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our past 40 years & future 40 years

sealaska annual report 2011


1974

1975

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1979–1

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1980

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1983

1984

1985

1986

1987

1989

1990

1991

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1993


1 Haa Shagóon

honoring our past and our future

Forty years ago in June Sealaska was legally incorporated. As we celebrate our 40th anniversary, we live our core value of Haa Shagóon— honoring our past while looking ahead to the future. For years, our parents and grandparents fought for the passage of a land claims bill that would restore to us a portion of the land that had been unjustly taken. The passion and beliefs of people like Emil Notti, Marlene Johnson, Amy Hallingstad, Peter Simpson and countless others led to the historic passage of the Alaska Native Claims Settlement Act (ANCSA) in 1971, securing in perpetuity our abiding connection to the land. Last year in this report we celebrated the 40th anniversary of ANCSA and the iconic leaders who fought so hard to secure its passage. This year, we recognize the leaders born since 1972 who share their vision of the company through its next 40 years. Our first 40 years have seen the company grow into a strong institution with subsidiary businesses operating internationally. We’ve educated, trained and hired tribal member shareholders to be leaders throughout our diverse operations, and through the work of the Sealaska Heritage Institute (SHI) we have seen a resurgence of Native culture, art, dance, language and pride in living our Native values. As Native people, we’ve come together in solidarity and in purpose, putting our values into action every day. Our very first mission statement captured that sense of solidarity and shared values and the strength of our collective identity. Today, our mission is to create opportunities for our people and to strengthen culture and communities within our homeland by embedding Alaska Native values in daily operations and achieving business excellence.

that’s values in action.

www.sealaska.com

Haa Shagóon


letter dear tribal member shareholders, Forty years ago in June, Sealaska was incorporated under the terms of ANCSA. The purpose of the act was to forever protect Alaska Native land, rights and ways of life. ANCSA was forged with the strength of our collective identity as Alaska Natives and based upon core Native values that guide our actions. As we celebrate our 40th anniversary, the board of directors has reaffirmed that our values will continue to guide us and the vision for our future, including those shared by several young Alaska Natives in this annual report. Together, we will chart the path for our continued collective success. You will be hearing more about our core Native values as we renew our focus and revitalize Sealaska through our “Values In Action” effort. Values in Action will permeate everything we do, grounding all of our efforts in our core values: Haa Aaní, our land, and the basis of our collective identity and culture; Haa Shagóon, our past, present and future; Haa Latseen, our collective strength and leadership; and Wooch.Yax, balance, reciprocity and respect. Values in Action will make plain to Sealaska tribal member shareholders and the public what Sealaska does and why we do it. We are not an ordinary for-profit enterprise. We leverage our core cultural values as a basis to achieve business excellence that will

create sustainable economies on our land and opportunities for tribal member shareholders. Our values are evident in Sealaska’s activities and growing business ventures. The formation of the Sealaska subsidiary Haa Aaní, LLC by the Sealaska Board of Directors speaks directly to the core value Haa Aaní. Haa Aaní, LLC was established to promote the cultural, social and economic viability of Southeast Alaska communities through collaboration, innovation and direct-resource investment in community stability. Haa Aaní, LLC has built momentum through its initiatives, such as oyster mariculture and renewable energy, and we are now seeing interest from state and municipal governments to collaborate in creating sustainable economic opportunities. In the region, Sealaska has led by example, developing and installing the first renewable energy biomass heating system for a commercial building in Alaska, and championing the construction of the new Walter Soboleff Center in Juneau. In alignment with the value of Wooch.Yax, Sealaska continues to create opportunities with business partners through relationships based on balance, reciprocity and respect. We continue to


3 Haa Shagóon www.sealaska.com

leverage our Native identity through federal 8(a) contracting and supplier diversity competitive advantages, both expanding existing opportunities and developing new ones. But Sealaska cannot just rely on organic growth: our aim is to acquire at least one sizeable new enterprise within the next two years that economically impacts the Southeast Alaska region, has a track record of profitability, a pathway to the global economy and leads to greater tribal member shareholder capacity. Increasing tribal member shareholder capacity is a key goal for Sealaska and reflects the value of Haa Latseen as we work to develop our shareholders for employment and leadership. Especially in rural communities and villages, where economic conditions are challenging and jobs are difficult to come by, Sealaska subsidiaries place a priority on shareholder employment. Opportunities based in Haa Shagóon combine the wisdom of experienced Sealaska

Chris E. McNeil Jr. President and Chief Executive Officer

directors and staff with leadership programs for shareholders, such as Sealaska’s scholarship program, internship program and service as a board youth advisor. Along with creating new economic opportunities, Sealaska has been working hard to maintain the sustainability of our timber operations—a key economic driver in the region. Key to this effort is the continued fight for Sealaska’s land legislation, a Congressional bill we call Haa Aaní. We appreciate the hard work of the Alaska delegation in promoting our bill and credit them with our success thus far. It is a huge challenge to live up to the strength and insight of our past leadership and the vision of our future leaders. It will take all of us, standing together, to achieve our ultimate goal of thriving, healthy Native communities and culture. We hope you will join us in realizing our aspirations for the next 40 years and beyond.

Albert M. Kookesh Board Chair


1970 s “With this first annual report, your Sealaska Corporation prepares to take the final organizational steps that will lead our company and stockholders, no matter where they live, to a permanent place in the future of Alaska.”

“What we have achieved with our investment of time and determination is not a harvest, but the right to plant an immensely valuable crop.”

“As a business we must be willing to stand on an equal footing with any business in the world. And we have to be willing to be measured against the demands of the competitive business world.”

“The hearts and minds of our people are as great a resource as dollars, minerals, crops or goods, we pledge to remain what we started out to be; a corporation with a conscience.”

VISIONARY STATEMENTS from annual reports of the 1970s

1970 s

1980 s

1990 s

2000 s

2011


Age: 30 Tribe, Clan: Haida/Tlingit and Athabascan, Yahkw Láanaas Occupation: Technical assistant specialist for the Intertribal Agriculture Council Barbara applies the lessons of leadership and service she learned as a Sealaska board youth advisor as she helps Alaska Natives navigate the U.S. Department of Agriculture and its myriad programs. Much in the way her career is about supporting Alaska Natives, she believes a successful future for Sealaska means continuing to support tribal member shareholders.

“We have to understand what came before, before we can change it.”

– David Boxley

David R. Boxley, Gyibaawm laxha Age: 30 Tribe, Clan: Tsimshian, Wolf Occupation: Self-employed artist A self-employed artist, David displays his masks, sings original songs and dances with his father’s troupe at Celebration, a biennial event hosted by Sealaska Heritage Institute. David realizes the urgency and importance of preserving Native culture, and would like to see an increase in funding for education, language studies and art. “The next generation should be focused on language and living their lives as modern Tlingit, Haida and Tsimshian people,” he says.

www.sealaska.com

Barbara Blake, WAAHLAAL GIDAAK,

5 Haa Shagoon

Now


natural resources natural resources see growth in emergent markets Alaska Coastal Aggregates (ACA) is a supplier of aggregate material for state, federal and municipal projects in coastal Alaska. 2011 was a strong year for ACA, with a 99 percent rise in net revenues over 2010, a substantial increase in tribal member employees, most notably in Klawock, Kake and Hoonah, and a new retail sales office in Yakutat. Looking to 2012, ACA will maximize tribal member and community employment through additional customer-based operations. Additional initiatives will include a focus on expanding the cement and sand markets in Southeast Alaska and developing a supply line to local mines.

While other timber companies felt the sting of late quarter dips in operations, STC successfully read the markets and avoided significant drop-offs in sales. STC also continued its work to engage communities regarding its timber operations by committing to a “no surprise” policy that keeps communities abreast of timber programs in their vicinity. For STC, one of the highlights of the year was finding an ancient, partially carved Haida canoe on forested land Sealaska owns near the Organized Village of Kasaan (OVK) on Prince of Wales Island. Recognizing the canoe’s historical importance, STC took immediate steps to safeguard the site and engaged OVK with ongoing protection and management of the site.

A primary timber producer in Southeast Alaska, Sealaska Timber Corporation (STC)

2012 will be another forward-looking year,

continues to pursue forward-thinking

with an emphasis on leveraging STC’s skill

initiatives that ensure the health of the forest

set in the region and further defining its role

and allow us to continue to harvest timber.

within a changing industry. The company will also continue to work with its young growth stands, focusing on future yields and opportunities, and setting up the company for

Sealaska Timber Corporation and the Juneau Economic Development Council co-chaired a cluster working group on Southeast timber operations.

ongoing success.


7 Haa Shag贸on www.sealaska.com

Alaska Coastal Aggregates exceeded 2010 net revenues by

99%

cedar form program

ACA manages the

,

which supplies paddle forms to young artist groups in Southeast Alaska.


1980 s “We will not lose sight of the uniqueness of Sealaska and our special relationship to shareholders and their culture and heritage.”

“As Western culture and institutions influence the values of our young people, and as assimilation threatens the continuity of our heritage, our relationship with the land is more important than ever. It renews our identity and makes us unique. It sustains us.”

“It is not enough to say we support our culture. We must do something.”

“We have incorporated the strengths of our culture into our business philosophy.”

VISIONARY STATEMENTS from annual reports of the 1980s

1970 s

1980 s

1990 s

2000 s

2011


Age: 30 Tribe, Clan: Tlingit, Taakw.aaneidí Occupation: Project manager at Sealaska Heritage Institute Through SHI scholarships and internships, Sarah has worked her way to project manager for SHI, and will be organizing Celebration for the second consecutive time. As the youngest board member of her village corporation, she is modeling a Sealaska tradition of engaging the next generation of tribal member shareholders to take leadership positions.

“I would like to see Sealaska continue to be an advocate for our people.” – Sarah Dybdahl

Ishmael Hope, KAA KWAASK Age: 30 Tribe, Clan: Tlingit, Kiks.ádi Occupation: Intern, Sealaska Heritage Institute Ishmael is a storyteller, learning the art from his Elders with support from SHI. As Sealaska continues to grow, Ishmael sees it as a tool to keep indigenous languages and multiculturalism alive. He also believes that modern ways of doing business can be positively influenced by incorporating traditional values. “We are much more than symbols,” he says. “It helps us to see the world as our ancestors did.”

www.sealaska.com

Sarah Dybdahl, AAnshaawatk’i

9 Haa Shagoon

Now


haa AanĂ­, LLC 20

Number of Sealaska tribal members newly employed at a fish processing plant in Kake, Alaska.


11 Haa Shagóon

Since its founding in 2009, Haa Aaní, LLC has

which will provide jobs for tribal members and

been working in partnership with governments,

produce more oysters in 2012 than the entire

municipalities, Native organizations and tribes

state combined.

to promote and create thriving and viable Haa Aaní, LLC also continues to promote

communities in Southeast Alaska.

renewable energy across Southeast Alaska. As rising energy prices and unemployment

Projects like the oil-to-wood pellet conversion

stalk Southeast communities, Haa Aaní,

implemented by Haa Aaní, LLC at Sealaska

LLC feels a continued sense of urgency and

Plaza saved $45,000 in heating costs in 2011. As

desire to bring working solutions to Southeast

a result of the company’s leadership, the U.S.

Alaska’s rural communities.

Forest Service and the U.S. Coast Guard have followed suit and converted their buildings to

In 2011, oyster mariculture took center

renewable energy.

stage. Seeking to support a tribal member shareholder who revitalized a defunct oyster

In 2012, Haa Aaní, LLC will establish the

farm in Angoon, Haa Aaní, LLC brokered a

not-for-profit Haa Aaní Community Development

partnership with Pearl of Alaska, the largest

Financial Institution (CDFI). The CDFI is

oyster seed producer in the state, to buoy and

intended to spur economic development and

stabilize the small farm. Haa Aaní, LLC also

meet the needs of those who might not qualify

partnered with Yak-Tat Kwaan to form three

for traditional financing.

new oyster farms in the Yakutat region,

$45,000 The amount saved on heating Sealaska Plaza in 2011, thanks to the conversion to wood pellet heating, a Haa Aaní, LLC project.

www.sealaska.com

building economic growth in southeast


1990 s “Sealaska is many things to many people. But most of all, it is a unique blend. It helps preserve the land and culture of our people, and its business success makes possible economic, educational and cultural benefits for all shareholders.”

“Sealaska has taken a leadership role in backing subsistence laws that meet shareholders’ needs and that reflect traditional historical practices.”

“Sealaska is responsible for balancing conservation and environmental considerations with shareholders’ economic needs.”

“Growing, harvesting, replanting, and maintaining strict environmental safeguards are equally important jobs for us.”

VISIONARY STATEMENTS from annual reports of the 1990s

1970 s

1980 s

1990 s

2000 s

2011


Age: 37 Tribe, Clan: Tlingit, Eagle Occupation: Chef, co-owner of Fresh 49 Chef and traditional foods advocate Robert Kinneen is inspired by Sealaska’s cultural programming and works to perpetuate Alaska Native resilience. In the future, he hopes to see Sealaska invest in more initiatives like Haa Aaní, LLC, a subsidiary that brings economic opportunities to rural Southeast by incorporating traditional values, like respect for the natural environment. “If you take care of the land it will take care of you. It’s a reciprocal relationship.”

“Everything we do is for our people, and we have to be united to move forward...” – Melissa Kookesh

Melissa Kookesh, X’EETOOW Age: 35 Tribe/Clan: Athabascan/Tlingit, L’eeneidí Occupation: Assistant to the president and event coordinator for Central Council Tlingit & Haida Indian Tribes of Alaska (CCTHITA) As a staff member at CCTHITA and a Sealaska tribal member shareholder, Melissa sees the cooperation between the two entities as one of the most positive aspects of her work. “We’re most powerful when we come together,” she says. She believes a successful future for Sealaska means unity across all Native organizations.

www.sealaska.com

Robert Kinneen

13 Haa Shagoon

Now


services


15 Haa Shagóon

Colorado-based Managed Business Solutions (MBS) met with success in 2011, in spite of a challenging business climate and delays in negotiated contracts. MBS grew its federal business by 100 percent through federal 8(a) contracting, further diversified its commercial business and launched its Kake, Alaska office with five tribal member shareholder employees. The company also gained traction with its enterprise software solutions, a shareholdermanagement software program designed for Alaska Native corporations. In 2012, MBS anticipates that increased stability will translate into revenue and profit growth, as well as job opportunities for tribal member shareholders.

www.sealaska.com

services find expanded opportunities Our Subsidiary of the Year for the second year running, Sealaska Environmental Services (SES) achieved a 19 percent increase in profits from last year. Dedicated to environmental management and remediation, SES won three large contracts in 2011, including two with the U.S. Army Corps of Engineers and a competitive contract with the U.S. Navy in Norfolk, Virginia. 2011 was also a year of focused outreach to expand SES’ client base, particularly in New Mexico. With 95 percent of its revenue coming from federal contracts, SES must contend with the general tightening of federal budgets. At the same time, SES continues to build internal capacity and in 2012 will become Sealaska’s first subsidiary to graduate from U.S. SBA 8(a) program.

100%

Year-over-year growth in federal business for Managed Business Solutions

$25 million

Amount of

each of two contracts with the U.S. Army Corps of Engineers won by Sealaska Environmental Services


services services achieve global presence For Security Alliance, LLC (SA), 2011 was a year of geographic expansion. SA opened operations in Los Angeles based on a three-year, U.S. Department of State contract and a new niche in close protection (bodyguard) services. SA also established operations in Seattle to provide security services. In South Florida, SA won three new contracts. In 2012, SA intends to hold on to two major contracts that are expiring this year and which are up for competitive bidding, increase its market share in South Florida and build on its Seattle operation with the goal of creating employment opportunities for tribal member shareholders. On January 14, 2011, Whiteman Air Force Base in Missouri officially activated its MQ-1 Predator drone squadron beddown facility, a

Less than 120 days

mere six and half months after kicking off the project with Sealaska Constructors, LLC (SC). The blistering pace was met through careful collaboration between the design team and SC, who was the primary contractor. As a result of this project, SC was awarded new work for the MQ-9 Predator drone. In June, SC was inducted into the Associated General Contractors’ Safety Team based on the high standards of its jobsite safety policies and procedures. SC continues to pursue federal contracts for general construction, civil and infrastructure projects, and environmental remediation and abatement services. SC faces competition from non-federal contractors stepping into federal work and driving down prices. Going forward, SC will stay sharp by focusing on teamwork, safety and streamlined project delivery.

The time it took Sealaska Constructors

and its design partner to design and construct a Predator drone facility at Whiteman Air Force Base, 50 percent faster than the typical timeline for such projects.


17 Haa Shagóon www.sealaska.com

4

Number of continents on which Sealaska Global Logistics works

Sealaska Global Logistics (SGL) is a full-service freight forwarder offering a range of international logistics solutions. In 2011, SGL enhanced its transportation operations by entering markets in Asia and partnering with connectors on the ground who understand the local nuances. This past year, SGL secured a contract with a Fortune 500 company, proving it has the ability to compete with higher capacity companies and is capable of executing effectively on large projects. 2011 was also a year of building relationships—in India, Europe, Mexico and South Africa, among others—to establish SGL’s position in these emerging markets.

0

Number of accidents on Sealaska Constructors, LLC job sites in 2011


2000 s “The Southeast economy has benefited significantly through our forestry programs; many communities depend economically on our employment and contracting opportunities.”

“There is a vast wealth of knowledge and expertise within our shareholder base. Sealaska is committed to encouraging our shareholders to excel by providing higher education scholarships and career advancement opportunities through shareholder hire.”

“This is a time of celebration. As we welcome the next generation of Native leaders into the corporation, we are changing the face of our future.”

“The future belongs to those who have the vision to imagine the road ahead, the ability to form a workable plan, and the willingness to work hard to see it through.”

VISIONARY STATEMENTS from annual reports of the 2000s

1970 s

1980 s

1990 s

2000 s

2011


Age: 18 Tribe, Clan: Tlingit, K’inéix Kwáan Occupation: Student, University of Alaska Fairbanks As a student of interdisciplinary Native American studies and a Gates Millenium Scholarship recipient, Maka strives to be an example for the next generation. “I live for my culture, and my culture lives through me.” Maka says her career will mirror Sealaska’s commitment to land stewardship and environmental protection, which she hopes Sealaska will continue to model in the future.

“I live for my culture, and my culture lives through me.” – Maka Monture

Madeline Soboleff Levy, SHAA HEI DI TIAA Age: 28 Tribe, Clan: Tlingit/Haida, L’eeneidi Occupation: Law student at UCLA School of Law, self-employed contractor for American Indian law publications Madeline has worked hard to represent Sealaska, which has supported her through scholarships and internship opportunities, and has set her sights on practicing American Indian law. Madeline would like to see Sealaska receive its full land entitlement under ANCSA in order to further implement its sustainable forestry program and secure economic stability for the region. She hopes to support these endeavors by one day practicing law on behalf of Sealaska. Madeline has been appointed by the Sealaska board as the 2012–13 board youth advisor.

www.sealaska.com

Maka Monture, JINAATLAA

19 Haa Shagoon

Now


manufacturing nypro kánaak continues to grow despite recession Nypro Kánaak is a full-service plastics manufacturing company that provides highquality products and services, and is a joint venture between Sealaska and Nypro, Inc. Building off its success in 2010, revenue grew by more than 30 percent, thanks in part to the acquisition of two anchor clients—Clorox, based in Oakland, Calif., and SC Johnson out of Wisconsin. Kraft also continues to be one of Nypro Kánaak’s top clients.

Nypro Kánaak has taken on the challenge of keeping up with expanding business by fine-tuning its complex manufacturing systems and adhering to lean processes. Goals for 2012 include diversifying its customer portfolio, continuing to pursue large consumer companies as clients and hiring more tribal member shareholders.

largest 4 clients Clorox Kraft SC Johnson Procter & Gamble


21 Haa Shag贸on www.sealaska.com

33

Percent of revenue growth over 2010


haa aaní—our land land legislation bills continue to move through congress In 1971, ANCSA was signed into law, guaranteeing the return of a portion of the ancestral lands of Southeast Alaska’s Native peoples that was unjustly taken. With the return of this land, Sealaska continues to strengthen the economic, cultural and social vitality of its Tlingit, Haida and Tsimshian tribal member shareholders. In 2011, Sealaska’s work to realize the full return of those lands gained momentum. In an historic bipartisan vote, the bill passed through the House Natural Resources Committee in July and the Senate version now awaits markup in the Senate Committee on Energy and Natural Resources. This past year we also participated in dialogue with the Obama administration and congressional committee staff, resulting in significant movement toward an agreement on the specific lands that should be conveyed through the legislation.

Sealaska continues to work with all Southeast Alaska stakeholders to ensure that we reach a complete and balanced solution to support our communities, our people and the Tongass itself.


Age: 22 Tribe, Clan: Tlingit, L’uknax.ádi Occupation: Student Ricky is a student at the University of Alaska Southeast, where he studied the Alaska Native Claims Settlement Act (ANCSA) of 1971. Through his studies, he realized the importance of the land to Alaska Natives. This dedication to the land shapes his vision of Sealaska moving forward. “I think we live in the most beautiful place on earth,” he says. Ricky hopes Sealaska maintains that connection to the land and manages it well into the future.

“Our corporation is so important because it’s one of the ways we relate to the land and each other.” – Ricky Tagaban

Ben Young, K’UYÁANG Age: 25 Tribe, Clan: Haida, Taakuu ‘Laanaas Occupation: Haida language specialist and student, Butler University Ben is currently studying secondary education in hopes of becoming a teacher, and has worked with Sealaska Heritage Institute to create Haida language curriculum geared toward K–12 schools. Ben believes Sealaska’s success lies in its ability to further meet the needs of its rural tribal member shareholders through investments in employment and education.

www.sealaska.com

Ricky tagaban, L’eiw Yéil

23 Haa Shagoon

Now


sealaska heritage institute three decades of strengthening the future by honoring the past In 2011, Sealaska Heritage Institute helped the T’akdeintaan Clan of Hoonah repatriate eight cultural items illegally sold to the Pennsylvania Museum of Archaeology—a project 16 years in the making. The clan will continue to pursue repatriation of the remaining cultural artifacts. In addition, SHI joined the University of Alaska Southeast to create an internship program that fosters archivists and museum curators. The program’s first intern was accepted to an archivist graduate program in California on a full scholarship.

SHI also engaged the community through our annual lecture series—this year focused on ANCSA—and our newly launched Box of Knowledge Occasional Paper Series, a platform for essays covering all aspects of Alaska Native life. Looking ahead to 2012, SHI will continue its capital campaign for the Walter Soboleff Center, a premier facility for Southeast Alaska Native arts and cultures. The teachings of Dr. Walter Soboleff, who “walked into the forest” at the age of 102, will serve as the foundation for our new center in Juneau.


$477,000

Amount that

SHI received in 2011 from Sealaska and Sealaska Timber Corporation in support of the institute’s scholarship program

www.sealaska.com

number of recordings of Tlingit speakers that will be migrated to a digital format, thanks to a grant from the Institute of Museum and Library Services

25 Haa Shagóon

More than 100 The


board of directors

albert M. kookesh

rosita F. worl

byron I. mallott

clarence jackson sr.

Angoon, Alaska Chair

Juneau, Alaska Vice Chair

Yakutat, Alaska

Kake, Alaska

patrick M. anderson

bill thomas

edward K. thomas

Anchorage, Alaska

Haines, Alaska

Juneau, Alaska


27 Haa Shagoon www.sealaska.com

jacqueline johnson pata

sidney c. edenshaw

jodi m. mitchell

Fairfax, Virginia

Hydaburg, Alaska

Juneau, Alaska

Joseph G. nelson

j. tate london

barbara Cadiente-nelson

ralph wolfe

Juneau, Alaska

Bothell, Washington

Juneau, Alaska

Yakutat, Alaska Board Youth Advisor


management

chris e. mcneil jr.

sam landol

Richard P. Harris

doug morris

President and Chief Executive Officer

Chief Operating Officer

Executive Vice President

Vice President and Chief Financial Officer

anthony mallott

jaeleen araujo

nicole hallingstad

Treasurer and Chief Investment Officer

Vice President and General Counsel

Vice President and Corporate Secretary


29 Haa Shagoon www.sealaska.com

bob wysocki

darlene watchman

Jason fujioka

Vicki Soboleff

todd antioquia

Director of Operations and Finance

Director of Shareholder Relations

Director of Sales and Marketing

Corporate Controller

Director of Corporate Communications

Nathan mccowan

Mark Shirley

Gail cheney

Rob johnson

Ron wolfe

Director of Corporate

Internal Auditor

Director of Human Resources

Information Technology Manager

Natural Resources Manager

Development and Strategy


Five-year summary of selected consolidated financial data 2007 Total revenues

$

193,977

2008 $

119,840

2009 $

196,017

$

2010

2011

223,823

$ 259,487

30,037

(40,851)

20,285

15,154

6,791

Total assets

360,944

333,892

339,336

361,151

368,664

Sealaska shareholders’ equity

273,652

224,960

240,469

247,933

249,778

Long-term bank debt

21,923

37,074

34,905

31,216

28,288

Short-term bank debt

2,914

2,253

1,949

1,172

1,275

Current ratio

2.75

2.68

3.02

2.39

2.30

Bank debt/equity ratio

0.09

0.17

0.15

0.13

0.12

165.08

123.98

112.72

113.52

112.40

20.38

(22.66)

11.82

8.08

3.73

Net income (loss) attributable to Sealaska

Shareholders’ equity attributable to Sealaska per share Net income (loss) attributable to Sealaska per share Dividends per share

$

Cumulative distributions to shareholders and Village Corporations since inception Cumulative Section 7(i) payments

7.61

$

383,597 $

315,455

4.32

$

409,926 $

315,499

2.15

$

445,795 $

❖ Dollars are in thousands except per share amounts and ratios. Years ended December 31.

316,942

$

3.56

$

2.24

463,460

487,411

317,188

$ 317,188


Corporate Overview

In addition to these active sources of income, Sealaska also

Sealaska Corporation was formed in 1972 as one of the

›› Investment income from internally managed portfolio funds

13 Regional Native Corporations created as a result of the Alaska Native Claims Settlement Act (ANCSA). Sealaska received an initial sum of money and the title to at least 362,000 acres of surface and subsurface land and approximately 300,000 acres of additional subsurface land in Southeast Alaska. Sealaska currently has more than 21,000 tribal member shareholders descended from the three

generates income from the following passive sources:

›› ANCSA Section 7(i) revenue sharing from other Regional Corporations

Financial Overview

Alaska Native groups of Southeast Alaska: the Tlingit, Haida,

Sealaska’s consolidated continuing operations produced

and Tsimshian.

revenues of $259.49 million in 2011, up from $223.82 million

Sealaska Corporation operates as a managed holding company with subsidiaries that maintain offices throughout the United States and in several other countries, including Mexico, Canada and in Europe. These subsidiaries operate in

in 2010. Net income is $6.79 million, down from net income of $15.15 million in 2010. Sealaska’s total assets at December 31, 2011 of $368.66 million grew 2.08 percent from $361.15 million at December 31, 2010.

the following business segments:

Shareholders’ Equity

1. Natural Resources 2. Manufacturing

Sealaska shareholders’ equity was $262.1 million at the end

3. Services

of 2011, which increased from $261.12 million at the end of

4. Gaming

2010. Sealaska earned $6.79 million of net income in 2011 and paid shareholder dividends of $4.95 million.

REVENUE BY BUSINESS SECTOR -2% Investments

56%

Services

28%

Manufacturing

18%

Natural Resources

31 31Haa HaaShagoon Shagoon www.sealaska.com www.sealaska.com

MD&A

management’s discussion and analysis of financial condition and result of operations


Liquidity and Capital Resources

I. Results of Operations

As of December 31, 2011, the Corporation had cash on hand and current investment securities of $60.27 million. An

A. Natural Resources

additional $91.14 million was held in other investments,

In 2011, Sealaska’s natural resources business segment

including the Marjorie V. Young Shareholder Permanent

was comprised of four wholly owned subsidiaries as well

Fund, venture capital funds and private equity funds.

as the Natural Resources Department within corporate headquarters. Those subsidiaries were: Sealaska Timber Corporation (STC), Sealaska Global Logistics, LLC, Alaska

Liquidity

2011

2010

The natural resources business segment produced revenues

Available funds Cash, cash equivalents and current investments

of $45.01 million in FY2011, up from $41.22 million in 2010, $

60.3

$

57.7

Total available funds

60.3

57.7

performance for STC in 2011. Sealaska Global Logistics The corporate Natural Resources Department in 2011

Total line of credit and revolving loan Less: Outstanding balances Less: Outstanding letters of credit Total available line of credit and revolving loan

$

achieved its forest stewardship plan, and secured $1.2

68.5

61.5

(30.4)

(26.3)

38.1

35.2

98.4

$

92.9

Working Capital

139.2

2010 $

60.4

Current liabilities

$

Current ratio ❖ Dollars are in millions. Years ended December 31.

considerable investment toward securing Sealaska’s final land entitlements authorized under ANCSA.

B. Manufacturing For 2011, Sealaska’s manufacturing business segment continuing operations included three Nypro Kánaak Nypro Kánaak Guadalajara.

2011 $

million in grants. The Natural Resources Department made

facilities: Nypro Kánaak Alabama, Nypro Kánaak Iowa, and

❖ Dollars are in millions. Years ended December 31.

Working capital

Timber prices were favorable and contributed to a strong doubled revenue but fell short of achieving profitability.

Available line of credit and revolving loan

Current assets

and produced income of $2.2 million in 2011, down from income of $4.5 million in 2010.

(Less) restricted balances

Total liquidity

Coastal Aggregates, LLC, and Haa Aaní, LLC.

78.8 2.30

124.7 52.1

$

The manufacturing business segment produced revenues of $72.22 million in 2011, up from $54.33 million in 2010, and income of $1.32 million in 2011, up from income of $728,000 in 2010. Sealaska Corporation completed the shutdown

72.6

of Olympic Fabrication, LLC in 2011. As a result of the

2.39

shutdown, Olympic Fabrication 2011 liquidation income of $75,000 is reported on the Discontinued Operations line of the Consolidated Statements of Operations. In 2011, Sealaska’s manufacturing businesses grew despite a weak economy, as orders from large customers, including Kraft, Clorox and SC Johnson, increased. The uptick in demand and implementation of “lean” initiatives improved earnings and operational efficiencies, which resulted in the manufacturing business segment’s continued positive income.


For 2011, Sealaska’s services business segment included

For 2011, Sealaska’s investments business segment

wholly owned subsidiaries Sealaska Environmental Services,

primarily included the Marjorie V. Young (MVY) Shareholder

LLC, Kingston Environmental, LLC, Kingston Environmental

Permanent Fund and the Investment and Growth (I&G) Fund.

Services, Inc., Sealaska Constructors, LLC, Synergy Systems, Inc., and majority-owned subsidiaries Managed Business Solutions, LLC, MBS Systems, LLC, and Security Alliance of Florida, LLC. The services business segment produced revenues of $145.49 million in 2011, up from $112.32 million in 2010, and produced income of $3.50 million in 2011, up from $3.06 million in 2010. The recovery from the global economic recession did not produce increased demand from non-governmental clients in the services business segment for 2011, but activity from governmental sources did show strong growth over the same period. We believe that profits from the services business

The investment business segment incurred investment losses of $3.89 million in 2011, down from investment gains of $14.44 million in 2010, and a loss, including expenses, of $4.50 million in 2011 down from income, after expenses of $13.92 million in 2010. The combined balance of the MVY Permanent Fund and the I&G fund was $134.42 million at the start of the year, and ended 2011 with a combined balance of $131.19 million invested in stocks, bonds, real estate and private equity investments. Both funds have maintained strong long-term performance, which shows the strength of the funds’ diversification strategy directed by the board-approved investment policy.

segment will improve in 2012 due to implementation of

1. Marjorie V. Young Shareholder Permanent Fund

“lean” initiatives to achieve operational efficiencies and

Renamed as a tribute to longtime Native leader and

control costs. The demand for services from key clients

retired Sealaska director Marjorie V. Young, Sealaska’s MVY

should continue to improve in the immediate future.

Shareholder Permanent Fund was created in 1987 to provide tribal member shareholders with meaningful and consistent

D. Gaming

dividends over time.

For 2011, Sealaska’s gaming business segment included its

Sealaska management and the board of directors, along

wholly owned subsidiary End-to-End Enterprises, LLC (E2E)

with their investment advisors and investment managers,

which is collaborating with the Cloverdale Rancheria of

constantly evaluate the risk exposure of the total portfolio

Pomo Indians of California (the Tribe) to develop a gaming

and make changes whenever possible to lessen risk—if doing

casino and resort facility in Cloverdale, California.

so does not inordinately affect long-term expected returns.

The gaming business segment produced revenues of

Sealaska utilizes the services of several external

$147,000 in 2011, down from $207,000 in 2010, and a loss of

investment managers.

$843,000 in 2011 after a loss of $4.68 million in 2010.

2. Investment and Growth Fund

Before a casino development can begin, land suitable for

The I&G Fund is managed with a short-term investment horizon

gaming that is not already held in trust for the Tribe must

and is used for both operational needs and new investments.

receive an Indian Land Opinion (ILO) and complete a Bureau

The management focus of the fund is to grow principal with

of Indian Affairs administered Environmental Impact

a prudent level of risk, maintain sufficient liquidity to fund

Statement (EIS). The ILO was issued several years ago. The

Sealaska’s current business operations, and provide a source

EIS is now in the Draft EIS stage, which precedes issuance of

of capital for corporate development.

a Final EIS. The EIS enables the land to be taken into trust for the benefit

F. Corporate and Other Income

of the Tribe and establishes the conditions for gaming to

For 2011, Sealaska’s corporate and other income included

occur on the land. The Draft EIS concludes that the land at

the revenue generating departments at corporate

issue is suitable for gaming purposes. The same or similar

headquarters besides the Natural Resources Department,

conclusion is considered highly likely for the Final EIS. While

such as Real Estate and Diversity Solutions.

awaiting the completion of the EIS process, the Tribe and E2E are seeking financing partners/investors.

www.sealaska.com

E. Investments

33 Haa Shagoon

C. Services


The corporate and other income business segment produced revenues of $521,000 in 2011, down from $1.31 million in 2010, and a loss of $2.18 million in 2011 after a loss of $1.83 million in 2010. The primary business activities included in this segment are Real Estate Leasing, Business Development activities, and pursuit of Diversity opportunities.

C. Distributions Since its inception in 1972, Sealaska has distributed $487.41 million in dividends and ANCSA Section 7(j) payments to tribal member shareholders and Village Corporations. The outstanding shares of dividend paying stock are affected by the open enrollment of Descendants when they reach 18 years of age, enrollment of Leftouts, and of the additional

II. Shareholder Benefits and Services A. Sealaska Heritage Institute

shares issued to Elders reaching the age of 65. Adding more dividend paying stock for the reasons described above means that dividends will be paid to a larger number of individuals and may result in smaller dividends to original tribal member shareholders. However, the recipients of Descendant and Leftout shares do not receive ANCSA

Established in 1980, Sealaska Heritage Institute (SHI) is

Section 7(j) payments. This protects a portion of the

Sealaska’s regional nonprofit organization whose mission is

distributions for original tribal member shareholders who

to perpetuate and enhance the Tlingit, Haida and Tsimshian

do receive those Section 7(j) payments. Also, when holders of

cultures of Southeast Alaska. Founded for the Native

life estate Class D (Descendant), Class E (Elders) and

peoples of Southeast Alaska, SHI develops Native language

Class L (Leftouts) shares pass away, their life estate shares

and culture programs, manages the Sealaska scholarship

are canceled.

program, coordinates repatriation of cultural and human objects, and offers other Native programs. SHI is leading an effort to build the Walter Soboleff Center in downtown Juneau. The goal of the center is to promote Native art, culture, research, and to be an archive center for Native cultural artifacts. It will serve as an education center for Native people, the general public and visitors to Alaska.

D. Shareholder Relations At year’s end, Sealaska had 21,027 tribal member shareholders. The Shareholder Relations Department manages tribal member shareholders’ records, stock transfers due to gifting or estate settlement, shareholder distributions, and processing EST payments. In 2011,

In 2011, Sealaska contributed $1.31 million in cash and

Sealaska chose to move to a mail distribution method

in-kind services to support the operations of SHI. Using

outside of corporate headquarters for distributions to tribal

Sealaska donations as leverage, SHI raised an additional

member shareholders. This reduces risk by increasing

$2.22 million in grants, revenue and sales. In addition,

privacy, and saves expense. The Shareholder Relations

Sealaska Timber Corporation contributed $292,000 toward

Department is also responsible for the processing of

scholarships, and Sealaska contributed $185,000 for a total

applications and the issuance of Class D and Class L

of $477,000.

stock, following a 2007 vote by Sealaska tribal member shareholders approving open enrollment for eligible

B. Elders’ Settlement Trust The Elders’ Settlement Trust (EST) is a grantor trust created to provide a special economic benefit to original tribal member shareholders at the age of 65. The assets and liabilities of the EST are reported on Sealaska’s consolidated financial statements (see notes 4 and 12). The EST, which is governed by a board of trustees, assumes a long-term annualized rate of return of seven percent in order for the trust to meet the estimated benefit payments.

applicants. The department also issues new Class E Elders stock to original shareholders at the age of 65, following a 2009 vote by shareholders to provide this benefit. The number of common stock shares outstanding at December 31, 2011 was 2,222,176.


35 Haa Shagoon

To ensure full disclosure and accurate representation of the

Certain sections of the annual report contain forward-

with independent auditors and the board of directors,

looking statements that are based on management’s

adjusts financial statements to accurately represent

expectations, estimates, projections and assumptions.

the financial condition of the Corporation. See notes to

Words such as “expects,” “anticipates,” “plans,” “believes,”

consolidated financial statements.

financial condition of the Corporation, Sealaska continually evaluates the accounting policies and estimates used to prepare the consolidated financial statements, and working

“scheduled,” “estimates” and variations of these words and similar expressions are intended to identify forward-looking statements which include, but are not limited to, projections of revenues, income, segment performance, cash flows,

V. additional information

contract awards, deliveries and backlog. These statements

Sealaska continues to publish more concise discussion and

are not guarantees of future performance and involve

analysis of its operations by our management team in the

certain risks and uncertainties, which are difficult to predict.

annual report. This streamlined format, introduced in 2010,

Therefore, actual future results and trends may differ materially from what is forecast in forward-looking statements. All forward-looking statements speak only as of the date of this report, or in the case of any document incorporated by reference, the date of that document. All subsequent written and oral forward-looking statements attributable to the company or any person acting on the company’s behalf are qualified by the cautionary statements in this section. The company does not undertake any obligation to update or publicly release any revisions to forward-looking statements to reflect events, circumstances or changes in expectations after the date of this report.

IV. Significant Accounting Policies The Corporation’s consolidated financial statements and accompanying notes have been prepared in accordance with Generally Accepted Accounting Principles (GAAP). The preparation of these financial statements requires the Corporation’s management to make estimates, judgments and assumptions that affect reported amounts of assets, liabilities, revenues and expenses. The Corporation bases its estimates on historical experience and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management.

enhances readability and is significantly shorter. Therefore, paper and production costs are reduced. This format aligns with important lean and green strategies for the Corporation. Additional operational information is available at www.sealaska.com. If you have a detailed financial question related to data previously reported in the longer format, please contact the Sealaska Corporate Controller at 907.586.1512.

www.sealaska.com

III. Special Note Regarding Forward-Looking Statements


Independent Auditors’ Report The Board of Directors Sealaska Corporation: We have audited the accompanying consolidated balance sheets of Sealaska Corporation and subsidiaries (the Corporation) as of December 31, 2011 and 2010, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2011. These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these consolidated 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Sealaska Corporation and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.

Seattle, Washington April 16, 2012


37 Haa Shagoon

Assets

2011

(As of December 31, 2011 and 2010)

2010

Current assets Cash and cash equivalents

$

20,218

$

21,989

Investments (note 4)

40,050

35,680

Receivables, net (note 5)

66,126

55,022

Inventories (note 6)

8,181

5,746

Prepaid expenses and other current assets

2,374

5,190

Deferred tax asset (note 11)

2,277

1,091

139,226

124,718

Marjorie V. Young Shareholder Permanent Fund

80,064

86,189

Investment and growth long-term

11,074

12,547

Endowment funds

5,068

5,245

Elders’ Settlement Trust

7,635

9,689

Other

3,122

2,986

Total investments

106,963

116,656

Property and equipment, at cost (notes 7 and 10)

291,631

280,605

(219,364)

(211,030)

72,267

69,575

295

50

Other assets

2,463

529

Intangible assets (note 9)

2,361

3,179

Goodwill (note 9)

16,496

16,496

Deferred tax asset (note 11)

28,593

29,948

Total current assets Investments (note 4)

Less accumulated depreciation

Total property and equipment, net Notes receivable

Total assets â?– Dollars are in thousands. See accompanying notes to consolidated financial statements.

$

368,664

$

361,151

www.sealaska.com

Consolidated Balance Sheets


Liabilities and Shareholders’ Equity

2011

(As of December 31, 2011 and 2010)

2010

Current liabilities Line of credit (note 10)

$

4,138

$

1,275

1,172

Accounts payable

26,337

22,909

Amounts payable under ANCSA Sections 7(i) and 7(j) (note 3)

14,427

9,562

Other accrued expenses

14,239

18,452

Total current liabilities

60,416

52,095

5,302

3,819

Long-term debt, less current portion (note 10)

28,288

31,216

Other noncurrent liabilities (note 12)

12,558

12,902

106,564

100,032

93,162

93,162

Retained earnings

156,616

154,771

Total Sealaska's shareholders’ equity

249,778

247,933

12,322

13,186

262,100

261,119

Current portion of long-term debt (note 10)

Noncurrent liabilities Amounts payable under ANCSA Sections 7(i) and 7(j) (note 3)

Total liabilities Shareholders’ equity Common stock, no par or stated value Issued and outstanding 2,222,176 and 2,183,976 shares, in 2011 and 2010 respectively Contributed capital

Non-controlling interest

Total shareholders’ equity Commitments and contingencies (notes 4, 8, 11, 13 and 15)

Total liabilities and shareholders’ equity ❖ Dollars are in thousands. See accompanying notes to consolidated financial statements.

$

368,664

$

361,151


39 Haa Shagoon

Years Ended December 31, 2011, 2010 and 2009

2011

2010

2009

Revenues Natural resources (note 8)

$

45,012

$

41,218

$

44,473

72,215

54,334

45,240

(3,893)

14,439

20,651

Services

145,485

112,319

84,502

Gaming

147

207

470

Corporate and other income

521

1,306

681

259,487

223,823

196,017

Manufacturing Investments (note 4)

Total revenues Cost and expenses Natural resources (note 8)

42,768

36,723

44,978

Manufacturing

70,899

53,606

43,070

Investments Services Gaming (note 15)

610

516

523

141,987

109,256

86,613

990

4,882

3,226

2,698

3,131

2,222

14,953

14,494

14,688

Total cost and expenses

274,905

222,608

195,320

Income (loss) from operations

(15,418)

1,215

697

(752)

1,820

(1,240)

(16,170)

3,035

(543)

Corporate and other expenses Selling, general and administrative

Other, net Income (loss) from continuing operations before natural resources revenue sharing and income taxes

24,067

16,537

19,836

7,897

19,572

19,293

181

312

4,779

8,078

19,884

24,072

134

(2,436)

(300)

Net income

8,212

17,448

23,772

Less: Net income attributable to the non-controlling interest

1,421

2,294

3,487

Net natural resource revenue sharing under ANCSA Sections 7(i) and 7(j) (note 3) Income from continuing operations before income taxes and discontinued operations Income tax benefit (note 11) Income from continuing operations before discontinued operations Discontinued operations, net of tax (note 2)

Net income attributable to Sealaska

$

6,791

$

15,154

$

20,285

$

3.67

$

9.21

$

11.96

Discontinued operations (note 2)

$

0.06

$

(1.13)

$

(0.14)

Net income

$

3.73

$

8.08

$

11.82

Per share of common stock Income from continuing operations before discontinued operations

â?–D  ollars are in thousands except per share values. See accompanying notes to consolidated financial statements.

www.sealaska.com

Consolidated Statements of Operations


Consolidated Statements of Shareholders’ Equity Contributed capital

Years Ended December 31, 2011, 2010 and 2009 Balance at January 1, 2009

$

93,162

Retained earnings

$

Net income

Dividends to shareholders

131,798

Total shareholders' equity

Noncontrolling interest

$

8,316

$

233,276

20,285

3,487

23,772

(4,776)

(4,776)

Distributions to non-controlling interest

(1,693)

(1,693)

Purchase of non-controlling interest

(157)

(157)

Balance at December 31, 2009

$

93,162

$

147,307

$

9,953

$

250,422

Net income

15,154

2,294

17,448

Dividends to shareholders

(7,690)

(7,690)

Distributions to non-controlling interest

(1,471)

(1,471)

Purchase of non-controlling interest

2,410

2,410

Balance at December 31, 2010

$

93,162

$

154,771

$

13,186

$

261,119

Net income

6,791

1,421

8,212

Dividends to shareholders

(4,946)

(4,946)

Distributions to non-controlling interest

(2,285)

(2,285)

Balance at December 31, 2011 ❖ Dollars are in thousands. See accompanying notes to consolidated financial statements.

$

93,162

$

156,616

$

12,322

$

262,100


41 Haa Shagoon

Years Ended December 31, 2011, 2010 and 2009

2011

2010

2009

Cash flows from operating activities Net income

$

8,212

$

17,448

$

23,772

Adjustments to reconcile net income to net cash provided by (used in) operating activities 9,537

7,759

8,683

Deferred income tax expense (benefit)

169

63

(5,101)

Gain (loss) on disposal of fixed assets

325

­­­—

(35)

Gain on debt forgiveness

­—

(2,950)

Loss on impairment of assets

4,302

3,509

8,941

(7,241)

(17,730)

(3,619)

23,572

(12,742)

Receivables

(11,104)

(25,465)

25,981

Inventories

(2,435)

925

3,315

2,816

(1,297)

2,146

6,990

(249)

3,428

761

1,576

(4,213)

6,655

(11,939)

6,348

833

2,616

(1,277)

­—

Depreciation, amortization and depletion

Unrealized (gain) loss on investments Net proceeds from (purchase of) investments

Decrease (increase) in assets, net of effects of acquisition

Prepaid expenses and other current assets Increase (decrease) in liabilities, net of effects of acquisition Accounts payable Other accrued expenses Amounts payable under ANCSA Sections 7(i) and 7(j) Other, net

Net cash provided by operating activities ❖ Dollars are in thousands. See accompanying notes to consolidated financial statements.

$

17,128

$

32,355

$

23,802

www.sealaska.com

Consolidated Statements of Cash Flows


Years ended December 31, 2011, 2010 and 2009

2011

2010

2009

Cash flows from investing activities Capital expenditures

$

(12,711)

$

(14,994)

$

(10,362)

(1,000)

(4,315)

185

(245)

760

226

(13,956)

(18,549)

(9,951)

(4,946)

(7,690)

(4,776)

4,138

(1,244)

195

5,518

Repayments on long-term debt

(1,850)

(7,395)

(2,473)

Distribution to non-controlling interests

(2,285)

(1,471)

(1,693)

Net cash used in financing activities

(4,943)

(12,282)

(8,747)

Net increase (decrease) in cash and cash equivalents

(1,771)

1,524

5,104

Cash and cash equivalents at beginning of year

21,989

20,465

15,361

$

20,218

21,989

20,465

$

1,060

1,532

1,477

Acquisitions, net of cash acquired Proceeds from sale of land and equipment Repayment of notes receivable

Net cash used in investing activities Cash flows from financing activities Dividends to shareholders Borrowings (repayments) on short-term debt Borrowings on long-term debt

Cash and cash equivalents at end of year Supplemental cash flow disclosures Cash paid during the year for interest

(173)

Cash paid during the year for income taxes

$

123

$

322

Non-cash investing and financing activity Disposal of land Debt forgiveness ❖ Dollars are in thousands. See accompanying notes to consolidated financial statements.

$

1,300

(975)


Revenues on long-term service contracts are recognized

Operations

Revenue from claims are recognized when the amounts are

Sealaska Corporation (Sealaska or Company) is a Regional

received or the related contract modification is approved by

Alaska Native Corporation formed under the Alaska Native

the customer.

ratably over the term of the contract as services are performed or based on the specific terms of the contracts. Unbilled revenue represents uncompleted tasks that will be billed at the time of completion in subsequent years.

Claims Settlement Act (ANCSA). Sealaska’s five primary continuing business activities relate to the development,

(b) Cash and Cash Equivalents

production and sale of natural resources; the manufacture

Sealaska maintains zero balance checking accounts, and

and sale of plastics, parts and products; services related to

resulting book overdrafts of $1.9 million and $1.1 million are

environmental remediation, information technology and

included in cash and cash equivalents at December 31, 2011

construction; gaming and the management of its investment

and 2010, respectively. Sealaska maintains its cash in bank

portfolio. ANCSA is further described in note 3.

accounts with various financial institutions. At times, the

Sealaska consolidated subsidiaries are: Alaska Coastal Aggregates, LLC, Sealaska Global Logistics, LLC, Sealaska Timber Corporation, Sealaska Wood Products Solutions, LLC, Synergy Systems, Inc., Sealaska Constructors, LLC, Kingston Environmental, LLC, Kingston Environmental Services, Inc., Nypro Kánaak Guadalajara SA de CV, Nypro Kánaak Iowa,

balances may exceed federally insured limits. For purposes of the consolidated statements of cash flows, Sealaska considers all highly liquid debt instruments with original maturities of three months or less from the date of purchase to be cash equivalents.

LLC, Nypro Kánaak Alabama, LLC, Olympic Fabrication, LLC,

(C) INVESTMENTS

Sealaska Environmental Services, LLC, Managed Business

Sealaska’s investments in marketable debt and equity

Solutions Systems, LLC, Managed Business Solutions, LLC,

securities (note 4) are classified as trading securities and

Security Alliance of Florida, LLC, End-to-End Enterprises, LLC,

are recorded at fair value. Fair value is based upon quoted

Amonos, LLC, Haa Aaní, LLC, and Rocky Pass Seafoods, LLC.

market prices. The increase or decrease in fair value

Basis of Presentation and Significant Accounting Policies The consolidated financial statements include the accounts of Sealaska and its wholly and majority owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

(a) Revenue Recognition and Receivables

from period to period relating to marketable securities included in Sealaska’s investment portfolio is included in the determination of income. Interest and dividend income is recognized as earned. Gains or losses on the sale of marketable securities are determined on a specific identification basis. Certain investments are valued at the Net Asset Value (NAV) per share/unit reported at the close of each business day. NAV is used by the Company as a

Revenue is recognized when earned, and the risks of

practical expedient to estimating fair value as these funds

ownership have been transferred to the buyer, which is

do not have readily determinable fair values. Sealaska

generally upon shipment to the customer. Receivables

accounts for certain non-controlling interests, less than

are recorded when invoiced and do not bear interest.

50 percent ownership and control, in privately held

Allowance for doubtful accounts is recorded based upon

corporations, LLCs and partnerships (the investee) using

Sealaska’s collection experience with credit losses in existing

the equity method of accounting. Under the equity method,

outstanding receivables.

Sealaska’s original investment in the investee is recorded at cost

www.sealaska.com

(1) Operations and Summary of Significant Accounting Policies

43 Haa Shagoon

Notes to Consolidated Financial Statements


and subsequently adjusted for changes in the net assets

mineral resources received under the provisions of ANCSA

of the investee. The carrying amount of the investment is

are carried at zero value and no depletion expense is

periodically increased (decreased) by the proportionate share

recorded when such resources are harvested or extracted.

in the earnings (losses) of the investee.

For tax purposes, depletion is reported based upon the

During 2011, Sealaska Corporation acquired Series B Preferred Stock of Green Earth Greens, Inc. representing a 7.75 percent ownership interest on a fully diluted basis, for a purchase price of $1.0 million. Green Earth Greens, Inc. is

higher of the estimated fair value of a specific timber block or mineral deposit as of the date of conveyance or first commercial development.

engaged in the development of proprietary technology and a

(g) Roads and Yards Assets

multitiered “Vegetable Factory” providing optimum growing

Roads and yards constructed for the harvest of timber

conditions of vegetables, zero environmental pollutants,

are amortized based on units of production, which are

and year-round local production of premium produce. The

calculated by taking the total estimated future asset capital

purchase price grants Sealaska Corporation an exclusive

costs plus the current known net actual capital costs,

right to develop the Alaska market.

all divided by the total future harvest (estimated total or remaining timber volume to be harvested).

(d) Inventories

Roads and yards are classified as long-lived assets and are

Inventories are stated at the lower of cost (determined on

reviewed for impairment whenever events or changes in

a first in, first out basis) or estimated net realizable value.

circumstances indicate that the carrying amounts may not

Inventories consist primarily of sorted/scaled timber,

be recoverable. Recoverability of the road assets is measured

manufacturing materials and finished goods.

by a comparison of the carrying amounts of the asset to estimated undiscounted cash flows expected to be generated

(e) Property and Equipment

by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is

Property and equipment are stated at cost.

recognized by the amount by which the carrying amount of

Depreciation and amortization of property, equipment and

an asset exceeds its estimated fair value.

leasehold improvements 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 Equipment and furnishings Computer and office equipment

(h) Long-Lived Assets Long-lived assets, such as property and equipment, are

15–45 years 5–20 years 3–5 years

reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of assets may not be recoverable. Recoverability of assets to be held and used is measured by a

(f) Timber Operations

comparison of the carrying amount of an asset to estimated

Costs of logging yards and camps are amortized as timber

undiscounted future cash flows expected to be generated

is harvested, based on estimated volumes of timber to be

by the asset. If the carrying amount of an asset exceeds

removed from each tax reporting block. Costs of logging

its estimated future cash flows, an impairment charge is

roads are amortized using a composite rate for each

recognized by the amount by which the carrying amount of

tax reporting block based on actual road costs incurred,

the asset exceeds the fair value of the asset.

anticipated future road costs to be incurred and estimated volumes to be removed from the respective tax 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.

(i) Goodwill and Other Intangible Assets Goodwill represents the future economic benefits arising from other assets acquired in a purchase combination that are not individually identified and separately recognized. Goodwill is reviewed for impairment at least

Depletion of purchased timber is provided based on amounts

annually in accordance with the provisions of the ASC

harvested in relation to volumes purchased. Timber and

Topic 350, Intangibles – Goodwill and Other. The goodwill


the fixed assets note above. Yards are treated consistently for

the fair value of the reporting unit is compared with its

Section 7(i) and book accounting.

reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the enterprise must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the

Inventories: Section 7(i) accounting allows for the deduction of the cost of inventories from revenues in determining Section 7(i) sharable income. For book purposes, inventories are reported at lower of cost or estimated net realizable value under current assets on the balance sheet.

reporting unit’s goodwill over the implied fair value of that

Accounts Receivable: Section 7(i) accounting allows for

goodwill. The implied fair value of goodwill is determined by

the deduction of outstanding accounts receivables from

allocating the fair value of the reporting unit in a manner

revenues in determining Section 7(i) sharable income. For

similar to a purchase price allocation, in accordance with

book purposes, accounts receivable are reported under

ASC 805, Business Combinations. The residual fair value

current assets on the balance sheets and the associated

after this allocation is the implied fair value of the reporting

revenues are recognized as described in note 1A.

unit goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed.

(l) Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized

Other intangible assets consist of customer relationships.

for the future tax consequences attributable to differences

Customer relationships are amortized over their estimated

between the financial statement carrying amounts of

useful lives, typically between seven to eight years using the

existing assets and liabilities and their respective tax bases

straight line method.

and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates

(j) Alaska Native Claims Settlement Assets Sealaska has received substantial natural resource assets under the provisions of ANCSA as described in note 8. 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

expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Uncertain tax positions are recorded when they are determined to be more likely than not of being sustained on Sealaska’s tax return. See note 11 for further discussion of income taxes.

substantial difference between the book and tax basis exists,

Funds and properties received from the U.S. government

which is considered a temporary difference for purposes of

under ANCSA are not subject to income taxes.

reporting income tax expense under U.S. generally accepted accounting principles.

(k) ANCSA Section 7(i) Accounting

(m) Income (Loss) Per Share Income (loss) per share information in the consolidated financial statements is based on weighted average shares

Fixed Assets: In Section 7(i) accounting, ANCSA fixed assets

outstanding. Sealaska has no agreements or securities

are expensed in the year they are purchased. For book

outstanding that represent dilutive potential common shares.

accounting, all fixed assets are depreciated using the straight line method based on their useful life.

The number of common stock shares outstanding at December 31, 2011 and 2010 is 2,222,176 and 2,183,976,

Roads and Yards: In Section 7(i) accounting, ANCSA roads

respectively. The stock, dividends paid and other stock rights

are segregated into three categories: mainline, secondary

are restricted; the stock may not be sold, pledged, assigned

and spur. Mainline and secondary roads are amortized based

or otherwise alienated except in certain circumstances by

on units of production and the useful life of 10 and three

gift, court order or death; the stock carries voting rights only

years, respectively. Spur roads are expensed in the year they

if the holder thereof is an eligible Native. On June 23, 2007,

are placed into service. The book treatment is addressed in

Sealaska’s tribal member shareholders authorized

www.sealaska.com

carrying value (including goodwill). If the fair value of the

45 Haa Shagoon

impairment test is a two-step test. Under the first step,


the issuance of two additional classes of common stock

quoted prices in active markets for identical assets or

without consideration. Class D stock is issuable to Alaska

liabilities (Level 1 measurements) and the lowest priority

Natives born after December 18, 1971, who are 18 years

to measurements involving significant unobservable inputs

of age or older and are lineal descendants of an original

(Level 3 measurements). The three levels of the fair value

Sealaska shareholder and meet certain other requirements.

hierarchy are as follows:

Class L stock is issuable to Alaska Natives born before December 18, 1971, who were eligible to enroll in Sealaska Corporation in 1971 (pursuant to ANCSA) but were not so enrolled and who meet certain other requirements. On June 27, 2009, Sealaska’s shareholders authorized the issuance of an additional class of common stock without consideration. Class E stock is issuable to Alaska Natives born before December 18, 1971, who are original tribal member shareholders of Sealaska who have reached the age

›› Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that Sealaska has the ability to access at the measurement date. ›› Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. ›› Level 3 inputs are unobservable inputs for the asset or liability.

of 65 years or older, and meet certain other requirements.

The level in the fair value hierarchy within which a fair

8,900 shares of Class E stock, 28,900 shares of Class D stock,

measurement in its entirety falls is based on the lowest level

and 400 shares of Class L stock were issued in 2011. 10,000

input that is significant to the fair value measurement in

shares of Class E stock, 40,400 shares of Class D stock, and

its entirety.

200 shares of Class L stock were issued in 2010. 191,600 shares of Class E stock, 52,800 shares of Class D stock, and 200 shares of Class L stock were issued in 2009.

(n) Fair Value

Fair Value Measurements on a Nonrecurring Basis Sealaska follows the fair value measurement requirements related to nonfinancial assets and nonfinancial liabilities that are not required or permitted to be measured at fair value on a recurring basis. Those include assets measured at

Accounting Standards Codification 820 (ASC 820), Fair Value

fair value in goodwill impairment testing and nonfinancial

Measurements and Disclosures, establishes a framework

long-lived assets measured at fair value for impairment

for fair value measurements in the financial statements

assessment. During 2011, 2010 and 2009, using level three

by providing a definition of fair value and guidance on

inputs and an income valuation technique, Sealaska

the methods used to estimate fair value, and expands

performed an impairment assessment of certain long-

disclosures about fair value measurements.

lived assets and goodwill. In 2011, Sealaska determined

Fair Value Measurements ASC 820 defines fair value as the price that would be received to sell an asset or the amount paid to transfer a liability in an orderly transaction between market participants (an exit price) at the measurement date. Fair value is a market based measurement considered from the perspective of a market participant. Sealaska uses market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation. These inputs can be readily observable, market corroborated or unobservable. Sealaska applies both market and income approaches for recurring fair value measurements, using the best available information while utilizing valuation

the fair value of these assets to be less than their carrying amount and accordingly recorded impairment of $691,000 to capitalized roads included in property and equipment on the balance sheets. In 2010, Sealaska recorded impairment of $2,950,000 to land in the gaming segment, $195,000 to property and equipment for the Discontinued Operation Olympic Fabrication, which was formerly included in the manufacturing segment, and $1,153,000 to goodwill in the manufacturing segment. In 2009, Sealaska determined the fair value of these assets to be less than their carrying amount and accordingly recorded impairment of $585,000 to capitalized roads included in property and equipment on the balance sheets and impairment of $2,924,000 to goodwill in the services segment.

techniques that maximize the use of observable inputs and

Financial Instruments

minimize the use of unobservable inputs.

The carrying amounts of cash and cash equivalents,

Fair Value Hierarchy ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted

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


Assets and liabilities of Olympic Fabrication at December 31,

adjusts based upon market interest rates.

2011 and 2010 were:

$

2011

2010

18

The financial statements of Sealaska’s foreign operations

Cash

have been translated into U.S. dollars in accordance with ASC

Accounts receivable (net)

582

Inventory

437

Prepaids and deposits

17

Property, plant and equipment (net)

223

830-10, Foreign Currency Matters. As the U.S. dollar is the functional currency of our subsidiary operations, 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.

Total assets

$

1,277

(p) Reclassifications

Accounts payable

$

463

Certain reclassifications have been made to the 2009 and 2010

Other payables

1,062

Long-term debt (including current portion)

3,889

Contributed capital

707

(q) Use of Estimates

Accumulated deficit

(4,844)

The preparation of financial statements in conformity

Total liabilities and shareholders’ deficit

1,277

balances to conform to the 2010 and 2011 presentation. The most significant reclassifications to 2009 relate to reporting of discontinued operations for Olympic Fabrication.

with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect 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

$

❖ Dollars are in thousands.

Operating results from Olympic Fabrication, which was formerly included in the manufacturing segment, are summarized as follows:

differ from those estimates. Significant estimates include

2011

provisions relating to uncollectible receivables, useful lives $

1,709

2009

4,388 $

4,988

of capitalized timber costs, property and equipment, the

Sales

related depreciation and valuation of certain underlying

Pretax income (loss)

75

(1,988)

(236)

Income taxes

assets of limited partnership investments and amortization, realization of deferred income taxes and impairment of long-lived assets and goodwill. The recorded amounts are currently believed by management to be sufficient. However, such estimates could significantly change in future periods to reflect new laws,

Net income (loss) from discontinued operations

$

75

$

2010

$

(1,988) $

(236)

❖ Dollars are in thousands. Years ended December 31.

regulations or information. It is not possible to determine

(b) Security Alliance of Florida, LLC

whether changes in amounts recorded, due to such changed

During 2010 Sealaska Corporation created Sealaska Security

circumstances, will occur or to reasonably estimate the

Holdings, LLC. In October 2010 Sealaska Security Holdings

amount or range of any potential additional loss.

purchased 70 percent of Security Alliance of Florida, LLC (Security Alliance), for $5.7 million. Sealaska Security

(2) A cquisitions and Divestitures of Subsidiaries

Holdings, LLC acquired tangible assets of $3.3 million, intangible assets of $2.1 million and total liabilities of $6.6 million. The purchase price allocation resulted in $3.6 million of goodwill which primarily represents the implied value of Security Alliance’s organized workforce, which

(A) OLYMPIC FABRICATION, LLC

cannot be separately recognized under generally accepted

In December 2010 the Sealaska Board of Directors voted to

accounting principles. The fair value of non-controlling

discontinue Olympic Fabrication, LLC.

interest was $2.4 million at the date of acquisition by

www.sealaska.com

(o) Foreign Currency Translation

47 Haa Shagoon

debt approximates fair value as the debt bears interest that


Sealaska Security Holdings. Determination of the fair

Operating results from Synergy Systems, which was formerly

value of the assets and liabilities used to allocate purchase

included in the manufacturing segment, are summarized

price was based on the discounted cash flow method

as follows:

using estimated future earnings. Security Alliance is

2011

headquartered in Miami, Florida, and provides an array of guard and private investigation services in Florida, Georgia

Sales

and Texas, as well as outside the United States. The purchase

$

2010 $

2009

­— $

730

Pretax income (loss)

59

(448)

(60)

redemption feature of an eight to nine percent additional

Income taxes

4

purchase of Security Alliance if revenue targets are met at

Net income (loss) from discontinued operations

agreement includes a conditional noncontrolling interest

December 31, 2012. The goodwill is attributed to the services segment, and is deductible for tax purposes.

$

59

$

(448) $

(64)

❖ Dollars are in thousands. Years ended December 31.

(c) Kingston Environmental, LLC In August 2009, Sealaska Corporation agreed to purchase the remaining 49 percent of Kingston Supply, LLC and Kingston Environmental Services, Inc. for $1. Sealaska also indemnified the sellers for existing lines of credit. In addition, the sellers

(3) A laska Native Claims Settlement Act Sealaska was incorporated in 1972 as a Regional Alaska

have a right to 10 percent of net income per year from

Native Corporation pursuant to the provisions of ANCSA.

environmental services business if the resulting net income

Sections 7(i) and 7(j) are significant to the consolidated

is less than $10 million or 15 percent of net income if net income is greater than $10 million. This right expires in three years and is projected to result in an additional acquisition cost of $158,000. This transaction results in Sealaska owning 100 percent of the two Kingston companies.

financial statements and are further described herein. Under the provisions of ANCSA, Sealaska has received, or expects to receive, conveyance of approximately 362,000 acres of land in the Tongass National Forest in Southeast Alaska, of which it will own the surface and subsurface estate. At December 31, 2011, Sealaska has received conveyance of approximately

(d) Synergy Systems, Inc.

290,800 acres. Sealaska has received its proportionate share

In December 2008, the Sealaska Board of Directors voted

of the monetary entitlement under the act in the amount of

to discontinue Synergy Systems, Inc.’s manufacturing

$93,162,000, which is recorded as contributed capital.

operations. The legal entity was repurposed and now

ANCSA also provides for selection of land in Alaska by the

provides design-build construction and construction

Village and Urban Corporations formed thereunder, the

management services.

subsurface estate of which accrues to the related Regional

Assets and liabilities of the discontinued Synergy Systems

Corporations. It is anticipated that the Village and Urban

manufacturing segment at December 31, 2011 and 2010,

Corporations in Sealaska’s region will receive conveyance to

respectively were:

286,400 acres of land formerly part of the Tongass National Forest of which Sealaska will own the subsurface estate.

2011

2010

Of the approximate 286,400 acres, conveyance has been

received of approximately 278,100 acres. As described in note

Total assets

$

$

8, the land and related surface and subsurface resources

Accounts payable

$

­—

$

57

received under ANCSA are carried at zero value in the

Accounts receivable (net)

Other payables Contributed capital Accumulated deficit

Total liabilities and shareholders’ deficit ❖ Dollars are in thousands.

$

528

5,196

4,611

(5,196)

(5,196)

$

accompanying consolidated financial statements. Section 7(i) of ANCSA requires that each Alaska Native Regional Corporation that received revenue or value from certain resources conveyed pursuant to ANCSA distribute 70 percent of the related net revenues to 12 of the 13 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 revenues.


49 Haa Shagoon

of the fiscal year and unpaid distributions incur interest at

and subsurface estate obtained through ANCSA are subject

the prime rate plus five percent. Required distributions to

to the revenue sharing provisions of Section 7(i), except

Village Corporations, shareholders of Urban Corporations,

that subsurface resources commonly known as sand, rock

and At-Large shareholders are based on the ratio of the total

and gravel, are excluded from Section 7(i) revenue sharing.

number of Sealaska shares owned by shareholders of Village

Distributions to Sealaska from other Regional Corporations

Corporations, by shareholders of Urban Corporations and by

under the provisions of Section 7(i), after reductions

At-Large shareholders.

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 percent of monies received by Sealaska from other Regional Corporations under Section 7(i) must be distributed to Village Corporations, tribal member shareholders of Urban Corporations, and At-Large shareholders. Required distributions to other Regional Corporations are due 90 days following the end

Sealaska accrues and expenses an amount determined by applying the provisions of Section 7(i) to applicable active revenue and expense transactions as they are recognized in the consolidated financial statements. Sealaska recorded a noncurrent liability representing the estimated distribution payable for near-term timing differences between the recognition of revenue and expenses for financial reporting and Section 7(i) reporting purposes.

(4) Investments Investments consist of the following:

2011

2010

Investment and Growth Common stock

$

Money market Bonds and notes Accrued interest, dividends and other

Total investment and growth

17,253

$

19,864

6,561

1,469

15,944

14,139

292

208

40,050

35,680

Marjorie V. Young Shareholder Permanent Fund Common stock

37,144

40,652

Alternative investments

35,219

38,954

6,761

6,058

940

525

80,064

86,189

11,074

12,547

Government bonds and notes Money market, accrued interest, dividends and other

Total Marjorie V. Young Shareholder Permanent Fund Investment and growth long-term portion Alternative investments Endowment Fund

5,068

5,245

Elders’ Settlement Trust

7,635

9,689

3,122

Other investments

Total investments â?– Dollars are in thousands. Years ended December 31.

$

147,013

2,986 $

152,336

www.sealaska.com

Revenues received by Sealaska from the timber resources


Following a tribal member 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 (Marjorie V. Young Shareholder Permanent Fund) and, accordingly, such funds are not available for current operations, unless necessary. Additionally, endowment funds have been established for which the earnings accrue to the benefit of the Sealaska Heritage Institute scholarship program and the Alaska Native Brotherhood. During 1991 Sealaska’s tribal member shareholders voted to establish an Elders’ Settlement Trust (the Trust). Accordingly, and pursuant to ANCSA, the Sealaska Board of Directors established the 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 2011, 2010 and 2009 was $447,000, $347,000 and $309,000, respectively. As noted above with the Marjorie V. Young Shareholder Permanent Fund, the Endowment Funds, Elders’ Settlement Trust and other investments are not available to fund current operations, unless necessary.

Investment earnings consist of the following components:

2011 Unrealized gains (losses)

$

$

5,048

Realized net gains, dividends and interest

Total investment earnings (loss)

(8,941)

2010

$

(3,893)

7,241

2009 $

7,198 $

14,439

17,730 2,921

$

20,651

❖ Dollars are in thousands. Years ended December 31.

Sealaska invests in limited partnerships that make private investments in real estate, commercial assets and operating entities. Sealaska has remaining commitments of $2.9 million that are due when called by the general partners of the investment funds. 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. The following table presents assets that are measured at fair value on a recurring basis at December 31 using:

2011 Level 1: Quoted prices in active markets identical assets

$

Level 2: Significant other observable inputs Level 3: Significant unobservable inputs

Total

$

80,076

2010 $

79,203

13,747

18,898

93,823

$

98,101

❖ Dollars are in thousands. Years ended December 31.

Sealaska has no financial instruments that are recorded at fair value on a nonrecurring basis at December 31, 2011 and 2010.


51 Haa Shagoon

The following table presents quantitative disclosure about the fair value measurements for each class of assets:

Description

Quoted prices in active markets for identical assets (Level 1)

Totals

Significant other observable inputs (Level 2)

Equity securities Equity securities—domestic

$

Equity securities—international (developed)

38,681

$

38,681

$

12,247

12,247

5,232

5,232

Equity securities—Vanguard LifeStrategy Mod Growth Fd

14,505

14,505

Total equity securities

70,665

70,665

4,570

2,116

2,454

10,591

10,591

Equity securities—emerging markets

Debt securities Government securities Corporate securities

702

702

PIMCO Total Return Fd

Mortgage-backed securities

7,295

7,295

Total debt securities

23,158

9,411

13,747

Total

$

93,823

$

80,076

$

13,747

❖ Dollars are in thousands. Years ended December 31.

(5) Receivables Receivables consist of the following:

2011 Trade accounts receivable, less allowance for doubtful accounts of $956 and $843 at December 31, 2011 and 2010, respectively

$

$

23,371

ANCSA Section 7(i) revenue sharing

$

66,126

33,817 18,661

4,645

Other

Total receivables

38,110

2010

2,544 $

55,022

❖ Dollars are in thousands. Years ended December 31.

(6) Inventories Inventories consist of the following:

2011 Timber—finished goods

$

3,671

2010 $

2,174

Plastics Raw materials Work in process Finished goods Other

Total inventories ❖ Dollars are in thousands. Years ended December 31.

$

3,336

2,168

43

400

1,056

1,004

75

8,181

$

5,746

www.sealaska.com

Fair Value at Reporting Date Using


(7) Property and Equipment Property and equipment consist of the following:

2011 Buildings, leaseholds and improvements

$

Equipment and furnishings Logging roads, yards and camps Reforestation and silviculture costs

Total property and equipment Less accumulated depreciation Construction in progress Land

Net property and equipment

$

19,547

2010 $

18,650

36,673

33,290

185,847

179,873

19,456

17,947

261,523

249,760

(219,364)

(211,030)

1,240

2,383

28,868

28,462

72,267

$

69,575

â?– Dollars are in thousands. Years ended December 31.

Land held for development as commercial, recreational or residential property totaling $16.4 million and $16.9 million at December 31, 2011 and 2010, respectively, is included in the caption “Land� above. Sealaska Corporation and the Cloverdale Rancheria of Pomo Indians of California entered into a settlement agreement regarding the land purchased and held for casino development.

(8) T imber, Timberland and Mineral Resources As of December 31, 2011 Sealaska has received approximately 290,800 acres of land under the provisions of ANCSA, as described in note 3. Under U.S. generally accepted accounting principles, 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 land and natural resource assets received under ANCSA at zero value. However, these assets have significant economic value to Sealaska. Sealaska incurs costs related to the selection of ANCSA land and related resources and related to the potential exchanges of such property. These costs are capitalized as part of the basis in either the land or the related resources (such as timber). Costs attributable to resources will be amortized as the related resource is harvested or developed. 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. In accordance with ASC 360, Property, Plant and Equipment, an annual impairment analysis is performed. In 2011, the estimated undiscounted future cash flows generated by the roads in these timber areas were less than the carrying value resulting in an impairment charge of $691,000.


53 Haa Shagoon

Sealaska has asset retirement obligations (AROs) arising from regulatory requirements to perform certain asset retirement activities at the time that certain road systems are maintained or rehabilitated. The liability was initially measured at fair The corresponding asset retirement costs are capitalized as part of the carrying amount of the related long-lived asset and depreciated over the asset’s remaining useful life. The following table presents the activity included in other current liabilities for the AROs for the year ended December 31, 2011 and 2010:

2011 Balance at beginning of the year

$

896

2010 $

1,136

691

(370)

(330)

Changes in estimates, including timing

12

Accretion expense

51

78

1,268

896

Additional obligations incurred Obligations settled in current period

Balance at end of year ❖ Dollars are in thousands. Years ended December 31.

www.sealaska.com

value and subsequently is adjusted for accretion expense and changes in the amount or timing of the estimated cash flows.


(9) Goodwill and Intangible Assets The following table provides the gross carrying value for each major class of intangible asset by segment as of December 31, 2011 and 2010:

Goodwill: Balance, January 1, 2010

Services

$

11,057

Additional purchase—Kingston Additional purchase—Security Alliance

$

2,758

$

13,815

193

3,641

3,641

(1,153)

(1,153)

14,891

1,605

16,496

Impairment expense

Balance, December 31, 2011

$

Total

193

Impairment expense

Balance, December 31, 2010

Manufacturing

14,891

$

1,605

$

16,496

❖ Dollars are in thousands.

Aggregate other intangible assets consist of the following:

Amortizing intangible assets—customer relationships within services segment Balance, December 31, 2009

Total

$

1,714

Additional purchase—Security Alliance

2,040

Amortization

(575)

Balance, December 31, 2010

3,179

Amortization

(818)

Balance, December 31, 2011

$

2,361

❖ Dollars are in thousands. Customer relationships are amortized over 7-8 years from the date of acquisition.

Amortization expense for intangible assets was $818,000 and $575,000 for the years ended December 31, 2011 and 2010, respectively. Estimated amortization expense for the next five years: 2012

$

597

2013

438

2014

438

2015

353

2016

291

❖ Dollars are in thousands. Years ended December 31.

In accordance with the provisions of ASC 350, Intangibles – Goodwill and Other, goodwill is reviewed for impairment at least annually. In 2011, the implied fair value of each reporting unit exceeded its carrying value. In 2010, a goodwill impairment charge was recorded in the manufacturing segment of $1.2 million. In 2009, a goodwill impairment charge was recorded in the services segment of $2.9 million.


55 Haa Shagoon

(10) Long-Term Debt 2011 Note payable to a bank under an unsecured revolving term loan with variable interest rate pricing that was 1.50 percent at December 31, 2011, with the note expiring October 2014

$

Note payable to a bank under an unsecured revolving term loan with a fixed interest rate, and variable credit spread that was 2.35 percent at December 31, 2011, with the note expiring October 2014

11,302

2010 $

11,302

15,000

15,000

552

1,000

1,000

Note payable by Amonos, LLC to an individual; collateralized by land; interest at seven percent— interest only through August 2010; principal due September 2012

975

Note payable by Kánaak Alabama to Nypro, Inc., an affiliated partner with Sealaska Corporation with interest at five percent

882

1,179

1,379

2,380

Total long-term debt

29,563

32,388

Less current portion

(1,275)

(1,172)

Total long-term debt less current portion

28,288

31,216

Mortgage payable, collateralized by land and building, with interest at the prime rate minus 0.5 percent (2.75 percent at December 31, 2010), due August 2011 Note payable by Amonos, LLC to Pacific Gulf, LLC; collateralized by land; interest at three percent; principal due July 2012

Other debt

❖ Dollars are in thousands. Years ended December 31.

Scheduled principal maturities of long-term debt are as follows: 2012

1,275

2013

2014

26,302

2015

2016

— 1,986

Thereafter

Total

$

29,563

❖ Dollars are in thousands. Years ended December 31.

Sealaska’s $60 million unsecured revolving term loan has various affirmative and negative covenants that are typical within loan agreements. Sealaska was in compliance with all covenants at December 31, 2011. Interest expense totaled $1.1 million in 2011, $1.5 million in 2010 and $1.5 million in 2009.

www.sealaska.com

Long-term debt consists of the following:


Sealaska has the following lines of credit available at December 31, 2011:

Amount

Amount Outstanding

Interest Rate

Collateral

$1,000,000

3.25%

No collateral

$750,000

$538,000

1-month LIBOR + 3.75%

Business assets of the borrower

$3,000,000

Variable

No collateral

$4,000,000

$3,600,000

3.25%

Business assets of the borrower

The lines of credit are as follows: NKA $1.0 million at Wells Fargo, Security Alliance $750,000 at BankUnited, MBS $3.0 million at Colorado State Bank and Trust and NKI $4.0 million at Wells Fargo.

(11) Income Taxes Income tax expense related to continuing operations was the following:

2011

2010

2009

Current income tax expense (benefit) Federal

$

(40)

$

(319)

$

57

(26)

(56)

199

(284)

66

(350)

(375)

Federal

(313)

(138)

762

State

(175)

225

134

Foreign

657

(24)

(5,997)

Total

169

63

(5,101)

State Foreign

Total

$

$

322

Deferred income tax expense (benefit)

Income tax expense (benefit)

$

(181)

$

(312)

$

(4,779)

❖ Dollars are in thousands. Years ended December 31.

The income tax expense from discontinued operations was $0, $0 and $4,000 for the years ending December 31, 2011, 2010 and 2009, respectively.


57 Haa Shagoon

The provision for income taxes from continuing operations differ from the “expected” amount (computed by applying the U.S. federal corporate tax rate of 35% to earnings before taxes) as follows:

Computed “expected” tax expense

$

State income tax, net of federal tax Change in valuation allowance Expiration of net operating losses Addition of ANCSA assets Discontinued operations Other

$

2,685

2010 $

6,959

2009 $

6,670

490

1,082

1,412

1,343

(741)

(38,948)

(4,799)

(6,606)

25,898

(137)

(131)

(140)

(4)

237

(875)

333

(181)

$

(312)

$

(4,779)

❖ Dollars are in thousands. Years ended December 31.

Net deferred tax assets and liabilities include the following:

2011

2010

Deferred tax assets Net operating loss carryforwards

$

139,418

$

135,185

196,013

206,040

Fixed assets

12,372

12,276

Other

11,478

11,113

359,281

364,614

2,106

(4,401)

(330,517)

(329,174)

Net deferred tax asset

30,870

31,039

Less current portion

(2,277)

(1,091)

ANCSA resource basis difference

Total gross deferred tax assets Deferred tax liabilities—investment unrealized losses (gains) Valuation allowance

Total long-term deferred tax asset

$

28,593

$

29,948

❖ Dollars are in thousands. Years ended December 31.

Sealaska has recorded a net deferred tax asset of $30.9 million, which primarily reflects (a) estimated future benefit of $322 million federal, $266 million state and $17 million foreign net operating loss (NOL) carryforwards which expire in varying amounts from 2011 to 2030 and (b) basis differences for significant natural resources received pursuant to ANCSA which have no carrying value in the accompanying consolidated financial statements but which have substantial basis for domestic tax reporting purposes. A valuation allowance has been established, reducing the maximum possible benefit of these carryforwards to management’s estimate of the benefit likely to be realized. Realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards and basis differences. Although realization is not assured, management believes it is more likely than not that all of the recorded net deferred tax assets will be realized. Net deferred tax assets considered realizable are adjusted annually dependent on management’s estimate of future earnings. An increase or decrease in management’s estimate of the total taxable income that will be generated during the carryforward period will have a corresponding increase or decrease in net deferred tax assets considered realizable.

www.sealaska.com

2011


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 except

(14) D Escription of the Business and Segment Information

those taxes related to the activities of certain controlled

Sealaska, together with the subsidiaries through which the

subsidiaries operating outside Alaska. Sealaska will need

Company’s businesses are conducted, is a diversified Alaska

to earn approximately $40 million in taxable income

Native Corporation with operations in the following business

within the United States of America to utilize its estimated

segments: Natural Resources, Manufacturing, Services,

realizable deferred tax asset related to state and federal tax

Investments and Gaming.

jurisdictions prior to the expiration of its federal and state

Description of the Business

net operating losses in 2030. Sealaska will also need to earn approximately $17 million in taxable income in Mexico prior

(a) Natural Resources

to the expiration of its net operating losses in 2018

The natural resources division is responsible for the land

and 2019.

management and land stewardship functions of all Sealaska lands. Sealaska Timber Corporation is responsible for the

(12) Other Noncurrent Liabilities

of ANCSA lands, maintenance of land records and other

2011 $

7,542

value export and domestic markets. Management activities include collection of escrow receipts, cadastral survey

Other noncurrent liabilities consist of the following:

Elders’ distribution payable

harvesting of timber and marketing of logs into the highest

2010 $

7,785

activities vital to land ownership. Alaska Coastal Aggregates, LLC markets and manages approximately 568,000 acres of the Company’s subsurface estate. Haa Aaní, LLC is an

913

750

Endowments payable

2,068

2,246

throughout our region and to enhancing the social, economic

Voluntary retirement deferrals

1,935

1,821

and cultural lives of all Sealaska tribal member shareholders.

100

300

Shareholders' distribution payable

Charitable contribution payable

Total

$ 12,558

$

12,902

❖ Dollars are in thousands. Years ended December 31.

enterprise dedicated to creating sustainable communities

(b) Manufacturing The manufacturing division is comprised of a contract manufacturer of injection molded components. The contract manufacturer specializes in high quality plastics, injection

(13) Retirement Plans

molded products and value-added manufacturing services

Sealaska has a 401(k) plan for virtually all employees

electronics/telecommunications, healthcare and automotive

meeting certain eligibility requirements. Participants may

industries. Secondary value-added services include product

contribute up to 25 percent of their eligible compensation

design, engineering, tooling, automated molding and

to the plan, subject to the limits of Section 401(k) of the

some secondary value-added services including shielding,

Internal Revenue Code. Sealaska matches 100 percent of the

painting, decorating, graphics and assembly.

participant’s contribution up to four percent of their eligible compensation. All participants are immediately vested in the preceding contributions. Sealaska may contribute six percent of the participant’s eligible compensation to the plan and these contributions are vested over a five year period. Contributions to the plan are based upon employees’ total yearly contributions and base pay. Total approved contributions to the plans were $1,194,000, $1,394,000, $1,109,000, in 2011, 2010 and 2009, respectively.

in partnership with customers in the consumer/industrial,

Substantially all of the manufacturing division’s revenue is derived from activities and customers in the United States of America with the exception of the operation of a facility in Mexico.

(c) Services The services division provides environmental construction and remediation, environmental assessments, consulting and engineering services, custom build construction, construction management services, and security services to federal government agencies, private and commercial clients


Systems, Inc. and Security Alliance, LLC. The services division provides services in the disciplines of information technology (IT) processing through the subsidiary Managed Business Solutions, LLC. The services division expanded in 2010 with the controlling acquisition of Security Alliance, LLC. Through Security Alliance, LLC, the services division provides an array of guard and private investigation services.

(d) Investments Sealaska’s securities portfolio consists of two separate investment accounts that are managed to achieve different objectives: the Marjorie V. Young Shareholder Permanent Fund is managed long-term with the objective of shareholder dividends, and the Investment and Growth Fund is managed shorter term and is used for operational needs and new investments. Sealaska investments follow a disciplined investment philosophy by building off existing strengths, exercising patience and selectivity in making investment, adding investments that will achieve consistency in growth and earnings, and being prepared to exit investments or potential investments if upside opportunities arise or if problems change expected returns, and by seeking strong and strategic partnerships, distributing risk and benefit and establishing a new platform for companies for future growth.

(e) Gaming The gaming segment consists of an investment in a gaming venture with the Cloverdale Rancheria of Pomo Indians in Cloverdale, California. Through its wholly owned subsidiary End-to-End Enterprises, Sealaska is working to develop a new casino and resort facility. The End-to-End subsidiary has purchased land for the casino development.

2011

2010

2009

Net income (loss) from continuing operations before income taxes Natural resources

$

2,244

$

4,495

$

(505)

1,316

728

2,170

(4,503)

13,923

20,128

Services

3,498

3,063

(2,111)

Gaming

(843)

(4,675)

(2,756)

(2,177)

(1,825)

(1,541)

(465)

15,709

15,385

24,067

16,537

19,836

(14,953)

(14,494)

(14,688)

Other, net

(752)

1,820

(1,240)

Income before taxes

7,897

19,572

19,293

Manufacturing Investments

Corporate and other

Total segment net earnings (loss) Net revenue (expense) not allocable to a segment Natural resource revenue sharing under Sections 7(i) and 7(j) Selling, general and administrative expense

181

312

4,779

8,078

19,884

24,072

134

(2,436)

(300)

Net income

8,212

17,448

23,772

Less: Net income attributable to non-controlling interest

1,421

2,294

3,487

Income tax benefit

Income from continuing operations Discontinued operations, net of tax

Net income attributable to Sealaska â?– Dollars are in thousands. Years ended December 31.

$

6,791

$

15,154

$

20,285

www.sealaska.com

strategy and consulting, business intelligence, application services, infrastructure management, managed services and data

59 Haa Shagoon

through wholly owned subsidiaries: Sealaska Environmental Services, LLC, Kingston Environmental Services, Inc., Synergy


2011

2010

2009

Total assets by operating segment Natural resources

$

10,778

$

7,755

$

6,415

34,081

27,532

26,616

146,992

152,336

168,667

Services

23,268

21,262

11,200

Gaming

(4,017)

(2,231)

6,567

157,562

154,497

119,871

Manufacturing Investments

Corporate and other

Total assets

$

368,664

$

361,151

$

339,336

Capital expenditures by segment Natural resources

6,674

7,190

6,034

Manufacturing

1,670

4,022

2,065

Services

367

1,098

881

Gaming

379

405

226

3,621

2,279

1,156

Corporate and other

Total capital expenditures

$

12,711

$

14,994

$

10,362

Depreciation, impairment and amortization by segment Natural resources

5,259

4,382

5,551

Manufacturing

2,796

2,984

1,632

Services

263

1,433

3,709

Gaming

—

2,950

—

1,219

312

1,300

Corporate and other

Total depreciation, impairment and amortization â?– Dollars are in thousands. Years ended December 31.

$

9,537

$

12,061

$

12,192


Management is not aware of or party to any legal action that

if revenue targets are met at December 31, 2012.

of Security Alliance of Florida, LLC. The purchase includes a conditional non-controlling interest redemption feature of an eight to nine percent additional purchase of Security Alliance

would have a material adverse effect on the consolidated financial condition, results of operations or cash flows of

During December 2011, Sealaska committed to extend a

Sealaska. Sealaska, in its normal course of activities, is

loan of $500,000 for working capital needs that can be

exposed to regulatory and environmental matters. In the

converted to additional Series B Preferred Stock at the mutual

opinion of management, the disposition of these matters is

agreement of the majority owners of Green Earth Greens and

not expected to have a material adverse effect on Sealaska’s

Sealaska Corporation.

financial condition, results of operations or liquidity. Sealaska is currently leasing facilities, and manufacturing and office equipment, from a variety of vendors. Minimum annual

(16) Subsequent Events

rental commitments on operating leases at December 31 are

Sealaska has evaluated subsequent events from the

as follows:

balance sheet date through April 16, 2012, the date at which the financial statements were available to be issued, and determined there are no subsequent events which

2012

3,464

2013

2,915

2014

1,980

2015

1,677

2016

1,431

Thereafter

5,108

Total

$

16,575

❖ Dollars are in thousands.

These leases primarily relate to Kánaak. 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. Kánaak has options to renew, at substantially similar terms, the facility leases for an additional two to 12 years.

require disclosure.

www.sealaska.com

In October 2010, Sealaska Corporation purchased 70 percent

61 Haa Shagoon

(15) C ommitments and Contingencies


sealaska directory SEALASKA CORPORATION

SEALASKA SUBSIDIARIES

Corporate Headquarters

Sealaska Constructors

Nypro Kánaak

One Sealaska Plaza, Suite 400

General Manager: Daniel Esparza

Managing Director: Julio Oropeza

Juneau, AK 99801

13810 S.E. Eastgate Way, Suite 420

julio.oropeza@nyprokanaak.com

TEL: 907.586.1512

Bellevue, WA 98005

www.nyprokanaak.com

FAX: 907.586.2304

dan.esparza@seakcon.com

Shareholder toll-free line:

www.seakcon.com

800.848.5921 Nypro Kánaak Alabama & Iowa

www.sealaska.com Sealaska Environmental Services

General Manager: Kevin Bokros

Seattle Office

President and CEO: Derik Frederiksen

208 Nypro Lane

13810 S.E. Eastgate Way, Suite 420

One Sealaska Plaza, Suite 400

Dothan, AL 36305

Bellevue, WA 98005

Juneau, AK 99801

TEL: 425.283.0600

derik.frederiksen@sealaska.com

400 North Harvey Road

FAX: 425.283.0650

www.sealaskaenvironmental.com

Mt. Pleasant, IA 52641 kevin.bokros@nyprokanaak.com www.nyprokanaak.com

Sealaska Heritage Institute One Sealaska Plaza, Suite 301

Sealaska Global Logistics

Juneau, AK 99801

Vice President: Angela Higgs

Nypro Kánaak Guadalajara

TEL: 907.463.4844

13810 S.E. Eastgate Way, Suite 420

General Manager: Alejandro Hernandez

FAX: 907.586.9293

Bellevue, WA 98005

Ignacio Jacobo #23

www.sealaskaheritage.org

angela.higgs@sealaska.com

Parque Industrial Belenes

www.alaskanativeartists.com

www.sealaskagloballogistics.com

Zapopan Jalisco, MX 45101 alejandro.hernandez@nyprokanaak.com

OUTSIDE COUNSEL Simpson, Tillinghast & Sorensen, P.C. One Sealaska Plaza, Suite 300 Juneau, AK 99801

Sealaska Timber Corporation President and CEO: Wade Zammit

Synergy Systems

2030 Sea Level Drive, Suite 202

General Manager: Bob Wysocki

Ketchikan, AK 99901

13810 S.E. Eastgate Way, Suite 420

wade.zammit@sealaska.com

Bellevue, WA 98005

www.sealaskatimber.com

bob.wysocki@sealaska.com www.sealaska.com/page/synergy_systems

INDEPENDENT AUDITORS

Managed Business Solutions President and CEO: Jon Duncan

Alaska Coastal Aggregates

KPMG Phillips Tower South 701 West 8th Avenue, Suite 600 Anchorage, AK 99501

12325 Oracle Blvd., Suite 200

General Manager: Bill Bennett

Colorado Springs, CO 80921

One Sealaska Plaza, Suite 400

jon.duncan@mbshome.com

Juneau, AK 99801

www.mbshome.com

bill.bennett@sealaska.com www.sealaska.com/page/aggregates

Security Alliance

Haa Aaní, LLC

President and CEO: David Ramirez

President and CEO: Russell Dick

8323 NW 12th St., Suite 218

One Sealaska Plaza, Suite 400

Doral, FL 33126-1840

Juneau, AK 99801

davidr@securityalliancegroup.com

russell.dick@sealaska.com

www.securityalliancegroup.com

www.sealaska.com/page/haa-aani-llc


1994

1995

1996

1997–1

1997–2

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011


www.sealaska.com

Photo credits: Carlos Acero, Todd Antioquia, Scott Areman, Oscar Avellaneda-Cruz, Terrance Booth Jr., Don Derosier, Don Distel and Seanna O’Sullivan. Copyright 2012 Sealaska Corporation. Design by Pyramid Communications. Printing by Visions, Inc.


Sealaska 2011 Annual Report