Item 6c Report
ITEM NO. 6c-Report DATE OF MEETING March 5, 2009 Port of Seattle QUARTERLY PERFORMANCE REPORT AS OF DECEMBER 31, 2008 TABLE OF CONTENTS Page I. Portwide Performance Report 1-3 II. Aviation Division Report 4-11 III. Seaport Division Report 12-19 IV. Real Estate Division Report 20-25 V. Corporate Professional & Technical Services 26-36 VI. Definition of Terms 37 (More detailed information can be made available upon request of the Divisions or LOBs) i I. PORTWIDE PERFORMANCE REPORT 12/31/08 INCOME STATEMENT Report: Income Statement As of Date: 2008-12-31 2007 YTD 2008 YTD 2008 YTD 2008 Var $ 2008 Var % 2008 Annual % of Annual 2008 Var % Dollars in thousands Actual Actual Budget Bud vs. Act Bud vs. Act Budget Bud Act vs. 2007 Revenues: Seaport 80,210 94,781 87,982 6,800 7.7% 87,982 107.7% 18.2% Real Estate 32,383 35,231 32,183 3,049 9.5% 32,183 109.5% 8.8% Aviation 346,330 357,600 355,055 2,545 0.7% 355,055 100.7% 3.3% Corporate 2,223 1,735 1,258 477 37.9% 1,258 137.9% -22.0% Total Revenues 461,146 489,347 476,477 12,870 2.7% 476,477 102.7% 6.1% Operating & Maintenance: Seaport 19,867 24,262 25,522 1,260 4.9% 25,522 95.1% 22.1% Real Estate 30,390 39,244 31,578 (7,666) -24.3% 31,578 124.3% 29.1% Aviation 121,067 142,318 134,061 (8,257) -6.2% 134,061 106.2% 17.6% Chief Procurement Office 37 1,406 20 (1,387) -7032.8% 20 7132.9% 3701.5% Corporate 70,257 72,425 74,210 1,785 2.4% 74,210 97.6% 3.1% Total O&M before De preciation 241,618 279,656 265,391 (14,265) -5.4% 265,391 105.4% 15.7% Operating Income Before Depreciation 219,528 209,691 211,086 (1,395) -0.7% 211,086 99.3% -4.5% De preciation 141,588 145,849 147,070 1,221 0.8% 147,070 99.2% 3.0% Total O&M and Depreciation 383,206 425,505 412,460 (13,044) -3.2% 412,460 103.2% 11.0% Operating Income after Depreciation 77,939 63,843 64,017 (174) -0.3% 64,017 99.7% -18.1% 1 I. PORTWIDE PERFORMANCE REPORT 12/31/08 EXECUTIVE SUMMARY The 2008 Port of Seattle's overall operating revenues are $489.3 million, $12.9 million above the budget. Overall operating expenses are $279.7 million, $14.3 million above budget. Operating income before depreciation is $209.7 million, $1.4 million below the budget. Operating income after depreciation is $63.8 million, $174 thousands below the budget. Port-wide capital spending is $327.6 million for the year, $250.5 million below the budgeted $578.1 million. Within the Aviation Division, total non-airline revenues were over budget by $2.28 million as Public Parking ultimately underperformed against the budget, tempering the favorable variances in Concessions, Commercial Properties, Utilities and Ground Transportation. The total operating expenses were $6 million greater than the budget mainly due to Other Post-Employment Benefits (OPEB) to Firefighters ($4.4 million), unbudgeted credit card fees and other assorted items in Airport Operations ($2.64 million), deicing fluid purchases and worker's comp claims in Maintenance ($1.28 million), expensing of capital-related write-offs ($2.8 million) and of environmental-related projects ($2.5 million) as required by new accounting rules (GASB 49). To lessen the impact of overspending, other aviation departments have saved $5.1 million over approved budget in addition with over $2 million in savings from Corporate/Seaport/Real Estate allocations. Total capital spending for 2008 was $209.8 million, or 69% of the approved annual budget amount of $303.84 million. Total Seaport revenues were $95.1 million, $7.1 million favorable to budget due to receipt of retroactive grant money from the Department of Ecology for Terminal 5 and Harbor Island superfund sites partially offset by lower than anticipated Security Grant Revenue. Security Grant projects are commencing later than assumed in budget. Expenses were $45.4 million, $1.9 million unfavorable to budget due to higher than anticipated Environmental Reserve expense related to 2008 implementation of GASB 49, partially offset by delayed spending on Security Grant projects. NOI before Depreciation was $49.7 million, $5.2 million favorable to budget and $5.8 million above 2007. Depreciation was $28.5 million, $0.5 million favorable to budget. NOI after Depreciation was $21.2 million, $5.7 million favorable to budget and $8.5 million above 2007. Seaport capital spending for 2008 was $88.5 million, or 70.0% of the approved annual budget amount of $126.9 million. Total Real Estate revenues were $34.9 million, $2.7 million favorable to budget primarily due to more event activity at Bell Harbor International Conference Center than budgeted. Expenses were $38.8 million, $6.1 million unfavorable to budget primarily due to expensing of costs that had been capitalized in connection with a plan to develop North Bay. NOI before Depreciation was ($3.9) million, $3.4 million unfavorable to budget. NOI after Depreciation was ($14.0) million, $3.7 million unfavorable to budget. Real Estate capital spending for 2008 was $21.2 million, or 17.0% of the approved annual budget amount of $125.3 million. Corporate Professional and Technical Services revenues for 2008 were $477 thousand favorable compared to the approved budget due to higher Police operating grants. Operating expenses for 2008 were $72.4 million, $1.8 million or 2.4% favorable compared to the approved budget and $2.2 million or 3.1% higher than 2007. This favorable variance was primarily due to several position vacancies during the year and other cost savings realized in several departments. 2 I. PORTWIDE PERFORMANCE REPORT 12/31/08 CAPITAL SPENDING RESULTS ($ Millions) Annual Results: 2008 Plan of Finance 619.2 2008 Approved Budget 578.1 2008 Actuals 327.6 Variance (Budget vs Actuals) 250.5 PORTWIDE INVESTMENT PORTIFOLIO The investment portfolio for 2008 earned 4.04% against our benchmark (The Merrill Lynch 3-year Treasury/Agency Index) of 2.01%. Since the Port has become its own Treasurer in 2002, the Port's portfolio lifeto-date has earned 3.90% against our benchmark of 3.13%. 3 II. AVIATION DIVISION PERFORMANCE REPORT 12/31/08 Summary of Results 2006 2007 2008 2008 Actual/Budget $ in 000s Actual Actual Budget Actual Var $ Var % Operating Revenues Landing Fees 46,730 53,158 58,878 65,633 6,756 11.5% Terminal Rental 128,957 129,145 126,224 125,548 (676) -0.5% Other Aero Revenues 10,685 11,569 12,465 11,651 (814) -6.5% Airline Revenues 186,372 193,872 197,567 202,833 5,266 2.7% Non-Airline Revenues 141,501 143,975 149,036 151,321 2,284 1.5% Other Revenues 9,627 9,640 9,238 4,526 (4,712) -51.0% Total Operating Revenues 337,500 347,487 355,842 358,680 2,838 0.8% Total Operating Expenses 160,811 171,624 187,982 194,042 (6,060) -3.2% Net Operating Income 176,689 175,864 167,860 164,639 (3,222) -1.9% Capital Expenditure 362,110 298,387 303,835 209,813 94,022 30.9% Passenger Airline CPE 11.79 11.73 11.63 11.87 (0.24) -2.1% For 2008, we experienced a positive variance in non-airline revenues of $2.28 million as Public Parking ultimately underperformed against the budget, tempering the favorable variances in Concessions, Commercial Properties, Utilities and Ground Transportation. Expenses were $6 million greater than the budgeted mainly due to OPEB benefits to Firefighters ($4.4 million), unbudgeted credit card fees and other assorted items in Airport Operations ($2.64 million), deicing fluid purchases and worker's comp claims in Maintenance ($1.28 million), expensing of capitalrelated write-offs ($2.8 million) and of environmental-related projects ($2.5 million) as required by new accounting rules (GASB 49). To lessen the impact of overspending, other aviation departments have saved $5.1 million over approved budget in addition with over $2 million in savings from Corporate/Seaport/Real Estate allocations. Total capital spending for 2008 was $209.8 million, or 69% of the Approved Annual Budget amount of $303.84 million. Traffic Volume Year End Results 2007 2008 % 2007 2008 % in 000s Q4 Q4 Variance YTD YTD Variance Enplanements 3,824 3,640 -4.8% 15,662 16,085 2.7% Landed Weight 5,246 5,061 -3.5% 21,014 21,516 2.4% Enplanements vs. Prior Year Landed Weight vs. Prior Year 15% 12.39% 10% 7.39% 6.00% 5.73% Growth Rate 9.14% 8.89% 4.58% 4.21% 4.28% 10% 3.70% 3.37% 5.40% 4.80% 5% 5% 2.37% 2.62% 2.55% 1.94% 0.21% 0.56% 0% 0% -2.28% -4.75% -4.33% Growth Rate -6.52% -5% -5% -7.94% -10% -10% Jan Feb Mar Apr May Jun Jul AugSeptOct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Both enplanements and landed weight for Q4 2008 were significantly lower than that of Q4 2007 (-4.8% and -3.5% respectively). Over the course of the entire year, enplanements grew 2.7% from 2007. Landed weight in 2008 saw an increase of 2.4% over last year. 4 II. AVIATION DIVISION PERFORMANCE REPORT 12/31/08 A. BUSINESS EVENTS th Third Runway opened on November 20 . Extreme snowfall disrupted normal airline operations in December. Airport activated multi-day emergency center to manage situation while assisting airlines and travelers. Alaska/Horizon is now entirely on the new C-1 baggage handling system. Received Commission approval for Preconditioned Air project. Installed six electric vehicle charging stations in parking garage. Gate allocation process for 2009 completed. Alaska Airlines will now consolidate most of their gates at N Satellite and Concourse C. Commission voted to suspend Rental Car Facility construction due to lack of long-term funding. Negotiations with Midway Sewer have reduced Biochemical Oxygen Demand surcharges. B. GOALS AND STRATEGIC ISSUES PROGRESS OBJECTIVES STATUS (Q4) AERONAUTICAL Complete a strategic master plan for terminal Long-term FIS study will be completed in early 2009, development by the end of 2008 including optimization of existing location. Coordination with Delta/Northwest on Phase 1 merger facility needs. Implement a targeted marketing program and North cargo redevelopment study to be completed in cargo facility and infrastructure enhancement early 2009. This will clarify cargo facility needs and plans to meet the region's growing demand for options. air cargo service by the end of 2008 Identify and analyze cost drivers for Briefing document on CPE target setting sent to aeronautical operating costs Commission in November. Aviation will work with Commission to set 5-7 year CPE target in early 2009. CUSTOMER SERVICE Relocate permitted smoking areas away from Proposal completed to add bold new signage to those areas regularly used by non-smokers. curbside window area to delineate smoking areas. Upgrade terminal facilities to create a more Short term improvement to FIS completed. welcoming and efficient arrivals experience for arriving international travelers; including a strong 'Seattle' sense of place. Evaluate the marketability and customer Further development of ESP concept to provide new service enhancement possibilities of a parking, lounge access and 'registered traveler' "Registered Traveler" program at Sea-Tac; products. present recommendations to Commission. Improve the quality and availability of one-on- New volunteer coordinator's efforts have resulted in one customer service assistance provided by increased volunteer recruitment. The program has Sea-Tac (paid and volunteer) customer service now approximately 85 volunteers staff. Create a new consumer-oriented airport Business case for website redesign complete, website. preparations for Commission presentation 5 II. AVIATION DIVISION PERFORMANCE REPORT 12/31/08 OBJECTIVES STATUS (Q4) EMERGENCY PREPAREDNESS Complete the Airport Emergency Plan Completed and adopted by the FAA on schedule rewrite/update by July 1 Conduct Homeland Security required 2008 classes were conducted and reported as emergency training and exercise programs by scheduled. 2009 classes are being scheduled now. the end of 2008 Design and implement an outreach plan by the Completed On schedule. Outreach activities will be end of 2008 ongoing Train staff to the Airport Emergency Plan A training plan is being developed modeled to each workgroup. ENVIRONMENTAL LEADERSHIP Engage all airport stakeholders to assist in Work continues on the development of the five-year defining the strategic environmental focus strategy plan. The strategy plan is being functionally areas for the airport. organized around environmental performance factors (KPIs). Working groups have identified goals, objectives and actions. Launch a campaign that engages, educates Environmental Leadership Strategy team is in process and instills a sense of personal responsibility of being reorganized so that it is more proficient in for environmental performance within the identifying, tracking and prioritizing environmental Aviation Division. initiatives at Sea-Tac. Reorganization will result in the creation of seven working groups, each group corresponding to one of the KPIs. Establish an environmental "footprint" Commission directed staff in March to establish measurement mechanism that provides a targets for GHG emission reduction at the airport. means of regularly evaluating the performance Reduction goals for GHG emissions related to Seaand impact of the airport's actions. Tac operations have been identified. Moreover, POS is a founding member of The Climate Registry (TCR), and as such is committed to reporting our Scope 1 and Scope 2 (Port-specific emissions) every year beginning June 2009. Implement an alternative fuel and emission A Phase I assessment determined that a hotel shuttle reduction policy for the airport's ground consolidation program would make sense at Sea-Tac sources of emissions. for essentially all hotels servicing the airport; saving both emissions and vehicle access to the airport. Upon sharing the information with hoteliers, discussion/concern about the process has been stated. We are trying to convince the hoteliers that we do not wish to manage or play an integral role in operating a shuttle consolidation program. Because of this concern, Phase II (a logistical look at how to implement the program) is on hold until 2009. Develop and implement a policy that complies Design standards for architectural, signage, with EX-15 and requires LEEDS experience for casework, mechanical and electrical were all updated design consultant selection processes at the to include environmental and sustainability airport. performance measures. Completed in December. 6 II. AVIATION DIVISION PERFORMANCE REPORT 12/31/08 OBJECTIVES STATUS (Q4) HIGH PERFORMANCE WORKPLACE Ensure that every full-time airport employee has Airport Director's Office initiated a top-down an employee development plan in place and requirement for all staff to update development plans. that supervisors make available appropriate employee development opportunities. Foster a workplace that supports challenges to Continued sponsorship of Critical and Strategic the status quo, incorporates new ideas and Thinking training. Implemented Continuity Of knowledge, and continuously strives for Operations Planning (COOP) pilot project. improvement by establishing an effective communication program that allows Aviation Division staff to offer ideas and feedback on how to make the airport a "best place to work." Establish an Aviation Division-wide mentoring 20 mentor/mentee matches port-wide, 1/3 in the program that matches employees with Aviation Division. mentors. Achieve a workplace injury rate 10% below the Aviation's Occupation Injury Rate (OIR) is 7.79 per national average and provide all employees 100 workers as compared to the national average of with the tools and resources necessary to gain 4.4 per 100 workers. Initiated SafeStart training. and maintain a healthy lifestyle. NON-AERONAUTICAL Initiate development of key Port properties in Work on redevelopment plan with City of Burien for SeaTac, Burien and Des Moines as soon as NERA (Northeast Redevelopment Area) continues. th practicable. Purchase of 7 Day Adventist Church property in Burien completed. Discussing next steps with City of Des Moines regarding preparing Des Moines Creek Business Park for redevelopment. Study of opportunities for redevelopment of Tyee Golf Course completed. Create new concession opportunities that Regus Business Center cleared for construction start provide for a more complete array of products in January 2009. Infrastructure for kiosk/RMU and services for the traveling public. program complete in April 2009. GML Arrivals Hall restaurant delayed until investment climate for small business improves. RFP planned for 2010. Increase advertising revenues through value Current work focuses on identifying potential new added promotion programs that do not detract inventory within display advertising categories where from the ambience of airport facilities. sales maintain strength in a very challenging climate for advertising. Accommodate the rental car industry in a long- Construction of rental car facility suspended in term consolidated facility by 2011. December due to lack of long-term financing. Efforts continue to find viable financing plan. Continue to increase parking business net Parking revenues dropped below budget beginning in income through new pricing and innovative August and September. Total 2008 gross parking services. revenues were $2.3 million under budget for the year. However, total gross parking revenues increased from $52.5 million in 2007 to $53.2 million in 2008, or 1.4%. 7 II. AVIATION DIVISION PERFORMANCE REPORT 12/31/08 OBJECTIVES STATUS (Q4) SMALL BUSINESS Finalize by April 1 an accurate and Done comprehensive record keeping process that effectively tracks all Aviation Division small business participation. By July 1, 2008, identify the procedures and Done practices which dampen small business and Aviation Division participation in the Port's Small Business Initiative and initiate a strategy for their restructuring or removal. By end of 2008, achieve 10% target of all 8.43% of 2008 service and product contracts were service and product contracts with the Aviation with qualified small businesses. Division will be with qualified small businesses. Roll out in 2008 a community outreach Final figures for 2008 still being compiled program that publicizes the Port's small business opportunities ultimately resulting in ten new small businesses enrolling on the Port's small business roster and five new small businesses providing goods and services to the airport. Done By end of 2008, complete the airport's Small Business Initiative and roll it into the larger effort led by the Port's Office of Social Responsibility. SUPPORTIVE COMMUNITY Partner with Airport Jobs and within the Community Development acted as a liaison between community to increase educational and career Airport Jobs and Highline Community College to advancement opportunities for airport develop a partnership to offer Airport University employees by obtaining new scholarship classes. Three classes are now being offered at the money for and expanding class offerings at Airport. Airport University. Engage employees in each Aviation Division Initiated a new internship program for local High department to identify and implement how -- School students. either through their expertise or their relationships with tenants and customers they can directly support the airport communities. Environmental Programs implemented an Enhance youth understanding and interest in Environmental Challenge program at Aviation HS. the aviation industry through the Held Aviation Academy for 80 freshmen from Aviation implementation of a local high school HS. Awarded $14K in scholarships in concert with internship program that regularly brings Host Int'l and Highline Schools Foundation. Port HR students to work at the airport. implemented new internship program where 6 high school interns were hired for summer. New job shadowing program for Aviation HS students was implemented. 8 Runway opening was held and involved community Use the third runway opening milestone as a leaders. Multiple tours were given to elected officials, means of celebrating with the local community leaders and area residents. Information communities the efforts to mitigate the impacts was provided to the community at a community Open of the airport on the surrounding area and the House and on-going communication and information creation of positive working relationships going was provided about runway construction, testing and forward. flight activity once opened. The Airport Director provided information about the commissioning of the runway through speeches and his stakeholder newsletter. Burien and the Port agreed on a scope of work for Achieve success in development projects redevelopment planning of NERA and selected a within the local jurisdictions. developer. Hosted a meeting between Burien and SeaTac to begin cooperative traffic planning related to truck routes for both Burien and SeaTac development. C. KEY INDICATORS 2006 2007 2008 2008 Actual/Budget $ in 000s Actual Actual Budget Actual Var $ Var % Non-Aero Financial Performance Revenues 141,501 143,975 149,036 151,321 2,284 1.5% Operating Expense 48,563 56,261 67,330 63,534 3,796 5.6% NOI 92,938 87,714 81,706 87,787 6,081 7.4% Aeronautical Operating Expense 112,465 114,764 120,652 129,648 (8,996) -7.5% Airport Vitality Measures Operating Cost / Enpl 10.73 10.97 11.72 12.06 (0.34) -2.9% Non-Airline Revenues / Enpl 9.45 9.19 9.29 9.41 0.12 1.2% Key Measures Passenger Airline CPE 11.79 11.73 11.63 11.87 (0.24) -2.1% Non-Aeronautical NOI 92,938 87,714 81,706 87,787 6,081 7.4% Other Key Measures Non-Airline Revenue / Total Rev 41.9% 41.4% 41.9% 42.2% 0.31% 0.7% Parking Revenue / Enpl 3.51 3.54 3.79 3.77 (0.02) -0.5% Concession Revenue / Enpl 1.89 1.98 1.99 2.09 0.10 5.0% Primary Concession Sales / Enpl 9.00 10.02 10.15 10.29 0.14 1.4% Traffic Enplanements 14,982 15,662 16,040 16,085 45 0.3% Landed Weight 20,362 21,014 21,320 21,516 196 0.9% Airline Surplus/Deficit Landing Fees 2,016 1,585 (19) (8,224) (8,205) n/a Terminal Rents (7,669) 8,153 0 9,065 9,065 n/a Net Surplus/(Deficit) (5,652) 9,738 (19) 841 860 n/a Highlights Non-aeronautical NOI was $6.08 million over the budget due to higher revenues in Concessions, Commercial Properties, Ground Transportation and Utilities. In addition to revenue drivers, there were significant expense savings in Business Development and changes to tariffs and billing rates in Utilities which ultimately drove nonaeronautical expenses down. CPE for 2008 came in higher than both the budget and the 2007 actual, primarily due to increased costs allocated to aeronautical cost centers and enplaned passengers regressing towards the originally budgeted levels. Primary concession sales per enplanement were $10.29, slightly better than budgeted. We now have an $841K year-end billing surplus to the airlines at the end of the year. Despite snow removal costs and other expenses hitting the airfield cost centers, terminal billings were greater than expected, along with a $2.5 million environmental settlement reached with Northwest Airlines which lowered terminal rental revenue requirements. 9 II. AVIATION DIVISION PERFORMANCE REPORT 12/31/08 D. OPERATING RESULTS---- IN THOUSANDS$ [REPORTED BY SUBCLASS] 2008 Year-to-Date 2008 Variances In $ Thousands Actual Budget $ % Airline Revenues Landing Fees 65,633 58,878 6,756 11.5% Terminal Rents 125,548 126,224 (676) -0.5% Other Airline Revenues 11,651 12,465 (814) -6.5% Subtotal 202,833 197,567 5,266 2.7% Non-Airline Revenues Public Parking 59,111 60,870 (1,759) -2.9% Rental Cars 36,019 36,014 5 0.0% Concessions 33,547 31,853 1,694 5.3% Other 22,644 20,300 2,344 11.5% Subtotal 151,321 149,036 2,284 1.5% Security Grants 1,087 787 300 38.1% Fuel Hydrant 3,440 8,451 (5,012) -59.3% Total Revenue 358,680 355,842 2,838 0.8% Expenses O&M Expenses 149,484 141,397 (8,087) -5.7% Corp Allocations 44,557 46,584 2,027 4.4% Total Operating Expense 194,042 187,982 (6,060) -3.2% NOI Before Deprec. 164,639 167,860 (3,222) -1.9% Total Depr Expense 107,349 108,427 1,078 1.0% NOI After Deprec. 57,290 59,433 (2,144) -3.6% Grants & Donations Revenue 37,783 75,709 (37,926) -50.1% PFC Revenues 60,708 59,941 767 1.3% CFC Revenues 22,947 19,960 2,987 15.0% Non-Operating Rev/Exp (103,790) (95,786) 8,004 -8.4% Excess of Revenue Over Exp. 74,937 119,257 (44,320) -37.2% Revenues Year End Results Public Parking revenues were down $1.75 million compared to budget. Though daily and weekly parking rates increased in November 2007, parking revenue per enplanement fell to $3.77, two cents off of the budgeted $3.79. Ground Transportation was $328K greater than budgeted levels on account of increased activity from taxis and courtesy vehicles. Commercial Properties revenues ended up $958K or 19% over budget from In-Flight Meals revenue and Sound Transit and Radisson payments being greater than budgeted. Concessions finished the year $1.69 million or 5.3% over budget due to performance in food & beverage concessions and increased space rentals. The total non-airline revenues were $2.06 million or 1.4% over budget for 2008. Expenses Year End Results Total division operating costs were over budget by $8 million on an Org basis and $6 million on a subclass basis mainly due to expenses related to OPEB benefits to Firefighters ($4.4 million), unbudgeted credit card fees and other assorted items in Airport Operations ($2.64 million), deicing fluid purchases and worker's comp claims in Maintenance ($1.28 million), expensing of capital-related write-offs ($2.8 million) and of asbestos-related projects ($2.5 million) as required by new accounting rules (GASB 49). To lessen the impact of overspending, other aviation departments have saved $5.1 million versus budget in addition with over $2 million in savings from Corporate/Seaport/Real Estate allocations. Non-Ops Year End Results FAA grant revenue was $11.2 million less than budgeted and TSA grant revenue was $29.1 million less than budgeted, leading to a shortfall for the year in Grants & Donations of $37.9 million after factoring in $2.48 million in unbudgeted donations and grants. st CFC revenues were nearly $3 million greater than budgeted due to increase in rate to $5 effective July 1 . 10 II. AVIATION DIVISION PERFORMANCE REPORT 12/31/08 E. CAPITAL SPENDING RESULTS (000's) 2008 2008 Variance Plan of Sponsor Actual Budget $ % of Bud Finance Airfield Airfield Pavement (1) 7,313 5,870 1,443 124.6% 4,571 Other 1,779 2,267 (488) 78.5% 5,919 Subtotal 9,092 8,137 955 111.7% 10,490 Business Development Properties (2) 5,310 2,184 3,126 243.1% 1,000 Other (3) 3,450 7,587 (4,137) 45.5% 8,088 Subtotal 8,760 9,771 (1,011) 89.7% 9,088 Division Wide Facilities (4) 3,068 7,132 (4,064) 43.0% 10,471 Miscellaneous (5) 1,266 3,818 (2,552) 33.2% (928) Other 24,973 32,580 (7,607) 76.7% 23,456 Subtotal 29,307 43,530 (14,223) 67.3% 32,999 Facilities & Infrastructure Mechanical Systems (6) 4,633 7,346 (2,713) 63.1% 6,226 Other 2,032 3,391 (1,359) 59.9% 9,658 Subtotal 6,665 10,737 (4,072) 62.1% 15,884 Landside Rental Cars (7) 39,592 58,181 (18,589) 68.0% 79,469 Other (8) 672 2,364 (1,692) 28.4% 6,017 Subtotal 40,264 60,545 (20,281) 66.5% 85,486 Noise Program Acquisition 16,429 20,764 (4,335) 79.1% 19,598 Residential Insulation (9) 1 6,020 (6,019) 0.0% 4,657 School Insulation (10) 4,054 14,351 (10,297) 28.2% 11,852 Subtotal 20,484 41,135 (20,651) 49.8% 36,107 Security Program (11) 35,954 48,467 (12,513) 74.2% 61,129 Stormwater Program 2,230 1,283 947 173.8% 5,902 Terminal & Tenants STEP (12) 14,167 24,233 (10,066) 58.5% 21,729 Ticketing Strategy (13) 188 7,099 (6,911) 2.6% 7,086 Other 15,269 18,853 (3,584) 81.0% 18,972 Subtotal 29,624 50,185 (20,561) 59.0% 47,787 Third Runway Projects 27,433 30,045 (2,612) 91.3% 49,366 Division Grand Total 209,813 303,835 (94,022) 69.1% 354,238 Footnotes 1) 16L/34R Reconstruction project was added mid-year and therefore not part of the 2008 Plan of Finance. 2) Street Vacations/DM Creek elevated from business plan prospective project during the year. 3) Concessions Flooring project delayed to avoid summer peak travel season. Tenant Reimbursements difficult to project. 4) Consolidated Warehouse project was delayed and a new site presented to Commission due to the need for value engineering cost reductions. 5) ARFF Station Update project was re-scoped and redesigned due to bids exceeding the engineers estimate. 6) Garage Escalator and "A" Elevator project delayed due to value engineering cost reduction and to minimize bid climate risk and ensure multiple bidders. 7) Rental Car Facility construction suspended pending improvement in the bond market. 8) South Access project cancelled and expensed. 9) Home Insulation Retrofit has slowed while research on remaining eligible parcels is being completed. Single Family Home Sound Insulation has slowed because of the contract process. 10) Expenditures dependent on Highline School District schedule. 11) Main Terminal 100% Baggage Screening behind schedule. 12) The dispute resolution process involving the STEP Security Bag and Checkpoint project has delayed schedule. 13) Alaska 2-Step project has been delayed as a result of delays in the C-1 project. 11 III. SEAPORT DIVISION PERFORMANCE REPORT 12/31/08 FINANCIAL SUMMARY Total Seaport revenues were $95.1 million, $7.1 million favorable to budget due to receipt of retroactive grant money from the Department of Ecology for Terminal 5 and Harbor Island superfund sites partially offset by lower than anticipated Security Grant Revenue. Security Grant projects are commencing later than assumed in budget. Expenses were $45.4 million, ($1.9) million unfavorable to budget due to higher than anticipated Environmental Reserve expense related to 2008 implementation of GASB49, partially offset by delayed spending on Security Grant projects. Security Grant projects are commencing later than assumed in budget. NOI before Depreciation was $49.7 million, $5.2 million favorable to budget and $5.8 million above 2007. Containers and Support Properties Services $34.5 million, ($2.2) million unfavorable to budget. Cruise and Industrial Properties $13.5 million, $3.6 million favorable to budget. Environmental Grants/Reserve $2.8 million, $3.6 million favorable to budget. Security ($1.2 million), $0.2 million favorable to budget. Depreciation was $28.5 million, $0.5 million favorable to budget NOI after Depreciation was $21.2 million, $5.7 million favorable to budget and $8.5 million above 2007. A. BUSINESS EVENTS TEU volumes for Seattle Harbor are down 13.6% in 2008 compared to 2007 levels. Total 2008 volume is 1,704K TEU's. 2008 full inbound TEU's are down 17.2%, full outbound TEU's are down 11.9. Key service changes impacting the results were the loss of MOL's PSX service to Tacoma (65K TEU's) and the implementation of COSCO's new service through Prince Rupert (53K TEU's). 2008 Cruise season ended with record passenger volumes of 886,039 passengers and 210 sailings, which reflected a 13.5% increase in passengers over 2007 volumes. Seattle cruise passenger volume exceeded Vancouver cruise passenger volume for the Alaska cruise market, for the first time in 2008. Grain vessels shipped an all time record volume of 6,401K metric tons of grain through Terminal 86 in 2008, which represents an increase of 20.0% over 2007 volume and an 8.5% increase over the prior record volume of 5,902K metric tons in 2006. Reactivation of Terminal 30 to a container facility is on schedule for completion in May 2009. Received $8.8 million in retroactive grant money from the Department of Ecology for Terminal 5 Puget Sound Resources and Harbor Island sediment superfund sites. As part of the Northwest Ports Clean Air Strategy, developed and implemented plan for ship and cargo handling equipment emissions reduction. SR-519 Phase II Memorandum of Agreement was finalized and Commission Approved Port of Seattle funding. B. KEY INDICATORS Total 2008 TEU volume was 1,704K down (13.6%) from 2007. Full inbound TEU's were down (17.2%) and full outbound down (11.9%). Grain record volume at 6.4 million metric tons is up 20% from 2007. Cruise record passenger volumes of 886,000 an increase of 13.5% over 2007. 12 III. SEAPORT DIVISION PERFORMANCE REPORT 12/31/08 C. INITIATIVES, GOALS AND MEASURES OBJECTIVES 2008 ENSURE SEAPORT VITALITY. Achieve financial objectives$45 Million NOI (excluding Environmental Reserves and Grants) for full year 2008: In 2008, each business unit YTD is $46.9 million, $1.6 million favorable to Budget. will contribute to the goal as follows: Container & Support Properties $36.8 YTD is $34.5 million, ($2.2) million unfavorable to budget. Million Cruise and Industrial Properties $9.9 YTD is $13.5 million, $3.6 million favorable to budget. Million Security $(1.5) Million YTD is ($1.2) million, $0.2 million favorable to budget. Environmental no target YTD is $2.8 million, $3.6 million favorable to budget. Provide compelling value that will attract and retain customers, and which will further the Port's financial objectives: Meet key milestones in our capital plan Seaport spent 70% of the 2008 Approved Capital Budget. Terminal 18 North Apron Project Project completed on schedule and within budget. Completion (Mach) T30/T91 project progress (Zahn) Project is on schedule. Authorization for additional funding to cover higher T91 building foundation costs and T30 upland disposal costs approved by Commission. Implementing long term agreements with Agreement in progressing of being finalized, Commission cruise lines that currently utilize Seattle as a approval granted in December of this year. homeport. (McLaughlin) Preserve our assets and increase their utilization: Bringing all in-use Port-owned cranes to Contingency plan to expedite repairs with back up gear fully operational status (Burke) boxes in place for Terminal 46 ZPMC cranes. Establishing crane audit procedures Reviewing maintenance records for Terminal 46 and (Burke) establishing ongoing record requirements. Identifying and acquiring off-dock support Search for properties will be performed by Real Estate land (Burke) Division with support by Container & Support Properties. Reviewed key elements of requirements with Real Estate Division. Increasing container business marketing Target achieved, 394 contacts made. efforts both directly and in conjunction with our terminal tenants (Styrk) Developing formal terminal condition Held condition meetings with terminal operator tenants. reports with our tenants (Burke) Regular quarterly meetings are held with tenants on an ongoing basis. Developing asset management plans for Focus on major container terminals initially, other facilities other facilities (Burke/McLaughlin) to follow. 13 OBJECTIVES 2008 DEVELOP NEW BUSINESS AND ECONOMIC OPPORTUNITIES FOR THE REGION AND THE PORT. Lease Terminal 106 (Burke) Preparation under way to issue a Request for Proposal (RFP) to identify future use of this facility. ENHANCE PUBLIC UNDERSTANDING AND SUPPORT OF THE PORT'S ROLE IN THE REGION. Conduct monthly speaking engagements in 9 speaking engagements in fourth quarter and 35 YTD. the community (Morris) Providing internships for students (Buchholz) 10 Interns (5 Seaport Marketing, 3 Environmental Services, 2 Planning). Strive to purchase at least 15% of all goods Full Year 2008: 5.57% of expense and 9.29% of capital. and services from qualified small, minority- Combined 6.87%. owned, women-owned and emerging business enterprises. (Buchholz) BE A CATALYST FOR REGIONAL TRANSPORTATION SOLUTIONS. Complete the Spokane Street/Terminal 18 Put on hold due to more pressing traffic issues impacting congestion mitigation study Terminal 46. Ensure that construction and design of the Construction and traffic mitigation plans reviewed and Alaskan Way Viaduct replacement do not comments submitted. Design and construction adversely affect operations management changes made. BE A LEADER IN TRANSPORTATION SECURITY. Meet the milestones of the Port's security The 2008 milestones established for the Seaport Security program Program are: Emergency Preparedness Business Continuity Planning continuing. Terminal 91 MTSA Revised Facility Security Plan submitted to Coast Guard for approval. Domestic Nuclear Detection Office - Small vessel Radioactive Material Detection Program completed and equipment delivered. Emergency Management Resources Initial Emergency Coordination Center/Situation Room equipment received with supplemental items deferred. Increase the Port's security score by Port Security Grants 6 & 7 enhancing improvements to continuing to reduce our vulnerability for Marine Domain Awareness and Security Monitoring. security incidents in Port facilities Rounds 7B/8 have developed a Port Resiliency/Recovery Plan for the Area Maritime Security Committee to be submitted to DHS for approval next quarter. Ensure successful implementation of the Focusing outreach materials to specific industry Transportation Worker Identification segments. Credential(TWIC) requirements Meeting Facilitation Outreach Meetings held at Port of Seattle and Tacoma. Trucker information distributed to key locations. Enrollment of Staff All critical personnel have nd enrolled with 2 phase staff enrolling as needed. TWIC Implementation to start February 28, 2009. 14 OBJECTIVES 2008 EXHIBIT ENVIRONMENTAL STEWARDSHIP THROUGH OUR ACTIONS. Achieve/maintain zero regulatory violations Violations regarding over dredging at Terminals 30 and 91 st were discovered and self reported in the 1 half of the year. These issues were resolved with the Army Corps of Engineers regulators by year end. Implementing Northwest Ports Clean Air Further developed implementation plans for Trucking and Strategy completed implementation plan for Ocean Going Vessels. Developed reporting and verification framework with Port of Tacoma and Port of Metro Vancouver. Develop stormwater best management Stormwater pollution prevention plan is on schedule to be practice program completed by March 2009 and the operations and maintenance program has been developed. Both of these include Best Management Practices. Develop Duwamish River plan integrating Public meetings targeting both industrial users and maritime industrial uses, public shoreline community members were held. Separate outreach access, treaty fishing, and habitat strategies implemented for community and water restoration. dependent businesses. BE A HIGH PERFORMANCE WORKPLACE. Provide our staff with regular feedback and 18% 1 week prior to anniversary date support by completing 100% of staff 26% by anniversary date performance reviews one week before the 56% late anniversary date Complete PREP plans with training, 100% of PREPs that were completed during 2008 had development, and diversity components completed PREP plans with training, development and diversity components. Achieve a perfect safety score and zero OIR (Occupational Injury Rate) for the Seaport for 2008 accidents by providing our staff with the was 0.0. necessary tools and training (Moses) 15 III. SEAPORT DIVISION PERFORMANCE REPORT 12/31/08 D. OPERATING RESULTS IN THOUSANDS $ In $ Thousands 2007 2008 2008 2008 Bud Var Actual Actual Budget $ % Operating Revenue 77,630 85,423 82,771 2,653 3% Environmental Grants 973 8,833 207 8,626 4174% Security Grants 1,292 850 5,004 (4,154) -83% Total Revenue 79,895 95,106 87,982 7,125 8% Direct Expenses 17,359 21,877 21,993 116 1% Security Expense 2,256 1,715 6,180 4,466 72% Environmental Reserve 4,983 5,996 950 (5,046) -531% Allocations 11,423 15,829 14,357 (1,472) -10% Total Expense 36,020 45,417 43,480 (1,936) -4% NOI Before Depreciation 43,875 49,689 44,501 5,188 12% Depreciation 31,198 28,465 28,951 486 2% NOI After Depreciation 12,676 21,225 15,550 5,675 36% NOI Excl Envir Grants/Reserve* 47,884 46,853 45,245 1,608 4% NOTE:* NOI Excl Envir Grants/Reserve is Before Depreciation Total Seaport revenues were $7,125K favorable to budget. Key variances Containers and Support Properties unfavorable ($492K). Containers unfavorable ($836K). Space Rent unfavorable ($1,785K). Terminal 5 is unfavorable due to termination of month to month lease on 23.2 acres of Option Area ($1,337K) and due to understatement of the Terminal 5 straight-line rent adjustment in the Budget ($553K). Terminal 18 unfavorable ($71K) due to set up of reserve for Q1 2009 principal payment due on Special Facility Revenue Bonds. Amounts were not factored into Budget. Terminal 25/28 favorable $178K due to expected rent abatement, not needed, during T30 Phase II construction. Crane Rent Revenue $156K favorable. Terminal 46 favorable $140K due to rate differential for box moves in excess of 2008 annual guaranteed minimum applied toward 2006 shortfall balance. Terminal 5 is favorable $32K due to higher usage of Tariff cranes than factored into budget, partially offset by unfavorable rate variance. Terminal 18 unfavorable ($16K) due to unfavorable rate variance. Terminal 5 Intermodal Revenue ($123K) unfavorable due to lower than expected intermodal moves. Contract Revenue $439K favorable due to King County reimbursement for 50% share of T-30 dredging upland disposal costs. Utility Revenue $277K favorable due to acreage correction for drainage billing to containers terminals in 2008. Support Properties $331K favorable due to recognition of revenue from Shippers Transport lease termination ($228K), as well as from CPI increases and lease renewals ($85K). Cruise and Industrial Properties favorable $3,145K. Cruise $1,405K favorable - due to higher than anticipated passenger volumes ($440K), 'Savings Rent' generated by lower than anticipated CTA operating expenses ($408K), and other income higher than expected ($557K). Bulk Terminals $1,412K favorable. Terminal 86 grain volume exceeded budget by 16%. Docks $547K favorable due to favorable barge activity from both preferential and non-preferential use customers and due to favorable fishing activity from preferential use customers. Industrial Properties unfavorable ($234K) primarily due to lower than anticipated Utility Income, partially offset by lower than anticipated Utility Expenses. Other factors include an overstatement of Carnitech percentage rent ($127K) in the Budget and an unfavorable variance related to two tenants budgeted in Seaport Division, but belonging in Real Estate Division ($204K), partially offset by revenue recognition from the SCS lease termination at Terminal 25 South ($75K) and by CPI increases not anticipated in the 2008 budget ($341K). 16 III. SEAPORT DIVISION PERFORMANCE REPORT 12/31/08 Environmental Grants favorable $8,626K due to receipt of retroactive grant money from the Department of Ecology for Terminal 5 and Harbor Island superfund sites. Security Grants unfavorable ($4,154K) due to Rounds 6 and 7 grant activities commencing later than planned, more than offset by a corresponding favorable expense variance. The remaining project grant activities are expected to occur in 2009 or early 2010. Expenses were unfavorable ($1,936K) to budget. Key variances: Security favorable $4,466K primarily due to Round 6 and 7 grant activities commencing later than planned. Amount is partially offset by corresponding unfavorable revenue variance above. Environmental Reserve unfavorable ($5,046K) due to implementation of GASB 49 in July. Litigated Injuries & Damages - favorable $758K primarily due to adjustment to prior year accrual to recognize the Port's anticipated share of legal expenses for Wyckoff/Puget Sound Resources litigation matter. Maintenance unfavorable ($1,270K) due to work on Terminal 46 Cranes, costs to repair a break in a water main at Terminal 104, costs to monitor the unoccupied warehouse building at Terminal 106, costs to prepare Terminal 91 building C-173 for a new tenant, and work at Terminal 5 which is to be reimbursed by the tenant. Amount partially offset by $357K in Reimbursement Revenue for work done directly for tenants. Allocated Overhead to Capital Projects favorable $507K due to higher percentage of overhead expenses charged to capital projects than assumed in Budget for Project Management. Corporate costs, direct and allocated, unfavorable ($1,670K) due to Engineering and Port Constructions Services (unbudgeted expense projects completed for the Seaport), Corporate Contingency (audit related costs) and Economic & Trade Development. Amounts were partially offset by favorable variances from Human Resources, Procurement Services, Risk Management, Social Responsibility and Police. All other variances netted to a favorable $319K or less than 1% of Total Expenses Budgeted. NOI Before Depreciation was $5,188K favorable to budget. Depreciation was favorable $486K due to timing difference between actual and budgeted new asset inservice dates and due to budgeted depreciation for projects that were cancelled after completion of the budget. NOI After Depreciation was $5,675K favorable to budget. CHANGE FROM 2007 ACTUAL NOI Before Depreciation increased by $5,814K from 2007 - primarily due to the $8,833K in Environmental Grant revenue received in 2008 and the increase in the Eagle Rate on container terminal leases that went into effect on January 1, 2008. The 2008 revenue increase was partially offset by increased Environmental Reserve costs related to implementation of GASB 49 in 2008, higher than anticipated expenses due to FTE transfers related to the January 1, 2008 reorganization, the cost of T30 dredge upland disposal, relocation of cruise assets and T-30 shorepower, increased repair costs on T46 cranes, street use/permit fees, and costs associated with the performance audit response/compliance. Litigated Injuries & Damages expense was lower in 2008 due to an adjustment in the Port's anticipated share of legal expenses for Wyckoff/Puget Sound Resources litigation. 17 III. SEAPORT DIVISION PERFORMANCE REPORT 12/31/08 E. CAPITAL SPENDING RESULTS---IN THOUSANDS $ 2008 2008 Approved Variance to Actual as a % 2008 Plan SEAPORT DIVISION Actual Budget Budget of Budget of Finance Terminal 30/91 Program 62,887 71,695 8,808 88% 67,253 Terminal 18 6,310 8,521 2,211 74% 14,042 Terminal 91 6,304 8,221 1,917 77% 9,931 Terminal 115 4,199 14,524 10,325 29% 7,496 Terminal 25 2,904 1,461 (1,443) 199% 2,475 Cruise 3,250 2,294 (956) 142% 2,379 Security 1,295 7,000 5,705 19% 5,947 Green Port Initiative 0 5,000 5,000 0% 5,000 Terminal 5 392 1,630 1,238 24% 1,760 Terminal 46 - Dock Operations 487 0 (487) NA 0 Pier 24 58 646 588 9% 491 Terminal 10 93 2,913 2,820 3% 6,554 Small Projects 20 940 920 2% 940 Public Access at T30 57 528 471 11% 4,948 All Other 267 1,563 1,296 17% 2,740 Total Seaport 88,523 126,936 38,413 70% 131,956 Comments on Key Projects: Seaport spent 70% of the 2008 approved capital budget for the Division. New projects approved that were not included in the 2008 Capital Plan: Terminal 25 South Container Yard $4,400K approved for initial design, permitting, and Phase 1 construction. Terminal 91 City Ice Bldg W40 $450 approved for initial design, permitting and in-house demolition work. T10 Redevelopment This project replaced the former T10 Uplands project with a new scope of work. Terminal 91 Mobile Gangways $6,460K approved for gangway procurement and installation at the new cruise terminal at T91. Terminal 46 North Slip Fender Improvement (Dock Operations) $825K approved to replace the failed timber fender pile system along 400 lineal feet of the north face of T46. Projects with significant changes in spending were: Terminal 30/91 Program A schedule slippage due to unforeseen field conditions at T91 resulted in delayed work performance and overall delay in contractor billings for T30 & T91. Project is scheduled to be completed in time for the 2009 cruise season. Terminal 115 Dock Reconstruction Construction of Berths 2,3,4 & 5 is complete and the costs were less than expected. Berth 1 project has a late start date because additional sediment sample analysis was required by the agencies and the dredge work required revisions. Construction pushed back to 2009 and 2010. Green Port Initiative Capital projects have moved out to 2009. Terminal 30 Public Access Street vacation delayed by the City. Spending moved to future years. Terminal 18 North Apron Project was completed in 2008 and is in process of being closed out. Cruise Tenant Improvement Allowance 2008 spending has been moved to 2009 to accommodate the start-up of the new cruise terminal. P66 Baggage Corridor and Passenger Screening Project was put on hold pending final definition and design of scope change. Spending was moved to 2009. Pier 91 Development (Carnitech) Construction is complete. Project in final close-out phase. Terminal 91 Berth M Construction is complete. Wrapping up claims with contractor. Project is expected to come in under budget due to limited need for use of contingency amounts. 18 III. SEAPORT DIVISION PERFORMANCE REPORT 12/31/08 Seaport Security Round 6 Project Federal Government has a hold on the grant funding, but working with the federal grant administrator to release the funding. Spending will occur later than anticipated in 2008 Capital Plan. Seaport Security Round 7 Project - Projects are still under design, and must be defined for presentation and approval by Commission. Memorandum of Agreements with sub recipients are being drafted and prepared for signature. Note*: Changes between the 2008 Plan of Finance and the 2008 Approved Budget represent modifications in 2008 spending estimates made after determination of 2007 actual spending. 19 IV. REAL ESTATE DIVISION PERFORMANCE REPORT 12/31/08 FINANCIAL SUMMARY Total Real Estate revenues were $34.9 million, $2.7 million favorable to budget primarily due to more event activity at Bell Harbor International Conference Center than budgeted. Expenses were $38.8 million, ($6.1) million unfavorable to budget primarily due to expensing of costs that had been capitalized in connection with a plan to develop North Bay. NOI before Depreciation was ($3.9) million, ($3.4) million unfavorable to budget. Harbor Services was $.4 million, $.2 million favorable to budget. Property Management and Leasing was $3.2 million, $3.4 million favorable to budget. Development and Planning was ($6.9) million, ($6.5) million unfavorable to budget. Environmental Grants and Reserve was ($.6), ($.5) million unfavorable to budget. Depreciation was $10.0 million, ($.3) million unfavorable to budget NOI after Depreciation was ($14.0) million, ($3.7) million unfavorable to budget. A. BUSINESS EVENTS The sale of Pier 48 to the Washington Department of Transportation closed in August. The Port received $10.9 million and is indemnified for any potential environmental cleanup costs. Sales price was $10.9 million and resulted in a gain on sale of $9.6 million which is recorded as non-operating revenue on the Real Estate Division's income statement. Fishermen's Terminal - Replacement of inner harbor docks (5-10) and utilities completed. Project close-out in progress and indicators are that the project will be approximately $2.5 million under the originally authorized budget of $22 million. Full use of moorage spaces effective end of June. Shilshole Bay Marina - Replacement of 22 docks and various landside improvements, including a new Marina Building and north end sailing center restroom/shower building completed. Project close-out in progress and indicators are that the project will come in slightly under the $80 million budget. Full use of docks end of June. Anthony's Restaurant terminated lease negotiations. Site improvements in the area will be completed in 2009 pending Commission briefing; this work will be done within the approved budget. rd On June 3 , the lease with Odyssey Maritime Discovery Center (ODMC) was terminated. The Port amended the Bell Harbor International Conference Center Management Agreement to include the former ODMC space through December 31, 2008. In August a Request for Proposal for a new lease, commencing in 2009, of the former Odyssey Maritime Discovery Center (ODMC) space was submitted. In September, a bid was received from Columbia Hospitality to utilize the space as an event center. After review, the bid was accepted and lease negotiations are currently in process with execution anticipated in the first quarter of 2009. Occupancy levels at Commercial Properties are at 97% which is above comparable statistics for the local market. Northbay T91 - Korry Electronics withdrew from ground lease negotiations in March. The development of the property as originally planned pursuant to the Harbor Development Strategy 21 was deemed no longer probable. A final decision was made to write-off all capital costs associated with the project in August 2008. B. KEY INDICATORS Occupancy Rates: Commercial property at 97% occupancy, above target of 95% and above market average of 89%. FT/Marina Occupancy: Two of five exceed full year occupancy targets. Bell Harbor, Fishermen's Terminal and Shilshole Bay Marina below targets. Environmental Stewardship: No environmental/regulatory violations. High Performance Workplace: Occupational Injury Rate at 11.12 down from 12.25 in 2007. 20 IV. REAL ESTATE DIVISION PERFORMANCE REPORT 12/31/08 C. KEY INITIATIVES GOALS AND MEASURES OBJECTIVES 2008 ENSURE SEAPORT VITALITY MAXIMUM FINANCIAL PERFORMANCE: Achieve 2008 year-end NOI Before Depreciation and NOI Before Depreciation and Environmental Environmental Grants and Reserve of $(526,943) Grants and Reserve is ($3,338K) unfavorable variance of ($2,811K). Variance reflects the expensing of North Bay capitalized costs. Development & Planning - $(409,905) NOI before depreciation is ($6,954K) unfavorable variance of ($6,544K). Variance reflects the expensing of North Bay capitalized costs. Harbor Services - $127,183 NOI before depreciation is $381K favorable variance of $254K and in excess of 100% favorable to budget. Property Management and Leasing - $(244,221) NOI before depreciation is $3,235K favorable variance of $3,479K. SERVICE GROUPS (ORG EXPENSES) Maintenance - $(10,334,800) Net Org Expenses $(11,353K) unfavorable variance of ($1,018K) and 9.9% unfavorable to budget. Facilities Management $(1,844,854) Net Org Expenses $(1,720K) favorable variance of $125K and 6.8% favorable to budget. INCREASE ASSET UTILITIZATION: Commercial: Maintain 95% occupancy rate Exceeds Q4 occupancy is 97% Moorage Occupancy - Annual Averages: Moorage Occupancy 2008 Averages: SBM-93% SBM below (91%; goal 93% ) HIM-90% HIM above (91%; goal 90%) BHM-84% BHM below (79%; goal 84%) FT-90% FT - below (89%; goal 90%) MIC-75% MIC - above (77%, goal 75%) Develop and Implement Asset Management Plans Maritime Industrial Center (MIC) asset condition assessment completed in Q2. Fishermen's Terminal (FT) asset condition assessment is rescheduled for 2009. 21 OBJECTIVES 2008 DEVELOP NEW BUSINESS AND ECONOMIC OPPORTUNITIES FOR THE REGION AND PORT BY: Reducing vacancies in properties and maximizing 8 new leases and 25 renewals executed in 2008. land value. ENHANCE PUBLIC UNDERSTANDING AND SUPPORT OF THE PORT'S ROLE IN THE REGION Conducting monthly speaking engagements in the 48 speaking engagements in 2008. community. Providing 25 students with internships, 28 for the year (24 Maintenance, 4 Harbor apprenticeships and training Services). Purchase at least 15% of all goods and services from qualified small or disadvantaged businesses. 21.4% of expense and 18.1% of capital. Combined 20.6%. WE WILL BE ON OUR WAY TO BEING THE GREENEST/CLEANEST AND MOST ENERGY EFFICIENT PORT IN THE US BY: Incorporating sustainable asset management Sustainability metrics consistently incorporated protocols. into planning and development projects. 2008 Incorporating sustainability metrics into all examples: FT Building C15 sewer line and T104 planning and development projects. emergency water line repair projects. Identifying opportunities for reduction in utility 2008 electrical consumption at Pier 69 was 1.6% consumption across the Division. lower than 2007 while average outside temperature was 6% colder. Reducing garbage tonnage by 10% and increase Maintenance implemented a new recycling recyclables by 10%. awareness program which has reduced garbage tonnage by 58% BE A HIGH PERFORMANCE ORGANIZATION All PREP's completed one (1) week prior to 42% 1 week prior to anniversary date anniversary date 26% by anniversary date 32% late Completing PREP plans with training, 100% of PREPs that were completed by the end development, and diversity components of 2008 had completed PREP plans with training, development and diversity components. Achieving a perfect safety score and zero OIR (Occupational Injury Rate): Marine accidents by providing our staff with necessary Maintenance: 15.39; Harbor Services: 3.91; tools and training. Property Management 0.0, Total Real Estate: 11.12. Comparable OIR in 2007 was 12.25 22 IV. REAL ESTATE DIVISION PERFORMANCE REPORT 12/31/08 D. OPERATING RESULTS -- IN THOUSANDS $ In $ Thousands 2007 2008 2008 2008 Bud Var Actual Actual Budget $ % Operating Revenue 32,196 34,905 31,290 3,615 12% Environmental Grants 531 1 893 (892) -100% Total Revenue 32,727 34,906 32,183 2,723 8% Direct Expenses 28,991 36,402 30,310 (6,092) -20% Environmental Reserve 8 604 950 346 36% Allocations 860 1,841 1,506 (334) -22% Total Expense 29,859 38,847 32,767 (6,081) -19% NOI Before Depreciation 2,868 (3,941) (584) (3,357) -575% Depreciation 9,182 10,033 9,692 (342) -4% NOI After Depreciation (6,314) (13,974) (10,275) (3,699) -36% NOI Excl Envir Grants/Reserve* 2,345 (3,338) (527) (2,811) -533% NOTE:* NOI Excl Envir Grants/Reserve is Before Depreciation REVENUES: FAVORABLE $2,723K Harbor Services: Unfavorable ($88K) Recreational Boating Unfavorable ($219K) primarily due to construction at SBM and longer lead time to move a thousand customers from temporary slips to permanent slips than assumed in budget. Fishing and Commercial Favorable $132K due to increased demand and boat size. Property Management and Leasing Favorable $3,087K Commercial Properties Favorable $748K primarily due to higher occupancy at T-102 (tenants assumed to vacate at end of lease terms did not) $404K and higher than anticipated concessions rent, space rent, and Common Area Maintenance charges at Bell Street Pier 66 in the amount of $236K. Third Party Managed Properties Favorable $2,339K due favorable activity at Bell Harbor International Conference Center and World Trade Center Club. Development and Planning: Favorable $603K Terminal 91 General Industrial Favorable $566K due to tenants budgeted in Seaport Division, but belonging in Real Estate Division $253K and several new or renewal leases not anticipated in the budget in the amount of $287K. Pier 48 Favorable $149K due to later than planned sale of facility which has resulted in additional rent to the Port from tenants at the site. Property was sold in the third quarter. Pier 2 Unfavorable ($112K) due to termination in late 2007 of a month to month lease at the site and adjustment of past rent for former trucking tenant at the site. Environmental Grants: Unfavorable ($892K) Environmental Grant revenue relating to Real Estate Division properties was lower than anticipated in the 2008 Budget. 23 IV. REAL ESTATE DIVISION PERFORMANCE REPORT 12/31/08 EXPENSES: UNFAVORABLE ($6,081K). KEY VARIANCES: Capital to Expense unfavorable ($7,274K) reflects the write-off of capital costs incurred to develop North Bay site. The accounts significantly impacted by the write-off includes Outside Services ($6,085K) and Department Expense Charged to Capital Projects ($1,187K). Salaries and Benefits for Real Estate groups favorable $545K due to later than budgeted filling of open positions. Third Party Management Expense unfavorable ($1,000K) due to higher activity than budgeted at Bell Harbor International Conference Center( $1,088K) (more than offset by favorable revenue variance). Amount is partially offset by lower expenses at World Trade Center Club (even with higher revenue) and World Trade Center West building. Environmental Reserve favorable $346K due to smaller impact to Real Estate Division of implementing GASB 49 than assumed in Budget. Outside Services (excluding Capital to Expense, Maintenance and Corporate) favorable $461K due to postponement of expense projects including the Fishermen's Terminal Condition Assessment, piling replacement at Fishermen's Terminal and the Maritime Industrial Center, delay in processing new janitorial contract, and unused tenant improvement funds due to tenants in holdover status. Favorable amounts were partially offset by tenant improvements and broker fees related to new tenant at World Trade Center West. Budget assumed these new tenant related expenses would be recognized in 2007. The use of temporary personnel at Shilshole Bay Marina to cover vacant positions also partially offset the favorable variances in the other areas. Maintenance expenses direct and allocated unfavorable ($385K) primarily due to unplanned expense work at Shilshole Bay Marina relating to managing warranty work and resolving electrical issues, cost overruns at Fishermen's Terminal relating to L&I lighting and other electrical work, various repairs at T91 Uplands including repair of a stairway on the Magnolia Bridge. In addition, Maintenance overhead was above budget due to increased vehicle fuel costs and retroactive pay related to new contracts for represented workers. Unfavorable variances were partially offset by the deferral of the Asset Condition Assessment at Fishermen's Terminal and a portion of the West Wall Building Window Replacement until 2009. Bad Debt expense favorable $1,158K primarily due to assets received in settlement for unpaid rent in connection with Odyssey Maritime Discovery Center termination agreement. Corporate costs direct and allocated unfavorable ($46K). Favorable variances in Engineering, Public Affairs, Port Construction Services and Police were more than offset by unfavorable variance from Corporate Contingency (audit related costs) and Information & Communication Technology. All other variances netted to a favorable variance of $114K or less than 1% of Total Expenses Budgeted. DEPRECIATION: UNFAVORABLE ($342K): Harbor Services Commercial: Unfavorable ($77K) less than 2% of budget. Property Management and Leasing: Unfavorable ($12K) less than 1% of budget. Development and Planning Unfavorable ($254K) due to delay in transferring Terminal 91 Seaport related assets to Seaport Orgs from Real Estate Orgs and unbudgeted depreciation for Pier 48 which was expected to be sold in first quarter 2008. Property was sold in August 2008. CHANGE FROM 2007 ACTUAL NOI Before Depreciation decreased by ($6,809K) from 2007. Revenue increased by $2,179K due to more revenue from Shilshole Bay Marina (construction ending) and increased activity at Bell Harbor International Conference Center. Amounts are partially offset by decrease of ($530K) in Environmental Grant Revenue. Expenses increased by $8,988K due to the expensing of capitalized development costs associated with the North Bay site, higher expenses at Bell Harbor International Conference Center (more activity), increased maintenance expenses and corporate allocations. Amounts are partially offset by Bad Debt expense recovered as a result of the termination agreement with the Odyssey Maritime Museum $1,132K. 24 IV. REAL ESTATE DIVISION PERFORMANCE REPORT 12/31/08 E. CAPITAL SPENDING---IN THOUSANDS $ 2008 Approved Variance to Actual as a % 2008 Plan of REAL ESTATE DIVISION 2008 Actual Budget Budget of Budget Finance Eastside Rail Corridor 10,655 106,955 96,300 10% 103,000 Fishermen's Terminal Docks 5,404 6,992 1,588 77% 5,961 Shilshole Bay Marina 2,918 4,120 1,202 71% 3,794 Small Projects 693 2,293 1,600 30% 1,470 Fleet Replacement 373 592 219 63% 600 Central Watefront Utility Upgrade 449 585 136 77% 452 FT C15 Bldg Sewer Line Upgrade 349 0 (349) NA 0 Tenant Improvement - Capital 0 660 660 0% 660 Marina Management System 202 305 103 66% 241 Terminal 91/North Bay 0 1,500 1,500 0% 1,500 Terminal 102 HVAC Renewal/Replace 91 257 166 35% 0 Bell St. Garage Safety Improvements 46 569 523 8% 460 Others 16 500 484 3% 500 Total Real Estate 21,196 125,328 104,132 17% 118,138 Comments on Key Projects: Real Estate spent 17% of the approved capital budget for the year. Projects with significant changes in spending were: Eastside Rail Corridor Credit market disruption has delayed closing to first quarter of 2009. Fishermen's Terminal Docks 5-10 Project Dock construction complete. Project close out in progress. Expected to be approximately $2.5 million under budget. Shilshole Bay Marina Construction is generally completed with the exception of the esplanade lighting which will be completed in 2009. The contract is being closed out and is expected to come in within the original $80 million budget. The build out of the restaurant is no longer planned and pending Commission approval in 2009, temporary site improvements will be made in this area thus completing the capital improvements at Shilshole by the end of 2009. This remaining work is also included in the $80 million budget. Small Projects Several budgeted projects will move into 2009. Fleet Replacement Purchase of a sweeper truck expected in 2008 has been moved out to 2009. Central Waterfront Utility Upgrade Project was delayed due to change in contractors. C15 Sewer Line Upgrade Project Project was a Business Plan Prospective project in the 2008 Capital Plan. Approved by Commission on 1/15/08 for $600K. Project is under construction. Some spending has moved to 2009 due to change order negotiations with contractor. Tenant Improvements Capital No tenant improvements in 2009 qualified to be capitalized. Terminal 91 North Bay - Project is cancelled, and all charges have been expensed. Terminal 102 HVAC Renewal/Replace - Construction was delayed due to lease issues. Property Manager is working out issues with the tenant. Spending was moved to 2009. Bell St. Garage Safety Improvements Project will start later than originally assumed due to delay in negotiations with designer. Contract is now executed. Plan to go to Commission for spending authorization in the first quarter of 2009. Note*: Changes between the 2008 Plan of Finance and the 2008 Approved Budget represent modifications in 2008 spending estimates made after determination of 2007 actual spending. 25 V. CORPORATE PROF. & TECHNICAL SERVICES PERFORMANCE REPORT 12/31/08 A. BUSINESS EVENTS Risk Management: o Continued to provide divisions with services in claims management, contractual risk analysis, risk assessment, risk financing and insurance purchasing. Health & Safety: o A Wellness Incentive program was launched in February 2008. Employees with Port health care insurance must achieve 1000 wellness points to offset any premium sharing in 2009. To date, 1162 employees have completed the health assessment and 1024 employees have achieved the 1000 point goal. Public Affairs: o Audit Response constituency communication and coordination of public hearings. o Third Runway completed. Positive media coverage was garnered throughout the year o Eastside Rail Corridor communications and coordination of public meetings held in Snohomish, Woodinville, Bellevue, Kirkland and Renton. o Welcome/media event for Nobel Peace Prize recipient and former South Korean President Kim Dae Jung, who introduced Sunshine Policy with North Korea; managed Korean American media. o Held two 2008 Annual Community Meetings: Harbor tour and Bus tour on the new Third Runway Economic, Business & Trade Development (EBTD): o EBTD was the lead organizer of activities surrounding the visit of a delegation from the Port of Dalian led by Chairman Yuan Fuxiu on April 16-17. The visit coincided with the one year anniversary of the signing of our friendship port agreement. Activities included a briefing on the Port of Seattle, a terminal tour, and a dinner. o Hosted an India Delegation from Gujarat, including the Gujarat city government, Maritime Board, the Port of Gujarat, and representatives from other logistics/maritime related industries. Human Resources and Development: o The HR-18 Standards of Performance and Conduct, Corrective Action and Discipline procedure was revised to incorporate reference to the new fraud policy (EX-18, Fraud Awareness and Prevention, Loss of Public Funds and Assets) and to list fraud as a potential case of gross misconduct which could result in severe discipline, up to termination of employment. Information & Communication Technology (ICT): o New Airport Parking Management System - ICT designed and deployed a complex system of cameras, signs, and highly sophisticated software to direct customers to areas in the parking garage with available parking. This new system has improved overall customer satisfaction dramatically. Since its inception, this system has become nationally recognized because of the unique utilization of video analytic technology. This accomplishment sustains airport vitality, public understanding, and regional transportation. o New Police and Fire Dispatch System - This new system provides vastly improved dispatch capability for emergency responders. The new system improves interfaces to fire alarms, surveillance systems, access control, map data, wireless devices, and records management. It also provides Port police and firemen access to State, National, and Regional databases. This effort sustains airport and seaport vitality, transportation security, and a high-performance organization. Finance & Budget: Budget o Finance & Budget was awarded the prestigious "Distinguished Budget Presentation Award" from the Government Finance Officers Association of the United States and Canada (GFOA), for the 2008 Budget. o Implemented the new budget system and provided budget user training. o Completed all the budget reviews and documents as scheduled. o Filed the 2009 statutory budget approved by the commission with King County Council and Assessor in November as required by law. o Monitored corporate operating performance and commitment control budgets. o Identified cost savings and revised 2008 budget to offset unplanned Performance Audit response costs. 26 V. CORPORATE PROF. & TECHNICAL SERVICES PERFORMANCE REPORT 12/31/08 Finance o Refunded 2003 auction rate bonds into variable rate demand bonds backed by a direct pay letter of credit. o Annual update with rating agencies. o Completed annual disclosure report and submitted material event notices regarding bond insurer downgrades. Treasury o Replaced forward delivery investment agreement to T-18 reserve fund to improve the quality of delivered investments. o Investment Portfolio earned 4.04% compared to benchmark yield of 2.01%. Strategic Planning o Continued developing the work plan for the Century Agenda long-range Port-wide strategic plan update, to be completed in time for the 2011 Port of Seattle Centennial. Office of Social Responsibility: o Ship to Shelter donation program launched. Program developed and coordinated in partnership with Holland America Line, Northwest Harvest, Customs, and terminal operator and Public Affairs Department. Regional Transportation: o The Viaduct/Seawall Collaborative Process completed a year of study, and Port held two Working Waterfront Forums to allow freight and waterfront interests an area to share their opinions; port staff provided Building Block and Scenario analysis. o The Joint Commissions of the Ports of Seattle and Tacoma met to review and discuss transportation infrastructure issues. Police Department: o Police Department continued close cooperation with the U.S. Department of Homeland Security (including the U.S. Coast Guard, the Transportation Security Administration, and other Federal agencies), as well as regional, State, County, and municipal agencies. This cooperation is exemplified by the department's participation in various task forces, regional teams, committee memberships, and Mutual Aid relationships. B. GOALS AND STRATEGIC ISSUES PROGRESS Executive: o Audit Response Milestone Report submitted to the State Auditor's Office addressing his 51 recommendations for improvement and corrective actions. o Organizational Changes Completed implementation of organizational changes outlined in 2007. o Strategic Planning Conducted transparent strategic planning processes with input from key stakeholders. o Be a High Performance Organization. o Implement "Green Initiative" at Seaport and Airport. Commission: o Environmental Leadership to front and center of entire organization. Legal: o To provide public record administration. o To provide Port-wide classes regarding relevant legal issues. 27 V. CORPORATE PROF. & TECHNICAL SERVICES PERFORMANCE REPORT 12/31/08 Risk Management: o Maintain cost effective property and liability insurance for the Port. o Continue to search for alternatives to traditional earthquake insurance for funding of property damage following a major earthquake. o Manage the Port's Driver Safety Program which includes managing drivers with commercial driver licenses including and oversight of drug testing for these drivers. Health & Safety: o Collaborate on safe work practices and promote a healthy work force. Public Affairs: o Communicated the Port's Message: Position and response on State Performance Audit to customers and community. Port's priorities and importance of freight through Working Waterfront Forum aimed at Viaduct issues and freight mobility. o Enhance public access to Port information through a variety of communication vehicles: E-news bulletins are reaching more than 9,000 subscribers, increased by 30% since March '08. Produced our first electronic annual report and electronic holiday card. Commission meetings are streamed live on our intranet and Internet, the audio is posted on the Web site immediately after meetings, and video files are chaptered and archived. The meeting tapes are also shown on King County TV each Sunday. Worked to improve the Port's transparency with the Audit Task Group; helped develop progress reports and summaries posted on an Accountability site for the public, linked from Compass for employees. External Affairs: o Support efforts to acquire and plan for use of BNSF Eastside Rail Corridor: Numerous meetings in community with citizens and elected leaders about development options for corridor; draft public process program. o Support Port transportation strategies including replacement of Alaskan Way Viaduct, East Marginal Way grade separation and other transportation requirements. Economic, Business & Trade Development: o Assisted Aviation Division with their work to set up two new direct Seattle China services: Hainan Airlines and Great Wall All-Cargo Airlines. o Partnered with the Pacific Market Center (PMC) in an effort to establish a Chinese pavilion at the January 2009 Seattle Gift and Home Accessories show. Engineering: o Provide site information, design services, construction services, contract administration, survey, and drafting for new developments o Update and maintain Engineering Standards, Master Specification, QA/QC, and Life cycle analysis. o Maintain leadership role in regards to environmental construction compliance, i.e. erosion control and clean water management; Green Building and LEED certified buildings, Sustainable Asset Management initiative and other similar programs Port Construction Services: o Continue to manage the Port's small works program in a manner that reflects the goals, values and principles of the Port by providing a quick cost effective means to accomplish small projects. 28 V. CORPORATE PROF. & TECHNICAL SERVICES PERFORMANCE REPORT 12/31/08 Human Resources & Development: o Implement a new Learning Management System (LMS). The LMS launched in September was on time and nearly trouble free and continued implementation of it has supported employee use and skill with it. o Pilot a Military Veterans Fellow Program. Extensive outreach resulted in six fellows now on board and successfully participating in the program. o The Mayo Clinic's "Embody Health" Program (in partnership with Health & Safety). The Wellness Rewards Program was launched February 14. Numerous information sessions were held around the Port during January, and the points system was fine-tuned based on employee input. On-site biometric testing was provided, along with numerous classes and brown-bag sessions. At the end of the program on October 31, only 42 employees had not achieved their 1,000 points. Forms authorizing payroll deduction on a pretax basis for 10% of their premiums were collected from each of these employees. Labor Relations: o Worked with managers to negotiate contract changes directly related to the vitality of the Airport and Seaport. Contract negotiations in 2008 are near completion. o Instrumental in bringing to the table both the Port and Union Officials on economic issues affecting the Port including the Rental Car Facilities, and the STIA Parking Garage. o Continued with its training sessions to ensure that the Port overall understands the labor contract process. Information & Communication Technology (ICT): o Services focused on managing the Port's enterprise Information and Communication Technology systems, services, and resources in the most cost effective manner. Finance & Budget: Budget o Wrap up the economic impact study by February 2009. o Continued to identify potential budget savings. o Continued to refine the budget system. o Applied for another Distinguished Budget Presentation Award from Government Finance Officers Association. Finance o Developed Draft Plan of Finance in conjunction with the 2009 Budget. o Developed funding plan for replacement of XL capital surety and MBIA surety (if needed) in Intermediate Lien reserve fund. o Developed alternatives for rental car funding on hold due to market conditions. o Began process for G.O. bond issue on hold due to market conditions. Strategic Planning o Conducted research in key emerging issue areas, such as sustainability, climate change, asset management, etc. o Delivered presentations on strategic planning issues to outside groups, e.g. Municipal League. o Supported internal strategy coordination teams such as regional transportation, security, ICT and environmental. Accounting and Financial Reporting: o The Port and its 2007 Comprehensive Annual Financial Report (CAFR), prepared by the Accounting & Financial Reporting (AFR) department, received the "Certificate of Achievement for Excellence in Financial Reporting" from the Government Finance Officers Association (GFOA) of the United States and Canada. Along with this prestigious certification, the GFOA "Award of Financial Reporting Achievement" was also given to the AFR Department. This is the third consecutive year for receiving the certification and award. The Port's 2008 CAFR will be completed and transmitted to the GFOA for consideration of receiving another award. o The Port received a clean, unqualified independent Certified Public Accountant (CPA) audit opinion on its 2007 financial statements. o The Port received clean 2007 Single Audit and PFC audits, resulting in no Federal grants/FAA regulatory compliance or questioned cost findings. 29 V. CORPORATE PROF. & TECHNICAL SERVICES PERFORMANCE REPORT 12/31/08 Office of Social Responsibility: o Focus on the Small Business contracting area as a primary focus of its business plan. o OSR's and Small Business work program is categorized as: Policy Development, Program Development, Outreach, and Contracting Accomplishments. Regional Transportation: o Ensure access to existing facilities o Ensure access to future facilities o Enhance regional transportation and freight mobility Police Department: o The Department continues to participate in regional task forces, to include the FBI Joint Terrorism Task Force, the DEA Task Force, Immigrations and Customs Enforcement (ICE) task force, and the Valley Special Response Team. Participation in these cooperative working relationships provides additional opportunities for our officers to enhance their investigative skill levels and forges stronger working relationships with other local, State, and Federal agencies. o The Department is constantly on the lookout for grant opportunities and other funding sources to help finance its wide variety of missions. This includes our continued receipt of Homeland Security grants in support of the Explosives Detection K-9 Program and Airport Security Program, as well as Homeland Security grants for equipment. The new police boat was purchased through a marine security grant, and has proven to be an effective asset for harbor security. C. KEY INDICATORS Executive: o State Auditor's Office (SAO) Audit Changes have been made to Port practices so that they are reflective of legislative changes and the auditor's recommendations. Submitted a report to the SAO office of the actions we have taken to date addressing their recommendations for improvement. Implemented the new Ethics and Fraud Awareness & Prevention policies and established a Fraud Hotline. The Port's Internal Audit Manager now reports to the Commission and CEO. o Organizational Changes Hired a Chief Procurement Officer and established an independent Central Procurement Office. Centralized the Port's development and construction activities within the new Capital Development Division. The Real Estate Division was launched in January and has reviewed and assessed all Port properties. The new Office of Social Responsibility continues the process of developing and implementing new programs and initiatives. o Strategic Planning Key stakeholder advisory groups were formed and met at various times throughout the year. o High Performance Organization Police department implemented LEMAP recommendations to improve their work culture. Veterans Fellowship program has been implemented. o Green Initiative Briefed Commissioners on Ports environmental programs in January. Continue to progress on employee engagement and performance metrics. o Eastside Rail Corridor Acquisition is nearly finalized. 30 V. CORPORATE PROF. & TECHNICAL SERVICES PERFORMANCE REPORT 12/31/08 Legal: o Responses to requests for public records are within the statutory time limits and a reasonable response time has been provided for production of documents. Feedback from the public is evidence that this is done successfully. o Port employees continue to attend classes and gain knowledge regarding a variety of legal issues as well as record management issues. Risk Management: o Claims Management continues to achieve a high rate of recovery for claim costs for property damage from liable parties when a liable party can be identified. Claims Management recovered roughly $60,000 of property damage costs out of a total of $91,000. o Property insurance renewal on July 1, 2008 resulted in a 4% decrease in premium even though property values increased by 15%. o Risk management procured a builder risk policy for the rental car facility project at a 20% savings compared to the cost the contractor proposed for the same coverage. The policy will remain in effect during the temporary suspension of work on the facility in 2009. Health & Safety: o Annual Safety Evaluation on leading indicators and action plans for organizations. Public Affairs: o Industry and customer support demonstrated through public testimony at Commission meetings on topics such as Performance, Northwest Ports Clean Air Strategy, and Viaduct. o Positive coverage of the Port of Seattle's environmental initiatives in trade publications and local media. o Received ACI-NA's award for the Hainan Airlines launch event. o Received positive local, regional, national, and international press coverage of the Third Runway grand opening. o Annual Community Meetings: achieved record attendance of more than 240 community members o Sea-Air School, 2008 Seaport and 2007-2008 Airport Programs reached almost 10,000 students, teachers and parents. Students participating in the Sea-Air School Airport and Seaport Programs came from 34 cities and 116 schools. o Sea-Air School Trade Classes record number of 2445 attended the International Trade Classes in the Commission Chambers, 13% more than 2007. o Lunch Bus Tours: 2007 Attendance: 117; 2008 Attendance: 170 o Port 101: 2007 Attendance: 407; 2008 Attendance: 574 Government Relations: o Continued support by King County, Snohomish County and suburban jurisdictions for POS acquisition and planning for Eastside Rail Corridor. o Tours and Briefings as requested for Federal, State and Local Elected Officials and Staff. o Continued Promotion of Joint Marketing, Security, and Planning Efforts with the Port of Tacoma. Economic, Business & Trade Development: o Advanced Port of Seattle interests in regional economic development through pursuit of "Prosperity Partnership" action strategies in logistics and international trade (China trade and logistics strategy), life sciences (UK and French initiatives) and aerospace (initiating efforts with various regional and state collaborators to assess the future development of Boeing aircraft, and to begin developing strategies to enhance the state's competitive ability to support their R&D and manufacture in Washington. 31 V. CORPORATE PROF. & TECHNICAL SERVICES PERFORMANCE REPORT 12/31/08 Engineering: o Engineering prepared analysis and provided briefings on performance measures to the operating divisions and executive group. Construction costs and industry trends were the primary focus of 2008. In addition, the Engineering department is supporting the Port wide performance audit efforts (TKW and SAO) of capital programs as requested by the Commission. Port Construction Services (PCS): o In 2008, PCS managed a total cost of 16.2 million dollars in spending. Contractor payments were 33.7 percent, PCS crew wages were 18.8 percent, material and equipment costs were 14.1 percent, construction support costs were 19.5 percent and indirect costs were 13.9 percent. Human Resources & Development: o In 2008, approximately 755 employees participated in Learning Calendar classes. Additionally, 1,640 employees completed the Preventing Workplace Harassment refreshers. o Opened 324 employment requisitions in 2008 as compared to 329 in 2007. o Processed 9,854 employment applications in 2008 as compared to 7,983 in 2007. o Participated in 26 career fairs including 9 military fairs. o Approximately 234 job evaluations were finalized in 2008, including the following: Project Job Evaluations # of Jobs Administrative Professionals 95 Project Management Group 45 Seaport Operations 22 Noise Programs 5 Non-project Job Evaluations 67 Project evaluations, in general take about 50% longer than individual evaluations as a result of the additional project management time and increased need to review multiple jobs at the same time. The Administrative Professionals and the Project Management Group Refresh Projects included developing new matrices, which added additional time to this project. Labor Relations: o Contract Negotiation: Staff members serve as the chief negotiators for the Port in all labor contract negotiations. Our department coordinates the market research and proposal development and ensures that Port of Seattle collective bargaining agreements are in line with those of comparable jurisdictions. o Dispute Resolution: Works closely with managers and union representatives to resolve many issues outside of the grievance process. Information & Communication Technology (ICT): o Continued virtualization and data center consolidation strategies have offset over $2 million in new hardware and hardware refresh costs to date. o In 2008, ICT completed 36 technology projects that combined were 11.6% under budget. ICT projects resulted in over $1.3M in annual savings for the Port and our airline partners. In addition, completion of two airport projects resulted in a reduction of Green House Gas (GHG) emissions by 8,500 tons per year for our airline partners. o In 2008, ICT proved to be a National technology leader and an asset to Seattle's Port through projects such as: Floor Count, Gate Tagging, SMS Text Messaging, and the Aviation Operations Dashboard o In 2008, ICT filtered and blocked 127.2 million spam emails (97.2% of total incoming emails). Also, our anti-virus systems found and removed approximately 33 thousand viruses. 32 V. CORPORATE PROF. & TECHNICAL SERVICES PERFORMANCE REPORT 12/31/08 o In 2008, ICT began to track customer satisfaction by conducting surveys. In response to the question: "How would you rate your overall experience with the ICT department, on this project? (1=poor, 5=excellent)," the average response was 4.0. o To be responsive to our business partners and to decrease ICT expenses we replaced the majority of our contract employees with full time employees. o In 2008, ICT continued to save money through efficient financial and contract management, ICT also began to generate a recurring revenue stream. o ICT continued to help the Port increase mobility and productivity; to date, 910 employees have laptops which enable them to work from any location. This was crucial in 2008, when during the December snowstorm the Port had 154 Virtual Private Network users (10 times our average) working from home. Finance & Budget: Budget o Provided adequate budget and MIS training for budget support staff. o Made the necessary budget adjustments to meet the commitment control budgets. o Received Distinguished Budget Presentation Award from the Government Finance Officers Association of the United States and Canada. Regional Transportation: o Two FAST Corridor projects celebrated ground breakings: SR519 Phase 2 in the North Duwamish (10/23) and the 228th Grade Separation in Kent (10/6). The Port increased its financial partnership in SR519, contributing $5.5M, and anticipates participating in 228th subject to Commission authorization. o The Viaduct/Seawall Collaborative Process completed a year of study, and the Port Commission sent a letter requesting the Bored Tunnel be retained for further study when a Surface Transit and Elevated Viaduct were the only two projects recommended to move forward. Eventually in January 2009, this recommendation was adopted by the Governor, Mayor and County Executive. Police: o Jan Dec 2008 Calls For Service 67,698 Jan Dec 2007 Calls For Service 71,391 o July Dec 2008 Arrests 1,115 (does not include warrant arrests) Jan Dec 2007 Arrests 1,161 (does not include warrant arrests) 33 V. CORPORATE PROF. & TECHNICAL SERVICES PERFORMANCE REPORT 12/31/08 D. OPERATING RESULTS---- NET OPERATING EXPENSE (in THOUSANDS $) [REPORTED BY ORG] 2007 YTD 2008 YTD 2008 Bud Var. In $ Thousands Actual Actual Budget $ % Total Revenues 2,223 1,735 1,258 477 37.9% Executive 2,293 2,333 2,633 300 11.4% Commission 577 899 791 (109) -13.8% Legal 2,969 3,012 2,766 (246) -8.9% Risk Services 2,572 2,768 3,107 339 10.9% Health & Safety Services 995 996 1,059 63 5.9% Public Affairs 3,961 4,356 4,681 325 6.9% External Affairs 821 1,097 1,460 363 24.8% Economic & Trade Development 1,524 1,645 2,174 530 24.4% Engineering 1,188 1,253 1,355 101 7.5% Port Construction Services 2,268 1,965 1,500 (465) -31.0% Human Resources & Development 3,644 3,973 4,432 458 10.3% Labor Relations 579 677 731 54 7.4% Information & Communications Technology 13,346 14,577 15,010 433 2.9% Finance & Budget 1,456 1,667 1,821 154 8.5% Accounting & Financial Reporting 6,174 5,863 7,189 1,326 18.4% Office of Social Responsibility 200 1,246 1,738 492 28.3% Consulting Services 3 - 17 17 100.0% Regional Transportation 291 402 522 120 23.0% Police 18,607 19,484 20,474 990 4.8% Industrial Development Corporation - 11 - (11) 0.0% Contingency 6,788 4,200 750 (3,450) -460.0% Total Expenses 70,257 72,425 74,210 1,785 2.4% Corporate Professional and Technical Services revenues for the twelve months of 2008 were $477 thousand favorable compared to the approved budget due to higher Police operating grants. Corporate Professional and Technical Services expense performance for the year-ended 2008 was $72.4 million, $1.8 million or 2.4% favorable compared to the approved budget and $2.2 million or 3.1% higher than 2007. This favorable variance is primarily due to several position vacancies during the year and other cost savings realized in several departments. The favorable variance of $300 thousand in Executive is due to cost savings realized in Salaries and Benefits for the Chief Administrative Officer position being vacant since the earlier part of the year and costs savings in Travel & Other Employee Expenses due to decrease in executive travel. Commission's unfavorable variance of 109K is due to higher Salaries & Benefits, Equipment Expense, Office Supplies and Telecommunication Expenses. The $246 thousand unfavorable variance in Legal is due to higher Salaries and Benefits and increased activity costs for Outside Legal Services. The favorable variance of $339 thousand in Risk Services is due to cost savings realized for both property and liability insurance renewal. The favorable variance of $63 thousand in Health & Safety is due to cost savings in Outside Services and Travel & Other Employee Expenses. Public Affairs' favorable variance of $325 thousand is due primarily to lower salary costs from several positions being vacant during the year and under-spending in Advertising Expense. 34 V. CORPORATE PROF. & TECHNICAL SERVICES PERFORMANCE REPORT 12/31/07 External Affairs' favorable variance of $363 thousand is due to costs savings in Salaries and Benefits for two vacant positions since the early part of year, and cost savings in Travel & Other Employee Expenses due to reduced travel because of the vacant Federal Government Manager's position. Economic & Trade Development's favorable variance of $530 thousand is due to under-spending in Outside Services for not being able to secure a consultant contract, and savings in Travel & Other Employee Expenses due to cancellation of several trips. Engineering Services' favorable variance of $101 thousand is due to reduced or deferred costs in order to do work on the performance audit and additional expense projects that were not included in the budget. Port Construction Services' unfavorable variance of $465K is due to working on the performance audit, performing additional expense work for the divisions that was not included in the budget and doing less work on capital projects than originally anticipated. Human Resources and Development incurred a favorable variance of $458 thousand due to costs savings in Salaries and Benefits caused by vacancies during the year and cost savings in Outside Services. Labor Relations incurred a favorable variance of $54 thousand due primarily to costs savings in Salaries and Benefits due to several vacancies during the year and in Travel & Other Employee Expenses. Information and Communication Technology incurred a favorable variance of $433 thousand due primarily to costs savings in Salaries and Benefits due to several vacancies during the year and consolidating and terminating software license maintenance agreements. The favorable variance of $154 thousand in Finance & Budget is due to savings realized due to delayed in filling the Corporate Budget Manager's position and other costs savings in the Travel and Other Employee Expenses category due to cancellation of some travel plans. Accounting and Financial Reporting year-end performance resulted in a favorable variance of $1.3 million compared to the approved budget due primarily to cost savings in Salaries and Benefits as a result of several unfilled and vacant positions during the year, and in Outside Services, Travel and Other Employee Expenses. Office of Social Responsibility year-end performance resulted in a favorable variance of $492 thousand compared to the approved budget due primarily to cost savings in Salaries and Benefits as a result of several unfilled positions during the year, in Outside Services and Trade Business & Community. The favorable variance of $17 thousand in Consulting Services is based on the Port's decision not to pursue legislative authority in this session. The favorable variance of $120 thousand in Regional Transportation is due to capitalizing some of the projects that would have been expensed and using in house staff on other projects as opposed to consultants. The favorable variance of $990 thousand in Police is due to cost savings in Salaries and Benefits due to several vacant positions. Industrial Development Corporation unfavorable variance of $11K is due to charges incurred for the IDC/ET Fellowship Program. Contingency is unfavorable by $3.5M, primarily due to the Performance Audit and the Special Investigation costs. 35 V. CORPORATE PROF. & TECHNICAL SERVICES PERFORMANCE REPORT 12/31/07 DIRECT CHARGES $ in Thousands 2007 2008 2008 Bud Var Actual Actual Budget $ % Total 1,556 9,341 10,025 (684) -6.8% Corporate Direct Charges for the year-ended 2008 were $684 thousand or 6.8% below the approved budget. E. CAPITAL SPENDING RESULTS ($ Millions) Annual Results: 2008 Plan of Finance $ 14.84 2008 Approved Budget $ 21.99 2008 Actuals $ 8.12 Variance (Budget vs Actuals) $ 13.87 36 VI. DEFINITION OF TERMS Airline Cost Per Enplanement (CPE): Airline cost per enplanement reflects the overall cost to the airlines for each passenger enplaned. The CPE measures the total costs borne by the airlines divided by the number of enplaned passengers (roughly half of the total passengers). Basic Airlines Landing Fee (BALA): Revenues derived from airlines that have signed the basic airline lease agreement. Capital Budget and Draft Plan of Finance: The Capital Budget is a detailed plan of proposed expenditures arising from the acquisition or improvement of fixed assets and the means of financing them. The Draft Plan of Finance document is prepared and presented to the Port Commission concurrently with the budget. Income from Operations: Represents the net income to the Port derived from revenues less direct operating and maintenance expenses but prior to Corporate Administrative expenses. Inter-Division Charges: Charges from one division to another. Net Operating Income (NOI): Income from Operations after administrative expenses, but before non-operating revenues and expenses. Net Non-Operating Income: The difference between Non-Operating Revenues (excluding the Ad Valorem Taxes) and Non- Operating Expenses. Non-Airline Revenues: Include concession, parking and other fees not charged directly to the airlines. These revenues help offset the residual landing fee requirement. Operating and Maintenance Expenses: Costs or charges that arise from the normal operation of business. Operating Revenues: Gross earnings or billings from operations that results from facilities and/or equipment leased or operated. Performance or Operating Budget: A financial plan that incorporates an estimate of proposed revenues and expenses for a given period. 37
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