By Margie Brown, CIRI president and CEO
Dear Fellow Shareholders,
CIRI has had an eventful 39 years of history, and with guidance from the CIRI Boards of Directors, the Company has prospered and CIRI shareholders have benefited. There have been good years and not so good years. The global financial difficulties of 2008 and 2009 showed that CIRI is not immune to economic downturns affecting the rest of the country, or the world. CIRI business interests are influenced by local, national and world market forces and trends. Our Company, however, maintained a strong financial position throughout the economic crisis because it had a strategically diversified portfolio, conservative level of debt and the resolve to stay its course.
CIRI is realigning its investment portfolio to match emerging market trends. We are investing in developments that hold the promise of producing long-term value, with sustainable cash flows and income in future years.
To realign, we must invest in businesses and undertake ambitious development projects that can generate long-term growth and sustainable revenue. These investments require redeployments of capital that will almost certainly decrease CIRI’s near-term net income. Accounting rules require us to depreciate certain investments, which reduces CIRI’s net income in the early years of the investment and makes it difficult to show increases in the underlying value of that investment until it is sold.
Also, today’s economic environment is forcing most businesses and investors to reset their expectations of potential earning power. The business climate during much of the past decade, perhaps peaking in 2006 and 2007, commonly produced investment returns that are difficult to replicate today, without the Company taking on unwise levels of risk.
As a result of reorienting CIRI’s portfolio to achieve the objectives discussed above, the Company earned a net profit of $16.5 million in 2010, down from $24.5 million in 2009. But its total assets increased to $735.2 million from $732.5 million in 2009. Total shareholders’ equity at year-end 2010 was $627.4 million, down from $635.4 million from 2009.
There are many examples of how CIRI’s diverse business portfolio offers a buffer against hard-hit sectors. CIRI’s heavy construction and oilfield service operations were particularly resilient in 2010. Peak Oilfield Service Co.’s performance was boosted by contracts it won to support ExxonMobil’s North Slope operations. Alaska Interstate Construction replaced the bridge over the Tanana River and constructed several other large road projects. Looking forward into 2011, we are concerned that the already demonstrable drop-off in work on the North Slope by the oil and gas explorers and producers will diminish the financial performance of these two companies.
North Wind Inc. also delivered a strong performance in 2010. It supplied environmental remediation and construction services for a variety of projects including U.S. Department of Energy nuclear waste cleanups in Los Alamos, N.M., and at the Hanford site near the Columbia River in southeastern Washington state.
CIRI Alaska Tourism Corp. (CATC) produced good returns for CIRI’s tourism and hospitality division despite Alaska’s weak 2010 visitor season. The Company’s aggressive marketing and yield management program increased day cruise passenger counts at both Kenai Fjords Tours and Prince William Sound Glacier Cruises. We are cautiously optimistic about CATC’s 2011 visitor season because its preseason bookings are tracking slightly ahead of last year, although cruise ship visitors are again predicted to decline.
CIRI Land Development Co.’s acquisition of high-quality multifamily properties is consistent with our strategic plan to diversify our real estate portfolio, bring assets into the Company that are already developed and deliver positive cash flows in the near term. CIRI recently invested in four large multifamily apartment properties in Tucson and Phoenix, after market prices there adjusted downward.
Our Company continues to pursue emerging market trends by expanding its energy and cleantech business investments. It is moving forward with an underground coal gasification development on CIRI land on the west side of Cook Inlet. Additionally, the Company plans to proceed with wind power generation project investments.
I am excited by the investments and projects that we have underway because they promise to improve the Company’s performance, even if we must be patient to see the full benefit of these investments. CIRI has historically been a successful, investment-focused company that produced strong but uneven profits. Now we are intent on transforming the Company to support long-term growth and sustainable income by including more investments in stable operating businesses that will help the Company weather unforeseen, perhaps even catastrophic, economic events.
I am honored to have the opportunity to lead CIRI, and I am grateful for the support shown by my fellow shareholders, the Board of Directors and my colleagues as we work together to ensure that CIRI will continue to benefit shareholders and their descendants for generations to come.
Thank you,
Margie Brown
