COMPREHENSIVE ANNUAL FINANCIAL REPORT AS OF AND FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005

CITY OF NAPLES AIRPORT AUTHORITY NAPLES, FLORIDA

NAPLES MUNICIPAL AIRPORT The Best Little Airport in the Country

CITY OF NAPLES AIRPORT AUTHORITY

NAPLES, FLORIDA

COMPREHENSIVE ANNUAL FINANCIAL REPORT

AS OF AND FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005

Prepared By:

FINANCE DEPARTMENT

CITY OF NAPLES AIRPORT AUTHORITY Comprehensive Annual Financial Report

As of and for the Years Ended September 30, 2006 and 2005

TABLE OF CONTENTS

PAGE INTRODUCTORY SECTION Letter of Transmittal i Board of Commissioners and Executive Director vii Certificate of Achievement for Excellence in Financial Reporting viii Organizational Chart ix FINANCIAL SECTION Independent Auditor’s Report 1 Management’s Discussion and Analysis 3 Financial Statements: Statements of Net Assets 10 Statements of Revenues, Expenses, and Changes in Net Assets 11 Statements of Cash Flows 12 Notes to Financial Statements 14 Supplementary Information: Schedule of Revenues, Receipts, Expenses and Expenditures – Non-GAAP Budgetary Basis and Actual 28 STATISTICAL SECTION Changes in Net Assets by Component, Last Five Fiscal Years 32 Changes in Net Assets, Last Five Fiscal Years 33 Average Aviation Fuel Margins (Per Gallon) 34 Aviation Fuel Sales (Gallons) 34 Aviation Fuel Sales (Net Revenue) 34 Principal Customers – by Gross Sales 35 Principal Customers – by Aviation Fuel Gallons 35 Ratios of Outstanding Debt 36 Debt Limitations 36 Pledged-Revenue Coverage 37 Active U.S. General Aviation Fleet by Type of Aircraft 38 Active U.S. Aviation Aircraft Fuel Consumption (In Millions of Gallons) 38 Population 39 Aviation Fuel and Aircraft Operations Statistics 40 Commercial Passenger Statistics 41 Airport Information 42 Capital Contributions 43

COMPLIANCE SECTION

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 45

Independent Auditor’s Report on Compliance with Requirements

Applicable to Each Major Federal Program and to the Passenger Facility Charge Program and on Internal Control over Compliance 47

Schedule of Expenditures of Federal Awards 49 Notes to Schedule of Expenditures of Federal Awards 50 Schedule of Passenger Facility Charges (PFC) 52 Schedule of Findings and Questioned Costs 53

MANAGEMENT LETTER Management Letter 55 Response to Management Letter 57

INTRODUCTORY SECTION

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unqualified opinion that the Authority’s financial statements for the fiscal years ended September 30, 2006 and 2005, are fairly presented in conformity with GAAP. The independent auditor’s report is the first component of the Financial Section of this report. The independent audit of the financial statements is part of the broader mandated provisions of the Single Audit Act of 1996 and the U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments and Non-Profit Organizations, relative to financial funds received from the U.S. Government. It is also in conformity with the provisions of the September 2000 Audit Compliance and Reporting Guide for Public Agencies relative to the collection and use of Passenger Facility Charges. The standards governing these provisions require the independent auditor not only to report on the fair presentation of the financial statements, but also on the Authority’s internal controls and compliance with legal requirements, with special emphasis on internal controls and legal requirements involving the administration of federal awards. These reports are included in the Compliance Section of this report. GAAP requires that management provide a narrative introduction, overview and analysis to accompany the financial statements in the form of a Management Discussion and Analysis (MD&A). This letter of transmittal is designed to complement MD&A and should be read in conjunction with it. The MD&A can be found in the financial section, immediately following the report of the independent auditors. The Airport The Naples Municipal Airport was originally constructed in 1942 as the “Naples Airdrome” and served as an Air Corps base for training gunners, bomber crews and fighter pilots for combat during World War II. After the end of the war, the city and county jointly operated the airport until the county sold its interest to the city in 1958. Naples Municipal Airport is located in western Collier County, approximately two miles from the City of Naples business district and approximately three miles inland of the Gulf of Mexico. The airport, which is owned by the City of Naples, is leased to the Authority under a 99 year lease. Naples Municipal Airport is classified by the National Plan of Integrated Airport Systems as a primary commercial service airport (a commercial service airport which enplanes 10,000 or more passengers each year). Naples Municipal Airport is the only commercial service airport in Collier County and is ranked (by passenger count) as the smallest commercial service airport in Florida. General aviation generates the majority of aircraft activity at Naples Municipal Airport. Of the 138,000 aircraft operations (one operation is one landing or one takeoff) at Naples Municipal Airport during fiscal year 2006, 135,000 or 97.8% were attributed to general aviation. All types of aircraft, from small piston engine trainers to large business jets, can be seen at the Naples Municipal Airport. Use of the airport is restricted to aircraft less

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than 75,000 pounds maximum gross landing weight and Stage 1 and Stage 2 jets are banned, except for public agency and emergency medical flights. The Authority The City of Naples Airport Authority was created by State Enabling Legislation and City of Naples action in 1969. The City of Naples, recognizing the benefits of an authority type management concept, established the Authority for the purpose of enhancing service to users, improving the community gateway image and eliminating financial subsidies by city taxpayers. The Authority is an independent reporting entity as defined by the Governmental Account Standards Board (GASB). The Authority’s Board of Commissioners is composed of five members appointed by Naples City Council. Commissioners are appointed for a term of four years or until a successor is appointed, except that any person appointed to fill a vacancy is appointed to serve only the unexpired term. The Board of Commissioners retains the Executive Director, who is the chief operating and chief administrative officer, Secretary and Treasurer of the Authority. The Executive Director hires all other Authority employees. The Authority financially supports itself directly from aviation fuel sales and airport user fees, and indirectly by airport user taxes. No local, state or federal general taxes, such as property, utility, sales, intangible or income taxes directly support the Authority. The Authority receives, for certain capital projects, state and federal financial grants from trust funds established largely from aviation fuel taxes and airline ticket taxes. The Authority pays the City of Naples for utility, police and fire fighting services and also built, equips and maintains City Fire Station #3, as well as several stormwater and environmental facilities. The Authority builds and maintains internal roadways and utilities and has constructed many of the external roadway improvements, including horticultural beautification and bicycle paths. The Authority’s budget and amendments, if any, are adopted by resolution of the Board of Commissioners, as required by Florida Statutes. The adopted budget regulates the total expenditures of the Authority for the fiscal year, and it is unlawful for any officer of the Authority to expend or contract for expenditures that exceed the budgeted appropriations. The Authority has a September 30 Fiscal Year Ending date, and accordingly, the budget must be adopted by the Board of Commissioners before October 1, the beginning date of the new fiscal year. Financial Condition of the Authority The information presented in the Financial Section of this report is best understood when it is considered from the broader perspective of the specific environment within which the Authority operates. The Authority’s economic condition is a composite of its financial health and its ability to meet its financial obligations and service commitments.

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The financial condition of the Authority is primarily dependent upon aviation fuel sales, unlike the majority of U.S. airports that are monetarily supported by significant commercial airline service and/or general taxpayer dollars. Aviation fuel sales, in turn, are usually dependent upon several factors, including the economic conditions in the United States and locally. However, the Authority’s local customer base typically offsets any impact of a nationwide economic slowdown. The economic landscape of Collier County is quite different from much of the country. Due to the prosperous tourism market and the large number of very wealthy people, the local economy is strong. For fiscal year 2006, net fuel sales made up 70.3% of the Authority net operating revenues. The Authority’s selling price of aviation fuel is based on a cost plus formula in accordance with the published rates and charges set by the Executive Director. The Authority maintains the exclusive right to fuel sales at the Naples Municipal Airport. A more detailed discussion of the Authority’s financial results is contained in the MD&A found in the Financial Section of this report. On October 24, 2005, Hurricane Wilma made landfall south of Naples as a Category 3 hurricane. The airport suffered in excess of $4 million in damages to certain buildings and properties owned by the Authority. In addition to insurance proceeds, the Authority is receiving funding assistance in the form of grants from the Federal Emergency Management Administration (FEMA), and the Federal Aviation Administration (FAA). The Authority will spend over $1 million to further “harden” its facilities in preparation for future hurricanes. Despite the financial impact resulting from Hurricane Wilma, the Authority was able to do an early payoff of its bank notes in January 2006, as planned in the Fiscal Year 2006 Operating and Capital Budget, making the Authority debt-free. Relevant Financial Policies The Authority has developed published rates and charges based on a reasonable rate of return, in addition to meeting the requirements of maintenance, operating costs and capital recovery. These rates and charges, as a package, maintain and enhance the healthy financial condition of the Authority. It should be noted that there are significant regulatory guidelines that must be considered when developing airport rates and charges. At a minimum, the Authority’s rates and charges are updated annually. As part of the Authority’s planning process, a five year capital improvement program is updated at least annually. In conjunction with the budgeting process, the Authority develops a five year cash flow forecast incorporating the five year capital improvement program and five year projections of operating revenues and expenses. These projections allow the Authority to determine the impact of capital projects on future budgets and future revenue requirements, allowing the Authority to develop successful plans.

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The Authority has maintained a $1.5 million reserve for emergency operating and capital contingencies for many years; however, this reserve was increased to $2 million for FY 2007. Current and Long Term Capital Initiatives The two major sources of outside funding for the Authority’s capital improvement plan are the FAA and the Florida Department of Transportation (FDOT). The amount of funding that is provided by these two agencies is predicated on whether the airport is designated as a commercial service or general aviation airport. As the operator of a primary commercial service airport, the Authority is currently eligible for $1 million per year in entitlement funding from the FAA under the Airport Improvement Program. The Authority, as a publicly owned Florida airport, is also eligible for state funding. FDOT provides up to one-half of the local share of commercial service airport project costs when the FAA provides 95% of the funding and when no federal funding is available, FDOT provides up to 50% of eligible project costs. During fiscal year 2006, the Authority continued with the final portion of the replacement of the airfield lighting systems, completed the construction of Taxiway “E” that included the realignment of the access road, a sanitary sewer collection system and a storm sewer system all located in the north quadrant of the airport, and replaced its 1985 Crash Rescue vehicle with a state-of-the-art 2006 vehicle. The Authority expended $2.5 million on these projects which were eligible for $0.9 million in FAA and FDOT funding during the current year. The Authority expended an additional $1 million for non-assisted projects and major equipment purchases. Capital improvement projects slated for FY 2007 include the first phase of construction of T-hangars in the south quadrant of the Airport, the relocation of a portion of taxiway B, an airfield safety/emergency access road around the end of Runway 23, the installation of an airfield security gate card access control system, and the installation of emergency generators in the Commercial Airline Terminal and General Aviation Terminal. The Authority anticipates that $8.7 million of its FY 2007 capital improvements will be eligible for $7.0 million in assistance from federal and state agencies, passenger facility charges and customer facility charges. Of the $5.2 million of federal assistance, all but $1.2 million has been committed. The Authority is confident that it will receive the additional $1.2 million in federal funds during FY 2007. The Authority's capital improvement plan also includes $1 million for non-assisted projects. Awards The Government Finance Officers Association of the United State and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to City of Naples Airport Authority for its comprehensive annual financial report for the fiscal year ended September 30, 2005. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized comprehensive

City of Naples Airport Authority

Ernest Linneman Chairman

Peter Manion Commissioner

Theodore D. Soliday Executive Director

Bill Hobgood Commissioner

Not pictured: Commissioner James Lennane

John Allen Vice-Chairman

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FINANCIAL SECTION

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MANAGEMENT'S DISCUSSION AND ANALYSIS

The following Management Discussion and Analysis (MD&A) of the City of Naples Airport Authority's activities and financial performance provides the reader with an introduction and overview to the financial statements of the City of Naples Airport Authority (the “Authority”) for the fiscal years ended September 30, 2006 and 2005, with selected comparative information for the fiscal year ended September 30, 2004. The information presented in this MD&A should be considered in conjunction with the accompanying financial statements, notes, and supplementary information found in this report. This information taken collectively is designed to provide readers with an understanding of the Authority’s finances. Airport Activities and Highlights The Authority operates the Naples Municipal Airport which provides both general aviation and commercial airline service to the public. Major areas of activities of the Naples Municipal Airport are as follows: 2006 2005 2004 Aviation fuel gallons 6,265,000 6,322,000 5,509,000 % increase (decrease) from prior year (0.9)% 14.8% 5.1% Aircraft operations 138,000 163,000 136,000 % increase (decrease) from prior year (15.3)% 19.9% 21.4% Enplanements 27,000 30,000 3,000 % increase (decrease) from prior year (10.0)% 900.0% (72.7)% In 2006, aviation fuel gallons remained near the level obtained in 2005. In 2005, aviation fuel gallons reached their highest level since the establishment of the Authority in 1969. The increase in fuel volume in 2005 over 2004 is attributed to the growth in corporate aviation, especially related to fractional aircraft ownership activity. In 2006, aircraft operations decreased after reaching its highest level ever in 2005. The 2006 activity level is consistent with the levels attained in 2001 and 2002. As with increase in fuel volume, the increase in aircraft operations in 2005 over 2004 is attributed to the growth in corporate aviation, especially related to fractional aircraft ownership activity, plus the increase in flight school activity. In 2004, the airport only had seasonal scheduled air service on nine (9) passenger aircraft to Key West and Miami. The increase in enplanements in 2005 reflects the start up of scheduled regional jet service to Atlanta on forty (40) passenger aircraft in addition to continued seasonal scheduled air service. The decrease of 6,000 enplanements in 2006 reflects a reduction in seasonal scheduled air service. Financial Highlights and Summary The following is a condensed summary of the Authority’s revenues, expenses and changes in net assets at 30 September. 2006 2005 2004 Total operating revenues, net $ 9,873,000 $ 8,907,000 $ 7,983,000 Total non-operating revenues 1,009,000 415,000 234,000 Total revenues 10,882,000 9,322,000 8,217,000

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2006 2005 2004 Total operating expenses 10,221,000 7,630,000 8,067,000 Total non-operating expenses 75,000 141,000 142,000 Total expenses 10,296,000 7,771,000 8,209,000 Income before capital contributions 586,000 1,551,000 8,000 Capital contributions 4,603,000 1,732,000 162,000 Increase in net assets 5,189,000 3,283,000 170,000 Beginning net assets 31,757,000 28,474,000 28,304,000 Ending net assets $ 36,946,000 $ 31,757,000 $ 28,474,000 Operating revenues for 2006 increased $966,000 over the prior year. This 10.8% increase in operating revenues is attributed to increased fuel sales, new hangar and office rentals from the addition of the NAA North Facility, four (4) new land leases, increased line services revenues related to general aviation activity, and increased concession fees from rental car companies related to commercial aviation activity. Operating revenues for 2005 increased $924,000 over 2004. This 11.6% increase in operating revenues is attributed to increased fuel sales, additional hangar and tiedown rentals and increased line services revenues related to general aviation activity and increased concession fees from rental car companies related to commercial aviation activity. Non-operating revenues for 2006 increased $594,000 over the prior year. This 143.1% increase is attributed to the receipt of federal and state grants for hurricane recovery and repair, and increased interest revenue reflecting the increase in interest rates paid on the Authority’s bank and investment accounts. Non-operating revenues for 2005 increased $181,000 over 2004. This 77.4% increase in non-operating revenues is attributed to an increase in customer facility charges related to increased rental car activity and an increase in interest revenue related to the increase in the Authority’s bank balances. Operating expenses for 2006 increased $2.6 million. This 34.0% increase is attributed to hurricane recovery and repair, increased staffing levels in operations, facilities and accounting departments, increased air service marketing, increased utilities expense attributed to the addition of the NAA North Facility and increased depreciation expense attributed to the completion of the Taxiway E project and the acquisition of the NAA North Facility. Operating expenses for 2005 decreased $437,000 from 2004. This 5.4% decrease is attributed to a reduction in legal fees with the conclusion of the noise litigation with the Federal Aviation Administration, less litigation activity with tenant issues, and a decrease in depreciation expense, offset by increased staffing levels in operations, facilities and security departments. In 2006, capital contributions of $4.6 million were received in the form of grants from Federal and State governments, payments from tenants for their pro-rata share of specific capital improvements and in the form of real property. The real property, consisting of a two-story office building and three (3) 10,000 square feet aircraft hangars, became the property of the Authority after a bankruptcy court confirmed the termination of a tenant’s lease with the Authority. Capital contributions received in the form of grants from the Federal and State

governments increased from $162,000 in 2004 to $1.7 million in 2005. The significant increase in capital contributions in 2005 reflects the United States Court of Appeals for the District of Columbia’s decision that the Authority’s Stage 2 jet ban was justified and the FAA’s subsequent release of the Authority’s entitlement funds (grants). The amount of capital contributions received by the Authority is limited by project eligibility, matching funds available from the Authority, and the amount of grant funds available from the Federal and State governments. The following chart shows the major sources of operating revenue as a percentage of total operating revenues for the year ended September 30, 2006.

The following is a summary of the Authority’s operating revenues at 30 September.

Other1.0%

Building & land rent8.9%

Line services1.0%

Hangar/T-shelter/tiedown11.3%

Concession fees7.5%

Fuel sales, net70.3%

2006 2005 2004 Operating revenues: Fuel sales (net) $ 6,945,000 $ 6,249,000 $ 5,618,000 Concession fees 743,000 685,000 540,000 Hangar/T-shelter/tiedown 1,115,000 1,009,000 968,000 Building and land rent 877,000 809,000 746,000 Line services 97,000 61,000 54,000 Other 96,000 94,000 57,000 Net operating revenues $ 9,873,000 $ 8,907,000 $ 7,983,000 The following chart shows the major sources of operating expense before depreciation as a percentage of total operating expenses before depreciation for the year ended September 30, 2006.

Communications expense2.1%

Insurance expense4.2%Utilities & environmental

expense4.5%

Maintenance & repair expense

5.4%

Hurricane recovery/repair24.1%

Other1.6%

ATCT, ARFF and police service expense

6.1%

Professional fees13.5%

Personnel expense38.5%

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The following is a summary of the Authority’s operating expenses before depreciation at 30 September. 2006 2005 2004 Operating expenses: Personnel $ 3,390,000 $ 3,169,000 $ 2,923,000 Professional fees 1,193,000 1,312,000 1,971,000 Communications 183,000 123,000 124,000 Insurance 374,000 363,000 369,000 Utilities and environmental 400,000 278,000 267,000 ATCT, ARFF and police service 535,000 514,000 472,000 Maintenance and repair 472,000 385,000 343,000 Hurricane recovery/repair 2,124,000 - - Other 139,000 116,000 98,000 Total operating expenses before depreciation $ 8,810,000 $ 6,260,000 $ 6,567,000 The following is a condensed summary of the Authority’s net assets at September 30. 2006 2005 2004 Current and other assets $ 8,056,000 $ 7,323,000 $ 5,266,000 Capital assets (after depreciation) 33,719,000 28,229,000 26,589,000 Total assets 41,775,000 35,552,000 31,855,000 Current liabilities 4,674,000 2,210,000 1,597,000 Noncurrent liabilities 155,000 1,585,000 1,784,000 Total liabilities 4,829,000 3,795,000 3,381,000 Net assets: Invested in capital assets, net 33,719,000 26,764,000 24,791,000 Restricted 87,000 185,000 197,000 Unrestricted 3,140,000 4,808,000 3,486,000 Net assets $ 36,946,000 $ 31,757,000 $ 28,474,000 Total assets increased by $6.2 million or 17.5% in 2006. This increase is attributed to the addition of the NAA North Facility and the large amount of capital improvement projects during the year. Total assets increased by $3.7 million or 11.6% in 2005 and is attributed to increased revenues and the reinstatement of FAA grants. Total liabilities increased by $1.0 million or 27.2% in 2006 due to an increase in accounts payable related to hurricane damage and capital projects offset by the elimination of the notes payable to bank. Total liabilities increased by $414,000 or 12.2% in 2005 due to an increase in accounts payable related to capital projects. The Authority’s total assets exceeded liabilities by $36.9 million and $31.8 million, in 2006 and 2005 respectively. The largest portion of the Authority’s net assets each year (91.3% of total net assets for 2006) represents its investment in capital assets (e.g. land, infrastructure, buildings, improvements, intangible assets and equipment), less the related indebtedness outstanding used to acquire those assets. It is important to note that the resources required to repay outstanding debt must be provided from the Authority’s operations since it is unlikely the capital assets themselves will be liquidated to pay liabilities.

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The restricted portion of the Authority’s net assets (0.2% of total net assets for 2006) represents Passenger Facility Charges that are restricted by Federal PFC regulations. The remaining $3.1 million of net assets (8.5% of total net assets for 2006) may be used to meet any of the Authority’s ongoing obligations. A comparison of the Authority's current assets to current liabilities (current ratio) is a way to analyze the Authority's ability to satisfy short-term obligations as they become due. A low ratio may indicate an inability to meet its short-term debt in an emergency. A high ratio is considered favorable to creditors, but may indicate excessive investment in working capital items. The increase in the Authority's current ratio from 3.14 for 2004 to 3.21 for 2005 is attributed to the continued growth in the Authority’s operations and an increase in receivables from grants. The decrease in the Authority’s current ratio to 1.70 for 2006 is attributed to the increase in accounts payable related to hurricane damage and capital projects. While the current ratio for 2006 is significantly less than in previous years, the Authority’s quick ratio of 1.61 shows that the Authority remains highly liquid. In addition, the Authority’s net assets increased $3.3 million in 2005 over 2004, and further increased $5.2 million in 2006. The following is a summary of the major sources and uses of cash and cash equivalents for the past three years. Cash Equivalents are considered cash-on-hand, bank deposits and highly liquid investments with a maturity of three months or less when purchased. 2006 2005 2004 Cash flows from: Operating Activities $ 3,087,000 $ 2,968,000 $ 1,427,000 Non-Capital Financing Activities 467,000 16,000 87,000 Capital and Related Financing Activities (3,880,000) (1,248,000) (408,000) Investing Activities 323,000 173,000 72,000 Net increase (decrease) in Cash and Cash Equivalents (3,000) 1,909,000 1,178,000 Cash and Cash Equivalents: Beginning of Year 6,223,000 4,314,000 3,136,000 End of Year $ 6,220,000 $ 6,223,000 $ 4,314,000 The Authority’s available cash and cash equivalents increased from $4.3 million at the end of 2004 to $6.2 million at the end of 2005 and remained at the same level at the end of 2006. The increase in 2005 is due to the increase in the Authority operating activities and the release of FAA grants. The slight decrease in available cash and cash equivalents at the end of 2006, is due to the large portion of capital improvements that were funded solely by the Authority. Capital Acquisitions and Construction Activities At the end of 2006, the Authority had $33.7 million invested in a broad range of capital assets, including its terminal and office buildings, aircraft hangars, fuel facilities and equipment, runways and taxiways, and buildings and equipment for fire/rescue and air traffic control. This amount represents a net increase (including additions and deductions) of $5.5 million, or 19.5% greater than last year.

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In March 2006, the Authority took possession of an office building with attached aircraft storage hangars and an aviation fuel tank, as a result of a tenant’s breach of its lease with the Authority. The addition of this facility and fuel tank increased capital assets by $2.6 million. During 2006, completed projects totaling $3.8 million were closed from construction-in-progress to their respective capital accounts. The major completed projects were: Taxiway E and Access Road $ 3,069,000 Crash Rescue Truck 541,000 Equipment and Vehicles 97,000 Intangibles 57,000 Computer/Network Equipment 14,000 At the end of 2006, major projects within construction-in-progress consisted of the following: Airfield Lighting and Signage Phase II $ 1,532,000 South Quadrant T-Hangars 938,000 40,000 Gallon Jet A Fuel Storage Tank 750,000 Taxiway B and Access Road 125,000 Perimeter Fence 80,000 Emergency Generators 47,000 Small Projects 80,000 Capital asset acquisitions and improvements are funded using a variety of financing techniques, including Federal and State grants, airport funds, debt issuance, and airport revenues. Additional information on the Authority’s capital assets and commitments can be found in Note 3 and Note 14, of the notes to the financial statements. Debt In January 2006, the Authority paid off its outstanding debt (notes payable to bank). No new debt was issued in fiscal year 2006. 2006 2005 2004 Airport Road note $ - $ 1,123,000 $ 1,233,000 Rental Car Facility note - 342,000 565,000 End of Year $ - $ 1,465,000 $ 1,798,000 Detailed information about the Authority's loans is provided in Note 5 to the financial statements. Economic Factors and Future Impacts The Authority financially supports itself directly from airport user fees and indirectly by airport user taxes. No local, state or federal general taxes, such as property, utility, sales, intangible or income taxes directly support the Authority. The Authority receives, for certain capital projects, state and federal financial grants from trust funds established largely from aviation fuel taxes and airline ticket taxes.

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The Authority is dedicated to providing the best possible air service to our public. In order to entice new air carriers to the Naples Municipal Airport, the Authority will continue to waive rents and fees, and provide ground handling and marketing support to scheduled air carriers providing a minimum of twelve months continuous service at Naples Municipal Airport. Contacting the Authority's Financial Management This financial report is designed to provide a general overview of the Authority's finances and to demonstrate the Authority's accountability for the money it receives. If you have questions about this report or require additional financial information, please contact the Authority's Director of Finance at 160 Aviation Drive North, Naples, Florida, 34104.

CITY OF NAPLES AIRPORT AUTHORITYSTATEMENTS OF NET ASSETS

ASSETS

CURRENT ASSETS 2006 2005Cash and cash equivalents 6,133,000$ 6,038,000$ Accounts receivable (net) 473,000 430,000 Inventories 300,000 234,000 Due from governmental agencies 923,000 299,000 Prepaid expenses 100,000 90,000 Note receivable, current portion 11,000 9,000

Total current assets 7,940,000 7,100,000

NONCURRENT ASSETSRestricted cash 87,000 185,000 Note receivable, less current portion 29,000 38,000 Capital assets (net) 33,719,000 28,229,000

Total noncurrent assets 33,835,000 28,452,000

Total assets 41,775,000 35,552,000

LIABILITIES

CURRENT LIABILITIESAccounts payable 3,635,000 1,137,000 Deferred revenue 692,000 577,000 Accrued expenses and other liabilities 335,000 297,000 Advance rental credits, current portion 12,000 9,000 Notes payable to bank, current portion - 190,000

Total current liabilities 4,674,000 2,210,000

NONCURRENT LIABILITIESAdvance rental credits, less current portion 80,000 92,000 Notes payable to bank, less current portion - 1,275,000 Other long term liabilities 75,000 218,000

Total noncurrent liabilities 155,000 1,585,000 Total liabilities 4,829,000 3,795,000

NET ASSETSInvested in capital assets, net of related debt 33,719,000 26,764,000 Restricted for debt service - 102,000 Restricted for capital projects 87,000 83,000 Unrestricted 3,140,000 4,808,000

Total net assets 36,946,000$ 31,757,000$

The notes to the financial statements are an integral part of this statement.

September 30,

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CITY OF NAPLES AIRPORT AUTHORITYSTATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETSFor the Year Ended September 30,

OPERATING REVENUES 2006 2005Fuel sales (net) 6,945,000$ 6,249,000$ Concession fees 743,000 685,000 Hangar/T-shelter/tiedown 1,115,000 1,009,000 Building and land rent 877,000 809,000 Line services 97,000 61,000 Other 96,000 94,000

Net operating revenues 9,873,000 8,907,000

OPERATING EXPENSESPersonnel 3,390,000 3,169,000 Professional fees 1,193,000 1,312,000 Communications 183,000 123,000 Insurance 374,000 363,000 Utilities and environmental 400,000 278,000 Office/postage/printing 38,000 33,000 ATCT, ARFF and police service 535,000 514,000 Dues/subscriptions/fees 23,000 20,000 Auto gas and diesel fuel 53,000 36,000 Pilot services 25,000 27,000 Maintenance and repair 472,000 385,000 Hurricane recovery/repair 2,124,000 - Depreciation and amortization 1,411,000 1,370,000

Total operating expenses 10,221,000 7,630,000

Operating income (loss) (348,000) 1,277,000

NON-OPERATING REVENUES (EXPENSES)Customer facility charges 226,000 233,000 Passenger facility charges - 1,000 Interest revenue 316,000 165,000 Grant revenue 467,000 16,000 Interest and advance rental credit expense (58,000) (129,000) Loss on disposal of capital assets (17,000) (12,000)

Total non-operating revenues (expenses) 934,000 274,000

Income before capital contributions 586,000 1,551,000

Capital contributions 4,603,000 1,732,000

Change in net assets 5,189,000 3,283,000 Total net assets - beginning 31,757,000 28,474,000 Total net assets - ending 36,946,000$ 31,757,000$

The notes to the financial statements are an integral part of this statement.

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CITY OF NAPLES AIRPORT AUTHORITYSTATEMENTS OF CASH FLOWSFor the Year Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES 2006 2005Cash received from customers 23,706,000$ 19,978,000$ Cash payments to suppliers for good and services (17,865,000) (13,972,000) Cash received from insurance proceeds 500,000 - Cash payments for personnel services (3,350,000) (3,132,000) Other operating revenues 96,000 94,000

Net cash provided by operating activities 3,087,000 2,968,000

CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIESOperating grants received 467,000 16,000

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIESPassenger facility charges - 1,000 Customer facility charges 226,000 233,000 Acquisition and construction of capital assets (6,598,000) (2,515,000) Capital contributed 3,981,000 1,460,000 Principal paid on notes payable (1,465,000) (333,000) Interest paid on notes payable (24,000) (94,000)

Net cash used in capital and related financing activities (3,880,000) (1,248,000)

CASH FLOWS FROM INVESTING ACTIVITIESInterest and dividends on investments 313,000 161,000 Interest received on note receivable 3,000 4,000 Principal repayment on note receivable 7,000 8,000

Net cash provided by investing activities 323,000 173,000

Net increase in cash and cash equivalents (3,000) 1,909,000

CASH AND CASH EQUIVALENTS b i i f r, eg nn ng o yea 6,223,000 4,314,000

CASH AND CASH EQUIVALENTS, d f ren o yea 6,220,000$ 6,223,000$

RECONCILIATION OF CASH AND CASH EQUIVALENTSCurrent assets - cash and cash equivalents 6,133,000$ 6,038,000$ Non-current assets - restricted cash 87,000 185,000

Total cash and cash equivalents 6,220,000$ 6,223,000$

(Continued)

The notes to the financial statements are an integral part of this statement.

12

CITY OF NAPLES AIRPORT AUTHORITYSTATEMENTS OF CASH FLOWS (Continued)For the Year Ended September 30,

RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES 2006 2005Operating income (loss) (348,000)$ 1,277,000$ Adjustments to reconcile operating income (loss) to net cash

provided by operating activitiesDepreciation and amortization 1,411,000 1,370,000 Revenue recognized from advance rental credits (44,000) (44,000) Changes in net assets and liabilities

(Increase) in accounts receivable (43,000) (37,000) (Increase) in inventories (66,000) (31,000) (Increase) decrease in prepaid expenses (10,000) 183,000 Increase in accounts payable 2,034,000 158,000 Increase in accrued expenses and other current liabilities 38,000 37,000 Increase in deferred revenue 115,000 55,000

Total adjustments 3,435,000 1,691,000

NET CASH PROVIDED BY OPERATING ACTIVITIES 3,087,000$ 2,968,000$

NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIESContribution of capital assets resulting from lease default 2,649,000$ - Capital asset trade-ins 16,000$ -

13

14

CITY OF NAPLES AIRPORT AUTHORITY NOTES TO FINANCIAL STATEMENTS September 30, 2006 and 2005 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Reporting entity

The City of Naples Airport Authority (the “Authority”) was created under Laws of Florida 69-1326, as amended, as an independent authority responsible for the operation of the airport located in Naples, Florida, or any other airport in Collier County, Florida, which the Authority may contract to operate. The City of Naples, recognizing the benefits of an authority type management concept, established the Authority in 1969 for the purpose of enhancing service to users, improving the community gateway image and eliminating financial subsidies by City taxpayers. Commissioners of the Authority are appointed by the Naples City Council. (Also see Note 12 - Related Party Transactions).

Governmental Accounting Standards Board (GASB) Statement Number 14, “Financial Reporting Entity” requires the financial statements of the Authority (the primary government) to include its component units, if any. A component unit is a legally separate organization for which the officials of the primary government are financially accountable. Based on the criteria established in GASB Statement Number 14, there are no component units required to be included in the Authority’s financial statements.

B. Basis of Presentation

The Authority uses enterprise fund accounting to report its activities. An enterprise fund is a proprietary fund used to account for business-like activities provided to the general public. These activities are financed primarily by user charges and the measurement of financial activity focuses on net income measurement similar to the private sector. C. Measurement focus The Authority is accounted for on an “economic resources” measurement focus. Accordingly, all assets and liabilities are included on the statement of net assets, and the reported net assets (total reported assets less total reported liabilities) provides an indication of the economic net worth of the Authority. The operating statement reports increases (revenues) and decreases (expenses) in total economic net worth. D. Basis of accounting Basis of accounting refers to when revenues and expenses are recognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurements made, regardless of the measurement focus applied.

15

CITY OF NAPLES AIRPORT AUTHORITY NOTES TO FINANCIAL STATEMENTS September 30, 2006 and 2005 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

D. Basis of accounting (continued) The Authority is accounted for by using the accrual basis of accounting. Under this method, revenues are recognized when they are earned; expenses are recognized when they are incurred. Pursuant to GASB Statement Number 20, “Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting”, the Authority has elected not to apply accounting standards issued after November 30, 1989 by the Financial Accounting Standards Board. E. Budgetary process The budget is adopted by Resolution of the Board of Commissioners and amendments, if any, are approved by the Board of Commissioners. The budget is adopted consistent with Generally Accepted Accounting Principles (GAAP) except that in order to clarify the Authority’s intent for total expenses and expenditures, capital projects and principal payments on notes payable are included as expenditures and depreciation and amortization are excluded. Expenditures cannot legally exceed the total amount of budgeted expenditures. Appropriations lapse at the fiscal year-end. F. Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management's knowledge of current events and actions it may undertake in the future, they may differ from actual results. G. Assets, liabilities and net assets Cash and investments Investments are funds invested with the State Board of Administration of Florida in the Local Government Surplus Funds Trust Fund Investment Pool, an external 2a7-like investment pool. These funds are recorded at cost which, according to the State Board of Administration of Florida, is approximately equal to the fair value of the investments for financial reporting. The fair value of the position in the Local Government Surplus Funds Trust Fund is the same as the value of the pool shares.

16

CITY OF NAPLES AIRPORT AUTHORITY NOTES TO FINANCIAL STATEMENTS September 30, 2006 and 2005 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

G. Assets, liabilities and net assets (continued) Cash and investments (continued) For purposes of the statements of cash flows, the Authority considers all highly liquid investments (including restricted cash assets) with a maturity of three months or less when purchased to be cash equivalents. In addition, the Authority’s investment in the Local Government Surplus Funds Trust Fund Investment Pool is considered a cash equivalent and is reported as such on the statement of net assets. When both restricted and unrestricted resources are available, restricted resources will be used first for eligible incurred expenses, and then unrestricted as needed.

Accounts receivable The Authority’s accounts receivable are recorded net of allowance for doubtful accounts. Inventories Inventories, consisting of aviation fuel and other petroleum products, are stated at the lower of cost (first-in, first-out method) or market.

Capital assets Capital assets include property, plant, equipment, infrastructure and intangible assets. Infrastructure assets are defined as public domain fixed assets such as roads, drainage systems, lighting systems, runways, and similar assets that are immovable and of value only to the government unit. Intangible assets are without physical substance that provide economic benefits through the rights and privileges associated with their possession. Intangible assets may be classified as identifiable or unidentifiable and externally acquired or internally developed. The threshold for capitalization is $2,000. Capital assets purchased for use in the operations of the Authority are recorded at cost. Interest on borrowed funds for construction projects is capitalized as part of the cost of construction along with all other direct construction costs. Contributed property and equipment are recorded at fair market value at the date of contribution. Expenditures for maintenance, repairs, and minor renewals are expensed as incurred. Major renewals and enhancements are capitalized. The cost of assets retired or sold, together with the related accumulated depreciation, is removed from the accounts, and any gain or loss on disposition is credited or charged to earnings. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets. The estimated useful lives are determined based upon the Authority’s experience with similar assets and its planned use of those assets.

17

CITY OF NAPLES AIRPORT AUTHORITY NOTES TO FINANCIAL STATEMENTS September 30, 2006 and 2005

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) G. Assets, liabilities and net assets (continued) Capital assets (continued) The ranges of the estimated useful lives are as follows:

Assets Years Infrastructure 10 – 40 Buildings 15 – 40 Equipment 3 – 30 Improvements other than buildings 5 – 15 Vehicles 5 – 10 Intangible 3 – 7 Furniture and office equipment 3 – 5

Compensated absences

Employees accrue vacation time for each week of service. The amount of time accrued by each employee varies with length of employment and whether they are full-time or part-time employees. The Authority allows employees to carryover into subsequent fiscal years up to 340 hours of vacation time. Employees receive up to 10 sick days per year depending on whether they are full-time or part-time employees. The Authority allows employees to carryover into subsequent fiscal years up to 600 hours of sick time. Employees exceeding 600 hours will be paid 50% of the sick hours exceeding the 600 hours annually. Upon leaving the employ of the Authority, employees with at least seven years of service will be paid 50% of their available sick hours. In accordance with GASB Statement Number 16 “Accounting for Compensated Absences”, benefits under these policies, plus their related tax and retirement costs, are classified as compensated absences and are accrued when incurred. Deferred revenue The Authority offers a reduced fuel price to customers that pay for aviation fuel in advance. The prepayments are recorded as a liability when received and the liability is reduced as the associated revenues are earned.

18

CITY OF NAPLES AIRPORT AUTHORITY NOTES TO FINANCIAL STATEMENTS September 30, 2006 and 2005

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) G. Assets, liabilities and net assets (continued) Net assets Net assets are categorized as invested in capital assets (net of related debt), restricted and unrestricted. Restriction of net assets indicates amounts that are limited for a specific purpose. Restricted for debt service is used to segregate resources accumulated for current or future debt service payments. Restricted for capital projects is used to segregate resources accumulated for capital projects that require Federal Aviation Administration (FAA) approval.

H. Revenues and expenses Operating revenues and expenses Operating revenues and expenses for enterprise funds are those that result from providing services and producing and delivering goods. It also includes all revenue and expenses not related to capital and related financing, noncapital financing, or investing activities.

Non-operating revenues and expenses

Non-operating revenues and expenses represent revenue and expense items that are not incurred from the normal user activity of the Authority. This classification includes revenue received from operating grants, passenger and customer facility charges, surcharges for specific capital improvement expenditures, interest earned on bank accounts and notes receivable, interest paid on debt service, finance charge revenue, non-cash interest expense related to an advance rental credit agreement, and the gain or loss on the sale or disposal of Authority property. I. Capital contributions Capital contributions consist primarily of grants and contributions from federal and state governmental agencies. Capital contributions are recognized as earned as related project costs are incurred. Donated property is recognized as received.

19

CITY OF NAPLES AIRPORT AUTHORITY NOTES TO FINANCIAL STATEMENTS September 30, 2006 and 2005 NOTE 2 - CASH AND INVESTMENTS

Deposits

Custodial credit risk is the risk that in the event of a bank failure, the Authority’s deposits may not be returned to it. In accordance with its policy, all Authority depositories are banks designated by the Florida State Treasurer as qualified public depositories. Chapter 280 of the Florida Statutes “Florida Security for Public Deposits Act” provides procedures for public depositories to ensure public monies in banks and saving and loans are collateralized with the Treasurer as agent for the public entities. Chapter 280 defines deposits as demand deposit accounts, time deposit accounts, and nonnegotiable certificates of deposit.

Financial institutions qualifying as public depositories shall deposit with the Treasurer eligible collateral having a market value equal to or in excess of the average daily balance of public deposits times the depository collateral pledging level required pursuant to Chapter 280 as computed and reported monthly or 125 percent of the average monthly balance, whichever is greater. The Public Deposit Security Trust Fund has a procedure to allocate and recover losses in the event of a default or insolvency. When public deposits are made in accordance with Chapter 280, no public depositor shall be liable for any loss thereof, and therefore, the Authority is not exposed to custodial credit risk. With the nonnegotiable certificate of deposit, there is no document that, if lost or stolen, would affect the Authority’s rights to its assets.

Cash is restricted for the following purposes at September 30:

2006 2005 CFC note repayment (See Note 10) $ - $ 102,000 PFC projects (See Note 11) 87,000 83,000 Total restricted cash $ 87,000 $ 185,000

Investments

In accordance with its policy, the Authority is authorized to only invest its funds in the Local Government Surplus Funds Trust Fund Investment Pool (the Pool) administered by the State Board of Administration as provided in Section 218.415(17)(a), Florida Statutes. This is a 2a7-like pool, and as such, disclosures for concentration of credit risk, custodial credit risk and foreign currency risk are not applicable. As for credit risk, the Pool is not rated by a nationally recognized statistical rating agency as of September 30, 2006. The portfolio’s average days to maturity was 32. The Authority’s investments in the Pool at September 30, 2006 and 2005 were $5,517,000 and $5,644,000, respectively and are reported as cash equivalents on the statement of net assets.

20

CITY OF NAPLES AIRPORT AUTHORITY NOTES TO FINANCIAL STATEMENTS September 30, 2006 and 2005 NOTE 3 - CAPITAL ASSETS

A summary of changes in capital assets for the years ended September 30 were as follows: Beginning Ending Fiscal Year 2006 Balance Increases Decreases Balance Capital Assets not being depreciated Land $ 2,974,000 $ - $ - $ 2,974,000 Construction in progress 3,108,000 4,286,000 (3,842,000) 3,552,000 Total capital assets not being depreciated 6,082,000 4,286,000 (3,842,000) 6,526,000 Capital Assets being depreciated: Infrastructure 21,789,000 3,069,000 (1,125,000) 23,733,000 Buildings 13,223,000 2,613,000 (473,000) 15,363,000 Equipment 3,207,000 164,000 (53,000) 3,318,000 Improvements other than buildings 1,773,000 - (404,000) 1,369,000 Vehicles 466,000 574,000 (255,000) 785,000 Intangibles 620,000 57,000 (2,000) 675,000 Furniture and office equipment 312,000 14,000 (23,000) 303,000 Total capital assets being depreciated 41,390,000 6,491,000 (2,335,000) 45,546,000 Less accumulated depreciation for: Infrastructure 10,405,000 689,000 (1,125,000) 9,969,000 Buildings 5,095,000 424,000 (472,000) 5,047,000 Equipment 1,424,000 179,000 (35,000) 1,568,000 Improvements other than buildings 1,180,000 59,000 (404,000) 835,000 Vehicles 431,000 26,000 (240,000) 217,000 Intangibles 409,000 24,000 (2,000) 431,000 Furniture and office equipment 299,000 10,000 (23,000) 286,000 Total accumulated depreciation 19,243,000 1,411,000 (2,301,000) 18,353,000 Total capital assets being depreciated, net 22,147,000 5,080,000 (34,000) 27,193,000 Total capital assets, net $ 28,229,000 $ 9,366,000 $ (3,876,000) $ 33,719,000 Beginning Ending Fiscal Year 2005 Balance Increases Decreases Balance Capital Assets not being depreciated Land $ 2,974,000 $ - $ - $ 2,974,000 Construction in progress 313,000 3,025,000 (230,000) 3,108,000 Total capital assets not being depreciated 3,287,000 3,025,000 (230,000) 6,082,000 Capital Assets being depreciated: Infrastructure 21,789,000 - - 21,789,000 Buildings 13,234,000 - (11,000) 13,223,000 Equipment 3,030,000 210,000 (33,000) 3,207,000 Improvements other than buildings 1,773,000 - - 1,773,000 Vehicles 450,000 16,000 - 466,000 Intangibles 620,000 - - 620,000 Furniture and office equipment 340,000 4,000 (32,000) 312,000 Total capital assets being depreciated 41,236,000 230,000 (76,000) 41,390,000 Less accumulated depreciation for: Infrastructure 9,717,000 688,000 - 10,405,000 Buildings 4,727,000 379,000 (11,000) 5,095,000 Equipment 1,266,000 188,000 (30,000) 1,424,000 Improvements other than buildings 1,121,000 59,000 - 1,180,000 Vehicles 427,000 4,000 - 431,000 Intangibles 372,000 37,000 - 409,000 Furniture and office equipment 304,000 15,000 (20,000) 299,000 Total accumulated depreciation 17,934,000 1,370,000 (61,000) 19,243,000 Total capital assets being depreciated, net 23,302,000 (1,140,000) (15,000) 22,147,000 Total capital assets, net $ 26,589,000 $ 1,885,000 $ (245,000) $ 28,229,000

21

CITY OF NAPLES AIRPORT AUTHORITY NOTES TO FINANCIAL STATEMENTS September 30, 2006 and 2005 NOTE 3 - CAPITAL ASSETS (Continued)

On October 24, 2005, Hurricane Wilma traveled through Southwest Florida causing damage to certain buildings and properties owned by the Authority. The hurricane destroyed twenty (20) Port-a-Port hangars, the rotating beacon and all fencing along the western perimeter of the Airport. This decreased the Authority’s capital assets by $524,000 and decreased the Authority’s accumulated depreciation by $514,000. The amount of insurance proceeds the Authority will receive on these assets has not been determined. Of the Authority’s fifteen (15) T-hangar buildings that make up a total of 178 T-hangar units, 7 buildings sustained some damage with a total of 12 damaged T-hangar units. Most of the damage is made up of missing sheathing and damage/destroyed doors. Damaged T-hangar units continue to be leased to tenants, at a reduced rent. The Authority’s three (3) T-shelters consisting of 38 units, sustained some damage and two of the units are not rentable. The Executive Hangar sustained minor roof and gutter damage but remained fully rentable. All of the Authority’s other buildings, the General Aviation Terminal, Commercial Airline Terminal, Airport Office Building, Air Traffic Control Tower, ARFF Station #3 and the Maintenance building sustained damage in varying degrees. All of the buildings remained usable. Costs to repair these buildings were included in operating expense. In late 2006, the Airfield Lighting Project Phase II was put into service, replacing the major portion of the existing airfield lighting, which was fully depreciated. The removal of the previous assets decreased both capital assets and accumulated depreciation by $1.4 million.

NOTE 4 - ADVANCE RENTAL CREDITS

In 1980, the Authority entered into two “Braniff Plan” leases. Under the “Braniff Plan” arrangement, the lessee constructed buildings and other related improvements at their own expense. Upon completion, the improvements became property of the Authority, free of all liens, in exchange for a lease that provides for reduced rent occupancy for the duration of the lease term. The reduced rent partially amortizes construction costs plus interest on the declining balance, and the unamortized portion was recorded as a capital contribution. The lessees’ cost of improvements conveyed to the Authority during 1980 was $669,000. In order to reflect the imputed interest costs associated with the lessee financings, the lease rents provide for non-cash interest charged to the Authority at a factor of 8%. With the sale of the Naples Air Center hangar and related improvements in February 2000, only one "Braniff Plan" lease remains in effect. Rental credits of $44,000, recorded as non-cash rent revenue, and non-cash interest expense of $34,000, are reflected in the current year under the remaining lease. The balance of advance rental credits in the statement of net assets represents the portion of the lessee’s cost that will amortize over the remaining term of the lease.

22

CITY OF NAPLES AIRPORT AUTHORITY NOTES TO FINANCIAL STATEMENTS September 30, 2006 and 2005

NOTE 4 - ADVANCE RENTAL CREDITS (Continued)

Advance Rental Credits were comprised of the following at September 30:

2006 2005 34-year lease, beginning March 1 1980, monthly lease payments of $3,600, with interest imputed at 8%. $ 92,000 $ 101,000 Less current portion (12,000) (9,000) $ 80,000 $ 92,000

NOTE 5 - NOTES PAYABLE TO BANK

On December 28, 2000 the Authority entered into a loan agreement with a bank for three notes totaling $4,100,000. The Disaster Recovery Project note in the amount of $1,500,000 (to provide funds needed in the event of a natural disaster or emergency) matured on June 8, 2002, and was not utilized during its term. The two remaining notes consisted of the following as of September 30, 2006 and 2005:

$1,100,000 note payable for a Rental Car Facility Project which matures on December 8, 2015 and has an interest rate of 5.43% per annum. Interest is due and payable monthly beginning January 8, 2001 with principal payments of $7,000 due in addition to the interest payments beginning March 8, 2002. This note is collateralized by a lien upon and pledge of Airport Revenues and Customer Facility Charges. Prepayment of the loan was permitted without penalty or premium and was paid in full in January 2006. The outstanding balance at September 30, 2005 was $342,000. (See also note 10).

$1,500,000 note payable for the Airport Road Project, which matures on December 8, 2015 and has an interest rate of 5.43% per annum. Interest is due and payable monthly beginning January 8, 2001 with principal payments of $9,000 due in addition to the interest payments beginning June 8, 2002. This note is collateralized by a lien upon and pledge of Airport Revenues. Prepayment of the loan was permitted without penalty or premium and was paid in full in January 2006. The outstanding balance at September 30, 2005 was $1,123,000.

The loan agreement required that certain financial ratios to be maintained for each fiscal year. The Authority was in compliance with these ratio requirements at September 30, 2006 and 2005. The Authority is authorized and empowered to borrow money from time to time, provided that the outstanding indebtedness does not exceed fifteen million dollars at any one time.

23

CITY OF NAPLES AIRPORT AUTHORITY NOTES TO FINANCIAL STATEMENTS September 30, 2006 and 2005

NOTE 5 - NOTES PAYABLE TO BANK (Continued) The following is a summary of notes payable transactions of the Authority for the years ended September 30:

2006 2005 Beginning balance $ 1,465,000 $ 1,798,000 Reductions (1,465,000) (333,000) Ending balance $ - $ 1,465,000

For the years ended September 30, 2006 and 2005, the Authority paid interest on these notes of $24,000 and $94,000, respectively.

NOTE 6 - CHANGES IN NONCURRENT LIABILITIES

A summary of changes in noncurrent liabilities for the years ended September 30 were as follows: Beginning Ending Fiscal Year 2006 Balance Increases Decreases Balance Advance rental credits, less current portion $ 92,000 $ - $ (12,000) $ 80,000 Notes payable to bank, less current portion 1,275,000 - (1,275,000) - Other long term liabilities 218,000 - (143,000) 75,000 Total noncurrent liabilities $ 1,585,000 $ - $ (1,430,000) $ 155,000 Beginning Ending Fiscal Year 2005 Balance Increases Decreases Balance Advance rental credits, less current portion $ 101,000 $ - $ (9,000) $ 92,000 Notes payable to bank, less current portion 1,608,000 - (333,000) 1,275,000 Other long term liabilities 75,000 143,000 - 218,000 Total noncurrent liabilities $ 1,784,000 $ 143,000 $ (342,000) $ 1,585,000

24

CITY OF NAPLES AIRPORT AUTHORITY NOTES TO FINANCIAL STATEMENTS September 30, 2006 and 2005 NOTE 7 - RENTAL REVENUE UNDER OPERATING LEASES

The Authority subleases land and leases certain buildings and office space to various tenants. Certain leases include both fixed minimum rentals and contingent rentals based on gross receipts. Minimum future rentals under non-cancelable operating leases as of September 30, 2006 are as follows:

Year Ending September 30 Amount

2007 $ 710,000 2008 653,000 2009 653,000 2010 643,000 2011 622,000 2012 – 2016 2,773,000 2017 – 2021 2,573,000 2022 – 2026 2,346,000 2027 – 2031 1,528,000 2032 – 2035 500,000 Total $13,001,000

The contingent rentals for the year ended September 30, 2006 and 2005 were $641,000 and $579,000, respectively, and were reported as concession fees in the statement of revenues, expenses and changes in net assets.

Following is a summary of assets on lease for the years ended September 30:

2006 2005 T-Hangars $5,293,000 $5,581,000 Other buildings 5,686,000 3,259,000 Total cost 10,979,000 8,840,000 Less accumulated depreciation (3,698,000) (3,932,000) Net carrying amount $7,281,000 $4,908,000

Depreciation for the assets on lease was $248,000 and $246,000 for the years ended September 30, 2006 and 2005, respectively.

25

CITY OF NAPLES AIRPORT AUTHORITY NOTES TO FINANCIAL STATEMENTS September 30, 2006 and 2005 NOTE 8 - PENSION PLAN

The City of Naples Airport Authority ICMA Retirement Corporation Governmental Money Purchase Plan and Trust is a defined contribution pension plan for the benefit of its employees. The plan is for full-time employees and has eligibility provisions with required retirement funding percentages applied to the salaries of those participating. Pension expense for the years ended September 30, 2006 and 2005 was $126,000 and $120,000, respectively. The Authority has reserved the right to establish and amend all plan provisions. The contribution requirements of plan members and the Authority are established and may be amended by the Authority. The Authority’s total salaries and wages on September 30, 2006 and 2005 were $2,569,000 and $2,419,000, and its covered payroll was $2,165,000 and $2,112,000, respectively.

NOTE 9 - RISK MANAGEMENT

The Authority is exposed to various risks of loss related to torts; theft, damage, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. Insurance coverage for such losses is purchased from commercial insurance companies. The financial impact of the Authority’s risk management activities are reported in the accompanying financial statements. For the years ended September 30, 2006 and 2005, the Authority paid $351,000 and $328,000, respectively, in premiums for policies to insure for these risks. No accrual has been provided for claims and incidents not reported to insurers. All known claims have been reported to the insurers. Claims made have not exceeded the insurance coverage for any of the past three fiscal years.

NOTE 10 - CUSTOMER FACILITY CHARGE (CFC)

During 2002, the Authority completed construction of a rental car facility that eliminated the multiple wash and fueling sites and created a single facility for the rental car companies, therefore reducing exposure to environmental liabilities. This facility also includes a vehicle staging area. The facility was built with tax-exempt loan proceeds, to be repaid by the rental car companies through a Customer Facility Charge (CFC). In 2006, the Authority elected to pay off the loan, and the CFC will be used to reimburse the Authority. A $2.50 per day CFC was approved by the Board of Commissioners effective September 1, 2000. The CFC collection is limited to seven days per rental contract. For the years ended September 30, 2006 and 2005, the Authority collected $226,000 and $233,000, respectively.

26

CITY OF NAPLES AIRPORT AUTHORITY NOTES TO FINANCIAL STATEMENTS September 30, 2006 and 2005 NOTE 11 - PASSENGER FACILITY CHARGE (PFC)

The Authority received Federal Aviation Administration (FAA) confirmation to stop collection of a Passenger Facility Charge. The Authority had collected a Passenger Facility Charge (PFC) in accordance with the Aviation Safety and Capacity Expansion Act of 1990 and 14 CFR, Part 158, as amended. In accordance with Part 158.67, the Authority keeps PFC revenue in a separate interest-bearing account until utilized on projects approved by the Federal Aviation Administration (FAA). During 2006 and 2005, the Authority received $0 and $1,000 in PFC revenues. The total PFC funds held by the Authority including interest, as of September 30, 2006 and 2005 were $87,000 and $83,000, respectively. (See also Note 2.)

NOTE 12 - RELATED PARTY TRANSACTIONS

The Airport is located on an area of approximately 732 acres of which 640 acres is leased land. The Authority holds a ninety-nine year lease from the City of Naples, which allows the Authority to use and sublet the land. The lease requires annual payments of one dollar. The lease expires in 2069. The Authority prepaid this lease in January 1997. The City provides certain services to the Authority including fire fighting personnel, fire truck maintenance, police services and utilities. Total expense incurred by the Authority during the years ended September 30, 2006 and 2005 for these services were $533,000 and $516,000, respectively.

NOTE 13 - CAPITAL CONTRIBUTIONS

Since its inception, the Authority has received capital contributions through federal and state grants and from the City of Naples, Collier County and other parties as follows:

Year ended Inception 2006 To date

Federal $ 1,434,000 $19,835,000 State 419,000 9,472,000 City of Naples - 202,000 Collier County - 163,000 Others 2,750,000 3,195,000 Total $ 4,603,000 $32,867,000

27

CITY OF NAPLES AIRPORT AUTHORITY NOTES TO FINANCIAL STATEMENTS September 30, 2006 and 2005

NOTE 14 - COMMITMENTS AND CONTINGENCIES

At September 30, 2006 and 2005, the Authority had in process various construction, consulting and engineering contracts totaling $9,121,000 and $4,304,000, respectively. Costs incurred on these contracts as of September 30, 2006 and 2005 totaled $2,297,000 and $2,552,000, respectively. The Authority is currently receiving, and has received in the past, grants which are subject to special compliance audits by the grantor agency, which may result in disallowed expense amounts. These amounts would constitute a contingent liability of the Authority. The Authority does not believe any contingent liabilities to be material.

Final VarianceOriginal Amended FavorableBudget Budget Actual (Unfavorable)

FY 2006 FY 2006 FY 2006 FY 2006AVAILABLE RESOURCES, REVENUES AND RECEIPTS

AVAILABLE RESOURCES AT BEGINNING OF YEARRestricted 262,000$ 185,000$ 185,000$ - Operating reserves 1,000,000 1,000,000 1,000,000 - Capital reserves 500,000 500,000 500,000 - Unrestricted 2,604,000 3,452,000 3,452,000 - Total available resources at beginning of year 4,366,000 5,137,000 5,137,000 -

OPERATING REVENUESFuel sales (net) 6,772,000 6,772,000 6,945,000 173,000Concession fees 672,000 684,000 743,000 59,000Hangar/T-shelter rents 1,037,000 1,120,000 1,115,000 (5,000)Building and land rents 884,000 869,000 877,000 8,000Line services 62,000 87,000 97,000 10,000Other 140,000 104,000 96,000 (8,000) Net operating revenues 9,567,000 9,636,000 9,873,000 237,000

NON-OPERATING REVENUESCustomer facility charges 230,000 230,000 226,000 (4,000)Interest revenue 78,000 289,000 313,000 24,000Interest revenue - note 3,000 3,000 3,000 - Insurance proceeds - 1,957,000 500,000 (1,457,000)Grants 55,000 1,009,000 467,000 (542,000) Total non-operating revenues 366,000 3,488,000 1,509,000 (1,979,000)

RECEIPTSPrincipal repayment - note receivable 9,000 9,000 7,000 (2,000) Capital contributions 5,721,000 2,168,000 4,603,000 2,435,000 Total receipts 5,730,000 2,177,000 4,610,000 2,433,000

TOTAL AVAILABLE RESOURCES, REVENUES AND RECEIPTS 20,029,000$ 20,438,000$ 21,129,000$ 691,000$

(Continued)

CITY OF NAPLES AIRPORT AUTHORITYSCHEDULE OF AVAILABLE RESOURCES, REVENUES, RECEIPTS, EXPENSES AND EXPENDITURESNON-GAAP BUDGETARY BASIS AND ACTUALFor the Year Ended September 30, 2006

28

Final VarianceOriginal Amended FavorableBudget Budget Actual (Unfavorable)

FY 2006 FY 2006 FY 2006 FY 2006

TOTAL AVAILABLE RESOURCES, REVENUES AND RECEIPTS 20,029,000$ 20,438,000$ 21,129,000$ 691,000$

EXPENSES AND EXPENDITURESOPERATING EXPENSESPersonnel 3,668,000$ 3,471,000$ 3,390,000$ 81,000$ Professional fees 1,512,000 1,545,000 1,193,000 352,000Communications 173,000 171,000 183,000 (12,000) Insurance 366,000 432,000 374,000 58,000Utilities and environmental 390,000 402,000 400,000 2,000Office/postage/printing 45,000 40,000 38,000 2,000ATCT, ARFF and police service 613,000 567,000 535,000 32,000Dues/subscriptions/fees 33,000 33,000 23,000 10,000Auto gas and diesel fuel 80,000 60,000 53,000 7,000Pilot services 25,000 22,000 25,000 (3,000)Maintenance and repair 486,000 482,000 472,000 10,000Hurricane recovery/repair - 2,317,000 2,624,000 (307,000)Miscellaneous expense 2,000 2,000 - 2,000 Operating expenses 7,393,000 9,544,000 9,310,000 234,000

CAPITAL EXPENDITURES 7,082,000 5,000,000 4,286,000 714,000

DEBT SERVICE EXPENSES AND EXPENDITURESPrincipal payments 1,492,000 1,465,000 1,465,000 - Interest expense 27,000 24,000 24,000 - Rental credit expense 34,000 34,000 34,000 - Total debt service expenses and expenditures 1,553,000 1,523,000 1,523,000 -

TOTAL EXPENSES AND EXPENDITURES 16,028,000$ 16,067,000$ 15,119,000$ 948,000

AVAILABLE RESOURCES AT YEAR END Restricted 45,000$ 130,000$ 87,000$ (43,000)$ Operating reserves 1,000,000 1,000,000 1,000,000 - Capital reserves 500,000 500,000 500,000 - Unrestricted 2,456,000 2,741,000 4,423,000 1,682,000TOTAL AVAILABLE RESOURCES AT YEAR END 4,001,000 4,371,000 6,010,000 1,639,000

NET CHANGE IN AVAILABLE RESOURCES BALANCE (365,000)$ (766,000)$ 873,000$ 1,639,000$

RECONCILIATION OF BUDGETARY BASIS TO GAAP

CHANGE IN NET ASSETS - BUDGETARY BASIS 873,000$ Add: Capital expenditures 4,286,000 Principal payments 1,465,000 Less: Depreciation and amortization (1,411,000) Loss on disposal of capital assets (17,000) Principal repayments - note receivable (7,000)CHANGE IN NET ASSETS - GAAP 5,189,000$

CITY OF NAPLES AIRPORT AUTHORITYSCHEDULE OF AVAILABLE RESOURCES, REVENUES, RECEIPTS, EXPENSES AND EXPENDITURESNON-GAAP BUDGETARY BASIS AND ACTUAL (Continued)For the Year Ended September 30, 2006

29

30

STASTICIAL SECTION

31

STATISTICAL SECTION

This part of the City of Naples Airport Authority’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 Authority’s overall financial health.

Contents Page Financial Trends 32

These schedules contain trend information to help the reader understand how the Authority’s financial performance and well-being have changed over time.

Revenue Capacity 34

These schedules contain information to help the reader to assess the Authority’s most significant revenue source, aviation fuel sales.

Debt Capacity 36

These schedules present information to help the reader assess the affordability of the Authority’s current levels of outstanding debt and the Authority’s ability to issue additional debt in the future.

Demographic and Economic Information 38

These schedules offer demographic and economic indicators to help the reader understand the environment within which the Authority’s financial activities take place.

Miscellaneous Information 43

This schedule provides the reader with information on the sources of the Authority’s contributed capital.

Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year.

CITY OF NAPLES AIRPORT AUTHORITYNAPLES, FLORIDA

NET ASSETS BY COMPONENT, LAST FIVE FISCAL YEARS

2002 2003 2004 2005 2006

Invested in capital assets, net of related debt 25,850,000 25,567,000 24,791,000 26,764,000 33,719,000 Restricted 174,000 186,000 197,000 185,000 87,000 Unrestricted 2,402,000 2,551,000 3,486,000 4,808,000 3,140,000

Total net assets 28,426,000 28,304,000 28,474,000 31,757,000 36,946,000

Note: The Authority implemented GASB 34 in fiscal year 2002.

32

CITY OF NAPLES AIRPORT AUTHORITYNAPLES, FLORIDA

CHANGES IN NET ASSETS, LAST FIVE FISCAL YEARS

2002 2003 2004 2005 2006OPERATING REVENUES

Fuel sales (net) 4,220,000$ 4,155,000$ 5,618,000$ 6,249,000$ 6,945,000$ Concession fees 541,000 540,000 540,000 685,000 743,000 Hangar/T-shelter/tiedown 816,000 856,000 968,000 1,009,000 1,115,000 Building and land rent 665,000 694,000 746,000 809,000 877,000 Commercial air transportation 30,000 5,000 - - - Line services 29,000 36,000 54,000 61,000 97,000 Other 7,000 9,000 57,000 94,000 96,000

Net operating revenues 6,308,000 6,295,000 7,983,000 8,907,000 9,873,000

OPERATING EXPENSESPersonnel 2,372,000 2,549,000 2,923,000 3,169,000 3,390,000 Professional fees 856,000 1,570,000 1,971,000 1,312,000 1,193,000 Communications 90,000 88,000 124,000 123,000 183,000 Insurance 258,000 349,000 369,000 363,000 374,000 Utilities and environmental 244,000 347,000 267,000 278,000 400,000 Office/postage/printing 30,000 33,000 33,000 33,000 38,000 ATCT, ARFF and police service 237,000 363,000 472,000 514,000 535,000 Dues/subscriptions/fees 16,000 15,000 18,000 20,000 23,000 Auto gas and diesel fuel 15,000 16,000 24,000 36,000 53,000 Pilot services 13,000 15,000 23,000 27,000 25,000 Maintenance and repair 358,000 279,000 343,000 385,000 472,000 Hurricane recovery/repair - - - - 2,124,000 Depreciation and amortization 2,252,000 1,935,000 1,500,000 1,370,000 1,411,000

Total operating expenses 6,741,000 7,559,000 8,067,000 7,630,000 10,221,000

Operating income (loss) (433,000) (1,264,000) (84,000) 1,277,000 (348,000)

NON-OPERATING REVENUES (EXPENSES)Customer facility charges 192,000 199,000 161,000 233,000 226,000 Passenger facility charges 17,000 27,000 9,000 1,000 - Interest revenue 83,000 67,000 64,000 165,000 316,000 Surcharge revenue 89,000 5,000 - - - Grant revenue - 50,000 - 16,000 467,000 Interest expense (104,000) (157,000) (142,000) (129,000) (58,000) Loss on disposal of capital assets (113,000) - - (12,000) (17,000)

Total non-operating revenues (expenses) 164,000 191,000 92,000 274,000 934,000

Income (loss) before capital contributions (269,000) (1,073,000) 8,000 1,551,000 586,000

Capital contributions 2,382,000 951,000 162,000 1,732,000 4,603,000

Change in net assets 2,113,000$ (122,000)$ 170,000$ 3,283,000$ 5,189,000$

Note: The Authority implemented GASB 34 in fiscal year 2002.

33

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34

CITY OF NAPLES AIRPORT AUTHORITYNAPLES, FLORIDA

PRINCIPAL CUSTOMERS - BY GROSS SALESFor the Year Ended September 30, 2006

Company Gross Sales % of Total Gross SalesMercury Air Group - NetJets 3,212,707$ 13.5%Delta Airlines, Inc. 1,357,853 5.7%Mercury Air Group - Flight Options 863,969 3.6%Flexjet 634,931 2.7%CitationShares 452,291 1.9%Dollar Rent A Car - Florida 422,388 1.8%Hertz Corporation 311,043 1.3%Naples Air Center, Inc. 294,775 1.2%Avis Rent-A-Car System, Inc. 248,244 1.0%National Car Rental, Inc. 205,222 0.9%

Source: Authority's accounting records

Note: Information for the ninth year prior is not available.

PRINCIPAL CUSTOMERS - BY AVIATION FUEL GALLONSFor the Year Ended September 30, 2006

Company Aviation Fuel Gallons % of Total Aviation GallonsMercury Air Group - NetJets 944,725 15.1%Delta Airlines, Inc. 486,455 7.8%Mercury Air Group - Flight Options 252,394 4.0%Health Management Associates, Inc. 216,983 3.5%Flexjet 186,483 3.0%CitationShares 130,854 2.1%Continental Aviation Services, Inc. 100,093 1.6%ST Aviation 95,004 1.5%Naples Airport Properties, LLC 90,281 1.4%Naples Air Center, Inc. 74,393 1.2%

Source: Authority's accounting records

Note: Information for the ninth year prior is not available.

35

CITY OF NAPLES AIRPORT AUTHORITYNAPLES, FLORIDA

RATIOS OF OUTSTANDING DEBT

Rental Car PercentageFiscal Airport Road Facility Total of Net Per BasedYear Term Loan Term Loan Term Loan Revenue1 Aircraft2

2001 1,500,000$ 970,000$ 2,470,000$ 46.1% 7,767$ 2002 1,454,000 842,000 2,296,000 36.4% 6,010 2003 1,344,000 687,000 2,031,000 32.3% 5,534 2004 1,233,000 565,000 1,798,000 22.5% 4,518 2005 1,123,000 342,000 1,465,000 16.4% 3,337 2006 - - - 0.0% -

Source: Authority's financial statements

Note: The Authority's outstanding debt was issued December 2000 and paid off January 2006.Details regarding the Authority's debt can be found in the notes to the financial statements.

1 See page 33 for net revenue information.2 See page 42 for based aircraft information.

DEBT LIMITATIONSRatio of

Fiscal Total Debt toYear Debt Limit Outstanding Debt Debt Limit2001 5,000,000$ 2,470,000$ 49.4%2002 5,000,000 2,296,000 45.9%2003 15,000,000 2,031,000 13.5%2004 15,000,000 1,798,000 12.0%2005 15,000,000 1,465,000 9.8%2006 15,000,000 - 0.0%

Source: Authority's Enabling Legislation and financial statements

Note: The Authority's debt limit is set by the Legislature of the State of Florida.The Authority's outstanding debt was issued December 2000 and paid off January 2006.

36

CITY OF NAPLES AIRPORT AUTHORITYNAPLES, FLORIDA

PLEDGED-REVENUE COVERAGE

Airport Road and Rental Car Facility Term LoanLess: Net Debt Service

Fiscal Gross Operating Available Scheduled AdditionalYear Revenues Expenses Revenues Principal Interest Principal Coverage2001 5,978,000$ 4,082,000$ 1,896,000$ -$ 111,000$ 130,000$ 7.87 2002 6,672,000 4,489,000 2,183,000 99,000 135,000 75,000 7.06 2003 6,566,000 5,624,000 942,000 190,000 121,000 75,000 2.44 2004 8,208,000 6,567,000 1,641,000 190,000 107,000 43,000 4.83 2005 9,305,000 6,260,000 3,045,000 190,000 94,000 143,000 7.13 2006 10,415,000 8,810,000 1,605,000 48,000 24,000 1,417,000 1.08

Rental Car Facility Term LoanCustomer Plus: Net Debt Service

Fiscal Facility Interest Earned Available Scheduled AdditionalYear Charges (CFCs) On CFCs Revenues Principal Interest Principal Coverage2001 265,000$ 5,000$ 270,000$ -$ 47,000$ 130,000$ 1.53 2002 192,000 2,000 194,000 53,000 53,000 75,000 1.07 2003 199,000 1,000 200,000 80,000 44,000 75,000 1.01 2004 161,000 1,000 162,000 80,000 36,000 43,000 1.02 2005 233,000 5,000 238,000 80,000 28,000 143,000 0.95 2006 226,000 2,000 228,000 20,000 5,000 321,000 0.66

Source: Authority's financial statements and loan schedules

Notes: Gross revenues include nonoperating interest revenue, surcharge revenue and CustomerFacility Charges. Operating expenses do not include depreciation expense. Additionaldetails regarding revenues and expenses can be found in the financial statements.The Authority's outstanding debt was issued December 2000 and paid off January 2006.

37

CITY OF NAPLES AIRPORT AUTHORITYNAPLES, FLORIDA

ACTIVE U.S. GENERAL AVIATION FLEET BY TYPE OF AIRCRAFT

Calendar TotalYear Piston Turboprop Turbojet Rotorcraft Experimental Other Aircraft1997 156,056 5,619 5,178 6,786 14,680 4,092 192,414 1998 162,963 6,174 6,066 7,425 16,502 5,580 204,710 1999 171,923 5,679 7,120 7,448 20,528 6,765 219,464 2000 170,513 5,762 7,001 7,150 20,407 6,700 217,533 2001 163,314 6,596 7,787 6,783 20,421 6,545 211,446 2002 161,087 6,841 8,355 6,648 21,936 6,377 211,244 2003 160,938 7,689 7,997 6,525 20,550 6,008 209,708 2004 165,189 8,379 9,298 7,821 22,800 5,939 219,426 2005* 162,011 8,030 8,628 7,595 22,300 6,027 214,591 2006* 162,615 8,230 9,025 8,070 22,600 6,295 216,835

Sources: U.S. Department of Transportation, Bureau of Transportation Statisticsand Federal Aviation Administration

Notes: * EstimatedRows may not add due to estimation procedures and rounding.

ACTIVE U.S. GENERAL AVIATION AIRCRAFT FUEL CONSUMPTION (In Millions of Gallons)

Calendar Experimental Total Fuel ConsumedYear Piston Turboprop Turbojet Rotorcraft and Other Avgas Jet Fuel Total2000 309.2 176.3 736.7 67.4 15.2 332.8 972.0 1,304.8 2001 255.4 157.8 743.0 60.1 11.8 275.2 952.9 1,228.1 2002 255.3 164.6 774.1 53.4 14.8 277.9 984.3 1,262.2 2003 255.6 156.8 733.2 56.5 17.1 279.4 939.7 1,219.1 2004* 256.0 156.8 756.8 59.9 18.4 282.0 965.8 1,247.8 2005* 262.2 160.0 793.3 64.6 18.9 290.0 1,008.8 1,298.8 2006* 264.4 162.7 851.8 67.6 19.4 293.9 1,072.0 1,365.8

Source: Federal Aviation Administration

Note: Information prior to 2000 not available.* EstimatedRows may not add due to estimation procedures and rounding.

38

CITY OF NAPLES AIRPORT AUTHORITYNAPLES, FLORIDA

POPULATIONPercent Percent Percent

City of Increase Collier Increase State of IncreaseYear Naples (Decrease) County (Decrease) Florida (Decrease)1997 21,202 0.2% 200,024 3.6% 14,712,922 2.1%1998 21,233 0.1% 210,095 5.0% 15,000,475 2.0%1999 21,087 (0.7)% 219,685 4.6% 15,322,040 2.1%2000 20,976 (0.5)% 251,377 14.4% 15,982,378 4.3%2001 21,687 3.4% 270,667 7.7% 16,331,739 2.2%2002 22,057 1.7% 276,691 2.2% 16,713,149 2.3%2003 22,343 1.3% 292,466 5.7% 17,071,508 2.1%2004 22,443 0.4% 306,186 4.7% 17,516,732 2.6%2005 22,490 0.2% 317,788 3.8% 17,918,227 2.3%2006 22,970 2.1% 326,658 2.8% 18,349,132 2.4%

Source: University of Florida Bureau of Economic and Business Research

39

CITY OF NAPLES AIRPORT AUTHORITYNAPLES, FLORIDA

AVIATION FUEL AND AIRCRAFT OPERATIONS STATISTICS

Fiscal Aviation Fuel Gallons Aircraft OperationsYear 100LL Jet A Total Local Itinerant Total1997 530,062 2,306,198 2,836,260 30,476 84,661 115,137 1998 533,696 2,635,690 3,169,386 24,568 85,924 110,492 1999 616,515 3,329,828 3,946,343 29,867 96,288 126,155 2000 564,050 3,798,731 4,362,781 26,613 93,678 120,291 2001 586,882 4,212,630 4,799,512 30,505 107,793 138,298 2002 573,885 4,651,300 5,225,185 33,853 104,937 138,790 2003 505,429 4,737,471 5,242,900 28,052 84,256 112,308 2004 535,264 4,973,537 5,508,801 36,962 99,166 136,128 2005 560,848 5,760,813 6,321,661 51,382 112,052 163,434 2006 484,557 5,780,607 6,265,164 36,271 101,637 137,908

Source: Authority's Operations and Finance Department records

Aviation Fuel Gallons & Aircraft Operations Historical ComparisonFY 1997 - FY 2006

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Aviation Gallons

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

Aircraft Operations

100LL Jet A Total Local Itinerant Total

40

CITY OF NAPLES AIRPORT AUTHORITYNAPLES, FLORIDA

COMMERCIAL PASSENGER STATISTICS

FiscalYear Enplanements Deplanements Total CFCs PFCs1997 65,328 63,279 128,607 -$ 143,000$ 1998 59,282 59,700 118,982 - 137,000 1999 58,579 58,459 117,038 - 135,000 2000 59,746 59,397 119,143 11,000 136,000 2001 40,529 41,636 82,165 265,000 74,000 2002 14,540 14,710 29,250 192,000 17,000 2003 10,603 10,720 21,323 199,000 27,000 2004 3,486 3,484 6,970 161,000 9,000 2005 30,025 30,186 60,211 233,000 1,000 2006 26,558 27,457 54,015 226,000 -

Source: Authority's Operations and Finance Department records

Commercial Passenger ActivityFY 1997 - FY 2006

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Passengers

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

CFCs & PFCs

Enplanements Deplanements Total CFCs PFCs

41

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42

CITY OF NAPLES AIRPORT AUTHORITYNAPLES, FLORIDA

CAPITAL CONTRIBUTIONS

Fiscal FAA FDOT Collier County City of Naples Other CumulativeYear Grants Grants Contributions Contributions Contributions Total

Prior to '73 -$ 15,827$ -$ 147,786$ -$ 163,613$ 1973 9,257 19,263 - - - 192,133 1974 4,493 26,124 - - 988 223,738 1975 127,287 7,336 - - 144 358,505 1976 74,901 34,328 - - - 467,734 1977 747,326 34,745 - - - 1,249,805 1978 647,159 42,890 - - - 1,939,854 1979 - - - - 2,600 1,942,454 1980 93,321 14,354 - - 350,376 2,400,505 1981 260,871 224,458 - - - 2,885,834 1982 34,124 439,785 - - - 3,359,743 1983 66,776 15,375 - - - 3,441,894 1984 1,175,584 152,469 - - - 4,769,947 1985 844,538 29,251 - - - 5,643,736 1986 258,173 38,923 - - - 5,940,832 1987 472,659 52,396 3,976 3,977 - 6,473,840 1988 291,391 12,701 6,336 - - 6,784,268 1989 826,111 280,884 2,664 - 9,826 7,903,753 1990 267,587 45,124 - - 677 8,217,141 1991 1,647,653 957,458 - - - 10,822,252 1992 77,348 477,897 - - - 11,377,497 1993 450,449 361,584 - - - 12,189,530 1994 426,795 105,326 - - - 12,721,651 1995 535,632 1,272,510 - - - 14,529,793 1996 514,109 43,953 - - - 15,087,855 1997 2,116,513 (1,032,265) - - - 16,172,103 1998 180,892 639,094 - - - 16,992,089 1999 515,784 876,626 - - - 18,384,499 2000 1,507,835 426,705 - - - 20,319,039 2001 1,256,599 1,333,664 - 50,000 78,000 23,037,302 2002 1,234,773 994,788 150,000 - 2,500 25,419,363 2003 659,193 292,038 - - - 26,370,594 2004 - 161,643 - - - 26,532,237 2005 1,075,963 656,212 - - - 28,264,412 2006 1,410,431 414,753 - - 2,777,709 32,867,305

Source: Authority's financial statements and accounting recordsNote: Other Contributions for 2006 include the acquisition of the NAA North Facility.

43

44

COMPLIANCE SECTION

CITY OF NAPLES AIRPORT AUTHORITYSCHEDULE OF EXPENDITURES OF FEDERAL AWARDSFor the Fiscal Year Ended September 30, 2006

Federal/Pass Through Entity CFDA ContractFederal Program Number Grantor Number Expenditures

U.S. Department of TransportationFederal Aviation Administration

Airport Improvement ProgramInstall Airfield Lighting and Signage Phase II and Acquire Aircraft Rescue and Firefighting Vehicle 20.106 AIP-23 676,799$

Hurricane Wilma Related Damages - Acquire and Install Rotating Beacon and Tower, Acquire and Install Omnidirectional Approach Lighting (ODAL #5); Acquire and Install Emergency Generator for the Commercial Terminal; Replace Commercial Terminal Roof; Install Perimeter Fencing +9,000 l.f. 20.106 AIP-24 130,159

Design and Construct Service Road around Runway 23; Realign Taxiway B South, including Apron Expansion, Design, Phase I; Construct South Quadrant Taxiways, Phase I 20.106 AIP-25 524,826 Total Program 1,331,784$

U.S. Department of Homeland Security:Passed through State of Florida

Public Assistance GrantsDisaster Relief Funding-Hurricane Wilma 97.036 05-PA-C%-09-21-20-88 465,878

Total Expenditures of Federal Awards 1,797,662$

See accompanying notes to the schedule of expenditures of federal awards.

49

50

CITY OF NAPLES AIRPORT AUTHORITY NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS September 30, 2006 NOTE 1 – PURPOSE OF THE SCHEDULE The Schedule of Expenditures of Federal Awards (the Schedule) is a supplementary schedule to the Authority’s basic financial statements and is presented for the purpose of additional analysis. The Schedule is required by Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation Federal Financial Assistance – Pursuant to the Single Audit Act of 1984 (Public Law 98-502), the Single Audit Act Amendments of 1996 (Public Law 104-156), and OMB Circular A-133, federal financial assistance is defined as assistance provided by a federal agency, either directly or indirectly, that nonfederal entities receive or administer, in the form of grants, contracts, cooperative agreements, loans, loan guarantees, property interest subsidies, insurance, or direct appropriations. Catalog of Federal Domestic Assistance – OMB Circular A-133 requires the Schedule to show the total expenditures for each of the Council’s federal financial assistance programs as identified in the Catalog of Federal and Domestic Assistance (CFDA). Federal financial assistance programs that have not been assigned a CFDA number are indicated with an “N/A.” Type A and Type B Programs The Single Audit Act Amendments of 1996 and OMB Circular A-133 establish the levels of expenditures to be used in defining Type A and Type B federal financial assistance programs. Type A assistance programs for the Authority are those federal programs with expenditures in excess of $300,000 for the fiscal year ended September 30, 2006.

CITY OF NAPLES AIRPORT AUTHORITY NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS September 30, 2006 Basis of Accounting Federal financial assistance expenditures included in the Schedule are reported using the accrual basis of accounting. NOTE 3 - MATCH REQUIREMENT The Authority received financial assistance under several grants and contracts requiring local match in the form of cash. A match amount is established at the time the financial assistance is awarded. However, this financial assistance is received on a reimbursement basis and can only be recognized to the extent of allowable costs. For the fiscal year ended September 30, 2006 the Authority had matching requirements as follows:

Allowable

Costs Requiring

Match

Match Requirement

Percent

Match Requirement

DollarsCash Match

Applied

Federal

Install Airfield Lighting and Signage - Phase II and Acquire Aircraft Rescue and Firefighting Vehicle 712,421$ 5% 35,622$ 35,622$

Hurricane Wilma Related Damages 137,011 5% 6,852 6,852

Design and Construct Service Road around Runway 23; Realign Taxiway B South, including Apron Expansion, Design, Phase I; Construct South Quadrant Taxiways, Phase I 552,449 5% 27,622 27,622

51

CITY OF NAPLES AIRPORT AUTHORITYSCHEDULE OF PASSENGER FACILITY CHARGES (PFC) For the Year Ended September 30, 2006

Quarter Quarter Quarter Quarter YearEnded Ended Ended Ended Ended

December 31, March 31, June 30, September 30, September 30,2005 2006 2006 2006 2006

PFC revenues received -$ -$ -$ -$ -$

Interest earned 982 994 1,094 1,186 4,256

Total PFC revenues received 982$ 994$ 1,094$ 1,186$ 4,256$

Expenditures -$ -$ -$ -$ -$

52

CITY OF NAPLES AIRPORT AUTHORITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS FEDERAL PROGRAMS For the Year Ended September 30, 2006

Section I – Summary of Auditor’s Report

Financial Statements Type of auditor’s report issued; Unqualified Internal control over financial reporting: • Material weakness(es) identified? yes X no • Reportable condition(s) identified that are not considered to be material weakness(es)? yes X none reported Noncompliance material to financial statements noted? yes X no Federal Awards Internal control over major programs: • Material weakness(es) identified? yes X no • Reportable condition(s) identified that are not considered to be material weakness(es)? yes X none reported Type of auditor’s report issued on compliance for major federal programs: Unqualified Any audit findings disclosed that are required to be reported in accordance with section 510(a) of Circular A-133? yes X no

53

CITY OF NAPLES AIRPORT AUTHORITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS FEDERAL PROGRAMS (Continued) For the Year Ended September 30, 2006 Section I – Summary of Auditor’s Report (Continued) Identification of major federal programs: CFDA Number(s) Name of Federal Program or Cluster 20.106 U.S. Department of Transportation Federal Aviation Administration – Airport Improvement

Program 97.036 U.S. Department of Homeland Security – Public

Assistance Grants

Dollar threshold used to distinguish between Type A or Type B: Major Federal Programs $ 300,000 Auditee qualified as low-risk auditee pursuant to OMB Circular A-133? yes X no Section II – Financial Statement Findings Our audit did not disclose any matters required to be reported in accordance with paragraphs 5.18 through 5.20 of Government Auditing Standards. Section III – Findings and Questioned Costs – Major Federal Programs Our audit did not disclose any matters required to be reported in accordance with Section 510(a) of Circular A-133. There were no matters reported in the prior year Schedule of Findings and Questioned Costs required to be reported in accordance with Section 510(a) of OMB Circular A-133.

54

MANAGEMENT LETTER

58