Verso Reports Third Quarter 2015 Results

Nov. 16, 2015 - Verso Corporation (VRSZ) today reported financial results for the third quarter of 2015. Results for the quarters ended September 30, 2015 and 2014 include:

  • Net sales of $782 million in the third quarter of 2015 compared to $350 million in the third quarter of 2014.
  • Operating income before special items of $23 million in the third quarter of 2015 compared to $16 million in the third quarter of 2014.
  • Adjusted EBITDA of $84 million in the third quarter of 2015, compared to $41 million in the third quarter of 2014.

OVERVIEW

Verso's net sales for the third quarter of 2015 increased $432 million, or 123%, compared to the third quarter of 2014, due primarily to the addition of net sales resulting from the NewPage acquisition. However, when compared to 2014 sales as adjusted to include the impact of the NewPage acquisition and the sale of the Bucksport mill, our sales have declined, quarter over quarter, reflecting an increase in offshore imports and a decline in U.S. demand for coated papers.

During the third quarter of 2015, Verso recorded special items affecting operating income totaling $66 million, or $0.80 per diluted share, primarily related to restructuring costs associated with the production capacity reduction and optimization of the Androscoggin mill and the indefinite idling of the Wickliffe mill, and integrating the legacy Verso and NewPage operations. During the third quarter of 2014, special items affecting operating income were $2 million, or $0.04 per diluted share.

"Despite continuing soft market conditions, Verso saw seasonal volume increases in the third quarter, particularly in coated freesheet," said Verso President and Chief Executive Officer David Paterson.

"In response to a continuing decline in demand and oversupply of products, we decided to downsize our Androscoggin mill and indefinitely idle our Wickliffe mill, which together will reduce Verso's production capacity by 430,000 tons of coated paper and 130,000 tons of dried market pulp. We also took 79,000 tons of market-related downtime across our mill system during the third quarter.

In the face of these challenges, our employees remained focused on improving efficiency, reducing costs, and increasing job safety (achieving double-digit percentage reductions in recordable and lost time injuries). Verso also successfully fulfilled its financial obligations, paying $118 million in interest on our indebtedness during the third quarter. Despite these important achievements, and as we explain further in this press release, we intend to pursue a restructuring of our balance sheet to address our continuing cash flow and liquidity concerns."

Summary Results

Net Sales. Net sales for the third quarter of 2015 increased 123% to $782 million from $350 million in the third quarter of 2014. Our sales increase was primarily driven by a 110% increase in total sales volume, from 433 thousand tons in 2014 to 910 thousand tons in 2015. The increase in volume resulted in $398 million of additional revenue, while changes in pricing contributed $34 million, as the average sales price per ton increased from $808 to $859, for all of our products in the third quarter of 2015, compared to the third quarter of 2014. When compared to 2014 sales as adjusted to include the impact of the NewPage acquisition and the sale of the Bucksport mill, our sales have declined, quarter over quarter, reflecting an increase in offshore imports and a decline in U.S. demand for coated papers.

Net sales for our paper segment increased 135% to $736 million in the third quarter of 2015 from $313 million in the third quarter of 2014, due to a 124% increase in paper sales volume to 829 thousand tons in the third quarter of 2015, compared to 371 thousand tons in the third quarter of 2014, supplemented by a 5% increase in average sales price per ton of paper to $888 in the third quarter of 2015, compared to $845 in the third quarter of 2014. The increased sales volume, which is primarily due to the addition of sales resulting from the NewPage acquisition, resulted in $387 million of additional revenue, which was augmented by the impact of changes in market pricing and product mix of $36 million.

Net sales for our pulp segment increased 24% in the third quarter of 2015 to $46 million from $37 million in the third quarter of 2014, due to a 31% increase in pulp sales volume to 81 thousand tons in the third quarter of 2015, compared to 62 thousand tons in the third quarter of 2014, while the average sales price per ton declined 4% to $566 in the third quarter of 2015, compared to $589 in the third quarter of 2014. The increased sales volume, which is primarily attributable to the addition of net sales as a result of the NewPage acquisition, contributed $11 million of additional revenue, while the change in market pricing resulted in a decrease in revenue of $2 million.

Cost of sales. Cost of products sold, excluding depreciation, amortization and depletion expenses, increased $382 million, or 130%, in the third quarter of 2015, compared to the third quarter of 2014, primarily due to incremental costs as a result of the NewPage acquisition. Our gross margin percentage was 13.4% for the third quarter of 2015, compared to 15.8% for the third quarter of 2014, reflecting an incremental $49 million in gross margin, with $59 million attributable to volume increases offset by $10 million attributable to lower margin per ton. During the third quarter of 2015, our margin per ton was negatively impacted by incremental costs related to mill maintenance outages and 79,000 tons of downtime. Depreciation, amortization and depletion expenses increased $37 million, or 161%, in the third quarter of 2015, compared to the third quarter of 2014, also primarily due to incremental costs as a result of the NewPage acquisition.

Selling, general and administrative. Selling, general and administrative expenses increased primarily due to incremental expenses of $15 million, or 83%, in the third quarter of 2015, compared to the third quarter of 2014, as a result of the NewPage acquisition. As a percentage of sales, selling, general and administrative expenses decreased from 5% in the third quarter of 2014 to 4% in the third quarter of 2015.

Restructuring charges. Restructuring charges of $55 million during the third quarter of 2015 consisted primarily of $35 million of noncash charges related to our Androscoggin mill, and $15 million of severance and benefit costs related primarily to the production capacity reductions at our Androscoggin and Wickliffe mills.

Interest expense. Interest expense for the third quarter of 2015 was $68 million, compared to $37 million for the third quarter of 2014. The change in interest expense reflects the addition of the NewPage ABL Facility and NewPage Term Loan Facility, the 2015 First Lien Notes issued in connection with the NewPage acquisition, and changes resulting from the completion of the second lien and subordinated notes exchange offers.

Potential Restructuring and Asset Sales

Based on Verso's current liquidity position and our projections of operating results and cash flows for the remainder of 2015 and 2016, we anticipate that we will not have sufficient resources to fund our most significant future cash obligations and, therefore, we believe that there is substantial doubt about our ability to continue as a going concern in the absence of a restructuring of our balance sheet.

As a result of our cash flow and liquidity concerns, we have begun evaluating potential restructuring alternatives. We have engaged PJT Partners L.P. to provide us with restructuring and transactional services and O'Melveny & Myers LLP to provide us with restructuring legal advice and assistance.

We have begun discussions with certain of our creditor constituencies to explore potential restructuring alternatives. We also are exploring opportunities to raise funds through potential sales of certain of our mills and related facilities, which may include the Stevens Point, Androscoggin and Duluth mills, our recently idled Wickliffe mill, and the hydroelectric generation facilities associated with our Androscoggin mill.

Our potential restructuring could occur in a consensual, out-of-court manner or through a court-supervised Chapter 11 bankruptcy proceeding. While we intend to actively pursue a potential restructuring and potential asset sales, there can be no assurance that any of these activities will occur on terms acceptable to us or at all.

Verso Corporation is a leading North American producer of printing and specialty papers and pulp. For more information, please visit versoco.com

SOURCE: Verso Corporation