Terry L. Simpson, M.D. Chairman

By Dr. Terry L. Simpson, Chairman of the Board The CIRI Board of Directors recently announced the first quarter dividend for 2002 at $7.00 per share or $700 per 100 shares. I am pleased that, even after the two large special distributions, and even though CIRI is now faced with paying taxes on our income, we are able to pay a quarterly dividend that is close to last year's quarterly amount. And while I usually resist making comparisons to other Native corporations, it goes without saying that CIRI's dividends continue to be higher than those of the other corporations. In the past, the board has had a guideline of paying 35 percent of the five-year average net income as dividends. However, if you look at the record, CIRI has actually paid more like 60 percent of its cumulative net income in dividends.

You could argue that if we were really going to follow the 35 percent guideline, too much has been distributed. But of course, as you can see, the board has continued declaring dividends, but we have decided not to base them on the former guideline.

Going forward, two important things will be different for CIRI from a tax perspective. First, we are now planning for CIRI's income being taxable. That means that for every dollar CIRI earns, up to 40 cents will go to pay state and federal income taxes. That leaves less for reinvestment and less for dividends. Second, we expect that for most shareholders dividends will be taxable. That means of the dividends paid out of that remaining 60 cents, shareholders will actually get to keep less.

So how do we deal with these changes? In my opinion, two ways. One is to find creative ideas for reducing the tax burden and making tax-advantaged distributions to shareholders, and we are working on some ideas to bring before you later this year.

The second way is to aggressively invest for another round of growth for CIRI. I believe your board and management have the experience, ability, and teamwork to carry that mission out.

Looking at new investments, it is important to keep in mind that, as a result of our recent special distributions, CIRI is a smaller company. Because CIRI has paid more than $430 million to shareholders in the last 15 months, the company has that much less capital to invest for future growth.

Keeping these goals in mind, your board has to balance the need for current cash dividends and investment for future growth. Many times in the past, small groups demanded higher cash dividends, but your board has always found a way to strike the balance between current dividends and investment for future growth. The decisions we have made to invest for the future have in turn produced the results that permitted the large special dividends.

As chairman of the board, I have developed great respect for shareholders' understanding of the relationship between dividends and investment. And I am grateful for the trust shareholders have placed in the board over the years to find the right balance.

In the future, CIRI will likely make some good investments and some bad investments. To me, our wireless telephone investments with VoiceStream are the best example of good (even great) investments. The Ford's Landing project and Construction Machinery, Inc. are, in my opinion, examples of poor investments for CIRI. I don't think any of these are perfect examples, however, because they are at the ends of a spectrum. The goal, I would suggest, is to find investments that fit our corporate profile, and that will provide a company that can have a good rate of return. For the shareholders, we wish to provide a mechanism for distributions which are as tax-advantaged as possible. Another important goal is to be the backbone for our non-profit organizations, which provide crucial support to our shareholders and other Alaska Natives.

CIRI has gone, in my view, to the "next level," and we hope that you are proud of your corporation. Your board and I will work hard to maintain your confidence and trust as together we chart the future from here.

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