2000 was money-maker for Kaiser
Company reverses 1999's $54.1M loss with a $16.8M gain for the fiscal year
John Stucke - Staff writer
Kaiser Aluminum Corp. took a $33 million write-down of its idled Northwest smelters for the fourth quarter, company CEO Ray Milchovich told analysts Wednesday during a conference call.
Once listed as a $200 million asset, the smelters have a carrying value now of about $167 million. The drop is due to long-term metal price projections and the uncertainty surrounding the electricity market for the power-thirsty smelters.
Despite energy and labor troubles, Kaiser was a money-maker last year, Milchovich said.
He reported company profits of $16.8 million on sales of $2.169 billion for fiscal year 2000 that ended in December. In 1999, Kaiser posted a $54.1 million loss on sales of $2.044 billion.
Last year's financial outcome could have been different for Houston-based Kaiser had it not been able to reap $103.2 million by reselling its allotment of federal electricity supplied by the Bonneville Power Administration.
Subtract the electricity sales from operations, and Kaiser's operating earnings in 2000 were $3 million, compared with a $72 million operating loss in 1999.
The company continues to sell its BPA power this year, a lucrative move that could net the company hundreds of millions of dollars more.
While the electricity sales have helped Kaiser's bottom line, the prices portend the difficulties coming in October, Milchovich said. That's when Kaiser's new contract begins with BPA.
The problem for the company is twofold.
First, BPA wants Kaiser to share some of the proceeds from power sales and invest in new power generation projects.
If the company declines, the agency has said it is discussing the possibility of withholding the company's future federal electricity supply.
The company's resale of power is "100 percent" compliant with the existing BPA contract, Milchovich said, adding that he was "puzzled" by BPA's assertions.
Kaiser and BPA also disagree on the ability of the aluminum maker to build a new source of power generation.
The second problem confronting Kaiser in its negotiations with BPA is the uncertainty of electricity prices and supply.
Milchovich told analysts that Kaiser has a "keen interest" in continuing its smelter operations in the Northwest, but can't enter into a discussion about sharing proceeds until managers can find a profitable energy source and price scenario.
He said a cost-recovery clause in the new contract allows BPA to pass along costs to large power customers such as Kaiser, further blurring the company's ability to nail down power prices.
Milchovich said those problems -- high-priced power and reduced electricity availability -- cloud the future earnings of the Mead and Tacoma smelters.
"Given the current supply-demand balance of the region and the specific terms of our new five-year contract with BPA, the future earning capability of these facilities is unclear," Milchovich told analysts.
Analyst Anthony Rizzuto of Bear Stearns asked Milchovich to comment on the trial pitting the federal National Labor Relations Board and the United Steelworkers of America against Kaiser. The lawsuit seeks up to $337 million from Kaiser for unfairly locking Steelworkers out of the Kaiser plants.
Milchovich said the trial is scheduled to restart in mid-March. He said Kaiser believes it acted within the law.
Shares of Kaiser closed Wednesday up 4 cents in light trading.