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ITEM NO.: 7a_Attach_1 DATE OF MEETING: March 12, 2013 PORT OF SEATTLE 2012 FINANCIAL & PERFORMANCE REPORT AS OF DECEMBER 31, 2012 TABLE OF CONTENTS Page I. Portwide Performance Report 3-5 II. Aviation Division Report 6-13 III. Seaport Division Report 14-19 IV. Real Estate Division Report 20-25 V. Capital Development Division Report 26-29 VI. Corporate Division Report 30-32 2 I. PORTWIDE FINANCIAL & PERFORMANCE REPORT 12/31/12 EXECUTIVE SUMMARY Financial Summary The Port's total operating revenues for 2012 were $521.6 million, $4.8 million above budget. Aeronautical revenues were $233.1 million, $3.1 million below budget. Other operating revenues were $288.5 million, $7.9 million higher than budget primarily due to higher revenues from Rental Cars, Concessions, Container, Cruise, and Seaport Industrial Properties, partially offset by lower revenues from Public Parking, Grains, and Third Party Management. Total operating expenses were $298.0 million, $11.9 million below budget mainly due to delay hiring, vacant positions, delays and savings of outside contracted services, and delay in airline terminal realignment. Operating income before depreciation was $233.7 million, $16.6 million above budget. Operating income after depreciation was $56.4 million, $7.8 million higher than budget. The Port-wide capital spending was $117.8 million for 2012, $52.1 million below the budgeted $169.9 million. Operating Summary At the Airport, we had a record 33.2 million passengers. Enplanements were 1.2% higher even though the landed weight was 1.1% lower than 2011. International enplaned passengers attained greater growth (8.8% vs. 2011) than domestic enplanements (0.5% vs. 2011). For the Seaport division, TEU volume was down 8.1% from 2011. Grain volume was at 3.2 million metric tons, 37% below 2011 volumes and 43% below budget. For the Real Estate division, occupancy levels at Commercial Properties were at 91%, above the target of 90% and Seattle market average of 88%. Fishermen's Terminal and Maritime Industrial Center were at 74% occupancy, below target of 84%. Recreational Marinas was at 93% occupancy, slightly below target of 94%. Key Business Events We completed outreach to over 60 groups reaching about 1000 individuals for Century Agenda. The Port was selected as one of only 15 employers across the country to receive the 2012 Secretary of Defense Employer Support Freedom Award. We issued the IDC Special Facilities Revenue Refunding Bonds, Series 2012 in the amount of $66,025,000 for the purpose of refunding the 2001 bonds. We completed Memorandum of Agreement with Sound Transit for extension of light rail to South 200th Street. All Nippon Airways (ANA) of Japan launched service to Tokyo in the third quarter. Delta Air Lines announced expanded international service routes. The 2012 cruise season set a new record of 934,900 passengers and 202 sailings. We executed a seven-year lease extension for operation of cruise terminals. Commission approved the sale of a portion of the Eastside Rail Corridor to King County, and we closed sale of the 5.75 mile segment with City of Kirkland in April. Shilshole Bay Marina celebrated its 50th anniversary in September. Major Capital Projects We completed and opened the consolidated Rental Car Facility. Agreement with Alaska Airlines was reached on NorthSTAR project approach and procured program/project management and design consultants to begin project. We also completed Terminal 18 Pilot Pile Cap Repair Project, Terminal 46 Transformer Project, and 2012 portion of 8th floor parking garage waterproofing project. Other key projects for 2012 were Zone 2 and Zone 3 abatement for the Delta lobby/ Airline Ticket Office (ATO), Credential Center remodel, FIMS II (Flight Information Management Systems) installation, Airline realignment, Passenger Loading bridge replacement, Common use gate installations, and Electrical Ground Support Equipment (EGSE) charging stations. Loading bridge utilities project was extended due to addition to scope. For the Terminal Escalator Project, thirty-nine out of forty-four units turned over for beneficial occupancy in 2012, nine of which occurred in the fourth quarter of 2012. Final construction on the Terminal 91 Water Main Replacement was complete and the East Marginal Way Grade Separation (EMWGS) lane configuration agreement was reached with Seattle Department of Transportation. 3 I. PORTWIDE FINANCIAL & PERFORMANCE REPORT 12/31/12 INCOME STATEMENT Report: Income Statement As of Date: 2012-12-31 2011 2012 2012 Budget Variance Change from 2011 $ in 000's Actual Actual Budget $ % $ % Revenues: Aviation 350,659 386,058 385,751 306 0.1% 35,398 10.1% Seaport 98,661 103,181 98,151 5,030 5.1% 4,520 4.6% Real Estate 32,214 31,937 32,828 (891) -2.7% (277) -0.9% Capital Development 79 32 - 32 0.0% (47) -59.1% Corporate 1,559 444 151 293 193.4% (1,115) -71.5% Total Revenues 483,172 521,652 516,882 4,770 0.9% 38,480 8.0% Operating & Maintenance: Aviation 135,612 156,112 160,969 4,857 3.0% 20,500 15.1% Seaport 16,090 19,283 20,408 1,125 5.5% 3,193 19.8% Real Estate 33,270 35,469 36,416 947 2.6% 2,200 6.6% Capital Development 11,026 13,966 15,516 1,549 10.0% 2,940 26.7% Corporate 71,418 73,140 76,535 3,395 4.4% 1,721 2.4% Total O&M Costs 267,416 297,970 309,844 11,873 3.8% 30,554 11.4% Operating Income Before Depreciation 215,756 223,682 207,039 16,643 8.0% 7,926 3.7% Depreciation 158,107 167,279 158,479 (8,800) -5.6% 9,172 5.8% Operating Income after Depreciation 57,649 56,403 48,560 7,843 16.2% (1,247) -2.2% IMPORTANT NOTE: All the numbers in the table above are on an Org basis while the actual numbers for the operating divisions are on a Subclass basis. 4 I. PORTWIDE FINANCIAL & PERFORMANCE REPORT 12/31/12 KEY PERFORMANCE METRICS 2011 2012 2012 Budget Variance Change from 2011 Actual Actual Budget Var. Var. % Chg. % Enplanements (in 000's) 16,397 16,597 16,650 (53) -0.3% 200 1.2% Landed Weight (lbs. in 000's) 20,123 19,897 20,444 (547) -2.7% (226) -1.1% Passenger CPE (in $) 11.76 13.17 13.25 (0.08) -0.6% 1.4 12.0% Container Volume (TEU's in 000's) 2,034 1,869 2,000 (131) -6.6% (165) -8.1% Grain Volume (metric tons in 000's) 5,027 3,161 5,500 (2,339) -42.5% (1,866) -37.1% Cruise Passenger (in 000's) 886 935 881 54 6.1% 49 5.5% Commercial Property Occupancy 90% 91% 90% 1% 1.1% 1.0% 1.1% Shilshole Bay Marina Occupancy 95.5% 94.3% 95.5% -1.2% -1.2% -1.2% -1.3% Fishermen's Terminal Occupancy 78.2% 74.0% 84.3% -10.3% -12.2% -4.2% -5.3% CAPITAL SPENDING RESULTS 2012 2012 Approved Budget Plan of Division Actual Budget Variance Finance ($ in millions) Aviation 100.3 135.4 35.1 261.9 Seaport 10.8 15.5 4.7 25.7 Real Estate 2.4 7.3 4.9 10.9 Corporate & CDD 4.2 11.7 7.5 12.0 Total 117.8 169.9 52.2 310.5 PORTWIDE INVESTMENT PORTFOLIO The investment portfolio for fourth quarter of 2012 earned 0.76% against our benchmark (The Bank of America Merrill Lynch 3-year Treasury/Agency Index) of 0.26%.For the past twelve months the portfolio has earned 1.02% against the benchmark of 0.31%. Since the Port became its own Treasurer in 2002, the Port's portfolio life-to-date has earned 3.17% against our benchmark of 2.24%. 5 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/12 FINANCIAL SUMMARY 2011 2012 2012 Budget Variance Change from 2011 $ in 000's Actual Actual Budget $ % $ % Operating Revenues Aeronautical 207,763 233,112 236,221 (3,108) - n/a -1.3% 25,350 12.2% Non-Aeronautical 142,959 152,960 149,531 3,429 - n/a 2.3% 10,001 7.0% Total Operating Revenues 350,722 386,072 385,751 321 0.1% 35,350 10.1% Expenses: Operating Expenses 190,442 211,235 221,981 10,746 4.8% 20,794 10.9% Environmental Remediation Liability 1,428 5,321 3,096 (2,224) -71.8% 3,893 272.7% Total Operating Expenses 191,869 216,556 225,078 8,522 3.8% 24,687 12.9% Net Operating Income 158,853 169,516 160,674 8,842 5.5% 10,663 6.7% Capital Spending 166,820 100,305 135,419 35,114 25.9% (66,515) -39.9% Aeronautical revenues are lower than budget due to delay in airline realignment expenses and lower operating costs, offset by unbudgeted litigated claims and increases in environmental remediation liabilities. Non-Aeronautical revenues are higher than budget due to strong performance in concessions, the rental car facility (RCF), in-flight kitchen services and electrical energy revenue, offset by lower than anticipated public parking revenues. Operating expenses are lower than budget due to delays in timing of the airline realignment project, delays in hiring and vacancies, savings and delays in contracted services, offset by increases in environmental remediation liabilities and unbudgeted litigated claims. Capital project spending is $100.3 million, of which $17.1 million is accounted for as public expense. A. BUSINESS EVENTS Rental Car Facility (RCF) and Bus Maintenance Facility (BMF) opened in May. Airlines realignment in progress. All Nippon Airways (ANA) of Japan launched service to Tokyo in Q3. Delta Air Lines announced expanded international service routes. B. KEY PERFORMANCE INDICATORS 2011 2012 % 2012 2012 % Figures in 000's Actual Actual Variance Actual Budget Variance Enplanements 16,397 16,597 1.2% 16,597 16,650 -0.3% Landed Weight 20,123 19,897 -1.1% 19,897 20,444 -2.7% International enplaned passengers in 2012 had higher growth (8.8% vs. 2011) than domestic enplanements (0.5% vs. 2011). Total landed weight in 2012 experienced negative growth (-1.1% vs. 2011). Total international air freight cargo in metric tons in 2012 experienced slight growth (.15% vs. 2011), and domestic air freight cargo in metric tons experienced moderate growth (1.94% vs. 2011). 6 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/12 Key Performance Measures 2011 2012 2012 Budget Variance Change from 2011 Actual Actual Budget $ % $ % Key Measures: Non-Aero NOI less CFC Surplus ($ in 000's) 80,841 79,837 75,079 4,758 6.3% (1,005) -1.2% Passenger Airline CPE 11.76 13.17 13.25 0.08 0.6% 1.41 12.0% Debt / Enplaned Passenger 161.5 152.7 152.2 0.49 0.3% (8.80) -5.4% Debt Service Coverage 1.44 1.40 1.34 0.06 4.5% (0.04) -2.8% CPE is under budget due primarily to delayed savings in airline realignment expenses and lower operating costs, offset by unbudgeted litigated claims and increases in environmental remediation liabilities. Debt service coverage is higher than budget due to debt service savings from refunding and lower variable rate interest costs, and higher net operating income than anticipated. C. OPERATING RESULTS Division Summary 2011 2012 2012 Budget Variance Change from 2011 $ in 000's Actual Actual Budget $ % $ % Aeronatical Revenues 207,763 233,112 236,221 (3,108) -1.3% 25,349 12.2% Non-Aeronautical Revenues 142,959 152,960 149,531 3,429 2.3% 10,001 7.0% Total Operating Revenues 350,722 386,072 385,751 321 0.1% 35,350 10.1% Operating Expenses: Salaries & Benefits 80,012 89,749 93,871 4,122 4.4% 9,738 12.2% Outside Services 25,224 29,107 37,404 8,297 22.2% 3,884 15.4% Utilities 13,202 13,671 12,458 (1,213) -9.7% 470 3.6% Other Airport Expenses 15,748 18,263 14,138 (4,125) -29.2% 2,515 16.0% Baseline Airport Expenses 134,185 150,791 157,873 7,081 4.5% 16,607 12.4% Environmental Remediation Liability 1,428 5,321 3,096 (2,224) -71.8% 3,893 272.7% Total Airport Expenses 135,612 156,112 160,969 4,857 3.0% 20,500 15.1% Corporate 32,407 34,244 35,566 1,322 3.7% 1,837 5.7% Police Costs 15,804 16,075 16,964 889 5.2% 271 1.7% Capital Development/Other Expenses 8,046 10,125 11,579 1,453 - 12.6%n/a 2,079 - #DIV/0!25.8% Total Operating Expenses 191,869 216,556 225,078 8,522 3.8% 24,687 - #DIV/0!12.9% NOI Before Depreciation 158,853 169,516 160,674 8,842 5.5% 10,663 6.7% Depreciation Expense 116,762 122,600 117,072 (5,528) -4.7% 5,838 5.0% NOI After Depreciation 42,091 46,916 43,602 3,314 7.6% 4,825 1.7% Selected Non-Operating Rev/(Exp): Capital Grants & Donations 19,565 20,898 28,982 (8,084) -27.9% 1,333 6.8% Non-Capital Grants & Donations 1,463 1,000 1,479 (480) -32.4% (463) -31.7% Passenger Facility Charges (PFC) 62,358 62,385 63,448 (1,063) -1.7% 27 0.0% Customer Facility Charges (CFC) 23,669 20,577 21,333 (756) -3.5% (3,093) -13.1% Aeronautical revenues are lower than budget by $3.1 million due to delay in airline realignment expenses and lower operating costs, offset by unbudgeted litigated claims and increases in environmental remediation liabilities. 7 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/12 Non-aeronautical revenues are higher than budget by $3.4 million: o Concessions revenue is higher than budget by $2.3 million, or 6.5% due primarily to higher growth in primary concessions sales per enplaned passenger than anticipated of 4.7%. o Rental car revenues are higher than budget by $2.4 million, or 6.8% due to unbudgeted rental car space rents in garage and higher customer facility charge (CFC) operating revenue from higher transactions days than anticipated. o Commercial property revenue is higher than budget by $728.4K, or 14.7% due to strong demand for in-flight kitchen services driven primarily by increased international passenger traffic. o Utility revenue is higher than budget by $403.2K, or 5.9% due primarily to increase in metered electricity. o Public parking revenue is lower than budget by $2.7 million, or 5.1% due primarily to lower total garage transactions than anticipated. Operating expenses are lower than budget by $8.5 million due to the net of the following: Positive Variance of $17.0 million: Negative Variance of $8.5 million: Delays and savings in expenditure of contracted services $3.7M Unbudgeted 2012 SLOA security fund true-up $2.0M Delays in airline realignment expenses $2.3M Environmental remediation liabilities $1.3M RCF delayed opening savings $2.0M Litigated injury claims $1.3M Salary, wage and benefit savings $2.0M Snow event materials, services and labor $1.3M Delayed hiring and vacant positions $1.0M Maintenance material supplies $755.6K Corporate/CDD allocated expenses $3.7M Surface water discharge treatment $741.4K Division contingency funds not utilized $600.0K Equipment repair and maintenance $725.9K Other Aviation Division variances $1.7M B&O taxes due to higher revenues $369.2K 8 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/12 Aeronautical Business Unit Summary 2011 2012 2012 Budget Variance Change from 2011 $ in 000's Actual Actual Budget $ % $ % Operating Costs Baseline 131,898 137,161 141,257 4,097 2.9% 5,262 4.0% Airline Realignment 61 5,934 8,200 2,266 27.6% 5,873 9677.1% Regulated Materials 1,124 4,040 2,072 (1,969) -95.0% 2,916 259.4% Total Operating Costs 133,083 147,135 151,529 4,394 2.9% 14,052 10.6% Capital Costs Amortization on new assets 1,400 2,147 2,147 - 0.0% 747 53.3% Debt service on new assets - 3,997 3,997 - 0.0% 3,997 n/a Existing amortization and debt service 80,106 85,928 85,732 (195) -0.2% 5,821 7.3% Total amortization and debt service 81,507 92,072 91,876 (195) -0.2% 10,565 13.0% Total Costs 214,590 239,207 243,405 4,198 1.7% 24,617 11.5% Other FIS Offset (7,000) (8,000) (8,000) - 0.0% (1,000) 14.3% Other Revenues 15,590 15,229 15,711 481 3.1% (361) -2.3% Other Offsets (15,417) (13,324) (14,895) (1,571) 10.6% 2,093 -13.6% Total Other Costs (6,827) (6,094) (7,184) (1,090) 15.2% 732 -10.7% Total Aero Revenues 207,763 233,112 236,221 3,108 1.3% 25,349 12.2% Less: Non-passenger Airline Costs 14,944 14,477 15,390 913 5.9% (467) -3.1% Net Passenger Airline Costs 192,819 218,635 220,831 2,196 1.0% 25,816 13.4% 2011 2012 2012 Budget Variance Change from 2011 Actual Actual Budget $ % $ % Cost Per Enplanement: Baseline Costs / Enpl 8.04 8.26 8.48 0.22 2.6% 0.22 2.7% Airline Realignment / Enpl 0.00 0.36 0.49 0.13 27.4% 0.35 9559.4% Regulated Materials / Enpl 0.07 0.24 0.12 (0.12) -95.7% 0.17 255.1% Capital Costs / Enpl 4.97 5.55 5.52 (0.03) -0.5% 0.58 11.6% Offsets / Enpl (1.37) (1.28) (1.38) (0.09) 6.7% 0.08 -6.0% Other Aero Revenues 0.95 0.92 0.94 0.02 2.2% (0.03) -3.5% Non-passenger Airline Costs (0.91) (0.87) (0.93) (0.05) 5.9% 0.04 -4.3% Passenger Airline CPE 11.76 13.17 13.25 0.08 0.6% 1.41 12.0% Operating costs are $4.4 million lower than budget due to delayed savings in airline realignment expenses, delayed hiring and vacant positions and savings and delays in expenditure of contracted services, offset by unbudgeted litigated claims, increases in environmental remediation liabilities, unbudgeted 2011 retro contractual increase in airfield security, higher surface water discharge and higher electricity usage. Yearover-year operating costs increases are due to airline realignment, additional maintenance FTEs, contractual increases for labor and outside services, salary and benefit increases, environmental remediation liabilities and other aeronautical initiatives. Year-over-year capital cost increases can be attributed to the beginning of principal payments for bond issue 2005A in 2012 primarily servicing the north expressway relocation, runway 16L/34R reconstruction, comprehensive storm water management plan and the 4th floor public parking garage improvements. 9 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/12 Non-Aero Business Unit Summary 2011 2012 2012 Budget Variance Change from 2011 $ in 000's Actual Actual Budget $ % $ % Non-Aero Revenues Rental Cars 29,969 28,288 26,580 1,708 6.4% (1,680) -5.6% CFC Operating Revenues (RCF) i 778 ii 9,745 8,576 1,169 13.6% 8,967 1153.2% RCF Reimbursable Revenue - 38 477 (439) -92.0% 38 n/a RCF Subtotal 30,746 38,072 35,633 2,438 6.8% 7,325 23.8% Public Parking 49,996 49,781 52,480 (2,699) -5.1% (215) -0.4% Ground Transportation 7,704 7,900 7,519 380 5.1% 196 2.5% Concessions 35,404 37,974 35,659 2,315 6.5% 2,570 7.3% Other 19,109 19,234 18,240 994 5.5% 126 0.7% Total Non-Aero Revenues 142,959 152,960 149,531 3,429 2.3% 10,001 7.0% RCF Operating Expense 852 6,196 8,150 (1,954) -24.0% 5,344 627.3% Operating Expense 58,692 64,742 66,490 1,748 2.6% 6,050 10.3% Share of terminal O&M 17,610 18,366 18,698 332 1.8% 756 4.3% Less utility internal billing (18,369) (19,883) (19,789) 94 -0.5% (1,514) 8.2% Net Operating & Maint 58,786 69,421 73,549 4,128 5.6% 10,635 18.1% Net Operating Income 84,173 83,539 75,982 7,557 9.9% (634) -0.8% Adjusted Net Operating Income: Non-Aeronautical NOI 84,173 83,539 75,982 7,557 9.9% (634) -0.8% Less: CFC Surplus (3,331) (3,702) (903) (2,799) 310.0% (371) 11.1% Adjusted Non-Aero NOI 80,841 79,837 75,079 4,758 6.3% (1,005) -1.2% 2011 2012 2012 Budget Variance Change from 2011 Actual Actual Budget $ % $ % Revenues Per Enplanement Parking 3.05 3.00 3.15 (0.15) -4.8% (0.05) -1.6% Rental Cars (excludes CFCs) 1.83 1.70 1.60 0.11 6.8% (0.12) -6.7% Ground Transportation 0.47 0.48 0.45 0.02 5.4% 0.01 1.3% Concessions 2.16 2.29 2.14 0.15 6.8% 0.13 6.0% Other 1.21 1.75 1.64 0.11 6.7% 0.54 44.2% Total Revenues 8.72 9.22 8.98 0.24 2.6% 0.50 5.7% Primary Concessions Sales / Enpl 10.30 10.91 10.42 0.49 4.7% 0.61 5.9% 2011 2012 2012 Budget Variance Change from 2011 $ in 000's Actual Actual Budget $ % $ % Operating CFC Revenues 778 9,745 8,576 1,169 13.6% 8,967 1153.2% Non-Operating CFC Revenues i 23,669 ii 20,577 21,333 (756) -3.5% (3,093) -13.1% Total CFC Revenues 24,447 30,322 29,909 412 1.4% 5,875 24.0% * CFC operating revenue accounting methodology changed in 2012 compared to 2011: i. In 2011, the non-operating CFC revenues reported as operating CFC revenues are equal to RCF related operation and maintenance expenses. ii. In 2012, the non-operating CFC revenues equal debt service payments with any remaining amount reported as operating CFC revenues to pay for rental car facility operation and maintenance expenses. Non-Aeronautical revenues are higher than budget due to additional rental car concession rents in garage and delay of land rent credits issued from RCF delayed opening, higher CFC operating revenue from increase in rental car transaction days and strong concessions revenue sales performance in food and beverage, retail, duty free and in-flight kitchen services, offset by decreases in public parking revenues due to total garage 10 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/12 transactions lower than budget by 1.9% lead primarily by "1-4 days" transactions, which are lower than budget by 2.8%. In addition, there is $388.0K of lost public parking revenue due to a credit card system data processing error. Operating and maintenance costs are lower than budget due primarily to savings from delayed opening of rental car facility (RCF), delay in hiring and vacancies and savings and delays in expenditure of contracted services. Year-over-year costs increases are due to opening of the RCF and BMF, contractual increases for labor and outside services, salary and benefit increases an environmental remediation liabilities. Total CFC revenues are higher than budget due to better than anticipated rental car transaction days, which exceed budget by 2.2%. CFC transaction day rate increase from $5.00 to $6.00 effective February 1, 2012. Year-over-year total CFC revenues, operating plus non-operating, are higher due to the aforementioned rate increase and higher rental car transaction days, which exceed 2011 by 4.3%. Net Cash Flow: NOI after Debt Service and Interest Income 2011 2012 2012 Budget Variance Change from 2011 $ in 000's Actual Actual Budget $ % $ % Aeronautical Net Operating Income (NOI) 74,679 85,977 84,692 1,285 1.5% 11,298 15.1% Net Debt Service 71,096 77,922 77,726 (196) -0.3% 6,826 9.6% Aero NOI After Debt Service 3,584 8,056 6,966 1,090 15.6% 4,472 124.8% Non-Aeronautical Net Operating Income (NOI) 84,173 83,539 75,982 7,557 9.9% (634) -0.8% Net Debt Service 40,845 43,166 45,390 2,225 4.9% 2,321 5.7% Non-Aero NOI After Debt Service 43,328 40,373 30,592 9,782 32.0% (2,955) -6.8% Total Aviation NOI 158,853 169,516 160,674 8,842 5.5% 10,663 6.7% Net Debt Service 111,940 121,087 123,116 2,029 1.6% 9,147 8.2% NOI After Debt Service 46,912 48,429 37,557 10,872 28.9% 1,516 3.2% Add ADF Interest Income 4,771 3,215 3,771 (556) -14.7% (1,556) -32.6% Add Non-Operating TSA Grant 1,035 919 1,479 (560) -37.9% (116) -11.2% Net Cash Flow after D/S & Interest Inc. 52,718 52,563 42,808 9,755 22.8% (155) -0.3% 2012 net cash flow is higher than budget by $9.8 million and down $155K from 2011. NOI is higher than budget by $8.8 million due to lower operating costs. Aeronautical net debt service is slightly higher than budget by $196.0K due to $2.2 million of debt service reallocations from non-aeronautical debt service and lower debt service, offset by debt service savings from refunding and lower variable rate interest costs. Non-aeronautical net debt service is lower than budget by $2.0 million due to debt service savings from refunding, lower variable rate interest costs and reallocation of debt service to aeronautical. Year-over-year capital cost increases can be attributed to the beginning of principal payments for bond issue 2005A in 2012 and lower passenger facility charge (PFC) offset to debt service. 11 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/12 D. CAPITAL RESULTS Capital Variance $ in 000's 2011 2012 2012 Actual/Budget Description Actual Actual Budget Variance % Rental Car Facility Construction 84,363 19,402 29,778 10,376 34.8% Gate Utilities Improvements - 195 5,750 5,555 96.6% FIMS Phase II - 2,210 6,450 4,240 65.7% GSE Electrical Chrg Stations - 2,331 6,025 3,694 61.3% All Other 82,457 76,167 87,416 11,249 12.9% Total Capital Spending 166,820 100,305 135,419 35,114 25.9% Less RCF Charged to Public Expense - 17,112 - (17,112) n/a Net Capital Spending 166,820 83,193 135,419 52,226 38.6% RCF savings are now being recognized as the project is closed. Includes approximately $17.1M related to off-site roadway improvements transferred to public expense. Gate utilities project was delayed due to addition of scope which moved construction and corresponding contractor payments out to 2013. FIMS Phase II has been delayed but is projected to be completed in 2013. Electrical GSE has been delayed due to a change in scope. 2013 - 2017 Capital and Funding Plan Future 2013-2017 Revenue $ in 000's Total Bonds Budget 1,454,153 875,308 Forecast 1,330,337 751,492 Decrease (123,816) (123,816) 2012 Annual Budget Changes $ in 000's 2012 Description Spending Single Family Home Sound Insul 1,391 SSAT HVAC,Lights,Ceiling Repl 541 New Window Wall Ticket Zone 1 533 Convert Ticket Zone 3 FlowThru 525 Rubber and Paint Removal Equip 493 NS NorthSTAR Program 492 Port-Owned Loading Bridge R&R 428 CUSS at Common Use Tkt Ctr Fac 420 Other 2,408 Total 7,231 12 II. AVIATION DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/12 Future 2013 Authorization Requests Future 2013 Authorization Requests: South Access Property Acquisition Parking Garage Light Retrofit Replace Passenger Landing Bridges at B7, B9 & S8 Access Control System Refresh Purchase/Replacement of Passenger Landing Bridges at B6 ,B8, B14 Federal Inspection Services - Long Term Project Radio System Upgrade (800MHz) Air Cargo Rd Safety Imp D/C NS Main Terminal Improvements Fiber Infr to Gate Backstands Security Checkpoint Wayfinding Renew/Repl Emer Power Switches Concourse D Roof Replacement Part 150 (Airport Noise Compatibility Planning) 13 III. SEAPORT DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/12 FINANCIAL SUMMARY 2011 2012 2012 Budget Variance Change from 2011 $ in 000's Actual Actual Budget $ % $ % Revenues: Operating Revenue 98,910 101,647 96,980 4,667 5% 2,737 3% Security Grants 394 2,226 1,598 628 39% 1,831 464% Total Revenues 99,304 103,872 98,578 5,294 5% 4,568 5% Total Operating Expenses 38,463 44,613 46,536 1,923 4% 6,150 16% Net Operating Income 60,842 59,260 52,042 7,217 14% (1,582) -3% Capital Expenditures 18,837 10,841 15,496 4,655 30% (7,996) -42% Total Seaport revenues were $5.3 million favorable to budget with all businesses exceeding 2012 Budget except for the grain terminal which was down due to market conditions. Total Operating Expenses were $1.9 million favorable to budget due to postponements in implementing initiatives and below budget Corporate and CDD expenses. Favorable variances were partially offset by above budget Security Grant expenses. Net Operating Income for 2012 was $7.2 million favorable to budget and ($1.6) million below 2011 Actual. Total capital spending for 2012 was $10.8 million or 70% of the Approved Annual Budget. A. BUSINESS EVENTS TEU volumes for the Seattle Harbor were down 8.1% in 2012, compared to 2011 levels. 2012 volume is 1,869,492 TEUs. 2012 full inbound TEUs were down 5.0%, full outbound TEUs were down 10.1%, empty inbound TEUs were down 7.8%, and empty outbound TEUs were down 13.9%. Consolidated West Coast Port results for 2012 showed an overall increase in TEU volume of 2.4% compared to volumes in 2011. TEU Volume (in 000's) 2012 2011 TEU Change % Change Long Beach 6,046 6,061 (15) -0.3% Los Angeles 8,078 7,941 137 1.7% Oakland 2,344 2,343 2 0.1% Portland 183 198 (15) -7.6% Prince Rupert 565 410 154 37.6% Seattle 1,869 2,034 (164) -8.1% Tacoma 1,711 1,476 235 15.9% Vancouver 2,713 2,507 206 8.2% West Coast - Totals: 23,510 22,969 540 2.4% Executed lease amendment with Total Terminals International at Terminal 46 to extend lease to 2025. The 2012 cruise season ended on September 30th. A new Seattle cruise passenger record was set with 934,900 passengers and 202 sailings. Executed 7 year lease extension with Cruise Terminals of America for operation of cruise terminals. Grain vessels shipped 3,161K metric tons of grain through Terminal 86 in 2012. Amount was (37%) below 2011 volumes and (43%) unfavorable to 2012 Budget volume due to market conditions. 14 III. SEAPORT DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/12 Completed major work: Port and BNSF Railway land exchange at Terminal 5. This agreement was originally negotiated via a Memorandum of Agreement dated 1994. Dock condition assessments at Terminals 25, 30 and Pier 66. Terminal 18 Pile Cap Pilot project. East Marginal Way Grade Separation project. Environmental: 57% of frequent vessel calls meeting Northwest Ports Clean Air Standards target. 2011 Puget Sound Maritime Emission Inventory was published showing an overall reduction in diesel particulate matter of 27%. Recovered $3.2 million in environmental clean-up costs including $1.2 million in grant receipts and $2.0 million in proceeds from insurance. T117 grant amendment increased clean-up funds available for future years by $1.8M. The grant increased from $1.5M to $3.3M. 15 III. SEAPORT DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/12 B. KEY INDICATORS Container Volume TEU's in 000's 2,500 2,000 1,500 2011 Actuals 2012 Budget 1,000 2012 Actuals 500 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Grain Volume Metric Tons in 000's 6,000 5,000 4,000 2011 Actuals 3,000 2012 Budget 2,000 2012 Actuals 1,000 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Cruise Passengers in 000's 1,000 800 600 2011 Actuals 400 2012 Budget 200 2012 Actuals 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Net Operating Income Before Depreciation By Business $ in 000's 2011 2012 2012 2012 Bud Var Change from 2011 Actual Actual Budget $ % $ % Containers 44,789 44,589 38,740 5,848 15% (201) 0% Grain 4,439 2,474 4,732 (2,258) -48% (1,965) -44% Seaport Industrial Props 5,301 6,347 5,303 1,044 20% 1,046 20% Cruise 7,605 7,031 5,422 1,608 30% (574) -8% Docks (1,082) (346) (1,244) 898 72% 736 68% Security (843) (808) (912) 104 11% 36 4% Env Grants/Remed Liab/Oth 633 (27) 0 (27) NA (660) -104% Total Seaport 60,842 59,260 52,042 7,217 14% (1,582) -3% 16 III. SEAPORT DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/12 C. OPERATING RESULTS 2011 2012 2012 Budget Variance Change from 2011 $ in 000's Actual Actual Budget $ % $ % Operating Revenue 98,910 101,647 96,980 4,667 5% 2,737 3% Security Grants 394 2,226 1,598 628 39% 1,831 464% Total Revenues 99,304 103,872 98,578 5,294 5% 4,568 5% Seaport Expenses (excl env srvs) 12,898 13,601 15,236 1,634 11% 703 5% Environmental Services 2,127 2,212 2,289 77 3% 85 4% Maintenance Expenses 4,608 6,049 5,817 (232) -4% 1,441 31% P69 Facilities Expenses 506 532 531 (1) 0% 25 5% Other RE Expenses 180 233 300 67 22% 53 30% CDD Expenses 3,539 4,249 4,388 139 3% 709 20% Police Expenses 3,578 3,949 4,167 218 5% 371 10% Corporate Expenses 11,177 11,535 12,332 798 6% 358 3% Security Grant Expense 481 2,227 1,476 (751) -51% 1,745 363% Envir Remed Liability (633) 26 0 (26) NA 659 104% Total Expenses 38,463 44,613 46,536 1,923 4% 6,150 16% NOI Before Depreciation 60,842 59,260 52,042 7,217 14% (1,582) -3% Depreciation 31,172 34,842 31,713 (3,129) -10% 3,670 12% NOI After Depreciation 29,670 24,418 20,330 4,088 20% (5,252) -18% Seaport revenues were $5,294K favorable to budget. Key variances are as follows: Seaport Lease & Asset Management - favorable $2,523K Containers $4,094K favorable. Space Rental favorable $2,133K due to refunding of Terminal 18 Special Facility Bonds $9,331K largely offset by adjustment of GAAP Straight Line rental revenue by ($7,755K) due to transition to a new container terminal lease structure effective in 2013. Crane Rent Revenue $2,064K favorable due to delays in certification of SSA owned cranes at Terminal 18 $505K and above budget tariff crane usage at Terminal 5 $1,591K. Grain ($2,340K) unfavorable due to volume coming in (43%) unfavorable to budget. Seaport Industrial Properties $768K favorable due to the higher than anticipated concession rent and utility revenue at T91, higher liquid bulk volume from molasses at T18 Bulk Terminals, unbudgeted new tenants at various sites and due to unbudgeted amortization of lease termination revenue from Terminal 106. Cruise and Maritime Operations - favorable $2,737K Cruise $1,226K favorable primarily due to record cruise passenger volumes. 2012 cruise season average passenger occupancy of 110% compared to standard double occupancy per cabin. Maritime Operations Docks $883K favorable primarily due to higher moorage occupancy than budgeted, unbudgeted increase in preferential use rate and payment of minimum guaranteed moorage by Terminal 91 preferential use customers. Wharfage revenue also exceeded budget due to higher than normal unloading of fish. Security Grants $628K favorable due to pass-thru grants primarily involving the Port of Everett. Total Seaport Division Expenses were $1,923K favorable to budget. Key variances: Seaport Expenses (excluding Environmental Services) were $1,634K favorable to budget. Major account variances were as follows: Salaries & Benefits were $190K favorable due to partial year open positions in Division Administration, Commercial Strategies, and Seaport Finance. Equipment Expenses were ($166K) unfavorable primarily due to unbudgeted furniture and equipment acquisitions related to the Cruise CTA lease allowance. 17 III. SEAPORT DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/12 Outside Services were $1,768K favorable due to Terminal 18 Pile Cap project $700K which was performed internally by CDD staff and due to Terminal 18 pile cap upgrade project $500K which was determined to qualify for capitalization and was also deferred so that work could proceed on Terminal 46. Terminal 5 phase II maintenance dredging $390K was delayed and some costs were incurred by CDD. Amounts budgeted to pay for potential repairs for T46 cranes and for a T91 slope stabilization survey were not needed and less was spent on transportation issues and the RFID project than budgeted. Amounts were slightly offset by outside legal expenses that had been mistakenly charged against the Terminal 5 BNSF Land Exchange Project. Travel & Other Employee Expenses (which includes Subscription expenses) were $273K favorable due to postponement to 2013 of the payment for the Emodal subscription $100K related to the RFID project and less travel and registration fees than expected partially due to open position in Commercial Strategy. Miscellaneous Expense was $107K favorable due to delays in resolving permanent storage of tribal artifacts. Advertising Expense was $111K favorable due primarily to delay in spending on NW Cruise Itinerary development/marketing and due to the decision not to pursue US West Coast Marketing Initiative this year. Litigated Injuries and Damages were ($635K) unfavorable due to unexpected legal claims. Maintenance costs, direct and allocated, were unfavorable ($232K) due higher than budgeted allocations from Maintenance ($272K) slightly offset by lower direct charges $40K. Allocations were above budget because less work was direct charged to capital and to business group projects resulting in less overhead being direct charged to projects. In addition, overhead amounts increased due to planners being added to the maintenance payroll. CDD costs were favorable $139K despite unplanned direct charges from PCS and other groups for the Terminal 18 Pile Cap Pilot work ($1,065K). Costs incurred on the pile cap work were more than offset by below budget allocations $647K from all CDD groups and below budget direct charges from Engineering, Seaport Project Management and PCS on other projects $557K. Police costs, direct and allocated were favorable $218K due to lower wages and benefits than budgeted. Corporate costs, direct and allocated were favorable $798K due to lower than anticipated direct charges and allocations from virtually all Corporate groups including Accounting and Financial Reporting $284K, ICT $176K, Internal Audit $99K, Contingency $90K, and Risk Services $88K. Security Grant Expenses were unfavorable ($751K) due to pass-thru grant activity, primarily involving the Port of Everett, being above budget. All other variances netted to a favorable $117K or less than .3% of Total Expenses budgeted. NOI Before Depreciation was $7,217K favorable to budget. Depreciation was ($3,129K) or 10% unfavorable to the 2012 Budget primarily due to the booking of assets originally funded by Terminal 18 Special Facility Revenue Bonds. Due to refunding the special facility bonds with traditional bonds in December 2011, these formerly "off balance sheet" assets are now reflected on the Port's books together with the related depreciation. The timing of the refunding did not allow inclusion of the transaction in the 2012 Budget. NOI After Depreciation was $4,088K favorable to budget. Change from 2011 Actual NOI Before Depreciation decreased by ($1,582K) from 2011 due to higher revenue more than offset by higher expenses. Revenue was up $4,568K from the prior year due to increased Container revenue $686K resulting from the refunding of Terminal 18 Special Facility Bonds in December 2011 $8,832K largely offset by reversal of GAAP straight-line rent adjustment ($7,899K). Crane rent was lower ($622K) due to an increase in tenant-owned cranes but was partially offset by higher intermodal revenue at Terminal 5 $231K. Security grant revenue increased $1,831K due to more grant activity while Cruise revenue increased $674K due to higher passenger volumes. Industrial Property revenue increased $1,874K due to higher occupancy, increased rental rates and 18 III. SEAPORT DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/12 more concession rent and Maritime Operations revenue increased $1,227K due to higher occupancy and higher rates. Amounts were partially offset by lower grain revenue ($1,864K) due to market conditions. Expenses, both direct and allocated, increased by $6,150K due to more Security grant activity $1,745K, increased CDD costs $709K primarily due to Terminal 18 Pile Cap Pilot project, increased Maintenance costs $1,441K due to higher overhead and allocated costs, and higher Corporate and Police expenses $729K. Seaport expenses increased $703K primarily due to unexpected legal claims $620K, CTA lease allowance expenses that did not qualify for capitalization $254K and higher utility expenses $461K partially offset by Terminal 5 Maintenance Dredge and Terminal 18 broken pile work that was done in 2011. In addition, Environmental Remediation Liability expense increased by $659K primarily due to 2011 amount being negative as a result of an over recognition in 2010. D. CAPITAL SPENDING RESULTS 2012 Budget Variance 2012 Plan 2012 Approved of Actual $ % $ in 000's Budget Finance Cruise 2,997 4,456 1,459 33% 2,501 Security 3,631 3,500 (131) -4% 1,354 Terminal 18 972 2,390 1,418 59% 2,478 Small Projects 523 1,374 851 62% 775 Cranes 853 1,220 367 30% 13 Terminal 91 - Industrial Properties 941 762 (179) -23% 2,570 Terminal 5 15 400 385 96% 813 Terminal 10 343 295 (48) -16% 475 N Argo Express - Private Road 177 0 (177) NA 0 T46 Dock Rehabilitation 110 0 (110) NA 0 Green Port Initiative 6 170 164 96% 470 All Other 273 929 656 71% 14,257 Total Seaport 10,841 15,496 4,655 30% 25,706 Comments on Key Projects: Seaport spent 70% of the 2012 Approved Capital Budget. Projects with significant changes in spending were: Cruise P91 Fender System Upgrade project was overestimated in the budget by approximately $500K and $770K of spending was moved to 2013. CTA allowance spending did not qualify as capital $350K. Security Projects Security Grant Rounds 9 & 10 were approved by Commission 11/8/11. These projects were included in 2012 Plan of Finance as Business Plan Prospective. Terminal 18: Delays in Street Vacation process. Small Projects Project spending moved to 2013 and projects completed under budget. N Argo Express Private Road Project was approved by Commission 12/13/11. The 2012 Plan of Finance assumed that 100% of the project costs would be Public Expense. Changes between the 2012 Plan of Finance and the 2012 Approved Budget represent modifications in 2012 spending estimates made after determination of 2011 actual spending. 19 IV. REAL ESTATE DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/12 FINANCIAL SUMMARY 2011 2012 2012 Budget Variance Change from 2011 $ in 000's Actual Actual Budget $ % $ % Revenues: Operating Revenue 31,569 31,273 32,401 (1,128) -3% (296) -1% Total Revenues 31,569 31,273 32,401 (1,128) -3% (296) -1% Total Operating Expenses 34,758 35,422 37,224 1,802 5% 664 2% Net Operating Income (3,189) (4,149) (4,823) 674 14% (960) -30% Capital Expenditures 10,085 2,433 7,294 4,861 67% (7,652) -76% Total Real Estate Division Revenues were ($1,128K) or about (3%) unfavorable to budget for the year primarily due to unfavorable revenue variances from Bell Harbor International Conference Center and World Trade Center Seattle. Total Operating Expenses were $1,802K, or 5%, favorable to budget due to below budget activity at Bell Harbor International Conference Center as well as due to below budget Maintenance expenses as a result of delays, lower costs and cancellation of some projects. Favorable variances were partially offset by unexpected Litigated Injuries and Damages costs. Net Operating Income for 2012 was $674K favorable to budget and ($960K) below 2011 Actual. Lower revenue as well as higher expenses drove the year over year change. Capital spending for 2012 was $2.4 million or 33% of the Approved Annual Budget amount of $7.3 million. A. BUSINESS EVENTS Occupancy levels at Commercial Properties were at 91% at the end of 2012, which is above the 90% target for the 2012 Budget, and above comparable statistics for the local market of 88%. Bell Harbor International Conference Center and World Trade Center Seattle activity was significantly below budget for the year, but the venues contributed $2.1 million in net income which was within $73 thousand of net income budgeted. Recreational marinas averaged 93% occupancy which was below the target of 94%. Fishermen's Terminal and Maritime Industrial Center averaged 74% occupancy which was below the target of 84%. Harbor Services 5-year agreement executed between the Port of Seattle and the Shilshole Liveaboard Association. Shilshole Bay Marina celebrated its 50th anniversary on September 14, 2012. Received internal Small Business Champion Award recognizing Fishermen's Terminal and Shilshole Bay Marina for their work on promoting and utilizing small businesses. Portfolio Management New Conference and Event Center Management Agreement was executed on April 4th and became effective on June 1st. Executed 23 new leases, 29 lease renewals, and 10 agreements. Eastside Rail Corridor Commission approved the sale of all non-freight area on the Eastside Rail Corridor to King County in 2012 and the sale closed on February 13th, 2013. Completed sale of fee and easement interests for portions of the Eastside Rail Corridor to City of Kirkland and Sound Transit. 20 IV. REAL ESTATE DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/12 Real Estate Development and Planning Executed a second development agreement with the City of Des Moines to facilitate development of the Des Moines Creek Business Park site. King County initiated a condemnation action to acquire an interest in the Terminal 91 West Yard site for its CSO project. Marine Maintenance Completed 35 deferred maintenance projects in 2012. The program (in terms of number of projects) is 78% complete. Achieved their lowest Occupational Injury Rate ever at 9.87 in 2012 down from 17.97 in 2011. 19% of vendor purchases and personal services were purchased from small business exceeding the 15% target. Continues to support the Port's workforce development goals by providing apprenticeships, internships and representing the Port on related boards and in programs around the community. 21 IV. REAL ESTATE DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/12 B. KEY INDICATORS Shilshole Bay Marina Occupancy 120.0% 100.0% 2011 Actual Footage 80.0% 2012 Budget 2012 Actual 60.0% Percent Linear 40.0% 20.0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Fishermen's Terminal Moorage Occupancy 120.0% 100.0% 2011 Actual Footage 80.0% 2012 Budget 60.0% Percent Linear 2012 Actual 40.0% 20.0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Commercial Building 100% 90% 90% 91% 89% 90% 90% 90% 91% 90% 90% 91% 90% 90% 2011 Actual 80% Percent 2012 Target 70% 2012 Actual 60% Qtr 1 Qtr 2 Qtr 3 Qtr 4 Net Operating Income Before Depreciation By Business 2011 2012 2012 2012 Bud Var Change from 2011 $ in 000's Actual Actual Budget $ % $ % Recreational Boating 1,790 1,353 893 460 52% (436) -24% Fishing & Commercial (2,541) (3,063) (3,129) 66 2% (522) -21% Commercial & Third Party 71 (1,307) (1,066) (241) -23% (1,378) -1938% Eastside Rail (1,952) (437) (599) 162 27% 1,514 78% RE Development & Plan (551) (689) (922) 233 25% (138) -25% Envir Grants/Remed Liab/Oth (7) (7) 0 (7) NA 0 NA Total Real Estate (3,189) (4,149) (4,823) 674 14% (960) -30% 22 IV. REAL ESTATE DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/12 C. OPERATING RESULTS 2011 2012 2012 Budget Variance Change from 2011 $ in 000's Actual Actual Budget $ % $ % Revenue 22,071 22,456 22,389 67 0% 384 2% BHICC & WTC Revenue 9,498 8,817 10,012 (1,195) -12% (680) -7% Total Revenue 31,569 31,273 32,401 (1,128) -3% (296) -1% Real Estate Exp(excl Maint,P69,Conf) 9,759 10,548 9,920 (628) -6% 789 8% Real Estate BHICC & WTC 7,600 6,748 7,870 1,122 14% (852) -11% Eastside Rail Corridor 1,585 293 203 (90) -44% (1,293) -82% Maintenance Expenses 7,192 9,106 9,687 581 6% 1,914 27% P69 Facilities Expenses 150 198 198 1 0% 48 32% Seaport Expenses 1,230 1,238 1,408 170 12% 8 1% CDD Expenses 917 1,083 1,266 183 14% 166 18% Police Expenses 1,301 1,367 1,442 75 5% 66 5% Corporate Expenses 5,018 4,835 5,229 395 8% (183) -4% Envir Remed Liability 7 6 0 (6) NA (0) -6% Total Expense 34,758 35,422 37,224 1,802 5% 664 2% NOI Before Depreciation (3,189) (4,149) (4,823) 674 14% (960) -30% Depreciation 10,172 9,835 9,694 (141) -1% (336) -3% NOI After Depreciation (13,361) (13,985) (14,517) 532 4% (624) -5% Total Real Estate revenues were ($1,128K) unfavorable to budget. Key variances are as follows: Harbor Services: Unfavorable ($128K) Recreational Boating unfavorable ($5K) primarily due to a slight occupancy shortfall at Shilshole Bay Marina. Fishing and Commercial unfavorable ($123K) primarily due to fewer medium and small fishing boats. Portfolio Management: Unfavorable ($1,223K) Commercial Properties unfavorable ($46K) primarily due to lower occupancy at Terminal 102 Marina Corporate Center and Pier 2 partially offset by higher occupancy at Fishermen's Terminal Office & Retail than assumed in the Budget. Third Party Managed Properties unfavorable ($1,177K): Bell Street International Conference Center and World Trade Center Club unfavorable ($1,195K) due to lower activity ($1,124K) and below budget Membership Revenue ($71K). World Trade Center West on Budget. Bell Street Garage unfavorable ($16K) or within 1% of Budget. Eastside Rail Corridor: Favorable $67K Eastside Rail Corridor favorable $67K due to unbudgeted land rental and licenses to use. RE Development and Planning: Favorable $72K Terminal 91 General Industrial favorable $72K due primarily to higher revenue from Pacific Maritime Association as a result of the tenant taking more yard space. Facilities Management: Unfavorable ($3K) Pier 69 Facilities Management unfavorable ($3K). Maintenance: Favorable $86K Maintenance favorable $86K. 23 IV. REAL ESTATE DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/12 Total Real Estate expenses were $1,802K favorable to budget. Key variances: Real Estate Expenses (excluding Maintenance, P69 Facilities, and Conference & Event Activity Expense) were unfavorable ($628K). Major account variances were as follows: Litigated Injuries and Damages unfavorable ($525K) due to unexpected legal claims. Outside Services unfavorable ($73K) primarily due to higher contract watchmen charges related to extra summer help at recreational marinas and higher than budgeted broker commission, tenant improvement, temporary help and Metropolitan Improvement District costs. Unfavorable variances were partly offset by delay, to 2013, of CAD drawing expenses related to Propworks upgrade and due to an underutilized budget for west yard consulting services. Real Estate BHICC & WTC favorable $1,122K due to lower activity and cost controls at Bell Harbor International Conference Center and World Trade Center Seattle. Eastside Rail Corridor expenses were ($90K) unfavorable due to unanticipated Litigated Injuries and Damages and Surface Water Utility expenses, largely offset by underutilized consulting service costs. Maintenance expenses were favorable $581K primarily due to delays, lower cost and/or cancellation of some projects. Seaport originated expenses were favorable $170K due to below budget direct charges from Planning, Docks Operations and Seaport Finance. CDD costs, direct and allocated were favorable $183K primarily due to lower direct charges and allocations from Central Procurement and Port Construction Services partially offset by above budget expense work done by Seaport Project Management. Police costs, direct and allocated were favorable $75K due to below budget spending by the Police for the year-to-date. Corporate costs, direct and allocated, were favorable $395K primarily due to Legal $104K, Accounting $95K, ICT $88K, and Human Resources $57K. All other variances netted to an unfavorable ($6K). NOI Before Depreciation was $674K favorable to budget. Depreciation was ($141K) or (1%) unfavorable to budget due to allocated depreciation from ICT that was inadvertently not budgeted. NOI After Depreciation was $532K favorable to budget. Change from 2011 Actual Net Operating Income Before Depreciation decreased by ($960K) between 2012 and 2011 as a result of lower revenue and higher expenses. Revenues decreased by ($296K) primarily due to less activity at Bell Harbor International Conference Center. The decrease was partially offset by higher occupancies at the World Trade Center West and Fishermen's Terminal Office & Retail as well as other Commercial Properties. Expenses increased by $664K due to higher Marine Maintenance costs $1,914K, due to more work and higher overhead costs as well as due to higher Real Estate Salaries & Benefits $298K and Utilities $97K. Litigation expense related to the Eastside Rail Corridor decreased by ($1,324K) while litigation expenses related to Portfolio Management increased by $418K. In addition, Bell Harbor International Conference Center and World Trade Center Seattle operating expenses and management fees decreased ($852K) due to less activity. 24 IV. REAL ESTATE DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/12 D. CAPITAL SPENDING RESULTS 2012 Budget Variance 2012 2012 Plan Approved Actual $ % of Finance $ in 000's Budget Small Projects 851 1,908 1,057 55% 815 Tenant Improvements -Capital 113 1,148 1,035 90% 1,148 FT East Portion South Wall 49 760 711 94% 0 Bell Harbor Lighting Ctrl Upgrade 0 633 633 100% 160 RE Maintenance Shop Solution 540 624 84 13% 0 All Other 880 2,221 1,341 60% 8,801 Total Real Estate 2,433 7,294 4,861 67% 10,924 Comments on Key Projects: The Real Estate Division spent 33% of the Approved Capital Budget. Projects with significant changes in spending were: Small Projects Delay in start of some projects and movement of others to future years. Tenant Improvements Capital Most new leases and lease renewals have not required capital tenant improvements. FT East Portion South Wall Budget was overestimated. Bell Harbor Lighting Upgrade Project to be executed by Columbia Hospitality under Conference and Event Center Management Agreement. Changes between the 2012 Plan of Finance and the 2012 Approved Budget represent modifications in 2012 spending estimates made after determination of 2011 actual spending. 25 V. CAPITAL DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/12 A. BUSINESS EVENTS Completed and opened consolidated rental car facility. Reached agreement with Alaska Airlines on NorthSTAR project approach and procured program/project management and design consultants to begin project. Designed and completed multiple enabling projects for airline realignment in late 2012/early 2013. Buy American/America Act Training (12/10 12/11/13). Participated with reauthorization committee for RCW 39.10 legislation (Alternative Public Works), drafted reauthorization legislation for introduction in 2013. Conducted the Emergency Response/Emergency Preparedness Workshop and identified additional efforts to be pursued for Damage Assessment Teams and Recovery. Continued Terminal Escalator Project: Thirty-nine out of forty-four units turned over for beneficial occupancy in 2012, nine of which occurred in the fourth quarter of 2012. Completed under-dock inspection reports for Terminals 25 and 30 and Pier 66. Key Port Construction Services (PCS) projects for the fourth quarter were Zone 2 and Zone 3 abatement for the Delta lobby/ Airline Ticket Office (ATO), Credential Center remodel, FIMS II (Flight Information Management Systems) installation, Airline realignment, Passenger Loading bridge replacement, Common use gate installations, Electrical Ground Support Equipment (EGSE) charging stations, Terminal 91 Project Completion. Completed Terminal 18 Pilot Pile Cap Repair Project and Terminal 46 Transformer Project. Completed 2009 American Recovery and Reinvestment Act (ARRA) Sonar final grant claim and report. Bids received on the Terminal 117 Cleanup project low bid $10,500,000 and Engineer's estimate is at $16,500,000. East Marginal Way Grade Separation (EMWGS) lane configuration agreement reached with Seattle Department of Transportation. Pier 66 April Pile Wrap Army Corps of Engineers Nationwide permit received and no fish window restrictions imposed. Selected and successfully negotiated contract with Jacobs Project Management Company for project and program management for North SeaTac Airport Renovations (NorthSTAR) project. Completed 2012 portion of 8th floor parking garage waterproofing project. Completed Memorandum of Agreement with Sound Transit for extension of light rail to South 200th Street. Commission approved design start and project acceleration for Cargo 2 and 6, with planned combined construction with Cargo 5. Participated in 2012 Prime Contractor Summit 9/27/2012. Provided assistance to Office of Social Responsibility to develop the Port of Seattle Disadvantaged Business Enterprise Program submitted to Federal Aviation Administration (FAA) and approved for the federal fiscal years of 2012, 2013, 2014. Initiated a review committee to evaluate purchasing efficiencies and identify areas for possible change. Continued participation in Capital Projects Advisory Review Board (CPARB) board and subcommittees. Prepared open order bid documents for small works contracts in asbestos abatement, electrical, and striping. Final claim for grant reimbursement was finalized and submitted for the Security Round 7 Project. Unifier is in production. Monitoring migrated and creation of new projects. Commission approved Terminal 5 and Terminal 18 Maintenance Dredging Design and Phase I Construction. Terminal 91 Building 136 site has been paved and restored. Final construction on the Terminal 91 Water Main Replacement is complete. Cleanup Agreed Order for the Terminal 91 Tank Farm Clean-Up Project was signed by Ecology and the Port. The City Council passed the final ordinance to vacate streets at Terminal 105. 26 V. CAPITAL DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/12 B. KEY PERFORMANCE METRICS Key Performance 2012 YTD Notes Metrics Construction Soft ($ in 000's) Limit construction soft costs (design, Costs construction management, project Total Costs $ 478,008 (100%) management, environmental 36 month rolling documentation, allocated overhead) to average from Total Construction: $ 373,680 ( 78%) no more than 25% of total capital improvement costs. Q1 2010 thru Q4 2012 Total Soft: $ 104,328 ( 22%) Cost Growth During Total Completed Projects YTD: 16 Limit average mandatory change cost Construction growth to 5% of construction contract Discretionary Change: 4.2% award. Mandatory Change: -1.6% Limit average discretionary change cost growth to 5% of construction contract award. Design Schedule ($ in 000's) Limit design growth from initial Growth Total Completed Projects YTD: 16 Commission project authorization to Avg Design Growth Completed Proj's: 24.1% construction contract award to no more Cumulative Value YTD: $21,535 than 10% of originally allotted duration. Construction Schedule ($ in 000's) Limit construction growth from Growth Total Completed Projects YTD: 16 contract award to substantially Avg Construction Growth Completed complete to no more than 10% of Projects: 32.4% originally scheduled. Cumulative Value YTD: $21,535 Performance Q4 2012 98% PREPs completed within 30 days Evaluation Timeliness Total PREPs due: 24 207 of anniversary date. Total PREPs on time: 0-30 days (CDD) 22 119 (91.6%) (57%) 0-60 days (HRD) 24 177 (100%) (85.5%) 2012 YTD Goods & Services 125 days Average number of days, improving Procurement Schedule: Major Public Works 61 days from period to period. Total Time Specs Small Works 50 days Execution Service Agreements 202 days Customer Score Card #Projects surveyed: 12 100% of projects surveyed. Average AVPMG avg score 89.6% 85% of total possible points on project SPMG avg score 88% customer feedback scorecards CDD average score 89.1% returned. 27 V. CAPITAL DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/12 Environmental AVP SPM Total Incorporate Executive Policy and Applicable Projects: 15 4 19 Procedure 15 (Sustainable Asset Incorp/Pending: 11 4 15 Management) and/or LEED process in Average: 73% 100% 79% every project. Safety CDD Safety Eval: 90% Score an average of 90 out of a possible 100 points on CDD TRIR 1.76 organizational Safety Program LTIR 0 Evaluations. Limit annual contractor OIR 5.15 workplace injury rates to 6 recordable accidents and 2 time lost accidents per 200,000 hours worked. Small Business Small Works: 91.8% 60% of small works contracts; 8% of Participation Major Construction: 44.9% major construction contracts; 5% of Goods & Services 19.6% service agreements and 10% of Overall Average: 35.2% purchases. 28 V. CAPITAL DEVELOPMENT DIVISION FINANCIAL & PERFORMANCE REPORT 12/31/12 C. OPERATING RESULTS 2011 2012 2012 Budget Variance Change from 2011 $ in 000's Notes Actual Actual Budget $ % $ % Total Revenues 79 32 - 32 0.0% (47) -59.1% Expenses Before Charges To Cap/Govt/Envrs Propects Capital Development Administration 351 362 374 13 3.4% 10 2.9% Engineering 12,638 12,615 14,217 1,602 11.3% (23) -0.2% Port Construction Services 7,262 7,061 6,791 (270) -4.0% (201) -2.8% Central Procurement Office 3,852 4,434 4,481 47 1.0% 581 15.1% Aviation Project Management 6,583 7,264 7,731 468 6.0% 681 10.3% Seaport Project Management 2,404 2,581 2,987 407 13.6% 177 7.4% Total Before Charges to Capital Projects 33,091 34,316 36,581 2,265 6.2% 1,225 3.7% Charges To Capital/Govt/Envrs Projects Capital Development Administration - - - - 0.0% - 0.0% Engineering (9,351) (8,459) (9,757) (1,298) 13.3% 892 -9.5% Port Construction Services (4,846) (3,788) (3,313) 476 -14.4% 1,058 -21.8% Central Procurement Office (1,511) (1,575) (1,330) 245 -18.4% (64) 4.2% Aviation Project Management (5,160) (5,224) (5,229) (5) 0.1% (64) 1.2% Seaport Project Management (1,197) (1,304) (1,437) (133) 9.3% (107) 8.9% Total Charges to Capital/Govt/Envrs Projects (22,065) (20,350) (21,066) (716) 3.4% 1,715 -7.8% Operating & Maintenance Expense Capital Development Administration 351 362 374 13 3.4% 10 2.9% Engineering 3,287 4,156 4,460 304 6.8% 869 26.4% Port Construction Services 2,416 3,273 3,479 206 5.9% 857 35.5% Central Procurement Office 2,342 2,859 3,151 291 9.2% 518 22.1% Aviation Project Management 1,424 2,040 2,502 462 18.5% 616 43.3% Seaport Project Management 1,207 1,277 1,550 273 17.6% 70 5.8% Total Expenses 11,026 13,966 15,516 1,549 10.0% 2,940 26.7% Notes: Variance Summary and other notes: Vacancies: 19= $1.8M Salaries & Benefit savings from unfilled positions. AVPMG $462K. Favorable variances in Salaries & Benefits, Equipment (from Bus Maintenance Facility project) offset unfavorable variances in Outside Services (increased workload increased Onsite Consultant expense) and Litigated Injuries and Damages ($250K for Owners Control Insurance Program OCIP). CPO $291K. Favorable variances in Salaries & Benefits, Total Charges to Capital Projects, and Travel offset the $200K unplanned legal costs. ENG $304K Favorable variances in Salaries & Benefits (due to changes in project delivery schedules), Equipment (from Software, Computer and Telephone acquisition savings due to change in ICT allocation of expense), Supplies (reduced expense/used current inventory), Outside Services (utilized staff in lieu of consultants), and Travel/Other (trainings/conference budget not utilized due to workload). Charges to Capital less than budgeted due to delayed projects. PCS $206K Favorable variances in Outside Services (Rental Agency Companies (RAC)) deactivation scope significantly reduced, plus projects utilized more crew than consultants) and Charges to Capital (more capital work than originally budgeted) offset unfavorable balances in Salaries & Benefits, and Equipment, and Supplies (primarily due to unbudgeted expense projects, i.e., Terminal 18 Pile Cap project). Workers Compensation unfavorable at ($79K). SPM $273K Favorable variances in Salary & Benefits, Outside Services (underspent Consultant Services), Travel (training not taken) offset unfavorable variance in Charges to Capital (less Salaries & Benefits to capital than projected). CDD Admin $13K Favorable variance in Salaries & Benefits, Supplies and Travel (training and travel not taken). 29 VI. CORPORATE FINANCIAL & PERFORMANCE REPORT 12/31/12 A. BUSINESS EVENTS Commission adopted the Century Agenda on 12/4/12 including new Port Mission, Vision, Strategies and Objectives and the Commissioners' Regional Initiatives, as well. Incorporated the Century Agenda strategies and objectives into the business plans and annual budgets and completed outreach to over 60 groups reaching about 1000 individuals. Commissioners spoke at various forums during an intensive Century Agenda outreach program developed and implemented with Public Affairs. Port of Seattle was selected as recipient as one of only 15 employers across the country to receive the 2012 Secretary of Defense Employer Support Freedom Award in Washington, D.C. Port of Seattle Internship Program awarded Internship Employer of the Year by Seattle University. This award acknowledged the Port of Seattle's commitment to fostering the next generation of community leaders and provides an avenue for students to apply their academic learning to jobs that may lead to a Port-related career in the maritime or aviation sectors. Held the Leadership Conference - "Century Launch" as scheduled on August 13, 2012, with about 135 Port leaders in attendance. Formal and informal feedback on the event has been highly laudatory. Produced and published Portfolio video magazine featuring Freedom Award, International Tourism, Shilshole Bay Marina 50th Anniversary and 2012 Cruise Season. Launched Social Media program internally with communication of new policy, informational brownbag events, and signup for team and corporate training. Sponsored two health fairs with over 30 wellness vendors to educate employees on health consumerism. In addition, onsite flu shots and biometric screening were available over 450 employees participated in the screenings. Launched the Internal Internship Port-wide and recruitment is underway. Communicated a Total Rewards philosophy to Port employees and Compass was updated with this focus. Completed contract negotiations with Cigna and Washington Dental Services (WDS), the Medical and Dental Claims Administrators. Completed Technology Performance and Risk Assessment Audit for the Port of Seattle, which showed the ICT process activities perform favorably when compared to organizations of comparable size and industry-groups. Completed the PeopleSoft Financials Upgrade contract negotiations with our implementation partner and kicked off the project in early October. The project is anticipated to span approximately twelve months. Upgraded the Property Management System used by the operating divisions to manage approximately 800 leases across all three divisions to the latest version. Implementation of a new Fire Department Records Management System was deployed in September. This system replaces several aging and disparate applications lacking features that support current operational process and were not compliant with industry reporting requirements. Received the "Certificate of Achievement for Excellence in Financial Reporting" from the Government Finance Officers Association (GFOA) of the United States and Canada. Filed the 2013 Port of Seattle Budget with the King County Council on Nov 29, 2012. Completed the sole source justification waiver and executed the service agreement with PE SYSTEMS for monitoring the Port's merchant services fees (costs for accepting credit cards). Continued to reach out to the community to educate small businesses on contracting opportunities and the Small Contractors and Suppliers Program (SCS). Served as the Host Agency for the National Tactical Officers Association's (NTOA) annual conference with over 800 law enforcement attendees from throughout the world. The Department was recognized internationally receiving kudos from NTOA and many agencies. Served as the Host Agency for the International Police Chief's Association's International Visitor Program, hosting approximately 20 Kurdish Police Professionals. 30 VI. CORPORATE FINANCIAL & PERFORMANCE REPORT 12/31/12 B. KEY PERFORMANCE METRICS Key Performance Metrics YTD 2012 YTD 2011/Notes A. Be a High Performance Workplace 1. Employee Training a) New Employee Orientation 179 attendees 124 attendees, increased by 55 due to opening of RCF b) Employee Develop. Classes 215 120, increase by 95 c) REALeadership Program Presently being reassessed 30, decreased by 30 d) MIS Training 17 MIS classes, 89 users 8 MIS classes, 16 users 8 Clarity classes, 62 users 7 Clarity classes, 64 users e) Required Safety Training 98% 97%, increased 1% 2. Tuition Reimbursement 25 employees participated 37, decreased by 12 3. Occupational Injury Rate 6.00 6.21, decreased .21 4. Total Lost Work Days 815 1164, decreased 349 days B. Foster a Strong Partnership with Surrounding Communities 1. Sustainability Communications 237,238 individuals reached N/A 2. Targeted Outreach Contacts 920 new contacts N/A 3. Implement Century Agenda Conducted 60+ Commission- N/A Outreach Campaign led stakeholder presentations 4. Small Business Outreach 29 39, decreased by 10 C. Continue to be a Strong Advocate of Social Responsibility 1. Small Businesses on PRMS 445 registered on new PRMS N/A 2. Contracts Reviewed for SCS 69 27, increased by 42 3. Airport Job Placements 1088 626, increased by 462 4. Apprenticeship Opportunity 125 N/A Project Placements 5. Numbers of Interns Hired 29 29 6. Community Giving Campaign 161employees donated 74 employees, increased by 87 D. Maintain a Strong Culture of Transparency and Accountability 1. Internal Audits Completed 21 24, decreased by 3 2. % of Audit Plan Completed 85 88, decreased by 3% 3. Public Disclosure Requests 379 296, increased by 83 4. Vehicle Incidents 79 total/70 preventable 51 total/45 preventable 5. Incurred Auto Liability Costs $25K $33K E. Maintain the Port's Strong Financial Position 1. Corp. Cost as a % of Total Rev. 14.0% 14.8% (14.6% excluding the AAPA) 2. Corp. Cost as a % of Total Exp. 24.5% 26.7% (26.4% excluding the AAPA) 3. Commission Authorized Projects 100%/30% 95%/50%, increased by On Budget/Schedule 5%/decreased by 20% 4. Account Receivables Collection $3,121,303 $4,488,296 (0 30 days) 5. Invoice Due Date vs. Date Paid 4 days Compared to 3 days (benchmark) F. Provide Outstanding Support to Divisions 1. Contract Administration Issues 74 111, decreased by 37 2. Attorney Services 31 litigation and claims 30, increased by 1 3. Labor Contracts Negotiated 27 5, increased by 22 4. Job Openings Created 240 243, decreased by 3 5. Job Applications Received 8,365 12,607, decreased by 4,242 6. Police Customer Service Survey 98% 90%, increased by 8% (% Above Average or Excellent) 31 VI. CORPORATE FINANCIAL & PERFORMANCE REPORT 12/31/12 C. OPERATING RESULTS 2011 2012 2012 Budget Variance Change from 2011 $ in 000's Notes Actual Actual Budget $ % $ % Total Revenues 1,559 444 151 293 193.4% (1,115) -71.5% Executive 1,487 1,584 1,539 (45) -2.9% 97 6.5% Commission 738 799 980 181 18.5% 61 8.3% Legal 2,975 3,083 2,901 (182) -6.3% 108 3.6% Risk Services 2,614 2,648 2,959 312 10.5% 33 1.3% Health & Safety Services 1,053 1,008 1,060 51 4.8% (44) -4.2% Public Affairs 6,494 5,859 5,815 (44) -0.8% (635) -9.8% Human Resources & Development 4,921 5,226 5,484 258 4.7% 305 6.2% Labor Relations 941 1,093 961 (132) -13.8% 152 16.2% Information & Communications Technology 19,132 19,480 20,194 714 3.5% 348 1.8% Finance & Budget 1,435 1,466 1,543 77 5.0% 31 2.2% Accounting & Financial Reporting Services 5,776 6,053 6,853 800 11.7% 277 4.8% Internal Audit 1,080 1,333 1,496 163 10.9% 254 23.5% Office of Social Responsibility 1,349 1,448 1,476 28 1.9% 99 7.4% Police 21,154 21,684 22,574 890 3.9% 530 2.5% Contingency 105 367 700 333 47.6% 262 249.7% Total Expenses 71,418 73,140 76,535 3,395 4.4% 1,721 2.4% Corporate revenues were $293K favorable compared to budget due to higher operating grants. Corporate expenses for the year-ended 2012 were $73.1 million, $3.4 million or 4.4% favorable compared to the approved budget and $1.7 million or 2.4% higher than the same period a year ago. The $3.4 million favorable variance was primarily due to several vacant positions during the year and other cost savings realized in several departments. All corporate departments have a favorable variance except for: Executive - unfavorable variance of $45K is due to a medical claim for the former CEO. Legal - unfavorable variance of $182K is due to unanticipated outside legal and litigation costs. Public Affairs - unfavorable variance of $44K is due to higher Outside Services costs than anticipated. Labor Relations - unfavorable variance of $132K is due to Project Labor Agreement charging less to capital projects than originally anticipated. D. CAPITAL SPENDING RESULTS ($ Millions) Annual Results: 2012 Plan of Finance $12.0 2012 Approved Budget $11.7 2012 Actuals $4.2 Variance (App. Budget vs Actuals) $7.5 32
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