All is not well at Sealaska.
Southeast’s regional Native corporation announced $35 million in losses Thursday from 2013 while directing blame at a pair of Hawaii projects that cost the company about $26 million. A closer look at the annual financial report revealed even bigger losses.
“When I read the report this morning it made me sick to my stomach,” said Carlton Smith, a City and Borough of Juneau Assemblyman. “The results for 2013 were far worse than I thought they would be initially. It’s pretty amazing.”
Smith and three others are pointing to the losses as they run for election to the Sealaska board of directors. That election is scheduled for late June.
When each of the company’s five revenue-generating categories are added up, the total amount lost is about $56.7 million. If the interest gained on the company’s investments — about $16.6 million — is not considered, the business operations of Sealaska lost nearly $73 million last year.
As of December 31, the company had about $32.9 million in cash, another $47.3 million in short-term investments and access to $41.5 million in credit. The company’s longer-term funds add up to about $127.8 million.
Others pay the bills
Though the company has posted gains in its annual financial reports since 2010, Sealaska’s business operations lost $1.4 million, $17.3 million and $5.6 million each of those years, respectively.
Section 7(i) of ANCSA requires each of Alaska’s 12 regional Native corporations to share 70 percent of their natural resources development income with the other corporations. Each year, that money is pooled and distributed back to the corporations on a per-capita basis.
“For the last several years, 7(i) income has been the only way Sealaska has been able to get into the black,” said Ross Soboleff, a Sealaska board hopeful.
In 2013, Sealaska received $21.9 million in 7(i) funds. That took the actual losses from about $56.7 million to the published $35 million. This net-income reporting methodology is not new, and when applied to recent years, a more dire picture comes into focus.
The company’s business operations have lost nearly $80 million since 2009. Meanwhile, other Native corporations have funneled just under $100 million to Juneau to support Sealaska. If investment earnings are not considered, the business operations’ losses grow to more than $142 million over the same span.
“This company badly needs a full-blown turnaround plan,” Smith said, “and that’s a plan where major restructuring and substantial reduction in corporate overhead is sorely needed — and quickly.”
Losses across the board
In its annual financial statement, Sealaska reports revenue from five categories — natural resources, investments, services, gaming, and corporate and other income. In previous years, the company included a manufacturing sector, but those operations were sold last year.
The numbers varied, but each of the sectors, except the investments, lost money in 2013. Only one of those — gaming — failed to lose millions, and its expenses were nearly double its revenue.
“The only revenue we got was from 7(i); our core businesses are doing nothing,” said former Sealaska chairman Alan Williams. “There’s some money coming from investments, but our business activity really didn’t do well.”
The company’s biggest loss last year involved a pair of projects in Hawaii. In those projects, Sealaska’s subsidiary business, Sealaska Constructors, underbid on two large civil projects, and in response, Sealaska performed the contract despite the heavy losses, CEO Chris McNeil told the Empire in an email.
Sealaska’s management has “taken corrective action and the losses will be contained in 2013,” McNeil wrote in a letter to shareholders published in the annual report.
“Sealaska’s profitability was significantly impacted by $39 million in operating losses in one subsidiary in 2013,” McNeil said.
McNeil announced in October that he intends to retire from Sealaska before the end of the summer.
The losses in Hawaii, which fell under the “services” category, made up only $26 million of that sector’s $48.5 million loss. Unpaid lobbying fees related to ANCSA lands legislation accounted for $9.6 million in losses under the “natural resources” branch, but there is little certainty beyond those figures as to where exactly the money went.
“They are held to a completely different standard than any public traded company is held to, so anything in here can be manipulated,” said Brad Fluetsch, a former senior financial adviser at Sealaska. “Because everything is rolled up in an executive statement, you can’t add up all the little pieces.”
He pointed to one page in the report where about $4.4 million in losses is described only as “other.”
“If you go through this annual report with a fine-toothed comb, there are more questions than answers,” Fluetsch said. “$4.4 million should be a little more disclosed than as ‘other.’”
While the $26 million lost in Hawaii impacted the 2013 numbers dramatically, every one of Sealaska’s revenue-generators — including its investments — fared worse in 2013 than they did in the previous year.
Outgoing CEO hopeful
McNeil told the Empire Thursday that a strategic plan adopted in 2012 will “transform Sealaska by simplifying and focusing operations into natural resources” while also cutting costs and managing passive investment accounts.
But for that to work, the company needs Congress to pass its land entitlement legislation, which has stalled after clearing the committee of jurisdiction in both the House of Representatives and Senate.
“Sealaska is financially strong,” McNeil said. “We have good cash flow to sustain operations and the funds to make new investments when appropriate.
“The permanent fund, which provides income to tribal member shareholders regardless of the performance of the company in any given year, is $100 million,” he added.
Part of the company’s strategic plan is to be able to fund its operations without using 7(i) money by 2016, and McNeil has confidence in the board that will be tasked with achieving that goal.
“The Board has a long-term strategic plan to achieve sustainable profitability, while keeping our commitment to culture and shareholder opportunity,” McNeil said.
Shareholders seek change
As Smith and other shareholders grapple with the realities of their corporation’s financial struggles, answers to their questions have been few and far between.
“People can come up with different numbers depending on what numbers they add up,” said City and Borough of Juneau Assemblyman and Sealaska shareholder Randy Wanamaker. “There needs to be a simple explanation of the numbers they can give to shareholders so they can understand and ask specific, informed questions about what the losses were, how they happened and what they’re doing about them.”
As a former Sealaska board member and involved businessman in Juneau, Smith has been following the developing financial situation closely recently, and now he’s joining forces with three others to do something about it.
Smith, Soboleff, Karen Taug and Margaret Nelson have teamed up to form Sealaska 4 — a group running for the company board — and Wanamaker is serving as the group’s spokesperson.
“We’re all business people, and we have skill sets that have brought exceptional results in all careers represented in our group,” Smith said.
The group plans to travel to communities across Southeast in the coming weeks to discuss the company’s future. In the meantime, they’re working with others to draft a letter to Sealaska management seeking more clarity on the specifics of the company’s massive losses in recent years.
“The shareholders have to have a complete understanding of the underpinnings of the company,” Smith said. “Without that information, it will be difficult for shareholders to make informed decision on who should serve on the board.”
For Williams, a board chairman who stepped down after 12 years out of a belief in term limits, it’s time for a change at Sealaska.
“This board’s been there too long, and they have a record of losing money,” he told the Empire.