Inspired by Our Values
NANA Celebrates 35 Years NANA-tkut Quviasruutigigaich Iñuiñaq Akimiat Ukiut Honoring Our Past—Ensuring Our Future Quyyatigiplugu Aippaavak Iñuuniałiqput 2007 NANA Annual Report Paqnautiplugu Sivuniksraqput
table of contents Letter to our Shareholders..............................................2 2007 at a Glance.............................................................3 Five –Year Financial Highlights........................................4 The 35 –Year Anniversary Story.......................................5 Tributes .........................................................................15 In Memoriam................................................................18 Financials.......................................................................19 MD&A..........................................................................43 Board of Directors.........................................................49
NANA MISSION We improve the quality of life for our people by maximizing economic growth, protecting and enhancing our lands, and promoting healthy communities with decisions, actions, and behaviors inspired by our Iñupiat Ixitqusiat Values, and consistent with our Core Principles.
WHO WE ARE NANA acts on behalf of our shareholders, the Iñupiat people of Northwest Alaska. In 1972, when NANA was formed, we had about 4,400 shareholders. With the addition of children born since incorporation, we now have more than 11,000 shareholders. The heart of our company is NANA Regional Corporation, Inc., which focuses on promoting the economic and social wellbeing of shareholders. We created NANA Development Corporation to oversee our business activities, to create shareholder job opportunities and to generate the income needed to fulfill NANA’s vision, mission and core principles.
1966
1970
Formation of the Northwest Alaska Native Association— Maniilaq Association, a non-profit organization.
While flying overhead, bush pilot Bob Baker noticed rust in a creek. He named the creek after his flying companion, a “red” dog named O’Malley.
NANA VISION NANA will be a respected, profitable, multibillion-dollar corporation.
1971
NANA CORE PRINCIPLES Honesty and integrity will govern our activities. Commitments made will be fulfilled. Everyone will be treated with dignity and respect.
1
Congress passed the Alaska Native Claims Settlement Act.
The Iñupiat Walk In Two Worlds. In 1972, our people, the Iñupiat of Northwest Alaska, had little experience with modern business. We had only three real assets: our ANCSA settlement, our desire to work, and our traditional values. Operating hotels is not in our tradition. Oilfield security is not in our tradition. Mining is not in our tradition. But working together is in our tradition. So we tasked a group of men and women and asked them to take our assets and journey into the world of business to defend our ancient rights to our land and bring jobs and business income back to our region. Thirty-five years later, those men and women have returned to tell us their story. And what a story it is. The Iñupiat of today own and manage a corporation that has revenues of nearly one billion dollars, provides jobs for more than 7000 people, and has operations around the world.
profits. This increase in revenues has allowed us the great honor of being able to contribute to the 12 other ANCSA corporations. In fact, approximately 60% of Red Dog royalties are distributed to those corporations. Unlike most companies, NANA uses its profits to fulfill a mission that is broader and far more important than simply improving the bottom line. In addition to paying dividends to our shareholders, we fund cultural programs, job training, scholarships, internships, new schools, renovations, and numerous other services to the communities where we live and work. Just as our land and culture have sustained the Iñupiat for generations, we are building a corporation that will provide for our people now and far into the future. Let us continue to work together as one, atautchikun.
Our 35th anniversary was one of the best years in NANA’s history. Our revenues increased substantially. Just four years ago, we paid a shareholder dividend of $1.50 per share. This year, we paid ten times that amount, the largest dividend ever. The NANA businesses are healthy and growing, but in 2007, Red Dog Mine stood out. Red Dog paid off its initial debt, which increased NANA’s share of the mine’s
In this Annual Report, we invite you to read the story of where NANA has been and what we have accomplished.
Donald G. Sheldon / Nalikak Chairman 2
Marie N. Greene / Kasafnaaluk President/CEO
2007
John W. Schaeffer, Jr. became NANA’s Executive Director and later NANA’s first president
2007 AT A GLANCE • NANA achieved record revenues approaching $1 billion, placing our corporation in the ranks of major American businesses. • At Red Dog Mine, Teck Cominco has fully recovered its capital investment, accrued interest, and advance royalties under the terms of its agreement with NANA. This means NANA now receives 25% of the mine’s net profits and eventually will receive 50%.
1972
• Increased business growth and increased royalties from Red Dog resulted in a record net income of $37.4 million.
Northwest Alaska Native Association split into NANA Regional Corporation Inc., a for-profit corporation, and Maniilaq Association, a non-profit organization.
The Articles of Incorporation for NANA Regional Corporation Inc. were approved by the State of Alaska.
• NANA paid out a record high shareholder dividend of $15 per share. • NANA contributed $35,808,000 in salaries to NANA shareholders. • Shareholder Records, Policies and Procedures were developed and completed. • NANA implemented direct deposit for dividend payments. • Preparations began for an Elder Settlement Trust, a milestone that acknowledges contributions to our culture from our people who paved the way. • The Shareholder Relations Committee and staff traveled to Albuquerque, New Mexico for the first out-of-state shareholder forum. They also visited with shareholders working at Major Drilling in Elko, Nevada and Ki Corporation employees at Colorado Springs, Colorado.
NANA selected 77,000 acres of land under the provisions of section 14(n)(8) of the Alaska Claims Settlement Act. This land included the Red Dog zinc 19?? underlying and lead ore body.
1974
• In cooperation with Rosetta Stone, a company that specializes in teaching languages, NANA developed a Coastal Iñupiaq language CD-ROM that will assist our young people’s education and ensure that our language will live on. The Iñuunaijiqput Department began work on the Kobuk dialect CD.
NANA Development Corporation was formed as the business arm of NANA. By 2007, NDC operated 30+ whollyowned subsidiaries and 23 affiliates across the U.S. and around the world.
• The Iñupiaq Language Commission and North Slope Borough Language and Cultural Heritage Commission had a joint meeting in July to share ideas regarding language and cultural preservation. • An additional position was added to the Iñuunaijiqput Department to increase the level of service in the villages. • The Hunter newsletter increased to six editions and one special edition.
Robert Newlin was elected Chairman of the Board.
19?? Purcell Security, a division of NANA Management Services, was formed to provide security services for the Trans-Alaska Oil Pipeline.
five-year financial highlights NANA Regional Corporation, Inc. and Subsidiaries As of and for the years ended September 30, 2007—September 30, 2006—September 25, 2005—September 26, 2004 and September 28, 2003
FY07
FY06
FY05
FY04
FY03
975,472,000 37,393,000 645,185,000
821,934,000 16,042,000 456,439,000
532,415,000 10,845,000 381,802,000
334,513,000 3,321,000 213,694,000
265,950,000 2,114,000 174,112,000
101,291,000 292,163,000 1,367,000 27.35 15.00
101,819,000 155,454,000 1,336,600 12.00 7.00
107,365,000 124,819,000 1,311,600 8.27 3.81
64,994,000 63,472,000 1,288,400 2.58 2.00
Revenues Net Income Assets Long-Term Debt and Line of Credit Shareholders’ Equity Shares Outstanding Earnings Per Share Dividends Paid Per Share
68,670,000 54,189,000 1,271,600 1.66 1.50
(Dividends are paid in November or December following the end of the fiscal year.)
975.5
900 800
821.9
700 600 500
37.4
12
25
10
334.5
10
266.0
100
0
0 2003
2004
2005
2006
2007
200 3.8
2 2.1
3.3
2003
2004
1.5 2006
2007
2003
292.2 213.7 124.8
100
2.0 0 2004
2005
2006
2007
2004 Total Assets
4
155.5
63.5
0 2005
381.8
300
7.0
4
10.8
5
456.4
400
6
16.0
645.2
600 500
8
15
300
15.0
14
30
20
532.4
400
millions 700
16
35
TOTAL ASSETS & SHAREHOLDERS' EQUITY
dollars
40
1000
200
DIVIDENDS PAID PER SHARE
NET INCOME BY YEAR millions
REVENUE BY YEAR millions
2005
2006
2007
Shareholders' Equity
1975
NANA Oilfield Services, Inc. began support work on the North Slope.
NANA built the Nul-Luk-Vik Hotel in Kotzebue. In 2007, NANA purchased the adjacent lot to build a new hotel.
35
THE 35–YEAR ANNIVERSARY STORY
NANA increased its reindeer herd to 3,000 through a purchase of 1,500 from Fred Goodhope’s herd at Shishmaref. For the first time, NANA earned a net profit: $476,800.
1976
1978
1980
1982
Ten of 11 village corporations in the region voted to merge with NANA. Kotzebue chose to remain as its own village corporation: Kikiktagruk Iñupiat Corporation (KIC).
NANA paid its first dividend to shareholders: 50 cents per share.
To protect subsistence, NANA played a strong role in the passage of the Alaska National Interest Lands Conservations Act (ANILCA) signed by President Carter.
NANA signed the Red Dog agreement with Cominco.
“When we got together in October of 1966, it was really the first time we got together on a statewide basis.”
WILLIE HENSLEY turns in his homework and starts a revolution.
IT
all started with a paper written by a college student. The paper seemed simple enough, but its effects would ripple through government and ultimately change laws and lives in Alaska. Like Thomas Jefferson who sparked the birth of our nation by writing the Declaration of Independence, Willie Hensley lit the fire for ANCSA with his pen. In 1966, the U.S. Department of Interior was being pressured to convey 104 million acres of land to the new State of Alaska under the Statehood Act of 1959, which would have resulted in the loss of traditional hunting and fishing lands and eventual removal of the Iñupiat. Willie Hensley, then a young graduate student at the University of Alaska Fairbanks, responded by writing a paper for his constitutional law class in which he asserted that Alaska Natives have a sacred right to their land, a right guaranteed by the U.S. government. Willie followed his paper with a letter to then Senator Ernest Gruening protesting his inaccurate portrayal of Native Land Claims. He then – with money borrowed for postage – sent a four-page letter to all villages in the Kotzebue area explaining the issue and asking for a meeting to make a land claim to protect Iñupiat claims in the region. The meeting took place that summer.
ONE
The Kotzebue area villages made a land claim that included the entire drainage into Kotzebue Sound. They named their group the Northwest Alaska Native Association. The fledgling association followed this action by participating in the formation of the Alaska Federation of Natives, a statewide organization created to protect Native lands and to pursue a land settlement. NANA had been born and was actively defending our people’s rights.
part
6
TWO part
With the passing of Robert Newlin, Sr. in July 1989, Christina Westlake became Chairman of the Board
JOHN SHIVELY I am responsible to all other Iñupiat... IN
1968, oil was discovered at Prudhoe Bay. Engineers determined that the most practical – and possibly only – method for bringing the oil to market was to load it onto ships at Valdez, which meant building a pipeline across the state. Suddenly, there were a lot of people asking for usage rights to a lot of real estate. After years of receiving little attention, the issue of land ownership in Alaska became a government priority.
1989
The Robert Aqqaluk Newlin, Sr. Memorial Trust was founded to provide NANA shareholders with university and vocational school scholarships.
On December 18, 1971, President Richard M. Nixon signed the Alaska Native Claims Settlement Act. On June 7, 1972, the NANA Regional Corporation, Inc. was incorporated in Alaska. The founders of NANA knew they held the future of our people in their hands. But there was no oil to be found in the NANA Region. They were going to have to find, build, or invent some other way to turn the ANCSA money into a resource that would provide for our people.
1990
In its first full year of production, Red Dog Mine yielded 258,559 tons of zinc and 94,421 tons of lead.
So like hunters heading into the dark, the NANA founders set out to build a company that would bring jobs, development, and opportunity back to our region. Payroll for the company was easy: NANA had three employees. The founders wanted to ensure that NANA would not lose its way by becoming self-serving or engaging in practices that go against our sense of right and wrong, so they searched for a set of principles that would influence the company in good times and bad. They found it in our most ancient beliefs.
19??
“Building NANA on the foundation of our Iñupiat values is the most important thing we did,” said John Shively, who joined NANA as Vice President of Operations in 1975. “These values have guided the leaders of NANA as they strived to grow the corporation over the past 35 years in the same way they have guided the Iñupiat for tens of thousands of years.”
1991
19??
Shareholders voted to grant shares to eligible Iñupiat descendants born after 1971. Only two other Native corporations had similar policies.
three part
How to get from kotzebue to washington D.C. (and back again)
NANA’s
first task was to decide where to locate the company headquarters. Anchorage was and is Alaska’s business center. But, as Willie Hensley explained, “We always felt that it was important to bring the land claims settlement home. Which meant that the capital and land should be used to help transition our people into the modern world with training and jobs, that the ANCSA settlement was not a ‘cure all’ for our economic situation. The individual still had to carry the main load for survival and economic advancement.” With that philosophy in mind, NANA founded corporate headquarters where the company began: in Kotzebue. Expectations were high for the new company. The 4900 shareholders wanted NANA to provide jobs. The Board, however, was focused on an entirely different matter, one that is possibly the most important issue for the Iñupiat. Our right to subsistence was not included in ANCSA, but the Federal Government’s right to designate vast portions of region land as park or wildlife refuge was. The NANA Board put their energies into advocating for the protection of hunting and fishing. Congress did eventually withdraw some NANA lands, but, due to intense lobbying, they included a provision that guaranteed the right of Alaska Natives to pursue traditional subsistence activities on federal land. The process of defending the “subsistence priority” had an unexpected benefit: NANA and AFN established a voice in government, both in Juneau and Washington, D.C. With the issue of subsistence settled, at least for the time being, the Board could concentrate on business. NANA started the NANA Construction Company, which showed a loss, and NANA Security Systems, which operated with such professionalism that competing companies complimented it as being a credit to our region. NANA also purchased a camp at Deadhorse, which spurred several other investments: a catering company, an electrical utility, and a water and waste management company, all serving Deadhorse. NANA was mining jade, operating a building supply company, raising reindeer, and providing management assistance to companies owned by village corporations. Within a couple of years, NANA had invested its ANCSA money, started or purchased several companies, and was providing jobs. The Iñupiat had never seen anything like NANA: a corporation owned by us, worked by us, and defending our rights. All across the region, people felt pride in being a NANA shareholder. But running the various businesses was monopolizing NANA’s time. The Board came up with a solution that would profoundly change NANA. They decided to create a twin.
8
four part
TWO
years after NANA’s formation, the Board created NANA Development Corporation (NDC) to manage all business endeavors so that NANA could concentrate on social, cultural, our lands, and other regional matters. “We are working on ways to not only preserve our culture, but to build it back up,” NANA Chairman of the Board Robert Newlin, Sr. wrote at the time. “We cannot subsist on our lands alone.” Newlin believed that by creating NDC, we would become “one larger, stronger corporation to work for our people.” NDC was organized so that NANA had oversight, but NDC would be free to operate on its own. It was essential to the founders’ original vision of NANA that the two corporations remain unified in
Robert Newlin, SR. Sun and Moon
“We cannot subsist on our lands alone.”
ideology and purpose. Asking members to serve on both the NANA and NDC boards assured this unity. The new corporate structure seemed ideal: NANA was chartered to serve the Iñupiat, but it needed income to make that possible. So like the sun and moon, which work together to light the same earth at different times, NANA and NDC took responsibility for different areas of the same cause. All that remained was to release the brake and let NDC run. And run they did.
1995 19??
Under the government contracting program, NANA opened or partnered with several companies, such as Akima Corporation, Ki Professional Services Group, and TKC Technology Solutions.
NDC was born on June 1, 1974 with the purchase of the Drift Inn Hotel. Several months later, NDC built the Nul-Luk-Vik Hotel, which was described by NANA’s first president, John Schaeffer, as “the finest hotel north of Anchorage.” The hotel is still operating today (renamed “Nullabvik Hotel”) and is being rebuilt this year. NDC continued to make smart moves and quickly became the engine that powered NANA into a period of impressive growth. “NANA began as a small company,” said current NANA Chairman Don Sheldon, “and has succeeded in becoming a company with businesses and affiliations around the world.” NDC’s guiding philosophy was diversification. Board members worked to design a broad-based roster of companies that would remain strong even if one industry suffered an economic downturn. The plan worked. 1975 was the first year NANA earned a net profit. By 1976, NDC owned and operated NANA Oilfield Services, Arctic Utilities, NANA Commercial Catering, NANA Security Systems, NANA Environmental Systems, Great Northern Express, NANA Construction Company, and several smaller companies. In 1978, NANA paid its first dividend, 50 cents per share. But while NDC was charging full speed ahead, NANA was facing a crisis: most of the village corporations in our region that were also created by ANCSA were in danger of bankruptcy.
1996
Red Dog became the world’s largest zinc mine.
DOWL formed a partnership with NANA Development Corporation to provide 19?? civil engineering and related services in rural Alaska.
Our survival as a people “depends on our working together.”
The Proper Method For Rowing A Boat
VILLAGE corporations were required to fulfill the same ANCSA obligations as the large regional corporations. Even the smallest villages (as small as 100 persons) were saddled with the expenses of land selection, maintaining shareholder records, meetings, and annual audits. Several NANA Region villages had fallen so far into debt that they might be forced to sell land to pay it. Losing the land, after thousands of years and fighting so hard to win ANCSA, was the worst possible thing that could happen. NANA proposed a solution, one that was natural for a corporation owned by Iñupiat and founded on our traditional values: shareholders invited the villages to join NANA. A boat moves forward only when its crew pulls together. We Iñupiat have a word, “atautchikuaq-,” which means, “working together as one.” Atautchikuaq is precisely what the merger was intended to accomplish: it minimized conflicts between villages and made the region stronger by uniting its capital and intellectual resources and preserving the land base. In the immediate term, the merger financially protected the small villages. The largest village corporation in the region, Kikiktagruk Iñupiat Corporation in Kotzebue, remained independent, though closely aligned with NANA. Robert Newlin, Sr. wrote at the time, “The [merger] took a tremendous amount of cooperation and trust, plus time and expense, all of which we hope to return to you in the form of a better life and more control over your future.” Newlin believed that our survival as a people “depends on our working together.” On the business side, NANA was making attempts to widen its footing in the business world by investing heavily in oil exploration, arctic rig building, and surveying. The survey work expanded NANA’s involvement in engineering. The economy, however, was in a slump. Sales in all NANA companies were down and expenses had increased, but NANA still made a small profit. The 1980 dividend was 75 cents per share.
FIVE part
Previously, in 1974, NANA had put in a land selection application for an area near Kotzebue. A company named Cominco later filed lawsuits challenging the claim. The Board decided not to fight them. NANA had lost money attempting to develop minerals before and its focus was now on oil exploration. Besides, shareholders at the time were not sure they were interested in mining. That was about to change. 10
SIX part
July 26, 1989
The darkest day in Nana’s History
BUSH PILOT Bob Baker usually took his buddy O’Malley with him when he flew. The dog, Baker liked to tell friends, had a Heinz pedigree: 57 varieties. While flying near the Kotzebue area in 1970, Baker noticed a rust-like substance leaking into a stream below. He named the little creek after his dog, whose coat was distinctly red.
1997
Ten years later, the board made use of the skills they’d learned during the fight to protect subsistence when NANA lobbied Congress for an amendment to ANCSA and was awarded the right to lay claim to the area, which still carried the name Red Dog. Making a friend of an old enemy, NANA partnered with Cominco to mine the area. The high expense of development meant that the bulk of NANA’s share would go to repaying the initial investment. If NDC were going to make a profit, they would have to look elsewhere.
The percentage of shareholders employed at Red Dog Mine reached 55%.
Don Sheldon succeeded Christina Westlake as only the third person in 28 years to chair NANA’s board.
Meanwhile, NANA was pursuing its agenda under the Iñupiat Ixitqusiat Program. In 1981, NANA established Camp Sivunniibvik, which means “the planning place,” as a spot where children of the NANA Region could gather during the summer to learn about their culture and their language with the goal of gaining a sense of identity, self-confidence, and self respect. During the 1980s, NANA increased its funding for Maniilaq Association, named after a legendary Iñupiaq prophet. Maniilaq assumed management of the Indian Health Services hospital programs and, in 1988, took over operation of Kotzebue’s Hospital, which was renamed the “Maniilaq Medical Center.” Eventually, Maniilaq assumed management of health clinics in all villages.
19??
NANA saw a financial loss in 1987, but ended the decade on a rebound. NDC received contracts to clean up the Exxon Valdez oil spill, hotel operations were robust, North Slope drilling services were healthy, and Red Dog Mine produced its first zinc ore. 1989 was the 12th consecutive year in which NANA paid a cash dividend to shareholders.
1998 19?? John Schaeffer
NANA-Marriott Properties constructed three hotels: the Courtyard by Marriott the SpringHill Suites, and the Residence Inn.
Then, current president, Charlie Curtis, set a goal for NANA to become a billion dollar corporation.
That same year, Robert Newlin, Sr. passed away. He was the only Chairman of the Board NANA had ever known. “He was the father of the NANA Region in modern times. Robert brought people together. He was the unifying force,” said John Schaeffer. “He represented our highest values. Robert represented the very best of what we aspire to be.” For 17 years, Robert Newlin, Sr. steered NANA to become both a successful business and the guardian of our culture. He believed deeply that the Iñupiat have the right and the ability to control our own destiny, a belief that will be his legacy, embodied as a living philosophy in the men and women of NANA.
“Robert brought people together. He was the unifying force.”
NANA Colt Engineering, LLC was created to provide engineering services to Alaska’s oil and gas industry.
Purcell Security, NANA Marriott, NANA Corporate Services, and NANA’s hotel division were consolidated to form one company: NANA Management Services.
NANA hit its goal of $5 million earnings two years ahead of schedule DOWL, LLC was formed in Alaska.
seven part
“NANA’s dream is to become a one billion dollar revenue corporation...”
Charlie Curtis Dreams, Magic And A Very Large Wager
THE
1990s brought the 20th anniversaries of ANCSA and NANA. The nineties also brought the Gulf War, in which several shareholders served, and a re-energized American economy, which stimulated investment in Alaska. NANA entered the new decade at a run, with new leadership taking over for Robert Newlin, Sr. and Willie Hensley (who stepped down as NANA President but continued to serve as a Board member). NANA’s chairman was now a woman, Christina Westlake. Men had done most of the heavy lifting of building NANA in the early days, but female leadership would become a trend at both NANA and NDC. Dividends doubled to $2.50 in 1991 from just two years earlier, again attributable to NDC’s diversification strategy. For example, businesses located in and/or primarily serving the NANA Region, such as NANA Seafoods and Jade Mountain Products, lost money. But businesses outside the region, such as NANA Oilfield Services and Purcell Services, made profits. By the end of the decade, NANA saw a profit of $5.2 million and paid a dividend of $2.77 per share. The interesting thing about these numbers is how they affected the thinking of NANA’s leadership. In 1997, then NANA President Charlie Curtis set what appeared to be a rather improbable goal for NANA. “As we all know, dreams don’t just magically come true in one moment,” Curtis wrote. “NANA’s dream is to become a one billion dollar revenue corporation...”
At the time Curtis made this statement, NANA’s total revenues were just over $60 million, not even one tenth of the goal. To say the “dream” was optimistic would be putting it mildly. But NANA’s leaders had always been forward thinking. Curtis was simply acting in the tradition of those who had come before him. He was also basing his outlook on some very earthly facts. When viewed in the context of NANA’s history, $60 million was not so unrealistic a starting place as it may appear. In its first year of operation, NANA had total revenues of about $11 million. In just 25 years, NANA increased its income six-fold. Current events indicated that NANA would be growing at an even faster rate. In 1996, Red Dog became the world’s largest zinc mine after the discovery of a large ore deposit. Profits had not yet materialized, due to the large initial debt, but zinc prices were rising and production was increasing. In addition, NDC had moved into several new ventures, including NANA/Colt Engineering and the Courtyard by Marriott in Anchorage, which would be followed by more hotels and other businesses. The billion-dollar goal became a rallying cry for management and employees, repeated year after year in official correspondence and integrated into the corporate “vision” statement. What remained to be seen was whether NANA could continue to grow. The future of NANA’s people hung in the balance. If NANA overreached, the corporation could be financially crippled. If that happened, the region would suffer job loss, shortages of health care and school funding, and a terrible blow to the pride our people had developed since 1972. Charlie Curtis was betting that NANA would continue its successful run. Unfortunately, terrorists were about to send the American economy into a tailspin. 12
Eight part
2000
Fire In The Night The new Millennium did not begin well. On the morning of September 11, 2001, 19 terrorists attacked America’s financial heart, the World Trade Center. The stock markets closed. When they reopened on September 17, after the longest closure since the Great Depression in 1929, the stock market fell 684 points, or 7.1%, its biggest-ever one-day point decline. By the end of the week, the market had fallen 1369.7 points or 14.3%, its largest one-week drop in history. U.S. stocks lost $1.2 trillion in value for the week.
2004
NANA Oilfield Services, Inc. celebrates 25 years of serving the Slope.
NRC attorney Richard Baenen compiled a book of NANA’s history.
NANA was hit hard in the markets of 2002 and 2003. Adding to the corporation’s troubles, the price of zinc fell. Red Dog Mine was beginning to look like a risky investment. NANA took losses of $8.6 million in 2001 and $321,000 in 2002. For a company that had shown a profit every year since it opened, the numbers were disturbing. The billion-dollar goal appeared less and less possible. But like a campfire in the night, a bright spot glimmered in NANA’s portfolio: business operations. Even with turmoil in the American economy, NDC had managed to set record profits. Still, the corporation was hurting overall. Shareholders did not receive a dividend in 2002. NANA’s leaders came out swinging. Under the leadership of Don Sheldon, NANA Chairman of the Board since 1997, NANA President Marie Greene, NDC Chairman of the Board Luke Sampson, and NDC President Helvi Sandvik, NANA moved quickly to implement cost-control measures and modify business strategies. It worked. In 2003, NANA showed profits of $2.1 million and paid shareholders a dividend of $1.50, a great turnaround after two difficult years.
2005
NANA Regional Corporation came close to becoming a $1 billion revenue corporation and pays shareholders the largest dividend in NANA history: $15 per share.
NANA also started several companies under the Small Business Administration’s 8(a) Program, which allows small or disadvantaged companies to compete for federal contracts on an even footing with larger corporations. Revenues from these 8(a) companies were vital to NANA’s dramatic improvement. NANA continued to invest in health care, scholarships, social programs, and land development. Even as outside pressure mounted on hunting and fishing restrictions, NANA defended subsistence rights, no doubt remembering how Frank Ferguson had once described hunting as part of Iñupiat spirituality, saying, “It’s my sanctuary. That’s when I’m at peace.” Ferguson was a former State Senator, who served 14 years on the NANA Board and was an NDC Chairman. By 2006, it was clear that NANA was still on course. Revenues leaped 50% over the previous year to an all-time high of $805.8 million with a dividend of $7. The billion-dollar goal had become a very real possibility. All NANA needed now was one good dog.
Christina Westlake
Frank Ferguson
Luke Sampson
NDC acquired Anchorage engineering firm, ASCG, Incorporated.
NANA with guidance from Rosetta Stone produced an Iñupiaq language CD-ROM in the coastel dialect to teach and preserve the Iñupiaq language in the Northwest Arctic and beyond.
2007
NANA Regional Corporation celebrated 35 years of doing business for its shareholders.
NINE part
IN
In 1966, a group of villagers met in Kotzebue and united to defend their rights to the land. After ANCSA, they created a company with the hope that it could provide jobs for them and their children. In 2007, NANA paid $35,808,000 in wages to shareholders. No other fact or figure could be a higher tribute to the vision and dedication of those villagers who joined together so many years ago. In 2007, the price of zinc rose sharply and Teck Cominco paid off the remainder of NANA’s initial investment. As a result, profits from the Red Dog Mine increased dramatically and, just as Charlie Curtis and the board had dreamed, NANA is now teetering on the verge of one billion dollars in total revenues. From here, we have set our eyes on a new goal of becoming a $10 billion revenue company. As NANA’s revenues rise, so do shareholder dividends, shareholder job opportunities, and services to the NANA Region. NANA is unique in the business world. Whereas Microsoft and General Motors exist only to create a profit, NANA’s purpose is more complex and, perhaps, more noble. Former NANA attorney, Richard Baenen perfectly summarized corporate philosophy when he wrote, “NANA’s sole purpose is to provide for the economic and cultural well-being of its owners – the Iñupiat Eskimo people.” In many ways, NANA reflects the culture it serves and from which it sprang.
Richard Baenen
We Have Been On A Journey Together.
“NANA’s sole purpose is to provide for the economic and cultural well-being of its owners—the Iñupiat Eskimo people.” “Sometimes I wonder what NANA employees from around the world think when we talk about our annual meeting held every March in one of the NANA region villages,” writes Helvi Sandvik. “For most billion-dollar corporations, the words ‘annual meeting’ conjure up images of penthouse conference room tables surrounded by high-backed leather chairs and starched catering staff standing at attention. Things are a little different in our world.” Experts estimate that Red Dog will be mined out before the middle of the next century. But NANA is already planning for that day. NDC has always pursued a strategy of diversification and continues to do so. NANA has devoted itself to improving the lives of the Iñupiat. “We will continue to build and grow the dedicated NANA family,” says Marie Greene. “Our cultural well-being is just as vital as financial stability. Our Iñupiat Ixitqusiat values govern our actions, corporately and individually. From our humble beginnings in Kotzebue, through the fight for ANCSA and the aftermath of 9/11, to the fulfillment of Red Dog’s promise, we have stayed true to our Iñupiat Ixitqusiat values and to each other. We have worked side-by-side for 35 years and we have built a great company. As Don Sheldon says, “We have been on a journey together.”
Helvi Sandvik
NEW SHAREHOLDER RECOGNITIONS Beginning this year, the Board made the decision to honor three people from the NANA Region in addition to the Shareholder of the Year. Based on a recommendation from the Shareholders Relations Committee, the new awards are the Elder of the Year, Youth of the Year, and the Richard Baenen Award, awarded to a non-shareholder who has contributed significantly to our Iñupiat communities.
tributes
15
2007 tributes
2007 SHAREHOLDER OF THE YEAr NaunGaq Cyrus Harris Naungaq is a role model in the NANA community who exemplifies our Iñupiat Ilitqusiat values. Son of the late Doc Upiksuan-Taliiraq Harris and Elizabeth Katak Harris, Naungaq has overcome many obstacles in his life, but throughout, has always provided for his family and others by living off the land as his father taught him and his four brothers and four sisters. Like his father before him, Naungaq is a talented musher. He serves as the Vice President of Kotzebue Dog Musher’s Association. He is also the Traditional Foods Manager for Maniilaq Association. He hunts, fishes, and gathers; and he prepares meat, fish, and game for other people. Not only does Naungaq prove by example that it is possible to provide for family and community through subsistence activities, he also enables others to provide for Elders through his job coordinating the Maniilaq Hunter Assistance Program. In fact, he provides all the traditional meat and berries for the Senior Citizen’s Cultural Center in Kotzebue. Naungaq and his wife Joanne have seven children who all practice a traditional lifestyle. Their youngest son, just three years old, is already learning how to hunt and assist with the dogs. Cyrus Naungaq Harris is a wonderful example of the very best our people have to offer.
2007 ELDER OF THE YEAR Afarraaq Levi Cleveland Born and raised in Shungnak, Afarraaq is a strong Iñupiaq man and a role model to people in the NANA community. He has made many friends across the state and is a positive influence on people from Alaska to New Zealand. He is married to Ruth Uula Cleveland. Afarraaq has done a lot in his life. He has been involved with serving the people of the NANA Region for many, many years. He worked on the oil pipeline, in copper mines, and retired from the Alaska Army National Guard as one of the most respected soldiers in its history. He has been a member of the NANA Board of Directors. As a respected Elder, Afarraaq is an outstanding spokesman, representing our Iñupiat Ilitqusiat values and advocating for healthy communities. He has also been involved with the language retention efforts since they began and is a tireless volunteer for many community efforts. The people of the NANA Region appreciate him very much.
2007 RICHARD BAENEN AWARD Warren Thompson Originally from Montana, Warren Thompson moved to Kotzebue in 1952. After serving in the military, he went to work for Federal Aviation Flight Service and worked for the FAA for 25 years. He helped form the Kotzebue Squadron Civil Air Patrol. Over the years, Warren’s concern has always been for the safety of the people in the NANA Region. He has logged over 44,000 hours of flying time, a good portion of that on search and rescue. Warren’s dedication and commitment to the people of this region is well known by those who have been rescued by him. A good example is the story of William “Billy” Patterson’s birth. Billy was born in the village of Noorvik on January 23, 1989 with complications that demanded immediate medical attention. Unfortunately, all aircraft in the region were grounded due to severely cold temperatures. When Warren, in Kotzebue, heard that no other pilots would go up, he decided that if there were a chance for the baby to survive, he would go get him. When Warren arrived in Noorvik, the ambient temperature was 58 degrees below zero. He left his airplane on the runway with engine running, and went to the clinic with two mummy bag sleeping bags as cover for the infant’s incubator. Once the incubator was secured, he transported Billy to the Noorvik airport, and flew him to Kotzebue. Today, Billy is 19 years old. This type of heroism defines the people of the NANA Region and deserves our gratitude. Warren Thompson can frequently be seen riding his bicycle in Kotzebue, as he has done for the past 54 years. He is married to Mae (Vestal) Thompson. Together, they’ve raised six children.
2007 YOUTH OF THE YEAR ArgaGiaq Elsa Ruth Johnson Argagiaq is an outstanding Iñupiaq youth and a wonderful example for our young people to emulate. A junior at Kotzebue High School, she is a member of the National Honor Society and is on the Dean’s List. Argagiaq was Miss Teen Arctic Circle and is very active in high school extra curricular activities. She also participates in many cultural activities. Alcohol and drug free herself, Argagiaq encourages younger kids to continue with their education and, most important, stay away from intoxicants. Argagiaq is the daughter of Jennie and Willie Johnson of Kotzebue and the granddaughter of the Late Doc Harris and Elizabeth Katak Harris. She has two sisters.
17
in memoriam
Leonard Douglas Sr. Raymond George Arnold Thomas Karen Westlake Henry Harris Johnny Good Jr. Annie B. Mills Michael Hadley Richard Sage Howard Gregg Charlotte Kennedy Delbert Sampson John Barger III Reed Henry Jr. Solveig Naylor Julia Barr Bob Henry Homer WAshington Jr. Isaac Curtis Elsie Foster Lowell Sage Sr. Brent Jackson Wyatt Moto Zonna Lie
Allan W. Jones Mary Erickson Angeline Moto Robert Mulluk Sr. Theodore Tickett Jr. Daniel Stalker Sean Octuck Aggie Black Brian Blubaugh Carolee Walker Harriet Clark Penny Greenlee Charles Greene Sr. Wayne Moneymaker Richard Commack Stanley Custer Jr. Tim Richards Horace Field Helen Kagoona Bertha Edwards Charlie Goodwin Timothy Sage Lavonne Harris Frank B. Stein Gertrude Sheldon Deanna Clark Daniel Kirk
NANA 07 Financial statements
Guide to financial terms
• 8 (a): Section 8(a) of the US Small Business Act gives special consideration to small businesses when they bid on Federal contracts. When companies get big enough or age out of the program, they lose the special status and compete on an equal footing. As a Native Corporation, NANA is allowed to form 8(a) companies. • Asset: Something of value that you own, such as a truck or a house. For the Corporation, this can include big things, like a building. NANA’s assets include its stock portfolio. • Consolidated Balance Sheets: This data show what the Corporation, and its subsidiary companies, own (assets), and owe (liabilities), and NANA’s net worth (equity) at the end of the accounting year. • Consolidated Statements of Cash Flows: These figures indicate all the different sources of Corporation cash, and also explain how the money was used. • Consolidated Statements of Income: These figures show the combined income, expenses, and profit (or loss) of the Corporation, and all our subsidiary and affiliated companies, during a fiscal year. • Earnings: If you earn a paycheck and use it to pay your taxes and bills, the money you have left over is called your earnings. In accounting, this term means what is left of the revenues, after expenses and taxes are paid. These are also called income or profits. • EBIT: Earnings before interest and taxes. • Equity: This is the value of property, less the amount that is owed on it. For example, if you have a truck that is worth $12,000, but you still owe $5,000 in payments, your equity is $7,000. • Expenses: Most people think of expenses as part of the cost of living, like the monthly mortgage payment on a home, or a telephone bill. For the Corporation, expenses are costs required to generate revenue. For example, if NANA buys paper so that it can bill customers, the cost of the paper is an expense.
• Fiscal Year: Also called a financial year, a fiscal year (FY) is usually 52 weeks long, but doesn’t necessarily start on January 1. NANA changed its fiscal year in 2006 from the last Sunday in September to September 30. • Investment: An investment is money spent on an asset that is expected to increase in value or generate income sometime in the future. For example, if you buy a house, you are making an investment, hoping that when you sell the house (the asset), you’ll get more than you paid for it. • LLC: A Limited Liability Company (LLC) is a business organization that combines elements of both partnerships and corporations that limits the legal risk for its owners. • Liability: If you owe money, it is called a liability. For NANA, a liability can be a debt, or other obligation, put in terms of money. • Liquidity: This describes the Corporation’s ability to convert assets into cash without losing value. The conversion to cash allows NANA to pay debts as they become due, and take advantage of investment opportunities as they arise. • Marketable Securities: This is a general term for stocks, bonds or other investments that can be sold on the open market. • Minority Interest: Less than 50 percent equity interest in a company is called a Minority Interest. • Net Income (Loss): This is the formal accounting term for total revenues minus total expenses. • Revenue: This is the total amount of money the Corporation took in, including income from all activities and investments. • Shareholders’ Equity: This figure includes all of NANA’s assets, minus what the Corporation owes. It is called Shareholders’ Equity because NANA is fully owned by the shareholders. • Subsidiary: This is a corporation that is owned by another corporation. For example, NANA Development Corporation is owned by NANA Regional Corporation, Inc.
independent Auditors’ report The Board of Directors NANA Regional Corporation, Inc: We have audited the accompanying consolidated balance sheets of NANA Regional Corporation, Inc. and subsidiary as of September 30, 2007 and 2006, and the related consolidated statements of income, changes in shareholders’ equity and comprehensive income, and cash flows for each of the years in the three–year period ended September 30, 2007. These consolidated financial statements are the responsibility of the management of NANA Regional Corporation, Inc. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NANA Regional Corporation, Inc. and subsidiary as of September 30, 2007 and 2006 and the results of their operations and their cash flows for each of the years in the three–year period ended September 30, 2007, in conformity with U.S. generally accepted accounting principles. As discussed in Note 2q to the consolidated financial statements, the Company changed its method of accounting for defined benefit pension plan liabilities.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
February 20, 2008 Anchorage, Alaska
Gladys Pungowiyi and Miles Cleveland with his granddaughter
21
Hilda Haas
consolidated balance sheets September 30, 2007 and 2006
FY07
FY06
Assets Current Assets:
Cash and cash equivalents
2,942,876
591,478
Marketable securities (notes 6 and 9)
$
79,573,276
68,758,982
Trade and other accounts receivable, net (note 3)
252,006,900
178,861,107
Unbilled work-in-progress
23,524,221
23,013,297
Costs and estimated earnings in excess of billings (note 4)
5,220,446
8,010,126
Inventories
2,757,926
2,701,452
Prepaid expenses and deposits
13,939,111
12,802,720
Deferred tax asset (note 12)
—
1,467,760
Other
1,382,555
2,462,070
Total current assets
381,347,311
298,668,992
Net property and equipment, at cost (notes 5, 10, and 11)
68,197,501
61,177,937
Other assets:
Investments in affiliates (note 7)
16,328,860
9,708,065
Goodwill (note 8)
16,826,316
17,849,316
Intangible assets (note 8)
9,037,060
9,424,800
Deferred tax asset (note 12)
151,967,687
58,532,240
Other
1,480,351
1,078,086
Total other assets
195,640,274
96,592,507
$ 645,185,086
456,439,436
Total assets
Gilbert Mills, Sr.
22
Gilbert Karmun
consolidated balance sheets September 30, 2007 and 2006
FY07 Liabilities and Shareholders’ Equity
FY06
Current liabilities:
Accounts payable
67,502,908
85,661,355
Accrued expenses (note 14)
$
43,902,208
44,414,828
Dividends payable (note 2)
20,912,299
9,355,829
Billings in excess of costs and estimated earnings (note 4)
6,067,511
7,323,338
Line of credit (note 9)
10,000,000
38,387,936
Resource revenues distributable to others (note 1)
82,050,372
23,346,807
Deferred tax liability (note 12)
356,687
Current installments of long-term debt (note 10)
2,119,537
— 1,674,080
Current installments of long-term capital leases (note 11)
251,762
286,719
Total current liabilities
233,163,284
210,450,892
Line of credit (note 9)
65,000,000
36,028,304
Long-term debt, less current installments (note 10)
24,171,629
25,728,498
Long-term obligation under capital leases (note 11)
298,447
273,236
Other long-term liabilities (note 14)
1,401,685
939,648
Total liabilities
324,035,045
273,420,578
Minority interest
28,987,322
27,564,618
Shareholders’ equity:
Common stock (note 2)
13,670
13,366
Additional paid-in capital
209,625,121
85,048,787
Retained earnings
75,794,795
65,081,780
Accumulated other comprehensive income
6,729,133
5,310,307
Total shareholders’ equity
292,162,719
155,454,240
Commitments and contingencies (notes 9, 10, 11, 13, 14, and 16) Total liabilities and shareholders’ equity
$ 645,185,086
See accompanying notes to consolidated financial statements.
456,439,436
Consolidated Statements of Income
Years ended September 30, 2007 and 2006 and September 25, 2005
FY07
FY06
FY05
Revenues: Contracted services $ 515,878,412 491,795,950 335,745,084 Professional and management services 257,504,956 247,680,859 145,551,485 Oilfield and mining support 35,886,337 18,796,935 9,785,076 Hospitality and tourism 18,540,714 16,746,991 15,834,618 Other investments 1,026,510 1,285,858 1,657,262 Investment income (note 6) 8,089,821 5,731,226 2,892,565 Natural resource (note 13) 138,544,753 39,895,939 20,949,261 Total revenues 975,471,503 821,933,758 532,415,351 Expenses: Contracted services 494,719,961 460,198,725 314,813,751 Professional and management services 241,254,592 235,858,749 136,128,955 Oilfield and mining support 28,501,146 15,202,532 8,351,136 Hospitality and tourism 14,434,517 13,561,676 12,510,516 Other investments 3,703,337 3,820,608 2,523,817 Natural resource 81,810,320 22,880,649 11,595,597 Corporate general and administrative (note 14) 20,531,479 17,740,728 12,771,971 Total expenses 884,955,352 769,263,667 498,695,743 Operating income 90,516,151 52,670,091 33,719,608 Other (income) expenses: Interest expense 7,432,769 7,468,426 4,529,087 Social and cultural programs 2,379,403 2,313,576 1,848,066
Other income (409,524) (935,397) — Minority interest 9,119,938 12,166,599 7,607,011 Income from continuing operations before income taxes 71,993,565 31,656,887 19,735,444 Income tax expense (note 12) 30,900,907 12,957,695 8,224,377 Income from continuing operations 41,092,658 18,699,192 11,511,067 Loss from discontinued operations, net of taxes (note 17) (3,699,800) (2,657,681) (665,781) Net income $ 37,392,858 16,041,511 10,845,286 Basic earnings (loss) per share: $ 30.06 13.99 8.77 Income from continuing operations Loss from discontinued operations (2.71) (1.99) (0.50) Net income per share $ 27.35 12.00 8.27 See accompanying notes to consolidated financial statements.
Consolidated Statements of Changes in Shareholders’ equity and comprehensive income Years ended September 30, 2007 and 2006 and September 25, 2005 Common Stock
Balance at September 27, 2004
$
Additional Paid-in capital
Retained earnings
12,884
21,476,435
38,194,983
Accumulated other comprehensive income
Total Shareholders’ equity
3,787,324
63,471,626
Comprehensive income, net of tax:
Net income
—
—
10,845,286
—
10,845,286
Change in unrealized gain on investments
—
—
—
2,085,046
2,085,046
—
—
Total comprehensive income
—
Issuance of Class D stock
232
10,845,286
2,085,046
12,930,332
(232)
—
—
—
Dividends – $2.00 per share
—
Tax benefit from ANCSA (note 12)
—
50,993,489
(2,576,593)
—
—
—
—
50,993,489
Balance at September 25, 2005
13,116
69,893,099
49,040,269
5,872,370
124,818,854
(2,576,593)
Comprehensive income, net of tax:
Net income
—
—
Change in unrealized gain on investments
—
—
(562,063) (562,063)
—
16,041,511
Total comprehensive income
—
—
16,041,511
Issuance of Class D stock
250
(250)
—
—
—
16,041,511 (562,063) 15,479,448 —
Dividends – $3.81 per share
—
(4,996,804)
—
—
(4,996,804)
Dividends – $7.00 per share
—
(9,355,829)
—
—
(9,355,829)
Tax benefit from ANCSA (note 12)
—
29,508,571
—
—
29,508,571
Balance at September 30, 2006
13,366
85,048,787
65,081,780
5,310,307
155,454,240
37,392,858
—
37,392,858
Comprehensive income, net of tax:
Net income
—
—
Change in unrealized gain on investments
—
—
—
1,515,229
1,515,229
Total comprehensive income
—
—
37,392,858
1,515,229
38,908,087
—
Issuance of Class D stock
304
Pension liability adjustment
—
Dividends – $15.00 per share Tax benefit from ANCSA (note 12) Cumulative effect adjustment (note 1) Balance at September 30, 2007
$
(304)
—
—
—
—
—
(20,504,205)
—
(20,504,205)
—
118,401,000
—
—
118,401,000
—
6,175,638
13,670
209,625,121
(6,175,638) 75,794,795
(96,403)
—
—
(96,403)
—
—
6,729,133
292,162,719
See accompanying notes to consolidated financial statements.
25
Consolidated Statements of Cash Flows Years ended September 30, 2007 and 2006 and September 25, 2005
FY07
FY06
FY05
Operating activities: Net income
$ 373,392,858
16,041,511
10,845,286
Loss from discontinued operations
3,699,800
2,657,681
665,781
Income from continuing operations
41,092,658
18,699,192
11,511,067
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Depreciation and amortization
11,534,294
8,723,719
4,868,095
Deferred taxes
28,149,481
11,873,013
7,293,249
Bad debt expense
2,087,602
1,125,004
694,575
Impairment of goodwill
1,023,000
(Gain) loss on disposition of assets
49,797
Net gain on sale of marketable securities
(4,787,885)
Undistributed earnings of affiliates
(6,615,795)
Minority interest
9,119,938
12,166,599
7,607,011
Changes in operating assets and liabilities that provided (used) cash: (46,624,074)
(53,631,123)
Trade and other accounts receivable, net
(75,744,319)
Costs and estimated earnings in excess of billings
2,789,680
—
—
(44,144)
(19,005)
(1,956,080)
(1,202,287)
(2,475,248)
907,310
(422,618)
(4,819,337)
Inventories
(56,474)
(646,552)
(594,159)
Other current assets
1,079,515
(913,260)
(148,030)
Prepaid expenses and deposits
(1,136,391)
(3,416,575)
(1,875,707)
Accounts payable, accrued expenses, and
resource revenues distributable to others
40,330,834
29,530,385
36,139,862
Billings in excess of costs and estimated earnings
(1,255,827)
4,070,463
(345,123)
Net cash provided by operating activities
47,660,108
31,019,752
5,056,470
Investing activities: Purchases of marketable securities
(70,449,656)
(30,271,360)
(39,951,344)
Proceeds from sales of marketable securities
67,133,449
26,465,817
43,011,954
Increase in other assets
(402,265)
Capital contributions to affiliates
(5,000)
Proceeds from the sale of assets
Purchases of property and equipment
(16,086,010)
Purchase of businesses, net of cash acquired
(4,196,119)
Net cash used in investing activities
435,148
(23,570,453)
(458,212)
(619,874)
—
—
214,583
96,686
(15,076,914) — (19,126,086)
(9,436,472) (27,500,000) (34,399,050)
Consolidated Statements of Cash Flows
FY07
FY06
FY05
Financing activities: Proceeds from issuance of long-term debt
1,315,966
2,353,340
23,304,081
Principal payments on long-term debt
(2,427,378)
(3,800,622)
(25,323,570)
Principal payments under capital lease obligations
(351,172)
(266,370)
(258,878)
Net borrowings (repayments) under line of credit
583,760
Capital contributions from minority investors
1,225,000
Distributions to minority investors
(6,949,741)
(5,606,582)
(1,795,219)
Dividends paid
(8,947,735)
(4,996,804)
(2,576,593)
Net cash provided by (used in) financing activities
(15,551,300)
(16,415,999)
37,740,637
Net cash used by discontinued operations
(6,186,957)
(4,444,283)
(1,113,187)
Net increase (decrease) in cash
2,351,398
(8,966,616)
7,284,870
Cash and cash equivalents at beginning of year
591,478
9,558,094
2,273,224
$
2,942,876
591,478
9,558,094
$
7,432,769
7,790,529
4,859,250
1,208,325
1,026,871
470,400
Cash and cash equivalents at end of year
(4,098,961) —
44,390,816 —
Supplemental disclosures of cash flow information:
Interest paid
Income taxes paid
Supplemental schedule of noncash investing and financing activities:
Equipment purchases financed by capital leases and notes payable
1,189,220
298,069
126,496
Dividends declared and not paid
20,912,299
9,355,829
174,906
Issuance of Class D stock
304
250
232
See accompanying notes to consolidated financial statements.
Levi Cleveland
27
Reggie Joule
notes to Consolidated Statements
1. Organization NANA Regional Corporation, Inc. (Company or NANA) was formed as an Alaska for‑profit corporation under state law and under the Alaska Native Claims Settlement Act (ANCSA or Act) of 1971 through which the Company became entitled to cash and land, including the surface and subsurface estate, of 2,258,836 acres and title to subsurface estate rights only on 161,260 acres. At September 30, 2007, the Company has received interim conveyance or patent to 1,374,167 acres of surface estate and 1,503,365 acres of subsurface estate. No value has been ascribed to any land received under the Act. The Company maintains an investment portfolio and negotiates resource contracts for minerals extracted from its land. In addition, the Company operates in various business segments. Its contracted services segment operates around the world. Its hospitality and tourism, professional and management services and oilfield and mining support segments operate primarily within the State of Alaska. Changes in the Alaska economy, particularly the oil and gas industry and tourism, the spending by the U.S. Government, specifically, the U.S. Department of Defense, and the price of zinc and lead could have a positive or negative effect on the Company. The Act required the Company to issue 100 shares of its stock to each Native enrolled in the northwest region of Alaska. NANA currently has the following classes of common stock outstanding: • Class A common stock to those Natives who enrolled in the NANA Region as residents of one of its villages (When the village corporations merged, Class A shareholders turned in their 100 shares of village corporation stock and received an additional 100 shares of NANA stock.); • Class B common stock to those Natives who enrolled in the NANA Region, but elected not to be registered as residents of any of its villages; • Class C common stock to those Natives who were eligible to, but did not, enroll in the NANA Region in 1971; and • Class D common stock to Natives born after 1971 who meet certain eligibility requirements. Recipients receive either 50 or 100 shares based
on the original parental enrollment in the NANA Region. Class D shares carry certain restrictions. The Company’s stock cannot be sold unless a majority of the outstanding shares is voted to authorize such a sale. Sections 7(i) and 7(j) of the Act require the Company to make the following mandatory distributions: • 70% of all net revenues received by the Company for subsurface and timber resources transferred under the Act to the Company must be distributed to all regional corporations, including itself (the funds are allocated based on the final number of Natives enrolled in each region in 1971); and similarly, the Company receives its pro rata share of 70% of resource revenues received by the other 11 Native regional corporations which are recorded as revenues when the amount thereof is determined; • Of the 70% of the resource revenues of the Native regional corporations to which NANA is entitled, 50% of a portion of such revenues, which portion is based on the ratio of the nonvillage shareholders and enrolled village shareholders to total NANA shareholders, must be distributed to NANA’s enrolled nonvillage shareholders and the Kikiktagruk Iñupiat Corporation. NANA retains the shares of such revenues that the merged village corporations would have been entitled to receive.
2. Summary of Significant Accounting Policies a. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, NANA Development Corporation. All significant intercompany transactions have been eliminated in consolidation. b. Cash Equivalents For purposes of the consolidated statements of cash flows, highly liquid short‑term investments with original maturities of less than 60 days are considered to be cash equivalents. Certain money market funds are included in marketable securities as it is the intent of the Company to hold these securities
Notes to Consolidated Statements
its estimated future cash flow, an impairment charge is recognized by the amount the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.
in their investment portfolio. Cash and cash equivalents include deposit accounts restricted for repairs and replacement as required by financial covenants contained in certain debt agreements. At September 30, 2007 and 2006, restricted cash amounted to $2,561,239 and $2,033,431, respectively. c. Inventories Inventories, consisting primarily of fuel and food products, are stated at the lower of cost or market. Cost is determined using the first-in, first-out method (FIFO).
f. Investments in Affiliates The equity method of accounting is used to account for investments in unconsolidated affiliates. Under the equity method, the Company’s share of the earnings or losses of each investment is included in the consolidated statements of income, and the undistributed earnings or losses are reported as an increase or decrease to investments in affiliates.
d. Accounts Receivable Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off–balance–sheet credit exposure related to its customers.
g. Marketable Securities The Company has classified all of its marketable securities as securities available-for-sale. Securities are classified as available-for-sale when management intends to hold the securities for an indefinite period of time for appreciation and income or when the securities may be utilized for tactical asset/liability purposes and may be sold from time to time to effectively manage interest rate exposure and resultant prepayment risk and liquidity needs.
e. Property and Equipment, Depreciation, and Amortization Property and equipment are stated at cost. Equipment under capital leases is capitalized at the present value of minimum lease payments at the inception of the lease.
Securities available-for-sale are stated at fair value with unrealized holding gains and losses excluded from earnings and reported as a separate component of accumulated other comprehensive income. Realized gains and losses on sales of securities are computed using the specific-identification method of determining the cost of securities sold.
Depreciation is calculated using the straight‑line method over the estimated useful lives of the assets, which range from three to 40 years. Equipment held under capital leases and leasehold improvements is amortized straight‑line over the shorter of the lease term or estimated useful life of the asset. Depletion of investments in oil and gas producing and other mineral properties is calculated using the units of revenue method.
A decline in the fair value of any available-for-sale securities below cost that is deemed to be other than temporary results in a reduction in carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. To determine whether an impairment is other than temporary, the Company considers whether it has the ability and intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary.
In accordance with FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, long‑lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds 29
notes to Consolidated Statements
h. Revenue Recognition Revenues on contracts are recognized ratably over the term of the contract, as services are performed, percentage of completion or based on the specific terms of the contracts. Revenue related to reimbursable cost line items is recognized when the applicable expense is incurred. Revenue from sales where the Company has, by agreement, transferred all significant risk to manufacturers or others are recorded net of cost. Revenue from such sales totaled $79,774,689, $127,551,217, and $93,569,818 for fiscal years 2007, 2006, and 2005. Award fees are recognized at the time of receipt. Substantially all contracted services revenue, or 53%, 60%, and 63% of total revenue for fiscal years 2007, 2006, and 2005, respectively, is with the U.S. government.
j. Comprehensive Income Comprehensive income consists of net income or loss, net unrealized gains and losses on securities and minimum pension liability adjustments and is presented in the consolidated statements of shareholders’ equity and comprehensive income.
Revenues for room, beverage, food, and fuel sales are recognized at the time service is provided.
l. Common Stock and Earnings Per Share
i. Income Taxes The Company and its subsidiaries file consolidated federal and state income tax returns. The Company accounts for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. The Company’s surface and subsurface estate received in accordance with ANCSA have not been recognized in the accompanying financial statements because the fair value was not determinable within reasonable limits at the time of conveyance. In addition, the tax basis of the Company’s surface and subsurface estate also has not been determined, except for certain subsurface estate for mining activities. Due to the unique tax attributes of ANCSA corporations’ natural resources and the revenue sharing requirements of Section 7(i), the tax basis of such resources most likely would be significantly in excess of their book basis. The Company does not reflect a deferred tax asset for surface or subsurface estate until a reasonable basis has been determined and such amounts are recorded to paid‑in capital. The net deferred tax benefit or expense associated with ANCSA subsurface estate is also recorded as additional paid‑in capital.
k. Fiscal Year In 2006, the Company changed its fiscal year-end from the last Sunday in September to September 30. As a result, the financial reporting period for fiscal year 2006 includes activity from September 25, 2005 through September 30, 2006. The current financial reporting period includes activity from October 1, 2006 through September 30, 2007.
Common stock is comprised of:
2007 2006 Class A common stock of $0.01 par value. Authorized 2,000,000 shares; issued and outstanding 704,700 shares $ 7,047 Class B common stock of $0.01 par value. Authorized 500,000 shares; issued and outstanding 29,400 shares 294 Class C common stock of $0.01 par value. Authorized 50,000 shares; issued and outstanding 1,400 shares 14 Class D common stock of $0.01 par value. Authorized 5,000,000 shares; issued and outstanding 631,500 shares and 601,100 shares at September 30, 2007 and 2006 6,315 $ 13,670
7,047
294
14
6,011 13,366
Notes to Consolidated Statements
o. Use of Estimates The preparation of the consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the useful lives of property and equipment; investments in affiliates; goodwill and intangible assets; allowances for doubtful accounts on receivables; valuation allowance on deferred tax assets; reserves for retained risk insurance programs; and obligations related to the Company’s employee retirement plan. Actual results could differ from those estimates.
Earnings per share are computed using the end of year number of shares of Class A, B, C, and D common stock outstanding of 1,367,000, 1,336,600, and 1,311,600 in 2007, 2006, and 2005, respectively. On September 27, 2006, the Board of Directors approved a dividend of $7.00 per share, with a record date of October 31, 2006. Because the Board of Directors changed NANA’s fiscal year-end to September 30 during fiscal year 2006, the $9,355,829 dividend was recorded in 2006 as dividends payable. This is in addition to the dividend that was approved on September 29, 2005. On September 27, 2007 the Board of Directors approved a dividend of $15.00 per share with a record date of October 15, 2007. m. Goodwill Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase business combination. Goodwill is reviewed for impairment at least annually in accordance with the provisions of FASB Statement No. 142, Goodwill and Other Intangible Assets. The goodwill impairment test is a two-step test. Under the first step, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the Company must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in accordance with FASB Statement No. 141, Business Combinations. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed.
p. Fair Value of Financial Instruments Fair value of financial instruments, as defined under Statement of Financial Accounting Standards No. 107, Disclosures About Fair Value of Financial Instruments is estimated by management. Fair values for accounts receivable, contract arrangements and operating liabilities approximated recorded balances at September 30, 2007 and 2006. Marketable securities and lines of credit are recorded at fair value based on quoted market prices at the reporting date. At September 30, 2007 and 2006, the fair value of long‑term debt is $22,784,707 and $23,209,478, respectively, which is estimated by discounting the future cash flows of each instrument at rates currently offered to the Company for similar debt instruments of comparable maturities. Fair value estimates are dependent upon subjective assumptions and involve significant uncertainties resulting in variability in estimates with changes in assumptions. q. Recently Adopted Accounting Standards Effective September 30, 2007, the Company adopted the recognition and disclosure provisions of FASB Statement No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (Statement 158).
n. Intangible Assets Intangible assets with estimated useful lives are amortized over their respective estimated useful lives to their estimated residual values. Intangible assets are reviewed for impairment at least annually in accordance with the provisions of FASB Statement No. 144, Accounting for Impairment on Disposal of Long‑Lived Assets.
31
notes to Consolidated Statements 4. Costs and Estimated Earnings on Uncompleted Contracts Costs and estimated earnings on uncompleted contracts consist of the following:
Statement 158 requires companies to recognize the funded status of defined benefit pension and other postretirement plans as a net asset or liability and to recognize changes in that funded status in the year in which the changes occur through accumulated other comprehensive income to the extent those changes are not included in the net periodic cost. The funded status reported on the balance sheet at September 30, 2007, under Statement 158 was measured as the difference between the fair value of plan assets and the benefit obligation. The adoption of Statement 158 did not impact the Company’s compliance with debt covenants or its cash position.
r. Reclassifications Certain reclassifications have been made to the 2006 and 2005 balances to conform to the 2007 presentation. The Company decreased retained earnings by approximately $6.2 million and increased additional paid-in capital by the same amount. This corrects a misclassification of dividends from 2006.
2007 Costs and estimated earnings in excess of billings $ 5,220,446 Billings in excess of costs and estimated earnings (6,067,511) $ (847,065)
A summary of accounts receivable follows:
2007
2006
Included in the accompanying consolidated balance sheets under the following captions:
3. Accounts Receivable
2007
Gross costs incurred on uncompleted contracts $ 336,818,643 596,351,799 Estimated gross profit earned to date 55,310,294 70,615,003 392,128,937 666,966,802 Less billings to date 392,976,002 666,280,014 $ (847,065) 686,788
2006
2006 8,010,126 (7,323,338) 686,788
Trade accounts receivable:
Commercial customers
Government
$ 136,462,467
Other receivables Less allowance for doubtful accounts Net receivable
51,920,326
5. Property and Equipment
115,725,640 125,054,907 4,903,180
A summary of property and equipment, at cost, follows:
5,004,183
257,091,287 181,979,416 5,084,387
Estimated useful lives 2007 2006 Land — $ 6,625,547 5,395,547 Buildings 40 years 43,544,542 42,210,458 Work in progress — 5,659,094 4,341,489 Other 3 to 15 years 55,288,447 46,597,806 111,117,630 98,545,300 Less accumulated depreciation 42,920,129 37,367,363 Net property and equipment $ 68,197,501 61,177,937
3,118,309
$ 252,006,900 178,861,107
32
Notes to Consolidated Statements
6. Marketable Securities Summaries of marketable securities follow: Cost
Gross Gross unrealized unrealized holding gains holding losses Fair value
At September 30, 2007: Cash and cash equivalents $ 37,413,533
—
—
37,413,533
Corporate notes and bonds 2,854,864
9,041
(102,713)
2,761,192
Common stock 15,607,574
8,531,507
(235,713)
Mutual funds 12,106,990
3,388,193
—
$ 67,982,961
11,928,741
Corporate notes and bonds 2,969,914
10,817 7,280,788
Mutual funds 9,020,185
2,197,479
9,489,084
$ 59,878,868
638,287
(80,408) 1,409,009 (102,713) 2,047,296
Common stock (152,816) 1,274,650
(82,897) 558,418 (235,713) 1,833,068
$ (22,305)
$ (175,121) 1,912,937 (163,305) 1,967,427 (338,426) 3,880,364
2006: Corporate notes and bonds
$ (10,110)
447,121
(85,801) 1,882,630 (95,911) 2,329,751
Common stock (376,796) 2,432,337 (136,263) 1,995,814 (513,059) 4,428,151
$ (386,906) 2,879,458 (222,064) 3,878,444 (608,970) 6,757,902
(338,426) 79,573,276
Because management considers the above unrealized holding losses to be insignificant, an other-than-temporary impairment has not been recorded. A summary of revenues and expenses from marketable securities follows:
2006
2005
$
1,666,507
1,276,124
1,020,994
532,253
542,010
862,574
27,035,392
Other
1,400,332
2,221,875
—
2,884,820
Net gain on sale of securities
4,787,885
1,956,080
1,202,287
(513,059) 27,621,106
Portfolio management expenses
— (95,911) —
11,217,664
Interest
2007
Dividends
At September 30, 2006:
Common stock 20,853,377
Corporate notes and bonds
23,903,368
unrealized unrealized Cost holding gains holding losses Fair value —
Fair value
2007:
15,495,183
Gross realized gains and losses on sales of marketable securities totaled $4,790,966 and $3,081, respectively, during the year ended September 30, 2007. Gross Gross
Cash and cash equivalents $ 27,035,392
Less than 12 months 12 months or more Total
Unrealized Unrealized Unrealized losses Fair value losses Fair value losses
$
(297,156) 8,089,821
(264,863) 5,731,226
(193,290) 2,892,565
(608,970) 68,758,982
Gross realized gains and losses on sales of marketable securities totaled $1,978,060 and $21,980, respectively, during the year ended September 30, 2006. Gross realized gains and losses on sales of marketable securities totaled $2,541,778 and $1,339,491, respectively, during the year ended September 25, 2005. Gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at September 30, 2007 and 2006 were as follows:
A summary of contractual maturities of marketable debt securities, including U.S. government bonds and corporate notes and bonds, at September 30, 2007 follows: Amortized Fair Cost Value Fiscal year 2008 to 2012 $ 830,444 812,986 Fiscal year 2013 to 2017 1,848,832 1,787,131 Subsequent to fiscal year 2017 175,588 161,075 $ 2,854,864 2,761,192
notes to Consolidated Statements
7. Investments in Affiliates The Company has invested in affiliates (including joint ventures, partnerships, and limited liability companies), which are primarily involved in oil field services, hospitality services, professional management services, security services, mineral exploration drilling, government contracting, construction, transportation, and engineering services. The Company’s ownership in these affiliates ranges from 0.39% to 50%. Summarized combined financial information for the affiliates follows:
Combined Balance Sheets Assets 2007 Current assets
A summary of net income (loss) allocable to the Company for investments in affiliates by line of business follows:
22,009,762
of $14,635,116 in 2007
and $12,457,840 in 2006 22,067,198
16,973,321
2006
2005
$
171,302
24,575
(35,599)
management services
3,955,791
1,591,436
645,657
Oilfield and mining support
3,405,578
2,276,812
801,234
Hospitality and tourism Professional and
Other investments
2006
$ 36,228,756
2007
$
116,853
154,623
652,282
7,649,524
4,047,446
2,063,574
Equipment, net of accumulated depreciation
8. Intangible Assets and Goodwill
Other
1,260,632
408,198
$ 59,556,586
39,391,281
a. Intangible Assets A summary of intangible assets follows: Estimated
amortization period
Liabilities and Equity Current liabilities
$ 14,528,140
Long-term liabilities
7,700,014
9,959,162
10,205,660
Owners’ equity 35,069,284
21,485,607
39,391,281
$ 59,556,586
Licenses and franchise agreements
Revenues
2007
2006
35,800
8,300
Partner relationships
20 years
1,102,766
Customer lists
15 years
68,618
1,102,766 —
14,811,861 12,588,235 Less accumulated amortization
2005
5,774,801
3,163,435
$ 9,037,060
9,424,800
$ 104,686,140 67,008,339 47,313,468
Costs and expenses 89,237,757 59,030,332 42,997,978 Net income
$
2006
Government contracting relationships 3 to 10 years 13,604,677 11,477,169
Combined Statements of Operations
15 years
2007
$ 15,448,383
7,978,007
Aggregate amortization expense for amortizing intangible assets was $2,611,366, $1,956,738 and $931,005 for years ended September 30, 2007 and 2006 and September 25, 2005, respectively. Estimated amortization expense for the next five years is: $2,907,654 in 2008, $977,713 in 2009, 2010 and 2011, and $975,425 in 2012.
4,315,490
34
Notes to Consolidated Statements
b. Goodwill The changes in the carrying amount of goodwill for the years ended September 30, 2007 and 2006 were as follows: Balance as of October 1, 2005
$
Impairment loss Balance as of September 30, 2006
17,849,316 — 17,849,316
Impairment loss
(1,023,000)
Balance as of September 30, 2007
16,826,316
$
During the year ended September 30, 2007, the Company recorded an impairment charge on goodwill of $1,023,000 to reflect the decline in value of its investment in ASCG Incorporated of Colorado, a wholly-owned subsidiary of WHPacific, Inc., caused by operating losses in this entity. The fair value was calculated using a present value of cash flow technique.
9. Lines of Credit
The business loan agreement for each line of credit contains restrictive covenants including maintaining certain ratios. The amount available to be drawn on the $45,000,000 line of credit collateralized by marketable securities is reduced by the amount of outstanding irrevocable letters of credit the Company has provided to third parties. At September 30, 2007, the amount outstanding was $10,295,377. See further discussion in note 16. The Company must pay a quarterly commitment fee ranging from 0.20% to 0.30% on the average daily unused commitment on both lines of credit. On September 23, 2003, the Company entered into an interest rate swap agreement, effective October 1, 2003 to change $10,000,000 of its variable interest rate line of credit to an effective fixed interest rate of 3.75%. The swap terms are similar to the debt and the swap agreement is in effect through October 1, 2008. The fair value of the swap at September 30, 2007 is nominal.
A summary of lines of credit follows:
2007
2006
Authorized $45,000,000 line of credit with a bank
collateralized by marketable securities,
interest at an indexed rate
(6.923% at September 30, 2007),
due July 1, 2008 $ 10,000,000 36,028,304 Authorized $75,000,000 line of credit with a bank
collateralized by accounts receivable,
interest at an indexed rate
(6.698% at September 30, 2007),
due December 27, 2009
65,000,000
—
Authorized $55,000,000 line of credit with a bank
collateralized by accounts receivable, interest
at the prime rate (8.25% at September 30, 2006),
due December 28, 2006
$
—
38,387,936
75,000,000
74,416,240
Bert Greist
Harvey Vestal
notes to Consolidated Statements
10. Long‑Term Debt A summary of long‑term debt follows:
Several of the Company’s debt agreements contain various covenants and restrictions.
2007
2006
Note payable, due December 2019, interest at a fixed rate, (5.76% at September 30, 2007), collateralized by real property $ 10,174,398 10,719,576 Note payable, due December 2019, interest at a fixed rate, (5.76% at September 30, 2007), collateralized by real property 6,139,723 6,468,709 Note payable, due December 2019, interest at a fixed rate, (5.76% at September 30, 2007), collateralized by real property 3,683,834 3,881,226 Note payable, due June 2018, interest at a fixed rate, (5.15% at September 30, 2007), collateralized by real property 1,520,199 1,623,919 Note payable, due May 2018, interest indexed to the U.S. Treasury rates, (5.72% at September 30, 2007), collateralized by real property 1,370,182 1,457,775 Note payable, due September 2013, interest at a variable rate, not less than 6.0% or more than 10% (9.50% at September 30, 2006) — 566,800 Note payable, due October 2013, interest only payments at a fixed rate, (7.25% at September 30, 2007), collateralized by real property 1,530,752 1,584,254 Note payable, due April 2013, interest at a fixed rate, (7.25% at September 30, 2007), collateralized by real property 399,740 455,848 Notes payable, maturities ranging from January 2008 through January 2011, interest at 1.0% below prime rate, (6.75% at September 30, 2007) 626,802 499,970 Various notes payable, maturities ranging from October 2008 through August 2010, interest at rates ranging from 1.13% to 8.50%, collateralized by vehicles 126,928 144,501 Note payable, due December 2010, interest at a fixed rate, (7.0% at September 30, 2007) 718,608 — Total long-term debt 26,291,166 27,402,578 Less current installments 2,119,537 1,674,080 Long-term debt, less current installments $ 24,171,629 25,728,498
Scheduled maturities of long-term debt are as follows:
Fiscal year ending: Amount 2008
$
2,119,537
2009
2,139,006
2010
2,139,673
2011
2,108,473
2012
2,048,592
Thereafter
15,735,885
26,291,166
$
11. Lease Commitments Amortization of capital lease properties, provided by use of the straight‑line method over the lease terms, has been included in depreciation and amortization expense. The carrying costs related to equipment and vehicles purchased under capital lease were $758,337 at September 30, 2007 and $919,142 at September 30, 2006. Future minimum capital lease payments consist of the following:
Fiscal year ending: Amount 2008 $ 2009 2010 2011 Total minimum lease payments Less amounts representing interest Present value of net minimum lease payments Less current portion $
286,929 238,873 71,272 7,404 604,478 (54,269) 550,209 (251,762) 298,447
Notes to Consolidated Statements
The Company leases office space and equipment under various operating lease agreements.
Income tax expense attributable to income from continuing operations consists of:
Future minimum operating lease commitments consist of the following:
Fiscal year ending: Amount 2008
$
2007
2006
2005
Current: Current expense before application
11,672,503
of net operating losses
$
14,086,926
1,084,682
10,748,741
Tax benefit of net operating losses
(11,335,500)
—
2010
7,823,824
Total current expense
2,751,426
1,084,682
2011
6,031,131
Deferred expense
28,149,481
11,873,013
7,293,249
2012
4,369,245
Tax expense
30,900,907
12,957,695
8,224,377
Thereafter
9,051,551
2009
$
49,696,995
12. Income Taxes
a. Income Taxes Total income taxes were allocated as follows:
Income from continuing operations
$
Loss from discontinued operations
2007
2006
2005
30,900,907
12,957,695
8,224,377
(2,487,157) (1,786,602)
(447,316)
for unrealized holding gains 1,194,973
377,840
(67,297)
—
3,947,646 —
Shareholders’ equity, for tax benefit attributed to ANCSA resources (118,401,000) (29,508,571) (50,993,489)
$
2007
2006
Computed “expected” income tax expense $
25,197,748
10,763,341
6,710,051
State tax, net of federal effect
7,003,315
2,000,167
1,278,220
Nondeductible expenses
377,027
324,898
512,877
Dividends received exclusion
(130,402)
(128,998)
(205,293)
2005
valuation allowance
(6,766,979)
(421,242)
(808,944)
Change in estimates and other
5,220,198
419,529
737,466
30,900,907
12,957,695
8,224,377
Shareholders’ equity, for liability for pension benefits
Change in the beginning-of-the-year
Shareholders’ equity, on debt and equity securities
— 931,128
b. Tax Rate Reconciliation Income tax expense attributable to income from continuing operations differed from the amounts computed by applying the U.S. federal income tax rate of 35 percent for 2007 and 34 percent for 2006 and 2005 to pretax income from continuing operations as a result of the following:
The rent expense under all operating leases amounted to $11,017,924, $9,539,788, and $5,154,855 in 2007, 2006, and 2005, respectively.
$
931,128
(88,859,574) (17,959,638) (39,268,782)
37
$
notes to Consolidated Statements
c. Deferred Taxes The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at September 30, 2007 and 2006 are presented below.
2007
2006
Deferred tax asset:
Allowances and compensation and benefit accruals
$
4,441,403
5,490,050
793,235
3,984,438
Property and equipment
Basis in Red Dog Mine
Net operating loss carryforwards 107,083,440
Other carryforwards
1,971,982
1,305,790
Investments in affiliates
939,030
1,075,761
Other
658,427
5,382,699
44,930,790 142,093,331 96,852,374
Total gross deferred tax assets 160,818,307 256,184,443 Less valuation allowance
(1,333,774) (188,451,684)
Total net deferred tax assets 159,484,533
67,732,759
Deferred tax liabilities:
Unrealized holding gains on
marketable securities
Goodwill and intangible assets
(3,108,754) (4,162,953)
Total gross deferred tax liabilities
(7,873,533) (7,732,759)
Net deferred tax asset
(4,764,779) (3,569,806)
$ 151,611,000
dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. In order to fully realize the deferred tax asset, the Company will need to generate future taxable income of approximately $270 million prior to the expiration of the net operating loss carryforwards in 2026. Taxable income for the year ended September 30, 2007 was approximately $32 million. Based upon the level of recent taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowances at September 30, 2007. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. Changes in the beginning-of-year valuation allowance for deferred tax assets were allocated as follows:
2007
2006
2005
Income tax benefit that would be reported in the consolidated statement of income
$
6,766,979
421,242
808,944
Additional paid-in capital 118,401,000 29,508,571 50,993,489
$ 125,167,979 29,929,813 51,802,433
60,000,000
The total valuation allowance changed by $187,117,910 and $29,929,813 for the years ended September 30, 2007 and 2006, respectively. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is
At September 30, 2007, the Company has net operating loss carryforwards for Federal and State of Alaska income tax purposes of approximately $270 million and $230 million, respectively, which are available to offset future Federal and State of Alaska taxable income, if any, through 2026. In addition, the Company has alternative minimum tax credit carryforwards of approximately $638,000, which are available to reduce future Federal regular income taxes, if any, over an indefinite period.
Notes to Consolidated Statements
13. Resource Development Agreement
14. Pension Plan
In 1982, the Company signed an agreement to develop and operate zinc and lead deposits currently known as Red Dog Mine, which granted Cominco American, Incorporated (CAI):
Effective January 1, 1989, the Company adopted a noncontributory defined benefit pension plan which covers all of its employees, and certain wholly–owned subsidiaries, except those who are members of a collective bargaining unit for which retirement benefits have been the subject of good faith bargaining or in an unrelated line of business. Benefits are based on the length of service and compensation. The Company’s funding policy is to contribute annually an amount at least equal to the minimum requirements of the Employee Retirement Income Security Act of 1974. Contributions are intended to provide not only for future benefits attributable to service to date, but also for those expected to be earned in the future.
• An economic interest in mineral‑bearing lands received by the Company pursuant to the Act; • Authority to evaluate the economic development potential of such lands; and • Authority to develop such lands if determined to be feasible. In March 1988, Teck Cominco Alaska Incorporated (Teck), CAI’s successor, began operating Red Dog Mine and is required to pay a guaranteed minimum advance royalty of $1,000,000 per year for the remaining term of the agreement, adjusted for inflation, or a 4.5% advance net smelter royalty, whichever is higher. A net proceeds royalty will be payable when Teck has fully recovered certain capital costs, accrued interest, and advance royalties. The amount of the net proceeds royalty will start at 25% of cash receipts from the sale of minerals and will increase at five-year intervals by 5%, to a maximum of 50%. The Company received net smelter royalties of $58,134,000, $29,691,000, and $16,953,000 for the years ended September 30, 2007, September 30, 2006, and September 25, 2005, respectively. The first net proceeds royalty in the amount of $57,570,000 for the quarter ended September 30, 2007 has been accrued at year-end and payment has been subsequently received. When received, royalties described above are subject to sharing with the other regional Native corporations pursuant to section 7(i) of the Alaska Native Claims Settlement Act.
As discussed in note 2(q), effective September 30, 2007, the Company adopted the recognition and disclosure provisions of Statement 158. Statement 158 requires companies to recognize the funded status of defined benefit pension and other postretirement plans as a net asset or liability on its balance sheet. The following table illustrates the incremental effect of applying FASB Statement No. 158 on individual components of accumulated other comprehensive income for the year ended September 30, 2007: Before After application of application of Statement Statement No. 158 Adjustments No. 158 Liability for pension benefits $ 996,767 163,700 1,160,467 Accumulated other comprehensive income — (163,700) (163,700)
As part of the development and operating agreement, all lands disturbed as a result of the operations pursuant to the agreement must be reclaimed in accordance with a reclamation plan prepared by Teck. A reclamation and post-production account has been established on the books of the project. Accrual into the account will be sufficient to cover all reclamation and post-production costs as estimated by Teck. Teck has posted a performance bond with the State of Alaska for the unfunded amount of the estimated reclamation costs. In the event that the accrual account is insufficient to cover the reclamation costs, Teck and the Company will share any deficiency. The Company’s portion of the deficiency will be the same percentage as its net proceeds royalty rate at the time of the deficiency.
39
notes to Consolidated Statements
The following table sets forth the status of the plan at September 30, 2007 and 2006:
Benefit obligation at beginning of year
2007
$ 10,223,114
Service cost
548,944
2006 9,594,083
Unrecognized net loss
581,732
524,679
Actuarial loss (gain)
450,969
(288,959)
Benefits paid
(195,159)
$ 11,609,600
Fair value of plan assets at beginning of year $
8,605,416
Actual return on plan assets
1,486,876
Funded status
555,136
Interest cost
Benefit obligation at end of year
The following disclosures are as of September 30, 2006 (prior to the adoption of Statement 158):
(benefit obligation less fair value of plan assets)
Net amount recognized
$ $
(1,617,698) 543,178 (1,074,520)
(161,825) 10,223,114 7,539,363 675,878
Employer contribution
552,000
552,000
Benefits paid
(195,159)
(161,825)
Fair value of plan assets at end of year
$ 10,449,133
8,605,416
Unfunded status
$ (1,160,467)
(1,617,698)
Actuarial gains and losses are generally amortized subject to the corridor, over the average remaining future service period of active employees expected to receive benefits under the plan. The accumulated benefit obligation for the plan was $9,880,909 and $8,615,455 at September 30, 2007 and 2006, respectively. At September 30, 2007, the Company recognized an accrued benefit liability of $1,160,467, which is included in other long-term liabilities. Additionally, unrecognized net loss that has not yet been reflected in net periodic benefit cost amounted to $163,700 (pretax) and is included in accumulated other comprehensive income. Upon adoption of Statement 158 in 2007, the Company recorded all of the unrecognized net loss into accumulated other comprehensive income in order to fully recognize the funded status of the plan. The estimated amortization of unrecognized net loss from accumulated other comprehensive income in 2008 is $0.
At September 30, 2006, the Company recognized an accrued benefit liability of $1,074,520, which is included in accrued expenses. There was no unrecognized net loss recognized in accumulated other comprehensive income. Net periodic benefit cost included the following components for 2007, 2006, and 2005:
Service cost $ Interest cost Expected return on plan assets Amortization of net loss Net periodic benefit cost $
2007
2006
2005
548,944 555,136 478,934 581,732 524,679 473,264 (656,428) (579,152) (478,707) — — 30,015 474,248 500,663 503,506
Weighted average assumptions used to determine benefit obligations at September 30, 2007 and 2006 were as follows:
2007
2006
Discount rate 5.75%
5.75%
Rate of compensation increase 4.00
4.00
Notes to Consolidated Statements
Weighted average assumptions used to determine net benefit cost for the years ended September 30, 2007 and 2006 were as follows:
a. Cash Flows The Company expects to contribute $552,000 to its pension plan in 2008.
2007 2006
The expected benefits are based on the same assumptions used to measure the Company’s benefit obligation at September 30, 2007 and include estimated future employee service and are as follows:
Discount rate
5.75%
5.50%
Expected long-term rate of return on plan assets
7.50
7.50
Rate of compensation increase
4.00
4.00
Fiscal year ending: Amount 2008
$ 306,670
2009 339,928
The Company’s overall expected long‑term rate of return on assets is 7.50%, which is based on the portfolio as a whole and not on the sum of the returns on individual asset categories. The return is based exclusively on historical returns, without adjustments.
2010 383,238 2011 455,231 2012 552,548 2013-2017 4,351,810
Plan Assets The weighted average asset allocation of the Company’s pension benefits and postretirement benefits at September 30, 2007 and 2006 were as follows:
15. Accumulated Other Comprehensive Income
Pension benefits plan assets 2007 2006
Changes in accumulated other comprehensive income follow:
Asset category:
International equities
21%
20%
Stocks
58
57
Unrealized holding gains arising
Bonds
21
23
100%
100%
Total
$ 6,389,425
during the year
$
2007
2006
7,498,087
1,016,177
2005 7,234,979
Reclassification adjustment for realized gains included in net income
The Company’s investment policies and strategies for the pension plan include target allocations of 15% international equities, 55% stocks, and 30% bonds. The Company’s investment goals are to meet or exceed the Consumer Price Index rate by 5% annually.
41
(4,787,885) (1,956,080)
(1,202,287)
Pension liability adjustment
(163,700)
—
Income taxes
(1,127,676)
377,840
(3,947,646)
1,418,826
(562,063)
2,085,046
$
—
notes to Consolidated Statements
16. Commitments and Contingencies The Company is self insured for healthcare up to $200,000 per participant and $10.1 million in aggregate. The Company has purchased stop-loss insurance for amounts in excess of these limits. The Company also retains the risk for specific workers’ compensation losses in varying amounts ranging from $250,000 to $500,000. The Company’s insurance carrier assumes losses incurred above the retained amounts. The Company has established a liability for workers’ compensation claims incurred but not reported. Of the Company’s total revenue, 53%, 60%, and 63% for 2007, 2006, and 2005, respectively, is contracted services, which is substantially all with the U.S. Government. Such revenue is subject to ongoing and periodic performance audits that could ultimately result in reductions of revenues. In management’s opinion, future adjustments to revenues, if any, will not materially affect the Company’s financial position, results of operations, or liquidity. In the ordinary course of business, the Company has provided several third parties irrevocable letters of credit pursuant to the terms of the underlying agreements. At September 30, 2007, these letters of credit were still outstanding and totaled $10,295,377. If a draw is requested on a letter of credit, payment would automatically be advanced from the line of credit collateralized by marketable securities (see note 9). As a result, the amount available to be drawn on this line of credit is reduced by the amount of outstanding letters of credit.
17. Discontinued Operations On January 3, 2003, the Company sold the assets of Arctic Utilities, Inc. (AUI). The results of AUI’s operations have been reported separately as discontinued operations in the Company’s consolidated statements of income for the years ended September 30, 2006 and September 25, 2005. There was no activity related to AUI for the year ended September 30, 2007 As of June 2007, Qivliq LLC, a wholly owned subsidiary of NANA Development Corporation, elected to discontinue operations in Lynxnet and Cazador Apparel LLC (Cazador). In July, Lynxnet executed a mutual release from its sole contract, which resulted in its discontinued operations. On July 1, 2007, Cazador entered into a partnering agreement whereby significant operations and personnel were transferred to the partner company, which began the formal process of discontinuing its plant operations in Puerto Rico. As of the date of this report, a sales agreement is in the process of being finalized. A loss from operations was reported for Lynxnet of $1,998,638 and $1,073,850 for 2007 and 2006, respectively. There were no operations related to Lynxnet for 2005. A loss from operations was reported for Cazador of $4,188,319, $3,368,655, and $1,083,909 for 2007, 2006 and 2005, respectively.
The Company is aware of contamination at a former mining site on land conveyed to the Company under the Alaska Native Claims Settlement Act. The contamination occurred prior to the conveyance. During 2007, the Company engaged an environmental consulting firm to complete an assessment of the site and provide an estimate of the costs to cleanup the site. The estimated cleanup costs are considered by management to be insignificant. If adequate response actions are taken, the State of Alaska’s involvement will be limited to reviewing and approving cleanup plans and reports, monitoring the progress of cleanup activities, and providing guidance as necessary. The Company will be liable for all costs associated with the State’s oversight activities. In addition, the Company may be involved in other legal actions, contract disputes, regulatory issues, and employment matters incidental to its operations. In the opinion of management, the ultimate liability, if any, of such actions will not materially affect the Company’s financial position, results of operation, or liquidity.
James Gregg
Raymond Lee
MANAGEMENT DISCUSSION & ANALYSIS
Corporate Overview
Financial Overview
NANA Regional Corporation, Inc., (NANA or the Company) was formed in 1972 as one of the 13 Regional Native Corporations created as a result of the Alaska Native Claims Settlement Act (ANCSA). NANA’s portion of the ANCSA settlement included 2 million acres of land and approximately $44 million. NANA is now owned by over 11,000 Iñupiat shareholders, descended from families living in Northwestern Alaska.
During fiscal year 2007 (FY 07) NANA’s consolidated total assets grew by 41.4% to $645.2 million from $456.4 million at the end of fiscal year 2006 (FY 06).
Shareholders’ Equity Shareholders’ equity represents all of NANA’s recorded assets, minus the amounts the Company owes others. Shareholders’ equity was $292.2 million at the end of FY 07, up 87.9% from $155.5 million at the end of FY 06. Shareholders’ equity was $124.8 million at the end of FY 05. The largest portion of the FY 07 and FY 06 increases ($118.4 and $29.5 million, respectively) is due to recording assets representing future tax savings related primarily to depletion deductions from the mining activity at Red Dog Mine. Other increases resulted from changes in the market value of marketable securities and continued collective income growth in the Company’s operating businesses. The Company recorded record earnings of $37.4 million during 2007. Of that, $20.5 million was distributed to shareholders as dividends in November 2007.
NANA Development Corporation (NDC), a wholly owned subsidiary of NANA, is responsible for overseeing the business interests of the Company. NDC operates as a managed holding company with operating subsidiaries throughout the United States. These subsidiaries operate in the following business segments: • Contracted services; • Hospitality and tourism; • Professional and management services; and • Oilfield and mining support In addition, NANA generates passive income from the following sources: • Investment income from marketable securities; • Natural resource royalty income net of sharing with other regional corporations; and • Natural resource 7(i) income received from other regional corporations.
millions millions 645.2645.2
600 600
300 300
20
20
15
15
10
10
292.2 292.2
250 250
500 500
200 200
456.4456.4
400 400 381.8381.8 300 300
381.3381.3
150 150
298.7298.7
252.7252.7 200 200
100 100
100 100 0
PROF PR
TOTAL SHAREHOLDERS' EQUITY TOTAL SHAREHOLDERS' EQUITY
TOTAL ASSETS TOTAL ASSETS millions millions
0 20052005 Current AssetsAssets Current
20062006
20072007
50
50
0
0
155.5 155.5
9.4
124.8 124.8
20052005
20062006
20072007
5
5
0
0
200
Total Assets Total Assets
43 NATURAL RESOURCE EBITEBIT NATURAL RESOURCE
MARKETABLE SECURITIES MARKETABLE SECURITIES PORTFOLIO EBITEBIT PORTFOLIO
HO
MD&A TOTAL SHAREHOLDERS' EQUITY
645.2
300 250 200 150 100 50 0
07
ets
8
6
4
2
8.1
2005
2006
2007
This segment reported EBIT of $21.2 million in FY 07, a 33.0% decrease from EBIT of $31.6 million in FY 06. FY 06 EBIT were 51.0% higher than the $20.9 million in FY 05. Although FY 07 EBIT decreased, this segment continues to be a significant part of NANA’s strategic business plan.
CONTRACTED SERVICES EBIT millions 35
31.6
25 20
21.2
20.9
15 10 5 0
0 2007
NANA owns a controlling interest in four management companies whose 7.4 subsidiaries are contract service providers: Akima Management Services, Inc. (Akima) located in Anchorage and Charlotte, North Carolina; Qivliq, LLC 6 (Qivliq) located in Anchorage, with significant operations in Fairfax, Virginia; KPSG, LLC (KPSG) located in Colorado Springs, Colorado; and Akmaaq, LLC 4 located in Anchorage, Alaska. Earnings before interest and taxes (EBIT) from 3.6 this segment have increased in each of the past three years. To create an ongoing pipeline of growing profitable companies, NANA has established entities that are 2 working through their “start-up” period. Akima, Qivliq, and KPSG are profitable 1.4 Akmaaq is still in a startup period and is focused on securing a and stable. sufficient revenue base to become profitable and stable. 0
30
2 with $47.7 million, $31.0 million Operating cash flows continue to be positive and2.9 $5.1 million in cash provided from operations during FY 07, FY 06 and 1 FY 05 respectively.
2006
millions Contracted Services
8
4
4.1 The Company maintains a central treasury with its primary lender. The central treasury aggregates existing idle cash to pay down the balance on the lines of 3.3 3 3.2 5.7 credit.
2005
OILFIELD & MINING SUPPORT Results ofEBIT* Operations
HOSPITALITY & TOURISM EBIT
PORTFOLIO EBIT At September 30, 2007 and 2006 NANA had lines of credit millions available totaling millions $120 million and $100 million, respectively. The outstanding balance on lines of 5 credit increased by .8% from $74.4 million in 2006 to $75.0 million in 2007.
0 2007
20
In order to continue growing at the current pace, NANA needs additional 292.2 working capital to invest in our businesses. That capital can come from only two sources, income earned but not paid out as dividends or additional borrowings 16.3 15 from lending institutions. NANA’s lending institutions continue to increase our credit facilities as long as NANA continues to grow profitably; however, 11.8 10 in addition to borrowings, NANA must retain a significant portion of earned 155.5 income to achieve our strategic growth objectives.9.4 NANA’s management believes 124.8 the Company is capable of funding future cash requirements with the cash 5 generated from business operations, and with careful use of established lines of credit. NANA’s current assets including its investment portfolio comprise 59.1% of NANA’s total assets. Current assets are 0defined as cash and property of the Company that2006 is expected2007 to be converted to cash within one2006 year. Continued 2005 2005 2007 growth in NANA’s subsidiaries resulted in a 40.9% increase in consolidated accounts receivable from $178.9 million in 2006 to $252.0 million in 2007. Total current assets increased 27.7% from $298.7 million in 2006 to $381.3 million by the end of 2007. This increase was greater than the increase in current liabilities and lines of credit which increased 21.0% from $246.5 million to $298.2 million. MARKETABLE SECURITIES
BIT
56.7
Liquidity &millions Capital Resources
PROFESSIONAL & MANAGEMENT SERVICES EBIT* millions
2005
2006
2007
2005
2006
2007
45.2
MD&A TOTAL SHAREHOLDERS' EQUITY millions
300 250 200 150 100
0
s
8
6
4
2
During the past three years the number of available rooms in the Anchorage market has increased significantly due to an increase in the number of new hotels. This has put downward pressure on room rates and occupancy. However, because of efficient 0 management, EBIT from this increasing 28.9% 2005 2006 2007segment turned around 2005in FY 07 2006 2007 to $4.1 million from $3.2 million in FY 06. FY 06 income was 4.2% lower than FY 05 income at $3.3 million. The Anchorage properties continue to perform consistent with expectations based on operating budgets established. TOTALRevenues ASSETS and EBIT for 2008 are expected to be consistent with 2007. millions
MARKETABLE SECURITIES PORTFOLIO EBIT millions
400
381.8
8
8.1
300 200
6
381.3
3.3
4 0
3.2
50
2006
1
Current Assets
2007
2006
30
11.8
10
155.5 31.6
6
4
9.4
25124.8
2
5
20
21.2
20.9
1.4
Total Assets
2006
2007
2005
5
2006
60
56.7
8
50
45
40
6
2005
2007
2007
MARKETABLE SECURITIES PORTFOLIO EBIT millions
NATURAL RESOURCE EBIT millions
2006
*Includes earnings from both consolidated and unconsolidated entities
2005
2007
0
0 2006
0 2005
2007
8
35
102005
0 2005
16.3
15
0 2005
0
OILF
15
2
2.9
PROFESSIONAL & MANAGEMENT SERVICES EBIT* millions
CONTRACTED SERVICES EBIT millions
100
100
20
250
4.1
252.7
1.4 this business segment’s earnings increased 37.5% to $16.3 million In total, in FY 07 from $11.8 million in FY 06 which was a 25.5% increase from earnings of $9.4 million in FY 05. 2005 2006 2007
millions
150
298.7
3
5.7
2
4
EBIT from this segment has increased steadily from FY 05. Professional and 3.6 income increased in FY 07 primarily from our services Management Services provided to the oil and gas industry.
TOTAL SHAREHOLDERS' EQUITY
200
456.4
5
This business segment includes NANA Management Services, LLC (NMS); 7.4 NANA Colt Engineering, LLC (NANA/Colt); DOWL Engineers, LLC (DOWL); WHPacific, Inc (WHPacific), formerly ASCG, Incorporated, and WorkSafe, Inc.(WorkSafe).
292.2
HOSPITALITY & TOURISM EBIT millions
500
0
OILFIELD & MINING SUPPORT EBIT* millions Professional & Management Services
300
645.2
600
BIT
2007
20
This segment consists of five hotels located in the state of Alaska. In Anchorage, 292.2 NANA owns a sixty percent interest in the Courtyard, the SpringHill Suites and 16.3 the Residence Inn. In addition, NANA owns 15 a minority interest in the SpringHill Suites in Fairbanks. NANA owns one hundred percent of the Nullagvik hotel located in Kotzebue, Alaska. All of NANA’s hotels are managed by NANA 11.8 Management Services, LLC155.5 whose earnings are included10with the Professional & Management 9.4 Services 124.8 business segment. 5
50
7
56.7
Hospitality & Tourism
PROFESSIONAL & MANAGEMENT SERVICES EBIT* millions
8.1
CON
HOSPITALITY & TOURISM EBIT millions 35
5
30 4
4.1
25
TOTAL SHAREHOLDERS' EQUITY
TOTAL ASSETS millions
MD&A
millions 645.2
600
20
300
PROFESSIONAL & MANAGEMENT SERVICES EBIT* millions
250 500
381.8
Investment155.5 Portfolio Management 10
381.3
150
298.7 252.7
200 NANA’s primary active consolidated subsidiary in the oilfield and mining support business segment is NANA Oilfield Services, Inc. (NOSI), located in 100 Deadhorse, Alaska. NOSI is a provider of petroleum products and related 0 services to oilfield service companies and mining companies in Alaska. 2005
2006
2007
NANA has ownership interest in several other entities providing contract Current Assets Total Assets support to the oilfield and mining industries. These companies include: NANA Lynden Logistics, LLC, which provides trucking and other transportation services to the Red Dog Mine; NANA Major Drilling, LLC, which has contracts for exploratory drilling for mining operations in Alaska; and Arctic Caribou Inn, Ltd. which is an oilfield camp located in Deadhorse, Alaska.
Marketable 124.8 Securities Portfolio Management
to $7.4 million from $3.6 million in FY 06 60 which was a 150.7% increase from EBIT of $1.4 million in FY05. 56.7
MARKETABLE SECURITIES PORTFOLIO EBIT millions 8
8.1
4
8
OILFIELD & MINING SUPPORT EBIT* millions
10
2
30 4
2006
2007
10
2006
3.6 2
2005
Art Douglas 2006
2007
*Includes earnings from both consolidated and unconsolidated entities
5 0 2005
2007
4
2007
15
0 2005
25 20
1
6
0
3.2
2.9
0 2005
1.4
3.3
2
7.4 16.3
4.1
9.4
0
0
35
5
3
5.7
2
HOSPITALITY & TOURISM EBIT millions
6
20
17.0
4
9.4
NANA’s investment income is realized from dividends, interest, and the gains 5 that occur when portfolio managers sell securities. The timing of sales cannot be 50 predicted and the profit NANA records is determined by market conditions at the 0 time of the transactions. For the year ended 0 September 30, 2007, NANA had realized of $8.1 million. This2005 was a 41.2% increase 2007 2005 investment 2006 earnings 2007 2006 over earnings of $5.7 million in FY 06, which in turn was a 98.1% increase over earnings of $2.9 million in FY 05. Management expects 2008 to be a volatile year for marketable securities, but overall expects investment earning consistent with 2007.
50
Mining activity has increased in the state of Alaska due to significantly 40 increased market prices for both precious and non-precious metals. As a result, management expects both revenue and EBIT for this business segment to 30 continue to increase in 2008.
11.8
100
NATURAL RESOURCE EBIT NANA’s share of EBIT from these business interests increasedmillions 105.5% in FY 07
AGEMENT T*
6
200
456.4
300
Oilfield and Mining Support
16.3
15
400
8
292.2
2006
2007
600 250 500
381.8 300 200
Natural Resource Management
MD&A 200
456.4
400
381.3
150
298.7 252.7
100 50
100
Natural Resources
0 In return, NANA receives a share of natural resource revenues earned by other 2005 2006 2007 they RNCs. These revenues have proven to be unpredictable in the past since are dependent on business decisions made by other RNCs and onTotal the market Current Assets Assets process of the related natural resources. NANA received resource revenues from other regions, net of redistributions totaling $5.1 million, $3.5 million and $2.3 million in FY 07, FY 06 and FY 05, respectively.
NANA’s natural resource income comes from three sources: Red Dog Mine royalties; 7(i) revenues from other Regional Native Corporations (RNCs); and gravel sales and land leases. Net revenue for this segment was $56.7 million in FY 07, up 233.4% over net revenues of $17.0 million in FY 06, which was a 81.9% increase over net revenues of $9.4 million in FY 05. Zinc market prices ranged between 46 and 65 cents per pound in 2005; between 65 cents and $1.70 per pound in 2006; and between $1.70 and $1.30 per pound in 2007. In the next three to five years, management expects market prices of zinc to remain near recent levels. Subsequent to NANA’s fiscal year end, zinc prices have fluctuated between $1.30 and $1.00 per pound.
124.8
0 2005
MA
NATURAL RESOURCE EBIT millions 60
The operating agreement for Red Dog Mine provides advance net smelter royalties to NANA until Teck Cominco Alaska (Teck) had recovered its capital investment plus interest and advance royalties. At the end of FY 07, Teck had recovered all of its capital investment plus interest and recovered all advance royalties paid. In FY 08, NANA will receive a percentage of the net proceeds from the mine instead of net smelter royalties. The amount of net proceeds that the mine generates is dependent on a number of factors including, but not limited to: market prices of zinc, lead and silver; operating costs at the mine site; negotiated terms with refiners; and a number of other factors. While management believes that net proceeds payments will be significantly higher than previous advance net smelter royalties paid in the past, the nature of many of the factors mentioned is extremely volatile and accordingly; management cannot provide reliable estimates for net natural resources revenues for 2008.
56.7
8
50 6
40 30
4
20
17.0 10
2
9.4 0
0 2005
Section 7(i) of the Alaska Native Claims Settlement Act requires that a portion of NANA’s natural resource revenues must be shared with other RNCs. NANA distributed resource revenues to other RNCs totaling $33.6 million, $18.2 million and $9.9 million in 2007, 2006 and 2005; respectively.
2006
2007
Social & Cultural Programs The corporation’s earnings are used, in part, for social and cultural programs of importance to shareholders. Expenditures are made at the direction of the board, and reflect the guidance of committees focusing on education and cultural programs. Expenditures were also made to support other organizations involved in Alaska Native issues of concern to NANA shareholders and the NANA Region.
47
2.9
2005
MD&A Special Note Regarding Forward-Looking Statements
Social & Cultural Net Expenditures
FY 07
FY 06
FY 05
Social & Cultural Committee $
17,663
—
49,840
Language Commission
34,939
33,568
—
Regional Elders’ Meetings
65,836
18,428
32,823
The statements contained in this Management Discussion & Analysis of Financial Condition & Results of Operations that are not purely historical, or that may be considered an opinion or projection concerning NANA or its business, whether expressed or implied, are forward-looking statements. These statements may include statements regarding Management’s expectations, intentions, plans, or strategies regarding the future. All forward-looking statements included in this document are based upon information available to NANA on the date hereof, and NANA assumes no obligation to update any such forward-looking statements. It is important to note that NANA’s actual results could differ significantly from those described in, or implied from, such forward-looking statements, because of, among other factors, continued uncertainty in the Alaskan oil industry, volatility in the worldwide spot-prices of natural resource commodities, stock market performance, and the inability to pass inflation-based cost increases through to customers. Future revenues and earnings are influenced by a number of factors, including those outlined above, which are inherently difficult to forecast. However, NANA believes that it has the competitive and financial resources for continued business success in the markets in which it chooses to operate.
Revenues:
Resource Specialists
150,000
175,000
175,612
268,438
226,996
258,275
231,823
320,028
208,216
Nonprofit Organizations
274,693
115,063
84,717
Camp Sivunniigvik
—
36,586
64,507
$
Expenses: In-Region Donations to Native
Regional Elders’ Meetings
42,008
68,681
54,571
Resource Specialists
692,840
630,489
598,423
Aqqaluk Trust Scholarships
300,000
300,000
300,000
100,000
100,000
100,000
269,964
269,964
269,964
250,000
250,000
250,000
Burial Assistance
181,761
105,673
83,548
Social and Cultural Committee
211,910
189,386
92,395
62,583
100,199
—
Aqqaluk Trust Education Department Administration Aqqaluk Trust 7(i) Scholarship
Endowment
Aqqaluk Trust Other Programs
and Administration
Medical, Disaster, and
Rosetta Stone Language
CD Project
Language Commission
30,259
$
54,503
—
2,647,841
2,540,572
2,106,341
2,379,403
2,313,576
1,848,066 Delores Barr
48
David Swan
board of directors
Chairman Donald G. Sheldon Chairman / Noorvik
Roland Booth Sr. First Vice Chairman / Noatak
Robert (Robbie) J. Kirk Second Vice Chairman / Noatak
Linda Lee Secretary / Shungnak
Mary Sage Treasurer / Kivalina
Levi Cleveland Elder Advisor
Diana Ramoth Selawik
Charlie Curtis Kiana
Eugene Douglas Shungnak
Lester Hadley Sr. Buckland
Raymond Hawley Kivalina
Henry Horner Sr. Kobuk
Rosa Horner Kobuk
Gladys Jones Ambler
Dood Lincoln Kotzebue
Emerson Moto Deering
Ronald Moto Sr. Deering
Gordon Newlin Sr. Noorvik
Luke Sampson At-large
Nellie Sheldon Ambler
Raymond Stoney Kiana
Allen Ticket Sr. Selawik
Harvey Vestal At-large
Grace Washington Buckland
ie s Hea l th y C om m u n it Qua
lit y
of L
ife ill f l u F ents m t i m Com
Nana regional corporation, INC.
p.o. Box 49
Kotzebue, Alaska 99752
tel 907.442.3301
fax 907.442.2866
ed
www.nana.com