If you haven’t received it already, CIRI’s 2012 annual report and proxy materials are in the mail. I encourage you to review the report that details CIRI’s financial performance in 2012. With great pleasure, I can report that CIRI had another good year in 2012 with solid financial results and strategic investments that will benefit shareholders for many years.
CIRI earned $24.1 million in net income before taxes and $16.4 million in after-tax net income during 2012, impressive figures considering the sluggish recovery of the national economy. The amount is less than the net income from 2011, which included the proceeds from the sale of CIRI’s stake in Peak Oilfield Service Company, which sale drove 2011’s higher net income. CIRI’s strategy of investing in diversified assets proved successful as several sectors contributed to the overall performance. Our natural resources and energy, government contracting and private equities portfolio all showed strong results for the year.
2012 was an important year for setting long-term strategies for CIRI investments. After diligent research and consideration, the Board of Directors approved large investments in several assets that we anticipate will bring strong returns for decades to come. In reviewing the CIRI balance sheet, you will notice that our assets grew by an impressive 23 percent and are now valued at close to $1 billion. This is the result of the major investments CIRI made in 2012, deploying a portion of CIRI’s sizeable cash reserves and leveraging debt.
A major accomplishment for CIRI in 2012 was the successful construction of the Fire Island Wind project in Anchorage. CIRI worked on this project for many years to gain the necessary permits, develop strong technical partnerships and negotiate the power purchase agreement. This is the first major energy project owned and operated by CIRI. Construction of the 11 wind turbines and transmission line was completed in early fall and the project began generating power in September.
CIRI also became a major investor in wind energy projects in the Lower 48. Joining other equity investors, CIRI is now part of Capistrano Wind Partners. The partnership operates five utility-scale wind projects in Wyoming, Texas and Nebraska. In eastern Washington, CIRI became a “tax equity” investor in Palouse Wind, a 105-megawatt wind energy project. Both the Palouse Wind and Capistrano projects have long-term power purchase agreements in place, which ensure a consistent return on equity. The agreements also significantly limit CIRI’s exposure to development and construction risk.
In 2012, CIRI acquired a 75 percent ownership interest in Cruzco Services Holdings, LLC, which owns Cruz Energy Services and Cruz Marine. CIRI’s interest in Cruz Energy Services gives the company a strong position in the rapidly growing oil field services industry in North Dakota. Over the past two years, oil production in North Dakota has tripled and now exceeds oil production in Alaska. CIRI anticipates the growth in oilfield services in the lower 48 to continue and Cruz Energy Services, through its roustabout and rig moving services, is helping to meet the demand.
Another exciting investment in 2012 was CIRI’s 75 percent acquisition of Weldin Construction LLC. CIRI was attracted by Weldin’s excellent reputation in the field of civil, mechanical and electrical construction. As a result of the acquisition, Weldin has expanded its ability to bid directly or as a subcontractor on local, state and federal government contracts.
If you have been watching the news, you surely know about the turmoil within the federal government over the budget. The ongoing uncertainty and anticipated pressure to reduce federal spending affects all companies that conduct business with the federal government. In addition, some in Congress seek to further limit the government’s ability to contract with Alaska Native firms through the Small Business Administration’s 8(a) program. CIRI continues to monitor these developments and assess the potential impacts on our government contracting sector.
Honoring CIRI’s ongoing commitment to our shareholders, I am pleased to report CIRI distributed more than $22 million in dividends in 2012. We anticipate that, during the 2013 calendar year, CIRI’s cumulative distributions and dividends to shareholders will top the $1 billion mark – a testament to how far we have come in 40 years! It is also encouraging to see how the CIRI nonprofits have grown. The quality and breadth of services they provide not only help our shareholders, but enrich our lives and help keep us connected.
The significant and successful investments CIRI has made within our region are gratifying to see. Whether it is the wind turbines on the horizon at Fire Island or the thriving Tikahtnu Commons, our community knows that when CIRI does something, it is done the right way – with respect for the land, community and culture. As CIRI embarks on its next 40 years, I am confident we will continue to harness our potential and power the growth of our corporation for an even brighter future.