000 30,000 25,030 (4,970) TOTAL REVENUES 1,580,362 1,580,362 1,572,639 (7,723) EXPENDITURES Current Public safety 111,006 130,440 137,882 (7,442) Transportation - 18,900 16,000 2,900 Economic environment 2,963,856 3,071,112 389,665 2,681,447 Capital outlay 505,500 685,598 269,043 416,555 TOTAL EXPENDITURES 3,580,362 3,906,050 812,590 3,093,460 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (2,000,000) (2,325,688) 760,049 3,085,737 OTHER FINANCING SOURCES (USES) Transfers out - (60) (78,076) (78,016) TOTAL OTHER FINANCING SOURCES (USES) - (60) (78,076) (78,016) NET CHANGE IN FUND BALANCE (2,000,000) (2,325,748) 681,973 3,007,721 FUND BALANCE - BEGINNING OF YEAR, RESTATED 2,000,000 2,325,748 3,531,011 1,205,263 FUND BALANCE - END OF YEAR $ - $ - $ 4,212,984 $ 4,212,984 The accompanying notes are an integral part of these financial statements. 21  EXHIBIT VI City of Fort Walton Beach, Florida PROPRIETARY FUNDS STATEMENT OF NET ASSETS September 30, 2011 Other Sanitation Enterprise Utilities Fund Fund Golf Fund Funds Total ASSETS Current assets Cash and cash equivalents $ 5,149,995 $ 2,015,463 $ 168,726 $ 402,201 $ 7,736,385 Restricted assets - cash and cash equivalents 431,306 1,880 4,293 - 437,479 Receivables, net 497,386 175,517 101 35,877 708,881 Due from other governments 1,024 - - - 1,024 Inventory - at cost 11,439 - 33,219 - 44,658 Total current assets 6,091,150 2,192,860 206,339 438,078 8,928,427 Non-current assets Restricted assets Cash and cash equivalents 5,657,229 - - - 5,657,229 Capital assets, net Non-depreciable/amortizable 1,986,566 - 55,400 - 2,041,966 Depreciable/amortizable, net 17,755,844 1,098,709 2,945,379 934,458 22,734,390 Total capital assets 19,742,410 1,098,709 3,000,779 934,458 24,776,356 Other assets Bond issue costs, net 197,145 - 3,478 - 200,623 Total non-current assets 25,596,784 1,098,709 3,004,257 934,458 30,634,208 TOTAL ASSETS $ 31,687,934 $ 3,291,569 $ 3,210,596 $ 1,372,536 $ 39,562,635 Continued... The accompanying notes are an integral part of these financial statements. 22  EXHIBIT VI City of Fort Walton Beach, Florida PROPRIETARY FUNDS STATEMENT OF NET ASSETS September 30, 2011 Other Sanitation Enterprise Utilities Fund Fund Golf Fund Funds Total LIABILITIES Current liabilities Accounts payable $ 377,339 $ 93,034 $ 18,856 $ 2,034 $ 491,263 Accrued liabilities Compensated absences 29,440 10,627 8,097 2,692 50,856 Wages 69,842 33,274 35,124 10,792 149,032 Other 750,000 - - - 750,000 Due to other governments - 7,432 6,719 - 14,151 Leases payable - - 52,661 - 52,661 Advance from other fund - - 127,868 - 127,868 Revenue bonds payable 270,000 - - - 270,000 Revenue note payable - - 15,364 - 15,364 Payable from restricted assets Accrued interest 112,918 - 488 - 113,406 Customer deposits 168,315 1,880 - - 170,195 Unearned revenue 21,055 - 18,457 12,332 51,844 Total current liabilities 1,798,909 146,247 283,634 27,850 2,256,640 Non-current liabilities Accrued liabilities Compensated absences 88,320 31,883 24,291 8,076 152,570 Leases payable - - 13,458 - 13,458 Advance from other fund - - 2,660,684 - 2,660,684 Revenue bonds payable 10,194,872 - - - 10,194,872 Revenue note payable - - 61,222 - 61,222 Other post-employment benefits 38,369 17,245 1,990 893 58,497 Total non-current liabilities 10,321,561 49,128 2,761,645 8,969 13,141,303 TOTAL LIABILITIES 12,120,470 195,375 3,045,279 36,819 15,397,943 NET ASSETS Invested in capital assets, net of related debt 14,934,767 1,098,709 69,522 934,458 17,037,456 Restricted Debt service 180,418 - 4,293 - 184,711 System improvements 82,573 - - - 82,573 Unrestricted 4,369,706 1,997,485 91,502 401,259 6,859,952 TOTAL NET ASSETS $ 19,567,464 $ 3,096,194 $ 165,317 $ 1,335,717 $ 24,164,692 The accompanying notes are an integral part of these financial statements. 23  EXHIBIT VII City of Fort Walton Beach, Florida PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS Year Ended September 30, 2011 Other Sanitation Enterprise Utilities Fund Fund Golf Fund Funds Total OPERATING REVENUES Charges for services $ 7,592,916 $ 3,311,744 $ 1,954,325 $ 481,854 $ 13,340,839 OPERATING EXPENSES Personal services 1,584,235 896,450 975,951 183,053 3,639,689 Operating 3,762,569 1,420,086 742,360 83,780 6,008,795 Depreciation/amortization expense 3,315,799 208,458 276,072 70,678 3,871,007 TOTAL OPERATING EXPENSES 8,662,603 2,524,994 1,994,383 337,511 13,519,491 OPERATING INCOME (LOSS) (1,069,687) 786,750 (40,058) 144,343 (178,652) NON-OPERATING REVENUES (EXPENSES) Rental income 15,439 - 98,176 - 113,615 Interest expense (476,766) - (77,737) (336) (554,839) Amortization (22,200) - (127,216) - (149,416) Other debt services costs (959) - (117) - (1,076) Gain (loss) on disposal of capital assets 70,168 4,625 - 1,111 75,904 Unrealized gain (loss) on investment (15,211) (5,954) (493) (1,188) (22,846) Interest 66,316 17,723 1,028 3,740 88,807 Grants in aid (398) - - (1,696) (2,094) Miscellaneous 61,081 18,513 70,043 13 149,650 TOTAL NON-OPERATING REVENUES (EXPENSES) (302,530) 34,907 (36,316) 1,644 (302,295) INCOME (LOSS) BEFORE CONTRIBUTIONS AND OPERATING TRANSFERS (1,372,217) 821,657 (76,374) 145,987 (480,947) CONTRIBUTIONS AND TRANSFERS Capital grants and contributions 51,496 - - 14,000 65,496 Transfers in 36,242 - - - 36,242 Transfers out (959,557) (744,281) (99) (15,022) (1,718,959) TOTAL CONTRIBUTIONS AND TRANSFERS (871,819) (744,281) (99) (1,022) (1,617,221) CHANGE IN NET ASSETS (2,244,036) 77,376 (76,473) 144,965 (2,098,168) NET ASSETS - BEGINNING OF YEAR 21,811,500 3,018,818 241,790 1,190,752 26,262,860 NET ASSETS - END OF YEAR $ 19,567,464 $ 3,096,194 $ 165,317 $ 1,335,717 $ 24,164,692 The accompanying notes are an integral part of these financial statements. 24  EXHIBIT VIII City of Fort Walton Beach, Florida PROPRIETARY FUNDS STATEMENT OF CASH FLOWS Year Ended September 30, 2011 Other Sanitation Enterprise Utilities Fund Fund Golf Fund Funds Total CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers and users $ 7,598,205 $ 3,319,147 $ 1,956,017 $ 498,697 $ 13,372,066 Payments to suppliers (3,097,903) (1,419,256) (749,032) (86,319) (5,352,510) Payments to employees (1,599,768) (888,191) (975,924) (179,521) (3,643,404) Miscellaneous income 76,519 18,513 168,219 13 263,264 Net cash provided by operating activities 2,977,053 1,030,213 399,280 232,870 4,639,416 CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Borrowings (repayments) Interfund balances - - (271,527) - (271,527) Change in intergovernmental balances 67,394 (39) (1,216) - 66,139 Grants and aids (398) - - (1,696) (2,094) Transfers in 36,242 - - - 36,242 Transfers out (959,557) (744,281) (99) (15,022) (1,718,959) Net cash provided (used) by non-capital financing activities (856,319) (744,320) (272,842) (16,718) (1,890,199) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisitions of capital assets (1,282,253) (225,881) (79,754) (173,553) (1,761,441) Proceeds from disposal of capital assets 70,168 4,625 - 1,111 75,904 Capital grants and contributions 51,496 - - 14,000 65,496 Proceeds from advance from other fund - - 2,919,883 - 2,919,883 Principal paid on advance from other fund - - (131,331) - (131,331) Principal paid on leases payable (7,621) - (50,838) (17,161) (75,620) Proceeds from note payable - - 79,195 - 79,195 Principal paid on bonds and notes payable (592,500) - (2,830,109) - (3,422,609) Interest paid on bonds, loans, and leases payable (472,792) - (105,459) (336) (578,587) Other debt service costs (959) - (3,911) - (4,870) Net cash provided (used) by capital and related financing activities (2,234,461) (221,256) (202,324) (175,939) (2,833,980) NET CASH FLOWS FROM INVESTING ACTIVITIES Interest income 51,105 11,769 535 2,552 65,961 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (62,622) 76,406 (75,351) 42,765 (18,802) CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 11,301,152 1,940,937 248,370 359,436 13,849,895 CASH AND CASH EQUIVALENTS - END OF YEAR $ 11,238,530 $ 2,017,343 $ 173,019 $ 402,201 $ 13,831,093 Continued... The accompanying notes are an integral part of these financial statements. 25  EXHIBIT VIII City of Fort Walton Beach, Florida PROPRIETARY FUNDS STATEMENT OF CASH FLOWS Year Ended September 30, 2011 Other Sanitation Golf Enterprise Utilities Fund Fund Fund Funds Total CASH AND CASH EQUIVALENTS AT END OF YEAR CONSIST OF Current assets $ 5,149,995 $ 2,015,463 $ 168,726 $ 402,201 $ 7,736,385 Restricted assets, current 431,306 1,880 4,293 437,479 Restricted assets, non-current 5,657,229 - - - 5,657,229 Total cash and cash equivalents $ 11,238,530 $ 2,017,343 $ 173,019 $ 402,201 $ 13,831,093 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income $ (1,069,687) $ 786,750 $ (40,058) $ 144,343 $ (178,652) Adjustments to reconcile operating income to net cash provided by operating activities Depreciation 3,315,799 208,458 276,072 70,678 3,871,007 Miscellaneous revenue 76,519 18,513 168,219 13 263,264 Decommission of WWTP accrual 500,000 - - - 500,000 Decrease (increase) in assets Accounts receivable (11,191) 9,493 1,642 4,511 4,455 Prepaid expenses 8,106 - - - 8,106 Inventory (11,439) - (1,396) - (12,835) Increase (decrease) in liabilities Accounts payable 167,999 830 (5,276) (2,539) 161,014 Compensated absences payable (13,552) 5,132 (1,626) 2,648 (7,398) Wages (1,981) 3,127 1,653 884 3,683 Customer deposits 13,495 (2,090) - - 11,405 Deferred revenue 2,985 - 50 12,332 15,367 Net cash provided by operating activities $ 2,977,053 $ 1,030,213 $ 399,280 $ 232,870 $ 4,639,416 SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS Amortization of bond and note issue costs $ 14,603 $ - $ 100,660 $ - $ 115,263 Amortization of discounts and deferred loss on refunding $ 18,827 $ - $ 29,320 $ - $ 48,147 The accompanying notes are an integral part of these financial statements. 26  EXHIBIT IX City of Fort Walton Beach, Florida FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET ASSETS September 30, 2011 Employee Retirement Funds ASSETS Cash and cash equivalents $ 2,407,058 Investments, at market U.S. Government and Agency obligations 8,915,850 Corporate obligations 10,600,407 Corporate equity 19,001,145 Mutual funds 13,917,414 Total investments 52,434,816 Due from State of Florida 33,803 TOTAL ASSETS $ 54,875,677 LIABILITIES Due to other funds $ 4,238 Accounts payable 148,336 Total liabilities 152,574 NET ASSETS Held in trust for pension and employee retirement benefits $ 54,723,103 The accompanying notes are an integral part of these financial statements. 27  EXHIBIT X City of Fort Walton Beach, Florida FIDUCIARY FUNDS STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS Year Ended September 30, 2011 Employee Retirement Funds ADDITIONS Contributions Employer $ 2,315,055 Plan members 496,993 State of Florida 325,726 Total contributions 3,137,774 Investment income (loss) (161,491) Less investment expense (358,800) Net investment income (loss) (520,291) Miscellaneous revenue 215,272 TOTAL ADDITIONS 2,832,755 DEDUCTIONS Benefits and refunds paid Retirement payments 4,564,504 Disability payments 227,816 Refunds 161,228 Total benefits and refunds paid 4,953,548 Administrative expenses Legal 23,185 Contractual services 112,845 Other 28,620 Total administrative expenses 164,650 TOTAL DEDUCTIONS 5,118,198 NET INCREASE (DECREASE) (2,285,443) NET ASSETS HELD IN TRUST FOR PENSION BENEFITS BEGINNING OF YEAR 57,008,546 END OF YEAR $ 54,723,103 The accompanying notes are an integral part of these financial statements. 28 (THIS PAGE INTENTIONALLY LEFT BLANK.)  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The City of Fort Walton Beach, Florida, (the City) was originally chartered as a municipality under laws of the State of Florida Special Act of the Florida Legislature in 1937. The City Manager-Council form of government was established in 1953. As authorized by its charter, the City provides the following services: public safety (police, fire, and inspection), highways and streets, water and sewer, sanitation, stormwater, culture and recreation, public improvements, planning and zoning, and general administrative services. The financial statements of the City have been prepared in accordance with accounting principles generally accepted (GAAP) in the United States of America applicable to governmental units and the Uniform Accounting System mandated by Chapter 218.33, Florida Statutes. The Governmental Accounting Standards Board (GASB) is the standard- setting body for governmental accounting and financial reporting. The following is a summary of the more significant accounting policies of the City: A. The Reporting Entity A seven member City Council and a Mayor govern the City, each elected at-large for four-year terms. The Council has no powers other than those expressly vested in it by State Statute and the City Charter, and their governmental powers cannot be delegated. As required by accounting principles generally accepted in the United States of America, these financial statements present the City of Fort Walton Beach (the primary government) and its component unit. In evaluating the City as a reporting entity, management has considered all potential component units for which the City may or may not be financially accountable and, as such, be included within the City's financial statements. Management utilized criteria set forth in GASB No. 14 for determining financial accountability of potential component units in evaluating all potential component units. In accordance with GASB No. 14, the City (primary government) is financially accountable if it appoints a voting majority of the potential component unit's governing board and 1) it is able to impose its will on the organization or 2) there is a potential for the organization to provide specific financial benefit to or impose specific financial burden on the City. In addition, component units can be other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete. 29  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) A. The Reporting Entity (Continued) As of September 30, 2011, the City of Fort Walton Beach had one component unit, as defined by GASB 14, which has been presented in the financial statements of the primary government using the blended presentation method, and is presented as a governmental fund type with a fiscal year end of September 30. The Fort Walton Beach Community Redevelopment Agency (the Agency) was formed to prepare a community redevelopment plan for a designated geographic area within the City of Fort Walton Beach, Florida. All of the City's council members serve as board members of the Agency. The Agency's governing body is the same as the governing body of the City and the Agency provides services specifically to the Community Redevelopment Area of the City. Due to the nature and significance of the Agency's relationship with the City, exclusion of the Agency's financial operations would render the City's financial statements incomplete or misleading. Certain beginning balances have been restated to reflect the Agency as a blended component unit. Prior to the year ended September 30, 2011, the Agency was treated as discretely presented due to its separate board. In January 2011, City Council took action to appoint Council as its governing body. As a result, the Governmental funds beginning fund balance increased by $3,531,011 and governmental activities beginning net assets increased by $8,509,522. The Fort Walton Beach Housing Authority (the Authority) is considered a related organization to the City rather than a component unit. The City Council of Fort Walton Beach, Florida appoints the board members of the Authority. However, the Authority's board operates independently of the City Council and does not create a financial burden or benefit to the City. B. Government-Wide and Fund Financial Statements The basic financial statements include both government-wide (based on the City as a whole) and fund financial statements. The government-wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all of the nonfiduciary activities of the primary government and its component unit. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely, to a significant extent, on fees and charges for support. 30  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) B. Government-Wide and Fund Financial Statements (Continued) The Statement of Activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate fund financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though fiduciary funds are excluded from the government-wide financial statements. Major individual governmental funds and major enterprise funds are reported as separate columns in the fund financial statements. C. Measurement Focus and Basis of Accounting The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Pension plans recognize revenue when contributions are due as there is a statutory requirement to make the contribution. Property taxes are recorded as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are collected within 6 months of the end of the current fiscal period, except for property taxes, for which the period is 60 days. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. 31  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. Measurement Focus and Basis of Accounting (Continued) Franchise taxes, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Only the portion of special assessments receivable within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. Sales taxes, gasoline taxes, and other intergovernmental revenues collected and held by the state at year-end on behalf of the City, are also recognized as revenue. All other revenue items are considered to be measurable and available only when cash is received by the government. The Okaloosa County Tax Collector bills and collects property taxes for the City in accordance with the laws of the State of Florida. Property taxes attach as an enforceable lien on property as of the date of assessment and remain in effect until discharge by payment. Taxes are payable when levied (on November 1, or as soon thereafter as the assessment roll becomes available to the Tax Collector). The following is the current property tax calendar: Lien Date January 1, 2011 Levy Date November 1, 2011 Due Date November 1, 2011 Delinquent Date April 1, 2012 Discounts of 1% for each month taxes are paid prior to March 2012 are granted. Revenue recognition criteria for property taxes under the GASB requires that property taxes expected to be collected within 60 days of the current period be accrued. No accrual has been made for 2011 ad valorem taxes because property taxes are not legally due until subsequent to the end of the fiscal year. Current year taxes, which are uncollected as of the end of the fiscal year, are generally immaterial in amount and highly susceptible to uncollectibility and, therefore, are not recorded as a receivable on the balance sheet date. 32  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Basis of Presentation The financial transactions of the City are recorded in individual funds. Each fund is a separate accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions or limitations. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are other charges between the government's utility function and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Amounts reported as program revenues include 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the City's enterprise funds are charges to customers for sales and services. The City considers all impact fee revenue as capital contributions for the water and sewer system; therefore, no amount from the impact fee is included in operating revenue. Operating expenses for enterprise funds include the cost of sales and service, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the government's policy to use restricted resources first and then unrestricted resources, as they are needed. 33  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Basis of Presentation (Continued) The following three broad classifications are used to categorize the fund types used by the City: Governmental Governmental funds focus on the determination of financial position and changes in financial position (sources, uses, and balances of financial resources) and not net income. The City has the following major governmental funds: General Fund - This is the City's primary operating fund and is used to account for all financial resources except those required to be accounted for in another fund. Community Redevelopment Fund - The community redevelopment fund is the operating fund of the Fort Walton Beach Community Redevelopment Agency (the "Agency"). It is used to account for the activities of the Agency. Proprietary Proprietary funds focus on the determination of net income, changes in net assets, financial position, and cash flows. All of the City's proprietary funds are enterprise funds, as fees are charged to external users for services. The following is a description of the major proprietary funds of the City: Utilities Fund - Used to account for the operations of the City, which provides distribution of potable water, sales and service and sanitary wastewater collection, treatment and disposal. Sanitation Fund - Accounts for the operation of the City that provides for solid waste collection and disposal. Golf Fund - Accounts for the operations and maintenance of the City-owned golf courses. Fiduciary Fiduciary funds are used to account for the assets held on behalf of outside parties, including other governments, or on behalf of other funds within the City. The City has the following type of Fiduciary funds: Pension Trust Funds - Used to report the resources that are required to be held in trust for the members and beneficiaries of the three defined benefit pension plans administered by the City: General Employees' Retirement Fund, Police Officers' Retirement Fund, and Firefighters' Retirement Fund. 34  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. Assets, Liabilities, and Net Assets or Equity Cash and Cash Equivalents The City considers all highly liquid investments (including restricted assets) with a maturity of 90 days or less when purchased, and investments with the State Board of Administration (SBA), to be cash equivalents. Additionally, each fund's equity in the City's investment pool (see Note 3) is considered to be cash equivalent since the funds can deposit or effectively withdraw cash at any time without prior notice or penalty. Deposits and Investments Section 218.415, Florida Statutes, requires the investment of surplus public funds and prescribes the instruments in which those investments are authorized, specifically the State of Florida Local Government Surplus Funds Trust Fund, direct obligations of the United States Government or other obligations unconditionally guaranteed by the United States Government, collateralized interest-bearing time deposits or savings accounts in state or federal banks or savings and loan associations, debt securities of the Federal Farm Credit Banks, the Federal Home Loan Mortgage Corporation, the Federal Home Loan Bank, the Government National Mortgage Association, the Federal National Mortgage Association, and securities of or other interest in certain investment companies or investment trusts, the portfolio of which is limited to United States Government obligations or repurchase agreements fully collateralized by such obligations. The City adheres strictly to the provisions of those cited Statutes, as well as with Chapter 280, Florida Statutes, which requires the City to maintain deposits only with "Qualified Public Depositories." The City maintains a cash and investment pool available for use by all funds and the Community Redevelopment Agency. Earnings from such investments are allocated to the respective funds based on applicable cash participation by each fund. In addition, restricted cash accounts, certificates of deposit, and other investments are separately maintained by a few City funds in accordance with bond ordinances, retirement fund plan documents and other contractual agreements. Investments are stated at fair value, based on quoted market prices. 35  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. Assets, Liabilities, and Net Assets or Equity (Continued) Deposits and Investments (Continued) The City's cash and investment pool and certain individual funds participate in the Local Government Surplus Trust Fund - Florida PRIME and Fund B, operated by Florida's State Board of Administration (SBA). The SBA is governed by Chapter 19-1 of the Florida Administrative Code (FAC). The FAC provides guidance and establishes the general operating procedures for the administration of the Local Government Surplus Trust Funds. Additionally, the Florida Auditor General performs an operational audit of activities and investments of the SBA. GASB Statement No. 31, titled Accounting and Financial Reporting for Certain Investments and for External Investment Pools, applies to the Florida PRIME and Fund B. GASB 31 outlines the two options for accounting and reporting for money market investment pools as either "2a-7 like" or fluctuating net asset value (NAV). GASB 31 describes a "2a-7 like" pool as an external investment pool that is not registered with the Securities and Exchange Commission (SEC) as an investment company, but nevertheless has a policy that it will, and does, operate in a manner consistent with Rule 2a-7 under the Investment Company Act of 1940 (the 1940 Act). Rule 2a-7 is the rule that permits money market funds to use amortized cost to maintain a constant NAV of $1.00 per share, provided that such funds meet certain conditions. City investments with the SBA may be made or liquidated by wire on a same day basis, subject to limitations described in Note 3. The Florida PRIME is considered a SEC "2a-7 like" fund, thus the account balance is also considered the fair value of the City's investment. The Fund B is accounted for as a fluctuating NAV pool. The Fair Value factor for September 30, 2011, was .7568386 percent. The account balance was multiplied by the factor in order to report the fair value of the City's investment in Fund B. Pension Trust Funds may invest in direct obligations of the United States Government or other obligations unconditionally guaranteed by the United States Government, collateralized interest-bearing time deposits or savings accounts in state or federal banks or savings and loan associations, bonds or indebtedness of United States corporations rated BAA or better, stocks of U.S. corporations which are listed on the national stock exchanges (limited to 50% of the assets of the fund) and investment accounts maintained by major national banks and insurance companies given the top rating by Best. In addition to the above investment options, the Firefighters' Retirement Pension Trust Fund may invest up to 20% of its assets at cost in real estate. 36  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. Assets, Liabilities, and Net Assets or Equity (Continued) Deposits and Investments (Continued) Bond Sinking Fund Investments are limited by bond ordinances to investments in direct obligations of the United States government or other marketable securities eligible as security of trust funds under regulations of the Board of Governors of the Federal Reserve System. The maturity date on Sinking Fund Investments is limited by the individual bond ordinances to correspond to the related debt service payments. Receivables and Payables Interfund transactions are reflected as loans, services provided, reimbursements, or transfers. Loans between funds outstanding at the end of the fiscal year are referred to as either "due to other funds" or "due from other funds" (i.e., the current portion of interfund loans) or "advances" (i.e., the non-current portion of interfund loans). Any residual balances outstanding between governmental activities and business-type activities are reported in the government-wide financial statements as "internal balances." Advances between funds, as reported in the fund financial statements, are offset by a fund balance nonspendable account in applicable governmental funds to indicate that they are not available for appropriation and are not expendable available financial resources. Services provided, deemed to be at market, or near market rates, are treated as revenues and expenditures/expenses. Reimbursements occur when one fund incurs a cost, charges the appropriate benefiting fund, and reduces its related cost as a reimbursement. All other interfund transactions are treated as transfers. Transfers between governmental or proprietary funds are netted as part of the reconciliation to the government-wide columnar presentation. All proprietary fund receivables are shown net of an allowance for uncollectibles. The allowance is computed by considering 100% of receivables in excess of 90 days, past trends on collections of accounts, and current year account write-offs. Inventory Inventory is valued at cost (first-in, first-out). The consumption method is used to account for inventory. Under the consumption method, inventory items are recorded as expenditures during the period inventory is used. A portion of the General Fund balance equal to the inventory amount is considered nonspendable in the fund financial statements to indicate that it is not available for appropriation. 37  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. Assets, Liabilities, and Net Assets or Equity (Continued) Restricted Assets Certain resources in the following funds are restricted for specific purposes: in the Debt Service Fund, for the repayment of the Capital Improvement Bonds, Series 2001 and the Capital Improvement Note, Series 2011; in the Utility Fund, for the repayment of the Utility System Revenue Bonds, Series 2005; in the Golf Fund, for the repayment of the Capital Improvement Note, Series 2011; and, customer utility deposits and impact fees received are restricted in the Utilities Fund. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets (roads, bridges, curbs and sidewalks, drainage systems, lighting systems and similar items), are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Capital assets are defined by the City as assets with an initial cost more than the following: Land All Buildings and improvements $ 10,000 Infrastructure $ 10,000 Improvements - other $ 10,000 Equipment, vehicles, computers $ 1,000 Library books All In the case of the initial capitalization of general infrastructure assets (i.e. those reported by governmental activities) the government chose to include all such items regardless of their acquisition date or amount. The government was able to estimate the historical cost for the initial reporting of these assets through various allowable estimating techniques. As the government constructs or acquires additional capital assets each period, including infrastructure assets, they are capitalized and reported at historical cost. The reported value excludes normal maintenance and repairs which are essentially amounts spent in relation to capital assets that do not increase the capacity or efficiency of the item or extend its useful life beyond the original estimate. Donated capital assets are recorded at estimated fair market value at the date of donation. Major outlays for capital assets and improvements are capitalized in proprietary funds as projects are constructed. The amount of interest to be capitalized is calculated by offsetting interest expense incurred from the date of the borrowing until the completion of the project with interest earned on the invested proceeds over the same period. 38  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. Assets, Liabilities, and Net Assets or Equity (Continued) Capital Assets (Continued) Property, plant, and equipment of the primary government are depreciated using the straight-line method over the following estimated useful lives: Assets Years Buildings 20-50 Years Improvements other than buildings 7-40 Years System infrastructure 20-40 Years Machinery and equipment 3-10 Years Compensated Absences It is the City's policy to permit employees to accumulate earned but unused vacation and sick leave based on the length of service to the City. All vacation leave is accrued when incurred in the government-wide and proprietary fund financial statements. Sick leave is accrued in the government-wide and proprietary fund financial statements based on a ratio of the sum of sick leave paid over the last several years to the total balance of sick leave at the end of each fiscal year. A liability for the amounts of vacation and sick leave is reported in the governmental fund financial statements only if they have matured, for example, as a result of employee resignations and retirements. Compensated absences of the governmental activities are primarily paid from the General Fund. Long-Term Obligations In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net assets. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective and straight-line interest methods. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. 39  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. Assets, Liabilities, and Net Assets or Equity (Continued) Categories and Classification Fund Equity GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. Fund balance classifications, under GASB 54, are comprised of Nonspendable, Restricted, Committed, Assigned, and Unassigned. These classifications reflect not only the nature of funds, but also provide clarity to the level of restriction place upon fund balance. Fund balance can have different levels of restraint, such as external versus internal compliance requirements. Unassigned fund balance is a residual classification with the General Fund. The General Fund should be the only fund that reports a positive unassigned balance. In all other funds, unassigned is limited to negative residual fund balance. The City's General Fund formal fund balance policy establishes a targeted minimum reserve balance in its Committed Fund Balance equal to 30% of annual budgeted expenditures. In circumstances when an expenditure is made for a purpose for which amounts are available in multiple fund balance classifications, fund balance is generally depleted in the order of restricted, committed, assigned, and unassigned. F. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2 - STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Budgets Budgets are adopted on a basis consistent with generally accepted accounting principles. Annual appropriated budgets are adopted by ordinance for all governmental and proprietary funds. However, budgets for proprietary funds are not legally required to be reported on and are not included in these financial statements. All appropriations lapse at fiscal year-end except for appropriations related to multi-year capital projects. 40  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 2 - STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY (CONTINUED) A. Budgets (Continued) Budgetary data reflected in the financial statements are established by the following procedures: Prior to September 1 of each year, proposed budgets are received by the City Council from the City Manager. These proposed expenditures, along with all estimated receipts, taxes to be levied, and balances expected to be brought forward are considered by the City Council. The City Council requires such changes as deemed necessary, sets proposed millages, and establishes dates for tentative and final public budget hearings as prescribed by Florida Statutes. Proposed budgets are advertised in a newspaper of general circulation in the City. Public hearings are conducted for the purposes of receiving input, responding to complaints, and providing reasons and explanations for intended actions to all citizens participating. Prior to October 1, the budget for all governmental and proprietary funds of the City is legally enacted through passage of an ordinance. Budget amendments are periodically passed through resolutions during the fiscal year. Appropriations lapse at year-end except for appropriations related to multi-year capital projects. Budgeted beginning fund balance in the accompanying financial statements reflects planned utilization of prior years' unreserved/undesignated fund balance to the level required to accomplish current year objectives. The level of budgetary control (that is the level at which expenditures cannot legally exceed appropriations) has been established at the fund level. The City Manager and Finance Director are authorized to transfer budgeted amounts within departments of a fund and between departments of a fund; however, any revisions that alter the total expenditures of any fund must be approved by the City Council. Budget amounts reflected in the financial statements are originally adopted amounts as amended by action of the City Council by revision of fund totals. All amendments to originally adopted amounts were made in a legally permissible manner. B. Encumbrances Encumbrances represent commitments related to unperformed contracts for goods or services. Encumbrance accounting, under which purchase orders, contracts, and other commitments for the expenditure of resources are recorded in order to reserve that portion of the applicable appropriation, is employed in the governmental funds. Encumbrances outstanding at year-end are reported as reservations of fund balances and do not constitute expenditures or liabilities because the commitments will be reappropriated and honored during the subsequent year. 41  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 3 - DEPOSITS AND INVESTMENTS The City maintains a cash and investment management pool in which each fund (except Pension Trust Funds) participates on a dollar equivalent and daily transaction basis. The City's cash and investment management pool includes pooled cash maintained in interest- bearing demand deposit accounts, certificates of deposit, and pooled investments of the Local Government Surplus Trust Fund. Interest income (which includes unrealized gains and losses) is distributed monthly based on balance at date of distribution. The City's cash and investment management pool is considered to be cash equivalent for reporting purposes because it is an internally managed fund, which allows individual funds to, at any time, deposit additional cash or make withdrawals without prior notice or penalty. The Local Government Surplus Trust Fund - Fund B does not meet the requirements of a SEC 2a7-like fund defined by GASB No. 31 and is considered an investment; however, the City has chosen not to reclass Fund B from cash equivalent to investment for reporting purposes due to its immaterial balance of approximately $280,000 at September 30, 2011 in comparison to the City's pooled cash of approximately $29 million. As of September 30, 2011, Fund B recorded an unrealized loss on investment in the amount of $67,862. Deposits Custodial Credit Risk - It is the City's policy to maintain its deposits only with "Qualified Public Depositories" as defined in Chapter 280, Florida Statutes. The provisions of this statute allow "Qualified Public Depositories" to participate in a multiple financial institution collateral pool to ensure the security for public deposits. All qualified public depositories must place with or in the name of the Chief Financial Officer of the State of Florida, collateral in the amount of the average daily balance of public deposits multiplied by the average monthly balance of public deposits or 125 percent of the average daily balance of public deposits greater than capital. In the event of default by a qualified public depository, excess losses over insurance and collateral will be recovered through assessments to all qualified public depositories of the same type as the depository in default. Under this method, all City deposits, including certificates of deposit, are considered fully insured. At year-end, the value of the City's deposits was $28,829,717, all of which was held by qualified public depositories or permitted investments under Chapter 280, Florida Statutes. Investments As of September 30, 2011, the City's investments consist of those held in the various pension trust funds. The types of investments, which can be made by the City, are restricted by state statutes, retirement fund plan documents, and other contractual agreements. A description of the requirements and the types of investments allowed can be found in Note 1-E. 42  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 3 - DEPOSITS AND INVESTMENTS (CONTINUED) Investments (Continued) As of September 30, 2011, the City held the following investments and related maturities: INVESTMENT MATURITIES (YEARS) Fair Value <1 1-5 5-10 10-15 15-20 20-25 25-30 >30 Investments subject to interest rate risk Corporate debt $ 10,458,832 $ 16,217 $ 2,924,284 $ 7,355,601 $ 33,159 $ 47,875 $ 15,160 $ - $ 66,536 Corporate CMOs 141,575 - - - - 42,689 - 35,297 63,589 U.S. Treasury 4,786,494 658,104 2,131,135 1,127,853 - - 187,752 681,650 - U.S. Government Agencies 1,855,382 264,876 1,107,539 302,990 - 179,977 - - - U.S. Government Agency Pools 2,273,974 - 82,086 83,437 1,761,568 - 152,199 194,684 - $ 19,516,257 $ 939,197 $ 6,245,044 $ 8,869,881 $ 1,794,727 $ 270,541 $ 355,111 $ 911,631 $ 130,125 Investments not subject to interest rate risk Money market funds $ 2,407,058 Corporate equities 19,001,145 Mutual funds 13,917,414 35,325,617 Total $ 54,841,874 Interest Rate Risk - The City's investment policy does not limit its investment maturities as a means of managing its exposure to fair value losses arising from changes in interest rates. The City's policy encourages shorter-term investments for operating funds in order to meet the anticipated cash flows requirements. The General Employee's Pension Plan strives to maintain an average duration of its total fixed income portfolio to not less than 75% or more than 125% of the duration of the Merrill Lynch Bond Index. The investment policies of the Police and Firefighters' Pension Plans do not specifically address interest rate risk. 43  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 3 - DEPOSITS AND INVESTMENTS (CONTINUED) Investments (Continued) Credit Rate Risk - State law limits investments of surplus public funds to those investments described above. According to the City's General Employees' Pension Plan investment policy, investment in all domestic corporate fixed income securities is limited to those securities rated Baa or higher by Moody's rating service. As of September 30, 2011, the General Employees' Pension Plan held no investments whose rating was below Baa; the Plan's intent, in compliance with Florida Statutes 112.661(5)(b), is to sell any investment, whose rating falls below the policy threshold, as soon as it is economically feasible. Investments with less than an "A" rating will be limited to no more than 10% of the total cost of the fixed income securities. Investments in the General Employees' Pension Plan whose rating was less than "A" at September 30, 2011, comprised 9.47% of the total cost of fixed income securities in the Plan. The Police Officers' Pension Fund limits investment in fixed income securities to those rated "A" or higher by Moody's or Standard and Poor's rating services. The Firefighters' Pension Fund limits investment in fixed income securities to those securities rated "A" or higher by Moody's or Standard & Poor's rating services. Each Pension Plan was in compliance with its respective investment policy regarding credit rate risk as of September 30, 2011. The rating ranges of the different investment classes held by each respective plan at September 30, 2011, are as follows: General Pension Police Pension Plan Plan Fire Pension Plan Money market funds Aaa-A Aaa-A Aaa-A Corporate CMOs Aaa-Aa1 N/A N/A Corporate debt Aaa-Baa3 Aa2-Baa1 Aa2-Baa1 U.S. Treasury Aaa Aaa Aaa U.S. government agencies Aaa Aaa Aaa Concentration Credit Risk - The City places no limit on the amount that may be invested in any one issuer, in regards to its general operations investments. The City encourages portfolio diversification to minimize each of the types of risk related to investments. 44  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 3 - DEPOSITS AND INVESTMENTS (CONTINUED) Investments (Continued) Concentration Credit Risk (Continued) The General Employees' Pension Fund limits investment of fixed income securities of any single issuer to no more than 10% of the cost of all fixed income securities. Investments in collateralized mortgage obligations are limited to 25% of the market value of the total fixed income portfolio and are restricted to securities issued by the Government National Mortgage Association (GNMA), the Federal Home Loan Mortgage Corporation (FHLMC), or the Federal National Mortgage Association (FNMA), or that are rated "Aaa" or "AAA" by Moody's or Standard and Poor's bond rating services, respectively. It is expected that the average duration of the total fixed income portfolio will not be less than 75% or more than 125% of the duration of the Merrill Lynch Bond Index. As of September 30, 2011, the largest investment in a single corporate issuer of debt was below 3% of the cost of all fixed income securities. Total investments in collateralized mortgage obligations (CMOs) were 19.66% of the total market value of the total fixed income portfolio. No more than 10% of the market value of the total fixed income portfolio in the Police Officers' Pension Fund may be invested in the securities of any single corporate issuer. Investments in collateralized mortgage obligations are limited to 25% of the market value of the total fixed income portfolio and are further restricted by the same requirements as outlined above for the General Employees' Pension Fund. As of September 30, 2011, the largest investment in a single corporate issuer of debt was 6.87% of the value of all corporate fixed income securities. The Police Officers' Pension Fund did not hold any investments in collateralized mortgage obligations as of September 30, 2011. The Firefighters' Pension Fund Investment Policy establishes a target assets allocation of the entire Pension Fund based on the market value of the invested assets as 50% invested in large cap domestic securities, 10% in small/midcap domestic equities and 40% in fixed income securities. In regards to fixed income securities, no more than 10% of the market value of the total fixed income investments may be held in any single corporate issuer. Investments in collateralized mortgage obligations are limited to 25% of the market value of the total fixed income portfolio and are restricted to issues backed by securities issued by the Government National Mortgage Association (GNMA), the Federal Home Loan Mortgage Corporation (FHLMC), or the Federal National Mortgage Association (FNMA), and those issues which pass the FFIEC High Risk Security Test on an annual basis. As of September 30, 2011, the largest investment in a single corporate issuer of debt was 16.93% of the market value of all fixed income securities; the Plan's intent, in compliance with Florida Statutes 112.661(5)(b), is to sell any investments that exceed the policy threshold when it is economically feasible. Total investments in collateralized mortgage obligations were 9% of the total market value of the total fixed income portfolio. 45  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 3 - DEPOSITS AND INVESTMENTS (CONTINUED) Deposits Held in Florida State Board of Administration's Local Government Investment Pool In addition to the investments subject to credit risk, listed above, the City maintains investments in the Florida State Board of Administration's (SBA) Local Government Surplus Funds Trust Pools, and these deposits are included in the City's pooled cash accounts. At September 30, 2011, the City maintained $279,081 invested in the State Board of Administration’s Local Government Surplus Funds Trust Fund Investment Pool B (Fund B) with a fair value of $211,219. Fund B consists of assets that have defaulted on payment, paid more slowly than expected, and/or were assessed as having significant credit and liquidity risk. Fund B has been "frozen" by the SBA since December 2007, but has distributed portions of the pool to participants since that date. Since December 2007, the City has received $1,400,439 in distributions from Fund B, including $72,317 received during the year ended September 30, 2011. Fund B will continue to distribute funds to all participants as the assets within the Fund are able to be liquidated. The primary goal of the Fund is to make members "whole" and not realize a loss on the investment. Fund B has not received a credit rating by any of the nationally-recognized rating agencies as of September 30, 2011. The City believes that it will not incur a loss on the realizable value of the remaining investments held in the Fund. Due to the nature of securities in Fund B, the interest rate risk information required by GASB 40 is not available. However, an estimate of weighted average life (WAL) is available. In the calculation of WAL, the time at which an expected principal amount is to be received (measured in years) is weighted by the principal amount received at that time divided by the sum of all expected principal payments. The principal amounts used in the WAL calculation are not discounted to present value as they would be in a weighted average duration calculation. The WAL (based on expected future cash flows) of Fund B at September 30, 2011, is estimated at 4.82 years. However, because Fund B consists of restructured or defaulted securities there is considerable uncertainty regarding the weighted average life. The City also maintains $253,793 invested in the SBA's Florida PRIME. The Florida PRIME current credit rating is AAAm by Standard and Poor's. The weighted average to maturity (WAM) of the Florida PRIME at September 30, 2011, is 38 days. Next interest rate reset dates for floating rate securities are used in the calculation of the WAM. 46  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 4 - RECEIVABLES Receivables at September 30, 2011, were as follows: Governmental Business-Type Activities Activities Community Other Redevelop- Proprietary General ment Fund Total Utilities Sanitation Golf Funds Total Taxes $ 14,919 $ - $ 14,919 $ - $ - $ - $ - $ - Accounts 63,465 - 63,465 524,653 190,702 101 38,590 754,046 Less allowance for doubtful accounts - - - (45,432) (15,185) - (2,713) (63,330) Assessments 119,621 89,840 209,461 18,165 - - - 18,165 Total receivables $ 198,005 $ 89,840 $ 287,845 $ 497,386 $ 175,517 $ 101 $ 35,877 $ 708,881 Due from Other Governments The City's receivables from other governments for governmental activities and business- type activities as of September 30, 2011, are $38,724 and $1,024, respectively. Due from other governments consist of $25,779 due from the federal government and $9,731 due from the State of Florida. All receivables from the federal government are related to grant revenues, primarily for public safety and community development. The receivables due from the State of Florida also represent grant revenues, primarily related to roadside beautification. The remainder of the balance, $4,238, is receivable from the City's Pension Plans for reimbursement for payment of the Pension Plan's fiduciary insurance premiums. NOTE 5 - CHANGES IN CAPITAL ASSETS Capital asset activity for the year ended September 30, 2011, was as follows: *Beginning Balance, Decreases/ Ending Restated Increases Transfers Balance Governmental Activities Capital assets not being depreciated/amortized Land $ 9,961,261 $ - $ - $ 9,961,261 Construction in progress 247,203 105,302 (213) 352,292 Total capital assets not being depreciated/amortized 10,208,464 105,302 (213) 10,313,553 47  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 5 - CHANGES IN CAPITAL ASSETS (CONTINUED) *Beginning Balance, Decreases/ Ending Restated Increases Transfers Balance Governmental Activities (Continued) Capital assets being depreciated/amortized Buildings 14,128,073 44,089 213 14,172,375 Improvements other than buildings 10,534,240 256,110 - 10,790,350 Infrastructure 12,171,524 223,884 (118,748) 12,276,660 Software - 404,058 - 404,058 Machinery and equipment 7,079,874 460,692 (375,131) 7,165,435 Equipment under capital lease 299,948 - (299,948) - Total capital assets being depreciated/amortized 44,213,659 1,388,833 (793,614) 44,808,878 Less accumulated depreciation/amortization Buildings (6,443,122) (442,473) - (6,885,595) Improvements other than buildings (4,103,183) (524,767) - (4,627,950) Infrastructure (7,613,168) (302,923) 118,748 (7,797,343) Software - (6,800) - (6,800) Machinery and equipment (5,814,654) (428,680) 494,741 (5,748,593) Equipment under capital lease (177,470) - 177,470 - Total accumulated depreciation/amortization (24,151,597) (1,705,643) 790,959 (25,066,281) Total capital assets being depreciated/amortized, net 20,062,062 (316,810) (2,655) 19,742,597 Governmental Activities, Net $ 30,270,526 $ (211,508) $ (2,868) $ 30,056,150 Business-Type Activities Capital assets not being depreciated/amortized Land $ 765,078 $ - $ - $ 765,078 Construction in progress 1,601,946 7,887 (332,945) 1,276,888 Total capital assets not being depreciated/amortized 2,367,024 7,887 (332,945) 2,041,966 Capital assets being depreciated/amortized Buildings 3,618,715 13,440 - 3,632,155 Improvements other than buildings 42,093,665 1,154,531 302,479 43,550,675 Software - 8,734 - 8,734 Machinery and equipment 11,031,595 574,845 (1,263,572) 10,342,868 Equipment under capital lease 532,696 - (284,107) 248,589 Total capital assets being depreciated/amortized 57,276,671 1,751,550 (1,245,200) 57,783,021 48  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 5 - CHANGES IN CAPITAL ASSETS (CONTINUED) *Beginning Balance, Decreases/ Ending Restated Increases Transfers Balance Business-Type Activities (Continued) Less accumulated depreciation/amortization Buildings (1,282,461) (131,457) - (1,413,918) Improvements other than buildings (22,945,867) (3,122,560) 30,466 (26,037,961) Software - (1,370) - (1,370) Machinery and equipment (8,218,163) (565,902) 1,375,125 (7,408,940) Equipment under capital lease (311,284) (49,718) 174,560 (186,442) Total accumulated depreciation/amortization (32,757,775) (3,871,007) 1,580,151 (35,048,631) Total capital assets being depreciated/amortized, net 24,518,896 (2,119,457) 334,951 22,734,390 Business-Type Activities, Net $ 26,885,920 $(2,111,570) $ 2,006 $ 24,776,356 * Restated as the Fort Walton Beach Community Development Agency meets the definition of a blended component unit at September 30, 2011. Amortization of equipment under capital lease is included with depreciation expense in the financial statements. Depreciation and amortization expense was charged to functions/programs of the primary government as follows: Governmental Activities General government $ 127,087 Public safety 429,671 Physical environment 84,972 Transportation 574,491 Economic environment 50,811 Culture and recreation 438,611 Total depreciation/amortization expense - governmental activities $ 1,705,643 Business-Type Activities Utilities Fund $ 3,315,799 Sanitation Fund 208,458 Golf Fund 276,072 Other Proprietary Funds 70,678 Total depreciation/amortization expense - business-type activities $ 3,871,007 49  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 5 - CHANGES IN CAPITAL ASSETS (CONTINUED) Construction Commitments The City has begun certain projects which remain open at year-end. These projects are as follows: As part of the City's renewal and replacement plan, the City has spent a total of $1,688,126 installing new commercial and residential water meters as the existing meters are reaching the end of their useful life. The replacement is funded from net assets of the Utility Fund and was 99% complete as of September 30, 2011. The final meters are projected to be installed by early February 2012. The City is currently working on upgrading Lift Station #3 due to expansion in the downtown area. To date $46,861 has been expended. This rehabilitation is funded from the net assets of the Utility Fund. Construction is expected to continue in the winter of 2013. The long timeline for this project is due to its proximity to Santa Rosa Sound. The City entered into an agreement with the Florida Department of Transportation (FDOT) to replace the existing strain poles with mast arms to support the signal lights at the intersection of state road 85 and Hollywood Boulevard. The City has provided $246,990 to date for this project which will be completed by the FDOT. This project is being constructed within the CRA and was funded with the CRA Capital Improvement Program budget. The construction is slated to begin in 2012. In 2011, the City began the next phase of streetscape and pedestrian crosswalk improvements in the downtown area. To date $17,450 has been spent. The City continues construction of new sidewalks for the purpose of providing pedestrian transportation throughout the CRA. In FY11, $ 134,669 was expended on new sidewalks. These projects are funded by the CRA with an anticipated completion date of September 2012. Two projects to improve City facilities began in 2011. In an effort to reduce costs, energy efficient lighting will be installed in all areas of City Hall and the Annex with the goal of preventing unnecessary lighting. $4,909 has been spent to date to purchase materials. Installation of the lighting controls will begin in Fiscal Year 2012 and is projected to be completed in February. This project was funded with the General Fund’s Capital Improvement Budget. Improvements to the living areas of Fire Station 7 also began in 2011. To date $47,637 has been spent. The project is projected to be completed by the end of December 2011. The improvements were funded with general fund resources. 50  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 5 - CHANGES IN CAPITAL ASSETS (CONTINUED) Construction Commitments (Continued) Landscaping and Park improvements were begun in 2011. Funding was received from the Florida Department of Transportation (FDOT) Roadside Beautification Assistance Program to improve the landscaping on the medians of State Road (SR) 189 Lewis Turner Blvd. To date $14,845 has been spent. Completion of this project is slated for 2012. The City has begun a project to extend the boat ramp at Liza Jackson Park. A Florida Boating Improvement Program (FBIP) Grant in the amount of $18,000 was awarded by the Florida Fish and Wildlife Conservation Commission (FWC) with an additional $10,000 projected to be donated by a local organization. The total cost is estimated to be $32,200 with the balance being provided by the City in the form of labor. To date $121 has been spent on the permitting process. Construction is projected to begin after the bid document approval is received from FWC. The City is continuing the expansion of the water reuse line. This project began in 2001 as a partnership between Hurlburt Field and the City to install over 30,000 linear feet of re- use water main. Initial funding received from the Florida Defense Infrastructure Gant (FDIG) program allowed the installation of approximately 11,500 linear feet. In 2011 the City expended $7,887 to obtain updated construction drawings and specifications. To date the City has spent a total $1,239,889 on this project. In March 2011 the City received a State Revolving Fund (SRF) loan from the Florida Department of Environmental Protection (FDEP) in the amount of $2,185,935 to fund the completion of this project. As of September 30, 2011, no funds have been drawn on the loan. NOTE 6 - CHANGE IN ESTIMATE OF USEFUL LIVES During the year ended September 30, 2011, the City determined that the City’s thirty inch pre-stressed concrete cylinder pressure (PCCP) pipe force main would need to be replaced during fiscal year 2013. The replacement is due to the Florida Department of Transportation (FDOT) planning the replacement of the Gap Creek Bridge on State Road 189 as well as the results of non-destructive testing (NDT). The Force Main was originally installed in 1978 with an estimated life of fifty years. The City determined that the PCCP pipe force main had a revised estimated life of thirty years and a remaining life of two years as of September 30, 2011. The change in the estimated life of the force main resulted in additional depreciation of $1,548,978 for the year ending September 30, 2011. 51  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 6 - CHANGE IN ESTIMATE OF USEFUL LIVES (CONTINUED) As part of the continuing decommissioning of the Waste Water Treatment Plant (WWTP), the City determined that the re-use water filtration system located at the WWTP should be maintained in the event re-use water could not be supplied by Okaloosa County. The original fifty year life of the re-use water filtration system was reduced to thirty five years. Due to the reduction in capacity, the city determined that the remaining life of the re-use water filtration system was seventeen years as of September 30, 2011. The change in the estimated life of the re-use water filtration system resulted in additional depreciation of $486,332 for the year ending September 30, 2011. As a result of the additional depreciation, operating income and net assets was reduced in the Utilities Fund by $2,035,310 for the year ending September 30, 2011. NOTE 7 - DEFINED BENEFIT PENSION PLANS The City of Fort Walton Beach, Florida sponsors three single-employer defined benefit pension plans: the General Employees' Retirement Fund (GERF), Police Officers' Retirement Fund (PORF) and the Firefighters' Retirement Fund (FRF). These plans provide benefits for all qualifying employees of the City. The financial activity of each plan is reported as a Pension Trust Fund in the City of Fort Walton Beach, Florida's internal combined financial statements and can also be found in Section E of this note. There is no separate report available for the individual pension plans. A. Basis of Accounting and Method Used to Value Investments Each plan's financial statements are prepared using the accrual basis of accounting. Plan member contributions are recognized in the period in which the contributions are due. Employer contributions to the plan are recognized when due and the employer has made a formal commitment to provide the contributions. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan. Investments are reported at fair value. Securities traded on a national or international exchange are valued at the last reported sales price at current exchange rates. Administrative costs are financed from each respective fund's investment earnings. 52  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 7 - DEFINED BENEFIT PENSION PLANS (CONTINUED) B. Plan Descriptions Membership of each plan consisted of the following as of the date of the latest actuarial valuation: (1) GERF (2) PORF (3) FRF Retirees and beneficiaries receiving benefits 129 37 24 Terminated plan members entitled to but not yet receiving benefits 12 9 1 Disabled participants 6 7 1 Active plan members 154 47 36 Total 301 100 62 (1) Latest actuarial valuation 10/1/2010 (2) Latest actuarial valuation 10/1/2011 (3) Latest actuarial valuation 10/1/2011 General Employees' Retirement Fund (GERF) - Plan Description Plan Description - The GERF provides retirement, disability, and death benefits to plan members and beneficiaries. Participation in the plan is mandatory for all full- time general municipal employees hired after May 14, 1996 through December 31, 2009. Employees hired after this date are not eligible to participate. Cost-of-living increases of up to 3% are provided to retirees and beneficiaries every year. City ordinance assigns the authority to establish and amend benefit provisions to the City. Police Officers' Retirement Fund (PORF) - Plan Description Plan Description - The PORF is administered by the Police Officers' Pension Fund Board of Trustees. The PORF provides retirement, disability, and death benefits to plan members and beneficiaries. Participation in the plan is mandatory for all certified police officers. Cost-of-living increases of up to 3% are provided to retirees and beneficiaries every year. City ordinance assigns the authority to establish and amend benefit provisions to the Board of Trustees. Firefighters' Retirement Fund (FRF) - Plan Description Plan Description - The FRF is administered by the Firefighters' Pension Fund Board of Trustees. The FRF provides retirement, disability, and death benefits to plan members and beneficiaries. Participation in the plan is mandatory for all firefighters. Cost-of-living increases of up to 3% are provided to retirees and beneficiaries every year. City ordinance assigns the authority to establish and amend benefit provisions to the Board of Trustees. 53  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 7 - DEFINED BENEFIT PENSION PLANS (CONTINUED) C. Contributions, Funding Policy and Annual Pension Cost The contribution requirements of plan members and the City are established annually and amended by City ordinance. Plan members are required to contribute at a set percentage of their annual covered salaries. The City is required to contribute at an actuarially determined rate. The State of Florida also contributes to the Police Officers' Retirement Fund (PORF) and the Firefighters' Retirement Fund (FRF). Contributions from the State for the PORF of $161,435 and $164,291 for the FRF are included in the governmental activities revenue and expenses for the year ending September 30, 2011, the most recent actuarial date. None of the three Plans addresses maximum contribution rates. The City's annual pension cost as of the most recent actuarial date and related information for each plan is as follows: GERF PORF FRF Contribution rates (percentage of covered payroll) City 20.92 % 24.5 % 25.4 % Plan members 5.0 % 5.0 % 6.6 % Annual pension cost $ 1,091,462 $ 523,717 $ 521,330 Contributions made Employer $ 1,159,438 $ 521,425 $ 514,872 State of Florida $ - $ 161,435 $ 164,291 Net pension obligation (asset) $ (70,081) $ (36,146) $ (175,351) Actuarial valuation date for disclosure 9/30/2011 9/30/2011 9/30/2011 Actuarial cost method Individual Entry Age Entry Age Normal Entry Age Normal Amortization method Normal Cost, closed Level percentage of Level percentage of pay, closed pay, closed Remaining amortization period 15 years 30 years 30 Years Asset valuation method 5-year smoothed 4-year smoothed 4-year smoothed market market market Actuarial assumptions Invested rate of return 8.0 % 8.0 % 8.0 % Projected salary increases* 4.0-8.0% 7.5 % 6.5 % * Includes inflation at 4.0 % 3.0 % 3.0 % Post retirement COLA ** 3.0 % 3.0 % 3.0 % **FRF only - starting at age 58 54  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 7 - DEFINED BENEFIT PENSION PLANS (CONTINUED) C. Contributions, Funding Policy and Annual Pension Cost (Continued) Three-Year Trend Information Actuarially Determined Percentage Net Pension Year Ending Contribution Contribution Obligation (Asset) GERF September 30, 2009 $ 1,268,019 100 % $ (2,261) September 30, 2010 1,477,777 100 % (2,105) September 30, 2011 1,091,338 106 % (70,081) PORF September 30, 2009 407,159 100 % (41,030) September 30, 2010 500,007 103 % (38,438) September 30, 2011 521,425 100 % (36,146) FRF September 30, 2009 421,935 110 % (190,344) September 30, 2010 574,278 100 % (181,809) September 30, 2011 514,872 100 % (175,351) The components of net pension cost, the increase in Net Pension Asset, and the Net Pension Asset for the year ended September 30, 2011, most recent actuarial date, for the General Employees', Police Officers' and Firefighters' Retirement Funds are as follows: General Police Employees' Officers' Firefighters' Actuarially determined contribution $ 1,091,338 $ 521,425 $ 514,872 Interest on net pension asset (166) (3,075) (14,545) Adjustment to actuarially determined annual pension cost 290 5,367 21,003 Annual pension cost 1,091,462 523,717 521,330 Contribution made 1,159,438 521,425 514,872 Change in net pension asset 67,976 (2,292) (6,458) Net pension asset - beginning of year 2,105 38,438 181,809 Net pension asset - end of year $ 70,081 $ 36,146 $ 175,351 The funded status of each plan as of September 30, 2011, the most recent actuarial valuation date is as follows (dollar amounts in thousands): Actuarial Accrued Liability Annual Actuarial Value (AAL) Entry Age Unfunded AAL Funded Covered UAAL as % of Assets (a) (b) (UAAL) (b-a) Ratio (a/b) Payroll (c) of Payroll GERF $ 33,678,210 $ 40,196,872 $ 6,518,662 83.78 % $ 5,004,486 130.26 % PORF 17,912,258 25,394,666 7,482,408 70.54 % 2,239,545 334.10 % FRF 10,314,290 17,609,820 7,295,530 58.57 % 1,961,080 372.02 % 55  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 7 - DEFINED BENEFIT PENSION PLANS (CONTINUED) D. Required Supplementary Information The schedule of funding progress and schedule of employer contributions can be found in the supplemental information of this comprehensive annual financial report. E. Fund Financial Statements The following are the financial statements for the individual pension trust funds (GERF, PORF and FRF) for the year ended September 30, 2011: COMBINING STATEMENT OF PLAN NET ASSETS Employee Retirement Funds Total General Police Employee Employees' Officers' Firefighters' Retirement Retirement Retirement Retirement Funds ASSETS Cash and cash equivalents $ 926,977 $ 752,922 $ 727,159 $ 2,407,058 Due from State of Florida - - 33,803 33,803 Investments, at market U.S. Government and Agency obligations 5,758,704 1,780,620 1,376,526 8,915,850 Corporate obligations 4,849,864 3,632,329 2,118,214 10,600,407 Corporate equity 11,515,481 3,356,135 4,129,529 19,001,145 Mutual funds 5,832,554 6,812,479 1,272,381 13,917,414 Total investments, at market 27,956,603 15,581,563 8,896,650 52,434,816 TOTAL ASSETS $ 28,883,580 $ 16,334,485 $ 9,657,612 $ 54,875,677 LIABILITIES Accounts payable $ 35,603 $ 112,733 $ - $ 148,336 Due to City - 2,343 1,895 4,238 TOTAL LIABILITIES $ 35,603 $ 115,076 $ 1,895 $ 152,574 NET ASSETS HELD IN TRUST FOR PENSION BENEFITS AND OTHER PURPOSES $ 28,847,977 $ 16,219,409 $ 9,655,717 $ 54,723,103 56  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 7 - DEFINED BENEFIT PENSION PLANS (CONTINUED) E. Fund Financial Statements (Continued) COMBINING STATEMENT OF CHANGES IN PLAN NET ASSETS Employee Retirement Funds Total General Police Employee Employees' Officers' Firefighters' Retirement Retirement Retirement Retirement Funds ADDITIONS Contributions Employer $ 1,159,438 $ 560,945 $ 594,672 $ 2,315,055 Plan members 260,836 102,297 133,860 496,993 State of Florida - 161,435 164,291 325,726 Total contributions 1,420,274 824,677 892,823 3,137,774 Investment income (loss) (83,860) (158,416) 80,785 (161,491) Less investment expense (158,958) (160,741) (39,101) (358,800) Net investment income (loss) (242,818) (319,157) 41,684 (520,291) Miscellaneous revenue 215,178 - 94 215,272 TOTAL ADDITIONS 1,392,634 505,520 934,601 2,832,755 DEDUCTIONS Benefits and refunds paid Retirement payments 2,284,268 1,307,873 972,363 4,564,504 Disability payments 63,055 140,127 24,634 227,816 Refunds 111,384 39,526 10,318 161,228 Total benefits and refunds paid 2,458,707 1,487,526 1,007,315 4,953,548 Administrative expenses Legal 1,692 12,209 9,284 23,185 Contractual services 53,955 32,336 26,554 112,845 Other 11,125 2,655 14,840 28,620 Total administrative expenses 66,772 47,200 50,678 164,650 TOTAL DEDUCTIONS 2,525,479 1,534,726 1,057,993 5,118,198 NET INCREASE (DECREASE) (1,132,845) (1,029,206) (123,392) (2,285,443) BEGINNING OF YEAR 29,980,822 17,248,615 9,779,109 57,008,546 END OF YEAR $ 28,847,977 $ 16,219,409 $ 9,655,717 $ 54,723,103 57  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 8 - DEFINED CONTRIBUTION PENSION PLAN General Employees Defined Benefit Pension Plan In December 2009, Council passed resolutions to close the General Employees Defined Benefit Plan to employees as of December 31, 2009. All general full-time employees hired on or after January 1, 2010 became members of the City of Fort Walton Beach Defined Contribution Retirement Plan (Plan). The Plan is a money purchase defined contribution retirement plan administered by ICMA Retirement Corporation, with the City serving as trustee. All funds are held in the ICMA Retirement Corporation Governmental Money Purchase Plan & Trust. The City Finance Director serves as the coordinator for the Plan. The Plan requires a 5% payroll contribution by the employee with a 5% employer (City) match, and employees can increase their contribution; however, only an additional 2½%, would also be matched by the employer (City). Members of the General Employees Defined Benefit Pension Plan who were not fully or partially vested were permitted transfer their contribution to the Plan as a one-time irrevocable election. The authority for establishing and amending the Plan's provisions lies with the City Council. The City Council also has the authority for amending contribution requirements. Contributions made to the Plan by the employees and by the City were $54,513 and $54,513, respectively, for the year ending September 30, 2011. NOTE 9 - DEFERRED COMPENSATION PLAN The City offers employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The plan is a tax-deferred supplemental retirement program that allows City employees to contribute a portion of their salary before federal income taxes to a retirement account. The assets are held in trust for the employee's benefit. The plan participants, individually, select and make changes in funding options made available by the independent plan administrator. Since plan participants select the investment fund or funds in which their deferred compensation accounts are invested, the City has no liability for investment losses. The City's fiduciary responsibility is to administer the plan properly and to assure the investment alternatives made available are reasonable. In accordance with GASB Statement No. 32, the assets and liabilities of the plan are not reflected in the City's financial statements since the City has no fiduciary responsibilities, other than administrative, in connection with the Plan. Assets of the plan have a fair value of $2,574,894 at September 30, 2011. Contributions made by plan members during the year ended September 30, 2011, were $578,402. 58  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 10 - OTHER POST EMPLOYMENT BENEFITS (OPEB) The City is not required to have an actuarial valuation performed each year; therefore, the following disclosures are represented as of September 30, 2010, the date of the last actuarial valuation. Management asserts there have been no significant changes in benefit provisions or size of population covered by the plan during the year ended September 30, 2011. A. Plan Description Pursuant to Section 112.0801, Florida Statutes, the City is mandated to permit eligible retirees (as defined in the City's pension plans) and their eligible dependents to participate in the health insurance program at a cost to the retiree that is no greater than the cost at which coverage is available for active employees. Retirees pay 100% of the blended (active and retiree combined) equivalent premium rates. The blended rates provide an implicit subsidy for retirees because, on an actuarial basis, their current and future claims are expected to result in higher costs to the plan on average than those of active employees. The City provides this benefit to its employees through a single- employer defined benefit plan. The plan does not issue a separate report. B. Funding Policy The City is financing the post employee benefits on a "pay-as-you-go" basis. For fiscal year 2010, 56 retirees and/or dependents received health care benefits. Annual required implied contributions were $328,899 for the current fiscal year, towards which the City made an implied contribution of $236,253. Retiree contributions totaled $325,556 for the fiscal year ended September 30, 2010. At September 30, 2010, the City recorded a net OPEB obligation of $106,474 for governmental activities and $40,008 for business-type activities in its government-wide statement of net assets. The OPEB obligation is a function of the annual required contribution, interest, adjustments to the annual required contribution, annual pension costs, and actual employers' contributions made to the plan. C. Membership At September 30, 2010, membership consisted of: Retirees and beneficiaries currently receiving benefits 56 Terminated employees entitled to benefits but not receiving them - Active employees 190 Total 246 Participating employers 1 59  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 10 - OTHER POST EMPLOYMENT BENEFITS (OPEB) (CONTINUED) D. Annual OPEB Cost and Net OPEB Obligation The City's annual other post employment benefit (OPEB) cost (expense) is calculated based on the annual required contribution (ARC) of the employer, an amount actuarially determined in accordance with the parameters of GASB 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal costs each year and amortize any unfunded actuarial liabilities (or funding excess) over a closed period not to exceed thirty years. The following table shows the components of the City's annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the City's net OPEB obligation to the retiree health plan: Annual required contribution $ 331,300 Interest on net OPEB obligation 6,592 Adjustment to annual required contribution (8,993) Annual OPEB cost (expense) total 328,899 Employer contributions (236,253) Increase in net OPEB obligation 92,646 Net OPEB obligation - beginning of year 146,482 Net OPEB obligation - end of year $ 239,128 For the governmental activities, the net other postemployment benefit obligation is generally liquidated by the general fund. The City's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the past two years (fiscal year ending September 30, 2009 was the first year of implementation), were as follows: Three-Year Trend Information Annual Net Pension Pension Cost City* Percentage Obligation (APC) Contributions Contributed (Asset) September 30, 2008 $ - $ - - % $ - September 30, 2009 442,811 296,328 67.00 % 146,482 September 30, 2010 328,899 236,253 72.00 % 239,128 *Limited to the difference between age-adjusted and composite premiums paid for retirees during the year. 60  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 10 - OTHER POST EMPLOYMENT BENEFITS (OPEB) (CONTINUED) E. Required Supplementary Information The schedule of funding progress immediately following the notes to the financial statements presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. The schedule of employer contributions can also be found in the supplemental information of this comprehensive annual report. The projection of future benefit payments for an ongoing plan involves estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. 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 with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. F. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. Actuarially determined amounts are subject to continual revision as results are compared to past expectations and new estimates are made about the future. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long- term perspective of the calculations. 61  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 10 - OTHER POST EMPLOYMENT BENEFITS (OPEB) (CONTINUED) F. Actuarial Methods and Assumptions (Continued) In the actuarial valuation as of September 30, 2010, the Projected Unit Credit Actuarial Costs Method (PUC) was used. The actuarial assumptions included a 4.5% investment rate of return and an annual healthcare costs trend rate of 9% initially (fiscal year ending September 30, 2010), reduced by decrements to an ultimate rate of 5% beginning in fiscal year ending September 30, 2014. Both rates included a 5% inflation assumption. The actuarial value of assets was determined using techniques that spread the effects of short-term volatility in the market value of investments over a five-year period. The unfunded actuarial accrued liability is being amortized over a thirty-year period, utilizing the level dollar payment method. Amortizations were assumed to begin on October 1, 2009, and to continue monthly for the 30 remaining years. The actuarial accrued liability was $4,768,818 for the year ended September 30, 2010, and is equal to the unfunded actuarial accrued liability. NOTE 11 - RISK MANAGEMENT The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; employee medical benefits and natural disasters. The City purchases insurance through commercial carriers. Insurance coverage for workers' compensation, liability, casualty, inland marine, flood, police accidental death, public officials' bonds, fiduciary and fuel tanks were purchased from several commercial carriers during the year ended September 30, 2011. There has been no significant reduction in insurance coverage from the prior year. Commercial insurance coverage has been sufficient to cover all claims made in the prior three fiscal years. During fiscal year 1997, the City Council approved a self-insured dental program for its employees, retirees and Consolidated Omnibus Budget Reconciliation Act (COBRA) participants. As part of this program, the City originally purchased aggregate stop-loss coverage; however, it was discontinued beginning in fiscal year 1999 as paid claims did not exceed the stop-loss amount in either of the two previous fiscal years. The City contracts with a service agent and third party administrator to process claims. The risk financing activities are recorded in each individual fund. During September 30, 2011, all funds of the City participated in the City's dental self- insurance program and made payments on historical cost information of the amounts needed to pay prior and current year claims. 62  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 11 - RISK MANAGEMENT (CONTINUED) Changes in the Fund's claim liability amount in fiscal year 2011 and 2010 are as follows: Beginning of End of Year Year Claims Incurred Payment of Claims Liability Claims Claims Liability Fiscal Year 2010 $ - $ 133,301 $ 133,301 $ - Fiscal Year 2011 - 145,251 145,251 - As of October 1, 2011, the City discontinued the self-insured dental program and obtained insurance through a traditional insurance provider. NOTE 12 - OPERATING LEASES Lessor The City receives rental income from leasing various parcels of land under cancelable operating agreements. The lease periods vary from one to forty years. Income for the year ended September 30, 2011, was $225,879 in the General Fund, $15,439 in the Utilities Funds and $30,652 in the Golf Fund. In addition, the City also leases a portion of its Golf Clubhouse for retail and food service operations. The rent received for this lease for the fiscal year ended September 30, 2011, totaled $67,524. Future minimum lease payments are as follows: Governmental Business-Type Activities Year Ending September 30 Activities Utilities Golf 2012 $ 218,077 $ 16,366 $ 93,568 2013 223,479 16,857 97,457 2014 217,513 17,362 97,457 2015 219,729 17,883 97,457 2016 226,302 18,420 97,621 Total minimum lease payments $ 1,105,100 $ 86,888 $ 483,560 Lessee The City leases golf course equipment in the Golf Fund through operating leases with a finance company. The lease term began July 1, 2009, and terminates January 1, 2013. During 2011, a new operating lease was signed for additional equipment. The new lease term began April 1, 2011, and terminates March 31, 2015. Monthly lease payments are $9,740 per month. Lease expense for the year ending September 30, 2011, was $116,144. 63  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 12 - OPERATING LEASES (CONTINUED) Lessee (Continued) Future minimum lease payments are as follows: Business-Type Activities Year Ending September 30 Golf 2012 $ 116,878 2013 30,541 2014 1,762 2015 881 Total minimum lease payments $ 150,062 NOTE 13 - CAPITAL LEASES The City has entered into a lease agreement as lessee for financing the acquisition of certain golf system equipment. The lease agreement qualifies as a capital lease for accounting purposes as a result of the transfer of title or bargain purchase option and, therefore, has been recorded at the present value of the future minimum lease payments as of the inception date in the Golf Fund. The assets acquired through capital leases are as follows: Business-Type Activities Assets Golf Golf lawn maintenance equipment $ 248,589 Accumulated depreciation (186,442) Net assets acquired by lease $ 62,147 The future minimum lease obligations and net present value of these minimum lease payments as of September 30, 2011, are as follows: Business-Type Activities Year Ending September 30 Golf 2012 $ 54,148 2013 13,538 Total minimum lease payments 67,686 Less amount representing interest (1,567) Present value of minimum lease payments $ 66,119 64  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 14 - LONG-TERM DEBT Changes in Long-Term Debt Liabilities The following is a summary of changes in long-term debt liabilities of the City for the year ended September 30, 2011: Beginning Balance, Ending Due Within Restated Additions Reductions Balance One Year Governmental Activities Capital improvement revenue bonds Series 2001 $ 4,755,000 $ - $ (140,000) $ 4,615,000 $ 145,000 Less deferred amounts for issuance discount (46,216) - 2,181 (44,035) - Capital improvement revenue note, Series 2011 - 739,805 (11,325) 728,480 66,683 Capital leases 47,374 - (47,374) - - Compensated absences* 638,775 459,356 (434,506) 663,625 165,906 Total Governmental Activities $ 5,394,933 $ 1,199,161 $ (631,024) $ 5,963,070 $ 377,589 Business-Type Activities Public improvement refunding bonds Series 1998 $ 370,000 $ - $ (370,000) $ - $ - Less deferred amounts for issuance discount (3,038) - 3,038 - - Less deferred amounts for loss on refunding (13,995) - 13,995 - - Capital improvement revenue bonds Series 1999 2,735,000 - (2,735,000) - - Less deferred amounts for issuance discount (25,985) - 25,985 - - Florida municipal loan revenue bonds Series 2000 150,000 - (150,000) - - Less deferred amounts for issuance discount (37) - 37 - - Utility system revenue bonds Series 2005 10,750,000 - (165,000) 10,585,000 270,000 Less deferred amounts for issuance discounts (125,220) - 5,092 (120,128) Capital improvement revenue note Series 2011 79,195 (2,609) 76,586 15,364 Compensated absences 210,824 149,052 (156,450) 203,426 50,856 Capital leases 141,737 - (75,618) 66,119 52,661 Total Business-Type Activities $ 14,189,286 $ 228,247 $(3,606,530) $ 10,811,003 $ 388,881 *Beginning balance is restated to reflected blended component unit 65  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 14 - LONG-TERM DEBT (CONTINUED) Description of Long-Term Debt Outstanding Current Long-Term Total GOVERNMENTAL ACTIVITIES Revenue Bonds $5,740,000 City of Fort Walton Beach, Florida, Capital Improvement Bonds, Series 2001, due in annual installments of $55,000 to $350,000 through 2031; interest at 2.5% to 5.0%. Available non-ad valorem revenues are pledged for payment of the bonds. Proceeds used for construction of certain capital improvements. $ 145,000 $ 4,470,000 $ 4,615,000 Less unamortized bond discount - (44,035) (44,035) Total revenue bonds 145,000 4,425,965 4,570,965 Revenue Notes $739,805 City of Fort Walton Beach, Florida, Capital Improvement Revenue Note, Series 2011, due in quarterly installments of $21,156 through 2021; interest at 2.55%. Available non-ad valorem revenues are pledged for payment of the bonds. Proceeds used for purchase of a fire truck. 66,683 661,797 728,480 Accrued Compensated Absences Total long-term portion of accumulated, vested annual and sick leave for governmental fund types. 165,906 497,719 663,625 TOTAL GOVERNMENTAL ACTIVITIES $ 377,589 $ 5,585,481 $ 5,963,070 BUSINESS-TYPE ACTIVITIES Revenue Bonds $10,910,000 Utility System Revenue Bonds, Series 2005, due in annual installments of $160,000 to $690,000 beginning 2010 through 2035, with interest- only payments from 2005 through 2009; interest at 3.1% to 4.6%. Net revenues derived by the City from the utility operations are pledged for the payment of the bonds. Proceeds used for water system and wastewater system improvements. $ 270,000 $ 10,315,000 $ 10,585,000 Less unamortized bond discount - (120,128) (120,128) Total revenue bonds 270,000 10,194,872 10,464,872 Revenue Notes $79,195 City of Fort Walton Beach, Florida, Capital Improvement Revenue Note, Series 2011, due in quarterly installments of $4,293 through 2016; interest at 2.55%. Available non-ad valorem revenues are pledged for payment of the bonds. Proceeds used for purchase of certain equipment for City's municipal golf course. 15,364 61,222 76,586 66  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 14 - LONG-TERM DEBT (CONTINUED) Description of Long-Term Debt Outstanding (Continued) Current Long-Term Total BUSINESS-TYPE ACTIVITIES (CONTINUED) Leases $248,589 capital lease payable, 2008, due in monthly installments of $4,512 through December 2012, collateralized by lawn maintenance equipment. 52,661 13,458 66,119 Accrued Compensated Absences Accumulated, vested annual compensation for Enterprise Funds. 50,856 152,570 203,426 TOTAL BUSINESS-TYPE ACTIVITIES $ 450,103 $ 10,437,486 $ 10,811,003 GRAND TOTAL LONG-TERM DEBT $ 16,774,073 For the governmental activities, compensated absences are generally liquidated by the General Fund. Annual Requirements to Amortize Debt Outstanding The annual requirements to amortize all debt outstanding except accrued and annual leave and advances from other funds as of September 30, 2011, are as follows: Governmental Activities Revenue Bonds Revenue Note Year Ending September 30 Principal Interest Principal Interest 2012 $ 145,000 $ 225,640 $ 66,683 $ 17,942 2013 150,000 219,405 68,400 16,226 2014 155,000 212,805 70,161 14,464 2015 165,000 205,830 71,967 12,658 2016 170,000 198,240 73,820 10,805 2017-2021 980,000 860,700 377,449 24,521 2022-2026 1,250,000 593,500 - - 2027-2031 1,600,000 247,500 - - Total $ 4,615,000 $ 2,763,620 $ 728,480 $ 96,616 67  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 14 - LONG-TERM DEBT (CONTINUED) Annual Requirements to Amortize Debt Outstanding (Continued) Business-Type Activities Municipal Loan/Revenue Bonds Revenue Note Leases Year Ending September 30 Principal Interest Principal Interest Principal Interest 2012 $ 270,000 $ 451,671 $ 15,364 $ 1,807 $ 52,661 $ 1,487 2013 280,000 442,559 15,759 1,411 13,458 79 2014 290,000 432,759 16,165 1,006 - - 2015 300,000 422,246 16,581 589 - - 2016 310,000 410,996 12,717 162 - - 2017-2021 1,750,000 1,862,400 - - - - 2022-2026 2,140,000 1,468,528 - - - - 2027-2031 2,655,000 953,025 - - - - 2032-2035 2,590,000 297,675 - - - - Total $ 10,585,000 $ 6,741,859 $ 76,586 $ 4,975 $ 66,119 $ 1,566 NOTE 15 - COMMENTS REQUIRED BY THE BOND AND NOTE ORDINANCES Capital Improvement Revenue Bonds, Series 2001 1. The Balance Sheet and Statement of Revenues, Expenses, and Changes in Fund Balance of the Debt Service Fund are shown in the financial section of the report. 2. The City is required to establish Sinking Fund amounts sufficient to pay 1/6 of all interest becoming due on the bonds on the next semi-annual interest payment date and 1/12 of all principal maturing on the bonds in the current bond year. Sinking Fund Requirement at Principal/Interest September 30, Payments Due 2011 Principal due at July 1, 2012 $ 145,000 $ 36,250 Interest due at January 1, 2012 112,820 56,410 Total $ 257,820 $ 92,660 (1) (1) Amounts are included in restricted cash amounts on the Balance Sheet of the Debt Service Fund. 3. The payment of regularly scheduled debt service on the 2001 Bonds is insured by a policy of municipal bond insurance issued by Ambac Assurance Corporation (AMBAC). The City is required to establish a reserve in the amount of the Reserve Requirement established in the ordinance authorizing the issuance of the 2001 Bonds. The Reserve Requirement is the maximum bond service amount in the current or any subsequent year. The City satisfied the Reserve Requirement by obtaining, on the date of the issuance, a municipal bond debt service reserve account insurance policy from AMBAC. 68  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 15 - COMMENTS REQUIRED BY THE BOND AND NOTE ORDINANCES (CONTINUED) Capital Improvement Revenue Bonds, Series 2001 (Continued) 4. Insurance schedules are included in the statistical section of the insurance in force at September 30, 2011. 5. The City is not aware of any noncompliance with the bond ordinances. Utility System Revenue Bonds, Series 2005 1. The Balance Sheet and Statement of Revenues, Expenses, and Changes in Fund Balance of the Utility Fund are shown in the financial section of the report. 2. The City is required to establish Sinking Fund amounts sufficient to pay 1/6 of all interest becoming due on the Bonds on the next semi-annual interest payment date and 1/12 of all principal maturing on the Bonds in the current Bond Year. Sinking Fund Principal/Interest Requirement at Payments Due September 30, 2011 Principal due at July 1, 2012 $ 270,000 $ 67,500 Interest due at January 1, 2012 225,836 112,918 Total $ 495,836 $ 180,418 (1) (1) Amounts are included in restricted cash amounts on the Balance Sheet of the Utility Fund. 3. The payment of regularly scheduled debt service on the 2005 Bonds is insured by a policy of municipal bond insurance issued by Ambac Assurance Corporation (AMBAC). The City is required to establish a reserve in the amount of the Reserve Requirement established by the ordinance authorizing the issuance of the 2005 Bonds. The Reserve Requirement is the maximum bond service amount in the current or any subsequent year. The City satisfied the Reserve Requirement by obtaining, on the date of the issuance, a municipal bond debt service reserve account insurance policy from AMBAC. 4. Insurance schedules are included in the Statistical Section of the insurance in force at September 30, 2011. 5. The City is not aware of any noncompliance with the bond ordinances. Capital Improvement Revenue Note, Series 2011 1. The Balance Sheet and Statement of Revenues, Expenses, and Changes in Fund Balance of the Debt Service Fund and Golf Fund are shown in the financial section of the report. 69  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 15 - COMMENTS REQUIRED BY THE BOND AND NOTE ORDINANCES (CONTINUED) Capital Improvement Revenue Note, Series 2011 (Continued) 2. The City is required to establish Sinking Fund amounts sufficient to pay all principal and interest becoming due on the bonds on the next quarter payment date. Governmental Activities Business-Type Activities Sinking Fund Sinking Fund Requirement at Requirement at Principal/Interest September 30, Principal/Interest September 30, Payments Due 2011 Payments Due 2011 Principal due at October 1, 2011 $ 16,512 $ 16,512 $ 3,804 $ 3,804 Interest due at October 1, 2011 4,644 4,644 488 488 Total $ 21,156 $ 21,156 (1) $ 4,292 $ 4,292 (2) (1) Amounts are included in restricted cash amounts on the Balance Sheet of the Debt Service Fund. (2) Amounts are included in restricted cash amounts on the Balance Sheet of the Golf Fund. 3. The City is not aware of any noncompliance with the bond ordinances. NOTE 16 - DEFERRED AND UNEARNED REVENUE Governmental funds report deferred revenue in connection with receivables that are not considered to be available to liquidate liabilities of the current period. Governmental and proprietary funds also defer revenue recognition in connection with resources received, but not yet earned. At September 30, 2011, the various components of deferred and unearned revenue were as follows: Unavailable Unearned Total Governmental Funds Special assessment for street resurfacing not yet due $ 119,621 $ - $ 119,621 Special assessment for Soundside Development 89,840 - 89,840 Total Governmental Funds 209,461 - 209,461 Utilities Fund Prepaid utility bills - 21,055 21,055 Golf Fund Prepaid lease revenue - 2,216 2,216 Gift and prepaid cards - 16,241 16,241 Total Golf Fund - 18,457 18,457 Other Enterprise Fund Prepaid utility bills - 12,332 12,332 Total $ 209,461 $ 51,844 $ 261,305 70  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 17 - INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS The composition of interfund balances as of September 30, 2011, is as follows: Advances to/from Other Funds Receivable Fund Payable Fund Amount General Golf $ 2,788,552 On November 15, 2010, the City's General Fund loaned the Golf Fund $2,919,883 for the defeasance of the Capital Improvement Revenue Bonds, Series A and B. The loan from the General Fund will be paid back over a 20-year period at an interest rate of 1.50%. The balance on the advance as of September 30, 2011 is $2,788,552. Transfers In Nonmajor Govern- Transfers Out General Fund mental Fund Utility Fund Total General $ - $ 489,154 $ - $ 489,154 Community Redevelopment Agency 78,076 - - 78,076 Nonmajor governmental 46,998 - - 46,998 Utilities 959,557 - - 959,557 Sanitation 708,039 - 36,242 744,281 Golf 99 - - 99 Nonmajor proprietary 15,022 - - 15,022 $ 1,807,791 $ 489,154 $ 36,242 $ 2,333,187 The transfers out of the General Fund of $489,154 consist of a $455,903 transfer to the Debt Service Fund (nonmajor governmental fund) for principal and interest payments on debt, and a $33,251 transfer to the Cemetery Perpetual Care Fund (nonmajor governmental fund) for future maintenance. Transfers in to the General Fund of $1,807,791 consist of a $13,149 transfer from the Beal Cemetery Perpetual Care Fund (nonmajor governmental fund) to cover improvements made to the Beal Memorial Cemetery. The remaining transfers from all other funds are to cover shared expenses per the City's cost allocation plan. The transfer of $36,242 from the Sanitation Fund to the Utility Fund is for reimbursement of billing and administration services. 71  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 18 - GOVERNMENTAL FUND BALANCES In accordance with Governmental Accounting Standards Board Statement 54, Fund Balance Reporting and Governmental Fund Type Definitions, the City classifies governmental fund balances as follows:  Nonspendable – includes amounts that are (a) not in spendable form, or (b) legally or contractually required to be maintained intact. The "not in spendable form" criterion includes items that are not expected to be converted to cash, for example: inventories, deposits, prepaid items, and advances to other funds.  Restricted – includes amounts that can be spent only for the specific purposes stipulated by external resource providers, constitutionally or through enabling legislation. Restrictions may effectively be changed or lifted only with the consent of resource providers.  Committed – includes fund balance amounts that can be used only for the specific purposes that are internally imposed by a formal action of the government’s highest level of decision making authority, the City Council. Commitments may be changed or lifted only by the City taking the same formal action that imposed the constraint initially. Contractual obligations are included to the extent that existing resources in the fund have been specifically committed for use in satisfying those contractual obligations.  Assigned – includes spendable fund balance amounts that are intended to be used for specific purposes that are neither considered restricted or committed. Intent is expressed by (a) the City Council or (b) a body (for example: a budget or finance committee) or official to which the City Council has delegated the authority to assign amounts to be used for specific purposes. This indicates that resources in these funds are, at a minimum, intended to be used for the purposes of that fund.  Unassigned – includes residual positive fund balance within the General Fund which has not been classified within the other above mentioned categories. Unassigned fund balance may also include negative balances for any governmental fund if expenditures exceed amounts restricted, committed, or assigned for those specific purposes. 72  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 18 - GOVERNMENTAL FUND BALANCES (CONTINUED) At September 30, 2011, the City's governmental fund balances were classified as follows: Community Other Total Redevelopment Governmental Governmental General Fund Agency Funds Funds Nonspendable Inventory $ 244,174 $ - $ - $ 244,174 Advances 2,788,552 - - 2,788,552 Total nonspendable 3,032,726 - - 3,032,726 Restricted for Improvement districts - 4,212,984 - 4,212,984 Library 233,543 - - 233,543 Law enforcement 200 - 268,620 268,820 Debt service - - 113,816 113,816 Other purposes 1,025 - - 1,025 Total restricted 234,768 4,212,984 382,436 4,830,188 Committed Cemetery maintenance - - 1,929,448 1,929,448 Natural disaster recovery 5,219,706 - - 5,219,706 Total committed 5,219,706 - 1,929,448 7,149,154 Assigned to Public safety 794,758 - - 794,758 Culture and recreation 112,227 - - 112,227 General government 4,500 - - 4,500 Capital projects 399,342 - - 399,342 Citizen police academy 3,758 - - 3,758 Main Street 5,504 - - 5,504 Other 842 - - 842 FY 2012 budget appropriation 216,641 - - 216,641 Assigned 1,537,572 - - 1,537,572 Unassigned 1,189,562 - (306) 1,189,256 TOTAL FUND BALANCE $ 11,214,334 $ 4,212,984 $ 2,311,578 $ 17,738,896 NOTE 19 - COMMITMENTS AND CONTINGENCIES Grants Amounts received or receivable from grant agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures which may be disallowed by the grantor cannot be determined at this time, although the City expects such amount, if any, to be immaterial. 73  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 19 - COMMITMENTS AND CONTINGENCIES (CONTINUED) Soundside Apartments Planned Unit Development In June 2010, the City entered into a Memorandum of Understanding with the City of Fort Walton Beach Community Redevelopment Agency, the Fort Walton Beach Housing Authority, and Soundside Apartments, LLC for the Soundside Apartments planned unit development (PUD). According to the Memorandum, Germany Terrace, a 50-unit public housing development, will be redeveloped into a 200-unit affordable housing complex. The City also entered into a related Interlocal Agreement whereby the City approved the use of $2.5 million in Community Redevelopment Agency Special Revenue Trust Funds for site demolition, infrastructure improvements, site restoration and other costs for the project. The total amount will be assessed to, and eventually repaid by the property owner, Soundside LLC, to the City, at no more than $119,000 per year at 1.5% interest, and shall become payable no sooner than 2 years after the closing date, payable over a 30-year period. This Soundside special assessment is included in the Community Redevelopment Agency (component unit). The special assessment receivable at September 30, 2011 was $89,840. Decommission of Wastewater Treatment Facility The City is in the preliminary phase of decommissioning its wastewater treatment plant that was closed in March 2010. Some progress has been made and to date, nominal costs have been incurred. The City has approval to use proceeds from the 2010 Utility System Revenue Bonds to fund the project. Based on uncertainties in the scope of work and planned future use of the facility, an estimate of $750,000 for these closure costs has been recorded at September 30, 2011. Wastewater Service Interlocal Agreement with Okaloosa County On August 11, 2009, the City adopted the Wastewater Service Interlocal Agreement with Okaloosa County (Agreement). The Agreement outlines a long-term association with Okaloosa County Water & Sewer for the treatment of the City's influent wastewater flow at a set percentage of the County's base sewer rate plus a locked-in annual rate escalator. The agreement provides other ancillary benefits to the City such as the provision of "no cost" tertiary treated effluent for use as irrigation water at the City's 36-hole municipal Golf Club. The Agreement is effective for 30 years and can be automatically extended for up to two additional terms for a period of ten years for each extension term. 74  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 19 - COMMITMENTS AND CONTINGENCIES (CONTINUED) Wastewater Service Interlocal Agreement with Okaloosa County (Continued) On a monthly basis, the County will bill the City at a rate equal to $2.46 per each 1,000 gallons of wastewater flow. Additionally, the City will pay to the County the Sewer Readiness to Serve Fee, which is equal to $3,750 per month. Beginning March 2011, and each year thereafter, the Readiness to Serve Fee will increase by 3%, annually. Service to the City began March 2010. The minimum commitment by the City under the Agreement is as follows: Fiscal Year Ending September 30 2012 $ 47,161 2013 48,576 2014 50,033 2015 51,534 2016 53,080 2017 through 2021 290,265 2022 through 2026 336,496 2027 through 2031 390,091 2032 through 2036 452,223 2037 through 2039 305,211 Total $ 2,024,670 Fees paid for wastewater treatment to Okaloosa County, Florida during the year ended September 30, 2011, were $1,804,592. NOTE 20 - SUBSEQUENT EVENTS Decommission of Wastewater Treatment Facility In December 2011 the City Council approved a contract for removal and disposal of solids and liquids at the decommissioned Waste Water Treatment Plant. The estimated cost is $750,000 and will be funded from proceeds from the 2005 Utility System Revenue Bonds. Brooks Street Parking Lot Lease Agreement In January 2012 City Council authorized the Mayor to execute lease agreements with several downtown business owners for use of land for construction of a Brooks Street Parking lot. The proposed lot will contain 35 parking spaces, motorcycle parking, and lighting for added security. The City will lease the land for $1 a year and will construct and maintain the parking lot. The estimated cost for construction of the lot is not available as of the date of the report as the project is out for bid. $750,000 has been designated in the Community Redevelopment Fund for construction of parking areas along Brooks Street. 75  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2011 NOTE 20 - SUBSEQUENT EVENTS (CONTINUED) Bayou Woods Subdivision Lots for Sale In January 2012 City Council authorized certain lots in the Bayou Woods subdivision as surplus property and directed the City Manager to place them for sale. The appraised value of the lots is approximately $224,000. Demolition of the Germany Terrace Subdivision In February 2012 City Council approved awarding a bid for the demolition of the Germany Trace subdivision in accordance with the memorandum of understanding as it relates to the Soundside Apartments Planned Unit Development. The contract price for demolition was approximately $162,000. The project will be funded from the Community Redevelopment Fund and ultimately repaid to the City via a special assessment over a 30 year period as further discussed in Note 19 to the financial statements. 76 REQUIRED SUPPLEMENTARY INFORMATION  Schedule A-1 City of Fort Walton Beach, Florida REQUIRED SUPPLEMENTAL INFORMATION SCHEDULE OF FUNDING PROGRESS Unaudited Actuarial Accrued Actuarial Liability Unfunded Funded Annual UAAL as Actuarial Valuation Value of (AAL) Entry AAL (UAAL) Ratio Covered % of Date Assets (a) Age (b) (b-a) (a/b) Payroll (c) Payroll General Employees' Retirement Fund September 30, 2011 $ 33,678,210 $ 40,196,872 $ 6,518,662 83.78 % $ 5,004,486 130.26 % September 30, 2010 34,352,072 40,510,991 6,158,919 84.80 5,595,076 110.08 % September 30, 2009 33,336,278 38,412,778 5,076,500 86.78 % 7,252,396 70.00 % September 30, 2008 33,388,423 37,349,742 3,961,319 89.39 % 7,521,520 52.67 % September 30, 2007 32,271,940 34,783,263 2,511,323 92.78 % 8,199,930 30.63 % September 30, 2006 29,449,082 33,885,353 4,436,271 86.91 % 7,715,643 57.50 % September 30, 2005 27,938,158 31,397,476 3,459,318 88.98 % 7,190,199 48.11 % September 30, 2004 27,560,774 27,815,278 254,504 99.09 % 7,064,964 3.60 % September 30, 2003 27,329,284 26,020,734 (1,308,550) 105.03 % 6,823,892 N/A September 30, 2002 26,084,080 24,690,082 (1,393,998) 105.65 % 6,687,895 N/A Police Officers' Retirement Fund* September 30, 2011 $ 17,912,258 $ 25,394,666 $ 7,482,408 70.54 % $ 2,239,545 334.10 % September 30, 2010 18,874,149 24,702,783 5,828,634 76.40 2,195,529 265.48 % September 30, 2009 18,858,173 23,738,682 4,880,509 79.44 % 2,557,811 190.81 % September 30, 2008 18,832,627 22,743,407 3,910,780 82.80 % 2,530,182 154.57 % September 30, 2007 18,586,034 21,595,595 3,009,561 86.06 % 2,602,616 115.64 % September 30, 2006 17,266,489 19,896,104 2,629,615 86.78 % 2,257,286 116.49 % September 30, 2005 16,143,601 18,672,706 2,529,105 86.46 % 2,426,479 104.23 % September 30, 2004 15,294,319 16,603,462 1,309,143 92.12 % 2,245,042 58.31 % September 30, 2003 14,898,774 14,898,774 - 100.00 % 2,222,145 N/A September 30, 2002 14,464,798 14,464,798 - 100.00 % 2,066,386 N/A Firefighters' Retirement Fund September 30, 2011 $ 10,314,290 $ 17,609,820 $ 7,295,530 58.57 % $ 1,961,080 372.02 % September 30, 2010 10,591,930 17,167,805 6,575,875 61.70 2,116,516 310.69 % September 30, 2009 10,492,503 15,950,522 5,458,019 65.78 % 1,988,762 274.44 % September 30, 2008 10,537,442 14,539,341 4,001,899 72.48 % 1,632,275 245.17 % September 30, 2007 10,264,599 13,579,972 3,315,373 75.59 % 1,409,038 235.29 % September 30, 2006 9,499,462 11,757,764 2,258,302 80.79 % 1,807,962 124.91 % September 30, 2005 8,907,687 10,992,666 2,084,979 81.03 % 1,455,105 143.29 % September 30, 2004 8,602,487 9,919,601 1,317,114 86.72 % 1,293,587 101.82 % September 30, 2003 8,479,212 8,404,972 (74,240) 100.88 % 1,111,281 N/A September 30, 2002 8,363,938 8,340,554 (23,384) 100.28 % 1,085,453 N/A *The aggregate method of valuation used for the Police Officers' Retirement Fund does not identify or separately amortize the unfunded actuarial liabilities. Note: The information presented in this schedule was determined as part of the actuarial valuations at the dates indicated. Additional information as of the latest actuarial valuation can be found in Note 7 to the financial statements. 77  Schedule A-2 City of Fort Walton Beach, Florida REQUIRED SUPPLEMENTAL INFORMATION SCHEDULE OF CONTRIBUTIONS FROM THE EMPLOYER AND OTHER CONTRIBUTING ENTITIES Unaudited Annual Required Employer Other Entity Percentage Contribution Contribution Contribution Contributed General Employees' Retirement Fund September 30, 2011 $ 1,091,338 $ 1,159,438 $ - 106.24 % September 30, 2010 1,477,933 1,477,777 - 100.00 % September 30, 2009 1,268,428 1,268,260 - 100.00 % September 30, 2008 1,268,019 1,267,864 - 100.00 % September 30, 2007 1,231,003 1,231,004 - 100.00 % September 30, 2006 1,070,599 1,071,742 - 100.11 % September 30, 2005 678,947 680,552 - 100.24 % September 30, 2004 491,258 491,258 - 100.00 % September 30, 2003 467,351 467,351 - 100.00 % September 30, 2002 192,318 192,318 - 100.00 % Police Officers' Retirement Fund September 30, 2011 $ 682,860 $ 521,425 $ 161,435 100.00 % September 30, 2010 665,220 500,007 165,213 100.00 % September 30, 2009 578,670 407,159 171,511 100.00 % September 30, 2008 488,381 306,805 181,576 * 100.00 % September 30, 2007 516,528 334,952 181,576 * 100.00 % September 30, 2006 433,829 252,252 181,576 * 100.00 % September 30, 2005 460,501 278,925 181,576 * 100.00 % September 30, 2004 360,576 179,000 181,576 100.00 % September 30, 2003 335,420 153,845 181,576 100.00 % September 30, 2002 253,331 78,699 174,632 100.00 % *"Frozen" at $181,576 per Chapter 185, as amended, though actual contribution has been higher. Firefighters' Retirement Fund September 30, 2011 $ 675,386 $ 514,872 $ 160,514 * 100.00 % September 30, 2010 708,063 574,278 133,785 * 100.00 % September 30, 2009 555,720 421,935 133,785 * 100.00 % September 30, 2008 326,864 225,055 133,785 * 109.78 % September 30, 2007 299,027 169,381 129,646 * 100.00 % September 30, 2006 240,332 110,686 129,646 * 100.00 % September 30, 2005 200,627 77,963 122,664 * 100.00 % September 30, 2004 174,346 51,682 122,664 100.00 % September 30, 2003 163,705 83,839 121,103 125.19 % September 30, 2002 102,044 21,328 112,125 130.78 % *"Frozen" per Chapter 175, as amended, though actual contribution has been higher. Additional information as of the latest actuarial valuation can be found in Note 7 to the financial statements. 78  Schedule A-3 City of Fort Walton Beach, Florida REQUIRED SUPPLEMENTAL INFORMATION SCHEDULE OF OTHER POST-EMPLOYMENT OBLIGATIONS Unaudited Actuarial Accrued Annual UAAL as Actuarial Valuation Liability Actuarial Value Unfunded Percentage Covered % of Date (AAL) of Assets AAL (UAAL) Funded Payroll Payroll September 30, 2010 $ 4,768,818 $ - $ 4,768,818 - % $ 8,291,828 57.51 % September 30, 2009 6,496,763 - 6,496,763 - % 9,000,120 72.19 % 79 (THIS PAGE INTENTIONALLY LEFT BLANK.)  CITY OF FORT WALTON BEACH, FLORIDA Combining and Individual Fund Statements and Schedules These financial statements provide a more detailed view of the “Basic Financial Statements” presented in the preceding subsection. Combining statements are presented when there is more than one fund of a given fund type. Individual fund statements are necessary to present budgetary comparisons.  NON-MAJOR GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS The Special Revenue Funds are used to account for the proceeds of specific revenue sources (other than special assessments, expendable trusts, or for major capital projects) that are legally restricted to expenditure for specified purposes. Law Enforcement Trust Special Revenue Fund To account for funds received from the sale of confiscated property to be utilized for drug enforcement. Law Enforcement Trust Training Special Revenue Fund To account for funds received from court fines to be used for additional police department training. Community Development Block Grant Special Revenue Fund To account for funds received under the Community Development Block Grant and expenditures of such funds in accordance with federal guidelines. Beal Memorial Cemetery Perpetual Care Special Revenue Fund To accumulate funds to meet the requirements of maintaining the City owned cemetery. DEBT SERVICE FUND The Debt Service Fund is used to account for the accumulation of resources for, and the payment of, general long-term debt principal and interest in accordance with bond ordinances.  Statement B-1 City of Fort Walton Beach, Florida NON-MAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET September 30, 2011 Special Revenue Funds Community Beal Memorial Total Nonmajor Law Enforcement Law Enforcement Development Cemetery Governmental Trust Trust Training Block Grant Perpetual Care Debt Service Funds ASSETS Cash and cash equivalents $ 263,445 $ 8,358 $ (4,328) $ 1,929,448 $ - $ 2,196,923 Due from other governments 2,730 - 4,022 - - 6,752 Cash and cash equivalents - restricted - - - - 113,816 113,816 TOTAL ASSETS $ 266,175 $ 8,358 $ (306) $ 1,929,448 $ 113,816 $ 2,317,491 LIABILITIES AND FUND BALANCE Liabilities Accounts payable $ - $ 954 $ - $ - $ - $ 954 Accrued expenses and other liabilities 4,959 - - - - 4,959 Total liabilities 4,959 954 - - - 5,913 Fund balance Restricted 261,216 7,404 - - 113,816 382,436 Committed - - - 1,929,448 - 1,929,448 Unassigned - - (306) - - (306) Total fund balance 261,216 7,404 (306) 1,929,448 113,816 2,311,578 TOTAL LIABILITIES AND FUND BALANCE $ 266,175 $ 8,358 $ (306) $ 1,929,448 $ 113,816 $ 2,317,491 80  Statement B-2 City of Fort Walton Beach, Florida NON-MAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE Year Ended September 30, 2011 Special Revenue Funds Law Law Community Beal Memorial Total Nonmajor Enforcement Enforcement Development Cemetery Governmental Trust Trust Training Block Grant Perpetual Care Debt Service Funds REVENUES Intergovernmental $ 28,892 $ - $ 153,012 $ - $ - $ 181,904 Fines and forfeits 17,831 7,900 - - - 25,731 Miscellaneous 3,922 45 - 10,901 - 14,868 TOTAL REVENUES 50,645 7,945 153,012 10,901 - 222,503 EXPENDITURES Current Public safety 21,796 7,281 - - - 29,077 Economic environment - - 103,861 - - 103,861 Capital outlay 25,940 - 23,778 - - 49,718 Debt service Principal - - - - 198,699 198,699 Interest - - - - 235,890 235,890 Other debt service costs - - - - 378 378 TOTAL EXPENDITURES 47,736 7,281 127,639 - 434,967 617,623 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES 2,909 664 25,373 10,901 (434,967) (395,120) OTHER FINANCING SOURCES (USES) Transfers in - - - 33,251 455,903 489,154 Transfers out (4,553) - (29,295) (13,149) - (46,997) TOTAL OTHER FINANCING SOURCES (USES) (4,553) - (29,295) 20,102 455,903 442,157 NET CHANGE IN FUND BALANCE (1,644) 664 (3,922) 31,003 20,936 47,037 FUND BALANCE - BEGINNING OF YEAR 262,860 6,740 3,616 1,898,445 92,880 2,264,541 FUND BALANCE - END OF YEAR $ 261,216 $ 7,404 $ (306) $ 1,929,448 $ 113,816 $ 2,311,578 81  Schedule C-1 City of Fort Walton Beach, Florida LAW ENFORCEMENT TRUST SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL Year Ended September 30, 2011 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Intergovernmental $ - $ 28,550 $ 28,892 $ 342 Fines and forfeits - 3,900 17,831 13,931 Miscellaneous 3,000 3,629 3,922 293 TOTAL REVENUES 3,000 36,079 50,645 14,566 EXPENDITURES Current operations Public safety 12,825 21,243 21,796 (553) Capital outlay - 27,500 25,940 1,560 TOTAL EXPENDITURES 12,825 48,743 47,736 1,007 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (9,825) (12,664) 2,909 15,573 OTHER FINANCING SOURCES (USES) Transfers out - - (4,553) (4,553) NET CHANGE IN FUND BALANCE (9,825) (12,664) (1,644) 11,020 FUND BALANCE - BEGINNING OF YEAR 9,825 12,664 262,860 250,196 FUND BALANCE - END OF YEAR $ - $ - $ 261,216 $ 261,216 82  Schedule C-2 City of Fort Walton Beach, Florida LAW ENFORCEMENT TRUST TRAINING SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL Year Ended September 30, 2011 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Fines and forfeits $ 12,000 $ 12,000 $ 7,900 $ (4,100) Miscellaneous 50 50 45 (5) TOTAL REVENUES 12,050 12,050 7,945 (4,105) EXPENDITURES Current operations Public safety 8,208 8,208 7,281 927 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES 3,842 3,842 664 (3,178) NET CHANGE IN FUND BALANCE 3,842 3,842 664 (3,178) FUND BALANCE (DEFICIT) - BEGINNING OF YEAR (3,842) (3,842) 6,740 10,582 FUND BALANCE - END OF YEAR $ - $ - $ 7,404 $ 7,404 83  Schedule C-3 City of Fort Walton Beach, Florida COMMUNITY DEVELOPMENT BLOCK GRANT SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL Year Ended September 30, 2011 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Intergovernmental $ 152,772 $ 156,697 $ 153,012 $ (3,685) EXPENDITURES Current operations Economic environment 122,218 136,507 103,861 32,646 Capital outlay - 27,356 23,778 3,578 TOTAL EXPENDITURES 122,218 163,863 127,639 36,224 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES 30,554 (7,166) 25,373 32,539 OTHER FINANCING SOURCES (USES) Transfers out (30,554) (29,440) (29,295) 145 NET CHANGE IN FUND BALANCE - (36,607) (3,922) 32,685 FUND BALANCE - BEGINNING OF YEAR - 36,607 3,616 (32,991) FUND BALANCE - END OF YEAR $ - $ - $ (306) $ (306) 84  Schedule C-4 City of Fort Walton Beach, Florida BEAL MEMORIAL CEMETERY PERPETUAL CARE SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL Year Ended September 30, 2011 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Miscellaneous $ 13,000 $ 13,000 $ 10,901 $ (2,099) OTHER FINANCING SOURCES (USES) Transfers in 29,600 29,600 33,251 3,651 Transfers out - (54,553) (13,149) 41,404 TOTAL OTHER FINANCING SOURCES (USES) 29,600 (24,953) 20,102 45,055 NET CHANGE IN FUND BALANCE 42,600 (11,953) 31,003 42,956 FUND BALANCE (DEFICIT) - BEGINNING OF YEAR (42,600) 11,953 1,898,445 1,886,492 FUND BALANCE - END OF YEAR $ - $ - $ 1,929,448 $ 1,929,448 85  Schedule C-5 City of Fort Walton Beach, Florida DEBT SERVICE FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL Year Ended September 30, 2011 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Miscellaneous $ - $ - $ - $ - EXPENDITURES Debt service Principal 187,375 198,700 198,699 1 Interest 232,642 235,892 235,890 2 Other debt service costs 378 378 378 - TOTAL EXPENDITURES 420,395 434,970 434,967 3 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (420,395) (434,970) (434,967) 3 OTHER FINANCING SOURCES (USES) Transfers in 420,395 434,970 455,903 20,933 NET CHANGE IN FUND BALANCE - - 20,936 20,936 FUND BALANCE - BEGINNING OF YEAR - - 92,880 92,880 FUND BALANCE - END OF YEAR $ - $ - $ 113,816 $ 113,816 86 (THIS PAGE INTENTIONALLY LEFT BLANK.)  NON-MAJOR FUND ENTERPRISE FUND Stormwater Fund Accounts for the operations and maintenance of the City's stormwater system.  Statement D-1 City of Fort Walton Beach, Florida NON-MAJOR PROPRIETARY FUNDS STATEMENT OF NET ASSETS September 30, 2011 Stormwater Fund ASSETS Current assets Cash and cash equivalents $ 402,201 Receivables, net 35,877 Total current assets 438,078 Capital assets, net Depreciable, net 934,458 TOTAL ASSETS $ 1,372,536 LIABILITIES Current liabilities Accounts payable $ 2,034 Accrued liabilities Compensated absences 2,692 Wages 10,792 Unearned revenue 12,332 Total current liabilities 27,850 Non-current liabilities Accrued liabilities Compensated absences 8,076 Other post-employment benefits 893 Total non-current liabilities 8,969 TOTAL LIABILITIES 36,819 NET ASSETS Invested in capital assets, net of related debt 934,458 Unrestricted 401,259 TOTAL NET ASSETS $ 1,335,717 87  Statement D-2 City of Fort Walton Beach, Florida NON-MAJOR PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS September 30, 2011 Stormwater Fund OPERATING REVENUES Charges for services $ 481,854 OPERATING EXPENSES Personal services 183,053 Operating 83,780 Depreciation 70,678 TOTAL OPERATING EXPENSES 337,511 OPERATING INCOME 144,343 NON-OPERATING REVENUES (EXPENSES) Interest expense (336) Gain (loss) on disposal of capital assets 1,111 Unrealized gain (loss) on investment (1,188) Interest 3,740 Grants in aid (1,696) Miscellaneous 13 TOTAL NON-OPERATING REVENUES (EXPENSES) 1,644 INCOME (LOSS) BEFORE CONTRIBUTIONS AND TRANSFERS 145,987 Capital grants and contributions 14,000 Transfer out (15,022) TOTAL CONTRIBUTIONS AND TRANSFERS (1,022) CHANGE IN NET ASSETS 144,965 NET ASSETS - BEGINNING OF YEAR 1,190,752 NET ASSETS - END OF YEAR $ 1,335,717 88  Statement D-3 City of Fort Walton Beach, Florida NON-MAJOR PROPRIETARY FUNDS STATEMENT OF CASH FLOWS September 30, 2011 Stormwater Fund CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers and users $ 498,697 Payments to suppliers (86,319) Payments to employees (179,521) Miscellaneous income 13 Net cash provided by operating activities 232,870 CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Grants and aids (1,696) Transfers out (15,022) Net cash provided (used) by non-capital financing activities (16,718) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisitions of capital assets (173,553) Proceeds from disposal of capital assets 1,111 Capital grants and contributions 14,000 Principal paid on leases payable (17,161) Interest paid on leases payable (336) Net cash provided (used) by capital and related financing activities (175,939) NET CASH FLOWS FROM INVESTING ACTIVITIES Interest income 2,552 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 42,765 CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 359,436 CASH AND CASH EQUIVALENTS - END OF YEAR $ 402,201 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income $ 144,343 Adjustments to reconcile operating income to net cash provided by operating activities Depreciation 70,678 Miscellaneous revenue 13 Decrease (increase) in assets Accounts receivable 4,511 Increase (decrease) in liabilities Accounts payable (2,539) Compensated absences payable 2,648 Wages 884 Deferred revenue 12,332 Net cash provided by operating activities $ 232,870 89 (THIS PAGE INTENTIONALLY LEFT BLANK.) III. STATISTICAL SECTION This section contains statistical tables reflecting various supplemental financial data concerning General Government and Proprietary Fund Operations. When applicable, a 10-year history has been depicted to disclose trends in finance-related matters. These tables have been included as a part of this report for information purposes only, and therefore, have not been subjected to audit by the City’s independent certified public accountants.  The statistical section of the City's comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures and required supplementary information says about the City's overall financial health. Financial Trends These schedules contain trend information to help the reader understand how the City's financial performance and well-being have changed over time. Revenue Capacity These schedules contain information to help the reader assess the City's most significant local revenue source, the property tax. Debt Capacity These schedules present information to help the reader assess the affordability of the City's current levels of outstanding debt and the City's ability to issue additional debt in the future. Demographic and Economic Information These schedules offer demographic and economic indicators to help the reader understand the environment within which the City's financial activities take place. Operating Information These schedules contain service and infrastructure data to help the reader understand how the information in the City's financial report relates to the services the City provides and the activities it performs. Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB 34 in 2002; schedules presenting government-wide information include information beginning in that year.  City of Fort Walton Beach, Florida SCHEDULE 1 NET ASSETS BY COMPONENT Last Ten Fiscal Years (full accrual basis of accounting) (amounts expressed in thousands) Fiscal Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Governmental Activities Invested in capital assets, net of related debt $ 16,643,589 $ 19,494,125 $ 19,401,390 $ 17,236,582 $ 21,097,792 $ 22,013,431 $ 21,095,355 $ 20,563,790 $ 20,605,683 $ 24,756,705 Restricted Debt service 92,478 91,691 92,153 92,544 92,788 92,730 91,713 91,713 92,880 113,816 System improvements - - - - - - - - - - Capital projects 3,193,992 966,147 685,174 700,975 241,114 56,550 - - - - Improvement Districts - - - - - - - - - 4,212,984 Public safety 340,793 324,450 301,230 305,647 266,492 307,983 307,983 254,409 269,600 268,820 Perpetual care - expendable 1,359,719 1,425,913 1,488,402 1,556,661 1,663,521 1,787,789 1,877,086 1,869,558 1,898,445 - Other purposes 387,071 395,990 817,932 533,486 474,924 657,116 473,655 463,168 477,194 234,568 Unrestricted 8,323,881 9,789,683 10,131,552 13,959,800 11,385,751 8,564,657 9,821,155 9,347,576 8,975,046 12,666,165 Total governmental activities net assets $ 30,341,523 $ 32,487,999 $ 32,917,833 $ 34,385,695 $ 35,222,382 $ 33,480,256 $ 33,666,947 $ 32,590,214 $ 32,318,848 $ 42,253,058 Business-Type Activities Invested in capital assets net of related debt $ 19,914,970 $ 20,225,644 $ 19,907,722 $ 20,014,208 $ 20,352,399 $ 21,051,160 $ 21,043,965 $ 17,577,019 $ 18,928,438 $ 17,037,456 Restricted Debt service 380,072 323,917 317,444 319,139 333,522 323,430 316,153 471,441 481,023 184,711 System improvements - 60,726 160,754 352,360 106,434 39,414 60,709 98,292 61,559 82,573 Unrestricted 8,258,643 7,640,124 7,820,602 7,652,753 8,358,417 9,011,906 8,301,545 8,276,703 6,791,840 6,859,952 Total business-type activities net assets $ 28,553,685 $ 28,250,411 $ 28,206,522 $ 28,338,460 $ 29,150,772 $ 30,425,910 $ 29,722,372 $ 26,423,455 $ 26,262,860 $ 24,164,692 Primary Government Invested in capital assets net of related debt $ 36,558,559 $ 39,719,769 $ 39,309,112 $ 37,250,790 $ 41,450,191 $ 43,064,591 $ 42,139,320 $ 38,140,809 $ 38,728,907 $ 41,794,161 Restricted 5,754,125 3,588,834 3,863,089 3,860,812 3,178,795 3,265,012 3,127,299 3,257,332 3,297,029 5,097,472 Unrestricted 16,582,524 17,429,807 17,952,154 21,612,553 19,744,168 17,576,563 18,122,700 17,624,279 16,805,772 19,526,117 Total primary government net assets $ 58,895,208 $ 60,738,410 $ 61,124,355 $ 62,724,155 $ 64,373,154 $ 63,906,166 $ 63,389,319 $ 59,022,420 $ 58,831,708 $ 66,417,750 Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. Note: Beginning in FY11, the Community Redevelopment Area was included with the Governmental Activities and the Perpetual care - expendable was reclassified from Restricted to Unrestricted 90  City of Fort Walton Beach, Florida SCHEDULE 2 CHANGES IN NET ASSETS Last Ten Fiscal Years (full accrual basis of accounting) (amounts expressed in thousands) Fiscal Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Expenses Governmental activities General government $ 3,615,300 $ 3,396,418 $ 5,884,025 $ 6,935,799 $ 4,841,926 $ 4,563,855 $ 5,494,094 $ 4,625,871 $ 5,306,003 $ 3,765,536 Public safety 6,050,460 6,317,104 6,952,351 7,623,363 8,032,018 9,641,338 10,048,884 9,908,644 9,231,632 9,206,784 Physical environment 267,990 283,558 276,987 276,525 299,362 354,439 343,411 350,374 304,907 393,752 Transportation 1,482,662 1,478,559 1,562,995 1,678,395 1,791,455 1,943,966 2,135,639 1,672,741 1,543,310 1,570,038 Economic environment 206,625 204,133 210,649 199,284 313,153 335,185 127,355 266,132 98,996 545,242 Culture and recreation 2,371,853 2,487,468 2,712,947 2,754,947 2,989,900 3,115,151 3,097,289 3,028,285 2,944,221 2,677,051 Debt service interest 220,715 272,858 267,160 238,090 309,094 331,771 302,948 247,703 240,940 214,470 Total government activities 14,215,605 14,440,098 17,867,114 19,706,403 18,576,908 20,285,705 21,549,620 20,099,750 19,670,009 18,372,873 Business-type activities Utilities 4,217,715 4,257,184 4,403,421 4,938,340 5,329,682 5,859,301 5,809,192 5,474,550 6,725,349 9,162,926 Sanitation 2,429,908 2,617,919 2,738,742 2,945,209 2,888,403 3,008,205 2,609,129 2,493,357 2,466,881 2,524,994 Golf 2,353,526 2,558,102 2,596,450 2,603,460 2,631,289 2,780,632 2,547,992 2,479,804 2,203,739 2,199,453 Stormwater - - - - - - - 469,421 374,951 339,543 Total business-type activities 9,001,149 9,433,205 9,738,613 10,487,009 10,849,374 11,648,138 10,966,313 10,917,132 11,770,920 14,226,916 Total primary government expenses $ 23,216,754 $ 23,873,303 $ 27,605,727 $ 30,193,412 $ 29,426,282 $ 31,933,843 $ 32,515,933 $ 31,016,882 $ 31,440,929 $ 32,599,789 Program Revenues Governmental activities Charges for services General government $ 379,829 $ 1,857,731 $ 1,973,238 $ 2,108,169 $ 2,381,669 $ 2,456,663 $ 2,752,330 $ 2,921,887 $ 2,759,080 $ 2,556,270 Public safety 441,515 579,453 567,601 873,041 600,259 579,365 641,941 642,364 467,835 430,017 Physical environment 341,484 352,335 345,529 302,727 342,815 316,520 348,838 286,623 289,654 394,513 Transportation 231,872 81,299 102,068 68,402 72,815 241,622 93,987 87,654 83,586 104,776 Economic environment - - - - - - - - - 16,400 Culture and recreation 326,269 354,062 351,450 382,858 400,175 421,733 417,253 426,110 408,351 404,047 Debt service interest - - - - - - - - - - Operating grants and contributions 427,188 343,034 2,541,755 3,228,819 642,631 1,266,681 903,079 1,119,033 639,370 761,643 Capital grants and contributions 2,005,348 1,197,540 56,332 261,332 373,994 233,878 50,687 88,941 731,275 351,006 Total governmental activities program revenues 4,153,505 4,765,454 5,937,973 7,225,348 4,814,358 5,516,462 5,208,115 5,572,612 5,379,151 5,018,672 Business-type activities Charges for services Utilities 5,123,375 5,360,195 5,888,862 6,279,899 6,552,526 7,006,005 6,505,297 6,403,262 6,761,654 7,608,355 Sanitation 3,118,505 3,178,351 3,244,899 3,315,188 3,374,157 3,433,172 3,446,397 3,384,375 3,345,127 3,311,744 Golf 2,050,888 2,034,981 2,275,678 2,335,114 2,621,957 2,558,253 2,380,448 2,181,988 1,934,392 2,052,501 Stormwater - - - - - - - 654,346 626,903 481,854 Operating grants and contributions - - - - - - 39,403 - - 118,226 Capital grants and contributions 960 95,034 100,027 198,568 95,644 1,079,034 92,872 555,698 173,370 65,496 Total business-type activities program revenues 10,293,728 10,668,561 11,509,466 12,128,769 12,644,284 14,076,464 12,464,417 13,179,669 12,841,446 13,638,176 Total primary government program revenues $ 14,447,233 $ 15,434,015 $ 17,447,439 $ 19,354,117 $ 17,458,642 $ 19,592,926 $ 17,672,532 $ 18,752,281 $ 18,220,597 $ 18,656,848 Continued… 91  City of Fort Walton Beach, Florida SCHEDULE 2 CHANGES IN NET ASSETS Last Ten Fiscal Years (full accrual basis of accounting) (amounts expressed in thousands) Fiscal Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Net (Expense)/Revenue Governmental activities $ (10,062,100) $ (9,674,644) $ (11,929,141) $ (12,481,055) $ (13,762,550) $ (14,769,243) $ (16,341,505) $ (14,527,138) $ (14,290,859) $ (13,354,201) Business-type activities 1,292,579 1,235,356 1,770,853 1,641,760 1,794,910 2,428,326 1,498,104 2,262,537 1,070,526 (588,740) Total primary government net expense $ (8,769,521) $ (8,439,288) $ (10,158,288) $ (10,839,295) $ (11,967,640) $ (12,340,917) $ (14,843,401) $ (12,264,601) $ (13,220,333) $ (13,942,941) General Revenues and Other Changes in Net Assets Governmental activities Taxes Property taxes $ 3,543,052 $ 3,647,851 $ 3,763,976 $ 3,913,016 $ 4,557,414 $ 5,180,212 $ 5,052,903 $ 4,631,028 $ 4,380,221 $ 4,482,819 Sales taxes 2,111,570 2,240,659 2,393,744 2,466,783 2,529,028 2,363,078 2,214,232 1,977,959 1,943,337 2,066,834 Utility service taxes 4,147,433 3,100,862 3,163,325 3,690,239 4,006,985 1,420,142 5,094,918 3,454,691 3,914,362 3,926,930 Tax increments for Redevelopment District - - - - - - - - - 1,547,609 Intergovernmental, unrestricted 590,969 589,120 619,197 877,198 889,450 845,090 740,554 709,550 712,776 825,591 Gain on sale of assets 689,120 164,186 99,587 456,675 (1,053) 477,494 2,592 2,950 795,860 16,865 Miscellaneous 55,922 83,595 100,950 46,174 37,595 56,788 61,199 54,223 492,052 96,105 Investment earnings 378,964 282,019 226,863 324,687 599,818 755,389 444,488 269,896 152,884 133,419 Insurance recoveries - - - 299,145 - - - - - Transfers 2,022,441 1,712,828 1,991,333 1,875,000 1,980,000 1,928,924 2,917,310 2,310,464 1,667,644 1,682,717 Total governmental activities 13,539,471 11,821,120 12,358,975 13,948,917 14,599,237 13,027,117 16,528,196 13,410,761 14,059,136 14,778,889 Business-type activities Taxes Utility service taxes 8,512 6,774 7,807 - 14,200 7,844 5,930 4,597 - - Gain on sale of assets 20,119 27,641 - 174,610 34,978 482 98,907 56,795 75,904 Miscellaneous 9,890 4,209 12,342 10,261 73,714 15,118 129,678 141,406 177,657 31,424 Investment earnings 223,739 143,097 128,808 354,915 734,878 713,872 579,578 340,155 202,071 65,961 Transfers (1,975,865) (1,712,828) (1,991,333) (1,875,000) (1,980,000) (1,925,000) (2,917,310) (2,310,464) (1,667,644) (1,682,717) Special item: Impairment loss - - - - - - - (3,836,055) - - Total business-type activities (1,733,724) (1,538,629) (1,814,735) (1,509,824) (982,598) (1,153,188) (2,201,642) (5,561,454) (1,231,121) (1,509,428) Total primary government $ 11,805,747 $ 10,282,491 $ 10,544,240 $ 12,439,093 $ 13,616,639 $ 11,873,929 $ 14,326,554 $ 7,849,307 $ 12,828,015 $ 13,269,461 Change in Net Assets Governmental activities $ 3,477,371 $ 2,146,476 $ 429,834 $ 1,467,862 $ 836,687 $ (1,742,126) $ 186,691 $ (1,116,377) $ (231,722) $ 1,424,688 Business-type activities (441,145) (303,273) (43,882) 131,936 812,312 1,275,138 (703,538) (3,298,917) (160,595) (2,098,168) Total primary government $ 3,036,226 $ 1,843,203 $ 385,952 $ 1,599,798 $ 1,648,999 $ (466,988) $ (516,847) $ (4,415,294) $ (392,317) $ (673,480) Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. Note: Beginning in FY11, the Community Redevelopment Area was included with the Governmental Activities 92  City of Fort Walton Beach, Florida SCHEDULE 3 FUND BALANCES - GOVERNMENTAL FUNDS Last Ten Fiscal Years (modified accrual basis of accounting) (amounts expressed in thousands) Fiscal Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 General Fund Reserved $ 544,800 $ 506,771 $ 957,768 $ 4,756,085 $ 539,749 $ 701,829 $ 509,080 $ 482,179 $ 499,384 $ - Unreserved 9,362,131 9,773,808 10,179,527 10,022,750 11,129,373 12,161,545 9,367,864 9,709,202 9,314,142 - Nonspendable - - - - - - - - - 3,032,726 Restricted - - - - - - - - - 234,768 Committed - - - - - - - - - 5,219,706 Assigned - - - - - - - - - 1,537,572 Unassigned - - - - - - - - - 1,189,562 Total general fund $ 544,800 $ 506,771 $ 957,768 $ 4,756,085 $ 539,749 $ 12,863,374 $ 9,876,944 $ 10,191,381 $ 9,813,526 $ 11,214,334 All Other Governmental Funds Reserved $ 2,075,198 $ 292,286 $ - $ - $ - $ - $ - $ 50,117 $ 12,783 $ - Unreserved, reported in Capital projects 1,118,794 673,861 685,174 700,975 241,114 56,550 8,751 - - Debt service 92,478 91,691 92,153 92,544 92,788 92,730 91,713 91,713 92,880 - Special revenue funds 1,700,512 1,750,363 1,789,633 1,862,308 1,933,979 2,095,772 2,153,440 2,073,850 2,158,878 - Nonspendable - - - - - - - - - - Restricted - - - - - - - - - 4,595,420 Committed - - - - - - - - - 1,929,448 Assigned - - - - - - - - - - Unassigned - - - - - - - - - (306) Total all other governmental funds $ 4,986,982 $ 2,808,201 $ 2,566,960 $ 2,655,827 $ 2,267,881 $ 2,245,052 $ 2,245,153 $ 2,224,431 $ 2,264,541 $ 6,524,562 Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government- wide information include information beginning in that year. Note: The City implemented GASB 54 in FY11 and the Community Redevelopment Districted was included with All Other Governmental Funds 93  City of Fort Walton Beach, Florida SCHEDULE 4 CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS Last Ten Fiscal Years (modified accrual basis of accounting) Fiscal Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Revenues Taxes $ 8,375,351 $ 8,900,322 $ 9,102,668 $ 9,872,190 $ 11,086,466 $ 10,804,833 $ 9,039,398 $ 9,160,133 $ 9,414,513 $ 10,438,481 Licenses, permits, and fees 324,860 325,274 358,675 706,345 517,728 496,614 2,225,224 2,320,683 2,406,916 2,428,621 Intergovernmental 4,548,074 3,687,649 4,990,501 6,261,885 3,836,216 3,661,644 2,914,162 2,950,179 3,502,904 3,358,615 Charges for services 774,411 899,844 933,006 848,651 900,170 911,026 1,216,687 1,132,681 907,476 911,405 Fines and forfeits 295,755 358,988 305,851 329,038 247,329 247,493 268,415 387,449 204,849 151,616 Miscellaneous 1,228,465 1,067,426 637,460 1,052,422 850,248 3,588,708 1,211,662 1,020,342 1,370,077 817,975 Total Revenues 15,546,916 15,239,503 16,328,161 19,070,531 17,438,157 19,710,318 16,875,548 16,971,467 17,806,735 18,106,713 Expenditures General governmental services 3,467,844 3,537,638 5,722,625 6,737,331 4,646,594 4,355,885 5,306,276 4,419,077 5,095,790 3,699,506 Public safety 5,794,370 6,450,462 6,497,304 7,124,082 7,750,191 9,170,719 9,614,744 9,379,319 8,872,424 8,676,620 Physical environment 216,485 224,246 211,388 211,178 233,942 276,086 278,273 283,460 250,691 306,365 Transportation 1,230,487 1,263,289 1,183,153 1,284,018 1,364,414 1,550,204 1,750,680 1,316,954 1,207,449 994,272 Economic environment 206,625 203,595 210,649 199,284 313,153 335,185 127,355 266,132 98,996 493,526 Culture and recreation 2,012,907 2,197,934 2,250,304 2,277,069 2,503,469 2,636,387 2,698,993 2,582,642 2,535,682 2,233,104 Capital outlay 6,991,004 4,374,809 1,402,355 1,558,462 5,612,616 1,457,758 652,734 520,722 1,335,369 1,561,057 Debt service Principal 178,748 232,289 145,097 195,722 194,675 355,459 2,052,797 168,949 175,629 198,699 Interest and other costs 153,218 273,202 265,769 274,122 307,334 330,136 297,335 246,774 240,093 236,268 Total expenditures 20,251,688 18,757,464 17,888,644 19,861,268 22,926,388 20,467,819 22,779,187 19,184,029 19,812,123 18,399,417 Excess of revenue over (under) expenditures (4,704,772) (3,517,961) (1,560,483) (790,737) (5,488,231) (757,501) (5,903,639) (2,212,562) (2,005,388) (292,704) Other Financing Sources (Uses) Transfers in 2,536,445 2,419,143 2,516,798 2,376,403 2,618,738 2,644,727 5,367,633 3,191,822 2,342,226 2,296,944 Transfers out (514,004) (706,315) (525,465) (501,403) (638,738) (715,802) (2,450,323) (685,545) (674,583) (614,227) Insurance recoveries - - - 299,145 - - - - - - Lease proceeds 58,000 - 143,698 299,948 - - - - - - Debt proceeds 5,674,626 - - 2,039,191 - - - - - 739,805 Contributions from others - - 40,929 7,860 10,572 - - - - - Total other financing sources (uses) 7,755,067 1,712,828 2,175,960 4,521,144 1,990,572 1,928,925 2,917,310 2,506,277 1,667,643 2,422,522 Net change in fund balance $ 3,050,295 $ (1,805,133) $ 615,477 $ 3,730,407 $ (3,497,659) $ 1,171,424 $ (2,986,329) $ 293,715 $ (337,745) $ 2,129,818 Debt service as a percentage of noncapital expenditures 2.50% 3.51% 2.49% 2.57% 2.90% 3.61% 10.62% 2.23% 2.25% 2.58% Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. Note: Beginning in FY11, the Community Redevelopment Area was included with the Governmental Funds 94  City of Fort Walton Beach, Florida SCHEDULE 5 REVENUES AND OTHER SOURCES (1) Last Ten Fiscal Years Unaudited Other Fiscal Licenses, Fees, Intergovernmental Charges for Fines and Interest and Financing Year Taxes and Permits Revenues Services Forfeitures Other Revenues Sources Total 2011 $ 10,438,481 $ 2,428,621 $ 3,358,615 $ 911,405 $ 151,616 $ 817,975 $ 2,296,944 $ 20,403,657 2010 9,414,513 2,406,916 3,502,904 907,476 204,849 1,370,077 2,342,226 20,148,961 2009 9,160,133 2,320,683 2,950,179 1,132,681 387,449 1,020,342 3,191,822 20,163,289 2008 9,039,398 2,225,224 2,914,162 1,216,687 268,415 1,211,662 5,367,633 22,243,181 2007 10,804,833 496,614 3,661,644 911,026 247,493 3,588,708 2,644,727 22,355,044 2006 11,086,466 517,727 3,836,216 900,170 247,329 860,820 2,618,738 20,067,466 2005 10,379,692 706,345 6,699,651 848,651 329,038 1,387,243 4,715,542 25,066,162 2004 9,506,835 358,675 5,514,537 933,006 305,851 653,600 2,701,425 19,973,929 2003 9,272,422 325,274 4,027,442 899,844 358,988 1,086,958 2,419,143 18,390,071 2002 8,707,276 324,860 4,831,914 774,411 295,755 1,271,123 8,269,071 24,474,410 (1) Includes General Fund, LETFs, CDBG Fund, CRA Fund, Debt Service Fund, Capital Projects Fund, and Beal Memorial Fund Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. 95  City of Fort Walton Beach, Florida SCHEDULE 6 ASSESSED VALUE OF TAXABLE PROPERTY (1) Last Ten Fiscal Years Unaudited Total Assessed Total Tax Real Personal Assessed Value for Direct Tax Year Property Property Value Exemptions Operations Rate 2011 $ 1,478,072,570 $ 126,412,302 $ 1,604,484,872 $ 452,378,818 $ 1,152,106,054 4.5383 2010 1,550,325,157 129,348,680 1,679,673,837 469,933,333 1,209,740,504 4.5383 2009 1,864,657,624 148,104,763 2,012,762,387 476,888,476 1,309,056,015 4.1986 2008 2,046,319,844 147,625,998 2,193,945,842 816,366,365 1,377,579,477 4.1986 2007 2,100,890,582 148,394,292 2,249,284,874 777,377,988 1,471,906,886 4.1986 2006 1,980,162,078 137,191,649 2,117,353,727 761,995,075 1,355,358,652 4.6458 2005 1,518,656,395 129,244,507 1,647,900,902 548,237,161 1,099,663,741 4.9700 2004 1,194,748,692 123,444,654 1,318,193,346 400,213,897 917,979,449 4.9700 2003 1,089,753,957 124,154,533 1,213,908,490 350,277,840 863,630,650 4.9700 2002 1,038,333,842 123,362,138 1,161,695,980 330,677,926 831,018,054 4.9700 (1) Florida State Law requires all property to be assessed at current fair market. The January 2011 assessment is the basis for Fiscal Year 2011-12 tax revenues. Source: Okaloosa County Property Appraiser 96  City of Fort Walton Beach, Florida SCHEDULE 7 PROPERTY TAX RATES PER $1,000 OF TAXABLE VALUE - ALL DIRECT AND OVERLAPPING GOVERNMENTS (1) Last Ten Fiscal Years Unaudited Tax Year Government or District 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 County 3.2899 3.2899 3.2899 3.2995 3.3443 3.6500 4.2500 4.2500 4.2500 4.2500 School 7.7690 7.5340 7.6390 7.6240 7.6390 7.7860 8.0630 8.2940 8.2940 8.4120 NW Florida Water Management 0.0400 0.0450 0.0450 0.0450 0.0450 0.0500 0.0500 0.0500 0.0500 0.0500 Fort Walton Beach 4.5383 4.5383 4.1986 4.1986 4.1986 4.6458 4.9700 4.9700 4.9700 4.9700 Total Direct Rate 15.6372 15.4072 15.1725 15.1671 15.2269 16.1318 17.3330 17.5640 17.5640 17.6820 Cinco Bayou 2.3000 2.1000 2.0639 2.0639 2.0639 2.3000 2.3000 2.3000 2.3000 2.3000 Crestview 5.5966 5.8466 5.8466 5.8466 5.8466 6.4989 6.9990 6.9990 6.9990 6.9990 Destin 1.4550 1.4550 1.4550 1.4550 1.4550 1.5000 1.8000 1.8000 1.8000 1.8000 Laurel Hill 3.5000 3.5000 3.5000 4.8400 5.0000 0.0000 0.0000 0.0000 0.0000 0.0000 Mary Esther 2.6435 2.6435 2.6996 2.6996 3.0125 3.4000 3.5000 3.5000 3.5000 3.5000 Niceville 3.6500 3.6301 3.4500 3.2000 3.2669 3.5000 3.5000 3.5000 3.3000 3.0000 Shalimar 2.0000 2.0000 2.0000 2.0000 2.0000 2.2000 2.4000 2.7000 2.8000 2.8000 Valparaiso 4.0644 3.9330 4.1591 3.7500 2.8754 3.1200 3.9900 3.9900 3.9900 3.9900 Parks MSTU 0.1800 0.1800 0.1800 0.1800 0.1888 0.2085 N/A 0.2654 N/A N/A Destin Fire 1.0000 1.0000 1.0000 0.9009 0.8004 0.8000 0.8300 0.8600 0.8600 0.7386 East Niceville Fire 2.3700 2.3500 2.3500 2.0000 1.9200 2.0000 2.0000 1.0000 1.0000 1.0000 Florosa Fire 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 North Bay Fire 2.3500 2.2500 2.0500 1.7827 1.6819 1.8000 2.0700 1.8750 1.8500 1.7500 Ocean City - Wright Fire 2.0000 2.0000 1.8144 1.8144 1.6460 1.7800 1.8300 1.8000 1.8000 1.6900 Okaloosa Island Fire 2.9950 2.7949 2.1900 1.9998 2.0250 1.9855 2.4305 2.6461 2.9500 3.3042 (1) As of levy date, November 1 of each year listed. The 2011 millage rate is the basis for Fiscal Year 2011-12 tax revenues. N/A: Not available. Source: Okaloosa County Tax Collector 97  City of Fort Walton Beach, Florida SCHEDULE 8 PRINCIPAL TAXPAYERS Unaudited 2011 2002 Total Total Assessed Assessed Taxpayer Value Percentage Rank Value Percentage Rank Uptown Station Investors, LLC $ 10,471,773 0.91% 1 $ 9,290,513 1.12% 4 Presidio Developers, LLC 8,008,000 0.70% 2 BLC Westwood, LLC 6,854,902 0.59% 3 DRS Training & Control Systems 5,831,767 0.51% 4 7,055,329 0.85% 6 DDRM Shoppes at Paradise 5,245,344 0.46% 5 4,485,330 0.54% 8 EHC II - Captain's Quarters, LLC 4,515,973 0.39% 6 FNBT.COM Bank 4,400,508 0.38% 7 Choctaw Plaza LTD 4,338,158 0.38% 8 Mariner Plaza Realty Assoc. 4,193,878 0.36% 9 4,244,647 0.51% 9 DEAS J Jr ET AL 4,181,537 0.36% 10 Sprint Florida, Inc. 24,510,979 2.95% 1 Gulf Power Co. 11,518,815 1.39% 2 Aero Technical Service 9,977,582 1.20% 3 American Senior Living of FWB 7,558,788 0.91% 5 Home Depot 4,544,472 0.55% 7 Chromalloy 3,935,647 0.47% 10 Total Taxable Assessed Value of Principal Taxpayers 58,041,840 5.04% 87,122,102 10.48% Total Taxable Assessed Value of Other Taxpayers 1,094,064,214 94.96% 743,895,952 89.52% Total Taxable Assessed Value $ 1,152,106,054 100.00% $ 831,018,054 100.00% (1) The 2011 tax roll is the basis for Fiscal Year 2011-12 tax revenues. Source: Okaloosa County Property Appraiser 98  City of Fort Walton Beach, Florida SCHEDULE 9 PROPERTY TAX LEVIES AND COLLECTIONS Last Ten Fiscal Years Unaudited Ratio of Ratio of Amount of Percent of Amount of Total Total Taxes Delinquent Current Current Delinquent Collected Collected to Amount of Taxes to Tax Total Tax Taxes Taxes Taxes for the Current Delinquent Current Year Levy (1) Collected Collected Collected Year Levy Taxes Levy 2011 The 2011 tax levy is the basis for Fiscal Year 2011-12 tax revenues. 2010 $ 5,519,832 $ 5,309,040 96.2% $ 78,863 $ 5,387,903 97.6% $ 11,576 0.2% 2009 5,523,136 5,280,090 95.6% 45,233 5,325,323 96.4% 59,371 1.1% 2008 5,814,307 5,606,480 96.4% 25,515 5,631,996 96.9% 22,112 0.4% 2007 6,215,424 5,976,218 96.2% 23,448 5,999,666 96.5% 16,699 0.3% 2006 6,317,712 6,085,783 96.3% 17,701 6,103,484 96.6% 17,752 0.3% 2005 5,481,001 5,271,070 96.2% 23,903 5,294,973 96.6% 17,072 0.3% 2004 4,577,392 4,408,022 96.3% 16,643 4,424,665 96.7% 15,383 0.3% 2003 4,305,962 4,151,604 96.4% 16,263 4,167,867 96.8% 11,174 0.3% 2002 4,145,081 3,996,625 96.4% 24,236 4,020,861 97.0% 14,663 0.4% (1) Includes discount taken for early payment of taxes (maximum of 4%). Source: Okaloosa County Tax Collector 99  City of Fort Walton Beach, Florida SCHEDULE 10 RATIOS OF OUTSTANDING DEBT BY TYPE Last Ten Fiscal Years Unaudited Governmental Activities Business Activities General General Total Percentage Fiscal Obligation Lease Revenue Revenue Obligation Lease Revenue Revenue Primary of Personal Per Year Bonds Payable Notes Bonds Bonds Payable Notes Bonds Government Income(1) Capita(2) 2011 $ - $ - $ 728,480 $ 4,615,000 $ - $ 66,118 $ 76,586 $ 10,585,000 $ 16,071,184 0.21% $ 822.73 2010 - 47,374 - 4,755,000 - 141,737 - 14,005,000 18,949,111 0.26% 930.93 2009 - 93,003 - 4,885,000 - 226,886 - 14,740,000 19,944,889 0.28% 964.69 2008 - 197,509 - 5,010,000 - 584,170 - 15,300,000 21,091,679 0.31% 1,008.30 2007 - 260,306 - 7,000,000 - 479,246 - 15,835,000 23,574,552 0.35% 1,122.17 2006 - 320,764 - 7,295,000 - 614,203 - 16,345,000 24,574,967 0.37% 1,176.85 2005 - 400,433 - 7,410,000 - 447,370 - 16,830,000 25,087,803 0.39% 1,209.93 2004 - 186,213 - 5,475,000 - 594,046 - 6,385,000 12,640,259 0.21% 613.04 2003 - 82,613 - 5,580,000 - 794,485 - 6,835,000 13,292,098 0.24% 647.98 2002 - 209,901 - 5,685,000 - 628,656 - 7,495,000 14,018,557 0.27% 692.65 Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. (1) See Schedule 15 for personal income data. (2) See Schedule 15 for population data. Note: Details regarding the City's outstanding debt can be found in the notes to the financial statements. 100  City of Fort Walton Beach, Florida SCHEDULE 11 RATIO OF NET GENERAL BONDED DEBT OUTSTANDING Last Ten Fiscal Years Unaudited Governmental Activities Percentage of General Actual Taxable Fiscal Year Obligation Bonds Value of Property (1) Per Capita (2) 2011 $ - 0.00% $ - 2010 - 0.00% - 2009 - 0.00% - 2008 - 0.00% - 2007 - 0.00% - 2006 - 0.00% - 2005 - 0.00% - 2004 - 0.00% - 2003 - 0.00% - 2002 - 0.00% - Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. (1) See Schedule 6 for property value data. (2) See Schedule 15 for population data. Note: Details regarding the City's outstanding debt can be found in the notes to the financial statements. 101  City of Fort Walton Beach, Florida SCHEDULE 12-A PLEDGED REVENUE COVERAGE SEWER PUBLIC IMPROVEMENT REFUNDING REVENUE BONDS - SERIES 1998 Last Ten Fiscal Years Unaudited Net Revenue Direct Available Fiscal Operating Sales Operating for Debt Debt Service Requirements Year Revenue Tax(1) Expenses(2) Service Principal Interest Total Coverage 2011 $ 7,592,916 $ 1,163,027 $ 5,346,804 $ 3,409,139 $277,500 $ 11,794 $289,294 11.78 2010 6,761,654 1,092,299 4,764,332 3,089,621 266,250 22,976 289,226 10.68 2009 6,403,262 1,125,374 3,773,737 3,754,899 258,750 33,650 292,400 12.84 2008 6,505,297 1,256,319 4,206,922 3,554,694 247,500 43,550 291,050 12.21 2007 6,992,419 1,356,831 4,178,980 4,170,270 236,250 52,763 289,013 14.43 2006 6,538,169 1,460,850 3,657,369 4,341,650 225,000 61,538 286,538 15.15 2005 6,259,731 1,432,060 3,429,396 4,262,395 217,500 69,912 287,412 14.83 2004 5,876,502 1,371,506 3,085,717 4,162,291 210,000 77,787 287,787 14.46 2003 5,348,195 1,204,946 2,877,190 3,675,951 433,750 106,023 539,773 6.81 2002 5,123,375 1,141,363 2,838,501 3,426,237 416,250 120,969 537,219 6.38 (1) Bond ordinance requires sales tax to be part of bond covenant. (2) Depreciation not included. Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. 102  City of Fort Walton Beach, Florida SCHEDULE 12-B PLEDGED REVENUE COVERAGE GOLF PUBLIC IMPROVEMENT REFUNDING REVENUE BONDS - SERIES 1998 Last Ten Fiscal Years Unaudited Net Revenue Direct Available Fiscal Operating Sales Operating for Debt Debt Service Requirements Year Revenue Tax(1) Expenses(2) Service Principal Interest Total Coverage 2011 $ 1,954,325 $ 290,757 $ 1,718,311 $ 526,771 $ 92,500 $ 3,931 $ 96,431 5.46 2010 1,934,392 273,075 1,722,676 484,791 88,750 7,659 96,409 5.03 2009 2,181,988 281,343 1,842,689 620,642 86,250 11,217 97,467 6.37 2008 2,380,448 314,080 1,919,524 775,004 82,500 14,517 97,017 7.99 2007 2,461,151 339,208 2,050,197 750,162 78,750 17,588 96,338 7.79 2006 2,526,754 365,212 1,896,332 995,634 75,000 20,513 95,513 10.42 2005 2,240,899 358,015 1,854,012 744,902 72,500 23,304 95,804 7.78 2004 2,180,552 342,878 1,821,019 702,411 70,000 25,929 95,929 7.32 2003 1,942,550 301,236 1,816,706 427,080 66,250 16,194 82,444 5.18 2002 2,050,888 285,341 1,847,205 489,024 63,750 18,527 82,277 5.94 (1) Bond ordinance requires sales tax to be part of bond covenant. (2) Depreciation not included. Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. 103  City of Fort Walton Beach, Florida SCHEDULE 12-C PLEDGED REVENUE COVERAGE SCHEDULE OF REVENUE BOND COVERAGE Last Ten Fiscal Years Unaudited Average Non-Ad Valorem Revenues Fiscal Non-Ad Valorem Avail. for Debt Service Requirements(2) Year Revenues(1) Debt Service Principal Interest Total Coverage 2011 $ 25,845,100 $ 26,274,792 $ 468,935 $ 695,713 $1,164,648 22.56 2010 26,704,483 26,355,374 510,000 874,423 1,384,423 19.04 2009 26,006,265 28,208,317 340,000 889,985 1,229,985 22.93 2008 30,410,368 31,235,238 325,000 904,730 1,229,730 25.40 2007 32,060,108 30,760,329 315,000 918,699 1,233,699 24.93 2006 29,460,549 31,084,778 300,000 931,488 1,231,488 25.24 2005 32,709,007 29,841,670 285,000 552,986 837,986 35.61 2004 26,974,332 26,011,445 275,000 492,124 767,124 33.91 2003 25,048,557 25,106,627 265,000 502,591 767,591 32.71 2002 25,164,696 24,139,057 215,000 400,090 615,090 39.24 (1) Non-Ad Valorem Revenues of General Fund, Capital Projects Fund, other governmental funds, and proprietary funds. (2) Combined Debt Service requirements for Florida Municipal Loan Council Revenue Bonds-Series 2000B, Capital Improvement Revenue Bonds-Series 2001, Utility System Revenue Bond, Series 2005, and 2011 Revenue Notes. See Financial Statement Notes for detail. Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. 104  City of Fort Walton Beach, Florida SCHEDULE 13 DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT Unaudited Percentage Amount Net Debt Applicable to Applicable to Governmental Unit Outstanding Fort Walton Beach Fort Walton Beach Overlapping Debt Okaloosa County Revenue Bonds $ 30,215,000 10.84% (2) $ 3,273,906 Okaloosa County School District Certificates of Participation 64,350,000 35.85% (1) 23,068,868 Subtotal: Overlapping Debt 94,565,000 26,342,774 Direct Debt City of Fort Walton Beach Revenue Notes 728,480 100.00% 728,480 City of Fort Walton Beach Revenue Bonds 4,615,000 100.00% 4,615,000 Subtotal: Direct Debt 5,343,480 5,343,480 Total Direct and Overlapping Debt $ 99,908,480 $ 31,686,254 Source: Okaloosa County, Okaloosa County School Board (1) Calculation based on total schools in Okaloosa County School District versus schools in Fort Walton Beach. (2) Calculation based on total population in Okaloosa County versus population in Fort Walton Beach. 105  City of Fort Walton Beach, Florida SCHEDULE 14 MAJOR EMPLOYERS Unaudited 2011 2002 Percentage Percentage of Total of Total Employer Product Employees Employment Ranking Employees Employment Ranking USAF - Eglin(1) Air Force Development Test Center 17,095 22.14% 1 19,135 25.82% 1 (2) USAF - Hurlburt Air Force Special Ops Command 11,171 14.47% 2 8,453 11.41% 2 Okaloosa County School District Education Services 3,388 4.39% 3 4,000 5.40% 3 Okaloosa County(3) Local Government Services 1,363 1.77% 4 740 1.00% 8 Lockheed Martin Corporation Military Technical Support 932 1.21% 5 DRS Training and Control Systems Defense Electronics 837 1.08% 6 600 0.81% 9 Fort Walton Beach Medical Center Medical Services 812 1.05% 7 926 1.25% 6 InDyne Inc Military Technical Support 738 0.96% 8 Jacobs Technology - TEAS Group Military Technical Support 700 0.91% 9 Northwest Florida State College Education Services 680 0.88% 10 ResortQuest Property Management 1,200 1.62% 4 BAE Systems Technical Services Military Technical Support 900 1.21% 7 North Okaloosa Medical Center Medical Services 587 0.79% 10 State of Florida State Government Services 966 1.30% 5 37,716 48.85% 37,507 50.62% (1) Includes military, civilian, and contractor personnel. (2) Includes military and civilian personnel. (3) Includes County Commission, Clerk of Court, Property Appraiser, Sheriff, Supervisor of Elections, and Tax Collector. Source: Personnel Department of each employer 106  City of Fort Walton Beach, Florida SCHEDULE 15 MISCELLANEOUS DEMOGRAPHICAL STATISTICS Last Ten Fiscal Years Unaudited Fiscal Fort Walton Beach Okaloosa County FWB as a % Personal Income Per Capita Unemployment Year Population Population of the County (thousands of dollars) Personal Income Rate 2011 19,534 180,280 10.84% $ 7,497,082 $ 42,007 7.3% 2010 20,355 195,346 10.42% 7,369,683 41,050 8.0% 2009 20,675 196,237 10.54% 7,090,979 39,158 7.2% 2008 20,918 197,597 10.59% 6,861,716 37,497 4.8% 2007 21,008 196,540 10.69% 6,781,908 37,423 2.9% 2006 20,882 192,672 10.84% 6,761,736 36,529 2.4% 2005 20,735 188,939 10.97% 6,360,148 34,755 2.9% 2004 20,619 185,778 11.10% 5,982,411 33,068 3.4% 2003 20,513 181,102 11.33% 5,506,510 30,969 3.8% 2002 20,239 176,971 11.44% 5,166,167 29,481 4.4% OKALOOSA COUNTY EDUCATION FY 2011 FY 2010 FY 2009 Schools: Grades K-5 18 18 19 Grades 6-8 7 7 8 Grades 9-12 4 4 4 PK-12 / Charter / Alternate 2 / 4 / 10 2 / 4 / 10 2 / 3 / 11 Grades K-8 1 1 n/a Vocational / Technical 1 1 1 Exceptional Children 2 2 1 Students: Grades K-5 12,442 12,975 12,795 Grades 6-8 6,046 6,471 6,603 Grades 9-12 8,381 8,889 9,082 Vocational and Adult Students 280 302 341 Exceptional Children 4,031 4,270 5,218 Charter 1,449 1,431 1,315 Personnel: Instructional (Classroom) 1,896 1,849 1,999 Non-Instructional 941 1,013 1,154 Source: Office of Economic & Demographic Research, FL Research & Economic Database, FL Labor Market Statistics Okaloosa County School Board 107  City of Fort Walton Beach, Florida SCHEDULE 16 FULL-TIME EQUIVALENT EMPLOYEES BY FUNCTION/PROGRAM Last Ten Fiscal Years Unaudited Full-Time Equivalent Employees as of September 30 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 General Government City Manager 2.00 2.00 2.00 3.00 4.00 3.00 3.00 3.00 3.00 4.00 Administrative Services 3.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 5.00 Risk Management - 1.00 1.00 - - - - - - - Information Technology 2.00 2.75 2.75 3.00 4.00 4.00 4.00 4.00 4.00 4.00 City Clerk 2.50 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 Finance 7.00 7.00 7.00 7.00 7.00 7.75 8.00 9.00 9.00 9.00 Purchasing 2.50 2.50 2.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 Public Safety Police 67.99 67.59 68.05 74.05 73.17 72.95 72.95 74.95 75.95 75.95 Fire 37.00 38.00 38.00 39.00 39.00 39.00 33.00 33.00 33.00 33.00 Recreation & Cultural Services Administration 13.81 15.93 17.19 32.09 32.64 34.04 34.04 34.04 34.04 34.04 Parks Maintenance 11.00 11.00 11.90 - - - - - - - Right-of-Way Maintenance 1.00 7.00 8.00 9.00 9.00 9.00 9.00 10.00 10.00 9.00 Senior Citizens Center 1.85 1.85 1.85 2.38 2.58 2.58 2.58 3.08 3.08 3.08 Library 8.10 9.90 9.90 10.60 11.10 11.10 11.10 11.10 10.50 10.50 Museum 2.60 3.85 4.98 5.18 6.01 7.01 7.01 7.01 7.01 7.01 Cemetery 3.00 3.00 3.50 3.50 3.50 3.00 3.00 3.00 3.00 3.00 Engineering Services Administration 5.00 6.00 6.00 7.00 7.00 8.00 10.00 10.00 10.00 10.00 Planning & Zoning 1.00 1.00 - 4.00 4.00 5.00 5.00 5.00 5.00 5.00 Building & Permitting 3.00 3.00 3.00 6.00 6.00 4.00 4.00 4.00 4.00 4.00 Code Enforcement 2.00 2.00 2.00 - - - - - - - Fleet Maintenance 8.75 10.00 11.00 12.00 12.00 12.00 13.00 13.00 13.00 13.00 Facilities Maintenance 8.00 11.00 11.00 10.00 11.00 11.00 11.00 11.00 11.00 12.00 Streets Maintenance 5.50 6.50 6.50 14.50 13.50 15.00 15.00 15.00 16.00 16.00 Community Development Block Grant 0.48 0.48 0.48 0.48 1.48 1.48 1.48 1.48 1.48 1.48 Community Redevelopment Agency 3.00 1.00 1.00 1.00 1.75 1.75 1.00 1.00 1.00 1.00 Utility (Water/Sewer) Enterprise Customer Service 5.50 7.50 7.50 8.00 9.00 9.00 8.00 8.00 8.00 8.00 Administration 6.75 1.00 2.00 6.00 5.00 5.00 - - - - Water Operations 10.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 Sewer Operations - 2.00 11.00 11.00 13.00 13.00 16.00 16.00 15.00 15.00 Water Distribution 5.00 6.00 6.00 6.00 7.00 7.00 6.00 6.00 6.00 6.00 Sewer Collections 12.00 11.00 11.00 11.00 12.00 11.00 11.00 11.00 11.00 11.00 Sanitation Enterprise Solid Waste 18.75 19.62 19.87 21.00 21.00 21.00 22.00 22.00 22.00 22.00 Recycling - - - - 4.00 4.00 4.00 4.00 4.00 4.00 Golf Enterprise Golf Club 14.26 14.26 31.01 36.51 36.56 36.56 36.36 37.56 37.61 37.61 Golf Grounds Maintenance 15.75 15.75 - - - - - - - - Stormwater Enterprise Stormwater 6.00 7.00 8.00 - - - - - - - Total 296.09 312.48 329.48 362.29 375.29 377.22 370.52 376.22 376.67 378.67 Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. 108  City of Fort Walton Beach, Florida SCHEDULE 17 PERMITS, LICENSES AND RECREATION FACILITIES Last Ten Fiscal Years Unaudited MISCELLANEOUS PERMITS Year Mechanical Electrical Gas Plumbing Water & Sewer 2011 249 255 74 159 18 2010 212 290 87 154 27 2009 142 285 52 158 16 2008 168 298 97 178 20 2007 177 340 109 157 30 2006 202 473 126 235 32 2005 152 438 103 162 37 2004 163 396 61 182 53 2003 145 371 84 158 70 2002 168 337 70 128 63 BUSINESS TAX RECEIPTS ISSUED (formerly referred to as occupational licenses) Year Number Sold 2011 2,269 2010 2,311 2009 2,364 2008 2,426 2007 2,499 2006 2,483 2005 2,496 2004 2,391 2003 2,317 2002 2,361 MUNICIPAL RECREATIONAL FACILITIES 2 18-hole Golf Courses 1 Library 1 18-hole Disc Golf Course 4 Museums 1 Auditorium 23 Playgrounds 7 Baseball-Softball Facilities 1 Racquetball Court Facility 1 BMX/Skateboard Facility 4 Recreation Centers 5 Boat Ramps 2 Soccer Field Facilities 5 Exercise/Walking Tracks 4 Tennis Court Facilities 1 Fairgrounds 7 Undeveloped Parks 1 Football Stadium 4 Waterfront Parks Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. 109  City of Fort Walton Beach, Florida SCHEDULE 18 ELECTIONS - OKALOOSA COUNTY VOTER REGISTRATION Unaudited Registered Voters Pct Place Name Total Dems Reps NPA Other 01 BAKER 1,911 441 1,276 181 13 02 BLACKMON 614 169 396 45 4 03 MILLIGAN 1,109 259 684 153 13 04 HOLT 1,085 283 628 157 17 05 LAUREL HILL 960 317 479 151 13 06 GARDEN CITY 2,262 545 1,379 314 24 07 DORCAS 1,370 358 756 234 22 08 HONEY CREEK 3,757 973 2,153 583 48 09 YELLOW RIVER 3,197 686 1,948 528 35 10 WEST WRIGHT 5,845 1,438 3,110 1,174 123 11 EAST CRESTVIEW 6,606 1,453 3,666 1,359 128 12 WEST CRESTVIEW 855 516 202 135 2 13 NORTH CRESTVIEW 3,066 780 1,769 473 44 14 WEST NICEVILLE 2,343 547 1,357 401 38 15 VALPARAISO 2,866 612 1,671 528 55 16 SHALIMAR 2,587 642 1,457 430 58 17 CENTRAL WRIGHT 3,145 908 1,488 684 65 18 OCEAN CITY 2,352 671 1,145 465 71 19* EAST FWB 1,403 491 554 320 38 20 WEST DESTIN 2,338 493 1,327 463 55 21 MARY ESTHER 2,615 659 1,496 413 47 22* S CENTRAL FWB 1,966 651 903 371 41 23 EGLIN AFB 933 242 407 267 17 24* WEST FWB 2,860 889 1,383 528 60 25 N CENTRAL NICEVILLE 1,703 398 1,012 272 21 26 SEMINOLE 2,540 414 1,721 370 35 27 CINCO BAYOU 262 61 150 45 6 28* GARNIERS 334 65 209 56 4 29* GOLF COURSE 2,041 365 1,361 281 34 30 OKALOOSA ISLAND 1,401 244 828 296 33 31 LONGWOOD 1,798 325 1,221 220 32 32* FERRY PARK 2,077 435 1,287 323 32 33 ROCKY BAYOU 4,137 557 2,994 528 58 34 FLOROSA 3,444 884 1,768 736 56 35 NORTH DESTIN 2,361 330 1,587 408 36 36 SOUTH NICEVILLE 2,353 390 1,596 327 40 37 LAKE LORRAINE 2,714 408 1,900 365 41 38 NORTHGATE 2,022 481 1,147 353 41 39 EAST WRIGHT 2,359 668 1,248 405 38 40 SOUTH BLUEWATER 2,840 361 2,050 391 38 41* N CENTRAL FWB 1,343 281 854 188 20 42* NEW HEIGHTS 2,229 716 1,051 440 22 43 S CENTRAL NICEVILLE 2,173 473 1,278 371 51 44 CENTRAL DESTIN 1,737 375 922 385 55 45 SOUTH CRESTVIEW 3,729 876 2,013 772 68 46 NORTH BLUEWATER 4,264 608 2,937 641 78 47 WYNNEHAVEN BEACH 1,955 474 948 484 49 48* WESTWOOD RETIREMENT 141 28 93 15 5 49 EAST DESTIN 2,786 389 1,875 479 43 50 SOUTH DESTIN 2,863 431 1,893 482 57 51 AIRPORT ROAD 1,525 286 998 226 15 52 LIVE OAK 3,165 662 1,858 582 63 Countywide Total 120,341 27,008 70,433 20,798 2,102 City Total 12,287 3,347 6,596 2,110 234 *City Precinct Source: Okaloosa County Supervisor of Elections 110  City of Fort Walton Beach, Florida SCHEDULE 19 SPECIAL ASSESSMENT BILLINGS AND COLLECTIONS Last Ten Fiscal Years Unaudited Total Ratio of Outstanding Assessments Collections Current and Fiscal Collected or to Amount Delinquent Year Assessments(1) Released Assessed Assessment 2011 $ - $ 5,986 0.00% $ 137,785 2010 - 19,801 0.00% 143,772 2009 - 6,528 0.00% 163,572 2008 - 7,511 0.00% 170,100 2007 218,730 72,576 33.18% 177,611 2006 0.00 1,965 0.00% 31,456 2005 0.00 50,257 0.00% 33,421 2004 0.00 37,510 0.00% 83,678 2003 0.00 13,783 0.00% 121,188 2002 161,037 27,452 17.05% 134,972 (1) Assessments are payable over a 20 year period. Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. 111  City of Fort Walton Beach, Florida SCHEDULE 20 MAJOR REVENUE SOURCES Last Ten Fiscal Years Unaudited Other Fiscal Property % of Total Taxes/ % of Total Sewer % of Total Sanitation % of Total Water % of Total Golf % of Total Year Taxes Revenues Franchise Fees Revenues Fees Revenues Fees Revenues Fees Revenues Fees Revenues 2011 $ 6,030,428 19.2% $ 6,673,824 21.2% $ 4,631,992 14.7% $ 3,307,993 10.5% $ 2,753,590 8.8% $ 1,954,589 6.2% 2010 5,332,480 17.5% 6,645,189 21.8% 4,154,795 13.6% 3,335,342 10.9% 2,379,913 7.8% 1,914,053 6.3% 2009 5,629,812 19.0% 6,425,482 21.7% 3,943,722 13.3% 3,363,185 11.4% 2,245,512 7.6% 2,164,174 7.4% 2008 6,021,743 20.6% 5,706,534 19.5% 3,984,282 13.6% 3,441,588 11.8% 2,271,327 7.8% 2,365,739 8.1% 2007 6,123,749 15.7% 5,645,463 14.5% 4,162,172 10.7% 3,427,925 8.8% 2,492,378 6.4% 2,441,793 6.3% 2006 5,303,877 14.9% 6,544,881 18.4% 3,932,591 11.1% 3,369,729 9.5% 2,360,766 6.6% 2,500,736 7.0% 2005 4,421,852 11.8% 5,957,840 15.8% 3,727,073 9.9% 3,311,508 8.8% 2,179,849 5.8% 2,224,935 5.9% 2004 4,166,452 13.1% 4,983,270 15.7% 3,544,738 11.2% 3,240,131 10.2% 689,910 2.2% 2,173,351 6.9% 2003 4,019,951 13.7% 4,912,208 16.7% 3,245,492 11.0% 3,049,650 10.4% 1,890,754 6.4% 1,941,010 6.6% 2002 3,874,977 11.1% 4,506,698 12.9% 3,117,845 8.9% 2,991,869 8.5% 1,782,375 5.1% 2,014,890 5.8% Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The city implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. 112  City of Fort Walton Beach, Florida SCHEDULE 21 WATER AND WASTEWATER SERVICE RATES Unaudited Monthly Water Rates (1,2) Residential Commercial Number of Inside Outside(3) Inside Outside(3) Meters Lifeline Rate(4) $7.83 $9.78 $7.83 $9.78 Monthly Base Charge(5), Meter Size: 3/4" $7.83 $9.78 $7.83 $9.78 9,147 1.0" $7.83 $9.78 $7.83 $9.78 347 1.5" $10.65 $13.31 $10.65 $13.31 112 2.0" $18.09 $22.61 $18.09 $22.61 225 3.0" $27.56 $34.45 $27.56 $34.45 14 4.0" $34.45 $43.06 $34.45 $43.06 20 6.0" $54.81 $68.51 $54.81 $68.51 0 8.0" or 10.0" $82.14 $102.67 $82.14 $102.67 1 Multi-Residential, Addt'l per Unit $5.79 $7.23 $7.83 $9.78 9,866 Residential Customers 7,865 Commercial Customers 939 Total Customers 8,804 Gallonage Rate (per 1,000 gallons per unit) Inside Outside Block 1 (0 - 2,000) Included in monthly base charge Block 2 (2,001 - 4,000) $2.34 $2.92 Block 3 (4,001 - 8,000) $2.85 $3.56 Block 4 (8,001 +) $4.28 $5.35 Monthly Wastewater Rates (2) Residential Commercial (4) Lifeline Rate $17.16 Monthly Base Charge $17.16 $20.59 Gallonage Rate (per 1,000 gallons per unit) (5) Block 1 (0 - 2,000) Included in monthly base charge Block 2 (2,001 +) $5.39 $6.47 (1) Irrigation customers subject to water rates as outlined herein (2) Monthly Base Charge is per Unit. Residential Single Family and Commercial count as 1 unit. Multi-Family and Multi-Commercial are billed according to meter size and unit count. (3) Outside City surcharge of 125% for water. (4) Single family residence with less than 2,000 gallons per month (5) Residential service capped at 16,000 gallons per unit Source: City of Fort Walton Beach Comprehensive Fee Schedule 113  City of Fort Walton Beach, Florida SCHEDULE 22 SANITATION AND RECYCLING SERVICE RATES Unaudited Basic Garbage Rates Garbage Tipping Total Residential One Container $ 10.60 $ 5.25 $ 15.85 Residential Dumpsters, Individual Meters 10.60 5.25 15.85 Commercial One Container 28.60 5.97 34.57 Two Containers 57.20 11.95 69.15 Special Pick-up 37.35 5.97 43.32 Shared Dumpster (minimum charge) 28.60 5.97 34.57 Garbage and Trash Collection Garbage Tipping Total 2 Cubic Yards 2 times per week $ 60.70 $ 43.11 $ 103.81 3 times per week 91.05 64.63 155.68 4 times per week 121.45 86.16 207.61 5 times per week 151.75 107.69 259.44 6 times per week 182.10 129.21 311.31 4 Cubic Yards 2 times per week 85.70 86.16 171.86 3 times per week 128.55 129.21 257.76 4 times per week 171.40 172.27 343.67 5 times per week 214.25 215.32 429.57 6 times per week 257.10 258.38 515.48 6 Cubic Yards 2 times per week 112.50 129.21 241.71 3 times per week 168.75 193.79 362.54 4 times per week 224.95 258.38 483.33 5 times per week 281.20 322.96 604.16 6 times per week 337.45 387.59 725.04 8 Cubic Yards 2 times per week 135.70 172.27 307.97 3 times per week 203.55 258.38 461.93 4 times per week 271.40 344.48 615.88 5 times per week 339.25 430.64 769.89 6 times per week 407.10 516.75 923.85 One time fee to change size of dumpster $25.00 Extra Collection Garbage Tipping Total Extra residential trash pick-up $120.00 per hour, $15.00 minimum Extra commercial trash pick-up - 2 CY $ 26.00 $ 8.24 $ 34.24 Extra commercial trash pick-up - 4 CY 28.00 15.45 43.45 Extra commercial trash pick-up - 6 CY 30.00 21.63 51.63 Extra commercial trash pick-up - 8 CY 33.00 27.81 60.81 Source: City of Fort Walton Beach Comprehensive Fee Schedule 114  City of Fort Walton Beach, Florida SCHEDULE 23 OPERATING INDICATORS BY FUNCTION/PROGRAM Last Ten Fiscal Years Function Unaudited Fiscal Year 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 Public Safety Police Physical arrests 1,265 1,773 2,298 2,526 2,201 1,916 1,708 1,801 1,250 1,703 Traffic violations 3,246 6,207 6,430 7,211 5,171 5,399 5,633 7,138 8,208 7,415 Fire Emergency medical responses 3,041 2,791 2,645 2,484 2,567 2,441 1,671 1,605 1,738 1,760 Fire responses 1,224 1,158 477 479 517 335 403 143 1,217 100 Inspections 1,431 2,040 2,863 3,277 3,319 2,605 1,658 1,876 1,780 1,150 Code Enforcement Code violations 2,456 2,426 2,513 2,108 1,793 1,914 1,674 1,632 N/A N/A Engineering Services Building permits issued n/a n/a 1,429 1,582 1,710 2,341 3,151 1,907 1,779 1,818 Residential building permits issued 588 630 n/a n/a n/a n/a n/a n/a n/a n/a Commercial building permits issued 284 380 n/a n/a n/a n/a n/a n/a n/a n/a Value of permits (in millions) n/a n/a $46.20 $37.40 $28.70 $31.10 $61.70 $20.80 $16.00 $16.60 Value of residential permits (in millions) $10.067 $7.108 n/a n/a n/a n/a n/a n/a n/a n/a Value of commercial permits (in millions $7.276 $7.094 n/a n/a n/a n/a n/a n/a n/a n/a Street resurfacing (lane miles) 2.25 5.71 1.53 0.78 0.46 2.25 3.55 3.17 3.61 3 Pot holes (hours spent repairing) 1,014 617 1,257 1,476 1,022 713 861 613 997 937 Sanitation Refuse collected (tons) 25,332 25,676 25,485 27,873 28,374 28,446 34,378 28,813 27,661 25,000 Recyclables collected (tons) 251 161 150 112 367 400 385 417 428 600 Culture and Recreation Parks and Recreation Recreation program participants 106,486 103,121 116,565 118,890 125,697 120,329 86,312 79,991 75,622 82,711 Adult athletic participants 9,003 10,009 11,406 14,591 14,669 14,239 1,155 968 1,725 1,665 Youth athletic participants 13,038 12,525 14,211 15,570 14,418 14,254 1,674 1,327 1,877 1,969 Skate/tennis park participants 18,291 15,297 18,480 24,100 29,088 29,396 24,741 24,670 19,936 29,550 Library Circulation volume 126,146 135,314 142,148 137,002 126,271 124,489 118,368 116,883 106,603 93,167 Museum Number of visitors/participants(1) 28,200 39,935 47,700 45,168 28,916 30,144 31,531 35,598 28,814 25,300 Water System New connections 18 27 16 20 30 32 37 53 70 63 Water customers 8,804 8,795 8,741 8,927 8,996 8,966 8,984 8,928 8,874 8,874 Water produced (million gallons) 899 897 943 963 1,071 1,127 1,046 1,047 1,025 1,076 Wastewater System Wastewater treated (million gallons)(2) - 381 769 916 796 839 1,164 935 1,186 877 (1) Decline in 2011 primarily in outreach numbers; reducing outreach to be more in line with in-house service numbers at the suggestion of City Council (2) Wastewater treatment transferred to County in March 2010 Source: City of Fort Walton Beach Performance Measures. 115  City of Fort Walton Beach, Florida SCHEDULE 24 CAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM Last Ten Fiscal Years Unaudited Function/Program Fiscal Year 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 Public Safety Police Stations 1 1 1 1 1 1 1 1 1 1 Sworn officers 48 49 49 55 53 52 N/A N/A N/A N/A Engineering Services (2) (1) Miles of roads 92.65 112.76 112.76 99.35 98.50 98.50 98.50 98.50 98.50 98.50 Miles of sidewalks 62.80 62.11 61.35 61.32 60.92 60.82 N/A N/A N/A N/A Signs fabricated and installed 976 910 1,110 1,223 1,481 1,412 1,509 894 918 860 Culture and Recreation Parks and Recreation Recreational amenities 122 122 (3) 91 90 90 89 82 89 82 81 Parks (acres) 180.26 180.26 180.26 180.26 180.26 173.58 143.55 144.44 143.55 141.05 Library Inventoried collection 72,873 74,317 73,641 71,006 69,061 68,064 67,517 59,843 60,830 63,086 Water and Sewer System Water lines (miles) 118.57 118.52 118.10 118.09 118.09 115.95 115.69 115.54 115.37 115.30 Sewer lines (miles) 118.76 118.77 118.77 118.77 118.77 118.77 118.64 118.64 118.29 118.26 Reuse water lines (miles) 3.82 3.82 4.14 4.14 4.14 4.14 2.19 2.19 2.19 2.19 Elevated Storage Tank Capacity: 2 tanks 200,000 gal; 1 tank 750,000 gal; 2 tanks 500,000 gal Ground Storage Tank Capacity: 1 tank 135,000 gal; 1 tank 250,000 gal; 1 tank 1,000,000 gal Pumping Capacity of Water Wells: 9.231 million gallons per day Stormwater System Storm drains (miles) 41.64 (2) 45.70 45.66 (1) 34.73 34.73 34.73 N/A N/A N/A N/A (1) FY 2009 Increase due to better data with GIS system and methodology change for calculation. (2) FY 2011 Adjustment to only include City-maintained roads and stormwater pipe (collector, culvert, french drain) (3) FY 2010 Adjustment due to re-evaluation of how amenities are counted. N/A: Not available. Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. 116  City of Fort Walton Beach, Florida SCHEDULE 25 INSURANCE COVERAGE September 30, 2011 Unaudited Agent, Broker, or Effective Dates Company Policy Number Company Rep. Type Amount Location 10/12/10 to 10/12/11 Fidelity National 1150113370 Fisher-Brown Agency Flood $ 402,700 B 4th Avenue & Carson $ 16,300 C Chester Pruitt Building 10/12/10 to 10/12/11 Fidelity National 1150113362 Fisher-Brown Agency Flood $ 402,700 B 50 Ferry Road $ 23,500 C Docie Bass Recreation Building 10/12/10 to 10/12/11 Fidelity National 1150113371 Fisher-Brown Agency Flood $ 402,700 B 14 Robinwood Drive SW $ 84,500 C Sanitation Building 12/06/10 to 12/06/11 Fidelity National 1150167295 Fisher-Brown Agency Flood $ 500,000 B #7 Hollywood Boulevard $ 500,000 C Police Department 10/12/10 to 10/12/11 Fidelity National 1150113360 Fisher-Brown Agency Flood $ 500,000 B #5 Hollywood Boulevard $ 260,100 C Fire Department 10/12/10 to 10/12/11 Fidelity National 1150113366 Fisher-Brown Agency Flood $ 366,100 B Memorial Parkway $ 31,100 C Senior Citizens Building 10/1210 to 10/12/11 Fidelity National 1150113367 Fisher-Brown Agency Flood $ 402,700 B 107 Miracle Strip Parkway $ 128,200 C Auditorium 10/12/10- to 10/12/11 Fidelity National 1150113368 Fisher-Brown Agency Flood $ 402,700 B 107 Miracle Strip Parkway $ 382,900 C City Hall 10/12/10 to 10/12/11 Fidelity National 1150113361 Fisher-Brown Agency Flood $ 177,300 B 107 Miracle Strip Parkway $ 16,300 C Council Chamber 10/12/10 to 10/12/11 Fidelity National 1150113365 Fisher-Brown Agency Flood $ 402,700 B 107 Miracle Strip Parkway $ 382,900 C Annex Building 10/12/10 to 10/12/11 Fidelity National 1150113363 Fisher-Brown Agency Flood $ 389,700 B 107 Miracle Strip Parkway $ 16,300 C Utility Building Continued… 117  City of Fort Walton Beach, Florida SCHEDULE 25 INSURANCE COVERAGE September 30, 2011 Unaudited Agent, Broker, or Effective Dates Company Policy Number Company Rep. Type Amount Location 10/12/10 to 10/12/11 Fidelity National 1150113369 Fisher-Brown Agency Flood $ 402,700 B 141 Miracle Strip Parkway $ 51,200 C City Museum 10/12/10 to 10/12/11 Fidelity National 1150113364 Fisher-Brown Agency Flood $ 324,200 B 22 McGriff Street 7,900 C Child Care Facility 12/02/10 to 12/02/11 Fidelity National 1150164378 Fisher-Brown Agency Flood $ 38,500 B 338 Miracle Strip Parkway Restroom, East of Pavillion Liza Jackson Park 12/02/10 to 12/02/11 Fidelity National 1150164379 Fisher-Brown Agency Flood $ 38,500 B 338 Miracle Strip Parkway Restroom Near Ditch Liza Jackson Park 05/17/10 to 05/17/11 Fidelity National 92510117093 Fisher-Brown Agency Flood $ 98,300 B 55 Ferry Road Boy Scout Hut 07/23/10 to 07/23/11 Fidelity National 97700165626 Fisher-Brown Agency Flood $ 266,200 B 18 Robinwood Drive $ 33,600 C Pump Station #1 06/23/10 to 06/23/11 Fidelity National 92510234651 Fisher-Brown Agency Flood $ 55,000 B 168 Coral Drive SW City Hall Ball Field Restrooms 10/01/10 to 10/01/11 Indian Harbor Ins. Co. PEC002924701 Public Risk Insurance Agency Petroleum $ 1,000,000/inc Golf Course, Police, City Shop, Fuel Station, Liability $ 1,000,000/agg 10/01/10 to 10/01/11 PGIT PKFL1046200310-06 Public Risk Insurance Agency Inland $ 625,978/fine Art Museum Marine $ 10,000/schedul $ 5,672,449 $ 804,400 EDP/Minicomputer/Word Processor $ 500,000 Valuable Papers Continued… 118  City of Fort Walton Beach, Florida SCHEDULE 25 INSURANCE COVERAGE September 30, 2011 Unaudited Agent, Broker, or Effective Dates Company Policy Number Company Rep. Type Amount Location 09/16/10 to 09/16/11 Hartford 21BSBDB7453 Fisher-Brown Agency Public Official $ 50,000 Finance Director Bond 04/18/10 to 04/18/11 Hartford 21BSBDB7454 Fisher-Brown Agency Public Official $ 50,000 Customer Service Administrator, Finance Bond Department 10/01/10 to 10/01/11 PGIT PKFL1046200310-06 Public Risk Insurance Agency Auto $ 100,000 Person $ $ 1,000,000 CSL Liability 10/01/10 to 10/01/11 PGIT PKFL1046200310-06 Public Risk Insurance Agency Forgery $ 250,000 Alteration 10/01/10 to 10/01/11 PGIT PKFL1046200310-06 Public Risk Insurance Agency Money & varies by location Securities 10/01/10 to 10/01/11 PGIT PKFL1046200310-06 Public Risk Insurance Agency Crime $ 250,000 Public Employees Blanket Fidelity Bond 10/01/10 to 10/01/11 PGIT PKFL1046200310-06 Public Risk Insurance Agency General $ 100,000 Person Liability $ 200,000 Occurrence $ 5,000,000 CSL Liability 10/01/10 to 10/01/11 PGIT PKFL1046200310-06 Public Risk Insurance Agency Property $ 37,790,647 Blank Real & Personal Property, extra expense 10/01/10 to 10/01/11 PGIT PKFL1046200310-06 Public Risk Insurance Agency Property $ 500,000 Business Income Water & Wastewater Enterprises 10/01/10 to 10/01/11 PGIT SC-FL-0462003 Public Risk Insurance Agency Worker's $ 1,000,000 Accident Comp $ 1,000,000 Disease Continued… 119  City of Fort Walton Beach, Florida SCHEDULE 25 INSURANCE COVERAGE September 30, 2011 Unaudited Agent, Broker, or Effective Dates Company Policy Number Company Rep. Type Amount Location 10/01/10 to 10/01/11 PGIT PKFL1046200310-06 Public Risk Insurance Agency Supplemental $ 5,000,000 Empl. Practice CSL 10/01/10 to 10/01/11 Federal Insurance 9906-62-32 LB Bryan & Co. AD&D $ 59,695 Occupational Death $ 59,695 Response to Emergency $ 179,085 Unlawful/Unintentional 10/01/10 to 10/01/11 PGIT PKFL1046200310-06 Public Risk Insurance Agency Boiler & $ 37,790,647 Machinery 05/01/10 to 05/01/11 Travelers 103148718 Fisher-Brown Agency Fiduciary $ 2,000,000 Retirement Fund for General Liability Employees, Police, and Fire Police currently has their own policy; was prorated for t Source: City of Fort Walton Beach Risk Management Department 120 (THIS PAGE INTENTIONALLY LEFT BLANK.) IV. COMPLIANCE SECTION ƒ COMPLIANCE MATTERS ƒ MANAGEMENT LETTERS ƒ RESPONSES TO THE MANAGEMENT LETTER  45 Eglin Pkwy., N.E. Suite 301 Fort Walton Beach, FL 32548 850.244.5121 Fax: 850.664.2562 www.warrenaverett.com Honorable Mayor and City Council Members City of Fort Walton Beach, Florida REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS We have audited the financial statements of governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Fort Walton Beach, Florida, as of and for the year ended September 30, 2011, which collectively comprise the City of Fort Walton Beach's basic financial statements and have issued our report thereon dated March 9, 2012. 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 In planning and performing our audit we considered the City of Fort Walton Beach's internal control over financial reporting as a basis for designing our auditing procedures for the purposes of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City of Fort Walton Beach's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City'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 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. Compliance and Other Matters As part of obtaining reasonable assurance about whether the City of Fort Walton Beach's 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. 121 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards (Continued) We noted certain matters that we reported to management of the City of Fort Walton Beach in a separate letter dated March 9, 2012. This report is intended solely for the information and use of the Audit Committee, Management, others within the organization, and City Council, and is not intended to be and should not be used by anyone other than these specified parties. March 9, 2012 122  45 Eglin Pkwy., N.E. Suite 301 Fort Walton Beach, FL 32548 850.244.5121 Fax: 850.664.2562 www.warrenaverett.com Honorable Mayor and City Council Members City of Fort Walton Beach, Florida MANAGEMENT LETTER We have audited the financial statements of the City of Fort Walton Beach, Florida, as of and for the fiscal year ended September 30, 2011, and have issued our report thereon dated March 9, 2012. 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. We have issued our Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards. Disclosures in this report, which is dated March 9, 2012, should be considered in conjunction with this management letter. Additionally, our audit was conducted in accordance with Chapter 10.550, Rules of the Auditor General, which govern the conduct of local governmental entity audits performed in the State of Florida. This letter includes the following information, which is not included in the aforementioned auditor's report: Section 10.554(1)(i)1., Rules of the Auditor General, requires that we determine whether or not corrective actions have been taken to address findings and recommendations made in the preceding annual financial report. There were no significant findings in the preceding financial report. Section 10.554(1)(i)2, Rules of the Auditor General, requires our audit to include a review of the provisions of Section 218.415, Florida Statutes, regarding the investment of public funds. In connection with our audit, we determined that the City of Fort Walton Beach, Florida, complied with Section 218.415, Florida Statutes. Section 10.554(1)(i)3., Rules of Auditor General, requires that we address in the management letter any recommendations to improve financial management. In connection with our audit, we did not have any such recommendations. Section 10.554(1)(i)4., Rules of Auditor General, requires that we address violations of laws, regulations, contracts or grant agreements, or abuse, that have occurred, or are likely to have occurred, that have an effect on the financial statements that is less than material but more than inconsequential. In connection with our audit, we did not have any such findings. Section 10.554(1)(i)5., Rules of the Auditor General, provides that the auditor may, based on professional judgment, report the following matters that have an inconsequential effect on the financial statements, considering both quantitative and qualitative factors: (1) violations of provisions of contracts or grant agreements, fraud, illegal acts or abuse, and (2) deficiencies in internal control that are not significant deficiencies. In connection with our audit, we did not have any such findings. 123 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Management Letter (Continued) Section 10.554(l)(i)6., Rules of the Auditor General, requires that the name or official title and legal authority for the primary government and each component unit of the reporting entity be disclosed in this management letter, unless disclosed in the notes to the financial statements. The City of Fort Walton Beach, Florida, was established as a municipality by a Special Act of the Florida Legislature in 1937. The City's original charter was enacted as Chapter 18539, Laws of Florida. The present charter was enacted in 1953 as Chapter 29093, Laws of Florida. The City of Fort Walton Beach, Florida, had one component unit within its reporting entity. The Fort Walton Beach Community Redevelopment Agency was created pursuant to provisions of Chapter 163, Part III, Florida Statutes. This action, adopted by Resolution Number 77- 38, also outlines the rights, powers, duties, privileges, and immunities invested in the governing body. City ordinance 1262, adopted on September 27, 1994, gave the City Council the authority to appoint an independent Board of Commissioners in place of the City Council effective January 1, 1995. During 1992, the Florida Department of Community Affairs determined that the Fort Walton Beach Housing Authority was a dependent special district of the City of Fort Walton Beach. Utilizing the standards set forth in GASB 14, the Fort Walton Beach Housing Authority was not considered as having met sufficient criteria for inclusion within the City's audited financial statements for the year ended September 30, 2011. As a result, the Fort Walton Beach Housing Authority is not included in the City's annual financial report. During 2011, the Fort Walton Beach Community Redevelopment Agency (the Agency) became a blended component unit of the City. The City's council members serve as board members of the Agency. The Agency's governing body is the same as the governing body of the City and the Agency provides services specifically to the Community Redevelopment Area of the City. Due to the nature and significance of the Agency's relationship with the City, exclusion of the Agency's financial operations would render the City's financial statements incomplete or misleading. Section 10.554(1)(i)7.a., Rules of the Auditor General, requires a statement be included as to whether or not the local government entity has met one or more of the conditions described in Section 218.503(1), Florida Statutes, and identification of the specific condition(s) met. In connection with our audit, we determined that the City of Fort Walton Beach, Florida did not meet any of the conditions described in Section 218.503(1), Florida Statutes. Section 10.554(1)(i)7.b., Rules of the Auditor General, requires that we determine whether the annual financial report for the City of Fort Walton Beach, Florida, for the fiscal year ended September 30, 2011, filed with the Florida Department of Financial Services pursuant to Section 218.32(1)(a), Florida Statutes, is in agreement with the annual financial audit report for the fiscal year ended September 30, 2011. In connection with our audit, we determined that these two reports were in agreement. Pursuant to Sections 10.554(1)(i)7.c., and 10.556(7), Rules of the Auditor General, we applied financial condition assessment procedures. It is management's responsibility to monitor the City's financial condition, and our financial condition assessment was based in part on representations made by management and the review of financial information provided by same. Our assessment was performed as of September 30, 2011. Pursuant to Chapter 119, Florida Statutes, this management letter is a public record and its distribution is not limited. Auditing standards generally accepted in the United States of America require us to indicate that this letter is intended solely for the information and use of management, and the Florida Auditor General, and is not intended to be and should not be used by anyone other than these specified parties. We greatly appreciate the assistance and cooperation extended us during our audit. March 9, 2012 124