Verso Paper Corp. Reports Fourth Quarter and Year-End 2012 Results

Thu Mar 7, 2013 7:00am EST

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MEMPHIS, Tenn.--(Business Wire)--
Verso Paper Corp. (NYSE: VRS) today reported financial results for the fourth
quarter and year ended December 31, 2012. Results for the quarters ended
December 31, 2012 and 2011 include:

* Operating income of $60.9 million in the fourth quarter of 2012, compared to
operating loss of $36.0 million in the fourth quarter of 2011. 
* Net income of $25.5 million in the fourth quarter of 2012, or $0.48 per
diluted share, compared to net loss of $67.9 million, or $1.29 per diluted
share, in the fourth quarter of 2011. 
* EBITDA of $87.9 million in the fourth quarter of 2012, compared to ($4.9)
million in the fourth quarter of 2011, and Adjusted EBITDA before pro forma
effects of profitability program of $41.1 million in the fourth quarter of 2012,
compared to $47.7 million in the fourth quarter of 2011 (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 fourth quarter of 2012 decreased $89.3 million, or
19.8%, compared to the fourth quarter of 2011, reflecting a 17.0% 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 3.4% decrease in the average sales price per ton for all of our
products. Verso`s gross margin was 14.0% for the fourth quarter of 2012 compared
to 12.6% for the fourth quarter of 2011. 

Verso reported net income of $25.5 million in the fourth quarter of 2012, or
$0.48 per diluted share, which included $47.4 million of net gains from special
items, or $0.90 per diluted share, primarily due to proceeds from the insurance
settlement related to the fire and explosion at our Sartell mill. Verso had a
net loss of $67.9 million, or $1.29 per diluted share, in the fourth quarter of
2011, which included $51.5 million of charges from special items, or $0.98 per
diluted share. 

"In the fourth quarter we experienced our normal seasonal slowdown in demand.
Despite this, our year end inventories and order book were in good condition as
we entered 2013. Pricing was stable during the fourth quarter in our major
grades and market pulp prices began to recover. Adjusted EBITDA of $41.1 million
for the fourth quarter of 2012 was below the prior year same period level of
$47.7 million. This was a significant result after the consideration of a 17%
drop in volume related to capacity closures across our system and a decline in
average selling prices. The work we continue to put into our `R Gap` process to
lower our manufacturing costs and other cost control measures across our system
helped us to offset the impacts of these lower volumes and prices, as reflected
in our year over year results," said David Paterson, President and Chief
Executive Officer of Verso. 

"As we enter 2013, we are seeing operating rates being sustained at levels above
90% and volumes and pricing at or above our forecasted levels for the first
quarter. For the full year we remain cautious as the U.S. economy remains
sluggish." 

Verso`s net sales for 2012 decreased $247.9 million, or 14.4%, compared to 2011,
reflecting an 11.1% decrease in volume for all of our products, 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 3.7% decrease in
sales prices compared to 2011. 

For the year ended December 31, 2012, Verso recorded special items totaling
$57.8 million, or $1.09 per diluted share, primarily related to restructuring
costs associated with the closure of our Sartell mill, offset by the proceeds
from the insurance settlement related to the fire and explosion at our Sartell
mill. For the year ended December 31, 2011, special items of $82.8 million, or
$1.57 per diluted share, were primarily related to restructuring costs
associated with the shutdown of three paper machines, losses related to debt
refinancing, goodwill impairment, and the negative impact of de-designating
certain hedges. 

Excluding special items, net loss was $116.0 million, or adjusted diluted loss
per share of $2.19, for the year ended December 31, 2012. Excluding special
items, net loss was $54.3 million, or adjusted diluted loss per share of $1.02,
for the year ended December 31, 2011.

 Summary Results                                                                                                                     
                                                                                                                                     
 Results of Operations - Comparison of the Fourth Quarter of 2012 to the Fourth Quarter of 2011                                      
                                                                                                                                     
                                                                                          Three Months Ended                         
                                                                                          December 31,                               
 (Dollars in thousands)                                                                   2012                    2011               
 Net sales                                                                                $    361,051            $    450,282       
 Costs and expenses:                                                                                                                 
 Cost of products sold - (exclusive of depreciation, amortization, and depletion)              310,332                 393,728       
 Depreciation, amortization, and depletion                                                     26,840                  31,113        
 Selling, general, and administrative expenses                                                 18,168                  18,268        
 Goodwill impairment                                                                           -                       18,695        
 Restructuring charges                                                                         5,407                   24,464        
 Total operating expenses                                                                      360,747                 486,268       
 Other operating income                                                                        (60,594  )              -             
 Operating income (loss)                                                                       60,898                  (35,986  )    
 Interest income                                                                               (1       )              (20      )    
 Interest expense                                                                              36,830                  31,807        
 Other income, net                                                                             (93      )              (5       )    
 Income (loss) before income taxes                                                             24,162                  (67,768  )    
 Income tax (benefit) expense                                                                  (1,319   )              53            
 Net income (loss)                                                                        $    25,481             $    (67,821  )    
                                                                                                                                     


Net Sales. Net sales for the fourth quarter of 2012 decreased 19.8%, to $361.0
million from $450.3 million in the fourth quarter of 2011. Total sales volume
was down 17.0% compared to the fourth 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 3.4% decrease in the
average sales price per ton for all of our products. 

Net sales for our coated papers segment decreased 22.6% in the fourth quarter of
2012 to $288.0 million from $371.9 million for the same period in 2011, due to a
21.0% 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
2.0% compared to the same period last year. 

Net sales for our market pulp segment decreased 3.2% in the fourth quarter of
2012 to $36.6 million from $37.8 million for the same period in 2011. The
average sales price per ton decreased 5.5% while sales volume increased 2.4%
compared to the fourth quarter of 2011. 

Net sales for our other segment decreased 10.1% to $36.4 million in the fourth
quarter of 2012 from $40.6 million in the fourth quarter of 2011. This decrease
was due to a 10.3% decrease in sales volume, while the sales price per ton
remained flat. 

Cost of sales. Cost of sales, including depreciation, amortization, and
depletion, was $337.1 million in the fourth quarter of 2012 compared to $424.9
million in 2011, reflecting realized cost reductions 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 14.0% for the fourth quarter of 2012 compared to 12.6% for
the fourth quarter of 2011. Depreciation, amortization, and depletion expenses
were $26.9 million for the fourth quarter of 2012 compared to $31.1 million for
the fourth quarter of 2011. 

Selling, general, and administrative. Selling, general, and administrative
expenses were $18.2 million in both the fourth quarter of 2012 and 2011. 

Restructuring charges. Restructuring charges for the fourth quarter of 2012 were
$5.4 million related to on-going closure costs of the Sartell mill, compared to
$24.5 million in 2011. In the fourth quarter of 2011, restructuring charges
reflected the permanent shutdown of three paper machines. 

Other operating income. Other operating income in the fourth quarter of 2012
reflected insurance proceeds in excess of costs and property damages incurred of
$60.6 million, as we reached a final settlement agreement with our insurance
provider for property and business losses resulting from the fire and explosion
at our Sartell mill. 

Interest expense. Interest expense for the fourth quarter of 2012 was $36.8
million compared to $31.8 million for the same period in 2011. 

Income tax (benefit) expense. Income tax benefit for the fourth quarter of 2012
of $1.3 million resulted from a reduction in the deferred tax liability related
to the non-cash trademark impairment charge that was taken as a result of a
reduction in production capacity from the closure of the Sartell mill.

 Results of Operations - Comparison of 2012 to 2011                                                                                           
                                                                                                                                              
                                                                                          Year Ended December 31,                             
 (Dollars in thousands)                                                                   2012                         2011                   
 Net sales                                                                                $     1,474,612              $     1,722,489        
 Costs and expenses:                                                                                                                          
 Cost of products sold - (exclusive of depreciation, amortization, and depletion)               1,272,630                    1,460,290        
 Depreciation, amortization, and depletion                                                      118,178                      125,295          
 Selling, general, and administrative expenses                                                  74,415                       78,059           
 Goodwill impairment                                                                            -                            18,695           
 Restructuring charges                                                                          102,404                      24,464           
 Total operating expenses                                                                       1,567,627                    1,706,803        
 Other operating income                                                                         (60,594    )                 -                
 Operating (loss) income                                                                        (32,421    )                 15,686           
 Interest income                                                                                (8         )                 (99        )     
 Interest expense                                                                               135,461                      126,607          
 Other loss, net                                                                                7,379                        26,042           
 Loss before income taxes                                                                       (175,253   )                 (136,864   )     
 Income tax (benefit) expense                                                                   (1,424     )                 197              
 Net loss                                                                                 $     (173,829   )           $     (137,061   )     
                                                                                                                                              


Net Sales. Net sales for 2012 decreased 14.4% to $1,474.6 million from $1,722.5
million in 2011, reflecting an 11.1% decrease in total 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. Additionally, the average
sales price for all of our products decreased 3.7%, led by a decline in the
price of pulp. 

Net sales for our coated papers segment decreased 17.0% to $1,177.1 million in
2012, from $1,418.8 million in 2011. This change reflects a 15.3% 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 2.1% compared to
the prior year. 

Net sales for our market pulp segment decreased 6.2% to $140.8 million in 2012,
from $150.1 million in 2011. This decrease was due to a 10.7% decline in the
average sales price per ton while sales volume increased 5.0% compared to 2011. 

Net sales for our other segment increased 2.1% to $156.7 million in 2012, from
$153.6 million in 2011. The improvement in 2012 is due to a 4.2% increase in
sales volume, reflecting the continued development of new paper product
offerings for our customers. The average sales price per ton decreased 2.0%
compared to 2011. 

Cost of sales. Cost of sales, including depreciation, amortization, and
depletion, was $1,390.8 million in 2012, compared to $1,585.6 million in 2011,
reflecting realized cost reductions 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
13.7% for 2012, compared to 15.2% for 2011, reflecting lower average sales
prices during 2012. Depreciation, amortization, and depletion expenses were
$118.2 million for 2012, compared to $125.3 million for 2011. 

Selling, general, and administrative. Selling, general, and administrative
expenses were $74.4 in 2012, compared to $78.0 million in 2011. 

Restructuring charges. Restructuring charges for 2012 were $102.4 million, and
consisted primarily of fixed asset and other impairment charges of $77.1 million
and severance and benefit costs of $19.4 million related to the closure of the
Sartell mill. Restructuring and other charges of $24.5 million in 2011 reflected
the permanent shut down of the No. 2 coated groundwood paper machine at our mill
in Bucksport, Maine, and two supercalendered paper machines at our mill in
Sartell, Minnesota. 

Other operating income. Other operating income in 2012 reflected insurance
proceeds in excess of costs and property damages incurred of $60.6 million, as
we reached a final settlement agreement with our insurance provider for property
and business losses resulting from the fire and explosion at our Sartell mill. 

Interest expense. Interest expense was $135.4 million for 2012, compared to
$126.6 million for 2011. 

Other loss, net. In 2012, Other loss, net was $7.4 million compared to a net
loss of $26.1 million in 2011. Included in the results for 2012 and 2011 were
losses of $8.2 million and $26.1 million, respectively, related to the early
retirement of debt in connection with debt refinancing. 

Income tax (benefit) expense. Income tax benefit for 2012 of $1.4 million
resulted primarily from a reduction in the deferred tax liability related to the
non-cash trademark impairment charge that was taken as a result of a reduction
in production capacity from the closure of the Sartell mill. 

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 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.

                                                                             Three Months Ended                       Year Ended                          
                                                                             December 31,                             December 31,                        
 (Dollars in millions)                                                       2012                  2011               2012                2011            
 Net income (loss)                                                           $    25.5             $    (67.9  )      $   (173.8  )       $   (137.1  )   
 Income tax (benefit) expense                                                     (1.3   )              0.1               (1.4    )           0.2         
 Interest expense, net                                                            36.8                  31.8              135.4               126.5       
 Depreciation, amortization, and depletion                                        26.9                  31.1              118.2               125.3       
 EBITDA                                                                           87.9                  (4.9   )          78.4                114.9       
 Adjustments to EBITDA:                                                                                                                                   
 Restructuring charges(1)                                                         5.4                   24.5              102.4               24.5        
 Gain on insurance settlement(2)                                                  (53.1  )              -                 (52.6   )           -           
 Goodwill impairment(3)                                                           -                     18.7              -                   18.7        
 Loss on early extinguishment of debt, net(4)                                     -                     -                 8.2                 26.1        
 Hedge (gains) losses (5)                                                         (0.1   )              7.5               (3.7    )           7.5         
 Equity award expense(6)                                                          0.4                   0.6               2.7                 2.4         
 Other items, net(7)                                                              0.6                   1.3               4.7                 8.4         
 Adjusted EBITDA before pro forma effects of profitability program                41.1                  47.7              140.1               202.5       
 Pro forma effects of profitability program(8)                                                                            46.8                68.3        
 Adjusted EBITDA                                                                                                      $   186.9           $   270.8       


 (1)  Represents costs associated with the closure of the Sartell mill in 2012 and the shutdown of three paper machines in 2011.  
 (2)  Represents gain on insurance settlement resulting from the fire at our Sartell mill.                                        
 (3)  Represents impairment of goodwill allocated to the coated paper segment.                                                    
 (4)  Represents net loss related to debt refinancing.                                                                            
 (5)  Represents unrealized (gains) losses on energy-related derivative contracts.                                                
 (6)  Represents amortization of non-cash incentive compensation.                                                                 
 (7)  Represents miscellaneous non-cash and other earnings adjustments.                                                           
 (8)  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

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. Additional information about Verso is available on the
Company`s 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 Time) to discuss
fourth quarter and year-end results. Analysts and investors may participate in
the live conference call by dialing 719-325-4824 or, within the U.S. and Canada
only, 877-723-9523, access code 4298301. 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
www.versopaper.com/investorrelations by navigating to the Events page, or at:
http://investor.versopaper.com/eventdetail.cfm?EventID=122658. This release and
Verso`s annual report on Form 10-K for the year ended December 31, 2012, will be
made available on Verso's website at www.versopaper.com/investorrelations 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 4298301. This replay
will be available starting today at 12:00 p.m. (Eastern Time) and will remain
available for 14 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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