Kootznoowoo turns losses to profits

Village corporation pulling out of timber, airlines for real estate

Posted: Tuesday, September 05, 2000

The red ink has turned to black at Kootznoowoo Inc. But the turnaround has come at a cost of some jobs in Southeast.

Angoon's Native village corporation recently announced a $500,000 profit for 1999, a big change from 1998, when the company finished the year with a $4.4 million loss.

An even bigger change has come in the way Angoon's native village corporation is doing business. In a complete restructuring, it is selling its timber and airline operations, drastically reducing operating expenses and investing in commercial properties.

"We're looking for properties that fit our criteria -- commercial properties, office buildings, professionally managed buildings with a proven track record," said Carlton Smith, Kootznoowoo's CEO.

In February, Kootznoowoo kicked off its new plan by purchasing the $4 million Newport IX, a 72,000-square-foot office building in Albuquerque, N.M.

"You typically don't buy properties that are on the market," Smith said, noting that Newport wasn't for sale when Kootzoowoo first approached the owners. "We don't shop the Yellow Pages."

Instead, he said, the company has custom built two search engines to flag any potential real estate that fits its criteria, then Kootznoowoo approaches the owners. "We've examined 1,200 properties in the past 18 months," Smith said.

Smith became the CEO at Kootznoowoo in August 1998, roughly the same time the corporation was ready to bail out of the timber market.

Timber sales at Kootznoowoo decreased nearly 300 percent from the late 1980s to the late 1990s, while the organization's revenues dipped more than $10 million between fiscal years 1997 and 1998. This was a far cry from the previous 15 years, when Kootznoowoo's fortunes flooded Juneau alone with some $25 million, according to Smith.

Kootznoowoo's board knew a complete diversification plan was needed.

"We should have planned earlier but the fact is we're doing it now, while we still have money," said Kootznoowoo's board chairman, Dennis Starr.

The corporation's problems were compounded in late 1999 when Kootznoowoo purchased controlling interest in Taquan Air. After a $2.7 million loss in 1999, the company was liquidated. By the time all debts are collected its losses could total some $6 million.

As a result, the corporation hasn't distributed dividends for two years, angering some of the 956 shareholders.

"People thought we could ask for distributions any time we wanted at the expense of the corporation," Angoon Mayor Floyd Kookesh said. "Carlton came in and said, 'Distribution payments are out. You can't keep asking because there's no money to give.' You can't just keep going to that fat cow and milking it -- it got skinny, you know?"

The $500,000 profit isn't enough to warrant the distribution of dividends this year. In fact, Smith said, dividends won't happen for at least a few more years until the corporation can achieve sustained profitability.

Part of the corporation's modest profits in 1999 came through drastically reduced operating expenses, which included cutting management from 21 to six employees. That step alone saved about $800,000.

"Kootznoowoo isn't about paying management," Smith said. "We want to move economic benefits back to the employees."

The cuts weren't popular in Angoon, however. There, residents feel that their village corporation should be creating jobs for locals, not eliminating them, said Kookesh.

"Even though we helped some of them find (new) jobs, they just didn't understand," said Starr, the board chairman.

"As a shareholder, I don't have a problem with them trying to generate revenues. But as a mayor of the community with a high rate of unemployment, I need to tell them to invest in Angoon," Kookesh said. "People wonder what the hell we're doing in New Mexico. Why not Alaska?"

Smith responded, "Because the revenues aren't in Alaska. We need to focus on profitability right now. In the longer term, we should and will focus on employment opportunities."

Kookesh said there must be more of a balance between profits and employment, acknowledging it's a difficult line to toe.

"I'm of the belief that Kootznoowoo belongs in Angoon," Kookesh said. "You can say, 'This is for profit and we want to maximize our dollar.' But that just gives them the justification not to invest in our community."

About $11.3 million of Kootznoowoo's $16.2 million in total assets are invested in the stock market. Smith said those dollars will be reinvested in commercial properties, which will yield a higher and more stable return. He hopes to close on three more commercial properties in Dallas, Nashville, Tenn., and Salt Lake City before the year's end.

The organization's plan is to have a $50 million real estate portfolio after 10 years. He estimates after the year 2001 it will already have accrued $13 million in commercial properties.



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