Verso Paper First Quarter Loss Narrows on Better Pricing, Margins

May 9 ,2011 - Verso Paper Corp. today reported financial results for the first quarter of 2011. Results for the quarters ended March 31, 2011 and 2010 include:

  • Net sales increased 14.6% to $416.6 million in 2011 from $363.6 million in 2010.
  • Operating income of $14.1 million in 2011 compared to an operating loss of $21.5 million in 2010.
  • Net loss before items of $18.1 million in 2011, or $0.34 per diluted share, compared to a net loss before items of $52.0 million, or $0.99 per diluted share in 2010.
  • Adjusted EBITDA before pro forma effects of profitability program of $47.0 million in 2011, compared to $13.1 million in 2010. (Note: EBITDA and Adjusted EBITDA are non-GAAP financial measures and are defined and reconciled to net income later in this release).

OVERVIEW

Verso’s net sales for the first quarter of 2011 increased $53.0 million, or 14.6%, as the average sales price for all of our products increased 13.3% compared to the first quarter of 2010 and increased 2.5% compared to the fourth quarter of 2010. The improvement in our average sales price reflects price increases that went into effect during 2010. We announced additional price increases for our core products of $40 per ton effective April 1, 2011. Verso’s gross margin was 15.4% for the first quarter of 2011 compared to 7.4% for the same period in 2010 and 17.2% for the fourth quarter of 2010. Sales volume was stable on both a sequential quarter basis and year over year.

Verso reported a net loss of $44.6 million in the first quarter of 2011, or $0.84 per diluted share, which included $26.5 million of charges from special items, or $0.50 per diluted share, primarily due to $26.1 million in pre-tax net losses related to the early retirement of debt in connection with our debt refinancing. Verso had a net loss of $53.6 million, or $1.02 per diluted share, in the first quarter of 2010, which included $1.6 million of charges from special items, or $0.03 per diluted share, primarily due to costs associated with new product development.

"Our first quarter adjusted EBITDA results improved $34 million compared to the first quarter of 2010. Normally, the first and second quarters are seasonally slow quarters for coated papers, so we view our first quarter results as very positive,” said Mike Jackson, President and Chief Executive Officer of Verso. “Prices continued to improve in the first quarter, consistent with our expectations. We also announced a price increase of $40 per ton, effective April 1 for all of our core products.

“All of our announced energy projects are on schedule, and, as previously mentioned, we expect a positive EBITDA impact of $50 million per year, beginning in the fourth quarter of 2012.

“During the quarter, we also focused on our capital structure by refinancing our second priority senior secured notes due 2014 and a portion of our first priority senior secured notes due 2014 with new second priority senior secured notes, which extended our maturity date to 2019 and reduced our interest expense.”

Net Sales. Net sales for the first quarter of 2011 increased 14.6% to $416.6 million from $363.6 million in the first quarter of 2010, as the average sales price for all of our products increased 13.3%, reflecting price increases implemented during 2010 as the economy began to recover and demand for our products improved. Total sales volume grew 1.1% compared to the first quarter of 2010.

Net sales for our coated and supercalendered papers segment increased 16.2% in the first quarter of 2011 to $351.7 million from $302.8 million for the same period in 2010, due to a 13.0% increase in the average paper sales price per ton combined with a 2.8% increase in paper sales volume.

Net sales for our market pulp segment decreased 4.5% to $35.7 million in the first quarter of 2011 from $37.4 million for the same period in 2010. This decline reflects an 11.5% decrease in sales volume, which was largely offset by an increase of 7.9% in the average sales price per ton compared to the first quarter of 2010.

Net sales for our other segment increased 24.4% to $29.2 million in the first quarter of 2011 from $23.4 million in the first quarter of 2010. The improvement in 2011 was due to a 15.1% increase in the average sales price per ton combined with an increase of 8.0% in sales volume, reflecting the continued development of new paper product offerings for our customers.

Cost of sales. Cost of sales, including depreciation, amortization, and depletion, was $383.9 million in the first quarter of 2011 compared to $368.9 million in 2010. Our gross margin, excluding depreciation, amortization, and depletion, improved to 15.4% for the first quarter of 2011 from 7.4% for the first quarter of 2010, reflecting higher average sales prices during the first quarter of 2011. Depreciation, amortization, and depletion expenses were $31.4 million in the first quarter of 2011 compared to $32.1 million in the first quarter of 2010.

Selling, general, and administrative. Selling, general, and administrative expenses were $18.6 million in the first quarter of 2011 compared to $16.2 million for the same period in 2010, primarily due to inflation of personnel related costs.

Interest expense. Interest expense for the first quarter of 2011 was $32.4 million compared to $32.3 million for the same period in 2010.

Other, net. Other, net for the first quarter of 2011 was a net loss of $26.3 million compared to a net gain of $0.2 million for the first quarter of 2010. Included in the results for 2011 were $26.1 million in pre-tax net losses related to the early retirement of debt in connection with our debt refinancing.

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