Verso Paper Corp. Reports Third Quarter 2009 Results

http://www.businesswire.com/news/home/20091105005334/en

MEMPHIS, Tenn.--(Business Wire)--
Verso Paper Corp. (NYSE: VRS) today reported financial results for the third
quarter and nine months ended September 30, 2009. Results for the quarters ended
September 30, 2009 and 2008 include:

* Net income of $43.5 million, or$0.83 per diluted share, in 2009 compared to
net income of $18.5 million, or $0.36 per diluted share, in 2008.
* EBITDA of $278.1 million for the nine months ended September 30, 2009,
compared to $167.0 million in 2008. Adjusted EBITDA of $105.8 million for the
last twelve months ended September 30, 2009. (Note: EBITDA and Adjusted EBITDA
are non-GAAP financial measures and are defined and reconciled to net income
later in this release).
* Net sales decreased to $394.7 million in 2009 compared to $485.4 million in
2008.
* Operating income of $7.4 million in 2009 compared to operating income of $46.2
million in 2008.
* A net loss before items of $18.1 million, or $0.35 per diluted share, in 2009
compared to net income before items of $19.7 million, or $0.38 per diluted share
in 2008.

Overview

Coated paper demand strengthened sequentially during the third quarter of 2009,
but remained slightly below levels experienced in the third quarter of 2008. In
addition to normal seasonal factors, demand has increased as merchant and
end-user coated paper inventories have returned to more normal levels from the
elevated levels accumulated during a time of price increases in 2008. Coated
paper prices remained under pressure from the peak levels reached in the second
half of 2008. Improved demand combined with market downtime, announced closures,
and movements to other grades serve to balance supply with demand.

Verso`s net sales for the third quarter of 2009 decreased 18.7% year over year
as the average sales price fell 16.8% from the peak reached in the third quarter
of 2008. Average sales prices for coated papers have decreased steadily over the
last three quarters in response to weak demand. While total sales volume was
2.3% lower than last year`s level, on a sequential quarter basis volume
increased 31.5%, reflecting an increase in demand, which includes the effects of
normal seasonality and low customer inventory levels.

In response to the economic downturn, we continue to assess and implement, as
appropriate, various expense reduction initiatives. Our company-wide cost
reduction program, which is expected to yield $72 million in cost reductions,
has produced approximately $43 million of savings during the first nine months
of 2009. Management expects to achieve most of these savings in 2009 and
continues to search for and develop additional cost savings measures. Included
in this program are material usage reductions, energy usage reductions, labor
cost savings, chemical substitution, salary freezes, selling, general, and
administrative expense reductions, and workforce planning improvements.
Additionally, new product initiatives have contributed to a 26.7% increase in
net sales for our other segment in the first nine months of 2009, reflecting the
development of new paper product offerings for our customers.

Also included in third quarter`s results are $46.7 million in net benefits from
alternative fuel mixture tax credits provided by the U.S. government for our use
of black liquor in alternative fuel mixtures and $23.6 million in net gains
related to the early retirement of debt. We have excluded the impact of both of
these items from our Adjusted EBITDA figures. There can be no assurance that the
U.S. government incentive program for alternative fuel mixtures will not amend
the tax credit to eliminate or reduce its benefits for pulp and paper companies,
but there is the possibility that such action may be taken.

Verso reported net income of $43.5 million, in the third quarter of 2009, which
included net benefits of $61.6 million from special items ($1.18 per diluted
share) primarily due to alternative fuel mixture tax credits and net gains
related to the early retirement of debt. For the quarter ended September 30,
2009, basic and diluted earnings per share were $0.84 and $0.83, respectively.
Verso had net income of $18.5 million, or $0.36 per basic and diluted share, in
the third quarter of 2008, which included $1.1 million of restructuring charges,
or $0.02 per diluted share. Results for the third quarter of 2009 included
operating income of $7.4 million, compared to operating income of $46.2 million
for the same period in 2008.

"During the third quarter, Verso`s business results improved in order activity
as well as in actual shipments compared to the last two quarters," said Mike
Jackson, President and CEO of Verso. "Third quarter is normally our busiest time
of the year, and we were encouraged by the fact that our volume for the quarter
was only off by 2.3% compared to the same quarter last year. This is a
substantial volume improvement from the past three quarters.

"Our downtime for the third quarter was significantly less than the downtime
taken in the first two quarters of the year, and this is reflected in our
operational results. Our R-GAP program and other cost savings initiatives
continue to produce results and have contributed almost $43 million year-to-date
to our bottom line, which is a tribute to our organization."

Verso reported net income of $87.8 million, or $1.69 per basic and diluted
share, for the first nine months of 2009, which included net benefits of $234.3
million from special items ($4.50 per diluted share) primarily due to
alternative fuel mixture tax credits and net gains related to the early
retirement of debt. Verso had a net loss of $29.3 million, or $0.65 per basic
and diluted share, for the first nine months of 2008, which included $38.9
million of charges, or $0.87 per diluted share, primarily related to Verso`s IPO
and restructuring costs. Results for the first nine months of 2009 included an
operating loss of $72.8 million, compared to operating income of $66.3 million
for the same period in 2008.

Summary Results

Results of Operations - Comparison of the Third Quarter of 2009 to the Third Quarter of 2008

Three Months Ended
September 30,
(In thousands of U.S. dollars) 2009 2008
Net sales $ 394,663 $ 485,423
Costs and expenses:
Cost of products sold - exclusive of depreciation, amortization, and depletion 338,592 386,042
Depreciation, amortization, and depletion 33,229 33,769
Selling, general, and administrative expenses 15,085 18,285
Restructuring and other charges 369 1,117
Operating income 7,388 46,210
Interest income (76 ) (126 )
Interest expense 34,318 27,772
Other income, net (70,349 ) -
Net income $ 43,495 $ 18,564

Net Sales. Net sales for the third quarter of 2009 decreased 18.7% to $394.7
million from $485.4 million in the third quarter of 2008 as the average sales
price per ton for all of our products fell 16.8% from the peak reached in the
third quarter of 2008. Average sales prices for coated papers decreased steadily
over the last three quarters in response to weak demand. While total sales
volume was 2.3% lower than last year`s level, on a sequential quarter basis
volume increased 31.5%, reflecting an increase in demand which includes the
effects of normal seasonality and low customer inventory levels.

Net sales for our coated and supercalendered papers segment decreased 18.5% to
$352.5 million in the third quarter of 2009 from $432.6 million in the third
quarter of 2008. The decrease reflects a 16.0% decrease in average paper sales
price per ton and a 3.0% decrease in paper sales volume for the third quarter of
2009 compared to the same period last year.

Net sales for our market pulp segment decreased 31.6% to $28.0 million in the
third quarter of 2009 from $41.0 million for the same period in 2008. This
decline was due to a 28.9% decrease in average sales price per ton and a 3.9%
decrease in sales volume compared to the third quarter of 2008.

Net sales for our other segment increased 19.7% to $14.2 million in the third
quarter of 2009 from $11.8 million in the third quarter of 2008. The improvement
in 2009 is due to a 29.5% increase in sales volume, reflecting the development
of new paper product offerings for our customers. Average sales price per ton
decreased 7.6% compared to the third quarter of 2008.

Cost of sales. Cost of sales, including depreciation, amortization, and
depletion, decreased 11.4% to $371.8 million from $419.8 million in the third
quarter of 2008, primarily reflecting lower input costs, which includes the
effects of our expense reduction initiatives, and the decline in sales volume.
Our gross margin, excluding depreciation, amortization, and depletion, was 14.2%
for the third quarter of 2009 compared to 20.5% for the third quarter of 2008,
reflecting lower average sales prices during the third quarter of 2009 and $5.3
million of unabsorbed costs resulting from almost 26,000 tons of market downtime
taken in the third quarter of 2009. Depreciation, amortization, and depletion
expense was $33.3 million in the third quarter of 2009 compared to $33.8 million
in the third quarter of 2008.

Selling, general, and administrative. Selling, general, and administrative
expenses were $15.1 million in the third quarter of 2009 compared to $18.3
million for the same period in 2008, reflecting the effect of our expense
reduction initiatives.

Interest expense. Interest expense for the third quarter of 2009 was $34.3
million compared to $27.8 million for the same period in 2008. The increase in
interest expense was primarily due to higher interest rates on outstanding debt
in the third quarter of 2009.

Other income. Other income was $70.3 million for the third quarter of 2009,
which includes $46.7 million in net benefits from alternative fuel mixture tax
credits provided by the U.S. government for our use of black liquor in
alternative fuel mixtures and $23.6 million in net gains related to the early
retirement of debt.

Results of Operations - Comparison of First Nine Months of 2009 to First Nine Months of 2008

Nine Months Ended
September 30,
(In thousands of U.S. dollars) 2009 2008
Net sales $ 979,852 $ 1,390,932
Costs and expenses:
Cost of products sold - exclusive of depreciation, amortization, and depletion 906,080 1,138,622
Depreciation, amortization, and depletion 100,584 100,656
Selling, general, and administrative expenses 45,376 58,838
Restructuring and other charges 643 26,553
Operating income (loss) (72,831 ) 66,263
Interest income (155 ) (458 )
Interest expense 89,900 95,984
Other income, net (250,357 ) -
Net income (loss) $ 87,781 $ (29,263 )

Net Sales. Net sales for the nine months ended September 30, 2009, decreased
29.6% to $979.9 million from $1,390.9 million as total sales volume decreased
20.8% compared to last year, reflecting lower demand for coated papers and
market pulp in a difficult economic environment and lower sales prices. The
average sales price per ton for all of our products fell 11.1% in 2009 due to
the weak demand.

Net sales for our coated and supercalendered papers segment decreased 30.2% to
$865.2 million for the nine months ended September 30, 2009, from $1,239.8
million for the nine months ended September 30, 2008. The decrease reflects a
24.4% decrease in paper sales volume and a 7.7% decrease in average paper sales
price per ton for the nine months ended September 30, 2009 compared to the same
period last year.

Net sales for our market pulp segment decreased 37.9% to $73.8 million for the
nine months ended September 30, 2009, from $118.9 million for the same period in
2008. This decline was due to a 33.7% decrease in average sales price per ton
combined with a 6.4% decrease in sales volume compared to the nine months ended
September 30, 2008.

Net sales for our other segment increased 26.7% to $40.9 million for the nine
months ended September 30, 2009, from $32.2 million for the nine months ended
September 30, 2008. New product offerings contributed to the improvement as
sales volume increased 29.1% in 2009. This was partially offset by a 1.8%
decrease in average sales price per ton compared to the nine months ended
September 30, 2008.

Cost of sales. Cost of sales, including depreciation, amortization, and
depletion, decreased 18.8% to $1,006.6 million for the nine months ended
September 30, 2009, compared to $1,239.3 million for the same period last year,
primarily reflecting the decline in sales volume and the effects of our expense
reduction initiatives. Our gross margin, excluding depreciation, amortization,
and depletion, was 7.5% for the first nine months of 2009, compared to 18.1% for
the first nine months of 2008, reflecting lower average sales prices in 2009 and
$70.1 million of unabsorbed costs resulting from almost 320,000 tons of market
downtime taken in the first nine months of 2009 as we curtailed production in
response to weak demand for coated papers. Depreciation, amortization, and
depletion expenses were $100.6 million for the nine months ended September 30,
2009, compared to $100.7 million for the same period in 2008.

Selling, general, and administrative. Selling, general, and administrative
expenses were $45.4 million for the nine months ended September 30, 2009,
compared to $58.8 million for the same period in 2008, reflecting the absence of
expenses associated with our IPO and the effect of our expense reduction
initiatives.

Interest expense. Interest expense for the nine months ended September 30, 2009
was $89.9 million compared to $96.0 million for the same period in 2008. The
decrease in interest expense was primarily due to lower interest rates on
floating rate debt in 2009.

Other income. Other income was $250.3 million for the nine months ended
September 30, 2009, which includes $189.1 million in net benefits from
alternative fuel mixture tax credits provided by the U.S. government for our use
of black liquor in alternative fuel mixtures and $57.8 million in net gains
related to the early retirement of debt.

Reconciliation of Net Income to Adjusted EBITDA

The credit agreement and the indentures governing their outstanding notes
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 one criterion for 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 exclude unusual items and other
pro forma adjustments permitted in calculating covenant compliance in the
indentures governing our notes to test the permissibility of certain types of
transactions. Adjusted EBITDA 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. We believe that the inclusion of the
supplemental adjustments applied in calculating Adjusted EBITDA are reasonable
and appropriate in providing additional information to investors to demonstrate
our compliance with our financial covenants. 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 not
consider our EBITDA or Adjusted EBITDA as an alternative to operating or net
income, determined in accordance with U.S. GAAP, as an indicator of our
operating performance, or as an alternative to cash flows from operating
activities, determined in accordance with U.S. GAAP, as an indicator of our cash
flows or as a measure of liquidity.

The following table reconciles net income (loss) to EBITDA and Adjusted EBITDA
for the periods presented.

Nine Months Year Nine Months Twelve Months
Ended Ended Ended Ended
September 30, December 31, September 30, September 30,
(in millions of U.S. dollars) 2008 2008 2009 2009
Net income (loss) $ (29.3 ) $ (62.8 ) $ 87.8 $ 54.3
Interest expense, net 95.6 124.8 89.7 118.9
Depreciation, amortization, and depletion 100.7 134.5 100.6 134.4
EBITDA 167.0 196.5 278.1 307.6
Adjustments to EBITDA:
Restructuring and other charges (1) 26.5 27.4 0.7 $ 1.6
Non-cash compensation/benefits (2) 11.1 11.2 0.3 0.4
Alternative fuel tax credit (3) - - (189.1 ) (189.1 )
Gain on early extinguishment of debt, net (4) - - (57.8 ) (57.8 )
Other items, net (5) 1.8 3.1 12.1 13.4
Proforma effects of profitability program (6) 29.7
Adjusted EBITDA $ 105.8

(1) Restructuring includes transition and other non-recurring costs associated with the Acquisition as per our financial statements.
(2) Represents amortization of non-cash incentive compensation.
(3) Represents earnings from the federal government's program, which provides incentives for the use of alternative fuels.
(4) Represents net gains recognized from the early extinguishment of debt, net of hedge results.
(5) Represents earnings adjustments for legal and consulting fees, voluntary early retirement and reduction in force programs, and other miscellaneous non-recurring items.
(6) Represents cost savings expected to be realized as part of the Company's cost savings program.

NOTE: To construct financials for the twelve months ended September 30, 2009, amounts have been calculated by subtracting the data for the nine months ended September 30, 2008, from the data for the year ended December 31, 2008, and then adding the nine months ended September 30, 2009.

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 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

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. Additional information about Verso
is available on the Company`s Web site 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 Time) to discuss
third quarter results. Analysts and investors may participate in the live
conference call by dialing 719-785-1754 or, within the U.S. and Canada only,
888-349-9586, access code 3749278. To register, please dial in 10 minutes before
the conference call begins. The conference call and presentation materials can
be accessed by navigating to the Events page on Verso`s Web site at
www.versopaper.com/investorrelations, or at
http://www.videonewswire.com/event.asp?id=63342. This release and the third
quarter 10-Q can be accessed by navigating to the Financial Information page on
Verso`s Web site at www.versopaper.com/investorrelations.

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 3749278. This replay
will be available starting today at 12:00 p.m. (Eastern Time) and will remain
available until noon (Eastern Time) on November 18, 2009. The replay will also
be available on Verso`s website for 90 days.

Verso Paper Corp.
Robert P. Mundy, 901-369-4128
Senior Vice President and Chief Financial Officer
robert.mundy@versopaper.com
www.versopaper.com

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