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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.