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Verso Paper Reports First Quarter Loss

May 6, 2010 - Verso Paper Corp. today reported financial results for the first quarter of 2010. Results for the quarters ended March 31, 2010 and 2009 include:

  • Net sales increased 26.7% to $363.6 million in 2010 from $287.1 million in 2009.
  • A net loss before items of $52.0 million in the first quarter of 2010, or $0.99 per diluted share, compared to a net loss before items of $57.9 million, or $1.11 per diluted share in the first quarter of 2009.
  • Net loss of $53.6 million, or $1.02 per diluted share, for the first quarter of 2010 compared to net income of $54.5 million, or $1.05 per diluted share, including $104.6 million in alternative fuel credits in the year-earlier period.
  • Adjusted EBITDA before pro forma effects of profitability program of $13.1 million for the first quarter of 2010 compared to $3.5 million for the first quarter of 2009.

OVERVIEW

Coated paper shipments improved significantly in the first quarter of 2010 compared to the first quarter of 2009 and fell only slightly compared to the seasonally stronger fourth quarter of 2009. Year over year market conditions have improved due to an improving economy, permanent and temporary capacity reductions, and new product development initiatives. However, coated paper prices for the first quarter of 2010 were below last year’s first quarter levels as prices remained under pressure throughout 2009 due to weak demand resulting from the global economic recession. Prices reached a trough during the first quarter, and we have announced price increases for our core products of $30 per ton effective April 1, 2010, and $40 to $60 per ton, effective June 1, 2010.

Verso’s net sales for the first quarter of 2010 increased $76.5 million, or 26.7%, as sales volume increased 50.1% compared to last year’s first quarter. The average sales price for all of our products fell 15.6% from the first quarter of 2009; however, on a sequential quarter basis the average sales price decreased only 3.1% as our coated paper prices have begun to stabilize and the average sales price for pulp has increased. Verso’s gross margin was 7.4% for the first quarter of 2010 compared to 6.3% in 2009. The compression in our gross margin for the first quarter of 2009 reflects $31.3 million of unabsorbed costs resulting from almost 140,000 tons of downtime. Our gross margin remained under pressure in the first quarter of 2010 due to continued low sales prices.

In response to market conditions, we continue to assess and implement, as appropriate, various expense reduction initiatives. Our company-wide cost reduction program produced approximately $9 million of savings during the first quarter of 2010 compared to approximately $10 million in the first quarter of 2009. Management expects this program to yield an additional $40 million in cost reductions over the next twelve months and continues to search for and develop additional cost savings opportunities. Included in this program are productivity improvements, material usage reductions, energy usage reductions, labor cost savings, material and chemical substitution, and workforce planning improvements.

Included in our results for the first quarter of 2009 are $104.6 million in pre-tax net benefits from alternative fuel mixture tax credits provided by the U.S. government for our use of black liquor in alternative fuel mixtures. Since the tax credit, as it relates to liquid fuels derived from biomass, expired on December 31, 2009, we did not recognize any benefit from this tax credit in the first quarter of 2010. Additionally, we recognized $8.7 million in pre-tax net gains from the early retirement of debt at a discount in the first quarter of 2009. We have excluded the impact of these items from our Adjusted EBITDA figures.

“Our first quarter business results show significant improvement from a shipments perspective over the first quarter of 2009,” said Mike Jackson, President and Chief Executive Officer of Verso. “Total sales volume increased by 46% for paper and 60% for pulp. Pricing, however, continued to be under pressure. Although price fell by 15.6% year over year, the first quarter represents, in our view, the bottom of the pricing cycle. We announced price increases of $70 to $90 per ton on our core products for the second quarter, due to both lower customer inventory levels and increased market place demand.

“At quarter’s end, we continue to see positive trends in our order booking activity and focused supply management. Our inventory, working capital and liquidity are all at very positive levels, and our core products, new specialty grades, and energy strategy execution are assuring that our company is well positioned for a favorable pricing and volume environment as we look toward the balance of 2010.”

Verso reported a net loss of $53.6 million in the first quarter of 2010, or $1.02 per diluted share, which included $1.6 million of charges from special items, or $.03 per diluted share, primarily due to costs associated with new product development. Verso had net income of $54.5 million, or $1.05 per diluted share, in the first quarter of 2009, which included net benefits of $112.4 million, or $2.16 per diluted share, primarily due to alternative fuel mixture tax credits and net gains related to the early retirement of debt.

SUMMARY RESULTS

Net Sales. Net sales for the first quarter of 2010 increased 26.7% to $363.6 million from $287.1 million for the first quarter of 2009, as total sales volume increased 50.1%, reflecting improved economic conditions. This increase was partially offset by a 15.6% decline in the average sales price per ton for all of our products.

Net sales for our coated and supercalendered papers segment increased 18.3% in the first quarter of 2010 to $302.8 million from $256.0 million for the same period in 2009, as the positive impact of a 46.0% increase in paper sales volume was partially offset by a 19.0% decrease in the average paper sales price per ton. Average sales prices for coated papers decreased steadily throughout 2009 in response to weak demand. On a sequential quarter basis, average sales prices for coated papers decreased 4.1%.

Net sales for our market pulp segment increased 111.7% to $37.4 million in the first quarter of 2010 from $17.7 million for the same period in 2009. This increase was due to a 60.3% increase in sales volume combined with an increase of 32.1% in average sales price per ton compared to the first quarter of 2009.

Net sales for our other segment increased 74.7% to $23.4 million in the first quarter of 2010 from $13.4 million in the first quarter of 2009. The improvement in 2010 is due to a 94.6% increase in sales volume, reflecting the continued development of new paper product offerings for our customers. Average sales price per ton decreased 10.2% compared to the first quarter of 2009.

Cost of sales. Cost of sales, including depreciation, amortization, and depletion, was $368.9 million in the first quarter of 2010 compared to $303.3 million in 2009, primarily reflecting the increase in sales volume. Our gross margin, excluding depreciation, amortization, and depletion, was 7.4% for the first quarter of 2010 compared to 6.3% for the first quarter of 2009. The compression in gross margin for the first quarter of 2009 reflects $31.3 million of unabsorbed costs resulting from almost 140,000 tons of downtime. Our gross margin remained under pressure in the first quarter of 2010 due to continued low sales prices. Depreciation, amortization, and depletion expenses were $32.1 million in the first quarter of 2010 compared to $34.3 million in the first quarter of 2009.

Selling, general, and administrative. Selling, general, and administrative expenses were $16.2 million in the first quarter of 2010 compared to $15.4 million for the same period in 2009.

Interest expense. Interest expense for the first quarter of 2010 was $32.3 million compared to $27.1 million for the same period in 2009. The increase in interest expense was primarily due to higher interest rates on outstanding debt in the first quarter of 2010.

Other income. Other income was $0.2 million for the first quarter of 2010, compared to $113.3 million for the first quarter of 2009. Included in the results for 2009 are $104.6 million in pre-tax net benefits from alternative fuel mixture tax credits provided by the U.S. government for our use of black liquor in alternative fuel mixtures. Since the tax credit, as it relates to liquid fuels derived from biomass, expired on December 31, 2009, we did not recognize any benefit from this tax credit in the first quarter of 2010. Verso also recognized $8.7 million in pre-tax net gains from the early retirement of debt at a discount in the first quarter of 2009.

About Verso
Based in Memphis, Tennessee, Verso Paper Corp. is a leading North American producer of coated papers, including coated groundwood and coated freesheet, and supercalendered and specialty products. Verso’s paper products are used primarily in media and marketing applications, including magazines, catalogs and commercial printing applications such as high-end advertising brochures, annual reports and direct-mail advertising.

SOURCE: Verso Paper




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