Fort Walton Beach — Comprehensive Annual Financial Report September 30, 2012

Comprehensive Annual Financial Report City of Fort Walton Beach, FL With Compliance Matters and Responses Fiscal Year Ended September 30, 2012 City of Fort Walton Beach, Florida COMPREHENSIVE ANNUAL FINANCIAL REPORT for the Fiscal Year Ended September 30, 2012 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 Michael D. Beedie 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, 2012 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, 2012 Statement/ Page Schedule II. FINANCIAL SECTION (CONTINUED) C. REQUIRED SUPPLEMENTARY INFORMATION Pension Schedules Schedule of Funding Progress 80 A-1 Schedule of Contributions from the Employer and Other Contributing Entities 81 A-2 Schedule of Other Post-Employment Obligations 82 A-3 D. COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES Non-Major Governmental Funds Combining Balance Sheet 83 B-1 Combining Statement of Revenues, Expenditures and Changes in Fund Balance 84 B-2 Schedules of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Law Enforcement Trust Special Revenue Fund 85 C-1 Law Enforcement Trust Training Special Revenue Fund 86 C-2 Community Development Block Grant Special Revenue Fund 87 C-3 Beal Memorial Cemetery Perpetual Care Special Revenue Fund 88 C-4 Debt Service Fund 89 C-5 Non-Major Fund – Enterprise Fund Statement of Net Assets 90 D-1 Statement of Revenues, Expenses and Changes in Net Assets 91 D-2 Statement of Cash Flows 92 D-3 III. STATISTICAL SECTION (UNAUDITED) Net Assets by Component 93 1 Changes in Net Assets 94 2 Fund Balances - Governmental Funds 96 3 Changes in Fund Balances - Governmental Funds 97 4 Revenues and Other Sources 98 5 Assessed Value of Taxable Property 99 6 Property Tax Rates Per $1,000 of Taxable Value - All Direct and Overlapping Governments 100 7 ii  City of Fort Walton Beach, Florida COMPREHENSIVE ANNUAL FINANCIAL REPORT Year Ended September 30, 2012 Statement/ Page Schedule III. STATISTICAL SECTION (UNAUDITED) Principal Taxpayers 101 8 Property Tax Levies and Collections 102 9 Ratios of Outstanding Debt by Type 103 10 Ratio of Net General Bonded Debt Outstanding 104 11 Pledged Revenue Coverage – Schedule of Revenue Bond Coverage 105 12-C Direct and Overlapping Governmental Activities Debt – General Obligations 106 13 Major Employers 107 14 Miscellaneous Demographical Statistics 108 15 Full-Time Equivalent Employees by Function/Program 109 16 Permits, Licenses and Recreation Facilities 110 17 Elections - Okaloosa County Voter Registration 111 18 Special Assessment Billings and Collections 112 19 Major Revenue Sources 113 20 Water and Wastewater Service Rates 114 21 Sanitation and Recycling Service Rates 115 22 Operating Indicators by Function/Program 116 23 Capital Asset Statistics by Function/Program 117 24 Insurance Coverage 118 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 122 Management Letter 124 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 05, 2013 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, 2012, 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 Averret O’Sullivan Creel LLP, 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, 2012, 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, iv  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, 2012, 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. 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 20,194 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. v  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 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 and for the Community Redevelopment Agency on page 21 as part of the basic financial statements for the governmental funds. For other governmental funds 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 83. 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. vi 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. 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 2013. The City’s total budget for fiscal year 2013 totals $33.5 million, which is $4.4 million less than the fiscal year 2012 approved budget, due in part to one-time capital improvement projects budgeted previously in the Utilities fund. Projected declines in interest earnings and property tax revenue account for much of the revenue decline. The 2013 budget allocates $16.8 million, a 3.4% decline as compared to the fiscal year 2012 budget, to the General Fund, $14.4 million to the Enterprise funds, and $2.3 million to other funds. vii (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, 2012, 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. 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, 2012, 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 Agency (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 5, 2013, 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 80, and the Schedule of Contributions from the Employer and Other Contributing Entities on page 81 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 5, 2013 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, 2012. 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 $65.0 million (net assets). Of this amount, $20.0 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 $1.5 million, primarily attributable to an impairment loss of $588,652, due to the revised average expected life of the City’s Pump Station #1, an increase in the other post-employment benefits (OPEB) liability, unanticipated expenses that necessitated the use of fund balance, and lower than anticipated revenues. ƒ As of the close of the fiscal year, the City of Fort Walton Beach’s governmental funds reported combined ending fund balances of $16.1 million, a decrease of $1.6 million in comparison with the prior year. Approximately 55.6% of this amount, or $9.0 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 $7.0 million, or 39.1% of total General Fund expenditures. ƒ The City of Fort Walton Beach’s total debt decreased by $542,439, or 3.4%, during the fiscal year, primarily attributable to scheduled principle payments and the Golf Equipment Lease nearing maturity. 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 3  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 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, 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 and community redevelopment agency), 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 component unit, the Community Redevelopment Agency (CRA), which is a legally separate entity for which the City of Fort Walton Beach is financially accountable. The CRA is considered a blended component unit of the City of Fort Walton Beach, Florida and presented as a special revenue fund as part 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. 4  The City of Fort Walton Beach maintains seven individual governmental funds (General Fund, Community Redevelopment Agency Fund, Law Enforcement Trust Fund, Law Enforcement Trust 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 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, as well as each of the other governmental funds. A budgetary comparison statement is provided for the General Fund and the Community Redevelopment Agency 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, stormwater operations, golf club operations, all of which are considered major funds of the City of Fort Walton Beach except the stormwater fund which is considered non-major. 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 80-82 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 83 of this report. 5 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 $65.0 million (net assets), as reported in Table 1. The government’s net assets decreased by $1.5 million for the fiscal year ended September 30, 2012. By far, the largest portion of the City’s net assets, $40.3 million or 62.1%, 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 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, 7.1%, represents resources that are subject to external restrictions on how they may be used. The remaining balance of $20.0 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 2012 2011 2012 2011 2012 2011 Current and Other $ 18,004 $ 19,170 $ 11,127 $ 11,998 $ 29,131 $ 31,168 Capital Assets 30,469 30,056 24,900 24,776 55,369 54,832 Total Assets 48,473 49,226 36,027 36,774 84,500 86,000 Long-Term Liabilities Outstanding 5,900 5,268 10,292 10,480 16,192 15,748 Other Liabilities 1,400 1,705 1,955 2,129 3,355 3,834 Total Liabilities 7,300 6,973 12,247 12,609 19,547 19,582 Net Assets Invested in Capital Net of Related Debt 25,379 24,757 14,930 17,038 40,309 41,795 Restricted 4,306 4,830 298 267 4,604 5,097 Unrestricted 11,488 12,666 8,552 6,860 20,040 19,526 Total Net Assets $ 41,173 $ 42,253 $ 23,780 $ 24,165 $ 64,953 $ 66,418 The overall decrease in the City’s net assets was $1.5 million during the fiscal year. The governmental activities experienced a decrease, primarily related to an increase in the other post-employment benefits (OPEB) liability, planned use of unrestricted fund balance for employee incentives, increased expenses related to the Community Redevelopment Agency’s addition of 3 police officers, unanticipated expenses that necessitated the use of fund balance, and increased pension contributions, all coupled with lower than anticipated revenues. The business activities experienced a decrease primarily related to an impairment loss of $588,652, due to the revised average expected life of the City’s Pump Station #1.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 2012 *2011 2012 2011 2012 *2011 Revenues Program Revenues: Charges for Services $1,820,410 $1,772,179 $13,642,515 $13,454,454 $15,462,925 $15,226,633 Operating Grants & Contributions 589,253 761,643 - 118,226 589,253 879,869 Capital Grants and Contributions 156,794 351,006 331,609 65,496 488,403 416,502 General Revenue: - Property Taxes 4,295,068 4,482,819 - - 4,295,068 4,482,819 Other Taxes 5,937,581 5,993,764 - - 5,937,581 5,993,764 Tax Increments for Redevelopment 1,386,521 1,547,609 - - 1,386,521 1,547,609 Other Revenue 3,071,232 3,205,824 153,283 173,289 3,170,515 3,379,113 Total Revenues 17,202,859 18,114,844 14,127,407 13,811,465 31,330,266 31,926,309 Expenses Primary Government General Government 4,314,050 3,765,536 - - 4,314,050 3,765,536 Public Safety 9,805,368 9,206,784 - - 9,805,368 9,206,784 Physical Environment 383,970 393,752 - - 383,970 393,752 Transportation 1,592,150 1,570,038 - - 1,592,150 1,570,038 Economic Development 707,603 545,242 - - 707,603 545,242 Culture & Recreation 2,880,815 2,677,051 - - 2,880,815 2,677,051 Debt Service Interest 254,516 214,470 - - 254,516 214,470 Business-Type Activities Utilities - - 7,017,160 9,162,926 7,017,160 9,162,926 Sanitation - - 2,741,266 2,524,994 2,741,266 2,524,994 Golf - - 2,012,165 2,199,453 2,012,165 2,199,453 Other - - 497,211 339,543 497,211 339,543 Total Expenses 19,938,472 18,372,873 12,267,802 14,226,916 32,206,274 32,599,789 Increase (Decrease) in Net Assets (2,735,613) (258,029) 1,859,605 (415,451) (876,008) (673,480) before Transfers Transfers 1,656,032 1,682,717 (1,656,032) (1,682,717) - - Special Item – Impairment Loss - - (588,652) - (588,652) Increase (Decrease) in Net Assets (1,079,581) 1,424,688 (385,079) (2,098,168) (1,464,660) (673,480) Net Assets – 10/01/11 42,253,058 40,828,370 24,164,692 26,262,860 66,417,750 67,091,230 Net Assets – 09/30/12 $41,173,477 $42,253,058 $23,779,613 $24,164,692 $64,953,090 $66,417,750  Reclassified to conform with current year presentation. Current Year Impacts – Governmental Activities Governmental activities decreased the City’s net assets by $1.1 million for the fiscal year ended September 30, 2012. Key elements of this change are as follows:  Both operating and capital grants for governmental activities decreased. Operating grants decreased by $172,390 or 22.6% due to prior year receipt of the Assistance to Firefighters Grant. Capital grants decreased by $194,212 or 55.3% due to recording the receipt of the police departments OSSI software in the prior year.  Property tax revenue decreased $187,751 due to the decline in the taxable assessed value of City properties.  Franchise fee revenue decreased $257,269 primarily due to a correction in the method of allocation by one of the primary revenue sources, which was outside the City’s control. 7  Overall, expenses for governmental activities increased $1.6 million or 8.5% primarily related to an increase in the other post-employment benefits (OPEB) liability, City Council planned use of unrestricted fund balance for employee incentives, increased expenses related to the Community Redevelopment Agency’s addition of 3 police officers, unanticipated expenses that necessitated the use of fund balance, and increased pension contributions. Chart 1 Expenses and Program Revenue – Governmental Activities $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $0 General Public Safety Physical Transportation Economic Culture & Debt Service Government Environment Development Recreation Interest Expenses Program Revenue Chart 2 Revenues by Source – Governmental Activities Franchise Fees 11% Charges for Services 10% Other Revenue Municipal Revenue 2% Operating Grants & Sharing Contributions 5% 3% Tax Increments for Capital Grants & Redevelopment Contributions 8% 1% Property Taxes 25% Other Taxes 22% Sales Taxes 13% 8 Current Year Impacts – Business-Type Activities Business-type activities decreased the City’s net assets by $385,079 for the fiscal year ended September 30, 2012. Key elements of this change are as follows:  Capital Grants and Contributions for business-type activities increased $266,113, or 406.3% due to funding received for the reuse water line infrastructure grant.  Expenses throughout the Enterprise Funds decreased by $2.0 million, or 13.8%. This decrease was primarily due to the prior year recognition of significant depreciation expense when a change in estimate on a previously purchased force main and re-use water filtration system occurred. The Sanitation fund experienced an increase of 8.6%, or $216,272 due to the purchase of two trucks, while the Golf fund expenses decreased by $187,288, or 8.5% related to necessitated reductions due to declining revenues. The Stormwater fund experienced an increase of $157,668, or 46.4% due to expenses related to the development of a master plan.  The Utilities fund recognized an impairment loss of $588,652, due to the revised average expected life of the City’s Pump Station #1.  Utilization of 2005 Utility Revenue Bond proceeds for the decommissioning of the City’s Wastewater Treatment Plant. Chart 3 Expenses and Program Revenue - Business-Type Activities 9,000,000 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 - Utilities Sanitation Golf Stormwater Expenses Program Revenue 9  Chart 4 Revenues by Source - Business-Type Activities Capital Grants & Contributions 2% Charges for Services 97% Misc. Income & Investment Earnings 1% 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, 2012, the City of Fort Walton Beach’s governmental funds have combined ending fund balances of $16.1 million, a decrease of $1.6 million in comparison with the prior year. Approximately 55.6% of this amount, or $9.0 million, is available for spending at the discretion of City Council. The remainder of fund balance is non-spendable 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 $7.0 million, while total fund balance reached $10.1 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 39.1% of the total General Fund expenditures, while total fund balance represents 56.1% of that same amount. During the 2012 fiscal year, the fund balance of the City’s General Fund decreased by $1.2 million. This decrease was primarily related to an increase in the other post-employment benefits (OPEB) liability, City Council planned use of unrestricted fund balance for employee incentives, unanticipated expenses that necessitated the use of fund balance, and increased pension contributions, all coupled with lower than anticipated revenues. 10  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 $8.6 million at September 30, 2012, of which the Utilities Fund amounted to $6.3 million, the Sanitation Fund totaled $1.9 million, and the Stormwater Utility Fund was $485,259. The Golf fund had negative unrestricted net assets of $123,094 as a result of an improper chemical application that substantially impacted course play. In total, net assets of the proprietary funds decreased $385,079. The factors concerning the finances of these four 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 $1.8 million. Significant information related to this difference is summarized as follows:  Donations in the amount of $48,638 were received and utilized during the fiscal year.  Unanticipated expenses of $201,701 were incurred. These expenses included replacement of the fire station rollup doors, city council chambers renovations, Hurricane Ivan deobligation, fuel system startup costs, environmental testing at several City owned properties, and recreation management software.  Utilization of fund balance of $138,968 for the implementation of an electronic timekeeping system.  Approved carryovers of $1.3 million, the majority of which included a new aerial ladder truck, preliminary site investigation for the proposed recreation center, and four police patrol cars.  General fund grants of $56,463 were received during the fiscal year. Actual budget results, when compared to the final budget, show a variance of $737,247 for expenditures. 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 and carryovers planned, 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, 2012, was $40.3 million (net of accumulated depreciation). This represents a net decrease of $1.5 million, or 3.6%. Highlights are summarized as follows:  Fewer assets were purchased that were over the GASB 34 threshold.  Capital assets outdated, unserviceable, and no longer used are systematically disposed of on an annual basis.  An impairment loss of $588,652, due to the revised average expected life of the City’s Pump Station #1.  Utilization of 2005 Utility Revenue Bond proceeds for the decommissioning of the City’s Wastewater Treatment Plant. 11  Table 3 Total Capital Assets Net of Accumulated Depreciation Governmental Activities Business-Type Activities Total Activities FY 2012 FY 2011 FY 2012 FY 2011 FY 2012 FY 2011 Land $9,961,261 $9,961,261 $765,078 $765,078 $10,726,339 $10,726,339 Buildings 7,057,626 7,286,780 2,052,313 2,218,237 9,109,939 9,505,017 Improvements Other Than Buildings 6,110,056 6,162,400 16,783,482 17,512,714 22,893,538 23,675,114 Infrastructure 4,431,266 4,479,317 - - 4,431,266 4,479,317 Intangible Assets 393,935 397,258 23,253 7,364 417,188 404,620 Machinery & Equipment 2,026,331 1,416,842 2,618,635 2,933,928 4,644,966 4,350,770 Equipment under Capital Lease 397 - 12,429 62,147 12,826 62,147 Easements 0 - 28,532 - 28,532 - Construction in Progress 488,118 352,292 2,616,944 1,276,888 3,105,062 1,629,180 $30,468,990 $30,056,150 $24,900,666 $24,776,356 $55,369,656 $54,832,506 Additional information on the capital assets of the City of Fort Walton Beach can be found in Note 5 of this report on page 48. Long-Term Debt As shown in the following table, as of September 30, 2012, the City had total bonded debt, revenue notes, and capital leases outstanding of $15.4 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 2012 2011 2012 2011 2012 2011 Revenue Bonds $4,428,144 $4,570,965 $10,199,963 $10,464,872 $14,628,107 $15,035,837 Revenue Notes 661,796 728,480 61,221 76,586 723,017 805,065 Capital Leases - - 13,458 66,118 13,458 66,118 Total $5,089,940 $5,299,445 $10,274,642 $10,607,576 $15,364,582 $15,907,020 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 64-68. 12 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.  The Consumer Price Index (CPI) is 1.7% higher than a year ago. This indicator translates into a higher cost of providing services to residents.  The Consumer Confidence Index is 6.0% higher than a year ago. This indicator measures economic conditions by gauging the future spending of consumers.  The Leading Economic Index is 17.1% lower than a year ago and is designed to signal turning point patterns in economic data.  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 2013. The City’s total budget for fiscal year 2013 totals $33.5 million, which is $4.4 million less than the fiscal year 2012 approved budget, due in part to one-time capital improvement projects budgeted previously in the Utilities fund. Projected declines in interest earnings and property tax revenue account for much of the revenue decline. The 2013 budget allocates $16.8 million, a 3.4% decline as compared to the fiscal year 2012 budget, to the General fund, $14.4 million to the Enterprise funds, and $2.3 million to other funds. For the fiscal year 2013 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 2013 budget. Personnel expenses account for approximately 51.9% of the City’s budget. The City’s fiscal year 2013 budget remains relatively stable in this category, at 289.95 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, 2012 Primary Government Governmental Business-Type Activities Activities Total ASSETS Cash and cash equivalents $ 13,431,101 $ 9,042,496 $ 22,473,597 Receivables, net 745,872 810,138 1,556,010 Internal balances 2,690,746 (2,690,746) - Due from other governments 159,165 305,124 464,289 Inventory, at cost 197,278 43,891 241,169 Restricted assets Cash and cash equivalents 113,507 3,407,730 3,521,237 Capital assets Non-depreciable/amortizable 10,449,379 3,410,554 13,859,933 Depreciable/amortizable, net 20,019,611 21,490,112 41,509,723 Other assets Bond issue costs, net 161,367 191,509 352,876 Net pension asset 505,404 - 505,404 Other receivables, net - 16,505 16,505 TOTAL ASSETS 48,473,430 36,027,313 84,500,743 LIABILITIES Accounts payable 282,265 1,113,144 1,395,409 Accrued liabilities 658,578 165,528 824,106 Due to other governments - 14,243 14,243 Due to depositors 5,000 - 5,000 Unearned revenue - 38,203 38,203 Payable from restricted assets Accrued interest 59,070 111,030 170,100 Customer deposits - 148,624 148,624 Non-current liabilities Due within one year Compensated absences 176,860 55,281 232,141 Leases payable - 13,458 13,458 Notes payable 68,400 15,759 84,159 Revenues bonds payable 150,000 280,000 430,000 Due in more than one year Compensated absences 530,581 165,841 696,422 Notes payable 593,396 45,462 638,858 Revenue bonds payable 4,278,144 9,919,963 14,198,107 Other post-employment benefits 497,659 161,164 658,823 TOTAL LIABILITIES 7,299,953 12,247,700 19,547,653 NET ASSETS Invested in capital assets, net of related debt 25,379,050 14,929,648 40,308,698 Restricted Debt service 113,507 184,933 298,440 System improvements - 112,863 112,863 Improvement districts 3,736,100 - 3,736,100 Public safety 262,648 - 262,648 Other purposes 194,193 - 194,193 Unrestricted 11,487,979 8,552,169 20,040,148 TOTAL NET ASSETS $ 41,173,477 $ 23,779,613 $ 64,953,090 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, 2012 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 $ 4,314,050 $ 430,718 $ 20 $ - $ (3,883,312) $ - $ (3,883,312) Public safety 9,805,368 373,855 372,539 37,724 (9,021,250) - (9,021,250) Physical environment 383,970 439,555 - - 55,585 - 55,585 Transportation 1,592,150 118,067 - 31,680 (1,442,403) - (1,442,403) Economic environment 707,603 58,000 126,875 57,390 (465,338) - (465,338) Culture and recreation 2,880,815 400,215 89,819 30,000 (2,360,781) - (2,360,781) Debt service interest 254,516 - - - (254,516) - (254,516) Total government activities 19,938,472 1,820,410 589,253 156,794 (17,372,015) - (17,372,015) Business-type activities Utilities 7,017,160 7,974,601 - 304,107 - 1,261,548 1,261,548 Sanitation 2,741,266 3,313,559 - - - 572,293 572,293 Golf 2,012,165 1,776,649 - - - (235,516) (235,516) Stormwater 497,211 577,706 - 27,502 - 107,997 107,997 Total business-type activities 12,267,802 13,642,515 - 331,609 - 1,706,322 1,706,322 Total primary government $ 32,206,274 $ 15,462,925 $ 589,253 $ 488,403 $ (17,372,015) $ 1,706,322 $ (15,665,693) General Revenues Taxes Property taxes $ 4,295,068 $ - $ 4,295,068 Sales taxes 2,198,270 - 2,198,270 Utility service taxes 3,739,311 - 3,739,311 Tax increments for redevelopment district 1,386,521 - 1,386,521 Franchise fees 1,876,575 - 1,876,575 Intergovernmental, unrestricted 809,756 - 809,756 Gain on sale of assets 16,440 35,111 51,551 Miscellaneous 154,996 48,550 203,546 Investment earnings 159,465 69,622 229,087 Special item: loss on impairment of capital asset - (588,652) (588,652) Transfers 1,656,032 (1,656,032) - Total general revenues, transfers and special item 16,292,434 (2,091,401) 14,201,033 Change in net assets (1,079,581) (385,079) (1,464,660) Net assets - beginning of year 42,253,058 24,164,692 66,417,750 Net assets - end of year $ 41,173,477 $ 23,779,613 $ 64,953,090 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, 2012 Community Other Total Redevelopment Governmental Governmental General Fund Agency Funds Funds ASSETS Cash and cash equivalents $ 7,447,251 $ 3,757,433 $ 2,226,417 $ 13,431,101 Receivables 598,032 147,840 - 745,872 Due from other funds 87,211 - - 87,211 Due from other governments 36,846 57,390 64,929 159,165 Inventory, at cost 197,278 - - 197,278 Advances to other funds 2,660,685 - - 2,660,685 Restricted assets Cash and cash equivalents - - 113,507 113,507 TOTAL ASSETS $ 11,027,303 $ 3,962,663 $ 2,404,853 $ 17,394,819 LIABILITIES AND FUND BALANCE Liabilities Accounts payable $ 216,215 $ 60,071 $ 5,979 $ 282,265 Accrued liabilities 633,891 18,652 6,035 658,578 Due to other funds - - 57,150 57,150 Due to depositors 5,000 - - 5,000 Deferred revenue 113,337 147,840 - 261,177 Total liabilities 968,443 226,563 69,164 1,264,170 Fund balance Nonspendable 2,857,963 - - 2,857,963 Restricted 194,193 3,736,100 376,155 4,306,448 Committed 5,040,585 - 1,959,836 7,000,421 Assigned 354,999 - - 354,999 Unassigned 1,611,120 - (302) 1,610,818 Total fund balance 10,058,860 3,736,100 2,335,689 16,130,649 TOTAL LIABILITIES AND FUND BALANCE $ 11,027,303 $ 3,962,663 $ 2,404,853 $ 17,394,819 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, 2012 Fund balance - total governmental funds (page 16) $ 16,130,649 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 10,449,379 Governmental depreciable/amortizable assets 46,421,982 Less accumulated depreciation/amortization (26,402,371) 30,468,990 Other assets used in governmental activities are not current financial resources and therefore are not reported in the governmental funds. Net pension asset 505,404 Bond issuance costs 239,956 Less related accumulated amortization (78,589) 666,771 Deferred revenue in governmental funds is susceptible to full accrual on the entity-wide statements. Special assessment for street resurfacing 113,337 Special assessment for affordable housing 147,840 261,177 Long-term liabilities are not due and payable in the current period and therefore are not reported in the governmental funds. Revenue bonds payable (4,470,000) Discount on bonds payable 41,856 Notes payable (661,796) Accrued interest (59,070) Compensated absences (707,441) Other post-employment benefits (497,659) (6,354,110) Net assets of governmental activities (page 14) $ 41,173,477 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, 2012 Community Other Total Redevelopment Governmental Governmental General Agency Funds Funds REVENUES Taxes $ 9,262,165 $ 803,818 $ - $ 10,065,983 Permits and fees 2,142,995 - - 2,142,995 Intergovernmental 2,519,868 640,093 131,732 3,291,693 Charges for services 969,560 - - 969,560 Fines and forfeits 104,199 - 38,737 142,936 Miscellaneous 488,939 32,407 16,629 537,975 TOTAL REVENUES 15,487,726 1,476,318 187,098 17,151,142 EXPENDITURES Current General governmental services 3,899,740 - - 3,899,740 Public safety 8,735,118 387,612 31,272 9,154,002 Physical environment 295,220 - 239 295,459 Transportation 951,011 15,039 - 966,050 Economic environment - 577,136 74,950 652,086 Culture and recreation 2,365,851 17,388 - 2,383,239 Capital outlay 1,675,465 884,046 49,692 2,609,203 Debt service Principal - - 211,683 211,683 Interest - - 243,582 243,582 Other debt service costs - - 377 377 TOTAL EXPENDITURES 17,922,405 1,881,221 611,795 20,415,421 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (2,434,679) (404,903) (424,697) (3,264,279) OTHER FINANCING SOURCES (USES) Transfers in 1,791,265 - 493,151 2,284,416 Transfers out (512,060) (71,981) (44,343) (628,384) TOTAL OTHER FINANCING SOURCES (USES) 1,279,205 (71,981) 448,808 1,656,032 NET CHANGE IN FUND BALANCE (1,155,474) (476,884) 24,111 (1,608,247) FUND BALANCE - BEGINNING OF YEAR 11,214,334 4,212,984 2,311,578 17,738,896 FUND BALANCE - END OF YEAR $ 10,058,860 $ 3,736,100 $ 2,335,689 $ 16,130,649 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, 2012 Net change in fund balances - total governmental funds (page 18) $ (1,608,247) 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 2,532,333 Less current year depreciation/amortization (1,886,782) 645,551 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 (782,238) Accumulated depreciation associated with disposals and adjustments 549,527 (232,711) Net transfer of capital assets and related lease liabilities from governmental funds to proprietary funds Transfer of capital assets from business activity (1,164) Accumulated depreciation associated with asset transfer 1,164 - 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 (12,200) Special assessment for affordable housing 58,000 Special assessment interest and penalties 5,917 51,717 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. Debt principal payments 211,683 Amortization of current year bond discount (2,179) Amortization of bond and note issue costs (10,362) Change in accrued interest on long-term debt 1,984 201,126 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 223,826 Change in long-term compensated absences (43,816) Change in other post-employment benefits (317,027) (137,017) Change in net assets of governmental activities (page 15) $ (1,079,581) 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, 2012 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Taxes $ 9,226,053 $ 9,226,053 $ 9,262,165 $ 36,112 Permits and fees 2,397,989 2,397,989 2,142,995 (254,994) Intergovernmental 2,320,171 2,598,844 2,519,868 (78,976) Charges for services 883,617 887,388 969,560 82,172 Fines and forfeits 139,200 139,200 104,199 (35,001) Miscellaneous 365,567 407,942 488,939 80,997 TOTAL REVENUES 15,332,597 15,657,416 15,487,726 (169,690) EXPENDITURES Current General government services 3,818,974 3,991,081 3,899,740 91,341 Public safety 8,964,321 8,985,765 8,735,118 250,647 Physical environment 274,214 273,410 295,220 (21,810) Transportation 1,093,586 1,090,935 951,011 139,924 Culture and recreation 2,376,035 2,518,173 2,365,851 152,322 Capital outlay 359,228 1,800,288 1,675,465 124,823 TOTAL EXPENDITURES 16,886,358 18,659,652 17,922,405 737,247 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (1,553,761) (3,002,236) (2,434,679) 567,557 OTHER FINANCING SOURCES (USES) Transfers in 1,814,463 1,814,463 1,791,265 (23,198) Transfers out (512,663) (512,663) (512,060) 603 TOTAL OTHER FINANCING SOURCES (USES) 1,301,800 1,301,800 1,279,205 (22,595) NET CHANGE IN FUND BALANCE (251,961) (1,700,436) (1,155,474) 544,962 FUND BALANCE - BEGINNING OF YEAR 251,961 1,700,436 11,214,334 9,513,898 FUND BALANCE - END OF YEAR $ - $ - $ 10,058,860 $ 10,058,860 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, 2012 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Taxes $ 803,818 $ 803,818 $ 803,818 $ - Intergovernmental 582,704 815,704 640,093 (175,611) Miscellaneous 30,000 30,000 32,407 2,407 TOTAL REVENUES 1,416,522 1,649,522 1,476,318 (173,204) EXPENDITURES Current Public safety 389,801 399,929 387,612 12,317 Transportation - 2,900 15,039 (12,139) Economic environment 724,121 2,787,226 577,136 2,210,090 Culture and recreation - 26,063 17,388 8,675 Capital outlay 302,600 1,184,216 884,046 300,170 TOTAL EXPENDITURES 1,416,522 4,400,334 1,881,221 2,519,113 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES - (2,750,812) (404,903) 2,345,909 OTHER FINANCING SOURCES (USES) Transfers out - (71,028) (71,981) (953) NET CHANGE IN FUND BALANCE - (2,821,840) (476,884) 2,344,956 FUND BALANCE - BEGINNING OF YEAR - 2,821,840 4,212,984 1,391,144 FUND BALANCE - END OF YEAR $ - $ - $ 3,736,100 $ 3,736,100 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, 2012 Other Sanitation Enterprise Utilities Fund Fund Golf Fund Funds Total ASSETS Current assets Cash and cash equivalents $ 6,602,396 $ 1,959,815 $ - $ 480,285 $ 9,042,496 Restricted assets - cash and cash equivalents 437,872 1,255 4,293 - 443,420 Receivables, net 549,413 195,893 904 63,928 810,138 Due from other governments 305,124 - - - 305,124 Inventory - at cost 13,207 - 30,684 - 43,891 Total current assets 7,908,012 2,156,963 35,881 544,213 10,645,069 Non-current assets Restricted assets Cash and cash equivalents 2,964,310 - - - 2,964,310 Capital assets, net Non-depreciable/amortizable 3,326,622 - 55,400 28,532 3,410,554 Depreciable/amortizable, net 16,511,934 1,363,484 2,699,420 915,274 21,490,112 Total capital assets 19,838,556 1,363,484 2,754,820 943,806 24,900,666 Other assets Bond issue costs, net 188,790 - 2,719 - 191,509 Other receivables, net 16,505 - - - 16,505 Total other assets 205,295 - 2,719 - 208,014 Total non-current assets 23,008,161 1,363,484 2,757,539 943,806 28,072,990 TOTAL ASSETS $ 30,916,173 $ 3,520,447 $ 2,793,420 $ 1,488,019 $ 38,718,059 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, 2012 Other Sanitation Enterprise Utilities Fund Fund Golf Fund Funds Total LIABILITIES Current liabilities Accounts payable $ 958,526 $ 109,806 $ 15,979 $ 28,833 $ 1,113,144 Accrued liabilities Compensated absences 29,817 12,552 9,849 3,063 55,281 Wages 69,844 36,831 38,624 12,367 157,666 Other 2,859 1,384 576 3,043 7,862 Due to other governments - 7,701 6,542 - 14,243 Due to other funds - - 30,061 - 30,061 Leases payable - - 13,458 - 13,458 Advance from other fund - - 129,793 - 129,793 Revenue bonds payable 280,000 - - - 280,000 Revenue note payable - - 15,759 - 15,759 Payable from restricted assets Accrued interest 110,640 - 390 - 111,030 Customer deposits 147,369 1,255 - - 148,624 Unearned revenue 17,853 - 20,350 - 38,203 Total current liabilities 1,616,908 169,529 281,381 47,306 2,115,124 Non-current liabilities Accrued liabilities Compensated absences 89,449 37,657 29,547 9,188 165,841 Advance from other fund - - 2,530,892 - 2,530,892 Revenue bonds payable 9,919,963 - - - 9,919,963 Revenue note payable - - 45,462 - 45,462 Other post-employment benefits 105,710 47,511 5,483 2,460 161,164 Total non-current liabilities 10,115,122 85,168 2,611,384 11,648 12,823,322 TOTAL LIABILITIES 11,732,030 254,697 2,892,765 58,954 14,938,446 NET ASSETS Invested in capital assets, net of related debt 12,602,902 1,363,484 19,456 943,806 14,929,648 Restricted Debt service 180,640 - 4,293 - 184,933 System improvements 112,863 - - - 112,863 Unrestricted 6,287,738 1,902,266 (123,094) 485,259 8,552,169 TOTAL NET ASSETS $ 19,184,143 $ 3,265,750 $ (99,345) $ 1,429,065 $ 23,779,613 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, 2012 Other Sanitation Enterprise Utilities Fund Fund Golf Fund Funds Total OPERATING REVENUES Charges for services $ 7,958,699 $ 3,313,559 $ 1,682,028 $ 577,706 $ 13,531,992 OPERATING EXPENSES Personal services 1,876,248 973,543 985,280 207,727 4,042,798 Operating 3,445,634 1,532,200 701,879 216,849 5,896,562 Depreciation/amortization expense 1,232,040 235,523 279,702 72,635 1,819,900 TOTAL OPERATING EXPENSES 6,553,922 2,741,266 1,966,861 497,211 11,759,260 OPERATING INCOME (LOSS) 1,404,777 572,293 (284,833) 80,495 1,772,732 NON-OPERATING REVENUES (EXPENSES) Rental income 15,902 - 94,621 - 110,523 Interest expense (449,393) - (44,545) - (493,938) Amortization (13,447) - (759) - (14,206) Gain (loss) on disposal of capital assets 7,993 30,676 - (3,558) 35,111 Unrealized gain (loss) on investment 11,502 4,437 - 965 16,904 Realized gain (loss) on investment (706) (272) - (59) (1,037) Interest 40,005 10,869 547 2,334 53,755 Grants in aid (398) - - - (398) Miscellaneous 25,411 15,493 4,830 2,816 48,550 TOTAL NON-OPERATING REVENUES (EXPENSES) (363,131) 61,203 54,694 2,498 (244,736) INCOME (LOSS) BEFORE CONTRIBUTIONS AND OPERATING TRANSFERS 1,041,646 633,496 (230,139) 82,993 1,527,996 CONTRIBUTIONS AND TRANSFERS Capital grants and contributions 304,107 - - 27,502 331,609 Special item: impairment loss on capital asset (588,652) - - - (588,652) Transfers in 37,363 - 18,909 - 56,272 Transfers out (1,177,785) (463,940) (53,432) (17,147) (1,712,304) TOTAL CONTRIBUTIONS AND TRANSFERS (1,424,967) (463,940) (34,523) 10,355 (1,913,075) CHANGE IN NET ASSETS (383,321) 169,556 (264,662) 93,348 (385,079) NET ASSETS - BEGINNING OF YEAR 19,567,464 3,096,194 165,317 1,335,717 24,164,692 NET ASSETS - END OF YEAR $ 19,184,143 $ 3,265,750 $ (99,345) $ 1,429,065 $ 23,779,613 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, 2012 Other Sanitation Enterprise Utilities Fund Fund Golf Fund Funds Total CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers and users $ 7,866,019 $ 3,292,558 $ 1,683,118 $ 537,323 $ 13,379,018 Payments to suppliers (3,613,356) (1,514,044) (701,645) (187,007) (6,016,052) Payments to employees (1,807,399) (932,021) (971,279) (203,102) (3,913,801) Miscellaneous income 41,313 15,493 99,451 2,816 159,073 Net cash provided by operating activities 2,486,577 861,986 109,645 150,030 3,608,238 CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Borrowings (repayments) Change in intergovernmental balances (304,100) 269 (177) - (304,008) Due to other funds - - 30,061 - 30,061 Grants and aids (398) - - - (398) Transfers in 37,363 - 18,909 - 56,272 Transfers out (1,177,785) (463,940) (53,432) (17,147) (1,712,304) Net cash used by non-capital financing activities (1,444,920) (463,671) (4,639) (17,147) (1,930,377) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisitions of capital assets (1,931,654) (500,298) (33,743) (85,591) (2,551,286) Proceeds from disposal of capital assets 22,809 30,676 - 50 53,535 Capital grants and contributions 304,107 - - 27,502 331,609 Principal paid on advance from other fund - - (127,868) - (127,868) Principal paid on leases payable - - (52,661) - (52,661) Principal paid on bonds and notes payable (270,000) - (15,364) - (285,364) Interest paid on bond, loan, lease and advance payables (451,672) - (44,643) - (496,315) Net cash used by capital and related financing activities (2,326,410) (469,622) (274,279) (58,039) (3,128,350) NET CASH FLOWS FROM INVESTING ACTIVITIES Interest income 50,801 15,034 547 3,240 69,622 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,233,952) (56,273) (168,726) 78,084 (1,380,867) CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 11,238,530 2,017,343 173,019 402,201 13,831,093 CASH AND CASH EQUIVALENTS - END OF YEAR $ 10,004,578 $ 1,961,070 $ 4,293 $ 480,285 $ 12,450,226 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, 2012 Other Sanitation Golf Enterprise Utilities Fund Fund Fund Funds Total CASH AND CASH EQUIVALENTS AT END OF YEAR CONSIST OF Current assets $ 6,602,396 $ 1,959,815 $ - $ 480,285 $ 9,042,496 Restricted assets, current 437,872 1,255 4,293 443,420 Restricted assets, non-current 2,964,310 - - - 2,964,310 Total cash and cash equivalents $ 10,004,578 $ 1,961,070 $ 4,293 $ 480,285 $ 12,450,226 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income $ 1,404,777 $ 572,293 $ (284,833) $ 80,495 $ 1,772,732 Adjustments to reconcile operating income to net cash provided by operating activities Depreciation 1,232,040 235,523 279,702 72,635 1,819,900 Miscellaneous revenue 41,313 15,493 99,451 2,816 159,073 Decommission of WWTP accrual (750,000) - - - (750,000) Decrease (increase) in assets Accounts receivable (68,532) (20,376) (803) (28,051) (117,762) Inventory (1,768) - 2,535 - 767 Increase (decrease) in liabilities Accounts payable 581,187 16,772 (2,877) 26,799 621,881 Compensated absences payable 1,506 7,699 7,008 1,483 17,696 Wages 2 3,557 3,500 1,575 8,634 Other liabilities 2,859 1,384 576 3,043 7,862 Customer deposits (20,946) (625) - - (21,571) Other post-employment benefits 67,341 30,266 3,493 1,567 102,667 Deferred revenue (3,202) - 1,893 (12,332) (13,641) Net cash provided by operating activities $ 2,486,577 $ 861,986 $ 109,645 $ 150,030 $ 3,608,238 SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS Amortization of bond and note issue costs $ 8,355 $ - $ 759 $ - $ - Amortization of discounts and deferred loss on refunding $ 5,091 $ - $ - $ - $ - 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, 2012 Employee Retirement Funds ASSETS Cash and cash equivalents $ 3,475,066 Investments, at market U.S. Government and Agency obligations 8,521,299 Corporate obligations 10,089,981 Corporate equity 24,198,201 Mutual funds 16,580,128 Total investments 59,389,609 Due from State of Florida 7,778 TOTAL ASSETS $ 62,872,453 NET ASSETS Held in trust for pension and employee retirement benefits $ 62,872,453 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, 2012 Employee Retirement Funds ADDITIONS Contributions Employer $ 2,639,942 Plan members 481,155 State of Florida 361,076 Total contributions 3,482,173 Investment income (loss) 9,677,181 Less investment expense (251,116) Net investment income (loss) 9,426,065 Miscellaneous revenue 442,802 TOTAL ADDITIONS 13,351,040 DEDUCTIONS Benefits and refunds paid Retirement payments 4,681,098 Disability payments 174,506 Refunds 196,262 Total benefits and refunds paid 5,051,866 Administrative expenses Legal 6,567 Contractual services 113,767 Other 29,490 Total administrative expenses 149,824 TOTAL DEDUCTIONS 5,201,690 NET INCREASE (DECREASE) 8,149,350 NET ASSETS HELD IN TRUST FOR PENSION BENEFITS BEGINNING OF YEAR 54,723,103 END OF YEAR $ 62,872,453 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, 2012 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, 2012 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) A. The Reporting Entity (Continued) As of September 30, 2012, 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. 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. 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. 30  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) B. Government-Wide and Fund Financial Statements (Continued) 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. Franchise fees, 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. 31  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. Measurement Focus and Basis of Accounting (Continued) 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, 2012 Levy Date November 1, 2012 Due Date November 1, 2012 Delinquent Date April 1, 2013 Discounts of 1% for each month taxes are paid prior to March 2013 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 2012 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. 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. 32  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Basis of Presentation (Continued) 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. 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. 33  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Basis of Presentation (Continued) Proprietary (Continued) 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. 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. 34  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. Assets, Liabilities, and Net Assets or Equity (Continued) 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, 2012 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, 2012, was .94896811 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, 2012 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, 2012 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 and Sanitation 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, 2012 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, 2012 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. Assets, Liabilities, and Net Assets or Equity (Continued) Classification of Fund Balance 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 the following:  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 (a Resolution) 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 (a Resolution) 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. The City Council has delegated authority to the City Manager and Finance Director in accordance with the City's fund balance policy. 40  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. Assets, Liabilities, and Net Assets or Equity (Continued) Classification of Fund Balance (Continued)  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. These classifications reflect not only the nature of funds, but also provide clarity to the level of restriction placed 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. Net Assets 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. F. Reclassifications Certain accounts in prior-year financial statements have been reclassified for comparative purposes to conform to presentation in the current-year financial statements. G. 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. 41  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 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 resolution 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. 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 a resolution. Budget amendments are periodically passed via 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. 42  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 2 - STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY (CONTINUED) 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. 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 $218,000 at September 30, 2012 in comparison to the City's pooled cash of approximately $26 million. As of September 30, 2012, Fund B recorded an unrealized gain on investment in the amount of $56,141. 43  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 3 - DEPOSITS AND INVESTMENTS (CONTINUED) 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 $25,892,684, all of which was held by qualified public depositories or permitted investments under Chapter 280, Florida Statutes. Investments As of September 30, 2012, 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. As of September 30, 2012, 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 $ 9,976,905 $ 755,192 $ 2,406,505 $ 6,399,594 $ 33,064 $ 55,000 $ 243,849 $ 37,217 $ 46,484 Corporate CMOs 113,075 - - - - 43,157 7,797 28,805 33,316 U.S. Treasury 4,938,245 129,914 2,452,775 1,429,453 - - 703,769 222,334 - U.S. Government Agencies 1,970,991 265,026 1,504,210 52,452 - 149,303 - - - U.S. Government Agency Pools 1,612,064 - - 592,058 760,878 62,162 183,166 13,800 - $ 18,611,280 $ 1,150,132 $ 6,363,490 $ 8,473,557 $ 793,942 $ 309,622 $ 1,138,581 $ 302,156 $ 79,800 Investments not subject to interest rate risk Money market funds $ 3,475,066 Corporate equities 24,198,201 Mutual funds 16,580,128 44,253,395 Total $ 62,864,675 44  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 3 - DEPOSITS AND INVESTMENTS (CONTINUED) Investments (Continued) 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 investment policies for the pension plans do not specifically address interest rate risk. 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 "A" or higher by Moody, S&P, or Fitch, except that up to 10% of the fixed income securities may have a rating below "A" but not less than "Baa". As of September 30, 2012, 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 in the General Employees' Pension Plan whose rating was less than "A" at September 30, 2012, comprised 7.48% 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 "Baa/BBB" or higher by a major rating service. The Firefighters' Pension Fund limits investment in fixed income securities to those securities rated "Baa/BBB" or higher by a major rating service. All Pension Plans were in compliance with its respective investment policy regarding credit rate risk as of September 30, 2012. The Moody's rating ranges of the different investment classes held by each respective plan at September 30, 2012, 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-A3 Aa2-Baa2 U.S. Treasury Aaa Aaa Aaa U.S. government agencies Aaa-A2 Aaa Aaa U.S. government pools A1 N/A N/A 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. 45  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 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 5% of the cost of all fixed income securities. Investments in collateralized mortgage obligations are limited to 15% of the market value of the total fixed income portfolio and must be backed by mortgage securities rated "Aaa" by Moody's or "AAA" by Standard & Poor's and Fitch rating services. As of September 30, 2012, the largest investment in a single corporate issuer of debt was below 4% of the cost of all fixed income securities. Total investments in collateralized mortgage obligations (CMOs) were 14.20% of the total market value of the total fixed income portfolio. No more than 5% 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 not specifically permitted by the policy. As of September 30, 2012, the largest investment in a single corporate issuer of debt was 8.26% 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, 2012. No more than 5% of the market value of the total fixed income investments may be held in the Firefighters' Pension Fund may be held in any single corporate issuer. Investments in collateralized mortgage obligations are limited to 15% 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), or that are rated "Aaa" by Moody's or "AAA" by Standard & Poor's rating services. As of September 30, 2012, the largest investment in a single corporate issuer of debt was 7.65% 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 7% of the total market value of the total fixed income portfolio. 46  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 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, 2012, the City maintained $229,675 invested in the State Board of Administration’s Local Government Surplus Funds Trust Fund Investment Pool B (Fund B) with a fair value of $217,954. 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 $1,527,480 in distributions from Fund B, including $49,406 received during the year ended September 30, 2012. 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, 2012. 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, 2012, is estimated at 4.08 years. However, because Fund B consists of restructured or defaulted securities there is considerable uncertainty regarding the weighted average life. The City also maintains $13,287 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, 2012, is 39 days. Next interest rate reset dates for floating rate securities are used in the calculation of the WAM. 47  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 4 - RECEIVABLES Receivables at September 30, 2012, were as follows: Governmental Business-Type Activities Activities Community Other Redevelop- Proprietary General ment Fund Total Utilities Sanitation Golf Funds Total Taxes $ 16,561 $ - $ 16,561 $ - $ - $ - $ - $ - Accounts 468,134 - 468,134 592,372 208,720 904 66,654 868,650 Less allowance for doubtful accounts - - - (45,429) (12,827) - (2,726) (60,982) Assessments 113,337 147,840 261,177 18,975 - - - 18,975 Total receivables $ 598,032 $ 147,840 $ 745,872 $ 565,918 $ 195,893 $ 904 $ 63,928 $ 826,643 Due from Other Governments The City's receivables from other governments for governmental activities and business- type activities as of September 30, 2012, are $159,165 and $305,124, respectively. Due from other governments consist of $159,165 due from the federal government and $305,124 due from the State of Florida. All receivables from the federal government are related to grant revenues, primarily for public safety and transportation. The receivables due from the State of Florida also represent grant revenues, primarily related to the reuse water line project. NOTE 5 - CHANGES IN CAPITAL ASSETS Capital asset activity for the year ended September 30, 2012, was as follows: Beginning Decreases/ Ending Balance Increases Transfers Balance Governmental Activities Capital assets not being depreciated/amortized Land $ 9,961,261 $ - $ - $ 9,961,261 Construction in progress 352,292 470,548 (334,722) 488,118 Total capital assets not being depreciated/amortized 10,313,553 470,548 (334,722) 10,449,379 48  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 5 - CHANGES IN CAPITAL ASSETS (CONTINUED) Beginning Decreases/ Ending Balance Increases Transfers Balance Governmental Activities (Continued) Capital assets being depreciated/amortized Buildings 14,172,375 164,942 52,546 14,389,863 Improvements other than buildings 10,790,350 439,819 (345) 11,229,824 Infrastructure 12,276,660 263,020 (107,382) 12,432,298 Software 404,058 95,190 - 499,248 Machinery and equipment 7,165,435 1,098,814 (407,780) 7,856,469 Equipment under capital lease - - 14,280 14,280 Total capital assets being depreciated/amortized 44,808,878 2,061,785 (448,681) 46,421,982 Less accumulated depreciation/amortization Buildings (6,885,595) (446,642) - (7,332,237) Improvements other than buildings (4,627,950) (527,349) 35,531 (5,119,768) Infrastructure (7,797,343) (311,071) 107,382 (8,001,032) Software (6,800) (98,513) - (105,313) Machinery and equipment (5,748,593) (498,447) 416,902 (5,830,138) Equipment under capital lease - (4,760) (9,123) (13,883) Total accumulated depreciation/amortization (25,066,281) (1,886,782) 550,692 (26,402,371) Total capital assets being depreciated/amortized, net 19,742,597 175,003 102,011 20,019,611 Governmental Activities, Net $ 30,056,150 $ 645,551 $ (232,711) $ 30,468,990 Business-Type Activities Capital assets not being depreciated/amortized Land $ 765,078 $ - $ - $ 765,078 Construction in progress 1,276,888 1,356,763 (16,707) 2,616,944 Easements - 28,532 - 28,532 Total capital assets not being depreciated/amortized 2,041,966 1,385,295 (16,707) 3,410,554 Capital assets being depreciated/amortized Buildings 3,632,155 10,000 - 3,642,155 Improvements other than buildings 43,550,675 341,247 (5,980,089) 37,911,833 Software 8,734 23,910 - 32,644 Machinery and equipment 10,342,868 790,835 (378,050) 10,755,653 Equipment under capital lease 248,589 - - 248,589 Total capital assets being depreciated/amortized 57,783,021 1,165,992 (6,358,139) 52,590,874 49  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 5 - CHANGES IN CAPITAL ASSETS (CONTINUED) Beginning Decreases/ Ending Balance Increases Transfers Balance Business-Type Activities (Continued) Less accumulated depreciation/amortization Buildings (1,413,918) (120,019) (55,905) (1,589,842) Improvements other than buildings (26,037,961) (1,043,824) 5,953,434 (21,128,351) Software (1,370) (8,021) - (9,391) Machinery and equipment (7,408,940) (598,318) (129,760) (8,137,018) Equipment under capital lease (186,442) (49,718) - (236,160) Total accumulated depreciation/amortization (35,048,631) (1,819,900) 5,767,769 (31,100,762) Total capital assets being depreciated/amortized, net 22,734,390 (653,908) (590,370) 21,490,112 Business-Type Activities, Net $ 24,776,356 $ 731,387 $ (607,077) $ 24,900,666 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 $ 143,418 Public safety 581,716 Physical environment 82,448 Transportation 595,814 Economic environment 51,901 Culture and recreation 431,485 Total depreciation/amortization expense - governmental activities $ 1,886,782 Business-Type Activities Utilities Fund $ 1,232,040 Sanitation Fund 235,523 Golf Fund 279,702 Other Proprietary Funds 72,635 Total depreciation/amortization expense - business-type activities $ 1,819,900 Construction Commitments The City has begun certain projects which remain open at year-end. These projects are as follows: 50  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 5 - CHANGES IN CAPITAL ASSETS (CONTINUED) Construction Commitments (Continued) The City began work upgrading Lift Station #3 due to expansion in the downtown area in FY2011. To date $46,871 has been expended. This rehabilitation is funded from the net assets of the Utility Fund. Construction has been delayed due to the decision to bring engineering work in house. We anticipate completion of these plans in FY2013. During FY2011 the City determined the thirty inch pre-stressed concrete cylinder pressure (PCCP) force main would need to be replaced during FY2013. In FY2012, $966,758 was expended on design work, permitting, and bid issuance to replace the force main and for related pump station upgrades. The projected total cost for these projects is $16,000,000 which will be funded with a State Revolving Fund (SRF) loan from the Florida Department of Environmental Protection (FDEP), available proceeds from the 2005 Utility Improvement Bond, and cost sharing with Okaloosa County for the common portion of the force main. In 2011, the City began the next phase of streetscape and pedestrian crosswalk improvements in the downtown area. To date $18,550 has been spent. These projects are funded by the Fort Walton Beach Community Redevelopment Agency (CRA) and the anticipated date of completion is dependent upon the Department of Transportation’s (DOT) approval of the plans. In 2012, the City began construction on a new parking lot for the downtown area. To date $317,286 has been spent and completion is expected in early FY2013. The total cost is projected to be $330,000 and is funded by the CRA. In FY2011 the City began 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) and additional grant funding is being applied for as the total cost is estimated to be $60,000. To date $121 has been spent on the permitting process 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 Grant (FDIG) program provided for the installation of approximately 11,500 linear feet. In 2012 the City awarded a bid to install an additional 17,500 linear feet of reuse water line. The City expended $324,690 in FY12 installing approximately 5000 linear feet of reuse piping and the project is expected to be complete in FY2013. To date the City has spent $1,564,579 and the total cost is estimated to be $2,170,918. The current portion of the project was funded with $500,000 in FDIG funds and Utility Fund net assets. 51  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 5 - CHANGES IN CAPITAL ASSETS (CONTINUED) Construction Commitments (Continued) In FY12, the City began a project to consolidate four recreation centers into a new recreation facility. During 2012, 35% drawings were completed at a cost of $123,980. In early FY13, an architect was selected and the project approved by City Council. The estimated cost of the facility is $8.1 million dollars. The City intends to obtain funding for this project by applying for grants, obtaining private sponsors, evaluating current City properties for lease or sale opportunities, and issuing debt. NOTE 6 - CHANGE IN ESTIMATE OF USEFUL LIVES During the year ended September 30, 2012, the City determined that the City’s Pump Station #1 would need to be replaced due to the planned installation of a new Force Main and the interconnect with Okaloosa County for waste water treatment. The Pump Station was upgraded in 2001 with an average expected life of twenty five years. The City determined the Pump Station had a revised average life of thirteen years and a remaining life of eight months as of September 30, 2012. The change in the estimated life of the Pump Station resulted in an impairment loss of $588,652 for the year ending September 30, 2012. 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. 52  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 7 - DEFINED BENEFIT PENSION PLANS (CONTINUED) A. Basis of Accounting and Method Used to Value Investments (Continued) Administrative costs are financed from each respective fund's investment earnings. 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 130 37 24 Terminated plan members entitled to but not yet receiving benefits 12 9 - Disabled participants 6 6 - Active plan members 138 44 35 Total 286 96 59 (1) Latest actuarial valuation 10/1/2011 (2) Latest actuarial valuation 10/1/2012 (3) Latest actuarial valuation 10/1/2012 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, with final approval resting with City Council. 53  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 7 - DEFINED BENEFIT PENSION PLANS (CONTINUED) B. Plan Descriptions (Continued) 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, with final approval resting with City Council. 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 $168,042 and $193,034 for the FRF are included in the governmental activities revenue and expenses for the year ending September 30, 2012. None of the three Plans addresses maximum contribution rates. 54  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 7 - DEFINED BENEFIT PENSION PLANS (CONTINUED) C. Contributions, Funding Policy and Annual Pension Cost (Continued) 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 and State 25.55 % (1) 38.2 % 35.4 % Plan members 5.0 % 5.0 % (2) 6.6 % Annual pension cost $ 1,263,540 $ 874,895 * $ 696,716 * Contributions made Employer $ 1,306,268 $ 799,961 $ 591,671 State of Florida $ - $ 168,042 $ 193,034 Net pension obligation (asset) $ (112,809) $ (129,254) $ (263,340) Actuarial valuation date for disclosure 10/01/2011 10/01/2010 10/01/2010 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 7.9 % 8.0 % 8.0 % Projected salary increases** 0.0-6.5% 7.5 % 6.5 % ** Includes inflation at 3.0 % 3.0 % 3.0 % Post retirement COLA Up to 3% 3.0 % 3.0 % (3) *Beginning 9/30/2012, this includes both City and State contributions (1) GERF does not include State (2) Until 75% maximum accrued is a attained, and .5% thereafter (3) Starting at age 58 55  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 7 - DEFINED BENEFIT PENSION PLANS (CONTINUED) C. Contributions, Funding Policy and Annual Pension Cost (Continued) GERF PORF FRF Three-Year Trend Information Actuarially Determined Percentage Net Pension Year Ending Contribution Contribution Obligation (Asset) GERF October 1, 2010 $ 1,477,777 100 % $ (2,105) October 1, 2011 1,091,338 106 % (70,081) October 1, 2012 1,258,659 104 % (112,809) PORF October 1, 2010 500,007 103 % (38,438) October 1, 2011 521,425 100 % (36,146) October 1, 2012 875,055 * 100 % (129,254) FRF October 1, 2010 574,278 100 % (181,809) October 1, 2011 514,872 100 % (175,351) October 1, 2012 700,045 * 112 % (263,340) *Beginning 9/30/2012, this includes both City and State contributions The components of net pension cost, the increase in Net Pension Asset, and the Net Pension Asset for the year ended September 30, 2012, 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 $ 1,258,659 $ 875,055 * $ 700,045 * Interest on net pension asset (5,536) (2,892) (14,028) Adjustment to actuarially determined annual pension cost 10,417 2,732 10,699 Annual pension cost 1,263,540 874,895 696,716 Contribution made 1,306,268 968,003 * 784,705 * Change in net pension asset 42,728 93,108 87,989 Net pension asset - beginning of year 70,081 36,146 175,351 Net pension asset - end of year $ 112,809 $ 129,254 $ 263,340 *Beginning 9/30/2012, this includes both City and State contributions 56  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 7 - DEFINED BENEFIT PENSION PLANS (CONTINUED) C. Contributions, Funding Policy and Annual Pension Cost (Continued) The funded status of each plan as of September 30, 2012, the most recent actuarial valuation date, is as follows: 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 $ 32,776,563 $ 41,280,063 $ 8,503,500 79.40 % $ 4,542,537 187.20 % PORF 18,379,668 25,755,221 7,375,553 71.36 % 2,178,847 338.51 % FRF 10,927,529 18,139,496 7,211,967 60.24 % 1,946,811 370.45 % D. 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 over time. The schedule of employer contributions can also be found in the supplemental information of this comprehensive annual 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, 2012: 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 $ 1,469,984 $ 1,464,119 $ 540,963 $ 3,475,066 Due from State of Florida - - 7,778 7,778 Investments, at market U.S. Government and Agency obligations 5,310,705 1,376,023 1,834,571 8,521,299 Corporate obligations 5,137,566 3,480,830 1,471,585 10,089,981 Corporate equity 14,361,800 3,719,407 6,116,994 24,198,201 Mutual funds 7,018,041 8,097,051 1,465,036 16,580,128 Total investments, at market 31,828,112 16,673,311 10,888,186 59,389,609 TOTAL ASSETS $ 33,298,096 $ 18,137,430 $ 11,436,927 $ 62,872,453 NET ASSETS HELD IN TRUST FOR PENSION BENEFITS AND OTHER PURPOSES $ 33,298,096 $ 18,137,430 $ 11,436,927 $ 62,872,453 57  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 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 $ 1,306,268 $ 743,603 $ 590,071 $ 2,639,942 Plan members 246,313 104,325 130,517 481,155 State of Florida - 168,042 193,034 361,076 Total contributions 1,552,581 1,015,970 913,622 3,482,173 Investment income (loss) 5,545,765 2,429,955 1,701,461 9,677,181 Less investment expense (145,117) (57,269) (48,730) (251,116) Net investment income (loss) 5,400,648 2,372,686 1,652,731 9,426,065 Miscellaneous revenue 18,706 61,541 362,555 442,802 TOTAL ADDITIONS 6,971,935 3,450,197 2,928,908 13,351,040 DEDUCTIONS Benefits and refunds paid Retirement payments 2,330,972 1,338,836 1,011,290 4,681,098 Disability payments 53,242 107,561 13,703 174,506 Other 75,621 45,707 74,934 196,262 Total benefits and refunds paid 2,459,835 1,492,104 1,099,927 5,051,866 Administrative expenses Legal 571 3,290 2,706 6,567 Contractual services 52,215 33,006 28,546 113,767 Other 9,195 3,776 16,519 29,490 Total administrative expenses 61,981 40,072 47,771 149,824 TOTAL DEDUCTIONS 2,521,816 1,532,176 1,147,698 5,201,690 NET INCREASE (DECREASE) 4,450,119 1,918,021 1,781,210 8,149,350 BEGINNING OF YEAR 28,847,977 16,219,409 9,655,717 54,723,103 END OF YEAR $ 33,298,096 $ 18,137,430 $ 11,436,927 $ 62,872,453 58  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 8 - DEFINED CONTRIBUTION PENSION PLAN City of Fort Walton Beach Defined Contribution 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 to 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 $76,407 and $76,407, respectively, for the year ending September 30, 2012. 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 $2,795,852 at September 30, 2012. Contributions made by plan members during the year ended September 30, 2012, were $197,547. 59  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 10 - OTHER POST EMPLOYMENT BENEFITS (OPEB) The following disclosures are represented as of September 30, 2012, the date of the latest actuarial valuation (except for the plan funded status and assumptions and methods, which are represented as of October 1, 2010): 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 2012, 91 retirees and/or dependents received health care benefits. Annual required implied contributions were $488,841 for the current fiscal year, towards which the City made an implied contribution of $278,132. Retiree contributions totaled $353,062 for the fiscal year ended September 30, 2012. At September 30, 2012, the City recorded a net OPEB obligation of $497,659 for governmental activities and $161,164 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, 2012, membership consisted of: Retirees and beneficiaries currently receiving benefits 91 Terminated employees entitled to benefits but not receiving them - Active employees 238 Total 329 Participating employers 1 60  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 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 fiscal year ended September 30, 2012, the amount actually contributed to the plan, and changes in the City's net OPEB obligation to the retiree health plan: Annual required contribution $ 488,841 Interest on net OPEB obligation 17,848 Adjustment to annual required contribution (15,936) Annual OPEB cost (expense) total 490,753 Employer contributions (278,132) Increase in net OPEB obligation 212,621 Net OPEB obligation - beginning of year 446,202 Net OPEB obligation - end of year $ 658,823 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 three years, were as follows: Three-Year Trend Information Net OPEB Annual OPEB City* Percentage Obligation Cost Contributions Contributed (Asset) October 01, 2010 442,811 296,328 67.00 % 146,482 October 01, 2011 328,899 236,253 72.00 % 239,128 October 01, 2012 490,753 278,132 56.67 % 658,823 *Limited to the difference between age-adjusted and composite premiums paid for retirees during the year. 61  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 10 - OTHER POST EMPLOYMENT BENEFITS (OPEB) (CONTINUED) E. Funded Status and Funding Progress As of October 1, 2010, the most recent actuarial valuation date, the plan funded status was as follows: Actuarial Accrued Annual Actuarial Value of Liability (AAL) Unfunded AAL Funded Ratio Covered UAAL as % Assets (a) Entry Age (b) (UAAL) (b-a) (a/b) Payroll (c) of Payroll $ - $ 6,312,795 $ 6,312,795 - % $ 6,578,002 95.97 % F. 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. G. 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. 62  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 10 - OTHER POST EMPLOYMENT BENEFITS (OPEB) (CONTINUED) G. Actuarial Methods and Assumptions (Continued) In the latest actuarial valuation as of October 1, 2010, the Individual Entry Age Normal Cost Method (with an increasing Normal Cost pattern consistent with the salary increase assumptions) was used. The actuarial assumptions included a 4% investment rate of return and an annual healthcare costs trend rate of 3%, which will be increased to an ultimate rate of 5% beginning in fiscal year ending September 30, 2019. The investment rate of return included a 3% inflation assumption. The unfunded actuarial accrued liability is being amortized in a closed amortization, calculated as a level percent of payroll over a twenty-eight year period. 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, 2012. 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. 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, 2012, was $228,546 in the General Fund, $15,902 in the Utilities Funds and $25,911 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, 2012, totaled $68,710. 63  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 12 - OPERATING LEASES (CONTINUED) Lessor (Continued) Future minimum lease payments are as follows: Governmental Business-Type Activities Year Ending September 30 Activities Utilities Golf 2013 $ 228,207 $ 16,380 $ 97,283 2014 222,098 16,871 97,283 2015 224,571 17,377 96,906 2016 231,199 17,898 96,906 2017 238,056 18,435 99,425 Total minimum lease payments $ 1,144,131 $ 86,961 $ 487,803 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, 2012, was $116,878. Future minimum lease payments are as follows: Business-Type Activities Year Ending September 30 Golf 2013 $ 30,541 2014 1,762 2015 881 Total minimum lease payments $ 33,184 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. 64  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 13 - CAPITAL LEASES (CONTINUED) The assets acquired through capital leases are as follows: Business-Type Activities Assets Golf Golf lawn maintenance equipment $ 248,589 Accumulated depreciation (236,160) Net assets acquired by lease $ 12,429 The future minimum lease obligations and net present value of these minimum lease payments as of September 30, 2012, are as follows: Business-Type Activities Year Ending September 30 Golf 2013 $ 13,537 Total minimum lease payments 13,537 Less amount representing interest (79) Present value of minimum lease payments $ 13,458 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, 2012: Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental Activities Capital improvement revenue bonds Series 2001 $ 4,615,000 $ - $ (145,000) $ 4,470,000 $ 150,000 Less deferred amounts for issuance discount (44,035) - 2,179 (41,856) - Capital improvement revenue note, Series 2011 728,480 - (66,684) 661,796 68,400 Compensated absences 663,625 505,235 (461,419) 707,441 176,860 Total Governmental Activities $ 5,963,070 $ 505,235 $ (670,924) $ 5,797,381 $ 395,260 65  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 14 - LONG-TERM DEBT (CONTINUED) Changes in Long-Term Debt Liabilities (Continued) Beginning Ending Due Within Balance Additions Reductions Balance One Year Business-Type Activities Utility system revenue bonds Series 2005 $ 10,585,000 $ - $ (270,000) $ 10,315,000 $ 280,000 Less deferred amounts for issuance discounts (120,128) - 5,091 (115,037) - Capital improvement revenue note Series 2011 76,586 - (15,365) 61,221 15,759 Compensated absences 203,426 158,347 (140,651) 221,122 55,281 Capital leases 66,119 - (52,661) 13,458 13,458 Total Business-Type Activities $ 10,811,003 $ 158,347 $ (473,586) $ 10,495,764 $ 364,498 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. $ 150,000 $ 4,320,000 $ 4,470,000 Less unamortized bond discount - (41,856) (41,856) Total revenue bonds 150,000 4,278,144 4,428,144 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. 68,400 593,396 661,796 Accrued Compensated Absences Total long-term portion of accumulated, vested annual and sick leave for governmental fund types. 176,860 530,581 707,441 TOTAL GOVERNMENTAL ACTIVITIES $ 395,260 $ 5,402,121 $ 5,797,381 66  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 14 - LONG-TERM DEBT (CONTINUED) Description of Long-Term Debt Outstanding (Continued) Current Long-Term Total 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. $ 280,000 $ 10,035,000 $ 10,315,000 Less unamortized bond discount - (115,037) (115,037) Total revenue bonds 280,000 9,919,963 10,199,963 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. 15,759 45,462 61,221 Leases $248,589 capital lease payable, 2008, due in monthly installments of $4,512 through December 2012, collateralized by lawn maintenance equipment. 13,458 - 13,458 Accrued Compensated Absences Accumulated, vested annual compensation for Enterprise Funds. 55,281 165,841 221,122 TOTAL BUSINESS-TYPE ACTIVITIES $ 409,960 $ 10,147,025 $ 10,495,764 GRAND TOTAL LONG-TERM DEBT $ 16,293,145 For the governmental activities, compensated absences are generally liquidated by the General Fund. 67  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 14 - LONG-TERM DEBT (CONTINUED) 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, 2012, are as follows: Governmental Activities Revenue Bonds Revenue Note Year Ending September 30 Principal Interest Principal Interest 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 180,000 190,250 75,721 8,905 2018-2022 1,025,000 812,950 301,727 15,616 2023-2027 1,315,000 531,000 - - 2028-2031 1,310,000 167,500 - - Total $ 4,470,000 $ 2,537,980 $ 661,796 $ 78,674 Business-Type Activities Municipal Loan/Revenue Bonds Revenue Note Leases Year Ending September 30 Principal Interest Principal Interest Principal Interest 2013 $ 280,000 $ 442,559 $ 15,760 $ 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 12,715 163 - - 2017 320,000 399,371 - - - - 2018-2022 1,825,000 1,791,469 - - - - 2023-2027 2,230,000 1,376,523 - - - - 2028-2032 2,775,000 833,140 - - - - 2033-2035 1,985,000 181,125 - - - - Total $ 10,315,000 $ 6,290,188 $ 61,221 $ 3,169 $ 13,458 $ 79 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. 68  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 15 - COMMENTS REQUIRED BY THE BOND AND NOTE ORDINANCES (CONTINUED) Capital Improvement Revenue Bonds, Series 2001 (Continued) 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 2012 Principal due at July 1, 2012 $ 150,000 $ 37,500 Interest due at January 1, 2012 109,702 54,851 Total $ 259,702 $ 92,351 (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. 4. Insurance schedules are included in the statistical section of the insurance in force at September 30, 2012. 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. 69  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 15 - COMMENTS REQUIRED BY THE BOND AND NOTE ORDINANCES (CONTINUED) Utility System Revenue Bonds, Series 2005 (Continued) 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, 2012 Principal due at July 1, 2012 $ 280,000 $ 70,000 Interest due at January 1, 2012 221,279 110,640 Total $ 501,279 $ 180,640 (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, 2012. 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. 70  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 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 2012 Payments Due 2012 Principal due at October 1, 2011 $ 16,937 $ 16,937 $ 3,903 $ 3,903 Interest due at October 1, 2011 4,219 4,219 390 390 Total $ 21,156 $ 21,156 (1) $ 4,293 $ 4,293 (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, 2012, the various components of deferred and unearned revenue were as follows: Unavailable Unearned Total Governmental Funds Special assessment for street resurfacing not yet due $ 113,337 $ - $ 113,337 Special assessment for Soundside Development 147,840 - 147,840 Total Governmental Funds 261,177 - 261,177 Utilities Fund Prepaid utility bills - 17,853 17,853 Golf Fund Prepaid lease revenue - 2,261 2,261 Gift and prepaid cards - 18,089 18,089 Total Golf Fund - 20,350 20,350 Total $ 261,177 $ 38,203 $ 299,380 71  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 17 - INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS The composition of interfund balances as of September 30, 2012, is as follows: Due to/from Other Funds Receivable Fund Payable Fund Amount General Nonmajor Governmental Fund $ 57,150 General Golf 30,061 $ 87,211 Advances to/from Other Funds Receivable Fund Payable Fund Amount General Golf $ 2,660,685 General Fund receivables from the Nonmajor Proprietary Fund (Community Development Block Grant Fund) in the amount of $57,150 and from the Golf Fund in the amount of $30,061 are the result of eliminating temporary deficit cash balances. 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, 2012 is $2,660,685. Transfers In Nonmajor Govern- Transfers Out General Fund mental Fund Utility Fund Golf Fund Total General $ - $ 493,151 $ - $ 18,909 $ 512,060 Community Redevelopment Agency 71,981 - - - 71,981 Nonmajor governmental 44,343 - - - 44,343 Utilities 1,177,785 - - - 1,177,785 Sanitation 426,577 - 37,363 - 463,940 Golf 53,432 - - - 53,432 Nonmajor proprietary 17,147 - - - 17,147 $ 1,791,265 $ 493,151 $ 37,363 $ 18,909 $ 2,340,688 72  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 17 - INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS (CONTINUED) The transfers out of the General Fund of $512,060 consist of 1) $455,333 transfer to the Debt Service Fund (nonmajor governmental fund) for principal and interest payments on debt, 2) $37,818 transfer to the Beal Cemetery Perpetual Care Fund for lot sales, and 3) $18,909 transfer to the Golf Fund (major proprietary fund) for salary enhancement costs based on a City policy. Transfers in to the General Fund of $1,791,265 consist of 1) $21,486 transfer from the Beal Cemetery Perpetual Care Fund (nonmajor governmental fund) to cover improvements made to the Beal Memorial Cemetery, 2) $22,857 transfer from the Community Development Block Grant Fund to cover administrative costs, 3) $301,024 from the Utility Fund to cover 4% franchise "right of way access fee", and 4) $130,000 from the Sanitation Fund to cover the wear and tear on roadways due to sanitation trucks. The remaining transfers, not previously mentioned, were made to cover shared expenses per the City's cost allocation plan, and to transfer the dental self-insurance program refunds received due to the discontinuance of the program. 73  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 18 - GOVERNMENTAL FUND BALANCES At September 30, 2012, the City's governmental fund balances were classified as follows: Community Other Total Redevelopment Governmental Governmental General Fund Agency Funds Funds Nonspendable Inventory $ 197,278 $ - $ - $ 197,278 Advances 2,660,685 - - 2,660,685 Total nonspendable 2,857,963 - - 2,857,963 Restricted for Improvement districts - 3,736,100 - 3,736,100 Library 193,068 - - 193,068 Law enforcement - - 262,648 262,648 Debt service - - 113,507 113,507 Other purposes 1,125 - - 1,125 Total restricted 194,193 3,736,100 376,155 4,306,448 Committed Cemetery maintenance - - 1,959,836 1,959,836 Natural disaster recovery 5,040,585 - - 5,040,585 Total committed 5,040,585 - 1,959,836 7,000,421 Assigned to Public safety 35,550 - - 35,550 Culture and recreation - - - - General government - - - - Capital projects 174,824 - - 174,824 Self-insurance dental program refund 80,100 - - 80,100 Citizen police academy 3,020 - - 3,020 Main Street 5,504 - - 5,504 Other 853 - - 853 FY 2013 budget appropriation 55,148 - - 55,148 Assigned 354,999 - - 354,999 Unassigned 1,611,120 - (302) 1,610,818 TOTAL FUND BALANCE $ 10,058,860 $ 3,736,100 $ 2,335,689 $ 16,130,649 74  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 19 - ENCUMBRANCES The amount of encumbrances outstanding as of September 30, 2012, is as follows: Governmental Funds - General Fund $ 35,550 Community Redevelopment Agency 284,841 Total $ 320,391 Encumbrances at year end do not constitute expenditures or liabilities; therefore, they are not reflected in the financial statements. NOTE 20 - 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. 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 of up to $700,000 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 $52,142 per year at 1.5% interest, and shall become payable no sooner than 3 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, 2012 was $147,840. 75  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 20 - COMMITMENTS AND CONTINGENCIES (CONTINUED) 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. 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. The minimum commitment by the City under the Agreement is as follows: Fiscal Year Ending September 30 2013 48,576 2014 50,033 2015 51,534 2016 53,080 2017 54,673 2018 through 2022 298,973 2023 through 2027 346,591 2028 through 2032 401,794 2033 through 2037 465,790 2038 through 2039 206,466 Total $ 1,977,510 Fees paid for wastewater treatment to Okaloosa County, Florida during the year ended September 30, 2012, were $1,871,209. 76  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 21 - GASB PRONOUNCEMENTS ISSUED BUT NOT YET ADOPTED In June 2012, the GASB issued GASB Statement No. 67, Financial Reporting for Pension Plans - an amendment to Statement No. 25. This Statement enhances the financial reporting by state and local governmental pension plans. This Statement replaces the requirement of Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans and No. 50, Pension Disclosures, as they relate to pension plans that are administered through trusts or equivalent arrangements that meet certain criteria. This statement enhances note disclosures and required supplemental information (RSI) for both defined benefit and defined contribution pension plans. It also requires the presentation of new information about annual money-weighted rates of return in the notes to the financial statements and in 10 year RSI schedules. The provisions of this Statement are effective for financial statements for periods beginning after June 15, 2013, which requires the City to implement this statement in FY 2013-2014. In June 2012, the GASB issued GASB Statement No. 68, Accounting and Financial Reporting for Pensions - an amendment to Statement No. 27. This Statement enhances the financial reporting by state and local governments for pensions. It also improves information provided by state and local governmental employers about financial support for pensions that is provided by other entities. This statement requires governments providing defined benefit pensions to recognize their long-term obligation for pension benefits as a liability for the first time, and to more comprehensively and comparably measure the annual costs of pension benefits. It also enhances accountability and transparency through revised and new note disclosures and required supplementary information. Management believes GASB Statement No. 68 will have a significant impact on the financial position and changes in net assets of the City; however, the amounts are not quantifiable as of the date of this report. The provisions of this Statement are effective for financial statements for periods beginning after June 15, 2014, which requires the City to implement this statement in FY 2014-2015. NOTE 22 - SUBSEQUENT EVENTS Recreation Consolidation In October 2012, the City began a project to consolidate four recreation centers into a new recreation facility. The estimated cost of the facility is $8.1 million dollars. The City intends to obtain funding for this project by applying for grants, obtaining private sponsors, evaluating current City properties for lease or sale opportunities, and issuing debt. 77  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 22 - SUBSEQUENT EVENTS (CONTINUED) State of Florida Revolving Loan for Pump Station and Force Main Project In January 2013, the City executed a State of Florida Revolving Loan in an amount of approximately $19,000,000 for the pump station and force main project. The interest rate on the loan is 1.9% and the repayment period is 20 years. The total project is currently estimated at $16,000,000 and after application of unspent bond proceeds and a contribution from Okaloosa County, Florida, the final loan amount is estimated at $13 million. Sanitation Fee Schedule Amendment In January 2013, a 10-year contract with Allied Waste Services for Solid Waste Disposal, Recycling, and Transfer Services was approved. The contract includes fixed pricing for the first five years, followed by biennial increases for the last five years. A resolution amending the comprehensive fee schedule was also adopted in January 2013. Acceptance of Federal Emergency Management Agency Grant In January 2013, a grant award was received from the Federal Emergency Management Agency in the amount of $508,400. The award is a 95%/5% matching grant that includes $482,980 in federal funds and $25,420 in City funds. The grant includes funding for a new cascade system at Station 7 to refill SCBA bottles, an upgrade of the alerting system at Stations 6 & 7, and new source capture exhaust systems for each apparatus. Landmark Development Agreement In February 2013, the City approved a development agreement for the Landmark Center. The development calls for a parking garage to support the hotel and shopping complex and the agreement requires the City to pay up to $1,700,000 for 32 parking spaces in the garage, developer participation in various economic incentive programs currently active in the Community Redevelopment Agency, and assistance with the installation of public infrastructure improvements. The agreement provides the City with the option to purchase an additional 195 spaces at a fee of $15,379 per space between the completion of the garage and the sunset of the Community Redevelopment Agency. The parking spaces are to enhance parking opportunities in the downtown area and will be payable from the Community Redevelopment Agency, a blended component unit of the City of Fort Walton Beach, Florida. Refunding of 2001 Capital Improvement Revenue Bonds In February 2013, the 2001 Capital Improvement Revenue Bonds, of which $4,470,000 was outstanding as of September 30, 2012, were approved for refunding via a bank qualified loan. The estimated present value savings is $600,000. In order to maintain bank qualified status of the refunding, the cost of issuance will be funded by the City in a not to exceed amount of $45,000. 78  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2012 NOTE 22 - SUBSEQUENT EVENTS (CONTINUED) Amendment to Soundside Interlocal Agreement In February 2013, the Interlocal Agreement whereby the City approved the use of up to $700,000 in Community Redevelopment Agency funds for site demolition, infrastructure improvements, site restoration, and other costs for the Soundside Development was amended. The amendment revised the payback period of the assessment to 40 years. The assessment will be paid to the City from surplus cash generated from the development and the interest rate remains at 1.5%. 79 (THIS PAGE INTENTIONALLY LEFT BLANK.) 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, 2012 $ 32,776,563 $ 41,280,063 $ 8,503,500 79.40 % $ 4,542,537 187.20 % 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 Police Officers' Retirement Fund* September 30, 2012 $ 18,379,668 $ 25,755,221 $ 7,375,553 71.36 % $ 2,178,847 338.51 % 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 Firefighters' Retirement Fund September 30, 2012 $ 10,927,529 $ 18,139,496 $ 7,211,967 60.24 % $ 1,946,811 370.45 % 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 *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. 80  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, 2012 $ 1,258,659 $ 1,306,268 $ - 103.78 % 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 % Police Officers' Retirement Fund September 30, 2012 $ 875,055 $ 799,961 $ 168,042 110.62 % 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, 2012 $ 700,045 $ 669,871 $ 114,834 * 112.09 % 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. 81  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 October 1, 2010 $ 6,312,795 $ - $ 6,312,795 - % $ 6,578,002 95.97 % 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 % 82 (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, 2012 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 $ 256,562 $ 10,019 $ - $ 1,959,836 $ - $ 2,226,417 Due from other governments 2,509 - 62,420 - - 64,929 Cash and cash equivalents - restricted - - - - 113,507 113,507 TOTAL ASSETS $ 259,071 $ 10,019 $ 62,420 $ 1,959,836 $ 113,507 $ 2,404,853 LIABILITIES AND FUND BALANCE Liabilities Accounts payable $ 257 $ 150 $ 5,572 $ - $ - $ 5,979 Accrued expenses and other liabilities 6,035 - - - - 6,035 Due to other funds - - 57,150 - - 57,150 Total liabilities 6,292 150 62,722 - - 69,164 Fund balance Restricted 252,779 9,869 - - 113,507 376,155 Committed - - - 1,959,836 - 1,959,836 Unassigned - - (302) - - (302) Total fund balance 252,779 9,869 (302) 1,959,836 113,507 2,335,689 TOTAL LIABILITIES AND FUND BALANCE $ 259,071 $ 10,019 $ 62,420 $ 1,959,836 $ 113,507 $ 2,404,853 83  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, 2012 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 $ 20,123 $ - $ 111,609 $ - $ - $ 131,732 Fines and forfeits 31,470 7,267 - - - 38,737 Miscellaneous 2,264 65 5 14,295 - 16,629 TOTAL REVENUES 53,857 7,332 111,614 14,295 - 187,098 EXPENDITURES Current Public safety 26,405 4,867 - - - 31,272 Physical environment - - - 239 - 239 Economic environment - - 74,950 - - 74,950 Capital outlay 35,889 - 13,803 - - 49,692 Debt service Principal - - - - 211,683 211,683 Interest - - - - 243,582 243,582 Other debt service costs - - - - 377 377 TOTAL EXPENDITURES 62,294 4,867 88,753 239 455,642 611,795 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (8,437) 2,465 22,861 14,056 (455,642) (424,697) OTHER FINANCING SOURCES (USES) Transfers in - - - 37,818 455,333 493,151 Transfers out - - (22,857) (21,486) - (44,343) TOTAL OTHER FINANCING SOURCES (USES) - - (22,857) 16,332 455,333 448,808 NET CHANGE IN FUND BALANCE (8,437) 2,465 4 30,388 (309) 24,111 FUND BALANCE (DEFICIT) - BEGINNING OF YEAR 261,216 7,404 (306) 1,929,448 113,816 2,311,578 FUND BALANCE (DEFICIT) - END OF YEAR $ 252,779 $ 9,869 $ (302) $ 1,959,836 $ 113,507 $ 2,335,689 84  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, 2012 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Intergovernmental $ - $ 20,128 $ 20,123 $ (5) Fines and forfeits - 18,145 31,470 13,325 Miscellaneous 3,000 3,000 2,264 (736) TOTAL REVENUES 3,000 41,273 53,857 12,584 EXPENDITURES Current operations Public safety 13,275 27,888 26,405 1,483 Capital outlay - 36,722 35,889 833 TOTAL EXPENDITURES 13,275 64,610 62,294 2,316 NET CHANGE IN FUND BALANCE (10,275) (23,337) (8,437) 14,900 FUND BALANCE - BEGINNING OF YEAR 10,275 23,337 261,216 237,879 FUND BALANCE - END OF YEAR $ - $ - $ 252,779 $ 252,779 85  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, 2012 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Fines and forfeits $ 10,000 $ 10,000 $ 7,267 $ (2,733) Miscellaneous - - 65 65 TOTAL REVENUES 10,000 10,000 7,332 (2,668) EXPENDITURES Current operations Public safety 10,000 10,000 4,867 5,133 NET CHANGE IN FUND BALANCE - - 2,465 2,465 FUND BALANCE - BEGINNING OF YEAR - - 7,404 7,404 FUND BALANCE - END OF YEAR $ - $ - $ 9,869 $ 9,869 86  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, 2012 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Intergovernmental $ 126,575 $ 126,575 $ 111,609 $ (14,966) Miscellaneous - - 5 5 TOTAL REVENUES 126,575 126,575 111,614 (14,961) EXPENDITURES Current operations Economic environment 74,965 111,300 74,950 36,350 Capital outlay 28,295 28,295 13,803 14,492 TOTAL EXPENDITURES 103,260 139,595 88,753 50,842 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES 23,315 (13,020) 22,861 35,881 OTHER FINANCING SOURCES (USES) Transfers out (23,315) (22,246) (22,857) (611) NET CHANGE IN FUND BALANCE - (35,266) 4 35,270 FUND BALANCE (DEFICIT) - BEGINNING OF YEAR - 35,266 (306) (35,572) FUND BALANCE (DEFICIT) - END OF YEAR $ - $ - $ (302) $ (302) 87  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, 2012 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Miscellaneous $ 13,000 $ 13,000 $ 14,295 $ 1,295 EXPENDITURES Physical environment - - 239 (239) EXCESS OF REVENUES OVER EXPENDITURES 13,000 13,000 14,056 1,056 OTHER FINANCING SOURCES (USES) Transfers in 29,600 29,600 37,818 8,218 Transfers out (24,000) (24,000) (21,486) 2,514 TOTAL OTHER FINANCING SOURCES (USES) 5,600 5,600 16,332 10,732 NET CHANGE IN FUND BALANCE 18,600 18,600 30,388 11,788 FUND BALANCE (DEFICIT) - BEGINNING OF YEAR (18,600) (18,600) 1,929,448 1,948,048 FUND BALANCE - END OF YEAR $ - $ - $ 1,959,836 $ 1,959,836 88  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, 2012 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Miscellaneous $ - $ - $ - $ - EXPENDITURES Debt service Principal 211,683 211,683 211,683 - Interest 243,582 243,582 243,582 - Other debt service costs 377 377 377 - TOTAL EXPENDITURES 455,642 455,642 455,642 - EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (455,642) (455,642) (455,642) - OTHER FINANCING SOURCES (USES) Transfers in 455,642 455,642 455,333 (309) NET CHANGE IN FUND BALANCE - - (309) (309) FUND BALANCE - BEGINNING OF YEAR - - 113,816 113,816 FUND BALANCE - END OF YEAR $ - $ - $ 113,507 $ 113,507 89 (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, 2012 Stormwater Fund ASSETS Current assets Cash and cash equivalents $ 480,285 Receivables, net 63,928 Total current assets 544,213 Capital assets, net Non-depreciable 28,532 Depreciable, net 915,274 Total capital assets 943,806 TOTAL ASSETS $ 1,488,019 LIABILITIES Current liabilities Accounts payable $ 28,833 Accrued liabilities Compensated absences 3,063 Wages 12,367 Other 3,043 Total current liabilities 47,306 Non-current liabilities Accrued liabilities Compensated absences 9,188 Other post-employment benefits 2,460 Total non-current liabilities 11,648 TOTAL LIABILITIES 58,954 NET ASSETS Invested in capital assets, net of related debt 943,806 Unrestricted 485,259 TOTAL NET ASSETS $ 1,429,065 90  Statement D-2 City of Fort Walton Beach, Florida NON-MAJOR PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS September 30, 2012 Stormwater Fund OPERATING REVENUES Charges for services $ 577,706 OPERATING EXPENSES Personal services 207,727 Operating 216,849 Depreciation/amortization expense 72,635 TOTAL OPERATING EXPENSES 497,211 OPERATING INCOME 80,495 NON-OPERATING REVENUES (EXPENSES) Gain (loss) on disposal of capital assets (3,558) Unrealized gain (loss) on investment 965 Realized gain (loss) on investment (59) Interest 2,334 Miscellaneous 2,816 TOTAL NON-OPERATING REVENUES (EXPENSES) 2,498 INCOME (LOSS) BEFORE CONTRIBUTIONS AND OPERATING TRANSFERS 82,993 CONTRIBUTIONS AND TRANSFERS Capital grants and contributions 27,502 Transfer out (17,147) TOTAL CONTRIBUTIONS AND TRANSFERS 10,355 CHANGE IN NET ASSETS 93,348 NET ASSETS - BEGINNING OF YEAR 1,335,717 NET ASSETS - END OF YEAR $ 1,429,065 91  Statement D-3 City of Fort Walton Beach, Florida NON-MAJOR PROPRIETARY FUNDS STATEMENT OF CASH FLOWS September 30, 2012 Stormwater Fund CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers and users $ 537,323 Payments to suppliers (187,007) Payments to employees (203,102) Miscellaneous income 2,816 Net cash provided by operating activities 150,030 CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Transfers out (17,147) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisitions of capital assets (85,591) Proceeds from disposal of capital assets 50 Capital grants and contributions 27,502 Net cash provided (used) by capital and related financing activities (58,039) NET CASH FLOWS FROM INVESTING ACTIVITIES Interest income 3,240 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 78,084 CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 402,201 CASH AND CASH EQUIVALENTS - END OF YEAR $ 480,285 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income $ 80,495 Adjustments to reconcile operating income to net cash provided by operating activities Depreciation 72,635 Miscellaneous revenue 2,816 Decrease (increase) in assets Accounts receivable (28,051) Increase (decrease) in liabilities Accounts payable 26,799 Compensated absences payable 1,483 Wages 1,575 Other liabilities 3,043 Other post-employment benefits 1,567 Deferred revenue (12,332) Net cash provided by operating activities $ 150,030 92 (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) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Governmental Activities Invested in capital assets, net of related debt $ 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 $ 25,379,050 Restricted Debt service 91,691 92,153 92,544 92,788 92,730 91,713 91,713 92,880 113,816 113,507 System improvements - - - - - - - - - - Capital projects 966,147 685,174 700,975 241,114 56,550 - - - - - Improvement districts - - - - - - - - 4,212,984 3,736,100 Public safety 324,450 301,230 305,647 266,492 307,983 307,983 254,409 269,600 268,820 262,648 Perpetual care - expendable 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 395,990 817,932 533,486 474,924 657,116 473,655 463,168 477,194 234,568 194,193 Unrestricted 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 11,487,979 Total governmental activities net assets $ 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 $ 41,173,477 Business-Type Activities Invested in capital assets net of related debt $ 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 $ 14,929,648 Restricted Debt service 323,917 317,444 319,139 333,522 323,430 316,153 471,441 481,023 184,711 184,933 System improvements 60,726 160,754 352,360 106,434 39,414 60,709 98,292 61,559 82,573 112,863 Unrestricted 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 8,552,169 Total business-type activities net assets $ 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 $ 23,779,613 Primary Government Invested in capital assets net of related debt $ 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 $ 40,308,698 Restricted 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 4,604,244 Unrestricted 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 20,040,148 Total primary government net assets $ 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 $ 64,953,090 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 93  City of Fort Walton Beach, Florida SCHEDULE 2 CHANGES IN NET ASSETS Last Ten Fiscal Years (full accrual basis of accounting) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Expenses Governmental activities General government $ 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 $ 4,314,050 Public safety 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 9,805,368 Physical environment 283,558 276,987 276,525 299,362 354,439 343,411 350,374 304,907 393,752 383,970 Transportation 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 1,592,150 Economic environment 204,133 210,649 199,284 313,153 335,185 127,355 266,132 98,996 545,242 707,603 Culture and recreation 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 2,880,815 Debt service interest 272,858 267,160 238,090 309,094 331,771 302,948 247,703 240,940 214,470 254,516 Total government activities 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 19,938,472 Business-type activities Utilities 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 7,017,160 Sanitation 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 2,741,266 Golf 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 2,012,165 Stormwater - - - - - - 469,421 374,951 339,543 497,211 Total business-type activities 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 12,267,802 Total primary government expenses $ 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 $ 32,206,274 Program Revenues Governmental activities Charges for services General government $ 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 $ 430,718 Public safety 579,453 567,601 873,041 600,259 579,365 641,941 642,364 467,835 430,017 373,855 Physical environment 352,335 345,529 302,727 342,815 316,520 348,838 286,623 289,654 394,513 439,555 Transportation 81,299 102,068 68,402 72,815 241,622 93,987 87,654 83,586 104,776 118,067 Economic environment - - - - - - - - 16,400 58,000 Culture and recreation 354,062 351,450 382,858 400,175 421,733 417,253 426,110 408,351 404,047 400,215 Debt service interest - - - - - - - - - - Operating grants and contributions 343,034 2,541,755 3,228,819 642,631 1,266,681 903,079 1,119,033 639,370 761,643 589,253 Capital grants and contributions 1,197,540 56,332 261,332 373,994 233,878 50,687 88,941 731,275 351,006 156,794 Total governmental activities program revenues 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 2,566,457 Business-type activities Charges for services Utilities 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 7,974,601 Sanitation 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 3,313,559 Golf 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 1,776,649 Stormwater - - - - - - 654,346 626,903 481,854 577,706 Operating grants and contributions - - - - - 39,403 - - 118,226 - Capital grants and contributions 95,034 100,027 198,568 95,644 1,079,034 92,872 555,698 173,370 65,496 331,609 Total business-type activities program revenues 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 13,974,124 Total primary government program revenues $ 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 $ 16,540,581 Continued… 94  City of Fort Walton Beach, Florida SCHEDULE 2 CHANGES IN NET ASSETS Last Ten Fiscal Years (full accrual basis of accounting) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Net (Expense)/Revenue Governmental activities $ (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) $ (17,372,015) Business-type activities 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) 1,706,322 Total primary government net expense $ (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) $ (15,665,693) General Revenues and Other Changes in Net Assets Governmental activities Taxes Property taxes $ 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 $ 4,295,068 Sales taxes 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 2,198,270 Utility service taxes 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 3,739,311 Tax increments for Redevelopment District - - - - - - - - 1,547,609 1,386,521 Franchise fees 1,876,575 Intergovernmental, unrestricted 589,120 619,197 877,198 889,450 845,090 740,554 709,550 712,776 825,591 809,756 Gain on sale of assets 164,186 99,587 456,675 (1,053) 477,494 2,592 2,950 795,860 16,865 16,440 Miscellaneous 83,595 100,950 46,174 37,595 56,788 61,199 54,223 492,052 96,105 154,996 Investment earnings 282,019 226,863 324,687 599,818 755,389 444,488 269,896 152,884 133,419 159,465 Insurance recoveries - - 299,145 - - - - - - Transfers 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 1,656,032 Total governmental activities 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 16,292,434 Business-type activities Taxes Utility service taxes 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 35,111 Miscellaneous 4,209 12,342 10,261 73,714 15,118 129,678 141,406 177,657 31,424 48,550 Investment earnings 143,097 128,808 354,915 734,878 713,872 579,578 340,155 202,071 65,961 69,622 Transfers (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) (1,656,032) Special item: Impairment loss - - - - - - (3,836,055) - - (588,652) Total business-type activities (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) (2,091,401) Total primary government $ 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 $ 14,201,033 Change in Net Assets Governmental activities $ 2,146,476 $ 429,834 $ 1,467,862 $ 836,687 $ (1,742,126) $ 186,691 $ (1,116,377) $ (231,722) $ 1,424,688 $ (1,079,581) Business-type activities (303,273) (43,882) 131,936 812,312 1,275,138 (703,538) (3,298,917) (160,595) (2,098,168) (385,079) Total primary government $ 1,843,203 $ 385,952 $ 1,599,798 $ 1,648,999 $ (466,988) $ (516,847) $ (4,415,294) $ (392,317) $ (673,480) $ (1,464,660) 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 Note: Beginning in FY 12, Franchise Fees were reported as General Revenues - in prior years they were included in General Government - charges for services 95  City of Fort Walton Beach, Florida SCHEDULE 3 FUND BALANCES - GOVERNMENTAL FUNDS Last Ten Fiscal Years (modified accrual basis of accounting) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 General Fund Reserved $ 506,771 $ 957,768 $ 4,756,085 $ 539,749 $ 701,829 $ 509,080 $ 482,179 $ 499,384 $ - $ - Unreserved 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 2,857,963 Restricted - - - - - - - - 234,768 194,193 Committed - - - - - - - - 5,219,706 5,040,585 Assigned - - - - - - - - 1,537,572 354,999 Unassigned - - - - - - - - 1,189,562 1,611,120 Total general fund $ 10,280,579 $ 11,137,295 $ 14,778,835 $ 11,669,122 $ 12,863,374 $ 9,876,944 $ 10,191,381 $ 9,813,526 $ 11,214,334 $ 10,058,860 All Other Governmental Funds Reserved $ 292,286 $ - $ - $ - $ - $ - $ 50,117 $ 12,783 $ - $ - Unreserved, reported in Capital projects 673,861 685,174 700,975 241,114 56,550 8,751 - - - Debt service 91,691 92,153 92,544 92,788 92,730 91,713 91,713 92,880 - - Special revenue funds 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 4,112,255 Committed - - - - - - - - 1,929,448 1,959,836 Assigned - - - - - - - - - - Unassigned - - - - - - - - (306) (302) Total all other governmental funds $ 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 $ 6,071,789 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 96  City of Fort Walton Beach, Florida SCHEDULE 4 CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS Last Ten Fiscal Years (modified accrual basis of accounting) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Revenues Taxes $ 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 $ 10,065,983 Licenses, permits, and fees 325,274 358,675 706,345 517,728 496,614 2,225,224 2,320,683 2,406,916 2,428,621 2,142,995 Intergovernmental 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 3,291,693 Charges for services 899,844 933,006 848,651 900,170 911,026 1,216,687 1,132,681 907,476 911,405 969,560 Fines and forfeits 358,988 305,851 329,038 247,329 247,493 268,415 387,449 204,849 151,616 142,936 Miscellaneous 1,067,426 637,460 1,052,422 850,248 3,588,708 1,211,662 1,020,342 1,370,077 817,975 537,975 Total Revenues 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 17,151,142 Expenditures General governmental services 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 3,899,740 Public safety 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 9,154,002 Physical environment 224,246 211,388 211,178 233,942 276,086 278,273 283,460 250,691 306,365 295,459 Transportation 1,263,289 1,183,153 1,284,018 1,364,414 1,550,204 1,750,680 1,316,954 1,207,449 994,272 966,050 Economic environment 203,595 210,649 199,284 313,153 335,185 127,355 266,132 98,996 493,526 652,086 Culture and recreation 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 2,383,239 Capital outlay 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 2,609,203 Debt service Principal 232,289 145,097 195,722 194,675 355,459 2,052,797 168,949 175,629 198,699 211,683 Interest and other costs 273,202 265,769 274,122 307,334 330,136 297,335 246,774 240,093 236,268 243,959 Total expenditures 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 20,415,421 Excess of revenue over (under) expenditures (3,517,961) (1,560,483) (790,737) (5,488,231) (757,501) (5,903,639) (2,212,562) (2,005,388) (292,704) (3,264,279) Other Financing Sources (Uses) Transfers in 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 2,284,416 Transfers out (706,315) (525,465) (501,403) (638,738) (715,802) (2,450,323) (685,545) (674,583) (614,227) (628,384) Insurance recoveries - - 299,145 - - - - - - - Lease proceeds - 143,698 299,948 - - - - - - - Debt proceeds - - 2,039,191 - - - - - 739,805 - Contributions from others - 40,929 7,860 10,572 - - - - - - Total other financing sources (uses) 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 1,656,032 Net change in fund balance $ (1,805,133) $ 615,477 $ 3,730,407 $ (3,497,659) $ 1,171,424 $ (2,986,329) $ 293,715 $ (337,745) $ 2,129,818 $ (1,608,247) Debt service as a percentage of noncapital expenditures 3.51% 2.49% 2.57% 2.90% 3.61% 10.62% 2.23% 2.25% 2.58% 2.56% 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 97  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 2012 $ 10,065,983 $ 2,142,995 $ 3,291,693 $ 969,560 $ 142,936 $ 537,975 $ 2,284,416 $ 19,435,558 2011 10,438,481 2,428,621 3,358,615 911,405 151,616 817,957 2,296,944 20,403,639 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 (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. 98  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 2012 $ 1,445,327,759 $ 120,653,616 $ 1,565,981,375 $ 446,565,401 $ 1,119,415,974 4.5383 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 (1) Florida State Law requires all property to be assessed at current fair market. The January 2012 assessment is the basis for Fiscal Year 2013-13 tax revenues. Source: Okaloosa County Property Appraiser 99  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 City of Fort Walton Beach Direct Rates Overlapping Rates* Okaloosa Northwest Total Fiscal Total Direct Okaloosa County School Florida Water Overlapping Year Basic Rates Rate County Board Management Rates 2012 4.5383 4.5383 3.2899 7.4760 0.0400 10.8059 2011 4.5383 4.5383 3.2899 7.7690 0.0400 11.0989 2010 4.5383 4.5383 3.2899 7.5340 0.0450 10.8689 2009 4.1986 4.1986 3.2899 7.6390 0.0450 10.9739 2008 4.1986 4.1986 3.2995 7.6240 0.0450 10.9685 2007 4.1986 4.1986 3.3443 7.6390 0.0450 11.0283 2006 4.6458 4.6458 3.6500 7.7860 0.0500 11.4860 2005 4.9700 4.9700 4.2500 8.0630 0.0500 12.3630 2004 4.9700 4.9700 4.2500 8.2940 0.0500 12.5940 2003 4.9700 4.9700 4.2500 8.2940 0.0500 12.5940 (1) As of levy date, November 1 of each year listed. The 2012 millage rate is the basis for Fiscal Year 2012-13 tax revenues. * Overlapping rates are those of local and county governments that apply to property owners within the City of Fort Walton Beach. Source: Okaloosa County Tax Collector 100  City of Fort Walton Beach, Florida SCHEDULE 8 PRINCIPAL TAXPAYERS Unaudited 2012 2003 Total Total Assessed Assessed Taxpayer Value Percentage Rank Value Percentage Rank Uptown Station Investors, LLC $ 14,236,425 1.27% 1 $ 9,824,303 1.14% 4 Presidio Developers, LLC 7,395,000 0.66% 2 BLC Westwood, LLC 6,287,673 0.56% 3 DRS Training & Control Systems 4,916,159 0.44% 4 7,427,274 0.86% 6 DDRM Shoppes at Paradise 4,867,494 0.43% 5 4,732,655 0.55% 8 FNBT.COM Bank 4,193,682 0.37% 7 Choctaw Plaza LTD 4,095,529 0.37% 8 ECH II - Captain's Quarters, LLC 4,088,691 0.37% 6 Mariner Plaza Realty Assoc. 3,736,780 0.33% 9 4,425,351 0.51% 9 Brown, Brown & Brown 3,605,499 0.32% 10 Sprint Florida, Inc. 25,868,617 3.00% 1 Gulf Power Co. 13,912,307 1.61% 2 Aero Technical Service 9,895,152 1.15% 3 American Senior Living of FWB 7,666,825 0.89% 5 Home Depot 5,708,325 0.66% 7 Emerald Coast Housing Corp 4,423,619 0.51% 10 Total Taxable Assessed Value of Principal Taxpayers 57,422,932 5.13% 93,884,428 10.87% Total Taxable Assessed Value of Other Taxpayers 1,061,993,042 94.87% 769,746,222 89.13% Total Taxable Assessed Value $ 1,119,415,974 100.00% $ 863,630,650 100.00% (1) The 2012 tax roll is the basis for Fiscal Year 2012-13 tax revenues. Source: Okaloosa County Property Appraiser 101  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 2012 The 2012 tax levy is the basis for Fiscal Year 2012-13 tax revenues. 2011 $ 5,251,483 $ 5,050,661 96.2% $ 38,067 $ 5,088,728 96.9% $ 19,826 0.4% 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% (1) Includes discount taken for early payment of taxes (maximum of 4%). Source: Okaloosa County Tax Collector 102  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) 2012 $ - $ - $ 661,796 $ 4,470,000 $ - $ 13,458 $ 61,221 $ 10,315,000 $ 15,521,475 0.20% $ 768.62 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 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. 103  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) 2012 $ - 0.00% $ - 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% - 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. 104  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 2012 $ 25,267,908 $ 25,556,504 $ 497,049 $ 697,060 $1,194,109 21.40 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 (1) Non-Ad Valorem Revenues of General Fund, Capital Projects Fund, other governmental funds, and proprietary funds. (2) Combined Debt Service requirements for 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. 105  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 $ 29,905,000 10.87% (2) $ 3,250,225 Okaloosa County School District Certificates of Participation 58,990,000 30.43% (1) 17,953,478 Subtotal: Overlapping Debt 88,895,000 21,203,703 Direct Debt City of Fort Walton Beach Revenue Notes 661,796 100.00% 661,796 City of Fort Walton Beach Revenue Bonds 4,470,000 100.00% 4,470,000 Subtotal: Direct Debt 5,131,796 5,131,796 Total Direct and Overlapping Debt $ 94,026,796 $ 26,335,499 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. 106  City of Fort Walton Beach, Florida SCHEDULE 14 MAJOR EMPLOYERS Unaudited 2012 2003 Percentage Percentage of Total of Total Employer Product Employees Employment Ranking Employees Employment Ranking USAF - Eglin(1) Air Force Development Test Center 19,310 20.52% 1 19,135 22.17% 1 (2) USAF - Hurlburt Air Force Special Ops Command 10,564 11.22% 2 8,453 9.80% 2 Okaloosa County School District Education Services 3,129 3.32% 3 3,460 4.01% 3 Okaloosa County(3) Local Government Services 1,346 1.43% 4 1,286 1.49% 4 Fort Walton Beach Medical Center Medical Services 1,097 1.17% 5 940 1.09% 7 Lockheed Martin Corporation Military Technical Support 827 0.88% 6 InDyne Inc Military Technical Support 800 0.85% 7 Northwest Florida State College Education Services 701 Jacobs Technology - TEAS Group Military Technical Support 566 0.60% 8 ResortQuest Property Management 463 9 1,200 1.39% 5 DSR Training and Control Systems Defense Electronics 439 0.47% 10 600 0.70% 9 BAE Systems Technical Services Military Technical Support 900 1.04% 8 North Okaloosa Medical Center Medical Services 592 0.69% 10 State of Florida State Government Services 966 1.12% 6 39,242 41.69% 37,532 43.49% (1) Includes military, civilian, and contractor personnel; a portion of contractor personnel may be duplicated with private sector employees also listed here. (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 107  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 2012 20,194 185,803 10.87% $ 7,913,960 $ 43,132 6.0% 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% OKALOOSA COUNTY EDUCATION FY 2012 FY 2011 FY 2010 Schools: Grades K-5 18 18 18 Grades 6-8 7 7 7 Grades 9-12 4 4 4 PK-12 / Charter / Alternate 2 / 4 / 10 2 / 4 / 10 2 / 4 / 10 Grades K-8 1 1 1 Vocational / Technical 1 1 1 Exceptional Children 2 2 2 Students: Grades K-5 13,509 13,891 14,406 Grades 6-8 6,546 6,046 6,471 Grades 9-12 8,954 8,381 8,889 Vocational and Adult Students 288 280 302 Exceptional Children 4,037 4,031 4,270 Personnel: Instructional (Classroom) 1,844 1,896 1,849 Non-Instructional 933 941 1,013 Source: Office of Economic & Demographic Research, FL Research & Economic Database, FL Labor Market Statistics Okaloosa County School Board 108  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 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 General Government City Manager 2.00 2.00 2.00 2.00 3.00 4.00 3.00 3.00 3.00 3.00 Administrative Services 3.00 3.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 Risk Management - - 1.00 1.00 - - - - - - Information Technology 2.00 2.00 2.75 2.75 3.00 4.00 4.00 4.00 4.00 4.00 City Clerk 2.50 2.50 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 7.00 7.75 8.00 9.00 9.00 Purchasing 2.50 2.50 2.50 2.00 5.00 5.00 5.00 5.00 5.00 5.00 Public Safety Police 70.99 67.99 67.59 68.05 74.05 73.17 72.95 72.95 74.95 75.95 Fire 37.00 37.00 38.00 38.00 39.00 39.00 39.00 33.00 33.00 33.00 Recreation & Cultural Services Administration 13.67 13.81 15.93 17.19 32.09 32.64 34.04 34.04 34.04 34.04 Parks Maintenance 11.00 11.00 11.00 11.90 - - - - - - Right-of-Way Maintenance 1.00 1.00 7.00 8.00 9.00 9.00 9.00 9.00 10.00 10.00 Senior Citizens Center 1.85 1.85 1.85 1.85 2.38 2.58 2.58 2.58 3.08 3.08 Library 8.02 8.10 9.90 9.90 10.60 11.10 11.10 11.10 11.10 10.50 Museum 3.60 2.60 3.85 4.98 5.18 6.01 7.01 7.01 7.01 7.01 Cemetery 3.00 3.00 3.00 3.50 3.50 3.50 3.00 3.00 3.00 3.00 Engineering Services Administration 5.00 5.00 6.00 6.00 7.00 7.00 8.00 10.00 10.00 10.00 Planning & Zoning 1.00 1.00 1.00 - 4.00 4.00 5.00 5.00 5.00 5.00 Building & Permitting 3.70 3.00 3.00 3.00 6.00 6.00 4.00 4.00 4.00 4.00 Code Enforcement 2.00 2.00 2.00 2.00 - - - - - - Fleet Maintenance 8.75 8.75 10.00 11.00 12.00 12.00 12.00 13.00 13.00 13.00 Facilities Maintenance 8.00 8.00 11.00 11.00 10.00 11.00 11.00 11.00 11.00 11.00 Streets Maintenance 5.50 5.50 6.50 6.50 14.50 13.50 15.00 15.00 15.00 16.00 Community Development Block Grant 0.48 0.48 0.48 0.48 0.48 1.48 1.48 1.48 1.48 1.48 Community Redevelopment Agency 3.00 3.00 1.00 1.00 1.00 1.75 1.75 1.00 1.00 1.00 Utility (Water/Sewer) Enterprise Customer Service 7.00 5.50 7.50 7.50 8.00 9.00 9.00 8.00 8.00 8.00 Administration 5.50 6.75 1.00 2.00 6.00 5.00 5.00 - - - Water Operations 9.00 10.00 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 Water Distribution 5.00 5.00 6.00 6.00 6.00 7.00 7.00 6.00 6.00 6.00 Sewer Collections 12.00 12.00 11.00 11.00 11.00 12.00 11.00 11.00 11.00 11.00 Sanitation Enterprise Solid Waste 19.00 18.75 19.62 19.87 21.00 21.00 21.00 22.00 22.00 22.00 Recycling - - - - - 4.00 4.00 4.00 4.00 4.00 Golf Enterprise Golf Club 14.26 14.26 14.26 31.01 36.51 36.56 36.56 36.36 37.56 37.61 Golf Grounds Maintenance 15.75 15.75 15.75 - - - - - - - Stormwater Enterprise Stormwater 6.00 6.00 7.00 8.00 - - - - - - Total 300.07 296.09 312.48 329.48 362.29 375.29 377.22 370.52 376.22 376.67 Sources: City of Fort Walton Beach Adopted Budget for the revelant year. 109  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 2012 148 168 102 100 39 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 BUSINESS TAX RECEIPTS ISSUED (formerly referred to as occupational licenses) Year Number Sold 2012 1,947 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 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: City of Fort Walton Beach Customer Service, Building & Permitting, and Recreation departments. 110  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 2,024 416 1,396 197 15 02 BLACKMON 639 157 423 54 5 03 MILLIGAN 1,169 257 729 164 19 04 HOLT 1,143 269 683 174 17 05 LAUREL HILL 997 295 516 170 16 06 GARDEN CITY 2,588 560 1,597 403 28 07 DORCAS 1,417 333 810 252 22 08 HONEY CREEK 3,905 974 2,225 648 58 09 YELLOW RIVER 3,456 733 2,104 572 47 10 WEST WRIGHT 6,014 1,462 3,157 1,276 119 11 EAST CRESTVIEW 7,195 1,564 4,003 1,494 134 12 WEST CRESTVIEW 928 544 228 153 3 13 NORTH CRESTVIEW 3,384 797 2,006 538 43 14 WEST NICEVILLE 2,562 551 1,499 470 42 15 VALPARAISO 2,965 595 1,744 571 55 16 SHALIMAR 2,749 659 1,523 516 51 17 CENTRAL WRIGHT 3,416 954 1,601 795 66 18 OCEAN CITY 2,523 656 1,276 529 62 19* EAST FWB 1,518 524 620 342 32 20 WEST DESTIN 2,432 472 1,409 501 50 21 MARY ESTHER 2,697 639 1,531 480 47 22* S CENTRAL FWB 2,048 667 927 414 40 23 EGLIN AFB 898 236 378 267 17 24* WEST FWB 2,669 783 1,314 522 50 25 N CENTRAL NICEVILLE 1,784 378 1,084 297 25 26 SEMINOLE 2,563 388 1,735 400 40 27 CINCO BAYOU 285 65 158 55 7 28* GARNIERS 343 71 221 48 3 29* GOLF COURSE 2,206 378 1,451 344 33 30 OKALOOSA ISLAND 1,455 246 847 322 40 31 LONGWOOD 1,839 314 1,275 224 26 32* FERRY PARK 2,227 448 1,360 376 43 33 ROCKY BAYOU 4,266 548 3,105 565 48 34 FLOROSA 3,589 897 1,843 783 66 35 NORTH DESTIN 2,793 345 1,838 571 39 36 SOUTH NICEVILLE 2,478 407 1,669 357 45 37 LAKE LORRAINE 2,798 401 1,937 419 41 38 NORTHGATE 2,107 497 1,185 386 39 39 EAST WRIGHT 2,455 655 1,293 466 41 40 SOUTH BLUEWATER 2,862 339 2,094 391 38 41* N CENTRAL FWB 1,385 271 881 207 26 42* NEW HEIGHTS 2,276 734 1,036 472 34 43 S CENTRAL NICEVILLE 2,229 458 1,308 418 45 44 CENTRAL DESTIN 1,682 328 927 390 37 45 SOUTH CRESTVIEW 4,127 941 2,208 907 71 46 NORTH BLUEWATER 4,423 609 3,038 693 83 47 WYNNEHAVEN BEACH 2,036 460 991 534 51 48* WESTWOOD RETIREMENT 153 39 98 15 1 49 EAST DESTIN 2,681 371 1,843 429 38 50 SOUTH DESTIN 3,018 431 2,009 522 56 51 AIRPORT ROAD 1,645 281 1,079 267 18 52 LIVE OAK 3,332 691 1,928 656 57 Countywide Total 126,373 27,088 74,140 23,016 2,129 City Total 12,599 3,304 6,785 2,282 228 *City Precinct Source: Okaloosa County Supervisor of Elections 111  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 2012 $ - $ 12,779 0.00% $ 125,006 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 (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. 112  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 2012 $ 5,681,589 18.5% $ 6,482,596 21.1% $ 4,839,764 15.8% $ 3,313,559 10.8% $ 3,052,071 9.9% $ 1,656,721 5.4% 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% 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. 113  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) $8.06 $10.07 $8.06 $10.07 Monthly Base Charge(5), Meter Size: 3/4" $8.06 $10.07 $8.06 $10.07 8,617 1.0" $8.06 $10.07 $8.06 $10.07 327 1.5" $10.96 $13.70 $10.96 $13.70 109 2.0" $18.62 $23.27 $18.62 $23.27 213 3.0" $28.37 $35.46 $28.37 $35.46 14 4.0" $35.46 $44.32 $35.46 $44.32 19 6.0" $56.42 $70.52 $56.42 $70.52 1 8.0" or 10.0" $84.55 $105.68 $84.55 $105.68 1 Multi-Residential, Addt'l per Unit $5.96 $7.45 $8.06 $10.07 9,301 Residential Customers 7,897 Commercial Customers 949 Total Customers 8,846 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) $2.41 $3.01 Block 3 (4,001 - 8,000) $2.94 $3.67 Block 4 (8,001 +) $4.41 $5.51 Monthly Wastewater Rates (2) Residential Commercial (4) Lifeline Rate $17.67 Monthly Base Charge $17.67 $21.20 Gallonage Rate (per 1,000 gallons per unit) (5) Block 1 (0 - 2,000) Included in monthly base charge Block 2 (2,001 +) $5.55 $6.66 (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 114  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 $ 5.45 $ 16.05 Two Containers 21.20 $ 10.85 $ 32.05 Residential Dumpsters, Individual Meters 10.60 5.45 16.05 Commercial One Container 28.60 6.15 34.75 Two Containers 57.20 12.35 69.55 Shared Dumpster (minimum charge) 28.60 6.15 34.75 Garbage and Trash Collection Garbage Tipping Total 2 Cubic Yards 2 times per week $ 60.70 $ 44.45 $ 105.15 3 times per week 91.05 66.60 157.65 4 times per week 121.45 88.75 210.20 5 times per week 151.75 110.95 262.70 6 times per week 182.10 133.10 315.20 4 Cubic Yards 2 times per week 85.70 88.75 174.45 3 times per week 128.55 133.10 261.65 4 times per week 171.40 177.45 348.85 5 times per week 214.25 221.80 436.05 6 times per week 257.10 266.15 523.25 6 Cubic Yards 2 times per week 112.50 133.10 245.60 3 times per week 168.75 199.65 368.40 4 times per week 224.95 266.15 491.10 5 times per week 281.20 332.65 613.85 6 times per week 337.45 399.25 736.70 8 Cubic Yards 2 times per week 135.70 177.45 313.15 3 times per week 203.55 266.15 469.70 4 times per week 271.40 354.85 626.25 5 times per week 339.25 443.60 782.85 6 times per week 407.10 532.30 939.40 Compactor Commercial Rate x 3 x Bulk Container(s) Commercial Recycling Garbage Tipping Total 4 Cubic Yards 2 times per week 112.70 - 112.70 3 times per week 169.00 - 169.00 4 times per week 225.35 - 225.35 5 times per week 281.70 - 281.70 6 Cubic Yards 2 times per week 169.00 - 169.00 3 times per week 253.50 - 253.50 4 times per week 338.00 - 338.00 5 times per week 422.50 - 422.50 8 Cubic Yards 2 times per week 225.35 - 225.35 3 times per week 338.00 - 338.00 4 times per week 450.70 - 450.70 5 times per week 563.35 - 563.35 Source: City of Fort Walton Beach Comprehensive Fee Schedule 115  City of Fort Walton Beach, Florida SCHEDULE 23 OPERATING INDICATORS BY FUNCTION/PROGRAM Last Ten Fiscal Years Function Unaudited Fiscal Year 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 Public Safety Police Arrests 1,042 1,265 1,773 2,298 2,526 2,201 1,916 1,708 1,801 1,250 Traffic Citations 3,773 3,246 6,207 6,430 7,211 5,171 5,399 5,633 7,138 8,208 Fire Emergency medical responses 3,197 3,041 2,791 2,645 2,484 2,567 2,441 1,671 1,605 1,738 Fire responses 1,288 1,224 1,158 477 479 517 335 403 143 1,217 Inspections 758 1,431 2,040 2,863 3,277 3,319 2,605 1,658 1,876 1,780 Code Enforcement Code violations 2,158 2,456 2,426 2,513 2,108 1,793 1,914 1,674 1,632 N/A Engineering Services Building permits issued n/a n/a n/a 1,429 1,582 1,710 2,341 3,151 1,907 1,779 Residential building permits issued 697 588 630 n/a n/a n/a n/a n/a n/a n/a Commercial building permits issued 164 284 380 n/a n/a n/a n/a n/a n/a n/a Value of permits (in millions) n/a n/a n/a $46.20 $37.40 $28.70 $31.10 $61.70 $20.80 $16.00 Value of residential permits (in millions) $9.100 $10.067 $7.108 n/a n/a n/a n/a n/a n/a n/a Value of commercial permits (in millions $9.200 $7.276 $7.094 n/a n/a n/a n/a n/a n/a n/a Street resurfacing (lane miles) 1.70 2.25 5.71 1.53 0.78 0.46 2.25 3.55 3.17 3.61 Pot holes (hours spent repairing) 989 1,014 617 1,257 1,476 1,022 713 861 613 997 Sanitation Refuse collected (tons) 25,374 25,332 25,676 25,485 27,873 28,374 28,446 34,378 28,813 27,661 Recyclables collected (tons) 375 251 161 150 112 367 400 385 417 428 Culture and Recreation Parks and Recreation Recreation program participants 92,267 106,486 103,121 116,565 118,890 125,697 120,329 86,312 79,991 75,622 Adult athletic participants 6,728 9,003 10,009 11,406 14,591 14,669 14,239 1,155 968 1,725 Youth athletic participants 14,548 13,038 12,525 14,211 15,570 14,418 14,254 1,674 1,327 1,877 Skate/tennis park participants 13,114 18,291 15,297 18,480 24,100 29,088 29,396 24,741 24,670 19,936 Library Circulation volume 139,196 126,146 135,314 142,148 137,002 126,271 124,489 118,368 116,883 106,603 Museum Number of visitors/participants(1) 21,480 28,200 39,935 47,700 45,168 28,916 30,144 31,531 35,598 28,814 Water System New connections 39 18 27 16 20 30 32 37 53 70 Water customers 8,846 8,804 8,795 8,741 8,927 8,996 8,966 8,984 8,928 8,874 Water produced (million gallons) 868 899 897 943 963 1,071 1,127 1,046 1,047 1,025 Wastewater System Wastewater treated (million gallons)(2) - - 381 769 916 796 839 1,164 935 1,186 (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. 116  City of Fort Walton Beach, Florida SCHEDULE 24 CAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM Last Ten Fiscal Years Unaudited Function/Program Fiscal Year 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 Public Safety Police Stations 1 1 1 1 1 1 1 1 1 1 Sworn officers 51 48 49 49 55 53 52 N/A N/A N/A Engineering Services (2) (1) Miles of roads 93.06 92.65 112.76 112.76 99.35 98.50 98.50 98.50 98.50 98.50 Miles of sidewalks 63.93 62.80 62.11 61.35 61.32 60.92 60.82 N/A N/A N/A Signs fabricated and installed 935 976 910 1,110 1,223 1,481 1,412 1,509 894 918 Culture and Recreation Parks and Recreation Recreational amenities 122 122 122 (3) 91 90 90 89 82 89 82 Parks (acres) 180.26 180.26 180.26 180.26 180.26 180.26 173.58 143.55 144.44 143.55 Library Inventoried collection 74,448 72,873 74,317 73,641 71,006 69,061 68,064 67,517 59,843 60,830 Water and Sewer System Water lines (miles) 118.63 118.57 118.52 118.10 118.09 118.09 115.95 115.69 115.54 115.37 Sewer lines (miles) 118.76 118.76 118.77 118.77 118.77 118.77 118.77 118.64 118.64 118.29 Reuse water lines (miles) 3.82 3.82 3.82 4.14 4.14 4.14 4.14 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 41.64 (2) 45.70 45.66 (1) 34.73 34.73 34.73 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: City of Fort Walton Beach Performance Measures. 117  City of Fort Walton Beach, Florida SCHEDULE 25 INSURANCE COVERAGE September 30, 2012 Unaudited Agent, Broker, or Effective Dates Company Policy Number Company Rep. Type Amount Location 10/12/11 to 10/12/12 Fidelity National 1150113370 Fisher-Brown Agency Flood $ 402,700 B 4th Avenue & Carson $ 16,300 C Chester Pruitt Building 10/12/11 to 10/12/12 Fidelity National 1150113362 Fisher-Brown Agency Flood $ 402,700 B 50 Ferry Road $ 23,500 C Docie Bass Recreation Building 10/12/11 to 10/12/12 Fidelity National 1150113371 Fisher-Brown Agency Flood $ 402,700 B 14 Robinwood Drive SW $ 84,500 C Sanitation Building 12/06/11 to 12/06/12 Fidelity National 1150167295 Fisher-Brown Agency Flood $ 500,000 B #7 Hollywood Boulevard $ 500,000 C Police Department 10/12/11 to 10/12/12 Fidelity National 1150113360 Fisher-Brown Agency Flood $ 500,000 B #5 Hollywood Boulevard $ 260,100 C Fire Department 10/12/11 to 10/12/12 Fidelity National 1150113366 Fisher-Brown Agency Flood $ 366,100 B Memorial Parkway $ 31,100 C Senior Citizens Building 10/12/11 to 10/12/12 Fidelity National 1150113367 Fisher-Brown Agency Flood $ 402,700 B 107 Miracle Strip Parkway $ 128,200 C Auditorium 10/12/11 to 10/12/12 Fidelity National 1150113368 Fisher-Brown Agency Flood $ 402,700 B 107 Miracle Strip Parkway $ 382,900 C City Hall 10/12/11 to 10/12/12 Fidelity National 1150113361 Fisher-Brown Agency Flood $ 177,300 B 107 Miracle Strip Parkway $ 16,300 C Council Chamber 10/12/11 to 10/12/12 Fidelity National 1150113365 Fisher-Brown Agency Flood $ 402,700 B 107 Miracle Strip Parkway $ 382,900 C Annex Building 10/12/11 to 10/12/12 Fidelity National 1150113363 Fisher-Brown Agency Flood $ 389,700 B 107 Miracle Strip Parkway $ 16,300 C Utility Building Continued… 118  City of Fort Walton Beach, Florida SCHEDULE 25 INSURANCE COVERAGE September 30, 2012 Unaudited Agent, Broker, or Effective Dates Company Policy Number Company Rep. Type Amount Location 10/12/11 to 10/12/12 Fidelity National 1150113369 Fisher-Brown Agency Flood $ 402,700 B 141 Miracle Strip Parkway $ 51,200 C City Museum 10/12/11 to 10/12/12 Fidelity National 1150113364 Fisher-Brown Agency Flood $ 324,200 B 22 McGriff Street 7,900 C Child Care Facility 10/12/11 to 10/12/12 Fidelity National 1150164378 Fisher-Brown Agency Flood $ 38,500 B 338 Miracle Strip Parkway Restroom, East of Pavillion Liza Jackson Park 12/02/11 to 12/02/12 Fidelity National 1150164379 Fisher-Brown Agency Flood $ 38,500 B 338 Miracle Strip Parkway Restroom Near Ditch Liza Jackson Park 05/17/11 to 05/17/12 Fidelity National 92510117093 Fisher-Brown Agency Flood $ 98,300 B 55 Ferry Road Boy Scout Hut 07/23/11 to 07/23/12 Fidelity National 97700165626 Fisher-Brown Agency Flood $ 266,200 B 18 Robinwood Drive $ 33,600 C Pump Station #1 06/23/11 to 06/23/12 Fidelity National 92510234651 Fisher-Brown Agency Flood $ 55,000 B 168 Coral Drive SW City Hall Ball Field Restrooms 10/01/11 to 10/01/12 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 10/01/11 to 10/01/12 PGIT PKFL1046200310-06 Public Risk Insurance Agency Inland $ 636,018,/fine Art Museum Marine $ 10,000/schedul $ 5,672,449 $ 804,400 EDP/Minicomputer/Word Processor $ 500,000 Valuable Papers Continued… 119  City of Fort Walton Beach, Florida SCHEDULE 25 INSURANCE COVERAGE September 30, 2012 Unaudited Agent, Broker, or Effective Dates Company Policy Number Company Rep. Type Amount Location 09/16/11 to 09/16/12 Hartford 21BSBDB7453 Fisher-Brown Agency Public Official $ 50,000 Finance Director Bond 04/18/11 to 04/18/12 Hartford 21BSBDB7454 Fisher-Brown Agency Public Official $ 50,000 Customer Service Administrator, Finance Bond Department 10/01/11 to 10/01/12 PGIT PKFL1046200310-06 Public Risk Insurance Agency Auto $ 100,000 Person $ $ 1,000,000 CSL Liability 10/01/11 to 10/01/12 PGIT PKFL1046200310-06 Public Risk Insurance Agency Forgery $ 250,000 Alteration 10/01/11 to 10/01/12 PGIT PKFL1046200310-06 Public Risk Insurance Agency Money & varies by location Securities 10/01/11 to 10/01/12 PGIT PKFL1046200310-06 Public Risk Insurance Agency Crime $ 250,000 Public Employees Blanket Fidelity Bond 10/01/11 to 10/01/12 PGIT PKFL1046200310-06 Public Risk Insurance Agency General $ 100,000 Person Liability $ 200,000 Occurrence $ 5,000,000 CSL Liability 10/01/11 to 10/01/12 PGIT PKFL1046200310-06 Public Risk Insurance Agency Property $ 37,790,647 Blank Real & Personal Property, extra expense 10/01/11 to 10/01/12 PGIT PKFL1046200310-06 Public Risk Insurance Agency Property $ 500,000 Business Income Water & Wastewater Enterprises 10/01/11 to 10/01/12 PGIT SC-FL-0462003 Public Risk Insurance Agency Worker's $ 1,000,000 Accident Comp $ 1,000,000 Disease Continued… 120  City of Fort Walton Beach, Florida SCHEDULE 25 INSURANCE COVERAGE September 30, 2012 Unaudited Agent, Broker, or Effective Dates Company Policy Number Company Rep. Type Amount Location 10/01/11 to 10/01/12 PGIT PKFL1046200310-06 Public Risk Insurance Agency Supplemental $ 5,000,000 Empl. Practice CSL 10/01/11 to 10/01/12 Federal Insurance 9906-62-32 LB Bryan & Co. AD&D $ 59,695 Occupational Death $ 59,695 Response to Emergency $ 179,085 Unlawful/Unintentional 10/01/11 to 10/01/12 PGIT PKFL1046200310-06 Public Risk Insurance Agency Boiler & $ 37,790,647 Machinery 10/01/11 to 10/01/12 Travelers 103148718 Fisher-Brown Agency Fiduciary $ 2,000,000 Retirement Fund for General Liability Employees and Fire Police currently has their own policy; was prorated for t Source: City of Fort Walton Beach Risk Management Department 121 (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, 2012, which collectively comprise the City of Fort Walton Beach's basic financial statements and have issued our report thereon dated March 5, 2013. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control over Financial Reporting Management of City of Fort Walton Beach, Florida , is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered the City of Fort Walton Beach, Florida's internal control over financial reporting as a basis for designing our auditing procedures for the purpose 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, Florida'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 and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. 122 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) 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. We noted certain matters that we reported to management of the City of Fort Walton Beach in a separate letter dated March 5, 2013. 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 5, 2013 123  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, 2012, and have issued our report thereon dated March 5, 2013. 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 5, 2013, 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. Our comments and recommendations are reported under the heading "Current Year Comments." Section 10.554(1)(i)4., Rules of Auditor General, requires that we address violations of provisions of contracts or grant agreements, fraud, illegal acts, 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. 124 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Management Letter (Continued) 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. 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, 2012. 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, 2012, 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, 2012. 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, 2012. 125 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Management Letter (Continued) CURRENT YEAR COMMENTS 2012-MC-01: DEFINED BENEFIT PENSION PLANS Observation In June, 2012 the GASB adopted two statements, GASB 67 – Financial Reporting for Pension Plans, an amendment of GASB 25 and GASB 68 – Accounting and Financial Reporting for Pensions, an amendment of GASB 27. The Statements are intended to improve financial reporting through enhanced note disclosures and schedules of supplementary information. The statements are also intended to improve the decision-usefulness of information and enhance value for assessing accountability by requiring recognition of the entire net pension liability and a more comprehensive measure of pension expense. The provisions of the Statement 68 will be effective for the year ended September 30, 2015. This statement will require the recognition of the net pension liability in the full accrual financial statements which represents the total pension liability less the fiduciary net position of the pension plan which is currently presented in the supplementary information as the unfunded AAL (Actuarial Accrued Liability). The approach results in reporting of pension liability and expenses as employees earn their pension benefits by providing services instead of being based on funding requirements. The City of Fort Walton Beach, Florida has funded 100% of the actuarially required contributions of the three defined benefit pension plans over the last ten year period as disclosed in the Schedule of Contributions from the Employer and Other Contributing Entities contained in Schedule A-2 on 81 of the financial statements. However the overall funded status of each plan has declined over the same time period as disclosed in the Schedule of Funding Progress contained in Schedule A-1 on 80 of the financial statements. If the City, as the plans' sponsor, were to adopt the provisions of GASB early, the effect is consequential. Recording the current unfunded AAL of the three plans in the fiscal year ended September 30, 2012 financial statements would reduce unrestricted net assets by approximately $23 million which is the actuary's estimate of the City's unfunded pension liability at September 30, 2012. The general employee plan liability would be allocated between governmental and business type activities; however the entire police and fire plan liability would be recorded in governmental activities. City contribution rates based on the percentage of covered payroll for the three plans have increased 22% for the general employees plan and 35% for both the police and fire plans over the last ten years. During that 10 year time period, the funded status of the plans has dropped from fully funded to 79.4%, 71.4%, and 61.7% for the general, police and fire plans, respectively. The City benefited from very low contribution rates from 1982 to 1999 when strong stock market returns made it virtually cost-free to provide retirement benefits. With the volatility in the economy over the past decade and the impact on required funding many plan sponsors are exploring options to stabilize pension costs and expenses. Recommendation Controlling pension expenses and volatility is a complex problem. Retirement plans need to be attractive to employees and competitive as a retention tool for key personnel. We recommend the City of Fort Walton Beach, Florida as the plans sponsor review alternatives as it relates to the existing benefit structure in an effort to stabilize current and future pension costs and liability while providing benefits that meet the objectives of employees covered by the plans. Management's Response The City is in the process of reviewing the current benefit structure of each of the three defined benefit plans, and has enlisted the assistance of plan actuaries, boards, and legal counsel to assist management in this process. 126 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Management Letter (Continued) CURRENT YEAR COMMENTS (CONTINUED) 2012-MC-02: GOLF ENTERPRISE FUND Observation The Golf Fund reported a net loss of approximately $265,000 for the year ended September 30, 2012 and has deficit unrestricted net assets of approximately $99,000 at September 30, 2012. The loss is primarily the result of an improper chemical application substantially impacting course play. The fund generated positive cash flow from operating activities of approximately $110,000; however that is not sufficient to cover the fund’s debt payments to creditors and the advance repayment to the General Fund. As a result, the cash position of the fund decreased by $169,000 and it was necessary for the Golf Fund to borrow $30,000 from the General Fund to prevent a deficit cash balance at year end. Recommendation We recommend that City management continue to closely monitor the fiscal operations of the Golf Fund. If the fund continues operating at a loss, the City should consider temporarily suspending the repayments of the general fund advance or make additional budget transfers to eliminate the deficit fund balance. Management's Response The City recognizes that the Golf Fund continues to struggle. Over the past few years, steps have been taken to improve cash flow by increasing revenues and decreasing expenses. The loss in the current year was primarily due to the condition of the course, as an improper chemical application severely affected this. The condition of the course has improved significantly over the last several months. Management will continue to monitor the Fund and will make a decision during the FY 2013-14 budget cycle as to any supplemental funding needs of the Fund. 2012-MC-03: ANTI-FRAUD PROGRAM Observation The City maintains a strong ethical culture and positive environment to deter fraud and promote ethical behavior. None the less, fraud can occur in any entity and the City would benefit by formally reviewing its fraud prevention, detection and reaction programs on an annual basis. Formalized fraud prevention programs can have a dramatic impact on the bottom line, both in terms of fraud prevention and the more difficult to calculate reputational damage. Recommendation City Council and senior management would strengthen its anti-fraud program with the adoption of the following:  Periodic documented fraud risk assessments  A written fraud response plan  Training for City employees on warning signs of fraud and what to do if they suspect fraud is occurring  Implementation of a whistleblower policy The Association of Certified Fraud Examiners has a fraud risk assessment tool that could be used by senior management to accomplish these recommendations. 127 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Management Letter (Continued) CURRENT YEAR COMMENTS (CONTINUED) 2012-MC-03: ANTI-FRAUD PROGRAM (CONTINUED) Management's Response While there have been no reported incidents of ethics or fraud violations at the City of Fort Walton Beach, the Senior Management team is being proactive in reviewing all policies and procedures and drafting a new Code of Ethics for employees. As part of the City’s Administrative Policy overhaul, it is imperative that the City adopt a new Employee Code of Ethics and address the issue of reporting and addressing fraud. The City will research the various anti-fraud programs throughout the State and develop a program that is customized to the City of Fort Walton Beach. 2012-MC-04: ENTERPRISE RISK MANAGEMENT Observation The City of Fort Walton Beach, Florida has not formally documented management’s identification of strategic, operational and financial risks and the related monitoring of the risks identified. Like many organizations, the City assesses risk routinely but the risk assessment process is not documented or formalized. Recommendation Documenting enterprise risk assessments will provide additional assurances that key business processes have appropriate control activities in place. The assessment and documentation will help management identify control gaps, strengthen existing controls, and remove redundancies where applicable. The risk assessment process involves:  Determining the objectives/goals of significant business processes  Identifying what can go wrong (risks)  Prioritizing what can go wrong (risk ranking) Once the risk assessment process in completed, related control activities must be evaluated based on the priority of the greatest risks and tested. Management's Response The City is currently proactive in assessing the City’s resources and adopting plans to address continuity of operations in times of emergencies or crises. The City currently is reviewing and revising a Hurricane Response Plan and a Continuity of Operations Plan to update them to current standards. The City is also evaluating the requirements and costs for an overall Facilities Assessment Plan due to aging facilities. As part of the FY 2013-14 budget cycle, Staff is also developing a comprehensive Fleet and IT assessment to address five- and ten-year replacement programs to increase the reliability and safety of these items in the workforce. While these types of assessments take time and funding, there are internal Staff who are experienced in conducting facility assessments and vulnerability assessments of City resources. 128 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Management Letter (Continued) Our management letter is intended solely for the information and use of the Legislative Auditing Committee, members of the Florida Senate and the Florida House of Representatives, the Florida Auditor General, and applicable management, 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 5, 2013 129