OUR PEOPLE, OUR LAND, OUR CORPORATION

Sealaska C

orporation A

nnual Rep

ort

2

007

OUR PEOPLE, OUR LAND, OUR CORPORATION Sealaska Corporation 2007 Annual Report

Sealaska C

orporation A

nnual Rep

ort

2

007


1

From the beginning, Sealaska Corporation

was created to lift our people and their

spirit. From that purpose grew a unique

Corporation rooted in our Native values,

a Corporation that not only provides our

people with economic benefits but carries

our culture into the future.

We are now as we were then. Our people and

our businesses mirror the great diversity

of our country and our past, spread across

the continent like the trade routes of our

ancestors. Our Corporation today supports

shareholders and employees of all cultural

backgrounds—men and women, Native and

non-Native alike. We take pride in the range

and quality of our business, and we celebrate

the many individuals who inspire and shape

everything we do.

This annual report features

work by Alaska Native artist

and Sealaska shareholder

CLARISSA HUDSON. Her works

range from traditional pieces

intended for ceremonial use to

original contemporary pieces

such as the Tlingit World Series

collages featured in this book.

All of Ms. Hudson’s pieces

have been adapted to showcase

Sealaska shareholder and

employee portraits.

IFC (PART OF FRENCH FOLD. SEE OFC FILE)

32

Sealaska Corporation was created for the people, and that original purpose

remains present within all of our businesses and the communities they

support. Across a great diversity of backgrounds, genders and geographies, we

have followed the path of our ancestors—traveling, changing and making use

of available resources in ways that respect and protect our people and our land.

Today these traditions still keep us limber, profitable and sustainable while

our Corporation and our subsidiaries continue to adapt to changes in the

marketplace and the world. Each of our businesses increasingly leverages

its capabilities, leading to leaner operations and a host of new business

opportunities. For example, Sealaska Timber Corporation continues to

innovate by capturing opportunities in global logistics, marketing and

manufacturing. Many of our businesses are absorbing new green practices

and products in line with both contemporary demand for environmental

responsibility and our Native values.

Last year was a banner year. We exceeded expectations with net profits

greater than $30 million. The majority of our operations demonstrated

sustainable growth; our investments earned strong returns, and our

December 2007 shareholder distribution was larger than forecasted.

In light of today’s struggling markets, we cannot expect to achieve these

exceptional results again in 2008. But despite the downturn in the economy,

we are well positioned to capture opportunities as the market environment

turns around. In the coming year, we look forward to serving our people—

enrolling the next generations of shareholders, expanding our businesses

and benefitting the many diverse people who are strengthening our Native

Corporation and our culture for generations to come.

Last summer, Sealaska ushered in a historic era with a vote to enroll Native descendants and Leftouts into the Corporation. Since then we have welcomed more than 2,200 new enrollees, who are bringing a renewed vitality to all aspects of our businesses and Native culture.

This report signals the beginning of our annual election process leading to the first annual meeting for many of our new shareholders. All shareholders will benefit by reading the material contained in this report to understand what contributed to our success in 2007 and what will guide us moving forward.

As our shareholder base grows so does Sealaska. With this growth comes an increased responsibility to honor our people, the shareholders and employees, who are the essence of our company. In 2007 we adopted a new vision that reflects that responsibility: Grow the company as a Native institution that maximizes its cultural capital by embedding Alaska Native values into its daily operations. With this vision in mind, Sealaska remains committed to hiring quality individuals to work and grow within our businesses.

Chris E. McNeil, Jr. President and Chief Executive Officer

Albert M. Kookesh Board Chair

Chris E. McNeil, Jr.

Albert M. Kookesh

TO OUR SHAREHOLDERSTO OUR SHAREHOLDERS

4 SEALASKA CORPORATION 5

At Sealaska headquarters, longtime

financial administrative assistant

kATe kOkOTOvICH is known for

her positive energy and initiative.

The middle child of nine and a

granddaughter of Judson Brown,

kate was born 13 days after the

shareholder enrollment deadline

in 1971. Ineligible for original

enrollment because of her birth-

date, she was gifted shares by her

family. In 2007, however, with the

passing of the historic vote, she

became eligible to enroll for

additional shares and now enjoys

the benefit of descendant stock

ownership as well.

TlingiT and Tsimshian Raven Coho L’uknax.ádi

More than two decades ago, Sealaska’s Permanent Fund was created to

provide our shareholders with meaningful and consistent dividends over

time. Since then, it has been actively managed by Sealaska to ensure its

lasting strength and stability for generations to come.

The Permanent Fund is invested for the long-term to provide consistent

dividends to shareholders, while the Investment and Growth (I&G)

portfolio is managed for the medium- to short-term to support

operational needs and new investments. The 2007 returns for both

funds significantly outperformed their benchmark or marketplace goals,

and the Permanent Fund is performing in the top one percentile of all

similary constructed portfolios.

Even in times of volatile markets, the mere existence of these assets

strengthens the Corporation. The Corporation does not change its stock

market positions based on market volatility; rather, it focuses on long-

term decisions to lower overall risk. This long-term approach to fund

management preserves these assets for future generations.

The Permanent Fund began 2007 with a principal balance of $99.2 million

and earned approximately $13.2 million over the course of the year. Based

on a five-year average of returns, shareholder dividends paid in April and

December 2007 totaled $6.7 million ($4.13 per share). After these dividends

were paid, the Permanent Fund closed the year with a $105.7 million

balance—a remarkable 13.2 percent return for the year.

INVESTMENTS SECURE LONG-TERM STABILITY

76

The land is the spirit of our people. Throughout our history, it has guided

our Native culture and values. Today, as we work to fulfill the promise of the

Alaska Native Claims Settlement Act (ANCSA), we continue to manage all

our natural resources in order to preserve our culture, honor our values and

provide a lasting benefit to our people.

In an ongoing effort to protect our cultural properties, historic sites and

sacred places, we drafted legislation to secure Sealaska’s final ANCSA land

entitlements. Introduced to Congress in 2007 with bipartisan support, this

legislation would allow Sealaska to finally gain control of valuable traditional

lands better suited to fulfill the promise made by the federal government in 1971.

Referred to as Haa Aaní, meaning “Our Land” in Tlingit, the phrase is also

translated Íitl’ gyaa Tlagáay (Haida) and Na Yuubum (Tsimshian).

Forest management or stewardship is an integral part of the Natural

Resources Department and one of the Corporation’s primary responsibilities,

and Sealaska’s silviculture program is essential to our sustainability and

regional employment. Sealaska’s stewardship programs facilitate management

of young forests and fund research to ensure complete protection of the forest

ecosystem. Together, these efforts sustain our natural resources, jobs and

career opportunities that provide significant support to the Southeast Alaska

economy and honor our Native values.

As of 2007, the Natural Resources Department obtained $1 million in forest

planning and silviculture grants in support of a variety of projects, including

monitoring of stream and deer habitats. These projects reflect our longtime

investment in science; their results are proven and positive.

NATHAN SOBOLeff, a planner

for the Natural Resources

Department and a Sealaska

shareholder, works with a number

of the Corporation’s Alaska-based

subsidiaries and departments to

integrate Sealaska’s lands into an

overall land use plan. He also works

on issues of forest certification

standards and initiates research

with the goal of improving forest

management strategies. A former

Sealaska scholarship recipient,

Nathan’s advocacy over the past

year on behalf of descendants

demonstrates his capacity as

a future leader of our people.

TlingiT and haida

Raven dog salmon L’eeneidi

STEWARDSHIP PROTECTS OUR NATURAL RESOURCES


Born and raised in Mexico,

MARICHUy ANDRADe has worked

for Nypro kánaak Guadalajara for

the past nine years. As a materials

buyer and executive assistant to

the general manager, Marichuy

directs communications, places

orders for materials and negotiates

shipments. Proud to be a part of

the Sealaska family, Marichuy

appreciates the work environment

promoted by Sealaska and admires

the emphasis the Corporation

places on its cultural heritage:

“for me, this should be a must

for everyone’s own heritage.”

Sealaska’s strong manufacturing businesses are strengthened by the great

diversity of our employees. Standing together across North America, we

are building partnerships and driving success as leaders in diversity supply.

Nypro Kánaak is a joint venture between Sealaska and Nypro, Inc., a global

leader in plastics design and manufacturing. It operates three ISO-certified

plants in Mexico, Iowa and Alabama—all of which continue to provide

plastics and manufacturing solutions to major customers in the consumer,

electronics, telecommunications and packaging markets. Our expertise,

operational excellence and an increase in minority certifications are

stimulating considerable growth at all three Nypro Kánaak locations.

Synergy Systems provides innovative manufacturing and product

development services specializing in fast-turn, high-precision CNC

machining (use of computer numerical controlled machines), rapid

prototyping and long-run production. In 2007, Synergy was named as the

US Small Business Administration Region 10 Subcontractor of the Year

and the 2007 Emerging Minority Business of the Year by the University of

Washington’s Michael G. Foster School of Business.

Also in the Northwest, Olympic Fabrication is a leading manufacturer of

welded components and assemblies for the aerospace and nuclear industries.

In its first full year under Sealaska ownership, Olympic Fabrication worked

to revitalize its operations, equipment and customer relationships.

GROWTHMANUFACTURING IGNITES

1110

After a 20-year career with the City

of Seattle, JAN PeeLe sought a

new job opportunity within the

Native community. She found that

community at Sealaska Timber

Corporation where she’s been

infusing her enthusiasm and love

of her people ever since. An active

grandmother of five, Jan has set

an example for the next generation

as a dancer with the Haida Laas

dance group and as a veteran

delegate for the Central Council

of Tlingit and Haida Indian Tribes

of Alaska.

TlingiT Eagle Wolf Kaax’useedeetaan

For more than 28 years, Sealaska Timber Corporation (STC) has been a

major economic driver of the Alaskan economy. Built on Sealaska’s long-time

stewardship of ancestral lands, STC is strengthening its presence in the

timber supply chain all over the world.

STC continues to transform. Though it once relied almost entirely on

company-owned timber activities, STC generated 35 percent of its net income

in 2007 from expanded and new business activities, such as logistics, shipping

and marketing of non-ANCSA timber. This improved diversification is vital for

STC’s continued success and strategic future.

While it reduced its timber harvest from 70 MMbf (million board feet) in

2006 to 50 MMbf in 2007, STC continues to maximize revenues through

supply chain improvements, market specialization, capital management and

cost control. STC remains a significant presence in primary sales territories

in Asia, Canada and the Unites States.

Alaska Coastal Aggregates (ACA) is another wholly owned subsidiary of

Sealaska and is responsible for managing large deposits of engineering

specification grade aggregate found in the Corporation’s 560,000 acres of

subsurface estate. In order to maximize use of that estate, ACA cultivates

opportunities and strategic partners in the mining industry, including sand,

gravel, limestone, iron, copper and gold.

STRATEGIC DIVERSIFICATION MAXIMIZES REVENUES


Through her unwavering

commitment to developing new

business for Sealaska, shareholder

JANICe HOTCH is breathing vitality

into the future of our people and our

culture. As manager of the Office

of Diversity Solutions, Janice travels

around the country connecting with

potential clients and educating

customers on Sealaska’s superior

capabilities and unique status as

a Native Corporation.

for almost a decade, Janice

has served as an employee and

ambassador for our Corporation.

“I enjoy representing Sealaska

and having the privilege of

interacting with many dynamic

individuals in the commercial

and government arenas.”

TlingiT and Tsimshian

Raven Coho L´uknax.ádi

Our people have a long history of expertise in managing the land. Sealaska

Environmental Services (SES) was created four years ago to leverage that

expertise and provide environmental remediation, consulting, management

and construction services to other private and public entities.

SES grew tremendously in 2007. Revenue increased 34 percent, and the

company nearly doubled its total number of employees, hiring 14 new

people. SES was also one of only four West Coast winners of an

environmental services contract with the US Navy.

Last year Sealaska acquired 51 percent of Kingston Environmental Services,

a Kansas City-based environmental firm. Kingston provides a range of

environmental services primarily in the Midwest and along the Gulf

Coast, focusing on cleanup of contaminated sites through environmental

remediation, property audits and disaster response. Together, SES and

Kingston have broadened their expertise and are taking on increasingly

complex projects.

Sealaska’s other services subsidiary, Managed Business Solutions (MBS)

employs more than 300 technical professionals who provide high-quality

information technology solutions across the globe. The company has a 90

percent retention rate among its clients and has sustained double-digit

growth every year since its inception. In 2007, MBS gained its US Small

Business Administration 8(a) certification and Sealaska increased its

ownership from 51 percent to nearly 91 percent.

INTO RAPID GROWTHSERVICES CONVERT EXPERTISE

1514

In June of 2007, Sealaska shareholders voted to enroll descendants and

Leftouts into the Corporation, allowing eligible Alaska Natives to enjoy

participation in Sealaska. The historic passage of this expanded membership

is now creating a stronger collective voice for the future well-being of our

people and our culture.

As of spring 2008, more than 2,200 people have been issued new stock,

and we hope all current shareholders will encourage their eligible friends

and family to apply. New and existing shareholders alike share a profound

responsibility to vote on Sealaska’s leadership and direction, protect our

Native rights and honor our Native values.

This is a time of celebration. As we welcome the next generations of Native

leaders into the Corporation, we are changing the face of our future. We are

uniting our Elders, our young people and those yet to be born in a vision of

lasting growth and cultural prosperity.

Born and raised in yakutat,

GARReTT JAMeS became a

shareholder when he was gifted

shares by his father upon his

high school graduation. Also

a shareholder descendant, he

received additional stock in

2007. Garrett began his career

at Sealaska as a communications

intern. Garrett went on to intern

in Massachusetts with Sealaska’s

partner, plastics manufacturer

Nypro, Inc., before earning his

degree in business management

in Utah. Garrett has taken full

advantage of the employment

opportunities connected with

Sealaska and today works to

cultivate new business at Nypro

in North Carolina.

TlingiT Eagle Thunderbird Shangukeidí

HISTORIC ENROLLMENT WELCOMES NEW SHAREHOLDERS


Just as our Native values drive the success of our business, the success of

our business supports the preservation of our Native culture. Based on this

reciprocal exchange, Sealaska Heritage Institute (SHI) was founded in 1980

to administer language and culture programs to perpetuate and enhance the

Tlingit, Haida and Tsimshian cultures. Its language programs and innovative

uses of technology have set the bar among Native heritage organizations

throughout the country.

In 2007, SHI sponsored a series of landmark cultural endeavors throughout

the nation. It helped the Klawock and Craig tribes take custody from the

US Forest Service of 10,300-year-old human remains—the oldest human

remains ever found in Alaska and Canada. SHI also supported a production

of Tlingit Macbeth at the National Museum of the American Indian in

Washington, D.C., as well as a carving of a traditional cedar canoe, which

will be exhibited at the Smithsonian’s National Museum of Natural History.

In addition to its ongoing development of Tlingit, Haida and Tsimshian

dictionaries, SHI offered a variety of language classes in 2007 for students

and teachers, provided three new interactive language tools online and

invested in the future of our people by awarding $563,000 in scholarships from

Sealaska. SHI also produced a major 18-unit series of language and culture

lessons, which were distributed to every school district in Southeast Alaska,

and sponsored the third-annual Latseen Leadership Training and the first-ever

Latseen Basketball Camp for kids.

Sealaska Corporation contributed $1.2 million in cash and in-kind services to

SHI operating funds last year. Leveraging that support, the Institute raised an

additional $1.4 million in grants, donations and sales.

Since 2002, kATHy Dye has

worked for the Sealaska Heritage

Institute as the director of media

and publications. Her work at

SHI incorporates her creativity

and passion for Native culture

and language, and she enjoys the

association with Alaska Native

Corporations because they comprise

a Native land-claims model unique

in the United States. “One of the

best things about being part of the

Sealaska community is I’m part of

something that is making history.”

In 2004, kathy was deeply

honored to be adopted into the

eagle Shangukeidí clan. She was

given the name Keijoon.

ENDEAVORSLANDMARK CULTURAL

18 19

Left to Right:

Sidney C. Edenshaw Hydaburg, Alaska

J. Tate London Seattle, Washington

Jodi M. Mitchell Juneau, Alaska

Joseph G. Nelson Juneau, Alaska

Left to Right: Byron I. Mallott Yakutat, Alaska

Albert M. Kookesh Chair; Angoon, Alaska

Clarence Jackson Sr. Kake, Alaska

Rosita F. Worl Vice Chair; Juneau, Alaska

Jacqueline L. Johnson Fairfax, Virginia

Left to Right:

Marjorie V. Young Craig, Alaska

Edward K. Thomas Juneau, Alaska

Patrick M. Anderson Anchorage, Alaska

Ethel M. Lund Juneau, Alaska

SEALASKA BOARD DIRECTORS

20 21

Left to Right:

Richard J. Rinehart Vice President and Chief Financial Officer

Sam Landol Chief Operating Officer

Anthony Mallott Treasurer and Chief Investment Officer

Chris E. McNeil, Jr. President and Chief Executive Officer

Nicole Hallingstad Vice President Corporate Secretary and Human Resources

Richard P. Harris Executive Vice President

Left to Right:

Mark Shirley Internal Auditor

Doug Morris Director of Accounting and Corporate Controller

Katherine Eldemar Assistant to the President and CEO

Ron Wolfe Natural Resources Manager

Vicki Soboleff Headquarters Controller

Left to Right:

Ella Bennett Shareholder Records Manager

Russell Dick Group Operations Director

Rob Johnson Information Technology Manager

Todd Antioquia Director of Corporate Communications

Nathan McCowan Operations Controller

Ken Southerland Human Resources Manager

not pictuRed:

Budd Simpson, Corporate Counsel; Linda Wynne, Records Manager

SEALASKA CORPORATE OFFICERS SEALASKA MANAGEMENT

2322

Left to Right:

Julio Oropeza Group General Manager, Nypro Kánaak

Derik Frederiksen General Manager, Sealaska Environmental Services

Bill Strafford General Manager, End-2-End Enterprises

Tom Cason President, Kingston Environmental Services

Damon Pistulka President and General Manager, Synergy Systems and Olympic Fabrication

Left to Right:

Ed Davis Director of Business Development, Sealaska Timber Corporation

Kenneth Feldman General Manager, Nypro Kánaak Iowa

Ed Rivera Director of Sales and Marketing, Nypro Kánaak

Wade Zammit President and CEO, Sealaska Timber Corporation

Richard Noe President and CEO, Managed Business Solutions

Kenneth Fair General Manager, Nypro Kánaak Alabama

SEALASKA’S SUBSIDIARIES

not pictuRed:

Dean McDonald, General Manager, Alaska Coastal Aggregates

NATURAL RESOURCES

Sealaska timber corporation

Alaska coastal Aggregates

SERVICES

Sealaska environmental Services

Kingston environmental Services

Managed Business Solutions

MANUFACTURING

nypro Kánaak Alabama

nypro Kánaak guadalajara

nypro Kánaak iowa

olympic fabrication

Synergy Systems

SEALASKA SUBSIDIARY MANAGERS

25

2007 IN SUMMARY

By embracing new opportunities in the marketplace—notably the manufacturing, information technology and environmental services sectors—the Corporation showed another strong financial performance in 2007. Backed by a sound investment strategy, we continued to provide solid economic, social and cultural benefits to our shareholders.

Looking ahead to 2008, we foresee an increasingly tough economic climate. Sealaska is in a strong position to respond to this challenge, and we’re taking steps now to secure our future. We’re actively managing potential risks to our investments, and we continue to take an innovative approach to securing new business.

For example, we’ve shifted our plastics manufacturing focus to the recession-tolerant consumer packaging sector. By seeking out minority business certifications, we’re expanding our customer base and strengthening our position in the global marketplace. Further illustrations of Sealaska’s strategic business tactics appear throughout this section of the annual report.

Sealaska is also keeping pace with the burgeoning worldwide demand for environmentally sound products and services. In the tradition of our Alaska Native people, we continue to be active stewards of the forests, land and watersheds that have been our home for millennia. This tradition of stewardship finds a natural home in all our business operations—from environmental remediation services to industrial recycling programs, wise forest management practices and more.

2003 2004 2005 2006 2007

Total revenues $ 161,085 $ 151,799 $ 144,321 $ 178,609 $ 203,234

Net income 33,131 16,190 25,271 41,159 30,037

Total assets 266,319 276,012 289,360 328,486 360,944

Shareholders’ equity 194,777 206,029 224,479 256,155 273,652

Long-term bank debt 14,016 14,427 13,433 14,218 21,923

Short-term bank debt 1,412 1,676 1,681 1,736 2,914

Current ratio 2.84 3.25 3.26 3.65 2.75

Bank debt/equity ratio 0.08 0.08 0.07 0.06 0.09

Shareholders’ equity per share 123.66 130.79 142.50 162.61 157.26

Net income per share 21.09 10.28 16.04 26.13 19.29

Dividends per share $3.37 $3.23 $4.33 $6.02 $7.61

Cumulative distributions to shareholders since inception 264,694 272,942 284,040 300,287 323,115

Cumulative Section 7(i) and 7(j) payments $ 242,169 $ 250,924 $ 258,805 $ 261,316 $ 272,358

Dollars are in thousands, except per share amounts and ratios.

Five-year summary of selected consolidated financial data

24

Certain sections of the Annual Report contain forward-looking statements that are based on management’s expectations, estimates, projections and assumptions. Words such as “expects,” “anticipates,” “plans,” “believes,” “scheduled,” “estimates” and variations of these words and similar expressions are intended to identify forward-looking statements, which include but are not limited to projections of revenues, earnings, segment performance, cash flows, contract awards, deliveries and backlog stability. These statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Therefore, actual future results and trends may differ materially from what is forecast in forward-looking statements.

All forward-looking statements speak only as of the date of this report or, in the case of any document incorporated by reference, the date of that document. All subsequent written and oral forward-looking statements attributable to the company or any person acting on the company’s behalf are qualified by the cautionary statements in this section. The company does not undertake any obligation to update or publicly release any revisions to forward-looking statements to reflect events, circumstances or changes in expectations after the date of this report.

The following summarizes

Sealaska’s wide-ranging

enterprises during 2007,

from innovative partnerships

to green practices.

As we continue our work in

2008 and beyond, we look

forward to building a strong

and prosperous future.

Net Income (Dollars in Thousands)

2003 2004 2005 2006 2007

$45,000

$40,000

$35,000

$30,000

$25,000

$20,000

$15,000

$10,000

$5,000

$0

Equity (Dollars in Thousands)

2003 2004 2005 2006 2007

$300,000

$250,000

$200,000

$150,000

$100,000

$50,000

$0

REVENUE (Dollars in Thousands)

2003 2004 2005 2006 2007

$250,000

$200,000

$150,000

$100,000

$50,000

$0


MANAgEMENT’S dISCUSSION ANd ANALYSIS OF

FINANCIAL CONdITION ANd RESULT OF OPERATIONS

I. OVERVIEw Of REVENUEs INcOmE aND DIsTRIbUTIONs

During 2007, the Corporation reported net income of $30.0 million from revenues of $203.2 million. In 2006, net income was $41.2 million from revenues of $178.6 million.

Dividends and ANSCA Section 7(j) payments of more than $26.8 million were distributed to shareholders and Village Corporations in 2007. In 2006, distributions were $18.8 million. Further details on dividends and shareholder equity are stated in section II(C).

Revenue and income were derived from the following sectors:

A. Manufacturing: revenues $78.0 million, income $1.2 million before minority interests. (2006 revenues were $65.2 million and income was $1.8 million before minority interests.) Sealaska’s manufacturing revenues are derived from: (1) the joint ventures between Sealaska’s wholly owned manufacturing subsidiary Kánaak Corporation and its partner Nypro, Inc., which, in 2007, generated revenues of $64.0 million and income of $4.0 million; (2) Kánaak Corporation’s wholly owned subsidiary Olympic Fabrication, LLC, which generated revenues of $4.7 million and a loss of $1.3 million; and (3) Sealaska’s wholly owned subsidiary Synergy Systems, Inc., with 2007 revenues of $9.3 million and a loss of $1.5 million.

Details on Kánaak Corporation’s joint venture activities with Nypro, Inc., are stated in section IV(A). Details on Olympic Fabrication’s activities are stated in section IV(B), followed by details on Synergy Systems’ activities in section IV(C).

B. Services: revenues $55.5 million, pretax income $4.3 million before minority interests. (2006 revenues were $14.2 million and income was $2.0 million before minority interests.) Sealaska derives services income and revenue from three sources: (1) The wholly owned subsidiary Sealaska

Environmental Services, LLC (SES), with revenues of $10.3 million and income of $649,000; (2) Kingston Environmental Services, Inc., and Kingston Environmental, LLC (Kingston), in each of which SES and Sealaska acquired a 51 percent ownership on June 15, 2007, respectively. Kingston contributed $24.8 million in revenue and income of $2.1 million before minority interests; (3) Managed Business Solutions, LLC (MBS), with revenues of $20.4 million and income of $1.6 million before minority interests.

Details on SES activities are stated in section V(A). Details on Kingston activities are stated in section V(B), followed by details on MBS in section V(C).

C. Natural Resources: revenues $43.1 million, pretax income $7.7 million. (2006 revenues were $60.0 million and income was $9.9 million.) The timber and natural resource revenues and income are derived from (1) Sealaska Timber Corporation (STC), with $42.5 million in revenues and $8.1 million in income before Section 7(i) expense; (2) Alaska Coastal Aggregates (ACA), with $349,000 in revenues and $185,000 in income; and the corporate Natural Resource Department, with $251,000 in revenues and a $565,000 loss.

Details of STC’s activities are stated in section VI(A); details on ACA activities are stated in section VI(B); and details on the Natural Resources Department are stated in section VII.

D. Corporate Operations: consist of income and expenses from the Permanent Fund, Investment and Growth funds, the Valley View Casino, Section 7(i) income and expense, interest expenses, and expenses required to run the corporation and the numerous programs it supports. The highlights of Corporate Operations are:

1. PeRMANeNt FuND INveStMeNtS: income $13.1 million. The 2006 income was $15.5 million. As of December 31, 2007, the Permanent Fund balance was $106 million. Details on Permanent Fund investments are described in section VIII.

2. INveStMeNt AND GROwth PORtFOlIO INveStMeNtS: income $8.8 million. The 2006 Investment and Growth (I&G) income was $18.7 million. As of December 31, 2007, the I&G portfolio balance was $75 million. Details on the I&G portfolio investments are described in section VIII.

3. vAlley vIew CASINO (SAN PASquAl): income $4.0 million. The 2006 income was $3.4 million. Detail on this investment is provided in section VIII(A).

4. INteReSt PAyMeNtS: expense $1.4 million.

5. ANCSA SeCtION 7(i) INCOMe AND exPeNSe: Sealaska received payments of $31.5 million from other ANCSA regional corporations. Sealaska paid out $5.3 million to other ANCSA regional corporations. Detail is provided in section IX.

6. heADquARteRS: Sealaska’s general and administrative (G&A) expense $13.9 million. Detail is provided in section X(A).

e. Outlook: Sealaska Corporation is a solid business institution with a strong balance sheet. Because the Corporation has more equity than debt, we are in a strong position to withstand financial turbulence and invest in new companies that present opportunities to increase shareholder value.

Sealaska holds significant investments in the US equity market. Recognizing that this arena will pose challenges in 2008, we will actively manage the potential risk to our Permanent Fund and other investments. The Corporation does not lower or raise its stock market positions based on market volatility. Instead, we make long-term allocation decisions to lower the overall risk to our investments. As a result of this approach, our funds are outperforming benchmarks as of early 2008.

As part of an ongoing strategy, Sealaska will continue to build on its assets as a minority-owned company in 2008. By securing industrial and minority business certifications, the Corporation is positioned to capture an ever-increasing share of government and commercial business.

Due to the diversity of our products and customer base, the outlook for Sealaska’s manufacturing endeavors is positive. Demand for precision parts from the aerospace and nuclear industries remains strong. Driving the growth in the manufacturing segment is an aging worldwide fleet of aircraft (which will be replaced by projects such as Boeing’s 787 Dreamliner) and a nuclear power industry resurgence.

Another bright spot in the outlook for Sealaska is plastics manufacturing. Two years ago, we shifted our focus to the production of containers, closures and caps for consumer items such as shampoo, soap and detergents. This market tends to better withstand downturns in the economy, and our manufacturing plants are seeing positive results from this strategy.

Sealaska is also actively responding to the growing worldwide demand for environmentally friendly products backed by efficient manufacturing processes. Our plants are enhancing their recycling programs, and we are enlarging the scope of environmental remediation services we offer other customers. Our Natural Resources Department is actively evaluating forest certification programs that would confirm to the international marketplace that our forests are managed to meet cultural, social, economic, ecological and spiritual needs of current and future generations. Because we have the capacity to sequester millions of tons of carbon in our forests, the Corporation is uniquely positioned for the possible emergence of a carbon market.

II. shaREhOlDER bENEfITs aND sERVIcEs

A. Sealaska heritage Institute

Established in 1981, Sealaska Heritage Institute (SHI) is a regional nonprofit organization founded for the Native peoples of Southeast Alaska. SHI administers language and culture programs. Its mission is to perpetuate and enhance the Tlingit, Haida and Tsimshian cultures of Southeast Alaska.

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MANAgEMENT’S dISCUSSION ANd ANALYSIS (cONTINUED)

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In 2007, the Corporation contributed $1.2 million in cash and in-kind services to support the operations of SHI. Using Sealaska donations as leverage, the Institute raised an additional $1.4 million in grants, revenues and sales—more than doubling the original donation.

The institute accomplished the following in 2007:

1. lANGuAGe RevItAlIzAtION

• Producedamajor18-unitseriesof language-and-culture lessons and distributed to and trained all school districts in Southeast Alaska.

• Continueddevelopmentof hardcopyand Internet-based Tlingit, Haida and Tsimshian dictionaries.

• SHIconductednumerousNativelanguageclasses for language students and teachers, including courses on how to use technology to teach languages.

• Createdandpostedonlinethreenationallyrecognized interactive language tools.

2. eDuCAtION

• Distributed$563,000tostudentsattending university, college, voc-tech schools, and language and culture programs sponsored by SHI.

• SponsoredthirdannualLatseen Leadership Training in Juneau, teaching the art of leadership, self-knowledge, and physical and spiritual strength to high school and first-year college students.

• SponsoredinauguralLatseen Basketball Camp for students in Juneau and Angoon, incorporating Tlingit language and culture instruction to 47 students.

• Sponsored“e-fieldtrip”inJuneauwithBall State University and Smithsonian Institution to educate students in thousands of classrooms nationwide about Southeast Alaska Native language and culture.

• Continuedamulti-yearefforttoproduceculturally relevant curriculum for high school students in the core areas of language arts, science and math, working with teachers from various communities throughout the region.

3. CultuRe

• DocumentedonvideoconversationsinTlingit between numerous elders.

• Sponsoredproductionof Tlingit Macbeth at the National Museum of the American Indian in Washington, D.C., produced by Perseverance Theatre in Juneau.

• Sponsoredprojecttocarveatraditional cedar canoe for exhibit at the Smithsonian’s National Museum of Natural History New Ocean Hall in Washington, D.C.

• AssistedKlawockandCraigtribestotake custody of 10,300-year-old human remains from the US Forest Service. The transfer marks the first time a federal agency has transferred remains of such antiquity to a Native American tribe.

• Compiledcoffee-tablestylephotobookof Celebration since inception in year 1982. The book will be released in 2008.

• SponsoredNativewoodcarvingclassesat Floyd Dryden Middle School in Juneau and Juneau Douglas High School; a talk and demonstration on halibut hooks at Dzantik’i Heeni Middle School in Juneau; and a Native art market at the Juneau city museum. Continued operation of a Native art retail website.

• Receiveddonationof fourancientstone objects, marking one of the most significant donations of cultural items received by SHI in recent years.

B. elders’ Settlement trust

The Elders’ Settlement Trust (EST) is a grantor trust created to provide a special economic benefit to original shareholders at the age of 65. Sealaska owns the asset, with

assets and liabilities of the EST reported on Sealaska’s consolidated financial statements (see Notes 4 and 13). The EST assumes a long-term annualized rate of return of 7 percent in order for the trust to meet the estimated benefit payments.

C. Shareholders’ equity (value)

Total shareholders’ equity grew to $273.7 million in 2007 from $256.2 million in 2006. The change in shareholders’ equity is based on net income of $30.0 million reported during 2007, less $12.5 million in dividends paid on Permanent Fund and operations earnings.

The Sealaska Board of Directors distributed more than $26.8 million to shareholders and Village Corporations in 2007. The sources of the distributions were profits from Sealaska’s operations and the Permanent Fund and Section 7(i) subsurface resource payments from other regional corporations. Dividends and Section 7(j) payments of $22.8 million ($16.63 per share) were distributed to shareholders in 2007. Dividends and Section 7(j) payments of $16.2 million ($11.95 per share) were distributed to shareholders in 2006.

D. Shareholder Records

The Shareholder Records Department manages shareholders’ records, stock issuance and transfers, distributions and address updates and assists with stock gifting and processing Elders’ Settlement Trust payments.

In 2007, Sealaska shareholders voted to issue shares to eligible descendants and Leftouts. The Shareholder Records department issued stock to more than 1,600 successfully enrolled shareholders in 2007. The enrollment was supported by development of Sealaska’s new Shareholder Information System (SIS), which helps ensure accuracy and maintains heightened security of shareholders’ records.

The number of common stock shares outstanding at December 31, 2006, and 2007 is 1,575,276 and 1,740,076

respectively. On June 23, 2007, Sealaska’s shareholders authorized the issuance of two additional classes of common stock without consideration. Class D stock is issuable to Alaska Natives born after December 18, 1971, who are 18 years of age or older, are lineal descendents of an original Sealaska shareholder and meet certain other requirements. Class L stock is issuable to Alaska Natives born before December 18, 1971, who were eligible to enroll in Sealaska Corporation in 1971 (pursuant to ANCSA) but were not so enrolled and who meet certain other requirements. 162,600 shares of Class D stock and 2,200 shares of Class L stock were issued in 2007.

The financial impact of enrolling descendants on future distributions depends upon the number of eligible descendants who enroll. Having more shareholders will mean that dividends will be distributed among a larger number of individuals and may result in smaller distributions to original shareholders. However, the shares issued to descendants and Leftouts do not receive ANCSA Section 7(j) payments. This protects a portion of the distributions of original shareholders who do receive those Section 7(j) payments. The initial enrollment of shareholder descendants will have the largest impact on the dividend distributions. The open enrollment process means that descendants will continue to enroll upon turning 18, and the shareholder base will keep growing. Available funds for dividends will therefore be distributed to an increasing number of shareholders. However, when holders of life estate shares pass on, their shares are cancelled, so, over time, some shares are added while some are cancelled.

III. maNagEmENT aND PERsONNEl chaNgEs

A. Manufacturing

• JoseLuisElizaldewaspromotedto group controller for Nypro Kánaak, overseeing accounting for all three plants in the joint venture.



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• JulioOropezawaspromotedto group general manager for Nypro Kánaak, overseeing operations for all three plants in the joint venture.

• JeremyTolbertjoinedNyproKánaakAlabama as controller.

• KenFeldmanwaspromotedfromcontroller to general manager of Nypro Kánaak Iowa.

• ShawnMoffettjoinedNyproKánaak Iowa as controller.

• BillJohnsonjoinedOlympicFabrication as controller.

• LuisMontieljoinedSynergySystems as controller.

B. Services

• GailAckermanjoinedKingston as controller.

• LeslieFrostwaspromotedfrom Sealaska Corporation operation accountant to controller for Sealaska Environmental Services.

• TheresaKropinakjoinedManagedBusiness Solutions as chief financial officer.

C. Corporate headquarters

• RussellDickwaspromotedto director of group operations.

• NicoleHallingstadwaspromotedto vice president corporate secretary and human resources.

• JaniceHotchwaspromotedtomanager of the Office of Diversity Solutions.

• NathanMcCowanwaspromoted to operations controller.

• DougMorriswaspromotedfrom Sealaska Timber Corporation vice president and CFO to director of accounting and corporate controller.

• VickiSoboleff waspromotedtoheadquarters controller.

IV. maNUfacTURINg: fINaNcIal aND OPERaTIONal DETaIl

A. Kánaak Corporation

Sealaska’s primary manufacturing endeavor is the joint venture between Kánaak Corporation, a wholly owned subsidiary of Sealaska, and Nypro, Inc., a global leader in plastic design and manufacturing. Three Nypro Kánaak facilities (located in Alabama, Iowa and Guadalajara, Mexico) serve the consumer industrial, packaging, electronics, telecommunications, healthcare and automotive industries with precision plastics injection molding and assembly.

Revenues in 2007 were $64.0 million with income of $4.0 million. In 2006, revenues were $56.4 million with income of $710,000.

Two years ago, the Nypro Kánaak partnership turned its focus to the packaging industry, supplying containers, closures and caps for consumer products such as shampoo, detergents and other household items. The packaging sector offers a platform for increased and stable revenues and draws on the strengths of Nypro Kánaak: operational excellence and certification as a Minority Business Enterprise (MBE) by the National Minority Supplier Development Council (NMSDC).

The packaging strategy has proven beneficial for all three manufacturing sites:

1. NyPRO KáNAAK AlABAMA

Nypro Kánaak Alabama effectively doubled its packaging sales revenue base to approximately $16 million, or 70 percent of total sales in 2007. The company continues to serve the consumer products market, with sales growth of 5 percent per year in this segment. Net income for Nypro Kánaak Alabama was $294,000 on revenues of $23.9 million. In 2006, revenues were $12.6 million, and income was $565,000.

With a primary focus on the packaging sector, Nypro Kánaak Alabama remains

an important supplier to Procter & Gamble. In 2007 the company began producing a major new liquid detergent packaging product for this customer.

The facility also began a “green” program with a goal to shrink its environmental footprint through a reduction in the use of corrugated cardboard and increased use of recycled material as fill in plastic parts.

2. NyPRO KáNAAK GuADAlAjARA

Nypro Kánaak Guadalajara saw packaging sales grow by $1.5 million in 2007. These were largely the result of new packaging programs with customers such as Procter & Gamble. Nypro Kánaak Guadalajara revenues for 2007 were $31.8 million with income of $2.6 million. In 2006, revenues were $36.0 million and income was $542,000.

Focusing on operational excellence and lean manufacturing initiatives, Nypro Kánaak Guadalajara achieved more than $500,000 in cost reductions in 2007.

3. NyPRO KáNAAK IOwA

Nypro Kánaak Iowa has secured more than $10 million in new business as a result of the increased focus on packaging sales. Revenues for 2007 were $8.2 million with income of $594,000. In 2006, revenues were $7.8 million and income was $362,000.

To support its shift to the packaging sector and add manufacturing capacity, Nypro Kánaak Iowa added three high-speed, large-tonnage injection molding machines in 2007. The facility has begun an expansion that will accommodate up to 10 additional machines to meet the growing demand from its packaging customers.

Nypro Kánaak Iowa will build on its success in the packaging sector with three new packaging programs scheduled to launch over the next two years.

B. Olympic Fabrication, llC

Olympic Fabrication (OF), a subsidiary of Kánaak Corporation, is a provider of safety critical machined parts, aerospace assemblies, welded fabrications and integrated systems to major customers in the commercial, defense, aerospace and nuclear market places. Olympic Fabrication was formed in December 2006 upon acquisition of the assets of Olympic Tool & Engineering, Inc.

Revenues for 2007 were $4.7 million with a net loss of $1.3 million.

During its initial operating year, OF focused on revitalizing operations, renovating equipment and rebuilding its customer base. OF will focus its growth on other long-term precision-machined parts and fabrication contracts for the aerospace and nuclear industries and through implementation of continuous improvement initiatives.

OF is certified 8(a) and Small Disadvantaged Business (SDB) by the US Small Business Administration (US SBA) and Historically Underutilized Business Zone (HUBZone).

By partnering with Synergy Systems, OF leverages Sealaska’s overall manufacturing strength to provide customers with a full spectrum of product development services—from design through production.

C. Synergy Systems, Inc.

Synergy Systems is a highly regarded production and prototype manufacturing company based in Redmond, Wash. A wholly owned subsidiary of Sealaska, Synergy specializes in the production of machine models, stereo-lithography, laser technologies and cast urethane. The company performs in both the commercial and federal sectors and has built strong customer relationships with some of the world’s most prominent companies.

Revenues in 2007 were $9.3 million with a net loss of $1.5 million. In 2006, revenues were $8.7 million with income of $83,000. Over the course of 2007, the company



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adopted a new business model and took steps to reduce inventory and implement cost reductions.

Synergy is certified 8(a) and SDB by the US SBA. Synergy is also certified as a Minority Business Enterprise (MBE) by the National Minority Supplier Development Council (NMSDC).

In 2007, Synergy was named as the US Small Business Administration Region 10 Subcontractor of the Year. The University of Washington’s Michael G. Foster School of Business recognized the manufacturer as its 2007 Emerging Minority Business of the Year. Synergy is also ranked as a top vendor by the Boeing Company and Microsoft Corporation.

V. sERVIcEs: fINaNcIal aND OPERaTIONal DETaIl

A. Sealaska environmental Services, llC

Formed in 2003, Sealaska Environmental Services, LLC (SES), is wholly owned by Sealaska Corporation. SES provides a range of environmental compliance and remediation (or cleanup) services, including engineering; long-term monitoring; operations and maintenance; and hazardous, toxic and radioactive waste investigation.

In 2007, SES revenues grew to $10.3 million with income of $649,000. In 2006, revenues were $7.5 million with income of more than $1.0 million.

SES added 14 new employees in 2007. Twenty-seven percent of SES’s employees are Sealaska shareholders.

SES is certified 8(a) and SDB by the US SBA. SES has also attained Disadvantaged Business Enterprise (DBE) certification through the State of Alaska for work related to highways, transportation and ports.

SES’s largest client remains the US Department of Defense. In 2007, SES was one of four winners of a US Navy contract to provide remediation services on the

West Coast, primarily in California.

B. Kingston environmental

In June 2007, SES acquired 51 percent of Kingston Environmental Services, Inc., and Sealaska acquired 51 percent of Kingston Environmental, LLC. Based in Kansas City, Kingston is recognized as an industry leader in the remediation (or cleanup) of environmentally contaminated sites.

Kingston provides asbestos, lead-based paint and mold removal services; property audits; soil remediation and design/build construction services.

In 2007, Kingston generated revenue of $24.8 million with income of $2.1 million before minority interests.

Kingston’s portfolio of services is a strong complement to the core services offered by SES. In 2007, the two companies paired their expertise to target new private and government sector contracts. By law, each of the largest federal government contractors is required to develop a subcontracting plan that includes small and minority businesses. Both certified SDB by the US SBA, Kingston and SES are well-positioned as an attractive team to these potential clients.

C. Managed Business Solutions, llC

Managed Business Solutions (MBS) is a global service provider of high-quality information technology (IT) solutions to customers in North America, Latin America, Africa, Asia Pacific and Europe. The company’s reputation for on-time and on-budget work has helped maintain a better than 90 percent retention rate among its client base and has resulted in continued double-digit growth since its inception. Named three times as one of Inc. magazine’s 500 fastest growing privately held companies, MBS leverages industry best practices and partners with its clients to produce cost savings and increased productivity. MBS is certified 8(a) and SDB by the US SBA. It is also certified as a MBE by the NMSDC.

On May 31, 2007, Sealaska Technologies, a wholly-owned subsidiary of Sealaska, increased its ownership in MBS from 51 percent to nearly 91 percent. Sealaska Technologies exercised an option to acquire additional equity in MBS earlier than originally planned due to the successful integration of MBS into Sealaska’s family of companies in 2006.

MBS reported income of $1.6 million before minority interests on revenues of $20.4 million during 2007. MBS’s revenue increased by 16.3 percent in 2007. In 2006, MBS income was $937,000 on revenues of $6.6 million.

In 2007, the company was ranked 21st among the nation’s top 100 Native American businesses by DiversityBusiness.com. MBS was also recertified by its largest client, Hewlett Packard, as one of its top global preferred suppliers for IT services and remained as a Microsoft Gold Certified and Managed Partner.

VI. NaTURal REsOURcEs: fINaNcIal aND OPERaTIONal DETaIl

A. Sealaska timber Corporation

With nearly three decades of international timber marketing and transportation logistics experience, Sealaska Timber Corporation (STC) delivers products to 73 different ports throughout Asia, the Middle East and North America. STC is a wholly owned subsidiary of Sealaska and ranks as the second largest exporter of round logs from Alaska and Canada.

Total revenues for 2007 were $42.5 million and income was $4.4 million after Section 7(i) expense. In 2006, revenues were $58.5 million and income was $4.0 million after Section 7(i) expense.

In 2007, STC continued to capitalize on its existing strengths in order to maintain profitability in the face of a declining timber harvest. The 2007 timber harvest was 50 million board feet (MMbf), down from

70 MMbf in 2006. Rising shipping rates, energy price increases and contractor availability also posed major challenges for STC’s company-owned timber harvest in 2007. In spite of these conditions, STC maintained a strong presence in all sales territories through supply chain improvements, market specialization, capital management and cost control.

The company’s vast experience in chartering ocean carrier vessels remained an important asset, contributing to STC’s overall success in 2007. STC ships not only its own products but extends its chartering service to customers seeking competitive rates for moving their own freight. Charter services and the outside supply purchase program (through which STC purchases and sells logs from other owners) together contributed 35 percent of net income for the year. This improved diversification is vital to the company’s continued success.

STC is certified MBE by NMSDC.

B. Alaska Coastal Aggregates, llC

Alaska Coastal Aggregates (ACA) is a wholly owned subsidiary of Sealaska that markets and manages approximately 568,000 acres of Sealaska subsurface estate. ACA supplies sand, gravel, limestone and other aggregate materials for the construction of roads, airport runways, ports, harbor developments, and other government and municipal projects throughout coastal Alaska.

Revenues for 2007 totaled $349,000 with net income of $185,000 from the sale of aggregate to STC and other customers. In 2006, revenues were $359,000 with net income of $265,000.

ACA is certified 8(a) and SDB by the US SBA and has attained Disadvantaged Business Enterprise (DBE) certification through the State of Alaska. These designations provide ACA with a competitive advantage in supplying raw materials for government construction projects.

The company is negotiating an agreement to explore metals mining on Prince of Wales Island.



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VII. NaTURal REsOURcEs DEPaRTmENT

The Natural Resources (NR) Department manages and stewards the Corporation’s forests, lands and other natural resources. NR is a leader in habitat management, conducting extensive scientific research to ensure the viability of streams, soil and wildlife. The department is also responsible for securing Sealaska’s remaining Alaska Native Claims Settlement Act (ANCSA) land entitlement and in 2007 introduced Haa Aaní (“Our Land”) legislation in Congress.

NR oversees all aspects of Sealaska’s land management, including obtaining state and federal permits, developing environmental policies and maintaining lands records. It preserves 89 historical sites and monitors them for trespassing and degradation and preserves Native heritage through projects such as log donations for carvings and totems.

The department generates revenue from property leases, royalty payments, grants and federal contracts, escrow payments, and other small but collectively important sources of income from Sealaska’s land and other resources.

A. Forest and land Stewardship

Guided by the value of Haa Shagóon, Sealaska uses modern forest management practices and cutting-edge scientific research to protect and nourish the forest ecosystem for future generations. In 2007, the Corporation began undergoing review for possible certification by the Forest Stewardship Council, an international nonprofit organization that provides independent verification of well-managed forests. Progress continued on the Sealaska sustainable forestry initiative, which encompasses our Haa Aaní legislation, silviculture (forest management) and resource stewardship, STC harvest, heritage and culture, and our contribution to local and the Southeast Alaska regional economy.

To ensure productive land for trees, fish, wildlife and subsistence foods, Sealaska silviculture practices include tree planting and thinning of overstocked young forest stands. In 2007, NR’s silviculture program accomplished the following:

• Pre-commercialthinningof 3,466acresof young forests in 2007 and thinning of more than 31,600 acres since this program’s inception in 1993.

• Handplantingof 160,000Sitkaspruceseedlings on 800 acres of forests harvested in 2006. Sealaska has hand planted 1.6 million seedlings on more than 8,120 acres since this program began in 1982.

• Basalpruningof 176acresof forest,which involves trimming branches from 15- to 20-year-old trees to allow more sunlight to reach the forest floor. Basal pruning stimulates the growth of plants used by deer and other wildlife for cover and food and improves log quality. Sealaska has pruned more than 976 acres since this program began in 1994.

• Continuedtobuildeconomicopportunities,including the development of shareholder contractors. In 2007, NR continued to award its largest silviculture contract to a sharholder-owned business.

Natural Resources Department Guided by Our Value of Haa ShagóonOur Past, Our Present, Our Future. 80

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• Awardof $1millioninforestplanningandsilviculture grants.

Continuation of scientific monitoring, studies and projects:

• Obtained$80,000ingrantfundingtocontinue effectiveness monitoring of water quality and fish habitat. This study began in 1992 in cooperation with state and federal agencies.

• Completedyearnineof a12-yeardeerhabitat study, which has resulted in a model that forecasts the effects of timber harvest and silviculture practices on deer health.

As the availability of economically harvestable stands of timber diminishes, NR is aggressively pursuing new revenue opportunities to fund silviculture, stewardship, and land access for subsistence and management activities.

B. Completion of Sealaska’s ANCSA land Selection Rights: Haa Aaní

The promise of ANCSA to create sustainable economies for Alaska’s Native people remains unfulfilled.

ANCSA was passed more than three decades ago, yet Sealaska’s land entitlement and conveyances remain unresolved. To fulfill this broken promise, Sealaska drafted legislation that was introduced into Congress by Rep. Don Young, along with bipartisan co-sponsors. H.R. 3560 is known as Haa Aaní, or simply “Our Land” in Tlingit. If enacted, Haa Aaní would allow Sealaska to select its remaining land entitlement, estimated to be 85,000 acres, from parcels currently outside federally designated “withdrawal” areas. These parcels include:

• 3,600acresof sacred,cultural,historicand archaeological sites to protect and preserve our culture.

• 5,000acresof NativeFuturesSitesto foster our participation in regional economic diversification.

Corporate social responsibility is the idea that organizations have an obligation, beyond legal obligations, to consider the interests of customers, employees, shareholders, communities and ecology in all aspects of their operations. Corporate social responsibility is closely linked with the principle of sustainability. To demonstrate their commitment to sustainability, NR has established a department performance measure based on three functions: Native culture and heritage, economic sustainability, and stewardship of the land and resources. Sealaska is unique compared to other corporations due to its extraordinary emphasis on preservation and advancement of Native culture and heritage along with other sustainability goals.

Within each of the three primary sustainability metrics, there are several subset metrics that contribute to Sealaska’s sustainability and are described as Haa Shagóon—Our Past, Our Present, Our Future. Each metric is represented by a piece of pie and the more the pie is filled the better the department’s performance. The chart below is NR’s 2007 Haa Shagóon report. It is only one component of Sealaska’s Haa Shagóon sustainability initiative. The filled-in portion of each pie grows fuller when reports by all of Sealaska are combined.



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• Approximately76,400acresof economicdevelopment lands for timber harvest, mining and other industrial development activities—these acres are largely roaded second-growth forests and are more appropriate for forestry than the current withdrawal areas.

If Haa Aaní were to become law and Sealaska were to select the above parcels, Sealaska would also relinquish its rights to other lands set aside for selection inside designated withdrawal areas—some 327,000 acres that are better left in public ownership due to their conservation, fish and wildlife and watershed value. Nearly 85 percent of the withdrawal areas, or 277,000 acres, are designated roadless, with enormous, pristine swaths of old-growth hemlock, Sitka spruce, yellow cedar and western red cedar.

As with any Federal legislation, it is difficult to predict when Haa Aaní will pass through Congress and be signed into law by the president. Sealaska is committed to complete its entitlement and has launched an aggressive campaign to familiarize elected officials, stakeholders and shareholders to Haa Aaní and the complex issues it will solve when passed.

VIII. INVEsTmENT PORTfOlIO

The Corporation’s cash assets are divided into numerous investment sectors including domestic equities, international equities, bonds and private equity placements with skilled investment managers and other select investments. The portions of the company portfolio invested in equity securities consist of two separate investment accounts that are managed to achieve different objectives although there is some strategic overlap.

The Permanent Fund is managed on a long-term investment horizon, with the objective to provide a meaningful and consistent source of dividends to shareholders. The Investment and Growth (I&G) portfolio is managed with a short-term investment horizon and is used for both operational needs and new investments.

The performance of the two portfolios is affected by US and global economics and the subsequent impact on relevant investment markets. The US equity markets faced a year of turmoil in 2007 but still maintained positive results. Reacting to the drop in US housing prices, the subprime mortgage crisis and a decline in consumer spending, the S&P 500 index declined in the fourth quarter for the first time in seven years. The index finished the year with a 5.5 percent return for the year, down from 15.8 percent in 2006. The technology-laden NASDAQ fared better, returning 10.7 percent in 2007, compared to a 2006 performance of 10.4 percent.

A significant portion of Sealaska’s Permanent Fund is invested in the bond (or fixed income) market. As measured by the Lehman Government Index, the bond market returned 6.97 percent in 2007, up from 2.4 percent in 2006. Most of the return came in the second half of the year, as recessionary concerns—which most often lead to a positive fixed income market—rose significantly after the summer financial crisis.

Sealaska’s total portfolio—the Permanent Fund and the Investment & Growth Fund— started the year with a balance of $182.5 million invested in stocks, bonds, real estate and private equity investments. Portfolio earnings of $21.8 million were recorded in fiscal year 2007, as compared to earnings of $34.9 million in fiscal year 2006.

Looking at the two funds separately: The Permanent Fund portfolio started the year with a principal balance of $99.2 million and earned approximately $13.2 million. Shareholder dividends totaling $6.7 million ($4.13 per share) were paid from the fund in April and December 2007, resulting in a year- end balance of $105.7 million. The portfolio returned 13.2 percent in 2007, outperforming its benchmark by 7.1 percent. In 2006, the portfolio returned 17.7 percent.

The Investment and Growth (I&G) portfolio earned $8.8 million in 2007, ending the year with a balance of $74.8 million. The portfolio returned 10.5 percent in 2007. The 2006 return was 29.1 percent.

The Permanent Fund outperformed its composite index by 7.1 percent. Our benchmark (index) is comprised as follows: 72 percent Russell 3000 (Domestic Equities), 20 percent Lehman Aggregate Bond Index (Fixed Income) and 8 percent MSCI EAFE Index (International Equities). In 2007, the Permanent Fund earned 13.2 percent versus the benchmark (above referenced index) return of 6.1 percent. In 2006, the Permanent Fund earned 17.6 percent versus a benchmark return of 14.3 percent.

As of December 31, 2007, the Corporation’s $197.3 million investment portfolio was 49 percent invested in the equity markets, 27 percent invested in the bond market, and 24 percent invested in private equity funds and limited partnerships. Sealaska utilizes the services of 11 external investment managers.

In 2007, much of Sealaska’s investment income was derived from private equity investments, which involve both Permanent Fund and I&G funds:

The Corporation committed $21.0 million—half from the Permanent Fund, half from I&G—to the Carlyle/Riverstone Energy II private equity fund in March 2004. During 2007, $900,000 of the commitment was invested by Carlyle/Riverstone into various energy projects for a total investment since inception of $19.8 million. Several of the investments were sold and/or recapitalized during the year, resulting in a $2.5 million return of capital and realized and unrealized gains (all of which count as income) of $9.6 million to Sealaska. The total return of this investment to date is 230 percent.

The Corporation committed to fund up to $15.0 million (half from the Permanent Fund, half from I&G) to the Carlyle/Riverstone Energy III private equity fund in October 2005. During 2007, $6.2 million of the commitment was invested by Carlyle/Riverstone into various energy projects for a total investment since inception of $8.7 million. These investments are valued at cost.

In January 2005, the Company committed $8.0 million in Permanent Fund money to the Carlyle Realty Fund IV, a private equity fund. During 2007, $1.0 million of the commitment was invested by Carlyle into various real estate holdings for a total investment since inception of $6.8 million. Several of the investments were sold and/or recapitalized during the year, resulting in a $1.6 million return of capital and realized and unrealized gains (all of which count as income) of $2.6 million to Sealaska. The total return of this investment to date is 42 percent.

In January 2007, the Company committed $7.5 million in Permanent Fund money to the CarVal Global Value Fund, a private equity fund. During 2007, $6.4 million of the commitment was invested by CarVal into various corporate, global real estate and other security holdings. Realized and unrealized gains from this investment (all of which count as income) of $500,000 were recorded in 2007. The total return of this investment for the 11 months to December 31, 2007, is 7.5 percent.

A. tribal Gaming

1. vAlley vIew CASINO

The initial capital investment in the San Pasqual’s Valley View Casino near San Diego was repaid in fiscal year 2002. Sealaska has a continuing interest, which expires in 2010. (Valley View is required to pay Sealaska approximately 2.5 percent of its gross revenues from all sources up to 2010.) In 2007, Sealaska received income of $4.0 million from this investment, up from $3.4 million reported in 2006.

The Valley View Casino’s operations and cash flows have continued to improve each year. Valley View now has approximately 1,730 slot machines, up from 900 five years ago. Plans for further expansion of the facility include a hotel.



39

2. ClOveRDAle RANCheRIA

Sealaska, through its wholly owned subsidiary End-2-End Enterprises, has entered into an agreement with the Cloverdale Rancheria Tribe of Pomo Indians of California to develop a new gaming casino. Located near the tribe’s historic Rancheria (traditional settlement), the casino will be situated approximately 90 miles north of San Francisco on Highway 101.

The Tribe is federally recognized but does not own any land on which a casino can be developed. Through purchase and sale agreements, Sealaska has acquired three parcels of land that were either part of or immediately adjacent to the tribe’s rancheria. The acquired land consists of 33 acres on which the casino will be sited. Sealaska has the option to purchase an additional 39 acres that would provide additional infrastructure and services to the casino.

Through the development agreements, Sealaska will be repaid property purchase costs when construction financing is secured. In addition, Sealaska will be the casino manager for a period of seven years, during which it will realize income from the services that it provides.

The Pomo Tribe has recently filed its request for an Indian Land Opinion (ILO) with the Bureau of Indian Affairs (BIA) on a portion of the lands Sealaska acquired. The ILO is the mechanism through which the BIA confirms that a parcel of land is qualified for gaming purposes. The initial response from the Bureau to the tribes ILO application has been favorable.

The tribe has also initiated the Fee to Trust (FTT) process to convert the fee land to Indian Trust land. It is expected that the process of an ILO, FTT and negotiations of a gaming compact may take up to three years, after which the construction of the casino would begin.

This is a high-risk, high-value investment with many milestones to cross before facility financing can be acquired, construction is complete and the facility is in full operation.

B. Alaska Native wireless

In 2001, Sealaska, in conjunction with other Alaska Native Regional Corporations, formed a partnership called Alaska Native Wireless (ANW). Prior to 2007, Sealaska had recovered its initial investment and made a profit of $33 million, while also retaining a residual bond investment. In 2007, the residual bond investment matured and the Corporation received a full balance of $20.3 million. As of December 31, 2007, Sealaska holds no stake in this investment. Total earnings of $5.4 million were recorded over the life of the bond from the initial investment of $14.9 million.

IX. aNcsa sEcTION 7(i) PaymENTs

Sealaska’s ANCSA Section 7(i) payments totaled $6.7 million to the 12 ANCSA Regional Corporations, to our own shareholders and to Village Corporations for 2007, as compared to combined payments of $2.3 million for 2006. Sealaska received a total of $31.5 million from other ANCSA Regional Corporations during 2007, of which 50 percent has been paid to our Urban and At-Large shareholders and Village Corporations. See Note 3.

The amounts of 7(i) that Sealaska pays and receives vary from year to year, as results are based on unknown production volumes and volatile worldwide commodity prices. While we expect 7(i) receipts from other Regional Corporations to be greater in 2008 than 2007, forecasts for 2009 and beyond are much more uncertain, and we place little reliability in receiving 7(i) revenue of the magnitude recently recorded over the long-term.

X. OThER cORPORaTE fINaNcIal aND OPERaTIONal INfORmaTION, sERVIcEs aND IssUEs

A. Corporate headquarters

Corporate general and administrative (G&A) expenses totaled $13.9 million in 2007. In 2006, expenses were $13.0 million. G&A expense is comprised of any management, financial and other expenses for the general management and administration of the business as a whole.

B. Office of Diversity Solutions

Created in 2004, the Sealaska Office of Diversity Solutions (ODS) markets and promotes Sealaska and its subsidiaries as business partners to companies wishing to develop “supplier diversity” solutions.

Supplier diversity is the purchasing of goods and services from a variety of businesses, including those owned by people of color, women and people with disabilities.

Working with minority-owned businesses aligns companies with the increasingly diverse makeup of the markets in which they operate, giving them a competitive edge. Additionally, companies that do business with the federal government must meet government-mandated supplier diversity requirements for subcontracting to small and minority-owned businesses.

As an ANCSA Corporation, Sealaska and its subsidiaries, joint ventures and partnerships are designated “minority and economically disadvantaged business enterprises” [43 USC 1626(e)].

In addition, Alaska Coastal Aggregates, Managed Business Solutions, Olympic Fabrication, Sealaska Environmental Services and Synergy Systems are certified 8(a) and Small Disadvantaged Business (SDB) by the US Small Business Administration (US SBA), and Olympic Fabrication is Historically

Underutilized Business Zone (HUBZone) certified, which gives these subsidiaries an additional competitive advantage.

ODS employees assist the Sealaska family of companies by identifying new business opportunities, serving as marketing specialists, developing greater value propositions for customers, and educating buyers on the unique status of Sealaska as a Native Corporation.

XI. aNalysIs Of fINaNcIal POsITION

A. Assets

Total assets of $360.9 million at December 31, 2007, increased 10 percent from $328.5 million as of December 31, 2006. Included in the total assets from the end of 2006 are $197.3 million in investment capital and trust funds. Current assets were $118.7 million and $121.4 million for December 31, 2007, and December 31, 2006, respectively. As reported in Notes 3 and 8, the value of Sealaska’s ANCSA land and timber assets are not included in our asset totals, although they have significant economic value to Sealaska.

B. liabilities

Total liabilities as of December 31, 2007, were $87.3 million, an increase of 21 percent from the December 31, 2006, total of $72.3 million. Current liabilities were $43.1 million, up from $33.3 million as of December 31, 2006.

C. Shareholders’ equity

Total shareholders’ equity was $273.7 million as of December 31, 2007, and $256.2 million as of December 31, 2006. The change in shareholders’ equity was derived from the net income of $30.0 million reported during 2007, less $12.5 million of dividends paid on Permanent Fund and operations earnings in 2007 and 2006.



41

LIQUIDITY 2007

2006

Available funds:

Cash and equivalents and current investments $ 81.4 $ 74.0

Total available funds 81.4 74.0

Available line of credit:

Total line of credit 6.5 —

Total available line of credit 6.5 —

Total liquidity $ 87.9 $ 74.0

Dollars are in millions.

As of December 31, 2007, our current ratio (current assets compared to current liabilities) was 2.75 compared to 3.65 at December 31, 2006. At December 31, 2007, Sealaska’s long-term debt consisted of the Sealaska Plaza mortgage, a term loan with Northwest Farm Credit, and a Note Payable to Pacific Gulf, LLC, for purchase of land for a gaming development. See Note 11.

WORKING CAPITAL 2007

2006

Current assets $ 118.7 $ 121.4

Current liabilities 43.1 33.3

Working capital 75.6 88.1

Current ratio 2.75 3.65

Dollars are in millions

CAPITAL STRUCTURE 2007

2006

Notes payable $ 0.3 $ 0.6

Current debt 2.9 1.7

Long-term debt 21.9 14.2

Total debt 25.1 16.5

Shareholders’ equity 273.7 256.2

Total capital $ 298.8 $ 272.7

Dollars are in million

XII. sIgNIfIcaNT accOUNTINg POlIcIEs

The Corporation’s consolidated financial statements and accompanying notes have been prepared in accordance with Generally Accepted Accounting Principles (GAAP). The preparation of these financial statements requires the Corporation’s management to make estimates, judgments and assumptions that affect reported amounts of assets, liabilities, revenues and expenses. The Corporation bases its estimates on historical experience and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management.

To ensure full disclosure and accurate representation of the financial condition of the Corporation, it continually evaluates the accounting policies and estimates used to prepare the consolidated financial statements and, working with independent auditors and the Board of Directors, adjusts financial statements to accurately represent the financial condition of the Corporation.

A. Investments–Marketable Securities and equity Investments

The Corporation accounts for its investments in marketable equity securities as trading securities and reports them at fair value, with unrealized gains and losses recognized in income. The fair value of substantially all securities is determined by quoted market prices. Gains or losses on securities sold are based on the specific identification method.

The Corporation accounts for certain minority interests, less than 50 percent ownership and control, in privately held corporations, LLCs and partnerships (the “investee”) using the equity method of accounting. Under the equity method, Sealaska’s original investment in the investee is recorded at cost and subsequently adjusted for changes in the net assets of the investee.

The carrying amount of the investment is periodically increased (decreased) by the proportionate share in the earnings (losses) of the investee.

B. Income tax accounting

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences of events that have been recognized in the Corporation’s financial statements or tax returns. Such deferred tax liabilities are determined based on the difference between the financial statements carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to be recovered or settled.

C. Intangible Assets

Intangible assets consist of goodwill and other intangible assets. Goodwill represents the excess paid over the net identifiable assets of businesses acquired. Goodwill acquired in a purchase business combination and determined to have an indefinite useful life is not amortized but instead tested for impairment at least annually in accordance with the provisions of FASB Statement No. 142, Goodwill and Other Intangible Assets. Intangible assets with estimated useful lives are also reviewed for impairment in accordance with FASB Statement No. 144, Accounting for Impairment on Disposal of Long-Lived Assets.

D. Revenue Recognition

Revenues are recognized when earned and when the risks of ownership have been transferred to the buyer, which is generally upon shipment to the customer. Receivables are recorded when invoiced and do not bear interest. Allowance for doubtful accounts is recorded based upon Sealaska’s best estimate of the amount of probable credit losses in existing outstanding receivables.

The Corporation has adequate capital available for long-term uses, such as acquisitions and investments, but our short-term liquidity could be affected either positively or negatively in 2008 by the operating performance of our Investment & Growth portfolio, timber operations, environmental services, Natural Resource Department activity and our plastic companies’ capital requirements.

D. liquidity and Capital Resources

As of December 31, 2007, the Corporation had cash-on-hand and current investment securities of $81.4 million. In addition, another $122.1 million was held in other investments, including the Permanent Fund, venture capital funds and private equity funds.

The Corporation had positive operating cash flow of $53.6 million at the end of 2007, as compared to positive cash from operations of $30.0 million and $12.9 million in 2006 and 2005, respectively.



the Board of Directors Sealaska Corporation

We have audited the accompanying consolidated balance sheets of Sealaska Corporation and its subsidiaries (the Corporation) as of December 31, 2007 and 2006, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2007. These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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 Corporation’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.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Sealaska Corporation and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007, in conformity with US generally accepted accounting principles.

Anchorage, Alaska April 14, 2008

INdEPENdENT AUdITORS REPORT

43

e. Road and yard Assets

Roads and yards constructed for the harvest of timber are amortized based on units of production, which are calculated by taking the total estimated future asset capital costs plus the current known net actual capital costs, all divided by the total future harvest (estimated total or remaining timber volume to be harvested). Roads and yards are classified as long-lived assets and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Recoverability of the road assets are measured by a comparison of the carrying amounts of the asset to estimated undiscounted cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of an asset exceeds its estimated future cash flows.

F. ANCSA Section 7(i) Accounting vs. Book GAAP Accounting

FIxeD ASSetS – In Section 7(i) accounting, ANCSA fixed assets are expensed in the year they are purchased. For book accounting, all fixed assets are depreciated using the straight line method based on their useful life.

ROAD & yARDS – In Section 7(i) accounting, ANCSA roads are segregated into three categories: mainline, secondary and spur. Mainline and secondary roads are amortized based on units of production and the useful life of 10 and three years, respectively. Spur roads are expensed in the year they are placed into service. The book treatment is addressed in the note above. Yards are treated consistently for Section 7(i) and book accounting.

INveNtORIeS – Section 7(i) accounting allows for the deduction of the cost of inventories from revenues in determining Section 7(i) sharable income. For book purposes, inventories are reported at lower of cost or market under current assets on the balance sheet.

ACCOuNtS ReCeIvABle – Section 7(i) accounting allows for the deduction of outstanding accounts receivables from revenues in determining Section 7(i) sharable income. For book purposes, accounts receivable are reported under current assets on the balance sheet and the associated revenues are recognized as described in the note above.

XIII. fORwaRD-lOOkINg sTaTEmENTs

Management’s Discussion and Analysis of Financial Condition and Results of Operations reviews operating results of Sealaska Corporation (the Corporation) for each of the three years in the period ending December 31, for the following years: 2007, 2006 and 2005 and its financial condition as of December 31, 2007 and 2006. This review contains forward-looking statements that involve risks and uncertainties and should be read in conjunction with the accompanying consolidated financial statements, the related notes to consolidated financial statements and the Five-Year Summary of Selected Financial Data. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors including the risks discussed in Factors Affecting Business Performance. The management representations in this report are forward-looking statements that involve risks and uncertainties including, but not limited to, economics, marketing, competition, and governmental and technological factors affecting the Corporation’s operations, markets and products.


CONSOLIdATEd bALANCE SHEETS

45

ASSETS (As of December 31, 2007 and 2006) 2007 2006

Current assets:

Cash and cash equivalents $ 23,031 $ 11,961

Investments (Note 4) 58,360 61,992

Receivables, net (Note 5) 22,097 31,419

Inventories (Note 6) 9,110 9,637

Prepaid expenses and other current assets 2,771 2,078

Deferred tax asset (Note 12) 3,347 4,286

Total current assets (Note 11) 118,716 121,373

Investments: (Notes 4 & 10)

Permanent fund 105,680 99,205

Investment & growth long-term 16,430 17,296

Endowment funds 6,034 6,056

Elders’ settlement trust 7,966 8,010

Other 2,851 2,361

Total investments 138,961 132,928

Property and equipment, at cost: (Notes 5, 7 & 11) 256,519 233,970

Less accumulated depreciation (200,379) (191,818)

Total property and equipment, net 56,140 42,152

Notes receivable 1,201 1,581

Other assets (Note 1) 6,397 1,496

Goodwill 16,209 7,766

Deferred tax asset (Note 12) 23,320 21,190

Total assets $ 360,944 $ 328,486

Dollars are in thousands.

See accompanying notes to consolidated financial statements.

LIABILITIES AND SHAREHOLDERS’ EQUITY (As of December 31, 2007 and 2006) 2007 2006

Current liabilities:

Notes payable $ 252 $ 567

Current portion of long-term debt (Note 11) 2,914 1,736

Accounts payable 15,888 15,656

Amounts payable under ANCSA Sections 7(i) and 7(j) (Note 3) 9,833 4,119

Other accrued expenses 14,254 11,190

Total current liabilities 43,141 33,268

Noncurrent liabilities:

Amounts payable under ANCSA Sections 7(i) and 7(j) (Note 3) 3,576 8,235

Long-term debt, less current portion (Note 11) 21,923 14,218

Minority interest 7,307 5,743

Other noncurrent liabilities 11,345 10,867

Total liabilities 87,292 72,331

Shareholders’ equity:

Common stock, no par or stated value. Authorized 2,000,000 shares; issued and outstanding 1,575,276 and 1,740,076 shares, in 2006 and 2007 respectively

Contributed capital 93,162 93,162

Retained earnings 180,490 162,993

Total shareholders’ equity 273,652 256,155

Commitments and contingencies (Notes 4, 11, 14 & 17)

Total liabilities and shareholders’ equity $ 360,944 $ 328,486




CONSOLIdATEd STATEmENT Of SHAREHOLdERS' EquITy

Years ended December 31, 2007, 2006 and 2005 2007 2006 2005

Revenues:

Natural resources (Note 8) $ 43,078 $ 59,960 $ 64,483

Manufacturing 77,997 65,192 49,891

Investments (Note 4) 21,789 34,928 24,342

Services 55,457 14,175 1,858

Corporate and other income 4,913 4,354 3,747

Total revenues 203,234 178,609 144,321

Cost and expenses:

Natural resources 35,358 50,101 55,381

Manufacturing 76,842 63,376 48,862

Investments 473 486 636

Services 51,112 12,190 1,782

Corporate and other expenses 5,709 4,885 4,173

General and administrative 13,943 13,032 11,473

Total cost and expenses 183,437 144,070 122,307

Income from operations 19,797 34,539 22,014

Other, net (2,136) (339) 173

Income from continuing operations before natural resources revenue sharing, equity in net losses of affiliates and income taxes

17,661 34,200 22,187

Natural resource revenue sharing under Sections 7(i) and 7(j) (Note 3)

14,380 6,373 2,279

Equity in losses of affiliates — (82) (159)

Gain on sale of International BioResources, LLC 2,152 5,694 —

Minority interest (3,747) (1,190) (233)

Income from continuing operations before income taxes and discontinued operations

30,446 44,995 24,074

Income tax benefit (expense) (Note 12) (409) (3,836) 94

Income from continuing operations before discontinued operations

30,037 41,159 24,168

Gain from discontinued operations, net of tax (Note 2) — — 1,103

Net income 30,037 41,159 25,271

Per share of common stock:

Income from continuing operations before discontinued operations

19.29 26.13 15.34

Gain from discontinued operations (Note 2) — — 0.70

Net income $ 19.29 $ 26.13 $ 16.04

Dollars are in thousands except per share values.


Years ended December 31, 2007, 2006 and 2005Contributed

capitalRetained earnings

Total shareholders'

equity

Balance at January 1, 2005 $ 93,162 $ 112,867 $ 206,029

Net income — 25,271 25,271

Dividends to shareholders (Note 15) — (6,821) (6,821)

Balance at December 31, 2005 93,162 131,317 224,479

Net income — 41,159 41,159


Balance at December 31, 2006 93,162 162,993 256,155

Net income — 30,037 30,037


Balance at December 31, 2007 $ 93,162 $ 180,490 $ 273,652



CONSOLIdATEd STATEmENT Of OPERATIONS


CONSOLIdATEd STATEmENTS Of CASH fLOwS


Cash flows from operating activities:

Net income $ 30,037 $ 41,159 $ 25,271

Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:

Depreciation, amortization and depletion

Deferred income tax benefit

Gain (loss) on disposal of fixed assets

Impairment of long-lived assets

Unrealized (gain) loss on investments

Net proceeds from investments

Equity in net (earnings) losses of affiliates

Gain on sale of Sealaska Life Sciences asset

10,944

(1,191)

64

599

4,150

(6,551)

(54)

(2,152)

6,986

3,474

77

431

(7,184)

(14,272)

82

(5,694)

12,914

(545)

(1,332)

2,150

(9,128)

(6,933)

159

—

Decrease (increase) in current assets:

Receivables

Inventories

Prepaid expenses and other current assets

20,687

527

(765)

(9,593)

7,349

4,054

(137)

(4,667)

(1,189)

Increase (decrease) in current liabilities:

Accounts payable and other current liabilities

Other accrued expenses

(8,578)

2,638

1,830

(293)

3,127

(935)

Amounts payable under ANCSA Sections 7(i) and 7(j) 1,055 (3,086) (5,086)

Other, net 2,164 4,639 (794)

Net cash provided by operating activities $ 53,574 $ 29,959 $ 12,875




Cash flows from investing activities:

Capital expenditures $ (22,759) $ (11,574) $ (10,092)

Acquisitions, net of cash acquired (15,189) (10,898) —

Proceeds from the sale of land and equipment 47 10 3,220

Insurance of notes receivable 380 60 (1,641)

Proceeds from sale of Sealaska Life Science assets 2,152 8,721 —

Net cash used in investing activities (35,369) (13,681) (8,513)

Cash flows from financing activities:

Dividends to shareholders (12,540) (9,483) (6,821)

Borrowings (repayments) on short-term debt (1,877) 166 (425)

Repayments of long-term debt (2,596) (3,003) (1,648)

Borrowings on long-term debt 10,325 3,476 659

Distribution to minority shareholders (447) — —

Net cash used in financing activities (7,135) (8,844) (8,235)

Net increase (decrease) in cash and cash equivalents 11,070 7,434 (3,873)

Cash and cash equivalents at beginning of year 11,961 4,527 8,400

Cash and cash equivalents at end of year 23,031 11,961 4,527

Supplemental cash flow disclosures:

Cash paid during the year for interest 1,472 1,093 1,055

Cash paid during the year for income taxes $ 1,600 362 $ 368




NOTES TO CONSOLIdATEd fINANCIAL STATEmENTS

(1) OperatiOns and summary Of significant accOunting pOlicies

Operations

Sealaska Corporation (Sealaska or Company) is a regional Alaska Native Corporation formed under the Alaska Native Claims Settlement Act (ANCSA). Sealaska’s four primary continuing business activities relate to the development, production and sale of natural resources; the manufacture and sale of plastics, parts and products; services related to environmental remediation and information technology; and the management of its investment portfolio. ANCSA is further described in Note 3.

Sealaska’s natural resource business segment is responsible for the management of Sealaska’s lands, harvesting and sale of timber and aggregate located on those lands and includes its wholly owned subsidiaries: Sealaska Timber Corporation and Alaska Coastal Aggregates.

In 2005, Sealaska Corporation changed the name of its plastics manufacturing subsidiary from TriQuest Corporation to Kánaak Corporation. The wholly owned Sealaska subsidiary has majority ownership in plastics manufacturing plants in Mexico, Alabama and Iowa. The name, Kánaak, communicates the Company’s Native ownership and diversity supply status.

Synergy is a wholly owned subsidiary of Sealaska, located in Redmond, Wash. It is a section 8(a) Certified Small Disadvantaged Business that specializes in making prototypes (models) of proposed new products and limited-run manufacturing, fabrication and engineering services.

Olympic Fabrication is a wholly owned subsidiary of Sealaska, located in Shelton, Wash. A section 8(a) Certified Small Disadvantaged Business, Olympic Fabrication is a manufacturer and weld fabricator of large assemblies and components for the aerospace and nuclear industries and is active in both the commercial and defense sectors.

Sealaska Environmental Services, LLC, is a fully owned subsidiary of Sealaska Corporation that provides value-added green services—environmental remediation, engineering, consulting, construction, and project management services—to public and private clients.

In 2007, Sealaska Environmental Services, LLC., acquired 51 percent of Kingston Environmental Services, Inc. and Sealaska Corporation acquired 51percent of Kingston Environmental, LLC. The Kingston companies provide a suite of front-end and back-end environmental services including: environmental construction and remediation, environmental assessments, asbestos and lead consulting and abatement, architectural and engineering consulting, and design/build construction services.

In 2006, Sealaska Technologies acquired 51 percent of Managed Business Solutions (MBS), a company that provides information technology (IT) services for application support,managed services and business intelligence and integration services. In 2007, Sealaska Technologies increased its ownership in MBS from 51 percent to 90.9 percent by exercising its option to acquire additional equity.

During 2003, Sealaska Corporation created Sealaska Life Sciences, LLC. In June of 2003, Sealaska Life Sciences, LLC, acquired a 10 percent preferred equity interest in a plasma collection company, International BioResources, LLC. In 2006, the percentage increased to 12.3 percent according to terms of the contract which state that the ownership percentage increases if certain performance criteria are not met each year. In November, 2006, Sealaska sold 87.7 percent of its share of International BioResearch, LLC, and in February 2007 sold the remaining amount.

Basis of Presentation and Significant Accounting Policies

The Consolidated Financial Statements include the accounts of Sealaska and its wholly and majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

(a) Revenue Recognition and Receivables

Revenues are recognized when earned, and the risks of ownership have been transferred to the buyer, which is generally upon shipment to the customer. Receivables are recorded when invoiced and do not bear interest. Allowance for doubtful accounts is recorded based upon Sealaska’s best estimate of the amount of probable credit losses in existing outstanding receivables.

Revenues on long-term service contracts are recognized ratably over the term of the contract, as services are performed or based on the specific terms of the contracts. Unbilled revenue represents uncompleted tasks that will be billed at the time of completion in subsequent years.

(b) Cash and Cash Equivalents

Sealaska maintains zero balance checking accounts and resulting book overdrafts of $1.6 million and $1.8 million are included in cash and cash equivalents at December 31, 2007 and 2006, respectively. Sealaska maintains its cash in bank accounts with various financial institutions. At times, the balances may exceed federally insured limits. For purposes of the consolidated statements of cash flows, Sealaska considers all highly liquid debt instruments with original maturities of three months or less from the date of purchase to be cash equivalents.

(c) Investments

Sealaska’s investments in marketable debt and equity securities (Note 4) are classified as trading securities and are recorded at fair value. Fair value is based on quoted market prices. The increase or decrease in market value from period to period relating to marketable securities included in Sealaska’s investment portfolio is included in the determination of earnings. Interest and dividend income is recognized as earned. Gains or losses on the sale of marketable securities are determined on a specific identification basis. Sealaska has designated certain investments for long-term uses and, therefore, classifies these amounts

as noncurrent. Investments in companies over which Sealaska has influence, but not a controlling interest, are recorded on the equity method. Investments in limited partnerships are accounted for using the equity method.

(d) Inventories

Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or estimated net realizable value. Inventories consist primarily of sorted/scaled timber, manufacturing materials and finished goods.

(e) Property and Equipment

Property, equipment and leasehold improvements are stated at cost.

Depreciation and amortization of property, equipment and leasehold improvements are provided primarily on the straight-line method over the shorter of the expected useful lives of the assets or the lease term as follows:

Buildings, leaseholds, and improvements 15–45 years

Equipment and furnishings 5–20 years

Computer and office equipment 3–5 years

(f) Timber Operations

Costs of logging yards and camps are amortized as timber is harvested, based on estimated volumes of timber to be removed from each tax reporting block. Costs of logging roads are amortized using a composite rate for each tax reporting block based on actual road costs incurred, anticipated future road costs to be incurred and estimated volumes to be removed from the respective tax block. Costs of silviculture and reforestation activities are capitalized as an element of property, plant, and equipment and amortized as the associated timber is harvested.


NOTES TO CONSOLIdATEd fINANCIAL STATEmENTS (cOntinued)

53

Depletion of purchased timber is provided based on amounts harvested in relation to volumes purchased. Timber and mineral resources received under the provisions of ANCSA are carried at zero value, and no depletion expense is recorded when such resources are harvested or extracted. For tax purposes, depletion is reported based on the higher of the estimated fair value of a specific timber block or mineral deposit as of the date of conveyance or first commercial development.

(g) Long-Lived Assets

Long lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of assets 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 its estimated future cash flows, an impairment charge is recognized by the amount by which 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 disposed group classified as held for sale are presented separately in the appropriate asset and liability sections of the balance sheet.

Aggregate amortization expense for amortizing intangible assets was $1.0 million for the year ended December 31, 2007. Estimated amortization expense for the next five years is: $526,519 in 2008, $526,519 in 2009, $526,519 in 2010, $526,519 in 2011 and $526,519 in 2012.

(i) Alaska Native Claims Settlement Assets

Sealaska has received substantial natural resource assets under the provisions of ANCSA as described in Note 8. These assets are carried in the accompanying consolidated financial statements at zero value. For tax reporting purposes, these assets have a tax basis determined as the higher of their estimated fair value at the date of conveyance or first commercial development. As a result, a substantial difference between the book and tax basis exists, which is considered a temporary difference for purposes of reporting income tax expense under accounting principles generally accepted in the United States of America, specifically Statement of Financial Accounting Standard (SFAS) No. 109, Accounting for Income Taxes.

(j) Income Taxes

Income taxes are accounted for under the asset and liability method. 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 bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. See Note 12 for further discussion of income taxes.

Funds and properties received from the United States government under ANCSA are not subject to income taxes.

(k) Earnings (Loss) Per Share

Earnings (loss) per share information in the consolidated financial statements are based on weighted average shares outstanding. Sealaska has no agreements or securities outstanding that represent dilutive potential common shares.

The number of common stock shares outstanding at December 31, 2006, and 2007 is 1,575,276 and 1,740,076, respectively. The number of shares outstanding was adjusted in 2007 to reflect revisions in the number of enrolled shareholders due to the passage of the Life Estate Stock for Descendants resolution and the Life Estate Stock for Leftouts resolution at the June 2007 annual meeting. On June 23, 2007, Sealaska’s shareholders authorized the issuance of two additional classes of common stock without consideration. Class D stock is issuable to Alaska Natives born after December 18, 1971, who are 18 years of age or older and are lineal descendents of an original Sealaska shareholder and meet certain other requirements. Class L stock is issuable to Alaska Natives born before December 18, 1971, who were eligible to enroll in Sealaska Corporation in 1971 (pursuant to ANCSA) but were not so enrolled and who meet certain other requirements. 162,600 shares of Class D stock and 2,200 shares of Class L stock were issued in 2007.

(l) Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, notes receivable, and accounts payable approximate fair value because of the short-term nature of these instruments. The carrying amounts of investment securities are stated at market value. The carrying value of debt approximates fair value as the debt bears interest that adjusts based upon market interest rates.

(h) Goodwill and Other Intangible Assets

Goodwill represents the excess of aggregate purchase price over the fair value of the net assets acquired in a purchase businesses combination. Goodwill is reviewed for impairment at least annually in accordance with the provisions of the Financial Accounting Standards Board (FASB) Statement No. 142, Goodwill and Other Intangible Assets (Statement 142). 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 enterprise 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.

ACQUIRED INTANGIBLE ASSETS

Gross Carrying Amount

Weighted Average

Amortization Period

Accumulated Amortization

Amortizing intangible assets:

Customer list – MBS $ 1,175,466 8 years $ $85,711

Customer list – Kingston 2,657,100 7 years 189,711

Backlog – Kingston 743,070 1 year 743,070

Total $ 4,575,636 $ 1,018,492

December 31, 2007.

Acquired intangible assets are included in other noncurrent assets.



55

(m) Foreign Currency Translation

The financial statements of Kánaak’s foreign operations have been translated into US dollars in accordance with SFAS No. 52, Foreign Currency Translation. As the US dollar is the functional currency of the Mexican subsidiary, there are no foreign currency translation adjustments, and all gains and losses from remeasuring foreign currency transactions into the functional currency are included in income.

(n) Reclassifications

Certain reclassifications have been made to the 2005 and 2006 balances to conform to the 2006 and 2007 presentation. The most significant reclassifications to 2005 relate to reporting certain private equity funds as noncurrent investments, the disaggregation of minority interest from other noncurrent liabilities and from other income (expense) and the disaggregation of goodwill from other assets. The most significant reclassifications to 2006 relate to reporting minority interest and goodwill.

(o) Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include provisions relating to uncollectible receivables, useful lives of capitalized timber costs, property and equipment and the related depreciation, valuation of certain underlying assets of limited partnership investments, and amortization, realization of deferred income taxes and impairment of long-lived assets.

The recorded amounts are currently believed by management to be sufficient. However, such estimates could significantly change in future periods to reflect new laws, regulations or information. It is not possible to determine whether additional loss due to such changed circumstances will occur or to reasonably estimate the amount or range of any potential additional loss.

(p) Recently Issued Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 provides guidance for using fair value to measure assets and liabilities. In addition, this statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This statement applies when other accounting pronouncements require fair value measurement; it does not require new fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Sealaska will begin application of SFAS No. 157 on January 1, 2008, and does not expect it to have a material effect on our results of operations, financial position and cash flows.

In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement. Sealaska will begin application of SFAS No. 159 on January 1, 2008, and does not expect it to have a material effect on our results of operations, financial position and cash flows.

In July 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. FIN 48 prescribes recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We will begin application of FIN 48 on January 1, 2008, and do not expect it to have a material effect on our results of operations, financial position and cash flows.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” which requires the acquiring entity in a business combination to record all assets acquired and liabilities assumed at their respective acquisition-date fair values, changes the recognition of assets acquired and liabilities assumed arising from contingencies, changes the recognition and measurement of contingent consideration, and requires the expensing of acquisition-related costs as incurred. SFAS 141 (R) also requires additional disclosure of information surrounding a business combination, such that users of the entity’s financial statements can fully understand the nature and financial impact of the business combination. We will implement SFAS No. 141 (R) on January 1, 2009, and we will apply it to any business combinations with an acquisition date after January 1, 2009.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling interests in Consolidated Financial Statements,” which establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s

ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also established reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owner. We will implement SFAS No. 160 on January 1, 2009. We do not expect the adoption of this standard to have a material impact on our income statement, financial position or cash flows.

(2) acquisitiOns and divestitures Of subsidiaries

(a) Mineral Mining Operations

During 2001, Sealaska decided to cease operations at its Calder mining facility. Accordingly, Sealaska reported the mineral mining operation as a discontinued operation. The current assets, liabilities, revenues and results of operations for this facility were not material during 2005. The mining operation at Calder (SeaCal) was sold at auction during 2003, but the purchasers defaulted on the contract to purchase. Subsequent to the 2003 auction default, Calder mine was offered for sale again in 2004. Several offers were received, resulting in a Letter of Intent (LOI) to purchase. The LOI period expired, and the purchaser declined to complete the purchase of Calder.

Sealaska once again sold the Calder mine in July 2005. SeaCal assets were sold for $1 million, received in 2005, producing a gain of $690,000 net of maintenance expenses. Calder land with a book value of $960,000 was sold to the same buyer for $2 million and will be collected from the buyer over the next ten years. The note receivable was discounted to $1.4 million, producing a gain of $413,000.



57

Dollars are in thousands. Years ended December 31.

(b) Managed Business Solutions, LLC

In August 2006, Sealaska Technologies, a wholly owned subsidiary of Sealaska purchased 51 percent of Managed Business Solutions, LLC (MBS) for $5.5 million. Sealaska acquired tangible net assets (primarily current) of $4.2 million and customer relationships valued at $1.3 million. In May 2007, Sealaska Technologies exercised an option to purchase an additional 39.9 percent of MBS for $5.5 million, all of which was allocated to goodwill.

(c) Olympic Fabrication, LLC

In December 2006, Kánaak purchased the assets of Olympic Tool and Engineering, Inc., for $1.3 million. Olympic Fabrication, LLC, was formed in December 2006 as a wholly owned subsidiary of Kánaak. There were no intangible assets related to this acquisition.

(d) Kingston Environmental, LLC

In June 2007, Sealaska Environmental Services, LLC, a wholly owned subsidiary of Sealaska purchased 51 percent of Kingston Environmental Services, Inc. for $7.6 million. In addition, Sealaska purchased 51 percent of Kingston Supply, LLC, for $1.0 million. Sealaska acquired net current assets approximating $1 million; property, plant and equipment of $1.2 million; backlog of $.7 million; customer relationship of $2.7 million; goodwill of $5.1 million; and recorded minority interest of $2 million. Sealaska also issued a non-recourse note payable of $2.7 million, whose payment is contingent on occurrence of subsequent events as part of the purchase price of Kingston Environmental, LLC.

(3) alaska native claims settlement act

Sealaska was incorporated in 1972 as a Regional Alaska Native Corporation pursuant to the provisions of ANCSA. Sections 7(i) and 7(j) are significant to the consolidated financial statements and are further described herein. Under the provisions of ANCSA, Sealaska has received, or expects to receive, conveyance of approximately 375,000 acres of land in the Tongass National Forest in Southeast Alaska of which it will own the surface and subsurface estate. At December 31, 2007, Sealaska has received conveyance of approximately 290,800 acres.

ANCSA also provides for selection of land in Alaska by the Village and Urban Corporations formed thereunder, the subsurface estate of which accrues to the related regional corporations. It is anticipated that the Village and Urban Corporations in Sealaska’s region will receive conveyance to 286,400 acres of land formerly part of the Tongass National Forest of which Sealaska will own the subsurface estate. Of the approximately 286,400 acres, conveyance has been received of approximately 278,100 acres. As described in Note 8, the land and related surface and subsurface resources received under ANCSA are carried at zero value in the accompanying consolidated financial statements.

Section 7(i) of ANCSA requires that each Alaska Regional Corporation that received revenue or value from certain resources conveyed pursuant to ANCSA distribute 70 percent of the related net revenues to 12 of the 13 Regional Corporations, including the distributing corporation. Sealaska and the other Regional Corporations have entered into a Section 7(i) Settlement Agreement, which

establishes specific definitions and methods for calculating shareable revenues. Revenues received by Sealaska from the timber resources and subsurface estate obtained through ANCSA are subject to the revenue sharing provisions of Section 7(i) except that subsurface resources, commonly known as sand, rock and gravel, are excluded from Section 7(i) revenue sharing. Distributions to Sealaska from other Regional Corporations under the provisions of Section 7(i), after reductions for distributions required by Section 7(j) of ANCSA, are recorded as income in the fiscal year the amounts become determinable and collection is reasonably assured. Section 7(j) of ANCSA requires that not less than 50 percent of monies received by Sealaska from other Regional Corporations under Section 7(i) must be distributed to Village Corporations,

Corporation 2007 2006 2005 2004 2003Totals Past

5 Yrs

Ahtna, Incorporated $ — $ — $ — $ — $ — $ —

Aleut Corporation — — — — — —

Arctic Slope Regional Corporation 22,809 13,375 7,792 3,079 4,322 51,377

Bering Straits Native Corporation — — — — — —

Bristol Bay Native Corporation — — — — — —

Calista Corporation — 426 122 — — 548

Chugach Alaska Corporation — — — — — —

Cook Inlet Regional, Incorporated 992 883 485 285 343 2,988

Doyon, Limited — — — — — —

Koniag, Incorporated — 50 — — — 50

NANA Regional Corporation, Inc. 7,651 4,146 2,252 1,350 912 16,311

Sealaska Corporation 1,433 490 1,689 2,041 2,286 7,939

Total Received $ 32,885 $ 19,370 $ 12,340 $ 6,755 $ 7,863 $ 79,213

shareholders of Urban Corporations and At-Large shareholders. Required distributions to other Regional Corporations are due 90 days following the end of the fiscal year and unpaid distributions incur interest at the prime rate plus 5 percent. Required distributions to Village Corporations, shareholders of Urban Corporations, and At-Large shareholders are based on the ratio of the total number of Sealaska shares owned by shareholders of Village Corporations, by shareholders of Urban Corporations and by At-Large shareholders.

A five-year summary of Section 7(i) payments received from other Alaska Native Regional Corporations (including Sealaska’s share distributable to Sealaska) required by Section 7(i) of ANCSA, and subject to the Section 7(i) Settlement Agreement follows:



59

The total revenue distribution by Sealaska Corporation, per Section 7(i) of ANCSA and the Section 7(i) Settlement Agreement between the 12 Alaska Native Regional Corporations dated 1982, is $315.5 million.

Sealaska accrues and expenses an amount determined by applying the provisions of Section 7(i) to applicable active revenue and expense transactions as they are recognized in the consolidated financial statements. Sealaska recorded a noncurrent liability representing the estimated distribution payable for near-term timing differences between the recognition of revenues and expenses for financial reporting and Section 7(i) reporting purposes.

A summary of the composition of natural resource revenue-sharing expense as presented in the accompanying consolidated statements of operations is as follows:

(4) investments

Investments consist of the following:

2007 2006

Investment & Growth:

Common stock $ 47,858 $ 43,574

Money market 8,328 17,227

Certificates of deposit 1,957 435

Accrued interest, dividends and other 217 756

Total Investment & Growth 58,360 61,992

Investment & Growth long-term portion:

Private equity funds 16,430 17,296

Permanent Fund:

Common stock 58,519 57,621

Investment in Alaska Native Wireless — 15,155

Private equity funds 28,002 18,519

Private equity—real estate 6,727 5,383

Money market, accrued interest, dividends and other 12,432 2,527

Total Permanent Fund 105,680 99,205

Endowment Fund:

Mutual fund 6,034 4,015


Total Endowment Fund 6,034 6,056

Elders’ Settlement Trust:

Mutual fund 7,966 4,949


Total Elders’ Settlement Trust Fund 7,966 8,010

Other investments 2,851 2,361

Total investments $197,321 $194,920

Dollars are in thousands. As of December 31.

2007

2006 2005

Revenue from other Regional Corporations $ 31,452 $ 18,880 $ 10,651

Portion of revenue from other Regional Corporations distributable to Village Corporations, shareholders of Urban Corporations and At-Large shareholders

(15,726) (9,440) (5,325)

Portion of Sealaska revenue currently distributable to shareholders of Urban Corporations, At-Large shareholders and other ANCSA corporations under Section 7(i) and 7(j)

(6,005) (2,057) (7,093)

$ 9,721 $ 7,383 $ (1,767)

(Increase)/decrease in non-current 7(i) and 7(j) liability 4,659 (1,010) 4,046

Natural Resource revenue sharing under Sections 7(i) and 7(j)

$ 14,380 $ 6,373 $ 2,279


Corporation 2007 2006 2005 2004 2003Totals Past

5 Yrs

Ahtna, Incorporated $ 97 $ 33 $ 115 $ 139 $ 155 $ 539

Aleut Corporation 294 101 347 419 470 1,631

Arctic Slope Regional Corporation 339 116 399 482 540 1,876

Bering Straits Native Corporation 574 196 676 817 915 3,178

Bristol Bay Native Corporation 489 167 577 697 781 2,711

Calista Corporation 1,206 412 1,421 1,717 1,923 6,679

Chugach Alaska Corporation 173 59 204 247 276 959

Cook Inlet Regional, Incorporated 567 194 669 808 905 3,143

Doyon, Limited 821 281 968 1,169 1,310 4,549

Koniag, Incorporated 303 104 357 431 483 1,678

NANA Regional Corporation, Inc. 437 149 516 623 698 2,423

Sealaska Corporation 1,433 490 1,689 2,041 2,286 7,939

Total Payments $ 6,733 $ 2,302 $ 7,938 $ 9,590 $ 10,742 $ 37,305

A five-year summary of the payments to Alaska Native Regional Corporations required by Section 7(i) of ANCSA and subject to the Section 7(i) Settlement Agreement follows:




61

Following a shareholder advisory vote in 1987, the Sealaska Board of Directors designated certain funds held in investment securities and related investment earnings be held for long-term uses (Permanent Fund) and, accordingly, such funds were not available for current operations, unless necessary.

Additionally, endowment funds have been established for which the earnings accrue to the benefit of the Sealaska Heritage Institute scholarship program and the Alaska Native Brotherhood.

During 1991, Sealaska’s shareholders voted to establish an Elders’ Settlement Trust (the Trust). Accordingly, and pursuant to ANCSA, the Sealaska Board of Directors established the Trust for the benefit of shareholders.

Certain Sealaska directors are trustees of the Trust. A noncurrent liability was established for future one-time distributions that will be made from the Trust to shareholders who attain the age of 65 years. The amount distributed during 2007, 2006, and 2005 was $327,000, $348,000, and $373,000, respectively. A total of nearly $8.1 million has been distributed since the Trust was established.

As noted above with the Permanent Fund, the Endowment Funds, Elders’ Settlement Trust, and the Directors’ Deferred Compensation Fund are available to fund current operations, although these will only be used if necessary.

Investment earnings consist of the following components:

During 2000, the Company entered into two limited partnerships that invest in early stage development companies. The partnership agreements require Sealaska to invest a total of $10 million. At December 31, 2007, Sealaska has invested $8.8 million and owns approximately 2 percent and 11 percent of the two limited partnerships. Sealaska’s remaining commitment is due when called by the general partner. If Sealaska cannot or decides not to make the additional investment when called, then the general partner, at its discretion, has the right to sell Sealaska’s investment.

In March 2004, the Company entered into a limited partnership in a private equity energy fund. Sealaska Corporation’s commitment is for $21 million, and as of December 31, 2007, Sealaska has a remaining capital commitment of $1.3 million. Over the life of the fund, $10.8 million in capital has been returned, and $30.2 million in earnings has been paid to Sealaska.

In January 2005, Sealaska entered into a private equity realty partnership. The Company’s commitment is $8 million with an investment of $6.8 million as of December 31, 2007. Over the life of the fund, $2.1 million in capital has been returned and $1.0 million in earnings has been paid to Sealaska.

In October 2005, Sealaska entered into an additional limited partnership in private equity energy funds. Sealaska’s commitment is $15 million with $8.7 million invested as of December 31, 2007.

In January 2007, Sealaska entered into a limited partnership in a private equity value

investment fund. Sealaska’s commitment is $7.5 million with $6.4 million invested as of December 31, 2007

International BioResources, LLC

International BioResources, LLC, was sold during the fourth quarter 2006, resulting in a gain of $5.6 million excluding sale expenses. A small portion, IBR II, was excluded from this sale. Sealaska retained a 12.3 percent interest in IBR II, the remaining portion. In February 2007, the remaining interest in IBR II was sold, resulting in a gain (excluding sale expenses) of $2.2 million.

2007

2006 2005

Unrealized gains (losses) $(4,150) $ 7,184 $ 7,739

Alaska Native Wireless — 1,501 1,389

Total unrealized gains (losses) (4,150) 8,685 9,128

Less Elders’ Settlement Trust portion of ANW — (227) (210)

Less endowment portion of ANW — (151) (140)

Total unrealized gains (losses) reported as business income (4,150) 8,307 8,778

Realized net gains 25,939 26,621 15,564

Total investment earnings: $ 21,789 $ 34,928 $ 24,342


(5) receivables

Receivables consist of the following:

2007 2006

Trade accounts receivable, less allowance for doubtful accounts of $488 and $252

$ 16,053 $ 20,725

Other 6,044 10,694

Total receivables $ 22,097 $ 31,419


(6) inventOries

Inventories consist of the following:

2007 2006

Timber — finished goods $ 2,989 $ 3,374

Plastics:

Raw materials

Work-in-progress

Finished goods

2,823

1,346

1,943

3,861

452

1,277

Other 9 673

Total inventories $ 9,110 $ 9,637




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(7) prOperty and equipment

Property and equipment consist of the following:

2007 2006

Buildings, leaseholds and improvements $ 15,015 $ 14,756

Equipment and furnishings 35,436 31,079

Logging roads, yards and camps 169,804 165,273

Reforestation and silviculture costs 13,559 11,897

Total property and equipment 233,814 223,005

Less accumulated depreciation (200,379) (191,818)

Construction in progress 1,559 845

Land 21,146 10,120

Total net property and equipment $ 56,140 $ 42,152


Sealaska incurs costs related to the selection of ANCSA land and related resources and related to the potential exchanges of such property. These costs are capitalized as part of the basis in either the land or the related resources (such as timber). Costs attributable to resources will be amortized as the related resource is harvested.

Any cost of timber, timberland and mineral resources carried in the accompanying consolidated balance sheets, and related depletion expense, is attributable to timber that Sealaska, from time to time, purchases from others. During 2005 and 2004, management revised its estimates regarding the remaining future harvest volumes of certain timber areas. Each change required that an impairment analysis be performed in accordance with SFAS No. 144. The estimated undiscounted future cash flows generated by the roads in these timber areas were less than their carrying value.

The carrying value of these roads were reduced to fair market value resulting in

2007

2006 2005

Revenues $ 38,678 $ 51,751 $ 57,803

Board feet (unaudited) 48,566 81,577 94,582


Land held for development as commercial, recreational or residential property totaling $12.3 million and $2.1 million at December 31, 2007 and 2006, respectively, is included in the caption “Land” above.

(8) timber, timberland and mineral resOurces

As of December 31, 2007, Sealaska has received approximately 290,800 acres of land under the provisions of ANCSA, as described in Note 3. Under accounting principles generally accepted in the United States of America, specifically Accounting Principles Board Opinion No. 29, assets received in nonmonetary transactions are recorded at their estimated fair value at the transaction date unless the fair value is not determinable within reasonable limits due to major uncertainties, in which case the assets received are recorded, and remain, at a value of zero. It was not practical for

Sealaska to determine the estimated fair value of the resources received on the date of receipt within reasonable limits for financial reporting purposes. Accordingly, Sealaska carries assets received under ANCSA at zero value. However, these assets have significant economic value to Sealaska.

Because timber received under ANCSA is carried at zero value, there is no charge to operations for depletion when the timber on ANCSA land is harvested and sold. However, the direct costs of harvesting are reported as costs of products and services in the accompanying consolidated statements of operations. Estimates of the remaining volume and value of harvestable standing timber received under ANCSA vary greatly based upon assumed fluctuations in future log market conditions. For economic and cultural reasons, it is probable that not all of the lands will be harvested. A summary of the volume of Sealaska’s ANCSA timber sold and related revenue is as follows:

an impairment charge of $599,000 and $431,000 for the years ended December 31, 2007 and 2006, respectively, recorded in natural resources costs of goods sold on the income statement. Management estimated fair value of the roads using discounted anticipated net future cash flows.

Sealaska has asset retirement obligations (AROs) arising from regulatory requirements to perform certain asset retirement activities at the time that certain road systems are maintained or rehabilitated. The liability was initially measured at fair value and subsequently is adjusted for accretion expense and changes in the amount or timing of the estimated cash flows. The corresponding asset retirement costs are capitalized as part of the carrying amount of the related long-lived asset and depreciated over the asset’s remaining useful life. The following table presents the activity for the ARO’s for the year ended December 31, 2007 and 2006:

2007 2006

Balance at beginning of year $ — $ —

Additional obligations incurred 1,317 —

Obligations settled in current period — —

Changes in estimates including timing — —

Accretion expense (146) —

Balance at the end of the year $ 1,171 $ —




65

(9) nOte receivable

(a) San Pasqual

During late 2000 and early 2001, Sealaska advanced $14.7 million to the San Pasqual Indian Tribe for the construction of a Gaming Facility (the Facility) in Southern California. Under the loan agreement, Sealaska earns interest at a fixed rate and receives a monthly management fee. The note receivable is collateralized by the Facility’s revenues and equipment and is nonrecourse to the borrower.

In accordance with the terms of the agreement, all principal and interest payments were deferred until the opening date of the Facility and were then due in June 2003. The Facility opened in April 2001; however, Sealaska did not receive any principal or interest payments during 2001 due to lower than planned revenues since opening the Facility. Sealaska’s rights as lender were subordinate to a bank loan, and Sealaska worked with other creditors and management of the Facility to renegotiate the repayment terms.

Because Sealaska participates in the Facility’s expected profits and because the loan is nonrecourse to the borrower and the borrower did not make a substantial equity investment in the Facility, Sealaska was required to account for the loan similar to a real estate joint venture ownership interest in the Facility, rather than as a traditional note receivable. Specifically, FASB Emerging Issues Task Force Issue No. 84-4, Acquisition, Development and Construction Loans (EITF 84-4), requires that Sealaska apply the accounting provisions of Statement of Position No. 78-9, Accounting for Investments in Real Estate Joint Ventures (SOP No. 78-9), issued by the American Institute of Certified Public Accountants. Accordingly, Sealaska recorded its share of the Facility’s earnings as the amounts due under the terms of the loan agreement but limited to the amount that Sealaska would receive or lose if the Facility were to liquidate all of its assets at their recorded balances and distribute the resulting cash to creditors and investors with their respective priorities. During 2002, Sealaska negotiated terms

(11) lOng-term debt and line Of credit

Long-term debt consists of the following:

2007 2006

Note payable to a bank under a revolving term loan collateralized by timber and log inventory, accounts receivable and other specified assets and accounts of the Corporation, with a variable 30-day Farm Credit current discount note rate, (7.05 percent at 12-31-07), expiring March 2013

$ 4,000 $ 1,209

Note payable to a bank under a revolving term loan collateralized by timber and log inventory, accounts receivable and other specified assets and accounts of the Corporation, this note was renegotiated into the variable 30-day Farm Credit current discount note rate (above)

— 3,571

Note payable to a bank under a revolving term loan collateralized by timber and log inventory, accounts receivable and other specified assets and accounts of the Corporation, with a fixed interest rate of 5.25 percent to be renegotiated in 2008, with the note expiring March 2013

1,969 2,344

Note payable to a bank under a revolving term loan collateralized by timber and log inventory, accounts receivable and other specified assets and accounts of the Corporation, with a fixed interest rate of 7.5 percent to be renegotiated in 2009, with the note expiring March 2013

1,810 2,155

Mortgage payable, collateralized by land and building, with interest at the prime rate minus .5 percent (6.75 percent at 12-31-07), due August 2011

2,930 3,334

Note payable to Pacific Gulf LLC; collateralized by land; interest at 8 percent through October 2009 and 10 percent thereafter; interest only through October 2009; principle due in 100,000 monthly installments with final due date October 2010

8,250 —

Note payable by Kánaak Iowa to Nypro, Inc., an affiliated partner with Sealaska Corporation

3,478 2,343

Other 2,400 998

Total long-term debt 24,837 15,954

Less current portion (2,914) (1,736)

Total long-term debt less current portion $ 21,923 $ 14,218


Scheduled principal maturities of long-term debt and lines of credit are as follows:

2008

2009

2010

2011

2012

Thereafter

$ 2,914

2,406

10,643

2,039

1,506

5,329

Total $ 24,837


with the San Pasqual Indian Tribe to receive approximately $20.9 million in settlement of the outstanding loan and accrued interest, and recorded a gain of approximately $8.7 million in connection with the settlement.

The initial capital investment in the casino was repaid in 2002. The Company’s investment includes a continued interest, which expires in 2010. The continued interest is carried on the balance sheet at zero value. The earnings from the Company’s carried interest were $4.0 million in 2007, $3.4 million in 2006, and $3.0 million in 2005.

(10) investment in alaska native Wireless

In 2001, Sealaska and other investors formed a limited liability company, CTANW. CTANW and a subsidiary of AT&T Wireless (AT&T) formed Alaska Native Wireless LLC (ANW). Sealaska applies the prescribed “equity method” of accounting for its investment in CTANW, since it can exert sufficient control, as measured under that approach. In applying this method, earnings are determined in accordance with Statement of Position 78-9, Accounting for Investments in Real Estate Ventures, which defines how the Corporation should accrue increased asset value and related equity in earnings.

In 2002, CTANW and AT&T agreed to modify the terms of their investment in Alaska Native Wireless. The agreement modifications resulted in an early distribution from ANW to CTANW and, in turn, to Sealaska. In December 2002, Sealaska received a $66.7 million cash distribution from CTANW, which was comprised of previously undistributed earnings together with a partial return of its original investment. In 2007, the residual bond investment matured and the Corporation received the full balance of $20.3 million. As of December 31, 2007, Sealaska holds no stake in this investment. Total earnings of $5.4 million were recorded over the life of the bond from the initial investment of $14.9 million.



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(12) incOme taxes

The income tax provision includes the following for the years ended December 31:

Net deferred tax assets and liabilities include the following as of December 31:

Sealaska has recorded a net deferred tax asset of $26.7 million, which primarily reflects (a) estimated future benefit of $381.2 million federal and $340.3 million state net operating loss (NOL) carryforwards which expire in varying amounts from 2008 to 2025, and (b) basis differences for significant natural resources received pursuant to ANCSA, which have no carrying value in the accompanying consolidated financial statements but have substantial basis for domestic tax reporting purposes. A valuation allowance has been established reducing the maximum possible benefit of these carryforwards to management’s estimate of the benefit likely to be realized. Realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards and basis differences. Although realization is not assured, management believes it is more likely than not that all of the recorded net deferred tax assets will be

realized. Net deferred tax assets considered realizable are adjusted annually dependent on management’s estimate of future earnings. An increase or decrease in management’s estimate of the total taxable income that will be generated during the carryforward period will have a corresponding increase or decrease in net deferred tax assets considered realizable, with the exception of certain payments made by subsidiaries in 2005, 2006 and 2007.

During the periods presented above and prior periods, tax depletion arising from Sealaska’s ANCSA resources has offset all other federal and state taxable income and Sealaska has not paid federal or state income taxes except related to the activities of certain controlled subsidiary operating outside Alaska.

2007 2006 2005

Computed “expected” tax expense $ 10,352 $ 15,298 $ 8,560

State income tax, net of federal tax 1,942 2,790 1,561

Change of valuation allowance 7,697 (35,466) (21,071)

Expiration of net operating losses and other 3,380 20,436 10,894

Addition of ANSCA assets (22,485) — —

Other (477) 778 (38)

$ 409 $ 3,836 $ (94)


2007 2006

Net operating loss carryforwards $ 155,003 $ 167,784

Land resource basis difference 229,168 219,128

Fixed assets 14,454 11,872

Unrealized gains and investments (14,260) (16,302)

Other 6,909 (96)

391,274 382,386

Valuation allowance (364,607) (356,910)

Total deferred tax asset 26,667 25,476

Less current portion (3,347) (4,286)

Total long-term deferred tax asset $ 23,320 21,190


2007 2006 2005

Current income tax expense (benefit):

Federal $ 1,018 $ 159 $ 292

State 919 77 89

Foreign (337) 126 70

Total 1,600 362 451

Deferred income tax expense (benefit):

Federal (1,012) 2,953 (463)

State (179) 521 (82)

Total (1,191) 3,474 (545)

Income tax expense (benefit) $ 409 $ 3,836 $ (94)


The provision for income taxes differ from the “expected” amount (computed by applying the US federal corporate tax rate of 34 percent to earnings before taxes) as follows for the years ended December 31:

Sealaska has the following lines of credit available at December 31, 2007 (no amounts outstanding):

Amount Interest Rate Collateral

$3,500,000 Prime + .50 percentBusiness assets of the borrower. assignment of life insurance

$3,000,000 LIBOR + 2.80 percent Business assets of the borrower



69

(14) retirement plans

Sealaska has a 401(k) plan for substantially all employees meeting certain eligibility requirements. Participants may contribute up to 25 percent of their eligible compensation to the plan, subject to the limits of Section 401(k) of the Internal Revenue Code. Sealaska matches 100 percent of the participant’s contribution up to 2 percent of their eligible compensation. All participants are immediately vested in the preceding contributions. Sealaska also contributes 8 percent of the participant’s eligible compensation to the plan and these contributions are vested over a five-year period. Contributions to the plan are based upon employees’ total yearly contributions and base pay. Total contributions to the plans were $781,000, $653,000 and $610,000 in 2007, 2006 and 2005, respectively.

Kánaak’s predecessor did not comply with the filing requirement related to its retirement plan for the years ending December 31, 2001, 2000 and 1999. Sealaska’s management has complied with the filing requirements of the US Department of Labor. Penalties assessed, if any, will be paid by Sealaska but at December 31, 2007 no amount has been accrued as it is not currently determinable.

(15) dividends

Sealaska’s Board of Directors declared dividends from Permanent Fund earnings and natural resource revenue sharing distributions as follows:

(16) descriptiOn Of the business and segment infOrmatiOn

Sealaska, together with the subsidiaries through which the Company’s businesses are conducted, is a diversified Alaska Native Corporation with operations in the following business segments: natural resources, manufacturing, investments and services.

Description of the Business

Natural Resources

The natural resources division is responsible for the land management and land stewardship functions of all Sealaska lands. Management activities include collection of escrow receipts, cadastral survey of ANCSA lands, and maintenance of lands records and other activities vital to land ownership.Sealaska Timber Corporation is responsible for the harvesting of timber and marketing of logs into the highest value export and domestic markets. Harvesting and marketing activities include the capturing of business opportunities and market position to enable Sealaska to return higher income and cash flow for the benefit of all shareholders.

Manufacturing

The manufacturing division is comprised of a contract manufacturer of injection molded components, a full service prototype and limited-run production facility and a weld fabricator. The contract manufacturer specializes in high quality plastics injection molded products and value added manufacturing services in partnership with customers in the consumer/industrial, electronics/telecommunications, healthcare and automotive industries. Secondary value added services include product design, engineering, tooling, automated molding and some secondary value added services including shielding, painting, decorating, graphics and assembly. The prototype and

limited-run facility specializes in machining models, stereolithography, cast urethane and limited-run injection molding. The weld fabricator specializes in large assemblies and components for the aerospace and nuclear industries.

Services

The services division provides environmental construction and remediation, environmental assessments consulting, and engineering services to federal government agencies, private, and commercial clients through wholly owned subsidiary Sealaska Environmental Services, and 51 percent owned Kingston Environmental Services, Inc. The services division expanded in 2006 and now provides services in the disciplines of information technology (IT) strategy and consulting, business intelligence, application services, infrastructure management, managed services and data processing through the 51 percent owned subsidiary Managed Business Solutions, LLC.

Investments

Sealaska’s securities portfolio consists of two separate investment accounts that are managed to achieve different objectives: the Permanent Fund is managed long term with the objective of shareholder dividends, and the Investment Growth fund is managed shorter term, and is used for operational needs and new investments. Sealaska investments follow a disciplined investment philosophy by building off existing strengths, exercising patience and selectivity in making investment, adding investments that will achieve consistency in growth and earnings, and being prepared to exit investments or potential investments if upside opportunities arise or if problems change expected returns, and by seeking strong and strategic partnerships; distributing risk and benefit; and establishing a new platform of companies for future growth.

2007 2006

Elders’ distribution payable $ 6,146 $ 5,991

Shareholders’ distribution payable 644 485

Endowments payable 3,035 3,056

Voluntary retirement deferrals 1,520 1,335

Total $ 11,345 $ 10,867


2007 2006 2005

Distribution from Permanent Fund 4.13 3.84 3.60

Distribution from Operations 3.48 2.18 0.73

7(i) and 7(j) Distributions 9.02 5.93 3.75

Total Distribution (per share) $ 16.63 $ 11.95 $ 8.08

Total Distribution — Permanent Fund Earnings 12,540 9,483 6,821

Total Distribution — 7(i) revenue sharing 10,289 6,764 4,277

Total (dollars in thousands) $ 22,829 $ 16,247 $ 11,098

(13) Other nOncurrent liabilities

The liability portion of the Elders’ Settlement Trust and Endowment Settlement Trust are included in other noncurrent liabilities on the Consolidated Balance Sheet. Balances of other noncurrent liabilities at December 31 are:



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(17) cOmmitments and cOntingencies

Management is not aware of or party to any legal action that would have a material adverse effect on the consolidated financial condition, results of operations or cash flows of Sealaska. Sealaska, in its normal course of activities, is exposed to regulatory and environmental matters. In the opinion

of management, the disposition of these matters is not expected to have a material adverse effect on Sealaska’s financial condition, results of operations or liquidity.

Sealaska is currently leasing facilities and manufacturing and office equipment from a variety of vendors. Minimum annual rental commitments on operating leases at December 31, 2007, are as follows:

These leases primarily relate to Kánaak. The facility lease payments are subject to an annual increase based on changes in the cost of living, as reflected by the Consumer Price Index. Kánaak has options to renew, at substantially similar terms, the facility leases for an additional two to 10 years.

During October 2006, Sealaska committed to advance up to $500,000 for the working capital needs of the Cloverdale Rancheria Tribe of Pomo Indians of California to develop a new gaming casino near the city of Cloverdale in Sonoma County, California. Sealaska has expensed these advances to date and will continue to expense advances until critical project milestones are reached. All other amounts relating to the project have been capitalized. In 2007, Sealaska increased its commitment to the prospective development project to a total of $31.9 million which includes preconstruction expenses and land purchases. All principal and interest payments are deferred until the project is bank financed, which is expected to be in 2009. The Company earns interest at favorable rates. Additional advances funding the remaining commitment have been made through December 2007.

2008

2009

2010

2011

2012

Thereafter

$ 2,508

2,157

2,048

1,262

840

1,170

Total $ 9,985


2007 2006

2005

Net earnings before income taxes and discontinued operations:

Natural resources $ 7,720 $ 9,859 $ 9,102

Manufacturing 1,155 1,816 1,029

Investments 21,316 34,442 23,706

Services 4,345 1,985 76

Corporate and other (14,739) (13,563) (11,899)

Total segment net earnings 19,797 34,539 22,014

Net earnings not allocable to a segment:

Natural resource revenue sharing under Sections 7(i) and 7(j)

14,380 6,373 2,279

Loss from discontinued operations — — 1,103

Other, net (2,136) (339) 173

Equity in earnings (losses) of affiliates — (82) (159)

Gain on sale of International BioResources, LLC 2,152 5,694 —

Minority interest (3,747) (1,190) (233)

Net income before taxes 30,446 44,995 25,177

Income tax benefit (expense) (409) (3,836) 94

Net income $ 30,037 $ 41,159 $ 25,271

Total assets by operating segment:


Manufacturing 22,538 33,720 25,309

Investments 197,321 194,920 173,464

Services 8,244 18,497 1,466

Corporate and other 121,180 65,606 48,259

Total assets $ 360,944 $ 331,077 $ 289,360

Capital expenditures by segment:



Services 695 689 40

Corporate and other 13,820 3,747 939

Total capital expenditures $ 22,759 $ 11,574 $ 10,092

Depreciation, impairment and amortization by segment:



Services 2,081 18 4

Corporate and other 832 746 600

Total depreciation, impairment and amortization $ 11,543 $ 7,417 $ 15,064


SEALASKA COPORATION

Corporate HeadquartersOne Sealaska Plaza, Suite 400Juneau, AK 99801TEL: 907.586.1512FAX: 907.586.2304SHAREHOLDER TOLL-FREE LINE:

800.848.5921www.sealaska.com

Seattle Office13810 SE Eastgate Way, Suite 420Bellevue, WA 98005TEL: 425.283.0600FAX: 425.283.0650

Sealaska Heritage InstituteOne Sealaska Plaza, Suite 301Juneau, AK 99801TEL: 907.463.4844FAX: 907.586.9293www.sealaskaheritage.org www.alaskanativeartists.com

OUTSIDE COUNSEL

Simpson, Tillinghast & Sorensen, P.C.One Sealaska Plaza, Suite 300Juneau, AK 99801

INDEPENDENT AUDITORS

KPMGPhillips Tower South701 West 8th Avenue, Suite 600Anchorage, AK 99501

SEALASKA SUBSIDIARIES:

NATURAL RESOURCES

Sealaska Timber CorporationHeadquarters2030 Sea Level Drive, Suite 202Ketchikan, AK 99901TEL: 907.225.9444FAX: 907.247.9444www.sealaskatimber.com

Marketing and Sales 13810 SE Eastgate Way, Suite 420Bellevue, WA 98005TEL: 425.283.0615FAX: 425.283.0660

Alaska Coastal AggregatesOne Sealaska Plaza, Suite 400Juneau, AK 99801TEL: 907.586.9122FAX: 907.463.3897

SERVICES

Sealaska Environmental Services13810 SE Eastgate Way, Suite 420Bellevue, WA 98005TEL: 425.283.0630FAX: 425.283.0650

Kingston Environmental Services15450 Hangar RoadKansas City, MO 64147TEL: 816.524.8811FAX: 816.525.5027www.kingstonenv.com

Managed Business Solutions12265 Oracle Blvd., Suite 105Colorado Springs, CO 80921TEL: 719.314.3400FAX: 719.314.3499www.mbshome.com

MANUFACTURING

Nypro Kánaak Alabama

208 Nypro Lane

Dothan, AL 36305

TEL: 334.702.2583

www.nyprokanaak.com

Nypro Kánaak Guadalajara

Ignacio Jacobo #23

Parque Industrial Belenes

Zapopan Jalisco, MX 45101

TEL: 52 (33) 3819.5000

www.nyprokanaak.com

Nypro Kánaak Iowa400 North Harvey RoadMt. Pleasant, IA 52641TEL: 319.385.4426www.nyprokanaak.com

Olympic Fabrication

410 W Enterprise Road

Shelton, WA 98584

TEL: 360.426.7878

FAX: 360.432.0747

Synergy Systems12328 134th Court NERedmond, WA 98052TEL: 425.820.2250 FAX: 425.821.3848www.synergyproto.com

Portrait photography by Scott Areman, Jennifer Rutledge, Don Douglas, Guillermo Flores and James Shankle. Other photography by Scott Areman, Jennifer Rutledge, Getty Images, iStock Photo and PunchStock. Printed in the U.S.A. Copyright 2008 Sealaska Corporation.

dIRECTORy

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Sealaska C

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OUR PEOPLE, OUR LAND, OUR CORPORATION