BACKSTROM MCCARLEY BERRY & CO., LLC

Transcription

1 BOOK-ENTRY ONLY NEW ISSUE Moody s Rating: A1 Standard & Poor s Rating: A+ Fitch Rating: A+ (See RATINGS herein) In the opinion of K&L Gates LLP, Bond Counsel, assuming compliance with certain covenants of the Port, interest on the Series 2015 Bonds is excludable from gross income for federal income tax purposes under existing law, except for interest on any Series 2015C Bond for any period during which such Series 2015C Bond is held by a substantial user of the facilities financed by such Series 2015C Bonds, or a related person to such substantial user, within the meaning of Section 147(a) of the Internal Revenue Code of 1986, as amended (the Code ). Interest on the Series 2015 Bonds may be indirectly subject to corporate alternative minimum tax and certain other taxes imposed on certain corporations. Interest on the Series 2015C Bonds is an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. See TAX MATTERS herein. $72,010,000 Intermediate Lien Revenue Bonds, Series 2015A (Non-AMT) $284,440,000 Intermediate Lien Revenue Refunding Bonds, Series 2015B (Non-AMT) Dated: Date of delivery $226,275,000 Intermediate Lien Revenue Bonds, Series 2015C (AMT) Due: As shown on the inside cover pages The Port of Seattle (the Port ) is issuing its Intermediate Lien Revenue Bonds, Series 2015A (the Series 2015A Bonds ), its Intermediate Lien Revenue Refunding Bonds, Series 2015B (the Series 2015B Bonds ), and its Intermediate Lien Revenue Bonds, Series 2015C (the Series 2015C Bonds and, together with the Series 2015A Bonds and the Series 2015B Bonds, the Series 2015 Bonds ) to (i) defease and refund all of the Port s outstanding Intermediate Lien Revenue and Refunding Bonds, Series 2005A, (ii) pay (or pay subordinate lien commercial paper notes issued to pay) or reimburse the Port for all or a portion of the costs of the 2015 Projects described herein, (iii) make a deposit to the Intermediate Lien Reserve Account, (iv) pay a portion of the interest to accrue on the Series 2015A Bonds and the Series 2015C Bonds during construction, and (v) pay costs of issuing the Series 2015 Bonds. Interest on the Series 2015A Bonds and the Series 2015C Bonds from their date of delivery is payable on each April 1 and October 1, commencing on April 1, Interest on the Series 2015B Bonds from their date of delivery is payable on each March 1 and September 1, commencing on March 1, The Series 2015 Bonds are subject to redemption prior to their scheduled maturities, as described herein. The fiscal agency of the State of Washington, currently U.S. Bank National Association, is the registrar, authenticating agent and paying agent for the Series 2015 Bonds. When issued, the Series 2015 Bonds will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ). DTC will act as securities depository for the Series 2015 Bonds. Purchases of beneficial interests in the Series 2015 Bonds will be made in book-entry form, in denominations of $5,000 and integral multiples thereof within a series and maturity. Purchasers will not receive certificates representing their interests in the Series 2015 Bonds, except as described herein. So long as DTC or its nominee is the registered owner of the Series 2015 Bonds, payments of principal of and interest on the Series 2015 Bonds will be made directly to DTC or to such nominee. Disbursements of such payments to DTC s Direct Participants are the responsibility of DTC, and disbursements of such payments to the Beneficial Owners are the responsibility of the Direct Participants and the Indirect Participants as more fully described herein. The Series 2015 Bonds are payable from and are secured by a pledge of Available Intermediate Lien Revenues of the Port on a parity with the Port s outstanding Intermediate Lien Parity Bonds and any future Intermediate Lien Parity Bonds described herein. The Series 2015 Bonds are not general obligations of the Port or the State of Washington or of any political subdivision of the State of Washington. Neither the full faith and credit of the Port nor the taxing power of the Port is pledged to the payment of the Series 2015 Bonds. The Series 2015 Bonds are offered when, as and if issued, subject to receipt of the approving legal opinions of K&L Gates LLP, Seattle, Washington, Bond Counsel to the Port. Certain legal matters will be passed upon by Pacifica Law Group LLP, Seattle, Washington, Disclosure Counsel to the Port. Certain legal matters will be passed upon for the Underwriters by their counsel, Orrick, Herrington & Sutcliffe LLP. It is expected that delivery of the Series 2015 Bonds will be made by Fast Automated Securities Transfer through DTC in New York, New York, on or about August 6, This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. MORGAN STANLEY BARCLAYS BofA MERRILL LYNCH BACKSTROM MCCARLEY BERRY & CO., LLC J.P. MORGAN DREXEL HAMILTON Official Statement Dated July 21, 2015

2 Port of Seattle $72,010,000 Intermediate Lien Revenue Bonds, Series 2015A (Non-AMT) Due (April 1) Principal Amount Interest Rate Yield Price CUSIP No. (1) 2018 (2) $ 715, % 1.08% TV (2) 1,065, UQ (2) 515, TW (2) 1,345, UR (2) 620, TX (2) 1,330, US (2) 275, TY (2) 1,765, UT ,120, TZ (2) 735, UA (2) 1,470, UU (2) 330, UB (2) 1,985, UV (2) 795, (3) UC (2) 1,630, (3) UW (2) 355, (3) UD (2) 2,185, (3) UX ,670, (3) UE ,805, (3) UF ,950, (3) UG ,100, (3) UH ,260, (3) UJ ,425, (3) UK ,605, (3) UL ,790, (3) UM ,980, (3) UN6 $23,190, % Term Bonds, due April 1, 2040 (priced to yield 3.75% (3) ), CUSIP No. (1) UP1 (1) (2) (3) CUSIP is a registered trademark of the American Bankers Association. CUSIP Global Services ( CGS ) is managed on behalf of the American Bankers Association by S&P Capital IQ. Copyright 2015 CUSIP Global Services. All rights reserved. CUSIP data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP numbers are provided for convenience of reference only. None of the Port, the Underwriters or their agents or counsel assumes responsibility for the accuracy of such numbers. Bifurcated maturity. Priced at the stated yield to the first par call date of October 1, 2024.

3 Port of Seattle $284,440,000 Intermediate Lien Revenue Refunding Bonds, Series 2015B (Non-AMT) Due (March 1) Principal Amount Interest Rate Yield Price CUSIP No. (1) 2016 $ 12,435, % 0.28% UY ,815, UZ ,080, VA ,165, VB ,295, VC ,495, VD ,805, VE ,195, VF ,620, VG ,055, (2) VH ,525, (2) VJ ,005, (2) VK ,520, (2) VL ,060, (2) VM ,630, (2) VN ,230, (2) VP ,850, (2) VQ ,515, (2) VR ,205, (2) VS ,940, (2) VT2 (1) (2) CUSIP is a registered trademark of the American Bankers Association. CUSIP Global Services ( CGS ) is managed on behalf of the American Bankers Association by S&P Capital IQ. Copyright 2015 CUSIP Global Services. All rights reserved. CUSIP data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP numbers are provided for convenience of reference only. None of the Port, the Underwriters or their agents or counsel assumes responsibility for the accuracy of such numbers. Priced at the stated yield to the first par call date of September 1, 2024.

4 Port of Seattle $226,275,000 Intermediate Lien Revenue Bonds, Series 2015C (AMT) Due (April 1) Principal Amount Interest Rate Yield Price CUSIP No. (1) 2016 $ 800, % 0.38% VU ,975, VV ,205, VW ,600, VX ,885, VY ,225, VZ ,615, WA ,000, WB ,400, WC ,840, (2) WD ,280, (2) WE ,770, (2) WF ,260, (2) WG ,005, (2) WH ,460, (2) WJ ,960, (2) WK ,455, (2) WL ,545, (2) WM ,080, (2) WN ,650, (2) WP9 $65,265,000, 5.00% Term Bonds, due April 1, 2040 (priced to yield 4.06% (2) ), CUSIP No. (1) WQ7 (1) (2) CUSIP is a registered trademark of the American Bankers Association. CUSIP Global Services ( CGS ) is managed on behalf of the American Bankers Association by S&P Capital IQ. Copyright 2015 CUSIP Global Services. All rights reserved. CUSIP data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP numbers are provided for convenience of reference only. None of the Port, the Underwriters or their agents or counsel assumes responsibility for the accuracy of such numbers. Priced at the stated yield to the first par call date of October 1, 2024.

5 PORT OF SEATTLE PORT COMMISSION Name Office Term Expires Stephanie Bowman Co-President December 31, 2017 Courtney Gregoire Co-President December 31, 2015 John Creighton Vice-President December 31, 2017 Tom Albro Secretary December 31, 2017 Bill Bryant Assistant Secretary December 31, 2015 CERTAIN EXECUTIVE STAFF Ted Fick, Chief Executive Officer Kurt Beckett, Deputy Chief Executive Officer Dan Thomas, Chief Financial Officer Mark Reis, Managing Director, Aviation Linda Styrk, Managing Director, Maritime Joe McWilliams, Acting Managing Director, Economic Development Larry Ehl, Chief of Staff Craig Watson, General Counsel PORT HEADQUARTERS 2711 Alaskan Way Seattle, Washington Telephone (206) BOND COUNSEL K&L Gates LLP Seattle, Washington DISCLOSURE COUNSEL Pacifica Law Group LLP Seattle, Washington FINANCIAL ADVISOR Piper Jaffray & Co. Seattle, Washington BOND REGISTRAR U.S. Bank National Association Seattle, Washington INDEPENDENT AUDITORS Moss Adams LLP Seattle, Washington INDEPENDENT CONSULTANT WJ Advisors LLC Denver, Colorado * This inactive textual reference to the Port s website is not a hyperlink, and the Port s website, by this reference, is not incorporated herein. -i-

6 INTRODUCTION... 1 Security and Sources of Payment for the Series 2015 Bonds... 1 Continuing Disclosure... 2 Report of the Independent Consultant and Financial Statements... 2 Investment Considerations... 2 Miscellaneous... 3 SOURCES AND USES OF BOND PROCEEDS... 3 Use of Proceeds... 3 Refunding Plan... 3 Sources and Uses of Funds... 4 DESCRIPTION OF THE SERIES 2015 BONDS... 4 General... 4 Optional Redemption... 5 Mandatory Sinking Fund Redemption... 5 Partial Redemption; Notice of Redemption; Effect of Redemption... 6 Conditional Optional Redemption... 6 Purchase of Series 2015 Bonds for Retirement... 6 Defeasance... 6 SECURITY AND SOURCES OF PAYMENT FOR INTERMEDIATE LIEN PARITY BONDS... 7 Pledge of Available Intermediate Lien Revenues... 7 Released Revenues... 8 Flow of Funds... 8 Intermediate Lien Reserve Account... 9 Intermediate Lien Rate Covenant Other Covenants Permitted Prior Lien Bonds Additional Intermediate Lien Parity Bonds Defaults and Remedies; No Acceleration; Rights of Credit Facility Issuers OUTSTANDING PORT INDEBTEDNESS First Lien Bonds Intermediate Lien Parity Bonds Subordinate Lien Parity Bonds Passenger Facility Charge Revenue Bonds General Obligation Bonds Special Obligations Interest Rate Swaps Debt Payment Record Historical Debt Service Coverage OUTSTANDING FIRST LIEN BONDS, INTERMEDIATE LIEN PARITY BONDS, AND SUBORDINATE LIEN PARITY BONDS THE PORT OF SEATTLE Introduction Port Management AVIATION DIVISION Passenger Activity at the Airport Airport Business Agreements Regulation Passenger Facility Charges Customer Facility Charges TABLE OF CONTENTS Page -ii- Page NORTHWEST SEAPORT ALLIANCE AND OTHER PORT BUSINESSES General The Seaport Alliance Containerized Cargo Maritime and Other Businesses CAPITAL PLAN FUNDING PORT FINANCIAL MATTERS General Summary of Historical Operating Results OTHER MATTERS Investment Policy Labor Relations Pension Plans Other Post-Employment Benefits Environmental Concerns INSURANCE General Overview Property Insurance Liability Insurance Third-Party Agreements Owner Controlled Insurance Program Seaport Alliance CERTAIN INVESTMENT CONSIDERATIONS Uncertainties of the Aviation Industry Aeronautical Revenues Uncertainties of Non-Aeronautical Revenues Uncertainties of the Container Shipping Industry Competition from Other Container Ports Uncertainties regarding the Seaport Alliance Other Agreements Liquidity and Credit Facilities Limitation of Remedies Bankruptcy Laws and Regulation Federal Budget; Sequestration Accounting Rules Seismic and Other Natural Disaster Considerations Continuing Compliance with Tax Covenants; Changes of Law INITIATIVES AND REFERENDA LITIGATION AND ADMINISTRATIVE PROCEEDINGS No Litigation Concerning the Series 2015 Bonds Other Litigation and Administrative Proceedings CONTINUING DISCLOSURE TAX MATTERS LEGAL MATTERS RATINGS THE REGISTRAR FINANCIAL ADVISOR UNDERWRITING INDEPENDENT AUDITORS INDEPENDENT CONSULTANT MISCELLANEOUS APPENDIX A AUDITED FINANCIAL STATEMENTS APPENDIX B REPORT OF THE INDEPENDENT CONSULTANT APPENDIX C SUMMARY OF THE PORT S TAXING POWER APPENDIX D PROPOSED FORMS OF BOND COUNSEL OPINIONS APPENDIX E DTC AND ITS BOOK-ENTRY SYSTEM APPENDIX F COPIES OF THE INTERMEDIATE LIEN MASTER RESOLUTION AND SERIES RESOLUTION APPENDIX G PROPOSED FORM OF CONTINUING DISCLOSURE CERTIFICATE APPENDIX H DEMOGRAPHIC AND ECONOMIC INFORMATION

7 No dealer, broker, sales representative or other person has been authorized by the Port to give any information or to make any representations with respect to the Series 2015 Bonds, other than those contained in this Official Statement, and if given or made, such other information or representations must not be relied upon as having been authorized by the Port. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Series 2015 Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as a part of, their respective responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. The information set forth herein has been obtained by the Port from Port records and from other sources that are believed by the Port to be reliable. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale of the Series 2015 Bonds shall, under any circumstances, create any implication that there has been no change in the affairs of the Port since the date hereof. This Official Statement is not to be construed as a contract or agreement between the Port and purchasers or owners of any of the Series 2015 Bonds. Neither the Port s independent auditors nor any other independent accountants have compiled, examined, or performed any additional procedures with respect to the financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and they assume no responsibility for, and disclaim any association with, the financial information. The initial public offering prices or yields set forth on the inside cover page hereof may be changed from time to time by the Underwriters. The Underwriters may offer and sell the Series 2015 Bonds to certain dealers, unit investment trusts or money market funds at prices lower than or at yields higher than the public offering prices or yields stated on the inside cover page hereof. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE SERIES 2015 BONDS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. Certain statements contained in this Official Statement, including the appendices, reflect not historical facts but forecasts and forward-looking statements. No assurance can be given that the future results discussed herein will be achieved, and actual results may differ materially from the forecasts described herein. In this respect, the words estimate, project, anticipate, expect, intend, forecast and believe and similar expressions are intended to identify forward-looking statements. All projections, forecasts, assumptions and other forward-looking statements are expressly qualified in their entirety by the cautionary statements set forth in this Official Statement. All forward-looking statements inherently are subject to a variety of risks and uncertainties that could cause actual results or performance to differ materially from those that have been forecast, estimated or projected. Such risks and uncertainties include, among others, changes in regional, domestic and international political, social and economic conditions, federal, state and local statutory and regulatory initiatives, litigation, population changes, financial conditions of tenants and/or other users of Port facilities, technological change and various other events, conditions and circumstances, many of which are beyond the control of the Port. -iii-

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9 $72,010,000 Intermediate Lien Revenue Bonds, Series 2015A (Non-AMT) OFFICIAL STATEMENT RELATING TO PORT OF SEATTLE $284,440,000 Intermediate Lien Revenue Refunding Bonds, Series 2015B (Non-AMT) $226,275,000 Intermediate Lien Revenue Bonds, Series 2015C (AMT) INTRODUCTION The purpose of this Official Statement, which includes the cover page, inside cover pages, table of contents and appendices, is to provide information concerning the issuance by the Port of Seattle (the Port ) of $72,010,000 of its Intermediate Lien Revenue Bonds, Series 2015A (the Series 2015A Bonds ), $284,440,000 of its Intermediate Lien Revenue Refunding Bonds, Series 2015B (the Series 2015B Bonds ), and $226,275,000 of its Intermediate Lien Revenue Bonds, Series 2015C (the Series 2015C Bonds and, together with the Series 2015A Bonds and the Series 2015B Bonds, the Series 2015 Bonds ). The fiscal agency of the State of Washington, currently U.S. Bank National Association, is the registrar, authenticating agent and paying agent (the Registrar ) for the Series 2015 Bonds. The Port is issuing the Series 2015 Bonds pursuant to Title 53 of the Revised Code of Washington ( RCW ) and pursuant to Resolution No. 3540, as amended, adopted by the Port Commission (the Commission ) on June 14, 2005 (the Intermediate Lien Master Resolution ), and Resolution No. 3709, adopted by the Commission on June 23, 2015 (the Series Resolution and together with the Intermediate Lien Master Resolution, the Resolution ). Capitalized terms used but not defined in this Official Statement have the meanings set forth in the Resolution, a copy of which is included in this Official Statement as Appendix F. The Port is a municipal corporation of the State of Washington (the State ). The Port was organized on September 5, The Port owns and operates Seattle-Tacoma International Airport (the Airport ), and various maritime and industrial and commercial properties. The Port is working with the Port of Tacoma to form the Northwest Seaport Alliance (the Seaport Alliance ) to manage jointly the two ports container shipping terminals. See THE PORT OF SEATTLE. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. Security and Sources of Payment for the Series 2015 Bonds The Series 2015 Bonds are to be payable solely from and are to be secured by a pledge of Available Intermediate Lien Revenues as described below. The Series 2015 Bonds are being issued on a parity with the outstanding Intermediate Lien Parity Bonds and any future Intermediate Lien Parity Bonds. The Series 2015 Bonds are not general obligations of the Port or the State of Washington or of any political subdivision of the State of Washington. Neither the full faith and credit of the Port nor the taxing power of the Port is pledged to the payment of the Series 2015 Bonds. As defined in the Intermediate Lien Master Resolution, Available Intermediate Lien Revenues means Gross Revenue of the Port (excluding Released Revenues, if any) after payment of (i) all Operating Expenses not paid from other sources; (ii) all payments, including sinking fund payments, required to be made into the debt service accounts for First Lien Bonds; (iii) all payments required to be made into any reserve accounts maintained for First Lien Bonds; and (iv) all payments required to be made into any other redemption fund and debt service accounts or reserve accounts that may be created in the future to pay and secure the payment of the principal of and premium, if any, and interest on any revenue bonds or other revenue obligations of the Port having liens on Net Revenues (as

10 such term is defined in the Intermediate Lien Master Resolution) junior and inferior to the lien of the First Lien Bonds but prior to the lien of the Intermediate Lien Parity Bonds. See SECURITY AND SOURCES OF PAYMENT FOR INTERMEDIATE LIEN PARITY BONDS and the definitions in Appendix F. First Lien Bonds are defined in the Intermediate Lien Master Resolution as revenue bonds of the Port that have been or that in the future may be issued by the Port as Parity Bonds under Resolution No. 3059, as amended, adopted by the Commission on February 2, 1990, as amended and restated by Resolution No. 3577, adopted by the Commission on February 27, 2007, and as amended, supplemented and restated from time to time (the First Lien Master Resolution ). The First Lien Bonds and any revenue bonds or revenue obligations with a lien on Net Revenues that is junior and inferior to the lien of the First Lien Bonds but prior to the lien of the Intermediate Lien Parity Bonds are referred to collectively in the Resolution and in this Official Statement as Permitted Prior Lien Bonds. The Resolution does not limit the Port s ability to issue Permitted Prior Lien Bonds. As of the date of this Official Statement, the only Permitted Prior Lien Bonds outstanding are First Lien Bonds. See SECURITY AND SOURCES OF PAYMENT FOR INTERMEDIATE LIEN PARITY BONDS, OUTSTANDING PORT INDEBTEDNESS and CAPITAL PLAN FUNDING. The First Lien Master Resolution and the Intermediate Lien Master Resolution permit the Port to issue revenue obligations having a lien on Net Revenues and Available Intermediate Lien Revenues subordinate to the lien thereon of the Intermediate Lien Bonds. The Port has issued Subordinate Lien Parity Bonds, including Subordinate Lien Commercial Paper Notes that are authorized to be issued from time to time in an amount up to $250 million. The Resolution includes a number of covenants by the Port for the benefit of the owners and holders of each of the Intermediate Lien Parity Bonds and conditions that must be satisfied before additional Intermediate Lien Parity Bonds, including the Series 2015 Bonds, may be issued. See SECURITY AND SOURCES OF PAYMENT FOR INTERMEDIATE LIEN PARITY BONDS and Appendix F. Continuing Disclosure The Port has covenanted for the benefit of the holders and beneficial owners of the Series 2015 Bonds to provide certain financial information and operating data and to give notices of certain events to assist the Underwriters in complying with the Securities and Exchange Commission Rule 15c2-12(b)(5). See CONTINUING DISCLOSURE and Appendix G. Report of the Independent Consultant and Financial Statements In connection with the issuance of the Series 2015 Bonds, WJ Advisors LLC, as independent consultant to the Port (the Independent Consultant ), has prepared the Report of the Independent Consultant, dated July 9, 2015 and included in this Official Statement as Appendix B. The Report of the Independent Consultant presents the results of the Independent Consultant s and its subconsultants review of the Port s forecast of activity and forecast of financial performance through The Independent Consultant and its subconsultants reviewed the following Port-prepared forecasts: aviation activity for the Airport, container traffic volumes at container terminals under the Seaport Alliance described under the heading OTHER PORT BUSINESSES Northwest Seaport Alliance, noncontainerized cargo and cruise activity under Other Port Businesses and the associated financial forecasts. See the Report of the Independent Consultant in Appendix B. The Report of the Independent Consultant is an important part of this Official Statement, includes additional information regarding the Port, and should be read in its entirety. Neither the Port s independent auditors nor any other independent accountants have compiled, examined, or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the prospective financial information. Investment Considerations The Series 2015 Bonds may not be suitable for all investors. Prospective purchasers of the Series 2015 Bonds should give careful consideration to the information set forth in this Official Statement and confer with their own tax and financial advisors before deciding whether to purchase the Series 2015 Bonds. -2-

11 The Port s businesses are subject to a number of risk factors that may adversely affect the Port s Gross Revenue and Available Intermediate Lien Revenues. This Official Statement describes the Port s businesses and business environments, including certain risks, but it is impossible for the Port to specify or anticipate all risks associated with its operations. See CERTAIN INVESTMENT CONSIDERATIONS. Investors must read the entire Official Statement to obtain information essential to making an informed investment decision. Miscellaneous Brief descriptions of the Series 2015 Bonds, the Resolution and certain statutes and agreements are included in this Official Statement. Such descriptions do not purport to be comprehensive or definitive. All references herein to such instruments, documents and statutes and to any other documents, statutes, agreements or other instruments described herein are qualified in their entirety by reference to each such document, statute or other instrument. Appendix F includes a copy of the Resolution. Use of Proceeds SOURCES AND USES OF BOND PROCEEDS The Series 2015 Bonds are being issued by the Port (i) to refund all of the Port s outstanding Intermediate Lien Revenue and Refunding Bonds, Series 2005A (the Refunded Bonds identified under the heading Refunding Plan below), (ii) to pay (or pay subordinate lien commercial paper notes issued to pay) or reimburse the Port for all or a portion of the costs of the 2015 Projects described under the heading CAPITAL PLAN FUNDING, (iii) to make a deposit to the Intermediate Lien Reserve Account, (iv) to pay a portion of the interest to accrue on the Series 2015A Bonds and Series 2015C Bonds during construction, and (v) to pay costs of issuing the Series 2015 Bonds. Refunding Plan The Port will refund on a current basis the following Refunded Bonds for aggregate debt service savings. Refunded Bonds (1) Term Bonds. Source: Port of Seattle. Intermediate Lien Revenue and Refunding Bonds, Series 2005A (Non-AMT) Expected Maturity Date (March 1) Interest Rate Principal Amount Redemption Date Redemption Price CUSIP Number % $ 14,210,000 08/07/ % EV ,885,000 08/07/ EW ,205,000 08/07/ EX ,345,000 08/07/ EY ,535,000 08/07/ EZ ,800,000 08/07/ FA ,180,000 08/07/ FB ,640,000 08/07/ FC ,135,000 08/07/ FD ,650,000 08/07/ FE ,200,000 08/07/ FF ,770,000 08/07/ FG ,375,000 08/07/ FH (1) ,690,000 08/07/ FJ (1) ,675,000 08/07/ FK9 TOTAL $ 319,295,000 A portion of the net proceeds from the sale of the Series 2015B Bonds will be irrevocably delivered to the paying agent for the Refunded Bonds (the Bond Registrar ) to be applied to pay the interest on the Refunded Bonds -3-

12 coming due on their redemption date as described in the table above, and to redeem and retire the Refunded Bonds on that redemption date at a price of 100 percent of the principal amount thereof. Because all payments of principal of and interest on the Refunded Bonds will be provided for when the Series 2015B Bonds are issued, the Refunded Bonds will cease to be entitled to any lien, benefit or security of the resolution authorizing their issuance except the right to receive payment from the Bond Registrar. Sources and Uses of Funds The proceeds of the Series 2015 Bonds are to be applied, together with other funds, as follows: Sources Series 2015A Bonds Series 2015B Bonds Series 2015C Bonds Principal Amount $ 72,010,000 $ 284,440,000 $ 226,275,000 Original Issue Premium 8,377,454 36,310,663 22,453,564 Port Contribution (Accrued Interest on Refunded Bonds) -- 6,918, Total Sources $ 80,387,454 $ 327,668,721 $ 248,728,564 Uses Refunding Amount (1) $ -- $ 326,213,068 $ Project Costs 71,594, ,381,233 Capitalized Interest (2) 5,781, ,828,683 Intermediate Lien Reserve Account Deposit 2,632, ,273,363 Costs of Issuance (3) 378,996 1,455,653 1,245,286 Total Uses $ 80,387,454 $ 327,668,721 $ 248,728,564 Note: Totals may not foot due to rounding. (1) To be applied to redeem the Refunded Bonds as described above. (2) Interest on the 2015A Bonds and 2015C Bonds is to be capitalized through the respective placed-in-service dates for financed projects. (3) Represents costs of issuing the Series 2015 Bonds, including Underwriters discount, legal fees, escrow fees, Independent Consultant fees, and fees of the Financial Advisor. General DESCRIPTION OF THE SERIES 2015 BONDS Series 2015 Bonds. The Series 2015 Bonds are to be dated as of and are to bear interest from their date of delivery. Interest on the Series 2015A Bonds and the Series 2015C Bonds is to be payable on April 1, 2016 and semiannually on each October 1 and April 1 thereafter, at the rates set forth on the inside cover pages of this Official Statement. Interest on the Series 2015B Bonds is to be payable on March 1, 2016 and semiannually on each September 1 and March 1 thereafter, at the rates set forth on the inside cover pages of this Official Statement. The Series 2015 Bonds are to mature, subject to prior redemption, in the amounts and on the dates set forth on the inside cover pages of this Official Statement. Interest is to be calculated on the basis of a 360-day year consisting of twelve 30-day months. Book-Entry Only Form. The Series 2015 Bonds are being issued in fully registered form in denominations of $5,000 and integral multiples thereof within a series and maturity and when issued will be registered in the name of Cede & Co. (or such other name as may be requested by an authorized representative of DTC), as registered owner and nominee of The Depository Trust Company, New York, New York ( DTC ). DTC will act as securities depository for the Series 2015 Bonds. Individual purchases may be made only in book-entry form. Purchasers will not receive certificates representing their interest in the Series 2015 Bonds purchased. So long as Cede & Co. is the registered owner of the Series 2015 Bonds, as nominee of DTC, references herein to Owners, Bondholders or Registered Owners mean Cede & Co. (or such other nominee) and not the Beneficial Owners of the Series 2015 Bonds. In this Official Statement, the term Beneficial Owner means the person for whom its DTC Participant acquires an interest in the Series 2015 Bonds. So long as Cede & Co. is the registered owner of the Series 2015 Bonds, the principal of and interest on the Series 2015 Bonds are payable by wire transfer to Cede & Co., as nominee for DTC which, in turn, is to remit such -4-

13 amounts to the Direct Participants for subsequent disbursement to the Beneficial Owners. See DTC AND ITS BOOK-ENTRY SYSTEM in Appendix E. Optional Redemption The Series 2015A Bonds maturing on or after April 1, 2025, are subject to redemption at the option of the Port on or after October 1, 2024, as a whole or in part on any date, with the maturities to be selected by the Port (and within a maturity in accordance with the operational procedures of DTC then in effect or, if the Series 2015A Bonds are no longer held in book-entry-only form, by lot or in such other random manner determined by the Registrar, as provided in the Resolution), at a redemption price equal to 100 percent of the principal amount thereof, plus interest accrued to the date fixed for redemption. The Series 2015B Bonds maturing on or after March 1, 2025, are subject to redemption at the option of the Port on or after September 1, 2024, as a whole or in part on any date, with the maturities to be selected by the Port (and within a maturity in accordance with the operational procedures of DTC then in effect or, if the Series 2015B Bonds are no longer held in book-entry-only form, by lot or in such other random manner determined by the Registrar, as provided in the Resolution), at a redemption price equal to 100 percent of the principal amount thereof, plus interest accrued to the date fixed for redemption. The Series 2015C Bonds maturing on or after April 1, 2025, are subject to redemption at the option of the Port on or after October 1, 2024, as a whole or in part on any date, with the maturities to be selected by the Port (and within a maturity in accordance with the operational procedures of DTC then in effect or, if the Series 2015C Bonds are no longer held in book-entry-only form, by lot or in such other random manner determined by the Registrar, as provided in the Resolution), at a redemption price equal to 100 percent of the principal amount thereof, plus interest accrued to the date fixed for redemption. Mandatory Sinking Fund Redemption The Series 2015A Bonds maturing on April 1, 2040 (the Series 2015A Term Bonds ), are subject to mandatory sinking fund redemption at a price of 100 percent of the principal amount thereof plus accrued interest to the date fixed for redemption on April 1 in the years and amounts as follows: * Maturity. Date April 1 Mandatory Sinking Fund Redemption 2036 $4,185, ,400, ,625, ,865, * 5,115,000 The Series 2015C Bonds maturing on April 1, 2040 (the Series 2015C Term Bonds and together with the Series 2015A Term Bonds, the Term Bonds ), are subject to mandatory sinking fund redemption at a price of 100 percent of the principal amount thereof plus accrued interest to the date fixed for redemption on April 1 in the years and amounts as follows: * Maturity. Date April 1 Mandatory Sinking Fund Redemption 2036 $12,250, ,680, ,780, ,430, * 14,125,000-5-

14 If the Port redeems a portion of the Term Bonds under the optional redemption provisions described above or purchases or defeases a portion of the Term Bonds, the Term Bonds so redeemed, purchased for cancellation, or defeased (irrespective of their actual redemption or purchase prices) will be credited at the principal amount thereof against one or more scheduled mandatory redemption amounts for the Term Bonds as directed by the Port or, if no such direction is made, in such random manner determined by the Bond Registrar. Partial Redemption; Notice of Redemption; Effect of Redemption The Resolution provides that for so long as the Series 2015 Bonds are held in book-entry form with DTC, the selection for redemption of such Series 2015 Bonds within a series and maturity shall be made in accordance with the operational arrangements of DTC then in effect. See DTC AND ITS BOOK-ENTRY SYSTEM in Appendix E. Series 2015 Bonds within a maturity to be redeemed are to be selected in all cases in accordance with the operational arrangements of DTC in increments of $5,000 within a series and maturity. The Resolution also provides that, unless waived by any owner of Series 2015 Bonds to be redeemed, official notice of any such redemption (which notice in the case of optional redemption shall state that such redemption is conditioned upon the receipt by the Registrar of sufficient funds for redemption) shall be given by the Registrar on behalf of the Port by mailing a copy of an official redemption notice by first class mail at least 20 days and not more than 60 days prior to the date fixed for redemption to the Registered Owner of the Series 2015 Bonds to be redeemed at the address shown on the Bond Register or at such other address as is furnished in writing by such Registered Owner to the Registrar (which shall be DTC so long as such Bonds are held in book-entry form with DTC). The Resolution provides that the requirement to give notice of redemption shall be deemed complied with when notice is mailed to the Registered Owners at their last addresses shown on the Bond Register, whether or not such notice is actually received by the Registered Owners. The Resolution also provides that so long as the Series 2015 Bonds are in book entry form with DTC, notice of redemption shall be given to Beneficial Owners of Series 2015 Bonds (or portions thereof) to be redeemed in accordance with the operational arrangements then in effect at DTC and that neither the Port nor the Registrar shall be obligated or responsible to confirm that any notice of redemption is, in fact, provided to Beneficial Owners. In the case of an optional redemption, if and to the extent that funds have been provided to the Registrar for the redemption of Series 2015 Bonds, then from and after the date fixed for redemption for such Series 2015 Bond or portion thereof, interest on each such Series 2015 Bond shall cease to accrue and such Series 2015 Bond or portion thereof shall cease to be outstanding. Conditional Optional Redemption The Resolution permits notices of optional redemption to be conditional. If conditional, the notice is to state that redemption is conditioned upon the receipt by the Registrar of sufficient funds for redemption. If and to the extent that funds have been provided to the Registrar for the redemption of Series 2015 Bonds (that is, if the condition has been satisfied) then from and after the date fixed for redemption for such Series 2015 Bond or portion thereof, interest on each such Series 2015 Bond shall cease to accrue and such Series 2015 Bond or portion thereof shall cease to be outstanding. Purchase of Series 2015 Bonds for Retirement The Port reserves the right to use at any time any surplus Gross Revenue available after providing for the payments required by paragraph First through Eleventh described under the heading SECURITY AND SOURCES OF PAYMENT FOR INTERMEDIATE LIEN PARITY BONDS Flow of Funds to purchase for retirement any of the Series 2015 Bonds offered to the Port at any price deemed reasonable to the Designated Port Representative. Defeasance The Series Resolution provides that in the event money and/or non-callable Government Obligations maturing or having guaranteed redemption prices at the option of the owner thereof at such time or times and bearing interest in amounts (together with such money, if any) sufficient to redeem and retire part or all of the Series 2015 Bonds in accordance with their terms are irrevocably set aside in a special account and pledged to effect such redemption or -6-

15 retirement, and if the Series 2015 Bonds (or portion thereof) are to be redeemed prior to maturity, irrevocable notice, or irrevocable instructions to give notice of such redemption, has been delivered to the Registrar, then no further payments need be made to the Intermediate Lien Bond Fund or any account therein for the payment of the principal of and premium, if any, and interest on the Series 2015 Bonds (so provided for) and such Series 2015 Bonds shall cease to be entitled to any lien, benefit or security of the Resolution, except the right to receive the funds so set aside and pledged and such notices of redemption, if any, and such Series 2015 Bonds shall no longer be deemed to be outstanding under the Resolution or under any resolution authorizing the issuance of bonds or other indebtedness of the Port. As currently defined in chapter of the Revised Code of Washington, Government Obligations means (i) direct obligations of, or obligations the principal and interest on which are unconditionally guaranteed by, the United States of America and bank certificates of deposit secured by such obligations; (ii) bonds, debentures, notes, participation certificates or other obligations issued by the Banks for Cooperatives, the Federal Intermediate Credit Bank, the Federal Home Loan Bank System, the Export-Import Bank of the United States, federal land banks or the Federal National Mortgage Association; (iii) public housing bonds and project notes fully secured by contracts with the United States; and (iv) obligations of financial institutions insured by the Federal Deposit Insurance Corporation or the federal savings and loan insurance corporation, to the extent insured or guaranteed as permitted under any other provision of State law. The definition of Government Obligations in the Series Resolution incorporates any future statutory revision. SECURITY AND SOURCES OF PAYMENT FOR INTERMEDIATE LIEN PARITY BONDS Pledge of Available Intermediate Lien Revenues The Intermediate Lien Parity Bonds, including the Series 2015 Bonds, are revenue obligations of the Port payable from and secured by a pledge of Available Intermediate Lien Revenues. The Intermediate Lien Master Resolution provides for the creation of a bond fund (the Intermediate Lien Bond Fund ) and a reserve account (the Intermediate Lien Reserve Account ), each to be held by the Chief Financial Officer of the Port as the Port s Treasurer, and provides that the Intermediate Lien Parity Bonds are obligations only of the Intermediate Lien Bond Fund and the Intermediate Lien Reserve Account. In the Intermediate Lien Master Resolution, the Port irrevocably obligates and binds itself for so long as any Intermediate Lien Parity Bonds remain outstanding to set aside and pay into the Intermediate Lien Bond Fund from Available Intermediate Lien Revenues or money in the Port s general fund, airport development fund and any other fund established in the office of the Treasurer of the Port for the receipt of Gross Revenue (the Revenue Fund ), on or prior to the respective dates on which the same become due, the principal of and premium, if any, and interest on the outstanding Intermediate Lien Parity Bonds. See Section 3 of the Intermediate Lien Master Resolution and Sections 4 through 7 of the Series Resolution in Appendix F. The principal of and interest on the Intermediate Lien Parity Bonds are payable from and are secured by an equal lien and charge upon Available Intermediate Lien Revenues superior to all other liens and charges of any kind or nature whatsoever, subject to the prior liens and charges of Permitted Prior Lien Bonds. Net Payments (but not termination payments) made by the Port with respect to any Parity Derivative Product would be equal in rank to the lien of Intermediate Lien Parity Bonds on Available Intermediate Lien Revenues. The Port has not entered into swap agreements or Parity Derivative Products. No property or property tax revenues secure the repayment of the Intermediate Lien Parity Bonds, including the Series 2015 Bonds. The term Gross Revenue is defined in the First Lien Master Resolution and in the Intermediate Lien Master Resolution to mean all income and revenue derived by the Port from time to time from any source whatsoever except: (i) the proceeds of any borrowing by the Port and the earnings thereon (other than the earnings on proceeds deposited in reserve funds), (ii) income and revenue that may not legally be pledged for revenue bond debt service (including the Tax Levy, as described in Appendix C), (iii) passenger facility charges ( PFCs ), head taxes, federal grants or substitutes therefor allocated to capital projects, (iv) payments made under Credit Facilities issued to pay or secure the payment of a particular series of obligations, (v) proceeds of insurance or condemnation proceeds other than business interruption insurance, (vi) income and revenue of the Port separately pledged and used by it to pay and secure the payment of the principal of and interest on any issue or series of Special Revenue Bonds of the Port issued to acquire, construct, equip, install or improve part or all of the particular facilities from which such income and revenue are derived, provided that the withdrawal from Gross Revenue of any income or revenue derived or to -7-

16 be derived by the Port from any income-producing facility that was contributing to Gross Revenue prior to the issuance of any Special Revenue Bonds is not permitted, and (vii) income from investments irrevocably pledged to the payment of bonds issued or to be refunded under any refunding bond plan of the Port. Customer Facility Charges ( CFCs ) also are not included in Gross Revenue. See AVIATION DIVISION Passenger Facility Charges and Customer Facility Charges. The Intermediate Lien Master Resolution provides that, notwithstanding the foregoing exclusions from Gross Revenue, the Port may elect in the future to pledge the income, proceeds and payments described in clauses (i) through (vii) of the prior paragraph and/or CFCs and any other receipts at any time as additional security for one or more series of obligations and thereby to include such exception and/or receipt in Gross Revenue for such series of obligations, but if and only to the extent that such receipts may legally be used to pay debt service on such series of obligations. See Intermediate Lien Rate Covenant and Additional Intermediate Lien Parity Bonds. If and to the extent specified in a series resolution authorizing additional Intermediate Lien Parity Bonds, the obligation of the Port to reimburse the provider of a Credit Facility (a Repayment Obligation ) also may be secured by a pledge of and lien on Available Intermediate Lien Revenues on a parity with other outstanding Intermediate Lien Parity Bonds. Neither the Intermediate Lien Master Resolution nor any series resolutions authorizing outstanding Intermediate Lien Parity Bonds or the Series 2015 Bonds requires the Port to make deposits into the Intermediate Lien Bond Fund for Intermediate Lien Parity Bonds prior to the date on which the principal of and interest on such Intermediate Lien Parity Bonds come due. See Flow of Funds and Section 3 of the Intermediate Lien Master Resolution in Appendix F. Released Revenues The Intermediate Lien Master Resolution permits the Port to remove from the definition of Available Intermediate Lien Revenues income or revenue of the Port previously included in Available Intermediate Lien Revenues, provided that the Port satisfies the conditions to such removal set forth in the Intermediate Lien Master Resolution. See the definition of Released Revenues in Section 1 of the Intermediate Lien Master Resolution in Appendix F. The First Lien Master Resolution and the resolutions under which Subordinate Lien Parity Bonds are issued do not permit the release of revenues previously included in Gross Revenue. As of this date, the Port has not designated any Released Revenues. Flow of Funds Pursuant to the Intermediate Lien Master Resolution, all Gross Revenue must be deposited as collected in the Revenue Fund, a separate fund or funds held by the Treasurer. The Revenue Fund must be held separate and apart from all other funds and accounts of the Port. As required by the First Lien Master Resolution, the Intermediate Lien Master Resolution and the resolutions authorizing Subordinate Lien Parity Bonds, Gross Revenue deposited in the Revenue Fund is to be applied by the Port as follows: First, to pay Operating Expenses not paid from other sources (such as the general purpose portion of the Tax Levy and CFCs); Second, to make all payments, including sinking fund payments, required to be made into the debt service account(s) of any redemption fund to pay the principal of and premium, if any, and interest on any First Lien Bonds; Third, to make all payments required to be made into the Common Reserve Fund and all other reserve account(s) established to secure the payment of any First Lien Bonds; Fourth, to make all payments required to be made into any other revenue bond redemption fund and debt service account or reserve account created therein to pay and secure the payment of the principal of and interest on any revenue bonds or other revenue obligations of the Port having a lien upon Net Revenues and the money in the Revenue Fund junior and inferior to the lien thereon for the payment of the principal of and interest on any First Lien Bonds but prior to the lien thereon of the Intermediate Lien Parity Bonds; -8-

17 Fifth, to make payments necessary to be paid into any bond fund or debt service account created to pay the debt service on the Intermediate Lien Parity Bonds and without duplication, to make Net Payments due with respect to any derivative product secured by a pledge of and lien on Available Intermediate Lien Revenues on an equal and ratable basis with outstanding Intermediate Lien Parity Bonds, including the Series 2015 Bonds; Sixth, to make all payments required to be made into the Intermediate Lien Reserve Account; Seventh, to make payments necessary to be paid into any bond fund or debt service account created to pay the debt service on bonds subordinate to the Port s Intermediate Lien Parity Bonds but senior to its Subordinate Lien Parity Bonds; Eighth, to make all payments required to be made into any reserve account(s) securing bonds subordinate to the Port s Intermediate Lien Parity Bonds but senior to its Subordinate Lien Parity Bonds; Ninth, to make payments necessary to be paid into any bond fund or debt service account created to pay the debt service on the Subordinate Lien Parity Bonds; Tenth, to make all payments required to be made into the reserve account(s), if any, securing Subordinate Lien Parity Bonds; Eleventh, to make all payments required to be made into the Repair and Renewal Fund to maintain any required balance therein; and Twelfth, to retire by redemption or purchase any outstanding revenue bonds or other revenue obligations of the Port as authorized in the various resolutions of the Commission authorizing their issuance or to make necessary additions, betterments, improvements and repairs to or extension and replacements of the Facilities or any other lawful Port purposes. The Intermediate Lien Master Resolution provides that, notwithstanding the foregoing, the obligations of the Port to make nonscheduled payments under a derivative product agreement (i.e., any termination payment or other fees) may be payable from Gross Revenue available after paragraph Sixth above, as set forth in such derivative product agreement. See OUTSTANDING PORT INDEBTEDNESS Interest Rate Swaps. The term Operating Expenses is defined in the First Lien Master Resolution and in the Intermediate Lien Master Resolution to mean the current expenses incurred for operation or maintenance of the Facilities (other than Special Facilities), as defined under generally accepted accounting principles, in effect from time to time, excluding any allowances for depreciation or amortization or interest on any obligations of the Port incurred in connection with and payable from Gross Revenue. The Port is permitted but not obligated to pay Operating Expenses (but not revenue bond debt service) with the portion of the Tax Levy (described in Appendix C) remaining after the payment of the Port s outstanding limited tax general obligation bonds. See Summary of the Port s Taxing Power in Appendix C. Intermediate Lien Reserve Account The Intermediate Lien Master Resolution provides for the Intermediate Lien Reserve Account to be held by the Treasurer of the Port within the Intermediate Lien Bond Fund for the purpose of securing the payment of the principal of, premium, if any, and interest on all outstanding Intermediate Lien Parity Bonds. The Port is required to maintain the Intermediate Lien Reserve Account at the Intermediate Lien Reserve Requirement, which is the dollar amount equal to average Annual Debt Service on all outstanding Intermediate Lien Parity Bonds, determined and calculated as of the date of issuance of Intermediate Lien Parity Bonds of each series (and recalculated upon the issuance of a subsequent series of Intermediate Lien Parity Bonds and, at the Port s option, upon the payment of the principal of the Intermediate Lien Parity Bonds). See definitions of Annual Debt Service and Debt Service in Section 1 of the Intermediate Lien Master Resolution in Appendix F. -9-

18 The Intermediate Lien Master Resolution provides that the Intermediate Lien Reserve Requirement may be funded at the date of issuance of a series of Intermediate Lien Parity Bonds or may be funded in equal monthly deposits over a period of time (not greater than three years) established in the applicable series resolution, but also provides that the dollar amount, if any, required to be contributed as a result of the issuance of a series of Intermediate Lien Parity Bonds shall not be greater than the Tax Maximum (as defined in the Intermediate Lien Master Resolution). If the dollar amount required to be contributed at the time of issuance of a series of Intermediate Lien Parity Bonds exceeds the Tax Maximum, the dollar amount required to be contributed to the Intermediate Lien Reserve Account is to be adjusted accordingly. See Section 3 of the Intermediate Lien Master Resolution in Appendix F. The Intermediate Lien Master Resolution requires that the Intermediate Lien Reserve Requirement be maintained by deposits of cash (as defined in the Intermediate Lien Master Resolution) and/or qualified investments, a Qualified Letter of Credit or Qualified Insurance (each as defined in the Intermediate Lien Master Resolution), or a combination of the foregoing, and permits the Port to substitute a Qualified Letter of Credit or Qualified Insurance for cash and securities then on deposit in the Intermediate Lien Reserve Account and to transfer such cash and securities to any permitted fund or account specified by the Designated Port Representative. See Section 3 of the Intermediate Lien Master Resolution in Appendix F. The Port will satisfy the increase in the Intermediate Lien Reserve Requirement resulting from the issuance of the Series 2015 Bonds through the deposit of a portion of the Series 2015 Bonds proceeds to the Intermediate Lien Reserve Account. The Intermediate Lien Reserve Account is a pooled reserve, which secures all outstanding and future Intermediate Lien Parity Bonds. The Intermediate Lien Reserve Requirement upon the closing and delivery of the Series 2015 Bonds is $100,446,741, calculated pursuant to the Intermediate Lien Master Resolution. Upon closing of the Series 2015 Bonds, the Intermediate Lien Reserve Requirement will be satisfied by $87,380,999 in existing cash and securities, $10,906,287 funded with the proceeds from the Series 2015 Bonds, and an existing surety policy issued by Financial Security Assurance Inc. (now Assured Guaranty Municipal Corp., FSA ) in the amount of $2,159,455 (the FSA Surety Bond ). The FSA Surety Bond provides that, upon notice from the Registrar to the effect that insufficient amounts are on deposit in a bond fund for Intermediate Lien Parity Bonds to pay the principal of (at maturity or pursuant to mandatory redemption requirements) and/or interest on such Intermediate Lien Parity Bonds, the provider of the FSA Surety Bond will deposit promptly with the Registrar the amount of the insufficiency or the available amount of the FSA Surety Bond, whichever is less. The Port has agreed that, in the event of an insufficiency, the Port shall first use cash and investments on hand in the Intermediate Lien Reserve Account, if any, and then shall draw upon all surety bonds on a pro rata basis. The Intermediate Lien Master Resolution requires replacement, over a period of up to three years, of any surety bond securing payment of Intermediate Lien Parity Bonds upon a Credit Event (e.g. insolvency, specified ratings downgrades or dissolution of the provider thereof). If such a Credit Event occurs, the Intermediate Lien Reserve Requirement must be satisfied within one year with other Qualified Insurance or another Qualified Letter of Credit, or within three years (in three equal annual installments) out of Available Intermediate Lien Revenues (or out of other money on hand and legally available for such purpose) after first making necessary provisions for all payments required to be made into the Intermediate Lien Bond Fund. As of the date of this Official Statement, the FSA Surety Bond continues to meet the rating requirements for Qualified Insurance. See Credit Event and Qualified Insurance in Section 1 of the Intermediate Lien Master Resolution in Appendix F. Intermediate Lien Rate Covenant Under the Intermediate Lien Master Resolution, the Port has covenanted with the owners and holders of each of the Intermediate Lien Parity Bonds that, for so long as any of the same remain outstanding, the Port will at all times establish, maintain and collect rentals, tariffs, rates, fees and charges in the operation of all of its businesses that will produce in each fiscal year (i) Available Intermediate Lien Revenues as First Adjusted at least equal to 110 percent of the Amount Due, and (ii) Available Intermediate Lien Revenues as Second Adjusted at least equal to 125 percent of the Amount Due. The Intermediate Lien Master Resolution provides that the calculations described in clauses (i) and (ii) of the preceding sentence are separate rather than cumulative calculations regarding the sufficiency of Available Intermediate Lien Revenues and that such calculations are together to be considered as the Intermediate Lien Rate Covenant. -10-

19 The Intermediate Lien Master Resolution also provides that, for purposes of the Intermediate Lien Rate Covenant, the Amount Due in each fiscal year of the Port shall be equal to (a) Scheduled Debt Service, plus (b) amounts required to be deposited during such fiscal year from Available Intermediate Lien Revenues into the Intermediate Lien Reserve Account, plus (c) any other amounts due to any Credit Facility Issuer or any Liquidity Facility Issuer, but excluding from the foregoing (i) payments made or to be made from refunding debt and capitalized debt service or other money irrevocably (by Commission resolution) set aside for such payment, and (ii) Intermediate Lien Debt Service Offsets identified by the Port in a certificate of the Designated Port Representative. As defined in the Intermediate Lien Master Resolution, Available Intermediate Lien Revenues as First Adjusted means Available Intermediate Lien Revenues increased (without duplication) by Prior Lien Debt Service Offsets identified by the Port in a certificate of the Designated Port Representative and subject to further adjustment to reflect (a) the Port s intent that regularly scheduled net payments under derivative products (interest rate hedges) with respect to Port revenue obligations (regardless of lien position) be reflected in the calculation of debt service obligations with respect to those revenue obligations and not as adjustments to Gross Revenue or Operating Expenses; and (b) the Port s intent that Gross Revenue and Operating Expenses may be adjusted, regardless of thenapplicable generally accepted accounting principles, for certain items (e.g., to omit) to reflect more fairly the Port s annual operating performance. Available Intermediate Lien Revenues as Second Adjusted, as defined in the Intermediate Lien Master Resolution, mean (a) Available Intermediate Lien Revenues as First Adjusted; plus (b) the unrestricted balance in the Revenue Fund at the end of the two most recent fiscal years of the Port, whichever is lower (the Available Coverage Amount ). The Intermediate Lien Master Resolution provides that no amounts may be included in the Available Coverage Amount unless such amounts are legally available for payment of debt service on Intermediate Lien Parity Bonds. Intermediate Lien Debt Service Offsets, as defined in the Intermediate Lien Master Resolution, mean receipts of the Port that are not included in Gross Revenue and that are legally available and/or pledged by the Port to pay debt service on Intermediate Lien Parity Bonds, but excluding any receipts that have been designated as Prior Lien Debt Service Offsets. Prior Lien Debt Service Offsets, as defined in the Intermediate Lien Master Resolution, mean receipts of the Port that are not included in Gross Revenue and that are legally available and/or pledged by the Port to pay debt service on Permitted Prior Lien Bonds. Scheduled Debt Service, as defined in the Intermediate Lien Master Resolution, means the amounts required in a fiscal year to be paid by the Port as scheduled debt service (principal and interest) on outstanding Intermediate Lien Parity Bonds, adjusted by Net Payments (as defined in the Intermediate Lien Master Resolution) during such fiscal year. For purposes of measuring the Port s performance under the Intermediate Lien Rate Covenant (as well as debt service coverage with respect to First Lien Bonds and Subordinate Lien Parity Bonds), the Port makes adjustments in Operating Expenses (reduction) by the amount of Operating Expenses paid from sources that are not included in Gross Revenues, e.g., CFCs and the Tax Levy. See Flow of Funds, Table 2, and Appendix B. For purposes of measuring the Port s performance under the Intermediate Lien Rate Covenant (and determining Available Intermediate Lien Revenues as First Adjusted), the Port increases Available Intermediate Lien Revenues with Prior Lien Debt Service Offsets that include the amount of First Lien Bond debt service paid from CFCs and PFCs. See Table 2. For purposes of measuring the Port s performance under the Intermediate Lien Rate Covenant, the Port reduces debt service on Intermediate Lien Parity Bonds by Intermediate Lien Debt Service Offsets, including debt service on Intermediate Lien Parity Bonds paid from PFCs. See Table 2. The Port covenants in the Intermediate Lien Master Resolution that, if the Available Intermediate Lien Revenues as First Adjusted or if Available Intermediate Lien Revenues as Second Adjusted in any fiscal year are less than -11-

20 required to fulfill the Intermediate Lien Rate Covenant, the Port will retain a Consultant to make recommendations as to operations and the revision of schedules of rentals, tariffs, rates, fees and charges; and that upon receiving such recommendations or giving reasonable opportunity for such recommendations to be made, the Commission, on the basis of such recommendations and other available information, will establish rentals, tariffs, rates, fees and charges for services and operations that will be necessary to meet the Intermediate Lien Rate Covenant in the fiscal year during which such adjustments are made. The Intermediate Lien Master Resolution provides that, if the Commission has taken such steps and if the Available Intermediate Lien Revenues as First Adjusted or if Available Intermediate Lien Revenues as Second Adjusted in the fiscal year in which adjustments are made nevertheless are not sufficient to meet the Intermediate Lien Rate Covenant, there shall be no default with respect to the Intermediate Lien Rate Covenant during such fiscal year, unless the Port fails to meet the Intermediate Lien Rate Covenant for two consecutive fiscal years. See Section 6(a) of the Intermediate Lien Master Resolution in Appendix F. Other Covenants The Port has made a number of other covenants in the Resolution for the benefit of the holders and owners from time to time of the Intermediate Lien Parity Bonds, including taking or requiring to be taken such acts as may reasonably be within the Port s ability and required under applicable law to continue the exclusion from gross income for federal income tax purposes of the interest on the Series 2015 Bonds. See TAX MATTERS herein and the Series Resolution and Section 6 of the Intermediate Lien Master Resolution in Appendix F. Permitted Prior Lien Bonds Additional First Lien Bonds. The First Lien Master Resolution provides that the Port may issue bonds having a lien and charge upon Net Revenues equal to that of the outstanding First Lien Bonds (the Additional First Lien Bonds ) if (i) the Port has not been in default of its First Lien Bond rate covenant set forth in the First Lien Master Resolution for the immediately preceding fiscal year, and (ii) a certificate prepared by either a Consultant or the Port is filed demonstrating fulfillment of the First Lien Bond Coverage Requirement (defined below) for the first full fiscal year following the earlier of (a) the Date of Commercial Operation of the Facilities to be financed with the proceeds of the Additional First Lien Bonds or (b) the date on which any portion of interest on the Additional First Lien Bonds then being issued will no longer be paid from the proceeds of such Additional First Lien Bonds, and for the following two fiscal years. As defined in the First Lien Master Resolution, the Coverage Requirement for the First Lien Bonds (the First Lien Bond Coverage Requirement ) means Net Revenues equal to or greater than 135 percent of Aggregate Annual Debt Service (as defined in the First Lien Master Resolution) for all outstanding First Lien Bonds and all First Lien Bonds authorized but unissued. Net Revenues are to be based upon the financial statements of the Port for the Base Period (defined below), in the case of a certificate filed by the Port, and upon Net Revenues for the Base Period with such adjustments as the Consultant deems reasonable, in the case of a certificate filed by a Consultant. Under the First Lien Master Resolution, Date of Commercial Operation means the date on which the Facilities (as defined in the First Lien Master Resolution) are first ready for normal continuous operation, or if portions of the Facilities are placed in normal continuous operation at different times, the midpoint of the dates of continuous operation of all portions of such Facilities, as estimated by the Port, or if used with reference to Facilities to be acquired, the date on which such acquisition is final. Base Period means any consecutive 12-month period selected by the Port out of the 30-month period next preceding the date the Additional First Lien Bonds are issued. Under the First Lien Master Resolution, Additional First Lien Bonds may be issued without satisfying the requirements described above for (i) refunding purposes under certain conditions, or (ii) paying Costs of Construction for Facilities for which First Lien Bonds have been issued previously if the principal amount of the Additional First Lien Bonds being issued for completion purposes does not exceed an amount equal to an aggregate of 15 percent of the principal amount of First Lien Bonds theretofore issued for such Facilities and reasonably allocable to the Facilities to be completed (as shown in a written certificate of a Designated Port Representative) and if a Consultant s certificate is delivered stating that the nature and purpose of the Facilities have not changed materially. The First Lien Master Resolution also permits the Port to issue refunding First Lien Bonds without satisfying the First Lien Coverage Requirement if the Maximum Annual Debt Service to be outstanding after the issuance of the refunding First Lien Bonds will not be greater than Maximum Annual Debt Service (as defined in the First Lien Master Resolution) were such refunding not to occur. The First Lien Master Resolution also provides that if and to the extent specified in a series resolution authorizing Additional First Lien Bonds, the obligation of the Port -12-

21 to reimburse the provider of a Credit Facility (a Repayment Obligation ) may be secured by a pledge of and a lien on Gross Revenue on a parity with any other outstanding First Lien Bonds. Other Permitted Prior Lien Bonds. In the First Lien Master Resolution and in the Intermediate Lien Master Resolution, the Port reserves the right to issue obligations having lien(s) on Net Revenues junior and inferior to the lien of the First Lien Bonds but prior to the lien of the Intermediate Lien Parity Bonds, payable from Net Revenues available after payment of the amounts described above in paragraphs First through Third under Flow of Funds. In the Intermediate Lien Master Resolution, the Port has reserved the right to issue such Permitted Prior Lien Bonds, and the Intermediate Lien Master Resolution does not contain any conditions to the issuance of Permitted Prior Lien Bonds. The Port at any time could choose to issue Permitted Prior Lien Bonds. See Section 5(a) of the Intermediate Lien Master Resolution in Appendix F. Although the Port has not yet done so, it could do so in the future. Additional Intermediate Lien Parity Bonds General. The Intermediate Lien Master Resolution provides that the Port may issue bonds having a lien and charge upon the Available Intermediate Lien Revenues equal to that of outstanding Intermediate Lien Parity Bonds if the Port is not in default under the Intermediate Lien Master Resolution and if the Port meets the conditions described below under Certificate Required or No Certificate Required. Certificate Required. Unless the Port satisfies the requirements described below in No Certificate Required, the Port is required to deliver prior to the date of issuance of additional Intermediate Lien Parity Bonds, either (i) a certificate prepared as described below and executed by the Designated Port Representative stating that Available Intermediate Lien Revenues as First Adjusted during the Base Period were at least equal to 110 percent of Annual Debt Service in each year of the Certificate Period with respect to all Intermediate Lien Parity Bonds then outstanding and then proposed to be issued; or (ii) a Consultant s certificate, prepared as described below, stating that projected Available Intermediate Lien Revenues as First Adjusted will be at least equal to 110 percent of Annual Debt Service in each year of the Certificate Period. See the definition of Debt Service in Section 1 of the Intermediate Lien Master Resolution in Appendix F. If Intermediate Lien Debt Service Offsets or Prior Lien Debt Service Offsets are or have been used to comply with the Intermediate Lien Rate Covenant, then for purposes of meeting the conditions described in clause (i) or (ii) of this paragraph, the Port is required to identify and irrevocably pledge the receipts that constitute such Intermediate Lien Debt Service Offsets or Prior Lien Debt Service Offsets for a period not less than the duration of the Certificate Period. Intermediate Lien Debt Service Offsets are defined in the Intermediate Lien Master Resolution as receipts of the Port that are not included in Gross Revenue and that are legally available and/or pledged by the Port to pay debt service on Intermediate Lien Parity Bonds, but excluding any receipts that have been designated as Prior Lien Debt Service Offsets. The certificate executed by a Designated Port Representative described in clause (i) of the preceding paragraph is required to be based upon the financial statements of the Port for the Base Period, corroborated by the certified statements of the Division of Municipal Corporations of the State Auditor s office of the State, or by an independent certified public accounting firm for the Base Period. In making the computations of projected Available Intermediate Lien Revenues in connection with the certificate of a Consultant described in clause (ii) of the preceding paragraph, the Consultant is required to use as a basis the Available Intermediate Lien Revenues for the Base Period corroborated by the certified statements of the Division of Municipal Corporations of the State Auditor s office of the State, or by an independent certified public accounting firm for the Base Period. The Intermediate Lien Master Resolution requires the Consultant to make such adjustments to Available Intermediate Lien Revenues (including those described in establishing Available Intermediate Lien Revenues as First Adjusted) to compute projected Available Intermediate Lien Revenues as such Consultant deems reasonable as set forth in writing to the Port. See Sections 5(b)(1) and 5(c)(1) of the Intermediate Lien Master Resolution in Appendix F. Under the Intermediate Lien Master Resolution, Certificate Period means a period commencing with the year of issuance of the proposed series of Intermediate Lien Parity Bonds and ending with the third complete fiscal year following the earlier of (i) the projected Date of Commercial Operation of the facilities to be financed with the proceeds of the proposed Intermediate Lien Parity Bonds; or (ii) the date on which no portion of the interest on the proposed series of Intermediate Lien Parity Bonds will be paid from the proceeds of such Intermediate Lien Parity Bonds (such date to be determined in accordance with the Port s proposed schedule of expenditures). -13-

22 On the date of issuance of the Series 2015 Bonds, the Port will deliver the certificate described above, executed by the Designated Port Representative and stating that Available Intermediate Lien Revenues as First Adjusted during the Base Period were at least equal to 110 percent of Annual Debt Service in each year of the Certificate Period with respect to all Intermediate Lien Parity Bonds then outstanding and the Series 2015 Bonds (other than the Series 2015 Bonds issued for refunding purposes for which no certificate is required, as described in the following paragraph). No Certificate Required. The Port is authorized under the Intermediate Lien Master Resolution to issue Intermediate Lien Parity Bonds without providing either of the certificates described under the heading Certificate Required if (i) the Intermediate Lien Parity Bonds are being issued to refund Intermediate Lien Parity Bonds and either (a) the latest maturity of the Intermediate Lien Parity Bonds to be issued is not later than the latest maturity of the Intermediate Lien Parity Bonds to be refunded (were such refunding not to occur) and the increase in Annual Debt Service as result of such refunding in any year is less than the greater of $25,000 or five percent of such Annual Debt Service on the Intermediate Lien Parity Bonds to be refunded or (b) the latest maturity of the Intermediate Lien Parity Bonds to be issued is later than the latest maturity of the Intermediate Lien Parity Bonds to be refunded and the Maximum Annual Debt Service on all Intermediate Lien Parity Bonds to be outstanding after the issuance of the refunding Intermediate Lien Parity Bonds is not greater than Maximum Annual Debt Service were such refunding not to occur; (ii) the Intermediate Lien Bonds are being issued to refund Intermediate Lien Parity Bonds or Permitted Prior Lien Bonds within one year prior to maturity or mandatory redemption if sufficient moneys are not expected to be available; or (iii) the Intermediate Lien Parity Bonds are being issued to pay Costs of Construction of Facilities for which indebtedness has been issued previously if the principal amount of such indebtedness being issued for completion purposes does not exceed an amount equal to an aggregate of 15 percent of the principal amount of indebtedness previously issued for such Facilities as shown in a written certificate of the Designated Port Representative, stating that the scope, nature and purpose of such Facilities has not materially changed and that the net proceeds of such indebtedness being issued for completion purposes will be sufficient, together with other available funds of the Port, to complete such Facilities. See Sections 5(b)(2) and 5(c) of the Intermediate Lien Master Resolution in Appendix F. Refunding Permitted Prior Lien Bonds. Intermediate Lien Parity Bonds may be issued at any time for the purpose of refunding any Permitted Prior Lien Bonds; provided, however, that prior to the issuance of such Intermediate Lien Parity Bonds, the Port must provide a certificate if such a certificate would be required if the Permitted Prior Lien Bonds to be refunded were Intermediate Lien Parity Bonds. For the purposes of determining whether a certificate is required and for the purpose of preparing any such certificate, the debt service on the Permitted Prior Lien Bonds shall be calculated as if such Permitted Prior Lien Bonds were Intermediate Parity Lien Bonds. See Section 5(c)(2) of the Intermediate Lien Master Resolution in Appendix F. For a discussion of the Port s future financing plans and needs, see CAPITAL PLAN FUNDING. Defaults and Remedies; No Acceleration; Rights of Credit Facility Issuers The Intermediate Lien Master Resolution provides certain actions Registered Owners of the Series 2015 Bonds may take following the occurrence of a payment default on the Series 2015 Bonds or a default by the Port in the observance or performance of any other covenants, conditions or agreements on the part of the Port contained in the Intermediate Lien Master Resolution and the continuance of such covenant default for a period of 90 days. See Section 11 of the Intermediate Lien Master Resolution in Appendix E. The Intermediate Lien Master Resolution also provides that a Credit Facility Issuer is deemed to be the only party entitled to waive any default, to exercise the remedies provided in the Intermediate Lien Master Resolution and to consent to amendments of the Intermediate Lien Master Resolution in connection with Intermediate Lien Parity Bonds insured by such Credit Facility Issuer. See Sections 9 and 11 of the Intermediate Lien Master Resolution in Appendix F. Payment of the principal of and accrued interest on the Intermediate Lien Parity Bonds, including the Series 2015 Bonds, is not subject to acceleration upon the occurrence and continuance of a default under the Intermediate Lien Master Resolution. Payments of debt service on Intermediate Lien Parity Bonds are required to be made only as they become due. In the event of multiple defaults in payment of principal of or interest on the Series 2015 Bonds, the Series 2015 Bond owners could be required to bring a separate action for each such payment not made. Any such action to compel payment or for money damages would be subject to the limitations on legal claims and remedies. See Section 11 of the Intermediate Lien Master Resolution in Appendix F. -14-

23 The Port s outstanding variable rate Subordinate Lien Parity Bonds are secured by bank letters of credit. Although none of the Port s revenue bonds is subject to acceleration, an event of default under any of the bank reimbursement agreements pursuant to which the letters of credit were issued, among other events, would entitle the issuer of such letter of credit to require the mandatory tender for purchase of all of the Subordinate Lien Parity Bonds secured by such letter of credit. In that event, the Port would be required to reimburse the letter of credit issuer or to purchase or redeem all of such bonds over the period (currently five years or less) and to pay interest at the rates set forth in the applicable reimbursement agreement. All of the Series 2015 Bonds will bear interest at fixed rates payable semiannually and, as described under Flow of Funds, the Port is required to make deposits to pay interest on the Series 2015 Bonds on or before the semiannual interest payment dates. Interest on the Port s variable-rate Subordinate Lien Parity Bonds is payable monthly or on another interest payment schedule. See OUTSTANDING PORT INDEBTEDNESS Subordinate Lien Parity Bonds. First Lien Bonds OUTSTANDING PORT INDEBTEDNESS As of July 2, 2015, the Port had outstanding $653,909,855 aggregate principal amount of First Lien Bonds, of which $11,939,529 is accreted interest on First Lien Bonds that are capital appreciation bonds. As described above, the Port has reserved the right to issue additional First Lien Bonds upon compliance with the provisions of the First Lien Master Resolution and to issue bonds secured by a lien or liens on Net Revenues senior to the lien of the Intermediate Lien Parity Bonds and subordinate to the lien of the First Lien Bonds. The First Lien Bonds are currently the only Permitted Prior Lien Bonds outstanding. See SECURITY AND SOURCES OF PAYMENT FOR INTERMEDIATE LIEN PARITY BONDS Permitted Prior Lien Bonds, and PORT FINANCIAL MATTERS. The First Lien Master Resolution does not require that a debt service reserve fund be created for each series of First Lien Bonds and does not require that any minimum amount be deposited to a reserve fund for First Lien Bonds. Nevertheless, the Port has previously created separate reserve funds for each series of outstanding First Lien Bonds other than the Revenue Bonds, Series 2007 and the Revenue Bonds, Series 2011 (together, the Covered Bonds ), which are currently the only First Lien Bonds secured by a common reserve fund (the Common Reserve Fund ). The Common Reserve Fund Requirement is $14,061,420 and is recalculated from time to time, and is provided for in part by the surety bond issued in 2007 in the amount of $8,189,408 by Ambac Assurance Corporation ( Ambac ) with the balance held in cash and investments. Amounts on deposit in reserve funds for outstanding First Lien Bonds that are not Covered Bonds are not available to pay debt service on Covered Bonds, and amounts on deposit in the Common Reserve Fund are not available to pay First Lien Bonds that are not Covered Bonds. The Port is not required to replace or otherwise address the surety policies securing First Lien Bonds upon downgrade or withdrawal of ratings of the surety provider. In the event that a surety is terminated, or in the event the surety provider is insolvent or no longer in existence, the Port is required to satisfy the Common Reserve Fund Requirement or the reserve fund requirement for First Lien Bonds that are not Covered Bonds with a replacement surety or letter of credit within one year, or with cash within three years after the termination, insolvency or incapacity, as further provided in the First Lien Master Resolution and series resolutions. The debt service reserve funds for each series of First Lien Bonds that are not Covered Bonds (other than the Port s Revenue Bonds, Series 2009, which is cash-funded) are funded by surety policies. Each reserve fund for First Lien Bonds that are not Covered Bonds (whether funded with a surety or cash) secures only its identified series of First Lien Bonds and is not available as security for any other series of First Lien Bonds. The table below lists each series of outstanding First Lien Bonds that are not Covered Bonds and that are secured with a debt service reserve fund surety policy, the amount of the surety policy securing that particular series and the surety provider. -15-

24 TABLE 1 SURETY BONDS FOR FIRST LIEN BONDS THAT ARE NOT SECURED BY THE COMMON RESERVE FUND First Lien Bond Series Final Maturity Reserve Requirement Surety Provider Series 2003A 2021 $ 13,373,451 MBIA (1) Series ,500,000 FGIC (2) (1) Reinsured and administered by National Public Finance Guarantee Corporation. (2) Reinsured by MBIA and currently reinsured and administered by National Public Finance Guarantee Corporation. Source: Port of Seattle. Intermediate Lien Parity Bonds As of July 2, 2015, $1,464,045,000 aggregate principal amount of Intermediate Lien Parity Bonds were outstanding (excluding the Series 2015 Bonds, and including the Refunding Candidates). See SECURITY AND SOURCES OF PAYMENT FOR INTERMEDIATE LIEN PARITY BONDS. Subordinate Lien Parity Bonds The Port s Subordinate Lien Parity Bonds are payable from Gross Revenue after all of the payments and transfers described in clauses First through Eighth under SECURITY AND SOURCES OF PAYMENT FOR INTERMEDIATE LIEN PARITY BONDS Flow of Funds have been made. Subordinate Lien Parity Bonds are not subject to acceleration but variable rate Subordinate Lien Parity Bonds may be subject to mandatory tender upon a default or the occurrence of certain other events. See SECURITY AND SOURCES OF PAYMENT FOR INTERMEDIATE LIEN PARITY BONDS Defaults and Remedies; No Acceleration; Rights of Credit Facility Issuers. As of July 2, 2015, the Port had outstanding $56,255,000 aggregate principal amount of fixed rate Subordinate Lien Parity Bonds. In addition, the Port has two series of variable rate Subordinate Lien Parity Bonds outstanding (the Series 1997 Subordinate Lien Parity Bonds, outstanding in the aggregate principal amount of $108,830,000, and the Series 2008 Subordinate Lien Parity Bonds, outstanding in the aggregate principal amount of $200,715,000). The Port also has authorized the issuance from time to time of up to $250 million of Subordinate Lien Commercial Paper Notes, of which $42,655,000 were outstanding as of July 2, The Port previously acquired a surety bond from FGIC (subsequently reinsured by MBIA, and currently administered and reinsured by National Public Finance Guarantee Corporation) in the amount of $18,505,263 to secure the payment of outstanding Subordinate Lien Parity Bonds issued in 1999 (the 1999A/B Bonds, of which, the 1999A Bonds are outstanding). The resolution authorizing the 1999A/B Bonds does not require that the surety bond be replaced upon ratings withdrawals or downgrades of FGIC s ratings. The resolution does require that, in the event of the termination of the surety bond or the insolvency or incapacity of the provider, the 1999 Subordinate Lien Reserve Requirement shall be satisfied (i) within one year after the termination, insolvency or incapacity, but no later than the date of cancellation, with other Qualified Insurance or another Qualified Letter of Credit, or (ii) within three years (in three equal annual installments) after the termination, insolvency, or incapacity, out of Available Revenues (or out of other money on hand and legally available for such purpose). See SECURITY AND SOURCES OF PAYMENT FOR INTERMEDIATE LIEN PARITY BONDS Flow of Funds. Passenger Facility Charge Revenue Bonds As of July 2, 2015, the Port had outstanding $135,100,000 aggregate principal amount of Passenger Facility Charge Revenue Bonds, Series 1998 and Series 2010 (the PFC Bonds ), which have a first claim on PFC revenues. The PFC Bonds have no claim on Gross Revenue of the Port, and the Port s revenue bonds have no claim on PFC revenues. See AVIATION DIVISION Passenger Facility Charges. -16-

25 General Obligation Bonds The Port has statutory authority to issue limited tax and unlimited tax general obligation bonds. As of July 2, 2015, the Port had $322,270,000 aggregate principal amount of limited tax general obligation bonds outstanding and no unlimited tax general obligation bonds. Limited tax general obligation bonds are general obligations of the Port, payable from property taxes levied by the Port within the State statutory limitations applicable to port levies permitted to be imposed without approval of the voters and from all other legally available funds of the Port. See Appendix C for information about the Port s Tax Levy and limited tax general obligation bonds. Special Obligations From time to time, the Port may issue revenue bonds, revenue warrants or other revenue obligations for the purpose of undertaking any project, the debt service on which is to be payable from and secured solely by the revenues derived from such project (the Special Revenue Bonds ). Revenues received from such projects are not Gross Revenue, and Special Revenue Bonds are not entitled to a lien on Gross Revenue on any basis, senior or junior, and are not payable from such Gross Revenue or any other revenues of the Port (other than the revenues derived from the project financed with the Special Revenue Bonds). In June 2013, the Port issued $88,660,000 aggregate principal amount of Special Facility Revenue Refunding Bonds (the Fuel System Bonds ) to refund special facility revenue bonds issued to finance the cost of a fuel hydrant system at the Airport (the Fuel System ). The Fuel System Bonds are limited obligations of the Port payable solely from payments to be made by the lessee (a consortium formed by airlines operating at the Airport) under a fuel system lease and under a guaranty and a security agreement provided by the lessee. In the resolution pursuant to which the Fuel System Bonds were issued, the Port agreed that, should insurance or other funds be insufficient to rebuild the Fuel System after substantial damage or destruction, the Port would pay the cost of rebuilding the Fuel System or would defease any then-outstanding Fuel System Bonds. As of July 2, 2015, $82,640,000 of Fuel System Bonds remained outstanding. Interest Rate Swaps Under Washington law, the Port may enter into payment agreements (interest rate swaps, caps, floors and similar agreements) for the purposes of reducing interest rate risk or reducing the cost of borrowing. The Port has instituted a swap policy that establishes certain requirements for the use of payment agreements, including the authorization by the Commission of any payment agreement and compliance with all statutory requirements, including minimum counterparty ratings and minimum collateralization. The Port has not entered into any payment agreements. Debt Payment Record The Port has never defaulted on the payment of principal or interest on any of its bonds or other debt. Historical Debt Service Coverage The following table shows historical debt service coverage for the years 2010 through 2014 on outstanding First Lien Bonds, Intermediate Lien Parity Bonds, and Subordinate Lien Parity Bonds calculated in conformity with the First Lien Master Resolution, the Intermediate Lien Master Resolution, and the Subordinate Lien Resolutions. In accordance with the resolutions, the Port has used certain income items (not otherwise included in Gross Revenue ) in offsetting Operating Expenses and, in the case of the Intermediate Lien Parity Bonds, either in offsetting debt service or increasing Net Revenue available to be used to pay First Lien debt service as permitted in its bond resolutions. -17-

26 TABLE 2 HISTORICAL DEBT SERVICE COVERAGE FOR THE YEARS ENDED DECEMBER 31 ($ IN THOUSANDS) Fiscal Year Gross revenue available for revenue bond debt service (1) $ 460,026 $ 480,095 $ 517,561 $533,611 $521,330 Operating expenses (2) 253, , , , ,334 Less: Operating expenses paid from other than gross revenues (442) (957) (6,538) (6,331) (7,178) Less: Port general purpose tax levy (32,407) (33,889) (32,116) (33,265) (19,083) Adjusted operating expenses 220, , , , ,073 Nonoperating revenue net (3) 4,642 4,993 2,837 13,539 15,580 First Lien Bonds Net revenue available for First Lien Bond debt service $ 244,053 $ 252,518 $ 260,883 $ 279,757 $ 253,837 Debt service on First Lien Bonds $ 126,843 $ 116,365 $ 107,580 $ 80,673 $ 61,214 Coverage on First Lien Bonds Intermediate Lien Bonds Net Revenue available for Intermediate Lien Bond debt service $ 117,210 $ 136,153 $ 153,303 $199,084 $192,623 Add: Prior lien debt service offset paid by PFC revenue (4) 21,646 23,524 14,814 3,971 1,893 Add: Prior lien debt service offset paid by CFC revenue (4) 19,042 19,443 19,689 19,667 19,632 Available Intermediate Lien Revenues as First Adjusted $ 157,898 $ 179,120 $ 187,806 $222,722 $214,148 Debt service on Intermediate Lien Bonds gross 42,747 54,744 79, , ,522 Less: Debt service offsets paid from PFC revenue (5) (9,332) (10,249) (15,783) (28,640) (29,730) Debt service on Intermediate Lien Bonds net $ 33,415 $ 44,495 $ 63,439 $ 98,389 $115,792 Coverage on Intermediate Lien Bonds Subordinate Lien Bonds Net revenue available for Subordinate Lien Bond debt service $ 124,483 $ 134,625 $ 124,367 $ 124,333 $ 98,356 Debt service on Subordinate Lien Bonds (6) 28,273 24,451 19,187 6,234 5,836 Coverage on Subordinate Lien Bonds (1) Gross Revenue represents total operating revenue adjusted for the following: the Customer Facility Charges ( CFC ) accounted for as operating revenues, and the difference between escalating rental income on a straight-line basis versus contracted amount are excluded. (2) Operating expenses are adjusted for certain operating expenses paid with revenues derived from sources other than Gross Revenues such as consolidated rental car facility-related operating expenses paid from CFCs, and the portion of the operating expenses paid from ad valorem tax levy. (3) Nonoperating revenue-net represents total non-operating income-net adjusted for the following: interest expense on any obligations incurred in connection with and payable from gross revenue, income that is not legally pledged for revenue bond debt service, namely Passenger Facility Charges ( PFCs ) and CFC, available tax levy, fuel hydrant facility revenues, capital contributions and public expense projects. Certain non-cash items are adjusted to a cash basis such as gain or loss on sale of assets and environmental expenses. A correction was made to the 2010 nonoperating revenue-net balance to exclude grants for public expense projects that were previously included in nonoperating revenue-net. (4) PFC revenue was used (but not pledged) to pay First Lien Bond debt service. Beginning in 2009, the Port began using CFC revenue to pay debt service on certain First Lien Bonds used to fund the consolidated rental car facility. The Port is authorized to impose a CFC on rental car transactions at the Airport. CFCs may only be used to pay costs associated with the consolidated rental car facility, including the payment of debt service on bonds issued to fund the facility. As permitted by the Intermediate Lien Master Resolution, CFC and PFC revenue may be used to pay a portion of First Lien Bond debt service or may be applied as a Prior Lien Debt Service Offset to (increase) Available Intermediate Lien Revenues. See SECURITY AND SOURCES OF PAYMENT FOR INTERMEDIATE LIEN PARITY BONDS Intermediate Lien Rate Covenant. (5) As permitted by the Intermediate Lien Master Resolution, PFC revenue used to pay Intermediate Lien Debt Service is applied as an Intermediate Lien Debt Service Offset to reduce net debt service. (6) Starting in 2009, the Port used PFCs to pay eligible subordinate lien debt service and associated debt fees. However, such amounts are not permitted offsets in the legal coverage calculation on subordinate lien bonds and therefore are not shown in the above calculation. Source: Port of Seattle. -18-

27 OUTSTANDING FIRST LIEN BONDS, INTERMEDIATE LIEN PARITY BONDS, AND SUBORDINATE LIEN PARITY BONDS Table 3, below, presents, in aggregate, debt service for the Port s outstanding First Lien Bonds, Intermediate Lien Parity Bonds and Subordinate Lien Parity Bonds. TABLE 3 REVENUE BOND DEBT SERVICE FOR FIRST LIEN BONDS, INTERMEDIATE LIEN PARITY BONDS AND SUBORDINATE LIEN PARITY BONDS Year Ending Dec. 31 Outstanding First Lien Bonds Debt Service Intermediate Lien Parity Bonds Series 2015 Bonds (2) Outstanding Intermediate Lien Parity Bond Debt Service (1) Principal Interest Total Debt Service on the Series 2015 Bonds Total Intermediate Lien Parity Bond Debt Service Total Subordinate Lien Parity Bonds Debt Service (3) Total Debt Service 2015 $ 60,740,228 $ 126,568,479 $ $ $ $ 126,568,479 $ 16,435,414 $203,744, ,557, ,819,711 13,235,000 17,526,910 30,761, ,581,622 40,414, ,553, ,181, ,681,346 19,790,000 20,090,067 39,880, ,561,413 49,407, ,150, ,527,256 90,485,225 27,065,000 23,265,763 50,330, ,815,988 49,413, ,756, ,703,279 79,337,925 29,625,000 24,127,758 53,752, ,090,683 49,410, ,204, ,066,313 79,349,600 32,130,000 23,770,200 55,900, ,249,800 49,413, ,730, ,938,838 93,188,350 33,760,000 22,130,525 55,890, ,078,875 34,240, ,258, ,544, ,534,725 27,540,000 20,620,600 48,160, ,695,325 34,238, ,478, ,868, ,544,150 18,400,000 19,496,975 37,896, ,441,125 16,065, ,375, ,083, ,035,275 19,335,000 18,558,925 37,893, ,929,200 16,065, ,078, ,017,788 90,303,663 20,320,000 17,573,175 37,893, ,196,838 16,063, ,277, ,638,138 90,293,300 21,345,000 16,539,075 37,884, ,177,375 16,067, ,883, ,860,638 90,294,425 22,445,000 15,447,875 37,892, ,187,300 16,063, ,111, ,659,431 90,294,175 22,585,000 14,322,125 36,907, ,201,300 16,064, ,924, ,047,050 89,969,425 23,015,000 13,182,125 36,197, ,166,550 16,065, ,279, ,416,325 90,379,463 24,190,000 12,002,000 36,192, ,571,463 16,067, ,055, ,223,025 66,389,625 25,450,000 10,761,000 36,211, ,600,625 16,067, ,891, ,365,925 39,106,500 26,730,000 9,456,500 36,186,500 75,293,000 16,062, ,721, ,762,275 39,106,125 27,665,000 8,096,625 35,761,625 74,867,750 16,067, ,697, ,633,625 15,075,375 29,075,000 6,678,125 35,753,125 50,828,500 83,462, ,723,225 15,076,625 30,570,000 5,187,000 35,757,000 50,833,625 96,556, ,808,825 15,074,250 16,435,000 4,011,875 20,446,875 35,521,125 77,329, ,076,750 17,080,000 3,174,000 20,254,000 35,330,750 35,330, ,077,500 17,405,000 2,311,875 19,716,875 34,794,375 34,794, ,075,000 18,295,000 1,419,375 19,714,375 34,789,375 34,789, ,072,625 19,240, ,000 19,721,000 34,793,625 34,793,625 TOTAL: $1,191,367,883 $1,795,209,611 $582,725,000 $330,231,473 $912,956,473 $2,708,166,084 $499,694,884 $4,399,228,851 Note: Totals may not add due to rounding. (1) Excludes the Refunded Bonds. (2) Debt service is net of capitalized interest. (3) Assumes an average interest rate of 4.31% per annum (Bond Buyer 40 Bond Index as of July 2, 2015) for all outstanding variable rate bonds, excluding Subordinate Lien Commercial Paper. Assumes level debt service to 2022 for the variable rate Series 1997 Subordinate Lien Bonds and level debt service to 2033 for the Series 2008 Subordinate Lien Bonds, in each case with principal payments commencing in Excludes the Port s subordinate lien commercial paper program, which is authorized in the amount of $250 million, and as of July 2, 2015, was outstanding in the amount of $42,655,000. Source: Port of Seattle. -19-

28 THE PORT OF SEATTLE Introduction The Port is a municipal corporation of the State organized on September 5, 1911, under provisions of the laws of the State, now codified at RCW et seq. In 1942, the local governments in the County selected the Port to operate the Airport. In addition to the Airport, the Port owns and operates the Port s various maritime facilities and industrial and commercial properties. The Port also owns container shipping terminals and is working with the Port of Tacoma to form the Seaport Alliance to manage jointly the two ports container shipping terminals. The Port s major business is the Airport, which accounted for $406.1 million (76 percent) of the Port s total operating revenue in The Port is revising its organizational structure. The Aviation Division will continue as a separate operating division. Container shipping terminals and certain industrial properties that were formerly part of the Seaport Division are expected to be licensed to the proposed Seaport Alliance. Other former Seaport Division businesses and facilities cruise, the grain terminal and certain other properties will be joined with recreational and commercial marinas into a newly formed Maritime Division. The Port is eliminating the Real Estate Division and creating an Economic Development Division that will include certain commercial properties and also will have responsibility for the Port s broader economic development activities, including property development, tourism and social responsibility initiatives (both formerly part of administrative services). In addition to the Port s operating divisions, several port departments provide corporate and capital development services to the operating divisions; the costs associated with these services are allocated to the operating divisions. Port Management The Port Commission. Port policies are established by the five-member Commission elected at large by the voters of the County for four-year terms. The Commission appoints the Chief Executive Officer. The current Commissioners are: STEPHANIE BOWMAN Co-President; Executive Director of Washington Asset Building Coalition. Appointed May 3, 2013 to an unexpired term of office and elected to the Commission in November COURTNEY GREGOIRE Co-President; attorney at Microsoft. Appointed March 15, 2013 to an unexpired term of office and elected to the Commission in November 2013 to serve for the remaining term to December 31, JOHN CREIGHTON Vice President of the Commission; experience as a corporate attorney with an international practice. Mr. Creighton was first elected to the Commission in November 2005 and re-elected in 2009 and 2013, and twice has served as Commission President. TOM ALBRO Secretary of the Commission; founder and executive of several companies in construction, transportation and health care administration. Mr. Albro was elected to the Commission in November 2009 and was re-elected in BILL BRYANT Assistant Secretary of the Commission; Chairman of Bryant Christie Inc. Mr. Bryant was elected to the Commission in November 2007 and re-elected in November He also served as Commission President in 2009, 2010 and Mr. Bryant s current term expires December 31, 2015, and he has announced that he will not be seeking reelection. -20-

29 Certain Executive Staff. Through resolutions and directives, the Commission sets policy for the Port. The policies set by the Commission are implemented by the Port s Chief Executive Officer and his staff. Brief resumes of the Chief Executive Officer and certain other staff members are included below. TED FICK, CHIEF EXECUTIVE OFFICER, was named CEO of the Port in September As Chief Executive Officer, Mr. Fick directs the Port s staff in carrying out the policies established by the Commission. Prior to joining the Port, Mr. Fick held managerial and executive level positions at a number of companies including Fick Foundry, Co. and Paccar, Inc. (both headquartered in King County, Washington) and most recently served as President and CEO at Polar Corporation, LLC in Minnesota. Mr. Fick holds a bachelor s degree from the University of Washington, a master s degree in business administration from University of Puget Sound and a master s of science in management from Stanford University as a Sloan Fellow. KURT BECKETT, DEPUTY CHIEF EXECUTIVE OFFICER, joined the Port in November 2007, and served as the External Affairs Director and Chief of Staff before being promoted to Deputy Chief Executive Officer. He previously served as Chief of Staff for U.S. Senator Maria Cantwell since 2004 and as her deputy chief of staff since Before that, he worked for Congressman Norm Dicks for nearly ten years, most recently as District Director. Mr. Beckett holds a bachelor s degree in political science from the University of Washington and is a graduate of the Executive MBA Program of the University of Washington. DAN THOMAS, CHIEF FINANCIAL OFFICER, has been with the Port since 1990 and has served as Chief Financial Officer since August Mr. Thomas served as the Port s Director of Finance and Budget from 1997 through August As Chief Financial Officer, Mr. Thomas oversees the accounting, finance, treasury, budgeting, risk management, and information technology functions. He holds a bachelor s degree in economics from Pennsylvania State University and a master s of business administration in finance from the University of Washington. MARK REIS, MANAGING DIRECTOR, AVIATION, became Managing Director of the Aviation Division in 2004 after serving as Deputy Managing Director for four years. Prior to holding that position, he was the general manager of commercial development at the Airport and Director of Finance for the Port. Prior to joining the Port, Mr. Reis was executive director of two Seattle-based non-profit organizations, the Northwest Conservation Coalition and the Northwest Renewable Resources Center. From 1978 to 1980, he worked for the U.S. House of Representatives Committee on Interior and Insular Affairs on energy legislation. Mr. Reis earned a bachelor s degree in environmental studies from Western Washington University and a master s degree in public administration from the John F. Kennedy School of Government at Harvard University. LINDA STYRK, MANAGING DIRECTOR, MARITIME, came to the Port in Prior to joining the Port, she served as president of Universal Freight Forwarders in Seattle; the U.S. office and warehouse for Lauritzen Cool Logistics, AB. She also spent 19 years serving in a variety of positions with APL, Ltd. Ms. Styrk received her degree in Nautical Industrial Technology from the California Maritime Academy and has done graduate work in international studies. She serves on a number of boards, including the executive committee of the Manufacturing Industrial Council and the advisory board for the University of Washington s Global Trade, Transportation and Logistics program. JOE MCWILLIAMS, ACTING MANAGING DIRECTOR, ECONOMIC DEVELOPMENT, is responsible for the Port s economic development programs including management of commercial real estate, property development, tourism and small business initiatives. Prior to joining the Port in 2008, Mr. McWilliams was the Southwest Regional Manager for PHAROS Corporation, a fee-for-services real estate firm that provides acquisition services for infrastructure development for government and railroad clients. Mr. McWilliams was one of seven project directors on the Seattle Monorail Project. His commercial real estate background includes experience with Cushman and Wakefield and Wright, Runstad and Company. Mr. McWilliams has a business management degree from Texas Tech University. On June 24, 2015, the Port announced the appointment of David McFadden as the managing director of the Port s new Economic Development Division, effective July 21, LARRY EHL, CHIEF OF STAFF, came to the Port in 2014 as Chief of Staff for the Commission and was appointed Chief of Staff to the Chief Executive Officer in Prior to joining the Port, Mr. Ehl published Transportation Issues Daily. He also previously served as government relations manager for the Washington State Department of -21-

30 Transportation and as director of corporate and government relations for Fisher Companies, Inc. Mr. Ehl has a bachelor s degree from the University of Washington and a master s degree in adult education and training from Seattle University. CRAIG WATSON, GENERAL COUNSEL, has been an attorney with the Port since 1990 and was named General Counsel in April Mr. Watson s duties include providing legal advice to the Chief Executive Officer and Port Commission, supervising a staff of seven in-house attorneys and managing outside legal counsel. At the Port, Mr. Watson has worked on labor and employment law, construction-related matters, personal injury cases and insurance coverage matters. Previously, he worked for the Portland-based law firm of Bullivant Houser Bailey in its Seattle office as a civil litigator specializing in property loss and personal injury matters. Mr. Watson received his law degree in 1984 from Willamette University in Salem, Oregon. After law school, he served as a clerk at the Oregon Court of Appeals. AVIATION DIVISION The Airport is located approximately 12 miles south of downtown Seattle. Currently, the Airport has facilities for commercial passengers, air cargo, general aviation and maintenance on a site of approximately 2,800 acres. Airport facilities include the Main Terminal and the South and North Satellites accessed via an underground train, a parking garage, and a consolidated rental car facility. The Airport has three runways that are 11,900 feet, 9,425 feet and 8,500 feet in length, respectively. The Airport is the largest airport in Washington State. The Airport serves as the primary airport for much of western Washington State, including King County, which is the State s largest county by population and contains the City of Seattle. Comparable airports in the region that currently provide commercial passenger and cargo service include: Portland International Airport in Oregon, approximately 160 miles to the south of the Airport, and Vancouver International Airport in British Columbia, approximately 155 miles to the north of the Airport. In addition, the Spokane International Airport in eastern Washington, approximately 270 miles to the east of the Airport, provides domestic and international passenger service. There are several smaller regional airports in the Seattle region that offer cargo services, commercial passenger service and general aviation services. Some of these regional airports may be able to add or expand commercial passenger service in the future. Passenger Activity at the Airport Passenger Enplanements. The Airport served approximately 18.7 million enplaned (embarked) passengers in Approximately 1.9 million (10.1 percent) of enplaned passengers were on non-stop flights to international destinations in [Remainder of Page Intentionally Left Blank] -22-

31 The following table illustrates the changes in enplanements at the Airport from 2010 through 2014, and from January through May 2015 compared to January through May See also Airline Traffic Trends in Attachment 1 to the Report of the Independent Consultant included as Appendix B for additional information regarding enplanements at the Airport. TABLE 4 SEATTLE-TACOMA INTERNATIONAL AIRPORT HISTORICAL ENPLANED PASSENGERS Total Enplaned Passengers Year Domestic Percentage Increase International Percentage Increase ,824, ,892, ,716, ,604, ,772, ,376, ,982, ,614, ,597, ,913, ,483, ,397, ,363, ,409, ,773, Percentage Increase Source: Port of Seattle. YEAR-TO-DATE COMPARISON (JANUARY MAY 2014 AND 2015) Total Enplaned Passengers Year Domestic Percentage Increase International Percentage Increase ,899, , ,715, ,093, ,679 6,796,311 Source: Port of Seattle. Percentage Increase O&D and Connecting Passenger Traffic. Most of the Airport s passenger activity is origin and destination ( O&D ) activity, meaning that passengers either begin or end their trips at the Airport. In 2014, the estimated percentage of O&D passenger traffic at the Airport was 73.7 percent, based upon 2014 O&D data from the U.S. Department of Transportation s database. The Airport s predominately O&D nature means that activity levels at the Airport are closely linked to the underlying economic strength of the geographic area served by the Airport. See Appendix H DEMOGRAPHIC AND ECONOMIC INFORMATION. As shown in Table 5, the Airport s top domestic O&D markets with at least one percent of market share in 2014 together represented more than 66 percent of enplaned passengers, and all but three were medium- or long-haul markets at least 500 miles from Seattle. Connecting traffic is considered more discretionary than O&D traffic, because passengers may choose other connecting airports based on the price and/or convenience of routes established by airlines. Additionally, connecting traffic can be influenced by airline decisions to shift connecting activity from one airport to another. See Airline Traffic Trends in Attachment 1 to the Report of the Independent Consultant included as Appendix B for additional information regarding enplanements at the Airport. -23-

32 TABLE 5 SEATTLE-TACOMA INTERNATIONAL AIRPORT TOP DOMESTIC PASSENGER ORIGIN-DESTINATION MARKETS AND AIRLINE SERVICE (WITH AT LEAST ONE PERCENT OF MARKET SHARE) 2014 Approximate air miles from Seattle Share of market, based on enplaned passengers (%) (2) Rank Market of Origin or Destination (1) 1 Los Angeles, CA San Francisco, CA New York, NY 2, Las Vegas, NV Phoenix, AZ 1, San Diego, CA 1, Denver, CO 1, Chicago, IL 1, Washington, DC 2, Dallas, TX 1, Sacramento, CA Boston, MA 2, Minneapolis/St. Paul, MN 1, Salt Lake City, UT Atlanta, GA 2, Spokane, WA Honolulu, HI 2, Anchorage, AK 1, Houston, TX 1, Orlando, FL 2, Kahului, HI 2, South Florida (3) 2, Philadelphia, PA 2, Portland, OR Boise, ID Subtotal 66.8 All other cities 33.2 Total Note: Totals may not add due to rounding. (1) Each market includes the major airports within the market. (2) Compiled by the Port from U.S. Department of Transportation Statistics, T-100 Domestic Market Schedule T2. (3) Includes Miami International (MIA), Fort Lauderdale-Hollywood (FLL), and Palm Beach International (PBI) airports. Source: Port of Seattle. Passenger Airlines Serving the Airport. Passenger enplanements at the Airport are spread over a variety of air carriers, with Alaska Airlines, Inc. ( Alaska ) accounting for the largest share of enplaned passengers (38.8 percent) at the Airport in Alaska and Horizon Air Industries, Inc. ( Horizon ) operate a regional hub that serves passengers connecting to and from regional destinations and together accounted for 51.6 percent of enplaned passengers at the Airport in Alaska and Horizon are separately certificated airlines both owned by the Alaska Air Group. Delta Air Lines accounted for the second largest share of enplaned passengers (15.6 percent) at the Airport in 2014, up from 12.5 percent in Four other airlines combined accounted for an additional 23.0 percent of enplanements during The following table illustrates the market shares in 2009 and 2014 of the passenger airlines with a one percent or greater share of enplaned passengers at the Airport. Because Alaska and Horizon together represent more than 50 percent of market share at the Airport, the Port is required to, and has submitted, a competition plan to the Federal Aviation Administration ( FAA ). -24-

33 TABLE 6 SEATTLE-TACOMA INTERNATIONAL AIRPORT AIRLINES RANKED BY ENPLANED PASSENGER TRAFFIC Airline 2009 Enplanements Share (%) 2014 Enplanements Share (%) Alaska Airlines (1) Horizon Airlines Alaska Air Group subtotal Delta Air Lines (2) United Airlines (3) Southwest Airlines American Airlines US Airways JetBlue Airways Virgin America Hawaiian Airlines Frontier Airlines Others (4) Airport Total Note: Totals may not foot due to rounding. (1) Includes flights operated by SkyWest. (2) Includes Delta connections (operated by SkyWest and Compass Airlines). Includes historical service by Northwest Airlines. (3) Includes United Express (operated by SkyWest). Includes historical service by Continental Airlines. (4) Includes all airlines with less than one percent market share each. Source: Port of Seattle. The Port also provides facilities for air cargo services. In 2014, air cargo at the Airport totaled 319,640 metric tons. Airport Business Agreements The following table shows Aviation Division operating revenue by major source, for fiscal year ended December 31, TABLE 7 AVIATION DIVISION OPERATING REVENUE ($ IN THOUSANDS) Sources 2014 Terminal revenues from aeronautical customers $137,435 Airfield 77,014 Public parking 57,127 Airport dining and retail 46,954 Rental car 32,496 Customer facility charges for operations 13,608 Utilities 6,736 Commercial properties 6,638 Ground transportation 8,333 Operating grants and contract revenues 301 Other 19,437 Total Aviation Division Operating Revenues $406,079 Source: Port of Seattle. -25-

34 The Airline Agreements. The Airport derives a significant portion of its revenues from air carriers using the Airport. Pursuant to FAA guidelines, the Airport passes aeronautical costs on to the air carriers. Traditionally this has been accomplished through lease and operating agreements at the Airport. In 2013, the Port approved a new Signatory Lease and Operating Agreement ( SLOA III ). By December 31, 2013, airlines representing 99.9 percent of passenger traffic were signatories. SLOA III will expire on December 31, 2017, unless terminated early or extended in accordance with its terms. SLOA III establishes several types of fees designed to recover operating and capital costs of the associated aeronautical facilities on the Airfield (described below) and in the terminal. In calculating each type of rates and charges under SLOA III, the Port is required to reduce the applicable capital or operating costs by any amounts reimbursed or covered by government grants or PFCs, any insurance or condemnation proceeds or other third-party payments, any reimbursements made by an airline in connection with projects undertaken for the benefit of an airline and any premiums paid by non-signatory airlines. Total costs are comprised of operating and capital costs allocated to the various components of the Airfield and the terminal. Capital costs include: a charge for cash-funded assets placed into service on or after 1992, debt service costs (net of Passenger Facility Charge ( PFCs )) allocable to revenue bond-funded capital improvements placed into service, and a debt service coverage fee if necessary to maintain total Airport-related debt service coverage at no less than 1.25 times debt service for that fiscal year. The debt service coverage fee provides a mechanism for the Port to increase charges if necessary to achieve 1.25 times Airport-related debt service. SLOA III also provides that if the Airport s Net Revenue (calculated as provided in SLOA III) exceeds 125 percent of total Airport-related debt service coverage in any fiscal year, 50 percent of the amount in excess of that threshold will be credited to the signatory airlines in the next fiscal year. As defined in SLOA III, the Airfield is comprised of three areas: the Airfield Apron Area (the area immediately adjacent to the terminal building and areas for overnight aircraft parking), the Airfield Movement Area and the Airfield Commercial Area (including, but not limited to, the land, taxi lanes, ramps and the terminal used primarily for cargo activities and aircraft maintenance), and related costs and fees are calculated separately for each area. The most significant fee is the landing fee charged for use of the landing areas, runways, taxiways, adjacent field areas and related support facilities that comprise the Airfield Movement Area. The landing fee is computed by (i) adding budgeted capital costs (including Airport-related debt service and debt service coverage, if required) and operating expenses allocable to the Airfield Movement Area, (ii) subtracting other fees for use of the Airfield Movement Area and any nonsignatory airline premium payments and then (iii) dividing the total by the maximum gross landed weight estimated by the Port for the next fiscal year. Similarly, fees for use of the Airfield Apron Area are calculated based on the operating and capital costs, including Airport-related debt service and Airport-related debt service coverage, allocable to those areas and charged to carriers based on landed weight. The Airfield Commercial Area is a separate compensatory (not cost recovery) cost center. Airline terminal rental rates are based in part on the Terminal Building Requirement, which is computed by multiplying the total of budgeted operating expenses and capital costs, including Airport-related debt service and Airport-related debt service coverage (if required) allocated to the terminal, by the ratio of airline rentable space to total rentable space, less any non-signatory airline premiums included in rent payable by non-signatory airlines. Excluded from the cost recovery formula is any airline office or club space that is vacant. Use of the baggage system, passenger loading bridges, airline support systems and equipment and the federal inspection facility are calculated and charged separately; these are also based upon operating expenses and capital costs (the Port may use non-aeronautical revenues to off-set costs associated with the federal inspection facility cost center). Rates may be adjusted mid-year upon 30 days notice to the airlines if actual results are expected to vary from budget projections by more than 10 percent. A final adjustment is made each year for the actual results of the prior year. SLOA III includes a list of previously approved capital improvement projects. SLOA III provides that if, by the time the Port elects to proceed with construction, the capital cost of any project on that approved list exceeds 110 percent of the cost presented in the agreement and the increase is not otherwise exempt under the agreement, the Port will notify the airlines and a Majority-in-Interest of the airlines may request a delay of 180 days on the project. A Majority-in-Interest is defined in SLOA III as air carriers that account for more than 55 percent of all signatory carriers and also account for more than 55 percent of terminal rents and landing fees paid by signatories in the preceding year. The Airport may notify the signatory airlines if it intends to construct any new project not included -26-

35 in the list of previously approved projects. If, within 30 days of the Port s notice, a Majority-in-Interest objects to the new project, the Airport must delay construction for 12 months. See CAPITAL FUNDING PLAN. Rates and Charges by Resolution. Pursuant to FAA guidelines, the Port can establish rates and charges by resolution or by a lease and use operating agreement. In the event that a lease and use operating agreement were not then in effect, rates and charges would be set by resolution. On May 14, 2013, the Port adopted Resolution No. 3677, unilaterally establishing rates and charges for airlines serving the Airport. Upon implementation of SLOA III, Resolution No was suspended. Upon expiration of SLOA III and absent any further action by the Port or any new or amended agreement with the airlines, Resolution No would take effect. Other Airport Businesses and Agreements. The Aviation Division s non-airline revenues include revenues from public parking, rental car and employee parking fees; terminal concession agreements; ground transportation, rental car and other concession fees, and revenues from Airfield, terminal and other commercial property leases. See Table 7. Public Parking. The Aviation Division operates an eight-floor parking garage for short-term and long-term public parking and for use by employees. The Port also provides approximately 1,500 parking spaces in a remote lot operated by a third party. In addition, privately-owned parking facilities compete with Airport parking. There are a number of privately owned and operated parking facilities offering a range of quality, cost and service, including facilities very near the Airport. Rental Cars. The Airport leases space in a consolidated facility to rental car operators and receives a concession fee based upon the gross revenues of rental car operations at the Airport and land rent. In addition, the rental car companies remit to the Airport a Customer Facility Charge ( CFC ) from their customers. Per State statute, the CFC is used exclusively to pay for costs associated with the consolidated rental car facility. All rental car companies are required either to operate from the consolidated rental car facility or to use the facility to drop off or pick up their customers. At this time, nearly all of the rental car companies currently serving the Airport operate from the consolidated rental car facility. Passenger Terminal Concession Agreements. The Port transitioned from a master concessionaire model in 2005 to a different manner of offering restaurants, specialty retail, convenience retail and duty free goods to the traveling public. A hybrid management model combines a small number of prime concessionaires operating multiple units with a growing number of single location direct concession agreements with the Port. There are three food and beverage prime concessionaires (one larger, two smaller) under lease agreements through 2016, and one prime convenience retail concessionaire under a lease agreement until mid In late 2014, the Port negotiated new leases for a number of locations operated by these prime concessionaires that will require nearly $20 million in new investment intended to increase sales, as well as the early return to the Port of other units for redevelopment. The new lease agreements are to extend until In the timeframe, the Airport Dining and Retail program will re-lease most of its current space as well as increase the square footage devoted to dining and retail operation in order to meet growing demand. Under current agreements, airport dining and retail tenants pay rent based on a percentage of gross sales. The tenants are subject to Port oversight of operations and quality assurance standards, as well as adherence to a policy requiring that prices charged at the Airport be consistent with local prices elsewhere, commonly referred to as street pricing. Miscellaneous Business Arrangements and Revenues. The Airport has agreements with a variety of ground transportation companies, under which the Port receives either concession fees or per-trip fees and permit fees. Various shuttle services also serve the Airport and pay a per-trip fee. In addition, there are standard land leases and other fees for other aeronautical and non-aeronautical tenants and users at the Airport, such as an in-flight kitchen and cargo hardstand revenues. Regulation The Port operates the Airport pursuant to an airport operating certificate issued annually by the FAA after an on-site review. In addition to this operating certificate, the Airport is required to obtain other permits and/or authorizations from the FAA and other regulatory agencies and is bound by contractual agreements included as a condition to receiving grants under the FAA s grant programs. Federal law also governs certain aspects of rate-setting and restricts grants of exclusive rights to conduct an aeronautical activity at an airport that receives or has received -27-

36 federal grants and other property. All long-term facility planning is subject to the FAA s approval; the Port is subject to periodic audits by the FAA; the Port s use of Airport revenues is subject to review by the FAA; and the Port s use of PFC revenue and grant proceeds is also subject to FAA approval, audit and review. The FAA is currently undertaking a compliance audit of the Port. The Port is also required to comply with the provisions of the federal Aviation and Transportation Security Act, with other federal security statutes and with the regulations of the Transportation Security Administration (the TSA ). Security is regulated by the FAA and the TSA. The Port also is regulated by the federal Environmental Protection Agency and the Washington Department of Ecology in connection with various environmental matters, including the handling of deicing materials and airline fuels and lubricants, protection of wetlands and other natural habitats, disposing of stormwater and construction wastewater runoff and noise abatement programs. The Port s handling of noise, including restrictions and abatement programs, is also subject to the requirements of federal and State statutes and regulations. Rates and Charges Regulation; Federal Statutes. Federal statutes and FAA regulations require that an airport maintain a rate structure that is as self-sustaining as possible and generally (with certain exceptions) limit the use of all revenue (including local taxes on aviation fuel and other airport-related receipts) generated by an airport receiving federal financial assistance to purposes related to the airport. Federal statutes also provide that, without air carrier approval, an airport may not include in its rate base debt service allocable to projects not yet completed and in service. Federal statutes include provisions addressing the requirements that airline rates and charges set by airports receiving federal assistance be reasonable and authorize the U.S. Secretary of Transportation to review rates and charges complaints brought by air carriers. Passenger Facility Charges Passenger Facility Charges are fees collected from enplaned paying passengers to finance eligible, approved airportrelated project costs, subject to FAA regulation. Airport operators are required to apply to the FAA for approval before imposing or using PFCs. The FAA has approved a Port PFC of $4.50 per paying enplaned passenger, the maximum allowable under current law. PFC revenue is not included in the definition of Gross Revenue under the First Lien Master Resolution or the Intermediate Lien Master Resolution. PFC revenue remaining after payment of the PFC Bonds, however, may be applied to pay a portion of debt service on Port revenue bonds issued to finance PFC-eligible projects. Since 2008, the Port has applied and expects to continue to apply PFC revenue to pay a portion of debt service on such revenue bonds. Such amounts may not be taken into account when calculating debt service coverage of First Lien Bonds but may be taken into account when calculating debt service coverage for the Intermediate Lien Bond rate covenant. See Table 2, Port of Seattle Historical Debt Service Coverage For the Years Ended December 31. Before the Port can use PFC revenue to pay debt service on any of its bonds, the Port is required to obtain FAA consent. Since the Port implemented its PFC program in 1992, the Port has obtained FAA authorizations, pursuant to five PFC application approvals, to impose and use approximately $2.2 billion of PFC revenues (at the $4.50 PFC level and including investment income) for various projects. As of March 31, 2015, of the $2.2 billion of approved authority, the Port has remaining unspent authority of approximately $1.1 billion (and remaining projected aggregate PFC Bond debt service of $215 million). PFCs are imposed by the Port, collected by the airlines from paying passengers enplaning at the Airport and remitted to the Port (net of a handling fee, currently equal to $0.11 for each PFC collected). The annual amount of PFCs collected by the Port depends upon the number of passenger enplanements at the Airport and the timely remittance of PFCs by the airlines. No assurance can be given that PFCs will actually be received in the amounts or at the times contemplated by the Port in its capital funding plans. In addition, the FAA may terminate or reduce the Port s authority to impose PFCs, subject to informal and formal procedural safeguards, if the FAA determines that the Port has violated certain provisions of federal law or the PFC or other federal regulations, or if the FAA determines that PFC revenue is not being used for approved PFC projects or that implementation of such projects did not begin within the time frames specified in the PFC statute or the PFC regulations. Future PFC applications may be denied if the FAA determines that the Port violated any of its federal grant assurances or violated certain federal statutes and regulations applicable to airports. Amounts received or receivable under the PFC program are also subject to -28-

37 audit and adjustment by the FAA. The Port has never been found in violation of or been notified by the FAA as being out of compliance with federal grant assurances or applicable federal statutes and regulations. Customer Facility Charges Pursuant to RCW Section (7) (the CFC Act ), the Port is authorized, at rates determined by the Port, to impose a CFC upon customers of rental car companies accessing the Airport. The CFC Act limits the uses for which the Port may collect the CFC. Specifically, the Port may impose the CFC only for the purposes of financing, designing, constructing, operating, and maintaining consolidated rental car facilities and common use transportation equipment and facilities which are used to transport the customer between the consolidated car rental facilities and other airport facilities. The Port has been collecting the CFC since February 2006, and currently collects a CFC of $6.00 per transaction day. The Port has exclusive rate-setting ability with respect to CFCs, and the CFC Act does not limit the pertransaction or total dollar amount of CFCs that may be collected. The Port can use CFCs to pay both operating and capital costs of the consolidated rental car facility. The portion of CFC revenues used to pay capital costs is accounted for as non-operating revenue, and the portion used to pay operating costs is accounted for as operating revenue. The CFC Act allows CFCs to be used to repay the Port, with interest, for any non-cfc funds that the Port uses to fund eligible costs. The Port is applying CFCs to permitted purposes under the CFC Act, including the payment of debt service on the Series 2009 First Lien Bonds, issued in the initial aggregate principal amount of $316,960, and $20,000,000 of Subordinate Lien Commercial Paper Notes issued to finance costs of the Port s consolidated rental car facility and bus system. See Security and Sources of Payment for Intermediate Lien Parity Bonds Intermediate Lien Rate Covenant. General NORTHWEST SEAPORT ALLIANCE AND OTHER PORT BUSINESSES The Port is engaged in several maritime and real estate businesses around the Seattle waterfront. The most significant is the ownership of container cargo terminals, currently managed by the Port. The Port is working with the Port of Tacoma to form the Seaport Alliance to manage jointly the two ports container shipping terminals. On June 5, 2015, the two ports approved submittal to the Federal Maritime Commission (the FMC ) of the agreement to form the Seaport Alliance for this purpose. If approved by the FMC and the two port commissions, the Port expects that the Seaport Alliance will assume management of the Port s container terminals and certain industrial properties in August See The Seaport Alliance. Other Port businesses include management of facilities for non-containerized cargo, cruise, commercial and recreational marinas and commercial and industrial properties. Through 2014, some of these businesses marine cargo terminals, cruise and some industrial properties were managed by the Seaport Division; recreational and commercial marinas and commercial real estate were managed by the Real Estate Division. A newly formed Maritime Division is managing the Port s facilities for cruise, grain, marinas and certain properties and docks and a newly formed Economic Development Division is managing the Port s central waterfront facilities and certain properties. -29-

38 The following table shows 2014 operating revenue of the Port s non-aviation businesses. The Seaport Alliance TABLE 8 NON-AVIATION OPERATING REVENUE ($ IN THOUSANDS) Sources 2014 Container Terminals $ 56,786 Commercial Properties and Marinas 22,238 Industrial Properties 17,509 Cruise Terminals 12,993 Conference and Event Centers 8,957 Grain Terminals 3,785 Other 6,590 Total Non-Aviation Operating Revenues $128,859 Source: Port of Seattle. Introduction. The Port faces significant competition for container shipping business. In an effort to improve its competitive position the Port is seeking to form an alliance with the Port of Tacoma under the formal name The Northwest Seaport Alliance ( Seaport Alliance ). The intended purpose of the Seaport Alliance is to unify management and operation of both ports Marine Cargo (defined to mean waterborne goods other than grain, liquefied natural gas or methanol) businesses. Specifically, the Seaport Alliance is proposed to be formed to improve the competitive position of the facilities that would be operated and managed by the Seaport Alliance through unified customer relations, to create a unified approach to managing those facilities for operational and other efficiencies, and to optimize capital investments in Marine Cargo facilities at both ports based on opportunity and strategic use of assets of each port. See Attachment 2 of the Report of the Independent Consultant included as Appendix B for additional discussion of the purpose and intent, and key objectives, of the Seaport Alliance. On October 14, 2014, the Port entered into an interlocal agreement ( ILA ) with the Port of Tacoma to serve as a framework for the creation of the Seaport Alliance pursuant to the FMC Discussion Agreement No As stated in the ILA, the Seaport Alliance is to be the exclusive manager and operator of the marine cargo business of both ports, overseeing operations and capital investments. The individual ports are to retain their existing port commission governance structures, budgeting, ownership of assets, debt, and obligations for repayment of port debt. Between October 2014 and May 2015, the Port undertook due diligence with the Port of Tacoma. Port staff from multiple business and administrative functions regularly met with counterparts from the Port of Tacoma to share information and develop the proposed structure for the Seaport Alliance. The results of these meetings were shared with the two port commissions in joint meetings. The ports hired an independent consultant to provide an estimated valuation for the ports facilities based on the 10-year net present value of each property s estimated cash flows and enterprise value, including maintenance and repair capital and updated operation, maintenance and administrative costs provided by each Managing Member. Based on that valuation, each port plans to contribute selected Marine Cargo facilities, such that each port s initial contribution to the Seaport Alliance would each be 50 percent. During the due diligence period, the ports drafted key documents, including the proposed charter, and released those documents to the public for comment on May 8, On June 5, 2015, the two ports approved submittal of the final documents to the FMC. Formation of the Seaport Alliance requires FMC approval and action by the two port commissions. Port Development Authority. The Seaport Alliance will be formed as a port development authority, with an expected effective date of August 4, 2015, pursuant to a recently added provision in Title 53 RCW that grants ports the authority to create separate port development authorities, similar to public development authorities created by cities and counties. -30-

39 The State Legislature granted ports the authority to create a port development authority for the management of maritime activities and to allow ports to act cooperatively and use financial resources strategically, while remaining separate entities and complying with federal regulations. Pursuant to the port development authority statute, if a port development authority is created jointly by more than one port district, then the port development authority must be managed by each port district as a member, in accordance with the terms of the statute and the charter for the port development authority. Any port district that creates a port development authority must oversee the affairs, operations, and funds of the port development authority in order to correct any deficiency, and ensure that the purposes of each program undertaken are reasonably accomplished. The statute permits a port development authority, in managing maritime activities of a port district or districts, to own and sell real and personal property; to enter into contracts, sue and be sued; to loan and borrow funds; to issue bonds, notes, and other evidences of indebtedness; to transfer funds, real or personal property, property interests, or services; and to perform community services related to maritime activities managed by the port development authority. As discussed below, the statute allows, but the charter for the Seaport Alliance will prohibit, the Seaport Alliance from issuing bonds, borrowing funds, or entering into other debt instruments. By statute, port development authorities do not have the power of eminent domain or the power to levy taxes or special assessments. In transferring real property to a port development authority, the port district or districts creating the port development authority must impose appropriate deed restrictions necessary to ensure the continued use of the property for the public purpose for which the property is transferred. Governance. The Seaport Alliance is proposed to be governed by the two ports as equal Managing Members, with each port acting pursuant to the charter through its elected commissioners. The Managing Members are to appoint a Chief Executive Officer who is to hire staff and enter into service agreements with the ports as needed; the ports have indicated that John Wolfe, who currently serves as the Port of Tacoma Chief Executive Officer, will become the Seaport Alliance Chief Executive Officer and may hold those two positions for up to five years. Other Port staff may be hired by the Seaport Alliance or may serve in dual roles either directly or through service agreements. Once formed, the Seaport Alliance would continue for an indefinite term until dissolution. Once approved, the charter may be amended only by mutual agreement of both Managing Members. Licensed Facilities and Membership Interests. Beginning August 2015 (subject to FMC and each port commission approval), the ports will license certain properties to the Seaport Alliance for operation and management, including capital improvements; ownership of the licensed properties will remain with the ports. The Port plans to license its container terminals and some industrial properties to the Seaport Alliance. See Attachment 2 of the Report of the Independent Consultant included as Appendix B for a description of the Port of Tacoma facilities and Port facilities to be licensed to the Seaport Alliance. Initially each Managing Member will have a 50 percent interest in the Seaport Alliance with a revaluation scheduled to occur at the end of 2017 (to address material changes in licensed properties where Marine Cargo terminal revenues were not secured by contractual agreements throughout the time period covered by the initial valuation) and from time to time upon the removal or addition of licensed property. Managing Members will provide initial contributions for working capital and capital construction; future needs will be evaluated during the annual budget process or if the working capital reserve declines below its target minimum established by the Managing Members; Managing Members must each vote affirmatively to approve additional contributions. There will be a transition period from August 2015, through December 2015, and the ports will continue to receive all revenues and pay all expenses related to the operation and management of the properties licensed to the Seaport Alliance. Post-Formation Improvements; Capital Investments. The Managing Members may by vote authorize and instruct the Seaport Alliance to acquire or construct improvements to terminals, other improvements and infrastructure such as cranes and other fixtures on licensed property as necessary to support Seaport Alliance operations ( Post-Formation Improvements ). Post-Formation Improvements will be recorded as Seaport Alliance assets. The Managing Members may consider requests for future capital contributions to the Seaport Alliance, the approval of which requires an affirmative vote by each Managing Member. Marine Cargo Activities. The charter will also memorialize the ports commitment to a unified approach to Marine Cargo activities. Marine Cargo activities for the licensed properties are to be exclusively handled by the Seaport Alliance. The ports may continue Marine Cargo activities for other existing port businesses; however, for new Marine Cargo opportunities, the Seaport Alliance would have first right of refusal. -31-

40 Revenue and Cash Distribution. The Seaport Alliance would distribute cash to each Managing Member based on cash flow from operations, calculated pursuant to GAAP. Cash distributions would be made no less than quarterly based on each Managing Member s percentage of total shares. The Seaport Alliance will be treated as a joint venture for accounting purposes and the Port expects to recognize as Gross Revenue its (initially 50 percent) share of the Seaport Alliance s Net Income or Losses (defined in the charter to mean, for each fiscal year or other period, an amount equal to the Seaport Alliance s net operating income or losses less depreciation plus non-operating income or losses, including extraordinary and special items for such fiscal year or other period, determined in accordance with GAAP). The charter will recognize that each Managing Member s respective share of revenues received by the Seaport Alliance with respect to the licensed property may be pledged in connection with the Managing Member s bond obligations. Under the charter the Seaport Alliance Chief Executive Officer will be directed to manage the Seaport Alliance in a prudent and reasonable manner in support of the Managing Member s respective bond covenants. The charter will require the Seaport Alliance to calculate and maintain a minimum level of net income equal to the amount currently required for the ports to meet their current bond rate covenants (the Bond Income Calculation ). The Seaport Alliance may not take any action that would reasonably reduce its income below the minimum level established by the Bond Income Calculation unless each port votes separately to approve that action. If the Seaport Alliance s net income before depreciation on Post-Formation improvements is not sufficient for either port to be in compliance with a bond rate covenant in effect as of the effective date of the charter, then upon the port s request, the Seaport Alliance shall hire an independent third-party consultant to recommend actions needed to achieve bond covenant compliance. If the consultant recommends action that the Seaport Alliance is unwilling, unable or refuses to undertake, either Managing Member can require dissolution of the Seaport Alliance following a dispute resolution procedure. The Seaport Alliance will have at least four months to respond, act or dissolve following receipt of consultant recommendations, unless a shorter time is required by applicable bond covenants. Dissolution. By statute, if a port development authority is insolvent or dissolved, the superior court of a county in which the port development authority operates has jurisdiction and authority to appoint trustees or receivers of the assets and property of the port development authority and to supervise the trusteeship or receivership. All liabilities incurred by a port development authority are to be satisfied exclusively from the assets and properties of the port development authority. No creditor or other person has any right of action against the port district or districts creating the port development authority on account of any debts, obligations, or liabilities of the port development authority. The charter provides that should the Seaport Alliance be dissolved, management and all post dissolution revenues of properties owned by the Port will revert to the Port as will any improvements on those properties; the charter provides for calculation of payments between the ports which may result in a net payment to one of the two ports. Containerized Cargo Container Trade Through the Port. The Port leases its containerized cargo facilities to terminal operators. The terminal operators provide service to carriers and indirectly to the cargo owners (shippers). Carriers are the steamship lines that transport containers. Shippers regularly contract with a number of carriers, and larger shippers also may direct traffic to one or more ports and terminal facilities. The ability of a terminal operator to attract and efficiently move cargo is important to the success and value of a container facility. The Port is not a participant in the agreements between and among shippers, carriers and the terminal operators, and does not have any control over these agreements. There is significant competition for container traffic among North American ports, including the Port. Success depends largely on the size of the local market and the cost and efficiency of a port and inland transportation systems. Due to the relatively small population in the Pacific Northwest, most cargo that passes through the Port either comes from or is destined for other regions. As such, the Port is considered a discretionary port. Discretionary cargo can be shifted to other ports generally based on the cost efficiency and reliability of moving cargo from its point of origin to its final destination; these routing decisions are made by shippers and carriers. Therefore, the Port competes with other ports on the West Coast (including the United States, Canada and Mexico) and on the Gulf and East Coasts. The cost, efficiency and quality of competitive ports and the intermodal connections serving them may change and are beyond the control of the Port. -32-

41 International trade market fluctuations, combined with competition and the discretionary nature of the Port s cargo, contribute to fluctuations in the Port s volumes. See Container Trends at the Port in Attachment 2 of the Report of the Independent Consultant. The following table summarizes total container traffic through the Port s harbor for 2010 through 2014 (and for the period January through May 2014 and 2015), including international containers (all of which are handled through Port facilities) and domestic containers (some of which are transported by barge to and from private terminals). TABLE 9 SEATTLE HARBOR CONTAINER VOLUMES (IN THOUSANDS) International Containers (1) Domestic Total Imports Exports Containers (2) Containers (3) Year Metric Tons Full TEUs Metric Tons Full TEUs Empty TEUs Total Intl. TEUs TEUs TEUs , , , (4) 5, , , , (4) 6, , , , (4) 6, , , , (4) 7, , , ,126 YEAR-TO-DATE COMPARISON (JANUARY MAY 2014 AND 2015) Domestic Containers (2) Total Containers (3) International Containers (1) Imports Exports Empty Total Intl. Year Full TEUs Full TEUs TEUs TEUs TEUs TEUs Note: Totals might not equal the sum of component parts due to rounding. (1) Approximate weight per full 20-foot equivalent unit ( TEU ) at the Port is eight metric tons of import cargo and 11 to 18 tons of export cargo. (2) Includes volumes handled by Port and non-port facilities in Seattle s harbor. Includes full and empty containers. (3) Total for the Seattle Harbor. (4) During the fourth quarter of 2014, an adjustment was made to certain prior-year ( ) container TEU and metric ton information to reflect a reporting discrepancy of non-port containers. The revised data are listed above. The Port s 2014 CAFR reflects the updated TEU figures. Source: Port of Seattle. Container Facilities and Terminal Lease Agreements. The Port owns four container terminals (Terminal 5, Terminal 18, Terminal 30 and Terminal 46) that total more than 500 acres, three of which are currently leased to container terminal operators. The Port functions as a landlord for its container facilities, leasing the facilities to terminal operators rather than operating the facilities itself. As described under the heading The Seaport Alliance, the Port s container terminals are expected to be licensed to the Seaport Alliance. As a landlord, the Port does not directly contract with container carriers or determine the rates that carriers pay to call at the Port s facilities. Also, the Port does not directly employ members of the International Longshore and Warehouse Union for work at the Port s container facilities. Except for Terminal 5, the Port s container terminal leases are long-term; however amendments and modifications that may impact Port revenue are negotiated from time to time to reflect the fluctuating businesses of the Port and its tenants. The following table identifies the primary lessee, terminal area and lease expiration date for the Port s container terminals. -33-

42 TABLE 10 CONTAINER FACILITY LEASES Terminal 5 Terminal 18 Terminal 30 Terminal 46 Primary Lessee Foss Maritime (1) SSA Terminals, LLC and SSA Containers, Inc. (2)(3) SSA Terminals (Seattle), LLC (4) Total Terminals International LLC (5) Terminal Area 185 acres 196 acres 70 acres 88 acres Lease Expiration (1) Foss Maritime leases approximately 50 of the 185 acres at Terminal 5. See LITIGATION AND ADMINISTRATIVE PROCEEDINGS. (2) The original lease named SSA Terminals, LLC and Stevedoring Services of America, Inc. as Lessees. Subsequent Lessee name changes from Stevedoring Services of America, Inc. to SSA Marine, Inc., and then to SSA Containers, Inc. were solely changes in identity and not in ownership or control. SSA Terminals is a wholly-owned subsidiary of SSA Containers, Inc. SSA Terminals, Inc. can be sole signer with consent from the Port. (3) SSA Terminals, Inc. can be sole signer with consent from the Port. (4) SSA Terminals (Seattle), LLC is a joint venture among SSA Seattle, LLC, China Shipping Terminals (USA), LLC, and Matson Seattle LLC. (5) The primary member of Total Terminals International LLC is Hanjin Shipping Company, Ltd which holds a 60 percent interest. Note: Corporate ownership information provided in the footnotes above is based on information from the container terminal tenants and has not been independently verified. Source: Port of Seattle. Under the terms of the container terminal leases, the Port is compensated by the payment of rent. Under the current lease structure, tenants pay a per-acre rate derived from a Minimum Annual Guarantee ( MAG ) of container volumes (regardless of size of container) through the facility, plus an additional per container charge for any volumes in excess of the MAG. The lease at Terminal 18 contains a Most Favored Nations ( MFN ) provision that requires the Port to maintain equitable rates comparable to the Port s Terminal 5 container facility. If the Port offers the Terminal 5 facility to another international container terminal tenant such that the resulting rent structure is more or less than the rent on a per billable acre basis paid at Terminal 18, the Terminal 18 lessee shall have the right to (a) adjust its rent to that offered to the container terminal tenant at Terminal 5; or (b) may opt out of a rent adjustment under its MFN right. In this event, the Terminal 18 lessee is to have no further MFN rights. The Terminal 18 lessee s MFN right is currently scheduled to expire on January 31, Commencing on January 1, 2026 and on each January 1 st five years thereafter, rent is to be adjusted to reflect the market rate or lease compensation for international container terminals with leases under common management with the Port or other authority managing Terminal 18 and Terminal 30. The formation of the Seaport Alliance would result in this provision being applied based on market rates at both the Port and the Port of Tacoma container terminal facilities. The Terminal 30 and Terminal 46 leases do not contain MFN provisions. In the normal course of business, the Port engages in ongoing dialogue with its marine terminal tenants regarding enhancing the efficient use of the leased facilities. This level of ongoing management of Port facilities may result in changes to the use of various terminals as prescribed by the underlying leases with related impacts on revenues and expenses. Effective July 31, 2014, the Port terminated its lease agreement with Eagle Marine Services at Terminal 5, the Port s second largest container terminal. The facilities at Terminal 5 cannot accommodate the larger ships now in use in global shipping and the Port agreed to terminate the lease while it begins preliminary planning, initial design and permitting for improvements. The Port has authorized $5 million for this preliminary work; additional authorization will be necessary to move forward with final design and construction. A portion of Eagle Marine container traffic has moved to Terminal 18, and the Port is pursuing interim uses at Terminal 5. See Attachment 2 of the Report of the Independent Consultant for a discussion of assumptions regarding capital investment in Port container terminals through the Seaport Alliance; see also LITIGATION AND ADMINISTRATIVE PROCEEDINGS regarding challenges to the interim use of Terminal

43 Maritime and Other Businesses In addition to handling facilities for containerized cargo, the Port offers handling facilities for certain noncontainerized cargo. Volumes of non-containerized cargoes, grain in particular, have fluctuated substantially from year to year; the revenues from the lease of the grain terminal include a minimum annual guarantee and otherwise depend on volume. TABLE 11 SEATTLE HARBOR GRAIN VOLUMES (IN METRIC TONS) Year Grain ,618, ,351, ,161, ,026, ,491,360 Source: Port of Seattle. The Port owns two cruise ship terminals, one located at Pier 66 on the Central Harbor waterfront, just west of downtown Seattle, and the second at Terminal 91, north of downtown Seattle. The cruise ship terminals principally serve ships bound for the state of Alaska cruise market. The Port competes with the City of Vancouver, British Columbia, which also has cruise ship facilities used by cruise lines that serve the state of Alaska cruise market. The Port s revenues from the cruise ship facilities leases and agreements depend primarily upon the number of cruise ship passengers. TABLE 12 SEATTLE HARBOR CRUISE TRAFFIC Year Cruise Ship Vessel Calls Cruise Ship Passengers , , , , ,698 Source: Port of Seattle. The Port also derives revenues from leases, dockage and other fees from various industrial uses and marinas. The most significant sources of lease revenue are from seafood processing and cold storage companies. Dockage, moorage and wharfage fees are primarily from fishing vessels, some of which off-load seafood at docks adjacent to seafood processing and cold storage facilities. The Port owns and operates commercial and recreational marinas. The Port s Economic Development Division manages certain commercial real estate properties. CAPITAL PLAN FUNDING Each year, the Port engages in a capital planning and review process to review the multi-year Capital Improvement Program (the CIP ) and to develop a draft plan of finance for the following five years. As part of its annual budget process, the Port also develops a multi-year operating forecast from which the Port can estimate the availability of funding sources, which together with the Port s CIP, form the basis of the Port s draft plan of finance. The draft plan of finance is designed to provide guidance on long-term funding as planning and investment decisions are made during the year and is designed to be consistent with the Port s financial management policies. -35-

44 In addition to the capital investment programs for the Airport and other businesses, the Port forecasts capital investment for Corporate service departments (primarily for information technology improvements). The table below summarizes the Port s budgeted committed and prospective CIP expenditures (excluding financing costs) for the period. Committed projects are ongoing projects or projects that are ready to move forward and for which a funding commitment will be secured ( Committed Projects ). Projects that are considered important for achieving business plan goals, have business unit or division approval and are expected to move through the funding commitment process, but are less certain in timing or scope and are not yet under contract so can more easily be deferred are referred to as Business Plan Prospective Projects. The Port s Committed Projects are described in the paragraphs below. The Port anticipates projects that are not in the table below, as described under the subheading Excluded. TABLE 13 CAPITAL IMPROVEMENT PLAN (1) ($ IN MILLIONS) Division Committed Projects Business Plan Prospective Projects Total Aviation Division $ 1,743,051 $ 269,335 $ 2,012,386 Seaport Alliance (2) 52,382-52,382 Other Port Businesses (3) 64, , ,340 Administrative Services 31,535 23,224 54,759 Total $ 1,891,406 $ 415,461 $ 2,306,867 Note: Totals may not add due to rounding. (1) Excludes financing costs. Includes certain Aviation Division projects to be funded with the proceeds of the Series 2015 Bonds. Does not include non-capital expense (public assets expense, environmental expense). (2) Assumes all Seaport Alliance CIP are Committed Projects. (3) Includes CIP for Maritime and Economic Development Divisions. Source: Port of Seattle. Aviation Division Committed Capital Plan. The Port s current funding plan includes all of the Airport s Committed and Business Plan Prospective Projects. The Aviation Division s committed capital plan is dominated by four major projects. The first major project is the development of a new Federal Inspection Service facility for international passengers, which is needed to expand capacity to process the Airport s growing international passenger base. The second major project is the reconfiguration of the baggage system to improve operational efficiency for both Airport and TSA operations. Third is the Port s NorthSTAR program that includes renovating and reconfiguring the North Satellite Terminal and certain main terminal facilities that connect to the North Satellite terminal. This effort is to add additional gates, address seismic concerns, and upgrade HVAC, lighting and fixtures. The fourth project is the reconstruction of Runway 16C/34C. Business Plan Prospective Capital Plan. In addition to the Committed Projects described above, the Port has funding capacity for Business Plan Prospective Projects. Many of these projects are discretionary and can be scoped and timed on an as-needed basis. Some or all of these projects may move to Committed Project status during the period. Series 2015 Projects. The Port expects to apply proceeds from the Series 2015 Bonds to fund several improvement projects at the Airport including the Runway 16C/34C reconstruction, the NorthSTAR project, renewal and replacement of airfield pavement, utility improvements, elevator and escalator renewal and replacement, and other Airport improvements. Seaport Alliance and Other Businesses. Committed Projects for the Seaport Alliance include renewal and replacement projects at various facilities and Terminal 46 improvements included in the Terminal 46 lease agreement. In addition, the capital plan includes contingency for unprogrammed projects. The Maritime and Economic Development divisions capital plan primarily focuses on renewal and replacement efforts of existing assets at Shilshole Bay Marina, Fisherman s Terminal, and Bell Harbor Marina, in addition to fleet replacement, tenant improvements, technology related investments other small capital projects. Business Plan Prospective -36-

45 Projects include various upgrades and improvements to existing cruise facilities at Terminal 91 and Pier 66, in addition to several prospective projects at Fisherman s Terminal. Administrative Services. Projects are primarily technology improvements and small capital items. Public Expense. In addition to the capital projects described above, the Port participates in public projects, particularly in connection with freight mobility. The Alaskan Way viaduct (a portion of SR99) passes through and is adjacent to downtown Seattle s urban core and the Seattle waterfront, providing passenger and freight mobility within and between Seattle s harbor and industrial areas. The Alaskan Way viaduct was damaged in a 2001 earthquake and is in need of significant repair and/or replacement. The State is undertaking a replacement of the Alaskan Way viaduct with a bored tunnel. The tunnel project has experienced significant delays and the final completion date of the SR99 Project is unknown. On February 9, 2010, the Commission approved a memorandum of agreement (the MOA ) with the Washington State Department of Transportation regarding the Port s participation in the SR99 Project. On August 6, 2013, the Commission approved a funding agreement with the State. Under the original MOA, the Port s contribution was not to exceed $300 million. Under the funding agreement, the Port is credited with contributions towards related projects and with certain staff and financing costs, resulting in an agreement for the Port to contribute $267.7 million in two installments: $120.0 million by May 1, 2015 and the remaining $147.7 million by May 1, The agreement also includes the potential for an additional $6 million contribution by the Port at its discretion. The Port funded its first installment of $120 million with the proceeds of its Limited Tax General Obligation Bonds, Funding. Based on a preliminary funding analysis, the Port expects to fund its $2.31 billion CIP from a variety of sources. The Airport and other businesses expect to fund their CIP projects using their designated operating funds, including net income, federal grants, PFCs, CFCs, and proceeds of additional revenue bonds. Additional revenue bonds during (including the Series 2015 Bonds) are estimated to fund $1.25 billion of projects; all are for Airport projects. A portion of the Tax Levy also may be used to fund certain projects. Excluded. The Airport is developing a sustainable Airport master plan to provide a long-term facilities plan to accommodate long-term growth. Future capacity expansion projects that may result from the plan are not included in the current Airport capital plan. Also not included in the capital plan are costs for redevelopment of Terminal 5, except for some preliminary design and permitting costs. Beginning January 1, 2016, any redevelopment of Terminal 5 will be the decision of the Seaport Alliance, to be jointly funded by the Managing Members. Similarly, any capital improvements at the Port of Tacoma licensed facilities will be jointly funded; those costs are not included in the capital plan described above. General PORT FINANCIAL MATTERS The Port s audited financial statements for the Enterprise Fund and the Warehousemen s Pension Trust Fund as of December 31, 2014 and 2013, and for the years ended December 2014, 2013 and 2012, respectively, are set forth in Appendix A, together with the Independent Auditors Report thereon. See INDEPENDENT AUDITORS. Summary of Historical Operating Results The following table summarizes selected operating results of the Enterprise Fund of the Port for fiscal years 2010 through The summary sets forth operating results as extracted by Port management from the Port s audited financial statements for the years ended December 31, 2010 through For a discussion of the Port s 2012, 2013 and 2014 operating results, see Management s Discussion and Analysis in Appendix A. In its audited financial statements, the Port does not account for proceeds of the Tax Levy, non-operating CFCs, federal capital grant receipts or PFCs as operating revenue and, accordingly, such proceeds are not included in the summaries of operating results presented below. -37-

46 As earlier described, the Port terminated its lease at Terminal 5 effective July 31, 2014, resulting in a reduction of Seaport revenues (see 2014 Seaport revenues below). Airport revenues decreased in 2014 compared to 2013, which experienced a one-time increase when the Port recognized revenue of $17.9 million due to elimination of the liability associated with the security fund maintained under the prior airline agreement. See Management s Discussion and Analysis in Appendix A. TABLE 14 SELECTED HISTORICAL OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2010 THROUGH 2014 ($ IN THOUSANDS) Audited OPERATING REVENUES: Aviation $ 334,262 $ 350,722 $ 386,023 $ 414,011 $ 406,079 Seaport 97,850 99, ,941 99,628 96,157 Real Estate 29,820 31,569 31,308 30,863 32,313 Other (1) 647 1, TOTAL OPERATING REVENUES $ 462,579 $ 483,172 $ 521,706 $ 544,978 $ 534,938 OPERATING EXPENSES: Aviation $ 181,142 $ 191,869 $ 216,565 $ 225,920 $ 230,705 Seaport 39,589 38,463 44,700 44,379 37,490 Real Estate 31,498 34,758 35,525 35,262 39,810 Other (2) 1,235 2,326 1,379 1,428 1,329 TOTAL OPERATING EXPENSES BEFORE DEPRECIATION $ 253,464 $ 267,416 $ 298,169 $ 306,989 $ 309,334 NET OPERATING INCOME BEFORE DEPRECIATION $ 209,115 $ 215,756 $ 223,537 $ 237,989 $ 225,604 DEPRECIATION 160, , , , ,337 OPERATING INCOME $ 48,340 $ 57,649 $ 56,258 $ 66,615 $ 59,267 (1) Includes combined operating revenues of the Capital Development and Corporate divisions. (2) Includes combined operating expenses of the Capital Development and Corporate divisions that are not allocated to the operating divisions. Source: Port of Seattle. Investment Policy OTHER MATTERS The Port has an investment policy, adopted as of June 11, 2002, and last amended June 5, For investment and operational efficiencies, the Port consolidates its various cash sources, including bond proceeds, into one investment pool (the Pool ), governed by this investment policy. Separate funds are established within the Pool for accounting and tracking purposes, and investment earnings from the Pool are allocated monthly to each participating fund, based upon the average daily fund balances. Authorized investments are made in accordance with and subject to restrictions of RCW The investment policy allows diversification among various types of securities including: (i) U.S. Treasury securities; (ii) U.S. agency securities, including agency mortgage-backed securities limited to (1) collateralized mortgage pools having a stated final maturity not exceeding the maturity limits of the investment policy (ten years), and (2) planned amortization and sequential pay classes of collateralized mortgage obligations collateralized by 15- year agency-issued pooled mortgage securities having a stated final maturity not exceeding the maturity limits of the investment policy; -38-

47 (iii) Certificates of Deposit with Washington State banks authorized by the State s Public Deposit Protection Commission; (iv) of assets; and Bankers Acceptances, on the secondary market, issued by any of the top 50 world banks in terms (v) Repurchase Agreements, provided that (1) the repurchase agreement does not exceed 60 days; (2) the underlying collateral is a security authorized by the investment policy for purchase; and (3) all underlying securities used for repurchase agreements are settled on a delivery versus payment basis. Securities collateralizing repurchase agreements must be marked to market daily and have a value of at least 102 percent of the cost of the repurchase agreements having maturities less than 30 days and 105 percent for those having maturities that exceed 30 days. Other permitted investments include reverse repurchase agreements with maturities not exceeding 60 days, commercial paper purchased on the secondary market, rated no lower than A1/P1 as authorized by Washington State Investment Board Guidelines, and certain municipal bonds rated A or better by at least one nationally-recognized credit rating agency. While the investment policy allows diversification among various types of securities, it provides risk controls by setting limits for each security type. 100 percent of the Pool may be invested in U.S. Treasury securities, 60 percent in U.S. agency securities, excluding agency discount notes, 20 percent in agency discount notes, 10 percent in agency mortgage-backed securities, 15 percent in certificates of deposit, 20 percent in bankers acceptances, 20 percent in commercial paper, 20 percent in Municipal Securities, 15 percent in overnight repurchase agreements, 25 percent in term repurchase agreements, and five percent in reverse repurchase agreements. To meet its investment objectives, the policy includes additional risk controls that impose further restrictions on the types of securities. These include limiting the maturity date of securities purchased to be no more than ten years from the settlement date and a portfolio target modified duration of two years, plus or minus six months. For further detail on the Port s investment portfolio, see Note 2 in the financial statements included in Appendix A. Labor Relations The Port budgeted for approximately 1,893 regular full-time-equivalent ( FTE ) employees in 2015, an increase of approximately 1.7 percent from 1,823 in the 2014 budget. Approximately 820 actual employees (employees can differ from FTEs) belong to bargaining units under 21 labor contracts. Pension Plans Salaried employees of the Port belong to one of two retirement systems, the Public Employees Retirement System ( PERS ) or the Law Enforcement Officers and Firefighter Fund ( LEOFF ). The Washington State Department of Retirement Systems (the DRS ) administers these and other defined benefit retirement plans, including plans that cover both State and local government employees. The retirement plans are funded by contributions from employers, contributions from employees and investment returns. Retirement funds are invested by the Washington State Investment Board, a 15-member board created by the State Legislature in Contribution rates for the plans for the upcoming biennium are adopted by the State during even-numbered years according to a statutory rate-setting process. The process begins with the Office of the State Actuary (the OSA ) performing an actuarial evaluation of each plan and determining recommended contribution rates. Actuarial valuations are prepared on a plan-wide basis and not for individual employers such as the Port. The OSA is required to provide an actuarial valuation of each retirement system, including PERS and LEOFF, every two years. In practice, however, the OSA provides valuations annually, although only the valuations for odd-numbered years are used to calculate contribution rates. The OSA provides preliminary results and recommended contribution rates to the Select Committee on Pension Policy, a committee of the Legislature (the SCPP ), and the Pension Funding Council ( Pension Council ). The Pension Council, based on the recommendations of the OSA and the SCPP, adopts contribution rates. The rates adopted by the Pension Council are subject to revision by the Legislature, and -39-

48 the Legislature may adopt, and in each of the past eleven years has adopted contribution rates lower than those suggested by the OSA and adopted by the Pension Council. A temporary and supplemental contribution rate increase is required to be charged to fund the cost of any benefit enhancements enacted following the adoption of the basic rates, and the supplemental contribution rates are included in the basic rates at the beginning of the next contribution rate-setting cycle. All employers are required to contribute at the levels established by the Legislature. The following table outlines the current contribution rates of employers and employees. (1) TABLE 15 CONTRIBUTION RATES FOR THE BIENNIUM EXPRESSED AS A PERCENTAGE OF COVERED PAYROLL Employer (1) Employee PERS Plan % 6.00% PERS Plan PERS Plan Variable (2) Includes a 0.18% DRS administration expense fee. (2) Rates vary from 5.0% minimum to 15.0% maximum based on rate selected by the PERS 3 member. Source: Washington State Department of Retirement Systems. In July 2014, the Pension Council adopted contribution rate increases to be phased in over the next three biennia, beginning with the biennium. For the biennium, the Pension Council adopted employer rates of 11% (plus an additional 0.18% administration fee) for PERS Plans 1, 2 and 3 (in each case, net of administrative fees), and an employee rate of 6.12% for PERS Plan 2. During the years 2001 through 2010 the rates adopted by the Legislature were lower than those that would have been required to produce actuarially required contributions to PERS Plan 1, a closed plan with a large proportion of the retirees. According to a report issued by the OSA in September 2014 (the OSA 2014 Report ), and subject to the assumptions therein, the total unfunded actuarial accrued liability of PERS Plan 1 was $4.831 billion (63 percent funded on an actuarial basis) as of June 30, According to the OSA 2014 Report, PERS 1 liabilities were valued using the Projected Unit Credit cost method at an interest rate of 7.8 percent while assets were valued using the actuarial value of assets. According to OSA, as of June 30, 2013, PERS Plans 2 and 3 and LEOFF Plans 1 and 2 had no unfunded actuarial accrued liability. The complete OSA 2014 Report is available from the OSA, and is not incorporated by reference into this Official Statement. PERS Plans 2 and 3 are accounted for in the same pension trust fund and may legally be used to pay the defined benefits of any PERS Plan 2 or 3 members. Assets for one plan may not be used to fund benefits for another plan: however, all employers in PERS are required to make contributions at a rate (percentage of payroll) determined by the OSA every two years for the sole purpose of amortizing the PERS Plan 1 unfunded actuarial accrued liability within a rolling 10-year period. The Legislature has established certain maximum contribution rates that began in 2009 and will continue until 2015 and certain minimum contribution rates that are to become effective in 2015 and remain in effect until the actuarial value of assets in PERS Plan 1 equals 100% of the actuarial accrued liability of PERS Plan 1. These rates are subject to change by future legislation enacted by the State Legislature to address future changes in actuarial and economic assumptions and investment performance. The above information in this section has been obtained from information on the State Actuary s and DSR s websites. These websites are not incorporated by reference. -40-

49 The Port s deposits to both funds are current. The Port s required contributions to PERS for the years ended December 31, 2012 through 2014, were as follows: TABLE 16 PORT OF SEATTLE ACTUARIALLY REQUIRED PERS PENSION CONTRIBUTIONS Year PERS Plan 1 PERS Plan 2 PERS Plan $ 158,780 $ 7,050,617 $ 1,369, ,299 6,085,393 1,127, ,635 5,198, ,062 Source: Port of Seattle. TABLE 17 PORT OF SEATTLE ACTUARIALLY REQUIRED LEOFF PENSION CONTRIBUTIONS Year LEOFF Plan 2 (Firefighters) LEOFF Plan 2 (Police Officers) 2014 $ 451,005 $ 1,051, ,293 1,053, ,160 1,054,070 Source: Port of Seattle. The OSA website (which is not incorporated into this Official Statement by reference) includes information regarding the values, funding levels and investments of these retirement plans. The DRS website also includes audited Schedules of Collective Pension Amounts and Schedules of Employer Allocations, published June 2015, as of June 30, 2014, for all of the plans DRS administers, for use by those employers required to implement GASB 68, including the Port. Based on this report, the Port had made a preliminary estimate of the impact on its net position for This impact, combined with the impact from the Port s Warehouse Pension Trust, is estimated to reduce the Port s 2014 net position by approximately $93 million. The Port will provide actual calculations in its 2015 financial statements. See Notes 8 and 14 in Appendix A for more pension information including the implementation of applicable GASB rules. On May 25, 2004, the Port adopted an amended plan and trust agreement for the Warehousemen s Pension Plan and Trust (the Warehousemen s Pension Plan ) that gives the Port sole administrative control of the pension plan and guarantees that the Port will pay all accrued benefits for former employees of the warehouse and distribution business, which was closed in The Warehousemen s Pension Plan is a defined benefit plan. The Warehousemen s Pension Plan is closed and provides that only service credited and compensation earned prior to April 1, 2004, will be utilized to calculate benefits. As of December 31, 2014, the net pension liability was $11,140,000, and the plan fiduciary net position as a percentage of total pension liability was 47.3 percent. The December 31, 2014, valuation included an investment rate of return of 6.5 percent, net of investment expense and inflation, and an amortization period of 20 years. See Notes 8 and 14 in Appendix A for more pension information including the implementation of applicable GASB rules. Other Post-Employment Benefits In addition to pension benefits described in Note 8 of the audited financial statements included in Appendix A, the Port provides other post-employment benefits ( OPEB ) as described in Note 9. As of December 31, 2014, the Port had an actuarial accrued liability of $7,338,000 for LEOFF Plan 1 Members Medical Services Plan benefits. As of December 31, 2013, the Port had a net OPEB obligation associated with life insurance coverage for eligible retired employees of $2,140,000. See Note 9 in Appendix A. -41-

50 Environmental Concerns Overview. The Port has been notified by federal and State environmental agencies that it is potentially liable for some or all of the costs of environmental investigation and cleanup activities on certain parcels of Port-owned property. The Port has identified a number of contaminated sites on Aviation and other properties and facilities that must be investigated for the presence of hazardous substances and remediated in compliance with federal and State environmental laws and regulations. Some Port facilities may require asbestos abatement, and some properties owned or operated by the Port may have unacceptable levels of contaminants in soil, sediments and/or groundwater. In some cases, the Port has been designated by the federal government as a Potentially Responsible Party, and/or by the State government as a Potentially Liable Person for the investigation and cleanup of properties owned by the Port or where the Port may have contributed to site contamination. Although the Port may not bear ultimate liability for the contamination, under federal and State law, the Port is presumptively liable as the property owner, and it is often practically and financially beneficial for the Port to take initial responsibility to manage and pay for the cleanup. In each of these matters, the Port is cooperating with the notifying agency and taking appropriate action with other parties to investigate and remediate environmental damage or contamination. Currently, it is not possible to determine the full extent of the Port s liability in these matters. Lower Duwamish Waterway Super Fund. The Port is one of several Potentially Responsible Parties and is a member of the Lower Duwamish Waterway Group, along with King County, the City of Seattle and the Boeing Company, that funded the Remedial Investigation and Feasibility Study. In November 2014, the Environmental Protection Agency ( EPA ) released a Record of Decision ( ROD ) for the in-waterway portion of the site cleanup. Although the ROD included a cleanup cost estimate of $342 million (present value), it acknowledged there is significant uncertainty as to the accuracy of this estimate. A more accurate estimate will not be available until after completion of an extensive sampling and design effort, which will not be until 2021 at the earliest. It is also unknown what portion of the costs will be paid by the Port. Recognizing Liabilities. The Port has developed a procedure consistent with current accounting rules to recognize liabilities for environmental cleanups, to the extent that such liabilities can be reasonably estimated. As of December 31, 2014, the Port had recognized liabilities for environmental cleanups in the amount of approximately $59.3 million. Where appropriate, the Port is pursuing financial reimbursement from State funding agencies, other Potentially Liable Persons, and from its insurers. See Note 1 Environmental Remediation Liability and Note 10 in Appendix A. General Overview INSURANCE The Port has a comprehensive risk management program to financially protect the Port against loss from adverse events to its property, operations, third party liabilities, and employees. The Port s insurance year for liability coverage runs from October 1, 2015 to October 1, The Port s insurance year for property coverage runs from July 1, 2015 to July 1, The Port utilizes the services of Alliant Insurance Services for the placement of its liability insurance. The Port utilizes Hugh Wood Incorporated to purchase its property insurance. Alliant was selected through a competitive selection process in 2009 and Hugh Wood Incorporated was selected in a similar process in All of the Port s insurance carriers are rated A or better by the A.M. Best & Company and includes American International Group, Liberty Mutual, Atlantic Specialty Company, Lexington, Navigators Insurance, and National Union. Property Insurance The Port maintains a comprehensive property insurance program for loss of, and damage to, Port property including business interruption and equipment breakdown with a $750 million per occurrence limit with a $500,000 per occurrence deductible. Terrorism coverage is provided with a sub-limit of $350 million per occurrence. Coverage for flood is capped at an annual aggregate of $25 million above a flat $500,000 deductible. Property insurance coverage extends to contractors of the Port, in addition to the Port, for property damage to the capital improvements that are in the course of construction. This course of construction coverage has a maximum limit of $50 million per project. Projects under construction with values that exceed $50 million must be specifically underwritten. The Port has procured additional property insurance for the repaving project of the center runway at the Airport as -42-

51 project costs will exceed $50 million. The work on this center runway project has started and is expected to continue through May Additional insurance, through a separate builder risk insurance policy is to be procured in early 2016 to provide full replacement cost coverage for the NorthSTAR project. A second similar builder risk policy will also be purchased separately for the international arrivals facility, for which construction is expected to begin in These two separate builder risk policies will be purchased either by the Port or the general contractor, with both parties having an insurable interest in the projects and thus will be named insured s on the policies. The Port does not purchase earthquake insurance for its property unless it is part of a stand-alone builder risk property insurance policy specific to a project under construction. Liability Insurance The Port purchases excess non-aviation commercial general liability (namely bodily injury and property damage coverage) insurance, which covers losses involving actual or alleged bodily injury and/or property damage that arises from claims made against the Port by third parties. This is a primary policy with a $1 million per occurrence (claim) retention and a limit of $10 Million per occurrence. Excess to this primary policy is an excess policy with coverage up to a $50 million per occurrence limit, which provides coverage for Port marine exposures (cargo, cruise, marina, and terminal operations). This excess liability policy also includes coverage for the Port s nonaviation operational, automobile, employee benefits, and foreign liability exposures. Coverage includes claims resulting from bodily injury and property damage arising from terrorism acts (under the Terrorism Risk Insurance Program Reauthorization Act of 2007, reauthorized in 2015). The Port purchases a separate airport operator s primary and excess liability insurance policy which covers liability claims from third parties that involve property damage and/or bodily injury that arise out of Airport operations. The limit of liability is $500 million with a $1 million per occurrence (claim) retention. The annual policy retention aggregate is $1 million. Coverage for events stemming from terrorism and/or war is excluded. The Port s ramp control tower operator, Robinson Aviation, is an insured on this policy to cover the liability exposure of aircraft movement on the ramp area. Liability insurance is also purchased to cover exposures and liabilities that could stem from the wrongful or nonintentional acts of Port employees, directors, and Commissioners (Public Official Liability) and employment practices liability ($10 million aggregate with a limit of $1 million per claim retention); fiduciary liability ($5 million limit with no-deductible), and law enforcement liability ($10 million limit with a $1 million per wrongful act retention). The Port also purchases an employee dishonesty policy (also known as a fidelity bond) protecting the Port from liability due to the dishonesty and/or fraudulent acts of Port employees. This policy has a $5 million limit. The Port self-insures its workers compensation exposure. The Port insures its vessels for liability under a separate policy with limits of $ 1 million per occurrence. The Port also has a foreign liability master policy, which provides liability coverage for property damage and bodily injury for Port employees when engaged in foreign travel. This policy also has coverage for emergency medical expenses and coverage for kidnap and ransom. Third-Party Agreements Contractors, tenants, and lessees, are required to carry at least $1 million of commercial general liability insurance ($2 million or more for large construction projects and higher-risk projects) and automobile liability insurance of at least $1 million ($5 million for automobiles operated on the non-movement part of the aircraft operations area and $10 million for automobiles operated on the aircraft movement area of the aircraft operations area). The Port requires airline tenants, with aircraft operations on the airfield, at the Airport, to provide between $50 million and $300 million per occurrence liability limits. Ground handlers, working for the airlines on the airfield, and under license to the Port are required to carry a minimum of $5 million per occurrence of general liability insurance and $5 million per occurrence of automobile liability insurance. Contractors and other third party vendors, working for the Port, must also provide proof of workers compensation coverage for their employees as well as Washington State stop-gap coverage that covers employers liability. The Port requires all contractors, tenants, and lessees, to include the Port as an additional insured on their policies of commercial general liability insurance, along with a waiver of subrogation in favor of the Port of Seattle, and endorsement that requires these parties insurance to be primary and non-contributory relative to any general liability insurance the Port carries. All contracts and lease agreements require that the Port, and its employees, officers, and Commissioners are to be held harmless and indemnified for all actual and alleged claims that arise out of the acts of the Port s contractors, consultants, vendors, -43-

52 licensees, and lessees. Professionals such as engineers, architects, and surveyors, are also required to carry professional liability (errors and omissions) insurance for work they do for the Port with minimum limits of $1 million per claim or wrongful act. Owner Controlled Insurance Program The Airport Capital Improvement Program (ACIP) construction projects (built between 2001 and 2008) were insured against third party claims under an Owner Controlled Insurance Program (OCIP) that expired on December 31, All ACIP work completed prior to the OCIP termination date continues to be covered for potential future claims for property damage and bodily injury through December 31, All potential claims that may arise from errors and omissions involving professional work will be potentially covered under the OCIP program if the claim is reported prior to December 31, The OCIP insured the Port, construction managers, eligible and enrolled contractors, and other designated parties for work performed under the ACIP. Certain contractors and subcontractors and their employees were excluded from this program. No new claims were made on any of the OCIP policies between January 1, 2014 and December 31, The Port does receive and make collateral payments relative to the deductible buy-back policy that was issued on the OCIP general liability policies. The Port received a return of collateral on this policy in the amount of $203,000 in first quarter of Seaport Alliance The Seaport Alliance will purchase its own general liability and public official s liability insurance policy, protecting the entity and its officers and Commissioners, effective August, The assets of each port will remain with each port; thus, both the Port and the Port of Tacoma will continue to purchase the property insurance individually on their respective properties, and request reimbursement of the property insurance cost from the Seaport Alliance. The same will be true for excess marine and terminal liability operator s coverage that each port currently purchases separately. CERTAIN INVESTMENT CONSIDERATIONS The purchase of the Series 2015 Bonds involves investment risk. Prospective purchasers of the Series 2015 Bonds should consider carefully all of the information set forth in this Official Statement, including its appendices, evaluate the investment considerations and merits of an investment in the Series 2015 Bonds and confer with their own tax and financial advisors when considering a purchase of the Series 2015 Bonds. The Series 2015 Bonds are secured solely by a pledge of Available Intermediate Lien Revenues. The Port s ability to derive Available Intermediate Lien Revenue from the operation of the Port sufficient to pay debt service on the Intermediate Lien Parity Bonds depends on many factors, some of which are not subject to the control of the Port. Factors subject to the Port s control, to some degree, include the contractual terms the Port establishes with its tenants, including airlines and container terminal operators, as well as the contractual terms the Port establishes with banks and other entities providing liquidity or credit enhancement for Port obligations and whether and when to amend such terms. In addition, the Port determines, subject to the requirements of the Intermediate Lien Master Resolution, whether and when to issue additional indebtedness secured by a lien on Available Intermediate Lien Revenue either senior to, on a parity with, or subordinate to the lien of the Series 2015 Bonds. There are many factors outside of the Port s control that can affect activity levels in the Port s operating divisions. Some known factors include the level of economic activity both within and outside of the area served by the Port, general demand for air travel and commodities, the financial condition of the airline and shipping industries, regulation of the Port and Airport and Non-Aviation operations, global health, security and other geopolitical concerns, and natural disasters. The following section discusses some of the factors affecting Available Intermediate Lien Revenues. The following discussion cannot, however, describe all of the factors that could affect Available Intermediate Lien Revenues. In addition to these known factors, other factors could affect the Port s ability to derive Available Intermediate Lien Revenues sufficient to pay debt service on the Intermediate Lien Parity Bonds. -44-

53 Uncertainties of the Aviation Industry The ability of the Port to generate revenues from its Airport operations depends, in part, upon the financial health of the aviation industry. The economic condition of the industry is volatile, and the aviation industry has undergone significant changes, including mergers, acquisitions, consolidations, bankruptcies and closures. The industry is cyclical and subject to intense competition and variable demand. Further, the aviation industry is sensitive to a variety of other factors, including (i) the cost and availability of labor, fuel, aircraft and insurance, (ii) general economic conditions, (iii) international trade, (iv) currency values, (v) competitive considerations, including the effects of airline ticket pricing and increased taxes and fees, (vi) traffic and airport capacity constraints and the national aviation system capacity constraints, (vii) uncertainties of federal funding, governmental regulation, including security regulations, fees, and taxes imposed on airlines and passengers, and maintenance and environmental requirements, (viii) passenger demand for air travel, and (ix) disruption caused by airline accidents, natural disasters, criminal incidents and acts of war or terrorism, such as the events of September 11, The aviation industry is also vulnerable to strikes and other union activities. Airlines operating at the Airport have filed for bankruptcy in the past and may do so in the future. Aeronautical Revenues The FAA provides airports with the ability to recover airline-related costs within certain guidelines. Airports may enter into use and lease agreements with airlines or they may set rates and charges by legislative action. The Airport currently has airline agreements, scheduled to expire on December 31, The Port also has adopted Resolution No establishing airline rates and charges; this resolution is currently suspended during the term of the airline agreements. Upon the expiration or termination of the agreements, the Port may enter into a new agreement with the same or different terms, which may be more or less favorable, or may choose to amend its agreements or resolutions to respond to adverse economic or other conditions at the Airport. It is also possible that Resolution 3677 or any new rate resolution or amendment to the current rate resolution could be challenged by one or more of the airlines. The airlines are not required to pay for all of the Port s costs at the Airport. Uncertainties of Non-Aeronautical Revenues In addition to revenue from the airlines, the Aviation Division has the use of non-aeronautical revenue, such as parking and concession revenue, but also takes the risk that such revenue may not be sufficient to enable the Aviation Division to satisfy from non-aeronautical revenue all of its obligations not covered by aeronautical revenues. The Port s ability to generate revenues at the Airport from its non-airline businesses (including parking, car rentals and terminal concessions such as food and beverage sales) depends, in part, upon the volume of passengers passing through the Airport, economic conditions, and ground transportation and terminal concession preferences, pricing and alternatives. Uncertainties of the Container Shipping Industry The Port s ability to generate revenues from its non-aviation operations depends, in part, upon the financial health of the maritime industry and upon the Port s tenants abilities to compete with other terminals at other ports in North America. The shipping industry and the demand for and utilization of non-aviation facilities is sensitive to a variety of factors, including (i) the cost and availability of labor, fuel and insurance, (ii) general economic conditions, (iii) international trade, (iv) currency values, (v) competitive considerations, (vi) governmental regulation and (vii) disruption caused by natural disasters, labor strife, criminal incidents and acts of war or terrorism. The maritime industry is also vulnerable to strikes, slowdowns, lockouts, and other labor activities. Maritime tenants and customers may file for bankruptcy. See Bankruptcy. These factors and therefore the relative attractiveness of the Port may differ significantly from other ports. Competition from Other Container Ports The Port competes for market share with other United States West Coast ports, as well as with ports in other parts of the United States and in Canada and Mexico. Factors such as the total delivered cost for goods, service reliability, available distribution and transload facilities, transit time, and the ability to accommodate larger container ships affect carrier decisions (and sometimes shipper directions) about which port(s) to use. Carriers also may form -45-

54 alliances that affect their decisions on port locations. These factors may be affected by developments outside the Port s control. For example, future developments such as the anticipated completion of the widening of the Panama Canal could impact the Port s market share, as could expansions and intermodal service improvements at other ports on the West Coast or elsewhere in North America. The revenues of the Port may be adversely impacted by increased competition, additions to marine facilities at other ports, and pricing decisions by other port facilities; the Port cannot predict the scope of any such impact at this time. The formation of the Seaport Alliance is not expected to reduce the competition with ports outside of the Puget Sound. In addition, the imposition of fees that apply only to the Port or only to a subset of ports including the Port (such as fees that only apply to state or United States ports, e.g., the harbor maintenance tax on United States imports) increase the ocean carriers cost to use the Port facilities and may adversely impact the Port s revenues. The Port cannot predict whether any such additional fees will be imposed or existing fees increased, the amount of such fees or the impact thereof on Port revenues. Uncertainties regarding the Seaport Alliance As described under the heading NORTHWEST SEAPORT ALLIANCE AND OTHER PORT BUSINESSES The Seaport Alliance, the Port and the Port of Tacoma are forming the Seaport Alliance as a separate port development authority to unify management and operation of both marine ports container cargo terminals and certain industrial properties. The ports are forming the proposed Seaport Alliance to address increased competition, improvements to marine facilities at other ports, and pricing decisions by other port facilities in North America. The formation of the Seaport Alliance may or may not successfully address these risks, and may create new risks. Under the ILA and the charter of the Seaport Alliance, the Port has agreed to work cooperatively with the Port of Tacoma, and accordingly has agreed not to act unilaterally with respect to certain matters. Future capital contributions to the Seaport Alliance must be approved by each port and, accordingly, the Port will need to reach agreement with the Port of Tacoma to undertake new marine cargo capital investments. Even if agreement is reached, it may cause delay in undertaking capital investments. Marine cargo activities for the properties licensed from the ports to the Seaport Alliance are to be exclusively handled by the Seaport Alliance, and the Seaport Alliance has first right of refusal for new marine cargo opportunities. Although the Seaport Alliance is to share its net income after depreciation with both Managing Members, it is possible that the Port will realize less net revenue from the Seaport Alliance than it would have received through direct operation of the licensed Port properties. The purpose of the Seaport Alliance is to improve the Port s competitive position by more effectively managing the collective seaport facilities of the two ports, but, there is no guarantee that the Seaport Alliance will succeed in this purpose. The Seaport Alliance is being formed under a new provision in Chapter 53 RCW and faces the risks associated with a new authority as well as the risks associated with a joint venture. The proposed Seaport Alliance must be reviewed by the FMC and there is no guarantee that the FMC will allow its formation. The Seaport Alliance is expected to select as its CEO, the CEO of the Port of Tacoma, who may serve in those dual roles for up to five years. It is possible that the dual role may pose a real or perceived conflict of interest. Other staff may service in dual roles either directly or through service agreements. Other Agreements The Port has entered into various agreements that provide rent and concessions revenue to the Port. Some of the revenue payable under these agreements is based on volume and thus will vary, perhaps substantially. These agreements have various expiration dates. There is no guarantee that agreements will be renewed or that new agreements will have similar provisions and associated revenues. There is also no guarantee that existing agreements will not be amended with terms less favorable than current terms. Liquidity and Credit Facilities The Port has purchased from monoline bond insurance companies surety bonds to satisfy debt service reserve fund obligations in connection with certain outstanding Port debt, including certain First Lien Bonds (see Table 1) and the Series 2005 Intermediate Lien Parity Bonds. In addition, bank letters of credit provide liquidity and credit enhancement for certain of the Port s Subordinate Lien Parity Bonds (variable rate demand obligations and -46-

55 commercial paper). In these and other respects, the Port is exposed to rating and other credit-related risks associated with various monoline insurers and banks. Although the Port is not obligated to purchase variable rate Subordinate Lien Parity Bonds if a bank fails to honor its letter of credit, the Port is exposed to bank credit risk. Rating downgrades or other credit events affecting the banks, for example, have and can result in higher variable interest rates paid by the Port, either in connection with remarketed bonds or bank bonds purchased by the bank upon a failed remarketing or upon a mandatory tender that would be required if an expiring letter of credit cannot be replaced. As described under the heading SECURITY AND SOURCES OF PAYMENT FOR INTERMEDIATE LIEN PARITY BONDS Defaults and Remedies; No Acceleration; Rights of Credit Facility Issuers, a Port event of default (including, in certain circumstances, a rating downgrade or withdrawal) under bank reimbursement agreements pursuant to which the letters of credit were issued, among other events, would entitle the bank to require the mandatory tender for purchase of all of the Subordinate Lien Parity Bonds secured by such letter of credit. In that event or upon the purchase by the bank of bank bonds resulting from an inability to convert the bonds or to remarket the bonds for a period, to issue new commercial paper or to replace an expiring letter of credit, the Port would be required to reimburse the bank or to purchase or redeem all of such bonds over a three- to five-year period and to pay interest at the rates set forth in the applicable reimbursement agreement. Limitation of Remedies Under the terms of the Resolution, payments of debt service on Series 2015 Bonds are required to be made only as they become due and the occurrence of a default does not grant a right to accelerate payment of the Series 2015 Bonds. In the event of multiple defaults in payment of principal of or interest on the Series 2015 Bonds, the Series 2015 Bond owners could be required to bring a separate action for each such payment not made. Remedies for defaults are limited to such actions which may be taken at law or in equity. See Appendix F. No mortgage or security interest has been granted or lien created in any real property of the Port to secure the payment of any of the Port s bonds, including the Series 2015 Bonds. Leases with tenants, including airlines and container terminal operators, are subject to bankruptcy proceedings, leading to possible rejection of the leases or long delays in enforcement. Various State laws, constitutional provisions, and federal laws and regulations apply to the obligations created by the issuance of the Series 2015 Bonds. There can be no assurance that there will not be any change in, interpretation of, or addition to the applicable laws and provisions will not be changed, interpreted, or supplemented in a manner that would have a material adverse effect, directly or indirectly, on the affairs of the Port. In the event of a default in the payment of principal of or interest on the Series 2015 Bonds, the remedies available to the owners of the Series 2015 Bonds upon a default are in many respects dependent upon judicial action, which is often subject to discretion and delay under existing constitutional law, statutory law, and judicial decisions, including the federal Bankruptcy Code. Bond Counsel s opinion as to enforceability to be delivered simultaneously with delivery of the Series 2015 Bonds will be qualified by certain limitations, including limitations imposed by bankruptcy, reorganization, insolvency, and equity principles. See the proposed forms of Bond Counsel opinions included in Appendix D. Bankruptcy The enforceability of the rights and remedies of the Bondholders, the obligations of tenants or customers of the Port, and of the Port and the liens and pledges created by the Resolution are subject to the United States Bankruptcy Code (the Bankruptcy Code ) and/or to other applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the enforcement of creditors rights generally, to equitable principles that may limit the enforcement under Washington law of certain remedies and to exercise by the United States of America of powers delegated to it by the United States Constitution. Some of the risks associated with a bankruptcy are described below and include the risks of delay in payment or of nonpayment. Potential purchasers of the Series 2015 Bonds should consult their own attorneys and advisors in assessing the risk and the likelihood of recovery in the event the Port, its tenants or customers, or any other party becomes a debtor in a bankruptcy case prior to the time the Series 2015 Bonds are paid in full. -47-

56 In addition, payments made by a bankrupt entity within 90 days (up to 366 days if the entity is found to be an insider) of a filing of a bankruptcy case could be deemed to be avoidable preferences under the Bankruptcy Code and thus could be subject to recapture in bankruptcy, including from the Series 2015 Bondholders. If an entity is in bankruptcy, parties (including the Series 2015 Bondholders) may be prohibited from taking action to collect from or to enforce obligations of such entity without permission of the bankruptcy court, and the Port may be prevented from making payments to the Bondholders from funds in its possession. These restrictions may result in delays or reductions in payments on the Series 2015 Bonds. There may be other possible effects of a bankruptcy of the Port or tenants or customers of the Port that could result in delays or reductions in payments on the Series 2015 Bonds, or result in losses to the Bondholders. Regardless of any specific adverse determinations in any such bankruptcy proceeding, the fact of such a bankruptcy proceeding could have an adverse effect on the liquidity and value of the Series 2015 Bonds. Tenants or Customers. The bankruptcy of a signatory airline or of another tenant or customer of the Port could result in delays, additional expenses and/or reductions in payments or nonpayment to the Port and, as a result, could reduce Gross Revenue and Available Intermediate Lien Revenue. Bankruptcy law in the United States is governed by the United States Bankruptcy Code (the Bankruptcy Code ), and federal bankruptcy courts retain jurisdiction over parties that are subject to bankruptcy petitions, voluntarily or involuntarily. Bankruptcy courts have the jurisdiction, within the limits of the Bankruptcy Code, to review debtors agreements and the debtors decisions to assume or reject their agreements and to approve, reject or delay payments of debtors financial and other obligations. Risks associated with bankruptcy include the risk of substantial delay in payment or of non-payment, the risk that the Port might not be able to enforce its other contractual remedies, the risk that the Port may have to return certain payments received during the preference period and the risk of additional litigation costs if the Port decides or is required to participate in bankruptcy proceedings. Bankruptcy of a major tenant or customer could result in long delays and significant costs and possibly in large losses to the Port. The Port. Under current Washington law, political subdivisions or public agencies, such as the Port, may be able to file for bankruptcy under chapter 9 of the Bankruptcy Code. In 1935, the Washington State Legislature authorized taxing districts in the state of Washington to file a petition under Section 80 of chapter IX of the then applicable Bankruptcy Act of The 1935 authorizing statute has not been amended notwithstanding the fact that the Bankruptcy Act of 1898 has been superseded. The 1935 authorizing statute likely allows municipalities in Washington to seek relief under chapter 9 of the now applicable Bankruptcy Code. In the event of a chapter 9 bankruptcy filing by the Port, owners of the Series 2015 Bonds may not be able to exercise any of their remedies under the Intermediate Lien Master Resolution during the course of the proceeding. Legal proceedings to resolve issues could be time consuming, and substantial delays or reductions in payments to Bondholders may result. Laws and Regulation The Port is subject to federal, State, and local laws and regulations. Failure by the Port (or by its contractors or tenants) to comply with, or violations of, statutory and regulatory requirements could result in the loss of grant and PFC funds and other consequences. These statutory and regulatory requirements are subject to change and could become more stringent and costly for the Port and its customers and tenants. For example, statutory or regulatory requirements limiting emissions or otherwise addressing climate change could be implemented or increased. Climate change concerns have led to new or proposed laws and regulations at the federal, state and local level, which could have a material adverse effect on the Port s operation or the Port s tenants. The Port cannot predict whether future restrictions or limitations on the Port will be imposed, whether future legislation or regulations will affect funding for capital projects or whether such restrictions or legislation or regulations will adversely affect Available Intermediate Lien Revenues. Federal Budget; Sequestration Federal funding (including funding of FAA and TSA budgets) is subject to federal legislative action, including through the federal budget process and sequestration (a budgetary feature first introduced in the Budget Control Act of 2011). Budgetary acts, including sequestration, could continue to affect FAA and TSA budgets, operations, and the availability of certain federal grant funds. In addition, budgetary acts including sequestration could cause the FAA and the TSA to implement employee furloughs, hiring freezes or other staffing changes (including of air traffic -48-

57 controllers), which could result in flight delays or cancellations. The Port can make no representations at this time concerning what impact, the timing of such impact, or the materiality of such impact that TSA reductions would have on Port operations. Accounting Rules The Port is subject to accounting rules and standards promulgated by the Governmental Accounting Standards Board. These rules may change, requiring the Port at such time to value and state its accounts in ways beyond the Port s ability to control or predict. Seismic and Other Natural Disaster Considerations The Port s facilities are in an area of seismic activity, with frequent small earthquakes and occasional moderate and larger earthquakes. The Port can give no assurance regarding the effect of an earthquake, a tsunami from seismic activity in Washington or in other areas, a volcano, mudslide or other natural disaster or that proceeds of insurance carried by the Port would be sufficient, if available, to rebuild and reopen Port facilities or that Port facilities or surrounding facilities and infrastructure could or would be rebuilt and reopened in a timely manner following a major earthquake or other natural disaster. Continuing Compliance with Tax Covenants; Changes of Law The Resolution and the Port s tax certificate will contain various covenants and agreements on the part of the Port that are intended to establish and maintain the tax-exempt status of interest on the Series 2015 Bonds. A failure by the Port to comply with such covenants and agreements, including any remediation obligations, could, directly or indirectly, adversely affect the tax-exempt status of interests on the Series 2015 Bonds. Any loss of tax-exemption could cause all of the interest received by the Owners of the Series 2015 Bonds to be taxable. All or a portion of interest on the Series 2015 Bonds also could become subject to federal and/or state income tax as a result of changes of law. Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Series 2015 Bonds to be subject, directly or indirectly, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent beneficial owners from realizing the full current benefit of the tax status of such interest. INITIATIVES AND REFERENDA Under the State Constitution, the voters of the State have the ability to initiate legislation and to modify existing laws through the powers of initiative and referendum. An initiative measure is submitted to the voters (if an initiative to the people) or to the Legislature (if an initiative to the Legislature) if the Secretary of State certifies the receipt of a petition signed by at least eight percent of the number of voters registered and voting for the office of governor at the preceding regular gubernatorial election. Certified initiatives to the people are placed on the ballot for the next State-wide general election. Certified initiatives to the Legislature are submitted to the Legislature at its regular session each January. Once an initiative to the Legislature has been submitted, the Legislature must take one of the following three actions: (i) adopt the initiative as proposed, in which case the initiative becomes law without a vote of the people; (ii) reject or refuse to act on the proposed initiative, in which case the initiative must be placed on the ballot at the next State general election; or (iii) approve an amended version of the proposed initiative, in which case both the amended version and the original initiative must be placed on the next State general election ballot. A bill passed by the Legislature is referred to the people for final approval or rejection if the Secretary of State certifies the receipt of a petition signed by at least four percent of the number of voters registered and voting for the office of governor at the preceding regular gubernatorial election. Certain actions of the Legislature necessary for the immediate preservation of the public peace, health or safety and the support of State government or its existing institutions are exempt from the referendum process. Proposed initiatives to the people must be filed within ten months prior to the next State general election, and the petition signatures must be filed not less than four months before such general election. Proposed initiatives to the Legislature must be filed within ten months prior to the next regular session of the Legislature, and the petition -49-

58 signatures must be filed not less than ten days before such regular session of the Legislature. A referendum measure may be filed any time after the Governor has signed the act that the sponsor wants referred to the ballot. Petition signatures must be filed within 90 days after the final adjournment of the legislative session at which the act was passed. An initiative or referendum approved by a majority of voters may not be amended or repealed by the Legislature within a period of two years following enactment, except by a vote of two-thirds of all the members elected to each house of the Legislature. After two years, the law is subject to amendment or repeal by the Legislature in the same manner as other laws. In recent years there have been a number of initiatives filed in the State, including initiatives targeting fees and taxes imposed by local jurisdictions or subjecting local jurisdictions to additional requirements. The Port cannot predict whether this trend will continue, whether any filed initiatives will receive the requisite signatures to be certified to the ballot, whether such initiatives will be approved by the voters, whether, if challenged, such initiatives will be upheld by the courts and whether any current or future initiative could have a material adverse impact on the Port s revenues or operations. No Litigation Concerning the Series 2015 Bonds LITIGATION AND ADMINISTRATIVE PROCEEDINGS As of the date of this Official Statement, there is no litigation, to the knowledge of the Port, pending or threatened, challenging the authority of the Port to issue the Series 2015 Bonds or seeking to enjoin the issuance of the Series 2015 Bonds. Other Litigation and Administrative Proceedings The Port is a defendant in various legal actions and claims that arise during the normal course of business. Some of these claims may be covered by insurance. The Port is not aware of any legal actions that, in the opinion of Port management, will have a material adverse effect on the financial position, results of operations or cash flows of the Port. The Port and Foss Maritime entered into a short-term lease for a portion of Terminal 5; the lease expires in June, Under the lease, a portion of Terminal 5 is used for a mooring station for Shell Oil s Arctic drilling fleet. A coalition of conservation groups has filed litigation seeking to vacate the lease. On May 7, 2015, the City of Seattle Department of Planning and Development (the City DPD ) issued a formal Seattle Municipal Code interpretation determining that it is unlawful for the Port or any private entity to moor and provision a vessel at a cargo terminal in the City unless the vessel is otherwise used for transporting goods in the stream of commerce, and on May 18, 2015, the City issued the Port a notice of Code violation. On May 22, 2015, the State Department of Natural Resources sent the Port a letter inquiring whether the mooring station interferes with State-owned aquatic lands and requires State approval. The Port has appealed the City DPD interpretation, and the matter is scheduled to be heard by a City hearings examiner. Any decision of the hearing examiner may be appealed. The Port believes it has complied with all necessary environmental requirements, including the Seattle Municipal Code requirements with regard to Foss Maritime s interim use of Terminal 5, and moreover has a nonconforming right to continue mooring and provisioning such vessels. CONTINUING DISCLOSURE The Port is covenanting for the benefit of the holders and beneficial owners of the Series 2015 Bonds to provide certain financial information and operating data (the Annual Disclosure Report ) by not later than six months following the end of the Port s fiscal year (which currently would be June 30, 2015, for the report for the 2014 fiscal year), and to provide notices of the occurrence of certain enumerated events. The Annual Disclosure Report and notices of listed events are to be filed with the Municipal Securities Rulemaking Board. The specific nature of the information to be contained in the Annual Disclosure Report and in notices of listed events is set forth in Appendix G. These covenants are made by the Port to assist the Underwriters in complying with Securities and Exchange Commission Rule 15c2-12(b)(5). The Port has always filed the Operating and Financial Information -50-

59 portion of its Annual Disclosure Reports when required but in 2006, 2007, and 2009, inadvertently did not file its audited financial statements at the same time. That failure was corrected in 2011, and the Port has otherwise complied in all material respects with its previous undertakings with regard to the Rule to provide annual reports and notices of enumerated events. TAX MATTERS In the opinion of Bond Counsel, interest on the Series 2015A Bonds and the Series 2015B Bonds is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, interest on the Series 2015A Bonds and Series 2015B Bonds is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on certain corporations. In the opinion of Bond Counsel, interest on the Series 2015C Bonds is excludable from gross income for federal income tax purposes, except for interest on any Series 2015C Bond for any period during which such Series 2015C Bond is held by a substantial user of the facilities financed by the Series 2015C Bonds, or by a related person within the meaning of Section 147(a) of the Code. Furthermore, interest on the Series 2015C Bonds is an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. Federal income tax law contains a number of requirements that apply to the Series 2015 Bonds, including investment restrictions, periodic payments of arbitrage profits to the United States, requirements regarding the use of proceeds of the Series 2015 Bonds and the facilities financed or refinanced with proceeds of the Series 2015 Bonds and certain other matters. The Port has covenanted to comply with all applicable requirements. Bond Counsel s opinion is subject to the condition that the Port comply with the above-referenced covenants and, in addition, will rely on representations by the Port and its advisors with respect to matters solely within the knowledge of the Port and its advisors, respectively, which Bond Counsel has not independently verified. If the Port fails to comply with such covenants or if the foregoing representations are determined to be inaccurate or incomplete, interest on the Series 2015 Bonds could be included in gross income for federal income tax purposes retroactively to the date of issuance of the Series 2015 Bonds, regardless of the date on which the event causing taxability occurs. Except as expressly stated above, Bond Counsel expresses no opinion regarding any other federal or state income tax consequences of acquiring, carrying, owning or disposing of the Series 2015 Bonds. Owners of the Series 2015 Bonds should consult their tax advisors regarding the applicability of any collateral tax consequences of owning the Series 2015 Bonds, which may include tax issues associated with original issue discount, original issue premium, purchase at a market discount or at a premium, taxation upon sale, redemption or other disposition, and various withholding requirements. Prospective purchasers of the Series 2015 Bonds should be aware that ownership of the Series 2015 Bonds may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, financial institutions, property and casualty insurance companies, individual recipients of Social Security or Railroad Retirement benefits, certain S corporations with excess net passive income, foreign corporations subject to the branch profits tax, life insurance companies and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry or have paid or incurred certain expenses allocable to the Series 2015 Bonds. Bond Counsel expresses no opinion regarding any collateral tax consequences. Prospective purchasers of the Series 2015 Bonds should consult their tax advisors regarding collateral federal income tax consequences. Payments of interest on tax-exempt obligations, such as the Series 2015 Bonds, are in many cases required to be reported to the Internal Revenue Service (the IRS ). Additionally, backup withholding may apply to any such payments made to any owner who is not an exempt recipient and who fails to provide certain identifying information. Individuals generally are not exempt recipients, whereas corporations and certain other entities generally are exempt recipients. Bond Counsel gives no assurance that any future legislation or clarifications or amendments to the Code, if enacted into law, will not cause the interest on the Series 2015 Bonds to be subject, directly or indirectly, to federal income taxation. From time to time, legislation is proposed that, if enacted, could alter the federal income tax consequences described herein or otherwise prevent owners of the Series 2015 Bonds from realizing the full current benefit of the tax status of the interest on the Series 2015 Bonds. Prospective purchasers of the Series 2015 Bonds should consult -51-

60 their own tax advisors regarding any pending or proposed federal legislation, as to which Bond Counsel expresses no view. Bond Counsel s opinion is not a guarantee of result and is not binding on the IRS; rather, the opinion represents Bond Counsel s legal judgment based on its review of existing law and in reliance on the representations made to Bond Counsel and the Port s compliance with its covenants. The IRS has established an ongoing program to audit tax-exempt obligations to determine whether interest on such obligations is includable in gross income for federal income tax purposes. Bond Counsel cannot predict whether the IRS will commence an audit of the Series 2015 Bonds. Owners of the Series 2015 Bonds are advised that, if the IRS does audit the Series 2015 Bonds, under current IRS procedures, at least during the early stages of an audit, the IRS will treat the Port as the taxpayer, and the owners of the Series 2015 Bonds may have limited rights to participate in the audit. The commencement of an audit could adversely affect the market value and liquidity of the Series 2015 Bonds until the audit is concluded, regardless of the ultimate outcome. Premium. An amount equal to the excess of the purchase price of a Bond over its stated redemption price at maturity constitutes premium on that Bond. A purchaser of a Bond must amortize any premium over that Bond s term using constant yield principles, based on the Bond s yield to maturity. As premium is amortized, the purchaser s basis in the Bond and the amount of tax-exempt interest received will be reduced by the amount of amortizable premium properly allocable to the purchaser. This will result in an increase in the gain (or decrease in the loss) to be recognized for federal income tax purposes on sale or disposition of the Bond prior to its maturity. Even though the purchaser s basis is reduced, no federal income tax deduction is allowed. Purchasers of Bonds at a premium, whether at the time of initial issuance or subsequent thereto, should consult their tax advisors with respect to the determination and treatment of premium for federal income tax purposes and the state and local tax consequences of owning such Bonds. LEGAL MATTERS Issuance of the Series 2015 Bonds is subject to receipt of the legal opinions of K&L Gates LLP, Bond Counsel to the Port, and to certain other conditions. See Appendix D for the forms of the opinions of Bond Counsel. Certain legal matters will be passed upon by Pacifica Law Group LLP, Disclosure Counsel to the Port. Certain legal matters will be passed on for the Underwriters by Orrick, Herrington & Sutcliffe LLP, Seattle, Washington, Counsel to the Underwriters. Any opinion of such firm will be addressed solely to the Underwriters, will be limited in scope, and cannot be relied upon by investors. RATINGS Moody s Investors Service, Standard & Poor s Financial Services LLC, a subsidiary of The McGraw-Hill Companies and Fitch Ratings have assigned their ratings of A1, A+, and A+ respectively, to the Series 2015 Bonds. Certain information was supplied by the Port to such rating agencies to be considered in evaluating the Series 2015 Bonds. The foregoing ratings express only the views of the rating agencies and are not recommendations to buy, sell or hold the Series 2015 Bonds. An explanation of the significance of each of the ratings may be obtained from the rating agency furnishing the rating. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by the rating agencies, or any of them, if, in their or its judgment, circumstances so warrant. Any downward revision or withdrawal of the ratings may have an adverse effect on the market price of the Series 2015 Bonds. The Port does not have any obligation to take any action, other than file a listed event notification, if the ratings on the Series 2015 Bonds is changed, suspended or withdrawn. THE REGISTRAR The principal of and interest and redemption premium, if any, on the Series 2015 Bonds are payable by the fiscal agent of the State of Washington, currently U.S. Bank National Association (the Registrar ). For so long as the Series 2015 Bonds remain in a book-entry only transfer system, the Registrar will make such payments to DTC, which, in turn, is obligated to remit such principal payments to the DTC participants for subsequent disbursement to the Beneficial Owners of the Series 2015 Bonds. See Appendix E. -52-

61 FINANCIAL ADVISOR Piper Jaffray & Co. has served as financial advisor to the Port relative to the preparation of the Series 2015 Bonds for sale, timing of the sale and other factors relating to the Series 2015 Bonds. The financial advisor has not audited, authenticated or otherwise verified the information set forth in this Official Statement or other information provided relative to the Series 2015 Bonds. Piper Jaffray & Co. makes no guaranty, warranty or other representation on any matter related to the information contained in this Official Statement. A portion of the financial advisor s compensation for this transaction is contingent on the sale and delivery of the Series 2015 Bonds. UNDERWRITING The Series 2015A Bonds are to be purchased from the Port at an aggregate purchase price of $80,136, (the principal amount of the Series 2015A Bonds, less Underwriters discount of $251,164.03, and plus original issue premium of $8,377,454.45; the Series 2015B Bonds are to be purchased from the Port at an aggregate purchase price of $319,795, (the principal amount of the Series 2015B Bonds, less Underwriters discount of $954,794.66, and plus original issue premium of $36,310,663.00; and the Series 2015C Bonds are to be purchased from the Port at an aggregate purchase price of $247,941, (the principal amount of the Series 2015C Bonds, less Underwriters discount of $787,225.65, and plus original issue premium of $22,453,564.10; in each case subject to the terms of a bond purchase contract between the Port and Morgan Stanley & Co. LLC, Barclays Capital Inc., J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Backstrom McCarley Berry & Co., LLC, and Drexel Hamilton, LLC (collectively, the Underwriters ). The bond purchase contract provides that the Underwriters will purchase all of the Series 2015 Bonds if any are purchased and that the obligation of the Underwriters to accept and pay for the Series 2015 Bonds is subject to certain terms and conditions set forth therein, including the approval by counsel of certain legal matters. The Underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. Certain of the Underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various investment banking services for the Port, for which they received or will receive customary fees and expenses. In the ordinary course of their various business activities, the Underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (which may include bank loans and/or credit default swaps) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of the Port. The initial public offering prices or yields set forth on the inside cover page may be changed from time to time by the Underwriters without prior notice. The Underwriters may offer and sell the Series 2015 Bonds to certain dealers, unit investment trusts or money market funds at prices lower than the public offering prices or at yields higher than the yields stated on the inside cover page. The Port will use a portion of the proceeds from this offering to redeem the Refunded Bonds. To the extent an Underwriter or an affiliate thereof is an owner of Refunded Bonds, such Underwriter or affiliate, as applicable, would receive a portion of the proceeds from the issuance of the Series 2015 Bonds contemplated herein in connection with such Refunded Bonds redeemed by the Port. Morgan Stanley, parent company of Morgan Stanley & Co. LLC, one of the Underwriters of the Series 2015 Bonds, has entered into a retail distribution arrangement with its affiliate Morgan Stanley Smith Barney LLC. As part of the distribution arrangement, Morgan Stanley & Co. LLC may distribute municipal securities to retail investors through the financial advisor network of Morgan Stanley Smith Barney LLC. As part of this arrangement, Morgan Stanley & Co. LLC may compensate Morgan Stanley Smith Barney LLC for its selling efforts with respect to the Series 2015 Bonds. -53-

62 J.P. Morgan Securities LLC ( JPMS ), one of the Underwriters of the Series 2015 Bonds, has entered into negotiated dealer agreements (each, a Dealer Agreement ) with each of Charles Schwab & Co., Inc. ( CS&Co. ) and LPL Financial LLC ( LPL ) for the retail distribution of certain securities offerings at the original issue prices. Pursuant to each Dealer Agreement, each of CS&Co. and LPL may purchase Series 2015 Bonds from JPMS at the original issue price less a negotiated portion of the selling concession applicable to any Series 2015 Bonds that such firm sells. INDEPENDENT AUDITORS The Port s financial statements (the Enterprise Fund and the Warehousemen s Pension Trust Fund) as of December 31, 2014 and 2013, and for the years ended December 31, 2014, 2013, and 2012, included herein as Appendix A, have been audited by Moss Adams LLP, independent auditors, as stated in its report appearing herein. The audited financial statements of the Port of Seattle are public documents. The Port of Seattle has not requested that Moss Adams LLP provide consent for inclusion of the audit report in this Official Statement, and Moss Adams has not performed, since the date of its report included herein, any procedures on the financial statements addressed in that report. Further, Moss Adams LLP has not participated in any way in the preparation or review of this Official Statement. INDEPENDENT CONSULTANT The Report of the Independent Consultant, prepared by WJ Advisors LLC, has been included in this Official Statement with the consent of WJ Advisors LLC, the Independent Consultant, and in reliance upon the Independent Consultant s expertise in airport and seaport matters. From time to time, WJ Advisors LLC prepares studies and forecasts for the Port for use by the Port in its planning activities. As noted in the Report of the Independent Consultant, WJ Advisors LLC believes the underlying approach and assumptions utilized in its Report are reasonable. Any projection, however, is subject to uncertainties and inevitably some assumptions regarding future trends will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between the projected and actual results, and differences may be material. See Appendix B. The Report of the Independent Consultant should be read in its entirety. MISCELLANEOUS The purpose of this Official Statement is to supply information to purchasers of the Series 2015 Bonds. The summaries provided in this Official Statement and in the appendices attached hereto of the Series 2015 Bonds and the documents referred to herein do not purport to be comprehensive or definitive, and all references to the documents summarized are qualified in their entirety by reference to each such document. All references to the Series 2015 Bonds are qualified in their entirety by reference to the forms thereof and the information with respect thereto included in the aforesaid documents. Copies of the documents referred to herein are available for inspection during the period of the offering at the principal office of the Port. Statements in this Official Statement, including matters of opinion, projections and forecasts, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the Port and the purchasers of the Series 2015 Bonds. PORT OF SEATTLE By /s/ Daniel R. Thomas Daniel R. Thomas Chief Financial Officer -54-

63 APPENDIX A AUDITED FINANCIAL STATEMENTS A-1

64 We believe that the audit evidence obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions A-2 To the Port Commission Port of Seattle Seattle, Washington Report on Financial Statements REPORT OF INDEPENDENT AUDITORS We have audited the accompanying financial statements of the Enterprise Fund and the Warehousemen's Pension Trust Fund of the Port of Seattle (the "Port") as of December 31, 2014 and 2013 and for the years ended December 31,2014,2013 and 2012, and the related notes to the financial statements, which collectively comprise the Port's financial statements as listed in the table of contents. Management's Responsibility for the FinandaI Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design! implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the Enterprise Fund and the Warehousemen's Pension Trust Fund of the Port of Seattle as of December 31, 2014 and 2013, and the respective changes in net position and cash flows for the Enterprise Fund, and the changes in net position for the Warehousemen's Pension Trust Fund for the years ended December 31,2014,2013 and 2012 in conformity with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information The accompanying management discussion and analysis is not part of the financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. This information, although not a part of the financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the financial statements, and other knowledge we obtained during our audit of the financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audits were conducted for the purpose of forming an opinion on the basic financial statements as a whole. The introductory and statistical sections are presented for purposes of additional analysis and are not a required part of the basic financial statements. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audits of the basic financial statements and, accordingly, we express no opinion on them. -mo7t;m(jjn~ tj-p Seattle, Washington April 24,

65 A-3 PORT OF SEATTLE MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31,2014 INTRODUCTION The following Management's Discussion and Analysis ("MD&A") of the Port of Seattle's (the "Port") activities and financial performance provides an introduction to the financial statements of the Port for the fiscal year ended December 31, 2014, including the Port operations within the Enterprise Fund and the Warehousemen's Pension Trust Fund, with selected comparative information for the years ended December 31,2014 and The Enterprise Fund accounts for all activities and operations of the Port except for the activities included within the Warehousemen's Pension Trust Fund. This includes the Port's major business activities, which are comprised of the Aviation, Seaport, and Real Estate divisions. Enterprise Funds are used to account for operations and activities that are financed at least in part by fees or charges to external users. The Warehousemen's Pension Trust Fund accounts for the assets of the employee benefit plan held by the Port in a trustee capacity. The Port became the sole administrator for the Warehousemen's Pension Plan and Trust effective May 25, The MD&A presents certain required supplementary information regarding capital assets and long-term debt activity during the year, including commitments made for capital expenditures. The infonmation contained in this MD&A has been prepared by management and should be considered in conjunction with the financial statements and the notes thereto, which follow this section. The notes are essential to thoroughly understand the data contained in the financial statements. OVERVIEW OF THE FINANCIAL STATEMENTS The financial section of this annual report consists of three parts: MD&A, the basic financial statements, and the notes to the financial statements. The report includes the following three basic financial statements for the Port Enterprise Fund: the Statement of Net Position, the Statement of Revenues, Expenses, and Changes in Net Position, and the Statement of Cash Flows. The report also includes the following two basic financial statements for the Warehousemen's Pension Trust Fund: Statement of Fiduciary Net Position and Statement of Changes in Fiduciary Net Position. LOCAL ECONOMY AND FACTOR Washington State's economy continues to expand at a moderate pace. The unemployment rate declined from an average of 7.0% in 2013 to an average of 6.0% in During 2014, jobs in both private sector and government increased 2.9% and 1.7%, respectively. The Seattle metropolitan area, added about 48,800 jobs in 2014 from Over 20,000 of the new jobs added were in the professional and business services, construction as well as retail trade in The Port's 2014 performance reflected the recovery of the local economy. At the Airport, 37.5 million passengers passed through in 2014, exceeding the all-time record for the fourth consecutive year. At the Seaport, the 2014 cruise season hosted 179 vessel calls and 824,000 passengers, a decrease of 5.4% in passengers from Containers volumes decreased 11.3% from 2013 due to the closure of Terminal 5 for redevelopment. Grain volumes were 3.6 million metric tons, an increase of 167.8% from 2013 due to market conditions. For the Real Estate Division, occupancy levels at commercial properties were at 93%, slightly above the 92% Seattle market average. ENTERPRISE FUND Financial Position Summary The Statement of Net Position presents the financial position of the Enterprise Fund of the Port at the end of the fiscal year. The statement includes all assets, deferred outfows of resources, liabilities, and deferred inflows of resources of the Enterprise Fund. Net position, the difference between total assets plus deferred outflows of resources and total liabilities plus deferred inflows of resources, is an indicator of the current fiscal health of the organization and the enterprise's financial position over time. A summarized comparison of the Enterprise Fund assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position at December 31 is as follows (in millions): (Restated) ASSETS: Current, long-term, and other assets 1, , ,049.7 Capital assets 5, , ,542.9 Total assets ,599.8 $ 6,592.6 DEFERRED OUTFLOWS OF RESOURCES LIABILITIES: Current liabilities Noncurrent liabilities 3, ,325.8 Total liabilities 3, L...,16774 DEFERRED INFLOWS OF RESOURCES 3.7 $ NET POSITION: Net investment in capital assets 2, , ,264.0 Restricted Unrestricted Total net position 3, ,048.6 $ 2,937.1 Assets plus deferred outflows of resources exceeded liabilities plus deferred inflows of resources by $3.2 billion and $3.0 billion as of December 31,2014 and 2013, respectively. Total net position increased $127.7 million from 2013 to 2014 and $111.5 million from 2012 to 2013, respectively. In 2013, the Port adopted GASS Statement No. 65, Items Previously Reported as Assels and Liabilities, retroactively by restating the financial statements for all periods presented. As a result, deferred outflows of resources and deferred inflows of resources were recorded for refunding debt transactions. These balances represent the difference between the reacquisition price and the net carrying amount of the old debt and are amortized as interest expense on a straight-line basis over the remaining life of the old debt or the life of the new debt, whichever is shorter. For each year presented, the largest portion of the Enterprise Fund's net position represents its net investment in capital assets. The Port uses these capital assets to provide services to its tenants, passengers, and customers of the Aviation, Seaport and Real Estate divisions; consequently, these assets are not available for future spending. Although the Port's net investment in capital assets is reported net of related debt, it is noted that the resources required to repay this debt must be provided annually from operations, since the capital assets themselves cannot be used to liquidate liabilities. From 2013 to 2014 and from 2012 to 2013, there was an increase of $124.3 million and $35.8 million, 14 15

66 A-4 respectively, in net investment in capital assets. An early extinguishment of debt of $17.3 million in 2014 and the scheduled principal payments of debt over the years primarily accounted for the changes in this category since total capital assets net of accumulated depreciation including construction work in progress remained relatively constant between years. As of December 31, 2014 and 2013, the restricted net position of $245.8 million and $236.5 million, respectively, was comprised mainly of unspent revenue bonds proceeds restricted for debt service reserves in accordance with bond covenants, Passenger Facility Charges ("PFC") subject to Federal regulations, and Customer Facility Charges ("CFC") subject to State regulations. From 2013 to 2014 and from 2012 to 2013, there was an increase of $9.3 million and $27.7 million, respectively. The increase in restricted net position was primarily due to the timing of PFC and CFC related expenditures. As of December 31,2014 and 2013, the unrestricted net position of $506.4 million and $512.3 million, respectively, may be used to satisfy the Port's ongoing obligations. However, amounts from Airport operations must be used solely for the Aviation Division's ongoing obligations. Cash and cash equivalents, and investments balances related to Airport operations decreased from 2013 to 2014 from $270.5 million to $256.2 million, respectively. This was largely due to timing of capital project spending during the periods. From 2012 to 2013, Aviation cash and cash equivalents along with investment balances remained relatively constant between years. Statement of Revenues, Expenses, and Changes in Net Position The change in net position is an indicator of whether the overall fiscal condition of the Enterprise Fund has improved or worsened during the year. Following is a summary of the Statement of Revenues, Expenses, and Changes in Net Position (in millions) for the years ended December 31: (Restated) Operating revenues Operating expenses Operating income before depreciation Depreciation Operating income Nonoperating income (expense)-net (35.6) Capttal contributions Increase in net position Net position-beginning of year, as restated (Note 1) 3, , ,885.8 Net position-end of year 3,176.3 $ 3, ,937.1 The beginning balance of net position for 2012 was restated resulting from the adoption of GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. The restated amount primarily refiected the write-off of deferred finance costs as of January 1,2012, except for a portion related to prepaid insurance costs and surety costs. Financial Operation Highlights A summary of operating revenues is as follows (in millions): OPERATING REVENUES: Services Property rentals Customer facility charge revenues Operating grants and contract revenues Total During 2014, operating revenues decreased 1.9% from $545.0 million in 2013 to $534.9 million in Aviation Division operating revenues decreased $7.9 million largely due to (1) the removal of the $17.9 million security fund liability upon the expiration of the Signatory Lease and Operating Agreement ("SLOA") II on December 31,2012 which was recognized as operating revenues in 2013, and (2) higher revenue sharing in 2014 from the SLOA III. These decreases were partially offset by higher nonaeronautical revenues driven by strong performance and increased revenues from rental cars, public parking and airport dining and retail concessions. Seaport Division operating revenues decreased $3.5 million from 2013 driven by (1) lower container revenues of $6.2 million resulting from the closure of Terminal 5 for redevelopment, and (2) lower usage of cranes and intermodal yard prior to closure amounting to $6.8 million. These amounts were partially offset by an increase in space rental due to the increase in the minimum annual guarantee per acre rate. Cruise revenues decreased due to a slight decrease in vessel calls and passengers while maritime operations revenues decreased largely due to lower activity at Terminal 91. Lower revenues in these areas were partially offset by (1) higher grain revenues of $2.2 million resulting from higher volumes in 2014, (2) higher industrial properties revenues of $1.1 million resulting from higher occupancies and year over year rate increases, and (3) increased volumes from the Terminal 18 Bulk Terminal. In October 2014, the Port entered into an Interlocal Agreement ("ILA") with the Port of Tacoma for the creation of a joint Seaport Alliance. The ILA, which was approved by the Federal Maritime Commission ("FMC") in December, provides a framework to advance the discussions to examine business objectives, strategic marine terminal investments, financial returns, performance metrics, organizational structure, communications and public engagement. Following the due diligence period, the two port commissions intend to submit to the FMC by Spring 2015 a more detailed agneement to form the Seaport Alliance. Real Estate Division operating revenues increased by $1.5 million due to higher revenues from the conference and event centers (Bell Harbor International Conference Center and World Trade Center Seattle) of $1.0 million resulting from higher activity partially due to a new sales team. Higher occupancies and rates for commercial fishing and recreational marinas increased revenues as well as having new tenants at the Terminal 91 uplands. During 2013, operating revenues increased 4.5% from $521.7 million in 2012 to $545.0 million in Aviation Division operating revenues increased $28.0 million largely due to the removal of the $17.9 million security fund liability upon the expiration of the SLOA II on December 31,2012 which was recognized as operating revenues in This increase was partially offset by the amortization of the lease incentive given under the successor agneement, SLOA III, on a straight-line basis. Aeronautical revenues increased in 2013, reflecting the new provisions of SLOA III which were retroactive to the first of the year, compared to 2012 which were based on the SLOA II provisions. Increased non-aeronautical revenues were due to (1) higher continued growth in airport dining and retail concession and commercial property revenues, (2) higher parking garage transactions, and (3) higher CFC operating nevenues due to increased volume. Seaport Division operating revenues decreased $4.3 million from 2012 due to (1) a $2.2 million decrease in security revenues from the completion/expiration of grants in 2012, (2) a $2.1 million decrease in grain terminal revenues resulting from a decline in grain volume in 2013, and (3) a $1.8 million decrease in container terminals revenues resulting from (i) lower crane rent of $5.4 million caused by lower cargo volumes at Terminal 5 and Terminal 18 along with the sale of Terminal 46 cranes to the terminal operator, (ii) the restructure of terminal rent lease agreement of $1.6 million, and (iii) in 16 17

67 A , a full year of straight-line rent adjustment of $4.9 million. These decreases were largely offset by the nonrecurring 2012 write-off of the cumulative straight-line rent of $10.5 million related to future years due to a change in the structure and escalation provisions of container terminal lease payments starting in Reductions in revenues were partially offset by an increase in industrial properties and maritime operations revenues due to higher occupancy and higher rates. Real Estate Division operating revenues declined slightly from 2012 resulting from less activities at the conference and event centers due to significant competitive challenges in the market and perceived impact of waterfront transportation projects partially offset by higher occupancy at the recreational boating marinas and at Fishermen's Terminal. A summary of operating expenses before depreciation is as follows (in millions): OPERATING EXPENSES BEFORE DEPRECIATION: Operations and maintenance $ Administration Law enforcement Total During 2014, operating expenses increased from $307.0 million in 2013 to $309.3 million in Aviation Division operating expenses increased $4.8 million primarily due to higher expenses of $1 0.7 million particularly in payroll and outside services, higher capital to expense charges in 2014 of $2.6 million and higher charges from the Corporate and Capital Development Divisions of $7.2 million largely due to a change in methodology on how such costs are allocated to the operating divisions starting in These were partially offset by higher costs in 2013 for airline realignment of $10.8 million and environmental expense of $4.9 million. Seaport Division operating expenses decreased $6.9 million as a result of a decrease in Corporate expenses of $3.3 million related to the change in allocation methodology, as referred to above, along with lower expenses from Capital Development of $1.7 million due to the Terminal 115 Waterline and Pavement Repair, Terminal 5 Maintenance Dredge and Viaduct related expenses in Operating environmental expense decreased by $1.6 million due to amounts established for the Terminal 5 and Terminal 91 Maintenance Dredge projects in Real Estate Division expenses increased by $4.5 million due to a net increase in the contingent liability of $2.2 million for the Eastside Rail Corridor as a result of lawsuits filed against the Port by property owners. The Fishermen's Terminal Net Shed Code Compliance Improvement project also contributed to an increase in costs of $1.0 million. Conference and event center expenses had a net increase of $0.9 million due to increased activity related to increased revenues. Expenses also increased as a result of higher utility expenses and higher outside service costs relating to broker fees, tenant improvements and space planning. During 2013, operating expenses increased 3.0% from $298.2 million in 2012 to $307.0 million in Aviation Division operating expenses increased $9.4 million primarily due to (1) higher Terminal Realignment project costs, (2) higher environmental expense, and (3) increased payroll costs. Seaport Division operating expenses decreased slightly due to lower security grants expenses from completion/expiration of grants in 2012 and lower litigation expenses. This decrease was partially offset by (1) higher environmental expense, (2) increased outside service costs associated with the Terminal 5 Phase II Maintenance Dredge program, and (3) higher storm water utility expenses. Real Estate Division operating expenses decreased slightly due to lower conference and event centers expenses resulting from a decline in activities. As a result of the above, operating income before depreciation decreased $12.4 million from 2013 to 2014, compared to a $14.5 million increase from 2012 to Depreciation expense decreased by $5.1 million from 2013 to 2014 while increasing $4.1 million from 2012 to A summary of nonoperating income (expense)-net and capital contributions is as follows (in millions): (Restated) NONOPERATING INCOME (EXPENSE): Ad valorem tax levy revenues $ Passenger facility charge revenues Customer facility charge revenues Noncap~al grants and donations Fuel hydrant facility revenues Investment income (Ioss)-net 11.2 (1.1) 8.2 Revenue and capital appreciation bonds interest expense (108.9) (115.3) (123.3) Passenger facility charge revenue bonds interest expense (5.9) (6.2) (6.5) General obligation bonds interest expense (9.5) (11.5) (14.1) Public expense (6.9) (6.2) (22.9) Environmental expense-net (9.1) (4.8) (14.4) Other income (expense)-net 1.2 (0.4) (29.7) Total (35.6) CAPITAL CONTRIBUTIONS During 2014, nonoperating income-net was $51.7 million, a $28.2 million increase from 2013 nonoperating income-net. This was largely due to (1) an increase in unrealized gains on the investment portfolio, (2) a $10.8 million settlement from a bankruptcy claim against an asbestos insulation manufacturer received in 2014, and (3) an increase in noncapital grants from the Department of Ecology and the Clean Truck Program. These increases were offset by (1) an increase in environmental expense relating to Terminal 117 and Terminal 30, and (2) a net loss on the sale/demolition of Port assets of $9.7 million for the year of which the single largest item related to a $2.7 million impairment loss on six cranes at Terminal 5 since they were no longer in use from the closure of Terminal 5 for redevelopment. During 2013, nonoperating income-net was $23.5 million, a $59.1 million increase from 2012 nonoperating expense-net. This was largely due to several nonrecurring expenses in 2012 including (1) the recognition of an impairment loss of $17.7 million on the segment of the Eastside Rail Corridor sold to King County for $13.9 million in early 2013 below its carrying value of $31.6 million, and (2) $13.2 million public expenses for roadway improvements being transferred to various government agencies, to own, operate and maintain these assets. There was also a decrease in environmental expense and lower bond interest expense primarily due to the refunding to lower interest rate bonds over the years. This decrease was partially offset by an increase in unrealized losses on the investment portfolio. During 2014, capital contributions decreased $4.7 million primarily due to a $3.7 million Department of Energy American Recovery and Reinvestment Act ("ARRA") grant received in 2013 along with a decline in noncash donations between years. Tenant funded projects at Terminal 86 and Pier 66 improving Port assets in 2014 were lower than prior year activity which included the Port recording the Downie building at Fishermen's Terminal for $1.0 million when the title reverted back to the Port upon lease expiration. During 2013, capital contributions decreased $9.3 million primarily due to a decline in contributions towards Terminal 46 infrastructure assets that were constructed by the Washington State Department of Transportation as part of the Alaskan Way Viaduct Project on Port property from $7.4 million in 2012 to $2.2 million in The Port also had lower grant receipts in 2013 compared to 2012 with the larger decline in Federal Aviation Administration receipts. These decreases were partially offset by a $1.0 million contribution from the Port recording the Downie building at Fishermen's Terminal when the title reverted back to the Port upon lease expiration

68 A-6 The increase in net position in 2014 and 2013 was $127.7 million and $111.5 million, respectively. Operating income before depreciation declined due to lower operating revenues, but was offset by lower depreciation expense for the year and higher nonoperating income. WAREHOUSEMEN'S PENSION TRUST FUND The Warehousemen's Pension Trust Fund accounts for the assets of the employee benefit plan held by the Port in a trustee capacity. Effective May 25, 2004, the Port became the sole administrator of the Warehousemen's Pension Plan and Trust (the "Plan"). This plan was originally established to provide pension benefits for the employees at the Port's warehousing operations at Terminal In late 2002, the Port terminated all warehousing operations following the departure of the principal customer who operated the facility. The Plan provides that only service credited and compensation earned prior to April 1, 2004 shall be utilized to calculate benefits under the Plan, and the Port agrees to maintain the frozen Plan and to contribute funds to the Plan in such amounts that may be necessary to enable the Plan to pay vested accrued benefits as they become due and payable to participants and beneficiaries of the Plan. A summarized comparison of the assets, liabilities, and fiduciary net position of the Warehousemen's Pension Tnust Fund as of December 31, and changes in fiduciary net position for the years ended December 31 (in millions) is as follows: Total assets Total liabilities Total fiduciary net position Total additions Total deductions (2.2) (2.2) (2.2) (Decrease) increase in fiduciary net position (0.3) Fiduciary net position-beginning of year Fiduciary net position-end of year Total fiduciary net position as of December 31, 2014 decreased by $0.3 million from December 31, 2013 mainly due to an increase in retirement benefits expenses. Total fiduciary net position as of December 31,2013 increased by $0.5 million from December 31,2012 mainly due to an increase in the fair value of investments and a slight decrease in retirement benefits expenses. Additional information on the Port's Warehousemen's Pension Trust Fund can be found in Note 14 in the accompanying notes to the financial statements. CAPITAL ASSETS The Port's capital assets as of December 31,2014, amounted to $5.5 billion (net of accumulated depreciation). This investment in capital assets includes land, air rights, facilities and improvements, equipment, furniture and fixtures, and construction work in progress. The Port's investment in capital assets after accumulated depreciation remained relatively constant between years. In 2014, the Seaport Division recognized an impairment loss of $2.7 million on six cranes at Terminal 5 since they were no longer in use from the closure of Terminal 5 for redevelopment. In 2014, the Port's expenditures for capital construction projects totaled $171.5 million. Major projects in the Aviation Division spending included the expansion of aircraft parking positions area, baggage screening, common use areas, insulation and acquisition, the rental car facility, gates and terminal facilities totaling $127.8 million. Larger project spending in the Seaport Division included $7.2 million on Terminal 91 and Terminal 46 upgrades. The Real Estate Division had $5.7 million in spending relating to Fishermen's Terminal Improvements. During 2014, capital construction projects totaling $149.8 million were completed and placed in service as capital assets. The most significant completed projects related to the expansion of aircraft parking position area totaling $30.7 million which primarily included preparing the former United States Postal Service site for the construction of hardstands as a Remain Overnight parking of aircraft at the Cargo 5 area with additional improvements at Cargo 2 and Cargo 6. While the Rental Car Facility opened in 2012, there were additional closeout and resolution of final construction related claims totaling to $19.0 million in $16.0 million was closed relating to Gate Improvements which brought all Port owned loading bridges up to the same standards in terms of ground power and potable water supply in addition to providing a centralized pre-conditioned air plant, with associated heating and cooling piping systems as well as passenger loading bridge air handling units to serve aircraft with cabin heating and cooling needs. Additionally, several passenger loading bridges were replaced with new Jetway Passenger Boarding bridges. During 2014, the Port collected $72.9 million in property taxes through a King County ad valorem tax levy. The Port funds its capital assets from multiple sources, including but not limited to, ad valorem tax levy, PFCs, Federal and State grants, and issuing debt. All capital assets are accounted for within the Enterprise Fund. In July 2014, the Port entered into a Purchase and Sale Agreement to sell a portion of the Freight Segment to the City of Woodinville for $1.1 million. Given the due diligence period terminated in December 2014, the capital assets of $1.1 million was classified as an asset held for sale as of December 31,2014. The closing date was extended to July 31, In January 2015, the Port agreed to sell three cranes and the related spare parts to SSA Tenminals, LLC and SSA Containers, Inc., the current tenant at Tenminal18. The Port estimates a loss of $3.5 million that will be reported on the sale of these capital assets in 2015 along with the Port's 50% share of the associated sales tax. Additional information on the Port's capital assets can be found in Note 3 in the accompanying notes to the financial statements. DEBT ADMINISTRATION As of December 31,2014, the Port had outstanding revenue bonds and notes of $2.5 billion, a $100.7 million decrease from 2013 primarily due to scheduled principal payments and $2.0 million in early partial extinguishment of the Series 2007B First Lien Revenue bonds. The Port had outstanding subordinate lien revenue notes (commercial paper) of $42.7 million as of December 31,2014 and As of December 31, 2014, the Port had outstanding general obligation ("GO") bonds of $225.4 million, a $58.4 million decrease from 2013 primarily due to scheduled principal payments and $15.3 million in early partial extinguishment of Series 2011 Taxable GO bonds. As of December 31,2014, the Port had outstanding PFC revenue bonds of $135.1 million, an $11.3 million decrease from 2013 due to scheduled principal payment. As of December 31,2014, the Port had outstanding Fuel Hydrant Special Facility Revenue bonds of $85.7 million, a $3.0 million decrease from 2013 due to a scheduled principal payment. The fuel facilities are leased to SeaTac Fuel Facilities LLC ("Lessee") beginning in May, 2003 for 40 years (including two five-year option periods). The Port owns the fuel system and the Lessee is obligated to 20 21

69 collect the fuel system fees and to make monthly rent payments, which include a base rent for the land to the Port and facilities rent to Wells Fargo Bahk Northwest, National Association ("Trustee"). Facilities rent is established at an amount sufficient to pay semiannual debt service, replenish any deficiency in the debt service reserve fund, and pay other fees associated with the bonds, including the Trustee fee. No ad valorem tax levy revenues or other revenues of the Port (other than fuel facilities lease revenues) are pledged to pay the debt service on the Fuel Hydrant Special Facility Revenue Bonds. Below are the underlying ratings for the Port of Seattle bonds as of December 31, Some of the Port's bond issues include bond insurance or letters of credit; the credit rating for those issues may be the ratings of the bond insurer or letter of credit provider. Fitch Moody's S&P General obligation bonds AAA Aa1 AAA First lien revenue bonds AA Aa2 AA- Intermediate lien revenue bonds A+ A1 A+ Subordinate lien revenue bonds A A2 A Passenger facility charge revenue bonds A A1 A+ Fuel hydrant special facility revenue bonds A2 A- In March 2015, the Port issued $157.0 million in Series 2015 Limited Tax GO Bonds. The Series 2015 GO Bonds were used to fund the Port's first of the two contractual payments, $120.0 million, to the State of Washington for the Alaskan Way viaduct replacement program no later than May 1, 2015, to partially refund the Series 2006 GO Bonds, and to pay the costs of issuing the bonds. PORT OF SEATILE ENTERPRISE FUND STATEMENT OF NET POSITION AS OF DECEMBER 31,2014 AND 2013 (In thousands) ASSETS AND DEFERRED OUTFLOWS OF RESOURCES CURRENT ASSETS: Cash and cash equivalents Restricted cash and cash equivalents: Bond funds and other Fuel hydrant assets held in trust Short-term investments Restricted short-term investments: Bond funds and other Accounts receivable, less allowance for doubtful accounts of $168 and $152 Grants-in-aid receivable Taxes receivable Materials and supplies Assets held for sale Prepayments and other current assets Total current assets ,512 $ 49,063 19,371 20,010 3,389 3,296 67, ,001 26,843 65,238 39,260 55,432 9,609 11,373 1,515 1,640 6,845 6,687 1,100 16,397 4, ,264 ~603 A-7 Additional information on the Port's debt and conduit debt activities can be found in Note 5 and Note 6, respectively, in the accompanying notes to the financial statements. NONCURRENT ASSETS: Long-term investments Restricted long-term investments: Bond funds and other Fuel hydrant assets held in trust Long-term receivable Other long-term assets 525, , , ,181 5,908 6,149 12,305 37,358 14,294 11,529 CAPITAL ASSETS: Land and air rights Facilities and improvements Equipment, furniture, and fixtures Total capital assets Less accumulated depreciation Construction work in progress Total capital assets-net 2,023,040 2,021,340 4,930,366 4,831, , ,080 7,378,116 7,299,213 (1,981,954) (1,874,082) 105,238 83,604 5,501,400 ~735 Total noncurrent assets 6,272,008 ~179 Total assets 6,520,272 ~782 DEFERRED OUTFLOWS OF RESOURCES: Deferred charges on refunding bonds Total deferred outflows of resources 22,226 24,487 22,226 24,487 TOTAL 6,542,498 6,624,269 See notes to financial statements

70 PORT OF SEATTLE ENTERPRISE FUND STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012 (In thousands) (Restated) LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND NET POSITION OPERATING REVENUES: CURRENT LIABILITIES: Services 195, ,662 $ 195,816 Accounts payable and accrued expenses $ 87,669 $ 114,637 Property rentals 325, , ,739 Payroll and taxes payable 38,759 41,473 Customer facility charge revenues 13,608 11,367 9,745 Bonds interest payable 36,410 34,779 Operating grants and contract revenues ,406 Lease securities and customer advances 21,787 24,941 Current maturities of long-term debt 164, ,700 Total operating revenues 534, , ,706 Total current liabilities 349, ,530 OPERATING EXPENSES BEFORE DEPRECIATION: Operations and maintenance 229, , ,535 LONG-TERM LIABILITIES: Administration 56,794 55,982 53,018 Other postemployment benefits obligation 9,478 9,055 Law enforcement 23,217 23,416 22,616 Environmental remediation liability 42,117 36,216 Total operating expenses before depreciation 309, , ,169 Bonds interest payable 10,715 8,422 Accrued long-term expenses 3,572 1,534 NET OPERATING INCOME BEFORE DEPRECIATION 225, , ,537 Total long-term liabilities 65,882 55,227 DEPRECIATION 166, , ,279 A-8 LONG-TERM DEBT: OPERATING INCOME 59,267 66,615 56,258 Revenue and capital appreciation bonds 2,512,500 2,613,795 General obligation bonds 215, ,055 NONOPERATING INCOME (EXPENSE): Passenger facility charge revenue bonds 128, ,331 Ad valorem tax levy revenues 72,801 72,738 72,678 Fuel hydrant special facility revenue bonds 89,917 93,690 Passenger facility charge revenues 69,803 64,661 62,385 Total long-term debt 2,947,061 3,101,871 Customer facility charge revenues 19,889 20,389 20,577 Noncapital grants and donations 10,159 3,771 3,348 Total noncurrent liabilities 3,012,943 3,157,098 Fuel hydrant facility revenues 6,935 7,417 8,123 Investment income (Ioss)-net 11,202 (1,107) 8,172 Total liabilities 3,362,488 3,571,628 Revenue and capital appreciation bonds interest expense (108,910) (115,340) (123,327) Passenger facility charge revenue bonds interest expense (5,906) (6,212) (6,503) DEFERRED INFLOWS OF RESOURCES: General obligation bonds interest expense (9,475) (11,479) (14,078) Deferred credits on refunding bonds 3,688 4,106 Public expense (6,854) (6,226) (22,876) Total deferred inflows of resources 3,688 4,106 Environmental expense-net (9,142) (4,765) (14,358) Other income (expense)-net 1,272 (411) (29,721) NET POSITION: Total nonoperating income (expense)-net 51,774 23,436 (35,580) Net investment in capital assets 2,424,133 2,299,824 Restricted for: INCOME BEFORE CAPITAL CONTRIBUTIONS 111,041 90,051 20,678 Debt service reserves 150, ,206 Passenger facility charges 82,300 68,640 CAPITAL CONTRIBUTIONS 16,746 21,381 30,714 Customer facility charges 11,240 15,742 INCREASE IN NET POSITION 127, ,432 51,392 Grants and other 1,883 1,920 Unrestricted 506, ,203 TOTAL NET POSITION: Total net position 3,176,322 3,048,535 Beginning of year, as restated (Note 1) 3,048,535 2,937,103 2,885,711 TOTAL $ 6,542,498 6,624,269 See notes to financial statements. End of year 3,176,322 3,048,535 $ 2,937,103 See notes to financial statements

71 PORT OF SEATTLE PORT OF SEATTLE A-9 ENTERPRISE FUND ENTERPRISE FUND STATEMENT OF CASH FLOWS STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012 FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012 (In thousands) (In thousands) OPERATING ACTIVITIES: INVESTING ACTIVITIES: Cash received from customers $ 549, ,860 $ 483,625 Purchases of investment securities $ (732,616) (711,589) $ (758,287) Customer facility charge receipts 13,608 11,367 9,745 Proceeds from sales and maturities ofinvestrnents 782, , ,026 Cash paid to suppliers for goods and services (132,749) (111,859) (115,092) Interest received on investments 7,895 6,546 9,574 Cash paid to employees for salaries, wages and benefits (187,439) (180,695) (171,886) Net cash pr01lided by (used in) investing acti1lities ~L584 (93,374) (107,687) Operating grants and contract revenues ,406 Other (1,611) 3,019 (253) NET INCREASE (DECREASE) IN CASH AND Netcash provided by operating activities 241, , ,545 CASH EQUIVALENTS (including $909, $6,150, and 1,662 (94,009) (73,323) $3,443 restricted cash and cash equivalents of fuel NONCAPITAL AND RELATED FINANCING ACTIVITIES: hydrant assets held in trust reported as restrtcted Pd valorem tax levy receipts 72,926 72,893 72,805 long-term investments, respectively) Litigation settlement receipt 10,847 Noncapital grants and contract revenues 10,159 3,771 3,348 CASH AND CASH EQUIVALENTS: Beginning of year 78, , ,851 Proceeds from assets held for sale 1,449 18,752 Principal payments on GO bonds (15,275) End of year $ 80,181 78, ,528 Interest payments on GO bonds (571) (805) (805) RECONCILIATION OF OPERATING INCOME TO Cash paid for environmental remediation liability (19,627) (12,904) (9,124) NET CASH FLOW FROM OPERATING ACTIVITIES: Public expense disbursements (4,049) (7,868) (7,084) Environmental recovery receipts 11,923 6,241 4,429 Operating income $ 59,267 66,615 $ 56,258 Net cash pro1lided bynoncapital Miscellaneous nonoperating (expense) income (1,611) 3,019 (253) and related financing activities 66,333 62,777 82,321 Adjustments to reconcile operating income to net cash provided by operating activities: CAPITAL AND RELATED FINANCING ACTMTIES: Depreciation 166, , ,279 Proceeds from issuance and sale ofrevenue bonds, Decrease (increase) in assets: GO bonds, fuel hydrant special facility revenue bonds, Accounts receivable 16,406 (26,947) 2,388 PFC bonds, and commercial paper 350, ,103 Materials and supplies, prepayments and other 12,717 (17,891) (5,158) Proceeds used for refunding of revenue bonds, GO bonds, (Decrease) increase in liabilities: fuel hydrant special facility revenue bonds, and PFC bonds (343,922) (651,864) Accounts payable and accrued expenses (11,873) 14,807 1,939 Prtncipal paym ents on revenue bonds, GO bonds, Payroll and taxes payable (2,487) 2,025 3,228 fuel hydrant special facility revenue bonds, PFC bonds, and Environmental remediation liability (1,951) 4,023 2,488 commercial paper (158,246) (129,030) (121,535) Lease securities and customer advances 4,383 2,612 (18,662) Interest payments on revenue bonds, GO bonds, PFC bonds, Other postern ployment benefits obligation 423 (89) 38 fuel hydrant special facility revenue bonds, and Net cash provided by operating activities 241, ,548 $ 209,545 commercial paper (135,310) (146,972) (155,545) J\cquisition and construction of capital assets (185,853) (134,891) (119,279) SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING, DepOSits and proceeds from sale of capital assets 4,432 15, CAPITAL AND FINANCING ACTIVITIES: Receipts from capital contributions 15,111 13,302 18,506 Impainnentloss on Eastside Rail Corridor $ $ 17,730 Passenger facility charge receipts 69,140 64,686 62,388 I\ssets transferred to other governmental agencies Customer facility charge receipts 19,925 20,182 20,235 as public expense 13,206 Fuel hydrant facility revenues 6,935 7,417 8,123 Donated capital assets at Terminal 46 from Net cash used in capital and related Washington State Department of Transportation 7,446 financing actiljities $ (363,866) $ (282,960) (257,502) Avigation easement received from Highline School District 11,360 See notes to financial staterrents. (COntinued) See notes to financial statements. (COncluded) 26 27

72 PORT OF SEATTLE WAREHOUSEMEN'S PENSION TRUST FUND PORT OF SEATTLE WAREHOUSEMEN'S PENSION TRUST FUND STATEMENT OF FIDUCIARY NET POSITION STATEMENT OF CHANGES IN FIDUCIARY NET POSITION AS OF DECEMBER 31,2014 AND 2013 FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012!In thousands! (In thousands) ASSETS: ADDITIONS: Cash and cash equivalents Employer contributions 1,500 $ 1,500 $ 1,500 Investments in mutual fund-fair value: Investment income: Fixed income 3,953 3,846 Net appreciation in fair value of investments Domestic equities 3,029 2,964 Dividends International equities 2,675 2,926 Less investment expenses (45) (45) (45) Total investments 9,657 9,736 Net investment income 408 1,162 1,021 A-10 Other assets Total assets 9,988 10,282 LIABILITIES: Accounts payable 4 4 NET POSITION RESTRICTED FOR PENSIONS 9,984 10,278 See notes to financial statements. Total additions 1,908 2,662 2,521 DEDUCTIONS: Benefits 2,091 2,076 2,137 Administrative expenses Professional fees Total deductions 2,202 2,176 2,232 Net (decrease) increase in net position (294) NET POSITION RESTRICTED FOR PENSIONS Beginning of year 10,278 9,792 9,503 End of year 9,984 $ 10,278 9,792 See notes to financial statements

73 A-11 PORT OF SEATTLE NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization-The Port of Seattle (the "Port") is a municipal corporation organized on September 5, 1911, through enabling legislation by consent of the voters within the Port district. In 1942, the local govemments in King County selected the Port to operate the Seattle-Tacoma International Airport (the "Airport"). The Port is considered a special purpose government with a separately elected commission of five members. The Port is legally separate and fiscally independent of other state or local governments. The Port has no stockholders or equity holders. All revenues or other receipts must be disbursed in accordance with provisions of various statutes, applicable grants, and agreements with the holders of the Port's bonds. Reporting Entity-The Port reports the following funds: the Enterprise Fund accounts for all activities and operations of the Port except for the activities included within the Warehousemen's Pension Trust Fund. The Enterprise Fund is used to account for operations and activities that are financed at least in part by fees or charges to external users. The Enterprise Fund comprises three operating divisions. The Aviation Division ("Aviation") serves the predominant air travel needs of a five-county area. The Airport has 14 United States ("U.S.") flag passenger air carriers (including regional and commuter air carriers) and 11 foreign-flag passenger air carriers providing nonstop service from the Airport to 94 cities, including 20 foreign cities. The Seaport Division ("Seaport") focuses primarily on containerized cargo and passenger marine terminals as well as industrial property connected with maritime businesses. International containerized cargo arriving by ship is transferred to various modes of land transportation destined for other regions of the country. Domestic containerized cargo arriving by various modes of land transportation is transferred to outbound ships for distribution to other countries around the world. The Real Estate Division ("Real Estate") manages moorage facilities, leases commercial and industrial buildings/properties, and plans and facilitates the development of selected real estate assets. The Port has labor workforces subject to various collective bargaining agreements. These workforces support the operations and maintenance of the divisions. The Warehousemen's Pension Trust Fund accounts for the assets of the employee benefit plan held by the Port in a trustee capacity. On May 25, 2004, the Port became the sole administrator for the Warehousemen's Pension Plan and Trust (the "Plan"). This Plan was originally established to provide pension benefits for the employees at the Port's warehousing operations at Ternninal 106. In late 2002, the Port ternninated all warehousing operations following the departure of the principal customer who operated the facility. As of May 25, 2004, the Plan is a governmental plan maintained and operated solely by the Port. For financial reporting purposes, component units are entities which are legally separate organizations for which the Port is financially accountable, and other organizations for which the nature and significance of their relationship with the Port are such that exclusion would cause the Port's financial statements to be misleading or incomplete. Based on these criteria, the following is considered as a component unit of the Port's reporting entity. The Industrial Development Corporation ("IDC") is a blended component unit of the Port and is included within the accompanying financial statements. The IDC is a special purpose government with limited powers and is governed by a Board of Directors, which is comprised of the same members of the Port's Commission. The Port's management has operational responsibility for the IDC. The IDC has issued tax-exempt nonrecourse revenue bonds to finance industrial development for acquiring, constructing, and renovating transshipment and manufacturing facilities within the corporate boundaries of the Port. These revenue bonds are solely payable by and secured by revenues derived from the industrial development facilities funded by the revenue bonds and leased to the IDC. The Port has not recorded these obligations, or the related assets, on the accompanying financial statements of the Port, as the Port has no obligation for the outstanding bonds. A copy of the separate financial statements for the IDC may be obtained at: Port of Seattle Pier 69 P.O. Box 1209 Seattle, WA Basis of Accounting-The Port is accounted for on a flow of economic resources measurement focus. The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America as applied to governmental units using the accrual basis of accounting. The Governmental Accounting Standards Board ("GASB") is the accepted standardsetting body for establishing governmental accounting and financial reporting principles. The Port adopted the provisions of GASB Statement No. 62, Codification of Accounting and Financial Reponing Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. This statement incorporates into GASB's authoritative literature certain accounting and financial reporting guidance issued by Financial Accounting Standards Board ("FASB") pronouncements which does not conflict with or contradict GASB pronouncements, and eliminates the option to apply post November 30, 1989 FASB pronouncements that do not conflict with or contradict GASB pronouncements. The more significant Port's accounting policies are described below. Use of Estimates-The preparation of the Port's financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are used to record environmental remediation liabilities, litigated and non-litigated loss contingencies, insurance recoveries, allowances for doubtful accounts, grants-in-aid receivables, arbitrage rebate liabilities, healthcare benefit claims liabilities, and other postemployment benefits obligations. Actual results could differ from those estimates. Significant Risks and Uncertainties-The Port is subject to certain business and casualty risks that could have a material impact on future operations and financial performance. Business risks include economic conditions, collective bargaining disputes, security, litigation, Federal, State, and local government regulations, and changes in law. Casualty risks include natural or manmade events that may cause injury or other damages at Port facilities. The Port has a comprehensive risk management program that protects the Port against loss from various adverse casualty events to its property, operations, third-party liabilities, and employees. The Port carries excess commercial insurance to provide a financial means to recover from many of these potential events or losses. The excess commercial insurance coverage is above a self-insured retention that the Port maintains. The Port is a qualified workers compensation self-insurer in the State and administers its own workers compensation claims. Claims, litigation and other settlements have not exceeded the limits of available insurance coverage in any of the past three years, when insurance was applicable. As of January 1, 2011, the majority of the Port sponsored healthcare plans were converted from fully insured to self-insured plans. Employees covered by these plans continue to pay a portion of the premiums for their coverage. The Port purchased a stop-loss insurance policy for the self-insured healthcare plan to limit the Port's individual claims liability up to $200,000 per year in 2014 and 2013 while $150,000 per year in 2012, and to 125% of expected claims in aggregate. Healthcare benefit claims liabilities are not discounted to present value as nearly all healthcare claims are current in 30 31

74 A-12 nature. The estimated liability is based upon actual claims that have been submitted and authorized for payment as well as actuarially determined claims incurred but not reported. The estimated liability is included in payroll and taxes payable on the Statement of Net Position. The table below reflects the changes in the claim liabilities for the years ended December 31 (in thousands). Claim payments made during the current year include associated incremental costs such as administration expenses and stop-loss insurance policy premiums. Non-incremental claim adjustment expenses were not included as part of the healthcare benefit claim liabilities. Employees' cost sharing portion of the health care plan and retirees' payments for participating in the Port's healthcare plan made during the current year are included as "Other" in the table below. Retirees' participation in the Port's healthcare plan is not implicitly or explicitly subsidized. Current Year Claims and Years Ending Beginning Changes in Claim Ending December 31, Balance Estimates Payments Other Balance ,423 11,724 $ (13,800) 1,723 1, ,540 13,274 (15,336) 1,945 1, ,241 11,740 (13,338) 1,897 1,540 Employee Benefits-Eligible Port employees accrue paid time off and extended illness. The paid time off accrual rates increase based on length of service. A stipulated maximum of paid time off may be accumulated by employees while there is no maximum limit to the amount of extended illness accrual that can be accumulated. Terminated employees are entitled to be paid for unused paid time off. Under certain conditions, terminated employees are entitled to be paid for a portion of unused extended illness accrual. The Port also offers its eligible union and non-union employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457 (the "457 Plan"). Employees are able to direct the 457 funds to any investment options available under the 457 Plan. The Port placed its deferred compensation plan assets in a separate trust as required under the Small Business Job Protection Act of 1996 and as such, the related assets and liabilities are not included in the Port's financial statements. On an annual basis, the Port has the option of offering a 401 (a) supplemental savings plan (the "401(a) Plan") for non-union employees. The 401(a) Plan establishes a 401(a) tax-deferred savings account for each eligible employee. The Port matches employee contributions to their 457 plan with a dollar-for-dollar contribution to the 401 (a) Plan up to a fixed maximum of $2,200. This matching contribution increases with tenure. Employees are able to direct the 401 (a) funds to any investment options available under the 401 (a) Plan. The Port placed its supplemental savings plan assets in a separate trust as required under the Small Business Job Protection Act of 1996 and as such, the related assets and liabilities are not included in the Port's financial statements. Investments and Cash Equivalents-All short-term investments with a maturity of three months or less at the date of purchase are considered to be cash equivalents except for the restricted portion of the Fuel Hydrant assets held in trust that is not used to pay the current maturities of Fuel Hydrant Special Revenue Bonds plus accrued interest is reported as restricted long-term investments on the Statement of Net Position. Investments are carried at fair value plus accrued interest receivable. Fair values are determined based on quoted market rates. Unrealized gains or losses due to market valuation changes are recognized in the Statement of Revenues, Expenses, and Changes in Net Position. Accounts Receivable and Allowance for Doubtful Accounts-Accounts receivable are recorded for invoices issued to customers in accordance with the contractual arrangements. Unbilled receivables are recorded when revenues are recognized upon service delivery and invoicing occurs at a later date. Finance charges and late fees are recognized on accounts receivable in accordance with contractual arrangements. Interest income on finance charges and late fees are minimal. The Port's policy defines delinquent receivable as 90 days or more past due. The allowance for doubtful accounts is based on specific identification of troubled accounts and delinquent receivables. Accrual of accounts receivable, related finance charges and late fees are suspended once the accounts receivable is sent to a third party collection agency, placed in dispute or litigation, or the customer has filed for bankruptcy. Accounts receivable are written-off against the allowance when deemed uncollectible. Recoveries of receivables previously written-off are recorded when received. Grants-in-Aid Receivable--The Port receives Federal and State grants-in-aid funds on a reimbursement basis for all divisions, mostly related to construction of Airport and Seaport facilities and other capital activities, along with operating and nonoperating grants to perform enhancements in both Airport and Seaport security as well as environmental prevention/remediation programs. Materials and Supplies-Materials and supplies are recorded at the lower of cost or market. The Port's policy is to expense materials and supplies when used in operations and to capitalize amounts used in capital projects as construction work in progress. Capital Assets-Capital assets are stated at cost, less accumulated depreciation. Costs applicable to noise damage remedies, together with the cost of litigation, in exchange for air rights are generally recorded as intangible capital assets. The Port's policy is to capitalize all asset additions equal to or greater than $20,000 and with an estimated life of three years or more. The Port capitalizes interest during construction until the asset is placed into service, based on average construction expenditures and average actual debt service rates for bond funded construction, excluding externally restricted acquisition of specified qualified assets financed with grants or proceeds from tax-exempt debt. Depreciation is computed on a straight-line basis. Buildings and improvements are assigned lives of 30 to 50 years, equipment 3 to 20 years, and furniture and fixtures 5 to 10 years. The Port periodically reviews its long-lived assets for impairment. A capital asset is considered impaired when its service utility has declined significantly and unexpectedly. Operating and Nonoperating Revenues-Fees for services, rents, charges for the use of Port facilities, Airport landing fees, operating grants, a portion of the customer facility charge ("CFC") revenues, and other revenues generated from operations are reported as operating revenues. Ad valorem tax levy revenues, nonoperating grants and contributions, passenger facility charge ("PFC") revenues, the remaining portion of CFCs, fuel hydrant facility revenues, and other revenues generated from nonoperating sources are classified as nonoperating revenues. Operating and Nonoperating Expenses-Expenditures related to the Port's principal ongoing operations are reported as operating expenses. Operating expenses include operations and maintenance expenses, administrative expenses and law enforcement expenses. All other expenses not meeting this definition are reported as nonoperating expenses. Nonoperating expenses include interest expenses, environmental expenses, and public expenses. Nonexchange Transactions-GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, establishes uniform revenue and expense recognition criteria and financial reporting standards regarding when (i.e., in which fiscal year) to report the results of non exchange transactions involving cash and other financial and capital resources. When the Port receives value without directly giving equal value in return, these transactions, which include taxes, intergovernmental grants, entitlements, other financial assistance, and nongovernmental contractual agreements are reported as revenues

75 A-13 For derived revenue transactions, such as PFC and CFC, the Port recognizes receivables in the period when the exchange transaction on which the fee/charge is imposed occurs or records cash when received, whichever occurs first. Revenue is recognized, net of estimated refunds and estimated uncollectible amounts, in the same period that the receivables are recognized, provided that the underlying exchange transaction has occurred. Resources received in advance are reported as unearned revenues until the period of the exchange. For imposed nonexchange revenue transactions, such as ad valorem tax levy revenues, the Port recognizes receivables in the period when an enforceable legal claim to the receivables arises, i.e. lien date, or records cash when received, whichever occurs first. Resources received in advance before the lien date is reported as deferred inflows of resources. For government-mandated nonexchange transactions and voluntary non exchange transactions, such as grant programs, resources received before the eligibility requirements are met (excluding time requirements) are reported as unearned revenues. Resources received before time requirements are met, but after all other eligibility requirements have been met, is reported as deferred inflow of resources. When the Port gives value without directly receiving equal value in return, these transactions, which include expenses for district schools and infrastructure improvements to the State and region in conjunction with other agencies, are reported as public expense. Passenger Facility Charges-As qetermined by applicable Federal legislation, which are based upon passenger enplanements, PFC generated revenues are expended by the Port for eligible capital projects and the payment of principal and interest on specific revenue bonds. PFC revenues received from the airlines, $4.50 per passenger, are recorded as nonoperating income in the Statement of Revenues, Expenses, and Changes in Net Position. Customer Facility Charges-As determined by applicable State legislation, CFC generated revenues, received from the rental car companies, are expended by the Port for eligible capital projects, the payment of principal and interest on specific revenue bonds funding the Rental Car Facility ("RCF") at the Airport, and certain related operating expenses. The CFC was increased from $5.00 per transaction day to $6.00 per transaction day starting February 1,2012. A portion of CFC revenues is recorded as operating revenues as it is associated with the operation of the RCF. The remaining portion of CFC revenues is recorded as nonoperating income in the Statement of Revenues, Expenses, and Changes in Net Position. Ad Valorem Tax Levy-Ad valorem taxes received by the Port are utilized for the acquisition and construction of facilities, for the payment of principal and interest on GO bonds issued for the acquisition or construction of facilities, for contributions to regional freight mobility improvement, for environmental expenses, for certain operating expenses, and for public expenses. The Port includes ad valorem tax levy revenues and interest expense on GO bonds as nonoperating income in the Statement of Revenues, Expenses, and Changes in Net Position. The King County ("County") Treasurer acts as an agent to collect property taxes levied in the County for all taxing authorities. Taxes are levied annually on January 1 on property values listed as of the prior year. The lien date is January 1. Assessed values are established by the County Assessor at 100% of fair market value. A re-evaluation of all property is required every two years. Taxes are due in two equal installments on April 30 and October 31. Collections are distributed daily to the Port by the County Treasurer. Payments in Lieu of Taxes-The Port, on behalf of the State of Washington, collects applicable leasehold taxes from its tenants. The taxes are a pass-through to the State and are, therefore, not reflected as an expense or revenue by the Port. Airline Rates and Charges-During 2013, the Port reached agreement with the airlines for new signatory airline lease and operating agreements ("SLOA III"). SLOA III is effective for the period January 1, 2013 through December 31, SLOA III is a hybrid-compensatory rate setting methodology. Under SLOA III, aeronautical rates are set to recover both operating and capital costs by cost center. Key provisions include: (1) One-time reduction in the revenue requirement of $17,880,000 in 2013, (2) Cash funded assets included in capital recovery formulas extend back to 1992, (3) Airport does not recover costs relating to vacant publicly accessible office space (costs associated with all other airline space are fully recovered), (4) Cost recovery fonmulas permit the Port to charge the airlines 100% of annual debt service allocated to the airlines (unless the Port determines in its sole discretion that a charge above 100% of annual airline debt service is necessary to maintain the total Airport revenue bond coverage at 1.25 times the sum of the annual debt service), and (5) Revenue sharing of 50% of the cash flow available for debt service above 125% of annual debt service is credited to the signatory airlines. Settlement calculations comparing 2014 revenue requirements and invoices billed in 2014 for each cost center and for all airlines, including revenue sharing, have been reflected in the 2014 financial statements. Lease Securities-Under the terms of certain lease agreements, the Port requires or allows its customers or tenants to provide security to satisfy contractual obligations. The Port classifies these amounts as lease securities and are included in current liability in the Statement of Net Position. The Port is allowed to draw from the lease securities in certain events as defined in these agreements, such as for defaults or delinquencies in rent payment. The balance is determined by the lease terms and is recalculated according to the provisions of the agreements. Environmental Remediation Liabilities-The Port's policy requires accrual of environmental remediation liabilities amounts when (a) one of the following specific obligating events is met, and (b) the amount can be reasonably estimated. Obligating events include: imminent endangerment to the public; permit violation; named as party responsible for sharing costs; named in a lawsuit to compel participation in pollution remediation; or commenced or legally obligated to commence pollution remediation. Potential cost recoveries such as insurance proceeds, if any, are evaluated separately from the Port's environmental remediation liabilities. Costs incurred for environmental remediation liabilities are typically recorded as nonoperating environmental expenses unless the expenditures relate to the Port's principal ongoing operations, in which case they are recorded as operating expenses. Costs incurred for environmental remediation liabilities can be capitalized if they meet specific criteria. Capitalization criteria include: preparation of property in anticipation of a sale; preparation of property for use if the property was acquired with known or suspected pollution that was expected to be remediated; perfonmance of pollution remediation that restores a pollutioncaused decline in service utility that was recognized as an asset impairment; or acquisition of property, plant, and equipment that have a future alternative use not associated with pollution remediation efforts. Refunding and Defeasance of Debt-The Port has legally defeased certain bonds by placing proceeds, either in the form of new bond proceeds or existing Port cash, in an irrevocable trust to provide for all future debt service payments on the defeased bonds. Accordingly, the trust account assets and the liability for these defeased bonds are not recorded on the accompanying financial statements. As of December 31, 2014 and 2013, the total defeased, but unredeemed, bonds outstanding totaled $3,520,000 and $1,750,000, respectively. For current refundings and advance refundings resulting in defeasance of debt, the difference between the reacquisition price and the net carrying amount of the old debt is reported as deferred outflow of resources or deferred inflow of resources and recognized as a component of interest expense on a straight-line basis over the remaining life of the old debt or the life of the new debt, whichever is shorter

76 A-14 Debt Discount and Premium-Debt discounts and premiums relating to the issuance of bonds are amortized over the lives of the related bonds using the effective interest method. Net Position-Net position represents all assets, plus deferred outflows of resources, less liabilities, less deferred inflows of resources. Net position is displayed in the Statement of Net Position into the following categories: Net investment in capital assets: Capital assets, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction, or improvement of those assets. Restricted: Net position subject to externally imposed stipulations on their use. Unrestricted: All remaining net position not meeting the definition of "net investment in capital assets" or "restricted." When both restricted and unrestricted resources are available for the same purpose, restricted net position is considered to be used first over unrestricted net position. Recently Issued Accounting Pronouncements-In June 2012, the GASB issued Statement No. 67, Financial Reporting for Pension Plans-an amendment of GASB Statement No. 25. This statement replaces the requirements of Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and Statement No. 50, Pension Disclosures, as they relate to pension plans that are administered through trusts or similar arrangements meeting certain criteria. This statement builds upon the existing framework for financial reports of defined benefit pension plans, which includes a statement of fiduciary net position (the amount held in a trust for paying retirement benefits) and a statement of changes in fiduciary net position. This statement enhances note disclosures and required supplementary information ("RSI") for both defined benefit and defined contribution pension plans. This statement also requires the presentation of new information about annual money-weighted rates of return in the notes to the financial statements and in 10-year RSI schedules. The Port adopted this new pronouncement in the current year. The required disclosures are presented in Note 14 in the accompanying notes to the financial statements and the related RSI. In June 2012, the GASB issued Statement No. 68, Accounting and Financial Reporting for Pensions-an amendment of GASB Statement No. 27. This statement replaces the requirements of Statement No. 27, Accounting for Pensions by State and Local Governmental Employers, and Statement No. 50, Pension Disclosures. This statement revises and establishes new financial reporting requirements for governments participating in single-employer and multiple- mployer defined benefit pension plans, cost-sharing plans and defined contribution plans. This statement requires governments providing defined benefit pensions to recognize its long-term obligation for pension benefits as a liability for the first time, and to more comprehensively and comparably measure the annual costs of pension benefits. This includes changes in the methods and assumptions used to project pension payments, discount projected payments to their present values and attribute those present values to periods of employee service. The statement also enhances accountability and transparency through revised and new note disclosures and RSI. This statement is effective for periods beginning after June 15, The Port is currently evaluating the impact of the adoption of this standard on its financial statements. In January 2013, the GASB issued Statement No. 69, Government Combinations and Disposals of Government Operations. This statement establishes accounting and financial reporting standards related to measurement and reporting of government combinations and disposals of government operations. The requirements of this statement are effective for government combinations and disposals of government operations occurring in financial reporting periods beginning after December 15, 2013, and should be applied on a prospective basis. The Port currently has no plans for any government combinations and disposals of operations. As such, the adoption of this standard did not have any effect on the Port's financial statements. In April 2013, the GASB issued Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees. This statement provides new recognition, measurement, and disclosure guidance for state and local govemments that extend or receive nonexchange financial guarantees. A nonexchange financial guarantee occurs when a government guarantees a financial obligation but generally receives little or no compensation in return. The government guaranteeing the debt (guarantor) agrees to make payments to the holder of the debt if the entity that issued the debt (issuer) is unable to fulfill its obligations. To the guarantor, the guarantee represents the possibility of claims on the government's resources. To the issuer, this represents potential resources that can be drawn upon to make the required payment. This statement requires a guarantor government to recognize a liability and an expense when qualitative factors indicate that it is "more likely than not" that it will actually be required to make a payment as a result of the guarantee agreement. The amount recognized should be the discounted present value of the best estimate of the future outflows expected to be incurred as a result of the guarantee. This statement requires an issuer government to continue to report a liability until it is legally released as an obligor from the obligation and from any liability to the guarantor. When the issuer is released from those liabilities, it recognizes revenues as a result. Certain disclosures are also required for both the guarantor government and issuer government. This statement is effective for reporting periods beginning after June 15, Retrospective application is required for all prior periods presented. The Port does not have any nonexchange financial guarantees. As such, the adoption of this standard did not have any effect on the Port's financial statements. In November 2013, the GASB issued Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date-an amendment of GASB Statement No. 68. This statement amends paragraph 137 of Statement No. 68 to require that, at transition, a government recognizes a beginning deferred outflow of resources for its pension contributions, if any, made subsequent to the measurement date of the beginning net pension liability. Statement No. 68, as amended, continues to require that beginning balances for other deferred outflows of resources and deferred inflows of resources related to pensions be reported at transition only if it is practical to determine all such amounts. The provisions of this statement are required to be applied simultaneously with the provisions of Statement No. 68. The Port is currently evaluating the impact of the adoption of this standard on its financial statements. Restatement-The Port adopted GASB Statement No. 65, Items Previously Reported as Assets and Liabilities, starting on January 1, 2013, by restating the financial statements for all periods presented. Debt issuance costs, except any portion related to prepaid insurance costs and surety costs, is recognized as nonoperating expense as incurred. Prepaid insurance and surety costs are reported as current and noncurrent assets and recognized as nonoperating expense on a straightline basis over the duration of the related debt. I nitial direct costs of an operating lease, such as brokers' commission fee, is recognized as operating expense as incurred. For current refundings and advance refundings resulting in defeasance of debt, the difference between the reacquisition price and the net carrying amount of the old debt is reported as deferred outflows of resources or deferred inflows of resources and recognized as a component of interest expense on a straight-line basis over the remaining life of the old debt or the life of the new debt, whichever is shorter. The beginning balance of net position was restated due to the unamortized debt issuance costs except for any portion related to prepaid insurance costs and surety costs, that were recorded as (a) 36 37

77 A-15 deferred finance costs-net of accumulated amortization, and (b) unamortized bond discounts-net of amortization resulting from refunding of debt. The following table shows the balances within the' financial statements being restated (in thousands) As previously reported Effect of Restatement STATEMENT OF NET POSITION CURRENT ASSETS: Prepayments and other current assets 5, NONCURRENT ASSETS: Other long-term assets 3,288 7,577 Deferred finance costs-net of accumulated amortization (26,097) DEFERRED OUTFLOWS OF RESOURCES: Deferred charges on refunding bonds 25,441 LONG-TERM DEBT: Revenue and capital appreciation bonds 2,685,453 29,053 General obligation bonds 291,666 5,055 Passenger facility charge revenue bonds 154, DEFERRED INFLOWS OF RESOURCES: Deferred credits on refunding bonds 3,454 NET POSITION: Net investment in capital assets 2,272,674 (8.675) Unrestricted 486,498 (22,223) STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION NONOPERATING INCOME (EXPENSE): Revenue and capital appreciation bonds interest expense (122,170) (1,157) Passenger facility charge revenue bonds interest expense (6,778) 275 General obligation bonds interest expense (14,447) 369 Other (expense) income-net (25,749) (3,972) As restated 5,902 10,865 25,441 2,714, , ,351 3, ,275 Reclassifications and Presentation-Certain reclassifications of prior years' balances have been made to conform with the current year presentations. Such reclassifications did not affect the total increase in net position or total current or long-term assets or liabilities. (123,327) (6,503) (14,078) (29,721) 2. DEPOSITS WITH FINANCIAL INSTITUTIONS AND INVESTMENTS Deposits-All deposits are either covered by the Federal Deposit Insurance Corporation ("FDIC") or the Public Deposit Protection Commission ("PDPC") of the State of Washington. The PDPC is a statutory authority under Chapter RCW. It constitutes a multiple financial institution collateral pool that can make pro rata assessments from all qualified public depositaries within the State. Per State statute, all public deposits in the State are either 100% collateralized or insured. Therefore, in accordance with GASB, Codification of Governmental Accounting and Financial Reporting Standards, Section , PDPC protection is of the nature of collateral, not of insurance. Pledged securities under the PDPC collateral pool are held under the control of the PDPC for the protection of the pool. Investments-Statutes authorize the Port to invest in savings or time accounts in designated qualified public depositaries or in certificates, notes, or bonds of the U.S. The Port is also authorized to invest in other obligations of the U.S. or its agencies or of any corporation wholly owned by the government of the U.S. Statutes also authorize the Port to invest in banker's acceptances purchased on the secondary market, in Federal Home Loan Bank notes and bonds, Federal Farm Credit Bank consolidated notes and bonds, Federal Home Loan Mortgage Corporation bonds and notes, and Federal National Mortgage Association notes, bonds, debentures and guaranteed certificates of participation or the obligations of any other U.S. government-sponsored corporation whose obligations are or may become eligible as collateral for advances to member banks as determined by the board of governors of the Federal Reserve System. The Port can also invest in commercial paper within the policies established by the State Investment Board, certificates of deposit with qualified public depositories, local and state general obligations, and revenue bonds issued by Washington State governments that are rated at least "A" by a nationally recognized rating agency. Additionally, the Port is allowed to purchase the following agency mortgage backed securities: (1) collateralized mortgage pools having a stated final maturity not exceeding the maturity limits of the Port's investment policy, and (2) planned amortization and sequential pay classes of collateralized mortgage obligations collateralized by 15-year agency-issued pooled mortgage securities and having a stated final maturity not exceeding the maturity limits of the Port's investment policy. The Port's investment policy limits the maximum maturity of any investment security purchased to ten years from the settlement date. The Port's investment policy allows for 100% of the portfolio to be invested in U.S. Treasury bills, certificates, notes, and bonds. The Port's investment policy limits investments in government agency securities to 60%, agency mortgage-backed securities to 10%, certificates of deposit to 15% but no more than 5% per issuer, banker's acceptances to 20% but no more than 5% per bank, commercial paper to 20% but no more than 3% per issuer, overnight repurchase agreements to 15%, term only repurchase agreements to 25%, reverse repurchase agreements to 5%, agency discount notes to 20% of the portfolio, and municipal securities to 20% of the portfolio with no more than 5% per issuer. Banker's acceptances can only be purchased on the secondary market and are limited to the largest 50 world banks listed each July in the American Banker. These banks must meet tier one and tier two capital standards. Commercial paper must be rated no lower than A 1/P1 and meet Washington State Investment Board guidelines. The Port's investment policy allows for repurchase and reverse repurchase agreements with maturities of 60 days or less. The investment policy requires that securities collateralizing repurchase agreements must be marked to market daily and have a value of at least 102% of the cost of the repurchase agreements having maturities less than 30 days and 105% for those having maturities that exceed 30 days. For reverse repurchase agreements, when used for yield enhancement rather than cash management purposes, only "matched book" transactions will be utilized. This means that the maturity date of the acquired security is identical to the end date of the reverse repurchase transaction. Reverse repurchase agreements will only be executed with Primary Government Bond Dealers

78 A-16 As of December 31, 2014 and 2013, restricted investments-bond funds and other were $258,999,000 and $289,429,000, respectively. These are primarily unspent bonds proceeds designated for capital improvements to the Port's facilities, and for debt service reserve fund requirements. Other includes cash receipts from PFCs, CFCs and lease securities. The tables below identify the types and concentration of investments by issuer, and maturities of the Port's Investment Pool as of December 31 (in thousands). Investments of bond proceeds held in trust are not included in the tables. As of December 31,2014 and 2013, the Port's investment pool had 8.4% and 7.3%, respectively, of the portfolio invested in repurchase agreements, collateralized with securities backed by the full faith and credit of the U.S. Government, and the remainder of the pool is invested in "AAA" and "AA+" rated U.S. Government agencies and treasury securities. Maturities lin Years) Percentage Fair Less More oftotal Investment Type Value Than Than 3 Portfolio 2014 Repurchase Agreements "II 75,884 $ 75, % Federal Agencies Securities: Federal Farm Credit Banks 54,538 20,002 34, Federal Home Loan Bank 141,486 92,167 30,544 18, Federal Home Loan Mortgage Corporation 114,334 74,734 39, Federal National Mortgage Association 95,324 34,661 60, U.S. Treasury Notes 425, ,244 ~ Total Portfolio $ 906,810 $ 168,051 $ 585,185 $ 153, % Accrued interest receivable ~ Total cash, cash equivalents and investments $ 908,250 Percentage oftotal Portfolio % 18.5 % 64.6 % 16.9 % 2013 Repurchase Agreements' 69,073 $ 69, % Federal Agencies Securities: Federal Farm Credit Banks 54,269 30,017 24, Federal Home Loan Bank 38,260 20,047 18, Federal Home Loan Mortgage Corporation 180,001 32,986 60,258 86, Federal National Mortgage Association 279,065 74, , U.S. Treasury Notes 330, , , i1. Total Portfolio $ 950,892 $ 282,287 $ 335,287 $ 333, % Accrued interest receivable ~ Total cash, cash equivalents and investments $ 952,720 Percentage oftotal Portfolio % 29.7 % 35.3 % 35.0 % Investment Authorized by Debt Agreements-Investment of debt proceeds held by bond trustees are governed by provisions of the debt agreements and subject to compliance with State law. In May 2003, the Port issued Fuel Hydrant Special Facility Revenue bonds in the amount of $121,140,000 to pay for all or a portion of the costs of the acquisilion, design, and construction by the Port of jet aircraft fuel storage and delivery facilities at the Airport. These bonds were fully refunded by the Series 2013 Fuel Hydrant Special Facility Revenue Refunding Bonds in June The fuel hydrant facility financing is administered by Wells Fargo Bank Northwest, National Association ("Trustee"). The tables below identify the types and concentration of investments by issuer, and maturities of the Fuel Hydrant Investment Pool as of December 31 (in thousands). As of December 31,2014,53.7% of the Fuel Hydrant Investment Pool was invested in U.S. Treasury Notes. As of December 31, 2013, none of the Fuel Hydrant Investment Pool was invested in U.S. Treasury Notes. The remaining amount was invested in 2a7 qualified Wells Fargo Government Institutional Money Market Fund with maturity limits no longer than 13 rnonths. The Wells Fargo Government Institutional Money Market Fund holds securities authorized by the statutes, which means at least 80% of the investments are invested in U.S. Government obligations, including repurchase agreements collateralized by U.S. Government obligations. The remainder of the Wells Fargo Govemment Institutional Money Market Fund was invested in "AAA" rated high-quality short-term money market instruments. Maturities lin Years) Percentage Fair Less More oftotal Investment Type Value Than Than 3 Portfolio 2014 Wells Fargo Government Institutional Money Market Fund 4,298 $ 4,298 $ 46.3 % U.S. Treasury Notes ~ ~ ~ Total Portfolio 9,288 $ 4,298 4,990 $ % Accrued interest receivable 9 Total cash, cash equivalents and investments $ 9,297 Percentage of Total Portfolio % 46.3 % 53.7 % % 2013 Wells Fargo Govemment Institutional Money Market Fund $ 9,445 $ 9,445 _$_- _$_- ~% Total Portfolio $ 9,445 $ 9,445 $ $ % Total cash, cash equivalents and investments $ 9,445 Percentage oftotal Portfolio % % % % '" Includes $8,384,000 and $3,073,000 of cash as of December 31, 2014 and 2013, respectively

79 A-17 Interest Rate Risk-Interest rate risk is the risk that an investment's fair value decreases as market interest rate rises. The Port manages its Investment Pool exposure to this risk by setting maturity and duration limits in its investment policy. The Investment Pool is managed similarly to a short-term fixed income fund. The modified duration of the portfolio, by policy, has a 2.0 target plus or minus 50 basis points (2.0 is an approximate average life of 27 months). For 2014 and 2013, the modified duration of the portfolio was approximately 2.2 and 2.4, respectively. Securities in the portfolio cannot have a maturity longer than ten years from the settlement date. As of December 31,2014 and 2013, the effective duration of the Port's Investment Pool portfolio was approximately 1.6 and 0.8, respectively. A portion of the proceeds from the Fuel Hydrant bonds issued, and monthly facilities rent are held by the Trustee, to satisfy the debt service reserve fund requirement, to make debt service payments, and to pay other fees associated with the bonds, including the Trustee fee. For 2014 and 2013, the modified duration of the Fuel Hydrant Investment Pool was approximately 0.9 and zero, respectively. As of December 31,2014 and 2013, the effective duration of the Fuel Hydrant Investment Pool was 0.9 and zero, respectively. Custodial Credit Risk-Custodial credit risk is the risk that, in the event of the failure of the counter-party, the Port will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. By the Port's policy, all security transactions, including repurchase agreements, are settled on a delivery versus payment basis. This means that payment is made simultaneously with the receipt of the securities. The securities are delivered to the Port's safekeeping bank. As of December 31, 2014 and 2013, $4,298,000 and $9,445,000, respectively, of the Fuel Hydrant Investment Pool was invested in the Wells Fargo Government Institutional Money Market Fund, was uninsured, and was registered in the name of the Trustee. 3. CAPITAL ASSETS Capital assets consist of the following at December 31 (in thousands): Beginning 01 Year Additions 2014 Capital assets, not being depreciated: Land and air rights 2,021,340 $ 2,800 Art collections and others 9,017 Total capital assets not being depreciated 2,0~0,~57 2,800 Capital assets being depreciated: Facilities and improvements 4,831, ,926 Equipment, furniture, and fixtures 437,293 30,270 Total capital assets being depreciated 5,268, ,196 Total capital assets 7,299, ,996 Less accumulated depreciation for: Facilities and improvements (1,626,276) (137,913) Equipment, furniture, and fixtures (247,806) (28,424) Total accumulated depreciation (1,874,082) (166,337) Construction work in progress 83, ,459 Total capital assets-net 5,508, , Capital assets, not being depreciated: Land and air rights 2,011,195 13,346 Art colleclions and others 9,042 Total capital assets not being depreciated 2,020,237 13,346 Retirements End 01 Year (1,100) 2,023,040 9,017 (1,100) 2,032,057 (17,353) 4,930,136 (51,640) 415,923 (68,993) 5,346,059 (70,093) 7,378,116 11,404 (1,752,785) 47,061 (229,169) 58,465 (1,981,954) (149,825) 105,238 (161,453) 5,501,400 (3,201) 2,021,340 (25) 9,017 (3,226) 2,030,357 Capital assets being depreciated: Facilities and improvements 4,735, ,657 EqUipment, furniture, and fixtures 436,678 41,006 Total capital assets being depreciated 5,172, ,663 (25,740) 4,831,563 (40,391) 437,293 (66,131) 5,268,856 Total capital assets 7,192, ,009 (69,357) 7,299,213 Less accumulated depreciation for: Facilities and improvements (1,506,842) (142,665) Equipment, furniture, and fixtures (249,064) (28,709) Total accumulated depreciation (1,755,906) (171,374) 23,231 (1,626,276) 29,967 (247,806) 53,198 (1,874,082) Construction work in progress 106, ,883 (162,539) 83,604 Total capital assets-net 5,542, ,518 (178,698) 5,508,

80 A-18 For the years ended December 31,2014 and 2013, net loss on sale and disposition of capital assets of $9,721,000 and $269,000, respectively, were recorded in nonoperating other income (expense) net in the Statement of Revenues, Expenses, and Changes in Net Position. In 2014, the Aviation Division, Seaport Division, and Real Estate Division recognized net losses of $5,234,000, $3,305,000, and $628,000, respectively, from demolition and sale of capital assets. The Aviation Division recognized a slight gain from the sale of passenger loading bridges which was more than offset by net loss from the demolition of portions of the C-60 baggage system, Concourse D extension and demolitions relating to hanger upgrades. The Seaport Division recognized an impairment loss of $2,658,000 on six cranes at Terminal 5 as they were no longer in use. The lease at Terminal 5 terminated effective August Terminal 5 is slated for facility modernization with the objective to build a facility capable of handling two EEE class vessels. Since the existing six cranes do not have the capacity (height and outreach) to service that size of vessel, they have to be removed to accommodate the larger cranes that will be needed. Accordingly, the six cranes were approved to be surplused in September The Real Estate Division net loss was from the demolition and retirements of capital assets. In 2013, the Aviation Division, Seaport Division, and Real Estate Division recognized $1,066,000 net gain, $9,219,000 net loss, and $7,904,000 net gain, respectively, from demolition and sale of capital assets. The Aviation Division recognized a gain on the sale of land and easements to Sound Transit related to the South Link Project of $3,970,000. The Seaport Division recognized a loss of $9,943,000 from the sale of five cranes at Terminal 46 to the terminal operator. The Real Estate Division recognized a gain of $8,054,000 on the sale of a portion of the West Yard at Terminal 91 to King County for construction of the South Magnolia combined sewer overflow facility. The Port completed its acquisition of the 42-mile Eastside Rail Corridor (the "Corridor") from BNSF Railway in December 2009, as a key first step to preserve it in public ownership. The Corridor included an active freight segment (the "Freight Segment") and a railbanked segment (the "Southern Segment"). To maximize the Corridor's benefit to the entire region, the Port partnered with several local regional agencies to share the purchase and public ownership of the Southern Segment, subject to a Memorandum of Understanding dated November 5, During 2010, a portion of the Southern Segment was sold to the City of Redmond for $10,000,000 and an easement over the Corridor was sold to Puget Sound Energy for $13,753,000. During 2012, a portion of the Southern Segment along with a transportation easement over the remaining Portowned portion of the Southern Segment was sold to Sound Transit for $13,752,000. Another portion of the Southern Segment was sold to the City of Kirkland in 2012 for $5,000,000. In February 2013, the remaining portion of the Southern Segment along with an easement over portions of the Freight Segment was sold to King County for $13,897,000, net of the $1,903,000 paid by King County in 2009 for a multipurpose easement. As provided in the Purchase and Sales Agreement, King County paid the Port $1,449,000 in February 2013, upon closing. The balance of the purchase price is due to the Port within three years from the closing date and King County will either (i) pay the Port the purchase price plus interest on the balance at 2.83% compounded annually or (ii) convey to the Port surplus property or properties of equivalent value. Interest of $362,000 and $317,000 were recorded at the end of 2014 and 2013, respectively. The Southern Segment of the Corridor was recorded as an asset held for sale in 2012 and its value was measured at the lower of its carrying amount or fair value less costs to sell. Since its acquisition in 2009, there was no active market for this real property. Thus, its fair value remained essentially the same as its carrying amount. As of December 31,2012, the carrying amount of the Southern Segment was $31,627,000. Through the sale to King County in February 2013 for $13,897,000, a fair value was established. As the fair value was less than the carrying amount, the Port recognized an impairment loss of $17,730,000 for the Southern Segment in the year ending December 31,2012. In January 2015, the Port received a cash payment of $13,153,000 from King County for the total outstanding balance including accrued interest from the sale. In July 2014, the Port entered into a Purchase and Sale Agreementto sell a portion of the Freight Segment (within Woodinville Corporate Limits and Bothell Corporate Limits) to the City of Woodinville. The due diligence period terminated in December 2014 while the closing date was extended to July 31, Given the due diligence period has passed, this transaction was classified as an asset held for sale for $1,100,000, with a fair value established based on the agreement, in the Statement of Net Position as of December 31, In January 2015, the Port agreed to sell cranes, No. 70, 71, and 72, and the related spare parts to SSA Terminals, LLC and SSA Containers, Inc., the current tenant at Terminal 18. The Port estimates a loss of $3,487,000 that will be reported on the sale of these capital assets in 2015 along with the Port's 50% share of the associated sales tax. 4. ACCOUNTING FOR LEASES The Port enters into operating leases with tenants for the use of properties at various locations, including Seaport Division terminal land, facilities, and equipment; Aviation Division space and land rentals with minimum annual" guarantees; and Real Estate Division commercial and industrial properties, industrial fishing terminals as well as recreational marinas. As the leased properties involved are in part used by internal Port operations, it is not reasonably determinable to segregate the value of the assets associated with producing minimum rental income from the value of the assets associated with an entire facility. For the years ended December 31, 2014, 2013 and 2012, the Port recognized contingent rent of $260,343,000, $251,638,000, and $258,862,000, respectively. Under certain lease agreements, contingent rent, which comes primarily from concessions and airline agreements, provides for an additional payment to the Port beyond the fixed rent. Contingent rent is based on the tenant's operations, including but not limited to usage, revenues, or volumes. Minimum future rental income on noncancelable operating leases on Seaport terminals, Airport facilities and Real Estate properties for the years ended December 31 are as follows (in thousands): , , , , ,402 Thereafter 922,643 Total 1,463,492 Effective June 2003, the Port entered into a lease agreement with SeaTac Fuel Facilities LLC in a fuel system lease whereby the members are some of the commercial air carriers currently operating at the Airport. The lessee payments of facilities rent are made directly to a trustee in the amounts and at the times required to pay the principal and premium, if any, and interest on the Special Facility Revenue bonds issued to pay for all or a portion of the costs of the acquisition, design, and construction by the Port of jet aircraft fuel storage and delivery facilities at the Airport. The fuel system is intended to be the exclusive system for storage and delivery to commercial air carriers of jet aircraft fuel at the Airport. The lease, which represents an unconditional obligation of the lessee, extends until the later of July 31, 2033, or the repayment of the bonds. SeaTac Fuel Facilities LLC was created by the consortium of airlines operating at the Airport for the purpose of entering the lease and managing the fuel hydrant system. The future rental income is based on debt service requirements which are as follows: $7,008,000 for 2015, $7,017,000 for 2016, $7,024,000 for 2017, $7,023,000 for 2018, $7,022,000 for 2019, and $89,947,000 for the years thereafter; these amounts are not included in the schedule above. All special facility lease revenues are restricted and are to be used solely for debt service on the bonds and not for Port operations

81 A LONG TERM DEBT Principal The Port's long term debt consists primarily of tax exempt bonds. The majority of the Port's Payments outstanding bonds are revenue bonds, which are secured by a pledge of net operating revenues of Bond Type Coupon Maturity Beginning and Ending the Port. PFC Revenue Bonds are secured by a lien pledge of the revenues generated from the (by Bond Issue) Rates ('!o) Dates Balance Refundings Issuance Balance PFCs imposed by the Airport. The GO Bonds and interest thereon are payable from ad valorem General obligation bonds: taxes. In connection with the issuance of the bonds, the Port agreed to certain covenants as defined Series 2004 C ,260 13,845 $ 15,415 in the resolutions. Outstanding long term debt as of December 31, 2014, consists of the following (in Series , ,140 thousands): Series ,065 3,935 58,130 Principal Series 2011 Payments (Taxable) ,215 30,215 Bond Type Coupon Maturity Beginning and Ending Series 2013 A ,630 27,630 (by Bond Issue) Rates ('!o) Dates Balance Refundings Issuance Balance Series (Taxable) , Q,Q1Q ~ Revenue bonds: Total 283,815 58, ,420 First lien: Series $ 20,485 9,935 10,550 Passenger facility charge Series 2003 A ,600 36,600 revenue bonds: Series ,365 3,450 2,915 Series 1998 A ,020 31,020 Series 2007 A ,880 27,880 Series 2010 A ,770 79,770 Series , ,Q75 8, ,550 Series ,605 ~ ~ Series 2009 A ,705 20,705 Total 146,395 ~ ~ Series , ,255 Series ,000 22,000 Fuel Hydrant special Series 2011 A 4,0-5, ,900 1,860 6,040 facility revenue bonds: Series ,070 ~ 91,615 Series ,660 ~ ~ Total 679,335 25, ,110 Intermediate lien: Total 88,660 ~ ~ Series 2005 A ,545 12, ,805 80nd totals 3,164, ,355 2,990,685 Series 2005 C ,265 4,925 13,340 Series , ,625 Series 2010 A ,070 6,895 3,175 Unamortized bond discounts-net of amortization 136,531 ~ Series 2010 B ,315 2, ,405 Series 2010 C , ,965 Total debt 3,300,571 3,111,981 Series 2012 A 3.0-5, , ,555 Less current maturities of long-tenn debt Series 2012 B ,210 17, ,095 First lien revenue bonds (23,190) (24,030) Series 2012 C ,330 18,550 41,780 Intermediate lien revenue bonds (75,480) (63,820) Senes ,105 ~ ~ Subordinate lien revenue bonds (42,655) (42,655) Total 1,557,380 75,480 1,481,900 General obligation bonds (43,120) (19,495) Subordinate lien: Passenger facility charge revenue bonds (11,295) (11,860) Series , ,830 Fuel Hydrant special facility revenue bonds (2,960) ~ Series 1999 A ,255 56,255 Total current maturities of long-term debt (198,700) Series ,715 ~ 200,715 Commercial Long term debt $ 3,101,871 $ 2,947,061 paper ,655 ~ ---- Total 408, ,455 Revenue bond totals $ 2,645,170 $ 100,705 _$_- $ 2,544,465., Variable interest rates as of December 31, ,., C!lpital Appreciation Bonds have a zero coupon rate. The approximate maximum yield to maturity is 7.4%. (Continued) (Concluded) 46 47

82 A-20 General Obligation Bonds-In June 2014, the Port made an early principal payment of $15,275,000 to Series 2011 Taxable GO Bonds. No gain or loss was recognized on the early extinguishment of debt. In March 2013, the Port issued $102,795,000 in Series 2013AB Limited Tax GO Bonds. Series 2013A, $27,630,000, used to fully refund the Series 2004A GO Bonds. Series 2013B, $75,165,000, was used to partially refund the Series 2004B, 2004C and 2011 GO Bonds. A portion of each bond series was also used to pay the costs of issuing the bonds. The bonds have coupon rates ranging from 0.3% to 5.0% with maturities ranging from 2013 to The interest on the Series 2013AB GO Bonds is payable on May 1 and November 1 of each year, commencing on May 1, Certain maturities of Series 2013A GO Bonds are subject to optional redemption prior to their schedu led maturities. Series 2013B GO Hands are not subject to redemption prior to maturity. The economic gain resulting from the refunding transaction was $15,994,000, while the Port also decreased its aggregate debt service payments by $17,832,000 over the life of the bonds. Revenue Bonds-In December 2014, the Port made an early principal payment of $2,035,000 to Series 2007B First Lien Revenue Bonds. A loss of $95,000 was recognized on the early extinguishment of debt and reported as nonoperating other income (expense)-net in the Statement of Revenues, Expenses, and Changes in Net Position. In December 2013, the Port issued $139,105,000 in Series 2013 Intermediate Lien Revenue Refunding Bonds, which were used to fully refund the outstanding Series 2003B First Lien Revenue Bonds, to pay the costs of issuing the bonds, and to contribute to the Intermediate Lien Reserve Account. The bonds have coupon rates ranging from 4.0% to 5.0% with maturities ranging from 2014 to The interest on the Series 2013 Intermediate Lien Revenue Refunding Bonds is payable on January 1 and July 1 of each year, commencing on July 1,2014. Certain maturities of Series 2013 Intermediate Lien Revenue Refunding Bonds are subject to optional redemption prior to their scheduled maturities. The economic gain resulting from the refunding transaction was $9,504,000, while the Port also decreased its aggregate debt service payments by $11,559,000 over the life of the bonds. Capital Appreciation Revenue Bonds-During July 2009, the Port issued $22,000,000 in Series 2009B-2 Taxable Capital Appreciation Revenue Bonds. Interest on the 2009B-2 Bonds is compounded semiannually, but is payable only upon maturity. As of December 31, 2014 and 2013, the accreted value of the Series 2009B-2 Taxable Capital Appreciation Revenue Bonds was $32,715,000 and $30,422,000, respectively, and the ultimate accreted value of $83,600,000 will be reached at maturities between 2025 and Fuel Hydrant Special Facility Revenue Bonds-During May 2003, the Port issued Fuel Hydrant Special Facility Revenue Bonds in the amount of $121,140,000 to pay for all or a portion of the costs of the acquisition, design, and construction by the Port of jet aircraft fuel storage and delivery facilities at the Airport. The Port undertook the development of the fuel system to lower the cost of fuel service at the Airport, improve Airport safety by reducing the need for fuel trucks to operate on the airfield, and address environmental concerns created by the original fuel system. This fuel hydrant facility was fully operational in The fuel facility is leased for 40 years (including two five-year option periods) to SeaTac Fuel Facilities LLC ("Lessee"), a limited liability company formed by a consortium of airlines for the purpose of providing jet fuel storage and distribution at the Airport. The Port owns the system and the Lessee will oversee day-to-day management. The Lessee is obligated to collec! the fuel system fees and to make monthly rent payments including a base rent for the land to the Port and facilities rent to Wells Fargo Bank Northwest, National Association ("Trustee"). Facilities rent is established at an amount sufficient to pay semiannual debt service, replenish any deficiency in the debt service reserve fund, and pay other fees associated with the bonds, including the Trustee fee. In addition, the Lessee has provided a guaranty and a security agreement to the Trustee, securing the Lessee's obligation to pay principal and interest on the bonds. In June 2013, the Port issued $88,660,000 in Series 2013 Fuel Hydrant Special Facility Revenue Refunding Bonds, which were used to fully refund the outstanding Series 2003 Fuel Hydrant Special Facility Revenue Bonds, and to pay the costs of issuing the bonds. The bonds have coupon rates ranging from 3.0% to 5.0% with maturities ranging from 2014 to The interest on the Series 2013 Fuel Hydrant Special Facility Revenue Bonds is payable on June 1 and December 1 of each year, commencing on December 1, Certain maturities of the 2013 Fuel Hydrant Special Facility Revenue Refunding Bonds are subject to optional redemption prior to their scheduled maturities. The economic gain resulting from the refunding transaction was $13,640,000, while the Port also decreased its aggregate debt service payments by $18,075,000 over the life of the bonds. Proceeds from the bonds are held by the Trustee. At December 31,2014 and 2013, there was $9,288,000 and $9,445,000, respectively, of Fuel Hydrant Special Facility Revenue Bonds proceeds and rent payments held for debt service reserve fund and debt service payments. The unspent bond proceeds were reported as current restricted cash and cash equivalents and restricted long-term investments. Additional information on the investment of the unspent bond proceeds of the Fuel Hydrant Special Facility Revenue Bonds can be found in Note 2 in the accompanying notes to the financial statements. Fuel Hydrant Special Facility Revenue Bonds in the amount of $82,640,000 and $85,700,000, respectively, are included in long-term debt as of December 31, 2014 and Commercial Paper-The Commission authorized the sale of subordinate lien revenue notes (commercial paper) in an aggregate principal amount not to exceed $250,000,000 for the purpose of financing and refinancing capital improvements within the Port, for working capital, and for paying maturing revenue notes of the same series andlor reimbursing the credit providers for advances made. Commercial paper advances outstanding totaled $42,655,000 at December 31, 2014 and Commercial paper advances are included in current maturities of long-term debt on the Statement of Net Position. Subordinate Lien Variable Rate Demand Bonds-Included in long-term debt are two subordinate lien variable rate demand bond ("VRDB") issues, Series 1997 and Series Demand bonds are securities that contain a "put" feature that allows bondholders to demand payment before the maturity of the debt upon proper notice to the Port's remarketing or paying agents. Variable rate interest for these bonds was determined through a weekly remarketing process in which the remarketing agent re-sets the rate based on market supply and demand for the bonds. Series 1997 VRDB-In 1997, the Port issued $108,830,000 in Series 1997 Subordinate Lien Revenue Bonds that have a final maturity date of September 1, The proceeds of the issuance were used to pay a portion of the costs of acquisitions of the Port's marine facilities and to pay costs of issuing the Series 1997 Bonds. The bonds bear interest at a weekly rate, and are subject to purchase on demand with seven days' notice and delivery to the Port's remarketing agent, currently Morgan Stanley & Co., Inc. On January 14, 2011, the Port entered into a letter of credit ("LOC") reimbursement agreement with Bank of America. The LOC is in the amount of $110,082,000 and expires on January 18, The Port is required to pay a quarterly facility fee for the LOC. Effective November 10, 2013,the fee is 0.40% per annum based on the size of the commitment. If a long-term debt rating to any Subordinate Lien Parity Bonds assigned by S&P, Moody's or Fitch is lowered, the facility fee may increase for credit ratings below A2/A

83 A-21 If the remarketing agent is unable to resell any bonds that are "put" within six months of the "put" date and the Port has not replaced the LaC or converted the bonds, the Port has a takeout agreement with Bank of America to convert the bonds to an installment loan payable in 10 equal semiannual installments and bearing an interest rate of no less than 8.5%. The remarketing agent receives an annual fee of 0.1 % of the outstanding principal amount of the bonds. Series 2008 VRDB-In 2008, the Port issued $200,715,000 in Series 2008 Subordinate Lien Revenue Refunding Bonds that has a final maturity date of July 1, The bonds are subject to mandatory tender for purchase and to optional redemption prior to their scheduled maturity. The proceeds of the issuance were used to fully refund Series 2003C Subordinate Lien Revenue Bonds and to pay the costs of issuing the Series 2008 Bonds. The bonds bear interest at a weekly rate, and are subject to purchase on demand with seven days' notice and delivery to the Port's remarketing agent, currently Morgan Stanley & Co., Inc. On June 1, 2013, the Port entered into a LaC agreement in the amount of $204,212,000 with Bank of Tokyo-Mitsubishi UFJ ("Bank of Tokyo"), which replaced the existing LaC agreement with Landesbank Hessen-ThQringen Girozentrale ("Helaba") that expired on June 17, The Bank oftokyo LaC expires on June 3, The Port is required to pay a quarterly facility fee for the LaC in the amount of 0.45% per annum based on the size of the commitment. If a long-term debt rating to any Subordinate Lien Parity Bonds assigned by S&P, Moody's or Fitch is lowered, the facility fee will increase for credit ratings below at A2IA-. If the remarketing agent is unable to resell any bonds that are "put" within six months of the "put" date, the Port has a takeout agreement with Bank of Tokyo to convert the bonds to an installment loan payable in equal quarterly installments over a five-year period and bearing an interest rate no less than 7.50%. The remarketing agent receives an annual fee of 0.065% of the outstanding principal amount of the bonds. There were no borrowings drawn against either LaC during 2014 and 2013, and therefore there were no outstanding obligations to either LaC provider at December 31,2014 and Arbitrage Rebate-The Port monitors the existence of any rebatable arbitrage interest income associated with its tax-exempt debt. The rebate is based on the differential between the interest earnings from the investment of the bond proceeds as compared to the interest expense associated with the respective bonds. Each outstanding bond issue has potential arbitrage rebatable earnings; however, management estimates indicate that no arbitrage rebate liability exists as of December 31, 2014 and Capitalized Interest-Interest expense costs capitalized were $2,223,000 and $4,047,000 as of December 31, 2014 and 2013, respectively. Schedule of Debt Service-Aggregate annual payments on Revenue Bonds, GO Bonds, PFC Bonds, Fuel Hydrant Special Facility Revenue Bonds and commercial paper outstanding at December 31, 2014 are as follows (in thousands): Principal Interest Total 2015 $ 164,920 $ 130,424 $ 295, , , , , , , , , , , , , , ,850 1,256, , , , , , , ,865 18, , , ,073 Total $ 2,990,685 1,483,912 $ 4,474,597 Recently Issued General Obligation Bonds-In March 2015, the Port issued $156,990,000 in Series 2015 Limited Tax GO Bonds. The Series 2015 bonds were used to fund the Port's first of the two contractual payments $120,000,000, to the State of Washington for the Alaskan Way viaduct replacement program no later than May 1,2015, to partially refund the Series 2006 GO Bonds, and to pay the costs of issuing the bonds. The bonds have coupon rates ranging from 4.0% to 5.0% with maturities ranging from 2016 to The interest on the Series 2015 GO Bonds is payable on June 1 and December 1 of each year, commencing on June 1, Certain maturities of Series 2015 GO Bonds are subject to optional redemption prior to their scheduled maturities. The economic gain resulting from the refunding was $11,030,000, while the Port also decreased its aggregate debt service payments by $12,760,000 over the life of the refunding bonds. The bonds are scheduled to close on April 28, CONDUIT DEBT The Port has conduit debt obligations totaling $74,725,000 at December 31,2014 and 2013, which are not a liability or contingent liability of the Port. The Port has not recorded these obligations, or the related assets, on the accompanying financial statements, as the Port has no obligation for the outstanding bonds beyond what is provided in the leasing arrangements. Since 1982, the Port, through its blended component unit, the IDC, has issued tax-exempt nonrecourse revenue bonds to finance industrial development of transshipment and manufacturing facilities within the corporate boundaries of the Port. These revenue bonds are secured by revenues derived from the industrial development facilities funded by the revenue bonds and leased to the IDC. No ad valorem tax levy revenues or other revenues of the Port (other than the IDC lease revenues) are pledged to pay the debt service on the bonds, and no liens (other than the IDC properties) are pledged as collateral for the debt

84 A-22 7, LONG-TERM LIABILITIES 8, The following is a summary of the environmental remediation liability, other postemployment benefits obligation, accrued election expenses, bonds interest payable, unearned revenues, and other activities which rnake up the Port's long-term liabilities for the years ended December 31 (in thousands): Beginning Ending Current Long- Term Balance Additions Reductions Balance Portion Portion 2014 Environmental remediation liability 64,511 21,905 (27,160) 59,256 $ 17,139 42,117 Other postemployment benefits obligation 9,055 1,210 (787) 9,478 9,478 Accrued election expense 1,466 1,744 (1,466) Bonds interest payable 8,422 2, ,715 Unearned revenues 2,937 1,929 (2,377) 2, ,742 Other 95_1 7_7 ~ ~ 1,024 Total $ 87,342 $ 29,158 S (31,794) $. 84, Environmental remediation liability 64,828 34,251 (34,568) 64,511 $ 28,295 36,216 Other postemployment benefits obligation 9, (802) 9,055 9,055 Accrued election expense 1,221 1,951 (1,706) 1,466 1,466 Bonds interest payable 6,290 2,132 8,422 8,422 Unearned revenues 6,227 1,432 (4,722) 2,937 2, Other Q. 5_ l ) Total $ 88,616 $ 40,530 $ (41,804) $ 87,342 ENTERPRISE FUND PENSION PLANS Public Employees' Retirement System ("PERS"j-Substantially, ali of the Port's full-time and qualifying part-time employees, other than those covered under union plans, participate in PERS. This is a statewide local government retirement system administered by the W.ashington State Department of Retirement Systems ("DRS"), under cost-sharing, multiple-employer defined benefit public employee retirement plans. The PERS system includes three plans Participants who joined the system by September 30,1977, are PERS Plan 1 members. Those joining thereafter are enrolled in PERS Plan 2. In March 2000, Governor Gary Locke signed into law a new retirement plan option for members of the PERS Plan 2. The new plan, entitled PERS Plan 3, provides members with a "two-part, hybrid retirement plan" which includes a defined benefit component and a defined contribution component. PERS Plan 1 members are eligible for retirement at any age after 30 years of senvice, at age 60 with five years of senvice, or at age 55 with 25 years of service, The annual pension is 2% of the average final compensation per year of service, capped at 60%, The average final compensation is based on the greatest compensation earned during any 24 eligible consecutive compensation months. PERS Plan 2 members may retire at age 65 with five years of senvice or at age 55 with 20 years of senvice. The annual pension is 2% of the average final compensation per year of senvice. PERS Plan 2 retirements prior to 65 are actuarially reduced. On July 1 of each year following the first full year of retirement senvice, the benefit will be adjusted by the percentage change in the Consumer Price Index ("CPI") of Seattle, capped at 3% annually. PERS Plan 3 members may retire at age 65 with five years of service or at age 55 with 10 years of senvice for the defined benefit allowance. PERS Plan 3 retirements prior to 65 are actuarially reduced PERS Plan 3 is structured as a dual benefit program that will provide members with the following benefits: A defined benefit allowance Similar to PERS Plan 2 calculated as 1 % of the average final compensation per year of senvice (versus a 2% formula) and funded entirely by employer contributions. A defined contribution account consisting of member contributions plus the full investment return on those contributions. Each biennium, the State Pension Funding Council adopts PERS plan 1 employer contribution rates and PERS Plan 2 employer and employee contribution rates. Employee contribution rates for PERS Plan 1 are established by statute at 6% and do not vary from year to year. The employer and employee contribution rates for PERS Plan 2 are set by the Director of the DRS, based on recommendations by the Office of the State Actuary, to continue to fully fund PERS Plan 2. Unlike PERS Plan 2, which has a single contribution rate (which is currently 4.92%), with PERS Plan 3, the employee chooses how much to contribute from six contribution rate options. Once an option has been selected, the contribution rate choice is irrevocable unless the employee changes employers. All employers are required to contribute at the level established by State law. The methods used to determine the contribution requirements are established under State statute in accordance with Chapters and RCW. The Port's covered payroll for PERS for the year ended December 31,2014, was $92,922,000. The Port's contribution rate during 2014 expressed as a percentage of covered payroll for employer was 9.03% for PERS Plan 1, PERS Plan 2, and PERS Plan 3. The employer rate does not include the employer administrative expense fees currently set at 0.18%. Both the Port and its employees made the required contributions. The Port's required contributions for the years ended December 31 were as follows (in thousands): PERS Plan PERS Plan 2 7,051 6, PERS Plan The pension obligation was calculated on a pension system basis and cannot be disclosed on a plan basis. PERS does not make separate measurements of assets and pension obligations for Individual employers

85 A-23 Law Enforcement Officers' and Fire Fighters' Retirement System ("LEOFF'J-LEOFF is a costsharing multiple-employer defined benefit pension plan. Membership in the plan includes all fulltime, fully compensated local law enforcement officers, and fire fighters. The LEOFF system includes two plans. Participants who joined the system by September 30, 1977, are LEOFF Plan 1 members. Those joining thereafter are enrolled in LEOFF Plan 2. Retirement benefits are financed from employee and employer contributions, investment earnings, and State contributions. Retirement benefits in both LEOFF Plan 1 and LEOFF Plan 2 are vested after completion of five years of eligible service. LEOFF Plan 1 members are eligible to retire with five years of service at age 50. The service retirement benefit is dependent upon the final average salary and service credit years at retirement. On April 1 of each year following the first full year of retirement service, the benefit will be adjusted by the percentage change in the CPI of Seattle. Term of Service 5-9 years years 20 or more years Percent of Final Average 1.0% LEOFF Plan 2 members are eligible to retire at the age of 50 with 20 years of service or at age 53 with five years of service. Retirement benefits prior to age 53 are actuarially reduced at a rate of 3% per year. The benefit is 2% of the final average salary per year of service. The final average salary is determined as the 60 highest paid consecutive service months. There is no limit on the number of service credit years, which may be included in the benefit calculation. On July 1 of each year following the first full year of retirement service, the benefit will be adjusted by the percentage change in the CPI of Seattle, capped at 3% annually. LEOFF Plan 1 employer and employee contribution rates are established by statute, and the State is responsible for the balance of the funding at rates set by the Pension Funding Council to fully amortize the total costs of the plan. Employer and employee rates for LEOFF Plan 2 are set by the Director of the DRS, based on recommendations by the Office of the State Actuary, to continue to fully fund the plan. LEOFF Plan 2 employers and employees are required to contribute at the level required by State law. The methods used to detenmine the contribution rates are established under State statute in accordance with Chapters and RCW. The Port's covered payroll for LEOFF for the year ended December 31,2014, was $20,905,000. The Port's required contribution rates during 2014 expressed as a percentage of covered payroll for LEOFF Plan 1 was 0% for both employer and employee. For LEOFF Plan 2, the rate was 5.05% for employer and 8.41 % for employees. The employer rates do not include the employer administrative expense fees currently set at 0.18% for both LEOFF Plan 1 and LEOFF Plan 2. Both the Port and its employees made the required contributions. The Port's required contributions for the years ended December 31 were as follows (in thousands): LEOFF Plan 2 LEOFF Plan 2 (Firefighters) (Police Officers) , , ,054 Historical trend information regarding all of these plans is presented in Washington State DRS' annual financial report. A copy of this report may be obtained at: Department of Retirement Systems P.O. Sox Olympia, WA Internet Address: 9. POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS In addition to pension benefits as described in Note 8, the Port provides other postemployment benefits ("OPES"). Plan Descriptions-The Port administers and contributes to two single-employer defined benefit plans: (1) LEOFF Plan 1 Members' Medical Services Plan and (2) Retirees Life Insurance Plan. Under State statute RCW , the Port is required to pay for retired LEOFF Plan 1 members' medical services expenses. Under the Port's life insurance contract, eligible retired employees are provided with life insurance coverage for a death benefit up to $25,000. The Port can establish and amend benefit provisions of the life insurance OPEB plan. There are no separate OPEB plan related financial reports issued

86 A-24 Funding Policy and Annual OPEB Costs-For the LEOFF Plan 1 Members' Medical Services Plan, the State establishes and may amend the contribution requirements of plan members and the Port. The contribution requirements olthe Retirees Life Insurance Plan are established and may be amended by the Port. The Port's annual OPEB cost for the current year and the related information for each plan are as follows (in thousands): Contribution rates: Port Plan members Annual required contribution Interest on net OPEB obligation Adjustment to annual required contribution Annual OPEB costs Contribution made Increase in net OPEB obligaiton Net OPEB obligation beginning of year Net OPEB obligation end of year LEOFF Plan 1 Members' Medical Services Plan (al Pay-as-you-go NIA $ ~ 106 7,232 7,338 Retirees Life Insurance Plan Pay-as-you-go NIA (a) As the LEOFF Plan 1 Members' Medical Services Plan has less than 100 plan members, the Port elected to use the Alternative Measurement Method to estimate the annual required contribution. The schedule of employer contributions at December 31 are as follows (in thousands): Years Ended December 31, Annual OPEB Costs LEOFF Plan 1 Members' Medical Services Plan 2014 $ Retirees Life Insurance Plan Employer Contributions $ Percentage Contributed 81.9 % % (65) 625 (308) 317 1,823 2,140 NetOPEB Obligation 7,338 7,232 7,611 2,140 1,823 1,533 Funding Status-As of December 31,2014,2013, and 2012, using the Alternative Measurement Method, the actuarial accrued liability for LEOFF Plan 1 Members' Medical Services Plan benefits was $7,338,000, $7,232,000, and $7,611,000, respectively, all of which was unfunded. For the Retirees Life Insurance Plan, the most recent actuarial valuation data and the two preceding actuarial valuation data with funding progress were as follows (in thousands): Actuarial UAAL as a Actuarial Actuarial Accrued Unfunded Percentage Valuation Value of Liability Funded AAL Covered of Covered Date Assets (AAL) Ratio (UAAL) Payroll Payroll ,547 % 8,547 83, % ,613 7,613 71, ,480 7,480 78, Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, investment rate of retum, payroll growth rate and the health care cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual nevision as actual results are compared with past expectations and new estimates are made about the future. Actuarial Methods and Assumptions-Projections of benefits for financial reporting purposes are based on the substantive plan and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. For the LEOFF Plan 1 Members' Medical Services Plan, the following simplified assumptions were made when the Alternative Measurement Method was used: Mortality-Life expectancies were based on mortality tables from the National Vital Statistics Reports, Volume 63, NO.7, November 6,2014. The Life Table for Males: U.S was used. Healthcare cost trend rate-the expected rate of increase in healthcare expenditure was based on projections of the Office of the Actuary at the Centers for Medicare and Medicaid Services. A rate of 5.6% was used initially, but was changed slightly to an average rate of 6.1% after seven years. Health insurance premiums-2015 health insurance premiums for retirees were used as the basis for calculation of the present value of total benefits to be paid. Investment rate of return-a rate of 4.0% was used, which is an estimated long-term investment return on the investments that are expected to be used to finance the payment of benefits. Inflation rate-no explicit inflation rate assumption was used as this underlying assumption was already included in the investment rate of return. Additionally, the unfunded actuarial accrued liability is not amortized as the LEOFF Plan 1 Members' Medical Services Plan is closed to new entrants and all of the plan members have retired as of December For the Retirees Life Insurance Plan, as of January 1, 2013, the most recent actuarial valuation date, the actuarial accrued liability is detemnined by the independent actuary using the Projected Unit Credit actuarial cost method. The actuarial assumptions included a 4.0% investment rate of 56 57

87 A-25 return, which is an estimated long-term investment return on the investments that are expected to be used to finance the payment of benefits. No explicit inflation rate assumption was used as this underlying assumption was already included in the investment rate of return. The unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll over a 30-year open period, assuming payroll growth of 3.5% per year. 10. ENVIRONMENTAL REMEDIATION LIABILITIES The Port has identified a number of contaminated sites on Aviation, Seaport, and Real Estate properties and facilities that must be investigated for the presence of hazardous substances and remediated in compliance with Federal and State environmental laws and regulations. Some Port facilities may require asbestos abatement, and some properties owned or operated by the Port may have unacceptable levels of contaminants in soil, sediments and/or groundwater. In some cases, the Port has been designated by the Federal government as a Potentially Responsible Party ("PRP"), and/or by the State government as a "Potentially Liable Person" for the investigation and cleanup of properties owned by the Port or where the Port may have contributed to site contamination. Although the Port may not bear ultimate liability for the contamination, under Federal and State law, the Port is presumptively liable as the property owner, and it is often practically and financially beneficial for the Port to take initial responsibility to manage and pay for the cleanup. In each of these mailers, the Port is cooperating with the notifying agency and taking appropriate action with other parties to investigate and remediate environmental damage or contamination. Currently, it is not possible to determine the full extent of the Port's liability in these mailers. Lower Duwamish Waterway Superfund Site -The Port is one of many PRP at the Site and is a member of the Lower Duwamish Waterway Group, along with King County, the City of Seattle and the Boeing Company, that, among other remedial actions, funded the Remedial Investigation and Feasibility Study ("RI/FS"). The RI/FS study was completed and the Port's share of RI/FS costs through 2014 was $14,805,000. In November 2014, the Environmental Protection Agency ("EPA") released a Record of Decision ("ROD") for the Site cleanup remedy. The ROD included a cleanup cost estimate of $342 million (present value discounted at 2.3% based on a study completed in 2012); the current value (not discounted) is $395 million. EPA's current value ranges for the remedy is $277 million to $593 million. EPA acknowledged there is significant uncertainty as to the accuracy of this estimate. A more accurate estimate will not be available until after completion of an extensive sampling and design effort. This project will result in additional cleanup efforts as a result of future regulatory orders. In November 2012, the EPA issued general notification lellers to over 200 parties informing them of their potential liability for the Lower Duwamish Waterway cleanup. The Lower Duwamish Waterway Group, who were the parties to the RI/FS Administrative Order on Consent invited some of those parties to participate in an alternative dispute resolution process (the "allocation process") to resolve their respective shares of past and future costs. At this time, 47 parties are participating in the allocation process. An allocator has been selected. Parties participating in the allocation process will share the cost of the allocator and the process. The estimated recoveries to reduce the amount of liability are unknown at this time. As of December 31, 2014, the outstanding environmental remediation liability recorded for this Site was $4,235,000. The Port has developed a procedure consistent with current accounting rules to recognize liabilities for environmental cleanups, to the extent that such liabilities can be reasonably estimated. As of December 31,2014 and 2013, the Port's environmental remediation liabilities were $59,256,000 and $64,511,000, respectively, based on reasonable and supportable assumptions, measured at current value using the expected cash flow technique. The Port's environmental remediation liabilities do not include cost components that are not yet reasonably measurable. The Port's environmental remediation liabilities will change over time due to changes in costs of goods and services, changes in remediation technology, and changes in governing laws and regulations. In many cases, the Port has successfully recovered Port-incurred investigation and cleanup costs from other responsible parties. The Port will continue to seek appropriate recoveries in the future. As of December 31, 2014 and 2013, the environmental remediation liabilities were reduced by $9,057,000 and $10,277,000, respectively, for estimated unrealized recoveries. 11. CONTINGENCIES The Port is a defendant in various legal actions and claims. Although certain lawsuits and claims are significant in amount, the final dispositions are not determinable, and in the opinion of management, the outcome of any litigation of these mailers will not have a material effect on the financial position or results of operations of the Port. In some cases, the Port has provided adequate contingent liability. Amounts received or receivable under grants-in-aid programs are subject to audit and adjustment by the granting agency. Any disallowed claims, including amounts already received, may constitute a liability of the Port. The amount, if any, of expenditures that may be disallowed cannot be determined at this time, although the Port expects such amounts, if any, to be insignificant. In March 2014, the Port concluded its bankruptcy claim against bankrupt asbestos insulation manufacturer, w.r. Grace. The bankruptcy court awarded the Port a payment of $1 0,847,000, net of related legal tees and other expenses resulting from this claim. The claim was based on the costs incurred by the Port to remove asbestos fireproofing at the airport terminal more than 10 years ago. This payment was recognized as nonoperating other income (expense}-net in the Statement of Revenues, Expenses, and Changes in Net Position. 12. COMMITMENTS The Port has made commitments for acquisition and construction as of December 31 as follows (in thousands): Funds committed: Airport facilities 72,412 29,566 Seaport terminals 5, Real Estate properties 2,439 1,278 Corporate 1,743 3,193 Total $ 82,539 34,707 In addition, as of December 31,2014 and 2013, funds authorized by the Port, but not yet commilled for all divisions amount to $227,253,000 and $188,053,000, respectively

88 A BUSINESS INFORMATION For the Enterprise Fund's three major business activities, operations consist of Seaport terminals, Airport facilities, and Real Estate properties. Indirect costs have been allocated to Seaport terminals, Airport facilities, and Real Estate properties using various methods based on estimated hours of work, revenues plus expenses, full-time equivalent positions, and other factors. The Port's operating revenues are derived from various sources. The Seaport's operating revenues are principally derived from the leasing of Seaport terminal facilities. The Aviation's operating revenues are derived primarily from its airline agreements, concession agreements, and other business arrangements. The Real Estate's operating revenues are primarily derived from the leasing of commercial and industrial real estate, recreational marinas, and industrial fishing terminals. Operating revenues, as reflected in the Statement of Revenues, Expenses, and Changes in Net Position, from the Port's major sources for the years ended December 31 are as follows (in thousands): Seaport Division: Container term inals $ ,913 $ 64,790 Grain terminal 3,785 1,634 3,749 Industrial properties 17,509 16,371 15,279 Cruise terminals 12,993 13,216 13,051 Maritime operations 5,083 5,330 4,750 Operating grants and contract revenues ,289 Other Total Seaport Division operating revenues 96,157 $ 99, ,941 Aviation Division: Terminal $ 137, ,173 $ 145,197 Airfield 77,014 84,141 72,574 Public parking 57,127 52,225 49,781 Airport dining and retail 46,954 41,551 37,998 Rental car 32,496 28,472 28,327 Customer facility charges 13,608 11,367 9,745 Utilities 6,736 6,332 7,206 Commercial properties 6,638 6,089 5,700 Ground transportation 8,333 7,958 7,900 Operating grants and contract revenues Other 19,437 17,409 20,866 Total Aviation Division operating revenues $ 406,079 $ 414, ,023 Real Estate Division: Recreational boating $ 9,433 9,220 $ 8,979 Fishing and commercial 2,783 2,680 2,554 Commercial properties 10,022 10,020 9,846 Conference and event centers 8,957 7,958 8,863 Other 1, ,066 Total Real Estate Division operating revenues 32,313 $ 30,863 31,308 Operating revenues, as reflected in the Statement of Revenues, Expenses, and Changes in Net Position, from the Port's major customers for the years ended December 31 are as follows (in thousands): Seaport Division: Revenues 61,133 $ 71,293 85,722 Number of major customers Aviation Division: Revenues 138,436 $ 81,830 $ 80,400 Numberofmajor customers Total: Revenues 199,569 $ 153, ,122 Number of major customers 5 4 One major customer represented 17,5%, 15.0%, and 15.4% of total Port's operating revenues in 2014, 2013, and 2012, respectively. For Seaport Division, the revenues from its major customers accounted for 63.6%, 71.6%, and 82.5% of total Seaport operating revenues in 2014, 2013, and 2012, respectively. For Aviation Division, the revenues from its two major customers accounted for 34.1 % of total Aviation operating revenues in The revenues from one major customer accounted for 19.8% and 20.8% of total Aviation operating revenues in 2013 and 2012, respectively. For the year ended December 31, 2014, operating revenue associated with one of the Aviation Division's customers exceeded 10% due to an increase in demand for gates and terminal facilities as the Airport is used as an international hub. No single major customer represents more than 10% of Real Estate Division operating revenues in 2014, 2013, and Operating expenses, as reflected in the Statement of Revenues, Expenses, and Changes in Net Position, from the Port's major functions by division for the years ended December 31 are as follows (in thousands): Seaport Division: Operations and maintenance 25,399 $ 27,499 $ 28,587 Administration 8,640 13,292 12,516 Law enforcement 3,451 3,588 3,597 Total Seaport Division operating expenses 37,490 $ 44,379 $ 44,700 Aviation Division: Operations and maintenance 170,632 $ 171,419 $ 164,741 Administration 42,502 36,967 34,999 Law enforcement 17,571 17,534 16,825 Total Aviation Division operating expenses 230,705 $ 225, ,565 Real Estate Division: Operations and maintenance 33,292 $ 28,693 29,207 Adm inistration 4,322 4,275 4,123 Law enforcement 2,196 2,294 2,195 Total Real Estate Division operating expenses 39,810 $ 35,262 35,

89 A-27 Statement of Revenues, Expenses, and Changes in Net Position by division for the years ended December 31 are as follows (in thousands): (Restated) Seaport Division: Net operating income before depreciation 58,667 $ 55,249 $ 59,241 Depreciation 33,154 34,832 34,842 Operating income 25,513 20,417 24,399 Nonoperating income (expense): Ad valorem tax levy revenues 31,694 55,353 47,936 Noncapital grants and donations 7,059 1, Investment income (1055)-net 3,706 (386) 2,262 Revenue bonds interest expense (11,947) (12,664) (13,830) General obligation bonds interest expense (8,384) (9,841) (11,930) Public expense (3,671) (2,304) (8,258) Environmental expense-net (9,895) (2,305) (475) Other expense-net (3,188) (7,880) (702) Total nonoperating income-net 5,374 21,951 15,765 Income before capital contributions 30,887 42,368 40,164 Capital contributions 2,707 3,762 9,817 Increase in net position in Seaport Division 33,594 $ 46,130 $ 49,981 Aviation Division: Net operating income before depreciation 175,374 $ 188, ,458 Depreciation 123, , ,600 Operating income 51,795 61,330 46,858 Nonoperating income (expense): M valorem tax levy revenues 7,521 4,685 14,117 Passenger facility charge revenues 69,803 64,661 62,385 Customer facility charge revenues 19,889 20,389 20,577 Fuel hydrant facility revenues 6,935 7,417 8,123 Noncapital grants and donations 1, ,000 Investment income (los5)-net 7,399 (704) 5,833 Revenue bonds, capital appreciation bond, and fuel hydrant special facility revenue bonds interest expense (95,017) (100,581) (107,288) PFC revenue bonds interest expense (5,906) (6,211) (6,503) Public expense (3,183) (1,765) (14,617) Environmental income (expense)-net 232 (279) (14,106) Other income (expense)-net 5,136 (1,596) (11,538) Total nonoperating income (expense)-net 14,488 (13,269) (42,017) Income before capital contributions 66,283 48,061 4,841 Capital contributions 12,933 16,620 20,898 Increase in net position in Aviation Division 79,216 64,681 $ 25,739 (Continued) (Restated) Real Estate Division: Net operating loss before depreciation $ (7,497) $ (4,399) $ (4,217) Depreciation 9,599 9,779 9,835 Operating loss (17,096) (14,178) (14,D52) Nonoperating income (expense): Ad valorem tax levy revenues 33,586 12,700 10,625 Noncapital grants and donations 1, Investment income (Ioss)-net 97 (17) 76 Revenue bonds interest expense (1,945) (2,095) (2,210) General obligation bonds interest expense (1,091) (1,638) (2,147) Public expense (2,143) Environmental income (expense)-net 521 (2,181) 99 Other (el<pense) income-net (04) 9,122 (18,561) Total nonoperating income (el<pense)-net 32,410 14,164 (11,124) Income (loss) before capital contributions 15,314 (14) (25,176) Capital contributions 1,107 1,000 Increase (decrease) in net position in Real Estate Division $ 16, (25,176) (Concluded) Total assets and debt, as reflected in the Statement of Net Position, by division as of December 31 are as follows (in thousands): Seaport Division: Current, long-term, and other assets 310,235 $ 351,992 Land, facilities, and equipment-net 1,155,333 1,178,164 Construction work in progress 8,129 6,730 Total assets 1,473,697 $ 1,536,886 Debt 598,712 $ 644,694 Aviation Division: Current, long-term, and other assets $ 585, ,446 Land, facilities, and equipment-net 3,903,885 3,910,208 Construction work in progress 90,686 69,D83 Total assets $ 4,580,507 4,626,737 Debt $ 2,439,225 $ 2,547,265 Real Estate Division: Current, long-term, and other assets 120,658 89,D88 Land, facilities, and equipment-net 297, ,021 Construction work in progress 899 1,577 Total assets 418, ,686 Debt 74,044 $ 108,

90 A WAREHOUSEMEN'S PENSION TRUST FUND In late 2002, the Port terminated all warehousing operations at Terminal 106 following the departure of the principal customer operating at the facility. Prior to closing the warehouse, the Port had provided pension and health benefits to represented employees under a Collective Bargaining Agreement with Local #9 of the International Longshore and Warehouse Union. The benefits were administered by two separate trusts, the Warehousemen's Pension Trust and the Local #9 Health & Welfare Trust. The Port made quarterly contributions to each trust in an amount sufficient to provide the required contractual benefits and the trusts were jointly administered by trustees appointed by both Local #9 and the Port. Upon expiration of the contract with Local #9, the Port ceased making contributions to the Health and Welfare Trust and provided employees with the ability to maintain their health coverage by selfpaying premiums through the Port's health care plan. The Port also ceased making contributions to the Warehousemen's Pension Trust. On May 25, 2004, the Port became the sole administrator for the Warehousemen's Pension Plan and Trust (the "Plan") and commenced contributions to the Plan. The Plan is a governmental plan maintained and operated solely by the Port as a single-employer defined benefit plan. Since its closing in 2002, the Warehouseman's Pension Plan became a frozen plan, where no new members were accepted. The only members of the Plan are retirees and beneficiaries receiving benefits as well as terminated members who have a vested right to a future benefit under the Plan. Summary of Accounting Policies Basis of accounting-the financial statements are prepared using the accrual basis of accounting. Port contributions are recognized in the period in which the contributions are made. Benefits are recognized when due and payable in accordance with the terms of the Plan. Investmenls-Investments, 100% in mutual funds, are reported at fair value. Short-term investments are reported at cost which approximates fair value. Securities traded on a national or international exchange are valued at the last reported sales price at the current exchange rates. Plan Description Plan administration-the administration and operation of the Plan is vested in a three-member Board of Trustees from the Port. The Board of Trustees has the authority to amend this Plan as they may determine. However, an amendment may not decrease a Plan member's accrued benefit. The Plan provides that only service credited and compensation earned prior to April 1, 2004, shall be utilized to calculate benefits under the Plan. There are no separate financial statements of the Plan issued. Membership of the Plan consisted of the following at December 31. Retirees and beneficiaries receiving benefits Terminated plan members entitled to but not yet receiving benefits Total Vesting and benefits provided-the Plan provides normal, early and disability retirement benefits, as well as a preretirement death benefit or survivor annuity for a surviving spouse. The Plan provides a single life annuity and a 50% or 75% joint and survivor benefit for married participants. Retirement benefit amounts are calculated based on the number of years of credited service multiplied by a tiered monthly benefit rate established in the Plan document within a range of $20 to $100. For Plan members who terminated employment prior to January 1, 1992, normal retirement age with full benefit is 65 with at least five years of credited service. Effective January 1, 1992, normal retirement age with full benefit is 62 after completing five years or more of credited service. Plan members who are age 55 and have completed 10 years of credited service may elect an early retirement, with benefits reduced by a quarter of one percentage for each month the early retirement date precedes the normal retirement date. However, a Plan member with 30 years of credited service may retire at age 55 without a reduction in benefits. A Plan member who is disabled with 15 years of credited service is eligible for disability retirement. If the disabled Plan member is age 55, the disability retirement benefit shall be the normal retirement benefit, or the benefit shall be the normal retirement benefit earned to the disability retirement date, reduced by 5/12 of one percentage for each month the disability retirement date precedes the month the Plan member attains the age of 55. Contributions-The Port agrees to maintain and contributes funds to the Plan in an amount sufficient to pay the vested accrued benefits of participating members and the beneficiaries when the benefits become due. Members do not make contributions. The Board of Trustees establishes the employer's contribution amount based on an actuarially determined contribution recommended by an independent actuary. Investments Investment policy-the Plan's investment policy in regard to the allocation of the invested assets is established and may be amended by the Board of Trustees. The policy allows the Plan to invest in contracts with insurance companies that are rated no lower than A by at least two major rating agencies. The Plan is allowed to invest in commercial paper with A 1/P1 rating. Certificates of deposit or banker's acceptances can only be purchased from domestic banks with net worth in excess of $2 billion and which satisfy tier 1 and tier 2 capital requirements. Bank deposits or shortterm investment accounts must be maintained by the Plan's custodian. Repurchase agreements can only be entered with Federal Reserve reporting dealers and maintained in accordance with Federal Reserve guidelines. Only U.S. registered mutual funds or ERISA-qualified commingled funds whose investment strategies and governing documents have been reviewed and approved by the Board of Trustees can be purchased. The Plan's investment policy allows for 30% plus or minus 5% of the portfolio to be invested in domestic equities securities, 30% plus or minus 5% of the portfolio to be invested in international equities securities, and 40% plus or minus 5% of the portfolio to be invested in fixed income securities. Interest rate risk-interest rate risk is the risk that an investment's fair value decreases as market interest rate increases. In general, the longer the duration of an investment, the greater sensitivity of its fair value to changes in market interest rates. Through its investment policy, the Plan manages its exposure to fair value losses from increasing interest rates by investing in a diversified portfolio of index fund and professionally managed mutual funds. For the fixed income mutual funds, the Plan manages its exposure to change in interest rates by investing in intermediate-term bonds. As of December 31, 2014 and 2013, the average duration for Vanguard Bond Market Index Fund was 5.6 years and 5.5 years, respectively. As of December 31,2014 and 2013, the average duration for Dodge and Cox Fixed Income Fund was 4.1 years and 4.4 years, respectively. Credil risk-credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The risk is measured by the assignment of rating by nationally recognized rating agencies. As of December 31,2014 and 2013, the Vanguard Bond Market Index Fund was rated at three stars by Morningstar Credit Ratings, LLC. As of December 31,2014 and 2013, the Dodge and Cox Fixed Income Fund was rated at four stars by Morningstar Credit Ratings, LLC

91 Foreign currency risk-foreign currency risk is the risk that changes in exchange rates will adversely affect the fair value of an investment. The Plan had $2,675,000 and $2,926,000 in international equity mutual funds that were invested in foreign securities as of December 31, 2014 and 2013, respectively. Rate of return-for the year ended December 31, 2014, the annual money-weighted rate of return on the Plan investments, net of investment expense, was 4.1 %. The money-weighted rate of retum expresses investment perfonmance, net of investment expense, adjusted for the changing amount actually invested. Employer's Net Pension Liability The components of the net pension liability at December 31,2014, were as follows: Total pension liability Plan fiduciary net position Net pension liability Plan fiduciary net position as a percentage oftotal pension liability 21,124 (9,984) 11,140 Actuarial assumptions-the total pension liability was determined by an actuarial valuation as of December 31, 2014, using the Entry Age Normal Cost Method and the following actuarial assumptions, applied to all periods included in the measurement: 47.3% Discount rate-a single discount rate of 6.5% was used to measure the total pension liability. This single discount rate was based on the long-term expected rate of return on the Plan's investments at 6.5%. The projection of cash flows used to determine this single discount rate assumed the employer contributions will be made at the actuarially determined contribution rates in accordance with the Port's long-tenm funding policy. Based on these assumptions, the Plan's fiduciary net position was projected to be available to make all projected future benefit payments of current Plan members. Therefore, the long-term expected rate of return on the Plan's investments was applied to all periods of projected benefit payments to determine the total pension liability. Sensitivity of the net pension liability to changes in the discount rate-the following presents the net pension liability of the Plan, calculated using the discount rate of 6.5%, as well as what the net pension liability would be if it were calculated using a plus or minus 1 % of the current discount rate (in thousands): Net pension liability 1% Decrease (5,5%) 12,942 Current Discount Rate (6.5%) $ 11,140 $ 1% Increase (7,5%) 9,590 A-29 Moria/ity-Life expectancies were based on mortality table from the RP-2000 Blue Collar Combined Healthy Mortality Table projected to 2020 with Scale AA. Investment rate of return-a rate of 6.5% was used, which is the long-term expected rate of return on the Plan's investment, net of plan investment expense and including inflation. This rate was determined using a building-block method in which best-estimate ranges of expected future real rates of return are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return were adopted by the Plan's Board of Trustees after considering input from the Pian's investment consultant and actuary. For each major asset class that is included in the Plan's target asset allocation as of December 31, 2014, these best estimates are summarized in the following table: Asset Class Domestic equity mutual fund International equity mutual fund Fixed income mutual fund Cash Long-Term Expected Real Rate of Return 5.6 %

92 A-30 REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS WAREHOUSEMEN'S PENSION TRUST FUND Current Year (in thousands) Fiscal Year Total pension liability I nterest expense Difference between expected and actual experience Benefit payments Net change in total pension liability Total pension liability-beginning Total pension liability-ending Plan fiduciary net position Employer contributions Net investment income Benefit payments Administrative expense Professional fees Net change in plan fiduciary net position Plan fiduciary net position-beginning Plan fiduciary net position-ending Net pension liability Total pension liability-ending Plan fiduciary net position-ending Net pension liability---ending 2014(') 1,384 (512) (2,091) (1,219) 22,343 21,124 1, (2,091) (45) (66) (294) 10,278 9,984 21,124 (9,984) 11,140 SCHEDULE OF EMPLOYER CONTRIBUTIONS WAREHOUSEMEN'S PENSION TRUST FUND Last Ten Fiscal Years (in thousands) Actuarially Years Ended Determined Actual December 31, Contribution (a) Contribution (al 2014 $ 1, , , , , , , , , ,456 1,500 $ 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,000 Contribution (Excess) Deficiency (299) (196) (44) (88) 159 (210) (175) (63) 456 Pnor to 2014, the Annual Required Contribution (ARC) amounts are presented for the Actuarially Determined Contributions. SCHEDULE OF INVESTMENT RETURNS WAREHOUSEMEN'S PENSION TRUST FUND Current Year Year Ended December 31, (.) 2014 Annual money-weighted rate of return, net of investment expense 4.1% Plan fiduciary net position as a percentage of total pension liability 47.3% (a) This schedule is presented prospectively starting fiscal year ending 2014, coinciding with the implementation of GASB Statement No. 67 in fiscal year Covered payroll (b) nfa (a) This schedule is presented prospectively starting fiscal year ending 2014, coinciding with the implementation of GASB Statement No 67 in fiscal year (b) Annual covered payroll was not applicable as the operation was terminated in

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95 APPENDIX B REPORT OF THE INDEPENDENT CONSULTANT

96 ! Appendix'B' Report'of'the'Independent'Consultant'' on!the!proposed!issuance!of!! Port'of'Seattle' Intermediate'Lien'Revenue'and'Refunding'Bonds'' Series'2015A,'Series'2015B,'and'Series'2015C' ' July'9,'2015' Prepared'for' Port!of!Seattle!!Seattle,!Washington! Prepared'by' WJ!Advisors!LLC!!Denver,!Colorado!

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98 July 9, 2015 Mr. Dan Thomas Chief Financial Officer Port of Seattle Pier Alaskan Way Seattle, Washington Re: Report of the Independent Consultant on the Proposed Issuance of Port of Seattle Intermediate Lien Revenue and Refunding Bonds, Series 2015A, 2015B, and 2015C Dear Mr. Thomas: WJ Advisors LLC is pleased to submit this Report of the Independentt Consultantt (the Report) on the proposed issuance of Intermediate Lien Revenue and Refunding Bonds, Series 2015A, Series 2015B, and Series 2015C (together, the Series 2015 Bonds), by the Port of Seattle (the Port). The Port currently owns, operates, manages, and maintains Seattle Tacoma International Airport (the Airport), and other Port businesses (Other Port Businesses), including cruise, bulk cargo, recreational and commercial, and some industrial and commercial properties. The Port also owns and currently manages containerized cargo terminals. The Port is in the process of revising its organizational structure for Other Port Businesses, which currently includes certain Marine Cargo businesses that would be licensed by the Port to a newly created Northwest Seaport Alliance (the Seaport Alliance). On October 14, 2014, the Port of Seattle entered into ann interlocal agreement (ILA) with the Port of Tacoma to serve as a framework for the creationn of a Seaport Alliance pursuant to the Federal Maritime Commission (FMC) Discussion Agreement No The purpose of the Seaport Alliance is to unify management and operation of both ports marine cargo businesses. The Seaport Alliance would be formed as a Port Development Authority a jointly owned, governmental entity, but each port would retain its existing governance structure, ownership of existing assets under Seaport Alliance management, andd obligation to repay debt to its bondholders. For purposes of this Report, the Port has (1) assumed that the Seaport Alliance will becomee effective in August 2015, but from August 2015 throughh December 2015, each port will continue to receive all revenues and pay all expenses related to the operation and maintenance of the properties licensed to the Seaport Alliance and (2) used Grosss Revenue and Operating Expense assumptions of its licensed facilities in the financial forecasts presented in this Report instead of any forecast of Seaport Alliance financial performance. B 1

99 Mr. Dan Thomas July 9, 2015 This Report was prepared to determine if forecast Available Intermediate Lien Revenues (Revenues Available for First Lien Revenue Bond Debt Service less First Lien Revenue Bond Debt Service) from through 2024, referred to in this Report as the forecast period, would be sufficient to meet the requirements of the Intermediatee Lien Rate Covenant pursuant to the Intermediate Lien Master Resolution (No. 3450, as amended), taking into account the proposed issuance of the Series 2015 Bonds and, as described later in this letter, future revenue bonds that may be issued by the Port during the forecast period (Future Revenue Bonds). The Port prepared the forecasts that are presented in the Report for the Airport, properties that are expected to the licensed by the Port to the Seaport Alliance, and all Other Port Businesses. WJ Advisors LLC and its subconsultants reviewed the following Port prepared forecasts: aviation activity for the Airport, container traffic at the container terminals under the Seaport Alliance, noncontainerized cargo and cruise activity under Other Port Businesses, and the associated financial forecasts. The results and key findings of our review are summarized in this letter and described more fully in the following three sections of this Report: 2 Overview and Financial Forecasts of Port, Attachment 1 Airline Traffic and Financial Forecasts of Airport, and Attachment 2 Overview and Financial Forecasts of Container Market, Seaport Alliance and Other Port Businesses. The Report should be read in its entirety forr an understanding of the financial forecasts and the underlying assumptions. Capitalized terms in this Report are used as defined in the First Lien Master Resolution (No. 3059, as amended), as amended, the Intermediate Lien Master Resolution, as amended; and/or the Signatory Airline Lease and Operating Agreement (the Airline Agreement). Please referr to the Official Statement for additional information regarding the capitalized terms used in this Report. PORT CAPITAL PROGRAM The Port has a Capital Program for 2015 through 2020 (the Capital Program), which is estimated to cost approximate ely $2.3 billion, includingg approximately $2.0 billion for improvements to Airport facilities and approximately $294.5 million for improvements to other Port facilities. The Port s Capital Program is based, in part, on the existing and anticipated business environment, forecastss of demand for Port facilities, available resources and the priorities of the organization. 1 The Port s Fiscal Year ends December Portions of the Report were prepared by Oliver Wyman and by BST Associates, subconsultantss to WJ Advisors LLC. B 2

100 Mr. Dan Thomas July 9, 2015 Approximately $ million of Capital Program costs are expected to be financed with proceeds from the sale of the Series 2015 Bonds and approximately $1.0 billion in costs are expected to be financed with the net proceeds of Future Revenue Bonds. According to the Port, the proceeds of Future Revenue Bonds, 3 if issued, would include a combination of Intermediate Lien Revenue Bonds and Subordinate Lien Revenue Bonds. Other sources of funds for the Capital Program include, but are not limited to, federal grants, passenger facility charge (PFC) revenues, and Port funds. PROPOSED SERIES 2015 BONDS The Series 2015 Bonds are expected to be issued with fixed interestt rates as Intermediate Lien Revenue Bonds. Intermediate Lien Revenuee Bonds are payable from Available Intermediate Lien Revenues, as described in the Intermediate Lien Bond Resolution. According to the Port, the net proceeds from the sale off the Series 2015 Bonds are to be used to fund approximate ely $244.6 million in Capital Program costs, to reimburse the Port for approximately $46 million in capital project expenditures in 2014, and to refund outstanding Series 2005A Intermediate Lien Revenue Bonds. Estimated debt service savingss from the refunding of the Series 2005A Intermediate Lien Revenue Bonds are not included in the financial forecasts presented in this Report. A portion of the net proceeds of the Series 2015 Bonds are to be used to satisfy the debt service reserve fund requirements for a portion of the Series 2015 Bonds, fund capitalized interest, and pay certain costs related to the issuance off the Series 2015 Bonds. The Port also may refund certain other outstanding Portt revenue bonds during the forecast period. Debt servicee savings, if any, from the Port s potential refunding of any series of bonds, including those being refunded by the Series 2015 Bonds, are not included in the financial forecastss presented in this Report. As described below, certain assumptions formed the basis for the financial forecasts presented in this Report in connection with issuance of the Series 2015 Bonds and the potential issuance of Future Revenue Bonds regarding additional (1) Gross Revenue from airline rentals, rates, fees, and charges (herein referred to as rates and charges) at the Airport and other sourcess of revenue to the Port, (2) Operating Expenses, and (3) debt service, net of capitalized interest. Gross Revenue is a defined term in the First Lien Masterr Resolution and, after authorized payments and obligations pursuant to the First Lien Master Resolution are deducted from Gross Revenue, Available Intermediatee Lien Revenues are determined and used to pay Intermediate Lien Revenue Bond Debt Service. 3 The Port is under no obligation to issue Future Revenue Bonds or to issue them on the lien described above. B 3

101 Mr. Dan Thomas July 9, 2015 FINANCIAL PERFORMANCE The Port accounts for its financial performance according to generally accepted accounting principles for governmental entities. Port management s business and financial decisions are also made in the context of its obligations under the rate covenantss of the First Lien Master Resolution and the Intermediatee Lien Bond Resolution, among other factors. The Intermediate Lien Rate Covenant states that the Port agrees at all times to establish, maintainn and collect rentals, tariffs, rates, fees, and charges in the operation of all of its businesses as long as any Intermediate Lien Revenue Bonds are Outstanding to produce in each fiscal year Available Intermediate Lien Revenues as First Adjusted at least equal to 1.10 times of the Amount Due (Test #1); and Available Intermediate Lien Revenues as Secondd Adjusted att least equal to 1.25 times of the Amount Due (Test #2) Debt service coverage results are only shown for Test #11 in this Report, as it is the more restrictive of the two tests. In determining compliance with the Intermediate Lien Rate Covenant, the Port is permitted under the Intermediate Lien Master Resolution to include as Available Intermediate Lien Revenues, among other things, certain debt service offsets from PFC revenues and customer facility charge (CFC) revenues. The Port included certainn revenues from these sources in the calculation of debt service coverage presented on Exhibit F and the results presented later in this letter on Figure 5. The sections that follow provide an overview of recent Port financial results and the key assumptions used in determining if forecast Available Intermediate Lien Revenues will be sufficient to meet Test #1 of the Intermediate Lien Rate Covenant. Gross Revenue The amount of Grosss Revenue by major revenue source in 2014 is shown on Figure 1; Figure 2 presents the percentage of Gross Revenue by major revenue source for the same year. In 2014, Port Gross Revenue was approximately $534.9 million. Of that amount, the Airport accounted for approximately 75..9% of Grosss Revenue, properties that are expected to be licensed by the Port to the Seaport Alliance when it is assumed to become effective in August 2015 accounted for approximate ely 12.8% of Gross Revenue in 2014,, and Other Port Businesses accounted for approximately 11..3% of Grosss Revenues. Gross Revenue from airline rates and charges at the Airport was approximately $228.9 million, accounting for 42.8% of total Gross Revenue; the secondd largest source of Port Gross Revenue B 4

102 Mr. Dan Thomas July 9, 2015 was approximately $177.2 $ million in nonairline revenue at the Airport, accounting for 33.1% % of Port Gross Revenue, followed by all other Gross Revenues of approximately $128.8 million,, accounting for 24.1% % of Port Gross Revenue, including property of the Port thatt is expectedd to be licensed to the Seaport Alliance. Figure F 1 AMOUNT OF GROSS REVENUE IN 2014 Portt of Seattle Figure 2 PERCENTAGE OF GROSS REVENUE IN 2014 Port of Seattlee Note for Figures 1 and 2: SEA = Seattle Tacoma International Airport. Source: Port of Seattle records. Airlines accounting a for 99.9% of the Airport s enplaned passengers executed the Airline Agreement in 2013 when w it became effective. The Airline Agreement includes, among other things, provisions forr the lease and use of Airport facilities and the annual recalculation of airline rates and charges based in part on cost recovery principles. Revenue from passenger airline rates and charges at the Airport A are based b on: (1)) the number of gates and square footage used u or leased by airlines as well as the numberr of enplaned passengers and landed weight of the airliness serving thee Airport andd (2) the rates and charges in effect each year and calculated by the Port pursuant to t the Airline Agreement. Major sources of nonairline revenue at the Airport A include: public parking, rental cars, and in terminal concessions. In 2014, revenue fromm Other Portt Businessess largely consisted of revenuess from container terminal leases, grain exports, and cruise ship terminal operations. Total Gross Revenue is forecast by b the Port to t increase an average of approximately 3.9% per year fromm $534.9 million in to $786.7 million m in B 5

103 Mr. Dan Thomas July 9, 2015 Key assumptions used by the Port to forecast Gross Revenue from Airport operations include the following: A 10.0% increase in the number of enplaned passengers at the Airport from 2014 to 2015, and increases averaging 2.6% per year between 2015 through Originating and connecting passengers are forecast by the Port to increase at similar rates of growth as enplaned passengers. Higher airline rates and charges at the Airport calculated pursuant to the rate making methodology in the Airline Agreement, which is scheduled to expire on December 31, 2017, as well as the Port s continued ability under the Airline Agreement to include in the airline rate base additional Operating Expenses, debt service and other costs allocable to airline cost centers. Continuation of airline rate making practices andd business arrangements that would produce similar Airport financial performance following the scheduled expiration of the Airline Agreement in Continued growth in nonairline revenues at the Airport, specifically from the introduction of new public parking products and features, rental cars, and in terminal concessions. Key assumptions used by the Port to forecast all other Gross Revenue include the following, which are more fully described in later sections of this Report: The Port s facilities licensed to the Seaport Alliance will earn Gross Revenue pursuant to existing leasee agreements, including a payment agreement for Terminal 5 equal to $9.0 million per year from 2014 through Occupancy rates for industrial properties would remain steady during each year of the forecast period and rentals would increase at an effective rate consistent with the provisions in certain long term industrial property agreements between the Port and tenants. The Port will continue to receive revenues from existing leases in the cruise terminals, grain terminal and other non Airport properties. As existing leases expire during the forecast period, the Port will renew those leases or execute new leases at most of its facilities that will produce similar financial performance. Operating Expenses The amount of Port Operating Expenses for the Airport and all other Operating Expenses in 2014 is shown on Figure 3, whichh includes allocated indirect expenses of the Port; Figure 4 presents the percentage of Port Operating Expenses forr the same year. In 2014, Port Operating Expenses were approximately $ million. Of that amount, the Airport accounted for approximately 74.6% of the total, properties that are expected to be B 6

104 Mr. Dan Thomas July 9, 2015 licensed by the Port to the Seaport Alliance when w it is assumed to become effective in August 2015 accounted for approximatea ely 6.8% of Operating O Expenses in 2014, and Other Port Businesses accounted for approximately 18. 6% of Operating Expenses. Figure F 3 Figure 4 AMOUNT OF OPERATING EXPENSES IN PERCENTAGE OF OPERATING EXPENSES IN 2014 Portt of Seattle Port of Seattlee Source: Port of Seattle records. Amounts on Figure 4 are rounded. Operating Expenses are forecastt by the Port to increase an average of approximately 4.0% per year fromm $309.3 million in to $458.0 million m in Key assumptions used by the Port to forecast Operatingg Expenses include the following: f Airport A Operating Expenses would increase an average of 4.0% per year during the forecast period. Allowances A were w included for additional Operating Expensess during the forecast period related to thee completionn of certain projects p in the Capital Program. The Port currently expects Operatingg Expenses associated with its facilities to be licensed to the Seaport Alliance A to increase an average of 3.6% per year during eachh year of the forecast period. Debt Service In 2014, debt servicee on Intermediate Lien Revenue R Bonds payable from Available Intermediate Lien Revenues totaled approximately $ million, before certain offsets discussed immediately below. The Port receives CFC revenues and a PFC revenues, which are not included in thee definition of Gross Revenue under the First Lien Master Resolution, R but can be used by the Port to pay debt B 7

105 Mr. Dan Thomas July 9, 2015 service on a portion of First Lien Revenue Bonds. Underr certain circumstances, such amounts used to pay debt service may be added to Available Intermediate Lien Revenues or deducted from debt service on Intermediate Lien Revenue Bonds. Such uses have been assumed in the financial forecasts prepared by the Port. Debt service on all Intermediate Lien Revenue Bonds, ncluding the Series 2015 Bonds, is estimated to increase from $145.5 million in 2014 to $254.3 million in 2024, before any offsets and net of capitalized interest. Increases in debt servicee are attributable to the addition and structuring of the Series 2015 Bonds and the Future Revenue Bonds. DEBT SERVICE COVERAGE Pursuant to the Intermediate Lien Rate Covenant of the Intermediate Lien Master Resolution, debt service coverage is calculated by dividing Availablee Intermediate Lien Revenues by debt service on all Intermediate Lien Revenue Bonds. As shown on Figure 5, debt service coveragee in each year of the forecast period indicates compliance with the Intermediate Lien Rate Covenant of the 1.10 times minimum coveragee requirement for Available Intermediate Lien Revenues as First Adjusted (Test #1). The Port has certain outstanding Subordinate Lien Parityy Bonds, including the Commercial Paper Notes, the Series 1997 Bonds, the Series 1999A Bonds, and the Series 2008 Bonds. Debt service coverage on Subordinate Lien Parity Bonds was forecast by the Port for informationn purposess only and ranges between 3.21 times and 5.95 times during the forecast period, demonstrating compliance with the Subordinate Lien Rate Covenant as of the date of this Report. B 8

106 Mr. Dan Thomas July 9, 2015 Figure 5 FORECAST DEBT SERVICE COVERAGE ON INTERMEDIATE LIEN REVENUE BONDS Port of Seattle 2.50 Debt Service Coverage Note: Includes estimated debt service on the Series 2015 Bonds and Future Revenue Bonds that may be issued during the forecast period. Source for debt service: Port of Seattle. ASSUMPTIONS UNDERLYING THE FINANCIAL FORECASTS The accompanying financial forecasts are based on information and assumptions provided by Port management. The forecasts reflect Port management s expected course of action during the forecast period and, in management s judgment, present fairly the expected financial results of the Port. Those key factors and assumptions that are significant to the forecasts are set forth in Background, Assumptions, and Rationale for the Financial Forecasts, which should be read in its entirety for an understanding of the forecasts and the underlying assumptions. In our opinion, the assumptions underlying the financial forecasts of the Airport, the financial performance of the properties expected to be licensed by the Port to the Seaport Alliance, and the financial performance of all Other Port Businesses provide a reasonable basis for the forecasts. B 9

107 Mr. Dan Thomas July 9, 2015 However, any forecast is subject to uncertainties. Inevitably, some assumptionss will not be realized, and unanticipated events and circumstances may occur. Therefore, there will be differences between the forecast and actual results, andd those differences could be material. Neither WJ Advisors LLC nor any person acting on its behalf makes any warranty, express or implied, with respect to the information, assumptions, forecasts, opinions, or conclusions disclosedd in this Report. We have no responsibility to update this Report for events and circumstances occurring after the date of the Report. We appreciate the opportunity to serve as the Port s Independent Consultant in connectionn with this proposed financing. Respectfully submitted, WJ ADVISORS LLC B 10

108 BACKGROUND, ASSUMPTIONS, AND RATIONALE FOR THE FINANCIAL FORECASTS Port of Seattle B 11

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110 TABLE OF CONTENTS Page PORT OVERVIEW AND FINANCIAL FORECASTS... B 19 OVERVIEW... B 19 PORT TAX LEVY AND GENERAL OBLIGATION BONDS... B 21 PORT CAPITAL PROGRAM... B 22 FUNDING THE PORT CAPITAL PROGRAM... B 24 ALLOWANCE FOR CAPITAL PROJECT COSTS... B 27 GROSS REVENUE... B 27 OPERATING EXPENSES... B 30 DEBT SERVICE... B 31 APPLICATION OF REVENUES... B 32 DEBT SERVICE COVERAGE... B 33 ATTACHMENT 1 AIRLINE TRAFFIC AND FINANCIAL FORECASTS OF AIRPORT... B 42 AIRLINE TRAFFIC ANALYSIS... B 44 OVERVIEW OF AIRPORT ROLE... B 44 ECONOMIC BASIS FOR AIRLINE TRAFFIC... B 47 AIRLINE TRAFFIC TRENDS... B 57 THE AIRPORT S ROLE IN ALASKA AIRLINES SYSTEM... B 66 THE AIRPORT S ROLE IN DELTA AIR LINES SYSTEM... B 69 SEAT CAPACITY CHANGES BY ALL AIRLINES... B 74 AIR CARGO ACTIVITY... B 76 KEY FACTORS AFFECTING FUTURE AIRLINE TRAFFIC... B 76 AIRLINE TRAFFIC FORECASTS... B 82 AIRPORT FINANCIAL FORECASTS... B 85 AIRPORT GROSS REVENUES... B 85 AIRLINE REVENUES... B 86 NONAIRLINE REVENUES... B 89 AIRPORT OPERATING EXPENSES... B 94 B 13

111 ATTACHMENT 2 OVERVIEW AND FINANCIAL FORECASTS OF CONTAINER MARKET, SEAPORT ALLIANCE, AND OTHER PORT BUSINESSES... B 98 OVERVIEW AND FINANCIAL FORECASTS OF CONTAINER MARKET, SEAPORT ALLIANCE AND OTHER PORT BUSINESSES... B 100 OVERVIEW OF GLOBAL AND PACIFIC NORTHWEST CONTAINER MARKETS AND TRENDSB 100 RECENT CONTAINER TRENDS AT THE PORTS OF SEATTLE AND TACOMA... B 106 ASSESSMENT OF COMPETING PORTS... B 114 INTRODUCTION AND DESCRIPTION OF THE SEAPORT ALLIANCE... B 120 FORECAST OF PORT CONTAINERIZED CARGO... B 132 FINANCIAL FORECASTS... B 137 OTHER PORT BUSINESSES... B 139 FINANCIAL FORECASTS OF OTHER PORT BUSINESSES... B 147 B 14

112 TABLES TABLE 1: HISTORICAL AND PROJECTED SOCIOECONOMIC DATA... B 48 TABLE 2: 25 LARGEST EMPLOYERS IN B 51 TABLE 3: 2013 VISITOR ACTIVITY AND EXPENDITURES... B 52 TABLE 4: HISTORICAL AND FORECAST GROSS DOMESTIC PRODUCT GROWTH BY WORLD REGION... B 56 TABLE 5: PASSENGER AIRLINES SERVING SEATTLE TACOMA INTERNATIONAL AIRPORT.. B 57 TABLE 6: HISTORICAL ENPLANED PASSENGERS... B 58 TABLE 7: HISTORICAL DOMESTIC AND INTERNATIONAL ENPLANED PASSENGERS... B 60 TABLE 8: HISTORICAL ENPLANED PASSENGERS... B 62 TABLE 9: HISTORICAL ORIGINATING PASSENGERS BY AIRLINE... B 63 TABLE 10: TOP 20 DOMESTIC ORIGIN DESTINATION PASSENGER MARKETS AND AIRLINE SERVICE... B 64 TABLE 11: HISTORICAL ENPLANED PASSENGERS ALASKA AIRLINES... B 66 TABLE 12: HISTORICAL ENPLANED PASSENGERS DELTA AIR LINES... B 71 TABLE 13: HISTORICAL AIR CARGO... B 76 TABLE 14: AIRLINE TRAFFIC FORECASTS... B 84 TABLE 15: PORT OF SEATTLE CONTAINER TRENDS... B 107 TABLE 16: PORT OF TACOMA CONTAINER TRENDS... B 108 TABLE 17: CONTAINER VOLUME AT NORTH AMERICAN PORTS... B 109 TABLE 18: WEST COAST CONTAINER TRENDS... B 111 TABLE 19: PORT CONTAINERIZED CAPACITY UTILIZATION... B 114 TABLE 20: PORT OF SEATTLE FACILITIES TO BE LICENSED TO SEAPORT ALLIANCE... B 123 TABLE 21: PORT OF TACOMA FACILITIES TO BE LICENSED TO SEAPORT ALLIANCE... B 128 TABLE 22: CONTAINER FORECAST UNDER PROPOSED SEAPORT ALLIANCE (1,000 TEUS)... B 137 TABLE 23: FORECAST GROSS REVENUE AND OPERATING EXPENSES FOR PORT OF SEATTLE PROPERTIES LICENSED TO SEAPORT ALLIANCE... B 140 TABLE 24: PORT OF SEATTLE CRUISE PASSENGER FORECAST... B 142 TABLE 25: PORT OF SEATTLE BULK GRAIN FORECAST... B 144 TABLE 26: FORECAST GROSS REVENUE AND OPERATING EXPENSES FOR OTHER PORT BUSINESSES... B 148 B 15

113 FIGURES FIGURE 1: AMOUNT OF GROSS REVENUE IN B 5 FIGURE 2: PERCENTAGE OF GROSS REVENUE IN B 5 FIGURE 3: AMOUNT OF OPERATING EXPENSES IN B 7 FIGURE 4: PERCENTAGE OF OPERATING EXPENSES IN B 7 FIGURE 5: FORECAST DEBT SERVICE COVERAGE ON INTERMEDIATE LIEN REVENUE BONDS... B 9 FIGURE 6: FORECAST DEBT SERVICE COVERAGE ON INTERMEDIATE LIEN REVENUE BONDS... B 34 FIGURE 7: TOP 20 U.S. AIRPORTS FOR DOMESTIC ORIGINATING PASSENGERS... B 45 FIGURE 8: SEATTLE AIRPORT SERVICE REGION... B 46 FIGURE 9: TRENDS IN NONAGRICULTURAL EMPLOYMENT... B 49 FIGURE 10: COMPARATIVE DISTRIBUTION OF EMPLOYMENT BY INDUSTRY SECTOR... B 50 FIGURE 11: U.S. GROSS DOMESTIC PRODUCT AND ENPLANED PASSENGERS... B 55 FIGURE 12: AIRFARES AND ORIGINATING PASSENGERS... B 59 FIGURE 13: ENPLANED PASSENGER MARKET SHARES... B 61 FIGURE 14: AIRLINE SHARES OF DOMESTIC ORIGINATING PASSENGERS FOR TOP 10 MARKETS FROM SEATTLE... B 65 FIGURE 15: SCHEDULED DEPARTING SEATS AT THE 10 BUSIEST AIRPORTS IN THE ALASKA AIRLINES ROUTE NETWORK IN B 67 FIGURE 16: ALASKA AIRLINES CHANGE IN SCHEDULED DEPARTING SEATS... B 68 FIGURE 17: ALASKA AIRLINES AND DELTA AIR LINES NETWORK OVERLAP DEPARTING SEATS... B 69 FIGURE 18: DELTA AIR LINES MARKET SHARE OF ENPLANED PASSENGERS... B 70 FIGURE 19: SCHEDULED DEPARTING SEATS AT THE 10 BUSIEST AIRPORTS IN THE DELTA AIR LINES ROUTE NETWORK IN B 72 FIGURE 20: DELTA AIR LINES CHANGE IN SCHEDULED DEPARTING SEATS... B 73 FIGURE 21: ORIGIN AND DESTINATION REGIONS FOR DELTA AIR LINES CONNECTING TRAFFIC THROUGH SEATTLE TACOMA INTERNATIONAL AIRPORT... B 74 FIGURE 22: YEAR OVER YEAR PERCENT CHANGE IN SCHEDULED SEAT CAPACITY BY THE AIRLINES SERVING SEATTLE... B 75 FIGURE 23: MAJOR SOURCES OF AIRPORT GROSS REVENUE IN B 85 FIGURE 24: AIRLINE PERCENTAGES OF LEASED GATES, LEASED SPACE, AND ENPLANED PASSENGERS IN B 87 B 16

114 FIGURE 25: VOLUME OF FULL INTERNATIONAL CONTAINERS... B 101 FIGURE 26: COST SAVINGS PER TEU... B 104 FIGURE 27: WEST COAST SHARE OF ASIA NORTH AMERICA CONTAINER MARKET... B 112 FIGURE 28: PORT MARINE TERMINALS... B 124 FIGURE 29: PORT OF TACOMA MARINE TERMINALS... B 129 FIGURE 30: SEAPORT ALLIANCE COMPOSITION OF CONTAINERS IN B 134 EXHIBITS EXHIBIT A: PORT CAPITAL PROGRAM ESTIMATED COSTS AND FUNDING SOURCES... B 35 EXHIBIT B: GROSS REVENUE... B 36 EXHIBIT C: OPERATING EXPENSES... B 37 EXHIBIT D: DEBT SERVICE... B 38 EXHIBIT E: APPLICATION OF GROSS REVENUE... B 39 EXHIBIT F: DEBT SERVICE COVERAGE... B 40 EXHIBIT G: AIRLINE REVENUE... B 95 EXHIBIT H: NONAIRLINE REVENUE... B 96 EXHIBIT I: AIRPORT OPERATING EXPENSES... B 97 B 17

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116 PORT OVERVIEW AND FINANCIAL FORECASTS OVERVIEW The Port of Seattle (the Port) is a municipal corporation of the State of Washington and is governed by a five member commission (the Commission) elected by the voters of King County for terms of 4 years. The Commission sets policy and provides direction to the Port s Chief Executive Officer who, with other executive staff, implements policies and administers the day to day activities of the Port. The Port is a special purpose government that is legally separate and fiscally independent of other State and local governments. The Port uses an Enterprise Fund to account for its operations and financial activities. The Port currently owns, operates, manages, and maintains Seattle Tacoma International Airport (the Airport) and other Port businesses (Other Port Businesses), including cruise, bulk cargo, recreational and commercial, and some industrial and commercial properties. The Port also owns and currently manages containerized cargo terminals. In addition, the Port is responsible for the delivery and completion of projects at its facilities and provides technical and contracting services in support of Port business plans and infrastructure needs. The Port provides engineering, project management, and construction functions as well as centralized contracting and procurement functions. The Port is in the process of revising its organizational structure for Other Port Businesses, which currently includes certain Marine Cargo businesses that are expected to be licensed by the Port of Seattle to a newly created Northwest Seaport Alliance (the Seaport Alliance). Marine Cargo is defined to include waterborne goods other than grain, liquefied natural gas and methanol. On October 14, 2014, the Port of Seattle entered into an interlocal agreement (ILA) with the Port of Tacoma to serve as a framework for the creation of a Seaport Alliance pursuant to the Federal Maritime Commission (FMC) Discussion Agreement No The purpose of the Seaport Alliance is to unify management and operation of both ports marine cargo businesses. The Seaport Alliance would be formed as a Port Development Authority a jointly owned, governmental entity, but each port would retain its existing governance structure, ownership of existing assets under Seaport Alliance management, and obligation to repay debt to its bondholders. For purposes of this Report, the Port has (1) assumed that the Seaport Alliance will become effective in August 2015, but from August 2015 through December 2015, each port will continue to receive all revenues and pay all expenses related to the operation and maintenance of the properties licensed to the Seaport Alliance and (2) used Gross Revenue and Operating Expense assumptions of its licensed facilities in the financial forecasts presented in this Report B 19

117 instead of any forecast of Seaport Alliance financial performance. Airport Through its Aviation Division, the Port operates and manages the Airport, which accounted for 75.9% of total Port operating revenue in According to statistics compiled by Airports Council International North America, the Airport was the 15 th busiest large hub airport in the United States in 2013 (the latest available data) in terms of total passengers. In 2014, approximately 18.7 million passengers enplaned at the Airport; approximately 13.8 million were origin or destination (O&D) passengers, accounting for approximately 74% of enplaned passengers. The busiest airline at the Airport in terms of enplaned passengers in 2014 was Alaska Airlines, including the enplaned passengers on Horizon Air a wholly owned subsidiary of the Alaska Airlines Group, Inc. Horizon Air provides regional and commuter service for Alaska Airlines. In 2014, Alaska Airlines and Horizon Air enplaned approximately 9.7 million of the 18.7 million total enplaned passengers at the Airport. Seattle Tacoma International Airport is the largest airport in the route network of Alaska Airlines, with over 10.0 million scheduled departing seats as compared with almost 4.0 million scheduled departing seats at Portland International Airport, which is the second busiest airport for Alaska Airlines based on 2014 data. The second busiest airline at the Airport, measured by numbers of enplaned passengers, was Delta Air Lines with 2.9 million enplaned passengers in Based on actual 2014 data, the Airport was the 8 th busiest in Delta s route network, up from 15th in 2012 and 11th in 2013, measured by the number of scheduled departing seats. The Airport occupies approximately 2,800 acres of land and is located approximately 12 miles from downtown Seattle. Other airports in the region that have scheduled airline service include Vancouver International Airport in British Columbia (139 road miles from downtown Seattle), Portland International Airport (173 road miles from downtown Seattle), and Spokane International Airport in eastern Washington (280 road miles from downtown Seattle). The Airport has three parallel runways that are between 8,500 feet and 11,900 feet long. Passenger terminal facilities consist of a central terminal building and four concourses (Concourse A, B, C, and D). In addition, two smaller terminals, the North and South Satellite Terminals, are served from the central terminal via an underground people mover system. The Airport has 79 gates plus 22 parking positions for regional and commuter aircraft. Concourse A has 14 gates, Concourse B has 12 gates, Concourse C has 14 gates, and Concourse D has 11 gates. The North Satellite Terminal has 14 gates and the South Satellite Terminal has 14 gates. International processing facilities are located in the South Satellite Terminal. The Airport s eight story parking garage is connected to the central terminal via sky bridges on the fourth floor of the garage and is connected at one end to a light rail station, which provides B 20

118 service to downtown Seattle. The Port also provides public parking spaces in a remote lot operated by a third party. The Airport has a consolidated rental car facility (ConRAC) that is served to and from the central terminal building via a common shuttle bus system. All on Airport rental car operations are located in the ConRAC. The Airport also has facilities for commercial airline aircraft parking, air cargo, general aviation, and aircraft maintenance activities. Additional information about the Airport is provided in Attachment 1 to this Report, which should be read in its entirety. Other Port Businesses Other Port Businesses of the Port currently include properties and facilities that are expected to be licensed by the Port to the Seaport Alliance and all other properties that the Port would continue to operate and manage. Combined, these properties and facilities accounted for 24.1% of total Port Gross Revenue in 2014, and include the following: The nation s 11 th busiest container port measured by container traffic, as measured by twenty foot equivalent units (TEUs). Four container terminals, three bulk cargo terminals, and two cruise terminals. The container terminals have more than 11,000 feet of berths and 30 cargo cranes, including 13 tenant owned Super Post Panamax cranes. Industrial properties of the Port that are leased to operators of cargo, cruise, and fishing businesses. Commercial and industrial real estate, recreational marinas, industrial fishing terminals, and developable property. The properties currently included as Other Port Businesses that are expected to be licensed by the Port to the Seaport Alliance include four container terminals and nine industrial properties that support domestic container trade or non containerized trade. Attachment 2 to this Report provides additional information on the Seaport Alliance and Other Port Businesses, which should be read in its entirety. PORT TAX LEVY AND GENERAL OBLIGATION BONDS The Port has statutory authority under State of Washington law to levy property taxes (the Tax Levy) on taxable property within the boundaries of the Port district to provide funds for general purposes of the Port, including establishment of a capital improvement fund for capital improvements and for the payment of debt service on the Port s general obligation bonds. The boundaries of the Port district are the same as the boundaries of King County. The Port s B 21

119 general obligation bonds are backed by the full faith and credit of the Port, including the Tax Levy. The total amount of the Port s outstanding general obligation bonds is restricted by statutory limitations based on the total assessed value of property within the Port s boundaries. The Port is not permitted to use Tax Levy proceeds to pay debt service on any of its revenue bonds, including the proposed Series 2015 Intermediate Lien Bonds. The Port is permitted to apply the portion of the Tax Levy remaining after the payment of the Port s general obligation bond debt service to pay Operating Expenses or as an adjustment to Operating Expenses in the calculation of debt service coverage on the Port s revenue bonds. The Port currently expects to use the 2015 Tax Levy to (1) pay debt service on outstanding general obligation bonds, (2) fund regional transportation and freight mobility projects, (3) fund certain environmental remediation projects, (4) pay certain operating expenses and capital projects associated with the Port s real estate holdings, (5) fund noise insulation projects that are not eligible to be funded with Airport revenue, (6) pay other costs, and (7) make a deposit to the Port s Transportation Infrastructure Fund. Annual increases in the maximum allowable Tax Levy are currently restricted by statute to the lesser of (1) inflation or (2) 1.0%, plus, in either case, an adjustment for new construction. If inflation is less than 1.0%, then a 1% annual increase in the maximum allowable Tax Levy is permitted with approval by a supermajority of the Commission. The maximum allowable Tax Levy for 2015 is approximately $95.0 million. The Tax Levy for 2015 was set at $73.0 million, which was assumed to remain constant during the forecast period (through 2024). PORT CAPITAL PROGRAM The Port develops a comprehensive capital program to invest in the acquisition, development, and maintenance of long term assets to meet the waterborne and transportation needs of the region and to serve its customers. The Port s capital program is based in part on the existing and anticipated business environment, forecast demand for Port facilities, available resources and the priorities of the organization. The Port s current capital program is for 2015 through 2020 (the Capital Program) and includes capital projects for all Port businesses. The Capital Program and related costs are presented by Port division on Exhibit A and are estimated to cost approximately $2.3 billion. The Port currently anticipates implementing the entire $2.3 billion Capital Program during the forecast period, and, as discussed later, expects that additional capital investments will be required between 2021 and The Capital Program projects are categorized as follows: Series 2015 Projects. The Series 2015 Projects are Airport projects to be funded in part with the net proceeds of the Series 2015 Bonds. The Series 2015 Projects are estimated to cost approximately $244.6 million and include the Runway 16C 34C reconstruction project, the North Seattle Tacoma Airport Renovation (NorthSTAR) expansion program, B 22

120 utility improvements at the Airport, airfield pavement rehabilitation, and miscellaneous renewal and replacement projects. Other Capital Program Projects. Other Capital Program Projects include allowances for projects in Airport and other Port facilities. Other Capital Program Projects are estimated to cost approximately $2.0 billion. Airport Projects in Capital Program As shown in Exhibit A, total Airport Capital Program projects are estimated to cost approximately $2.0 billion. Certain projects in the Capital Program for the Airport are related to the expected growth in aviation activity over the longer term, including, but not limited to: NorthSTAR expansion program, which is being developed in collaboration with Alaska Airlines, the busiest airline at the Airport in terms of enplaned passengers in This project is expected to be fully available for its intended use in 2021 and will result in the renovation of existing North Satellite facilities, the addition of eight new gates in the North Satellite, upgrade of the North Satellite baggage system, and other improvements. New international arrivals facility, which would be located on the east side of Concourse A to expand processing and passenger capacity. When fully available for its intended use in 2020, the new international arrivals facility will be the only facility of its kind at the Airport. Baggage optimization program, which will replace and reconfigure existing baggage systems to maximize operational efficiency and increase system capacity. This project is expected to be fully available for its intended use in Runway reconstruction project, which will rebuild the center runway at the Airport to increase airfield safety and is expected to be fully available for its intended use in As permitted under the Airline Agreement, the Port has included Operating Expenses, debt service, and amortization charges in forecast airline rates and charges for each phase of a project in the Airport Capital Program that is available for its intended use. As discussed more fully in Attachment 1, certain projects in the Airport Capital Program are subject to Majority In Interest (MII) disapproval of the airlines under the Airline Agreement. Where applicable, Signatory Airline disagreement with any project subject to MII approval can delay a project between 6 and 12 months, but not prevent the Port from proceeding with the same project and including the debt service, amortization, or Operating Expenses associated with the completed project in the annual calculation of airline rates and charges at the Airport. B 23

121 The Aviation Division of the Port is in the process of preparing a sustainable master plan for the Airport that will include infrastructure improvements to maintain and enhance the Airport s place as a premier international airport and fulfill its mission as an economic engine for the greater Seattle area. The sustainable master plan is currently expected to be completed in 2015 or 2016, and will develop a long term blueprint for the future development of the Airport over the next 5, 10, and 20 years. Other Projects in Capital Program As shown in Exhibit A, other non Airport projects in the Capital Program are estimated to cost approximately $294.5 million, and include: Approximately $52.4 million of project costs for facilities that are expected to be licensed by the Port to the Seaport Alliance, including several renewal and replacement projects and improvements at Terminal 46 as required by the existing lease. These projects do not include anticipated improvements to Terminal 5 to most efficiently accommodate ultra large container ships (ULCS). Approximately $242.1 million of projects for Other Port Businesses, including renewal and replacement projects and a contingency allowance. FUNDING THE PORT CAPITAL PROGRAM The Port finances capital projects with a combination of revenue bonds, including the Series 2015 Bonds, and various other sources of funding that are specific to certain Port businesses. The Port expects to fund the Capital Program using the major funding sources shown in Exhibit A, as discussed below. The discussion is organized from largest to smallest funding sources, after first describing the Series 2015 Bonds. The Port incorporated certain assumptions into the financial forecasts presented in this Report in connection with the completion of projects in the Capital Program, the issuance of the Series 2015 Bonds, and the potential issuance of Future Revenue Bonds during the forecast period regarding additional (1) Gross Revenue, (2) Operating Expenses, and (3) debt service, net of capitalized interest. Series 2015 Bonds The Port issues revenue bonds on different liens to fund certain Port capital projects. The Port currently has outstanding First Lien Revenue Bonds, Intermediate Lien Revenue Bonds, and Subordinate Lien Revenue Bonds and Commercial Paper Notes. The Series 2015 Bonds are being issued pursuant to the provisions of the Intermediate Lien Master Resolution. The Series 2015 Bonds are expected to have fixed interest rates and are to be issued to B 24

122 Fund approximately $244.6 million of Series 2015 Project costs and pay capitalized interest on this portion of the Series 2015 Bonds. Fund a deposit to satisfy the debt service reserve fund requirements with respect to a portion of the Series 2015 Bonds. Current refund and defease approximately $319.3 million in principal outstanding of the Series 2005A Intermediate Lien Bonds. Reimburse the Port $46.0 million for capital project expenditures in 2014 at the Airport. Pay the costs of issuance, including underwriters discount and financing, legal, and other costs for the Series 2015 Bonds. For purposes of the financial forecasts presented in this Report, debt service on the Series 2005A Intermediate Lien Bonds is assumed to remain outstanding and no debt service savings, if any, resulting from the refunding of the Series 2005A Intermediate Lien Bonds through the issuance of the Series 2015A Bonds has been included in the financial forecasts. Future Revenue Bonds The proceeds of Future Revenue Bonds would be used to: Fund approximately $1.0 billion of Other Capital Program Project costs and pay capitalized interest on Future Revenue Bonds. Fund deposits to satisfy the debt service reserve fund requirements with respect to the Future Revenue Bonds. Pay the costs of issuance for Future Revenue Bonds. The Port has assumed that the net proceeds of Future Revenue Bonds would include a combination of Intermediate Lien Revenue Bonds and Subordinate Lien Revenue Bonds to fund portions of Airport project costs. For the financial forecasts in this Report, it was assumed that the Port would issue Future Revenue Bonds to complete the Other Capital Program Projects, but there is no assurance that the Port will issue the Future Revenue Bonds, issue the Future Revenue Bonds on the liens assumed in the financial forecasts, or complete the Other Capital Program Projects. Port Cash The Port also expects to use internally generated cash derived from the operations of all of its divisions to fund certain costs of Capital Program projects. B 25

123 Passenger Facility Charge Revenue The Port imposes and uses the revenues from a $4.50 passenger facility charge (PFC) at the Airport. PFC revenues are first used by the Port to pay debt service on outstanding PFC Bonds. After paying debt service on outstanding PFC Bonds, the Port uses any remaining PFC revenues for any combination of the following purposes: (1) to fund certain FAA approved, PFC eligible Airport project costs and (2) to pay debt service associated with bonds used to fund other FAA approved project costs at the Airport. The Port currently expects to use PFC revenues to fund a portion of certain Airport projects in the Capital Program. Federal Grants Federal grants received by the Port include (1) federal grants under the Airport Improvement Program (AIP), which provides discretionary and entitlement grants for eligible airport projects, (2) Transportation Security Administration (TSA) grants, and (3) seaport grants. The Port currently receives annual AIP entitlement grants based on (1) levels of funding authorized and appropriated by U.S. Congress for the program, (2) the number of passengers and amount of cargo at the Airport, and (3) a 75% reduction in entitlement grants because of the Port s $4.50 PFC. The Port also receives AIP discretionary grants for specific projects pursuant to grant applications for such funding and FAA discretionary grant awards, which are a function of the amounts authorized and appropriated by Congress and the FAA s prioritization of competing projects at the nation s airports. The AIP is currently funded at $3.35 billion through Federal Fiscal Year 2015, which ends September 30, pursuant to the FAA Modernization and Reform Act of 2012 (the 2012 Act). For the 5 year period prior to the passage of the 2012 Act, there were 23 short term extensions of the FAA s funding authority. If the amount of AIP grants awarded to the Port is reduced, such reduction could (1) increase by a corresponding amount the share of the Capital Program that the Port would need to fund from other non AIP sources, (2) result in decreases in the Capital Program, or (3) extend the timing for completion of certain projects in the Capital Program. AIP grants and TSA grants received by the Port for capital projects are not defined as Gross Revenue under the First Lien Master Resolution, the Intermediate Lien Master Resolution, or the subordinate lien bond resolutions and do not secure the payment of any of the Port s First Lien Revenue Bonds, Intermediate Lien Revenue Bonds, or Subordinate Lien Revenue Bonds. The Port was awarded a $20 million grant from the Transportation Investment Generating Economic Recovery grants program, which will be used to rehabilitate berth pile caps and dock deck panels, and to increase load capacity and extend crane rails at dock at Terminal 46. B 26

124 Tax Levy The Port expects to use revenues from the Tax Levy as a source of funds for the Capital Program. ALLOWANCE FOR CAPITAL PROJECT COSTS For purposes of the financial forecasts presented in this Report, the Port has included an allowance for additional Airport and non Airport project costs of approximately $674.0 million for projects that may be implemented by the Port following implementation of the Capital Program and for the years 2021, 2022, and According to the Port, these allowances were included to recognize that investments will continue to be made in Port facilities following the Capital Program. The Port has assumed that the approximate $674.0 in capital project costs between 2021 and 2023 largely would be funded from the issuance of Future Revenue Bonds and Port cash, as well as smaller amounts from federal and state grants, PFC revenues and funds from the Tax Levy. Certain assumptions have been made by the Port about future bond interest rates, the terms of the bonds, and the lien of the Future Revenue Bonds that may be issued by the Port. The Port has no obligation to make these additional investments in Port facilities or to fund the additional investments from the sources described herein. Additional Gross Revenue from these investments have been assumed in the financial forecasts by the Port, but reflect only the recovery of debt service and amortized Port cash associated with projects between 2021 and 2023 in airline facilities at the Airport. The remaining sections and attachments to this Report discuss the implementation of the Capital Program. GROSS REVENUE Exhibit B presents historical and forecast Gross Revenue for the Port. In 2014, total Gross Revenue of the Port was $534.9 million, including $406.1 million in Gross Revenue at the Airport, representing approximately 75.9% of total Gross Revenue of the Port. $68.4 million in Gross Revenue for properties that are expected to be licensed by the Port to the Seaport Alliance in August 2015, as described in this Report. 4 This amount accounted for 12.8% of total Gross Revenue of the Port. $60.4 million in Gross Revenue for Other Port Businesses, representing approximately 11.3% of total Gross Revenue of the Port. 4 For historical 2014 results, the Port determined the amount of Gross Revenue associated with properties that are expected to be licensed by the Port of Seattle to the Seaport Alliance for purposes of comparison with forecast Gross Revenue. The same applies to the later discussion regarding Operating Expenses. B 27

125 In 2009, Gross Revenue at the Airport totaled $328.2 million, accounting for 73.0% of total Gross Revenue of the Port; Gross Revenue of Other Port Businesses, including the properties that are expected to be licensed by the Port to the Seaport Alliance in August 2015, totaled $121.2 million, accounting for approximately 27.0% of total Gross Revenue of the Port. From 2004 through 2014, Gross Revenue of the Port increased an average of approximately 3.6% per year, from $376.5 million in 2004 to $534.9 million in For the most recent 5 year period, Gross Revenue at the Airport increased from $328.2 million in 2009 to $406.1 million in 2014, representing an average annual increase of 4.4% per year. Gross Revenue from Other Port Businesses, including properties that are expected to be licensed by the Port of Seattle to the Seaport Alliance in August 2015, increased from $121.2 million in 2009 to $128.9 million in 2014, representing an average increase of 1.2% per year. The forecasts of Gross Revenue for the Airport were based on the following key assumptions, which are discussed further in Attachment 1: Increases in the numbers of enplaned passengers at the Airport of 10.0% from 2014 to 2015, and averaging 2.6% per year between 2015 through Originating and connecting passengers are forecast by the Port to increase at similar rates of growth as enplaned passengers. o U.S. Gross Domestic Product growth will average between 2.4% and 2.7% per year from 2014 through 2024, based on projections by IHS Global Insight as reported in FAA Aerospace Forecasts, Fiscal Years o The population and economy of the Airport service region will grow at the projected rates set forth in Table 1 of this Report. o The Airport will continue to be a principal connecting hub for Alaska Airlines and the market with the greatest amount of seat capacity offered by Alaska Airlines. o The Airport will continue to be used by Delta Air Lines as an international gateway airport. o Competition among the airlines serving the Airport will ensure the continued availability of competitive airfares. Higher airline rates and charges at the Airport calculated pursuant to the rate making methodology in the Airline Agreement, which is scheduled to expire on December 31, 2017, as well as the Port s ability under the Airline Agreement to include in the airline rate base certain higher Operating Expenses, debt service and other costs allocable to airline cost centers. Continuation of airline rate making practices and business arrangements that would produce similar Airport financial performance during the forecast period following expiration of the Airline Agreement in B 28

126 Continued growth in nonairline revenues at the Airport, resulting from o Forecast increases in numbers of originating and enplaned passengers. o Allowances for inflation of 2.5% per year. o The introduction of new public parking products and features at the Airport o Assumed increases in the average daily rate to rent a car, which would result in higher rental car fees paid to the Airport. o Continued performance of in terminal concessions. In addition, as non airline agreements expire, the Port would implement new business arrangements that would produce similar financial results during the forecast period. The forecast of Gross Revenue for the properties that are expected to be licensed by the Port to the Seaport Alliance and Other Port Businesses was based on the following key assumptions: The Seaport Alliance will be formed in August 2015 and would be organized, operated, and managed as described in this Report. The Port will license certain facilities to the Seaport Alliance when it becomes effective. The Port s facilities licensed to the Seaport Alliance will earn Gross Revenue 5 pursuant to existing lease agreements, as follows: o Revenues from existing leases in Terminals 18, 30, and 46 will increase during each year of the forecast period pursuant to the terms of those leases, as follows: 2.0% per year through 2018, except in 2016 when the rate increase is 11.6% reflecting an adjustment in minimum guaranteed volumes, and 2.0% per year or 50.0% of the consumer price index, whichever is greater, for the remaining years of the forecast period. o Forecast revenue for Terminal 5 is based on a payment agreement that was reached with a tenant, which requires payments of $9.0 million per year from 2014 through o Occupancy rates for industrial properties will remain steady during each year of the forecast period and rentals will increase at an effective rate of growth of approximately 2.5% per year, consistent with long term agreements between the Port of Seattle and tenants. The Port will continue to earn revenues from its cruise terminal tenants through 2019 and from 2020 through 2024, the Port will renew the existing lease or enter into a new cruise terminal lease that would produce similar levels of financial performance. 5 For purposes of this Report, the Port of Seattle s share of Seaport Alliance net income is presented and discussed by its component parts Gross Revenue and Operating Expenses rather than as a single line item of net income (revenues less expenses). B 29

127 Occupancy rates for industrial and commercial properties that are part of Other Port Businesses would remain the same and revenues from the same properties would increase at 2.5% per year, similar to the rates of growth in longer term leases. Gross Revenue is forecast to increase from $534.9 million in 2014 to $786.7 million in 2024, representing an average increase of 3.9% per year. OPERATING EXPENSES Exhibit C presents historical and forecast Operating Expenses for the Port. In 2014, total Operating Expenses of the Port were $309.3 million, including $230.7 million in Operating Expenses at the Airport, accounting for 74.6% of total Operating Expenses of the Port. $20.9 million in Operating Expenses for properties that are expected to be licensed by the Port of Seattle to the Seaport Alliance in August This amount accounted for 6.8% of total Operating Expenses of the Port. $57.7 million in Operating Expenses at Other Port Businesses, accounting for 18.7% of total Operating Expenses of the Port. Over the last 5 years, Airport Operating Expenses have accounted for a large share of total Port Operating Expenses. In 2009, Operating Expenses at the Airport were $174.7 million, accounting for 71.4% of total Port Operating Expenses, and Operating Expenses of Other Port Businesses, including the properties that are expected to be licensed by the Port to the Seaport Alliance in August 2015, were $70.1 million, accounting for 28.6% of total Port Operating Expenses. For the most recent 10 year period ( ), Operating Expenses of the Port increased an average of 3.3% per year, from $223.3 million in 2004 to $309.3 million in For the most recent 5 year period, Operating Expenses of the Airport increased from $174.7 million in 2009 to $230.7 million in 2014, representing an average annual increase of 5.7% per year. As discussed in Attachment 1 to this Report, the number of enplaned passengers at the Airport increased an average of 3.7% per year from 2009 through The number of annual enplaned passengers at an airport is typically an important factor in determining the amount of operating expenses required to operate, maintain and enhance airport facilities. At the Airport, Operating Expenses expressed per enplaned passenger were $11.19 in 2009 and $12.33 in 2014, representing an average increase of 2.0% per year, which was lower than the rate of growth in total Airport Operating Expenses. Operating Expenses for Other Port Businesses, including those that are expected to be licensed by the Port to the Seaport Alliance, increased from approximately $70.1 million in 2009 to approximately $78.6 million in 2014, representing an average increase of 2.3% per year. B 30

128 The forecasts of Operating Expenses for the Port were based on the following key assumptions: Airport Operating Expenses would increase an average of 4.0% per year during the forecast period. Airport Operating Expenses expressed per enplaned passenger would increase an average of 1.2% per year, which is slightly lower than the rate of growth in Airport Operating Expenses per enplaned passenger from 2009 through Allowances for additional Airport Operating Expenses as new Airport facilities in the Capital Program are available for their intended use during the forecast period. The Port currently expects Operating Expenses associated with its licensed facilities to the Seaport Alliance would increase an average of 3.6% per year during the forecast period. Total Operating Expenses are forecast to increase from $309.3 million in 2014 to $458.0 million in 2024, representing an average increase of 4.0% per year. DEBT SERVICE Exhibit D presents actual and estimated debt service, net of capitalized interest, associated with outstanding and future First Lien Revenue Bonds, Intermediate Lien Revenue Bonds, including the Series 2015 Bonds, and Subordinate Lien Revenue Bonds. Assumptions related to debt service on the Series 2015 Bonds and all Future Revenue Bonds provided by the Port include a fixed interest rate of 6.0% and bond terms of 25 years. Debt service savings from the refunding of the Series 2005A Intermediate Lien Revenue Bonds are not included in the financial forecasts presented in this Report. The Port also may refund certain other outstanding Port revenue bonds during the forecast period. Debt service savings, if any, from the Port s potential refunding of any series of bonds, including those being refunded by the Series 2015 Bonds, are not included in the financial forecasts presented in this Report. B 31

129 APPLICATION OF REVENUES Exhibit E presents the forecast application of Gross Revenue to the various funds and accounts pursuant to the First Lien Master Resolution and the Intermediate Lien Master Resolution. Pursuant to the Intermediate Lien Master Resolution and the First Lien Master Resolution, all Gross Revenue must be deposited in the Revenue Fund, a separate fund or funds held by the Treasurer of the Port. The Chief Financial Officer of the Port is the Port s Treasurer. The Revenue Fund must be held separate and apart from all other funds and accounts of the Port. Gross Revenue deposited in the Revenue Fund is to be applied by the Port as follows: 1. To pay Operating Expenses not paid from other sources (such as the general purpose portion of Tax Levy). 2. To make all payments, including sinking fund payments, required to be made into the debt service account(s) of any redemption fund to pay the principal of and premium, if any, and interest on any First Lien Revenue Bonds. 3. To make all payments required to be made into any reserve account(s) to secure the payment of any First Lien Revenue Bonds. 4. To make all payments required to be made into any other revenue bond redemption fund and debt service account or reserve account created therein to pay and secure the payment of principal and interest on any revenue bonds or other revenue obligations of the Port having a lien upon Net Revenues and money in the Revenue Fund junior and inferior to the lien thereon for the payment of principal and interest on any First Lien Revenue Bonds, but prior to the lien thereon of the Intermediate Lien Revenue Bonds. 5. To make necessary payments into any bond fund or debt service account created to pay the debt service on the Intermediate Lien Parity Bonds and without duplication, to make Net Payments due with respect to any Parity Derivative Product secured by a pledge of and lien on Available Intermediate Lien Revenues on an equal and ratable basis with Outstanding Intermediate Lien Parity Bonds. 6. To make all required payments into the Intermediate Lien Reserve Account. 7. To make necessary payments into any bond fund or debt service account created to pay the debt service on Reserved Lien Revenue Bonds to pay the principal of and interest on Reserved Lien Revenue Bonds. 8. To make all required payments into any reserve account(s) securing Reserved Lien Revenue Bonds. 9. To make necessary payments into any bond fund or debt service account created to B 32

130 pay the debt service on the Subordinate Lien Parity Bonds, including but not limited to the Subordinate Lien Bond Fund to pay the principal of and interest on the Subordinate Lien Parity Bonds. 10. To make all payments to reserve account(s), if any, securing Subordinate Lien Parity Bonds. 11. To make all required payments into the Repair and Renewal Fund pursuant to the terms of the First Lien Master Resolution to maintain any required balance therein. 12. To retire by redemption or purchase any outstanding revenue bonds or other revenue obligations of the Port as authorized in the various resolutions of the Commission authorizing their issuance or to make necessary additions, betterments, improvements, and repairs to or extension and replacements of the Facilities or any other lawful Port purposes. DEBT SERVICE COVERAGE Exhibit F shows forecast net revenues and the calculation of debt service coverage for Intermediate Lien Revenue Bonds. Under the Intermediate Lien Master Resolution, the Port has covenanted that, for so long as any other Intermediate Lien Parity Bonds remain outstanding, the Port will at all times establish, maintain, and collect rentals, tariffs, rates, fees and charges in the operation of all of its businesses that will produce in each fiscal year: Available Intermediate Lien Revenues as First Adjusted at least equal to 1.10 times of the Amount Due (Test #1) and Available Intermediate Lien Revenues as Second Adjusted at least equal to 1.25 times of the Amount Due (Test #2). Please refer to the section of the Official Statement titled Intermediate Lien Rate Covenant for additional information. As shown on Figure 6, debt service coverage in each year of the forecast period indicates compliance with the Intermediate Rate Covenant of 1.10 times minimum requirement for Available Intermediate Lien Revenues as First Adjusted (Test #1), the more restrictive of the two tests. The Port receives certain revenues, including, but not limited to PFC revenues and CFC revenues, that are not defined as Gross Revenue, but may be used to pay certain debt service. As shown in Exhibit E, the Port expects to use certain PFC and CFC revenue each year during the forecast period to pay annual debt service. The use of these sources of revenue as Available B 33

131 Intermediate Lien Revenues has been incorporated in the calculation of debt service coverage presented in Exhibit E and presented on Figure 6. Figure 6 FORECAST DEBT SERVICE COVERAGE ON INTERMEDIATE LIEN REVENUE BONDS Seattle Tacoma International Airport 2.50 Debt Service Coverage Note: Includes estimated debt service on the Series 2015 Bonds and Future Revenue Bonds that may be issued during the forecast period. Sources for debt service: Port of Seattle. B 34

132 Exhibit A PORT CAPITAL PROGRAM PORT CAPITAL PROGRAM ESTIMATED COSTS AND FUNDING SOURCES Port of Seattle (in thousands) Estimated Total Cost (a) Airport Port of Seattle Facilities licensed to Seaport Alliance Other Port Businesses Series 2015 Projects (Airport) (b) $ 244,569 $ 244,569 $ $ $ 244,569 Other Capital Program Projects 2,062,298 1,767,817 52, ,099 2,062,298 Total Capital Program $ 2,306,867 $ 2,012,386 $ 52,382 $ 242,099 $ 2,306,867 Percentage of total 100% 87% 2% 10% 100% Total ANTICIPATED FUNDING SOURCES Series 2015 Bond Proceeds $ 244,569 Future Revenue Bond Proceeds 1,007,684 Port Net Income and Operating Funds 568,434 PFC Funds 238,989 Federal grants (c) 194,358 Tax Levy 51,519 Other (d) 1,315 Total Funding Sources $ 2,306,867 Notes: Columns may not add to totals shown because of rounding. (a) Includes costs associated with design, construction cost inflation, program management, and contingency. (b) The Series 2015 Projects include the Runway 16C 34C reconstruction project, the North Sea Tac Airport Renovation (NorthSTAR) expansion program, utility improvements, airfield pavement rehabilitation, and miscellaneous renewal and replacement projects. Excludes $46.0 million of 2014 expenditures that will be reimbursed with Series 2015 bond proceeds not reflected on this Exhibit. (c) Includes approximately $74.0 million of FAA Airport Improvement Program grants; approximately $100.0 million of TSA grants; and $20.0 million of U.S. DOT Transportation Investment Generating Economic Recovery (TIGER) grants. (d) Includes approximately $505,000 of CFC revenues and approximately $810,000 of proceeds from previously issued bonds. Source: Port of Seattle. B-35

133 Exhibit B GROSS REVENUE Port of Seattle Fiscal Years Ending December 31 (in thousands, except as noted) The forecasts presented in this exhibit were prepared using information from the sources indicated and assumptions provided by Port management, as described in the accompanying text. Inevitably, some of the assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between the forecast and actual results, and those differences may be material. Actual Forecast Reference Calculation AIRPORT Airline Revenue (a) Exhibit G $ 228,865 $ 239,002 $ 264,671 $ 280,552 $ 288,192 $ 322,439 $ 345,256 $ 367,137 $ 376,013 $ 380,688 $ 377,155 Nonairline Revenue Exhibit H 180, , , , , , , , , , ,743 Adjustment for airline lease incentive (b) (3,576) (3,576) (3,576) (3,576) Total Airport Gross Revenue [A] $ 406,080 $ 431,929 $ 463,529 $ 486,065 $ 502,060 $ 543,601 $ 580,430 $ 615,188 $ 632,553 $ 641,415 $ 637,898 Annual % Change 6.4% 7.3% 4.9% 3.3% 8.3% 6.8% 6.0% 2.8% 1.4% 0.5% Average annual increase (decrease) 2014 to % Passenger Airline Revenue Exhibit G [B] $ 213,924 $ 224,278 $ 249,294 $ 264,523 $ 271,789 $ 305,495 $ 327,838 $ 349,216 $ 357,965 $ 362,413 $ 358,447 Enplaned Passengers Exhibit G [C] 18,717 20,588 21,124 21,673 22,236 22,815 23,408 24,016 24,641 25,281 25,914 Passenger Airline Payments per Enplaned Passenger (not thousands) [D]=[B]/[C] $ $ $ $ $ $ $ $ $ $ $ PORT OF SEATTLE FACILITIES LICENSED TO SEAPORT ALLIANCE Table 23 [E] 68,413 61,227 66,131 67,209 68,447 69,735 71,062 72,489 74,049 75,646 68,288 Annual % Change 10.5% 8.0% 1.6% 1.8% 1.9% 1.9% 2.0% 2.2% 2.2% 9.7% Average annual increase (decrease) 2014 to % OTHER PORT BUSINESSES Table 26 [F] 60,445 63,372 62,831 64,557 66,648 69,292 71,586 73,857 75,987 78,188 80,529 Annual % Change 4.8% 0.9% 2.7% 3.2% 4.0% 3.3% 3.2% 2.9% 2.9% 3.0% Total Gross Revenue [G]=[A+E+F] $ 534,938 $ 556,528 $ 592,491 $ 617,830 $ 637,156 $ 682,628 $ 723,078 $ 761,535 $ 782,589 $ 795,249 $ 786,715 Annual % change 4.0% 6.5% 4.3% 3.1% 7.1% 5.9% 5.3% 2.8% 1.6% 1.1% Average annual increase (decrease) 2014 to % Notes: Columns may not add to totals shown because of rounding. (a) After revenue sharing. See the "Airline Revenues" section of the Report for more information about the Airline Agreement. (b) This reflects the straight line amortization of $17.9 million Airline Agreement lease incentive between 2013 through See the Port's 2014 audited financial statements for more information. Source: Port of Seattle. B-36

134 Exhibit C OPERATING EXPENSES (a) Port of Seattle Fiscal Years Ending December 31 (in thousands) The forecasts presented in this exhibit were prepared using information from the sources indicated and assumptions provided by Port management, as described in the accompanying text. Inevitably, some of the assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between the forecast and actual results, and those differences may be material. Actual Forecast Reference AIRPORT OPERATING EXPENSES Exhibit I $ 230,704 $ 247,486 $ 257,787 $ 268,193 $ 279,291 $ 290,560 $ 303,776 $ 318,820 $ 332,233 $ 346,256 $ 360,981 Annual % Change 7.3% 4.2% 4.0% 4.1% 4.0% 4.5% 5.0% 4.2% 4.2% 4.3% Average annual increase (decrease) 2014 to % PORT OF SEATTLE FACILITIES LICENSED TO SEAPORT ALLIANCE Table 23 20,881 26,776 25,628 25,338 25,308 26,134 26,809 27,905 30,217 30,948 29,698 Annual % Change 28.2% 4.3% 1.1% 0.1% 3.3% 2.6% 4.1% 8.3% 2.4% 4.0% Average annual increase (decrease) 2014 to % OTHER PORT BUSINESSES OPERATING EXPENSES Table 26 57,748 58,159 56,458 56,596 57,846 59,838 61,113 62,572 64,057 65,598 67,344 Annual % Change 0.7% 2.9% 0.2% 2.2% 3.4% 2.1% 2.4% 2.4% 2.4% 2.7% Average annual increase (decrease) 2014 to % Total Operating Expenses $ 309,334 $ 332,422 $ 339,873 $ 350,127 $ 362,445 $ 376,533 $ 391,698 $ 409,298 $ 426,507 $ 442,801 $ 458,024 Annual % Change 7.5% 2.2% 3.0% 3.5% 3.9% 4.0% 4.5% 4.2% 3.8% 3.4% Average annual increase (decrease) 2014 to % Notes: Columns may not add to totals shown because of rounding. (a) Includes direct operating expenses and allocated administrative operating expenses. Source: Port of Seattle. B-37

135 Exhibit D DEBT SERVICE Port of Seattle Fiscal Years Ending December 31 (in thousands) Actual Forecast FIRST LIEN REVENUE BOND DEBT SERVICE Outstanding $ 61,214 $ 60,927 $ 52,655 $ 54,279 $ 53,625 $ 66,836 $ 59,272 $ 60,144 $ 46,749 $ 55,072 $ 64,286 Future Total First Lien Revenue Bond Debt Service [A] $ 61,214 $ 60,927 $ 52,655 $ 54,279 $ 53,625 $ 66,836 $ 59,272 $ 60,144 $ 46,749 $ 55,072 $ 64,286 INTERMEDIATE LIEN REVENUE BOND DEBT SERVICE Outstanding (a) $ 145,522 $ 134,551 $ 143,639 $ 134,373 $ 126,495 $ 115,349 $ 115,354 $ 129,199 $ 134,801 $ 124,550 $ 124,042 Planned Series 2015 Bonds (a)(b) 12,997 22,536 26,206 27,750 27,750 27,750 27,750 27,750 27,750 Future (b) 1,301 6,408 28,646 62,957 76,961 84,586 92, ,469 Total Intermediate Lien Revenue Bond Debt Service [B] $ 145,522 $ 134,551 $ 156,637 $ 158,211 $ 159,110 $ 171,745 $ 206,061 $ 233,910 $ 247,137 $ 244,747 $ 254,260 SUBORDINATE LIEN REVENUE BOND DEBT SERVICE Outstanding $ 3,288 $ 20,265 $ 28,833 $ 37,822 $ 37,818 $ 37,813 $ 37,809 $ 22,634 $ 22,653 $ 13,909 $ 13,907 Future (b) 325 1,602 7,162 15,739 19,240 21,147 23,112 25,617 Commercial paper 2,548 2,266 2,652 3,003 3,087 3,171 3,254 3,394 3,394 3,394 3,394 Total Subordinate Lien Revenue Bond Debt Service [C] $ 5,836 $ 22,531 $ 31,485 $ 41,150 $ 42,507 $ 48,145 $ 56,803 $ 45,268 $ 47,193 $ 40,415 $ 42,918 Total Revenue Bond Debt Service =[A]+[B]+[C] $ 212,572 $ 218,009 $ 240,776 $ 253,640 $ 255,242 $ 286,726 $ 322,136 $ 339,322 $ 341,080 $ 340,234 $ 361,464 Notes: Columns may not add to totals shown because of rounding. (a) For purposes of this Report, the planned refunding of outstanding Series 2005A Intermediate Lien Bonds, which is expected to result in debt service savings, is not incorporated. Any other potential future refundings are also not incorporated. (b) Preliminary estimate of Series 2015 Bonds and Future Revenue Bonds debt service based on 6.00% interest rate, 25 year bond term, required debt service reserve fund deposit, years of capitalized interest, and estimated costs of issuance. Source: Port of Seattle. B-38

136 Exhibit E APPLICATION OF GROSS REVENUE Port of Seattle Fiscal Years Ending December 31 (in thousands) The forecasts presented in this exhibit were prepared using information from the sources indicated and assumptions provided by Port management, as described in the accompanying text. Inevitably, some of the assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between the forecast and actual results, and those differences may be material. Actual Forecast GROSS REVENUE Airport $ 406,080 $ 431,929 $ 463,529 $ 486,065 $ 502,060 $ 543,601 $ 580,430 $ 615,188 $ 632,553 $ 641,415 $ 637,898 Port of Seattle facilities licensed to Seaport Alliance 68,413 61,227 66,131 67,209 68,447 69,735 71,062 72,489 74,049 75,646 68,288 Other Port Businesses 60,445 63,372 62,831 64,557 66,648 69,292 71,586 73,857 75,987 78,188 80,529 Gross Revenue [A] $ 534,938 $ 556,528 $ 592,491 $ 617,830 $ 637,156 $ 682,628 $ 723,078 $ 761,535 $ 782,589 $ 795,249 $ 786,715 APPLICATION OF GROSS REVENUE Operating Expenses [B] $ 309,334 $ 332,422 $ 339,873 $ 350,127 $ 362,445 $ 376,533 $ 391,698 $ 409,298 $ 426,507 $ 442,801 $ 458,024 Tax Levy Adjustment (a) [C] (19,083) (40,059) (32,271) (28,989) (28,988) (28,991) (32,656) (33,932) (33,074) (33,063) (44,418) Adjusted Operating Expenses [D] = [B]+[C] $ 290,251 $ 292,363 $ 307,602 $ 321,137 $ 333,457 $ 347,542 $ 359,042 $ 375,366 $ 393,433 $ 409,738 $ 413,606 Revenue Bond Debt Service First Lien Revenue Bond Debt Service $ 61,214 $ 60,927 $ 52,655 $ 54,279 $ 53,625 $ 66,836 $ 59,272 $ 60,144 $ 46,749 $ 55,072 $ 64,286 Less: First Lien Debt Service paid with PFC Revenues (1,893) Less: First Lien Debt Service paid with CFC Revenues (19,632) (20,263) (21,831) (23,189) (24,795) (26,430) (18,864) (18,864) (18,864) (27,182) (36,398) Total First Lien Revenue Bond Debt Service paid from Gross Revenue [E] $ 39,689 $ 40,664 $ 30,824 $ 31,090 $ 28,830 $ 40,406 $ 40,408 $ 41,280 $ 27,885 $ 27,890 $ 27,888 Intermediate Lien Revenue Bond Debt Service (b) $ 145,522 $ 134,551 $ 156,637 $ 158,211 $ 159,110 $ 171,745 $ 206,061 $ 233,910 $ 247,137 $ 244,747 $ 254,260 Less: Intermediate Lien Revenue Bond Debt Service paid with PFC Revenues (29,730) (27,040) (27,040) (27,040) (27,040) (27,040) (49,208) (50,880) (52,589) (54,348) (71,098) Total Intermediate Lien Revenue Bond Debt Service paid from Gross Revenue [F] $ 115,792 $ 107,511 $ 129,597 $ 131,171 $ 132,070 $ 144,705 $ 156,853 $ 183,030 $ 194,548 $ 190,399 $ 183,163 Subordinate Lien Bond Debt Service $ 5,836 $ 22,531 $ 31,485 $ 41,150 $ 42,507 $ 48,145 $ 56,803 $ 45,268 $ 47,193 $ 40,415 $ 42,918 Less: Subordinate Lien Revenue Bond Debt Service paid with PFC Revenues (1,501) (6,760) (6,760) (6,760) (6,760) (6,760) (12,302) (12,720) (13,147) (13,587) (17,774) Total Subordinate Lien Revenue Bond Debt Service paid from Gross Revenue [G] $ 4,335 $ 15,771 $ 24,725 $ 34,390 $ 35,747 $ 41,385 $ 44,501 $ 32,548 $ 34,046 $ 26,828 $ 25,144 Remaining Gross Revenue (c) [H] 84, ,219 99, , , , , , , , ,914 Total application of Gross Revenue [I]=[D+E+F+G+H] $ 534,938 $ 556,528 $ 592,491 $ 617,830 $ 637,156 $ 682,628 $ 723,078 $ 761,535 $ 782,589 $ 795,249 $ 786,715 Notes: Columns may not add to totals shown because of rounding. (a) For purposes of calculating debt service coverage, Tax Levy amounts remaining after payment of General Obligation Bond debt service offset Operating Expenses. The Port is permitted but not obligated to pay Operating Expenses with Tax Levy amounts remaining after payment of General Obligation Bond debt service. (b) Does not incorporate (1) planned Series 2015B Intermediate Lien Refunding Bonds expected to refund outstanding Series 2005A Intermediate Lien Bonds and expected to result in debt service savings or (2) any other potential refundings. Series 2005A Intermediate Lien debt service (prior to the expected refunding) is incorporated. (c) Available to fund reserve accounts, fund Repair and Renewal Fund, retire revenue bond debt, make necessary improvements/repairs, or for any lawful Port purpose. Source: Port of Seattle. B-39

137 The forecasts presented in this exhibit were prepared using information from the sources indicated and assumptions provided by Port management, as described in the accompanying text. Inevitably, some of the assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between the forecast and actual results, and those differences may be material. Actual Forecast Gross Revenue [A] $ 534,938 $ 556,528 $ 592,491 $ 617,830 $ 637,156 $ 682,628 $ 723,078 $ 761,535 $ 782,589 $ 795,249 $ 786,715 Less: CFC Revenues not available to pay revenue bond debt service [B] (13,608) (13,953) (12,475) (12,103) (11,319) (10,738) (17,381) (23,481) (24,523) (18,383) (11,371) Gross Revenue available for revenue bond debt service [C]=[A+B] $ 521,330 $ 542,575 $ 580,016 $ 605,728 $ 625,837 $ 671,891 $ 705,697 $ 738,054 $ 758,066 $ 776,866 $ 775,344 Operating Expenses [D] $ 309,334 $ 332,422 $ 339,873 $ 350,127 $ 362,445 $ 376,533 $ 391,698 $ 409,298 $ 426,507 $ 442,801 $ 458,024 Less: Operating Expenses paid from sources other than Gross Revenue [E] (7,178) (7,615) (7,598) (7,788) (7,982) (8,182) (8,386) (8,596) (8,811) (9,031) (9,257) Tax Levy Adjustment (a) [F] (19,083) (40,059) (32,271) (28,989) (28,988) (28,991) (32,656) (33,932) (33,074) (33,063) (44,418) Adjusted Operating Expenses [G]=[D+E+F] $ 283,073 $ 284,747 $ 300,005 $ 313,350 $ 325,475 $ 339,360 $ 350,656 $ 366,770 $ 384,622 $ 400,707 $ 404,349 Non Operating Revenue and Expenses (net) (b) [H] 15,580 (15,763) (16,404) (8,193) (3,213) (14,654) (14,381) (8,462) (19,581) (27,230) (26,906) Revenues Available for First Lien Revenue Bond Debt Service [I]=[C G+H] $ 253,837 $ 242,065 $ 263,608 $ 284,184 $ 297,149 $ 317,877 $ 340,660 $ 362,822 $ 353,863 $ 348,928 $ 344,089 First Lien Revenue Bond Debt Service [J] $ 61,214 $ 60,927 $ 52,655 $ 54,279 $ 53,625 $ 66,836 $ 59,272 $ 60,144 $ 46,749 $ 55,072 $ 64,286 INTERMEDIATE LIEN REVENUE BONDS Available Intermediate Lien Revenues [K]=[I] [J] $ 192,623 $ 181,138 $ 210,953 $ 229,905 $ 243,524 $ 251,041 $ 281,388 $ 302,678 $ 307,114 $ 293,856 $ 279,803 Prior Lien Debt Service offset paid by PFC Revenues (c) [L] 1,893 Prior Lien Debt Service offset paid by CFC Revenues (d) [M] 19,632 20,263 21,831 23,189 24,795 26,430 18,864 18,864 18,864 27,182 36,398 Adjusted Available Intermediate Lien Revenues [N]=[K+L+M] $ 214,148 $ 201,401 $ 232,784 $ 253,094 $ 268,319 $ 277,471 $ 300,252 $ 321,542 $ 325,978 $ 321,039 $ 316,201 Intermediate Lien Revenue Bond Debt Service (e) [O] $ 145,522 $ 134,551 $ 156,637 $ 158,211 $ 159,110 $ 171,745 $ 206,061 $ 233,910 $ 247,137 $ 244,747 $ 254,260 Less: Intermediate Lien Revenue Bond Debt Service paid with PFC Revenues (f) [P] (29,730) (27,040) (27,040) (27,040) (27,040) (27,040) (49,208) (50,880) (52,589) (54,348) (71,098) Total Intermediate Lien Revenue Bond Debt Service net of offsets [Q]=[O+P] $ 115,792 $ 107,511 $ 129,597 $ 131,171 $ 132,070 $ 144,705 $ 156,853 $ 183,030 $ 194,548 $ 190,399 $ 183,163 Intermediate Lien Revenue Bond Debt Service Coverage Ratio =[N]/[Q] Required Intermediate Lien Revenue Bond Debt Service Coverage Ratio Required Test #1 Ratio Available Intermediate Lien Revenues as First Adjusted (g) SUBORDINATE LIEN REVENUE BONDS Net Revenues Remaining After Payment of Intermediate Lien Debt Service [R]=[N] [Q] $ 98,357 $ 93,890 $ 103,187 $ 121,924 $ 136,249 $ 132,766 $ 143,399 $ 138,511 $ 131,430 $ 130,640 $ 133,038 Subordinate Lien Bond Debt Service [S] 5,836 22,531 31,485 41,150 42,507 48,145 56,803 45,268 47,193 40,415 42,918 Less: Subordinate Lien Revenue Bond Debt Service paid with PFC Revenues [T] (1,501) (6,760) (6,760) (6,760) (6,760) (6,760) (12,302) (12,720) (13,147) (13,587) (17,774) Total Subordinate Lien Revenue Bond Debt Service net of offsets [U]=[S+T] $ 4,335 $ 15,771 $ 24,725 $ 34,390 $ 35,747 $ 41,385 $ 44,501 $ 32,548 $ 34,046 $ 26,828 $ 25,144 Subordinate Lien Revenue Bond Debt Service Coverage Ratio =[R]/[U] Notes: Columns may not add to totals shown because of rounding. (a) For purposes of calculating debt service coverage, Tax Levy amounts remaining after payment of General Obligation Bond debt service offset Operating Expenses. The Port is permitted but not obligated to pay Operating Expenses with Tax Levy amounts remaining after payment of General Obligation Bond debt service. (b) Includes gain/loss on sale of assets, interest expenses, interest income, environmental expenses, operating grants, discount on amortization, and other miscellaneous adjustments. The amount shown for 2014 (a net revenue amount), included one time legal settlement and operating grant income. For 2015 on, the Port's forecast assumes non operating expenses are higher than non operating revenues. (c) The Port receives certain revenues, including but not limited to PFC Revenues and CFC Revenues, that are not Gross Revenue but may be used to pay debt service on First Lien Revenue Bonds and and Intermediate Lien Revenue Bonds. Under certain circumstances, such amounts used to pay debt service may be added to net revenues or deducted from debt service. This line reflects PFC Revenues that are being used to pay debt service, which are added to Available Intermediate Lien Revenues for purposes of calculating the Intermediate Lien debt service coverage ratio. The Port's financial forecasts do not assume any such offset between 2015 and (d) The Port receives certain revenues, including but not limited to PFC Revenues and CFC Revenues, that are not Gross Revenue but may be used to pay debt service on First Lien Revenue Bonds and and Intermediate Lien Revenue Bonds. Under certain circumstances, such amounts used to pay debt service may be added to net revenues or deducted from debt service. This line reflects CFC Revenues that are being used to pay debt service associated with the Series 2009 First Lien Bonds, which are added to Available Intermediate Lien Revenues for purposes of calculating the Intermediate Lien debt service coverage ratio. (e) Does not incorporate planned Series 2015B Intermediate Lien Refunding Bonds expected to refund outstanding Series 2005A Intermediate Lien Bonds. Series 2005A Intermediate Lien Revenue Bond debt service (prior to the expected refunding) is incoporated. (f) The Port receives certain revenues, including but not limited to PFC Revenues and CFC Revenues, that are not Gross Revenue but may be used to pay debt service on First Lien Revenue Bonds and and Intermediate Lien Revenue Bonds. Under certain circumstances, such amounts used to pay debt service may be added to net revenues or deducted from debt service. This line reflects PFC Revenues that are being used to pay Intermediate Lien Debt Service and are deducted from debt service. (g) Per the Intermediate Lien Rate Covenant, under Test #1, the required coverage ratio is 1.10 times debt service when Prior Lien Debt Service Offsets certified by the Port are included in the numerator. The Port has currently not pledged any debt service offsets. Source: Port of Seattle. Exhibit F DEBT SERVICE COVERAGE Port of Seattle Fiscal Years Ending December 31 (in thousands) B-40

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139 ATTACHMENT 1 AIRLINE TRAFFIC AND FINANCIAL FORECASTS OF AIRPORT Report of the Independent Consultant B 42

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141 AIRLINE TRAFFIC ANALYSIS OVERVIEW OF AIRPORT ROLE Seattle Tacoma International Airport (the Airport) has an important role in the national, State, and local air transportation systems. It was the 15th busiest large hub airport in the United States in terms of total passengers (enplaned plus deplaned) in and the 11th busiest in terms of domestic origin and destination (O&D) passengers for the 12 months ended September In addition to its large O&D passenger base, the Airport is the busiest connecting passenger hub for Alaska Airlines and is a growing connecting passenger hub for Delta Air Lines. Large Origin Destination Passenger Base The Airport s large O&D passenger base is related to the population of the region served by the Airport, the strength of the local economy, and the attractiveness of the Seattle Metropolitan Area (defined later) as a tourist destination. The passenger base of both leisure and business travelers in the Airport service region supports the local and connecting hub operations of Alaska Airlines and Delta Air Lines. For the 12 months ended September 2014, approximately 11.1 million domestic originating passengers used the Airport, making Seattle the 11th busiest O&D passenger market in the United States, as shown on Figure 7. 6 Federal Aviation Administration Enplanements at All Commercial Service Airports, Calendar Year 2013, updated January 26, U.S. Department of Transportation, DB1B Database. B 44

142 Figure 7 TOP 20 U.S. AIRPORTS FOR DOMESTIC ORIGINATING PASSENGERS 12 Months Ended September 2014 Source: U..S. Department of Transportation, DB1B Database. Primary Commercial Service Airport in the Greater Seattle Area Seattle Tacoma International Airport occupies approximately 2,800 acres of land about 12 miles from downtown Seattle. The Airport is the primary airport serving the Seattle Metropolitan Area, which includes King County, Snohomish County, and Pierce County, as shown on Figure 8. Most of this area is located within a 1.5 hour drive from the Airport. Other airports in the region that have scheduled airline service include Vancouver International Airport in British Columbia (139 road miles from downtown Seattle), Portland International Airport (173 road miles from downtown Seattle), and Spokane International Airport in eastern Washington (280 road miles from downtown Seattle). B 45

143 Figure 8 SEATTLE AIRPORT SERVICEE REGION Several smaller airports with limited regional airline passenger air and cargo service are located in the greater Seattlee area. One such airport is Paine Field, which is located approximately 24 road miles from downtown Seattle. In March 2014, the Snohomish County Council entered into an agreement with a private company to complete environmental analyses regarding design of a two gate terminal for passenger airline service at Paine Field. If completed and new air service is initiated at Paine Field, the terminal may be able to accommodate up to 23 flights per day. In 2014, Paine Field had no scheduled commercial airline service. Other airports in the greater Seattle area where scheduled airline service hass been discussed include King County International Airport/Boeing Field, which is approximate ely 11 miles from the Airport. The following sections of the airline traffic analysis present a review of (1) the economic basis for airline traffic at the Airport, including socioeconomic, local industry, and other factors that contribute to passenger and cargo demand; (2) airline traffic trendss at the Airport, including airlines serving the Airport; enplaned passengers using the Airport; trends in enplaned, originating, and connecting passengers, including the role of the Airport in the route systems of Alaska Airlines and Delta Air Lines; and a review of air cargo activity at the Airport; (3) the key factors that will affect future airline traffic, both at the Airport and nationwide; and (4) forecasts of airline traffic at the Airport through 2024, including enplaned passengers. B 46

144 ECONOMIC BASIS FOR AIRLINE TRAFFIC The economy of an airport service region is a major factor affecting long term airline traffic at the airport(s) serving the region. Generally, regions with large populations, high levels of employment, and high average per capita personal income will generate a high demand for airline travel. The demographics and economy of the region as measured by changes in population, employment, and per capita personal income as well as airline service and airfares are typically the most important factors affecting O&D passenger demand at the airport(s) serving the region. Historical Population, Employment, and Per Capita Personal Income The Seattle Metropolitan Area is the major business center in the State of Washington. In 2014, the Seattle Metropolitan Area accounted for 51.2% of Washington s population and 58.5% of its nonagricultural employment. Seattle is ranked as the Number 1 Best City for Jobs according to Forbes 2015 ranking. 8 Additionally, Seattle is ranked on Forbes 2014 list as the Number 9 Best Place for Business and Careers. 9 Seattle is also the fastest growing U.S. city among the 50 most populous U.S. cities. 10 Table 1 presents historical and projected population, nonagricultural employment, and per capita personal income in the Seattle Metropolitan Area, the State of Washington, and the United States for 1990 through Population. As shown in Table 1, the population of the Seattle Metropolitan Area has historically increased at rates generally comparable to those of the State of Washington and considerably higher than the national average. Population in the Seattle Metropolitan Area increased an average of 1.7% per year between 1990 and 2000, and 1.3% per year between 2000 and Population in the United States increased an average of 1.2% per year between 1990 and 2000, and 0.9% per year between 2000 and B 47

145 Table 1 HISTORICAL AND PROJECTED SOCIOECONOMIC DATA Seattle Metropolitan Area, State of Washington, and United States Population (thousands) Nonagricultural employment (thousands) Per capita personal income (2009 USD) Seattle Seattle Seattle Metropolitan State of Metropolitan State of Metropolitan State of Area Washington United States Area Washington United States Area Washington United States Historical ,579 4, ,623 1,646 2, ,178 $33,120 $29,119 $28, ,052 5, ,162 2,041 3, ,254 46,408 38,988 36, ,448 6, ,330 2,153 3, ,970 47,900 41,341 39, ,500 6, ,592 2,190 3, ,200 48,945 42,155 39, ,546 6, ,659 2,225 3, ,565 49,254 42,471 40, ,593 7, ,791 2,260 3, ,963 49,654 42,828 40, ,640 7, ,977 2,296 3, ,394 50,118 43,242 41,079 Projected ,688 7, ,187 2,332 3, ,858 50,631 43,699 41, ,934 7, ,554 2,522 4, ,685 53,728 46,455 44, ,187 8, ,194 2,724 4, ,403 57,529 49,838 47,848 Average annual percent increase (decrease) Historical % 1.1% 0.8% (1.3)% (1.2)% (0.4)% (0.2)% (0.4)% 1.3 % Projected % 1.3% 1.0% 1.6% 1.6% 1.4% 1.2% 1.2% 1.3% Note: The Seattle Metropolitan Area includes King County, Snohomish County, and Pierce County. Source: Woods & Poole Economics, Inc., Seattle Tacoma Bellevue, Washington Metropolitan Statistical Area 2014 Data Pamphlet, The Seattle Tacoma Bellevue area is the same as the Seattle Metropolitan Area. B 48

146 Employment. Nonagricultural employment in the Seattle Metropolitan Area generally correlates with national employment trends, as shown in Table 1 and on Figure 9. Nonagricultural employment in the Seattle Metropolitan n Area expanded during the 1990s, increasing an average of 2.2% per year between 1990 and Nonagricultural employment in the Seattle Metropolitan Area and the nation as a whole remained relatively unchanged between 2000 and Between 2010 and 2014, nonagricultural employment increased in the Seattle Metropolitan Area, the State, and the nation. Figure 9 TRENDS IN NONAGRICULTURALL EMPLOYMENT Source: U.S. Department of Labor, Bureau of Labor Statistics, accessed March Nonagricultural Employment by Industry Sector. Figure 10 shows the comparative distribution of nonagricultural employment by industry sector for the Seattle Metropolitan Area in 2004 and 2014 and for the State and the nation in Employment in services (41.1%) including health, education, professional, business, and other services and trade and transportation (18.1%) accounted for a combined 59.2% of total nonagricultural employment in the Seattle Metropolitan Area in B 49

147 Figure 10 COMPARATIVE DISTRIBUTION OF EMPLOYMENT BY INDUSTRY SECTOR Note: Columns may not add to 100.0% because of rounding. Source: U.S. Department of Labor, Bureau of Labor Statistics, accessed March Major Employers. Table 2 lists the 25 largest employers in the State of Washington in 2014, most of which are located in the Seattle Metropolitan Area. The table reflects the diversity of the companies and organizations in the areaa and features some prominent and large employers. The Boeing Co., which anchors the area s aerospace cluster, is the largest employer in the Seattle Metropolitan Area, as well as one of the largest exporters in the United States. Other major employers that are known worldwide include industry leaders Microsoft Corp., Amazon.com, Inc., and Starbucks Corporation, among others. The U.S. military is also a major employer in the Seattle Metropolitan Area Jointt Base Lewis McChord and Navy Region Northwest rank second and fourth, respectively, amongg the area s largest employers. Per Capita Personal Income. Per capita personal income in the Seattle Metropolitan Area historically has exceeded that in the State of Washington and the nation, as shown in Table 1. Average per capita income in the Seattle Metropolitan Area in 2014 exceeded that of the State and the nation by 15.9% and 22. 0%, respectively. Growth in passenger traffic and the propensity to travel in a region are closely related to perr capita personal income levels, as (1) income tends to reflect the level of education of the workforce, and a more highly educated workforce is likely to concentrate in occupations with a higher propensity to travel and (2) income growth translates into disposable income, which reflectss the potential for growth in the number of trips per person. B 50

148 Table 2 25 LARGEST EMPLOYERS IN 2014 State of Washington Rank Company Employees in Washington 1 The Boeing Co. 81,939 2 Joint Base Lewis McChord (military base) 56,000 3 Microsoft Corp. 43,031 4 Navy Region Northwest (military base) 43,000 5 University of Washington 30,200 6 Amazon.com, Inc.* 24,700 7 Providence Health & Services 19,456 8 Wal Mart Stores, Inc. 19,350 9 Fred Meyer Stores 15, King County Government 13, Franciscan Health System 12, United States Postal Service 11, Starbucks Corporation 11, MultiCare Health System 10, Swedish Health Services 10, City of Seattle 10, Costco Wholesale Corp. 9, Nordstrom, Inc. 8, PeaceHealth 8, Group Health Cooperative 7, Alaska Air Group, Inc. 6, Virginia Mason Medical Center 6, Fairchild Air Force Base (military base) 5, Target 5, Seattle Public Schools 5,583 * The number of Amazon employees was estimated based on the company s square footage. Source: Puget Sound Business Journal Book of Lists , as of July 25, B 51

149 Visitors to Seattle Visit Seattle, which serves as Seattle/King County s official destination marketing organization, commissioned Tourism Economics to prepare visitor statistics for the Seattle tourism market. Key statistics on Seattle/King County tourism for 2013 (the latest data available as of the date of this Report) were as follows: Seattle/King County growth outperformed State growth in 2013, with a 2.9% increase in overnight visitors to 18.6 million in 2013, while the number of overnight visitors to the State increased 2.0% to 37.2 million. Seattle/King County visitor spending reached $6 billion in 2013, increasing 6.9% between 2012 and Visitor spending benefits many different businesses, including food and beverage, lodging, recreation, retail, and transportation. Leisure visitors to Seattle/King County accounted for the majority of visitors (approximately 87.0% in 2013); business travelers accounted for the remaining 13.0%. In 2013, domestic visitors to Seattle/King County accounted for 92% of total visitors, with 33 million. International visitors accounted for the remaining 8.0% (2.8 million). Table 3 summarizes visitor activity statistics in the Seattle/King County areas in 2013 based on the Tourism Economics analysis. Table VISITOR ACTIVITY AND EXPENDITURES Seattle/King County Number of Visitors Visitor Expenditures Overnight Visitors 18.6 million (2.9% increase over the previous year) Overnight Visitors $4.2 billion (7.1% increase over the previous year) Day Visitors 17.2 million Total Visitor Expenditures $6.0 billion (6.9% increase over the previous year) Total Visitors 35.8 million Domestic Expenditures 84% Purpose of Trip International Expenditures 16% Business 13% Leisure 87% Region Domestic Visitors 92% International Visitors 8% Note: Percentage changes shown in parentheses are for 2013 compared with Source: Tourism Economics for Visit Seattle, August 14, B 52

150 Economic Outlook The economic outlook for the Seattle Metropolitan Area, the State of Washington, the United States and the global economy forms a basis for forecast growth in airline traffic at the Airport. Both airline travel and the movement of cargo through the Airport depend on the economic linkages between and among the regional, State, national, and global economies. The economic and other assumptions underlying the forecasts of enplaned passengers are based on a review of regional, State, national, and global economic outlooks as well as an analysis of historical socioeconomic trends and airline traffic trends, as presented in the later section titled Airline Traffic Trends. Seattle Metropolitan Area Economy. Recently, the Seattle Metropolitan Area economy has performed better than the overall U.S. economy, especially with respect to total employment and unemployment rates. In December 2014, the Seattle Metropolitan Area unemployment rate was 4.9% compared with the national average of 5.4% as of the same time period. 11 King County, which has approximately 57% of the Seattle Metropolitan Area s population 12 and includes the City of Seattle, had an unemployment rate of 4.2%. The other two counties in the Seattle Metropolitan Area, Snohomish County and Pierce County, had unemployment rates of 4.6% and 7.2%, respectively. Consumer price inflation remained relatively low, mainly as a result of decreasing energy costs; from December 2013 to December 2014, consumer prices increased 1.7% in the Seattle Metropolitan Area compared with 0.7% in the nation, which was largely driven by growth in housing costs in the Seattle area. 13 Economic forecasts for King County show continuing economic and employment growth as part of a maturing economic recovery, but at a slower rate. 14 Population As previously mentioned, Seattle is the fastest growing city among the 50 most populous U.S. cities. Woods & Poole Economics (W&P) forecasts annual population growth for the Seattle Metropolitan Area similar to that of the State, 1.3% per year, from 2015 to Nonagricultural employment W&P also forecasts for nonagricultural employment in the Seattle Metropolitan Area to be similar to that of the State, 1.6% from 2014 to State of Washington Economy. According to the Washington State Economic and Revenue Forecast Council, jobs were added at a faster than anticipated pace in the State from the fourth quarter of 2014 to the first quarter of In the forecasts, a decline in aerospace employment was assumed, which was forecast to be mild because of large and increasing order backlogs. The forecasts also incorporate Microsoft Corporation s layoffs announced in July 11 U.S. Department of Labor, Bureau of Labor accessed March U.S. Census Population estimates, July 1, 2013, and, accessed May March 2015 King County Economic and Revenue Forecast, B 53

151 2014, which are expected to result in the loss of about 2,700 jobs in the Puget Sound region. Washington exports increased to an all time high $25.2 billion in the fourth quarter of 2014, largely related to aerospace. 15 Population W&P forecasts annual population growth of 1.3% in the State from 2015 to 2025 for the State of Washington. Nonagricultural employment W&P forecasts nonagricultural employment in the State to increase 1.6% in 2015, to increase an annual average of 1.6% from 2015 to 2020, and to increase an annual average of 1.5% from 2020 to National Economy. The national economy continues to recover from the financial crisis and global recession that began in late Using 1991 as an index year, Figure 11 shows changes in U.S. Gross Domestic Product (GDP) in 2009 dollars and numbers of enplaned passengers at the Airport and in the nation from 1991 through Over this period, changes in the Airport s passenger traffic have closely correlated with national passenger trends, although the Airport has outperformed the U.S. average. Changes in both national and local passenger traffic have closely correlated with changes in GDP since 1991, including decreases during the and four earlier national economic recessions. From 1991 through 2014, U.S. GDP increased an average of 2.6% per year, while the numbers of enplaned passengers increased at annual averages of 2.5% in the nation and 3.6% at the Airport. During the most recent economic recession, the number of passengers enplaned at the Airport increased 2.2% in 2008 and decreased 3.0% in In comparison, the number of enplaned passengers in the United States decreased 3.1% in 2008 and 5.1% in 2009, based on U.S. Department of Transportation (DOT) data. During the recovery from the recent recession, the number of passengers enplaned at the Airport increased 1.0% in 2010, 4.0% in 2011, 1.2% in 2012, 4.7% in 2013, and 7.7% in Data available from the U.S. DOT for all U.S. airports indicate that the number of enplaned passengers in the United States increased 2.5% in 2010, 1.8% in 2011, 1.4% in 2012, 1.4% in 2013, and 2.5% in The January 2015 Congressional Budget Office forecasts real U.S. GDP to increase 2.8% in calendar year 2015 and 3.0% in 2016, declining thereafter to a rate of growth of 2.2% per year by B 54

152 Figure 11 U..S. GROSS DOMESTIC PRODUCT AND ENPLANED PASSENGERS Sources: U.S. GDP U.S. Department of Commerce, Bureau of Economic Analysis, accessed March 2015; enplaned passengers U..S. Departmentt of Transportation, accessed May Global Economy. Globalization of the world economy has created linkages between national economies that relate not only to trade, but also to airline travel. The economic growth of world regions, in terms of GDP, is directly related to the growth in airline travel. Forecast GDP for world regions is shown in Table 4. In emerging economies with a growingg middle class, such as Mexico, India, and China, growth inn numbers of airline passengers has been significant. As countries and regions experience strong economic growth, the propensity to travel increases, resulting in more leisure travel by residents and more business travel within those areas and to the United States, including the Seattle Metropolitan Area. B 55

153 Table 4 HISTORICAL AND FORECAST GROSS DOMESTIC PRODUCT GROWTH BY WORLD REGION Average annual percentage increase in GDP (in billions of 2010 USD) Origin Destination Market Historical Forecast Asia (a) 4.3% 4.3% Atlantic (b) 1.9% 2.4% Canada 1.9% 2.3% Latin America (c) 3.1% 3.4% United States 1.8% 2.5% World 2.5% 3.1% (a) Includes Asia, the Pacific Basin, Australia, and New Zealand. (b) Includes Europe, the Middle East, and Africa (c) Includes Mexico, Central America, the Caribbean, and South America. Source: IHS Global Insight as reported in Federal Aviation Administration, Aerospace Forecasts, Fiscal Years , accessed April 2015 Risks to the Economic Outlook. Although both the short term and mid to long term economic outlooks are favorable, there are risks that these projections/forecasts may not be achieved. Key risks to such achievement include the following: U.S. consumers may not be able to generate much spending growth as a result of a lack of growth in wages, persistent unemployment, or other factors. The recent decline in fuel prices could be reversed. Increases in fuel prices related to increasing global demand and political instability in oil producing countries would present a risk to continued economic recovery and growth. A significant worsening of the banking and fiscal problems in Europe could lead to further turmoil in international financial markets, which could affect U.S. financial markets and in turn, economic recovery and growth. Inflation risks persist because of the sizable amount of liquidity that the Federal Reserve Bank has injected into the banking system, which eventually could trigger upward pressures on consumer prices. Also, increases in oil prices and rapid expansion of U.S. industrial capacity could trigger upward pressures on inflation. In the long term, the continuing deficits in the U.S. balance of payments as well as continuing large U.S. fiscal deficits could result in volatility in the currency markets, higher interest rates, and reduced access to credit, thereby presenting a risk to continued economic recovery and growth. B 56

154 Economic Growth Factors. Factors expected to contribute to continued economic growth in the Seattle Metropolitan Area and associated increases in airline travel include (1) diversity in the economic base, which lessens its vulnerability to weaknesses in particular industry sectors; (2) the continued population growth of the Seattle Metropolitan Area; (3) an educated labor force able to support the development of knowledge based and service industries; and (4) the strength of a number of the area s leading businesses. AIRLINE TRAFFIC TRENDS The following sections present the airlines serving the Airport: a discussion of enplaned passengers at the Airport since 2009, passenger market shares of enplaned and originating passengers, and the role of the Airport in the route systems of Alaska Airlines and Delta Air Lines. Airlines Serving the Airport Table 5 lists the passenger airlines that served the Airport as of June As used in this Report and unless otherwise indicated, references to Alaska Airlines, Delta Air Lines, and other passenger airlines include passengers carried by each mainline airline s regional airline partners, when the regional airlines operate flights under the name of mainline airlines. In addition, several all cargo airlines, including Alaska Air Cargo, Cargolux, China Airlines Cargo, Eva Air Cargo, FedEx Express Freight, Korean Air Cargo, and Martinair Cargo provided service at the Airport as of June Table 5 PASSENGER AIRLINES SERVING SEATTLE TACOMA INTERNATIONAL AIRPORT June 2015 Mainline/National Alaska Airlines American Airlines Delta Air Lines Frontier Airlines Hawaiian Airlines jetblue Airways Southwest Airlines Sun Country Airlines United Airlines US Airways Virgin America Regional/Commuter Compass Airlines Horizon Air SkyWest Airlines Foreign Flag Air Canada Air Canada Jazz All Nippon Airways Asiana Airlines British Airways Condor Flugdienst Emirates Eva Airways Hainan Airlines Icelandair Korean Air Lufthansa German Airlines Source: OAG schedule data (PlaneStats.com), accessed June B 57

155 Enplaned Passengers Table 6 summarizes the numbers of enplaned passengers at the Airport from 2009 through 2014, organized by originating, connecting, and total enplaned passengers. The total number of enplaned passengers increased an average of 3.7% per year during the period, with the number of originating and connecting passengers increasing at averages of 3.6% and 3.9% per year, respectively. From January 2015 through May 2015, the total number of enplaned passengers at the Airport increased 13.5% over the same period in the previous year. From January 2015 through May 2015, the total number of enplaned passengers increased 13.0% on Alaska Airlines and 64.4% on Delta Air Lines in comparison to the same period in the previous year. Year Originating passengers Table 6 HISTORICAL ENPLANED PASSENGERS Seattle Tacoma International Airport Connecting passengers Enplaned passengers Percent originating ,547,528 4,062,670 15,610, % ,811,378 3,961,970 15,773, ,145,738 4,251,750 16,397, ,374,304 4,223,020 16,597, ,880,078 4,496,238 17,376, ,794,265 4,922,513 18,716, Average annual percent increase (decrease) % (2.5%) 1.0% (0.7) Source: Port of Seattle records. Since 2009, the number of enplaned passengers at the Airport has increased, mainly as a result of increased economic activity in the Seattle Metropolitan Area and competition between Alaska Airlines, which operates its primary hub at the Airport, and Delta Air Lines, which has established a smaller hub at the Airport that is growing rapidly. Alaska Airlines operates primarily domestic flights at the Airport, along with some flights to Canada and Mexico. The share of total Airport passengers enplaned by Alaska Airlines increased from 49.1% in 2010 to 51.6% in 2014, while the share of Airport passengers enplaned by Delta increased from 11.9% to 15.6% over the same period. From 2009 to 2014, Alaska Airlines increased its number of enplaned passengers at the Airport an average of 5.2% per year, and Delta increased its number of enplaned passengers at the B 58

156 Airport an average of 8.3% per year from a much smaller base. Alaska Airlines growth rate at the Airport has been consistent with its system wide growth rate. Delta s growth rate at the Airport has far exceeded its system wide growth rate. Delta has added flights from the Airport to Asia and other international destinations along with domestic flights to connect passengers with their international flights. Between 2013 and 2014, Alaska Airlines increased its number of enplaned passengers at the Airport 7.5% and Delta increased its number of enplaned passengers at the Airport 38.4%. For Alaska Airlines, the number of originating passengers increased at a slightly higher rate (8.2%) than connecting passengers (6.4%). For Delta, the number of connecting passengers increased at a much higher rate (70.7%) than originating passengers (28.9%). As shown on Figure 12, the average Airport one way domestic airfare increased between 2009 and 2012, and has been relatively stable since then. Average airfare data exclude ancillary fee revenue, such as baggage fees and reservation change fees, which have continued to increase since The Airport s average domestic airfare increased from $145 in 2009 to $184 in 2012, and remained stable at $183 in 2013 and During this same period, the averagee U.S. domestic airfare increased from $143 in 2009 to $176 inn 2012, and then increased to $186 in Figure 12 AIRFARES AND ORIGINATING PASSENGERSS Seattle Tacoma International Airport (a) 2014 representss the 12 months ended September 30, 2014 for airfares. Source: U.S. Department of Transportation, DB1B; Port records. 16 Source: U.S. Department of Transportation, DB1B for average domestic airfares. For 2014, average airfares are for the year ending September B 59

157 The average annual increase in domestic airfares from 2009 to 2014 was 4.6% for the Airport and 5.4% for the nation. The stability of domestic airfares at the Airport since 2012 in comparison with average U.S. airfares may be a reflection of the increasing level of airline competition at the Airport. Lower airfares are generally correlated with higher numbers of originating passengers. Nonstop international service is provided from the Airport to Asia, Canada, Mexico, Europe, and the Middle East, and the Airport serves as a growing international gateway for Delta. As shown in Table 7, the number of enplaned international passengers at the Airport has increased every year since 2009, and at a faster rate than the number of domestic passengers. In 2014, international enplaned passengers accounted for 10.1% of the Airport s total enplaned passengers, up from 8.4% in The number of international passengers using the Airport in 2015 is forecast to increase again as a result of additional new international flights that began in late 2014 or are currently scheduled to begin in December International passengers are important to the Port and to the region because they typically generate significant economic benefits. Table 7 HISTORICAL DOMESTIC AND INTERNATIONAL ENPLANED PASSENGERS Seattle Tacoma International Airport Year Domestic International Enplaned passengers Percent international ,296,186 1,314,012 15,610, % ,363,581 1,409,767 15,773, ,913,831 1,483,657 16,397, ,982,946 1,614,378 16,597, ,604,129 1,772,187 17,376, ,824,379 1,892,399 18,716, Average annual percent increase (decrease) % 7.3% 1.0% Source: Port of Seattle records. B 60

158 Passenger Market Shares Enplaned passenger market shares for the airlines serving the Airport are shown in Table 8 and on Figure 13. In 2014, Alaska Airlines enplaned the largest share of passengers (51.6%) at the Airport, followed by Delta Air Lines (15.6%). The share of Airport passengers enplaned by Alaska Airlines increased from 49.1% in to 51.6% inn 2014, while Delta s enplaned passenger market share increased from 11.9% to 15.6% during the same period. Alaska Airlines continues to develop the Airport as its primary hub, while Delta continues to increase its departures and connecting flights at the Airport and, in both cases, this has resulted in a loss of enplaned passenger market shares for other major domestic airlines serving the Airport, as shown in Figure 13. Figure 13 ENPLANED PASSENGER MARKET SHARES Seattle Tacoma International Airport Note: Includes regional/commuter affiliates. (a) Includes dataa for Continental Airlines, which merged with United Airlines in October (b) Includes dataa for AirTran Airways, which merged with Southwest Airlines in May (c) Includes dataa for US Airways, which merged with American Airlines in April Source: Port of Seattle records. B 61

159 As shown in Table 8, the number of enplaned passengers at the Airport has increased each year since Increased activity by Alaska Airlines and Delta Air Lines has offset decreases by United Airlines, which has experienced reduced numbers of enplaned passengers and market share at the Airport every year since Table 8 HISTORICAL ENPLANED PASSENGERS Seattle Tacoma International Airport Alaska Airlines 7,508,150 7,745,902 8,191,666 8,395,543 8,986,955 9,657,745 Delta Air Lines 1,950,196 1,877,680 1,891,782 1,911,144 2,103,619 2,912,159 United Airlines (a) 1,915,016 1,913,569 1,849,468 1,783,441 1,702,959 1,555,285 Southwest Airlines (b) 1,494,758 1,497,601 1,582,905 1,477,779 1,482,430 1,493,989 American Airlines (c) 1,190,709 1,137,311 1,167,599 1,222,628 1,265,485 1,252,582 Other 1,551,369 1,601,285 1,714,068 1,806,789 1,834,868 1,845,018 Total 15,610,198 15,773,348 16,397,488 16,597,324 17,376,316 18,716,778 Percent of total Alaska Airlines 48.1% 49.1% 50.0% 50.6% 51.7% 51.6% Delta Air Lines 12.5% 11.9% 11.5% 11.5% 12.1% 15.6% United Airlines (a) 12.3% 12.1% 11.3% 10.7% 9.8% 8.3% Southwest Airlines (b) 9.6% 9.5% 9.7% 8.9% 8.5% 8.0% American Airlines (c) 7.6% 7.2% 7.1% 7.4% 7.3% 6.7% Other 9.9% 10.2% 10.5% 10.9% 10.6% 9.9% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Notes: Includes enplaned passengers on the airline s regional/commuter affiliates. Columns may not add to totals shown because of rounding. (a) Includes activity of Continental Airlines, which merged with United Airlines in October (b) Includes activity of AirTran Airways, which merged with Southwest Airlines in May (c) Includes activity of US Airways, which merged with American Airlines in April Source: Port of Seattle records. Originating Passengers Table 9 shows originating passenger traffic at the Airport by airline for 2009 through 2014, as well as each airline s market share of total originating passengers. Originating passenger market share trends are similar to enplaned passenger market share trends. Alaska Airlines share of originating passengers is lower than its share of enplaned passengers at the Airport because it has the highest connecting percentage at the Airport among the domestic airlines. Note that because foreign flag airlines are required to report their number of U.S. enplaned passengers, but not their number of O&D passengers, various methodologies were used to estimate foreign flag airline originating passengers. The method used to estimate numbers of originating passengers shown in Table 9 varies from the method used by the Port and therefore the number of originating passengers differs slightly. The calculation of the number of B 62

160 enplaned passengers is not affected, because both domestic and foreign flag airlines are required to report their numbers of U.S. enplaned passengers. Table 9 HISTORICAL ORIGINATING PASSENGERS BY AIRLINE Seattle Tacoma International Airport Alaska Airlines 4,240,961 4,468,008 4,657,672 4,872,966 5,238,219 5,668,037 Delta Air Lines 1,505,084 1,490,879 1,470,729 1,520,888 1,624,488 2,094,480 United Airlines (a) 1,612,266 1,607,863 1,532,808 1,479,174 1,428,095 1,354,296 Southwest Airlines (b) 1,455,264 1,466,290 1,549,697 1,468,960 1,471,665 1,483,868 American Airlines (c) 1,061,988 1,020,886 1,033,965 1,075,591 1,115,549 1,099,085 Other 1,289,528 1,346,578 1,430,048 1,479,555 1,454,963 1,467,071 Total 11,165,091 11,400,504 11,674,919 11,897,134 12,332,979 13,166,837 Percent of total Alaska Airlines 38.0% 39.2% 39.9% 41.0% 42.5% 43.0% Delta Air Lines 13.5% 13.1% 12.6% 12.8% 13.2% 15.9% United Airlines (a) 14.4% 14.1% 13.1% 12.4% 11.6% 10.3% Southwest Airlines (b) 13.0% 12.9% 13.3% 12.3% 11.9% 11.3% American Airlines (c) 9.5% 9.0% 8.9% 9.0% 9.0% 8.3% Other 11.5% 11.8% 12.2% 12.4% 11.8% 11.1% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Notes: Includes enplaned passengers on each airlines regional/commuter affiliates. Columns may not add to totals shown because of rounding. The percentage of originating passengers for each airline was calculated using the U.S. DOT s DB1B database; those percentages were applied to the Port s enplaned passenger numbers to estimate originating and connecting passengers by airline each year. The originating percentage for the Other category was calculated on an aggregate basis for all of the remaining airlines operating at the Airport. (a) Includes activity of Continental Airlines, which merged with United Airlines in October (b) Includes activity of AirTran Airways for all years, which merged with Southwest Airlines in May (c) Includes activity of US Airways, which merged with American Airlines in April Sources: Port of Seattle records; U.S. Department of Transportation, DB1B Database. Top Domestic Passenger Markets Table 10 presents the Airport s top 20 domestic O&D passenger markets for the 12 months ended September 30, The table also shows the average number of seats on scheduled daily nonstop departures from the Airport to each of those markets in March Of the scheduled daily nonstop seats from the Airport in March 2015, 65.3% were to the top 20 markets listed in the table. Originating passengers in those markets represented 72.8% of the Airport s domestic originating passengers. B 63

161 Table 10 TOP 20 DOMESTIC ORIGIN DESTINATION PASSENGER MARKETS AND AIRLINE SERVICE Seattle Tacoma International Airport 12 Months Ended September 30, 2014, except as noted Rank Origin destination market Air miles from Seattle Percent of originating airline passengers March 2015 average daily seats 1 Los Angeles, California (a) % 5,420 2 San Francisco, California (b) % 6,082 3 New York City, New York (c) 2, % 1,363 4 Las Vegas, Nevada % 2,355 5 Phoenix, Arizona 1, % 2,859 6 San Diego, California 1, % 1,821 7 Denver, Colorado 1, % 1,843 8 Chicago, Illinois (d) 1, % 1,995 9 Washington, DC (e) 2, % 1, Dallas/Fort Worth, Texas (f) 1, % 1, Boston, Massachusetts 2, % Sacramento, California % 1, Minneapolis/St. Paul, Minnesota 1, % 1, Spokane, Washington % 1, Salt Lake City, Utah % 1, Atlanta, Georgia 2, % 1, Honolulu, Hawaii 2, % 1, Anchorage, Alaska 1, % 2, Houston, Texas (g) 1, % Orlando, Florida 2, % 209 Cities listed 72.8% 38,340 Other cities 27.2% 20,377 All cities 100.0% 58,716 (a) Los Angeles International, Bob Hope, LA/Ontario International, John Wayne (Orange County), and Long Beach airports. (b) San Francisco, Oakland, and Mineta San Jose international airports. (c) Newark Liberty International, LaGuardia, and John F. Kennedy International airports. (d) Chicago O'Hare and Midway international airports. (e) Reagan Washington National, Baltimore/Washington International, and Washington Dulles International airports. (f) Dallas/Fort Worth International Airport and Love Field. (g) George Bush Intercontinental Airport/Houston and Houston William P. Hobby Airports. Sources: Originating percentage: U.S. Department of Transportation, Origin Destination Survey of Airline Passenger Traffic, Domestic, for the 12 months ended September 30, 2014; departures: OAG schedule data (PlanesStats.com), accessed March B 64

162 Figure 14 presents the airline shares of originating passengers to the Airport s top 10 O&D markets for the 12 months ended September 30, Alaska Airlines accounted for the largest share of originating passengers to 7 of the Airport s top 10 markets: Los Angeles, San Francisco, Las Vegas, Phoenix, San Diego, Denver, and Chicago. Delta accounted for the largest share of originating passengers to New York, where John F. Kennedy International Airport serves as a major Delta hub. United accounted for the largest share of originating passengers to Washington, D.C., where Washington Dulles International Airport serves as a United hub. Figure 14 AIRLINE SHARES OF DOMESTIC ORIGINATING PASSENGERS FOR TOP 10 MARKETS FROM SEATTLE For the 12 Months Ended September 30, 2014 Note: Includes regional/commuter affiliates. (a) Los Angeles International Airport LA/Ontario International, Bob Hope Airport (Burbank), John Wayne Airport (Orange County), and Long Beach airports. (b) San Francisco, Mineta San Jose, and Oakland international airports. (c) John F. Kennedy International, Newark Liberty International, and LaGuardia airports. (d) Chicago O Hare and Chicago Midway international airports. (e) Washingtonn Dulles International, Ronald Reagan Washington National, and Baltimore/Washington International Thurgood Marshall airports. (f) Dallas/Fort Worth International Airport and Love Field. Source: U.S. Department of Transportation, DB1B database, accessed March B 65

163 New International Markets A number of new international routes from the Airport have recently been initiated or announced, including Alaska Airlines service to Cancun, Mexico, which began in November 2014 and Hainan Airlines service to Shanghai, China, which began in June Delta s focus on the Airport has included the addition of new international flights to multiple regions, including Asia (Hong Kong in June 2014; Seoul, South Korea in June 2014; Tokyo, Japan in June 2013; and Shanghai, China in June 2013), Europe (London, UK in March 2014), Mexico (Puerto Vallarta in December 2014 and Los Cabos in February 2015), and Canada (Vancouver in June 2014 and Calgary in November 2014). THE AIRPORT S ROLE IN ALASKA AIRLINES SYSTEM Alaska Airlines Originating and Connecting Passengers Table 11 shows the numbers of originating and connecting passengers for Alaska Airlines from 2009 through 2014, along with the estimated percentage of originating passengers, which ranged from 56.5% to 58.7% during the same period. Table 11 HISTORICAL ENPLANED PASSENGERS ALASKA AIRLINES Seattle Tacoma International Airport Year Originating passengers Connecting passengers Enplaned passengers Percent originating ,240,961 3,267,189 7,508, % ,468,008 3,277,894 7,745, ,657,672 3,533,994 8,191, ,872,966 3,522,577 8,395, ,238,219 3,748,736 8,986, ,668,037 3,989,708 9,657, Average annual percent increase (decrease) % 0.3% 3.2% (0.3) Note: The percentage of originating passengers for Alaska Airlines was calculated using the U.S. DOT DB1B database and applying the percentages to the Port s enplaned passenger numbers to estimate originating and connecting passengers by year. Source: Port of Seattle records, U.S. Department of Transportation DB1B Database. B 66

164 From January 2015 through May 2015, the total number of enplaned passengers increased 13.0% on Alaska Airlines in comparison to the same period in the previous year. As shown on Figure 15, Seattle Tacoma International Airport accounts for the largest share of departing seats in the route system of Alaskaa Airlines, followed by Portland, Anchorage, and Los Angeles International airports. At each of those airports, Alaska Airlines offers less than 40.0% of the seat capacity that it offers at the Airport. The number of departing seats by Alaska Airlines at these airports is a function of many factors, ncluding local population and travel demand, geographic location, competitive factors, and airline strategy. Figure 15 SCHEDULED DEPARTING SEATS AT THE 10 BUSIEST AIRPORTS IN THE ALASKA AIRLINES ROUTE NETWORK IN 2014 Source: OAG Schedule Data ( PlaneStats.com), accessed April As shown on Figure 16, between 2012 and 2013, Alaska Airlines increased its number of scheduled departing seats at all eight of the airports where it has the most activity; between 2013 and 2014, Alaska Airlines increased its number of departing seats at five of those eight airports. Between 2014 and 2015, Alaska Airlines increased its seatt capacity at six of those eight airports, with the largest increase (10%) scheduledd to occur att the Airport. During each of these three years, Alaska Airlines increased its departingg seats at the Airport, its largest hub, by more than 5%, showing the importance of the Airport inn Alaska Airlines route system. B 67

165 At the Airport, the number of Alaska Airlines scheduledd departing seats increased approximately 5.1% between 2012 and 2013, and a further 5.3% between 2013 and Within the 10% increase in scheduled departing seats for Alaska Airlines at the Airport in 2015, 91.6% are related to growth in existing routes and 8.4% are related to the addition of new routes. The airline s capacity growth includes expandedd new service between Seattle and Washington Dulles International Airport, a route previously served only by United; additionally, Alaska Airlines plans to enter the Seattle to New York John F. Kennedy International Airport market and to increase capacity between Seattle and Atlanta in 2015, which are both Delta 17 markets. Figure 16 ALASKA AIRLINES CHANGEE IN SCHEDULED DEPARTING SEATS Source: OAG Schedule Data (PlaneStats.com), accessed March Route Overlap between Alaska Airlines and Delta Air Lines The rapid expansion of service by Delta Air Lines at the Airport is an important and recent development. As presented on Figure 17, by June 2015,, 66.5% of total departing seats offered by Alaskaa Airlines and Delta Air Lines will occur in overlapping markets, compared with 10.1% in June As the two airlines compete in an increasingg number of markets served from the Airport, the risk increases that the level of seat capacity offered at the Airport by both airlines will not be sustainable over the long term. Despite increasing competition at the Airport and in B 68

166 other markets, Alaska Airlines has increased its revenue and profits over the last 2 years, and in 2014, became the second U.S. airline to achieve investment grade status in recent years. 18 Figure 17 ALASKA AIRLINES AND DELTA D AIR LINES NETWORK OVERLAP DEPARTINGG SEATS Seattle Tacoma International Airport Source: OAG Schedule data (PlaneStats.com), accessed March Note: Overlapping seats are defined as the departing seats flownn by Alaska Airlines and Deltaa Air Lines in markets m where both airlines provided p service in the years specified. THE AIRPORT S ROLE IN DELTA AIR LINES SYSTEM Delta Air Lines was the second busiest airline at the Airport in 2014 with 2.9 million enplaned passengers compared with Alaska Airlines 9.7 million enplaned passengers. Delta overtook United as the second busiest airline at the Airport in 2011 and has increased its number of enplaned passengerss at the Airport each year thereafter. Figure 18 presents the Airport shares of passengers enplaned by Delta Air Lines and Northwest Airlines, which merged with Delta in 2009, at the Airport. Since 2013, Delta has focused on increasing its activity at the Airport to develop the Airport as a hub and gateway to Asia. Delta s scheduled seat capacity at the Airport increased by 39.1% between 2013 and 2014, and is scheduled to increase by 43.3% between 2014 and Between 2012 and 2014, Delta s market share of the Airport s enplaned passengers increased from 11.5% to 15..6%. B 69

167 Figure 18 DELTA AIR LINES MARKET SHARE OF ENPLANED PASSENGERS Seattle Tacoma International Airport Source: Port of Seattle records. Delta Air Lines Originating and Connecting Passengers Table 12 shows the changes in Delta s originating and connecting passengers since 2009, along with the estimated percentage of originatingg passengers, which hass decreased from 77.2% in 2009 to 71.9% in Between 2013 and 2014, Delta ss percentagee of originating passengers at the Airport decreased from 77.2% to 71.9%. The 2014 originatingg percentage reflects the year ending September 30, 2014, so it is expected that Delta s Asian routes, which were initiated in June 2014, and other new Delta internationa al service from the Airport will increase Delta s percentage of connecting passengerss at the Airport in B 70

168 Table 12 HISTORICAL ENPLANED PASSENGERS DELTA AIR LINES Seattle Tacoma International Airport Originating Connecting Enplaned Percent Year passengers passengers passengers originating ,505, ,112 1,950, % ,490, ,801 1,877, ,470, ,053 1,891, ,520, ,256 1,911, ,624, ,131 2,103, ,094, ,679 2,912, Average annual percent increase (decrease) (0.9)% (13.1)% (3.7)% (1.4) (7.3) Note: The percentage of originating passengers for Delta Air Lines was calculated using the U.S. DOT DB1B Database and applying the percentage to the Port s enplaned passengers to estimate originating and connecting passengers by year. Sources: Port of Seattle records, U.S. Department of Transportation DB1B Database. From January 2015 through May 2015, the total number of enplaned passengers increased 64.4% on Delta Air Lines in comparison to the same period in the previous year. As shown on Figure 19, Seattle Tacoma International Airport is the 8 th busiest airport in Delta s route network in 2014, based on numbers of scheduled departing seats, up from 15th in 2012 and 11th in The increasing importance of the Airport in Delta s route system is also demonstrated on Figure 20, which shows Delta s rapid growth in numbers of scheduled seats at the Airport with a 16% increase in 2013, a 39% increase in 2014, and a scheduled 43% increase in B 71

169 Figure 19 SCHEDULED DEPARTING SEATS AT THE 10 BUSIEST AIRPORTS IN THE DELTA AIR LINES ROUTE NETWORK IN 2014 Source: OAG Schedule Data (PlaneStats.com), accessed March In terms of the actual number of seats added by Delta inn 2014, Seattle ranked first in Delta s system with approximately 940,000 additional seats, followed by Los Angeles with 920,0000 additional seats, and Atlanta with 820,000 additional seats. 19 In 2014, Delta operated over 13 times as many seats from Atlanta as from the Airport. 19 Source: OAG Schedule Data (PlaneStats.com), accessed March B 72

170 Figure 20 DELTA AIR LINES CHANGE IN SCHEDULED DEPARTING SEATS Source: OAG Schedule Data (PlaneStats.com), accessed March Delta s Gateway to Asia Over the past several years, Delta has addedd flights at the Airport to develop it as a main gateway to Asia. The Airport is the shortest distance from major Asian markets of any U.S. gateway. In addition to adding new flights to Asia and other international destinations, Delta has added domestic flights from the Airport to support these new international flights and reduced its reliance on domestic codeshare agreementss with Alaskaa Airlines, as measured by the revenue Alaska Airlines has reported receiving from Delta. Figure 21 illustrates Delta s focus on the Airport as a gateway to Asia, with the number of Delta passengers traveling between Asia and the U.S. accounting for 34.2% of Delta s connecting traffic through the Airport. These data are based on thee 12 monthss ended September 30, 2014, and only partially reflect Delta s new daily service to Hong Kong and South Korea that was initiated in June 2014; more current data are expected to show thatt an even higher percentage of Delta s connecting passengerss at the Airport are traveling to and from Asia. Figure 21 also illustrates that Delta s domestic connections at the Airport are primarily to and from Alaskaa (49.1%) and Hawaii ( 24.2%). B 73

171 Figure 21 ORIGIN AND DESTINATION REGIONS FOR DELTA AIR LINES CONNECTING TRAFFIC THROUGH SEATTLE TACOMA INTERNATIONAL AIRPORT For the 12 Months Ended September 30, 2014 Source: U.S. Department of Transportation, DB1B Database. SEAT CAPACITY CHANGES BY ALL AIRLINES Figure 22 shows the percent change in scheduled seat capacity by the airlines serving the Airport between 2013 and 2014 at all U.S. airports, at the Airport, and at U.S. large hub airports. The changes are shown for all airlines and for Alaska Airlines and Delta Air Lines. Between 2013 and 2014, Alaska Airlines system wide growth was much greater than growth for the average U.S. airline, while Delta s system wide growth was similar to that of the average growth for the U.S. airlines. Figure 22 shows that between 2013 and 2014, seat capacity at the Airport grew much more quickly than the average for U.S. airports and the average for U.S. large hub airports. The Airport s growth has been driven primarily by capacity growth by both Alaska Airlines and Delta Air Lines. Delta s seat capacity increased 1.1% at its U.S. airports between 2013 and 2014, but increased 39.1% at the Airport. As discussed previously, Delta s growth at the Airport is from a relatively small base of seats in comparison with Delta s other hub airports. While the number of seats added by Delta at the Airport only slightly exceeds the number added at its largest hubs, the increase when measured on a percentage basis is much greater than the percentage increases at Delta s other hubs. In contrast, Alaska Airlines seat capacity growth at the Airport of 5.3% between 2013 and 2014 is consistent with its network growth of 5.7% and its hub growth of 5.3%, which reflects the large proportion of Alaska s system seat capacity at the Airport. B 74

172 Figure 22 YEAR OVER YEARR PERCENT CHANGE IN SCHEDULED SEAT CAPACITY BY THE AIRLINES SERVINGG SEATTLE (a) As defined by the Federal Aviation Administration. Note: Percent changes in total scheduled departing seats (domestic and international). Source: OAG Schedule Data (PlaneStats.com), accessed March From January 2015 through May 2015, the total number of scheduled departing seats at the Airport increased by 13.4% over the same period in as a resultt of continued competition between Alaska Airlines and Delta Air Lines, and increased numberss of scheduled seats by both airlines: 12.0% for Alaska Air Lines and 72.9% for Delta Air Lines. During this period, Alaska increased its system wide seat capacity by 8.8%, and Delta increased its system wide seat capacity by 3.8%. U. S. airports experienced a 1.9% increase in seat capacity during this period. B 75

173 AIR CARGO ACTIVITY Table 13 presents historical air cargo tonnage at the Airport for 2009 through Air cargo tonnage increased an average of 3.4% annually between 2009 and 2014, with 2014 showing the strongest annual growth. Table 13 HISTORICAL AIR CARGO Seattle Tacoma International Airport (metric tons) Year Air Mail Air Freight Total Total annual increase (decrease) , , ,215 (7.1%) , , , , , ,888 (1.2) , , , , , , , , , Average annual percent increase % 3.5% 3.4% Source: Port of Seattle records. KEY FACTORS AFFECTING FUTURE AIRLINE TRAFFIC In addition to the demographics and economy of the Seattle Metropolitan Area, as discussed earlier, key factors that will affect future airline traffic at the Airport include: Economic conditions Availability, price, and price volatility of aviation fuel Airline competition and airfares Airline route strategy Airline consolidation and alliances Regulation Political stability and market access Aviation safety, security, and public health concerns Financial health of the airline industry Capacity of the national air traffic control system and at the Airport B 76

174 Economic Conditions The airline industry is highly cyclical. Historically, domestic airline passenger traffic has correlated closely with the state of the U.S. economy and levels of real disposable income. Recession in the U.S. economy in 2001 and stagnant economic conditions in 2002 contributed to reduced passenger demand during those years. The recession and associated high unemployment reduced discretionary income and contributed to reduced airline travel demand in those years. Similarly, global economic conditions have affected international passenger traffic. With the globalization of business and the increased importance of international trade and tourism, airline travel demand has become more closely tied to worldwide economic conditions. International economics, trade balances, currency exchange rates, and volatility in the financial and credit markets are now important influences on passenger traffic at U.S. airports. Availability, Price, and Price Volatility of Aviation Fuel The availability, price, and price volatility of aviation fuel are critical and uncertain factors affecting airline economics. Aircraft fuel prices can fluctuate based on a multitude of factors including market expectations of supply and demand, inventory, geopolitical events, economic growth expectations, fiscal and monetary policies, and financial investment flows. Beginning in 2003, fuel prices increased as a result of the invasion and occupation of Iraq; political unrest in other oil producing countries; the rapidly growing economies of China, India, Nigeria, and other developing countries; and other factors influencing the demand for and supply of oil. By mid 2008, average fuel prices were three times higher than they were in mid 2004 and represented the largest airline operating expense, accounting for between 30% and 40% of expenses for most airlines. Increased fuel prices were an important contributor to airline industry losses in 2008 and Fuel prices decreased sharply in the second half of 2008 as demand declined worldwide, but increased as global demand increased and the U.S. dollar weakened. In 2011 and 2012, political instability and conflicts in North Africa and the Middle East contributed to further volatility in fuel prices. Beginning in the third quarter of 2014, oil and jet fuel prices declined sharply for several reasons, including low demand related to weak economic activity, increased production efficiency resulting in high supply, geopolitical risk in the Middle East, and Saudi Arabia deliberately setting low prices, which affects other oil producing countries. 20 As jet fuel prices have declined significantly, many airlines have experienced improved unit costs and margins, which are sometimes partially offset by fuel hedging programs. Airlines generally have not lowered fares significantly in response to lower unit costs, instead using the reduction to reduce debt, pay shareholders, acquire aircraft, and prepare their airlines for the 20 B 77

175 next tumultuous period in the industry. Long term, airlines are planning for fuel price increases and volatility moving forward. Airline Competition and Airfares Airline fares have an important effect on passenger demand, particularly for relatively short trips where the automobile and other travel modes are potential alternatives, and for price sensitive discretionary travel. The price elasticity of demand for airline travel increases in weak economic conditions when the disposable income of potential travelers declines. Airfares are influenced by airline capacity and yield management; passenger demand; airline market presence; labor, fuel, and other airline operating costs; taxes, fees, and other charges assessed by governmental and airport agencies; and competitive factors. The presence of low cost carriers in some markets will result in significant downward pressure on average airfares. Low cost carriers do not have a large market share at the Airport, which is reflected in the Airport s average domestic airfares. Additionally, the consolidation of major U.S. airlines has resulted in less competition allowing for higher overall fares. Future passenger numbers, both nationwide and at the Airport, will depend, in part, on airfares. Airline Route Strategy The Airport serves as a gateway to the Seattle Metropolitan Area and is a connecting hub for Alaska Airlines and Delta Air Lines. The number of O&D passengers at the Airport depends on the attractiveness of the Seattle Metropolitan Area as a business and leisure destination and the propensity of its residents to travel. The number of connecting passengers, on the other hand, depends on the airline service provided at the Airport and competing airports. Most airlines have developed hub and spoke systems that allow them to offer high frequency service in many city pair markets. Because most connecting passengers have a choice of airlines and intermediate airports, connecting traffic at an airport depends on the route networks and flight schedules of the airlines serving that airport and at competing hub airports. The Airport is the primary connecting hub for Alaska Airlines and a growing connecting hub for Delta Air Lines. In 2014, Alaska Airlines enplaned 51.6% of the Airport s passengers, 41.3% of which were connecting to other flights. Delta Air Lines enplaned 15.6% of the Airport s passengers in 2014, of which 28.1% connected to other flights. As a result, much of the passenger traffic at the Airport results from the route networks and flight schedules of Alaska Airlines and Delta Air Lines, which are expanding service at the Airport. If one of these airlines were to reduce flights at the Airport, the number of connecting passengers on those flights would likely be reduced as alternative competing hubs enable passengers to travel to many of the same destinations. B 78

176 Airline Consolidation and Alliances In response to competitive pressures, the U.S. airline industry has consolidated. In October 2008, Delta and Northwest Airlines completed a merger and integrated operations under the Delta name. In October 2010, United and Continental Airlines completed a merger creating, at the time, the largest U.S. airline, as measured by passenger traffic. The merged airline, which operates under the United name, received a single operating certificate in November In September 2010, Southwest Airlines announced plans to acquire AirTran Airways, thereby creating the largest U.S. airline as measured by numbers of domestic enplaned passengers. A single operating certificate was issued in March In February 2013, US Airways and American Airlines announced plans to merge, again creating the largest U.S. airline. In April 2015, a single operating certificate was issued to American Airlines. Alaska Airlines has not acquired or merged with another airline. Among the possible effects of airline consolidation are further capacity reductions by the merged airline and the redistribution of flights among the merged airline s hub airports. To achieve planned synergies, the merged airline must successfully integrate labor groups, transition to common information technology platforms, and undertake many other integration activities. Alliances, joint ventures, and other marketing arrangements provide airlines with many of the advantages of mergers and all of the large U.S. network airlines are members of such alliances with foreign flag airlines. Alliances typically involve marketing, code sharing, and scheduling arrangements to facilitate the transfer of passengers between the airlines. Joint ventures involve even closer cooperation and the sharing of costs and revenues on certain routes. Regulation The U.S. airline industry is heavily regulated. U.S. airlines provide air transportation under certificates of public convenience and necessity issued by the U.S. DOT. The U.S. DOT is also responsible for consumer protection and other regulations that may affect airline travel demand and airline financial performance. The Federal Aviation Administration regulates the safety of U.S. airline operations and issues orders and regulations relating to the maintenance and operation of aircraft. For example, in December 2014, the U.S. DOT instituted a proceeding to determine the disposition of the Seattle Tacoma International Airport and Haneda Airport slot pair currently allocated to Delta, as Delta had reduced service on this route. Haneda Airport is also known as Tokyo International Airport. In March 2015, the U.S. DOT issued an order allowing Delta to continue service between the Airport and Haneda Airport under the condition that it provided daily service. Delta recently announced that it is discontinuing service on September 30, American Airlines is expected to launch daily service in the fourth quarter of 2015 between Los Angeles International Airport and Haneda Airport. B 79

177 Regulations also will affect airline economics as regulatory costs are imposed on the airline industry as part of initiatives to reduce aircraft emissions contributing to global climate change. Current and future environmental regulations in Europe, the United States, and elsewhere are likely to adversely affect airline operations and increase operating costs. Political Stability and Market Access Sustained future increases in numbers of passengers at the Airport will depend on stable international political conditions and access to foreign markets. Political instability in foreign countries has reduced business and tourist travel demand to those markets. In addition, the ability of airlines to operate flights on international routes is subject to international agreements, which may be revised depending on governmental arrangements and relationships. Aviation Safety, Security, and Public Health Concerns Concerns about the safety of airline travel and the effectiveness of security precautions influence passenger travel behavior and airline travel demand. Anxieties about the safety of flying and the inconveniences and delays associated with security screening procedures lead to both the avoidance of travel and the switching from air to surface modes of transportation for short trips. Safety concerns in the aftermath of the terrorist attacks in September 2001, along with travelers concerns about the inconvenience of security measures at airports, especially in comparison with driving for shorter trips, were largely responsible for the steep decline in airline travel nationwide in Since 2001, government agencies, airlines, and airport operators have upgraded security measures to guard against changing threats and maintain confidence in the safety of airline travel. These measures include strengthened aircraft cockpit doors, changed flight crew procedures, increased presence of armed sky marshals, federalization of airport security functions under the Transportation Security Administration, more coordinated dissemination of information about threats, more intensive screening of passengers and baggage, and deployment of new screening technologies. Public health and safety concerns have also affected travel demand from time to time. In 2003, concerns about the spread of severe acute respiratory syndrome (SARS) led public health agencies to issue advisories against nonessential travel to certain regions of the world. In 2009, concerns about the spread of influenza caused by the H1N1 virus reduced certain international travel, particularly to and from Mexico and Asia. In April 2010, airspace and airports in much of Europe were closed for 6 days because of the threat to flight safety caused by the ash cloud from the eruption of Iceland s Eyjafjallajökull volcano. In March 2011, airline travel to and from Japan decreased following a destructive earthquake and tsunami. In 2013, a bird flu known as the H7N9 virus was identified in China, which caused reductions in travel between the United States and Asia. B 80

178 Historically, airline travel demand has recovered after temporary decreases stemming from terrorist attacks or threats, hijackings, aircraft accidents, public health and safety concerns, and international hostilities. Provided that precautions by government agencies, airlines, and airport operators serve to maintain confidence in the safety of commercial aviation without imposing unacceptable inconveniences for airline travelers, it can be expected that future demand for airline travel at the Airport will depend primarily on economic, not safety or security, factors. Financial Health of the Airline Industry The number of passengers enplaned at the Airport will depend partly on the profitability of the U.S. airline industry and the associated ability of the industry and individual airlines to make the necessary investments to continue providing service. In 2001 through 2005, the major U.S. passenger airlines collectively recorded net losses of approximately $40 billion. To mitigate those losses, all of the major network airlines restructured their route networks and flight schedules and reached agreement with their employees, lessors, vendors, and creditors to cut costs, either under Chapter 11 bankruptcy protection or the possibility of such. In 2006 and 2007, the U.S. passenger airline industry as a whole was profitable, but in mid 2008, as oil and aviation fuel prices increased to unprecedented levels, the industry again experienced a profitability crisis. The industry responded by grounding older, less fuel efficient aircraft, adopting fuel saving operating practices, hedging their fuel requirements, reducing scheduled seat capacity, eliminating unprofitable routes, laying off employees, reducing employee compensation, reducing other non fuel expenses, increasing airfares, and imposing ancillary fees and charges. The U.S. passenger airlines collectively reduced domestic capacity (as measured by available seat miles) by approximately 10% in 2008 and by a further 7% in In 2010 and 2011, the U.S. airline industry regained profitability, notwithstanding sustained high fuel prices, by controlling capacity and nonfuel expenses, increasing airfares, recording high aircraft load factors, and increasing ancillary revenues. In 2010, according to Airlines for America (formerly the Air Transport Association of America), the U.S. passenger airlines collectively increased domestic seat mile capacity 1.2% and recorded a profit of $3.6 billion. In 2011, the U.S. passenger airlines increased domestic seat mile capacity 1.1% and recorded a net income of $1.4 billion. In 2012, the U.S. passenger airlines kept domestic seat mile capacity flat and recorded a net income of $152 million. 21 In 2013, the U.S. passenger airlines increased domestic seat mile capacity 1.4% and recorded a net income of $12.7 billion. 22 In 2014, the U.S. passenger airlines increased domestic seat mile capacity 1.7%, and the 10 publicly traded U.S. passenger airlines collectively earned a net income of $7.3 billion. 23 B 81

179 Sustained industry profitability will likely depend on economic growth to support airline travel demand, continued capacity control to enable airfare increases, and stable fuel prices, among other factors. A resumption of sustained financial losses could cause U.S. airlines to seek bankruptcy protection or liquidate. The liquidation of one or more of the large network airlines could drastically affect airline service at certain connecting hub airports, present business opportunities for the remaining airlines, and change airline travel patterns nationwide. Capacity of National Air Traffic Control System and at the Airport In addition to any future constraints that may be imposed by the capacity of the national air traffic control system, future growth in airline traffic at the Airport will depend on the provision of sufficient capacity at the Airport itself. Areas are reserved for long term development plans to add gates to existing concourses and on new concourses. AIRLINE TRAFFIC FORECASTS Table 14 presents historical and forecast numbers of originating, connecting, and enplaned passengers at the Airport from 2014 through The passenger forecasts were prepared by the Port and reflect Port management s expected course of action during the forecast period. Assumptions Underlying the Forecasts The Port s forecasts of airline traffic were developed by the Port taking into account analyses of the economic basis for airline traffic, airline traffic trends, and an assessment of the key factors that may affect future airline traffic, as discussed in earlier sections. In general, the Port assumed that, in the long term, changes in airline traffic at the Airport will occur as a function of growth in the population and economy of the Airport service region, growth in U.S. population and GDP, and changes in airline network strategies, including the role of the Airport as a connecting hub for Alaska Airlines and Delta Air Lines. The Port also assumed that continued development of airline service at the Airport will not be constrained by the availability of aviation fuel, long term limitations in airline aircraft fleet capacity, limitations in the capacity of the air traffic control system or the Airport, or government policies or actions that restrict growth. Also considered in developing the forecasts were recent and potential developments in the national economy and in the air transportation industry as they have affected or may affect airline traffic at the Airport. It was assumed that, during the forecast period: Sustained U.S. GDP growth will average between 2.4% and 2.7% per year from 2014 through 2024, based on projections by IHS Global Insight as reported in FAA Aerospace Forecasts, Fiscal Years The population and economy of the Airport service region will grow at the projected rates set forth in on Table 1 of this Report. B 82

180 Aviation fuel prices will remain considerably lower than the record prices reached in mid A generally stable international political environment and safety and security precautions will ensure airline traveler confidence in aviation without imposing unreasonable inconveniences. There will be no major disruption of airline service or airline travel behavior as a result of international hostilities or terrorist acts or threats. The Airport will continue to be the principal connecting hub for Alaska Airlines and be served by the greatest amount of seat capacity by Alaska Airlines. The Airport will continue to be used by Delta Air Lines as an international gateway airport. The airlines serving the Airport will be financially viable. Competition among the airlines serving the Airport will ensure the continued availability of competitive airfares. Baseline Forecasts of Enplaned Passengers Between 2014 and 2024, the number of passengers enplaned at the Airport is forecast by the Port to increase an average of 3.3% per year, to 25.9 million in In its most recent Terminal Area Forecast for the Airport (2014 FAA TAF, accessed April 2015), the FAA forecasts an average increase of 3.5% per year in the number of enplaned passengers at the Airport between 2014 and The FAA uses a base year of 2013 for the forecast of enplaned passengers at the Airport. From 2014 to 2015, the FAA forecasts an increase of 12.1%, followed by increases ranging from 2.6% to 3.1% through From 2021 through 2024, the FAA forecasts an average increase of 2.2% per year in the number of enplaned passengers at the Airport. WJ Advisors LLC and Oliver Wyman, Inc., reviewed the Port s forecast of aviation activity, including the underlying assumptions, incorporated therein, and determined that they are reasonable for purposes of this analysis and in comparison with the forecasts of aviation activity prepared by the FAA for the Airport. B 83

181 Table 14 AIRLINE TRAFFIC FORECASTS Seattle Tacoma International Airport The forecasts presented in this table were prepared by the Port using the information and assumptions given in the accompanying text. Inevitably, some of the assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between the forecast and actual results, and those differences may be material. Enplaned passengers Year Originating Connecting Total Percent increase Percent originating Actual ,811,378 3,961,970 15,773, % 74.9% ,145,738 4,251,750 16,397, % 74.1% ,374,304 4,223,020 16,597, % 74.6% ,880,078 4,496,238 17,376, % 74.1% ,794,265 4,922,513 18,716, % 73.7% Forecast ,173,692 5,414,764 20,588, % 73.7% ,568,208 5,555,548 21,123, % 73.7% ,972,981 5,699,992 21,672, % 73.7% ,366,042 5,870,428 22,236, % 73.6% ,768,745 6,045,874 22,814, % 73.5% ,181,324 6,226,475 23,407, % 73.4% ,580,006 6,436,396 24,016, % 73.2% ,012,445 6,628,383 24,640, % 73.1% ,455,487 6,826,002 25,281, % 73.0% ,876,000 7,037,700 25,913, % 72.8% Source: Port of Seattle records. B 84

182 AIRPORT FINANCIAL FORECASTS This section of Attachment 1 presents Port prepared forecasts of Gross Revenue and Operating Expenses for the Airport. The forecasts reflect Port management s expected course of action during the forecast period, and, in management s judgment, present fairly the expected financial results of the Airport. WJ Advisors LLC reviewed the Port s financial forecasts for the Airport, including the methodologies and underlying assumptions incorporated therein, and determined that they are reasonable for purposes of this Report. AIRPORT GROSS REVENUES Figure 23 presents major sources of Airport Gross Revenue, which amounted to approximately $406.0 million in Figure 23 MAJOR SOURCES OF AIRPORT GROSS REVENUE IN 2014 Seattle Tacoma International Airport $250 $229 Gross Revenue (millions) $200 $150 $100 $50 $57 $47 $32 $14 $27 $0 Airline Rates and Charges (a) Public Parking In Terminal Concessions Rental Car Customer Facility Charge (b) Other (c) Source: Port of Seattle records. (a) Includes passenger and cargo airline rates and charges, and is after revenue sharing pursuant to the Airline Agreement. See the section of this Report titled Airline Revenues for information about revenue sharing. (b) Reflects that portion of CFC revenues treated as operating revenues in Port financial statements. (c) Includes ground transportation, other revenues, and amortized lease incentives. B 85

183 AIRLINE REVENUES Overview Exhibit G presents historical and forecast Airport airline revenues, in total and expressed on a per enplaned passenger basis. In 2014, airline revenues (after revenue sharing, which is explained more fully below) were approximately $228.9 million and accounted for 56.4% of total Airport Gross Revenue. Airline revenues after revenue sharing are forecast by the Port to increase to approximately $377.2 million in The Port entered into a Signatory Lease and Operating Agreement (the Airline Agreement) with various airlines (the Signatory Airlines) that serve the Airport. The term of the Airline Agreement extends from January 1, 2013 through December 31, Airlines accounting for 99.9% of the Airport s enplaned passengers executed the Airline Agreement in 2013 when it became effective. The Airline Agreement provides for, among other things, the use and lease of space at the Airport and the basis for calculating rates and charges paid by the airlines operating at the Airport each year, which is based on a combination of residual and commercial compensatory rate making methodologies and cost recovery principles. The Airline Agreement also: Allows the Port to include a charge, as necessary, in the airline rate base to maintain total Airport debt service coverage at no less than 125%. Provides for revenue sharing with the Signatory Airlines equal to 50% of Airport net revenues (revenue less expenses) in excess of 1.25 times annual debt service. The Revenue Available for Sharing, if any, is to be distributed among all Air Carriers that were Signatory Airlines during the preceding Fiscal Year. Approved certain capital projects at the Airport, which allows the Port to include any of the following costs in airline rates and charges to the extent that the capital project is included in an airline cost center and is available for its intended use: Operating Expenses, debt service and amortization. Includes an airline pre approved list of projects at the Airport and procedures for Signatory Airline review of new projects to the extent that the new projects are not exempt from Signatory Airline review and approval. Certain types of projects are exempt, which include, but are not limited to, State and federal agency required projects, a project of an emergency nature, and projects required to make available additional terminal space or related facilities under certain conditions. B 86

184 !!! Signatory!Airline!review!of!projects!at!the!Airport!include!previously!approved!project!costs! where!the!then#current!cost!of!the!project!exceeds!110%!of!project!costs!that!were!approved! and!new!projects!that!were!not!previously!approved,!or!were!not!exempt.!!if!an!mii!of!the! Signatory!Airlines,!which!is!defined!in!the!Airline!Agreement!as!55%!in!number!of!the!Signatory! Airlines!having!55%!of!Terminal!Rents!and!Landing!Fees!paid!by!the!Signatory!Airlines,! disapproves!a!project,!the!port!can!proceed!with!the!project!at!any!point!after!6!to!12!months! following!disapproval!by!the!signatory!airlines.!!the!port!can!include!the!operating!and!capital! costs!of!the!project!in!airline!rates!and!charges!when!the!project!is!completed!and!ready!for!its! intended!use.!! The!amount!of!revenues!from!airline!rates!and!charges!each!year!is!a!function!of!several! factors,!including!the!amount!of!space!and!gates!leased!by!the!signatory!airlines!to!support! their!aviation!activity!and!operations!at!the!airport.!!using!actual!2014!data,!figure!24!provides! a!comparison!of!the!market!shares!of!leased!gates,!leased!space,!and!enplaned!passengers!for! the!five!busiest!airlines!serving!the!airport!(ranked!on!the!basis!of!market!shares!of!enplaned! passengers!in!2014).!!collectively,!the!five!busiest!airlines!lease!approximately!92.0%!of!gates! and!90.0%!of!airline!rentable!space!at!the!airport.!!! Figure!24!! AIRLINE'PERCENTAGES'OF'LEASED'GATES,'LEASED'SPACE,'AND'ENPLANED' 'PASSENGERS'IN'2014' Seattle#Tacoma!International!Airport! 100%# 90%# 80%# 70%# 8.10%% 10.40%% 9.80%% 4.80%% 2.20%% 8.10%% 5.30%% 6.70%% 8.00%% 11.30%% 23.10%% 8.30%% 60%# 17.70%% 15.60%% 50%# 16.90%% 40%# 30%# 20%# 50.00%% 42.20%% 51.60%% 10%# 0%# Leased#Gates# Leased#Space# Enplaned#Passengers# Alaska#Airlines#and#Horizon#Air# Delta#Air#Lines# United#Airlines# Southwest#Airlines# American#Airlines# All#Other#Airlines# Note:!!Reflects!actual!2014!data!for!all!airlines.! Source:!!Port!of!Seattle!records.! B#87!

185 Forecast of Airline Rates and Charges Forecast revenues from airline rates and charges are presented in Exhibit H and are based on The cost recovery and rate making principles in the Airline Agreements. Forecast Operating Expenses, debt service, and other costs allocable to airline cost centers and included in the annual calculation of airline rates and charges pursuant to the Airline Agreement. Debt service, net of capitalized interest, on the Series 2015 Bonds allocable to airline cost centers is included. The assumption that the amount of airline leased space and number of leased gates as of the date of this Report will remain constant throughout the forecast period. The assumption that when the Airline Agreement expires during the forecast period the Port will put in place business provisions and rate making methodologies that would result in similar Airport financial results as provided under the current Airline Agreement. Under the Airline Agreement, the Port can use non aeronautical revenue to reduce the cost of the Federal Inspection Services (FIS) Facility, which, when completed, would include the new international arrivals facility that is part of the Capital Program. The Port currently expects to use approximately $200 million in Port cash to fund a portion of the cost of the approximate $602.0 million new international arrivals facility, but does not currently expect to amortize the $200.0 million in cash and include the amortized cost in the annual calculation of airline rates and charges at the Airport. If the amortized cost of this use of cash were included in whole or in part in the calculation of airline rates and charges, airline revenues and costs at the Airport would, all other factors being constant, be higher than the forecast amounts. Forecast airline Landing Fees and Terminal rentals, which together accounted for approximately 87.4% of airline rates and charges at the Airport in 2014 (before revenue sharing), are discussed below. Landing Fees are calculated according to a cost center residual cost rate making methodology, under which the net requirements allocable to the Airfield Movement Area are recovered through Landing Fees assessed per 1,000 pound units of airline aircraft landed weight. Airfield Movement Area costs to be recovered through Landing Fees are expected to increase during the forecast period as airfield projects are completed and the Port begins to include related debt service and other costs in the airline rate base. Terminal Rental Rates are set to recover the Terminal Building Requirement calculated according to a commercial compensatory rate making methodology. The Terminal Building Requirement is multiplied by the ratio of airline rentable space to total rentable space, less any nonsignatory airline premiums paid in Terminal Rents. B 88

186 The Terminal Building Requirement is distributed to four cost assignment groups: Group A (consisting of gates); Group B (consisting of ticket counters, baggage claim, baggage make up, publicly accessible offices, security checkpoint areas and VIP lounges); Group C (consisting of non publicly accessible offices); and Group D (consisting of closed storage space). The costs assigned to rented space in each of these four groups have certain relativities pursuant to the Airline Agreement, such as Group A space has a rental rate that is 2 times the rate for Group B space. Additional adjustments are made to each space group such that the Port does not bear any cost of vacant space associated with certain baggage makeup circulation space. The Airline Agreement also provides for the annual recalculation of other airline rates and charges, including, but not limited to, an FIS fee for use of international arrival facilities, a gate rate and fee, a baggage claim rate, baggage system fees, and ticket counter rates. Forecast Passenger Airline Revenue per Enplaned Passenger Exhibit G also presents historical and forecast airline revenues for Terminal Building rents, FIS fees, Landing Fees, and other airline fees prior to and after any revenue sharing with the Signatory Airlines. Total passenger airline revenues after revenue sharing are forecast to be approximately $224.3 million in 2015 and to increase to approximately $358.4 million in Net passenger airline revenues (after revenue sharing) per enplaned passenger are projected to increase from approximately $10.89 in 2015 to approximately $13.83 in NONAIRLINE REVENUES Exhibit H presents actual and forecast Airport nonairline revenues. Nonairline revenues, which includes major sources of revenue from public parking, in Terminal concessions, and rental cars, were approximately $180.8 million in 2014 and are forecast by the Port to increase to approximately $260.7 million in 2024, representing an average increase of 3.7% per year. Public Parking In 2014, the Port received approximately $57.1 million in public parking revenues, accounting for 14.1% of Airport Gross Revenue. The Port operates and manages an eight floor parking garage adjacent to the terminal with approximately 13,000 public parking spaces, which reached average peak occupancy of approximately 60% in 2014, suggesting that the Airport has additional space available to accommodate additional public parkers. The Port also provides approximately 1,600 parking spaces in a remote lot operated by a third party. Additional off Airport parking spaces are owned and operated by entities other than the Port. The Port establishes and periodically adjusts parking rates in an attempt to maximize public parking revenues. As of the date of this Report, parking rates at the Airport range from $3.00 per hour to $35.00 per 24 hour period. B 89

187 The Port s forecast of public parking revenues is based on (1) recent trends in public parking revenue per originating passenger, (2) forecast increases in the number of originating passengers at the Airport, (3) assumptions related to increases in public parking revenues per originating passenger starting in 2023, which was assumed to occur as a result of planned rate increases, (4) increases in the number of passengers parking at the Airport, given available public parking spaces, and (5) changes to existing programs (e.g., replacing coupons with pre booking) and implementation of new revenue enhancing initiatives. These changes and new initiatives are estimated by the Port to account for between approximately 1.5% and 4.0% of total public parking revenue during the forecast period and are focused on increasing the number of public parkers at the Airport. Public parking revenues are forecast to increase from approximately $57.1 million in 2014 to approximately $85.6 million in 2024, representing an average increase of 4.1% per year. In Terminal Concessions In 2014, the Port received approximately $47.0 million in revenues from in terminal concessions, which accounted for 11.6% of Airport Gross Revenue. The Port has agreements with several companies to provide concession services in the terminal. Host International, Concessions International, and Seattle Restaurant Associates are the primary food and beverage concessionaires. Hudson Group is the primary retail concessionaire, and Dufry North America, LLC provides duty free merchandise. In addition to these companies, several other entities provide food and beverage and retail services in the terminal. Existing agreements with primary terminal concessionaires are summarized as follows: Food and Beverage Agreements. The Port has a non exclusive concession agreement with Host International, which expires on December 31, Under the agreement, Host International pays concession fees to the Port of between 11.5% and 26.5% of gross receipts or a minimum annual guarantee (MAG) equal to 90.0% of the prior year s payment to the Port, whichever is greater. The MAG can be adjusted down in the event that the number of enplaned passengers at the Airport in any month decreases more than 20.0% from the number enplaned in same month of the prior year. No such event is expected or assumed during the forecast period. The Port s agreements with Concessions International and Seattle Restaurant Associates have identical agreement and concession fee terms. Retail Merchandise Agreement. The Port has an agreement with the Hudson Group to operate various news and gift stores at the Airport. The agreement expires on April 30, Under the agreement, the Hudson Group pays the Port the greater of certain percentages of gross revenue (ranging from 11.5% to 26.5% depending on the sales category) or a MAG, whichever is greater. The MAG is defined as 90.0% of the prior year s payment to the Port, but can be adjusted down in the event that the number of enplaned passengers at the Airport in any month decreases more than 20.0% from the B 90

188 number of enplaned passengers in the same month of the prior year. No such event is expected or assumed during the forecast period. Duty Free Agreement. The Port currently has an agreement with Dufry North America, LLC, which expires on July 31, 2020, to provide certain duty free services at the Airport. Under the agreement, Dufry North America pays concession fees to the Port of between 28.0% and 37.0% of gross receipts. Other Terminal Concessions. The Port also leases other terminal concession space and receives payments associated with advertising. These other concessions accounted for revenues of approximately $13.9 million in The Port s forecast of in terminal concession revenue is based on (1) recent trends in in terminal concession revenues per enplaned passenger, (2) forecast increases in the number of enplaned passengers at the Airport, (3) Port expected reductions in concession revenues resulting from the temporary closure of certain concession spaces due to the NorthSTAR expansion program, which is included in the Capital Program, and construction, and (4) allowances for inflation of 2.5% per year. It was also assumed that as existing agreements expire during the forecast period, new agreements would be executed with similar terms and conditions and financial performance. In terminal concession revenues are forecast to increase from approximately $47.0 million in 2014 to approximately $71.2 million in 2024, representing an average increase of 4.2% per year. Rental Car Concession Fees and Land Rentals Rental car revenues include concession fees and space rentals and totaled $32.5 million in 2014, accounting for approximately 8.0% of Airport Gross Revenue. The Port has facility lease and concession agreements with 10 rental car companies that occupy and use space in the Airport ConRAC. The Port has agreements with the Avis Budget Group, Inc., which operates the Avis and Budget brands; Dollar Rent A Car; Enterprise Holdings, Inc., which operates the Enterprise, Alamo, and National brands; E Z Rent A Car; Firefly Rent A Car; Fox Rent A Car, Hertz Rent a Car; Payless Car Rental; Sixt rent a car, and Thrifty Car Rental. The facility lease includes various provisions related to leasing space in the ConRAC, the common transportation system, and operating responsibilities for the facility. The facility lease agreement expires 30 years from the date on which the Port turned over rental car facilities and space in the ConRAC to the participating rental car companies (assumed to be the opening date of the ConRAC); provided, however, in the event that any bonds require a longer term, the term shall extend until the earlier of: (1) the date such bonds are repaid or (2) the date the condition requiring a longer term is either satisfied or waived. B 91

189 The concession agreement includes, among other things, a concession fee payable to the Port equal to 10.0% of rental car gross revenues or the MAG, whichever is greater. Currently, the MAG is defined as 85.0% of the actual concession fee paid to the Port during the previous year or the initial year MAG, whichever is greater. The forecasts of rental car revenues were based on the following assumptions: Recent trends in average rental car rates per rental car transaction and rental car transactions per originating passenger at the Airport. Forecast increases in the number of originating passengers at the Airport. Small increases in the average daily rate per rental car transaction. Allowances for inflation of 2.5% per year for land and other rentals. Rental car revenues are forecast to increase from approximately $32.5 million in 2014 to approximately $45.5 million in 2024, at an average increase of 3.4% per year. Customer Facility Charges Under Revised Code of Washington Section (7) (the CFC Act), the Port is authorized to impose and collect a CFC per rental car transaction day to pay certain authorized costs under the CFC Act, which are mostly related to operating and capital costs associated with the ConRAC and the common use transportation system that transports rental car customers between the terminal and ConRAC. Under the CFC Act, there is no limit to the CFC rate, and the amount of the CFC is solely determined and adjusted by the Port. The Port currently imposes and collects a CFC of $6.00 per rental car transaction day, and uses CFC revenues consistent with permitted uses under the CFC Act. In the financial statements of the Port, annual CFC revenues used to pay operating expenses associated with the ConRAC are treated as operating revenue, and CFC revenues used to pay debt service associated with the ConRAC are treated as non operating revenues. In 2014, the Port collected $33.5 million in CFC revenue, of which $19.9 million was used by the Port to pay debt service. The remaining $13.6 million was reported as operating revenue. The forecasts of CFC revenue were based on the following assumptions: Recent trends in the average length of stay of a rental car customer and the number of rental car transaction days at the Airport The CFC rate will remain at $6.00 per transaction day through 2022, but increase each year thereafter in $0.15 increments Forecast increases in the number of originating passengers at the Airport B 92

190 Forecast increases in the number of transaction days, assuming that the length of stay of a rental car customer would remain unchanged during the forecast period The Port would continue to (1) use a portion of CFC revenues to pay debt service on bonds issued to fund the costs of the ConRAC and treat those revenues as nonoperating revenues and (2) treat a portion of CFC revenues as operating revenues. CFC revenues treated as operating revenue are equal to total CFC revenues less CFC revenues used to pay debt service, and are forecast to increase from approximately $13.6 million in 2014 to approximately $24.5 million in 2022, and then decrease to approximately $11.3 million in Debt service paid with CFC revenue is expected to fluctuate between 2019 and 2024, which also reflects fluctuations in the remaining CFC revenues treated as operating revenue. Other Nonairline Revenues Major sources of other nonairline revenues include the following: Aviation Properties. Aviation Properties revenues consist of revenues from commercial property leases and in flight kitchen facilities. Aviation Properties revenues totaled approximately $6.6 million in The forecast of aviation properties revenues were based on (1) the terms and conditions of leases between the Port and certain companies for the lease of land, (2) in flight catering revenue per enplaned passenger remaining constant during the forecast period, and (3) for in flight catering revenue, forecast increases in the number of enplaned passengers at the Airport. Aviation Properties revenues are forecast to increase from $6.6 million in 2014 to approximately $12.1 million in 2024, at an average increase of approximately 6.2% per year. The increase between 2014 and 2024 is primarily related to increases in in flight catering revenues, increases in business park land rent, and other land rent increases. Employee Parking. In 2014, the Port received approximately $6.5 million in revenues from employee parking, accounted for 1.6% of Airport Gross Revenue. It was assumed by the Port in the forecast of employee parking revenue that the cost of employee parking would increase multiple times during the forecast period. Employee parking revenues are forecast to increase from $6.5 million in 2014 to approximately $10.2 million in 2024, at an average increase of 4.6% per year. Other Ground Transportation. In 2014, the Port received approximately $8.3 million in revenues from taxicab, limousine, and other ground transportation providers at the Airport, which accounted for 2.1% of Airport Gross Revenue. The Port has exclusive and nonexclusive agreements with numerous ground transportation companies that serve the Airport. In forecasting other ground transportation revenues, an increase of 2.0% per year was assumed. Other ground transportation revenues are forecast to increase from approximately $8.3 million in 2014 to approximately $9.7 million in 2024, representing an average increase of 1.5% per year. B 93

191 Utilities. Utilities revenues are forecast to increase from approximately $6.7 million in 2014 to approximately $10.8 million in AIRPORT OPERATING EXPENSES Exhibit I presents historical Airport Operating Expenses for 2014 and forecast Airport Operating Expenses through Airport Operating Expense were forecast on the basis of the approved 2015 budget, assumed increases in costs as a result of inflation, forecast Airport aviation activity, the completion of planned expansion or construction of facilities, and other assumptions about Airport operations. Specifically, the forecasts of Airport Operating Expenses reflect: An assumed 4.0% rate of growth per year in Airport Operating Expenses. Allowances for additional Operating Expenses from the completion of certain Airport projects in the Capital Program during the forecast period. Those projects include, but are not limited to the baggage handling improvement project, the NorthSTAR expansion project, and the new international arrivals facility. Certain Port expenses allocated to the Airport. Airport Operating Expenses are forecast to increase from $230.7 million in 2014 to $361.0 million in 2024, at an average increase of 4.6% per year. Forecast 2015 Airport Operating Expenses were allocated to Airport cost centers by Airport management based on historical Airport operations, airport industry practices, provisions in the Airline Agreement and other considerations. Included in the allocation to each Airport cost center are Port indirect Operating Expenses allocated to the Airport. The total Operating Expenses allocated to airline cost centers at the Airport are used to calculate airline rates and charges each year. B 94

192 Exhibit G AIRLINE REVENUE Port of Seattle Fiscal Years Ending December 31 (in thousands, except Passenger Airline Revenue per Enplaned Passenger) The forecasts presented in this exhibit were prepared using information from the sources indicated and assumptions provided by Port management, as described in the accompanying text. Inevitably, some of the assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between the forecast and actual results, and those differences may be material. Actual Forecast AIRLINE REVENUE (SIGNATORY AND NONSIGNATORY AIRLINES) Terminal Building (a) $ 141,050 $ 152,527 $ 167,304 $ 173,538 $ 178,519 $ 202,825 $ 210,974 $ 225,410 $ 238,388 $ 246,626 $ 239,724 FIS 8,927 10,343 11,670 12,033 12,313 13,729 24,059 24,771 25,504 26,258 27,034 Landing Fees 73,801 76,931 83,962 89,713 91,642 94,146 96,989 99,633 98,079 98, ,567 Other Airfield Movement Area (b) 1,602 1,507 1,537 1,568 1,599 1,631 1,664 1,697 1,731 1,766 1,801 Airfield Apron Area 11,290 11,156 14,025 15,498 15,823 16,155 16,241 16,584 17,203 17,567 17,662 Airfield Commercial Area (c) 8,328 8,582 8,821 9,068 9,322 9,584 9,854 10,131 10,418 10,712 11,016 Other (d) ,090 1,099 1, ,136 Total [A] $ 245,770 $ 261,758 $ 288,000 $ 302,262 $ 310,175 $ 338,916 $ 360,872 $ 379,326 $ 392,355 $ 401,887 $ 398,941 Less: Revenue sharing (passenger airline share) [B] (16,537) (22,308) (22,880) (21,289) (21,561) (16,182) (15,348) (11,986) (16,085) (20,873) (21,443) Less: Revenue sharing (cargo airline share) [C] (368) (448) (449) (422) (422) (295) (267) (202) (257) (326) (342) Airline Revenue Treated as Gross Revenue on Exhibit B [D]=[A+B+C] $ 228,865 $ 239,002 $ 264,671 $ 280,552 $ 288,192 $ 322,439 $ 345,256 $ 367,137 $ 376,013 $ 380,688 $ 377,155 CALCULATION OF PASSENGER AIRLINE REVENUE PER ENPLANED PASSENGER Total Airline Revenue (before revenue sharing) =[A] $ 245,770 $ 261,758 $ 288,000 $ 302,262 $ 310,175 $ 338,916 $ 360,872 $ 379,326 $ 392,355 $ 401,887 $ 398,941 Less: Non Passenger Airline Revenues Cargo Landing Fees [E] (5,259) (5,081) (5,467) (5,814) (5,902) (6,024) (6,167) (6,294) (6,157) (6,122) (6,233) Airfield Commercial Area revenues [F] (8,328) (8,582) (8,821) (9,068) (9,322) (9,584) (9,854) (10,131) (10,418) (10,712) (11,016) Other Non Passenger Airline Revenues (e) [G] (1,722) (1,507) (1,537) (1,568) (1,599) (1,631) (1,664) (1,697) (1,731) (1,766) (1,801) Passenger Airline Revenues before revenue sharing [I]=[A+E+F+G+H] $ 230,461 $ 246,586 $ 272,174 $ 285,812 $ 293,350 $ 321,677 $ 343,186 $ 361,203 $ 374,049 $ 383,286 $ 379,890 Less: Revenue sharing (passenger airline share) =[B] (16,537) (22,308) (22,880) (21,289) (21,561) (16,182) (15,348) (11,986) (16,085) (20,873) (21,443) Passenger Airline Revenue [J]=[I+B] $ 213,924 $ 224,278 $ 249,294 $ 264,523 $ 271,789 $ 305,495 $ 327,838 $ 349,216 $ 357,965 $ 362,413 $ 358,447 Total Enplaned Passengers [K] 18,717 20,588 21,124 21,673 22,236 22,815 23,408 24,016 24,641 25,281 25,914 Passenger Airline Revenue per Enplaned Passenger =[J]/[K] $11.43 $10.89 $11.80 $12.20 $12.22 $13.39 $14.01 $14.54 $14.53 $14.34 $13.83 Notes: Columns may not add to totals shown because of rounding. (a) Includes bag system charges. (b) Includes ID badging, certain hangar revenue, and certain general aviation revenue. (c) Includes revenue from Airfield commercial properties, cargo operations, and fuel hydrant. (d) Includes (1) passenger loading bridge charges and (2) adjustments for prior year airline rates and charges reconciliation. (e ) Primarily includes non passenger airline fees from the Airfield Movement Area. Source: Port of Seattle. B-95

193 Exhibit H NONAIRLINE REVENUE Port of Seattle Fiscal Years Ending December 31 (in thousands) The forecasts presented in this exhibit were prepared using information from the sources indicated and assumptions provided by Port management, as described in the accompanying text. Inevitably, some of the assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between the forecast and actual results, and those differences may be material. Actual Forecast NONAIRLINE REVENUES Aviation Properties $ 6,638 $ 7,806 $ 8,396 $ 9,784 $ 10,005 $ 11,090 $ 11,546 $ 11,818 $ 12,256 $ 12,157 $ 12,071 Landside Public Parking $ 57,128 $ 62,354 $ 64,520 $ 66,497 $ 68,660 $ 71,026 $ 73,461 $ 75,563 $ 77,846 $ 83,468 $ 85,641 Rental Cars 32,496 34,354 35,411 36,563 37,618 38,798 40,113 41,325 42,727 44,078 45,502 CFC revenues treated as Gross Revenue (a) 13,608 13,304 12,475 12,103 11,319 10,738 17,381 23,481 24,523 18,383 11,342 Employee Parking 6,538 7,115 7,489 7,865 8,237 8,612 9,080 9,360 9,640 9,920 10,203 Other Ground Transportation 8,333 8,484 8,907 9,001 9,097 9,194 9,293 9,393 9,495 9,598 9,703 Total Landside $ 118,103 $ 125,611 $ 128,803 $ 132,028 $ 134,931 $ 138,368 $ 149,327 $ 159,122 $ 164,231 $ 165,448 $ 162,392 Terminal Concessions Food & Beverage/Retail $ 26,457 $ 29,976 $ 31,407 $ 32,905 $ 34,474 $ 36,117 $ 37,839 $ 39,793 $ 41,848 $ 44,010 $ 46,238 Duty Free 6,643 8,202 8,708 9,242 9,806 10,401 10,890 11,186 11,489 11,800 12,119 Other Terminal Concessions (b) 13,853 13,220 13,087 12,745 11,906 12,072 12,080 12,253 12,431 12,614 12,800 Total Terminal Concessions $ 46,954 $ 51,398 $ 53,201 $ 54,892 $ 56,186 $ 58,590 $ 60,808 $ 63,232 $ 65,769 $ 68,424 $ 71,157 Utilities $ 6,736 $ 8,279 $ 8,528 $ 8,783 $ 9,047 $ 9,318 $ 9,598 $ 9,886 $ 10,182 $ 10,488 $ 10,802 Other Nonairline Revenue (c) 2,361 3,409 3,506 3,603 3,699 3,797 3,894 3,993 4,101 4,211 4,320 Total Nonairline Revenue $ 180,791 $ 196,503 $ 202,434 $ 209,089 $ 213,869 $ 221,163 $ 235,174 $ 248,051 $ 256,540 $ 260,727 $ 260,743 Annual % change 8.7% 3.0% 3.3% 2.3% 3.4% 6.3% 5.5% 3.4% 1.6% 0.0% Average annual % change 2014 to % Notes: Columns may not add to totals shown because of rounding. (a) Equal to total CFC revenues less CFC revenues used to pay debt service. (b) Includes advertising, nonairline space rentals, vending, foreign exchange, telephone, ATMs, and tenant marketing. (c) Includes revenue from (1) international lounges (the Club at SEA) located in Concourse A and the South Satellite and (2) the Conference Center at Sea Tac located near Port offices at the Airport. Source: Port of Seattle. B-96

194 Exhibit I AIRPORT OPERATING EXPENSES Port of Seattle Fiscal Years Ending December 31 (in thousands) The forecasts presented in this exhibit were prepared using information from the sources indicated and assumptions provided by Port management, as described in the accompanying text. Inevitably, some of the assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between the forecast and actual results, and those differences may be material. AIRPORT OPERATING EXPENSES Actual Forecast Airport Operating and Maintenance Expenses $ 161,399 $ 173,240 $ 180,074 $ 187,273 $ 194,668 $ 202,445 $ 210,083 $ 217,744 $ 226,814 $ 235,388 $ 244,666 Expenses Associated with Future Capital Projects ,560 5,430 6,173 6,991 8,020 Corporate Allocated Expenses 69,305 74,246 77,336 80,458 83,787 87,168 91,133 95,646 99, , ,294 Total Airport (a) $ 230,704 $ 247,486 $ 257,787 $ 268,193 $ 279,291 $ 290,560 $ 303,776 $ 318,820 $ 332,233 $ 346,256 $ 360,981 Annual % change 7.3% 4.2% 4.0% 4.1% 4.0% 4.5% 5.0% 4.2% 4.2% 4.3% Average annual % change 2014 to % SUMMARY BY COST CENTER Terminal Building (b) $ 105,432 $ 112,978 $ 117,771 $ 122,542 $ 127,785 $ 132,971 $ 138,363 $ 146,561 $ 152,929 $ 159,596 $ 166,702 FIS 5,285 5,974 6,303 6,558 6,834 7,110 8,897 9,357 9,751 10,162 10,597 Airfield Movement Area 48,653 50,132 52,145 54,238 56,407 58,664 61,010 63,451 65,989 68,628 71,373 Airfield Apron Area 6,187 5,795 6,027 6,268 6,519 6,780 7,051 7,333 7,626 7,931 8,248 Airfield Commercial Area 3,909 3,663 3,809 3,962 4,120 4,285 4,456 4,635 4,820 5,013 5,213 Other (c) 1,381 1,404 1,466 1,525 1,586 1,649 1,715 1,784 1,855 1,930 2,007 Nonairline 59,857 67,540 70,265 73,101 76,040 79,101 82,283 85,700 89,263 92,996 96,840 Total Airport (a) $ 230,704 $ 247,486 $ 257,787 $ 268,193 $ 279,291 $ 290,560 $ 303,776 $ 318,820 $ 332,233 $ 346,256 $ 360,981 Notes: Columns may not add to totals shown because of rounding. (a) Includes Port costs associated with the ConRAC that the Port currently pays from CFC Revenues. (b) Includes baggage system, gate utilities, and airport operating systems. (c) Includes passenger loading bridges. Source: Port of Seattle. B-97

195 ATTACHMENT 2 OVERVIEW AND FINANCIAL FORECASTS OF CONTAINER MARKET, SEAPORT ALLIANCE, AND OTHER PORT BUSINESSES Report of the Independent Consultant B 98

196 [THIS PAGE INTENTIONALLY LEFT BLANK] B 99

197 OVERVIEW AND FINANCIAL FORECASTS OF CONTAINER MARKET, SEAPORT ALLIANCE AND OTHER PORT BUSINESSES This Attachment 2 presents an overview of the Port s non Airport businesses, which include container market and trends, the Seaport Alliance, the Other Port Businesses market and trends, and presents historical and forecast financial results for these non Airport Businesses. Key assumptions developed by the Port, which were used to prepare forecast financial results, are also presented in this Attachment. In addition to the Airport, the Port owns facilities used in a variety of maritime and commercial businesses. The largest of these businesses as measured by total assets and Gross Revenue is container terminal leases. The Port also provides facilities for other cargo shipping operations, cruise terminals, recreational and commercial marinas and dockage and it leases various commercial and industrial properties to tenants. As discussed more fully in this Attachment 2, the Port of Seattle expects to form the Seaport Alliance with the Port of Tacoma to unify management and operation of both ports Marine Cargo businesses to achieve certain key objectives, including the ability to compete more effectively for future containerized traffic. Marine Cargo includes waterborne goods other than grain, liquefied natural gas or methanol. BST Associates reviewed the Port s forecast of financial performance of the Port of Seattle facilities expected to be licensed to the Seaport Alliance and the financial forecasts for Other Port Businesses, including the methodologies and underlying assumptions incorporated therein, and determined that they are reasonable for purposes of this Report. OVERVIEW OF GLOBAL AND PACIFIC NORTHWEST CONTAINER MARKETS AND TRENDS The Port of Seattle handles cargo for domestic trade routes (Alaska, Hawaii and Intercoastal locations) and international trade routes, which consist mainly of trade with Asia, but also with Oceania, Europe and other international markets. As shown on Figure 25, the volume of full international containers moving through U.S. ports grew strongly from 2000 through 2007, prior to the beginning of the most recent recession. The recession had a major impact on container volumes, which dropped sharply between 2007 and Container volumes recovered steadily from 2010 through 2014, surpassing the 2007 record volume in 2011 and continuing to grow through Most growth in international container volumes at U.S. ports since 2000 has been due to increasing trade with China. China accounted for less than 27% of the trade in 2000, but accounted for 40% in 2014, and U.S. China container volume grew from 4.7 million twenty foot equivalent units ( TEUs ) to 12.5 million TEUs. Northeast Asia (excluding China) volume grew B 100

198 from 3.5 million TEUs to 3.9 million TEUs, and accounted for 12.2% of the U.S. total in The volume from South and Southeast Asia increased faster than the volume from Northeast Asia, growing from 2.1 million TEUs to 4.1 million TEUs, and accounting for 12.9% of the U.S. total in Other trading regions include Europe, which accounted for 14.9% of total volume in 2014, and Latin America/Caribbean, which accounted for 14.5% of volume in Figure 25 VOLUME OF FULL INTERNATIONAL CONTAINERS U.S. Ports by World Region 12.0 Full International TEU Other Europe Northeast Asia Latin America South & Southeast Asia China Source: The JOC Group PIERS. For shippers and carriers, the size of the local/regional market historically has been the most important factor used in deciding which ports to use. In terms of population and consumption, the Port s local market is small relative to the other U.S. West Coast gateways (i.e. the Los Angeles region and the San Francisco Bay Area). Less than half of the cargo received at the Port is distributed within the local market area, and approximately 60% of imports from Asia are shipped by rail to inland destinations, such as the Midwest. The cargo shipped inland is referred to as discretionary cargo, since this cargo can shift to other gateways at the discretion of shippers and carriers. In California, approximately 55% to 65% of the import containers moving via the Ports of Los Angeles and Long Beach move by rail to inland destinations, but at the Port of Oakland only 20% to 30% of import containers move out of that region by rail. In Western Canada, Vancouver, B.C. serves as the primary gateway for Asian cargo destined for all of Canada and also competes with the Port for imported Asian container traffic destined for B 101

199 the U.S. Midwest. This is reflected in the relatively high level of intermodal traffic at Vancouver, where approximately 70% of total imports is shipped inland. At Prince Rupert, which is located in northern British Columbia approximately 565 miles north of Seattle, nearly 100% of containers move by intermodal rail service to inland points in Canada and the U.S. In regions where multiple ports serve a market area or when cargo is discretionary, several factors can determine a port s competitiveness. Shippers consider the total cost (and time) of shipping from the point of origin to the final destination. Factors include rental rates for terminals and equipment, transit time, efficiencies of on loading and off loading, labor costs and productivity, intermodal costs and speed, and access to backhaul cargo. One of the most significant changes affecting selection of container ports is the deployment of ultra large container ships ( ULCS ). This trend has been developing for years but has accelerated in the recent past, and this trend is expected to continue into the future. In the 1970s, the largest containerships had a capacity of 1,800 TEUs. In the early 1980s, the largest ships had a capacity of 4,000 TEUs. By the mid 1990s, the largest ships reached 8,200 TEUs. The Maersk Triple E class vessels introduced in the mid 2000s, have a capacity of 18,000+ TEUs. The move toward even larger vessels continues, with orders for vessels with 24,000 TEUs of capacity. The shift to larger vessels impacts ports in several ways. Most notably, alliances among carriers are expanding in an effort to increase the utilization of each vessel. The volume of cargo controlled by these alliances gives the carriers significant leverage in negotiating with ports, and limits any individual carrier s reliance on any particular port or terminal. In addition, the adoption of the larger vessels has led to a reduction in the number of ports called on each voyage, and has increased the pressure on ports to improve terminal capability and also increase terminal productivity in order to reduce the time that ships spend in port. In order to accommodate the new ULCS, the burden is placed on port operators to invest in: Linear berth space exceeding 2,600 feet for two ULCS berthed at the same time Container cranes capable of accommodating the ULCS (with an outreach of 18 containers or more) On dock rail of sufficient size to accommodate intermodal traffic generated by ULCS (24,000 feet of rail trackage) Sufficient water depth in navigation channels and at berth to accommodate a 51 foot draft There are three terminals that are expected to be licensed to the Seaport Alliance and that meet ULCS requirements (Terminal 18 at the Port, and Pierce County Terminal and Washington United Terminal at the Port of Tacoma) and two terminals that could accommodate ULCS with improvements, including Terminal 5 at the Port and the General Central Peninsula Terminal at the Port of Tacoma). All of these terminals are discussed in greater detail later in this Attachment 2. B 102

200 There are currently 501 containerships on order for the period from 2015 through 2019 with a combined capacity of 1.9 million TEUs. Approximately half of the capacity is in vessels larger than 13,000 TEUs, which are too large to fit through the newly rebuilt Panama Canal. 24 Delivery of 22,000 and 24,000 TEU ships currently on order may be sooner than expected. 25 Carriers have moved steadily toward larger containerships to achieve economies of scale and to drive down costs. They have come to the conclusion that the best strategy to increase profits is to reduce operating costs. This drive is strong since the results of the last recession slowed recovery in cargo volumes and limited rate increases at the same time that new vessel capacity was being introduced and bunker fuel prices were increasing significantly. These conditions led to multi billions of dollars in collective losses among carriers in four of the past five years. 26 Carriers responded by reducing the operating speed of the container ships, from an average speed of in the range of knots to knots at present, 27 which has helped to cut operating costs. Most industry observers expect that the use of reduced operating speeds will continue. New ships can also decrease fuel consumption. According to industry sources, an 18,000 TEU vessel can provide cost savings of 30% compared with an 8,000 TEU vessel, and a 13,000 TEU vessel can provide a 20% saving compared with an 8,000 TEU vessel, 28 assuming an 85% load factor. Due to improvements in design, new containerships consume as little as 50% of the fuel per container moved as older ships, while also more than halving insurance and staffing costs. A megaship requires the same 20 odd crew as a smaller ship, but can carry three times the cargo Barry Luthwaite, Container Market Gets Bigger in Every Way, Marine Propulsion & Auxiliary Machinery, February/March Steve Rothberg, Mercator International, Market Driven Far Reaching Scenarios: Impact and Opportunities Resulting from Global Change, presented at AAPA Facilities Engineering Seminar on November 6, C. Brooks, A P3 Revival? Never Say Never, Maritime Expert Says, Journal of Commerce, June 23, Dr. Noel Hacegaba, Big Ships, Big Challenges: The Impact of Mega Container Vessels on U.S. Port Authorities, Port of Long Beach, June 30, Tina Liu, Country Manager, Drewry Supply Chain Advisors, Global container shipping market with a particular focus on intermodalism, presented at Intermodal Asia March David Z. Morris, Why megaships suddenly dominate the ocean shipping industry, accessed April 20, B 103

201 Figure 26 COST SAVINGS PER TEU Indexed to an 8,000 TEU Vessel $1,200 $1,000 $800 USD/TEU $600 $400 $200 $0 8k 10k 12k 13k 14k 16k 18k Vessel Size Source: Drewry Supply Chain Advisors The push to increase capacity has a cascading effect, in which the largest vessels go to the Asia Europe trade route and the next largest to the Trans Pacific trade route and down through other smaller trade routes. As a result, the push to larger vessels is impacting all ports. Drewry Maritime Research reports that the average vessel size on the transpacific headhaul to U.S. West Coast ports increased from approximately 6,500 TEUs in Q to 7,100 in Q Mercator estimates that by 2020, more than half of the services calling at Puget Sound will be operated with 10,000+ TEU vessels and several by 13,000 TEU vessels. 31 International container carriers have focused on development of alliances to obtain targeted load factors, manage capacity and control operating costs. There are four mega alliances that dominate the transpacific trade routes: 32 G6 APL, Hapag Lloyd, Hyundai Merchant Marine, Mitsui OSK Line, NYK Line, OOCL CKYH E Cosco, K Line, Yang Ming Line, Hanjin Shipping Co., Evergreen Line 2M Maersk Line, Mediterranean Shipping 30 Drewry Maritime Research, Container Forecaster and Annual Review, 2014/ Mercator International LLC, Strategies for Enhancing the Puget Sound Container Trade Gateway Final Report, prepared for the Ports of Seattle and Tacoma, May Port of Tacoma 2015 Budget, page III 2. B 104

202 Ocean 3 China Shipping Container Line, CMA CGM, United Arab Shipping Co. Collectively, members of these alliances account for 16 of the top 20 global container lines and control nearly three quarters of global container capacity. Carriers participating in alliances are in a better position to collaborate on vessel deployments and port rotations to leverage benefits from larger ships and add or remove capacity in response to market conditions. The impacts of larger ships on the physical infrastructure of a port affect all supply chain components from access channels (width and depth) and air draft (affecting ports limited by bridge heights above navigation channels) to berth capabilities (depth alongside, length of berths, size and number of cranes) to yard capacity (size of the terminal, type and number of yard equipment) to inland transportation (road and rail access) as well as the ability to expand all components as needed to meet future demand. 33 The need for ULCS ready container terminals has implications for ports competing for this type of traffic: 34 Intermodal container volume from and to Asia is at risk given industry trends towards larger vessels, combined with a lack of adequate container terminal infrastructure in the ports of Seattle and Tacoma to handle them. The ports of Seattle and Tacoma currently have three terminals (Terminal 18 at the Port of Seattle and Washington United and Pierce County terminals at the Port of Tacoma) that can accommodate ULCS with sufficient berth lengths and cranes to stevedore one ULCS vessel at a time, but lack sufficient intermodal infrastructure necessary to efficiently move containers from the ports to inland rail served markets. Other competing gateway ports (e.g. ports in Long Beach, Los Angeles, Oakland, Port Metro Vancouver, Port Rupert and Lazaro Cardenas, and ports in New York/New Jersey and Virginia) currently have terminals capable of efficiently handling multiple ULCS vessels concurrently, are actively enhancing their terminal infrastructure, and will be well positioned to capture intermodal market share from Puget Sound if the ports of Seattle and Tacoma do not invest in developing comparable capabilities for handling ULCS ships. Future investments in expanded ULCS handling capacity may reduce the following risks: The Puget Sound gateway could continue to see reduced market share of intermodal imports that currently pass through its ports. Some marine terminal operators ( MTOs ) may propose terminating existing lease agreements and obligations. The Port could see a reduction in forecast fixed revenue from tenants. Rail capacity has become an issue for ports in the Pacific Northwest. Changes in energy 33 Rothberg, Mercator International LLC, May B 105

203 markets have led to significant increases in traffic on the rail lines used by intermodal traffic. The BNSF Railway Company ( BNSF ) has benefited most from this increase in cargo, but has had issues with handling the sudden increase. The winter of was especially difficult for BNSF, when harsh winter weather combined with increased oil traffic and limited rail capacity caused major service disruptions on the line between North Dakota and Puget Sound. The railroads have been working to increase capacity, but further growth in oil traffic and the potential for shipments of large volumes of coal to the Pacific Northwest could continue to impact service. RECENT CONTAINER TRENDS AT THE PORTS OF SEATTLE AND TACOMA Between 2010 and 2014, container volumes moving through the Port of Seattle declined by 35.0% but increased at the Port of Tacoma by 42.0%. The decline at the Port was primarily caused by the loss of several carriers to the Port of Tacoma, including the Grand Alliance (now referred to as the G6 Alliance), and Hamburg Süd. In addition, other North American gateways (i.e., ports in British Columbia and California) have been gaining market share at the expense of the Port of Seattle. The Port of Seattle and the Port of Tacoma handle international and domestic container traffic, as shown in Tables 15 and 16, respectively. At the Port of Seattle, there was a decrease of 51.8% in full import TEUs and a 31.0% decrease in full export TEUs, but domestic container traffic increased by 36.2% from 2010 through At the Port of Tacoma, there was an increase of 64.9% in full import TEUs and a 62.1% increase in full export TEUs, but a 4.5% decrease in domestic container traffic from 2010 through Combined, the Port of Seattle and the Port of Tacoma experienced a 1% decline in overall container traffic. Despite the drop in container volume in 2014, the Port of Seattle ranked as the 11 th largest and the Port of Tacoma ranked 9 th largest container port in North America, as shown in Table 17. B 106

204 Table 15 PORT OF SEATTLE CONTAINER TRENDS All figures are in thousands Average annual increase (decrease) Component Unit International Containers (1) Imports Metric Tons 7,037 6,618 6,733 5,038 4,122 (12.5%) Full TEUs (16.7%) Exports Metric Tons 7,418 8,182 7,240 6,519 5,333 (7.9%) Full TEUs (8.9%) Empty TEUs (18.7%) Total Intl. TEUs 1,822 1,696 1,514 1, (14.5%) Domestic Containers (2) TEUs % Total Containers (3,4) TEUs 2,126 2,017 1,853 1,564 1,388 (10.1%) Percent TEUs Domestic 14% 16% 18% 24% 30% 20.2% International 86% 84% 82% 76% 70% (4.9%) Note: Totals might not equal the sum of component parts due to rounding. (1) Approximate weight per full 20 foot equivalent unit ( TEU ) at the Port is eight metric tons of import cargo and 11 to 18 metric tons of export cargo. (2) Includes volumes handled by Port and non Port facilities in Seattle s harbor. Includes full and empty containers. (3) Total for the Seattle Harbor. (4) During the fourth quarter of 2014, an adjustment was made to certain prior year ( ) container TEU and metric ton information to reflect a reporting discrepancy of non Port containers. The revised data is listed above. Source: Port of Seattle. B 107

205 Table 16 PORT OF TACOMA CONTAINER TRENDS All figures are in thousands Average annual increase (decrease) Component Unit International Containers (1) Imports Metric Tons 2,775 2,832 3,809 4,445 5, % Full TEUs % Exports Metric Tons 3,529 3,847 4,311 4,938 5, % Full TEUs % Empty TEUs % Total Intl. TEUs 962 1,022 1,265 1,444 1, % Domestic Containers TEUs (1.2%) Total Containers TEUs 1,441 1,476 1,710 1,891 2, % Percent TEUs Domestic 14% 16% 18% 24% 30% 21.0% International 86% 84% 82% 76% 70% (5.0%) Note: Totals might not equal the sum of component parts due to rounding. (1) Approximate weight per full 20 foot equivalent unit ( TEU ) at the Port is eight metric tons of import cargo and 11 to 18 metric tons of export cargo. Source: Port of Tacoma. B 108

206 Table 17 CONTAINER VOLUME AT NORTH AMERICAN PORTS Average annual increase (decrease) Rank Total TEUs (millions) 2014 Port Los Angeles % 2 Long Beach % 3 New York/New Jersey % 4 Savannah % 5 Vancouver (BC) % 6 Oakland % 7 Hampton Roads % 8 Houston % 9 Tacoma % 10 Charleston % 11 Seattle (9.8%) Average for ports listed % Note: Excludes Mexico and the Caribbean. Sources: American Association of Port Authorities for 2010 to 2013 and individual ports for Demand for Container Terminals The Port experienced rather volatile changes in container volumes from 2000 through Annual growth in container traffic at the Port averaged 4.1% between 2000 and 2007 as compared with growth of 6.8% per year at all West Coast ports during this period. During this time period, the Port s market share of West Coast container traffic declined from 9.5% in 2000 to 7.9% in The Port saw increases in volume in 2005, to nearly 2.1 million TEUs, as congestion in Southern California caused shippers and carriers to seek alternative gateways to Los Angeles and Long Beach. Container volume remained close to 2.0 million TEUs in both 2006 and 2007, but began to drop in 2008 due to the impact of the recession. From 2008 through 2014 the Port s container volumes fell from 1.7 million TEUs to 1.4 million TEUs. The average annual decline in volume was 3.1%, in contrast to West Coast port growth of 1.3% during the same period. The Port s market share of West Coast container traffic dropped from 7.4% in 2008 to 5.7% in The major reason for the decline at the Port was the loss of a major carrier alliance in During the recession, the container volume at the Port dropped to a low of 1.6 million TEUs in 2009, but recovered to 2.1 million TEUs in During 2012, Hapag Lloyd, NYK Line and OOCL (a portion of the Grand Alliance consortium) moved to the Port of Tacoma from Terminal 18, followed by Hamburg Süd in the same year. Port container volume dropped below 1.6 million TEUs in 2013 and to 1.4 million TEUs in B 109

207 As shown in Table 18, most of the West Coast growth between 2010 and 2014 occurred at ports in Southern California and in British Columbia. In Southern California, Los Angeles gained 490,000 TEUs during that period and Long Beach gained 471,000 TEUs. In British Columbia, Port Metro Vancouver gained 421,000 TEUs and Prince Rupert gained 436,000 TEUs. Puget Sound ports lost a total of 114,000 during that period, with Tacoma gaining 178,000 TEUs and the Port losing 292,000 TEUs. B 110

208 Table 18 WEST COAST CONTAINER TRENDS (1,000 TEUs) Port % of Seaport Seaport Seaport Alliance Total Northwest 2 Total West Coast 4 Seaport Alliance % Alliance % Year Seattle 1 Tacoma Total Other NW Total Other West 3 Total Alliance of NW of West A B C = A+B D E = C+D F G = E+F H = A/C I = C/E J = C/G ,488 1,376 2,864 1,521 4,385 11,337 15, % 65.3% 18.2% ,134 1,455 3,589 3,039 6,628 16,577 23, % 54.2% 15.5% ,034 1,486 3,520 3,114 6,634 16,503 23, % 53.1% 15.2% ,886 1,718 3,604 3,461 7,065 16,548 23, % 51.0% 15.3% ,575 1,887 3,462 3,543 7,005 17,127 24, % 49.4% 14.3% ,413 2,039 3,452 3,696 7,148 17,734 24, % 48.3% 13.9% Average Increase (Decrease) % 0.6% 2.3% 7.2% 4.2% 3.9% 4.0% (9.8%) 8.8% (1.0%) 5.0% 1.9% 1.7% 1.8% 1 Includes public and private terminals in the Seattle Harbor. 2 Pacific Northwest ports include Portland, Seattle, Tacoma, Vancouver B.C. and Prince Rupert, B.C. 3 Other West Coast Ports include Long Beach, Los Angeles, Oakland, San Diego and Port Hueneme and San Francisco, among others. 4 Ports include Long Beach, Los Angeles, Oakland, Portland, Seattle, Tacoma, Vancouver, B.C. and Prince Rupert, B.C. as well as the smaller ports of San Diego, Port Hueneme and San Francisco, among others. Sources: American Association of Port Authorities, individual ports. Prepared by: BST Associates. B 111

209 West Coast ports handle the majority of containerized cargo that moves from Asia to the United States, but the U.S. West Coast market share has declined steadily since 2000 as ports on the East Coast, Gulf Coast, and British Columbia have attracted cargo from Asia. Between 2000 and 2014, the share of U.S. Asia containerized imports that moved through U.S. West Coast ports declined from 81.9% to 64.3%, and the share of exports fell from 75.3% to 59.5%, as shown on Figure 27. U.S. East Coast market share of the U.S. Asia import container trade grew from 17.4% in 2000 to 29.7% in 2014, U.S. Gulf Coast market share grew from 0.2% to 2.3%, and Western Canada market share grew from 0.5% to 3.6%. For containerized exports, the U.S. East Coast market share grew from 22.4% to 32.4%, U.S. Gulf Coast market share grew from 0.4% to 3.1%, and Western Canada market share grew from 1.9% to 5.0%. 90% Figure 27 WEST COAST SHARE OF ASIA NORTH AMERICA CONTAINER MARKET With and Without Ports in British Columbia 80% 70% Market Share 60% 50% 40% 30% 20% 10% 0% Source: PIERS, IANA. Prepared by: BST Associates. Imports (U.S. West Coast) Exports (U.S. West Coast) Imports (U.S. West Coast w/b.c.) Exports (U.S. West Coast w/b.c.) Since the development of mini landbridge service (i.e., ocean containers carried by rail), shippers on the East and Gulf Coasts have had some ability to choose between the relatively higher speed and higher cost of shipping via rail through West Coast ports, and the relatively lower speed and lower cost of all water routings. Over time, much of the cargo that once moved to East and Gulf coasts via West Coast ports and rail has shifted to ports along the East and Gulf Coasts. Pacific Northwest ports now handle very little intermodal cargo destined for the East and Gulf Coasts. Problems in U.S. West Coast ports (port congestion in Southern B 112

210 California, labor disputes between terminal management and longshoremen, and rail service issues, among others) persuaded shippers to evaluate alternative gateways. Shippers sought to diversify their imports, adopting a four corner strategy, which directs cargo to the closest port serving the inland region. High population growth rates in the southern states also increased the efficiency of using southern ports as international gateways, and a significant number of import distribution centers have been developed near East and Gulf Coast ports to handle increasing volumes of containerized trade. The main impediment to growth in the Asia to East/Gulf Coast container trade has been the size and capacity of the Panama Canal. The Canal is reaching capacity in the number of ships that can pass through it daily, and new container ships are too big for the current dimensions of the locks. Until recently, most of the container fleet was built to the Panamax standard of 106 feet of beam and 965 feet of length. The new post Panamax ships are up to 150 feet wide and 1,200 feet long, and these increasingly dominate the Asian U.S. trade. Construction of a third set of locks designed to handle vessels up to 13,000 TEUs is scheduled to be complete in The major competition for Puget Sound ports is in service to the U.S. Midwest. West Coast ports remain competitive gateways for Asian cargo, but competition for inland cargo is also growing. The newest competition for cargo destined for Chicago and the upper Midwest comes from ports in Western Canada, namely Vancouver and Prince Rupert. The two main Canadian railroads, Canadian Pacific and Canadian National, both offer direct service from Western Canada to the Chicago area and beyond. The rail distance from Vancouver to Chicago is not substantially different than the distance from Puget Sound or California ports, and the ocean distance from Asia to Vancouver is essentially the same as from Asia to Seattle or Tacoma. Prince Rupert is a longer rail distance from Chicago, but a much shorter ocean distance. Since opening in 2008, the Prince Rupert container terminal has been very successful in attracting U.S. Midwest cargo. The Port currently has terminal capacity available to handle additional cargo. The Pacific Northwest region has an estimated utilization rate of 60.0%; however, the Seaport Alliance has a utilization rate of 43.0%. As shown in Table 19, capacity is available at other regions as well. 35 Competition from other ports (primarily U.S. West Coast ports) is likely to constrain future growth at the Port, which is discussed in the container forecasts. 35 Mercator International, May B 113

211 Table 19 PORT CONTAINERIZED CAPACITY UTILIZATION By U.S. Region Regional Capacity (million TEU/year) Estimated Regional Throughput (million TEU/year Region Ports No. of Terminals Capacity Utilization Pacific Prince Rupert, Vancouver, % Northwest Seattle, Tacoma, Portland Pacific Oakland, Los Angeles, Long % Southwest Beach West Gulf Freeport, Houston, New % Orleans East Gulf Gulfport, Mobile, Tampa % South Atlantic % North Atlantic Miami, Port Everglades, West Palm Beach, Jacksonville, Savannah, Charleston, Wilmington NC Hampton Roads, Baltimore, Wilmington DE, Chester, Philadelphia, New York/New Jersey, Boston % Source: Mercator International. ASSESSMENT OF COMPETING PORTS The Port of Seattle and the Port of Tacoma expect to unify management of the two ports Marine Cargo facilities under the Seaport Alliance, which will provide the following services and facilities: The ability to accommodate ULCS vessels in Terminal 18 at the Port of Seattle, and the Pierce County Terminal and Washington United Terminal at the Port of Tacoma. The capability to serve ULCS vessels with certain capital improvements at Terminal 5 at the Port of Seattle and at the General Central Peninsula Terminal (combining Husky Terminal with the Olympic Container Terminal) at the Port of Tacoma. In marketing its services and facilities, the Port cites its geographical advantage, which includes shorter sailing times to East Asia. The Port is 300 miles closer to ports in East Asia than the port in Oakland and 600 miles closer than the ports of Long Beach and Los Angeles, but the Port is not as close as the Port of Prince Rupert. B 114

212 Ports of Long Beach and Los Angeles. The ports of Long Beach and Los Angeles have the largest primary market in the United States, with a large local population base and the largest concentration of national distribution centers. Containerized cargo traffic at the ports of Long Beach and Los Angeles grew from 9.4 million TEUs in 2000 to a high of 15.8 million TEUs in Volumes started to decline in 2007 as the recession started, and dropped to 11.8 million TEUs in 2009, at the depth of the recession. Between 2010 and 2014 the volume grew from 14.1 million TEUs to 15.2 million TEUs, and nearly recovered to pre recession levels. A large share of the containers imported through Los Angeles and Long Beach are destined for other parts of the United States, particularly the Upper Midwest (Chicago, etc.), South Central, and South. Approximately 55% to 65% of container imports shipped through the ports of Long Beach and Los Angeles were shipped to discretionary markets, compared with approximately 60% of the imports shipped through the Port of Seattle. Southern California ports face increasing competition in serving inland markets, from ports on the East Coast and Gulf Coast, and in British Columbia. Although these competitors have taken market share from Los Angeles and Long Beach, the Southern California ports still handle nearly one third of all U.S. container traffic, one quarter of North American container traffic, and more than 60% of West Coast container traffic. Competition for intermodal cargo bound for the U.S. Midwest is intense for ports to the north, south and east in the United States. The labor management dispute between the International Longshore, Warehouse Union, and Pacific Maritime Association in late 2014 and early 2015 negatively impacted productivity in the ports of Seattle, Los Angeles, Long Beach, and other U.S. West Coast ports, such as ports in Oakland, Portland, and Tacoma. This dispute did not affect ports in the Gulf Coast and East Coast, British Columbia, and Mexico. The Port of Long Beach has commenced a decade long, $4.5 billion capital improvement program to modernize the Port by building cleaner, more efficient terminals, roads, bridges and other infrastructure. The $1.3 billion Middle Harbor project will combine two container terminals into one terminal that encompasses 304 acres, and includes upgraded wharfs, water access and storage areas, and greatly expands the on dock rail yard. Construction started in spring 2011, and will take up to nine years to complete. Replacement of the Gerald Desmond Bridge is scheduled for completion by early 2018 at an estimated cost of $1.3 billion. This new bridge will provide 205 feet of vertical clearance from the navigation channel, allowing the largest ships to pass underneath, and will provide additional truck traffic lanes with grades that are less steep than the existing bridge. The Port of Los Angeles is in the midst of a five year, $1.1 billion capital improvement program. The Berths YTI Container Terminal project includes dredging, crane modifications, and wharf improvements to accommodate larger vessels. The Berths Yang Ming Container Terminal Development project includes a new wharf, dredging to accommodate larger vessels, and expanding the existing on dock intermodal yard. The Berths Everport (aka B 115

213 Evergreen) Container Terminal Project will include dredging to accommodate larger vessels and installation of 3 new cranes. The Port of Los Angeles is also investing in a series of roadway improvements in major freight corridors, including reconfigured ramps, additional lanes, and a key road/rail grade separation. In addition, the Port of Los Angeles is a partner in the Union Pacific Intermodal Container Transfer Facility Modernization Project. Port of Oakland. The Port of Oakland handled 2.4 million TEUs in 2014, which represented a marginal increase from the 2010 volume of 2.3 million TEUs. Container volumes at Oakland experienced limited impact during the recent recession, in contrast to other West Coast ports. Oakland s container volume dropped from 2.4 million TEUs in 2006 to 2.2 million TEUs in 2008 and to a low of 2.0 million TEUs in 2009, before recovering in The Port of Oakland is the major container port in Northern California. Oakland s share of West Coast container volume fell from 10.1% in 2010 to 9.7% in 2014, despite the small increase in container volume. The reasons for Oakland s relative stability include several factors: The share of import containers moved inland via intermodal service is small relative to other West Coast ports. Approximately 20% to 30% of Oakland s container traffic moves via intermodal rail service as compared with 50% or more at the other major West Coast ports. The Central Valley provides a strong export base of agricultural products for the Port of Oakland. Oakland provides shippers with an alternative to Los Angeles and Long Beach. The continuing drought that California has experienced over the last several years poses a risk to Oakland s exports, if a lack of water impacts agricultural output. The Port of Oakland has been planning development of a 360 acre trade and logistics center at the former Oakland Army Base. Construction on the $500 million redevelopment began in 2013 and is planned for completion in Major components of this project include rail improvements intended to accommodate four 8,000 foot trains, as well as construction of cold storage facility and a grain transload operation. The goal is to increase first call service to the Port of Oakland. Port of Portland. The Port of Portland handled an average of nearly 300,000 TEUs per year during the late 1990s, but volumes began to decline after By 2010 Portland container volume dropped to 181,000 TEUs and by 2014 were 165,000. In February of 2015 Portland lost it primary carrier, Hanjin, which accounted for approximately 80% of container volume. In April of 2015, the carrier accounting for approximately 20% of container volume, Hapag Lloyd, also stopped calling in Portland. With the exception of a small volume of containers handled by Westwood, Portland is now without a container shipping line, and attracting another carrier will be a challenge. B 116

214 The Port of Portland s chief constraint is the relatively shallow water depth of the Columbia River. A project to deepen the 110 mile Columbia River deep draft navigation channel between Portland and the mouth of the river from 40 feet to 43 feet was completed in However, this increased water depth is not sufficient to meet the needs of newer generation post Panamax vessels, which require a navigation channel with a depth of 50 feet or more. Vancouver, British Columbia. Port Metro Vancouver (PMV) was formed in January 1, 2008 by the merger of the Ports of Vancouver, Fraser River and North Fraser River. PMV container volume grew from 2.5 million TEU in 2010 to 2.9 million TEU in 2014, and PMW share of the West Coast market grew from 10.9% to 11.8%. Vancouver is 117 miles north of the Port, just north of the United States/Canada border. Growth in containerized cargo has come from recapturing Canadian container cargo that previously moved through U.S. ports, shifting breakbulk cargoes (lumber, pulp et al) into containers and introducing efficient intermodal services. The improved intermodal service has also helped PMV to capture an increasing share of container traffic bound for U.S. destinations. Containers bound for U.S. destinations via Canadian ports are not subject to the Harbor Maintenance Tax (HMT), while containers moving through U.S. ports are subject to the tax. The factors impacting Port market share are discussed further in the container forecasts. PMV has been planning and constructing a series of projects to increase capacity significantly, primarily at Deltaport. Deltaport, located just north of the U.S. Canadian border, was initially developed into a 160 acre container facility that opened in An expansion project completed in 2010 increased capacity to 1.8 million TEUs by adding a third berth and 50 acres of container storage facilities to the existing two berth container terminal (210 acres after expansion). PMV is currently planning the Terminal 2 Project at Deltaport, which will add a new three berth container facility with 267 acres of upland container terminal space, and with additional throughput capacity of 2.4 million TEUs. The construction or completion schedule for Terminal 2 is not known, but is expected to occur by There is a partnership (composed of the PMV, Province of British Columbia, Canadian government, private sector stakeholders) underway to improve road and rail systems to support container terminal development. Prince Rupert, British Columbia. Container operations at Prince Rupert began in July of 2007 when COSCO shifted its U.S. intermodal traffic from the Port to Prince Rupert. In 2007, Prince Rupert handled 16,793 TEUs (representing a partial year of traffic). Container traffic at Prince Rupert increased by an average of nearly 110,000 TEUs per year each year from 2008 through 2012, reaching 565,000 TEUs in Volume fell slightly in 2013, but then grew to 618,000 TEUs in 2014, as a result of labor disputes in the U.S. West Coast. 36 Source: PMV Container Capacity Improvement Program, November B 117

215 Maher Terminals currently operates the Fairview Container Terminal at the Port of Prince Rupert, but DP World is scheduled to purchase the operation from Maher Terminals in The existing facility has approximately 59 acres of upland terminal space and 1,312 feet of berth space capable of handling post Panamax vessels. The capacity of the terminal is currently estimated at 750,000 TEUs. A proposed Phase 2 would expand the dock length to 2,600 feet with water depth of 59 feet, and would expand the terminal to 139 acres with an estimated capacity of 2.0 million TEUs. Phase 2 of Fairview Container Terminal is expected to be completed in the first half of Additional expansion to total capacity of 2.45 million TEUs is also under study. Prince Rupert has become a successful pure intermodal gateway, with nearly all cargo destined for points further inland (mainly Eastern Canada and the U.S. Midwest). Prince Rupert offers one of the fastest West Coast corridors from Asia to the U.S. Midwest because it is 500 nautical miles closer to Asia than its nearest competitors (Port Metro Vancouver and the Port), and because its terminal velocity and intermodal transit times are competitive with other West Coast corridors. Rail service is provided by Canadian National Railway (CN), which operates out of both Prince Rupert and Vancouver. The CN rail network provides direct access into the U.S. Midwest. CN is providing very attractive rates to shippers and carriers through volume discount agreements and reduced empty container backhaul charges. Containers bound for U.S. destinations through Prince Rupert are not subject to the Harbor Maintenance Tax. This saves shippers an average of approximately $55 per TEU. East Coast and Gulf Coast. U.S. West Coast ports face strong competition for Asian cargo from East Coast and Gulf Coast ports via all water services using the Panama and Suez Canals. The Suez route is preferred for cargo that originates in South Asia or Southeast Asia and is destined for the U.S. East Coast because it offers shorter sailing times than the Panama Canal route. For cargo originating in China and Northeast Asia, routing via the Panama Canal or via West Coast ports is generally faster. Depending on the destination of the cargo, however, West Coast routings may or may not be more expensive. In general, West Coast ports are competitive in serving destinations as far to the east as the Appalachian Mountains. Northeast Asia is a much larger trading region for U.S. ports than South and Southeast Asia: including China, in 2014 Northeast Asia accounted for 16.5 million TEUs, versus 4.1 million TEUs for South and Southeast Asia. As a result, most of the all water routes use the Panama Canal. The dimensions of the existing Panama Canal limit ships to the following dimensions: Length: meters (965 feet). Beam (width): 32.3 meters (106 feet). Draft: 12.0 meters (39.5 feet) in tropical fresh water. B 118

216 Ship capacity: 5,000 TEU An increasing number of ships are too big to use the existing Panama Canal. This includes including container ships, tankers, and dry bulk carriers. To accommodate these larger vessels, Panama started construction in 2007 on a new, larger set of locks. The completion of this project is currently planned for Ships using the new locks will have maximum dimensions of: Length 366 meters (1,200 feet) long. Beam: 49 meters (161 feet) wide. Draft: 15.2 meters (50 feet) deep. Ship capacity: 13,000 TEU The new locks will ease congestion and allow larger ships to pass. As noted above, the maximum container capacity for ships using the existing locks is approximately 5,000 TEUs, while the new locks will allow ships with capacity of up to 13,000 TEUs. In spite of the improvements, the Panama Canal will not be able to handle the largest container ships now in service, or the even larger ships now on order. To reach U.S. East Coast ports these ships would need to be routed via the Suez Canal. The largest container ships typically first enter service in the Asia Europe trade lanes. When this happens, the ships that were in the Asia Europe trade are shifted to the next busiest trade lanes, such as Asia U.S. The result is that East and Gulf Coast ports are likely to see larger vessels than they now handle, but vessels too large for the Panama Canal will either call at West Coast ports, or be routed via the Suez Canal. The tolls charged by the Panama Canal Authority also may influence how vessels are routed. Higher rates would negate some of the advantage of larger vessels. Another issue is that most ports on the U.S. East and Gulf Coasts have navigation channels that are not deep enough to accommodate larger container vessels. Fully loaded vessels of 6,000 TEUs or greater require navigation channels of 50 or more feet. Ports that currently have 50 feet of depth or are working on channel deepening include: Savannah: from 42 feet to 47 feet, project approved and funded Charleston: from 45 feet to 52 feet, currently under environmental review Jacksonville: from 40 feet to 47 or 50 feet, currently being studied New York: 50 feet (solutions to bridge height constraints are being evaluated) Baltimore: 50 feet Norfolk: 50 feet B 119

217 Additional dredging will take several years to complete if/when funding is available. In any event, a significant shift of containers from West Coast/intermodal routing to all water services has already occurred. INTRODUCTION AND DESCRIPTION OF THE SEAPORT ALLIANCE Purpose and Intent On October 14, 2014, the Port of Seattle entered into an interlocal agreement (ILA) with the Port of Tacoma to serve as a framework for the creation of a Seaport Alliance pursuant to the Federal Maritime Commission (FMC) Discussion Agreement No (the Seaport Alliance). The purpose of the Seaport Alliance is to unify management and operation of both ports Marine Cargo (defined to include waterborne goods other than grain, liquefied natural gas or methanol) businesses. As stated in the ILA, the Seaport Alliance is to be the exclusive manager and operator of the marine cargo business of both ports, overseeing operations and capital investments. If the Seaport Alliance is implemented, it would operate the third largest container shipping gateway in the United States, as measured by container volume in Between October 2014 and May 2015, the Port undertook due diligence with the Port of Tacoma. Port staff from multiple business and administrative functions regularly met with counterparts from the Port of Tacoma to share information and develop the structure for the Seaport Alliance. The results of these meetings were shared with the two port commissions in their joint meetings. The ports hired an independent consultant to provide an estimated valuation for the ports facilities based on the 10 year net present value of each property s estimated cash flows and enterprise value, including maintenance and repair capital and updated operation, maintenance and administrative costs to be provided by each Managing Member. Based on that valuation, each port plans to contribute selected Marine Cargo facilities, such that each port s initial contribution to the Seaport Alliance would each be 50.0%. During the due diligence period, the ports drafted key documents, including the charter, and released those documents to the public for comment on May 8, On June 5, 2015, the Port of Seattle and the Port of Tacoma held a joint meeting and each port voted to submit a new discussion agreement to the FMC for approval. FMC review takes place over a 45 day period after the discussion agreement has been submitted. Once FMC approval has been obtained, the two port commissions would vote to formally create the Seaport Alliance. B 120

218 According to the Port, the Seaport Alliance is being formed to address increased competition and pressure to improve facilities and to achieve the following key objectives: Increase the competitive position of the facilities that would be operated and managed under the Seaport Alliance through unified customer relations Create a unified approach to managing the terminals of port facilities, creating operating and other efficiencies Optimize the use of capital investments in facilities at both ports based on key opportunities and the strategic use of assets in either port Proposed Governance Structure and Obligations The Seaport Alliance would be formed as a Port Development Authority (PDA) in August 2015, pursuant to a recently added provision in Title 53 RCW that grants ports the authority to create separate port development authorities. The Seaport Alliance would be governed by the two ports as equal Managing Members, with each port acting through its elected commissioners pursuant to a charter. Actions requiring Managing Member approval require a majority vote by both commissions. The charter may be amended upon approval by both Managing Members. The Managing Members will appoint a Chief Executive Officer (CEO) who will hire staff and enter into service agreements with the ports as needed. Once formed, the Seaport Alliance would continue for an indefinite term until dissolution. Managing Members will license certain facilities to the Seaport Alliance, but will retain ownership of the assets. Initially, each Managing Member will have a 50.0% interest in the Seaport Alliance with a revaluation scheduled to occur at the end of 2017 to address material changes in licensed properties where Marine Cargo terminal revenues were not secured by contractual agreements throughout the time period covered by the initial valuation, and from time to time upon the removal or addition of licensed property. Managing Members will provide initial contributions for working capital and capital investments; future needs for capital will be evaluated during the annual budget review process or if the working capital reserve declines below a minimum amount established by the Managing Members. Managing Members must vote affirmatively to approve additional contributions; working capital may not be used by the Seaport Alliance for capital investments. The Seaport Alliance would distribute cash to each Managing Member based on cash flow from operations, calculated pursuant to generally accepted accounting principles (GAAP). Cash distributions would be made no less than quarterly based on each Managing Member s percentage of total shares. The Seaport Alliance would be treated as a joint venture for accounting purposes. Given the initial 50.0% interest of each Managing Member, including the Port of Seattle, and based on GAAP, the Port would recognize as Gross Revenue 50% of Seaport Alliance Net Income or Losses, which is defined in the charter to mean, for each fiscal year or other period, an amount B 121

219 equal to the Seaport Alliance s net non operating income or losses less depreciation plus operating income or losses, including extraordinary and special items for such fiscal year or other period, determined in accordance with GAAP. Depreciation expense for the Seaport Alliance would be limited to that related to any new capital investments made by the Seaport Alliance (the Port would continue to recognize depreciation expense on its initially licensed facilities). Pursuant to the Port s Master Bond Resolution, depreciation is excluded in the definition of Operating Expense when calculating the Available Intermediate Lien Revenues and compliance with the Rate Covenant. The Port expects to adjust Available Intermediate Lien Revenues for its share of Seaport Alliance depreciation, which is limited to new capital investments made by the Seaport Alliance. Based on the financial statement accounting described above, the Port expects that its Gross Revenue may be lower due to the formation of the Seaport Alliance. The Port further expects that its Operating Expenses also may be lower, resulting in future net operating income before depreciation equal to or better than that which the Port would generate without the formation of the Seaport Alliance. Under the charter, the CEO will be directed to manage the Seaport Alliance in a prudent and reasonable manner in support of the Managing Member s respective Bond covenants, including those under the First Lien Master Resolution, Intermediate Lien Master Resolution, and subordinate resolutions. The charter will require the Seaport Alliance to calculate and maintain a minimum level of net income equal to the amount currently required for the ports to meet their current bond rate covenants. The Seaport Alliance may not take any action that reasonably would reduce its income below the minimum level established by the bond rate covenants of each port, unless each port votes separately to approve that action. Also under the charter, the Seaport Alliance would not have the authority to issue bonds, borrow funds, or enter into other debt instruments, although RCW 53 allows port development authorities to issue debt. The Port expects to receive FMC approval in July 2015 and to approve the formation of the Seaport Alliance in August Formation of the Seaport Alliance will also require approval by the Port of Tacoma. From August 2015 through December 2015, the ports will continue to receive all revenues and pay all expenses related to the operation and management of the properties licensed to the Seaport Alliance. Proposed Port of Seattle Facilities under Seaport Alliance In August 2015, and subject to FMC approval and approval by both port commissions, the Port will license the properties shown on Table 20 to the Seaport Alliance. The location of each B 122

220 property is shown on Figure 28. The Seaport Alliance will not own the licensed properties. The Port would license 13 properties to the Seaport Alliance, four of which are international container terminals and the remaining nine are industrial properties that support domestic container trade or non containerized trade. Table 20 PORT OF SEATTLE FACILITIES TO BE LICENSED TO SEAPORT ALLIANCE Approximate Acreage Terminal Acreage Terminal Terminal Terminal 30/25 95 Terminal 25 South 12 Terminal Pier 16/17 3 Terminal Terminal Terminal Terminal 106 Industrial 10 Terminal Terminal Terminal Total 761 Source: Port of Seattle. The amount of acreage shown on this table is inclusive of international container terminal acreage and non container acreage. The total may not add to the amount shown due to rounding. Terminal 5. Terminal 5 was developed into a 185 acre mega terminal in The facility has three container berths totaling 2,900 feet of berth space, with 2,000 feet of this berth space dredged to 50 feet below mean lower low water ( mllw ), and 800 feet dredged to 45 feet below mllw. This terminal also has six 100 foot gauge post Panamax cranes, however, none of the cranes can currently accommodate ULCS vessels. The terminal also has a 30 acre on dock intermodal rail system with six tracks and the capacity for 54 double stack rail cars. The primary users of Terminal 5 were members of the New World Alliance, a major transpacific alliance consisting of American President Lines ( APL, which is owned by Neptune Orient Lines or NOL ), Mitsui OSK Lines (MOL), and Hyundai Merchant Marine (Hyundai). These carriers are now part of the G6 Alliance. B 123

221 Figure 28 PORT MARINE TERMINALS Source: Port of Seattle. B 124

222 Hyundai and MOL moved their direct calls to the Hyundai terminal (Washington United Terminal) at the Port of Tacoma in 1999 and 2008, respectively. Terminal 5 was closed on July 31, 2014, to facilitate the preliminary design and permitting for upgrading the power, dock and berth understructure at Terminal 5 to allow a future terminal operator to acquire and install super post Panamax cranes and potentially deepen the channel and berths to accommodate ULCS. A portion of the container traffic was shifted to Terminal 18 and a portion was shifted to the Port of Tacoma. Terminal 5 is currently being marketed to potential post redevelopment operators. A decision to proceed with this investment and the timing, scope, and phasing of the redevelopment will be determined by the Seaport Alliance. Currently, construction of these improvements is not part of the Port Capital Program. Terminal 5 is also being marketed for interim uses. Terminal 18. Terminal 18 was developed into a 196 acre mega terminal in Terminal 18 has five berths with a total of 4,500 feet of berth space, all of which are dredged to 50 feet below mllw. The terminal has three (3) 50 ft gauge Post Panamax cranes, and three (3) 100 ft gauge Post Panamax cranes, all of which are owned by the Port. Terminal 18 also has seven (7) 100 ft gauge Super Post Panamax cranes that are owned by the lessee (SSA Terminals LLC and SSA Containers, Inc.). The three 50 ft gauge Post Panamax cranes owned by the Port have been surplused and are expected to be demolished in 2015; the three 100 ft gauge Post Panamax cranes owned by the Port will be sold in 2015 to the lessee as agreed to in the recently executed Amendment 6 to the lease. Ten of the cranes have an outreach of more than 18 containers, which is the minimum required to service ULCS vessels. Terminal 18 has on dock rail with a loading capacity of 54 five platform double stack railcars, equivalent of more than two full trains for both Union Pacific Railroad (UPR) and BNSF, and adjacent storage facility for 54 five platform doublestack railcars, equivalent of two full trains. Although Terminal 18 is capable of handling ULCS, the rail yard may be too small and inefficient to compete effectively with other terminals. 37 Terminal 18 is leased through July 2039 to SSA Terminals LLC and SSA Containers Inc. Terminal 18 is used by the G6 Alliance members, consisting of: APL, Hapag Lloyd, Hyundai Merchant Marine (HMM), Mitsui O.S.K. Lines (MOL), Nippon Yusen Kaisha (KYK) and Orient Overseas Container Line (OOCL). It is also called on by: ANL US Lines, China Ocean Shipping Company (COSCO), China Shipping (CSCL), CMA CGM, Hamburg Sud, Hanjin Shipping, Kawasaki Kisen Kaisha, Ltd. ("K" Line), Matson Navigation, Pacific International Lines (PIL), United Arab Shipping Company (UASC), Yang Ming Line and ZIM Integrated Shipping Ltd (ZIM). 37 Mercator International LLC, Strategies for Enhancing the Puget Sound Container Trade Gateway Final Report, May 2014, prepared for the Ports of Seattle and Tacoma. B 125

223 Several changes have occurred at Terminal 18 since 2008: China Ocean Shipping Company (COSCO) shifted its intermodal traffic to the Port of Prince Rupert in 2008, but kept its local Seattle and Pacific Northwest regional cargo at Terminal 46. Members of the G6 (NYK Line, Hapag Llyod and Orient Overseas Container Line) moved from the Port to the Washington United Terminal in Tacoma in China Shipping (CSCL) moved from Terminal 18 to Terminal 30 in Maersk shifted its cargo from the Port of Tacoma to the Port in Terminal 18 has been evaluated as capable of handling ULCS, but requires operational and/or capital improvements to its intermodal yard. Terminal 30. Terminal 30 is a 70 acre facility located on the East Waterway, south of downtown Seattle. It is leased to SSA Terminals (Seattle) LLC through SSA Terminals (Seattle), LLC is a joint venture between SSA Seattle, LLC and China Shipping Terminals (USA), LLC and Matson Seattle LLC. Terminal 30 has 2,700 feet of berth space comprised of two non contiguous berths of approximately 1,200 and 1,500 linear feet, respectively. Depths are 45 to 50 feet below mllw. The facility has six cranes; including three (3) 50 ft gauge Panamax cranes and three (3) 100 ft gauge Super Post Panamax cranes, which are owned by the tenant. Three of the cranes can accommodate ULCS vessels. Terminal 30 is called on by the Ocean Three alliance, consisting of China Shipping (CSCL), CMA CGM and United Arab Shipping Company. Terminal 30 also serves ANL US Lines, Pacific International Lines, Hamburg Sud, China Ocean Shipping Company (COSCO), Hanjin Shipping and Yang Ming Line. Terminal 30 is not capable of meeting the requirements of ULCS vessels without improvements. 38 Terminal 46. Terminal 46 is an 88 acre facility that is leased through 2025 to Total Terminals International LLC. The primary member of Total Terminals International LLC is Hanjin Shipping Company, Ltd., which holds a 60% interest. Terminal 46 has 2,300 of berth space, with water depth of 50 feet below mllw. The terminal has two (2) 100 ft gauge Post Panamax cranes and three (3) 100 ft gauge Super Post Panamax cranes, which are owned by the tenant. Three of the cranes can accommodate ULCS vessels. Terminal 46 is not capable of meeting the requirements of ULCS vessels without improvements Mercator International LLC, Strategies for Enhancing the Puget Sound Container Trade Gateway Final Report, May 2014, prepared for the Ports of Seattle and Tacoma. 39 Mercator International LLC, Strategies for Enhancing the Puget Sound Container Trade Gateway Final Report, May 2014, prepared for the Ports of Seattle and Tacoma. B 126

224 Other Properties. Other properties include: o Terminal 25 is located south of Terminal 30. Terminal 25 is currently used by United Parcel Service for truck parking related to cargo shipping and by the Washington State Department of Transportation to support construction of the Alaskan Way Viaduct replacement program. o Pier 16/17 located at the north end of Harbor Island, is used by Crowley Marine Services, Inc. for tug and barge operations. o Terminal 10 used for truck and trailer storage. o Terminal 103 supports construction and industrial storage and aggregate/rock sales, transport and storage. o Terminal 104 used by PCC Logistics for reload and transload operations. o Terminal 106 Industrial used by Conglobal for container storage and repair, and Ash Grove Cement for storage of industrial goods. o Terminal 107 used for chassis storage to support terminal operations. o Terminal 108 used for container storage and repair. o Terminal 115 used by Northland Services as a barge terminal with service to Alaska and by Seafreeze Acquisition, LLC, a cold storage operator. Terminal 115 has rail access and utilizes handling equipment such as top lift trucks, heavy forklifts, smaller forklifts, and crawler cranes. Terminal 115 receives break bulk and containerized cargo as well as Ro Ro (roll on, roll off) cargo. The Puget Sound s industrial market has been consistent and steady with high occupancy rates. This trend is expected to continue through the forecast period. Absorption of industrial space has outpaced the delivery of new space that supports the high occupancy and low vacancy numbers that Port industrial properties have maintained. B 127

225 Proposed Port of Tacoma Facilities under Seaport Alliance 40 As shown on Table 21 and on Figure 29, the Port of Tacoma is expected to license certain properties to the Seaport Alliance, consisting of six container terminals (four of which are engaged in international trade and two in domestic trade), two intermodal yards (serving domestic and international trade) and eight properties that accommodate non containerized cargo (autos, breakbulk, logs etc.) and supporting industrial properties. Table 21 PORT OF TACOMA FACILITIES TO BE LICENSED TO SEAPORT ALLIANCE Approximate Acreage Terminal Acreage Husky Terminal 93 Olympic Container Terminal 54 Pierce County Terminal 176 Washington United Terminal 155 West Sitcum Terminal (APM) 135 Tote Terminal 52 South Intermodal Yard 17 North Intermodal Yard 26 Terminal 7 21 Blair Terminal 8 TPT Log Dock (Weyco) 20 Auto Warehouse Facility 165 Formark (Pony) 14 WWL/Queuing 14 U.P. 31 GCP Maintenance 12 Total 993 Source: Port of Tacoma. Approximate amounts are shown. 40 Information on Port of Tacoma terminals comes from the Port of Tacoma website Marine via its website, Mercator International LLC, Strategies for Enhancing the Puget Sound Container Trade Gateway, prepared for the Ports of Seattle and Tacoma, Final Report May 2014 and the Seaport Alliance Strategic Business Plan, prepared May 6, B 128

226 Figure 29 PORT OF TACOMA MARINE TERMINALS Source: Port of Tacoma. B 129

227 Husky Terminal. This terminal, which is located on the Blair Waterway, is operated by Husky Terminal and Stevedoring, Inc. and serves "K" Line, Hanjin, MOL, Yang Ming, Cosco and Westwood Shipping Lines. The facility consists of 93 acres and has two berths (2,700 feet long) with a water depth of 51 feet. There are four cranes (1x18 wide, 1x17 wide, and 2x16 wide). Rail service is provided by Union Pacific Railroad ( UPR ) and BNSF Railway via the North Intermodal Yard (discussed separately below). There are 7 inbound truck lanes with 6 scales, 4 outbound truck lanes with 1 scale. Highway access to I 5, SR 509 and U.S. 99 are less than three miles (5 km) from the terminal. The Port of Tacoma completed a $20 million construction project in October 2014 to strengthen the wharf at Husky Terminal in order to support larger container cranes. The project included installation of new pilings and reconstruction of the pier as well as installation of 100 gauge crane rail and construction of a new electrical substation to support the increased power demands of larger cranes. 41 Husky Terminal is not currently capable of meeting the requirements of ULCS vessels. Olympic Container Terminal. Olympic Container Terminal (OCT), which is located on the Sitcum Waterway, is operated by Ports America and serves Yang Ming, "K" Line, Hanjin and Cosco. The facility has 54 acres and 1 berth (1,100 feet long) with a water depth of 51 feet. There are 4 cranes (3x15 wide, 1x14 wide). Rail service is provided by UPR and BNSF Railway via the North Intermodal Yard. There are 5 inbound truck lanes with 2 scales and 2 outbound truck lanes. Highway access to I 5, SR 509 and U.S. 99 are less than three miles (5 km) from the terminal. Olympic Container Terminal is not currently capable of meeting the requirements of ULCS vessels. The Port of Tacoma is considering plans to straighten the berths at Terminal 3 and Terminal 4, to extend the container yard to connect the Husky Terminal with the Olympic Container Terminal, and to expand on dock rail. The concept for potential redevelopment would be to accommodate 2 ULCS vessels. As of the date of this Report, there are no current plans to redevelop the terminal. Pierce County Terminal. Pierce County Terminal is operated by Ports America and serves Evergreen Lines. The facility has 141 acres and 2 berths (2,087 feet long) with a water depth of 51 feet. There are 7 cranes (all 23 wide). Rail service is provided by UPR and BNSF Railway via the on dock PCT Intermodal Yard (23,544 feet of track on 25.2 acres). There are 10 inbound truck lanes with 6 scales and 6 outbound truck lanes. Highway access to I 5, SR 509 and U.S. 99 are less than three miles from the terminal. Pierce County Terminal can serve 1 ULCS as of the date of this Report. 41 Source: Port of Tacoma Pacific Gateway Magazine, Winter 2015 B 130

228 Washington United Terminal. Washington United Terminal is operated by Washington United Terminals and serves Hyundai, MOL, Hapag Lloyd, NYK Line, OOCL, Zim Integrated Shipping, Hamburg Süd, ANL and U.S. Lines. The facility has 123 acres and 2 berths (2,600 feet long) with a water depth of 51 feet. There are 6 cranes (4x18 wide, 2x24 wide). Rail service is provided by UPR and BNSF Railway via the on dock Hyundai Intermodal Yard (16,864 feet of track on 22.5 acres). There are 9 inbound lanes with 7 scales, 4 outbound lanes and 2 reversible lanes. Highway access to I 5, SR 509 and U.S. 99 are less than three miles (5 km) from the terminal. Washington United Terminal can receive and stevedore 1 smaller ULCS, but lacks sufficient intermodal capacity as of the date of this Report. West Sitcum Terminal (APM). The West Sitcum Terminal is operated by APM Terminals and currently serves Horizon Lines with service to Alaska and Hawaii (the Hawaiian service has been purchased by Pasha Group and the Alaskan service has been purchased by Matson). The facility has 135 acres and 2 berths (2,200 feet long) with a water depth of 51 feet. There are 5 cranes (4x18 wide, 1x14 wide). Rail service is provided by UPR and BNSF Railway via the North Intermodal Yard. There are 8 inbound lanes with 6 scales and 6 outbound lanes. Highway access to I 5, SR 509 and U.S. 99 are less than three miles from the terminal. West Sitcum Terminal is not capable of meeting the requirements of ULCS vessels. However, domestic service to Alaska and Hawaii does not require this capability. Tote Terminal. The Tote Terminal is operated by TOTE and serves Totem Ocean Trailer Express with service to Alaska. The facility has 48 acres and 2 dolphin piers allowing access for the roll on/roll off ( RoRo ) operation, with a water depth of 51 feet. Rail service is provided by UPR and BNSF Railway via off dock rail when needed. There are 5 inbound lanes with 4 scales and 2 outbound lanes. Highway access to I 5, SR 509 and U.S. 99 are less than three miles from the terminal. The Tote Terminal is not capable of meeting the requirements of ULCS vessels, but domestic service to Alaska does not require this capability. South Intermodal Yard. This near dock intermodal rail yard, located east of the West Sitcum Terminal, has 8,645 feet of railroad track on 17.8 acres. Class 1 rail service is provided by UP and BNSF. The primary user is UP Domestic Service (TACSIM). Operations are provided by Pacific Rail Services for the Port of Tacoma. North Intermodal Yard. This near dock intermodal rail yard, which is located between Husky Terminal and Olympic Container Terminal, has 26,750 feet of railroad track on 26.0 acres. Class 1 rail service is provided by UPR and BNSF Railway. The primary users are K Line, Hanjin, Yang Ming Line, COSCO, MOL and Northwest Container Services. Operations are provided by the Port of Tacoma. B 131

229 Other non container properties include: Terminal 7 (Berths A, B and C) is located on the east side of the Sitcum Waterway. This terminal handles containers, RoRo, breakbulk and general cargo (steel, forest products, etc.), project cargo and heavy lift cargo. The Terminal has 3 berths (2,700 feet long) with water depth of 50 feet. Rail service is provided via an on dock rail span with access to the North Intermodal Yard. The terminal has 100,000 square feet of warehouse space and a transit shed (9,000 square foot). Blair Terminal, which is located in the Blair Waterway, is used to import and export autos for several carriers (e.g., Eukor, Glovis PCC, "K" Line, MOL, and NYK Line RoRo). It has 1 berth (1,200 feet long) with water depth of 51 feet mllw. The terminal has 15 acres. There is a dedicated overpass connecting the Blair Terminal to the Marshall Avenue Auto Facility, which is leased by Auto Warehousing Company. Auto Warehouse Company leases the Marshall Avenue Auto Facility, which comprises 147 acres, and handles imported and exported autos. Rail service is provided by UPR and BNSF Railway via the facility s 300 car storage area. TPT Log Dock (Weyco) is located in the Hylebos Waterway. It is privately operated and used to export logs. There is 1 berth (1,000 feet) and water depth from 35 to 37 feet mllw. The terminal consists of 40 acres. Formark (Pony) consists of 14 acres used for log storage and processing near the log export dock at the end of the Hylebos Waterway. Other Port of Tacoma properties include: WWL/Queuing (14 acres), U.P. (31 acres near the South Intermodal Yard) and GCP Maintenance (12 acres). FORECAST OF PORT CONTAINERIZED CARGO Characterizing Cargo Volumes The composition of container volumes passing through the Port and the Port of Tacoma is presented in Figure 30. Domestic cargo (shipments and receipts from Alaska) and international cargo (e.g., retail goods) that are imported for local consumption or as an input to local/regional production (e.g., manufactured products such as parts for Boeing airplanes) and outbound products generated by local/regional producers (e.g., agricultural products) are less susceptible to diversion to other ports because the transportation economics favor the ports of Seattle and Tacoma. The competition for discretionary cargo focuses on intermodal cargo volumes. As the distance from port to market increases, there are several other options for transporting containers. B 132

230 Imported containers that move to inland markets (primarily to/from the U.S. Midwest) accounted for approximately 579,000 TEUs in 2013, representing 18% of total container volume through the ports of the Seaport Alliance. However, if the inbound intermodal container traffic is diverted it could also impact some outbound shipments. The issue is presented in the Seaport Alliance s Puget Sound Gateway report as follows: Given equipment repositioning requirements of ship lines, a loss of inbound intermodal volume for the ports of Seattle and Tacoma will also lead to a loss of westbound volume (of loads and/or empties). 42 Therefore, the loss of any inbound intermodal traffic is compounded by a loss of corollary outbound traffic. Key Factors Affecting Container Volume Key factors that will affect future container volumes at the Port and the Port of Tacoma include: prices of transportation, levels of service, and the provision of state of the art container terminals and related transportation infrastructure. The Port of Seattle and the Port of Tacoma are discussing ways to improve service and pricing with the railroads. The Seaport Alliance provides the opportunity to have a unified position with the railroads on the need for improved rates and service. This will be necessary to overcome current competitive disadvantages on price and service with competing ports, such as those in British Columbia and Southern California. Currently, the estimated total inland cost of moving a container from ports in Vancouver and Prince Rupert to Chicago is estimated to be $300 to $400 cheaper than shipping via the Puget Sound ports to Chicago based upon estimates provided by shippers. 43 As mentioned previously, the Harbor Maintenance Tax (HMT) penalizes use of U.S. ports by approximately $109 per container, based on a typical 40 foot container, which is equivalent to two TEUs. However, changes in Section 2106 of the Water Resources Reform and Development Act (WRRDA) authorizes donor ports (including Seattle and Tacoma) to use $25 million for port infrastructure improvements and/or rebates to importers and shippers in order to compensate them for the HMT charges. 42 Source: Mercator International LLC, Strategies for Enhancing the Puget Sound Container Trade Gateway, prepared for the Ports of Seattle and Tacoma, Final Report May Source: Tacoma, Seattle focus on intermodal to protect, expand market share, Journal of Commerce, December 01, B 133

231 Figure 30 SEAPORT ALLIANCE COMPOSITION OF CONTAINERS IN 2013 in 1,000s of TEUs and Percent of Total , 18% 542, 17% Total Domestic TEUs (Full and Empty TEUs, excl. Duwamish) International Outbound Full TEUs (from local/regional exporters) 660, 21% 427, 13% 1,000, 31% International Empty TEUs (In and Out) International Inbound Full TEUs (bound for local and regional consumers) International Inbound Full TEUs (moving by intermodal rail to inland destinations) Changes in Section 2106 improve the price differential, but even with full compensation for HMT there may still be a $200 to $300 per container additional cost for inland rail charges. This additional cost may be overstated when taking into account savings associated with drayage between U.S. railroads in the Chicago area because the U.S. rail yards are closer to other rail yards and logistics centers than their Canadian counterparts. 45 U.S. import traffic moving through British Columbia ports must remain in ocean containers (which are typically 20 feet, 40 feet and 45 feet long), but a growing share of container imports through Puget Sound ports are transloaded into domestic containers of 53 feet. Industry experts indicate that two 53 foot containers can hold the contents of three 40 footers, 46 which reduces the number of containers and can lead to a rail cost advantage for some shippers. TTX estimates that the share of imports via Puget Sound ports being transloaded into domestic 44 Source: Mercator International LLC, Strategies for Enhancing the Puget Sound Container Trade Gateway, prepared for the Port of Seattle and the Port of Tacoma, Final Report, dated May Ibid. 46 Source: TTX 2014 Transload to Rail Report. B 134

232 containers has increased from 24% of the containerized imports in 2007 to 38% in Another factor impacting container intermodal rates is the length of the intermodal trains and load factors. The Port of Seattle and the Port of Tacoma are working with BNSF and UPR to find ways to improve intermodal service, such as longer trains and improved service. As a result of these factors, the cost differential may be lower between Puget Sound and British Columbia container ports but it is difficult to quantify because railroads do not report intermodal rail rates, which are confidential. Rail service from Puget Sound ports deteriorated in late 2014 due to a backlog resulting from harsh winter weather conditions and a significant increase in demand by energy products coupled with the effects of the labor dispute between the ILWU and the PMA. Service times have improved with service back to 6 days between Puget Sound and Chicago, down from 10 days in the peak of the backlog. However, some shippers have shifted intermodal cargo to competing ports. For example, the Walt Disney Company decided to shift all cargo headed to its Midwest stores from the U.S. West Coast to Prince Rupert. 48 It is uncertain whether U.S. West Coast ports will be able to attract lost cargo back from alternative gateways, especially given recent labor dispute at U.S. West Coast ports. Many of the service issues were related to BNSF Railway, which handles approximately 70% of the intermodal traffic from the Port and a smaller share from the Port of Tacoma. BNSF Railway has increased capital expenditures on the northern corridor, which links Washington State with the Midwest. BNSF Railway spent an estimated $5.0 billion in 2014 with approximately $1.0 billion allocated to improve and expand lines between the Northwest and Chicago. In 2015, BNSF Railway is planning $6 billion in capital expenditures, much of which will be focused on the Northern Corridor. The increase in capital spending will help to moderate service difficulties experienced in The Port and the Port of Tacoma will need to improve the ability of their container terminals to accommodate future ULCS vessels. This is required to meet the challenges from competing ports that are already planning or underway with improvements to serve ULCS vessels. However, the costs of these improvements are dependent on longer term interest from a private partner, such as a carrier and/or stevedore. 47 Source: adapted by Hofstra University from Robert C. Leachman (2005) Port and Modal Elasticity Study, Dept. of Industrial Engineering and Operations Research, University of California at Berkeley. Carrying Capacity of Containers (in cubic feet). 48 Source: Terminal expansion shows Prince Rupert is an idea that works JOC.com Mar 10, B 135

233 Forecast of Container Volume at Pacific Northwest Ports Given these challenging market conditions, it is likely that the share of the Seaport Alliance ports will continue to decline as a share of the Pacific Northwest (defined as the region from Prince Rupert to Portland). Regional growth in the Pacific Northwest (PNW) market is forecast to increase between a low of 2.3% per year to a high of 4.0% per year, with a baseline of 3.2% per year between 2011 and Under these assumed growth rates, the PNW market would reach a low of 9.0 million TEUs, a baseline of 9.8 million TEUs, and a high of 10.6 million TEUs in Mercator International LLC projected annual container growth for the Seaport Alliance ranging from a low of 1.9% per year to 3.8 million TEUs in 2024 to a high of 3.3% per year to 4.5 million TEUs in As shown on Table 22, Port management forecasts for its facilities that container volumes will increase by 1.2% in 2015 and then begin to increase at approximately 1.8% percent per year, reaching 1.6 million TEUs in 2024 and 40.0% market share of total container volume in the Puget Sound. BST Associates has reviewed the Port forecast and finds it reasonable. It should be noted that the leases at existing container terminals owned by the Port are unaffected by container volumes since 97% of the revenue from container terminal revenues is fixed, and only 3% is variable (and affected by container volume). The market share of container volume of the Seaport Alliance is forecast to decline as a share of the projected Pacific Northwest container market, which could result in the loss of container volume at Puget Sound ports. 49 Source: Port Metro Vancouver Container Forecasts prepared by Ocean Shipping Consultants for Port Metro Vancouver August 2012, page Source: Mercator International LLC, Strategies for Enhancing the Puget Sound Container Trade Gateway, prepared for the Ports of Seattle and Tacoma, Final Report May B 136

234 Table 22 CONTAINER FORECAST UNDER PROPOSED SEAPORT ALLIANCE (1,000 TEUS) Percent of Puget Sound Year Seattle Harbor 1 Tacoma Seaport Alliance Seattle Tacoma Actual ,134 1,455 3,589 59% 41% ,034 1,486 3,520 58% 42% ,886 1,718 3,604 52% 48% ,575 1,887 3,462 45% 55% ,315 2,039 3,354 39% 61% Forecast ,331 2, ,359 40% 60% ,355 2,064 3,419 40% 60% ,377 2,100 3,477 40% 60% ,402 2,137 3,539 40% 60% ,427 2,174 3,601 40% 60% ,451 2,213 3,664 40% 60% ,477 2,252 3,729 40% 60% ,503 2,291 3,794 40% 60% ,529 2,331 3,860 40% 60% ,557 2,372 3,929 40% 60% Average annual increase (decrease) (2.2%) 3.9% 0.6% % 1.8% 1.8% 1 Port of Seattle forecast. 2 Port of Tacoma 2015 Budget, assumed growth of 1.8% from 2020 to Sources: Port of Seattle, Port of Tacoma, Mercator International LLC and BST Associates. FINANCIAL FORECASTS Assumptions Regarding the Seaport Alliance For purposes of this Report, the Port of Seattle assumed the following regarding the Seaport Alliance: The Alliance would be formed as a PDA in August 2015, and the Seaport Alliance would be organized, operated and managed as described in this Report. From August 2015 through December 2015, the ports will continue to receive all revenues and pay all expenses related to the operation and management of the properties licensed to the Seaport Alliance. The Seaport Alliance would be responsible for any and all future capital improvements to licensed facilities, including any redevelopment of Terminal 5. Capital improvements of the Seaport Alliance may include, but are not limited to, B 137

235 renewal and replacement, and improvements required under existing leases of facilities that would be licensed to the Seaport Alliance. According to the Port, major redevelopment projects to the licensed facilities are anticipated, but not included in the capital budget. As described earlier, funding for capital improvements would be provided jointly by Managing Members; the Seaport Alliance would not issue or incur any debt. The Port would license certain facilities to the Seaport Alliance as described earlier. The Port s share of Seaport Alliance Net Income or Losses would initially equal 50% during each year of the forecast period, even though a reevaluation of each Member s interest would occur in The 50% share of Seaport Alliance Net Income that would be distributed to the Port of Seattle when adjusted for any new Seaport Alliance depreciation would be equal to or greater than the Gross Revenue and Operating Expenses that would have been earned by the Port of Seattle if the same properties were not licensed to the Seaport Alliance. Assumptions developed by the Port and used to forecast Gross Revenue and Operating Expenses are discussed below and shown on Table 23. Assumptions Used to Forecast Gross Revenue and Operating Expenses Gross Revenue. The key assumptions used by the Port to forecast Gross Revenue associated with Port facilities that are expected to be licensed to the Seaport Alliance include: Revenues from facility leases for Terminals 18, 30 and 46 would increase during each year of the forecast period pursuant to the terms of those leases, as follows: 2.0% per year through 2018, except in 2016 when the rate increase is 11.6% reflecting an adjustment in minimum guaranteed volumes, and 2.0% per year or 50.0% of the consumer price index, whichever is greater, for the remaining years of the forecast period. Forecast revenue for Terminal 5 is based on a payment agreement that was reached with Eagle Marine, which requires payments of $9.0 million per year from 2014 through For purposes of this Report, it is assumed that (1) payments for Terminal 5 would be made to the Port of Seattle according to this agreement and (2) the Port would not earn any revenue from the interim use of Terminal 5. Occupancy rates for industrial properties would remain steady during each year of the forecast period and rentals would increase at an effective rate of growth of approximately 2.5% per year, consistent with the provisions in certain long term industrial property agreements between the Port and tenants. Leases for industrial B 138

236 properties include long term and month to month leases. From 2014 to 2015, Gross Revenue declined as a result of closing Terminal 5 for redevelopment. Gross Revenue associated with the proposed facilities to be licensed to the Seaport Alliance is forecast by the Port of Seattle to decline slightly from $68.4 million in 2014 to $68.3 million in 2024, representing an average decrease of (0.2%) per year. Operating Expenses. Operating Expenses associated with the proposed facilities to be licensed to the Seaport Alliance are forecast by the Port to increase from $20.9 million in 2014 to $29.7 million in 2024, representing an effective average increase of 3.6% per year, which reflects an assumed rate of growth in Operating Expenses of 3.0% per year plus intermittent project costs to remove cranes, dredging of berths, and costs associated with the Seaport Alliance. Operating Expenses include Port of Seattle allocated administrative costs. OTHER PORT BUSINESSES Other Port Businesses includes the Maritime Division and the Economic Development Division. Overview of Maritime Division The Port s maritime business includes cruise, grain, industrial properties (T91 and T106) and marinas/harbors as well as maritime operations and security. Customers include Norwegian Cruise Line, Celebrity Cruises, Holland America Line, Princess Cruises and Royal Caribbean, Cruise Terminals of America, City Ice, Trident Seafood s, Marel, Louis Dreyfus Corporation, stevedoring companies, charter and excursion vessels, tug and barge companies, large fishing and commercial vessels, the United States Navy and other ships of state. Industry sectors served include marine transportation, heavy equipment fabrication, staging and transport, grain products, the commercial seafood industry, bunker and distillate fuels, tug and barge services, food processing and cold storage. B 139

237 Table 23 FORECAST GROSS REVENUE AND OPERATING EXPENSES FOR PORT OF SEATTLE PROPERTIES LICENSED TO SEAPORT ALLIANCE (in thousands) Operating Expenses Net operating income Year Gross Revenue Actual 2014 $68,413 $20,881 $47,532 Forecast ,227 26,776 34, ,131 25,628 40, ,209 25,338 41, ,447 25,308 43, ,735 26,134 43, ,062 26,809 44, ,489 27,905 44, ,049 30,217 43, ,646 30,948 44, ,288 29,698 38, (0.2%) 3.6% (2.1%) Cruise The Port has two cruise terminals: Bell Street Cruise Terminal and Smith Cove Cruise Terminal. Bell Street Cruise Terminal, located along the central waterfront of downtown Seattle, opened in This is a one berth facility with 1,600 feet of berth space and 68,000 square feet of terminal space on two levels. Bell Street Cruise Terminal at Pier 66 serves Norwegian Cruise Line and Oceania Cruises. Smith Cove Cruise Terminal, located at the north end of Elliott Bay at Terminal 91, opened in This facility has two berths of 1,200 feet each, and a terminal building with 143,000 square feet of space. Smith Cove is home to Carnival, Celebrity Cruises, Holland America Line, Princess Cruises and Royal Caribbean International. The Port sets rates and establishes and maintains agreements with the cruise lines that use the Port s facilities. Both of the Port cruise terminals are leased to a single cruise terminal operator, Cruise Terminals of America (CTA), which is a partnership between General Steamship Agencies, SSA Marine and Columbia Hospitality, Inc. The lease was renegotiated in 2012 and now runs through It is assumed that this lease will be renewed or that a new cruise terminal operator will be found. CTA s lease payments are based on passenger fees and vessel dockage fees. The cruise market in Seattle consists mainly of voyages to Alaska from May through September. Prior to 2000, Seattle had limited participation in the Alaska cruise market due to the Passenger Services Act, which limits the number of and duration of time spent at U.S. ports of call for B 140

238 passengers on foreign owned vessels. As a result, Seattle was only able to serve in transit vessels, which were repositioning between southern markets (Mexico and the Caribbean) and their summer base in Vancouver, B.C. The number of revenue passengers in Seattle was typically fewer than 13,000 per year. With new, faster vessels added to the fleet beginning in 2000, cruise lines were able to add a stop in British Columbia to their Seattle itineraries, and thereby meet the rules of the Passenger Services Act. As a result, Seattle first became a homeport to cruise ships in Vessel calls in Seattle grew from six in 1999 to 36 in 2000 and to 169 in By 2010 the number of vessels calls grew to a peak of 223. The number of revenue passengers grew from 6,600 in 1999 to 687,000 in 2005, and then peaked at nearly 935,000 in Passenger counts dropped to 824,000 in 2014, but are forecast to rebound to 895,000 in The Alaska cruise market is evenly divided between Seattle and Vancouver, B.C. In 1999, the two ports had a combined total of 954,300 passengers, and Seattle s share was less than 1%. The market expanded to 1.17 million passengers in 2000, and Seattle s share increased to 10%. The market peaked in 2007 and 2008 (prior to the economic recession) at 1.74 million passengers each year, and in 2008 Seattle s share grew to 51% for the first time. During the recession, the number of passengers dropped to a low of 1.51 million in 2010, but exceeded 1.6 million each year from 2012 through Between 2010 and 2014 Seattle captured 50% or more of the market each year. Cruise passengers are expected to increase in 2015, due to an additional Holland America homeport rotation and larger vessels being brought in on three of the existing homeport rotations. Port of Seattle forecasts for vessel calls and passengers are considered reasonable. The number of vessel calls is expected to stabilize at 192 calls in 2015 and to stay at this level through 2024, because cruise ships are expected to become larger and carry more passengers per call. The number of passengers is expected to grow at 1.6% on average between 2014 and 2024, as shown on Table 24. The PNW forecast assumes similar rates of growth as forecast by the Port of Seattle, with growth of 1.6% per year. Under these assumptions, the Port of Seattle s market share is expected to remain at or above 50% of PNW through BST Associates has reviewed the Port of Seattle forecasts and finds them reasonable. B 141

239 Table 24 PORT OF SEATTLE CRUISE PASSENGER FORECAST (1,000s of Passengers) Year Seattle 1 % PNW PNW 2 Actual % 1, % 1, % 1, % 1, % 1,636 Forecast % 1, % 1, % 1, % 1, % 1, % 1, % 1, % 1, % 1, % 1, % 1.7% % 1.6% 1 Port of Seattle. 2 PNW is defined as Seattle and Port Metro Vancouver, BC. Sources: Port of Seattle, Port Metro Vancouver and BST Associates. Grain The Port owns a grain export elevator (Terminal 86) located near the north end of the Seattle Harbor, adjacent to Terminal 91. The grain terminal occupies 40 acres and provides a berth that is 425 feet long that can accommodate vessels up to 1,400 feet (with use of mooring dolphins). The grain terminal has water depth of 80 feet (24 meters). The terminal has a silo storage capacity of 3.99 million bushels. It is served by the BNSF Railway and UPR. The grain terminal is leased to LDC Washington LLC (an entity within the Louis Dreyfus Commodities Group) through October The annual capacity of the terminal is estimated at 6.0 million metric tons. Grain exports via the Port consist of corn, soybeans, and animal feeds arriving by rail from the Midwest and bound for Asia. The volume of these exports has fluctuated due to harvest and export conditions as well as competition from other U.S. ports (primarily Gulf Coast ports and other Pacific Northwest ports). In the Pacific Northwest, most of the competition is located on B 142

240 the Lower Columbia River. In recent years that region has seen the opening of a new grain export terminal at Longview (Washington) and capacity expansion projects in Portland (Oregon), Vancouver (British Columbia), and Kalama (Washington). A grain export terminal was also expanded in Aberdeen, on the Washington coast, in Regional grain exports peaked in 2008 at 33.3 million metric tons and in 2010 at 33.6 million metric tons. Seattle s volume peaked in the same years, with 6.4 million metric ton in 2008 and 5.5 million metric tons in Regional grain exports fell sharply in both 2012 and 2013, but saw substantial recovery in A primary reason for this drop in volume was a contract dispute between terminal operators and longshore labor that resulted in much lower throughput, but other factors included the drought in the Midwest, construction projects at export terminals, and rail service issues. In Seattle, grain export volumes dropped from 5.5 million metric tons in 2010 to a low of 1.4 million metric tons in 2013, but rose back to 3.6 million metric tons in The USDA projects U.S. exports of corn, coarse grain, sorghum, soybeans, and soybean meal to grow by a total of 15.1% between the 2014/2015 export season and the 2019/2020 export season. During that period the total volume of these commodities is projected to increase from approximately 159 million metric tons to 183 million metric tons. Exports of both corn and coarse grains are projected to increase by 12.1 million metric tons each over the next five years, accounted nearly all of the growth As shown on Table 25, the Port is projecting that Terminal 86 will export 4.0 million metric tons per year from 2016 through Based on historical volumes handled at the terminal and on USDA forecasts, BST Associates has reviewed the Port forecast and finds it reasonable. Unlike containers, revenue from bulk operations is directly tied to cargo throughput. Industrial Properties in the Maritime Division Terminal 91. Terminal 91 contains 8,502 feet of moorage on a 152 acre (62 hectare) site and includes two piers. The piers contain concrete aprons, large laydown/staging areas and rail at the terminal. Marine repair services are not present at Terminal 91, but are available at other Port facilities at the Maritime Industrial Center. Terminal 91 has forklifts, heavy lift trucks and other equipment to facilitate the movement of cargo to and from vessels. On terminal rail access is adjacent to the BNSF Railway mainline and classification yard. The diversity of marine cargo activities that occur at Terminal 91 is not unique; the Ports of Everett and Port Angeles have similar operations and activities at their marine cargo facilities. The Port remains the terminal operator at Terminal 91, but leases other marine cargo terminals to private terminal operators. B 143

241 Table 25 PORT OF SEATTLE BULK GRAIN FORECAST Metric tons (millions) Year Seattle 1 % PNW PNW 2 Actual % % % % % 33.5 Forecast % % % % % % % % % % (2.2%) 0.5% % 0.9% 1 Port of Seattle. 2 PNW is defined as bulk grain export terminals along the Columbia River and in Puget Sound. Sources: Port of Seattle, US Department of Agriculture and BST Associates. Terminal 91 is the largest non containerized marine cargo facility owned by the Port and hosts the broadest diversity of non containerized cargo uses. Terminal 91 supports vessels and uses such as moorage, loading supplies and unloading of fish/seafood products, and gear for fishing vessels and other commercial vessels bound to and from Alaska. Terminal 91 is designed and operated to accommodate a broad diversity of cargo uses. Port staff executes leases, assigns moorage space and storage facilities to maximize the use of the terminal in the safest and most efficient manner. For example, some of the vessels that homeport at Terminal 91 during the winter months may utilize moorage space that is utilized by cruise ships during the cruise season. Barges are frequently moored at Terminal 91 since the facility is large enough to accommodate them. B 144

242 Terminal 106 East. Terminal 106 East is located west of the Alaskan Way Viaduct as it returns to grade south of downtown Seattle. The property is currently used by WSDOT in support of the Alaskan Way Viaduct replacement program, but is expected to be largely vacant after 2016 while the Port pursues redevelopment opportunities. Maritime Operations and Security. Port Security is responsible for developing and implementing security plans and procedures at each of the Port facilities, to reduce the chance that the Port facilities will be involved in a maritime security incident. Port Security administers grants to pay for a portion of its operations. Commercial and Recreational Marinas. The Commercial and Recreational Marinas Group manages, operates, and markets the water and landside assets at five marinas, offering moorage, storage, yards, and a variety of other products and services. The two commercial fishing moorage facilities (Fishermen's Terminal, Maritime Industrial Center) are home to the North Pacific Fishing Fleet and provide space for more than 600 commercial fishing vessels, commercial work vessels as well as recreational vessels. The three recreational marinas (Shilshole Bay Marina, Bell Harbor Marina, and Harbor Island Marina) provide facilities for more than 1,600 recreational, commercial fishing, and commercial pleasure vessels and, on an annual basis, more than 13,000 guest boaters. Landside facilities include a boatyard, retail restaurants, sailing clubs, yacht brokers and commercial office tenants. Shilshole Bay Marina. Shilshole Bay Marina has approximately 1,400 moorage spaces ranging from kayaks up to mega yachts. The facility has guest moorage and permanent moorage, fuel, restrooms, restaurants and repair, among other amenities. The marina was rebuilt in 2008 and provides state of the art docks designed with good maneuverability and wide navigation channels. It is one of the newest and most attractive marinas in the Seattle area. It also has a strong and active live aboard community. As a result, the marina has achieved an occupancy rate of 95% from 2010 through 2014, which is very strong performance. Harbor Island Marina. Harbor Island Marina provides permanent monthly moorage for 77 vessels ranging from 24 to 70 feet at the south end of Harbor Island. The facility is nearing the end of its useful life and plans are underway to replace docks. The moorage rates are lower than at other Port marinas, which appeals to cost conscious boaters Bell Harbor Marina. Bell Harbor Marina, which is the only marina in Seattle located in the downtown area, provides short term guest moorage for 70 boats, ranging from 30 feet to 150 feet. In the off season, a portion of guest moorage is changed over to monthly moorage in order to increase revenues. The marina requires capital improvements in the next several years to extend the life of the under pier pilings and wavebreak that protect the marina. Fishermen's Terminal. Fishermen's Terminal provides approximately 21,000 lineal feet of moorage space for commercial fishing vessels. The terminal also provides concrete loading docks with approximately 2,800 linear feet at Fishermen's Terminal. In the early 2000s, the Port began to offer moorage for recreational boats at Fishermen's Terminal. B 145

243 Maritime Industrial Center. The Maritime Industrial Center, about a mile west of the Fishermen s Terminal, sits on six acres and provides commercial moorage to the fleet's larger size vessels. Concrete loading docks offer approximately 830 linear feet at the Marine Industrial Center for loading and repair work. Overview of Economic Development Division The Economic Development Division encompasses Real Estate, Office of Social Responsibility, Tourism, Real Estate Planning and Development and a new small business incubator group. 51 The new division includes the following properties and services: Central Harbor Management manages Real Estate Division assets located from Terminal 91 to Pier 2/CEM site in West Seattle. This includes various retail, office and industrial properties. CEM refers to the name of the previous owner. Conference and Event Center facilities include the Bell Harbor International Conference Center, the World Trade Center Seattle, Smith Cove Conference and Event Center and the Maritime Event Center. Real Estate Development and Planning plans and facilitates the development of selected real estate assets currently within its own portfolio and provides development expertise and support to the Maritime and Aviation Divisions. The team also identifies and evaluates new opportunities outside the Port s current portfolio and completes other transactions related to Port assets. The Eastside Rail Corridor consists of a 15 mile rail corridor stretching from the City of Woodinville the City of Snohomish. The Office of Social Responsibility manages port activities to ensure access to business opportunities for all small businesses, including minority and women owned businesses. Efforts include management of the Port s Workforce Development Strategy, among other activities. Tourism is designed to help promote tourism in the region and through Port facilities. 51 Source: CEO Ted J. Fick presents vision, changes at the Port of Seattle; Port of Seattle News release February 24, B 146

244 FINANCIAL FORECASTS OF OTHER PORT BUSINESSES Gross Revenue The key assumptions used by the Port of Seattle to forecast Gross Revenue associated with Other Port Businesses include the following: Cruise Terminals. The Port s lease with Cruise Terminals of America (CTA) expires in It was assumed that the cruise business will grow as shown on Table 24 and that the lease with the terminal operator will be renewed or that a new cruise terminal operator will be found and that the business terms of a renewed or new lease would be similar to terms in the existing lease. Grain Terminal. The Port s lease with LDC Washington LLC extends beyond the forecast period (2024). It was assumed that the lease will be maintained during each year of the forecast period. Industrial and Commercial Properties. These properties have long term leases as well as month to month leases. It was assumed that existing occupancy rates would continue through the forecast period and that lease rates would increase at 2.5% per year, similar to the rates in longer term leases. Commercial and Recreational Marinas. Leases were assumed to approximate existing levels of occupancy, and moorage and upland rates are increased based upon market conditions. The increase in Gross Revenue for Other Port Businesses is forecast to come from leases associated with cruise terminals, grain terminal and industrial properties. As shown on Table 26, Gross Revenue for Other Port Businesses is forecast to increase from $60.4 million in 2014 to $80.5 million in 2024, representing an average increase of 2.9% per year. Also as shown on Table 26, Operating Expenses are forecast by the Port of Seattle to increase from $57.7 million in 2014 to $67.3 million in 2024, representing an average increase of 1.6% per year. The low forecast rate of growth in Operating Expenses reflects certain one time expenses in B 147

245 Table 26 FORECAST GROSS REVENUE AND OPERATING EXPENSES FOR OTHER PORT BUSINESSES (in thousands) Operating Expenses Net operating income Year Gross Revenue Actual 2014 $60,445 $57,748 $2,697 Forecast ,372 58,159 5, ,831 56,458 6, ,557 56,596 7, ,648 57,846 8, ,292 59,838 9, ,586 61,113 10, ,857 62,572 11, ,987 64,057 11, ,188 65,598 12, ,529 67,344 13, % 1.6% 12.5% B 148

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247 APPENDIX C SUMMARY OF THE PORT S TAXING POWER C-1

248 SUMMARY OF THE PORT S TAXING POWER Taxing Authority The Port has statutory authority to levy property taxes within its boundaries (which are co-terminus with the boundaries of the County) for general purposes of the Port, including the establishment of a capital improvement fund for future capital improvements and the repayment of unlimited tax and limited tax general obligation bonds of the Port, to finance certain industrial development activities and to fund special projects (the Tax Levy ). In the County, property taxes are collected by the County s Department of Finance (the County Treasurer ) and distributed to the various taxing districts (including the Port) that levy ad valorem taxes upon taxable property within the County. See TAX LEVY RATES, RECORDS AND PROCEDURES below. The Tax Levy may be imposed at a rate not to exceed $0.45 per $1,000 of assessed value of taxable property within the Port district, as described below under Tax Levy. However, the Tax Levy is also subject to the 101 percent statutory limitation on annual increases described below under Levy Limits. Thus, the maximum Tax Levy is determined by the first to be reached of the $0.45 millage rate or the 101 percent statutory limitation. The Port s 2015 Tax Levy is budgeted to be $73.0 million (an estimated millage rate of $0.1889) as shown on Table 1, entitled Recent Tax Levy Activity Levy Limits Tax levies for port districts are subject to certain statutory limitations, but not to the tax levy limitations set by the State Constitution. The statutory limitation on annual increases in the dollar amount of regular property taxes is set forth in chapter RCW, which limits the total dollar amount of regular property taxes levied by an individual taxing district to the amount of such taxes levied in the highest of the three most recent years, multiplied by a limit factor, plus an adjustment to account for taxes on new construction at the previous year s rate. The limit factor is defined as the greater of (i) the lesser of 101 percent or 100 percent plus inflation (the implicit price deflator for personal consumption for the United States); or (ii) any percentage up to 101 percent, if approved by a majority vote plus one vote of the governing body of the taxing district, upon a finding of substantial need. Because the regular property tax increase limitation applies to the total dollar amount levied rather than to levy rates, increases in the assessed value of all property in the taxing district (excluding new construction) that exceed the growth in taxes allowed by the limit factor result in decreased regular tax levy rates, unless voters authorize a higher levy amount. Decreases in the assessed value of all property in the taxing district could require a higher regular tax levy rate to produce the same total dollar amount. Chapter RCW permits any taxing district, including the Port, to seek approval from the electors for a tax increase in excess of the levy limitation. In addition, chapter RCW provides that, should the Port levy an amount less than the maximum allowed under the levy limitation in any year beginning in 1986, the Port may bank future levy capacity. If the Port banks levy capacity, the Port may levy taxes in any subsequent year in an amount up to the maximum that would have been allowed had it levied to the full extent of the levy limitation in each prior year. Tax Levy Pursuant to its statutory authority, the Port may impose the Tax Levy without a vote of the electors to pay debt service on its limited tax general obligation bonds (but not debt service on Port revenue bonds) and to fund general purposes of the Port, including capital expenditures and maintenance and operation expenses. For general purposes such as operating expenses and capital improvements, the Tax Levy may be imposed at a rate not to exceed $0.45 per $1,000 of assessed value of taxable property within the Port district, subject to the statutory limitations on annual increases in the dollar amount of the Tax Levy described above under Levy Limits and under TAX LEVY RATES, RECORDS AND PROCEDURES Assessed Value Determinations. For the purpose of paying limited tax general obligation bonds, the Tax Levy is not subject to the $0.45 per $1,000 rate limitation applicable to the general purpose portion of the Tax Levy, but is subject to the statutory limitations on annual increases in the dollar amount of the Tax Levy described above under Levy Limits. The Commission determines the actual amount of the Tax Levy each year as part of the Port s business planning process described below. Also as part of the Port s annual business planning process, the Commission provides guidance on and reviews the proposed uses of the Tax Levy. In addition to the payment of general obligation ( G.O. ) bond debt service, the Port s current guidelines recommend that the Tax Levy be used to fund expenditures that do not have a sufficient C-2

249 revenue source and that provide economic benefits to County residents. The Port expects the uses to include certain operating and capital costs of the Real Estate Division, certain environmental liabilities and regional transportation initiatives, including funding the remaining portion of the Port s contractual payment to the State for the replacement of the Alaskan Way Viaduct (a portion of which is expected to be funded with future G.O. bonds). The Port is authorized under state law to issue G.O. Bonds to refund Port revenue bonds, but has no current plans to do so. Assessed Value Determinations TAX LEVY RATES, RECORDS AND PROCEDURES The County Assessor (the Assessor ) determines the value of all real property and certain personal property throughout the County that is subject to ad valorem taxation, with the exception of certain public service properties, such as utility and transportation properties, for which values are determined by the State Department of Revenue. The Assessor is an elected official whose duties and methods of determining value are prescribed and controlled by statute and by detailed regulations promulgated by the State Department of Revenue. For tax purposes, the assessed value of property is 100 percent of the property s actual value. All real property is subject to revaluation at least every four years, although since 1995, the Assessor s policy has been to revalue residential property every year. Personal property (generally only personal property used in the operation of a business) is listed by the Assessor on a roll at its currently assessed value (based in part upon reports provided by the property owners), and the roll is filed in the Assessor s office. Not all property is subject to taxation. Washington statutes provide annual exemptions for property owned by numerous types of nonprofit entities and for farm and historical properties and provide exemptions or deferrals for certain retired or disabled persons whose incomes are below specified limits. In addition, certain improvements to real property are not taxed during the first three years after completion of the improvements. By October 15 of each year, the Assessor is required to file its annual revaluation report with the State Department of Revenue and by November is required to provide its assessed value report to each taxing district that levies ad valorem taxes on property within the County, including the Port. The Assessor s determinations are subject to revision by the County Board of Appeals and Equalization and, if appealed, are subject to further revision by the State Board of Tax Appeals. See Tax Collection Procedures. [Remainder of Page Intentionally Left Blank] C-3

250 The following table shows the assessed value for taxable property within the Port district for purposes of the Port s Tax Levy and the Port s maximum and total Tax Levies in years 2011 through TABLE C-1 RECENT TAX LEVY ACTIVITY Tax Year Port District Assessed Value (2) Maximum Port Levy (3) Total Port Tax Levy (2)(4) Total Port Tax Levy Rate (2)(5) General Obligation Bond Debt Service 2015 (1) $ 386,495,592,582 $ 95,220,093 $ 73,000,000 $ $ 28,423,422 (6) ,643,616,343 93,259,946 73,018, ,841, ,746,206,667 91,462,486 73,020, ,345, ,460,937,305 90,309,729 73,014, ,361, ,414,998,614 88,727,622 73,512, ,165,015 (1) King County s Certification of Assessed Value. (2) Unless otherwise noted, the amounts shown under Port District Assessed Value, Total Port Tax Levy and Total Port Tax Levy Rate are the amounts shown in King County s Annual Reports for the purposes of the tax levy collected in the year identified in the column titled Tax Year. The amounts of Tax Levy receipts shown in Table 2 entitled Tax Collection Record, were derived from the King County Tax Receivables Summary but include supplements and cancellations and generally differ from the totals reported by the County by an immaterial amount. (3) The maximum dollar amount shown in King County s Certification of Assessed Value delivered to the Port as the maximum amount that would be permitted to be collected within the statutory levy limitation, taking into account the Port s banked levy capacity. (4) Tax Levy allocable for general purposes plus the Tax Levy allocable for limited tax general obligation bonds. (5) Per $1,000 of assessed value, based upon levy amounts reported in the King County Annual Report. (6) Budgeted; prior to refunding of the 2006 limited tax general obligation bonds. Sources: King County Assessor s Office and Port of Seattle. Tax Collection Procedures The Commission levies property taxes in specific dollar amounts. The rates for all taxes levied for all taxing districts in the County are determined, calculated and fixed by the Assessor, based upon the assessed value of the taxable property within the various taxing districts in the County. The Assessor extends the tax levied within each taxing district upon a tax roll, which contains the total amounts of taxes levied and to be collected, and assigns a tax account number to each tax lot. The tax roll is delivered to the County Treasurer, who is responsible for the billing and collection of taxes due for each account. Tax bills are required to be sent in February. All taxes are due and payable on April 30 of each tax year, but if the amount due from a taxpayer exceeds $50, one-half may be paid by April 30 and the balance no later than October 31 of that year. A penalty of three percent is assessed for taxes delinquent as of June 1 and a penalty of eight percent is assessed for taxes delinquent as of December 1. Interest, at a rate of 12 percent per annum, computed monthly on the full tax amount, is also assessed on delinquent tax bills. The methods of giving notice of payment of taxes due, accounting for the money collected, dividing the taxes collected among the various taxing districts (including the Port), and giving notice of delinquency and collection procedures are all determined by detailed statutes. The lien for personal property taxes that have been levied by the Commission prior to filing of federal tax liens is prior to such federal tax liens. In all other respects, the lien for property taxes is prior to all other liens or encumbrances of any kind on real or personal property subject to taxation. By law, the County Treasurer may commence foreclosure of a tax lien on real property after three years have passed since the first delinquency, but may not sell property eligible for deferral of taxes. C-4

251 Tax Collection Records The following table shows the Port s Tax Levy for 2010 through 2014 and the amount and percentages of the tax collected in the year due and as of December 31, TABLE C-2 TAX COLLECTION RECORD Amount Collected in Year Due Amount Collected as of 12/31/2014 (2) % of Levy Collected as of 12/31/2014 Year Amount of Levy (1)(2) % Collected in Year Due 2014 $ 73,018,695 $ 72,009, $ 72,009, ,020,604 71,931, ,720, ,014,552 71,878, ,865, ,512,887 72,290, ,493, ,504,599 72,140, ,491, (1) The amount of the actual Tax Levy varies from the budgeted amount because of adjustments in assessed values and levy rates made by the County. (2) The amounts of Tax Levy receipts were derived from the King County Tax Receivables Summary but include supplements and cancellations and generally differ from the totals reported by the County by an immaterial amount. Source: Port of Seattle, from King County Tax Receivables Summary. Principal Taxpayers The following table lists the ten largest taxpayers in King County and the assessed value of their property for the purposes of the Tax Levy for collection in TABLE C-3 KING COUNTY LARGEST TAXPAYERS TAX LEVY FOR COLLECTION IN 2015 Taxpayer Type of Business Assessed Value Percent of Total Assessed Value The Boeing Company Aerospace $ 3,153,954, Microsoft Software 2,736,627, Puget Sound Energy/Gas/Electric Gas & Electric Utility 2,370,277, Alaska Airlines Airline 778,080, AT&T Mobility LLC Telecommunications 645,729, Kemper Development (1) Property Management 606,557, Union Square LLC Property Management 593,709, Qwest Corporation Inc. (2) Telecommunications 493,826, Urban Renaissance Prop Co (3) Real Estate 460,465, Tab Owner LLC Real Estate 457,615, Total assessed value of top 10 taxpayers $ 12,296,843, Total assessed value of all other taxpayers $ 374,198,749, Total assessed value for taxes due in 2015 $ 386,495,592, (1) Formerly Bellevue Square Managers, Inc. (2) Acquired by Centurylink in (3) Formerly W2007. Source: King County Department of Assessments. C-5

252 OTHER PORT TAXING AUTHORITY Voted Tax Levy for Unlimited Tax General Obligation Bonds If general obligation bonds are approved by a vote of the electors, the Port may impose an excess levy to produce funds equal to the amount required to make principal and interest payments on unlimited tax general obligation bonds. Such excess levy would not be subject to any current statutory limitations. The Port currently has no such unlimited tax general obligation bonds outstanding and none approved for issuance. The Industrial Development Levy For improvements within industrial development districts created by a port district, an additional $0.45 per $1,000 assessed value of taxable property within the Port district (the Industrial Development Levy ) may be levied for up to 12 years. The Port levied the Industrial Development Levy for six years, but has not levied this tax for the seventh through twelfth years. To levy the Industrial Development Levy for the remaining six years, the Port would be required to publish notice of intent to impose such a levy not later than June 1 of the first year of the levy. If at least eight percent of voters who voted in the last gubernatorial election protest the levy within a 90-day period, a special election must be held and a majority of the voters of the Port district voting on the levy must approve the levy. The Washington State Legislature, in the 2015 legislative session, provided an additional multi-year levy option for port districts industrial development levy (in Washington Laws of 2015, Chapter 135). Port districts, if they meet certain criteria, may levy the industrial development levy for up to three multi-year levy periods. Each multi-year levy period may exceed 20 years from the date of the first levy in that period. First and second year levy periods do not have to be consecutive, and first and second year levy periods may not overlap. The aggregate revenue that may be collected during each of the first and second year levy period may not exceed the sum of: (i) $2.72/$1000 of assessed value multiplied by the assessed valuation for taxes collected in the base year; plus (ii) the difference between (A) the maximum allowable amount that could have been collected under RCW for the first six years of the collection period and (B) the amount calculated in (i). If a port district elects to use multiyear levy periods, the second multi-year levy period is subject to the potential election requirement described above. This legislation will be effective as of July The Port last levied the Industrial Development Levy in 1968 and has no current plans to levy all or any portion of the remaining Industrial Development Levy. The Dredging Levy With the approval of the majority of voters within the Port district, an additional $0.45 per $1,000 assessed value of taxable property within the Port district may be levied for dredging, canal construction, leveling, or filling (the Dredging Levy ). The Port has never imposed the Dredging Levy. Port District General Obligation Debt Limitation DEBT INFORMATION Under State law, the Port may incur G.O. indebtedness payable from ad valorem taxes in an amount not exceeding one-fourth of one percent of the value of the taxable property in the Port district without a vote of the electors. With the assent of three-fifths of the electors voting thereon, subject to a validation requirement, the Port may incur additional G.O. indebtedness, provided the total indebtedness of the Port at any time does not exceed three-fourths of one percent of the value of the taxable property in the Port district. The limit on incurring indebtedness does not apply to obligations payable from revenues (special funds) or assessments. C-6

253 The following tables provide information regarding the outstanding general obligation debt of the Port. TABLE C-4 OUTSTANDING GENERAL OBLIGATION DEBT (1) Limited Tax General Obligation Bonds Date of Maturity Amount Outstanding Limited Tax General Obligation Refunding Bonds, 2004C 11/01/2019 $ 15,415,000 Limited Tax General Obligation Refunding Bonds, 2011 (AMT) 12/01/ ,130,000 Limited Tax General Obligation Refunding Bonds, 2013A (Non-AMT) 11/01/ ,630,000 Limited Tax General Obligation Bonds, 2013B (Taxable) 11/01/ ,105,000 Limited Tax General Obligation Bonds, /01/ ,990,000 Total Nonvoted General Obligation Debt $ 322,270,000 Unlimited Tax General Obligation Bonds None Voted Bonds Total $ -0- Total General Obligation Direct Debt of the Port $ 322,270,000 (1) As of July 2, Source: Port of Seattle. The following table reflects the estimated 2015 general obligation debt limit for the Port. TABLE C-5 ESTIMATED DEBT LIMIT (1) Total Assessed Value (determined in 2014 for 2015 Tax Levy) (2) $ 386,495,592,582 Debt Limit, nonvoted debt, including limited tax general obligation bonds (0.25% of Value of Taxable Property) 966,238,981 Less: Outstanding Limited Tax General Obligation Bonds (including capital leases) (322,270,000) Remaining Capacity Limited Tax General Obligation Debt (2) $ 643,968,981 Debt Limit, Total, voted and nonvoted debt, General Obligation Debt (0.75% of Value of Taxable Property) $ 2,898,716,944 Less: Outstanding Limited Tax General Obligation Bonds (including capital leases) (322,270,000) Less: Outstanding Unlimited Tax General Obligation Bonds -0- Remaining Capacity Total General Obligation Debt $ 2,576,446,944 (1) As of July 2, (2) Per County Assessor s Office Certification of Assessed Value. Source: Port of Seattle and King County Assessor s Office. C-7

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255 APPENDIX D PROPOSED FORMS OF BOND COUNSEL OPINIONS D-1

256 K&L GATES LLP 925 FOURTH AVENUE SUITE 2900, SEATTLE, WA T F klgates.com Port of Seattle Seattle, Washington Morgan Stanley & Co. LLC New York, New York Barclays Capital Inc. Seattle, Washington August 6, 2015 Merrill Lynch, Pierce, Fenner & Smith Incorporated Seattle, Washington J.P. Morgan Securities LLC Seattle, Washington Backstrom McCarley Berry & Co., LLC San Francisco, California Drexel Hamilton, LLC New York, New York Re: Port of Seattle Intermediate Lien Revenue Bonds, Series 2015A (Non-AMT) - $72,010,000 Ladies and Gentlemen: We have acted as bond counsel to the Port of Seattle (the Port ) and have examined a certified transcript of the proceedings taken in the matter of the issuance by the Port of its Intermediate Lien Revenue Bonds, Series 2015A (Non-AMT) in the aggregate principal amount of $72,010,000 (the Series 2015A Bonds ), issued pursuant to Resolution No of the Port Commission (the Intermediate Lien Master Resolution ) and Resolution No. 3709, of the Port Commission (the Series Resolution and, together with the Intermediate Lien Master Resolution, the Resolution ) for the purpose of paying or reimbursing costs of capital improvements to Airport facilities, satisfying the Intermediate Lien Reserve Requirement, paying capitalized interest on the Series 2015A Bonds, and paying issuance costs. Capitalized terms used herein which are not otherwise defined shall have the meanings given such terms in the Resolution. Simultaneously with the issuance of the Series 2015A Bonds, the Port is issuing its Intermediate Lien Revenue Refunding Bonds, Series 2015B (Non-AMT), and its Intermediate Lien Revenue Bonds, Series 2015C (AMT). D-2

257 The Series 2015A Bonds are subject to redemption prior to their stated maturities as provided in the Bond Purchase Contract. Regarding questions of fact material to our opinion, we have relied on representations of the Port in the Resolution and in the certified proceedings and on other certifications of public officials and others furnished to us without undertaking to verify the same by independent investigation. Based on the foregoing, we are of the opinion that, under existing law: 1. The Series 2015A Bonds have been legally issued and constitute valid and binding obligations of the Port, except to the extent that the enforcement of the rights and remedies of the owners of the Series 2015A Bonds may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors rights heretofore or hereafter enacted to the extent constitutionally applicable and that their enforcement may also be subject to the exercise of judicial discretion in appropriate cases. Both principal of and interest on the Series 2015A Bonds are payable solely out of a special fund of the Port designated as the Port of Seattle Intermediate Lien Bond Fund (the Intermediate Lien Bond Fund ) and the Intermediate Lien Reserve Account. 2. The Port has obligated and bound itself to set aside and pay into the Intermediate Lien Bond Fund out of Available Intermediate Lien Revenues and the money in the Revenue Fund amounts sufficient to pay the principal of and interest on the Series 2015A Bonds as the same become due. The Port has further bound itself to pay into the Revenue Fund, as collected, all Gross Revenue. 3. The Port has further pledged in the Resolution that payments to be made out of Gross Revenue and moneys in the Revenue Fund into the Intermediate Lien Bond Fund and into the Intermediate Lien Reserve Account shall be a first and prior lien and charge upon the Net Revenues, subject to the liens thereon of any Permitted Prior Lien Bonds and equal in rank to the lien and charge upon such Net Revenues of the amounts required to pay the Port s Outstanding Intermediate Lien Revenue Bonds, Net Payments on any Parity Derivative Product, and any other revenue bonds hereafter issued on a parity therewith as provided in the Resolution. The Port has reserved the right to enter into Parity Derivative Products and issue bonds in the future with a lien against the Available Intermediate Lien Revenues on a parity with the lien thereon of Intermediate Lien Parity Bonds. 4. Interest on the Series 2015A Bonds is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, interest on the Series 2015A Bonds is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on certain corporations. The opinion set forth in the preceding sentence is subject to the condition that the Port comply with all requirements of the Internal Revenue Code of 1986, as amended (the Code ), that must be satisfied subsequent to the issuance of the Series 2015A Bonds in order that the interest thereon be, and continue to be, excludable from gross income for federal income tax purposes. The Port has covenanted to comply with all applicable requirements. Failure to comply with certain of D-3

258 such covenants may cause interest on the Series 2015A Bonds to be included in gross income for federal income tax purposes retroactively to the date of issuance of the Series 2015A Bonds. We have not been engaged nor have we undertaken to review the accuracy, completeness or sufficiency of the official statement or other offering material relating to the Series 2015A Bonds (except to the extent, if any, specifically addressed by separate opinion to the Underwriters), and we express no opinion relating thereto or relating to the undertaking of the Port to provide ongoing disclosure pursuant to Securities and Exchange Commission Rule 15c2-12. The Port has not designated the Series 2015A Bonds as qualified tax-exempt obligations within the meaning of Section 265(b)(3) of the Code. Except as expressly stated above, we express no opinion regarding any other federal or state income tax consequences of acquiring, carrying, owning or disposing of the Series 2015A Bonds. Owners of the Series 2015A Bonds should consult their tax advisors regarding the applicability of any collateral tax consequences of owning the Series 2015A Bonds, which may include original issue discount, original issue premium, purchase at a market discount or at a premium, taxation upon sale, redemption or other disposition, and various withholding requirements. This opinion is given as of the date hereof, and we assume no obligation to update, revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur. Very truly yours, K&L GATES LLP D-4

259 K&L GATES LLP 925 FOURTH AVENUE SUITE 2900, SEATTLE, WA T F klgates.com Port of Seattle Seattle, Washington Morgan Stanley & Co. LLC New York, New York Barclays Capital Inc. Seattle, Washington August 6, 2015 Merrill Lynch, Pierce, Fenner & Smith Incorporated Seattle, Washington J.P. Morgan Securities LLC Seattle, Washington Backstrom McCarley Berry & Co., LLC San Francisco, California Drexel Hamilton, LLC New York, New York Re: Port of Seattle Intermediate Lien Revenue Refunding Bonds, Series 2015B (Non-AMT) - $284,440,000 Ladies and Gentlemen: We have acted as bond counsel to the Port of Seattle (the Port ) and have examined a certified transcript of the proceedings taken in the matter of the issuance by the Port of its Intermediate Lien Revenue Refunding Bonds, Series 2015B (Non-AMT) in the aggregate principal amount of $284,440,000 (the Series 2015B Bonds ), issued pursuant to Resolution No of the Port Commission (the Intermediate Lien Master Resolution ) and Resolution No. 3709, of the Port Commission (the Series Resolution and, together with the Intermediate Lien Master Resolution, the Resolution ) for the purpose of refunding certain outstanding obligations of the Port and paying issuance costs. Capitalized terms used herein which are not otherwise defined shall have the meanings given such terms in the Resolution. Simultaneously with the issuance of the Series 2015B Bonds, the Port is issuing its Intermediate Lien Revenue Bonds, Series 2015A (Non-AMT), and its Intermediate Lien Revenue Bonds, Series 2015C (AMT). D-5

260 The Series 2015B Bonds are subject to redemption prior to their stated maturities as provided in the Bond Purchase Contract. Regarding questions of fact material to our opinion, we have relied on representations of the Port in the Resolution and in the certified proceedings and on other certifications of public officials and others furnished to us without undertaking to verify the same by independent investigation. Based on the foregoing, we are of the opinion that, under existing law: 1. The Series 2015B Bonds have been legally issued and constitute valid and binding obligations of the Port, except to the extent that the enforcement of the rights and remedies of the owners of the Series 2015B Bonds may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors rights heretofore or hereafter enacted to the extent constitutionally applicable and that their enforcement may also be subject to the exercise of judicial discretion in appropriate cases. Both principal of and interest on the Series 2015B Bonds are payable solely out of a special fund of the Port designated as the Port of Seattle Intermediate Lien Bond Fund (the Intermediate Lien Bond Fund ) and the Intermediate Lien Reserve Account. 2. The Port has obligated and bound itself to set aside and pay into the Intermediate Lien Bond Fund out of Available Intermediate Lien Revenues and the money in the Revenue Fund amounts sufficient to pay the principal of and interest on the Series 2015B Bonds as the same become due. The Port has further bound itself to pay into the Revenue Fund, as collected, all Gross Revenue. 3. The Port has further pledged in the Resolution that payments to be made out of Gross Revenue and moneys in the Revenue Fund into the Intermediate Lien Bond Fund and into the Intermediate Lien Reserve Account shall be a first and prior lien and charge upon the Net Revenues, subject to the liens thereon of any Permitted Prior Lien Bonds and equal in rank to the lien and charge upon such Net Revenues of the amounts required to pay the Port s Outstanding Intermediate Lien Revenue Bonds, Net Payments on any Parity Derivative Product, and any other revenue bonds hereafter issued on a parity therewith as provided in the Resolution. The Port has reserved the right to enter into Parity Derivative Products and issue bonds in the future with a lien against the Available Intermediate Lien Revenues on a parity with the lien thereon of Intermediate Lien Parity Bonds. 4. Interest on the Series 2015B Bonds is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, interest on the Series 2015B Bonds is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on certain corporations. The opinion set forth in the preceding sentence is subject to the condition that the Port comply with all requirements of the Internal Revenue Code of 1986, as amended (the Code ), that must be satisfied subsequent to the issuance of the Series 2015B Bonds in order that the interest thereon be, and continue to be, excludable from gross income for federal income tax purposes. The Port has covenanted to comply with all applicable requirements. Failure to comply with certain of such covenants may D-6

261 cause interest on the Series 2015B Bonds to be included in gross income for federal income tax purposes retroactively to the date of issuance of the Series 2015B Bonds. We have not been engaged nor have we undertaken to review the accuracy, completeness or sufficiency of the official statement or other offering material relating to the Series 2015B Bonds (except to the extent, if any, specifically addressed by separate opinion to the Underwriters), and we express no opinion relating thereto or relating to the undertaking of the Port to provide ongoing disclosure pursuant to Securities and Exchange Commission Rule 15c2-12. The Port has not designated the Series 2015B Bonds as qualified tax-exempt obligations within the meaning of Section 265(b)(3) of the Code. Except as expressly stated above, we express no opinion regarding any other federal or state income tax consequences of acquiring, carrying, owning or disposing of the Series 2015B Bonds. Owners of the Series 2015B Bonds should consult their tax advisors regarding the applicability of any collateral tax consequences of owning the Series 2015B Bonds, which may include original issue discount, original issue premium, purchase at a market discount or at a premium, taxation upon sale, redemption or other disposition, and various withholding requirements. This opinion is given as of the date hereof, and we assume no obligation to update, revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur. Very truly yours, K&L GATES LLP D-7

262 K&L GATES LLP 925 FOURTH AVENUE SUITE 2900, SEATTLE, WA T F klgates.com Port of Seattle Seattle, Washington Morgan Stanley & Co. LLC New York, New York Barclays Capital Inc. Seattle, Washington August 6, 2015 Merrill Lynch, Pierce, Fenner & Smith Incorporated Seattle, Washington J.P. Morgan Securities LLC Seattle, Washington Backstrom McCarley Berry & Co., LLC San Francisco, California Drexel Hamilton, LLC New York, New York Re: Port of Seattle Intermediate Lien Revenue Bonds, Series 2015C (AMT) - $226,275,000 Ladies and Gentlemen: We have acted as bond counsel to the Port of Seattle (the Port ) and have examined a certified transcript of the proceedings taken in the matter of the issuance by the Port of its Intermediate Lien Revenue Bonds, Series 2015C (AMT), in the aggregate principal amount of $226,275,000 (the Series 2015C Bonds ), issued pursuant to Resolution No of the Port Commission (the Intermediate Lien Master Resolution ) and Resolution No. 3709, of the Port Commission (the Series Resolution and, together with the Intermediate Lien Master Resolution, the Resolution ) for the purpose of paying or reimbursing costs of capital improvements to Airport facilities, satisfying the Intermediate Lien Reserve Requirement, paying capitalized interest on the Series 2015C Bonds, and paying issuance costs. Capitalized terms used herein which are not otherwise defined shall have the meanings given such terms in the Resolution. Simultaneously with the issuance of the Series 2015C Bonds, the Port is issuing its Intermediate Lien Revenue Bonds, Series 2015A (Non-AMT) and its Intermediate Lien Revenue Refunding Bonds, Series 2015B (Non-AMT). D-8

263 The Series 2015C Bonds are subject to redemption prior to their stated maturities as provided in the Bond Purchase Contract. Regarding questions of fact material to our opinion, we have relied on representations of the Port in the Resolution and in the certified proceedings and on other certifications of public officials and others furnished to us without undertaking to verify the same by independent investigation. Based on the foregoing, we are of the opinion that, under existing law: 1. The Series 2015C Bonds have been legally issued and constitute valid and binding obligations of the Port, except to the extent that the enforcement of the rights and remedies of the owners of the Series 2015C Bonds may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors rights heretofore or hereafter enacted to the extent constitutionally applicable and that their enforcement may also be subject to the exercise of judicial discretion in appropriate cases. Both principal of and interest on the Series 2015C Bonds are payable solely out of a special fund of the Port designated as the Port of Seattle Intermediate Lien Bond Fund (the Intermediate Lien Bond Fund ) and the Intermediate Lien Reserve Account. 2. The Port has obligated and bound itself to set aside and pay into the Intermediate Lien Bond Fund out of Available Intermediate Lien Revenues and the money in the Revenue Fund amounts sufficient to pay the principal of and interest on the Series 2015C Bonds as the same become due. The Port has further bound itself to pay into the Revenue Fund, as collected, all Gross Revenue. 3. The Port has further pledged in the Resolution that payments to be made out of Gross Revenue and moneys in the Revenue Fund into the Intermediate Lien Bond Fund and into the Intermediate Lien Reserve Account shall be a first and prior lien and charge upon the Net Revenues, subject to the liens thereon of any Permitted Prior Lien Bonds and equal in rank to the lien and charge upon such Net Revenues of the amounts required to pay the Port s Outstanding Intermediate Lien Revenue Bonds, Net Payments on any Parity Derivative Product, and any other revenue bonds hereafter issued on a parity therewith as provided in the Resolution. The Port has reserved the right to enter into Parity Derivative Products and issue bonds in the future with a lien against the Available Intermediate Lien Revenues on a parity with the lien thereon of Intermediate Lien Parity Bonds. 4. Interest on the Series 2015C Bonds is excludable from gross income for federal income tax purposes, except for interest on any Series 2015C Bonds for any period during which such Series 2015C Bonds is held by a substantial user of the facilities financed by the Series 2015C Bonds, or a related person within the meaning of Section 147(a) of the Internal Revenue Code of 1986, as amended (the Code ); however, interest on the Series 2015C Bonds is an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. The opinion set forth in this paragraph is subject to the condition that the Port comply with all requirements of the Code that must be satisfied subsequent to the issuance of the Bonds in order that the interest thereon be, and continue to be, excludable from D-9

264 gross income for federal income tax purposes. The Port has covenanted to comply with all such requirements. Failure to comply with certain of such requirements may cause interest on the Series 2015C Bonds to be included in gross income for federal income tax purposes retroactively to the date of issuance of the Series 2015C Bonds. We have not been engaged nor have we undertaken to review the accuracy, completeness or sufficiency of the official statement or other offering material relating to the Series 2015C Bonds (except to the extent, if any, specifically addressed by separate opinion to the Underwriters), and we express no opinion relating thereto or relating to the undertaking of the Port to provide ongoing disclosure pursuant to Securities and Exchange Commission Rule 15c2-12. The Series 2015C Bonds are not qualified tax-exempt obligations within the meaning of Section 265(b)(3) of the Code. Except as expressly stated above, we express no opinion regarding any other federal or state income tax consequences of acquiring, carrying, owning or disposing of the Series 2015C Bonds. Owners of the Series 2015C Bonds should consult their tax advisors regarding the applicability of any collateral tax consequences of owning the Series 2015C Bonds, which may include original issue discount, original issue premium, purchase at a market discount or at a premium, taxation upon sale, redemption or other disposition, and various withholding requirements. This opinion is given as of the date hereof, and we assume no obligation to update, revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur. Very truly yours, K&L GATES LLP D-10

265 APPENDIX E DTC AND ITS BOOK-ENTRY SYSTEM E-1

266 DTC AND ITS BOOK-ENTRY ONLY SYSTEM The following information has been provided by The Depository Trust Company, New York, New York ( DTC ). The Port makes no representation regarding the accuracy or completeness thereof. Each actual purchaser of a Series 2015 Bond (a Beneficial Owner ) should therefore confirm the following with DTC or the Participants (as hereinafter defined). 1. The Depository Trust Company ( DTC ), New York, NY, will act as securities depository for the Series 2015 Bonds. The Series 2015 Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Series 2015 Bond certificate will be issued for the aggregate principal amount of the Series 2015 Bonds, and will be deposited with DTC. 2. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants (the Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (the Indirect Participants ). DTC has a Standard & Poor s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at 3. Purchases of Series 2015 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2015 Bonds on DTC s records. The ownership interest of each actual purchaser of each Series 2015 Bond (the Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2015 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Series 2015 Bonds, except in the event that use of the book-entry system for the Series 2015 Bonds is discontinued. 4. To facilitate subsequent transfers, all Series 2015 Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Series 2015 Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2015 Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Series 2015 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. 5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Series 2015 Bonds may wish to take certain steps to augment the transmission to them of E-2

267 notices of significant events with respect to the Series 2015 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Series 2015 Bond documents. For example, Beneficial Owners of Series 2015 Bonds may wish to ascertain that the nominee holding the Series 2015 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. 6. Redemption notices shall be sent to DTC. If less than all of the Series 2015 Bonds are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant to be redeemed. 7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Series 2015 Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Port as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts Series 2015 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). 8. Redemption proceeds, distributions, and dividend payments on the Series 2015 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the Port or the Registrar, on payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, the Registrar, or the Port, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Port or the Registrar, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. 9. DTC may discontinue providing its services as depository with respect to the Series 2015 Bonds at any time by giving reasonable notice to the Port or the Registrar. Under such circumstances, in the event that a successor depository is not obtained, Series 2015 Bond certificates are required to be printed and delivered. 10. To the extent permitted by law, the Port may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Series 2015 Bond certificates will be printed and delivered to DTC. 11. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that the Port believes to be reliable, but the Port takes no responsibility for the accuracy thereof. E-3

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269 APPENDIX F COPIES OF THE INTERMEDIATE LIEN MASTER RESOLUTION AND THE SERIES RESOLUTION F-1

270 F-2 PORTOFSEAlTLE RESOLUTION NO. 3540, AS AMENDED A RESOLUTION OF THE PORT COMMISSION OF THE PORT OF SEATTLE AUTHORIZING REVENUE BONDS OF THE PORT DISTRICT TO BE ISSUED IN SERIES TO FINANCE ANY LEGAL PURPOSE OF THE PORT DISTRICT; CREATING AND ESTABUSHING AN INT1:.II.MEUIA 1 e WEN Ut'UN N~I KeVI::NUCS Ut THe t'urt DISTRICT FOR TH E PAYMENT OF SUCH BONOS; AND MAKING COVENANTS Ah'D AGREEMENTS IN CONNECTION WITH THE FOREGOING. RECITALS Sco;tion I. Sco;tion 2. S«tionJ. S«tion 4. S«tion 5. S«tion 6. Se<;tion 1. Section 8. S«lion 9. Section 10. Soction II, Sco;tion 12. Sco;tion Il. S IGNATUR S. ~..... TABLE OF CONTENTS "'",... 1 DdinitlonL... _... 3 Priority of Use of Gross Revenue Authorization of Intermediate Lien Parity Bonds: Intermediate Lien Bond Fund; intermediate Lien Resc-rve A~ounL...,..., 27 Authorization of Series of intermediate Lim Parity Bondl Permitted Prior Lim Bonds; ConditionsoflssullllCc of Intermediate Lien Parity Son<b ,J~ Specific Covenants.. Derivative Products , Amendments Without BandownerConsenl.. Amendmmts With Registered Owners' Consent ".",...47 Resolution and Laws a Contract with Intermediate Lim Parity Sondowners Defaults and Remedies Moneys Held by Paying Agcots One Year After Due Datc J Severability S]..... ~... S4 AOOm!D~1'l 2oo, f'rcpmcd by: PRESTON GATES '" Ews lu' Seallle. Wuhington -i - -

271 F-3 RESOLUTION NO. ls40, AS AMENDED A RESOU ITION OF THE PORT COMMISSION OF THE PORT OF SEATTLE Al/THORlZING REVENUE BONDS OF THE PORT DISTRICT TO BE ISSUED IN SERIES TO FINANCE ArlY LEGAL PURPOSE OF TH E PORT DISTRICT; CREATING AND ESTABLISHING AN INTERMEDIATE LIEN UPON NET REVEt>o'UES OF TIlE PORT DISTRICT FOR TH E PAYMENT OF SUCH BONDS; AND MAKING COVENANTS AND AGREEMENTS IN CONNECTION WITH THE FOREGOING. WHEREAS, th~ Port of Seanl~ ( th ~ "Port''), a municipal oorporation of the Stat~ of Washington, owns and operates a system of marine tenninals and properties and Seattle-Tacoma International Airport; and WHEREAS. th~ Port has authorized the iuuanc~ ofrt:venue bonds in one or mort: series pursuant to Resolution No, 3059, adopted on F~b ru ary2, 1990 and most =ently amended by Resolution No ldopted 0II1uly 11, 2000 (the "Finl Lien Master Resolution"); and WHEREAS. the Port has is5ued and CurTently has outstanding 18 series of fim lien revmue bonds pursuant 10 the fin! Lim Mwer Resolution, as follows:... Currently Resolution Date of Original 0ulSlandin8 Final Number Princi~l Amt. (6/211)5) Maturity Data / 1992 (A) 525,450,000 S 395,000 I ]/11'200S /1994 (A) 27, 135,000 17,495, /01 /1994 (C) 51,755,000 17,845,000 07/ /1996 CA) ) , /1996 (B) 74, , / /1997 (A) 120,375, ,375, "" (B) 19,985,000 2,230, (A) 7),180,000 32,640,000 06/ I10t2000 (A) 130,690, ,690, /1()J2000 (B) 221,590, , "'0,...",...",..., '"'' 'lo9 "" 09106f2OOO (0) ICWI7I2001 (A) ICW1712OO1 (B) ICWl 712OO1 (C) (0) 08I2M003 (A) 08I2()'2003 (B) 061)""'0' (''Outstanding Fim Lien Bonds); and 28, , , , ,7 10,000 13,135, ,105, ,380,000 12,205,000 65,075, ,470, ,900,000 23,380, (411120) / / / WHEREAS, each of the resolutions authorizing the issu!ll1ce of the OuUtanding First Lien Bondi permits Ih~ Port to issue its revenue bonds having _ lien on Net Rev~nues (as liuch tenn i, defined in the First Lien Master Resolution) subordinate to the lien thereon of the Outstanding Fim lien Bonds; and WHEREAS, the Port has issued and currently has outstanding six series of liubordinate lien revenue bonds. as follows: Authorizing Curmuly Resolution DalCof Original Outstanding Number OriE:!nallssue Principa..lAmI. (612105) '1997 $108, ,830, ' OSlOIII998 27, ,605, ' (A) 127, ,840,000 33S4 1 1ml1/99(B) 116, ,S60,OOO (CP) 250,000, u5,000 "' O8/2OfO)(C) 200,000, ,000 I """""""'by ~ No.ll ~I... amrtded.odopordoa AIIC'd!~, I A-..ckd by~ No. JJSJ,.....s.d. odopicdoaaiipoi~, I Amr.ded by Reoo/u,.. No. ~,.....s.d. ~ (the "Outstandin8 Subordin.al~ Uen Bonds''); and Final Maturitl Dates ml o.s,.,) I ,u11203) WHEREAS, each of the resolutions, as amended, authorizing tile ilisuance of!he Outstanding Subordin.ate lien Bonds (identified in the chart above) authorized tile Port to ilisu~ -,- '-'... -

272 F-4 revenue obligations having a prior lien on the revenues available to pay debt service On the Outstanding Subordinate Lien Bonds; and WHEREAS, tin: Commission deems it advisable and in the best inter<:st of the Port to establish a separate lien of revenue bonds of the Port that may hereafter be issued for any of its legal purposes under the provisions, terms and conditions of this resolution; and WIIEREAS, the principal of and interest on the bonds authorized by this resolution shall be payable solely from and shall constitute a lien and charge against Available Interme<liate Lien Revenues (hereinafter defined); NOW, THEREFORE, BE IT RESOLVED BY THE PORT COMMISSION OF THE PORT OF SEATfLE, WASHINGTON, as follows: ~. DefinitioM. As used in this resolution, the following words and phrases shall have the meanings hereinafter set forth unless the context clearly shall indicate thai another meaning is intended: Accnted Value means (I) with respect to any Capital Appreciation Bonds, as of any date of calculation, the sum of the initial principal amount of such Intennediate Lien Parity Bonds such fiscal yem from Available Intennediate Lien Revenues into the Jn1ermediate uen Reserve Account plus (c) any other amounts due to any Credit Facility Issuer or any Liquidity Facility Issuer, but excluding from the foregoing (i) payments made Or to be made from refunding debt and capitalized debt service or other money irrevocably (by Commission resolution) set aside for such pa}menl and (ii) [ntenne<liate uen Debt Service Off$ets identified by the Port in a certificate oflhe Designated Port Representative. AnnuQ/ Deb' Service means the total amount of Debt Service for any series of Outstanding [ntennediate Lien Parity Bonds in any fiscal yem or Base Period. ANi/able C"venlfle A..."un, means the unrestricted balance in the Revenue Fund at the end of the two most recent fiscal years of the Port, whichever is lower. No amounts may be included in the Available Coverage Amount unless such amounts are legally ayailable for payment of debt service On Intennediate Lien Parity Bonds. ANi/able /nltr"'ediq/e Uen Revenues mean the Gross Revenue of the Port after providing for lhe payments set forth in paragr:aphs Eim. ~ IhiIll and Fourth of Section 2 of this TeSQlution, excluding any Released Revenues. plus the interest accumulated, compounde<l and unpaid therron as of tin: most re«nt AVQi/"ble Inter... dillle Lien Revenues QS FitSt Adjustd means Ayailable Intennediate compounding date, or (2) wilh respect to Original Issue Discount Bonds, as of the date of calculation, the amount representing the initial public offering price of such Intennediate Lien Parity Bonds plus the amount of discounted principal which has accreted since the dale of issue. [n each case the Accreted Value shall be determined in accordance with the provisions of the Series RCSQlution authorizing the issuance of such Intennediate Lien Parity Bonds. The A... ~ullt Due (for purposes of the Rate Coyenant) in each fiscal year of the Port shall be equal to (a) Scheduled Deb! Service, plus (b) amounts re<juin:d ID be deposiled during 3,- -- Lien Revenues increase<! (without duplication) by Prior Lien Debt Service Offsets identified by tin: Port in a certificate of the Designated Port Representative and subject 10 further adjustment to ref1c:.:t the following:,.) It is the intern of the Port that regularly scheduled net payments under derivative products (interest mte hedges) with respect to Port revenue obligations (regardless of lien position) be reflected in lhe calculation of debt service obligations wilh respect to those revenue obligations and 001 as adjustments to Gross Revenue or Operating Expenses; and.,.,-.'-

273 (b) Groq Revenue and Operating Expenses may be: adjusted. ~Icu of Association; prm;dctj, howe'~, that, if such index is 00 longer produced by Municipal Manet!hen applieabk generally attepted IIIXOWIti", principles, for ~o:rt.lin items (c_g., to omit) in order to more fairly rcncll;!!he Pan', ann... 1 operati", pctfonnance. Dilta, I~ or its~, then BMA Municipal Swap IndeJt shall mean such other reasonably comparable index selected by 1hc Dcsigrwed Pan Reprcsmtalive. Aw>illJbJc I"/c,,.cdla/e Lie" Rt!W"ues $IS S«o" d Adj"Jted means Availablc CflpU,,1 Appnciflti"" B""d! means intermediate Lien Parity Bonds all 0<". portion or tlle Intermediatc Lien Rcvenues as First Adjusted plus the Available Coverage AmoWlI. interet on which is compounded.. accumulated and payable only upon rtdcmplion, conversion or Ball_" MIl/",lty B""d, means any Intermediate Lien Parity Bonds that arc 50 on the malllrity date of such Intermediate Lien Parity Bonds. If 10 provided in the Series F-5 dcsignated in the Series Resolution pursuant 10 whi~h such Intmncdiate Lien Parity Bonds arc issued. Commercial pliper (oblii\lltions with a maturity ofoot more than 270 days from the date of issuance) shall be de<:med to be Balloon Maturity Bonds. B"sc Pc,lod means any consecutive 12-month period selected by!he Designated Port Representative out of the 3()-month period next preceding the date of issuanct: of an additional series of Intmncdiate Lien Parity Bonds. Bc"cficial Ow,," mcan any person that has or shares!he power, diroctlyor indiroctly, to make investment decisions oonceming ownership of any Intermediatc Li.cn Parity Bonds (including persons holding Intermediate Lien Parity Bonds through nominees, depositories or OIheT intermediuy). B""d C"u"sel means I finn of IIW)'I:fS nationally recognized and atteptcd as bond counsel and 50 employed by the Port for any putpo$c under this resolution app~cable 10 the use ofthal tmn. Resolution authorizing their issuance, Intmnediate Lien Parity Bonds may be deemed to be: Capiml Appreciation Bonds for only a po.,ion ofthcir tmn. On the date on which [ntennediate Lien Parity Bonds no longer arc Capital Appreciation Bonds, they shall be deemed Outstanding in a principal amount equal to their Accreted Value. CcTlijlClltc PcrWd mean I period commencing with tim: year of issu.ance of the proposed series oflntcrmediate Lien Parity Bonds and ending with the third complete fiscal year following the earlier of (i) the projected Date ofcommcjcial Opcr1Ition of!l>e hcililies 10 be financed wilh the proceeds of the pruposed Intermediate Lien Parity Bonds: or (ii) the date on... hieh 00 portion of 1hc interest on!he proposed ~ of Intermediate Lien Parity Bonds will be: paid from the prooocds of SlOth Intermediate Lien Parity Bonds (such date to be dctmnined in attordant:e with the Port', proposed so;:hcduk ofexpcnditura;), C"",,,,lss;,,,. means the elected governing body of the Pon, 0<" any 'UCCc:5lOr thereto as provided by law. BMA MIl"iciplll Swap I"da means tbe: Bond Markct Association Municipal Swap C""s"I/""t means at any time an independent consultant recojp1iud in marine or aviation Index as of!he most recent date for which such index was published or such otl>cr weekly, high_grade index comprised of scven-day, t.u-cxempt variable r:ate demand notes produced by Municipal Manet Data, [nc., or its succes.sor, or as otherwise designated by the Bond Market -s-,- -- maners or an engineer or engineering finn or other upcrt appointed by the Po., to perform the duties of the Consultant as required by thi s resolution. For the purposes of ddi~ering Iny certificate required by Section S hereof and making the calculation required by Section S hcre(>f,...,- --

274 F-6 the!enn Consultan! sllall also include any independent public accounting finn appointed by the Port to make such calcula!ion or to provide &\Iclt certiflca!e or the financial advisor appointed by!lte Pon!o make such calculation or!o provide such cenifica!e. Costs o/cotjst,llct;otj means all costs paid Or incurred by the Pon in connection willi!he ac(]uisition and construction of capital additions, improvements and beuennents!o and extensions of the Facili!ies, and Ihe placing of the same in operation. including, but without limi!ing the generality of lhe fo~going, paying all or a ponion of the intclu! on the series of Intermedia!e Lien Parity Bonds or any ponion lliereof issued to finance the costs of such improvements during lhe period of construction of such improvements, and for a period of!ime thereafter; paying amounts required to meet any rese!"ve requirement for the fund or account established or maimained for such series of Imennediate Lien Parity Bonds from the proceeds thereof; paying or reimbursing the Port or any fund!hereof or any other person for expenses incident and properly allocable!o!he acquisition and cons!ruc!ion of said improvements and!he placing ohhe same in operation; and all other items of expense incident and properly allocable to the acquisition and construction of said additions and improvements, the financing of!he same and the placing of the same in operation. A C,edit w:tjt occurs when (a) a Qualified Letler ofcredittermina!cs., (b) the issuer of Qualified Insurance or a Qualified Letter of Credil shall become insolven! or no longer be in existence, or (c) a Qualified Leuer of Credit or Qualified Insurance no longer meets lhe requi~ments es!ablished!he~for in the definition thereof. Cud;1 Fadlity means a policy of municipal bond insurance, a leuer of credit. surety bond, guarantee or other financial instrument or any combination of the fo~going. which obligates a third pany \0 make payment or provide funds for the payment of financial obligalions., of the Pon. including but no! limited 10 payment of the &<:heduled principal of and interest on intennediate Lien Parity Bonds. Cud;1 Fad/ity J$Slle, means!he issuer of any Credit Facility. Date o/comme,cial 0F,a/lotJ means the date upon which any Facilities liil' first ~ady for nonnal continuous operation or. if portions of the Facilities liil' placed in nomlal continuous operation at different limes, shall mean the midpoint of the dates of continuous operation of all portions of Such Facilities, as estimated by the Pon or, ifused with reference to Facilities to be acquired. shall mean the date on which such acquisition is final. Debl $e",lu means, for any period of lime and for the purpose of dettrmining compliance with!he conditions for iss~anc e of Intermediate Lien Parity Bonds set forth in Section 5 and for the purpose of calculating the In!ennediate Lien Reserve Requirement, (.) with respect to any Outstanding Original Issue Discount Bonds Or Capital Appreciation Bonds that are not designated as Balloon Ma!urity Bonds in the Series Resolulion authorizing their issuance and that have not been associated with a Parity Derivative Product, the principal amount equal 10 the Accreted Value thereof maturing. converting or scheduled for redemplion in such period, including Ihe interest payable during such period; ~) willi respect 10 any Outstanding Fixed Rale Bonds Ihat have no! been associated with a Parity Deriva!ive Product. an amount equal to (I) the principal amount of such In!ennediale Lien Parity Bonds due or subject to mandatory redemption during such period and for which no sinking fund installments have been established, (2) the amount of any payments required!o be made during such period into any sinking fund established for the payment of the principal of any such In!ermedia!e Lien Parity Bonds, plus (3) all interesl payable during such period on any such Intennediate Lien Parity Bonds Outstanding and, with respect to Intermediate

275 Lien Parity Bonds with mandatory sinking fund requirements. calculated On the assumption that mandatory sinking fund itlstaliments will be applied to the redemption or retirement of such (2l assumed interest equal to (Al the fixed Port Parity Payments to be paid to a Rociprocal lntennediate Lien Parity Bonds on the date specified in the Series Resolution authorizing such Payor, minus lntennediate Lien Parity Bonds; {Bl the Rociprocal Parity Payment ca1culatod by de1ennining the ('J with respect to all other series of [ntennediate Lien Parity Bonds avemge interest rate over the prior 12 months if the Parity Derivative Product was then in efroct F-7 Outstanding. other than Fixed Rate Bonds, Original Issue DiscoUIlt Bonds Or Capital Appreciation Bonds, specifically including but not limited to Balloon Maturity Bonds and Intennediate Lien Parity Bonds bearing variable rates of interest and that have not been associated with a Parity Derivative Product, an amount for any period equal to the amount which would be payable (l)as principal on such Intennodiate Lien Parity Bonds during such period (computed on the assumption that the amount of Intermediate Lien Parity Bonds Outstanding as of the date of such computation would be amonized in accordance: with the mandat<>ry redemption provisiotls, if any, SCI forth in the Series Resolution authorizing the issuance of such or that would have been paid during the prior 12 months based on the rate fontiula for the Rcciprocal Parity Payment set forth in the Parity Derivative Product, plus (C) {il if the Intennediatc Lien Parity Bonds bear interest that is exempt from general federal income Wlation interest on the associated Intermediate lien Parity Bonds calculatod 31 the av""'ge BMA Municipal Swap Index during the previous 12 months, 2l (ii) if the Intermediate Lien Parity Bonds bear interest that is subjoct to general federal income taxation, interest on the associated Intermediate Lien Parity Bonds calculated at the av""'ge onemonth UBOR during the 12-month period immediately preceding the dateofca1culation; intermediate Lien Parity Bonds. Or if mandatory redemption provisions are not provided, during a (.J With respect to intermediate Lien Parity Bonds that bear variable rates of period oommencing on the date of computation and ending on the date 30 years afler the date of issuance to provide for essentially level "nnual debt service during such period) plus (2) interest at an interest mte equal to (A) the 100ycar average of the BMA Municipal Swap Index, plus (B) 1.5% ; interest and have been associated with a Parity Derivative Product with variable Port Parity Payments, an amount equal to: (I) principal to be paid on such Intennediate Lien Parity Bonds calculated as set forth in (c)(l) above, plus (d) With respect to IntennediaIC Lien Parity Bonds that bear variable rates of (2) assumed ;nlerest equal to ;nterest and have been associated with a Parity Derivative Product with fiked Port Parity Payments. an amount equal to: ( I) principal to b<: paid on such Intcrrn<:<liatc Lien l'orily Donds cakulat<:<l (A) the variable Port Parity Payments calculated by detennining the average interest rate OVe!' the prior [2 months if the Parily Derivative Product was then in efrecl Or that would have been paid during Ihe prior 12 months based on the rate fonnula for the PO" as set forth in (e)(l) above, plus.,. '.-.,- Parity Payment set forth in the Parity Derivative Product, minus.,~.-.,-

276 F-8 (B) Ihe Reciprocal Panly Payment calculated by determining Ihe average interes( rate over the prior 12 months if the Panty Derivative Product was then in eltect or that would have been paid during the prior 12 months based on lite rate formula for the Reciprocal Parity Payment sct forth in lite Panty Derivative Product. plus (C) (i) if lite Intermediate Lien Parity Bonds bear interest that is exempt from gener31 federal income taxation. interest on lite associated Intermediate Li en Panty Bonds calculated at lite average Municipal Swap Inde~ during the previous 12 months.q[ (ii) if lite Intermediate Lien Parity Bonds bear interest that is subject to general federal income taxation. interest on the associated Intermediate Lien Parity Bonds calculated at lite average one-month LlBOR during the 12-month period immediately preceding the date of calculation; and <n With respect to any Fixed Rate Bonds that have been associated with a Parity Derivative Product. an amount oqual \0: (I) the principal to be paid on such Intermediate Lien Parity Bonds calculated as SCI forth in (b)(i) and (b)(2) above, plus (2) assumed interesl oquallo: (A) the Port Parity Payment. calculated by determining the average interest rate over Ihe prior 12 months if the Parity Derivative Product was then in effecl or litat would have been paid during the prior ]2 months based on the rate formula for the Pori Parity Paymen! SCt forth in the Parity Derivative Product. minus (B) the Reciprocal Parity Payment 10 be paid 10 the Port; provided that if the Reciprocal Parity Payment i$ based on a variable rate then lite Reciprocal Parity Payment sh.all be calculated by determining the average interest rale over lite prior 12 months if months based on the rate formula for the Reciprocal Parity Payment SCI forth in the Parity Derivative Product. plus (C) the interest on the associated Fixed Rate Bonds calculated as SCt forth in (b)(3) above. With respect to any Intermediate Lien Parity Bonds payable in ollter than U.S. Dollars. Oebt Service shall be calculated as provided in the Series Resolution authorizing the issuance of such Intermediate Lien Parity Bonds. With respoct to any scries of Intermediate Lien Parity Bonds that is associated with a Parity Derivative Product willt a nolional amount that is less than the then Outstanding principal amount of such series of Intermediate Lien Parity Bonds, Debt Service shall be calculated separately for the portion of such Intermediate Lien Parity Bonds associated with the Parity Derivative Product and. without duplication. the portion not SO associated. ])Cbt Service also shall be nct of any principal andlor interest (oot including any amount deposited in any reserve account for payment of principal andlor interest) funded from proceeds of any Intermediate Lien Parity Bonds Or from eamingslher«ln. For the purpose of determining compliaoce with the conditions for issuance of lmennediate Lien Parity Bonds SCt forth in Section 5 (and not for the purposes of calculating the Intermediate Lien Reserve Requirement). Debt Service also shall be net of Intermediate Lien ])cbt Service Offsets, subject to the conditions SCI forlh in Section 5. Debt Service shall include reimbursement obligations (and interest accruing ther«ln) then owing to any Credit Facility Issuer or Liquidity Focility Issuer to the extent authorized herein or in another Series RC$()lution. the Parity Derivative Product was litm in effect or thai would ha"e been paid during the prior ]

277 /h:sigll.,m Pllrt Rtpn:st:tlfllti"", means the Chief Executive Officer of the Port, the Dep\lty Ol;ef Executi"c OfIk:er of the Pon or the Orief Financial Officer of the Pon (or!he successor in function to such person(s» or such other person as may be ru=te<! by resolution of the Commis&ion. FlldlillQ means all equipment and all property, ~l and~, Or any intcf"csl therein, whclher improved Or unimpro"ed, now or hemlaer (for as long as any Intermediate Lien Parity Bonds o f the Port sllall be Outstanding) owned, operaled, used, leased Or managed by the Port. the Series Resolution authorizing their issuance, inlmnediate Lien ParilY Bonds may be deemed 10 be Fixed Rate Bonds for only a portion of their tmn. Fixed Rate Bond, alto, hall include two or more series o(intermediate Lien Parity Bonds simultaneouslyissucd under... Scrio::s Re$Olulion and which. oollecti..ely. bear intcf"csl at a fixed and detmninable rate for a specified period of timf:. Gross R~II" e means all income and revenoc derived by the Pon from any $(>\Ira: Yl'llatsoever except: Firs/ Liell 8 M ds mc:ms the OUl$tanding Firsl Lien Bonds and any bonds ;.!SUed by the (.j the proceeds of any borrowing by Ihe Port and the eamlngs theroon (other Port in Ihe future under a ''Series Resolut;on~, as defined in the Firs. Lien Master Resolution, and than earnings on proceeds deposiled in reserve fundi ); pursuanllo Section 7 of the First Lien Masler Resolution, whieh provides thalluch bonds shall (bj income and revenuf: lluot may not lesally be pledged for revenue bond debl F-9 be on a parity of lien wilh other $Cries of First Lien Bonds. FII'SI Llell M lis,er RQD/ulillll means Resolution No as amended by Resolution No Resolution No. 3241, and Resolution No of the Commission, and as the same service; (oj passenger facility charges, head taxel, federal fi1ul1s or substitules therefor allocated 10 capital projccls; may be amended in the future in accordance wilh ill tent'll.. (dj paymerlls made under Credit Facilities issued 10 payor ~lire the paymenl File. means Fill;h., Ine., orpniud and existing under!he laws of the State of Delavan::. ofa pankular series of obligations; ill SUC«SSOI"S and their assigns. and, ifsuch oraanization shall be dissol"ed or liquidated or shall (oj proceeds of insurance or condemnation proceeds other than business no longer perform the functions of a ~urities rating agency, Fitch shall be deemed 10 refer 10 any other nationally recogniud IeQlrities rating agency (other than S&P Of Moody's) designated by the Designated Port Representatiyc. Fixed Rille BOllds means lhose Intermediate Lien Parity Bonds other than Capital Appreciation Bond$, Oriilrta1 ts.sue Discount Bonds or Balloon Maturity Bonds issued under... Series Resolulion in which Ihe rale of inlcre51 on soch in.mnediale Lien Panty Bonds is fixed inlen\lfllion insurance; (0 income and re"etluf: of the Port separalely pledged and used by il 10 pay and secure the paymenl of tbe principal of and inlercsl on any issue or series of Special RC'lenUf: Bonds of the Port issued 10 acquire. construct. equip, install or improve part or all of the panieul:ar facilities from which weh income and revenue arc derived, pro~idtd Ihlll nothing in this subparagraph (f) shall pennil the withdrawal from GroM RevenUf: of any income or rc"enuc and determinable through their fin. 1 maturity or for a specified period of lime. If so provided in - I)

278 derived or 10 be derived by the Port from any income producing facility thai shall have been contributing 10 Gross Reo.-enuc prior to the issuance of such Special Revenue Bonds; and w income from investmenl$ irtevlxably pkd~ 10 the payment of bonds iwled or 10 be refunded under any refunding bond plan of the Port. Notwithstanding the foregoing. the Port may elect to pledge the ~ing cxcepti()n$ from Gross Revenue and/or any other receipts al any time as additional security for anyone or more series of obligations and thereby iric lude such exception andlor receipts in Gross Revenue for such series of obligations; but ifand only to the ektent that suetl receipts may legally be used to pay debt service on such series orobligations. Inu'IfIdillre Li~n Bond Fund mulls the fund of that name established pursuant 10 Section 3 of this resolution. the dale of issuance of each Series of mlc1tr1oediacc Lien Parity Bonds (and rec:ale"lated upon the issuance: of,. subsecjuent Series of Intermediate Lim Parity Bondi and also,.tu!c: Pen', option, upon the payment ofpriocipal oflntermediate Lien Parity Bonds). UBOR mearn< the rate offered for U.S. dollar deposiu on the London Inler-Bank Marlett. or any comparable successor rate. Li'lll;dlty F"ciliry means a line of credit. standby purchase agreement Of other financial instlumenl or anycombinalion of the foregoing, which obligates a third party 10 make payment or to provide funds for the payment ofthe purcha$c: price oflnlermedialc Lien Parily Bonds. Liquidity F,ui/ity Inlier means the issuer or any Liquidity Facility. Maxi".,,,,. A,,,,,,,,I lhbt Se"";u means, with re$p«1 10 any OulslZlding series of Intermediate l.ien Parity Bonds, the highest remaining Ann... 1 Debl Savitt for such seri<:s of F-10 Inu 'IfIdlll/e Lien Debt Service Offsetl means receipts of the Pon thai an: not included in Groa Re~enue and that are legally.~ailable and/or pledged by the Port to p,aydebt service on Intermediate Lien Parity Bonds. MfHHIy's means Moody', In~IOf1; Service, Irw;., a «KpOnItion duly orpniud and Intronediate Lien Parity Bond$, but excluding any receipts that have: been designa1cd 1$ Prior Lien Debt Service OfTsets. InlCrlfldillu LltI! Pllriry Blllldl means the bonds, ootcs or other evidences of indrlltednc:ss issued li"om tiltm: to time in series pumwlt to and under" authorily of Section 3 hereof. The tron In/e""edill/e Lien Pllrlry Bonds may include reimbuthment obligalion$ of the Port to the issuer or. Credit Facility. In/erlfld/tlte U en Reun>e AUtluni me~ the ac<;o\ult of that name established within the lnlennedialc Lien Bond Fund punuant to Secl;on 3 of Ibis resolution. In/u lfled/llte Lien Reurw Rt l(mlremt nl means a dollar amount cq uallo average Annual Debt Service on all Qutstandinllintermediatc Lien Parity Bonds, detennined and calculated as of u isting under and by virtue of the laws of the SUlie of D:Laware, and iu IIICCftSOfS and assigns., exccpl!hal if $IIch corporation shall be dissolved or liquid~ t ed or IJJaIi no Iong.er perronn the function$ of. securities nuing ago:ncy, then the tron Moody'. IJJaIi be deemed to refer 10 any other nationally rcrognizod securities rating agency (other than Fitch or s.lp) selected by the Ocsignaled Port Reprumwive. Net P#}""w,n means, for a period oftime and with respect to. Parityomv. ti~ Product, the difference between Reciprocal Parity Payments and Pon Parity Payments which may be renccted as a positive or negative number on the financial $tateme-nu of the POI"! (i.e., the net amount to be recei~ed by or paid by the Pon for a period of time as a result ofnett;ns Reciprocal Parity Payments and Po" Parity Payments). -- -l~ --

279 Nd R~,.a means Gross Revmue less liny pan o-f that must be used 10 pay OpenIing Expenses. OperlUi"I upe.. sa mev\s the eurrmt upen5e$ incurred fo.-openuon 0.- maintenar.;:e of the Facilities (other than Special Facilities), as defined under gmcnol1y accepted aca,iunting principles applicable to the Port, in cffoct from time 10 time, uchlding (i) liny allowances for deprociation or arooniulion, (II' (ii) inlcf'cst 00 IInY obligations of the Port incurred in connection with and payable from Gross Revenue. OrilinllllsJue Disco,.,., BI",ds means Inlennediale Lien Parily Bonds which arc sold al Resolution No. 3242, 1.$ amended; and Revenue Refunding Bonds, Series 1998 iss\>ed pursuant to Resolution No. 3275, as amended; Revenue Bonds. Series and Series 2000B and Revenuc Refunding Bonds, Series issued p~1 to Resolutioo No. 34)0, as amended; Revenue Bonds, Series 200 I... and Series 2001 B and Revenue Refunding Bonds, Series 2001 C issued punuant to Resolution No. 3462, as amended: Revenue Refunding Bonds, Series issuc:d punuanl to Resolution No. 3462, as amended, and Resolution No. 3467; and Revenue Bonds, Series 200lA and Series 2003B issued punuant \(l Resolution No. 3509, as amended, and Revenue Refunding Bonds, 2004 (Taxable) issued pursuant to Resolution No, 3528, as amended. an inilial public offering price of lem than 95% of Iheir face value and which are specifically OUlSf/lndlng SuboNlinll'~ Lllfn Blinds means, collectively, the Port's oulstanding F-11 designaled as Original [ssue Discounl Bonds in the Series Resolution authorizing th.eir issuance, QtI,cr Deri''Ilti.,. Prlldun means a!>j.yrnent agrttmcl1t enlered inlo in connection with one or JOOre series of Intermediate Lien Parity Bonds between the Port and a counterparty permitted under Chapter 39,96 RCW, as amended from lime to time, or any succes.sor statute, which. is not a Parity Derivative ProdUd. Ou/SldJIdi"I,... hen used as ofl panicular time with refcrmee 10 Inlermediate Lien Parity Bonds. means all Intennediate Lien Parity Bonds delivered under a Series Resolution excepl those identified as no longer ''OulSlandillJ'' under the terms established in the respective Series Resolution. OulSfllnd;n, First Lie" BII"ds means., collectively, the Port's outstanding Revenue Bonds, Series 1992A, issued PUI"$lWlI 10 Resolution No , as amerkled; Revenue Bonds, Series 1994A and Revenue Bonds, Series 1994C i$sued punuaiii to Resolution No. 3155, 1.$ Subordinate Lien Revenue Bonds, Series 1997 issued pursuant \(l Resolution No, 1238, as amended by Resolution No. 3351, as amended, adopted on August 24, 1999; Subordinate Lien Refunding Revenue Bonds, 1998 issued pursuant \(l Resolution No. 3276, as amended by Resolution No. 3353, as amended, adopted on AugUSl 24, 1999; Subordinate Lien Revenue Bonds, Series and Series I999B, issued pursuant 10 Resolution No. 3354, as amended; and Subordinate Lien Revenue Notes (Commm:ial PIIpCI") ilsl>ed puf1l.laltt 10 Resolutioo No. 14S6, as amended; and Subordinate Lien Revenue Bonds. Series 2OO3C issued pursuant \(l Resolution No. 3510, as amended. Plrity Dl!ri.w,iI.,. ~U<'f mcan$ I written contract or ~t between the Pon and Rccipnxa! Payor pennined under Dupter RCW, as amended from time to time, (II' any WC<;CSSOl" satute, obligating the Port to make Net Paynten.. on a parity of lien with Intcmediate Lien Parity Bonds, amended. RevCl1ue Bonds, Series I996A and Series issued PUl"Suanl 10 Resolution No. 3215, 1.$ amended; Revenue Bonds, Series 1997A and Series isoiued pursuant to

280 F-12 Payi"g Age", shall mean any person. firm. association. CQ!pQnl1ion oc public OOdy as designated and app<linted from time to time by resolution of tlte Commission Or by a Series Resolution to act as paying agent foc one or more series of Intermediate Lien Parity Bond$. Permi,led PrIf1r Lie" Bf1"d. means and indudes the fir.;t Lien Bonds and any other revenue bonds or revenue obligations that may be issued in tile future at the discretion oftlle Pon payable from Gross Revenues available after the payment of tile amounts described in paragraphs Em, ~. and I!:!.i!l1 of Section 2 of this resolution and having a lien On Net Revenues superioc to the lien thereon of the Intermediate Lien Parity Bonds. Pf1n means the Pon of Seattle. a municipal corporation of the State of Washington. as now Or hereafter constituted. or the co!pqralion. authority. board. OOdy. commission. department Or officer succeeding to the principal functions of the Port or to whom the powers vested in tile Port shall be given by law. Pf1n Parity PaJ'm e,,1 means any payment. other than a terminal ion or other nonscheduled payment, required to be made by oc on behalf of the Port under a Parity Derivative Product and which is determined according to a formula set forth in a Parity Derivative Product and calculated without regard to netting. Pan Orner Payme", means any payment. other than a termination or other nonscheduled payment, required to be made by or on behalf of the Pon under an Other Derivative Product and which is determined according to a formula set forth in such Other Derivative Product and calculated without regard to netting. PrifJr Lie" Deb' Service Qffult means receipts of the Port that are not included in Gross Revenue and that are legally available andlor pledged by the Port to pay debt service On Qualified In.u... nce means any non-cancelable municipal bond insurance policy or surety bond issued by any insurance company licensed 10 conduct an insurance business in any state of the United States (or by a service corporation acting on behalf of one or more such insurance companies) (i) which insurance company or companies, as of the time of issuance of such policy or surety bond, are r3ted in one of the two highest Rating Categories by one or more of the Rating Agencies for unsecured debt or insurance underwriting or claims paying ability Or (i i) if as a result of the issuance of its policies. the obligations insured thereby to be rated in One of the two highesc Rating Categories by one or more ofthe Rating Agencies. Qu allfted Letter f1/ Credit means any irrevocable letter of credit issued by a financial institution. which institution maintains an office, agency or branch in the United States and as of the time of issuance of such letter of credit, is rated in one of the two highest long-term Rating Categories by one or more of the Rating Agencies. Ra,e Cow",anl has the meaning given such term in Section 6(a) ofthis resolution. Ra,ing Age" cy means fitch. Moody's Or s&p, Rilling Cat~"'y means the generic r3ting categories of a Rating Agency, without regard to any refinement Or gradation of such rating category by a numerical modifier or otherwise. RuiprtJNl Parity Paymenl means any payment, other than a termination Or other nonscheduled payment, to be made to, or for the benefit of. the Port under a Parity Derivative Product by the Reciprocal Payor and which is determined according to a fonnula set forth in a Parity Derivative Product and calculated without re~ to nelting. Reciprocill Otner Paymenl means any payment. other than a termination or other nonscheduled payment, to be made 10, or for the benefit of, the Port under an Other Derivative Permitted Prior Lien Bonds. -19-,- -- 2~ - --

281 Product by tile Port's counterparty and whi~h is determined accon:ling to a formula set forth in sucb Other Derivative Product and calculated without regard to netting. RuiprtKa/ Payor means any eounterparty to a Parity Derivative Product that is obligated to make one or more Reciprocal Parity Payments tbereunder and tbat satisfies then existing State law requirements for sucb counterparties. «j a certificate of a Consultant to the effect that based upon current knowledge of the operations of the POrt, Available lnlemlediate Lien Revenues, excluding tbe income or revenues proposed to become Released RevCttues. for the current fiscal year will be equal to at least 150*/0 of Maximum Annual Debt Service on then Outstanding Intermediate Lien Parity Bonds: Rqls"'rrd O",,,er means lite person named as the registered O"l1er of an Intermediate (dj Rating Agency confirmation that the ratings then assigned to any F-13 Lien Parity Bond in tile bond register maintained by tbe Registrar for sucb Intermediate Lien Parity Bonds. R..glsmu means any person, firm, association, corporation Or public body as designated and appointed from time to time by resolution oftbe Commission or by a Series Resolution, 10 act as regis\nli" for one or more series of lntermediale Lien Parity Bonds. Re/ellUd R(Wt!nues shall mean income or revenue of the Port previously included in Available Intmnediate Lien Revenue in respect ofwbicb tbe following have been delivered by or to lite Port: Intermediate Lien Parity Bonds by such Rating Agency will not be reduced or withdrawn as a result of such withdrawal ofrcleascd Revenues; and «j an opinion of Bond Counsel to the effect thai the exclusion of such revenues from the definition of Available Intermediate Lien Revenues and from the pledge, charge and lien of this resolution will not in and of ils<:lf cause tbe interest On any Outstanding Intmnediate Li en Parity Bond issued as tsx.-exempt $ecurities to be included in gross income for purposes of federal income lax. RCp4ir "ltd Reltet4'(l/ F"ltd means the special fund autboriud to be created pursuant to (.j a certificate of tbe ()esignated Port Representative identifying the income Section 4(8) of the Finll Lien Mru;ter Resolution. or revenue 10 be removed from the defmition of Available Intennediate Lien Revenue and certifying \he Port is in compliance with all requirements of this resolution; ~j a certificate of an independent certified public accountant 10 the effect that Available Intmnediate Lien Revenues, ClCcluding the income or revcttues proposed to become Rdeased Revenues. for eacb of the two audited fiscal yean prior to the date of such certificate were cqualto al least 150% of Maximum Annual Debt Service on then Outstanding lntennediate Lien Parity Bonds; Reurtled Lielt ReW!""e Bo"ds means those revenue bonds and otber revenue obligations issued or incurred by the Port payable fjom Gross Revenue and baving liens on Net Revenues subordinate 10 that of the Intermediate Lien Parity Bonds and prior to the lien thereon of the Subordinate Lien Pari ty Bonds. Reve" "c Fu"d means, collectively. the Port's general fund. airport development fund and any other fund established in the office of tbe Treasurer of tbe Port for \he receipt of Gross Revenues ~ ~-

282 ScJwluld IhIH sun", means the amounls n:rquired in a rl$q.l y=- to be paid by the Port as scheduled debt SCl'Vi~e (principal and in~ ) on Outstanding Intermediate Lien Parity Bonds, adjusted by Net Plyntml5 during sur;h fiscal )'Uf. ~ RnDlu,;oll means I resolution l uthoriung the is5lwlce of a series of Intermediate Lien Parity Bonds, as weh resolution may thereafter be amended OJ supplemented. Each Series Resolution shall be lupplemen"l to thi, resolution. S& P means Slandard & Poor', Ratings Services. a Division of The McGraw-Hill Companies, and ils iw;ccssoi1 and B$$igns, except that if such corp<lration shall be dissolved 0' liquidated or shah no longer perform the functions of I $CCIJritics rating agency, then the tmn RSef\'e acwwlt from bond proceeds withoul n:rquirina: I balance to be invested at a restricted yield. TNtHuu, means the Chief Financial OffICer of the Pon. or any olher public officer as may ~fter be designated PlllSUlllt to law to have the eu$iody of Port fundi. l altrprrlatiod. In this resolulion, unless \he contcxi otherwise n:rquires: (.) The tmns Hherdly.H Hh.ercof,H ''hereto," "herein, ''hereunder'' and any similar Imns, as used in this resolution, refer to this resolution as I whole and nol to any particular article, section. subdivision or clause hereof, and the term "hereafter'" shall mean after. and the tmn '"heretofore" shall mean before. Lhe date orlhis resolution; S&P shall be deemed to ~fer to any other nationally recogni~ed securities "'ting agency (other (b) Words or the masculine gfllder shall mean and include com:lative words F-14 than Moody's or Fitch) selecled bylhe DesigJ\alcd Port R~tative. Spuilll FocjJjlin means panicular faeilities financed wilh the proc<:eds of Special Revenue Bonds. Sp«ifll R ewllu~ 6_tl, muns any issue or Krie:s of revenue bonds., revenue Wlmlnl$ or othet revenue obligaliollll o f the Port i$.sued 10 directly Or indirectly acquire (bypurch.ase, lease or of the feminine and neuter senders and words importing the si!\&lliar number shall mean and include the plural number and vice versa; (0) Words importing penons shall include linns, associaliom, partnerships (including limited p;ortncnhips), trust5. corponiions. limited liability COnll*lica and other legal entities, including public bodies, as "" e ll as natural pcrioi1$: otherwise). construct. equip. inslall Of impl"\"lve part or III of patticular faeilities and which are (d) Any headings preceding the texl of lhe seven].niclcl and ICCtions ofthil payable from and secuml by the inoomc and ~venue from such facilitie$. Subortlifftl/e Uno Pilrily 60,,,1s means and includes the Outsbnding Subordinate Lien Bonds and any other ~venue bonds or revenue obligations that may be issued in the fulun: at the discretion of the Port pa~ l e from GraM RevenuCi Ivailable after the payment of the amounls described in panlgntphs firsthrough..la&ll!h of Section 2 of this resolution. TIU MlUl,"u," means the mallimum dollar amoun! pennined by the Internal Revenue Code of as amended. including applicable regulations thereunder, to be allocated to a bond resolution. and any table of contents or marginal ro;)ici appended 10 copies hereof, thall he $Oldy forconveniencc of reference and shall IlOl constitute a pan of this resolulion, nor shall they _ffeet ils meaning, construction or effecl; (.) All refercncc:s he~in to ''ar1iclcl. H ''seclions" and other &nbdivisions or clausa are to the corresponding articles, sections, subdivisions or clauses hereof; and (Q Whenever any OOI\SCnt or direction is n:rquired to be given by the Pon. such consenl or direction shall bc deemed given when given by Ihe Designated Pon

283 f I I I I F-15

284 Notwithstanding the foregoing. the obligations of the Port to make nonscheduled payments under a Parity Derivative Product (i,e. any termination payment or other fees) and/or make any payment pursuant to an Other Derivative Product may be payable from Gross Revenue available after Si!..Il! above. as set forth in such Parity Derivative Product or Other Derivative Product. ~. Authorization of Intermediate Lien ParilY Bonds: Intennedjate Lien Bond fund: Intronediate Lien Reserve Acc:ounl. Subject to Sec1ion 5 of this r<:solulion. revenue bonds of the POri, unlimited in amount. to be known as the "Port of Seaule Intermediate Lien Revenue Lien Parity Bonds. The Intermediate Lien Bond Fund shall be held separate and apart from all other funds and accounts of the Pori and shall be a trust fund for the owners of Intermediate Lien Parity Bonds. The Port hereby irrevocably obligates and binds itself for as long as any lntennediate Lien Parity Bonds remain Outstanding to set aside and pay into the Intermediate Lien Bond Fund from Available Intermediate Lien Revenues or money in the Re\lCflue Fund, on or prior 10 the respective dales the same become du e (and if such payment is made on the due date, such payment shall be made in immediately available funds): Bonds.~ are hereby authorized to be issued in series. and each such series may be issued from (') Such amow1ts as are required to pay the interest scheduled to F-16 lime to time pursuant to this r<:solution in such amounts and upon such terms and conditions as the Commission may from time to time deem to be necessary or advisable. for any purposes of the Port now or hereafter permined by law. The Intennediate Lien Parity Bonds and the lien thereof created and eslablished hereunder shall be obligations only of the Intermediate Lien Bond Fund and the Intermediate Lien Reserve Account therein (herein created). The Intermediate Lien Parity Bonds shall be payable solely from and secured solely by Available Intermediate Lien Revenues available after providing for the payments specified in paragraph.ei.a! through.e!!!y:i!!. of S<:ction 2 of this resolution; provided. however, that any series of Intermediate Li en Parity Bonds also may be payable from and secured by a Credit Facility pledged speo.::ifically to or provided for that series of Intermediate Lien Parity Bonds. A speo.::ial fund of the Port designated the "Port of Seanle Intermediate Lien Revenue Bond Fund" (the "Intennediate Li en Bond Fund'") is hereby authorized to be cn:ated in the office of the Tn:asun:r of the Port for the purpose of paying and securing the payment of [ntennediate become due on Outstanding Intennediate Lien Parity Bonds: and (2) Such amounts with respecl to Outstanding Intennediate Lien Parity Bonds as are required (A) to pay maturing principal. (B) to make any required sinking fund payments. and (C) to redeem Outstanding IntCTTllcdiate Lien Parity Bonds in accordance with any mandatoi)' redemption provisions. Said amounts so pledged to be paid into such speo.::ial funds are hereby declamlto be a prior lien and charge upon the Net Revenues superior to all other liens and charges of any kind or nature whatsoever except for the liens and charges thereon of Permilled Prior Lien Bonds and exccpl for liens and charges equal in rank that may be made thereon to pay Net Payments due pursuant to any Parity Derivative Product and to pay and secure the payment of the principal of, premium, if any, and interest on lntennediate Lien Parity Bonds issued under authority of a Series Resolution in accordance with the provisions ofs<:ctions 4 and 5 of this resolution. The Bonds shall not in any manner Or to any extent constitule general obligations of the Pon or of the State of Washington, orofany political subdivision ofthe State of Washington

285 An In(emedia(e Lien Reserve Account «(he "Intenn<:dia(e Lien Reserve Account'') is herd!y authorized 10 he ereated by the Tre;l$urer of (he Port wi(hin Ule Intermediate Lien Bond Fund for the further purpose of securing the payment of the principal of, premiunt, if any, and in(ercs( on all Outstanding Intermediate Lien Pari(y Bonds. The Port shah make deposits (herein Qualified Letters ofcrcdi( to effect the delivery of the appropriate inslrument. To Ule extent that lhe Port ob(ains a Qualified Letter of Credit or Qualified Insurance in substitution for cash or securities in the Intcnnediate Lien Reserve Account. all or a portion of the money on hand in the Intcnnediale Lien Reserve Account shall be transferred to the fund or account specified by (he as pl'<)vided in Ulis section SO (hal (he balance therein shall be at least equal 10 Ihe [n(emediate Designa(ed Port Represcnlati~. In computing the amount on hand in the Intcmediate Lien F-17 Lien Reserve Requirement. The Intermediate Lien Reserve Requirement may be funded a( the date of issuance of Intermediate Lien Parity Bonds or may be funded in equal monully deposil$ over a period of time (not grealer than three years) established in Series Resolution(s); provided, however, (hal the dollar amount required 10 be contributed, if any, as a result of the issuance of a Series of Intermediate Lien Parity Bonds shah not be greater than the Tax Maximum. If\he dollar amoun( required to be contributed al (he lime of issuance ofa $mes exceeds the Tax Maximum, (hero the amount required to be contributed shall be equal to the Tax Maximum; Ihe In(emediate Lien Reserve Requircmen( shall be adjus(ed accordingly and remain in effect un(il the earlier of (i) at the Port's option, a paymen( of principal oflnlemediale Lien Parity Bonds or (ii) the issuance of a subsequent Series of Intermediate Lien Parity Bonds (when Ule Intermediate Lien Reserve Requirement shall be re~kujated). The Intermediate Lien Reserve Requirement $hall be maintainod by deposits of cash and/or qualified invcstmenl$. a Qualified Letter of Credit or Qualified Insurance, or a Reserve Account. Qualified Insurance and/or a Qualified Letler of Credit shall be valued a1 the lower of (he face amount thereof and tile amount available 10 be <Ir.lwn thereunder, and all other obligations purchased as an investment of moneys (herein shall be valued On a marked to ntarket basis, at least once annually. As used htffin, tile (em "'cash" shah include U.S. currency, cash equivalents and evidences thereof, including demand deposils. certified Or cashier's check; and the deposit 10 (he Inlennediale Lien Reserve Accoun( may be satisfied by the transfer of investments (0 such account. If a deficiency in (he Inlermedia(e Lien Reserve Requirement shall exist as a result of tile foregoing valuation, such deficiency shah be made up within a year thereof. If the balance On hand in the Intcnnediate Lien Reserve Account is sufficient to sa(is y tile Intermediate Lien Reserve Requirement, amounts in excess of such Intcnnedia(e Lien Reserve Requirement shah be applied as provided in the following sentences. Whenever there is a sufficient amount in the Intcnnediate Lien Bond Fund and (he lnlcnnedia(e Lien Reserve Acroun( to pay the principal of, premium, if any, and interest On all Outstanding Intermediate combination of the foregoing. The Designated Port Representative may decide 10 ulilize Lien ParilY Bonds, the money in the Intermediate Lien Reserve Account may he used to pay such Qualified Insurance Or Qualified Lettcr(s) of Credit to satisfy all or a [IOnion of tile Intermediale Lien Reserve Requirement. Upon sueh election, the Designated Port Representative is hereby principal and interest. If the balance on deposit in tile In(cmediate Lien Reserve Account is at least equal to the Intermediate Lien Reserve Requirement, money in the Inlcrm<>iia(e Li en autllorized 10 execute and deliver one or more agreements with issuers of Qualified Insurance or ~ -.'-

286 Reserve Account in excess of tile Intennodiate Lien Reserve Requirement may be tl1l/lsferred to tile fund or account spccifiod in writing by tile Designatod Port Representative. If a deficiency in the Intermediate Lien Bond Fund shall OCCUJ, such deficiency sllall be made up from the Intennediate Lien Reserve Account by the withdrawal of casll therefi"om for that purpose and by the sale or redemption of investments held in the Intennediate Lien Reserve Account, in such amounts as will provide cash in the Intennediate Lien Reserve Account sufficient to make up any such deficiency with respect to the Intennediate Lien Parity Bonds, and if a deficiency still exists immediately prior to an interest payment date and after the transfer of cash from the Intermediate Lien Reserve Account to the Intennediate Lien Bond Fund. the Port Credit or OIlt of Available Intennediate Lien Revenues (or out of any other moneys on hand legally available for such PUrp<;>Se), in 12 equal monthly installments, after first making necessary provision for all payments required to be made into the Intennediale Lien Bond Fund within such ",M. To tile extent that the Port has obtained Qualified Insurance Or a Qualified Letler of Credit to satisfy its obligations under this Section 3, amounls then available 10 be drawn under such Qualified Insurance or a Qualified Letler of Credit shall be credited against the amounts required to be mainlained in the Intermediate Lien Reserve Account by this Section J to the extent that such payments and credits are insured by tile issuer of such Qualified Insurance, or are shall then draw fi"om any Qualified Letter of Credil or Qualified Insurance!hen credited 10 the to be made or guaranteed by a Qualifiod Uller of Credit. If a Credit Event occurs, the F-18 Intennediate Lien Reserve Account for the Intermediate Lien Parity Bonds in sufficient amount to make up tile deficiency. Such draw shall be made at.such times and under such conditions as the agreement for such Qualified Letter of Credit or such Qualified Insurance shall provide. Reimbursement ntay be made to the issuer of any Qualified Letler of Credit or Qualified Insurance in accordance wilh the reimbursement agreement related thereto, and after making necessary provisiqll for the payments required to be made in parngraphs fu!. through Ei..I!.!:! of Section 2 of this resolution. If the Port shall have failed to make any payment required to be made under such reimbursement agreement for Intermediate Lien Parity Bonds, the issuer shall be etltitlod 10 exercise all remedies available al law or under this resolution; provided, however. that no acceleration of the Intennediate Lien Parity Bonds shall be permitted, and no remedies that adversely aff«:t Registered Owners of the Intermediate Lien Parity Bonds shall be permiued. Any deficiency created in the intennediate Lien Reserve Account by reason of any such withdrawal shall be made up within one year from Qualified Insurance or a Qualified Letler of 31-,-.,- Intcnnediate Lien Reserve Requirement shall be satisfied (A) within one year after the occurrence of such Credit E~ent with other Qualified Insurance or anotller Qualified Letter of Credit. or (B) within tllree years (in tl1m: eq..al annual installments) after the occurrence of such Credit Evenl. out of Available Intermediate Lien Revenues (or out of other money on hand and legally available for such purpose) after firsl making necessary provisions for all payments required to be made into IIIe Intermediate Lien Bond Fund. ~. AV!h9riulion of Series of InlrolJediate Lien PariCy Bonds. The Pon may issue hereunder from time to lime one or more series of Intermediate Lien Parity Bonds by means of a Series Resolution for any purpose of the Pon now Or hereafter pennitleo;\ by law. provided that the Pon shall C()mply with the lenns and conditions for the issuance of Intermediate Lien Parily Bonds hereinafter set forth in 1I1is S«1ion 4 and in S«:lion 5 hereof. Each series oflntennediate Lien Parity Bonds shall be authorized by a Series Resolution which shall. among other pro~isions, specify and provide for: ~-

287 (.j the authorized maximum principal amount, designation and series of such (kj the Registrar or RegisU'a!'S, if any, for Ihe Inlo:rmedialc Lien Parity Bonds tnlennediale Lien Parity 8Qnds; of snch series and the duties and obligations Il\ffeof; (bj tile general purp<lsc (IT pulposes for which such series oflnlennediale Lien (lj the form or forms of the int01ttlediate Lien Parity Bonds of such series and Parity Bonds is being issued. and Ole deposit, disbursctnent and applic,ation of the proceeds of the saleofthc intermediate Lien Panty Bonds ofsueh series; any coupons attached IlIerelo, which may include but s!tall 1101 be limitw 10. ~gislmld fonn. bearer form with or without coupons, and book-<:ntry form, and the methods, if necessary, for tbe (oj the ma:<imum interest rate Or rates On the inlennediale Lien Parity Bonds registration, transfer and exchange of the Intermediate Lien Parity Bonds ofsneh series; of such series (which may be a rate of zero) or, if tile interest rate or rates shall be variable, tlte (m) the terms and conditions, if any, for the redemption of the Intermediate method for determining soch interest rates; Lien Parity Bonds of such series prior to maturity, including tile redemption date or dates, tlte (dj the circumstances, if any, under which the Intermediate Lien Parity Bonds redemption price or prices and other applicable rodemplion terms; provided that the Series of such series will be deemed to he no longer Outstanding; Resolution may authorize the Chief Executive Officer of the Pon to fix the terms and conditiotlli (oj the currency or currencies in which the Intemlediate Lien PariI)' Bonds of for the redemption of the Intermediate Lien Parity Bonds of such series prior to maturity, F-19 suclt series are payable; (0 the dc11ominations of, and the manner of dating, numbering, and, if including the redemption date or dates, the redemption price o r prices and other applicable redemption terms under such terms and conditions approved by resolution of the CommissiOll; necessary, authenticating. the Intermediate Lien PariI)' Bondsofsuch series; (oj the terms and conditions, if any, for the pun:hase of the Intermediate Lien (gj the Paying Agent or Paying Agents, ifany, for the Intermediate Lien Parity Parity Bonds of such series upon any optiollal or mandatory tender for pun:hase prior to maturity, BonW of such series and the duties and obligations thereof: ~j the place or places of payment of the principal, redemption price, if any, or purchase price, if any, ofand interat on, the Intermediate Lien Parity Bonds of such series; irocluding Ille tender date Or dates, the purchase date Or dates, the purchase price or prices and other applicable terms; provided that the Series Resolution may authorize the Chief Executive Officer of the Pon to fix tile terms and conditions for the tender of the Intermediate Lien Parity (i) the tender agent or tender agents, if any, for the Intermediate Lien Parity Bonds of such series prior to maturity, iocluding the lender dale or dates, the purchase date or BondsofsUth series and the duties and obligations thereof; dates, the purchase price or prices and other applicable terms under suclt terms and conditions UJ the remarketing agent Or remarketing agenls, if any, for the Intermediate approved by resolution of the Commission; Lien Parity Bonds of such series and the dulies and obligations thereof; (oj the manner of sale of the Intermediate Lien Parity Bonds of such series, ~- with or without a premium Or a discount, including the sale of Original Inue Discount

288 InlmncdiaiC Lien Parity 80.>(1$; pro.ndcd thai tllc Series Resolution may authoriu the Chief Executive OffICer of the Pon 10 CSlablish the issue price of the Intermediate Lien Parity Bonds, including a premium or. discount, under $UCh lerms and conditions approved by rnolulion of the Commission; First Lim Masler Resolution. In addition, the Pon also reserves the right to iuuc obligations p.:iiyabje &om Net Revenues available after p,ii}menl of the amounts clescribed in ~gnphs fiili through IhirlI of Soction 2 of this resolution, and baving lien(s) 011 such Net R~~ prior to the lien of the Intermediate Lien Paril)' Bonds and the Ouwanding Subordinate Lien Bonds. (P) if SO determined by the Port, the luthorizaliqn of and any lerms and 5u.;h obligations: shall be subject 10 such Io:rms, conditions and covenants set forth in!heir conditions wilh respect 10 credit ()T liquidity luppon for the Intermediate Lien Parity Bonds of such series and Ihe pledge or provision o(moneys. assets or se.:urily olher than Net Revenues 10 or for the payment orlhe Intermediate Lien Paril), Bondsofsuch series Or any portion thereof; ~Iive authorizing resolutions. (b) Future InrermediQle Li~n Parity Bonds wnerol Proi'/s;cms. All Intennodiale l ien Parity Bonds authorizod to be issuod under Series Resolutions. upon (q) a special fund or account to provide for the payment of the Imennodiace fulfillment of the conditions of this resolution, shalj be issuod on a parity of lien with one F-20 lien Parity Bonds of so.w:h series and. if 10 determined by the Pon. any other special funds or I<:COWII$ for the Intermediate lien Parity Bonds ofsuth K"ries and the application ofmoncys or security thcttin; (,) the amount. if any, to be deposited or tudited \0 the Intermediate I..icn Reserve Account; and (,) any other provisionl ".. hkh the Port deems necessary or desirable in connection with the Intermediate Um Parity Bonds of$u<h $Cries. Parity Bonds. ~. Pmnined Prior Lieu Bonds; Conditions of!nuance of Intmnedive Ljrn another. having an equal lien and charge upon the Available Intermediate Litn Revenues of the PM. The ron hereby further covenants and agrees with the owners and holders of each of the Intermediate lien Parity Bonds for as long as any of the same remain Oul$tanding that il win not issuc any Intermediate lien Parity Bonds tllat constitute I ctw&e and lien upon the Available Intermediate I..icn Revenues equal \0 the lien thereon of Oul$tanding ijuennodiate I..icn Parity Bonds, unless at the lime of the i~ ofsucb Inlernlodiate Lien Parity Bonds the Pon is not in default under this resolution, i!!!d the Port meets the wndilions let forth in IUb$ection (e) below 2.t meets either of the conditions described in ( I) or (l) below. (.) Perm;ltftl PriOt" Litl1 8oJ1d3. As provided in the first Lien Ma$ler (l) CrniflQlc RMUiml. There lhal! llave be deliveml prior \0 or on Resolution. the Port I"C:$etVC:S the right to illluc one or rrlofc scric$ offirst Lien Bonds by means the date of the issuance oftlle Intermediate lien Parity Bonds,.Q1bg: of a "Series Resolution ~ (as luch term is defined and required under the first lien Masler (A) a certificate preparod as provided below and executed by Resolution) for any purpose of the Port now or hereafter penninod by law. provided that the Port shall comply wit h the tennl and conditions for the issuance of First lien Bonds sct forth in the the Designated Port Representative stating that Available Intermediate lien RevenuC$ as firs! Adjus!ed during the Base Period wen: at least equal to 110 percent of Annual Debt Service in.j~ '.-.,*

289 each year of the Certificate Period with respect to all intermediate Lien Parity Eklnds then Outstanding and t!len propose(! to be issued; 2!: Lien Revenues as First Adjusted) in order to compute projected Available Intermediate Lien Revenues as helshelit deems rca5qnable as set forth in writing to the Port. (B) a Consultant's certificate, prepaml as provided below, Compliance with the coverage n:<juirements of th is Section 5 shall be demonstrated stating that projected Available intermediale Lien Revenues as First Adjusted will be at least equal to 110 percent of AnnUllI Debt Service in each year of the Certificate Period. If intermediate Lien Debt Service Offsets or Prior Lien Debt Service Offsets are or have conclusively by a certificate delivered in accordance with this subsccti'm (b). (2) No Croifieatc Required. A certificate shall not be n:<juired as a condition 10 Ihe issuance ofintermediate Lien Parity Bonds: been use(! in order to comply with Sedion 6(a)(l) or (2), then for the purposes of mcc1ing the (A) if the Intermediate Lien Parity Bonds are being issued for conditions of this $cetion 5, the Port shall, by resolution (which may be a Series Resolution). refunding purposes upon compliance with the provisions of subsection (c) of this section: Or identify and irrevocably pledge the receipts that constitute such Intermediate Lien Debt Service (B) if the intermediate Lien Parity Bonds are being issued to F-21 Offset Or Prior Lien Debt Servic.: Offsets for a period not less than the dunuion of the Certificate Period. The Designated Port Representative'S certificate, described in (A) above shall be based upon the financial statements of the Port for the Base Period, oorroborated by the certified statements ofthe Division of Municipal COIporations ofthe State AuditOl's office of the State of Washington, 01 any SUCcessor to the duties then:of, or by an independent certified public accounting firm for the Base Period. In making the computations of projected Available intermediate Lien Revenues for the purpose of certifying compliance with the conditions specified in (B) above, the Consultant shall USc as a basis the Available Intermediate Lien Revenues for the Base Period corroborated by the pay Costs ofconslruction of Facilities for which indebtedness has been issued previously and the principal amount ofsoch indebtedness being issued for completion purposes does not exceed an amount equal!o an aggregate of 15% of the principal amount of indebtedness theretofore issued for soch Facilities and reasonably allocable to the Facilities to be completed as shown in a wntlen certificate of the Designated Port Representative, stating that the scope, nature and purpose of such facilities has not materially changed and!hat the net proceeds of such indebtedness being issued for completion purposes will be sufficient, together with other available funds of the Pon. to complete such Facilities. (0) {ntentrediate Lie" Parity Bonds For Refunding Purposes. The POrt may issue intermediate Lien Parity Bonds for refunding purposes, as follows: certified statements of the Division of Municipal Corporations of the State Auditor's office of the (I) intem,ediate Lien Panty Bonds may be issued at any time for the State of Washington. or any successor to the duties thereof, or by an independent certified public accounting firm for the Base Period. Tlte CoOliultant shall make such adjustments to Available Intermediate Lien RevCTl\leS (including those described in establishing Available Intermediate purpose of refunding (including by purchase) Intermediate Lien Parity Bonds including amounts to pay principal thereof and redemption premium, if any, and interest thereon to the dale of redemption (or purehase), any deposits to a reserve account or to purchase a Qualified Letter of

290 , 2 I. ~ I, I, :i ~.~ 1! ~ ",, 1,, l' j, I t f i g o I f i s ) g ~ i 1i.;;' " ] 1 o 2 " { s, I, 1 ~, 2 I, 2 <, ", I I I F-22

291 ~. Swirlc Covenants. The Port hereby makes the following covenants and agr=nents with the OWllen and holders of each of the Intermediate Lien Parity Ikmds for as long as anyohho: "'"'" rem';n Outstanding. (.) Rate CoW/Ul~'. ~ Port willi! all limes establish, nliintain and collect mltals. tariffs, rates, fees, and charges in the nperation of,n of its businesses as long as any Intermediale \..ien Parity Bondi are Outstanding that will produce in each fiscal year Revenues as Second Adjusted in the fiscal year in which adjustmmts an: made ~eless an: no! sufficient to meet the Rate Covenant, there shall be no defaull under this Section 6(a) during suo;h fiscal year, unless the Port fails 10 meet the RIle Covenant foc" two consecutive fiscal ~ (b) Pllyme", ojt,,'entl<>dia/e Lie" Parity BONb. ~ Port will duly and punclually pay or cause to be p.oid out of the intermediate \..ien Bond Fund tho: principal of and interest on the Intcnnediate \..ien Parity Bondi at the times and placa as provided in each Series (I) Available Intermediate \..ien Revenues as Fir.st Adjusted at least Resolution and in said intermediate Lien Parity Bonds provided and will at all times faithfully F-23 equal to liw. ortlte Amount Due; and (2) Available Intermediate Lien Revenues as Second Adjusted at least equal % oftlte Amount Due. Subsections (1)(1) and (2) an: separate ratllc-r lhan cumulative calculations regarding the sufficiency of Available Intermediate Lien Revenue:s and an: together to be considered as the Port's WRite Covenant w perfonn and observe any and all covenants, undertakings and provisions contained in this rholution, the Series Resolution, as applicable, and in Ihe intennediale Lien Parity Bonds. (.) Maintenance and Operation!. The Port will at. 11 times keep and maintain all of the f lcililies in good repair, woo:ing order and condition. and will at all times opcme the same and the business Or bllsinesses in comection therewith in an efficient manner and at, ~asonablc 00$1;. If the Available Intermediale Lien Revenues as First Adjusted or if Available (d) Sak o/corai" Facilitin. In the event Illy FlCililyor part thcmlfwhich Intermediate Lien Revenua as Second Adju$led in any fiscal year an: less!han required 10 fulfill the lute Covenanl, then lhe Port will retain a Consulla!ll 10 make recommendations as to nperations and tho: revision of IChcduln of mllals, tariffs, rates, fees and charges; and upon =civing such reoommendations or givin& _ruble opportunity for such recommendations 10 he made, lhe Commiuion, on the basil of soch recommen'btions and other available infonnation. will establish mltal$, tariffs. rales, fccs and charges for services and openiions which will be neccssaty 10 meet the Rate Covenant in the fiscal year during which weh contributes in $Orne measure 10 the Gross Revenue is sold by tho: Pon or i. condemned pursuant 10 the po"oer of eminent domain. the Pan win apply the net proceeds of auc:h.. Ie or condemnation to capital CJl:pendicun:s upool or for fxilities which win contn"bute in some measure to tho: Gross Revenue or 10 the miremcnt of Bondi then Outstandin&. (.) Ilt.Juro"a o/fadliric. The Port "ill keep or arrange to keep,ii Facilities insured, if stich insurance is obtainable al reasonable rates and upon reuonable conditions, against $li(h risks, in such amounts, and with such dcductibles as lhe Commission or the adjustments ate nwlc. If the Commission hal taken the ItepS set forth in this paragraph and the Available Intermediate Lien RevenuC5 as First Adjusted or if Available Intermediate Lien 4' - -- Designated Port Representative shall deem necessary

292 (0 IMUrultCC Agf/ilUl Port Liability. The ron will al all lime$ keep or amifi~ 10 keep in full force and cffec:1 policies of public liabilily and property d3magc: insuraroa: which will protec:t the Port against an~ claimi", damages of any kind or natu~ if such insurance il obtainable at._able rates and upon ~able conditio~ in such amounts and with such dedl.lclibles as the Commission Of the Designated Port Represenutive shall dean ~) Dispostll of IItCOINII!: Propt!nia. In \he event of volunlafy or involuntary sale. lease, or other wnv~c. transfer or di5pl'lla.1 of III /)I' lubcwlciajly all of ill Facilities, the PO" shall mjuirt: thai contemporaneously with such disposition, there shall be p.1iid into.. spocial fund a SW'II which shall be sufficient 10 defease all Intermediate lien Parity Bonds lhen OulSlanding; provided. however. thai such dcfcaaarj«will rloi be requirn $0 Long as the Port ~...,. mainlllins primary responsibility for Ihe management and oprnllion orlhe affected F.:ilitics and F-24 (s) Maln/ena"ell!: of Boob lind Reronh. The Port will keep and maintain proper boob of II<:CO\lRl and accul1l1c rocords of all of its revenue. including tax receipts, roceived from any source whatsoevcr, and of all costs of administration and maintenance and operation of all of ill busineu that are in accordan<;e with generally accepted accounting principles as in effecl from time 10 time. On or bef~ 120 da)'l after each fiscal year the Ptm wi ll p~re or u..sc to be pr~ an ~ting Italement of a ll of the business of tbe Port for such proceding fiscal year. Each loch annual stalement shall conwn a SUtemcnt in detail oftbe Gross Revenue. tax roceipu.. ex~nses of administratioo. expenses of ndrmal opcmion. expenses ofnonnal and cxtnordinary maintenance and rq.air, and expendilures for capital purposes oflhc Port for wch fiscal year and lhall contain I statement as of!be end of such year showing tbe status of all funds and _nts of!be Port pertaining to the operation of its business and the providod (unher Ih.at all Available Intermediate Lien Revenue from such Facilities continues 10 be pledged to all Intermediate Lien Parity Bonds then OulStanding. ~. Derivative Products. The Port hereby ~el the right 10 enter into Parity Derivative Product. and Other Derivative ProdllCtl. The: Port may amend this resolution. wilhin the limitations pcnnined in Sections 8 or 9, to accooudodaie new or modified definitions of Debt Service in connection with a Parity Derivative ProdllC1 if the Parity Derivative Prodoct includes Port Parity Payments or Reciprocal Parity Payments not then contemplated or othcrwite Ioddrcued by the definition of Debt Service. If the Port enters into a Parily Derivalive ProdllC1 with n:spoct to prcv;ously Outst.mding Intcnnediate Lien Parity Bonds or Intermediate Lien Parity Bonds 10 be issued subscquau 10 the effective date of!be Parity DeriVlltive Product.!be Port shall Ill){ be required 10 satisly the conditions set forth in S«tion S of thil resolution with status of all of the funds and IICQ()Unts o;reated by various resolutions of the Commissioo n::spcct to the Parity Derivative ProdOCl. Eaeh Parity Derivative ProdllC1 shall set forth the aulhorizing the issuance of outstanding bonds and other obligations payable from the Gross Revenue. Copies of,och rtatementl lhall be placed On file in the main office of the Port and shall be open to inspection at any reasonable time by the owners of Intermediate Lien Parity Bonds. manner in which the Port Parity Payments and Reciprocal Parity Payments ~ to be ukulated and I schedule of payment dates. This resolution may be amended in the future to renect the lien posilion and priority of lliiy payments made in connection with a Parity Derivative Prod\ICI: {ffovidej. ho... er. that tennination amounts under Derivative Parity Products must be ~J $ ~ bordinate to the lien oflnlennediate Lien Parity Bonds. _44_ '- --

293 ~. Amendmenls Withoul Bondowner Consent This resolulion may be amended or supplemenled from lime to lime, withoul tile consent ofllle Registered Owners by a resolulion or resolutions amendalory Or supplemental 10 litis resolution adopled by lite Commission for one Or more of lite following purposes: (.) 10 add addil;onal covenants of lite Commission or to surrender any righl OJ power herein conferred upon lhe Port; provided lital such addil;onal covenanls and agreements are nol contrary 10 or inconsislent Wilh the covenants and agreements of lite Pon conutined in Ihis resolulion; (. ) to provide Or modify procedures permining Regislered Owners 10 ulilize a eerliliealed system of regis Irati on for Bonds; or (n 10 modify, aller. amend, supplemenl or reslale Ihis resolution in any and all resp«ts necessary, Iksirable or appropriate in connection with lhe delivery of a Credil Facilily, Liquidily Facilily orolller security or liquidily amrngemenl; or (~ 10 modify, aller. amend, supplemenl or reslale this resolution in any and all resp«ts necessary, Iksirable or appropriale in order 10 satisfy Ihe requirements of any Raling Age~y wllich may from time 10 time provide a rating on lite Bonds, or in order 10 obutin or (b) 10 oonfinn as further assuram:e any pledge or provision for paymenl oflhe rc\ain sucll rating on any Intermediate Lien ParilY Bonds as is deemed nei:essary by Ihe Pon: OJ Inlermediale Lien Parity Bonds under and lhe subjection to any lien, claim or pledge created OJ to (h) 10 qualify litis resolution under Ihe Trusl Indenture Act of 1939, as F-25 be created by lite provisions oflhis resolution of lite Available Inlermediate Lien Revenues or of any Olher moneys, securities or funds; (.) 10 cure any ambiguily or to cun:, conul or supplement any defective amended; (i) for any purpose, if such amendment becomes effective only following a mandatory lender of all Intermediate Lien ParilY Bonds for purchase: Or (whe1.her because of any inconsistency wilh any Olher provision hereof or olherwise) provision of Gl to modify any of lite provisions of Ihis resolution in any other respects; Illis resolution in suell manner as shall nol be inconsislent witll Ihis resolulion or to make any olher provisions willt respecl 10 maners or questions arising under this resolution, provided such action shall nol impair lhe security hereof or materially and adversely affect the imerests of lite Registered Owners; or provided Illat slltll modifications sllal! not n,atcrialiy and adversely affect tile rights of any Imermediate Lien ParilY Bondowners or that such modifications shall not lake effect until all tllen Oulstanding Intermwiate Lien Parity Bonds are no 10ngerOulStanding. Norwitltslanding anyllling in tllis Section 8 to lhe contrary, wilhoutthe specific consent of (d) to prescribe further limiuttions and restrictions upon the issuance of the Regislcred Owners of each Intermediale Lien Parity Bond, no sllth resolution amending or Intermediate Lien Parity Bonds and the incurring of indebtedness by Ille Port payable from the Available Intermediate Lien Revenues which are OOt contrary 10 or inconsistent with the limilalions and restrictions thereqn theretofore in eff...,t; supplementing the provisions hereof or of any Series Resolution shah reduce the percenlage of Inlermediate Lien Parity Bonds, lite Registered Owners of which are required to consenl 10 any such resolu~;on amending of supplementing Ihe provisions hereof; or give to any Intermediate ~s Lien Parity Bond or Inlermediale Lien Parity Bonds any preference over any otller Intennediate

294 F-26 Lien Parity Bond or Intennediate Lien Parity Bonds secured hereby. No resolution amending or supplementing the provisions hereofor any Series Resolution shah change the date of payment of the prin<:ipal of any Intermediate Lien Parity Bond, or reduce the prin<:ipal amount or Accreted Value of any IntC'l'TflOdiate Lien Parity Bond, or change the rate Or extend the time of payment nf interest thereof, Or reduce any premium payable upon the redemption or prepayment thereof, Or advance the date upon which any Intermediate Lien Parity Bond may first be called for redemption prior to its fixed maturity date (except as provided in the Series Resolution authorizing the issuance of such Intermediate Lien Parity Ekmd) without the specific consent of the Registered Owner of that Intermediate Lien Parity Bond; and no such anlendment shall change or modify any of the rights or obligations of any Paying Agent Or other agent for a series of Intermediate Lien Parity Bonds without its wrillen assent thereto. "'"""-'. Amendments Wjth Registered Owners' Consent. This resolution may be amended from time to time by a supplemental resolution approved by the Registered Owners of a majority in aggregate principal amount of the Intermediate Lien Parity Bonds then Outstanding; Panly Bonds, tile maturity dale, ;nlerest payment dates. pun:hase upon tender or redemption of any Bonds, the Credit Facility Issuer stulll be deemed 10 be the sole Registered Owner of ~ Bonds llutt an: payable from such Crcdil Focilily and that are then Outstanding. Section 10. Resolution and laws a ContraCt wjlb Intennediate Lien Parily Bondowners. This resolution is adoptw under the authority of and in full compliance with the Constitution and laws of Ihe State of Washington, including Tille 53 of the Revised Code of Washington. as amendo;! and supplemented. In,onsideralion oftbc purchase and acceptance ortlle lntermediate L.ien Parily Bonds by those who shall hold Ihe same from lime 10 time, the provisions of this resolution and of any Series Resolution and of said laws shall constitute a contract wilh the owner or owners of cacll Intermediate Lien Parity Bond, and the oblig,uions of the Port and its Commission under said laws and under this resolution and under any Series Resolution shall be enforceable by any court of competent jurisdiction; and the covenants and agreements herein set forth to be perfonned on behalfofthe Port shall be for the equal benefit. protection and se<:urity of the owners of any and all oftlle Intermediate Lien Parity Bonds. provided, that (a) no amendment shah be made which affects the rights of some but fewer than Section I I. Defaults and Remedies. The Port hereby finds and determines that the all of the Registcrod Owners of the Outstanding Intermediate Lien Parity Bonds withnut the consent of the Registered Owners ofa majority in aggregate principal amount of the Intermediate Li en Parity Bonds SO affected, and (b) except as expressly authorized hereunder. no amendment that alters the interest rates on any Intermediate Lien Parity Bonds, the maturity date, interest payment dates, purchase upon tender or redemption provisions of any IntC'l'TflOdiate Lien Parity Bonds, this Section 9 without the consent of the Registered Owners of all Outstanding Intermediate Lien Parity Bonds affected thereby_ For the purpose of consenting to amendments failure or refusal of the Port Or anyofits officers to perform the covenants and obligations of this resolution will endanger the operation of the Facilities and the application of Gross Revenue and such other money, funds and se<:urities to the purposes herein set forth. Anyone or more of the following shah constitute a default under this resolution: (.) The Port shan fail to make a payment of the principal of any Intermediate Lien Parity Bonds when the same shall be:ome due and payable whc1her by maturity or scheduled redemption prior to ma(urity; provided, that a failure to make a payment of the under this Section 9 except for amendments that alter the interest rate on any Intermediate Lien ,- 48-._- ~-

295 principal of a Series sllall not constitute a payment default under any other Series not otherwise in default; the Intennediate Lien Parity Bonds by the owners of a majority in principal amount of the OutSlanding Intennediate Lien Parity Bonds of the series then in default by an instrument or (b) The Port shall fail to make a payment of any installment of interest on any concultcnt instruments in writing signed and acknowledged by such Bondowners or by their Intennediate Li en Parity Bonds when the same shall become due and payable; provided, that a attorneys-in-fact duly authorized and &Iivered to such Bondowners' Trustee. notification thercof failure to make payment of interest on a Series shall not constitute a payment default under any being given to the Port. Any Bondowners' TruSlee appointed under the provisions of this F-27 other Series not otherwise in default; or (0) The Port sllall default in the observanc<: or perfonnarn;e of any other covenants. conditions. or agr=nents on the pan of the Port contained in this resolu1ion. and such default shall have continued for a period of90 days. In determining whether a payment default has occurred or whether a payment on the Intennediate Lien Parity Bonds has been made under this resolution no effect shall be given to payments made under a Credit Facility tllat is a policy of municipal bond insurance or surety bond. Upon the occurrence and continuation of a default, a Credi1 Facility Issuer of a Credit Facility that is not a line of credit shall be en1itled to waive any default or to exercise, on behalf ofthe owners oflntennedia1e Lien Parity Bonds insured by such Credit Facility Issuer. any of the remedies provided under this section and. for as long as such Credit Facility Issuer is not in default of its obligations under the Credit Facility. such Credit Facility Issuer shall be the only party entitled \0 waive any default Or exercise the remedies provided under this section. There may not be any accclcf'ation of the Intermediate Lien Parity Bonds. and a default under one Series of Intermediate Lien Parity Bonds shall not constitute a default under another Series of Intermediate Lien Parity Bonds not then in default. Section II shall be a bank Or trust company organized under the laws of a state or a national banking association. The fees and expenses of a Bondowners' Trustee shall be borne by the Bondowners and not by the Port. The bank or tni5t company ac1ing as a Bondowners' Trustee may be removed at any time, and a successor Bondowners' Trustee may be appointed by the owners of a majority in principal amount of the Intennediate Lien Parity Bonds Outstanding of the series then in default. by an instrument or conc~t instruments in writing signed and acknowledged by such Bondowners or by their attorneys_in_fact duly authorized. The Bondowncrs' Trustee appointed in the manner herein provided. and each successor then::to, is hereby declared to be a trustee for the owners of all the Intennediate Lien Parity Bonds for which such appointment is made and is empowered to exm:ise all the rights and powers herein conferred on the Bondownen;' Trustee. A Bondowners' Trustee may upon the happening ofa default and during the continuation thereof. take such steps and institute such suits, actions or other proceedings in its Own name, Or as trustee, all as it may deem appropriate for the protection and enforcement of the rights of Bondowners to collect any amounts due and owing the Port, Or \0 obtain other appropriate relief. and may enforce the specific perfonnance of any covenant. agreement or condition contained in Upon the occurrence of a default and so long as such default shall not have been remedied and subject to the foregoing paragraph. a Bondowners' Trustee may be appointed for 49 ~.- -- this resolution. ~,~.- --

296 ., I i I g i ;:, I., I ;:.! ~, o,.~,. ~, j I! I I!., j }; j o ], I f, ~ " i 1,, 1 I.I I, I F-28

297 Upon any such waiver. such default shall cease to exist, and anydcfauh arising therefrom shall be deemed to have been cured. for every purpose of this resolution: bui no such waiver shall exlend 10 any subsequenl or other default or impair any righl consequent thereon. Section 12. Moneys Held by Paying Menls One Year After pue pale. Unless otherwise provided in the Series Rcoolution authorizing a series of Intermediate Lien Parity Bonds, moneys or sa:urilies held by the Paying Agents in trust for the payment and discharge Or pun;hase orany of the lntennediate Lien Parity Bonds which remain unclaimed for one year after the date when such Intermediate Lien Parity Bonds are pun;hased or shall have become due and payable, either at their stated maturity dates or by call for earlier redemplion, if such moneys were held by such Paying Agents al such date, or for One year after the dale of deposit of such ADOPTED by the POri Commission of the Port of Seanle al a regular meeting thereof. held this I <J.~ day of t..,.., and duly authenticaled in open session by the signatures of the Commissioners present and voting in favor thereof. PO~t" Y' HINGT~ ~ ~ BOB EDWARDS ~~~ ALa; FISI<EH &-.~"~aaoaw ~~~ ~~~~~P~EMU9 Commissioners moneys if deposiled wilh the Paying Agents are. the date when such [nteonediate Lien Parity F-29 Bonds become due and payable. shall be repaid by Ihe Paying Agents to the POri free from the trust created by this resolution and the Paying Agents shalilhereupon be released and discharged with respect thereto. and Ihe owners of the Intermediate Lien Parity Bonds of the series payable from such moneys shall look only to the POr! for Ihe payment of such Intermediate Lien Parity Bonds. Section \3. Severability. lfany one Or more of the provisions of this resolution shall be declared by any cour! of competent jurisdiction to be contrary \0 law. Ihen such provision or provisions shall be deemed separable from, and shall in no way affect the validity of, any of the other provisions of this resolution or of the Inteonediate Lien Parity Bonds issued pursuant to Ihe terms hereof. -53-, ,- --

298 CERTIFICATE I. tlte undersignod. Sccrclary of the Pon Commission (the "Commission") of the Pon of Seattle (the "Port"). DO HEREBY CERTIFY: I. That the allachod resolution numberod as amended (Ihe "Resolution") is a lrue and correct copy of a resolulion of lhe Pon, as finally adopted at a meeting of the Commission held on the~ day of.ju11e/ and duly rc:<:orded in my office_ 2. Thai said mccting was duly convenod and held in all respects in accordance with law, and to the extent required by law, due and proper notice of such meeting was given: Ihat a quorum of the Commission was present throughout tlte meeting and a legally sufficient number of memben; oftbe Commission voled in tbe proper manner for lite adoption of said Resolution: F-30 that all Olher re«uirements and proceedings incident to the proper adoption of said Resolution have been duly fulfilled. camed out and otherwise observed, and thai I am authorizod to e~eculc this certificate. IN WITNESS WHEREOF, I bave hereunto set my hand this~ day of,junu, 2005, ~~?> ALEC f~ Secretary ~... -

299 PORT OF SEATTLE Resolution No Table of Contents F-31 INTERMEDIATE LIEN SERIES RESOLUTION PORT OF SEATTLE RESOLUTION NO A RESOLUTION of the Port' Commission of the Port of'seattle authorizing the issuance and sale of intermediate lien revenue' and refundt:ng bonds in one or more series in the aggregate principal amo1ult of not to exceed $675,000,000,,for the purpose of financing or refmancing capital improvements to aviation facilities and for the purpose of refunding certain outstanding revenue bonds of the Port; setting forth certain bond terms and covenants; and delegati~g authority to approve final terms and conditions and the sale of the bonds. ADOPTED: ~lj{\(.. g.3,2015 Prepared by:' K&L GATES LLP Section 1. Section 2. Section 3. Section 4. Section 5. Section 6. Section 7. Definitions... 4 Plan of Finance; Authorization of Series 2015 Bonds Series 2015 Bond Details Redemption and Purchase Registration, Exchange and Payments Pledge of Available Intermediate Lien Revenues; Series 2015 Reserve Account Deposit Defeasance Section 8. Application of Series 2015 Bond Proceeds..... Section 9. Redemption of Refunded Bonds Section 10. Tax Covenants.... Section 11. Lost, Stolen, Mutilated or Destroyed Series 2015 Bonds Section 12. Form of Series 2015 Bonds and Registration Certificate.... Section 13. Execution Section 14. Sale of Series 2015 Bonds..... Section 15. Undertaking to Provide Ongoing Disclosure Section 16. Bond Insurance.... Section 17. Compliance with Parity Conditions Section 18. Severability Section 19. Effective Date..... Exhibit A. Projects ~ * This Table of Contents and the cover page are for convenience of reference and are not intended to be a part of this series resolution. -i- P: _CMWI20287 _AXH 06/22/15

300 F-32 RESOLUTION NO A RESOLUTION of the Port Commission of the Port of Seattle authorizing the issuance and sale of intermediate lien revenue and refunding bonds in one or more series in the aggregate principal amount of not to exceed $675,000,000, for the purpose of financing or refinancing capital improvements to aviation facilities and for the purpose of refunding certain outstanding revenue bonds of the Port; setting forth certain bond terms and covenants; and delegating authority to approve final terms and conditions and the sale of the bonds. WHEREAS, the Port has authorized the issuance of revenue bonds in one or more series pursuant to Resolution No. 3059, as amended, of the Commission adopted on February 2, 1990, as amended by Resolution No. 3214, adopted on March 26, 1996, Resolution No. 3241, adopted on April 8, 1997, and Resolution No. 3436, adopted on July 11, 2000 and as amended and restated by Resolution No of the Commission adopted on February 27, 2007 (collectively, the "First Lien Master Resolution"), each series being payable from the Net Revenues (as such term is defined in the First Lien Master Resolution); and WHEREAS, the Port currently has outstanding nine series of first lien revenue bonds pursuant to the First Lien Master Resolution, as follows: Authorizing Date of Original Principal Amount Final Resolution Original Principal Outstanding Maturity Number Issue Series Amount (07/ ) Date /20/2003 (A) $ 190,470,000 $ 36,600,000 7/ /30/ ,710,000 1,945,000 6/ /3577 3/20/2007 (A) 27,880,000 27,880,000 10/ /3577 3/20/2007 (B) 200,115, ,550, / /2009 (A) 20,705,000 20,705,000 5/1/ /2009 (B-1) 274,255, ,635, /16/2009 (B-2) 22,000,326* 33,939,855* 5/1/ / (A) 11,380,000 6,040, / /2011 (B) 97,190,000 91,615,000 9/1/2026 * Represents the accreted value of Series 2009 B-2 Bonds, which are capital appreciation bonds, including accreted interest through July 2, (the "Outstanding First Lien Bonds"); and WHEREAS, the Port has authorized the issuance of intermediate lien revenue bonds having a lien on Net Revenues subordinate to the lien thereon of the Outstanding First Lien Parity Bonds in one or more series pursuant to Resolution No. 3540, as amended, adopted on June 14, 2005 (the "Intermediate Lien Master Resolution"); and WHEREAS, the Port currently has outstanding ten series of intermediate lien revenue bonds pursuant to the Intermediate Lien Master Resolution, as follows: Principal Authorizing Date of Original Amount Resolution Original Principal Outstanding Final Number Issue Series Amount (07/ ) Maturity Dates /20/2005 (A) $404,595,000* $ 319,295,000* 03/01/ / (C) 40,120,000 13,340, / ,625, ,625,000 02/ /04/2010 (A) 25,200,000 2,160,000 06/ /04/2010 (B) 221,315, ,380,000 06/ /04/2010 (C) 128,140, ,660,000 02/01/ (A) 342,555, ,555,000 08/ /2012 (B) 189,315, ,095,000 08/ /2012 (C) 80,270,000 41,780,000 11/ / ,105, ,155,000 07/ * All or part of the Series 2005A Bonds may be refunded pursuant to this series resolution. (the "Outstanding Intermediate Lien Bonds"); and WHEREAS, the First Lien Master Resolution and the Intermediate Lien Master Resolution permit the Port to issue its revenue bonds having a lien on Net Revenues and Available Intermediate Lien Revenues (as such terms are defined in the Intermediate Lien Master Resolution) subordinate to the lien thereon of the Outstanding Intermediate Lien Bonds; and -2- P: _CMWI20287 _AXH 06/22/15

301 F-33 WHEREAS, the Port currently has outstanding four series of subordinate lien revenue bonds, as follows: Authorizing Date of Original Resolution Original Principal Number Issue Series Amount / $ 108,830, /01/1999 (A) 127,140, (CP) 250,000, /17/ ,715,000 (the "Outstanding Subordinate Lien Bonds"); and Principal Amount Outstanding (07/02/2015) $108,830,000 56,255,000 42,655, ,715,000 Final Maturity Dates 09/ /01/ /01/ /01/2033 WHEREAS, the Port has issued its Intermediate Lien Revenue Bonds, Series 2005A issued on July 20,2005 currently outstanding and bearing interest as follows: (the "Series 2005A Bonds"); and Maturity Dates Principal Interest (March 1) Amounts Rates 2016 $ 14,210, % ,885, ,205, ,345, ,535, ,800, ,180, ,640, ,135, ,650, ,200, ,770, ,375, * 26,690, * 79,675, * Term Bonds WHEREAS, all of the outstanding Series 2005A Bonds are subject to optional redemption on and after March 1, 2015 at a price equal 100% of the principal amount thereof plus accrued interest to the date fixed for redemption; and WHEREAS, the Port has determined that the Series 2005A Bonds (the "Refunding Candidates") may be refunded, thereby saving on debt service, through the issuance of the Series 2015 Bonds; and WHEREAS, the Port wishes to finance certain capital improvements to aviation facilities (hereinafter defined as the "Projects") through the issuance of the Series 2015 Bonds; and WHEREAS, the Intermediate Lien Master Resolution permits the Port to issue its revenue bonds having a lien on Available Intermediate Lien Revenues (as such term is defined in the Intermediate Lien Master Resolution) on a parity with the lien thereon of the Outstanding Intermediate Lien Bonds upon compliance with certain conditions; and WHEREAS, the Port has determined that such conditions will be met; and WHEREAS, pursuant to RCW , the Port Commission may delegate authority to the chief executive officer of the Port to approve the designation of the bonds to be refunded, the interest rates, maturity dates, redemption rights, interest payment dates, and principal maturities under such terms and conditions as are approved by resolution; and WHEREAS, the Port has held a public hearing on the issuance of certain Project Bonds (as hereinafter defined) as required by Section 147(f) of the Internal Revenue Code, as amended; and WHEREAS, it is deemed necessary and desirable that the Series 2015 Bonds be sold pursuant to negotiated sale as herein provided; NOW, THEREFORE, BE IT RESOLVED BY THE PORT COMMISSION OF THE PORT OF SEATTLE, as follows: Section 1. Definitions. Unless otherwise defined herein, the terms used in this series resolution, including the preamble hereto, that are defined in the Intermediate Lien Master -3- P: _CMWI20287 _AXH -4- P: _CMWI20287 _AXH

302 F-34 Resolution shall have the meanings set forth in the Intermediate Lien Master Resolution. In addition, the following terms shall have the following meanings in this series resolution: Acquired Obligations means the noncallable Government Obligations acquired by the Port under the terms of this series resolution and the Escrow Agreement, if any, to effect the defeasance and refunding of the Refunded Bonds. Beneficial Owner means any person that has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any Series 2015 Bonds (including persons holding Series 2015 Bonds through nominees, depositories or other intermediaries). Bond Counsel means a firm of lawyers nationally recognized and accepted as bond counsel and so employed by the Port for any purpose under this series resolution applicable to the use of that term. Bond Insurance Commitment means the commitment(s) of the Bond Insurer, if any, to insure all or a portion of the Series 2015 Bonds. Bond Insurance Policy means the policy(ies) of municipal bond insurance, if any, delivered by the Bond Insurer at the time of issuance and delivery of Series 2015 Bonds to be insured pursuant to the Bond Insurance Commitment. Bond Insurer means the municipal bond insurer(s), if any, that has committed to insure all or a portion of the Series 2015 Bonds, pursuant to the Bond Insurance Commitment. Bond Purchase Contract means the Bond Purchase Contract for the Series 2015 Bonds, providing for the purchase of the Series 2015 Bonds by the Underwriters and setting forth certain terms authorized to be approved by the Designated Port Representative as provided in Section 14 of this series resolution. Bond Register means the registration books maintained by the Registrar containing the name and mailing address of the owner of each Series 2015 Bond or nominee of such owner and the principal amount and number of Series 2015 Bonds held by each owner or nominee. Chief Executive Officer means the Chief Executive Officer of the Port, or any successor to the functions of hislher office. Code means the Internal Revenue Code of 1986, as amended, and all applicable regulations and rulings relating thereto. Continuing Disclosure Undertaking means the undertaking for ongoing disclosure executed by the Port pursuant to Section 15 of this series resolution. Costs of Issuance Agreement means the Costs of Issuance Agreement(s), if any, dated as of the date of the closing and delivery of the Refunding Bonds between the Port and the Escrow Agent to be executed in connection with paying the costs of issuance of the Refunding Bonds. Designated Port Representative, for purposes of this series resolution, means the Chief Executive Officer of the Port, the Deputy Chief Executive Officer of the Port or the Chief Financial Officer of the Port (or the successor in function to such person(s)) or such other person as may be directed by resolution of the Commission. DTC means The Depository Trust Company, New York, New York, a limited purpose trust company organized under the laws of the State of New York, as depository for the Series 2015 Bonds pursuant to Section 5 of this series resolution. Escrow Agent means U.S. Bank National Association or such other Escrow Agent for the Refunded Bonds appointed by the Designated Port Representative pursuant to this series resolution if the Designated Port Representative determines that an escrow will be necessary or required to carry out the plan of refunding. -5- P: _CMWI20287 _AXH -6- P: _CMWI20287 _AXH 06/22/15

303 F-35 Escrow Agreement means the Escrow Deposit Agreement, if any, dated as of the date of the closing and delivery of the Refunding Bonds between the Port and the Escrow Agent to be executed in connection with the refunding of the Refunded Bonds. Federal Tax Certificate means the certificate(s) of that name executed and delivered by the Designated Port Representative at the time of issuance and delivery of the Series 2015 Bonds of a series issued on a federally tax-exempt basis. First Lien Master Resolution means Resolution No. 3059, as amended, of the Commission adopted on February 2, 1990, as amended by Resolution No. 3214, adopted on March 26, 1996, Resolution No. 3241, adopted on AprilS, 1997, and Resolution No. 3436, adopted on July 11,2000 and as amended and restated by Resolution No.3577 of the Commission adopted on February 27, Government Obligation has the meaning given to such term in RCW Chapter 39.53, as amended from time to time. Intermediate Lien Master Resolution means Resolution No. 3540, as amended, of the Commission adopted on June 14,2005. Letter of Representations means the blanket issuer letter of representations from the Port to DTC, dated August 2S, MSRB means the Municipal Securities Rulemaking Board or any successors to its functions. Until otherwise designated by the MSRB or the Commission, any information, reports or notices submitted to the MSRB in compliance with the Rule are to be submitted through the MSRB's Electronic Municipal Market Access system ("EMMA"), currently located at Outstanding Intermediate Lien Bonds mean the Port's outstanding intermediate lien revenue bonds identified in the recitals to this series resolution. Project Bonds mean the Series 2015 Bonds issued for the purpose of funding all or part of the Projects, capitalizing interest, funding the Series 2015 Reserve Account Deposit and paying all or a portion of allocable costs of issuance. Projects mean the capital projects listed in Exhibit A hereto. Refunded Bonds means the Refunding Candidates designated by the Chief Executive Officer pursuant to authority delegated by Sections 2 and 14 of this series resolution. Refunding Bonds means the Series 2015 Bonds issued for the purpose of refunding the Refunded Bonds. Refunding Candidates mean the outstanding Series 2005A Bonds. Registered Owner means the person named as the registered owner of a Series 2015 Bond in the Bond Register. Registrar means the fiscal agency of the State of Washington, appointed by the Designated Port Representative for the purposes of registering and authenticating the Series 2015 Bonds, maintaining the Bond Register and effecting transfer of ownership of the Series 2015 Bonds. The term Registrar shall include any successor to the fiscal agency, if any, hereinafter appointed by the Designated Port Representative. Rule means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended from time to time. Savings Target means a dollar amount of debt service savings at least equal to four percent (4.00%) of the principal amount of the Refunded Bonds. 7- P: _CMWI20287 _AXH -8- P: _CMWI20287 _AXH 06/22/15

304 Series 2005A Bonds mean the Port's Intermediate Lien Revenue Bonds, Series 2005A, issued on July 20, 2005, outstanding and maturing as described in the recitals to this series requires: Rules of Interpretation. In this series resolution, unless the context otherwise resolution. (a) The terms "hereby," "hereof," "hereto," "herein, "hereunder" and any similar Series 2015 Bonds mean the Port of Seattle Intermediate Lien Revenue [and Refunding] Bonds, Series 2015, authorized to be issued by Section 2 of this series resolution with appropriate description and series designations as provided for by the Designated Port terms, as used in this series resolution, refer to this series resolution as a whole and not to any particular article, section, subdivision or clause hereof, and the term "hereafter" shall mean after, and the term "heretofore" shall mean before the date of this series resolution; Representative. (b) Words of the masculine gender shall mean and include correlative words of the Series 2015 Reserve Account Deposit means the amount, if any, that is required to be added to the reserve account balances in the Intermediate Lien Reserve Account to satisfy the feminine and neuter genders and words importing the singular number shall mean and include the plural number and vice versa; Intermediate Lien Reserve Requirement and that is identified in a closing certificate or (c) Words importing persons shall include firms, associations, partnerships (including F-36 certificates of the Port. Subordinate Lien Bond Resolutions mean, collectively, Resolution No. 3238, as amended; Resolution No. 3276, as amended; Resolution No. 3354, as amended; Resolution No. 3456, as amended; Resolution No. 3544, as amended; and Resolution No. 3598, as amended. Surety Bond means the surety bond(s), if any, issued by the Surety Bond Issuer on the date of issuance of the Series 2015 Bonds for the purpose of satisfying the Series 2015 Reserve limited partnerships), trusts, corporations, limited liability companies and other legal entities, including public bodies, as well as natural persons; (d) Any headings preceding the text of the several articles and sections of this series resolution, and any table of contents or marginal notes appended to copies hereof, shall be solely for convenience of reference and shall not constitute a part of this series resolution, nor shall they affect its meaning, construction or effect; Account Deposit. There may be more than one Surety Bond. (e) All references herein to "articles," "sections" and other subdivisions or clauses are Surety Bond Agreement means any Agreement(s) between the Port and the Surety Bond to the corresponding articles, sections, subdivisions or clauses hereof; and Issuer with respect to the Surety Bond(s). (f) Whenever any consent or direction is required to be given by the Port, such Surety Bond Issuer means any issuer(s) of the Surety Bond(s). consent or direction shall be deemed given when given by the Designated Port Representative. Underwriters mean, collectively, Morgan Stanley & Co. LLC, Barclays Capital Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities LLC, Backstrom McCarley Berry & Co., LLC and Drexel Hamilton, LLC. -9- P: _CMWI20287 _AXH -10- P: _ CMWI20287 _AXH

305 F-37 Section 2. Plan of Finance' Authorization of Series 2015 Bonds. (a) Plan of Finance. The Port intends to undertake improvements to its airport facilities at the locations described on Exhibit A (the "Projects") attached hereto and incorporated by this reference herein. A portion of the costs of the Projects are expected to be paid, refinanced or reimbursed with the proceeds of the Project Bonds. The Refunding Candidates are callable in whole or in part prior to their scheduled maturity dates. The final selection of the Refunding Candidates, if any, to be designated as the Refunded Bonds to be refunded by the Refunding Bonds shall be made by the Chief Executive Officer pursuant to the authority granted in Section 14 of this series resolution. (b) Authorization of Series 2015 Bonds. The Port shall issue bonds in one or more series (the "Series 2015 Bonds") consisting of the Project Bonds and the Refunding Bonds, if any. The proceeds of the Project Bonds shall be used for the purpose of providing part of the funds necessary to (i) pay (or pay subordinate lien commercial paper notes issued to pay) or to reimburse the Port for all or a portion of the costs of the Projects; (ii) capitalize interest on all or a portion of the Project Bonds; (iii) make a Series 2015 Reserve Account Deposit or purchase a Surety Bond therefor; and (iv) pay all or a portion of the costs incidental to the foregoing and to the issuance of the Project Bonds. The proceeds of the Refunding Bonds, if any, shall be used for the purpose of providing the funds necessary to (i) refund the Refunded Bonds; and (ii) pay all or a portion of the costs incidental to the foregoing and to the issuance of the Refunding Bonds. (c) Maximum Principal Amount. The aggregate principal amount of the Series 2015 Bonds to be issued under this series resolution shall not exceed $675,000,000. The aggregate principal amount of Project Bonds and the aggregate principal amount of Refunding Bonds shall be determined by the Chief Executive Officer, pursuant to the authority granted in Section 14 of this series resolution. Section 3. Series 2015 Bond Details. (a) Series 2015 Bonds. The Series 2015 Bonds shall be issued in one or more series, shall be designated as "Port of Seattle Intermediate Lien Revenue [and Refunding] Bonds, Series 2015," with such description and additional designations for each series for identification purposes as may be approved by the Designated Port Representative, shall be registered as to both principal and interest, shall be issued in the aggregate principal amount set forth in the Bond Purchase Contract, and shall be numbered separately in the manner and with any additional designation as the Registrar deems necessary for purposes of identification, shall be dated their date of delivery to the Underwriters and shall be in the denomination of $5,000 each or any integral multiple of $5,000 within a series and maturity. The Series 2015 Bonds of each series shall bear interest from their date of delivery to the Underwriters until the Series 2015 Bonds bearing such interest have been paid or their payment duly provided for, at the rates, payable on the dates, set forth in the Bond Purchase Contract for each series and shall mature on the dates and in the years and in the principal amounts set forth in the Bond Purchase Contract, all as approved by the Chief Executive Officer pursuant to Section 14. (b) Limited Obligations. The Series 2015 Bonds shall be obligations only of the Intermediate Lien Bond Fund and the Intermediate Lien Reserve Account created under the Intermediate Lien Master Resolution and shall be payable and secured as provided in the Intermediate Lien Master Resolution and this series resolution. The Series 2015 Bonds do not constitute an indebtedness of the Port within the meaning of the constitutional provisions and limitations of the State of Washington. -u- P: _ CMWI20287 _AXH -12- P _CMWI20287 _AXH

306 Section 4. Redemption and Purchase. Series 2015 Bonds of a series having the same maturity date, the particular Series 2015 Bonds or (a) Optional Redemption. The Series 2015 Bonds of each series and of one or more portions of Series 2015 Bonds and maturity to be redeemed shall be selected by lot (or in such maturities may be subject to optional redemption on the dates, at the prices and under the terms relating to such series set forth in the Bond Purchase Contract, all as approved by the Chief Executive Officer pursuant to Section 14. other random manner determined by the Registrar) in increments of $5,000. In the case of a Series 2015 Bond and maturity of a denomination greater than $5,000, the Port and Registrar shall treat each Series 2015 Bond of the applicable maturity as representing such number of (b) Mandatory Redemption. The Series 2015 Bonds of one or more maturities may separate Series 2015 Bonds each of the denomination of $5,000 as is obtained by dividing the be subject to mandatory redemption to the extent, if any, set forth in the Bond Purchase Contract relating to such series, all as approved by the Chief Executive Officer pursuant to Section 14. actual principal amount of such Series 2015 Bonds of the applicable maturity by $5,000. In the event that only a portion of the principal amount of a Series 2015 Bond is redeemed, upon (c) Purchase of Series 2015 Bondsfor Retirement. The Port reserves the right to use surrender of such Series 2015 Bond at the principal office of the Registrar there shall be issued to F-38 at any time any surplus Gross Revenue available after providing for the payments required by paragraph First through Fifth of Section 2(a) of the First Lien Master Resolution, including the payments required by paragraph First through Eleventh of the priority for use of Gross Revenue set forth in the Intermediate Lien Master Resolution, to purchase for retirement any of the Series 2015 Bonds offered to the Port at any price deemed reasonable to the Designated Port Representative. the Registered Owner, without charge therefor, for the then-unredeemed balance of the principal amount thereof a Series 2015 Bond or, at the option of the Registered Owner, a Series 2015 Bond of like series, maturity and interest rate in any of the denominations herein authorized. (e) Notice of Redemption. Written notice of any redemption of Series 2015 Bonds prior to maturity shall be given by the Registrar on behalf of the Port by first class mail, postage prepaid, not less than 20 days nor more than 60 days before the date fixed for redemption to the (d) Selection of Series 2015 Bonds for Redemption. If Series 2015 Bonds are called Registered Owners of Series 2015 Bonds that are to be redeemed at their last addresses shown on for optional redemption, the series and maturities of Series 2015 Bonds to be redeemed shall be selected by the Port. If any Series 2015 Bonds to be redeemed (optional or mandatory) then are held in book-entry-only form, the selection of Series 2015 Bonds within a series and maturity to be redeemed shall be made in accordance with the operational arrangements then in effect at DTC (or at a substitute depository, if applicable). If the Series 2015 Bonds to be redeemed are no longer held in book-entry-only form, the selection of such Series 2015 Bonds to be redeemed the Bond Register. This requirement shall be deemed complied with when notice is mailed to the Registered Owners at their last addresses shown on the Bond Register, whether or not such notice is actually received by the Registered Owners. So long as the Series 2015 Bonds are in book-entry only form, notice of redemption shall be given to Beneficial Owners of Series 2015 Bonds to be redeemed in accordance with the operational arrangements then in effect at DTC (or its successor or alternate depository), and shall be made in the following manner. If the Port redeems at anyone time fewer than all of the -13- P: _CMWI20287 _AXH -14- P: _ CMWI20287 _AXH 06/22/15

307 F-39 neither the Port nor the Registrar shall be obligated or responsible to confirm that any notice of redemption is, in fact, provided to Beneficial Owners. Each notice of redemption (which notice in the case of optional redemption may be conditional) prepared and given by the Registrar to Registered Owners of Series 2015 Bonds shall contain the following information: (1) the date fixed for redemption, (2) the redemption price, (3) if fewer than all outstanding Series 2015 Bonds of a series are to be redeemed, the identification by maturity (and, in the case of partial redemption, the principal amounts) of the Series 2015 Bonds to be redeemed, (4) whether, in the case of optional redemption, the notice of redemption is conditional and, if conditional, the conditions to redemption, (5) that (unless the notice of optional redemption is a conditional notice, in which case the notice shall state that such Series 2015 Bonds will become due and payable and interest shall cease to accrue from the date fixed for redemption if and to the extent in each case funds have been provided to the Registrar for the redemption of such Series 2015 Bonds and if any other condition is satisfied) on Upon the payment of the redemption price of Series 2015 Bonds being redeemed, each check or other transfer of funds issued for such purpose shall bear the CUSIP number identifying, by issue, series and maturity, the Series 2015 Bonds being redeemed with the proceeds of such check or other transfer. (f) Effect of Redemption. Unless the Port has revoked a conditional notice of optional redemption (or unless the Port provided a conditional notice of optional redemption and the conditions for the optional redemption set forth therein are not satisfied), the Port shall transfer to the Registrar amounts that, in addition to other money, if any, held by the Registrar for such purpose, will be sufficient to redeem, on the date fixed for redemption, all of the Series 2015 Bonds to be redeemed. If and to the extent that funds have been provided to the Registrar for the redemption of Series 2015 Bonds then from and after the date fixed for redemption for such Series 2015 Bond or portion thereof, interest on each such Series 2015 Bond shall cease to accrue and such Series 2015 Bond or portion thereof shall cease to be Outstanding. the date fixed for redemption the redemption price will become due and payable upon each (g) Amendment of Notice Provisions. The foregoing notice provisions of this section, Series 2015 Bond or portion called for redemption, and that, unless a conditional notice of optional redemption has been revoked, interest shall cease to accrue from the date fixed for redemption if and to the extent that funds have been provided to the Registrar for the redemption of such Series 2015 Bonds and if any other condition is satisfied, (6) that the Series 2015 Bonds including but not limited to the information to be included in redemption notices and the persons designated to receive notices, may be amended by additions, deletions and changes to maintain compliance with duly promulgated regulations and recommendations regarding notices of redemption of municipal securities. are to be surrendered for payment at the principal office of the Registrar, (7) the CUSIP numbers Section 5. Registration Exchange and Payments. of all Series 2015 Bonds being redeemed, (8) the dated date of the Series 2015 Bonds being (a) Registrar/Bond Register. The Port hereby specifies and adopts the system of redeemed, (9) the rate of interest for each Series 2015 Bond being redeemed, (10) the date of the notice, and (11) any other information deemed necessary by the Registrar to identify the Series 2015 Bonds being redeemed. registration and transfer for the Series 2015 Bonds approved by the Washington State Finance Committee, which utilizes the fiscal agencies of the State of Washington, for the purposes of registering and authenticating the Series 2015 Bonds, maintaining the Bond Register and -15- P: _CM1NI20287 _AXH -16- P: _CM1NI20287 _AXH

308 F-40 effecting transfer of ownership of the Series 2015 Bonds. The Registrar shall keep, or cause to be kept, at its principal corporate trust office, sufficient records for the registration and transfer of the Series 2015 Bonds, which shall be open to inspection by the Port. The Registrar may be removed at any time at the option of the Designated Port Representative upon prior notice to the Registrar, DTC (or its successor or alternate depository), each party entitled to receive notice pursuant to the Continuing Disclosure Undertaking and a successor Registrar appointed by the Designated Port Representative. No resignation or removal of the Registrar shall be effective until a successor shall have been appointed and until the successor Registrar shall have accepted the duties of the Registrar hereunder. The Registrar is authorized, on behalf of the Port, to authenticate and deliver Series 2015 Bonds transferred or exchanged in accordance with the provisions of such Series 2015 Bonds and this series resolution and to carry out all of the Registrar's powers and duties under this series resolution. The Registrar shall be responsible for its representations contained in the Certificate of Authentication on the Series 2015 Bonds. (b) Registered Ownership. Except as provided in Section 5(c) or the Continuing Disclosure Undertaking authorized pursuant to Section 15, the Port and the Registrar may deem and treat the Registered Owner of each Series 2015 Bond as the absolute owner for all purposes, and neither the Port nor the Registrar shall be affected by any notice to the contrary. Payment of any such Series 2015 Bond shall be made only as described in subsection (h) hereof, but the transfer of such Series 2015 Bond may be registered as herein provided. All such payments made as described in subsection (h) shall be valid and shall satisfy the liability of the Port upon such Series 2015 Bond to the extent of the amount or amounts so paid. Series 2015 Bonds as eligible for deposit at DTC, the Port has heretofore executed and delivered to DTC the Letter of Representations. Neither the Port nor the Registrar will have any responsibility or obligation to DTC participants or the persons for whom they act as nominees with respect to the Series 2015 Bonds for the accuracy of any records maintained by DTC (or any successor or alternate depository) or any DTC participant, the payment by DTC (or any successor or alternate depository) or any DTC participant of any amount in respect of the principal of or interest on Series 2015 Bonds, any notice that is permitted or required to be given to Registered Owners under this series resolution (except such notices as shall be required to be given by the Port to the Registrar or, by the Registrar, to DTC (or any successor or alternate depository)), the selection by DTC or by any DTC participant of any person to receive payment in the event of a partial redemption of the Series 2015 Bonds, or any consent given or other action taken by DTC (or any successor or alternate depository) as the Registered Owner. So long as any Series 2015 Bonds are held in fully immobilized form, DTC or its successor depository shall be deemed to be the owner and Registered Owner for all purposes, and all references in this series resolution to the Registered Owners shall mean DTC (or any successor or alternate depository) or its nominee and shall not mean the owners of any beneficial interest in any Series 2015 Bonds. Notwithstanding the foregoing, if a Bond Insurance Policy is issued for the Series 2015 Bonds of any maturity of a series and so long as the Bond Insurer is not in default under its Policy, the Bond Insurer shall be deemed to be the owner, Registered Owner, and holder of all bonds of that series and maturity for the purpose of granting consents and exercising voting rights with respect thereto and for any (c) DTC Acceptance/Letter oj Representations. The Series 2015 Bonds shall initially other purpose identified and specified in the Bond Insurance Commitment accepted by the Port be held in fully immobilized form by DTC acting as depository. To induce DTC to accept the as a condition of issuance of the Bond Insurance Policy P: _CMWI20287 _AXH 06/22/ P: _CMWI20287 _AXH 06/22115

309 (d) Use of Depository. (1) The Series 2015 Bonds shall be registered initially in the name of CEDE & Co., as nominee of DTC, with a single Series 2015 Bond for each series and maturity having the same interest rate in a denomination equal to the total principal amount of the or (B) the Port determines that it is in the best interest of the Beneficial Owners of the Series 2015 Bonds that the Series 2015 Bonds be provided in certificated form, the ownership of such Series 2015 Bonds may then be transferred to any person or entity as herein provided, and shall no longer be held in fully immobilized form. The Port shall deliver a written request to the Series 2015 Bonds of such series and maturity. Registered ownership of such immobilized Registrar, together with a supply of definitive Series 2015 Bonds (of the appropriate series and Series 2015 Bonds, or any portions thereof, may not thereafter be transferred except (A) to any successor of DTC or its nominee, or to any other nominee requested by an authorized representative of DTC, provided that any such successor shall be qualified under any applicable laws to provide the service proposed to be provided by it; (B) to any substitute depository appointed by the Port pursuant to subsection (2) below or such substitute depository's successor maturities) in certificated form, to issue Series 2015 Bonds in any authorized denominations. Upon receipt by the Registrar of all then outstanding Series 2015 Bonds, together with a written request on behalf of the Port to the Registrar, new Series 2015 Bonds shall be issued in the appropriate denominations and registered in the names of such persons as are provided in such written request. or nominee; or (C) to any person as provided in subsection (4) below. (e) Registration of the Transfer of Ownership or the Exchange of Series 2015 Bonds; F-41 (2) Upon the resignation ofdtc or its successor (or any substitute depository or its successor) from its functions as depository or a determination by the Port to discontinue the system of book entry transfers through DTC or its successor (or any substitute depository or its successor), the Port may appoint a substitute depository. Any such substitute depository shall be Change in Denominations. The transfer of any Series 2015 Bond may be registered and any Series 2015 Bond may be exchanged, but no transfer of any Series 2015 Bond shall be valid unless the Series 2015 Bond is surrendered to the Registrar with the assignment form appearing on such Series 2015 Bond duly executed by the Registered Owner or such Registered Owner's qualified under any applicable laws to provide the services proposed to be provided by it. duly authorized agent in a manner satisfactory to the Registrar. Upon such surrender, the (3) In the case of any transfer pursuant to clause (A) or (B) of subsection (1) above, the Registrar shall, upon receipt of all outstanding Series 2015 Bonds, together with a written request on behalf of the Port, issue a single new Series 2015 Bond for each series and maturity then outstanding, registered in the name of such successor or substitute depository, or its nominee, all as specified in such written request ofthe Port. (4) In the event that (A) DTC or its successor (or substitute depository or its successor) resigns from its functions as depository, and no substitute depository can be obtained, Registrar shall cancel the surrendered Series 2015 Bond and shall authenticate and deliver, without charge to the Registered Owner or transferee, a new Series 2015 Bond (or Series 2015 Bonds at the option of the Registered Owner) of the same date, series, maturity and interest rate and for the same aggregate principal amount in any authorized denomination, as and naming as Registered Owner the person or persons listed as the assignee on the assignment form appearing on the surrendered Series 2015 Bond, in exchange for such surrendered and canceled Series 2015 Bond. Any Series 2015 Bond may be surrendered to the Registrar, together with the assignment -19- P: _CMWI20287 _AXH 06/22/ P: _ CMWI20287 _AXH

310 form appearing on such Series 2015 Bond duly executed, and exchanged, without charge, for an equal aggregate principal amount of Series 2015 Bonds of the same date, series, maturity and interest rate, in any authorized denomination. The Registrar shall not be obligated to register the transfer or exchange of any Series 2015 Bond during a period beginning at the opening of business on the 15th day of the month next preceding any interest payment date and ending at the close of business on such interest payment date, or, in the case of any proposed redemption of the Series 2015 Bonds, after the mailing of notice of the call for redemption of such Series 2015 Bonds. (f) Registrar 's Ownership of Series 2015 Bonds. The Registrar may become the Registered Owner of any Series 2015 Bond with the same rights it would have if it were not the alternate depository), interest on the Series 2015 Bonds shall be paid by check mailed to the Registered Owners at the addresses for such Registered Owners appearing on the Bond Register on the 15th day of the month preceding the interest payment date, and principal and premium, if any, of the Series 2015 Bonds shall be payable by check upon presentation and surrender of such Series 2015 Bonds by the Registered Owners at the principal office of the Registrar; provided, however, that if so requested in writing prior to the opening of business on the 15th day of the month preceding any interest payment date by the Registered Owner of at least $1,000,000 aggregate principal amount of Series 2015 Bonds of a series, interest on such Series 2015 Bonds will be paid thereafter by wire transfer on the date due to an account with a bank located within the United States. Registrar, and to the extent permitted by law, may act as depository for and permit any of its Section 6. Pledge of Available Intermediate Lien Revenues' Series 2015 Reserve F-42 officers or directors to act as member of, or in any other capacity with respect to, any committee formed to protect the rights of the Registered Owners of the Series 2015 Bonds. (g) Registration Covenant. The Port covenants that, until all Series 2015 Bonds issued on a tax-exempt basis have been surrendered and canceled, it will maintain a system for recording the ownership of each Series 2015 Bond that complies with the provisions of Section 149 of the Code. Account Deposit. Pursuant to the Intermediate Lien Master Resolution, the Intermediate Lien Bond Fund and the Intermediate Lien Reserve Account have been created for the purpose of paying and securing the payment of the principal of, premium, if any, and interest on all Outstanding Intermediate Lien Parity Bonds. The Port hereby irrevocably obligates and binds itself for as long as any Series 2015 Bonds remain Outstanding to set aside and pay into the Intermediate Lien Bond Fund from Available Intermediate Lien Revenues or money in the (h) Place and Medium of Payment. The principal of, premium, if any, and interest on Revenue Fund, on or prior to the respective dates the same become due (and if such payment is the Series 2015 Bonds shall be payable in lawful money of the United States of America. For so long as all Series 2015 Bonds are in fully immobilized form with DTC, payments of principal, premium, if any, and interest shall be made as provided in accordance with the operational made on the due date, such payment shall be made in immediately available funds): on Series 2015 Bonds; and (1) Such amounts as are required to pay the interest scheduled to become due arrangements of DTC described in the Letter of Representations. In the event that the Series 2015 Bonds are no longer in fully immobilized form with DTC (or its successor or -21- P: _CMWI20287 _AXH -22- P: _CMWI20287 _AXH 06/22/15

311 F-43 (2) Such amounts with respect to Series 2015 Bonds as are required (A) to pay maturing principal, (B) to make any required sinking fund payments, and (C) to redeem Series 2015 Bonds in accordance with any mandatory redemption provisions. Said amounts so pledged to be paid into such special funds are hereby declared to be a prior lien and charge upon the Gross Revenue superior to all other liens and charges of any kind or nature whatsoever except for (i) Operating Expenses, (ii) liens and charges thereon of Permitted Prior Lien Bonds, and (iii) liens and charges equal in rank that have or may be made thereon to pay Net Payments due pursuant to any Parity Derivative Product and to pay and secure the payment of the principal of, premium, if any, and interest on Outstanding Intermediate Lien Bonds and any Intermediate Lien Parity Bonds issued in the future under authority of a Series Resolution in accordance with the provisions of Sections 4 and 5 of the Intermediate Lien Master Resolution. The Series 2015 Reserve Account Deposit shall be deposited in the Intermediate Lien Reserve Account (or shall be satisfied through the issuance of one or more Surety Bonds) on the date of issuance of the Series 2015 Bonds. Together with existing reserve account balances in the Intermediate Lien Reserve Account, the Series 2015 Reserve Account Deposit shall be at least sufficient to meet the Intermediate Lien Reserve Requirement. The Designated Port Representative may decide to utilize one or more Surety Bonds to Section 7. Defeasance. In the event that money and/or noncallable Government Obligations maturing or having guaranteed redemption prices at the option of the owner at such time or times and bearing interest to be earned thereon in amounts (together with such money, if any) sufficient to redeem and retire part or all of the Series 2015 Bonds in accordance with their terms, are hereafter irrevocably set aside in a special account and pledged to effect such redemption and retirement, and, if the Series 2015 Bonds are to be redeemed prior to maturity, irrevocable notice, or irrevocable instructions to give notice of such redemption has been delivered to the Registrar, then no further payments need be made into the Intermediate Lien Bond Fund or any account therein for the payment of the principal of, premium, if any, and interest on the Series 2015 Bonds so provided for and such Series 2015 Bonds shall then cease to be entitled to any lien, benefit or security of the Intermediate Lien Master Resolution or this series resolution, except the right to receive the funds so set aside and pledged and such notices of redemption, if any, and such Series 2015 Bonds shall no longer be deemed to be Outstanding hereunder, under the Intermediate Lien Master Resolution or under any resolution authorizing the issuance of bonds or other indebtedness of the Port. The Port shall provide notice of defeasance of Series 2015 Bonds to Registered Owners of the Series 2015 Bonds being defeased, to the Bond Insurer, if any, and to each party entitled to receive notice under the Continuing Disclosure Undertaking authorized pursuant to Section 15. satisfy the Series 2015 Reserve Account Deposit; provided that each Surety Bond meets the Section 8. Application of Series 2015 Bond Proceeds. The proceeds of the Project qualifications for Qualified Insurance. Upon such election, the Designated Port Representative is hereby authorized to execute and deliver one or more Surety Bond Agreements with one or more Surety Bond Issuers to effect the delivery of the Surety Bond(s). Bonds (net of Underwriters' discount and any amounts that may be designated by the Designated Port Representative in a closing certificate to be allocated to pay costs of issuance or any Bond Insurance Policy and/or Surety Bond premium) shall be applied as follows: -23- P: _CMVVI20287 _AXH 06122/ P: _CMVVI20287 _AXH 06/22115

312 (1) An amount(s) specified by the Designated Port Representative shall be deposited into one or more capitalized interest accounts (hereinafter authorized to be created); (2) An amount specified by the Designated Port Representative as required to pay the Series 2015 Reserve Account Deposit shall be deposited into the Intermediate Lien Reserve Account; and (3) An amount specified by the Designated Port Representative shall be deposited into one or more capital project accounts and used to pay costs of issuance and, Port Representative in a closing certificate to be allocated to pay costs of issuance or any Bond Insurance Policy and/or Surety Bond premium), together with other available funds of the Port in the amount specified by the Designated Port Representative, shall be utilized immediately upon receipt thereof to pay and redeem the Refunded Bonds and/or shall be paid at the direction of the Treasurer to the Escrow Agent (if the Designated Port Representative has determined that an escrow is necessary or desirable to effect the defeasance of all or a portion of the Refunded Bonds). together with other available moneys, to pay costs of the Projects. (c) Defeasance of Refunded Bonds. Subject to and in accordance with the resolution F-44 The Treasurer of the Port is hereby authorized and directed to create one or more capitalized interest accounts for the purpose of holding certain Project Bond proceeds and interest earnings thereon to be used and disbursed to pay interest on the Project Bonds through the date or dates specified by the Designated Port Representative. The Treasurer shall invest the net proceeds of the Project Bonds until expended in such obligations as may now or hereafter be permitted to port districts of the State of Washington by law and that will mature prior to the date on which such money shall be needed. Earnings on such investments, except as may be required to pay rebatable arbitrage pursuant to the Federal Tax Certificate, may be used for Port purposes or transferred to the Bond Fund for the uses and purposes therein provided. The Port shall maintain books and records regarding the use and investment of Series 2015 Bond proceeds in order to maintain compliance with its obligations under its Federal Tax authorizing the issuance of the Series 2005A Bonds, the net proceeds of the Refunding Bonds so deposited shall be utilized upon receipt thereof to pay and redeem the Refunded Bonds and/or or to purchase the Acquired Obligations specified by the Designated Port Representative and to maintain such necessary beginning cash balance to defease the Refunded Bonds and to discharge the other obligations of the Port relating thereto under the resolution authorizing their issuance, by providing for the payment of the interest on the Refunded Bonds to the date fixed for redemption and the redemption price (the principal amount plus any premium required) on the date fixed for redemption of the Refunded Bonds. Subject to compliance with all conditions set forth in the resolution authorizing the issuance of the Series 2005A Bonds, when the final transfers have been made for the payment of such redemption price and interest on the Refunded Bonds, any balance then remaining shall be transferred to the account designated by the Port and used for the purposes specified by the Designated Port Representative. Certificate. (d) Acquired Obligations. The Acquired Obligations, if any, shall be payable in such (b) Application of Refunding Bond Proceeds. The net proceeds of the Refunding amounts and at such times that, together with any necessary beginning cash balance, will be Bonds (net of Underwriters' discount and any amounts that may be designated by the Designated sufficient to provide for the payment of: -25- P: _CMWI20287 _AXH 06/22/ P: _CMWI20287 _AXH

313 (1) the interest on the Refunded Bonds as such becomes due on and before the dates fixed for redemption of the Refunded Bonds; and (2) the price of redemption of the Refunded Bonds on the date fixed for redemption of the Refunded Bonds. Obligations pursuant to the previous section of this series resolution, and the income therefrom and proceeds thereof. The Designated Port Representative is authorized and directed to execute and deliver an Escrow Agreement, if any, to the Escrow Agent when the provisions thereof have been fixed and (e) Authorizing Escrow Agent. If the Designated Port Representative determines that determined for closing and delivery of the Refunding Bonds. The Escrow Agreement, if any, an escrow would be necessary or desirable to effect the defeasance of the Refunded Bonds, U.S. Bank National Association is hereby designated as the Escrow Agent for the Refunded shall be in form and substance satisfactory to the Designated Port Representative and the Escrow Agent, and may include a separate Costs of Issuance agreement. Bonds. Section 10. Tax Covenants. Section 9. Redemption of Refunded Bonds. The Commission hereby calls the (a) General. The Port covenants that it will not take or permit to be taken on its F-45 Refunded Bonds for redemption on the redemption date specified by the Designated Port Representative in accordance with the provisions of the resolution authorizing the issuance, redemption and retirement ofthe Series 2005A Bonds prior to their maturity dates. The Designated Port Representative may cause to be disseminated a conditional notice of redemption prior to the closing and delivery of the Refunding Bonds. Said defeasance and call for redemption of the Refunded Bonds shall be irrevocable from behalf any action that would adversely affect the exclusion from gross income for federal income tax purposes of the interest on the Series 2015 Bonds issued on a federally tax-exempt basis and will take or require to be taken such acts as may reasonably be within its ability and as may from time to time be required under applicable law to continue the exclusion from gross income for federal income tax purposes of the interest on the Series 2015 Bonds issued on a federally taxexempt basis. The Port shall comply with its covenants set forth in the Federal Tax Certificate. and after the closing and delivery of the Refunding Bonds. (b) No Bank Qualification. The Series 2015 Bonds shall not be qualified tax-exempt The Port shall provide for the giving of notice of the redemption of the Refunded Bonds in accordance with the terms of resolution authorizing the issuance of the Series 2005A Bonds obligations pursuant to Section 265(b) of the Code for investment by financial institutions. Section 11. Lost Stolen Mutilated or Destroyed Series 2015 Bonds. In case any and as described in the Escrow Agreement, if any. The Port or the Escrow Agent, if any, on Series 2015 Bond shall be lost, stolen, mutilated or destroyed, the Registrar may execute and behalf of the Port shall be authorized and directed to pay to the fiscal agency or agencies of the State of Washington, sums sufficient to pay, when due, the payments specified in Section 8(c) of deliver a new Series 2015 Bond oflike series, maturity, date, number and tenor to the Registered Owner thereof upon the owner's paying the expenses and charges of the Port in connection this series resolution. All such sums shall be paid from the moneys and the Acquired therewith and upon his/her filing with the Port evidence satisfactory to the Port that such Series 2015 Bond was actually lost, stolen or destroyed (including the presentation of a mutilated -27- P: _CMWI20287 _AXH -28- P: _CMWI20287 _AXH

314 Series 2015 Bond) and of hislher ownership thereof, and upon furnishing the Port and the Registrar with indemnity satisfactory to both. Section 12. Form of Series 2015 Bonds and Registration Certificate. The Series 2015 Bonds shall be in substantially the following form: [DTC HEADING] The bonds of this issue maturing on and after 1, shall be subject to optional redemption in advance of their scheduled maturity on and after in whole or in part on any date at a price equal to 100% of the principal amount thereof plus accrued interest to the date fixed for redemption. [The bonds of this issue maturing on 1, _ shall be redeemed by the Port on 1 of the following years in the following principal amounts at a price equal to 100% of the principal amount thereof plus accrued interest to the date fixed for redemption: UNITED STATES OF AMERICA NO. $_--- STATE OF WASHINGTON PORT OF SEATTLE INTERMEDIATE LIEN REVENUE [AND REFUNDING] BOND, 2015 [A][B][C] [AMT] [Non-AMT][Taxable] * Final Maturity] Redemption Dates $ Amounts F-46 Maturity Date: Interest Rate: Registered Owner: Principal Amount: Cede & Co. CUSIPNo. THE PORT OF SEATTLE, a municipal corporation organized and existing under and by virtue of the laws of the State of Washington (the "Port"), promises to pay to the Registered Owner identified above, or registered assigns, on the Maturity Date identified above, solely from the special fund of the Port known as the "Port of Seattle Revenue Intermediate Lien Bond Fund" (the "Intermediate Lien Bond Fund") created by Resolution No. 3540, as amended (the "Intermediate Lien Master Resolution" and together with Resolution No. 3709, hereinafter collectively referred to as the "Bond Resolution"), the Principal Amount indicated above and to pay interest thereon from the Intermediate Lien Bond Fund from the date of initial delivery, or the most recent date to which interest has been paid or duly provided for or until payment of this bond at the Interest Rate set forth above, payable semiannually on the first days of each and beginning on 1, 20_. The principal of, premium, if any, and interest on this bond are payable in lawful money of the United States of America. Principal, premium, if any, and interest shall be paid as provided in the Blanket Issuer Letter of Representations (the "Letter of Representations") by the Port to The Depository Trust Company ("DTC") (or its successor or alternate depository) or other registered owner. Capitalized terms used in this bond which are not specifically defined have the meanings given such terms in the Bond Resolution. The Treasurer of the Port has appointed the fiscal agent for the State of Washington as the initial registrar, authenticating and paying agent for the bonds of this series. This bond is one of a series of bonds of the Port in the aggregate principal amount of $, of like date, tenor and effect, except as to number, amount, rate of interest and date of maturity and is issued pursuant to the Bond Resolution to [refund certain outstanding Port obligations][to pay costs of capital improvement projects]. The bonds of this series are [not] private activity bonds. The bonds of this series are not "qualified tax exempt obligations" eligible for investment by financial institutions within the meaning of Section 265(b) of the Internal Revenue Code of 1986, as amended. [The Port has taken no action to cause the interest on this bond to be exempt from general federal income taxation.] The Port hereby covenants and agrees with the owner and holder of this bond that it will keep and perform all the covenants of this bond and the Bond Resolution. The Port does hereby pledge and bind itself to set aside and pay into the Intermediate Lien Bond Fund and Intermediate Lien Reserve Account from Available Intermediate Lien Revenues or money in the Revenue Fund the various amounts required by the Bond Resolution to be paid into and maintained in said Funds, all within the times provided by said Bond Resolution. The amounts pledged to be paid out of Gross Revenue into the Intermediate Lien Bond Fund and Intermediate Lien Reserve Account are hereby declared to be a first and prior lien and charge upon the Gross Revenue, subject to the payment of Operating Expenses of the Port and subject further to the liens thereon ofthe Permitted Prior Lien Bonds and equal in rank to the lien and charge upon such Gross Revenue of the amounts required to pay and secure the payment of any Net Payments due pursuant to any Parity Derivative Product, any Outstanding Intermediate Lien Bonds' and any revenue bonds of the Port hereafter issued on a parity with the Outstanding Intermediate Lien Bonds and the bonds of this issue. The Port has further bound itself to establish, maintain and collect rentals, tariffs, rates and charges in the operation of all of its business for as long as any bonds of this issue are outstanding that it will make available, for the payment of the principal thereof and interest thereon as the same shall become due, Available Intermediate Lien Revenues in an amount equal to or greater than the Rate Covenant defined in the Intermediate Lien Master Resolution P: _CMWI20287 _AXH 06122/ P: _CMWI20287 _AXH 06/22/15

315 F-47 This bond shall not be valid or become obligatory for any purpose or be entitled to any security or benefit under the Bond Resolution until the Certificate of Authentication hereon shall have been manually signed by or on behalf of the Registrar. It is hereby certified and declared that this bond and the bonds of this issue are issued pursuant to and in strict compliance with the Constitution and laws of the State of Washington and resolutions of the Port and that all acts, conditions and things required to be done precedent to and in the issuance of this bond have happened, been done and performed. IN WITNESS WHEREOF, the Port of Seattle has caused this bond to be executed by the manual or facsimile signatures of the President and Secretary of the Port Commission, and the corporate seal of the Port to be impressed or a facsimile thereof imprinted hereon as of the day of,2015. ATTEST: /s/ Secretary, Port Commission Date of Authentication: PORT OF SEATTLE By CERTIFICATE OF AUTHENTICATION /s/ President, Port Commission This bond is one of the bonds described in the within mentioned Bond Resolution and is one of the Intermediate Lien Revenue [and Refunding] Bonds, Series 2015[A][B][C][AMT][Non-AMT][Taxable] of the Port of Seattle, dated,2015. WASHINGTON STATE FISCAL AGENCY, as Registrar By ******** Authorized Signer In the event any Series 2015 Bonds are no longer in fully immobilized form, the form of such Series 2015 Bonds may be modified to conform to printing requirements and the terms of this series resolution. Section 13. Execution. The Series 2015 Bonds shall be executed on behalf of the Port with the manual or facsimile signature of the President of its Commission, shall be attested by the manual or facsimile signature of the Secretary thereof and shall have the seal of the Port impressed or a facsimile thereof imprinted thereon. Only such Series 2015 Bonds as shall bear thereon a Certificate of Authentication in the form hereinbefore recited, manually executed by the Registrar, shall be valid or obligatory for any purpose or entitled to the benefits of this series resolution. Such Certificate of Authentication shall be conclusive evidence that the Series 2015 Bonds so authenticated have been duly executed, authenticated and delivered hereunder and are entitled to the benefits of this series resolution. In case either of the officers of the Port who shall have executed the Series 2015 Bonds shall cease to be such officer or officers of the Port before the Series 2015 Bonds so signed shall have been authenticated or delivered by the Registrar, or issued by the Port, such Series 2015 Bonds may nevertheless be authenticated, delivered and issued and upon such authentication, delivery and issuance, shall be as binding upon the Port as though those who signed the same had continued to be such officers of the Port. Any Series 2015 Bond may also be signed and attested on behalf of the Port by such persons as at the actual date of execution of such Series 2015 Bond shall be the proper officers of the Port although at the original date of such Series 2015 Bond any such person shall not have been such officer. Section 14. Sale of Series 2015 Bonds. The Series 2015 Bonds shall be sold at negotiated sale to the Underwriters pursuant to the terms of the Bond Purchase Contract. The Designated Port Representative is hereby authorized to negotiate terms for the purchase of the Series 2015 Bonds and to execute one or more Bond Purchase Contracts, with such terms -31- P: _CMVIfI20287 _AXH -32- P: _ CMVIfI20287 _AXH 06122/15

316 F-48 (including the designation of the Refunding Candidates to be refunded and the Series 2015 Reserve Account Deposit) as are approved by the Chief Executive Officer pursuant to this section and consistent with this series resolution and the Intermediate Lien Master Resolution. The Port Commission has been advised by the Port's financial advisor that the most favorable market conditions may occur on a day other than a regular meeting date of the Commission. The Commission has determined that it would be in the best interest of the Port to delegate to the Chief Executive Officer for a limited time the authority with respect the Series 2015 Bonds of a series to select the Refunding Candidates for refunding, to combine the sale of the Refunding Bonds and certain Project Bonds as a single series, to approve the Series 2015 Bond description, final series designation or designations, the tax status of each series, the final interest rates, maturity dates, aggregate principal amount, principal amounts and prices of each maturity, redemption rights, and other terms and conditions of the Series 2015 Bonds. The Chief Executive Officer is hereby authorized to approve the designation of the Refunding Candidates to be refunded and to approve the final series designations, final interest rates, maturity dates, aggregate principal amount, principal amounts of each maturity and redemption rights for the Series 2015 Bonds in the manner provided hereafter (A) so long as the aggregate principal amount of the Series 2015 Bonds does not exceed the maximum principal amount set forth in Section 2, (B) so long as the true interest cost for the Series 2015 Bonds of a series does not exceed 5.0% per annum; and (C) so long as the Savings Target is met with respect to the Refunding Bonds. In designating the Refunding Candidates for refunding, the combination of the Refunding Bonds and certain Project Bonds as a single series, determining the bond description, final series designation or designations, final tax status of each series, interest rates, maturity dates, aggregate principal amount, principal maturities, redemption rights or provisions of the Series 2015 Bonds for approval and the Series 2015 Reserve Account Deposit, the Designated Port Representative, in consultation with Port staff and the Port's financial advisor, shall take into account those factors that, in his judgment, will result in the lowest true interest cost on the Series 2015 Bonds to their maturity, including, but not limited to current financial market conditions and current interest rates for obligations comparable in tenor and quality to the Series 2015 Bonds. Subject to the terms and conditions set forth in this section, the Designated Port Representative is hereby authorized to execute the final form of each Bond Purchase Contract, upon the Chief Executive Officer's approval of the Refunding Candidates to be refunded, final series designation, final interest rates, maturity dates, aggregate principal amount, principal maturities and redemption rights for the Series 2015 Bonds set forth therein. Following the execution of a Bond Purchase Contract, the Chief Executive Officer or Designated Port Representative shall provide a report to the Commission, describing the final terms of the Series 2015 Bonds approved pursuant to the authority delegated in this section. The authority granted to the Designated Port Representative and the Chief Executive Officer by this section shall expire on December 31, If a Bond Purchase Contract for the Series 2015 Bonds of that series has not been executed by December 31, 2015, the authorization for the issuance of the Series 2015 Bonds of that series shall be rescinded, and the Series 2015 Bonds shall not be issued nor their sale approved unless the Series 2015 Bonds shall have been reauthorized by resolution of the Commission. The resolution reauthorizing the issuance and sale of the Series 2015 Bonds may be in the form of a new series resolution repealing this series resolution in whole or in part (only with respect to the Series 2015 Bonds not issued) or may be -33- P: _CMVVI20287 _AXH 06/22/ P: _CMVVI20287 _AXH 06/22115

317 F-49 in the form of an amendatory resolution approving a bond purchase contract or extending or establishing new terms and conditions for the authority delegated under this section. Upon the adoption of this series resolution, the proper officials of the Port including the Designated Port Representative, are authorized and directed to undertake all other actions necessary for the prompt execution and delivery of the Series 2015 Bonds to the Underwriters thereof and further to execute all closing certificates and documents required to effect the closing and delivery of the Series 2015 Bonds in accordance with the terms of the Bond Purchase Contract. The Designated Port Representative and other Port officials, agents and representatives are hereby authorized and directed to do everything necessary for the prompt issuance, execution and delivery of the Series 2015 Bonds to the Underwriters and for the proper application and use of the proceeds of sale of the Series 2015 Bonds. In furtherance of the foregoing, the Designated Port Representative is authorized to approve and enter into agreements for the payment of costs of issuance, including Underwriters' discount, the fees and expenses specified in the Bond Section 15. Undertaking to Provide Ongoing Disclosure. The Designated Port Representative is authorized to, in his or her discretion, execute and deliver a Continuing Disclosure Undertaking providing for an undertaking by the Port to assist the Underwriters in complying with the Rule. Section 16. Bond Insurance. The payments of the principal of and interest on principal maturities of the Series 2015 Bonds of anyone or more series and maturity may be insured by the issuance of the Bond Insurance Policy. The Designated Port Representative may solicit proposals from municipal bond insurance companies, and the Designated Port Representative, in consultation with the Port's financial advisor, is hereby authorized to select the proposal that is deemed to be the most cost effective and further to execute the Bond Insurance Commitment with the Bond Insurer, which may include such covenants and conditions as shall be approved by the Designated Port Representative. Section 17. Compliance with Parity Conditions. The Commission hereby finds and determines as required by Section 5(b) of the Intermediate Lien Master Resolution, as follows: Purchase Contract, including fees and expenses of Underwriters and other retained services, First: The Port is not in default of its covenant under Section 5 of the including Bond Counsel, disclosure counsel, rating agencies, fiscal agency, escrow agent, if any, financial advisory services, escrow structuring services and other expenses customarily incurred in connection with issuance and sale of bonds. The Designated Port Representative is authorized to ratify, execute, deliver and approve Intermediate Lien Master Resolution; and Second: The Commission has been assured that prior to the issuance and delivery of the Series 2015 Bonds, the Port will meet the conditions set forth in Section 5(c) of the Intermediate Lien Master Resolution and/ill will deliver either: for purposes of the Rule, on behalf of the Port, the Official Statement (and to approve, deem final (A) a certificate prepared as provided in the Intermediate Lien and deliver any Preliminary Official Statement) and any supplement thereto relating to the issuance and sale of the Series 2015 Bonds and the distribution of the Series 2015 Bonds Master Resolution and executed by the Designated Port Representative stating that Available Intermediate Lien Revenues as First Adjusted during the Base Period were at least equal to pursuant thereto with such changes, if any, as may be deemed by him/her to be appropriate P: _CMWI20287 _AXH -36- P: _CMWI20287 _AXH 06/22/15

318 110 percent of Annual Debt Service in each year of the Certificate Period with respect to all Intermediate Lien Parity Bonds then Outstanding and then proposed to be issued; ill (B) a Consultant's certificate, prepared as provided in the Intermediate Lien Master Resolution and stating that projected Available Intermediate Lien Revenues as First Adjusted will be at least equal to 110 percent of Annual Debt Service in each year of the Certificate Period, The limitations contained in the conditions provided in Section 5(b) of the Intermediate Lien Master Resolution having been complied with, the payments required herein to be made out of the Available Intermediate Lien Revenues to pay and secure the payment of the principal of, premium, if any, and interest on the Series 2015 Bonds shall constitute a lien and charge upon. ~ection Effective Date. This series res'olution shall be e~fe~tive immciul.lwly upo~ its adopti~n.. ADOPTED by the Port Commission of 'Ih~ Port of Seattle ~t tl dury noticed meeting thereof, held:':j1iis :i3.. day ~f<:rvne... 20]5, and duly 6utn,cntieated in opfln s~sjon by the sign~tures 'of!pe '~ominis~ioners :."...':}.....:4 voting in filvor thereof..... ')' 1 -'1-1,:~r ' '''"., '.. ~t.., I. ~.'" 1 '_ 'AN F-50 such a charge and lien upon the Available Intermediate Lien Revenues equal to the lien thereon of Outstanding Intermediate Lien Parity Bonds. Section 18. Severability. If anyone or more of the covenants or agreements provided in this series resolution to be performed on the part of the Port shall be declared by any court of competent jurisdiction to be contrary to law, then such covenant or covenants, agreement or agreements, shall be null and void and shall be deemed separable from the remaining covenants and agreements in this series resolution and shall in no way affect the validity of the other provisions of this series resolution or of any Intermediate Lien Parity Bonds, JOfl'N 'CREfGHTON \', ~, ~. Commissi'OlJIlt:[s P: _CM\N\20287 _AXH :. P;(20287_cMWa0287_AXH. 06/22115

319 F-51 EXHIBIT A Projects Runway, apron and safety areas construction, repairs and improvements; airfield infrastructure construction, repairs and upgrades; noise mitigation; Airport Terminal and parking garage construction, modification, repairs, improvements including equipment acquisition; roadway and ground transportation improvements; planning work relating to future facilities on or near the Airport; property acquisitions for Airport expansion adjacent or near to the Airport and other airport improvements that are functionally related to the airfield, air terminal and Airport property improvements described above at Seattle-Tacoma International Airport, Pacific Highway South, Seatac, WA 98158, which is owned and operated by the Port. CERTIFICATE. I,. the undersign~d, Secfetary of the Port COllli~issl~n (the "Commissiori;~) of..the Port of Seattle (the "Port"), DO HE~BY CERTIFY: 1. That.the. attached resolution' numbered 3709 (the "ResolutiQn~')i 'is.,a true and correct copy of a :~esolution of the Port, as finall~ adopted at a meeting of the Co~ssion held. on the!1.~ " da.y:' o(',:roi\~,2015, and duly,recorg~.d itirny.offi~e. 2. ':~j:hat said ~eeti~g w~ ~uly ~onv~n~d and :he~d in all r~spe~}s"'i~; ~.cco!dan~e with, -it '.,,.. :" ".,, ', law, and,to ~ exte~t required,by law, due and prop~r. n9tjce pf such meeting wa~ given;. that a q\lorum of t~.:.~ommission was present throughput t~e ~e t!~g ~,ij"d l~. ~g,~~~y,.plifficient number 'of,members of)he Commission voted in the prope~. x:na!:l?e.~jo.j;~tpe:ad~ption.,()~ s~aid Resolution; that all otj:1e! requirements and proceedings incident to the proper adoption of $aid Re.solu~io~ have been duly fulfilled, carried out and otherwise observed, and that I am authorized to execute this ce~ificate: INWITNE'SS"'WHEREOF, I have hereunto. set lpy h~d this :;1.3. day of~, 0g.. ~ TOAfALSRO Se~retary P:I20287 _CM'M202\17 j\xh 06/22/15

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321 APPENDIX G PROPOSED FORM OF CONTINUING DISCLOSURE CERTIFICATE G-1

322 CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (the Disclosure Certificate ) is executed and delivered by the Port of Seattle (the Port ) in connection with the issuance of its $582,725,000 Intermediate Lien Revenue Refunding Bonds, Series 2015 (the Series 2015 Bonds ). The Port covenants and agrees as follows: For purposes of the Port s undertaking pursuant to the Rule (the undertaking ), beneficial owner means any person who has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Series 2015 Bond, including persons holding Series 2015 Bonds through nominees or depositories or other intermediaries. (a) Financial Statements/Operating Data. (1) Annual Disclosure Report. The Port covenants and agrees that not later than six months after the end of each fiscal year (the Submission Date ), commencing June 30, 2015 for the fiscal year ending December 31, 2014, the Port shall provide or cause to be provided to the Municipal Securities Rulemaking Board (the MSRB ), an annual report (the Annual Disclosure Report ) that is consistent with the requirements of part (2) of this subsection (a). The Annual Disclosure Report may be submitted as a single document or as separate documents comprising a package and may include by reference other information as provided in part (2) of this subsection (a); provided that any audited annual financial statements may be submitted separately from the balance of the Annual Disclosure Report and later than the Submission Date if such audited financial statements are not available by the Submission Date. If the Port s fiscal year changes, the Port shall give notice of such change in the same manner as notice is to be given of the occurrence of an event listed in subsection (b), and if for any fiscal year the Port does not furnish an Annual Disclosure Report to the MSRB, by the Submission Date, the Port shall send to MSRB notice of its failure to furnish such report pursuant to subsection (c). (2) Content of Annual Disclosure Reports. The Port s Annual Disclosure Report shall contain or include by reference the following: (A) Audited financial statements. Audited financial statements, except that if any audited financial statements are not available by the Submission Date, the Annual Disclosure Report shall contain unaudited financial statements in a format similar to the audited financial statements most recently prepared for the Port, and the Port s audited financial statements shall be filed in the same manner as the Annual Disclosure Report when and if they become available. (B) Operating and Financial Information. Annual financial information and operating data with respect to the Port, including historical financial information and operating data of the type provided in the final Official Statement for the Series 2015 Bonds dated July 21, 2015 under the headings Aviation Division, Northwest Seaport Alliance and Other Port Businesses, Port Financial Matters and Outstanding Port Indebtedness, Outstanding First Lien Bonds, Intermediate Lien Parity Bonds, and Subordinate Lien Parity Bonds, and in Appendix C under the headings Tax Levy Rates, Records and Procedures. Any or all of the listed items may be included by specific reference to other documents, including official statements of debt issues of the Port, or of any related entity, that have been submitted to the MSRB. If the document included by reference is a final official statement, it must be available from the MSRB. The Port shall identify clearly each document so included by reference. (b) Listed Events. The Port agrees to provide or cause to be provided to the MSRB, in a timely manner, not in excess of ten business days after the occurrence of the event, notice of the occurrence of any of the following events with respect to the Series 2015 Bonds: 1. Principal and interest payment delinquencies; 2. Non payment related defaults, if material; 3. Unscheduled draws on debt service reserves reflecting financial difficulties; G-2

323 4. Unscheduled draws on credit enhancements reflecting financial difficulties; 5. Substitution of credit or liquidity providers, or their failure to perform; 6. Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the Series 2015 Bonds, or other material events affecting the tax status of the Series 2015 Bonds; 7. Modifications to the rights of Series 2015 Bond owners, if material; 8. Bond calls, if material, and tender offers; 9. Defeasances; 10. Release, substitution or sale of property securing repayment of the Series 2015 Bonds, if material; 11. Rating changes; 12. Bankruptcy, insolvency, receivership or similar event of the Port; 13. The consummation of a merger, consolidation, or acquisition involving the Port or the sale of all or substantially all of the assets of the Port, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and 14. Appointment of a successor or additional trustee or the change of name of a trustee, if material. Solely for purposes of information, but without intending to modify the Port s undertaking, with respect to the notice regarding property securing the repayment of the Series 2015 Bonds, that there is no property securing the repayment of the Series 2015 Bonds. (c) Notice Upon Failure to Provide Financial Data. The Port agrees to provide or cause to be provided, in a timely manner, to the MSRB, notice of its failure to provide the annual financial information described in subsection (a) above on or prior to the Submission Date. (d) Format for Filings with the MSRB. All notices, financial information and operating data required by this undertaking to be provided to the MSRB must be in an electronic format as prescribed by the MSRB. All documents provided to the MSRB pursuant to this undertaking must be accompanied by identifying information as prescribed by the MSRB. (e) Termination/Modification. The Port s obligations to provide annual financial information and notices of material events shall terminate upon the legal defeasance (if notice of such defeasance is given as provided above) or payment in full of all of the Series 2015 Bonds. The undertaking, or any provision hereof, shall be null and void if the Port (1) obtains an opinion of nationally recognized bond counsel to the effect that those portions of the Rule which require the undertaking, or any such provision, have been repealed retroactively or otherwise do not apply to the Series 2015 Bonds; and (2) notifies the MSRB of such opinion and the cancellation of the undertaking. The Port may amend the undertaking and any provision of the undertaking may be waived, in accordance with the Rule; provided that (A) if the amendment or waiver relates to the provisions of subsections (a)(1), (a)(2) or (b) above, it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Series 2015 Bonds, or the type of business conducted; (B) the undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Series 2015 Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (C) the amendment or G-3

324 waiver does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the beneficial owners of the Series 2015 Bonds. In the event of any amendment of or waiver of a provision of the undertaking, the Port shall describe such amendment in the next Annual Disclosure Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the Port. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a material event under subsection (b), and (ii) the Annual Disclosure Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. (f) Registered Owner s and Beneficial Owners Remedies Under the Undertaking. A Registered Owner s and the beneficial owners right to enforce the provisions of the undertaking shall be limited to a right to obtain specific enforcement of the Port s obligations under the undertaking, and any failure by the Port to comply with the provisions of the undertaking shall not be a default under the Resolution. (g) Additional Information. Nothing in the undertaking shall be deemed to prevent the Port from disseminating any other information, using the means of dissemination set forth in the undertaking or any other means of communication, or including any other information in any Annual Disclosure Report or notice of occurrence of an event, in addition to that which is required by the undertaking. If the Port chooses to include any information in any Annual Disclosure Report or notice of the occurrence of an event in addition to that specifically required by this undertaking, the Port shall have no obligation under the Resolution to update such information or to include it in any future Annual Disclosure Report or notice of occurrence of an event. PORT OF SEATTLE By: Designated Port Representative G-4

325 APPENDIX H DEMOGRAPHIC AND ECONOMIC INFORMATION H-1

326 DEMOGRAPHIC AND ECONOMIC INFORMATION Population Historical and current population figures for the State of Washington, the County, the two largest cities in the County, and the unincorporated areas of the County are given below. POPULATION (1) Year Washington King County Seattle Bellevue Unincorporated King County ,061,410 2,052, , , , ,968,170 2,017, , , , ,882,400 1,981, , , , ,817,770 1,957, , , , ,767,900 1,942, , , ,265 (1) Estimates are as of April 1 of each year. Source: State of Washington, Office of Financial Management. Per Capita Income The following table presents per capita personal income for the Seattle Metropolitan Division Area, the County, the State, and the United States. PER CAPITA INCOME Seattle Metropolitan Division (1) $ 58,483 $ 57,825 $ 54,029 $ 51,167 $ 50,676 King County (1) 62,770 61,911 57,400 54,395 53,739 State of Washington $49,583 47,717 47,055 44,565 42,547 42,137 United States 46,129 44,765 44,200 42,332 40,144 39,379 (1) Data not available. Source: U.S. Bureau of Economic Analysis, U.S. Department of Commerce. Construction The table below lists the value of housing construction for which building permits have been issued by entities within King County. The value of public construction is not included in this table. KING COUNTY RESIDENTIAL BUILDING PERMIT VALUES (1) New Single Family Units New Multi-Family Units Year Number Value Number Value Total Value 2015 (2) 1,606 $ 577,706,036 7,178 $ 1,065,201,379 $ 1,642,907, ,215 1,478,116,875 10,488 1,401,889,919 2,880,006, ,419 1,419,065,243 7,858 1,053,237,846 2,472,303, ,864 1,133,343,731 7,750 1,118,023,021 2,251,366, , ,840,283 3, ,699,572 1,217,539, , ,719,017 3, ,377,955 1,031,096,972 (1) Estimates with imputation. (2) Cumulative through May. For comparative purposes, through May in 2014, new single family units totaled 1,814 valued at $602,714,226, new multi-family units totaled 3,808, valued at $495,154,655, resulting in a total value of $1,097,868,881. Source: U S. Bureau of the Census. H-2

327 Retail Activity The following table presents taxable retail sales in the City of Seattle and King County. TAXABLE RETAIL SALES Year King County City of Seattle 2014 $ 49,638,174,066 $ 19,995,171, ,601,198,766 18,258,200, ,506,804,227 17,162,539, ,846,118,928 15,751,585, ,275,353,140 14,783,168,932 Source: Washington State Department of Revenue. Industry and Employment The following table presents State-wide employment data for certain major employers in the Puget Sound area. Employer Full-Time Employees In State (1) The Boeing Company 85,000 Joint Base Lewis-McChord 56,000 Navy Region Northwest 43,000 Microsoft Corp. 41,700 University of Washington 29,800 Providence Health & Services 20,200 Wal-Mart Stores, Inc. 18,000 Fred Meyer Stores 14,600 King County Government (2) 13,000 United States Postal Service 11,900 Starbucks Corp. 10,800 City of Seattle (3) 10,500 MultiCare Health System 10,300 Franciscan Health System 9,900 Nordstrom Inc. 9,300 Costco Wholesale Corp. 8,900 PeaceHealth 8,800 Swedish 8,600 Group Health Cooperative 7,800 Alaska Air Group Inc. 6,700 (1) Company policies may vary on who is considered full time. Companywide figures may include part-time employees. (2) King County government employee count includes career service employees. The company-wide employee count includes temporary workers. (3) City of Seattle company-wide employee count includes temporary workers. Source: Puget Sound Book of Lists, 2014 (rounded). This list is derived from a previous version of the Puget Sound Book of Lists than what is provided in Appendix B. The Puget Sound Business Journal believes that Amazon.com would be among the largest employers on this list if the company had provided the information needed for ranking. H-3

328 SEATTLE METROPOLITAN DIVISION (KING AND SNOHOMISH COUNTIES) RESIDENT CIVILIAN LABOR FORCE AND EMPLOYMENT (NOT SEASONALLY ADJUSTED) Annual Average 2015 (1) Civilian Labor Force 1,581,370 1,553,540 1,508,630 1,508,630 1,492,980 Total Employment 1,514,650 1,479,910 1,447,910 1,408,270 1,368,230 Total Unemployment 66,720 73,630 78, , ,750 Percent of Labor Force Preliminary, average through May. Source: Washington State Employment Security Department. SEATTLE-BELLEVUE-EVERETT METROPOLITAN STATISTICAL AREA (KING AND SNOHOMISH COUNTIES) NONAGRICULTURAL WAGE AND SALARY EMPLOYMENT (NOT SEASONALLY ADJUSTED) Annual Average (2) NAICS INDUSTRY 2015 (1) TOTAL NONFARM 1,580,600 1,551,500 1,506,200 1,461,900 1,423,500 Total Private 1,367,200 1,343,700 1,301,400 1,259,200 1,221,400 Goods Producing 255, , , , ,200 Mining and Logging Construction 84,700 77,900 71,700 65,800 63,000 Manufacturing 170, , , , ,500 Service Providing 1,325,000 1,302,900 1,263,100 1,228,100 1,201,300 Trade, Transportation, and Utilities 286, , , , ,400 Information 92,000 91,300 88,300 86,900 85,900 Financial Activities 85,900 84,700 83,400 80,000 79,600 Professional and Business Services 237, , , , ,900 Educational and Health Services 204, , , , ,600 Leisure and Hospitality 148, , , , ,500 Other Services 56,400 56,000 54,400 53,700 52,100 Government 213, , , , ,200 Workers in Labor/Management Disputes Preliminary, average through May. Totals may not foot due to rounding. Source: Washington State Employment Security Department. H-4

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331

332 PORT OF SEATTLE Intermediate Lien Revenue Bonds, Series 2015A (Non-AMT) and Series 2015C (AMT) and Intermediate Lien Revenue Refunding Bonds, Series 2015B (Non-AMT)