Verso Paper Reports Third Quarter 2012 Results

Nov. 13, 2012 - Verso Paper Corp. today reported financial results for the third quarter and nine months ended September 30, 2012. Results for the quarters ended September 30, 2012 and 2011 include:

  • Adjusted EBITDA before pro forma effects of profitability program of $50.2 million in the third quarter of 2012, compared to $23.5 million in the second quarter of 2012 and $64.2 million in the third quarter of 2011. (Note: Adjusted EBITDA is a non-GAAP financial measure and is defined and reconciled to net income later in this release).
  • Net loss before items of $12.0 million, or $0.23 per diluted share, in the third quarter of 2012 compared to net loss before items of $43.1 million, or $0.81 per diluted share, in the second quarter of 2012 and net income before items of $0.8 million, or $0.01 per diluted share, in the third quarter of 2011.
  • The closure of the Sartell mill resulted in an aggregate pre-tax charge to earnings of approximately $97.2 million in the third quarter of 2012. This includes approximately $16.3 million for severance and benefit costs; $75.8 million in non-cash charges for fixed asset and other impairment charges; and $5.1 million related to other costs.

Overview

Verso’s net sales for the third quarter of 2012 decreased $83.8 million, or 18.4%, compared to the third quarter of 2011, reflecting a 14.9% decline in total sales volume, which was driven by the closure of three paper machines late last year and the closure of the Sartell mill in the third quarter of this year, as well as a 4.0% decrease in the average sales price per ton for all of our products. Verso’s gross margin was 19.1% for the third quarter of 2012 compared to 17.8% for the third quarter of 2011.

Verso reported a net loss of $104.7 million in the third quarter of 2012, or $1.98 per diluted share, which included $92.7 million of net charges from special items, or $1.75 per diluted share, primarily due to restructuring charges related to the closure of the Sartell mill in the third quarter of this year. Verso had a net loss of $0.3 million, or $0.01 per diluted share, in the third quarter of 2011, which included $1.1 million of charges from special items, or $0.02 per diluted share.

“We experienced our typical seasonal pick-up in demand during the third quarter in both coated freesheet and coated groundwood shipments. Industry operating rates were strong even though we continue to see a year over year drop-off in advertising spending which is impacted by the sluggish GDP growth. As we anticipated, coated groundwood pricing moved higher during the quarter and coated freesheet pricing was stable. Adjusted EBITDA of $50.2 million was about double what we recorded in the second quarter of this year driven by the stronger volumes, higher prices and improvements in our manufacturing costs resulting from our cost improvement programs and having the second quarter scheduled maintenance outages behind us,” said David Paterson, President and Chief Executive Officer of Verso.

“During the quarter, we made the difficult decision not to restart the Sartell Mill and are well into evaluating the options relative to the decommissioning of the site and marketing the properties and assets for eventual sale.

“Looking ahead, we anticipate that coated groundwood prices will continue to move up during the fourth quarter and coated freesheet pricing to remain relatively stable. Coated volumes will move slightly lower than the seasonally stronger third quarter, but we do not anticipate a significant drop-off. We’ll finish the year at very good inventory levels with coated groundwood inventory fairly tight. Operating costs and input prices should remain flat to down slightly, although we do have a scheduled maintenance outage at our Quinnesec Mill during the quarter. Finally, we are excited about the start-up of our Bucksport Renewable Energy Project during the quarter which will complete the last of the initiatives included in the first phase of our energy strategy that you’ve heard us talk a lot about.”

Net Sales. Net sales for the third quarter of 2012 decreased 18.4%, to $373.0 million from $456.8 million in the third quarter of 2011, led by a quarter-over-quarter decline in the price of pulp. Additionally, total sales volume was down 14.9% compared to the third quarter of 2011, which was driven by the shutdown of three paper machines late last year and the closure of the Sartell mill in the third quarter of this year, as well as a 4.0% decrease in the average sales price per ton for all of our products.

Net sales for our coated papers segment decreased 19.7% in the third quarter of 2012 to $300.9 million from $374.5 million for the same period in 2011, due to a 17.4% decrease in paper sales volume, which was driven by the shutdown of three paper machines late last year and the closure of the Sartell mill in the third quarter of this year. The average sales price per ton of coated paper decreased 2.8% compared to the same period last year.

Net sales for our market pulp segment decreased 13.1% in the third quarter of 2012 to $35.1 million from $40.4 million for the same period in 2011. The average sales price per ton decreased 11.0% while sales volume decreased 2.3% compared to the third quarter of 2011.

Net sales for our other segment decreased 11.7% to $37.0 million in the third quarter of 2012 from $41.9 million in the third quarter of 2011. This decrease was due to an 11.5% decrease in sales volume, while the sales price per ton remained flat.

Cost of sales. Cost of sales, including depreciation, amortization, and depletion, was $329.9 million in the third quarter of 2012 compared to $406.7 million in 2011, reflecting realized cost reduction from the shutdown of three paper machines late last year and the closure of the Sartell mill in the third quarter of this year. Our gross margin, excluding depreciation, amortization, and depletion, was 19.1% for the third quarter of 2012 compared to 17.8% for the third quarter of 2011. Depreciation, amortization, and depletion expenses were $28.1 million for the third quarter of 2012 compared to $31.2 million for the third quarter of 2011.

Selling, general, and administrative. Selling, general, and administrative expenses were $17.6 million in the third quarter of 2012 compared to $19.5 million for the same period in 2011, primarily driven by a decrease in personnel costs.

Restructuring and other charges. Restructuring and other charges for the third quarter of 2012 was $97.0 million, and consisted primarily of fixed asset and other impairment charges of $75.8 million and severance and benefit costs of $16.3 million related to the closure of the Sartell mill.

Interest expense. Interest expense for the third quarter of 2012 was $33.2 million compared to $30.8 million for the same period in 2011.

Based in Memphis, Tennessee, Verso Paper Corp. is a leading North American producer of coated papers, including coated groundwood and coated freesheet, and specialty paper 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