PORT OF SEATTLE 
MEMORANDUM 
DATE:    January 27, 2014 
TO:      Port of Seattle Commission Audit Committee 
FROM:    James R. Schone, Director, Aviation Business Development 
Deanna Zachrisson, Manager, Concessions Business 
SUBJECT:  Audit Summary for HMS Host and Seattle Restaurant Associates (SRA) 
At the Port of Seattle Audit Committee Meeting on October 3, 2013, Internal Audit staff reported
findings of an audit of the HMS Host (Host) and Seattle Restaurant Associates (SRA)
concessions leases at Seattle-Tacoma International Airport for the years 2009-2011 (see attached
audit reports for additional details regarding the findings and associated management responses). 
In summary, those findings were: 
1) HMS Host did not use the correct concession rate resulting in an additional $635,704 owed to
the Port. 
The Port auditors determined that Host incorrectly reported sales as "Branded Food and
Beverage" for the three Great American Bagel Bakery (GABB) and Diva Espresso locations.
While both concepts are clearly "branded," to qualify as Branded Food per the lease, Host had to 
pay a royalty payment of at least 3% of its gross sales to the franchisor. The auditors determined
that the royalty payment to the franchisor was below the 3% minimum. As a result, sales for the 
locations did not meet the definition of Branded Food and Beverage.  The effect of this
noncompliance is that the concession fee paid to the Port was 2% lower than required by the
agreement. In addition, because the audit revealed a discrepancy of more than 2% of the rent
and concession fee owed for any 12 month period, Host is required to pay for the full cost of the
audit. The cost of the audit was $34,029. 
The table below summarizes the additional fees owed for the period 1/1/2009-12/31/2011 
Total Underreported Concession 
2009                      121,514 
2010                      132,546 
2011                      141,040 
Total Additional Concession Due      395,100 
Late Charge (5% Per Agreement
Terms)                      19,755 
Interest Accrued Through 9/30/2013    220,849 
Subtotal                       635,704 
Cost of Audit                    34,029 
Total Amount Due to Port        $669,733

Port of Seattle Commission Audit Committee 
January 27, 2014 
Page 2 
2) Host/SRA did not provide adequate documentation to support gross sales, as required by the
agreement. 
The Port auditors determined that the gross receipts for SeaTac Bar Group, one of the subtenants
operating under both agreements between the Port and Host and SRA, were underreported. In
addition, the lessee's documentation of sales was less than required in the lease.  The auditors
determined that the amount owed to the Port for the audit period, including applicable late fees 
and interest is $7,491. 
3) Host/SRA did not transmit accounting records and other requested documents in a timely
manner. 
Port auditors experienced multiple delays in securing financial information necessary from Host
to conduct the audit. 
PROPOSED RESOLUTION AND SETTLEMENT STRATEGY 
Over the past 4 months, Port staff has worked diligently to resolve the issues identified in the
audit. Following is a proposed strategy for settling the Port's claims against Host and SRA and 
the rationale for this strategy. With concurrence by the Audit Committee, this proposed
settlement would be presented to the full Commission for approval. 
1) Recover 1% of the gross sales (instead of 2% as recommended by Internal Audit) for 2009-
2011 which is the period of this audit. This is the amount that Host should have paid to GABB
in order to qualify as branded food. If Host had understood as a result of the earlier audit that its
license agreement was non-compliant, presumably they would have paid 1% in additional
royalty, rather than 2% additional concession fee to the Port for the non-branded food. This also
includes a minor amount for miscalculated percentage rent stemming from the ACDBE
subtenant Diva Espresso. The proposed settlement for the additional concession (1%) for 2009-
2011 is $197,550. 
2) Waive interest and late penalties as a consequence of not identifying the GABB royalty issue
in a Port audit of the Host/SRA agreements in 2006-2007. If this discrepancy had been
understood as part of the earlier audit, it would have been corrected much earlier, as described in
the audit findings report. 
3) Recover underpayment for 2012 of $66,571 with the same terms and conditions as above
(1%, no late fees or interest) for the continued issue of underreporting concession sales for 
GABB. Port staff has since obtained an amended franchise agreement between Host and GABB
that now complies with the 3% royalty requirement, effective January 1, 2013. There are likely
smaller amounts due for 2012 and 2013 for Diva Espresso, but these amounts are still currently
being calculated by Host for payment to the Port.

Port of Seattle Commission Audit Committee 
January 27, 2014 
Page 3 
4) Require Host/SRA to pay the unreported percentage rent as well as interest and late charges
for the amount stemming from the audit of the SeaTac Bar Group. This amount totals $7,491. 
5) Require Host to pay the costs of the audit, which totals $34,029. 
6) Require Host/SRA to provide evidence that they have conducted a December 2013 audit of
SeaTac Bar Group's records retention procedure and that it is compliant with the prime
agreement. Host/SRA must also audit SeaTac Bar Group at least 2 additional times in 2014. 
7) Execute a Settlement Agreement that stipulates the above, and if accepted, Host will be
released from future claims related to this particular audit. 
MANAGEMENT SUMMARY 
Management believes it is important to acknowledge the collaborative effort that took place
between Airport and Internal Audit staff in order to achieve compliance when Host/SRA failed
to provide timely responses. Audit staff encountered many delays due to Host's concern about
company-competitive information contained in the license agreements that the Port requested to
review. For some agreements, Host was particularly reluctant to allow review without a Non-
Disclosure Agreement in place. In the future, management will establish new protocols with
Host/SRA for the review of license agreements, including pre-negotiated confidentiality
agreements. 
In conclusion, below are the proposed settlement and resolution amounts: 
Total Amount Owed to Port 
Additional Concession 2009-2011     197,550 
Cost of Audit                    34,029 
SeaTac Bar Group underreporting       7,491 
Additional Concession 2012*         66,571 
Total Amount Due to Port        $305,641 
*Additional Concession is for GABB. Diva is yet to be determined for 2012 and 2013.