Verso Paper Posts Second Quarter Loss
Aug. 11, 2010 - Verso Paper Corp. today reported financial results for the second quarter and six months ended June 30, 2010. Results for the periods ended June 30, 2010 and 2009 include:
- Net sales increased 34.5% to $401.1 million in the second quarter of 2010 from $298.1 million in the second quarter of 2009.
- Net loss before items of $42.8 million in the second quarter of 2010, or $0.82 per diluted share, compared to a net loss before items of $70.5 million, or $1.35 per diluted share in the second quarter of 2009.
- Net loss of $44.3 million, or $0.85 per diluted share, for the second quarter of 2010 compared to a net loss of $10.2 million, or $0.20 per diluted share, including $37.8 million in alternative fuel mixture tax credits and $25.5 million in net gains related to the early retirement of debt in the year-earlier period.
- Adjusted EBITDA before pro forma effects of profitability program of $35.6 million for the first six months of 2010 compared to ($5.3) million for the first six months of 2009. (Note: EBITDA and Adjusted EBITDA are non-GAAP financial measures and are defined and reconciled to net income later in this release).
Coated paper shipments for the second quarter of 2010 increased 4% compared to the first quarter of 2010 and improved significantly, increasing 41%, compared to the second quarter of 2009. Year over year market conditions have improved due to an improving economy, permanent and temporary capacity reductions in the industry, and new product development initiatives. Coated paper prices for the second quarter of 2010 increased 1.0% from the first quarter of 2010, as we began to implement previously announced price increases totaling $70 to $90 per ton. However, coated paper prices for the second quarter of 2010 were below last year’s second quarter levels, as prices declined throughout 2009 due to weak demand resulting from the global economic recession.
Verso’s net sales for the second quarter of 2010 increased $103.0 million, or 34.5%, as sales volume grew 36.0% compared to last year’s second quarter. Compared to the first quarter of 2010, net sales for the second quarter of 2010 increased 10.3% as sales volume grew 6.9%. The average sales price for all of our products decreased 1.1% from the second quarter of 2009; however, on a sequential quarter basis our average sales price for all of our products increased 3.2% as coated paper prices began to increase and the average sales price for pulp continued to rise. Verso’s gross margin was 9.1% for the second quarter of 2010 compared to (0.1)% for the same period in 2009. The improvement in our gross margin reflects no market-related downtime taken in the second quarter of 2010 compared to over 153,000 tons of market downtime taken in the second quarter of 2009, which resulted in $33.5 million of unabsorbed costs.
We continue to assess and implement, as appropriate, various cost reduction initiatives. Our company-wide cost reduction program produced approximately $10 million of savings during the second quarter of 2010. Management expects this program to yield an additional $31 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.
We also continue to develop and execute our renewable energy strategies. In the first half of 2010, we received $2.1 million in reimbursements from a $9.3 million American Recovery and Reinvestment Act of 2009 grant for the deployment of waste energy recovery technologies. In addition, we announced the launch of a $43 million renewable energy project at our mill in Quinnesec, Michigan, which will position the mill to meet more than 95% of its energy needs using renewable biomass sources.
“Our second quarter results continued to demonstrate significant year over year improvement in both shipments and EBITDA results,” said Mike Jackson, President and Chief Executive Officer of Verso. “Year over year, our coated volume was up 41% and sequentially up 4%. As we mentioned in our last quarterly call, we believe March pricing was the low point of the cycle, and based on second quarter pricing, that has proven to be the case. Price improvement for the quarter was slightly positive based on our announced second quarter increases. We expect to see continued upward price improvement in the third quarter, which is being supported by both our order activity and backlogs.
“We are particularly positive about the elements of our energy strategy that are being implemented, which we expect to result in a 25% reduction in energy intensity over the coming years.
“Verso has positioned itself for improved business conditions, as evidenced by our $28 million improvement in working capital, net of cash, driven by significant process improvements relative to raw material and MRO inventories, which were worked by our teams during the 2009 recession as well as our supply discipline over paper inventories. We look forward to continued overall business improvement results for the third quarter.”
Verso reported a net loss of $44.3 million in the second quarter of 2010, or $0.85 per diluted share, which included $1.5 million of charges from special items, or $.03 per diluted share, primarily due to costs associated with new product development. Verso had a net loss of $10.2 million, or $0.20 per diluted share, in the second quarter of 2009, which included net benefits of $60.3 million, or $1.15 per diluted share, primarily due to alternative fuel mixture tax credits and net gains related to the early retirement of debt.
Verso reported a net loss of $97.9 million, or $1.87 per share, for the first six months of 2010, which included $3.1 million of charges from special items, or $0.06 per diluted share, primarily due to costs associated with new product development. Verso had net income of $44.3 million, or $0.85 per diluted share, for the first six months of 2009, which included $172.7 million of net benefits, or $3.32 per share, primarily related to alternative fuel mixture tax credits and net gains related to the early retirement of debt.
Included in our results for the six months ended June 30, 2009, were $142.4 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 2010. Additionally, we recognized $34.2 million in pre-tax net gains from the early retirement of debt at a discount in the first half of 2009. We have excluded the impact of these items from our Adjusted EBITDA figures.
SOURCE: Verso Paper