Sealaska reports its net income up 56%

Corporation says timber harvest in SE Alaska is dwindling

Posted: Thursday, April 20, 2006

Sealaska had both good news and a note of caution for its shareholders this week.

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The regional Native corporation, based in Juneau, told its 17,300 Panhandle shareholders Wednesday that it had an outstanding return on investments in 2005. Sealaska's net income in 2005 was slightly more than $25 million - a 56 percent increase from 2004.

As a result, Sealaska shareholders are receiving slightly larger dividends - a few cents more per share - this year, said Chris McNeil, Sealaska's president and chief executive officer.

Revenue sharing from other Native corporations was another major source of Sealaska's income growth, McNeil added.

Dividend checks of either $2.57 or $3.82 per share - depending on a shareholder's village or urban status - were sent out to Sealaska shareholders April 7.

Some shareholders said Wednesday they think Sealaska's dividends should be more generous.

"It's been a common belief that the executives have lined their own pockets more than anybody else," shareholder Richard Dixon said. "As a regular person, you like to see some cash sometimes."

Sealaska provided its annual financial report to shareholders on Wednesday. The 70-page report discusses Sealaska's recent discovery that a major revenue source - timber harvest on its lands in Southeast Alaska - is dwindling.

In the report's introduction, McNeil states that it is now more important for the federal government to hand over Sealaska's remaining land entitlement in Southeast Alaska.

McNeil said in an interview he couldn't provide an estimate of how much income Sealaska could lose due to its timber shortfall. Sealaska is using a variety of economic models to predict the future of its timber business but "we can't forecast it right now. Suffice it to say we have very significant work ahead of us," McNeil said.

A 2004-2005 inventory of Sealaska land showed that Sealaska's timber volume is much smaller than originally believed. To keep from running out of timber, Sealaska plans to reduce its current annual average harvest of nearly 100 million board feet to 75 million board feet in 2006 and to 50 million board feet in 2007.

That could result in a major dent in profits and employment in Sealaska's timber business, the corporation reported last year.

To augment its timber base, Sealaska is now attempting to acquire its remaining land entitlements, totaling 75,000 acres, as well as possible land swaps to gain access to additional timber within the Tongass National Forest.

Sealaska's overall strategy, however, is to diversify its businesses and fully replace the loss in timber income, McNeil said. Much of that strategy will focus on procuring federal contracts, such as environmental cleanup projects by its subsidiary, Sealaska Environmental Services.

Revenue generated from Sealaska Environmental Services was $1.9 million and net income totaled $73,000 in 2005, according to Sealaska's annual report released Wednesday.

In the last few years, Alaska Native corporations have come under intense scrutiny due to their growing use of no-bid federal contracts.

McNeil, who chairs the Native American Contractors Association, said that he has not heard of any proposed changes to the program in an upcoming federal report on the matter.

"Our understanding from (national) press reports is that they will be suggesting more intense oversight by the (federal agencies)," McNeil said, referring to the upcoming report by Congress' General Accounting Office.

The contracts are valuable to the Native corporations because they allow them to enter a competitive business that is otherwise dominated by national firms, McNeil said.

Among the highlights of Sealaska's 2005 annual report:

• Sealaska's permanent fund earned nearly $13 million in 2005 in net income and the company's investment and growth portfolio earned $9 million.

• Sealaska Timber Corp. generated nearly $4 million in net income in 2005. In 2004, timber income was $6 million.

• Prices in the pulp log markets in 2005 reached historic lows, a trend that will continue through 2006 and several years to come, according to the annual report.

• Several Sealaska logging contractors that also rely on sales in the Tongass National Forest dropped out of the business at the end of 2005.

• Lower freight rates and increasing demand from China are expected to assist Sealaska's timber export sales in Asia.

• Sealaska contributed $1.3 million in 2005 to the Sealaska Heritage Institute's programs to protect and advance Native language and culture.

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