Wise Metals loses Crown order

Pact's loss could have `material adverse effect,' maker of aluminum sheet says

August 18, 2006|By ALLISON CONNOLLY | ALLISON CONNOLLY,SUN REPORTER

Linthicum Heights-based Wise Metals Group LLC is losing one of its biggest customers, putting the future of the troubled aluminum sheet manufacturer in question.

In a filing with the Securities and Exchange Commission, the company disclosed that it will lose the beverage can sheet business of Philadelphia-based Crown Cork & Seal Co. Inc., one of the three largest beverage can manufacturers in the world, for the fourth quarter and all of 2007. Crown Cork & Seal agreed to continue buying sheet from Wise for its food products, though it represents a substantially smaller business.

Last year, Crown represented about 20 percent of Wise Metals' total net sales of $884 million.

"This will result in a substantial loss of volume for these periods, and to the extent it is not replaced with other volume could have a material adverse effect on our financial condition and results of operations," the Tuesday filing said.

Wise Metals filed a lawsuit against Crown last Friday in Alabama, claiming "breach of contract," the filing said.

Crown spokesman Michael F. Dunleavy declined to comment because of pending litigation.

Wise Metals is the world's third-largest producer of aluminum sheet for the beverage can industry, after Alcoa Inc. and Novelis Inc. Last year, Wise Metals shipped 764.7 million pounds of aluminum and scrap. The company employed 1,151 as of Dec. 31, including 31 at its corporate headquarters in Linthicum Heights.

Faced with unprecedented increases in the price of aluminum and rising energy costs, Wise Metals has been renegotiating contracts with its customers to cover the higher costs. The company had been working with Crown for the past six months to restructure the contract, but failed to come to a "fair" agreement, officials said yesterday in a statement.

"We had offered numerous alternatives, which Crown was not willing to accept," Wise Metals Group's chairman, president and chief executive officer, David F. D'Addario, said in the statement.

"Although Crown did make some concessions, they were insufficient to fully address our needs and obviously it has now chosen to move in a different direction," he said.

D'Addario declined to comment further, a spokesman said.

For the second time this week Standard & Poor's downgraded Wise Metals' credit rating. S&P reduced the rating to speculative or "junk" status Tuesday after Wise Metals posted a $16.5 million loss for the second quarter, compared with a $5.5 million profit a year earlier. It lowered Wise's rating further yesterday after learning about the loss of Crown business.

Wise is privately held but files its financials with the SEC because its debt is publicly traded.

"The downgrade reflects Wise Metals' negative cash flows, thin liquidity level, and increasing debt levels," S&P credit analyst Dominick D'Ascoli wrote Tuesday.

Company officials blamed the loss on contract price caps. Net sales improved for the second quarter, at $283 million compared with $231 million for the second quarter of 2005.

Earlier this year, during a conference call with analysts to discuss first-quarter results, D'Addario described 2006 as a "transition year," and warned that there would losses.

allison.connolly@baltsun.com

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