Annual Report 2001

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IN THE PAST IT WAS OUR ORAL TRADITION, CARRIED

FROM VILLAGE TO VILLAGE BY CANOE THAT BROUGHT OUR

PEOPLE TOGETHER. TODAY THERE ARE MIRACLES OF

TECHNOLOGY THAT ENABLE US TO MAKE PHYSICAL DISTANCE

DISAPPEAR. HOWEVER, TRULY CONNECTING AS A PEOPLE

STILL DEPENDS ON REACHING OUT AND COMMUNICATING

WITH HONESTY AND CLARITY. IN GOOD TIMES AND BAD,

WE ARE COMMITTED TO USING ALL MEANS POSSIBLE TO

CONNECT EFFECTIVELY WITH OUR SHAREHOLDERS.

Visit us online at

www.sealaska.com to

get the latest news…

Look here for.

information on.

the Sealaska.

Heritage Institute.

Check on employment

possibilities; download

shareholder forms.

TODAY WE ARE CONFIDENT that Sealaska has rounded a difficult corner at a pivotal point in our

history. At no time in the 30 years since Sealaska was founded have we faced challenges as large

as the ones in 2001. For 2001, we are reporting a loss of $21 million on revenues of $146 million,

largely due to the last of writedowns of assets that began last year. However, we are pleased to

report that we have moved back into the path of profitability for the coming years.

WE HAVE WEATHERED THESE TIMES for several reasons. We have a strategic plan that will work

and we have the strength of our people and our culture. We are taking initiatives that ensure

that Sealaska remains financially strong as we rebuild this company for our future generations.

Last year we reported that significant amounts of year 2000 losses were due to writedowns of the

assets of discontinued operations. Major events over the past year in the U.S. and world economies

resulted in changes to our strategic deployment of these assets. As a result of our joint venture

with Nypro, Inc., our plastics business is no longer discontinued and we have reclassified our

financial statements for the operating results of TriQuest Corporation for FY 2000 and 1999. We

realize that reclassifying prior years complicates our financial statements, which can be confusing

and frustrating to our shareholders. However, this reclassification is required by Generally

Accepted Accounting Principles [GAAP] and the financial position of Sealaska that these financial

statements present is an accurate picture. The reclassification does not change the amount of our

net income or loss reported previously for 2000 or 1999.

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WE ARE CONFIDENT THAT SEALASKA HAS ROUNDED A DIFFICULT

CORNER AND THAT WE HAVE A SOUND STRATEGIC PLAN. WE HAVE

THE DEPTH OF OUR NATIVE CULTURE AND A STRONG CONNECTION

WITH SHAREHOLDERS THAT FORM THE SOLID FOUNDATION ON WHICH

WE ARE BUILDING A FUTURE FOR ALL GENERATIONS TO COME.

SHAREHOLDER SUPPORT AND FEEDBACK is important to us and we take that as a great responsibility.

At the close of 2001, the board of directors conducted an extensive telephone survey as one step to

strengthen our connection with shareholders. We measured some baseline opinions that we have

tracked since our first survey in 1982, and we probed some current issues. Shareholders strongly

support including our shareholder descendants in Sealaska, and want the board to continue to hold

community meetings with shareholders. We also found that shareholder support for Sealaska continues

to be strong, despite the extreme business challenges and losses in 2000 and 2001. Our link to our

shareholders through Native culture is the strongest bond that we have as a community, We have the

collective strength of our people’s heritage and Sealaska will continue forward as a Native institution.

IN THE COMING YEAR we expect to see our Nypro joint venture plastics business grow using the

unique competitive advantages Sealaska and our subsidiaries have as minority-owned, diversity

suppliers. We are moving into contracting with the federal government using some of these same

advantages that ANCSA corporations have under federal law. We expect a positive resolution to

the legal disputes surrounding our investment in wireless telephone licenses that will return our

original investment plus accrued interest at a very high rate. A significant amount of this investment

will be returned to the shareholders’ permanent fund.

IN EARLY 2002 we sent all shareholders a document presenting our strategic plan for the coming

years. We have confidence that this plan will grow and strengthen Sealaska and prepare us for

expansion and greater profitability in the future. We know strong shareholder support for Sealaska is

crucial to our success, and we look forward to working with you to reach our goals together.

Sincerely,

Albert M. KookeshChairman of the Board

Chris E. McNeil, Jr.President & Chief Executive Officer

RECLASSIFICATION OF 2000 AND 1999 FINANCIALS

A significant portion of Sealaska’s 2000 loss was due

to writedowns of assets of discontinued operations.

However, major events over the past year in the U.S.

and world economies resulted in the redeployment

of some of these assets. Accordingly, we have

reclassified our 2000 and 1999 financial statements

to reflect the fact that our plastics business is no

longer discontinued.

The reclassification is required by Generally Accepted

Accounting Principles [GAAP] and accurately reflects

our most recent audited financial position.

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OUR HERITAGE as Alaska Native

people is the strongest bond

we have. Our shareholders have

a very broad view of Sealaska

Corporation that includes a

strong belief that Sealaska is

vitally important to the survival

of Native people. We are

fortunate that our shareholders

clearly and unequivocally

include Sealaska as a

full-fledged family member.

Families are held together by

shared values, shared memories

and shared challenges.

Acceptance into the family and

in the Native community

includes a commitment to work

together for the benefit of all.

Sealaska will never back away

from its support of programs

that benefit shareholders and

issues that are important to

the Native community.

The results of our in-depth

shareholder survey reminded us

that Alaska Native identity is vital

to our people. This identity is why

Sealaska remains committed,

through the ups and downs of

corporate business, to provide

benefits and resources to keep

our culture strong.

Sealaska continues to

support the Sealaska Heritage

Institute (SHI), a leading cultural

force in Southeast Alaska. SHI

supports elders, youth and

adults through cultural and

language studies, culture

camps and in many other ways.

For over two decades, Sealaska

Corporation, through the

Sealaska Heritage Institute,

has provided over $5.5 million

in scholarships to look after the

dreams of our young people

through higher education. There

is no greater strategic invest-

ment that Sealaska can make

than in shareholder education.

Since 1991, our Elders

Settlement Trust has also

paid nearly $6 million to help

our Native elders when they

reach age 65.

Shareholders also look

to Sealaska to advocate for

broader issues that are vitally

important to the Alaska Native

community, including the

protection of Native subsistence

hunting and fishing. Support

of the Alaska Federation of

Natives and other organizations

complements our own political

initiatives and working together

strengthens our political

influence within the state of

Alaska and at the national level.

Shareholders also tell us

that Sealaska Corporation

means more to them than just

money and dividends. At the

same time, dividends are clearly

important to our shareholders.

We had 16 straight years of

profitable operations before

2000, and over 28 years of

continuous dividends and

distributions to shareholders.

Much of our attention this past

year has been driven by our

goal to return Sealaska to

profitability and to enable us to

pay meaningful dividends and

distributions to our shareholders.

SEALASKA CORPORATION AND OUR SHAREHOLDERS POSSESS A

RICH HERITAGE, FOUNDED ON NATIVE VALUES THAT ARTICULATE

OUR CARE FOR EACH OTHER AND THAT CALL ON EACH OF US TO

WORK TOGETHER TO BUILD STRONG FAMILIES AND COMMUNITIES.

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WITH OVER 290,000 ACRES

of land and 590,000 acres

of mineral estate, Sealaska

is the largest private landowner

in Southeast Alaska. Our

connection to this resource

base will remain the foundation

of our business in perpetuity,

providing revenues and cash

flow for operations and benefits

to shareholders.

Sealaska Timber Corporation

(STC) has operated successfully

for over two decades, providing

consistent profits and cash flow

for overall Sealaska operations.

Our new strategic plan

includes re-engineering STC

to take better advantage of

global timber and wood-fiber

markets. The economics of the

global timber market are now

fluctuating beyond the ordinary

up and down market cycles

that have been the pattern

of the industry for decades.

We are re-examining STC from

top to bottom, and seeking ways

we can take better advantage

of new market opportunities

and technologies.

We are analyzing exactly how

much we need to re-engineer

STC. Can STC continue to be

successful by becoming more

efficient in harvesting and

marketing timber, or are there

other strategies we should

pursue to maximize the return

we get from our forest resources?

OUR VAST HOLDINGS OF NATURAL RESOURCES HAVE BEEN THE

BASIS OF ALL OUR BUSINESS DEVELOPMENTS FROM THE START.

TODAY, NEW STRATEGIES AND NEW OPPORTUNITIES CONTINUE TO

BE BUILT ON OUR FOUNDATION OF NATURAL RESOURCES AND LAND.

Beyond the development of

our timber resources, we are

constantly looking at innovative

ways to generate revenue

from our natural resource base,

increase the inherent value

of our resources and create

shareholder opportunities in the

process. Our natural resource

development creates revenue

and our current initiatives to

increase revenues include:

■ Marketing construction materials

like rock, sand and gravel

■ Contracting with the federal

government to survey

ANCSA lands

■ Leasing logging roads and

other timber development

infrastructure to third parties

and generating revenues from

easements across our lands

■ Pursuing land exchanges with

state, federal and private entities

■ Through a federal grant,

analyzing if the technology has

sufficiently developed to

generate fuel-grade ethanol

from wood waste and timber

development residue at a profit

■ Selecting the remaining acreage

entitlement from ANCSA

Prospective initiatives include:

■ Creating a “mitigation bank”

to enable the use of cut-over

lands that have been reforested

to offset national wetlands

that were disturbed as a result

of development

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BUILDING STRATEGIC

PARTNERSHIPS is key to

developing our new investments.

From the start, Sealaska pursued

a strategy of purchasing and

managing a variety of operating

companies with mixed results.

Today our plan focuses on

sharing the risks and benefits

of business operations with

successful strategic partners.

These partnerships enable

us greater participation in the

fast-changing global economy.

Our strategic partners

bring to Sealaska a proven

track record in their particular

industries. Sealaska contributes

its share of capital and a set of

unique competitive advantages

derived from our special

recognition as an Alaska Native

owned company.

Federal contracting

opportunities

The U.S. government is the

largest purchaser of goods and

services in the world. Alaska

Native corporations have attrac-

tive federal contracting advan-

tages by law, and many ANCSA

corporations have aggressively

and successfully become

significant federal contractors.

ANCSA classifies Native

corporations as minority-owned

businesses. For example,

TriQuest is a member of the

National Minority Supplier

Development Council, and in

the private sector we expect

to bring more diversity supply

business to our plastics

company joint venture with

Nypro, Inc. ANCSA corporations

have these same competitive

advantages in the government-

contracting arena.

Alaska Native Wireless

AT&T Wireless Services, our

strategic partner with Alaska

Native Wireless, is a major player

in the telecommunications

industry. Sealaska Corporation,

Doyon, Ltd. and Arctic Slope

Regional Corporation, along

with AT&T Wireless Services

and others, formed Alaska

Native Wireless and competed

successfully for wireless

telecommunications licenses

in a number of major U.S.

markets, using Alaska Native-

owned “designated entity”

bidding credits.

In this investment, Alaska

Native Wireless is expected

to own the airwaves that the

industry needs to build out and

offer a wide range of wireless

communication services to

key U.S. markets. The value of

our licenses does not require

further investment of capital to

build the networks and offer the

wireless services to customers.

BUILDING STRATEGIC PARTNERSHIPS IS KEY TO DEVELOPING OUR

NEW INVESTMENTS. TODAY OUR PLAN FOCUSES ON SHARING THE

RISKS AND BENEFITS OF BUSINESS OPERATIONS WITH KNOWL-

EDGEABLE STRATEGIC PARTNERS. SEALASKA PROVIDES CAPITAL

AND A SET OF UNIQUE ADVANTAGES AS AN ANCSA CORPORATION.

Valley View Casino

Sealaska’s loan to the San

Pasqual Band of Mission Indians

near Escondido, California is

located in a fast-growing and

affluent market. Despite the

operational difficulties in 2001, we

are confident that the market

potential of the area is very

strong, and that the casino

will provide a healthy return to

Sealaska. In this investment,

Sealaska provided a portion of the

startup capital to the San Pasqual

Tribe, along with First Nation

Gaming and Wells Fargo Bank.

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ANCSA CORPORATIONS are

celebrating the first 30 years

of the Alaska Native peoples’

experience in the world of

business as profit-making

corporations. ANCSA is an

experiment — an unprecedented

Congressional land claims

settlement with Native American

tribes in Alaska. Thirty years is

time enough to observe dramatic

change in the lives of Alaska

Natives, but it is also only a

short but recent chapter in the

centuries-long history of Alaska

Natives, our relationship to the

land, our relationship to each

other, and to the larger state,

national and world societies in

which they exist.

Yet Sealaska’s business

history is barely 23 years old.

Although Sealaska was formed

in June of 1972, the first seven

years of Sealaska’s existence

were consumed with setting up

the mechanics of a corporation

and, very importantly, gaining

title to the aboriginal lands we

retained in the settlement. The

first major land conveyance was

in 1979, and soon thereafter

Sealaska and the village corpo-

rations of Southeast Alaska

began developing timber. Today,

Sealaska Timber Corporation

remains the flagship subsidiary

of Sealaska, harvesting and

marketing timber, and gener-

ating income and cash flow

that has enabled virtually all

other business developments

Sealaska has undertaken.

Hands-on experience in

business has yielded lasting

expertise in a number of impor-

tant areas. But in 23 years, we

have also been reminded of the

importance of a Native value that

was articulated centuries ago:

THIRTY YEARS IS TIME ENOUGH TO OBSERVE DRAMATIC CHANGE

IN THE LIVES OF ALASKA NATIVES, BUT IT IS ONLY A RECENT

CHAPTER IN OUR HISTORY. WE HAVE ARRIVED AT A STRONG

CONFLUENCE WHERE BUSINESS AND CULTURE BLEND INTO

A POWERFUL FORMULA FOR SUCCESS.

the necessity of cooperation and

partnerships for survival. We

have developed a keen expertise

in harvesting and marketing

timber and in managing our

forest resources for the long

term. In other areas of business,

however, we have learned the

importance of forging relation-

ships with strategic partners

who bring to us their own

knowledge of certain businesses

and industries.

Thirty years later, we recog-

nize the competitive strength

of a business corporation

founded on Native culture and

Native values. It has taken three

decades to get here, but we

have arrived at a formula for

success, at a strong confluence

where business and culture

come together and push each

other toward success.

We have not arrived at this

point alone. We have reached

this point with the strong support

and backing of our shareholders.

It is because we share with

them a vision of the future for

Alaska Natives, and we have an

important part to play in

bringing that future to life.

“THROUGH FAMINE, ICE AGE,

SICKNESS, WAR AND OTHER

OBSTACLES, UNITY AND

SELF DETERMINATION ARE

ESSENTIAL TO SURVIVAL.”—Dr. Walter A. Soboleff, from his “Native Values”, as presented

in Sealaska Heritage Institute’s Tlingit Life Stories.

Patrick M. AndersonANCHORAGE

Joseph Demmert, Jr.KETCHIKAN

Clarence Jackson, Sr.KAKE

Gordon James, Sr.CRAIG

Byron I. MallottJUNEAU

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Jacqueline JohnsonFAIRFAX, VA

Albert KookeshANGOON

Daniel M. LestonAUBURN, WA

Ethel M. LundJUNEAU

Richard J. Stitt, Sr.JUNEAU

Edward K. ThomasJUNEAU

Rosita F. WorlJUNEAU

Marjorie V. YoungCRAIG

William F.StraffordEXECUTIVE VICE PRESIDENT& CHIEF FINANCIALOFFICER

Chris E. McNeil, Jr.PRESIDENT & CHIEFEXECUTIVEOFFICER

Maxine RichertVICE PRESIDENT& CORPORATESECRETARY

Richard P. HarrisSENIOR VICEPRESIDENT,NATURALRESOURCES

E. Budd SimpsonOUTSIDECOUNSEL

Patrick W. Duke, CFATREASURER, & CORPORATE INVESTMENTOFFICER

Ross V. SoboleffVICE PRESIDENT,CORPORATECOMMUNICATIONS& ASSISTANT TOTHE PRESIDENT

LEFT TO RIGHT

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FIVE-YEAR SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA

(in thousands of dollars, except per share amounts and ratios) 2001 2000 1999 1998 Short 1997

Total revenues $ 146,451 $ 150,774 $ 175,405 $ 189,466 $ 135,972

Net earnings (loss) (21,249) (122,410) 10,040 11,943 27,513

Total assets 189,887 246,536 354,600 345,916 372,496

Shareholders’ equity 103,293 124,542 254,806 253,937 251,374

Long-term bank debt 3,764 – 29,719 30,110 34,777

Short-term bank debt 40,203 53,941 19,838 15,595 19,391

Current ratio 1.13 0.57 1.00 1.20 1.40

Debt/equity ratio 0.43 0.43 0.39 0.32 0.43

Shareholders’ equity per share $ 66 $ 79 $ 162 $ 161 $ 159

Net earnings (loss) per share (13.49) (77.70) 6.37 7.57 17.45

Dividends per share $ 0.00 $ 5.08 $ 5.97 $ 5.70 $ 6.00

Book value per 100 shares 6,557 7,905 16,158 16,103 15,940

All historical financial information has been reclas-

sified to reflect the reclassification of TriQuest

Corporation (TriQuest) from a discontinued opera-

tion (as reported in the fiscal year 2000 annual

report) to a continuing operation, as a result of our

joint venture with Nypro, Inc. at TriQuest Mexico in

Guadalajara (see Note 2 to the Consolidated

Financial Statements).

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

reviews operating results of Sealaska Corporation

(the Company) for each of the three fiscal years in the

period ended December 31, 2001 (fiscal 2001, 2000

and 1999), and its financial condition at December 31,

2001. This review may contain forward-looking

statements that involve risks and uncertainties, and

should be read in conjunction with the accompanying

Consolidated Financial Statements, the related Notes

to Consolidated Financial Statements, and the Five-

Year Summary of Selected Financial Data. Our actual

results could differ materially from those anticipated

in the forward-looking statements as a result

of certain factors including the risks discussed in

“Factors Affecting Business Performance” (pg. 21).

Year 2001 in Review■ A joint venture with Nypro, Inc. was negotiated to

include the TriQuest Guadalajara, Mexico plant,

resulting in TriQuest Corporation being reclassi-

fied as a continuing business from discontinued

status, as reported last year.

■ Alaska Native Wireless (ANW) invested

$85 million into the wireless spectrum

telecommunications business with AT&T

Wireless Services. Sealaska’s share of this

investment is $40 million.

■ Valley View Casino, owned by the San Pasqual

Band of Mission Indians, opened in April 2001

with 760 slot machines.

■ TriQuest-Puget Plastics, LLC operations in

Vancouver, WA, which was formed in fiscal year

2000, will be closed by June 2002 by the mutual

agreement of its owners, Sealaska Corporation

and Arctic Slope Regional Corporation.

■ Chris E. McNeil, Jr., was appointed President &

Chief Executive Officer of Sealaska Corporation

on February 23, 2001.

■ SeaCal completed sale of its calcium carbonate

inventory and is continuing negotiations for sale

of the company and its assets.

■ In 2001 Sealaska Timber Corporation and its

contractors, for the first time, maintained a

shareholder hire rate in excess of 53% of the total

workforce employed in our logging operations.

■ Through Sealaska Heritage Institute, Sealaska

awarded $550,000 in scholarships and grants to

497 students in 2001.

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MANAGEMENT’S DISCUSSION AND ANALYSIS O F F I N A N C I A L C O N D I T I O N A N D R E S U LT S O F O P E R AT I O N S

Results of OperationsIn thousands, except per share/dividend amounts

Change ChangeYr 2001 from Yr 2000 from Yr 1999

Total Revenues $146,451 –2.9% $ 150,774 –14.0% $175,405

Combined Operating and SG&A Expenses $160,745 –30.4% $ 230,856 41.2% $163,468

Operating Income(Loss) $ (14,294) 82.2% $ (80,082) –770.9% $ 11,937

Operating Margin Percentage –9.8% –53.1% 6.8%

Income (Loss) from continuing operations before revenue sharing, equity in net losses of affiliates, income taxes and cumulative effect of changes inaccounting principles $ (15,022) 81.8% $ (82,448) –758.5% $ 12,521

Natural Resource Sharing $ 6,269 12.0% $ 5,596 –7.5% $ 6,052

Net Income (Loss) $ (21,249) 82.6% $(122,410) –1,319.2% $ 10,040

% of Total Revenues –14.5% –81.2% 5.7%

Income (loss) pershare $ (13.49) 82.6% $ (77.70) –1,319.8% $ 6.37

Dividends per share $ – –100.0% $ 5.08 –14.9% $ 5.97

Comparison of Fiscal 2001 to Fiscal Years 2000 and 1999Continuing operations generated revenues of

$146 million from our timber, plastics, telecommu-

nications, other natural resources, and investments.

Revenues from our casino loan were deferred

to a later period. Total revenues for 2001 were

$146 million, a decrease of 3% and 17%, from fiscal

years 2000 and 1999, respectively. The decrease

in revenues was a result of downsizing, the sale

and closure of various TriQuest operations and

decreased investment earnings.

The Company’s net loss for fiscal year 2001 was

$21 million, which included a loss of $3 million

combined from Sealaska Timber Corporation (STC),

investments, and headquarters operations; and a

loss on operations and writedowns at TriQuest

Corporation of $24 million and including a reversal of

a $6 million accrued discontinued operations reserve.

The fiscal year consolidated net loss of $21 million

compares to a net loss of $122 million and income

of $10 million in fiscal 2000 and 1999, respectively.

The significantly decreased loss in fiscal year

2001 was a result of downsizing and selling various

components of TriQuest Corporation, and a result of

earnings from our ANW investment in the telecom-

munications business. Overall operations improved

when compared to fiscal year 2000. These included:

Operations – Comparisons of Fiscal Year 2001 to Fiscal Year 2000I N V E S T M E N T P O R T FO L I O

Our investment portfolio earned $1.8 million in fiscal

year 2001 (including ANW income and writedown

on the casino investment) as compared to losses

of $12.7 million in fiscal year 2000. While the U.S.

equity markets continued to incur substantial losses

during the year, our portfolio, as a result of

moving investment funds to the ANW investment

($40 million) and the casino investment ($10 million)

early in the fiscal year, avoided all but the January

2001 investment market setback, and a $5 million

writedown on the casino investment.

T I M B E R O P E R AT I O N S

STC had another successful year with a return of $14

million before Alaska Native Claims Settlement Act

(ANCSA) Section 7(i) expense and a net income of

$5 million after ANCSA Section 7(i) expenses. These

results compare to a fiscal year 2000 return of

$14 million before 7(i) expense and a net income of

$6 million after 7(i) expenses and before adjustments.

In part, STC’s success in 2001 was due to its

efforts to reduce its operating and contracting cost

and to become more cost competitive in the world

markets that we serve. STC is a major economic

force in Southeast Alaska and particularly in the

Native communities where we operate. A recent

study by the McDowell Group found that STC activi-

ties cause it to be the largest private employer in

Southeast Alaska. In the Native communities where

we operate, STC provides the community with 18%

to 30% of the personal income for those communi-

ties’ residents. STC and its contractors continue to

achieve in excess of 50% shareholder hire rate by

maintaining a 53% shareholder work force during

2001. In addition, shareholder owned companies

in logging, towing and ship tending continue

to successfully provide competitive contractual

services for STC.

N AT U R A L R E S O U R C E S

Our natural resource division ended the year

with income of $0.5 million, primarily from rock

sales, resource escrows, silviculture contracts

and federal grants for researching technical and

economic feasibility of producing fuel-grade

ethanol. This compares to the previous year’s net

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income of $0.8 million. The department continues

to realize individually small but collectively important

income opportunities from the Company’s non-timber

land and other resources.

CO R P O R AT E H E A D Q U A R T E R S

Corporate general and administrative expenses

amounted to $11 million excluding natural resources

costs, which were included in the paragraph above.

This compares to prior year total expenses of

$12.5 million. The reduction was achieved through

various cost-cutting initiatives such as staff reduc-

tions, reduced travel expenses and reduced

consulting and legal expenses.

VA L L E Y V I E W C A S I N O I N V E S T M E N T

The San Pasqual Band’s Valley View (temporary)

Casino near Escondido, CA opened in April 2001

with 760 slot machines. As of the end of fiscal year

2001, the casino had 784 slot machines and was

continuing to increase the EBITDAC (Earnings

Before Interest, Taxes, Depreciation, Amortization

and Consulting fees), and the balance of cash in the

depository (available cash) account on a monthly

basis, while operating costs have continued to fall.

But, on April 19, 2002, the San Pasqual tribe informed

us that the plans for the larger permanent casino

had been shelved and that the costs ($2.7 million)

advanced by the Company for pre-construction and

development expenses were being written off. As a

result, the casino’s auditors recorded an impairment

of this amount and other related costs, totaling

approximately $4.8 million, against the casino’s

balance sheet as of December 31, 2001. The result

of this action impacted Sealaska’s fiscal year 2001

financial statements because generally accepted

accounting principles require us to account for our

$14,700,000 loan to the casino as if it were a real

estate joint venture investment as described in

Note 10 to our consolidated financial statements.

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S ( c o n t’d )

Consequently, we recorded a reduction to our

carrying value of amounts owed for principal,

interest and fees for an allocation of the losses

incurred by the casino during 2001 from initial

operations and for the termination of its plans for

a permanent facility.

None the less, our total investment of $14.7

million is expected to be recovered in full, with

accrued interest, during the next two years.

A N W S P E CT R U M I N V E S T M E N T

Our partnership with AT&T Wireless Services

contributed significant profit to the Company with

recorded interest income of $8,861,000 on our

$40 million investment made in February 2001. The

cash from the reported accrued interest income will

be paid to Sealaska at the end of the partnership.

T R I Q U E S T CO R P O R AT I O N

During fiscal year 2001, the Company negotiated

a joint venture with Nypro, Inc., a plastics company

operating 26 plants worldwide, for management

services at our Guadalajara, Mexico plant. This

agreement was signed in January 2002. During

fiscal year 2001, TriQuest had a consolidated

net loss of $24 million at TriQuest Guadalajara,

TriQuest Monterrey, Mexico, Synergy Systems in

Redmond, WA, TriQuest-Puget Plastics, LLC, and

the Vancouver, WA headquarters location. Included

in the $24 million loss is a $7 million write-down on

the value of TriQuest assets, bringing the value of

each TriQuest component to its current market

value; this compares to fiscal year 2000 when

TriQuest lost $26 million on operations and an

additional $31 million write-down was taken. The

Vancouver headquarters location was closed during

fiscal year 2001 at an annual saving going forward

of $4 million; the Monterrey, Mexico plant is in the

process of being sold, resulting in positive cash

flow, which should be completed by the summer of

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2002, and the TriQuest-Puget Plastics, LLC plant is

shut down with final closure also expected by the

summer of 2002.

D I S CO N T I N U E D O P E R AT I O N — S E A C A L, L LC

Our SeaCal mining operation at Calder (on Prince

of Wales Island in Southeast Alaska) continued to

be marketed for sale during the year as we sold

remaining stockpiled inventories. Operations during

the year reported a net loss of $406,000 (net of

fiscal year 2000 reserves) as compared to the fiscal

year 2000 loss on operations of $1.1 million and a

writedown of $15 million. No further production is

planned and we expect either the company or the

remaining assets to be sold by the summer of 2002.

A N C S A S E CT I O N 7 ( i ) D I S T R I B U T I O N

Our ANCSA Section 7(i) expense totaled $7.3 million

for the other eleven ANCSA regional corporations

and another $990,000 ANCSA Section 7(j) to our

shareholders, as compared to a combined distribu-

tion of $6 million in fiscal year 2000. In addition we

received a total of $3.2 million from other ANCSA

regional corporations during 2001, of which 50%

has been distributed to our shareholders. We have

also deferred the Company’s own fiscal year 2001

Section 7(i) and 7(j) distributions, due March 30,

2002, until the summer of 2002.

I N CO M E TA X E S

The Company does not expect to pay domestic

federal and state income taxes because of depletion

deductions from harvesting ANCSA timber. Net

operating loss carry forwards in excess of $390

million are available for future offset of federal

income tax on taxable income. During fiscal year

2000, a $1 million non-cash income tax expense as

a result of a valuation allowance for a discontinued

operation’s foreign deferred tax assets was recorded.

N E T E A R N I N G S ( LO S S ) P E R S H A R E

Net loss per share totaled $(13.49) for fiscal year

2001. This is compared to net loss per share of

$(77.70) in fiscal year 2000, and net earnings per

share of $6.37 in fiscal year 1999.

D I V I D E N D S P E R S H A R E

No dividends for fiscal year 2001 were paid to

shareholders, as a result of the losses incurred

in fiscal year 2001 and 2000. This compares

to dividends paid of $5.08 per share (a total of

$8 million) and $5.97 per share (a total of $9.4 million)

in fiscal years 2000 and 1999, respectively.

Analysis of Financial PositionA S S E T S

Total assets of $190 million at the end of fiscal year

2001 decreased 23 percent from $247 million at the

end of fiscal year 2000. Included in the total assets

at the end of 2001 are net non-current assets of

$1.8 million from discontinued (SeaCal) operations

expected to be sold in fiscal year 2002, and $123

million of investment capital and trust funds, including

the investments in ANW and the casino. Current

assets are $76 million and $60 million for 2001 and

2000, respectively. As reported in Notes 4 and 9, the

value of Sealaska’s ANCSA land and timber assets

are not included in our asset totals, although they

have significant economic value to Sealaska.

L I A B I L I T I E S

Total liabilities of $87 million decreased 29 percent

from the fiscal 2000 total of $122 million. Current

liabilities were $67 million at fiscal year-end 2001, a

36% decrease from $105 million in fiscal year 2000.

Of the current liability total, $40 million consists of

current notes payable to banks (lines of credit), and

ANCSA total Section 7(i) liabilities, including short

term deferred payments of $10 million; long term

Section 7(i) liabilities also total $10 million.

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S H A R E H O L D E R S ’ E Q U I T Y

Total shareholders’ equity was $103 million at fiscal

year-end 2001 and $125 million for fiscal year 2000.

The change in shareholders’ equity came from the

loss of $21 million reported during fiscal year 2001.

D I V I D E N D S D I S T R I B U T E D

No dividends were distributed in fiscal year 2001

as a result of negative earnings in 2001 and 2000.

This compares to dividends of $8 million, $9.4

million, $9 million and $9.5 million distributed in

fiscal years 2000, 1999, 1998 and short fiscal year

1997, respectively.

L I Q U I D I T Y A N D C A P I TA L R E S O U R C E S

At December 31, 2001, the Company had cash on

hand and current investment securities of $56

million including $40 million on hand to pay current

bank debt. In addition, another $67 million was held

in our other investments including ANW, Valley

View Casino and venture capital funds.

The Company had positive operating cash flow

of approximately $26 million in fiscal year 2001 as

compared to positive cash flow from operations of

$5 million and $9 million in fiscal years 2000 and

1999, respectively. This is due to the decreased

levels of receivables and inventory, as well as the

liquidation of certain marketable securities. In

addition, the Company repaid $10 million of long-

term debt in fiscal year 2001 as compared to net

additional borrowings of $4 million in each of

fiscal years 2000 and 1999.

At December 31, 2001, our current ratio (current

assets compared to current liabilities) was

1.13 compared to 0.57 at December 31, 2000. The

current ratio increased because of the need for

liquidity to fund operations and bank debt for 2002

and because part of the short-term bank debt was

paid in 2001. At December 31, 2001, Sealaska’s only

long-term debt is the Sealaska Plaza mortgage.

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S ( c o n t’d )

As of December 31, 2001, we had short-term

bank lines of credit (LOC) of $33 million at Sealaska

corporate and $7 million at TriQuest, totaling

$40 million. Investment securities of $36 million

were collateral for the corporate debt. One of the

corporate lines of credit expired in February 2002

and we paid off the $33 million liability. The other

line of credit (TriQuest), which will expire in July

2002, is being paid at the rate of $1 million per

month. Another available $5 million Corporate

LOC has been extended through June 2002. Any

proceeds from the sale of discontinued operations

or other operations will be used to assist in the

pay-down of the short-term bank debt.

The Company’s liquidity for fiscal year 2002 will

be affected by the operating performance of timber

operations, natural resource department activity, the

plastic companies’ requirements and proceeds from

the casino investment. Our exposure to changes in

the stock market performance has been lessened

by the investments in other passive activities and

through liquidation of investment securities to pay

down on short-term bank debt both in fiscal year

2001 and in fiscal year 2002. Additionally, we expect

to invest up to $4 million of new operating and

working capital into the TriQuest Guadalajara plant

in fiscal year 2002, and the TriQuest-Puget Plastics,

LLC will require an additional $1.4 million investment,

payable in April 2002. Offsetting these investments

should be proceeds from the sale of SeaCal and the

TriQuest Monterrey, Mexico plant. The Company

anticipates that its available financial resources are

sufficient to meet its anticipated liquidity needs for

fiscal year 2002. The Company is currently seeking

a new line of credit to fund operations and capital

needs, and we expect to have entered into a new

credit facility by the summer of 2002.

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Factors Affecting Business PerformanceCO N T R A CT I N G CO S T S A N D

E X P O R T T I M B E R P R I C E S

STC’s financial results are significantly affected by

the cost of its logging operations and the export

log prices to Asian customers. STC is reducing the

overall cost of its logging activities and is diversi-

fying into other high value export and domestic

markets. Asia will still remain STC’s most important

customer so we will continue to see export log

prices that fluctuate, based upon several factors,

including the Japanese yen to U.S. dollar exchange

rate, alternative log supply from other countries,

U.S. and Japanese government policies affecting

the balance of trade and general business and

political conditions in Japan.

I N V E S T M E N T P O R T FO L I O A L LO C AT I O N

At December 31, 2001, the Company’s liquid invest-

ment portfolio was divided between 84% fixed

income and cash instruments and 16% invested into

the equity markets. As noted above, we liquidated

approximately $33 million of investments in February

2002 to repay one of our bank lines of credit.

P L A S T I C S

TriQuest operations are largely dependent on

the economic conditions of our many customers

and the business international market cycle for

computers, telecommunication devices and other

products, as well as the constant movement to the

lowest cost production locations in the world.

A N W

As discussed in Note 11 of the consolidated financial

statements, the Supreme Court will be hearing

the NextWave appeal regarding certain spectrum

licenses awarded to ANW and until that appeal

is complete, uncertainty will exist as to the length

in time of our investment.

C A S I N O

The Valley View Casino operations are subject to

general economic conditions and the density of

additional gaming facilities in the San Diego market.

Analysis of Business OperationsT I M B E R

The major changes in timber operations in 2001

compared to 2000 were related to a decrease in

ANCSA volume harvested, the re-introduction of

helicopter logging and no log brokerage activity.

STC generated earnings and revenues as follows:

Year-Ended Year-Ended Year-Ended(In thousands of dollars) Dec. 31, 2001 Dec. 31, 2000 Dec. 31, 1999

Revenue $ 75,227 $ 82,525 $ 67,518

Earnings before 7(i) resource sharing $ 13,637 $ 14,107 $ 15,272

Earnings after 7(i) resource sharing $ 5,171 $ 5,956 $ 6,318

Asset impairment $ 0 $ (23,608) $ 0

Change in accounting method $ 0 $ (10,421) $ 0

Earnings after adjustments $ 5,171 $ (28,073) $ 6,318

Earnings after Section 7(i) resource sharing

decreased from the prior year primarily due to

lower volumes and sale prices.

Timber volumes sold by major categories, as

compared to prior years, were as follows. (Each of

the categories is explained in more detail following

the table.)

Year-Ended Year-Ended Year-Ended(In thousands of board feet) Dec. 31, 2001 Dec. 31, 2000 Dec. 31, 1999

ANCSA 101,532 104,786 95,686

Purchase & Resale 1,155 1,084 487

Purchased Stumpage 8,041 14,677 6,653

Log Brokerage 0 14,828 2,762

TOTAL 110,728 135,375 105,588

Total timber volume for 2001 decreased 18%

from 2000 and increased 5% from 1999. ANCSA

21

volumes sold during 2001 decreased 3% from 2000

and increased 6% compared to 1999. STC decreased

its harvest and sale of timber from stumpage

acquired from others by 45% compared with 2000.

Purchase and resale activities remained consistent

with 2000. Log brokerage for other private sources

decreased substantially from 2000.

Harvest of ANCSA timber in 2001 was conducted

in Southeast Alaska on approximately 5,016 acres in

the Hoonah, Hydaburg, Dall Island and Kake areas.

The total acres cut includes almost 700 acres of

helicopter partial cuts. Approximately 4,244 and

3,632 acres were harvested in 2000 and 1999,

respectively. These figures do not include harvest

acreage on non-ANCSA stumpage purchases.

Since 1980, the Company has harvested timber

from 71,389 acres of its current ANCSA conveyance

of 290,000 acres on its ANCSA lands. Of the total

ANCSA acres harvested, 10,123, or 14%, are partial

cuts using primarily helicopter logging methods

and 61,266 were harvested using clear-cut

harvesting methods.

In Southeast Alaska, young forests naturally

regenerate after harvesting, but in some site-specific

situations we plant trees to speed regeneration

and to enhance environmental protection. Sealaska

has replanted approximately 3,700 acres.

Approximately 12 to 18 years after harvest, the

young forests are precommercially thinned to speed

growth and to benefit wildlife habitat. Such work

has been completed on 14,665 acres of forest stands.

The Company has continued with techniques to

improve the quality of wood from second-growth

forests by pruning lower branches, thereby

speeding the development of clear wood. Pruning

areas totaling 661 acres have been established.

The purchase and resale activity includes the

purchase of logs from private landowners in

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S ( c o n t’d )

Southeast Alaska and subsequent sales to STC

customers, either in conjunction with, or separate

from, ANCSA and purchased stumpage timber.

The harvest and sale of purchased stumpage is

a direct result of our efforts to diversify the sources

of timber, and therefore, extend the life of our

ANCSA timber. STC harvested stumpage purchased

on 400 acres in 2001, compared to 416 acres and

445 acres in 2000 and 1999, respectively.

STC’s logging, road construction, towing, and

stevedoring contractors employed an average of

292 workers during 2001 compared to 372 and 289

in 2000, and 1999 respectively. The percentage of

shareholder employees during 2001, 2000, and 1999

was 53%, 52% and 40%, respectively.

I N V E S T M E N T P O R T FO L I O

Domestic equity market

For the second consecutive year, the domestic

equity markets posted negative returns. The reces-

sion, the events of September 11 and worries over

corporate accounting irregularities all helped to

drive the market lower. For 2001, the S&P 500 lost

11.8% and the technology-laden NASDAQ lost 20.8%.

Domestic bond market

Bond markets rallied for the second straight year

as bonds benefited from lower interest rates and

reallocation of assets from the equity market. The

domestic fixed income market, as measured by

the Lehman Aggregate Index, returned 8.42%.

P L A S T I C S

The Company negotiated a joint venture agreement

with Nypro, Inc., for the TriQuest Guadalajara

plant during fiscal year 2001. This agreement,

signed in January 2002, gives Nypro 20% ownership

of TriQuest’s Guadalajara plant in exchange for

management services. Nypro has an option to

acquire an additional 29% ownership interest,

which includes a payment to Sealaska for at least

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$4 million of intercompany loans. In addition, Nypro

can purchase the other 51% after five years at the

fair market value (FMV) of the Guadalajara plant

operations, plus another $4 million (plus accrued

interest) repayment of intercompany debt.

TriQuest had consolidated revenues of $67

million and a loss on operations of $22 million

during 2001 as a result of the continued and deep

recessionary economic conditions, which affected

all industries that TriQuest competes in, including

computers, cell phones, desktop phones and other

plastic components.

Included in the loss reported above were the

operating results of the Monterrey plant, which is

for sale. The Company expects to complete the sale

by the summer of 2002. Additionally, the TriQuest-

Puget Plastics, LLC operation in Vancouver, WA

announced in February 2002 that it will be closing

and the plant should be completely shut down by

the summer of 2002.

During 2001, there was an additional asset

write-down of $7 million due to the continuing

losses and declining market. This compared

to the $31 million impairment write-down taken

during 2000.

Discontinued OperationsM I N I N G

The SeaCal subsidiary has been reported as a

discontinued operation. Total sales of 47,354 tons

brought in sales revenues of $753,000. SeaCal

recorded a net loss of $406,000, primarily due to

sales prices below production and shipping costs.

The liquidation of the inventories generated positive

cash flow of $40,000. During 2001, SeaCal focused

on selling remaining inventories and implementing

a process for divestiture of the SeaCal operations.

Several interested companies continue to evaluate

business models that will allow them to acquire

the property and continue its production as an

operating calcium carbonate mine. If a buyer cannot

be found during the first half of 2002, Sealaska will

begin a systematic liquidation of the capital assets.

In addition, the 572-acre non-ANCSA SeaCal

property has high amenity and recreation values

that provide an opportunity to subdivide the

property for recreational lot sales.

OutlookThe matters discussed in this section are

forward-looking statements that involve risks

and uncertainties including, but not limited to,

economic, competitive, governmental and

technological factors affecting the Company’s opera-

tions, markets, products, services and prices.

T I M B E R

At the start of 2002, the outlook for STC’s log

sales is somewhat brighter than during 2001.

Housing starts and lumber demand in the United

States remain robust, while supply from Canada

continues to be constricted by high import taxes

into the U.S. markets.

In the Pacific Northwest, strong demand and

new sawmill capacity will create tight supply

for hemlock logs. In Japan, low inventories and

concern over reliability of Canadian log supply

have outweighed weakness in the yen and allowed

hemlock prices to rise. Relatively stronger buying

from Korea and decreased supply from Alaska

also will help create diversity and balance in STC’s

hemlock markets this year.

The overall economic outlook in Japan remains

rather poor and if the yen weakens further, it is

doubtful that recent price increases for some items

can be maintained throughout 2002. Even though

STC has partially insulated itself from further

23

downturns in Japan through greater market diver-

sification, STC’s performance remains strongly

linked to log prices in Japan. Overall housing starts

in Japan are expected to slow another 5% from

2001. Total Japanese softwood log imports may also

decrease by up to 10%, as imported lumber continues

to gain market share. For specialty items such as

high value spruce, STC faces less threat of substi-

tution and also will also benefit from less competi-

tion from other suppliers in Alaska and Canada.

STC will seek ways to minimize the impact of

poor pulp markets and continue to develop emerging

softwood log markets in China. Maintaining direct

market access and strengthening customer service

to end-users in Japan will help STC to remain

largely unaffected by the wave of restructuring

among trading companies that is expected to occur

in Japan this year.

Recognizing the evolving timber markets and

fundamental changes in STC’s traditional markets,

STC is undergoing a strategic planning process to

chart its future direction. This process builds on

STC’s current strengths, identifies new markets,

products, business opportunities and partnerships

and plots a course for continued success of STC.

Key markets and opportunities identified in this

planning process are already being served. British

Columbia is negotiating with its First Nations bands

to settle their land claims. This would create

opportunities for STC to work closely with Natives

in Canada to sell their logs into the distribution

channels already established by STC. Also, the

U.S. Government is a major purchaser of wood

and paper products. The use of Small Business

Administration (SBA) preferences is being tested

to determine if finished products from STC logs

can capture these market opportunities.

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S ( c o n t’d )

M I N E R A L S A N D M I N I N G

The Company has almost 590,000 acres of subsur-

face rights that are rich in sand, rock, gravel and

industrial and precious metals. The production and

sales of sand, rock and gravel (materials) is the

world’s largest mining activity in terms of volume

and sales. The economic opportunity for the further

development of material resources continues to

grow because the existing material sources near

major urban centers along the Pacific Coast of the

United States have been depleted, environmental

restrictions prohibit opening of new mines or the

cost of transport to the urban centers by truck

or rail is becoming cost prohibitive. The extensive

shoreline, easy access to these materials and

ability to transport large quantities by barge is

expanding the potential opportunities for us to

become a key supplier to the major West Coast

urban centers. A key challenge is that our mineral

resources are in remote areas with high cost of

development and transportation, which hinders our

ability to produce at positive margins.

Federal highway, port and development projects

are major purchasers of sand, rock and gravel

resources. The Company is qualified to become a

preferential supplier of these materials through

the SBA and other programs that are intended to

advance minority business opportunities.

N AT U R A L R E S O U R C E S

The focus of the Natural Resources division

is directed toward initiating strategies that

create revenue and cash flow and provide

asset enhancement.

Land Entitlement

The Alaska Native Claims Settlement Act was

passed on December 18, 1971. Since that time, the

Company has selected and received conveyance

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to approximately 290,000 acres of land toward

fulfilling its entitlement under ANCSA. Largely due

to the mechanism that allocates land under the

provisions of section 14(h)(8) of ANCSA, the selection

and conveyance process is becoming significantly

encumbered despite the fact that 30 years have

passed since ANCSA was enacted. We foresee a

prolonged process with a minimum of ten or more

years before the final entitlement can be calculated,

and subsequently selected and conveyed. Therefore,

the Company has initiated negotiations with the

Bureau of Land Management in an effort to estab-

lish our final entitlement. Finalizing this entitlement

would provide us with an additional 50,000 acres of

land with a potential for 750 million board feet of

merchantable timber.

Wetland Mitigation Bank

Federal law requires that most land development

activities that involve filling or disturbance of

wetlands must compensate for lost wetlands. One

form of compensation is the purchase of “wetland

mitigation credits” from an approved “wetland

mitigation bank.” A bank typically restores degraded

wetlands, receives credits for the restoration and

is able to sell the credits to third parties who are

seeking the easiest, most cost effective way to

meet their wetland requirement. The Company, as

a major landowner, is uniquely suited to develop

these banks and sell the credits to third parties

and create substantial positive income.

Ethanol

The problem of wood residue management currently

encountered by the timber industry in Southeast

Alaska provides an opportunity to generate

additional revenues, reduce costs and assist in

maintaining the viability of the timber and woods

manufacturing industry in the region by converting

this material into a value-added product. We have

received substantial federal grants to continue

our investigation into the feasibility of converting

these wood residues into fuel-grade ethanol and

electricity for sale into the Alaskan market.

Land Stewardship

Establishing and implementing an effective

environmental management program is critical to

achieving the goals of being environmentally

responsible and sensitive to the impacts that may

occur from the Company’s resource development

activities. We strive to prevent and mitigate these

impacts through development planning, compliance

monitoring and promotion of innovative technology

and operating practices to protect the environment.

For example, we are undertaking studies to evaluate

the extent of quality wildlife habitat that exists in

second-growth stands and whether silviculture

practices can sustain and enhance those habitats,

the effect of precommercial thinning and brush

growth on early timber regeneration and to

evaluate the effectiveness of the Alaska Forest

Practices Act in the protection of fish habitat

and water quality. Maintaining a commitment to

environmental management is critical to protecting

our ability to responsibly develop resources.

I N V E S T M E N T P O R T FO L I O

Economic recovery, corporate accounting reform

and the war on terrorism will be dominant factors

affecting investment portfolio performance. A

tightening bias by the Federal Reserve Board and

correspondingly higher interest rates could nega-

tively affect the domestic bond market. However,

signs of economic growth should translate into

strong corporate earnings and higher equity prices.

25

P L A S T I C S

Nypro, Inc., our partner at the TriQuest

Guadalajara, Mexico plant, has made significant

operational improvements since being on site and

we expect that operations will be able to generate

positive cash flow and income before the fourth

quarter of fiscal year 2002. In addition, we expect

that our other plastics operations will be shut down

or sold by the summer of 2002, thereby eliminating

the need for further cash infusions. The operations

at Guadalajara require substantial additional

product orders, which we expect to occur during

the second half of fiscal year 2002.

M I N I N G

The SeaCal, LLC subsidiary has been reported as

a discontinued operation.

C A S I N O

Disregarding the write-down on the costs of the

permanent casino (construction since abandoned)

and other adjustments, of $5 million, the Valley

View Casino’s operations and cash flows have

improved considerably since last fall. The EBITDAC

(Earnings Before Interest, Taxes, Depreciation,

Amortization and Consulting fees) has continued to

improve monthly through March 2002. The senior

bank debt balance could be paid off before the end

of fiscal year 2002, which at that time would allow

the Company to begin receiving substantial cash

payments against our full $14.7 million loan

(investment). However, there are other casino

facilities being constructed in the general area.

This new competition will not be noticed in the

market until the summer of 2002, at which time

Valley View’s future monthly cash flow results could

be impacted. At the same time, the Valley View

Casino is considering expansion, and discussions

as to this and other operational management

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S ( c o n t’d )

changes are ongoing with the Company and other

lenders.

W I R E L E S S I N V E S T M E N T

Our Alaska Native Wireless investment is secure

and generating a 24.7% compounded return at

this time. Barring a decision by the U.S. Supreme

Court (expected in 2003), or a renegotiation of

the agreement by AT&T Wireless Services, the

investment will continue to allow us to recognize

significant deferred-interest income throughout

fiscal year 2002 although no cash payments are

expected until 2007.

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To the Board of Directors andShareholders of Sealaska CorporationWe have audited the accompanying consolidated

balance sheets of Sealaska Corporation and its

subsidiaries (“the Corporation”) as of December

31, 2001 and 2000, and the related consolidated

statements of income, of shareholders’ equity and

of cash flows for each of the three years in the

period ended December 31, 2001. These financial

statements are the responsibility of the Corporation’s

management. Our responsibility is to express

an opinion 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 audit to obtain reasonable

assurance about whether the financial statements

are free of material misstatement. An audit includes

examining, on a test basis, evidence supporting

the amounts and disclosures in the financial

statements. An audit also includes assessing

the accounting principles used and significant

estimates made by management, as well

as evaluating the overall financial statement

presentation. We believe that our audits provide

a reasonable basis for our opinion.

As described in Notes 4 and 9, the Corporation

has received or is entitled to receive surface and

subsurface rights to certain lands in Alaska.

The fair value of these lands and related natural

resources is not reasonably determinable and,

accordingly, is not included in the accompanying

consolidated financial statements.

As described in Note 14 to the consolidated

financial statements, the Corporation applies a

method of accounting for income taxes associated

with certain natural resources received pursuant

to the Alaska Native Claims Settlement Act, which

is not in accordance with Statement of Financial

Accounting Standard (SFAS) No. 109, Accounting

for Income Taxes.

In our opinion, except for the effects of the

matter described in the fourth paragraph above, the

consolidated financial statements referred to above

present fairly, in all material respects, the financial

position of the Corporation at December 31, 2001

and 2000, and the results of its operations and its

cash flows for each of the three years in the period

ended December 31, 2001 in conformity with

accounting principles generally accepted in the

United States of America.

As described in Note 3 to the consolidated

financial statements, effective January 1, 2000, the

Corporation changed its method of accounting

for its Section 7(i) expense and liability, and,

effective January 1, 1999, the Corporation changed

its method of accounting for silviculture and

reforestation costs.

Seattle, Washington

April 24, 2002

27

REPORT OF INDEPENDENT ACCOUNTANTS

December 31,(Dollars in thousands) 2001 2000

Assets

Current assets

Cash and cash equivalents $ 2,942 $ 12,059

Investments (Note 5) 53,506 –

Receivables, net (Note 6) 13,316 27,407

Current portion of notes receivable (Note 10) – 3,411

Inventories, net (Note 7) 5,253 15,767

Prepaid expenses and other current assets 889 1,511

Net current assets from discontinued operations (Note 2) 43 71

Total current assets 75,949 60,226

Investments (Note 5)

Permanent fund 40,979 108,294

Endowment funds 5,598 6,020

Elders' Settlement Trust 8,526 8,487

Other 1,703 2,663

Total investments 56,806 125,464

Notes receivable, less current portion (Note 10) 9,900 770

Property and equipment, at cost (Note 8) 186,870 177,370

Less: Accumulated depreciation (144,011) (126,035)

Total property and equipment, net 42,859 51,335

Purchased timber, timberland and mineral resources, at cost (Note 9) 56,146 56,146

Less: Accumulated depletion and amortization (54,457) (54,457)

Total purchased timber, timberland and mineral resources, net 1,689 1,689

Timber, timberland and mineral resources received pursuant to ANCSA (Notes 4 and 9) – –

Other assets 898 5,052

Net non-current assets from discontinued operations (Note 2) 1,786 2,000

Total assets $ 189,887 $ 246,536

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED BALANCE SHEETS

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CONSOLIDATED BALANCE SHEETS

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December 31,(Dollars in thousands) 2001 2000

Liabilities and Shareholders’ Equity

Current liabilities

Current portion of long-term debt (Note 12) $ 40,203 $ 53,941

Accounts payable 5,987 16,395

Amounts payable under ANCSA Section 7(i) and 7(j) (Notes 3 and 4) 9,890 7,585

Other accrued expenses 11,033 27,146

Total current liabilities 67,113 105,067

Non-current liabilities

Amounts payable under ANCSA Section 7(i) and 7(j) (Notes 3 and 4) 10,453 10,919

Long-term debt, less current portion (Note 12) 3,764 –

Other non-current liabilities 5,264 6,008

Total liabilities 86,594 121,994

Commitments and contingencies (Note 17) – –

Shareholders' equity (Notes 3 and 16)

Common stock, no par or stated value; authorized 2,000,000 shares; issued 1,575,226 shares

Contributed capital 93,162 93,162

Retained earnings 10,131 31,380

Total shareholders' equity 103,293 124,542

Total liabilities and shareholders' equity $ 189,887 $ 246,536

The accompanying notes are an integral part of these consolidated financial statements.

Years ended December 31,(Dollars in thousands) 2001 2000 1999

Revenues

Net sales $ 144,655 $ 163,463 $ 161,281

Investment gain (loss) and interest income (Note 5) 1,796 (12,689) 14,124

146,451 150,774 175,405

Costs and expenses

Costs of products and services 126,201 145,165 131,759

Selling, general and administrative 24,868 30,781 28,223

Impairment of long-lived assets (Notes 2 and 9) 6,991 46,612 –

Interest 2,685 8,298 3,486

160,745 230,856 163,468

Earnings (loss) from operations (14,294) (80,082) 11,937

Other, net (728) (2,366) 584

Earnings (loss) from continuing operations beforenatural resource revenue sharing, equity in net lossesof affiliates, income taxes and minority interest (15,022) (82,448) 12,521

Natural resource revenue sharing under Sections 7(i) and 7(j) (Note 3 and 4) (6,269) (5,596) (6,052)

Equity in net losses of affiliates (Note 2) (5,637) (2,470) (34)

Income tax expense (15) (1,042) (34)

Minority interest – – 645

Earnings (loss) from continuing operations before discontinued operations and cumulative effect of changes in accounting principles (26,943) (91,556) 7,046

Gain (loss) from discontinued operations (Note 2) 5,694 (21,959) (876)

Earnings (loss) before cumulative effect of changes in accounting principles (21,249) (113,515) 6,170

Cumulative effect of changes in accounting principles (Note 3) – (8,895) 3,870

Net earnings (loss) $ (21,249) $ (122,410) $ 10,040

Per share of common stock

Earnings (loss) from continuing operations before discontinued operations and cumulative effect of changes in accounting principles $ (17.10) $ (58.11) $ 4.47

Gain (loss) from discontinued operations 3.61 (13.94) (0.56)

Cumulative effect of changes in accounting principles – (5.65) 2.46

Net earnings (loss) $ (13.49) $ (77.70) $ 6.37

Dividends (Note 16) $ – $ 5.08 $ 5.97

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF OPERATIONS

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Accumulated other TotalContributed Retained comprehensive shareholders’

(Dollars in thousands) capital earnings income (loss) equity

Balance at January 1, 1999 $ 93,162 $ 161,163 $ (388) $ 253,937

Net earnings 10,040

Other comprehensive loss, net of taxForeign currency translation adjustment 237

Comprehensive income 10,277

Dividends to shareholders (9,408) (9,408)

Balance at December 31, 1999 93,162 161,795 (151) 254,806

Net loss (122,410)

Other comprehensive income, net of taxForeign currency translation adjustment 151

Comprehensive loss (122,259)

Dividends to shareholders (8,005) (8,005)

Balance at December 31, 2000 93,162 31,380 – 124,542

Net loss (21,249) (21,249)

Balance at December 31, 2001 $ 93,162 $ 10,131 $ – $ 103,293

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

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Years ended December 31,(Dollars in thousands) 2001 2000 1999

Cash flows from operating activities

Net earnings (loss) $ (21,249) $ (122,410) $ 10,040

Adjustments to reconcile net earnings (loss) tonet cash provided by (used in) operating activities

Cumulative effect of changes in accounting principles – 8,895 (3,870)

Depreciation, amortization and depletion 14,186 21,391 14,793

Impairment of long-lived assets 6,991 46,612 –

Non-cash (gain) loss from discontinued operations (6,600) 20,858 –

Unrealized loss (gain) on investments 4,713 25,364 (10,950)

Net proceeds from investments 15,239 133 2,457

Equity in net losses of affiliates 5,637 2,470 –

Deferred taxes – 1,184 (910)

Decrease (increase) in current assets

Receivables 14,144 467 (4,219)

Inventories 10,956 (5,336) (991)

Prepaid expenses and other current assets 642 221 (464)

Increase (decrease) in current liabilities

Accounts payable (8,733) (777) 6,094

Other accrued expenses (11,402) 3,954 281

Amounts payable under ANCSA Sections 7(i) and 7(j) 1,839 214 (1,678)

Other, net (687) 1,429 (1,527)

Net cash provided by operating activities $ 25,676 $ 4,669 $ 9,056

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

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Years ended December 31, (Dollars in thousands) 2001 2000 1999

Cash flows from investing activities

Capital expenditures $ (12,535) $ (22,144) $ (10,437)

Issuance of notes receivable (10,626) (4,074) –

Net cash used in investing activities (23,161) (26,218) (10,437)

Cash flows from financing activities

Change in book overdraft (1,658) 516 (287)

Dividends to shareholders – (8,005) (9,408)

Repayments of long-term debt (13,974) (30,267) (539)

Borrowings on long-term debt 4,000 34,103 4,243

Net cash used in financing activities (11,632) (3,653) (5,991)

Net decrease in cash and cash equivalents (9,117) (25,202) (7,372)

Cash and cash equivalents at beginning of year 12,059 37,261 44,633

Cash and cash equivalents at end of year $ 2,942 $ 12,059 $ 37,261

Supplemental disclosure of cash flow information

Cash paid during the year for interest $ 4,384 $ 4,683 $ 3,518

Cash paid during the year for income taxes $ 16 $ 648 $ 645

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

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Note 1O P E R AT I O N S A N D S U M M A R Y O F

S I G N I F I C A N T A CCO U N T I N G P O L I C I E S

Operations

Sealaska Corporation (Sealaska or the Corporation)

is a regional Alaska Native Corporation formed

under the Alaska Native Claims Settlement Act

(ANCSA). Sealaska’s primary continuing business

activities relate to the development, production and

sale of natural resources, primarily timber, and the

management of its investment portfolio. ANCSA is

further described in Note 4.

At December 31, 2001, Sealaska also has a

wholly owned subsidiary, TriQuest Corporation

(TriQuest), which is a plastic injection-molding

manufacturer that has operations in Guadalajara

and Monterrey, Mexico and through a 50% owned

LLC, in Vancouver, Washington. As further described

in Note 2, in December 2001, Sealaska and its

LLC partner determined that the LLC would be

liquidated, and in January 2002, Sealaska sold

a 20% interest in the Guadalajara operation.

Sealaska also owns a mineral mining business in

Southeast Alaska, which is being closed down.

B A S I S O F P R E S E N TAT I O N

The consolidated financial statements include

the accounts of Sealaska and its wholly owned

subsidiaries. All significant intercompany

balances and transactions have been eliminated

in consolidation.

As described in Note 2, during 2000, the

Corporation adopted plans to divest of both its

plastic injection-molding and mineral mining

operations. Accordingly, both operations were

presented as discontinued operations in accordance

with Accounting Principles Board Opinion No. 30,

Reporting the Results of Operations – Reporting the

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Effects of Disposal of a Segment of a Business and

Extraordinary, Unusual and Infrequently Occurring

Events and Transactions (APB 30). During 2001,

Sealaska decided to retain a majority interest in its

plastic injection-molding operations in Guadalajara.

As a result, presentation of the plastic injection-

molding business as a discontinued operation

under APB 30 is no longer appropriate and the

accompanying 2000 and 1999 financial statements

have been reclassified to reflect it as a component

of continuing operations.

Revenue recognition

Sealaska owns and manages timber, timberlands

and mineral resources. Revenues from timber and

mineral resources are recognized when earned,

and the risks of ownership have been transferred

to the buyer, which is generally upon shipment

to the customer. Revenue from the sale of plastic

products is also recognized upon shipment to

the customer. Sealaska records shipping revenues

and costs in Net Sales and Costs of Products

and Services, respectively, in the consolidated

statement of operations.

Cash and cash equivalents

Sealaska maintains zero-balance checking accounts,

and a resulting book overdraft of $1,658,000 is

included in accounts payable at December 31, 2000.

Sealaska maintains its cash in bank accounts

with various financial institutions. At times, the

balances may exceed federally insured limits.

Investments

Sealaska’s investments in marketable debt and

equity securities (Note 5) are classified as trading

securities and are recorded at fair value. Fair value

is based upon quoted market prices. The increase

or decrease in market value from period to period

relating to marketable securities included in

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Sealaska’s investment portfolio is included in the

determination of earnings. Interest and dividend

income is recognized as earned. Gains or losses on

the sale of marketable securities are determined on

a specific identification basis. Sealaska has desig-

nated certain investments for long term uses and,

therefore, classifies these amounts as noncurrent.

As of December 31, 2001, investments classified as

current are expected to be used to repay certain line

of credit and long-term debt obligations in 2002 as

described in Note 12.

Investments in limited partnerships are accounted

for using the cost or equity method, depending on

the level of ownership and whether or not Sealaska

has the ability to exercise significant influence.

Sealaska’s investment in a 50% owned plastic

injection-molding LLC in which Sealaska has the

ability to exercise significant influence, but not

control, is accounted for using the equity method.

Inventories

Inventories are stated at the lower of cost (deter-

mined on a first-in, first-out basis) or estimated

net realizable value.

Depreciation, amortization and depletion

Depreciation and amortization of property and

equipment are provided primarily on the straight-

line method over the shorter of the expected useful

lives of the assets or the lease term as follows:

Buildings, leaseholds and improvements 15 to 30 yearsEquipment and furnishings 5 to 20 yearsComputer and office equipment 3 to 5 years

Costs of logging roads, yards and camps are

amortized as timber is harvested, based on

estimated volumes of timber to be removed from

each tax-reporting block. Costs of silviculture and

reforestation activities are capitalized as an element

of property, plant and equipment and amortized as

the associated timber is harvested (Note 3).

Depletion of purchased timber is provided

based on amounts harvested in relation to volumes

purchased. Timber and mineral resources received

under the provisions of ANCSA are carried at zero

value and no depletion expense is recorded when

such resources are harvested or extracted. For

tax purposes, depletion is reported based upon

the higher of the estimated fair value of a specific

timber block or mineral deposit as of the date of

conveyance or first commercial development.

Costs of Sealaska’s calcium carbonate mine and

related hauling roads, camp and marine facility

have been amortized based on estimated volumes

of calcium carbonate to be removed.

Long-lived assets

Long-lived assets are reviewed for impairment

whenever events or changes in circumstances

indicate that the carrying amounts of assets may

not be recoverable. The carrying values of long-lived

assets are assessed for impairment by evaluating

the operating performance and future undiscounted

cash flows of the underlying assets. Adjustments to

reduce the net book value to estimated fair value

have been made, as described in Note 2, where the

sum of the expected future undiscounted net cash

flows is less than net book value.

Income taxes

Federal, state and foreign income taxes are

computed at current tax rates, less tax credits.

Taxes are adjusted both for items that do not have

tax consequences and for the cumulative effect

of any changes in tax rates from those previously

used to determine deferred tax assets or liabilities.

Income tax expense or benefit includes amounts

that are currently payable plus changes in deferred

tax assets and liabilities that arise because of

temporary differences between the bases of assets

and liabilities for financial reporting and income tax

35

purposes. However, as described below, the effect

of temporary differences relating to timber and

other natural resource assets conveyed to Sealaska

under the provisions of ANCSA are excluded from

the income tax benefit.

Sealaska has received substantial natural

resource assets under the provisions of ANCSA as

described in Note 9. These assets are carried in

the accompanying consolidated financial statements

at zero value. For tax reporting purposes, these

assets have a tax basis determined as the higher of

their estimated fair value at the date of conveyance

or first commercial development. As a result, a

substantial difference between the book and tax

basis exists which is considered a temporary

difference for purposes of reporting income tax

expense under accounting principles generally

accepted in the United States of America; specifi-

cally Statement of Financial Accounting Standards

(SFAS) No. 109, Accounting for Income Taxes. Sealaska

does not believe a deferred tax asset should be

reported for this temporary difference because

Sealaska does not expect to pay federal or state

income taxes in the foreseeable future due to

significant amounts of tax depletion deductions

expected from ANCSA resource assets. As a result,

the accompanying consolidated financial statements

exclude the deferred tax asset that would be

required under accounting principles generally

accepted in the United States of America.

Earnings (loss) per share

Earnings (loss) per share information in the

consolidated financial statements is based on

shares outstanding as of year end. Sealaska has

no agreements or securities outstanding that

represent dilutive potential common shares.

The number of shares outstanding at December

31, 2001 is 1,575,226. The number of shares

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S ( c o n t’d )

outstanding has periodically been adjusted to reflect

revisions in the number of enrolled shareholders.

Fair value of financial instruments

The carrying amounts of cash and cash equivalents,

accounts receivable, notes receivable and accounts

payable approximate fair value because of the

short-term nature of these instruments. The

carrying amounts of investment securities are

stated at market value. The carrying value of debt

approximates fair value as the debt bears interest

that adjusts based upon market interest rates.

Foreign currency translation

The financial statements of TriQuest’s foreign

operations have been translated into U.S. dollars

in accordance with SFAS No. 52, Foreign Currency

Translation. As the U.S. dollar is the functional

currency of the Mexican subsidiary, there are

no foreign currency translation adjustments and

all gains and losses from remeasuring foreign

currency transactions into the functional currency

are included in income.

Major customers

During 2001 and 2000, there was one unrelated

timber customer that represented 15% and 13%,

respectively, of consolidated net sales. During 2001

and 1999, there was one unrelated plastic injection-

molding customer that represented 10% and 17%,

respectively, of consolidated net sales.

Use of estimates

The preparation of 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

disclosures of contingent assets and liabilities

at the date of the financial statements and the

reported amounts of revenues and expenses during

the reporting period. Actual results could differ

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from those estimates. Significant estimates include

provisions relating to uncollectible receivables

and impairment of timber, long-lived assets and

the LLC investment.

Comprehensive income (loss)

Comprehensive income (loss) includes net income

(loss) and foreign currency translation adjustments

pertaining to a Canadian subsidiary that was closed

in early 2000.

Reclassifications

Certain reclassifications have been made to the

2000 and 1999 financial statements to conform

to the 2001 presentation. Such reclassifications had

no effect on net income (loss) or retained earnings.

New accounting pronouncements

In 2001, the Financial Accounting Standards Board

(FASB) issued SFAS No. 141, Business Combinations

(SFAS No. 141) and SFAS No. 142, Goodwill and Other

Intangible Assets (SFAS No. 142). SFAS No. 141

addresses financial accounting and reporting for

business combinations and eliminates the pooling

method of accounting for business combinations.

SFAS No. 142 requires the use of a non-amortization

approach to account for purchased goodwill and

intangible assets having indefinite lives. Under the

non-amortization approach, goodwill and intangible

assets having indefinite lives are subject to regular

impairment analysis. SFAS No. 141 is effective for

all business combinations for which the date of

acquisition is July 1, 2001, or later. Sealaska will be

required to adopt SFAS No. 142 on January 1, 2002.

Sealaska does not believe that the adoption of

SFAS No. 142 will impact its consolidated financial

statements because it has no goodwill or intangible

assets as of December 31, 2001.

In 2001, the FASB issued SFAS No. 143, Accounting

for Asset Retirement Obligations (SFAS No. 143).

SFAS No. 143 provides accounting and reporting

standards for recognizing obligations related

to asset retirement costs associated with the

retirement of tangible long-lived assets. Under this

statement, legal obligations associated with the

retirement of long-lived assets are recognized at

their fair value in the period in which they are

incurred if a reasonable estimate of fair value can

be made. The fair value of the asset retirement

costs is capitalized as part of the carrying amount

of the long-lived asset and subsequently allocated

to expense using a systematic and rational method

over the assets’ useful life. Sealaska will be

required to adopt SFAS No. 143 on January 1, 2003.

Sealaska is currently analyzing the impact the

adoption of this pronouncement may have on its

consolidated financial statements.

In 2001, the FASB issued SFAS No. 144, Accounting

for the Impairment or Disposal of Long-Lived Assets,

(SFAS No. 144) which is effective for fiscal years

beginning after December 15, 2001. This statement

supercedes SFAS No. 121, Accounting for the

Impairment of Long-Lived Assets and for Long-Lived

Assets to Be Disposed Of. However, it retains the

fundamental provisions of SFAS No. 121 for the

recognition and measurement of the impairment

of long-lived assets to be held and used and the

measurement of long-lived assets to be disposed

of by sale. Sealaska will be required to adopt

this statement on January 1, 2002. Sealaska is

currently analyzing the impact the adoption of

this pronouncement may have on its consolidated

financial statements.

Note 2D I S CO N T I N U E D O P E R AT I O N S A N D

O P E R AT I O N S S U B S E Q U E N T LY R E TA I N E D

During July and October 2000, respectively,

Sealaska’s Board of Directors adopted plans to

37

divest of its plastic injection-molding (TriQuest)

and mineral mining operations. Sealaska began

marketing these operations to potential buyers

and, effective February 1, 2001, determined it had

sufficient information to establish a formal divesti-

ture plan. Under accounting principles generally

accepted in the United States of America, Sealaska

recorded a provision for loss on discontinued

operations based on management’s best estimate

of the amounts expected to be realized upon the

sale of the businesses, including losses anticipated

during the phase-out period in 2001.

In January 2001, Sealaska sold certain minor

components of the TriQuest business, however,

during the remainder of 2001, Sealaska was unsuc-

cessful in selling the remaining TriQuest business.

In January 2002, Sealaska sold a 20% interest

in TriQuest’s Guadalajara operations and issued

an option to purchase an additional 29% for an

aggregate of $325,000 in cash and Sealaska also

contracted with the buyer to manage the Guadalajara

operation. The terms of the purchase option include

an exercise price of $425,000 and require that

at least $4 million of intercompany loans from

Sealaska to TriQuest be paid prior to the exercise

of the option. There is also a second option for

the buyer to purchase the remaining 51% at fair

market value from Sealaska after the earlier of the

achievement of certain revenue goals or five years

from the date of the agreement, assuming the

remaining $4 million of intercompany loans have

been repaid to Sealaska. Both options expire upon

the termination of the management agreement.

The management agreement has a two-year term,

but can be terminated by either party after April 30,

2002, or after Sealaska has been contractually

required to invest an additional maximum of

$2.2 million to fund any operating cash shortfalls.

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S ( c o n t’d )

By entering into this Guadalajara joint venture

agreement, Sealaska will have a continuing interest

in a major component of its TriQuest business

and, thus, utilization of discontinued operations

accounting is no longer appropriate. As a result,

all prior year financial statements have been

reclassified to present the plastic injection-molding

business as a component of continuing operations.

During March 2002, Sealaska received a

non-binding offer to purchase TriQuest’s only other

Mexican facility in Monterrey, Mexico for $1,250,000,

plus other consideration. Under the proposed

terms, the purchaser will take possession of certain

fixed assets and will replace Sealaska as the

guarantor on the lease or will sublease the facility

from Sealaska for the remaining term of the lease.

Should Sealaska be unable to consummate this

purchase agreement, or find another suitable buyer,

Sealaska will remain liable for the annual $500,000

lease payments for this facility through 2011.

Management believes that the facility can be sublet.

In December 2001, Sealaska and its partner

decided to close the Vancouver, WA plastic injec-

tion-molding LLC that was started in October 2000.

The Corporation expects that it will take six months

to completely close the facility and liquidate

the remaining assets. Sealaska recorded equity

losses from the LLC amounting to $5,637,000,

and $2,470,000 in 2001 and 2000, respectively. At

December 31, 2001, Sealaska had accrued approxi-

mately $1,400,000 representing its estimated

funding commitment under the LLC Agreement.

As of December 31, 2001, Sealaska recorded an

additional impairment charge of $6,991,000 to reduce

the carrying value of TriQuest’s fixed assets to their

estimated net realizable value, which is based on

forecasted operating results and cash flows during

2001 and future years. During 2000, Sealaska recorded

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an impairment charge of $23,004,000 to reduce

the carrying value of TriQuest’s fixed assets to their

estimated value, which was based on the estimated

proceeds from the sale of the plastic injection-

molding business, and to write off the remaining

goodwill from the 1998 acquisition of TriQuest.

The amounts Sealaska will ultimately realize could

differ materially from the estimated amounts.

At December 31, 2000, Sealaska accrued a

provision of $6,100,000 for TriQuest’s anticipated

closing costs and 2001 operating losses until

disposal. As a result of the decision to retain the

Guadalajara operation, this accrual was reversed as

a component of discontinued operations during 2001.

During 2001, Sealaska was unsuccessful in

disposing of its mineral mining operation, however,

Sealaska has decided to cease operations at the

mining facility. Accordingly, Sealaska continues to

report the mineral mining operation as a discon-

tinued operation, and the results of these operations

will continue to be segregated from the results of

continuing operations. During 2000, Sealaska

recorded an estimated loss on the disposal of the

mineral mining operations of $14,758,000, which

included a provision of $500,000 for anticipated

closing costs and operating losses until disposal.

During 2001, Sealaska incurred $406,000 of

additional losses in excess of the 2000 provision

for phase out costs. Sealaska did not incur any

additional impairment charges during 2001 related

to the mineral mining operations.

No income tax benefit was recognized for these

divestitures due to the existence of significant net

operating loss carryforwards as described in Note

14. However, the loss on discontinued operations

during 2000 includes tax expense of $1,042,000 as a

result of providing a valuation allowance against

previously recorded foreign deferred tax assets.

Loss on discontinued operations consists of:

Years ended December 31,(in thousands) 2001 2000 1999

Loss from mining operations $ (906) $ (1,101) $ (876)Estimated loss on disposal

Impairment of mineral mining assets – (14,258) –

Reversal (accrual) ofphase out lossPlastic injection-molding

operations 6,100 (6,100) –Mineral mining operations 500 (500) –

Gain (loss) from discontinued operations $ 5,694 $ (21,959) $ (876)

Revenues of the discontinued mineral mining

operations amounted to $753,000, $849,000 and

$667,000 for 2001, 2000 and 1999, respectively.

Assets and liabilities of the discontinued mineral

mining operations are presented in the accompa-

nying consolidated balance sheets as follows:

2001 2000

Net current assets (liabilities) ofdiscontinued operations

Accounts receivable $ 7 $ 60Inventories 72 514Prepaid expenses and other

current assets – 20Accounts payable (31) (14)Accrued expenses (5) (509)

$ 43 $ 71

Net non-current assets of discontinued operations

Property and equipment, net $ 1,786 $ 2000

$ 1,786 $ 2000

Note 3C H A N G E S I N A CCO U N T I N G P R I N C I P L E S

Natural resource revenue sharing under

Sections 7(i) and (j)

Effective January 1, 2000, Sealaska changed its

method of accounting for its liability to other Alaska

Native Corporations under Sections 7(i) and (j) of

ANCSA. A summary of the provisions of Sections

7(i) and (j) is included in Note 4. Previously,

Sealaska had accrued and expensed the amounts

expected to be distributed under Sections 7(i)

39

and (j) arising from each year’s activity. Effective

January 1, 2000, Sealaska accrues and expenses

an amount determined by applying the provisions

of Section 7(i) to applicable revenue and expense

transactions as they are recognized in the consoli-

dated financial statements. Sealaska believes the

new policy better matches the natural resource

revenue sharing expense with the timing of

associated revenues and expenses in the consoli-

dated financial statements. As a result, Sealaska

recorded a noncurrent liability representing the

estimated distribution payable for timing differences

between the recognition of revenues and expenses

for financial reporting and Section 7(i) reporting

purposes. The cumulative effect of adopting the

new policy resulted in a decrease to net earnings

for 2000 of $8,895,000. There was no tax effect

associated with the cumulative effect. The effect of

the change was to reduce earnings from continuing

operations and net earnings for 2000 by $2,024,000.

This change does not affect the current amount

payable under ANCSA Sections 7(i) and 7(j).

Silviculture and reforestation costs

Effective January 1, 1999, Sealaska changed

its method of accounting for silviculture and

reforestation costs from expensing to capitalizing

such costs. Due to increased emphasis on its forest

management activities, Sealaska believes the

new policy provides a better matching of revenues

and expenses. The cumulative effect of adoption

of $3,870,000, which relates to silviculture and

reforestation costs expensed in previous years,

resulted in an increase to net earnings for 1999.

Silviculture and reforestation costs capitalized

during 2001, 2000 and 1999 amounted to $295,000,

$1,767,000 and $267,000, respectively. There was no

tax effect associated with the cumulative effect.

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S ( c o n t’d )

Note 4A L A S K A N AT I V E C L A I M S S E T T L E M E N T A CT

Sealaska was incorporated in 1972 as a regional

Alaska Native Corporation pursuant to the provisions

of ANCSA. Sections 7(i) and 7(j) are significant to the

consolidated financial statements and are further

described herein. Under the provisions of ANCSA,

Sealaska has received, or expects to receive,

conveyance of approximately 340,000 acres of land

in the Tongass National Forest in Southeast Alaska

of which it will own the surface and subsurface

estate. At December 31, 2001, Sealaska has received

conveyance of approximately 289,800 acres.

ANCSA also provides for selection of land in

Alaska by the village and urban corporations formed

thereunder, the subsurface estate of which accrues

to the related regional corporations. It is anticipated

that the village and urban corporations in Sealaska’s

region will receive conveyance to 286,400 acres of

land formerly part of the Tongass National Forest

of which Sealaska will own the subsurface estate.

Of the approximately 286,400 acres, conveyance

has been received of approximately 278,100 acres.

As described in Note 9, the land and related surface

and subsurface resources received under ANCSA

are carried at zero value in the accompanying

consolidated financial statements.

Section 7(i) of ANCSA requires that each Alaska

regional corporation that received revenue or value

from certain resources conveyed pursuant to ANCSA

distribute 70% of the related net revenues to twelve

of the thirteen regional corporations, including the

distributing corporation. Sealaska and the other

regional corporations have entered into a Section 7(i)

Settlement Agreement, which establishes specific

definitions and methods for calculating shareable

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revenues. Revenues received by Sealaska from the

timber resources and subsurface estate obtained

through ANCSA are subject to the revenue sharing

provisions of Section 7(i) except that subsurface

resources, commonly known as sand, rock and

gravel, are excluded from Section 7(i) revenue

sharing. Distributions to Sealaska from other

regional corporations under the provisions of Section

7(i), after reductions for distributions required by

Section 7(j) of ANCSA, are recorded as income in the

fiscal year the amounts become determinable and

collection is reasonably assured. Section 7(j) of

ANCSA requires that not less than 50% of monies

received by Sealaska from other regional corporations

under Section 7(i) must be distributed to village

corporations, shareholders of urban corporations

and at-large shareholders. Required distributions

to other regional corporations are due 90 days

following the end of the fiscal year and unpaid

distributions incur interest at the prime rate plus 5%.

Required distributions to village corporations,

shareholders of urban corporations and at-large

shareholders are based on the ratio of the total

number of Sealaska shares owned by shareholders

of village corporations, by shareholders of urban

corporations and by at-large shareholders.

During 2000, Sealaska changed its method of

accounting for revenue sharing under Sections 7(i)

and 7(j) as described in Note 3.

A summary of the composition of natural

resource revenue sharing expense as presented

in the accompanying consolidated statements of

operations is as follows:

Years ended December 31,(in thousands) 2001 2000 1999

Revenue from other regional corporations $ 3,154 $ 3,867 $ 1,928

Portion of revenue from other regional corporations distributable to village corporations, shareholders of urban corporations and at-large shareholders (1,577) (1,934) (964)

Portion of Sealaska revenue currently distributable to shareholders of urban corporations, at-large shareholders and other ANCSA corporations under Sections 7(i) and 7(j) (8,315) (5,994) (8,081)

(6,738) (4,061) (7,117)(Increase) decrease in non-

current 7(i) and 7(j) liability 469 (10,430) 1,065

Natural resource revenue sharing under Sections 7(i) and 7(j) before cumulative effect of change in accounting principle (6,269) (14,491) (6,052)

Less cumulative effect of change in accounting principle as of January 1, 2000 (Note 3) – 8,895 –

Natural resource revenue sharing under Sections 7(i) and 7(j) $ (6,269) $ (5,596) $ (6,052)

Note 5I N V E S T M E N T S

Investments consist of the following:December 31,

(in thousands) 2001 2000

Marketable securitiesMoney market funds $ 1,206 $ 17,919 Certificates of deposit 380 419 Commercial paper – 2,244 Government bonds and notes 46,462 24,773 Corporate bonds and notes – 5,210 Common stock 9,598 82,190 Accrued interest, dividends and other 758 327

58,404 133,082

Investment in Alaska Native Wireless 48,558 –Limited partnership, at equity 1,967 –Limited partnerships, at cost 1,383 2,925

110,312 136,007 Less: Current portion (53,506) –

Cash equivalents – (10,543)

Noncurrent investment securities $ 56,806 $ 125,464

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Following a shareholder advisory vote in 1987,

the Sealaska Board of Directors designated certain

funds held in investment securities and related

investment earnings be held for long-term uses

(Permanent Fund) and accordingly such funds

were not available for current operations, unless

necessary. During 2001, Sealaska determined that

the designated Permanent Fund amounts were

necessary to repay amounts outstanding under

Sealaska’s primary bank line of credit in February

2002 as described in Note 12.

Additionally, endowment funds have been

established for which the earnings accrue to the

benefit of the Sealaska Heritage Institute scholar-

ship program and the Alaska Native Brotherhood.

During 1991, Sealaska’s shareholders voted to

establish an Elders’ Settlement Trust (the Trust).

Accordingly, and pursuant to ANCSA, the Sealaska

Board of Directors established an Elders’

Settlement Trust for the benefit of shareholders.

Certain Sealaska directors are trustees of the

Trust. A noncurrent liability was established for

future one-time distributions that will be made

from the Trust to shareholders who attain the

age of 65 years. The amount distributed during

2001, 2000 and 1999 was $360,000, $291,000, and

$315,000, respectively.

As noted above with the Permanent Fund, the

Endowment Funds, Elders’ Settlement Trust and

the Directors’ Deferred Compensation Fund are

available to fund current operations, although

these will only be used if necessary.

During 2001, 2000 and 1999, Sealaska’s investment

gain (loss) and interest income totaled $6,596,000,

($12,689,000) and $14,124,000, respectively,

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S ( c o n t’d )

including realized net gains (losses) of $(5,174,000),

$8,481,000 and $13,324,000, respectively, on

sales of securities. Unrealized gains (losses) were

($87,000), ($25,364,000) and $10,950,000 in 2001,

2000 and 1999, respectively.

During 2000, the Corporation entered into

two limited partnerships that invest in early

stage development companies. The partnership

agreements require Sealaska to invest a total of

$10 million. At December 31, 2001, Sealaska has

invested approximately $3.8 million, and owns

approximately 2% and 11% of the two limited

partnerships. Sealaska’s remaining commitment

is due when called by the general partner. If

Sealaska cannot or decides not to make the

additional investment when called, then the

general partner, at its discretion, has the right

to sell Sealaska’s investment.

Note 6R E C E I VA B L E S

Receivables consist of the following:

December 31,(In thousands) 2001 2000

Trade accounts receivable, less allowance for doubtful accounts of $1,251,000 and $700,000 at December 31, 2001 and 2000, respectively $ 11,015 $ 25,354

Amounts receivable from other Alaska regional corporations under ANCSA Section 7(i) 1,063 1,388

Other, net of allowance for doubtful accounts of $0 and $688,000 at December 31, 2001 and 2000, respectively 1,245 725

13,323 27,467 Less amounts for discontinued operations (7) (60)

Total receivables $ 13,316 $ 27,407

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Note 7I N V E N TO R I E S

Inventories consist of the following:December 31,

(In thousands) 2001 2000

Timber–finished goods $ 2,152 $ 3,650 Plastics

Raw materials 1,510 4,251 Work-in-process 116 422 Finished goods 1,475 762 Tooling – 6,682

Minerals–finished goods 72 514

5,325 16,281

Less: Amounts for discontinued operations (72) (514)

Total inventories $ 5,253 $ 15,767

Inventory adjustments of $2,784,000 and

$361,000 were made to write down timber inventory

to estimated net realizable value at December 31,

2001 and 2000, respectively.

Note 8P R O P E R T Y A N D E Q U I P M E N T

Property and equipment consist of the following:

December 31,(In thousands) 2001 2000

Land, non-ANCSA $ 6,685 $ 6,081 Buildings, leaseholds and improvements 14,528 17,478 Equipment and furnishings 25,502 24,325 Logging roads, yards and camps 133,877 123,518 Reforestation and silviculture costs 6,199 5,904 Mining facilities 2,000 2,000 Construction in progress 79 64

188,870 179,370

Less: Amounts for discontinued operations (2,000) (2,000)

Total property and equipment $ 186,870 $ 177,370

Land held for development as recreational

or residential property totaling $3,099,000 and

$3,290,000 at December 31, 2001 and 2000,

respectively, is included in the caption “Land,

non-ANCSA” above.

Note 9T I M B E R , T I M B E R L A N D A N D

M I N E R A L R E S O U R C E S

As of December 31, 2001, Sealaska has received

approximately 289,800 acres of land under the

provisions of ANCSA as described in Note 4. Under

accounting principles generally accepted in the

United States of America, specifically Accounting

Principles Board Opinion No. 29, assets received in

nonmonetary transactions are recorded at their

estimated fair value at the transaction date unless

the fair value is not determinable within reasonable

limits due to major uncertainties, in which case the

assets received are recorded, and remain, at a

value of zero. It was not practical for Sealaska to

determine the estimated fair value of the resources

received on the date of receipt within reasonable

limits for financial reporting purposes. Accordingly,

Sealaska carries assets received under ANCSA at

zero value. However, these assets have significant

economic value to Sealaska.

Because timber received under ANCSA is carried

at a zero value, there is no charge to operations

for depletion when the timber on ANCSA land is

harvested and sold. However, the direct costs of

harvesting are reported as costs of products and

services in the accompanying consolidated state-

ments of operations. Through December 31, 2001,

Sealaska has harvested the timber on approximately

71,389 acres of land, of which 10,123 are partially

cut, received under ANCSA, yielding approximately

1.7 billion board feet of timber. Estimates of the

remaining volume and value of harvestable standing

timber received under ANCSA vary greatly based

upon assumed fluctuations in future log market

43

conditions. For economic and cultural reasons, it is

probable that not all of the lands will be harvested.

A summary of the volume of Sealaska’s ANCSA

timber sold and related revenue is as follows:

Years ended December 31,2001 2000 1999

Revenues (in thousands) $ 71,190 $ 71,784 $ 63,552Board feet (in thousands) 101,532 104,786 95,686

Any cost of timber, timberland and mineral

resources carried in the accompanying consolidated

balance sheets, and related depletion expense,

is attributable to timber that Sealaska, from time

to time, purchases from others. During 2000,

Sealaska determined that its principal purchased

timber asset was impaired because, based upon

management’s expectations of market prices and

harvesting costs over the remaining 10-year term of

the harvest rights, Sealaska would not recover the

investment in these stumpage rights. During 2000,

Sealaska recorded a charge of $23,608,000 to

reduce the carrying value of the stumpage rights

and unamortized cost of the associated logging

roads to their estimated recoverable value of

$500,000. There were no impairment charges

taken during 2001 or 1999.

Note 10N OT E R E C E I VA B L E

During late 2000 and early 2001, Sealaska advanced

$14,700,000 to the San Pasqual Indian Tribe for the

construction of a Gaming Facility (the Facility) in

Southern California. Under the loan agreement,

Sealaska earns interest at a fixed rate and receives

a monthly management fee. The note receivable

is collateralized by the Facility’s revenues and

equipment and is non-recourse to the borrower.

In accordance with the terms of the agreement,

all principal and interest payments were deferred

until the opening date of the Facility and were

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S ( c o n t’d )

then due in June of 2003. The Facility opened in

April 2001, however Sealaska did not receive any

principal or interest payments during 2001 due to

lower than planned revenues since opening the

Facility. Sealaska’s rights as lender are subordinate

to a bank loan, and Sealaska is working with

other creditors and management of the Facility to

renegotiate the repayment terms. Accordingly, at

December 31, 2001, the balance of the loan has

been classified as a non-current asset.

Because Sealaska participates in the Facility’s

expected profits and because the loan is non-recourse

to the borrower and the borrower did not make a

substantial equity investment in the Facility, Sealaska

is required to account for the loan similar to a

real estate joint venture ownership interest in the

Facility, rather than as a traditional note receivable.

Specifically, FASB Emerging Issues Task Force Issue

No. 84-4 Acquisition, Development, and Construction

Loans (EITF 84-4) requires that Sealaska apply

the accounting provisions of Statement of Position

No. 78-9 Accounting for Investments in Real Estate

Joint Ventures issued by the American Institute of

Certified Public Accountants. Accordingly, Sealaska

records its share of the Facility’s earnings as the

amounts due under the terms of the loan agreement

but limited to the amount that Sealaska would

receive or lose if the Facility were to liquidate all of

its assets at their recorded balances and distribute

the resulting cash to creditors and investors with

their respective priorities. During 2001, the Facility

commenced its initial operations and incurred a loss

from operations, including its start up activities.

The Facility also incurred a loss during 2001 from

impairment of costs expended in anticipation of

construction of a permanent casino facility which

has now been cancelled. Consequently, during 2001

Sealaska recorded a reduction of $7,617,000 to

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amounts owed for principal, interest and fees in

order to reflect its allocation of the decrease in the

Facility’s net assets arising from the Facility’s 2001

net loss. A summary of activity related to the loan

for 2001 is as follows:

Principal outstanding as of December 31, 2001 $14,700Interest and fees earned during 2001 2,817Facility losses allocated under EITF 84-4 (7,617)Recorded balance as of December 31, 2001 $ 9,900

Notwithstanding the allocation of losses required

under EITF 84-4 described above, Sealaska believes

the full amount of the loan and accrued interest and

fees to be fully collectible based on recent operating

results of the Facility, scheduled reductions in the

Facility’s senior bank debt and a recent proposal

from the borrower to purchase Sealaska’s investment

in the Facility. If the Facility generates future

operating profits and pays amounts owed under

the loan agreement, Sealaska will recognize

income in excess of amounts accruing for future

interest and fees to the extent of the allocated

Facility losses recorded during 2001.

Note 11I N V E S T M E N T I N A L A S K A N AT I V E W I R E L E S S

During 2000, Sealaska, along with other Alaska

Native Corporations and investors, formed Council

Tree Alaska Native Wireless, L.L.C. (Council Tree),

which, together with AT&T Wireless Services (AWS)

and others, formed Alaska Native Wireless, L.L.C.

(ANW). During January 2001, ANW successfully bid

$2.9 billion in an auction conducted by the Federal

Communications Commission (FCC) to acquire the

rights to wireless spectrum licenses in certain

United States markets. In February 2001, Sealaska

invested $40 million in Council Tree to meet its

funding commitment. Pursuant to its obligations

as a member of AWS, Council Tree, together with

other members of AWS, funded AWS’s FCC-required

down payment of the auction bid. Sealaska’s invest-

ment earns a guaranteed return of 24.7% per annum.

On June 22, 2001, a federal appeals court ruled

in favor of the trustee in the Chapter 11 bankruptcy

proceeding of NextWave Telecom, Inc. (NextWave)

and the unsecured creditors of NextWave with

respect to the litigation they commenced chal-

lenging the FCC auction. The court ruled that the

FCC had acted improperly in repossessing from

NextWave the spectrum licenses offered in the

auction. On March 4, 2002, the U.S. Supreme Court

agreed to review the case. If the appeals court

decision is not reversed, or if ANW is otherwise

unable to acquire the spectrum licenses for which

it was the winning bidder in the auction, the

members of Council Tree and ANW may determine

to discontinue the operations of those companies.

In specified circumstances, if a winning bid of ANW

in the FCC auction is rejected or if any spectrum

license granted to it is revoked, AWS would be

obligated to compensate Council Tree for making

capital available to the venture and Sealaska

would receive its original investment plus the AWS

guaranteed return of 24.7%.

Certain of the spectrum licenses bid on by ANW

were not subject to the NextWave legal challenge.

On March 11, 2002, the Federal Communications

Commission transferred 15 of these licenses to

ANW. These licenses are expected to be held by

ANW and Sealaska’s prorata investment relating to

such licenses will accrue interest at a rate of 24.7%

per annum. At the fifth anniversary of the first date

on which licenses won in the auction are granted

to ANW, and in addition to other means by which

it may transfer its interests, Council Tree has the

right to require AWS to purchase its equity interests.

The right to require AWS to purchase Council Tree’s

interests may be exercised before the five-year

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anniversary of the license grant if the conditions

of certain FCC regulations restricting the free

transferability of certain licenses offered in the

auction are met. If the right were exercised earlier,

the purchase price would be calculated in generally

the same way as if exercised at five years, except

that a discount would be applied.

During 2001, Sealaska accrued $8,861,000 of

investment income related to this investment.

Note 12LO N G - T E R M D E B T A N D L I N E S O F C R E D I T

Long-term debt consists of the following:

December 31,(In thousands) 2001 2000

Note payable to a bank under a line of credittotaling $44,000,000, collateralized by investment securities, with interest at LIBOR (1.9% at December 31, 2001) plus 1.125%, expiring February 2002 $ 33,000 $ 44,000

Note payable to a bank under a line of credit totaling $5,000,000 – 1,344

Note payable to bank (TriQuest loan) totaling $10,000,000, with interest at the prime rate plus 1% (4.75% at December 31, 2001) and expiring July 2002 7,007 8,597

Mortgage payable, collateralized by land and building, with interest at the prime rate, due August 2011 3,960 –

43,967 53,941

Less: Current portion (40,203) (53,941)

$ 3,764 $ –

Scheduled principal maturities of long-term

debt and lines of credit are as follows:

Years ending December 31, (in thousands)

2002 $ 40,203 2003 190 2004 200 2005 209 2006 220 Thereafter 2,945

$ 43,967

During 2001, Sealaska’s TriQuest subsidiary was

not able to repay its note payable upon its maturity.

Sealaska assumed this obligation and, beginning in

October 2001, began to make monthly payments. As

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S ( c o n t’d )

of December 31, 2001, the balance due was approxi-

mately $7,000,000 and is payable in monthly prin-

cipal installments of $1,000,000 through July 2002.

During 2001, the expiration date of Sealaska’s

line of credit was extended from September 2001

to February 2002, at which time Sealaska repaid

the line of credit borrowings in full, utilizing

proceeds from liquidating marketable securities

in its Permanent Fund.

Sealaska is seeking to obtain a replacement line

of credit, but no such arrangements have yet been

consummated. As described in Note 2, Sealaska

is in the process of restructuring and curtailing

its unprofitable plastic operations. Management

anticipates that Sealaska’s projected cash flow

from operations and other available investments

will be sufficient to fund projected operating, capital,

debt service and curtailed plastic operations cash

requirements during 2002. Additionally, Sealaska

elected to conserve cash resources in 2002 by not

paying its own natural resource revenue sharing

obligation under Sections 7(i) and 7(j) of approxi-

mately $8.3 million that was due March 31, 2002.

A substantial portion of this obligation will bear

interest at prime (4.75% at December 31, 2001) plus

5% from January 1, 2002 until paid. There is no

further specified date for the payment and, until

paid, the other regional corporations have the right

to reduce their Section 7(i) payments to Sealaska by

the amount Sealaska owes to them. Should actual

operating results be less than anticipated, or curtailed

plastic operations costs be more than anticipated,

Sealaska may be required to curtail capital

spending, further reduce expenses or otherwise

modify its planned operations and/or seek addi-

tional debt funding. There can be no assurance that

such funds will be available to Sealaska or that

such funding will be available on acceptable terms

or at all.

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Note 13D E R I VAT I V E F I N A N C I A L I N S T R U M E N T S

A N D H E D G I N G A CT I V I T I E S

Effective January 1, 2001, Sealaska adopted SFAS

133, Accounting for Derivative Instruments and

Hedging Activities, as amended, which establishes

accounting and reporting standards for all derivative

instruments and requires recognition of all

derivatives as assets or liabilities in the balance

sheet and measurement of those instruments at

fair value. Derivatives that are not hedges must

be adjusted to fair value through earnings. If the

derivative is a hedge, depending on the nature

of the hedge, changes in fair value will be either

offset against the change in fair value of the

hedged assets, liabilities or firm commitments

through earnings, or recognized as a component

of other comprehensive income until the hedged

item is recognized in earnings.

Periodically, Sealaska has entered derivative

financial instruments as a means of managing risk.

Counterparties to Sealaska’s derivative financial

instruments are credit worthy major financial

institutions and Sealaska has not experienced any

losses due to counterparty default. In the past,

Sealaska has used interest rate swap agreements

as a means of managing interest rate exposure, or

foreign currency forward contracts as a means of

managing exposure to fluctuations in international

investment securities values. Sealaska does not

use derivative financial instruments for trading or

speculative purposes.

Interest-rate swap agreements have the effect

of converting Sealaska’s outstanding debt from a

variable rate to a fixed rate instrument. Net amounts

paid or received are reflected as adjustments to

interest expense. During 2001, the Corporation did

not enter into any interest-rate swap agreements.

During 2000, Sealaska terminated its remaining

interest-rate swap for a gain of $458,000. Later in

2000, the underlying debt was extinguished and the

swap termination gain was included in earnings as

a reduction of interest expense.

Note 14I N CO M E TA X E S

Income tax expense (benefit) relates solely to

TriQuest’s foreign operations and consists of the

following:Years ended December 31,

(in thousands) 2001 2000 1999

Current-foreign $ 15 $ – $ 944 Deferred-foreign – 1,042 (910)

$ 15 $ 1,042 $ 34

As described in Notes 1 and 4, Sealaska has

significant natural resources received pursuant

to ANCSA which have zero carrying value in the

accompanying consolidated financial statements

but which have substantial basis for domestic

tax reporting purposes. As described in Note 1,

Sealaska does not account for temporary differences

arising from the book and tax basis difference of

natural resource assets received under ANCSA.

Accordingly, Sealaska does not report the deferred

tax asset resulting from this temporary difference.

During the periods presented above and prior

periods, tax depletion arising from Sealaska’s

ANCSA resources has offset all other federal and

state taxable income and Sealaska has not paid

federal or state income taxes. Sealaska expects

this to continue into the foreseeable future as well.

The TriQuest subsidiary in Mexico files separate

Mexican income tax returns. As of December 31, 2001,

all remaining deferred tax assets in Mexico have a

full valuation allowance against them, as Sealaska

does not expect to realize the benefit thereof.

47

At December 31, 2001, Sealaska had domestic tax

net operating loss carryforwards of approximately

$390 million principally expiring in 2004 to 2021,

available to offset future taxable income and

Mexican tax net operating loss carryforwards of

approximately $16 million principally expiring from

2006 to 2011.

Note 15R E T I R E M E N T P L A N S

Sealaska has a 401(k) plan for all employees

of Sealaska and its wholly-owned subsidiaries

meeting certain eligibility requirements.

Participants may contribute up to 15% of their

eligible compensation to the plan, subject to the

limits of Section 401(k) of the Internal Revenue

Code. Sealaska matches 100% of the participant’s

contribution up to 2% of their eligible compensation.

All participants are immediately vested in the

preceding contributions. Sealaska also contributes

8% of the participant’s eligible compensation to

the plan and these contributions are vested over

a five-year period.

TriQuest sponsors a 401(k) profit sharing plan

covering substantially all domestic employees.

Contributions to the plan are based upon employees’

total yearly contributions and base pay.

Total contributions to the plans were

$837,000, $869,000 and $819,000 in 2001, 2000

and 1999, respectively.

Note 16D I V I D E N D S

During 2001, Sealaska’s Board of Directors did

not declare any dividends. During 2000 and 1999,

Sealaska declared and paid dividends totaling

$8,005,000 or $5.08 per share and $9,408,000 or

$5.97 per share, respectively.

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S ( c o n t’d )

In addition to the regular dividends, as discussed

in Note 4 natural resource revenue sharing

distributions will be made to urban and at-large

shareholders in the amount of $1,140,000 or $1.00

per share in April 2002. During 2001, Sealaska

paid $1,919,000 or $1.68 per share to urban and

at-large shareholders.

Note 17CO M M I T M E N T S A N D CO N T I N G E N C I E S

Management is not aware of or party to any legal

action that would have a material adverse effect

on the consolidated financial condition, results of

operations or cash flows of Sealaska.

Sealaska is currently leasing facilities, and

manufacturing and office equipment from a variety

of vendors. Minimum annual rental commitments

on operating leases at December 31, 2001 are as

follows:

(in thousands)

2002 $ 1,526 2003 1,064 2004 1,0042005 8742006 668Thereafter 3,300

Total $ 8,436

These leases primarily relate to TriQuest. The

facility lease payments are subject to an annual

increase based on changes in the cost of living, as

reflected by the Consumer Price Index. TriQuest has

options to renew, at substantially similar terms,

the facility leases for an additional two to ten years.

Sealaska has also guaranteed the lease payments

on the Monterrey, Mexico facility of TriQuest.

Total rent expense for TriQuest was $771,000,

$1,294,000 and $1,238,000 during 2001, 2000 and

1999, respectively. Sealaska’s lease expense was

not significant for all periods presented.

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Sealaska Corporation

CORPORATE HEADQUARTERS

One Sealaska Plaza,

Suite 400

Juneau, Alaska 99801

Tel (907) 586-1512

Fax (907) 586-2304

Shareholder Toll-Free Line:

1-800-848-5921

www.sealaska.com

Sealaska Corporation

SEATTLE OFFICE

18000 International Blvd.,

Suite 1009

Seattle, WA 98188

Tel (206) 902-4000

Fax (206) 902-4004

Sealaska Timber Corporation

HEADQUARTERS

2030 Sea Level Drive,

Suite 202

Ketchikan, Alaska 99901

Tel (907) 225-9444

Fax (907) 247-9444

Sealaska Timber Corporation

MARKETING

18000 International Blvd.,

Suite 1009

Seattle, Washington 98188

Tel (206) 902-4000

Fax (206) 902-4004

Outside Counsel

SIMPSON, TILLINGHAST,SORENSEN & LONGENBAUGH

One Sealaska Plaza,

Suite 300

Juneau, Alaska 99801

Independent Accountants

PRICEWATERHOUSECOOPERS, LLP

999 Third Ave., Suite 1800

Seattle, Washington 98104

Non-Profit Affiliate

SEALASKA HERITAGEINSTITUTE

One Sealaska Plaza,

Suite 200

Juneau, Alaska 99801

Tel (907) 463-4844

Fax (907) 586-9293

Shareholder Toll-Free Line:

1-888-311-4992

(scholarship inquiries only)

www.sealaskaheritage.org

Information RequestsWelcome

Shareholders may request

additional Annual Report copies

and refer questions and

comments to the Office of

Corporate Communications

Sealaska Corporation.

Photo Credits: Corporate executives photographed by Mark Kelley. Native form line art by Mick Beasley.Canoe photos by Ross Soboleff. Other photography from Sealaska archives, eStock, Alaska Stock andGetty Images.

Printed in the U.S.A. ©2002 Sealaska Corporation. Cover printed on recycled paper.

The red and yellow colors used in this report are traditional colors of the Alaska Native Brotherhood.