by Sabrina Salas Matanane

Guam -

February 25, 2013

The Port Authority of Guam (Port) ended fiscal year (FY) 2012 with an increase of $2.1

million (M) in net assets. This is the Port's 10th straight year of increases despite

challenging economic factors such as the reduced military buildup. Although an increase

in net assets has been realized, the Port's operating income declined by $228 thousand

(K) to $350K. The Port received an unqualified (clean) opinion from independent

auditors Deloitte & Touche, LLP for both its financial statement and compliance report

over major federal programs. One finding was identified in the internal controls over

financial reporting related to local procurement and was considered a significant

deficiency. Four audit adjustments were made by the auditors that had a cumulative effect

of increasing assets by $713K.

Revenues Decrease by $494K

The Port's FY 2012 operating revenues decreased by 1% or $494K from $35.7M in FY

2011 to $35.2M. Majority of the tariff rates were increased by 3.95% in March 2012,

however, the rate increase was offset by the 3% decrease in the total number of

containers handled from 96K containers in FY 2011 to 93K in FY 2012. The number of

containers handled has been on a decline since handling 100K containers in FY 2008 to

93K containers in FY 2012.

Operating Expenses Decrease by $266K

The Port managed to maintain its expenses and experienced a slight decrease of nearly

1% or $266K from $35.1M in FY 2011 to $34.9M in FY 2012 as a result of reduced

operational supplies. The major decrease was in its general expenses of 26% or $846K

from $3.2M in FY 2011 to $2.4M in FY 2012. Within general expenses, professional

services decreased by 39% or $660K from $1.7M to $1M. Legal costs decreased by

33% or $147K from $446K to $299K.

Updates on the Port Modernization Program and Performance Management Contract

The Port Modernization Program continued in Phase I–A during FY 2012 and included

the reconfiguration and expansion of the break–bulk laydown area and upgrade of utilities

and security features. Phase 1–A is funded through a $50M grant from the Department of

Defense and administered through the Maritime Administration (MARAD). Due to

changing factors resulting from the reduction in the scope and timeline for the military

buildup and corresponding impact on cargo forecasts, the Port Modernization Program

was reset and reconfigured to address organic growth and is now known as the Guam

Commercial Port Improvement Program (GCPIP). The GCPIP's intent will be to expand

its terminal yard operations area, upgrade its equipment and maintenance capabilities,

and improve its waterfront access. The $25M loan with the ANZ bank has also been

withdrawn due to the reduction of the military buildup.

The Performance Management Contract (PMC) under litigation has been dismissed. The

Port plans to acquire a PMC for the performance, operation and maintenance of the

gantry cranes as described in Public Law 31–145. Until the PMC has been awarded, the

maintenance of the acquired gantry cranes will be continued through the previous

owners.

Merit Bonus System

The Port has not assessed the impact of Public Law 21–59 that established a merit bonus

system for Government of Guam employees that achieve superior performance grades.

This bonus is calculated at 3.5% of the employee's base salary beginning in 1991. No

liability has been recorded in the accompanying financial statements regarding this

matter.

Reports on Internal Control and Compliance, Management Letter, and IT Letter

One finding was identified in the Port's reports on internal controls and compliance and

noted as a significant deficiency. The finding was related to local procurement where

necessary procurement documents were not found. Of the four findings noted in FY

2011's Major Federal Award Programs Audit, two have been corrected.

In a separate management letter, recommendations included: (1) reviewing and analyzing

the Port Modernization costs incurred and identifying the capital assets these costs should

be charged to; (2) conducting periodic reviews of capital projects; (3) strengthening the

monitoring of grant period of availability; and (4) ensuring proper procurement

documentation. Another letter was provided to Port's management on its information

technology (IT) environment.

For a more detailed commentary on the Port's operations, refer to the Management's

Discussion and Analysis in the audit report.