Port of Houston Authority 2015 Annual Report

ASSETS

AT WORK 2015 2015 annual annual re re { PORT}

OF HOUSTON AUTHORITY

GROWTH

OVER

2.1

MILLION

TEU STRATEGY

4.8 MILLION

TONS OF STEEL

OVER

$

37

MILLION

REAL ESTATE

REVENUE

At a glance

With some of the greatest natural, industrial and financial assets on the Gulf Coast, the Port of Houston Authority charts a strategic course for growth and continued success.

RECORD

4,300 TRUCKS PROCESSED

IN ONE DAY

1.175 million jobs

“The Port of Houston overall is responsible for 1.175 million jobs in the state of Texas�

Janiece Longoria | Port Chairman

CONTENTS Message from the Chairman..................6 The Port Commission..........................12 Message from the Executive Director....14 Financial Highlights..............................18 Financial Information............................22 Operational Performance.....................24 Health, Safety, Security and Emergency Management (HSSE).........28 Government Relations.........................32 Environmental Stewardship..................34 Community Outreach..........................38 Recognition of Service ........................42

C

6

] MESSAGE FROM THE PORT CHAIRMAN

CHAIRMAN MESSAGE FROM PORT CHAIRMAN JANIECE LONGORIA

The Port of Houston continues to anchor our regional economy, and is a major economic engine for the state of Texas and the nation. It includes the Port Authority’s eight public terminals and more than 150 privately owned industrial facilities along the Houston Ship Channel.

The HSC is home to the world’s second largest petrochemical and refinery complex, which is the leading driver of exports through the Port of Houston. As local sponsor of the HSC, the Port Authority plays a vital role in facilitating navigation and commerce through this 52-mile federal waterway - the busiest in the nation.

In alignment with our significant strengths, The Port Authority continues to modernize and improve facilities to meet increased cargo fueled by population growth, an expanded Panama Canal and growing customer demand along the Channel and through the port. In partnership with our stakeholders, we will continue to be a responsible steward of the HSC, our operations and the environment as we advance the Port Authority’s important mission.

ECONOMIC IMPACT – JOBS MATTER We are deeply committed to our mission and work hard to increase opportunity and jobs and to develop business through the HSC and our facilities. Our commitment and hard work have reaped benefits for our region and state, as reflected in the results of an economic impact study conducted by Martin Associates based on 2014 marine cargo activity. The Port of Houston is responsible for 1,174,567 jobs annually in Texas.

Our annual statewide economic impact is $265 billion, which is 16% of the state’s Gross Domestic Product. Compared to results of the last study in 2011, the Port of Houston contributed 147,747 or 14% in new job growth, while its statewide economic value grew by 45%.

The Port of Houston is ranked first in the nation in foreign waterborne tonnage, first in U.S. import tonnage, first in U.S. export tonnage and second in total tonnage. Unlike most U.S. ports, export tonnage at Port Authority terminals exceeds imported cargo, which contributes to a positive regional trade balance. Because of activity through the Port of Houston, the Houston metropolitan area has surpassed the New York metropolitan area as the nation’s largest export market over the last four years and has contributed to Texas being the nation’s top exporting state for 13 consecutive years.

LONGSTANDING POSITIVE LABOR RELATIONS PROVIDES COMPETITIVE ADVANTAGE We understand the need to be agile and anticipate demand from organic growth and rapidly changing patterns of international trade. I am particularly pleased to report that our container volume surged in 2015, attributed to demographic growth, as well as shippers seeking a more reliable supply chain

PORT OF HOUSTON AUTHORITY [ 7

alternative due to labor disruptions and congestion at west coast ports. Because of the excellent relationships we have maintained with labor for decades and our readiness for growth, we were able to accommodate this significant increase in cargo without delay. Our ongoing positive relationship with labor is a competitive advantage that provides shippers with certainty that their cargo will be efficiently unloaded and distributed to markets in Texas and beyond.

COMMITMENT TO THOUGHTFUL STRATEGIC PLANNING In 2015, the Port Authority developed and adopted a Strategic Plan that includes its new vision, mission, core values and four key goals to guide the organization. The goals and objectives will help focus Port Authority efforts and resources and guide planning and decision making to fulfill our vision and mission.

IT IS ALL ABOUT OPPORTUNITY AND FOCUS We continue to identify growth opportunities aligned with our strengths. The spike in container volume that occurred in early 2015 is a prime example. Because we have marketed our facilities as a certain supply chain solution, total loaded containers on our all-water Asia services has grown at a compound annual growth rate (CAGR) of 28% since 2011, and currently represents 21% of the Port Authority’s total loaded container units. We saw an opportunity to diversify business through the addition of significant cold storage facilities with ready access to our Bayport Container Terminal, and recently closed a transaction that will advance that goal. In addition, our petrochemical partners have expanded manufacturing facilities, with exports of plastic resins projected to grow 15-25% in the next few years. According to the Office of the State Demographer, over the next 30 years the Houston area’s population is likely to grow 32%, from 6.4 million to 8.4 million. The Panama Canal expansion project is expected to open in 2016. All of these serve as drivers of additional commerce, jobs and tax revenues for our region, and the Port Authority must be ready with the infrastructure resources necessary to accommodate evolving demand.

8

] MESSAGE FROM THE PORT CHAIRMAN

WE MUST MAINTAIN THE HSC TO ASSURE THERE IS NO LOST OPPORTUNITY Maintaining federal channels serving our port community continues to be a critical focus for the Port Authority. As local sponsor of the HSC, we work closely with the U.S. Army Corps of Engineers to facilitate navigation and commerce through this important artery for waterborne commerce. Although maintenance dredging is the federal government’s obligation, in recent years the allocation of federal funds for such dredging has been woefully short of the amount needed to maintain the channel at its authorized depth of 45 feet and width of 530 feet.

Annually, more than $100 million is collected in federal Harbor Maintenance Taxes (HMT) from channel users, based on value of imported cargo. Those tax revenues are deposited in the Harbor Maintenance Trust Fund intended for maintenance dredging of federal navigational waterways.

Federal appropriations for the Houston Ship Channel have generally averaged $20-30 million annually, which falls short of the $50-$60 million needed annually to adequately maintain the channel. As a result of insufficient funding over several years, there is a backlog of dredging work. Continuing to advocate for federal funds for channel maintenance continues to be a top priority for us.

In September 2015, we completed the deepening and widening of the Barbours Cut container terminal channel, matching the Houston Ship Channel’s authorized depth of 45 feet. The Bayport channel dredging is scheduled for completion in 2016. As the uncertain federal appropriation process was estimated to take at least 10 years, and it was critical the Port Authority be ready for deeper-draft vessels, the Port Authority is funding this $80 million dredging project in its entirety to ensure there will be no lost opportunities or lost jobs.

PORT OF HOUSTON AUTHORITY [ 9

MORE THAN

264.9

$

BILLION

STATEWIDE ECONOMIC

IMPACT

CAPITAL INVESTMENT ESSENTIAL TO CONTINUED SUCCESS IN GENERATING JOBS AND PROSPERITY The region and state have experienced significant population growth and economic expansion in recent years, due to the business-friendly environment and expansion of the petrochemical industry. Investments by Harris County taxpayers in Port Authority and Port of Houston facilities over the years have contributed to economic growth, job creation and expansion of the county, region and state tax base. We have all benefited from this public investment, and we continue to be a solid performer in return on investment of public funds.

In order to accommodate larger vessels and increased cargo demand in the next 10 to 20 years, the Port Authority must develop, expand and renew its facilities. Replacing aging infrastructure with more modern equipment, such as equipment at the Barbours Cut Terminal that opened in 1977, supports our legislative mandate to facilitate commerce, navigation and safe waterways.

In November 2015, the Port Authority commissioned the first of four new Super Post-Panamax shipto-shore (STS) cranes at the Barbours Cut terminal, with capacity to move a loaded container twice as fast as their predecessors. The four 30-story high electric cranes are the largest ever constructed by Konecranes, and currently stand taller than any other marine cranes in North America.

For 2016, the Port Authority anticipates it will commit approximately $300 million for various capital projects including continuing development of Bayport and modernization at Barbours Cut, channel development projects, improvements at the general cargo and bulk terminals in the Turning Basin area, railroad improvements, port security, building renovations and information technology.

LET’S CONTINUE TO WORK TOGETHER FOR THE FUTURE The Port of Houston’s economic impacts are essential to the prosperity of our region and our state.

Enhancing the competitive position of the Port of Houston in an increasingly global economy remains one of the Port Authority’s primary objectives. We must ensure necessary infrastructure is in place to meet cargo demand, as our region continues to grow in the coming decades.

In addition, the Port Authority strives to serve as a model environmental and security leader and a fiscally accountable organization. We were the first port in the nation to receive ISO 14001 certification for our environmental management. For 41 consecutive years, the Port Authority has received a Certificate of Achievement for Excellence in Financial Reporting from the Government Finance Officers Association of the United States and Canada.

In partnership with YOU, we will meet our mission “to move the world and drive regional prosperity.”

With your support we will continue to be the Gulf coast port of choice, the gateway for international commerce, and America’s distribution hub for the next generation.

Janiece Longoria | Port Chairman

10

] MESSAGE FROM THE PORT CHAIRMAN

We were the first port in the nation to receive

ISO 14001 certification for our environmental management.

PORT OF HOUSTON AUTHORITY [ 11

COMMISS THE PORT COMMISSION OF THE PORT OF HOUSTON AUTHORITY

Janiece M. Longoria

JANIECE M. LONGORIA Chairman Ms. Longoria is an honors graduate of the University of Texas, and received her J.D. from the University of Texas School of Law in 1979.

On January 8, 2013, she was unanimously appointed by the City of Houston and Harris County as the Chairman of the Port of Houston Authority, the leading economic engine for the greater Houston region. She is the first woman to hold this position in the 100 year history of the Port of Houston. She was reappointed January 12, 2015.

At the Port Authority, she serves as chairman on the Port Commission’s Audit Committee, Community Relations Committee and serves on the Governance Committee and Pension & Benefits Committee.

She serves on the Board of Directors of CenterPoint Energy, Inc., the third largest publicly traded natural gas delivery company in the U.S., and the provider of electricity transmission and distribution service for the Houston metropolitan area and natural gas distribution service in six states. She serves on CenterPoint Energy’s audit committee, and serves on its nominating and governance committee.

She is the former Vice Chairman of the University of the Texas System Board of Regents and a former board member of UTIMCO. She has been active in many non-profit organizations, and has served on the Board of Directors and the executive committee of the Board of Visitors of the UT MD Anderson Cancer Center.

12

] THE PORT COMMISSION

John D. Kennedy

Dean E. Corgey

She currently serves on the board of directors of the University of Texas Law School Foundation, the Greater Houston Partnership and the Texas Medical Center, among others.

She has received numerous honors and recognitions for her community and board service, including the Distinguished Alumnus Award for the University of Texas, the 2008 Sandra Day O’Connor Award For Board Excellence, the Female Executive of the Year Award from the Houston Hispanic Chamber of Commerce (2010), and has been recognized as a “breakthrough woman” and inducted into the Hall of Fame by the Greater Houston Women’s Chamber of Commerce.

JOHN D. KENNEDY Port Commissioner John D. Kennedy retired as a Colonel in the U.S. Army after 30 years of military service focusing on logistics, leadership and management. Following that career he served a decade as City Manager of the City of Nassau Bay, Texas.

Mr. Kennedy was appointed to the Port Commission by Harris County Commissioners Court in December 2012. He is Chairman of the Procurement and Small Business Development Task Force and serves on the Governance Committee and Community Relations Committee.

DEAN E. CORGEY Port Commissioner Dean E. Corgey has 40 years of maritime experience, including work as a merchant mariner. An elected union official, he serves as a vice president of the Texas AFL-CIO, on the West Gulf Ports Council of the AFL-CIO Maritime Trades Department and on the executive board of the Harris County AFL-CIO. He is a member of the National Defense Transportation Association, American Maritime Partnership and the Navy League of the United States.

SIONERS Clyde Fitzgerald

Theldon R. Branch, III

Mr. Corgey was appointed to the Port Commission by the Houston City Council in January 2013. He serves on the Pension and Benefits Committee and Community Relations Committee.

CLYDE FITZGERALD Port Commissioner Clyde Fitzgerald is a 54-year veteran of the Houston waterfront. He is the former president of the South Atlantic and Gulf Coast District of the International Longshoremen’s Association, having stepped down from the top post in mid-2015 after serving 13 years. At the same time, he was reelected as International Vice President and is a member of its Executive Council.

Mr. Fitzgerald was appointed to the Port Commission by Harris County Commissioners Court in June 2013. He is Chairman of the Pension and Benefits Committee and serves on the Audit Committee and Community Relations Committee.

THELDON R. BRANCH, III Port Commissioner Theldon R. Branch, III is the Chairman and Chief Executive Officer of The Branch Companies, a privately held Houstonbased holding company that oversees investments in real estate, financial assets, the automotive industry and construction. He is also the managing partner and member of the Executive Committee of Dufry Houston and Branch/ McGowen Ventures and holds the Economic Development Finance Professional certification.

Stephen H. DonCarlos

Roy D. Mease

STEPHEN H. DONCARLOS Port Commissioner Stephen H. DonCarlos has served as Mayor of the City of Baytown since May 2006, and is an attorney with the firm of Reid, Strickland & Gillette, L.L.P. Mr. DonCarlos has served as chair of the Harris County Hospital District, was on the Board of Directors of the Baytown Chamber of Commerce, and is a member of the East Harris County Bar Association, the Board of Directors of the Texas Medical Center and the Houston Bar Association.

Mr. DonCarlos was appointed by the Harris County Mayors’ and Councils Association as Port Commissioner in September of 2013.

He is Chairman of the Governance Committee and serves on the Community Relations Committee.

ROY D. MEASE Port Commissioner Roy D. Mease is a lawyer with a private practice in Pasadena, and was a member of the Pasadena City Council for eight years. He currently serves as chairman of the Pasadena Second Century Corporation, which is the city’s economic development entity.

The City of Pasadena appointed Mr. Mease to the Port Commission in September of 2013. He serves on the Governance Committee and Community Relations Committee.

Mr. Branch was appointed to the Port Commission in September of 2013 and represents the City of Houston. He serves on the Procurement and Small Business Development Task Force and Community Relations Committee.

PORT OF HOUSTON AUTHORITY [ 13

91 MILLION $

IN CAPITAL IMPROVEMENTS

INVESTED

DIRECTOR MESSAGE FROM EXECUTIVE DIRECTOR ROGER GUENTHER

The year 2015 was record-setting for the Port of Houston Authority. Container throughput surged by 9 percent and reached a new record of 2.1 million TEU – marking the first time in history that the Port Authority had surpassed the 2 million TEU mark. Operating revenue grew by 11 percent to $293.8 million.

Total Port Authority tonnage, however, declined 3 percent to 45 million tons in 2015 because steel imports dropped as a result of depressed oil prices, which triggered a slowdown in the inbound movement of steel pipe used for drilling .

During 2015, the Authority invested $91 million in capital improvements, funded primarily from the Authority’s general fund, and also from grant monies received from federal and other governmental programs. Infrastructure improvements are planned and underway to help ensure that the Authority and the private sector entities comprising the Port of Houston are better prepared to accommodate larger vessels and projected increase in cargo volume.

The Port Commission is to be commended for its dedicated leadership and service to the Port Authority. Our customers, users and community stakeholders also are to be commended, along with our employees and ILA labor for their steadfast commitment and diligence to achieving success for the Port of Houston Authority.

14

] MESSAGE FROM THE EXECUTIVE DIRECTOR

The Port Authority staff delivered many noteworthy achievements during the course of 2015, which drove success for our customers and were aligned with our strategic goals. The Port Authority’s mission statement conveys the core purpose of the Authority, which is “To Move the World and Drive Regional Prosperity.” The Authority will strategically plan to deliver its stated vision, which is to be “America’s Distribution Hub for the Next Generation.”

Throughout 2016 and beyond, staff focus will remain on four key strategic goals, which include investing in people and organizing for success; growing and diversifying the business base; providing and facilitating infrastructure to meet demand; and sustaining the business for the long-term.

AMONG 2015 ACHIEVEMENTS: Under the strategic goal for People, a new strategic plan was completed and under the goal for People, all of our employees became engaged by setting individual goals that align with the plan. Additionally, we began Leadership Readiness Training in 2015 and will continue to focus in 2016 on developing leaders.

R

PORT OF HOUSTON AUTHORITY [ 15

in awards and commitments to small businesses

16

] MESSAGE FROM THE EXECUTIVE DIRECTOR

MILLION

433.8

$

MORE THAN

1,000 MARITIME

EDUCATION

STUDENTS

Under the goal of Growth, new economic impact results for the greater port were delivered, showing a significant increase in economic activity and job creation.

We also opened a new fire station at Turning Basin, Port Police celebrated its 25th anniversary, and we completed more than 1,000 Safety audits that resulted in a 30% reduction in our incident rate.

We also partnered with logistics companies for the development of new warehouses for resin exports to attract more cargo to our region. And a record number of new FTZ authorizations were established last year.

More than 1,000 students participate in the Maritime education program in six area high schools spread across with four school districts and six area high schools.

On the Infrastructure side, a successful Navis N4 “go live” project was launched at the Barbours Cut Terminal, and the state-of-the-art terminal operating system ultimately allows more visibility to our customers.

Additionally, we finished the Barbours Cut channel deepening and widening project and commissioned four new cranes there. The expansion of the staging yard at the Turning Basin Terminal also was completed.

Our maintenance department achieved more than 99% crane reliability for the 3rd consecutive year, which is very important for our customers to be competitive through the Port of Houston.

The Port Authority also demonstrated that WE ARE READY by providing consistent and reliable service for the tremendous volume of containerized cargo diverted from the West Coast in early 2015.

Under the Stewardship goal, the Port Authority received two Diesel Emissions Reduction Act (DERA) Grants and we were recertified under ISO 14001.

Our Small Business Program, established in 2002, continued to demonstrate excellence, generating awards and commitments to small businesses totaling $433.8 million, for a 42% participation rate.

Lastly, the Community Engagement plan was approved, and we continued our outreach with the public through our M/V Sam Houston tours which totaled 28,383 passengers last year.

LOOKING AHEAD IN 2016 We continue to strategically plan to deliver the economic impact and support the creation of jobs for our region as we maintain our vision to be America’s Distribution Hub for the Next Generation.

Throughout 2016, our focus will remain on our key goals and priorities, which include creating a technology master plan, completing a branding plan, finalizing a long-term financing strategy and developing a stakeholder engagement plan and environmental leadership strategy.

We look forward to a great 2016 as we continue “to move the world and drive regional prosperity.”

Roger Guenther | Executive Director

PORT OF HOUSTON AUTHORITY [ 17

IGHLIGHT

Outstanding financial results were achieved by the Port of Houston Authority in 2015, which was another record-breaking year.

The Port Authority cracked the two million twenty-foot-equivalent unit (TEU) ceiling for the first time, surpassing 2.1 million TEU.

FINANCIAL HIGHLIGHTS

Operating and financial results for the year show that the Port Authority set new records for cargo tonnage and growth. In 2015, the Port Authority handled 30.5 million tons of cargo at its facilities, surpassing the record set in 2014 of 30.3 million tons (excluding bulk terminals leased to third parties).

Operating revenue grew by 11 percent to almost $293.8 million. This marked the sixth consecutive year that year-overyear increases have been recorded.

The Port Authority realized a seven percent increase in operating revenues for the year due to continued growth in vessel and cargo activity. Revenue that is generated by the Port Authority is reinvested in capital projects. That allows the Port Authority to continue to grow and to sustain economic development and job growth.

The Port Authority in 2015 received the Government Finance Officers Association Certificate for Excellence in Financial Reporting award for the 41st consecutive year. This award is the highest form of recognition in governmental accounting and financial report.

The Port Authority also garnered the prestigious Texas Comptroller “Gold” Leadership Circle Award for financial reporting for the fourth straight year. That award is presented to government agencies that have the most open and accessible reporting for the for the only A condensed look at the Port Authority’s 2015 financial performance is available on pages 22 and 23 of this report.

STRATEGIC GROWTH The Port Authority continues to plan and invest for the future, particularly with the rapid growth that is expected.

The Port Authority in 2015 invested $91 million in capital improvements, which mainly were funded from the general fund and also from grant monies received from federal and other governmental programs.

18

] FINANCIAL HIGHLIGHTS

Record-setting

Performance financial results for the Port of Houston Authority

in 2015 resulted in outstanding

PORT OF HOUSTON AUTHORITY [ 19

A new strategic plan was approved in 2015 defining success for the Port Authority and creating organizational goals. The plan was developed under the leadership of the Port Commission and engagement by staff, community members and stakeholders. The mission statement is “to move the world and drive regional prosperity,” while delivering the vision to become “America’s distribution hub for the next generation.”

Dredging at Barbours Cut and Bayport, an $80 million project, was ongoing in 2015, with Barbours Cut completed and Bayport expected to be completed in 2016. The U.S. Army Corps of Engineers officially assumed maintenance of the Barbours Cut channel in 2015.

The redevelopment of Barbours Cut got a big boost with the arrival of four new ship-to-shore cranes.

Enterprise Products Partners L.P., which entered into a 30year lease with the Port Authority in 2014 to build the world’s largest ethane export facility at the Port Authority’s facility on the Barbours Cut channel, successfully reconstructed Wharf 7 for its liquefied petroleum gas export facility. That wharf became operational in November 2015.

20

] FINANCIAL HIGHLIGHTS

30.5 MILLION TONS OF

CARGO

HANDLED

The first annual Container Trade Outlook Conference in Houston was held in 2015, with representatives of the International Longshoremen’s Associations, the United States Maritime Alliances and Pacific Maritime Association all represented. Manuel Benitez, depty administrator of the Panama Canal Authority, gave the keynote address.

ExxonMobil Chemical and Home Depot were in attendance at the conference, which the Port Authority hosted in partnership with the Containerization & Intermodal Institute.

In the zone’s public warehouse facilities, more than 95 businesses were served in 2015 and 706 people were employed. More than 14,000 people are employed in the total FTZ project.

The Port of Houston Authority hosted the 26th annual Breakbulk Americas conference in Houston in 2015 after being named the primary host port in 2014.

A beneficial tool for a company, an FTZ is a designated area where foreign and domestic merchandise is generally considered by the U.S. government as being outside U.S. Customs territory. That means merchandise may be brought into an FTZ without a formal customs entry, import quotas and most other import restrictions. Duties and excise taxes are not assessed until the merchandise enters U.S. commerce.

The Port Authority also continued to work on developing refrigerated cargo facilities at the Port of Houston, following a request for proposals that was issued. This facility would be for the import of cargo such as stone fruit, citrus, vegetables and flowers.

Houston’s FTZ is attracting considerable attention from businesses, in part because it has many facilities that offer a variety of services. Among the offerings are general purpose warehousing, liquid bulk storage and blending; steel and pipe storage and pipe end finishing and heat treating.

FOREIGN TRADE ZONE 84 ENJOYS SOLID SUCCESS A total of four new authorizations were added to Foreign Trade Zone 84 in 2015. One of the largest FTZs in the entire country, the zone covers Harris County as well as sites in Fort Bend and Brazos counties.

The Houston FTZ, which is sponsored and maintained by the Port of Houston Authority, has more than 4,000 acres for public use, with 26 general purpose zones and 17 subzones in 43 total sites.

Basing FTZ activities in Houston makes sense to shippers who need a strategic link to interior U.S. markets, particularly given its geographic location, which lends itself to distributing goods to the U.S. west and the Midwest.

That’s a reach of 144 million people.

The federal FTZ program initially was created to support U.S. manufacturing and to keep more jobs on American soil. The main benefits of the program are import duty benefits and tariff savings. The Foreign Trade Zones Board in Washington D.C. supervises the FTZ program under the joint supervision of the Commerce Department and Treasury Department.

All told in 2015, more than $4.4 billion in goods were handled in FTZ 84. Goods valued at more than $4 billion were shipped into the United States, while more than $340 million worth of goods were exported.

PORT OF HOUSTON AUTHORITY [ 21

S

PORT OF HOUSTON AUTHORITY

Condensed Statements of Financial Position As of December 31, 2015, 2014 and 2013

(in thousands) 2015

2014 Restated*

2013

Current and other assets

$536,544

$490,755

$469,701

Capital assets

1,505,636

1,480,184

1,433,134

$2,042,180

$1,970,939

$1,902,835

Current liabilities

44,605

41,263

41,519

Long-term debt (including current portion)

717,632

736,745

754,298

Other non-current liabilities

60,593

58,994

45,042

822,830

837,002

840,859

Net investment in capital assets

794075

749755

685,717

Restricted assets

41,853

43,290

51,793

Unrestricted assets

383,422

340,892

324,466

TOTAL NET POSITION

1,219,350

1,133,937

1,061,976

TOTAL LIABILITIES AND NET POSITION

$2,042,180

$1,970,939

$1,902,835

Assets:

TOTAL ASSETS

Liabilities:

TOTAL LIABILITIES

Net position:

22

] FINANCIAL INFORMATION

STATEMENT (in thousands) 2015

2014 Restated*

2013

Operating revenues

$293,736

$263,897

$233,673

Operating expenses

225,928

216,901

201,255

Operating Income

67,808

46,996

32,418

697

5,520

3,208

Net nonoperating revenues related to property taxes

16,792

17,075

18,223

Income before capital contributions

85,297

69,591

53,849

116

2,370

13,846

$85,413

$71,961

$67,695

$119,795

$107,281

$90,138

42,241

53,988

49,514

Cash used in capital and related financing activities

(136,244)

(149,109)

(151,140)

Cash used in investing activities

(10,583)

(3,018)

(40,180)

Net (Decrease) Increase in Cash and Cash Equivalents

15,209

9,142

(51,668)

Balances at beginning of year

55,763

46,621

98,289

Balances at End Of Year

$70,972

$55,763

$46,621

Net nonoperating revenues

Capital contributions from federal agencies

Change in net position

CONDENSED STATEMENTS OF CASH FLOWS Cash provided by operating activities Cash provided by noncapital financing activities

*2014 was restated in connection with the implementation of Governmental Accounting Standards Board Statement No. 68.

PORT OF HOUSTON AUTHORITY [ 23

O

24

] OPERATIONAL PERFORMANCE

AVERAGE

35

MINUTE TURNAROUND

TIME

OPERATIONS OPERATIONAL PERFORMANCE

When the Port of Houston Authority broke the 2 million twenty-foot equivalent unit (TEU) mark at its container terminals in late 2015, it was something special.

The Port Authority actually wound up handling more than 2.1 million TEU for the full year. The milestone marked a new record at the Port Authority, of course, and solidified PHA’s position as the undisputed leader in the container trade on the U.S. Gulf Coast.

It also highlighted a solid year operationally for the Port Authority and the importance of strategic growth.

While the Port Authority showed growth that was running about 14 percent higher than the prior year’s record of 1.958 million TEUs, the biggest spikes in container volumes came largely from Asia in the form of cargo being diverted from U.S. West Coast ports. That was due primarily to difficult labor contract negotiations there. It appears some of that new business will stay in Houston.

Despite the downturn in the energy sector in 2015, the Port Authority’s public facilities handled more than 4.8 million tons of steel, the sixth highest total in its history.

Imports from East Asia have continued to grow since 2011, and are steadily moving toward more parity with exports. Loaded container import/ export balances in 2015 stood at with about 53 percent exports and 47 percent imports.

And PHA’s real estate lease revenues continue to rise, with a record amount of $37.6 million, in spite of the mutual termination of the longstanding lease with Maersk at the Barbours Cut Terminal. The Port Commission authorized the termination of a lease with Maersk Group and its affiliated companies, a mutually agreed move that was seen as beneficial to both parties.

BIG WHEELS KEEP ON TURNING As robust container volumes continued throughout October, the Port Authority hit a new landmark in daily truck processing at the Bayport Container Terminal. A record-high 4,300 truck transactions were processed in the facility in one day, reflecting the Port Authority’s commitment to efficiency, customer service and freight mobility.

PORT OF HOUSTON AUTHORITY [ 25

26

] OPERATIONAL PERFORMANCE

Also in 2015, new software and client portals were integral to adding efficiency to the Port of Houston Authority container terminals and for paving the way for continued growth. In September, a new customer service portal called Lynx was brought online to provide trucking dispatchers and cargo owners with detailed information about their containers, vessels and trucks on a desktop computer. The customer service portal is complemented by the Port Authority’s bilingual mobile container app, which was launched the previous year. The app gives on-the-go truck drivers access to basic information such as pickup and drop-off availability on their smart phones.

Turn-around times at the Port Authority’s terminals average about 35 minutes for a single move. Faster times reduce emissions from heavy-duty truck idling. Among the improvements that help turnaround times is optical character recognition, which was implemented at the Bayport and Barbours Cut container terminal truck gates in 2013. Through the recognition technology, license plates, container numbers and chassis numbers of trucks entering the terminals are quickly processed to reduce truck turn-around times.

INFRASTRUCTURE INVESTMENT Ongoing investment in operating capacity at the Port Authority’s terminals supports continued growth, and the Port Authority handles about twothirds of the containers that move through the U.S. Gulf Coast.

The rehabilitation of Wharf 1 at Barbours Cut was completed in the fall. Four new ship-to-shore cranes were put in place, enabling larger vessels to call. A contract to upgrade Wharf 2 was awarded by the Port Commission. This project consists of upgrading 1,000 feet of wharf as part of the redevelopment of Barbours Cut Terminal, which is being carried out to support larger wharf cranes and to accommodate larger ships. The construction also includes a new stevedore support building, high mast poles, the electrical infrastructure for three new 100’ gage electric dock cranes, the demolition of the existing RORO dock, the addition of tie downs for the relocated existing 50-foot gage electric dock cranes and minor dredging to complete the 45-foot depth in front of Wharf 2.

At Bayport, the build-out of the terminal continued, with construction of a new 26-acre container yard, Container Yard 6 South, beginning. Completion is expected in 2017.

PORT OF HOUSTON AUTHORITY [ 27

28

] HEALTH, SAFETY, SECURITY AND EMERGENCY MANAGEMENT

HSSE

HEALTH, SAFETY, SECURITY AND EMERGENCY MANAGEMENT

The Health, Safety, Security and Emergency Management (HSSE) Division, as a support division for People and Operations, continued to keep the Port Authority’s many assets safe and secure in 2015.

The Port Commission granted approval in 2015 for a new Mobile Command Center, which was purchased primarily with Port Security Grant funding. That command center is slated for delivery in 2016.

Among the highlights for HSSE in 2015 was seeing a significant reduction in the safety incident rate, which dropped by about 30 percent. The division has focused anew on on minimizing he number of incidents and the results were welcomed.

Additionally, a new Security Director was hired in 2015 to fill a newly created position within the division.

A new fire station was opened in 2015 at the Turning Basin terminal, near the Sam Houston Pavilion, with a brand new dock where one of the Port Authority’s new emergency response vessels is stationed.

Also noteworthy is that during the recently completed Safety Perception Survey, more than 98% of PHA employees participated, providing feedback for further improvement, completing a priority Strategic Goal.

HSSE also initiated its local version of the national “See Something, Hear Something, Do Something” campaign.

PORT OF HOUSTON AUTHORITY [ 29

As the nation’s busiest port in terms of vessel movements, keeping the Port of Houston safe and secure requires diligent efforts by Port of Houston Authority emergency personnel as well as a host of partner agencies.

The Port Authority is certified ISO 28000, which is an international standard setting stringent requirements for a security management system (SMS) that incorporates all aspects of business management. The initial certification in 2008 was earned after a three-year process of developing the SMS and its application to the Port Police and perimeter security operations at both the Barbours Cut and Bayport container terminals. The Port Authority’s Manchester Liquid Bulk Terminal was added in 2009. The Port Authority was recertified in 2014 and a fourth terminal –Turning Basin – was added with an ISO 28000 certification that extends through 2017.

AN AVERAGE WEEK IN HSSE • FD responds to five HAZMAT calls, four EMS calls, and two fires • FD inspects 110 fire hydrants, 287 fire extinguishers, and five buildings • Security randomly screens 4,173 vehicles • Security randomly verifies 160 TWIC cards • Safety conducts 20 audits, holds 30 hours of contact training, and does two incident investigations • PD responds to 777 calls or events, issuing 41 safety citations, and making two arrests • Credentialing assists 285 people with access • The Emergency Management Dispatch Center handles 798 calls for assistance and records 154 vessel movements • HSSE departments jointly facilitated the safe movement of more than 8,000 cruise passengers per week.

FIRE DEPARTMENT • 644 total calls • 40% HAZMAT • 34% EMS • 17% Fires • 9% Other • Inspected 450 fire hydrants every month • Inspected 1,150 fire extinguishers every month • 250 Building Inspections • 217 drills conducted • 1,374 Hours of Initial Certification Training 30

] HEALTH, SAFETY, SECURITY AND EMERGENCY MANAGEMENT

SECURITY DEPARTMENT • Screened 217,032 vehicles (595 per day) • Replaced 2,300 linear feet of perimeter fence at Turning Basin Main Entrance • Maintained C-TPAT and ISO 28000 certifications • Five annual USCG Inspections, 9 unannounced USCG spot-checks • One Internal FSP audit, One Internal SMS audit, One External SMS audit • One C-TPAT re-verification audit • 8,325 TWIC cards randomly verified/32 discovered revoked EMERGENCY MANAGEMENT DEPARTMENT • Received 41,302 calls for service • Entered 7,973 vessel arrivals/departures/shifts • Processed 2,735 Gate Requests • Distributed, collected, cleaned and sorted 7,105 wristbands for Ro-Ro operations • Emergency Management staff attended 661 hours of Continuing Education • 62 Port Alert notifications sent • One three-day activation of EOC • Staffed EOC for Morgan’s Point Collision as Local On Scene Commander (LOSC), total of 53 PHA employees served over 1750 hours either in the EOC or in the field during response SAFETY DEPARTMENT • Facilitated over 1,000 safety audits • Conducted over 1,500 training contact hours • Conducted/facilitated 100 incident investigations • Decreased the incident rate by approximately 30% • Conducted the DuPont Safety Perception Survey with a 98% response rate POLICE DEPARTMENT • 40,499 incidents recorded • Average 111 incident responses per day • 96 arrests made, vast majority for outstanding warrants

MORE THAN

1,000 SAFETY

AUDITS

PORT OF HOUSTON AUTHORITY [ 31

GOVERNMENT

GOVERNMENT RELATIONS

Gina McCarthy, Administrator for the Environmental Protection Agency

A key part of the Port Authority’s overall mission is to facilitate commerce along the Houston Ship Channel, while also generating jobs. As part of this effort, the Port Authority engages with federal, state, and local decision-makers on an ongoing basis regarding policy issues that affect the port as well as educating them on port operations and needs. Government policy issues impacting ports range from dredging, freight mobility, and transportation infrastructure to environmental regulation, port security, and national trade policy.

32

] GOVERNMENT RELATIONS

A notable accomplishment in 2015 was securing one of the highest allocations to the Houston Ship Channel for maintenance dredging for the federal 2016 fiscal year. Because of Port Authority efforts working with the U.S. Army Corps of Engineers, the White House Office of Management and Budget, as well as local members of Congress and Congressional leaders from around the country, the Houston Ship Channel received $42 million for dredging. While many more dredging needs exist, this increased allocation from a limited amount of dredging funds nationally is an important acknowledgement of the importance of the Port of Houston to the U.S. Among the notable visits to the Port of Houston in 2015 were two members of the President’s Cabinet.

Gina McCarthy, Administrator for the Environmental Protection Agency, held a press conference at the Port Authority to highlight the two significant environmental EPA grants awards that are administered by the Port Authority aimed at improving air quality. The Diesel Emission Reduction Act (DERA) grants totaled almost $900,000 each, and a private match on the second grant sent the total past $2.5 million. Those grants will help fund replacement of 25 drayage trucks.

“We celebrate that the Port of Houston is growing and thriving, while still reducing pollution,” Administrator McCarthy said during her stop in April. “The DERA program is a good investment for both business and the environment.”

Agriculture Secretary Tom Vilsack visited in January, noting that renewed investment is needed in ports and other transportation infrastructure to help boost trade. Secretary Vilsack visited the Louis Dreyfus Commodities Grain Elevator on the Houston Ship Channel, used by shippers to export large volumes of grain to other countries.

“All of these ships and all of this equipment mean jobs,” Vilsack said.

Many elected or appointed officials and their staffs received briefings and tours in 2015 to learn about the Port of Houston and its economic impact.

Soon after being sworn into office, Congressman Brian Babin received a port overview and toured the Bayport Container Terminal, which is located in his district.

Also in 2015, Congresswoman Janice Hahn from California and local Congressman Ted Poe toured the port in June, learning more about the national impact of the Port of Houston, with a particular focus on security measures. The visit was arranged upon the invitation of Poe, who along with Hahn co-chairs the Congressional PORTS Caucus, which is comprised of members of Congress from around the country who work to benefit ports and address port policy issues.

Since its structure and roles are established and governed by state law, the Port Authority was actively engaged with Texas Legislature during its regular session in 2015. Various bills were filed that either directly or indirectly impacted ports. One of the proposals passed by the Legislature will allow ports to execute leases for a term up to 50 years, increased from 30 years, to give lease holders more opportunity to grow and invest in port facilities.

The Legislature also removed the second review of the Port of Houston Authority by the Texas Sunset Commission during its 2016-17 cycle. This was enacted because lawmakers were satisfied with the implementation of the recommendations from the previous review of the Port Authority in 2013.

Texas Secretary of State Carlos Cascos, in one of his first official visits in this role, toured the Port of Houston in March to learn how it contributes to international trade and the Texas economy.

Harris County Commissioners Court and the Houston City Council met in joint session at the Port Authority in January, as required by state law, to appoint the chairman of the Port Commission.

The group unanimously re-appointed Janiece Longoria to continue serving in that position for another two-year term.

County Judge Ed Emmett, Chairman Janiece Longoria and Houston Mayor Annise Parker were interviewed after the chairman was reappointed by Harris County and city in 2015.

PORT OF HOUSTON AUTHORITY [ 33

ENVIRONMENTAL STEWARDSHIP

ENVIRONM

34

] ENVIRONMENTAL STEWARDSHIP

MORE THAN

1.8

$

MENTAL

MILLION IN DERA

GRANTS

Leadership in environmental affairs has long been a hallmark of the Port of Houston Authority’s identity. In 2002, the Port Authority became the first U.S. port to attain, and also be recertified to, the international standard for environmental management systems, known as ISO 14001. Further, in 2015, the Port Authority affirmed our continued commitment to stewardship by making “Be an Environmental Leader” one of our 12 strategic goals. As part of the Port Authority’s Environmental Policy, environmental stewardship and pollution prevention are incorporated into all business decisions, best management practices, and policy programs.

PORT OF HOUSTON AUTHORITY [ 35

The Port Authority was recertified to ISO 14001 Environmental Management System standards in 2015. The distinction marked the fifth successful certification for EMS, and the Port Authority is in its thirteenth year of using the EMS tool. This particular certification standard is among the most challenging – and stringent – in the environmental industry.

Air quality is a major focus of Port Authority stewardship initiatives. In 2015, the Port Authority continued work on an updated Goods Movement Emission Inventory (GMEI). The Port Authority’s GMEI will provide estimates of air emissions from ocean-going vessels, harbor vessels, cargo-handling equipment, rail, and trucks. It is anticipated the GMEI report will show air quality improvements from the 2009 GMEI due to the Port Authority’s efforts to secure grants to replace drayage trucks and due to the North American Emission Control Area (ECA). The ECA, which limited the sulfur content of fuel for ocean going vessels to less than 1% sulfur, came into force in August 2012; the limit was further reduced in 2015 to less than 0.1% sulfur. This will further reduce the nitrogen oxides, sulfur oxides, and particulate matter emissions from ocean-going vessels.

Another valuable tool in air quality improvement is the Port Authority’s Clean Air Strategy Plan (CASP), a multi-source, multi-pollutant program identifying opportunities to reduce emissions from maritime and associated maritime transportation sources.

The Port Authority in 2015 began updating the CASP, which will be completed in 2016. Although the port continues to grow, air quality is forecast to continue to improve.

In the prior CASP, drayage truck replacement programs such as the drayage loan program, a low-interest loan program administered by the Houston Galveston Area Council (H-GAC) that enable eligible truck owners to finance new trucks with more modern engines and emission control systems, was identified as a way PHA could participate in reducing emissions. In 2015, the Port Authority was awarded two Environmental Protection Agency Diesel Emission Reduction Act (DERA) grants totaling $1.8 million dollars to facilitate drayage truck replacement. These grants

36

] ENVIRONMENTAL STEWARDSHIP

would not have been possible without partnerships.

For example, one grant was passed through to H-GAC to support its drayage truck replacement program with outreach support from the Port Authority to port users and tenants. The second, developed with the Environmental Defense Fund, resulted in a match by two companies of more than $1.6 million. The value of that partnership led to the second grant being announced at the Port Authority by EPA Administrator Gina McCarthy.

The Port Authority has been a longtime advocate of alternative fuels as a way to reduce emissions.

The Port Authority has been in negotiations for development an alternative-fuel station for a parcel of land near the Bayport Container Terminal, which serves approximately 2,000 trucks every weekday.

The goal is to help facilitate transition to cleanerburning natural gas, improving air quality. A 2016 study will look at converting Port Authority trucks at the Bayport Facility to run on alternative fuels.

The Port Authority regularly partners with the private sector, as well as state and federal government, regarding environmental matters. For example, a series of Latin American trade missions focused on green port technologies that were sponsored by the U.S. Trade & Development Agency were held at the Port Authority in 2015. Delegation from Brazil, Mexico, Panama, Columbia, and Brazil were introduced to U.S. green port technologies and U.S. best practices for environmental management at port operations. Additionally, environmental staff regularly works with Port Authority tenants through an assessment program that evaluates compliance with environmental regulations. The focus of the Port Authority’s tenant program ranges from reviews of documentation and records and offering training on applicable environmental laws so that tenants can meet and exceed environmental regulations.

As the nation‘s first ISO 14001-compliant port, it is fundamental for the Port of Houston Authority to expand environmental management efforts into more port operations and take advantage of opportunities for improving environmental practices.

CONCRETE......................... 3118.00 OFFICE PAPER....................... 36.00 PLASTIC................................... 0.23 ALUMINUM............................... 0.13 CARDBOARD............................ 2.90 WOOD DUNNAGE.............. 3902.00 SCRAP METAL...................... 511.68 USED OIL (gal)....................... 883.00 SCRAP TIRES....................... 117.00

Tons Recycled in 2015

PORT OF HOUSTON AUTHORITY [ 37

28,418 PASSENGERS TOUR THE PORT

ABOARD THE

MV SAM HOUSTON

OUTREACH COMMUNITY OUTREACH

38

] COMMUNITY OUTREACH

Community outreach is critical to the work we do because the Port of Houston Authority in many respects is a friend and neighbor to local communities along the Houston Ship Channel. These communities also provide valuable feedback during outreach efforts that ultimately helps the Port Authority become a more trusted leader and partner in the local area.

A new Community Engagement Plan was adopted by the Port Commission in 2015 after feedback from both internal and external focus groups was obtained and used to develop the plan.

This positive move will help strategically align our outreach efforts going forward, in conjunction with PHA’s new mission, vision and objectives.

Continuing to help foster an open dialogue between community members and the Port Commission, the Chairman’s Citizens Advisory Council appointed

by Chairman Longoria continued its important work in 2015. The members, who represent cities, communities and special interest groups all along the Houston Ship Channel, meet quarterly.

Partnering with the San Jacinto Monument, the Port Authority helped create new display panels in the monument’s observation deck. Those panels educate thousands of visitors each year about the history of the Houston Ship Channel and the importance of the Port of Houston to our region and nation.

OTHER NOTEWORTHY EVENTS FOR PHA IN 2015 INCLUDED: Clean-up Efforts: PHA sponsored and employees participated in Trash Bash, helping clean up rivers, lakes and bayous in the region. PHA also partnered with Galveston Bay foundation for a special clean up on the beach at Morgan’s Point.

Park to Port: This successful event started last year as part of the Centennial celebrations for both Hermann Park and the Houston Ship Channel; but

was back in 2015 by popular demand, featuring a 20-mile bike ride that began at the park and brought nearly 1,000 Houstonians out to the port.

Blood Drives/ School Supply and Book Drive/ Food Drive: For many years, PHA has been working with the Gulf Coast Regional Blood center to host blood drives - PHA employees have donated more than 2,500 units of blood since we began hosting drives! Twenty donors have also given over 20 times each.

Food Drive: PHA employees collected 796 pounds of food, which helped the Houston Food Bank support 600 hunger relief charities in 18 southeast Texas counties.

Community Outreach: Employees continue to engage local citizens through Community Advisory Panels, Super Neighborhood Committee meetings, local events, festivals and community activities.

In addition to reaching out to the community at large, the Port Authority also reaches out to small businesses and has formally done so since 2002, when the Port Commission implemented the small Business Development Program.

That program generates $433.8 million in awards and commitments to small businesses.

Our Small Business Development Program is a tool we use in the in the Houston region to foster economic development and aid small businesses.

PORT OF HOUSTON AUTHORITY [ 39

The program engages small businesses and provides local companies the opportunity to take part in the Port Authority’s procurement process. Our program is race and gender neutral with an annual overall goal of 35 percent small business participation.

We regularly update the community on our construction plans and also provide an export education program.

Another highly successful effort involving community outreach is aimed at helping youth to pursue careers in the maritime industry.

The Port of Houston Partners in Maritime Education (PHPME) is comprised of representatives from the Port Authority, maritime industry, colleges and universities and other public and private sector leaders.

In 2015, more than 1,000 students participated in the maritime education program in six area high schools in four different school districts -- Houston, La Porte, Pasadena and Galena Park.

At the college level, Texas Southern University’s Maritime Transportation Management and Security degree program was developed through a partnership between the university and Port Authority. The program is the first university degree program tied to maritime transportation and security at any historically black college and university.

The Port Authority also works with Houston Community Collete, Lone Star College, San Jacinto College, Texas A&M University at Galveston and the University of Houston to provide maritime-related degree programs.

40

] COMMUNITY OUTREACH

SERVICE RECOGNITION OF SERVICE

The Port of Houston Authority sincerely appreciates the hard work and dedication of the following employees for their many years of service.

CAROL A. PARKER Information Technology PAULETTE D. ARCHER Police GLORIA J. GRICE Financial Accounting PHILIP J. O’NEAL SR. BCT Maintenance JONATHAN EDMOND Police DALA A. JOHNSON BPT Terminal TERRI A. HALL Controller RENITA G. WADE BCT Terminal FRANCES N. COROLLA Police ROY E. WALKER Police

PORT OF HOUSTON AUTHORITY [ 42

ABOUT

ABOUT THE PORT OF HOUSTON AUTHORITY

The Port of Houston Authority is an autonomous governmental entity of the state of Texas. Chartered to create job growth and economic development, it is governed by seven non-paid, appointed commissioners. The Port Authority is the local sponsor of the Houston Ship Channel. It owns and/or operates eight primary cargo terminals.

EDITORIAL STAFF: STAN SWIGART Director Marketing & External Communications BILL HENSEL Manager External Communications LACI THERIOT Digital Content Marketing Specialist DESIGN: JOHN MANLOVE MARKETING & COMMUNICATIONS PHOTOGRAPHY: CHRIS KUHLMAN CK Productions © 2016 Port of Houston Authority All Rights Reserved

43

] ABOUT THE PORT OF HOUSTON AUTHORITY

111 East Loop North • Houston, Texas 77029 P.O. Box 2562 • Houston, TExas 77252-2562 PHONE: 713.670.2400 FAX: 713.670.2429 www.PortOfHouston.com