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Indian River County, Florida Management's Discussion and Analysis For the Year Ended September 30, 2007 We offer readers of the County's financial statements this narrative overview and analysis of the financial activities of the County for the fiscal year ended September 30, 2007. We encourage readers to consider the information presented here, in conjunction with additional information that we have furnished in our letter of transmittal, which can be found on pages i -v of this report. All amounts, unless otherwise indicated, are expressed in millions of dollars. Financial Highlights • The County's overall financial position improved over 2006. • The assets of the County exceeded its liabilities at the close of the most recent fiscal year by $914.2 million (net assets). Of this amount, $108.1 million (unrestricted net assets) may be used to meet the government's ongoing obligations to citizens and creditors. • The government's total net assets increased by $61.3 million. Governmental activities accounted for 83% of this increase. Interest income of $16.0 million in government activities and $9.2 million in business -type activities together represented 41% of the $61.3 million increase. The water and sewer capital contribution revenue declined substantially from $26.5 million in 2006 to $9.7 million in 2007, reflecting a considerable slowdown in the construction industry. • As of the close of the current fiscal year, the County's governmental activities reported combined ending net assets of $608.5 million, an increase of $50.6 million in comparison with the prior year. Of the $608.5 ending net assets, 10% or $60.7 million, is unrestricted net assets. • At the end of the current fiscal year, unreserved, undesignated fund balance for the general fund alone was $50.3 million. The remaining balance of unreserved funds pertained to the insurance internal service fund. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the County's basic financial statements. The County's basic financial statements are composed of three elements: 1) government - wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government -wide financial statements The government -wide financial statements are designed to provide readers with a broad overview of the County's finances, in a manner similar to a private -sector business. The statement of net assets presents information on all of the County's assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the County is improving or deteriorating. 3