Verso Paper Corp. Reports First Quarter 2014 Results

Verso Paper Corp. Reports First Quarter 2014 Results 
Closing of NewPage Acquisition Still on Track for Second Half of 2014 
MEMPHIS, TN -- (Marketwired) -- 05/07/14 --  Verso Paper Corp. (NYSE:
VRS) today reported financial results for the first quarter of 2014.
Results for the quarters ended March 31, 2014 and 2013 include: 


 
--  Net sales of $299.1 million in the first quarter of 2014 compared to
    $333.2 million in the first quarter of 2013.
    
    
--  Net loss before items of $69.1 million, or $1.30 per diluted share, in
    the first quarter of 2014, compared to net loss before items of $41.3
    million, or $0.78 per diluted share, in the first quarter of 2013.
    
    
--  Adjusted EBITDA before pro forma effects of profitability program of
    $(7.9) million in the first quarter of 2014, compared to $20.1 million
    in the first quarter of 2013 (Note: Adjusted EBITDA is a non-GAAP
    financial measure and is defined and reconciled to net income later in
    this release).

  
Overview 
Verso's net sales for the first quarter of 2014 decreased $34.1
million, or 10.2%, compared to the first quarter of 2013, reflecting
a 1.9% decrease in average sales price per ton and an 8.5% decline in
total sales volume. Prices for our pulp segment were higher while
coated and other segment prices declined. Volumes and operating costs
were negatively impacted by significant downtime taken during the
quarter, weather-related increases to energy, wood, and operating
costs as well as a planned capital spending related outage at our
Androscoggin mill. 
"We experienced a seasonally weak first quarter that was a bit slower
than normal as shipments slowed and we took over 38,000 tons of
downtime related to market conditions and energy-related curtailments
in order to keep our inventories in line with expectations and to
help minimize our energy exposure," said David Paterson, President
and Chief Executive Officer of Verso. "As we mentioned last quarter,
pricing pressure on our coated business remained with us and we
experienced weather-related costs in both our operations as well as
our input prices. 
"As we look to the second quarter, we see improvements in our paper
and pulp volumes to levels comparable to last year as well as
significantly lower energy prices and improved operating performance.
Additionally, we expect to continue to make great progress in the
planning and integration phases of the proposed NewPage acquisition.
Finally, we have recently entered into an agreement for a $40 million
revolving credit facility and continue to evaluate selling
non-strategic assets in the future to obtain additional liquidity." 
Summary Results 
Results of Operations - Comparison of the First Quarter of 2014 to
the First Quarter of 2013  


 
                                                                            
                                                      Three Months Ending   
                                                           March 31,        
                                                   -------------------------
(Dollars in thousands)                                 2014         2013    
----------------------------------------------------------------------------
Net sales                                          $   299,113  $   333,220 
Costs and expenses:                                                         
  Cost of products sold - (exclusive of                                     
   depreciation, amortization, and depletion)          302,377      291,859 
  Depreciation, amortization, and depletion             25,683       25,980 
  Selling, general, and administrative expenses         17,592       18,796 
  Restructuring charges                                      -        1,016 
----------------------------------------------------------------------------
Total operating expenses                               345,652      337,651 
----------------------------------------------------------------------------
Other operating income                                       -       (3,285)
----------------------------------------------------------------------------
Operating loss                                         (46,539)      (1,146)
----------------------------------------------------------------------------
  Interest income                                            -           (9)
  Interest expense                                      34,477       34,660 
  Other loss, net                                        9,585        2,572 
----------------------------------------------------------------------------
Loss before income taxes                               (90,601)     (38,369)
Income tax expense                                           9            9 
----------------------------------------------------------------------------
Net loss                                           $   (90,610) $   (38,378)
============================================================================

 
Net Sales. Net sales for the first quarter of 2014 decreased 10.2% to
$299.1 million from $333.2 million in the first quarter of 2013,
reflecting a 1.9% decrease in average sales price per ton and an 8.5%
decline in total sales volume. 
Net sales for our coated papers segment decreased 12.9% in the first
quarter of 2014 to $218.3 million from $250.5 million for the same
period in 2013, due to an 8.7% decrease in paper sales volume and a
4.6% decline in average sales price per ton. The decline in sales
volume and price were driven by declining demand for coated papers,
increased competition from the global marketplace, and lower
production due to record-level energy costs. 
Net sales for our market pulp segment decreased 2.7% in the first
quarter of 2014 to $36.2 million from $37.2 million for the same
period in 2013. The sales volume declined 14.1% while the average
sales price per ton increased 13.3% compared to the first quarter of
2013. 
Net sales for our other segment decreased 1.9% to $44.6 million in
first quarter of 2014 from $45.5 million in the first quarter of
2013. This decrease was driven by a 3.2% decrease in average sales
price per ton partially offset by a 1.4% increase in sales volume. 
Cost of sales. Cost of sales, including depreciation, amortization,
and depletion, was $328.0 million in the first quarter of 2014
compared to $317.8 million in 2013, reflecting the negative impact of
over 38,000 tons of downtime related to market conditions and
energy-related curtailments as well as decreased productivity
associated with a planned capital spending related outage at our
Androscoggin mill. Our cost of sales was also unfavorably affected by
elevated energy and operating costs driven by severe winter weather
conditions. Our gross margin, excluding depreciation, amortization,
and depletion, was (1.1)% for the first quarter of 2014 compared to
12.4% for the first quarter of 2013. Depreciation, amortization, and
depletion expenses were $25.7 million for the first quarter of 2014
compared to $26.0 million for the first quarter of 2013. 
Selling, general, and administrative. Selling, general, and
administrative expenses were $17.6 million in the first quarter of
2014 compared to $18.8 million for the first quarter of 2013. 
Restructuring charges. Restructuring charges for the first quarter of
2013 were $1.0 million and related to the closure of the former
Sartell mill. 
Other operating income. Other operating income in first quarter of
2013 was $3.3 million and consisted of the gains on the sales of our
former Sartell mill and the assets of Verso Fiber Farm LLC.  
Interest expense. Interest expense for the first quarter of 2014 was
$34.5 million compared to $34.7 million for the same period in 2013.  
Other loss, net. Other loss, net for the first quarter of 2014 was
$9.6 million and reflected costs incurred in connection with the
merger agreement signed with NewPage Holdings Inc. on January 3,
2014. Other loss, net of $2.6 million for the same period in 2013
reflected losses related to debt refinancing.  
Reconciliation of Net Income to Adjusted EBITDA 
The agreements governing our debt contain financial and other
restrictive covenants that limit our ability to take certain actions,
such as incurring additional debt or making acquisitions. Although we
do not expect to violate any of the provisions in the agreements
governing our outstanding indebtedness, these covenants can result in
limiting our long-term growth prospects by hindering our ability to
incur future indebtedness or grow through acquisitions. 
EBITDA consists of earnings before interest, taxes, depreciation, and
amortization. EBITDA is a measure commonly used in our industry, and
we present EBITDA to enhance your understanding of our operating
performance. We use EBITDA as a way of evaluating our performance
relative to that of our peers. We believe that EBITDA is an operating
performance measure, and not a liquidity measure, that provides
investors and analysts with a measure of operating results unaffected
by differences in capital structures, capital investment cycles, and
ages of related assets among otherwise comparable companies. 
Adjusted EBITDA is EBITDA further adjusted to eliminate the impact of
certain items that we do not consider to be indicative of the
performance of our ongoing operations and other pro forma adjustments
permitted in calculating covenant compliance in the indentures
governing our debt securities. Adjusted EBITDA is modified to align
the mark-to-market impact of derivative contracts used to
economically hedge a portion of future natural gas purchases with the
period in which the contracts settle and is modified to reflect the
amount of net cost savings projected to be realized as a result of
specified activities taken during the preceding 12-month period. You
are encouraged to evaluate each adjustment and to consider whether
the adjustment is appropriate. In addition, in evaluating Adjusted
EBITDA, you should be aware that in the future, we may incur expenses
similar to the adjustments included in the presentation of Adjusted
EBITDA. We believe that the supplemental adjustments applied in
calculating Adjusted EBITDA are reasonable and appropriate to provide
additional information to investors. We also believe that Adjusted
EBITDA is a useful liquidity measurement tool for assessing our
ability to meet our future debt service, capital expenditures, and
working capital requirements. 
However, EBITDA and Adjusted EBITDA are not measurements of financial
performance under U.S. GAAP, and our EBITDA and Adjusted EBITDA may
not be comparable to similarly titled measures of other companies.
You should consider our EBITDA and Adjusted EBITDA in addition to,
and not as a substitute for, or superior to, our operating or net
income or cash flows from operating activities, which are determined
in accordance with U.S. GAAP. 
The following table reconciles net (loss) income to EBITDA and
Adjusted EBITDA for the periods presented. 


 
                                                                            
                         Three                       Three        Twelve    
                        Months         Year         Months        Months    
                         Ended         Ended         Ended         Ended      
(Dollars in            March 31,   December 31,    March 31,     March 31,  
 millions)               2013          2013          2014          2014      
----------------------------------------------------------------------------
Net loss             $      (38.4) $     (111.2) $      (90.6) $     (163.4)
Income tax benefit              -          (0.6)            -          (0.6)
Interest expense,                                                           
 net                         34.7         137.8          34.5         137.6 
Depreciation,                                                               
 amortization, and                                                          
 depletion                   26.0         104.7          25.7         104.4 
----------------------------------------------------------------------------
EBITDA                       22.3         130.7         (30.4)         78.0 
Adjustments to                                                              
 EBITDA:                                                                    
  NewPage                                                                   
   acquisition-                                                             
   related costs (1)            -           5.2           9.6          14.8 
  Hedge (gains)                                                             
   losses (2)                (3.8)        (14.3)         11.7           1.2 
  Equity award                                                              
   expense(3)                 0.4           1.8           0.4           1.8 
  Restructuring                                                             
   charges(4)                 1.0           1.4             -           0.4 
  Loss on                                                                   
   extinguishment of                                                        
   debt, net(5)               2.6           2.8             -           0.2 
  Other items,                                                              
   net(6)                    (2.4)          1.9           0.8           5.1 
----------------------------------------------------------------------------
Adjusted EBITDA                                                             
 before pro forma                                                           
 effects of                                                                 
 profitability                                                              
 program                     20.1         129.5          (7.9)        101.5 
Pro forma effects of                                                        
 profitability                                                              
 program(7)                                                            37.8 
----------------------------------------------------------------------------
Adjusted EBITDA                                                $      139.3 
============================================================================
(1) Represents costs incurred in connection with the NewPage acquisition.   
(2) Represents unrealized (gains) losses on energy-related derivative       
    contracts.                                                              
(3) Represents amortization of non-cash incentive compensation.             
(4) Represents costs primarily associated with the closure of the former    
    Sartell mill in 2012.                                                   
(5) Represents net losses related to debt refinancing.                      
(6) Represents miscellaneous non-cash and other earnings adjustments,       
    including the gains on sales of the former Sartell mill and the assets  
    of Verso Fiber Farm LLC in 2013.                                        
(7) Represents cost savings expected to be realized as part of our cost     
    savings program.                                                        

 
Forward-Looking Statements 
In this press release, all statements that are not purely historical
facts are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Forward-looking statements may be identified by
the words "believe," "expect," "anticipate," "project," "plan,"
"estimate," "intend," and other similar expressions. Forward-looking
statements are based on currently available business, economic,
financial, and other information and reflect management's current
beliefs, expectations, and views with respect to future developments
and their potential effects on Verso. Actual results could vary
materially depending on risks and uncertainties that may affect Verso
and its business. For a discussion of such risks and uncertainties,
please refer to Verso's filings with the Securities and Exchange
Commission. Verso assumes no obligation to update any forward-looking
statement made in this press release to reflect subsequent events or
circumstances or actual outcomes. 
About Verso 
Verso Paper Corp. is a leading North American producer of coated
papers, including coated groundwood and coated freesheet, and
specialty products. Verso is headquartered in Memphis, Tennessee, and
owns three paper mills located in Maine and Michigan. 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. Additional information about Verso is
available on its website at www.versopaper.com. References to "Verso"
or the "Company" mean Verso Paper Corp. and its consolidated
subsidiaries unless otherwise expressly noted. 
Conference Call 
Verso will host a conference call today at 9:00 a.m. (Eastern
Daylight Time) to discuss first quarter results. Analysts and
investors may access the live conference call by dialing 719-325-4787
or, within the U.S. and Canada only, 800-946-0742, access code
5791579. To register, please dial in 10 minutes before the conference
call begins. The conference call and presentation materials can be
accessed through Verso's website at investor.versopaper.com by
navigating to the Events page, or at
http://investor.versopaper.com/eventdetail.cfm?EventID=143284. This
release and Verso's quarterly report on Form 10-Q for the three
months ended March 31, 2014, will be made available on Verso's
website at investor.versopaper.com by navigating to the Financial
Information page. 
A telephonic replay of the conference call can be accessed at
719-457-0820 or, within the U.S. and Canada only, 888-203-1112,
access code 5791579. This replay will be available starting today at
12:00 p.m. (Eastern Daylight Time) and will remain available for 14
days.  
Contact 
Verso Paper Corp.
Robert P. Mundy
Senior Vice President and Chief Financial Officer 
901-369-4128
robert.mundy@versopaper.com
www.versopaper.com 
 
 
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