2018 Budget Study

Session

10/23/2017 1

Managing Member Meeting

October 24th, 2017

Agenda

• Budget Schedule

• Cargo Forecast

• 2017 Forecast and Key Messages

• 2018-2022 Capital Improvement Plan

• 2018 Budget and Key Messages

• 2018 Budget and 2019-2022 Operating Forecast

10/23/2017 2

Budget Schedule

• October 24

• Cargo Forecast

• Budget study session

• November 7

• Approve 2018 operating budget

• Approve 2018-2022 Capital Improvement Plan

• 2018 Capital Construction contribution

10/23/2017 3

2017/2018 Cargo Forecast

10/23/2017 4

2017 Forecast 2018 Forecast % Change

Container Business

Total TEUs 3,638,257 3,693,262 +2%

International TEUs 2,942,892 3,041,047 +3%

Domestic TEUs 695,366 652,215 -6%

Non-Container Business

Breakbulk (Metric Tons) 162,812 163,704 +1%

Autos (Units) 139,952 150,755 +8%

Logs (Metric Tons) 279,873 279,873Flat

2018-2022 Cargo Forecast

10/23/2017 5

2018 2019 2020 2021 2022

Container Business

Total TEUs 3,693,262 3,733,471 3,784,298 3,832,434 3,882,282Rate of change +2% +1% +1% +1% +1%

International TEUs 3,041,047 3,093,514 3,155,384 3,218,492 3,282,862Rate of change +3% +2% +2% +2% +2%

Domestic TEUs 652,215 639,957 628,914 613,942 599,420 Rate of Change -6% -2% -2% -2% -2%

Non-Container Business

Breakbulk (Metric Tons) 163,704 163,704 167,531 171,472 175,531Rate of Change +1% Flat +2% +2% +2%

Autos (Units) 150,755 143,217 144,649 146,096 147,557

Rate of Change +8% -5% +1% +1% +1%

Logs (Metric Tons) 279,873 279,873 279,873 279,873 279,873Rate of Change Flat Flat Flat Flat Flat

2017 Forecasted Operating Results

10/23/2017 6

Revenue –Excluding significant one-time revenue, ongoing revenue is fairly flat

ExpensesOperations – Underspending due to delay of crane removal and other one-time projects, and staffing vacancies

Administration – Lower staff costs due to vacancies, lower outside services

Maintenance – Increased cost due to unplanned crane repairs and unplanned electrical repairs at two S. Harbor terminals

Environmental – Underspending due to delay in projects

2017 2017

$ Million Budget Forecast

Revenue

Ongoing Revenue 188.8$ 187.6$

Significant One-Time 0.7$ 6.4$

Revenue 189.5$ 194.0$

Expenses

Operations 45.8$ 42.0$

Administration 23.3 20.2

Maintenance 17.4 20.9

Security 4.4 4.3

Air & Water Environmental 3.3 2.6

Total Operating Expenses before Depr. 94.2$ 90.1$

Income from Operations 95.3$ 103.9$

Depreciation 2.5 2.3

Operating Income 92.8$ 101.6$

Non Operating 0.9$ 0.7$

Net Distributable Revenue 93.6$ 102.3$

Return on Revenue 49.4% 52.8%

Distributable Cash 95.8$ 104.8$

2017 Forecasted Project Spending

10/23/2017 7

Project Amount Description

Husky Phase 2 Construction $51.3 Reconfigure, design and construction T4

Husky Terminal Crane Purchase 25.7Replace obsolete cranes not capable of servicing

largest ships

T5 Berth Modernization Design 1.5

T18 Stormwater Utility Upgrade 0.9

W. Sitcum Fender System Replacement 1.0

Others 15.6 66 projects

Total $96.0

2018

• The 2018 budget assumptions

• Fixed revenue based on negotiated leases

• Variable revenue based on conservative volume forecasts

• Allocated general and administrative costs are based on support

services agreements developed by both homeports

• Capturing impact of major investments

• Reflects impact of shifting volumes between N. Harbor and S. Harbor

due to new shipping alliances

• Net Distributable cash exceeds minimum revenue required as

calculated by the charter

10/23/2017 8

2019 – 2022

• This forecast includes significant investments

• Purchase of 4 additional cranes for Husky in S. Harbor

• Redevelopment of T5 in N. Harbor

• Reinvestment in repairs of T46 in N. Harbor

• These investments impact the operating income through

additional costs (depreciation, equipment maintenance, etc.)

and where applicable, improve revenue

• Net Distributable cash in each year exceeds minimum revenue

required as calculated by the charter

10/23/2017 9

Five Year Capital Improvement Plan

• Capitalized

• Assets that depreciate over time

• Operating expense

• Included in the operating budget

10/23/2017 10

($ millions) 2017 2018 - 2022

Forecast 2018 2019 2020 2021 2022 Totals

Capitalized $87.5 $152.4 $147.9 $109.6 $86.7 $3.2 $499.8

Operating Expense $8.6 $12.9 $21.9 $17.9 $11.0 $6.2 $69.9

Grand Total $96.1 $165.3 $169.8 $127.5 $97.7 $9.4 $569.7

2018 - 2022 Container Terminal Projects

10/23/2017 11

($ millions)

Project Amount Description

T5 Berth Modernization Construction $299.8 Design and construction T5 & public expense projects

Husky Terminal Crane Purchase 70.9Replace obsolete cranes not capable of servicing

largest ships

T46 Dock Rehabilitation 46.0Dock rehabilitation and terminal redevelopment,

paving. Partially TIGER grant funded

Husky Phase 2 Construction 32.7 Reconfigure, design and construction T4

T18 Stormwater Utility Upgrade 11.4

Others 46.8 23 other projects

Total $507.6

2018 - 2022 Non Container Terminal

Projects

10/23/2017 12

($ millions)

Project Amount Description

E Sitcum Fender Replacement $6.7

Auto Facility Roof Replacement 4.2

Others 2.4 7 other projects

Total $13.3

2018 - 2022 Other Projects

10/23/2017 13

($ millions)

Project Amount Description

Contingency/Unallocated $25.0 Capital contingency at $3M/year, expense

as $2M per year for emergent issues

Northwest Ports Clean Air Strategy 6.2 Combined program for both harbors

Industrial Stormwater 3.3 Combined program for both harbors

Clean Truck Program 3.5 Combined program for both harbors

Others 10.8

Total $48.8

2018 Operating Budget Key Assumptions

• Conservative Cargo forecast

• Lease revenue per contracts

• Volume revenue per tariff and contracts

• TIGER grants and repair of T46

• Continuation of shared support services between the home

ports and the NWSA

10/23/2017 14

2018 Preliminary Budget

10/23/2017 15

Revenue –Ongoing revenue is fairly flat

ExpensesOperations – Increased direct activities and increased Non-container costs.

Administration – MM requested marketing and new technology for operations

Maintenance – Anticipated costs in preparation for new cranes and strads

Environmental – increased air and water project spending, clean trucks

2016 2017 2017 2018

$ Million Actuals Forecast Budget Budget

Revenue

Ongoing Revenue 188.7$ 187.6$ 188.8$ 188.4$

Significant One-Time 6.5$ 6.4$ 0.7$ -$

Revenue 195.2$ 194.0$ 189.5$ 188.4$

Expenses

Operations 40.4$ 42.0$ 45.8$ 43.8$

Administration 18.3 20.2 23.3 25.3

Maintenance 14.6 20.9 17.4 19.3

Security 4.2 4.3 4.4 4.8

Air & Water Environmental 2.2 2.6 3.3 4.0

Total Operating Expenses before Depr. 79.7$ 90.1$ 94.2$ 97.2$

Income from Operations 115.4$ 103.9$ 95.3$ 91.2$

Depreciation 0.5 2.3 2.5 7.4

Operating Income 114.9$ 101.6$ 92.8$ 83.8$

Non Operating 8.3$ 0.7$ 0.9$ 7.5$

Net Distributable Revenue 123.2$ 102.3$ 93.6$ 91.3$

Return on Revenue 63.1% 52.8% 49.4% 48.5%

Distributable Cash 115.9$ 104.8$ 95.8$ 92.1$

MEMBERSHIPS

Organization Annual Dues

American Association of Port Authorities$50,000

Pacific Northwest Waterway Association26,765

WA. Council on Int’l Trade 20,000

Global Leadership 15,000

Coalition for America’s Gateways & Trade Corridors 13,000

All Other Memberships under $10,000 66,011

Total NWSA Memberships $190,776

10/23/2017 16

MM approval of Memberships over $10,000 required per NWSA Master Policy

NWSA Service Level Agreements

• For 2018, both home ports will continue to provide some level

of services to the NWSA

• Adjustments for 2018 include reducing POT Public Affairs and

Communications allocation

• POS corporate allocation reduced from 4.5% to 3.4%

• Service level agreements are reviewed annually during the

budget process and are in effect for one year.

• The NWSA Master Policy delegates approval of service level

agreements to the NWSA CEO

10/23/2017 17

Bond Income Calculation

• Minimum level of net income required for homeports to meet

current bond rate covenants

• Takes into account home port income from other sources

• Based on the home port with the higher required minimum income

• Adjusted for lien coverage requirements (senior = 1.35,

subordinate = 1)

• Section 4.2(b) requires annual review of the bond income

calculation

• Required bond income as defined in the charter is $90 million in

total for NWSA

10/23/2017 18

NWSA 2018 Budget and Four Year Forecast

10/23/2017 19

($ million) 2017 2018 2019 2020 2021 2022

Operating Revenue 194.0$ 188.4$ 208.7$ 222.4$ 229.6$ 236.2$

Operating Expenses Before Depr. 89.8 97.2 118.5 121.8 115.0 118.3

Depreciation 2.3 7.4 14.2 19.1 23.4 25.4

Operating Income 101.9 83.8 76.0 81.4 91.1 92.5

Capital Grants 0.1 6.6 10.2 3.1

Other Non Operating 0.6 0.9 0.9 0.9 0.9 0.9

Net Distributable Revenue 102.6$ 91.3$ 87.0$ 85.4$ 92.0$ 93.4$

Distributable Cash 104.8$ 92.1$ 91.0$ 101.4$ 115.4$ 118.7$

Budget Messages

• 2017 Net Distributable Revenue is projected to be $102.3

million, $8.6 million above budget level of $93.6 million

• 2018 and 2019 are years impacted with investments in

technology and infrastructure to support future growth

• Technology investments for improved operations services

• Community investments in electrical and rail infrastructure to

support major terminal investments

• NWSA investments in terminals in both harbors

10/23/2017 20

Backup pages

10/23/2017 21

2018 Draft Budget Revenue

10/23/2017 22

• Leases, dockage and wharfage account for ~62% of 2018 revenue

• Intermodal revenue from the four Port of Tacoma IY Yards

• Including the lift fee in the South Harbor’s North Intermodal Yard (NIM)

• Equipment includes South Harbor cranes and yard equipment.

• Services revenue from tariff and vessel service agreements for

breakbulk and autos

2016 2017 2017 2018

$ Million Actual Forecast Budget Budget

Lease and Dockage/Wharfage 122.0$ 121.3$ 116.3$ 116.3$

Intermodal 35.7 33.1 34.7 34.2

Equipment 20.4 21.7 19.8 20.3

Services 17.1 18.0 18.7 17.6

Total Revenue 195.2$ 194.0$ 189.5$ 188.4$

2018 Draft Operations Expense

10/23/2017 23

• Long shore expenses related to NIM operations and break bulk

line of business

• Outsourced Services Includes:

• Ongoing Pacific Rail Services in the South Harbor’s South

Intermodal Yard

• NWSA staff includes the commercial and operating staff

2016 2017 2017 2018

$ Milllion Actual Forecast Budget Budget

Outside Services 12.6 14.7 16.8 13.9

Long Shore 14.5 12.8 12.9 12.8

Commercial and Ops. Staff 3.6 6.7 8.1 9.0

Utilities 3.5 3.9 4.0 4.4

Allocations 6.2 3.9 4.0 3.7

Total Operations Expense 40.4$ 42.0$ 45.8$ 43.8$

2018 Preliminary Maintenance Expense

10/23/2017 24

• Maintenance includes Port staff as well as outsourced

maintenance

• Outsourced Maintenance includes major paving, roof repair, and

fender repair

• Equipment maintenance mainly Port staff for cranes and

straddle carriers

• Includes fork lifts and other Break Bulk equipment as well

2016 2017 2017 2018

$ Million Actual Forecast Budget Budget

Facilities Maintenance 7.5$ 9.1$ 6.9$ 9.7$

Equipment Maintenance 7.2 11.8 10.6 9.6

Total Maintenance Expense 14.7$ 20.9$ 17.4$ 19.3$

2018 Preliminary Administration Expense

10/23/2017 25

• Allocations from both Ports

• Includes Finance & Accounting, IT, Commissioners, Government

Affairs, etc.

• Staffing costs in Administration include the NWSA leadership

team

• Outside services includes legal and professional planning

services

2016 2017 2017 2018

$ Million Actual Forecast Budget Budget

General & Administrative Allocations 14.2$ 14.3$ 16.8$ 17.2$

Outside Services 0.7 1.9 2.5 3.5

Administrative Staffing 3.5 3.9 3.9 3.5

Marketing 0.0 0.1 0.1 1.1

Total Administrative Expense 18.3$ 20.2$ 23.3$ 25.3$

2018 Preliminary Security Expense

10/23/2017 26

• Primarily the South Harbor security staff

• GCP Main gate

• Roving patrol

• Direct charge for auto’s, breakbulk, and log operations in South

Harbor

2016 2017 2017 2018

$ Million Actual Forecast Budget Budget

Home Port Security Allocations 3.6$ 3.7$ 3.7$ 4.1$

Direct Charge 0.5 0.6 0.7 0.7

Total Security Expense 4.1$ 4.3$ 4.4$ 4.8$

2018 Preliminary Air and Water

Environmental Expense

10/23/2017 27

• Environmental programs / projects covering both Harbors

include:

• Northwest ports clean air strategy

• Industrial stormwater permitting

• Clean truck program

2016 2017 2017 2018

$ Million Actuals Forecast Budget Budget

Projects including NWSA Staff 4.1$ 3.5$ 4.1$ 4.6$

Allocations (0.9) (0.9) (0.9) (0.6)

Total Air and Water Expenses 3.3$ 2.6$ 3.3$ 4.0$

2018 Preliminary Depreciation Expense

10/23/2017 28

• NWSA Capital purchases including

• South Harbor

• PCT Truck staging area & Security enhancements

• SIM pavement replacement

• T7 warehouse replacement

• Crane upgrades

• North Harbor

• T18 stormwater improvements & rail spur

• T46 fender systems modifications

• New alliance projects will be capitalized and depreciated on the

books of the alliance

2016 2017 2017 2018

$ Million Actual Forecast Budget Budget

Total NWSA Depreciation 0.5$ 2.3$ 2.5$ 7.4$