Verso Paper Corp. Reports Third Quarter 2009 Results

Coated paper demand strengthened sequentially during the third quarter of 2009

Source: Verso Paper -- Graphic Arts Online, 2009-11-08 16:20:04 MST


MEMPHIS, Tenn.----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:

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.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.

 

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