Port of BremertonState of WashingtonComprehensive Annual Financial ReportFor the Fiscal Year Ended December 31, 2012

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Comprehensive AnnualFinancial ReportFor the Fiscal Year Ended December 31, 2012Prepared by Becky Swanson,Chief Financial OfficerThe Port of BremertonBremerton, Washington

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Port of BremertonComprehensive Annual Financial ReportFor the Fiscal Year Ended December 31, 2012Table of ContentsPage No.SECTION 1: INTRODUCTORYLetter of Transmittal . 1-11GFOA Certificate of Achievement for Excellence in Financial Reporting 12List of Principal Officials .13Organizational Chart .14SECTION 2: FINANCIALIndependent Auditor’s Report . 15-17Management’s Discussion & Analysis . 18-23Basic Financial Statements Statement of Net Position . 24-25 Statement of Revenues, Expenses and Changes in Fund Net Position.26 Statement of Cash Flows .27 Notes to Financial Statements . 28-50SECTION 3: STATISTICALNarrative . 51-52Financial Trends Schedule 1 – Revenues, Expenses, and Changes in Fund Net Position . 53-55 Schedule 2 - Fund Net Position by Component .56Revenue Capacity Schedule 3 - Property Tax Levies and Collections .57 Schedule 4 - Assessed Value of Property .58 Schedule 5 - Property Tax Rates .59Debt Capacity Schedule 6 - Computation of Legal Debt Margin .60 Schedule 7 - Computation of Direct & Overlapping Bonded Debt .61Demographic Information Schedule 8 - Demographic / Economic Statistics .62 Schedule 9 - Ratios of Outstanding Debt .63 Schedule 10 - Principal Employers of Kitsap County .64

Operating Information Schedule 11 - Number of Employees by Division .65 Schedule 12 - Enplaned/Deplaned Freight .66 Schedule 13 - Landings and Takeoffs .67 Schedule 14 - Marina Moorage Facilities & Rates . 68-69 Schedule 15 - Largest Property Leases .70 Schedule 16 - Capital Assets Information .71


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PROFILE OF THE PORTThe Port of Bremerton is a special purpose municipal corporation organized under the State ofWashington Port Laws R.C.W. Title 53 and is governed by a three-member elected Commission.The Port was created in 1913 by a vote of the people of Kitsap County to ensure public ownershipof our waterfront and to promote economic development.The Port is a unique organization that makes significant contributions to the local community byusing combined expertise in both the business and government sectors. The Port’s revenues,generated from operations, come from airport, business and industrial park real estate andmarinas. Other revenues are generated from the general property tax levy. The Port is custodianto approximately 1,787 acres of land and 527,000 square feet of buildings, including BremertonNational Airport, Olympic View Industrial and Business Parks and the Port Orchard and Bremertonmarinas.The Port of Bremerton’s mission is to fulfill the essential economic development needs of thedistrict while providing leadership in maintaining Kitsap County’s overall economic vitality throughexpansion of comprehensive facilities, programs and services, and to increase the number offamily-wage jobs.The Port will be celebrating its 100 year Anniversary in 2013, with a celebration scheduled to takeplace in October.ECONOMIC CONDITIONLocal EconomyInformation presented in the financial statements is best considered in the broader context of theeconomic environment in Kitsap County (Kitsap) and the surrounding area.The Port of Bremerton is located in Kitsap County, which has the sixth largest population in theState of Washington.The county population has been steady, with slight growth, during the past decade. Bremertonand Port Orchard are the two largest cities in the Port district. The City of Bremerton has thelargest population in the county. The county is also large geographically, with 398 square miles inarea. Waterfront properties are abundant, with 211 miles of salt water shoreline and 33 miles offreshwater-lake frontage.2

Kitsap County is a natural place for port districts (there are 12 in the county) because the countyhas so much waterfront. With over 100,000 constituents, the Port of Bremerton is the largest portdistrict, is actively involved in economic development and has the most facilities with its industrialand business parks, airport and two marinas.Kitsap County is a mix of busy urban activity, rural serenity, business-friendly attitudes, richhistory, and miles of spectacular waterfront. Kitsap County enjoys top-rated health care, strongcultural and educational facilities, low crime rates, incredible waterfront estates, and distinctcommunities tucked into the numerous waterfront "landings".Certified organic vegetable farms and wineries, specialty and big box retail to technology-drivencompanies, defense contractors, manufacturing, health, finance and architectural professionalservices, help diversify the economy of Kitsap County.Kitsap County, while having its share of economic hardships during the economic downturn, isnoting increased economic activity from new businesses, business growth and infrastructureimprovements. The private services sector has started to rebound with some gains in retail andfinance, and new manufacturing efforts in the advanced composites are taking hold. However,government and schools continue to cut positions due to reduced revenues and federal, state andlocal workers have been impacted by furloughs and layoffs. Kitsap County has continued withmajor infrastructure improvements, including upgrades to area roads and building a new ManetteBridge that connects Bremerton to East Bremerton.The US Navy is a key element for Kitsap County's economy with a growing number of companiesin the technology, marine and manufacturing clusters contributing to continued economicgrowth. Fifty-four percent of all economic activity in the county is dependent on the Naval Bases.Combined military related and civilian employment at naval bases is approximately 36% of allemployment in Kitsap County. Employing 26,400, the U.S. Navy continues to remain the highestpublic sector employer. Plus, the high number of military retirees in the county also contributesmore than 253.9 million in individual pension income to the county. Health care has also been arising economic factor in Kitsap County as Harrison Hospital has had steady growth and openedsatellite hospitals and clinics around the county.As of March 2013, according to the Washington State Employment Security Department, therewere 119,600 people employed in the civilian labor force and the unemployment rate decreasedto 7.7%. Kitsap County has a well-educated work force with 28.7% of residents having abachelor’s degree or higher.3

Education is another major employer in the county. There are five different school districts (eachwith administrative, teaching and skilled worker staffs) and Olympic College in Bremerton, whichnow offers four-year degree programs in addition to its traditional two-year certificate programs.The Washington State Ferry System is an important infrastructure link for Kitsap residents,because of Kitsap County’s geographic configuration. More than half of all ridership on theWashington State Ferries originates or ends in Kitsap County.Kitsap residents are able to take one of three different ferries each day to jobs in the Seattlemetro area. Many professionals in the legal, medical and education professions work in Seattleand live in Kitsap County. Kitsap residents also use the ferry system to travel to the city forentertainment, sporting events and cultural opportunities not available locally.There are significant differences in median household income between Kitsap and King County.Kitsap’s median household income is 57,155, compared to 68,313 in King County. The lure ofhigher paying jobs is the reason many Kitsap County residents commute to Seattle. If there werecomparable numbers of higher-paying jobs, the exodus to and from King County would diminish.Long-Term Financial PlanningThe measure of success for the Port of Bremerton is how effectively it serves the communitythrough providing services and facilities, promoting a sustainable economy, and undertakingsuccessful custodial oversight of its assets and natural capital. On the resource side, the Port isdifferent from other public agencies in that it does not rely solely on public funds, such as taxes,to fulfill a community purpose. The Port has access to limited public funds, but it also has theability to engage in lines of business that earn financial returns. In this regard, the Port usescommercial means to accomplish public ends. The Port has established the following criteria tomeet long-term financial goals in order to achieve its overall success in serving the community: Financial StandardsThe Port Commission has adopted specific financial standards which guide the Port’s operations, including: The Port will prepare one-year budgets and six-year capital plans.The Port will continue to move toward financial self-sufficiency and reduce public taxdependency.The Port will fund operating activities first from user fees and lease revenues, then fromgeneral tax levy funds.4

The Port will use general tax levy funds for capital projects, keeping public purpose priorities,energy efficiency and minimum impact on the environment in the forefront.The Port will retain a 1.9 million cash balance for emergencies and un-programmed expenses. Financial Highlights 2012 operating loss before depreciation of 1.4 million is 14% lower compared to 2011,indicating a move toward becoming less tax dependent for operations has improved in 2012.Efforts to reduce operating costs continue, combined with a focus to grow revenues todecrease operational tax dependency further in 2013. In early 2013 the Port implemented astaff reduction plan and further cost reductions in order to improve operational results. The Port has budgeted to spend nearly 2.8 million in capital projects in 2013, subject to awardof certain federal and state grants. The Port expects to receive 1.2 million in federal and state capital and operating grants in2013.Lines of Business AirportThe Bremerton National Airport (BNA) is a general aviation airport located southwest ofdowntown Bremerton, Washington. Commercial activity includes a full-service fixed baseoperator, as well as over 10 businesses, including UPS mail and small package activity. Over 190privately owned aircraft are based at BNA, of which 82 are housed in hangars leased from thePort. There are also 77 privately owned hangars on BNA property. The remaining aircraft are inPort rented tie-downs on the open tarmac. A private corporate jet hangar is scheduled forconstruction in the summer of 2013.Continued development of the Cross SKIA Connector Road “Airport Way” opens the east side ofthe airport for property development. South Kitsap Industrial Area (SKIA) is one of eight centersdesignated for manufacturing development by Puget Sound Regional Council.Airport revenues from hangar rentals and tie-downs in 2012 is up 4.4% compared to 2011 andaccounted for 6.3% of total Port operating revenues.5

MarinasThe Port Orchard Marina provides 342 permanent slips and up to 90 slips for guest boaters, with afull service fuel dock. During boating season, Port Orchard Marina is about 95% occupied bypermanent residents, with a waiting list for the most popular slip sizes.In 2008, the Bremerton Marina opened as a key piece in the revitalization of the downtownBremerton Harborside District. As a state-of-the art facility, the marina has 220 permanent slips,and room for 100 visiting boaters. Because of the economic downturn, occupancy of the marina,at a high of 40% and a low of 30% in 2012, is significantly below projections. Visiting boaters andplanned weekend events continue to be strong and generate significant revenues during thesummer boating season. A marketing specialist has been engaged by the Port to enhance theprograms in place to attract new permanent moorage tenants to the Bremerton Marina.Marina revenues of 1.6 million accounted for 47% of total 2012 Port operating revenues, amarginal decrease of 1% from 2011. Industrial and Business ParkOlympic View Business and Industrial Parks exist on 587 acres of industrial-zoned land inside theCity of Bremerton. Within these parks, 27 businesses produce about 850 jobs. The Port ownseight buildings and leases a 25,500 square-foot building in the business park, with 100%occupancy in the two parks for most of 2012, significantly above the county average of 85% inKitsap County.Three sites in the Northeast Campus Phase I are ready for lease, and more than 30 acres ofleasable land offer easy access to roads and industrial infrastructure. In late 2012 the Portsubstantially completed construction of the NE Campus Phase 2 project which included an 800foot extension and completion of Cruiser Loop and the development of eight additional pad-readylease sites with full utilities. Construction was funded in large part by a 1.067 million grant fromthe Washington State Department of Commerce. Future buildings constructed on these sites areto provide facilities needed to create family wage jobs.Real estate rental revenues of 1.6 million accounted for 46.9% of total 2012 Port operatingrevenues, 160,000 over 2011.6

Community AccessThe Port operates a number of public-use facilities including parks, boat launches, piers andfacilities for visitor use at the airport and marinas. The Port encourages public activity on Portproperties and participates in numerous public events during the year including festivals, holidayevents and boat shows.Financial Management Information Budgeting ControlsWashington State Law, RCW 53.35.010 through 53.35.040, prescribes procedures for thepreparation of annual budgets by port districts. In July and August each department director ofthe Port of Bremerton prepares a proposed budget to be reviewed with the Chief Financial Officerand Chief Executive Officer. The preliminary budget is provided to the Port Commission forcomments. Final budgets are adopted by the Commission in November for the following calendaryear. The final budget document, that includes amounts to be raised by taxation, is filed with theCounty Treasurer on or before the thirtieth day of November.Budgetary control is maintained at the department level. Monthly departmental financialstatements are produced comparing actual results to budgeted figures. These statements areanalyzed and distributed to the Port Commission and senior management. Adjustments tobudgeted amounts are approved by the Port Commission. The Port continues to diligentlyexamine its budget documents and pare expenses without compromising the appearance,maintenance or safety of its assets, demonstrating stewardship in maintaining public property. Cash Management and InvestmentsThe Commission has appointed the Chief Financial Officer as Treasurer. At December 31, 2012current short-term investments reflect a 50% improvement over 2011. Investments currentlyconsist of participation in the State of Washington Local Government Investment Pool. Allinvestments are highly liquid and are protected against loss through depository and liabilityrestrictions governed by the Washington Public Deposit Protection Commission.7

Financial PoliciesThe Board of Commissioners has been taking a much more aggressive position than in past yearsto assign funds to be used for specific purposes, but are neither restricted nor committed. Ascertain assigned funds are used, the Board has also expressed a desire to reimburse an assignedfund from the unassigned fund balance as part of the next year’s budgeting process. Environmental MattersIn order to identify and minimize environmental liabilities associated with both Port and tenantoperations, the Port is conscientious in using environmental “best practices” in Port developmentand operations.Typically, the environmental regulations that are most applicable to Port and tenant operationstend to be those that focus on the proper storage and handling of hazardous materials, permitteddischarge of waste to storm water and sewer systems, air permits, and remediation of soil andgroundwater contamination from past practices. Although the port’s environmental program isdesigned to ensure compliance with these regulations, in all circumstances, formal regulatoryoversight and enforcement is performed by state and federal agencies, including the WashingtonState Department of Ecology, the U.S. Environmental Protection Agency, and the U.S. Army Corpsof Engineers.Environmental practices at the Port’s marinas, airport and industrial park have earned the highestlevel of recognition in the five-county Puget Sound region’s EnviroStars program. The Port hasdemonstrated leadership in Low-Impact Development practices, incorporating principles of waterinfiltration and pervious surfaces into the design of its road and paving projects. The Port has alsoimplemented an energy efficiency program in 2012. As a result of high EnviroStars ratings, bothPort Orchard and Bremerton marinas are designated as official Washington State Clean Marinas. Internal ControlsIn developing and evaluating the accounting system, consideration is given to the adequacy ofinternal accounting controls. Internal accounting controls are designed to provide reasonableassurance regarding (1) the safeguarding of assets against loss from unauthorized use or8

disposition; and (2) the reliability of financial records for preparing financial statements andmaintaining accountability for assets. The concept of reasonable assurance recognizes that (1)the cost of a control should not exceed the benefits likely to be derived; and (2) the evaluation ofcosts and benefits requires estimates and judgments by management.All internal control evaluations occur within the above framework. We believe the internalaccounting controls adequately safeguard assets and provide reasonable assurance of properrecording of financial transactions. Planning and DevelopmentThe Port continues its planning and development effort of its airport and industrial park assets bymoving forward on infrastructure opportunities. The Port has partnered with the City ofBremerton in creating the South Kitsap Industrial Area (SKIA) Sub-Area Plan, which was completedin late 2012. SKIA is a designated Manufacturing / Industrial Center (MIC) made up of 3,700 acresof land (3,400 acres within the City of Bremerton and 300 acres in Kitsap County) centered on theBremerton National Airport. SKIA is the largest parcel of undeveloped industrial land in KitsapCounty and in the four-county area of King, Kitsap, Pierce and Snohomish counties. In April 2009,the City of Bremerton annexed SKIA doubling the size of the city, with the vision to create thelargest MIC west of the Puget Sound. The SKIA Sub-Area Plan update identifies the Cross-SKIAConnector as critical infrastructure that must be in place for development of the MIC to occur.The City of Bremerton SKIA Planned Action Environmental Impact Study (EIS) plans for this MIC tosupport 6,500 direct family wage jobs, with many more families receiving health benefits andeducation opportunities.The completion of Phase 2-1 of the Cross-SKIA Connector, extending the corridor to anintersection at Old Clifton Road, will open up nearly 200 acres designated for aeronauticalbusinesses within the Port of Bremerton’s boundary. This area has direct access to the runway onflat buildable land. The Connector will serve as the backbone, providing access to air commerceat Bremerton National Airport, rail located in the Olympic View Industrial Park and connectivity tothe regional transportation network. The Cross-SKIA Connector will also provide an alternativefreight route from State Route 3 which is a congested, high accident corridor to regional facilities.Business plan development for the east side of the airport is scheduled to be completed in 2013.Completion of an update of the airport master plan is also scheduled for 2013.Leadership of the Port of Bremerton was joined by the Kitsap Economic Development Alliance andthe community in 2011 to explore new opportunities in the aerospace industry. Discussionscentered on how the Port of Bremerton and SKIA could support the State Department of9

Commerce and Washington Aerospace Partnership’s efforts to compete for the largest advancedmanufacturing economic development opportunity by playing a greater role in the aerospaceindustry (from design to production to supply chain support). As a result of this effort, the KitsapAerospace and Defense Alliance (KADA) was created with the Port taking an active role in itsstrategic plan.The Port of Bremerton received approval from the State of Washington Recreation andConservation Office for its updated Recreational Facilities Plan. The Port will be working with theCity of Port Orchard to produce a Waterfront Master Plan as funds are made available, which willbe the prime document guiding the future development of extensive Port properties on the citywaterfront.AWARDS AND ACKNOWLEDGEMENTS Certificate of AchievementThe Government Finance Officers’ Association of the United States and Canada (GFOA) awards aCertificate of Achievement for Excellence in Financial Reporting to the government entities whichpublish a report which is easily readable and efficiently organized and in which the contentsconform to program standards. Such reports must satisfy both generally accepted accountingprinciples and applicable legal requirements.The Port of Bremerton has been awarded a Certificate of Achievement for Excellence in FinancialReporting for 2010 and 2011. A Certificate of Achievement is valid for a period of one year.We believe that our current comprehensive annual financial report continues to meet theCertificate of Achievement Program’s requirements and we are submitting it to the GFOA todetermine its eligibility for another certificate. AcknowledgementThe preparation of this report on a timely basis could not be accomplished without the efficientand dedicated services of the entire Port staff. The Port realizes its strong financial controls onlythrough the significant contributions of its entire administrative staff. Special recognition needsto be given to the Finance Department staff for their responsibility in providing information toproduce this document.10


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Port of BremertonList of Principal OfficialsAs of December 31, 2012TITLENAMECommissionerLarry StokesCommissionerRoger ZabinskiCommissionerAxel StrakeljahnLegal CouncilGordon WalgrenChief Executive OfficerTim ThomsonChief Financial Officer,Port AuditorBecky SwansonDirector, Business DevelopmentRich PetersonDirector, Airport OperationsFred SalisburyDirector, Marine FacilitiesSteve Slaton13

BremertonMarinaOperations MgrBoard ofCommissionersDirector ofMarine FacilitiesPort OrchardMarina Ops MgrDirector ofBusinessDevelopmentHarborMaintenanceCrewChief ExecutiveOfficerDirector ewPort AttorneyChief FinancialOfficerAccounting StaffExecutiveAssistantAdministrativeOffice Asst14Marina OfficeStaff

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MANAGEMENT’S DISCUSSION AND ANALYSISYears ended December 31, 2012 and 2011INTRODUCTION:This document is the Port of Bremerton’s (Port) Management Discussion and Analysis(MD&A) of financial activities and performance for the calendar years ended December31, 2012 and 2011. It provides an introduction to the Port’s 2012 financial statements.Information contained in this MD&A has been prepared by Port management and shouldbe considered in conjunction with the financial statements and the notes to the financialstatements.The notes are essential to a full understanding of the data contained in the financialstatements. This report also presents certain required supplementary informationregarding capital assets and long-term debt activity during the year, includingcommitments made for capital expenditures.OVERVIEW OF THE FINANCIAL STATEMENTS:The financial section of this annual report consists of three parts: MD&A, the basicfinancial statements, and the notes to the financial statements. The basic financialstatements include: the Statement of Net Position, the Statement of Revenues, Expensesand Changes in Fund Net Position, and the Statement of Cash Flows. This report alsoincludes statistical and economic data and bond information.Analysis of the Statement of Net Position and the Statement of Revenues, Expenses andChanges in Fund Net Position illustrate whether the Port’s financial position hasimproved as a result of the year’s activities. The Statement of Net Position presentsinformation on all of the Port’s assets and liabilities, with the difference between the tworeported as net position. Over time the increases and decreases in net position may serveas an indicator of whether the financial position of the Port is improving or deteriorating.The Statement of Revenues, Expenses and Changes in Fund Net Position reflect how theoperating and non-operating activities of the Port affected changes in the net position ofthe Port. These activities are recorded under the accrual basis of accounting reflectingthe timing of the underlying event regardless of the timing of related cash flows.Although the financial statements provide useful information in assessing the financialhealth of the Port, consideration of other factors not shown on the financial reports shouldbe evaluated to assess the Port’s true financial condition. Factors such as changes in thePort’s tax base and the condition of the Port’s asset base are also important whenassessing the overall financial condition of the Port.18

Government entities typically account for activities by utilizing “fund” accounting. Afund is a grouping of related accounts that is used to maintain control or restrict the use ofresources that have been segregated for specific activities or objectives. The Port usesonly one fund, an enterprise fund, which reports all business type activities of the Port.FINANCIAL ANALYSIS OF THE PORT Port assets exceeded liabilities by 77.9 million at the close of 2012 and by 72.9million in 2011. Of this amount, 63.4 million in 2012 and 62.8 million in 2011are invested in capital assets, net of related debt. The Port’s net assets increased in 2012 over 2011 by 4,768,776 before recordinga prior period adjustment of 291,521, compared to the increase in 2011 of 3,903,324 with a prior period adjustment of (481,891). The 2012 increasereflects the reduction in Port debt. The Port’s long-term debt decreased by 229,731 in 2012 and by 4,264,877 in2011. Both 2012 and 2011 decreases resulted from debt payments on the bondsand loans. Operating revenues for 2012 and 2011 totaled 3,372,277 and 3,342,189respectively. Operating expenses totaled 7,631,111 for 2012 and 7,711,816 for 2011.PORT OF BREMERTON’S CONDENSED STATEMENT OF NET POSITION:Current assetsRestricted assetsNet capital assetsNon-current assetsTotal assetsCurrent liabilitiesLong-term liabilitiesTotal liabilities20122011 12,417,839963,13167,951,7012,969,439 84,302,110 8,242,2952,748,77271,351,01510,209 82,352,291 Net position:Investment in capital assetsRestricted for capital projectsUnrestricted net positionTotal net positionTotal Liabilities and Net 7,540 9,485,390 63,299,314751,32913,876,554 77,927,197 62,712,500842,9489,311,453 72,866,901 84,302,110 82,352,291

PORT OPERATING FINANCIAL ACTIVITY:As noted earlier, the Port uses only one fund

The Port of Bremerton is located in Kitsap County, which has the sixth largest population in the State of Washington. The county population has been steady, with slight growth, during the past decade. Bremerton and Port Orchard are the two largest cities in the Port district. The City of Bre