A word from the president: Challenging economy slows business, creates growth opportunities

I extend my wishes for a happy and fulfilling new year to all CIRI shareholders. As 2010 comes to a close, it is a good time to reflect upon the past year and anticipate the next.

Two years have passed since global investment markets crashed, sending waves of economic devastation around the world. Billions of dollars of value drained out of private equity, venture capital and securities investments; from individual retirement accounts to corporate and institutional portfolios. Many U.S. housing and real estate markets collapsed. And millions of Americans lost their jobs.

Those turbulent times remain fresh in my memory. Due to CIRI’s long-range planning and well-diversified business portfolio, CIRI persevered and remains a financially strong company. Our company has structured itself with the resources needed to endure short-term revenue drops caused by weak economic conditions. And it is positioned to take advantage of investment and growth opportunities created by economic turmoil.

While economists tell us that the recession is technically over and our company’s marketable securities portfolio has regained its value, the national economy remains fragile. Nevertheless, some excellent investment opportunities are emerging for financially strong investors with long-term business models. CIRI is pursuing some of these and making investments that promise to produce substantial future growth in new and emerging business sectors, though it will likely take a few years before we see the full benefit of our strategy. I cannot overstate the importance of planning and building for the future. That is why CIRI’s Board of Directors and executive team have embraced very ambitious goals that the company is working hard to achieve.

CIRI is building value with a combination of remarkable development projects. The company is balancing long-term development investments like the Stone Horn Ridge underground coal gasification project with such investments as the late-2009 North Wind Inc. purchase meant to generate near-term cash flow and income.

North Wind is a well-established environmental remediation, project management and construction services provider that is generating substantial cash flow as well as long-term growth potential as a CIRI-owned company.  CIRI executives worked throughout 2010 with North Wind President and Chief Executive Officer Sylvia Medina and her talented management team to ensure that our two companies made a smooth acquisition. This work paid off.  CIRI is pleased with North Wind’s 2010 performance and anticipates another good year in 2011 for the North Wind group of companies under Medina’s leadership.

Looking forward, economic growth is likely to remain slow nationwide and uncertainty continues to challenge individuals and businesses alike. Our Board and executive team are paying close attention to the real estate sector, which continues to suffer, though more so in the other 49 states than here in Alaska. While this business sector causes challenges, it creates business opportunities as well. In 2010, CIRI partnered with Dean Weidner Apartment Homes to acquire Class A multi-family residential properties in Phoenix and Tucson, Ariz., where current and anticipated future prices are uncharacteristically attractive because of distressed economic conditions. CIRI has allocated additional resources to multi-family residential properties, in hopes that favorably-priced properties may come available in additional markets in 2011. We anticipate it will take a couple of years for net income from these purchases to exceed depreciation, but they already have begun to a produce positive cash flow.

For CIRI Alaska Tourism Corp. (CATC), CIRI’s wholly-owned Alaska tourism subsidiary, 2010 turned out to be a better year than initially anticipated. CATC’s marine tour, lodging and booking businesses were rocked by Alaska’s severe tourism decline in 2009 as many travelers reacted to economic hard times by vacationing near their homes.  However, CATC Chief Operating Officer Paul Landis and his management team refined their marketing efforts and operations, targeting more independent traveler business, which produced a strong economic performance for CATC in 2010. Under Landis’ strong leadership, CATC will be ready for what the 2011 season may bring. 

CIRI will issue a complete review of this year’s financial performance in its 2010 annual report in the second quarter of 2011. In the meantime, the company will continue to carefully select new investments that balance between future growth and current cash flow and income. CIRI and other businesses nationwide are adjusting to changed economic norms that will make some pre-recession business successes difficult to repeat. Consequently, CIRI faces a challenging year in 2011. But the economy is recovering and creating new investment opportunities for CIRI that, with a little patience, promise to generate sustainable growth and profitability that will benefit both current and future generations of CIRI shareholders.